Document:

Exhibit 10(i)

Exhibit 10(i)

ASSET SALE AGREEMENT

between

AMERICAN OIL & GAS INC.,

a Nevada corporation

and

NORTH FINN LIMITED LIABILITY COMPANY

a Wyoming limited liability company

(the “Sellers”)

and

CHESAPEAKE AEZ EXPLORATION, L.L.C.

(the “Buyer”)

March 19, 2010

 

 

 

ASSET SALE AGREEMENT

THIS ASSET SALE AGREEMENT (this “Agreement”) is entered the 19th day of March,
2010, between AMERICAN OIL & GAS INC., a Nevada corporation, whose address is 1050 17th
Street, Suite 2400, Denver, CO 80265, and NORTH FINN LIMITED LIABILITY COMPANY, a Wyoming limited
liability company, whose address is 950 Stafford, Casper, WY 82609 (each a “Seller” and
collectively, the “Sellers”), and CHESAPEAKE AEZ EXPLORATION, L.L.C., an Oklahoma limited liability
company, whose address is 6100 North Western Avenue, Oklahoma City, OK 73118 (the “Buyer”).

BACKGROUND:

A. The Sellers desire to sell and the Buyer desires to purchase all of the Sellers’ right, title
and interest in and to the Properties (as hereinafter defined).

B. The purchase and sale of the Properties will be consummated on the terms and conditions set
forth in this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties
agree as follows:

	1.	 	Definitions and References.

	 	1.1	 	Definitions. As used in this Agreement, each of the following terms
has the meaning given in this Section 1.1 or in the Section referred to below:

“Affiliate” means, with respect to any Person, each other Person that directly or
indirectly (through one or more intermediaries or otherwise) controls, is controlled
by, or is under common control with such Person.

“Agreement” means this Agreement, as amended, supplemented or modified from time to
time.

“Allocated Values” means, with respect to any Property, a portion of the Purchase
Price attributable to such Property as more particularly described in Exhibits “A” and
“A-1.”

“Assignments” means the Assignment, Bill of Sale and Conveyance executed by each
Seller in substantially the form attached hereto as Exhibit “B.”

 

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“Assumed Obligations” means: (a) all duties, losses, claims, costs, expenses,
liabilities and obligations whether arising prior to or after the Effective Time under
the terms of all oil, gas and mineral leases, easements and similar agreements
constituting part of the Properties, as well as under the terms and provisions of all
Contracts constituting part of the Properties, and under any Contracts entered into by
any Seller after the date of this Agreement which are both attributable to (and
constitute part of) the Properties and are entered into in compliance with Section
5.2; (b) all duties, losses, claims, costs, expenses, obligations and liabilities of
every kind and character of any Seller with respect to the Properties or to the
ownership, use, operation or other disposition thereof, whether or not attributable to
periods before or after the Effective Time arising out of or relating to: (i) Gas
Imbalances, (ii) the payment of the balance of the Suspended Funds deducted from the
Purchase Price, (iii) all real estate, use, occupation, ad valorem, and personal
property Taxes on the Properties for calendar year in which the Closing occurs and
each year thereafter, (iv) obligations to properly plug and abandon or re-plug or
re-abandon or remove Wells, flowlines, gathering lines or other facilities, equipment
or other personal property or fixtures comprising part of the Properties, and (v)
obligations to restore the surface of the Properties or the failure of the Properties
or the ownership or operation thereof to comply with Environmental Law, including
obligations to bring the Properties into compliance with applicable Environmental Laws
(including conducting any remediation activities that may be required on or otherwise
in connection with activities on the Properties), regardless of whether such
obligations or conditions or events giving rise to such obligations, arose, occurred
or accrued before or after the Closing Date (the “Environmental Obligations”); (c) all
third party claims, demands, violations, actions, assessments, penalties, fines,
costs, expenses, obligations or other liabilities with respect to the ownership,
operation or maintenance of any of the Properties from and after the Effective Time;
and (d) all losses, claims, liabilities, demands, costs and expenses arising out of,
incident to or in connection with the accounting for, failure to pay or the incorrect
payment to any royalty owner, overriding royalty owner, working interest owner or
other interest holder under the Real Property Interests and/or units comprising a part
of the Properties insofar as the same are attributable to periods and Hydrocarbons
produced and marketed from and after the Effective Time.

“Benefit Notice” has the meaning specified in Section 2.1.9.

“Buyer” has the meaning set forth in the introductory paragraph of this Agreement.

“Buyer Indemnified Parties” has the meaning specified in Section 10.2.

“Casualty” means volcanic eruptions, acts of God, terrorist acts, fire, explosion,
earthquake, wind storm, flood, drought, condemnation, the exercise of eminent domain,
confiscation or seizure.

“Casualty Loss” has the meaning specified in Section 2.3.

“Closing” means the closing and consummation of the transactions contemplated by this
Agreement.

“Closing Date” means the date on which the Closing occurs, which will be March 31,
2010, unless changed by the mutual agreement of the Parties.

“Closing Statement” has the meaning specified in Section 2.6.

“Consultant” has the
meaning specified in Section 2.1.10.

 

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“Defect Notice” has the meaning specified in Section 2.1.

“Defensible Title” means title that is deducible of record and that: (a) with respect
to Wells (i) entitles the Sellers to receive, throughout the productive life of such
Property not less than the Net Revenue Interest set forth in Exhibit “A” in and to all
Hydrocarbons produced and saved or sold from or allocated to such Property after
deduction of all lessors’ royalties, overriding royalties, and other burdens and
payments out of production, and (ii) obligates the Sellers to bear, throughout the
productive life of such Property (and the plugging, abandonment and salvage thereof),
not greater than the Working Interest set forth in Exhibit “A” of the costs and
expenses associated with the maintenance, exploration, development, operation and
abandonment of such Property, except increases in such working interest that result in
at least a proportionate increase in the Sellers’ Net Revenue Interest for such
Property; (b) with respect to an undeveloped Real Property Interests, entitles the
Sellers to not less than the Net Mineral Acres and/or not less a weighted average NRI
of eighty percent (80%) (see Section 2.1.3 for method of calculating weighted average
NRI); and/or (c) subject to Permitted Encumbrances, is free and clear of all Liens.

“Effective Time” means 7:00 a.m. Central Time, February 1, 2010.

“Environmental Claim”
has the meaning specified in Section 3.13.

“Environmental Defect” means a violation of applicable Environmental Laws that is
presently existing on a Property.

“Environmental Law” means any law, common law, ordinance, regulation or policy of any
Governmental Authority, as well as any order, decree, permit, judgment or injunction
issued, promulgated, approved or entered thereunder, relating to the environment,
health and safety, hazardous materials (including the use, handling, transportation,
production, disposal, discharge or storage thereof), industrial hygiene, the
environmental conditions on, under, or about any of the Properties, including soil,
groundwater, and indoor and ambient air conditions or the reporting or remediation of
environmental contamination and includes, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq.; the
Resource Conservation and Recovery Act, 42 U.S.C. § 6901 et seq.; the Federal Water
Pollution Control Act, 33 U.S.C. § 1251 et seq.; the Clean Air Act, 42 U.S.C. § 7401
et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. § 1471 et seq.; the
Toxic Substances Control Act, 15 U.S.C. §§ 2601 through 2629; the Oil Pollution Act,
33 U.S.C. § 2701 et seq.; the Emergency Planning and Community Right to Know Act, 42
U.S.C. § 11001 et seq.; the Safe Drinking Water Act, 42 U.S.C. §§ 300f through 300j;
the Rivers and Harbors Act of 1899; the Superfund Amendments and Reauthorization Act
of 1986; the Hazardous and Solid Waste Amendments Act of 1984; and the Occupational
Safety and Health Act; as any of the foregoing may be amended and any other federal,
state and local law whose purpose is to conserve or protect human health, the
environment, wildlife or natural resources.

 

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“Excess Net Mineral Acres” shall have the meaning specified in Section 2.1.9.

“Excluded Items” means: (a) all financial, tax, and legal (other than title) records
of each Seller and all formation documents, resolutions and similar governance
documents of any Seller; (b) any existing or future refund of costs, taxes or expenses
borne by any Seller or any Seller’s predecessors in title attributable to the period
prior to the Effective Time; (c) any and all proceeds from production and from the
settlements of contract disputes with purchasers of Hydrocarbons or by products from
the Real Property Interests, including, without limitation, settlement of take-or-pay
disputes, insofar as said proceeds are attributable to periods of time prior to the
Effective Time; (d) all rights and interests of any Seller (i) under any policy or
agreement of insurance or indemnity (including, without limitation, any rights, claims
or causes of action of any Seller against third parties under any indemnities or hold
harmless agreements and any indemnities received in connection with any Seller’s prior
acquisition of any of the Properties) to the extent and only to the extent such rights
and interests relate to the ownership of the Properties prior to the Effective Time
and (ii) under any bond; (e) all Hydrocarbons produced and sold from the Properties
with respect to all periods prior to the Effective Time; (f) all of each Seller’s
proprietary computer software, patents, trade secrets, copyrights, names, trademarks,
logos and other intellectual property; (g) all audit rights arising under any of the
applicable contracts or otherwise with respect to the Properties and any period prior
to the Effective Time or to any of the Excluded Items, except for any Gas Imbalances;
(h) all seismic license agreements, but only to the extent any such data, analysis or
information is not assignable by reason of third party contracts; (i) all claims of
any Seller for refunds of or loss carry forwards with respect to (a) production or any
other taxes attributable to any period prior to the Effective Time, (b) income or
franchise taxes or (c) any taxes attributable to the Excluded Items; and (j) all
documents and instruments of any Seller that may be protected by an attorney-client
privilege and all data that cannot be disclosed to Buyer as a result of
confidentiality arrangements under agreements with third parties.

“Final Statement” has the meaning specified in Section 2.7.

“Fetter/Shawnee Area” shall refer to the area depicted on the plat attached hereto as
Exhibit “C”.

“GAAP” means generally accepted accounting principles, as recognized by the U.S.
Financial Accounting Standards Board (or any generally recognized successor).

“Gas Imbalances” has the meaning specified in Section 2.2.

“Governmental Authority” means any national, state, county or municipal government,
domestic or foreign, any agency, board, bureau, commission, court, department or other
instrumentality of any such government, or any arbitrator in
any case that has jurisdiction over any of the Parties or any of their respective
properties or assets.

 

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“Halliburton Agreement” shall have the meaning specified in the definition of Retained
Liabilities.

“Hydrocarbons” means oil, condensate, gas, casinghead gas and other liquid or gaseous
hydrocarbons.

“Lien” means any lien, mortgage, security interest, pledge, rights of a vendor under
any title retention (other than oil, gas or mineral leases, or equipment leases, or
agreements that are terminable within 60 days) or other arrangement substantially
equivalent thereto, but does not include any production payment, net profits interest,
overriding royalty interest or similar interest to the extent any such interest does
not reduce the Sellers’ Net Revenue Interest or Net Mineral Acres below that shown on
Exhibits “A” and “A-1”.

“Marker Well” shall have the meaning specified in the definition of Title Defect.

“Net Mineral Acre” means, as computed separately with respect to each Real Property
Interest, (a) the number of gross acres in the lands covered by such Real Property
Interest, multiplied by (b) the interest in oil, gas and other minerals covered by
such Real Property Interest in such lands, multiplied by (c) the Sellers’ undivided
interest in such Real Property Interest, provided that if items (b) and/or (c) vary as
to different areas of such lands covered by such Real Property Interest, a separate
calculation shall be done for each such area.

“Net Revenue Interest” (or “NRI”) means the decimal interest in and to all production
of the Hydrocarbons produced and saved or sold from the Properties after giving effect
to all valid lessors’ royalties, overriding royalties and/or other non-expense bearing
burdens against production.

“Non-Fetter/Shawnee Areas” shall refer to the area depicted on the plat attached
hereto as Exhibit “C-1”.

“NORM” has the meaning specified in Section 4.12.

“Parties” means the Sellers and the Buyer and “Party” means either a Seller or the
Buyer.

“Payout Balances” has the meaning specified in Section 3.15.

“Permits” has the meaning
specified in Section 3.8.

 

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“Permitted Encumbrances” means (a) royalties, overriding royalties and other burdens
or encumbrances to the extent they do not, individually or in the aggregate, reduce
the Sellers’ Net Revenue Interest or Net Mineral Acres in any Real Property Interest
from that described in Exhibit “A” and “A-1”; (b) liens for Taxes,
assessments, services, labor and materials for which payment is not due; (c) Liens of
mechanics, materialmen, warehousemen, landlords, vendors, and carriers and any similar
Liens arising by operation of Law which, in each instance, arise in the ordinary
course for sums not yet due; (d) operating agreements, unit agreements, unitization
and pooling designations and declarations, gathering and transportation agreements,
processing agreements, and gas, oil and liquids purchase contracts and all of the
other Contracts; (e) regulatory authority of Governmental Authorities not presently or
previously violated, easements, rights of way, servitudes, permits, surface leases and
other rights, plat restrictions zoning laws, restrictive covenants and conditions, and
building and other land use laws and similar encumbrances; (f) all rights to consent
by, required notices to, filings with or other actions by Governmental Authorities,
Indian tribes and similar authorities in connection with the sale, disposition,
transfer or conveyance of federal, state, Indian or other governmental oil and gas
leases or interests therein or related thereto, or the transfer of operations of any
of the Wells, where the same are customarily obtained subsequent to the assignment,
disposition or transfer of such oil and gas leases or interests therein, or such
operations; (g) conventional rights of reassignment obligating any Seller to reassign
or offer to reassign such Seller’s interests in any lease prior to a release or
abandonment of such lease; (h) required non-governmental third party consents to
assignments which cannot be unreasonably withheld; (i) preferential rights with
respect to which, prior to Closing, (a) waivers are obtained from the appropriate
parties, or (b) the appropriate time period for asserting such rights has expired
without an exercise of such rights; (j) rights of a tenants-in-common in and to the
Properties; and (k) rights vested in or reserved to any Governmental Authority to
regulate the Properties, to terminate any right, power, franchise, license or permit
afforded by such Governmental Authority, or to purchase, condemn, expropriate or
designate a buyer of any of the Properties.

“Person” means an individual, a partnership, a corporation, an association, a limited
liability company, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).

 

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“Property” or “Properties” means all of each Seller’s right, title and interest in and
to the following (excluding the Excluded Items): (a) all Real Property Interests, (b)
all tangible personal property, equipment, fixtures and improvements owned in
connection with the production, treating, storing, transportation or marketing of oil,
gas and other hydrocarbons or minerals from the Real Property Interests including,
without limitation, oil and gas wells, injection wells, salt water disposal
facilities, gas gathering systems (including the gathering system described in Exhibit
“D” attached hereto), compressors, well heads, casing, tubing, pumps, tanks, boilers,
separators and other appurtenances, and specifically including the wells listed on
Exhibit “A” (the “Wells”), (c) all presently existing unitization, pooling and/or
communitization agreements, declarations or designations and statutorily, judicially
or administratively created drilling, spacing and/or production units, whether
recorded or unrecorded, insofar as the same are attributable or allocated to
the Real Property Interests, and all of the Sellers’ interest in and to the properties
covered or units created thereby which are attributable to the Real Property
Interests, (d) all presently existing and valid oil, casinghead gas and gas sales
agreements, operating agreements, farmout and farmin agreements, pooling agreements,
purchase agreements, exploration agreements, area of mutual interest agreements,
exchange and processing contracts and agreements, partnership and joint venture
agreements and any other contracts, agreements and instruments insofar as the above
agreements cover, are attributable to or relate to the Real Property Interests, Wells
or any interests pooled or unitized therewith including, without limitation, those
contracts and agreements described on Exhibit “E” (collectively, the “Contracts”), (e)
all Hydrocarbons in, on, under or produced from the Real Property Interests or any
interests pooled or unitized therewith from and after the Effective Time, (f) all
easements, permits, licenses, servitudes, rights of way and all other rights and
appurtenances situated on or used in connection with the Real Property Interests,
Wells or any interests pooled or unitized therewith, (g) all rights and benefits
arising from or in connection with any gas production, pipeline, storage, processing
or other imbalance attributable to Hydrocarbons produced from the Real Property
Interests as of the Effective Time, (h) to the extent the same are assignable or
transferable, and further to the extent the same are related to the Real Property
Interests and Wells, all of the Sellers’ interests in and to all orders, contracts,
title opinions and documents, abstracts of title, leases, division of interest
statements, participation agreements, and all other agreements and instruments,
easements, rights-of-way, licenses, authorizations, permits and similar rights and
interests, subject to the rights of third parties; and (i) all files, records and data
(including electronic data) including, but not limited to, lease files, land files,
wells files, division order files, abstracts, title files, engineering and/or
production files, maps, accounting records, and other information in the possession of
the Sellers or copies thereof specifically related to the Wells and Real Property
Interests, and all rights relating thereto.

“Purchase Price” has the meaning specified in Section 2.

“Real Property Interests” means all oil, gas and mineral leases, operating rights,
working interests, and net revenue interests described in Exhibit “A-1” attached
hereto and made a part hereof, whether producing or non-producing, including also any
overriding royalty interests carved out of such Real Property Interests.

“Restricted Areas” shall have the meaning ascribed to it in Section 15.18.

 

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“Retained Liabilities” means those liabilities and obligations of the Sellers arising
from the following: (a) all losses, claims, liabilities, demands, costs and expenses
arising out of, incident to or in connection with the Sellers’ failure to pay or
incorrect payment of any ad valorem taxes, severance taxes or similar taxes
attributable or allocable to the Sellers’ interests in the Properties (excluding any
sales or transfer taxes arising from the transactions contemplated herein)
attributable to periods prior to the Effective Time; (b) claims or damages for bodily
injury or death arising from operations on the Properties prior to the Effective
Time, insofar as the claims (or portions thereof) are attributable or allocable to the
Sellers’ interests in the Properties; (c) all claims, demands, violations, actions,
assessments, penalties, fines, costs, expenses, obligations or other liabilities with
respect to any of the Excluded Items whether or not attributable to periods before or
after the Effective Time; and (d) any remaining financial obligations (and/or rights
to production or revenue from any of the Wells) owed Halliburton Energy Services, Inc.
(“Halliburton”) pursuant to the October 7, 2009, Letter Agreement between American,
Red Technology Alliance, LLC, North Finn, and Halliburton, shall be fully and finally
satisfied prior to Closing (“Halliburton Agreement”). In the event, however, such
obligations owed to Halliburton have not been so resolved by Closing, then, such
respective amounts shall be estimated at Closing, deducted from the purchase price,
and subject to adjustment within ninety (90) days of Closing.

“Seller” and “Sellers” have the meanings set forth in the introductory paragraph of
this Agreement.

“Seller Indemnified Parties” has the meaning specified in Section 10.3.

“Special
Damages” has the meaning specified in Section 15.17.

“Suspended Funds” means funds which any Seller is holding as of the Closing Date which
are owing to third party owners of royalty, overriding royalty, working or other
interests in respect of past production of oil, gas or other hydrocarbons attributable
to the Properties.

“Taxes” means taxes of any kind, levies or other like assessments, customs, duties,
imposts, charges or fees, including income, gross receipts, ad valorem, value added,
excise, real or personal property, asset, sales, use, federal royalty, license,
payroll, transaction, capital, net worth and franchise taxes, withholding, employment,
social security, workers compensation, utility, severance, production, unemployment
compensation, occupation, premium, windfall profits, transfer and gains taxes or other
governmental taxes imposed or payable to the United States or any state, local or
foreign governmental subdivision or agency thereof, and in each instance such term
shall include any interest, penalties or additions to tax attributable to any such
Tax, including penalties for the failure to file any tax return or report.

“Title Benefit” has the meaning specified in Section 2.1.9.

 

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“Title Defect” means (i) any condition that causes the Sellers’ title to one or more
Properties to be less than Defensible Title, (ii) any oil and gas lease comprising a
portion of the Real Property Interests in which the primary term expires on or before
September 30, 2010, and/or (iii) any oil and gas lease comprising a portion of the
Real Property Interests that fails to include and cover all depths, intervals and
formations beginning at the stratigraphic equivalent top of the Niobrara formation as
seen at 10,856’ total depth in the Texaco Govt-Hawks A1 (API #
49009054800000) located in Section 23, T33N, R71W, Converse County, Wyoming (“Marker
Well”), and extending downward to the stratigraphic equivalent of the base of the
Dakota formation as seen at 12,785’ total depth in the Marker Well.

“Working Interest” (“WI”) means the decimal interest in the full and entire leasehold
estate in any Property and all rights and obligations of every kind and character
pertinent thereto or arising therefrom, without regard to any valid lessor royalties,
overriding royalties and/or other burdens against production insofar as said interest
in said leasehold is burdened with the obligation to bear and pay the cost of
exploration, development and operation.

	 	1.2	 	References. All references in this Agreement to Exhibits, Schedules, Sections,
paragraphs, subsections and other subdivisions refer to the corresponding Exhibits,
Schedules, Sections, paragraphs, subsections and other subdivisions of or to this
Agreement unless expressly provided otherwise. Titles appearing at the beginning of any
Sections, subsections or other subdivisions of this Agreement are for convenience only,
do not constitute any part of this Agreement, and shall be disregarded in construing
the language hereof. The words “this Agreement,” “herein,” “hereby,” “hereunder” and
“hereof,” and words of similar import, refer to this Agreement as a whole and not to
any particular subdivision unless expressly so limited. The words “this Section” and
“this subsection,” and words of similar import, refer only to Section or subsection
hereof in which such words occur. The word “or” is not exclusive, and the word
“including” (in its various forms) means including without limitation. Each accounting
term not defined herein, and each accounting term partly defined herein to the extent
not defined, will have the meaning given to it under GAAP. Pronouns in masculine,
feminine or neuter genders shall be construed to state and include any other gender,
and words, terms and titles (including terms defined herein) in the singular form shall
be construed to include the plural and vice versa, unless the context otherwise
requires. Exhibits and Schedules referred to herein are attached to and by this
reference incorporated herein for all purposes.

 

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	2.	 	Purchase Price. On the Closing Date, in consideration for the sale of the Properties, the
Buyer will pay to the Sellers as provided in this Agreement the aggregate amount of Forty-Nine
Million, Four Hundred Thirty-Seven Thousand, Six Hundred and Sixty-Six and no/100 Dollars
($49,437,666.00), as adjusted as provided hereinafter, for the Properties (the “Purchase
Price”). The Purchase Price will be adjusted as follows:

	 	2.1	 	Title and Environmental Defects. The Purchase Price will be decreased for any
Title Defects and Environmental Defects pursuant to this Section 2.1. The Buyer may
conduct, at its sole cost and expense, such title examination or investigation, and
other examinations and investigations (provided that the Buyer will not conduct any
phase II environmental investigations or examinations with respect to any of the
Properties without the prior written consent of the Sellers), as it may in its sole
discretion choose to conduct with respect to the Properties in order to determine
whether any Title Defects or Environmental Defects exist. The Buyer
agrees to release, indemnify, defend and hold harmless the Seller Indemnified Parties
from and against all liabilities, damages, costs, losses and expenses arising from or
related to the activities of the Buyer or its employees, agents, contractors and other
representatives in connection with such examinations or investigations. On or before
March, 29, 2010, the Buyer must deliver to the Sellers a written notice specifying
each defect associated with the Properties that the Buyer asserts constitutes a Title
Defect or an Environmental Defect, a description of each such Title Defect or
Environmental Defect, the amount of the adjustment to the Purchase Price that the
Buyer asserts based on such Title Defect or Environmental Defect and its method of
calculating such adjustment, together with all data and information in the Buyer’s
possession or control bearing thereon (a “Defect Notice”). Any matters that may
otherwise constitute Title Defects or Environmental Defects, but of which the Sellers
have not been specifically notified by the Buyer by such date in accordance with the
foregoing, shall be deemed to have been waived by the Buyer for all purposes. All
adjustments to the Purchase Price based on Title Defects will be based on the
Allocated Values attributable to the affected Properties. Upon timely delivery of a
notice of a Title Defect or Environmental Defect under this Section 2.1, the Buyer and
the Sellers will in good faith negotiate the validity of the claim and the amount of
any adjustment to the Purchase Price using the following criteria:

	 	2.1.1	 	If the requested adjustment for a Title Defect is based on the
Sellers owning a Net Revenue Interest for a Well which is less than that shown in
Exhibit “A,” then a downward adjustment shall be calculated by multiplying the
Allocated Value set forth for such Well on Exhibit “A” by a fraction: (a) the
numerator of which is an amount equal to the Net Revenue Interest shown on Exhibit
“A” for such Well less the decimal share to which the Sellers would be entitled as
a result of its ownership interest in such Well which is unaffected by such Title
Defect; and (b) the denominator of which is the Net Revenue Interest shown for
such Well on Exhibit “A”.

	 	2.1.2	 	If the adjustment is based on Sellers owning a Working Interest in a
Well that is larger than the Working Interest shown on Exhibit “A”, but without a
proportionate increase in Sellers’ Net Revenue Interest in such Well, then the
downward adjustment is calculated by determining the effective Net Revenue
Interest that results from such larger Working Interest, determining what
the Net Revenue Interest would be using such effective Net Revenue Interest and
the Working Interest shown on Exhibit “A” and then calculating the adjustment in
the manner set forth in Section 2.1.1.

 

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	 	2.1.3	 	If the requested adjustment is based on the Sellers owning Real
Property Interests collectively having a weighted average Net Revenue Interest of
less than eighty percent (80%), then, in such case, the Purchase Price shall be
adjusted downward as follows: the adjustment of the Purchase Price shall equal the
product of the total net acres acquired multiplied by $100 multiplied by the
difference between the aggregate weighted average Net Revenue
Interest and eighty percent (80%). For example, if the total net acres acquired is 109,000
and the weighted average Net Revenue Interest is 79.5%, then the adjustment would be
$5,450,000.00 (109,000 * 100 * (80 — 79.5)).

	 	2.1.4	 	If the adjustment for a Title Defect is based on Sellers owning
fewer Net Mineral Acres in the Real Property Interests, there shall be a downward
adjustment equal to the amount determined by multiplying the Allocated Value for
such Real Property Interests listed on Exhibit “A-1” by a fraction (a) the
numerator of which is an amount equal to the number of Net Mineral Acres for such
Real Property Interests shown on Exhibit “A-1” less the total Net Mineral Acres
actually determined to exist for such Real Property Interests and (b) the
denominator of which is the number of Net Mineral Acres shown for such Real
Property Interests on Exhibit “A-1”.

	 	2.1.5	 	If the adjustment is based on a Lien or other monetary charge upon a
Property that is liquidated in amount, then the adjustment is the lesser of the
amount necessary to remove such Lien or other monetary charge from the affected
Property or the Allocated Value of the affected Property.

	 	2.1.6	 	If the adjustment is based on a liability to remediate or otherwise
cure an Environmental Defect related to a Property that is liquidated in amount,
then the adjustment is the amount necessary to remediate or otherwise cure such
Environmental Defect in the most cost effective manner reasonably available and
consistent with common industry practices.

	 	2.1.7	 	If the adjustment is based on an obligation, burden or liability
upon a Property for which the Buyer’s economic detriment is not liquidated but can
be estimated with reasonable certainty, then, subject to the other provisions
hereof, the adjustment is the amount reasonably necessary to compensate the Buyer
at Closing for the adverse economic effect on the affected Property; provided,
however, that such adjustment with respect to a Title Defect shall not exceed the
Allocated Value of the affected Property.

 

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	 	2.1.8	 	If a Title Defect or an Environmental Defect is reasonably
susceptible of being cured, the Buyer and the Sellers agree that the Sellers will
have the right, but not the obligation, to cure such defect for a period of up to
ninety (90) days after the Closing Date. In the event any of the Real Property
Interests and/or Wells is subject to a consent to transfer which has not been
obtained or waived before Closing and likewise not representing a Permitted
Encumbrance hereunder, or a preferential right to purchase (or similar right),
wherein the holder has not made an election and the response time has not elapsed,
then, the affected Property shall be retained by the Sellers and not sold to the
Buyer at Closing, and the Purchase Price shall be reduced by the Allocated Value
therefor. Within five (5) days after such Title Defect is cured by obtaining a
consent or waiver, the Sellers will deliver to Buyer an Assignment of the Property
affected by such Title Defect upon receipt of payment by the Sellers of the amount
withheld from
the Purchase Price with respect to such Property. The Buyer shall provide the Sellers and
their representatives access to the Properties, books and records after Closing in connection
with the Sellers’ efforts to cure the alleged defect. If, post-Closing, the Parties dispute
whether such Title Defect or an Environmental Defect has been cured, then the matter shall be
resolved in a manner described in Section 2.1.10.

	 	2.1.9	 	If the Sellers notify the Buyer in writing no later than March 16, 2010, that their
ownership (i) exceeds 37,050 Net Mineral Acres in the Fetter/Shawnee Area, and/or (ii)
exceeds 69,929 Net Mineral Acres in the Non-Fetter/Shawnee Areas (Items (i) and (ii) being
“Excess Net Mineral Acres”), then, in such case, upon Buyer confirming the existence of such
Excess Net Mineral Acres, the Purchase Price shall be adjusted upward by $1025.00 for each
Excess Net Mineral Acre located in the Fetter/Shawnee Area and $125.00 for each Excess Net
Mineral Acre located in the Non-Fetter/Shawnee Areas, as applicable, provided, however, unless
the Parties otherwise agree, Buyer shall not have the obligation to acquire more than 3,000
Excess Net Mineral Acres in the Non-Fetter/Shawnee Areas.

Additionally, if Sellers determine that the ownership of any Well entitles them to a larger
Net Revenue interest or a smaller Working Interest than set out on Exhibit “A”, such that
Sellers’ ownership in such Well is greater than that contemplated by this transaction (“Title
Benefit”), then the Sellers shall notify Buyer of the existence of a Title Benefit,
describing therein in reasonable detail each alleged increase it has discovered (“Benefit
Notice”), which shall be submitted to Buyer by Sellers no later than March 15, 2010. Provided
that Buyer concurs with the Sellers assertion of the existence of a Title Benefit, the
Purchase Price shall be adjusted in the same manner as provided in Section 2.1.1 for Title
Defects. Notwithstanding anything to the contrary contained herein, there shall be no upward
adjustment to the Purchase Price due to an increase in Sellers’ Working Interest, Net Revenue
Interest, overriding royalty and/or royalty interest, in any of the Wells, resulting from the
termination of the Halliburton Agreement.

The Sellers shall be deemed to have conclusively waived any Title Benefit of which the
Sellers fail to notify the Buyer in writing in the manner described in this Section 2.1.9

 

12

 

	 	2.1.10	 	If Buyer properly and timely notifies the Sellers of a Title Defect or Environmental Defect,
Seller shall have the option to: (i) dispute whether such matter is a Title Defect or
Environmental Defect, or (ii) acknowledge the Title Defect or Environmental Defect. In the
event that Sellers dispute the legitimacy of a Title Defect or Environmental Defect, Buyer and
Sellers will negotiate in good faith to resolve such dispute. In the event the Parties are
unable to resolve the dispute, Buyer will have the option to waive such Title Defect or
Environmental Defect, and, provided that Buyer does not waive the
dispute, the Parties will have the option to have the matter arbitrated in accordance with the
terms and provisions contained in this Section 2.1.10. If Buyer does not waive the Title Defect or
Environmental Defect, the Purchase Price will be reduced by the amount of the Title Defect or
Environmental Defect, not to exceed the Allocated Value of the affected portion of the Properties,
and the affected portion of the Properties will not be conveyed to Buyer at Closing. In the event
Sellers acknowledge the existence of a Title Defect or Environmental Defect, Sellers will have the
option, but not the obligation, to cure the Title Defect. If Sellers elect not to cure such Title
Defect or Environmental Defect, unless such Title Defect or Environmental Defect is waived by
Buyer, the Purchase Price will be reduced by the amount of the Title Defect or Environmental
Defect, not to exceed the Allocated Value of the affected portion of the Properties, and the
affected portion of the Properties will not be conveyed to Buyer at Closing. If Sellers elect to
attempt to cure a Title Defect or Environmental Defect, Sellers shall use reasonable efforts to
attempt to cure the Title Defect or Environmental Defect. If Sellers cure same to the reasonable
satisfaction of the Buyer prior to the Closing, the Purchase Price will not be reduced at Closing
as to the Property affected by such cured Title Defect or Environmental Defect, and such affected
Property will be conveyed to the Buyer at Closing. If the Sellers elect to attempt to cure a Title
Defect or Environmental Defect post Closing, Sellers shall use reasonable efforts to attempt to
cure the Title Defect or Environmental Defect and the Purchase Price will be reduced at Closing by
the amount of the Title Defect or Environmental Defect, not to exceed the Allocated Value of the
affected portion of the Properties, and the portion of the Properties affected by such Title Defect
or Environmental Defect will not be conveyed to Buyer at Closing. Sellers will have ninety (90)
days following the Closing Date to attempt to cure the Title Defect or Environmental Defect. If
Sellers are able to cure the Title Defect or Environmental Defect to the reasonable satisfaction of
Buyer, Sellers will make any additional assignments or conveyances, if necessary, to Buyer and
Buyer will pay the Sellers the amount deducted from the Purchase Price with respect to such Title
Defect or Environmental Defect at the time of receipt by Buyer of such additional assignment or
conveyance. If the Sellers and the Buyer are not in agreement as to whether a Title Benefit exists,
the undisputed portion of the Purchase Price with respect to the Property affected by such Title
Benefit shall be paid by the Buyer at the Closing and the determination with respect to the Title
Benefit shall be made in accordance with this Section. If the Sellers and the Buyer are not in
agreement as to whether a Title Defect, Title Benefit, or Environmental Defect has been cured
during the cure period as provided herein the Sellers and the Buyer will submit the dispute to
arbitration as provided in this Section. The matter to be arbitrated shall be submitted to a title
attorney in the state where the affected Property is located selected by the Sellers and the Buyer,
in the case of a Title Defect or Title Benefit, or to an environmental expert in the state where
the affected Property is located selected by the Sellers and the Buyer, in the case of an
Environmental Defect (each such title

 

13

 

attorney or environmental expert hereinafter, a
“Consultant”). In the event the Sellers and the Buyer are unable to agree on any
Consultant, the Sellers and the Buyer will each appoint one Consultant and the two
Consultants so appointed will appoint a third Consultant and the three Consultants so
appointed will resolve such matter. The cost of each Consultant shall be paid fifty
percent (50%) by the Sellers and fifty percent (50%) by the Buyer. The Sellers and the
Buyer shall each present to the Consultants, with a simultaneous copy to the other
Parties, a written statement of its position on the defect, benefit or dispute in
question, together with a copy of this Agreement (if not previously provided to the
Consultant) and any supporting material that such party desires to furnish, not later
than the tenth (10th) day after appointment of the Consultants. In making
the determination, the Consultants shall be bound by the terms of this Agreement and,
without any additional or supplemental submittals by either Party, may consider
available legal and industry matters as in their opinion are necessary or appropriate
to make a proper determination. By the twentieth (20th) day following the
submission of the matter to the Consultants, applying the principles set forth in this
Section 2.1, the Consultants shall make a written determination with respect to the
validity of each defect or benefit in question and the amount, if any, deducted from
the Purchase Price with respect to such defect that should be paid by the Buyer to
compensate the Sellers upon conveyance of the affected Property to the Buyer or the
additional amount that should be paid by the Buyer to compensate the Sellers with
respect to any Title Benefit. The decision of the Consultants shall be conclusive and
binding on the Sellers and the Buyer and shall be enforceable against either of the
Parties in any court of competent jurisdiction. The Consultant shall act as an expert
for the limited purpose of determining the specific dispute presented to the Consultant
and shall not act as an arbitrator. In the event any such determination by a Consultant
has not been made as of the date the Final Statement is initially delivered by the
Sellers to the Buyer pursuant to Section 2.6, any amount owing by one Party to the
other as a result of such determination by the Consultant will be paid to the other
Party within five (5) days after such determination. In the event any such
determination by a Consultant has been made prior to the date the Final Statement is
initially delivered by the Sellers to the Buyer pursuant to Section 2.6, any amount
owing by one Party to the other as a result of such determination by the Consultant
will be included in the Purchase Price adjustments to be made in accordance with the
Final Statement. In any event, the Parties agree that they will use their best efforts
to finalize the selection Consultants within 30 days.

	 	2.2	 	Gas Imbalances. The Purchase Price will be adjusted upward or downward, as
applicable, by (a) the net mcf amount of the Sellers’ aggregate gas imbalances as of the
Effective Time multiplied by $3.50 per mcf (upward for underage and downward for overage); and
(b) the mmbtu amount of any pipeline imbalances or unsatisfied throughput obligations
attributable to the Sellers or the Properties as of
the Effective Time multiplied by the actual settlement price per mmbtu (upward for over
deliveries and downward for under deliveries) (collectively, “Gas Imbalances”).

 

14

 

	 	2.3	 	Casualty Loss. If, after the date of this Agreement but prior to the Closing Date,
any portion of the Properties is destroyed or taken as a result of a Casualty (a “Casualty
Loss”), the Buyer will nevertheless be required to close and such Casualty Loss shall be
treated as a Purchase Price adjustment equal to the lesser of (a) the Allocated Value of the
Property affected by such Casualty Loss or (b) the amount of such Casualty Loss.

	 	2.4	 	Certain Upward Adjustments. The Purchase Price shall be increased by the following
(without duplication): (a) the value of all merchantable allowable oil or other liquid
Hydrocarbons in storage owned by any Seller above the pipeline connection at the Effective
Time that is credited to the Properties, such value to be the current market price or the
price paid, less taxes and gravity adjustments deducted by the purchaser of such oil or other
liquid hydrocarbons; (b) the amount of all expenditures (other than title curative costs) in
connection with the ownership, operation and maintenance of the Properties (including rentals,
overhead, royalties and other charges and expenses billed under applicable operating or other
development agreements) which are paid by or on behalf of any Seller and attributable to the
period on or after the Effective Time; and (c) any other amount agreed upon by the Buyer and
the Sellers.

	 	2.5	 	Certain Downward Adjustments. The Purchase Price shall be decreased by the following
(without duplication): (a) the amount of any proceeds received by the Sellers from the sale of
Hydrocarbons, produced from and after the Effective Time, from the Properties (net of
royalties and other burdens; and production, severance and similar taxes and assessments
measured by or payable out of production; provided, that on oil the amount shall be the amount
paid by the purchaser to the Sellers) actually received by the Sellers; (b) the amount equal
to all unpaid ad valorem, property, production, severance and similar Taxes (excluding
franchise, margin, income or similar taxes) and assessments based upon or measured by the
ownership of the Properties or the production of oil, gas or other minerals therefrom or the
receipt of proceeds attributable thereto, which accrue to or are chargeable against the
Properties in accordance with GAAP prior to the Effective Time, which amount shall, to the
extent not actually assessed or known, be computed based upon such taxes and assessments for
the immediately preceding calendar year, or, if such taxes or assessments are assessed on
other than a calendar year basis, for the tax period last ended; (c) the amount of the
Suspended Funds; and (d) any other amount agreed upon by the Buyer and the Sellers.

	 	2.6	 	Closing Date Estimates. On or before three (3) days prior to the Closing, the Sellers
(with the cooperation of the Buyer) will prepare, in accordance with the provisions of this
Agreement, and deliver to the Buyer a statement (the “Closing Statement”) setting forth each
adjustment to the Purchase Price required under this Agreement and showing the calculation of
such adjustments. The Closing Statement will be
used to adjust the Purchase Price at Closing. Any final adjustments, if necessary, will be
made pursuant to Section 2.7 of this Agreement.

 

15

 

	 	2.7	 	Final Accounting. On or before ninety (90) days after the Closing Date the
Sellers (with the cooperation of the Buyer) will prepare, in accordance with the provisions
of this Agreement, and deliver to the Buyer a post-closing statement setting forth a
detailed calculation of all final adjustments to the Purchase Price which takes into account
all such adjustments provided in this Agreement (the “Final Statement”). If the Buyer
disputes any items in the Final Statement, then as soon as reasonably practicable, but in no
event later than one hundred five (105) days after the Closing Date, the Buyer will deliver
to the Sellers a written exception report containing any changes the Buyer proposes to be
made to the Final Statement. If the Buyer fails to deliver such exception report to the
Sellers within that period, the Final Statement as delivered by the Sellers will be deemed
to be true and correct, binding upon and not subject to dispute by any Party. If the Buyer
delivers an exception report, as soon as reasonably practicable, but in no event later than
fifteen (15) days after the Sellers receive the Buyer’s exception report, the Parties will
meet and undertake to agree on the final post-Closing adjustments. If the Parties fail to
agree on the final post-Closing adjustments within thirty (30) days after receipt of the
exception report, either the Sellers or the Buyer will be entitled to submit the dispute to
arbitration pursuant to the terms of Section 14 of this Agreement. Upon agreement of the
Parties to the adjustments to the Final Statement, or upon resolution of such adjustments by
arbitration, the Final Statement (as adjusted pursuant to such agreement or arbitration)
will be deemed final and binding on all of the Parties and the aggregate amount due to
either the Buyer or the Sellers pursuant to such Final Statement shall be tendered to the
other Party no later than five (5) days thereafter.

	3	 	Representations and Warranties of Sellers. Each Seller, with respect to such Seller’s
interest in the Properties, severally and not jointly, represents and warrants to the Buyer:

	 	3.1	 	Organization, Good Standing, Etc. Such Seller is duly organized, legally existing
and in good standing under the laws of the state in which it was formed and qualified to do
business and in good standing in the state in which such Seller’s Properties are located.

	 	3.2	 	Powers. Each Seller is duly authorized and empowered to execute, deliver and
perform this Agreement.

	 	3.3	 	Legal Requirements. Each Seller has all requisite power to own and lease such
Seller’s Properties and holds all required licenses for carrying on all operations with
respect to such Properties.

	 	3.4	 	Compliance with Agreements, Instruments and Contracts. Except (a) with respect to
Permitted Encumbrances, or (b) as disclosed in Schedule “3.4” attached hereto and
made a part hereof, such Seller’s execution, delivery, performance and consummation of this
Agreement does not and will not violate, conflict with or constitute a default or an event
that, with notice or lapse of time or both, would be a
default, breach or violation under any term or provision of any instrument, agreement,
contract, commitment, license, promissory note, conditional sales contract, indenture,
mortgage, deed of trust, lease or other agreement, instrument or arrangement to which such
Seller is a party or by which such Seller or any of such Seller’s Properties are bound.

 

16

 

	 	3.5	 	Litigation. Except as listed in Schedule “3.5” attached hereto and made a
part hereof, there is no action, suit or proceeding pending or threatened in writing against
such Seller involving such Seller’s Properties or otherwise affecting such Seller’s Properties
and no proceeding, charge or audit pending, or before or by any federal, state, municipal or
other governmental court, department, commission, board, bureau, agency or instrumentality.

	 	3.6	 	Taxes. Except as disclosed in Schedule “3.6”, all Taxes and assessments based
on or measured by the ownership of property comprising such Seller’s Properties or the
production or removal of Hydrocarbons or the receipt of proceeds therefrom (including
applicable escheatment requirements) have been timely paid when due and are not in arrears.

	 	3.7	 	Compliance with Statutes, Orders and Decrees, Creation or Acceleration of Liens.
Except as set forth on Schedule “3.7,”, the execution and delivery of this
Agreement and compliance with the terms and provisions of this Agreement by such Seller will
not violate any law, statute, rule or regulation of any governmental authority, and will not
on the Closing Date conflict with or result in a breach of any of the terms, conditions or
provisions of any judgment, order, injunction, decree or ruling of any court or governmental
agency or authority to which such Seller or any of such Seller’s Properties are subject, or
result in the creation, imposition, or continuation, of any adverse claim, lien, charge or
encumbrance, equity or restriction of any nature whatsoever, upon any of such Seller’s
Properties or cause any acceleration of maturity of any material obligation or loan, or give
to others any material interest or rights, including rights of termination, cancellation or
first refusal, in or with respect to any of such Seller’s Properties.

	 	3.8	 	Permits. On the Closing Date, such Seller will have all approvals, authorizations,
consents, licenses, orders, franchises, rights, registrations and permits of all governmental
agencies, whether federal, state or local, United States or foreign, required to permit the
operation of such Seller’s Properties as presently operated (the “Permits”) and each will be
in full force and effect and will have been duly and validly issued. The execution and
delivery of this Agreement and the consummation of the transactions contemplated hereby will
not result in any revocation, cancellation, suspension or modification of any such Permit
except (a) those Permits issued in the name of such Seller that are not transferable under
applicable law.

	 	3.9	 	Oil and Gas Leases. As of the Effective Time, to each Seller’s knowledge (i) all oil
and gas leases comprising part of the Real Property Interests, are in full force and effect,
and are valid and subsisting documents covering the entire estates which
they purport to cover; (ii) except for revenues which are properly being suspended in
accordance with applicable law, all royalties, rentals, and other payments, due under such
leases have been fully, properly and timely paid; and (iii) all oil and gas proceeds owing to
others for production from such Seller’s Wells have been or will be disbursed in accordance
with all of the terms and conditions of the applicable leases, other contracts and applicable
law and all deductions from such oil and gas proceeds have been or will be deducted in
compliance with all of the terms and conditions of the applicable leases, other contracts, and
applicable law.

 

17

 

	 	3.10	 	Compliance with Laws. The operation of such Seller’s Properties has been in
compliance with the provisions and requirements of all applicable law, ordinance, regulation,
writ, judgment, decree or order of any court or government or governmental unit in connection
with such Properties.

	 	3.11	 	Contracts, Consents and Preferential Rights. To each Seller’s knowledge, such Seller
has described in Schedule “3.11” attached hereto and made a part hereof: (a) all joint
venture, area of mutual interest, joint operating agreements, purchase and/or acquisition
agreements of which any terms remain executory which materially affect any of such Seller’s
Properties (excluding oil, gas and mineral leases); (b) all gas purchase contracts, oil
purchase contracts, gathering contracts, transportation contracts, marketing contracts,
dedication contracts, disposal or injection contracts and all other contracts materially
affecting any of such Seller’s Properties which are not, by the terms thereof, subject to
termination upon thirty (30) days or less notice; (c) all third Person contractual consents
required in order to consummate the transactions contemplated by this Agreement, other than
routine consents required in connection with transfers of U.S. federal, state and Indian
leases; and (d) all agreements pursuant to which third parties have preferential rights or
similar rights to acquire any portion of such Seller’s Properties upon the transfer of such
Properties by such Seller to the Buyer as contemplated by this Agreement.

	 	3.12	 	Planned Future Commitments. Except for the continuing operations, operations
conducted or commitments made in compliance with Section 5.2, and other matters set forth in
Schedule “3.12,” such Seller has not and will not become legally obligated for any
future commitments requiring an expenditure by such Seller in excess of Fifty Thousand Dollars
($50,000.00) (net to the Sellers’ interest) relating to any of such Seller’s Properties
(drilling of wells, workovers, contract settlements, pipeline projects, production facilities,
etc.) after the date of this Agreement.

	 	3.13	 	Environmental and Safety Matters. Except as set forth in Schedule “3.13”, there are
no civil, criminal or administrative actions, lawsuits, demands, litigation, claims or
hearings relating to an alleged breach of Environmental Laws on or with respect to such
Seller’s Properties, and such Seller has not received any notice of any third Person
environmental or health or safety claim, demand, filing, investigation, administrative
proceeding, action, suit or other legal proceeding relating to such Properties (an
“Environmental Claim”) or notice of any alleged violation or non-compliance with any
Environmental Law or of non-compliance with the terms
or conditions of any environmental permits, arising from, based upon, associated with
or related to such Properties or the ownership or operation of any thereof.

 

18

 

	 	3.14	 	Plugging Status. As of the date of this Agreement, such Seller has not
received any notice from any Governmental Authority demanding that any wells located on
such Seller’s Real Property Interests be plugged and abandoned except as set forth in
Schedule 3.14.

	 	3.15	 	Payout Balances, Gas Imbalances and Take or Pay. The Payout Balance for
each well located on such Seller’s Real Property Interests is properly reflected in
Schedule “3.15A” as of the respective date(s) shown thereon. “Payout
Balance(s)” means the status, as of the dates of such Seller’s calculations, of the
recovery by such Seller or a third Person of a cost amount specified in the contract
relating to a well out of the revenue from such well where the net revenue interest of
such Seller therein will be reduced or the working interest therein will be increased
when such amount has been recovered. Except as is reflected on Schedule “3.15B”
as of the respective dates shown thereon: (a) there are no production, transportation
or processing imbalances existing with respect to such Seller’s Properties; and (b) such
Seller has not received any deficiency payments under gas contracts for which any Person
has a right to take deficiency gas from such Seller’s Properties, nor has such Seller
received any payments for production which are subject to refund or recoupment out of
future production.

	 	3.16	 	Authority. Each Seller has taken all necessary action to authorize the
execution, delivery and performance of this Agreement and has adequate power, authority
and legal right to enter into, execute, deliver and perform this Agreement and to
consummate the transactions contemplated hereby. This Agreement is legal, valid and
binding with respect to such Seller and is enforceable in accordance with its terms,
except as the enforceability thereof may be limited by bankruptcy, insolvency or similar
laws affecting creditors’ rights generally.

	 	3.17	 	Broker’s or Finder’s Fees. Except for the agreement referenced in
Schedule “3.17” with respect to which each Seller will be solely responsible,
such Seller has not incurred any liability, contingent or otherwise, for brokers’ or
finders’ fees in respect of the transactions contemplated by this Agreement for which
the Buyer will have any responsibility whatsoever.

	4	 	Buyer’s Representations and Warranties. The Buyer represents and warrants to the
Sellers that as of the date of this Agreement and the Closing Date:

	 	4.1	 	Organization and Standing. The Buyer is a limited liability company duly
formed and in good standing under the laws of the State of Oklahoma. The Buyer has the
power and authority to acquire and own the Properties and to conduct business in each
state where any of the Properties are located.

	 	4.2	 	Powers. The Buyer is duly authorized and empowered to execute, deliver and
perform this Agreement.

 

19

 

	 	4.3	 	No Restriction. The Buyer is not subject to any order, judgment or decree, or the
subject of any litigation, claim or proceeding, pending or threatened, or any other
restriction of any kind or character known to the Buyer, which would affect its ability to
carry out the transactions contemplated by this Agreement.

	 	4.4	 	Authorization. All limited liability action on the part of the Buyer necessary for
the transaction contemplated by this Agreement has been taken. This Agreement is legal, valid
and binding with respect to the Buyer and is enforceable in accordance with its terms except
as the enforceability thereof may be limited by bankruptcy, insolvency or similar laws
affecting creditors’ rights generally.

	 	4.5	 	Non-Contravention. The consummation by the Buyer of the transactions contemplated
hereby for its consummation will not (i) violate any provision of the Articles of Organization
or any other governing document of the Buyer, or (ii) breach or violate, or result (with the
giving of notice or the lapse of time or both) in the breach, violation, acceleration or
termination of, any contract, indenture, Lien, note, lease, agreement, license, law,
authorization or order to which the Buyer is subject or by which any of its assets are bound
or subject, except, with respect to any such breach, violation, acceleration or termination
which would not prevent the consummation of the transactions contemplated hereby by the Buyer
or result in any Seller incurring any loss or liability therefrom.

	 	4.6	 	Governmental Consent. No consent, approval, or authorization of, or designation, or
filing with, any governmental unit is required on the part of the Buyer in connection with the
valid execution and delivery of this Agreement or the consummation of transactions
contemplated hereby.

	 	4.7	 	Litigation, Etc. There are no actions, proceedings, or investigations pending, or any
basis or threat thereof, which question the validity of this Agreement or any other action
taken or to be taken in connection herewith or which would have a material adverse effect on
the Buyer.

	 	4.8	 	Broker’s or Finder’s Fees. The Buyer has not incurred any liability, contingent or
otherwise, for brokers’ or finders’ fees in respect of this Agreement for which any Seller
will have any responsibility whatsoever.

	 	4.9	 	Bankruptcy. There are no bankruptcy, reorganization or arrangement proceedings
pending, being contemplated by or threatened against the Buyer or any Affiliate of the Buyer.

	 	4.10	 	Qualifications. The Buyer is qualified with all applicable Governmental Authorities
to own and operate the Properties.

 

20

 

	 	4.11	 	Funding; Investment. The Buyer has available (through cash on hand or existing credit
arrangements or otherwise) all of the funds necessary for the acquisition of all of the
Properties pursuant to this Agreement, as and when needed, and to perform its obligations
under this Agreement. The Buyer is experienced in and knowledgeable about the oil and gas
business and the acquisition of oil and gas
properties, and the Buyer is aware of the risks of such investments. The Buyer
acknowledges that none of the Sellers has made any representation or warranty,
expressed or implied, as to the accuracy or completeness of any information regarding
the Properties except as expressly set forth in this Agreement, and no Seller shall
have any liability to the Buyer or any of the Buyer’s successors or assigns for its
reliance on any information regarding the Sellers that is not contained in this
Agreement or the Schedules attached hereto. The Buyer is acquiring the Properties for
its own account and not with the intent to make any distribution of undivided
interests thereof which would violate any applicable state or federal law.

	 	4.12	 	NORM, Wastes and Other Substances. The Buyer acknowledges that the
Properties have been used for exploration, development, and production of oil and gas
and that equipment and sites included in the Properties may contain asbestos, naturally
occurring radioactive material (“NORM”) or other hazardous substances. NORM may affix or
attach itself to the inside of wells, materials, and equipment as scale, or in other
forms. The wells, materials, and equipment located on the Properties or included in the
Properties may contain NORM and other wastes or hazardous substances. NORM containing
material and/or other wastes or hazardous substances may have come in contact with
various environmental media, including without limitation, water, soils or sediment.
Special procedures may be required for the assessment, remediation, removal,
transportation, or disposal of environmental media, wastes, asbestos, NORM and other
hazardous substances from the Properties.

	5	 	Covenants. The Parties hereby covenant and agree to perform the following:

	 	5.1	 	Access to Information. Excess as prohibited by restrictions in third party
agreement, insofar as related to the Properties, each Seller will give the Buyer and the
Buyer’s agents and representatives, reasonable access to all of the books and records of
such Seller with respect to such Seller’s Properties and each Seller agrees to cause its
officers and employees to furnish the Buyer and the Buyer’s agents and representatives
with such operating data and other information with respect to the Properties as the
Buyer, its agents and representatives from time to time reasonably request; provided,
however, that any such investigation will be conducted in such manner as not to interfere
unreasonably with the operation of the business of the Sellers. The Buyer shall hold all
information or data provided or made available by the Sellers confidential and shall not
use any of the same except in connection with the transactions set forth in this
Agreement. In the event this Agreement is terminated prior to Closing, the Buyer shall
return to the Sellers (or certify the destruction of) all copies of all such information
and data, as well as any derivative reports, analysis or other items derived or based on
any of such information or data.

 

21

 

	 	5.2	 	Conduct of Business. From and after the date of this Agreement until
Closing, without the prior written consent of the Buyer:

	 	5.2.1	 	Each Seller will pay, when due, such Seller’s portion of all expenses, taxes,
revenues, royalties, overriding royalties, rentals, option to extend payments, and
other obligations incurred with respect to such Seller’s Properties prior to and due
and owing for periods prior to the Effective Time.

	 	5.2.2	 	Each Seller will take any and all actions necessary to ensure that such Seller’s
interest in the Properties is free and clear of all Liens as of the Closing except the
Permitted Encumbrances and Liens, for which there will be an adjustment to the Purchase
Price.

	 	5.2.3	 	Each Seller will cause such Seller’s Properties to be maintained in accordance
with the terms and conditions of the applicable contracts and applicable laws and
regulations and consistent with past practices.

	 	5.2.4	 	Each Seller will not convey, encumber, abandon or otherwise dispose of any part
of such Seller’s interest in the Properties, other than the sale of Hydrocarbons or
obsolete machinery and equipment in the ordinary course of business of such Seller.

	 	5.3	 	Consents, Preferential Rights to Purchase, and Operations. From and after the date of
this Agreement and subject to Permitted Encumbrances, the Sellers will use their reasonable
efforts to obtain the consent or approval of each Person whose consent or approval is required
in order to consummate the transactions contemplated by this Agreement. Similarly, Sellers
shall use their reasonable efforts to obtain timely elections under preferential rights to
purchase.

	 	5.4	 	Conditions. The Buyer and the Sellers will use their respective reasonable
commercial efforts to cause the conditions and agreements in Sections 6, 7 and 8 of this
Agreement to be satisfied and performed, whether prior to or after the Closing.

	 	5.5	 	Accounting. Each Seller will (without obligation to incur any third party expense),
cooperate with and assist the Buyer after Closing in the transition of the joint interest
billing and revenue disbursement accounting for the Properties and will take such actions as
may be reasonably required with respect thereto.

	 	5.6	 	Revenues Held For Benefit of Another Person. In the event either (a) the Buyer
receives production or other revenues attributable to any of the Properties for any periods
prior to the Effective Time or (b) any Seller receives production or other revenues
attributable to any of the Properties for any periods after the Effective Time, the receiving
Party will hold such revenues for the exclusive benefit of, and immediately remit such
revenues to, the Party entitled thereto.

 

22

 

	 	5.7	 	Revenues and Expenses. For all purposes including the Purchase Price adjustments
under Section 2 of this Agreement, the Sellers and the Buyer will properly allocate revenues
and expenses before and after the Effective Time and will make payments to each other to the
extent necessary for such proper allocation. All expenses incurred in the operation of the
Properties before the Effective Time will be borne by the Sellers and all proceeds from the
sale of Hydrocarbons produced from or
attributable to the Properties prior to the Effective Time will be the property of the
Sellers and all expenses incurred in the operation of the Properties after the Effective Time
will be borne by the Buyer and all proceeds from the sale of Hydrocarbons produced from or
attributable to the Properties after the Effective Time will be the property of the Buyer. Ad
valorem taxes, property taxes and other similar obligations will be prorated between the
Sellers and the Buyer as of the Effective Time.

	 	5.8	 	Suspended Funds. The Sellers will deliver to the Buyer, within thirty (30) days after
the Closing Date, in “Excel” or other acceptable format, the owner name, owner number, social
security or federal ID number, reason for suspense, and the amount of Suspended Funds payable
for each entry, together with monthly line item production detail including gross and net
volumes and deductions for all suspense entries. Upon receipt of such information, the Buyer
shall administer all such accounts and assume all payment obligations relating to the
Suspended Funds in accordance with all applicable laws, rules and regulations, and shall be
liable for the payment thereof to the proper parties; provided that, Sellers will retain all
responsibility and liability for (i) statutory penalties and interest, if any, owing to any
interest owner attributable to the Suspended Funds accruing prior to the Effective Time and
(ii) penalties and interest, if any, attributable to the Suspended Funds accruing prior to the
Effective Time, payable to any state under existing escheat or unclaimed property statues. If
the Buyer determine that any such penalties or interest are due to the respective suspense
account owner or any state under such statutes and Seller fails to promptly reimburse such
sums to the Buyer, then the Buyer shall return to Seller the Suspended Funds in such account
that existed as of the Effective Time, and Seller shall thereupon assume all obligations for
the final payment and settlement of any such claims and accompanying Suspended Funds.

	 	5.9	 	Limitations on Representations and Warranties.

	 	5.9.1	 	EXCEPT FOR THE EXPRESS AND SPECIFIC REPRESENTATIONS AND WARRANTIES OF THE
SELLERS IN THIS AGREEMENT, THE BUYER ACKNOWLEDGES THAT NO SELLER HAS MADE, AND EACH
SELLER HEREBY EXPRESSLY DISCLAIMS AND NEGATES, AND THE BUYER HEREBY EXPRESSLY WAIVES,
ANY REPRESENTATION OR WARRANTY, EXPRESS, IMPLIED, AT COMMON LAW, BY STATUTE OR
OTHERWISE RELATING TO (i) PRODUCTION RATES, RECOMPLETION OPPORTUNITIES, DECLINE RATES,
GAS BALANCING INFORMATION, OR THE QUALITY, QUANTITY OR VOLUME OF THE RESERVES OF
HYDROCARBONS, IF ANY, ATTRIBUTABLE TO THE PROPERTIES OR SELLERS’ INTERESTS THEREIN,
(ii) THE ACCURACY, COMPLETENESS OR MATERIALITY OF ANY RECORDS, INFORMATION, DATA OR
OTHER MATERIALS (WRITTEN OR ORAL) NOW, HERETOFORE OR HEREAFTER FURNISHED TO THE BUYER
BY OR ON BEHALF OF THE SELLERS, AND (iii) THE ENVIRONMENTAL CONDITION
OF THE PROPERTIES.

 

23

 

	 	5.9.2	 	EXCEPT FOR THE EXPRESS REPRESENTATIONS AND WARRANTIES OF THE
SELLERS IN THIS AGREEMENT, THE SELLERS EXPRESSLY DISCLAIM AND NEGATE, AND THE
BUYER HEREBY WAIVES, AS TO PERSONAL PROPERTY, EQUIPMENT, INVENTORY, MACHINERY
AND FIXTURES CONSTITUTING A PART OF THE PROPERTIES (i) ANY IMPLIED OR EXPRESS
WARRANTY OF MERCHANTABILITY, (ii) ANY IMPLIED OR EXPRESS WARRANTY OF FITNESS
FOR A PARTICULAR PURPOSE, (iii) ANY IMPLIED OR EXPRESS WARRANTY OF CONFORMITY TO
MODELS OR SAMPLES OF MATERIALS, (iv) ANY RIGHTS OF PURCHASERS UNDER APPROPRIATE
STATUTES TO CLAIM DIMINUTION OF CONSIDERATION OR RETURN OF THE PURCHASE
PRICE, (v) ANY IMPLIED OR EXPRESS WARRANTY OF FREEDOM FROM DEFECTS, WHETHER KNOWN
OR UNKNOWN, (vi) ANY AND ALL IMPLIED WARRANTIES EXISTING UNDER APPLICABLE LAW, AND
(vii) ANY IMPLIED OR EXPRESS WARRANTY REGARDING ENVIRONMENTAL LAWS, THE RELEASE
OF SUBSTANCES, WASTES OR MATERIALS INTO THE ENVIRONMENT, OR PROTECTION
OF THE ENVIRONMENT OR HEALTH, IT BEING THE EXPRESS INTENTION OF THE BUYER AND THE
SELLERS THAT THE PERSONAL PROPERTY, EQUIPMENT, INVENTORY, MACHINERY AND FIXTURES
IN WHICH THE SELLERS HAVE ANY INTEREST ARE BEING ACCEPTED BY THE BUYER, “AS IS,
WHERE IS, WITH ALL FAULTS” AND IN THEIR PRESENT CONDITION AND STATE OF REPAIR, AND
THE BUYER REPRESENTS TO THE SELLERS THAT THE BUYER WILL MAKE OR CAUSE TO BE MADE
SUCH INSPECTIONS WITH RESPECT TO SUCH PERSONAL PROPERTY, EQUIPMENT,
INVENTORY, MACHINERY, FIXTURES AND OTHER PROPERTIES AS THE BUYER DEEMS
APPROPRIATE.

	 	5.9.3	 	THE SELLERS AND THE BUYER AGREE THAT, TO THE EXTENT REQUIRED BY
APPLICABLE LAW TO BE EFFECTIVE, THE DISCLAIMERS OF CERTAIN WARRANTIES CONTAINED IN
THIS SECTION 5.9 ARE “CONSPICUOUS” DISCLAIMERS FOR THE PURPOSES OF ANY APPLICABLE
LAW, RULE OR ORDER.

 

24

 

	6	 	Buyer’s Conditions Precedent. The obligation of the Buyer to consummate the
transactions contemplated by this Agreement is subject to the satisfaction or waiver (subject
to applicable law) at or prior to the Closing Date of each of the following conditions:

	 	6.1	 	No preliminary or permanent injunction or other order will have been issued by any
court of competent jurisdiction or any regulatory body preventing consummation of the
transactions contemplated by this Agreement;

	 	6.2	 	No action will have been commenced or threatened against the Sellers, the Buyer
or any of their respective affiliates, associates, officers or directors seeking to
prevent or challenge the transactions contemplated by this Agreement or seeking damages
arising from the transactions contemplated by this Agreement;

	 	6.3	 	All representations and warranties of each Seller contained herein will be true
and correct in all material respects on and as of the Closing Date as if made on and as
of the Closing Date (except to the extent that a representation specifically speaks to
an earlier date, in which case such representation shall continue to remain true and
correct as of the Closing Date with respect to such earlier date) and the Buyer will
have received a certificate signed by each Seller to such effect with respect to such
Seller’s representations and warranties;

	 	6.4	 	Each Seller will have performed or satisfied in all material respects on and as
of the Closing Date, all obligations, covenants, agreements and conditions contained in
this Agreement to be performed or complied with by such Seller; and

	 	6.5	 	Except for Properties excluded under the provisions hereof, all of the Properties
will be conveyed by the Sellers to the Buyer pursuant to the terms of the Assignment.

	7	 	Sellers’ Conditions Precedent. The obligation of the Sellers to consummate the
transactions contemplated by this Agreement is subject to the satisfaction or waiver (subject
to applicable law) at or prior to the Closing Date of each of the following conditions:

	 	7.1	 	No preliminary or permanent injunction or other order will have been issued by any court
of competent jurisdiction or any governmental or regulatory body preventing consummation of
the transactions contemplated by this Agreement;

	 	7.2	 	No action will have been commenced or threatened against any Seller, the Buyer or
any of their respective affiliates, associates, officers or directors seeking to prevent
or to challenge the transactions contemplated by this Agreement or seeking damages
arising therefrom;

	 	7.3	 	All representations and warranties of the Buyer contained herein will be true and
correct in all material respects on and as of the Closing Date as if made on and as of
the Closing Date (except to the extent that a representation specifically speaks to an
earlier date, in which case such representation shall continue to remain true and correct
as of the Closing Date with respect to such earlier date) and the Sellers will have
received a certificate signed by the Buyer to such effect;

 

25

 

	 	7.4	 	The Buyer will have performed in all material respects all obligations, covenants
and agreements contained in this Agreement to be performed or complied with by
the Buyer and the Sellers will have received a certificate signed by the Buyer to such effect; and

	 	7.5	 	The Purchase Price, as adjusted, shall have been paid to the Sellers.

	8	 	The Closing. Unless extended as provided herein, the Closing will take place at 10:00 a.m. local time in the offices of American Oil & Gas Inc.,
located at 1050 17th Street, Suite 2400, Denver, CO 80265, on the Closing Date. The Parties may, by mutual written consent, change the
Closing Date to any other date that they may agree upon.

	 	8.1	 	Buyer’s Deliveries. On the Closing Date, the Buyer will deliver or cause to be delivered:

	 	8.1.1	 	Purchase Price. The Purchase Price to the Sellers (as adjusted);

	 	8.1.2	 	Evidence of Authority. Such resolutions, certificates of
good standing and other evidence of authority with respect to the Buyer as might
be reasonably requested by the Sellers; and

	 	8.1.3	 	Additional Documents. Such additional documents customary
in similar transactions as might be reasonably requested by the Sellers to
consummate this Agreement.

	 	8.2	 	Sellers’ Deliveries. On the Closing Date, each Seller, with respect to such
Seller’s interest in the Properties, will deliver or cause to be delivered to the Buyer
the following items (all documents will be duly executed and acknowledged where
required):

	 	8.2.1	 	Assignments. An Assignment from each Seller for such Seller’s
interest in the Properties (other than those Properties to be excluded in
accordance with the terms hereof);

	 	8.2.2	 	Transfer Orders; Letters in Lieu. Transfer orders or letters
in lieu for each purchaser of production with respect to each of the Properties;

	 	8.2.3	 	Other Parties. All required releases and termination
statements from any Person who has a Lien against any of the Properties (excluding
Permitted Encumbrances and Liens, for which an adjustment to the Purchase Price is
made under Section 2.1);

	 	8.2.4	 	Evidence of Authority. Such resolutions, certificates of good
standing and other evidence of authority with respect to such Seller as might be
reasonably requested by the Buyer;

	 	8.2.5	 	Foreign Person Certificates. Executed statements described in
Treasury Regulation 1.1445-2(b)(2) certifying that such Seller is not a foreign
Person within the meaning of the Internal Revenue Code;

 

26

 

	 	8.2.6	 	Halliburton Agreement. Written evidence of the termination of the
Halliburton Agreement; and

	 	8.2.7	 	Additional Documents. Such additional documents customary
in similar transactions as might be reasonably requested by the Buyer to
consummate this Agreement.

	 	8.3	 	Post Closing Adjustments. The Buyer and the Sellers agree that the
Purchase Price will be further adjusted after the Closing Date in accordance with the
provisions of Section 2.7 of this Agreement.

	 	8.4	 	Costs. The Sellers will pay the Sellers’ attorney fees and other
expenses; and the Buyer will pay the Buyer’s attorney fees and other expenses including
the recording costs for the Assignments and all Taxes (including sales taxes), duties,
levies or other governmental charges imposed on the transfers of the Properties pursuant
to this Agreement.

	 	8.5	 	Risk of Loss. As of the Closing Date, beneficial ownership and the risk
of loss of the Properties will pass from the Sellers to the Buyer effective from and
after the Effective Time.

	 	8.6	 	Records and Data. Within fifteen (15) days after Closing, each Seller
will deliver to the Buyer copies of all records, files, documents, data and other
information concerning any of such Seller’s interest in the Properties including,
without limitation, copies of all electronic records and data.

	9	 	Press Releases. No Party shall make any press release or other public announcements
concerning this transaction, without the mutual consent of the other Party, which consent
shall not be unreasonably withheld. Any Party desiring to make a public announcement shall
first give the other Party twenty-four (24) hours written notification, exclusive of
Saturdays, Sundays and legal holidays, of its desire to make such a public announcement. The
written notification shall include (i) a request for consent to make the announcement, and
(ii) a written draft of the text of such public announcement. Nothing contained herein shall
prohibit any Party hereto from issuing or making a public announcement or statement if such
Party deems it necessary to do so in order to comply with any applicable law or regulation, or
the rules of any stock exchange upon which the Party’s capital stock is traded, provided,
however, that the foregoing procedure of written notification shall first be followed.

	10	 	Indemnification. Upon the Closing of the transactions contemplated by this Agreement,
the Parties will indemnify each other as follows:

	 	10.1	 	Assumed Obligations. Upon the Closing the Buyer shall agree (and, upon
the delivery by Sellers to Buyer of the Assignment, Buyer shall be deemed to have
agreed) to assume the Assumed Obligations.

 

27

 

	 	10.2	 	Each Seller’s Indemnification. Upon the Closing, each Seller shall agree
(and, upon the delivery of the Assignments to the Buyer, such Seller shall be deemed to
have agreed) to pay, defend, indemnify, reimburse and hold harmless the Buyer and the
Buyer’s directors, officers, agents and employees (the “Buyer Indemnified Parties”) for, from
and against any loss, damage, diminution in value, claim, liability, debt, obligation or
expense (including interest, reasonable legal fees, and expenses of litigation and attorneys
fees in enforcing this indemnity) incurred, suffered, paid by or resulting to any of the
Buyer Indemnified Parties and which results from, arises out of or in connection with, is
based upon, or exists by reason of: (a) any breach or default in any representation or
warranty by such Seller set forth in this Agreement or in any certificate delivered in
connection herewith, or in the performance by such Seller of any covenant or obligation set
forth in this Agreement which is not cured as provided in Section 13 of this Agreement; and
(b) all of such Seller’s interest in the Retained Liabilities; REGARDLESS OF THE NEGLIGENCE,
STRICT LIABILITY OR OTHER FAULT OR RESPONSIBILITY OF THE BUYER, ANY OTHER MEMBERS OF THE
BUYER INDEMNIFIED PARTIES, THE SELLERS OR ANY OTHER PERSON.

	 	10.3	 	Buyer’s Indemnification. Upon the Closing, the Buyer shall agree (and, upon the
delivery by Sellers to Buyer of the Assignments, Buyer shall be deemed to have agreed) to pay,
defend, indemnify, reimburse and hold harmless the Sellers, the Sellers’ Affiliates and each
of their respective directors, officers, agents and employees (collectively, the “Seller
Indemnified Parties”) for, from and against any loss, damage, diminution in value, claim,
liability, debt, obligation or expense (including interest, reasonable legal fees, and
expenses of litigation and attorneys fees in enforcing this indemnity) incurred, suffered,
paid by or resulting to any of the Seller Indemnified Parties and which results from, arises
out of or in connection with, is based upon, or exists by reason of: (a) any breach or default
in any representation or warranty set forth in this Agreement or in the performance by the
Buyer of any covenant or obligation set forth in this Agreement; and (b) all of the Assumed
Obligations; REGARDLESS OF THE NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OR
RESPONSIBILITY OF SELLERS, ANY OTHER MEMBERS OF THE SELLER INDEMNIFIED PARTIES, BUYER OR ANY
OTHER PERSON.

	 	10.4	 	Indemnification Procedure. If any indemnified Person discovers or otherwise becomes
aware of an indemnification claim arising under this Agreement, such Person will give written
notice to the indemnifying Party, specifying such claim, and may thereafter exercise any
remedies available to such indemnified Person under this Agreement; provided, however, the
failure of any indemnified Person to give notice as provided herein will not relieve the
indemnifying Party of any obligations hereunder, to the extent the indemnifying Party is not
materially prejudiced thereby. Further, promptly after receipt by an indemnified Person
hereunder of written notice of the commencement of any action or proceeding with respect to
which a claim for indemnification may be made against any indemnifying Party, the indemnified
Person will give written notice to the indemnifying Party of the commencement of such action;
provided, however, the failure of any indemnified Person to give notice as provided herein
will not relieve the indemnifying Party of any obligations hereunder, to the extent the
indemnifying Party is not materially prejudiced thereby.

 

28

 

	 	10.5	 	Defense. If any such action is brought against an indemnified Person, the
indemnifying Party will be entitled to participate in and to assume the defense thereof
to the extent that it may wish, with counsel reasonably satisfactory to such
indemnified Person, and after notice from the indemnifying Party to such indemnified
Person of the indemnifying Party’s election to assume the defense thereof, the
indemnifying Party shall not be liable to such indemnified Person for any legal or
other expenses subsequently incurred by the latter in connection with the defense
thereof unless the indemnifying Party has failed to assume the defense of such claim
and to employ counsel reasonably satisfactory to such indemnified Person.
Notwithstanding any of the foregoing to the contrary, the indemnified Person will be
entitled to select its own counsel and assume the defense of any action brought against
it if the indemnifying Party fails to select counsel reasonably satisfactory to the
indemnified Person, the expenses of such defense to be paid by the indemnifying Party.
As a condition to the indemnifying Party’s obligations hereunder, the indemnified
Person will in good faith cooperate with and assist the indemnifying Party in the
prosecution or defense of such indemnified claim at no unreasonable expense to the
indemnified Person. No indemnifying Party shall consent to entry of any judgment or
enter into any settlement with respect to a claim either (a) without the consent of the
indemnified Person, which consent shall not be unreasonably withheld, or (b) unless
such judgment or settlement includes as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified Person of a release from all liability with
respect to such claim. No indemnified Person shall consent to entry of any judgment or
enter into any settlement of any such action, the defense of which has been assumed by
an indemnifying Party, without the consent of such indemnifying Party, which consent
shall not be unreasonably withheld.

	 	10.6	 	Certain Limitations on Indemnity Obligations. Neither Party will have any
liability to the other Party or such other Party’s indemnified parties under this
Section 10 with respect to any item for which a specific adjustment has already been
made to the Purchase Price under the terms of this Agreement.

	11	 	Preservation of Books and Records. For a period of five (5) years after the Closing
Date, the Buyer will, using procedures consistent with their current record retention
procedures, preserve and retain all books and records that relate to the Properties including,
but not limited to, any documents relating to any governmental or nongovernmental actions,
suits, proceedings or investigations arising out of the operation of the Properties prior to
the Closing Date. The Buyer agrees to make such books and records available to the Sellers
and their agents upon reasonable notice and at reasonable times.

 

29

 

	12	 	Termination. This Agreement may be terminated and the transactions contemplated
hereby may be abandoned by: (a) mutual written consent of the Sellers and the Buyer; (b) the
Buyer, if the Buyer is not in default and the conditions set forth in Section 6 of this
Agreement (other than conditions to be satisfied at Closing) have not been satisfied by the
Sellers or waived by the Buyer; (c) the Sellers, if the Sellers are not in default, and the
conditions precedent set forth
in Section 7 of this Agreement (other than conditions to be satisfied at Closing) have not been
satisfied by the Buyer or waived by the Sellers; or (d) the Sellers or the Buyer, if such
Persons are not in default, in the event the Closing shall not have occurred on or before April
30, 2010. In the event of termination, written notice thereof will be given to the other Party
specifying the provision pursuant to which such termination is made.

	13	 	Default. If any Party fails to perform any obligation contained in this Agreement,
the Party claiming default will serve written notice to the other Party specifying the nature
of such default and demanding performance. If such a default by any Seller has not been cured
within the sooner of ten (10) days after receipt of such default notice or the date specified
in Section 12(d) above and each of the conditions contained Section 7 has been either
fulfilled in all material respects or waived in writing (other than conditions pertaining to
the execution and delivery of documents and payment of monies by the Buyer the fulfillment of
which is to occur at the Closing), the Buyer will be entitled to exercise all remedies arising
at law by reason of such default, including, without limitation, termination of this Agreement
pursuant to Section 12. If such a default by the Buyer has not been cured within the sooner of
ten (10) days after receipt of such default notice or the date specified in Section 12(d)
above and each of the conditions contained in Section 6 has been either fulfilled in all
material respects or waived in writing (other than conditions pertaining to the execution and
delivery of documents the fulfillment of which is to occur at the Closing), the Sellers will
be entitled to exercise all remedies arising at law by reason of such default, including,
without limitation, termination of this Agreement pursuant to Section 12.

	14	 	Arbitration. Any dispute under this Agreement (other than disputes regarding Title Defects,
Title Benefits and Environmental Defects which will be handled in accordance with Section
2.1.12) will be submitted to binding arbitration to be conducted in Denver, Colorado, in
accordance with the Commercial Arbitration Rules of the American Arbitration Association,
except that there will be one arbitrator selected by the Sellers, one arbitrator selected by
the Buyer and a third arbitrator selected by those two arbitrators. The arbitrators will be
instructed and empowered to take reasonable steps to expedite the arbitration and the
arbitrators’ judgment will be final and binding upon the Parties subject solely to challenge
on the grounds of fraud or gross misconduct. Judgment upon any verdict in arbitration may be
entered in any court of competent jurisdiction. Notwithstanding the foregoing, a Party may
seek a preliminary injunction or other provisional judicial relief if in such Party’s judgment
such action is necessary to avoid irreparable damage or to preserve the status quo. Unless
otherwise expressly set forth in this Agreement, the procedures specified in Section 2.1.12
and this Section 14 will be the sole and exclusive procedures for the resolution of disputes
and controversies between the Parties arising out of or relating to this Agreement.

 

30

 

	15	 	Miscellaneous. It is further agreed as follows:

	 	15.1	 	Time. Time is of the essence of this Agreement.

	 	15.2	 	Notices. Any notice, demand or communication required or permitted to be
given by any provision of this Agreement will be in writing and will be deemed to have
been given and received when delivered personally, or on the date of delivery when
delivered prior to 5:00 p.m. local time on a business day by telefacsimile to the
Party designated to receive such notice, otherwise on the next succeeding business day, or on
the date following the day sent by overnight courier, or on the third (3rd) business day after
the same is sent by certified mail, postage and charges prepaid, directed to the following
addresses or to such other or additional addresses as any Party might designate by written
notice to the other Party:

	 	 	 
	To the Sellers:

	 	American Oil & Gas Inc.
	 

	 	1050 17th Street, Suite 2400
	 

	 	Denver, CO 80265
	 

	 	Attention: Mr. Patrick D. O’Brien
	 

	 	Telephone: (303) 991-0173
	 

	 	Telefacsimile: (303) 595-0709
	 
	 	 
	 

	 	North Finn Limited Liability Company
	 

	 	950 Stafford
	 

	 	Casper, WY 82609
	 

	 	Attention: Mr. Wayne P. Neumiller
	 

	 	Telephone: (307) 237-7854
	 

	 	Telefacsimile: (307) 237-7628
	 
	 	 
	To the Buyer:

	 	Chesapeake AEZ Exploration, L.L.C.
	 

	 	6100 North Western Avenue
	 

	 	Oklahoma City, Oklahoma 73118
	 

	 	Attention: Mr. Douglas J. Jacobson
	 

	 	Telephone: (405) 935-9233
	 

	 	Telefacsimile: (405) 879-9546
	 
	 	 
	With a copy to:

	 	Commercial Law Group, P.C.
	 

	 	5520 North Francis
	 

	 	Oklahoma City, Oklahoma 73118
	 

	 	Attention: Mr. Ray Lees
	 

	 	Telephone: (405) 254-5725
	 

	 	Telefacsimile: (405) 232-5553

	 	15.3	 	Representations and Warranties. The respective representations, warranties and
covenants of each Seller contained in this Agreement or in any certificate delivered in
connection with this Agreement (together with the indemnification rights with respect
thereto) will survive the Closing Date for a period of one (1) year and shall thereafter be
of no further force or effect, except for any claim asserted by the Buyer with respect
thereto before the end of such one (1) year period. The intended effect of termination of
representations and warranties (and the indemnification rights with respect thereto) is to
bar, from and after the date of termination, any claim or cause of action based on the
alleged inaccuracy of such representation or breach of such warranty or covenant, or with
regard to claims for indemnity with respect thereto.

 

31

 

	 	15.4	 	Cooperation. Prior to termination of this Agreement and at all times following
the consummation of this Agreement, the Parties agree to execute and deliver, or cause to be
executed and delivered, such documents and do, or cause to be done, such other acts and things
as might reasonably be requested by any Party to this Agreement to assure that the benefits of
this Agreement are realized by the Parties.

	 	15.5	 	No Third Party Beneficiaries. Nothing in this Agreement, express or implied, is
intended to confer upon any Person, other than the Parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this Agreement or to
constitute such Person a third party beneficiary of this Agreement.

	 	15.6	 	Cumulative Remedies. Subject to the other provisions hereof, no failure on the part
of any Party to this Agreement to exercise and no delay in exercising any right hereunder will
operate as a waiver thereof, nor will any single or partial exercise by any Party hereto of
any right hereunder preclude any other or further right of exercise thereof or the exercise of
any other right.

	 	15.7	 	Choice of Law. This Agreement will be interpreted, construed and enforced in
accordance with the laws of the State of Wyoming.

	 	15.8	 	Headings. The Section headings contained in this Agreement are for reference
purposes only and are not intended to affect in any way the meaning or interpretation of this
Agreement.

	 	15.9	 	Entire Agreement. This Agreement, the Assignment and the other documents
contemplated by this Agreement constitute the entire agreement between the Parties with
respect to the subject matter hereof and there are no agreements, understandings, warranties
or representations except as set forth herein or therein.

	 	15.10	 	Assignment. It is agreed that neither Party may assign such Party’s rights nor
delegate such Party’s duties under this Agreement without the express written consent of the
other Party to this Agreement.

	 	15.11	 	Amendment. Neither this Agreement, nor any of the provisions hereof can be changed,
waived, discharged or terminated, except by an instrument in writing signed by the Party
against whom enforcement of the change, waiver, discharge or termination is sought.

	 	15.12	 	Severability. If any clause or provision of this Agreement is illegal, invalid or
unenforceable under any present or future law, the remainder of this Agreement will not be
affected thereby. It is the intention of the Parties that if any such provision is held to be
illegal, invalid or unenforceable, there will be added in lieu thereof a provision as similar
in terms to such provisions as is possible to make such provision legal, valid and
enforceable.

	 	15.13	 	Attorney Fees. If any Party institutes an action or proceeding against any other
Party relating to the provisions of this Agreement, including arbitration, the Party to such
action or proceeding which does not prevail will reimburse the prevailing
Party therein for the reasonable expenses of attorneys’ fees and disbursements incurred by
the prevailing Party.

 

32

 

	 	15.14	 	Waiver. Waiver of performance of any obligation or term contained in this Agreement
by any Party, or waiver by one Party of the other’s default hereunder will not operate as a
waiver of performance of any other obligation or term of this Agreement or a future waiver of
the same obligation or a waiver of any future default.

	 	15.15	 	Counterparts; Facsimile Execution. This Agreement may be executed in multiple
counterparts, each of which will be an original instrument, but all of which will constitute
one agreement. The execution and delivery of this Agreement by any Party may be evidenced by
facsimile transmission, which shall be binding upon all Parties.

	 	15.16	 	JOINT ACKNOWLEDGMENT. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.

	 	15.17	 	WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC. BUYER AND EACH
SELLER
HEREBY
KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY (A) WAIVE, TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY A JURY IN RESPECT OF ANY LITIGATION
BASED HEREON, OR DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION
WITH THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR ASSOCIATED HEREWITH, (B) WAIVE,
TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY
SUCH LITIGATION OR ARBITRATION ANY “SPECIAL DAMAGES,” AS DEFINED BELOW, (C) CERTIFY THAT NO
PARTY HERETO NOR ANY REPRESENTATIVE OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVERS, AND (D) ACKNOWLEDGE THAT IT HAS BEEN INDUCED TO ENTER INTO
THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION. AS USED IN THIS SECTION, “SPECIAL
DAMAGES” INCLUDES ALL SPECIAL, CONSEQUENTIAL, EXEMPLARY
OR PUNITIVE
DAMAGES
(REGARDLESS OF HOW NAMED), BUT DOES NOT INCLUDE ANY PAYMENTS OR FUNDS WHICH ANY PARTY HERETO
HAS EXPRESSLY PROMISED TO PAY OR DELIVER TO ANY OTHER PARTY HERETO OR
ANY CLAIMS OF ANY PERSON FOR WHICH ONE PARTY HAS AGREED TO INDEMNIFY THE OTHER PARTY UNDER
THIS AGREEMENT.

 

33

 

	 	15.18	 	Non-Competition. For a period of two (2) years after the Closing, each Seller shall
not and shall not permit such Seller’s shareholders, directors, officers, employees or
affiliates, to acquire, in each case, with respect to the areas depicted in Exhibits “C” and
“C-1” (the “Restricted Areas”): (i) any oil, gas and mineral leases, subleases, operating
rights, or other leasehold interests, net profits interests, mineral fee interests, carried
interests or other rights to Hydrocarbons within the Restricted Areas; (ii) any other rights
to lands within the Restricted Areas; or (iii) any oil, gas, water, salt water disposal,
CO2 or injection wells located within the Restricted Areas. If Seller should,
through inadvertence or otherwise, acquire any such rights in violation of this Agreement,
Seller will be obligated to assign the entire interest so acquired, to the extent of the area
involved in the violation, upon reimbursement by Purchaser of Seller’s cost of acquisition.
Notwithstanding the foregoing, the provisions of this Section 15.18 shall not apply to oil and
gas leases acquired by Sellers from a third party within the Restricted Areas either through a
merger, reorganization, consolidation or direct asset acquisition, if such leases represent
less than twenty percent (20%) of the value attributable to all of the properties comprising
the transaction.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOLLOWS]

 

34

 

IN WITNESS WHEREOF, the Sellers and the Buyer have executed this Agreement effective as of the
date first above written.

	 	 	 	 	 	 	 
	SELLERS:	 	AMERICAN OIL & GAS INC. a Nevada corporation	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Patrick D. O’Brien
 

	 	 
	 

	 	 	 	Patrick D. O’Brien, CEO	 	 
	 
	 	 	 	 	 	 
	 	 	NORTH FINN LIMITED LIABILITY COMPANY	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Wayne P. Neumiller
 

	 	 
	 

	 	 	 	Wayne P. Neumiller, Manager/Member	 	 
	 
	 	 	 	 	 	 
	BUYER:	 	CHESAPEAKE AEZ EXPLORATION, L.L.C., 

an Oklahoma limited liability company	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Douglas J. Jacobson
 

	 	 
	 

	 	 	 	Douglas J. Jacobson, Executive Vice President	 	 

 

35exv10w25

Exhibit 10.25

ZiLOG, INC.

2002 OMNIBUS STOCK INCENTIVE PLAN

Section 1. Purpose of Plan.

          The name of this plan is the ZiLOG, Inc. 2002 Omnibus Stock
Incentive Plan (the “Plan”). The Plan was authorized in accordance with
Section 303 of the Delaware General Corporation Law and thereby made
effective on the Effective Date (as hereinafter defined). The purpose of
the Plan is to enable the Company and its Related Companies (as hereinafter
defined) to attract, retain and reward employees, directors, advisors and
consultants and to strengthen the existing mutuality of interests between
such persons and the Company’s stockholders. To accomplish the foregoing,
the Plan provides that the Company may grant Incentive Stock Options,
Nonqualified Stock Options and Restricted Stock (each as hereinafter
defined). At any time from and following the Effective Date, the Board (as
hereinafter defined) may determine that the Plan is intended, to the extent
applicable, to satisfy the requirements of Section 162(m) of the Code (as
hereinafter defined) and shall be interpreted in a manner consistent with
the requirements thereof.

Section 2. Definitions.

          For purposes of the Plan, the following terms shall be defined as
set forth below:

          (a) “Award” means an award of Incentive Stock Options,
Nonqualified Stock Options or Restricted Stock under the Plan.

          (b) “Award Agreement” means, with respect to each Award, the
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.

          (c) “Board” means the board of directors of the Company.

          (d) “Cause” means, unless otherwise provided in an Award
Agreement, (1) the failure by the Participant to substantially perform his
or her duties and obligations to the Company as the same may, from time to
time, be assigned to the Participant, including without limitation repeated
refusal to follow the reasonable directions of the employer or supervisor,
knowing violation of law in the course of performance of the duties of
Participant’s employment or service with the Company, repeated or excessive
absences from work without a reasonable excuse; (2) fraud, material
dishonesty or moral turpitude affecting the Company; or (3) the commission
of acts constituting, the indictment or conviction of, or plea of guilty or
nolo contendere for, the commission of a felony or a crime involving
material dishonesty or moral turpitude. Determination of Cause shall be
made by the Committee in its sole discretion.

          (e) “Change in Capitalization” means any increase, reduction, or
change or exchange of Shares for a different number or kind of shares or
other securities or property by reason of a reclassification,
recapitalization, merger, consolidation, reorganization, issuance of

 

 

warrants or rights, stock dividend, stock split or reverse stock split,
combination or exchange of shares, repurchase of shares, change in
corporate structure or otherwise; or any other corporate action, such as
declaration of a special dividend, that affects the capitalization of the
Company.

          (f) “Change in Control” means: (i) a dissolution, liquidation or
sale of all or substantially all of the assets of the Company; (ii) the
consummation of a merger or consolidation of the Company or any direct or
indirect subsidiary of the Company with any other corporation or other
entity, other than a merger or consolidation that results in the voting
securities of the Company outstanding immediately prior to such merger or
consolidation continuing to represent (either by remaining outstanding or
by being converted into voting securities of the surviving entity or any
parent thereof), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of the Company
or any subsidiary of the Company, at least 50% of the combined voting power
of the securities of the Company or such surviving entity or any parent
thereof outstanding immediately after such merger or consolidation; (iii)
from and after the Listing Date, the acquisition by any person, entity or
group within the meaning of Section 13(d) or 14(d) of the Exchange Act, or
any comparable successor provisions (excluding any employee benefit plan,
or related trust, sponsored or maintained by the Company or any affiliate
of the Company) of the beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act, or comparable successor rule) of
securities of the Company representing at least fifty percent (50%) of the
combined voting power entitled to vote in the election of directors.

          (g) “Code” means the Internal Revenue Code of 1986, as amended
from time to time, or any successor thereto.

          (h) “Committee” means the committee established by the Board to
administer the Plan. Prior to the consummation of an Initial Public
Offering, the Committee may be the entire Board. From and after the
consummation of an Initial Public Offering, unless otherwise determined by
the Board, the composition of the Committee shall at all times consist
solely of persons who are (i) “Nonemployee Directors” as defined in Rule
16b-3 issued under the Exchange Act, and (ii) “outside directors” as
defined in Section 162(m) of the Code.

          (i) “Common Stock” means the common stock, par value $0.01 per
share, of the Company.

          (j) “Company” means ZiLOG, Inc., a Delaware corporation (or any
successor corporation).

          (k) “Comparable Companies” means Cypress Semiconductor
Corporation, Fairchild Semiconductor International, Inc., Microchip
Technology Incorporated, National Semiconductor Corporation and ON
Semiconductor Corporation; provided that if any of such companies shall
cease to exist or cease to have a class of equity securities listed on a
national securities exchange or quoted on a national market quotation
system, then such company shall no longer be considered a Comparable
Company and the Committee shall have the power and authority to select an
entity to replace such Comparable Company, as set forth in Section
3(a)(viii).

 

 

          (l) “Disability” means: (1) any physical or mental condition that
would qualify a Participant for a disability benefit under any long-term
disability plan maintained by the Company; (2) when used in connection with
the exercise of an Incentive Stock Option following termination of
employment, disability within the meaning of Section 22(e)(3) of the Code;
or (3) such other condition as may be determined in the sole discretion of
the Committee to constitute Disability.

          (m) “EBITDA” represents: (1) with respect to the Company, earnings
(losses) before interest, income taxes, depreciation, amortization of
intangible assets, non-cash stock compensation expenses, equity in loss of
Qualcore, Inc., cumulative effect of change in accounting principle and
special charges; and (2) with respect to the Comparable Companies, the
definition of EBITDA published in such company’s periodic reports under the
Exchange Act.

          (n) “EBITDA-Linked Options” means the Options granted on the
Effective Date pursuant to Section 8 hereof.

          (o) “Eligible Recipient” means an officer, director, employee,
consultant or advisor of the Company or of any Parent or Related Company.

          (p) “Enterprise Value” means the Fair Market Value of a company’s
outstanding common stock plus the face amount of any debt and preferred
stock, less cash and cash equivalents as listed on the company’s balance
sheet contained in the company’s latest available publicly filed financial
statements.

          (q) “Exchange Act” shall mean the Securities Exchange Act of 1934,
as amended from time to time.

          (r) “Exercise Price” means the per share price at which a holder
of an Option may purchase the Shares issuable upon exercise of the Option.

          (s) “Fair Market Value” as of a particular date shall mean the
fair market value of a Share as determined by the Committee in its sole
discretion; provided that (i) if the Shares are admitted to trading on a
national securities exchange, fair market value of a Share on any date
shall be the closing sale price reported for such Share on such exchange on
the last date preceding such date on which a sale was reported, (ii) if the
Shares are admitted to quotation on the National Association of Securities
Dealers Automated Quotation (“Nasdaq”) System or other comparable quotation
system and has been designated as a National Market System (“NMS”)
security, fair market value of a Share on any date shall be the closing
sale price reported for such Share on such system on the last date
preceding such date on which a sale was reported, or (iii) if the Shares
are admitted to quotation on the Nasdaq System but have not been designated
as an NMS security, fair market value of a Share on any date shall be the
average of the highest bid and lowest asked prices of such Share on such
system on the last date preceding such date on which both bid and ask
prices were reported.

          (t) “Immediate Family” shall mean any child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, sibling,
mother-in-law, father-in-law, daughter-in-law, son-in-law, brother-in-law,
or sister-in-law, including adoptive relationships and any person sharing
the employee’s household (other than a tenant or employee).

 

 

          (u) “Incentive Stock Option” shall mean an Option that is an
“incentive stock option” within the meaning of Section 422 of the Code, or
any successor provision, and that is designated by the Committee as an
Incentive Stock Option.

          (v) “Informal Committee Designee” shall mean the member of the
Board appointed by the informal committee of the holders of the Company’s 9
1/2% Senior Secured Notes due 2005 pursuant to the Company’s Certificate of
Incorporation, as amended.

          (w) “Initial Public Offering” means the first underwritten public
offering of Shares of the Company after the Effective Date.

          (x) “Listing Date” means the first date upon which any security of
the Company is listed (or approved for listing) upon notice of issuance on
any securities exchange, or designated (or approved for designation) upon
notice of issuance as a national market security on an interdealer
quotation system if such securities exchange or interdealer quotation
system has been certified in accordance with the provisions of Section
25100(o) of the California Corporate Securities Law of 1968.

          (y) “Non-EBITDA-Linked Options” means all Options other than
EBITDA-Linked Options.

          (z) “Nonqualified Stock Option” means any Option that is not an
Incentive Stock Option, including any Option that provides (as of the time
such Option is granted) that it will not be treated as an Incentive Stock
Option.

          (aa) “Option” means an Incentive Stock Option, a Nonqualified
Stock Option, whether an EBITDA-Linked Option or a Non-EBITDA-Linked
Option, or any of them, as the context requires.

          (bb) “Option Shares” means Shares issued upon the exercise of
Options.

          (cc) “Parent” means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations in the chain (other than the Company) owns stock possessing
50% or more of the combined voting power of all classes of stock in one of
the other corporations in the chain.

          (dd) “Participant” means any Eligible Recipient selected by the
Committee, pursuant to the Committee’s authority in Section 3 hereof, to
receive Awards. A Participant who receives the grant of an Option is
sometimes referred to herein as an “Optionee.”

          (ee) “Person” shall have the meaning given in Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof,
except that such term shall not include (i) the Company or any of its
Subsidiaries, (ii) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its affiliates, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company.

 

 

          (ff) “Plan Shares” means (i) Option Shares and (ii) shares of
Restricted Stock granted pursuant to Section 9 of the Plan, whether or not
the applicable restrictions remain effective or have lapsed.

          (gg) “Related Company” means any corporation, partnership, joint
venture or other entity in which the Company owns, directly or indirectly,
at least a 20% beneficial ownership interest.

          (hh) “Restricted Stock” means Shares subject to certain
restrictions granted pursuant to Section 9 hereof, including Option Shares
subject to certain restrictions granted to a Participant upon such
Participant’s early exercise of an Option pursuant to Section 9(h).

          (ii) “Securities Act” means the Securities Act of 1933, as amended
from time to time.

          (jj) “Shares” means shares of Common Stock.

          (kk) “Subsidiary” means any corporation (other than the Company)
in an unbroken chain of corporations beginning with the Company, if each of
the corporations (other than the last corporation) in the unbroken chain
owns stock possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.

          (ll) “Ten Percent Owner” means an Eligible Recipient who owns
stock possessing more than ten percent of the total combined voting power
of all classes of stock of the Company or its Parent or Subsidiary
corporations.

Section 3. Administration.

          (a) The Plan shall be administered by the Committee, which shall
serve at the pleasure of the Board. Pursuant to the terms of the Plan, the
Committee shall have the power and authority, without limitation:

          (i) to select those Eligible Recipients who shall be
Participants;

          (ii) to determine whether and to what extent Options or
awards of Restricted Stock are to be granted hereunder to
Participants;

          (iii) to determine the number of Shares to be covered by
each Award granted hereunder;

          (iv) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of each Award granted hereunder;

          (v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, which shall govern all written
instruments evidencing Options or awards of Restricted Stock granted
hereunder;

          (vi) to adopt, alter and repeal such administrative rules,
guidelines and practices governing the Plan as it shall from time to
time deem advisable;

 

 

          (vii) to interpret the terms and provisions of the Plan and
any Award issued under the Plan (and any Award Agreement relating
thereto) in its sole discretion and to otherwise supervise the
administration of the Plan; and

          (viii) to select one or more corporations to replace one or
more of the Comparable Companies on the terms set forth in Section
2(k).

          (b) All decisions made by the Committee pursuant to the provisions
of the Plan shall be final, conclusive and binding on all persons,
including the Company and the Participants. No member of the Board or the
Committee, nor any officer or employee of the Company acting on behalf of
the Board or the Committee, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with respect
to the Plan, and all members of the Board or the Committee and each and any
officer or employee of the Company acting on their behalf shall, to the
extent permitted by law, be fully indemnified and protected by the Company
in respect of any such action, determination or interpretation.

Section 4. Shares Reserved for Issuance Under the Plan.

          (a) The total number of Shares reserved and available for issuance
under the Plan shall be 4,558,140 of which 2,116,279 shall be reserved for
issuance of Options and 2,441,861 shall be reserved for issuance of grants
as Restricted Stock. Such Shares may consist, in whole or in part, of
authorized and unissued Shares or treasury Shares.

          (b) To the extent that (i) an Option expires or is otherwise
cancelled or terminated without being exercised, or (ii) any Shares subject
to any award of Restricted Stock are forfeited, such Shares shall again be
available for issuance in connection with future Awards granted under the
Plan. If any Shares have been pledged as collateral for indebtedness
incurred by a Participant in connection with the exercise of an Option and
such Shares are returned to the Company in satisfaction of such
indebtedness, such Shares shall again be available for issuance in
connection with future Awards granted under the Plan.

          (c) From and after the date that the Plan is intended to comply
with the requirements of Section 162(m) of the Code, the aggregate number
of Shares with respect to which Awards may be granted to any individual
Optionee during any fiscal year shall not exceed 4,000,000.

Section 5. Equitable Adjustments; Change in Control

          (a) In the event of any Change in Capitalization, an equitable
substitution or adjustment may be made in (i) the aggregate number and/or
kind of Shares reserved for issuance under the Plan (including the
aggregate number and/or kind of Shares reserved for issuance as Options and
as Restricted Stock and the maximum aggregate number of Shares with respect
to Awards that may be granted to any individual Optionee during any fiscal
year), (ii) the kind, number and/or Exercise Price of Shares or other
property subject to outstanding Options granted under the Plan, and (iii)
the kind, number and/or purchase price of Shares or other property subject
to outstanding awards of Restricted Stock granted under the Plan, in each
case as may be determined by the Committee, in its sole discretion. Such

 

 

other equitable substitutions or adjustments shall be made as may be
determined by the Committee, in its sole discretion. Without limiting the
generality of the foregoing, in connection with a Change in Capitalization,
the Committee may provide, in its sole discretion, for the cancellation of
any outstanding Awards in exchange for payment in cash or other property of
the Fair Market Value of the Shares covered by such Awards, reduced, in the
case of Options, by the exercise price thereof.

          (b) Unless otherwise determined by the Committee, in the event of
a Change in Control:

          (i) with respect to the Non-EBITDA-Linked Options, unless such
Options are assumed or equivalent awards or rights are substituted
therefor, the unvested Non-EBITDA-Linked Options shall become fully vested
and exercisable and all restrictions on the vesting or exercisability of
such Non-EBITDA-Linked Options shall lapse as of the date of the Change in
Control; and with respect to Restricted Stock Awards acquired upon early
exercise of Non-EBITDA-Linked Options, unless such Awards are assumed and
the Company’s repurchase rights are assigned to the successor (or parent
thereof), or equivalent awards or rights are substituted therefor, all
restrictions on such Awards shall lapse as of the date of the Change in
Control;

          (ii)
with respect to the EBITDA-Linked Options:

          (1) if the aggregate sale price realized upon
the Change in Control divided by the median Enterprise
Value to EBITDA ratio of the Comparable Companies
exceeds $17.2 million, one-third of the unvested
EBITDA-Linked Options shall become fully vested and
exercisable and all restrictions on the vesting or
exercisability of such EBITDA-Linked Options shall
lapse as of the date of such Change in Control;

          (2) if the aggregate sale price realized upon
the Change in Control divided by the median Enterprise
Value to EBITDA ratio of the Comparable Companies
exceeds $25.7 million, two-thirds of the unvested
EBITDA-Linked Options shall become fully vested and
exercisable and all restrictions on the vesting or
exercisability of such EBITDA-Linked Options shall
lapse as of the date of such Change in Control;

          (3) if the aggregate sale price realized upon
the Change in Control divided by the median Enterprise
Value to EBITDA ratio of the Comparable Companies
exceeds $30.0 million, all of the unvested
EBITDA-Linked Options shall become fully vested and
exercisable and all restrictions on the vesting or
exercisability of such EBITDA-Linked Options shall
lapse as of the date of such Change in Control;

	 	(iii)	 	with respect to Restricted Stock, if such Change in Control
occurs prior to the third anniversary of the Effective
Date, then all restrictions under Section 9(d) hereof on
the Restricted Stock granted under Section 9(a) of this
Plan shall lapse; and

 

 

	 	(iv)	 	with respect to Options other than Options that are
continued or assumed, or have equivalent awards or rights
substituted therefor, such Options that are not exercised
as of the occurrence of the Change in Control shall expire
and be of no force or effect immediately upon the
occurrence of the Change in Control.

Section 6. Eligibility.

          The Participants under the Plan shall be selected from time to
time by the Committee, in its sole discretion, from among Eligible Recipients.
The Committee shall have the authority to grant to any Eligible Recipient
Incentive Stock Options, Nonqualified Stock Options or Restricted Stock;
provided that directors of the Company or any Parent or Related Company who
are not employees of the Company or of any Parent or Related Company, and
consultants or advisors to the Company or to any Parent or Related Company
may not be granted Incentive Stock Options; provided further that Incentive
Stock Options may not be granted to an employee of a Related Company if
such Related Company is not a Subsidiary.

Section 7. Non-EBITDA-Linked Options.

          (a) Use of Term. As used in this Section 7, “Options” shall
mean Non-EBITDA-Linked Options.

          (b) General. Options may be granted alone or in addition to
other Awards granted under the Plan. Any Option granted under the Plan shall be
evidenced by an Award Agreement in such form as the Committee may from time
to time approve. The provisions of each Option need not be the same with
respect to each Participant. Participants who are granted Options shall
enter into an Award Agreement with the Company, in such form as the
Committee shall determine, which Award Agreement shall set forth, among
other things, the Exercise Price of the Option, the term of the Option and
provisions regarding exercisability and vesting of the Option granted
thereunder. The Options granted under the Plan may be of two types: (i)
Incentive Stock Options and (ii) Nonqualified Stock Options. To the extent
that any Option does not qualify as an Incentive Stock Option, it shall
constitute a separate Nonqualified Stock Option. More than one Option may
be granted to the same Participant and be outstanding concurrently
hereunder. Options granted under the Plan shall be subject to the terms and
conditions set forth in paragraphs (b)-(k) of this Section 7 and the Award
Agreement shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem
desirable.

          (c) Exercise Price. The per share Exercise Price of Shares
purchasable under an Option shall be determined by the Committee at the time of
grant, but shall not, (i) in the case of Incentive Stock Options, be less than
100% of the Fair Market Value per Share on such date (110% of the Fair
Market Value per Share on such date if, on such date, the Eligible
Recipient is a Ten Percent Owner), and (ii) in the case of Nonqualified
Stock Options (to the extent required at the time of grant by California
“blue sky” laws), be less than 85% of the Fair Market Value per Share on
such date. Notwithstanding the foregoing, to the extent required at the
time of grant, by California “blue sky” laws, the Exercise Price of an
Option granted to a Ten Percent Owner shall not be less than 110% of the

 

 

Fair Market Value per Share on the date of grant of such Option.

          (d) Option Term. The term of each Option shall be fixed by the
Committee, but no Option shall be exercisable more than ten years after the
date such Option is granted. If the Eligible Recipient is a Ten Percent Owner,
an Incentive Stock Option may not be exercisable after the expiration of five
years from the date such Incentive Stock Option is granted.

          (e) Vesting and Exercisability. Options shall vest and be
exercisable at such time or times and subject to such terms and conditions,
including the attainment of pre-established corporate performance goals,
as shall be determined by the Committee in the Award Agreement or after the
time of grant; provided that no action under this Section 7(e) following the
time of grant shall adversely affect any outstanding Option without the consent
of the holder thereof; provided further, that, to the extent required by
California “blue sky” laws, Options granted to Eligible Recipients other
than officers, directors or consultants of the Company shall be exercisable
at the rate of at least 20% per year over five years from the date of
grant. The Committee may also provide that any Option shall be exercisable
only in installments, and the Committee may waive such installment exercise
provisions at any time, in whole or in part, based on such factors as the
Committee may determine in its sole discretion.

          The Committee may provide at the time of grant or anytime
thereafter, in its sole discretion, that any Option shall be exercisable with
respect to Shares that are not vested, subject to such other terms and
conditions as the Committee determines, including the requirement that the
Optionee execute a Restricted Stock Award Agreement.

          (f) Method of Exercise. Options may be exercised in whole or
in part by giving written notice of exercise to the Company specifying the
number of Shares to be purchased, accompanied by payment in full of the
aggregate Exercise Price of the Shares so purchased in cash or its equivalent,
and any taxes due thereon in accordance with Section 12 hereof, as determined
by the Committee. As determined by the Committee, in its sole discretion,
payment in whole or in part may also be made (i) by means of any cashless
exercise procedure approved by the Committee, (ii) in the form of
unrestricted Shares or Restricted Stock already owned by the Optionee
which, (x) in the case of unrestricted Shares acquired upon exercise of an
Option, have been owned by the Optionee for more than six months on the
date of surrender, and (y) has a Fair Market Value on the date of surrender
equal to the aggregate Exercise Price of the Shares as to which such Option
shall be exercised, (iii) any other form of consideration approved by the
Committee and permitted by applicable law or (iv) any combination of the
foregoing.

          (g) Rights as Stockholder. An Optionee shall have no right to
receive Shares or rights to dividends or any other rights of a stockholder with
respect to the Shares subject to the Option until the Optionee has given
written notice of exercise, has paid in full for such Shares, has satisfied
the requirements of Section 12 hereof and, if requested, has given the
representation described in paragraph (b) of Section 15 hereof.

          (h) Nontransferability of Options. The Optionee shall not be
permitted to sell, transfer, pledge or assign any Option other than by will
or the laws of descent and distribution (including, with respect to a
Nonqualified Stock Option only, by instrument to an inter vivos or testamentary

 

 

trust in which the Options are to be passed to beneficiaries upon the death
of the Participant) and all Options shall be exercisable during the
Participant’s lifetime only by the Participant, in each case, except as set
forth in the following two sentences. During an Optionee’s lifetime, the
Committee may, in its discretion, permit the transfer, assignment or other
encumbrance of an outstanding Option if such Option is a Nonqualified Stock
Option or an Incentive Stock Option that the Committee and the Participant
intend to change to a Nonqualified Stock Option. Subject to the approval of the
Committee and to any conditions that the Committee may prescribe, an
Optionee may, upon providing written notice to the Company, elect to
transfer any or all Options described in the preceding sentence to members
of his or her Immediate Family or to a trust, all of the beneficiaries of
which are members of the Optionee’s Immediate Family; provided that no such
transfer by any Participant may be made in exchange for consideration.

          (i) Termination of Employment or Service. Unless otherwise
determined by the Committee, if an Optionee’s employment with, or service as a
director, consultant or advisor to, the Company or to any Parent or Related
Company terminates for any reason other than Cause, (i) Options granted to such
Participant, to the extent that they are vested and exercisable at the time
of such termination, shall remain exercisable until the date set forth in
the Award Agreement, or such later date as is otherwise determined by the
Committee, but in no event shall such exercise period be less than 30 days
after such termination (six months in the case of termination by reason of
death or Disability), on which date they shall expire, and (ii) Options
granted to such Optionee, to the extent that they were not vested and
exercisable at the time of such termination, shall expire on the date of
such termination. The 30-day period described in the preceding sentence (i)
shall be extended to six months from the date of such termination in the
event of the Optionee’s death or Disability prior to or during such 30-day
period. Notwithstanding the foregoing, no Option shall be exercisable after
the expiration of its term. Unless provided in an Award Agreement or in the
Committee’s discretion any time thereafter, in the event of the termination
of an Optionee’s employment for Cause, all outstanding Options granted to
such Participant shall expire on the date of such termination.

          (j) Limitation on Incentive Stock Options. To the extent that
the aggregate Fair Market Value of Shares with respect to which Incentive Stock
Options are exercisable for the first time by an Optionee during any calendar
year under the Plan and any other stock option plan of the Company shall exceed
$100,000, such Options shall be treated as Nonqualified Stock Options. Such
Fair Market Value shall be determined as of the date on which each such
Incentive Stock Option is granted.

          (k) Stockholders’ Agreement. The Committee may require, as a
condition to exercise of an Option prior to an Initial Public Offering, that
the Optionee sign a stockholder agreement.

Section 8. EBITDA-Linked Options.

          (a) Use of Terms. As used in this Section 8, “Options” shall
mean EBITDA-Linked Options.

          (b) General. Options granted under this Section 8 may be
granted alone or in addition to other Awards granted under the Plan.
Participants who are granted Options shall enter into an Award Agreement with
the Company, in such form as the Committee shall determine, consistent with

 

 

this Section 8. The Options granted under the Plan may be of two types:
(i) Incentive Stock Options and (ii) Nonqualified Stock Options. To the extent
that any Option does not qualify as an Incentive Stock Option, it shall
constitute a separate Nonqualified Stock Option. More than one Option may be
granted to the same Participant and be outstanding concurrently hereunder.
Options granted under the Plan shall be subject to the terms and conditions set
forth in paragraphs (b)-(k) of this Section 8 and the Award Agreement shall
contain such additional terms and conditions, not inconsistent with the
terms of the Plan, as the Committee shall deem desirable.

          (c) Exercise Price. The per share Exercise Price of Shares
purchasable under an Option shall be equal to $2.76.

          (d) Option Term. Each Option shall be exercisable for ten
years after the date such Option is granted, subject to paragraph (i) of this
Section 8 and paragraph (b)(iv) of Section 5 hereof.

          (e) Vesting and Exercisability. Each Option shall be
immediately exercisable as of the date such Option is granted, but shall vest
based on the EBITDA reported by the Company for the immediately preceding 12
months (the “Twelve-Month EBITDA”) as follows: (i) one-third if the Company
reports Twelve-Month EBITDA in excess of $17.2 million; (ii) two-thirds if
the Company reports Twelve-Month EBITDA in excess of $25.7 million; and
(iii) 100% if the Company reports Twelve-Month EBITDA in excess of $30.0
million; provided however, that all Options will vest no later than the
date that is six years after the Effective Date, even if the above EBITDA
thresholds have not been satisfied.

          (f) Method of Exercise. Options may be exercised in whole
or in part by giving written notice of exercise to the Company specifying the
number of Shares to be purchased, accompanied by payment in full of the
aggregate Exercise Price of the Shares so purchased in cash or its equivalent,
and any taxes due thereon in accordance with Section 12 hereof, as determined
by the Committee. As determined by the Committee, in its sole discretion,
payment in whole or in part may also be made (i) by means of any cashless
exercise procedure approved by the Committee, (ii) in the form of
unrestricted Shares already owned by the Optionee which, (x) in the case of
unrestricted Shares acquired upon exercise of an Option, have been owned by
the Optionee for more than six months on the date of surrender, and (y) has
a Fair Market Value on the date of surrender equal to the aggregate
Exercise Price of the Shares as to which such Option shall be exercised,
(iii) any other form of consideration approved by the Committee and
permitted by applicable law or (iv) any combination of the foregoing.

          (g) Rights as Stockholder. An Optionee shall have no right to
receive Shares or rights to dividends or any other rights of a stockholder with
respect to the Shares subject to the Option until the Optionee has given
written notice of exercise, has paid in full for such Shares, has satisfied
the requirements of Section 12 hereof and, if requested, has given the
representation described in paragraph (b) of Section 15 hereof.

          (h) Nontransferability of Options. The Optionee shall not be
permitted to sell, transfer, pledge or assign any Option other than by will or
the laws of descent and distribution (including, with respect to a Nonqualified
Stock Option only, by instrument to an inter vivos or testamentary trust in
which the Options are to be passed to beneficiaries upon the death of the
Participant) and all Options shall be exercisable during the Participant’s

 

 

lifetime only by the Participant, in each case, except as set forth in the
following two sentences. During an Optionee’s lifetime, the Committee may,
in its discretion, permit the transfer, assignment or other encumbrance of
an outstanding Option if such Option is a Nonqualified Stock Option or an
Incentive Stock Option that the Committee and the Participant intend to
change to a Nonqualified Stock Option. Subject to the approval of the
Committee and to any conditions that the Committee may prescribe, an
Optionee may, upon providing written notice to the Company, elect to
transfer any or all Options described in the preceding sentence to members
of his or her Immediate Family or to a trust, all of the beneficiaries of
which are members of the Optionee’s Immediate Family; provided that no such
transfer by any Participant may be made in exchange for consideration.

          (i) Termination of Employment or Service. Unless otherwise
determined by the Committee, if an Optionee’s employment with, or service as a
director, consultant or advisor to, the Company or to any Parent or Related
Company terminates for any reason other than Cause, (i) Options granted to such
Participant, to the extent that they are vested and exercisable at the time
of such termination, shall remain exercisable until the date set forth in
the Award Agreement, or such later date as is otherwise determined by the
Committee, but in no event shall such exercise period be less than 30 days
after such termination (six months in the case of termination by reason of
death or Disability), on which date they shall expire, and (ii) Options
granted to such Optionee, to the extent that they were not vested and
exercisable at the time of such termination, shall expire on the date of
such termination. The 30-day period described in the preceding sentence (i)
shall be extended to six months from the date of such termination in the
event of the Optionee’s death or Disability prior to or during such 30-day
period. Notwithstanding the foregoing, no Option shall be exercisable after
the expiration of its term. Unless provided in an Award Agreement or in the
Committee’s discretion any time thereafter, in the event of the termination
of an Optionee’s employment for Cause, all outstanding Options granted to
such Participant shall expire on the date of such termination.

          (j) Limitation on Incentive Stock Options. To the extent that
the aggregate Fair Market Value of Shares with respect to which Incentive Stock
Options are exercisable for the first time by an Optionee during any calendar
year under the Plan and any other stock option plan of the Company shall exceed
$100,000, such Options shall be treated as Nonqualified Stock Options. Such
Fair Market Value shall be determined as of the date on which each such
Incentive Stock Option is granted.

          (k) Stockholders’ Agreement. The Committee may require, as a
condition to exercise of an Option prior to a Public Offering, that the
Optionee sign a stockholder agreement.

Section 9. Restricted Stock.

          (a) General. Awards of Restricted Stock may be issued either
alone or in addition to other Awards granted under the Plan and shall be
evidenced by an Award Agreement. The Committee shall determine the Eligible
Recipients to whom, and the time or times at which, Awards of Restricted Stock
shall be made and the number of Shares to be awarded.

          (b) Purchase Price. The price per Share that a Participant
must pay for Shares purchasable under an award of Restricted Stock shall
equal $0.01.

 

 

          (c) Awards and Certificates. The prospective recipient of an
Award of Restricted Stock shall not have any rights with respect to any such
Award, unless and until such recipient has executed an Award Agreement
evidencing the Award and delivered a fully executed copy thereof to the
Company, within such period as the Committee may specify after the award date.
Each Participant who is granted an Award of Restricted Stock shall be issued a
stock certificate in respect of such Shares of Restricted Stock, which
certificate shall be registered in the name of the Participant and shall
bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to any such Award; provided that the Company may
require that the stock certificates evidencing Restricted Stock granted
hereunder be held in the custody of the Company until the restrictions
thereon shall have lapsed, and that, as a condition of any Award of
Restricted Stock, the Participant shall have delivered a stock power,
endorsed in blank, relating to the Shares covered by such Award.

          (d) Nontransferability. The Awards of Restricted Stock granted
pursuant to this Section 9(a) shall vest and no longer be subject to the
restrictions on transferability set forth in this paragraph (d). During such
period as may be set by the Committee in the Award Agreement, or as otherwise
set forth in this paragraph (d) (the “Restricted Period”), the Participant
shall not be permitted to sell, transfer, pledge, hypothecate or assign
Shares of Restricted Stock awarded under the Plan except by will or the
laws of descent and distribution. The restrictions with respect to 25% of
the Restricted Stock shall lapse on the Effective Date and on each of the
first, second and third anniversaries of such Effective Date; provided that
in no event shall the Restricted Period end with respect to a Restricted
Stock Award prior to the satisfaction by the Participant of any liability
arising under Section 12 hereof. Any attempt to dispose of any Shares of
Restricted Stock in contravention of any such restrictions shall be null
and void and without effect.

          (e) Rights as a Stockholder. Except as provided in Section 9(c)
or as otherwise provided in an Award Agreement, the Participant shall possess
all incidents of ownership with respect to Shares of Restricted Stock during
the Restricted Period, including the right to receive or reinvest dividends
with respect to such Shares and to vote such Shares. Certificates for
unrestricted Shares shall be delivered to the Participant promptly after,
and only after, the Restricted Period shall expire without forfeiture in
respect of such Awards of Restricted Stock except as the Committee, in its
sole discretion, shall otherwise determine.

          (f) Loans. The Company or any Parent or Related Company may
make loans available to Participants with respect to a Restricted Stock Award
granted as of the Effective Date, other than a Restricted Stock Award granted
upon early exercise of an Option, for the payment of any Federal or state
income tax attributable to the Restricted Stock subject to such Award. Such
loans may be made available at such time or times as the Company or any Parent
or Related Company deems appropriate, including at such time as any portion of
the Restricted Stock Award vests and/or when a Participant makes an
election pursuant to Section 83(b) of the Code with respect to such
Participant’s Restricted Stock Award (“Section 83(b) Election”). Such loans
shall (i) be evidenced by promissory notes entered into by the Participants
in favor of the Company or any Parent or Related Company, (ii) bear
interest at a fair interest rate as determined by the Committee (but not
less than the applicable Federal rate), which interest shall be paid no

 

 

less frequently than annually, (iii) have a term of no more than five
years, (iv) to the extent applicable and required by the Committee, be
conditioned on the receipt, by the Committee, of a copy of the
Participant’s timely filed Section 83(b) Election with respect to such
Restricted Stock Award (whether vested or unvested), (v) be subject to such
other terms and conditions, not inconsistent with the Plan, as the
Committee shall determine, and (vi) be subject to Committee approval.
Unless the Committee determines otherwise, when a loan is made, all Shares
subject to that Restricted Stock Award shall be pledged by the Participant
to the Company as security for payment of the unpaid balance of the loan,
and such pledge shall be evidenced by a pledge agreement, the terms of
which shall be determined by the Committee, in its sole discretion;
provided that each loan shall comply with all applicable laws, regulations
and rules of the Board of Governors of the Federal Reserve System and any
other governmental agency having jurisdiction.

          (g) Termination of Employment.

          (i) Upon termination of a Participant’s employment or
service as a director, consultant or advisor to the Company or
to any Parent or Related Company during the Restricted Period,
for any reason, such Participant’s Restricted Stock may be
repurchased by the Company upon the terms set forth in
Section 13(d).

          (ii)Upon termination of a Participant’s employment or
service as a director, consultant or advisor to the Company or to
any Parent or Related Company during the Restricted Period, by
the Company for any reason other than for Cause, any outstanding
loans made to such Participant pursuant to Section 9(f)that
relate to unvested Shares shall be forgiven.

(h) Early Exercise Options. The Committee shall award
Restricted Stock to a Participant upon the Participant’s early
exercise of an Option. Unless otherwise determined by the
Committee, the lapse of restrictions with respect to such
Restricted Stock shall occur on the same schedule as the Option
for which the Restricted Stock was exercised.

Section 10. Amendment and Termination.

          The Board, with the approval of the Informal Committee Designee,
may amend, alter or discontinue the Plan, but no amendment, alteration, or
discontinuation shall be made that would impair the rights of a Participant
under any Award previously granted without such Participant’s consent;
provided, however, that the total number of Shares reserved and available
for issuance as set forth in Section 4(a) of the Plan shall not be
increased without the prior approval by two-thirds vote of the Board, and,
to the extent described below, approval of the Company’s stockholders.
Unless the Board determines otherwise, the Board shall obtain approval of
the Company’s stockholders for any amendment that would require such
approval in order to satisfy the requirements of Sections 162(m) and 422 of
the Code, stock exchange rules or other applicable law. The Committee may
amend the terms of any Award theretofore granted, prospectively or
retroactively, with the approval of the Informal Committee Designee, but,
subject to Section 5 of the Plan, no such amendment shall impair the rights
of any Participant without his or her consent.

 

 

Section 11. Unfunded Status of Plan.

          The Plan is intended to constitute an “unfunded” plan for
incentive compensation. With respect to any payments not yet made to a
Participant by the Company, nothing contained herein shall give any such
Participant any rights that are greater than those of a general creditor of the
Company.

Section 12. Withholding Taxes.

          Whenever the Company has a withholding
obligation with respect to an Award, the Company shall have the right to
deduct therefrom an amount sufficient to satisfy any federal, state, local and
other withholding tax requirements related thereto to the extent sufficient
cash is paid pursuant to the Award, or to require the Participant to remit to
the Company in cash an amount sufficient to satisfy any federal, state, local
or other withholding tax requirements related thereto. With the approval of the
Committee, a Participant may satisfy the foregoing requirement by electing
to have the Company withhold from delivery Shares or by delivering already
owned unrestricted Shares, in each case, having a value equal to the
minimum amount of tax required to be withheld. Such Shares shall be valued
at their Fair Market Value on the date as of which the amount of tax to be
withheld is determined. Fractional share amounts shall be settled in cash.
Such an election may be made with respect to all or any portion of the
Shares to be delivered pursuant to an Award.

Section 13. Additional Provisions.

          (a) Market Stand-Off.

          (i) In connection with any underwritten public offering by
the Company or its stockholders of its or their equity
securities pursuant to an effective registration statement
filed under the Securities Act, including an Initial Public
Offering, Participant shall not sell, make any short sale
of, loan, hypothecate, pledge, grant any option for the
purchase of, or otherwise dispose or transfer for value or
otherwise agree to engage in any of the foregoing
transactions with respect to any Plan Shares without the
prior written consent of the Company or its underwriters,
for such period of time from and after the effective date of
such registration statement as may be requested by the
Company or such underwriters.

          (ii) In the event of any stock dividend, stock split,
recapitalization, or other change affecting the Company’s
outstanding Common Stock effected without receipt of
consideration, then any new, substituted, or additional
securities distributed with respect to the Plan Shares shall
be immediately subject to the provisions of this Section
13(a), to the same extent the Plan Shares are at such time
covered by such provisions.

          (iii) In order to enforce the provisions of Section
13(a), the Company may impose stop-transfer instructions with
respect to the Plan Shares until the end of the applicable

 

 

stand-off period.

          (b) Drag-Along Rights.

          (i) Until the earliest of a Change in Control, an Initial
Public Offering or the third anniversary of the Effective Date,
if the holders representing at least a majority of the
outstanding Common Stock execute a binding agreement to transfer
all of their shares of Common Stock to a Person making an
irrevocable and unconditional bona fide offer (a“Bona Fide
Offer”), then the Participant shall transfer all of the
Participant’s Plan Shares to such Person, subject to the terms
and conditions set forth below, at the sole election of a
majority of such holders, which election shall be exercisable by
delivery to the Participant of a written notice that shall
include a copy of such binding agreement, at least 20 days prior
to the closing date specified in such notice; provided that (A)
the Participant shall receive from such Person the highest per
Share consideration to be paid to any holder of Common Stock in
such transaction; and (B) the closing of any transaction effected
pursuant to this Section 13(b) shall be conditioned on the
simultaneous purchase of not less than a majority of outstanding
shares of Common Stock.

          (c) Option Share Repurchase Rights.

          (i) Until the earliest of a Change in Control, an Initial
Public ing or the third anniversary of the Effective Date, the
Company shall have a repurchase right with respect to Option
Shares that may be exercised upon the voluntary or involuntary
termination of the Participant’s employment or service with the
Company, the Parent or a Related Company for any reason.

          (ii) The repurchase right must be exercised, if at all, by
the Company within 90 days following the termination of a
Participant’s employment or service with the Company, except in
the case of termination due to the death or Disability which
exercise period will then be extended to 210 days after the date
of such termination.

          (iii) The purchase price of any Option Shares to be
repurchased by the Company pursuant to subsections (i) and (ii)
above shall be the Fair Market Value of the Option Shares as of
the date on which the Participant’s employment terminated;
provided that that such price shall be no less than the price
paid by the Participant; provided further, that, at the Company’s
discretion, the purchase price may be paid by cancellation
of an equal amount of indebtedness of the Participant to the
Company.

          (iv) The closing of a purchase and sale of Option Shares
pursuant to this Section 13(c) shall take place at the principal
office of the Company at such time and date as shall be mutually
agreed between the Company and the Participant; provided that if
the parties cannot reach such agreement, settlement shall be
ninety (90) days (which may be extended in the event such
termination was due to death or Disability) after the date of

 

 

termination of the Participant’s employment with the Company
(or if such day is a holiday, the first business day thereafter).
At the closing, the Participant shall deliver to the Company (A)
the certificate or certificates representing the Option Shares
held by such Participant, duly endorsed for transfer, or (B) if
such certificate or certificates are already in the Company’s
possession, such duly endorsed stock powers as the Company may
request to permit it to record the repurchase by the Company on
the records of the Company.

          (d) Restricted Stock Repurchase Rights.

          (i) Until the earliest of a Change in Control, an Initial
Public Offering or the third anniversary of the Effective Date, the
Company shall have a repurchase right with respect to Restricted
Stock that may be exercised during the Restricted Period upon the
voluntary or involuntary termination of the Participant’s employment
or service with the Company, the Parent or a Related Company for any
reason (subject to the lapse of such repurchase rights as described
in clause (ii) below); provided that with respect to unvested Shares
of Restricted Stock acquired upon early exercise of an Option, the
Company’s repurchase rights shall expire no earlier than the date
such Shares vest pursuant to the terms of the applicable Restricted
Stock Agreement and Stock Option Agreement; and provided further that
in the event that the restrictions on Shares of Restricted Stock
acquired upon early exercise of an EBITDA-Linked Option do not lapse
prior to the expiration, termination or forfeiture of such Award,
then the Company may repurchase such Shares as of such expiration,
termination or forfeiture date and to the extent not so repurchased,
the restrictions on such Shares shall lapse as of that date.

          (ii) The repurchase price of any Restricted Stock to be
repurchased by the Company pursuant to subsection (i) above shall be
(a) with respect to unvested Shares of Restricted Stock as of the
date of the repurchase, $0.01 per share, and (b) with respect to
vested Shares of Restricted Stock as of the date of the repurchase,
the Fair Market Value of the Shares, as determined by the Committee;
provided that the repurchase price with respect to unvested Shares of
Restricted Stock acquired upon early exercise of an Option shall be
equal to the per Share exercise price of the Option Shares for each
repurchased unvested Share subject to the Restricted Stock Award;
provided further that, (I) with respect to Shares of Restricted Stock
other than Shares acquired upon early exercise of an Option, the
purchase price shall not be less than the amount of indebtedness of
the Participant to the Company with respect to the tax attributable
to such Shares, and (II) at the Company’s sole discretion, the
purchase price may be paid by cancellation of an equal amount of
indebtedness of the Participant to the Company, or if applicable and
greater, the amount determined under clause (I) above, which
cancellation shall first be applied against indebtedness referred
to in clause (I) above and thereafter against other indebtedness of
the Participant to the Company.

          (iii)The repurchase right must be exercised, if at all, by
the Company within 90 days following the termination of a
Participant’s employment or service with the Company, except in the
case of termination due to the death or Disability which exercise

 

 

period will then be extended to 210 days after the date of such
termination.

               (iv) The closing of a purchase and sale of Restricted Stock
pursuant to this Section 13(d) shall take place at the principal
office of the Company at such time and date as shall be mutually
agreed between the Company and the Participant; provided that if the
parties cannot reach such agreement, settlement shall be ninety (90)
days (which may be extended in the even such termination was due to
death or Disability) after the date of termination of the
Participant’s employment with the Company (or if such day is a
holiday, the first business day thereafter). At the closing, the
Participant shall deliver to the Company (A) the certificate or
certificates representing the Restricted Stock held by such
Participant, duly endorsed for transfer, or (B) if such certificate
or certificates are already in the Company’s possession, such duly
endorsed stock powers as the Company may request to permit it to
record the repurchase by the Company on the records of the Company.

          (e) First Refusal Rights.

          (i) Until the earliest of a Change in Control, an Initial
Public Offering or the third anniversary of the Effective Date,
except as otherwise provided herein, if the Participant or the
Participant’s successor in interest desires to sell all or any part
of the Plan Shares, and an offeror (the “Offeror”) has made an offer
therefor, which offer the Participant desires to accept, the
Participant shall: (i) obtain in writing a Bona Fide Offer for the
purchase thereof from the Offeror; and (ii) give written notice (the
“Option Notice”) to an officer of the Company setting forth the
Participant’s desire to sell such Plan Shares, which Option Notice
shall be accompanied by a photocopy of the original executed Bona
Fide Offer and shall set forth at least the name and address of the
Offeror and the price and terms of the Bona Fide Offer. Upon receipt
of the Option Notice, the Company shall have an option to purchase
any or all of the Shares specified in the Option Notice, such option
to be exercisable by giving, within thirty (30) days after receipt of
the Option Notice, a written counter-notice to the Participant. If
the Company elects to purchase, the Participant shall be obligated to
sell to the Company such shares at the price and terms indicated in
the Bona Fide Offer within sixty (60) days from the date of receipt
by the Company of the Option Notice. The Company’s purchase rights
under this Section 13(e) are assignable by the Company.

          (ii) Subject to Section 13(a) above, the Participant may
sell, pursuant to the terms of the Bona Fide Offer, any or all of
such Plan Shares not purchased by the Company or which the Company
does not elect to purchase in the manner set forth hereinabove after
the expiration of the 30-day period during which the Company may give
the aforesaid counter-notice. All Plan Shares shall remain subject to
the terms of the Plan, whether or not they are not sold pursuant to
a Bona Fide Offer.

Section 14. Rule 12g Consideration.

          Notwithstanding anything in the Plan to the contrary, during such
time as the Company is not subject to the periodic reporting requirements of

 

 

the Exchange Act by virtue of having a class of equity securities held of
record by 500 or more persons or a securities registered on a national
security exchange, the Committee shall have the option to prohibit the
exercise of any Options to the extent that such exercise would be
reasonably likely to subject the Company to such periodic reporting
requirements.

Section 15. General Provisions.

          (a) Shares shall not be issued pursuant to the exercise of any
Award granted hereunder unless the exercise of such Award and the issuance and
delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act, the
Exchange Act and the requirements of any stock exchange upon which the
Common Stock may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.

          (b) The Committee may require each person acquiring Shares to
represent to and agree with the Company in writing that such person is
acquiring the Shares without a view to distribution thereof. The certificates
for such Shares may include any legend that the Committee deems appropriate to
reflect any restrictions on transfer.

          (c) All certificates for Shares delivered under the Plan shall
be subject to such stock-transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange
upon which the Common Stock may then be listed, and any applicable federal or
state securities law. The Committee may cause a legend or legends to be placed
on any such certificates to make appropriate reference to such restrictions.

          (d) Nothing contained in the Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to stockholder
approval, if such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases. Neither the
adoption of the Plan nor the granting of any Award to an Eligible Recipient
shall confer upon any Eligible Recipient any right to continued employment
or service with the Company or any Parent or Related Company, as the case
may be, nor shall it interfere in any way with the right of the Company or
any Parent or Related Company to terminate the employment or service of any
of its Eligible Recipients at any time. The granting of one Award to an
Eligible Recipient shall not entitle the Eligible Recipient to any
additional grants of Awards thereafter.

          (e) To the extent applicable, pursuant to the provisions of
Section 260.140.46 of Title 10 of the California Code of Regulations, the
Company shall provide to each Participant and to each individual who acquires
Shares pursuant to the Plan, not less frequently than annually during the
period such Participant or purchaser has one or more awards granted under
the Plan outstanding, and, in the case of an individual who acquires Shares
pursuant to the Plan, during the period such individual owns such Shares,
copies of the Company’s annual financial statements. The Company shall not
be required to provide such statements to key employees of the Company
whose duties in connection with the Company assure their access to
equivalent information.

          (f) To the extent applicable, the provisions of Sections

 

 

260.160.41, 260.140.42 and 260.140.45 of Title 10 of the California Code of
Regulations are incorporated herein by reference.

          (g) The definitions set forth in this Plan are solely for the
purposes of the operation of this Plan, and such definitions including, without
limitation, the definition of “Cause” shall not be used for any other
purposes including, without limitation, whether or not an Eligible
Recipient is terminated with or without cause for purposes unrelated to
this Plan.

Section 16. Approval; Effective Date of Plan.

          This Plan was authorized in accordance with Section 303 of the
Delaware General Corporation Law and thereby made effective on May ___, 2002
(the “Effective Date”).

Section 17. Term of Plan.

          No Award shall be granted pursuant to the Plan on or after the
tenth anniversary of the Effective Date, but Awards theretofore granted may
extend beyond that date.

Section 18. Governing Law.

          The Plan and all determinations made and actions taken pursuant
hereto shall be governed by the laws of the State of Delaware, without giving
effect to the conflict of laws principles thereof.

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