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OIL & GAS

PARTICIPATION AND OPERATING AGREEMENT

MUSTANG PROJECT – BELL, MILAM, FALLS, ROBERTSON, LIMESTONE,

FREESTONE, LEON, MADISON, BRAZOS COUNTIES, TEXAS

This Oil & Gas Development and Operating Agreement (this “Agreement”) is made
and entered into effective as of the date defined herein as the “Effective
Date,” by and between SOHO RESOURCE HOLDINGS I, LLC (the “Company”) and the
undersigned individual or entity (“Participant”) (collectively, the “Parties”).

RECITALS

The Company is engaged in the oil and gas exploration and production industry
and has identified a target area for oil and gas development, commonly referred
to as the Mustang Project (the “Prospect”), located across Bell, Milam, Falls,
Robertson, Limestone, Freestone, Leon, Madison, and Brazos counties, Texas (the
“Prospect Area”). The Company, is acquiring leases (the “Leases”) located within
the Prospect Area to acquire  an interest in the oil and gas leases (the “Lease
Interests”) for the purpose of extracting the oil and gas reserves associated
with the Prospect and plans to drill the Prospect for the purpose of producing
and marketing the crude oil, natural gas and other minerals recoverable through
the Project Wells, and shall engage in any and all activities which are
reasonably incidental to the foregoing (all of the foregoing activities are
referred to collectively herein as the “Project”).

Participant has received and reviewed certain information and materials
respecting the Prospect (the “Prospect Information”) and, as a result thereof,
desires to participate in the Prospect and engage the Company to drill and/or
rework/re-enter the Initial Project Well in the Prospect Area, on the terms and
conditions stated in this Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants,
conditions and agreements hereinafter set forth, the Parties hereto hereby agree
as follows:

 

1.

Acquisition of Interests. Upon receipt of the Participation Payments as
described herein, the Company agrees that it will sell, assign and convey to
Participant, and Participant hereby purchases and shall receive, subject to all
other terms and provisions contained herein, a 25.0000% working interest before
well payout (18.7500% net revenue interest) and 18.7500% working interest after
well payout (14.0625% net revenue interest) in the Leases and Project Wells. The
portion of working and net revenue interests in the Project Wells that
Participant shall acquire hereunder is referred to hereinafter as “Participant’s
Interests.”  Participant’s Interests in the Leases, shall be purchased for
three-hundred dollars ($300.00 USD) per acre (the “Lease Acquisition Cost”), and
Participant’s Interests in the Project Wells shall be billable on a
third-for-a-quarter basis for the drilling and completion costs associated with
the Project Wells (“Drilling & Completion Cost).  For the purpose of determining
reversion of interest subject to well payout, well payout shall be the time at
which (x) the sum of Lease Acquisition Cost and Drilling & Completion Cost for a
specific Project Well equals (y) the cumulative total of net revenue
attributable to the Participant’s Interest in the specific Project Well minus
the cumulative total of lease operating expenses attributable to the
Participant’s Interest in the specific Project Well.

 

 

 

 

2.

Engagement of Company. Subject to Participant’s delivery of the Participation
Payments in full, Participant hereby engages the Company, and the Company hereby
accepts the engagement, on behalf of Participant’s Interests, to drill and/or
rework/re-enter the Initial Project Well at cost on a third-for-a-quarter basis
according to the terms and conditions stated in this Agreement.

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3.

Complete Consideration. The amounts described herein to be paid by the
Participant to the Company (collectively, in total, the “Participation Payment”)
shall be the full and complete consideration for all risk undertaken hereunder
by the Company and the activities and services to be rendered by the Company
pursuant to this Agreement.

 

 

 

 

4.

Delivery of Funds. The Participation Payment shall be paid to the Company by
Participant in accordance with the following schedule:

 

a.

Initial Lease Acquisition Payment:  Fifty Thousand Dollars ($50,000 USD) within
thirty (30) days of the execution hereof for said funds to be applied to the
Lease Acquisition Cost for Participant’s Interest in the Leases;

 

 

 

 

b.

Additional Lease Acquisition Payment:  The Participant’s share of Lease
Acquisition Cost, as determined by the before payout working interest amount of
Participant’s Interest, after the full application of the Initial Lease
Acquisition Payment for acquired leases; all amounts due to Company by
Participant for Lease Acquisition Cost shall be invoiced by the Company from
time to time and shall be paid by Participant within thirty (30) days of
invoice;

 

 

 

 

c.

Drilling & Completion Payment:   The Participant’s share of Drilling &
Completion Cost, as determined by the before payout working interest amount of
Participant’s Interest billable at cost on a third-for-a-quarter basis shall be
invoiced by the Company from time to time and shall be paid by Participant
within fifteen (15) days of invoice; any seismic or other cost for evaluation of
the Project Well shall be included as Drilling & Completion Cost.

 

5.

Failure to Deliver Participation Payment. The Participant’s actual payment and
thereby the Company’s actual and timely receipt of all Participation Payments
shall be a condition precedent to any and all obligations or liability of the
Company under this Agreement, or otherwise, and Participant expressly assumes
all risks of loss associated with the Participation Payment in connection with
its delivery to the Company. The failure of Participant to deliver any and all
Participation Payments in their entirety and in accordance with the terms of
this Agreement shall result in the forfeiture of all right, title and interest
in and to Participant’s Interests.  Further, Participant acknowledges and agrees
all accommodations, modifications or deferrals, if any, by the Company regarding
the Participant’s timely delivery of an Additional Lease Acquisition Payment or
Drilling & Completion Payment in accordance with the terms defined herein, shall
be made on a one-time basis, if at all, and shall not in any way modify, alter
or impact the Participant’s obligation to deliver any future Participation
Payments in accordance with the terms described herein. The Participant
expressly acknowledges and agrees the Participant shall have no right, title, or
interest in and to Participant’s Interest until the date upon which the entirety
of the Participation Payment for a specific Project Well is paid by the
Participant to the Company and that such date shall be the date of legal
ownership transfer (the “Transfer Date”) for all of Participant’s Interest in
the specific Project Well.  Any and all assets resulting from the right, title,
or interest in and to Participant’s Interest prior to the Transfer Date shall
remain property of the Company after ownership transfer.

 

 

 

 

6.

Development Activities. In consideration of the Participation Payments described
herein, the Company agrees to drill or rework/re-enter an Initial Project Well
for the benefit of the Company and Participant and on behalf of the
Participant’s Interests. After further evaluation of the Prospect, the Company
may propose additional wells to be drilled and/or reworked/re-entered located on
the Prospect acreage (collectively with the Initial Project Well to be known as
the “Project Wells) in which Participant may participate by timely paying its
proportionate share of the Drilling & Completion Cost for the specific Project
Well billable at cost on a third-for-a-quarter basis and in accordance with all
other terms described herein. The failure of Participant to elect to participate
in a future Project Well or fund its share of the costs of such Project Well in
a timely fashion and in accordance with the agreed terms herein shall result in
the loss of the option to participate in future Project Wells. All activities of
the Company hereunder shall be performed in a good and workmanlike manner,
provided, however, the Company does not guarantee that any commercial success
for the Project Wells will be achieved in the event any structures or substances
are encountered below surface or events arise. The Company’s responsibilities
shall include permitting, surveying and

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staking location, building necessary roads and preparing location, digging all
pits, paying for all surface, building and crop damage, furnishing all rigs,
crew, water, fuel, drilling tools, machinery, appliances, drill pipe, drill
collars, tool joints, logging devices, swabbing tools and other items necessary
to develop the Project Wells at target depth, setting and cementing casing,
providing all logs and tests as are reasonably prudent to determine if
additional development activities should be attempted, providing engineering and
geologic services and opinions with respect to initial development and
assessment of additional development activities as are reasonably required, and,
if the drilling of any wellbore must be abandoned, a dry-hole is drilled or a
non-commercial well results immediately after completion, plugging and
abandoning the Project Wells, and back-filling pits and restoring the surface.
The responsibilities of the Company in finalizing development of the Project
Wells (in the event such activities are merited) shall include supplying and
installing pumps, tanks, compressors, meters, valves, laying of lines from well
to tanks and/or pipelines, application of well treatments and “frac” jobs, and
arranging for other appropriate equipment for production and well hook-up in the
event of production.

 

 

 

 

7.

Performance of Development Activities. Participant acknowledges and agrees that
the development of the Project Wells shall be performed in consultation with the
officially designated operator of the Leases (the “Operator”) and other oil and
gas professionals, in the event any Project Wells are lost at any time at any
depth for any reason, including without limitation, the encounter of any
impenetrable formations or substances, the loss of circulation, or any other
conditions are encountered rendering further development activities
impracticable, the Company may plug and abandon any Project Wells in its sole
discretion, that any phase of development activities shall be attempted and
conducted only if and to the extent the Company should deem such activities to
be necessary or appropriate, in its sole discretion, and that all of the
obligations of the Company under this Agreement with respect to the development
or operation of the Project Wells may and shall be assigned or subcontracted by
the Company in whole or in part without any additional consent of Participant.

 

 

 

 

8.

Responsibility for Production, Loss or Damage. In no event shall the Company be
responsible or liable for, and Participant does hereby release the Company from,
any and all claims, costs, losses, expenses and liabilities that result from (i)
the failure of the Project Wells to produce from any formation as a result of
insufficient accumulation of hydrocarbons or the natural or stimulated
permeability of a formation, or (ii) errors or miscalculations in the depth of
the formations, nor be responsible if, after development, such formation or any
other formation is not encountered, or (iii) theft, fire, malicious mischief or
acts of God which cause damage to or loss of any portion or all of the Project
Wells, unless such loss is due to the gross negligence or willful acts of the
Company, or (iv) the actions or omissions of the Operator or any other parties
which may be contracted to perform activities and services in development of the
Project Wells. In the event the Project Wells is lost at any depth for any
reason, or any impenetrable substances are encountered, or there is loss of
circulation, or any other conditions are encountered rendering further
development activities impracticable, the Company and the Operator are hereby
authorized to plug and abandon the Project Wells, in their sole discretion.
Completion activities for the Project Wells shall be attempted and conducted
only if and to the extent the Company and the Operator shall deem such
activities to be necessary or appropriate, in their sole discretion. In addition
to the other waivers set forth herein, the Company shall not be liable to
Participant for any delay in performing or the failure to perform any of its
obligations hereunder if, and to the extent that, such delay or failure to
perform results from causes beyond the Company’s reasonable control (financial
difficulty or increased costs of materials, services or equipment shall not be
considered as causes beyond the Company’s control), all of which causes herein
are called “force majeure,” including, but without being limited to the
following: strikes, lockouts, or other industrial disturbances; lack of a market
for natural gas sales, failure of equipment; civil disturbances; theft or
malicious mischief; fire; unusual climatic conditions, and other acts of God;
acts of a public enemy; compliance with any regulation or equipment of any duly
authorized governmental body or agencies; or inability to obtain transportation
or necessary materials in the open market. Any period of “force majeure” shall
extend the time for performance by the Company by the length of time of the
“force majeure” period.

 

 

 

 

9.

Indemnification of Participant. The Company agrees to protect, indemnify, save
and hold harmless Participant, from any and all claims, demands and causes of
action in favor of the Company, the Company’s employees and all third parties on
account of personal injuries or deaths, or on the account of property damages or
environmental liability arising out of the Project.

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10.

Assignments of Participant’s Interests. Within a reasonable time after it can be
established that the Project Well will produce in commercial quantities and the
Participant has satisfied the entirety of the Participation Payment, Participant
shall upon submitting a written request to the Company receive a written
assignment of Participant’s Interests; however, until such time the Company or
its affiliates shall retain record title to all Lease Interests. In the event
Participant should ever make any subsequent assignments or transfers of all or
any part of Participant’s Interests, Participant covenants to make such
assignments and transfers subject to this Agreement, the Operating Agreement
(hereinafter defined), and all other agreements, as same may be amended from
time to time, which may cover the Leases or Project Wells, and this covenant
shall be in addition to all other conditions and provisions affecting a
subsequent assignment of such interests. Participant hereby further acknowledges
and represents that Participant’s Interests are being acquired for Participant’s
own account or investment and not with a view toward resale or redistribution in
a manner which would require registration under the Securities Act of 1933, as
amended (the “Act”), or any state securities laws, that Participant does not
presently have any reason to anticipate any change in circumstances or other
particular events which would cause Participant to sell such interests, that
Participant is the sole party and interest acquiring this investment, and that
no parties other than Participant as record holder, will have any beneficial
interest in such interests. Furthermore, Participant agrees that Participant
will not sell nor attempt to sell all or part of Participant’s Interests unless
such interests have first been registered under the Act and all applicable state
securities statutes, or Participant first furnishes an opinion of counsel
satisfactory to the Company, stating that exemptions from such registration
requirements are available and that the proposed sale is not, and will not,
place the Company or any of its owners, officers, directors or employees, in
violation of any applicable federal or state securities law, or any rule or
regulation promulgated thereunder.

 

 

 

 

11.

Operation of Project Wells. The continuing operation and production of the
Project Wells shall be conducted by the Operator, as selected or approved by the
Company (which may include the Company itself or an affiliate of the Company),
but which in any event must be recognized as an approved oil and gas operator by
the governing state and/or federal regulatory agency having jurisdiction over
the Project Wells. Participant acknowledges and agrees that the written
agreement or working arrangement (the “Operating Agreement”) under which the
Operator conducts operations of the Project Wells will affect and govern
Participant’s Interests. The Company is hereby authorized to enter into the
Operating Agreement, and amendments thereto, and any other agreements that it
may deem necessary or desirable in the operation and development of the Leases
and the Project Wells, and to subject the Project Wells to such agreements
without the approval of or notice to Participant.  Participant acknowledges and
agrees that the Operating Agreement will grant the Operator broad authority in
exercising its discretion in connection with Project Wells operations and allow
the Operator to receive reimbursement of the production and operating costs of
the Project Wells and a proportional or flat fee amount to cover the Operator’s
internal administrative expenses associated with the Project Wells. The Company
and Participant further acknowledge and agree that the Project Wells shall be
operated in accordance with the following provisions:

 

a.

Duties and Authority. In addition to any other duties, rights and powers
specifically applicable to the Company under this Agreement, the Company shall
have the duty, and complete right, power and authority as may be required or
appropriate, to fully manage, direct and authorize Project operations on behalf
of Participant’s Interests, except to the extent otherwise provided and limited
herein. By way of illustration but not by way of limitation, the Company may and
shall make and implement all decisions regarding the drilling, testing,
completing, equipping, plugging, abandoning, off-setting, re-drilling,
reworking, recompletion, stimulating and operating of the Project Wells,
production therefrom, and the payment of all costs and expenses arising in
connection with the Project, including taxes, delay rentals and shut-in
payments, and shall perform or arrange for the performance of all necessary
general administration duties related to Participant’s participation in the
Project, such as distributing revenue, collecting operation expenses, and
preparing appropriate federal tax forms. Notwithstanding any provision herein to
the contrary, the Company will devote such time to the affairs and activities of
the Project as the Company, in its sole discretion, deems necessary.

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b.

Management Fee. As compensation solely for its obligation to monitor Project
operations and perform general administration duties, the Company shall be
entitled to receive, and withdraw from Participant’s revenue account, the amount
of $500 (the “Management Fee”) per Project Well, on a monthly basis, beginning
the first month of well production and continuing monthly thereafter as long as
the Company shall perform duties under this Agreement.

 

 

 

 

c.

Operating Expenses and Revenue. Participant shall pay and be responsible for all
costs and expenses of operating the Project Wells, in accordance with the
proportion that Participant’s Interests bear on a third-for-a-quarter basis to
all working interests in such wells, such costs and expenses to include without
limitation all amounts incurred or payable in connection with the Company
performing or exercising its operational duties and authority as imposed and
granted herein. The Company may but shall not be obligated to pay and discharge
such costs and expenses on behalf of Participant, and thereafter charge
Participant for its proportionate share.  The Company is hereby appointed the
agent of Participant to receive, hold and disburse the proceeds of the sale of
all production attributable to Participant’s Interests, and the Company shall
maintain an accounting with respect thereto, and may withhold and retain all
operating expenses and other amounts due by Participant hereunder. The Company
shall, to the extent funds are then held on behalf of Participant, pay to the
Company and any third parties all amounts due from Participant. In the event at
any time there are insufficient proceeds being held on account for Participant
to pay any amounts due, the Company shall invoice Participant and Participant
shall promptly pay such invoice upon receipt, but in no event later than 10
calendar days of delivery. If Participant fails to pay such invoice within the
time provided, the amount due shall bear interest at the rate of eighteen
percent per annum until paid. After satisfying all amounts to be paid or owing
by Participant and retaining any amounts necessary or appropriate in the sole
discretion of the Company to meet anticipated payment obligations of
Participant, the Company shall disburse the remainder of all production
proceeds, if any, to Participant on a monthly basis. Receipt and payment duties
may be assigned or subcontracted by the Company to any third-party.

 

 

 

 

d.

Limitation on Expenditure. The Company is hereby expressly denied authorization
to and shall not, in the name of or on behalf of Participant, unless and until
approved by an affirmative majority vote of all working interest owners, as
counted by the amount of interests owned and not by the number of owners, expend
or otherwise obligate Participant for the payment of any single sum, for any one
month period, in excess of $50,000 per Project Well, excluding all sums paid in
satisfaction of the Management Fee, ordinary operating expenses, amounts paid in
settlement of damage claims as provided in the following Subparagraph, or the
costs of plugging and abandoning the Project Wells after being initially
developed; provided, however, that in the case of any emergency, such as
explosion, fire or extreme weather, the Company may take such actions and incur
such costs and expenses with respect to the as in the sole discretion of the
Company are necessary or appropriate to deal with such emergency, and in such
event Participant shall be obligated to pay its proportionate share of such
costs and expenses.  

 

 

 

 

e.

Non-Consent Consequences. In the event the Company elects to undertake
activities respecting the Project Wells in addition to those initially proposed
for the Project, the cost of which per well would exceed the limitations imposed
above, the Company shall notify Participant, and the other working interest
owners, of such election and specify the activities to be performed and the
estimated cost thereof. Participant shall have 10 calendar days from the
delivery of such notice to notify the Company of whether Participant desires to
fund its share of the cost of such activities and deliver such amount to the
Company. The failure of Participant to delivery its share of costs within the 10
calendar day period shall constitute an election by Participant to not fund its
share of the cost of such activities. Those owners who deliver their
proportionate share shall be referred to as the “Consenting Parties”, and those
owners who do not deliver their proportionate share shall be referred to as the
“Non-Consenting Parties.” All Non-Consenting Parties shall be deemed to have

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relinquished to the Consenting Parties, and the Consenting Parties shall own and
be entitled to receive, in proportion to the amounts paid by each of the
Consenting Parties, all of the Non-Consenting Parties’ interests in the Project
Wells and the production therefrom, such that the Company shall cause all net
proceeds of the Project Wells accruing thereafter to be allocated one hundred
percent (100%) to all Consenting Parties as a class, and distributed in
accordance with the amounts paid by each of the Consenting Parties, until such
time as eight hundred percent (800%) of all amounts contributed by the
Consenting Parties are recovered by the Consenting Parties; after such recovery
by the Consenting Parties, the distribution of production proceeds will revert
back to the usual manner of distributions as provided herein. Participant agrees
to the foregoing remedy in recognition of the substantial and speculative nature
of the damages which his default could cause to the other owners and other
interest holders in the Project Wells, and with the further recognition that the
necessity of an accounting, contribution or damages action against the
Non-Consenting Parties would be detrimental to the Consenting Parties and
impractical to carry out, and further agrees that actual damages would be
extremely difficult or impractical to determine, and Participant therefore
agrees that the foregoing remedy is reasonable.

 

 

 

 

f.

Claims and Lawsuits. All costs and expenses incurred in the defense or
prosecution of any claims or actions arising out of or connected to the Project
or the Leases, including those which may involve Indemnified Liabilities
hereunder, together with any and all amounts paid to settle such claims or
actions or discharge any final judgment, shall be considered costs of operation
of the Project Wells, and shall be charged to and paid by Participant and the
other interest owners in proportion to their working interests in the Project
Wells, except that in the case of any Indemnified Liabilities the Company may
only recover amounts due from future revenues of the Project. The Company shall
have the option at its discretion to defend and prosecute all claims and actions
respecting the Project in the name of Participant or as the representative,
nominee or other similar designation thereof. If Participant is named in any
claim or action, or receives notice of any claim or action, arising out of or
connected to the Project or the Leases, it shall give prompt written notice of
same to the Company. If Participant engages counsel separate from the Company,
all claims and suits respecting the Project or the Leases shall be under the
general direction a committee of attorneys representing the parties, with the
Company’s attorney acting as chairman of such committee. Participant shall not
negotiate or settle any claim or action without prior notice and express
approval from the Company.

 

 

 

 

g.

Lien Rights. The Company is hereby granted, to the extent allowed by applicable
state law, a first and preferred lien on Participant’s Interests, all equipment
related thereto, and in the oil and gas production attributable to such
interests and the proceeds thereof, to secure the payment of all sums due from
Participant to the Company. In the event Participant fails to pay any amount
owing by it to the Company within the time limit for payment thereof, the
Company, without prejudice to other existing remedies, is authorized at its
election, to collect from the purchasers of oil and gas production from the
Project the proceeds accruing to Participant’s Interests up to the amount owing
by Participant, and each purchaser is authorized to rely upon the Company’s
statement as to the amount owing by Participant. The preceding rights may be
assigned by the Company.

 

 

 

 

h.

Right to Take Production. Participant shall take in kind or separately dispose
of its proportionate share of all production from the Project Wells, exclusive
of production that may be used in development and production operations and in
preparing and treating production for marketing purposes and production
unavoidably lost. Each party shall pay or deliver, or cause to be paid or
delivered, all royalties or other payments due on its share of production, and
shall hold the other parties free from any liability therefor. Any additional
expenditure incurred in the taking in kind or the separate disposition by any
party of its proportionate share of the production shall be borne by such party.
In the event Participant shall fail to make the arrangements necessary to take
in kind or separately dispose of its proportionate share of production, the
Company shall have the right, subject to revocation at will by Participant, but
not the obligation, to purchase such production or sell it to others for the
time being, at not less than the market price prevailing in the area, which
shall in no event be less than the price which the Company receives for its
portion of production. Any such purchase or sale by the Company shall be subject
always to the right of Participant to exercise at any time its right to take in
kind or separately dispose of its share of production.

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12.

Taxation. Each of the Participants hereto elects, under the authority of Section
761(a) of the Internal Revenue Code, as amended (the “Code”), to be excluded
from the application of all of the provisions of Subchapter K of Chapter 1 of
Subtitle A of the Code. If the income tax laws of the state or states in which
the Project is located contain, or may hereafter contain, provisions similar to
those contained in Subchapter K of the Code above referred to under which a
similar election is permitted, each of Participants agree that such election
shall be exercised. Participant authorizes and directs the Company to execute
such an election or elections on its behalf and to file the election with the
proper governmental office or agency. If requested by the Company to do so,
Participant agrees to execute and join in such an election.  

 

 

 

 

13.

Power of Attorney. Participant irrevocably makes, constitutes and appoints the
Company, with full power of substitution and resubstitution, Participant’s true
and lawful attorney-in-fact for, and in Participant’s name, place and stead, and
for Participant’s use and benefit, to sign, execute, certify, acknowledge, and
file any governmental filings deemed appropriate by the Company in its sole and
exclusive discretion, and to sign, execute, certify, acknowledge, file and
record all instruments amending and/or renewing any such governmental filings
that the Company in its sole and exclusive discretion deems appropriate.
Participant further authorizes the Company to take any further action which the
Company shall consider necessary or advisable in its sole and exclusive
discretion in connection with any of the foregoing and hereby gives the Company
full power and authority to do and perform each and every act or thing
whatsoever requisite or advisable to be done in its sole and exclusive
discretion in and about the foregoing as fully as Participant might or could do
if personally present, and hereby ratifies and confirms all that the Company
shall lawfully do or cause to be done by virtue hereof. The power of attorney
granted hereby is an irrevocable special power of attorney coupled with an
interest in the Project which may be exercised by the Company by listing the
Participant when executing any agreement, certificate, instruction or documents
with the single signature of the Company or by one of its duly authorized agents
acting as attorney-in-fact for all of them. The power of attorney granted herein
shall survive any event or transaction, including without limitation, death,
incompetence, insanity, merger, bankruptcy, receivership or dissolution of
Participant.

 

 

 

 

14.

Relationship of the Parties. It is not the purpose or intention of the parties
hereto to create any partnership, tax partnership, joint venture, mining
partnership, association or any relationship among them, whether legal or
quasi-legal, whereby one party is held liable for the acts or omissions of the
other, and neither this Agreement, the Operating Agreement nor the operations
conducted thereunder shall be construed or considered as creating any such
relationship. No party hereto shall have any fiduciary relationship with regard
to any matters, including without limitation, any mineral or leasehold interest
in land adjoining or contiguous to the Leases, whether such interest is owned at
the time of execution hereof or thereafter. The parties hereto are free to
purchase, sell or deal with any interest in any lands or depths not covered by
this Agreement without the consent of the other and without the duty to account
therefor.

 

 

 

 

15.

Term of Agreement. This Agreement shall remain in full force and effect for as
long as the Leases or contractual working interest covering the Project Wells
remain or are continued in force as to any part thereof, whether by production,
extension, renewal or otherwise; provided, however, that in the event the
Project Wells are ever plugged and abandoned, this Agreement shall terminate. It
is agreed, however, that the termination of this Agreement shall not relieve any
party hereto from any liability which has accrued prior to the date of such
termination, nor extinguish any representations of Participant made herein, all
of which shall survive termination.

 

 

 

 

16.

Participant’s Warranties. In order to induce the Company to enter into this
Agreement, Participant does hereby warrant and represent to the Company as
follows, that Participant:

 

a.

is sufficiently sophisticated and experienced in the business of exploring for
and producing oil, gas or other minerals, or other business and investment
matters, so as to participate in the Project as contemplated hereunder, and
fully understands the risks and merits involved in developing an oil and gas
well, including the following: Exploration for and production of oil and gas
involves a

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high degree of risk of loss of all or a portion of the amounts invested. The
results of any well cannot be determined in advance; The completion or
recompletion of a producing well does not indicate the well will produce
sufficient hydrocarbons to return a profit; Even though a well is drilled or
reworked in an area or formation adjacent to known and existing production,
there is no assurance that such development will locate the productive zones, or
that such productive zones, if located, will have the attributes necessary for
commercial production sufficient to recoup the capital expended in placing such
well in production; Natural hazards and risks involved in the drilling or
reworking of a well include unusual or unexpected formations, pressures, and
other conditions which are not anticipated; The drilling, completion, reworking
and operation of an oil and gas well involves risk of operations failures; It is
not unusual to encounter unexpected problems or conditions which necessitate the
abandonment of the well and result in a total loss of investment in the well;
The revenues generated from an oil and gas well will be highly dependent upon
the future prices and demand for oil and gas; There can be no assurance that a
market for any oil or gas produced from an oil and gas well will exist, or that
the prices obtainable will be adequate to return the costs of developing such
well; The marketing of oil and gas, and the prices obtained thereby, are subject
to numerous factors beyond any control and which are unpredictable, including
the domestic and world supply and demand for oil and gas, the price of foreign
imports, the price and availability of alternative fuels and changes in
regulatory laws and price controls; The oil and gas industry is subject to
extensive governmental regulation, including those governing the drilling and
spacing of wells, allowable rates of production, marketing, prevention of waste
and pollution and protection of the environment; Governmental authorities may in
the future impose obstacles which severely limit the production, sale and
pricing of oil and gas; In addition, various types of mineral properties have
come under attack in certain areas from the private sector because of their
potential impact upon the surrounding environment; Participant’s Interests could
be adversely affected by either governmental regulations or private litigation
involving environmental concerns; The nature and extent of future governmental
control, regulations or laws on the operations of an oil and gas well are not
predictable. Participant further warrants and represents that it has not been
given any oral or written assurances or representations regarding the success,
production or profitability of the Project, or any other matters that are in any
way inconsistent with foregoing statements of this Subparagraph, and that
Participant has relied upon or consulted with all of its own financial, legal,
engineering and geological representatives and advisors deemed necessary to
evaluate the Leases and the Project and has not in any way relied upon any
statements of the Company or its shareholders, directors, officers, employees or
agents in connection therewith;

 

 

 

 

b.

is fully satisfied regarding disclosure and evaluation of the Company, its plan
of business, history and financial condition, the Leases, the Lease Interests,
the Operator and the Project, and has received all financial and other
information requested regarding the Company, the Leases, the Lease Interests,
the Operator and the Project;  

 

 

 

 

c.

has adequate financial capacity to enter into this Agreement, has an adequate
knowledge of finance, securities and investments in general, and the oil and gas
industry in particular, to fully understand the ramifications of entering into
this Agreement, and has adequate experience and skill in the oil and gas
industry, or other industries, based upon actual participation, with which to
fully assess the risks and merits of entering into this Agreement;

 

 

 

 

d.

has entered into this Agreement as the ultimate beneficiary hereunder for his
own account, and has not entered into this Agreement with a view or the intent
to assign, transfer, resell, distribute or otherwise dispose of any rights or
interests hereunder in such a manner as would require registration under the Act
or any applicable state securities laws (or, if registration would be required,
that all registration requirements of the Act and any applicable state
securities laws would be met);

 

 

 

 

e.

fully understands that Participant must bear the economic risk of the
transaction represented hereby for an indefinite period of time because neither
Participant’s Interests nor this Agreement, have been registered under
applicable securities laws and therefore cannot be assigned, transferred, resold
or otherwise disposed of unless such are subsequently registered under such
securities laws or an exemption from such registration is available; and

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f.

fully understands that the Company is relying on the truth and accuracy of the
representations, warranties and agreements set forth herein in entering into
this Agreement with Participant without the registration thereof under any
federal or state securities laws, and that the statutory and other basis for
exemption from registration under such laws would not be present if the
representations and warranties of Participant hereunder were not true and
correct; and therefore, Participant agrees to indemnify and save and hold
harmless the Company against all losses, liabilities, costs and expenses
(including reasonable attorney’s fees) which arise as a result of the
untruthfulness or inaccuracy of Participant’s representations and warranties or
the assignment, transfer or other disposition of any rights or interests or this
Agreement other than as permitted hereunder.

 

17.

Miscellaneous Provisions. The Company and Participant hereby agree to be bound
by the following terms and provisions:

 

a.

Notices. Unless otherwise provided, all notices, elections, approvals and other
communications required or permitted hereunder shall be in writing and shall be
deemed delivered for all purposes (i) on the date of actual receipt if delivered
in person and the recipient acknowledges such receipt in writing, (ii) at the
time of actual receipt if sent via facsimile or email if delivery is confirmed
or no notice of transmission error is received by sender, (iii) whether received
or not, on the date deposited with a commercial delivery or parcel service if
delivery is documented by such service, and (iv) whether received or not, on the
date deposited with the United States Postal Service, if sent via registered or
certified mail, postage prepaid, return receipt requested; and, in the case of
(ii), (iii) and (iv) above, when addressed to the intended recipient at the last
known address, or on subsequent written instructions delivered to the other
party.

 

 

 

 

b.

Binding Provisions. This Agreement constitutes a legal, valid and binding
agreement between the parties hereto, enforceable against each in accordance
with its terms and provisions, except as limited by bankruptcy, insolvency,
receivership and similar laws from time to time in effect, and shall inure to
the benefit of and bind the parties hereto and their respective heirs, legal
representatives, successors and permitted assigns.

 

 

 

 

c.

Applicable Law & Venue. The laws of the State of Texas shall govern the
validity, enforcement and interpretation of this Agreement without regard to the
conflict law rules of such state. The parties hereto acknowledge and agree that
the negotiations and execution of this Agreement shall be deemed to have
occurred in Harris County, Texas, the obligations of the parties hereto shall be
deemed performable in Harris County, Texas, and the parties hereto hereby
consent that the exclusive venue for any legal action arising out of this
Agreement shall be in Harris County, Texas.

 

 

 

 

d.

Arbitration of Disputes. IN THE EVENT THAT A DISPUTE ARISES BETWEEN PARTICIPANT,
THE COMPANY OR ANY PARTIES RELATED THERETO, OR ANY OF THEIR SUCCESSORS OR
ASSIGNS, IN CONNECTION WITH THIS AGREEMENT, THE PARTIES HEREBY EXPRESSLY AGREE
THAT SUCH DISPUTE SHALL BE RESOLVED THROUGH ARBITRATION RATHER THAN LITIGATION,
AND TO SUBMIT THE DISPUTE TO EITHER THE AMERICAN ARBITRATION ASSOCIATION IN
HOUSTON, TEXAS, WITHIN FIVE (5) CALENDAR DAYS AFTER RECEIVING A WRITTEN REQUEST
TO DO SO. IF ANY PARTY FAILS TO SUBMIT THE DISPUTE TO ARBITRATION WITHIN THE
SPECIFIED PERIOD, THEN THE REQUESTING PARTY MAY FILE ANY PAPERS NECESSARY TO
COMMENCE ARBITRATION. THE PARTIES AGREE ALL HEARINGS AND PROCEEDINGS RESPECTING
ANY DISPUTES, INCLUDING ANY HEARING SCHEDULED AFTER AN ARBITRATION OR OTHER
PROCEEDING IS

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INITIATED BY ANY PARTY, SHALL TAKE PLACE IN HARRIS COUNTY, TEXAS, AND THE
FEDERAL ARBITRATION ACT SHALL GOVERN THE PROCEEDING AND ALL ISSUES RAISED BY
THIS AGREEMENT TO ARBITRATE. IF ANY PARTY SHALL INSTITUTE ANY COURT PROCEEDING
IN AN EFFORT TO RESIST ARBITRATION AND BE UNSUCCESSFUL IN RESISTING ARBITRATION
OR SHALL UNSUCCESSFULLY CONTEST THE JURISDICTION OF ANY ARBITRATION FORUM
LOCATED IN HARRIS COUNTY, TEXAS, THE PREVAILING PARTY SHALL BE ENTITLED TO
RECOVER FROM THE LOSING PARTY ITS LEGAL FEES AND ANY OUT-OF-POCKET EXPENSES
INCURRED IN CONNECTION WITH THE DEFENSE OF SUCH PROCEEDING OR ITS EFFORTS TO
ENFORCE ITS RIGHTS AS PROVIDED FOR HEREIN.THE PARTIES UNDERSTAND THAT (I)
ARBITRATION IS FINAL AND BINDING ON THE PARTIES; (II) THEY ARE WAIVING THEIR
RIGHT TO SEEK REMEDIES IN COURT, INCLUDING THE RIGHT TO JURY TRIAL; (III)
PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED THAN AND DIFFERENT FROM
COURT PROCEEDINGS; (IV) THE ARBITRATORS’ AWARD IS NOT REQUIRED TO INCLUDE
FACTUAL FINDINGS OR LEGAL REASONING AND ANY PARTY’S RIGHT TO APPEAL OR TO SEEK
MODIFICATION OF RULINGS BY THE ARBITRATORS IS STRICTLY LIMITED; AND (V) THE
PANEL OF ARBITRATORS WILL TYPICALLY INCLUDE MEMBERS WHO WERE OR ARE AFFILIATED
WITH THE OIL AND GAS INDUSTRY.

 

 

 

 

e.

Remedies. The parties hereto covenant that no punitive damages shall be sought
or obtained from the other or their affiliates in any legal action or other
proceeding in which damages are sought, and hereby stipulate that damages, if
any, arising from this Agreement, all other agreements to which they are a
party, as well as to any action arising out of or in connection with the
business arrangements (including, without limitation, actions based upon
tortuous causes of action) between the parties hereto (and/or their affiliates)
shall be limited to actual damages proximately caused by the other party.
Further, Participant recognizes the importance of the veracity of the
representations and warranties set forth elsewhere, and that the acceptance of
the subscription represented hereby will be based upon such representations and
warranties. Participant further understands that making an assertion contrary to
such representations and warranties causes undue delays and injures the Company.
It is therefore understood, agreed and stipulated for all purposes that
Participant hereby waives any claim or defense which is contrary to such
representations and warranties, including those made subsequent to this
Agreement, and Participant shall not urge in any action or proceeding any claim
or defense which contradicts such representations and warranties. This provision
shall be enforceable by specific performance or injunction.

 

 

 

 

f.

Attorneys’ Fees. Should legal action be instituted to enforce any of the
provisions of this Agreement, or by reason of breach or default in any of the
covenants, representations, warranties, terms or conditions of this Agreement,
the prevailing party shall be entitled to recover costs and attorney’s fees in
such amount as the court in such action shall adjudge reasonable.

 

 

 

 

g.

Severability of Provisions. If for any reason any provision or provisions hereof
is determined to be invalid and contrary to any existing or further law, such
invalidity shall not impair the operation of or affect those portions of this
Agreement that are valid.

 

 

 

 

h.

Entire Agreement. This Agreement contains the complete and entire agreement
between the parties hereto with respect to the matters contained herein and
cannot be varied except by written agreement. The parties hereto agree that
there are no other agreements, understanding, representations or warranties
between the parties hereto with respect to such matters which are not expressly
set forth herein, and that the terms and provisions of this Agreement supersede
all other agreements, understanding, representations or warranties between the
parties hereto which may have arisen heretofore or contemporaneously herewith.

 

 

 

 

i.

Amendments. No amendment to this Agreement shall be valid or effective unless
made in writing and signed by all the parties hereto.

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j.

Paragraph Titles. The Paragraph and Subparagraph headings contained in this
Agreement are for convenience and descriptive purposes only and shall in no way
enlarge, limit or in any way affect the scope or meaning of the text of the
terms and provisions of this Agreement.

 

 

 

 

k.

Term Usage. In the use of all terms herein, the singular shall include the
plural and the masculine gender shall include the feminine and vice versa as the
context requires.

 

 

 

 

l.

Defined Dates. The term “Effective Date,” as used herein, shall mean the date
Participant executes this Agreement.

 

18.

Disclosure of News.  The Company acknowledges that periodically the Participant
in its general course of business may disclose matters of fact pertaining to the
ongoing business of the Participant with a description of material events that
may include a discussion of the potential business association and agreements of
the Participant with the Company, and as a result, a description of Company’s
business and accomplishments may be requested.  Participant agrees any
disclosures described above will be made only after receiving prior written
approval and authorization of Company, which may take the form of an email
stating approval.  Additionally, Company acknowledges that as part of the
Participant’s disclosures, the Participant may request a statement from the
Company’s officers regarding the ongoing association and business between the
Participant and the Company; Company agrees that when so requested, the
statement from Company will be provided promptly after internal review and
approval.

 

 

 

 

19.

Delivery Amounts. Participant represents it will deliver the Initial Lease
Acquisition Payment and will arrange for the prompt delivery of other good funds
to the Company in the appropriate amount and in accordance with the agreed terms
described in Section 4.

MAKE CHECKS PAYABLE TO:

SOHO RESOURCE HOLDINGS I, LLC

______________________

______________________

IN WITNESS WHEREOF, this Agreement has been executed to be effective as of the
Effective Date.

THIS AGREEMENT CONTAINS A PRE-DISPUTE ARBITRATION CLAUSE LOCATED ON PAGE 9,
PARAGRAPH 17(d) HEREOF.

_______________________________

Participant’s Contact Information:

Print Participant Name

 

 

Address: ____________________

 

____________________

_______________________________

____________________

Participant Signature

 

 

Phone:    ____________________

 

Email:    ____________________

_______________________________

 

Print Name & Title

Participant’s SSN/EIN: ____________________

 

 

 

 

_______________________________

 

Participant Execution Date

 

AGREED AND ACCEPTED by the Company as of the above written date.

SOHO RESOURCE HOLDINGS I, LLC

BY:  _______________________________          DATE:  _____________

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