Document:

ex10x12.htm

Exhibit 10.12

 

 

 

PARTICIPATION AGREEMENT

 

This Participation Agreement (hereinafter "Agreement") is made and entered into effective November 1, 2013, by and between PetroShare Corp., hereinafter referred to as "PetroShare", and LLOCO L.L.C. ("Participant").

 

RECITALS:

 

A. PetroShare has acquired certain oil and gas leases described on. Exhibit "A" and Exhibit "B", attached hereto ("Existing Leases").

 

B. Participant wishes to participate with PetroShare in the drilling and development of the Leases pursuant to the provisions of this Agreement.

 

Now therefore, the parties hereto, for the mutual promises contained herein and other good and valuable consideration, the sufficiency of which is hereby acknowledged, do hereby contract and agree as follows:

 

I.  DEFINITIONS

 

 

	
1. 

	
Effective Date:  The Effective Date is November 1, 2013.

	
2. 

	
Existing Leases: The oil and gas leases on Exhibit "A" and "B", attached hereto, which includes the acreage required for the drilling of the Obligation Well.

	
3. 

	
Obligation Wells: The wells will be drilled from a common well pad on Exhibit A leases, and will be the Kowach #3-25 well, located in NESW Section 25, T6N R90W, a vertical well bore and the Voloshin #3-25 well, located in NESW Section 25, T6N R90W; directional well bore to test the Niobrara formation at approximately, 7855 feet TVD. Upon reaching total depth in the first Obligation Well and upon the completion of mud logging and open hole logging operations, PetroShare will provide such data to all JOA working interest participants along with its well evaluation report. Participant(s) shall have forty eight (48) hours from the receipt of the data to make its election whether to proceed with the drilling of the second Obligation Well. In the event a simple majority of JOA participants elect not to proceed with the drilling of the second Obligation Well, PetroShare shall release the rig and waive the requirement to drill the second Obligation Well.

	
4. 

	
Operator:

 

	

a)

	
PetroShare Corp or its successor, as to Exhibit A leases only

  

	

b)

	

Quicksilver Resources, Inc. or its successor, as to Exhibit B leases only

 

	
5.

	
Operating Agreement(s):

 

	
a)

	
Sec 25 Operating Agreement: The joint operating agreement, covering lands listed in Exhibit A only and attached hereto as Exhibit "D"

 

 

  

1

  

 

 

	
b)

	
Quicksilver Operating Agreement: The joint operating agreement, covering lands listed in Exhibit B only and attached hereto as Exhibit "E".

	
7. 

	
Participant Interest:  A pro rata Working Interest in the Leases and Obligation Wells of 25.0000%, having a net revenue interest of not less than 19.575% in Exhibit A Leases and a 25.0000% Interest of PetroShare's Net Working Interest having a net revenue interest proportionately reduced to not less than 20.000% of 8/8ths in Exhibit B Leases, as calculated on a weighted average basis.

	
8. 

	
Working Interest:  The cost bearing interest created by oil and gas leases.  Working Interest may also refer to the share of ownership attributable to an unleased mineral interest.

	
9. 

	
Net Revenue Interest: The share of the gross production proceeds.

	
10. 

	
Project Area: Shall be any area(s) covering the Existing Leases in which there is ongoing operations including but not limited to; leasing, drilling and completion operations; seismic operations, active producing wells.

II. PROSPECT FEE

 

A.      Payment of Prospect Fee. Participant shall pay an aggregate prospect fee to PetroShare upon the execution of this Agreement equal to the sum of $187,500 ("Prospect Fee").

 

III.  DRILLING AND DEVELOPMENT.

 

A.  Obligation Wells. Participant agrees to pay for its Participant Interest share of the drilling, completion and equipping, or the plugging and abandonment, of the Obligation Wells. PetroShare shall use its commercially reasonable efforts to commence the drilling of the first Obligation Well by December  l, 2013.

 

B.  Interests Earned.  Upon Participant paying the Prospect Fee, together with its share of the costs for the drilling, completion and equipping, or the plugging and abandonment of an Obligation Well(s), Participant shall be assigned an undivided interest in and to the Existing Leases equal to Participant's Interest of PetroShare's interest in the Existing Leases as to the Leases listed on Exhibit A & B attached hereto and as to all depths. All assignments will be subject to all royalties, overriding royalties, production payments, net profits interests and similar burdens existing as of the date hereof.

 

C.  Subsequent Drilling and Development Operations. After drilling and completion of the Obligation Well(s), all subsequent wells ("Subsequent Wells") and subsequent operations shall be proposed in accordance with the applicable Operating Agreement and the provisions of this Agreement, with the Participant being responsible for its Participant Interest, shall be subject to any elections to not participate under such Operating Agreement.

 

 

  

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IV.  OPERATIONS WITHIN PROJECT AREA

 

A.     Operating Agreement. All operations within the Project Area shall be conducted pursuant to the applicable Operating Agreement governing the Existing Leases, as the case may be, ("Operating Agreement"), reference to which is hereby made for all purposes, except as expressly modified by the terms hereof. In the event of a conflict between this Agreement and the applicable Operating Agreement, this Agreement shall control.

 

B.     Cash Advances.   Notwithstanding anything  in the  Operating  Agreement(s)  to  the contrary, PetroShare shall have the right to require cash advances from Participant with respect to the proposed drilling and completion of one or more Obligation Wells. Such request shall be in the form of one or more Authorities for Expenditure {"AFEs") and payment shall be due within 20 days following receipt of the AFEs. Provided however that such AFE's shall not be issued by PetroShare more than 30 days in advance of the confirmed spud date (i.e. drilling commencement date) of the applicable Obligation Well(s).

 

V.  PROPORTIONATE REDUCTION

 

A.      Proportionate Reduction Clause:  Ifan oil and gas lease or other Mineral Interest covers less than the entire mineral fee estate, or if a party's interest in the applicable lease or Mineral Interest is less than a 100% ownership interest, any interest conveyed or reserved pursuant to this Agreement is intended to be proportionately reduced to accord to (i) the proportion of mineral interest covered by the relevant oil and gas lease or other Mineral Interest, and (ii) the proportion of ownership held by the conveying party, in the case of a conveyance, or the burdened party, in the case of a reservation of interest. However, such proportionate reduction shall not reduce Participant's Working Interest or Net Revenue Interest in the Existing Leases as a whole.

 

VI.  CONFIDENTIALITY

 

A.  Confidentiality. The parties acknowledge that the information that is the subject matter of this Agreement (including but not limited to all well information acquired by operations conducted under the Operating Agreement(s)) is sensitive and confidential proprietary information belonging to the parties.  Each party, for itself and its Affiliates, agrees not to release or disclose or otherwise make the information available to or to furnish any of said information to any third party without (i) obtaining the agreement of the third party to maintain such information confidential and to not use such information other than in connection with investing in or participating with or purchasing interests from the disclosing party, or (ii) first obtaining the express written consent of the other party. Any such release or disclosure if approved shall be conditioned upon the third party expressly agreeing to all terms herein and becoming a party to and subject to a Confidentiality Agreement. Nothing contained above shall restrict or impair any party's right to use or disclose any of the information which is: (1) at the time of disclosure available to the public through no act or omission of that party; (2) can be shown was lawfully in that party's possession prior to the time of this  Agreement; or (3) is independently made available to that party by a third party who is independently entitled to disclose such information and that party shows that the right of such third party to disclosure existed prior to the date of this Agreement. Also, nothing contained above shall restrict Participant from providing production results to its investors or lending institutions for the purposes of financing.

 

  

3

  

 

 

B.  Public Disclosure. Subject to the exceptions set forth below, and unless otherwise agreed upon by the parties, the parties intend to keep material information concerning the entering into of this Agreement and the location of the Project Area confidential to the extent any disclosure thereof could impair the ongoing activities of the parties. Notwithstanding such intent, either party may make any public disclosure to the extent that, upon advice of such party's counsel, such disclosure is advisable to comply with United States or state securities laws, rules or regulations. Any proposed press release or other disclosure, shall be provided to the other party in advance on a confidential basis for its information and comment.

 

VII.  TAX ELECTION

 

This Agreement is not intended to create, and shall not be construed to create, a relationship of partnership or an association for profit between or among the parties hereto except as provided herein. Each party hereby affected elects to be excluded from the application of all the provisions of Subchapter "K", Chapter 1, Subtitle "A", of the Internal Revenue Code of 1986 and all amendments thereto.

 

VIII. PAYMENT OF DELAY RENTALS AND LEASE EXTENSIONS

 

Operator shall be responsible for making any payment of delay rentals, shut in royalties and minimum royalty payments on the Leases. Participant shall bear and pay its share of such payments. Participant shall be billed and shall pay for said costs in the manner set forth for the billing and paying of direct costs in the COPAS accounting procedures attached to the applicable Operating Agreement. Operator shall not be liable to Participant for any loss resulting from a good faith effort to properly do so.

 

IX.  NO JOINT LIABILITY

 

The rights, duties, obligations and liabilities of the parties hereto shall be several and not joint or collective. Each party hereto shall be responsible only for its obligations as herein set out and shall be liable only for its share of the cost and expense as herein provided; it being the express purpose and intention of the parties that their interest in this Agreement and the rights and property acquired in connection herewith shall be held by them as tenants in common. Except for the tax election which the parties may have made, it is not the purpose or intention of this Agreement to create any mining partnership, commercial partnership or other partnership.

  

4

  

 

 

X.  ASSIGNMENTS OF LEASES

 

Any assignment of any interest pursuant to this Agreement by and between the parties hereto shall be made with a special warranty of title by through and under the assignor, but not otherwise and on the form attached hereto as Exhibit "C" which shall be for recording in the official records of the county in which the Lease lies. Where applicable, separate assignments of operating rights shall likewise be made on such State and Federal forms as required by rule or regulation. Any assignment hereafter executed shall specifically refer to, and be made subject to, the terms and conditions hereof, and shall convey a working interest equal to the Participant Interest.

 

XI.  FORCE MAJEURE

 

Should any party be prevented or hindered from complying with any obligation created hereunder, other than the obligation to pay money, by reason of fire, flood, storm, act of God, governmental authority, governmental action or inaction, failure or delay in obtaining any necessary permits, labor disputes, war, the inability to secure qualified labor, geoscience data, title abstracts, curative title work, lease brokers, entry onto the land, drilling equipment and drilling rig(s) at prevailing market rates, drilling tools, materials or transportation, or any other cause not enumerated herein but which is beyond the normal control of the party whose performance is affected, then the performance of any such obligation shall be suspended during the period of such prevention  or hindrance, provided  the affected party promptly notifies the other party of such force majeure circumstances and exercises all reasonable diligence to remove the cause of force majeure.

 

XII. EXHIBITS

 

The following exhibits are attached to this Agreement:

 

Exhibit "A" - Sec 25 Leases 

Exhibit "B" - Quicksilver Leases 

Exhibit "C" - Form of Assignment

Exhibit "D" - Sec 25 Operating Agreement 

Exhibit "E" - Quicksilver Operating Agreement

 

If the terms of any of these Exhibits conflict with the terms of this Agreement, this Agreement shall control.

 

XIII.  MISCELLANEOUS

 

A.  Assignment: Participant may assign its interest under this Agreement provided that Participant remains liable for or guarantees the performance of its assignee and provided Participant gives PetroShare appropriate documentation evidencing such assignment.

 

B.      Governing Law: This Agreement and other instruments executed in accordance with it, except for assignments of lands, or the execution hereof shall be governed by and interpreted according to the laws of the State of Colorado. Forum and venue shall be exclusively in Denver, Colorado. As to assignments of lands, they shall be governed by the laws of the State wherein they lie.

 

  

5

  

 

C.     Entire Agreement: This Agreement, the documents to be executed hereunder, and the Exhibits attached hereto constitute the entire agreement between the parties, supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties, and there are no warranties, representations or other agreements

D.     Waiver: No waiver of any of the provisions of the Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.

E.     Captions; Definition of "Including": The captions in this Agreement are for convenience only and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement. The term "including  or "includes", as used herein, shall mean "including, without limitation," and "includes, without limitation".

F.     Binding: This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors, assigns and legal representatives.

G.     Notices: Any notice hereunder shall be given in writing by mail, courier, personally, E­ mail or by facsimile and shall be effective when delivered to the party intended to be notified. The contact information for each party is as follows:

 

If to PetroSbare:

 

PetroShare Corp.

7200 So. Alton Way, Ste B220 

Centennial , CO 80112

Attn: Frederick J. Witsell

(303) 500-1168 Office 

(303) 770-6885 fax 

(303) 881-2157 cell

fwitsell@petrosharecoro.com

 

If to Participant:

 

LLOCO, L.L.C.

1001 Ochsner Blvd., Ste 200

Covington, LA  70433 

Attn: Judy Reimel

 

 

  

6

  

 

 

(965) 801-4348

JudyR@LLOG.com

 

 

Any party may change their foregoing contact information by notice to the other party.

H.     Expenses: Except as otherwise provided herein, each party shall be solely responsible for all expenses incurred by it in connection with this transaction (including fees and expenses of its own counsel and accountants).

I.     Execution: This Agreement may be executed in multiple original counterparts, all of which shall together constitute a single agreement and each of which, when executed, shall be binding for all purposes thereof on the executed party, its successors and assigns.

 

J.      Severability: If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any materially adverse manner to either party.

K.     Arbitration: Any dispute arising under this Agreement ("Arbitrable Dispute") shall be referred to and resolved by binding arbitration in Denver, Colorado, to be administered by and in accordance with the Commercial Arbitration Rules of the American Arbitration Association. Arbitration shall be initiated within the applicable time limits set forth in this Agreement and not thereafter or if no time limit is given, within the time period allowed by the applicable statute of limitations, by one party ("Claimant") giving written notice to the other party ("Respondent") and to the Denver Regional Office of the American Arbitration Association ("AAA"), that the Claimant elects to refer the Arbitrable Dispute to arbitration. All arbitrators must be neutral parties who have never been officers, directors or employees of the parties or any of their Affiliates, must have not less than ten (10) years' experience in the oil and gas industry, and must have a formal financial/accounting, engineering or legal education. The hearing shall be commenced within thirty (30) days after the selection of the arbitrator. The parties and the arbitrators shall proceed diligently and in good faith in order that the arbitral award shall be made as promptly as possible. The interpretation, construction and effect of this Agreement shall be governed by the Laws of Colorado, and to the maximum extent allowed by law, in all arbitration proceedings the Laws of Colorado shall be applied, without regard to any conflicts of laws principles. All statutes of limitation and of repose that would otherwise be applicable shall apply to any arbitration proceeding. The tribunal shall not have the authority to grant or award indirect or consequential damages, punitive damages or exemplary damages.

L.     Further Assurances: During the time in which this Agreement is in effect, the parties shall, at any time and from time to time, and without further consideration, execute and deliver or use reasonable efforts to cause to be executed and delivered such other instruments of conveyance and contract, and to take such other actions as either party may reasonably may request effect the intent of this Agreement.

 

 

  

7

  

 

 

 

M.     Not to be Construed Against Drafter: The parties acknowledge that they have had an adequate opportunity to review each and every provision contained in this Agreement, that they have participated equally in the drafting hereof and that they have had adequate time to submit same to legal counsel for review and comment. Based on said review and consultation, the parties agree with each and every term contained in this Agreement. Based on the foregoing, the parties agree that the rule of construction that a contract be construed against the drafter, if any, shall not be applied in the interpretation and construction of this Agreement.

 

N.      Laws and Regulations: Any reference to any federal, state, local, or foreign statute or law will be deemed also to refer to all rules and regulations promulgated thereunder, unless the context otherwise requires.

 

O.      Third-Party Beneficiaries: This Agreement is not intended to confer any rights or remedies upon any Person other than the parties and their respective successors and permitted assigns.

 

P.       Investment Representations: Participant understands that the interests evidenced by this Agreement have not been registered under the Securities Act of 1933, the Colorado Securities Act or any other state securities laws (the "Securities Acts").

 

IN WITNESS WHEREOF, this Agreement is executed effective as of the date hereinabove provided.

 

Parties:

 

	
PETROSHARE CORP 

 

	 	LLOCO, L.L.C.	 
	By:	
/s/ Stephen J. Foley

	 	By:	
/s/ Kemberlia Ducote

	 
	Name:	
Stephen J. Foley

	 	Name:	
Kemberlia Ducote

	 
	Title:	
CEO

	 	Title:	
Secretary

	 

 

                                                                   

 

  

8

  

  

 

EXHIBIT A

Buck Peak Participation Agreement Leases dated November 1, 2013

 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
BUCK PEAK LEASES AND EXPIRATION DATES

	 	 	 	 	 	 	 	 	 	NET ACRES	 	 	 	 	 	 
	
LESSOR NAME AND ADDRESS

	 	
DESCRIPTION

	 	
DATE AND TERM

	 	 	
GROSS ACRES

	 	 	
NET ACRES

	 	 CONVEYED	 	
NET REVENUE INTEREST

	 	 	
RECORDING

	 
	 	 	 	 	 	 	 	 	 	 	 	 	 10.00%	 	
to be delivered 8/8ths

	 	 	 	 
	
West Half of Section 25

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Jim F. Kowach

	 	
T6N-R90W, 6th P.M. Sec 25: W/2

	 	
10/31/2008 - 2014 6 years

	 	 	 	335.54	 	 	 	167.77	 	 16.78	 	 	78.5000	%	 	 	20104936	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Barbara Wilaby

	 	
T6N-R90W, 6th P.M. Sec 25: W/2

	 	
10/31/2011 - 2014 3 years

	 	 	 	335.54	 	 	 	167.77	 	 16.78	 	 	78.5000	%	 	 	20103288	 
	
Sub Total - Kowach / Wilaby

	 	
W/2 Section 25, T6N R90W

	 	 	100.00	%	 	 	335.54	 	 	 	335.54	 	 33.55	 	 	78.5000	%	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
East Half of Section 25

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Mark A Voloshin, 

PO Box 981, 

Craig, CO 81626

	 	
T6N-R90W, 6th P.M. 

Assessor's Tract # 74 

Sec 25: Lots 1, 2, 7, 8, 9,10,15,16

	 	
5/12/2011- 2016 Five (5) Years

	 	 	 	335.61	 	 	 	52.83	 	 5.28	 	 	78.5000	%	 	 	20103153	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Betty Arnone, 

1713 South Vancouver Ct,

Lakewood, CO 80228

	 	
T6N-R90W, 6th P.M. 

Assessor's Tract # 74 

Sec 25: Lots 1,2,7,8,9,10,15 & 16

	 	
5/12/2011- 2016 Five (5) Years

	 	 	 	335.61	 	 	 	26.41	 	 2.64	 	 	78.5000	%	 	 	20102832	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Helen McKee, 

10436 Jacob Place, 

Littleton, CO 80125-8932

	 	
T6N-R90W, 6th P.M. 

Assessor's Tract # 74 

Sec 25: Lots 1, 2, 7, 8, 9, 10, 15 & 16

	 	
5/12/2011- 2016 Five (5) Years

	 	 	 	335.61	 	 	 	26.41	 	 2.64	 	 	78.5000	%	 	 	20102839	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Gary R Semro and Robert W. Semro,

6522 Trailhead Rd, 

Highlands Ranch, CO 80130

	 	
T6N-R90W, 6th P.M. 

Assessor's Tract # 74 

Sec 25: Lots 1, 2, 7, 8, 9, 10, 15 & 16

	 	
5/12/2011- 2016 Five (5) Years

	 	 	 	335.61	 	 	 	26.41	 	 2.64	 	 	78.5000	%	 	 	20102847	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Sharon Fitzgerald (Hebenstreit), 

337 Coronado Drive, 

Sedalia, CO 80135

	 	
T6N-R90W, 6th P.M. 

Assessor's Tract # 74 

Sec 25: Lots 1, 2, 7, 8, 9,10,15,16

	 	
5/12/2011- 2016 Five (5) Years

	 	 	 	335.61	 	 	 	26.41	 	 2.64	 	 	78.5000	%	 	 	20103140	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Brad Ocker (Eugena Grace Voloshin), 

9591 County Rd 33, 

Craig, CO 81625

	 	
T6N-R90W, 6th P.M. 

Assessor's Tract # 74 

Sec 25: Lots 1, 2, 7, 8, 9,10,15,16

	 	
5/12/2011- 2016 Five (5) Years

	 	 	 	335.61	 	 	 	8.55	 	 0.86	 	 	78.5000	%	 	 	20102856	 
	
Sub Total - Semro / Voloshin

	 	
E/2 Section 25, T6N R90W

	 	 	49.7661	%	 	 	335.61	 	 	 	167.02	 	 16.702	 	 	78.5000	%	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
BCK LLC

Charles S Keith

	 	
T6N-R90W, 6th P.M. A

ssessor's Tract # 74 Sec 25: 

Lots 1, 2, 7, 8, 9,10,15,16

	 	
2/22/2011 - 2014 3 years + 2 yr ext

	 	 	 	335.61	 	 	 	41.43	 	 4.14	 	 	77.5000	%	 	 	20111728	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Strontia springs Resources, LLC

James Keith

	 	
T6N-R90W, 6th P.M. 

Assessor's Tract # 74 

Sec 25: Lots 1, 2, 7, 8, 9,10,15,16

	 	
2/22/2011 - 2014 3 years + 2 yr ext

	 	 	 	335.61	 	 	 	41.43	 	 4.14	 	 	77.5000	%	 	 	20111730	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
JZTZ LLC 

Debra Ann Ziehm

	 	
T6N-R90W, 6th P.M. 

Assessor's Tract # 74 

Sec 25: Lots 1, 2, 7, 8, 9,10,15,16

	 	
2/22/2011 - 2014 3 years + 2 yr ext

	 	 	 	335.61	 	 	 	41.43	 	 4.14	 	 	77.5000	%	 	 	20111729	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
MKRESOURCES LLC

Margaret Keith

	 	
T6N-R90W, 6th P.M.

Assessor's Tract # 74

Sec 25: Lots 1, 2, 7, 8, 9,10,15,16

	 	
2/22/2011 - 2014 3 years + 2 yr ext

	 	 	 	335.61	 	 	 	26.41	 	 2.64	 	 	77.5000	%	 	 	20111731	 
	
Sub Total - Keith

	 	
E/2 Section 25, T6N R90W

	 	 	44.9075	%	 	 	335.61	 	 	 	150.71	 	 15.07	 	 	77.5000	%	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Quicksilver Resources 

Joanie Voloshin

	 	
T6N-R90W, 6th P.M.

Assessor's Tract # 74

Sec 25: Lots 1,2,7,8,9,10,15,16

	 	 	
2/22/2011 - 2014 3 years + 2 yr ext 

	 	 	 	335.61	 	 	 	8.94	 	 0.89	 	 	82.500	% 	 	 	20111728	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
SWEPI thru Quicksilver Resources

Joanie Voloshin

	 	
T6N-R90W, 6th P.M.

Assessor's Tract # 74

Sec 25: Lots 1,2,7,8,9,10,15,16

	 	 	
 

2/22/2011 - 2014 3 years + 2 yr ext  

	 	 	 	335.61	 	 	 	8.94	 	 0.89	 	 	81.000	% 	 	 	20111728	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	
Ownership %

	 	 	
Gross Acres

	 	 	
Net Acres

	 	 	 	
NRI% Delivered

	 	 	 	 	 
	
West Half of Section 25

	 	 	 	 	100.000	%	 	 	335.54	 	 	 	335.54	 	 33.55	 	 	78.5000	%	 	 	 	 
	
East Half of Section 25

	 	 	 	 	100.000	%	 	 	335.61	 	 	 	335.61	 	 33.56	 	 	78.2247	%	 	 	 	 
	
SECTION 25 TOTAL

	 	 	 	 	100.000	%	 	 	671.15	 	 	 	671.15	 	 67.12	 	 	78.3623	%	 	 	 	 

 

 

 

 

  

  

 

 

EXHIBIT B -  Lease Schedule

 

LLOCO Participation Agreement effective November 1, 2013

 

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	
LESSOR

	
LESSEE

	
DESCRIPTION

	
EFFECTIVE DATE

	
EXPIRATION DATE

	
GROSS ACRES

	
NET LEASE ACRES

	PETROSHARE NET ACRES	
NET ACRES CONVEYED

	
NET REVENUE INTEREST

	
RECORDING

	 	 	 	 	 	 	 	7.50%	
1.88%

	
to be delivered 8/8ths

	 
	
Richard J. Colby

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M.

Sec 21: Lots 11,14,15 & 16

Sec 22: Lots 12 & 13

Sec 27: Lots 3 & 4

Sec 28: Lot 1

	
11/20/2010

	
11/19/2015

5 yr lease, 

3 yr ext (2018)

	
369.39

	
15.40

	1.16 	
0.29

	
80.00%

	
20103284

	
David Colby

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M.

Sec 21: Lots 11,14,15 & 16 

Sec 22: Lots 12 & 13 

Sec 27: Lots 3 & 4 

Sec 28: Lot 1

	
11/20/2010

	
11/19/2015

5 yr lease, 

3 yr ext (2013)

	
369.39

	
15.40

	 1.16	
0.29

	
80.00%

	
20103286

	
Douglas Van Tassel, Diana Lynn Hamilton, Donna Lee Sweet, DeLaine Brown and Debbie Lou Van Tassel, 

PO Box 335, 

Craig, CO 81626-0335

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M.

Sec 35: Lots 4 & 5 

Sec 34: Lots 1,7,8,9,10,11,12,13,14,15,16

	
1/10/2011

	
1/09/2014

3 yr lease, 

3 yr ext (2017)

	
534.62

	
89.10

	 6.68	
1.67

	
80.00%

	
20103146

	
Florence Van Tassel

	
Laramie & Associates

	
T6N-R90W, 6th P.M.

Sec 35: Lots 4 & 5 

Sec 34: Lots 1,7,8,9,10,11,12,13,14,15,16

	
1/10/2011

	
1/09/2016

5 yr lease, 

3 yr ext (2019)

	
534.62

	
89.10

	 6.68	
1.67

	
80.00%

	
20103022

	 	
Buck Peak, LLC

(Lease not subjuect to 2010 

Quicksilver sale)

	
T6N-R90W, 6th P.M.

Sec 35: Lots 4 & 5 

Sec 34: Lots 1,7,8,9,10,11,12,13,14,15,16

	1/19/2012	
 1/19/2015

3 years plus 

2 year option

	 534.62	 89.10	 89.10	22.28	 80.00%	 20120379
	
Gregory J. Knez, Trustee of the Raymond M. & Hellen M. Knez Family Trust

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M.

Sec 19: Lots 5, 6, 11 & 12 

Sec 20: N2 less tract (see lease)

	
3/21/2011

	
3/20/2016

5 yr lease, 

3 yr ext (2019)

	
270.31

	
271.07

	 20.33	
5.08

	
80.00%

	
20103026

	
Gregory J. Knez, Trustee of the Raymond M. & Hellen M. Knez Family Trust

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 20: A tract in E 55 acres of E2NEN2 (see lease)

	
3/21/2011

	
3/20/2016

5 yr lease, 

3 yr ext (2019)

	
11.45

	
11.45

	 0.86	
0.21

	
80.00%

	
20103024

	
Marlene Henderson

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 21: Lots 11,14,15 & 16

Sec 22: Lots 12 & 13 

Sec 27: Lots 3 & 4 

Sec 28: Lot 1

	
3/30/2011

	
3/29/2016

5 yr lease, 

3 yr ext (2019)

	
369.39

	
15.40

	 1.15	
0.29

	
80.00%

	
20102819

	
Barbara Martin

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M.

Sec 21: Lots 11,14,15 & 16 

Sec 22: Lots 12 & 13 

Sec 27: Lots 3 & 4 

Sec 28: Lot 1

	
3/30/2011

	
3/29/2016

5 yr lease, 

3 yr ext (2019)

	
369.39

	
15.40

	 1.16	
0.29

	
80.00%

	
20102820

	
Edward Rutherford

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 21: Lots 11,14,15 & 16 

Sec 22: Lots 12 & 13 

Sec 27: Lots 3 & 4 

Sec 28: Lot 1

	
3/30/2011

	
3/29/2016

5 yr lease, 

3 yr ext (2019)

	
369.39

	
15.40

	 1.16	
0.29

	
80.00%

	
20102821

 

 

 

 

 

 

 

	
Larry Rutherford

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 21: Lots 11,14,15 & 16 

Sec 22: Lots 12 & 13 

Sec 27: Lots 3 & 4 

Sec 28: Lot 1

	
3/30/2011

	
3/29/2016

5 yr lease, 

3 yr ext (2019)

	
369.39

	
15.40

	1.15 	
0.29

	
80.00%

	
20102822

	
Mark A Voloshin

	
Buck Peak, LLC

	
T5N-R90W, 6th P.M. 

Sec 2: Lots 7, 8, 9, 10 less tract (see lease)

Sec 2: 15,16,17,18

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
333.57

	
15.41

	 1.16	
0.29

	
80.00%

	
20103150

	
Mark A Voloshin

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M.

Assesor's Tract # 69 

Sec 21: Lots 3, 6, 7 & 10

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
164.88

	
47.11

	 3.53	
0.88

	
80.00%

	
20103151

	
Mark A Voloshin

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 70 

Sec 21: Lots 4 & 5

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
82.44

	
24.43

	 1.83	
0.46

	
80.00%

	
20103152

	
Mark A Voloshin

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessors Tract # 83 

Sec 27: Lots 5,6,10,11,12,14,15,16 

Sec 34: Lots 2,3 

less the acreage in Sec 35 and the additional lands in Sec 34

	
5/12/2011

	
5/11/2016

5 yr lease, 

2 yr ext (2018)

	
409.65

	
100.52

	 7.54	
1.88

	
80.00%

	
20103155

	
Mark A Voloshin

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 105

Sec 21: Lots 1,2,8 & 9

	
5/12/2011

	
5/11/2016

5 yr lease, 

2 yr ext (2018)

	
164.97

	
80.96

	 6.07	
1.52

	
80.00%

	
20103156

	
Mark A Voloshin

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M.

Assessors Tract #82 

Sec 26: Lots 4,5,6,11,12,13 & 14 

Sec 27:Lots 1,2,5,6,7,8,9,10,11,12,14,15,16

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
330.85

	
162.36

	 12.18	
3.04

	
80.00%

	
20103154

	
Betty Arnone

	
Buck Peak, LLC

	
T5N-R90W, 6th P.M. 

Sec 2: Lots 7,8,9,10 Less Tract (see lease) 

Sec 2: 15,16,17 & 18

	
5/12/2011

	
5/11/2016

5 yr lease, 

2 yr ext (2018)

	
333.57

	
11.56

	 0.87	
0.22

	
80.00%

	
20102829

	
Betty Arnone

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 69 

Sec 21: Lots 3, 6, 7, & 10

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
164.88

	
17.59

	 1.32	
0.33

	
80.00%

	
20102830

	
Betty Arnone

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 70 

Sec 21: Lots 4 & 5

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
82.44

	
9.16

	 0.69	
0.17

	
80.00%

	
20102831

 

 

 

 

 

	 	 	 	 	 	 	 	 	 	 	 
	
Betty Arnone

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 82 

Sec 26: Lots 11, 12, 13, 14 

Sec 27: Lots 2, 7, 8, 9

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
330.85

	
26.04

	1.95 	
0.49

	
80.00%

	
20102833

	
Betty Arnone

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 83 

Sec 27: Lots 5,6,10,11,12,14,15,16 

Sec 34: Lots 2,3 Less acreage (see lease)

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
409.65

	
16.12

	 1.21	
0.30

	
80.00%

	
20102834

	
Betty Arnone

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 105 

Sec 21: Lots 1, 2, 8 & 9

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
164.97

	
12.98

	 0.97	
0.24

	
80.00%

	
20102835

	
Betty Jo Lott & Michelle K. McKee

	
Buck Peak, LLC

	
T5N-R90W, 6th P.M. 

Sec 2: Lots 7,8,9,10 less tract (see lease) 

Sec 2: 15,16,17,18

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
333.57

	
11.56

	 0.87	
0.22

	
80.00%

	
20102836

	
Betty Jo Lott & Michelle K. McKee

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 69 

Sec 21: Lots 3, 6, 7, & 10

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
164.88

	
17.6

	 1.32	
0.33

	
80.00%

	
20102837

	
Betty Jo Lott & Michelle K. McKee

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 70 

Sec 21: Lots 4 & 5

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
82.44

	
9.16

	 0.69	
0.17

	
80.00%

	
20102838

	
Betty Jo Lott & Michelle K. McKee

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 82 

Sec 26: Lots 11, 12, 13, & 14 

Sec 27: Lots 2, 7, 8 & 9

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
330.85

	
26.04

	 1.95	
0.49

	
80.00%

	
20102840

	
Betty Jo Lott & Michelle K. McKee

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 83 

Sec 27: Lots 5, 6, 10, 11, 12, 14, 15 & 16 

Sec 34: Lots 2, 3 Less acreage (see lease)

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
409.65

	
16.12

	 1.21	
0.30

	
80.00%

	
20102841

	
Betty Jo Lott & Michelle K. McKee

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 105 

Sec 21: Lots 1, 2, 8 & 9

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
164.97

	
12.98

	 0.97	
0.24

	
80.00%

	
20102842

	
Gary R Semro and Robert W. Semro,

6522 Trailhead Rd, 

Highlands Ranch, CO 80130

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 69 

Sec 21: Lots 3, 6, 7, & 10

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
164.88

	
17.59

	 1.32	
0.33

	
80.00%

	
20102845

	
Gary R Semro and Robert W. Semro

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 70 

Sec 21: Lots 4 & 5

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
82.44

	
9.16

	 0.69	
0.17

	
80.00%

	
20102846

 

 

 

 

 

	 	 	 	 	 	 	 	 	 	 	 
	
Gary R Semro and Robert W. Semro

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 82 

Sec 26: Lots 11, 12, 13, & 14 

Sec 27: Lots 2, 7, 8 & 9

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
330.85

	
26.04

	 1.95	
0.49

	
80.00%

	
20102848

	
Gary R Semro and Robert W. Semro

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 83 

Sec 27: Lots 5, 6, 10, 11, 12, 14, 15 & 16 

Sec 34: Lots 2, 3 Less acreage (see lease)

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
409.65

	
16.12

	 1.21	
0.30

	
80.00%

	
20102849

	
Gary R Semro and Robert W. Semro

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 105 

Sec 21: Lots 1, 2, 8 & 9

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
164.97

	
12.98

	 0.97	
0.24

	
80.00%

	
20102844

	
Gary R Semro and Robert W. Semro

	
Buck Peak, LLC

	
T5N-R90W, 6th P.M. 

Sec 2: Lots 7,8,9,10 Less Tract (see lease) 

Sec 2: 15,16,17 & 18

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
333.57

	
11.56

	 0.87	
0.22

	
80.00%

	
20102843

	
Sharon A. Fitzgerald

	
Buck Peak, LLC

	
T5N-R90W, 6th P.M. 

Sec 2: Lots 7, 8, 9, 10 less tract (see lease) 

Sec 2: 15,16,17,18

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
333.57

	
11.56

	 0.87	
0.22

	
80.00%

	
20103144

	
Sharon A. Fitzgerald

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assesor's Tract # 69 

Sec 21: Lots 3, 6, 7 & 10

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
164.88

	
17.59

	 1.32	
0.33

	
80.00%

	
20103138

	
Sharon A. Fitzgerald

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 70 

Sec 21: Lots 4 & 5

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
82.44

	
9.16

	 0.69	
0.17

	
80.00%

	
20103139

	
Sharon A. Fitzgerald

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 82 

Sec 26: Lots 11, 12, 13, & 14 

Sec 27: Lots 2, 7, 8 & 9

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
330.85

	
26.04

	 1.95	
0.49

	
80.00%

	
20103141

	
Sharon A. Fitzgerald

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessors Tract # 83 

Sec 27: Lots 5,6,10,11,12,14,15,16 

Sec 34: Lots 2,3 less acreage 

Sec 35, (see lease)

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
409.65

	
16.12

	 1.21	
0.30

	
80.00%

	
20103142

	
Sharon A. Fitzgerald

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 105 

Sec 21: Lots 1,2,8 & 9

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
164.97

	
12.98

	 0.97	
0.24

	
80.00%

	
20103143

 

 

 

 

 

	
Eugena Grace Voloshin

	
Buck Peak, LLC

	
T6N-R103W, 6th P.M.

Sec 31: Lots 7,8,9, NESW, SE 

T6N-R90W, 6th P.M. 

Sec 14: Lots 3, 4, 6 

T6N-R91W, 6th P.M. 

Sec 9: Lots 8, 9, 16 

Sec 10: Lots 4, 5 

T6N-R92W, 6th P.M. 

Sec 13: SW 

T6N-R93W, 6th P.M. 

Sec 13: S2N2, N2S2 

T6N-R94W, 6th P.M. 

Sec 12: E2SE 

T6N-R99W, 6th P.M. 

Sec 27: SWSE, SESW 

Sec 34: NENW

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
1320.3

	
18.748

	 1.41	
0.35

	
80.00%

	
20102850

	
Eugena Grace Voloshin

	
Buck Peak, LLC

	
T10N-R90W, 6th P.M. 

Sec 19: Lot 18 

Sec 30: Lots 6 & 8

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
117.16

	
1.663

	 0.12	
0.03

	
80.00%

	
20102851

	
Eugena Grace Voloshin

	
Buck Peak, LLC

	
T3N-R91W, 6th P.M. 

Sec 8: Lots 9 & 16 

Sec 9: SW/4SW/4 

Sec 16: NW/4, NE/4SW/4

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
323.43

	
4.593

	 0.34	
0.09

	
80.00%

	
20102852

	
Eugena Grace Voloshin

	
Buck Peak, LLC

	
T4N-R91W, 6th P.M. 

Sec 10: Tract in SESW (0.42 acres) 

T4N-R92W, 6th P.M. 

Sec 7: Lots 9 & 10 

Sec 8: Lots 5, 9, 10, 11, 12, 13, 14 

Sec 17: Lot 2 

T4N-R101W, 6th P.M. 

Sec 14: W2NE, NW, N2SW 

T4N-R102W, 6th P.M. 

Sec 27: SE Sec 34: NE

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
799.7

	
11.356

	0.85 	
0.21

	
80.00%

	
20102853

	
Eugena Grace Voloshin

	
Buck Peak, LLC

	
T5N-R94W, 6th P.M. 

Sec 7: S2SE Sec 8: SW 

Sec 17: N2NW Sec 18: NENE 

T5N-R94W, 6th P.M. 

Sec 9: SWNE, NWSE, S2SE 

T5N-R97W, 6th P.M. 

Sec 3: N2SE, SWSE, E2SW 

Sec 10: N2NE, NENW

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
840

	
11.93

	 0.89	
0.22

	
80.00%

	
20102854

	
Eugena Grace Voloshin

	
Buck Peak, LLC

	
T5N-R90W, 6th P.M. 

Sec 2: Lots 7, 8, 9, 10 less tract (see lease) 

Sec 2: 15,16,17,18

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
333.57

	
71.30

	 5.35	
1.34

	
80.00%

	
20102855

	
Eugena Grace Voloshin

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. A

ssesor's Tract # 69 

Sec 21: Lots 3, 6, 7 & 10

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
164.88

	
0.73

	 0.05	
0.01

	
80.00%

	
20102857

	
Eugena Grace Voloshin

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 105 

Sec 21: Lots 1,2,8 & 9

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
164.97

	
0.76

	 0.06	
0.01

	
80.00%

	
20102858

	
Eugena Grace Voloshin

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 83 

Sec 27: Lots 5, 6, 10, 11, 12, 14, 15 & 16 

Sec 34: Lots 2, 3 Less acreage (see lease)

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
409.65

	
0.95

	 0.07	
0.02

	
80.00%

	
20102859

	
Eugena Grace Voloshin

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 82 

Sec 26: Lots 11, 12, 13, & 14 

Sec 27: Lots 2, 7, 8 & 9

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
330.85

	
1.53

	 0.11	
0.03

	
80.00%

	
20102860

	
Eugena Grace Voloshin

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. Assessor's Tract # 70 Sec 21: Lots 4 & 5

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
82.44

	
0.38

	 0.03	
0.01

	
80.00%

	
20102861

 

 

 

 

 

	
R. Kirk Lyons

	
Buck Peak, LLC

	
T5N-R89W, 6th P.M. 

Sec 6: Lots 3, 5 SE4NW4 

T6N-R89W, 6th P.M. 

Sec 29: Lot 13 

Sec 31: Lot 3,5,6,11 SW4NE4, NW4SE4, NE4SW4, SE4SW4 

Sec 32: Lot 4

	
6/1/2011

	
5/31/2014

3 yr lease, 

2 yr ext (2016)

	
425.23

	
47.24

	3.54 	
0.89

	
80.00%

	
701711

	
Ralph C. Lyons & Anna M. Lyons

	
Buck Peak, LLC

	
T5N-R89W, 6th P.M. 

Sec 6: Lots 3, 5 SE4NW4 

T6N-R89W, 6th P.M. 

Sec 29: Lot 13 

Sec 31: Lot 3,5,6,11 SW4NE4, NW4SE4, NE4SW4, SE4SW4 

Sec 32: Lot 4

	
6/1/2011

	
5/31/2014

3 yr lease, 

2 yr ext (2016)

	
425.23

	
141.74

	 10.63	
2.66

	
80.00%

	
701713

	
Leora L. Smith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 12: Lots 5,6,8,9,10,13,14,15 

Sec 24: Lots 1,2,7,8,9,10,14,15,16

	
6/1/2011

	
5/31/2014

3 yr lease, 

2 yr ext (2016)

	
673.54

	
154.304

	 11.57	
2.89

	
80.00%

	
20102588

	
R. Kirk Lyons

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 12: Lots 5,6,8,9,10,13,14,15 

Sec 24: Lots 1,2,7,8,9,10,14,15,16

	
6/1/2011

	
5/31/2014

3 yr lease, 

2 yr ext (2016)

	
673.54

	
51.43

	 3.86	
0.96

	
80.00%

	
20102589

	
Ralph C. Lyons & Anna M. Lyons

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 12: Lots 5,6,8,9,10,13,14,15 

Sec 24: Lots 1,2,7,8,9,10,14,15,16

	
6/1/2011

	
5/31/2014

3 yr lease, 

2 yr ext (2016)

	
673.54

	
154.30

	 11.57	
2.89

	
80.00%

	
20102587

	
Mark E. Lyons

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 12: Lots 5,6,8,9,10,13,14,15 

Sec 24: Lots 1,2,7,8,9,10,14,15,16

	
6/1/2011

	
5/31/2014

3 yr lease, 

2 yr ext (2016)

	
673.54

	
51.43

	 3.86	
0.96

	
80.00%

	
20102586

	
Terri Lee Smedra

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 12: Lots 5,6,8,9,10,13,14,15 

Sec 24: Lots 1,2,7,8,9,10,14,15,16

	
6/1/2011

	
5/31/2014

3 yr lease, 

2 yr ext (2016)

	
673.54

	
51.43

	 3.86	
0.96

	
80.00%

	
20102585

	
Leora L. Smith

	
Buck Peak, LLC

	
T5N-R89W, 6th P.M. 

Sec 6: Lots 3, 5 SE4NW4 

T6N-R89W, 6th P.M. 

Sec 29: Lot 3 

Sec 31: Lot 3,5,6,11 SW4NE4,NW4SE4, NE4SW4, SE4SW4 

Sec 32: Lot 4

	
6/1/2011

	
5/31/2014

3 yr lease, 

2 yr ext (2016)

	
425.23

	
141.72

	 10.63	
2.66

	
80.00%

	
701715

	
Terri Lee Smedra

	
Buck Peak, LLC

	
T5N-R89W, 6th P.M. 

Sec 6: Lots 3, 5 SE4NW4 

T6N-R89W, 6th P.M. 

Sec 29: Lot 3 

Sec 31: Lot 3,5,6,11 SW4NE4, NW4SE4, NE4SW4, SE4SW4 

Sec 32: Lot 4

	
6/1/2011

	
5/31/2014

3 yr lease, 

2 yr ext (2016)

	
425.23

	
47.24

	 3.54	
0.89

	
80.00%

	
701712

	
Mark E. Lyons

	
Buck Peak, LLC

	
T5N-R89W, 6th P.M. 

Sec 6: Lots 3, 5 SE4NW4 T6N-R89W, 6th P.M. 

Sec 29: Lot 13 

Sec 31: Lot 3,5,6,11 SW4NE4, NW4SE4, NE4SW4, SE4SW4 

Sec 32: Lot 4

	
6/1/2011

	
5/31/2014

3 yr lease, 

2 yr ext (2016)

	
425.23

	
51.43

	 3.86	
0.96

	
80.00%

	
701714

 

 

 

 

 

	
Thomas J. Knez

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 21: Lot 16 

Sec 22: Lots 12 & 13

	
7/10/2011

	
7/09/2016

5 yr lease, 

3 yr ext (2019)

	
122.97

	
20.50

	1.54 	
0.38

	
80.00%

	
20102823

	
Helen P. Knez

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 27: Lots 3 & 4 

Sec 28: Lot 1

	
7/17/2011

	
7/16/2016

5 yr lease, 

3 yr ext (2019)

	
122.93

	
20.5

	 1.54	
0.38

	
80.00%

	
20103517

	
Gregory J. Knez, Trustee of the Raymond M. & Hellen M. Knez Family Trust

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 21: Lots 11, 14, 15 & 16 

Sec 22: Lots 12 & 13 

Sec 27: Lots 3 & 4 

Sec 28: Lot 1

	
3/21/2011

	
3/20/2016

5 yr lease, 

3 yr ext (2019)

	
369.39

	
61.58

	 4.62	
1.15

	
80.00%

	
20103025

	
Kathy Peters

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 35: Lots 9,10 11,12,13,14,15,16 (S/2)

	
7/31/2011

	
7/30/2014

3 yr lease, 

3 yr ext (2017)

	
331.00

	
110.56

	 8.29	
2.07

	
80.00%

	
20103518

	
Barbara L. Wilaby

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 12: Lots1,2,3,5,6,7,8,9,10,12,13,14,15

	
10/31/2008 

3 years + 2 year ext option

	
10/30/2013

	
493.56

	
208.12

	 15.61	
3.90

	
80.00%

	
20090483

	
Barbara L. Wilaby

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 13: Lots 2,3,4, less tract

	
10/31/2008 

3 years + 2 year ext option

	
10/30/2013

	
130.10

	
30.23

	 2.27	
0.57

	
80.00%

	
20090484

	
Rex Ross Walker

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 34: Lots 1, 7,8,9,10,11,12,13,14,15,16

	
12/18/2008 

3 years + 2 year ext option

	
12/17/2013

	
351.36

	
26.24

	 1.97	
0.49

	
80.00%

	
20090151

	 	 	 	 	
EXTENDED

	 	 	 302.97	
75.74

	 	 
	
Margaret Keith

	
Buck Peak, LLC

	
T5N-R90W, 6th P.M. 

Sec 2: Lots 7,8,9,10 less tract (see lease) 

Sec 2: 15,16,17,18

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
333.57

	
11.560

	 0.87	
0.22

	
80.00%

	
20084242

	
Margaret Keith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 105 

Sec 21: Lots 1, 2, 8, and 9

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
164.97

	
12.98

	 0.97	
0.24

	
80.00%

	
20084243

	
Margaret Keith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 83 

Sec 27: Lots 5, 6, 10, 11, 12, 14, 15 & 16 

Sec 34: Lots 2, 3 Less acreage (see lease)

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
409.65

	
16.12

	 1.21	
0.30

	
80.00%

	
20084244

	
Margaret Keith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 82 

Sec 26: Lots 11, 12, 13, & 14 

Sec 27: Lots 2, 7, 8 & 9

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
330.85

	
26.04

	 1.95	
0.49

	
80.00%

	
20084245

 

 

 

 

 

 

	
Margaret Keith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 70 

Sec 21: Lots 4 & 5

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
82.44

	
9.16

	 0.69	
0.17

	
80.00%

	
20084246

	
Margaret Keith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assesor's Tract # 69 

Sec 21: Lots 3, 6, 7 & 10

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
164.88

	
17.59

	 1.32	
0.33

	
80.00%

	
20084247

	
James W. Keith

	
Buck Peak, LLC

	
T5N-R90W, 6th P.M. 

Sec 2: Lots 7,8,9,10 less tract (see lease) 

Sec 2: 15,16,17,18

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
333.57

	
3.86

	 0.29	
0.07

	
80.00%

	
20084241

	
James W. Keith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 105 

Sec 21: Lots 1, 2, 8, and 9

	
9/30/2008 - 2013 

5 years + 3 year ext option

	
9/29/2013

	
164.97

	
4.33

	 0.32	
0.08

	
80.00%

	
20084240

	
James W. Keith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 83 

Sec 27: Lots 5, 6, 10, 11, 12, 14, 15 & 16 

Sec 34: Lots 2, 3 Less acreage (see lease)

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
409.65

	
5.37

	 0.40	
0.10

	
80.00%

	
20084239

	
James W. Keith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 82 

Sec 26: Lots 11, 12, 13, & 14 

Sec 27: Lots 2, 7, 8 & 9

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
330.85

	
8.68

	 0.65	
0.16

	
80.00%

	
20084238

	
James W. Keith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 70 

Sec 21: Lots 4 & 5

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
82.44

	
3.05

	 0.23	
0.06

	
80.00%

	
20084237

	
James W. Keith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assesor's Tract # 69 

Sec 21: Lots 3, 6, 7 & 10

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
164.88

	
5.86

	 0.44	
0.11

	
80.00%

	
20084236

	
Charles S. Keith

	
Buck Peak, LLC

	
T5N-R90W, 6th P.M. 

Sec 2: Lots 7,8,9,10 less tract (see lease) 

Sec 2: 15,16,17,18

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
333.57

	
3.86

	 0.29	
0.07

	
80.00%

	
20084235

	
Charles S. Keith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 105 

Sec 21: Lots 1, 2, 8, and 9

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
164.97

	
4.33

	 0.32	
0.08

	
80.00%

	
20084234

	
Charles S. Keith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 83 

Sec 27: Lots 5, 6, 10, 11, 12, 14, 15 & 16 

Sec 34: Lots 2, 3 Less acreage (see lease)

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
409.65

	
5.37

	 0.40	
0.10

	
80.00%

	
20084233

 

 

 

 

 

	
Charles S. Keith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 82 

Sec 26: Lots 11, 12, 13, & 14 

Sec 27: Lots 2, 7, 8 & 9

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
330.85

	
8.68

	 0.65	
0.16

	
80.00%

	
20084232

	
Charles S. Keith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 70 

Sec 21: Lots 4 & 5

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
82.44

	
3.05

	 0.23	
0.06

	
80.00%

	
20084231

	
Charles S. Keith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assesor's Tract # 69 

Sec 21: Lots 3, 6, 7 & 10

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
164.88

	
5.86

	 0.44	
0.11

	
80.00%

	
20084230

	
Debra A Ziehm

	
Buck Peak, LLC

	
T5N-R90W, 6th P.M. 

Sec 2: Lots 7,8,9,10 less tract (see lease) 

Sec 2: 15,16,17,18

	
9/30/2008 5 years + 3 year ext option

	
9/29/2013

	
333.57

	
3.86

	 0.29	
0.07

	
80.00%

	
20084253

	
Debra A Ziehm

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 105 

Sec 21: Lots 1, 2, 8, and 9

	
9/30/2008 - 2013 

5 years + 3 year ext option

	
9/29/2013

	
164.97

	
4.33

	 0.32	
0.08

	
80.00%

	
20084252

	
Debra A Ziehm

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 83 

Sec 27: Lots 5, 6, 10, 11, 12, 14, 15 & 16 

Sec 34: Lots 2, 3 Less acreage (see lease)

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
409.65

	
5.37

	 0.40	
0.10

	
80.00%

	
20084251

	
Debra A Ziehm

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 82 

Sec 26: Lots 11, 12, 13, & 14 

Sec 27: Lots 2, 7, 8 & 9

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
330.85

	
8.68

	 0.65	
0.16

	
80.00%

	
20084250

	
Debra A Ziehm

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 70 

Sec 21: Lots 4 & 5

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
82.44

	
3.05

	 0.23	
0.06

	
80.00%

	
20084249

	
Debra A Ziehm

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assesor's Tract # 69 

Sec 21: Lots 3, 6, 7 & 10

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
164.88

	
5.86

	 0.44	
0.11

	
80.00%

	
20084248

	
Jim F. Kowach

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 12: Lots 1,2,3,5,6,7,8,9,10,12,13,14,15 

Sec 13: Lots 2,3,4, less tract (see lease)

	
10/31/2008

	
10/30/2013

	
635.00

	
238.35

	 17.88	
4.47

	
80.00%

	
20084634

	
Robert Deakins

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 35: S/2

	
12/8/2008 

5 years + 3 year ext option

	
12/7/2013

	
331.70

	
6.91

	 0.52	
0.13

	
80.00%

	
20090152

	
Richard Deakins

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 35: S/2

	
12/8/2008 

5 years + 3 year ext option

	
12/7/2013

	
331.70

	
6.91

	 0.52	
0.13

	
80.00%

	
20090482

 

 

 

 

 

	
Kathleen Seely Brennise

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 28: Tract in Lots 11, 12, 14 

Sec 31: Lots 5,6,11-14, 19,20, W/2 

Sec 32 Lots 7,10-14 

Sec 33:Tract in E2W2 

Sec 34: Lots 1, 7-16

	
1/29/2009 

5 years + 3 year ext option

	
1/28/2014

	
1507.93

	
145.69

	 10.93	
2.73

	
80.00%

	
20091152

	
Bruce H. and Ann C. Seely

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 28: Tract in Lots 11, 12, 14 

Sec 31: Lots 5,6,11-14, 19,20, W/2 

Sec 32 Lots 7,10-14 

Sec 33:Tract in E2W2 

Sec 34: Lots 14, 15, 16

	
3/1/2009 

5 years + 3 year ext option

	
2/28/2014

	
1179.60

	
15.00

	 1.13	
0.28

	
80.00%

	
20091997

	
Bruce H. Seely

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 28: Tract in Lots 11, 12, 14 

Sec 31: Lots 5,6,11-14, 19,20, W/2 

Sec 32 Lots 7,10-14 

Sec 33:Tract in E2W2 

Sec 34: Lots 1, 7-16 

Sec 35: Lots 4, 5

	
3/1/2009 

5 years + 3 year ext option

	
2/28/2014

	
1590.92

	
146.56

	 10.99	
2.75

	
80.00%

	
20091998

	
David R. and Shirley M. Seely

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 6: Lot 7 

Sec 31: Lots 5,6,11-14, 19,20, W/2 

Sec 32 Lots 7,10-14 

Sec 33:Tract in E2W2 

Sec 34: Lots 1, 7-16 

Sec 35: Lots 4, 5

	
3/1/2009

5 years + 3 year ext option

	
2/28/2014

	
1465.72

	
292.60

	21.95 	
5.49

	
80.00%

	
20092472

	
Walter D. Spetter

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 35: Lots 9,10 11,12,13,14,15,16 (S/2)

	
3/5/2009 

5 years + 3 year ext option

	
3/4/2014

	
331.70

	
13.820

	 1.04	
0.26

	
80.00%

	
20092059

	
Donna McMullen

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 35: Lots 9,10 11,12,13,14,15,16 (S/2)

	
3/5/2009 

5 years + 3 year ext option

	
3/4/2014

	
331.70

	
13.82

	 1.04	
0.26

	
80.00%

	
20092058

	
DR Seely, LLC an Idaho Limited Liability Company

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 31: Lots 5,6,11-14, 19,20, W/2 

Sec 32 Lots 7,10-14 

Sec 34: Lots 1, 7-16 

Sec 35: Lots 4, 5

	
3/5/2009 

5 years + 3 year ext option

	
3/4/2014

	
1436.46

	
169.85

	 12.74	
3.18

	
80.00%

	
20092471

	
Kathleen Seely Brennise

	
Buck Peak, LLC

	
T5N-R90W, 6th P.M.

Sec 3: Lots 6,7,8,9 

Sec 4: Lots 5 -13, 15, 16, 18-20 

Sec 6: Lots 12,13,14,17,18,19

	
7/9/2010

	
7/8/2015

	
1067.93

	
123.54

	 9.27	
2.32

	
80.00%

	
20102826

 

 

 

 

	
Bruce and Ann Seely

	
Buck Peak, LLC

	
T5N-R90W, 6th P.M. 

Sec 3: Lots 6,7,8,9 

Sec 4: Lots 5 -13, 15, 16, 18-20 

Sec 6: Lots 12,13,14,17,18,19

	
7/9/2010

	
7/8/2015

	
1067.93

	
12.99

	 0.97	
0.24

	
80.00%

	
20102591

	
Bruce Seely, Individually

	
Buck Peak, LLC

	
T5N-R90W, 6th P.M. 

Sec 3: Lots 6,7,8,9 

Sec 4: Lots 5 -13, 15, 16, 18-20 

Sec 6: Lots 12,13,14,17,18,19

	
7/9/2010

	
7/8/2015

	
1067.93

	
123.54

	 9.27	
2.32

	
80.00%

	
20102590

	
David and Shirley Seely

	
Buck Peak, LLC

	
T5N-R90W, 6th P.M. 

Sec 3: Lots 6,7,8,9 

Sec 4: Lots 5 -13, 15, 16, 18-20 

Sec 6: Lots 12,13,14,17,18,19

	
7/9/2010

	
7/8/2015

	
1067.93

	
260.18

	 19.51	
4.88

	
80.00%

	
20102827

	
D.R. Seely, LLC

	
Buck Peak, LLC

	
T5N-R90W, 6th P.M. 

Sec 3: Lots 6,7,8,9 

Sec 4: Lots 5 -13, 15, 16, 18-20 

Sec 6: Lots 12,13,14,17,18,19

	
7/9/2010

	
7/8/2015

	
1067.93

	
52.04

	 3.90	
0.98

	
80.00%

	
20102825

	
Lease Serial No. COC-73459

	
Impact Energy Resources, LLC

	
T5N-R90W, 6th P.M. Section 1: Lot 5, 12, 13

	
3/1/2009

	
2/28/2019

	
125.15

	
125.15

	 9.39	
2.35

	
80.00%

	 
	 	 	 	 	 	 	
1,933.86

	 145.04	
52.21

	 	 
	 	 	 	 	 	 	Total Schedule	 448.01	112.00	 	 
	 	 	 	 	 	 	 2.1(a)	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 

 

 

 

 

 

 

  

  

  

 

EXHIBIT "C"

 

ASSIGNMENT

 

 

	STATE OF COLORADO 	)
	COUNTY OF 	)

KNOW ALL MEN BY THESE PRESENTS, that PetroShare Corp., with an office at ___________________hereinafter referred to as "Assignor", for and in consideration of the sum of TEN AND N0/100 DOLLARS ($10.00), the receipt and adequacy of which is hereby acknowledged and full acquittance granted therefor, has granted, sold, conveyed and delivered and does hereby grant, sell, convey and deliver unto LLOCO, L.L.C. with an office at 1001 Ochsner Blvd., Ste 200, Covington, LA 70433 hereinafter referred to as "Assignee", 25% of Assignor's right, title and interest in the following properties (real, personal or mixed) and rights (contractual or otherwise) unless expressly reserved or excluded herein, the following being referred to herein collectively as the Assets:

	
a)

	
the oil and gas leases described on Exhibit "A" and "B", attached hereto, in the amounts of the working interests specified thereon (the "Leases");

	
b)

	
The rights and interests in, to and under, or derived from, all of the presently existing and valid unitization and pooling agreements and units (including all units formed by voluntary agreement and those formed under the rules, regulations, orders or other official acts of any governmental entity having appropriate jurisdiction) to the extent they relate to any of the Leases;

	
c)

	
The rights and interests in, to and under, or derived from, all of the presently existing and valid joint operating agreements, oil sales contracts, casing head gas sales contracts, gas sales contracts, processing contracts, gathering contracts, transportation contracts, easements, rights-of-way, servitudes, surface leases and other contracts to the extent they are described on Exhibit "C", attached  hereto  (the "Contracts");

	
d)

	
The rights and interests in and to all personal property and improvements, including without limitation, tanks, buildings, fixtures,  machinery, equipment, pipelines, utility lines, power lines, telephone lines, roads and other appurtenances, to the extent the same are situated upon and/or used or held for use by Seller  in connection with the ownership, operation, maintenance and repair of the Leases; and

	
(f)

	
The rights and interests in all permits and licenses of any nature owned, held or operated in connection with operations for the exploration and production of oil, gas or other minerals to the extent the same are used or obtained in connection with any of the Leases or other property described in Exhibit "A" ("Permits");

 

 

  

9

  

 

TO HAVE AND TO HOLD the Assets, together with all and singular the rights and appurtenances thereunto in anywise belonging, unto Assignee, its successors and assigns, forever, subject to the following terms and conditions:

 

1.  Special Warrantv of Title. Assignor represents and warrants that the Assets are free and clear of all liens, encumbrances, security interests or other adverse claims arising by, through or under Assignor, but not otherwise. Assignor shall warrant and defend the title to the Assets conveyed to Assignee against every person whomsoever lawfully claims the Assets or any part thereof by, through, or under Assignor, but not otherwise.

 

2.  Successors and Assigns. The terms, covenants and conditions contained in this Assignment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, and such terms, covenants and conditions shall be covenants running with the land and with each subsequent transfer or assignment of the Assets, or any part thereof.

 

3.  Participation Agreement. This Assignment is made in accordance with and is subject to the terms, covenants and conditions contained in that certain Participation Agreement dated  as  of _______, 2013, by  and  between  Assignor  and  Assignee  ("Participation Agreement"), all of which shall remain in full force and effect in .accordance with their terms as set forth therein and shall not be deemed to have been merged with this Assignment. Ifthere is a conflict between the provisions of the Participation Agreement and this Assignment, the provisions of the Participation Agreement shall control the rights and obligations of the parties.

 

4.  Further Assurances. Assignor and Assignee agree to take all such further actions and to execute, acknowledge and deliver all such further documents that are necessary or useful in carrying out the purpose of this Assignment.

 

5.  Counteparts. This Assignment is being executed in multiple counterparts each of which shall for all purposes be deemed to be an original and all of which shall constitute one instrument.

 

 

ASSIGNOR:

 

PetroShare Corp.

 

By:  ____________________

Name: 

Title:

 

 

ASSIGNEE:

 

By: ____________________

Name: __________________

Title:  __________________

 

 

  

10

  

 

 

	STATE OF COLORADO __________________	)	 
	 	)	ss. 
	COUNTY OF ____________________	)	 

The foregoing instrument was acknowledged before me this ___ day of ___________ , 2013, by ___________ , as ____________________ of PetroShare Corp.

 

Witness my hand and seal.

 

	My Commission Expires: ____________________ 	______________________________
	 	Notary Public

 

 

 

 

	STATE OF LOUISIANNA	)	 
	 	)	ss. 
	COUNTY OF __________	)	 

The foregoing instrument was acknowledged before me this ___ day of ___________ , 2013, by ___________ , as ____________________ of LLOCO, L.L.C.

 

  

Witness my hand and seal.

 

	My Commission Expires: ____________________ 	______________________________
	 	Notary Public

 

 

  

11

  

Exhibit D

to

Participation Agreement

Model Form of Operating Agreement

(See Exhibit 10.9)

 

  

  

  

 

 

EXHIBIT E

 

  

SCHEDULE 5.5

TO

LEASE EXTENSION AND DEVELOPMENT AGREEMENT

A.A.P.L. FORM 610 - 1989

MODEL FORM OPERATING AGREEMENT

OPERATING AGREEMENT 

DATED

  

	 	, 	, 2010 ,	 
	 	 	year	 

  

  

	OPERATOR	QUICKSILVER RESROUCES INC.
	 	 
	CONTRACT AREA	 
	
  

	
  

	 
	
  

	 
	 	 

  

	COUNTY OR PARISH OF 	MOFFAT	, STATE OF 	COLORADO

  

	 	
COPYRIGHT 1989 – ALL RIGHTS RESERVED 

AMERICAN ASSOCIATION OF PETROLEUM 

LANDMEN, 4100 FOSSIL CREEK BLVD. FORT 

WORTH, TEXAS, 76137, APPROVED FORM.

A.A.P.L. NO. 610 – 1989

  

 

 

 

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

  

TABLE OF CONTENTS

	Article	 	 	Page
	I.	 	DEFINITIONS 	1
	II.	 	EXHIBITS	1
	III.	 	INTERESTS OF PARTIES 	2
	 	 	A. OIL AND GAS INTERESTS:	2
	 	 	B. INTERESTS OF PARTIES IN COSTS AND PRODUCTION 	2
	 	 	C. SUBSEQUENTLY CREATED INTERESTS: 	2
	IV.	 	TITLES 	2
	 	 	A. TITLE EXAMINATION 	2
	 	 	B. LOSS OR FAILURE OF TITLE 	3
	 	 	1. Failure of Title 	3
	 	 	2. Loss by Non-Payment or Erroneous Payment of Amount Due	3
	 	 	3. Other Losses 	3
	 	 	4. Curing Title 	3
	V.	 	OPERATOR 	4
	 	 	A. DESIGNATION AND RESPONSIBILITIES OF OPERATOR	4
	 	 	B. RESIGNATION OR REMOVAL OF OPERATOR AND SELECTION OF SUCCESSOR	4
	 	 	1. Resignation or Removal of Operator	4
	 	 	2. Selection of Successor Operator 	4
	 	 	3. Effect of Bankruptcy	4
	 	 	C. EMPLOYEES AND CONTRACTORS 	4
	 	 	D. RIGHTS AND DUTIES OF OPERATOR: 	4
	 	 	1. Competitive Rates and Use of Affiliates	4
	 	 	2. Discharge of Joint Account Obligations	4
	 	 	3. Protection from Liens 	4
	 	 	4. Custody of Funds 	5
	 	 	5. Access to Contract Area and Records 	5
	 	 	6. Filing and Furnishing Governmental Reports 	5
	 	 	7. Drilling and Testing Operations	5
	 	 	8. Cost Estimates 	5
	 	 	9. Insurance	5
	VI.	 	DRILLING AND DEVELOPMENT 	5
	 	 	A. INITIAL WELL	5
	 	 	B. SUBSEQUENT OPERATIONS: 	5
	 	 	1. Proposed Operations 	5
	 	 	2. Operations by Less Than All Parties 	6
	 	 	3. Stand-By Costs	7
	 	 	4. Deepening 	8
	 	 	5. Sidetracking 	8
	 	 	6. Order of Preference of Operations	8
	 	 	7. Conformity to Spacing Pattern 	9
	 	 	8. Paying Wells 	9
	 	 	C. COMPLETION OF WELLS; REWORKING AND PLUGGING BACK 	9
	 	 	1. Completion 	9
	 	 	2. Rework, Recomplete or Plug Back	9
	 	 	D. OTHER OPERATIONS	9
	 	 	E. ABANDONMENT OF WELLS 	9
	 	 	1. Abandonment of Dry Holes	9
	 	 	2. Abandonment of Wells That Have Produced	10
	 	 	3. Abandonment of Non-Consent Operations	10
	 	 	F. TERMINATION OF OPERATIONS	10
	 	 	G. TAKING PRODUCTION IN KIND	10
	 	 	(Option 1) Gas Balancing Agreement 	10
	 	 	(Option 2) No Gas Balancing Agreement	11
	VII.	 	EXPENDITURES AND LIABILITY OF PARTIES	11
	 	 	A. LIABILITY OF PARTIES	11
	 	 	B. LIENS AND SECURITY INTERESTS 	12
	 	 	C. ADVANCES	12
	 	 	D. DEFAULTS AND REMEDIES 	12
	 	 	1. Suspension of Rights 	13
	 	 	2. Suit for Damages	13
	 	 	3. Deemed Non-Consent 	13
	 	 	4. Advance Payment 	13
	 	 	5. Costs and Attorneys’ Fees 	13
	 	 	E. RENTALS, SHUT-IN WELL PAYMENTS AND MINIMUM ROYALTIES 	13
	 	 	F. TAXES 	13
	VIII.	 	ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST 	14
	 	 	A. SURRENDER OF LEASES	14
	 	 	B. RENEWAL OR EXTENSION OF LEASES	14
	 	 	C. ACREAGE OR CASH CONTRIBUTIONS 	14

i

 

 

 

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

	 	 	 	 
	 	 	D. ASSIGNMENT; MAINTENANCE OF UNIFORM INTEREST: 	15
	 	 	E. WAIVER OF RIGHTS TO PARTITION 	15
	 	 	F. PREFERENTIAL RIGHT TO PURCHASE 	15
	IX.	 	INTERNAL REVENUE COEDE ELECTION	15
	X.	 	CLAIMS AND LAWSUITS	15
	XI.	 	FORCE MAJEURE 	16
	XII.	 	NOTICES	16
	XIII.	 	TERM OF AGREEMENT 	16
	XIV.	 	COMPLIANCE WITH LAWS AND REGULATIONS	16
	 	 	A. LAWS, REGULATIONS AND ORDERS	16
	 	 	B. GOVERNING LAW 	16
	 	 	C. REGULATORY AGENCIES: 	16
	XV.	 	MISCELLANEOUS 	17
	 	 	A. EXECUTION 	17
	 	 	B. SUCCESSORS AND ASSIGNS 	17
	 	 	C. COUNTERPARTS	17
	 	 	D. SEVERABILITY 	17
	XVI.	 	OTHER PROVISIONS 	17
	 	 	 	 
	 	 	 	 

  

  

  

ii

  

  

 

 

 

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

  

	
1

	
OPERATING AGREEMENT

	
2

	
THIS AGREEMENT, entered into by and between Quicksilver Resources Inc. ,

	
3

	
hereinafter designated and referred to as "Operator," and the signatory party or parties other than Operator, sometimes

	
4

	
hereinafter referred to individually as "Non-Operator," and collectively as "Non-Operators."

	
5

	
WITNESSETH:

	
6

	
WHEREAS, the parties to this agreement are owners of Oil and Gas Leases and/or Oil and Gas Interests in the land

	

7

	
identified in Exhibit "A," and the parties hereto have reached an agreement to explore and develop these Leases and/or Oil

	

8

	
and Gas Interests for the production of Oil and Gas to the extent and as hereinafter provided,

	
9

	
NOW, THEREFORE, it is agreed as follows:

	
10

	
ARTICLE I.

	
11

	
DEFINITIONS

	
12

	
As used in this agreement, the following words and terms shall have the meanings here ascribed to them:

	
13

	
A. The term "AFE" shall mean an Authority for Expenditure prepared by a party to this agreement for the purpose of

	
14

	
estimating the costs to be incurred in conducting an operation hereunder.

	
15

	
B. The term "Completion" or "Complete" shall mean a single operation intended to complete a well as a producer of Oil

	
16

	
and Gas in one or more Zones, including, but not limited to, the setting of production casing, perforating, well stimulation

	
17

	
and production testing conducted in such operation.

	
18

	
C. The term "Contract Area" shall mean all of the lands, Oil and Gas Leases and/or Oil and Gas Interests intended to be

	
19

	
developed and operated for Oil and Gas purposes under this agreement. Such lands, Oil and Gas Leases and Oil and Gas

	
20

	
Interests are described in Exhibit "A."

	
21

	
D. The term "Deepen" shall mean a single operation whereby a well is drilled to an objective Zone below the deepest

	
22

	
Zone in which the well was previously drilled, or below the Deepest Zone proposed in the associated AFE, whichever is the

	
23

	
lesser.

	
24

	
E. The terms "Drilling Party" and "Consenting Party" shall mean a party who agrees to join in and pay its share of the

	
25

	
cost of any operation conducted under the provisions of this agreement.

	
26

	
F. The term "Drilling Unit" shall mean the area fixed for the drilling of one well by order or rule of any state or federal

	
27

	
body having authority. If a Drilling Unit is not fixed by any such rule or order, a Drilling Unit shall be the drilling unit as

	
28

	
established by the pattern of drilling in the Contract Area unless fixed by express agreement of the Drilling Parties.

	
29

	
G. The term "Drillsite" shall mean the Oil and Gas Lease or Oil and Gas Interest on which a proposed well is to be

	
30

	
located.

	
31

	
H. The term "Initial Well" shall mean the well required to be drilled by the parties hereto as provided in Article VI.A.

	
32

	
I. The term "Non-Consent Well" shall mean a well in which less than all parties have conducted an operation as

	
33

	
provided in Article VI.B.2.

	
34

	
J. The terms "Non-Drilling Party" and "Non-Consenting Party" shall mean a party who elects not to participate in a

	
35

	
proposed operation.

	
36

	
K. The term "Oil and Gas" shall mean oil, gas, casinghead gas, gas condensate, and/or all other liquid or gaseous

	
37

	
hydrocarbons and other marketable substances produced therewith, unless an intent to limit the inclusiveness of this term is

	
38

	
specifically stated.

	
39

	
L. The term "Oil and Gas Interests" or "Interests" shall mean unleased fee and mineral interests in Oil and Gas in tracts

	
40

	
of land lying within the Contract Area which are owned by parties to this agreement.

	
41

	
M. The terms "Oil and Gas Lease," "Lease" and "Leasehold" shall mean the oil and gas leases or interests therein

	
42

	
covering tracts of land lying within the Contract Area which are owned by the parties to this agreement.

	
43

	
N. The term "Plug Back" shall mean a single operation whereby a deeper Zone is abandoned in order to attempt a

	
44

	
Completion in a shallower Zone.

	
45

	
O. The term "Recompletion" or "Recomplete" shall mean an operation whereby a Completion in one Zone is abandoned

	
46

	
in order to attempt a Completion in a different Zone within the existing wellbore.

	
47

	
P. The term "Rework" shall mean an operation conducted in the wellbore of a well after it is Completed to secure,

	
48

	
restore, or improve production in a Zone which is currently open to production in the wellbore. Such operations include, but

	
49

	
are not limited to, well stimulation operations but exclude any routine repair or maintenance work or drilling, Sidetracking,

	
50

	
Deepening, Completing, Recompleting, or Plugging Back of a well.

	
51

	
Q. The term "Sidetrack" shall mean the directional control and intentional deviation of a well from vertical so as to

	
52

	
change the bottom hole location unless done to straighten the hole or drill around junk in the hole to overcome other

	
53

	
mechanical difficulties.

	
54

	
R. The term "Zone" shall mean a stratum of earth containing or thought to contain a common accumulation of Oil and

	
55

	
Gas separately producible from any other common accumulation of Oil and Gas.

	
56

	
Unless the context otherwise clearly indicates, words used in the singular include the plural, the word "person" includes

	
57

	
natural and artificial persons, the plural includes the singular, and any gender includes the masculine, feminine, and neuter.

	
58

	
ARTICLE II.

	
59

	
EXHIBITS

	
60

	
The following exhibits, as indicated below and attached hereto, are incorporated in and made a part hereof:

	
61 

	
   X    A. Exhibit "A," shall include the following information:

	
62

	
(1) Description of lands subject to this agreement,

	
63

	
(2) Restrictions, if any, as to depths, formations, or substances,

	
64

	
(3) Parties to agreement with addresses and telephone numbers for notice purposes,

	
65

	
(4) Percentages or fractional interests of parties to this agreement,

	
66

	
(5) Oil and Gas Leases and/or Oil and Gas Interests subject to this agreement,

	
67

	
(6) Burdens on production.

	
68 

	
____B. Exhibit "B," Form of Lease.

	
69 

	
  X    C. Exhibit "C," Accounting Procedure.

	
70 

	
  X    D. Exhibit "D," Insurance.

	
71 

	
____ E. Exhibit "E," Gas Balancing Agreement.

	
72 

	
____ F. Exhibit "F," Non-Discrimination and Certification of Non-Segregated Facilities.

	
73 

	
____G. Exhibit "G," Tax Partnership.

	
74 

	
____H. Other: _____________________________

  

 

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A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

  

	
1

	
If any provision of any exhibit, except Exhibits "E," "F" and "G," is inconsistent with any provision contained in

	
2

	
the body of this agreement, the provisions in the body of this agreement shall prevail.

	
3

	
ARTICLE III.

	
4

	
INTERESTS OF PARTIES

	
5

	
A. Oil and Gas Interests:

	
6

	
If any party owns an Oil and Gas Interest in the Contract Area, that Interest shall be treated for all purposes of this

	
7

	
agreement and during the term hereof as if it were covered by the form of Oil and Gas Lease attached hereto as Exhibit "B,"

	
8

	
and the owner thereof shall be deemed to own both royalty interest in such lease and the interest of the lessee thereunder.

	
9

	
B. Interests of Parties in Costs and Production:

	
10

	
Unless changed by other provisions, all costs and liabilities incurred in operations under this agreement shall be borne

	
11

	
and paid, and all equipment and materials acquired in operations on the Contract Area shall be owned, by the parties as their

	
12

	
interests are set forth in Exhibit "A." In the same manner, the parties shall also own all production of Oil and Gas from the

	
13

	
Contract Area subject, however, to the payment of royalties and other burdens on production as described hereafter.

	
14

	

Operator shall pay or deliver, or

	
15

	

cause to be paid or delivered, all burdens on production from the Contract Area

	
16

	

 

	
17

	

 

	
18

	
Nothing contained in this Article III.B. shall be deemed an assignment or cross-assignment of interests covered hereby,

	
19

	
and in the event two or more parties contribute to this agreement jointly owned Leases, the parties' undivided interests in

	
20

	
said Leaseholds shall be deemed separate leasehold interests for the purposes of this agreement.

	
21

	
C. Subsequently Created Interests:

	
22

	
If any party has contributed hereto a Lease or Interest that is burdened with an assignment of production given as security

	
23

	
for the payment of money, or if, after the date of this agreement, any party creates an overriding royalty, production

	
24

	
payment, net profits interest, assignment of production or other burden payable out of production attributable to its working

	
25

	
interest hereunder, such burden shall be deemed a "Subsequently Created Interest."Further, if any party has contributed

	
26

	
hereto a Lease or Interest burdened with an overriding royalty, production payment, net profits interests, or other burden

	
27

	
payable out of production created prior to the date of this agreement, and such burden is not shown on Exhibit "A," such

	
28

	
burden also shall be deemed a Subsequently Created Interest to the extent such burden causes the burdens on such party's

	
29

	
Lease or Interest to exceed the amount stipulated in Article III.B. above.

	
30

	
The party whose interest is burdened with the Subsequently Created Interest (the "Burdened Party") shall assume and

	
31

	
alone bear, pay and discharge the Subsequently Created Interest and shall indemnify, defend and hold harmless the other

	
32

	
parties from and against any liability therefor. Further, if the Burdened Party fails to pay, when due, its share of expenses

	
33

	
chargeable hereunder, all provisions of Article VII.B. shall be enforceable against the Subsequently Created Interest in the

	
34

	
same manner as they are enforceable against the working interest of the Burdened Party. If the Burdened Party is required

	
35

	
under this agreement to assign or relinquish to any other party, or parties, all or a portion of its working interest and/or the

	
36

	
production attributable thereto, said other party, or parties, shall receive said assignment and/or production free and clear of

	
37

	
said Subsequently Created Interest, and the Burdened Party shall indemnify, defend and hold harmless said other party, or

	
38

	
parties, from any and all claims and demands for payment asserted by owners of the Subsequently Created Interest.

	
39

	
ARTICLE IV.

	
40

	
TITLES

	
41

	
A. Title Examination:

	
42

	
Title examination shall be made on the Drillsite of any proposed well prior to commencement of drilling operations and,

	
43

	
if a majority in interest of the Drilling Parties so request or Operator so elects, title examination shall be made on the entire

	
44

	
Drilling Unit, or maximum anticipated Drilling Unit, of the well. The opinion will include the ownership of the working

	
45

	
interest, minerals, royalty, overriding royalty and production payments under the applicable Leases.Each party contributing

	
46

	
Leases and/or Oil and Gas Interests to be included in the Drillsite or Drilling Unit, if appropriate, shall furnish to Operator

	
47

	
all abstracts (including federal lease status reports), title opinions, title papers and curative material in its possession free of

	
48

	
charge. All such information not in the possession of or made available to Operator by the parties, but necessary for the

	
49

	
examination of the title, shall be obtained by Operator. Operator shall cause title to be examined by attorneys on its staff or

	
50

	
by outside attorneys. Copies of all title opinions shall be furnished to each Drilling Party. Costs incurred by Operator in

	
51

	
procuring abstracts, fees paid outside attorneys or title examination (including preliminary, supplemental, shut-in royalty

	
52

	
opinions and division order title opinions), ( fees paid to outside landmen or brokers) / and other direct charges as provided in Exhibit "C" shall be borne by the Drilling

	
53

	
Parties in the proportion that the interest of each Drilling Party bears to the total interest of all Drilling Parties as such

	
54

	
interests appear in Exhibit "A." Operator shall make no charge for services rendered by its staff attorneys or other personnel

	
55

	
in the performance of the above functions.

	
56

	

Operator shall be responsible for securing curative matter and pooling amendments or agreements required in

	
57

	
connection with any title opinion obtained as set forth above. Operator shall be responsible for the preparation

	
58

	
and recording of pooling designations or declarations and communitization agreements as well as the conduct of hearings

	
59

	
before governmental agencies for the securing of spacing or pooling orders or any other orders necessary or appropriate to

	
60

	
the conduct of operations hereunder. This shall not prevent any party from appearing on its own behalf at such hearings.

	
61

	
Costs incurred by Operator, including fees paid to outside attorneys, which are associated with hearings before governmental

	
62

	
agencies, and which costs are necessary and proper for the activities contemplated under this agreement, shall be direct

	
63

	
charges to the joint account and shall not be covered by the administrative overhead charges as provided in Exhibit "C."

	
64

	

 

	
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A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

  

	
1 

	
Operator shall make no charge for services rendered by its staff attorneys or other personnel in the performance of the above

	
2 

	
functions.

	
3

	

No well shall be drilled on the Contract Area until after (1) the title to the Drillsite or Drilling Unit, if appropriate, has

	
4 

	
been examined as above provided, and (2) the title has been approved by the examining attorney or title has been accepted by

	
5 

	
Operator. 

	
6 

	
B. Loss or Failure of Title:

	
7

	
  

	
8

	
3. Losses: All losses of Leases or Interests committed to this agreement, shall be joint losses and shall be borne by all parties in 

	
9 

	
proportion to their interests shown on

	
10

	
Exhibit "A." This shall include but not be limited to the loss of any Lease or Interest through failure to develop or because

	
11

	
express or implied covenants have not been performed (other than performance which requires only the payment of money),

	
12

	
and the loss of any Lease by expiration at the end of its primary term if it is not renewed or extended. There shall be no

	
13

	
readjustment of interests in the remaining portion of the Contract Area on account of any joint loss.

	
14

	

4. Curing Title: In the event of a Failure of Title as set forth above, any

	
15

	
Lease or Interest acquired by any party hereto during the ninety

	
16

	
(90) day period / following discovery of such failure overing all or a portion of the interest that has failed

	
17

	
or was lost shall be offered at cost to the party whose interest has failed or was lost, and the provisions of Article VIII.B.

	
18

	
shall not apply to such acquisition.

	
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3

 

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

  

  

  

	
1

	
ARTICLE V.

	
2

	
OPERATOR

	

3

	
A. Designation and Responsibilities of Operator:

	
4

	
Quicksilver Resources Inc. shall be the Operator of the Contract Area, and shall conduct

	
5

	
and direct and have full control of all operations on the Contract Area as permitted and required by, and within the limits of

	
6

	
this agreement. In its performance of services hereunder for the Non-Operators, Operator shall be an independent contractor

	
7

	
not subject to the control or direction of the Non-Operators except as to the type of operation to be undertaken in accordance

	
8

	
with the election procedures contained in this agreement. Operator shall not be deemed, or hold itself out as, the agent of the

	
9

	
Non-Operators with authority to bind them to any obligation or liability assumed or incurred by Operator as to any third

	
10

	
party. Operator shall conduct its activities under this agreement as a reasonable prudent operator, in a good and workmanlike

	
11

	
manner, with due diligence and dispatch, in accordance with good oilfield practice, and in compliance with applicable law and

	
12

	
regulation, but in no event shall it have any liability as Operator to the other parties for losses sustained or liabilities incurred

	
13

	
except such as may result from gross negligence or willful misconduct.

	
14

	
B. Resignation or Removal of Operator and Selection of Successor:

	
15

	
1. Resignation or Removal of Operator: Operator may resign at any time by giving written notice thereof to Non-Operators.

	
16

	
If Operator terminates its legal existence, no longer owns an interest hereunder in the Contract Area, or is no longer capable of

	
17

	
serving as Operator, Operator shall be deemed to have resigned without any action by Non-Operators, except the selection of a

	
18

	
successor. Operator may be removed only for good cause by the affirmative vote of Non-Operators owning a majority interest

	
19

	
based on ownership as shown on Exhibit "A" remaining after excluding the voting interest of Operator; such vote shall not be

	
20

	
deemed effective until a written notice has been delivered to the Operator by a Non-Operator detailing the alleged default and

	
21

	
Operator has failed to cure the default within thirty (30) days from its receipt of the notice or, if the default concerns an

	
22

	
operation then being conducted, within forty-eight (48) hours of its receipt of the notice. For purposes hereof, "good cause" shall

	
23

	
mean not only gross negligence or willful misconduct but also the material breach of or inability to meet the standards of

	
24

	
operation contained in Article V.A. or material failure or inability to perform its obligations under this agreement.

	
25

	
Subject to Article VII.D.1., such resignation or removal shall not become effective until 7:00 o'clock A.M. on the first

	
26

	
day of the calendar month following the expiration of ninety (90) days after the giving of notice of resignation by Operator

	
27

	
or action by the Non-Operators to remove Operator, unless a successor Operator has been selected and assumes the duties of

	
28

	
Operator at an earlier date. Operator, after effective date of resignation or removal, shall be bound by the terms hereof as a

	
29

	
Non-Operator. A change of a corporate name or structure of Operator or transfer of Operator's interest to any single

	
30

	
subsidiary, parent or successor corporation shall not be the basis for removal of Operator.

	
31

	
2. Selection of Successor Operator: Upon the resignation or removal of Operator under any provision of this agreement, a

	
32

	
successor Operator shall be selected by the parties. The successor Operator shall be selected from the parties owning an

	
33

	
interest in the Contract Area at the time such successor Operator is selected. The successor Operator shall be selected by the

	
34

	
affirmative vote of two (2) or more parties owning a majority interest based on ownership as shown on Exhibit "A";

	
35

	
provided, however, if an Operator which has been removed or is deemed to have resigned fails to vote or votes only to

	
36

	
succeed itself, the successor Operator shall be selected by the affirmative vote of the party or parties owning a majority

	
37

	
interest based on ownership as shown on Exhibit "A" remaining after excluding the voting interest of the Operator that was

	
38

	
removed or resigned. The former Operator shall promptly deliver to the successor Operator all records and data relating to

	
39

	
the operations conducted by the former Operator to the extent such records and data are not already in the possession of the

	
40

	
successor operator. Any cost of obtaining or copying the former Operator's records and data shall be charged to the joint

	
41

	
account.

	
42

	
3. Effect of Bankruptcy: If Operator becomes insolvent, bankrupt or is placed in receivership, it shall be deemed to have

	
43

	
resigned without any action by Non-Operators, except the selection of a successor. If a petition for relief under the federal

	
44

	
bankruptcy laws is filed by or against Operator, and the removal of Operator is prevented by the federal bankruptcy court, all

	
45

	
Non-Operators and Operator shall comprise an interim operating committee to serve until Operator has elected to reject or

	
46

	
assume this agreement pursuant to the Bankruptcy Code, and an election to reject this agreement by Operator as a debtor in

	
47

	
possession, or by a trustee in bankruptcy, shall be deemed a resignation as Operator without any action by Non-Operators,

	
48

	
except the selection of a successor. During the period of time the operating committee controls operations, all actions shall

	
49

	
require the approval of two (2) or more parties owning a majority interest based on ownership as shown on Exhibit "A." In

	
50

	
the event there are only two (2) parties to this agreement, during the period of time the operating committee controls

	
51

	
operations, a third party acceptable to Operator, Non-Operator and the federal bankruptcy court shall be selected as a

	
52

	
member of the operating committee, and all actions shall require the approval of two (2) members of the operating

	
53

	
committee without regard for their interest in the Contract Area based on Exhibit "A."

	
54

	
C. Employees and Contractors:

	
55

	
The number of employees or contractors used by Operator in conducting operations hereunder, their selection, and the

	
56

	
hours of labor and the compensation for services performed shall be determined by Operator, and all such employees or

	
57

	
contractors shall be the employees or contractors of Operator.

	
58

	
D. Rights and Duties of Operator:

	
59

	
1. Competitive Rates and Use of Affiliates: All wells drilled on the Contract Area shall be drilled on a competitive

	
60

	
contract basis at the usual rates prevailing in the area. If it so desires, Operator may employ its own tools and equipment in

	
61

	
the drilling of wells, but its charges therefor shall not exceed the prevailing rates in the area and the rate of such charges

	
62

	
shall be agreed upon by the parties in writing before drilling operations are commenced, and such work shall be performed by

	
63

	
Operator under the same terms and conditions as are customary and usual in the area in contracts of independent contractors

	
64

	
who are doing work of a similar nature. All work performed or materials supplied by affiliates or related parties of Operator

	
65

	
shall be performed or supplied at competitive rates, pursuant to written agreement, and in accordance with customs and

	
66

	
standards prevailing in the industry.

	
67

	
2. Discharge of Joint Account Obligations: Except as herein otherwise specifically provided, Operator shall promptly pay

	
68

	
and discharge expenses incurred in the development and operation of the Contract Area pursuant to this agreement and shall

	
69

	
charge each of the parties hereto with their respective proportionate shares upon the expense basis provided in Exhibit "C."

	
70

	
Operator shall keep an accurate record of the joint account hereunder, showing expenses incurred and charges and credits

	
71

	
made and received.

	
72

	
3. Protection from Liens: Operator shall pay, or cause to be paid, as and when they become due and payable, all accounts

	
73

	
of contractors and suppliers and wages and salaries for services rendered or performed, and for materials supplied on, to or in

	
74

	
respect of the Contract Area or any operations for the joint account thereof, and shall keep the Contract Area free from

  

  

 

4

 

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

  

	
1

	
liens and encumbrances resulting therefrom except for those resulting from a bona fide dispute as to services rendered or

	
2

	
materials supplied.

	
3

	
4. Custody of Funds: Operator shall hold for the account of the Non-Operators any funds of the Non-Operators advanced

	
4

	
or paid to the Operator, either for the conduct of operations hereunder or as a result of the sale of production from the

	
5

	
Contract Area, and such funds shall remain the funds of the Non-Operators on whose account they are advanced or paid until

	
6

	
used for their intended purpose or otherwise delivered to the Non-Operators or applied toward the payment of debts as

	
7

	
provided in Article VII.B. Nothing in this paragraph shall be construed to establish a fiduciary relationship between Operator

	
8

	
and Non-Operators for any purpose other than to account for Non-Operator funds as herein specifically provided. Nothing in

	
9

	
this paragraph shall require the maintenance by Operator of separate accounts for the funds of Non-Operators unless the

	
10

	
parties otherwise specifically agree.

	
11

	
5. Access to Contract Area and Records: Operator shall, except as otherwise provided herein, permit each Non-Operator

	
12

	
or its duly authorized representative, at the Non-Operator's sole risk and cost, full and free access at all reasonable times to

	
13

	
all operations of every kind and character being conducted for the joint account on the Contract Area and to the records of

	
14

	
operations conducted thereon or production therefrom, including Operator's books and records relating thereto. Such access

	
15

	
rights shall not be exercised in a manner interfering with Operator's conduct of an operation hereunder and shall not obligate

	
16

	
Operator to furnish any geologic or geophysical data of an interpretive nature unless the cost of preparation of such

	
17

	
interpretive data was charged to the joint account. Operator will furnish to each Non-Operator upon request copies of any

	
18

	
and all reports and information obtained by Operator in connection with production and related items, including, without

	
19

	
limitation, meter and chart reports, production purchaser statements, run tickets and monthly gauge reports, but excluding

	
20

	
purchase contracts and pricing information to the extent not applicable to the production of the Non-Operator seeking the

	
21

	
information.Any audit of Operator's records relating to amounts expended and the appropriateness of such expenditures

	
22

	
shall be conducted in accordance with the audit protocol specified in Exhibit "C."

	
23

	
6. Filing and Furnishing Governmental Reports: Operator will file, and upon written request promptly furnish copies to

	
24

	
each requesting Non-Operator not in default of its payment obligations, all operational notices, reports or applications

	
25

	
required to be filed by local, State, Federal or Indian agencies or authorities having jurisdiction over operations hereunder.

	
26

	
Each Non-Operator shall provide to Operator on a timely basis all information necessary to Operator to make such filings.

	
27

	
7. Drilling and Testing Operations: The following provisions shall apply to each well drilled hereunder, including but not

	
28

	
limited to the Initial Well:

	
29

	
(a) Operator will promptly advise Non-Operators of the date on which the well is spudded, or the date on which

	
30

	
drilling operations are commenced.

	
31

	
(b) Operator will send to Non-Operators such reports, test results and notices regarding the progress of operations on the well

	
32

	
as the Non-Operators shall reasonably request, including, but not limited to, daily drilling reports, completion reports, and well logs.

	
33

	
(c) Operator shall adequately test all Zones encountered which may reasonably be expected to be capable of producing

	
34

	
Oil and Gas in paying quantities as a result of examination of the electric log or any other logs or cores or tests conducted

	
35

	
hereunder.

	
36

	
8. Cost Estimates: Upon request of any Consenting Party, Operator shall furnish estimates of current and cumulative costs

	
37

	
incurred for the joint account at reasonable intervals during the conduct of any operation pursuant to this agreement.

	
38

	
Operator shall not be held liable for errors in such estimates so long as the estimates are made in good faith.

	
39

	
9. Insurance: At all times while operations are conducted hereunder, Operator shall comply with the workers

	
40

	
compensation law of the state where the operations are being conducted; provided, however, that Operator may be a self-

	
41

	
insurer for liability under said compensation laws in which event the only charge that shall be made to the joint account shall

	
42

	
be as provided in Exhibit "C." Operator shall also carry or provide insurance for the benefit of the joint account of the parties

	
43

	
as outlined in Exhibit "D" attached hereto and made a part hereof. Operator shall require all contractors engaged in work on

	
44

	
or for the Contract Area to comply with the workers compensation law of the state where the operations are being conducted

	
45

	
and to maintain such other insurance as Operator may require.

	
46

	
In the event automobile liability insurance is specified in said Exhibit "D," or subsequently receives the approval of the

	
47

	
parties, no direct charge shall be made by Operator for premiums paid for such insurance for Operator's automotive

	
48

	
equipment.

	
49

	
ARTICLE VI.

	
50

	
DRILLING AND DEVELOPMENT

	
51

	
A. Initial Well:

	
52

	
On or before the______ day of ______________ , ____ , Operator shall commence the drilling of the Initial

	
53

	
Well at  a location on the Contract Area of Operator’s choosing

	
54

	
 

	
55

	
  

	
56

	
  

	
57

	
  

	
58

	
  

	
59

	
  

	
60 

	
and shall thereafter continue the drilling of the well with due diligence as a vertical well to a depth sufficient to test the Niobrara formation to or to a depth of 7,000 feet, whichever is the lesser depth.

	
61

	
  

	
62

	
  

	
63

	
  

	
64

	
  

	
65

	
  

	
66

	
  

	
67

	
The drilling of the Initial Well and the participation therein by all parties is obligatory, subject to Article VI.C.1. as to participation

	
68

	
in Completion operations and Article VI.F. as to termination of operations and Article XI as to occurrence of force majeure.

	
69

	
B. Subsequent Operations:

	
70

	
1. Proposed Operations: If any party hereto should desire to drill any well on the Contract Area other than the Initial Well, or

	
71 

	
if any party should desire to / complete the Initial Well as a horizontal well or to Rework, Sidetrack, Deepen, Recomplete or Plug Back a dry hole or a well no longer capable of

	
72

	
producing in paying quantities in which such party has not otherwise relinquished its interest in the proposed objective Zone under

	
73

	
this agreement, the party desiring to drill, Rework, Sidetrack, Deepen, Recomplete or Plug Back such a well shall give written

	
74

	
notice of the proposed operation to the parties who have not otherwise relinquished their interest in such objective Zone

  

  

 

5

 

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

  

  

	
1

	
under this agreement and to all other parties in the case of a proposal for Sidetracking or Deepening, specifying the work to be

	
2

	
performed, the location, proposed depth, objective Zone and the estimated cost of the operation. The parties to whom such a

	
3

	
notice is delivered shall have thirty (30) days after receipt of the notice within which to notify the party proposing to do the work

	
4

	
whether they elect to participate in the cost of the proposed operation. If a drilling rig is on location, notice of a proposal to

	
5

	
Rework, Sidetrack, Recomplete, Plug Back or Deepen may be given by telephone and the response period shall be limited to forty-

	
6

	
eight (48) hours, exclusive of Saturday, Sunday and legal holidays. Failure of a party to whom such notice is delivered to reply

	
7

	
within the period above fixed shall constitute an election by that party not to participate in the cost of the proposed operation.

	
8

	
Any proposal by a party to conduct an operation conflicting with the operation initially proposed shall be delivered to all parties

	
9

	
within the time and in the manner provided in Article VI.B.6.

	
10

	
If all parties to whom such notice is delivered elect to participate in such a proposed operation, the parties shall be

	
11

	
contractually committed to participate therein provided such operations are commenced within the time period hereafter set

	
12

	
forth, and Operator shall, no later than ninety (90) days after expiration of the notice period of thirty (30) days (or as

	
13

	
promptly as practicable after the expiration of the forty-eight (48) hour period when a drilling rig is on location, as the case

	
14

	
may be), actually commence the proposed operation and thereafter complete it with due diligence at the risk and expense of

	
15

	
the parties participating therein; provided, however, said commencement date may be extended upon written notice of same

	
16

	
by Operator to the other parties, for a period of up to thirty (30) additional days if, in the sole opinion of Operator, such

	
17

	
additional time is reasonably necessary to obtain permits from governmental authorities, surface rights (including rights-of-

	
18

	
way) or appropriate drilling equipment, or to complete title examination or curative matter required for title approval or

	
19

	
acceptance. If the actual operation has not been commenced within the time provided (including any extension thereof as

	
20

	
specifically permitted herein or in the force majeure provisions of Article XI) and if any party hereto still desires to conduct

	
21

	
said operation, written notice proposing same must be resubmitted to the other parties in accordance herewith as if no prior

	
22

	
proposal had been made. Those parties that did not participate in the drilling of a well for which a proposal to Deepen or

	
23

	
Sidetrack is made hereunder shall, if such parties desire to participate in the proposed Deepening or Sidetracking operation,

	
24

	
reimburse the Drilling Parties in accordance with Article VI.B.4. in the event of a Deepening operation and in accordance

	
25

	
with Article VI.B.5. in the event of a Sidetracking operation.

	
26

	
2. Operations by Less Than All Parties:

	
27

	
(a) Determination of Participation. If any party to whom such notice is delivered as provided in Article VI.B.1. or

	
28

	
VI.C.1. (Option No. 2) elects not to participate in the proposed operation, then, in order to be entitled to the benefits of this

	
29

	
Article, the party or parties giving the notice and such other parties as shall elect to participate in the operation shall, no

	
30

	
later than ninety (90) days after the expiration of the notice period of thirty (30) days (or as promptly as practicable after the

	
31

	
expiration of the forty-eight (48) hour period when a drilling rig is on location, as the case may be) actually commence the

	
32

	
proposed operation and complete it with due diligence. Operator shall perform all work for the account of the Consenting

	
33

	
Parties; provided, however, if no drilling rig or other equipment is on location, and if Operator is a Non-Consenting Party,

	
34

	
the Consenting Parties shall either: (i) request Operator to perform the work required by such proposed operation for the

	
35

	
account of the Consenting Parties, or (ii) designate one of the Consenting Parties as Operator to perform such work. The

	
36

	
rights and duties granted to and imposed upon the Operator under this agreement are granted to and imposed upon the party

	
37

	
designated as Operator for an operation in which the original Operator is a Non-Consenting Party. Consenting Parties, when

	
38

	
conducting operations on the Contract Area pursuant to this Article VI.B.2., shall comply with all terms and conditions of this

	
39

	
agreement.

	
40

	
If less than all parties approve any proposed operation, the proposing party, immediately after the expiration of the

	
41

	
applicable notice period, shall advise all Parties of the total interest of the parties approving such operation and its

	
42

	
recommendation as to whether the Consenting Parties should proceed with the operation as proposed. Each Consenting Party,

	
43

	
within forty-eight (48) hours (exclusive of Saturday, Sunday, and legal holidays) after delivery of such notice, shall advise the

	
44

	
proposing party of its desire to (i) limit participation to such party's interest as shown on Exhibit "A" or (ii) carry only its

	
45

	
proportionate part (determined by dividing such party's interest in the Contract Area by the interests of all Consenting Parties in

	
46

	
the Contract Area) of Non-Consenting Parties' interests, or (iii) carry its proportionate part (determined as provided in (ii)) of

	
47

	
Non-Consenting Parties' interests together with all or a portion of its proportionate part of any Non-Consenting Parties'

	
48

	
interests that any Consenting Party did not elect to take. Any interest of Non-Consenting Parties that is not carried by a

	
49

	
Consenting Party shall be deemed to be carried by the party proposing the operation if such party does not withdraw its

	
50

	
proposal. Failure to advise the proposing party within the time required shall be deemed an election under (i). In the event a

	
51

	
drilling rig is on location, notice may be given by telephone, and the time permitted for such a response shall not exceed a

	
52

	
total of forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays). The proposing party, at its election, may

	
53

	
withdraw such proposal if there is less than 100% participation and shall notify all parties of such decision within ten (10)

	
54

	
days, or within twenty-four (24) hours if a drilling rig is on location, following expiration of the applicable response period.

	
55

	
If 100% subscription to the proposed operation is obtained, the proposing party shall promptly notify the Consenting Parties

	
56

	
of their proportionate interests in the operation and the party serving as Operator shall commence such operation within the

	
57

	
period provided in Article VI.B.1., subject to the same extension right as provided therein.

	
58

	
(b) Relinquishment of Interest for Non-Participation. The entire cost and risk of conducting such operations shall be

	
59

	
borne by the Consenting Parties in the proportions they have elected to bear same under the terms of the preceding

	
60

	
paragraph. Consenting Parties shall keep the leasehold estates involved in such operations free and clear of all liens and

	
61

	
encumbrances of every kind created by or arising from the operations of the Consenting Parties. If such an operation results

	
62

	
in a dry hole, then subject to Articles VI.B.6. and VI.E.3., the Consenting Parties shall plug and abandon the well and restore

	
63

	
the surface location at their sole cost, risk and expense; provided, however, that those Non-Consenting Parties that

	
64

	
participated in the drilling, Deepening or Sidetracking of the well shall remain liable for, and shall pay, their proportionate

	
65

	
shares of the cost of plugging and abandoning the well and restoring the surface location insofar only as those costs were not

	
66

	
increased by the subsequent operations of the Consenting Parties. If any well drilled, Reworked, Sidetracked, Deepened,

	
67

	
Recompleted or Plugged Back under the provisions of this Article results in a well capable of producing Oil and/or Gas in

	
68

	
paying quantities, the Consenting Parties shall Complete and equip the well to produce at their sole cost and risk, and the

	
69

	
well shall then be turned over to Operator (if the Operator did not conduct the operation) and shall be operated by it at the

	
70

	
expense and for the account of the Consenting Parties. Upon commencement of operations for the drilling, Reworking,

	
71

	
Sidetracking, Recompleting, Deepening or Plugging Back of any such well by Consenting Parties in accordance with the

	
72

	
provisions of this Article, each Non-Consenting Party shall be deemed to have relinquished to Consenting Parties, and the

	
73

	
Consenting Parties shall own and be entitled to receive, in proportion to their respective interests, all of such Non-

	
74

	
Consenting Party's interest in the well and share of production therefrom or, in the case of a Reworking, Sidetracking,

  

  

 

6

 

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

  

	
1

	
Deepening, Recompleting or Plugging Back, or a Completion pursuant to Article VI.C.1. Option No. 2, all of such Non-

	
2

	
Consenting Party's interest in the production obtained from the operation in which the Non-Consenting Party did not elect

	
3

	
to participate. Such relinquishment shall be effective until the proceeds of the sale of such share, calculated at the well, or

	
4

	
market value thereof if such share is not sold (after deducting applicable ad valorem, production, severance, and excise taxes,

	
5

	
royalty, overriding royalty and other interests not excepted by Article III.C. payable out of or measured by the production

	
6

	
from such well accruing with respect to such interest until it reverts), shall equal the total of the following:

	
7

	
(i) 100% of each such Non-Consenting Party's share of the cost of any newly acquired surface equipment

	
8

	
beyond the wellhead connections (including but not limited to stock tanks, separators, treaters, pumping equipment and

	
9

	
piping), plus 100% of each such Non-Consenting Party's share of the cost of operation of the well commencing with first

	
10

	
production and continuing until each such Non-Consenting Party's relinquished interest shall revert to it under other

	
11

	
provisions of this Article, it being agreed that each Non-Consenting Party's share of such costs and equipment will be that

	
12

	
interest which would have been chargeable to such Non-Consenting Party had it participated in the well from the beginning

	
13

	
of the operations; and

	
14

	
(ii) 400% of (a) that portion of the costs and expenses of drilling, Reworking, Sidetracking, Deepening,

	
15

	
Plugging Back, testing, Completing, and Recompleting, after deducting any cash contributions received under Article VIII.C.,

	
16

	
and of (b) that portion of the cost of newly acquired equipment in the well (to and including the wellhead connections),

	
17

	
which would have been chargeable to such Non-Consenting Party if it had participated therein.

	
18

	
Notwithstanding anything to the contrary in this Article VI.B., if the well does not reach the deepest objective Zone

	
19

	
described in the notice proposing the well for reasons other than the encountering of granite or practically impenetrable

	
20

	
substance or other condition in the hole rendering further operations impracticable, Operator shall give notice thereof to each

	
21

	
Non-Consenting Party who submitted or voted for an alternative proposal under Article VI.B.6. to drill the well to a

	
22

	
shallower Zone than the deepest objective Zone proposed in the notice under which the well was drilled, and each such Non-

	
23

	
Consenting Party shall have the option to participate in the initial proposed Completion of the well by paying its share of the

	
24

	
cost of drilling the well to its actual depth, calculated in the manner provided in Article VI.B.4. (a). If any such Non-

	
25

	
Consenting Party does not elect to participate in the first Completion proposed for such well, the relinquishment provisions

	
26

	
of this Article VI.B.2. (b) shall apply to such party's interest.

	
27

	
(c) Reworking, Recompleting or Plugging Back. An election not to participate in the drilling, Sidetracking or

	
28

	
Deepening of a well shall be deemed an election not to participate in any Reworking or Plugging Back operation proposed in

	
29

	
such a well, or portion thereof, to which the initial non-consent election applied that is conducted at any time prior to full

	
30

	
recovery by the Consenting Parties of the Non-Consenting Party's recoupment amount. Similarly, an election not to

	
31

	
participate in the Completing or Recompleting of a well shall be deemed an election not to participate in any Reworking

	
32

	
operation proposed in such a well, or portion thereof, to which the initial non-consent election applied that is conducted at

	
33

	
any time prior to full recovery by the Consenting Parties of the Non-Consenting Party's recoupment amount. Any such

	
34

	
Reworking, Recompleting or Plugging Back operation conducted during the recoupment period shall be deemed part of the

	
35

	
cost of operation of said well and there shall be added to the sums to be recouped by the Consenting Parties400% of

	
36

	
that portion of the costs of the Reworking, Recompleting or Plugging Back operation which would have been chargeable to

	
37

	
such Non-Consenting Party had it participated therein. If such a Reworking, Recompleting or Plugging Back operation is

	
38

	
proposed during such recoupment period, the provisions of this Article VI.B. shall be applicable as between said Consenting

	
39

	
Parties in said well.

	
40

	
(d) Recoupment Matters. During the period of time Consenting Parties are entitled to receive Non-Consenting Party's

	
41

	
share of production, or the proceeds therefrom, Consenting Parties shall be responsible for the payment of all ad valorem,

	
42

	
production, severance, excise, gathering and other taxes, and all royalty, overriding royalty and other burdens applicable to

	
43

	
Non-Consenting Party's share of production not excepted by Article III.C.

	
44

	
In the case of any Reworking, Sidetracking, Plugging Back, Recompleting or Deepening operation, the Consenting

	
45

	
Parties shall be permitted to use, free of cost, all casing, tubing and other equipment in the well, but the ownership of all

	
46

	
such equipment shall remain unchanged; and upon abandonment of a well after such Reworking, Sidetracking, Plugging Back,

	
46

	
Recompleting or Deepening, the Consenting Parties shall account for all such equipment to the owners thereof, with each

	
48

	
party receiving its proportionate part in kind or in value, less cost of salvage.

	
49

	
Within ninety (90) days after the completion of any operation under this Article, the party conducting the operations

	
50

	
for the Consenting Parties shall furnish each Non-Consenting Party with an inventory of the equipment in and connected to

	
51

	
the well, and an itemized statement of the cost of drilling, Sidetracking, Deepening, Plugging Back, testing, Completing,

	
52

	
Recompleting, and equipping the well for production; or, at its option, the operating party, in lieu of an itemized statement

	
53

	
of such costs of operation, may submit a detailed statement of monthly billings. Each month thereafter, during the time the

	
54

	
Consenting Parties are being reimbursed as provided above, the party conducting the operations for the Consenting Parties

	
55

	
shall furnish the Non-Consenting Parties with an itemized statement of all costs and liabilities incurred in the operation of

	
56

	
the well, together with a statement of the quantity of Oil and Gas produced from it and the amount of proceeds realized from

	
57

	
the sale of the well's working interest production during the preceding month. In determining the quantity of Oil and Gas

	
58

	
produced during any month, Consenting Parties shall use industry accepted methods such as but not limited to metering or

	
59

	
periodic well tests. Any amount realized from the sale or other disposition of equipment newly acquired in connection with

	
60

	
any such operation which would have been owned by a Non-Consenting Party had it participated therein shall be credited

	
61

	
against the total unreturned costs of the work done and of the equipment purchased in determining when the interest of such

	
62

	
Non-Consenting Party shall revert to it as above provided; and if there is a credit balance, it shall be paid to such Non-

	
63

	
Consenting Party.

	
64

	
If and when the Consenting Parties recover from a Non-Consenting Party's relinquished interest the amounts provided

	
65

	
for above, the relinquished interests of such Non-Consenting Party shall automatically revert to it as of 7:00 a.m. on the day

	
66

	
following the day on which such recoupment occurs, and, from and after such reversion, such Non-Consenting Party shall

	
67

	
own the same interest in such well, the material and equipment in or pertaining thereto, and the production therefrom as

	
68

	
such Non-Consenting Party would have been entitled to had it participated in the drilling, Sidetracking, Reworking,

	
69

	
Deepening, Recompleting or Plugging Back of said well. Thereafter, such Non-Consenting Party shall be charged with and

	
70

	
shall pay its proportionate part of the further costs of the operation of said well in accordance with the terms of this

	
71

	
agreement and Exhibit "C" attached hereto.

	
72

	
3. Stand-By Costs: When a well which has been drilled or Deepened has reached its authorized depth and all tests have

	
73

	
been completed and the results thereof furnished to the parties, or when operations on the well have been otherwise

	
74

	
terminated pursuant to Article VI.F., stand-by costs incurred pending response to a party's notice proposing a Reworking,

  

  

 

7

 

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

 

  

	
1

	
Sidetracking, Deepening, Recompleting, Plugging Back or Completing operation in such a well (including the period required

	
2

	
under Article VI.B.6. to resolve competing proposals) shall be charged and borne as part of the drilling or Deepening

	
3

	
operation just completed. Stand-by costs subsequent to all parties responding, or expiration of the response time permitted,

	
4

	
whichever first occurs, and prior to agreement as to the participating interests of all Consenting Parties pursuant to the terms

	
5

	
of the second grammatical paragraph of Article VI.B.2. (a), shall be charged to and borne as part of the proposed operation,

	
6

	
but if the proposal is subsequently withdrawn because of insufficient participation, such stand-by costs shall be allocated

	
7

	
between the Consenting Parties in the proportion each Consenting Party's interest as shown on Exhibit "A" bears to the total

	
8

	
interest as shown on Exhibit "A" of all Consenting Parties.

	
9

	
In the event that notice for a Sidetracking operation is given while the drilling rig to be utilized is on location, any party

	
10

	
may request and receive up to five (5) additional days after expiration of the forty-eight hour response period specified in

	
11

	
Article VI.B.1. within which to respond by paying for all stand-by costs and other costs incurred during such extended

	
12

	
response period; Operator may require such party to pay the estimated stand-by time in advance as a condition to extending

	
13

	
the response period. If more than one party elects to take such additional time to respond to the notice, standby costs shall be

	
14

	
allocated between the parties taking additional time to respond on a day-to-day basis in the proportion each electing party's

	
15

	
interest as shown on Exhibit "A" bears to the total interest as shown on Exhibit "A" of all the electing parties.

	
16

	
4. Deepening: If less than all parties elect to participate in a drilling, Sidetracking, or Deepening operation proposed

	
17

	
pursuant to Article VI.B.1., the interest relinquished by the Non-Consenting Parties to the Consenting Parties under Article

	
18

	
VI.B.2. shall relate only and be limited to the lesser of (i) the total depth actually drilled or (ii) the objective depth or Zone

	
19

	
of which the parties were given notice under Article VI.B.1. ("Initial Objective"). Such well shall not be Deepened beyond the

	
20

	
Initial Objective without first complying with this Article to afford the Non-Consenting Parties the opportunity to participate

	
21

	
in the Deepening operation.

	
22

	
In the event any Consenting Party desires to drill or Deepen a Non-Consent Well to a depth below the Initial Objective,

	
23

	
such party shall give notice thereof, complying with the requirements of Article VI.B.1., to all parties (including Non-

	
24

	
Consenting Parties). Thereupon, Articles VI.B.1. and 2. shall apply and all parties receiving such notice shall have the right to

	
25

	
participate or not participate in the Deepening of such well pursuant to said Articles VI.B.1. and 2. If a Deepening operation

	
26

	
is approved pursuant to such provisions, and if any Non-Consenting Party elects to participate in the Deepening operation,

	
27

	
such Non-Consenting party shall pay or make reimbursement (as the case may be) of the following costs and expenses.

	
28

	
(a) If the proposal to Deepen is made prior to the Completion of such well as a well capable of producing in paying

	
29

	
quantities, such Non-Consenting Party shall pay (or reimburse Consenting Parties for, as the case may be) that share of costs

	
30

	
and expenses incurred in connection with the drilling of said well from the surface to the Initial Objective which Non-

	
31

	
Consenting Party would have paid had such Non-Consenting Party agreed to participate therein, plus the Non-Consenting

	
32

	
Party's share of the cost of Deepening and of participating in any further operations on the well in accordance with the other

	
33

	
provisions of this Agreement; provided, however, all costs for testing and Completion or attempted Completion of the well

	
34

	
incurred by Consenting Parties prior to the point of actual operations to Deepen beyond the Initial Objective shall be for the

	
35

	
sole account of Consenting Parties.

	
36

	
(b) If the proposal is made for a Non-Consent Well that has been previously Completed as a well capable of producing

	
37

	
in paying quantities, but is no longer capable of producing in paying quantities, such Non-Consenting Party shall pay (or

	
38

	
reimburse Consenting Parties for, as the case may be) its proportionate share of all costs of drilling, Completing, and

	
39

	
equipping said well from the surface to the Initial Objective, calculated in the manner provided in paragraph (a) above, less

	
40

	
those costs recouped by the Consenting Parties from the sale of production from the well. The Non-Consenting Party shall

	
41

	
also pay its proportionate share of all costs of re-entering said well. The Non-Consenting Parties' proportionate part (based

	
42

	
on the percentage of such well Non-Consenting Party would have owned had it previously participated in such Non-Consent

	
43

	
Well) of the costs of salvable materials and equipment remaining in the hole and salvable surface equipment used in

	
44

	
connection with such well shall be determined in accordance with Exhibit "C." If the Consenting Parties have recouped the

	
45

	
cost of drilling, Completing, and equipping the well at the time such Deepening operation is conducted, then a Non-

	
46

	
Consenting Party may participate in the Deepening of the well with no payment for costs incurred prior to re-entering the

	
47

	
well for Deepening

	
48

	
The foregoing shall not imply a right of any Consenting Party to propose any Deepening for a Non-Consent Well prior

	
49

	
to the drilling of such well to its Initial Objective without the consent of the other Consenting Parties as provided in Article

	
50

	
VI.F.

	
51

	
5. Sidetracking: Any party having the right to participate in a proposed Sidetracking operation that does not own an

	
52

	
interest in the affected wellbore at the time of the notice shall, upon electing to participate, tender to the wellbore owners its

	
53

	
proportionate share (equal to its interest in the Sidetracking operation) of the value of that portion of the existing wellbore

	
54

	
to be utilized as follows:

	
55

	
(a) If the proposal is for Sidetracking an existing dry hole, reimbursement shall be on the basis of the actual costs

	
56

	
incurred in the initial drilling of the well down to the depth at which the Sidetracking operation is initiated.

	
57

	
(b) If the proposal is for Sidetracking a well which has previously produced, reimbursement shall be on the basis of

	
58

	
such party's proportionate share of drilling and equipping costs incurred in the initial drilling of the well down to the depth

	
59

	
at which the Sidetracking operation is conducted, calculated in the manner described in Article VI.B.4(b) above. Such party's

	
60

	
proportionate share of the cost of the well's salvable materials and equipment down to the depth at which the Sidetracking

	
61

	
operation is initiated shall be determined in accordance with the provisions of Exhibit "C."

	
62

	
6. Order of Preference of Operations. Except as otherwise specifically provided in this agreement, if any party desires to

	
63

	
propose the conduct of an operation that conflicts with a proposal that has been made by a party under this Article VI, such

	
64

	
party shall have fifteen (15) days from delivery of the initial proposal, in the case of a proposal to drill a well or to perform

	
65

	
an operation on a well where no drilling rig is on location, or twenty-four (24) hours, exclusive of Saturday, Sunday and legal

	
66

	
holidays, from delivery of the initial proposal, if a drilling rig is on location for the well on which such operation is to be

	
67

	
conducted, to deliver to all parties entitled to participate in the proposed operation such party's alternative proposal, such

	
68

	
alternate proposal to contain the same information required to be included in the initial proposal. Each party receiving such

	
69

	
proposals shall elect by delivery of notice to Operator within five (5) days after expiration of the proposal period, or within

	
70

	
twenty-four (24) hours (exclusive of Saturday, Sunday and legal holidays) if a drilling rig is on location for the well that is the

	
71

	
subject of the proposals, to participate in one of the competing proposals. Any party not electing within the time required

	
72

	
shall be deemed not to have voted. The proposal receiving the vote of parties owning the largest aggregate percentage

	
73

	
interest of the parties voting shall have priority over all other competing proposals; in the case of a tie vote, the 

	
74

	 

  

 

8

 

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

 

  

	
1

	
initial proposal shall prevail. Operator shall deliver notice of such result to all parties entitled to participate in the operation

	
2

	
within five (5) days after expiration of the election period (or within twenty-four (24) hours, exclusive of Saturday, Sunday

	
3

	
and legal holidays, if a drilling rig is on location). Each party shall then have two (2) days (or twenty-four (24) hours if a rig

	
4

	
is on location) from receipt of such notice to elect by delivery of notice to Operator to participate in such operation or to

	
5

	
relinquish interest in the affected well pursuant to the provisions of Article VI.B.2.; failure by a party to deliver notice within

	
6

	
such period shall be deemed an election not to participate in the prevailing proposal.

	
7

	
7. Conformity to Spacing Pattern. Notwithstanding the provisions of this Article VI.B.2., it is agreed that no wells shall be

	
8

	
proposed to be drilled to or Completed in or produced from a Zone from which a well located elsewhere on the Contract

	
9

	
Area is producing, unless such well conforms to the then-existing well spacing pattern for such Zone.

	
10

	
8. Paying Wells. No party shall conduct any Reworking, Deepening, Plugging Back, Completion, Recompletion, or

	
11

	
Sidetracking operation under this agreement with respect to any well then capable of producing in paying quantities except

	
12

	
with the consent of all parties that have not relinquished interests in the well at the time of such operation.

	
13

	
C. Completion of Wells; Reworking and Plugging Back:

	
14

	
1. Completion: Without the consent of all parties, no well shall be drilled, Deepened or Sidetracked, except any well

	
15

	
drilled, Deepened or Sidetracked pursuant to the provisions of Article VI.B.2. of this agreement. Consent to the drilling,

	
16

	
Deepening or Sidetracking shall include:

	
17

	
o Option No. 1: All necessary expenditures for the drilling, Deepening or Sidetracking, testing, Completing and

	
18

	
equipping of the well, including necessary tankage and/or surface facilities.

	
19

	
þ Option No. 2: All necessary expenditures for the drilling, Deepening or Sidetracking and testing of the well. When

	
20

	
such well has reached its authorized depth, and all logs, cores and other tests have been completed, and the results

	
21

	
thereof furnished to the parties, Operator shall give immediate notice to the Non-Operators having the right to

	
22

	
participate in a Completion attempt whether or not Operator recommends attempting to Complete the well,

	
23

	
together with Operator's AFE for Completion costs if not previously provided. The parties receiving such notice

	
24

	
shall have forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays) in which to elect by delivery of

	
25

	
notice to Operator to participate in a recommended Completion attempt or to make a Completion proposal with an

	
26

	
accompanying AFE. Operator shall deliver any such Completion proposal, or any Completion proposal conflicting

	
27

	
with Operator's proposal, to the other parties entitled to participate in such Completion in accordance with the

	
28

	
procedures specified in Article VI.B.6. Election to participate in a Completion attempt shall include consent to all

	
29

	
necessary expenditures for the Completing and equipping of such well, including necessary tankage and/or surface

	
30

	
facilities but excluding any stimulation operation not contained on the Completion AFE. Failure of any party

	
31

	
receiving such notice to reply within the period above fixed shall constitute an election by that party not to

	
32

	
participate in the cost of the Completion attempt; provided, that Article VI.B.6. shall control in the case of

	
33

	
conflicting Completion proposals. If one or more, but less than all of the parties, elect to attempt a Completion, the

	
34

	
provision of Article VI.B.2. hereof (the phrase "Reworking, Sidetracking, Deepening, Recompleting or Plugging

	
35

	
Back" as contained in Article VI.B.2. shall be deemed to include "Completing") shall apply to the operations

	
36

	
thereafter conducted by less than all parties; provided, however, that Article VI.B.2. shall apply separately to each

	
37

	
separate Completion or Recompletion attempt undertaken hereunder, and an election to become a Non-Consenting

	
38

	
Party as to one Completion or Recompletion attempt shall not prevent a party from becoming a Consenting Party

	
39

	
in subsequent Completion or Recompletion attempts regardless whether the Consenting Parties as to earlier

	
40

	
Completions or Recompletion have recouped their costs pursuant to Article VI.B.2.; provided further, that any

	
41

	
recoupment of costs by a Consenting Party shall be made solely from the production attributable to the Zone in

	
42

	
which the Completion attempt is made. Election by a previous Non-Consenting party to participate in a subsequent

	
43

	
Completion or Recompletion attempt shall require such party to pay its proportionate share of the cost of salvable

	
44

	
materials and equipment installed in the well pursuant to the previous Completion or Recompletion attempt,

	
45

	
insofar and only insofar as such materials and equipment benefit the Zone in which such party participates in a

	
46

	
Completion attempt.

	
47

	
2. Rework, Recomplete or Plug Back: No well shall be Reworked, Recompleted or Plugged Back except a well Reworked,

	
48

	
Recompleted, or Plugged Back pursuant to the provisions of Article VI.B.2. of this agreement. Consent to the Reworking,

	
49

	
Recompleting or Plugging Back of a well shall include all necessary expenditures in conducting such operations and

	
50

	
Completing and equipping of said well, including necessary tankage and/or surface facilities.

	
51

	
D. Other Operations:

	
52

	
Operator shall not undertake any single project reasonably estimated to require an expenditure in excess of

	
53

	
Fifty thousand   Dollars ($ 50,000.00) except in connection with the

	
54

	
drilling, Sidetracking, Reworking, Deepening, Completing, Recompleting or Plugging Back of a well that has been previously

	
55

	
authorized by or pursuant to this agreement; provided, however, that, in case of explosion, fire, flood or other sudden

	
56

	
emergency, whether of the same or different nature, Operator may take such steps and incur such expenses as in its opinion

	
57

	
are required to deal with the emergency to safeguard life and property but Operator, as promptly as possible, shall report the

	
58

	
emergency to the other parties. If Operator prepares an AFE for its own use, Operator shall furnish any Non-Operator so

	
59

	
requesting an information copy thereof for any single project costing in excess of Fifty thousand Dollars

	
60

	
($ 50,000.00 ). Any party who has not relinquished its interest in a well shall have the right to propose that

	
61

	
Operator perform repair work or undertake the installation of artificial lift equipment or ancillary production facilities such as

	
62

	
salt water disposal wells or to conduct additional work with respect to a well drilled hereunder or other similar project (but

	
63

	
not including the installation of gathering lines or other transportation or marketing facilities, the installation of which shall

	
64

	
be governed by separate agreement between the parties) reasonably estimated to require an expenditure in excess of the

	
65

	
amount first set forth above in this Article VI.D. (except in connection with an operation required to be proposed under

	
66

	
Articles VI.B.1. or VI.C.1. Option No. 2, which shall be governed exclusively be those Articles). Operator shall deliver such

	
67

	
proposal to all parties entitled to participate therein. If within thirty (30) days thereof Operator secures the written consent

	
68

	
of any party or parties owning at least 75% of the interests of the parties entitled to participate in such operation,

	
69

	
each party having the right to participate in such project shall be bound by the terms of such proposal and shall be obligated

	
70

	
to pay its proportionate share of the costs of the proposed project as if it had consented to such project pursuant to the terms

	
71

	
of the proposal.

	
72

	
E. Abandonment of Wells:

	
73

	
1. Abandonment of Dry Holes: Except for any well drilled or Deepened pursuant to Article VI.B.2., any well which has

	
74

	
been drilled or Deepened under the terms of this agreement and is proposed to be completed as a dry hole shall not be

  

 

9

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

	
1

	
plugged and abandoned without the consent of all parties. Should Operator, after diligent effort, be unable to contact any

	
2 

	
party, or should any party fail to reply within forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays) after

	
3

	
delivery of notice of the proposal to plug and abandon such well, such party shall be deemed to have consented to the

	
4

	
proposed abandonment. All such wells shall be plugged and abandoned in accordance with applicable regulations and at the

	
5

	
cost, risk and expense of the parties who participated in the cost of drilling or Deepening such well. Any party who objects to

	
6

	
plugging and abandoning such well by notice delivered to Operator within forty-eight (48) hours (exclusive of Saturday,

	
7

	
Sunday and legal holidays) after delivery of notice of the proposed plugging shall take over the well as of the end of such

	
8

	
forty-eight (48) hour notice period and conduct further operations in search of Oil and/or Gas subject to the provisions of

	
9

	
Article VI.B.; failure of such party to provide proof reasonably satisfactory to Operator of its financial capability to conduct

	
10

	
such operations or to take over the well within such period or thereafter to conduct operations on such well or plug and

	
11

	
abandon such well shall entitle Operator to retain or take possession of the well and plug and abandon the well. The party

	
12

	
taking over the well shall indemnify Operator (if Operator is an abandoning party) and the other abandoning parties against

	
13

	
liability for any further operations conducted on such well except for the costs of plugging and abandoning the well and

	
14

	
restoring the surface, for which the abandoning parties shall remain proportionately liable.

	
15

	
2. Abandonment of Wells That Have Produced: Except for any well in which a Non-Consent operation has been

	
16

	
conducted hereunder for which the Consenting Parties have not been fully reimbursed as herein provided, any well which has

	
17

	
been completed as a producer shall not be plugged and abandoned without the consent of all parties. If all parties consent to

	
18

	
such abandonment, the well shall be plugged and abandoned in accordance with applicable regulations and at the cost, risk

	
19

	
and expense of all the parties hereto. Failure of a party to reply within sixty (60) days of delivery of notice of proposed

	
20

	
abandonment shall be deemed an election to consent to the proposal. If, within sixty (60) days after delivery of notice of the

	
21

	
proposed abandonment of any well, all parties do not agree to the abandonment of such well, those wishing to continue its

	
22

	
operation from the Zone then open to production shall be obligated to take over the well as of the expiration of the

	
23

	
applicable notice period and shall indemnify Operator (if Operator is an abandoning party) and the other abandoning parties

	
24

	
against liability for any further operations on the well conducted by such parties. Failure of such party or parties to provide

	
25

	
proof reasonably satisfactory to Operator of their financial capability to conduct such operations or to take over the well

	
26

	
within the required period or thereafter to conduct operations on such well shall entitle operator to retain or take possession

	
27

	
of such well and plug and abandon the well.

	
28

	
Parties taking over a well as provided herein shall tender to each of the other parties its proportionate share of the value of

	
29

	
the well's salvable material and equipment, determined in accordance with the provisions of Exhibit "C," less the estimated cost

	
30

	
of salvaging and the estimated cost of plugging and abandoning and restoring the surface; provided, however, that in the event

	
31

	
the estimated plugging and abandoning and surface restoration costs and the estimated cost of salvaging are higher than the

	
32

	
value of the well's salvable material and equipment, each of the abandoning parties shall tender to the parties continuing

	
33

	
operations their proportionate shares of the estimated excess cost. Each abandoning party shall assign to the non-abandoning

	
34

	
parties, without warranty, express or implied, as to title or as to quantity, or fitness for use of the equipment and material, all

	
35

	
of its interest in the wellbore of the well and related equipment, together with its interest in the Leasehold insofar and only

	
36

	
insofar as such Leasehold covers the right to obtain production from that wellbore in the Zone then open to production. If the

	
37

	
interest of the abandoning party is or includes and Oil and Gas Interest, such party shall execute and deliver to the non-

	
38

	
abandoning party or parties an oil and gas lease, limited to the wellbore and the Zone then open to production, for a term of

	
39

	
one (1) year and so long thereafter as Oil and/or Gas is produced from the Zone covered thereby, such lease to be on the form

	
40

	
attached as Exhibit "B." The assignments or leases so limited shall encompass the Drilling Unit upon which the well is located.

	
41

	
The payments by, and the assignments or leases to, the assignees shall be in a ratio based upon the relationship of their

	
42

	
respective percentage of participation in the Contract Area to the aggregate of the percentages of participation in the Contract

	
43

	
Area of all assignees. There shall be no readjustment of interests in the remaining portions of the Contract Area.

	
44

	
Thereafter, abandoning parties shall have no further responsibility, liability, or interest in the operation of or production

	
45

	
from the well in the Zone then open other than the royalties retained in any lease made under the terms of this Article. Upon

	
46

	
request, Operator shall continue to operate the assigned well for the account of the non-abandoning parties at the rates and

	
47

	
charges contemplated by this agreement, plus any additional cost and charges which may arise as the result of the separate

	
48

	
ownership of the assigned well. Upon proposed abandonment of the producing Zone assigned or leased, the assignor or lessor

	
49

	
shall then have the option to repurchase its prior interest in the well (using the same valuation formula) and participate in

	
50

	
further operations therein subject to the provisions hereof.

	
51

	
3. Abandonment of Non-Consent Operations: The provisions of Article VI.E.1. or VI.E.2. above shall be applicable as

	
52

	
between Consenting Parties in the event of the proposed abandonment of any well excepted from said Articles; provided,

	
53

	
however, no well shall be permanently plugged and abandoned unless and until all parties having the right to conduct further

	
54

	
operations therein have been notified of the proposed abandonment and afforded the opportunity to elect to take over the well

	
55

	
in accordance with the provisions of this Article VI.E.; and provided further, that Non-Consenting Parties who own an interest

	
56

	
in a portion of the well shall pay their proportionate shares of abandonment and surface restoration cost for such well as

	
57

	
provided in Article VI.B.2.(b).

	
58

	
F. Termination of Operations:

	
59

	
Upon the commencement of an operation for the drilling, Reworking, Sidetracking, Plugging Back, Deepening, testing,

	
60

	
Completion or plugging of a well, including but not limited to the Initial Well, such operation shall not be terminated without

	
61

	
consent of parties bearing 75% of the costs of such operation; provided, however, that in the event granite or other

	
62

	
practically impenetrable substance or condition in the hole is encountered which renders further operations impractical,

	
63

	
Operator may discontinue operations and give notice of such condition in the manner provided in Article VI.B.1, and the

	
64

	
provisions of Article VI.B. or VI.E. shall thereafter apply to such operation, as appropriate.

	
65

	
G. Taking Production in Kind:

	
66

	
o Option No. 1: Gas Balancing Agreement Attached

	
67

	
Each party shall take in kind or separately dispose of its proportionate share of all Oil and Gas produced from the

	
68

	
Contract Area, exclusive of production which may be used in development and producing operations and in preparing and

	
69

	
treating Oil and Gas for marketing purposes and production unavoidably lost. Any extra expenditure incurred in the taking

	
70

	
in kind or separate disposition by any party of its proportionate share of the production shall be borne by such party. Any

	
71

	
party taking its share of production in kind shall be required to pay for only its proportionate share of such part of

	
72

	
Operator's surface facilities which it uses.

	
73 

	
Each party shall execute such division orders and contracts as may be necessary for the sale of its interest in

	
74

	
production from the Contract Area, and, except as provided in Article VII.B., shall be entitled to receive payment

  

 

10

 

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

  

  

	
1

	
directly from the purchaser thereof for its share of all production.

	
2

	
If any party fails to make the arrangements necessary to take in kind or separately dispose of its proportionate

	
3

	
share of the Oil produced from the Contract Area, Operator shall have the right, subject to the revocation at will by

	
4

	
the party owning it, but not the obligation, to purchase such Oil or sell it to others at any time and from time to

	
5

	
time, for the account of the non-taking party. Any such purchase or sale by Operator may be terminated by

	
6

	
Operator upon at least ten (10) days written notice to the owner of said production and shall be subject always to

	
7

	
the right of the owner of the production upon at least ten (10) days written notice to Operator to exercise at any

	
8

	
time its right to take in kind, or separately dispose of, its share of all Oil not previously delivered to a purchaser.

	
9

	
Any purchase or sale by Operator of any other party's share of Oil shall be only for such reasonable periods of time

	
10

	
as are consistent with the minimum needs of the industry under the particular circumstances, but in no event for a

	
11

	
period in excess of one (1) year.

	
12

	
Any such sale by Operator shall be in a manner commercially reasonable under the circumstances but Operator

	
13

	
shall have no duty to share any existing market or to obtain a price equal to that received under any existing

	
14

	
market. The sale or delivery by Operator of a non-taking party's share of Oil under the terms of any existing

	
15

	
contract of Operator shall not give the non-taking party any interest in or make the non-taking party a party to said

	
16

	
contract. No purchase shall be made by Operator without first giving the non-taking party at least ten (10) days

	
17

	
written notice of such intended purchase and the price to be paid or the pricing basis to be used.

	
18

	
All parties shall give timely written notice to Operator of their Gas marketing arrangements for the following

	
19

	
month, excluding price, and shall notify Operator immediately in the event of a change in such arrangements.

	
20

	
Operator shall maintain records of all marketing arrangements, and of volumes actually sold or transported, which

	
21

	
records shall be made available to Non-Operators upon reasonable request.

	
22

	
In the event one or more parties' separate disposition of its share of the Gas causes split-stream deliveries to separate

	
23

	
pipelines and/or deliveries which on a day-to-day basis for any reason are not exactly equal to a party's respective proportion

	
24

	
ate share of total Gas sales to be allocated to it, the balancing or accounting between the parties shall be in accordance with

	
25

	
any Gas balancing agreement between the parties hereto, whether such an agreement is attached as Exhibit "E" or is a

	
26

	
separate agreement. Operator shall give notice to all parties of the first sales of Gas from any well under this agreement.

	
27

	
þ Option No. 2: No Gas Balancing Agreement:

	
28

	
Operator  shall be soley responsible for marketing all Oil and Gas produced from

	
29

	
the Contract Area, exclusive of production which may be used in development and producing operations and in

	
30

	
preparing and treating Oil and Gas for marketing purposes and production unavoidably lost.

	
31

	
Each party shall execute such division orders and contracts as may be necessary for the sale of its interest in

	
32

	
production from the Contract Area.

	
33

	
 

	
34

	
Any such sale by Operator shall be in a manner commercially reasonable under the circumstances.  The sale or delivery by

	
35

	
Operator of a non-taking party's share of production under the terms of any existing contract of Operator shall not

	
36

	
give the non-taking party any interest in or make the non-taking party a party to said contract. 

	
37

	
 

	
38

	
ARTICLE VII.

	
39

	
EXPENDITURES AND LIABILITY OF PARTIES

	
40

	
A. Liability of Parties:

	
41

	
The liability of the parties shall be several, not joint or collective. Each party shall be responsible only for its obligations,

	
42

	
and shall be liable only for its proportionate share of the costs of developing and operating the Contract Area. Accordingly, the

	
43

	
liens granted among the parties in Article VII.B. are given to secure only the debts of each severally, and no party shall have

	
44

	
any liability to third parties hereunder to satisfy the default of any other party in the payment of any expense or obligation

	
45

	
hereunder. It is not the intention of the parties to create, nor shall this agreement be construed as creating, a mining or other

	
46

	
partnership, joint venture, agency relationship or association, or to render the parties liable as partners, co-venturers, or

	
47

	
principals. In their relations with each other under this agreement, the parties shall not be considered fiduciaries or to have

	
48

	
established a confidential relationship but rather shall be free to act on an arm's-length basis in accordance with their own

	
49

	
respective self-interest, subject, however, to the obligation of the parties to act in good faith in their dealings with each other

	
50

	
with respect to activities hereunder.

	
51

	
  

	
52

	
  

	
53

	
  

	
54

	
  

	
55

	
  

	
56

	
  

	
57

	
  

	
58

	
  

	
59

	
  

	
60

	
  

	
61

	
  

	
62

	
  

	
63

	
  

	
64

	
  

	
65

	
  

	
66

	
  

	
67

	
  

	
68

	
  

	
69

	
  

	
70

	
  

	
71

	
  

	
72

	
  

	
73

	
  

	
74

	
  

 

 

11

 

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

 

  

	
1

	
B. Liens and Security Interests:

	
2

	
Each party grants to the other parties hereto a lien upon any interest it now owns or hereafter acquires in Oil and Gas

	
3

	
Leases and Oil and Gas Interests in the Contract Area, and a security interest and/or purchase money security interest in any

	
4

	
interest it now owns or hereafter acquires in the personal property and fixtures on or used or obtained for use in connection

	
5

	
therewith, to secure performance of all of its obligations under this agreement including but not limited to payment of expense,

	
6

	
interest and fees, the proper disbursement of all monies paid hereunder, the assignment or relinquishment of interest in Oil

	
7

	
and Gas Leases as required hereunder, and the proper performance of operations hereunder. Such lien and security interest

	
8

	
granted by each party hereto shall include such party's leasehold interests, working interests, operating rights, and royalty and

	
9

	
overriding royalty interests in the Contract Area now owned or hereafter acquired and in lands pooled or unitized therewith or

	
10

	
otherwise becoming subject to this agreement, the Oil and Gas when extracted therefrom and equipment situated thereon or

	
11

	
used or obtained for use in connection therewith (including, without limitation, all wells, tools, and tubular goods), and accounts

	
12

	
(including, without limitation, accounts arising from gas imbalances or from the sale of Oil and/or Gas at the wellhead),

	
13

	
contract rights, inventory and general intangibles relating thereto or arising therefrom, and all proceeds and products of the

	
14

	
foregoing.

	
15

	
To perfect the lien and security agreement provided herein, each party hereto shall execute and acknowledge the recording

	
16

	
supplement and/or any financing statement prepared and submitted by any party hereto in conjunction herewith or at any time

	
17

	
following execution hereof, and Operator is authorized to file this agreement or the recording supplement executed herewith as

	
18

	
a lien or mortgage in the applicable real estate records and as a financing statement with the proper officer under the Uniform

	
19

	
Commercial Code in the state in which the Contract Area is situated and such other states as Operator shall deem appropriate

	
20

	
to perfect the security interest granted hereunder. Any party may file this agreement, the recording supplement executed

	
21

	
herewith, or such other documents as it deems necessary as a lien or mortgage in the applicable real estate records and/or a

	
22

	
financing statement with the proper officer under the Uniform Commercial Code.

	
23

	
Each party represents and warrants to the other parties hereto that the lien and security interest granted by such party to

	
24

	
the other parties shall be a first and prior lien, and each party hereby agrees to maintain the priority of said lien and security

	
25

	
interest against all persons acquiring an interest in Oil and Gas Leases and Interests covered by this agreement by, through or

	
26

	
under such party. All parties acquiring an interest in Oil and Gas Leases and Oil and Gas Interests covered by this agreement,

	
27

	
whether by assignment, merger, mortgage, operation of law, or otherwise, shall be deemed to have taken subject

	
28

	
to the lien and security interest granted by this Article VII.B. as to all obligations attributable to such interest hereunder

	
29

	
whether or not such obligations arise before or after such interest is acquired.

	
30

	
To the extent that parties have a security interest under the Uniform Commercial Code of the state in which the

	
31

	
Contract Area is situated, they shall be entitled to exercise the rights and remedies of a secured party under the Code.

	
32

	
The bringing of a suit and the obtaining of judgment by a party for the secured indebtedness shall not be deemed an

	
33

	
election of remedies or otherwise affect the lien rights or security interest as security for the payment thereof.In

	
34

	
addition, upon default by any party in the payment of its share of expenses, interests or fees, or upon the improper use

	
35

	
of funds by the Operator, the other parties shall have the right, without prejudice to other rights or remedies, to collect

	
36

	
from the purchaser the proceeds from the sale of such defaulting party's share of Oil and Gas until the amount owed by

	
37

	
such party, plus interest as provided in "Exhibit C," has been received, and shall have the right to offset the amount

	
38

	
owed against the proceeds from the sale of such defaulting party's share of Oil and Gas. All purchasers of production

	
39

	
may rely on a notification of default from the non-defaulting party or parties stating the amount due as a result of the

	
40

	
default, and all parties waive any recourse available against purchasers for releasing production proceeds as provided in

	
41

	
this paragraph.

	
42

	
If any party fails to pay its share of cost within one hundred twenty (120) days after rendition of a statement therefor by

	
43

	
Operator, the non-defaulting parties, including Operator, shall upon request by Operator, pay the unpaid amount in the

	
44

	
proportion that the interest of each such party bears to the interest of all such parties. The amount paid by each party so

	
45

	
paying its share of the unpaid amount shall be secured by the liens and security rights described in Article VII.B., and each

	
46

	
paying party may independently pursue any remedy available hereunder or otherwise.

	
47

	
If any party does not perform all of its obligations hereunder, and the failure to perform subjects such party to foreclosure

	
48

	
or execution proceedings pursuant to the provisions of this agreement, to the extent allowed by governing law, the defaulting

	
49

	
party waives any available right of redemption from and after the date of judgment, any required valuation or appraisement

	
50

	
of the mortgaged or secured property prior to sale, any available right to stay execution or to require a marshaling of assets

	
51

	
and any required bond in the event a receiver is appointed. In addition, to the extent permitted by applicable law, each party

	
52

	
hereby grants to the other parties a power of sale as to any property that is subject to the lien and security rights granted

	
53

	
hereunder, such power to be exercised in the manner provided by applicable law or otherwise in a commercially reasonable

	
54

	
manner and upon reasonable notice.

	
55

	
Each party agrees that the other parties shall be entitled to utilize the provisions of Oil and Gas lien law or other lien

	
56

	
law of any state in which the Contract Area is situated to enforce the obligations of each party hereunder. Without limiting

	
57

	
the generality of the foregoing, to the extent permitted by applicable law, Non-Operators agree that Operator may invoke or

	
58

	
utilize the mechanics' or materialmen's lien law of the state in which the Contract Area is situated in order to secure the

	
59

	
payment to Operator of any sum due hereunder for services performed or materials supplied by Operator.

	
60

	
C. Advances:

	
61

	
Operator, at its election, shall have the right from time to time to demand and receive from one or more of the other

	
62

	
parties payment in advance of their respective shares of the estimated amount of the expense to be incurred in operations

	
63

	
hereunder during the next succeeding month, which right may be exercised only by submission to each such party of an

	
64

	
itemized statement of such estimated expense, together with an invoice for its share thereof. Each such statement and invoice

	
65

	
for the payment in advance of estimated expense shall be submitted on or before the 20th day of the next preceding month.

	
66

	
Each party shall pay to Operator its proportionate share of such estimate within fifteen (15) days after such estimate and

	
67

	
invoice is received. If any party fails to pay its share of said estimate within said time, the amount due shall bear interest as

	
68

	
provided in Exhibit "C" until paid. Proper adjustment shall be made monthly between advances and actual expense to the end

	
69

	
that each party shall bear and pay its proportionate share of actual expenses incurred, and no more.

	
70

	
D. Defaults and Remedies:

	
71

	
If any party fails to discharge any financial obligation under this agreement, including without limitation the failure to

	
72

	
make any advance under the preceding Article VII.C. or any other provision of this agreement, within the period required for

	
73

	
such payment hereunder, then in addition to the remedies provided in Article VII.B. or elsewhere in this agreement, the

	
74

	
remedies specified below shall be applicable. For purposes of this Article VII.D., all notices and elections shall be delivered

  

  

 

12

 

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

 

  

	
1

	
only by Operator, except that Operator shall deliver any such notice and election requested by a non-defaulting Non-Operator,

	
2

	
and when Operator is the party in default, the applicable notices and elections can be delivered by any Non-Operator.

	
3

	
Election of any one or more of the following remedies shall not preclude the subsequent use of any other remedy specified

	
4

	
below or otherwise available to a non-defaulting party.

	
5

	
1. Suspension of Rights: Any party may deliver to the party in default a Notice of Default, which shall specify the default,

	
6

	
specify the action to be taken to cure the default, and specify that failure to take such action will result in the exercise of one

	
7

	
or more of the remedies provided in this Article. If the default is not cured within thirty (30) days of the delivery of such

	
8

	
Notice of Default, all of the rights of the defaulting party granted by this agreement may upon notice be suspended until the

	
9

	
default is cured, without prejudice to the right of the non-defaulting party or parties to continue to enforce the obligations of

	
10

	
the defaulting party previously accrued or thereafter accruing under this agreement. If Operator is the party in default, the

	
11

	
Non-Operators shall have in addition the right, by vote of Non-Operators owning a majority in interest in the Contract Area

	
12

	
after excluding the voting interest of Operator, to appoint a new Operator effective immediately. The rights of a defaulting

	
13

	
party that may be suspended hereunder at the election of the non-defaulting parties shall include, without limitation, the right

	
14

	
to receive information as to any operation conducted hereunder during the period of such default, the right to elect to

	
15

	
participate in an operation proposed under Article VI.B. of this agreement, the right to participate in an operation being

	
16

	
conducted under this agreement even if the party has previously elected to participate in such operation, and the right to

	
17

	
receive proceeds of production from any well subject to this agreement.

	
18

	
2. Suit for Damages: Non-defaulting parties or Operator for the benefit of non-defaulting parties may sue (at joint

	
19

	
account expense) to collect the amounts in default, plus interest accruing on the amounts recovered from the date of default

	
20

	
until the date of collection at the rate specified in Exhibit "C" attached hereto. Nothing herein shall prevent any party from

	
21

	
suing any defaulting party to collect consequential damages accruing to such party as a result of the default.

	
22

	
3. Deemed Non-Consent: The non-defaulting party may deliver a written Notice of Non-Consent Election to the

	
23

	
defaulting party at any time after the expiration of the thirty-day cure period following delivery of the Notice of Default, in

	
24

	
which event if the billing is for the drilling a new well or the Plugging Back, Sidetracking, Reworking or Deepening of a

	
25

	
well which is to be or has been plugged as a dry hole, or for the Completion or Recompletion of any well, the defaulting

	
26

	
party will be conclusively deemed to have elected not to participate in the operation and to be a Non-Consenting Party with

	
27

	
respect thereto under Article VI.B. or VI.C., as the case may be, to the extent of the costs unpaid by such party,

	
28

	
notwithstanding any election to participate theretofore made. If election is made to proceed under this provision, then the

	
29

	
non-defaulting parties may not elect to sue for the unpaid amount pursuant to Article VII.D.2.

	
30

	
Until the delivery of such Notice of Non-Consent Election to the defaulting party, such party shall have the right to cure

	
31

	
its default by paying its unpaid share of costs plus interest at the rate set forth in Exhibit "C," provided, however, such

	
32

	
payment shall not prejudice the rights of the non-defaulting parties to pursue remedies for damages incurred by the non-

	
33

	
defaulting parties as a result of the default. Any interest relinquished pursuant to this Article VII.D.3. shall be offered to the

	
34

	
non-defaulting parties in proportion to their interests, and the non-defaulting parties electing to participate in the ownership

	
35

	
of such interest shall be required to contribute their shares of the defaulted amount upon their election to participate therein.

	
36

	
4. Advance Payment: If a default is not cured within thirty (30) days of the delivery of a Notice of Default, Operator, or

	
37

	
Non-Operators if Operator is the defaulting party, may thereafter require advance payment from the defaulting

	
38

	
party of such defaulting party's anticipated share of any item of expense for which Operator, or Non-Operators, as the case may

	
39

	
be, would be entitled to reimbursement under any provision of this agreement, whether or not such expense was the subject of

	
40

	
the previous default. Such right includes, but is not limited to, the right to require advance payment for the estimated costs of

	
41

	
drilling a well or Completion of a well as to which an election to participate in drilling or Completion has been made. If the

	
42

	
defaulting party fails to pay the required advance payment, the non-defaulting parties may pursue any of the remedies provided

	
43

	
in the Article VII.D. or any other default remedy provided elsewhere in this agreement. Any excess of funds advanced remaining

	
44

	
when the operation is completed and all costs have been paid shall be promptly returned to the advancing party.

	
45

	
5. Costs and Attorneys' Fees: In the event any party is required to bring legal proceedings to enforce any financial

	
46

	
obligation of a party hereunder, the prevailing party in such action shall be entitled to recover all court costs, costs of

	
47

	
collection, and a reasonable attorney's fee, which the lien provided for herein shall also secure.

	
48

	
E. Rentals, Shut-in Well Payments and Minimum Royalties:

	
49

	
Rentals, shut-in well payments and minimum royalties which may be required under the terms of any lease shall be paid

	
50

	
by the party or parties who subjected such lease to this agreement at its or their expense. In the event two or more parties

	
51

	
own and have contributed interests in the same lease to this agreement, such parties may designate one of such parties to

	
52

	
make said payments for and on behalf of all such parties. Any party may request, and shall be entitled to receive, proper

	
53

	
evidence of all such payments. In the event of failure to make proper payment of any rental, shut-in well payment or

	
54

	
minimum royalty through mistake or oversight where such payment is required to continue the lease in force, any loss which

	
55

	
results from such non-payment shall be borne in accordance with the provisions of Article IV.B.2.

	
56

	
Operator shall notify Non-Operators of the anticipated completion of a shut-in well, or the shutting in or return to

	
57

	
production of a producing well, at least five (5) days (excluding Saturday, Sunday, and legal holidays) prior to taking such

	
58

	
action, or at the earliest opportunity permitted by circumstances, but assumes no liability for failure to do so. In the event of

	
59

	
failure by Operator to so notify Non-Operators, the loss of any lease contributed hereto by Non-Operators for failure to make

	
60

	
timely payments of any shut-in well payment shall be borne jointly by the parties hereto under the provisions of Article 61

	
61 

	
IV.B.3.

	
62

	
F. Taxes:

	
63

	
Beginning with the first calendar year after the effective date hereof, Operator shall render for ad valorem taxation all

	
64

	
property subject to this agreement which by law should be rendered for such taxes, and it shall pay all such taxes assessed

	
65

	
thereon before they become delinquent. Prior to the rendition date, each Non-Operator shall furnish Operator information as

	
66

	
to burdens (to include, but not be limited to, royalties, overriding royalties and production payments) on Leases and Oil and

	
67

	
Gas Interests contributed by such Non-Operator. If the assessed valuation of any Lease is reduced by reason of its being

	
68

	
subject to outstanding excess royalties, overriding royalties or production payments, the reduction in ad valorem taxes

	
69

	
resulting therefrom shall inure to the benefit of the owner or owners of such Lease, and Operator shall adjust the charge to

	
70

	
such owner or owners so as to reflect the benefit of such reduction. If the ad valorem taxes are based in whole or in part

	
71

	
upon separate valuations of each party's working interest, then notwithstanding anything to the contrary herein, charges to

	
72

	
the joint account shall be made and paid by the parties hereto in accordance with the tax value generated by each party's

	
73

	
working interest. Operator shall bill the other parties for their proportionate shares of all tax payments in the manner

	
74

	
provided in Exhibit "C."

  

  

 

13

 

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

 

  

	
1

	
If Operator considers any tax assessment improper, Operator may, at its discretion, protest within the time and manner

	
2

	
prescribed by law, and prosecute the protest to a final determination, unless all parties agree to abandon the protest prior to final

	
3

	
determination. During the pendency of administrative or judicial proceedings, Operator may elect to pay, under protest, all such taxes

	
4

	
and any interest and penalty. When any such protested assessment shall have been finally determined, Operator shall pay the tax for

	
5

	
the joint account, together with any interest and penalty accrued, and the total cost shall then be assessed against the parties, and be

	
6

	
paid by them, as provided in Exhibit "C."

	
7

	
Each party shall pay or cause to be paid all production, severance, excise, gathering and other taxes imposed upon or with respect

	
8

	
to the production or handling of such party's share of Oil and Gas produced under the terms of this agreement.

	
9

	
ARTICLE VIII.

	
10

	
ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST

	
11

	
A. Surrender of Leases:

	
12

	
The Leases covered by this agreement, insofar as they embrace acreage in the Contract Area, shall not be surrendered in whole

	
13

	
or in part unless all parties consent thereto.

	
14

	
However, should any party desire to surrender its interest in any Lease or in any portion thereof, such party shall give written

	
15

	
notice of the proposed surrender to all parties, and the parties to whom such notice is delivered shall have thirty (30) days after

	
16

	
delivery of the notice within which to notify the party proposing the surrender whether they elect to consent thereto. Failure of a

	
17

	
party to whom such notice is delivered to reply within said 30-day period shall constitute a consent to the surrender of the Leases

	
18

	
described in the notice. If all parties do not agree or consent thereto, the party desiring to surrender shall assign, without express or

	
19

	
implied warranty of title, all of its interest in such Lease, or portion thereof, and any well, material and equipment which may be

	
20

	
located thereon and any rights in production thereafter secured, to the parties not consenting to such surrender. If the interest of the

	
21

	
assigning party is or includes an Oil and Gas Interest, the assigning party shall execute and deliver to the party or parties not

	
22

	
consenting to such surrender an oil and gas lease covering such Oil and Gas Interest for a term of one (1) year and so long

	
23

	
thereafter as Oil and/or Gas is produced from the land covered thereby, such lease to be on the form attached hereto as Exhibit "B."

	
24

	
Upon such assignment or lease, the assigning party shall be relieved from all obligations thereafter accruing, but not theretofore

	
25

	
accrued, with respect to the interest assigned or leased and the operation of any well attributable thereto, and the assigning party

	
26

	
shall have no further interest in the assigned or leased premises and its equipment and production other than the royalties retained

	
27

	
in any lease made under the terms of this Article. The party assignee or lessee shall pay to the party assignor or lessor the

	
28

	
reasonable salvage value of the latter's interest in any well's salvable materials and equipment attributable to the assigned or leased

	
29

	
acreage. The value of all salvable materials and equipment shall be determined in accordance with the provisions of Exhibit "C," less

	
30

	
the estimated cost of salvaging and the estimated cost of plugging and abandoning and restoring the surface. If such value is less

	
31

	
than such costs, then the party assignor or lessor shall pay to the party assignee or lessee the amount of such deficit. If the

	
32

	
assignment or lease is in favor of more than one party, the interest shall be shared by such parties in the proportions that the

	
33

	
interest of each bears to the total interest of all such parties. If the interest of the parties to whom the assignment is to be made

	
34

	
varies according to depth, then the interest assigned shall similarly reflect such variances.

	
35

	
Any assignment, lease or surrender made under this provision shall not reduce or change the assignor's, lessor's or surrendering

	
36

	
party's interest as it was immediately before the assignment, lease or surrender in the balance of the Contract Area; and the acreage

	
37

	
assigned, leased or surrendered, and subsequent operations thereon, shall not thereafter be subject to the terms and provisions of this

	
38

	
agreement but shall be deemed subject to an Operating Agreement in the form of this agreement.

	
39

	
B. Renewal or Extension of Leases:

	
40

	
If any party secures a renewal or replacement of an Oil and Gas Lease or Interest subject to this agreement, then all other parties

	
41

	
shall be notified promptly upon such acquisition or, in the case of a replacement Lease taken before expiration of an existing Lease,

	
42

	
promptly upon expiration of the existing Lease. The parties notified shall have the right for a period of thirty (30) days following

	
43

	
delivery of such notice in which to elect to participate in the ownership of the renewal or replacement Lease, insofar as such Lease

	
44

	
affects lands within the Contract Area, by paying to the party who acquired it their proportionate shares of the acquisition cost

	
45

	
allocated to that part of such Lease within the Contract Area, which shall be in proportion to the interest held at that time by the

	
46

	
parties in the Contract Area. Each party who participates in the purchase of a renewal or replacement Lease shall be given an

	
47

	
assignment of its proportionate interest therein by the acquiring party.

	
48

	
If some, but less than all, of the parties elect to participate in the purchase of a renewal or replacement Lease, it shall be owned

	
49

	
by the parties who elect to participate therein, in a ratio based upon the relationship of their respective percentage of participation in

	
50

	
the Contract Area to the aggregate of the percentages of participation in the Contract Area of all parties participating in the

	
51

	
purchase of such renewal or replacement Lease. The acquisition of a renewal or replacement Lease by any or all of the parties hereto

	
52

	
shall not cause a readjustment of the interests of the parties stated in Exhibit "A," but any renewal or replacement Lease in which

	
53

	
less than all parties elect to participate shall not be subject to this agreement but shall be deemed subject to a separate Operating

	
54

	
Agreement in the form of this agreement.

	
55

	
If the interests of the parties in the Contract Area vary according to depth, then their right to participate proportionately in

	
56

	
renewal or replacement Leases and their right to receive an assignment of interest shall also reflect such depth variances.

	
57

	
The provisions of this Article shall apply to renewal or replacement Leases whether they are for the entire interest covered by

	
58

	
the expiring Lease or cover only a portion of its area or an interest therein. Any renewal or replacement Lease taken before the

	
59

	
expiration of its predecessor Lease, or taken or contracted for or becoming effective within six (6) months after the expiration of the

	
60

	
existing Lease, shall be subject to this provision so long as this agreement is in effect at the time of such acquisition or at the time

	
61

	
the renewal or replacement Lease becomes effective; but any Lease taken or contracted for more than six (6) months after the

	
62

	
expiration of an existing Lease shall not be deemed a renewal or replacement Lease and shall not be subject to the provisions of this

	
63

	
agreement.

	
64

	
The provisions in this Article shall also be applicable to extensions of Oil and Gas Leases.

	
65

	
C. Acreage or Cash Contributions:

	
66

	
While this agreement is in force, if any party contracts for a contribution of cash towards the drilling of a well or any other

	
67

	
operation on the Contract Area, such contribution shall be paid to the party who conducted the drilling or other operation and shall

	
68

	
be applied by it against the cost of such drilling or other operation. If the contribution be in the form of acreage, the party to whom

	
69

	
the contribution is made shall promptly tender an assignment of the acreage, without warranty of title, to the Drilling Parties in the

	
70

	
proportions said Drilling Parties shared the cost of drilling the well. Such acreage shall become a separate Contract Area and, to the

	
71

	
extent possible, be governed by provisions identical to this agreement. Each party shall promptly notify all other parties of any

	
72

	
acreage or cash contributions it may obtain in support of any well or any other operation on the Contract Area. The above

	
73

	
provisions shall also be applicable to optional rights to earn acreage outside the Contract Area which are in support of well drilled

	
74

	
inside Contract Area.

  

  

 

14

 

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

 

  

	
1

	
If any party contracts for any consideration relating to disposition of such party's share of substances produced hereunder,

	
2

	
such consideration shall not be deemed a contribution as contemplated in this Article VIII.C.

	
3

	
D. Assignment; Maintenance of Uniform Interest:

	
4

	
For the purpose of maintaining uniformity of ownership in the Contract Area in the Oil and Gas Leases, Oil and Gas

	
5

	
Interests, wells, equipment and production covered by this agreement no party shall sell, encumber, transfer or make other

	
6

	
disposition of its interest in the Oil and Gas Leases and Oil and Gas Interests embraced within the Contract Area or in wells,

	
7

	
equipment and production unless such disposition covers either:

	
8

	
1. the entire interest of the party in all Oil and Gas Leases, Oil and Gas Interests, wells, equipment and production; or

	
9

	
2. an equal undivided percent of the party's present interest in all Oil and Gas Leases, Oil and Gas Interests, wells,

	
10

	
equipment and production in the Contract Area.

	
11

	
Every sale, encumbrance, transfer or other disposition made by any party shall be made expressly subject to this agreement

	
12

	
and shall be made without prejudice to the right of the other parties, and any transferee of an ownership interest in any Oil and

	
13

	
Gas Lease or Interest shall be deemed a party to this agreement as to the interest conveyed from and after the effective date of

	
14

	
the transfer of ownership; provided, however, that the other parties shall not be required to recognize any such sale,

	
15

	
encumbrance, transfer or other disposition for any purpose hereunder until thirty (30) days after they have received a copy of the

	
16

	
instrument of transfer or other satisfactory evidence thereof in writing from the transferor or transferee. No assignment or other

	
17

	
disposition of interest by a party shall relieve such party of obligations previously incurred by such party hereunder with respect

	
18

	
to the interest transferred, including without limitation the obligation of a party to pay all costs attributable to an operation

	
19

	
conducted hereunder in which such party has agreed to participate prior to making such assignment, and the lien and security

	
20

	
interest granted by Article VII.B. shall continue to burden the interest transferred to secure payment of any such obligations.

	
21

	
If, at any time the interest of any party is divided among and owned by four or more co-owners, Operator, at its discretion,

	
22

	
may require such co-owners to appoint a single trustee or agent with full authority to receive notices, approve expenditures,

	
23

	
receive billings for and approve and pay such party's share of the joint expenses, and to deal generally with, and with power to

	
24

	
bind, the co-owners of such party's interest within the scope of the operations embraced in this agreement; however, all such co-

	
25

	
owners shall have the right to enter into and execute all contracts or agreements for the disposition of their respective shares of

	
26

	
the Oil and Gas produced from the Contract Area and they shall have the right to receive, separately, payment of the sale

	
27

	
proceeds thereof.

	
28

	
E. Waiver of Rights to Partition:

	
29

	
If permitted by the laws of the state or states in which the property covered hereby is located, each party hereto owning an

	
30

	
undivided interest in the Contract Area waives any and all rights it may have to partition and have set aside to it in severalty its

	
31

	
undivided interest therein.

	
23

	
F. Preferential Right to Purchase:

	
33

	
o (Optional; Check if applicable.)

	
34

	
Should any party desire to sell all or any part of its interests under this agreement, or its rights and interests in the Contract

	
35

	
Area, it shall promptly give written notice to the other parties, with full information concerning its proposed disposition, which

	
36

	
shall include the name and address of the prospective transferee (who must be ready, willing and able to purchase), the purchase

	
37

	
price, a legal description sufficient to identify the property, and all other terms of the offer. The other parties shall then have an

	
38

	
optional prior right, for a period of ten (10) days after the notice is delivered, to purchase for the stated consideration on the

	
38

	
same terms and conditions the interest which the other party proposes to sell; and, if this optional right is exercised, the

	
40

	
purchasing parties shall share the purchased interest in the proportions that the interest of each bears to the total interest of all

	
41

	
purchasing parties. However, there shall be no preferential right to purchase in those cases where any party wishes to mortgage

	
42

	
its interests, or to transfer title to its interests to its mortgagee in lieu of or pursuant to foreclosure of a mortgage of its interests,

	
43

	
or to dispose of its interests by merger, reorganization, consolidation, or by sale of all or substantially all of its Oil and Gas assets

	
44

	
to any party, or by transfer of its interests to a subsidiary or parent company or to a subsidiary of a parent company, or to any

	
45

	
company in which such party owns a majority of the stock.

	
46

	
ARTICLE IX.

	
47

	
INTERNAL REVENUE CODE ELECTION

	
48

	
If, for federal income tax purposes, this agreement and the operations hereunder are regarded as a partnership, and if the

	
49

	
parties have not otherwise agreed to form a tax partnership pursuant to Exhibit "G" or other agreement between them, each

	
50

	
party thereby affected elects to be excluded from the application of all of the provisions of Subchapter "K," Chapter 1, Subtitle

	
51

	
"A," of the Internal Revenue Code of 1986, as amended ("Code"), as permitted and authorized by Section 761 of the Code and

	
52

	
the regulations promulgated thereunder. Operator is authorized and directed to execute on behalf of each party hereby affected

	
53

	
such evidence of this election as may be required by the Secretary of the Treasury of the United States or the Federal Internal

	
54

	
Revenue Service, including specifically, but not by way of limitation, all of the returns, statements, and the data required by

	
55

	
Treasury Regulation §1.761. Should there be any requirement that each party hereby affected give further evidence of this

	
56

	
election, each such party shall execute such documents and furnish such other evidence as may be required by the Federal Internal

	
57

	
Revenue Service or as may be necessary to evidence this election. No such party shall give any notices or take any other action

	
58

	
inconsistent with the election made hereby. If any present or future income tax laws of the state or states in which the Contract

	
59

	
Area is located or any future income tax laws of the United States contain provisions similar to those in Subchapter "K," Chapter

	
60

	
1, Subtitle "A," of the Code, under which an election similar to that provided by Section 761 of the Code is permitted, each party

	
61

	
hereby affected shall make such election as may be permitted or required by such laws. In making the foregoing election, each

	
62

	
such party states that the income derived by such party from operations hereunder can be adequately determined without the

	
63

	
computation of partnership taxable income.

	
64

	
ARTICLE X.

	
65

	
CLAIMS AND LAWSUITS

	
66

	
Operator may settle any single uninsured third party damage claim or suit arising from operations hereunder if the expenditure

	
67

	
does not exceed Fifty thousand Dollars ($ 50,000.00) and if the payment is in complete settlement

	
68

	
of such claim or suit. If the amount required for settlement exceeds the above amount, the parties hereto shall assume and take over

	
69

	
the further handling of the claim or suit, unless such authority is delegated to Operator. All costs and expenses of handling settling,

	
70

	
or otherwise discharging such claim or suit shall be a the joint expense of the parties participating in the operation from which the

	
71

	
claim or suit arises. If a claim is made against any party or if any party is sued on account of any matter arising from operations

	
72

	
hereunder over which such individual has no control because of the rights given Operator by this agreement, such party shall

	
73

	
immediately notify all other parties, and the claim or suit shall be treated as any other claim or suit involving operations hereunder. 74

	
74

	 

  

 

15

 

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

 

  

  

	
1

	
ARTICLE XI.

	
2

	
FORCE MAJEURE

	
3

	
If any party is rendered unable, wholly or in part, by force majeure to carry out its obligations under this agreement, other

	
4

	
than the obligation to indemnify or make money payments or furnish security, that party shall give to all other parties

	
5

	
prompt written notice of the force majeure with reasonably full particulars concerning it; thereupon, the obligations of the

	
6

	
party giving the notice, so far as they are affected by the force majeure, shall be suspended during, but no longer than, the

	
7

	
continuance of the force majeure. The term "force majeure," as here employed, shall mean an act of God, strike, lockout, or

	
8

	
other industrial disturbance, act of the public enemy, war, blockade, public riot, lightening, fire, storm, flood or other act of

	
9

	
nature, explosion, governmental action, governmental delay, restraint or inaction, unavailability of equipment, and any other

	
10

	
cause, whether of the kind specifically enumerated above or otherwise, which is not reasonably within the control of the party

	
11

	
claiming suspension.

	
12

	
The affected party shall use all reasonable diligence to remove the force majeure situation as quickly as practicable. The

	
13

	
requirement that any force majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes,

	
14

	
lockouts, or other labor difficulty by the party involved, contrary to its wishes; how all such difficulties shall be handled shall

	
15

	
be entirely within the discretion of the party concerned.

	
16

	
ARTICLE XII.

	
17

	
NOTICES

	
18

	
All notices authorized or required between the parties by any of the provisions of this agreement, unless otherwise

	
19

	
specifically provided, shall be in writing and delivered in person or by United States mail, courier service, telegram, telex,

	
20

	
telecopier or any other form of facsimile, postage or charges prepaid, and addressed to such parties at the addresses listed on

	
21

	
Exhibit "A." All telephone or oral notices permitted by this agreement shall be confirmed immediately thereafter by written

	
22

	
notice. The originating notice given under any provision hereof shall be deemed delivered only when received by the party to

	
23

	
whom such notice is directed, and the time for such party to deliver any notice in response thereto shall run from the date

	
24

	
the originating notice is received. "Receipt" for purposes of this agreement with respect to written notice delivered hereunder

	
25

	
shall be actual delivery of the notice to the address of the party to be notified specified in accordance with this agreement, or

	
26

	
to the telecopy, facsimile or telex machine of such party. The second or any responsive notice shall be deemed delivered when

	
27

	
deposited in the United States mail or at the office of the courier or telegraph service, or upon transmittal by telex, telecopy

	
28

	
or facsimile, or when personally delivered to the party to be notified, provided, that when response is required within 24 or

	
29 

	
48 hours, such response shall be given orally or by telephone, telex, telecopy or other facsimile within such period. Each party

	
30

	
shall have the right to change its address at any time, and from time to time, by giving written notice thereof to all other

	
31

	
parties. If a party is not available to receive notice orally or by telephone when a party attempts to deliver a notice required

	
32

	
to be delivered within 24 or 48 hours, the notice may be delivered in writing by any other method specified herein and shall

	
33

	
be deemed delivered in the same manner provided above for any responsive notice.

	
34

	
ARTICLE XIII.

	
35

	
TERM OF AGREEMENT

	
36

	
This agreement shall remain in full force and effect as to the Oil and Gas Leases and/or Oil and Gas Interests subject

	
37

	
hereto for the period of time selected below; provided, however, no party hereto shall ever be construed as having any right, title

	
38

	
or interest in or to any Lease or Oil and Gas Interest contributed by any other party beyond the term of this agreement.

	
39

	
o Option No. 1: So long as any of the Oil and Gas Leases subject to this agreement remain or are continued in

	
40

	
force as to any part of the Contract Area, whether by production, extension, renewal or otherwise.

	
41

	
þ Option No. 2: In the event the well described in Article VI.A., or any subsequent well drilled under any provision

	
42

	
of this agreement, results in the Completion of a well as a well capable of production of Oil and/or Gas in paying

	
43

	
quantities, this agreement shall continue in force so long as any such well is capable of production, and for an

	
44

	
additional period of 90 days thereafter; provided, however, if, prior to the expiration of such

	
45

	
additional period, one or more of the parties hereto are engaged in drilling, Reworking, Deepening, Sidetracking,

	
46

	
Plugging Back, testing or attempting to Complete or Re-complete a well or wells hereunder, this agreement shall

	
47

	
continue in force until such operations have been completed and if production results therefrom, this agreement

	
48

	
shall continue in force as provided herein. In the event the well described in Article VI.A., or any subsequent well

	
49

	
drilled hereunder, results in a dry hole, and no other well is capable of producing Oil and/or Gas from the

	
50

	
Contract Area, this agreement shall terminate unless drilling, Deepening, Sidetracking, Completing, Re-

	
51

	
completing, Plugging Back or Reworking operations are commenced within _______days from the

	
52

	
date of abandonment of said well. "Abandonment" for such purposes shall mean either (i) a decision by all parties

	
53

	
not to conduct any further operations on the well or (ii) the elapse of 180 days from the conduct of any

	
54

	
operations on the well, whichever first occurs.

	
55

	
The termination of this agreement shall not relieve any party hereto from any expense, liability or other obligation or any

	
56

	
remedy therefor which has accrued or attached prior to the date of such termination.

	
57

	
Upon termination of this agreement and the satisfaction of all obligations hereunder, in the event a memorandum of this

	
58

	
Operating Agreement has been filed of record, Operator is authorized to file of record in all necessary recording offices a

	
59

	
notice of termination, and each party hereto agrees to execute such a notice of termination as to Operator's interest, upon

	
60

	
request of Operator, if Operator has satisfied all its financial obligations.

	
61

	
ARTICLE XIV.

	
62

	
COMPLIANCE WITH LAWS AND REGULATIONS

	
63

	
A. Laws, Regulations and Orders:

	
64

	
This agreement shall be subject to the applicable laws of the state in which the Contract Area is located, to the valid rules,

	
65

	
regulations, and orders of any duly constituted regulatory body of said state; and to all other applicable federal, state,

	
66

	
and local laws, ordinances, rules, regulations and orders.

	
67

	
B. Governing Law:

	
68

	
This agreement and all matters pertaining hereto, including but not limited to matters of performance, non-

	
69

	
performance, breach, remedies, procedures, rights, duties, and interpretation or construction, shall be governed and

	
70

	
determined by the law of the state in which the Contract Area is located. If the Contract Area is in two or more states,

	
71

	
the law of the state of Colorado shall govern.

	
72

	
C. Regulatory Agencies:

	
73

	
Nothing herein contained shall grant, or be construed to grant, Operator the right or authority to waive or release any

	
74

	
rights, privileges, or obligations which Non-Operators may have under federal or state laws or under rules, regulations or

  

  

 

16

 

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

 

  

  

	
1

	
orders promulgated under such laws in reference to oil, gas and mineral operations, including the location, operation, or

	
2

	
production of wells, on tracts offsetting or adjacent to the Contract Area.

	
3

	
With respect to the operations hereunder, Non-Operators agree to release Operator from any and all losses, damages,

	
4

	
injuries, claims and causes of action arising out of, incident to or resulting directly or indirectly from Operator's interpretation

	
5

	
or application of rules, rulings, regulations or orders of the Department of Energy or Federal Energy Regulatory Commission

	
6

	
or predecessor or successor agencies to the extent such interpretation or application was made in good faith and does not

	
7

	
constitute gross negligence. Each Non-Operator further agrees to reimburse Operator for such Non-Operator's share of

	
8

	
production or any refund, fine, levy or other governmental sanction that Operator may be required to pay as a result of such

	
9

	
an incorrect interpretation or application, together with interest and penalties thereon owing by Operator as a result of such

	
10 

	
incorrect interpretation or application.

	
11

	
ARTICLE XV.

	
12

	
MISCELLANEOUS

	
13

	
A. Execution:

	
14

	
This agreement shall be binding upon each Non-Operator when this agreement or a counterpart thereof has been

	
15

	
executed by such Non-Operator and Operator notwithstanding that this agreement is not then or thereafter executed by all of

	
16

	
the parties to which it is tendered or which are listed on Exhibit "A" as owning an interest in the Contract Area or which

	
17

	
own, in fact, an interest in the Contract Area. Operator may, however, by written notice to all Non-Operators who have

	
18

	
become bound by this agreement as aforesaid, given at any time prior to the actual spud date of the Initial Well but in no

	
19

	
event later than five days prior to the date specified in Article VI.A. for commencement of the Initial Well, terminate this

	
20

	
agreement if Operator in its sole discretion determines that there is insufficient participation to justify commencement of

	
21

	
drilling operations. In the event of such a termination by Operator, all further obligations of the parties hereunder shall cease

	
22

	
as of such termination. In the event any Non-Operator has advanced or prepaid any share of drilling or other costs

	
23

	
hereunder, all sums so advanced shall be returned to such Non-Operator without interest.In the event Operator proceeds

	
24

	
with drilling operations for the Initial Well without the execution hereof by all persons listed on Exhibit "A" as having a

	
25

	
current working interest in such well, Operator shall indemnify Non-Operators with respect to all costs incurred for the

	
26

	
Initial Well which would have been charged to such person under this agreement if such person had executed the same and

	
27

	
Operator shall receive all revenues which would have been received by such person under this agreement if such person had

	
28

	
executed the same.

	
29

	
B. Successors and Assigns:

	
30

	
This agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs,

	
31

	
devisees, legal representatives, successors and assigns, and the terms hereof shall be deemed to run with the Leases or

	
32

	
Interests included within the Contract Area.

	
33

	
C. Counterparts:

	
34

	
This instrument may be executed in any number of counterparts, each of which shall be considered an original for all

	
35

	
purposes.

	
36

	
D. Severability:

	
37

	
For the purposes of assuming or rejecting this agreement as an executory contract pursuant to federal bankruptcy laws,

	
38

	
this agreement shall not be severable, but rather must be assumed or rejected in its entirety, and the failure of any party to

	
39

	
this agreement to comply with all of its financial obligations provided herein shall be a material default.

	
40

	
ARTICLE XVI.

	
41

	
OTHER PROVISIONS

42

	
43

	
 

43

44

45

46

47

48

49

50

51

52

53

54

55

56

57

58

59

60

61

62

63

64

65

66

67

68

69

70

71

72

73

74

 

 

17

 

 

ARTICLE XVI. OTHER PROVISIONS

 

Notwithstanding the foregoing provisions:

 

 

A. When a well which has been authorized under the terms of this Agreement as a vertical well shall have been drilled to the objectives authorized in the AFE ("authorized depth"), and all tests have been completed and the results thereof furnished to the participating parties, and after the Operator has attempted in good faith to reach a mutual agreement with Nion-Operator(s) regarding further operations, but such parties cannot agree upon the sequence and timing of further operations regarding said well, the following proposals shall control in the order enumerated hereafter: (1) a proposal to do additional logging, coring, or testing; (2) a proposal to attempt to complete the well at the authorized depth in the manner set forth in the AFE (i.e., in accordance with the casing, stimulation and other completion programs as set forth in the AFE);   (3) a proposal to attempt to complete the well at the authorized depth in a manner different than as set forth in the AFE; (4) a proposal to plug back and attempt to complete the well at a depth shallower than the authorized depth, with priority given to objectives in ascending order up the hole; (5) a proposal to drill the well to a depth below the authorized depth, with priority given to objectives in descending order; (6) a proposal to sidetrack the well to a new target objective for a vertical or deviated hole, with priority given first in ascending order to targets above the authorized depth, and then in descending order to targets below the authorized depth; and (7) a proposal to drill a horizontal well, with priority given first to a lateral drain hole at the authorized depth, and then to objectives in ascending order above the authorized depth, and then to objectives in descending order below the authorized depth.

 

When a well which has been authorized under the terms of this Agreement as a horizontal well shall have been drilled to the authorized depth, and all tests have been completed and the results thereof furnished to the participating parties, and such parties cannot agree upon the sequence and timing of further operations regarding said well, the following proposals shall control in the order enumerated hereafter: (1) a proposal to do additional logging, coring, or testing; (2) a proposal to attempt to complete the well at the authorized depth in the manner set forth in the AFE (i.e. , in accordance with casing, stimulation and other completion programs set forth in the AFE); (3) a proposal to attempt to complete the well at the authorized depth in a manner different than as set forth in the AFE; (4) a proposal to extend the length of the lateral drain hole for a specified number of feet in the direction it is drilling, with priority given to the shortest additional length proposed by any of the participating parties; (5) a proposal to drill a new lateral drain hole in a different direction at the authorized depth; (6) a proposal to drill a new lateral drain hole at a different depth, with priority given in ascending order to objectives above the authorized depth, and then in descending order to objectives below the authorized depth; (7) a proposal to plug back and attempt to complete the well at a depth shallower than the authorized depth, with priority given to objectives in ascending order up the hole; (8) a proposal to deepen the well below the authorized depth; and (9) a proposal to sidetrack the well to a new target objective, with priority given first in ascending order to objectives above the authorized depth, and then in descending order to objectives below the authorized depth.

 

In a horizontal well, the Operator shall have the right to cease drilling at any time, for any reason, after it has drilled a well to the objective formation and has drilled laterally for a distance which is at least equal to fifty percent (50%) of the length of the total horizontal displacement (displacement from true vertical) proposed for the operation; if in such event the well will be deemed to be at its "authorized depth11 as that term is used in this Agreement.

 

If at the time the parties are considering a proposed operation, the well is in such condition, in the Operator's judgement, that a reasonably prudent operator would not conduct such operation for fear of mechanical difficulties, placing the hole, equipment or personnel in danger of loss or injury, or fear of loss of the well for any reason without being able to attempt a completion at the authorized depth, then the proposal shall be given no priority to any proposed operation except for plugging and abandoning the well.

 

B.       In the event any Consenting Party desires to deepen a Non-Consent Well to a depth below the authorized depth, such party shall give notice thereof, complying with the requirements of Article Vl.B.I., to all parties (including Non-Consenting Parties). Thereupon Articles Vl.B.1. and 2. shall apply and all parties receiving such notice shall have the right to participate or not participate in the deepening of such well pursuant to said Articles Vl.B.1. and 2 . If a deepening operation is approved pursuant to such provisions, and if any Non-Consenting Party elects to participate in the deepening operation, such Non­ Consenting Party shall pay or make reimbursement (as the case may be) of the following costs and expenses:

 

 

	
(i) 

	
If the proposal to deepen is made prior to the completion of such well as a well capable of producing in paying quantities, such Non-Consenting Party shall pay (or reimburse Consenting Parties for, as the case may be) that share of costs and expenses incurred in connection with the drilling of said well from the surface to the authorized depth which Non-Consenting Party would have paid had such Non­ Consenting Party agreed to participate therein, plus the Non-Consenting Party's share of the cost of deepening and of participating in any further operations on the well in accordance with the other provisions of this Agreement; provided, however, all costs for testing and completion or attempted completion of the well incurred by Consenting Parties prior to the point of actual operations to deepen beyond the authorized depth shall be for the sole account of Consenting Parties. Notwithstanding the foregoing, if the Non-Consent well was drilled as a horizontal well, the Non-Consenting Party will be obligated to pay or reimburse the Consenting Parties only that share of the costs and expenses of drilling the vertical portion of the well from the surface to the point that the well is deviated from the vertical.

 

 

 

18

 

 

 

	
(ii)

	
If the proposal is made for a Non-Consent Well that has been previously completed as a well capable of producing in paying quantities, but is no longer capable of producing in paying Quantities, such Non-Consenting Party shall pay (or reimburse Consenting Parties for, as the case may be) its proportionate share of all costs of drilling, completing, and equipping said well from the surface to the authorized depth, calculated in the manner provided in paragraph (i) above, less those costs recouped by the Consenting Parties from the sale of production from the well. The Non-Consenting Party shall also pay its proportionate share of all costs of re­ entering said well. The Non-Consenting Parties' proportionate part (based on the percentage of such well Non-Consenting Party would have owned had it previously participated in such Non-Consent Well) of the costs of salvable materials and equipment remaining in the hole and salvable surface equipment used in connection with such well shall be determined in accordance with Exhibit "C". If the Consenting Parties have recouped the cost of drilling, completing, and equipping the well at the time such deepening operation is conducted, then a Non-Consenting Party may participate in the deepening of the well with no payment for costs incurred prior to re-entering the well for deepening. Notwithstanding the foregoing, if the Non-Consent well was drilled as a horizontal well, the Non-Consenting Party will be obligated to pay or reimburse the Consenting Parties only that share of the costs and expenses of drilling the vertical portion of the well from the surface to the point that the well is deviated from the vertical.

 

 

C.  Gas production attributable to any Non-Consenting Party's relinquished interest which was committed to a gas sales contract prior to the date of the relinquishment shall, upon such party's election, be sold to its purchaser, if the purchaser elects to take such production under the terms of its existing gas sales contract. Such Non-Consenting Party shall direct its purchaser to remit the proceeds received from such sale directly to the Consenting Parties until the amounts provided in Article Vl.B.2 are recovered from the Non-Consenting Party's relinquished interest. If such Non-Consenting Party has not contracted for sale of its gas at the time such gas is available for delivery, or does not elect to have its gas delivered to its purchaser as provided above, the Consenting Party shall be entitled to receive and sell such Non-Consenting Party's share of gas during the recoupment period.

 

D.      If operations (including a completion attempt) are necessary to maintain lease acreage which would otherwise expire under the terms of the lease or leases covering such acreage, or are required as a result of a demand for drilling by a lessor, or are necessary to earn leasehold interests or acreage under a farmout or other exploration agreement, the Non-Consent provision shall be changed from that set forth in Article VI to require a non-reversionary assignment of all rights, title, and interest by the party or parties not participating in such operations as to that portion of the acreage (but not any mineral interests owned by a party hereto except to the extent of the lessee's. interest under a lease effected under Article Ill.A hereof) and/or leasehold interest which would otherwise have been lost or not earned without such operations. The provisions of Article VI shall, however, continue to apply to any portion of the Contract Area which is not so jeopardized or not to be earned and which is within the same drilling, production or proration unit. The interests of the parties in said unit shall be adjusted on a surface acreage basis after recovery by the Consenting Parties of the costs to be recouped pursuant to Articles Vl.B (2) (a) and (b) and/or Vll.D (I}, as applicable, with respect to the Non-Consenting Party's interest in the unit subject thereto, and, for avoidance of doubt, the reversion as to such interests not in jeopardy or not to be earned shall occur at the same point in time as such reversion would have occurred absent the forfeiture and assignment. The leasehold interests and oil and gas interests so required to be forfeited and assigned (and the unit, should it contain both forfeiture and reversionary interests) to the Consenting Parties by the Non-Consenting Parties shall no longer be subject to this agreement but shall be subject to an operating agreement) identical to this agreement changed only to reflect the names and new interests of the parties. If operations are proposed on a lease, or on lands pooled therewith, within the last six (6) months of the primary term of a lease not otherwise maintained by other operations or production, such proposed operations will be considered as operations necessary to maintain the lease.

 

E.       If the parties hereto into an agreement between themselves and/or with any third party covering drilling and/or operations on the Contract Area or on other land and leases which are pooled or unitized therewith, then such operating agreement shall supersede this Agreement as to the rights and obligations of the parries with respect to such land and operations. During the term of such other operating agreement, this Agreement shall continue to govern the rights and obligations of the parties as to the balance of the land and depths covered by this Agreement. At such time, if ever, that such other operating agreement shall terminate, or any portion of the Contract Area is released therefrom, then this Agreement shall again become effective as to such land and depths, it being the intent of the parties that there shall never be a time during the term of this Agreement when a portion of the Contract Area is not subject to an operating agreement between the parties hereto.

 

 

 

19

 

 

 

	
1

	
IN WITNESS WHEREOF, this agreement shall be effective as of the ____________________day of__________ ,

	
2 

	
_____________________.

	
3

	
_____________________, who has prepared and circulated this form for execution, represents and warrants that the form was printed from and, with the exception(s) listed below, is identical to the AAPL Form 610-1989 Model Form

	
4

	
Operating Agreement, as published in computerized form by Forms On-A-Disk, Inc. No changes, alterations, or modifications, other than those made by strikethrough and/or insertion and that are clearly recognizable as changes

in Articles ___________________________, have been made to the form.

	
5

	
 

	6	ATTEST OR WITNESS: 	 	 	OPERATOR
	
7

	 	 	 	
  

PETROSHARE CORP.

	
  

8

	 	 	By:	/s/ Stephen J. Foley
	
  

9 

	 	 	 	 Stephen J. Foley
	
  

10

	 	 	 	Type or print name
	
11

	 	 	 	Title	 CFO
	
12

	 	 	 	Date	 11/14/13
	
13

	 	 	 	Tax ID or S.S. No.	 46-1454523
	
  

14

	 	 	 	 
	 	 	 	 	 

	15	NON-OPERATORS
	
16

	 	 	 	
  

  

	17	 	 	 	LLOLLC, L.L.C.
	
  

  

	 	 	By:	/s/ Kemberlia Ducote
	
  

18

	
  

	 	 	 Kemberlia Ducote
	
  

19

	 	 	 	Type or print name
	
20

	 	 	 	Title	 Manager
	
21

	 	 	 	Date	 11/14/13
	
22

	 	 	 	Tax ID or S.S. No.	 46-3375198
	
  

23

	 	 	 	 
	 	 	 	 	 

  

	24	 	 	 	 
	25	 	 	 	 
	
  

  

	 	 	By:	 
	
  

26

	
  

	 	 	 
	
  

  

27

	 	 	 	Type or print name
	
28

	 	 	 	Title	
  

 

	
29

	 	 	 	Date	 
	
30

	 	 	 	Tax ID or S.S. No.	 
	
  

31

	 	 	 	 
	 	 	 	 	 

	32	 	 	 	 
	 	 	 	 	 
	
  

  

	 	 	By:	 
	
  

33

	
  

	 	 	 
	
  

  

34

	 	 	 	Type or print name
	
35

	 	 	 	Title	
  

 

	
36

	 	 	 	Date	 
	
37

	 	 	 	Tax ID or S.S. No.	 
	 	 	 	 	 

  

  

 

20

 

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

  

	
1

	
ACKNOWLEDGMENTS

	
2

	
Note: The following forms of acknowledgment are the short forms approved by the Uniform Law on Notarial Acts.

	
3

	
The validity and effect of these forms in any state will depend upon the statutes of that state.

	
4

	
  

	
5

	
Individual acknowledgment:

	
6

	
State of _______________ )

	
7

	

State of _______________ ) ss.

	
8

	
County of _____________)

	
9

	
This instrument was acknowledged before me on

	
10 

	
_________________________ by _______________________________

	
11

	 

	
12

	
_________ (Seal, if any) ____________________________________ _______________________________________

	
13

	
_________ (Seal, if any) ____________________________________Title (and Rank) ___________________________

	
14

	

_________ (Seal, if any) ____________________________________My commission expires: ___________________________

	
15

	
  

	
16

	
Acknowledgment in representative capacity:

	
17

	
State of _______________ )

	
18

	

State of _______________ ) ss.

	
19

	
County of _____________)

	
20

	
This instrument was acknowledged before me on

	
21 

	
_________________________ by _______________________________ as

	
22

	
___________________ of ______________________________________

	
23

	
_________ (Seal, if any) ____________________________________ _______________________________________

	
24

	
_________ (Seal, if any) ____________________________________Title (and Rank) ___________________________

	
25

	

_________ (Seal, if any) ____________________________________My commission expires: ___________________________

	
26

	
  

27

28

29

30

31

32

33

34

35

36

37

 

 

21

 

 

EXHIBIT  "A"

 

Attached to that certain Operating Agreement dated effective_______, 2010, between Quicksilver Resources, Inc., as Operator, and Premier Energy Partners (I) LLC, Buck Peak LLC, and West Point Energy LLC, as Non-Operators.

 

	
I.  

	
Oil and Gas Leases Subject to Agreement:

 

The Oil and Gas Leases more particularly described on Exhibit "A-1" attached hereto.

 

	
II.  

	
Participants and Addresses:

 

	 	 	Expense Interest	 
	
Quicksilver Resources Inc.

777 West Rosedale, Suite 300 

Fort Worth, TX 76104

Attn: _________________

Telephone:  817-665-4959

Email: _________________

	 	 	92.50%	 
	 	 	 	 	 
	
Premier Energy Partners (I) LLC

	 	 	 	 
	
PO Box 2328

Littleton, CO 80161 

Attn: Frederick J. Witsell

Telephone: 303-881-2157

	 	 	 	 
	
Email: ____________

	 	 	 	 
	 	 	 	 	 
	
Buck Peak LLC 

621 17th Street, Ste.1345

Denver CO 80293

Attn:  David Laramie

Telephone: 303-573-8600

Email: ____________

	 	 	7.5%*	 
	 	 	 	 	 
	
West Point Energy LLC

	 	 	 	 
	
Attn:  Gary Semro

	 	 	 	 
	
Telephone : _____________

	 	 	 	 
	
Email:  __________________

	 	 	 	 
	 	 	 	 	 
	
  

	 	 	 	 

*Non-Operators hereby agree that any election to be made hereunder shall apply to the entire 7.5% interest of Non-Operators. In this connection, Buck Peak LLC and West Point Energy LLC hereby authorize Premier Energy Partners (I) LLC (i) to receive on behalf of Non-Operators all notices called for hereunder, and (ii) to give Operator notice of any election to be made hereunder on behalf of Non-Operators. Non-Operators agree that Operator may rely upon such communications from Premier Energy Partners (I) LLC as binding upon all Non-Operators.

A-1

 

 

 

 

		
COPAS 2005 Accounting Procedure

Recommended by COPAS

Exhibit “C”

ACCOUNTING PRODECURE

	1	 	JOINT OPERATIONS
	2	Attached to and made part of that certain Operating Agreement dated , 2010, between Quicksilver Resources Inc.
	3	 as Operator, and Premier Energy Partners (I) LLC, Buck Peak LLC, and West Point Energy LLC, as Non-Operator(s).
	4	 	 
	5	 	 
	6	 	 
	7	 	 
	8	 	I. GENERAL PROVISIONS
	9	 	 
	10	IF THE PARTIES FAIL TO SELECT EITIIER ONE OF COMPETING "ALTERNATIVE'' PROVISIONS, OR SELECT ALL THE
	11	COMPETING "ALTERNATIVE" PROVISIONS, ALTERNATIVE 1IN EACH SUCH INSTANCE SHALL BE DEEMED TO HAVE
	12	BEEN ADOPTED BY THE PARTIES AS A RESULT OF ANY SUCH OMISSION OR DUPLICATE NOTATION.
	13	 	 
	14	IN THE EVENT THAT ANY "OPTIONAV' PROVISION OF TIIIS ACCOUNTING PROCEDURE IS NOT ADOPTED BY THE
	15	PARTIES TO THE AGREEMENT BY A TYPED, PRINTED OR HANDWRITTEN INDICATION, SUCH PROVISION SHALL NOT
	16	FORM A PART OF TIDS ACCOUNTING PROCEDURE, AND NO INFERENCE SHALL BE MADE CONCERNING THE INTENT
	17	OF THE PARTIES IN SUCH EVENT.
	18	 	 
	
19

	
1.

	
DEFINITIONS

	
20

	 	 
	
21

	 	
All terms used in this Accounting Procedure shall have the following meaning, unless otherwise expressly defined in the Agreement:

	
22

	 	 
	
23

	 	
"Affiliate'' means for a person, another person that controls, is controlled by, or is under common control with that person. In this

	
24

	 	
definition, (a) control means the ownership by one person, directly or indirectly, of more than fifty percent (50%) of the voting securities

	
25

	 	
of a corporation or, for other persons, the equivalent ownership interest (such as partnership interests), and (b) "person" means an

	
26

	 	
individual, corporation, partnership, trust, estate, unincorporated organization, association, or other legal entity.

	
27

	 	 
	
28

	 	
"Agreement" means the operating agreement, farmout agreement, or other contract between the Parties to which this Accounting

	
29

	 	
Procedure is attached.

	
30

	 	 
	
31

	 	
"Controllable Material" means Material that, at the time of acquisition or disposition by the Joint Account, as applicable, is so classified

	
32

	 	
in the Material Classification Manual most recently recommended by the Council of Petroleum Accountants Societies (COPAS).

	
33

	 	 
	
34

	 	
"Equalized Freight" means the procedure of charging transportation cost to the Joint Account based upon the distance from the nearest

	
35

	 	
Railway Receiving Point to the property.

	
36

	 	 
	
37

	 	
"Excluded Amount" means a specified excluded trucking amount most recently recommended by COPAS.

	
38

	 	 
	
39

	 	
"Field Office" means a structure, or portion of a structure, whether a temporary or permanent installation, the primary function of which is

	
40

	 	
to directly serve daily operation and maintenance activities of the Joint Property and which serves as a staging area for directly chargeable

	
41

	 	
field personnel.

	
42

	 	 
	
43

	 	
"First Level Supervision" means those employees whose primary function in Joint Operations is the direct oversight of the Operator's

	
44

	 	
field employees and/or contract labor directly employed On-site in a field operating capacity. First Level Supervision functions may

	
45

	 	
include, but are not limited to:

	
46

	 	 
	
47

	 	
▪ Responsibility for field employees and contract labor engaged in activities that can include field operations, maintenance,

	
48

	 	
construction, well remedial work, equipment movement and drilling

	
49

	 	
▪ Responsibility for day-to-day direct oversight of rig operations

	
50

	 	
▪ Responsibility for day-to-day direct oversight of construction operations

	
51

	 	
▪ Coordination of job priorities and approval of work procedures

	
52

	 	
▪ Responsibility for optimal resource utilization (equipment, Materials, personnel)

	
53

	 	
▪ Responsibility for meeting production and field operating expense targets

	
54

	 	
▪ Representation of the Parties in local matters involving community, vendors, regulatory agents and landowners, as an incidental

	
55

	 	
part of the supervisor’s operating responsibilities

	
56

	 	
▪ Responsibility for all emergency responses with field staff

	
57

	 	
▪ Responsibility for implementing safety and environmental practices

	
58

	 	
▪ Responsibility for field adherence to company policy

	
59

	 	
▪ Responsibility for employment decisions and performance appraisals for field personnel

	
60

	 	
▪ Oversight of sub-groups for field functions such as electrical, safety, environmental, telecommunications, which may have group

	
61

	 	
or team leaders.

	
62

	 	 
	
63

	 	
"Joint Account" means the account showing the charges paid and credits received in the conduct of the Joint Operations that are to be

	
64

	 	
shared by the Parties, but does not include proceeds attributable to hydrocarbons and by-products produced under the Agreement.

	
65

	 	 
	
66

	 	
"Joint Operations" means all operations necessary or proper for the exploration, appraisal, development, production, protection, maintenance, repair, abandonment, and restoration of the Joint Property.

 

1

 

 

		
COPAS 2005 Accounting Procedure

Recommended by COPAS

	1	 	"Joint Property" means the real and personal property subject to the Agreement.
	2	 	 
	3	 	"Laws" means any laws, rules, regulations, decrees, and orders of the United States of America or any state thereof and all other
	4	 	goverenental bodies, agencies, and other authorities having jurisdiction over or affecting the provisions contained in or the transactions
	5	 	
contemplated by the Agreement or the Parties and their operations, whether such laws now exist or are hereafter amended, enacted,

	6	 	
promulgated or issued.

	7	 	 
	8	 	
"Material" means personal property, equipment, supplies, or consumables acquired or held for use by the Joint Property.

	9	 	 
	
10

	 	
"Non-Operators" means the Parties to the Agreement other than the Operator.

	
11

	 	 
	
12

	 	
"Offshore Facilities" means platforms, surface and subsea development and production systems, and other support systems such as oil and

	
13

	 	
gas handling facilities, living quarters, offices, shops, cranes, electrical supply equipment and systems, fuel and water storage and piping,

	
14

	 	
heliport, marine docking installations, communication facilities, navigation aids, and other similar facilities necessary in the conduct of

	
15

	 	
offshore operations, all of which are located offshore.

	
16

	 	 
	
17

	 	
"Off-site" means any location that is not considered On-site as defined in this Accounting Procedure.

	
18

	 	 
	
19

	 	
"On-site" means on the Joint Property when in direct conduct of Joint Operations. The term "On-site" shall also include that portion of

	
20

	 	
Offshore Facilities, Shore Base Facilities, fabrication yards, and staging areas from which Joint Operations are conducted, or other

	
21

	 	
facilities that directly control equipment on the Joint Property, regardless of whether such facilities are owned by the Joint Account.

	
22

	 	 
	
23

	 	
"Operator" means the Party designated pursuant to the Agreement to conduct the Joint Operations.

	
24

	 	 
	
25

	 	
"Parties" means legal entities signatory to the Agreement or their successors and assigns. Parties shall be referred to individually as

	
26

	 	
"Party."

	
27

	 	 
	
28

	 	
"Participating Interest" means the percentage of the costs and risks of conducting an operation under the Agreement that a Party agrees,

	
29

	 	
or is otherwise obligated, to pay and bear.

	
30

	 	 
	
31

	 	
"Participating Party" means a Party that approves a proposed operation or otherwise agrees, or becomes liable, to pay and bear a share of

	
32

	 	
the costs and risks of conducting an operation under the Agreement.

	
33

	 	 
	
34

	 	
"Personal Expenses" means reimbursed costs for travel and temporary living expenses.

	
35

	 	 
	
36

	 	
"Railway Receiving Point" means the railhead nearest the Joint Property for which freight rates are published, even though an actual

	
37

	 	
railhead may not exist.

	
38

	 	 
	
39

	 	
"Shore Base Facilities" means onshore support facilities that during Joint Operations provide such services to the Joint Property as a

	
40

	 	
receiving and transshipment point for Materials; debarkation point for drilling and production personnel and services; communication,

	
41

	 	
scheduling and dispatching center; and other associated functions serving the Joint Property.

	
42

	 	 
	
43

	 	
"Supply Store" means a recognized source or common stock point for a given Material item.

	
44

	 	 
	
45

	 	
"Technical Services" means services providing specific engineering, geoscience, or other professional skills, such as those performed by

	
46

	 	
engineers, geologists, geophysicists, and technicians, required to handle specific operating conditions and problems for the benefit of Joint

	
47

	 	
Operations; provided, however, Technical Services shall not include those functions specifically identified as overhead under the second

	
48

	 	
paragraph of the introduction of Section III (Overhead). Technical Services may be provided by the Operator, Operator's Affiliate, Non-

	
49

	 	
Operator, Non-Operator Affiliates, and/or third parties.

	
50

	 	 
	
51

	
2.

	
STATEMENTS AND BILLINGS

	
52

	 	 
	
53

	 	
The Operator shall bill Non-Operators on or before the last day of the month for their proportionate share of the Joint Account for the

	
54

	 	
preceding month. Such bills shall be accompanied by statements that identify the AFE (authority for expenditure), lease or facility, and all

	
55

	 	
charges and credits summarized by appropriate categories of investment and expense. Controllable Material shall be separately identified

	
56

	 	
and fully described in detail, or at the Operator's option, Controllable Material may be summarized by major Material classifications.

	
57

	 	
Intangible drilling costs, audit adjustments, and unusual charges and credits shall be separately and clearly identified.

	
58

	 	 
	
59

	 	
The Operator may make available to Non-Operators any statements and bills required under Section I.2 and/or Section I.3.A (Advances

	
60

	 	
and Payments by the Parties) via email, electronic data interchange, internet websites or other equivalent electronic media in lieu of paper

	
61

	 	
copies. The Operator shall provide the Non-Operators instructions and any necessary information to access and receive the statements and

	
62

	 	
bills within the timeframes specified herein. A statement or billing shall be deemed as delivered twenty-four (24) hours (exclusive of

	
63

	 	
weekends and holidays) after the Operator notifies the Non-Operator that the statement or billing is available on the website and/or sent via

	
64

	 	
email or electronic data interchange transmission. Each Non-Operator individually shall elect to receive statements and billings

	
65

	 	
electronically, if available from the Operator, or request paper copies. Such election may be changed upon thirty (30) days prior written

	
66

	 	
notice to the Operator.

 

2

 

		
COPAS 2005 Accounting Procedure

Recommended by COPAS

	1	3.	ADVANCES AND PAYMENTS BY THE PARTIES
	2	 	 
	3	 	A. Unless otherwise provided for in the Agreement, the Operator may require the Non-Operators to advance their share of the estimated 
	4	 	cash outlay for the succeeding month's operations within fifteen (15) days after receipt of the advance request or by the first day of
	5	 	
the month for which the advance is required, whichever is later. The Operator shall adjust each monthly billing to reflect advances 

	6	 	
received from the Non-Operators for such month. If a refund is due, the Operator shall apply the amount to be refunded to the 

	7	 	subsequent month's billing or advance, unless the Non-Operator sends the Operator a written request for a cash refund. The Operator 
	8	 	
shall remit the refund to the Non-Operator within fifteen (15) days of receipt of such written request.

	9	 	 
	
10

	 	
B. Except as provided below, each Party shall pay its proportionate share of all bills in full within fifteen (15) days of receipt date. If

	
11

	 	
payment is not made within such time, the unpaid balance shall bear interest compounded monthly at the prime rate published by the

	
12

	 	
Wall Street Journal on the first day of each month the payment is delinquent plus three percent (3%), per annum, or the maximum

	
13

	 	

contract rate permitted by the applicable usury Laws governing the Joint Property, whichever is the lesser, plus attorney's fees, court

	
14

	 	

costs, and other costs in connection with the collection of unpaid amounts. If the Wall Street Journal ceases to be published or

	
15

	 	

discontinues publishing a prime rate, the unpaid balance shall bear interest compounded monthly at the prime rate published by the

	
16

	 	Federal Reserve plus three percent (3%), per annum. Interest shall begin accruing on the first day of the month in which the payment
	
17

	 	
was due. Payment shall not be reduced or delayed as a result of inquiries or anticipated credits unless the Operator has agreed.

	
18

	 	Notwithstanding the foregoing, the Non-Operator may reduce payment, provided it furnishes documentation and explanation to the
	
19

	 	
Operator at the time payment is made, to the extent such reduction is caused by:

	
20

	 	
  

	
21

	 	
(1) being billed at an incorrect working interest or Participating Interest that is higher than such Non-Operator's actual working

	
22

	 	interest or Participating Interest, as applicable; or
	
23

	 	

(2) being billed for a project or AFE requiring approval of the Parties under the Agreement that the Non-Operator has not approved

	
24

	 	

or is not otherwise obligated to pay under the Agreement; or

	
25

	 	

(3) being billed for a property in which the Non-Operator no longer owns a working interest, provided the Non-Operator has

	
26

	 	
furnished the Operator a copy of the recorded assignment or letter in-lieu. Notwithstanding the foregoing, the Non-Operator

	
27

	 	shall remain responsible for paying bills attributable to the interest it sold or transferred for any bills rendered during the thirty
	
28

	 	
(30) day period following the Operator's receipt of such written notice; or

	
29

	 	
(4) charges outside the adjustment period, as provided in Section I.4 (Adjustments).

	
30

	 	 
	
31

	4.	

ADJUSTMENTS

	
32

	 	
  

	
33

	 	A. Payment of any such bills shall not prejudice the right of any Party to protest or question the correctness thereof; however, all bills
	
34

	 	
and statements, including payout statements, rendered during any calendar year shall conclusively be presumed to be true and correct,

	
35

	 	
with respect only to expenditures, after twenty-four (24) months following the end of any such calendar year, unless within said

	
36

	 	
period a Party takes specific detailed written exception thereto making a claim for adjustment. The Operator shall provide a response

	
37

	 	

to all written exceptions, whether or not contained in an audit report, within the time periods prescribed in Section I.5 (Expenditure

	
38

	 	
Audits).

	
39

	 	
  

	
40

	 	
B. All adjustments initiated by the Operator, except those described in items (1) through (4) of this Section I.4.B, are limited to the

	
41

	 	
twenty-four (24) month period following the end of the calendar year in which the original charge appeared or should have appeared

	
42

	 	
on the Operator's Joint Account statement or payout statement. Adjustments that may be made beyond the twenty-four (24) month

	
43

	 	
period are limited to adjustments resulting from the following:

	
44

	 	 
	
45

	 	
(1) a physical inventory of Controllable Material as provided for in Section V (Inventories of Controllable Material), or

	
46

	 	
(2) an offsetting entry (whether in whole or in part) that is the direct result of a specific joint interest audit exception granted by the

	
47

	 	
Operator relating to another property, or

	
48

	 	
(3) a government/regulatory audit, or

	
49

	 	
(4) a working interest ownership or Participating Interest adjustment.

	
50

	 	 
	
51

	
5.

	
EXPENDITURE AUDITS

	
52

	 	 
	
53

	 	

A. A Non-Operator, upon written notice to the Operator and all other Non-Operators, shall have the right to audit the Operator's

	
54

	 	
accounts and records relating to the Joint Account within the twenty-four (24) month period following the end of such calendar year in

	
55

	 	
which such bill was rendered; however, conducting an audit shall not extend the time for the taking of written exception to and the

	
56

	 	
adjustment of accounts as provided for in Section I.4 (Adjustments). Any Party that is subject to payout accounting under the

	
57

	 	
Agreement shall have the right to audit the accounts and records of the Party responsible for preparing the payout statements, or of

	
58

	 	
the Party furnishing information to the Party responsible for preparing payout statements. Audits of payout accounts may include the

	
59

	 	
volumes of hydrocarbons produced and saved and proceeds received for such hydrocarbons as they pertain to payout accounting

	
60

	 	
required under the Agreement. Unless otherwise provided in the Agreement, audits of a payout account shall be conducted within the

	
61

	 	
twenty-four (24) month period following the end of the calendar year in which the payout statement was rendered.

	
62

	 	
  

	
63

	 	

Where there are two or more Non-Operators, the Non-Operators shall make every reasonable effort to conduct a joint audit in a

	
64

	 	

manner that will result in a minimum of inconvenience to the Operator. The Operator shall bear no portion of the Non-Operators'

	
65

	 	
audit cost incurred under this paragraph unless agreed to by the Operator. The audits shall not be conducted more than once each year

	
66

	 	
without prior approval of the Operator, except upon the resignation or removal of the Operator, and shall be made at the expense of

 

3

 

		
COPAS 2005 Accounting Procedure

Recommended by COPAS

	1	 	
those Non-Operators approving such audit.

	2	 	 
	3	 	
The Non-Operator leading the audit (hereinafter "lead audit company") shall issue the audit report within ninety (90) days after 

	4	 	
completion of the audit testing and analysis; however, the ninety (90) day time period shall not extend the twenty-four (24) month 

	5	 	
requirement for taking specific detailed written exception as required in Section I.4.A (Adjustments) above. All claims shall be 

	6	 	
supported with sufficient documentation.

	7	 	 
	8	 	
A timely filed written exception or audit report containing written exceptions (hereinafter "written exceptions") shall, with respect to

	9	 	
the claims made therein, preclude the Operator from asserting a statute of limitations defense against such claims, and the Operator

	
10

	 	
hereby waives its right to assert any statute of limitations defense against such claims for so long as any Non-Operator continues to

	
11

	 	
comply with the deadlines for resolving exceptions provided in this Accounting Procedure. If the Non-Operators fail to comply with

	
12

	 	
the additional deadlines in Section I.5.B or I.5.C, the Operator's waiver of its rights to assert a statute of limitations defense against

	
13

	 	

the claims brought by the Non-Operators shall lapse, and such claims shall then be subject to the applicable statute of limitations,

	
14

	 	

provided that such waiver shall not lapse in the event that the Operator has failed to comply with the deadlines in Section I.5.B or

	
15

	 	

I.5.C.

	
16

	 	 
	
17

	 	

B.   The Operator shall provide a written response to all exceptions in an audit report within one hundred eighty (180) days after Operator

	
18

	 	
receives such report. Denied exceptions should be accompanied by a substantive response. If the Operator fails to provide substantive

	
19

	 	
response to an exception within this one hundred eighty (180) day period, the Operator will owe interest on that exception or portion

	
20

	 	
thereof, if ultimately granted, from the date it received the audit report. Interest shall be calculated using the rate set forth in Section

	
21

	 	
I.3.B (Advances and Payments by the Parties).

	
22

	 	 
	
23

	 	

C.   The lead audit company shall reply to the Operator's response to an audit report within ninety (90) days of receipt, and the Operator

	
24

	 	

shall reply to the lead audit company's follow-up response within ninety (90) days of receipt; provided, however, each Non-Operator

	
25

	 	

shall have the right to represent itself if it disagrees with the lead audit company's position or believes the lead audit company is not

	
26

	 	

adequately fulfilling its duties. Unless otherwise provided for in Section I.5.E, if the Operator fails to provide substantive response

	
27

	 	
to an exception within this ninety (90) day period, the Operator will owe interest on that exception or portion thereof, if ultimately

	
28

	 	

granted, from the date it received the audit report. Interest shall be calculated using the rate set forth in Section I.3.B (Advances and

	
29

	 	
Payments by the Parties).

	
30

	 	 
	
31

	 	

D.   If any Party fails to meet the deadlines in Sections I.5.B or I.5.C or if any audit issues are outstanding fifteen (15) months after

	
32

	 	
Operator receives the audit report, the Operator or any Non-Operator participating in the audit has the right to call a resolution

	
33

	 	
meeting, as set forth in this Section I.5.D or it may invoke the dispute resolution procedures included in the Agreement, if applicable.

	34	 	
The meeting will require one month's written notice to the Operator and all Non-Operators participating in the audit. The meeting

	35	 	
shall be held at the Operator's office or mutually agreed location, and shall be attended by representatives of the Parties with

	36	 	
authority to resolve such outstanding issues. Any Party who fails to attend the resolution meeting shall be bound by any resolution

	
37

	 	

reached at the meeting. The lead audit company will make good faith efforts to coordinate the response and positions of the

	38	 	
Non-Operator participants throughout the resolution process; however, each Non-Operator shall have the right to represent itself.

	
39

	 	
Attendees will make good faith efforts to resolve outstanding issues, and each Party will be required to present substantive information

	
40

	 	

supporting its position. A resolution meeting may be held as often as agreed to by the Parties. Issues unresolved at one meeting may

	
41

	 	
be discussed at subsequent meetings until each such issue is resolved.

	
42

	 	
  

	
43

	 	
If the Agreement contains no dispute resolution procedures and the audit issues cannot be resolved by negotiation, the dispute shall

	
44

	 	
shall choose a mutually acceptable mediator and share the costs of mediation services equally. The Parties shall each have present

	
45

	 	
be submitted to mediation. In such event, promptly following one Party's written request for mediation, the Parties to the dispute

	
46

	 	
at the mediation at least one individual who has the authority to settle the dispute. The Parties shall make reasonable efforts to

	
47

	 	
ensure that the mediation commences within sixty (60) days of the date of the mediation request. Notwithstanding the above, any

	
48

	 	
Party may file a lawsuit or complaint (1) if the Parties are unable after reasonable efforts, to commence mediation within sixty (60)

	
49

	 	
days of the date of the mediation request, (2) for statute of limitations reasons, or (3) to seek a preliminary injunction or other

	
50

	 	
provisional judicial relief, if in its sole judgment an injunction or other provisional relief is necessary to avoid irreparable damage or

	
51

	
  

	
to preserve the status quo. Despite such action, the Parties shall continue to try to resolve the dispute by mediation.

	
52

	 	 
	
53

	 	

E. o (Optional Provision- Forfeiture Penalties)

	
54

	 	
If the Non-Operators fail to meet the deadline in Section I.5.C, any unresolved exceptions that were not addressed by the Non­

	
55

	 	
Operators within one (1) year following receipt of the last substantive response of the Operator shall be deemed to have been

	
56

	 	
withdrawn by the Non-Operators. If the Operator fails to meet the deadlines in Section I.5.B or I.5.C, any unresolved exceptions that

	
57

	 	
were not addressed by the Operator within one ( 1) year following receipt of the audit report or receipt of the last substantive response

	
58

	 	
of the Non-Operators, whichever is later, shall be deemed to have been granted by the Operator and adjustments shall be made,

	
59

	 	
without interest, to the Joint Account.

	
60

	 	
  

	
61

	6.	
APPROVAL BY PARTIES

	
62

	 	
  

	
63

	 	

A.   GENERAL MATTERS

	
64

	 	

  

	
65

	 	
Where an approval or other agreement of the Parties or Non-Operators is expressly required under other Sections of this Accounting

	
66

	 	
Procedure and if the Agreement to which this Accounting Procedure is attached contains no contrary provisions in regard thereto, the

 

4

 

		
COPAS 2005 Accounting Procedure

Recommended by COPAS

	1	 	Operator shall notify all Non-Operators of the Operator's proposal and the agreement or approval of a majority in interest of the 
	2	 	Non-Operators shall be controlling on all Non-Operators.
	3	 	 
	4	 	This Section I.6.A applies to specific situations of limited duration where a Party proposes to change the accounting for charges from
	5	 	
that prescribed in this Accounting Procedure. This provision does not apply to amendments to this Accounting Procedure, which are 

	6	 	
covered by Section I.6.B.

	7	 	 
	8	B.	
AMENDMENTS

	9	 	 
	
10

	 	
If the Agreement to which this Accounting Procedure is attached contains no contrary provisions in regard thereto, this Accounting

	
11

	 	Procedure can be amended by an affirmative vote of ___________(__) or more Parties, one of which is the Operator,
	
12

	 	
having a combined working interest of at least___________________ percent (___%), which approval shall be binding on all Parties,

	
13

	 	
provided, however, approval of at least one (1) Non-Operator shall be required.

	
14

	 	
  

	
15

	C.	
AFFILIATES

	
16

	 	 
	
17

	 	
For the purposes of administering the voting procedures in Section I.6.A and I.6.B, if Parties to this Agreement are Affiliates of each

	
18

	 	other, then such Affiliates shall be combined and treated as a single Party having the combined working interest or Participating
	
19

	 	
Interest of such Affiliates.

	
20

	 	
  

	
21

	 	

For the purposes of administering the voting procedures in Section I.6.A, if a Non-Operator is an Affiliate of the Operator, votes

	
22

	 	under Section I.6.A shall require the majority in interest of the Non-Operator(s) after excluding the interest of the Operator's
	
23

	 	

Affiliate.

	
24

	 	 
	
25

	 	
II. DIRECT CHARGES

	
26

	 	
  

	
27

	 	
The Operator shall charge the Joint Account with the following items:

	
28

	 	
  

	
29

	1.	
RENTALS AND ROYALTIES

	
30

	 	 
	
31

	 	
Lease rentals and royalties paid by the Operator, on behalf of all Parties, for the Joint Operations.

	
32

	 	
  

	
33

	2.	LABOR
	
34

	 	
  

	
35

	 	A.   Salaries and wages, including incentive compensation programs as set forth in COPAS MFI-37 ("Chargeability of Incentive
	
36

	 	
Compensation Programs"), for

	
37

	 	
  

	
38

	 	(1)   Operator's field employees directly employed On-site in the conduct of Joint Operations,
	
39

	 	
  

	
40

	 	
(2)   Operator's employees directly employed on Shore Base Facilities, Offshore Facilities, or other facilities serving the Joint

	
41

	 	
Property if such costs are not charged under Section II.6 (Equipment and Facilities Furnished by Operator) or are not a

	
42

	 	function covered under Section III (Overhead),
	
43

	 	
  

	
44

	 	(3)   Operator's employees providing First Level Supervision,
	
45

	 	
  

	
46

	 	

(4)   Operator's employees providing On-site Technical Services for the Joint Property if such charges are excluded from the

	
47

	 	
overhead rates in Section III (Overhead),

	
48

	 	
  

	
49

	 	
(5)   Operator's employees providing Off-site Technical Services for the Joint Property if such charges are excluded from the

	
50

	 	overhead rates in Section III (Overhead).
	
51

	
  

	
  

	
52

	 	Charges for the Operator's employees identified in Section II.2.A may be made based on the employee's actual salaries and wages,
	
53

	 	
or in lieu thereof, a day rate representing the Operator's average salaries and wages of the employee's specific job category.

	
54

	 	
  

	
55

	 	

Charges for personnel chargeable under this Section II.2.A who are foreign nationals shall not exceed comparable compensation paid

	
56

	 	

to an equivalent U.S. employee pursuant to this Section II.2, unless otherwise approved by the Parties pursuant to Section

	
57

	 	
I.6.A (General Matters).

	
58

	 	 
	
59

	 	
B.  Operator's cost of holiday, vacation, sickness, and disability benefits, and other customary allowances paid to employees whose

	
60

	 	

salaries and wages are chargeable to the Joint Account under Section II.2.A, excluding severance payments or other termination

	
61

	 	
allowances. Such costs under this Section II.2.B may be charged on a "when and as-paid basis" or by "percentage assessment" on the

	
62

	 	
amount of salaries and wages chargeable to the Joint Account under Section II.2.A. If percentage assessment is used, the rate shall

	
63

	 	
be based on the Operator's cost experience.

	
64

	 	
  

	
65

	 	
C.   Expenditures or contributions made pursuant to assessments imposed by governmental authority that are applicable to costs

	
66

	 	
chargeable to the Joint Account under Sections II.2.A and B

 

5

 

		
COPAS 2005 Accounting Procedure

Recommended by COPAS

	1	 	D. Personal Expenses of personnel whose salaries and wages are chargeable to the Joint Account under Section II.2.A when the
	2	 	
expenses are incurred in connection with directly chargeable activities.

	3	 	 
	4	 	
E. Reasonable relocation costs incurred in transferring to the Joint Property personnel whose salaries and wages are chargeable to the

	5	 	Joint Account under Section 11.2.A. Notwithstanding the foregoing, relocation costs that result from reorganization or merger of a
	6	 	Party, or that are for the primary benefit of the Operator, shall not be chargeable to the Joint Account. Extraordinary relocation
	7	 	
costs, such as those incurred as a result of transfers from remote locations, such as Alaska or overseas, shall not be charged to the

	8	 	
Joint Account unless approved by the Parties pursuant to Section I.6.A (General Matters).

	9	 	 
	
10

	 	
F.   Training costs as specified in COPAS MFI-35 ("Charging of Training Costs to the Joint Account") for personnel whose salaries and

	
11

	 	
wages are chargeable under Section II.2.A. This training charge shall include the wages, salaries, training course cost, and Personal

	
12

	 	
Expenses incurred during the training session. The training cost shall be charged or allocated to the property or properties directly

	
13

	 	
benefiting from the training. The cost of the training course shall not exceed prevailing commercial rates, where such rates are

	
14

	 	
available.

	
15

	 	 
	
16

	 	
G.   Operator's current cost of established plans for employee benefits, as described in COPAS MFI-27 ("Employee Benefits Chargeable

	
17

	 	
to Joint Operations and Subject to Percentage Limitation"), applicable to the Operator's labor costs chargeable to the Joint Account

	
18

	 	
under Sections II.2.A and B based on the Operator's actual cost not to exceed the employee benefits limitation percentage most

	
19

	 	
recently recommended by COPAS.

	
20

	 	 
	
21

	 	
H.   Award payments to employees, in accordance with COPAS MFI-49 ("Awards to Employees and Contractors") for personnel whose

	
22

	 	
salaries and wages are chargeable under Section II.2.A.

	
23

	 	 
	
24

	
3.

	
MATERIAL

	
25

	 	 
	
26

	 	
Material purchased or furnished by the Operator for use on the Joint Property in the conduct of Joint Operations as provided under Section

	
27

	 	
IV (Material Purchases, Transfers, and Dispositions). Only such Material shall be purchased for or transferred to the Joint Property as

	
28

	 	
may be required for immediate use or is reasonably practical and consistent with efficient and economical operations. The accumulation

	
29

	 	
of surplus stocks shall be avoided.

	
30

	 	 
	
31

	
4.

	
TRANSPORTATION

	
32

	 	 
	
33

	 	
A. Transportation of the Operator's, Operator's Affiliate's, or contractor's personnel necessary for Joint Operations.

	
34

	 	 
	
35

	 	
B. Transportation of Material between the Joint Property and another property, or from the Operator's warehouse or other storage point

	
36

	 	
to the Joint Property, shall be charged to the receiving property using one of the methods listed below. Transportation of Material

	
37

	 	
from the Joint Property to the Operator's warehouse or other storage point shall be paid for by the Joint Property using one of the

	
38

	 	
methods listed below:

	
39

	 	 
	
40

	 	
(1) If the actual trucking charge is less than or equal to the Excluded Amount the Operator may charge actual trucking cost or a

	
41

	 	
theoretical charge from the Railway Receiving Point to the Joint Property. The basis for the theoretical charge is the per

	
42

	 	
hundred weight charge plus fuel surcharges from the Railway Receiving Point to the Joint Property. The Operator shall

	
43

	 	
consistently apply the selected alternative.

	
44

	 	 
	
45

	 	
(2) If the actual trucking charge is greater than the Excluded Amount the Operator shall charge Equalized Freight. Accessorial

	
46

	 	
charges such as loading and unloading costs, split pick-up costs, detention, call out charges, and permit fees shall be charged

	
47

	 	
directly to the Joint Property and shall not be included when calculating the Equalized Freight.

	
48

	 	 
	
49

	
5.

	
SERVICES

	
50

	 	 
	
51

	 	
The cost of contract services, equipment, and utilities used in the conduct of Joint Operations, except for contract services, equipment, and

	
52

	 	
utilities covered by Section III (Overhead), or Section II.7 (Affiliates), or excluded under Section II.9 (Legal Expense). Awards paid to

	
53

	 	
contractors shall be chargeable pursuant to COPAS MFl-49 ("Awards to Employees and Contractors").

	
54

	 	 
	
55

	 	
The costs of third party Technical Services are chargeable to the extent excluded from the overhead rates under Section III (Overhead).

	
56

	 	 
	
57

	
6.

	
EQUIPMENT AND FACILITIES FURNISHED BY OPERATOR

	
58

	 	 
	
59

	 	
In the absence of a separately negotiated agreement, equipment and facilities furnished by the Operator will be charged as follows:

	
60

	 	 
	
61

	 	
A. The Operator shall charge the Joint Account for use of Operator-owned equipment and facilities, including but not limited to

	
62

	 	
production facilities, Shore Base Facilities, Offshore Facilities, and Field Offices, at rates commensurate with the costs of ownership

	
63

	 	
and operation. The cost of Field Offices shall be chargeable to the extent the Field Offices provide direct service to personnel who

	
64

	 	
are chargeable pursuant to Section II.2.A (Labor). Such rates may include labor, maintenance, repairs, other operating expense,

	
65

	 	
insurance, taxes, depreciation using straight line depreciation method, and interest on gross investment less accumulated depreciation

	
66

	 	
not to exceed _______ percent ( __ %) per annum; provided, however, depreciation shall not be charged when the

 

6

 

		
COPAS 2005 Accounting Procedure

Recommended by COPAS

	1	 	equipment and facilities investment have been fully depreciated. The rate may include an element of the estimated cost for 
	2	 	abandonment, reclamation, and dismantlement. Such rates shall not exceed the average commercial rates currently prevailing in the 
	3	 	
immediate area of the Joint Property.

	4	 	 
	5	 	
B. In lieu of charges in Section II.6.A above, the Operator may elect to use average commercial rates prevailing in the immediate area 

	6	 	
of the Joint Property, less twenty percent (20%). If equipment and facilities are charged under this Section II.6.B, the Operator shall 

	7	 	adequately document and support commercial rates and shall periodically review and update the rate and the supporting 
	8	 	
documentation. For automotive equipment, the Operator may elect to use rates published by the Petroleum Motor Transport 

	9	 	
Association (PMTA) or such other organization recognized by COPAS as the official source of rates.

	
10

	 	
  

	
11

	7.	AFFILIATES
	
12

	 	
  

	
13

	 	
A. Charges for an Affiliate's goods and/or services used in operations requiring an AFE or other authorization from the Non-Operators

	
14

	 	

may be made without the approval of the Parties provided (i) the Affiliate is identified and the Affiliate goods and services are

	
15

	 	
specifically detailed in the approved AFE or other authorization, and (ii) the total costs for such Affiliate's goods and services billed

	
16

	 	to such individual project do not exceed $ 500.000.00 If the total costs for an Affiliate's goods and services charged to such
	
17

	 	

individual project are not specifically detailed in the approved AFE or authorization or exceed such amount, charges for such

	
18

	 	Affiliate shall require approval of the Parties, pursuant to Section I.6.A (General Matters).
	
19

	 	
  

	
20

	 	
B. For an Affiliate's goods and/or services used in operations not requiring an AFE or other authorization from the Non-Operators,

	
21

	 	

charges for such Affiliate's goods and services shall require approval of the Parties, pursuant to Section I.6.A (General Matters), if the

	
22

	 	
charges exceed $ 500.000.00 in a given calendar year.

	
23

	 	
  

	
24

	 	C. The cost of the Affiliate's goods or services shall not exceed average commercial rates prevailing in the area of the Joint Property,
	
25

	 	
unless the Operator obtains the Non-Operators' approval of such rates. The Operator shall adequately document and support

	
26

	 	
commercial rates and shall periodically review and update the rate and the supporting documentation; provided, however,

	
27

	 	documentation of commercial rates shall not be required if the Operator obtains Non-Operator approval of its Affiliate's rates or
	
28

	 	
charges prior to billing Non-Operators for such Affiliate's goods and services. Notwithstanding the foregoing, direct charges for

	
29

	 	

Affiliate-owned communication facilities or systems shall be made pursuant to Section II.12 (Communications).

	
30

	 	 
	
31

	 	

If the Parties fail to designate an amount in Sections II.7.A or II.7.B, in each instance the amount deemed adopted by the Parties as a

	
32

	 	
result of such omission shall be the amount established as the Operator's expenditure limitation in the Agreement. If the Agreement

	
33

	 	does not contain an Operator's expenditure limitation, the amount deemed adopted by the Parties as a result of such omission shall be
	
34

	 	
zero dollars ($ 0.00).

	
35

	 	 
	
36

	8.	
DAMAGES AND LOSSES TO JOINT PROPERTY

	
37

	 	
  

	
38

	 	
All costs or expenses necessary for the repair or replacement of Joint Property resulting from damages or losses incurred, except to the

	
39

	 	

extent such damages or losses result from a Party's or Parties' gross negligence or willful misconduct, in which case such Party or Parties

	
40

	 	
shall be solely liable.

	
41

	 	
  

	
42

	 	
The Operator shall furnish the Non-Operator written notice of damages or losses incurred as soon as practicable after a report has been

	
43

	 	

received by the Operator.

	
44

	 	
 

	
45

	9.	
LEGAL EXPENSE

	
46

	 	
  

	
47

	 	
Recording fees and costs of handling, settling, or otherwise discharging litigation, claims, liens and title and regulatory work / incurred in or resulting from

	
48

	 	

operations under the Agreement, or necessary to protect or recover the Joint Property, to the extent permitted under the Agreement. Costs

	
49

	 	

of the Operator's or Affiliate's legal staff or outside attorneys, including fees and expenses, are not chargeable unless approved by the

	
50

	 	Parties pursuant to Section I.6.A (General Matters) or otherwise provided for in the Agreement.
	
51

	
  

	
  

	
52

	 	Notwithstanding the foregoing paragraph, costs for procuring abstracts, fees paid to outside attorneys for title examinations (including
	
53

	 	

preliminary, supplemental, shut-in royalty opinions, division order title opinions), and curative work shall be chargeable to the extent

	
54

	 	
permitted as a direct charge in the Agreement.

	
55

	 	
  

	
56

	 	
  

	
57

	10.	

TAXES AND PERMITS

	
58

	 	
  

	
59

	 	

All taxes and permitting fees of every kind and nature, assessed or levied upon or in connection with the Joint Property, or the production

	
60

	 	

therefrom, and which have been paid by the Operator for the benefit of the Parties, including penalties and interest, except to the extent the

	
61

	 	

penalties and interest result from the Operator's gross negligence or willful misconduct.

	
62

	 	

  

	
63

	 	

If ad valorem taxes paid by the Operator are based in whole or in part upon separate valuations of each Party's working interest, then

	
64

	 	

notwithstanding any contrary provisions, the charges to the Parties will be made in accordance with the tax value generated by each Party's

	
65

	 	
working interest.

	
66

	 	
  

  

  

7

  

		
COPAS 2005 Accounting Procedure

Recommended by COPAS

  

  

	1	 	
Costs of tax consultants or advisors, the Operator's employees, or Operator's Affiliate employees in matters regarding ad valorem or other

	2	 	
tax matters, are not permitted as direct charges unless approved by the Parties pursuant to Section I.6.A (General Matters).

	3	 	 
	4	 	Charges to the Joint Account resulting from sales/use tax audits, including extrapolated amounts and penalties and interest, are permitted, 
	5	 	
provided the Non-Operator shall be allowed to review the invoices and other underlying source documents which served as the basis for

	6	 	
tax charges and to determine that the correct amount of taxes were charged to the Joint Account. If the Non-Operator is not permitted to 

	7	 	review such documentation, the sales/use tax amount shall not be directly charged unless the Operator can conclusively document the 
	8	 	
amount owed by the Joint Account.

	9	 	 
	
10

	11.	
INSURANCE

	
11

	 	 
	
12

	 	

Net premiums paid for insurance required to be carried for Joint Operations for the protection of the Parties. If Joint Operations are

	
13

	 	
conducted at locations where the Operator acts as self-insurer in regard to its worker's compensation and employer's liability insurance

	
14

	 	

obligation, the Operator shall charge the Joint Account manual rates for the risk assumed in its self-insurance program as regulated by the

	
15

	 	
jurisdiction governing the Joint Property. In the case of offshore operations in federal waters, the manual rates of the adjacent state shall be

	
16

	 	used for personnel performing work On-site, and such rates shall be adjusted for offshore operations by the U.S. Longshoreman and
	
17

	 	
Harbor Workers (USL&H) or Jones Act surcharge, as appropriate.

	
18

	 	 
	
19

	12.	
COMMUNICATIONS

	
20

	 	
  

	
21

	 	

Costs of acquiring, leasing, installing. operating. repairing. and maintaining communication facilities or systems, including satellite, radio

	
22

	 	
and microwave facilities, between the Joint Property and the Operator's office(s) directly responsible for field operations in accordance

	
23

	 	

with the provisions of COPAS MFI-44 ("Field Computer and Communication Systems"). If the communications facilities or systems

	
24

	 	
serving the Joint Property are Operator-owned, charges to the Joint Account shall be made as provided in Section II.6 (Equipment and

	
25

	 	

Facilities Furnished by Operator). If the communication facilities or systems serving the Joint Property are owned by the Operator's

	
26

	 	

Affiliate, charges to the Joint Account shall not exceed average commercial rates prevailing in the area of the Joint Property. The Operator

	
27

	 	shall adequately document and support commercial rates and shall periodically review and update the rate and the supporting
	
28

	 	
documentation.

	
29

	 	
  

	
30

	13.	
ECOLOGICAL, ENVIRONMENTAL, AND SAFETY

	
31

	 	
  

	
32

	 	

Costs incurred for Technical Services and drafting to comply with ecological, environmental and safety Laws or standards recommended by

	
33

	 	
Occupational Safety and Health Administration (OSHA) or other regulatory authorities. All other labor and functions incurred for

	
34

	 	
ecological, environmental and safety matters, including management, administration, and permitting, shall be covered by Sections II.2

	
35

	 	(Labor), II.5 (Services), or Section III (Overhead), as applicable.
	
36

	 	
  

	
37

	 	
Costs to provide or have available pollution containment and removal equipment plus actual costs of control and cleanup and resulting

	
38

	 	responsibilities of oil and other spills as well as discharges from permitted outfalls as required by applicable Laws, or other pollution
	
39

	 	
containment and removal equipment deemed appropriate by the Operator for prudent operations, are directly chargeable.

	
40

	 	
  

	
41

	14.	
ABANDONMENT AND RECLAMATION 

	
42

	 	 
	
43

	 	
Costs incurred for abandonment and reclamation of the Joint Property, including costs required by lease agreements or by Laws.

	
44

	 	 
	
45

	15.	
OTHER EXPENDITURES

	
46

	 	
  

	
47

	 	
Any other expenditure not covered or dealt with in the foregoing provisions of this Section II (Direct Charges), or in Section III

	
48

	 	
(Overhead) and which is of direct benefit to the Joint Property and is incurred by the Operator in the necessary and proper conduct of the

	
49

	 	
Joint Operations. Charges made under this Section II.1.5 shall require approval of the Parties, pursuant to Section I.6.A (General Matters).

	
50

	 	 
	
51

	
  

	 
	
52

	 	
III. OVERHEAD

	
53

	 	
  

	
54

	 	
As compensation for costs not specifically identified as chargeable to the Joint Account pursuant to Section II (Direct Charges), the Operator

	
55

	 	
shall charge the Joint Account in accordance with this Section III.

	
56

	 	
  

	
57

	 	
Functions included in the overhead rates regardless of whether performed by the Operator, Operator's Affiliates or third parties and regardless

	
58

	 	of location, shall include, but not be limited to, costs and expenses of:
	
59

	 	 
	
60

	 	
▪ warehousing, other than for warehouses that are jointly owned under this Agreement

	
61

	 	
▪ design and drafting (except when allowed as a direct charge under Sections II.13, III..I.A.(ii), and III.2, Option B)

	
62

	 	
▪ inventory costs not chargeable under Section V (Inventories of Controllable Material)

	
63

	 	
▪ procurement

	
64

	 	
▪ administration

	
65

	 	
▪ accounting and auditing

	
66

	 	
▪ gas dispatching and gas chart integration

  

8

  

		
COPAS 2005 Accounting Procedure

Recommended by COPAS

  

  

	1	 	▪ human resources
	2	 	▪ management
	3	 	
▪ supervision not directly charged under Section II.2 (Labor)

	4	 	▪ legal services not directly chargeable under Section II.9 (Legal Expense)
	5	 	
▪ taxation, other than those costs identified as directly chargeable under Section II.10 (Taxes and Permits)

	6	 	
▪ preparation and monitoring of permits and certifications; preparing regulatory reports; appearances before or meetings with 

	7	 	governmental agencies or other authorities having jurisdiction over the Joint Property, other than On-site inspections; reviewing, 
	8	 	

interpreting, or submitting contents on or lobbying with respect to Laws or proposed Laws.

	9	 	 
	
10

	 	
Overhead charges shall include the salaries or wages plus applicable payroll burdens, benefits, and Personal Expenses of personnel performing

	
11

	 	overhead functions, as well as office and other related expenses of overhead functions.
	
12

	 	
  

	
13

	1.	
OVERHEAD-DRILLING AND PRODUCING OPERATIONS

	
14

	 	
  

	
15

	 	
As compensation for costs incurred but not chargeable under Section II (Direct Charges) and not covered by other provisions of this

	
16

	 	Section III, the Operator shall charge on either:
	
17

	 	
  

	
18

	 	þ (Alternative 1) Fixed Rate Basis, Section III.1.B.
	
19

	 	
o (Alternative 2) Percentage Basis, Section III.1.C.

	
20

	 	
  

	
21

	A.	
TECHNICAL SERVICES

	
22

	 	 
	
23

	 	
(i) Except as otherwise provided in Section II.13 (Ecological Environmental and Safety) and Section III.2 (Overhead - Major

	
24

	 	Construction and Catastrophe), or by approval of the Parties pursuant to Section I.6.A (General Matters), the salaries, wages,
	
25

	 	
related payroll burdens and benefits, and Personal Expenses for On-site Technical Services, including third party Technical

	
26

	 	
Services:

	
27

	 	 
	
28

	 	
þ (Alternative 1- Direct) shall be charged direct to the Joint Account.

	
29

	 	
  

	
30

	 	
o (Alternative 2 - Overhead) shall be covered by the overhead rates.

	
31

	 	
  

	
32

	 	
(ii) Except as otherwise provided in Section II.13 (Ecological, Environmental, and Safety) and Section III.2 (Overhead - Major

	
33

	 	
Construction and Catastrophe), or by approval of the Parties pursuant to Section I.6.A (General Matters), the salaries, wages,

	
34

	 	

related payroll burdens and benefits, and Personal Expenses for Off-site Technical Services, including third party Technical

	
35

	 	Services:
	
36

	 	
  

	
37

	 	
o (Alternative 1 - All Overhead) shall be covered by the overhead rates.

	
38

	 	 
	
39

	 	
o (Alternative 2 - All Direct) shall be charged direct to the Joint Account.

	
40

	 	
  

	
41

	 	
þ (Alternative 3 - Drilling Direct) shall be charged direct to the Joint Account, only to the extent such Technical Services

	
42

	 	are directly attributable to drilling, redrilling, deepening, or sidetracking operations, through completion, temporary
	
43

	 	
abandonment, or abandonment if a dry hole. Off-site Technical Services for all other operations, including workover,

	
44

	 	recompletion, abandonment of producing wells, and the construction or expansion of fixed assets not covered by Section
	
45

	 	
III.2 (Overhead · Major Construction and Catastrophe) shall be covered by the overhead rates.

	
46

	 	
  

	
47

	 	

Notwithstanding anything to the contrary in this Section III, Technical Services provided by Operator's Affiliates are subject to limitations

	
48

	 	

set forth in Section II.7 (Affiliates). Charges for Technical personnel performing non-technical work shall not be governed by this Section

	
49

	 	

III.1 .A. but instead governed by other provisions of this Accounting Procedure relating to the type of work being performed.

	
50

	 	 
	
51

	
B.

	
OVERHEAD-FIXED RATE BASIS

	
52

	 	 
	
53

	 	
(1) The Operator shall charge the Joint Account at the following rates per well per month: 

	
54

	 	
  

	
55

	 	
Drilling Well Rate per month $8,200.00  (prorated for less than a full month) / for wells drilled to a TVD of 4,200 feet or more. 5,000.00 for well drilled to a TVD of less than 4,200 feet

	
56

	 	
  

	
57

	 	
Producing Well Rate per month $820.00    (prorated for less than a full month) / for wells drilled to a TVD of 4,200 feet or more. 500.00 for wells drilled to a TVD of less than 4,200 feet.

	
58

	 	 
	
59

	 	
(2) Application of Overhead-Drilling Well Rate shall be as follows:

	
60

	 	
  

	
61

	 	
(a) Charges for onshore drilling wells shall begin on the date location work begins / and terminate on the date the drilling and/or completion

	
62

	 	
equipment used on the well is released, whichever occurs later. Charges for offshore and inland waters drilling wells shall

	
63

	 	
begin on the date the drilling or completion equipment arrives on location and terminate on the date the drilling or completion

	
64

	 	
equipment moves off location, or is released, whichever occurs first. No charge shall be made during suspension of drilling

	
65

	 	
and/or completion operations for fifteen (15) or more consecutive calendar days.

	
66

	 	
  

  

  

  

9

  

		
COPAS 2005 Accounting Procedure

Recommended by COPAS

  

  

	1	 	(b) Charges for any well undergoing any type of workover, recompletion, and/or abandonment for a period of five (5) or more 
	2	 	consecutive work-days shall be made at the Drilling Well Rate. Such charges shall be applied for the period from date 
	3	 	operations, with rig or other units used in operations, commence through date of rig or other unit release, except that no charges 
	4	 	
shall be made during suspension of operations for fifteen (15) or more consecutive calendar days.

	5	 	 
	6	 	

(3) Application of Overhead-Producing Well Rate shall be as follows:

	7	 	 
	8	 	

(a) An active well that is produced, injected into for recovery or disposal, or used to obtain water supply to support operations for

	9	 	any portion of the month shall be considered as a one-well charge for the entire month.
	
10

	 	
  

	
11

	 	(b) Each active completion in a multi-completed well shall be considered as a one-well charge provided each completion is
	
12

	 	
considered a separate well by the governing regulatory authority.

	
13

	 	
  

	
14

	 	
(c) A one-well charge shall be made for the month in which plugging and abandonment operations are completed on any well,

	
15

	 	
unless the Drilling Well Rate applies, as provided in Sections III.1.B.(2)(a) or (b). This one-well charge shall be made whether

	
16

	 	or not the well has produced.
	
17

	 	
  

	
18

	 	
(d) An active gas well shut in because of overproduction or failure of a purchaser, processor, or transporter to take production shall

	
19

	 	

be considered as a one-well charge provided the gas well is directly connected to a permanent sales outlet.

	
20

	 	
  

	
21

	 	

(e) Any well not meeting the criteria set forth in Sections III.1.B.(3) (a), (b), (c), or (d) shall not qualify for a producing overhead

	
22

	 	
charge.

	
23

	 	
  

	
24

	 	(4) The well rates shall be adjusted on the first day of April each year following the effective date of the Agreement; provided,
	
25

	 	
however, if this Accounting Procedure is attached to or otherwise governing the payout accounting under a farmout agreement, the

	
26

	 	
rates shall be adjusted on the first day of April each year following the effective date of such farmout agreement. The adjustment

	
27

	 	shall be computed by applying the adjustment factor most recently published by COPAS. The adjusted rates shall be the initial or
	
28

	 	
amended rates agreed to by the Parties increased or decreased by the adjustment factor described herein, for each year from the

	
29

	 	
effective date of such rates, in accordance with COPAS MFI-47 ("Adjustment of Overhead Rates").

	
30

	 	 
	
31

	C.	
OVERHEAD-PERCENTAGE BASIS

	
32

	 	
  

	
33

	 	(1) Operator shall charge the Joint Account at the following rates: 
	
34

	 	
  

	
35

	 	
(a) Development Rate ______ percent (_____ ) % of the cost of development of the Joint Property, exclusive of costs

	
36

	 	

provided under Section II.9 (Legal Expense) and all Material salvage credits.

	
37

	 	
  

	
38

	 	(b) Operating Rate _________percent (_____%) of the cost of operating the Joint Property, exclusive of costs
	
39

	 	

provided under Sections II.1 (Rentals and Royalties) and II.9 (Legal Expense); all Material salvage credits; the value

	
40

	 	

of substances purchased for enhanced recovery; all property and ad valorem taxes, and any other taxes and assessments that

	
41

	 	
are levied, assessed, and paid upon the mineral interest in and to the Joint Property. 

	
42

	 	 
	
43

	 	
(2) Application of Overhead-Percentage Basis shall be as follows:

	
44

	 	 
	
45

	 	
(a) The Development Rate shall be applied to all costs in connection with:

	
46

	 	
  

	
47

	 	
[i] drilling, redrilling, sidetracking, or deepening of a well

	
48

	 	
[ii] a well undergoing plugback or workover operations for a period of five (5) or more consecutive work-days

	
49

	 	
[iii] preliminary expenditures necessary in preparation for drilling

	
50

	 	[iv] expenditures incurred in abandoning when the well is not completed as a producer
	
51

	
  

	
[v] construction or installation of fixed assets, the expansion of fixed assets and any other project clearly discernible as a

	
52

	 	fixed asset, other than Major Construction or Catastrophe as defined in Section lli.2 (Overhead-Major Construction
	
53

	 	
and Catastrophe).

	
54

	 	
  

	
55

	 	
(b) The Operating Rate shall be applied to all other costs in connection with Joint Operations, except those subject to Section III.2

	
56

	 	
(Overhead-Major Construction and Catastrophe).

	
57

	 	
  

	
58

	2.	OVERHEAD-MAJOR CONSTRUCTION AND CATASTROPHE
	
59

	 	 
	
60

	 	
To compensate the Operator for overhead costs incurred in connection with a Major Construction project or Catastrophe, the Operator

	
61

	 	
shall either negotiate a rate prior to the beginning of the project, or shall charge the Joint Account for overhead based on the following

	
62

	 	
rates for any Major Construction project in excess of the Operator's expenditure limit under the Agreement, or for any Catastrophe

	
63

	 	
regardless of the amount. If the Agreement to which this Accounting Procedure is attached does not contain an expenditure limit, Major

	
64

	 	
Construction Overhead shall be assessed for any single Major Construction project costing in excess of $100,000 gross.

	
65

	 	
  

	
66

	 	
  

  

  

10

 

		
COPAS 2005 Accounting Procedure

Recommended by COPAS

 

  

  

  

	1	 	Major Construction shall mean the construction and installation of fixed assets, the expansion of fixed assets, and any other project clearly 
	2	 	discernible as a fixed asset required for the development and operation of the Joint Property, or in the dismantlement, abandonment, 
	3	 	
removal, and restoration of platforms, production equipment, and other operating facilities.

	4	 	 
	5	 	
Catastrophe is defined as a sudden calamitous event bringing damage, loss, or destruction to property or the environment, such as an oil 

	6	 	
spill, blowout, explosion, fire, storm, hurricane, or other disaster. The overhead rate shall be applied to those costs necessary to restore the 

	7	 	Joint Property to the equivalent condition that existed prior to the event.
	8	 	 
	9	 	
A. If the Operator absorbs the engineering, design and drafting costs related to the project:

	
10

	 	
  

	
11

	 	
(1) 5.0 % of total costs if such costs are less than $!00,000; plus

	
12

	 	
  

	
13

	 	

(2) 3.0 % of total costs in excess of $100,000 but less than $1,000,000; plus

	
14

	 	
  

	
15

	 	

(3) 2.0 % of total costs in excess of $1,000,000.

	
16

	 	 
	
17

	 	

B. If the Operator charges engineering, design and drafting costs related to the project directly to the Joint Account:

	
18

	 	 
	
19

	 	

(1) 5.0 % of total costs if such costs are less than $!00,000; plus

	
20

	 	
  

	
21

	 	

(2) 3.0 % of total costs in excess of $100,000 but less than $1,000,000; plus

	
22

	 	 
	
23

	 	

(3) 2.0 % of total costs in excess of $1,000,000.

	
24

	 	 
	
25

	 	

Total cost shall mean the gross cost of any one project. For the purpose of this paragraph, the component parts of a single Major

	
26

	 	

Construction project shall not be treated separately, and the cost of drilling and workover wells and purchasing and installing pumping

	
27

	 	
units and downhole artificial lift equipment shall be excluded. For Catastrophes, the rates shall be applied to all costs associated with each

	
28

	 	

single occurrence or event.

	
29

	 	
  

	
30

	 	
On each project, the Operator shall advise the Non-Operator(s) in advance which of the above options shall apply.

	
31

	 	
  

	
32

	 	

For the purposes of calculating Catastrophe Overhead, the cost of drilling relief wells, substitute wells, or conducting other well operations

	
33

	 	
directly resulting from the catastrophic event shall be included. Expenditures to which these rates apply shall not be reduced by salvage or

	
34

	 	

insurance recoveries. Expenditures that qualify for Major Construction or Catastrophe Overhead shall not qualify for overhead under any

	
35

	 	
other overhead provisions.

	
36

	 	
  

	
37

	 	

In the event of any conflict between the provisions of this Section III.2 and the provisions of Sections II.2 (Labor), II.5 (Services), or II.7

	
38

	 	
(Affiliates), the provisions of this Section III.2 shall govern.

	
39

	 	
  

	
40

	3.	

AMENDMENT OF OVERHEAD RATES

	
41

	 	
  

	
42

	 	
The overhead rates provided for in this Section III may be amended from time to time if, in practice, the rates are found to be insufficient

	
43

	 	

Or excessive, in accordance with the provisions of Section I.6.B (Amendments).

	
44

	 	 
	45	 	 
	
46

	 	

IV. MATERIAL PURCHASES, TRANSFERS, AND DISPOSITIONS

	
47

	 	
  

	
48

	 	
The Operator is responsible for Joint Account Material and shall make proper and timely charges and credits for direct purchases, transfers, and

	
49

	 	
dispositions. The Operator shall provide all Material for use in the conduct of Joint Operations; however, Material may be supplied by the Non-

	
50

	 	
Operators, at the Operator's option. Material furnished by any Party shall be furnished without any express or implied warranties as to quality,

	
51

	 	fitness for use, or any other matter.
	
52

	
  

	
  

	
53

	1.	DIRECT PURCHASES
	
54

	 	
  

	
55

	 	
Direct purchases shall be charged to the Joint Account at the price paid by the Operator after deduction of all discounts received. The

	
56

	 	

Operator shall make good faith efforts to take discounts offered by suppliers, but shall not be liable for failure to take discounts except to

	
57

	 	
the extent such failure was the result of the Operator's gross negligence or willful misconduct A direct purchase shall be deemed to occur

	
58

	 	
when an agreement is made between an Operator and a third party for the acquisition of Material for a specific well site or location.

	
59

	 	Material provided by the Operator under "vendor stocking programs," where the initial use is for a Joint Property and title of the Material
	
60

	 	
does not pass from the manufacturer, distributor, or agent until usage, is considered a direct purchase. If Material is found to be defective

	
61

	 	
or is returned to the manufacturer, distributor, or agent for any other reason, credit shall be passed to the Joint Account within sixty (60)

	
62

	 	
days after the Operator has received adjustment from the manufacturer, distributor, or agent.

	
63

	 	
  

	
64

	 	
  

	
65

	 	
  

	
66

	 	
  

	
  

	 	
  

  

  

11

  

		
COPAS 2005 Accounting Procedure

Recommended by COPAS

  

  

	1	2.	TRANSFERS
	2	 	 
	3	 	A transfer is determined to occur when the Operator (i) furnishes Material from a storage facility or from another operated property, (ii) has 
	4	 	assumed liability for the storage costs and changes in value, and (iii) has previously secured and held title to the transferred Material. 
	5	 	
Similarly, the removal of Material from the Joint Property to a storage facility or to another operated property is also considered a transfer; 

	6	 	
provided, however, Material that is moved from the Joint Property to a storage location for safe-keeping pending disposition may remain 

	7	 	charged to the Joint Account and is not considered a transfer. Material shall be disposed of in accordance with Section IV.3 (Disposition of 
	8	 	

Surplus) and the Agreement to which this Accounting Procedure is attached.

	9	 	 
	
10

	 	
A. PRICING

	
11

	 	 
	
12

	 	

The value of Material transferred to/from the Joint Property should generally reflect the market value on the date of physical transfer.

	
13

	 	

Regardless of the pricing method used, the Operator shall make available to the Non-Operators sufficient documentation to verify the

	
14

	 	
Material valuation. When higher than specification grade or size tubulars are used in the conduct of Joint Operations, the Operator

	
15

	 	
shall charge the Joint Account at the equivalent price for well design specification tubulars, unless such higher specification grade or

	
16

	 	sized tubulars are approved by the Parties pursuant to Section l.6.A (General Matters). Transfers of new Material will be priced
	
17

	 	
using one of the following pricing methods; provided, however, the Operator shall use consistent pricing methods, and not alternate

	
18

	 	
between methods for the purpose of choosing the method most favorable to the Operator for a specific transfer:

	
19

	 	
  

	
20

	 	

(1) Using published prices in effect on date of movement as adjusted by the appropriate COPAS Historical Price Multiplier (HPM)

	
21

	 	
or prices provided by the COPAS Computerized Equipment Pricing System (CEPS).

	
22

	 	 
	
23

	 	

(a) For oil country tubulars and line pipe, the published price shall be based upon eastern mill carload base prices (Houston,

	
24

	 	
Texas, for special end) adjusted as of date of movement, plus transportation cost as defined in Section IV.2.B (Freight).

	
25

	 	
  

	
26

	 	
(b) For other Material, the published price shall be the published list price in effect at date of movement, as listed by a Supply

	
27

	 	Store nearest the Joint Property where like Material is normally available, or point of manufacture plus transportation
	
28

	 	
costs as defined in Section IV.2.B (Freight).

	
29

	 	
  

	
30

	 	(2) Based on a price quotation from a vendor that reflects a current realistic acquisition cost.
	
31

	 	
  

	
32

	 	

(3) Based on the amount paid by the Operator for like Material in the vicinity of the Joint Property within the previous twelve (12)

	
33

	 	months from the date of physical transfer.
	
34

	 	
  

	
35

	 	
(4) As agreed to by the Participating Parties for Material being transferred to the Joint Property, and by the Parties owning the

	
36

	 	
Material for Material being transferred from the Joint Property.

	
37

	 	
  

	
38

	 	B. FREIGHT
	
39

	 	
  

	
40

	 	
Transportation costs shall be added to the Material transfer price using the method prescribed by the COPAS Computerized

	
41

	 	
Equipment Pricing System (CEPS). If not using CEPS, transportation costs shall be calculated as follows: 

	
42

	 	 
	
43

	 	
(1) Transportation costs for oil country tubulars and line pipe shall be calculated using the distance from eastern mill to the

	
44

	 	Railway Receiving Point based on the carload weight basis as recommended by the COPAS MFI-38 ("Material Pricing
	
45

	 	
Manual") and other COPAS MFIs in effect at the time of the transfer.

	
46

	 	
  

	
47

	 	
(2) Transportation costs for special mill items shall be calculated from that mill's shipping point to the Railway Receiving Point.

	
48

	 	
For transportation costs from other than eastern mills, the 30,000-pound interstate truck rate shall be used. Transportation costs

	
49

	 	
for macaroni tubing shall be calculated based on the interstate truck rate per weight of tubing transferred to the Railway

	
50

	 	
Receiving Point.

	
51

	
  

	
  

	
52

	 	(3) Transportation costs for special end tubular goods shall be calculated using the interstate truck rate from Houston, Texas, to the
	
53

	 	

Railway Receiving Point.

	
54

	 	
  

	
55

	 	
(4) Transportation costs for Material other than that described in Sections IV.2.B.(l) through (3), shall be calculated from the

	
56

	 	
Supply Store or point of manufacture, whichever is appropriate, to the Railway Receiving Point

	
57

	 	
  

	
58

	 	
Regardless of whether using CEPS or manually calculating transportation costs, transportation costs from the Railway Receiving Point

	
59

	 	

to the Joint Property are in addition to the foregoing, and may be charged to the Joint Account based on actual costs incurred. All

	
60

	 	
transportation costs are subject to Equalized Freight as provided in Section II.4 (Transportation) of this Accounting Procedure.

	
61

	 	
  

	
62

	 	
C. TAXES

	
63

	 	
  

	
64

	 	

Sales and use taxes shall be added to the Material transfer price using either the method contained in the COPAS Computerized

	
65

	 	

Equipment Pricing System (CEPS) or the applicable tax rate in effect for the Joint Property at the time and place of transfer. In either

	
66

	 	
case, the Joint Account shall be charged or credited at the rate that would have governed had the Material been a direct purchase.

  

  

12

  

		
COPAS 2005 Accounting Procedure

Recommended by COPAS

  

  

	1	D.	CONDITTON
	2	 	 
	3	 	(1) Condition "A" - New and unused Material in sound and serviceable condition shall be charged at one hundred percent (100%) 
	4	 	of the price as determined in Sections IV.2.A (Pricing), IV.2.B (Freight), and IV.2.C (Taxes). Material transferred from the 
	5	 	
Joint Property that was not placed in service shall be credited as charged without gain or loss; provided, however, any unused 

	6	 	
Material that was charged to the Joint Account through a direct purchase will be credited to the Joint Account at the original 

	7	 	cost paid less restocking fees charged by the vendor. New and unused Material transferred from the Joint Property may be 
	8	 	
credited at a price other than the price originally charged to the Joint Account provided such price is approved by the Parties 

	9	 	
owning such Material, pursuant to Section I.6.A (General Matters). All refurbishing costs required or necessary to return the

	
10

	 	
Material to original condition or to correct handling, transportation, or other damages will be borne by the divesting property.

	
11

	 	The Joint Account is responsible for Material preparation, handling, and transportation costs for new and unused Material
	
12

	 	
charged to the Joint Property either through a direct purchase or transfer. Any preparation costs incurred, including any internal

	
13

	 	
or external coating and wrapping, will be credited on new Material provided these services were not repeated for such Material

	
14

	 	
for the receiving property.

	
15

	 	
  

	
16

	 	
(2) Condition "B" - Used Material in sound and serviceable condition and suitable for reuse without reconditioning shall be priced

	
17

	 	

by multiplying the price determined in Sections IV.2.A (Pricing), IV.2.B (Freight), and IV.2.C (Taxes) by seventy-five percent

	
18

	 	(75%).
	
19

	 	
  

	
20

	 	
Except as provided in Section IV.2.0(3), all reconditioning costs required to return the Material to Condition "B" or to correct

	
21

	 	
handling, transportation or other damages will be borne by the divesting property.

	
22

	 	 
	
23

	 	

If the Material was originally charged to the Joint Account as used Material and placed in service for the Joint Property, the

	
24

	 	
Material will be credited at the price determined in Sections IV.2.A (Pricing), IV.2.B (Freight), and IV.2.C (Taxes) multiplied

	
25

	 	
by sixty-five percent (65%).

	
26

	 	
  

	
27

	 	
Unless otherwise agreed to by the Parties that paid for such Material, used Material transferred from the Joint Property that was

	
28

	 	

not placed in service on the property shall be credited as charged without gain or loss.

	
29

	 	
  

	
30

	 	
(3) Condition "C" - Material that is not in sound and serviceable condition and not suitable for its original function until after

	
31

	 	

reconditioning shall be priced by multiplying the price determined in Sections IV.2.A (Pricing), IV.2.B (Freight), and IV.2.C

	
32

	 	

(Taxes) by fifty percent (50%).

	
33

	 	 
	
34

	 	

The cost of reconditioning may be charged to the receiving property to the extent Condition "C" value, plus cost of

	
35

	 	reconditioning, does not exceed Condition "B" value.
	
36

	 	
  

	
37

	 	
(4) Condition ''D" - Material that (i) is no longer suitable for its original purpose but useable for some other purpose, (ii) is

	
38

	 	obsolete, or (iii) does not meet original specifications but still has value and can be used in other applications as a substitute for
	
39

	 	
items with different specifications, is considered Condition "D" Material. Casing, tubing, or drill pipe used as line pipe shall be

	
40

	 	
priced as Grade A and B seamless line pipe of comparable size and weight. Used casing, tubing, or drill pipe utilized as line

	
41

	 	
pipe shall be priced at used line pipe prices. Casing, tubing, or drill pipe used as higher pressure service lines than standard line

	
42

	 	pipe, e.g., power oil lines, shall be priced under normal pricing procedures for casing, tubing, or drill pipe. Upset tubular goods
	
43

	 	
shall be priced on a non-upset basis. For other items, the price used should result in the Joint Account being charged or credited

	
44

	 	with the value of the service rendered or use of the Material, or as agreed to by the Parties pursuant to Section 1.6.A (General
	
45

	 	
Matters).

	
46

	 	
  

	
47

	 	
(5) Condition "E" -Junk shall be priced at prevailing scrap value prices.

	
48

	 	
  

	
49

	E.	
OTHER PRICING PROVISIONS

	
50

	 	 
	
51

	
  

	
(1) Preparation Costs

	
52

	 	 
	
53

	 	

Subject to Section II (Direct Charges) and Section III (Overhead) of this Accounting Procedure, costs incurred by the Operator

	
54

	 	

in making Material serviceable including inspection, third party surveillance services, and other similar services will be charged

	
55

	 	

to the Joint Account at prices which reflect the Operator's actual costs of the services. Documentation must be provided to the

	
56

	 	

Non-Operators upon request to support the cost of service. New coating and/or wrapping shall be considered a component of

	
57

	 	

the Materials and priced in accordance with Sections IV.l (Direct Purchases) or IV.2.A (Pricing), as applicable. No charges or

	
58

	 	
credits shall be made for used coating or wrapping. Charges and credits for inspections shall be made in accordance with

	
59

	 	
COPAS MFl-38 ("Material Pricing Manual").

	
60

	 	 
	
61

	 	
(2) Loading and Unloading Costs

	
62

	 	
  

	
63

	 	

Loading and unloading costs related to the movement of the Material to the Joint Property shall be charged in accordance with

	
64

	 	
the methods specified in COPAS MFI-38 ("Material Pricing Manual").

	
65

	 	
  

	
66

	 	
  

  

13

  

		
COPAS 2005 Accounting Procedure

Recommended by COPAS

	1	3.	DISPOSITION OF SURPLUS
	2	 	 
	3	 	
Surplus Material is that Material, whether new or used, that is no longer required for Joint Operations. The Operator may purchase, but

	4	 	
shall be under no obligation to purchase, the interest of the Non-Operators in surplus Material.

	5	 	 
	6	 	
Dispositions for the purpose of this procedure are considered to be the relinquishment of title of the Material from the Joint Property to

	7	 	either a third party, a Non-Operator, or to the Operator. To avoid the accumulation of surplus Material, the Operator should make good
	8	 	
faith efforts to dispose of surplus within twelve (12) months through buy/sale agreements, trade, sale to a third party, division in kind, or

	9	 	other dispositions as agreed to by the Parties.
	
10

	 	 
	
11

	 	
Disposal of surplus Materials shall be made in accordance with the terms of the Agreement to which this Accounting Procedure is

	
12

	 	
attached. If the Agreement contains no provisions governing disposal of surplus Material, the following terms shall apply:

	
13

	 	 
	
14

	 	
▪ The Operator may, through a sale to an unrelated third party or entity, dispose of surplus Material having a gross sale value that

	
15

	 	
is less than or equal to the Operator's expenditure limit as set forth in the Agreement to which this Accounting Procedure is

	
16

	 	
attached without the prior approval of the Parties owning such Material.

	
17

	 	 
	
18

	 	
▪ If the gross sale value exceeds the Agreement expenditure limit, the disposal must be agreed to by the Parties owning such

	
19

	 	
Material.

	
20

	 	 
	
21

	 	
▪ Operator may purchase surplus Condition "A" or "B" Material without approval of the Parties owning such Material, based on

	
22

	 	
the pricing methods set forth in Section IV.2 (Transfers).

	
23

	 	 
	
24

	 	
▪ Operator may purchase Condition "C' Material without prior approval of the Parties owning such Material if the value of the

	
25

	 	
Materials, based on the pricing methods set forth in Section IV.2 (Transfers), is less than or equal to the Operator's expenditure

	
26

	 	
limitation set forth in the Agreement. The Operator shall provide documentation supporting the classification of the Material as

	
27

	 	
Condition C.

	
28

	 	 
	
29

	 	
▪ Operator may dispose of Condition "D" or "E" Material under procedures normally utilized by Operator without prior approval

	
30

	 	
of the Parties owning such Material.

	
31

	 	 
	
32

	
4.

	
SPECIAL PRICING PROVISIONS

	
33

	 	 
	
34

	 	
A. PREMIUM PRICING

	
35

	 	 
	
36

	 	
Whenever Material is available only at inflated prices due to national emergencies, strikes, government imposed foreign trade

	
37

	 	
restrictions, or other unusual causes over which the Operator has no control, for direct purchase the Operator may charge the Joint

	
38

	 	
Account for the required Material at the Operator's actual cost incurred in providing such Material, making it suitable for use, and

	
39

	 	
moving it to the Joint Property. Material transferred or disposed of during premium pricing situations shall be valued in accordance

	
40

	 	
with Section IV.2 (Transfers) or Section IV.3 (Disposition of Surplus), as applicable.

	
41

	 	 
	
42

	 	
B. SHOP-MADE ITEMS

	
43

	 	 
	
44

	 	
Items fabricated by the Operator's employees, or by contract laborers under the direction of the Operator, shall be priced using the

	
45

	 	
value of the Material used to construct the item plus the cost of labor to fabricate the item. If the Material is from the Operator's

	
46

	 	
scrap or junk account, the Material shall be priced at either twenty-five percent (25%) of the current price as determined in Section

	
47

	 	
IV.2.A (Pricing) or scrap value, whichever is higher. In no event shall the amount charged exceed the value of the item

	
48

	 	
commensurate with its use.

	
49

	 	 
	
50

	 	
C. MILL REJECTS

	
51

	 	 
	
52

	 	
Mill rejects purchased as "limited service" casing or tubing shall be priced at eighty percent (80%) of K-55/J-55 price as determined in

	
53

	 	
Section IV.2 (Transfers). Line pipe converted to casing or tubing with casing or tubing couplings attached shall be priced as K-55/J-

	
54

	 	
55 casing or tubing at the nearest size and weight.

	
55

	 	 
	
56

	 	 
	
57

	 	
V. INVENTORIES OF CONTROLLABLE MATERIAL

	58	 	 
	59	 	 
	60	 	The Operator shall maintain records of Controllable Material charged to the Joint Account, with sufficient detail to perform physical inventories.
	61	 	 
	62	 	Adjustments to the Joint Account by the Operator resulting from a physical inventory of Controllable Material shall be made within twelve (12)
	63	 	months following the taking of the inventory or receipt of Non-Operator inventory report. Charges and credits for overages or shortages will be
	64	 	valued for the Joint Account in accordance with Section IV.2 (Transfers) and shall be based on the Condition "B" prices in effect on the date of
	65	 	physical inventory unless the inventorying Parties can provide sufficient evidence another Material condition applies.
	66	 	 

  

14

  

		
COPAS 2005 Accounting Procedure

Recommended by COPAS

  

  

	1	1.	DIRECTED INVENTORIES
	2	 	 
	3	 	Physical inventories shall be performed by the Operator upon written request of a majority in working interests of the Non-Operators 
	4	 	(hereinafter, "directed inventory"); provided, however, the Operator shall not be required to perform directed inventories more frequently 
	5	 	
than once every five (5) years. Directed inventories shall be commenced within one hundred eighty (180) days after the Operator receives 

	6	 	

written notice that a majority in interest of the Non-Operators has requested the inventory. All Parties shall be governed by the results of 

	7	 	any directed inventory.
	8	 	 
	9	 	
Expenses of directed inventories will be borne by the Joint Account; provided, however, costs associated with any post-report follow-up

	
10

	 	

work in settling the inventory will be absorbed by the Party incurring such costs. The Operator is expected to exercise judgment in keeping

	
11

	 	
expenses within reasonable limits. Any anticipated disproportionate or extraordinary costs should be discussed and agreed upon prior to

	
12

	 	
commencement of the inventory. Expenses of directed inventories may include the following:

	
13

	 	
  

	
14

	 	
A. A per diem rate for each inventory person, representative of actual salaries, wages, and payroll burdens and benefits of the personnel

	
15

	 	
performing the inventory or a rate agreed to by the Parties pursuant to Section I.6.A (General Matters). The per diem rate shall also

	
16

	 	be applied to a reasonable number of days for pre-inventory work and report preparation.
	
17

	 	
  

	
18

	 	B. Actual transportation costs and Personal Expenses for the inventory team
	
19

	 	
  

	
20

	 	
C. Reasonable charges for report preparation and distribution to the Non-Operators.

	
21

	 	
  

	
22

	2.	NON-DIRECTED INVENTORIES
	
23

	 	
  

	
24

	 	A. OPERATOR INVENTORIES
	
25

	 	
  

	
26

	 	
Physical inventories that are not requested by the Non-Operators may be performed by the Operator, at the Operator's discretion. The

	
27

	 	expenses of conducting such Operator-initiated inventories shall not be charged to the Joint Account.
	
28

	 	
  

	
29

	 	
B. NON-OPERATOR INVENTORIES 

	
30

	 	 
	
31

	 	

Subject to the terms of the Agreement to which this Accounting Procedure is attached, the Non-Operators may conduct a physical

	
32

	 	

inventory at reasonable times at their sole cost and risk after giving the Operator at least ninety (90) days prior written notice. The

	
33

	 	Non-Operator inventory report shall be furnished to the Operator in writing within ninety (90) days of completing the inventory
	
34

	 	
fieldwork.

	
35

	 	 
	
36

	 	
C. SPECIAL INVENTORIES

	
37

	 	
  

	
38

	 	The expense of conducting inventories other than those described in Sections V.1 (Directed Inventories), V.2.A (Operator
	
39

	 	
Inventories), or V.2.B (Non-Operator Inventories), shall be charged to the Party requesting such inventory; provided, however,

	
40

	 	
inventories required due to a change of Operator shall be charged to the Joint Account in the same manner as described in Section

	
41

	 	
V.1 (Directed Inventories).

	
42

	 	 
	
43

	 	
  

	
44

	 	 
	
45

	 	
  

	
46

	 	
  

	
47

	 	
  

	
48

	 	
  

	
49

	 	
  

	
50

	 	 
	
51

	
  

	
  

	
52

	 	 
	
53

	 	
  

	
54

	 	
  

	
55

	 	
  

	
56

	 	
  

	
57

	 	
  

	
58

	 	 
	
59

	 	 
	
60

	 	 
	
61

	 	
  

	
62

	 	
  

	
63

	 	
  

	
64

	 	
  

	
65

	 	
  

	
66

	 	
  

  

  

  

15

  

 

EXHIBIT "D"

 

Attached  to and  made a part  of that  certain Operating Agreement  dated  effective ____________   , 2010, by and between Quicksilver Resources, Inc., as Operator, and Premier Energy Partners (I) LLC, Buck Peak LLC, and West Point Energy LLC, as Non-Operators.

 

INSURANCE

 

As to all operations hereunder, Operator shall carry for the benefit and protection of the parties hereto the following insurance coverage:

 

(i)        Worker's Compensation or Employer's Liability Insurance as required by the laws of the states in which the operations are conducted.

 

(ii)       Comprehensive General  Liability Insurance, including contractual liability, with a combined single limit per occurrence of not less than $1,000,000 for bodily injury and property damage.

 

(iii)      Comprehensive Automobile Insurance, including hired and non-owned vehicles, with a combined single limit per occurrence of not less than $1,000,000 for bodily injury and property damage.

 

(iv)      Liability Umbrella Insurance (excess of underlying insurance coverage mentioned above) with a combined limit per occurrence coverage of not less than $10,000,000.

 

The cost of the foregoing insurance coverage shall be charged to the parties pursuant to the Accounting Procedure (Exhibit "C") as follows: item (i) will be included in labor rates, items (ii) and (iv) will be charged to the joint account, and item (iii) is included in mileage rates.

 

If a Non-Operator wishes to obtain its own insurance coverage for any of the above categories, such party  shall provide Operator with a certificate evidencing such coverage. In such event, Operator shall not invoice such party for its share of the cost of that particular coverage. Additionally, all such insurance coverages and all of the insurance coverages described above shall contain a waiver of subrogation in favor of all other parties hereto.

 

Each party shall be responsible for obtaining its own well control or OEE insurance for its proportionate share of such obligation.

 

To the extent not covered by the aforementioned insurance, the liability of the parties hereto for damages or claims arising out of illness or personal injury to or death of any person or damage to or destruction or loss of property of any person or entity resulting from operations conducted hereunder shall be borne by the parties hereto in the proportions in which they bear the costs of such operations. Additionally, Operator shall not be liable to Non-Operator for damage to or for loss or destruction ofjointly owned property from operations hereunder, EVEN TO THE EXTENT THAT SUCH DAMAGE, LOSS OR DESTRUCTION  IS ALLEGED TO HAVE BEEN CAUSED BY OPERATOR'S NEGLIGENCE, unless such damage, loss, or destruction arises solely out of the gross negligence or willful misconduct of Operator.Exhibit 10.1

 SECURITIES
PURCHASE AGREEMENT

This
Securities Purchase Agreement (this “Agreement”) is dated as of September 19, 2014, by and among Cachet
Financial Solutions, Inc., a Delaware corporation (the “Company”), and the parties indicated as Purchasers on
one or more counterpart signature pages hereof (each of which is a “Purchaser,” and collectively the “Purchasers”).

WHEREAS, subject to the terms and conditions
set forth in this Agreement and pursuant to an exemption from the registration requirements of Section 5 of the Securities Act
contained in Section 4(a)(2) thereof and/or Regulation D thereunder, the Company desires to issue and sell to each Purchaser, and
each Purchaser, severally and not jointly, desires to purchase from the Company, securities of the Company as more fully described
in this Agreement;

NOW, THEREFORE, in consideration of
the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which
are hereby acknowledged, the Company and each Purchaser hereby agree as follows: 

ARTICLE I.

DEFINITIONS

1.1             
 Definitions. In addition to the terms defined elsewhere in this Agreement, (a) capitalized terms that are not otherwise
defined herein have the meanings given to such terms in the Certificate of Designation (as defined herein), and (b) the following
terms have the meanings set forth in this Section 1.1:

“Action” shall have
the meaning ascribed to such term in Section 3.1(j).

“Affiliate” means
any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control
with a Person as such terms are used in and construed under Rule 405 under the Securities Act.

“Board of Directors”
means the Board of Directors of the Company.

“Business Day” means
any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking
institutions in the State of New York are authorized or required by law or other governmental action to close.

“Certificate of Designation”
means the Certificate of Designation to be filed prior to the Closing by the Company with the Secretary of State of Delaware, in
the form of Exhibit A attached hereto

“Closing” means the
closing of the purchase and sale of the Securities pursuant to Section 2.1.

“Closing Date” means
the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and
all conditions precedent to (i) the Purchasers’ obligations to pay the Subscription Amount and (ii) the Company’s obligations
to deliver the Securities, in each case, have been satisfied or waived, but in no event later than the third Trading Day following
the date hereof.

    	 

    	 

    

“Commission” means
the United States Securities and Exchange Commission.

“Common Stock” means
the common stock of the Company, par value $0.0001 per share, and any other class of securities into which such securities may
hereafter be reclassified or changed.

“Common Stock Equivalents”
means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock.

“Company Counsel”
means Maslon Edelman Borman & Brand, LLP, with offices located at 3300 Wells Fargo Center, 90 South Seventh Street, Minneapolis,
Minnesota 55402.

“Conversion Price”
shall have the meaning ascribed to such term in the Certificate of Designation.

“Conversion Shares”
shall have the meaning ascribed to such term in the Certificate of Designation.

“Cut Back” shall have
the meaning ascribed to such term in Section 4.2.

“Disclosure Schedules”
means the Disclosure Schedules of the Company delivered concurrently herewith.

“Effective Date” means
the earliest of the date that (a) the Resale Registration Statement has been declared effective by the Commission, (b) all of the
Underlying Shares have been sold pursuant to Rule 144 or may be sold pursuant to Rule 144 without the requirement for the Company
to be in compliance with the current public information required under Rule 144 and without volume or manner-of-sale restrictions
(determined on a holder-by-holder basis) or (c) following the one-year anniversary of the Closing Date provided that a holder of
Underlying Shares is not an Affiliate of the Company, all of the Underlying Shares may be sold pursuant to an exemption from registration
under Section 4(1) of the Securities Act without volume or manner-of-sale restrictions and Company Counsel has delivered to such
holders a standing written unqualified opinion that resales may then be made by such holders of the Underlying Shares pursuant
to such exemption which opinion shall be in form and substance reasonably acceptable to such holders.

“Event” has the meaning
set forth in Section 4.3.

“Event Date” has the
meaning set forth in Section 4.3.

“Exchange Act” means the
Securities Exchange Act of 1934, and the rules and regulations thereunder.

 

“GAAP” shall have
the meaning ascribed to such term in Section 3.1(h).

“Indebtedness” shall
have the meaning ascribed to such term in Section 3.1(q).

“Intellectual Property Rights”
shall have the meaning ascribed to such term in Section 3.1(m).

    	 

    	 

    

“Lien” means a lien,
charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

“Material Adverse Effect”
shall have the meaning assigned to such term in Section 3.1(b).

“Per Share Purchase Price”
equals $1.50, subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar
transactions of the Common Stock that occur after the date of this Agreement.

“Person” means an
individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company,
joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

“Preferred Stock”
means the Company’s Series A Convertible Preferred Stock issued hereunder having the rights, preferences and privileges set
forth in the Certificate of Designation.

“Proceeding” means
an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding,
such as a deposition), whether commenced or threatened.

“Purchaser Party”
shall have the meaning ascribed to such term in Section 4.6.

“Registration Expenses”
shall have the meaning ascribed to such term in Section 4.4.

“Registration Expiration”
shall have the meaning set forth in Section 4.3.

“Required Approvals”
shall have the meaning ascribed to such term in Section 3.1(e).

“Resale Registration Statement”
shall have the meaning ascribed to such term in Section 4.1.

“Rule 144” means Rule
144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time,
or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such
Rule.

“SEC Reports” shall
have the meaning ascribed to such term in Section 3.1(h).

“Securities” means
the Preferred Stock, the Warrants and the Underlying Shares.

“Securities Act” means
the Securities Act of 1933, and the rules and regulations thereunder.

“Short Sales” means
all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include
the location and/or reservation of borrowable shares of Common Stock). 

“Subscription Amount”
means, as to each Purchaser, the aggregate amount to be paid for Preferred Stock and Warrants purchased hereunder as specified
below such Purchaser’s name on the signature page of this Agreement and next to the heading “Subscription Amount,”
in United States dollars and in immediately available funds.

    	 

    	 

    

“Subsidiary” means
any subsidiary of the Company as set forth on Schedule 3.1(a), and shall, where applicable, also include any direct or indirect
subsidiary of the Company formed or acquired after the date hereof.

“Trading Day” means
a day on which the principal Trading Market is open for trading.

“Trading Market” means
any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the
NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, the
OTC Bulletin Board or the OTC Markets (e.g., OTCQX or OTCQB), or any successors to any of the foregoing.

“Transaction Documents”
means this Agreement, the Certificate of Designation, the Warrants, all exhibits and schedules thereto and any other documents
or agreements executed in connection with the transactions contemplated hereunder.

“Underlying Shares”
means the Conversion Shares and the Warrant Shares.

“Warrants” means,
collectively, the Common Stock purchase warrants delivered to the Purchasers at the Closing in accordance with Section 2.2(a) hereof,
which Warrants shall be in the form of Exhibit B attached hereto.

“Warrant Shares” means
the shares of Common Stock issuable upon exercise of the Warrants.

ARTICLE II.

PURCHASE AND SALE

2.1             
Closing. On the Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent
with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell, and the Purchasers, severally
and not jointly, agree to purchase, an aggregate maximum of $9,000,000 of (i) shares of Preferred Stock at the Per Share Purchase
Price, and (ii) Warrants as determined pursuant to Section 2.2(a)(iv). Each Purchaser shall deliver to the Company, via wire transfer
of immediately available funds equal to such Purchaser’s Subscription Amount as set forth on the signature page hereto executed
by such Purchaser and the Company shall deliver to each Purchaser its respective shares of Preferred Stock and a Warrant as determined
pursuant to Section 2.2(a), and the Company and each Purchaser shall deliver the other items set forth in Section 2.2 at the Closing.
Upon satisfaction of the covenants and conditions set forth in Sections 2.2 and 2.3, the Closing shall occur at the offices of
Company Counsel or such other location agreeable to the parties.

2.2             
Deliveries.

(a)
         On or prior to the Closing Date, the Company shall deliver or cause to be delivered to each
Purchaser the following:

(i)   this
Agreement duly executed by the Company;

(ii) 
a certificate registered in the name of such Purchaser evidencing a number of shares of Preferred Stock purchased by
such Purchaser;

    	 

    	 

    

 

(iii) evidence of the filing and acceptance of the Certificate of Designation from the Secretary of State of Delaware;

(iv) a Warrant registered in the name of such Purchaser to purchase up to a number of shares of Common Stock equal to 10% of
such Purchaser’s Subscription Amount for the Preferred Stock divided by the Conversion Price; and

(v)  a legal opinion from Company Counsel, in customary form and substance for transactions of the nature contemplated by this
Agreement.

(b)  
             On or prior to the Closing Date, each
Purchaser shall deliver or cause to be delivered to the Company the following:

(i)   this Agreement duly executed by such Purchaser; and

(ii)  such Purchaser’s Subscription Amount by wire transfer to the account specified in writing by the Company.

2.3             
Closing Conditions.

(a)
           The obligations of the Company hereunder in connection with the Closing are subject to
the following conditions being met:

(i)   the accuracy in all material respects when made and on the Closing Date of the representations and warranties of the Purchasers
contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);

(ii)   all
obligations, covenants and agreements of each Purchaser required to be performed at or prior to the Closing Date shall have
been performed;

(iii) there shall have been no Material Adverse Effect with respect to the Company since the date hereof;

(iv) the
Company will have complied with all of the requirements of the Financial Industry Regulatory Authority, Inc. with respect to
the issuance of the Securities and the Underlying Shares;

(v)  the
Company shall have obtained all necessary “blue sky” law permits and qualifications, or have the availability of
exemptions therefrom, required by any state for the offer and sale of the Securities and issuance of the Underlying
Shares; and

(vi) the delivery by each Purchaser of the items set forth in Section 2.2(b) of this Agreement.

(b)                The
respective obligations of the Purchasers hereunder in connection with the Closing are subject to the following
conditions being met:

    	 

    	 

    

 

(i)   the accuracy in all material respects on the Closing Date of the representations and warranties of the Company contained
herein (unless as of a specific date therein);

(ii)  all obligations, covenants and agreements of the Company required to be performed at or prior to the Closing Date shall
have been performed;

(iii) the delivery by the Company of the items set forth in Section 2.2(a) of this Agreement; and

(iv) there
shall have been no Material Adverse Effect with respect to the Company since the date hereof.

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

3.1             
Representations and Warranties of the Company. Except as set forth in the Disclosure Schedules, which Disclosure
Schedules shall be deemed a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure
contained in the corresponding section of the Disclosure Schedules, the Company hereby makes the following representations and
warranties to each Purchaser:

(a)               
Subsidiaries. All of the direct and indirect subsidiaries of the Company are set forth on Schedule 3.1(a).
The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear
of any Liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully
paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities.

(b)              
Organization and Qualification. The Company and each of the Subsidiaries is an entity duly incorporated or otherwise
organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, with
the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted.
Neither the Company nor any Subsidiary is in violation nor default of any of the provisions of its respective certificate or articles
of incorporation, bylaws or other organizational or charter documents. Each of the Company and the Subsidiaries is duly qualified
to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified
or in good standing, as the case may be, could not have or reasonably be expected to result in: (i) a material adverse effect on
the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations,
assets, business or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material
adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction
Document (any of (i), (ii) or (iii), a “Material Adverse Effect”).

    	 

    	 

    

(c)               
Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate
the transactions contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations
hereunder and thereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company
and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action
on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s stockholders
in connection herewith or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction
Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in
accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii)
as limited by laws relating to the availability of injunctive relief or other equitable remedies and (iii) insofar as indemnification
and contribution provisions may be limited by applicable law.

(d)              
No Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction
Documents to which it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated
hereby and thereby do not and will not (i) conflict with or violate any provision of the Company’s or any Subsidiary’s
certificate or articles of incorporation, bylaws or other organizational or charter documents, or (ii) conflict with, or constitute
a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien
upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other
instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary
is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required
Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction
of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities
laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case
of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

(e)               
Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental
authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents,
other than: (i) any filings with the Commission pursuant to Sections 4.1 and 4.2, (ii) the notice and/or application(s) to each
applicable Trading Market for the issuance and sale of the Securities and the listing of the Underlying Shares for trading thereon
in the time and manner required thereby, if any, and (iii) the filing of Form D with the Commission and such filings as are required
to be made under applicable state securities laws (collectively, the “Required Approvals”).

    	 

    	 

    

(f)                
Issuance of the Securities. The Preferred Shares are duly authorized and, when issued and paid for in accordance
with the applicable Transaction Documents, will be duly and validly issued, fully paid and non-assessable, free and clear of all
Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents and under applicable
state and federal securities laws. The Underlying Shares, when issued in accordance with the terms of the Transaction Documents,
will be validly issued, fully paid and non-assessable, free and clear of all Liens imposed by the Company other than restrictions
on transfer provided for in the Transaction Documents. The Underlying Shares have been duly reserved for issuance upon conversion
of the Preferred Shares or exercise of the Warrants, as applicable.

(g)               
Capitalization. The capitalization of the Company as of August 14, 2014 is as set forth on Schedule 3.1(g).
Since that date, the Company has not issued any capital stock except as may be disclosed in SEC Reports, other than pursuant to
the exercise of employee stock options under the Company’s stock option plans, the issuance of shares of Common Stock to
employees pursuant to the Company’s employee stock purchase plans and pursuant to the conversion and/or exercise of Common
Stock Equivalents disclosed on Schedule 3.1(g) or in SEC Reports. No Person has any right of first refusal, preemptive right,
right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except
as a result of the purchase and sale of the Securities, there are no outstanding options, warrants, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or
exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional shares of Common
Stock or Common Stock Equivalents, except as set forth on Schedule 3.1(g). Except as set forth on Schedule 3.1(g),
the issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any
Person (other than the Purchasers) and will not result in a right of any holder of Company securities to adjust the exercise, conversion,
exchange or reset price under any of such securities.

(h)               
SEC Reports; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents
required to be filed by the Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d)
thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to
file such material) (the foregoing materials, including the exhibits thereto and documents incorporated by reference therein, being
collectively referred to herein as the “SEC Reports”). As of their respective dates, the SEC Reports complied
in all material respects with the requirements of the Securities Act and the Exchange Act, as applicable, and none of the SEC Reports,
when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial
statements have been prepared in accordance with United States generally accepted accounting principles applied on a consistent
basis during the periods involved (“GAAP”), except as may be otherwise specified in such financial statements
or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly
present in all material respects the financial position of the Company and its consolidated Subsidiaries as of and for the dates
thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements,
to normal, immaterial, year-end audit adjustments.

    	 

    	 

    

(i)                 
Material Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically disclosed in a subsequent SEC Report filed prior to the date
hereof, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a
Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables
and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required
to be reflected in the Company’s financial statements pursuant to GAAP or disclosed in filings made with the Commission,
(iii) the Company has not altered its method of accounting, and (iv) the Company has not declared or made any dividend or distribution
of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of
its capital stock. The Company does not have pending before the Commission any request for confidential treatment of information.

(j)                
Litigation. Except as set forth on Schedule 3.1(j), there is no action, suit, inquiry, notice of violation,
proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary
or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges
the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an
unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. The Commission has not issued any
stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under
the Exchange Act or the Securities Act.

(k)              
Compliance. Neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has
occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary
under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation
of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of
its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any judgment, decree
or order of any court, arbitrator or other governmental authority or (iii) is or has been in violation of any statute, rule, ordinance
or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to
taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except,
in each case, as is set forth on Schedule 3.1(k) or as otherwise could not have or reasonably be expected to result in a
Material Adverse Effect.

(l)                 
Title to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property
owned by them and good and marketable title in all personal property owned by them that is material to the business of the Company
and the Subsidiaries, in each case free and clear of all Liens, except for (i) Liens as do not materially interfere with the use
made and proposed to be made of such property by the Company and the Subsidiaries and (ii) Liens for the payment of federal, state
or other taxes, for which appropriate reserves have been made in accordance with GAAP and, the payment of which is neither delinquent
nor subject to penalties.

    	 

    	 

    

(m)             
Intellectual Property. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications,
trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual
property rights and similar rights necessary or required for use in connection with their respective businesses as described in
the SEC Reports and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual
Property Rights”). None of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that
any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be
abandoned, within two years from the date of this Agreement. Except as set forth on Schedule 3.1(m), neither the Company
nor any Subsidiary has received, since the date of the latest audited financial statements included within the SEC Reports, a written
notice of a claim or otherwise has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any
Person, except as could not have or reasonably be expected to not have a Material Adverse Effect. To the knowledge of the Company,
all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual
Property Rights. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality
and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect.

(n)               
Fees. Except for fees payable to National Securities Corporation and Northland Capital Markets, no placement agent
or finder’s fees or commissions are or will be payable by the Company or any Subsidiary to any broker, financial advisor
or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by
the Transaction Documents.

(o)              
Indebtedness. Schedule 3.1(o) sets forth as of August 14, 2014, all outstanding secured and unsecured Indebtedness
of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments. For the purposes of this Agreement,
“Indebtedness” means (x) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than
trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations
in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s consolidated balance
sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions
in the ordinary course of business; and (z) the present value of any lease payments in excess of $50,000 due under leases required
to be capitalized in accordance with GAAP. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.

    	 

    	 

    

(p)              
Tax Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to
result in a Material Adverse Effect, the Company and its Subsidiaries each (i) has made or filed all United States federal, state
and local income and all foreign income and franchise tax returns, reports and declarations required by any jurisdiction to which
it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined
to be due on such returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate for the
payment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There
are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the
Company or of any Subsidiary know of no basis for any such claim.

(q)              
Investment Company. The Company (including its subsidiaries) is not an “investment company” or an “affiliated
person” of, or “promoter” or “principal underwriter” for an investment company, within the meaning
of the Investment Company Act of 1940 and will not be deemed an “investment company” as a result of the transactions
contemplated by this Agreement.

(r)                
Related Party Transactions. To the knowledge of the Company, no transaction has occurred between or among the Company
and any of its affiliates (including, without limitation, any of its subsidiaries), officers or directors or any affiliate or affiliates
of any such affiliate, officer or director that with the passage of time will be required to be disclosed pursuant to Sections
13, 14 or 15(d) of the Exchange Act other than those transactions that have already been so disclosed.

(s)               
No General Solicitation. Neither the Company, nor any of its affiliates, nor any person action on its or their behalf,
has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D promulgated under the
Securities Act) in connection with the offer or sale of the Securities.

(t)                
No Manipulation; Disclosure of Information. The Company has not taken and will not take any action designed to or
that might reasonably be expected to cause or result in an unlawful manipulation of the price of the Common Stock to facilitate
the sale or resale of the Securities. The Company confirms that, to its knowledge, with the exception of the proposed sale of Securities
as contemplated herein (as to which the Company makes no representation), neither it nor any other person acting on its behalf
has provided any of the Purchasers or their agents or counsel with any information that constitutes or might constitute material,
non-public information. The Company understands and confirms that the Purchasers will be relying on the foregoing representations
in effecting transactions in securities of the Company. All disclosures provided to the Purchasers regarding the Company, its business
and the transactions contemplated hereby furnished by the Company are true and correct and do not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading.

(u)               
Forward-Looking Statements. No forward-looking statement (within the meaning of Section 27A of the Securities Act
and Section 21E of the Exchange Act) made by the Company or any of its officers or directors contained in the SEC Documents, or
made available to the public generally since June 30, 2014, has been made or reaffirmed without a reasonable basis or has been
disclosed other than in good faith.

    	 

    	 

    

(v)               
No Additional Agreements. Other than with respect to closing mechanics, the Company has no other agreements or understandings
(including, without limitation, side letters) with any Purchaser or other person to purchase any of the Securities on terms more
favorable to such person than as set forth herein.

(w)             
No “Bad Actor” Disqualification. The Company has exercised reasonable care, in accordance with SEC rules
and guidance, and has conducted a factual inquiry, the nature and scope of which reflect reasonable care under the relevant facts
and circumstances, to determine whether any Covered Person (as defined below) is subject to any of the “bad actor”
disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (“Disqualification Events”).
To the Company’s knowledge, after conducting such sufficiently diligent factual inquiries, no Covered Person is subject to
a Disqualification Event, except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3) under the Securities Act. The
Company has complied, to the extent applicable, with any disclosure obligations under Rule 506(e) under the Securities Act. “Covered
Persons” are those persons specified in Rule 506(d)(1) under the Securities Act, including the Company; any predecessor
or affiliate of the Company; any director, executive officer, other officer participating in the offering, general partner or managing
member of the Company; any beneficial owner of 20% or more of the Company’s outstanding voting equity securities, calculated
on the basis of voting power; any promoter (as defined in Rule 405 under the Securities Act) connected with the Company in any
capacity at the time of the sale of the Shares; and any person that has been or will be paid (directly or indirectly) remuneration
for solicitation of purchasers in connection with the sale of the Shares (a “Solicitor”), any general partner or managing
member of any Solicitor, and any director, executive officer or other officer participating in the offering of any Solicitor or
general partner or managing member of any Solicitor.

Each Purchaser, for itself and for no
other Purchaser, acknowledges and agrees that the representations contained in Section 3.1 shall not modify, amend or affect the
Company’s right to rely on such Purchaser’s representations and warranties contained in this Agreement or any representations
and warranties contained in any other Transaction Document or any other document or instrument executed or delivered in connection
with this Agreement or the consummation of the transactions contemplated hereby.

3.2             
Representations and Warranties of the Purchasers. Each Purchaser, for itself and for no other Purchaser, hereby represents
and warrants as of the date hereof and as of the Closing Date to the Company as follows (unless as of a specific date therein):

(a)               
Organization; Authority. Such Purchaser is either an individual or an entity duly incorporation or formation, validly
existing and in good standing under the laws of the jurisdiction of its incorporation or formation with full right, corporate,
partnership, limited liability company or similar power and authority to enter into and to consummate the transactions contemplated
by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of
the Transaction Documents and performance by such Purchaser of the transactions contemplated by the Transaction Documents have
been duly authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, on the
part of such Purchaser. Each Transaction Document to which it is a party has been duly executed by such Purchaser, and when delivered
by such Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of such Purchaser,
enforceable against it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally,
(ii) as limited by laws relating to the availability of injunctive relief or other equitable remedies and (iii) insofar as indemnification
and contribution provisions may be limited by applicable law.

    	 

    	 

    

(b)              
Understandings or Arrangements. Such Purchaser is acquiring the Securities as principal for its own account and has
no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such
Securities (this representation and warranty not limiting such Purchaser’s right to sell the Securities pursuant to the Resale
Registration Statement or otherwise in compliance with applicable federal and state securities laws). Such Purchaser is acquiring
the Securities hereunder in the ordinary course of its business. Such Purchaser understands that the Preferred Stock, Warrants
and Underlying Shares are “restricted securities” and have not been registered under the Securities Act or any applicable
state securities law and is acquiring the Securities as principal for its own account and not with a view to or for distributing
or reselling such Securities or any part thereof in violation of the Securities Act or any applicable state securities law, has
no present intention of distributing any of such Securities in violation of the Securities Act or any applicable state securities
law and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution
of such Securities in violation of the Securities Act or any applicable state securities law (this representation and warranty
not limiting such Purchaser’s right to sell the Securities pursuant to the Resale Registration Statement or otherwise in
compliance with applicable federal and state securities laws). The Purchaser is acquiring the Securities hereunder in the ordinary
course of its business.

(c)               
Opportunity to Obtain Information. Such Purchaser acknowledges that representatives of the Company have made available
to such Purchaser the opportunity to review the books and records of the Company and its Subsidiaries and to ask questions of and
receive answers from such representatives concerning the business and affairs of the Company and its Subsidiaries. Such Purchaser
further acknowledges the availability of the Company’s SEC Reports, specifically include the Company’s Annual Report
on Form 10-K for the year ended December 31, 2014, as amended, the Company’s Quarterly Report on Form 10-Q for the period
ended June 30, 2014, and Current Reports on Form 8-K that have been filed by the Company on and since February 12, 2014.

(d)              
Purchaser Status. At the time such Purchaser was offered the Securities, it was, and as of the date hereof it is,
and on each date on which it converts any shares of Preferred Stock or exercises any Warrants, it will be an “accredited
investor” as defined in Rule 501 under the Securities Act.

(e)               
Experience of Such Purchaser. Such Purchaser, either alone or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective
investment in the Securities, and has so evaluated the merits and risks of such investment. Such Purchaser is able to bear the
economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.

    	 

    	 

    

(f)                
General Solicitation. Such Purchaser is not purchasing the Securities as a result of any advertisement, article,
notice or other communication regarding the Securities or any other securities of the Company published in any newspaper, magazine
or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general
advertisement. Such Purchaser did not purchase any shares of Common Stock in the Company’s initial public offering pursuant
to the final prospectus dated July 9, 2014. Such Purchaser has a pre-existing relationship with National Securities Corporation,
Northland Capital Markets or the Company.

(g)               
No Investment, Tax or Legal Advice. Each Purchaser understands that nothing in the Company SEC Documents, this Agreement,
or any other materials presented to the Purchaser in connection with the purchase and sale of the Securities constitutes legal,
tax or investment advice. Each Purchaser has consulted such legal, tax and investment advisors as it, in its sole discretion, has
deemed necessary or appropriate in connection with its purchase of Securities.

(h)               
Certain Transactions and Confidentiality. Other than consummating the transactions contemplated hereunder, such Purchaser
has not, nor has any Person acting on behalf of or pursuant to any understanding with such Purchaser, directly or indirectly executed
any purchases or sales, including Short Sales, of the securities of the Company during the period commencing as of the time
that such Purchaser first received a term sheet (written or oral) from the Company or any other Person representing the Company
setting forth the material terms of the transactions contemplated hereunder and ending immediately prior to the execution hereof.
Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio
managers manage separate portions of such Purchaser’s assets and the portfolio managers have no knowledge of the investment
decisions made by the portfolio managers managing other portions of such Purchaser’s assets, the representation set forth
above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision
to purchase the Securities covered by this Agreement. Other than to other Persons party to this Agreement, such Purchaser has maintained
the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this
transaction).

The Company acknowledges and agrees that
the representations contained in Section 3.2 shall not modify, amend or affect such Purchaser’s right to rely on the Company’s
representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction
Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of
the transaction contemplated hereby.

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

4.1             
Reporting Status. With a view to making available to the Purchasers the benefits of certain rules and regulations
of the SEC which may permit the sale of the Shares and Underlying Shares to the public without registration, the Company agrees
to use its reasonable efforts to file with the SEC, in a timely manner all reports and other documents required of the Company
under the Exchange Act. The Company will otherwise take such further action as a Purchaser may reasonably request, all to the extent
required from time to time to enable such Purchaser to sell the Securities and Underlying Shares without registration under the
Securities Act or any successor rule or regulation adopted by the SEC.

    	 

    	 

    

4.2             
Quotation. So long as a Purchaser owns any of the Securities or Underlying Shares, the Company will use its reasonable
efforts to maintain the quotation of its Common Stock on the OTCQB or OTCQX, each as administered by OTC Markets Group or, in lieu
thereof, on a national securities exchange and will comply in all material respects with the Company’s reporting, filing
and other obligations under the rules of any such market or exchange, as applicable.

4.3             
Non-Public Information. The Company covenants and agrees that neither it nor any other person acting on its behalf
will provide any Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public
information, unless prior thereto such Purchaser shall have executed a written agreement regarding the confidentiality and use
of such information. The Company understands and confirms that each Purchaser shall be relying on the foregoing representations
in effecting transactions in securities of the Company. Furthermore, if the Company has disclosed any material non-public information
to the Purchaser, the Purchaser has no duty to keep such information confidential following the public announcement of the offering.

4.4             
Resale Registration Statement. The Company shall file, within 45 days after the Closing, and thereafter use its
commercially reasonable efforts to effect the registration, qualification and compliance (including without limitation the execution
of an undertaking to file post-effective amendments, appropriate qualification under applicable blue sky or other state securities
laws and appropriate compliance with applicable regulations issued under the Securities Act and any other governmental requirements
or regulations) to permit or facilitate the sale and distribution of all of the Underlying Shares no later than 120 days after
the Closing (such registration statement, the “Resale Registration Statement”); provided, however, that the
Company shall not be obligated to take any action to effect any such registration, qualification or compliance:

(a)  in any particular jurisdiction in which the Company would be required to execute a general consent to service of process
in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction
and except as may be required by the Securities Act;

(b)              
if the Company shall furnish to the Purchasers a certificate, signed by the Chairman of the Board of the Company, stating
that in the good faith judgment of the Board of Directors it would be detrimental to the Company or its stockholders for the Resale
Registration Statement to be filed at such time, then the Company’s obligation to commence the actions described in this
Section 4.1(b) shall be deferred for a period not to exceed 90 days from the date of such certificate; provided, however, that
the Company may not utilize this right more than once; or

(c)               
If a Purchaser fails to cooperate in providing the Company with all information reasonably required to be included in the
Resale Registration Statement or otherwise required to be obtained by the Company for purposes of preparing and filing the Resale
Registration Statement and any amendments thereto; provided, however, that such failure shall not affect the Company’s obligations
with respect to any Underlying Shares of any other Purchasers.

Once declared effective by the Commission, the
Company shall use best efforts to keep the Resale Registration Statement registering the resale of the Underlying Shares effective
during the period beginning on its effective date until the earlier of (i) such time as all of the Underlying Shares shall have
been sold or (ii) no Conversion Shares issued or issuable upon conversion of the Preferred Stock remain unsold and at least two
years have passed since the Closing (such earlier time, the “Registration Expiration”).

 

    	 

    	 

    

 

4.5             
Cut-Back. If, for any reason, the Commission (including an independent determination by the Company, in consultation
with Company Counsel, based on existing written guidance or applicable rules of the Commission) or an underwriter participating
in an underwritten primary offering conducted pursuant to the Resale Registration Statement requires that the number of Underlying
Shares to be registered for resale pursuant to the Resale Registration Statement be reduced, then such reduction (the “Cut
Back”) shall be allocated pro rata among the Purchasers whose shares have been included in the Resale Registration Statement
and any other holders of Common Stock that have exercised their right to require the Company to register for resale such Common
Stock on the Resale Registration Statement, until the reduction so required shall have been effected. At the discretion of the
Company, the Cut Back may be effected first among one particular type of Underlying Shares (e.g., Warrant Shares first, and then
Conversion Shares).

                4.6 
            Registration Deadlines. If: (i) the Resale
Registration Statement is not filed with the Commission on or prior to its 45th day after the Closing (or the next succeeding
Business Day if the 45th day is not a Business Day), or (ii) the Resale Registration Statement filed or required to be filed
hereunder is not declared effective by the Commission by on or prior to the 120th day after the Closing (or the next
succeeding Business Day if the 45th day is not a Business Day), or (iii) after the effective date of a Registration
Statement, such Registration Statement ceases for any reason to remain continuously effective as to all Underlying Shares
included in such Registration Statement, or the Purchasers are otherwise not permitted to utilize the prospectus therein to
resell such Underlying Shares for more than 20 consecutive Trading Days or more than an aggregate of 30 Trading Days (which
need not be consecutive Trading Days) during any 12-month period (any such failure or breach being referred to as an
“Event,” and for purposes of clauses (i) and (ii), the date on which such Event occurs, and for purpose of
clause (iii) the date which such 20-Trading Day period or 30-Trading Day period, as applicable, is exceeded, being referred
to as “Event Date”); then, in addition to any other rights the Purchasers may have hereunder or under
applicable law, on each such Event Date the Company shall issue to each Purchaser a number of shares of Common Stock, as
partial liquidated damages and not as a penalty, the value of which is equal to 1.0% of the aggregate Subscription Amount
paid by such Purchaser under this Agreement, and on each monthly anniversary of each such Event Date (if the applicable Event
shall not have been cured by such date) until such time as the applicable Event shall have been cured, the Company shall
issue to each Purchaser a number of shares of Common Stock, as partial liquidated damages and not as a penalty, the value of
which is equal to 1.0% of the aggregate Subscription Amount paid by such Purchaser under this Agreement. Notwithstanding
anything herein to the contrary, the parties agree that the maximum aggregate liquidated damages payable by the Company under
this Agreement shall be 6.0% of the aggregate Subscription Amounts paid by the Purchasers under this Agreement. The partial
liquidated damages pursuant to the terms hereof shall apply on a daily pro rata basis for any portion of a month prior to the
cure of an Event. Shares of Common Stock issued pursuant to this Section shall be valued in the same manner as prescribed for
the valuation of Common Stock issued in satisfaction of dividend-payment obligations on the Preferred Stock, as set forth in
the Certificate of Designation.

    	 

    	 

    

4.7             
Expenses. All expenses incurred by the Company in complying with Section 4.1 or 4.2, including without limitation
all registration and filing fees, printing expenses (if required), fees and disbursements of counsel and independent public accountants
for the Company, fees and expenses (including reasonable counsel fees) incurred in connection with complying with state securities
or “blue sky” laws, fees of the FINRA, transfer taxes, and fees of transfer agents and registrars, are called “Registration
Expenses.” The Company will pay all Registration Expenses in connection with the Resale Registration Statement.

4.8             
Use of Proceeds. The Company shall use the net proceeds from the sale of the Securities hereunder primarily for working
capital purposes and to fund the general corporate purposes of the Company and its Subsidiaries, and to fund certain contractual
obligations relating to acquisitions and to repay certain outstanding Indebtedness (to the extent such Indebtedness shall not have
earlier converted into common stock).

4.9             
Indemnification of Purchasers. Subject to the provisions of this Section 4.6, the Company will indemnify and hold
each Purchaser and its directors, officers, stockholders, members, partners, employees and agents (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person
who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, stockholders, agents, members, partners or employees (and any other Persons with a functionally equivalent
role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling persons (each,
a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages,
costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of
the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents
or (b) any action instituted against the Purchaser Parties in any capacity, or any of them or their respective Affiliates, by any
stockholder of the Company who is not an Affiliate of such Purchaser Party, with respect to any of the transactions contemplated
by the Transaction Documents (unless such action is based upon a breach of such Purchaser Party’s representations, warranties
or covenants under the Transaction Documents or any agreements or understandings such Purchaser Party may have with any such stockholder
or any violations by such Purchaser Party of state or federal securities laws or any conduct by such Purchaser Party which constitutes
fraud, gross negligence, willful misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect
of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing,
and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the
Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent
that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a
reasonable period of time to assume such defense and to employ counsel, or (iii) in such action there is, in the reasonable opinion
of counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party,
in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel in
the aggregate (i.e., for all Purchaser Parties). The Company will not be liable to any Purchaser Party under this Agreement (y)
for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably
withheld or delayed, or (z) to the extent, but only to the extent, that a loss, claim, damage or liability is attributable to any
Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party
in this Agreement or in the other Transaction Documents.

    	 

    	 

    

4.10         
Reservation of Securities; Reporting Status. The Company shall maintain a reserve from its duly authorized shares
of Common Stock for issuance pursuant to the Transaction Documents in such amount as may then be required to issue all of the Underlying
Shares. In addition, from and after the date hereof and for so long as any Preferred Stock remains issued and outstanding, the
Company will continue to file SEC Reports with the Commission and use commercially reasonable efforts to maintain its listing or
quotation on a Trading Market.

4.11         
Certain Transactions and Confidentiality. Each Purchaser, severally and not jointly with the other Purchasers, covenants
that neither it nor any Affiliate acting on its behalf or pursuant to any understanding with it will execute any purchases or sales,
including Short Sales of any of the Company’s securities during the period commencing with the execution of this Agreement
and ending at such time that the transactions contemplated by this Agreement are first publicly announced by the Company. 
Each Purchaser, severally and not jointly with the other Purchasers, covenants that until such time as the transactions
contemplated by this Agreement are publicly disclosed by the Company, such Purchaser will maintain the confidentiality of the existence
and terms of this transaction and the information included in the Transaction Documents and the Disclosure Schedules.

4.12         
Transfer Restrictions.

(a)               
The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer
of any Securities other than pursuant to an effective Resale Registration Statement or Rule 144, or to the Company, the Company
may require the transferor thereof to provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable
to the Company (the fees and expenses of which shall be paid by such Purchaser), the form and substance of which opinion shall
be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities
under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this
Agreement and shall have the rights and obligations of a Purchaser under this Agreement.

(b)              
The Purchasers agree to the imprinting, so long as is required by this Agreement, of a legend on any of the Preferred Stock,
Warrants and Underlying Shares in the following form:

[NEITHER] THIS SECURITY [NOR THE
SECURITIES INTO WHICH THIS SECURITY IS [EXERCISABLE] [CONVERTIBLE]] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF
1933 (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL
TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.

    	 

    	 

    

(c)               
Certificates evidencing the Underlying Shares shall not contain any legend (including the legend set forth in paragraph
(b) above): (i) while a registration statement (including the Resale Registration Statement) covering the resale of such security
is effective under the Securities Act, (ii) following any sale of such Underlying Shares pursuant to Rule 144, or (iii) if such
legend is not required under applicable requirements of the Securities Act. The Company shall cause its counsel to issue a legal
opinion to the Company’s transfer agent promptly after the Effective Date if required by the Transfer Agent to effect the
removal of the legend hereunder. If all or any shares of Preferred Stock are converted or any portion of a Warrant is exercised
at a time when the Resale Registration Statement is effective to cover the resale of the Underlying Shares, or if such Underlying
Shares may be sold under Rule 144 or if such legend is not otherwise required under applicable requirements of the Securities Act,
then such Underlying Shares shall be issued free of all legends.

(d)              
Each Purchaser, severally and not jointly with the other Purchasers, agrees with the Company that such Purchaser will sell
any Securities pursuant to either the registration requirements of the Securities Act, including, if the sale is being effected
pursuant to a registration statement (including the Resale Registration Statement), the plan of distribution contained within such
registration statement and any applicable prospectus-delivery requirements, or an exemption therefrom.

ARTICLE V.

GENERAL PROVISIONS

5.1             
Termination.  This Agreement may be terminated by any Purchaser, as to such Purchaser’s obligations hereunder
only and without any effect whatsoever on the obligations between the Company and the other Purchasers, by written notice to the
other parties, if the Closing has not been consummated on or before 30 days of the date hereof; provided, however, that no such
termination will affect the right of any party to sue for any breach by any other party (or parties).

5.2             
Fees and Expenses. Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay
the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all
transfer agent fees, stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchasers.

5.3             
Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire
understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings,
oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and
schedules.

5.4             
Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder
shall be in writing and shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto at or prior to
5:30 p.m. (Minneapolis time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading
Day or later than 5:30 p.m. (Minneapolis time) on any Trading Day, (c) the third Trading Day following the date of mailing, if
sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required
to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto.

    	 

    	 

    

5.5             
Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a
written instrument signed, in the case of an amendment, by the Company and the Purchasers holding at least 50% in interest of the
Securities based on the initial Subscription Amounts hereunder or, in the case of a waiver, by the party against whom enforcement
of any such waived provision is sought. No waiver of any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any
manner impair the exercise of any such right.

5.6             
Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not
be deemed to limit or affect any of the provisions hereof.

5.7             
Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors
and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written
consent of each Purchaser. Any Purchaser may assign any or all of its rights under this Agreement to any Person to whom such Purchaser
assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred
Securities, by the provisions of the Transaction Documents that apply to the “Purchasers.”

5.8             
Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective
successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person,
except for the Purchasers.

5.9             
Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction
Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of Minnesota, without
regard to the conflicts-of-law principles thereof. Each party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought
against a party hereto or its respective affiliates, directors, officers, stockholders, partners, members, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the City of Minneapolis, Minnesota. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of Minneapolis, Minnesota,
for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees
not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court,
that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably
waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect
for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and
notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted
by law. If either party shall commence an action, suit or proceeding to enforce any provisions of the Transaction Documents, then
the prevailing party in such action, suit or proceeding shall be reimbursed by the other party for its reasonable attorneys’
fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

    	 

    	 

    

5.10         
Survival. The representations and warranties contained herein shall survive the Closing and the delivery of the Securities
for a one-year period after the Closing Date.

5.11         
Execution. This Agreement may be executed in counterparts, all of which when taken together shall be considered one
and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other
party, it being understood that the parties need not sign the same counterpart. If any signature is delivered by facsimile transmission
or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf”
signature page were an original thereof.

5.12         
Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction
to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result
as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention
of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any
of such that may be hereafter declared invalid, illegal, void or unenforceable.

5.13         
Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery
of damages, each of the Purchasers and the Company will be entitled to specific performance under the Transaction Documents. The
parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations
contained in the Transaction Documents and hereby agree to waive and not to assert in any action for specific performance of any
such obligation the defense that a remedy at law would be adequate.

5.14         
Independent Nature of Purchasers’ Obligations and Rights. The obligations of each Purchaser under any Transaction
Document are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way
for the performance or non-performance of the obligations of any other Purchaser under any Transaction Document. Nothing contained
herein or in any other Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto, shall be deemed to
constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption
that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated
by the Transaction Documents. Each Purchaser shall be entitled to independently protect and enforce its rights including, without
limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for
any other Purchaser to be joined as an additional party in any proceeding for such purpose. Each Purchaser has been represented
by its own separate legal counsel in its review and negotiation of the Transaction Documents. The Company has elected to provide
all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required
or requested to do so by any of the Purchasers. It is expressly understood and agreed that each provision contained in this Agreement
and in each other Transaction Document is between the Company and a Purchaser, solely, and not between the Company and the Purchasers
collectively and not between and among the Purchasers.

    	 

    	 

    

5.15         
Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of
any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised
on the next succeeding Business Day.

5.16         
Construction. The parties agree that each of them and their respective counsel have reviewed and had an opportunity
to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments
thereto.

5.17         
WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER
PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY,
IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY. 

  

* * * * * * *

    	 

    	 

    

IN WITNESS WHEREOF,
the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories
as of the date first indicated above.

 

CACHET FINANCIAL SOLUTIONS, INC.

 

 

	By: 	 
	

Name: 

	 
	Title: 	 

 

 

Address for Notice:

 

18671 Lake Drive E.

Southwest Tech Center A

Minneapolis, Minnesota 55317

Facsimile: (952) 698-6999

 

 

 

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR
PURCHASER FOLLOWS]

    	 

    	 

    

  [PURCHASER SIGNATURE PAGES TO SECURITIES
PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF,
the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories
as of the date first indicated above. 

	 

                           Name of Purchaser: 
	 
	

Signature of Authorized Signatory of Purchaser:
    	 
	 

        Name of Authorized Signatory: 
	
	 

        Title of Authorized Signatory: 

        
	 
	 

        Email Address of Authorized Signatory:
	 
	 

        Facsimile Number of Authorized Signatory:
	 
	 

        Address for Notice to Purchaser:
	 

 

Address
for Delivery of Preferred Stock and Warrants to Purchaser (if not same as address for notice):

 

 

	 

Subscription Amount:

	 

                           $

	 

        Shares of Preferred Stock:
	 
	 

Warrant Shares: 

	 
	 

EIN Number: 

	 

  

	DWAC Instructions – Broker no:  	 	                        Account
no:	 

         

    	 

    	 

    

 

Exhibit A

 

Attached is the form of Certificate of Designation

 

    	 

    	 

    

  

Exhibit B

 

Attached is the form of Warrant

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