Document:

EX-10.26 Operation Agreement Dated 10-1-05

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

EXHIBIT “A”

EXHIBIT
10.26

A.A.P.L. FORM 610 — 1989

MODEL FORM OPERATING AGREEMENT

OPERATING AGREEMENT

DATED

October 1, 2005 

OPERATOR: EnerVest Operating, L.L.C.

CONTRACT AREA: Belden & Blake Corporation

COUNTY OR PARISH OF __________, STATE OF MI, PA, OH, & NY

 

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

OPERATING AGREEMENT

     THIS AGREEMENT, entered into by and between EnerVest Operating, L.L.C.  hereinafter
designated and referred to as “Operator”, and the signatory party or parties other than Operator,
sometimes hereinafter referred to individually as “Non-Operator”, and collectively as
“Non-Operators”.

WITNESSETH:

     WHEREAS, the parties to this agreement are owners of Oil and Gas Leases and/or Oil and Gas
Interests in the land identified in Exhibit “A”, and the parties hereto have reached an agreement
to explore and develop these Leases and/or Oil and Gas Interests for the production of Oil and Gas
to the extent and as hereinafter provided.

     NOW, THEREFORE, it is agreed as follows:

ARTICLE I.

DEFINITIONS

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

	 	A.	 	The term “AFE” shall mean an Authority for Expenditure prepared by a party to this
agreement for the purpose of estimating the costs to be incurred in conducting an
operation hereunder.
	 
	 	B.	 	The term “Completion” or “Complete” shall mean a single operation intended to
complete a well as a producer of Oil and Gas in one or more Zones, including, but not
limited to, the setting of production casing, perforating, well stimulation and production
testing conducted in such operation.
	 
	 	C.	 	The term “Contract Area” shall mean all of the lands, Oil and Gas Leases and/or Oil
and Gas Interests intended to be developed and operated for Oil and Gas purposes under
this agreement. Such lands, Oil and Gas Leases and Oil and Gas Interests are described in
Exhibit “A”.
	 
	 	D.	 	The term “Deepen” shall mean a single operation whereby a well is drilled to an
objective Zone below the deepest Zone in which the well was previously drilled, or below
the Deepest Zone proposed in the associated AFE, whichever is the lesser.
	 
	 	E.	 	The terms “Drilling Party” and “Consenting Party” shall mean a party who agrees to
join in and pay its share of the cost of any operation conducted under the provisions of
this agreement.
	 
	 	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 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 established
by the pattern of drilling in the Contract Area unless fixed by express agreement of the
Drilling Parties.
	 
	 	G.	 	The term “Drillsite” shall mean the Oil and Gas Lease or Oil and Gas Interest on
which a proposed well is to be located.
	 
	 	H.	 	The term “Initial Well” shall mean the well required to be drilled by the parties
hereto as provided in Article VI.A.
	 
	 	I.	 	The term “Non-Consent Well” shall mean a well in which less than all parties have
conducted an operation as provided in Article Vl.B.2.
	 
	 	J.	 	The terms “Non-Drilling Party” and “Non-Consenting Party” shall mean a party who
elects not to participate in a proposed operation.
	 
	 	K.	 	The term “Oil and Gas” shall mean oil, gas, casinghead gas, gas condensate, and/or
all other liquid or gaseous hydrocarbons and other marketable substances produced
therewith, unless an intent to limit the inclusiveness of this term is specifically
stated.
	 
	 	L.	 	The term “Oil and Gas Interests” or “Interests” shall mean unleased fee and mineral
interests in Oil and Gas in tracts of land lying within the Contract Area which are owned
by parties to this agreement.
	 
	 	M.	 	The terms “Oil and Gas Lease,” “Lease” and “Leasehold” shall mean the oil and gas
leases or interests therein covering tracts of land lying within the Contract Area which
are owned by the parties to this agreement.
	 
	 	N.	 	The term “Plug Back” shall mean a single operation whereby a deeper Zone is abandoned
in order to attempt a Completion in a shallower Zone.
	 
	 	O.	 	The term “Recompletion” or “Recomplete” shall mean an operation whereby a Completion
in one Zone is abandoned in order to attempt a Completion in a different Zone within the
existing wellbore.
	 
	 	P.	 	The term “Rework” shall mean an operation conducted in the wellbore of a well after
it is Completed to secure, restore, or improve production in a Zone which is currently
open to production in the wellbore. Such operations include, but are not limited to, well
stimulation operations but exclude any routine repair or maintenance work or drilling,
Sidetracking, Deepening, Completing, Recompleting, or Plugging Back of a well.
	 
	 	Q.	 	The term “Sidetrack” shall mean the directional control and intentional deviation of
a well from vertical so as to change the bottom hole location unless done to straighten
the hole or to drill around junk in the hole to overcome other mechanical difficulties.
	 
	 	R.	 	The term “Zone” shall mean a stratum of earth containing or thought to contain a
common accumulation of Oil and Gas separately producible from any other common
accumulation of Oil and Gas.

     Unless the context otherwise clearly indicates, words used in the singular include the plural,
the word “person” includes natural and artificial persons, the plural includes the singular, and
any gender includes the masculine, feminine, and neuter.

ARTICLE II.

EXHIBITS

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

	 	 	 	 	 	 	 	 	 
	 	 	_____A.	 	Exhibit “A” shall include the following information:
	 

	 	 	 	 	(1	)	 	Description of lands subject to this agreement,
	 

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

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

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

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

	 	 	 	 	(6	)	 	Burdens on production.
	 	 	_____B.	 	Exhibit “B”, Form of Lease.
	 	 	_____C.	 	Exhibit “C”, Accounting Procedure.
	 	 	_____D.	 	Exhibit “D”, Insurance.
	 	 	_____E.	 	Exhibit “E”, Gas Balancing Agreement.
	 	 	_____F.	 	Exhibit “F”, Non-Discrimination and Certification of Non-Segregated Facilities.
	 	 	_____G.	 	Exhibit “G”, Tax Partnership.
	 	 	_____H.	 	Other: _________________________________________________

 

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

If any provision of any exhibit, except Exhibits “E”, “F”, and “G”, is inconsistent with any
provision contained in the body of this agreement, the provisions in the body of this agreement
shall prevail.

ARTICLE III.

INTERESTS OF PARTIES

A. Oil and Gas Interests:

     If any party owns an Oil and Gas Interest in the Contract Area, that Interest shall be treated
for all purposes of this agreement and during the term hereof as if it were covered by the form of
Oil and Gas Lease attached hereto as Exhibit “B”, and the owner thereof shall be deemed to own both
royalty interest in such lease and the interest of the lessee thereunder.

B. Interests of Parties in Costs and Production:

     Unless changed by other provisions, all costs and liabilities incurred in operations under
this agreement shall be borne and paid, and all equipment and materials acquired in operations on
the Contract Area shall be owned, by the parties as their interests are set forth in Exhibit “A”.
In the same manner, the parties shall also own all production of Oil and Gas from the Contract Area
subject, however, to the payment of royalties and other burdens on production as described
hereafter.

     Regardless of which party has contributed any Oil and Gas Lease or Oil and Gas Interest on
which royalty or other burdens may be payable and except as otherwise expressly provided in this
agreement, each party shall pay or deliver, or cause to be paid or delivered, all burdens on its
share of the production from the Contract Area up to, but not in excess of,
___and shall indemnify, defend and hold the other parties free from any
liability therefor. Except as otherwise expressly provided in this agreement, if any party has
contributed hereto any Lease or Interest which is burdened with any royalty, overriding royalty,
production payment or other burden on production in excess of the amounts stipulated above, such
party so burdened shall assume and alone bear all such excess obligations and shall indemnify,
defend and hold the other parties hereto harmless from any and all claims attributable to such
excess burden. However, so long as the Drilling Unit for the productive Zone(s) is identical with
the Contract Area, each party shall pay or deliver, or cause to be paid or delivered, all burdens
on production from the Contract Area due under the terms of the Oil and Gas Lease(s) which such
party has contributed to this agreement, and shall indemnify, defend and hold the other parties
free from any liability therefor.

     No party shall ever be responsible, on a price basis higher than the price received by such
party, to any other party’s lessor or royalty owner, and if such other party’s lessor or royalty
owner should demand and receive settlement on a higher price basis, the party contributing the
affected Lease shall bear the additional royalty burden attributable to such higher price.

     Nothing contained in this Article III.B. shall be deemed an assignment or cross-assignment of
interests covered hereby, and in the event two or more parties contribute to this agreement jointly
owned Leases, the parties’ undivided interests in said Leaseholds shall be deemed separate
leasehold interests for the purposes of this agreement.

C. Subsequently Created Interests:

     If any party has contributed hereto a Lease or Interest that is burdened with an assignment of
production given as security for the payment of money, or if, after the date of this agreement, any
party creates an overriding royalty, production payment, net profits interest, assignment of
production or other burden payable out of production attributable to its working interest
hereunder, such burden shall be deemed a “Subsequently Created Interest.” Further, if any party has
contributed hereto a Lease or Interest burdened with an overriding royalty, production payment, net
profits interest, or other burden payable out of production created prior to the date of this
agreement, and such burden is not shown on Exhibit “A”, such burden also shall be deemed a
Subsequently Created Interest to the extent such burden causes the burdens on such party’s Lease or
Interest to exceed the amount stipulated in Article III.B. above.

     The party whose interest is burdened with the Subsequently Created Interest (the “Burdened
Party”) shall assume and alone bear, pay and discharge the Subsequently Created Interest and shall
indemnify, defend and hold harmless the other Parties from and against any liability therefor.
Further, if the Burdened Party fails to pay, when due, its share of expenses chargeable hereunder,
all provisions of Article VII.B. shall be enforceable against the Subsequently Created Interest in
the same manner as they are enforceable against the working interest of the Burdened Party. If the
Burdened Party is required under this agreement to assign or relinquish to any other party, or
parties, all or a portion of its working interest and/or the production attributable thereto, said
other party, or parties, shall receive said assignment and/or production free and clear of said
Subsequently Created Interest, and the Burdened Party shall indemnify, defend and hold harmless
said other party, or parties, from any and all claims and demands for payment asserted by owners of
the Subsequently Created Interest.

ARTICLE IV.

TITLES

A. Title Examination:

     Title examination shall be made on the Drillsite of any proposed well prior to commencement
of drilling operations and, if a majority in interest of the Drilling Parties so request or
Operator so elects, title examination shall be made on the entire Drilling Unit, or maximum
anticipated Drilling Unit, of the well. The opinion will include the ownership of the working
interest, minerals, royalty, overriding royalty and production payments under the applicable
Leases. Each party contributing Leases and/or Oil and Gas Interests to be included in the Drillsite
or Drilling Unit, if appropriate, shall furnish to Operator all abstracts (including federal lease
status reports), title opinions, title papers and curative material in its possession free of
charge. All such information not in the possession of or made available to Operator by the parties,
but necessary for the examination of the title, shall be obtained by Operator. Operator shall cause
title to be examined by attorneys on its staff or by outside attorneys. Copies of all title
opinions shall be furnished to each Drilling Party. Costs incurred by Operator in procuring
abstracts, fees paid outside attorneys for title examination (including preliminary, supplemental,
shut-in royalty opinions and division order title opinions) and other direct charges as provided in
Exhibit “C” shall be borne by the Drilling Parties in the proportion that the interest of each
Drilling Party bears to the total interest of all Drilling Parties as such interests appear in
Exhibit “A”. Operator shall make no charge for services rendered by its staff attorneys or other
personnel in the performance of the above functions.

     Each party shall be responsible for securing curative matter and pooling amendments or
agreements required in connection with Leases or Oil and Gas Interests contributed by such party.
Operator shall be responsible for the preparation and recording of pooling designations or
declarations and communitization agreements as well as the conduct of hearings before governmental
agencies for the securing of spacing or pooling orders or any other orders necessary or appropriate
to the conduct of operations hereunder. This shall not prevent any party from appearing on its own
behalf at such hearings. Costs incurred by Operator, including fees paid to outside attorneys,
which are associated with hearings before governmental agencies, and which costs are necessary and
proper for the activities contemplated under this agreement, shall be direct charges to the joint
account and shall not be covered by the administrative overhead charges as provided in Exhibit “C.”

 

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

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

     No well shall be drilled on the Contract Area until after (1) the title to the Drillsite or
Drilling Unit, if appropriate, has been examined as above provided, and (2) the title has been
approved by the examining attorney or title has been accepted by all of the Drilling Parties in
such well.

B. Loss or Failure of Title:

     1. Failure of Title: Should any Oil and Gas Interest or Oil and Gas Lease be lost
through failure of title, which results in a reduction of interest from that shown on Exhibit “A,”
the party credited with contributing the affected Lease or Interest (including, if applicable, a
successor in interest to such party) shall have ninety (90) days from final determination of title
failure to acquire a new lease or other instrument curing the entirety of the title failure, which
acquisition will not be subject to Article VIII.B., and failing to do so, this agreement,
nevertheless, shall continue in force as to all remaining Oil and Gas Leases and Interests; and,

          (a) The party credited with contributing the Oil and Gas Lease or Interest affected by the
title failure (including, if applicable, a successor in interest to such party) shall bear alone
the entire loss and it shall not be entitled to recover from Operator or the other parties any
development or operating costs which it may have previously paid or incurred, but there shall be no
additional liability on its part to the other parties hereto by reason of such title failure;

          (b) There shall be no retroactive adjustment of expenses incurred or revenues received from
the operation of the Lease or Interest which has failed, but the interests of the parties contained
on Exhibit “A” shall be revised on an acreage basis, as of the time it is determined finally that
title failure has occurred, so that the interest of the party whose Lease or Interest is affected
by the title failure will thereafter be reduced in the Contract Area by the amount of the Lease or
Interest failed;

          (c) If the proportionate interest of the other parties hereto in any producing well previously
drilled on the Contract Area is increased by reason of the title failure, the party who bore the
costs incurred in connection with such well attributable to the Lease or Interest which has failed
shall receive the proceeds attributable to the increase in such interest (less costs and burdens
attributable thereto) until it has been reimbursed for unrecovered costs paid by it in connection
with such well attributable to such failed Lease or Interest;

          (d) Should any person not a party to this agreement, who is determined to be the owner of any
Lease or Interest which has failed, pay in any manner any part of the cost of operation,
development, or equipment, such amount shall be paid to the party or parties who bore the costs
which are so refunded;

          (e) Any liability to account to a person not a party to this agreement for prior production of
Oil and Gas which arises by reason of title failure shall be borne severally by each party
(including a predecessor to a current party) who received production for which such accounting is
required based on the amount of such production received, and each such party shall severally
indemnify, defend and hold harmless all other parties hereto for any such liability to account;

          (f) No charge shall be made to the joint account for legal expenses, fees or salaries in
connection with the defense of the Lease or Interest claimed to have failed, but if the party
contributing such Lease or Interest hereto elects to defend its title it shall bear all expenses in
connection therewith; and

          (g) If any party is given credit on Exhibit “A” to a Lease or Interest which is limited solely
to ownership of an interest in the wellbore of any well or wells and the production therefrom, such
party’s absence of interest in the remainder of the Contract Area shall be considered a Failure of
Title as to such remaining Contract Area unless that absence of interest is reflected on Exhibit
“A”.

     2. Loss by Non-Payment or Erroneous Payment of Amount Due: If, through mistake or
oversight, any rental, shut-in well payment, minimum royalty or royalty payment, or other payment
necessary to maintain all or a portion of an Oil and Gas Lease or Interest is not paid or is
erroneously paid, and as a result a Lease or Interest terminates, there shall be no monetary
liability against the party who failed to make such payment. Unless the party who failed to make
the required payment secures a new Lease or Interest covering the same interest within ninety (90)
days from the discovery of the failure to make proper payment, which acquisition will not be
subject to Article VIII.B., the interests of the parties reflected on Exhibit “A” shall be revised
on an acreage basis, effective as of the date of termination of the Lease or Interest involved, and
the party who failed to make proper payment will no longer be credited with an interest in the
Contract Area on account of ownership of the Lease or Interest which has terminated. If the party
who failed to make the required payment shall not have been fully reimbursed, at the time of the
loss, from the proceeds of the sale of Oil and Gas attributable to the lost Lease or Interest,
calculated on an acreage basis, for the development and operating costs previously paid on account
of such Lease or Interest, it shall be reimbursed for unrecovered actual costs previously paid by
it (but not for its share of the cost of any dry hole previously drilled or wells previously
abandoned) from so much of the following as is necessary to effect reimbursement:

          (a) Proceeds of Oil and Gas produced prior to termination of the Lease or Interest, less
operating expenses and lease burdens chargeable hereunder to the person who failed to make payment,
previously accrued to the credit of the lost Lease or Interest, on an acreage basis, up to the
amount of unrecovered costs;

          (b) Proceeds of Oil and Gas, less operating expenses and lease burdens chargeable hereunder to
the person who failed to make payment, up to the amount of unrecovered costs attributable to that
portion of Oil and Gas thereafter produced and marketed (excluding production from any wells
thereafter drilled) which, in the absence of such Lease or Interest termination, would be
attributable to the lost Lease or Interest on an acreage basis and which as a result of such Lease
or Interest termination is credited to other parties, the proceeds of said portion of the Oil and
Gas to be contributed by the other parties in proportion to their respective interests reflected on
Exhibit “A”; and,

          (c) Any monies, up to the amount of unrecovered costs, that may be paid by any party who is,
or becomes, the owner of the Lease or Interest lost, for the privilege of participating in the
Contract Area or becoming a party to this agreement.

     3. Other Losses: All losses of Leases or Interests committed to this agreement other
than those set forth in Articles IV.B.1. and IV.B.2. above shall be joint losses and shall be borne
by all parties in proportion to their interests shown on Exhibit “A”. This shall include but not be
limited to the loss of any Lease or Interest through failure to develop or because express or
implied covenants have not been performed (other than performance which requires only the payment
of money), 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 readjustment of interests in the remaining portion of the
Contract Area on account of any joint loss.

     4. Curing
Title: In the event of a Failure of Title under Article IV.B.1. or a loss of
title under Article IV.B.2. above, any Lease or Interest acquired by any party hereto (other than
the party whose interest has failed or was lost) during the ninety (90) day period provided by
Article IV.B. I. and Article IV.B.2. above covering all or a portion of the interest that has
failed 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 shall not apply to such acquisition.

 

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

ARTICLE V.

OPERATOR

A. Designation and Responsibilities of Operator:

EnerVest Operating, L.L.C.  shall be the Operator of the Contract Area, and shall conduct
and direct and have full control of all operations on the Contract Area as permitted and required
by, and within the limits of this agreement. In its performance of services hereunder for the
Non-Operators, Operator shall be an independent contractor not subject to the control or direction
of the Non-Operators except as to the type of operation to be undertaken in accordance with the
election procedures contained in this agreement. Operator shall not be deemed, or hold itself out
as, the agent of the Non-Operators with authority to bind them to any obligation or liability
assumed or incurred by Operator as to any third party. Operator shall conduct its activities under
this agreement as a reasonable prudent operator, in a good and workmanlike manner, with due
diligence and dispatch, in accordance with good oilfield practice, and in compliance with
applicable law and regulation, but in no event shall it have any liability as Operator to the other
parties for losses sustained or liabilities incurred except such as may result from gross
negligence or willful misconduct.

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

     1. Resignation or Removal of Operator: Operator may resign at any time by giving
written notice thereof to Non-Operators. If Operator terminates its legal existence, no longer owns
an interest hereunder in the Contract Area , or is no longer capable of serving as Operator,
Operator shall be deemed to have resigned without any action by Non-Operators, except the selection
of a successor. Operator may be removed only for good cause by the affirmative vote of
Non-Operators owning a majority interest based on ownership as shown on Exhibit “A” remaining after
excluding the voting interest of Operator; such vote shall not be deemed effective until a written
notice has been delivered to the Operator by a Non-Operator detailing the alleged default and
Operator has failed to cure the default within thirty (30) days from its receipt of the notice or,
if the default concerns an operation then being conducted, within forty-eight (48) hours of its
receipt of the notice. For purposes hereof, “good cause” shall mean not only gross negligence or
willful misconduct but also the material breach of or inability to meet the standards of operation
contained in Article V.A. or material failure or inability to perform its obligations under this
agreement.

     Subject to Article VII.D.l., such resignation or removal shall not become effective until 7:00
o’clock A.M. on the first day of the calendar month following the expiration of ninety (90) days
after the giving of notice of resignation by Operator or action by the Non-Operators to remove
Operator, unless a successor Operator has been selected and assumes the duties of Operator at an
earlier date. Operator, after effective date of resignation or removal, shall be bound by the terms
hereof as a Non-Operator. A change of a corporate name or structure of Operator or transfer of
Operator’s interest to any single subsidiary, parent or successor corporation shall not be the
basis for removal of Operator.

     2. Selection of Successor Operator: Upon the resignation or removal of Operator under
any provision of this agreement, a successor Operator shall be selected by the parties. The
successor Operator shall be selected from the parties owning an interest in the Contract Area at
the time such successor Operator is selected. The successor Operator shall be selected by the
affirmative vote of two (2) or more parties owning a majority interest based on ownership as shown
on Exhibit “A” provided, however, if an Operator which has been removed or is deemed to have
resigned fails to vote or votes only to succeed itself, the successor Operator shall be selected by
the affirmative vote of the party or parties owning a majority interest based on ownership as shown
on Exhibit “A” remaining after excluding the voting interest of the Operator that was removed or
resigned. The former Operator shall promptly deliver to the successor Operator all records and data
relating to the operations conducted by the former Operator to the extent such records and data are
not already in the possession of the successor operator. Any cost of obtaining or copying the
former Operator’s records and data shall be charged to the joint account.

     3. Effect of Bankruptcy: If Operator becomes insolvent, bankrupt or is placed in
receivership, it shall be deemed to have resigned without any action by Non-Operators, except the
selection of a successor. If a petition for relief under the federal bankruptcy laws is filed by or
against Operator, and the removal of Operator is prevented by the federal bankruptcy court, all
Non-Operators and Operator shall comprise an interim operating committee to serve until Operator
has elected to reject or assume this agreement pursuant to the Bankruptcy Code, and an election to
reject this agreement by Operator as a debtor in possession, or by a trustee in bankruptcy, shall
be deemed a resignation as Operator without any action by Non-Operators, except the selection of a
successor. During the period of time the operating committee controls operations, all actions shall
require the approval of two (2) or more parties owning a majority interest based on ownership as
shown on Exhibit “A”. In the event there are only two (2) parties to this agreement, during the
period of time the operating committee controls operations, a third party acceptable to Operator,
Non-Operator and the federal bankruptcy court shall be selected as a member of the operating
committee, and all actions shall require the approval of two (2) members of the operating committee
without regard for their interest in the Contract Area based on Exhibit “A”.

C. Employees and Contractors:

     The number of employees or contractors used by Operator in conducting operations hereunder,
their selection, and the hours of labor and the compensation for services performed shall be
determined by Operator, and all such employees or contractors shall be the employees or contractors
of Operator.

D. Rights and Duties of Operator:

     1. Competitive Rates and Use of Affiliates: All wells drilled on the Contract Area
shall be drilled on a competitive contract basis at the usual rates prevailing in the area. If it
so desires, Operator may employ its own tools and equipment in the drilling of wells, but its
charges therefor shall not exceed the prevailing rates in the area and the rate of such charges
shall be agreed upon by the parties in writing before drilling operations are commenced, and such
work shall be performed by Operator under the same terms and conditions as are customary and usual
in the area in contracts of independent contractors who are doing work of a similar nature. All
work performed or materials supplied by affiliates or related parties of Operator shall be
performed or supplied at competitive rates, pursuant to written agreement, and in accordance with
customs and standards prevailing in the industry.

     2. Discharge of Joint Account Obligations: Except as herein otherwise specifically
provided, Operator shall promptly pay and discharge expenses incurred in the development and
operation of the Contract Area pursuant to this agreement and shall charge each of the parties
hereto with their respective proportionate shares upon the expense basis provided in Exhibit “C”.
Operator shall keep an accurate record of the joint account hereunder, showing expenses incurred
and charges and credits made and received. Attached to and made a part of Exhibit C hereto
shall be Addenda indicating the direct charges and overhead for specific regions within the **

     3. Protection from Liens: Operator shall pay, or cause to be paid, as and when
they become due and payable, all accounts of contractors and suppliers and wages and salaries for
services rendered or performed, and for materials supplied on, to or in respect of the Contract
Area or any operations for the joint account thereof, and shall keep the Contract Area free from

**Contract Area.

 

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

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

     4. Custody of Funds: Operator shall hold for the account of the Non-Operators any
funds of the Non-Operators advanced or paid to the Operator, either for the conduct of operations
hereunder or as a result of the sale of production from the Contract Area, and such funds shall
remain the funds of the Non-Operators on whose account they are advanced or paid until used for
their intended purpose or otherwise delivered to the Non-Operators or applied toward the payment of
debts as provided in Article VII.B. Nothing in this paragraph shall be construed to establish a
fiduciary relationship between Operator and Non-Operators for any purpose other than to account for
Non-Operator funds as herein specifically provided. Nothing in this paragraph shall require the
maintenance by Operator of separate accounts for the funds of Non-Operators unless the parties
otherwise specifically agree.

     5. Access to Contract Area and Records: Operator shall, except as otherwise provided
herein, permit each Non-Operator or its duly authorized representative, at the Non-Operator’s sole
risk and cost, full and free access at all reasonable times to all operations of every kind and
character being conducted for the joint account on the Contract Area and to the records of
operations conducted thereon or production therefrom, including Operator’s books and records
relating thereto. Such access rights shall not be exercised in a manner interfering with Operator’s
conduct of an operation hereunder and shall not obligate Operator to furnish any geologic or
geophysical data of an interpretive nature unless the cost of preparation of such interpretive data
was charged to the joint account. Operator will furnish to each Non-Operator upon request copies of
any and all reports and information obtained by Operator in connection with production and related
items, including, without limitation, meter and chart reports, production purchaser statements, run
tickets and monthly gauge reports, but excluding purchase contracts and pricing information to the
extent not applicable to the production of the Non-Operator seeking the information. Any audit of
Operator’s records relating to amounts expended and the appropriateness of such expenditures shall
be conducted in accordance with the audit protocol specified in Exhibit “C”.

     6. Filing and Furnishing Governmental Reports: Operator will file, and upon written
request promptly furnish copies to each requesting Non-Operator not in default of its payment
obligations, all operational notices, reports or applications required to be filed by local, State,
Federal or Indian agencies or authorities having jurisdiction over operations hereunder. Each
Non-Operator shall provide to Operator on a timely basis all information necessary to Operator to
make such filings.

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

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

          (b) Operator will send to Non-Operators such reports, test results and notices regarding the
progress of operations on the well as the Non-Operators shall reasonably request, including, but
not limited to, daily drilling reports, completion reports, and well logs.

          (c) Operator shall adequately test all Zones encountered which may reasonably be expected to
be capable of producing Oil and Gas in paying quantities as a result of examination of the electric
log or any other logs or cores or tests conducted hereunder.

     8. Cost Estimates. Upon request of any Consenting Party, Operator shall furnish
estimates of current and cumulative costs incurred for the joint account at reasonable intervals
during the conduct of any operation pursuant to this agreement. Operator shall not be held liable
for errors in such estimates so long as the estimates are made in good faith.

     9. Insurance: At all times while operations are conducted hereunder, Operator shall
comply with the workers compensation law of the state where the operations are being conducted;
provided, however, that Operator may be a self-insurer for liability under said compensation laws
in which event the only charge that shall be made to the joint account shall be as provided in
Exhibit “C”. Operator shall also carry or provide insurance for the benefit of the joint account of
the parties as outlined in Exhibit “D” attached hereto and made a part hereof. Operator shall
require all contractors engaged in work on or for the Contract Area to comply with the workers
compensation law of the state where the operations are being conducted and to maintain such other
insurance as Operator may require.

     In the event automobile liability insurance is specified in said Exhibit “D”, or subsequently
receives the approval of the parties, no direct charge shall be made by Operator for premiums paid
for such insurance for Operator’s automotive equipment.

ARTICLE VI.

DRILLING AND DEVELOPMENT

     1. Proposed Operations: If any party
hereto should desire to drill any well on the
Contract Area or if any party should desire to Rework, Sidetrack,
Deepen, Recomplete or Plug Back a dry hole or a well no longer capable of producing in paying
quantities in which such party has not otherwise relinquished its interest in the proposed
objective Zone under this agreement, the party desiring to drill, Rework, Sidetrack, Deepen,
Recomplete or Plug Back such a well shall give written notice of the proposed operation to the
parties who have not otherwise relinquished their interest in such objective Zone

 

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

under this agreement and to all other parties in the case of a proposal for Sidetracking or
Deepening, specifying the work to be performed, the location, proposed depth, objective Zone and
the estimated cost of the operation. The parties to whom such a notice is delivered shall have
thirty (30) days after receipt of the notice within which to notify the party proposing to do the
work whether they elect to participate in the cost of the proposed operation. If a drilling rig is
on location, notice of a proposal to Rework, Sidetrack, Recomplete, Plug Back or Deepen may be
given by telephone and the response period shall be limited to twenty-four (24) hours,
Failure of a party to whom such notice is delivered to reply
within the period above fixed shall constitute an election by that party not to participate in the
cost of the proposed operation. Any proposal by a party to conduct an operation conflicting with
the operation initially proposed shall be delivered to all parties within the time and in the
manner provided in Article VI.B.6.

          If all parties to whom such notice is delivered elect to participate in such a proposed
operation, the parties shall be contractually committed to participate therein provided such
operations are commenced within the time period hereafter set forth, and Operator shall, no later
than ninety (90) days after expiration of the notice period of thirty (30) days (or as promptly as
practicable after the expiration of the twenty-four (24) hour period when a drilling rig is on
location, as the case may be), actually commence the proposed operation and thereafter complete it
with due diligence at the risk and expense of the parties participating therein; provided, however,
said commencement date may be extended upon written notice of same by Operator to the other
parties, for a period of up to thirty (30) additional days if, in the sole opinion of Operator,
such additional time is reasonably necessary to obtain permits from governmental authorities,
surface rights (including rights-of-way) or appropriate drilling equipment, or to complete title
examination or curative matter required for title approval or acceptance. If the actual operation
has not been commenced within the time provided (including any extension thereof as specifically
permitted herein or in the force majeure provisions of Article XI) and if any party hereto still
desires to conduct said operation, written notice proposing same must be resubmitted to the other
parties in accordance herewith as if no prior proposal had been made. Those parties that did not
participate in the drilling of a well for which a proposal to Deepen or Sidetrack is made hereunder
shall, if such parties desire to participate in the proposed Deepening or Sidetracking operation,
reimburse the Drilling Parties in accordance with Article VI.B.4. in the event of a Deepening
operation and in accordance with Article VI.B.5. in the event of a Sidetracking operation.

     2. Operations by Less Than All Parties:

          (a) Determination of Participation. If any party to whom such notice is delivered as
provided in Article VI.B. 1. or VI.C.l. (Option No. 2) elects not to participate in the proposed
operation, then, in order to be entitled to the benefits of this Article, the party or parties
giving the notice and such other parties as shall elect to participate in the operation shall, no
later than ninety (90) days after the expiration of the notice period of thirty (30) days (or as
promptly as practicable after the expiration of the twenty-four (24) hour period when a drilling
rig is on location, as the case may be) actually commence the proposed operation and complete it
with due diligence. Operator shall perform all work for the account of the Consenting Parties;
provided, however, if no drilling rig or other equipment is on location, and if Operator is a
Non-Consenting Party, the Consenting Parties shall either: (i) request Operator to perform the work
required by such proposed operation for the account of the Consenting Parties, or (ii) designate
one of the Consenting Parties as Operator to perform such work. The rights and duties granted to
and imposed upon the Operator under this agreement are granted to and imposed upon the party
designated as Operator for an operation in which the original Operator is a Non-Consenting Party.
Consenting Parties, when conducting operations on the Contract Area pursuant to this Article
VI.B.2., shall comply with all terms and conditions of this agreement.

          If less than all parties approve any proposed operation, the proposing party, immediately
after the expiration of the applicable notice period, shall advise all Parties of the total
interest of the parties approving such operation and its recommendation as to whether the
Consenting Parties should proceed with the operation as proposed. Each Consenting Party, within
twenty-four (24) hours after delivery of such
notice, shall advise the proposing party of its desire to (i) limit participation to such party’s
interest as shown on Exhibit “A” or (ii) carry only its proportionate part (determined by dividing
such party’s interest in the Contract Area by the interests of all Consenting Parties in the
Contract Area) of Non-Consenting Parties’ interests, or (iii) carry its proportionate part
(determined as provided in (ii)) of Non-Consenting Parties’ interests together with all or a
portion of its proportionate part of any Non-Consenting Parties’ interests that any Consenting
Party did not elect to take. Any interest of Non-Consenting Parties that is not carried by a
Consenting Party shall be deemed to be carried by the party proposing the operation if such party
does not withdraw its proposal. Failure to advise the proposing party within the time required
shall be deemed an election under (i). In the event a drilling rig is on location, notice may be
given by telephone, and the time permitted for such a response shall not exceed a total of
twenty-four (24) hours. The proposing party, at
its election, may withdraw such proposal if there is less than 100% participation and shall notify
all parties of such decision within ten (10) days, or within twenty-four (24) hours if a drilling
rig is on location, following expiration of the applicable response period. If 100% subscription to
the proposed operation is obtained, the proposing party shall promptly notify the Consenting
Parties of their proportionate interests in the operation and the party serving as Operator shall
commence such operation within the period provided in Article VI.B.1., subject to the same
extension right as provided therein.

          (b) Relinquishment of Interest for Non-Participation . The entire cost and risk of
conducting such operations shall be borne by the Consenting Parties in the proportions they have
elected to bear same under the terms of the preceding paragraph. Consenting Parties shall keep the
leasehold estates involved in such operations free and clear of all liens and encumbrances of every
kind created by or arising from the operations of the Consenting Parties. If such an operation
results 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 the surface location at their sole cost, risk and expense;
provided, however, that those Non-Consenting Parties that participated in the drilling, Deepening
or Sidetracking of the well shall remain liable for, and shall pay, their proportionate shares of
the cost of plugging and abandoning the well and restoring the surface location insofar only as
those costs were not increased by the subsequent operations of the Consenting Parties. If any well
drilled, Reworked, Sidetracked, Deepened, Recompleted or Plugged Back under the provisions of this
Article results in a well capable of producing Oil and/or Gas in paying quantities, the Consenting
Parties shall Complete and equip the well to produce at their sole cost and risk, and the well
shall then be turned over to Operator (if the Operator did not conduct the operation) and shall be
operated by it at the expense and for the account of the Consenting Parties. Upon commencement of
operations for the drilling, Reworking, Sidetracking, Recompleting, Deepening or Plugging Back of
any such well by Consenting Parties in accordance with the provisions of this Article, each
Non-Consenting Party shall be deemed to have relinquished to Consenting Parties, and the Consenting
Parties shall own and be entitled to receive, in proportion to their respective interests, all of
such Non-Consenting Party’s interest in the well and share of production therefrom or, in the case
of a Reworking, Sidetracking,

 

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

Deepening, Recompleting or Plugging Back, or a Completion pursuant to Article VI.C.1. Option
No. 2, all of such Non-Consenting Party’s interest in the production obtained from the operation in
which the Non-Consenting Party did not elect to participate. Such relinquishment shall be effective
until the proceeds of the sale of such share, calculated at the well, or market value thereof if
such share is not sold (after deducting applicable ad valorem, production, severance, and excise
taxes, royalty, overriding royalty and other interests not excepted by Article III.C. payable out
of or measured by the production from such well accruing with respect to such interest until it
reverts), shall equal the total of the following:

          (i) 400% of each such Non-Consenting Party’s share of the cost of any newly acquired
surface equipment beyond the wellhead connections (including but not limited to stock tanks,
separators, treaters, pumping equipment and piping), plus 100% of each such Non-Consenting Party’s
share of the cost of operation of the well commencing with first production and continuing until
each such Non-Consenting Party’s relinquished interest shall revert to it under other provisions of
this Article, it being agreed that each Non-Consenting Party’s share of such costs and equipment
will be that interest which would have been chargeable to such Non-Consenting Party had it
participated in the well from the beginning of the operations; and

          (ii) 400 % of (a) that portion of the costs and expenses of drilling, Reworking,
Sidetracking, Deepening, Plugging Back, testing, Completing, and Recompleting, after deducting any
cash contributions received under Article VIII.C., and of (b) that portion of the cost of newly
acquired equipment in the well (to and including the wellhead connections), which would have been
chargeable to such Non-Consenting Party if it had participated therein.

     Notwithstanding anything to the contrary in this Article VI.B., if the well does not reach the
deepest objective Zone described in the notice proposing the well for reasons other than the
encountering of granite or practically impenetrable substance or other condition in the hole
rendering further operations impracticable, Operator shall give notice thereof to each
Non-Consenting Party who submitted or voted for an alternative proposal under Article VI.B.6. to
drill the well to a shallower Zone than the deepest objective Zone proposed in the notice under
which the well was drilled, and each such Non-Consenting Party shall have the option to participate
in the initial proposed Completion of the well by paying its share of the cost of drilling the well
to its actual depth, calculated in the manner provided in Article VI.B.4. (a). If any such
Non-Consenting Party does not elect to participate in the first Completion proposed for such well,
the relinquishment provisions of this Article VI.B.2. (b) shall apply to such party’s interest.

     (c) Reworking, Recompletion or Plugging Back. An election not to participate in the
drilling, Sidetracking or Deepening of a well shall be deemed an election not to participate in any
Reworking or Plugging Back operation proposed in such a well, or portion thereof, to which the
initial non-consent election applied that is conducted at any time prior to full recovery by the
Consenting Parties of the Non-Consenting Party’s recoupment amount. Similarly, an election not to
participate in the Completing or Recompleting of a well shall be deemed an election not to
participate in any Reworking operation proposed in such a well, or portion thereof, to which the
initial non-consent election applied that is conducted at any time prior to full recovery by the
Consenting Parties of the Non-Consenting Party’s recoupment amount. Any such Reworking,
Recompleting or Plugging Back operation conducted during the recoupment period shall be deemed part
of the cost of operation of said well and there shall be added to the sums to be recouped by the
Consenting Parties 400 % of that portion of the costs of the Reworking, Recompleting or
Plugging Back operation which would have been chargeable to such Non-Consenting Party had it
participated therein. If such a Reworking, Recompleting or Plugging Back operation is proposed
during such recoupment period, the provisions of this Article VI.B. shall be applicable as between
said Consenting Parties in said well.

     (d) Recoupment Matters. During the period of time Consenting Parties are entitled to
receive Non-Consenting Party’s share of production, or the proceeds therefrom, Consenting Parties
shall be responsible for the payment of all ad valorem, production, severance, excise, gathering
and other taxes, and all royalty, overriding royalty and other burdens applicable to Non-Consenting
Party’s share of production not excepted by Article III.C.

     In the case of any Reworking, Sidetracking, Plugging Back, Recompleting or Deepening
operation, the Consenting Parties shall be permitted to use, free of cost, all casing, tubing and
other equipment in the well, but the ownership of all such equipment shall remain unchanged; and
upon abandonment of a well after such Reworking, Sidetracking, Plugging Back, Recompleting or
Deepening, the Consenting Parties shall account for all such equipment to the owners thereof, with
each party receiving its proportionate part in kind or in value, less cost of salvage.

     Within ninety (90) days after the completion of any operation under this Article, the party
conducting the operations for the Consenting Parties shall furnish each Non-Consenting Party with
an inventory of the equipment in and connected to the well, and an itemized statement of the cost
of drilling, Sidetracking, Deepening, Plugging Back, testing, Completing, Recompleting, and
equipping the well for production; or, at its option, the operating party, in lieu of an itemized
statement of such costs of operation, may submit a detailed statement of monthly billings. Each
month thereafter, during the time the Consenting Parties are being reimbursed as provided above,
the party conducting the operations for the Consenting Parties shall furnish the Non-Consenting
Parties with an itemized statement of all costs and liabilities incurred in the operation of the
well, together with a statement of the quantity of Oil and Gas produced from it and the amount of
proceeds realized from the sale of the well’s working interest production during the preceding
month. In determining the quantity of Oil and Gas produced during any month, Consenting Parties
shall use industry accepted methods such as but not limited to metering or periodic well tests. Any
amount realized from the sale or other disposition of equipment newly acquired in connection with
any such operation which would have been owned by a Non-Consenting Party had it participated
therein shall be credited against the total unreturned costs of the work done and of the equipment
purchased in determining when the interest of such Non-Consenting Party shall revert to it as above
provided; and if there is a credit balance, it shall be paid to such Non-Consenting Party.

     If and when the Consenting Parties recover from a Non-Consenting Party’s relinquished interest
the amounts provided for above, the relinquished interests of such Non-Consenting Party shall
automatically revert to it as of 7:00 a.m. on the day following the day on which such recoupment
occurs, and, from and after such reversion, such Non-Consenting Party shall own the same interest
in such well, the material and equipment in or pertaining thereto, and the production therefrom as
such Non-Consenting Party would have been entitled to had it participated in the drilling,
Sidetracking, Reworking, Deepening, Recompleting or Plugging Back of said well. Thereafter, such
Non-Consenting Party shall be charged with and shall pay its proportionate part of the further
costs of the operation of said well in accordance with the terms of this agreement and Exhibit “C”
attached hereto.

     3. Stand-By Costs: When a well which has been drilled or Deepened has reached its
authorized depth and all tests have been completed and the results thereof furnished to the
parties, or when operations on the well have been otherwise terminated pursuant to Article VI.F.,
stand-by costs incurred pending response to a party’s notice proposing a Reworking,

 

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

Sidetracking, Deepening, Recompleting, Plugging Back or Completing operation in such a well
(including the period required under Article VI.B.6. to resolve competing proposals) shall be
charged and borne as part of the drilling or Deepening operation just completed. Stand-by costs
subsequent to all parties responding, or expiration of the response time permitted, whichever first
occurs, and prior to agreement as to the participating interests of all Consenting Parties pursuant
to the terms of the second grammatical paragraph of Article VI.B.2. (a), shall be charged to and
borne as part of the proposed operation, but if the proposal is subsequently withdrawn because of
insufficient participation, such stand-by costs shall be allocated between the Consenting Parties
in the proportion each Consenting Party’s interest as shown on Exhibit “A” bears to the total
interest as shown on Exhibit “A” of all Consenting Parties.

          In the event that notice for a Sidetracking operation is given while the drilling rig to be
utilized is on location, any party may request and receive up to five (5) additional days after
expiration of the twenty-four (24) hour response period specified in Article VI.B.1. within which
to respond by paying for all stand-by costs and other costs incurred during such extended response
period; Operator may require such party to pay the estimated stand-by time in advance as a
condition to extending the response period. If more than one party elects to take such additional
time to respond to the notice, standby costs shall be allocated between the parties taking
additional time to respond on a day-to-day basis in the proportion each electing party’s interest
as shown on Exhibit “A” bears to the total interest as shown on Exhibit “A” of all the electing
parties.

     4. Deepening: If less than all the parties elect to participate in a drilling,
Sidetracking, or Deepening operation proposed pursuant to Article VI.B.1., the interest
relinquished by the Non-Consenting Parties to the Consenting Parties under Article 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 of which the parties were given notice under Article VI.B.1. (“Initial
Objective”). Such well shall not be Deepened beyond the Initial Objective without first complying
with this Article to afford the Non-Consenting Parties the opportunity to participate in the
Deepening operation.

     In the event any Consenting Party desires to drill or Deepen a Non-Consent Well to a depth
below the Initial Objective, such party shall give notice thereof, complying with the requirements
of Article VI.B.1., to all parties (including Non-Consenting Parties). Thereupon, Articles VI.B.1.
and 2. shall apply and all parties receiving such notice shall have the tight to participate or not
participate in the Deepening of such well pursuant to said Articles VI.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:

          (a) 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 Initial Objective 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 Initial Objective shall be for the sole account of
Consenting Parties.

          (b) 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 Initial Objective, calculated in the manner provided in paragraph (a) 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.

          The foregoing shall not imply a right of any Consenting Party to propose any Deepening for a
Non-Consent Well prior to the drilling of such well to its Initial Objective without the consent of
the other Consenting Parties as provided in Article VI.F.

     5. Sidetracking: Any party having the right to participate in a proposed Sidetracking
operation that does not own an interest in the affected wellbore at the time of the notice shall,
upon electing to participate, tender to the wellbore owners its proportionate share (equal to its
interest in the Sidetracking operation) of the value of that portion of the existing wellbore to be
utilized as follows:

          (a) If the proposal is for Sidetracking an existing dry hole, reimbursement shall be on the
basis of the actual costs incurred in the initial drilling of the well down to the depth at which
the Sidetracking operation is initiated.

          (b) If the proposal is for Sidetracking a well which has previously produced, reimbursement
shall be on the basis of such party’s proportionate share of drilling and equipping costs incurred
in the initial drilling of the well down to the depth at which the Sidetracking operation is
conducted, calculated in the manner described in Article VI.B.4(b) above. Such party’s
proportionate share of the cost of the well’s salvable materials and equipment down to the depth at
which the Sidetracking operation is initiated shall be determined in accordance with the provisions
of Exhibit “C.”

     6. Order of Preference of Operations. Except as otherwise specifically provided in
this agreement, if any party desires to propose the conduct of an operation that conflicts with a
proposal that has been made by a party under this Article VI, such 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
an operation on a well where no drilling rig is on location, or twenty-four (24) hours,
from delivery of the initial proposal, if a drilling rig
is on location for the well on which such operation is to be conducted, to deliver to all parties
entitled to participate in the proposed operation such party’s alternative proposal, such alternate
proposal to contain the same information required to be included in the initial proposal. Each
party receiving such proposals shall elect by delivery of notice to Operator within five (5) days
after expiration of the proposal period, or within twenty-four (24) hours if
a drilling rig is on location for the well that is the subject of the
proposals, to participate in one of the competing proposals. Any Party not electing within the time
required shall be deemed not to have voted. The proposal receiving the vote of parties
owning the largest aggregate percentage interest of the parties voting shall have priority over all
other competing proposals; in the case of a tie vote, the

 

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

initial proposal shall prevail. Operator shall deliver notice of such result to all parties
entitled to participate in the operation within five (5) days after expiration of the election
period (or within twenty-four (24) hours, if a
drilling rig is on location). Each party shall then have two (2) days (or twenty-four (24) hours if
a rig is on location) from receipt of such notice to elect by delivery of notice to Operator to
participate in such operation or to relinquish interest in the affected well pursuant to the
provisions of Article VI.B.2.; failure by a party to deliver notice within such period shall be
deemed an election not to participate in the prevailing proposal.

     7. Conformity to Spacing Pattern. Notwithstanding the provisions of this Article
VI.B.2., it is agreed that no wells shall be proposed to be drilled to or Completed in or produced
from a Zone from which a well located elsewhere on the Contract Area is producing, unless such well
conforms to the then-existing well spacing pattern for such Zone.

     8. Paying Wells. No party shall conduct any Reworking, Deepening, Plugging Back,
Completion, Recompletion, or Sidetracking operation under this agreement with respect to any well
then capable of producing in paying quantities except with the consent of all parties that have not
relinquished interests in the well at the time of such operation.

C. Completion of Wells; Reworking and Plugging Back:

     1. Completion: Without the consent of all parties, no well shall be drilled, Deepened
or Sidetracked, except any well drilled, Deepened or Sidetracked pursuant to the provisions of
Article VI.B.2. of this agreement. Consent to the drilling, Deepening or Sidetracking shall
include:

     þ Option No. 1: All necessary expenditures for the drilling, Deepening
or Sidetracking, testing, Completing and equipping of the well, including necessary tankage and/or
surface facilities.

     o Option No. 2: All necessary expenditures for the drilling, Deepening
or Sidetracking and testing of the well. When such well has reached its authorized depth, and all
logs, cores and other tests have been completed, and the results thereof furnished to the parties,
Operator shall give immediate notice to the Non-Operators having the right to participate in a
Completion attempt whether or not Operator recommends attempting to Complete the well, together
with Operator’s AFE for Completion costs if not previously provided. The parties receiving such
notice shall have forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays) in
which to elect by delivery of notice to Operator to participate in a recommended Completion attempt
or to make a Completion proposal with an accompanying AFE. Operator shall deliver any such
Completion proposal, or any Completion proposal conflicting with Operator’s proposal, to the other
parties entitled to participate in such Completion in accordance with the procedures specified in
Article VI.B.6. Election to participate in a Completion attempt shall include consent to all
necessary expenditures for the Completing and equipping of such well, including necessary tankage
and/or surface facilities but excluding any stimulation operation not contained on the Completion
AFE. Failure of any party receiving such notice to reply within the period above fixed shall
constitute an election by that party not to participate in the cost of the Completion
attempt; provided, that Article VI.B.6. shall control in the case of conflicting Completion
proposals. If one or more, but less than all of the parties, elect to attempt a Completion, the
provisions of Article VI.B.2. hereof (the phrase “Reworking, Sidetracking, Deepening, Recompleting
or Plugging Back” as contained in Article VI.B.2. shall be deemed to include “Completing”) shall
apply to the operations thereafter conducted by less than all parties; provided, however, that
Article VI.B.2 shall apply separately to each separate Completion or Recompletion attempt
undertaken hereunder, and an election to become a Non-Consenting Party as to one Completion or
Recompletion attempt shall not prevent a party from becoming a Consenting Party in subsequent
Completion or Recompletion attempts regardless whether the Consenting Parties as to earlier
Completions or Recompletions have recouped their costs pursuant to Article VI.B.2.; provided
further, that any recoupment of costs by a Consenting Party shall be made solely from the
production attributable to the Zone in which the Completion attempt is made. Election by a previous
Non-Consenting Party to participate in a subsequent Completion or Recompletion attempt shall
require such party to pay its proportionate share of the cost of salvable materials and equipment
installed in the well pursuant to the previous Completion or Recompletion attempt, insofar and only
insofar as such materials and equipment benefit the Zone in which such party participates in a
Completion attempt.

     2. Rework, Recomplete or Plug Back: No well shall be Reworked, Recompleted or Plugged
Back except a well Reworked, Recompleted, or Plugged Back pursuant to the provisions of Article
VI.B.2. of this agreement. Consent to the Reworking, Recompleting or Plugging Back of a well shall
include all necessary expenditures in conducting such operations and Completing and equipping of
said well, including necessary tankage and/or surface facilities.

D. Other Operations:

          Operator shall not undertake any single project reasonably estimated to require an expenditure
in excess of ___Twenty-five thousand Dollars ($ 25,000.00) except in connection with the drilling,
Sidetracking, Reworking, Deepening, Completing, Recompleting or Plugging Back of a well that has
been previously authorized by or pursuant to this agreement; provided, however, that, in case of
explosion, fire, flood or other sudden emergency, whether of the same or different nature, Operator
may take such steps and incur such expenses as in its opinion are required to deal with the
emergency to safeguard life and property but Operator, as promptly as possible, shall report the
emergency to the other parties. If Operator prepares an AFE for its own use, Operator shall furnish
any Non-Operator so requesting an information copy thereof for any single project costing in excess
of Twenty-five thousand Dollars ($ 25,000.00). Any party who has not relinquished
its interest in a well shall have the right to propose that Operator perform repair work or
undertake the installation of artificial lift equipment or ancillary production facilities such as
salt water disposal wells or to conduct additional work with respect to a well drilled hereunder or
other similar project (but not including the installation of gathering lines or other
transportation or marketing facilities, the installation of which shall be governed by separate
agreement between the Parties) reasonably estimated to require an expenditure in excess of the
amount first set forth above in this Article VI.D. (except in connection with an operation required
to be proposed under Articles VI.B.1. or VI.C.1. Option No. 2, which shall be governed exclusively
by those Articles). Operator shall deliver such proposal to all parties entitled to participate
therein. If within thirty (30) days thereof Operator secures the written consent of any party or
parties owning at least 50 % of the interests of the parties entitled to participate in
such operation, each party having the right to participate in such project shall be bound by the
terms of such proposal and shall be obligated to pay its proportionate share of the costs of the
proposed project as if it had consented to such project pursuant to the terms of the proposal.

E. Abandonment of Wells:

     1. Abandonment of Dry Holes: Except for any well drilled or Deepened pursuant to
Article VI.B.2., any well which has been drilled or Deepened under the terms of this agreement and
is proposed to be completed as a dry hole shall not be

 

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

plugged and abandoned without the consent of all parties. Should Operator, after diligent
effort, be unable to contact any party, or should any party fail to reply within forty-eight (48)
hours (exclusive of Saturday, Sunday and legal holidays) after delivery of notice of the proposal
to plug and abandon such well, such party shall be deemed to have consented to the proposed
abandonment. All such wells shall be plugged and abandoned in accordance with applicable
regulations and at the cost, risk and expense of the parties who participated in the cost of
drilling or Deepening such well. Any Party who objects to plugging and abandoning such well by
notice delivered to Operator within forty-eight (48) hours (exclusive of Saturday, Sunday and legal
holidays) after delivery of notice of the proposed plugging shall take over the well as of the end
of such forty-eight (48) hour notice period and conduct further operations in search of Oil and/or
Gas subject to the provisions of Article Vl.B.; failure of such party to provide proof reasonably
satisfactory to Operator of its financial capability to conduct such operations or to take over the
well within such period or thereafter to conduct operations on such well or plug and abandon such
well shall entitle Operator to retain or take possession of the well and plug and abandon the well.
The party taking over the well shall indemnify Operator (if Operator is an abandoning party) and
the other abandoning parties against liability for any further operations conducted on such well
except for the costs of plugging and abandoning the well and restoring the surface, for which the
abandoning parties shall remain proportionately liable.

     2. Abandonment of Wells That Have Produced: Except for any well in which a Non-Consent
operation has been conducted hereunder for which the Consenting Parties have not been fully
reimbursed as herein provided, any well which has been completed as a producer shall not be plugged
and abandoned without the consent of all parties. If all parties consent to such abandonment, the
well shall be plugged and abandoned in accordance with applicable regulations and at the cost, risk
and expense of all the parties hereto. Failure of a party to reply within sixty (60) days of
delivery of notice of proposed abandonment shall be deemed an election to consent to the proposal.
If, within sixty (60) days after delivery of notice of the proposed abandonment of any well, all
parties do not agree to the abandonment of such well, those wishing to continue its operation from
the Zone then open to production shall be obligated to take over the well as of the expiration of
the applicable notice period and shall indemnify Operator (if Operator is an abandoning party) and
the other abandoning parties against liability for any further operations on the well conducted by
such parties. Failure of such party or parties to provide proof reasonably satisfactory to Operator
of their financial capability to conduct such operations or to take over the well within the
required period or thereafter to conduct operations on such well shall entitle Operator to retain
or take possession of such well and plug and abandon the well.

     Parties taking over a well as provided herein shall tender to each of the other parties its
proportionate share of the value of the well’s salvable material and equipment, determined in
accordance with the provisions of Exhibit “C”, less the estimated cost of salvaging and the
estimated cost of plugging and abandoning and restoring the surface; provided, however, that in the
event the estimated plugging and abandoning and surface restoration costs and the estimated cost of
salvaging are higher than the value of the well’s salvable material and equipment, each of the
abandoning parties shall tender to the parties continuing operations their proportionate shares of
the estimated excess cost. Each abandoning party shall assign to the non-abandoning parties,
without warranty, express or implied, as to title or as to quantity, or fitness for use of the
equipment and material, all of its interest in the wellbore of the well and related equipment,
together with its interest in the Leasehold insofar and only insofar as such Leasehold covers the
right to obtain production from that wellbore in the Zone then open to production. If the interest
of the abandoning party is or includes an Oil and Gas Interest, such party shall execute and
deliver to the non-abandoning party or parties an oil and gas lease, limited to the wellbore and
the Zone then open to production, for a term of 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 attached as Exhibit
“B”. The assignments or leases so limited shall encompass the Drilling Unit upon which the well is
located. The payments by, and the assignments or leases to, the assignees shall be in a ratio based
upon the relationship of their respective percentage of participation in the Contract Area to the
aggregate of the percentages of participation in the Contract Area of all assignees. There shall be
no readjustment of interests in the remaining portions of the Contract Area.

     Thereafter, abandoning parties shall have no further responsibility, liability, or interest in
the operation of or production from the well in the Zone then open other than the royalties
retained in any lease made under the terms of this Article. Upon request, Operator shall continue
to operate the assigned well for the account of the non-abandoning parties at the rates and charges
contemplated by this agreement, plus any additional cost and charges which may arise as the result
of the separate ownership of the assigned well. Upon proposed abandonment of the producing Zone
assigned or leased, the assignor or lessor shall then have the option to repurchase its prior
interest in the well (using the same valuation formula) and participate in further operations
therein subject to the provisions hereof.

     3. Abandonment of Non-Consent Operations: The provisions of Article VI.E.1. or VI.E.2.
above shall be applicable as between Consenting Parties in the event of the proposed abandonment of
any well excepted from said Articles; provided, however, no well shall be permanently plugged and
abandoned unless and until all parties having the right to conduct further operations therein have
been notified of the proposed abandonment and afforded the opportunity to elect to take over the
well in accordance with the provisions of this Article VI.E.; and provided further, that
Non-Consenting Parties who own an interest in a portion of the well shall pay their proportionate
shares of abandonment and surface restoration costs for such well as provided in Article
VI.B.2.(b).

F. Termination of Operations:

          Upon the commencement of an operation for the drilling, Reworking, Sidetracking, Plugging
Back, Deepening, testing, Completion or plugging of a well, including but not limited to the
Initial Well, such operation shall not be terminated without consent of parties bearing 50
% of the costs of such operation; provided, however, that in the event granite or other practically
impenetrable substance or condition in the hole is encountered which tenders further operations
impractical, Operator may discontinue operations and give notice of such condition in the manner
provided in Article Vl.B. 1, and the provisions of Article VI.B. or VI.E. shall thereafter apply to
such operation, as appropriate.

 

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

ARTICLE VII.

EXPENDITURES AND LIABILITY OF PARTIES

A. Liability of Parties:

     The liability of the parties shall be several, not joint or collective. Each party shall be
responsible only for its obligations, and shall be liable only for its proportionate share of the
costs of developing and operating the Contract Area Accordingly, the liens granted among the
parties in Article VII.B. are given to secure only the debts of each severally, and no party shall
have any liability to third parties hereunder to satisfy the default of any other party in the
payment of any expense or obligation hereunder. It is not the intention of the parties to create,
nor shall this agreement be construed as creating, a mining or other partnership, joint venture,
agency relationship or association, or to render the parties liable as partners, co-venturers, or
principals. In their relations with each other under this agreement, the parties shall not be
considered fiduciaries or to have established a confidential relationship but rather shall be free
to act on an arm’s-length basis in accordance with their own respective self-interest, subject,
however, to the obligation of the parties to act in good faith in their dealings with each
other with respect to activities hereunder.

 

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

B. Liens and Security Interests:

     Each party grants to the other parties hereto a lien upon any interest it now owns or
hereafter acquires in Oil and Gas Leases and Oil and Gas Interests in the Contract Area, and a
security interest and/or purchase money security interest in any interest it now owns or hereafter
acquires in the personal property and fixtures on or used or obtained for use in connection
therewith, to secure performance of all of its obligations under this agreement including but not
limited to payment of expense, interest and fees, the proper disbursement of all monies paid
hereunder, the assignment or relinquishment of interest in Oil and Gas Leases as required
hereunder, and the proper performance of operations hereunder. Such lien and security interest
granted by each party hereto shall include such party’s leasehold interests, working interests,
operating rights, and royalty and overriding royalty interests in the Contract Area now owned or
hereafter acquired and in lands pooled or unitized therewith or otherwise becoming subject to this
agreement, the Oil and Gas when extracted therefrom and equipment situated thereon or used or
obtained for use in connection therewith (including, without limitation, all wells, tools, and
tubular goods), and accounts (including, without limitation, accounts arising from gas imbalances
or from the sale of Oil and/or Gas at the wellhead), contract rights, inventory and general
intangibles relating thereto or arising therefrom, and all proceeds and products of the foregoing.

     To perfect the lien and security agreement provided herein, each party hereto shall execute
and acknowledge the recording supplement and/or any financing statement prepared and submitted by
any party hereto in conjunction herewith or at any time following execution hereof, and Operator is
authorized to file this agreement or the recording supplement executed herewith as a lien or
mortgage in the applicable real estate records and as a financing statement with the proper officer
under the Uniform Commercial Code in the state in which the Contract Area is situated and such
other states as Operator shall deem appropriate to perfect the security interest granted hereunder.
Any party may file this agreement, the recording supplement executed herewith, or such other
documents as it deems necessary as a lien or mortgage in the applicable real estate records and/or
a financing statement with the proper officer under the Uniform Commercial Code.

     Each party represents and warrants to the other parties hereto that the lien and security
interest granted by such party to the other parties shall be a first and prior lien, and each party
hereby agrees to maintain the priority of said lien and security interest against all persons
acquiring an interest in Oil and Gas Leases and Interests covered by this agreement by, through or
under such party. All parties acquiring an interest in Oil and Gas Leases and Oil and Gas Interests
covered by this agreement, whether by assignment, merger, mortgage, operation of law, or otherwise,
shall be deemed to have taken subject to the lien and security interest granted by this Article
VII.B. as to all obligations attributable to such interest hereunder whether or not such
obligations arise before or after such interest is acquired.

     To the extent that parties have a security interest under the Uniform Commercial Code of the
state in which the Contract Area is situated, they shall be entitled to exercise the rights and
remedies of a secured party under the Code. The bringing of a suit and the obtaining of judgment by
a party for the secured indebtedness shall not be deemed an election of remedies or otherwise
affect the lien rights or security interest as security for the payment thereof. In addition, upon
default by any party in the payment of its share of expenses, interests or fees, or upon the
improper use of funds by the Operator, the other parties shall have the right, without prejudice to
other rights or remedies, to collect from the purchaser the proceeds from the sale of such
defaulting party’s share of Oil and Gas until the amount owed by such party, plus interest as
provided in Exhibit “C”, has been received, and shall have the right to offset the amount owed
against the proceeds from the sale of such defaulting party’s share of Oil and Gas. All purchasers
of production may rely on a notification of default from the non-defaulting party or parties
stating the amount due as a result of the default, and all parties waive any recourse available
against purchasers for releasing production proceeds as provided in this paragraph.

     If any party fails to pay its share of cost within one hundred twenty (120) days after
rendition of a statement therefor by Operator, the non-defaulting parties, including Operator,
shall, upon request by Operator, pay the unpaid amount in the proportion that the interest of each
such party bears to the interest of all such parties. The amount paid by each party so paying its
share of the unpaid amount shall be secured by the liens and security rights described in Article
VII.B., and each paying party may independently pursue any remedy available hereunder or otherwise.

     If any party does not perform all of its obligations hereunder, and the failure to perform
subjects such party to foreclosure or execution proceedings pursuant to the provisions of this
agreement, to the extent allowed by governing law, the defaulting party waives any available right
of redemption from and after the date of judgment, any required valuation or appraisement of the
mortgaged or secured property prior to sale, any available right to stay execution or to require a
marshalling of assets and any required bond in the event a receiver is appointed. In addition, to
the extent permitted by applicable law, each party hereby grants to the other parties a power of
sale as to any property that is subject to the lien and security rights granted hereunder, such
power to be exercised in the manner provided by applicable law or otherwise in a commercially
reasonable manner and upon reasonable notice.

     Each party agrees that the other parties shall be entitled to utilize the provisions of Oil
and Gas lien law or other lien law of any state in which the Contract Area is situated to enforce
the obligations of each party hereunder. Without limiting the generality of the foregoing, to the
extent permitted by applicable law, Non-Operators agree that Operator may invoke or utilize the
mechanics’ or materialmen’s lien law of the state in which the Contract Area is situated in order
to secure the payment to Operator of any sum due hereunder for services performed or materials
supplied by Operator.

C. Advances:

     Operator, at its election, shall have the right from time to time to demand and receive from
one or more of the other parties payment in advance of their respective shares of the estimated
amount of the expense to be incurred in operations hereunder during the next succeeding month,
which right may be exercised only by submission to each such party of an itemized statement of such
estimated expense, together with an invoice for its share thereof. Each such statement and invoice
for the payment in advance of estimated expense shall be submitted on or before the 20th day of the
next preceding month. Each party shall pay to Operator its proportionate share of such estimate
within fifteen (15) days after such estimate and invoice is received. If any party fails to pay its
share of said estimate within said time, the amount due shall bear interest as provided in Exhibit
“C” until paid. Proper adjustment shall be made monthly between advances and actual expense to the
end that each party shall bear and pay its proportionate share of actual expenses incurred, and no
more.

D. Defaults and Remedies:

     If any party fails to discharge any financial obligation under this agreement, including
without limitation the failure to make any advance under the preceding Article VII.C. or any other
provision of this agreement, within the period required for such payment hereunder, then in
addition to the remedies provided in Article VII.B. or elsewhere in this agreement, the remedies
specified below shall he applicable. For purposes of this Article VII.D., all notices and elections
shall be delivered

 

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

only by Operator, except that Operator shall deliver any such notice and election requested by a
non-defaulting Non-Operator, and when Operator is the party in default, the applicable notices and
elections can be delivered by any Non-Operator. Election of any one or more of the following
remedies shall not preclude the subsequent use of any other remedy specified below or otherwise
available to a non-defaulting party.

     1. Suspension of Rights: Any party may deliver to the party in default a Notice of
Default, which shall specify the default, 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 or more of the remedies
provided in this Article. If the default is not cured within thirty (30) days of the delivery of
such Notice of Default, all of the rights of the defaulting party granted by this agreement may
upon notice be suspended until the default is cured, without prejudice to the right of the
non-defaulting party or parties to continue to enforce the obligations of the defaulting party
previously accrued or thereafter accruing under this agreement. If Operator is the party in
default, the Non-Operators shall have in addition the right, by vote of Non-Operators owning a
majority in interest in the Contract Area after excluding the voting interest of Operator, to
appoint a new Operator effective immediately. The rights of a defaulting party that may be
suspended hereunder at the election of the non-defaulting parties shall include, without
limitation, the right to receive information as to any operation conducted hereunder during the
period of such default, the right to elect to participate in an operation proposed under Article
VI.B. of this agreement, the right to participate in an operation being conducted under this
agreement even if the party has previously elected to participate in such operation, and the right
to receive proceeds of production from any well subject to this agreement.

     2. Suit for Damages: Non-defaulting parties or Operator for the benefit of
non-defaulting parties may sue (at joint account expense) to collect the amounts in default, plus
interest accruing on the amounts recovered from the date of default until the date of collection at
the rate specified in Exhibit “C” attached hereto. Nothing herein shall prevent any party from
suing any defaulting party to collect consequential damages accruing to such party as a result of
the default.

     3. Deemed Non-Consent: The non-defaulting party may deliver a written Notice of
Non-Consent Election to the defaulting party at any time after the expiration of the thirty-day
cure period following delivery of the Notice of Default, in which event if the billing is for the
drilling of a new well or the Plugging Back, Sidetracking, Reworking or Deepening of a well which
is to be or has been plugged as a dry hole, or for the Completion or Recompletion of any well, the
defaulting party will be conclusively deemed to have elected not to participate in the operation
and to be a Non-Consenting Party with respect thereto under
Article VI.B. or VI.C., as the case may
be, to the extent of the costs unpaid by such party, notwithstanding any election to participate
theretofore made. If election is made to proceed under this provision, then the non-defaulting
parties may not elect to sue for the unpaid amount pursuant to Article VII.D.2.

     Until the delivery of such Notice of Non-Consent Election to the defaulting party, such party
shall have the right to cure its default by paying its unpaid share of costs plus interest at the
rate set forth in Exhibit “C,” provided, however, such payment shall not prejudice the rights of
the non-defaulting parties to pursue remedies for damages incurred by the non-defaulting parties as
a result of the default. Any interest relinquished pursuant to this Article VII.D.3. shall be
offered to the non-defaulting parties in proportion to their interests, and the non-defaulting
parties electing to participate in the ownership of such interest shall be required to contribute
their shares of the defaulted amount upon their election to participate therein

     4. Advance Payment: If a default is not cured within thirty (30) days of the delivery
of a Notice of Default, Operator, or Non-Operators if Operator is the defaulting party, may
thereafter require advance payment from the defaulting party of such defaulting party’s anticipated
share of any item of expense for which Operator, or Non-Operators, as the case may be, would be
entitled to reimbursement under any provision of this agreement, whether or not such expense was
the subject of the previous default. Such right includes, but is not limited to, the right to
require advance payment for the estimated costs of drilling a well or Completion of a well as to
which an election to participate in drilling or Completion has been made. If the defaulting party
fails to pay the required advance payment, the non-defaulting parties may pursue any of the
remedies provided in this Article VILD. or any other default remedy provided elsewhere in this
agreement. Any excess of funds advanced remaining when the operation is completed and all costs
have been paid shall be promptly returned to the advancing party.

     5. Costs and Attorneys’ Fees. In the event any party is required to bring legal
proceedings to enforce any financial obligation of a party hereunder, the prevailing party in such
action shall be entitled to recover all court costs, costs of collection, and a reasonable
attorney’s fee, which the lien provided for herein shall also secure.

E. Rentals, Shut-in Well Payments and Minimum Royalties:

     Rentals, shut-in well payments and minimum royalties which may be required under the terms of
any lease shall be paid by the party or parties who subjected such lease to this agreement at its
or their expense. In the event two or more parties own and have contributed interests in the same
lease to this agreement, such parties may designate one of such parties to make said payments for
and on behalf of all such parties. Any party may request, and shall be entitled to receive, proper
evidence of all such payments. In the event of failure to make proper payment of any rental,
shut-in well payment or minimum royalty through mistake or oversight where such payment is required
to continue the lease in force, any loss which results from such non-payment shall be borne in
accordance with the provisions of Article IV.B.2.

     Operator shall notify Non-Operators of the anticipated completion of a shut-in well, or the
shutting in or return to production of a producing well, at least five (5) days (excluding
Saturday, Sunday and legal holidays) prior to taking such action, or at the earliest opportunity
permitted by circumstances, but assumes no liability for failure to do so. In the event of failure
by Operator to so notify Non-Operators, the loss of any lease contributed hereto by Non-Operators
for failure to make timely payments of any shut-in well payment shall be borne jointly by the
parties hereto under the provisions of Article lV.B.3.

F. Taxes:

     Beginning with the first calendar year after the effective date hereof, Operator shall render
for ad valorem taxation all property subject to this agreement which by law should be rendered for
such taxes, and it shall pay all such taxes assessed thereon before they become delinquent. Prior
to the rendition date, each Non-Operator shall furnish Operator information as to burdens (to
include, but not be limited to, royalties, overriding royalties and production payments) on Leases
and Oil and Gas Interests contributed by such Non-Operator. If the assessed valuation of any Lease
is reduced by reason of its being subject to outstanding excess royalties, overriding royalties or
production payments, the reduction in ad valorem taxes resulting therefrom shall inure to the
benefit of the owner or owners of such Lease, and Operator shall adjust the charge to 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 upon separate valuations of each party’s working interest, then notwithstanding anything
to the contrary herein, charges to the joint account shall be made and paid by the parties hereto
in accordance with the tax value generated by each party’s working interest. Operator shall bill
the other parties for their proportionate shares of all tax payments in the manner provided in
Exhibit “C”.

 

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

     If Operator considers any tax assessment improper, Operator may, at its discretion, protest
within the time and manner prescribed by law, and prosecute the protest to a final determination,
unless all parties agree to abandon the protest prior to final determination. During the pendency
of administrative or judicial proceedings, Operator may elect to pay, under protest, all such taxes
and any interest and penalty. When any such protested assessment shall have been finally
determined, Operator shall pay the tax for the joint account, together with any interest and
penalty accrued, and the total cost shall then be assessed against the parties, and be paid by
them, as provided in Exhibit “C.”

     Each party shall pay or cause to be paid all production, severance, excise, gathering and
other taxes imposed upon or with respect to the production or handling of such party’s share of Oil
and Gas produced under the terms of this agreement.

ARTICLE VIII.

ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST

A. Surrender of Leases:

     The Leases covered by this agreement, insofar as they embrace acreage in the Contract Area,
shall not be surrendered in whole or in part unless all parties consent thereto.

     However, should any party desire to surrender its interest in any Lease or in any portion
thereof, such party shall give written notice of the proposed surrender to all parties, and the
parties to whom such notice is delivered shall have thirty (30) days after delivery of the notice
within which to notify the party proposing the surrender whether they elect to consent thereto.
Failure of a party to whom such notice is delivered to reply within said 30-day period shall
constitute a consent to the surrender of the Leases described in the notice. If all parties do not
agree or consent thereto, the party desiring to surrender shall assign, without express or implied
warranty of title, all of its interest in such Lease, or portion thereof, and any well, material
and equipment which may be located thereon and any rights in production thereafter secured, to the
parties not consenting to such surrender. If the interest of the assigning party is or includes an
Oil and Gas Interest, the assigning party shall execute and deliver to the party or parties not
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 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”. Upon such assignment or lease, the
assigning party shall be relieved from all obligations thereafter accruing, but not theretofore
accrued, with respect to the interest assigned or leased and the operation of any well attributable
thereto, and the assigning party shall have no further interest in the assigned or leased premises
and its equipment and production other than the royalties retained in any lease made under the
terms of this Article. The party assignee or lessee shall pay to the party assignor or lessor the
reasonable salvage value of the latter’s interest in any well’s salvable materials and equipment
attributable to the assigned or leased acreage. The value of all salvable materials and equipment
shall be determined in accordance with the provisions of Exhibit “C”, less the estimated cost of
salvaging and the estimated cost of plugging and abandoning and restoring the surface. If such
value is less than such costs, then the party assignor or lessor shall pay to the party assignee or
lessee the amount of such deficit. If the assignment or lease is in favor of more than one party,
the interest shall be shared by such parties in the proportions that the 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 varies according to depth, then the interest assigned shall similarly reflect such
variances.

     Any assignment, lease or surrender made under this provision shall not reduce or change the
assignor’s, lessor’s or surrendering party’s interest as it was immediately before the assignment,
lease or surrender in the balance of the Contract Area; and the acreage assigned, leased or
surrendered, and subsequent operations thereon, shall not thereafter be subject to the terms and
provisions of this agreement but shall be deemed subject to an Operating Agreement in the form of
this agreement.

B. Renewal or Extension of Leases:

     If any party secures a renewal or replacement of an Oil and Gas Lease or Interest subject to
this agreement, then all other parties shall be notified promptly upon such acquisition or, in the
case of a replacement Lease taken before expiration of an existing Lease, promptly upon expiration
of the existing Lease. The parties notified shall have the right for a period of thirty (30) days
following delivery of such notice in which to elect to participate in the ownership of the renewal
or replacement Lease, insofar as such Lease affects lands within the Contract Area, by paying to
the party who acquired it their proportionate shares of the acquisition cost allocated to that part
of such Lease within the Contract Area, which shall be in proportion to the interests held at that
time by the parties in the Contract Area. Each party who participates in the purchase of a renewal
or replacement Lease shall be given an assignment of its proportionate interest therein by the
acquiring party.

     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 by the parties who elect to participate therein, in a ratio
based upon the relationship of their respective percentage of participation in the Contract Area to
the aggregate of the percentages of participation in the Contract Area of all parties participating
in the purchase of such renewal or replacement Lease. The acquisition of a renewal or replacement
Lease by any or all of the parties hereto shall not cause a readjustment of the interests of the
parties stated in Exhibit “A”, but any renewal or replacement Lease in which less than all parties
elect to participate shall not be subject to this agreement but shall be deemed subject to a
separate Operating Agreement in the form of this agreement.

     If the interests of the parties in the Contract Area vary according to depth, then their right
to participate proportionately in renewal or replacement Leases and their right to receive an
assignment of interest shall also reflect such depth variances.

     The provisions of this Article shall apply to renewal or replacement Leases whether they are
for the entire interest covered by the expiring Lease or cover only a portion of its area or an
interest therein. Any renewal or replacement Lease taken before the expiration of its predecessor
Lease, or taken or contracted for or becoming effective within six (6) months after the expiration
of the 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 the renewal or replacement Lease becomes effective; but
any Lease taken or contracted for more than six (6) months after the expiration of an existing
Lease shall not be deemed a renewal or replacement Lease and shall not be subject to the provisions
of this agreement.

     The provisions in this Article shall also be applicable to extensions of Oil and Gas Leases.

C. Acreage or Cash Contributions:

     While this agreement is in force, if any party contracts for a contribution of cash towards
the drilling of a well or any other operation on the Contract Area, such contribution shall be paid
to the party who conducted the drilling or other operation and shall 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 the contribution is made shall promptly render an assignment of the acreage, without
warranty of title, to the Drilling Parties in the proportions said Drilling Parties shared the cost
of drilling the well. Such acreage shall become a separate Contract Area and, to the extent
possible, be governed by provisions identical to this agreement. Each party shall promptly notify
all other parties of any acreage or cash contributions it may obtain in support of any well or any
other operation on the Contract Area The above provisions shall also be applicable to optional
rights to earn acreage outside the Contract Area which are in support of well drilled inside the
Contract Area.

 

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

     If any party contracts for any consideration relating to disposition of such party’s share of
substances produced hereunder, such consideration shall not be deemed a contribution as
contemplated in this Article VIII.C.

D. Assignment; Maintenance of Uniform Interest:

     For the purpose of maintaining uniformity of ownership in the Contract Area in the Oil and Gas
Leases, Oil and Gas Interests, wells, equipment and production covered by this agreement no party
shall sell, encumber, transfer or make other disposition of its interest in the Oil and Gas Leases
and Oil and Gas Interests embraced within the Contract Area or in wells, equipment and production
unless such disposition covers either::

     1. the entire interest of the party in all Oil and Gas Leases, Oil and Gas Interests, wells,
equipment and production; or

     2. an equal undivided percent of the party’s present interest in all Oil and Gas Leases, Oil
and Gas Interests, wells, equipment and production in the Contract Area.

     Every sale, encumbrance, transfer or other disposition made by any party shall be made
expressly subject to this agreement and shall be made without prejudice to the right of the other
parties, and any transferee of an ownership interest in any Oil and Gas Lease or Interest shall be
deemed a party to this agreement as to the interest conveyed from and after the effective date of
the transfer of ownership; provided, however, that the other parties shall not be required to
recognize any such sale, encumbrance, transfer or other disposition for any purpose hereunder until
thirty (30) days after they have received a copy of the instrument of transfer or other
satisfactory evidence thereof in writing from the transferor or transferee. No assignment or other
disposition of interest by a party shall relieve such party of obligations previously incurred by
such party hereunder with respect to the interest transferred, including without limitation the
obligation of a party to pay all costs attributable to an operation conducted hereunder in which
such party has agreed to participate prior to making such assignment, and the lien and security
interest granted by Article VII.B. shall continue to burden the interest transferred to secure
payment of any such obligations.

     If, at any time the interest of any party is divided among and owned by four or more
co-owners, Operator, at its discretion, may require such co-owners to appoint a single trustee or
agent with full authority to receive notices, approve expenditures, receive billings for and
approve and pay such party’s share of the joint expenses, and to deal generally with, and with
power to bind, the co-owners of such party’s interest within the scope of the operations embraced
in this agreement; however, all such co-owners shall have the right to enter into and execute all
contracts or agreements for the disposition of their respective shares of the Oil and Gas produced
from the Contract Area and they shall have the right to receive, separately, payment of the sale
proceeds thereof.

E. Waiver of Rights to Partition:

     If permitted by the laws of the state or states in which the property covered hereby is
located, each party hereto owning an 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 undivided interest
therein.

ARTICLE IX.

INTERNAL REVENUE CODE ELECTION

     If, for federal income tax purposes, this agreement and the operations hereunder are regarded
as a partnership, and if the parties have not otherwise agreed to form a tax partnership pursuant
to Exhibit “G” or other agreement between them, each party thereby affected elects to be excluded
from the application of all of the provisions of Subchapter “K”, Chapter 1, Subtitle “A” of the
Internal Revenue Code of 1986, as amended (“Code”), as permitted and authorized by Section 761 of
the Code and the regulations promulgated thereunder. Operator is authorized and directed to execute
on behalf of each party hereby affected such evidence of this election as may be required by the
Secretary of the Treasury of the United States or the Federal Internal Revenue Service, including
specifically, but not by way of limitation, all of the returns, statements, and the data required
by Treasury Regulations §1.761. Should there be any requirement that each party hereby affected
give further evidence of this election, each such party shall execute such documents and furnish
such other evidence as may be required by the Federal Internal Revenue Service or as may be
necessary to evidence this election. No such party shall give any notices or take any other action
inconsistent with the election made hereby. If any present or future income tax laws of the state
or states in which the Contract Area is located or any future income tax laws of the United States
contain provisions similar to those in Subchapter “K”, Chapter 1, Subtitle “A”, of the Code, under
which an election similar to that provided by Section 761 of the Code is permitted, each party
hereby affected shall make such election as may be permitted or required by such laws. In making
the foregoing election, each such party states that the income derived by such party from
operations hereunder can be adequately determined without the computation of partnership taxable
income.

ARTICLE X.

CLAIMS AND LAWSUITS

     Operator may settle any single uninsured third party damage claim or suit arising from
operations hereunder if the expenditure does not exceed twenty-five thousand Dollars
($25,000.00) and if the payment is in complete settlement of such claim or suit. If the
amount required for settlement exceeds the above amount, the parties hereto shall assume and take
over the further handling of the claim or suit, unless such authority is delegated to Operator. All
costs and expenses of handling, settling, or otherwise discharging such claim or suit shall be at
the joint expense of the parties participating in the operation from which the 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 hereunder over which such individual has no control because of the rights
given Operator by this agreement, such party shall immediately notify all other parties, and the
claim or suit shall be treated as any other claim or suit involving operations hereunder.

 

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

ARTICLE XI.

FORCE MAJEURE

     If any party is rendered unable, wholly or in part, by force majeure to carry out its
obligations under this agreement, other than the obligation to indemnify or make money payments or
furnish security, that party shall give to all other parties prompt written notice of the force
majeure with reasonably full particulars concerning it; thereupon, the obligations of the party
giving the notice, so far as they are affected by the force majeure, shall be suspended during, but
no longer than, the continuance of the force majeure. The term “force majeure,” as here employed,
shall mean an act of God, strike, lockout, or other industrial disturbance, act of the public
enemy, war, blockade, public riot, lightning, fire, storm, flood or other act of nature, explosion,
governmental action, governmental delay, restraint or inaction, unavailability of equipment, and
any other cause, whether of the kind specifically enumerated above or otherwise, which is not
reasonably within the control of the party claiming suspension.

     The affected party shall use all reasonable diligence to remove the force majeure situation as
quickly as practicable. The requirement that any force majeure shall be remedied with all
reasonable dispatch shall not require the settlement of strikes, lockouts, or other labor
difficulty by the party involved, contrary to its wishes; how all such difficulties shall be
handled shall be entirely within the discretion of the party concerned.

ARTICLE XII.

NOTICES

     All notices authorized or required between the parties by any of the provisions of this
agreement, unless otherwise specifically provided, shall be in writing and delivered in person or
by United States mail, courier service, telegram, telex, telecopier or any other form of facsimile,
postage or charges prepaid, and addressed to such parties at the addresses listed on Exhibit “A.”
All telephone or oral notices permitted by this agreement shall be confirmed immediately thereafter
by written notice. The originating notice given under any provision hereof shall be deemed
delivered only when received by the party to whom such notice is directed, and the time for such
party to deliver any notice in response thereto shall run from the date the originating notice is
received. “Receipt” for purposes of this agreement with respect to written notice delivered
hereunder shall be actual delivery of the notice to the address of the party to be notified
specified in accordance with this agreement, or to the telecopy, facsimile or telex machine of such
party. The second or any responsive notice shall be deemed delivered when deposited in the United
States mail or at the office of the courier or telegraph service, or upon transmittal by telex,
telecopy or facsimile, or when personally delivered to the party to be notified, provided, that
when response is required within 24 or 48 hours, such response shall be given orally or by
telephone, telex, telecopy or other facsimile within such period. Each party shall have the right
to change its address at any time, and from time to time, by giving written notice thereof to all
other parties. If a party is not available to receive notice orally or by telephone when a party
attempts to deliver a notice required to be delivered within 24 or 48 hours, the notice may be
delivered in writing by any other method specified herein and shall be deemed delivered in the same
manner provided above for any responsive notice.

ARTICLE XIII

TERM OF AGREEMENT

     This agreement shall remain in full force and effect as to the Oil and Gas Leases and/or Oil
and Gas Interests subject hereto for the period of time selected below; provided, however, no party
hereto shall ever be construed as having any right, title or interest in or to any Lease or Oil and
Gas Interest contributed by any other party beyond the term of this agreement.

	 	þ	 	Option No. 1: So long as any of the Oil and Gas Leases subject to this
agreement remain or are continued in force as to any part of the Contract Area, whether by
production, extension, renewal or otherwise.

     The termination of this agreement shall not relieve any party hereto from any expense,
liability or other obligation or any remedy therefor which has accrued or attached prior to the
date of such termination.

     Upon termination of this agreement and the satisfaction of all obligations hereunder, in the
event a memorandum of this Operating Agreement has been filed of record, Operator is authorized to
file of record in all necessary recording offices a notice of termination, and each party hereto
agrees to execute such a notice of termination as to Operator’s interest, upon request of Operator,
if Operator has satisfied all its financial obligations.

ARTICLE XIV.

COMPLIANCE WITH LAWS AND REGULATIONS

A. Laws, Regulations and Orders:

     This agreement shall be subject to the applicable laws of the state in which the Contract Area
is located, to the valid rules, regulations, and orders of any duly constituted regulatory body of
said state; and to all other applicable federal, state, and local laws, ordinances, rules,
regulations and orders.

B. Governing Law:

     This agreement and all matters pertaining hereto, including but not limited to matters of
performance, non-performance, breach, remedies, procedures, rights, duties, and interpretation or
construction, shall be governed and determined by the law of the state in which the Contract Area
is located. If the Contract Area is in two or more states, the law of the state of Texas
shall govern.

C. Regulatory Agencies:

     Nothing herein contained shall grant, or be construed to grant, Operator the right or
authority to waive or release any rights, privileges, or obligations which Non-Operators may have
under federal or state laws or under rules, regulations or

 

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

orders promulgated under such laws in reference to oil, gas and mineral operations, including the
location, operation, or production of wells, on tracts offsetting or adjacent to the Contract Area.

     With respect to the operations hereunder, Non-Operators agree to release Operator from any and
all losses, damages, injuries, claims and causes of action arising out of, incident to or resulting
directly or indirectly from Operator’s interpretation or application of rules, rulings, regulations
or orders of the Department of Energy or Federal Energy Regulatory Commission or predecessor or
successor agencies to the extent such interpretation or application was made in good faith and does
not constitute gross negligence. Each Non-Operator further agrees to reimburse Operator for such
Non-Operator’s share of production or any refund, fine, levy or other governmental sanction that
Operator may be required to pay as a result of such an incorrect interpretation or application,
together with interest and penalties thereon owing by Operator as a result of such incorrect
interpretation or application.

ARTICLE XV.

MISCELLANEOUS

A. Execution:

     This agreement shall be binding upon each Non-Operator when this agreement or a counterpart
thereof has been executed by such Non-Operator and Operator notwithstanding that this agreement is
not then or thereafter executed by all of the parties to which it is tendered or which are listed
on Exhibit “A” as owning an interest in the Contract Area or which own, in fact, an interest in the
Contract Area. Operator may, however, by written notice to all Non-Operators who have become bound
by this agreement as aforesaid, given at any time prior to the actual spud date of the Initial Well
but in no event later than five days prior to the date specified in Article VI.A. for commencement
of the Initial Well, terminate this agreement if Operator in its sole discretion determines that
there is insufficient participation to justify commencement of drilling operations. In the event of
such a termination by Operator, all further obligations of the parties hereunder shall cease as of
such termination. In the event any Non-Operator has advanced or prepaid any share of drilling or
other costs hereunder, all sums so advanced shall be returned to such Non-Operator without
interest. In the event Operator proceeds with drilling operations for the Initial Well without the
execution hereof by all persons listed on Exhibit “A” as having a current working interest in such
well, Operator shall indemnify Non-Operators with respect to all costs incurred for the Initial
Well which would have been charged to such person under this agreement if such person had executed
the same and Operator shall receive all revenues which would have been received by such person
under this agreement if such person had executed the same.

B. Successors and Assigns:

     This agreement shall be binding upon and shall inure to the benefit of the parties hereto and
their respective heirs, devisees, legal representatives, successors and assigns, and the terms
hereof shall be deemed to run with the Leases or Interests included within the Contract Area.

C. Counterparts:

     This instrument may be executed in any number of counterparts, each of which shall be
considered an original for all purposes.

D. Severability:

     For the purposes of assuming or rejecting this agreement as an executory contract pursuant to
federal bankruptcy laws, this agreement shall not be severable, but rather must be assumed or
rejected in its entirety, and the failure of any party to this agreement to comply with all of its
financial obligations provided herein shall be a material default.

ARTICLE XVI.

OTHER PROVISIONS

 

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

     IN WITNESS WHEREOF, this agreement shall be effective as of the ___day of                      20.

	 	 	 	 	 	 	 	 	 
	ATTEST OR WITNESS

	 	 
	 	 	 	OPERATOR	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	EnerVest Operating, L.L.C.	 	 
	 
	 	 	 	 	 	 	 	 
	 
 

	 	 	 	By
	 	/S/ Kenneth Mariani
 

	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Kenneth Mariani	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Type or print name	 	 
	 
	 	 	 	 	 	 	 	 
	 
 

	 	 
	 	 	 	Title V.P.	 	 
	 
	 	 	 	 	 	 	 	 
	 
 

	 	 
	 	 	 	Date 3 – 15 – 06	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Tax ID or S.S. No.                                                  	 	 
	 

	 	 	 	 	 	 	 	 

NON-OPERATORS

	 	 	 	 	 	 	 	 	 
	 

	 	 
	 	 	 	Belden & Blake Corporation	 	 
	 
	 	 	 	 	 	 	 	 
	 
 

	 	 	 	By
	 	/S/ James M. Vanderhider
 

	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	JAMES M. VANDERHIDER	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Type or print name	 	 
	 
	 	 	 	 	 	 	 	 
	 
 

	 	 
	 	 	 	Title PRESIDENT AND CHIEF FINANCIAL OFFICER	 	 
	 
	 	 	 	 	 	 	 	 
	 
 

	 	 
	 	 	 	Date 3 – 15 – 06	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Tax ID or S.S. No.                                                  	 	 
	 

	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	By	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Type or print name	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Title	 	 	 	 
	 

	 	 
	 	 	 	 	 	 

	 	 
	 

	 	 	 	 	 	Date	 	 	 	 
	 

	 	 
	 	 	 	 	 	 

	 	 
	 	 	 	 	 	 	Tax ID or S.S. No.                                                  	 	 
	 

	 	 	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	By	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Type or print name	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Title	 	 	 	 
	 

	 	 
	 	 	 	 	 	 

	 	 
	 

	 	 	 	 	 	Date	 	 	 	 
	 

	 	 
	 	 	 	 	 	 

	 	 
	 	 	 	 	 	 	Tax ID or S.S. No.                                                  	 	 
	 

	 	 	 	 	 	 	 	 	 	 

 

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

ACKNOWLEDGMENTS

     Note: The following forms of acknowledgment are the short forms approved by the Uniform Law
on Notarial Acts. The validity and effect of these forms in any state will depend upon the statutes
of that state.

Individual acknowledgment:

	 	 	 	 	 	 	 	 	 
	State of    Texas    	 	 	)	 	 	 
	 

	 	 	 	 	)	 	 	ss.
	County of

	 	Harris	 	 	)	 	 	 
	 

	 	 	 	 	 	 	 	 

     This instrument was acknowledged before me on

	 	 	 	 	 	 	 
	March 15, 2006

	 	by
	 	/S/ Jo Ann White	 	 
	 
	 	 	 	 	 	 
	(Seal, If any)
	 	 	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	Title (and Rank) Treasury Cash Manager	 	 
	 
	 	 	 	 	 	 
	 	 	My commission expires: Sept 12, 2009	 	 

Acknowledgment in representative capacity:

	 	 	 	 	 	 	 	 	 	 	 
	State of

	 	 	 	 	 	 	)	 	 	 
	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	)	 	 	ss.
	County of	 	 	 	 	)	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 

     This instrument was acknowledged before me on

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	by
	 	 	 	 	 	as
	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	of	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	(Seal, If any)
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Title (and Rank)                                                             
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	My commission expires:                                               

 

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

EXHIBIT “      “

	 	 	 
	Attached to and made a part of

	 	The Belden & Blake Corporation
	 

	 	States of MI, OH, NY, and PA.

 

 

ACCOUNTING PROCEDURE

JOINT OPERATIONS

I. GENERAL PROVISIONS

1. Definitions

“Joint Property” shall mean the real and personal property subject to the agreement to which
this Accounting Procedure is attached.

“Joint Operations” shall mean all operations necessary or proper for the development,
operation, protection and maintenance of the Joint Property.

“Joint Account” shall mean the account showing the charges paid and credits received in the
conduct of the Joint Operations and which are to be shared by the Parties.

“Operator” shall mean the party designated to conduct the Joint Operations.

“Non-Operators” shall mean the Parties to this agreement other than the Operator.

“Parties” shall mean Operator and Non-Operators.

“First Level Supervisors” shall mean those employees whose primary function in Joint Operations
is the direct supervision of other employees and/or contract labor directly employed on the
Joint Property in a field operating capacity.

“Technical Employees” shall mean those employees having special and specific engineering,
geological or other professional skills, and whose primary function in Joint Operations is the
handling of specific operating conditions and problems for the benefit of the Joint Property.

“Personal Expenses” shall mean travel and other reasonable reimbursable expenses of Operator’s
employees.

“Material” shall mean personal property, equipment or supplies acquired or held for use on the
Joint Property.

“Controllable Material” shall mean Material which at the time is so classified in the Material
Classification Manual as most recently recommended by the Council of Petroleum Accountants
Societies.

2. Statement and Billings

Operator shall bill Non-Operators on or before the last day of each month for their
proportionate share of the Joint Account for the preceding month. Such bills will be
accompanied by statements which identify the authority for expenditure, lease or facility, and
all charges and credits summarized by appropriate classifications of investment and expense
except that items of Controllable Material and unusual charges and credits shall be separately
identified and fully described in detail.

3. Advances and Payments by Non-Operators

	 	A.	 	Unless otherwise provided for in the agreement, the Operator may require the
Non-Operators to advance their share of estimated cash outlay for the succeeding
month’s operation within fifteen (15) days after receipt of the billing or by the
first day of the month for which the advance is required, whichever is later. Operator
shall adjust each monthly billing to reflect advances received from the Non-Operators.
	 
	 	B.	 	Each Non-Operator shall pay its proportion of all bills within fifteen (15)
days after receipt. If payment is not made within such time, the unpaid balance shall
bear interest monthly at the prime rate in effect at                                                             
on the first day of the month in which delinquency occurs plus 1% or the maximum contract rate permitted by the applicable
usury laws in the state in which the Joint Property is located, whichever is the
lesser, plus attorney’s fees, court costs, and other costs in connection with the
collection of unpaid amounts.

4. Adjustments

Payment of any such bills shall not prejudice the right of any Non-Operator to protest or
question the correctness thereof; provided, however, all bills and statements rendered to
Non-Operators by Operator during any calendar year shall conclusively be presumed to be true
and correct after twenty-four (24) months following the end of any such calendar year, unless
within the said twenty-four (24) month period a Non-Operator takes written exception thereto
and makes claim on Operator for adjustment. No adjustment favorable to Operator shall be made
unless it is made within the same prescribed period. The provisions of this paragraph shall not
prevent adjustments resulting from a physical inventory of Controllable Material as provided
for in Section V.

COPYRIGHTÒ 1985 by the Council of Petroleum Accountants Societies.

- 1 -

 

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

	5.	 	Audits

	 	A.	 	A Non-Operator, upon notice in writing to Operator and all other
Non-Operators, shall have the right to audit Operator’s accounts and records relating
to the Joint Account for any calendar year within the twenty-four (24) month period
following the end of such calendar year; provided, however, the making of an audit
shall not extend the time for the taking of written exception to and the adjustments
of accounts as provided for in Paragraph 4 of this Section I. Where there are two or
more Non-Operators, the Non-Operators shall make every reasonable effort to conduct a
joint audit in a manner which will result in a minimum of inconvenience to the
Operator. Operator shall bear no portion of the Non-Operators’ audit cost incurred
under this paragraph unless agreed to by the Operator. The audits shall not be
conducted more than once each year without prior approval of Operator, except upon the
resignation or removal of the Operator, and shall be made at the expense of those
Non-Operators approving such audit.
	 
	 	B.	 	The Operator shall reply in writing to an audit report within 180 days after
receipt of such report.

	6.	 	Approval By Non-Operators
	 
	 	 	Where an approval or other agreement of the Parties or Non-Operators is expressly required
under other sections of this Accounting Procedure and if the agreement to which this
Accounting Procedure is attached contains no contrary provisions in regard thereto,
Operator shall notify all Non-Operators of the Operator’s proposal, and the agreement or
approval of a majority in interest of the Non-Operators shall be controlling on all
Non-Operators.

II. DIRECT CHARGES

Operator shall charge the Joint Account with the following items:

	1.	 	Ecological and Environmental
	 
	 	 	Costs incurred for the benefit of the Joint Property as a result of governmental or
regulatory requirements to satisfy environmental considerations applicable to the Joint
Operations. Such costs may include surveys of an ecological or archaeological nature and
pollution control procedures as required by applicable laws and regulations
	 
	2.	 	Rentals and Royalties
	 
	 	 	Lease rentals and royalties paid by Operator for the Joint Operations.
	 
	3.	 	Labor

	 	A.   (1)	 	Salaries and wages of Operator’s field employees directly employed on
Joint Property in the conduct of Joint Operations.
	 
	 	(2)	 	Salaries of First Level Supervisors in the field.
	 
	 	(3)	 	Salaries and wages of Technical Employees directly employed on the
Joint Property if such charges are excluded from the overhead rates.
	 
	 	(4)	 	Salaries and wages of Technical Employees either temporarily or
permanently assigned to and directly employed in the operation of the Joint
Property if such charges are excluded from the overhead rates.
	 
	 	B.	 	Operator’s cost of holiday, vacation, sickness and disability benefits and
other customary allowances paid to employees whose salaries and wages are chargeable
to the Joint Account under Paragraph 3A of this Section II. Such costs under this
Paragraph 3B may be charged on a “when and as paid basis” or by “percentage
assessment” on the amount of salaries and wages chargeable to the Joint Account under
Paragraph 3A of this Section II. If percentage assessment is used, the rate shall be
based on the Operator’s cost experience.
	 
	 	C.	 	Expenditures or contributions made pursuant to assessments imposed by
governmental authority which are applicable to Operator’s costs chargeable to the
Joint Account under Paragraphs 3A and 3B of this Section II.
	 
	 	D.	 	Personal Expenses of those employees whose salaries and wages are chargeable
to the Joint Account under Paragraph 3A of this Section II.

	4.	 	Employee Benefits
	 
	 	 	Operator’s current costs of established plans for employees’ group life insurance,
hospitalization, pension, retirement, stock purchase, thrift, bonus, and other benefit
plans of a like nature, applicable to Operator’s labor cost chargeable to the Joint Account
under Paragraphs 3A and 3B of this Section II shall be Operator’s actual cost not to exceed
the percent most recently
recommended by the Council of Petroleum Accountants Societies.

- 2 -

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

	5.	 	Material
	 
	 	 	Material purchased or furnished by Operator for use on the Joint Property as provided under
Section IV. Only such Material shall be purchased for or transferred to the Joint Property
as may be required for immediate use and is reasonably practical and consistent with
efficient and economical operations. The accumulation of surplus stocks shall be avoided.
	 
	6.	 	Transportation
	 
	 	 	Transportation of employees and Material necessary for the Joint Operations but subject to
the following limitations:

	 	A.	 	If Material is moved to the Joint Property from the Operator’s warehouse or
other properties, no charge shall be made to the Joint Account for a distance greater
than the distance from the nearest reliable supply store where like material is
normally available or railway receiving point nearest the Joint Property unless agreed
to by the Parties.
	 
	 	B.	 	If surplus Material is moved to Operator’s warehouse or other storage point,
no charge shall be made to the Joint Account for a distance greater than the distance
to the nearest reliable supply store where like material is normally available, or
railway receiving point nearest the Joint Property unless agreed to by the Parties. No
charge shall be made to the Joint Account for moving Material to other properties
belonging to Operator, unless agreed to by the Parties.
	 
	 	C.	 	In the application of subparagraphs A and B above, the option to equalize or charge actual
trucking cost is available when the actual charge is $400 or less excluding accessorial charges.
The $400 will be adjusted to the amount most recently recommended by the Council of Petroleum
Accountants Societies.

	7.	 	Services
	 
	 	 	The cost of contract services, equipment and utilities provided by outside sources, except
services excluded by Paragraph 10 of Section II and Paragraph i, ii, and iii, of Section
III. The cost of professional consultant services and contract services of technical
personnel directly engaged on the Joint Property if such charges are excluded from the
overhead rates. The cost of professional consultant services or contract services of
technical personnel not directly engaged on the Joint Property shall not be charged to the
Joint Account unless previously agreed to by the Parties.
	 
	8.	 	Equipment and Facilities Furnished By Operator

	 	A.	 	Operator shall charge the Joint Account for use of Operator owned equipment
and facilities at rates commensurate with costs of ownership and operation. Such rates
shall include costs of maintenance, repairs, other operating expense, insurance,
taxes, depreciation, and interest on gross investment less accumulated depreciation
not to exceed ___percent ( ___%) per annum. Such rates shall not exceed
average commercial rates currently prevailing in the immediate area of the Joint
Property.

	 	 	 	See Attached Addenda

	 	B.	 	In lieu of charges in paragraph 8A above, Operator may elect to use average
commercial rates prevailing in the immediate area of the Joint Property less 20%. For
automotive equipment, Operator may elect to use rates published by the Petroleum Motor
Transport Association.

	9.	 	Damages and Losses to Joint Property
	 
	 	 	All costs or expenses necessary for the repair or replacement of Joint Property made
necessary because of damages or losses incurred by fire, flood, storm, theft, accident, or
other cause, except those resulting from Operator’s gross negligence or willful misconduct.
Operator shall furnish Non-Operator written notice of damages or losses incurred as soon as
practicable after a report thereof has been received by Operator.
	 
	10.	 	Legal Expense
	 
	 	 	Expense of handling, investigating and settling litigation or claims, discharging of liens,
payment of judgements and amounts paid for settlement of claims incurred in or resulting
from operations under the agreement or necessary to protect or recover the Joint Property,
except that no charge for services of Operator’s legal staff or fees or expense of outside
attorneys shall be made unless previously agreed to by the Parties. All other legal expense
is considered to be covered by the overhead provisions of Section III unless otherwise
agreed to by the Parties, except as provided in Section I, Paragraph 3.
	 
	11.	 	Taxes
	 
	 	 	All taxes of every kind and nature assessed or levied upon or in connection with the Joint
Property, the operation thereof, or the production therefrom, and which taxes have been
paid by the Operator for the benefit of the Parties. If the ad valorem taxes are based in
whole or in part upon separate valuations of each party’s working interest, then
notwithstanding anything to the contrary herein, charges to the Joint Account shall be made
and paid by the Parties hereto in accordance with the tax value generated by each party’s
working interest.

- 3 -

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

	12.	 	Insurance
	 
	 	 	Net premiums paid for insurance required to be carried for the Joint Operations for the
protection of the Parties. In the event Joint Operations are conducted in a state in which
Operator may act as self-insurer for Worker’s Compensation and/or Employers Liability under
the respective state’s laws, Operator may, at its election, include the risk under its
self-insurance program and in that event, Operator shall include a charge at Operator’s
cost not to exceed manual rates.
	 
	13.	 	Abandonment and Reclamation
	 
	 	 	Costs incurred for abandonment of the Joint Property, including costs required by
governmental or other regulatory authority.
	 
	14.	 	Communications
	 
	 	 	Cost of acquiring, leasing, installing, operating, repairing and maintaining communication
systems, including radio and microwave facilities directly serving the Joint Property. In
the event communication facilities/systems serving the Joint Property are Operator owned,
charges to the Joint Account shall be made as provided in Paragraph 8 of this Section II.
	 
	15.	 	Other Expenditures
	 
	 	 	Any other expenditure not covered or dealt with in the foregoing provisions of this Section
II, or in Section III and which is of direct benefit to the Joint Property and is incurred
by the Operator in the necessary and proper conduct of the Joint Operations.

III. OVERHEAD

	1.	 	Overhead - Drilling and Producing Operations

	 	i.	 	As compensation for administrative, supervision, office services and
warehousing costs, Operator shall charge drilling and producing operations on either:

      See Attached Addenda

(     ) Fixed Rate Basis, Paragraph 1A, or

(     ) Percentage Basis, Paragraph lB

	 	 	 	Unless otherwise agreed to by the Parties, such charge shall be in lieu of costs and
expenses of all offices and salaries or wages plus applicable burdens and expenses of all
personnel, except those directly chargeable under Paragraph 3A, Section II. The cost and
expense of services from outside sources in connection with matters of taxation, traffic,
accounting or matters before or involving governmental agencies shall be considered as
included in the overhead rates provided for in the above selected Paragraph of this Section
III unless such cost and expense are agreed to by the Parties as a direct charge to the
Joint Account.

	 	ii.	 	The salaries, wages and Personal Expenses of Technical Employees and/or the
cost of professional consultant services and contract services of technical personnel
directly employed on the Joint Property:

      See Attached Addenda

(     ) shall be covered by the overhead rates,

(     ) or shall not be covered by the overhead rates.
	 
	 	iii.	 	The salaries, wages and Personal Expenses of Technical Employees and/or costs
of professional consultant services and contract services of technical personnel
either temporarily or permanently assigned to and directly employed in the operation
of the Joint Property:

     See Attached Addenda

(     ) shall be covered by the overhead rates, or

(     ) shall not be covered by the overhead rates.

	 	A.	 	Overhead — Fixed Rate Basis

	 	(1)	 	Operator shall charge the Joint Account at the following rates per
well per month:

See Attached Addenda

Drilling Well Rate $___

     (Prorated for less than a full month)

Producing Well Rate $___

	 	(2)	 	Application of Overhead — Fixed Rate Basis shall be as follows:

	 	(a)	 	Drilling Well Rate

	 	(1)	 	Charges for drilling wells shall begin on the date
the well is spudded and terminate on the date the drilling rig, completion
rig, or other units used in completion of the well is released, whichever

- 4 -

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

	 	 	 	is later, except that no charge shall be made during suspension of
drilling or completion operations for fifteen (15) or more consecutive
calendar days.

	 	(2)	 	Charges for wells undergoing any type of workover or
recompletion for a period of five (5) consecutive work days or more shall
be made at the drilling well rate. Such charges shall be applied for the
period from date workover operations, with rig or other units used in
workover, commence through date of rig or other unit release, except that
no charge shall be made during suspension of operations for fifteen (15)
or more consecutive calendar days.

	 	(b)	 	Producing Well Rates

	 	(1)	 	An active well either produced or injected into for
any portion of the month shall be considered as a one-well charge for the
entire month.
	 
	 	(2)	 	Each active completion in a multi-completed well in
which production is not commingled down hole shall be considered as a
one-well charge providing each completion is considered a separate well by
the governing regulatory authority.
	 
	 	(3)	 	An inactive gas well shut in because of
overproduction or failure of purchaser to take the production shall be
considered as a one-well charge providing the gas well is directly
connected to a permanent sales outlet.
	 
	 	(4)	 	A one-well charge shall be made for the month in
which plugging and abandonment operations are completed on any well. This
one-well charge shall be made whether or not the well has produced except
when drilling well rate applies.
	 
	 	(5)	 	All other inactive wells (including but not limited
to inactive wells covered by unit allowable, lease allowable, transferred
allowable, etc.) shall not qualify for an overhead charge.

	 	(3)	 	The well rates shall be adjusted as of the first day of April each
year following the effective date of the agreement to which this Accounting
Procedure is attached. The adjustment shall be computed by multiplying the rate
currently in use by the percentage increase or decrease in the average weekly
earnings of Crude Petroleum and Gas Production Workers for the last calendar year
compared to the calendar year preceding as shown by the index of average weekly
earnings of Crude Petroleum and Gas Production Workers as published by the United
States Department of Labor, Bureau of Labor Statistics, or the equivalent
Canadian, index as published by Statistics Canada, as applicable. The adjusted
rates shall be the rates currently in use, plus or minus the computed adjustment.

	 	B.	 	Overhead — Percentage Basis

	 	(1)	 	Operator shall charge the Joint Account at the following rates:

	 	 	 	See Attached Addenda
	 
	 	(a)	 	Development
	 
	 	 	 	___Percent ( ___%) of the cost of development of the Joint
Property exclusive of costs provided under Paragraph 10 of Section II and all
salvage credits.
	 
	 	(b)	 	Operating
	 
	 	 	 	___Percent ( ___%) of the cost of operating the Joint Property
exclusive of costs provided under Paragraphs 2 and 10 of Section II, all salvage
credits, the value of injected substances purchased for secondary recovery and
all taxes and assessments which are levied, assessed and paid upon the mineral
interest in and to the Joint Property.

	 	(2)	 	Application of Overhead —  Percentage Basis shall be as follows:
	 
	 	 	 	For the purpose of determining charges on a percentage basis under Paragraph lB of
this Section III, development shall include all costs in connection with drilling,
redrilling, deepening, or any remedial operations on any or all wells involving the
use of drilling rig and crew capable of drilling to the producing interval on the
Joint Property; also, preliminary expenditures necessary in preparation for
drilling and expenditures incurred in abandoning when the well is not completed as
a producer, and original cost of construction or installation of fixed assets, the
expansion of fixed assets and any other project clearly discernible as a fixed
asset, except Major Construction as defined in Paragraph 2 of this Section III. All
other costs shall be considered as operating.

	2.	 	Overhead — Major Construction
	 
	 	 	To compensate Operator for overhead costs incurred in the construction and installation of
fixed assets, the expansion of fixed assets, and any other project clearly discernible as a
fixed asset required for the development and operation of the Joint Property, Operator shall
either negotiate a rate prior to the beginning of construction, or shall charge the Joint

- 5 -

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

	 	 	Account for overhead based on the following rates for any Major Construction project in
excess of $ ___:

	 	 	 	See Attached Addenda

	 	A.	 	___% of first $100,000 or total cost if less, plus
	 
	 	B.	 	___% of costs in excess of $100,000 but less than $1,000,000, plus
	 
	 	C.	 	___% of costs in excess of $1,000,000.

	 	 	Total cost shall mean the gross cost of any one project. For the purpose of this paragraph, the
component parts of a single project shall not be treated separately and the cost of drilling
and workover wells and artificial lift equipment shall be excluded.

	3.	 	Catastrophe Overhead
	 
	 	 	To compensate Operator for overhead costs incurred in the event of expenditures resulting from
a single occurrence due to oil spill, blowout, explosion, fire, storm, hurricane, or other
catastrophes as agreed to by the Parties, which are necessary to restore the Joint Property to
the equivalent condition that existed prior to the event causing the expenditures, Operator
shall either negotiate a rate prior to charging the Joint Account or shall charge the Joint
Account for overhead based on the following rates:

	 	A.	 	___% of total costs through $100,000; plus
	 
	 	 	 	     See Attached Addenda
	 
	 	B.	 	___% of total costs in excess of $100,000 but less than $1,000,000; plus
	 
	 	 	 	     See Attached Addenda
	 
	 	C.	 	___% of total costs in excess of $1,000,000.
	 
	 	 	 	     See Attached Addenda

	 	 	Expenditures subject to the overheads above will not be reduced by insurance recoveries, and no
other overhead provisions of this Section III shall apply.
	 
	4.	 	Amendment of Rates
	 
	 	 	The overhead rates provided for in this Section III may be amended from time to time only by
mutual agreement between the Parties hereto if, in practice, the rates are found to be
insufficient or excessive.

IV. PRICING OF JOINT ACCOUNT MATERIAL PURCHASES, TRANSFERS AND DISPOSITIONS

Operator is responsible for Joint Account Material and shall make proper and timely charges and
credits for all Material movements affecting the Joint Property. Operator shall provide all
Material for use on the Joint Property; however, at Operator’s option, such Material may be
supplied by the Non-Operator. Operator shall make timely disposition of idle and/or surplus
Material, such disposal being made either through sale to Operator or Non-Operator, division in
kind, or sale to outsiders. Operator may purchase, but shall be under no obligation to purchase,
interest of Non-Operators in surplus condition A or B Material. The disposal of surplus
Controllable Material not purchased by the Operator shall be agreed to by the Parties.

	1.	 	Purchases
	 
	 	 	Material purchased shall be charged at the price paid by Operator after deduction of all
discounts received. In case of Material found to be defective or returned to vendor for any
other reasons, credit shall be passed to the Joint Account when adjustment has been received by
the Operator.
	 
	2.	 	Transfers and Dispositions
	 
	 	 	Material furnished to the Joint Property and Material transferred from the Joint Property or
disposed of by the Operator, unless otherwise agreed to by the Parties, shall be priced on the
following basis exclusive of cash discounts:

	 	A.	 	New Material (Condition A)

	 	(1)	 	Tubular Goods Other than Line Pipe

	 	(a)	 	Tubular goods, sized 2% inches OD and larger, except line
pipe, shall be priced at Eastern mill published carload base prices effective
as of date of movement plus transportation cost using the 80,000 pound carload
weight basis to the railway receiving point nearest the Joint Property for
which published rail rates for tubular goods exist. If the 80,000 pound rail
rate is not offered, the 70,000 pound or 90,000 pound rail rate may be used.
Freight charges for tubing will be calculated from Lorain, Ohio and casing
from Youngstown, Ohio.
	 
	 	(b)	 	For grades which are special to one mill only, prices shall
be computed at the mill base of that mill plus transportation cost from that
mill to the railway receiving point nearest the Joint Property as provided
above in Paragraph 2.A.(1)(a). For transportation cost from points other than
Eastern mills, the 30,000

- 6 -

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

	 	 	 	pound Oil Field Haulers Association interstate truck rate shall be used.
	 
	 	(c)	 	Special end finish tubular goods shall be priced at the
lowest published out-of-stock price, f.o.b. Houston, Texas, plus
transportation cost, using Oil Field Haulers Association interstate 30,000
pound truck rate, to the railway receiving point nearest the Joint Property.
	 
	 	(d)	 	Macaroni tubing (size less than 2% inch OD) shall be priced
at the lowest published out-of-stock prices f.o.b. the supplier plus
transportation costs, using the Oil Field Haulers Association interstate truck
rate per weight of tubing transferred, to the railway receiving point nearest
the Joint Property.

	 	(2)	 	Line Pipe

	 	(a)	 	Line pipe movements (except size 24 inch OD and larger with
walls 3/4 inch and over) 30,000 pounds or more shall be priced under
provisions of tubular goods pricing in Paragraph A.(1)(a) as provided above.
Freight charges shall be calculated from Lorain, Ohio.
	 
	 	(b)	 	Line pipe movements (except size 24 inch OD and larger with
walls 3/4 inch and over) less than 30,000 pounds shall be priced at Eastern
mill published carload base prices effective as of date of shipment, plus 20
percent, plus transportation costs based on freight rates as set forth under
provisions of tubular goods pricing in Para-graph A.(1)(a) as provided above.
Freight charges shall be calculated from Lorain, Ohio.
	 
	 	(c)	 	Line pipe 24 inch OD and over and 3/4 inch wall and larger
shall be priced f.o.b. the point of manufacture at current new published
prices plus transportation cost to the railway receiving point nearest the
Joint Property.
	 
	 	(d)	 	Line pipe, including fabricated line pipe, drive pipe and
conduit not listed on published price lists shall be priced at quoted prices
plus freight to the railway receiving point nearest the Joint Property or at
prices agreed to by the Parties.

	 	(3)	 	Other Material shall be priced at the current new price, in effect at
date of movement, as listed by a reliable supply store nearest the Joint Property,
or point of manufacture, plus transportation costs, if applicable, to the railway
receiving point nearest the Joint Property.
	 
	 	(4)	 	Unused new Material, except tubular goods, moved from the Joint
Property shall be priced at the current new price, in effect on date of movement,
as listed by a reliable supply store nearest the Joint Property, or point of
manufacture, plus transportation costs, if applicable, to the railway receiving
point nearest the Joint Property. Unused new tubulars will be priced as provided
above in Paragraph 2.A.(1) and (2).
	 
	 	B.	 	Good Used Material (Condition B)
	 
	 	 	 	Material in sound and serviceable condition and suitable for reuse without
reconditioning:

	 	(1)	 	Material moved to the Joint Property
	 
	 	 	 	At seventy-five percent (75%) of current new price, as determined by Paragraph A.
	 
	 	(2)	 	Material used on and moved from the Joint Property

	 	(a)	 	At seventy-five percent (75%) of current new price,
as determined by Paragraph A, if Material was originally charged to the
Joint Account as new Material or
	 
	 	(b)	 	At sixty-five percent (65%) of current new price, as
determined by Paragraph A, if Material was originally charged to the Joint
Account as used Material.

	 	(3)	 	Material not used on and moved from the Joint Property
	 
	 	 	 	At seventy-five percent (75%) of current new price as determined by Paragraph A.

	 	 	 	The cost of reconditioning, if any, shall be absorbed by the transferring
property.

	 	C.	 	Other Used Material

	 	(1)	 	Condition C
	 
	 	 	 	Material which is not in sound and serviceable condition and not suitable for
its original function until after reconditioning shall be priced at fifty
percent (50%) of current new price as determined by Paragraph A. The cost of
reconditioning shall be charged to the receiving property, provided Condition C
value plus cost of reconditioning does not exceed Condition B value.

- 7 -

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

	 	(2)	 	Condition D
	 
	 	 	 	Material, excluding junk, no longer suitable for its original purpose, but
usable for some other purpose shall be priced on a basis commensurate with its
use. Operator may dispose of Condition D Material under procedures normally
used by Operator without prior approval of Non-Operators.

	 	(a)	 	Casing, tubing, or drill pipe used as line pipe shall
be priced as Grade A and B seamless line pipe of comparable size and
weight. Used casing, tubing or drill pipe utilized as line pipe shall be
priced at used line pipe prices.
	 
	 	(b)	 	Casing, tubing or drill pipe used as higher pressure
service lines than standard line pipe, e.g. power oil lines, shall be
priced under normal pricing procedures for casing, tubing, or drill pipe.
Upset tubular goods shall be priced on a non upset basis.

	 	(3)	 	Condition E
	 
	 	 	 	Junk shall be priced at prevailing prices. Operator may dispose of Condition E
Material under procedures normally utilized by Operator without prior approval
of Non-Operators.

	 	D.	 	Obsolete Material
	 
	 	 	 	Material which is serviceable and usable for its original function but condition and/or
value of such Material is not equivalent to that which would justify a price as provided
above may be specially priced as agreed to by the Parties. Such price should result in the
Joint Account being charged with the value of the service rendered by such Material.
	 
	 	E.	 	Pricing Conditions

	 	(1)	 	Loading or unloading costs may be charged to the Joint Account at the
rate of twenty-five cents ($0.25) per hundred weight on all tubular goods
movements, in lieu of actual loading or unloading costs sustained at the stocking
point. The above rate shall be adjusted as of the first day of April each year
following January 1,1985 by the same percentage increase or decrease used to
adjust overhead rates in Section III, Paragraph 1.A(3). Each year, the rate
calculated shall be rounded to the nearest cent and shall be the rate in effect
until the first day of April next year. Such rate shall be published each year by
the Council of Petroleum Accountants Societies.
	 
	 	(2)	 	Material involving erection costs shall be charged at applicable
percentage of the current knocked-down price of new Material.

	3.	 	Premium Prices
	 
	 	 	Whenever Material is not readily obtainable at published or listed prices because of national
emergencies, strikes or other unusual causes over which the Operator has no control, the
Operator may charge the Joint Account for the required Material at the Operator’s actual cost
incurred in providing such Material, in making it suitable for use, and in moving it to the
Joint Property; provided notice in writing is furnished to Non-Operators of the proposed charge
prior to billing Non-Operators for such Material. Each Non-Operator shall have the right, by so
electing and notifying Operator within ten days after receiving notice from Operator, to
furnish in kind all or part of his share of such Material suitable for use and acceptable to
Operator.
	 
	4.	 	Warranty of Material Furnished By Operator
	 
	 	 	Operator does not warrant the Material furnished. In case of defective Material, credit shall
not be passed to the Joint Account until adjustment has been received by Operator from the
manufacturers or their agents.

V. INVENTORIES

The Operator shall maintain detailed records of Controllable Material.

	1.	 	Periodic Inventories, Notice and Representation
	 
	 	 	At reasonable intervals, inventories shall be taken by Operator of the Joint Account
Controllable Material. Written notice of intention to take inventory shall be given by Operator
at least thirty (30) days before any inventory is to begin so that Non-Operators may be
represented when any inventory is taken. Failure of Non-Operators to be represented at an
inventory shall bind Non-Operators to accept the inventory taken by Operator.
	 
	2.	 	Reconciliation and Adjustment of Inventories
	 
	 	 	Adjustments to the Joint Account resulting from the reconciliation of a physical inventory
shall be made within six months following the taking of the inventory. Inventory adjustments
shall be made by Operator to the Joint Account for

- 8 -

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

	 	 	overages and shortages, but, Operator shall be held accountable only for shortages due to lack
of reasonable diligence.
	 
	3.	 	Special Inventories
	 
	 	 	Special inventories may be taken whenever there is any sale, change of interest, or change of
Operator in the Joint Property. It shall be the duty of the party selling to notify all other
Parties as quickly as possible after the transfer of interest takes place. In such cases, both
the seller and the purchaser shall be governed by such inventory. In cases involving a change
of Operator, all Parties shall be governed by such inventory.
	 
	4.	 	Expense of Conducting Inventories

	 	A.	 	The expense of conducting periodic inventories shall not be charged to the Joint
Account unless agreed to by the Parties.
	 
	 	B.	 	The expense of conducting special inventories shall be charged to the Parties
requesting such inventories, except inventories required due to change of Operator shall
be charged to the Joint Account.

- 9 -

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

Addendum – 1

This Addendum is attached to and made a part of that certain 1984 COPAS Onshore Model
Accounting Procedure which is Exhibit C to that certain Operating Agreement dated October 1,
2005, by and between Belden and Blake Corporation and EnerVest Operating, L.L.C. (the contract
operator).

With respect to Direct Charges pursuant to Section II.8.A and Overhead pursuant to Section III.1.i,
III.1.ii, III.1.iii, III.1.A(1) and III.3-A-C, the following elections are hereby made for the
following region:

Belden & Blake Corporation – Appalachian Basin Region Properties located in the States of Ohio,
Pennsylvania, and New York

	 	 	 	 	 	 	 
	II.8.A

	 	 	10	%	 	 
	 
	 	 	 	 	 	 
	III.1.i

	 	 	x	 	 	Fixed Rate Basis
	 

	 	 	___	 	 	Percentage Rate Basis
	 
	 	 	 	 	 	 
	III.1.ii

	 	 	___	 	 	shall be covered by the overhead rates
	 

	 	 	x	 	 	shall not be covered by the overhead rates
	 
	 	 	 	 	 	 
	III.1.iii

	 	 	___	 	 	shall be covered by the overhead rates
	 

	 	 	x	 	 	shall not be covered by the overhead rates
	 
	 	 	 	 	 	 
	III.1.A(1)	 	 	Drilling Well Rate: $10,000
	 	 	 	Producing Well Rate: $132
	 
	 	 	 	 	 	 
	III.1.B(1)(a)

	 	 	N/A	%	 	Note: Utilizing Fixed Rate not Percentage Rate Basis
	 
	 	 	 	 	 	 
	III.1.B(1)(b)

	 	 	N/A	%	 	 
	 
	 	 	 	 	 	 
	III.2-A

	 	 	10	%	 	 
	 
	 	 	 	 	 	 
	III.2-B

	 	 	10	%	 	 
	 
	 	 	 	 	 	 
	III.2-C

	 	 	10	%	 	 
	 
	 	 	 	 	 	 
	III.3-A

	 	 	N/A	%	 	Note: Covered by WI ownership well insurance.
	 
	 	 	 	 	 	 
	III.3-B

	 	 	N/A	%	 	 
	 
	 	 	 	 	 	 
	III.3-C

	 	 	N/A	%	 	 

 

 

A.A.P.L. FORM 610 — MODEL FORM OPERATING AGREEMENT- 1989

Addendum – 1

This Addendum is attached to and made a part of that certain 1984 COPAS Onshore Model
Accounting Procedure which is Exhibit C to that certain Operating Agreement dated October 1,
2005, by and between Belden and Blake Corporation and EnerVest Operating, L.L.C. (the contract
operator).

With respect to Direct Charges pursuant to Section II.8.A and Overhead pursuant to Section III.1.i,
III.1.ii, III.1.iii, III.1.A(1) and III.3-A-C, the following elections are hereby made for the
following region:

Belden & Blake Corporation – Michigan Basin Region Properties located in the State of Michigan

	 	 	 	 	 	 	 
	II.8.A

	 	 	10	%	 	 
	 
	 	 	 	 	 	 
	III.1.i

	 	 	x	 	 	Fixed Rate Basis
	 

	 	 	___	 	 	Percentage Rate Basis
	 
	 	 	 	 	 	 
	III.1.ii

	 	 	___	 	 	shall be covered by the overhead rates
	 

	 	 	x	 	 	shall not be covered by the overhead rates
	 
	 	 	 	 	 	 
	III.1.iii

	 	 	___	 	 	shall be covered by the overhead rates
	 

	 	 	x	 	 	shall not be covered by the overhead rates
	 
	 	 	 	 	 	 
	III.1.A(1)	 	 	Drilling Well Rate: $10,000
	 	 	 	Producing Well Rate: $250
	 
	 	 	 	 	 	 
	III.1.B(1)(a)

	 	 	N/A	%	 	Note: Utilizing Fixed Rate not Percentage Rate Basis
	 
	 	 	 	 	 	 
	III.1.B(1)(b)

	 	 	N/A	%	 	 
	 
	 	 	 	 	 	 
	III.2-A

	 	 	10	%	 	 
	 
	 	 	 	 	 	 
	III.2-B

	 	 	10	%	 	 
	 
	 	 	 	 	 	 
	III.2-C

	 	 	10	%	 	 
	 
	 	 	 	 	 	 
	III.3-A

	 	 	N/A	%	 	Note: Covered by WI ownership well insurance.
	 
	 	 	 	 	 	 
	III.3-B

	 	 	N/A	%	 	 
	 
	 	 	 	 	 	 
	III.3-C

	 	 	N/A	%EX-10.1

 

EXHIBIT 10.1

EMPLOYMENT AGREEMENT

     EMPLOYMENT AGREEMENT (“Agreement”) executed April 3, 2006 but effective as of February 20,
2006 (the “Effective Date”) between HARRIS INTERACTIVE INC., a Delaware corporation (“Company”),
and DAVID B. VADEN (“Executive”).

     This Agreement amends, restates, and replaces in its entirety the Employment Agreement between
the Company and Executive dated as of January 1, 2004 (the “Prior Agreement”); provided, however,
that all rights of Executive to payments and benefits under Section 3 of the Prior Agreement
accrued but unpaid as of the Effective Date shall survive execution of this Agreement. This
Agreement does not modify the terms of any stock option agreements between Company and Executive in
effect on the Effective Date, which stock option agreements shall remain unchanged and in full
force and effect according and subject to the terms contained therein.

1. CAPACITY AND DUTIES

     1.1 Employment; Acceptance of Employment. Company hereby employs Executive and
Executive hereby accepts employment by Company for the period and upon the terms and conditions
hereinafter set forth.

     1.2 Capacity and Duties.

          (a) Executive shall serve as the Executive Vice President and Chief Operations Officer,
including among his responsibilities those of chief information officer. Executive shall perform
duties and shall have authority as may from time to time be specified by the Chief Executive
Officer and the Board of Directors of Company (the “Board”). Executive’s position and duties may
be changed from time to time by the Chief Executive Officer and the Board; provided, however, that
Executive’s position, authority, duties, and responsibilities shall be no less senior and executive
in nature than those of Executive Vice President and Chief Operations Officer. Executive shall
perform his duties for Company principally at Company’s executive offices, presently in Rochester,
New York, provided, however, that Executive acknowledges and agrees that travel to Company’s and
its affiliates’ various offices, and to other locations in furtherance of Company’s business, will
be required in connection with the performance of Executive’s duties hereunder. Executive will
report to the Chief Executive Officer of the Company. Notwithstanding the foregoing, for so long
as Leonard R. Bayer serves as Executive Vice President of the Company, Executive will report to Mr.
Bayer with respect to Executive’s responsibilities as chief information officer and to the Chief
Executive Officer with respect to all other of his responsibilities. Upon retirement of Leonard R.
Bayer, Executive will report exclusively to Chief Executive Officer.

          (b) Executive shall devote full time efforts to the performance of Executive’s duties
hereunder, in a manner that will faithfully and diligently further the business and interests of
Company.

          (c) Executive acknowledges that Company’s reputation is important in the continued success of
its business, and agrees that he will not discuss or comment in such a manner as may adversely
impact the reputation or public perception, or otherwise disparage,

1

 

Company or its officers, employees, or directors in any manner; provided, however, that
Executive may make such disclosures as may be required by law. Company acknowledges that
Executive’s reputation is important to his continued success. Company agrees that it will not, and
that it will use all reasonable efforts to cause its officers, employees, and directors not to,
defame, disparage, or otherwise discuss or comment about Executive in such a manner as may
adversely impact his reputation or public perception; provided, however, that Company may make such
disclosures as may be required by law.

2. TERM OF EMPLOYMENT

     2.1 Term. The term of Executive’s employment hereunder, for all purposes of this
Agreement, shall commence on the Effective Date (the “Commencement Date”) and continue through and
including the earliest to occur of (i) June 30, 2007, if and as further extended to subsequent June
30ths as provided in this Section 2.1, (ii) the date on which Executive dies, and (iii) the date on
which either the Company or Executive terminates Executive’s employment for any reason (the
"Termination Date”). Except as hereinafter provided, on June 30, 2007 this Agreement shall be
automatically extended for an additional one-year term, and if so extended shall be automatically
extended for successive additional one-year terms, unless either the Executive or Company shall
have given the other written notice of nonrenewal of this Agreement at least three (3) months prior
to June 30, 2007, or if applicable any one-year extension term then in effect. If written notice
of nonrenewal is given as provided above, Executive’s employment under this Agreement shall
terminate on June 30, 2007, or if the term of this Agreement has automatically renewed, on the June
30 immediately following the date of the non-renewal notice.

3. COMPENSATION

     3.1 Base Compensation. As compensation for Executive’s services, Company shall pay to
Executive base compensation in the form of salary (“Base Compensation”) in the amount of $300,000
per annum. The salary shall be payable in periodic installments in accordance with Company’s
regular payroll practices for its executive personnel at the time of payment, but in no event less
frequently than monthly. The Compensation Committee of the Board shall review Base Compensation
periodically for the purpose of determining, in its sole discretion, whether Base Compensation
should be adjusted; provided, however, that Executive’s Base Compensation shall not be less than
$300,000.

     3.2 Performance Bonus. As additional compensation for the services rendered by
Executive to Company Executive shall be paid a performance bonus (“Performance Bonus") payable in
full at the same time as payment of other executive bonuses by the Company (generally targeted for
payment within ninety (90) days after the end of the relevant fiscal year of the Company). The
Performance Bonus award criteria and amounts shall be those established on an annual basis by the
Compensation Committee of the Board of Directors of the Company based upon performance guidelines
established for executive officers of the Company; provided, however, that the target bonus for
Executive shall be a minimum of $100,000 for FY 2006 and FY 2007 provided that performance
guidelines are met. No bonus will be due in the event that award criteria established by the
Compensation Committee are not met.

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     3.3 Employee Benefits. Executive shall be entitled to participate in such of
Company’s employee benefit plans and benefit programs, including medical, hospitalization, dental,
disability, accidental death and dismemberment and travel accident plans and programs, as may from
time to time be provided by Company for its senior executives generally. In addition, Executive
shall be eligible to participate in all pension, retirement, savings and other employee benefit
plans and programs maintained from time to time by Company for the benefit of its senior executives
generally. Company shall have no obligation, however, to maintain any particular program or level
of benefits referred to in this Section 3.3.

     3.4 Life Insurance Benefit. During the Term, the Company shall provide Executive with
a term life insurance policy in the amount of $250,000 in addition to term life insurance benefits
provided for senior executives generally.

     3.5 Vacation. Executive shall be entitled to the normal and customary amount of paid
vacation provided to senior executive officers of the Company, but in no event less than 20 days
during each 12-month period. Any vacation days that are not taken in a given 12-month period shall
accrue and carry over from year to year up to a maximum aggregate of 5 days. The Executive may be
granted leaves of absence with or without pay for such valid and legitimate reasons as the Board in
its sole and absolute discretion may determine, and is entitled to the same sick leave and holidays
provided to other executive officers of Company.

     3.6 Expense Reimbursement. Company shall reimburse Executive for all reasonable and
documented expenses incurred by him in connection with the performance of Executive’s duties
hereunder in accordance with its regular reimbursement policies as in effect from time to time.

     3.7 Withholding. All payments under this Agreement shall be subject to any required
withholding of Federal, state and local taxes pursuant to any applicable law or regulation.

4. TERMINATION OF EMPLOYMENT

     4.1 Accrued Obligations. For purposes of this Agreement:

          (a) “Accrued Base Obligations” shall mean amounts for Base Compensation, expense
reimbursement, and employee benefits which have accrued, vested, and are unpaid as of the
Termination Date.

          (b) “Accrued Bonus Obligations” shall mean:

               (i) any unpaid Performance Bonus earned for any fiscal year ending before the Termination
Date, and

               (ii) for the year in which the Termination Date occurs, a prorated Performance Bonus for the
partial-year period ending before the Termination Date if the Termination Date occurs in the last
six months of the applicable fiscal year calculated by annualizing the short period before
termination, and no prorated Performance Bonus if the Termination Date occurs in the first six
months of the applicable fiscal year.

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          (c) Accrued Base Obligations shall be paid within thirty (30) days after the Termination Date,
and Accrued Bonus Obligations shall be paid on the date on which they would have been paid under
this Agreement absent the occurrence of the Termination Date.

     4.2 Termination Procedures. Except as otherwise provided in this Agreement, any
termination of Executive’s employment by the Company or by Executive (other than termination
pursuant to death) shall be communicated by written Notice of Termination to the other party
hereto. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall
indicate the specific termination provision in this Agreement relied upon and, if applicable, shall
set forth in reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive’s employment under the provision so indicated.

     4.3 Death of Executive. If Executive dies prior to a Termination Date that otherwise
occurs, Company shall not thereafter be obligated to make any further payments hereunder other than
amounts for Accrued Base Obligations and Accrued Bonus Obligations.

     4.4 Disability of Executive. If Executive is permanently disabled (as defined in
Company’s long-term disability insurance policy then in effect), then the Company shall have the
right to terminate Executive’s employment upon 30 days’ prior written notice to Executive at any
time during the continuation of such disability (“Disability”). In the event Executive’s
employment is terminated for Disability in accordance with this Section 4.4, Company shall
not be obligated to make any further payments hereunder except for Accrued Base Obligations

     4.5 Termination for Cause.

          (a) Executive’s employment hereunder shall terminate immediately upon a Notice of Termination
from the Company that Executive is being terminated for Cause (as defined herein), in which event
Company shall not thereafter be obligated to make any further payments hereunder other than Accrued
Base Obligations and Accrued Bonus Obligations.

          (b) “Cause” shall be limited to the following:

               (i) willful failure to substantially perform Executive’s duties as described in Section 1.2
after demand for substantial performance is delivered by Company in writing that specifically
identifies the manner in which Company believes Executive has not substantially performed
Executive’s duties and Executive’s failure to cure such non-performance within ten (10) days after
receipt of the Company’s written demand; provided, however, that a failure to perform such duties
during the remedy period set forth in subsection (i) of the definition of Good Reason set forth in
Section 4.7 hereof, following the issuance of a Notice of Termination (as herein defined) by
Executive for Good Reason, shall not be Cause unless an arbitrator acting pursuant to Section 6.1
hereof finds Executive to have acted in bad faith in issuing such Notice of Termination;

               (ii) willful conduct that is materially and demonstrably injurious to Company or any of its
subsidiaries, but not including good faith conduct taken without intention to injure the Company or
its subsidiaries that, at the time engaged in, could not reasonably be expected to be more likely
than not to be materially injurious to the Company; or

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               (iii) conviction or plea of guilty or nolo contendere to a felony or to any
other crime which involves moral turpitude or, if not including moral turpitude, provided the act
giving rise to such conviction or plea is materially and demonstrably injurious to the Company or
any of its subsidiaries;

               (iv) material violation of Section 5 of this Agreement, or material violation of Company
polices set forth in Company manuals or written statements of policy provided in the case of
violation of policy that such violation is either materially and demonstrably injurious to Company
or, if curable, continues for more then three (3) days after written notice thereof is given to
Executive by the Company; and

               (v) material breach of any material provision of this Agreement by Executive, which breach
continues for more than ten days after written notice thereof is given by the Company to Executive.

     4.6 Termination Without Cause or by Executive for Good Reason.

          (a) The Company reserves the right to terminate Executive’s employment at any time. If,
however, a Termination Date occurs due to Company terminating Executive without Cause or Executive
terminating for Good Reason, then Company shall have no further obligations under this Agreement
except that Company shall pay to Executive the amounts shown in Section 4.6(b). Section 4.6(b)
shall not apply to (i) termination in the ordinary course on any applicable June 30 if the term of
this Agreement is not automatically renewed, which circumstance is covered by Section 4.6(c)) (ii)
termination for Cause which circumstance is covered by Section 4.5, (iii) termination by Executive
without Good Reason which circumstance is covered by Section 4.7, (iv) termination by reason of
death which circumstance is covered by Section 4.3, or (v) termination by reason of Disability
which circumstance is covered by Section 4.4.

          (b) If Company terminates Executive without Cause or Executive terminates with Good Reason,
then the Company shall pay to Executive:

               (i) the Accrued Base Obligations through the Termination Date, payable promptly after the
Termination Date,

               (ii) any unpaid Performance Bonus earned for any fiscal year ended before the Termination Date
payable the later of (A) the date on which such Performance Bonus would be paid absent termination
and (B) the date 30 days after the Termination Date,

               (iii) the Performance Bonus, if any is earned, for the fiscal year in which the Termination
Date occurs, allocable to and prorated for the period prior to termination, calculated by
annualizing any short period before termination, calculated and payable when Performance Bonuses
for the applicable year are paid to all other Company senior executives,

               (iv) Base Compensation through and including the date one year after the Termination Date,
payable at the same times as paid under Section 3.1; and

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               (v) benefits as required by Section 3.3 of this Agreement during the same period that Base
Compensation is due under Section 4.6(b)(iv); provided, however, if Executive, Executive’s spouse
or Executive’s dependents are ineligible to participate in the Company benefit programs under
Section 3.3, the Company shall arrange to provide Executive, Executive’s spouse and Executive’s
dependents with the economic equivalent of such benefits which they otherwise would have been
entitled to receive, and further provided that such benefits become secondary to primary coverage
upon the date or dates Executive receives coverage and benefits which are substantially similar,
taken as a whole, without waiting period or pre-existing condition limitations, under the plans and
programs of a subsequent employer.

          (c) If this Agreement is terminated in the ordinary course on any applicable June 30 because
of a non-renewal notice given by the Company under Section 2.1, then Company shall have no further
obligations under this Agreement except that Company shall pay to Executive the payments to which
the Executive would be entitled under Section 4.6(b)(i), (ii), (iii), (iv), and (v). If this
Agreement is terminated in the ordinary course on any applicable June 30 because of a non-renewal
notice given by the Executive under Section 2.1, then Company shall have no further obligations
under this Agreement except that Company shall pay to Executive the payments to which the Executive
would be entitled under Section 4.6(b)(i), (ii), and (iii).

     4.7 Termination by Executive without Good Reason. In the event Executive’s employment
is voluntarily terminated by Executive without Good Reason (and Executive may terminate this
Agreement without Good Reason upon fifteen (15) days prior notice), Company shall not be obligated
to make any further payments to Executive hereunder other than Accrued Base Obligations and Accrued
Bonus Obligations through the Termination Date.

          "Good Reason” shall mean the following:

               (i) material breach of Company’s obligations hereunder, including any assignment of duties not
included within the Executive’s duties described in Section 1.2 unless previously agreed to in
writing by Executive, provided that Executive shall have given reasonably specific written notice
thereof to Company, and Company shall have failed to remedy the circumstances within sixty (60)
days thereafter;

               (ii) any decrease in Executive’s salary as it may have increased during the term of this
Agreement, except for decreases that are in conjunction with decreases in executive salaries by the
Company generally and that do not result in a decrease in Executive’s annual salary below $300,000
per annum;

               (iii) the failure of Executive to continue to be appointed to the position of Executive Vice
President and Chief Operations Officer; or

               (iv) the failure of any successor in interest of the Company to be bound by the terms of this
Agreement in accordance with Section 6.4 hereof.

Notwithstanding subsections (i) and (iii) above, after a Change of Control , Good Reason shall not
include a change of title, reporting line, responsibilities, and duties so long as such changed
title, reporting line, and reassignment of executive duties are at a level commensurate with the

6

 

level of participation of the Company in the controlling person (such as, for example, executive
duties at a divisional, subsidiary, or group level, if the Company becomes a division, subsidiary,
or group within the controlling person), or assignment of other duties not materially inconsistent
with duties appropriate for a past executive vice president and chief operations officer, provided
that following such Change in Control, Executive remains the highest ranking operations officer or
reports directly to the highest ranking employee of such division, subsidiary or group within the
controlling person.

          Executive must provide a Notice of Termination to the Company that he is intending to
terminate his employment for Good Reason within one hundred and twenty (120) days after Executive
has actual knowledge of the occurrence of the latest event he believes constitutes Good Reason,
which termination notice shall specify a termination date within thirty (30) days after the date of
such notice except for termination under subsection (i) in which case the termination date shall be
as provided in such subsection. Executive’s right to terminate Executive’s employment hereunder
for Good Reason shall not be affected by Executive’s subsequent Disability provided that the notice
of intention to terminate is given prior to the onset of such Disability. Subject to compliance by
Executive with the notice provisions of this Section 4.7, Executive’s continued employment prior to
terminating employment for Good Reason shall not constitute consent to, or a waiver of rights with
respect to, any act or failure to act constituting Good Reason. In the event Executive delivers to
the Company a Notice of Termination for Good Reason, upon request of the Board Executive agrees to
appear before a meeting of the Board called and held for such purpose (after reasonable notice) and
specify to the Board the particulars as to why Executive believes adequate grounds for termination
for Good Reason exist. No action by the Board, other than the remedy of the circumstances within
the time periods specified in this Section 4.7, shall be binding on Executive.

     4.8 Mitigation. Executive shall not be required to mitigate amounts payable under
this Section 4 by seeking other employment or otherwise, and there shall be no offset against
amounts due Executive under this Agreement on account of subsequent employment except as
specifically provided herein.

     4.9 Change of Control.

          (a) If Executive is terminated without Cause, a Termination Date occurs on a June 30 due to
non-renewal by the Company of the term of this Agreement under Section 2.1, or Executive terminates
his employment for Good Reason, in each such case during the one-year period following a Change of
Control (as defined below), then in addition to payments and benefits to which Executive is
entitled under Section 4.6, Executive also shall receive reimbursement for reasonable (in the
discretion of the Company) and actual expenses incurred by Executive for six months of
out-placement services.

          (b) If a Change of Control shall have occurred:

               (i) after such Change of Control Executive’s entitlement to Bonus under Section 3.2 may be
modified by the new controlling Person in a reasonable manner (not to

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be less favorable to the Executive than the manner in which bonus calculations are modified
for other executive officers) so that such Bonus is calculated with reference to a
performance-based bonus plan provided by the new controlling Person; and

               (ii) after such Change of Control Executive’s entitlement to payments and benefits under
Sections 3.3 and 3.5 may be modified by the new controlling Person to entitlement to those benefits
generally provided to executives of the new controlling Person.

          (c) A “Change of Control” shall be deemed to have occurred if:

               (i) the following individuals cease for any reason to constitute a majority of the number of
directors then serving as directors of the Company: individuals who, on the date hereof,
constitute the Board of Directors of the Company and any new director (other than a director whose
initial assumption of office is in connection with the settlement of an actual or threatened
election contest, including but not limited to a consent solicitation, relating to the election of
directors of the Company) whose appointment or election by the Board of Directors of the Company or
nomination for election by the Company’s stockholders was approved or recommended by a vote of at
least a majority of the directors then still in office who either were directors on the date hereof
or whose appointment, election or nomination for election was previously so approved or
recommended;

               (ii) the stockholders of the Company approve a complete liquidation or dissolution of the
Company, except in connection with a recapitalization or other transaction which does not otherwise
constitute a Change of Control for purposes of subsection (iii) or (iv) below;

               (iii) any consolidation or merger of the Company occurs; or

               (iv) any sale, lease, exchange or other transfer (in one transaction or a series of related
transactions) of assets accounting for fifty percent (50%) or more of total assets, fifty percent
(50%) or more of the total revenues, or stock accounting for fifty percent (50%) or more of voting
power, of the Company occurs;

other than, in case of either subsection (iii) or (iv), a transaction in which immediately
following such transaction, (x) more than fifty percent (50%) of the combined voting power of the
then outstanding voting securities of the surviving entity in the case of a merger or consolidation
or acquiring entity in the case of a transfer (in each case, the “Surviving Entity”) entitled to
vote generally in the election of directors (or other determination of governing body) is then
beneficially owned (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) by
all or substantially all of the individuals and entities who were the owners of Company common
stock immediately prior to such transaction in substantially the same proportion, as among
themselves, as their ownership of such common stock immediately prior to such transaction, or (y) a
majority of the directors (or other governing body) of the Surviving Entity consists of members of
the Board of Directors of the Company in office during the twelve months preceding the applicable
transaction

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          (d) If all or any portion of the payments or other benefits paid or payable to Executive under
this Agreement and under any other plan, program or agreement of the Company or its affiliates, in
each case, however, in connection with or after a Change of Control, are determined to constitute
an excess parachute payment within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended, and as it may be amended on or after the date of this Agreement (the “Code”), and
results in the imposition on Executive of an excise tax under Section 4999 of the Code, then, in
addition to any other benefits to which Executive is entitled under this Agreement, Harris shall
pay to Executive an amount equal to the sum of (i) the excise taxes payable by Executive by reason
of receiving excess payments; and (ii) a gross-up amount necessary to offset any and all applicable
federal, state, and local excise, income, or other taxes incurred by Executive by reason of
Harris’s payment of the excise tax described in (i) above (but not including any additional amount
to offset any taxes on the gross-up amount paid pursuant to this sub clause (ii)).

5. NON-COMPETITION AND CONFIDENTIALITY

     5.1 Non-Competition.

          (a) During the period that Executive is employed by the Company, and for a period of one year
after the Termination Date (the “Non-Competition Period”), Executive shall not, directly or
indirectly, own, manage, operate, join, control, participate in, invest in or otherwise be
connected or associated with, in any manner, including, without limitation, as an officer,
director, employee, distributor, independent contractor, independent representative, partner,
consultant, advisor, agent, proprietor, trustee or investor, any Competing Business (defined
below); provided, however, that ownership of 4.9% or less of the stock or other securities of a
corporation, the stock of which is listed on a national securities exchange or is quoted on the
NASDAQ Stock Market’s National Market, shall not constitute a breach of this Section 5, so long as
the Executive does not in fact have the power to control, or direct the management of, or is not
otherwise engaged in activities with, such corporation.

     5.2 No Solicitation. During the Non competition Period, the Executive shall not,
directly or indirectly, including on behalf of, for the benefit of, or in conjunction with, any
other person or entity, (i) solicit, assist, advise, influence, induce or otherwise encourage in
any way, any employee of Company to terminate such employee’s relationship with Company for any
reason, or assist any person or entity in doing so, or employ, engage or otherwise contract with
any employee or former employee of Company in a Competing Business or any other business unless
such former employee shall not have been employed by Company for a period of at least one year and
no solicitation prohibited hereby shall have occurred prior to the end of such one-year period,
(ii) interfere in any manner with the relationship between any employee and Company, or (iii)
contact, service or solicit any existing clients, customers or accounts of Company on behalf of a
Competing Business, either as an individual on Executive’s own account, as an investor, or as an
officer, director, partner, joint venturer, consultant, employee, agent or salesman of any other
person or entity.

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     5.3 Confidential Information.

          (a) “Confidential Information” shall mean all proprietary or confidential records and
information, including, but not limited to, development, marketing, purchasing, organizational,
strategic, financial, managerial, administrative, production, distribution and sales information,
distribution methods, data, specifications, technologies, methods, and processes (including the
Transferred Property as hereinafter defined) presently owned or at any time hereafter developed by
Company, or its agents, consultants, or otherwise on its behalf, or used presently or at any time
hereafter in the course of the business of Company, that are not otherwise part of the public
domain.

          (b) Executive hereby sells, transfers and assigns to Company, or to any person or entity
designated by Company, all of Executive’s entire right, title and interest in and to all
inventions, ideas, methods, developments, disclosures and improvements (the “Inventions”), whether
patented or unpatented, and copyrightable material, and all trademarks, trade names, all goodwill
associated therewith and all federal and state registrations or applications thereof, made, adopted
or conceived by solely or jointly, in whole or in part prior to the Termination Date which (i)
relate to methods, apparatus, designs, products, processes or devices sold, leased, used or under
construction or development by Company or (ii) otherwise relate to or pertain to the business,
products, services, functions or operations of the Company (collectively, the “Transferred
Property”). Executive shall make adequate written records of all Inventions, which records shall
be Company’s property and shall communicate promptly and disclose to Company, in such forms Company
requests, all information, details and data pertaining to the aforementioned Inventions. Whether
during the term of this Agreement or thereafter, Executive shall execute and deliver to Company
such formal transfers and assignments and such other papers and documents as may be required of
Executive to permit Company, or any person or entity designated by Company, to file and prosecute
patent applications (including, but not limited to, records, memoranda or instruments deemed
necessary by Company for the prosecution of the patent application or the acquisition of letters
patent in the United states, foreign counties or otherwise) and, as to copyrightable material, to
obtain copyrights thereon, and as to trademarks, to record the transfer of ownership of any federal
or state registrations or applications.

          (c) All Confidential Information is considered secret and will be disclosed to the Executive
in confidence, and Executive acknowledges that, as a consequence of Executive’s employment and
position with Company, Executive may have access to and become acquainted with Confidential
Information. Except in the performance of Executive’s duties as an employee of Company, Executive
shall not, during the term and at all times thereafter, directly or indirectly for any reason
whatsoever, disclose or use any such Confidential Information. All records, files, drawings,
documents, equipment and other tangible items (whether in electronic form or otherwise), wherever
located, relating in any way to or containing Confidential Information, which Executive has
prepared, used or encountered or shall in the future prepare, use or encounter, shall be and remain
Company’s sole and exclusive property and shall be included in the Confidential Information. Upon
termination of this Agreement, or whenever requested by Company, Executive shall promptly deliver
to Company any and all of the Confidential Information and copies thereof, not previously delivered
to Company, that may be in the possession or under the control of the Executive. The foregoing
restrictions shall not apply to

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the use, divulgence, disclosure or grant of access to Confidential Information to the extent,
but only to the extent, (i) expressly permitted or required pursuant to any other written agreement
between Executive and Company, (ii) such Confidential Information has been publicly disclosed (not
due to a breach by the Executive of Executive’s obligations hereunder, or by breach of any other
person, of a fiduciary or confidential obligation to Company) or (iii) the Executive is required to
disclose Confidential Information by or to any court of competent jurisdiction or any governmental
or quasi-governmental agency, authority or instrumentality of competent jurisdiction, provided,
however, that the Executive shall, prior to any such disclosure, immediately notify Company of such
requirements and provided further, however, that the Company shall have the right, at its expense,
to object to such disclosures and to seek confidential treatment of any Confidential Information to
be so disclosed on such terms as it shall determine.

     5.4 Consideration for Section 5 Covenants. In consideration of the covenants
contained in this Section 5, the Company is willing to incur the payment and related obligations
under this Agreement, including in particular and without limitation those obligations under
Section 4.6(b)(iv). Executive acknowledges and agrees that the Company’s entry into this Agreement
and its incurrence of the related payment and other obligations hereunder are fair and adequate
consideration for the Executive’s obligations under this Section 5, and that the Company has
advised Executive that it would not bind itself in advance to the obligations hereunder but for
Executive’s agreement to this Section 5. In this regard, the Executive understands that the
provisions of this Section 5 may limit Executive’s ability to earn a livelihood in a business
similar or related to the business of Company, but nevertheless agrees and acknowledges that (i)
the provisions of Section 5 are reasonable and necessary for the protection of Company, and do not
impose a greater restraint than necessary to protect the goodwill or other business interest of
Company, (ii) such provisions contain reasonable limitations as to the time and the scope of
activity to be restrained, and (iii) the Company’s advance agreement to make payments under the
various circumstances set forth in this Agreement provide Executive with benefits adequate to fully
compensate Executive for any lost opportunity due to the operation of Section 5. In consideration
of the foregoing and in light of Executive’s education, skills and abilities, Executive agrees that
all defenses by Executive to the strict enforcement of such provisions are hereby waived by
Executive.

     5.5 Acknowledgement; Remedies; Survival of this Agreement.

          (a) Executive acknowledges that violation of any of the covenants and provisions set forth in
Section 5 of this Agreement would cause Company irreparable damage and agrees that Company’s
remedies at law for a breach or threatened breach of any of the provisions of this Section 5 would
be inadequate and, in recognition of this fact, in the event of a breach or threatened breach by
Executive of any of the provisions of this Agreement, it is agreed that, in addition to the
remedies at law or in equity, Company shall be entitled, without the posting of a bond, to
equitable relief in the form of specific performance, a temporary restraining order, temporary or
permanent injunction, or any other equitable remedy which may then be available for the purposes of
restraining Executive from any actual or threatened breach of such covenants. Without limiting the
generality of the foregoing, if Executive breaches or threatens to breach this Section 5 hereof,
such breach or threatened breach will entitle Company (i) to terminate its obligations to make
further payments otherwise required under this Agreement, and

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(ii) to enjoin Executive from disclosing any Confidential Information to any Competing
Business, to enjoin any Competing Business from retaining Executive or using any such Confidential
Information, and to enjoin Executive from rendering personal services to or in connection with any
Competing Business. The rights and remedies of the parties hereto are cumulative and shall not be
exclusive, and each such party shall be entitled to pursue all legal and equitable rights and
remedies and to secure performance of the obligations and duties of the other under this Agreement,
and the enforcement of one or more of such rights and remedies by a party shall in no way preclude
such party from pursuing, at the same time or subsequently, any and all other rights and remedies
available to it.

          (b) The provisions of this Section 5 shall survive the termination of Executive’s employment
with Company.

6. MISCELLANEOUS

     6.1 Arbitration. Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in Rochester, New York, in accordance with
the Commercial Arbitration Rules of the American Arbitration Association then in effect. Judgment
may be entered on the arbitrator’s award in any court having jurisdiction. The parties consent to
the authority of the arbitrator, if the arbitrator so determines, to award fees and expenses
(including legal fees) to the prevailing party in the arbitration. Notwithstanding the foregoing,
Company shall be entitled to enforce the provisions of Section 5 hereof through proceedings brought
in a court of competent jurisdiction as contemplated by Section 6.7 hereof.

     6.2 Severability; Reasonableness of Agreement. If any term, provision or covenant of
this Agreement or part thereof, or the application thereof to any person, place or circumstance
shall be held to be invalid, unenforceable or void by an arbitrator or court of competent
jurisdiction, the remainder of this Agreement and such term, provision or covenant shall remain in
full force and effect, and any such invalid, unenforceable or void term, provision or covenant
shall be deemed, without further action on the part of the parties hereto, modified, amended and
limited, and the arbitrator or court shall have the power to modify, amend and limit any such term,
provision or covenant, to the extent necessary to render the same and the remainder of the
Agreement valid, enforceable and lawful.

     6.3 Key Employee Insurance. Company in its sole discretion shall have the right at
its expense to purchase insurance on the life of Executive, in such amounts as it shall from time
to time determine, of which Company shall be the beneficiary. Executive shall submit to such
physical examinations as may reasonably be required and shall otherwise cooperate with Company in
obtaining such insurance.

     6.4 Assignment; Benefit. This Agreement shall not be assignable by Executive, other
than Executive’s rights to payments or benefits hereunder, which may be transferred only by will or
the laws of descent and distribution. Upon Executive’s death, this Agreement and all rights of
Executive hereunder shall inure to the benefit of and be enforceable by Executive’s beneficiary or
beneficiaries, personal or legal representatives, or estate, to the extent any such person succeeds
to Executive’s interests under this Agreement. No rights or obligations of Company under this
Agreement may be assigned or transferred except to any successor to the Company’s

12

 

business
and/or assets (by merger, purchase of stock or assets, or otherwise) which, to the extent not
otherwise automatically provided by operation of law, expressly assumes and agrees to perform this
Agreement in the same manner and to the same extent that Company would be required to perform if no
such succession had taken place.

     6.5 Notices. All notices hereunder shall be in writing and shall be deemed
sufficiently given (i) if hand-delivered, on the date of delivery, (ii) if sent by documented
overnight delivery service, on the first business day after deposit with such service for overnight
delivery, and (iii) if sent by registered or certified mail, postage prepaid, return receipt
requested, on the third business day after deposit in the U.S. mail, in each case addressed as set
forth below or at such other address for either party as may be specified in a notice given as
provided herein by such party to the other. Any and all service of process and any other notice in
any such action, suit or proceeding shall be effective against any party if given as provided in
this Agreement; provided that nothing herein shall be deemed to affect the right of any party to
serve process in any other manner permitted by law.

	 	(i)	 	If to Company:

	 	 	 	 	 
	 

	 	Harris Interactive Inc.
	 	 
	 

	 	135 Corporate Woods	 	 
	 

	 	Rochester, New York 14623	 	 
	 

	 	Attention: Chief Executive Officer	 	 

With Copies To:

	 	 	 	 	 
	 

	 	Beth Ela Wilkens, Esq.
	 	 
	 

	 	Harris Beach PLLC	 	 
	 

	 	99 Garnsey Road	 	 
	 

	 	Pittsford, New York 14534	 	 

	 	(ii)	 	If to Executive:

	 	 	 	 	 
	 

	 	David B. Vaden
	 	 
	 

	 	447 Sundance Trail	 	 
	 

	 	Webster, New York 14580	 	 

     6.6 Entire Agreement; Modification. This Agreement constitutes the entire agreement
between the parties hereto with respect to the matters contemplated herein and supersedes all prior
agreements and understandings with respect thereto. No amendment, modification, or waiver of this
Agreement shall be effective unless in writing. Neither the failure nor any delay on the part of
any party to exercise any right, remedy, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude
any other or further exercise of the same or of any other right, remedy, power, or privilege with
respect to such occurrence or with respect to any other occurrence.

     6.7 Governing Law. This Agreement is made pursuant to, and shall be construed and
enforced in accordance with, the laws of the State of Delaware and the federal laws of the United

13

 

States of America, to the extent applicable, without giving effect to otherwise applicable
principles of conflicts of law. Subject to Section 6.1 of this Agreement, the parties hereto
expressly consent to the jurisdiction of any state or federal court located in the State of New
York, and to venue therein, and consent to the service of process in any such action or proceeding
by certified or registered mailing of the summons and complaint therein directed to Executive or
Company, as the case may be, at its address as provided in Section 6. hereof.

     6.8 Prevailing Party. Should either party breach the terms of this Agreement, the
prevailing party who seeks to enforce the terms and conditions of this Agreement shall be entitled
to recover its attorneys fee and disbursements.

     6.9 Headings; Counterparts; Interpretation. The headings of paragraphs in this
Agreement are for convenience only and shall not affect its interpretation.

     This Agreement may be executed in two or more counterparts, each of which shall be deemed to
be an original and all of which, when taken together, shall be deemed to constitute the same
Agreement.

     The Company and the Executive each acknowledge that it has been represented by legal counsel
in the negotiation and drafting of this Agreement, that this Agreement has been drafted by mutual
effort, and that no ambiguity in this Agreement shall be construed against either party as
draftsperson.

     6.10 Further Assurances. Each of the parties hereto shall execute such further
instruments and take such other actions as the other party shall reasonably request in order to
effectuate the purposes of this Agreement.

     IN WITNESS WHEREOF, this Agreement has been executed and delivered as of the date first above
written.

[Signature Page Follows]

14

 

	 	 	 	 	 
	HARRIS INTERACTIVE INC.	 	 
	 
	 	 	 	 
	By:
	 	/s/ Gregory T. Novak	 	 
	 

	 	 	 	 
	 

	 	Gregory T. Novak	 	 
	 

	 	Chief Executive Officer	 	 
	 
	 	 	 	 
	 /s/ DAVID B. VADEN
	 	 	 
	 

	 	DAVID B. VADEN	 	 

15

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