Document:

Ex 10.5 - EOG Model Form Operating Agreement 03 01 2013

		

			 

		

		
			                                                                        Exhibit 10.5
		

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

		
			MODEL FORM OPERATING AGREEMENT

		

		
			 
		

		
			 
		

		
			OPERATING AGREEMENT
		

		
			DATED
		

		
			March 1, 2013,
		

		
			 
		

		
			OPERATOR:  EOG Resources, Inc.
		

		
			CONTRACT AREA:  See Exhibits A-1 and A-2
		

		
			 
		

		
			COUNTY OR PARISH OF:  Walker, Grimes, Madison, Trinity, and Montgomery,
STATE OF TEXAS
		

		
			 
		

		
			 
		

		
			
		

		
			 
		

		
			 
		

		
			
		

			COPYRIGHT 1989 - ALL RIGHTS RESERVED
		

		
			AMERICAN ASSOCIATION OF PETROLEUM
		

		
			LANDMEN, 4100 FOSSIL CREEK BLVD. 
FORT WORTH, TEXAS, 76137, APPROVED FORM.
		

		
			
A.A.P.L. NO. 610 - 1989
		

		
			COPYRIGHT 1989 - ALL RIGHTS RESERVED
		

		
			AMERICAN ASSOCIATION OF PETROLEUM
		

		
			LANDMEN, 4100 FOSSIL CREEK BLVD. 
FORT WORTH, TEXAS, 76137, APPROVED FORM.
		

		
			
A.A.P.L. NO. 610 - 1989
		

		
		
			 
		

		
			 
		

		
			 
		

		
			 
		

		
			 
		

		

		

		 

		

			 

		

 

		

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

		

		TABLE OF CONTENTS
		

			
					
						Article

					
					
						Title

					
					
						Page

				

		
			ARTICLE I. DEFINITIONS            1
		
		

			ARTICLE II. EXHIBITS..................................................................................................................................................................................3 
		

		
			ARTICLE III. INTERESTS OF PARTIES...............................................................................................................................................3 
		

		
			A.Interests of Parties in Costs and Production:..................................................................................................................3 
		

		
			B.Subsequently Created Interests:...........................................................................................................................................4 
		

		
			ARTICLE IV. TITLES......................................................................................................................................................................................5 
		

		
			A.Title Examination:..........................................................................................................................................................................5 
		

		
			B.Loss or Failure of Title:...............................................................................................................................................................6 
		

		
			1.Other Losses..........................................................................................................................................................................6 
		

		
			ARTICLE V. OPERATOR..............................................................................................................................................................................6 
		

		
			A.Designation and Responsibilities of Operator:.................................................................................................................6 
		

		
			B.Resignation or Removal of Operator and Selection Successor:.............................................................................6 
		

		
			1.Resignation or Removal of Operator..........................................................................................................................6 
		

		
			2.Selection of Successor Operator..................................................................................................................................7 
		

		
			3.Effective of Bankruptcy...................................................................................................................................................7 
		

		
			C.Employees and Contractors:...................................................................................................................................................8 
		

		
			D.Rights and Duties of Operator:...............................................................................................................................................8 
		

		
			1.Competitive Rates and Use of Affiliates.................................................................................................................8 
		

		
			2.Discharge of Joint Account Obligations.....................................................................................................................8 
		

		
			3.Protection from Liens.........................................................................................................................................................8 
		

		
			4.Custody of Funds................................................................................................................................................................8 
		

		
			5.Access to Contract Area and Records.......................................................................................................................8 
		

		
			6.Filing and Furnishing Governmental Reports..........................................................................................................9 
		

		
			7.Drilling and Testing Operations.......................................................................................................................................9 
		

		
			8.Cost Estimates......................................................................................................................................................................9 
		

		
			9.Insurance..................................................................................................................................................................................9 
		

		
			ARTICLE VI. DRILLING AND DEVELOPMENT.............................................................................................................................10 
		

		
			A.Initial Well:......................................................................................................................................................................................10 
		

		
			B.Subsequent Operations:...........................................................................................................................................................10 
		

		
			1.Proposed Operations........................................................................................................................................................10 
		

		
			2.Operations by Less Than All Parties.........................................................................................................................11 
		

		
			3.Stand-By Costs..................................................................................................................................................................15 
		

		
			4.Deepening..............................................................................................................................................................................15 
		

		
			5.Sidetracking..........................................................................................................................................................................16 
		

		
			6.Order of Preference of Operations............................................................................................................................17 
		

		
			7.Conformity to Spacing Pattern....................................................................................................................................17 
		

		
			8.Paying Wells........................................................................................................................................................................17 
		

		
			C.Completion of Wells; Reworking and Plugging Back:................................................................................................17 
		

		
			1.Completion............................................................................................................................................................................17 
		

		
			2.Rework, Recomplete or Plug Back............................................................................................................................18 
		

		
			D.Other Operations:........................................................................................................................................................................19 
		

		
			E.Abandonment of Wells:............................................................................................................................................................19 
		

		
			1.Abandonment of Dry Holes..........................................................................................................................................19 
		

		
			2.Abandonment of Wells That Have Produced........................................................................................................20 
		

		
			3.Abandonment of Non-Consent Operations............................................................................................................21 
		

		
			F.Termination of Operations:......................................................................................................................................................21 
		

		
			G.Taking Production in Kind:.......................................................................................................................................................21 
		

		
			ARTICLE VII. EXPENDITURES AND LIABILITY OF PARTIES..............................................................................................22 
		

		
			A.Liability of Parties:.....................................................................................................................................................................22 
		

		
			B.Liens and Security Interests:................................................................................................................................................23 
		

		
			C.Advances:......................................................................................................................................................................................25 
		

		
			D.Defaults and Remedies:..........................................................................................................................................................25 
		

		
			1.Suspension of Rights.......................................................................................................................................................25 
		

		
			2.Suit for Damages...............................................................................................................................................................26 
		

		
			3.Deemed Non-Consent.....................................................................................................................................................26 
		

		
			4.Advance Payment.............................................................................................................................................................26 
		

		
			5.Costs and Attorneys’ Fees...........................................................................................................................................26 
		

		
			E.Rentals, Shut-in Well Payments and Minimum Royalties:......................................................................................27 
		

		
			F.Taxes:...............................................................................................................................................................................................27 
		

		
			ARTICLE VIII. ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST.........................................................28 
		

		
			A.Surrender of Leases:.................................................................................................................................................................28 
		

		
			B.Renewal or Extension of Leases:........................................................................................................................................29 
		

		
			C.Acreage or Cash Contributions:...........................................................................................................................................29 
		

		
			D.Assignment; Maintenance of Uniform Interest:............................................................................................................30 
		

		
			E.Waiver of Rights to Partition:...............................................................................................................................................31 
		

		
			ARTICLE IX. INTERNAL REVENUE CODE ELECTION............................................................................................................31 
		

		
			ARTICLE X. CLAIMS AND LAWSUITS...............................................................................................................................................31 
		

		
			ARTICLE XI. FORCE MAJEURE...........................................................................................................................................................32 
		

		
			ARTICLE XII. NOTICES.............................................................................................................................................................................32 
		

		
			ARTICLE XIII. TERM OF AGREEMENT.............................................................................................................................................33 
		

		
			ARTICLE XIV. COMPLIANCE WITH LAWS AND REGULATIONS........................................................................................33 
		

		
			A.Laws, Regulations and Orders:.............................................................................................................................................33 
		

		
			B.Governing Law:............................................................................................................................................................................33 
		

		
			C.Regulatory Agencies:................................................................................................................................................................34 
		

		
			ARTICLE XV. MISCELLANEOUS...........................................................................................................................................................34 
		

		
			A.Execution:.......................................................................................................................................................................................34 
		

		
			B.Successors and Assigns:........................................................................................................................................................35 
		

		
			C.Counterparts:................................................................................................................................................................................35 
		

		
			D.Severability:..................................................................................................................................................................................35 
		

		
			 
		

		
			 
		

		
			ARTICLE XVI. OTHER PROVISIONS.................................................................................................................................................35 
		

		
			A.Conflicts:........................................................................................................................................................................................35 
		

		
			B.Additional Testing:.......................................................................................................................................................................35 
		

		
			C.Substitute Well:............................................................................................................................................................................35 
		

		
			D.Metering Production:..................................................................................................................................................................36 
		

		
			E.Agreement Subject to Applicable Laws and Reporting:.............................................................................................36 
		

		
			F.Confidentiality:.............................................................................................................................................................................36 
		

		
			G.Payment of Royalties and Taxes:......................................................................................................................................37 
		

		
			H.Liabilities:........................................................................................................................................................................................37 
		

		
			I.Operations Sequence Priority:..............................................................................................................................................38 
		

		
			J.Subsequent Operations:...........................................................................................................................................................38 
		

		
			K.Covenants:....................................................................................................................................................................................39 
		

		
			L.Information:...................................................................................................................................................................................39 
		

		
			M.Federal and State Reporting:.................................................................................................................................................39 
		

		
			N.Operator As Disbursing Agent:.............................................................................................................................................39 
		

		
			O.Waiver:............................................................................................................................................................................................40 
		

		
			P.Horizontal Wells:..........................................................................................................................................................................40 
		

		
			Q.Information to Operator:..........................................................................................................................................................40 
		

		
			R.Marketing of Production:..........................................................................................................................................................40 
		

		
			S.Indemnity:......................................................................................................................................................................................41 
		

		
			T.Amendments:................................................................................................................................................................................41 
		

		
			U.Proposed Non-Operator Operations:..................................................................................................................................41 
		

		
			
		

		
			 
		

		
			 
		

		
			 
		

		
			 
		

		

		

		 

		

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

		

		OPERATING AGREEMENT
		

		
			THIS AGREEMENT, entered into by and between EOG Resources, Inc., 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:
		

		
			            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.
		

		
			            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, performing, well stimulation and production testing conducted in such operation.
		

		
			            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.”
		

		
			            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. 
		

		
			            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.
		

		
			            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.
		

		

		

		 

		

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

		

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

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

		
			            The term “Non-Consent Well” shall mean a well in which less than all parties have conducted an operation as provided in Article VI.B.2.
		

		
			            The terms “Non-Drilling Party” and “Non-Consenting Party” shall mean a party who elects not to participate in a proposed operation.
		

		
			            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.
		

		
			            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.
		

		
			            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.
		

		
			            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.
		

		
			            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.
		

		
			            The term “Rework” shall mean an operation conducted in the wellbore of a well after it is Completed in 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.
		

		
			            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 drill around junk in the hole to overcome other mechanical difficulties.
		

		
			            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.
		

		 

		

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

		

			
			
				 ARTICLE II.
			

			
			
			
EXHIBITS

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

			
					
						     X    

					
					
						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

				
	
					
						     X    

					
					
						C.

					
					
						Exhibit “C,” Accounting Procedure

				
	
					
						     X    

					
					
						D.

					
					
						Exhibit “D,” Insurance

				
	
					
						     X    

					
					
						E.

					
					
						Exhibit “E,” Gas Balancing Agreement

				
	
					
						     X    

					
					
						F.

					
					
						Exhibit “F,” Non-Discrimination and Certification of Non-Segregated Facilities

				
	
					
						           

					
					
						G.

					
					
						Exhibit “G,” Tax Partnership

				
	
					
						     X    

					
					
						H.

					
					
						Other Model Form Recording Supplement to Operating Agreement and Financing Statement

				

		
			 
		

		
			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.
			

			
			
			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. 
		

		

		

		 

		

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

		

		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 access or 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 as 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.
		

			
			
				 B.
			

			
			
			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 interests, 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 
		

		 

		

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

		

		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 arties, 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.
		

			
			
				 C.
			

			
			
			
TITLES

			
			
				 D.
			

			
			
			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 opinion is 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 communication 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.”  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 
		

		 

		

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

		

		approved by the examining attorney or title has been accepted by all of the Drilling Parties in such well.
		

			
			
				 E.
			

			
			
			Loss or Failure of Title:

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.
		

			
			
				 F.
			

			
			
			
OPERATOR

			
			
				 G.
			

			
			
			Designation and Responsibilities of Operator:

		
			EOG Resources, Inc. 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.
		

			
			
				 H.
			

			
			
			Resignation or Removal of Operator and Selection Successor:

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 
		

		 

		

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

		

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

		
			Subject to Article VII.D.1., 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.
		
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.
		
Effective 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.”
		

		 

		

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

		

			
			
				 I.
			

			
			
			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.
		

			
			
				 J.
			

			
			
			Rights and Duties of Operator:

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 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.
		
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 the 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.
		
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 liens and encumbrances resulting therefrom except for those resulting from a bona fide dispute as to services rendered or materials supplied.
		
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.
		
Access to Contract Area and Records
		
			.  Operator shall, except as otherwise provided herein, permit each Consenting Party or its duly authorized representative, at the Consenting Party’s sole risk and cost, full and free access at all reasonable times to all operations 
		

		 

		

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		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 and such Consenting Party has paid for its proportionate share thereof.  Operator will furnish to each Consenting Party 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 Consenting Party 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.”
		
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.
		
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.

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.
		
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.  
		

		 

		

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		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 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.
		

			
			
				 (d)
			

			
			
			
DRILLING AND DEVELOPMENT

			
			
				 K.
			

			
			
			Initial Well:

		
			On or before the ______ day of ___________________, _____, Operator shall commence the drilling of the Initial Well at the following location:
		

		
			TO BE DETERMINED
		

		
			 
		

		
			 
		

		
			 
		

		
			and shall thereafter continue the drilling of the well with due diligence to
		

		
			 
		

		
			 
		

		
			The drilling of the Initial Well and the participation therein by all parties is obligatory, subject to Article VI.C.1. as to participation in Completion operations and Article VI.F. as to termination of operations and Article XI as to occurrence of force majeure.
		

			
			
				 L.
			

			
			
			Subsequent Operations:

Proposed Operations
		
			.  If any party hereto should desire to drill any well on the Contract Area other than the Initial Well, 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 under this agreement 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 
		

		 

		

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		and the response period shall be limited to forty-eight (48) hours, exclusive of Saturday, Sunday and legal holidays.  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 prices 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 forty-eight (48) 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.
		
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.1. (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 forty-eight (48) 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) designated 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.

		

		

		 

		

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		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 forty-eight (48) hours (exclusive of Saturday, Sunday, and legal holidays) 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) any 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 forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays).   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 crated by or arising from the operations of the Consenting Parties. If such an operation results in a dry hole, then subject to Article 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 for 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, 
		

		 

		

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		Sidetracking, 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-Consulting Party who submitted or voted for an alternative proposal under Article VI.B.6 to drill the well to a shallower Zone that 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, Recompleting or Plugging Back.  As 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, in 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 income.  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 
		

		 

		

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		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 operations 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, Recompletion 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 which 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 
		

		 

		

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		participated in the drilling, Sidetracking, Reworking, Deepening, Recompleting or Plugging Back of said well.  Thereafter, such Non-Consenting Party shall be charged with an 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.
		
Stand-By Costs
		
			.  When a well which has been drilled or Deepened has reached its authorized depth and all tests have been completion 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, 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.  Standby 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 in the proportion of 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 forty-eight 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.
		
Deepening
		
			.  If less than all 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 right 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.
		

		 

		

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

		

			
			
				 (e)
			

			
			
			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.

			
			
				 (f)
			

			
			
			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 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.
		
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 as 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:
		

			
			
				 (g)
			

			
			
			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.

			
			
				 (h)
			

			
			
			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 
		

		 

		

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		the depth at which the Sidetracking operation is initiated shall be determined in accordance with the provisions of Exhibit “C”.

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, exclusive of Saturday, Sunday and legal holidays, 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 (exclusive of Saturday, Sunday and legal holidays) 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 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, exclusive of Saturday, Sunday and legal holidays, if a drilling rig is on location).  Each party shall then have two (2) days (or twenty-four (24) hours if a rig 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.
		
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 or the party proposing such well has obtained an exception or permit for same from the regulatory agency having jurisdiction herein.
		
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.
		

			
			
				 M.
			

			
			
			Completion of Wells; Reworking and Plugging Back:

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:
		

		

		

		 

		

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		   √                     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 for which horizontal wells for which no pilot hole has been proposed prior to drilling.
		

		
			   √             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 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 proposed 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 operator 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 provision 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 Recompletion 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. 
		
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 
		

		 

		

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

		

		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.
		

			
			
				 N.
			

			
			
			Other Operations:

		
			Operator shall not undertake any single project reasonably estimated to require an expenditure in excess of Fifty Thousand Dollars ($50,000.00) 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 uses, Operator shall furnish any Non-Operator so requesting an information copy thereof for any single project costing in excess of Ten Thousand Dollars ($10,000.00).  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 hereof Operator secures the written consent of any party or parties owning at least51% 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.
		

			
			
				 O.
			

			
			
			Abandonment of Wells:

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 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 VI.B.; failure of such party to provide proof reasonably satisfactory to Operator of its 
		

		 

		

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

		

		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 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.
		
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 after delivery of notice of proposed abandonment shall be deemed an election to consent to the proposal.  If within sixty (50) 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 and 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 to the 
		

		 

		

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

		

		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.
		
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 cost for such well as provided in Article VI.B.2.(b).
		

			
			
				 P.
			

			
			
			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 65% 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 renders further operations impractical, Operator may discontinue operations and give notice of such condition in the manner provided in Article VI.B.1., and the provisions of Article VI.B. or VI.E. shall thereafter apply to such operation, as appropriate.
		

			
			
				 Q.
			

			
			
			Taking Production in Kind:

		
			   √               Option No. 1:  Gas Balancing Agreement Attached
		

		
			Each party shall take in kind or separately dispose of its proportionate share of all Oil and Gas produced from the Contract Area, exclusive of production which may be used in development and producing operations and in preparing and treating Oil and Gas for marketing purposes and production unavoidably test.  Any extra expenditure incurred in the taking in kind or separate disposition by any party of its proportionate share of the production shall be borne by such party.  Any party taking its share of production in kind shall be required to pay for only its proportionate share of such part of Operator’s surface facilities which it uses.
		

		
			Each party shall execute such division orders and contracts as may be necessary for the sale of its interest in production from the Contract Area, and, except as provided in 
		

		 

		

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		Article VII.B., shall be entitled to receive payment directly from the purchaser thereof for its share of all production.
		

		
			If any party fails to make the arrangements necessary to take in kind or separately dispose of its proportionate share of the Oil or Gas produced from the Contract Area, Operator shall have the right, subject to the revocation it will by the party owning it, but not the obligation, to purchase such Oil or Gas or sell it to others at any time and from time to time, for the account of the non-taking party.  Any such purchase or sale by Operator may be terminated by Operator upon at least ten (10) days written notice to the owner of said production and shall be subject always to the right of the owner of the production upon at least ten (10) days written notice to Operator to exercise at any time its right to take in kind, or separately dispose of, its share of all Oil or Gas not previously delivered to a purchaser.  Any purchase or sale by Operator of any other party’s share of Oil or Gas shall be only for such reasonable periods of time as are consistent with the minimum needs of the industry under the particular circumstances, but in no event for a period in excess of one (1) year.
		

		
			Any such sale by Operator shall be in a manner commercially reasonable under the circumstances but Operator shall have no duty to share any existing market or to obtain a price equal to that received under any existing market.  The sale or delivery by Operator of a non-taking party’s share of Oil or Gas under the terms of any existing contract of Operator shall not give the non-taking party any interest in or make the non-taking party a party to said contract.  No purchase shall be made by Operator without first giving the non-taking party at least ten (10) days written notice of such intended purchase and the price to be paid or the pricing basis to be used.
		

		
			All parties shall give timely written notice to Operator of their Gas marketing arrangements for the following month, excluding price, and shall notify Operator immediately in the event of a change in such arrangements, Operator shall maintain records of all marketing arrangements, and of volumes actually sold or transported, which records shall be made available to Non-Operators upon reasonable request.
		

		
			In the event one or more parties’ separate disposition of its share of the Gas causes split-stream deliveries to separate pipelines and/or deliveries which on a day-to-day basis for any reason are not exactly equal to a party’s respective proportionate share of total Gas sales to be allocated to it, the balancing or accounting between the parties shall be in accordance with any Gas balancing agreement between the parties hereto, whether such an agreement is attached as Exhibit “E” or is a separate agreement.  Operator shall give notice to all parties of the first sales of Gas from any well under this agreement.
		

			
			
				 R.
			

			
			
			
EXPENDITURES AND LIABILITY OF PARTIES

			
			
				 S.
			

			
			
			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 
		

		 

		

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		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. 
		

			
			
				 T.
			

			
			
			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 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 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 connection 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 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 
		

		 

		

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		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 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 in foreclosure or executed 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 party prior to sale, any available right to stay execution or to require a marshaling 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 agrees 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.
		

		 

		

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

		

			
			
				 U.
			

			
			
			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.
		

			
			
				 V.
			

			
			
			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 be applicable.  For purposes of this Article VII.D., all notices and elections shall be delivered 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.
		
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.
		

		 

		

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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.
		
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 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 the 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 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.
		
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 the Article VII.D. 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.
		
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.
		

		 

		

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

		

			
			
				 W.
			

			
			
			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 IV.B.3.
		

			
			
				 X.
			

			
			
			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 off 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”.
		

		
			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”. 
		

		

		

		 

		

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

		

		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.
		

			
			
				 Y.
			

			
			
			
ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST

			
			
				 Z.
			

			
			
			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 
		

		 

		

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		terms and provisions of this agreement but shall be deemed subject to an Operating Agreement in the form of this agreement.
		

			
			
				 AA.
			

			
			
			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.
		

			
			
				 BB.
			

			
			
			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 
		

		 

		

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		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 for whom the contribution is made shall promptly tender 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.
		

		
			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.
		

			
			
				 CC.
			

			
			
			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 
		

		 

		

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		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.
		

			
			
				 DD.
			

			
			
			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.
		

			
			
				 EE.
			

			
			
			
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.
		

			
			
				 FF.
			

			
			
			
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 _______________________ Dollars ($___________) 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. 
		

		 

		

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		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.
		

			
			
				 GG.
			

			
			
			
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.
		

			
			
				 HH.
			

			
			
			
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 
		

		 

		

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		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.
		

			
			
				 II.
			

			
			
			
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.
		

		
			   √               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.
		

			
			
				 JJ.
			

			
			
			
COMPLIANCE WITH LAWS AND REGULATIONS

			
			
				 KK.
			

			
			
			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.
		

			
			
				 LL.
			

			
			
			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.
		

		 

		

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

		

			
			
				 MM.
			

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

			
			
				 NN.
			

			
			
			
MISCELLANEOUS

			
			
				 OO.
			

			
			
			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.
		

		 

		

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

		

			
			
				 PP.
			

			
			
			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.
		

			
			
				 QQ.
			

			
			
			Counterparts:

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

			
			
				 RR.
			

			
			
			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.
		

			
			
				 SS.
			

			
			
			
OTHER PROVISIONS

			
			
				 TT.
			

			
			
			Conflicts:

		
			In the event of a conflict between the provisions of this Article XVI, and other provisions of the Operating Agreement, the provisions of this Article XVI shall govern and control.  Further, this Operating Agreement (including this Article XVI) is subject to the terms and provisions of that certain Joint Exploration and Development Agreement dated effective March 1, 2013, by and among EOG Resources, Inc., ZaZa Energy Corporation and ZaZa Energy, LLC (“JEDA”), and in the event of a conflict between the provisions of this Operating Agreement (including this Article XVI) and the JEDA, to which this Operating Agreement is attached as an exhibit, the JEDA shall govern and control.
		

			
			
				 UU.
			

			
			
			Additional Testing:

		
			Any party desiring to perform additional logging, coring, or other testing (other than logging, coring or testing that has been approved previously) may do so at its sole cost, risk and expense.  In such event the party or parties undertaking such additional testing shall be responsible for any damage to the hole or reservoir resulting from such testing.  The parties not participating in such additional testing shall not be entitled to the logs and other data resulting from such tests, but shall not suffer any other penalty.
		

			
			
				 VV.
			

			
			
			Substitute Well:

		
			Should there be a completion attempt of any Test Well and should the Consenting Parties agree to abandon the completion attempt due to, but not limited to, the inability to set production casing and successfully secure same, mechanical problems that may arise, such as collapsed pipe or tubing, unrecoverable junk in the hole that would prohibit the well being 
		

		 

		

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		successfully completed for production, and should the well thereafter be plugged and abandoned, then in that event, only those Consenting Parties to the completion attempt of the Test Well shall have the right and election to consent to drilling of a substitute well at a legal location as near as practical to the location of the Test Well.  If said substitute well is AFE’d for a depth that is greater than 200 feet below the stratigraphic equivalent of the geological formation of the Test Well for which the substitute well is proposed, or if said substitute well is AFE’d as a horizontal well (if the Test Well was a vertical well) or as a vertical well (if the Test Well was a horizontal well) or if the azimuth of the horizontal well bore of the Test Well is changed more than twenty degrees in the substitute well proposal and AFE, then all parties have the right to participate in the substitute well in accordance with the appropriate well proposal provisions of this Operating Agreement or the Agreement to which this Operating Agreement is attached.
		

			
			
				 WW.
			

			
			
			Metering Production:

		
			If a diversity of the working interest ownership in production from a lease subject to this Operating Agreement occurs as a result of operations by less than all parties pursuant to any provision(s) of this Operating Agreement, it is agreed that the oil and/or gas, and other liquid hydrocarbons produced from the well or wells completed by the consenting party or parties shall be separately measured by standard metering equipment to be properly testing periodically for accuracy.  The setting of a separate tank battery will not be required unless the purchaser of the production or governmental regulatory body having jurisdiction will not approve metering for separately measuring the production.  Subject to the provision of Article VI.G., in the event any party hereto enters into a gas sales contract for the sale of their share of gas produced from the Contract Area (“Contracting Party”), any of the other parties hereto may, at its option, accept and ratify such gas sales contract as additional Contracting Party.
		

			
			
				 XX.
			

			
			
			Agreement Subject to Applicable Laws and Reporting:

		
			This Operating Agreement and the respective rights and obligations of the parties hereunder shall be subject to all applicable federal, state, local or governmental laws, rules, regulations and orders, and in the event this Agreement or any provision(s) hereof is, or the operations contemplated hereby are found to be inconsistent with or contrary to any such law, rule, regulation or order, the latter shall be deemed to control and this Operating Agreement shall be regarded as modified accordingly and, as so modified, to continue in full force and effect.
		

		
			Operator shall act as the representative of all parties hereto in all hearings and proceedings before administration bodies concerning the Contract Area and all reasonable costs and expenses incurred by Operator (excluding its staff attorneys) directly or by retention of outside personnel in participation in such hearings or proceedings shall be proper direct charges against the joint account; provided, however, that nothing herein contained shall prohibit any of the parties other than Operator from participating in any such hearing or proceedings in his or its behalf and at his or its own cost and expense.
		

			
			
				 YY.
			

			
			
			Confidentiality:

		
			Except as otherwise specifically provided herein, during the term of this Operating Agreement, all geophysical, geological and engineering information acquired 
		

		 

		

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		hereunder shall be the property of the parties hereto as herein provided, and the parties agree, and do hereby bind themselves, their successors and assigns, to accept and keep such information confidential and for the exclusive use of the parties concerned for the term hereof.  Except as otherwise specifically provided herein, well information shall be the sole and confidential property of the parties participating in the cost of the well, but such information may be disclosed to a non-drilling party to this Operating Agreement if a drilling party is so obligated.  Notwithstanding any other provision of this Operating Agreement, any party may disclose information, without the consent of the other parties, (1) to governmental agencies when required by such agency, (2) to reputable financial institutions in connection with a bona fide financial transaction, (3) to bona fide consultants and accredited engineering firms for the purpose of evaluation on a confidential basis, (4) to reputable financially responsible third parties with whom a party is engaged in a bona fide effort to sell all or part of its interest in the Contract Area or this Operating Agreement, and (5) third parties with whom a party is engaged in a bona fide effort to effect a merger or consolidation or which third party proposes to acquire all of the controlling part of the stock in a party hereto or to purchase substantially all of the assets of a party hereto or affiliates of parties hereto; provided that any third party who is permitted access to confidential data pursuant to this Paragraph shall agree in writing not to communicate such information to anyone and to make no use of such information adverse to the parties hereto within the area covered by such information during the period of time such information remains confidential hereunder; and, provided further that the party disclosing the confidential data shall indemnify and hold the other parties hereto harmless against losses resulting from its disclosure to non-governmental third parties.
		

			
			
				 ZZ.
			

			
			
			Payment of Royalties and Taxes:

		
			If Operator purchases a Non-Operator’s share of production or if Operator sells production for the account of a non-taking party under Article VI.G. or a marketing agreement, all royalties, overriding royalties, other production burdens, and tax assessments (including severance taxes) shall be paid by Operator from the sale proceeds due to the Non- Operator; provided, however, that if a party exercises its right to take production in kind under the provisions of this Operating Agreement, such party shall pay or deliver or cause to be paid or delivered all royalties, overriding royalties, or other payments due on its share of production so taken, and shall hold the other parties free from any liability therefore.  Payment by Operator of any such royalties, overriding royalties, other production burdens, and tax assessments (including severance taxes), or other amounts on behalf of such Non-Operator, is intended as an administrative convenience only and each party shall remain responsible for its proportionate part of such payment made by the Operator.  Operator shall have no liability to third parties for improper calculation or untimely payments of such amounts provided Operator acts in good faith.  Operator and Non-Operator agree that the making of such payments by Operator does not constitute an assignment to or assumption by Operator of any of Non-Operator’s obligations to third parties, is not intended for the benefit of such third parties, and shall not create any rights in such third parties.  
		

			
			
				 AAA.
			

			
			
			Liabilities:

		
			Operator shall use reasonable efforts to comply with all rules and governmental regulations but, notwithstanding any rule or regulation making the Operator responsible for 
		

		 

		

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		compliance with said rules and regulations, the liability therefore shall be borne by the parties hereto in proportion to their interests including, without limitation, any repayments required by any such governmental agency.  In the event Operator (1) agrees in writing to hold division orders and to disburse proceeds from oil or gas sales including the payment of royalty interests and/or (2) accepts, holds, disburses or otherwise handles any funds on behalf of Non-Operators then each Non-Operator, as to its interest, indemnifies Operator without limitation in connection therewith provided that there is an absence of fraud, intentional misrepresentation, gross negligence or acts of willful misconduct by Operator.  NO PARTY SHALL BE LIABLE TO ANY OTHER PARTY TO THIS OPERATING AGREEMENT FOR LOST PROFITS OR ANY OTHER INCIDENTAL, CONSEQUENTIAL, SPECIAL, EXEMPLARY OR PUNITIVE LOSSES OR DAMAGES (WHETHER IN TORT, CONTRACT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS OPERATING AGREEMENT REGARDLESS OF THE NEGLIGENCE (SOLE OR CONCURRENT) OR OTHER FAULT OF A PARTY.
		

			
			
				 BBB.
			

			
			
			Operations Sequence Priority:

		
			It is agreed that where a well, which has been authorized under the terms of this Operating Agreement, has been drilled to the objective depth or the objective formation, whichever is deepest, and the parties participating in the well cannot mutually agreed upon the sequence and timing of further operations regarding said well, the following elections shall control in the order enumerated hereafter: (1) an election to do additional logging, coring or testing, (2) an election to attempt to complete the well at either the objective depth or objective Zone or formation, (3) an election to plug back and attempt completions in ascending order, (4) an election to sidetrack the well, (5) an election to deepen said well in descending order and (6) plugging and abandoning the well.  Any election required pursuant to this provision may be requested by confirmed e‐mail and/or facsimile and any response may be given by a confirmed e‐mail and/or facsimile.
		

		
			It is provided, however, that if at the time said Consenting Parties are considering any of the above elections as set forth in the previous paragraph, the hole is in such a condition that the Operator would not conduct the operations contemplated for fear of placing the hole in jeopardy or losing the same prior to completing the well in the objective depth or objective formation, such election shall not be given the priority hereinabove set forth.
		

			
			
				 CCC.
			

			
			
			Subsequent Operations:

		
			Subsequent Operations shall, in all respects, be subject to the terms and provisions of Article VI.B. of this Operating Agreement.  Other than drilling, an election to non-consent a proposed operation shall not serve to preclude participation by the non-consenting party in a subsequent operation to deepen the well, or to test and complete the well in a formation in which no previous testing and completion attempt has been made (except in the deepened portion of the well, if a deepening operation, and in which the non-consenting party did not participate).  Election to participate in any subsequent operation will carry with it the obligation for costs as set out in Article VII.A.  Non-Operators expressly recognize that Operator shall determine, in accordance with this Operating Agreement, the costs of all Subsequent Operations which are proposed or performed in accordance with the provisions hereof, and the costs so determined 
		

		 

		

			            -  38  -

		

		

			 

		

 

		

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

		

		shall be reflected on an Authority for Expenditure prepared and submitted by Operator to Non-Operators in connection with each such Subsequent Operation.
		

			
			
				 DDD.
			

			
			
			Covenants:

		
			The terms, covenants and conditions of this Operating Agreement shall be covenants running with the Contract Area and shall inure to and be binding upon the parties hereto and their respective legal representatives, successors and assigns.  Each party making an assignment or transfer of any lands or leasehold estates covered hereby shall provide that such assignment or transfer is subject to all of the terms, covenants and conditions hereof, and shall promptly give written notice to Operator of such assignment or transfer.
		

			
			
				 EEE.
			

			
			
			Information:

		
			Operator shall at all times consult freely with the other parties concerning the operations being or to be conducted within the Contract Area.
		

			
			
				 FFF.
			

			
			
			Federal and State Reporting:

		
			Operator hereby agrees to use reasonable efforts to comply with the rules and regulations of all State or Federal agencies, boards, commissions or other regulatory authorities (“Regulatory Authorities”) having jurisdiction of the Contract Area.  To this end, it will file all documentation, reports, affidavits and exhibits required to be filed by the Operator with any such Federal or State regulatory authority.  The Operator shall not be liable in damages to Non-Operators for its failure to timely or properly file any such instruments where such failure is the result of mere nonfeasance or misfeasance or the result of in incorrect or improper interpretation of the statutes, rules and regulations of any regulatory authority.  As consideration for its undertaking the acts set forth above, Operator shall be compensated for its costs in doing such acts.
		

		
			Non-Operators hereby covenant and agree to use reasonable efforts to timely provide the Operator with all documentation, affidavits, reports or other materials and information in their possession, or to which they are entitled, which the Operator must have in order to perform those tasks and make the necessary reports to the regulatory authorities.
		

			
			
				 GGG.
			

			
			
			Operator As Disbursing Agent:

		
			Subject to the right of each party to take in kind its share of production from the Contract Area, any Non-Operator to this Operating Agreement may designate the Operator to act as its/their agent to receive and disburse the proceeds received from the sale of any oil, gas or other minerals produced from the Contract Area.  If so requested, Operator shall remit to each Non-Operator its proportionate share of the net proceeds within sixty days after receipt thereof.  Operator will use reasonable efforts to make such disbursements correctly, but will be liable for incorrect disbursement only in the event of gross negligence or willful misconduct.  Operator shall have the right, at its election, to cease acting as the agent of Non-Operator by providing such party and its relevant purchaser of production with 30 days written notice of such cessation.  Likewise, Non-Operator may terminate the authority of Operator to act on its behalf by 
		

		 

		

			            -  39  -

		

		

			 

		

 

		

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

		

		providing Operator and the relevant purchaser of production from the Contract Area with 30 days written notice of such termination of authority.
		

			
			
				 HHH.
			

			
			
			Waiver:

		
			Waiver by any party hereto of any breach by any other party hereto of any provision of this Operating Agreement shall not be deemed a waiver of future compliance therewith or with any other provision hereof, and each and every provision of this Operating Agreement shall remain in full force and effect regardless of any previous waiver.
		

			
			
				 III.
			

			
			
			Horizontal Wells:

		
			Notwithstanding anything contained herein to the contrary, (i) the provisions of Article VI.C.1. Option No. 1 shall apply to any “horizontal well” (hereinafter defined) proposed hereunder, and (ii) the provisions of Article VI.C.1. Option No. 2 shall apply to all other wells proposed hereunder that are not expressly proposed as “horizontal wells”.  To be effective as a “horizontal well proposal”, such proposal must include an AFE and other accompanying documents that clearly stipulate that the well being proposed is a horizontal well.  For purposes of this agreement, a “horizontal well” is defined a well drilled, completed or recompleted in a manner in which the lateral or horizontal component exceeds a minimum of one hundred feet (100’) in the objective formation(s).  As to any possible conflicts that may arise during the completion phase of a horizontal well, priority shall be given first to a lateral drain hole of the authorized depth, and then to objective formations in ascending order above the authorized depth, and then to objective formations in descending order below the authorized depth.
		

			
			
				 JJJ.
			

			
			
			Information to Operator:

		
			Non-Operators hereby covenant and agree that they shall provide Operator with all documentation, affidavits or reports within their possession as required by Operator to perform those tasks agreed to be undertaken by Operator hereunder, and as may be required by regulations and laws of the governmental authority having jurisdiction over operations on the Contract Area.
		

			
			
				 KKK.
			

			
			
			Marketing of Production:

		
			At the written request of Non-Operator, Operator has the option, but not the obligation, to market Non-Operator’s proportionate share of production.  In the event Operator elects such option, Operator will market Non-Operator’s proportionate share of production on the same price and terms that Operator markets its own production from the Contract Area.  Such marketing will be free of any postproduction costs except for those costs incurred on a bona-fide arms-length transaction between Operator and a third party that is not related to Operator or in which Operator does not own a controlling interest.  Operator may cease marketing Non-Operator’s share of production at any time (or from time-to-time) for any reason or no reason; provided, however, that Operator must provide at least thirty (30) days written notice to Non-Operator.  In the event Operator elects to market Non-Operator’s share of production, Operator will pay Non-Operator’s royalty burdens; provided, however, that Non-Operator shall furnish to Operator any information relevant to the payout of such royalty burdens.
		

		 

		

			            -  40  -

		

		

			 

		

 

		

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

		

			
			
				 LLL.
			

			
			
			Indemnity:

		
			THE PARTIES ACKNOWLEDGE AND UNDERSTAND THAT THE PROVISIONS OF ARTICLE V. ARE INTENDED AS AN INDEMNITY AGREEMENT THAT INDEMNIFIES THE OPERATOR FROM THE RESULTS OF THE OPERATOR’S OWN NEGLIGENCE (WHETHER SOLE, JOINT, COMPARATIVE, OR CONCURRENT).  THE PARTIES AGREE THAT ARTICLE V., AS SUPPLEMENTED BY THIS ADDITIONAL PROVISION, SATISFIES THE EXPRESS NEGLIGENCE DOCTRINE AND CONSPICUOUS REQUIREMENT UNDER TEXAS LAW.
		

			
			
				 MMM.
			

			
			
			Amendments:

		
			Except as otherwise expressly provide, this Agreement shall not be amended except by written instrument expressly referring to this Agreement and executed by the parties to such amendment.
		

			
			
				 NNN.
			

			
			
			Proposed Non-Operator Operations:

		
			Notwithstanding anything contrary contained in this Operating Agreement (including without limitation Article VI) and except as to (x) an operation which is necessary to maintain an Oil and Gas Lease within six months of its expiry or (y) an operation to Rework, Deepen, Recomplete or Plug Back any well that Operator has failed to Complete or found to be non-productive, or upon which Operator has otherwise ceased continuing operations (except to the extent that such well is reasonably required as a monitoring well), from and after the date of this Operating Agreement, a Non-Operator shall not propose any operation under this Operating Agreement until the earlier of: (i) Operator’s completion and satisfaction of its Commitment Well (as defined in the JEDA) obligations for Phases I, II and III (as each is defined in the JEDA) as provided in Section 3 to the JEDA, (ii) the expiration of the Term (as defined in the JEDA).  For purposes of the preceding sentence, only as applied to a Commitment Well, the term “Complete” shall have the definition given to such term in the JEDA.
		

		
			END OF ARTICLE XVI
		

		

		

		 

		

			            -  41  -

		

		

			 

		

 

		

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

		

		
		

		
			IN WITNESS WHEREOF, this agreement shall be effective as of the 1st day of March, 2013, EOG Recourses, Inc., who has prepared and circulated this form for execution, represents and warrants that the form was printed from and, with the exception(s) listed below, is identical to the AAPL Form 610‐1989 Model Form Operating Agreement, as published in computerized form by Forms On‐A‐Disk, Inc.  No changes, alterations or modifications, other than those made by strikethrough and/or insertion and that are clearly recognizable as changes in Articles ____________________________________, have been made to the form.
		

			
					
						ATTEST OR WITNESS:

					
						 

					
						 

					
						                                                            

                                                

					
					
						 

					
					
						OPERATOR
EOG RESOURCES, INC.

					
						
By: /s/ Randall L. Davis                                    

					
						            Randall L. Davis                                    
Type or print name

					
						
Title:            Division Land Manager
Date:            April 2, 2013
Tax ID or S.S. No.  47-0684736

					
						 

				
	
					
						
NON-OPERATORS

				
	
					
						 

					
						 

					
						                                                            

                                                

					
					
						 

					
					
						ZAZA ENERGY LLC

					
						
By: /s/ Todd A. Brooks                                    

					
						            Todd A. Brooks                                    
Type or print name

					
						
Title:            Manager
Date:            April 2, 2013
Tax ID or S.S. No.  27-0248842

					
						 

				
	
					
						 

					
					
						 

					
					
						 

				
	
					
						 

					
						 

					
						                                                            

                                                

					
					
						 

					
					
						                                                            

					
						
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.                                      

					
						 

				

		 

		

			            -  42  -

		

		

			 

		

 

		

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

		

		
			 
		

		 

		

			            -  43  -Ex 10.6 - ZaZa Amendment No  5 to Securities Purchase Agreement

		

			EXECUTION VERSION

		

		
			Exhibit 10.6
		

		
			AMENDMENT NO. 5 TO SECURITIES PURCHASE AGREEMENT AND AMENDMENT NO. 1 TO SANCHEZ CONSENT

		

		
			This AMENDMENT NO. 5 TO SECURITIES PURCHASE AGREEMENT AND AMENDMENT NO. 1 TO SANCHEZ CONSENT (this “Amendment”), is made and entered into this 28th day of March, 2013, by and among ZAZA ENERGY CORPORATION, a Delaware corporation (the “Company”), and each of the holders of Securities (as defined in the Securities Purchase Agreement, as defined below) that is a signatory to this Amendment.
		

		
			RECITALS
		

		
			1.            The Company and the holders of the Securities are parties to that certain Securities Purchase Agreement dated February 21, 2012, as amended by (a) a letter agreement dated as of March 1, 2012, (b) a letter agreement dated as of March 22, 2012, (c) that certain Waiver and Amendment No. 1 to Securities Purchase Agreement dated as of June 8, 2012, as amended by that certain letter agreement dated as of June 28, 2012, (d) that certain Waiver and Amendment No. 2 to Securities Purchase Agreement dated as of July 25, 2012, (e) that certain Waiver and Amendment No. 3 to Securities Purchase Agreement dated as of October 16, 2012 and (f) that certain Amendment No. 4 to Securities Purchase Agreement dated as of December 17, 2012 (as amended, the “Existing Securities Purchase Agreement”; and as amended by this Amendment and as may be further amended, restated, supplemented or otherwise modified from time to time, the “Securities Purchase Agreement”).
		

		
			2.            Pursuant to the Existing Securities Purchase Agreement, the Company issued, and the holders of Notes purchased, (a) the Company’s 8.00% Senior Secured Notes due February 21, 2017, in the aggregate principal amount of $100,000,000 (collectively, the “Notes”) and (b) the Company’s warrants to purchase 26,315,789 shares of the Company’s Common Stock (as adjusted pursuant to the terms thereof, the “Warrants”).
		

		
			3.            Pursuant to a letter agreement dated February 20, 2013 (the “Sanchez Consent”),  the holders of the Securities (as defined in the Securities Purchase Agreement) consented to (a) the sale of ZaZa LLC’s right, title and interest in approximately 2,879 acres of Eagle Ford Assets to Sanchez Energy Corporation (the “Sanchez Sale”), (b) the release of Collateral Agent’s Lien on the Eagle Ford Acreage (as defined in the Sanchez Consent),  and (c)  notwithstanding the requirements of paragraph 7B(13) of the Securities Purchase Agreement,  the Company’s receipt and retention of the Net Available Cash from such sale and the deferral of the offer to prepay the Notes with the proceeds from the Sanchez Sale (the “Sanchez Deferral”). 
		

		
			4.            The Company desires to (a) amend the Sanchez Consent to remove the Sanchez Deferral, (b) amend certain provisions of the Existing Securities Purchase Agreement and (c) amend certain provisions of the Warrants.
		

		
			5.            The holders of the Securities have agreed to make such amendments, in each case subject to the terms and conditions set forth in this Amendment.
		

		

		

		 

		

			A/75465350.12 

		

 

		AGREEMENT
		

		
			NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby covenant and agree to be bound as follows:
		

			
			
				 Section 1.
			

			
			
			Capitalized Terms.  Capitalized terms used and not otherwise defined herein shall have the meanings assigned to them in the Securities Purchase Agreement (including, for the avoidance of doubt, any terms defined herein as set forth on Exhibit A hereto), unless the context otherwise requires.

			
			
				 Section 2.
			

			
			
			Amendments to Existing Securities Purchase Agreement.  Subject to the satisfaction of the conditions precedent set forth in Section 3, the Existing Securities Purchase Agreement is hereby amended in the manner specified in Exhibit A hereto.  Such amendments are referred to herein collectively as the “Amendments”.

			
			
				 Section 3.
			

			
			
			Effectiveness of Amendment to Sanchez Consent and Amendments.  The amendment to the Sanchez Consent set forth in Section 5 and the Amendments shall become effective, and shall be deemed to be in effect (the “Effective Time”),  subject to the last sentence of Section 8, upon satisfaction (or waiver by the holders of the Securities) of all of the following conditions on or before April 1, 2013:

		
			Amendment.  Execution and delivery of this Amendment by the Company and each of the holders of the Securities, and execution and delivery of the Guarantor Acknowledgement attached hereto by the Guarantors.
		

		
			Representations and Warranties.  The representations and warranties in Section 4 shall be true and correct in all respects on the date hereof.  
		

		
			Issuance of Amended and Restated Warrant Certificates.  Execution and delivery of a copy of an amended and restated Warrant certificate, in the form attached hereto as Exhibit B, by the Company to each Warrant Holder, which is exercisable for the number of Warrant Shares set forth next to such Warrant Holder’s name on Schedule A hereto.  Upon such issuance, the Warrant certificate shall be deemed to amend and restate and supersede any Warrant certificate issued to such Warrant Holder pursuant to the Securities Purchase Agreement prior to the date hereof.  The Company shall promptly deliver an original Warrant Certificate to each Warrant Holder upon receipt of the prior Warrant (or a reasonably acceptable lost warrant certificate and indemnity) from such Warrant Holder.
		

		
			Expenses.  The Company shall have paid the reasonable fees and disbursements of the holders of the Securities’ special counsel in accordance with Section 10 below.
		

			
			
				 Section 4.
			

			
			
			Representations and Warranties.  To induce the holders of the Securities to enter into this Amendment, consent to the Amendments and to consent to the amendment to the Sanchez Consent set forth in Section 5, the Company hereby represents and warrants to each of the holders of Securities that:

		

		

		 

		

			-2-

		

		

			A/75465350.12 

		

 

		the execution, delivery and performance of this Amendment (including the Guarantor Acknowledgement attached hereto) have been duly authorized by all requisite corporate or limited liability company authority or other action on the part of the Credit Parties, this Amendment has been duly executed and delivered by the Credit Parties, and this Amendment constitutes the legal, valid and binding obligations of the Credit Parties, enforceable against the Credit Parties in accordance with its terms;
		

		
			each of the representations and warranties set forth in the Securities Purchase Agreement and the other Transaction Documents are true and correct in all material respects as of the date hereof, except (i) to the extent that such representations and warranties expressly relate to an earlier date (in which case such representations and warranties shall have been true and correct in all material respects as of such earlier date), (ii) that the financial statements referred to in Paragraph 9C shall be deemed to refer to the financial statements most recently delivered by the Company pursuant to Paragraph 6A(i) or 6A(ii), and (iii) as disclosed in the First Amendment or the Third Amendment; 
		

		
			no Default or Event of Default has occurred and is continuing as of the date hereof; and
		

		
			no events have taken place and no circumstances exist at the date hereof which would give any Credit Party a basis to assert a defense, offset or counterclaim to any claim of any holder of a Security with respect to the obligations of the Credit Parties.
		

			
			
				 Section 5.
			

			
			
			Amendment to Sanchez Consent.  Subject to the satisfaction of the conditions specified in Section 3, each of the holders of Securities hereby agrees that the Sanchez Consent shall be amended by deleting in its entirety the first sentence contained in the third paragraph thereof.

			
			
				 Section 6.
			

			
			
			Transaction Document.  This Amendment shall be deemed to constitute a Transaction Document for all purposes under the Securities Purchase Agreement.  

			
			
				 Section 7.
			

			
			
			Amended and Restated Lock-Up Agreement.  Concurrently herewith, the holders of the Securities, the Restricted Stockholders (as defined in the Amended Lock-Up Agreement) and the Company shall execute and deliver an Amended and Restated Lock-Up Agreement in the form attached hereto as Exhibit C (the “Amended Lock-Up Agreement”), which Amended Lock-Up Agreement shall become effective at the Effective Time.

			
			
				 Section 8.
			

			
			
			Effect of Amendment.  Except as set forth expressly herein, all terms of the Securities Purchase Agreement shall be and remain in full force and effect.  The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the holders of Notes under the Securities Purchase Agreement or otherwise, nor constitute a waiver of any provision of the Securities Purchase Agreement.  Any and all notices, requests, certificates and other instruments executed and delivered after the execution and delivery of this Amendment may refer to the Securities Purchase Agreement without making specific reference to this Amendment, but nevertheless all such references shall include this Amendment unless the context otherwise requires.  Notwithstanding the foregoing, the Amendments to paragraphs 5B, 5C, 6A(ii),  7B(7) and 7B(13) of the Securities Purchase 
		

		 

		

			-3-

		

		

			A/75465350.12 

		

 

		Agreement shall cease to be effective and shall be deemed to have not been made to the Securities Purchase Agreement if the Company fails to provide to the holders of the Notes the prepayment amount described in paragraph 5J of the Securities Purchase Agreement on or before April 10, 2013, it being understood that upon such Amendments ceasing to be effective, a Default under paragraph 8A(vi) of the Securities Purchase Agreement shall have occurred as a result of the Company’s failure to deliver in a timely manner the financial statements required pursuant to paragraph 6A(ii) of the Securities Purchase Agreement for the fiscal year of the Company ended December 31, 2012 not subject to a “going concern” qualification.  

			
			
				 Section 9.
			

			
			
			Release.  

		
			In consideration of the agreements of the holders of Securities contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, each Credit Party, on behalf of itself and its successors, assigns, and other legal representatives, hereby absolutely, unconditionally and irrevocably releases, remises and forever discharges each holder of Securities, and its successors and assigns, and its present and former shareholders, partners, members, managers,  consultants, affiliates, subsidiaries, divisions, predecessors, directors, officers, attorneys, employees, agents and other representatives, and all persons acting by, through, under or in concert with any of them (each holder of Securities and all such other Persons being hereinafter referred to collectively as the “Releasees” and individually as a “Releasee”) of and from all demands, actions, causes of action, suits, covenants, contracts, controversies, agreements, promises, sums of money, accounts, bills, reckonings, damages and any and all other claims, counterclaims, defenses, recoupment, rights of setoff, demands and liabilities whatsoever (individually, a “Claim” and collectively, “Claims”) of every name and nature, known or unknown, contingent or mature, suspected or unsuspected, both at law and in equity, which any Credit Party or any of its respective successors, assigns, or other legal representatives may now or hereafter own, hold, have or claim to have against the Releasees or any of them for, upon, or by reason of any circumstance, action, cause or thing whatsoever which arises at any time on or prior to the day and date of this Amendment, including, without limitation, for or on account of, or in relation to, or in any way in connection with the Securities Purchase Agreement, or any of the other Transaction Documents or transactions thereunder or related thereto.
		

		
			Each Credit Party understands, acknowledges and agrees that the release set forth above may be pleaded as a full and complete defense and may be used as a basis for an injunction against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such release.
		

		
			Each Credit Party agrees that no fact, event, circumstance, evidence or transaction which could now be asserted or which may hereafter be discovered shall affect in any manner the final, absolute and unconditional nature of the release set forth above.
		

		
			In entering into this Amendment, each Credit Party has consulted with, and has been represented by, legal counsel and expressly disclaims any reliance on any representations, acts or omissions by any of the Releasees and hereby agrees and acknowledges that the validity and effectiveness of the release set forth above does not depend in any way on any such representations, acts and/or omissions or the accuracy, completeness or validity hereof.  The 
		

		 

		

			-4-

		

		

			A/75465350.12 

		

 

		provisions of this Section shall survive the termination of this Amendment and the other Transaction Documents and the payment in full of the Notes.
		

		
			Each Credit Party acknowledges and agrees that the release set forth above may not be changed, amended, waived, discharged or terminated orally.
		

			
			
				 Section 10.
			

			
			
			Fees and Expenses; Indemnification.  Whether or not the amendment to the Sanchez Consent in Section 5 or the Amendments become effective, the Company agrees to pay on demand all reasonable costs and expenses of the holders of the Securities (including the reasonable fees and expenses of the holders of the Securities’ special counsel) in connection with the preparation, negotiation, execution and delivery of this Amendment as provided in paragraph 13B(1) of the Securities Purchase Agreement.  Nothing in this Section shall limit the Company’s obligations pursuant to paragraphs 13B(1) and 13B(2) of the Securities Purchase Agreement.

			
			
				 Section 11.
			

			
			
			Governing Law.  THIS AMENDMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE INTERNAL LAW OF THE STATE OF NEW YORK, EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD PERMIT THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.

			
			
				 Section 12.
			

			
			
			Severability.  Whenever possible, each provision of this Amendment and any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto shall be interpreted in such manner as to be effective, valid and enforceable under the applicable law of any jurisdiction, but, if any provision of this Amendment or any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto shall be held to be prohibited, invalid or unenforceable under the applicable law, such provision shall be ineffective in such jurisdiction only to the extent of such prohibition, invalidity or unenforceability, without invalidating or rendering unenforceable the remainder of such provision or the remaining provisions of this Amendment or any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto in such jurisdiction, or affecting the effectiveness, validity or enforceability of such provision in any other jurisdiction.

			
			
				 Section 13.
			

			
			
			Counterparts.  This Amendment may be executed by one or more of the parties hereto in any number of separate counterparts, each of which shall be deemed an original and all of which, taken together, shall be deemed to constitute one and the same instrument.  Delivery of an executed counterpart of this Amendment by facsimile transmission or by electronic mail in pdf form shall be as effective as delivery of a manually executed counterpart hereof.

			
			
				 Section 14.
			

			
			
			Binding Nature.  This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

			
			
				 Section 15.
			

			
			
			Entire Understanding.  The Existing Securities Purchase Agreement, together with this Amendment, set forth the entire understanding of the parties with respect to the matters set forth herein, and shall supersede any prior negotiations or agreements, whether written or oral, with respect thereto. 

		 

		

			-5-

		

		

			A/75465350.12 

		

 

			
			
				 Section 16.
			

			
			
			Headings.  The headings of the sections of this Amendment are inserted for convenience only and shall not be deemed to constitute a part of this Amendment.

		
			[The remainder of this page is intentionally left blank.]
		

		
			 
		

		

		

		 

		

			-6-

		

		

			A/75465350.12 

		

 

		

			 

		

		IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date and year first above written.
		

		
			ZAZA ENERGY CORPORATION
		

		
			 
		

		
			 
		

		
			By: _____________________________
		

		
			Name:
		

		
			Title: 
		

		
			 
		

		
			 
		

		
			 
		

		

		

		 

		

			[Signature Page to Amendment No. 5]

		

		

			A/75465350.12 

		

 

		

			 

		

		MSDC ZEC INVESTMENTS, LLC
		

		
			 
		

		
			 
		

		
			By:   ___________________________
		

		
			Name:            Marcello Liguori
		

		
			Title:            Vice President
		

		
			 
		

		

		

		 

		

			[Signature Page to Amendment No. 5]

		

		

			A/75465350.12 

		

 

		

			 

		

		SENATOR SIDECAR MASTER FUND LP
		

		
			 
		

		
			By:            Senator Investment Group LP, its investment manager
		

		
			 
		

		
			 
		

		
			            By:   ___________________________
		

		
			            Name:            Evan Gartenlaub
		

		
			            Title:            General Counsel & Chief                                     Compliance Officer
		

		
			 
		

		
			 
		

		
			 
		

		

		

		 

		

			[Signature Page to Amendment No. 5]

		

		

			A/75465350.12 

		

 

		

			 

		

		 
		

		
			O-CAP OFFSHORE MASTER FUND, L.P.
		

		
			 
		

		
			 
		

		
			By:   ___________________________
		

		
			Name:
		

		
			Title:
		

		
			 
		

		
			 
		

		
			O-CAP PARTNERS, L.P.
		

		
			 
		

		
			 
		

		
			By:   ___________________________
		

		
			Name:
		

		
			Title:
		

		
			 
		

		
			 
		

		
			CAPITAL VENTURES INTERNATIONAL
		

		
			 
		

		
			 
		

		
			By:   ___________________________
		

		
			Name:
		

		
			Title:
		

		
			 
		

		
			TALARA MASTER FUND, LTD.
		

		
			 
		

		
			 
		

		
			By:   ___________________________
		

		
			Name:
		

		
			Title:
		

		
			 
		

		
			 
		

		
			BLACKWELL PARTNERS, LLC
		

		
			 
		

		
			 
		

		
			By:   ___________________________
		

		
			Name:
		

		
			Title:
		

		
			 
		

		
			 
		

		
			PERMAL TALARA LTD.
		

		
			 
		

		
			 
		

		
			By:   ___________________________
		

		
			Name:
		

		
			Title:
		

		 

		

			[Signature Page to Amendment No. 5]

		

		

			A/75465350.12 

		

 

		WINMILL INVESTMENTS LLC
		

		
			 
		

		
			 
		

		
			By:   ___________________________
		

		
			Name:
		

		
			Title:
		

		
			 
		

		
			 
		

		
			 
		

		

		

		 

		

			[Signature Page to Amendment No. 5]

		

		

			A/75465350.12 

		

 

		

			 

		

		GUARANTOR ACKNOWLEDGEMENT
		

		
			 
		

		
			Each of the undersigned hereby acknowledges and agrees to the terms of the Amendment No. 5 to Securities Purchase Agreement and Amendment No. 1 to Sanchez Consent, dated March 28, 2013 (the “Amendment”), including, without limitation, Section 9 of the Amendment, amending that certain Securities Purchase Agreement, dated February 21, 2012, as amended (as amended, the “Securities Purchase Agreement”), among ZaZa Energy Corporation, a Delaware corporation, and the holders of Securities party thereto.  Each of the undersigned hereby confirms that the Guaranty Agreement to which the undersigned are a party remains in full force and effect after giving effect to the Amendment and continues to be the valid and binding obligation of each of the undersigned, enforceable against each of the undersigned in accordance with its terms.
		

		
			Capitalized terms used herein but not defined are used as defined in the Securities Purchase Agreement.
		

		
			Dated as of March 28, 2013.
		

		
			ZAZA HOLDINGS, INC.,
a  Delaware corporation
		

		
			 
		

		
			 
		

		
			By:  ________________________
		

		
			Name:
		

		
			Title:
		

		
			 
		

		
			ZAZA ENERGY, LLC,
a  Texas limited liability company
		

		
			 
		

		
			 
		

		
			By:  ________________________
		

		
			Name:
		

		
			Title:
		

		
			 
		

		
			TOREADOR RESOURCES CORPORATION,
a  Delaware corporation
		

		
			 
		

		
			 
		

		
			By:  ________________________
		

		
			Name:
		

		
			Title:
		

		
			 
		

		
			 
		

		

		

		 

		

			A/75465350.12 

		

 

		ZAZA ENERGY DEVELOPMENT, LLC, a Texas limited liability company
		

		
			 
		

		
			 
		

		
			By:  ________________________
		

		
			Name:
		

		
			Title:
		

		
			 
		

		
			 
		

		
			ZAZA PETROLEUM MANAGEMENT, LLC, a Texas limited liability company
		

		
			 
		

		
			 
		

		
			By:  ________________________
		

		
			Name:
		

		
			Title:
		

		
			 
		

		

		

		 

		

			A/75465350.12 

		

 

		

			 

		

		Schedule A
		

			
					
						Warrant Holder

					
					
						WR-#

					
					
						Adjusted Warrant Shares

				
	
					
						 

					
					
						 

					
					
						 

				
	
					
						MSDC ZEC INVESTMENTS, LLC

					
19 
					
10,890,490 
				
	
					
						SENATOR SIDECAR MASTER FUND LP

					
20 
					
12,251,800 
				
	
					
						O-CAP OFFSHORE MASTER FUND, L.P.

					
21 
					
285,876 
				
	
					
						O-CAP PARTNERS, L.P.

					
22 
					
394,780 
				
	
					
						CAPITAL VENTURES INTERNATIONAL

					
23 
					
1,633,573 
				
	
					
						TALARA MASTER FUND, LTD.

					
24 
					
340,327 
				
	
					
						BLACKWELL PARTNERS, LLC

					
25 
					
585,363 
				
	
					
						PERMAL TALARA LTD.

					
26 
					
435,620 
				
	
					
						WINMILL INVESTMENTS LLC

					
27 
					
408,394 
				

		
			 
		

		

		

		 

		

			A/75465350.12 

		

 

		

			 

		

		Exhibit A
		

		
			Paragraph 2C - Interest on the Notes.  Paragraph 2C of the Existing Securities Purchase Agreement is hereby amended by amending and restating the last sentence of clause (i) thereof to read as follows:  
		

		
			“Notwithstanding the foregoing, if the Notes have not been indefeasibly paid in full in cash by February 28, 2014, commencing on such date and at all times thereafter, the Notes shall bear interest at the rate of 10.00% per annum.”
		

		
			Paragraph 5B - Optional Prepayments.  Paragraph 5B of the Existing Securities Purchase Agreement is hereby amended and restated in its entirety as follows:
		

		
			“5B  Optional Prepayments.  The Company may prepay the Notes in whole or in part at any time, in a minimum amount of $500,000 (and in multiples of $100,000 in excess thereof) or, if less, the aggregate principal amount outstanding in respect of the Notes, at 100% of the principal amount of the Notes so prepaid, plus all accrued and unpaid interest thereon to, but not including, the prepayment date, with respect to each Note, plus any Applicable Premium.”
		

		
			Paragraph 5C - Notice of Optional Prepayment.  Paragraph 5C of the Existing Securities Purchase Agreement is hereby amended and restated in its entirety as follows:
		

		
			“5C  Notice of Optional Prepayment.  The Company shall give the holder of each Note written notice of any optional prepayment pursuant to paragraph 5B not fewer than five Business Days prior to the prepayment date, specifying (i) such prepayment date, (ii) the aggregate principal amount of the Notes to be prepaid on such date (solely in the case of an optional prepayment under paragraph 5B), (iii) the principal amount of the Notes of each holder thereof to be prepaid on that date, (iv) that such optional prepayment is to be made pursuant to paragraph 5B and (v) a calculation of the estimated Applicable Premium, if any, due in connection with any prepayment pursuant to paragraph 5B setting forth the details of such computation.  Notice of optional prepayment having been given as aforesaid, the prepayment price with respect to the principal amount of the Notes to be prepaid, together with accrued and unpaid interest thereon to, but not including, the prepayment date, and any Applicable Premium shall become due and payable on such prepayment date, unless revoked by the Company in writing.    Five Business Days prior to any prepayment pursuant to paragraph 5B, the Company shall deliver to each holder of Notes a certificate of a Responsible Officer specifying the calculation of such Applicable Premium, if any, as of the specified prepayment date.”
		

		
			Paragraph 5 - Payment of Notes.    Paragraph 5 of the Existing Securities Purchase Agreement is hereby further amended by adding the following new paragraphs 5H, 5I and 5J at the end thereof:
		

		 

		

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			“5H  Offer to Prepay Notes Upon Certain Other Events.    
		

		
			5H(1)           Offer to Prepay Notes.  Not more than thirty (30) Business Days, and at least five  (5) Business Days, prior to the Company’s or any of its Subsidiaries’ receipt of (i) any amounts released from the escrow account established pursuant to the Escrow Agreement as further described in Section 3 of Exhibit K to the Paris Basin Agreement (the “Escrow Proceeds”) or (ii) any proceeds of any Sale Transaction with respect to the Sweet Home Properties, the Company shall have made an irrevocable written offer, contingent upon the receipt of such Escrow Proceeds or consummation of such Sale Transaction, as the case may be (the “Escrow/Sweet Home Offer”), to each holder of the Notes to prepay within two (2) Business Days of receipt of such Escrow Proceeds or the consummation of such Sale Transaction, as the case may be, at the election of each holder, in an amount equal to the lesser of (A) such holder’s pro rata share of such Escrow Proceeds or the Net Available Cash in respect of such Sale Transaction, as the case may be, and (B) such holder’s pro rata share of the amount required to reduce the aggregate outstanding principal balance of the Notes to $15,000,000 (after giving effect to such prepayment) (the “Escrow/Sweet Home Prepayment Amount”), on a date specified in such offer in compliance with the terms set forth above (the “Escrow/Sweet Home Prepayment Date”). 
		

		
			5H(2)           Escrow/Sweet Home Offer Period.  The Escrow/Sweet Home Offer shall remain open for a period of at least four  (4) Business Days following receipt of such Escrow/Sweet Home Offer (the “Escrow/Sweet Home Offer Period”).
		

		
			5H(3)           Notice of Escrow/Sweet Home Offer.  The notice in respect of such Escrow/Sweet Home Offer will contain all instructions and materials necessary to enable such holders to receive a prepayment of the Notes pursuant to the Escrow/Sweet Home Offer.  The notice, which will govern the terms of the Escrow/Sweet Home Offer, will state:
		

		
			(A)     that the Escrow/Sweet Home Offer is being made pursuant to this paragraph 5H and constitutes an irrevocable offer to prepay the Notes pursuant to this paragraph 5H at the election of each holder of the Notes;
		

		
			(B)     the Escrow/Sweet Home Prepayment Amount with respect to each holder, a brief description of the release of funds from escrow or Sale Transaction, as the case may be, giving rise to the Escrow/Sweet Home Offer, a computation of the aggregate amount of cash payments to be received in connection with such release of funds from escrow or Sale Transaction, as the case may be, and the anticipated Escrow/Sweet Home Prepayment Date, which shall be no more than the lesser of (i) five (5) Business Days after the Escrow/Sweet Home Offer Period terminates and (ii) two (2) Business Days after the Company’s or such Subsidiary’s receipt of such Escrow Proceeds or the consummation of such Sale Transaction; and
		

		 

		

			Exhibit A-2

		

		

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			(C)     that upon acceptance by such holder, the Company will prepay the Escrow/Sweet Home Prepayment Amount to which such holder is entitled as specified in such notice (together with accrued interest and any Applicable Premium as provided in paragraph 5H(5) of this Agreement) on the Escrow/Sweet Home Prepayment Date.
		

		
			5H(4)           Acceptance of Escrow/Sweet Home Offer.  To accept such Escrow/Sweet Home Offer, a holder of Notes shall cause a notice of such acceptance to be delivered to the Company not later than the expiration of the Escrow/Sweet Home Offer Period, provided, that failure to accept such offer in writing by such date shall be deemed to constitute an acceptance of the Escrow/Sweet Home Offer.  If so accepted by any holder of a Note, the Escrow/Sweet Home Prepayment Amount with respect to such holder (together with accrued interest and any Applicable Premium as provided in paragraph 5H(5) below) shall be due and payable on the Escrow/Sweet Home Prepayment Date.
		

		
			5H(5)           Amount of Escrow/Sweet Home Prepayment.  Prepayment of the Notes to be prepaid pursuant to this paragraph 5H shall be at an amount equal to 100% of the outstanding principal amount of such Notes being prepaid, together with accrued and unpaid interest on the principal amount being prepaid to, but not including, the date of prepayment, plus any Applicable Premium.
		

		
			5H(6)             Ratable Offer.  All principal prepayments contemplated herein will be offered on a pro rata basis to all holders of the Notes, and if any holder(s) declines such prepayments, its pro rata share of such prepayments shall be reallocated on a pro rata basis to those holders accepting such prepayments.
		

		
			5I  Offer to Prepay Notes on February 28, 2014.    
		

		
			5I(1)           Offer to Prepay Notes.  If, at least ten (10) Business Days before February 28, 2014, the Company expects that the aggregate outstanding principal amount of the Notes will exceed $15,000,000 on February 28, 2014 (or, in the event the Company does not have such expectation but the aggregate outstanding principal amount of the Notes in fact exceeds $15,000,000 on February 28, 2014), the Company shall immediately (and on such date) make an irrevocable written offer (the “2014 Offer”), to each holder of the Notes to prepay, at the election of each holder, a principal amount of the Notes of such holder equal to such holder’s pro rata share of the amount by which the aggregate outstanding principal amount of the Notes on such date exceeds $15,000,000 (the “2014 Prepayment Amount”), on February 28, 2014 (or, in the event the Company does not have such expectation but the aggregate outstanding principal amount of the Notes in fact exceeds $15,000,000 on February 28, 2014, a date specified in such offer which date shall be not more than ten (10) Business Days after such date) (the “2014 Prepayment Date”). 
		

		 

		

			Exhibit A-3

		

		

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			5I(2)           2014 Offer Period.  The 2014 Offer shall remain open for a period of at least eight (8) Business Days following receipt by the holders of the notice referred to in paragraph 5I(3) below (the “2014 Offer Period”).
		

		
			5I(3)           Notice of 2014 Offer.  The notice in respect of such 2014 Offer will contain all instructions and materials necessary to enable such holders to receive a prepayment of the Notes pursuant to the 2014 Offer.  The notice, which will govern the terms of the 2014 Offer, will state:
		

		
			(A)     that the 2014 Offer is being made pursuant to this paragraph 5I and constitutes an irrevocable offer to prepay the Notes pursuant to this paragraph 5I at the election of each holder of the Notes;
		

		
			(B)     the 2014 Prepayment Amount of each holder and the anticipated 2014 Prepayment Date, which shall be February 28, 2014 (or, to the extent applicable, no more than two (2) Business Days after the 2014 Offer Period terminates); and
		

		
			(C)     that upon acceptance by such holder, the Company will prepay the 2014 Prepayment Amount to which such holder is entitled (together with accrued interest and any Applicable Premium as provided in paragraph 5I(5) of this Agreement) as specified in such notice.
		

		
			5I(4)           Acceptance of 2014 Offer.  To accept such 2014 Offer, a holder of Notes shall cause a notice of such acceptance to be delivered to the Company not later than the expiration of the 2014 Offer Period, provided, that failure to accept such offer in writing by such date shall be deemed to constitute an acceptance of the 2014 Offer.  If so accepted by any holder of a Note, the 2014 Prepayment Amount of such holder (together with accrued interest and any Applicable Premium as provided in paragraph 5I(5) below) shall be due and payable on the 2014 Prepayment Date.
		

		
			5I(5)               Amount of 2014 Prepayment.  Prepayment of the Notes to be prepaid pursuant to this paragraph 5I shall be at an amount equal to 100% of the outstanding principal amount of such Notes being prepaid, together with accrued and unpaid interest on the principal amount being prepaid to, but not including, the date of prepayment, plus any Applicable Premium.
		

		
			5I(6)               Ratable Offer.  All principal prepayments contemplated herein will be offered on a pro rata basis to all holders of the Notes, and if any holder(s) declines such prepayments, its pro rata share of such prepayments shall be reallocated on a pro rata basis to those holders accepting such prepayments.
		

		
			5J  Prepayment of Notes by April 10, 2013.  The Company shall prepay the Notes in an amount equal to $4,585,828.80  ($4,815,120.24 inclusive of the Applicable Premium) plus accrued and unpaid interest on such amount to (but not including) the date of such prepayment on or before the earlier to occur of (1) one Business Day after the 
		

		 

		

			Exhibit A-4

		

		

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		consummation of the Sanchez Sale and (2) April 10, 2013;  it being agreed that the Company shall be deemed to have offered to make such prepayment, and the holders of the Notes shall be deemed to have accepted such offer, by the Company’s and such holders’ execution and delivery of the Fifth Amendment.”
		

		
			Paragraph 6A(ii) - Financial Statements; Reserve Reports.  Paragraph 6A of the Existing Securities Purchase Agreement is hereby amended by amending and restating clause (ii) to read as follows:
		

		
			“(ii) as soon as practicable and in any event within ninety (90) days after the end of each fiscal year of the Company, consolidated statements of income, cash flows and members’ equity of the Company and its Subsidiaries for such year, and a consolidated balance sheet of the Company and its Subsidiaries as at the end of such year, setting forth in each case in comparative form corresponding figures from the preceding annual audit, all in reasonable detail and satisfactory in form to the Required Holder(s) and reported on by a firm of independent public accountants of recognized national standing, whose report shall be without exception as to the scope of the audit and shall not be subject to any “going concern” or like qualification or exception (other than with respect to the fiscal year ended December 31, 2012) and shall state that such consolidated financial statements present fairly, in all material respects, the financial position of the Company and its Subsidiaries in conformity with GAAP; provided that the delivery within the time period specified above of the Company’s Form 10 K for such fiscal year (together with the Company’s annual report to shareholders, if any, prepared pursuant to Rule 14a 3 under the Exchange Act) prepared in accordance with the requirements therefor and filed with the SEC, together with the accountant’s report described above, shall be deemed to satisfy the requirements of this paragraph 6A(ii); provided, further, that the Company shall be deemed to have made such delivery of such Form 10 K if it shall have timely made Electronic Delivery thereof, in which event the Company shall separately deliver, concurrently with such Electronic Delivery;”
		

		
			Paragraph 7B(6) - Merger and Consolidation.  Paragraph 7B(6) of the Existing Securities Purchase Agreement is hereby amended by amending and restating clause (iii) to read as follows:
		

		
			“(iii)             [reserved;]”
		

		
			Paragraph 7B(7) - Sale of Assets.  Paragraph 7B(7) of the Existing Securities Purchase Agreement is hereby amended and restated in its entirety as follows:
		

		
			“7B(7)  Sale of Assets.    
		

		
			Subject to paragraph 7B(13), consummate any Asset Disposition unless:
		

		
			(a)                  the Company or such Subsidiary, as the case may be, receives consideration at least equal to the Fair Market Value of the assets or Equity Interests issued or sold or otherwise disposed of; and 
		

		 

		

			Exhibit A-5

		

		

			A/75465350.12 

		

 

		

			 

		

		

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			(b)                 at least 75% of the consideration received in respect of such Asset Disposition by the Company or such Subsidiary is in the form of cash or Cash Equivalents.  For purposes of this provision, each of the following will be deemed to be cash:
		

		
			(1)                  any liabilities, as shown on the Company’s most recent consolidated balance sheet, of the Company or any of its Subsidiaries (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any Guarantee of the Notes) that are assumed by the transferee of any such assets or Equity Interests pursuant to (A) a customary novation agreement that releases the Company or such Subsidiary from further liability therefor or (B) an assignment agreement that includes, in lieu of such a release, the agreement of the transferee or its parent company to indemnify and hold harmless the Company or such Subsidiary from and against any loss, liability or other cost in respect of such assumed liability; and
		

		
			(2)                 any securities, notes or other obligations received by the Company or any such Subsidiary from such transferee that are converted by the Company or such Subsidiary into cash within 180 days after the date of the Asset Disposition, to the extent of the cash received in that conversion; and
		

		
			provided that the 75% limitation referred to above shall be deemed satisfied with respect to any Asset Disposition in which the cash or Cash Equivalents portion of the consideration received therefrom, determined in accordance with the foregoing provisions on an after-tax basis, is equal to or greater than what the after-tax proceeds would have been had such Asset Disposition complied with the aforementioned 75% limitation.
		

		
			[Reserved.]
		

		
			Within 365 days after the receipt of any Net Available Cash from an Asset Disposition permitted by clause (i) above or any Casualty or Condemnation Event, the Company (or the applicable Subsidiary of the Company, as the case may be) may apply such Net Available Cash:
		

		
			(a)                 to prepay the Notes in a manner consistent with clauses (iv)-(x), inclusive, below; or
		

		
			(b)                 so long as no Default or Event of Default exists or would exist immediately before or immediately after giving effect to such Asset Disposition, to invest in Additional Assets, which Additional Assets are added to the Collateral securing the Notes.
		

		
			An amount equal to any Net Available Cash from Asset Dispositions that are not applied or invested as provided in clauses (a) and (b) above will constitute “Excess Proceeds.”
		

		

		

		 

		

			Exhibit A-6

		

		

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		Within ten Business Days after the aggregate amount of Excess Proceeds exceeds $1,000,000, the Company will make an irrevocable offer (an “Asset Disposition Offer”) to each holder of the Notes to prepay, at the election of each holder, a portion of the Notes held by each such holder equal to such holder’s Ratable Portion of the Excess Proceeds held by the Company and its Subsidiaries as of the date of such offer (the “Offer Amount”) at 101% of the outstanding principal amount of the Notes, plus accrued and unpaid interest, if any, to (but not including) the date of such prepayment.  If any Excess Proceeds remain after consummation of an Asset Disposition Offer, the Company or any Subsidiary of the Company may use those Excess Proceeds for any purpose not otherwise prohibited by this Agreement.  If the aggregate principal amount of Notes accepting such Asset Disposition Offer exceeds the amount of Excess Proceeds, the Company will use the Excess Proceeds to prepay the Notes on a pro rata basis based on the outstanding principal amount of the Notes at the time of such prepayment. Upon completion of each Asset Disposition Offer, the amount of Excess Proceeds will be reset at zero.
		

		
			Notwithstanding the foregoing, the sale, conveyance or other disposition of all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole, will be governed by paragraph 7B(6) of this Agreement and not by the provisions of this paragraph 7B(7).
		

		
			In the event that, pursuant to the foregoing provisions of this paragraph 7B(7), the Company is required to commence an Asset Disposition Offer, it will follow the procedures specified below. The Asset Disposition Offer shall be made to all holders of Notes. The Asset Disposition Offer will remain open for a period of at least 20 Business Days following its commencement and not more than 30 Business Days, except to the extent that a longer period is required by applicable law (the “Offer Period”).  
		

		
			If the Asset Disposition Prepayment Date is on or after a record date and on or before the related interest payment date, any accrued and unpaid interest to (but not including) the Asset Disposition Prepayment Date will be paid to the Person in whose name a Note is registered at the close of business on such record date.
		

		
			Upon the commencement of an Asset Disposition Offer, the Company will send a notice thereof to each of the holders of the Notes.  The notice will contain all instructions and materials necessary to enable such holders to receive a prepayment of the Notes pursuant to the Asset Disposition Offer. The notice, which will govern the terms of the Asset Disposition Offer, will state:
		

		
			(a)                 that the Asset Disposition Offer is being made pursuant to this paragraph 7B(7) and constitutes an irrevocable offer to prepay the Notes pursuant to this paragraph 7B(7) at the election of each holder of the Notes;
		

		
			(b)                 the Offer Amount, a brief description of the Asset Dispositions giving rise to the Asset Disposition Offer, a computation of the Excess Proceeds that are the subject of such Asset Disposition Offer, the length of time the Asset Disposition 
		

		 

		

			Exhibit A-7

		

		

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		Offer will remain open, each holder’s Ratable Portion of the Asset Disposition Offer which it is entitled to receive and the date on which such prepayment shall be made (which date shall be not more than 3 Business Days after termination of the Offer Period) (the “Asset Disposition Prepayment Date”);
		

		
			(c)                 that upon acceptance by such holder, the Company will prepay the portion of the Offer Amount to which such holder is entitled as specified in such notice;
		

		
			(d)                  that holders of Notes will be entitled to withdraw their election if the Company, the depositary or the paying agent, as the case may be, receives, not later than the expiration of the Offer Period, a facsimile transmission or letter setting forth the name of the holder, the principal amount of the Note held by such holder and a statement that such holder is withdrawing his election to have such Note prepaid in connection with such Asset Disposition Offer.
		

		
			To accept such Asset Disposition Offer, a holder of Notes shall cause a notice of such acceptance to be delivered to the Company not later than 5 days prior to the Asset Disposition Prepayment Date, provided, that failure to accept such offer in writing by such date shall be deemed to constitute an acceptance of the Asset Disposition Offer.  If so accepted by any holder of a Note, such offered prepayment (equal to not less than such holder’s pro rata share of the Excess Proceeds) shall be due and payable on the Asset Disposition Prepayment Date.   
		

		
			Prepayment of the Notes to be prepaid pursuant to this paragraph 7B(7) shall be at an amount equal to 101% of the outstanding principal amount of such Notes, together with accrued and unpaid interest on such Notes to, but not including, the date of prepayment.  The prepayment shall be made on the Asset Disposition Prepayment Date.”
		

		
			Paragraph 7B(13) - Sale of Assets.  Paragraph 7B(13) of the Existing Securities Purchase Agreement is hereby amended and restated in its entirety as follows:
		

		
			“7B(13)  Restrictions on Designated Transactions.  
		

		
			(i)       Without the prior written consent of the Required Holders, but subject to clause (ii) below, (a) sell, lease, dispose of or otherwise transfer (including, without limitation, by way of any farm-out, joint venture or similar transaction that, in each case, does not constitute a JV Transaction) any Oil and Gas Properties, whether foreign or domestic, or any Equity Interests in any Subsidiary of the Company to the extent that all or substantially all of the assets of such Subsidiary are Oil and Gas Properties, in either case other than the transactions contemplated by the Hess Settlement Documents (each, a “Sale Transaction”), or (b) enter into any joint development and/or exploration arrangements or other joint venture arrangements or any Farm-Out Agreements, any Farm-In Agreements or similar transactions (each, a “JV Transaction” and together with any Sale Transaction, each a “Designated Transaction”); provided,  however, that the consent of the Required Holders shall not be required so long as (x) no Default or Event of Default has occurred and is continuing, (y) the Company or such Subsidiary, as the 
		

		 

		

			Exhibit A-8

		

		

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		case may be, receives cash or, in the case of a JV Transaction, Carry Consideration, at least equal to the Fair Market Value of the asset or interest therein sold, disposed of, or transferred pursuant to such arrangement, and:
		

		
			(1)                  not more than thirty (30) Business Days, and at least five  (5) Business Days, prior to the consummation of such Designated Transaction, the Company shall have made an irrevocable written offer, contingent upon consummation of such Designated Transaction (a “Designated Transaction Offer”), to each holder of the Notes to prepay upon consummation of such Designated Transaction, at the election of each holder, a portion of the Notes held by each such holder equal to such holder’s pro rata share of 10% of the aggregate Gross Consideration to be received by the Company and its Subsidiaries upon consummation of the Designated Transaction (the “Designated Transaction Prepayment Amount”) at 100% of the outstanding principal amount of the Notes being prepaid, plus accrued and unpaid interest on such amount to (but not including) the date of such prepayment, plus any Applicable Premium;  
		

		
			(2)                  the Designated Transaction Offer remains open for a period of at least four  (4) Business Days following receipt of such Designated Transaction Offer (the “Designated Transaction Offer Period”); 
		

		
			(3)                  any accrued and unpaid interest to (but not including) the date of such prepayment (the “Designated Transaction Prepayment Date”) will be paid to the Person in whose name a Note is registered;
		

		
			(4)                  the notice in respect of such Designated Transaction Offer will contain all instructions and materials necessary to enable such holders to receive a prepayment of the Notes pursuant to the Designated Transaction Offer. The notice, which will govern the terms of the Designated Transaction Offer, will state:
		

		
			(A)     that the Designated Transaction Offer is being made pursuant to this paragraph 7B(13) and constitutes an irrevocable offer to prepay the Notes pursuant to this paragraph 7B(13) at the election of each holder of the Notes;
		

		
			(B)     the Designated Transaction Prepayment Amount, a brief description of the Designated Transaction giving rise to the Designated Transaction Offer, a computation of the aggregate Gross Consideration to be received in connection with such Designated Transaction, each holder’s pro rata share of the Designated Transaction Prepayment Amount and the anticipated Designated Transaction Prepayment Date, which shall be no more than the lesser of (i) five  (5) Business Days after the Designated Transaction Offer Period terminates and (ii) two  (2) Business Days after the Company’s or such Subsidiary’s receipt of such Gross Consideration; and
		

		 

		

			Exhibit A-9

		

		

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			(C)     that upon acceptance by such holder, the Company will prepay the portion of the Designated Transaction Amount to which such holder is entitled as specified in such notice on the Designated Transaction Prepayment Date;
		

		
			(5)                 to accept such Designated Transaction Offer, a holder of Notes shall cause a notice of such acceptance to be delivered to the Company not later than the expiration of the Designated Transaction Offer Period, provided, that failure to accept such offer in writing by such date shall be deemed to constitute an acceptance of the Designated Transaction Offer.  If so accepted by any holder of a Note, such offered prepayment (equal to not less than such holder’s pro rata share of 10% of the aggregate Gross Consideration actually received by the Company and its Subsidiaries upon consummation of such Designated Transaction) shall be due and payable on the Designated Transaction Prepayment Date; 
		

		
			(6)                  prepayment of the Notes to be prepaid pursuant to this paragraph 7B(13) shall be at an amount equal to 100% of the outstanding principal amount of the Notes being prepaid, together with accrued and unpaid interest on such amount to, but not including, the date of prepayment, plus any Applicable Premium; and
		

		
			(7)                  all principal prepayments contemplated herein will be offered on a pro rata basis to all holders of the Notes, and if any holder(s) declines such prepayments, its pro rata share of such prepayments shall be reallocated on a pro rata basis to those holders accepting such prepayments.
		

		
			(ii)    Notwithstanding anything contained in clause (i) above to the contrary:
		

		
			(1)                  if the applicable Designated Transaction is a Sale Transaction that relates solely the Moulton Properties, the amount of the offered prepayment described in subclause (i)(1) above shall equal each applicable holder’s pro rata share of 10% of the Net Available Cash (rather than 10% of the aggregate Gross Consideration) to be received by the Company and its Subsidiaries upon consummation of such Sale Transaction;
		

		
			(2)                  if the applicable Designated Transaction is a JV Transaction that includes the Sweet Home Properties or Hackberry Properties, the first $10,000,000 in the aggregate of cash proceeds the Company or any of its Subsidiaries receives in connection with all such JV Transactions shall not be subject to the prepayment requirements set forth in clause (i) above;
		

		
			(3)                 except with respect to the Specified Designated Transactions,  this paragraph 7B(13) shall not apply to any Designated Transaction relating solely to Eagle Ford Assets that occurs after the date on which the principal amount of the Notes is reduced to an amount less than or equal to 
		

		 

		

			Exhibit A-10

		

		

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		$15,000,000 (it being understood that (x) at such time and at all times thereafter, paragraph 7B(7) shall govern all Designated Transactions with respect to the Eagle Ford Assets other than Specified Designated Transactions and (y) for the avoidance of doubt, this paragraph 7B(13) shall apply to any Specified Designated Transaction that occurs after the principal amount of the Notes is reduced to an amount less than or equal to $15,000,000);  
		

		
			(4)                  the EOG JV Transaction shall be excluded as a Designated Transaction; and
		

		
			(5)                  this paragraph 7B(13) shall not apply to that portion of the proceeds of any Sale Transaction relating solely to the Sweet Home Properties to the extent such portion of proceeds from such Sale Transaction is governed by paragraph 5H. 
		

		
			(iii)  The Gross Consideration (or, to the extent applicable, Net Available Cash) received by the Company and its Subsidiaries upon consummation of any Designated Transaction not applied to a prepayment of the Notes under clause (i) or (ii) of this paragraph 7B(13) above shall be applied (1) within 365 days after receipt thereof to an investment in Eagle Ford Assets or Eaglebine Assets or (2) to prepay the Notes pursuant to a Designated Transaction Offer in a manner consistent with subclauses (i)(1)-(7), inclusive, above; provided that up to 15% of such Gross Consideration (or, to the extent applicable, Net Available Cash) may be invested in Additional Assets (provided that promptly upon making such investment (x) the Company shall give written notice thereof to the holders of Notes, and (y) such Additional Assets shall be added to the Collateral securing the Notes pursuant to documentation in form and substance satisfactory to the Required Holders) within such 365-day period.  Any such Gross Consideration or Net Available Cash not so applied within such 365 day period shall be offered to prepay the Notes pursuant to paragraph 7B(13)(i) above as if constituting amounts to be offered in prepayment of the Notes pursuant thereto, and such 365th day shall be deemed the new date of the consummation of such Designated Transaction in respect of the Gross Consideration or Net Available Cash, as applicable, for purposes of the Designated Transaction Offer in respect thereof,  and without giving effect to paragraph 7B(13)(ii).”
		

		
			Paragraph 12B - Other Terms.    Paragraph 12B of the Existing Securities Purchase Agreement is hereby amended by amending and restating the following definitions as follows:
		

		
			““Default Rate” shall mean, with respect to any Note, that rate of interest that is the greater of (i) 3.00% over the otherwise applicable rate of interest on the Notes at the time any Default or Event of Default occurs, and (ii) 8.00% (or, to the extent the Notes have not been indefeasibly paid in full in cash by February 28, 2014, commencing on such date and at all times thereafter, 10.00% per annum) over the yield to maturity reported as of 10:00 a.m. (New York City local time) on the Business Day next preceding the date of any applicable Default or Event of Default for actively traded on-the-run 10-Year U.S. Treasury securities on the display designated as “Page PX1” on Bloomberg 
		

		 

		

			Exhibit A-11

		

		

			A/75465350.12 

		

 

		

			 

		

		

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		Financial Markets (or, if Bloomberg Financial Markets shall cease to report such yields in Page PX1 or if such yields shall not be reported as of such time or the yields reported as of such time shall not be ascertainable, then such source as is then designated by the Required Noteholders).”
		

		
			““Eagle Ford Assets”  shall mean (i) the Oil and Gas Properties acquired or retained by ZaZa LLC pursuant to the Hess Agreement (excluding the working interest transferred by ZaZa LLC to Hess Corporation pursuant to the Hess Settlement Documents), (ii) the Oil and Gas Properties acquired or retained by ZaZa Energy pursuant to the Hess Settlement Documents, and (iii) Oil and Gas Properties located in the counties in which any property described in clause (i) or (ii) is located that are acquired with the proceeds of any sale of any Eagle Ford Assets including, without limitation, any assets acquired under any Permitted Asset Swap.”
		

		
			““Eaglebine Assets” shall mean the Oil and Gas Properties whether now owned or hereafter acquired by the Company or any of its Subsidiaries located in Walker, Grimes and Madison Counties, Texas and as indicated on Exhibit I as “Eaglebine”.”
		

		
			““Premium” shall mean any amount, howsoever denominated, payable to a lender as consideration or compensation for the prepayment of Debt, including any Applicable Premium.”
		

		
			Paragraph 12B - Other Terms.  Paragraph 12B of the Existing Securities Purchase Agreement is hereby further amended by amending and restating clause (k) in the definition of “Asset Disposition” as follows:
		

		
			“(k)            the EOG JV Transaction;”   
		

		
			Paragraph 12B - Other Terms.  Paragraph 12B of the Existing Securities Purchase Agreement is hereby further amended by deleting the definitions for “Designated Transaction Proceeds” and “Reduction Date” in their entirety.
		

		
			Paragraph 12B - Other Terms.  Paragraph 12B of the Existing Securities Purchase Agreement is hereby further amended by adding the following new definitions in their proper alphabetical order to read as follows:
		

		
			““2014 Offer”  shall have the meaning specified in paragraph 5I(1).”
		

		
			““2014 Offer Period”  shall have the meaning specified in paragraph 5I(2).”
		

		
			““2014 Prepayment Amount”  shall have the meaning specified in paragraph 5I(1).”
		

		
			““2014 Prepayment Date”  shall have the meaning specified in paragraph 5I(1).”
		

		
			““Applicable Premium” means, with respect to any prepayment of a Note made (a) at any time that the aggregate outstanding principal amount of the Notes exceeds 
		

		 

		

			Exhibit A-12

		

		

			A/75465350.12 

		

 

		

			 

		

		

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		$25,000,000 (prior to giving effect to such prepayment), a premium equal to 5% of the principal amount of such Note being prepaid, and (b) at any time that the aggregate outstanding principal amount of the Notes exceeds $15,000,000 but is less than or equal to $25,000,000 (prior to giving effect to such prepayment), a premium equal to 3% of the principal amount of such Note being prepaid;  provided that if  any such prepayment results in the reduction of the outstanding principal amount of the Notes to $25,000,000 or less or $15,000,000 or less, as the case may be, such 5% or 3% premium, as the case may be, shall apply only to such portion in excess of $25,000,000 or $15,000,000, as the case may be, and the remaining portion of such prepayment shall be subject to a 3% premium or no premium, as the case may be.”
		

		
			““Carry Consideration” means a contractual obligation arising under any JV Transaction, pursuant to which a counterparty to the Company or a Subsidiary agrees to pay on behalf of the Company or such Subsidiary certain costs (“Carried Costs”) associated with the development of the assets that were the subject of such JV Transaction and an interest in which the Company or such Subsidiary retained after the consummation of such JV Transaction. For purposes of this Agreement, the value of “Carry Consideration” shall be the Fair Market Value of Carried Costs, as determined in good faith by the board of directors or managers, as applicable, of the Company or the applicable Subsidiary, that the applicable counterparty is obligated to pay on behalf of the Company or the applicable Subsidiary under the terms of the applicable JV Transaction.”
		

		
			““EOG JV Transaction” means the JV Transaction contemplated between the Company and EOG Resources, Inc. with respect to certain Eaglebine Assets as described in that certain Joint Exploration and Development Agreement effective as of March 1, 2013, by and among EOG Resources, Inc., the Company and ZaZa LLC.”
		

		
			““Escrow Proceeds”  shall have the meaning specified in paragraph 5H(1).”
		

		
			““Escrow/Sweet Home Offer”  shall have the meaning specified in paragraph 5H(1).”
		

		
			““Escrow/Sweet Home Offer Period”  shall have the meaning specified in paragraph 5H(2).”
		

		
			““Escrow/Sweet Home Prepayment Amount”  shall have the meaning specified in paragraph 5H(1).”
		

		
			““Escrow/Sweet Home Prepayment Date”  shall have the meaning specified in paragraph 5H(1).”
		

		
			““Gross Consideration” means cash consideration actually or constructively received, including payments made to third parties on the Company’s or any of its Subsidiaries’ behalf, in connection with any Designated Transaction or otherwise but not, for the avoidance of doubt, any Carry Consideration.” 
		

		

		

		 

		

			Exhibit A-13

		

		

			A/75465350.12 

		

 

		

			 

		

		

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		““Fifth Amendment” means that certain Amendment No. 5 to Securities Purchase Agreement dated as of March 28,  2013, by and among the Company and each of the holders of Securities that is a party thereto.”
		

		
			““Hackberry Properties” means Oil and Gas Properties owned by the Company or any of its Subsidiaries located in Lavaca and Colorado Counties, Texas and as indicated on Exhibit I as “Hackberry Creek Prospect”.”
		

		
			““Moulton Properties” means Oil and Gas Properties owned by the Company or any of its Subsidiaries located in Fayette, Lavaca and Gonzalez Counties, Texas, and as indicated on Exhibit I as “Moulton Prospect”, including the Sable Hunter, Ring and Crabb Ranch wells, that will be sold to BEP Moulton, LLC or  a parent, affiliate or subsidiary thereof pursuant to that certain Purchase and Sale Agreement dated March 22, 2013 (as amended pursuant to a letter agreement dated March 24, 2013), between ZaZa LLC and BEP Moulton, LLC, it being understood that the properties subject to the Sanchez Sale shall not be considered part of the Moulton Properties.”
		

		
			““Sanchez Sale” shall have the meaning specified in the recitals to the Fifth Amendment.”
		

		
			““Specified Designated Transactions” means any Designated Transaction described in paragraph 7B(13)(ii)(1) or paragraph 7B(13)(ii)(2).”
		

		
			““Sweet Home Properties” means Oil and Gas Properties owned by the Company or any of its Subsidiaries located in DeWitt and Lavaca Counties, Texas and as indicated on Exhibit I as “Sweet Home Prospect”.”
		

		
			Paragraph 13C - Consent to Amendments.  Paragraph 13C of the Existing Securities Purchase Agreement is hereby amended by deleting subclause (b) in clause (ii) thereof in its entirety and substituting in lieu thereof the following:
		

		
			“(b) increase the exercise price of the Warrants, change the manner in which the exercise price may be tendered, reduce the exercise period of the Warrants or change the percentage of shares of Common Stock for which the Warrants are exercisable,”
		

		
			Paragraph 13T - Entire Agreement.  Paragraph 13T of the Existing Securities Purchase Agreement is hereby amended by deleting it in its entirety and substituting in lieu thereof the following:
		

		
			“13T            Entire Agreement.  THIS WRITTEN AGREEMENT, THE AMENDED LOCK-UP AGREEMENT AND THE TRANSACTION DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.”
		

		

		

		 

		

			Exhibit A-14

		

		

			A/75465350.12 

		

 

		

			 

		

		

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		Exhibit I - Map of Oil and Gas Properties.  The Existing Securities Purchase Agreement is hereby amended by adding Exhibit D hereto as a new Exhibit I thereto.
		

		
			 
		

		
			 
		

		

		

		 

		

			Exhibit A-15

		

		

			A/75465350.12 

		

 

		

			 

		

		Exhibit B
		

		
			[Form of Warrant]
		

		

		

		 

		

			A/75465350.12 

		

 

		

			 

		

		Exhibit C
		

		
			[Amended and Restated Lock-Up Agreement]
		

		

		

		 

		

			A/75465350.12 

		

 

		

			 

		

		

			 

		

		Exhibit D
		

		
			Map of Oil and Gas Properties
		

		
			[see attached]
		

		 

		

			Exhibit A-2

		

		

			A/75465350.12

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