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  Exhibit 10.1    
    

          

  

ELLORA ENERGY INC.

AMENDED AND RESTATED

2006 STOCK INCENTIVE PLAN  

 

  

 
 TABLE OF CONTENTS  

											
	 
	 	 
	 	 
	 	 
	 	Page 	 
	 1.
	 	PURPOSE	 	 	1	 
	 2.
	 	DEFINITIONS	 	 	1	 
	 3.
	 	ADMINISTRATION OF THE PLAN	 	 	4	 
	 
	 	3.1.	 	Board	 	 	4	 
	 
	 	3.2.	 	Committee	 	 	4	 
	 
	 	3.3.	 	Terms of Awards	 	 	4	 
	 
	 	3.4.	 	Deferral Arrangement	 	 	5	 
	 
	 	3.5.	 	No Liability	 	 	5	 
	 
	 	3.6.	 	Book Entry	 	 	6	 
	 4.
	 	STOCK SUBJECT TO THE PLAN	 	 	6	 
	 5.
	 	EFFECTIVE DATE, DURATION AND AMENDMENTS	 	 	6	 
	 
	 	5.1.	 	Effective Date	 	 	6	 
	 
	 	5.2.	 	Term	 	 	6	 
	 
	 	5.3.	 	Amendment and Termination of the Plan	 	 	6	 
	 6.
	 	AWARD ELIGIBILITY AND LIMITATIONS	 	 	7	 
	 
	 	6.1.	 	Service Providers and Other Persons	 	 	7	 
	 
	 	6.2.	 	Successive Awards and Substitute Awards	 	 	7	 
	 
	 	6.3.	 	Limitation on Shares of Stock Subject to Awards and Cash Awards	 	 	7	 
	 7.
	 	AWARD AGREEMENT	 	 	7	 
	 8.
	 	TERMS AND CONDITIONS OF OPTIONS	 	 	8	 
	 
	 	8.1.	 	Option Price.	 	 	8	 
	 
	 	8.2.	 	Vesting	 	 	8	 
	 
	 	8.3.	 	Term	 	 	8	 
	 
	 	8.4.	 	Termination of Service	 	 	8	 
	 
	 	8.5.	 	Limitations on Exercise of Option	 	 	8	 
	 
	 	8.6.	 	Method of Exercise	 	 	8	 
	 
	 	8.7.	 	Rights of Holders of Options	 	 	9	 
	 
	 	8.8.	 	Delivery of Stock Certificates	 	 	9	 
	 
	 	8.9.	 	Transferability of Options	 	 	9	 
	 
	 	8.10.	 	Family Transfers	 	 	9	 
	 
	 	8.11.	 	Limitations on Incentive Stock Options	 	 	9	 
	 9.
	 	TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS	 	 	9	 
	 
	 	9.1.	 	Right to Payment and Grant Price	 	 	9	 
	 
	 	9.2.	 	Other Terms	 	 	10	 
	 10.
	 	TERMS AND CONDITIONS OF RESTRICTED STOCK AND STOCK UNITS	 	 	10	 
	 
	 	10.1.	 	Grant of Restricted Stock or Stock Units	 	 	10	 
	 
	 	10.2.	 	Restrictions	 	 	10	 
	 
	 	10.3.	 	Restricted Stock Certificates	 	 	10	 
	 
	 	10.4.	 	Rights of Holders of Restricted Stock	 	 	11	 
	 
	 	10.5.	 	Rights of Holders of Stock Units	 	 	11	 
	 
	 	 	 	10.5.1.	 	 Voting and Dividend Rights
	 	 	11	 
	 
	 	 	 	10.5.2.	 	 Creditor's Rights
	 	 	11	 
	 
	 	10.6.	 	Termination of Service	 	 	11	 
	 
	 	10.7.	 	Purchase of Restricted Stock	 	 	11	 
	 
	 	10.8.	 	Delivery of Stock	 	 	11	 
	 11.
	 	TERMS AND CONDITIONS OF UNRESTRICTED STOCK AWARDS	 	 	12	 
	 12.
	 	FORM OF PAYMENT FOR OPTIONS AND RESTRICTED STOCK	 	 	12	 
	 
	 	12.1.	 	General Rule	 	 	12	 

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	 	12.2.	 	Surrender of Stock	 	 	12	 
	 
	 	12.3.	 	Cashless Exercise	 	 	12	 
	 
	 	12.4.	 	Other Forms of Payment	 	 	12	 
	 13.
	 	TERMS AND CONDITIONS OF DIVIDEND EQUIVALENT RIGHTS	 	 	12	 
	 
	 	13.1.	 	Dividend Equivalent Rights	 	 	12	 
	 
	 	13.2.	 	Termination of Service	 	 	13	 
	 14.
	 	TERMS AND CONDITIONS OF PERFORMANCE AND ANNUAL INCENTIVE AWARDS	 	 	13	 
	 
	 	14.1.	 	Performance Conditions	 	 	13	 
	 
	 	14.2.	 	Performance or Annual Incentive Awards Granted to Designated Covered Employees	 	 	13	 
	 
	 	 	 	14.2.1.	 	 Performance Goals Generally
	 	 	13	 
	 
	 	 	 	14.2.2.	 	 Business Criteria
	 	 	13	 
	 
	 	 	 	14.2.3.	 	 Timing For Establishing Performance Goals
	 	 	14	 
	 
	 	 	 	14.2.4.	 	 Settlement of Performance or Annual Incentive Awards; Other Terms
	 	 	14	 
	 
	 	14.3.	 	Written Determinations	 	 	14	 
	 
	 	14.4.	 	Status of Section 14.2 Awards Under Code Section 162(m)	 	 	14	 
	 15.
	 	PARACHUTE LIMITATIONS	 	 	14	 
	 16.
	 	REQUIREMENTS OF LAW	 	 	15	 
	 
	 	16.1.	 	General	 	 	15	 
	 
	 	16.2.	 	Rule 16b-3	 	 	16	 
	 17.
	 	EFFECT OF CHANGES IN CAPITALIZATION	 	 	16	 
	 
	 	17.1.	 	Changes in Stock	 	 	16	 
	 
	 	17.2.	 	Reorganization in Which the Company Is the Surviving Entity Which does not Constitute a Corporate Transaction	 	 	16	 
	 
	 	17.3.	 	Corporate Transaction	 	 	17	 
	 
	 	17.4.	 	Adjustments	 	 	17	 
	 
	 	17.5.	 	No Limitations on Company	 	 	18	 
	 18.
	 	GENERAL PROVISIONS	 	 	18	 
	 
	 	18.1.	 	Disclaimer of Rights	 	 	18	 
	 
	 	18.2.	 	Nonexclusivity of the Plan	 	 	18	 
	 
	 	18.3.	 	Withholding Taxes	 	 	18	 
	 
	 	18.4.	 	Captions	 	 	19	 
	 
	 	18.5.	 	Other Provisions	 	 	19	 
	 
	 	18.6.	 	Number and Gender	 	 	19	 
	 
	 	18.7.	 	Severability	 	 	19	 
	 
	 	18.8.	 	Governing Law	 	 	19	 
	 
	 	18.9.	 	Section 409A of the Code	 	 	19	 

ii

   ELLORA ENERGY INC.

AMENDED AND RESTATED

2006 STOCK INCENTIVE PLAN  

        Ellora Energy Inc., a Delaware corporation (the "Company"), sets forth herein
the terms of its Amended and Restated 2006 Stock Incentive Plan (the "Plan"), as follows: 

1.    PURPOSE    

        The
Plan is intended to enhance the Company's and its Affiliates' (as defined herein) ability to attract and retain highly qualified officers, directors, key employees, and other
persons, and to motivate such persons to serve the Company and its Affiliates and to expend maximum effort to improve the business results and earnings of the Company, by providing to such persons an
opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company. To this end, the Plan provides for the grant of stock options, stock appreciation
rights, restricted stock, stock units, unrestricted stock, dividend equivalent rights and cash awards. Any of these awards may, but need not, be made as performance incentives to reward attainment of
annual or long-term performance goals in accordance with the terms hereof. Stock options granted under the Plan may be non-qualified stock options or incentive stock options,
as provided herein. 

2.    DEFINITIONS    

        For
purposes of interpreting the Plan and related documents (including Award Agreements), the following definitions shall apply: 

        2.1   "Affiliate" means, with respect to the Company, any company or other trade or business that controls, is controlled by or
is under common control with the Company within the meaning of Rule 405 of Regulation C under the Securities Act, including, without limitation, any Subsidiary. 

        2.2   "Annual Incentive Award" means an Award made subject to attainment of performance goals (as described in  Section 14) over a performance period of up to one
(1) year (the fiscal year, unless otherwise specified by the Committee). 

        2.3   "Award" means a grant of an Option, Stock Appreciation Right, Restricted Stock, Unrestricted Stock, Stock Unit, Dividend
Equivalent Rights, or cash award under the Plan. 

        2.4   "Award Agreement" means the written agreement between the Company and a Grantee that evidences and sets out the terms and
conditions of an Award. 

        2.5   "Benefit Arrangement" shall have the meaning set forth in  Section 15 hereof. 

        2.6   "Board" means the Board of Directors of the Company. 

        2.7   "Cause" means, as determined by the Board and unless otherwise provided in an applicable agreement with the Company or an
Affiliate, (i) gross negligence or willful misconduct in connection with the performance of duties; (ii) conviction of a criminal offense (other than minor traffic offenses); or
(iii) material breach of any term of any employment, consulting or other services, confidentiality, intellectual property or non-competition agreements, if any, between the Service
Provider and the Company or an Affiliate. 

        2.8   "Code" means the Internal Revenue Code of 1986, as now in effect or as hereafter amended. 

        2.9   "Committee" means a committee of, and designated from time to time by resolution of, the Board, which shall be
constituted as provided in Section 3.2. 

        2.10 "Company" means Ellora Energy, Inc. 

        2.11 "Corporate Transaction" means (i) the dissolution or liquidation of the Company or a merger, consolidation, or
reorganization of the Company with one or more other entities in which the Company is not the surviving entity, (ii) a sale of substantially all of the assets of the Company to another person
or entity, or (iii) any transaction (including without limitation a merger or reorganization in which the Company is the surviving entity) which results in any person or entity (other than
persons who are 

 

stockholders
or Affiliates immediately prior to the transaction) owning fifty percent (50%) or more of the combined voting power of all classes of stock of the Company. 

        2.12 "Covered Employee" means a Grantee who is a Covered Employee within the meaning of Section 162(m)(3) of the Code. 

        2.13 "Disability" means the Grantee is unable to perform each of the essential duties of such Grantee's position by reason of
a medically determinable physical or mental impairment which is potentially permanent in character or which can be expected to last for a continuous period of not less than twelve (12) months;  provided, however, that, with respect to rules regarding expiration of an Incentive Stock Option
following termination of the Grantee's Service, Disability shall mean the Grantee is unable to engage in any substantial gainful activity by reason of a medically determinable physical or mental
impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve (12) months. 

        2.14 "Dividend Equivalent Right" means a right, granted to a Grantee under  Section 13 hereof, to receive cash, Stock, other Awards or other property equal in value to
dividends paid with respect to a specified number of
shares of Stock, or other periodic payments. 

        2.15 "Effective Date" means that day one day prior to the date on which the Company's first registration statement on
Form S-1 under the Securities Act is declared effective by the Securities and Exchange Commission. 

        2.16 "Exchange Act" means the Securities Exchange Act of 1934, as now in effect or as hereafter amended. 

        2.17 "Fair Market Value" means the value of a share of Stock, determined as follows: if on the Grant Date or other
determination date the Stock is listed on an established national or regional stock exchange, is admitted to quotation on The Nasdaq Stock Market, Inc. or is publicly traded on an established
securities market, the Fair Market Value of a share of Stock shall be the closing price of the Stock on such exchange or in such market (if there is more than one such exchange or market the Board
shall determine the appropriate exchange or market) on the Grant Date or such other determination date (or if there is no such reported closing price, the Fair Market Value shall be the mean between
the highest bid and lowest asked prices or between the high and low sale prices on such trading day) or, if no sale of Stock is reported for such trading day, on the next preceding day on which any
sale shall have been reported. If the Stock is not listed on such an exchange, quoted on such system or traded on such a market, Fair Market Value shall be the value of the Stock as determined by the
Board in good faith. 

        2.18 "Family Member" means a person who is a spouse, former spouse, child, stepchild, grandchild, parent, stepparent,
grandparent, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother, sister,
brother-in-law, or sister-in-law, including adoptive relationships, of the Grantee, any person sharing the Grantee's household (other than a tenant or
employee), a trust in which any one or more of these persons have more than fifty percent of the beneficial interest, a foundation in which any one or more of these persons (or the Grantee) control
the management of assets, and any other entity in which one or more of these persons (or the Grantee) own more than fifty percent of the voting interests. 

        2.19 "GAAP" means U.S. generally accepted accounting principles. 

        2.20 "Grant Date" means, as determined by the Board, the latest to occur of (i) the date as of which the Board
approves an Award, (ii) the date on which the recipient of an Award first becomes eligible to receive an Award under Section 6 hereof, or
(iii) such other date as may be specified by the Board. 

        2.21 "Grantee" means a person who receives or holds an Award under the Plan. 

2

 

        2.22 "Incentive Stock Option" means an "incentive stock option" within the meaning of Section 422 of the Code, or the
corresponding provision of any subsequently enacted tax statute, as amended from time to time. 

        2.23 "Non-qualified Stock Option" means an Option that is not an Incentive Stock Option. 

        2.24 "Option" means an option to purchase one or more shares of Stock pursuant to the Plan. 

        2.25 "Option Price" means the exercise price for each share of Stock subject to an Option. 

        2.26 "Other Agreement" shall have the meaning set forth in Section 15
hereof. 

        2.27 "Outside Director" means a member of the Board who is not an officer or employee of the Company. 

        2.28 "Performance Award" means an Award made subject to the attainment of performance goals (as described in  Section 14) over a performance period of up to ten
(10) years. 

        2.29 "Plan" means this Ellora Energy, Inc. Amended and Restated 2006 Stock Incentive Plan. 

        2.30 "Purchase Price" means the purchase price for each share of Stock pursuant to a grant of Restricted Stock or
Unrestricted Stock. 

        2.31 "Reporting Person" means a person who is required to file reports under Section 16(a) of the Exchange Act. 

        2.32 "Restricted Stock" means shares of Stock, awarded to a Grantee pursuant to  Section 10 hereof. 

        2.33 "SAR Exercise Price" means the per share exercise price of an SAR granted to a Grantee under  Section 9 hereof. 

        2.34 "Securities Act" means the Securities Act of 1933, as now in effect or as hereafter amended. 

        2.35 "Service" means service as a Service Provider to the Company or an Affiliate. Unless otherwise stated in the applicable
Award Agreement, a Grantee's change in position or duties shall not result in interrupted or terminated Service, so long as such Grantee continues to be a Service Provider to the Company or an
Affiliate. Subject to the preceding sentence, whether a termination of Service shall have occurred for purposes of the Plan shall be determined by the Board, which determination shall be final,
binding and conclusive. 

        2.36 "Service Provider" means an employee, officer or director of the Company or an Affiliate, or a consultant or adviser
currently providing services to the Company or an Affiliate. 

        2.37 "Stock" means the common stock, par value $.001 per share, of the Company. 

        2.38 "Stock Appreciation Right" or "SAR" means a right granted to a Grantee
under Section 9 hereof. 

        2.39 "Stock Unit" means a bookkeeping entry representing the equivalent of one or more share of Stock as indicated in the
Award Agreement awarded to a Grantee pursuant to Section 10 hereof. 

        2.40 "Subsidiary" means any "subsidiary corporation" of the Company within the meaning of Section 424(f) of the Code. 

        2.41 "Substitute Awards" means Awards granted upon assumption of, or in substitution for, outstanding awards previously
granted by a company or other entity acquired by the Company or any Affiliate or with which the Company or any Affiliate combines. 

        2.42 "Ten Percent Stockholder" means an individual who owns more than ten percent (10%) of the total combined voting power of
all classes of outstanding stock of the Company, its parent or any of its 

3

 

Subsidiaries.
In determining stock ownership, the attribution rules of Section 424(d) of the Code shall be applied. 

        2.43 "Unrestricted Stock" means an Award pursuant to Section 11
hereof. 

3.    ADMINISTRATION OF THE PLAN    

        3.1.    Board.    

        The
Board shall have such powers and authorities related to the administration of the Plan as are consistent with the Company's certificate of incorporation and by-laws and
applicable law. The Board shall have full power and authority to take all actions and to make all determinations required or provided for under the Plan, any Award or any Award Agreement, and shall
have full power and authority to take all such other actions and make all such other determinations not inconsistent with the specific terms and provisions of the Plan that the Board deems to be
necessary or appropriate to the administration of the Plan, any Award or any Award Agreement. All such actions and determinations shall be by the affirmative vote of a majority of the members of the
Board present at a meeting or by unanimous consent of the Board executed in writing in accordance with the Company's certificate of incorporation and by-laws and applicable law. The
interpretation and construction by the Board of any provision of the Plan, any Award or any Award Agreement shall be final, binding and conclusive. 

        3.2.    Committee.    

        The
Board from time to time may delegate to the Committee such powers and authorities related to the administration and implementation of the Plan, as set forth in  Section 3.1 above and other
applicable provisions, as the Board shall determine, consistent with the certificate of incorporation and
by-laws of the Company and applicable law. 

          (i)  Except
as provided in Subsection (ii) and except as the Board may otherwise determine, the Committee, if any, appointed by the Board to administer the Plan shall
consist of two (2) or more Outside Directors of the Company who: (a) qualify as "outside directors" within the meaning of Section 162(m) of the Code and (b) meet such other
requirements as may be established from time to time by the Securities and Exchange Commission for plans intended to qualify for exemption under Rule 16b-3 (or its successor) under
the Exchange Act. 

         (ii)  The
Board may also appoint one or more separate committees of the Board, each composed of one or more directors of the Company who need not be Outside Directors, who
may administer the Plan with respect to employees or other Service Providers who are not officers or directors of the Company, may grant Awards under the Plan to such employees or other Service
Providers, and may determine all terms of such Awards. 

In
the event that the Plan, any Award or any Award Agreement entered into hereunder provides for any action to be taken by or determination to be made by the Board, such action may be taken or such
determination may be made by the Committee if the power and authority to do so has been delegated to the Committee by the Board as provided for in this Section. Unless otherwise expressly determined
by the Board, any such action or determination by the Committee shall be final, binding and conclusive. To the extent permitted by law, the Committee may delegate its authority under the Plan to a
member of the Board. 

        3.3.    Terms of Awards.    

        Subject
to the other terms and conditions of the Plan, the Board shall have full and final authority to: 

          (i)  designate
Grantees, 

4

 

         (ii)  determine
the type or types of Awards to be made to a Grantee, 

        (iii)  determine
the number of shares of Stock to be subject to an Award, 

        (iv)  establish
the terms and conditions of each Award (including, but not limited to, the exercise price of any Option, the nature and duration of any restriction or
condition (or provision for lapse thereof) relating to the vesting, exercise, transfer, or forfeiture of an Award or the shares of Stock subject thereto, and any terms or conditions that may be
necessary to qualify Options as Incentive Stock Options), 

         (v)  prescribe
the form of each Award Agreement evidencing an Award, 

        (vi)  make
Awards to Grantees who are foreign nationals or employed outside the United States, or both, on such terms and conditions different from those applicable to Awards
to Employees employed in the United States as may, in the judgment of the Board, be necessary or desirable in order to recognize differences in local law or tax policy. The Board also may impose
conditions on the exercise or vesting of Awards in order to minimize the Company's obligation with respect to tax equalization for Employees on assignments outside their home country; and 

       (vii)  amend,
modify, or supplement the terms of any outstanding Award. 

        Notwithstanding
the foregoing, no amendment, modification or supplement of any Award shall, without the consent of the Grantee, impair the Grantee's rights under such Award. 

        The
Company may retain the right in an Award Agreement to cause a forfeiture of the gain realized by a Grantee on account of actions taken by the Grantee in violation or breach of or in
conflict with any employment agreement, non-competition agreement, any agreement prohibiting solicitation of employees or clients of the Company or any Affiliate thereof or any
confidentiality obligation with respect to the Company or any Affiliate thereof or otherwise in competition with the Company or any Affiliate thereof, to the extent specified in such Award Agreement
applicable to the Grantee. Furthermore, the Company may annul an Award if the Grantee is an employee of the Company or an Affiliate thereof and is terminated for Cause as defined in the applicable
Award Agreement or the Plan, as applicable. The grant of any Award shall be contingent upon the Grantee executing the appropriate Award Agreement. 

        Notwithstanding
the foregoing, no amendment or modification may be made to an outstanding Option or SAR which reduces the Option Price or SAR Exercise Price, either by lowering the
Option Price or SAR Exercise Price or by canceling the outstanding Option or SAR and granting a replacement Option or SAR with a lower exercise price without the approval of the stockholders of the
Company, provided, that, appropriate adjustments may be made to outstanding Options and SARs pursuant to Section 17. 

        3.4.    Deferral Arrangement.    

        The
Board may permit or require the deferral of any award payment into a deferred compensation arrangement, subject to such rules and procedures as it may establish, which may include
provisions for the payment or crediting of interest or dividend equivalents, including converting such credits into deferred Stock equivalents, restricting deferrals to comply with hardship
distribution rules affecting 401(k) plans. Any such deferrals shall be made in a manner that complies with Code Section 409A. 

        3.5.    No Liability.    

        No
member of the Board or of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Award or Award Agreement. 

5

 

        3.6.    Book Entry.    

        Notwithstanding
any other provision of this Plan to the contrary, the Company may elect to satisfy any requirement under this Plan for the delivery of stock certificates through the use
of book-entry. 

4.    STOCK SUBJECT TO THE PLAN    

        Subject
to adjustment as provided in Section 17 hereof, the number of shares of Stock available for issuance under the Plan shall
be 6,306,910. Stock issued or to be issued under the Plan shall be authorized but unissued shares; or, to the extent permitted by applicable law, issued shares that have been reacquired by the
Company. If any shares covered by an Award are not purchased or are forfeited, or if an Award otherwise terminates without delivery of any Stock subject thereto, then the number of shares of Stock
counted against the aggregate number of shares available under the Plan with respect to such Award shall, to the extent of any such forfeiture or termination, again be available for making Awards
under the Plan. 

        If
any Award of SARs is settled in shares of Stock, then the number of SARs subject to the Award shall be deemed delivered for purposes of determining the maximum number of share of
Stock available for delivery under the Plan, regardless of the number of shares of Stock that are issued upon the settlement of such SARs. 

        If
the Option Price of any Option granted under the Plan, or if pursuant to Section 18.3 the withholding obligation of any Grantee
with respect to an Option or other Award, is satisfied by tendering shares of Stock to the Company (by either actual delivery or by attestation) or by withholding shares of Stock, the number of shares
of Stock issued net of the shares of Stock tendered or withheld shall be deemed delivered for purposes of determining the maximum number of shares of Stock available for delivery under the Plan. 

        The
Board shall have the right to substitute or assume Awards in connection with mergers, reorganizations, separations, or other transactions to which Section 424(a) of the Code
applies. The number of shares of Stock reserved pursuant to Section 4 shall be increased by the corresponding number of Awards assumed and, in
the case of a substitution, by the net increase in the number of shares of Stock subject to Awards before and after the substitution. 

5.    EFFECTIVE DATE, DURATION AND AMENDMENTS    

        5.1.    Effective Date.    

        The
Plan shall be effective as of the Effective Date, subject to approval of the Plan by the Company's stockholders within one (1) year of the Effective Date. Upon approval of the
Plan by the stockholders of the Company as set forth above, all Awards made under the Plan on or after the Effective Date shall be fully effective as if the stockholders of the Company had approved
the Plan on the Effective Date. If the stockholders fail to approve the Plan within one (1) year after the Effective Date, any Awards made hereunder shall be null and void and of no effect. 

        5.2.    Term.    

        The
Plan shall terminate automatically ten (10) years after its adoption by the Board and may be terminated on any earlier date as provided in  Section 5.3. 

        5.3.    Amendment and Termination of the Plan.    

        The
Board may, at any time and from time to time, amend, suspend, or terminate the Plan as to any shares of Stock as to which Awards have not been made. An amendment shall be contingent
on approval of the Company's stockholders to the extent stated by the Board, required by applicable law or required by applicable stock exchange listing requirements. In addition, an amendment will be
contingent on approval of the Company's stockholders if the amendment would: (i) materially increase 

6

 

the
benefits accruing to participants under the Plan, (ii) materially increase the aggregate number of shares of Stock that may be issued under the Plan, or (iii) materially modify the
requirements as to eligibility for participation in the Plan. No Awards shall be made after termination of the Plan. No amendment, suspension, or termination of the Plan shall, without the consent of
the Grantee, impair rights or obligations under any Award theretofore awarded under the Plan. 

6.    AWARD ELIGIBILITY AND LIMITATIONS    

        6.1.    Service Providers and Other Persons.    

        Subject
to this Section 6, Awards may be made under the Plan to: (i) any Service Provider to the Company or of any
Affiliate, including any Service Provider who is an officer or director of the Company, or of any Affiliate, as the Board shall determine and designate from time to time, (ii) any Outside
Director, and (iii) any other individual whose participation in the Plan is determined to be in the best interests of the Company by the Board. 

        6.2.    Successive Awards and Substitute Awards.    

        An
eligible person may receive more than one (1) Award, subject to such restrictions as are provided herein. Notwithstanding  Sections 8.1 and 9.1 the Option Price of an Option or the grant price
of an SAR that is a Substitute Award may be less than one hundred percent
(100%) of the Fair Market Value of a share of Common Stock on the original date of grant provided that the Option Price or grant price in determined in accordance with the principles of Code
Section 424 and the regulations thereunder. 

        6.3.    Limitation on Shares of Stock Subject to Awards and Cash
Awards.    

        During
any time when the Company has a class of equity security registered under Section 12 of the Exchange Act, but only after such time as the reliance period described in
Treas. Reg. Section 1.162-27(f)(2) has expired: 

          (i)  the
maximum number of shares of Stock subject to Options or SARs that can be awarded under the Plan to any person eligible for an Award under  Section 6 hereof is 333,333 per calendar year; 

         (ii)  the
maximum number of shares that can be awarded under the Plan, other than pursuant to an Option or SARs, to any person eligible for an Award under  Section 6 hereof is 333,333 per calendar year; and

        (iii)  the
maximum amount that may be earned as an Annual Incentive Award or other cash Award in any calendar year by any one (1) Grantee shall be $2,000,000 and the
maximum amount that may be earned as a Performance Award or other cash Award in respect of a performance period by any one (1) Grantee shall be $5,000,000. 

        The
preceding limitations in this Section 6.3 are subject to adjustment as provided in  Section 17 hereof. 

7.    AWARD AGREEMENT    

        Each
Award granted pursuant to the Plan shall be evidenced by an Award Agreement, in such form or forms as the Board shall from time to time determine. Award Agreements granted from time
to time or at the same time need not contain similar provisions but shall be consistent with the terms of the Plan. Each Award Agreement evidencing an Award of Options shall specify whether such
Options are intended to be Non-qualified Stock Options or Incentive Stock Options, and in the absence of such specification such options shall be deemed Non-qualified Stock
Options. 

7

 

8.    TERMS AND CONDITIONS OF OPTIONS    

        8.1.    Option Price.    

        The
Option Price of each Option shall be fixed by the Board and stated in the Award Agreement evidencing such Option. The Option Price of each Option shall be at least the Fair Market
Value on the Grant Date of a share of Stock; provided, however, that in the event that a Grantee is a
Ten Percent Stockholder, the Option Price of an Option granted to such Grantee that is intended to be an Incentive Stock Option shall be not less than one hundred and ten percent (110%) of the Fair
Market Value of a share of Stock on the Grant Date. In no case shall the Option Price of any Option be less than the par value of a share of Stock. 

        8.2.    Vesting.    

        Subject
to Sections 8.3 and 17.3 hereof, each Option granted under the Plan shall become
exercisable at such times and under such conditions as shall be determined by the Board and stated in the Award Agreement. For purposes of this  Section 8.2, fractional numbers of shares of Stock
subject to an Option shall be rounded down to the next nearest whole number. No Option shall
be exercisable in whole or in part prior to the date the Plan is approved by the stockholders of the Company as provided in Section 5.1 hereof. 

        8.3.    Term.    

        Each
Option granted under the Plan shall terminate, and all rights to purchase shares of Stock thereunder shall cease, upon the expiration of ten (10) years from the date such
Option is granted, or under such circumstances and on such date prior thereto as is set forth in the Plan or as may be fixed by the Board and stated in the Award Agreement relating to such Option;  provided, however, that in the event that the Grantee is a Ten Percent Stockholder, an Option granted to
such Grantee that is intended to be an Incentive Stock Option shall not be exercisable after the expiration of five (5) years from its Grant Date. 

        8.4.    Termination of Service.    

        Each
Award Agreement shall set forth the extent to which the Grantee shall have the right to exercise the Option following termination of the Grantee's Service. Such provisions shall be
determined in the sole discretion of the Board, need not be uniform among all Options issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination of Service. 

        8.5.    Limitations on Exercise of Option.    

        Notwithstanding
any other provision of the Plan, in no event may any Option be exercised, in whole or in part, prior to the date the Plan is approved by the stockholders of the Company
as provided herein or after the occurrence of an event referred to in Section 17 hereof which results in termination of the Option. 

        8.6.    Method of Exercise.    

        An
Option that is exercisable may be exercised by the Grantee's delivery to the Company of written notice of exercise on any business day, at the Company's principal office, on the form
specified by the Company. Such notice shall specify the number of shares of Stock with respect to which the Option is being exercised and shall be accompanied by payment in full of the Option Price of
the shares for which the Option is being exercised plus the amount (if any) of federal and/or other taxes which the Company may, in its judgment, be required to withhold with respect to an Award. The
minimum number of shares of Stock with respect to which an Option may be exercised, in whole or in part, at any time shall be the lesser of (i) one hundred (100) shares or such lesser
number set forth in the applicable Award Agreement and (ii) the maximum number of shares available for purchase under the Option at the time of exercise. 

8

 

        8.7.    Rights of Holders of Options.    

        Unless
otherwise stated in the applicable Award Agreement, an individual holding or exercising an Option shall have none of the rights of a stockholder (for example, the right to receive
cash or dividend payments or distributions attributable to the subject shares of Stock or to direct the voting of the subject shares of Stock) until the shares of Stock covered thereby are fully paid
and issued to him. Except as provided in Section 17 hereof, no adjustment shall be made for dividends, distributions or other rights for which
the record date is prior to the date of such issuance. 

        8.8.    Delivery of Stock Certificates.    

        Promptly
after the exercise of an Option by a Grantee and the payment in full of the Option Price, such Grantee shall be entitled to the issuance of a stock certificate or certificates
evidencing his or her ownership of the shares of Stock subject to the Option. 

        8.9.    Transferability of Options.    

        Except
as provided in Section 8.10, during the lifetime of a Grantee, only the Grantee (or, in the event of legal incapacity or
incompetency, the Grantee's guardian or legal representative) may exercise an Option. Except as provided in Section 8.10, no Option shall be
assignable or transferable by the Grantee to whom it is granted, other than by will or the laws of descent and distribution. 

        8.10.    Family Transfers.    

        If
authorized in the applicable Award Agreement, a Grantee may transfer, not for value, all or part of an Option which is not an Incentive Stock Option to any Family Member. For the
purpose of this Section 8.10, a "not for value" transfer is a transfer which is (i) a gift, (ii) a transfer under a domestic
relations order in settlement of marital property rights; or (iii) a transfer to an entity in which more than fifty percent of the voting interests are owned by Family Members (or the Grantee)
in exchange for an interest in that entity. Following a transfer under this Section 8.10, any such Option shall continue to be subject to the
same terms and conditions as were applicable immediately prior to transfer. Subsequent transfers of transferred Options are prohibited except to Family Members of the
original Grantee in accordance with this Section 8.10 or by will or the laws of descent and distribution. The events of termination of Service of  Section 8.4 hereof shall continue to be applied with respect to the original Grantee, following which the Option shall be exercisable by the
transferee only to the extent, and for the periods specified, in Section 8.4. 

        8.11.    Limitations on Incentive Stock Options.    

        An
Option shall constitute an Incentive Stock Option only (i) if the Grantee of such Option is an employee of the Company or any Subsidiary of the Company; (ii) to the
extent specifically provided in the related Award Agreement; and (iii) to the extent that the aggregate Fair Market Value (determined at the time the Option is granted) of the shares of Stock
with respect to which all Incentive Stock Options held by such Grantee become exercisable for the first time during any calendar year (under the Plan and all other plans of the Grantee's employer and
its Affiliates) does not exceed $100,000. This limitation shall be applied by taking Options into account in the order in which they were granted. 

9.    TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS    

        9.1.    Right to Payment and Grant Price.    

        An
SAR shall confer on the Grantee to whom it is granted a right to receive, upon exercise thereof, the excess of (i) the Fair Market Value of one share of Stock on the date of
exercise over (ii) the grant price of the SAR as determined by the Board. The Award Agreement for an SAR shall specify the grant price of the SAR, which shall be at least the Fair Market Value
of a share of Stock on the date of grant. SARs may be granted in conjunction with all or part of an Option granted under the Plan or at any subsequent time during the term of such Option, in
conjunction with all or part of any 

9

 

other
Award or without regard to any Option or other Award. An SAR granted in tandem with an outstanding Option following the Grant Date of such Option may have a grant price that is equal to the
Option Price, even if such grant price is less than the Fair Market Value of a share of Stock on the grant date of the SAR.

        9.2.    Other Terms.    

        The
Board shall determine at the date of grant or thereafter, the time or times at which and the circumstances under which an SAR may be exercised in whole or in part (including based on
achievement of performance goals and/or future service requirements), the time or times at which
SARs shall cease to be or become exercisable following termination of Service or upon other conditions, the method of exercise, method of settlement, form of consideration payable in settlement,
method by or forms in which Stock will be delivered or deemed to be delivered to Grantees, whether or not an SAR shall be in tandem or in combination with any other Award, and any other terms and
conditions of any SAR. 

10.    TERMS AND CONDITIONS OF RESTRICTED STOCK AND STOCK UNITS    

        10.1.    Grant of Restricted Stock or Stock Units.    

        Awards
of Restricted Stock or Stock Units may be made for no consideration (other than par value of the shares which is deemed paid by Services already rendered). Stock Units may also be
referred to as performance shares. If so indicated in the Award Agreement at the time of grant, a Grantee may vest in more than one hundred percent (100%) of the number of Stock Units awarded to the
Grantee. 

        10.2.    Restrictions.    

        At
the time a grant of Restricted Stock or Stock Units is made, the Board may, in its sole discretion, establish a period of time (a "restricted period") applicable to such Restricted
Stock or Stock Units. Each Award of Restricted Stock or Stock Units may be subject to a different restricted period. The Board may, in its sole discretion, at the time a grant of Restricted Stock or
Stock Units is made, prescribe restrictions in addition to or other than the expiration of the restricted period, including the satisfaction of corporate or individual performance objectives, which
may be applicable to all or any portion of the Restricted Stock or Stock Units in accordance with Sections 14.1 and  14.2. Notwithstanding the foregoing,
Restricted Stock and Stock Units that vest solely by the passage of time shall not vest in full in less than three
(3) years from the Grant Date. Restricted Stock and Stock Units for which vesting may be accelerated by achieving performance targets shall not vest in full in less than one (1) year
from the Grant Date. Neither Restricted Stock nor Stock Units may be sold, transferred, assigned, pledged or otherwise encumbered or disposed of during the restricted period or prior to the
satisfaction of any other restrictions prescribed by the Board with respect to such Restricted Stock or Stock Units. 

        10.3.    Restricted Stock Certificates.    

        The
Company shall issue, in the name of each Grantee to whom Restricted Stock has been granted, stock certificates representing the total number of shares of Restricted Stock granted to
the Grantee, as soon as reasonably practicable after the Grant Date. The Board may provide in an Award Agreement that either (i) the Secretary of the Company shall hold such certificates for
the Grantee's benefit until such time as the Restricted Stock is forfeited to the Company or the restrictions lapse, or (ii) such certificates shall be delivered to the Grantee,  provided,
however, that such certificates shall bear a
legend or legends that comply with the applicable securities laws and regulations and makes appropriate reference to the restrictions imposed under the Plan and the Award Agreement. 

10

 

        10.4.    Rights of Holders of Restricted Stock.    

        Unless
the Board otherwise provides in an Award Agreement, holders of Restricted Stock shall have the right to vote such Stock and the right to receive any dividends declared or paid
with respect to such Stock. The Board may provide that any dividends paid on Restricted Stock must be reinvested in shares of Stock, which may or may not be subject to the same vesting conditions and
restrictions applicable to such Restricted Stock. All distributions, if any, received by a Grantee with respect to Restricted Stock as a result of any stock split, stock dividend, combination of
shares, or other similar transaction shall be subject to the restrictions applicable to the original Grant. 

        10.5.    Rights of Holders of Stock Units.    

        10.5.1.    Voting and Dividend Rights.    

        Unless
the Board otherwise provides in an Award Agreement, holders of Stock Units shall have no rights as stockholders of the Company. The Board may provide in an Award Agreement
evidencing a grant of Stock Units that the holder of such Stock Units shall be entitled to receive, upon the Company's payment of a cash dividend on its outstanding Stock, a cash payment for each
Stock Unit held equal to the per-share dividend paid on the Stock. Such Award Agreement may also provide that such cash payment will be deemed reinvested in additional Stock Units at a
price per unit equal to the Fair Market Value of a share of Stock on the date that such dividend is paid. 

        10.5.2.    Creditor's Rights.    

        A
holder of Stock Units shall have no rights other than those of a general creditor of the Company. Stock Units represent an unfunded and unsecured obligation of the Company, subject to
the terms and conditions of the applicable Award Agreement. 

        10.6.    Termination of Service.    

        Unless
the Board otherwise provides in an Award Agreement or in writing after the Award Agreement is issued, upon the termination of a Grantee's Service, any Restricted Stock or Stock
Units held by such Grantee that have not vested, or with respect to which all applicable restrictions and conditions have not lapsed, shall immediately be deemed forfeited. Upon forfeiture of
Restricted Stock or Stock Units, the Grantee shall have no further rights with respect to such Award, including but not limited to any right to vote Restricted Stock or any right to receive dividends
with respect to shares of Restricted Stock or Stock Units. 

        10.7.    Purchase of Restricted Stock.    

        The
Grantee shall be required, to the extent required by applicable law, to purchase the Restricted Stock from the Company at a Purchase Price equal to the greater of (i) the
aggregate par value of the shares of Stock represented by such Restricted Stock or (ii) the Purchase Price, if any, specified in the Award Agreement relating to such Restricted Stock. The
Purchase Price shall be payable in a form described in Section 12 or, in the discretion of the Board, in consideration for past Services rendered
to the Company or an Affiliate. 

        10.8.    Delivery of Stock.    

        Upon
the expiration or termination of any restricted period and the satisfaction of any other conditions prescribed by the Board, the restrictions applicable to shares of Restricted
Stock or Stock Units settled in Stock shall lapse, and, unless otherwise provided in the Award Agreement, a stock certificate for such shares shall be delivered, free of all such restrictions, to the
Grantee or the Grantee's beneficiary or estate, as the case may be. 

11

 

11.    TERMS AND CONDITIONS OF UNRESTRICTED STOCK AWARDS    

        The
Board may, in its sole discretion, grant (or sell at par value or such other higher purchase price determined by the Board) an Unrestricted Stock Award to any Grantee pursuant to
which such Grantee may receive shares of Stock free of any restrictions ("Unrestricted Stock") under the Plan. Unrestricted Stock Awards may be granted
or sold as described in the preceding sentence in respect of
past services and other valid consideration, or in lieu of, or in addition to, any cash compensation due to such Grantee. 

12.    FORM OF PAYMENT FOR OPTIONS AND RESTRICTED STOCK    

        12.1.    General Rule.    

        Payment
of the Option Price for the shares purchased pursuant to the exercise of an Option or the Purchase Price for Restricted Stock shall be made in cash or in cash equivalents
acceptable to the Company. 

        12.2.    Surrender of Stock.    

        To
the extent the Award Agreement so provides, payment of the Option Price for shares purchased pursuant to the exercise of an Option or the Purchase Price for Restricted Stock may be
made all or in part through the tender to the Company of shares of Stock, which shares, if acquired from the Company and if so required by the Company, shall have been held for at least six months at
the time of tender and which shall be valued, for purposes of determining the extent to which the Option Price or Purchase Price has been paid thereby, at their Fair Market Value on the date of
exercise or surrender. 

        12.3.    Cashless Exercise.    

        With
respect to an Option only (and not with respect to Restricted Stock), to the extent permitted by law and to the extent the Award Agreement so provides, payment of the Option Price
for shares purchased pursuant to the exercise of an Option may be made all or in part by delivery (on a form acceptable to the Board) of an irrevocable direction to a licensed securities broker
acceptable to the Company to sell shares of Stock and to deliver all or part of the sales proceeds to the Company in payment of the Option Price and any withholding taxes described in  Section 18.3.

        12.4.    Other Forms of Payment.    

        To
the extent the Award Agreement so provides, payment of the Option Price for shares purchased pursuant to exercise of an Option or the Purchase Price for Restricted Stock may be made
in any other form that is consistent with applicable laws, regulations and rules. 

13.    TERMS AND CONDITIONS OF DIVIDEND EQUIVALENT RIGHTS    

        13.1.    Dividend Equivalent Rights.    

        A
Dividend Equivalent Right is an Award entitling the recipient to receive credits based on cash distributions that would have been paid on the shares of Stock specified in the Dividend
Equivalent Right (or other award to which it relates) if such shares had been issued to and held by the recipient. A Dividend Equivalent Right may be granted hereunder to any Grantee as a component of
another Award or as a freestanding award. The terms and conditions of Dividend Equivalent Rights shall be specified in the grant. Dividend equivalents credited to the holder of a Dividend Equivalent
Right may be paid currently or may be deemed to be reinvested in additional shares of Stock, which may thereafter accrue additional equivalents. Any such reinvestment shall be at Fair Market Value on
the date of reinvestment. Dividend Equivalent Rights may be settled in cash or Stock or a combination thereof, in a single installment or installments, all determined in the sole discretion of the
Board. A Dividend Equivalent Right granted as a component of another Award may provide that such Dividend 

12

 

Equivalent
Right shall be settled upon exercise, settlement, or payment of, or lapse of restrictions on, such other award, and that such Dividend Equivalent Right shall expire or be forfeited or
annulled under the same conditions as such other award. A Dividend Equivalent Right granted as a component of another Award may also contain terms and conditions different from such other award. 

        13.2.    Termination of Service.    

        Except
as may otherwise be provided by the Board either in the Award Agreement or in writing after the Award Agreement is issued, a Grantee's rights in all Dividend Equivalent Rights or
interest equivalents shall automatically terminate upon the Grantee's termination of Service for any reason. 

14.    TERMS AND CONDITIONS OF PERFORMANCE AND ANNUAL INCENTIVE AWARDS    

        14.1.    Performance Conditions.    

        The
right of a Grantee to exercise or receive a grant or settlement of any Award, and the timing thereof, may be subject to such performance conditions as may be specified by the Board.
The Board may use such business criteria and other measures of performance as it may deem appropriate in
establishing any performance conditions, and may exercise its discretion to reduce the amounts payable under any Award subject to performance conditions, except as limited under  Sections 14.2 hereof in
the case of a Performance Award or Annual Incentive Award intended to qualify under Code Section 162(m). If and to the
extent required under Code Section 162(m), any power or authority relating to a Performance Award or Annual Incentive Award intended to qualify under Code Section 162(m), shall be
exercised by the Committee and not the Board. 

        14.2.    Performance or Annual Incentive Awards Granted to Designated Covered
Employees.    

        If
and to the extent that the Committee determines that a Performance Award or Annual Incentive Award to be granted to a Grantee who is designated by the Committee as likely to be a
Covered Employee should qualify as "performance-based compensation" for purposes of Code Section 162(m), the grant, exercise and/or settlement of such Performance Award or Annual Incentive
Award shall be contingent upon achievement of pre-established performance goals and other terms set forth in this Section 14.2. 

        14.2.1.    Performance Goals Generally.    

        The
performance goals for such Performance Awards or Annual Incentive Awards shall consist of one (1) or more business criteria and a targeted level or levels of performance with
respect to each of such criteria, as specified by the Committee consistent with this Section 14.2. Performance goals shall be objective and shall
otherwise meet the requirements of Code Section 162(m) and regulations thereunder including the requirement that the level or levels of performance targeted by the Committee result in the
achievement of performance goals being "substantially uncertain." The Committee may determine that such Performance Awards or Annual Incentive Awards shall be granted, exercised and/or settled upon
achievement of any one (1) performance goal or that two (2) or more of the performance goals must be achieved as a condition to grant, exercise and/or settlement of such Performance
Awards or Annual Incentive Awards. Performance goals may differ for Performance Awards or Annual Incentive Awards granted to any one Grantee or to different Grantees. 

        14.2.2.    Business Criteria.    

        One
or more of the following business criteria for the Company, on a consolidated basis, and/or specified subsidiaries or business units of the Company (except with respect to the total
stockholder return and earnings per share criteria), shall be used exclusively by the Committee in establishing performance goals for such Performance or Annual Incentive Awards: (i) total
stockholder return; (ii) such total stockholder return as compared to total return (on a comparable basis) of a publicly available index such as, but not limited to, the Standard &
Poor's 500 Stock Index; (iii) net income; 

13

 

(iv) pretax
earnings; (v) earnings before interest expense, taxes, depreciation and amortization; (vi) pretax operating earnings after interest expense and before bonuses, service
fees, and extraordinary or special items; (vii) operating margin; (viii) earnings per share; (ix) return on equity; (x) return on capital; (xi) return on investment;
(xii) operating earnings; (xiii) working capital; (xiv) ratio of debt to stockholders' equity and (xv) revenue. Business criteria may be measured on an absolute basis or on
a relative basis (i.e., performance relative to peer companies) and on a GAAP or non-GAAP basis. 

        14.2.3.    Timing For Establishing Performance Goals.    

        Performance
goals shall be established not later than ninety (90) days after the beginning of any performance period applicable to such Performance or Annual Incentive Awards, or
at such other date as may be required or permitted for "performance-based compensation" under Code Section 162(m). 

        14.2.4.    Settlement of Performance or Annual Incentive Awards; Other
Terms.    

        Settlement
of such Performance or Annual Incentive Awards shall be in cash, Stock, other Awards or other property, in the discretion of the Committee. The Committee may, in its
discretion, reduce the amount of a settlement otherwise to be made in connection with such Performance or Annual Incentive Awards. The Committee shall specify the circumstances in which such
Performance or Annual Incentive Awards shall be paid or forfeited in the event of termination of Service by the Grantee prior to the end of a performance period or settlement of Performance Awards. 

        14.3.    Written Determinations.    

        All
determinations by the Committee as to the establishment of performance goals, the amount of any Performance Award pool or potential individual Performance Awards and as to the
achievement of performance goals relating to Performance Awards, and the amount of any Annual Incentive Award pool or potential individual Annual Incentive Awards and the amount of final Annual
Incentive Awards, shall be made in writing in the case of any Award intended to qualify under Code Section 162(m). To the extent required to comply with Code Section 162(m), the
Committee may delegate any responsibility relating to such Performance Awards or Annual Incentive Awards. 

        14.4.    Status of Section 14.2 Awards Under Code
Section 162(m).    

        It
is the intent of the Company that Performance Awards and Annual Incentive Awards under Section 14.2 hereof granted to persons
who are designated by the Committee as likely to be Covered Employees within the meaning of Code Section 162(m) and regulations thereunder shall, if so designated by the Committee, constitute
"qualified performance-based compensation" within the meaning of Code Section 162(m) and regulations thereunder. Accordingly, the terms of  Section 14.2, including the definitions of Covered
Employee and other terms used therein, shall be interpreted in a manner consistent with Code
Section 162(m) and regulations thereunder. The foregoing notwithstanding, because the Committee cannot determine with certainty whether a given Grantee will be a Covered Employee with respect
to a fiscal year that has not yet been completed, the term Covered Employee as used herein shall mean only a person designated by the Committee, at the time of grant of Performance Awards or an Annual
Incentive Award, as likely to be a Covered Employee with respect to that fiscal year. If any provision of the Plan or any agreement relating to such Performance Awards or Annual Incentive Awards does
not comply or is inconsistent with the requirements of Code Section 162(m) or regulations thereunder, such provision shall be construed or deemed amended to the extent necessary to conform to
such requirements. 

15.    PARACHUTE LIMITATIONS    

        Notwithstanding
any other provision of this Plan or of any other agreement, contract, or understanding heretofore or hereafter entered into by a Grantee with the Company or any
Affiliate, except an agreement, contract, or understanding entered into that expressly provides tax gross-up payments for the excise tax imposed by Section 4999 of the Code, (an
"Other Agreement"), and 

14

 

notwithstanding
any formal or informal plan or other arrangement for the direct or indirect provision of compensation to the Grantee (including groups or classes of Grantees or beneficiaries of which
the Grantee is a member), whether or not such compensation is deferred, is in cash, or is in the form of a benefit to or for the Grantee (a "Benefit
Arrangement"), if the Grantee is a "disqualified individual," as defined in Section 280G(c) of the Code, any Option, Restricted Stock or Stock Unit held by that Grantee
and any right to receive any payment or other benefit under this Plan shall not become exercisable or vested (i) to the extent that such right to exercise, vesting, payment, or benefit, taking
into account all other rights, payments, or benefits to or for the Grantee under this Plan, all Other Agreements, and all Benefit Arrangements, would cause any payment or benefit to the Grantee under
this Plan to be considered a "parachute payment" within the meaning of Section 280G(b)(2) of the Code as then in effect (a "Parachute Payment")
and (ii) if, as a result of receiving a Parachute Payment, the aggregate after-tax amounts received by the Grantee from the Company under this Plan, all Other Agreements, and all
Benefit Arrangements would be less than the maximum after-tax amount that could be received by the Grantee without causing any such payment or benefit to be considered a Parachute Payment.
In the event that the receipt of any such right to exercise, vesting, payment, or benefit under this Plan, in conjunction with all other rights, payments, or benefits to or for the Grantee under any
Other Agreement or any Benefit Arrangement
would cause the Grantee to be considered to have received a Parachute Payment under this Plan that would have the effect of decreasing the after-tax amount received by the Grantee as
described in clause (ii) of the preceding sentence, then the Grantee shall have the right, in the Grantee's sole discretion, to designate those rights, payments, or benefits under this Plan,
any Other Agreements, and any Benefit Arrangements that should be reduced or eliminated so as to avoid having the payment or benefit to the Grantee under this Plan be deemed to be a Parachute Payment. 

16.    REQUIREMENTS OF LAW    

        16.1.    General.    

        The
Company shall not be required to sell or issue any shares of Stock under any Award if the sale or issuance of such shares would constitute a violation by the Grantee, any other
individual exercising an Option, or the Company of any provision of any law or regulation of any governmental authority, including without limitation any federal or state securities laws or
regulations. If at any time the Company shall determine, in its discretion, that the listing, registration or qualification of any shares subject to an Award upon any securities exchange or under any
governmental regulatory body is necessary or desirable as a condition of, or in connection with, the issuance or purchase of shares hereunder, no shares of Stock may be issued or sold to the Grantee
or any other individual exercising an Option pursuant to such Award unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions
not acceptable to the Company, and any delay caused thereby shall in no way affect the date of termination of the Award. Specifically, in connection with the Securities Act, upon the exercise of any
Option or the delivery of any shares of Stock underlying an Award, unless a registration statement under such Act is in effect with respect to the shares of Stock covered by such Award, the Company
shall not be required to sell or issue such shares unless the Board has received evidence satisfactory to it that the Grantee or any other individual exercising an Option may acquire such shares
pursuant to an exemption from registration under the Securities Act. Any determination in this connection by the Board shall be final, binding, and conclusive. The Company may, but shall in no event
be obligated to, register any securities covered hereby pursuant to the Securities Act. The Company shall not be obligated to take any affirmative action in order to cause the exercise of an Option or
the issuance of shares of Stock pursuant to the Plan to comply with any law or regulation of any governmental authority. As to any jurisdiction that expressly imposes the requirement that an Option
shall not be exercisable until the shares of Stock covered by such Option are registered or are exempt from registration, the exercise of such Option 

15

 

(under
circumstances in which the laws of such jurisdiction apply) shall be deemed conditioned upon the effectiveness of such registration or the availability of such an exemption. 

        16.2.    Rule 16b-3.    

        During
any time when the Company has a class of equity security registered under Section 12 of the Exchange Act, it is the intent of the Company that Awards pursuant to the Plan
and the exercise of Options granted hereunder will qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To the extent that any provision of the Plan or action by
the Board does not comply with the requirements of Rule 16b-3, it shall be deemed inoperative to the extent permitted by law and deemed advisable by the Board, and shall not affect
the validity of the Plan. In the event that Rule 16b-3 is revised or replaced, the Board may exercise its discretion to modify this Plan in any respect necessary to satisfy the
requirements of, or to take advantage of any features of, the revised exemption or its replacement. 

17.    EFFECT OF CHANGES IN CAPITALIZATION    

        17.1.    Changes in Stock.    

        If
the number of outstanding shares of Stock is increased or decreased or the shares of Stock are changed into or exchanged for a different number or kind of shares or other securities
of the Company on account of any recapitalization, reclassification, stock split, reverse split, combination of shares, exchange of shares, stock dividend or other distribution payable in capital
stock, or other increase or decrease in such shares effected without receipt of consideration by the Company occurring after the Effective Date, the number and kinds of shares for which grants of
Options and other Awards may be made under the Plan shall be adjusted proportionately and accordingly by the Company. In addition, the number and kind of shares for which Awards are outstanding shall
be adjusted proportionately and accordingly so that the proportionate interest of the Grantee immediately following such event shall, to the extent practicable, be the same as immediately before such
event. Any such adjustment in outstanding Options or SARs shall not change the aggregate Option Price or SAR Exercise Price payable with respect to shares that are subject to the unexercised portion
of an outstanding Option or SAR, as applicable, but shall include a corresponding proportionate adjustment in the Option Price or SAR Exercise Price per share. The conversion of any convertible
securities of the Company shall not be treated as an increase in shares effected without receipt of consideration. Notwithstanding the foregoing, in the event of any distribution to the Company's
stockholders of securities of any other entity or other assets (including an extraordinary cash dividend but excluding a non-extraordinary dividend payable in cash or in stock of the
Company) without receipt of consideration by the Company, the Company may, in such manner as the Company deems appropriate, adjust (i) the number and kind of shares subject to outstanding
Awards and/or (ii) the exercise price of outstanding Options and Stock Appreciation Rights to reflect such distribution. 

        17.2.    Reorganization in Which the Company Is the Surviving Entity Which does not Constitute a
Corporate Transaction.    

        Subject
to Section 17.3 hereof, if the Company shall be the surviving entity in any reorganization, merger, or consolidation of the
Company with one or more other entities which does not constitute a Corporate Transaction, any Option or SAR theretofore granted pursuant to the Plan shall pertain to and apply to the securities to
which a holder of the number of shares of Stock subject to such Option or SAR would have been entitled immediately following such reorganization, merger, or consolidation, with a corresponding
proportionate adjustment of the Option Price or SAR Exercise Price per share so that the aggregate Option Price or SAR Exercise Price thereafter shall be the same as the aggregate Option Price or SAR
Exercise Price of the shares remaining subject to the Option or SAR immediately prior to such reorganization, merger, or consolidation. Subject to any contrary language in an Award Agreement
evidencing an Award, any restrictions applicable to such Award shall apply as well to any 

16

 

replacement
shares received by the Grantee as a result of the reorganization, merger or consolidation. In the event of a transaction described in this  Section 17.2, Stock Units shall be adjusted so as to apply
to the securities that a holder of the number of shares of Stock subject to the Stock
Units would have been entitled to receive immediately following such transaction. 

        17.3.    Corporate Transaction.    

        Upon
the occurrence of a Corporate Transaction, subject to the exceptions set forth in the last sentence of this Section 17.3 and
the last sentence of Section 17.4,: 

          (i)  all
outstanding shares of Restricted Stock shall be deemed to have vested, and all Stock Units shall be deemed to have vested and the shares of Stock subject thereto
shall be delivered, immediately prior to the occurrence of such Corporate Transaction, and 

         (ii)  either
of the following two (2) actions shall be taken: 

        (A)  fifteen
(15) days prior to the scheduled consummation of a Corporate Transaction, all Options and SARs outstanding hereunder shall become immediately exercisable
and shall remain exercisable for a period of fifteen (15) days, or 

        (B)  the
Board may elect, in its sole discretion, to cancel any outstanding Awards of Options, Restricted Stock, Stock Units, and/or SARs and pay or deliver, or cause to be
paid or delivered, to the holder thereof an amount in cash or securities having a value (as determined by the Board acting in good faith), in the case of Restricted Stock or Stock Units, equal to the
formula or fixed price per share paid to holders of shares of Stock and, in the case of Options or SARs, equal to the product of the number of shares of Stock subject to the Option or SAR (the
"Award Shares") multiplied by the amount, if
any, by which (I) the formula or fixed price per share paid to holders of shares of Stock pursuant to such transaction exceeds (II) the Option Price or SAR Exercise Price applicable to
such Award Shares. 

        With
respect to the Company's establishment of an exercise window, (i) any exercise of an Option or SAR during such fifteen-day period shall be conditioned upon the
consummation of the event and shall be effective only immediately before the consummation of the event, and (ii) upon consummation of any Corporate Transaction the Plan, and all outstanding but
unexercised Options and SARs shall terminate. The Board shall send written notice of an event that will result in such a termination to all individuals who hold Options and SARs not later than the
time at which the Company gives notice thereof to its stockholders. This Section 17.3 shall not apply to any Corporate Transaction to the extent
that provision is made in writing in connection with such Corporate Transaction for the assumption or continuation of the Options, SARs, Stock Units and Restricted Stock theretofore granted, or for
the substitution for such Options, SARs, Stock Units and Restricted Stock for new common stock options and stock appreciation rights and new common stock stock units and restricted stock relating to
the stock of a successor entity, or a parent or subsidiary thereof, with appropriate adjustments as to the number of shares (disregarding any consideration that is not common stock) and option and
stock appreciation right exercise prices, in which event the Plan, Options, SARs, Stock Units and Restricted Stock theretofore granted shall continue in the manner and under the terms so provided. 

        17.4.    Adjustments.    

        Adjustments
under this Section 17 related to shares of Stock or securities of the Company shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive. No fractional shares or other securities shall be issued pursuant to any such adjustment, and any fractions resulting from any
such adjustment shall be eliminated in each case by rounding downward to the nearest whole share. The Board shall determine the effect of a Corporate Transaction upon Awards other than Options, SARs,
Stock Units and Restricted Stock, and such effect shall be set forth in the 

17

 

appropriate
Award Agreement. The Board may provide in the Award Agreements at the time of grant, or any time thereafter with the consent of the Grantee, for different provisions to apply to an Award
in place of those described in Sections 17.1, 17.2 and 17.3. 

        17.5.    No Limitations on Company.    

        The
making of Awards pursuant to the Plan shall not affect or limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations, or changes of
its capital or business structure or to merge, consolidate, dissolve, or liquidate, or to sell or transfer all or any part of its business or assets. 

18.    GENERAL PROVISIONS    

        18.1.    Disclaimer of Rights.    

        No
provision in the Plan or in any Award or Award Agreement shall be construed to confer upon any individual the right to remain in the employ or service of the Company or any Affiliate,
or to interfere in any way with any contractual or other right or authority of the Company either to increase or decrease the compensation or other payments to any individual at any time, or to
terminate any employment or other relationship between any individual and the Company. In addition, notwithstanding anything contained in the Plan to the contrary, unless otherwise stated in the
applicable Award Agreement, no Award granted under the Plan shall be affected by any change of duties or position of the Grantee, so long as such Grantee continues to be a director, officer,
consultant or employee of the Company or an Affiliate. The obligation of the Company to pay any benefits pursuant to this Plan shall be interpreted as a contractual obligation to pay only those
amounts described herein, in the manner and under the conditions prescribed herein. The Plan shall in no way be interpreted to require the Company to transfer any amounts to a third party trustee or
otherwise hold any amounts in trust or escrow for payment to any Grantee or beneficiary under the terms of the Plan. 

        18.2.    Nonexclusivity of the Plan.    

        Neither
the adoption of the Plan nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitations upon the right and
authority of the Board to adopt such other incentive compensation arrangements (which arrangements may be applicable either generally to a class or classes of individuals or specifically to a
particular individual or particular individuals) as the Board in its discretion determines desirable, including, without limitation, the granting of stock options otherwise than under the Plan. 

        18.3.    Withholding Taxes.    

        The
Company or an Affiliate, as the case may be, shall have the right to deduct from payments of any kind otherwise due to a Grantee any federal, state, or local taxes of any kind
required by law to be withheld with respect to the vesting of or other lapse of restrictions applicable to an Award or upon the issuance of any shares of Stock upon the exercise of an Option or
pursuant to an Award. At the time of such vesting, lapse, or exercise, the Grantee shall pay to the Company or the Affiliate, as the case may be, any amount that the Company or the Affiliate may
reasonably determine to be necessary to satisfy such withholding obligation. Subject to the prior approval of the Company or the Affiliate, which may be withheld by the Company or the Affiliate, as
the case may be, in its sole discretion, the Grantee may elect to satisfy such obligations, in whole or in part, (i) by causing the Company or the Affiliate to withhold shares of Stock
otherwise issuable to the Grantee or (ii) by delivering to the Company or the Affiliate shares of Stock already owned by the Grantee. The shares of Stock so delivered or withheld shall have an
aggregate Fair Market Value equal to such withholding obligations. The Fair Market Value of the shares of Stock used to satisfy such withholding obligation shall be determined by the Company or the
Affiliate as of the date that the amount of tax to be withheld is to 

18

 

be
determined. A Grantee who has made an election pursuant to this Section 18.3 may satisfy his or her withholding obligation only with shares of
Stock that are not subject to any repurchase, forfeiture, unfulfilled vesting, or other similar requirements. 

        18.4.    Captions.    

        The
use of captions in this Plan or any Award Agreement is for the convenience of reference only and shall not affect the meaning of any provision of the Plan or such Award Agreement. 

        18.5.    Other Provisions.    

        Each
Award granted under the Plan may contain such other terms and conditions not inconsistent with the Plan as may be determined by the Board, in its sole discretion. 

        18.6.    Number and Gender.    

        With
respect to words used in this Plan, the singular form shall include the plural form, the masculine gender shall include the feminine gender, etc., as the context requires. 

        18.7.    Severability.    

        If
any provision of the Plan or any Award Agreement shall be determined to be illegal or unenforceable by any court of law in any jurisdiction, the remaining provisions hereof and
thereof shall be severable and enforceable in accordance with their terms, and all provisions shall remain enforceable in any other jurisdiction. 

        18.8.    Governing Law.    

        The
validity and construction of this Plan and the instruments evidencing the Awards hereunder shall be governed by the laws of the State of Colorado, other than any conflicts or choice
of law rule or principle that might otherwise refer construction or interpretation of this Plan and the instruments evidencing the Awards granted hereunder to the substantive laws of any other
jurisdiction. 

        18.9.    Section 409A of the Code.    

        To
the extent that the Board determines that a Grantee would be subject to the additional twenty percent (20%) tax imposed on certain deferred compensation arrangements pursuant to
Section 409A of the Code, as a result of any provision of any Award granted under this Plan, such provision shall be deemed amended to the minimum extent necessary to avoid application of such
additional tax. The nature of any such amendment shall be determined by the Board. 

*      *      * 

19

 

        To
record adoption of the Plan by the Board as of July 11, 2006, and approval of the Plan by the stockholders on July 11, 2006, the Company has caused its authorized
officer to execute the Plan. 

					
	 	 	ELLORA ENERGY INC.
	

 	
 	
 By:	
 	
/s/ T. SCOTT MARTIN

 
	 	 	Name:	 	T. Scott Martin

 
	 	 	Title:	 	CEO

 

20

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Exhibit 10.1QuickLinks
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  Exhibit 10.2    
    

FARMOUT CONTRACT 

        THIS
FARMOUT CONTRACT ("Contract"), made this 14th day of November, 1997, by and between AMOCO PRODUCTION COMPANY, a Delaware corporation, authorized to do
business in the State of Kansas, whose mailing address is P.O. Box 800, Denver, Colorado 80201, hereinafter referred to as "Amoco" or "Farmor" and PRESCO, INC., a Delaware corporation,
authorized to do business in the State of Kansas, whose mailing address is P. O. Box 7520, The Woodlands, Texas 77387, hereinafter referred to as "PRESCO" or "Farmee". Farmer and Farmee are sometimes
collectively referred to herein as the "Parties"; 

        WITNESSETH,
THAT: 

        WHEREAS,
Amoco is the owner of certain oil and gas leasehold and mineral interests, as to those depths below the top of the Heebner Shale (or if the Heebner Shale is not present,
then,400' below the base of the Council Grove formation), with said oil and gas leasehold and mineral interests being located in Morton, Grant, Stevens, Stanton, Kearny, Finney, Haskell, Hamilton, and
Seward Counties, Kansas, as shown in yellow on the attached Exhibit "A" and hereinafter referred to as "Lease Acreage" and with the whole of said Lease Acreage sometimes referred to as "Exploration
Area"; and 

        WHEREAS,
Amoco, has agreed to farmout to PRESCO and PRESCO has agreed to accept from Amoco, its successors and assigns, the hereinafter specified interests in the Lease Acreage, Insofar
and
only insofar as to the depths described herein above, with the right: to ingress and egress upon the Lease Acreage expressly provided to the Parties, and subject to the reservations, terms, covenants
and conditions hereinafter set forth. 

        NOW,
THEREFORE, in consideration of the premises and mutual covenants contained herein, it is hereby agreed by and between the Parties hereto as follows: 

        1.    EXCEPTIONS:    

        Notwithstanding
anything contained herein to the contrary, Amoco excludes from this Contract and reserves unto itself all right, title and interest in and to the Lease Acreage as to all
depths as to each eighty (80) acre tract attributable to each oil well capable of commercial production below the base of the council Grove formation and all depths as to each three hundred
twenty (320) acre tract attributable to each gas well capable of commercial production below the base of the Council Grove formation in existence as of the date of this Contract. The
determination as to which acreage would be excluded from this Contract shall coincide with the Lease Acreage attributable to each unit by Amoco's lease records as of the date of this Contract. 

        Notwithstanding
anything contained herein to the contrary, Amoco excludes from this Contract and reserves unto itself, all right, title and interest in and to the Lease Acreage as to the
depths lying in the interval from the surface of the earth down to the top of the Heebner formation (or in the event the Heebner shale is not present, then four hundred (400) feet below the
base of the Council Grove formation). 

        2.    TITLE:    

        Amoco
does not warrant title to the Lease Acreage that comprises the Exploration Area covered by this Contract. Farmee shall assume all title risks. A review of the county records in
which the lands are located would reveal that Amoco has some interest in some of the lands shown on the attached Exhibit "A" as to depths described herein above. A further examination would reveal
that Amoco's rights are limited by, among other things, depth restrictions, product restrictions and burdens in excess of the landowner's 1/8th royalty. Amoco shall not be required to cure title
defects discovered by Farmee. There shall be no obligation of any nature, on the part of Amoco to purchase new or supplemental abstracts, nor to do any curative work in connection with the title to
the leases and minerals that comprise the Lease Acreage. Any additional title examination and curative work shall be 

 

conducted
by PRESCO at PRESCO'S sole cost, risk and expense. Farmee shall have access to, for review and reproduction at Farmee's expense, during normal business hours in Amoco's office, all Amoco
lease and contract files associated with the Lease Acreage. Farmee shall have access during normal business hours in Amoco's office, to Amoco's Lease Data computer system for review and copying of
information regarding the Lease Acreage. 

        3.    EXPLORATION TEST WELLS:    

        Farmee
shall at no cost, risk or expense to Amoco, drill or cause to be drilled a minimum of ten (10) Exploration Test Wells located on the Lease Acreage, or within a pooled or
unitized area or unit containing Lease Acreage within the Exploration Area, for each calendar year this Contract is in effect, beginning with the 1998 calendar year. For purposes of this Contract, a
well drilled or caused to be drilled by Farmee, shall be considered an Exploration Test Well if such well is located on Lease Acreage or lands pooled or unitized therewith  and if either of the following
conditions apply: i) the well is a newly-drilled well located a distance of one (1) mile or greater from an
existing well, then producing from any horizon below the top of the Heebner Shale, (or if the Heebner Shale is not present, then 400' below the base of the Council Grove formation); or ii) the
well is a newly-drilled well located a distance of less than one (1) mile from an existing well capable of commercial production, with said newly drilled well being completed as a well capable
of production from a stratigraphic horizon, which is not correlative, nor in pressure communication, with the stratigraphic horizon currently producing; or a stratigraphic horizon capable of
commercial production, in the existing wellbore. For purposes of the Exploration Test Well definition, a stratigraphic horizon shall be defined as each separate potentially productive interval within
a formation.. For example: the upper, middle or lower Morrow zones shall each be considered separate stratigraphic horizons within the Morrow formation, likewise, the "B" or "C" zones which produce
from the St. Louis formation shall be considered separate stratigraphic horizons in an Exploration Test Well. Determination as to whether or not a well. shall be considered an "Exploration Test Wall"
for purposes of this Contract shall be made as of date of the commencement of the actual drilling of the well, or if the well is completed so as to comply with the requirements set forth in
ii) above, upon the date of completion. Farmee shall be required to commence, or cause to be commenced, the actual drilling of not less than three (3)of the required ten (10) Exploration
Test Wells on the Lease Acreage within the first one hundred and eighty (180) days of the first day of each new calendar year, with the actual drilling of the remaining seven (7) wells
to be commenced, or caused to be commenced within the remaining one hundred and eighty five (185) days of the year. Each Exploration Test Well shall be drilled, or caused to be drilled, to a
minimum total depth of at least 5600, below the surface of the earth or to a depth sufficient to test the St. Louis formation whichever is the lesser depth, hereinafter referred to as "Contract
Depth". Farmee shall be required to drill, or cause to be drilled, a minimum of two (2) of the ten (10) Exploration Test Wells on Lease Acreage located in Stanton., Grant, Stevens,
Morton, Hamilton or Kearny Counties, Kansas, which for purposes of this Contract are outlined in magenta on the attached Exhibit "A". All wells drilled, or caused to be drilled on Lease Acreage by
Farmee, considered Exploration Test Wells or otherwise shall be required to be completed as a test well capable of the commercial production of oil and/or gas, taken over by Amoco, as provided for in
Article Eleven (11) below, or plugged and abandoned as a dryhole within sixty (60) days of drilling rig release. Amoco shall not limit the number of other wells, not considered
Exploration Test Wells, drilled, or caused to be drilled under this Contract. 

        Should
the number of Exploration Test Wells drilled or caused to be drilled, or replaced by the acquisition of 3-D seismic as provided below, by Farmee in any calendar year,
be in excess of the ten (l0) required Exploration Test Wells, Farmee's obligation in the subsequent calendar year to "drill or cause to be drilled ten (10) Exploration Test Wells, shall be
reduced by said number of wells up to a maximum number of four (4). In no instance shall Farmee's obligation to drill, or cause to be drilled a minimum number of two (2) Exploration Test Wells
per year on the West Side, or acreage pooled 

2

 

therewith,
be reduced. Should Farmee elect to acquire 3-D seismic on Lease Acreage within the Exploration Area, on its own, by, through or under a party other than Amoco, Farmee shall have
the right to substitute the acquisition and processing of 3-D seismic for the drilling of up to a maximum number of three (3) Exploration Test Wells per calendar year at a rate
equal to four (4) 640 acre governmental sections of 3-D seismic acquired and processed on the Lease Acreage to one (1) Exploration Test Well. The seismic data acquired by
Farmee for purposes of reducing Farmee's obligation to drill Exploration Test Wells shall be located on governmental quarter sections where Amoco owns a minimum of seventy five percent (75%) of the
gross working interest in oil and/or gas rights. For purposes of reducing Farmees obligation to drill Exploration Test Wells hereunder, Farmee shall be allowed to combine four (4) separate
governmental quarter sections in which Amoco owns a minimum seventy five percent (75%) gross working interest to create a 640 acre governmental section. It is recognized by the Parties, that in order
for Farmee to obtain full fold data on the Lease Acreage or a portion thereof, Farmee may be required to acquire data beyond the boundary of an Amoco lease or mineral interest. In said instance,
Farmee shall be allowed to utilize the additional area covered by the data in calculating Farmee's credit toward the drilling of Exploration Test wells hereunder. It is herein recognized that seismic
data is typically acquired during the months of November, December, January, February, and March, hereinafter referred to as "Acquisition Window". For purposes of determining whether data acquired
shall serve to diminish Farmee's obligation to drill Exploration Test Wells hereunder, it is hereinafter agreed that 3-D seismic data acquired during said Acquisition Window shall he
utilized by Farmee to reduce Farmee's obligation to drill Exploration Test Wells in the next calendar year only. For example, should Farmee begin the actual acquisition of seismic data in December of
1998 and. not complete the actual acquisition of data until January of 1999, the data acquired may serve to reduce Farmee's Exploration Test Well drilling obligation for 1999 only. Processing of said
data shall be completed within twelve (12) months from the. date in which the acquisition of data was completed, or if processing is required in the case of purchased data, from the date the
data was purchased. The right to conduct and/or acquire 3-D or 2-D seismic data and geophysical surveys on Amoco Lease Acreage is expressly granted to Farmee by Amoco. Farmee
shall not be required to obtain a permit from Amoco prior to acquisition of the geologic or geophysical data, and is herein granted the right, but not the obligation to approve third party requests to
acquire geologic or seismic data on the Lease Acreage, however, Farmee shall conduct its operations and require any third parties to conduct their operations, in a good and workmanlike manner and
shall settle all reasonable damages with the surface owners as soon as would be practical after the work has been completed. Amoco shall have access to said data upon its written request. Should
Farmee fail" to drill or cause to be drilled the ten (10) Exploration Test Wells, or reduce said drilling requirement through the acquisition and processing of seismic data within each and
every calendar year, as set forth herein above, this Contract shall immediately terminate. 

        4.    DATA:    

        Amoco
agrees to sell to Farmee, for the sum of ten dollars, and other good and valuable consideration, all geological and 3-D geophysical data, owned, obtained, controlled or
in the possession of Amoco, as it pertains to the Exploration Area, including but not limited to, all geophysical data resulting from field seismic operations, observer's reports, surveyor's notes,
shot point maps, and magnetic tapes used to record the raw seismic data. Not longer than sixty (60) days following receipt of payment by Farmee to Amoco, Farmee shall receive copies of all
processed data as it pertains to the Exploration Area. Amoco shall make available to Farmee for Farmee's use, inspection and copying, all of the geological, production and reservoir information, data
and interpretations in Amoco's possession with respect to the Exploration Area, including but not limited to, well logs, microfiche sets, and any geological or geophysical leads and/or
interpretations. All costs associated with the copying or collection of all data and or information described herein shall be completed at Farmee's sole cost and expense. Amoco shall make no warranty
whether express or implied with respect to the reliability, accuracy or to the completeness of the data for any particular purpose. Farmee agrees to use the data 

3

 

made
available by or through Amoco at its sole cost risk and expense, and shall not seek to hold Amoco liable or responsible, in any respect for Farmee's use of the data. Additionally, not later than
thirty (30) days from the effective date of this Contract, Amoco shall be required to furnish to Farmee all data, materials and equipment as set forth on the attached Exhibit "B". 

        5.    DRILLING AND COMPLETION OF WELLS:    (Applicable separately to each well) 

        All
operations conducted by Farmee, it successors and assigns shall be at Farmee's sole cost, risk and expense. Farmee agrees to indemnify, defend and hold Amoco harmless from and
against all claims, demands, causes of action and judgments of any nature (and all costs and fees associated with same) arising in favor of any party (including Farmee, Farmee's employees, agents,
servants, contractors or invitees or Amoco's employees and any other party whomsoever) for personal injury, death, property damage, damage to natural resources, or for any other reason whatsoever,
growing out of, incident to, or arising, either directly or indirectly, from Farmee's, its successors and assigns, operations on or with respect to the Exploration Area. Farmee further agrees to pay
Amoco for any damages to Amoco's property which is caused by Farmee, Farmee's employees, agents, servants, contractors or invitees or Farmee's successors and assigns. 

        Prior
to building the location for any well drilled hereunder, Farmee shall furnish Amoco with a detailed plat showing the location of the well. Farmee shall notify Amoco immediately
when the location for each well to be drilled hereunder is staked, when the material for the drilling thereof is moved to the location and when actual drilling is commenced. Farmee shall provide to
Amoco one (1) copy of the staking plat, along with the Kansas Corporation Commission "Permit To Drill" at no cost to Amoco. 

        After
actual drilling has been commenced and continuing until Farmee has completed as a well capable of producing oil and/or gas in commercial quantities, is taken over by Amoco as
provided for in Article Eleven (11) below, or is plugged and abandoned as a dry hole, Farmee shall furnish to Amoco daily reports as to the progress as well as any and all other information
requested by Amoco as set forth in the Geological Requirements included herein as Exhibit "C". 

        Once
a well has reached contract Depth and Farmee determines that the well drilled is incapable of producing oil or gas in commercial quantities and that said well should be plugged and
abandoned, and Amoco has declined to takeover the well as provided for in article Eleven (11) below, Farmee shall proceed at Farmee's sole cost, risk and expense to plug and abandon said well
in accordance with all applicable state and local laws and regulations. Farmee shall additionally level the ground around the location and clean the premises so as to comply with the Environmental
Stipulations set forth in Exhibit "D". 

        6.    SUBSTITUTE WELLS:    

        If,
because of encountering impenetrable substances or because of other conditions making further drilling impracticable, Farmee may discontinue drilling any well under this Contract
before reaching Contract Depth. Farmee shall have the right, but not the obligation, to drill a "substitute" well at a legal location on the same tract of acreage as the well it is to replace,
provided the actual drilling of said substitute well is commenced not later than thirty (30) days after the abandonment of the Exploration Test Well or other well which it is to replace. If
Farmee elects to commence a substitute well, it thereafter shall prosecute the drilling thereof to Contract Depth and complete said substitute well with due diligence. If a substitute well is drilled
as herein provided, than Farmee shall be deemed to have complied with this Contract as if the substitute well had been an original well. 

        7.    GEOLOGICAL REQUIREMENTS:    

        Farmee
shall test or have tested all wells drilled under this Contract and promptly furnish Amoco all data and information specified in Exhibit "C" attached hereto. Within fourteen
(14) days of 

4

 

discovery
by Farmee that data as set forth in said Geological. Requirements has not been provided to Amoco, Farmee shall provide to Amoco any and all information which had not been previously
forwarded. 

        8.    COST OF THE WELL:    (Applicable separately to each well) 

        The
entire cost and expense associated with the drilling, testing and equipping each well drilled hereunder shall be paid by Farmee or shall be paid by a third party in the instance of a
farmout by Farmee to a third party, as provided fort hereinabove, unless Amoco elects to take over a well as provided for in Article Eleven (11) hereto. Farmee or said third party shall
maintain the Lease Acreage free and clear of any and all liens and encumbrances. As a condition precedent to Amoco's obligation to perform in accordance with the provisions of this Contract, Farmee
shall furnish, at the request of Amoco, evidence satisfactory to Amoco establishing the prudent payment of bills required to be paid by Farmee in connection with any well drilled hereunder. 

        9.    CONTRIBUTIONS:    

        All
contributions, including but not limited to, dry hole money, bottom hole money, acreage, farmout agreements, or farmout option agreements received in connection with the drilling of
any well drilled under this Contract will be owned solely by Farmee. 

        10.    WELL CLASSIFICATION:    

        An
"oil well" shall be defined as any well drilled hereunder with a GOR of less than 15,000:1. A "gas well" shall be defined as any well drilled hereunder with a GOR of greater than
15,000:1. All determinations as to a well's type, either gas or oil, shall be made on the date of completion. It is hereby agreed that should the classification for any well drilled hereunder change
from oil to gas thereby causing the assignment delivered by Amoco to Farmee of a 160 acre governmental quarter section to cover an inadequate proration area either for KCC compliance or for the
distribution of royalties under a pre-existing unitization agreement, then Amoco shall, upon request by Farmee, agree to an assignment of the remaining leasehold it owns below the top of
the Heebner to total depth drilled in the 640 acre governmental section in which said well is located. 

        11.    TAKEOVER PROVISION:    

        Amoco
shall retain the right, but not the `obligation to takeover any Well drilled by virtue of this Contract as hereinafter provided: 

        a)    Prior
to the commencement of the actual drilling of a well under this Contract, Farmee shall furnish to Amoco a plat showing the location of the well to be drilled.
Within five (5) days of receipt of said plat, Amoco shall declare in writing to Farmee, its intention to takeover the well bore, in the event of a dryhole, at a time mutually agreed to by the
Parties prior to the drilling well reaching Contract Depth. Failure by Amoco to timely notify Farmee of its intention to takeover a well, shall constitute Amoco's concurrence with Farmee's intention
to plug and abandon the well. Amoco shall release Farmee from all liability and costs incurred in the well at the point of takeover by Amoco. 

        b)    Not
later than thirty (30) days prior to the plugging and abandonment of any producing well drilled under this Contract, Farmee shall notify Amoco of its intention
to plug and abandon said well. Amoco shall have the option to takeover said well, for its own purposes, free of any cost to Amoco, by notifying Farmee, in writing within fifteen (15) days from
receipt of the aforementioned notice, and prior to said well being plugged and abandoned as a dryhole. Failure by Amoco to timely notify Farmee of its intention to takeover a well, shall constitute
Amoco's concurrence with Farmee's intention to plug and abandon the well. Amoco shall release Farmee from all liability and costs incurred in the well at the point of takeover by Amoco. 

5

 

        12.    PERFORMANCE:    (Applicable separately to each well completed as a well capable of the commercial production of
oil and/or gas) 

        12.1    Assignments:    Not later than sixty (60) days after Farmee has completed or caused to be completed. a
well drilled hereunder, Farmee shall notify Amoco that said well has been completed as a well producing oil or gas in commercial quantities or as a well capable of commercial production of oil or gee,
and Farmee has otherwise complied with and performed all of the other terms, covenants and conditions herein, providing to Amoco the total depth drilled in the well and said weal's exact location.
Farmee shall within a reasonable time thereafter, prepare and deliver to Amoco for execution, an assignment a follows: 

        (a)   An
assignment of one hundred percent (100.0%) of Amoco's right, title and interest in and to the oil and gas leases, as to the oil, gas and mineral rights, comprising
that part of the Lease Acreage covering land within the one hundred sixty (160) acre tract comprising the governmental quarter section where such well is located from the top of the Heebner
Shale (or from 400' below the base of the Council Grove formation if the Heebner Shale is not present) down to total depth drilled as found in the test well, insofar as said leases cover land within
said one hundred sixty (160) acres of the Lease Acreage, if the well has a gas-oil ratio of less than 15,000 to 1. Such assignment shall reserve unto Amoco a
non-convertible overriding royalty interest equal to the difference between twenty percent (20%) and any burdens in existence on the Lease Acreage as of the date of this Contract. 

        (b)   An
assignment of one hundred percent (100.0%) of Amoco's right, title and interest in and to the oil and gas leases, as to the oil, gas and mineral rights, comprising
that part of the Lease Acreage covering land within the six hundred forty (640). Acre. tract comprising the governmental section where°`U6h well is located, from the top of the Heebner
Shale (or from 400' below the base of the Council Grove formation if the Heebner Shale is not present) down to total depth drilled as found in the well, insofar as said leases cover land within said
six hundred forty (640) acre
governmental section of Lease Acreage, if the well has a gas-oil ratio of equal to or greater than 15,000 to 1. Such assignment shall reserve unto Amoco a non-convertible
overriding royalty interest equal to the difference between twenty percent (20%) and burdens in existence on the Lease Acreage as of the date of this Contract. 

        All
assignments prepared by Farmee under this Contract, for the successful completion of a well, shall be prepared using the form of assignment attached hereto as Exhibit "E". All oil
and Gas Leases prepared by Farmee under this Contract, prior to the drilling of a well hereunder, shall be prepared using the form of oil and Gas Lease attached hereto as Exhibit "F". 

        It
is hereby understood and agreed, that should Amoco be unable to deliver a proportionately reduced 80% net revenue leasehold,. then Amoco shall assign the maximum deliverable net
revenue interest available, up to 80%. It is understood that in some instances, the proportionately reduced net revenue interest, deliverable from Amoco to Farmee may fall below 80%. In those
instances where delivering less than a proportionately reduced 80% net revenue interest occurs, Amoco shall not retain an override. Additionally, Amoco's inability to deliver proportionately reduced
80% net revenue interest shall not constitute a breach of this Contract. Any assignment granted to Farmee under this Contract shall be subject to a re-assignment to Amoco upon the plugging
and abandonment of the well or wells drilled on the assigned Lease Acreage, free of all burdens, liens and encumbrances created by Farmee or otherwise, as of the date of this contract. 

        12.2    Recording of,Assignments or Leases:    Upon delivery to Farmee thereof, of a fully executed and acknowledged
assignment, Farmee agrees to forthwith file of record the assignment(s) delivered to Farmee by Amoco hereunder and to furnish Amoco with the pertinent recording data thereof as soon as the same is
available. 

6

 

        12.3    Affidavits of Production:    At the time that production is obtained from any part of the Lease Acreage,
Farmee shall execute and file of record in the appropriate county, an Affidavit of Production pursuant to the laws of the State of Kansas with respect to such producing lease(s). Farmee shall
immediately furnish a copy of the recorded Affidavit of Production to Amoco, free of cost to Amoco. 

        13.    SHUT-IN GAS ROYALTY AND ABANDONMENT OF WELLS:    

        Farmee
agrees to notify Amoco in writing of the anticipated completion of a shut-in gas well, the shutting in of a producing gas well or the abandonment (both temporary or
permanent) of a
completed well, at least five (5) days (excluding Saturdays, Sundays and legal holidays) prior to taking such action. Farmee shall pay any shut-in payment that may become due
pursuant to the terms of the affected lease (a) and furnish Amoco copies of such checks making any required payment. Farmee agrees to promptly notify Amoco upon the return to production of any
well which has been shut-in or abandoned. 

        14.    EXISTING AGREEMENTS:    

        The
Parties hereto recognize that certain tracts of the Lease Acreage may be subject to pre-existing agreements. Copies of all such agreements which are deemed by Amoco to
have a material effect on Farmee's rights under this contract shall be furnished to Farmee when they come to the attention of Amoco, provided Amoco has the legal right to furnish the agreement(s).
Amoco shall not be required to search to discover the existence of any such agreements. In no event shall Amoco have or incur any liability to Farmee, its successors or assigns, for failure to
identify any such agreements. 

        15.    LANDOWNER DEMANDS:    

        In
the event that Amoco or Farmee shall receive any demand from or on behalf of a landowner for the drilling of a well on the Lease Acreage subject to this Contract, the party receiving
the demand shall promptly notify the other party of said demand. Farmee shall have fifteen (15) days in which to respond to the landowner acknowledging receipt of such demand. Farmee and Amoco
shall have an additional fifteen (15) days to formulate a more definitive response to the landowner either expressing Farmee's intent to cause a well to be drilled, or if drilling would appear
to be imprudent then formulating an appropriate response td said landowner and forwarding said response to Amoco for finalization and transmission to the landowner. Farmee shall be allowed a
reasonable time to resolve issues set forth in each demand and shall be required to keep Amoco apprised of said actions. Should Farmee be unable to satisfy said landowner's demand, Amoco and Farmee
shall work together to formulate a reasonable approach to resolution of the issue. Should Amoco and Farmee disagree on the action required to resolve the landowner's demands, Amoco and Farmee shall as
soon as would be practical, seek resolution through the arbitration procedure set forth on Exhibit "I". However, release of an oil and gas lease to satisfy a landowner's demand shall be at Amoco's
sole option. 

        16.    SURFACE DAMAGE:    

        Prior
to building or staking a location on the Lease Acreage, or lands pooled therewith, Farmee shall make personal contact with each and every surface owner holding title to land on
which Farmee intends to conduct operations. Farmee shall settle damages with said surface owner prior to commencing operations and said damage settlement shall be made in accordance with the Southwest
Kansas Royalty owners Association guidelines, a copy of which is attached as Exhibit "a" to this Contract. If Farmee is able to settle damages with the surface owner for a lesser sum of money than is
set forth in the Southwest Kansas Royalty Owners Association guidelines and can provide written evidence to Amoco that the surface owner is satisfied with said settlement, then said settlement shall
be acceptable to Amoco. Farmee shall either 1) furnish proof to Amoco in written form, signed by the actual surface owner, that damages have been settled, or 2) shall furnish proof that
damages have been paid in accordance with Southwest Kansas Royalty Owners Association's guidelines if the damages caused have been reasonable and customary. No burn pits are allowed in conjunction
with the 

7

 

operations
under this Contract. All trash must be removed by Farmee. from the drillsite immediately following the drilling of each well. 

        17.    ENVIRONMENTAL STT'ULATIONS:    

        Farmee
shall be held in strict compliance with the Environmental Stipulations set forth on Exhibit "D". Within forty-eight (48) hours of discovery by Farmee that an Environmental
Stipulation has been breached, Farmee shall notify Amoco, both by telephone and in writing, of said breach, including details regarding location and factual information about what had occurred.
Additionally, Farmee shall promptly indicate the steps it intends to take to remediate the occurrence. As soon as would be practical, Farmee shall commence the actual on-site work to
remediate the occurrence and within sixty (60) days of the onset of the incident, bring the lands associated with the incident back into compliance with the Environmental Stipulations. 

        18.    FARMOUT REQUESTS:    

        All
requests for farmout of Lease Acreage within the Exploration Area received by Amoco or Farmee shall be addressed by Farmee promptly. Amoco shall promptly forward any requests for
farmout it receives to Farmee. It is the expectation of Amoco that each farmout request received by the Farmee or Amoco shall be reviewed by Farmee and Farmee shall consider each request's
applicability to Farmee's drilling plans. If Farmee considers that a farmout of the Lease Acreage would be prudent, within Farmee's sole discretion, Farmee shall as soon. as would be practical farmout
said Lease Acreage, or a portion thereof to said company. 

        19.    INSURANCE:    

        As
to all operations hereunder with respect to each well, Farmee shall secure and maintain the following insurance: 

        (a)   Workmen's
Compensation Insurance: In compliance with Workmen's compensation laws of the governmental bodies having jurisdiction and with Employer's Liability insurance
with a limit of $100,000 each accident with respect to bodily injury and the aggregate with respect to occupational diseases. 

        (b)   General
Liability Insurance: A combined single limit of $500,000 each occurrence for bodily injuries or death and property damage. 

        (c)   Automobile
Liability Insurance: A combined single limit of $500,000 each accident for bodily injuries or death and property damage. 

        Farmee
shall require its contractors and subcontractors working or performing services on the premises covered hereby to comply with the Workmen's Compensation laws of the governmental
bodies having jurisdiction and to carry such other insurance and in such amounts as Farmee shall deem necessary. 

        Farmee
shall obtain and maintain a drilling bond with the State of Kansas. 

        20.    FORCE MAJEURE:    

        Non-performance,
other than failure to make. payments due under this Contract, shall be excused in the event performance is prevented by strikes, fires, floods, tornadoes,
lightning, explosions, acts of God or public enemy, or other happenings beyond the reasonable control of the Parties hereto whether similar or dissimilar to the causes herein specifically enumerated;
provided, however, that performance)shall be resumed within a reasonable time after such cause has been removed. The affected party shall use reasonable diligence to remove the force majeure as
quickly as possible. In the case of force majeure, the party hereto asserting said force majeure shall, within five (5) days of discovery of the force majeure, notify the other party hereto of
the existence of the force majeure and 

8

 

the
reasons therefore. Once the force majeure event has terminated, the party hereto asserting force majeure shall, within five (5) days of termination of the force majeure, notify the other
party hereto of the termination of said conditions. 

        21.    SALT WATER DISPOSAL WELLS:    

        Farmee
shall not drill any Salt Water Disposal Wells on the Lease Acreage without the prior written consent of Amoco, said consent shall not be unreasonably withheld. 

        22.    TECHNICAL REVIEWS:    

        Farmee
shall, beginning in June of 1998, and in June and December of each calendar year thereafter during the term of this Contract, provide to the appropriate Amoco personnel, a review
of Farmee's activities on the Lease Acreage in the Exploration Area. Information included in the review shall include, but shall not be limited to, details regarding proposed seismic acquisition
programs, well status reports including location and results of wells drilled and location and approximate drilling schedule of proposed wells. Additionally, the review shall include. information
regarding the handling of farmout requests received by Farmee including information detailing the response or proposed response Farmee made to each request. All information included in the review
shall be held strictly confidential by Amoco. 

        23.    INTERNAL REVENUE CODE ELECTION:    

        This
Contract is not intended to create, land shall not be construed to create, a relationship of partnership or an association for profit between or among the partied hereto. If, for
Federal income tax purposes, this Contract and the operations hereunder are regarded as a partnership, each party hereby 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 198.6, as permitted and authorized by Section 761 of the Code and the regulations promulgated thereunder. If any present or
future income tax laws of the State of Kansas or any future income tax laws of the United States contain provisions similar to those in Subchapter K, Chapter 1, subtitle A, of the Internal Revenue
Code of 1986, 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. 

        24.    INDEMNITY:    

        Amoco
shall agree to indemnify, defend and hold Farmee, its affiliates, officers, agents and employees harmless from and against any and all claims, damages, losses, costs (including
without limitation reasonable attorney fees, court costs or other expenses incurred in the defense of any claim or lawsuit.) which arise out of, or are attributable to. Amoco's actions prior to or
under this Contract, including but not limited to, all claims for injury or death, claims for damages to property and claims relating to violations of applicable laws, rules, orders, regulations or
codes. 

        Farmee
shall agree to indemnify, defend and hold Amoco, its affiliates, officers,' agents and employees harmless from and against any and. all claims, damages, losses, costs (including
without limitation reasonable attorney fees, court costs or other expenses incurred in the defense of any claim,pr lawsuit) which arise out of, or are attributable to Farmee's actions prior to or
under this Contract, including but not limited to all claims for injury or death, claims for damages to property and claims relating to violations of applicable laws, rules, orders, regulations or
codes. 

        25.    LAWS AND REGULATIONS:    

        Farmee
shall comply with and conduct its operations hereunder as a reasonable and prudent operator and in accordance with the terms and provisions of the oil and gas leases comprising
the Lease Acreage, all existing contracts which Farmee has been made aware of by Amoco, and all applicable laws, ordinances, rules, regulations, and orders, of all governmental authorities having 

9

 

jurisdiction
thereof. This Contract and the rights and duties of the Parties hereunder shall be governed by and interpreted in accordance with the laws of the State of Kansas; without regard to any
choice of law provisions thereof. Venue for all matters for this Contract shall be the Federal Court located in Wichita, Kansas. If the Federal Court in Wichita, Kansas is divested of jurisdiction,
forum and venue shall be in the State District Court in Wichita, Kansas. 

        26.    NOTICES:    

        Except
as herein otherwise expressly provided, any notice or other communication required or permitted hereunder shall be deemed to have been properly given when delivered personally, by
facsimile or by registered mail, with all postage or charges fully prepaid, to the other party at its address as set forth as below: 

Amoco
Production Company

P.O. Box 800

1670 Broadway

Denver, Colorado 80201

Attn.: Ms. Colleen M. Kennedy

Office: (303) 830-5817

Fax: (303) 830-5388 

PRESCO, Inc.

P. O. Box 7520

The Woodlands, Texas 77387

Attn.: Mr. David R. Wheeler

Office: (281) 367-8697

Fax: (281) 364-4919 

        All
notices are deemed given when received. Any notice given may be preceded by a telephonic conversation, but shall not be deemed properly given until notice is received as outlined
above. Each party hereto shall have the right to change its address,. telephone or facsimile number by notifying the other party hereto in writing. 

        27.    BANKRUPTCY:    

        In
the event Farmee becomes insolvent or files for voluntary protection under the Federal Bankruptcy Act or in the event Farmee's creditors file any such involuntary action against it
and the involuntary action is not dismissed. within ninety (90) days, this Contract shall terminate in its entirety and Farmee shall have no further right to drill any additional wells or
receive an assignment of additional acreage. 

        28.    CALL ON PRODUCTION AND PROCESSING:    

        Farmee
shall provide to Amoco three (3) copies of the completion report for each well drilled on the Lease Acreage or land pooled therewith within fifteen (15) days after
it is filed with the applicable state agency. One (1) copy shall be sent to Amoco at P.O, Box 3092, Houston, Texas 77253 to the attention of the Natural as Manager (West); and two
(2) copies shall be sent to-Amoco at P.O. Box 800, Denver, Colorado 8020l, of which one (1) copy shall be to the attention of Crude Oil Supply Manager, and of which
one (1) copy shall be to the attention of Western U. S. Business Unit Land Manager. 

        Not
longer than thirty (30) days from the completion of a well drilled hereunder, Farmee shall notify Amoco in writing that said well has been completed. 

10

 

        A.    Call on Oil:    

        Amoco
reserves and excepts unto itself, its successors and assigns, the option and exclusive right at any time, at all times and from time to time, to purchase all oil, distillate,
condensate, and other liquid hydrocarbons, including natural gas liquids produced at any processing facility to the extent that the source gas stream for this liquid production originates from said
Lease Acreage, hereinafter referred to as "Oil"", produced and saved from said Lease Acreage or allocated to said Lease Acreage. Within seven (7) days of written notice, by Farmee to Amoco, to
the attention of the crude oil Supply Manager, at the address set forth above, that Farmee has received a bona fide offer for the purchase of Oil, Amoco shall notify Farmee whether or not it elects to
exercise its option to purchase said oil. If Amoco elects to exercise its option, payment for any Oil purchased hereunder shall match the terms and pricing included in said bona fide offer. If Amoco
does not notify Farmee within the seven (7) day period that it has elected to exercise said option, it shall be deemed an election to waive this option. If Amoco does not elect to exercise its
option to purchase such Oil as provided above, Farmee may enter into a contract to sell to another party for a term not to exceed one (1) year. Upon the termination of any such sales contract,
Farmee shall give written notice to Amoco and Amoco's right to the above seven (7) day option period shall be revived. 

        If,
after exercising its option, Amoco should thereafter wish to cease purchasing Oil, it may do so upon; thirty (30) days advance notice to Farmee. Should Amoco elect not to
exercise its option to purchase oil, or having made an election should Amoco determine to cease purchasing Oil, such action shall not be a waiver of the right to exercise the option at any later time.
Amoco shall not be required to purchase or furnish a market for the Oil. 

        B.    Call on Gas:    

        Amoco
reserves and excepts unto itself, its successors and assigns, the right, but not the obligation to make a bona fide offer to Farmee for the purchase of gas. Farmee shall be under
no obligation to accept said offer from Amoco. 

        C.    Processing Dedication Option:    

        Amoco
reserves and excepts unto itself, its successors and assigns, the following option and right, but not the obligation, to process all gas and casinghead gas ("gas") produced and
saved from said Lease Acreage or allocated to said Lease Acreage. Farmee agrees, at Amoco's sole option on a well by well basis, to dedicate all gas produced from or allocated to the Lease Acreage to
Amoco's Kansas Hugoton Jayhawk Plant ("Plant"), located in Grant County, Kansas. The Parties agree to negotiate in good faith and execute a gas processing agreement covering such dedicated gas. Said
gas processing agreement shall keep Farmee whole on wellhead BTUs less shrinkage from fuel, volume losses, and unaccounted for gas associated with gathering. The Plant shall retain 100% of the
products recovered from Farmee's gas. Additionally, the gas processing agreement shall include other terms and conditions customarily
included in an agreement of this nature and which are consistent with the operation of the Plant. Amoco shall have a period of thirty (30) days from receipt of written notice from Farmee that a
gas well has bean completed, received at Amoco's address in Houston, within which to exercise its right and option but not the obligation to avoid gas or to release its right to process. Amoco's
election shall be given by written notice to Farmee within said thirty (30) day period. Failure to so notify Farmee within the thirty (30) day period shall be deemed an election by Amoco
not to exercise its right. 

        29.    CONFLICTS:    

        Except
as may be specifically provided, if any provision of any Exhibit attached hereto is inconsistent with any provision contained in the body of this Contract, the provisions in the
body of this Contract shall control. 

11

 

 
        30.    ASSIGNABILITY:    

        This
Contract shall be considered personal in nature and is not assignable, in whole or in part, without the prior written consent of Amoco. It is agreed that approval for Farmee to
assign shall not be unreasonably withheld, Provided, however, Farmee is allowed, to enter into farmout arrangements with third parties, consistent with the provisions of this contract, as to Lease
Acreage included in the Exploration Area, covering an area" of up to thirty-six (36) 640 acre governmental sections each, without the prior written consent of Amoco. Additionally,
Farmee is granted the right to assign this Contract, to a majority owned company, provided however that Farmee shall be held strictly liable for said company's performance under this Contract and
Farmee shall be obligated to execute a Guarantee by Farmee of assignee's performance under this Contract. 

        The
letter provided herein as Exhibit "H", is hereby prepared by Amoco and is intended to be provided to potential third party farmees, indicating that FRESCO, Inc, is the farmee of
Amoco's deep acreage in the Exploration Area. 

        31.    DISPUTE RESOLUTION:    

        Should
a dispute arise as to the interpretation of any provision of this Contract, Amoco and Farmee agree to proceed in good faith to attempt resolution of said dispute by following the
procedure set forth in Exhibit "I" to this Contract. 

        32.    TERM:    

        This
Contract shall be in effect, and shall inure to the benefit of the Parties hereto; their successors and assigns, for a term ending December 31, 2005, unless terminated
earlier due to Farmee's failure to perform as specified by this Contract. Upon the termination of this Contract, Farmee, its successors and assigns shall retain all interest in lands previously
assigned, but shall have no right to an assignment of additional acreage by the drilling of a well or wells capable of production. So long as Farmee has met all of its obligations under the terms of
this Contract, Farmee may elect to extend the definitive agreement on an annual basis, until December 31, 2013, by giving written notice to Amoco of its intent annually, not later than
September 1 of each calendar year. 

        33.    SAVING CLAUSE:    

        In
case any one or more of the provisions contained in this Contract shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality,
or unenforceability shall not affect any other provisions of this Contract. In such event this Contract shall be construed, if at 

        34.    FINAL AGREEMENT:    

        This
Contract including Exhibits "A" through "I" is the full and final agreement between the parties hereto and supersedes all prior negotiations and agreements, whether written or oral,
including but not limited to the Letter of Intent between the Parties dated October 28, 1997. The Parties disclaim all oral, written or electronic communications, statements or representations
made prior or subsequent to this Contract except those included in this Contract. This Contract may be amended only by written agreement signed by both Parties. 

        35.    EXECUTION:    

        If
this Contract is not duly executed by Farmee on or before November 21, 1997, then and thereupon, at Amoco's option, this Contract shall be null and void and of no effect. 

12

 

        IN
WITNESS WHEREOF, the parties hereto have executed this Contract as of the day and year first above written. 

					
	 	 	AMOCO PRODUCTION COMPANY
	

 	
 	
 By:	
 	
/s/ JOHN A. HUSTON

  John A. Huston

Attorney-in-Fact
	

 	
 	
PRESCO, INC.
	

 	
 	
 By:	
 	
/s/ DAVID R. WHEELER

 
	 	 	Title:	 	Executive Vice President

 
	 	 	Name:	 	David R. Wheeler

 

ATTEST:

13

 

							
	STATE OF COLORADO	 	)	 	 	 	 
	CITY AND	 	)	 	ss.	 	 
	COUNTY OF DENVER	 	)	 	 	 	 

        The
foregoing instrument was acknowledged before me this            day of November, 1997
by                        , Attorney-In-Fact for AMOCO PRODUCTION COMPANY,
a Delaware Corporation. 

        WITNESS
my hand and official seal. 

			
	 	 	

  Notary Public
	
 My Commission expires:	
 	

 
	  	 	 
	

  	 	 

							
	STATE OF COLORADO	 	)	 	 	 	 
	CITY AND	 	)	 	ss.	 	 
	COUNTY OF DENVER	 	)	 	 	 	 

        The
foregoing instrument was acknowledged before me this    day of                        , 1997
by                        , of PRESCO, INC. 

        WITNESS
my hand and official seal. 

			
	 	 	

  Notary Public
	
 My Commission expires:	
 	

 
	  	 	 
	

  	 	 

14

 

  EXHIBIT "A"—MAP  

15

 
 EXHIBIT "B"  

        Attached to and made a part of that certain Farmout Contract dated November 14, 1997 by and between Amoco Production Company and
PRESCO, Inc.  

	1.
	Interpretive
Imaging Software License including existing database and future license.

	2.
	Binocular
Scope 3, Microfiche

	4.
	Tamran
Readers (ail 3 machines)

	5.
	Hard
copy logs

	6.
	Greenback
Well Files

	7.
	Access
to Amoco's cores and cuttings

	8.
	Digital
well data.

	9.
	All
interpretive maps and cross sections generated by Amoco staff in southwest Kansas.

	10.
	Two
Head SUN Workstation

	11.
	3-D
data; processed, interpreted and raw data. 

16

 
 EXHIBIT "C"  

        Attached to and made a part of that certain Ferment Contract dated November 14, 1997 by and between Amoco Production Company,
"Amoco" and PRESCO, Inc. "PRESCO". 

        AMOCO
PRODUCTION COMPANY GEOLOGICAL

REQUIREMENTS CONCERNING ALL WELL(S)

LOCATED ON THE EXPLORATION AREA 

        PRESCO,
shall give Amoco Production Company ("Amoco") or its authorized representatives access to well(s) and the derrick floor at all times. 

        PRESCO
shall furnish Amoco without cost to Amoco the following reports, data and information: 

        DURING
THE DRILLING OF ANY WELL(S) LOCATED

ON THE EXPLORATION AREA 

        1.     Copies
of the survey plat, governmental forms, and daily drilling or completion reports showing nature of all work done shall be provided. Depth and formations penetrated
shall be telecopied (303) 830-5388 (Attn: Dean Tinsley) or telephoned (303) 830-5141 (Attn: Dean Tinsley) daily beginning the date actual drilling is commenced
and continuing until final completion of the well(s) or plugging and abandonment of same. Also Amoco shall be given sufficient notification prior to any and all drill stem tests, coring, or logging,
so that a company representative can be present during such work if Amoco so desires. Amoco shall also be notified if the well is a dry hole and shall receive copies of the plugging reports. If PRESCO
does not elect to run a drill stem test or core certain intervals that Amoco believes are necessary, Amoco shall have the right, to request PRESCO perform and/or obtain said wireline formation tests,
drill stem tests or sidewall cores before the well is plugged or production casing is set, at its sole cost, risk and expense, 

        2.     PRESCO
agrees to maintain adequate mud to assure good sample returns, good hole conditions for drill stem testing and. logging operations. If applicable, PRESCO shall
have the Mud Engineer run a HT-HP fluid loss test. Amoco shall receive daily copies of the Mud Check reports and any recaps. 

        3.     PRESCO
agrees to have a one (1) man unit mud logger on location for the drilling of Exploration Test Wells unless previously agreed to by Amoco and PRESCO from the
Heebner Shale (Upper Pennsylvanian) to total depth, 

        4.     One
(1) set of dry drilling samples shall be furnished by PRESCO to the Kansas Geological Survey, Sample Library in Wichita Kansas. Samples should be collected
every ten (10) feet Prom the Heebner Shale to rotary total depth. 

        5.     PRESCO
shall furnish to Amoco, at Amoco's expense, slabs of all cores taken to Amoco Production Company, 2980 Huron Street, Denver, Colorado 80202. 

        UPON
COMPLETION OF TILE TEST WELL(S) 

        6.     Copies
of all logs are to be sent to Amoco by Telecopier (303) 830-5300 before any orders are given to plug the well; unless other arrangements have
been made. 

        7.     Three
(3) copies of final prints of the following logs shall be furnished to Amoco for Exploration Test Wells: Compensated Neutron-Formation Density with PE curve
from total depth to Heebner Shale and Dual Induction SFL w/Gamma Ray from total depth to base of surface casing. For wells other than Exploration Test Wells, PRESCO agrees to furnish to Amoco the same
respective number of final prints of all logs which have been run. 

        8.     One (1) copy of survey to determine the deviation of the. hole from the vertical, (if surveys taken). 

17

 

        9.     Two (2), copies of any core analysis and complete reports. 

        10.   Two (2) copies of drill stem test charts and complete reports. 

        11.   One (1) print and one (1) reproducible copy of all velocity
survey data, (if survey conducted). 

        12.   Two (2) copies of any stimulation proposals or job reports. 

        13.   Two (2) copies of any cased hole logs. 

        14.   Two (2) copies of gas oil ratio tests, if any. 

        15.   Two (2) copies of reservoir fluid, gas analysis, or water analysis, if any. 

        16.   Two (2) copies of any open flow potential and shut-in tests; One
(1) copy of any four-point test. 

        17.   Two (2) copies of final geological report as compiled by well site geologist showing detailed lithological and
fluoroscopic examination by depth with porosity, gas chromatograph and drilling rate plots, utilized from Heebner Shale to total depth. 

        18.   Two (2) copies of photoprints of the plugging records required by the governmental office or body having
jurisdiction on the premises, if the well is a dry hole, or, if a well is capable of production, two (2) copies of the report advising the State regulatory body of such fact. 

        Unless
otherwise specifically provided herein, all of the above information shall be furnished to the following address: 

			
	Mailing Address

 
	 	Street Address

 

	Amoco Production Company	 	Amoco Production Company
	P.O. Cox 800	 	1670 Broadway
	Denver, Colorado 80201	 	Denver, Colorado 80201
	Telephone No. (303) 830.6141	 	Attn: Dean Tinsley
	Facsimile: (303) 830-5388	 	 
	Attn: Dean Tinsley	 	 

        IF
PRODUCTION IS OBTAINED 

        19.   Two (2) copies of any subsurface pressure and fluid level tests and productivity index determination, whether by
pressure bomb or sonic sounder. 

        20.   Two (2) copies of each report covering all subsequent workover operations, such as: deepening, acidizing, fracing,
etc., if any. 

        21.   Two (2) copies of each open flow potential or capability test (flawing pressure with rate) and any
shut-in test results, if any. 

        22.   All
Production data and reports shall be mailed to: 

        Production/Engineering
Department

Amoco Production Company

Attn: Dean Tinsley

P.O. Box 800

Denver, Colorado 80201 

18

 
 EXHIBIT "D"  

        Attached to and made a part of that certain Farmout Contract dated November 14, 1997, by and between AMOCO PRODUCTION COMPANY.
"Amoco" and PRESCO, Inc. "PRESCO". 

        ENVIRONMENTAL STIPULATIONS

        PRESCO
shall use, and shall require its contractors, employees and agents to use, environmentally sound materials and practices in its operations on the Exploration Area so as to
minimize or eliminate wastes, hazards and impacts on the environment. These practices include the following: 

	1.
	PRESCO
shall assess the material available for a given purpose and shall select the least toxic option available. This would include, but not be limited to,
materials such as solvents, paints, paint thinners, boiler chemicals, thread compounds, cleaners and mud products. Material Safety Data Sheets for each product provide information to determine its
relative toxicity.

	2.
	Pipe
dope containing lead or zinc shall be applied in such a manner to minimize the total volume required. Low toxicity compounds shall be used on drill
pipe. No muds or pipe dope containing chrome shall be brought onto the Exploration Area.

	3.
	PRESCO
shall participate in a recycling program for all wastes generated where recycling is an economically viable option. This shall include all used oils.,
solvents, drums, etc.

	4.
	PRESCO
shall remove any unused product from the Exploration Area. Unused commercial products shall not be mixed with domestic or oilfield wastes. No waste
materials shall be put in any reserve pits or flare pits except drilling and workover fluids where allowed by law.

	5.
	All
trash shall be removed from the premises and all pits on the drilling location shall be properly closed as soon as practical following the drilling of
any well.

	6.
	PRESCO
shall practice water conservation measures.

	7.
	PRESCO
shall provide dikes, ditches, or other methods of containment for all fuel and oil containers. Any leakage or spillage shall be promptly reported to
the appropriate authorities as required by statute, rule, or regulation, and to the appropriate Amoco representative. PRESCO shall have a Spill Prevention, Control and Countermeasure Plan in effect as
required by the code of Federal Regulations Title 40, Part 112.

	8.
	PRESCO
shall adopt practices for minimization of volume and toxicity of wastes for all waste streams.

	9.
	PRESCO
shall handle and dispose of any and all solid waste., including hazardous waste, as defined in Code of Federal Regulations Title 40, Parts 261.2 and
261.3, resulting from the performance of its operations on the Exploration Area in accordance with all applicable federal, state and local statutes, regulations, ordinances and requirements. The joint
working interest owners if any, shall own all waste generated in connection with PRESCO's operations on the Exploration Area in proportion to each party's interest therein. 

19

 
 EXHIBIT "E"  

        Attached to and made a part of that certain Farmout Contract dated Member 14, 1997, by and between Amoco Production Company, Fanner and
Presco, Inc., Farmee. 

 ASSIGNMENT OF OIL AND GAS LEASE  

							
	STATE OF KANSAS	 	)	 	 
	 	 	 	 	:ss	 	 
	COUNTY OF	 	  

 	 	)	 	 

        KNOW
ALL MEN BY THESE PRESENTS: 

        THAT,
in consideration of the sum of Ten Dollars ($10.00) rind other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, AMOCO PRODUCTION
COMPANY, a Delaware corporation, with an office in the Amoco Building, 1670 Broadway, Denver, Colorado 80202, hereinafter referred to as "Assignor" or "Amoco", hereby does bargain, sell, assign,
transfer and convey unto PRESCO, INC., whose address is P.O. Box 7520, The Woodlands, Texas 77387, its successors and assigns, hereinafter referred to as "Assignee", all of Amoco's
right, title and interest in and In the oil and gas lenses) described on Exhibit "A", attached hereto and by this reference made a part hereof, insofar as said Lease(s) cover the oil and gas mineral
rights in tire land described on Exhibit "A", subject to any depth limitations described on said Exhibit "A", said land being situated in            County, State of Kansas, all other depths,

zones and formations being expressly reserved herein to Amoco, (said lease(s) and land insofar as said leases) coder the nil and gas mineral rights lying in and under said land as to the subsurface
depths assigned hereby are sometimes referred to herein as "Lease Acreage") subject to the following terms, covenants and conditions: 

        1.     The
Lease Acreage covered hereby is assigned by the Assignor and accepted by tine Assignee subject to the overriding royalties, production payments, net profits
obligations, carried working interests and other payments oat of or with respect to production which are of record and with which said Lease Acreage is encumbered; and the Assignee hereby assumes and
agrees to pay, perform or carry, as the case may be, each of said overriding royalties, production payments, net profits obligations, carried working interests and other payments net of or with
respect to production, to the extent that it is or remains a burden on the Lease Acreage herein assigned. 

        2.     The
Assignor hereby excepts and reserves unto itself, its successors or assigns, a proportionate, non-convertable overruling royalty interest equal to the
difference between twenty percent (20.0%) and any existing landowners royalties, overriding royalties and other burdens on production of record as of November 14, 1997, of all oil, distillate,
condensate, liquid hydrocarbons, gas and casinghead gas produced and saved from said Lease Acreage under said lease(s), which shall be delivered free of ail cost and expense, except taxes on
production, at the well or wells on said Lease Acreage or, at the Assignor's option, to the credit of the Assignor into the pipe line to which said well or wells maybe connected; 

        3      With
respect to the overriding royally herein excepted and reserved by the Assignor, the Assignor and the Assignee agree, as follows: 

        (a)   That
said overriding royalty shall extend to any extensions or renewals of said lease(s) which are renewed or extended within one hundred twenty (120) days of
said lease(s)' expiration. 

        (b)   That
oil and gas used in drilling and operations on said Lease Acreage and in the handling of production therefrom shall be deducted before said overriding royalty is
computed. 

20

 

        (c)   That
in the event said lease(s) or interest herein assigned cover less than all the oil and gas mineral rights in and to the land covered by this Assignment, said
overriding royalty as to such lease(s) shall be proportionately reduced. 

        (d)   That
in the event any drilling and spacing unit established by governmental authority for production from the Lease Acreage embraces land in addition to the land covered
by this Assignment, said overriding royalty shall be proportionately reduced so as in be equal to that proportionally of said production which the number of surface acres covered by this Assignment
and placed in said unit bears to the total number of surface acres included in such drilling or spacing unit. 

        4.     Assignee
shall furnish to Assignor authentic itemized monthly reports of all production from or attributable to the Lease Acreage as well as the documented operating
costs incurred in connection with such production. Such reports shall he mailed to Assignor not later than forty five (45) days following the last day of the month following that for which the
reports are made. 

        5.     As
to any wells drilled on said Lease Acreage by the Assignee after the delivery of this assignment, the Assignee shall, prior to the commencement of drilling operations,
give Assignor notice thereof and shall give to Assignor access to said wells and the derrick floor at all reasonable limes, and, upon request of the Assignor, shall furnish to the Assignor welt
samples of all cores and cuttings consecutively taken, unless the Assignor elects to take such samples; and, at the request of the Assignor, the Assignee shall furnish to the Assignor copies of any
electrical well formation surveys made. 

        6.     This
Assignment is matte subject to all the terms and the express and implied covenants and conditions of said leases) to the extent of the rights hereby assigned, which
terms, covenants and conditions the Assignee hereby assumes and agrees to perform with respect to the lands covered hereby. This Assignment is made subject to the terms and provisions of that certain
Farmout Contract dated November 14, 1997 by and between Amoco and Assignee. Said terms, covenants and conditions,' insofar as the said Lease Acreage is concerned, shall be binding on the
Assignee, net only in favor of the lesser or lessors and their heirs, successors and assigns, but also favor of the Assignor and. its successors and assigns. 

        7.     In
the event that the Assignee should elect to surrender, abandon or release all or any of its rights in said Lease Acreage, or any part thereof, the Assignee shall
notify the Assignor not less than thirty (30) days in advance of such surrender, abandonment or release and, if requested by the Assignor, the Assignee immediately Omit reassign such tights in
said Lease Acreage, or such part thereof, to the Assignor. 

        8.     This
assignment is made without warranty of an kind, either express or implied, 

        9.     All
entices, reports and other communications required or permitted hereunder, or desired to be given with respect to the tights or Interests herein assigned nr reserved,
shall be deemed to have properly given or delivered when delivered personally or when sent by certified mail or facsimile, with all postage or charges fully prepaid, and addressed to the Assigner and
Assignee, respectively, as follows: 

			
	Assignor:	 	Amoco Production Company

P.O. Box 800

Denver, Colorado 80201

Attn: Western U. S, Business Unit -Land Manager
	
 Assignee:	
 	
Presco, Inc.

P.O. Box 7520

The Woodlands, Texas 77387

21

 

        10.   The
terms, covenants anti conditions hereof shall he binding upon and shall inure to the benefit of, the Assignor and the Assignee and their respective heirs, successors
or assigns; mitt such terms, covenants and conditions shall be covenants running with the lands herein described and the Lease Acreage herein assigned and with each transfer or assignment of said land
or Lease Acreage. 

        11.   Assignee
shall provide to Amoco three (3) copies of the completion report for each well drilled on the Lease Acreage or land pooled therewith within fifteen
(15) days after it is filed with the applicable state agency. One (1) copy shall be sent to Amoco at P.O. Box 3092, Houston, Texas 77253 to the attention of the Natural Gas
Manager (West); and two (2) copies shall be sent to Amoco at P.O. Box 1100, Denver, Colorado 80201, of which one (I) copy shall be to the attention of Crude Oil Supply Manager,
and of which one (i) copy shall he to the anent inn of Western U. S. Business Unit—Land Manager, 

        Assignee
shall provide to Amoco three (3) copies of the completion report for each well drilled on the Lease Acreage or land pooled therewith within fifteen (15) days niter
it is filed with the applicable stale agency. One (I) copy shall be sent to Amoco at P.O. Box 3092, Houston, Texas 77253 to the attention of the Natural Gas Manager (West); and two
(2) copies shall he sent to Amoco at P.O. Box 800, Denver, Colorado 130201, of which one (1) copy shall be to the attention of Crude Oil Supply Manager, and of which one
(1) copy shall be to the attention of Western U. S. Business Unit Land Manager. 

        Not
longer than thirty (30) days from the completion of a gas well drilled hereunder, Assignee shall notify Amoco in writing that a well has been completed. 

        A.    Call on Oil: 

        Amoco
reserves and excepts unto itself, its successors and assigns, the option and exclusive right at any time, at all times and from time to throe, to purchase nil oil, distillate,
condensate, and other liquid
hydrocarbons, including natural gas liquids produced at any processing facility to the extent that the source gas stream for this liquid production originates from said Lease Acreage, hereinafter
referred to as "Oil", produced and saved from said Lease Acreage or allocated to said Lease Acreage. Within seven (7) days of written notice, by Assignee to Anima, to the attention of the Crude
Oil Supply Manager, at the address set forth above, that Assignee has received it bona fide offer for time purchase of Oil, Amoco shall notify Assignee whether or not it elects to exercise its option
to purchase said Oil. If Amoco elects to exercise its option, payment for any Oil purchased hereunder shall match the terms and pricing included in said bona fide offer. If Amoco does not notify
Assignee within the seven (7) tiny period that it has elected to exercise mid option, it shall be deemed an election to waive this option. If Amoco does not elect to exercise its option to
purchase such Oil as provided above, Assignee may enter into a contract to sell to another party far a term not to exceed one (1) year. Upon the termination of any such sales contract, Assignee
shall give written notice to Amoco and Amoco's right to the above seven (7) day option period. shall be revived. 

        If,
alter exercising Its option, Amoco should thereafter wish to cease purchasing Oil, it may do so upon thirty (30) days advance notice to Assignee. Should Amoco elect not to
exercise its option to purchase Oil, or having made an election should Amoco determine to cease purchasing Oil, such action shall not be a waiver of the right to exercise the option at any later time,
Amoco shall not he required to purchase or furnish a market for the Oil. 

        B.    Call on Gas: 

        Amoco
reserves and excepts unto itself, its successors and assigns; the right, but not the obligation to make a bona fide offer to Assignee for the purchase of gas, Assignee shall be
under no obligation to accept said offer from Amoco. 

22

 

        C.    Call Dedication and Processing: 

        Amoco
reserves and excepts unto itself, its successors and assigns, the following option and right, but not the obligation, to process all gas and casinghead gas ("gas") produced and
saved froth said Lease Acreage or allocated to said Lease Acreage. Assignee agrees, at Amoco's sole option on a well by well basis, to dedicate all gas produced from or allocated to the Lease Acreage
to Amoco's Kansas Hugoton Jayhawk Plant ("Plant"), located in Grant County, Kansas. The Assignor and Assignee agree to negotiate in good faith and execute a gas processing agreement covering such
dedicated gas. Said gas processing agreement shall keep Assignee whole on wellhead BTUs less shrinkage from fuel, volume losses, and unaccounted for gas associated with gathering. The Plant shall
retain 100% of the products recovered tram Assignee's gas. Additionally, the gas processing agreement shall include other terms and
conditions customarily included in an agreement of this nature and which are consistent with the operation of the Plant. Amoco shell have a period of thirty (30) days from receipt of written
notice from Assignee that a gas well has been completed, received at Amoco's address in Houston, within which to exercise its right and option but not the obligation In said gas or to release its
right to process. Amoco's election shall be given by written notice to Assignee within said thirty (30) tiny period. Failure to so notify Assignee within the thirty (30) clay period
shall he deemed an election by Amoco not to exercise its right. 

        12.   Amoco
reserves unto itself, its successors and assigns, the right to use the surface of the Lease Acreage assigned herein to conduct operations in those depths, nines
and formations not assigned herein. 

        13.   In
the event there is no longer a well which is producing gas in commercial quantities on the Lease Acreage, Assignor shall have the right, following one hundred twenty
(120) days after the date of last production on the Lease Acreage, in which to request the immediate reassignment of the Lease Acreage, Assignee agrees to reassign. the Lease Acreage to
Assignor within ten (10) days following receipt o) the reassignment request from Assignor. 

        TO
HAVE AND TO BOLD said Lease Acreage unto the Assignee, his heirs and assigns, subject to the terms, covenants and conditions hereinabove set forth. 

        EXECUTED
this            day of                        , 1997, effective as of
the            day of                        ,
199    . 

					
	 	 	AMOCO PRODUCTION COMPANY
	

 	
 	
By	
 	

  
	 	 	 	 	Its Attorney-in-Fact

							
	STATE OF COLORADO	 	 	 	)	 	 
	CITY AND	 	 	 	:ss	 	 
	COUNTY OF DENVER	 	 	 	)	 	 

        The
foregoing instrument was acknowledged before me this            day
of                        , 19            ,
by                        , Attorney-In-Fact for AMOCO
PRODUCTION COMPANY, a Delaware corporation. 

        WITNESS
my hand and official seal. 

My
Commission expires: 

			
	

  	 	

  
	 	 	Notary Public

1670 Broadway

Denver, Colorado 80202

23

 

  EXHIBIT "F"  

Attached
to and made a part of that certain Femora Contract dated November 14, 1997, by and between Amoco Production Company and FRESCO, Inc. 

									
	STATE OF	 	 	 	)	 	 	 	 
	 	 	

  	 	 	 	 	 	 
	 	 	 	 	: ss.	 	 
	COUNTY OF	 	 	 	)	 	 	 	 
	 	 	

  	 	 	 	 	 	 

 OIL AND GAS LEASE  

        THIS AGREEMENT, made and entered INTO and
effective                        , 19    , by and between AMOCO PRODUCTION COMPANY, a
Delaware corporation, whose mailing address is P.O. Box 800, Denver, Colorado 80201, hereinafter referred to as "Lessor," and 

			
	whose mailing address is	 	 
	 	 	

  
	

  
	hereinafter referred to as "Lessee";

        WITNESSETH,
that the said Lessor for and in consideration of the sum of Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and of the covenants and agreements hereinafter contained on the pert of Lessee to be paid, kept and performed, has granted, demised, leased and let and, by these presents hereby does
grant, demise; !ease and let, unto Lessee, for the purpose of investigating. exploring, prospecting, drilling, and mining for arid producing oil and/or gas, laying pipelines and building tanks, roads,
power stations and other structures thereon necessary to produce, save, store and collect such products, the oil and gas mineral
rights lying in and under the following described tract of land situated in                        County, State of Kansas, to
wit: 

from
the surface thereof to, but not below, the base of the St. Louis formation, said lands to the depth above specified being hereinafter referred to as the "lease acreage," subject to the following
provisions 

        1.     PRIMARY TERM: This lease shall remain In force for a primary term of one (1) year from the effective dale hereof,
and as long thereafter as nit or gas shall be produced and saved front the lease acreage, or drilling or reworking operations me conducted thereon without cessation of more than thirty
(30) days. 

        2.     REQUIRED WELL: Before the expiration of the primary term, Lessee shall commence actual drilling operations at a location
approved by Lesser on the tense acreage or on acreage pooled therewith. Thereafter Lessee shall prosecute the drilling of said well diligently, in a workmanlike manner without unnecessary delay to a
depth of 5600' feet from the surface or to a depth sufficient to test the St. Louis formation whichever is the lesser depth, Lessee shall complete said well with due diligence. 

        3.     RELEASE OF LEASE: At the end of the primary term, Lessee shall execute end record a release of this lease insofar as it
corers any part of the lease acreage not included in the spacing unit for the well mentioned in the preceding paragraph, if not spaced by the governmental authority having jurisdiction, said spacing
unit shall be deemed in be 640 acres for gas and 160 acres for oil. 

24

 

        4.     ROYALTIES: Lessee shall pay Lessor royalties as fellows, to wit: 

        (a)   Seven
and one-half percent of eight-eighths (71/2% of 8/8ths) of the proceeds of the sale or if no sale, of the market value, at the well, of
all gas and casinghead gas produced and saved front the lease acreage, which shall be paid to the Lessor free of all cost and expense, except taxes on production; 

        (b)   Seven
and one-half percent of eight-eighths (71/2% of 8/8ths) of all oil, condensate, distillate and other liquid hydrocarbons produced and
saved from the lease acreage which shall be delivered free of all cost and expense, except taxes on production. at the well or wells out said lease
acreage or, at the Lessor's option, to the credit of the Lessor into the pipeline to which said well or wells may be connected; 

        5.     POOLING: Lessee is hereby authorized to pool and combine the lease acreage with other leases and lands, or interests
therein, so as to form a consolidated unit, as prescribed by appropriate governmental authority, butt, in the event said lease acreage shall be pooled and unitized by Lessee with other leases
and lands, or interests therein, so as to form a consolidated unit, a proportionate past of all production from sold consolidated unit, without regard to the location of the well or wells
within said consolidated unit from which produced, equal to that proportionate part thereof which the aggregate number of surface news in said lease acreage bears to the aggregate number of surface
ages in all of said consolidated unit, shall he treated as though produced in its entirety from said lease nonage; and the royalties hereinabove specified shall be applicable to, end shall constitute
a burden against, such proportionate part of said production flan said consolidated trait. 

        6.     SHUT-IN PAYMENTS: While there is a well on this lease or on acreage pooled therewith, which well is capable of
producing only gas, gas condensate, or some combination of gas and gas condensate, bet from which production is not be sold or used, this lease shall be extended for a period of one year
(1 year) from the date such well is shut-in, and the Lessee may tender or pay annually as royalty the sum of One Dollar ($l.00) for tack net mineral acre covered hereby, payment or
tender of such royalty may be made by check or draft of Lessee mailed or delivered to Lessor, with the first payment to be made on or before one year (1 year) from and after the date on which
such well is shut-in, and a similar payment to be made annually thereafter on or before the anniversary date on which such well is shut-in, and if such payments are so made, it
shall be considered that gas, gas condensate, or it combination of gas and gas condensate is being produced in paying quantities from the above described land under all the terms, conditions and
limitation of this lease. 

        7.     LESSER INTEREST: If Lessor owns a lesser interest in the lease acreage than the entire and undivided fee simple estate
therein, then, all royalties herein provided shall be paid Lessor only In the proportion which its interest beers to the whole and undivided fee. 

        8.     WELL INFORMATION: Lessee shall furnish Lessor the information and data described on and shall otherwise comply with the
provisions of, the Geological Requirements attached as Exhibit "A" and made a part hereof. 

        9.     SURFACE RIGHTS: When requested by the surface owner, or by a lessee of the surface owner, Lessee shall bury its pipelines
below plow depth. No well shall be drilled nearer than two hundred (200) feet to the house or barn now on the lease acreage, without the written consent of the surface owner. Lessee shall pay
for damages to the surface of said land caused by its operations, insofar as Lessor has the right to grant such privilege, Lessee shall have the right at any lime during the term of this lease and for
six (6) months thereafter In remove all machinery and fixtures placed on said lease acreage, including the right to draw and remove casing. 

        10.   INDEMNITY: Lessee shall assume full responsibility for the lease acreage and shall protect, defend, indemnify and hold
Lessor, its employees and agents harmless from and against any and all losses, claims, demands, suits, causes of action, including attorney's fees and expense of litigation, 

25

 

including
claims for pollution and environmental damage, any fines or penalties assessed on account of' such damage, and causes of action alleging statutory liability, caused by, arising ant of, or in
any way incidental to operations conducted on the lease acreage by Lessee or its agents, assignees or contractors, which obligations shell survive the termination dads lease. 

        11.   ASSIGNABILITY: Lessee shall not assign this lease or any interest therein without the written consent of Lessor. The
covenants hereof shall extend to the respective successors or assigns of Lessor and Lessee, but no change in the ownership of the land or assignment of royalties shall be binding on Lessee antic after
Lessee has been furnished with n true copy thereof. 

        12.   NO WARRANTY: This lease is executed and delivered by Lessor, and said lease is accepted by Lessee, without warranty of
title, express or implied. 

        13.   EFFECT OF LEASE: The terms and provisions of this lease shell be binding upon, and shall inure to the benefit of, Lessor,
and lessee end their respective heirs, successors and assigns. 

        14.   Other
Provisions: 

        IN
WITNESSETH WHEREOF, this instrument is executed as of the day and year first above written. 

					
	 	 	AMOCO PRODUCTION COMPANY
	

 	
 	
By	
 	

 
	 	 	 	 	

  Its Attorney-in-Fact

							
	STATE OF COLORADO	 	)	 	 	 	 
	CITY AND	 	:ss	 	 
	COUNTY OF DENVER	 	)	 	 	 	 

        The
foregoing instrument was acknowledged before me this            day
of                        , 19    ,
by                        , Attorney-In-Fact for AMOCO
PRODUCTION COMPANY, a Delaware corporation. 

        WITNESS
my hand and official seal. 

My
Commission expires: 

			
	 	 	 
	

  	 	

  Notary Public

26

 
 EXHIBIT "G"  

Attached
to and made a part of that certain Farmout Contract dated November 14, 1997 by and between Amoco Production. Company, Farmer and PRESCO, Inc., Farmee. 

 Wellsite Damages  

Your
Southwest Kansas Royalty Owners Association Board of Directors has adopted the following resolution to use as a guideline for its members in negotiating for settlement of wellsite and surface
damages: 

RESOLUTION  

BE
IT RESOLVED, that the Southwest Kansas Royalty Owners Association, acting by and through its Board of Directors, recommends to its members the following guidelines in settling for wellsite
damages: 

	(1)
	From
$1,500 to $3,000 for pasture land, including surface damages

	(2)
	From
$2,000 to $4,000 for dry land, including surface damages

	(3)
	From
$3,000 to $5,000 for irrigated land, including surface damages 

BE
IT FURTHER RESOLVED, that the following factors be considered in arriving at surface damages: 

	(1)
	Location
of well

	(2)
	Weather
conditions

	(3)
	Depth
of well

	(4)
	Type
of soil, it.e., subject to wind and/or water erosion

	(5)
	Amount
of acreage used in drilling well, including roadway and pipeline

	(6)
	Cattle
guards on pasture land

	(7)
	Fencing
wellsite from livestock

	(8)
	Reseeding
of grass 

BE
IT FURTHER RESOLVED, that consideration be given by the lessee in selecting a well location in such a manner as to preserve archeological sites. 

PASSED
AND ADOPTED this 17th day of December, 1966, by the Board of Directors of the Southwest Kansas Royalty Owners Association. 

					
	 	 	/s/	 	Robert Larrabee

 
	 	 	 	 	President

Attest:

					
	/s/	 	S. E. Nordling

 	 	 
	 	 	Secretary

	 	 

27

 
 Exhibit H  

Attached
to and made a part of that certain Farmout Contract dated November 14, 1997 by and between Amoco Production Company as Farmor and PRESCO, Inc. as Farmee. 

November 14,
1997 

To
whom it may concern: 

Amoco
Production Company "Amoco" has entered into a Farmout Agreement with PRESCO, Inc. "PRESCO" covering all of Amoco's right title and interest, below the base of the Heebner formation in And
to lands in Stanton, Morton, Grant, Stevens, Kearny, Finney, Haskell, Hamilton and Seward Counties, Kansas. FRESCO is hereby granted the right to farmout and/or lease the oil, gas and mineral rights
owned by Amoco of record in said counties, to third parties subject to the terms and conditions of that certain Farmout Contract dated November 14, 1997, 

Very
truly yours, 

John
A. Huston

Attorney-in-Fact 

28

 
 EXHIBIT "I"  

Attached
to and made a part of that certain Farmout Contract dated November 14, 1997, by and between Amoco Production Company and PRESCO, Inc. 

DISPUTE RESOLUTION PROCEDURE  

In
the event the Parties have a dispute pertaining to any matter set forth in this Contract, or with respect to the interpretation of this Contract, the Parties agree that as a precondition to either
Party being able to institute any judicial or administrative proceeding with respect to any such dispute, the Parties will attempt to resolve the dispute by the following dispute resolution procedure
or a modified procedure agreed to by both parties in a particular instance: 

        1.     If
the Parties are unable to agree through tine personnel directly involved, either Party may invoke this dispute resolution procedure by giving written notice to the
other, designating an executive officer with appropriate authority to be its representative in negotiations regarding the dispute. Upon receipt of this notice, the receiving Party shall, within five
(5) business days, designate an executive officer with similar authority to be its representative. The designated executive officers shall, following whatever investigation each deems
appropriate, promptly enter into discussions concerning the dispute. If the dispute is not resolved as a result of such discussions, either Party may request the commencement of good faith
negotiations with respect to a procedure for dealing with the dispute through means other than litigation, Upon such request, counsel for the Parties shall promptly communicate concerning the
following and other related subjects: 

	(a)
	The
mode of further proceeding (for example, but not limited to, a formal, non-binding mini-trial before a panel composed of
executive officers. of each of the Parties, with or without an independent neutral chairman, advisor, or arbitrator.)

	(b)
	A.
procedure and schedule for exchange of documents and other information related to the dispute.

	(c)
	Ground
rules and a schedule for the conduct of the selected mode of proceeding.

	(d)
	Selection
and compensation of the neutral chairman, advisor, or arbitrator (if any). 

        2.     Following
the conclusion of any agreed upon formal procedure and a receipt of the input of the neutral chairman, advisor, or arbitrator (if any), the Parties shall
continue direct contacts at the executive management level and continue to attempt to resolve the dispute. 

Either
Party may terminate the dispute resolution procedure at any time by written notice to the other after the initial good faith discussions between their designated executive officers. 

29

QuickLinks

Exhibit 10.2

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