Current Report Filing (8-k)

Share Name	Share Symbol	Market	Type
Baron Energy Inc (CE)	USOTC:BROE	OTCMarkets	Common Stock

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (date of earliest event reported): August 1, 2014 Commission File Number 333-146627 BARON ENERGY, INC. (Exact name of registrant as specified in its charter) NEVADA 26-0582528 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 300 S.C.M. Allen Parkway Suite 400 San Marcos, TX 78666 (Address of principal executive offices) (Zip Code) (512) 392-5775 Registrant's telephone number, including area code Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: None Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions. [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT On July 28, 2014, simultaneously with the consummation of the Asset Acquisition described in Item 2.01 below, we entered into a Credit Agreement with Petro Capital Energy Credit, LLC ("Petro") to secure funding by means of a credit facility arrangement wherein Petro would act as the administrative agent for various lenders (the "Lenders") who will provide term loans to the Company's wholly-owned subsidiary, Baron Production LLC ("Baron Production"), in the maximum aggregate amount of $5,150,000, such loans to be secured by oil and gas properties including interests in 1.) various oil and gas leases in Taylor County, Texas known as the Shaffer Leases transferred concurrently to Baron Production by us; 2.) various oil and gas leases in Frio County and LaSalle County, Texas acquired pursuant to the contemporaneous Purchase and Sale Agreement described in Item 2.01 below between Ricochet Energy, Inc., a Texas corporation, for itself and as limited agent for the other sellers specified therein, and us (the "Ricochet Properties"), which Purchase and Sale Agreement was concurrently assigned to and assumed by Baron Production; and 3.) other assets owned by us and Baron Production. We, as parent of Baron Production, executed guarantees for the loans and a granted to Petro a security interest in our 100% ownership interest in Baron Production. As further inducement to Petro to enter into the Credit Agreement, Baron Production assigned a thirty-six month, limited-term 2% overriding royalty interest in the Shaffer Leases and the Ricochet Properties; we also issued Warrants to Petro for the benefit of the Lenders to purchase shares of our Common Stock for $0.0175 per share equal to 5% of our outstanding Common Stock on a fully diluted basis. Concurrent with the consummation of the Credit Agreement, on July 28, 2014, Baron Production entered into certain volume production agreements including a Purchase and Sale Agreement, Production and Marketing Agreement, and Conveyance of Term Overriding Royalty Interest with PCEC Sub 1, LLC ("PCEC"), an affiliate of Petro, wherein PCEC acquired term overriding royalty interests in and production from the Shaffer Leases and Ricochet Properties in consideration for payment to Baron Production of $6,100,000 (the "VPP"). The VPP is limited to oil production from well bores existing as of July 28, 2014. We, as parent of Baron Production, executed guarantees to PCEC to guarantee Baron Production's performance of its obligations under the Purchase and Sale Agreement, Production and Marketing Agreement and the Conveyance of Term Overriding Royalty Interest. ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS Effective May 29, 2014, we entered into a Purchase and Sale Agreement with Ricochet Energy, Inc., a Texas corporation, and other third-party sellers specified therein (collectively, "Ricochet') to acquire all of Ricochet's right, title and interest in certain oil and gas leasehold interests, record title interests, operating rights interests, fee interests, mineral interests and overriding royalty and other related oil and gas interests in Frio and LaSalle County, Texas (the "Ricochet Agreement"). On July 28, 2014 we assigned all of our rights, title, and interest in the Ricochet Agreement to Baron Production. Baron Production consummated the Ricochet Agreement concurrently with the financing and other transactions described in Item 1.01 above, whereby it acquired working interests ranging from 89.10% to 100% in 8,060 gross acres, 14 producing wells, and 1 salt-water disposal well, with current gross production of 204 barrels of oil and 180 million cubic feet of gas per day, for the purchase price of $7,720,743, subject to certain adjustments. ITEM 2.03 CREATION OF A DIRECT FINANCIAL OBLIGATION OR AN OBLIGATION UNDER AN OFF-BALANCE SHEET ARRANGEMENT On July 28, 2014, our wholly-owned subsidiary, Baron Production LLC ("Baron Production"), entered into a credit facility agreement described in Item 1.01 above, which description is incorporated by reference into this Item 2.03. The obligations of Baron Production are secured by certain oil and gas interests and other assets owned by us and Baron Production and subject to guarantees by us as described in Item 1.01 above. 2 Concurrent with the consummation of the Credit Agreement, on July 28, 2014, Baron Production entered into certain volume production agreements including a Purchase and Sale Agreement, Production and Marketing Agreement, and Conveyance of Term Overriding Royalty Interest with PCEC Sub 1, LLC ("PCEC"), an affiliate of Petro, wherein PCEC acquired term overriding royalty interests in and production from the Shaffer Leases and Ricochet Properties in consideration for payment to Baron Production of $6,100,000 (the "VPP"). The VPP is limited to oil production from well bores existing as of July 28, 2014. We, as parent of Baron Production, executed guarantees to PCEC to guarantee Baron Production's performance of its obligations under the Purchase and Sale Agreement, Production and Marketing Agreement and the Conveyance of Term Overriding Royalty Interest. ITEM 3.02 UNREGISTERED SALES OF EQUITY SECURITIES As further inducement to Petro to enter into the Credit Agreement described in Item 1.01 above, on July 28, 2014 we issued Warrants to Petro for the benefit of the Lenders to purchase shares of our Common Stock for $0.0175 per share equal to 5% of our outstanding Common Stock on a fully-diluted basis. Said Warrants expire five years from issuance. We have also granted "piggyback" registration rights on the shares issuable under the Warrants, such shares to be included in any registration statement filed by the Company with the Securities and Exchange Commission to register shares of its securities. The Warrants were issued pursuant to the exemption provided by Section 4(2) of the Securities Act for transactions by an issuer not involving a public offering. The recipients of our securities are "accredited investors" and acquired the securities for investment purposes only without a view to distribution. Furthermore, the investors had access to information concerning us and our business prospects; there was no general solicitation or advertising for such acquisition of our securities; and the securities are restricted pursuant to Rule 144. ITEM 5.03 AMENDMENTS TO ARTICLES OF INCORPORATION OR BYLAWS; CHANGE IN FISCAL YEAR By authority granted to the Board of Directors of the Registrant by its Articles of Incorporation, the Registrant filed a Certificate of Designation effective July 24, 2014, with the Nevada Secretary of State, establishing a series of Preferred Stock designated as "Series A Convertible Preferred Stock" consisting of 7,000,000 shares and having a stated value of $1.00 per share with the relative rights and preferences as set forth in such Certificate of Designation. Shareholder approval was not required to establish or file the Certificate of Designation to designate the Series A Convertible Preferred Stock under the Articles of Incorporation and Nevada statutory law. ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS (d) Exhibits Exhibit No. Description ----------- ----------- 3.3 Certificate of Designation of Series A Convertible Preferred Shares filed with the Nevada Secretary of State on July 24, 2014 4.1 Warrant Agreement dated July 28, 2014 by and between Petro Capital Energy Credit, LLC and Baron Energy, Inc. 4.2 Registration Rights Agreement dated July 28, 2014 by and between Baron Energy, Inc. and Petro Capital Energy Credit, LLC 10.75 Credit Agreement dated July 28, 2014 by and between Baron Energy, Inc., Baron Production LLC, and Petro Capital Energy Credit, LLC 10.76 Note dated July 28, 2014 from Baron Production LLC to Petro Capital Energy Credit, LLC 10.77 Deed of Trust, Assignment of As-Extracted Collateral, Security Agreement, Fixture Filing and Financing Statement dated July 28, 2014 granted by Baron Production LLC in favor of PCEC-B, LLC 10.78 Second Lien Deed of Trust, Assignment of As-Extracted Collateral, Security Agreement, Fixture Filing and Financing Statement dated July 28, 2014 granted by Baron Production LLC to PCEC-B, LLC 10.79 Purchase and Sale Agreement dated May 29, 2014 by and between Baron Energy, Inc. and Ricochet Energy, Inc., et al 10.80 Purchase and Sale Agreement dated July 28, 2014 by and between Baron Production LLC and PCEC Sub 1 LLC 10.81 Production and Marketing Agreement dated July 28, 2014 by and between Baron Production LLC and PCEC Sub 1, LLC 10.82 Conveyance of Term Overriding Royalty Interest dated July 28, 2014 from Baron Production LLC to PCEC Sub 1, LLC 3 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. BARON ENERGY, INC. Date: August 1, 2014 By: /s/ Ronnie L. Steinocher ----------------------------------------- Name: Ronnie L. Steinocher Title: President and Chief Executive Officer 4

Exhibit 3.3 ROSS MILLER Document Number Secretary of State 20140531170-14 206 North Carson Street, Ste 1 Filing Date and Time Carson City, Nevada 89701-4299 07/24/2014 1:00 PM (775) 684 5708 Entity Number Website: www.nvsos.gov E0518912007-5 Filed in the office of /s/ Ross Miller CERTIFICATE OF DESIGNATION Ross Miller (PURSUANT TO NRS 78.1955) Secretary of State State of Nevada ABOVE SPACE IS FOR OFFICE USE ONLY CERTIFICATE OF DESIGNATION FOR NEVADA PROFIT CORPORATIONS (PURSUANT TO NRS 78.1955) 1. Name of corporation: Baron Energy, Inc. 2. By resolution of the board of directors pursuant to a provision in the articles of incorporation this certificate establishes the following regarding the voting powers, designations, preferences, limitations, restrictions and relative rights of the following class or series of stock. Certificate of Designation of Series A Convertible Preferred Shares is annexed hereto as Exhibit A. 3. Effective date of filing: (optional) (must not be later than 90 days after the certificate is filed) 4. Signature: (required) X /s/ Lisa P. Hamilton ------------------------------- SIGNATURE OF OFFICER FILING FEE: $175.00 IMPORTANT: Failure to include any of the above information and submit with the proper fees may cause this filing to be rejected. THIS FORM MUST BE ACCOMPANIED BY APPROPRIATE FEES. EXHIBIT A BARON ENERGY, INC. CERTIFICATE OF DESIGNATION OF SERIES A CONVERTIBLE PREFERRED SHARES The undersigned DOES HEREBY CERTIFY that the following resolution was duly adopted by the Board of Directors of Baron Energy, Inc., a Nevada Corporation (hereinafter called the "COMPANY"): RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors (hereinafter called the "BOARD OF DIRECTORS" or the "BOARD") of the Company in accordance with the provisions of the Amended and Restated Articles of Incorporation (the "CHARTER") of the Company, the Board of Directors hereby creates a series of Preferred Stock, par value $0.001 per share (the "PREFERRED STOCK") of the Company and hereby states the designation and number of shares, and fixes the relative rights, preferences and limitations thereof as follows: 1. NAME AND DESIGNATION. The distinctive name and serial designation of this series of Preferred Stock is "Series A Convertible Preferred Stock" (the "SERIES A PREFERRED SHARES"). 2. NUMBER OF SHARES AND STATED VALUE. The Series A Preferred Shares shall consist of seven million (7,000,000) shares. The stated value of such Series A Preferred Shares shall be one dollar ($1.00) per share. The number of shares constituting such series may, unless prohibited by the Articles of Incorporation or by applicable law of the State of Nevada, be increased or decreased from time to time by a resolution or resolutions of the Board of Directors, provided, that no decrease shall reduce the number of Series A Preferred Shares to a number less than the number of shares then outstanding plus the number of shares issuable upon the exercise of outstanding options, rights, or warrants, or upon the conversion of any outstanding securities issued by the Company convertible into Series A Preferred Shares. Series A Preferred Shares repurchased or redeemed by the Company or surrendered for conversion shall be canceled and shall revert to authorized but unissued shares of Preferred Stock, undesignated as to series, subject to reissuance by the Company as shares of Preferred Stock of any one or more series other than the Series A Preferred Shares. 3 DIVIDENDS. (a) The holders of the Series A Preferred Shares shall be entitled to receive cumulative stock dividends of Series A Preferred Shares at the rate of twelve and one half percent (12.5%) per year (one dividend share per 8 shares of Series A Preferred Shares per year), accrued monthly and issued annually on the first day of the month following the end of each calendar year (December 31) of each year in preference and priority to any payment of any dividend on the common stock. Such dividends shall accrue on any given share from the day of original issuance of such share and shall accrue from month to month whether or not earned or declared. Stock Dividends will be due and issued only if and when declared by the Board of Directors. If at any time dividends on the outstanding Series A Preferred Shares at the rate set forth above shall not have been paid or declared and set apart for issue with respect to all preceding periods, the amount of the deficiency shall be fully paid or declared and set apart for payment, but without interest, before any distribution, whether by way of dividend or otherwise, shall be declared or paid upon or set apart for the common stock of the Company. (b) Any dividend issued on a dividend payment date shall be paid in the form of Series A Preferred Shares. (c) Nothing contained herein shall be deemed to establish or require any payment or other charges in excess of the maximum permitted by applicable law. In the event that any payment required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Company, the holder and thus refunded to the Company. 1 4. LIQUIDATION PREFERENCE; REDEMPTION. (a) In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the holders of the Series A Preferred Shares shall be entitled to receive, prior and in preference to any distribution of any assets of the Company to the holders of the common stock, the amount of $1.00 per share plus $1.00 per share on any and all accrued but unpaid stock dividends (the "Liquidation Preference"). (b) A consolidation or merger of the Company with or into any other corporation or corporations, or a sale, for consideration of assets other than cash, of all or substantially all of the assets of the Company shall not be deemed a liquidation, dissolution or winding up within the meaning of this Section 4. (c) In the event of a change in control of the Company, the Company shall have the right to redeem any or all of the shares of Series A Preferred Shares after a sixty day notice upon payment in cash of the Liquidation Preference to the holders thereof. Holders of the Series A Preferred Shares shall have the right to convert the Series A Preferred Shares to common stock at the rate of ten shares of common stock for each share of preferred stock during the sixty day period. (d) For the purposes hereof, a "Change of Control Transaction" means the occurrence of any of: (i) a replacement of more than one-half of the members of the Company's Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the date hereof (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the date hereof), (ii) the merger of the Company with or into another entity that is not wholly owned by the Company, consolidation or sale of all or substantially all of the assets of the Company in one or a series of related transactions, or (iii) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth above in (i) or (ii). (e) At any time after five years from issuance, the Company shall have the right to redeem any or all of the shares of Series A Preferred Shares after a sixty day notice upon payment in cash of the Liquidation Preference to the holders thereof. Holders of the Series A Preferred Shares shall have the right to convert the Series A Preferred Shares to common stock at a 25% discount to the previous 20 days average closing bid price of .001 par value common shares in exchange for the $1.00 stated value of their Series A Preferred shares during the sixty day notice period. 5. CONVERSION TO COMMON STOCK. (a) Series A Preferred Shares shall be convertible at the option of the holder to the Company's .001 par value common stock at a 25% discount to the previous 20 days average closing bid price of common shares at any time a cash dividend is declared on the .001 par value common stock or, at a 25% discount to the previous 20 days average closing bid price of common shares at any time after one year from issuance at the option of the Holder in exchange for the $1.00 stated value of their Series A Preferred shares. The minimum allowable conversion price is $.10 per share. With respect to any cash dividend declared by the Company on its .001 par value common stock, the Company shall provide the Holders of the Series A Preferred Shares with a minimum of thirty days notice prior to the record date for any cash dividend declared by the Company on its .001 par value common stock. (b) The Company has the option to require the Holders of all or any part of the Series A Preferred Shares to convert to the Company's .001 par value common stock at any time after one year from issuance, provided that the closing bid price of the Company's .001 par value common stock (or the pro-rata equivalent thereof taking into effect any future stock exchange, split, reversal, etc.) in any public market or exchange, including the OTC bulletin board or pink sheets, shall have been the equivalent of $.25 or greater for the 20 days prior to the Company's exercising of its option to require conversion of the Series A Preferred Shares to the Company's .001 par value common stock. In the event the Company elected to exercise its right to force conversion, Holders of the Series A preferred shares would receive .001 par value common shares in exchange for the $1.00 stated value of their Series A Preferred shares at a 25% discount to the previous 20 days average closing bid price of the common shares. 2 6. VOTING RIGHTS. In the event, and only in the event, that a declared stock dividend is in arrears for more than 60 days from the date of scheduled issue, the Series A Preferred Shares shall have the right to vote together with the holders of the Company's common stock, on a four votes per preferred share basis (and not as a separate class), on all matters presented to the holders of the common stock. 7. ATTORNEYS' FEES. Any holder of Series A Preferred Shares shall be entitled to recover from the Company the reasonable attorneys' fees and expenses incurred by such holder in connection with enforcement by such holder of any obligation of the Company hereunder. 8. ADDITIONAL RESTRICTIONS. For as long as any shares of the Series A Preferred Shares are outstanding, the Company will not amend the terms of the Series A Preferred Shares without the consent of the holders of the Series A Preferred Shares. 9. REACQUIRED SHARES. Any Series A Preferred Shares purchased or otherwise acquired by the Company in any manner whatsoever shall constitute authorized but unissued Preferred Shares and may be reissued as part of the new series of the Preferred Stock by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein, in the Articles of Incorporation, or in any other Certificate of Designation, Preferences, and Rights creating a series of Preferred Stock or as otherwise required by law. 10. CONSOLIDATION, MERGER, EXCHANGE, ETC. In case the Company shall enter into any consolidation, merger, combination, statutory share exchange, or other transaction in which the common stock is exchanged for or changed into other stock or securities, money, and/or any other property, then in any such case the Series A Preferred Shares shall at the same time be similarly exchanged or changed into an amount per share (subject to the provision for adjustment hereinafter set forth) equal to one hundred times the aggregate amount of stock, securities, money, and/or any other property (payable in kind), as the case may be, into which or for which each share of common stock is changed or exchanged. In the event the Company shall at any time after the consummation of the transactions contemplated by the Transaction Agreement, declare or pay any dividend on common stock shares payable in common stock, or effect a subdivision or combination or consolidation of the outstanding common stock (by reclassification or otherwise) into a greater or lesser number of shares of common stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of Series A Preferred Shares shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of common stock outstanding immediately after such event, and the denominator of which is the number of shares of common stock that were outstanding immediately prior to such event. 11. RANK. The Series A Preferred Shares shall rank senior in terms of dividend and liquidation, dissolution, and winding up rights to all other series of the Company's Preferred Stock hereafter issued. 12. FRACTIONAL SHARES. Series A Preferred Shares may be issued in fractions of a share that shall entitle the holder, in proportion to such holder's fractional shares, to receive dividends, participate in distributions, and to have the benefit of all other rights of holders of Series A Preferred Shares. 13. NO ADVERSE ACTIONS. The Company shall not in any manner, whether by amendment of the Certificate of Incorporation (including, without limitation, any Certificate of Designation), merger, reorganization, recapitalization, consolidation, sales of assets, sale of stock, tender offer, dissolution or otherwise, take any action, or permit any 3 action to be taken, solely or primarily for the purpose of increasing the value of any class of stock of the Company if the effect of such action is to reduce the value or security of the Series A Preferred Shares. IN WITNESS WHEREOF, Baron Energy, Inc. has caused this certificate to be signed by Ronnie L. Steinocher, its Chief Executive Officer, and attested to by Lisa Hamilton, its Corporate Secretary, effective as of the 13th day of July, 2014. BARON ENERGY, INC. By: /s/ Ronnie L. Steinocher --------------------------------------------- Ronnie L. Steinocher, Chief Executive Officer Attested /s/ Lisa P. Hamilton ------------------------------------ Lisa Hamilton, Corporate Secretary 4

Exhibit 4.1 WARRANT AGREEMENT THIS WARRANT AGREEMENT, dated as of July 28, 2014, by and between PETRO CAPITAL ENERGY CREDIT, LLC, AS ADMINISTRATIVE AGENT FOR THE LENDERS REFERRED TO BELOW (the "Purchaser" or "Administrative Agent"), and BARON ENERGY, INC., a Nevada corporation (the "Company"). Capitalized terms used herein shall have the meanings given to such terms in Section IV(A) hereof. WHEREAS, pursuant to and subject to the terms and conditions of that certain Credit Agreement, dated as of the date hereof (as amended, restated, supplemented or modified from time to time, the "Credit Agreement"), by and among the Company, Baron Production LLC, a wholly owned subsidiary of the Company ("BP"), the lenders party thereto (the "Lenders"), and the Administrative Agent,, the Lenders are making loans to BP the aggregate sum of $5,000,000 (the "Loans"); WHEREAS, the Company will directly and indirectly benefit from the Loans to BP; WHEREAS, the Purchaser is acquiring from the Company a Common Stock Purchase Warrant in the form attached as Exhibit A hereto (the "Warrant"), representing the right to purchase from the Company 5,675,204 Warrant Shares (as adjusted from time to time pursuant to the provisions of the Warrant) on the terms and conditions set forth in the Warrant; and WHEREAS, the Warrant is being issued as an inducement and partial consideration for the Lenders to enter into the Credit Agreement and to make the Loans to BP, and without such issuance, the Purchaser will not enter into the Credit Agreement. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: I. EXERCISE PRICE AND CLOSING. A. EXERCISE PRICE. The exercise price of each $.001 par value Warrant Share purchased under the Warrant shall be $0.0175 per share. B. CLOSING. The closing of the issuance of the Warrant to the Purchaser (the "Closing") shall take place simultaneously with the closing pursuant to the Credit Agreement. The date of such Closing is hereinafter referred to as the "Closing Date." C. TRANSACTIONS ON CLOSING DATE. At the Closing, the Company shall deliver to the Purchaser the duly issued Warrant. II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to, and covenants with, the Purchaser as follows: A. GOOD STANDING. The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Nevada. B. AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has all requisite corporate power and authority and the legal right to enter into and perform its obligations under this Agreement and to issue and deliver the Warrant to the Purchaser. The execution, delivery, and performance by the Company of its obligations under this Agreement, including the issuance and delivery of the Warrant and the Warrant Shares to the Purchaser, have been duly authorized by all necessary corporate action on the part of the Company. This Agreement has been duly executed and delivered by the Company and (assuming due execution and delivery by the Purchaser) is a legal, valid, and binding obligation of the Company and is enforceable against the Company in accordance with its terms. 1 C. NO CONFLICT OR VIOLATION. The execution and delivery of this Agreement by the Company, the performance by the Company of its terms and the issuance and delivery of the Warrant and the Warrant Shares to the Purchaser do not and will not violate or conflict with (i) the Articles of Incorporation or Bylaws of the Company , or (ii) any agreement, instrument, law, rule, regulation, order, writ, judgment, or decree to which the Company is a party or to which the Company or any of its assets is subject. D. VALIDITY OF ISSUANCE. The Warrant to be issued to the Purchaser pursuant to this Agreement and the Warrant Shares issued upon exercise of the Warrant will, when issued, be duly and validly issued, fully paid and nonassessable (assuming in the case of the Warrant Shares, payment of the exercise price is made in accordance with the terms of the Warrant) and issued without violation of any preemptive or similar rights of any stockholder of the Company and free and clear of all taxes, liens and charges. E. OWNERSHIP. Immediately following the consummation of the transactions contemplated by, referenced in or made in connection with the Credit Agreement, and each of the documents, instruments and agreements executed or delivered in connection therewith, the Warrant Shares constitute 5.0% of the issued and outstanding Common Stock of the Company on a fully diluted basis on the date of issue. III. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser hereby represents and warrants to the Company as follows: A. INVESTMENT INTENTION. The Purchaser is acquiring the Warrant, and if any portion of the Warrant is exercised, the Warrant Shares, for investment solely for its own account and not with a view to, or for resale in connection with, the distribution or other disposition thereof. The Purchaser agrees and acknowledges that it will not, directly or indirectly, offer, transfer, or sell the Warrant or any Warrant Shares, or solicit any offers to purchase or acquire the Warrant or any Warrant Shares, unless the transfer or sale is permitted by the terms of the Warrant and such transfer or sale is (i) pursuant to an effective registration statement under the Securities Act of 1933, as amended, and the rules and regulations thereunder (the "Securities Act") and has been registered under any applicable state securities or "blue sky" laws, or (ii) pursuant to an exemption from registration under the Securities Act and applicable state securities or "blue sky" laws. B. LEGEND. The Purchaser has been advised by the Company that certificates representing the Warrant will bear any legend required pursuant to the Stockholders Agreement and will bear the following legend: NEITHER THIS WARRANT NOR THE UNDERLYING SHARES OF COMMON STOCK HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS. ANY OFFER TO SELL OR TRANSFER, OR THE SALE OR TRANSFER OF THESE SECURITIES IS UNLAWFUL UNLESS (A) THERE IS AN EFFECTIVE REGISTRATION STATEMENT COVERING THE UNDERLYING SHARES OF COMMON STOCK UNDER THE ACT AND APPLICABLE STATE SECURITIES LAW, (B) THE COMPANY RECEIVES AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND SCOPE REASONABLY ACCEPTABLE TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW, OR (C) THE TRANSFER IS MADE PURSUANT TO RULE 144 AS PROMULGATED UNDER THE ACT. Upon reasonable request of the Company in connection with any permitted transfer of the Warrant or any Warrant Shares (other than a transfer pursuant to a public offering registered under the Securities Act, pursuant to Rule 144 or Rule 144A promulgated under the Securities Act (or any similar rules then in effect), or to an affiliate of the Purchaser), the Purchaser will deliver, if requested by the Company, an opinion of counsel knowledgeable in securities laws reasonably satisfactory to the Company to the effect that such transfer may be effected without registration under the Securities Act. The Company agrees to issue certificates evidencing the Warrant Shares that do not contain such legend upon receipt of an opinion of counsel, which opinion and counsel shall be reasonably satisfactory to 2 the Company, to the effect that registration under the Securities Act is not required because of the availability of an exemption from such registration. C. ADDITIONAL INVESTMENT REPRESENTATIONS. The Purchaser is an "accredited investor" as such term is defined in Rule 501 promulgated under the Securities Act as amended. IV. MISCELLANEOUS. A. DEFINITIONS. For the purposes of this Agreement, the following terms shall have the following meanings: "Business Day" means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of Texas, or is a day on which banking institutions located in such state are authorized or required by law or other governmental action to close. "Subsidiary" means, in respect of any Person, any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of capital stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (a) such Person, (b) such Person and one or more Subsidiaries of such Person or (c) one or more Subsidiaries of such Person. "Warrant Shares" means shares of the Company's $.001 par value Common Stock issuable upon exercise of this Warrant; provided, that if the securities issuable upon exercise of the Warrant are issued by an entity other than the Company or there is a change in the class or series of securities so issuable, then the term "Warrant Shares" shall mean shares of the security issuable upon exercise of the Warrant if such security is not issuable in shares, or shall mean the equivalent units in which such security is issuable if such security is not issuable in shares. B. NOTICES. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and delivered personally, mailed by certified or registered mail, return receipt requested and postage prepaid, sent via a nationally recognized overnight courier, or via facsimile. Such notices, demands and other communications will be sent to the address indicated below: if to the Company, to: BARON ENERGY, INC. 300 S.C.M. Allen Parkway, Suite 400 San Marcos, TX 78666 Attention: Lisa P. Hamilton Facsimile: (512) 392-7238 E-mail: if to the Purchaser, to: PETRO CAPITAL ENERGY CREDIT, LLC 3710 Rawlins Street, Suite 1000 Dallas, TX 75219 Attention: Mr. Rosser Newton Facsimile: (214) 661-7765 E-Mail: or such other address or to the attention of such other Person as the recipient party shall have specified by prior written notice to the sending party; provided, that the failure to deliver copies of notices as indicated above shall not affect the validity of any notice. Any such communication 3 shall be deemed to have been received (i) when delivered, if personally delivered, or sent by nationally-recognized overnight courier or sent via facsimile, or (ii) on the third Business Day following the date on which the piece of mail containing such communication is posted if sent by certified or registered mail. C. BENEFIT; ASSIGNMENT. This Agreement and all the provisions hereof shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns, except that neither this Agreement nor any rights or obligations hereunder shall be assigned by the Company without the prior written consent of the Purchaser. D. AMENDMENT. This Agreement may be amended only by a written instrument signed by the Company and the Purchaser. E. WAIVER. Either party hereto may (a) extend the time for the performance of any of the obligations or other acts of the other party hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto, and (c) waive compliance with any of the agreements or conditions herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid as to such party if set forth in an instrument in writing signed by such party. F. SEVERABILITY. In the event that any one or more of the provisions hereof, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, it being intended that all rights, powers and privileges of the parties hereto shall be enforceable to the fullest extent permitted by law. G. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS OR CHOICE OF LAWS OF THE STATE OF TEXAS OR ANY OTHER JURISDICTION WHICH WOULD RESULT IN THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THOSE OF THE STATE OF TEXAS H. EXPENSES. All reasonable fees and expenses incurred by the Purchaser in connection with the preparation of this Agreement and the transactions referred to herein, including the reasonable fees of the Purchaser's counsel, shall be paid by the Company, whether or not the issuance of the Warrant, the execution and delivery of the Credit Agreement or any other transaction contemplated hereby is consummated. The Company shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issuance or delivery of Warrant Shares upon exercise of this Warrant.. I. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which together shall be deemed to be one and the same agreement. Delivery of an executed counterpart of a signature page of this Agreement by facsimile or in electronic (i.e., "pdf" or "tif") format shall be effective as delivery of a manually executed counterpart of this Agreement. J. DESCRIPTIVE HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning of the terms contained herein. IN WITNESS WHEREOF, each of the parties hereto have caused this Warrant Agreement to be executed and delivered by its duly authorized officer as of the date first written above.. [Signature Pages Follow] 4 BARON ENERGY, INC. By: /s/ Ronnie L. Steinocher --------------------------------------- Ronnie L. Steinocher, President and CEO 5 PETRO CAPITAL ENERGY CREDIT, LLC as Administrative Agent By: PCEC Management, LLC, its Managing Member By: /s/ Rosser C. Newton --------------------------------------- Rosser C. Newton, Authorized Signatory 6

Exhibit 4.2 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "AGREEMENT"), is made and entered into as of July 28, 2014, by and among BARON ENERGY, INC., a Nevada corporation (the "COMPANY"), and the persons or entities identified on Schedule A hereto (collectively, the "INVESTORS" and each individually, an "INVESTOR"). WHEREAS, the Company and the Investors are parties to a Warrant Agreement, dated as of July 28, 2014, pursuant to which the Investors have acquired a Warrant (as defined below) representing the right to purchase from the Company Warrant Shares (as defined below) upon the terms and conditions set forth in the Warrant (as amended, restated, supplemented, or otherwise modified from time to time, the "WARRANT AGREEMENT"); and WHEREAS, in connection with the consummation of the transactions contemplated by the Warrant Agreement, the parties desire to enter into this Agreement in order to grant certain registration rights to the Investors as set forth below. NOW, THEREFORE, in consideration of the foregoing and the mutual and dependent covenants hereinafter set forth, the parties agree as follows: 1. Defined Terms. As used in this Agreement, the following terms shall have the following meanings: "AFFILIATE" of a Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term "control" (including the terms "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "AGREEMENT" has the meaning set forth in the preamble. "BOARD" means the board of directors of the Company (and any successor governing body of the Company or any successor of the Company). "COMMISSION" means the Securities and Exchange Commission or any other federal agency administering the Securities Act and the Exchange Act at the time. "COMMON STOCK" means the common stock, par value $0.001 per share, of the Company and any other common equity securities issued by the Company, and any other shares of stock issued or issuable with respect thereto (whether by way of a stock dividend or stock split or in exchange for or upon conversion of such shares or otherwise in connection with a combination of shares, distribution, recapitalization, merger, consolidation or other corporate reorganization). "COMPANY" has the meaning set forth in the preamble and includes the Company's successors by merger, acquisition, reorganization or otherwise. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or any successor federal statute, and the rules and regulations thereunder, which shall be in effect from time to time. "GOVERNMENTAL AUTHORITY" means any federal, state, local or foreign government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision, or any self-regulated organization or other non-governmental regulatory authority or quasi-governmental authority (to the extent that the rules, regulations or orders of such organization or authority have the force of law), or any arbitrator, court or tribunal of competent jurisdiction. "INVESTORS" has the meaning set forth in the preamble. "PERSON" means an individual, corporation, partnership, joint venture, limited liability company, Governmental Authority, unincorporated organization, trust, association, or other entity. "PIGGYBACK REGISTRATION" has the meaning set forth in SECTION 3(A). "PROSPECTUS" means the prospectus or prospectuses included in any Registration Statement, as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement and by all other amendments and supplements to the prospectus, including post-effective amendments and all material incorporated by reference in such prospectus or prospectuses. "REGISTRABLE SECURITIES" means (a) any shares of Common Stock at any time held by the Investors or issuable upon the exercise of the Warrant and/or conversion, exercise or exchange of any Series A Convertible Preferred Stock owned by the Investors at any time, and (b) any shares of Common Stock issued or issuable with respect to any shares described in subsection (a) above by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization (it being understood that for purposes of this Agreement, a Person shall be deemed to be a holder of Registrable Securities whenever such Person has the right to then acquire or obtain from the Company any Registrable Securities, whether or not such acquisition has actually been effected). As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (i) a Registration Statement covering such securities has been declared effective by the Commission and such securities have been disposed of pursuant to such effective Registration Statement, (ii) such securities are sold under 2 circumstances in which all of the applicable conditions of Rule 144 (or any similar provisions then in force) under the Securities Act are met, (iii) such securities are otherwise transferred and such securities may be resold without subsequent registration under the Securities Act, or (iv) such securities shall have ceased to be outstanding. "REGISTRATION STATEMENT" means any registration statement of the Company which covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all materials incorporated by reference in such Registration Statement. "RULE 144" means Rule 144 promulgated under the Securities Act or any successor rule thereto or any complementary rule thereto (such as Rule 144A). "SECURITIES ACT" means the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations thereunder, which shall be in effect from time to time. "SELLING EXPENSES" means all underwriting discounts, selling commissions and stock transfer taxes applicable to the sale of Registrable Securities, and fees and disbursements of counsel for any holder of Registrable Securities, except for the fees and disbursements of counsel for the holders of Registrable Securities required to be paid by the Company pursuant to SECTION 6. "SERIES A CONVERTIBLE PREFERRED STOCK" means the Series A Convertible Preferred Stock of the Company, par value $0.001 per share. "WARRANT" has the meaning specified in the Warrant Agreement. "WARRANT AGREEMENT" has the meaning set forth in the recitals. "WARRANT SHARES" has the meaning specified in the Warrant. 2. [Reserved]. 3. Piggyback Registration. (a) Whenever the Company proposes to register any shares of its Common Stock under the Securities Act (other than a registration effected solely to implement an employee benefit plan or a transaction to which Rule 145 of the Securities Act is applicable, or a Registration Statement on Form S-4, S-8 or any successor form thereto or another form not available for registering the Registrable Securities for sale to the public), whether for its own account or for the account of one or more stockholders of the Company and the form of Registration Statement to be used may be used for any registration of Registrable Securities (a "PIGGYBACK REGISTRATION"), the Company shall give 3 prompt written notice to the holders of Registrable Securities of its intention to effect such a registration and, subject to SECTION 3(B) and SECTION 3(C), shall include in such registration all Registrable Securities with respect to which the Company has received written requests for inclusion from the holders of Registrable Securities within twenty (20) days after the Company's notice has been given to each such holder. The Company may postpone or withdraw the filing or the effectiveness of a Piggyback Registration at any time in its sole discretion. (b) If a Piggyback Registration is initiated as a primary underwritten offering on behalf of the Company and the managing underwriter advises the Company and the holders of Registrable Securities (if any holders of Registrable Securities have elected to include Registrable Securities in such Piggyback Registration) in writing that in its opinion the number of shares of Common Stock proposed to be included in such registration, including all Registrable Securities and all other shares of Common Stock proposed to be included in such underwritten offering, exceeds the number of shares of Common Stock which can be sold in such offering and/or that the number of shares of Common Stock proposed to be included in any such registration would adversely affect the price per share of the Common Stock to be sold in such offering, the Company shall include in such registration (i) first, the number of shares of Common Stock that the Company proposes to sell; (ii) second, the number of shares of Common Stock requested to be included therein by holders of Registrable Securities, allocated pro rata among all such holders on the basis of the number of Registrable Securities owned by each such holder or in such manner as they may otherwise agree; and (iii) third, the number of shares of Common Stock requested to be included therein by holders of Common Stock (other than holders of Registrable Securities), allocated among such holders in such manner as they may agree. (c) If a Piggyback Registration is initiated as an underwritten offering on behalf of a holder of Common Stock other than Registrable Securities, and the managing underwriter advises the Company in writing that in its opinion the number of shares of Common Stock proposed to be included in such registration, including all Registrable Securities and all other shares of Common Stock proposed to be included in such underwritten offering, exceeds the number of shares of Common Stock which can be sold in such offering and/or that the number of shares of Common Stock proposed to be included in any such registration would adversely affect the price per share of the Common Stock to be sold in such offering, the Company shall include in such registration (i) first, the number of shares of Common Stock requested to be included therein by the holder(s) requesting such registration and by the holders of Registrable Securities, allocated pro rata among such holders on the basis of the number of shares of Common Stock (on a fully diluted, as converted basis) and the number of Registrable Securities, as applicable, owned by all such holders or in such manner as they may otherwise agree; and (ii) second, the number of shares of Common Stock requested to be included therein by other holders of Common Stock, allocated among such holders in such manner as they may agree. 4 (d) If any Piggyback Registration is initiated as a primary underwritten offering on behalf of the Company, the Company shall select the investment banking firm or firms to act as the managing underwriter or underwriters in connection with such offering. 4. [Reserved]. 5. Registration Procedures. If and whenever the holders of Registrable Securities request that any Registrable Securities be registered pursuant to the provisions of this Agreement, the Company shall use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof, and pursuant thereto the Company shall as soon as practicable: (a) prepare and file with the Commission a Registration Statement with respect to such Registrable Securities and use its best efforts to cause such Registration Statement to become effective; (b) prepare and file with the Commission such amendments, post-effective amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement effective for a period of not less than one hundred twenty (120) days, or if earlier, until all of such Registrable Securities have been disposed of and to comply with the provisions of the Securities Act with respect to the disposition of such Registrable Securities in accordance with the intended methods of disposition set forth in such Registration Statement; (c) within a reasonable time before filing such Registration Statement, Prospectus or amendments or supplements thereto, furnish to one counsel selected by holders of a majority of such Registrable Securities copies of such documents proposed to be filed, which documents shall be subject to the review, comment and approval of such counsel; (d) notify each selling holder of Registrable Securities, promptly after the Company receives notice thereof, of the time when such Registration Statement has been declared effective or a supplement to any Prospectus forming a part of such Registration Statement has been filed; (e) furnish to each selling holder of Registrable Securities such number of copies of the Prospectus included in such Registration Statement (including each preliminary Prospectus) and any supplement thereto (in each case including all exhibits and documents incorporated by reference therein) and such other documents as such seller may request in order to facilitate the disposition of the Registrable Securities owned by such seller; (f) use its best efforts to register or qualify such Registrable Securities under such other securities or "blue sky" laws of such jurisdictions as any selling holder requests and do any and all other acts and things which may be necessary or advisable to enable such holders to consummate the disposition in such jurisdictions of the Registrable Securities owned by such holders; provided, that the Company shall not be required to qualify generally to do 5 business, subject itself to general taxation or consent to general service of process in any jurisdiction where it would not otherwise be required to do so but for this SECTION 5(F); (g) notify each selling holder of such Registrable Securities, at any time when a Prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the Prospectus included in such Registration Statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the request of any such holder, the Company shall prepare a supplement or amendment to such Prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such Prospectus shall not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading; (h) make available for inspection by any selling holder of Registrable Securities, any underwriter participating in any disposition pursuant to such Registration Statement and any attorney, accountant or other agent retained by any such holder or underwriter (collectively, the "INSPECTORS"), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the "RECORDS"), and cause the Company's officers, directors and employees to supply all information requested by any such Inspector in connection with such Registration Statement; (i) provide a transfer agent and registrar (which may be the same entity) for all such Registrable Securities not later than the effective date of such registration; (j) use its best efforts to cause such Registrable Securities to be listed on each securities exchange on which the Common Stock is then listed or, if the Common Stock is not then listed, on a national securities exchange selected by the holders of a majority of such Registrable Securities; (k) in connection with an underwritten offering, enter into such customary agreements (including underwriting and lock-up agreements in customary form) and take all such other customary actions as the holders of such Registrable Securities or the managing underwriter of such offering reasonably request in order to expedite or facilitate the disposition of such Registrable Securities (including, without limitation, making appropriate officers of the Company available to participate in "road show" and other customary marketing activities (including one-on-one meetings with prospective purchasers of the Registrable Securities); (l) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission and make available to its stockholders an earnings statement (in a form that satisfies the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder) no later than thirty (30) days after the end of the 12-month period beginning with the first day of the Company's first full fiscal quarter after the effective date of such Registration Statement, which earnings statement shall cover said 12-month period, and which requirement will be deemed to be satisfied if the Company timely files complete and accurate 6 information on Forms 10-Q, 10-K and 8-K under the Exchange Act and otherwise complies with Rule 158 under the Securities Act; and (m) furnish to each selling holder of Registrable Securities and each underwriter, if any, with (i) a legal opinion of the Company's outside counsel, dated the effective date of such Registration Statement (and, if such registration includes an underwritten public offering, dated the date of the closing under the underwriting agreement), in form and substance as is customarily given in opinions of the Company's counsel to underwriters in underwritten public offerings; and (ii) a "comfort" letter signed by the Company's independent certified public accountants in form and substance as is customarily given in accountants' letters to underwriters in underwritten public offerings; (n) without limiting SECTION 5(F) above, use its best efforts to cause such Registrable Securities to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company to enable the holders of such Registrable Securities to consummate the disposition of such Registrable Securities in accordance with their intended method of distribution thereof; (o) notify the holders of Registrable Securities promptly of any request by the Commission for the amending or supplementing of such Registration Statement or Prospectus or for additional information; (p) advise the holders of Registrable Securities, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of such Registration Statement or the initiation or threatening of any proceeding for such purpose and promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued; (q) permit any holder of Registrable Securities which holder, in its sole and exclusive judgment, might be deemed to be an underwriter or a controlling person of the Company, to participate in the preparation of such Registration Statement and to require the insertion therein of language, furnished to the Company in writing, which in the reasonable judgment of such holder and its counsel should be included; and (r) otherwise use its best efforts to take all other steps necessary to effect the registration of such Registrable Securities contemplated hereby. 6. Expenses. All expenses (other than Selling Expenses) incurred by the Company in complying with its obligations pursuant to this Agreement and in connection with the registration and disposition of Registrable Securities, including, without limitation, all registration and filing fees, underwriting expenses (other than fees, commissions or discounts), expenses of any audits incident to or required by any such registration, fees and expenses of complying with securities and "blue sky" laws, printing expenses, fees and expenses of the Company's counsel and accountants and fees and expenses of one counsel for the holders of Registrable Securities participating in such registration as a group 7 (selected by the holders of a majority of the Registrable Securities included in the registration), shall be paid by the Company. All Selling Expenses relating to Registrable Securities registered pursuant to this Agreement shall be borne and paid by the holders of such Registrable Securities, in proportion to the number of Registrable Securities registered for each such holder. 7. Indemnification. (a) The Company shall indemnify and hold harmless, to the fullest extent permitted by law, each holder of Registrable Securities, such holder's officers, directors, managers, members, partners, stockholders and Affiliates, each underwriter, broker or any other Person acting on behalf of such holder of Registrable Securities and each other Person, if any, who controls any of the foregoing Persons within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, against all losses, claims, actions, damages, liabilities and expenses, joint or several, to which any of the foregoing Persons may become subject under the Securities Act or otherwise, insofar as such losses, claims, actions, damages, liabilities or expenses arise out of or are based upon any untrue or alleged untrue statement of a material fact contained in any Registration Statement, Prospectus, preliminary Prospectus, free writing prospectus (as defined in Rule 405 promulgated under the Securities Act) or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation or alleged violation by the Company of the Securities Act or any other similar federal or state securities laws or any rule or regulation promulgated thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance; and shall reimburse such Persons for any legal or other expenses reasonably incurred by any of them in connection with investigating or defending any such loss, claim, action, damage or liability, except insofar as the same are caused by or contained in any information furnished in writing to the Company by such holder expressly for use therein or by such holder's failure to deliver a copy of the Registration Statement, Prospectus, free-writing prospectus (as defined in Rule 405 promulgated under the Securities Act) or any amendments or supplements thereto (if the same was required by applicable law to be so delivered) after the Company has furnished such holder with a sufficient number of copies of the same prior to any written confirmation of the sale of Registrable Securities. (b) In connection with any registration in which a holder of Registrable Securities is participating, each such holder shall furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such Registration Statement or Prospectus and, to the extent permitted by law, shall indemnify and hold harmless, the Company, each director of the Company, each officer of the Company who shall sign such Registration Statement, each underwriter, broker or other Person acting on behalf of the holders of Registrable Securities and each Person who controls any of the foregoing Persons within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act against any losses, claims, actions, damages, liabilities or expenses resulting from any untrue or alleged untrue statement of 8 material fact contained in the Registration Statement, Prospectus, preliminary Prospectus, free writing prospectus (as defined in Rule 405 promulgated under the Securities Act) or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is contained in any information or affidavit so furnished in writing by such holder; provided, that the obligation to indemnify shall be several, not joint and several, for each holder and shall be limited to the net proceeds (after underwriting fees, commissions or discounts) actually received by such holder from the sale of Registrable Securities pursuant to such Registration Statement. (c) Promptly after receipt by an indemnified party of notice of the commencement of any action involving a claim referred to in this Section 7, such indemnified party shall, if a claim in respect thereof is made against an indemnifying party, give written notice to the latter of the commencement of such action. The failure of any indemnified party to notify an indemnifying party of any such action shall not (unless such failure shall have a material adverse effect on the indemnifying party) relieve the indemnifying party from any liability in respect of such action that it may have to such indemnified party hereunder. In case any such action is brought against an indemnified party, the indemnifying party shall be entitled to participate in and to assume the defense of the claims in any such action that are subject or potentially subject to indemnification hereunder, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after written notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be responsible for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof; provided, that if (i) any indemnified party shall have reasonably concluded that there may be one or more legal or equitable defenses available to such indemnified party which are additional to or conflict with those available to the indemnifying party, or that such claim or litigation involves or could have an effect upon matters beyond the scope of the indemnity provided hereunder, or (ii) such action seeks an injunction or equitable relief against any indemnified party or involves actual or alleged criminal activity, the indemnifying party shall not have the right to assume the defense of such action on behalf of such indemnified party without such indemnified party's prior written consent (but, without such consent, shall have the right to participate therein with counsel of its choice) and such indemnifying party shall reimburse such indemnified party and any Person controlling such indemnified party for that portion of the fees and expenses of any counsel retained by the indemnified party which is reasonably related to the matters covered by the indemnity provided hereunder. If the indemnifying party is not entitled to, or elects not to, assume the defense of a claim, it shall not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. In such instance, the conflicting indemnified parties shall have a right to retain one separate counsel, chosen by the holders of a majority of the Registrable Securities included in the registration, at the expense of the indemnifying party. 9 (d) If the indemnification provided for hereunder is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, claim, damage, liability or action referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amounts paid or payable by such indemnified party as a result of such loss, claim, damage, liability or action in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions which resulted in such loss, claim, damage, liability or action as well as any other relevant equitable considerations; provided, that the maximum amount of liability in respect of such contribution shall be limited, in the case of each holder of Registrable Securities, to an amount equal to the net proceeds (after underwriting fees, commissions or discounts) actually received by such seller from the sale of Registrable Securities effected pursuant to such registration. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties agree that it would not be just and equitable if contribution pursuant hereto were determined by pro rata allocation or by any other method or allocation which does not take account of the equitable considerations referred to herein. No Person guilty or liable of fraudulent misrepresentation shall be entitled to contribution from any Person. 8. Participation in Underwritten Registrations. No Person may participate in any registration hereunder which is underwritten unless such Person (a) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved by the Person or Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements; provided, that no holder of Registrable Securities included in any underwritten registration shall be required to make any representations or warranties to the Company or the underwriters (other than representations and warranties regarding such holder, such holder's ownership of its shares of Common Stock to be sold in the offering and such holder's intended method of distribution) or to undertake any indemnification obligations to the Company or the underwriters with respect thereto, except as otherwise provided in SECTION 7. 9. Rule 144 Compliance. With a view to making available to the holders of Registrable Securities the benefits of Rule 144 under the Securities Act and any other rule or regulation of the Commission that may at any time permit a holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3 (or any successor form), the Company shall: (a) make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the Registration Date; 10 (b) use best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act, at any time after the Company has become subject to such reporting requirements; and (c) furnish to any holder so long as the holder owns Registrable Securities, promptly upon request, a written statement by the Company as to its compliance with the reporting requirements of Rule 144 under the Securities Act and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed or furnished by the Company as such holder may request in connection with the sale of Registrable Securities without registration. 10. Preservation of Rights. The Company shall not (a) grant any registration rights to third parties which are more favorable than or inconsistent with the rights granted hereunder, or (b) enter into any agreement, take any action, or permit any change to occur, with respect to its securities that violates or subordinates the rights expressly granted to the holders of Registrable Securities in this Agreement. 11. Termination. This Agreement shall terminate and be of no further force or effect when there shall no longer be any Registrable Securities outstanding; provided, that the provisions of SECTION 6 and SECTION 7 shall survive any such termination. 12. Notices. All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next business day if sent after normal business hours of the recipient or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the addresses indicated below (or at such other address for a party as shall be specified in a notice given in accordance with this SECTION 12). If to the Company: Baron Energy, Inc. 300 S. CM Allen Pkwy, Suite 400 San Marcos, Texas 78666 Facsimile: (512) 392-7238 E-mail: Attention: Lisa P. Hamilton, Chief Financial Officer If to any Investor, to such Investor's address as set forth on Schedule A hereto. 13. Entire Agreement. This Agreement, together with the Purchase Agreement and any related exhibits and schedules thereto, constitutes the sole and entire agreement of the parties to this Agreement with respect to the subject matter contained herein, and supersedes all prior and contemporaneous understandings 11 and agreements, both written and oral, with respect to such subject matter. Notwithstanding the foregoing, in the event of any conflict between the terms and provisions of this Agreement and those of the Purchase Agreement, the terms and conditions of this Agreement shall control. 14. Successor and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. Each Investor may assign its rights hereunder to any purchaser or transferee of Registrable Securities; provided, that such purchaser or transferee shall, as a condition to the effectiveness of such assignment, be required to execute a counterpart to this Agreement agreeing to be treated as an Investor whereupon such purchaser or transferee shall have the benefits of, and shall be subject to the restrictions contained in, this Agreement as if such purchaser or transferee was originally included in the definition of an Investor herein and had originally been a party hereto. 15. No Third-Party Beneficiaries. This Agreement is for the sole benefit of the parties hereto and their respective successors and permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever, under or by reason of this Agreement. 16. Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement. 17. Amendment, Modification and Waiver. The provisions of this Agreement may only be amended, modified, supplemented, or waived with the prior written consent of the Company and the holders of a majority of the Registrable Securities. No waiver by any party or parties shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. Except as otherwise set forth in this Agreement, no failure to exercise, or delay in exercising, any right, remedy, power or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. 18. Severability. If any term or provision of this Agreement is invalid, illegal, or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Agreement or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible. 19. Remedies. Each holder of Registrable Securities, in addition to being entitled to exercise all rights granted by law, including recovery of damages, 12 shall be entitled to specific performance of its rights under this Agreement. The Company acknowledges that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and the Company hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. 20. Governing Law; Submission to Jurisdiction. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Texas without giving effect to any choice or conflict of law provision or rule (whether of the State of Texas or any other jurisdiction). Any legal suit, action or proceeding arising out of or based upon this Agreement or the transactions contemplated hereby may be instituted in the federal courts of the United States or the courts of the State of Texas in each case located in the city of Dallas, Texas and County of Dallas, and each party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding. Service of process, summons, notice, or other document by mail to such party's address set forth herein shall be effective service of process for any suit, action or other proceeding brought in any such court. The parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or any proceeding in such courts and irrevocably waive and agree not to plead or claim in any such court that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. 21. Waiver of Jury Trial. Each party acknowledges and agrees that any controversy which may arise under this Agreement is likely to involve complicated and difficult issues and, therefore, each such party irrevocably and unconditionally waives any right it may have to a trial by jury in respect of any legal action arising out of or relating to this Agreement or the transactions contemplated hereby. Each party to this Agreement certifies and acknowledges that (a) no representative of any other party has represented, expressly or otherwise, that such other party would not seek to enforce the foregoing waiver in the event of a legal action, (b) such party has considered the implications of this waiver, (c) such party makes this waiver voluntarily, and (d) such party has been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this SECTION 21. 22. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement on the date first written above. [SIGNATURE PAGES FOLLOW] 13 BARON ENERGY, INC. By: -------------------------------------------- Name: -------------------------------------------- Title: -------------------------------------------- 14 PETRO CAPITAL ENERGY CREDIT, LLC, AS ADMINISTRATIVE AGENT By: PCEC Management, LLC, its Managing Member By: -------------------------------------------- Name: -------------------------------------------- Title: -------------------------------------------- PETRO CAPITAL ENERGY CREDIT, LLC By: PCEC Management, LLC, its Managing Member By: -------------------------------------------- Name: -------------------------------------------- Title: -------------------------------------------- 15 EXHIBIT A TO REGISTRATION RIGHTS AGREEMENT INVESTORS Petro Capital Energy Credit, LLC 3710 Rawlins Street, Suite 1000 Dallas, Texas 75219 Facsimile: (214) 661-7760 E-mail: Attention: Rosser Newton Petro Capital Energy Credit, LLC, as Administrative Agent 3710 Rawlins Street, Suite 1000 Dallas, Texas 75219 Facsimile: (214) 661-7760 E-mail: Attention: Rosser Newton 16

Exhibit 10.75 CREDIT AGREEMENT DATED AS OF JULY 28, 2014 AMONG BARON ENERGY, INC., AS PARENT, BARON PRODUCTION LLC, AS BORROWER, PETRO CAPITAL ENERGY CREDIT, LLC AS ADMINISTRATIVE AGENT, AND THE LENDERS PARTY HERETO TABLE OF CONTENTS PAGE ---- ARTICLE I DEFINITIONS AND ACCOUNTING MATTERS Terms Defined Above.........................................................1 Certain Defined Terms.......................................................1 Terms Generally; Rules of Construction.....................................24 Accounting Terms and Determinations; GAAP..................................25 ARTICLE II THE LOANS AND ORI'S Commitments................................................................25 Loans and Borrowings.......................................................25 Requests for Borrowings....................................................26 Funding of Borrowings......................................................26 Defaulting Lenders.........................................................27 ORI's......................................................................28 ARTICLE III PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES Repayment of Loans.........................................................29 Interest...................................................................29 Prepayments................................................................30 Fees.......................................................................31 ARTICLE IV PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS Payments Generally; Pro Rata Treatment; Sharing of Set-offs................31 Presumption of Payment by the Borrower.....................................32 Disposition of Production Proceeds.........................................33 ARTICLE V INCREASED COSTS; TAXES Increased Costs............................................................33 Taxes......................................................................34 ARTICLE VI CONDITIONS PRECEDENT Effective Date.............................................................35 Each Loan..................................................................40 ii ARTICLE VII REPRESENTATIONS AND WARRANTIES Organization; Powers.......................................................41 Authority; Enforceability..................................................41 Approvals; No Conflicts....................................................41 Financial Condition; No Material Adverse Change............................42 Litigation.................................................................43 Environmental Matters......................................................43 Compliance with the Laws and Agreements; No Defaults.......................44 Investment Company Act.....................................................44 Taxes......................................................................45 ERISA......................................................................45 Disclosure; No Material Misstatements......................................46 Insurance..................................................................46 Restriction on Liens.......................................................47 Subsidiaries...............................................................47 Location of Business and Offices...........................................47 Properties; Titles, Etc....................................................47 Maintenance of Properties..................................................48 Gas Imbalances, Prepayments................................................49 Marketing of Production....................................................49 Swap Agreements............................................................49 Use of Loans...............................................................49 Solvency...................................................................50 OFAC.......................................................................50 Projections................................................................51 Affiliate Transactions.....................................................51 Security Documents.........................................................51 Material Contracts; Operating Agreements...................................51 Acquisition Documents......................................................52 Location of Deposit and Securities Accounts; Etc...........................52 ARTICLE VIII AFFIRMATIVE COVENANTS Financial Statements; Other Information....................................52 Notices of Material Events.................................................56 iii Existence; Conduct of Business.............................................56 Payment of Obligations.....................................................57 Performance of Obligations under Loan Documents............................57 Operation and Maintenance of Properties; Material Contracts................57 Insurance..................................................................58 Books and Records; Inspection Rights.......................................58 Compliance with Laws.......................................................59 Environmental Matters......................................................59 Further Assurances.........................................................60 Reserve Reports............................................................60 Title Information..........................................................61 Additional Collateral; Additional Guarantors...............................62 ERISA Compliance...........................................................63 Key Man Life Insurance.....................................................63 Observation Rights.........................................................63 Deposit Accounts; Etc......................................................64 Additional Equity Issuance.................................................64 Riggan Lease...............................................................64 ARTICLE IX NEGATIVE COVENANTS Financial Covenants........................................................64 Indebtedness...............................................................66 Liens......................................................................67 Restricted Payments........................................................68 Investments................................................................68 Nature of Business; International Operations...............................69 Proceeds of Notes..........................................................69 Limitation on Leases.......................................................69 ERISA Compliance...........................................................70 Sale or Discount of Receivables............................................70 Mergers, Etc...............................................................70 Sale of Properties.........................................................71 Environmental Matters......................................................71 Transactions with Affiliates...............................................71 Subsidiaries...............................................................71 iv Negative Pledge Agreements; Dividend Restrictions..........................71 Gas Imbalances, Take-or-Pay or Other Prepayments...........................72 Swap Agreements............................................................72 Accounting Changes; Organization Documents; Material Contracts; Operating Agreements............................................72 Marketing Activities.......................................................73 Well Drilling Costs........................................................73 ARTICLE X EVENTS OF DEFAULT; REMEDIES Events of Default..........................................................73 Remedies...................................................................75 ARTICLE XI THE ADMINISTRATIVE AGENT Appointment; Powers........................................................77 Duties and Obligations of Administrative Agent.............................77 Action by Administrative Agent.............................................78 Reliance by Administrative Agent...........................................78 Subagents..................................................................79 Resignation of Administrative Agent........................................79 Administrative Agent as Lender.............................................79 No Reliance................................................................80 Administrative Agent May File Proofs of Claim..............................80 Authority of Administrative Agent to Release Collateral and Liens..........81 Withholding Tax............................................................81 ARTICLE XII MISCELLANEOUS Notices....................................................................82 No Waivers; Amendments; Cumulative Remedies; Enforcement...................83 Expenses, Indemnity; Damage Waiver.........................................84 Successors and Assigns.....................................................87 Survival; Revival; Reinstatement...........................................90 Counterparts; Integration; Effectiveness; Etc..............................91 Severability...............................................................91 Right of Setoff............................................................91 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS.................92 v Headings...................................................................93 Confidentiality............................................................93 Interest Rate Limitation...................................................94 EXCULPATION PROVISIONS.....................................................95 No Third Party Beneficiaries...............................................95 USA Patriot Act Notice.....................................................96 Flood Insurance Provisions.................................................96 Advertising and Publicity..................................................96 ANNEXES, EXHIBITS AND SCHEDULES Annex I Commitments Exhibit A Form of Note Exhibit B Form of Borrowing Request Exhibit C Form of Compliance Certificate Exhibit D Security Documents Exhibit E Form of Assignment and Assumption Schedule 1.01A Scheduled Capital Expenditures Schedule 7.05 Litigation Schedule 7.06 Environmental Matters Schedule 7.12 Insurance Schedule 7.14 Subsidiaries Schedule 7.18 Gas Imbalances Schedule 7.19 Marketing Contracts Schedule 7.20 Swap Agreements Schedule 7.25 Affiliate Transactions Schedule 7.27 Material Contracts and Operating Agreements Schedule 7.29 Deposit and Securities Accounts, Etc. Schedule 8.07 Insurance Schedule 9.05 Investments vi CREDIT AGREEMENT dated as of July 28, 2014, is among BARON PRODUCTION LLC, a Texas limited liability company (the "Borrower"), BARON ENERGY, INC., a Nevada corporation (the "Parent"), each of the Lenders from time to time party hereto, and PETRO CAPITAL ENERGY CREDIT, LLC ("PCEC"), as administrative agent for the Lenders (in such capacity, together with its successors in such capacity, the "Administrative Agent"). R E C I T A L S A. The Borrower has requested that the Lenders provide certain term loans to the Borrower. B. The Lenders have agreed to make such loans subject to the terms and conditions of this Agreement. C. In consideration of the mutual covenants and agreements herein contained and of the loans and commitments hereinafter referred to, the parties hereto agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING MATTERS Section 1.01 Terms Defined Above. As used in this Agreement, each term defined above has the meaning indicated above. Section 1.02 Certain Defined Terms. As used in this Agreement, the following terms have the meanings specified below: "Acquisition" means the acquisition of certain Oil and Gas Properties and other Property pursuant to the terms and conditions of the Acquisition Documents. "Acquisition Agreement" means the Purchase and Sale Agreement dated May 29, 2014, between Ricochet Energy, Inc., a Texas corporation, the other sellers specified therein, and the Parent. "Acquisition Documents" means (a) the Acquisition Agreement and all schedules, exhibits and annexes thereto and all side letters and agreements affecting the terms thereof or entered into in connection therewith, and (b) all bills of sale, assignments, agreements, instruments and documents executed and delivered in connection therewith. "Acquisition Properties" means the Oil and Gas Properties and other Properties acquired by the Borrower pursuant to the Acquisition Documents. "Administrative Questionnaire" means an Administrative Questionnaire in a form supplied by the Administrative Agent. "Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Aggregate Exposure" means with respect to any Lender at any time, an amount equal to such Lender's Commitment then in effect or, if the Commitments have been terminated or expired, the amount of such Lender's Loans then outstanding. "Aggregate Exposure Percentage" means with respect to any Lender at any time, the ratio (expressed as a percentage) of such Lender's Aggregate Exposure at such time to the Aggregate Exposure of all Lenders at such time. "Agreement" means this Credit Agreement, as the same may from time to time be amended, modified, supplemented or restated. "Applicable Make Whole Percentage" means 0.50% (50 basis points). "Applicable Percentage" means, as to any Lender, the percentage which such Lender's Commitment then constitutes of the Commitments of all the Lenders (or, after the Loans are made, the percentage which the outstanding principal amount of such Lender's Loan then constitutes of the aggregate principal amount of Loans of all the Lenders then outstanding). The initial Applicable Percentage of each Lender is set forth opposite the name of such Lender on Annex I, or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable. "Approved Petroleum Engineers" means (a) Cawley, Gillespie and Associates, (b) Haas Petroleum Engineering Services, Inc., and (c) any other independent petroleum engineers reasonably acceptable to the Administrative Agent. "Asset Sale" means the sale, lease, conveyance, exchange or other disposition of assets or property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, whether now owned or hereafter acquired, of the Borrower or any Subsidiary other than (a) any single transaction or series of related transactions that involves assets having a fair market value of less than $50,000; (b) a transfer of assets between or among the Borrower and its Subsidiaries that are Wholly-Owned Subsidiary Guarantors; (c) the sale of Hydrocarbons as produced in the ordinary course of business; and (d) any sale or other disposition of damaged, worn-out, obsolete or no longer useful assets or properties. "Assignment and Assumption" means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 12.04(b)), and accepted by the Administrative Agent, in the form of Exhibit E or any other form approved by the Administrative Agent. "Availability Period" means the period from and including the Effective Date to but excluding October 31, 2015. "Blocked Account Agreement (DSR)" means the Blocked Account Agreement, dated as of July 28, 2014, among PlainsCapital Bank, the Borrower and the Administrative Agent with respect to the Debt Service Reserve Account. "Board" means the Board of Governors of the Federal Reserve System of the United States of America or any successor Governmental Authority. 2 "BOE" means one barrel of oil equivalent, calculated by converting natural gas to oil equivalent barrels at a ratio of six (6) Mcf of natural gas to one barrel of oil. "Borrower's Designated Account" means account number 1738421930 standing in the name of the Borrower at Wells Fargo Bank, N.A.. "Borrowing" means any borrowing of Loans on the same date. "Borrowing Date" means any Business Day specified by the Borrower in a Borrowing Request as a date on which the Borrower requests the Lenders to make Loans hereunder. "Borrowing Request" means a request by the Borrower for a Borrowing in accordance with Section 2.03. "Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banks in Dallas, Texas are authorized or required by law to remain closed. "Called Principal" means, with respect to any prepayment of the Loans pursuant to Section 3.03 (other than pursuant to Section 3.03(c)(iii)), the principal amount of the Loans so prepaid, and in the event the Loans are accelerated, or have become or have been declared to be immediately due and payable pursuant to Section 10.02 or otherwise, or in respect of which a claim has arisen in any proceeding under any Debtor Relief Law, as the context requires, the principal amount of the Loans so accelerated, or that have been declared, or have become, due and payable pursuant to Section 10.02, or as to which a claim has arisen in any Insolvency Proceeding. "Called Principal Determination Date" means, with respect to any prepayment of the Loans pursuant to Section 3.03 (other than pursuant to Section 3.03(c)(iii)), the date of such prepayment, and in the case the Loans are accelerated, or have become or are declared to be immediately due and payable pursuant to Section 10.02 or otherwise, or in respect of which a claim has arisen in any proceeding under any Debtor Relief Law, as the context requires, the date of such acceleration, or the date that the Loans were declared or became due and payable, or the date that such claim in a proceeding under a Debtor Relief Law arose, as applicable. "Called Principal Determination Period" means, as to any Called Principal and related Projected Interest Payments, the period from the relevant Called Principal Determination Date to and including the Maturity Date. "Capital Expenditures" means for any period, with respect to any Person, the aggregate of all expenditures by such Person and its Subsidiaries for the acquisition or leasing (pursuant to a capital lease) of fixed or capital assets or additions to equipment (including replacements, capitalized repairs and improvements during such period) that should be capitalized under GAAP on a consolidated balance sheet of such Person and its Subsidiaries. "Capital Leases" means, in respect of any Person, all leases which shall have been, or should have been, in accordance with GAAP, recorded as capital leases on the balance sheet of the Person liable (whether contingent or otherwise) for the payment of rent thereunder. 3 "Cash Equivalents" "means, as at any date of determination, (i) marketable securities (a) issued or directly and unconditionally guaranteed as to interest and principal by the United States Government, or (b) issued by any agency of the United States the obligations of which are backed by the full faith and credit of the United States, in each case maturing within one year after such date; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof, in each case maturing within one year after such date and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody's; (iii) commercial paper maturing no more than one year from the date of creation thereof and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year after such date and issued or accepted by any Lender or by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia that (a) is at least "adequately capitalized" (as defined in the regulations of its primary Federal banking regulator), and (b) has Tier 1 capital (as defined in such regulations) of not less than $250,000,000; and (v) shares of any money market mutual fund that (a) has at least ninety five percent (95%) of its assets invested continuously in the types of investments referred to in clauses (i) and (ii) above, (b) has net assets of not less than $500,000,000, and (c) has the highest rating obtainable from either S&P or Moody's. "Certificate of Designation" means the Certificate of Designation of Series A Convertible Preferred Shares of the Parent. "Change of Control" means an event or series of events by which: (a) the Permitted Investors shall cease to own and control legally and beneficially (free and clear of all Liens), either directly or indirectly, Equity Interests in the Parent representing more than 25% of the combined voting power of all of Equity Interests entitled to vote for members of the board of directors or equivalent governing body of the Parent on a fully-diluted basis (and taking into account all such securities that the Permitted Investors and PCEC and Affiliates of PCEC have the right to acquire pursuant to any option right (as defined in clause (b) below)); or (b) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) other than the Permitted Investors becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have "beneficial ownership" of all securities that such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time (such right, an "option right")), directly or indirectly, of 25% or more of the equity securities of the Parent entitled to vote for members of the board of directors or equivalent governing body of the Parent on a fully-diluted basis (and taking into account all such securities that such "person" or "group" has the right to acquire pursuant to any option right); or (c) any Person or two or more Persons acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement 4 that, upon consummation thereof, will result in its or their acquisition of the power to exercise, directly or indirectly, a controlling influence over the management or policies of the Parent, or control over the equity securities of the Parent entitled to vote for members of the board of directors or equivalent governing body of the Parent on a fully-diluted basis (and taking into account all such securities that such Person or Persons have the right to acquire pursuant to any option right) representing 25% or more of the combined voting power of such securities; or (d) the Parent shall cease, directly or indirectly, to own and control legally and beneficially all of the Equity Interests issued by the Borrower free and clear of all Liens, other than Liens created pursuant to, or expressly permitted by, the Security Documents). "Change in Law" means (a) the adoption of any law, treaty, rule or regulation after the date of this Agreement, (b) any change in any law, treaty, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender (or, for purposes of Section 5.01(b)), by any lending office of such Lender or by such Lender's holding company, if any) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement; PROVIDED that notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines, requirements or directives thereunder or issued in connection therewith (whether or not having the force of law) or in implementation thereof, and (ii) all requests, rules, regulations, guidelines, interpretations, requirements, interpretations and or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities (whether or not having the force of law), in each case pursuant to Basel III, shall in each case be deemed to be a "Change in Law", regardless of the date enacted, adopted, issued or implemented. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and any successor statute. "Collateral" means all Property of the Loan Parties, now owned or hereafter acquired, upon which a Lien is purported to be created by any Security Document. "Collateral Addition Date" means any date or dates that Administrative Agent requests that the Borrower cause all Oil and Gas Properties of the Borrower and its Subsidiaries not subject to the Lien of the Security Documents to become subject to such Lien. "Commitment" means as to any Lender, the obligation of such Lender, if any, to make Loans to the Borrower hereunder in a principal amount not to exceed the amount set forth under the heading "Commitment" opposite such Lender's name on the Annex I. The original aggregate amount of the Commitments is $5,000,000, provided, however, that if, during the Availability Period, (a) the Borrower obtains a valid assignment of the Riggan Lease from Ricochet Energy, Inc., (b) grants to the Administrative Agent a perfected first priority lien on the Riggan Lease, and (c) the Administrative Agent is satisfied with the Borrower's title to the Riggan Lease, the aggregate amount of the Commitments shall be increased by $150,000 and each Lender's Commitment shall be increased proportionately in 5 accordance with its then existing Applicable Percentage. In connection with any such increase, the Administrative Agent may supplement Annex I hereto to reflect such increase. "Consolidated Current Assets" means, at any time, the total assets of the Borrower and its Subsidiaries which would be shown as current assets on a balance sheet of the Borrower and its Subsidiaries prepared in accordance with GAAP at such time. "Consolidated Current Liabilities" means, at any time, the total liabilities of the Borrower and its Subsidiaries which would be shown as current liabilities on a balance sheet of the Borrower and its Subsidiaries prepared in accordance with GAAP at such time; but in any event excluding as current liabilities current maturities of the principal of the Loans and the VPP (to the extent that the VPP would otherwise be included within Consolidated Current Liabilities). "Consolidated Debt Ratio" means, as at the last day of any calendar month and subject to the provisions of Section 1.04(b), the ratio of (a) an amount equal to Consolidated Total Indebtedness on such day, to (b) Consolidated EBITDA for the 12-month period then ended. "Consolidated EBITDA" means, for any period and subject to the provisions of Section 1.04(b), Consolidated Net Income for such period, without duplication and to the extent reflected as a charge in the statement of such Consolidated Net Income for such period, the sum of (a) income tax expense, (b) interest expense, and (c) depreciation and amortization expense; provided, however, that for purposes of determining the Consolidated Interest Coverage Ratio in Section 9.01(a) and the Consolidated Debt Ratio in Section 9.01(b), (i) on each of October 31, 2014, November 30, 2014 and December 31, 2014, Consolidated EBITDA shall be deemed equal to Consolidated EBITDA for the three month period ending on such date multiplied by 4, (ii) on each of January 31, 2015, February 28, 2015 and March 31, 2015, Consolidated EBITDA shall be deemed equal to Consolidated EBITDA for the six month period ending on such date multiplied by 2, (iii) on each of April 30, 2015, May 31, 2015 and June, 2015, Consolidated EBITDA shall be deemed equal to Consolidated EBITDA for the nine month period ending on such date multiplied by 4/3, and (iv) on the last day of each calendar month after June 30, 2014, Consolidated EBITDA shall be equal to Consolidated EBITDA for the twelve month period ending on such date. "Consolidated Interest Coverage Ratio" means, for any period, the ratio of (a) Consolidated EBITDA for such period to (b) Consolidated Interest Expense for such period. "Consolidated Interest Expense" means, for any period and subject to the provisions of Section 1.04(b), total interest expense (including that attributable to Capital Leases) of the Borrower and its Subsidiaries for such period with respect to all outstanding Indebtedness of the Borrower and its Subsidiaries. "Consolidated Net Income" means, for any period and subject to the provisions of Section 1.04(b), the consolidated net income (or loss) of the Borrower and its Subsidiaries, determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded (a) the income (or deficit) of any Person accrued prior to the date it becomes a Subsidiary of the Borrower or is merged into or consolidated with the Borrower or any of its Subsidiaries, (b) the income (or deficit) of any Person (other than a Subsidiary of the Borrower) 6 in which the Borrower or any of its Subsidiaries has an ownership interest, except to the extent that any such income is actually received by the Borrower or such Subsidiary in the form of cash dividends or similar cash distributions and (c) the undistributed earnings of any Subsidiary of the Borrower to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of any Contractual Obligation (other than under any Loan Document) or Requirement of Law applicable to such Subsidiary. "Consolidated Total Indebtedness" means, at any date and subject to the provisions of Section 1.04(b), the aggregate principal amount of all Indebtedness of the Borrower and its Subsidiaries at such date, determined on a consolidated basis in accordance with GAAP. "Contractual Obligation" means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. For the purposes of this definition, and without limiting the generality of the foregoing, any Person that owns directly or indirectly 10% or more of the Equity Interests having ordinary voting power for the election of the directors or other governing body of a Person (other than as a limited partner of such other Person) will be deemed to "control" such other Person. "Controlling" and "Controlled" have meanings correlative thereto. "Debtor Relief Laws" means the Bankruptcy Code of the United States of America, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect. "Debt Service Reserve Account" means the segregated account 3100050594 standing in the name of the Borrower at PlainsCapital Bank. The Administrative Agent shall have sole dominion and control over the Debt Service Reserve Account pursuant to documentation satisfactory in form and substance to the Administrative Agent. "Default" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. "Defaulting Lender" means, subject to Section 2.05, any Lender that (a) has failed to (i) fund all or any portion of the Loans required to be funded by it hereunder within two Business Days of the date such Loans were required to be funded hereunder unless such Lender notifies the Administrative Agent and the Borrower in writing that such failure is the result of such Lender's determination that one or more conditions precedent to funding (each of which conditions precedent, together with any applicable default, shall be specifically identified in such writing) has not been satisfied, or (ii) pay to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within two Business Days of the date when due, (b) has notified the Borrower or the Administrative Agent in writing that it does not intend to comply with its funding obligations hereunder, or has made a public statement to that effect (unless such writing or public statement relates to 7 such Lender's obligation to fund a Loan hereunder and states that such position is based on such Lender's determination that a condition precedent to funding (which condition precedent, together with any applicable default, shall be specifically identified in such writing or public statement) cannot be satisfied), (c) has failed, within three Business Days after written request by the Administrative Agent or the Borrower, to confirm in writing to the Administrative Agent and the Borrower that it will comply with its prospective funding obligations hereunder (provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by the Administrative Agent and the Borrower), or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, or (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the FDIC or any other state or federal regulatory authority acting in such a capacity; PROVIDED that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any Equity Interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender. Any determination by the Administrative Agent that a Lender is a Defaulting Lender under clauses (a) through (d) above shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section 2.10) upon delivery of written notice of such determination to the Borrower and each Lender. "Default Rate" shall mean a rate of interest per annum equal to 17%. "Disbursement Letter" has the meaning specified in Section 6.01(bb). "Discounted Yield Value" means, with respect to Projected Interest Payments on any Called Principal of the Loan, the amount obtained by discounting the aggregate Projected Interest Payments that would accrue on such Called Principal during the Called Principal Determination Period therefor at a discount factor (applied on monthly basis for each calendar month during the Called Principal Determination Period) equal to the Reinvestment Yield with respect to such Projected Interest Payments. "Disqualified Stock" means any Equity Interest that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or upon the happening of any event, matures or is mandatorily redeemable for any consideration other than other Equity Interests (which would not constitute Disqualified Stock), pursuant to a sinking fund obligation or otherwise, or is convertible or exchangeable for Indebtedness or redeemable for any consideration other than other Equity Interests (which would not constitute Disqualified Stock) at the option of the holder thereof, in whole or in part, on or prior to the date that is one year after the earlier of (a) the Maturity Date and (b) the date on which there are no Loans or other obligations hereunder outstanding and all of the Commitments are terminated. "dollars", "Dollars" or "$" refers to lawful money of the United States of America. 8 "Effective Date" means the date on which the conditions specified in Section 6.01 are satisfied (or waived in accordance with Section 12.02). "ECF Percentage" means 50%. "Environmental Laws" means any and all Requirements of Law pertaining in any way to health, safety the environment, the preservation or reclamation of natural resources, or the management, release or threatened release of any hazardous substance, in effect in any and all jurisdictions in which the Borrower or any Subsidiary is conducting or at any time has conducted business, or where any Property of the Borrower or any Subsidiary is located, including without limitation, the Oil Pollution Act of 1990 ("OPA"), as amended, the Clean Air Act, as amended, the Comprehensive Environmental, Response, Compensation, and Liability Act of 1980 ("CERCLA"), as amended, the Federal Water Pollution Control Act, as amended, the Occupational Safety and Health Act of 1970, as amended, the Resource Conservation and Recovery Act of 1976 ("RCRA"), as amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended, and other environmental conservation or protection Requirements of Law. The term "oil" shall have the meaning specified in OPA, the terms "hazardous substance" and "release" (or "threatened release") have the meanings specified in CERCLA, the terms "solid waste" and "disposal" (or "disposed") have the meanings specified in RCRA and the term "oil and gas waste" shall have the meaning specified in Section 91.1011 of the Texas Natural Resources Code ("Section 91.1011"); provided, however, that (a) in the event either OPA, CERCLA, RCRA or Section 91.1011 is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the effective date of such amendment and (b) to the extent the laws of the state or other jurisdiction in which any Property of the Borrower or any Subsidiary is located establish a meaning for "oil," "hazardous substance," "release," "solid waste," "disposal" or "oil and gas waste" which is broader than that specified in either OPA, CERCLA, RCRA or Section 91.1011, such broader meaning shall apply. "Environmental Permit" means any permit, registration, license, approval, consent, exemption, variance, or other authorization required under or issued pursuant to applicable Environmental Laws. "Equity Interests" means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any such Equity Interest. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute. "ERISA Affiliate" means each trade or business (whether or not incorporated) which together with the Borrower or a Subsidiary would be deemed to be a "single employer" within the meaning of section 4001(b)(1) of ERISA or subsections (b), (c), (m) or (o) of section 414 of the Code. 9 "Event of Default" has the meaning assigned such term in Section 10.01. "Excepted Liens" means: (a) Liens for Taxes, assessments or other governmental charges or levies which are not delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (b) Liens in connection with workers' compensation, unemployment insurance or other social security, old age pension or public liability obligations which are not delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (c) statutory landlord's liens, operators', vendors', carriers', warehousemen's, repairmen's, mechanics', suppliers', workers', materialmen's, construction or other like Liens arising by operation of law in the ordinary course of business or incident to the exploration, development, operation and maintenance of Oil and Gas Properties each of which is in respect of obligations that are not delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (d) contractual Liens which arise in the ordinary course of business under operating agreements, joint venture agreements, oil and gas partnership agreements, oil and gas leases, farm-out agreements, division orders, contracts for the sale, transportation or exchange of oil and natural gas, unitization and pooling declarations and agreements, area of mutual interest agreements, overriding royalty agreements, marketing agreements, processing agreements, net profits agreements, development agreements, gas balancing or deferred production agreements, injection, repressuring and recycling agreements, salt water or other disposal agreements, seismic or other geophysical permits or agreements, and other agreements which are usual and customary in the oil and gas business and are for claims which are not delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP, provided that any such Lien referred to in this clause does not materially impair the use of any material Property covered by such Lien for the purposes for which such Property is held by the Borrower or any Subsidiary or materially impair the value of such Property subject thereto; (e) Liens arising solely by virtue of any statutory or common law provision relating to banker's liens, rights of set-off or similar rights and remedies and burdening only deposit accounts or other funds maintained with a creditor depository institution, provided that no such deposit account is a dedicated cash collateral account or is subject to restrictions against access by the depositor in excess of those set forth by regulations promulgated by the Board and no such deposit account is intended by Borrower or any of its Subsidiaries to provide collateral to the depository institution; (f) easements, restrictions, servitudes, permits, conditions, covenants, exceptions or reservations in any Property of the Borrower or any Subsidiary for the purpose of roads, pipelines, transmission lines, transportation lines, distribution lines for the removal of gas, oil, coal or other minerals or timber, and other like purposes, or for the joint or common use of real estate, rights of way, facilities and equipment, that do not secure any monetary obligations and which in the aggregate do not materially impair the use of any material Property for the purposes of which such Property is held by the Borrower or any Subsidiary or materially impair the value of any material Property subject thereto; (g) Liens on cash or securities pledged to secure performance of tenders, surety and appeal bonds, government contracts, performance and return of money bonds, bids, trade contracts, leases, statutory obligations, regulatory obligations and other obligations of a like nature incurred in the ordinary course of business and (h) judgment and attachment Liens not giving rise to an Event of Default, provided that any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such 10 proceeding may be initiated shall not have expired and no action to enforce such Lien has been commenced; provided, further that Liens described in clauses (a) through (e) shall remain "Excepted Liens" only for so long as no action to enforce such Lien has been commenced and no intention to subordinate the first priority Lien granted in favor of the Administrative Agent and the Lenders is to be hereby implied or expressed by the permitted existence of such Excepted Liens. "Excess Cash Flow" means, for any calendar month, Consolidated Net Income for such month plus depreciation and amortization expense of the Borrower and its Subsidiaries for such month, plus reasonable cash reserves for pending field work determined in good faith by the Borrower, minus Scheduled Capital Expenditures of the Borrower and its Subsidiaries for such month. For purposes of this definition, "Scheduled Capital Expenditures" means scheduled Capital Expenditures of the Borrower and its Subsidiaries set forth on Schedule 1.01A. "Excluded Taxes" means, with respect to the Administrative Agent, any Lender, or any other recipient of any payment to be made by or on account of any obligation of the Borrower or any Guarantor hereunder or under any other Loan Document, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America or such other jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower or any Guarantor is located and (c) any U.S. federal withholding Taxes imposed under FATCA. "FAS 133" means Statement of Financial Accounting Standard 133 (and any statements replacing, modifying or superseding such statement) adopted by the Financial Accounting Standards Board. "FATCA" means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code. "FDIC" means the Federal Deposit Insurance Corporation, or any successor thereto. "Financial Officer" means, for any Person, any president or vice president, the chief executive officer, the chief financial officer, principal accounting officer, treasurer or controller of such Person. Unless otherwise specified, all references herein to a Financial Officer means a Financial Officer of the Borrower. "Financial Statements" means the financial statement or statements of the Parent and its Subsidiaries referred to in Section 7.04(a). "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time subject to the terms and conditions set forth in Section 1.04. 11 "Governmental Authority" means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government over the Borrower, any Subsidiary, any of their Properties, the Administrative Agent, or any Lender. "Guarantee Obligation" as to any Person (the "guaranteeing person"), any obligation, including a reimbursement, counterindemnity or similar obligation, of the guaranteeing Person that guarantees or in effect guarantees, or which is given to induce the creation of a separate obligation by another Person (including any bank under any letter of credit) that guarantees or in effect guarantees, any Indebtedness, leases, dividends or other obligations (the "primary obligations") of any other third Person (the "primary obligor") in any manner, whether directly or indirectly, including any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith. "Guarantors" means the Parent and each Subsidiary that guarantees the Obligations pursuant to Section 8.14(b). "Guaranty Agreement" means that certain Guaranty and Collateral Agreement among the Borrower and its Subsidiaries and Administrative Agent pursuant to which the Guarantors (other than the Parent) have guaranteed the payment and performance of the Obligations "Hazardous Material" means any substance regulated or as to which liability might arise under any applicable Environmental Law and including, without limitation: (a) any chemical, compound, material, product, byproduct, substance or waste defined as or included in the definition or meaning of "hazardous substance," "hazardous material," "hazardous waste," "solid waste," "toxic waste," "extremely hazardous substance," "toxic substance," "contaminant," "pollutant," or words of similar meaning or import found in any applicable Environmental Law; (b) petroleum hydrocarbons, petroleum products, petroleum substances, natural gas, oil, oil and gas waste, crude oil, and any components, 12 fractions, or derivatives thereof; and (c) radioactive materials, asbestos containing materials, polychlorinated biphenyls, or radon. "Highest Lawful Rate" means, with respect to each Lender, the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the Notes or on other Obligations under laws applicable to such Lender which are presently in effect or, to the extent allowed by law, under such laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws allow as of the date hereof. "Hydrocarbon Interests" means all rights, titles, interests and estates now or hereafter acquired in and to oil and gas leases, oil, gas and mineral leases, or other liquid or gaseous hydrocarbon leases, mineral fee interests, overriding royalty and royalty interests, net profit interests and production payment interests, including any reserved or residual interests therein or thereto, of whatever nature. "Hydrocarbons" means oil, gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all products refined or separated therefrom. "Indebtedness" means, for any Person, the sum of the following (without duplication): (a) all obligations of such Person for borrowed money or evidenced by bonds, bankers' acceptances, debentures, notes or other similar instruments; (b) all obligations of such Person (whether contingent or otherwise) in respect of letters of credit, surety or other bonds and similar instruments; (c) all accounts payable and all accrued expenses, liabilities or other obligations of such Person to pay the deferred purchase price of Property or services, including earnout obligations; (d) all obligations under Capital Leases; (e) all Synthetic Lease Obligations; (f) all Indebtedness (as defined in the other clauses of this definition) of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) a Lien on any Property of such Person, whether or not such Indebtedness is assumed by such Person; (g) all Guarantee Obligations of such Person in respect of Indebtedness (as defined in the other clauses of this definition); (h) all obligations to deliver commodities, goods or services, including, without limitation, Hydrocarbons, in consideration of one or more advance payments, other than gas balancing arrangements in the ordinary course of business; (i) all obligations to pay for goods or services even if such goods or services are not actually received or utilized by such Person (other than firm transportation or storage, or drilling contracts); (j) any Indebtedness of a partnership for which such Person is liable either by agreement, by operation of law or by a governmental requirement but only to the extent of such liability; (k) all Disqualified Stock issued by such Person, valued, as of the date of determination, at the greater of (i) the maximum aggregate amount that would be payable upon maturity, redemption, repayment or repurchase thereof (or of Disqualified Stock or Indebtedness into which such Disqualified Stock is convertible or exchangeable) and (ii) the maximum liquidation preference of such Disqualified Stock; and (l) all obligations of such Person in respect of Swap Agreements, valued at the Swap Termination Value thereof. The Indebtedness of any Person shall include all obligations of such Person of the character described above to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is not included as a liability of such Person under GAAP. 13 "Indemnified Taxes" means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Loan Party under any Loan Document and (b) to the extent not otherwise described in (a), Other Taxes. "Indemnitee" has the meaning assigned such term in Section 12.03(b). "Information" has the meaning assigned such term in Section 12.11. "Initial Reserve Report" means the report of the Borrower with respect to certain Oil and Gas Properties of the Borrower and its Subsidiaries prepared by Cawley, Gillespie and Associates as of January 31, 2014. "Interest Payment Date" means (a) the last day of each calendar month to occur while any principal of this Note is outstanding, commencing on August 31, 2014, and (b) the Maturity Date. "Investment" means, for any Person: (a) the acquisition (whether for cash, Property, services or securities or otherwise) of Equity Interests of any other Person or any agreement to make any such acquisition (including, without limitation, any "short sale" or any sale of any securities at a time when such securities are not owned by the Person entering into such short sale); (b) the making of any deposit with, or advance, loan or capital contribution to, the assumption of Indebtedness of, the purchase or other acquisition of any other Indebtedness of or equity participation or interest in, or other extension of credit to, any other Person (including the purchase of Property from another Person subject to an understanding or agreement, contingent or otherwise, to resell such Property to such Person, but excluding any such advance, loan or extension of credit having a term not exceeding ninety (90) days representing the purchase price of inventory, material, equipment or supplies sold by such Person in the ordinary course of business); (c) the purchase or acquisition (in one or a series of transactions) of Property of another Person that constitutes a business unit or all or a substantial part of the business of, such Person, or (d) the entering into of any guarantee of, or other contingent obligation (including the deposit of any Equity Interests to be sold) with respect to, Indebtedness or other liability of any other Person and (without duplication) any amount committed to be advanced, lent or extended to such Person. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment "Lenders" means the Persons listed on Annex I and any Person that shall have become a party hereto pursuant to an Assignment and Assumption, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Assumption. "Lien" means any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property, whether such interest is based on the common law, statute or contract, and whether such obligation or claim is fixed or contingent, and including but not limited to (a) the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes or (b) production payments and the like payable out of Oil and Gas Properties. The term "Lien" shall include easements, restrictions, servitudes, permits, conditions, covenants, exceptions or reservations. For the 14 purposes of this Agreement, the Borrower and the Subsidiaries shall be deemed to be the owner of any Property which it has acquired or holds subject to a conditional sale agreement, or leases under a financing lease or other arrangement pursuant to which title to the Property has been retained by or vested in some other Person in a transaction intended to create a financing. "Loans" has the meaning specified in Section 2.01. "Loan Documents" means this Agreement, the Notes, the Security Documents, the ORI Conveyances, the Warrant Agreement, and the Warrant. "Loan Parties" means the Parent, the Borrower and each Subsidiary of the Borrower that is a party to a Loan Document. "Make-Whole Premium" means, with respect to any Called Principal of the Loan, an amount equal to the Discounted Yield Value thereon for the Called Principal Determination Period. "Material Adverse Effect" means a material adverse change in, or material adverse effect on (a) the business, operations, Property, prospects or condition (financial or otherwise) of the Borrower and the Guarantors, taken as a whole, (b) the ability of the Borrower and the Guarantors to perform any of their obligations under any Loan Document, (c) the validity or enforceability of any Loan Document or (d) the rights and remedies of or benefits available to the Administrative Agent, any other Agent or any Lender under any Loan Document. "Material Contract" means, with respect to any Person, (a) each contract to which such Person is a party involving aggregate consideration payable to or by such Person of $50,000 or more in any year or otherwise material to the business, condition (financial or otherwise), operations, performance, properties or prospects of such Person, and (b) the Acquisition Documents. "Material Indebtedness" means Indebtedness (other than the Loans), or obligations in respect of one or more Swap Agreements, of any one or more of the Parent, the Borrower and the Subsidiaries in an aggregate principal amount exceeding $100,000. For purposes of determining Material Indebtedness, the "principal amount" of the obligations of the Parent, the Borrower or any Subsidiary in respect of any Swap Agreement at any time shall be the Swap Termination Value owed by the Borrower or any Subsidiary, as applicable. "Maturity Date" means July 31, 2016; provided, however, that if such date is not a Business Day, the Maturity Date shall be the next preceding Business Day. "Mcf" means one thousand cubic feet. "Moody's" means Moody's Investors Service, Inc. and any successor thereto that is a nationally recognized rating agency. 15 "Mortgaged Properties" means any Oil and Gas Properties owned by the Borrower or any Guarantor which is subject to the Liens existing and to exist under the terms of the Security Documents. "Net Cash Proceeds" means (a) in connection with any Asset Sale or any Recovery Event, the proceeds thereof in the form of cash and Cash Equivalents (including any such proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or otherwise, but only as and when received) of such Asset Sale or Recovery Event, net of attorneys' fees, accountants' fees, investment banking fees, amounts required to be applied to the repayment of Indebtedness secured by a Lien expressly permitted hereunder on any asset that is the subject of such Asset Sale or Recovery Event (other than any Lien pursuant to a Security Document) and other customary fees and expenses actually incurred in connection therewith and net of taxes paid or reasonably estimated to be payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements) and (b) in connection with any issuance or sale of Equity Interests or any incurrence of Indebtedness, the cash proceeds received from such issuance or incurrence, net of attorneys' fees, investment banking fees, accountants' fees, underwriting discounts and commissions and other customary fees and expenses actually incurred in connection therewith. "Non-Defaulting Lender" means, at any time, each Lender that is not a Defaulting Lender at such time. "Notes" means the promissory notes of the Borrower described in Section 2.02(d) and being substantially in the form of Exhibit A, together with all amendments, modifications, replacements, extensions and rearrangements thereof. "Newton Note" means the Consolidated Combined and Restated Secured Promissory Note dated April 23, 2014, between the Parent and Newton Energy, Inc., a California corporation, in the original principal amount of $785,108.47. "Obligations" means all advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan, in each case whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees and Make-Whole Premium that accrue or arise after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest, fees and Make-Whole Premium are allowed claims in such proceeding. "OFAC" means the U.S. Department of the Treasury's Office of Foreign Assets Control. "Oil and Gas Properties" means (a) Hydrocarbon Interests; (b) the Properties now or hereafter pooled or unitized with Hydrocarbon Interests; (c) all presently existing or future unitization, pooling agreements and declarations of pooled units and the units created thereby (including without limitation all units created under orders, regulations and rules of any Governmental Authority) which may affect all or any portion of the Hydrocarbon 16 Interests; (d) all operating agreements, contracts and other agreements, including production sharing contracts and agreements, which relate to any of the Hydrocarbon Interests or the production, sale, purchase, exchange or processing of Hydrocarbons from or attributable to such Hydrocarbon Interests; (e) all Hydrocarbons in and under and which may be produced and saved or attributable to the Hydrocarbon Interests, including all oil in tanks, and all rents, issues, profits, proceeds, products, revenues and other incomes from or attributable to the Hydrocarbon Interests; (f) all tenements, hereditaments, appurtenances and Properties in any manner appertaining, belonging, affixed or incidental to the Hydrocarbon Interests and (g) all Properties, rights, titles, interests and estates described or referred to above, including any and all Property, real or personal, now owned or hereinafter acquired and situated upon, used, held for use or useful in connection with the operating, working or development of any of such Hydrocarbon Interests or Property (excluding drilling rigs, automotive equipment, rental equipment or other personal Property which may be on such premises for the purpose of drilling a well or for other similar temporary uses) and including any and all oil wells, gas wells, injection wells or other wells, structures, fuel separators, liquid extraction plants, plant compressors, pumps, pumping units, field gathering systems, tanks and tank batteries, fixtures, valves, fittings, machinery and parts, engines, boilers, meters, apparatus, equipment, appliances, tools, implements, cables, wires, towers, casing, tubing and rods, surface leases, rights-of-way, easements and servitudes together with all additions, substitutions, replacements, accessions and attachments to any and all of the foregoing. References in this Agreement to Oil and Gas Properties of the Borrower and its Subsidiaries include the Acquisition Properties. "Operating Agreements" means operating agreements or joint operating agreements among or between the Borrower or any Subsidiary and other working interest owners. "Organization Documents" means, (a) with respect to any corporation, the certificate or articles of incorporation, the bylaws and any certificate of designation (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity. "ORI" means the limited term overriding royalty interests to be conveyed from the Borrower to the Administrative Agent, for the pro rata benefit of the Lenders, pursuant to an ORI Conveyance. "ORI Conveyance" means each ORI conveyance by and between Borrower and or a Subsidiary, as grantor, and Administrative Agent, as grantee, for the benefit of the Lenders, required under Section 2.06 of this Agreement. Each ORI Conveyance shall be in form and substance satisfactory to the Administrative Agent. "Other Taxes" means any and all present or future stamp or documentary taxes or any other excise or Property taxes, charges or similar levies arising 17 from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement and any other Loan Document; provided that, for the avoidance of doubt, "Other Taxes" shall not include Excluded Taxes "Paid in Full" means (i) the irrevocable and indefeasible payment in full in cash of all principal, interest (including interest accruing during the pendency of an insolvency or liquidation proceeding, regardless of whether allowed or allowable in such insolvency or liquidation proceeding) and Make-Whole Premium, if any, on all Loans outstanding under the Credit Agreement, (ii) the payment in full in cash or posting of cash collateral in respect of all other Obligations or amounts that are outstanding under the Credit Agreement and the other Loan Documents, and (iii) the termination of all Commitments under the Credit Agreement. "Parent" has the meaning specified in the preamble of this Agreement. "Parent Guaranty" has the meaning specified on Exhibit D. "Parent Pledge Agreement" has the meaning specified on Exhibit D. "Participant" has the meaning set forth in Section 12.04(c)(i). "Participant Register" has the meaning specified in Section 12.04(c)(iii). "PCEC Sub 1" means PCEC Sub 1, LLC, a Texas limited liability company. "Permitted Investors" means (a) Ronnie L. Steinocher and Lisa Hamilton, and (b) PCEC and its Affiliates. "Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "Plan" means any employee pension benefit plan, as defined in section 3(2) of ERISA, which (a) is currently or hereafter sponsored, maintained or contributed to by the Borrower, a Subsidiary or an ERISA Affiliate or (b) was at any time during the six calendar years preceding the date hereof, sponsored, maintained or contributed to by the Borrower or a Subsidiary or an ERISA Affiliate. "Pro Forma Balance Sheet" has the meaning specified in Section 7.04(b). "Projected Interest Payments" means, as to any Called Principal of the Loans, the aggregate amount of interest that would accrue during the Called Principal Determination Period therefor assuming that (x) such interest would accrue on each day during such Called Principal Determination Period at the rate of 12% per annum, and (y) such Called Principal remained outstanding in full during the entire Called Principal Determination Period. "Projections" has the meaning specified in Section 7.24. 18 "Property" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible, including, without limitation, cash, securities, accounts and contract rights. "Recovery Event" means any settlement of or payment in respect of any property or casualty insurance claim or any condemnation proceeding relating to any asset of the Borrower or any Subsidiary. "Redemption" means with respect to any Indebtedness, the repurchase, redemption, prepayment, repayment, defeasance or any other acquisition or retirement for value (or the segregation of funds with respect to any of the foregoing) of such Indebtedness. "Redeem" has the correlative meaning thereto. "Register" has the meaning assigned such term in Section 12.04(b)(iv). "Registration Rights Agreement" means the Registration Rights Agreement, dated as of the Effective Date, among the Parent, the Administrative Agent and PCEC. "Regulation D" means Regulation D of the Board, as the same may be amended, supplemented or replaced from time to time. "Reinvestment Deferred Amount" means with respect to any Reinvestment Event, the aggregate Net Cash Proceeds received by the Borrower or any Subsidiary in connection therewith that are not applied to prepay Loans pursuant to Section 3.03(c)(ii) as a result of the delivery of a Reinvestment Notice. "Reinvestment Event" means any Recovery Event in respect of which the Borrower has delivered a Reinvestment Notice. "Reinvestment Notice" means a written notice executed by a Responsible Officer of the Borrower stating that no Event of Default has occurred and is continuing and that the Borrower (directly or indirectly through a Subsidiary) intends and expects to use all or a specified portion of the Net Cash Proceeds of a Recovery Event to acquire or repair assets useful in its business. "Reinvestment Prepayment Amount" means with respect to any Reinvestment Event, the Reinvestment Deferred Amount relating thereto less any amount expended prior to the relevant Reinvestment Prepayment Date to acquire or repair assets useful in the Borrower's business. "Reinvestment Prepayment Date" means with respect to any Reinvestment Event, the earlier of (a) the date occurring 90 days after such Reinvestment Event and (b) the date on which the Borrower shall have determined not to, or shall have otherwise ceased to, acquire or repair assets useful in the Borrower's business with all or any portion of the relevant Reinvestment Deferred Amount. "Reinvestment Yield" means, with respect to Projected Interest Payments on any Called Principal, the sum of the (x) Applicable Make Whole Percentage plus (y) the One Month LIBO Rate. For purposes of this definition, "One Month LIBO Rate" means the rate per annum equal to the rate of interest published on the Effective Date in the Money Rates section of THE WALL STREET JOURNAL under the 19 caption "London interbank offered rate" or "Libor Rate" for Dollars for a period of one month. "Related Parties" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors (including attorneys, accountants and experts) of such Person and such Person's Affiliates. "Release" means any depositing, spilling, leaking, pumping, pouring, placing, emitting, discarding, abandoning, emptying, discharging, migrating, injecting, escaping, leaching, dumping, or disposing. "Remedial Work" has the meaning assigned such term in Section 8.10(a). "Required Lenders" means, at any time, the holders of at least 66-?% of (a) the Commitments then in effect and (b) if the Commitments have terminated or expired, the aggregate unpaid principal amount of the Loans then outstanding; provided that the portion of the Commitments or Loans held by any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders. "Requirement of Law" means, as to any Person, the Organization Documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Reserve Report" means the Initial Reserve Report and a report, in form and substance reasonably satisfactory to the Administrative Agent, setting forth, as of each August 1 or February 1 the oil and gas reserves located in the United States attributable to the Oil and Gas Properties of the Borrower and the Subsidiaries, together with a projection of the rate of production and future net income, taxes, operating expenses and capital expenditures with respect thereto as of such date, based upon the economic assumptions consistent with the Administrative Agent's lending requirements at the time. "Responsible Officer" means, as to any Person, the Chief Executive Officer, the President, any Financial Officer or any Vice President of such Person. Unless otherwise specified, all references to a Responsible Officer herein shall mean a Responsible Officer of the Borrower. "Restricted Payment" means any dividend or other distribution (whether in cash, securities or other Property) with respect to any Equity Interests in the Borrower or any of its Subsidiaries, or any payment (whether in cash, securities or other Property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such Equity Interests in the Borrower or any of its Subsidiaries or any option, warrant or other right to acquire any such Equity Interests in the Borrower or any of its Subsidiaries. "Riggan Lease" means the Oil and Gas Lease entered into on August 18, 2010, between James Riggan, Yvonne Riggan, the other lessors party thereto and 20 Ricochet Energy, Inc., as to which a Memorandum of Oil and Gas Lease is recorded Volume 79, Page 460 of the Official Records of Frio County, Texas. "Sanctioned Country" means a country subject to a sanctions program identified on the list maintained by OFAC and available at http://www.treasury.gov/resource-center/sanctions/Programs/Pages/Programs.aspx, or as otherwise published from time to time. "Sanctioned Person" means (a) a Person named on the list of "Specially Designated Nationals and Blocked Persons" maintained by OFAC available at http://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx, or as otherwise published from time to time, or (b) (i) an agency of the government of a Sanctioned Country, (ii) an organization controlled by a Sanctioned Country, or (iii) a person resident in a Sanctioned Country, to the extent subject to a sanctions program administered by the U.S. Department of the Treasury's Office of Foreign Assets Control. "S&P" means Standard & Poor's Ratings Group, a division of The McGraw Hill Corporation, and any successor thereto. "SEC" means the Securities and Exchange Commission or any successor Governmental Authority. "Secured Parties" means, collectively, the Administrative Agent, the Lenders, each co-agent or sub-agent appointed by the Administrative Agent from time to time pursuant to Section 11.05, and the other Persons the Obligations owing to which are or are purported to be secured by the Collateral under the terms of the Security Documents. "Security Documents" means the Guaranty Agreement, Parent Guaranty, Blocked Account Agreement (DSR), Parent Pledge Agreement, mortgages, deeds of trust and other agreements, instruments or certificates described or referred to in Exhibit D, and any and all other agreements, instruments, consents or certificates now or hereafter executed and delivered by the Borrower or any other Person as security for the payment or performance of the Obligations, the Notes, and/or this Agreement, as such agreements may be amended, modified, supplemented or restated from time to time. "Series A Convertible Preferred Stock" means the Series A Convertible Preferred Stock of the Parent, par value $0.001 per share. "Solvent" when used with respect to any Person, means that, as of any date of determination, (a) the amount of the "present fair saleable value" of the assets of such Person will, as of such date, exceed the amount of all "liabilities of such Person, contingent or otherwise", as of such date, as such quoted terms are determined in accordance with applicable federal and state laws governing determinations of the insolvency of debtors, (b) the present fair saleable value of the assets of such Person will, as of such date, be greater than the amount that will be required to pay the liability of such Person on its debts as such debts become absolute and matured, (c) such Person will not have, as of such date, an unreasonably small amount of capital with which to conduct its business, and (d) such Person will be able to pay its debts as they mature. For purposes of this definition, (i) "debt" means liability on a "claim", and (ii) "claim" means any (x) right to payment, whether or not such a right is 21 reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (y) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured or unsecured. "Subsidiary" means: (a) any Person of which at least a majority of the outstanding Equity Interests having by the terms thereof ordinary voting power to elect a majority of the board of directors, manager or other governing body of such Person (irrespective of whether or not at the time Equity Interests of any other class or classes of such Person shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by the Borrower and/or one or more of its Subsidiaries and (b) any partnership of which the Borrower or any of its Subsidiaries is a general partner. Unless otherwise indicated herein, each reference to the term "Subsidiary" shall mean a Subsidiary of the Borrower. "Subsidiary Guarantor" means each Subsidiary of the Borrower. "Swap Agreement" means any agreement with respect to any swap, forward, future or derivative transaction or option or similar agreement, whether exchange traded, "over-the-counter" or otherwise, involving, or settled by reference to, one or more interest rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions; provided that no phantom stock or similar plan providing for payments only on account of services provided by current or former directors, officers, employees or consultants of the Borrower or the Subsidiaries shall be a Swap Agreement. "Swap Termination Value" means, in respect of any one or more Swap Agreements, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Agreements, (a) for any date on or after the date such Swap Agreements have been closed out and termination value(s) determined in accordance therewith, such termination value(s) and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Agreements, as determined by the counterparties to such Swap Agreements. "Synthetic Lease Obligation" means the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property (including sale and leaseback transactions), in each case, creating obligations that do not appear on the balance sheet of such Person but which, upon the application of any Debtor Relief Laws to such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment). "Taxes" means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto. "Total G&A Expense" means, for any period, normal and customary expenses and costs satisfactory to Administrative Agent, paid in cash, that in accordance 22 with GAAP are classified as general and administrative costs, including consulting fees, salary, bonuses, employee benefits, rent, supplies, travel and entertainment, insurance, accounting, legal, engineering and broker related fees, required to manage the affairs of the Loan Parties; provided, that, to the extent any of the foregoing are capitalized, they shall be included in the definition of Total G&A Expense. "Transactions" means the collective reference to: (a) with respect to the Borrower, the execution, delivery and performance by the Borrower of this Agreement and each other Loan Document to which it is a party, the borrowing of Loans, and the use of the proceeds thereof, and the grant of Liens by the Borrower on Mortgaged Properties and other Properties pursuant to the Security Documents; (b) with respect to each Guarantor, the execution, delivery and performance by such Guarantor of each Loan Document to which it is a party, the guaranteeing of the Obligations and such Guarantor's grant of the security interests and provision of collateral under the Security Documents, and the grant of Liens by such Guarantor on Mortgaged Properties and other Properties pursuant to the Security Documents; (c) the consummation of the Acquisition and the other transactions contemplated by the Acquisition Documents; (d) the issuance by the Parent of the Warrants to the Administrative Agent, for the benefit of the Lenders, pursuant to the Warrant Agreement; (e) the sale of the VPP by the Borrower to PCEC Sub 1 pursuant to, and the consummation of the other transactions contemplated by, the VPP Documents; (f) the assignment by the Parent of the Shaffer leases to the Borrower; and (g) the payment of the fees and expenses incurred in connection with the consummation of the foregoing. "U.S. Person" means any Person that is a "United States Person" as defined in Section 7701(a)(30) of the Code. "VPP" means the Production Payment (as defined in the VPP Conveyance). "VPP Conveyance" means the Conveyance of Term Overriding Royalty Interest dated the date hereof, from the Borrower, as grantor, to PCEC Sub 1, as grantee. "VPP Documents" means (a) the VPP Purchase Agreement, (b) the VPP Conveyance, (c) the VPP Production and Marketing Agreement, (d) the VPP Mortgage, and (e) all assignments, agreements, instruments and documents executed and delivered in connection therewith. "VPP Mortgage" means the Mortgage (as defined in the VPP Conveyance). 23 "VPP Production and Marketing Agreement" means the Production and Marketing Agreement dated the date hereof between the Borrower and PCEC Sub 1. "VPP Purchase Agreement" means the Purchase and Sale Agreement dated the date hereof between the Borrower, as seller, and PCEC Sub 1, as buyer. "Warrant Agreement" means that certain Warrant Agreement dated as of the date hereof between the Parent and the Administrative Agent, as the same may be amended, restated, modified or supplemented from time to time. "Warrants" means all warrants to purchase common shares of the Parent under the Warrant Agreement. "Wholly-Owned Subsidiary" means any Subsidiary of the Borrower of which all of the outstanding Equity Interests (other than any directors' qualifying shares mandated by Requirement of Law), on a fully-diluted basis, are owned by the Borrower or one or more of the Wholly-Owned Subsidiaries or are owned by the Borrower and one or more of the Wholly-Owned Subsidiaries. "Wholly Owned Subsidiary Guarantor" means any Subsidiary Guarantor that is a Wholly-Owned Subsidiary of the Borrower. Section 1.03 Terms Generally; Rules of Construction. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth in the Loan Documents), (b) any reference herein to any law shall be construed as referring to such law as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time, (c) any reference herein to any Person shall be construed to include such Person's successors and assigns (subject to the restrictions contained in the Loan Documents), (d) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (e) with respect to the determination of any time period, the word "from" means "from and including" and the word "to" means "to and including" and (f) any reference herein to Articles, Sections, Annexes, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Annexes, Exhibits and Schedules to, this Agreement. No provision of this Agreement or any other Loan Document shall be interpreted or construed against any Person solely because such Person or its legal representative drafted such provision. 24 Section 1.04 Accounting Terms and Determinations; GAAP. (a) Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all financial statements and certificates and reports as to financial matters required to be furnished to the Administrative Agent or the Lenders hereunder shall be prepared, in accordance with GAAP, applied on a basis consistent with the Financial Statements except for changes in which Borrower's independent certified public accountants concur and which are disclosed to Administrative Agent on the next date on which financial statements are required to be delivered to the Lenders pursuant to Section 8.01(a); provided that, unless the Borrower and the Required Lenders shall otherwise agree in writing, no such change shall modify or affect the manner in which compliance with the covenants contained herein is computed such that all such computations shall be conducted utilizing financial information presented consistently with prior periods. (b) Notwithstanding anything to the contrary under GAAP, (i) no portion of the VPP shall be treated as interest expense in calculating (x) Consolidated EBITDA, or (y) the Consolidated Interest Coverage Ratio in Section 9.01(a), (ii) no portion of the VPP shall be included in Consolidated Total Indebtedness in calculating the Consolidated Debt Ratio in Section 9.01(b), and (iii) neither the production allocated to the VPP, nor the proceeds from the sale of the VPP pursuant to the VPP Purchase and Sale Agreement, shall be included in the calculation of Consolidated EBITDA and Consolidated Net Income. ARTICLE II THE LOANS AND ORI'S Section 2.01 Commitments. Subject to the terms and conditions hereof, each Lender severally agrees to make one or more term loans (the "Loans") to the Borrower from time to time during the Availability Period in an aggregate principal amount not to exceed the amount of the Commitment of such Lender. Amounts prepaid or repaid on account of the Loans may not be reborrowed. Section 2.02 Loans and Borrowings. (a) Borrowings; Several Obligations. Each Loan shall be made by the Lenders ratably in accordance with their respective Commitments. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations hereunder; provided that the Commitments are several and no Lender shall be responsible for any other Lender's failure to make Loans as required. (b) Notes. The Loans made by each Lender shall be evidenced by a single promissory note of the Borrower in substantially the form of Exhibit A, dated, in the case of (i) any Lender party hereto as of the date of this Agreement, as of the date of this Agreement or (ii) any Lender that becomes a party hereto pursuant to an Assignment and Assumption, as of the effective date of the Assignment and Assumption, payable to such Lender and its registered assigns in a principal amount equal to its Commitment or, if its Commitment has expired or terminated, in the amount of its outstanding Loans on such date, and otherwise duly completed. The date, amount, and interest rate of each Loan made by each Lender, and all payments made on account of the principal thereof, shall be recorded by such Lender on its books for its Note, and, prior to any transfer, 25 may be endorsed by such Lender on a schedule attached to such Note or any continuation thereof or on any separate record maintained by such Lender. Failure to make any such notation or to attach a schedule shall not affect any Lender's or the Borrower's rights or obligations in respect of such Loans or affect the validity of such transfer by any Lender of its Note. The accounts or records maintained by the Administrative Agent and each Lender shall be conclusive absent manifest error of the amount of the Loans made by the Lenders to the Borrower and the interest and payments thereon. Section 2.03 Requests for Borrowings. The Borrower may borrow under the Commitments during the Availability Period on any Business Day, provided that the Borrower shall give the Administrative Agent irrevocable notice pursuant to a Borrowing Request (which notice must be received by the Administrative Agent prior to 10:00 a.m. (Dallas, Texas time), at least ten (10) Business Days prior to the requested Borrowing Date) specifying (i) the amount of the Loans to be Borrowed, (ii) the requested Borrowing Date, and (iii) the purpose of the Loans in reasonable detail. Each Borrowing under the Commitments shall be in an amount equal not less than $250,000 (or, if the then aggregate unused Commitments are less than $250,000, such lesser amount). Promptly following receipt of a Borrowing Request in accordance with this Section 2.03, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part of the requested Borrowing. No more than four Borrowings may be requested under this Agreement. The aggregate principal amount of the Loans borrowed on the Effective Date shall not exceed $3,000,000. Section 2.04 Funding of Borrowings. (a) Funding by Lenders. Each Lender shall make each Loan to be made by it hereunder on the Borrowing Date thereof by wire transfer of immediately available funds by 1:00 p.m., Dallas, Texas time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. The Administrative Agent will make such Loans available to the Borrower by, at the discretion of the Administrative Agent, (i) transferring immediately available funds equal to the amount of such Loan to the Borrower's Designated Account, or (ii) wire transfer of such funds in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by the Borrower; provided that the Administrative Agent may deduct from proceeds of the Loans made on the Effective Date all fees, costs and expenses (including attorneys' fees) that are payable by the Borrower under the Loan Documents and the amount required to fund the Debt Service Reserve Account in accordance with Section 3.02(d). Nothing herein shall be deemed to obligate any Lender to obtain the funds for its Loans in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for its Loans in any particular place or manner. (b) Presumption of Funding by the Lenders. Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with Section 2.04(a) and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, 26 then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the interest rate then payable on the Notes pursuant to this Agreement or (ii) in the case of the Borrower, the interest rate then payable on the Notes pursuant to this Agreement. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender's Loan included in such Borrowing. Section 2.05 Defaulting Lenders. (a) Defaulting Lender Adjustments. Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as such Lender is no longer a Defaulting Lender, to the extent permitted by Requirement of Law: (i) Waivers and Amendments. Such Defaulting Lender's right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in the definition of Required Lenders. (ii) Reallocation of Payments. Any payment of principal, interest, fees or other amounts received by the Administrative Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to ARTICLE X or otherwise, or received by the Administrative Agent from a Defaulting Lender pursuant to Section 12.08), shall be applied at such time or times as may be determined by the Administrative Agent (or, in the case of the second clause below, as requested by the Borrower) as follows: first, to the payment of any amounts owing by that Defaulting Lender to the Administrative Agent hereunder; second, as the Borrower may request (so long as no Default or Event of Default exists), to the funding of any Loan in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by the Administrative Agent; third, if so determined by the Administrative Agent and the Borrower, to be held in a non-interest bearing deposit account and released in order to satisfy obligations of such Defaulting Lender to fund its Loan under this Agreement; fourth, to the payment of any amounts owing to the Lenders as a result of any judgment of a court of competent jurisdiction obtained by any Lender against such Defaulting Lender as a result of that Defaulting Lender's breach of its obligations under this Agreement; fifth, so long as no Default or Event of Default exists, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against that Defaulting Lender as a result of that Defaulting Lender's breach of its obligations under this Agreement; and sixth, to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction. Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender shall be deemed paid to and redirected by that Defaulting Lender, and each Lender irrevocably consents hereto. (b) Defaulting Lender Cure. If the Borrower and the Administrative Agent agree in writing in their sole discretion that a Lender is no longer a Defaulting Lender, the Administrative Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein, that Lender will, to the extent applicable, 27 purchase at par that portion of outstanding Loans of the other Lenders or take such other actions as the Administrative Agent may determine to be necessary to cause the Loans to be held on a pro rata basis by the Lenders in accordance with their Applicable Percentages, whereupon such Lender will cease to be a Defaulting Lender; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrower while that Lender was a Defaulting Lender; and provided, further, that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender's having been a Defaulting Lender. Section 2.06 ORI's(a) . As partial consideration for the respective Commitment of each Lender, so long as any of the Obligations are outstanding (other than customary indemnity obligations with respect to which no amounts are currently due), the Borrower agrees to, and shall cause each Subsidiary to, convey to Administrative Agent for the pro-rata benefit of the Lenders a 2.0% ORI (based on 100% of the working interest) in each well of the Borrower or any Subsidiary now existing or completed or recompleted after the Effective Date.. Each ORI shall terminate at 11:59 p.m., Central time, on July 31, 2017, provided that if at any time before such time and date an Event of Default shall occur and be continuing for a period in excess of 60 days, the term of each ORI shall automatically be extended to 11:59 p.m., Central time, on July 31, 2018 and the Borrower shall promptly execute and deliver such documents as may be requested by the Administrative Agent to evidence such extension. Once the Obligations have been Paid in Full, Borrower shall have no further obligation to grant or convey, and neither the Administrative Agent nor any Lender shall be entitled to, any further conveyance of ORI, other than as may have been conveyed hereunder on or prior to the date of such repayment. ARTICLE III PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES Section 3.01 Repayment of Loans. The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Loan on the Maturity Date. 28 Section 3.02 Interest. (a) Interest Rate. Subject to the provisions of Section 3.02(b), the Loans shall bear interest at a per annum rate equal to 12%. (b) Default Rate. (i) If any amount of principal of the Loans is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, such amount shall thereafter bear interest at a rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable law. (ii) If any amount (other than principal of the Loans) payable by the Borrower under any Loan Document is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, then such amount shall thereafter bear interest at a rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable law. (iii) Upon the request of the Administrative Agent (which request may apply retroactively from the date that the applicable Event of Default first occurred), while any Event of Default exists, the Borrower shall pay interest on the principal amount of all outstanding Obligations hereunder at a rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable law. (c) Interest Payment Dates. Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and on the Maturity Date; provided that interest accrued pursuant to Section 3.02(b) shall be payable from time to time on demand. The Borrower hereby irrevocably authorizes the Administrative Agent to, and the may, at any time and from time to time, without notice to the Borrower, withdraw and apply funds from the Debt Service Reserve Account to pay any principal of and/or interest on the Loans that is then due and payable (including on each Interest Payment Date). (d) Interest Rate Computations. All interest hereunder shall be computed on the basis of a year of 360 days, unless such computation would exceed the Highest Lawful Rate, in which case interest shall be computed on the basis of a year of 365 days (or 366 days in a leap year). (e) Debt Service Reserve Account. The Borrower shall establish and maintain, at the Borrower' expense, the Debt Service Reserve Account with PlainsCapital Bank. Pursuant to the Blocked Account Agreement (DSR) and the other Loan Documents, the Administrative Agent shall have at all times sole dominion and control over the Debt Service Reserve Account. Contemporaneously with the funding of the Loans on the Effective Date, the Borrower shall deposit into the Debt Service Reserve Account proceeds of the Loans in the amount of 29 $150,000. With respect to the Debt Service Reserve Account, the Administrative Agent shall receive copies of the Borrower's monthly bank account statements and such other supporting information as shall from time to time be requested by the Administrative Agent and, if available, internet access to information regarding such account. As security for the Obligations, the Borrower hereby grants to the Administrative Agent, for the benefit of the Secured Parties, a first priority security interest in the Debt Service Reserve Account and all funds from time to time on deposit in the Debt Service Reserve Account. Once the Stewart1-H well achieves for a continuous period of 30 calendar days a minimum average daily gross production of 175 BOE calculated as gross barrels of oil and Mcf of natural gas converted at a ratio of 6 Mcf of natural gas per barrel, all funds on deposit in the Debt Service Reserve Account shall be released to the Borrower if no Default shall have occurred and be continuing. Section 3.03 Prepayments. (a) Optional Prepayments. The Borrower shall have the right at any time and from time to time to prepay the Loans in whole or in part, subject to prior notice in accordance with Section 3.03(b). (b) Notice and Terms of Optional Prepayment. The Borrower shall notify the Administrative Agent in writing of any prepayment hereunder, not later than 12:00 noon, Dallas, Texas time, ten (10) Business Days before the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of the Loans or portion thereof to be prepaid. Promptly following receipt of any such notice relating to a Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of the Loans shall be shall be in a principal amount of $500,000 or a whole multiple of $50,000 in excess thereof or, in each case, if less, the entire principal amount of the Loans then outstanding. Each prepayment of the Loans shall be applied ratably to the Loans. (c) Mandatory Prepayments. (i) If any Equity Interests (excluding (x) any issuance of Series A Convertible Preferred Stock in exchange for Indebtedess, (y) any Equity Interests issued pursuant to Section 8.19, and (z) any Warrant Shares (as defined in the Warrant) issued pursuant to the Warrant) or Indebtedness (excluding any Indebtedness incurred in accordance with Section 9.02) shall be issued or incurred by the Parent or any of its Subsidiaries, an amount equal to 100% of the Net Cash Proceeds thereof shall be applied on the date of such issuance or incurrence toward the prepayment of the Loans. (ii) If on any date any the Borrower or any of its Subsidiaries shall receive Net Cash Proceeds from any Asset Sale or Recovery Event then, except in the case of a Recovery Event where the Borrower has delivered a Reinvestment Notice to the Administrative Agent, such Net Cash Proceeds shall be applied on such date toward the prepayment of the Loans; provided that on each Reinvestment Prepayment Date with respect to a Recovery Event, an amount equal to the Reinvestment Prepayment Amount with respect to the relevant Reinvestment Event shall be applied toward the prepayment of the Loans. (iii) If, for any calendar month of the Borrower commencing with the calendar month ending on January 31, 2015, there shall be Excess Cash Flow, the Borrower shall, on the relevant Excess Cash Flow Application Date, apply the ECF 30 Percentage of such Excess Cash Flow toward the prepayment of the Loans. Each such prepayment and commitment reduction shall be made on a date (an "Excess Cash Flow Application Date") no later than five (5) Business Days after the earlier of (i) the date on which the financial statements of the Borrower referred to in Section 8.01(d), for the calendar month with respect to which such prepayment is made, are required to be delivered to the Administrative Agent and the Lenders and (ii) the date such financial statements are actually delivered. (iv) The application of any prepayment pursuant to Section 3.03 shall be accompanied by accrued interest to the date of such prepayment on the amount prepaid. (d) Make-Whole Premium. The Make-Whole Premium (if any) shall be due and payable with respect to any Called Principal on the Called Principal Determination Date for such Called Principal. Section 3.04 Fees. (a) Commitment Fee. As consideration for the Commitments, the Borrower agrees to pay to the Administrative Agent, for the account of each Lender, on the Effective Date a commitment fee in the aggregate amount of $100,000. ARTICLE IV PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS Section 4.01 Payments Generally; Pro Rata Treatment; Sharing of Set-offs. (a) Payments by the Borrower. The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees, or otherwise) prior to 12:00 noon, Dallas, Texas time, on the date when due, in immediately available funds, without defense, deduction, recoupment, set-off or counterclaim. Fees, once paid, shall be fully earned and shall not be refundable under any circumstances absent manifest error. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices specified in Section 12.01, except that payments pursuant to ARTICLE V and Section 12.03 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in dollars. (b) Application of Insufficient Payments. If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment of principal then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties. 31 (c) Sharing of Payments by Lenders. If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this Section 4.01(c) shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this Section 4.01(c) shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under Requirement of Law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation. Section 4.02 Presumption of Payment by the Borrower. Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the interest rate then payable on the Notes pursuant to this Agreement. Section 4.03 Disposition of Production Proceeds. The Security Documents contain an assignment by the Borrower and/or the Guarantors unto and in favor of the Administrative Agent for the benefit of the Lenders of all of the Borrower's or each Guarantor's interest in and to production and all proceeds attributable thereto which may be produced from or allocated to the Mortgaged Property. The Security Documents further provide in general for the application of such 32 proceeds to the satisfaction of the Obligations and other obligations described therein and secured thereby. Notwithstanding the assignment contained in such Security Documents, until the occurrence of an Event of Default, (a) the Administrative Agent and the Lenders agree that they will neither notify the purchaser or purchasers of such production nor take any other action to cause such proceeds to be remitted to the Administrative Agent or the Lenders, but the Lenders will instead permit such proceeds to be paid to the Borrower and the Subsidiaries and (b) the Lenders hereby authorize the Administrative Agent to take such actions as may be necessary to cause such proceeds to be paid to the Borrower and/or such Subsidiaries. ARTICLE V INCREASED COSTS; TAXES Section 5.01 Increased Costs. (a) Capital Requirements. If any Lender determines that any Change in Law regarding capital requirements or liquidity has or would have the effect of reducing the rate of return on such Lender's capital or liquidity or on the capital or liquidity of such Lender's holding company, if any, as a consequence of this Agreement or the Loans made by such Lender to a level below that which such Lender or such Lender's holding company could have achieved but for such Change in Law (taking into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy or liquidity), then from time to time the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender's holding company for any such reduction suffered. (b) Certificates. A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in Section 5.01(a) or (b) shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof. (c) Effect of Failure or Delay in Requesting Compensation. Failure or delay on the part of any Lender to demand compensation pursuant to this Section 5.01 shall not constitute a waiver of such right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender pursuant to this Section 5.01 for any increased costs or reductions incurred more than 365 days prior to the date that such Lender, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender's intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 365-day period referred to above shall be extended to include the period of retroactive effect thereof. Section 5.02 Taxes. (a) Payments Free of Taxes. Any and all payments by or on account of any obligation of the Borrower or any Guarantor under any Loan Document shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrower or any Guarantor shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum 33 payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 5.02(a)), the Administrative Agent and each Lender (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower or such Guarantor shall make such deductions and (iii) the Borrower or such Guarantor shall pay the full amount deducted to the relevant Governmental Authority in accordance with Requirement of Law. (b) Payment of Other Taxes by the Loan Parties. The Borrower and the other Loan Parties shall pay any Other Taxes to the relevant Governmental Authority in accordance with Requirement of Law. (c) Indemnification by the Loan Parties. THE BORROWER AND EACH OF THE OTHER LOAN PARTIES SHALL INDEMNIFY THE ADMINISTRATIVE AGENT AND EACH LENDER, WITHIN 10 DAYS AFTER WRITTEN DEMAND THEREFOR, FOR THE FULL AMOUNT OF ANY INDEMNIFIED TAXES OR OTHER TAXES PAID BY THE ADMINISTRATIVE AGENT OR SUCH LENDER, AS THE CASE MAY BE, ON OR WITH RESPECT TO ANY PAYMENT BY OR ON ACCOUNT OF ANY OBLIGATION OF THE BORROWER HEREUNDER (INCLUDING INDEMNIFIED TAXES OR OTHER TAXES IMPOSED OR ASSERTED ON OR ATTRIBUTABLE TO AMOUNTS PAYABLE UNDER THIS SECTION 5.02) AND ANY PENALTIES, INTEREST AND REASONABLE EXPENSES ARISING THEREFROM OR WITH RESPECT THERETO. A written demand under this Section 5.02(c) shall include a certificate of the Administrative Agent or a Lender specifying the amount and calculation of such payment or liability under this Section 5.02 shall be delivered to the Borrower and shall be conclusive absent manifest error. (d) Evidence of Payments. As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrower or a Guarantor to a Governmental Authority, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. (e) Survival. Each Loan Party's obligations under this Section 5.02 shall survive the resignation or replacement of the Administrative Agent or any assignment of rights by, or the replacement of, a Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all obligations under any Loan Document. 34 ARTICLE VI CONDITIONS PRECEDENT Section 6.01 Effective Date. The obligations of the Lenders to make Loans hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 12.02): (a) Expenses. The Administrative Agent and the Lenders shall have received all costs, fees, expenses and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all costs, fees, expenses and other amounts required to be reimbursed or paid by the Borrower hereunder. (b) Closing Certificates. The Administrative Agent shall have received a certificate of a Responsible Officer of the Borrower and each Guarantor setting forth (i) resolutions of its board of directors, board of managers or other appropriate governing body, with respect to the authorization of the Borrower or such Guarantor to execute and deliver the Loan Documents to which it is a party and to enter into the transactions contemplated in those documents, (ii) the officers of the Borrower or such Guarantor (A) who are authorized to sign the Loan Documents to which the Borrower or such Guarantor is a party and (B) who will, until replaced by another officer or officers duly authorized for that purpose, act as its representative for the purposes of signing documents and giving notices and other communications in connection with this Agreement and the transactions contemplated hereby, (iii) specimen signatures of such authorized officers, and (iv) the Organization Documents of the Borrower and such Guarantor, certified as being true and complete as of the date of such certificate. The Administrative Agent and the Lenders may conclusively rely on each such certificate until the Administrative Agent receives notice in writing from the Borrower or such Guarantor to the contrary. (c) Certificates of Good Standing, Etc. The Administrative Agent shall have received certificates of the appropriate State agencies with respect to the existence, qualification and good standing of the Borrower and each Guarantor. (d) Compliance Certificate. The Administrative Agent shall have received a compliance certificate which shall be substantially in the form of Exhibit C, duly and properly executed by a Responsible Officer of the Borrower and dated as of the Effective Date. (e) Credit Agreement. The Administrative Agent shall have received from each party hereto counterparts (in such number as may be requested by the Administrative Agent) of this Agreement signed on behalf of such party. (f) Security Documents. The Administrative Agent shall have received from each party thereto duly executed counterparts (in such number as may be requested by the Administrative Agent) of the Security Documents on Exhibit D. In connection with the execution and delivery of the Security Documents, the Administrative Agent shall: (i) be reasonably satisfied that the Security Documents create first priority, perfected Liens (subject only to Excepted Liens identified in clauses (a) to (d) and (f) of the definition thereof, but subject to the provisos at the 35 end of such definition) on all Property of the Borrower and its Subsidiaries; and (ii) have received certificates, together with undated, blank stock powers for each such certificate, representing all of the issued and outstanding Equity Interests of each of the Guarantors. (g) Notes. The Administrative Agent shall have received duly executed Notes payable to each Lender and its registered assigns in a principal amount equal to its Commitment dated as of the date hereof. (h) Warrants and Warrant Purchase Agreement. The Administrative Agent shall have received (i) counterparts (in such number as may be requested by the Administrative Agent) of the Warrant Agreement, duly executed by the Parent, and (ii) the Warrant duly executed by the Parent. (i) Certificate of Designation. The Administrative Agent shall have received evidence that the Parent shall have filed the Certificate of Designation with the Secretary of State of the State of Nevada, (j) Legal Opinions. The Administrative Agent shall have received an opinion of Stewart & Bonnet, LLP, special Texas counsel to the Loan Parties, an opinion of Lionel Sawyer & Collins, special Nevada counsel to the Parent, and Corporate Legal, LLC, special counsel to the Parent, each in a form and of substance reasonably satisfactory to the Administrative Agent. (k) Insurance. The Administrative Agent shall have received satisfactory evidence that the Borrower is carrying insurance in accordance with Section 7.12. (l) Consents. The Administrative Agent shall have received a certificate of a Responsible Officer of the Borrower certifying that the Borrower has received all consents and approvals required by Section 7.03. (m) Financial Statements; Pro Forma Balance Sheet; Projections; Initial Reserve Report. The Administrative Agent shall have received the financial statements referred to in Section 7.04(a), the Pro Forma Balance Sheet, the Projections, and the Initial Reserve Report accompanied by a certificate covering the matters described in Section 8.01(j). (n) Lien Searches. The Administrative Agent shall have received appropriate UCC and Tax Lien search certificates reflecting no prior Liens encumbering (i) the Properties of the Borrower and the Subsidiaries, or (ii) the Acquisition Properties (other than Liens permitted by Section 9.03). (o) Indebtedness. The Administrative Agent shall be satisfied that after the making of the initial Loans hereunder and giving effect to the Transactions, the Borrower shall not have any outstanding Indebtedness other than Obligations arising under the Loan Documents and other Indebtedness permitted by Section 9.02. 36 (p) Title to Oil and Gas Properties. The Administrative Agent shall be reasonably satisfied with the status of title to the Oil and Gas Properties evaluated in the Initial Reserve Report and the Acquisition Properties and that the Borrower owns at a minimum a 74% net revenue interest, on an 8/8ths working interest basis, in the foregoing Properties. (q) Environmental Condition of Oil and Gas Properties. The Administrative Agent shall be satisfied with the environmental condition of the Oil and Gas Properties of the Borrower and its Subsidiaries. (r) Acquisition Certificate. Administrative Agent shall have received (i) a certificate of a Responsible Officer of Borrower certifying: (A) that Borrower is concurrently consummating the Acquisition in accordance with the terms of the Acquisition Documents (with all of the conditions precedent thereto having been satisfied by the parties thereto) and acquiring substantially all of the Acquisition Properties contemplated by the Acquisition Documents; (B) as to the final purchase price for the Acquisition Properties after giving effect to all adjustments as of the closing date contemplated by the Acquisition Documents and specifying, by category, the amount of such adjustment; (C) that attached thereto is a true and complete list of the Acquisition Properties which have been excluded from the Acquisition pursuant to the terms of the Acquisition Documents, specifying with respect thereto the basis of exclusion as (1) title defect, (2) environmental defect; (3) preferential purchase right and/or consent, or (4) casualty loss; (D) that attached thereto is a true and complete list of all Acquisition Properties for which any seller has elected to cure a title defect, (E) that attached thereto is a true and complete list of all Acquisition Properties for which any seller has elected to remediate an adverse environmental condition, and (F) that attached thereto is a true and complete list of all Acquisition Properties which are currently pending final decision by a third party regarding purchase of such property in accordance with any preferential right and/or consent; (ii) a true and complete executed copy of each of the Acquisition Documents; (iii) original counterparts or copies, certified as true and complete, of the assignments, deeds and leases for all of the Acquisition Properties; and (iv) such other related documents and information as Administrative Agent shall have reasonably requested. (s) Shaffer Leases. The Administrative Agent shall have received evidence that the Shaffer leases have been assigned by the Parent to the Borrower free and clear of any Liens pursuant to assignments satisfactory in form and substance to the Administrative Agent. (t) Due Diligence. The Administrative Agent shall be satisfied with its due diligence review of the Parent, the Borrower and the Subsidiaries and their respective Properties, including, without limitation, with respect to (i) engineering, (ii) operations, (iii) title to Oil and Gas Properties of the Borrower and its subsidiaries, (iv) environmental matters, (v) outstanding liabilities, (vi) Taxes and (vii) all agreements relating to the Oil and Gas Properties of the Borrower and its Subsidiaries, including operating agreements, marketing agreements, transportation agreements and processing agreements. The Administrative Agent shall be satisfied with the potential plugging and abandonment liabilities associated with the Oil and Gas Properties of the Borrower and its Subsidiaries, including the bonding or collateralization obligations of the Borrower and its Subsidiaries associated therewith. The Administrative Agent shall be satisfied with the results of complete background checks on certain members of management and Affiliates of the Borrower. 37 (u) Governmental Approvals. Each Loan Party shall have obtained all governmental and regulatory authorizations and all consents of other Persons, in each case that are necessary or advisable in connection with the Transactions and each of the foregoing shall be in full force and effect and in form and substance satisfactory to Administrative Agent. All applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on the Transactions or the financing thereof and no action, request for stay, petition for review or rehearing, reconsideration, or appeal with respect to any of the foregoing shall be pending, and the time for any applicable agency to take action to set aside its consent on its own motion shall have expired. (v) Litigation. There shall not exist any action, suit, investigation, litigation or proceeding or other legal or regulatory developments, pending or threatened in any court or before any arbitrator or Governmental Authority that, in the opinion of Administrative Agent, singly or in the aggregate, materially impairs any of the Transactions, or that could reasonably be expected to have a Material Adverse Effect. (w) Capital Contribution. The Administrative Agent shall have received evidence that the Parent shall have contributed cash in the amount of $500,000 to the equity capital of the Borrower to fund a portion of the Acquisition and related expenses. (x) VPP. The Administrative Agent shall have received evidence satisfactory to it that the transactions contemplated by the VPP Purchase Agreement will close on the Effective Date concurrently with the other Transactions. (y) Series A Convertible Preferred Stock; Post- Closing Matters. The Administrative Agent shall have (i) received evidence satisfactory to it that certain holders of Indebtedness of the Parent, to the extent required by the Administrative Agent, have (A) executed and delivered letters of intent with the Parent to exchange such Indebtedness for Series A Convertible Preferred Stock, and (B) executed consents whereby such holders have consented to the Transactions, and (ii) received a post-closing letter agreement ( executed by the Borrower and the Parent that addresses the foregoing and other post-closing matters. The foregoing letters of intent, consents and letter agreement must be satisfactory in form and substance to the Administrative Agent. (z) Blocked Account Agreement (DSR). The Administrative shall have received the Blocked Account Agreement (DSR), duly executed and delivered by the Borrower and PlainsCapital Bank, and the Administrative Agent shall have received satisfactory evidence that the Borrower shall have deposited $150,000 in immediately available funds in the Debt Service Reserve Account. (aa) Consent of Sellers. The Administrative Agent shall have a received a consent duly executed and delivered by the sellers under the Acquisition Agreement to the security interest in the Acquisition Agreement created pursuant to the Security Documents, which consent shall be satisfactory in form and substance to the Administrative Agent. 38 (bb) Disbursement Letter. The Agent shall have received a disbursement letter (the "Disbursement Letter") executed by the Borrower with respect to the disbursement of the proceeds of the Loans to be made on the Effective Date, which disbursement letter shall be satisfactory in form and substance to the Administrative Agent. (cc) No Material Adverse Change. Since April 30, 2014, no event, circumstance or change shall have occurred that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect. (dd) Accounts Payable. The Administrative Agent shall have received evidence that as of the Effective Date all accounts payable of the Borrower and its Subsidiaries have been paid in full (excluding those that have been outstanding for less than 60 days from the original invoice date); (ee) Employment Agreements. The Administrative Agent shall have received copies of employment agreements between the Parent and Ronnie L. Steinocher and Lisa Hamilton, certified by the Parent, and such employment agreements shall be satisfactory in form and substance to the Administrative Agent (ff) Total G&A Expense Budget. The Administrative Agent shall have received a monthly Total G&A Expense budget for the Borrower and its Subsidiaries from the Effective Date through July 31, 2016, certified by the Borrower, that is satisfactory to the Administrative Agent. (gg) Newton Note; Payoff Letter. The Administrative Agent shall have received (i) a payoff letter executed by Newton Energy, Inc. and the Parent with respect to the Newton Note, and (ii) releases of all Liens securing the Newton Note executed by Newton Energy, Inc. and in recordable form, which payoff letter and Lien releases shall be satisfactory in form and substance to the Administrative Agent. (hh) Lien Releases. The Administrative Agent shall have received evidence satisfactory to it that all Liens on the Acquisition Properties and other Properties of the Borrower and its Subsidiaries (if any) (other than Excepted Liens identified in clauses (a) to (d), and (f) of the definition thereof) associated with any Indebtedness have been released or terminated, subject only to the filing of applicable terminations, releases or assignments. (ii) ORI Conveyance. The Administrative Agent shall have received an ORI Conveyance for the existing wells of the Borrower, duly executed by the Borrower and in recordable form. (jj) Assignments of Overriding Royalty Interests. The Administrative Agent shall have received copies of the Assignments of Overriding Royalty Interests executed by the Borrower in favor of Frank M. Saldana and Overton Capital Corp., which shall be satisfactory to the Administrative Agent and certified by the Borrower. (kk) Other Documents. The Administrative Agent shall have received such other documents as the Administrative Agent or special counsel to the Administrative Agent may reasonably request. 39 Each Lender, by delivering its signature page to this Agreement and funding a Loan on the Effective Date, shall be deemed to have acknowledged receipt of, and consented to and approved, each Loan Document and each other document required to be approved by the Required Lenders or Lenders, as applicable on the Effective Date. The Administrative Agent shall notify the Borrower and the Lenders of the Effective Date, and such notice shall be conclusive and binding. Notwithstanding the foregoing, the obligations of each Lender to make its initial Loan on the Effective Date shall not become effective unless each of the foregoing conditions is satisfied (or waived pursuant to Section 12.02) at or prior to 2:00 p.m., Dallas, Texas time, on July 31, 2014 (and, in the event such conditions are not so satisfied or waived, the Commitments shall terminate at such time). Section 6.02 Each Loan. The obligation of each Lender to make a Loan on any Borrowing Date (including the initial Loans) is subject to the satisfaction of the following conditions: (a) At the time of and immediately after giving effect to such Borrowing, no Default or Event of Default shall have occurred and be continuing. (b) At the time of and immediately after giving effect to such Borrowing, no event, development or circumstance has occurred or shall then exist that has resulted in, or could reasonably be expected to have, a Material Adverse Effect. (c) The representations and warranties of the Borrower and the Guarantors set forth in this Agreement and in the other Loan Documents shall be true and correct in all material respects (except to the extent such representations and warranties are qualified by materiality) on and as of the date of such Borrowing, except to the extent any such representations and warranties are expressly limited to an earlier date, in which case, on and as of the date of such Borrowing such representations and warranties shall continue to be true and correct as of such specified earlier date. (d) The making of such Loan would not conflict with, or cause any Lender to violate or exceed, any applicable Requirement of Law, and no Change in Law shall have occurred, and no litigation shall be pending or threatened, which does or, with respect to any threatened litigation, seeks to, enjoin, prohibit or restrain, the making or repayment of any Loan, or the consummation of the Transactions contemplated by this Agreement or any other Loan Document. (e) The receipt by the Administrative Agent of a Borrowing Request in accordance with Section 2.03. Each request for a Borrowing shall be deemed to constitute a representation and warranty by the Borrower and the Parent on the date thereof as to the matters specified in Section 6.02(a) through (c). 40 ARTICLE VII REPRESENTATIONS AND WARRANTIES To induce the Administrative Agent and the Lenders to enter into this Agreement and to make the Loans, the Parent and the Borrower jointly and severally represent and warrant to the Administrative Agent and the Lenders that: Section 7.01 Organization; Powers. The Parent and each of its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, have all requisite power and authority, and have all governmental licenses, authorizations, consents and approvals necessary, to own its assets and to carry on its business as now conducted, and is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required, except where failure to have such power, authority, licenses, authorizations, consents, approvals and qualifications could not reasonably be expected to have a Material Adverse Effect. Section 7.02 Authority; Enforceability. The Transactions are within the Borrower's and each Guarantor's organizational powers and have been duly authorized by all necessary organizational action (including, without limitation, any action required to be taken by any class of directors of the Parent, the Borrower or any other Person, whether interested or disinterested, in order to ensure the due authorization of the Transactions). Each Loan Document to which the Borrower and each Guarantor is a party has been duly executed and delivered by the Borrower and each Guarantor that is a party thereto and constitutes a legal, valid and binding obligation of the Borrower and each such Guarantor, as applicable, enforceable in accordance with its terms, subject to applicable Debtor Relief Laws and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. Section 7.03 Approvals; No Conflicts. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority or any other third Person (including shareholders or any class of directors, whether interested or disinterested, of the Parent, the Borrower or any other Person), nor is any such consent, approval, registration, filing or other action necessary for the validity or enforceability of any Loan Document or the consummation of the Transactions, except such as have been obtained or made and are in full force and effect other than (i) the recording and filing of the Security Documents and the ORI Conveyance as required by this Agreement, (ii) those third party approvals or consents which, if not made or obtained, would not cause a Default hereunder, could not reasonably be expected to have a Material Adverse Effect or do not have an adverse effect on the enforceability of the Loan Documents or any of the Transactions and (iii) those consents, approvals or filings that are customarily obtained after the closing of an acquisition of Oil and Gas Properties, (b) will not violate any Requirement of Law or any of the Organization Documents of any Loan Party or any Subsidiary of any Loan Party or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon the any Loan Party or any Subsidiary of any Loan Party or any of their respective Properties, or give rise to a right thereunder to require any payment to be made by any Loan Party or such Subsidiary, and (d) will not result in the creation or imposition of any Lien on any Property of any Loan Party (other than the Liens created by the Loan Documents). 41 Section 7.04 Financial Condition; No Material Adverse Change. (a) The Borrower has heretofore furnished to the Lenders the Parent's consolidated balance sheet and statements of income, stockholders equity and cash flows (1) as of and for the fiscal year ended December 31, 2011, reported on by GBH CPAs, independent public accountants, (2) as of and for the fiscal years ended July 31, 2012 and July 31, 2013, prepared internally by the Parent, and (3) as of and for the fiscal quarter and the portion of the fiscal year ended April 30, 2014, certified by the Parent's chief executive officer. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of the Parent and its Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the unaudited quarterly financial statements. (b) The unaudited pro forma consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at July 31, 2014, (including the notes thereto) (the "Pro Forma Balance Sheet"), copies of which have heretofore been furnished to each Lender, has been prepared giving effect (as if such events had occurred on such date) to (i) the consummation of the Transactions on the Effective Date and the use of proceeds thereof, and (ii) the payment of fees and expenses in connection with the foregoing. The Pro Forma Balance Sheet has been prepared based on the best information available to the Borrower as of the date of delivery thereof, and presents fairly on a pro forma basis the estimated financial position of Borrower and its consolidated Subsidiaries as at July 31, 2014, assuming that the events specified in the preceding sentence had actually occurred at such date. (c) Since April 30, 2014, (i) there has been no event, development or circumstance that has had or could reasonably be expected to have a Material Adverse Effect and (ii) the business of the Parent and its Subsidiaries has been conducted only in the ordinary course, in all material respects, consistent with past business practices. (d) Neither the Parent nor any of its Subsidiaries has on the date hereof any material Indebtedness (including Disqualified Stock) or any contingent liabilities, off-balance sheet liabilities or partnerships, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments that are, in the aggregate, material to the balance sheet and statements of income, stockholders equity and cash flows of the Parent and its Subsidiaries on a consolidated basis and are not reflected in the Financial Statements. Section 7.05 Litigation. There are no actions, suits, investigations or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrower, threatened against or affecting any Loan Party or any of its Subsidiaries (collectively, "Litigation") (i) not fully covered by insurance (except for normal deductibles) as to which there is a reasonable possibility of an adverse determination that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect, or (ii) that involve any Loan Document or any of the Transactions. Except as set forth on Schedule 7.05, there is no Litigation pending or, to the Borrower's knowledge, threatened, that seeks damages in excess of $50,000 or injunctive relief against, or alleges criminal misconduct of, any Loan Party or any Subsidiary or any Affiliate thereof. 42 Section 7.06 Environmental Matters. Except for such matters that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect: (a) the Borrower and the Subsidiaries and each of their respective Properties and operations thereon are, and within all applicable statute of limitation periods have been, in compliance with all applicable Environmental Laws; (b) the Borrower and the Subsidiaries have obtained all Environmental Permits required for their respective operations and each of their Properties, with all such Environmental Permits being currently in full force and effect, and neither the Borrower nor the Subsidiaries has received any written notice or otherwise has knowledge that any such existing Environmental Permit will be revoked or that any application for any new Environmental Permit or renewal of any existing Environmental Permit will be protested or denied; (c) there are no claims, demands, suits, orders, inquiries, or proceedings concerning any violation of, or any liability (including as a potentially responsible party) under, any applicable Environmental Laws that is pending or threatened against the Borrower or the Subsidiaries or any of their respective Properties or as a result of any operations at the Properties; (d) none of the Properties contain or have contained any: (i) underground storage tanks; (ii) asbestos-containing materials; (iii) landfills or dumps; (iv) hazardous waste management units as defined pursuant to RCRA or any comparable state law; or (v) sites on or nominated for the National Priority List promulgated pursuant to CERCLA or any state remedial priority list promulgated or published pursuant to any comparable state law; (e) there has been no Release or threatened Release, of Hazardous Materials at, on, under or from any of Borrower's or the Subsidiaries' Properties, there are no investigations, remediations, abatements, removals, or monitorings of Hazardous Materials required under applicable Environmental Laws at such Properties and none of such Properties are adversely affected by any Release or threatened Release of a Hazardous Material originating or emanating from any other real property; (f) neither the Borrower nor the Subsidiaries has received any written notice asserting an alleged liability or obligation under any applicable Environmental Laws with respect to the investigation, remediation, abatement, removal, or monitoring of any Hazardous Materials at, under, or Released or threatened to be Released from any real properties offsite the Borrower's or the Subsidiaries' Properties and there are no conditions or circumstances that would reasonably be expected to result in the receipt of such written notice. (g) there has been no exposure of any Person or property to any Hazardous Materials as a result of or in connection with the operations and businesses of any of the Borrower's or the Subsidiaries' Properties that would reasonably be expected to form the basis for a claim for damages or compensation and there are no conditions or circumstances that would reasonably be expected to result in the receipt of notice regarding such exposure; and (h) the Borrower and the Subsidiaries have provided to Lenders complete and correct copies of all environmental site assessment reports, investigations, studies, analyses, and correspondence on environmental matters (including matters relating to any alleged non-compliance with or liability under 43 Environmental Laws) that are in any of the Borrower's or the Subsidiaries' possession or control and relating to their respective Properties or operations thereon. Section 7.07 Compliance with the Laws and Agreements; No Defaults. (a) Each of the Borrower and each Guarantor is in compliance with all Requirements of Law applicable to it or its Property and all agreements and other instruments binding upon it or its Property, and possesses all licenses, permits, franchises, exemptions, approvals and other governmental authorizations necessary for the ownership of its Property and the conduct of its business, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. (b) Neither the Borrower nor any Guarantor is in default nor has any event or circumstance occurred which, but for the expiration of any applicable grace period or the giving of notice, or both, would constitute a default or would require the Borrower or any Guarantor to Redeem or make any offer to Redeem under any indenture, note, credit agreement or instrument pursuant to which any Material Indebtedness is outstanding or by which the Borrower or any Guarantor or any of their Properties is bound. (c) No Default has occurred and is continuing. Section 7.08 Investment Company Act. Neither the Borrower nor any Subsidiary nor the Parent is an "investment company" or a company "controlled" by an "investment company," within the meaning of, or subject to regulation under, the Investment Company Act of 1940, as amended. No Loan Party is subject to regulation under any Requirement of Law (other than Regulation X of the Board) that limits its ability to incur Indebtedness. Section 7.09 Taxes. Each of the Borrower and the Guarantors has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which the Borrower or such Guarantor, as applicable, has set aside on its books adequate reserves in accordance with GAAP or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. The charges, accruals and reserves on the books of the Borrower and the Guarantors in respect of Taxes and other governmental charges are, in the reasonable opinion of the Borrower, adequate. No Tax Lien has been filed and, to the knowledge of the Borrower, no claim is being asserted with respect to any such Tax or other such governmental charge. Section 7.10 ERISA. Except for such matters that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect: (a) The Borrower, the Subsidiaries and each ERISA Affiliate have complied in all material respects with ERISA and, where applicable, the Code regarding each Plan. (b) Each Plan is, and has been, maintained in substantial compliance with its terms, ERISA and, where applicable, the Code. 44 (c) No act, omission or transaction has occurred which could result in imposition on the Borrower, any Subsidiary or any ERISA Affiliate (whether directly or indirectly) of (i) either a civil penalty assessed pursuant to subsections (c), (i) or (l) of section 502 of ERISA or a tax imposed pursuant to Chapter 43 of Subtitle D of the Code or (ii) breach of fiduciary duty liability damages under section 409 of ERISA with civil penalty or tax could reasonably be expected to result in a Material Adverse Effect. (d) Full payment when due has been made of all amounts which the Borrower, the Subsidiaries or any ERISA Affiliate is required under the terms of each Plan or Requirement of Law to have paid as contributions to such Plan as of the date hereof. (e) Neither the Borrower, the Subsidiaries nor any ERISA Affiliate sponsors, maintains, or contributes to an employee welfare benefit plan, as defined in section 3(1) of ERISA, including, without limitation, any such plan maintained to provide benefits to former employees of such entities, that may not be terminated by the Borrower, a Subsidiary or any ERISA Affiliate in its sole discretion at any time without any material liability. (f) Neither the Borrower, the Subsidiaries nor any ERISA Affiliate sponsors, maintains or contributes to, or has at any time in the six-year period preceding the date hereof sponsored, maintained or contributed to, any employee pension plan, as defined in section 3(2) of ERISA, that is subject to Title IV of ERISA, section 302 of ERISA or section 412 of the Code. Section 7.11 Disclosure; No Material Misstatements. The Borrower has disclosed to the Administrative Agent and the Lenders all agreements, instruments and corporate or other restrictions to which each Loan Party or any of its Subsidiaries is subject that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. None of the 45 reports, financial statements, certificates or other written information furnished by or on behalf of any Loan Party or any of its Subsidiaries to the Administrative Agent or any Lender or any of their Affiliates in connection with the negotiation of this Agreement or any other Loan Document or delivered hereunder or under any other Loan Document (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time. There is no fact known to the Borrower or any other Loan Party which could reasonably be expected to have a Material Adverse Effect or in the future is reasonably likely to have a Material Adverse Effect and which has not been set forth in this Agreement or the Loan Documents or the other documents, certificates and statements furnished to the Administrative Agent or the Lenders by or on behalf of the any Loan Party or any of its Subsidiaries prior to, or on, the date hereof in connection with the Transactions. As of the date hereof, the representations and warranties contained in the Acquisition Documents and the VPP Documents are true and correct in all material respects There are no statements or conclusions in any Reserve Report which are based upon or include misleading information or fail to take into account material information regarding the matters reported therein, it being understood that projections concerning volumes attributable to the Oil and Gas Properties and production and cost estimates contained in each Reserve Report are necessarily based upon professional opinions, estimates and projections and that the Loan Parties do not warrant that such opinions, estimates and projections will ultimately prove to have been accurate. Section 7.12 Insurance. The Borrower has, and has caused all of the Subsidiaries to have, (a) all insurance policies sufficient for the compliance by each of them with all Requirements of Law and all material agreements and (b) insurance coverage in at least amounts and against such risk (including, without limitation, public liability) that are usually insured against by companies similarly situated and engaged in the same or a similar business for the assets and operations of the Borrower and the Subsidiaries. The Administrative Agent and the Lenders have been named as additional insureds in respect of such liability insurance policies and the Administrative Agent has been named as loss payee with respect to Property loss insurance. Schedule 7.12 sets forth as of the Effective Date a complete and accurate list of all policies of insurance maintained by the Borrower and its Subsidiaries, showing with respect to each such policy the type of insurance, the coverage amount, the carrier, and the duration of coverage. All premiums with respect to such policies of insurance have been fully paid. As of the Effective Date, no Recovery Event has occurred. Section 7.13 Restriction on Liens. Neither the Borrower nor any of the Subsidiaries is a party to any agreement or arrangement (other than Capital Leases or purchase money obligations creating Liens permitted by Section 9.03(c), but then only on the Property subject of such Capital Lease or purchase 46 money obligation), or subject to any order, judgment, writ or decree, which either restricts or purports to restrict its ability to grant Liens to the Administrative Agent and the Lenders on or in respect of their Properties to secure the Obligations and the Loan Documents. Section 7.14 Subsidiaries. Except as set forth on Schedule 7.14 or as disclosed in writing to the Administrative Agent (which shall promptly furnish a copy to the Lenders), which shall be a supplement to Schedule 7.14, the Borrower has no Subsidiaries. Each Subsidiary identified in Schedule 7.14 is a Wholly-Owned Subsidiary. Section 7.15 Location of Business and Offices. The Borrower's jurisdiction of organization is the State of Texas; the name of the Borrower as listed in the public records of its jurisdiction of organization is Baron Production LLC; and the organizational identification number of the Borrower in its jurisdiction of organization is 801793395 (or, in each case, as set forth in a notice delivered to the Administrative Agent pursuant to Section 8.01(m) in accordance with Section 12.01). The Borrower's principal place of business and chief executive offices are located at the address specified in Section 12.01 (or as set forth in a notice delivered pursuant to Section 8.01(m) and Section 12.01(c)). Each Subsidiary's jurisdiction of organization, name as listed in the public records of its jurisdiction of organization, organizational identification number in its jurisdiction of organization, and the location of its principal place of business and chief executive office is stated on Schedule 7.14 (or as set forth in a notice delivered pursuant to Section 8.01(m)). Section 7.16 Properties; Titles, Etc. (a) Each of the Borrower and the Subsidiaries, as applicable, has good and defensible title to their respective Oil and Gas Properties (including the Acquisition Properties) and good title to all its personal Properties, in each case, free and clear of all Liens except Liens permitted by Section 9.03. After giving full effect to the Excepted Liens, the Borrower or the Subsidiary specified as the owner owns the net interests in production attributable to the Hydrocarbon Interests as reflected in the most recently delivered Reserve Report, and the ownership of such Properties shall not obligate the Borrower or such Subsidiary to bear the costs and expenses relating to the maintenance, development and operations of each such Property in an amount in excess of the working interest of each Property set forth in the most recently delivered Reserve Report that is not offset by a corresponding proportionate increase in the Borrower's or such Subsidiary's net revenue interest in such Property. (b) All leases and agreements necessary for the conduct of the business of the Borrower and the Subsidiaries are valid and subsisting, in full force and effect, and there exists no default or event or circumstance which with the giving of notice or the passage of time or both would give rise to a default under any such lease or leases. (c) The rights and Properties presently owned, leased or licensed by the Borrower and the Subsidiaries including, without limitation, all easements and rights of way, include all rights and Properties necessary to permit the 47 Borrower and the Subsidiaries to conduct their business in all material respects in the same manner as its business has been conducted prior to the date hereof. (d) All of the Properties of the Borrower and the Subsidiaries which are reasonably necessary for the operation of their businesses are in good working condition and are maintained in accordance with prudent business standards. (e) The Borrower and each Subsidiary owns, or is licensed to use, all trademarks, trade names, copyrights, patents and other intellectual Property material to its business, and the use thereof by the Borrower and such Subsidiary does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. The Borrower and the Subsidiaries either own or have valid licenses or other rights to use all databases, geological data, geophysical data, engineering data, seismic data, maps, interpretations and other technical information used in their businesses as presently conducted, subject to the limitations contained in the agreements governing the use of the same, which limitations are customary for companies engaged in the business of the exploration and production of Hydrocarbons. Section 7.17 Maintenance of Properties. The Oil and Gas Properties (and Properties unitized therewith) of the Borrower and the Subsidiaries have been maintained, operated and developed in a good and workmanlike manner and in conformity with all Requirements of Law and in conformity with the provisions of all leases, subleases or other contracts comprising a part of the Hydrocarbon Interests and other contracts and agreements forming a part of the Oil and Gas Properties of the Borrower and the Subsidiaries. Specifically in connection with the foregoing, (i) no Oil and Gas Property of the Borrower or any Subsidiary is subject to having allowable production reduced below the full and regular allowable (including the maximum permissible tolerance) because of any overproduction (whether or not the same was permissible at the time) and (ii) none of the wells comprising a part of the Oil and Gas Properties (or Properties unitized therewith) of the Borrower or any Subsidiary is deviated from the vertical more than the maximum permitted by Requirements of Law, and such wells are, in fact, bottomed under and are producing from, and the well bores are wholly within, the Oil and Gas Properties (or in the case of wells located on Properties unitized therewith, such unitized Properties) of the Borrower or such Subsidiary. All pipelines, wells, gas processing plants, platforms and other material improvements, fixtures and equipment owned in whole or in part by the Borrower or any of its Subsidiaries that are necessary to conduct normal operations are being maintained in a state adequate to conduct normal operations, and with respect to such of the foregoing which are operated by the Borrower or any of its Subsidiaries, in a manner consistent with the Borrower's or its Subsidiaries' past practices. Section 7.18 Gas Imbalances, Prepayments. Except as set forth on Schedule 7.18 or on the most recent certificate delivered pursuant to Section 8.12(b), on a net basis there are no gas imbalances, take or pay or other prepayments which would require the Borrower or any of the Subsidiaries to deliver Hydrocarbons produced from the Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor. 48 Section 7.19 Marketing of Production. Except for contracts listed and in effect on the date hereof on Schedule 7.19, and thereafter either disclosed in writing to the Administrative Agent or included in the most recently delivered Reserve Report (with respect to all of which contracts the Borrower represents that it or the Subsidiaries are receiving a price for all production sold thereunder which is computed substantially in accordance with the terms of the relevant contract and are not having deliveries curtailed substantially below the subject Property's delivery capacity), no agreements exist which are not cancelable on 60 days' notice or less without penalty or detriment for the sale of production from the Borrower's or the Subsidiaries' Hydrocarbons (including, without limitation, calls on or other rights to purchase, production, whether or not the same are currently being exercised) that (a) pertain to the sale of production at a fixed price and (b) have a maturity or expiry date of longer than six (6) months from the date hereof. Section 7.20 Swap Agreements. Schedule 7.20, as of the date hereof, and after the date hereof, each report required to be delivered by the Borrower pursuant to Section 8.01(e), sets forth, a true and complete list of all Swap Agreements of the Borrower and each Subsidiary, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the net mark to market value thereof, all credit support agreements relating thereto (including any margin required or supplied) and the counterparty to each such agreement. Section 7.21 Use of Loans. (a) The proceeds of the Loans borrowed on the Effective Date shall be used by the Borrower to: (i) finance a portion of the Acquisition; (ii) pay Transaction fees and expenses; (iii) fund the Debt Service Reserve Account in accordance with Section 3.02(d); and (iv) provide funding for general corporate purposes, in each case under this paragraph (a) in accordance with the Disbursement Letter. (b) The proceeds of the Loans borrowed after the Effective Date shall be used by the Borrower to: (i) finance the drilling of the Petty 1H PUD Well pursuant to a budget approved by the Administrative Agent; and (ii) finance other Capital Expenditures approved in writing by the Administrative Agent. (c) The Borrower and the Subsidiaries are not engaged principally, or as one of its or their important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying margin stock (within the meaning of Regulation T, U or X of the Board). No part of the proceeds of any Loan will be used for any purpose which violates the provisions of Regulations T, U or X of the Board. 49 Section 7.22 Solvency. After giving effect to the Transactions, (a) the aggregate assets (after giving effect to amounts that could reasonably be received by reason of indemnity, offset, insurance or any similar arrangement), at a fair valuation, of the Borrower and the Guarantors, taken as a whole, will exceed the aggregate Indebtedness of the Borrower and the Guarantors on a consolidated basis, as the Indebtedness becomes absolute and matures, (b) each of the Borrower and the Guarantors will not have incurred or intended to incur, and will not believe that it will incur, Indebtedness beyond its ability to pay such Indebtedness (after taking into account the timing and amounts of cash to be received by each of the Borrower and the Guarantors and the amounts to be payable on or in respect of its liabilities, and giving effect to amounts that could reasonably be received by reason of indemnity, offset, insurance or any similar arrangement) as such Indebtedness becomes absolute and matures and (c) each of the Borrower and the Guarantors will not have (and will have no reason to believe that it will have thereafter) unreasonably small capital for the conduct of its business. Section 7.23 OFAC. Neither the Borrower nor any of its Subsidiaries (i) is an "enemy" or an "ally of the enemy" within the meaning of section 2 of the Trading with the Enemy Act of the United States (50 U.S.C. App. ss.ss. 1 et seq.), as amended, (ii) is in violation of (A) the Trading with the Enemy Act, as amended, (B) any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto or (C) the PATRIOT Act, (iii) is a Sanctioned Person, (ii) has more than 10% of its assets in Sanctioned Countries, or (iii) derives more than 10% of its operating income from investments in, or transactions with Sanctioned Persons or Sanctioned Countries. No part of the proceeds of any extension of credit hereunder will be used directly or indirectly to fund any operations in, finance any investments or activities in or make any payments to, a Sanctioned Person or a Sanctioned Country. Section 7.24 Projections. On and as of the Effective Date, the projections of Borrower and its Subsidiaries for the period of fiscal year 2014 through and including fiscal year 2016, including monthly projections for each month during the fiscal year in which the Effective Date takes place (the "Projections"), are based on good faith estimates and assumptions made by the management of Borrower and as of the Effective Date, management of Borrower believes that the Projections are reasonable and attainable (it being understood by the Lenders 50 that such Projections are not to be viewed as facts and that estimates are subject to significant uncertainties and contingencies, that no assurances can be given that any Projections will be attained and that variances from actual results may be material). Section 7.25 Affiliate Transactions. Except as set forth on Schedule 7.25, there are no existing or proposed agreements, arrangements, understandings, or transactions between any Loan Party and any of the officers, members, managers, directors, stockholders, parents, other interest holders, employees, or Affiliates (other than Subsidiaries) of any Loan Party or any members of their respective immediate families and, except as set forth on Schedule 7.25, none of the foregoing Persons are directly or indirectly indebted to or have any direct or indirect ownership, partnership, or voting interest in any Affiliate of any Loan Party or any Person with which any Loan Party has a business relationship or which competes with any Loan Party. Section 7.26 Security Documents. The provisions of this Agreement and the Security Documents are effective to create legal and valid Liens on all the Collateral in favor of Administrative Agent, for the benefit of the Secured Parties, and in the case of Collateral in which a security interest may be perfected by filing a financing statement, when financing statements in appropriate form are filed in the appropriate office, such security interests constitute perfected and continuing security interests on the Collateral, securing the Obligations, enforceable against the applicable Loan Party and all third parties, and having priority over all other Liens on the Collateral except in the case of Excepted Liens, to the extent any such Excepted Liens would have priority over the Liens in favor of Administrative Agent pursuant to any applicable law. Section 7.27 Material Contracts; Operating Agreements. Schedule 7.27(a) contains a correct and complete list of all the Material Contracts (other than oil and gas leases, oil, gas and mineral leases, or other liquid or gaseous hydrocarbon leases) and Operating Agreements of the Borrower and its Subsidiaries in effect on the Effective Date. On the Effective Date, all Material Contracts and the Operating Agreements are in full force and effect and no defaults of the Borrower, any Subsidiary party thereto or, to Borrower's knowledge, of any other party thereto, currently exist thereunder (other than as described in Schedule 7.27(a). Schedule 7.27(b) contains a true, correct and complete list of all the Material Contracts (other than oil and gas leases, oil, gas and mineral leases, or other liquid or gaseous hydrocarbon leases) and Operating Agreements requiring consent from the counterparty thereto, or payment of any fee or sum to the counterparty thereto, prior to an assignment to Administrative Agent or a Lender pursuant to a foreclosure action or that would otherwise prohibit, restrict or hinder Administrative Agent or the Lenders, or any successor in interest to Administrative Agent or any Lender, from foreclosing upon such contract or agreement. Section 7.28 Acquisition Documents. The copies of the Acquisition Documents delivered by Borrower to Administrative Agent are true, accurate and complete and have not been amended or modified in any manner, other than pursuant to amendments or modifications previously delivered to and approved in writing by the Administrative Agent. No party to any Acquisition Document is in default in respect of any term or obligation thereunder. 51 Section 7.29 Location of Deposit and Securities Accounts; Etc. As of the Effective Date, Schedule 7.29 sets forth a complete and accurate list of all deposit, checking and other bank accounts, all securities and other accounts maintained with any broker dealer and all other similar accounts maintained by the Borrower and each Subsidiary, together with a description thereof (i.e., the bank or broker dealer at which such deposit or other account is maintained and the account number and the purpose thereof). ARTICLE VIII AFFIRMATIVE COVENANTS Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder and all other amounts payable under the Loan Documents shall have been Paid in Full, the Parent and the Borrower jointly and severally covenant and agree with the Administrative Agent and the Lenders that: Section 8.01 Financial Statements; Other Information. The Borrower will furnish to the Administrative Agent and each Lender: (a) Annual Financial Statements. As soon as available, but in any event in accordance with then Requirement of Law and not later than 90 days after the end of each fiscal year of the Borrower, (i) its audited consolidated balance sheet and related statements of operations, members' equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by independent public accountants of recognized national standing (without a "going concern" or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP consistently applied. (b) Quarterly Financial Statements. As soon as available, but in any event in accordance with then Requirement of Law and not later than 60 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, its consolidated balance sheet and related statements of operations, members' equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes. (c) Certificate of Financial Officer -- Compliance. Concurrently with any delivery of financial statements under Section 8.01(a) or Section 8.01(b), or 52 Section 8.01(d), a certificate of a Financial Officer in substantially the form of Exhibit C hereto (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations demonstrating compliance with Section 8.13(b) and Section 9.01 and (iii) stating whether any change in GAAP or in the application thereof has occurred since the date of the audited financial statements referred to in Section 7.04 and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate. (d) Monthly Financial Statements. As soon as available, but in any event within 45 days after the end of each month, its consolidated balance sheet, and related statements of operations, members' equity and cash flows as of the end of and for such month, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes. (e) Certificate of Financial Officer - Swap Agreements. Concurrently with any delivery of financial statements under Section 8.01(a) or Section 8.01(b), a certificate of a Financial Officer, in form and substance satisfactory to the Administrative Agent, setting forth as of the last Business Day of such quarter, a true and complete list of all Swap Agreements of the Borrower and each Subsidiary, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the net mark-to-market value therefor, any new credit support agreements relating thereto not listed on Schedule 7.20, any margin required or supplied under any credit support document, and the counterparty to each such agreement. (f) Certificate of Insurer -- Insurance Coverage. Concurrently with any delivery of financial statements under Section 8.01(a), a certificate of insurance coverage from each insurer with respect to the insurance required by Section 8.07, in form and substance satisfactory to the Administrative Agent, and, if requested by the Administrative Agent or any Lender, all copies of the applicable policies. (g) Other Accounting Reports. Promptly upon receipt thereof, a copy of each other report or letter submitted to the Borrower or any Subsidiaries by independent accountants in connection with any annual, interim or special audit made by them of the books of the Borrower or any such Subsidiary, and a copy of any response by the Borrower or any such Subsidiary, or the board of directors or other appropriate governing body of the Borrower or any such Subsidiary, to such letter or report. (h) SEC and Other Filings; Reports to Shareholders. Promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Parent or any of its Subsidiaries with the SEC, or with any national securities exchange, or distributed by the Parent to its shareholders generally, as the case may be. 53 (i) Notices Under Material Instruments. Promptly after the furnishing thereof, copies of any financial statement, report or notice furnished to or by any Person pursuant to the terms of any preferred stock designation, indenture, loan or credit or other similar agreement, other than this Agreement and not otherwise required to be furnished to the Lenders pursuant to any other provision of this Section 8.01. (j) Lists of Hydrocarbon Purchasers. Concurrently with the delivery of any Reserve Report to the Administrative Agent pursuant to Section 8.12, a list of all Persons purchasing Hydrocarbons from the Borrower or any Subsidiary. (k) Notice of Sales of Oil and Gas Properties. In the event the Borrower or any Subsidiary intends to sell, transfer, assign or otherwise dispose of any Oil or Gas Properties or any Equity Interests in any Subsidiary in accordance with Section 9.12, prior written notice of such disposition, the price thereof and the anticipated date of closing and any other details thereof reasonably requested by the Administrative Agent or any Lender. (l) Notice of Recovery Events. Prompt written notice, and in any event within three Business Days, of the occurrence of any Recovery Event or the commencement of any action or proceeding that could reasonably be expected to result in a Recovery Event. (m) Information Regarding Borrower and Guarantors. Prompt written notice of (and in any event at least twenty (20) days prior thereto) any change (i) in the Borrower or any Guarantor's corporate name or in any trade name used to identify such Person in the conduct of its business or in the ownership of its Properties, (ii) in the location of the Borrower or any Guarantor's chief executive office or principal place of business, (iii) in the Borrower or any Guarantor's identity or corporate structure or in the jurisdiction in which such Person is incorporated or formed, (iv) in the Borrower or any Guarantor's jurisdiction of organization or such Person's organizational identification number in such jurisdiction of organization, and (v) in the Borrower or any Guarantor's federal taxpayer identification number. (n) Production Report and Lease Operating Statements. Within 30 days after the end of each calendar month, a report setting forth, for each calendar month during the then current fiscal year to date, the volume of production and sales attributable to production (and the prices at which such sales were made and the revenues derived from such sales) for each such calendar month from the Oil and Gas Properties of the Borrower and its Subsidiaries, and setting forth the related ad valorem, severance and production taxes and lease operating expenses attributable thereto and incurred for each such calendar month. (o) Notice of Certain Changes. Promptly, but in no event within five (5) Business Days after the execution thereof, copies of any amendment, modification or supplement to any of the Organization Documents of the Parent, the Borrower or any Subsidiary. (p) Notice of Swap Agreement Modifications. Prompt written notice of any amendment to or other modification of any Swap Agreement or the terms thereof since the delivery of the last certificate pursuant to Section 8.01(e) (including a summary of the terms of such amendment or modification and the net mark-to-market value therefor). 54 (q) Drilling Reports. As soon as available, and in any event within twenty (20) days after the end of each month, reports on active field operations on a field and well basis, as applicable, including but not limited to any drilling, completions, well workovers, installation, modification or repair of surface facilities and flowlines, and pipeline hookups, including a "daily drilling report", as applicable, and information related to pipe depth, completion percentage, perforation intervals, updated spud date or date of first production (as applicable), flow-rates, upon request copies of any well logs across the pay sectors and such other information as may be reasonably requested, in form and substance satisfactory to Administrative Agent (including a discussion of any current material operating problems with any wells and any proposed solutions and any material technical studies conducted during the month). (r) Title Opinions. Upon the request of Administrative Agent, the Borrower shall provide to Administrative Agent copies of such division order title opinions or such other title information in form and substance reasonably satisfactory to the Administrative Agent, evidencing the applicable Loan Party's good and defensible title to any of the Mortgaged Properties. (s) Notices Relating to Acquisition. In the event that after the Effective Date: (i) the Borrower is required or elects to purchase any of the Acquisition Properties which had been excluded from, or return any of the Acquisition Properties which had been included in, the Acquisition Properties in accordance with the terms of the Acquisition Documents, (ii) the Borrower is required to honor any preferential purchase or consent right in respect of any Acquisition Property which has not been waived, (iii) any matter being disputed in accordance with the terms of the Acquisition Documents is resolved or (iv) the Borrower and the seller(s) calculate and agree upon a "final statement", if any, contemplated by the Acquisition Documents, then, in each such case, the Borrower shall promptly give Administrative Agent notice in reasonable detail of such circumstances. (t) Other Requested Information. Promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Borrower or any Subsidiary (including, without limitation, any Plan and any reports or other information required to be filed with respect thereto under the Code or under ERISA), or compliance with the terms of this Agreement or any other Loan Document, as the Administrative Agent or any Lender may reasonably request. (u) Annual Business Plan and Budget. As soon as practicable and in any event within sixty (60) days after the end of each fiscal year, a business plan and operating and capital budget of the Borrower and its Subsidiaries for the ensuing four (4) fiscal quarters, such plan to be prepared in accordance with GAAP and to include, on a quarterly basis, the following: a quarterly operating and capital budget, a projected income statement, statement of cash flows and balance sheet, calculations demonstrating projected compliance with the financial covenants set forth in Section 9.01 and a report containing management's discussion and analysis of such budget with a reasonable disclosure of the key assumptions and drivers with respect to such budget, accompanied by a certificate from a Responsible Officer of the Borrower to the effect that such budget contains good faith estimates (utilizing assumptions believed to be 55 reasonable at the time of delivery of such budget) of the financial condition and operations of the Borrower and its Subsidiaries for such period. Section 8.02 Notices of Material Events. The Borrower will furnish to the Administrative Agent and each Lender prompt written notice of the following: (a) the occurrence of any Default; (b) the occurrence of any Recovery Event; (c) the filing or commencement of, or the threat in writing of, any action, suit, proceeding, investigation or arbitration by or before any arbitrator or Governmental Authority against or affecting the Borrower or any Affiliate thereof not previously disclosed in writing to the Lenders or any material adverse development in any action, suit, proceeding, investigation or arbitration (whether or not previously disclosed to the Lenders) that, in either case could reasonably be expected to result in liability in excess of $50,000, not fully covered by insurance, subject to normal deductibles; and (d) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. Each notice delivered under this Section 8.02 shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. Section 8.03 Existence; Conduct of Business. The Borrower will, and will cause each Subsidiary to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business and maintain, if necessary, its qualification to do business in each other jurisdiction in which its Oil and Gas Properties is located or the ownership of its Properties requires such qualification, except where the failure to so qualify could not reasonably be expected to have a Material Adverse Effect; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 9.11. Section 8.04 Payment of Obligations. The Borrower will, and will cause each Subsidiary to, pay its obligations, including Tax liabilities of the Borrower and each Subsidiary before the same shall become delinquent or in default , except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest could not reasonably be 56 expected to result in a Material Adverse Effect or result in the seizure or levy of any material Property of the Borrower or any Subsidiary, provided that that Borrower shall not permit any of the trade payables of the Borrower or any of its Subsidiaries to be outstanding for more than 60 days from the original date of invoice unless the validity or amount thereof is being challenged pursuant to clause (a) of this Section. Section 8.05 Performance of Obligations under Loan Documents. The Borrower will pay the Notes according to the reading, tenor and effect thereof, and the Borrower will, and will cause each Subsidiary to, do and perform every act and discharge all of the obligations to be performed and discharged by them under the Loan Documents, including, without limitation, this Agreement, at the time or times and in the manner specified. Section 8.06 Operation and Maintenance of Properties; Material Contracts. The Borrower, at its own expense, will, and will cause each Subsidiary to: (a) operate its Oil and Gas Properties and other material Properties or cause such Oil and Gas Properties and other material Properties to be operated in a careful and efficient manner in accordance with the practices of the industry and in compliance with all applicable contracts and agreements and in compliance with all Requirements of Law, including, without limitation, applicable pro ration requirements and Environmental Laws, and all laws, rules and regulations of every other Governmental Authority from time to time constituted to regulate the development and operation of its Oil and Gas Properties and the production and sale of Hydrocarbons and other minerals therefrom. (b) keep and maintain all Property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted preserve, maintain and keep in good repair, working order and efficiency (ordinary wear and tear excepted) all of its material Oil and Gas Properties and other material Properties, including, without limitation, all equipment, machinery and facilities. (c) promptly pay and discharge, or make reasonable and customary efforts to cause to be paid and discharged, all delay rentals, royalties, expenses and indebtedness accruing under the leases or other agreements affecting or pertaining to its Oil and Gas Properties and will do all other things necessary to keep unimpaired their rights with respect thereto and prevent any forfeiture thereof or default thereunder. (d) promptly perform or make reasonable and customary efforts to cause to be performed, in accordance with industry standards, the obligations required by each and all of the assignments, deeds, leases, sub-leases, contracts and agreements affecting its interests in its Oil and Gas Properties and other material Properties. 57 (e) to the extent the Borrower is not the operator of any Property, the Borrower shall use commercially reasonable efforts to cause the operator to comply with this Section 8.06. (f) perform and observe all the terms and provisions of each Material Contract to be performed or observed by it, maintain each such Material Contract in full force and effect, enforce each such Material Contract in accordance with its terms, take all such action to such end as may be from time to time requested by the Administrative Agent and, upon request of the Administrative Agent, make to each other party to each such Material Contract such demands and requests for information and reports or for action as the Borrower or any of its Subsidiaries is entitled to make under such Material Contract, and cause each of its Subsidiaries to do so. (g) drill three PUD locations on the Frio County, Texas, Oil and Gas Properties (including the Stewart 1-H recompletion) within 18 months of the Effective Date, unless this requirement is waived by the Administrative Agent; provided, however, that it shall not be a breach of this paragraph (g) if (i) the Borrower fails to comply with this paragraph solely as a result of a Defaulting Lender not funding a portion of its Commitment after the Effective Date, and (ii) the Borrower does not otherwise have (or have access to) funds sufficient for it to comply with this paragraph (g). Section 8.07 Insurance. The Borrower will, and will cause each Subsidiary to, maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations and otherwise in form and amounts and with insurers acceptable to the Administrative Agent, including insurance of the types and coverages described in Schedule 8.07 and with limits of coverage no less than those set out in Schedule 8.07. The loss payable clauses or provisions in said insurance policy or policies insuring any of the collateral for the Loans shall be endorsed in favor of and made payable to the Administrative Agent as its interests may appear and such policies shall name the Administrative Agent and the Lenders as "additional insureds" and provide that the insurer will endeavor to give at least 30 days prior notice of any cancellation to the Administrative Agent. Section 8.08 Books and Records; Inspection Rights. The Borrower will, and will cause each Subsidiary to, keep proper books of record and account in which full, true and correct entries are made in conformity with GAAP and all Requirements of Law of all dealings and transactions in relation to its business and activities. The Borrower will, and will cause each Subsidiary to, permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its Properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested. Section 8.09 Compliance with Laws. The Borrower will, and will cause each Subsidiary to, comply with all Requirements or Law (including all Requirements of Law relating to plugging and abandonment) and all Contractual Obligations applicable to it or its Property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. 58 Section 8.10 Environmental Matters. (a) The Borrower shall at its sole expense: (i) comply, and shall cause its Properties and operations and each Subsidiary and each Subsidiary's Properties and operations to comply, with all applicable Environmental Laws, the breach of which could be reasonably expected to have a Material Adverse Effect; (ii) not dispose of or otherwise release, and shall cause each Subsidiary not to dispose of or otherwise release, any oil, oil and gas waste, hazardous substance, or solid waste on, under, about or from any of the Borrower's or its Subsidiaries' Properties or any other Property to the extent caused by the Borrower's or any of its Subsidiaries' operations except in compliance with applicable Environmental Laws, the disposal or release of which could reasonably be expected to have a Material Adverse Effect; (iii) timely obtain or file, and shall cause each Subsidiary to timely obtain or file, all notices, permits, licenses, exemptions, approvals, registrations or other authorizations, if any, required under applicable Environmental Laws to be obtained or filed in connection with the operation or use of the Borrower's or the Subsidiaries' Properties, which failure to obtain or file could reasonably be expected to have a Material Adverse Effect; (iv) promptly commence and diligently prosecute to completion, and shall cause each Subsidiary to promptly commence and diligently prosecute to completion, any assessment, evaluation, investigation, monitoring, containment, cleanup, removal, repair, restoration, remediation or other remedial obligations (collectively, the "Remedial Work") in the event any Remedial Work is required or reasonably necessary under applicable Environmental Laws and industry practice because of or in connection with the actual or suspected past, present or future disposal or other release of any oil, oil and gas waste, hazardous substance or solid waste on, under, about or from any of the Borrower's or the Subsidiaries' Properties, which failure to commence and diligently prosecute to completion could reasonably be expected to have a Material Adverse Effect; and (v) establish and implement, and shall cause each Subsidiary to establish and implement, such policies of environmental audit and compliance as may be necessary to determine and assure that the Borrower's and the Subsidiaries' obligations under this Section 8.10(a) are timely and fully satisfied, which failure to establish and implement could reasonably be expected to have a Material Adverse Effect. (b) The Borrower will promptly, but in no event later than five days after the Borrower's knowledge of the occurrence of a triggering event, notify the Administrative Agent and the Lenders in writing of any threatened action, investigation or inquiry by any Governmental Authority or any threatened demand or lawsuit by Person against the Borrower or the Subsidiaries or their Properties of which the Borrower has knowledge in connection with any Environmental Laws if the Borrower reasonably anticipates that such action will result in liability (whether individually or in the aggregate) in excess of $50,000, not fully covered by insurance, subject to normal deductibles. (c) The Borrower will, and will cause each Subsidiary to, provide environmental audits and tests in accordance with American Society of Testing Materials standards upon reasonable request by the Administrative Agent and the Lenders and no more than once per year in the absence of any Event of Default (or as otherwise required to be obtained by the Administrative Agent or the Lenders by any Governmental Authority), in connection with any future acquisitions of Oil and Gas Properties or other Properties. Section 8.11 Further Assurances. (a) The Borrower at its sole expense will, and will cause each Subsidiary to, promptly execute and deliver to the Administrative Agent all such other documents, agreements and instruments reasonably requested by the Administrative 59 Agent to comply with, cure any defects or accomplish the conditions precedent, covenants and agreements of the Borrower or any Subsidiary, as the case may be, in the Loan Documents, including the Notes, or to further evidence and more fully describe the collateral intended as security for the Obligations, or to correct any omissions in this Agreement or the Security Documents, or to state more fully the obligations secured therein, or to perfect, protect or preserve any Liens created pursuant to this Agreement or any of the Security Documents or the priority thereof, or to make any recordings, file any notices or obtain any consents, all as may be reasonably necessary or appropriate, in the sole discretion of the Administrative Agent, in connection therewith. (b) The Borrower hereby authorizes the Administrative Agent to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Mortgaged Property without the signature of the Borrower or any other Guarantor where permitted by law. A carbon, photographic or other reproduction of the Security Documents or any financing statement covering the Mortgaged Property or any part thereof shall be sufficient as a financing statement where permitted by law. Section 8.12 Reserve Reports. (a) On or before April 1 and October 1 of each year, commencing April 1, 2015, the Borrower shall furnish to the Administrative Agent and the Lenders a Reserve Report evaluating the Oil and Gas Properties of the Borrower and its Subsidiaries as of the immediately preceding February 1 and August 1. The Reserve Report as of August 1 of each year shall be prepared by one or more Approved Petroleum Engineers, and the February 1 Reserve Report of each year shall be prepared, in a form reasonably acceptable to the Administrative Agent, by or under the supervision of the chief engineer of the Borrower who shall certify such Reserve Report to be true and accurate in all material respects and to have been prepared in accordance with the procedures used in the immediately preceding August 1 Reserve Report. (b) With the delivery of each Reserve Report, the Borrower shall provide to the Administrative Agent and the Lenders a certificate from a Responsible Officer of the Borrower certifying that: (i) the information contained in the Reserve Report and any other information delivered in connection therewith is true and correct in all material respects, (ii) the Borrower or its Subsidiaries owns good and defensible title to the Oil and Gas Properties evaluated in such Reserve Report and such Properties are free of all Liens except for Liens permitted by Section 9.03, (iii) except as set forth on an exhibit to the certificate, on a net basis there are no gas imbalances, take or pay or other prepayments in excess of the volume specified in Section 7.18 with respect to its Oil and Gas Properties evaluated in such Reserve Report which would require the Borrower or any Subsidiary to deliver Hydrocarbons either generally or produced from such Oil and Gas Properties at some future time without then or thereafter receiving full payment therefor, (iv) none of their Oil and Gas Properties have been sold since the date of the last Reserve Report except as set forth on an exhibit to the certificate, which certificate shall list all of its Oil and Gas Properties sold and in such detail as reasonably required by the Administrative Agent, (v) attached to the certificate is a list of all marketing agreements entered into subsequent to the later of the date hereof or the most 60 recently delivered Reserve Report which the Borrower could reasonably be expected to have been obligated to list on Schedule 7.19 had such agreement been in effect on the date hereof and (vi) attached thereto is a schedule of the Oil and Gas Properties evaluated by such Reserve Report that are Mortgaged Properties and demonstrating the percentage of the total proved value of such Mortgaged Properties represent in compliance with Section 8.14(a). Section 8.13 Title Information. (a) On or before the delivery to the Administrative Agent and the Lenders of each Reserve Report required by Section 8.12(a), the Borrower will deliver title information in form and substance reasonably acceptable to the Administrative Agent covering enough of the Oil and Gas Properties evaluated by such Reserve Report that were not included in the immediately preceding Reserve Report, so that the Administrative Agent shall have received together with title information previously delivered to the Administrative Agent, reasonably satisfactory title information on at least 90% of the total value of the Oil and Gas Properties evaluated by such Reserve Report. (b) If the Borrower has provided title information for additional Properties under Section 8.13(a), the Borrower shall, within 60 days of notice from the Administrative Agent that title defects or exceptions exist with respect to such additional Properties, either (i) cure any such title defects or exceptions (including defects or exceptions as to priority) which are not permitted by Section 9.03 raised by such information, (ii) substitute acceptable Mortgaged Properties with no title defects or exceptions except for Excepted Liens (other than Excepted Liens described in clauses (e), (g) and (h) of such definition) having an equivalent value or (iii) deliver title information in form and substance reasonably acceptable to the Administrative Agent so that the Administrative Agent shall have received, together with title information previously delivered to the Administrative Agent, reasonably satisfactory title information on at least 90% of the value of the Oil and Gas Properties evaluated by such Reserve Report. Section 8.14 Additional Collateral; Additional Guarantors. (a) The Borrower shall review promptly each Reserve Report delivered pursuant to this Agreement after the Effective and the list of current Mortgaged Properties (as described in Section 8.12(b)(vi)) to ascertain whether the Mortgaged Properties represent at least 90% of the total value of the Oil and Gas Properties evaluated in the most recently completed Reserve Report after giving effect to exploration and production activities, acquisitions, dispositions and production. In the event that the Mortgaged Properties do not represent at least 90% of such total value, then the Borrower shall, and shall cause the Subsidiaries to, grant, within thirty (30) days of delivery of the certificate required under Section 8.12(b), to the Administrative Agent as security for the Obligations a first-priority Lien (provided that Excepted Liens of the type described in clauses (a) to (d) and (f) of the definition thereof may exist, but subject to the provisos at the end of such definition) on additional Oil and Gas Properties not already subject to a Lien of the Security Documents such that after giving effect thereto, the Mortgaged Properties will represent at least 90% of such total value. All such Liens will be created and perfected by and in accordance with the provisions of deeds of trust, security agreements and financing statements or other Security Documents, all in form and 61 substance satisfactory to the Administrative Agent and in sufficient executed (and acknowledged where necessary or appropriate) counterparts for recording purposes. In order to comply with the foregoing, if any Subsidiary places a Lien on its Oil and Gas Properties and such Subsidiary is not a Guarantor, then it shall become a Guarantor and comply with Section 8.14(b). (b) The Borrower shall promptly cause each Subsidiary to guarantee the Obligations pursuant to the Guaranty Agreement. In connection with any such guaranty, the Borrower shall, or shall cause such Subsidiary to (A) execute and deliver a supplement to the Guaranty Agreement executed by such Subsidiary, (B) pledge all of the Equity Interests of such new Subsidiary (including, without limitation, delivery (if applicable) of original certificates evidencing the Equity Interests of such Subsidiary, together with an appropriate undated stock powers for each certificate duly executed in blank by the registered owner thereof) and (C) execute and deliver such other additional closing documents, certificates and legal opinions as shall be requested by the Administrative Agent. (c) On each Collateral Addition Date, the Borrower and each Subsidiary shall take all such actions and execute and deliver, or cause to be executed and delivered, all such Security Documents that Administrative Agent shall request to create in favor of Administrative Agent, for the benefit of the Secured Parties, a valid and, subject to any filing and/or recording referred to herein, perfected first priority Lien on and security interest in all Oil and Gas Properties of the Borrower and its Subsidiaries not already subject to a Lien of the Security Documents (subject only to Excepted Liens of the type described in clause (a) to (d) and (f) of the definition thereof, but subject to the provisos at the end of such definition). All such Liens will be created and perfected by and in accordance with the provisions of deeds of trust, security agreements and financing statements or other Security Documents, all in form and substance satisfactory to the Administrative Agent and in sufficiently executed (and acknowledged where necessary or appropriate) counterparts for recording purposes. If requested by Administrative Agent, each Affiliate of a Loan Party who is an operator under any Operating Agreement shall have executed and delivered a subordination agreement to Administrative Agent, in form and substance reasonably satisfactory to Administrative Agent. Section 8.15 ERISA Compliance. The Borrower will promptly furnish and will cause the Subsidiaries and any ERISA Affiliate to promptly furnish to the Administrative Agent (a) promptly after the filing thereof with the United Stated Secretary of Labor or the Internal Revenue Service, copies of each annual and other report with respect to each Plan or any trust created thereunder, and (b) immediately upon becoming aware of the occurrence of any "prohibited transaction," as described in section 406 of ERISA or in section 4975 of the Code, in connection with any Plan or any trust created thereunder, a written notice signed by the President or the principal Financial Officer, the Subsidiary or the ERISA Affiliate, as the case may be, specifying the nature thereof, what action the Borrower, the Subsidiary or the ERISA Affiliate is taking or proposes to take with respect thereto, and, when known, any action taken or proposed by the Internal Revenue Service or the Department of Labor with respect thereto. Section 8.16 Key Man Life Insurance. Commencing on the date occurring 60 days after the Effective Date and at all times thereafter, the Borrower shall maintain, at its expense, key man life insurance policies on each of Ronnie Steinocher and Lisa Hamilton. Each such key man life insurance policy shall be in the amount of at least $3,000,000, shall be for a term of at least two years, 62 shall be issued by an insurance company satisfactory to the Administrative Agent, shall be otherwise reasonably satisfactory in form and substance to the Administrative Agent, and shall be collaterally assigned to the Administrative Agent, for the benefit of the Secured Parties, pursuant to documentation satisfactory in form and substance to the Administrative Agent. Section 8.17 Observation Rights. Upon reasonable advance notice, the Administrative Agent shall be entitled to have one or more observers (the "Observers") attend and participate in all meetings of the board of directors, managing members, managers, general partners, or other governing authorities of each Loan Party (and all committees thereof) and its equity owners (each, if it involves more than one person, a "Meeting"). The Observers shall not be entitled to vote on matters presented to or discussed at any Meeting. The Observers shall be timely notified of the time and place of each Meeting, if any, and will be given written notice of all proposed actions to be taken at each Meeting. Each such notice shall describe in reasonable detail the nature and substance of the matters to be discussed and/or voted upon at any such Meeting (or the proposed actions to be taken by written consent without a Meeting). The Observers shall have the right to receive all information provided to any director, manager, managing member, committee member, or general partner, partner, member or other equity owner of the Borrower, in addition to copies of the records of the proceedings or minutes of any such Meeting when provided to the applicable Meeting participants. The Borrower will also furnish or will cause to be furnished to the Administrative Agent a copy of each written consent without a meeting adopted by the board of directors or other managers of the any Loan Party or any committee thereof or the partners, members or other equity owners of the Borrower, as applicable, not later than five (5) days before it is effective. The board of directors or other managers of each Loan Party shall hold regularly scheduled Meetings quarterly. Section 8.18 Deposit Accounts; Etc. In the event that the Borrower or any Subsidiary establishes a deposit account other than the Debt Service Reserve Account or a securities account, such Loan Party will, prior to transferring any funds or assets into such account, execute and deliver a control agreement and grant in favor of Administrative Agent all the rights necessary to control such account, provided that with respect to deposit accounts of the Borrower in effect on the Effective Date, the Borrower shall comply with this Section 8.18 on or before August 1, 2014. Each such control agreement shall be satisfactory in form and substance to the Administrative Agent. Section 8.19 Additional Equity Issuance. On or before January 31, 2015, the Borrower shall receive in cash gross proceeds of at least $2,000,000 from an issuance of Equity Interests by the Parent, unless the Borrower has sold its Oil and Gas Properties in Taylor County, Texas for Net Cash Proceeds of at least $3,000,000. Section 8.20 Riggan Lease. The Borrower shall exercise reasonable efforts to acquire the Riggan Lease within 90 days after the Effective Date. ARTICLE IX NEGATIVE COVENANTS Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder and all other amounts payable under the Loan Documents have been Paid in Full, the Parent and the Borrower jointly and severally covenant and agree with the Administrative Agent and the Lenders that: Section 9.01 Financial Covenants. (a) Consolidated Interest Coverage Ratio. The Borrower will not permit the Consolidated Interest Coverage Ratio on the last day of any calendar month set forth below to be less than the ratio set forth below opposite such calendar month: 63 Month Ending On Consolidated Interest Coverage Ratio --------------- ------------------------------------ 10/31/2014 1.20 11/31/2014 1.40 12/31/2014 1.60 1/31/2015 1.75 2/28/2015 and 3/31/2015 2.00 4/30/2015, 5/31/2015 and 6/30/2015 2.25 7/31/2015, 8/31/2015 and 9/31/2015 2.50 10/31/2015 and on the last day of each calendar month thereafter 3.00 (b) Consolidated Debt Ratio. The Borrower will not permit the Consolidated Debt Ratio on the last day of any calendar month set forth below to exceed the ratio set forth below opposite such calendar month: Month Ending On Consolidated Debt Ratio --------------- ----------------------- 10/31/2014 7.00 11/31/2014 5.50 12/31/2014 5.00 1/31/2015 4.50 2/28/2015 4.00 3/31/2015 3.50 4/30/2015 3.00 5/31/2015 and 6/30/2015 2.50 7/31/2015, 8/31/2015 and 9/30/2015 2.00 10/31/2015 and on the last day of each Calendar month thereafter 1.75 64 (c) Current Ratio. Commencing on September 30, 2014, the Borrower will not permit, as of the last day of any fiscal quarter, the ratio of (i) Consolidated Current Assets (excluding non-cash assets under FAS 133) to (ii) Consolidated Current Liabilities (excluding non-cash obligations under FAS 133 and current maturities under this Agreement) to be less than 1.0 to 1.25. (d) Minimum Monthly Production. On the last day of any calendar month occurring during any period set forth below, the Borrower will not permit the average monthly gross production (calculated as gross barrels of oil and BOE of natural gas) from the Oil and Gas Properties of the Borrower and the Subsidiary Guarantors during the three month period ending on such date to be less than the BOE (calculated as gross barrels of oil and Mcf of natural gas converted at a ratio of 6 Mcf of natural gas per barrel of oil) set forth below opposite the relevant period: Period Oil and BOE Production ------ ---------------------- 10/1/2014 through and including 1/31/2015 4,500 2/1/2015 through and including 3/31/2015 6,000 4/1/2015 through and including 6/30/2015 8,000 On 7/31/2015 and on the last day of each calendar month thereafter 10,000 (e) Minimum Cash Balances. The Borrower will not permit the aggregate amount of unrestricted cash and Cash Equivalents of the Borrower (exclusive of funds on deposit in the Debt Service Reserve Account) to at any time be less than $35,000. (f) Maximum Monthly Total G&A Expense. On the last day of each calendar month (commencing on October 31, 2014), for the three month period ending on such date, the Borrower will not permit the average monthly Total G&A Expense during such three month period to exceed $60,000. (g) Maximum Consolidated Total Indebtedness. The Borrower shall not at any time permit Consolidated Total Indebtedness to exceed $5,450,000. Section 9.02 Indebtedness. Neither the Borrower nor any of its Subsidiaries will incur, create, assume or suffer to exist any Indebtedness, except: (a) the Notes or other Obligations arising under the Loan Documents or any guaranty of or suretyship arrangement for the Notes or other Obligations arising under the Loan Documents. (b) Indebtedness of the Borrower and the Subsidiaries existing on the date hereof that is reflected in the Financial Statements. 65 (c) accounts payable and accrued expenses, liabilities or other obligations to pay the deferred purchase price of Property or services, from time to time incurred in the ordinary course of business which are not greater than sixty (60) days past the date of invoice or delinquent or which are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP. (d) Indebtedness under Capital Leases and purchase money obligations not to exceed $250,000 in the aggregate at any time outstanding. (e) Indebtedness associated with bonds or surety obligations required by Requirements of Law in connection with the operation of the Oil and Gas Properties. (f) intercompany Indebtedness between the Borrower and any Wholly-Owned Subsidiary Guarantor or between Wholly-Owned Subsidiary Guarantors to the extent permitted by Section 9.05(d); provided that any such Indebtedness owed by the Borrower or a Guarantor Wholly-Owned Subsidiary shall be subordinated to the Obligations on terms set forth in the Guaranty Agreement. (g) endorsements of negotiable instruments for collection in the ordinary course of business. (h) other unsecured Indebtedness not to exceed $50,000 in the aggregate at any one time outstanding. Section 9.03 Liens. Neither the Borrower nor any Subsidiary will create, incur, assume or permit to exist any Lien on any of its Properties (now owned or hereafter acquired), except: (a) Liens securing the payment of any Obligations. (b) Excepted Liens. (c) Liens securing Capital Leases or purchase money obligations permitted by Section 9.02(d) but only on the Property financed by such Indebtedness. (d) Liens on Property not constituting collateral for the Obligations and not otherwise permitted by the foregoing clauses of this Section 9.03; provided that the aggregate principal or face amount of all Indebtedness secured under this Section 9.03(e) shall not exceed $50,000 at any time. (e) the VPP and the VPP Mortgage, provided that the VPP Mortgage shall at all times be subordinate to the Liens of the Security Documents pursuant to documents satisfactory to the Administrative Agent. 66 Section 9.04 Restricted Payments. The Borrower will not, and will not permit any Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, return any capital or make any distribution of its Property to its Equity Interest holders, except for the following: (a) the Borrower may declare and pay dividends with respect to its Equity Interests payable solely in additional shares of its Equity Interests (other than Disqualified Stock). (b) Subsidiaries of the Borrower may declare and pay dividends ratably with respect to their Equity Interests. (c) the Borrower may make Restricted Payments pursuant to and in accordance with stock option plans or other benefit plans for management or employees of the Borrower and its Subsidiaries. (d) the Borrower may make tax distributions to it's the Parent in an amount equal to the highest marginal rate applicable to aggregate federal and state income tax liability of the Parent, as calculated in accordance with the terms thereof, attributable to the Consolidated Net Income. (e) the Borrower may make cash distributions to the Parent to pay for the portion of the Parent's Total G&A Expense that is reasonably attributable to the Borrower. Section 9.05 Investments. The Borrower will not, and will not permit any Subsidiary to, make or permit to remain outstanding any Investments in or to any Person, except that the foregoing restriction shall not apply to: (a) Investments reflected in the Financial Statements or which are disclosed to the Lenders in Schedule 9.05. (b) accounts receivable arising in the ordinary course of business. (c) Investments in cash and Cash Equivalents. (d) Investments (i) made by the Borrower in or to the Guarantors and/or (ii) made by any Subsidiary in or to the Borrower or any Guarantor that is a Subsidiary. (e) subject to the limits in Section 9.06, Investments in direct ownership interests in additional Oil and Gas Properties and gas gathering systems related thereto or related to farm-out, farm-in, participation agreements, joint operating, joint venture or area of mutual interest agreements, gathering systems, pipelines or other similar arrangements which are usual and customary in the oil and gas exploration and production business located within the geographic boundaries of the United States of America. (f) loans or advances to employees, officers or directors in the ordinary course of business of the Borrower or any Subsidiary, in each case only as 67 permitted by Requirement of Law, including section 402 of the Sarbanes Oxley Act of 2002, but in any event not to exceed $50,000 in the aggregate at any time. (g) Investments in stock, obligations or securities received in settlement of debts arising from Investments permitted under this Section 9.05 owing to the Borrower or any Subsidiary as a result of a Debtor Relief Law of the obligor in respect of such debts or upon the enforcement of any Lien in favor of the Borrower or any of its Subsidiaries; provided that the Borrower shall give the Administrative Agent prompt written notice in the event that the aggregate amount of all Investments held at any one time under this Section 9.05(k) exceeds $50,000. (h) the Acquisition. (i) other Investments not to exceed $50,000 in the aggregate at any time. Section 9.06 Nature of Business; International Operations. The Borrower will not, and will not permit any Subsidiary to, allow any material change to be made in the character of its business as an independent oil and gas exploration and production company. From and after the date hereof, the Borrower and the Subsidiaries will not acquire or make any other expenditure (whether such expenditure is capital, operating or otherwise) in or related to, any Oil and Gas Properties not located within the geographical boundaries of the United States. Section 9.07 Proceeds of Notes. The Borrower will not permit the proceeds of the Notes to be used for any purpose other than those permitted by Section 7.21. Neither the Borrower nor any Person acting on behalf of the Borrower has taken or will take any action which might cause any of the Loan Documents to violate Regulations T, U or X or any other regulation of the Board or to violate section 7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in each case as now in effect or as the same may hereinafter be in effect. If requested by the Administrative Agent, the Borrower will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form U-1 or such other form referred to in Regulation U, Regulation T or Regulation X of the Board, as the case may be. Section 9.08 Limitation on Leases. The Borrower will not, and will not permit any Subsidiary to, create, incur, assume or suffer to exist any obligation for the payment of rent or hire of Property of any kind whatsoever (real or personal but excluding Capital Leases, leases of corporate and field office space utilized by the Borrower and its Subsidiaries in the ordinary course of business and leases of Hydrocarbon Interests), under leases or lease agreements which would cause the aggregate amount of all payments made by the Borrower and the Subsidiaries pursuant to all such leases or lease agreements, including, without limitation, any residual payments at the end of any lease, to exceed $5,000 in any period of twelve consecutive calendar months during the life of such leases. Section 9.09 ERISA Compliance. The Borrower will not, and will not permit any Subsidiary to, at any time: (a) engage in, or permit any ERISA Affiliate to engage in, any transaction in connection with which the Borrower, a Subsidiary or any ERISA Affiliate could 68 be subjected to either a material civil penalty assessed pursuant to subsections (c), (i), (l) or (m) of section 502 of ERISA or a material tax imposed by Chapter 43 of Subtitle D of the Code. (b) fail to make, or permit any ERISA Affiliate to fail to make, full payment when due of all material amounts which, under the provisions of any Plan, agreement relating thereto or Requirement of Law, the Borrower, a Subsidiary or any ERISA Affiliate is required to pay as contributions thereto. (c) permit to exist, or allow any ERISA Affiliate to permit to exist, any accumulated funding deficiency within the meaning of section 302 of ERISA or section 412 of the Code, whether or not waived, with respect to any Plan. (d) create or sponsor any employee pension benefit plan, as defined in section 3(2) of ERISA, that is subject to Title IV of ERISA, section 302 of ERISA or section 412 of the Code. Section 9.10 Sale or Discount of Receivables. Except for receivables obtained by the Borrower or any Subsidiary out of the ordinary course of business or the settlement of joint interest billing accounts in the ordinary course of business or discounts granted to settle collection of accounts receivable or the sale of defaulted accounts arising in the ordinary course of business in connection with the compromise or collection thereof and not in connection with any financing transaction, the Borrower will not, and will not permit any Subsidiary to, discount or sell (with or without recourse) any of its notes receivable or accounts receivable. Section 9.11 Mergers, Etc. (a) The Borrower will not, and will not permit any Subsidiary to, merge into or with or consolidate with any other Person, or sell, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its Property to any other Person, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), except that any Wholly-Owned Subsidiary Guarantor may merge with any other Subsidiary so long as the survivor is a Wholly-Owned Subsidiary Guarantor and that the Borrower may merge with any Wholly-Owned Subsidiary so long as the Borrower is the survivor. (b) The Parent will not merge into or with or consolidate with any other Person, or sell, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its Property to any other Person, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution). Section 9.12 Sale of Properties. The Borrower will not, and will not permit any Subsidiary to, (i) sell, assign, farm-out, convey or otherwise transfer (including sale-and-lease back transactions) any Property, or (ii) enter into any agreement to do any of the foregoing, except for the following: (a) the sale of Hydrocarbons in the ordinary course of business. (b) the sale of the VPP pursuant to the VPP Purchase Agreement. 69 (c) the sale or transfer of equipment that is no longer necessary for the business of the Borrower or such Subsidiary or is replaced by equipment of at least comparable value and use. Section 9.13 Environmental Matters. The Borrower will not, and will not permit any Subsidiary to, cause or permit any of its Property to be in violation of, or do anything or permit anything to be done which will subject any such Property to any Remedial Work under any Environmental Laws, assuming disclosure to the applicable Governmental Authority of all relevant facts, conditions and circumstances, if any, pertaining to such Property where such violations or remedial obligations could reasonably be expected to have a Material Adverse Effect. Section 9.14 Transactions with Affiliates. The Borrower will not, and will not permit any Subsidiary to, enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of Property or the rendering of any service, with any Affiliate (other than the Parent and Wholly-Owned Subsidiary Guarantors) unless such transactions are otherwise permitted under this Agreement and are upon fair and reasonable terms no less favorable to it than it would obtain in a comparable arm's length transaction with a Person not an Affiliate. Section 9.15 Subsidiaries. The Borrower will not, and will not permit any Subsidiary to, create or acquire any additional Subsidiary unless the Borrower gives written notice to the Administrative Agent of such creation or acquisition and complies with Section 8.14(b) and Section 8.14(c). The Borrower shall not, and shall not permit any Subsidiary to, sell, assign or otherwise dispose of any Equity Interests in any Subsidiary except in compliance with Section 9.12(d). Section 9.16 Negative Pledge Agreements; Dividend Restrictions. The Borrower will not, and will not permit any Subsidiary to, create, incur, assume or suffer to exist any contract, agreement or understanding (other than (i) this Agreement and the Security Documents (ii) Capital Leases or other obligations creating Liens permitted by Section 9.03(c) and (d), provided that the restriction or prohibition is limited to the Property financed thereby, (iii) any leases or licenses or similar contracts as they affect any Property or Lien subject to a lease or license, (iv) any restriction with respect to a Subsidiary imposed pursuant to an agreement entered into for the direct or indirect sale or disposition of all or substantially all the Equity Interests or Property of such Subsidiary (or the Property that is subject to such restriction) pending the closing of such sale or disposition, or (v) customary provisions with respect to the distribution of Property in joint venture agreements) which in any way prohibits or restricts the granting, conveying, creation or imposition of any Lien on any of its Property in favor of the Administrative Agent and the Lenders or restricts any Subsidiary from paying dividends or making distributions to the Borrower or any Subsidiary Guarantor, or which requires the consent of or notice to other Persons in connection therewith. Section 9.17 Gas Imbalances, Take-or-Pay or Other Prepayments. The Borrower will not, and will not permit any Subsidiary to, allow gas imbalances, take-or-pay or other prepayments with respect to the Oil and Gas Properties of the Borrower or any Subsidiary that would require the Borrower or such Subsidiary to deliver Hydrocarbons at some future time without then or thereafter receiving full payment therefor. 70 Section 9.18 Swap Agreements. (a) The Borrower will not, and will not permit any Subsidiary to, enter into any Swap Agreements with any Person other than Swap Agreements in respect of commodities that have been approved in writing by the Administrative Agent. (b) No Swap Agreements shall be entered into for speculative purposes. Section 9.19 Accounting Changes; Organization Documents; Material Contracts; Operating Agreements. (a) The Borrower will not change its fiscal year end, or make any material change in its accounting treatment and reporting practices except as required by GAAP. (b) The Borrower will not, and will not permit any Subsidiary to, (i) amend or permit any amendments to its Organization Documents, except any amendments not adverse to the interests of the Lenders; or (ii) enter into, or amend or permit any amendments to, or terminate or waive any provision of any Operating Agreement or Material Contract, except any amendment that (x) does not amend any financial or economic terms of such Operating Agreement or Material Contract and (y) is not adverse to the interests of the Administrative Agent and the Lenders. Section 9.20 Marketing Activities. The Borrower will not, and will not permit any Subsidiaries to, engage in marketing activities for any Hydrocarbons or enter into any contracts related thereto other than (a) contracts for the sale of Hydrocarbons scheduled or reasonably estimated to be produced from their proved Oil and Gas Properties during the period of such contract, (b) contracts for the sale of Hydrocarbons scheduled or reasonably estimated to be produced from proved Oil and Gas Properties of third parties during the period of such 71 contract associated with the Oil and Gas Properties of the Borrower and the Subsidiaries that the Borrower or one of the Subsidiaries has the right to market pursuant to joint operating agreements, unitization agreements or other similar contracts that are usual and customary in the oil and gas business and (c) other contracts for the purchase and/or sale of Hydrocarbons of third parties (i) which have generally offsetting provisions (i.e., corresponding pricing mechanics, delivery dates and points and volumes) such that no "position" is taken and (ii) for which appropriate credit support has been taken to alleviate the material credit risks of the counterparty thereto. Section 9.21 Well Drilling Costs. The Borrower will not permit the well drilling costs of the Borrower and its Subsidiaries to materially exceed the well drilling costs set forth in the Projections. ARTICLE X EVENTS OF DEFAULT; REMEDIES Section 10.01 Events of Default. One or more of the following events shall constitute an "Event of Default": (a) the Borrower shall fail to pay any principal of any Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof, by acceleration or otherwise. (b) the Borrower shall fail to pay any interest on any Loan, any fee, any Make-Whole Premium or any other amount (other than an amount referred to in Section 10.01(a)) payable under any Loan Document, when and as the same shall become due and payable. (c) any representation or warranty made or deemed made by or on behalf of the Parent, the Borrower or any Subsidiary in or in connection with any Loan Document or any amendment or modification of any Loan Document or waiver under such Loan Document, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with any Loan Document or any amendment or modification thereof or waiver thereunder, shall prove to have been incorrect in any material respect when made or deemed made. (d) the Borrower or any Subsidiary shall fail to observe or perform any covenant, condition or agreement contained in Section 8.01(i), Section 8.01(m), Section 8.02, Section 8.03, Section 8.14 or in ARTICLE IX. (e) the Parent, the Borrower or any Subsidiary shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other 72 than those specified in Section 10.01(a), Section 10.01(b) or Section 10.01(d)) or any other Loan Document, and such failure shall continue unremedied for a period of 15 days after the earlier to occur of (A) notice thereof from the Administrative Agent to the Borrower (which notice will be given at the request of any Lender) or (B) a Responsible Officer of the Borrower or such Subsidiary otherwise becoming aware of such default. (f) the Parent, the Borrower or any Guarantor shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable and such failure continues beyond any applicable grace period. (g) any event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the giving of notice, the lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to require the Redemption thereof or any offer to Redeem to be made in respect thereof, prior to its scheduled maturity or require the Borrower or any Subsidiary to make an offer in respect thereof and such event or condition continues beyond any applicable grace period. (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Parent, the Borrower or any Subsidiary or its debts, or of a substantial part of its assets, under any Federal, state or foreign Debtor Relief Laws now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Parent, the Borrower or any Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for thirty (30) days or an order or decree approving or ordering any of the foregoing shall be entered. (i) the Parent, the Borrower or any Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign Debtor Relief Law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in Section 10.01(h), (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Parent, the Borrower or any Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; or any member/s of the Borrower shall make any request or take any action for the purpose of calling a meeting of the members of the Borrower to consider a resolution to dissolve and wind up the Borrower's affairs. (j) the Parent, the Borrower or any Subsidiary shall become unable, admit in writing its inability or fail generally to pay its debts as they become due. (k) (i) one or more judgments for the payment of money in an aggregate amount in excess of $100,000 (to the extent not covered by independent third party insurance provided by insurers of the highest claims paying rating or financial strength as to which the insurer does not dispute coverage and is not 73 subject to an insolvency proceeding) or (ii) any one or more non-monetary judgments that have, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, shall be rendered against the Parent, the Borrower, any Subsidiary or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Parent, the Borrower or any Subsidiary to enforce any such judgment. (l) any of the Loan Documents after delivery thereof shall for any reason cease to be in full force and effect and valid, binding and enforceable in accordance with their terms against the Borrower or any other Loan Party party thereto or shall be repudiated by any of them, or cease to create a valid and perfected Lien of the priority required thereby on any of the collateral purported to be covered thereby, except to the extent permitted by the terms of this Agreement, or the Borrower or any Subsidiary or any of their Affiliates shall so state in writing. (m) a Change of Control shall occur. (n) there is filed against any Loan Party any civil or criminal action, suit or proceeding under any federal or state racketeering (including, without limitation, the Racketeer Influenced and Corrupt Organization Act of 1970) or any other statute, which action, suit or proceeding could, in the opinion of the Administrative Agent, result in the confiscation or forfeiture of any of the Collateral. (o) the Borrower shall (i) fail to observe or perform any covenant, condition or agreement contained in any of the VPP Documents, or (ii) breach any representation or warranty in any of the VPP Documents. Section 10.02 Remedies. (a) In the case of an Event of Default other than one described in Section 10.01(h), Section 10.01(i) or Section 10.01(j), at any time thereafter during the continuance of such Event of Default, the Administrative Agent may, and at the request of the Required Lenders, shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the principal of the Notes and the Loans then outstanding, together with accrued and unpaid interest thereon, and all fees and other amounts owing under this Agreement and the other Loan Documents (including Make-Whole Premium) to be due and payable in whole (or in part, in which case any amount not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower and the Guarantors accrued and/or owing hereunder and under the Notes and the other Loan Documents (including the Make-Whole Premium), shall become due and payable immediately, without presentment, demand, protest, notice of intent to accelerate, notice of acceleration or other notice of any kind, all of which are hereby waived by the Borrower and each Guarantor; and in case of an Event of Default described in Section 10.01(h), Section 10.01(i) or Section 10.01(j), the Commitments shall automatically terminate and the Notes and the principal of the Loans then outstanding, together with accrued 74 interest thereon and all fees and the other obligations of the Borrower and the Guarantors accrued or owing hereunder and under the Notes and the other Loan Documents (including Make-Whole Premium), shall automatically become due and payable, without presentment, demand, protest, notice of acceleration, notice of intent to accelerate or other notice of any kind, all of which are hereby waived by the Borrower and each Guarantor. (b) In the case of the occurrence of an Event of Default, the Administrative Agent and the Lenders will have all other rights and remedies available at law and equity and under the Loan Documents. (c) All proceeds realized from the liquidation or other disposition of Collateral or otherwise received after maturity of the Notes, whether by acceleration or otherwise, shall be applied: (i) FIRST, to payment or reimbursement of that portion of the Obligations constituting fees, expenses and indemnities payable to the Administrative Agent in its capacity as such; (ii) SECOND, pro rata to payment or reimbursement of that portion of the Obligations constituting fees, expenses and indemnities payable to the Lenders; (iii) THIRD, pro rata to payment of Make-Whole Premium and accrued interest on the Loans; (iv) FOURTH, pro rata to payment of principal outstanding on the Loans; (v) FIFTH, to the payment of all other Obligations; and (vi) SIXTH, any excess, after all of the Obligations shall have been Paid in Full, shall be paid to the Borrower or as otherwise required by any applicable Requirements of Law. (d) In addition to all rights and remedies under this Agreement, any other Loan Document, at law and in equity, if any Event of Default shall occur and be continuing and Administrative Agent, or its designee or representative, shall exercise any remedies under the Security Documents with respect to any portion of the Mortgaged Properties (or any Loan Party shall transfer any Mortgaged Properties "in lieu of" foreclosure), the Administrative Agent and the Lenders shall have the right to request that any operator of any Mortgaged Properties which is either a Loan Party or an Affiliate of a Loan Party resign as operator under the joint operating agreement applicable thereto; and no later than sixty (60) days after receipt by a Loan Party of any such request, such Loan Party or its Affiliate shall resign (or cause such other party to resign) as operator of such Mortgaged Properties. ARTICLE XI THE ADMINISTRATIVE AGENT Section 11.01 Appointment; Powers. Each of the Lenders hereby irrevocably appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are 75 delegated to the Administrative Agent by the terms hereof and the other Loan Documents, together with such actions and powers as are reasonably incidental thereto. Section 11.02 Duties and Obligations of Administrative Agent. The Administrative Agent shall not have any duties or obligations except those expressly set forth in the Loan Documents. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing (the use of the term "agent" herein and in the other Loan Documents with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any Requirement of Law; rather, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties), (b) the Administrative Agent shall have no duty to take any discretionary action or exercise any discretionary powers, except as provided in Section 11.03, and (c) except as expressly set forth herein, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Subsidiaries that is communicated to or obtained by the bank serving as Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice thereof is given to the Administrative Agent by the Borrower or a Lender, and shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or under any other Loan Document or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or in any other Loan Document, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document, (v) the satisfaction of any condition set forth in ARTICLE VI or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent or as to those conditions precedent expressly required to be to the Administrative Agent's satisfaction, (vi) the existence, value, perfection or priority of any collateral security or the financial or other condition of the Borrower and its Subsidiaries or any other obligor or guarantor, or (vii) any failure by the Borrower or any other Person (other than itself) to perform any of its obligations hereunder or under any other Loan Document or the performance or observance of any covenants, agreements or other terms or conditions set forth herein or therein. For purposes of determining compliance with the conditions specified in ARTICLE VI, each Lender shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received written notice from such Lender prior to the proposed closing date specifying its objection thereto. Section 11.03 Action by Administrative Agent. The Administrative Agent shall have no duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise in writing as directed by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 12.02) and in all cases the Administrative 76 Agent shall be fully justified in failing or refusing to act hereunder or under any other Loan Documents unless it shall (a) receive written instructions from the Required Lenders or the Lenders, as applicable, (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 12.02) specifying the action to be taken and (b) be indemnified to its satisfaction by the Lenders against any and all liability and expenses which may be incurred by it by reason of taking or continuing to take any such action. The instructions as aforesaid and any action taken or failure to act pursuant thereto by the Administrative Agent shall be binding on all of the Lenders. If a Default has occurred and is continuing, then the Administrative Agent shall take such action with respect to such Default as shall be directed by the requisite Lenders in the written instructions (with indemnities) described in this Section 11.03, provided that, unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interests of the Lenders. In no event, however, shall the Administrative Agent be required to take any action which exposes the Administrative Agent to personal liability or which is contrary to this Agreement, the Loan Documents or Requirement of Law. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders or the Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 12.02), and otherwise the Administrative Agent shall not be liable for any action taken or not taken by it hereunder or under any other Loan Document or under any other document or instrument referred to or provided for herein or therein or in connection herewith or therewith INCLUDING ITS OWN ORDINARY NEGLIGENCE, except for its own gross negligence or willful misconduct. Section 11.04 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon and each of the Borrower, the Lenders hereby waives the right to dispute the Administrative Agent's record of such statement, except in the case of gross negligence or willful misconduct by the Administrative Agent. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts. The Administrative Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof permitted hereunder shall have been filed with the Administrative Agent. Section 11.05 Subagents. The Administrative Agent may perform any and all its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding Sections of this ARTICLE XI shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, 77 and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. Section 11.06 Resignation of Administrative Agent. Subject to the appointment and acceptance of a successor Agent as provided in this Section 11.06, the Administrative Agent may resign at any time by notifying the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent. Upon the acceptance of its appointment as Administrative Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the Administrative Agent's resignation hereunder, the provisions of this ARTICLE XI and Section 12.03 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Administrative Agent. Section 11.07 Administrative Agent as Lender. The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Parent, the Borrower or any Subsidiary or other Affiliate of any of the foregoing as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders. Section 11.08 No Reliance. (a) Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent, any other Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and each other Loan Document to which it is a party. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent, any other Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document, any related agreement or any document furnished hereunder or thereunder. The Administrative Agent shall not be required to keep itself informed as to the performance or observance by the Borrower or any of its Subsidiaries of this Agreement, the Loan Documents or any other document referred to or provided for herein or to inspect the Properties or books of the Borrower or its Subsidiaries. Except for notices, reports and other documents 78 and information expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Borrower (or any of its Affiliates) which may come into the possession of the Administrative Agent or any of its Affiliates. In this regard, each Lender acknowledges that Condon Thornton Sladek Harrell PLLC is acting in this transaction as special counsel to the Administrative Agent only. Each other party hereto will consult with its own legal counsel to the extent that it deems necessary in connection with the Loan Documents and the matters contemplated therein. (b) The Lenders acknowledge that the Administrative Agent is acting solely in administrative capacity with respect to the structuring and syndicating of this Agreement and has no duties, responsibilities or liabilities under this Agreement and the other Loan Documents other than its administrative duties, responsibilities and liabilities specifically as set forth in the Loan Documents and in its capacity as a Lender hereunder. In structuring, arranging or syndicating this Agreement, each Lender acknowledges that the Administrative Agent may be an agent or lender under these Notes, other loans or other securities and waives any existing or future conflicts of interest associated with the its role in such other debt instruments. Section 11.09 Administrative Agent May File Proofs of Claim. In case of the pendency of any proceeding under a Debtor Relief Law relative to any Loan Party, the Administrative Agent (irrespective of whether the principal of any Loan shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise: (a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders and the Administrative Agent under Section 12.03) allowed in such judicial proceeding; and (b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Section 12.03. Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any 79 plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding. Section 11.10 Authority of Administrative Agent to Release Collateral and Liens. Each Lender hereby authorizes the Administrative Agent (i) to release any collateral that is permitted to be sold or released pursuant to the terms of the Loan Documents, (ii) to release any Guarantor from its Guaranty Agreement pursuant to the terms thereof and (iii) to subordinate any Lien on any collateral granted to or held by the Administrative Agent under any Loan Document to the holder of any Lien permitted pursuant to Section 9.03. Each Lender hereby authorizes the Administrative Agent to execute and deliver to the Borrower, at the Borrower's sole cost and expense, any and all releases of Liens, termination statements, assignments or other documents reasonably requested by the Borrower in connection with any sale or other disposition of Property to the extent such sale or other disposition is permitted by the terms of Section 9.12 or is otherwise authorized by the terms of the Loan Documents. Section 11.11 Withholding Tax. To the extent required by any applicable law, the Administrative Agent may withhold from any payment to any Lender an amount equivalent to any applicable withholding tax. If the Internal Revenue Service or any other authority of the United States or other jurisdiction asserts a claim that the Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Lender for any reason (including, without limitation, because the appropriate form was not delivered or not property executed, or because such Lender failed to notify the Administrative Agent of a change in circumstance that rendered the exemption from, or reduction of withholding tax ineffective), such Lender shall indemnify and hold harmless the Administrative Agent (to the extent that the Administrative Agent has not already been reimbursed by the Borrower and without limiting or expanding the obligation of the Borrower to do so) for all amounts paid, directly or indirectly, by the Administrative Agent as Taxes or otherwise, including any interest, additions to Tax or penalties thereto, together with all expenses incurred, including legal expenses and any other out-of-pocket expenses, whether or not such taxes were correctly or legally imposed or asserted by the relevant Government Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. ARTICLE XII MISCELLANEOUS Section 12.01 Notices. (a) Except in the case of notices and other communications expressly permitted to be given by telephone (and subject to Section 12.01(b)), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy or electronic transmission, as follows: (i) if to the Borrower or the Parent, to it at: Baron Production LLC 80 300 S. CM Allen Pkwy, Suite 400 San Marcos, TX 78666 Attention: Lisa Hamilton (Facsimile: (512) 392-7238) Email: (ii) if to the Administrative Agent, to it at: Petro Capital Energy Credit, LLC 3710 Rawlins Street, Suite 1000 Dallas, Texas 75219 Attention: Mr. Rosser Newton (Facsimile: (214) 661-7765) Email: (iii) if to any other Lender, to it at its address (or telecopy number or email address) set forth in its Administrative Questionnaire. (b) Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communications pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to ARTICLE II, ARTICLE III, ARTICLE IV and ARTICLE V unless otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications. (c) Any party hereto may change its address, telecopy number or email address for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. Section 12.02 No Waivers; Amendments; Cumulative Remedies; Enforcement. (a) No failure on the part of the Administrative Agent or any Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege, or any abandonment or discontinuance of steps to enforce such right, power or privilege, under any of the Loan Documents shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under any of the Loan Documents preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies of the Administrative Agent and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or any other Loan Document or consent to any departure by any Loan Party therefrom shall in any event be effective unless the same shall be permitted by Section 12.02(b), and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not 81 be construed as a waiver of any Default, regardless of whether the Administrative Agent or any Lender may have had notice or knowledge of such Default at the time. (b) Neither this Agreement nor any provision hereof nor any other Loan Document nor any provision thereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by each Loan Party that is a party to the relevant Loan Document and the Administrative Agent with the consent of the Required Lenders; provided that no such agreement shall (i) increase the Commitment of any Lender without the written consent of such Lender, (ii) reduce the principal amount of any Loan or reduce the rate of interest thereon, or reduce any fees or Make-Whole Premium payable hereunder, without the written consent of each Lender affected thereby, (iii) postpone the scheduled date of payment or prepayment of the principal amount of any Loan, or any interest thereon, or any fees or Make-Whole Premium payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone or extend the Maturity Date without the written consent of each Lender affected thereby, provided, however, that only the consent of the Required Lenders shall be necessary to amend the definition of "Default Rate" or to waive any obligation of the Borrower to pay interest at the Default Rate, (iv) change Section 4.01(b) or Section 4.01(c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender, (v) waive or amend Section 3.04(c), Section 3.04 (d), Section 6.01, Section 8.14, or Section 10.02(c) or Section 12.14 or change the definition of the term "Subsidiary" or "Subsidiary Guarantor", without the written consent of each Lender (other than any Defaulting Lender), (vi) release any Guarantor (except as set forth in the Guaranty Agreement), release all or substantially of the collateral, without the written consent of each Lender (other than any Defaulting Lender), or (vii) change any of the provisions of this Section 12.02(b) or the definition of "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or under any other Loan Documents or make any determination or grant any consent hereunder or any other Loan Documents, without the written consent of each Lender; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent hereunder or under any other Loan Document without the prior written consent of the Administrative Agent. Notwithstanding the foregoing, any supplement to Schedule 7.14 (Subsidiaries) shall be effective simply by delivering to the Administrative Agent a supplemental schedule clearly marked as such and, upon receipt, the Administrative Agent will promptly deliver a copy thereof to the Lenders. (c) Notwithstanding anything to the contrary contained herein or in any other Loan Document, the authority to enforce rights and remedies hereunder and under the other Loan Documents against the Loan Parties or any of them shall be vested exclusively in, and all actions and proceedings at law in connection with such enforcement shall be instituted and maintained exclusively by, the Administrative Agent in accordance with Section 10.02 for the benefit of all the Secured Parties; provided, however, that the foregoing shall not prohibit (a) the Administrative Agent from exercising on its own behalf the rights and remedies that inure to its benefit (solely in its capacity as Administrative Agent) hereunder and under the other Loan Documents, (b) any Lender from exercising setoff rights in accordance with Section 12.08 (subject to the terms of Section 4.01), or (c) any Lender from filing proofs of claim or appearing and filing pleadings on its own behalf during the pendency of a proceeding relative to any Loan Party under any Debtor Relief Law; and provided, further, that if at any time there is no Person acting as Administrative Agent hereunder and under 82 the other Loan Documents, then (i) the Required Lenders shall have the rights otherwise ascribed to the Administrative Agent pursuant to Section 10.02 and (ii) in addition to the matters set forth in clauses (b) and (c) of the preceding proviso and subject to Section 4.01, any Lender may, with the consent of the Required Lenders, enforce any rights and remedies available to it and as authorized by the Required Lenders. Section 12.03 Expenses, Indemnity; Damage Waiver. (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including, without limitation, the reasonable fees, charges and disbursements of counsel and other outside consultants for the Administrative Agent, the reasonable travel, photocopy, mailing, courier, telephone and other similar expenses, and the cost of environmental audits and surveys and appraisals, in connection with the syndication of the credit facilities provided for herein, the preparation, negotiation, execution, delivery and administration (both before and after the execution hereof and including advice of counsel to the Administrative Agent as to the rights and duties of the Administrative Agent and the Lenders with respect thereto) of this Agreement and the other Loan Documents and any amendments, modifications or waivers of or consents related to the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all costs, expenses, Taxes, assessments and other charges incurred by the Administrative Agent or any Lender in connection with any filing, registration, recording or perfection of any Lien contemplated by this Agreement or any Security Document or any other document referred to therein, and (iii) all expenses incurred by the Administrative Agent or any Lender, including the fees, charges and disbursements of any counsel for the Administrative Agent or any Lender, in connection with the enforcement or protection of its rights in connection with this Agreement or any other Loan Document, including its rights under this Section 12.03, or in connection with the Loans made hereunder, including, without limitation, all such expenses incurred during any workout, restructuring or negotiations in respect of the Loans. (b) THE BORROWER AND THE PARENT SHALL JOINTLY AND SEVERALLY INDEMNIFY THE ADMINISTRATIVE AGENT AND EACH LENDER AND EACH RELATED PARTY OF ANY OF THE FOREGOING PERSONS (EACH SUCH PERSON BEING CALLED AN "INDEMNITEE") AGAINST, AND HOLD EACH INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES AND RELATED EXPENSES, INCLUDING THE FEES, CHARGES AND DISBURSEMENTS OF ANY COUNSEL FOR ANY INDEMNITEE, INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF (i) THE EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY (OTHER THAN EXPENSES IN CONNECTION WITH THE EXECUTION AND DELIVERY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS DATED OF EVEN DATE HEREWITH, WHICH EXPENSES SHALL ONLY BE PAID BY THE BORROWER AND THE PARENT TO THE EXTENT PROVIDED IN SECTION 12.03(A)), (ii) THE PERFORMANCE BY THE PARTIES HERETO OR THE PARTIES TO ANY OTHER LOAN DOCUMENT OF THEIR RESPECTIVE OBLIGATIONS HEREUNDER OR THEREUNDER OR THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY OR BY ANY OTHER LOAN DOCUMENT, (iii) THE 83 FAILURE OF ANY LOAN PARTY OR ANY OF ITS SUBSIDIARIES TO COMPLY WITH THE TERMS OF ANY LOAN DOCUMENT, INCLUDING THIS AGREEMENT, OR WITH ANY REQUIREMENT OF LAW, (iv) ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY WARRANTY OR COVENANT OF ANY LOAN PARTY SET FORTH IN ANY OF THE LOAN DOCUMENTS OR ANY INSTRUMENTS, DOCUMENTS OR CERTIFICATIONS DELIVERED IN CONNECTION THEREWITH, (v) ANY LOAN OR THE USE OF THE PROCEEDS THEREFROM, (vi) ANY OTHER ASPECT OF THE LOAN DOCUMENTS, (vii) THE OPERATIONS OF THE BUSINESS OF ANY LOAN PARTY AND ITS SUBSIDIARIES, (viii) ANY ASSERTION THAT THE LENDERS WERE NOT ENTITLED TO RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE SECURITY DOCUMENTS, (ix) ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY OR ANY OF THEIR PROPERTIES, INCLUDING WITHOUT LIMITATION, THE PRESENCE, GENERATION, STORAGE, RELEASE, THREATENED RELEASE, USE, TRANSPORT, DISPOSAL, ARRANGEMENT OF DISPOSAL OR TREATMENT OF OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS SUBSTANCES ON ANY OF THEIR PROPERTIES, (x) THE BREACH OR NON-COMPLIANCE BY ANY LOAN PARTY OR ANY OF ITS SUBSIDIARIES WITH ANY ENVIRONMENTAL LAW APPLICABLE TO ANY LOAN PARTY OR ANY SUBSIDIARY THEREOF, (xi) THE PAST OWNERSHIP BY ANY LOAN PARTY OR ANY OF ITS SUBSIDIARIES OF ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT LIABILITY, (xii) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT, DISPOSAL, GENERATION, THREATENED RELEASE, TRANSPORT, ARRANGEMENT FOR TRANSPORT OR ARRANGEMENT FOR DISPOSAL OF OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY OR ANY SUBSIDIARY OR ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS MATERIALS ON OR FROM ANY PROPERTY OWNED OR OPERATED BY ANY LOAN PARTY ANY OF ITS OF ITS SUBSIDIARIES, (xiii) ANY ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO ANY LOAN PARTY OR ANY OF ITS SUBSIDIARIES, (xiv) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS, OR (xv) ANY ACTUAL OR PROSPECTIVE CLAIM, LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTY THERETO, AND SUCH INDEMNITY SHALL EXTEND TO EACH INDEMNITEE NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, INCLUDING ITS OWN ORDINARY NEGLIGENCE, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNITEES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNITEES; PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS, DAMAGES, LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A COURT OF COMPETENT 84 JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE. (c) To the extent that the Borrower fails to pay any amount required to be paid by it to the Administrative Agent under Section 12.03(a) or (b), each Lender severally agrees to pay to the Administrative Agent such Lender's Aggregate Exposure Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent in its capacity as such. (d) TO THE EXTENT PERMITTED BY REQUIREMENT OF LAW, THE BORROWER AND THE PARENT SHALL NOT ASSERT, AND HEREBY WAIVE ANY CLAIM AGAINST ANY INDEMNITEE, ON ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES (AS OPPOSED TO DIRECT OR ACTUAL DAMAGES) ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF, THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, THE TRANSACTIONS, ANY LOAN OR THE USE OF THE PROCEEDS THEREOF. (e) All amounts due under this Section 12.03 shall be payable not later than three (3) days after written demand therefor. Section 12.04 Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that (i) the Borrower and the Guarantors may not assign or otherwise transfer any of their rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower or any Guarantor without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section 12.04 (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants (to the extent provided in Section 12.04(c)) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) (i) Subject to the conditions set forth in Section 12.04(b)(ii), any Lender may assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it) with the prior written consent (such consent not to be unreasonably withheld) of: (A) the Borrower, provided that no consent of the Borrower shall be required if such assignment is to a Lender, an Affiliate of a Lender, or, if an Event of Default has occurred and is continuing; and 85 (B) the Administrative Agent, provided that no consent of the Administrative Agent shall be required for an assignment to an assignee that is a Lender immediately prior to giving effect to such assignment. (ii) Assignments shall be subject to the following additional conditions: (A) except in the case of an assignment to a Lender or an Affiliate of a Lender or an assignment of the entire remaining amount of the assigning Lender's Commitment or Loans, the amount of the Commitment or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent) shall not be less than $1,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, provided that no such consent of the Borrower shall be required if an Event of Default has occurred and is continuing; (B) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement; (C) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500 (which fee may be waived by the Administrative Agent at its discretion); (D) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire; and (E) no assignment shall be made to (i) the Borrower or any of the Borrower's Subsidiaries or Affiliates, (ii) any Defaulting Lender or any of its Subsidiaries, or any Person who, upon becoming a Lender hereunder, would constitute any of the foregoing Persons described in this clause (ii), (iii) any natural Person, or (iv) any Person that is not a U.S. Person. (iii) Subject to Section 12.04(b)(iv) and the acceptance and recording thereof, from and after the effective date specified in each Assignment and Assumption the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Section 5.01, Section 5.02, and Section 12.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 12.04 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 12.04(c). 86 (iv) The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice. In connection with any changes to the Register, if necessary, the Administrative Agent will reflect the revisions on Annex I and forward a copy of such revised Annex I to the Borrower and each Lender. (v) Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in Section 12.04(b) (if payable) and any written consent to such assignment required by Section 12.04(b), the Administrative Agent shall accept such Assignment and Assumption and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this Section 12.04(b). (c) (i) Any Lender may, without the consent of the Borrower or the Administrative Agent, sell participations to one or more banks or other entities (a "Participant") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (A) such Lender's obligations under this Agreement shall remain unchanged, (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (C) the Participant must be a U.S. Person, and (D) the Borrower, the Administrative Agent, and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in clause (i), (ii) or (iii) of Section 12.02(b) that directly affects such Participant. In addition such agreement must provide that the Participant be bound by the provisions of Section 12.03. Subject to Section 12.04(c)(ii), the Borrower agrees that each Participant shall be entitled to the benefits of Section 5.01 and Section 5.02 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 12.04(b). To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 12.08 as though it were a Lender, provided such Participant agrees to be subject to Section 4.01(c) as though it were a Lender. (ii) A Participant shall not be entitled to receive any greater payment under Section 5.01 or Section 5.02 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, 87 unless the sale of the participation to such Participant is made with the Borrower's prior written consent. A Participant that is not a U.S. Person shall not be entitled to the benefits of Section 5.02. (iii) Each Lender that sells a participation shall, acting solely for this purpose as an agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant's interest in the Loans or other obligations under the Loan Documents (the "Participant Register"); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant's interest in any Commitments, Loans, or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such Commitment, Loan or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register. (d) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including, without limitation, any pledge or assignment to secure obligations to a Federal Reserve Bank, provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. (e) Notwithstanding any other provisions of this Section 12.04, no transfer or assignment of the interests or obligations of any Lender or any grant of participations therein shall be permitted if such transfer, assignment or grant would require the Borrower and the Guarantors to file a registration statement with the SEC or to qualify the Loans under the "Blue Sky" laws of any state. Section 12.05 Survival; Revival; Reinstatement. (a) All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid and so long as the Commitments have not expired or terminated. The provisions of Section 5.01, Section 5.02, and Section 12.03 and ARTICLE XI shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, and the Commitments or the termination of this Agreement, any other Loan Document or any provision hereof or thereof. (b) To the extent that any payments on the Obligations or proceeds of any collateral are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver or other Person under any Debtor Relief Law, common law or equitable cause, then to such extent, the Obligations so satisfied shall be revived and continue as if such payment or proceeds had not been received and the Administrative Agent's and the Lenders' Liens, security interests, rights, powers and remedies under this Agreement and each Loan Document shall continue 88 in full force and effect. In such event, each Loan Document shall be automatically reinstated and the Borrower shall take such action as may be reasonably requested by the Administrative Agent and the Lenders to effect such reinstatement. Section 12.06 Counterparts; Integration; Effectiveness; Etc. (a) This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. (b) This Agreement and the other Loan Documents constitute the entire contract among the parties relating to the subject matter hereof and thereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof and thereof. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES HERETO AND THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. (c) Except as provided in Section 6.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy or electronic transmission shall be effective as delivery of a manually executed counterpart of this Agreement. (d) Time is of the essence of this Agreement. (e) All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists. Section 12.07 Severability. Any provision of this Agreement or any other Loan Document held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof or thereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. Section 12.08 Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations (of whatsoever kind at any time owing by such Lender or Affiliate to or for the credit or the account of the Parent, the Borrower or any Subsidiary against any of and all the obligations of the Parent, the Borrower or any Subsidiary owed to such Lender now or hereafter existing under this Agreement or any other Loan Document, irrespective of whether or not such Lender shall have made any demand under this Agreement or any other Loan Document and although such obligations may be 89 unmatured. The rights of each Lender under this Section 12.08 are in addition to other rights and remedies (including other rights of setoff) which such Lender or its Affiliates may have; PROVIDED that in the event that any Defaulting Lender shall exercise any such right of setoff, (x) all amounts so set off shall be paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section 10.02(c) and, pending such payment, shall be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent and the Lenders, and (y) the Defaulting Lender shall provide promptly to the Administrative Agent a statement describing in reasonable detail the Obligations owing to such Defaulting Lender as to which it exercised such right of setoff. The rights of each Lender and their respective Affiliates under this Section 12.08 are in addition to other rights and remedies (including other rights of setoff) that such Lender or their respective Affiliates may have. Each Lender agrees to notify the Borrower and the Administrative Agent promptly after any such setoff and application; PROVIDED FURTHER that the failure to give such notice shall not affect the validity of such setoff and application. Section 12.09 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS. CHAPTER 346 OF THE TEXAS FINANCE CODE (WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT APPLY TO THIS AGREEMENT OR THE NOTES. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS SHALL BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF TEXAS, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. THIS SUBMISSION TO JURISDICTION IS NON-EXCLUSIVE AND DOES NOT PRECLUDE A PARTY FROM OBTAINING JURISDICTION OVER ANOTHER PARTY IN ANY COURT OTHERWISE HAVING JURISDICTION. (c) EACH PARTY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT THE ADDRESS SPECIFIED IN SECTION 12.01 OR SUCH OTHER ADDRESS AS IS SPECIFIED PURSUANT TO SECTION 12.01 (OR ITS ASSIGNMENT AND ASSUMPTION). NOTHING HEREIN SHALL AFFECT THE RIGHT OF A PARTY OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER 90 MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANOTHER PARTY IN ANY OTHER JURISDICTION. (d) EACH PARTY HEREBY (i) IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN; (ii) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (iii) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (iv) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 12.09. Section 12.10 Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. Section 12.11 Confidentiality. Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable law or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement or any other Loan Document, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section 12.11, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any Swap Agreement relating to the Borrower and its obligations, (g) with the consent of the Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section 12.11 or (ii) becomes available to the Administrative Agent or any Lender on a nonconfidential basis from a source other than the Borrower. For the purposes of this Section 12.11, "Information" means all information received from the Borrower or any Subsidiary relating to the Borrower or any Subsidiary and their businesses, other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by the Borrower or a Subsidiary; provided that, in the case of information received from the Parent, the Borrower 91 or any Subsidiary after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section 12.11 shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. Section 12.12 Interest Rate Limitation. It is the intention of the parties hereto that each Lender shall conform strictly to usury laws applicable to it. Accordingly, if the transactions contemplated hereby would be usurious as to any Lender under laws applicable to it (including the laws of the United States of America and the State of Texas or any other jurisdiction whose laws may be mandatorily applicable to such Lender notwithstanding the other provisions of this Agreement), then, in that event, notwithstanding anything to the contrary in any of the Loan Documents or any agreement entered into in connection with or as security for the Notes, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under law applicable to any Lender that is contracted for, taken, reserved, charged or received by such Lender under any of the Loan Documents or agreements or otherwise in connection with the Notes shall under no circumstances exceed the maximum amount allowed by such Requirement of Law, and any excess shall be canceled automatically and if theretofore paid shall be credited by such Lender on the principal amount of the Obligations (or, to the extent that the principal amount of the Obligations shall have been or would thereby be paid in full, refunded by such Lender to the Borrower); and (ii) in the event that the maturity of the Notes is accelerated by reason of an election of the holder thereof resulting from any Event of Default under this Agreement or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest under law applicable to any Lender may never include more than the maximum amount allowed by such Requirement of Law, and excess interest, if any, provided for in this Agreement or otherwise shall be canceled automatically by such Lender as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited by such Lender on the principal amount of the Obligations (or, to the extent that the principal amount of the Obligations shall have been or would thereby be paid in full, refunded by such Lender to the Borrower). All sums paid or agreed to be paid to any Lender for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by law applicable to such Lender, be amortized, prorated, allocated and spread throughout the stated term of the Loans evidenced by the Notes until payment in full so that the rate or amount of interest on account of any Loans hereunder does not exceed the maximum amount allowed by such Requirement of Law. If at any time and from time to time (i) the amount of interest payable to any Lender on any date shall be computed at the Highest Lawful Rate applicable to such Lender pursuant to this Section 12.12 and (ii) in respect of any subsequent interest computation period the amount of interest otherwise payable to such Lender would be less than the amount of interest payable to such Lender computed at the Highest Lawful Rate applicable to such Lender, then the amount of interest payable to such Lender in respect of such subsequent interest computation period shall continue to be computed at the Highest Lawful Rate applicable to such Lender until the total amount of interest payable to such Lender shall equal the total amount of interest which would have been payable to such Lender if the total amount of interest had been computed without giving effect to this Section 12.12. To the extent that Chapter 303 of the Texas Finance Code is relevant for the purpose of determining the Highest Lawful Rate applicable to a Lender, such Lender elects to determine the 92 applicable rate ceiling under such Chapter by the weekly ceiling from time to time in effect. Chapter 346 of the Texas Finance Code does not apply to the Borrower's obligations hereunder. Section 12.13 EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT HAS IN FACT READ THIS AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT "CONSPICUOUS." Section 12.14 No Third Party Beneficiaries. This Agreement, the other Loan Documents, and the agreement of the Lenders to make Loans hereunder are solely for the benefit of the Borrower, and no other Person (including, without limitation, any Subsidiary of the Borrower, any obligor, contractor, subcontractor, supplier or materialsman) shall have any rights, claims, remedies or privileges hereunder or under any other Loan Document against the Administrative Agent or any Lender for any reason whatsoever. There are no third party beneficiaries. Section 12.15 USA Patriot Act Notice. Each Lender hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the "Act"), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender to identify the Borrower in accordance with the Act. Section 12.16 Flood Insurance Provisions. Notwithstanding any provision in this Agreement or any other Loan Document to the contrary, in no event is any Building (as defined in the applicable Flood Insurance Regulation) or Manufactured (Mobile) Home (as defined in the applicable Flood Insurance 93 Regulation) included in the definition of "Mortgaged Property" and no Building or Manufactured (Mobile) Home is hereby encumbered by this Agreement or any other Loan Document. As used herein, "Flood Insurance Regulations" means (a) the National Flood Insurance Act of 1968 as now or hereafter in effect or any successor statute thereto, (b) the Flood Disaster Protection Act of 1973 as now or hereafter in effect or any successor statue thereto, (c) the National Flood Insurance Reform Act of 1994 (amending 42 USC 4001, et seq.), as the same may be amended or recodified from time to time and (d) the Flood Insurance Reform Act of 2004 and any regulations promulgated thereunder. Section 12.17 Advertising and Publicity. No Loan Party shall issue or disseminate to the public (by advertisement, including without limitation any "tombstone" advertisement, press release or otherwise), submit for publication or otherwise cause or seek to publish any information describing the credit or other financial accommodations made available by Lenders pursuant to this Agreement and the other Loan Documents without the prior written consent of Administrative Agent except as required by law or a listing agreement with a national exchange and then only after prior good faith consultation with the Administrative Agent. Nothing in the foregoing shall be construed to prohibit any Loan Party from making any submission or filing which it is required to make by applicable law or pursuant to judicial process; provided, that, (i) such filing or submission shall contain only such information as is necessary to comply with applicable law or judicial process and (ii) unless specifically prohibited by applicable law or court order, such Loan Party shall promptly notify Administrative Agent of the requirement to make such submission or filing and provide Administrative Agent with a copy thereof. [Remainder of page intentionally left blank; signature pages follow] 94 The parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. BORROWER: BARON PRODUCTION LLC By: -------------------------------------------- Name: -------------------------------------------- Title: -------------------------------------------- PARENT: BARON ENERGY, INC. By: -------------------------------------------- Name: -------------------------------------------- Title: -------------------------------------------- 95 ADMINISTRATIVE AGENT: PETRO CAPITAL ENERGY CREDIT, LLC, as Administrative Agent By: PCEC Management, LLC, its Managing Member By: -------------------------------------------- Rosser C. Newton, Authorized Signatory 96 LENDERS: PETRO CAPITAL ENERGY CREDIT, LLC, as a Lender By: PCEC Management, LLC, its Managing Member By: -------------------------------------------- Rosser C. Newton, Authorized Signatory 97 ANNEX I LIST OF APPLICABLE PERCENTAGES AND COMMITMENTS Name of Lender Applicable Percentage Commitment -------------- --------------------- ---------- Petro Capital Energy Credit, LLC 100% $5,000,000 (1) TOTAL 100% $5,000,000 ---------- 1. Subject to adjustment pursuant to the definition of "Commitment" in Section 1.02. 98 EXHIBIT A FORM OF NOTE $_____________ Dallas, Texas July [__], 2014 FOR VALUE RECEIVED, the undersigned, Baron Production LLC, a Texas limited liability company (the "Borrower"), hereby unconditionally promises to pay to _____________ (the "Lender") or its registered assigns at the office of the Administrative Agent (as hereafter defined) specified in the Credit Agreement in lawful money of the United States and in immediately available funds, the principal amount of (a) ________ DOLLARS ($____________), or, if less, (b) the sum of the aggregate unpaid principal amount of all Loans made by the Lender to the Borrower pursuant to Section 2.01 of the Credit Agreement. The Borrower further agrees to pay interest in like money at such payment office on the unpaid principal amount hereof from time to time outstanding at the rates and on the dates specified the Credit Agreement. The holder of this Note is authorized to endorse on the schedule annexed hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof the date and amount of each Loan made pursuant to the Credit Agreement and the date and amount of each payment or prepayment of principal thereof. Each such endorsement shall constitute prima facie evidence of the accuracy of the information endorsed. The failure to make any such endorsement or any error in any such endorsement shall not affect the obligations of the Borrower in respect of any Loan. This Note (a) is one of the Notes referred to in the Credit Agreement dated as of July 28, 2014 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Borrower, Baron Energy, Inc., a Nevada corporation, the several lenders from time to time parties thereto, and Petro Capital Energy Credit, LLC, as Administrative Agent, (b) is subject to the provisions of the Credit Agreement and (c) is subject to optional and mandatory prepayment in whole or in part as provided in the Credit Agreement. This Note is secured and guaranteed as provided in the Loan Documents. Reference is hereby made to the Loan Documents for a description of the properties and assets in which a security interest has been granted, the nature and extent of the security and the guarantees, the terms and conditions upon which the security interests and each guarantee were granted and the rights of the holder of this Note in respect thereof. Upon the occurrence of any one or more of the Events of Default, all principal and all accrued interest then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided in the Credit Agreement. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest, notice of acceleration, notice of intent to accelerate and all other notices of any kind. 99 Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF TEXAS. BARON PRODUCTION LLC By: -------------------------------------- Name: ------------------------------------- Title: ------------------------------------ 100 Schedule A to Note LOANS AND REPAYMENTS OF LOANS Amount Amount of Principal Unpaid Principal Notation Date of Loans of Loans Repaid Balance of Loans Made By ---- -------- --------------- ---------------- ------- 101 EXHIBIT B FORM OF BORROWING REQUEST _______, 201_ Petro Capital Energy Credit, LLC, as Administrative Agent 3710 Rawlins, Suite 400 Dallas, Texas 75219 Ladies and Gentlemen: The undersigned, Baron Production, LLC, an Texas limited liability company (the "Borrower"), refers to the Credit Agreement dated as of July 28, 2014 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Borrower, Baron Energy, Inc., a Nevada corporation, the lenders from time to time parties thereto (the "Lenders"), and Petro Capital Energy Credit, LLC, as administrative agent for the Lenders (the "Administrative Agent"). Capitalized terms used but not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement. The Borrower gives you irrevocable notice pursuant to Section 2.03 of the Credit Agreement that it hereby requests a Loan under the Credit Agreement and sets forth below the information required therein: 1. The Borrower requests a Loan in the principal amount of [$_______]. 2. The date of the Borrowing of the Loan requested herein is _____, 201_, which is a Business Day. The Borrower represents and warrants that, on and as of the date of the Loan requested herein, all of the conditions precedent specified in [Section 6.01 and] (2) Section 6.02 of the Credit Agreement shall be satisfied. [Signature Page Follows] ---------- 2. Include for initial Borrowing. 102 Very truly yours, BARON PRODUCTION, LLC By: -------------------------------------- Name: ------------------------------------- Title: ------------------------------------ 103 EXHIBIT C FORM OF COMPLIANCE CERTIFICATE Financial Statement Date: ________, ____ To: Petro Capital Energy Credit, LLC, as Administrative Agent, and each Lender Ladies and Gentlemen: Reference is made to that certain Credit Agreement, dated as of July 28, 2014 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the "Agreement;" the terms defined therein being used herein as therein defined), among Baron Energy, Inc., a Nevada corporation (the "Parent"), Baron Production LLC, a Texas limited liability company (the "Borrower"), the Lenders from time to time party thereto, and Petro Capital Energy Credit, LLC, as Administrative Agent for the Lenders. The undersigned Responsible Officer of the Borrower hereby certifies as of the date hereof that he/she is the ___________________________________ of the Borrower, and that, as such, he/she is authorized to execute and deliver this Certificate to the Administrative Agent and each Lender on the behalf of the Borrower, and that: [USE FOLLOWING PARAGRAPH 1 FOR FISCAL YEAR-END FINANCIAL STATEMENTS] 1. The Borrower has delivered the year-end audited consolidated balance sheet and related statements of operations, members' equity and cash flows required by Section 8.01(a) of the Agreement as of and for the fiscal year of the Borrower ended as of the above date, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by independent public accountants of recognized national standing (without a "going concern" or like qualification or exception and without any qualification or exception as to the scope of such audit). Such balance sheet and related statements present fairly in all material respects the financial condition and results of operations of the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP consistently applied. [USE FOLLOWING PARAGRAPH 1 FOR FISCAL QUARTER-END FINANCIAL STATEMENTS] 1. The Borrower has delivered the consolidated balance sheet and related statements of operations, members' equity and cash flows required by Section 8.01(b) of the Agreement as of and for the fiscal quarter of the Borrower ended as of the above date and the then-elapsed portion of the fiscal year in question. Such balance sheet and related statements present fairly in all material respects the financial condition, results of operations and cash flows of the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes. 104 [USE THE FOLLOWING PARAGRAPH 1 FOR MONTHLY FINANCIAL STATEMENTS] 1. The Borrower has delivered the consolidated balance sheet and related statements of operations, members' equity and cash flows required by Section 8.01(d) of the Agreement as of and for the month ended as of the above date. Such balance sheet and related statements present fairly in all material respects the financial condition, results of operations and cash flows of the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes. 2. The undersigned has reviewed and is familiar with the terms of the Agreement and has made, or has caused to be made under his/her supervision, a detailed review of the transactions and condition (financial or otherwise) of the Borrower and the other Loan Parties during the accounting period covered by such financial statements. 3. A review of the activities of the Borrower and the other Loan Parties during such fiscal period has been made under the supervision of the undersigned with a view to determining whether during such fiscal period the Borrower and the other Loan Parties performed and observed all their respective Obligations under the Loan Documents, and [SELECT ONE:] [during such fiscal period the Borrower and the other Loan Parties performed and observed each covenant and condition of the Loan Documents applicable to it, and no Default has occurred and is continuing. --OR-- [the following covenants or conditions have not been performed or observed and the following is a list of each such Default and its nature and status:] 4. The representations and warranties of the Borrower and the Parent contained in Article VII of the Agreement and all representations and warranties of any Loan Party that are contained in an Loan Document or any document furnished at any time under or in connection with the Loan Documents, are true and correct on and as of the date hereof, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct as of such earlier date. 6. Schedule 3 attached hereto describes each change in GAAP that has occurred since the date of the audited financial statements referred to in Section 7.04 of the Credit Agreement and the effect of such change on the financial statements accompanying this Certificate. 7. The financial covenant analyses and information set forth on Schedules 1, 2 and 3 attached hereto are true and accurate on and as of the date of this Certificate. 105 IN WITNESS WHEREOF, the undersigned has executed this Certificate as of ____________, ______________. BARON PRODUCTION LLC By: -------------------------------------------- Name: -------------------------------------------- Title: -------------------------------------------- 106 For the Quarter/Year/Month ended ___________________, ____ ("Statement Date") SCHEDULE 1 to the Compliance Certificate ($ in 000's) I. Section 9.01(a) - Consolidated Interest Coverage Ratio. A. Consolidated EBITDA as of the Statement Date: $______ 1. Consolidated Net Income as of such date: $______ 2. Consolidated Interest Expense as of such date: $______ 3. Income tax expense as of such date: $______ 4. Depreciation expenses as of such date: $______ 5. Amortization expenses as of such date: $______ 6. Consolidated EBITDA (Lines I.A.1 + 2 + 3 + 4 + 5): $______ B. Consolidated Interest Expense for Subject Period: $______ C. Consolidated Interest Coverage Ratio (Line I.A.6 / Line I.B): ____ to 1.00 MINIMUM REQUIRED: ________ The Borrower is in compliance (circle yes or no) Yes/No II. Section 9.01(b) - Consolidated Debt Ratio A. Consolidated Total Indebtedness as of the Statement Date: $______ B. Consolidated EBITDA as of the Statement Date (from Line IA.6): $______ C. Consolidated Debt Ratio (Line II.A / Line II.B: ____ to 1.00 MAXIMUM PERMITTED: ____ to 1.00 The Borrower is in compliance (circle yes or no) Yes/No 107 III. Section 9.01(c) - Current Ratio A. Consolidated Current Assets at the Statement Date for the fiscal quarter then ended as of the Statement Date, less non-cash assets under FAS 133 as of the such Statement Date: $______ B. Consolidated Current Liabilities as of such Statement Date, less non-cash obligations under FAS 133 and less current maturities under the Agreement, as of such Statement Date: $______ C. Current Ratio (Line I.A.6 / Line I.B): 1.00 to 1.__ MINIMUM PERMITTED: 1.00 to 1.25 The Borrower is in compliance (circle yes or no) Yes/No IV. Section 9.01(d) - Minimum Monthly Gross Production. A. Average monthly gross production for the 3-calendar month period ending on the Statement Date (calculated as gross barrels of oil and BOE of natural gas): ______ B. Minimum permitted monthly gross production (calculated as gross barrels of oil and BOE of natural gas): ______ C. Deficiency for covenant compliance (Line IV.B - IV.A): ______ MINIMUM PERMITTED: ______ The Borrower is in compliance (circle yes or no) Yes/No V. Section 9.01(e) - Minimum Cash Balances. A. Cash and Cash Equivalents of Borrower on the Statement Date, less funds on deposit in the Debt Service Reserve Account as of such Statement Date: $______ B. Minimum permitted Cash Balances as of any date $35,000 C. Deficiency for covenant compliance (Line V.B - V.A): $______ The Borrower is in compliance (circle yes or no) Yes/No 108 VI. Section 9.01(f) - Maximum Total G&A Expense. A. Average monthly Total G&A Expense for the 3-calendar month period ending on the Statement Date (3): $______ B. Maximum average monthly permitted Total G&A Expense permitted: $60,000 C. Excess (deficiency) for covenant compliance (Line VI.A - VI.B): $______ The Borrower is in compliance (circle yes or no) Yes/No VII. Section 9.01(g) - Maximum Consolidated Total Indebtedness. A. Total Consolidated Indebtedness as of the Statement Date: $______ B. Maximum permitted Consolidated Total Indebtedness as of any date: $5,450,000 C. Excess for covenant compliance (Line VII.A - VII.B): $______ The Borrower is in compliance (circle yes or no) Yes/No ---------- 3. Commencing with the month ending October 31, 2014. 109 For the Quarter/Year ended ___________________("Statement Date") SCHEDULE 2 to the Compliance Certificate ($ in 000's) Consolidated EBITDA (in accordance with the definition of Consolidated EBITDA as set forth in the Agreement) Twelve Quarter Quarter Quarter Quarter Months CONSOLIDATED Ended Ended Ended Ended Ended EBITDA ----- ----- ----- ----- ----- Consolidated Net Income + Consolidated Interest Expense + income taxes + depreciation expense + amortization expense = Consolidated EBITDA 110 SCHEDULE 3 to the Compliance Certificate ($ in 000's) Changes in GAAP and the Application Thereof 111 EXHIBIT D SECURITY DOCUMENTS 1. Deed of Trust, Assignment of As-Extracted Collateral, Security Agreement, Fixture Filing and Financing Statement, dated as of July 28, 2014, executed by the Borrower for the benefit of the Administrative Agent. 112 EXHIBIT E FORM OF ASSIGNMENT AND ASSUMPTION This Assignment and Assumption (the "Assignment and Assumption") is dated as of the Effective Date set forth below and is entered into by and between [INSERT NAME OF ASSIGNOR] (the "Assignor") and [INSERT NAME OF ASSIGNEE] (the "Assignee"). Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (as amended, the "Credit Agreement"), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full. For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of the Assignor's rights and obligations in its capacity as a Lender under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of the Assignor under the respective facilities identified below (including any letters of credit and guarantees included in such facilities) and (ii) to the extent permitted to be assigned under Applicable Law, all claims, suits, causes of action and any other right of the Assignor (in its capacity as a Lender) against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned pursuant to clauses (i) and (ii) above being referred to herein collectively as the "Assigned Interest"). Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by the Assignor. 1. Assignor: --------------------------------------------- 2. Assignee: --------------------------------------------- [and is an Affiliate of [IDENTIFY LENDER] (4) 3. Borrower: Baron Production LLC 4. Administrative Agent: Petro Capital Energy Credit, LLC 5. Credit Agreement: Credit Agreement dated as of July 28, 2014, among Baron Energy, Inc., Baron Production LLC, and Petro Capital Energy Credit, LLC, as Administrative Agent, for the Lenders ---------- 4. Select as applicable. 113 Assigned Interest: Aggregate Amount of Amount of Percentage Commitment Commitment/Loans for Commitment/Loans Assigned of Assigned all Lenders Assigned Commitment/Loans (5) -------- ----------- -------- -------------------- $ $ % $ $ % $ $ % Effective Date: _____________ ___, 201_ [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.] The terms set forth in this Assignment and Assumption are hereby agreed to: ASSIGNOR [NAME OF ASSIGNOR] By: -------------------------------------------- Title: ASSIGNEE [NAME OF ASSIGNEE] By: -------------------------------------------- Title: ---------- 5. Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of all Lenders thereunder. 114 Consented to and Accepted: PETRO CAPITAL ENERGY CREDIT, LLC, as Administrative Agent By ------------------------------------------ Name: Title: [Consented to and Accepted: BARON PRODUCTION LLC By ------------------------------------------ Name: Title:] 115 ANNEX 1 STANDARD TERMS AND CONDITIONS FOR ASSIGNMENT AND ASSUMPTION 1. Representations and Warranties. 1.1 Assignor. The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Parent, Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Parent, the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document. 1.2. Assignee. The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it satisfies the requirements, if any, specified in the Credit Agreement that are required to be satisfied by it in order to acquire the Assigned Interest and become a Lender, (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered pursuant to Section 8.01 thereof, as applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase the Assigned Interest on the basis of which it has made such analysis and decision independently and without reliance on the Administrative Agent or any other Lender, and (v) it is a U.S. Person; and (b) agrees that (i) it will, independently and without reliance on the Administrative Agent, the Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender. 2. Payments. From and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts which have accrued to but excluding the Effective Date and to the Assignee for amounts which have accrued from and after the Effective Date. 3. General Provisions. This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by telecopy or other electronic means shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be governed by, and construed in accordance with, the laws of the State of Texas. 116 SCHEDULE 1.01A Scheduled Capital Expenditures Month Amount ----- ------ August 2014 $ 67,500 September 2014 $ 101,250 October 2014 $ 101,250 November 2014 $ 116,250 December 2014 $ 101,250 January 2015 $ 636,250 February 2015 $ 636,250 March 2015 $1,600,000 April 2015 $1,000,000 May 2015 $ 0 June 2015 $ 0 July 2015 $1,000,000 August 2015 $1,000,000 117 SCHEDULE 7.05 LITIGATION None 118 SCHEDULE 7.12 INSURANCE [GRAPHICS SHOWING INSURANCE DOCUMENTS FROM NATIONAL AMERICAN INSURANCE COMPANY] 119 SCHEDULE 7.14 SUBSIDIARIES None 120 SCHEDULE 7.18 GAS IMBALANCES None 121 SCHEDULE 7.19 MARKETING CONTRACTS None 122 SCHEDULE 7.20 SWAP AGREEMENTS None 123 SCHEDULE 7.25 AFFILIATE TRANSACTIONS 1. Executive Employment Agreement dated March 1, 2014 between Ronnie L. Steinocher and Baron Energy, Inc. 2. Executive Employment Agreement dated March 1, 2014 between Lisa P. Hamilton and Ronnie L. Steinocher 3. Advance from Lisa P. Hamilton to Baron Energy, Inc. in the amount of $188,548 as of June 30, 2014 4. Account payable owed by Baron Energy, Inc. to Esconde Energy LLC, general partner of Esconde Resources LP, in the amount of $45,900 124 SCHEDULE 7.27 MATERIAL CONTRACTS AND OPERATING AGREEMENTS EAST PEARSALL (STEWART) PROSPECT Participation Agreement (East Pearsall Prospect) dated effective January 15, 2010, between Ricochet Energy, Inc., as Operator, and Sien Energy Company et al., as Participants, together with Joint Operating Agreement dated effective January 15, 2010 attached thereto, unrecorded. Participation Agreement (East Pearsall Prospect) dated effective May 1, 2010, between Ricochet Energy, Inc., as Operator, and Ricochet Interests, Ltd. et al., as Participants, unrecorded. Letter Agreement dated February 24, 2011, between Ricochet Energy, Inc., and Borden Jenkins, unrecorded, setting forth certain agreements to purchase interests in the East Pearsall Prospect Leases from Borden Jenkins. Letter Agreements dated June 1, 2012, between Ricochet Energy, Inc., and Sien Energy Company, LLC and Mark Thompson, unrecorded, setting forth certain agreements to purchase certain interests in the East Pearsall Prospect Leases from Sien Energy Company, LLC and Mark Thompson. Eastex Crude Company Contract No. 4900, as amended (currently Amendment #18), dated March 26, 2010, between Eastex Crude Company, and Ricochet Energy, Inc., setting forth the terms for sales of crude oil from wells located in Frio County. Base Contract for Sale and Purchase of Natural Gas, undated, between Faraday Pipeline Co., as purchaser, and Ricochet Energy, Inc., as seller, unrecorded. BREAZEALE PROSPECT (NEAL TRUST UNIT) Participation Agreement (Breazeale Prospect) dated effective August 1, 2012, between Ricochet Energy, Inc., as Operator, and Ricochet Interests, Ltd. et al., as Participants, together with Joint Operating Agreement dated effective August 1, 2012 attached thereto, unrecorded. MAXWELL PROSPECT Letter Agreements dated January 24, 2012, between Ricochet Energy, Inc. and Vaquillas Energy, Ltd., JOB Energy II, Ltd., Lord's Energy, Ltd., Hubberd-Smith Energy Investments, Ltd., Nettleship Energy Interests, Ltd. and Laredo Gateway Energy, Ltd., setting forth elections to participate in drilling and development activities on the referenced prospect area. PETTY PROSPECT Letter Agreements dated April 16, 2012, between Ricochet Energy, Inc. and Vaquillas Energy, Ltd., JOB Energy II, Ltd., Lord's Energy, Ltd., Hubberd-Smith Energy Investments, Ltd., Nettleship Energy Interests, Ltd. and Laredo Gateway Energy, Ltd., setting forth elections to participate in drilling and development activities on the referenced prospect area. 125 FRIO AUSTIN CHALK PROSPECT (CULPEPPER, 3C, KOTZEBUE AND RIGGAN) Participation Agreement (Frio Austin Chalk Prospect) dated effective June 1, 2011, between Ricochet Energy, Inc., as Operator, and Ricochet Interests, Ltd. et al., as Participants, together with Joint Operating Agreement dated effective June 1, 2011 attached thereto, unrecorded. Agreement dated April 21, 2010, between Sien Energy Company, Ricochet Energy, Inc. and Goodrich Petroleum Company, L.L.C., regarding the sale and conveyance of certain rights below the top of the Eagleford formation to Goodrich Petroleum in the "Culpepper" Leases listed therein, unrecorded. EXPRESS RE-ENTRY PROSPECTS (CANTU-HENDERSON UNIT AND HARRIS LEASE) Participation Agreement (Express Re-entry Prospects) dated effective July 15, 2009, between Ricochet Energy, Inc., as Operator, and Express Oil & Gas, Mark Pinson and Rustic Oil & Gas, L.L.C., covering the Cantu/Henderson Leases and the Harris Lease in Frio County, unrecorded. Operating Agreement dated July 15, 2009, between Ricochet Energy, Inc., as Operator, and Express Oil & Gas, as non-operator, recorded by Memorandum of Operating Agreement and Financing Statement dated effective July 15, 2009, in Volume 63, page 442, Official Records, Frio County, Texas, covering the Cantu/Henderson Lease Prospect. Operating Agreement dated July 15, 2009, between Ricochet Energy, Inc., as Operator, and Express Oil & Gas and Rustic Oil & Gas, L.L.C., as non-operators, recorded by Memorandum of Operating Agreement and Financing Statement dated effective July 15, 2009, in Volume 63, page 435, Official Records, Frio County, Texas, covering the Harris Lease (Re-entry) Prospect. Participation Agreement (Express Re-entry Prospects) dated effective November 10, 2009, between Ricochet Energy, Inc., as Operator, and Ricochet Interests, Ltd. et al, as Participants, covering the Cantu/Henderson Leases and the Harris Lease in Frio County, unrecorded. Gas Sales and Purchase Agreement dated December 1, 2010, between Frio LaSalle Pipeline, LLC, and Ricochet Energy, Inc., regarding sales of gas from the Cantu-Henderson No. 1H well in Frio County. Salt Water Disposal Agreement dated effective September 1, 2012, between Manuel Cantu Family Trust, as Owner, and Ricochet Energy, Inc., as Operator, regarding disposal of salt water from the Cantu-Henderson No. 1H Well into the wellbore of the former Cantu No. 1 Well, unrecorded. W.S. SHAFFER AND W.S. SHAFFER -B- LEASES Operating Agreement dated August 1, 2007, between Permian Legend LLC, as Operator, and Permian Legend Petroleum LP, as non-operator. 126 W.S. SHAFFER -C- LEASE Operating Agreement dated August 1, 2007, between Permian Legend LLC, as Operator, and Permian Legend Petroleum LP, as non-operator. 127 SCHEDULE 7.29 DEPOSIT AND SECURITIES ACCOUNTS, ETC. Name on Account: Baron Production LLC Bank Routing #: Bank ABA# (Wiring): Bank Name: Account Number: Purpose: Checking 128 SCHEDULE 8.07 INSURANCE Required Coverage The Borrower will at all times procure and maintain with responsible insurance companies the following insurance and such other insurance as the Administrative Agent deems appropriate: (a) Worker's Compensation Insurance and Employer's Liability Insurance in compliance with all applicable Laws. (b) Comprehensive General Liability Insurance (including pollution) with a combined single limit of not less than $1,000,000 per occurrence and $2,000,000 in the aggregate. This policy will be endorsed to provide coverage for explosion, collapse and underground damage hazards to property of others; contractual liability; and products and completed operations; (c) Comprehensive Liability Insurance covering all owned, hired or non-owned vehicles with a combined single limit of not less than $1,000,000 per occurrence; (d) Excess Umbrella Liability Insurance with a combined single limit of not less than $5,000,000 per occurrence, provided that on and after August 15, 2014, the Borrower shall maintain Excess Umbrella Liability Insurance with a Combined single limit of not less than $10,000,000; (e) Well Control Operator's Excess Expense Liability Insurance (including cost of well control, relief wells, redrilling) in an amount not less than $15,000,000 per occurrence; and (f) Property Insurance (subject to deductibles that are customary in the case of independent oil and gas companies engaged in operations of similar properties) fully covering the Oil and Gas Properties of the Borrower and its Subsidiaries including the value of all facilities and well surface equipment. Additional Requirements 1. All insurance policies will be endorsed to be primary and noncontributory with any other valid and collectible insurance. 2. The Borrower will provide to the Administrative Agent from time to time as requested a Certificate of Insurance, in form satisfactory to the Administrative Agent, as evidencing that satisfactory coverages of the type and limits set forth hereinabove are in effect. Policies providing such coverages will contain provisions that no cancellation or material changes in the policies will become effective except on 30 days' advance written notice thereof to the Administrative Agent. Irrespective of the requirements as to insurance to be carried as provided for herein, the insolvency, bankruptcy or failure of any insurance company carrying insurance of the Borrower or any of its Subsidiaries, 129 the failure of any insurance company to pay claims accruing, or the inadequacy of the limits of the insurance, will not affect, negate or waive any of the provisions of any Loan Document applicable to the property, including, without exception, the indemnity obligations of the Borrower. The Borrower will furnish to the Administrative Agent copies of all renewal applications or applications for replacement insurance promptly following submission of the same. 3. The Borrower will promptly notify the Administrative Agent of any one or more claims made under any insurance policy where the Borrower or any Subsidiary is a named or additional insured (whether such claim is made by the Borrower or any other Person insured thereunder) where such claim(s) are for an aggregate amount in excess of 50% of any aggregate policy limit. 4. The Borrower will require any policies of liability insurance, except workers compensation coverage, that are in any way related to the Oil and Gas Properties of the Borrower and its Subsidiaries, and that are obtained or maintained by the Borrower, to include the Administrative Agent and the Lenders and their respective parent and affiliated companies and mortgagees, and their directors, managers, officers, employees and agents, as Additional Insureds, without any limitations based on the fault or negligence, in whole or in part, of such Additional Insureds. The Borrower will require any property and casualty policies that are in any way related to the Oil and Gas Properties of the Borrower and its Subsidiaries, to name the Administrative Agent as the loss payee. If any insurance policy is issued with the name of the insured being other than the name of the Borrower, then the Borrower will be added as a named insured and the Administrative Agent and the Lenders and their parent and affiliated companies and mortgagees, and their directors, officers, employees and agents will be named as Additional Insureds and loss payee as required in the preceding sentences of this paragraph. 5. The Borrower will require all policies of insurance that are in any way related to this Credit Agreement to include clauses providing that each underwriter will waive its rights of recovery, under subrogation or otherwise, against the Administrative Agent and the Lenders and their respective parent and affiliated companies and mortgagees, and their directors, managers, officers, employees and agents. 130 SCHEDULE 9.05 INVESTMENTS None 131

Exhibit 10.76 NOTE $5,150,000.00 Dallas, Texas July 28, 2014 FOR VALUE RECEIVED, the undersigned, Baron Production LLC, a Texas limited liability company (the "Borrower"), hereby unconditionally promises to pay to Petro Capital Energy Credit, LLC, a Texas limited liability company (the "Lender") or its registered assigns at the office of the Administrative Agent specified in the Credit Agreement (as hereinafter defined) in lawful money of the United States and in immediately available funds, the principal amount of (a) FIVE MILLION ONE HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($5,150,000), or, if less, (b) the sum of the aggregate unpaid principal amount of all Loans made by the Lender to the Borrower pursuant to Section 2.01 of the Credit Agreement. The Borrower further agrees to pay interest in like money at such payment office on the unpaid principal amount hereof from time to time outstanding at the rates and on the dates specified the Credit Agreement. The holder of this Note is authorized to endorse on the schedule annexed hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof the date and amount of each Loan made pursuant to the Credit Agreement and the date and amount of each payment or prepayment of principal thereof. Each such endorsement shall constitute prima facie evidence of the accuracy of the information endorsed. The failure to make any such endorsement or any error in any such endorsement shall not affect the obligations of the Borrower in respect of any Loan. This Note (a) is one of the Notes referred to in the Credit Agreement dated as of July 28, 2014 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), among the Borrower, Baron Energy, Inc., a Nevada corporation, the several lenders from time to time parties thereto and Petro Capital Energy Credit, LLC, as Administrative Agent, (b) is subject to the provisions of the Credit Agreement and (c) is subject to optional and mandatory prepayment in whole or in part as provided in the Credit Agreement. This Note is secured and guaranteed as provided in the Loan Documents. Reference is hereby made to the Loan Documents for a description of the properties and assets in which a security interest has been granted, the nature and extent of the security and the guarantees, the terms and conditions upon which the security interests and each guarantee were granted and the rights of the holder of this Note in respect thereof. Upon the occurrence of any one or more of the Events of Default, all principal and all accrued interest then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided in the Credit Agreement. All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest, notice of acceleration, notice of intent to accelerate and all other notices of any kind. Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF TEXAS. BARON PRODUCTION LLC By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- 2 Schedule A to Note LOANS AND REPAYMENTS OF LOANS Amount of Amount of Principal of Unpaid Principal Notation Date Loans Loans Repaid Balance of Loans Made By ---- ----- ------------ ---------------- ------- 3

Exhibit 10.77 ----------------------------- Space above for County Recorder's Use DEED OF TRUST, ASSIGNMENT OF AS-EXTRACTED COLLATERAL, SECURITY AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT FROM BARON PRODUCTION LLC TO PCEC-B, LLC, AS TRUSTEE FOR THE BENEFIT OF PETRO CAPITAL ENERGY CREDIT, LLC as Administrative Agent and the Other Secured Persons A CARBON, PHOTOGRAPHIC, OR OTHER REPRODUCTION OF THIS INSTRUMENT IS SUFFICIENT AS A FINANCING STATEMENT. A POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT. IN CERTAIN STATES, A POWER OF SALE MAY ALLOW THE TRUSTEE OR THE BENEFICIARY TO TAKE THE MORTGAGED PROPERTY AND SELL IT WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY THE GRANTOR UNDER THIS INSTRUMENT. THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS. THIS INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES. THIS INSTRUMENT COVERS PROCEEDS OF MORTGAGED PROPERTY. THIS INSTRUMENT COVERS MINERALS AND OTHER SUBSTANCES OF VALUE WHICH MAY BE EXTRACTED FROM THE EARTH (INCLUDING WITHOUT LIMITATION OIL AND GAS) AND THE ACCOUNTS RELATED THERETO, WHICH WILL BE FINANCED AT THE WELLHEADS OF THE WELL OR WELLS LOCATED ON THE PROPERTIES DESCRIBED IN THE EXHIBIT HERETO. THIS FINANCING STATEMENT IS TO BE FILED OR FILED FOR RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS OR SIMILAR RECORDS OF THE RECORDERS OF THE COUNTIES LISTED ON THE EXHIBIT HERETO. THE GRANTOR HAS AN INTEREST OF RECORD IN THE REAL ESTATE AND IMMOVABLE PROPERTY CONCERNED, WHICH INTEREST IS DESCRIBED IN THE EXHIBIT ATTACHED HERETO. PORTIONS OF THE MORTGAGED PROPERTY ARE GOODS WHICH ARE OR ARE TO BECOME AFFIXED TO OR FIXTURES ON THE LAND DESCRIBED IN OR REFERRED TO IN THE EXHIBIT HERETO. THIS FINANCING STATEMENT IS TO BE FILED FOR RECORD OR RECORDED, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS OR SIMILAR RECORDS OF EACH COUNTY IN WHICH SAID LAND OR ANY PORTION THEREOF IS LOCATED. THE GRANTOR IS THE OWNER OF RECORD INTEREST IN THE REAL ESTATE CONCERNED. THIS INSTRUMENT IS ALSO TO BE INDEXED IN THE INDEX OF FINANCING STATEMENTS OR THE UCC RECORDS. TABLE OF CONTENTS Page ---- ARTICLE I DEFINITIONS Terms Defined Above.........................................................1 UCC and Other Defined Terms.................................................1 Definitions.................................................................2 ARTICLE II GRANT OF LIEN AND SECURED OBLIGATIONS Grant of Liens..............................................................4 Grant of Security Interest..................................................5 Secured Obligations.........................................................6 Fixture Filing, Etc.........................................................6 Pro Rata Benefit............................................................7 ARTICLE III ASSIGNMENT OF AS-EXTRACTED COLLATERAL Assignment..................................................................7 No Modification of Payment Obligations......................................8 Rights and Title of Consignee...............................................8 ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS Title.......................................................................9 Defend Title................................................................9 Not a Foreign Person........................................................9 Power to Create Lien and Security...........................................9 Revenue and Cost Bearing Interest..........................................10 Rentals Paid; Leases in Effect.............................................10 Operation By Third Parties.................................................10 Abandon, Sales.............................................................10 Failure to Perform.........................................................10 ARTICLE V RIGHTS AND REMEDIES Event of Default...........................................................11 Foreclosure and Sale.......................................................11 Substitute Trustees and Agents.............................................12 i Judicial Foreclosure; Receivership.........................................12 Foreclosure for Installments...............................................13 Separate Sales.............................................................13 Possession of Mortgaged Property...........................................13 Occupancy After Foreclosure................................................14 Remedies Cumulative, Concurrent and Nonexclusive...........................14 Discontinuance of Proceedings..............................................14 No Release of Obligations..................................................14 Release of and Resort to Collateral........................................15 Waiver of Redemption, Notice and Marshalling of Assets, Etc................15 Application of Proceeds....................................................15 Resignation of Operator....................................................16 Indemnity..................................................................16 ARTICLE VI THE TRUSTEE Duties, Rights, and Powers of Trustee......................................17 Successor Trustee..........................................................17 Retention of Moneys........................................................18 ARTICLE VII MISCELLANEOUS Instrument Construed as Mortgage, Etc......................................18 Releases...................................................................18 Severability...............................................................19 Successors and Assigns.....................................................19 Satisfaction of Prior Encumbrance..........................................19 Application of Payments to Certain Obligations.............................19 Nature of Covenants........................................................19 Notices....................................................................20 Counterparts...............................................................20 Governing Law..............................................................20 Financing Statement; Fixture Filing........................................20 Execution of Financing Statements..........................................21 Exculpation Provisions.....................................................21 References.................................................................22 Exhibit A Oil and Gas Properties ii THIS DEED OF TRUST, ASSIGNMENT OF AS-EXTRACTED COLLATERAL, SECURITY AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT (this "Deed of Trust") is entered into as of July 28, 2014 (the "Effective Date") by BARON PRODUCTION LLC, a Texas limited liability company (the "Grantor"), in favor of PCEC-B, LLC, a Texas limited liability company, as Trustee for the benefit of PETRO CAPITAL ENERGY CREDIT, LLC, as Administrative Agent (together with its successors and assigns, the "Beneficiary"), and the Other Secured Persons. R E C I T A L S A. On July 28, 2014, Grantor, as borrower, the Lenders, the Beneficiary, as administrative agent for the Lenders, executed and delivered a Credit Agreement (such Credit Agreement, as amended, restated, supplemented, or otherwise modified from time to time, the "Credit Agreement") pursuant to such, upon the terms and conditions stated therein, the Lenders agreed to make loans to the Grantor. B. On July 28, 2014, the Grantor, each of the signatories thereto and the Beneficiary executed a Guaranty and Collateral Agreement (such agreement, as may from time to time be amended or supplemented, the "Guaranty") pursuant to which, upon the terms and conditions stated therein, the Grantor and all subsidiaries of the Grantor then in existence or which may be formed during the tenor of the Credit Agreement have agreed to grant a security interest to the Beneficiary in certain assets specified therein and each of the Guarantors (including any future Guarantors) have agreed to guarantee the Obligations of the Grantor, as borrower, under the Credit Agreement (the Credit Agreement and the Guaranty collectively being the "Secured Transaction Documents"). C. The Beneficiary and the Other Secured Persons have conditioned their obligations under the Secured Transaction Documents upon the execution and delivery by the Grantor of this Deed of Trust, and the Grantor has agreed to enter into this Deed of Trust to secure all obligations owing to the Beneficiary and the Other Secured Persons under the Secured Transaction Documents. D. Therefore, in order to comply with the terms and conditions of the Secured Transaction Documents and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Grantor hereby agrees as follows: ARTICLE I DEFINITIONS Section 1.01. Terms Defined Above. As used in this Deed of Trust, each term defined above has the meaning indicated above. Section 1.02. UCC and Other Defined Terms. Unless otherwise defined in the Applicable UCC, each capitalized term used in this Deed of Trust and not defined in this Deed of Trust shall have the meaning ascribed to such term in the Credit Agreement. Any capitalized term not defined in either this Deed of Trust or the Credit Agreement shall have the meaning ascribed to such term in the Applicable UCC. 1 Section 1.03. Definitions. "Applicable UCC" means the provisions of the Uniform Commercial Code presently in effect in the jurisdiction in which the relevant UCC Collateral is situated or which otherwise is applicable to the creation or perfection of the Liens described herein or the rights and remedies of Beneficiary under this Deed of Trust. "Collateral" means collectively all the Mortgaged Property and all the UCC Collateral. "Default Rate" has the meaning specified in the Credit Agreement. "Event of Default" has the meaning ascribed to such term in Section 5.01. "Future Advances" means future obligations and future advances that the Beneficiary or any Other Secured Person may make pursuant to any Secured Transaction Document. "Hydrocarbon Interests" means all rights, titles, interests and estates and the lands and premises covered or affected thereby now or hereafter acquired by the Grantor in and to oil and gas leases, oil, gas and mineral leases, or other liquid or gaseous hydrocarbon leases, fee interests, surface interests, mineral fee interests, overriding royalty and royalty interests, net profit interests and production payment interests, including any reserved or residual interests of whatever nature, in each case, which are described on Exhibit A; provided that, it is the intent of the Grantor all of its interests be subject to the Lien of this Deed of Trust even if (i) its interests on Exhibit A shall be incorrectly described or a description of a part or all of such property or the Grantor's interests therein be omitted limited to particular lands, specified depths or particular types of property interests or (ii) such properties or interests may be hereafter acquired. "Hydrocarbons" means all oil, gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all products refined or separated therefrom and all other minerals which may be produced and saved from or attributable to the Oil and Gas Properties of the Grantor, including all oil in tanks, and all rents, issues, profits, proceeds, products, revenues and other incomes from or attributable to the Hydrocarbon Interests or other properties constituting Oil and Gas Properties. "Indemnified Parties" means the Trustee, the Beneficiary, the Secured Parties, each Other Secured Person and their officers, directors, managers, employees, representatives, agents, attorneys, accountants and experts. "Lien" means any interest in property securing an obligation owed to, or a claim by, a Person other than the owner of the property, whether such interest is based on the common law, statute or contract, and whether such obligation or claim is fixed or contingent, and including but not limited to (a) the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes or (b) production payments and the like payable out of Oil and Gas Properties. "Mortgaged Property" means the Oil and Gas Properties and other properties and assets described in Section 2.01(a) through Section 2.01(e). 2 "Oil and Gas Properties" means (a) Hydrocarbon Interests; (b) the properties now or hereafter pooled or unitized with Hydrocarbon Interests; (c) all presently existing or future unitization, communitization, pooling agreements and declarations of pooled units and the units created thereby (including without limitation all units created under orders, regulations and rules of any Governmental Authority) which may affect all or any portion of the Hydrocarbon Interests; (d) all operating agreements, production sales or other contracts, farmout agreements, farm-in agreements, area of mutual interest agreements, equipment leases and other agreements which relate to any of the Hydrocarbon Interests or any interests therein or to the production, sale, purchase, exchange, processing, handling, storage, transporting or marketing of the Hydrocarbons from or attributable to such Oil and Gas Properties; (e) all Hydrocarbons; (f) all tenements, hereditaments, appurtenances and properties in any manner appertaining, belonging, affixed or incidental to the Hydrocarbon Interests, including all compressor sites, settling ponds and equipment or pipe yards; and (g) all properties, rights, titles, interests and estates described or referred to above whether now owned or hereinafter acquired, including any and all property, real or personal, immoveable or moveable, situated upon, used, held for use or useful in connection with the operating, working or development of any of such Hydrocarbon Interests or property (excluding drilling rigs, automotive equipment, rental equipment or other personal property which may be on such premises for the purpose of drilling a well or for other similar temporary uses) and including any and all oil wells, gas wells, injection wells or other wells, structures, fuel separators, liquid extraction plants, plant compressors, pumps, pumping units, pipelines, sales and flow lines, gathering systems, field gathering systems, salt water disposal facilities, tanks and tank batteries, fixtures, valves, fittings, machinery and parts, engines, boilers, steam generation facilities, meters, apparatus, equipment, appliances, tools, implements, cables, wires, towers, casing, tubing and rods, surface leases, rights-of-way, easements, servitudes licenses and other surface and subsurface rights, together with all additions, substitutions, replacements, accessions and attachments to any and all of the foregoing. "Other Secured Persons" means each Indemnified Party and any legal owner, holder, assignee or pledgee of any of the Secured Obligations. "Paid In Full" means (i) the irrevocable and indefeasible payment in full in cash of all principal, interest (including interest accruing during the pendency of an insolvency or liquidation proceeding, regardless of whether allowed or allowable in such insolvency or liquidation proceeding) and premium, if any, on all Loans outstanding under the Credit Agreement, (ii) the irrevocable and indefeasible payment in full in cash of all other Obligations, and (iii) the termination of all Commitments under the Credit Agreement. "Permitted Encumbrances" means all Liens permitted to be placed on the Mortgaged Properties under Section 9.03 of the Credit Agreement. "Secured Obligations" has the meaning assigned to such term in Section 2.03. "Trustee" means PCEC-B, LLC, a Texas limited liability company, whose address for notice hereunder is 3710 Rawlins Street, Suite 1000, Dallas, Texas 75219, and any successors and substitutes in trust hereunder. "UCC Collateral" means the property and other assets described in Section 2.02. 3 "VPP" has the meaning specified in the Credit Agreement. ARTICLE II GRANT OF LIEN AND SECURED OBLIGATIONS Section 2.01. Grant of Liens. The Grantor does by these presents hereby GRANT, BARGAIN, SELL, ASSIGN, MORTGAGE, TRANSFER and CONVEY to the Trustee, for the use and benefit of the Beneficiary and the Other Secured Persons, all the following properties, rights and interests, TO HAVE AND TO HOLD unto the Trustee forever to secure the payment and performance of the Secured Obligations: (a) All rights, titles, interests and estates now owned or hereafter acquired by the Grantor in and to the Oil and Gas Properties described on Exhibit A. (b) All rights, titles, interests and estates now owned or hereafter acquired by the Grantor in and to all geological, geophysical, engineering, accounting, title, legal and other technical or business data concerning the Oil and Gas Properties, the Hydrocarbons or any other item of property which are in the possession of the Grantor, and all books, files, records, magnetic media, computer records and other forms of recording or obtaining access to such data. (c) All rights, titles, interests and estates now owned or hereafter acquired by the Grantor in and to all Hydrocarbons. (d) Any property that may from time to time hereafter, by delivery or by writing of any kind, be subjected to the Liens hereof by the Grantor or by anyone on the Grantor's behalf; and the Trustee and/or the Beneficiary are hereby authorized to receive the same at any time as additional security hereunder. (e) All of the rights, titles and interests of every nature whatsoever now owned or hereafter acquired by the Grantor in and to the Oil and Gas Properties described in Exhibit A and all other rights, titles, interests and estates and every part and parcel thereof, including, without limitation, any rights, titles, interests and estates as the same may be enlarged by the discharge of any payments out of production or by the removal of any charges or Permitted Encumbrances to which any of such Oil and Gas Properties or other rights, titles, interests or estates are subject or otherwise; all rights of the Grantor to Liens securing payment of proceeds from the sale of production from any of such Oil and Gas Properties, together with any and all renewals and extensions of any of such related rights, titles, interests or estates; all contracts and agreements supplemental to or amendatory of or in substitution for the contracts and agreements described or mentioned above; and any and all additional interests of any kind hereafter acquired by the Grantor in and to the such related rights, titles, interests or estates. Notwithstanding any provision in this Deed of Trust to the contrary, in no event is any Building (as defined in the applicable Flood Insurance Regulation) or Manufactured (Mobile) Home (as defined in the applicable Flood Insurance Regulation) included in the definition of "Mortgaged Property" and no Building or Manufactured (Mobile) Home is hereby encumbered by this Deed of Trust. As used herein, "Flood Insurance Regulations" shall mean (i) the National Flood Insurance Act of 1968 as now or hereafter in effect or any successor statute thereto, (ii) the Flood Disaster Protection Act of 1973 as now or hereafter in 4 effect or any successor statute thereto, (iii) the National Flood Insurance Reform Act of 1994 (amending 42 USC 4001, et. seq.), as the same may be amended or recodified from time to time, and (iv) the Flood Insurance Reform Act of 2004 and any regulations promulgated thereunder. Any fractions or percentages specified on Exhibit A in referring to the Grantor's interests are solely for purposes of the warranties made by the Grantor pursuant to Section 4.01 and Section 4.05 and shall in no manner limit the quantum of interest affected by this Section 2.01 with respect to any Oil and Gas Property or with respect to any unit or well identified on Exhibit A. Section 2.02. Grant of Security Interest. To further secure the payment and performance of the Secured Obligations, the Grantor hereby grants to the Beneficiary, for its benefit and the benefit of the Other Secured Persons, a security interest in and to all of the following (whether now or hereafter acquired by operation of law or otherwise): (a) all Accounts; (b) all Deposit Accounts, all Commodities Accounts and all Securities Accounts; (c) all Documents; (d) all General Intangibles (including, without limitation, rights in and under any Payment Intangible, Swap Agreement or any Commodity Contract) and all rights under insurance contracts and rights to insurance proceeds; (e) all Instruments; (f) all Goods (including, without limitation, all Inventory, all Equipment and all Fixtures whether or not relating to the Mortgaged Property); (g) all Letter-of-Credit Rights (whether or not the letter of credit is evidenced by a writing); (h) all As-Extracted Collateral from or attributable to the Oil and Gas Properties; (i) all books and records pertaining to the Oil and Gas Properties; (j) all Fixtures; (k) all Hydrocarbons; (l) to the extent not otherwise included, any other property insofar as the it consists of personal property of any kind or character defined in and subject to the Applicable UCC; and (m) to the extent not otherwise included, all Proceeds and products of any and all of the foregoing and all collateral security, guarantees and other Supporting Obligations given with respect to any of the foregoing; 5 provided that, notwithstanding any other provision set forth in this Deed of Trust, the term "Collateral" and the term "Mortgaged Properties" and the component definitions thereof shall not include, and this Deed of Trust shall not, at any time, constitute a grant of a security interest in or Lien on or otherwise encumber, the VPP or any products or proceeds thereof. Section 2.03. Secured Obligations. This Deed of Trust is executed and delivered by the Grantor to secure and enforce the following (the "Secured Obligations"): (a) Payment of and performance of any and all indebtedness, fees, interest, indemnities, reimbursements, obligations and liabilities of the Grantor or any Guarantor (including interest accruing during the pendency of an insolvency or liquidation proceeding, regardless of whether allowed or allowable in such insolvency or liquidation proceeding) pursuant to the Credit Agreement, the Guaranty, this Deed of Trust or any other Loan Document, whether now existing or hereafter arising. (b) Any sums which may be advanced or paid by the Trustee or the Beneficiary or any Other Secured Person under the terms hereof or of the Credit Agreement or any Secured Transaction Document on account of the failure of the Grantor or any of the Grantor's Subsidiaries to comply with the covenants of the Grantor contained herein, in the Credit Agreement or any other Secured Transaction Document whether pursuant to Section 4.09 or otherwise and all other obligations, liabilities and indebtedness of the Grantor or any other Guarantor arising pursuant to the provisions of this Deed of Trust or any Secured Transaction Document. (c) Any additional loans or advances made by the Beneficiary or any Lender to the Grantor or any other Guarantor pursuant to any Loan Document. (d) All of the Obligations (as defined in the Credit Agreement). (e) Any and all renewals, modifications, amendments, substitutions, rearrangements or extensions of any of the foregoing, whether in whole or in part. Section 2.04. Fixture Filing, Etc. Without in any manner limiting the generality of any of the other provisions of this Deed of Trust: (i) some portions of the goods described or to which reference is made herein are or are to become Fixtures on the land described or to which reference is made herein or on Exhibit A; (ii) the security interests created hereby under applicable provisions of the Applicable UCC will attach to all As-Extracted Collateral (all minerals including oil and gas and the Accounts resulting from the sale thereof at the wellhead or minehead located on the Oil and Gas Properties described or to which reference is made herein or on Exhibit A) and all other Hydrocarbons; (iii) this Deed of Trust is to be filed of record in the real estate records or other appropriate records as a financing statement; and (iv) the Grantor is the record owner of the real estate or interests in the real estate or immoveable property comprised of the Mortgaged Property. Section 2.05. Pro Rata Benefit. This Deed of Trust is executed and granted for the pro rata benefit and security of the Beneficiary and the Other Secured Persons to secure the Secured Obligations for so long as same remains unpaid and thereafter until the Secured Obligations have been Paid in Full. 6 ARTICLE III ASSIGNMENT OF AS-EXTRACTED COLLATERAL Section 3.01. Assignment. (a) The Grantor has absolutely and unconditionally assigned, transferred, conveyed and granted a security interest, and does hereby absolutely and unconditionally assign, transfer, convey and grant a security interest unto the Beneficiary in and to: (i) all of its As-Extracted Collateral located in or relating to the Mortgaged Properties located in the county where this Deed of Trust is filed, including without limitation, all As-Extracted Collateral relating to the Hydrocarbon Interests, the Hydrocarbons and all products obtained or processed therefrom; (ii) the revenues and proceeds now and hereafter attributable to such Mortgaged Properties, including the Hydrocarbons, and said products and all payments in lieu, such as "take or pay" payments or settlements; and (iii)all amounts and proceeds hereafter payable to or to become payable to the Grantor or now or hereafter relating to any part of such Mortgaged Properties and all amounts, sums, monies, revenues and income which become payable to the Grantor from, or with respect to, any of the Mortgaged Properties, present or future, now or hereafter constituting a part of the Hydrocarbon Interests. (b) The Hydrocarbons and products are to be delivered into pipe lines connected with the Mortgaged Property, or to the purchaser thereof, to the credit of the Beneficiary, for its benefit and the benefit of the Other Secured Persons, free and clear of all taxes, charges, costs and expenses; and all such revenues and proceeds shall be paid directly to the Beneficiary, at its offices in Dallas, Texas, with no duty or obligation of any party paying the same to inquire into the rights of the Beneficiary to receive the same, what application is made thereof, or as to any other matter. (c) The Grantor agrees to perform all such acts, and to execute all such further assignments, transfers and division orders and other instruments as may be required or desired by the Beneficiary or any party in order to have said proceeds and revenues so paid to the Beneficiary. In addition to any and all rights of a secured party under Sections 9-607 and 9-609 of the Applicable UCC, the Beneficiary is fully authorized to receive and receipt for said revenues and proceeds; to endorse and cash any and all checks and drafts payable to the order of the Grantor or the Beneficiary for the account of the Grantor received from or in connection with said revenues or proceeds and to hold the proceeds thereof as additional collateral securing the Secured Obligations; and to execute transfer and division orders in the name of the Grantor, or otherwise, with warranties binding the Grantor. All proceeds received by the Beneficiary pursuant to this grant and assignment shall be applied as provided in Section 5.14. (d) The Beneficiary shall not be liable for any delay, neglect or failure to effect collection of any proceeds or to take any other action in connection therewith or hereunder; but the Beneficiary shall have the right, at its election, in the name of the Grantor or otherwise, to prosecute and defend any and all actions or legal proceedings deemed advisable by the Beneficiary in 7 order to collect such funds and to protect the interests of the Beneficiary and/or the Grantor, with all costs, expenses and attorneys' fees incurred in connection therewith being paid by the Grantor. (e) The Grantor hereby appoints the Beneficiary as its attorney-in-fact to pursue any and all rights of the Grantor to Liens in the Hydrocarbons securing payment of proceeds of runs attributable to the Hydrocarbons. In addition to the Liens granted to the Trustee and/or the Beneficiary in Section 2.01(e), the Grantor hereby further transfers and assigns to the Beneficiary any and all such Liens, security interests, financing statements or similar interests of the Grantor attributable to its interest in the As-Extracted Collateral, any other Hydrocarbons and proceeds of runs therefrom arising under or created by said statutory provision, judicial decision or otherwise. The power of attorney granted to the Beneficiary in this Section 3.01, being coupled with an interest, shall be irrevocable until the Secured Obligations have been Paid in Full. Section 3.02. No Modification of Payment Obligations. Nothing herein contained shall modify or otherwise alter the obligation of the Grantor to make prompt payment of all amounts constituting Secured Obligations when and as the same become due regardless of whether the proceeds of the As-Extracted Collateral and Hydrocarbons are sufficient to pay the same and the rights provided in accordance with the foregoing assignment provision shall be cumulative of all other security of any and every character now or hereafter existing to secure payment of the Secured Obligations. Nothing in this Article III is intended to be an acceptance of collateral in satisfaction of the Secured Obligations. Section 3.03. Rights and Title of Consignee. In addition to the rights, titles and interests hereby conveyed pursuant to Section 2.01 of this Deed of Trust, the Grantor hereby grants to the Beneficiary those Liens given to purchasers of Hydrocarbons to secure their sale at the wellhead, including those rights provided in Tex. Bus. & Com. Code ss.9.343 ("Tex. UCC"), as amended from time to time. ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS The Grantor hereby represents, warrants and covenants as follows: Section 4.01. Title. To the extent of the undivided interests specified on Exhibit A, the Grantor has good and defensible title to and is possessed of the Hydrocarbon Interests and has good title to the UCC Collateral. The Collateral is free of all Liens except Permitted Encumbrances. Section 4.02. Defend Title. This Deed of Trust is, and always will be kept, a direct first priority Lien upon the Collateral; provided that Permitted Encumbrances may exist, but no intent to subordinate the priority of the Liens created hereby is intended or inferred by such existence. The Grantor will not create or suffer to be created or permit to exist any Lien, security interest or charge prior or junior to or on a parity with the Lien of this Deed of Trust upon the Collateral or any part thereof other than such Permitted Encumbrances. The Grantor will warrant and defend the title to the Collateral against the claims and demands of all other Persons whomsoever and will maintain and preserve the Lien created hereby (and its priority) until the Secured Obligations shall be Paid in Full. If (i) an adverse claim be made against or a cloud develop upon the title to any part of the Collateral other than a Permitted Encumbrance or (ii) any Person, including the holder of a Permitted Encumbrance, shall challenge the priority or validity of the Liens created by this Deed of Trust, then the Grantor agrees to immediately defend against such adverse claim, take appropriate action to remove such cloud or subordinate such Permitted Encumbrance, in each case, at the Grantor's sole cost and expense. The 8 Grantor further agrees that the Trustee and/or the Beneficiary may take such other action as they deem advisable to protect and preserve their interests in the Collateral, and in such event the Grantor will indemnify the Trustee and the Beneficiary against any and all cost, attorneys' fees and other expenses which they may incur in defending against any such adverse claim or taking action to remove any such cloud. Section 4.03. Not a Foreign Person. The Grantor is not a "foreign person" within the meaning of the Code, Sections 1445 and 7701 (i.e. the Grantor is not a non-resident alien, foreign corporation, foreign partnership, foreign trust or foreign estate as those terms are defined in the Code and any regulations promulgated thereunder). Section 4.04. Power to Create Lien and Security. The Grantor has full power and lawful authority to grant, bargain, sell, assign, transfer, mortgage and convey a security interest in all of the Collateral in the manner and form herein provided. No authorization, approval, consent or waiver of any lessor, sublessor, Governmental Authority or other party or parties whomsoever is required in connection with the execution and delivery by the Grantor of this Deed of Trust. Section 4.05. Revenue and Cost Bearing Interest. The Grantor's ownership of the Hydrocarbon Interests and the undivided interests therein as specified on Exhibit A will, after giving full effect to all Permitted Encumbrances, afford the Grantor not less than those net interests (expressed as a fraction, percentage or decimal) in the production from or which is allocated to such Hydrocarbon Interest specified as Net Revenue Interest (as specified on Exhibit A) on attached Exhibit A and will cause the Grantor to bear not more than that portion (expressed as a fraction, percentage or decimal), specified as Working Interest on Exhibit A, of the costs of drilling, developing and operating the wells identified on Exhibit A except to the extent of any proportionate corresponding increase in the Net Revenue Interest. Section 4.06. Rentals Paid; Leases in Effect. All rentals and royalties due and payable in accordance with the terms of any leases or subleases comprising a part of the Mortgaged Property have been duly paid or provided for, and all leases or subleases comprising a part of the Oil and Gas Property are in full force and effect. Section 4.07. Operation By Third Parties. If any portion of the Mortgaged Property is comprised of interests which are not working interests or which are not operated by the Grantor or one of its Affiliates, then with respect to such interests and properties, the Grantor's covenants as expressed in this Article IV are modified to require that the Grantor use reasonable commercial efforts to obtain compliance with such covenants by the working interest owners or the operator or operators of such Mortgaged Properties. Section 4.08. Abandon, Sales. The Grantor will not sell, lease, assign, transfer or otherwise dispose or abandon any of the Collateral except as permitted by the Credit Agreement. Section 4.09. Failure to Perform. The Grantor agrees that if it fails to perform any act or to take any action which it is required to perform or take hereunder or pay any money which the Grantor is required to pay hereunder, each of the Beneficiary and the Trustee, in the Grantor's name or its or their own name, may, but shall not be obligated to, perform or cause to perform such act or take such action or pay such money, and any expenses so incurred by either of them and any money so paid by either of them shall be a demand obligation owing by the Grantor to the Beneficiary or the Trustee, as the case may be, and each of the Beneficiary and the Trustee, upon making such payment, shall be subrogated to all of the rights of the Person receiving such payment. Each amount due and owing by the Grantor to each of the Beneficiary and the Trustee pursuant to this Deed of Trust shall bear interest from the date of such expenditure or payment to such Person until paid at the Default Rate. 9 ARTICLE V RIGHTS AND REMEDIES Section 5.01. Event of Default. An Event of Default under the Credit Agreement shall be an "Event of Default" under this Deed of Trust. Section 5.02. Foreclosure and Sale. (a) If an Event of Default shall occur and be continuing, to the extent provided by applicable law, the Beneficiary shall have the right and option to proceed with foreclosure and to sell all or any portion of such Mortgaged Property at one or more sales, as an entirety or in parcels, at such place or places in otherwise such manner and upon such notice as may be required by law, or, in the absence of any such requirement, as the Beneficiary may deem appropriate, and to make conveyance to the purchaser or purchasers. Where the Mortgaged Property is situated in more than one jurisdiction, notice as above provided shall be posted and filed in all such jurisdictions (if such notices are required by law), and all such Mortgaged Property may be sold in any such jurisdiction and any such notice shall designate the jurisdiction where such Mortgaged Property is to be sold. Nothing contained in this Section 5.02 shall be construed so as to limit in any way any rights to sell the Mortgaged Property or any portion thereof by private sale if and to the extent that such private sale is permitted under the laws of the applicable jurisdiction or by public or private sale after entry of a judgment by any court of competent jurisdiction so ordering. The Grantor hereby irrevocably appoints the Trustee and the Beneficiary, with full power of substitution, to be the attorneys-in-fact of the Grantor and in the name and on behalf of the Grantor to execute and deliver any deeds, transfers, conveyances, assignments, assurances and notices which the Grantor ought to execute and deliver and do and perform any and all such acts and things which the Grantor ought to do and perform under the covenants herein contained and generally, to use the name of the Grantor in the exercise of all or any of the powers hereby conferred on the Trustee and/or the Beneficiary. At any such sale: (i) whether made under the power herein contained or any other legal enactment, or by virtue of any judicial proceedings or any other legal right, remedy or recourse, it shall not be necessary for the Trustee or the Beneficiary, as appropriate, to have physically present, or to have constructive possession of, the Mortgaged Property (the Grantor hereby covenanting and agreeing to deliver any portion of the Mortgaged Property not actually or constructively possessed by the Trustee or the Beneficiary immediately upon his or its demand) and the title to and right of possession of any such property shall pass to the purchaser thereof as completely as if the same had been actually present and delivered to purchaser at such sale, (ii) each instrument of conveyance executed by the Trustee or the Beneficiary shall contain a general warranty of title, binding upon the Grantor and its successors and assigns, (iii) each and every recital contained in any instrument of conveyance made by the Trustee or the Beneficiary shall conclusively establish the truth and accuracy of the matters recited therein, including, without limitation, nonpayment of the Secured Obligations, advertisement and conduct of such sale in the manner provided herein and otherwise by law and appointment of any successor trustee hereunder, (iv) any and all prerequisites to the validity thereof shall be conclusively presumed to have been performed, (v) the receipt of the Trustee, the Beneficiary or of such other party or officer making the sale shall be a sufficient discharge to the purchaser or purchasers for its purchase money and no such purchaser or purchasers, or its assigns or personal representatives, shall thereafter be obligated to see to the application of such purchase money, or be in any way answerable for any loss, misapplication or non-application 10 thereof, (vi) to the fullest extent permitted by law, the Grantor shall be completely and irrevocably divested of all of its right, title, interest, claim and demand whatsoever, either at law or in equity, in and to the property sold and such sale shall be a perpetual bar both at law and in equity against the Grantor, and against any and all other persons claiming or to claim the property sold or any part thereof, by, through or under the Grantor, and (vii) to the extent and under such circumstances as are permitted by law, the Beneficiary may be a purchaser at any such sale, and shall have the right, after paying or accounting for all costs of said sale or sales, to credit the amount of the bid upon the amount of the Secured Obligations (in the order of priority set forth in Section 5.14) in lieu of cash payment. (b) If an Event of Default shall occur and be continuing, then (i) the Beneficiary shall be entitled to all of the rights, powers and remedies afforded a secured party by the Applicable UCC with reference to the UCC Collateral or (ii) the Trustee or the Beneficiary may proceed as to any Collateral in accordance with the rights and remedies granted under this Deed of Trust or applicable law in respect of the Collateral. Such rights, powers and remedies shall be cumulative and in addition to those granted to the Trustee or the Beneficiary under any other provision of this Deed of Trust or under any other Loan Document or any Secured Transaction Document. Written notice mailed to the Grantor as provided herein at least ten (10) days prior to the date of public sale of any part of the Collateral which is personal property subject to the provisions of the Applicable UCC, or prior to the date after which private sale of any such part of the Collateral will be made, shall constitute reasonable notice. Section 5.03. Substitute Trustees and Agents. The Trustee or Beneficiary may appoint or delegate any one or more persons as agent to perform any act or acts necessary or incident to any sale held by the Trustee or Beneficiary, including the posting of notices and the conduct of sale, but in the name and on behalf of the Trustee or Beneficiary. If the Trustee or Beneficiary shall have given notice of sale hereunder, any successor or substitute trustee appointed may complete the sale and the conveyance of the property pursuant thereto as if such notice had been given by the successor or substitute trustee conducting the sale. Section 5.04. Judicial Foreclosure; Receivership. If any of the Secured Obligations shall become due and payable and shall not be promptly paid, the Trustee or the Beneficiary shall have the right and power to proceed by a suit or suits in equity or at law, whether for the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or for any foreclosure hereunder or for the sale of the Collateral under the judgment or decree of any court or courts of competent jurisdiction, or for the appointment of a receiver pending any foreclosure hereunder or the sale of the Collateral under the order of a court or courts of competent jurisdiction or under executory or other legal process, or for the enforcement of any other appropriate legal or equitable remedy. Any money advanced by the Trustee and/or the Beneficiary in connection with any such receivership shall be a demand obligation (which obligation the Grantor hereby expressly promises to pay) owing by the Grantor to the Trustee and/or the Beneficiary and shall bear interest from the date of making such advance by the Trustee and/or the Beneficiary until paid at the Default Rate. Section 5.05. Foreclosure for Installments. The Beneficiary shall also have the option to proceed with foreclosure in satisfaction of any installments of the Secured Obligations which have not been paid when due either through the courts or by directing the Trustee to proceed with foreclosure in satisfaction 11 of the matured but unpaid portion of the Secured Obligations as if under a full foreclosure, conducting the sale as herein provided and without declaring the entire principal balance and accrued interest and other Secured Obligations then due; such sale may be made subject to the unmatured portion of the Secured Obligations, and any such sale shall not in any manner affect the unmatured portion of the Secured Obligations, but as to such unmatured portion of the Secured Obligations this Deed of Trust shall remain in full force and effect just as though no sale had been made hereunder. It is further agreed that several sales may be made hereunder without exhausting the right of sale for any unmatured part of the Secured Obligations, it being the purpose hereof to provide for a foreclosure and sale of the security for any matured portion of the Secured Obligations without exhausting the power to foreclose and sell the Mortgaged Property for any subsequently maturing portion of the Secured Obligations. Section 5.06. Separate Sales. The Collateral may be sold in one or more parcels and to the extent permitted by applicable law in such manner and order as the Beneficiary, in its sole discretion, may elect, it being expressly understood and agreed that the right of sale arising out of any Event of Default shall not be exhausted by any one or more sales. Section 5.07. Possession of Mortgaged Property. If an Event of Default shall have occurred and be continuing, then, to the extent permitted by applicable law, the Trustee or the Beneficiary shall have the right and power to enter into and upon and take possession of all or any part of the Collateral in the possession of the Grantor, its successors or assigns, or its or their agents or servants, and may exclude the Grantor, its successors or assigns, and all persons claiming under the Grantor, and it's or their agents or servants wholly or partly therefrom; and, holding the same, the Beneficiary may use, administer, manage, operate and control the Collateral and conduct the business thereof to the same extent as the Grantor, its successors or assigns, might at the time do and may exercise all rights and powers of the Grantor, in the name, place and stead of the Grantor, or otherwise as the Beneficiary shall deem best. All costs, expenses and liabilities of every character incurred by the Trustee and/or the Beneficiary in administering, managing, operating, and controlling the Mortgaged Property shall constitute a demand obligation (which obligation the Grantor hereby expressly promises to pay) owing by the Grantor to the Trustee and/or the Beneficiary and shall bear interest from date of expenditure until paid at the Default Rate. Section 5.08. Occupancy After Foreclosure. In the event there is a foreclosure sale hereunder and at the time of such sale the Grantor or the Grantor's heirs, devisees, representatives, successors or assigns or any other person claiming any interest in the Collateral by, through or under the Grantor, are occupying or using the Mortgaged Property or any part thereof, each and all shall immediately become the tenant of the purchaser at such sale, which tenancy shall be a tenancy from day to day, terminable at the will of either the landlord or tenant, or at a reasonable rental per day based upon the value of 12 the property occupied, such rental to be due daily to the purchaser; to the extent permitted by applicable law, the purchaser at such sale shall, notwithstanding any language herein apparently to the contrary, have the sole option to demand immediate possession following the sale or to permit the occupants to remain as tenants at will. In the event the tenant fails to surrender possession of said property upon demand, the purchaser shall be entitled to institute and maintain a summary action for possession of the Mortgaged Property (such as an action for forcible entry and detainer) in any court having jurisdiction. Section 5.09. Remedies Cumulative, Concurrent and Nonexclusive. Every right, power, privilege and remedy herein given to the Trustee or the Beneficiary shall be cumulative and in addition to every other right, power and remedy herein specifically given or now or hereafter existing in equity, at law or by statute (including specifically those granted by the Applicable UCC in effect and applicable to the Collateral or any portion thereof). Each and every right, power, privilege and remedy whether specifically herein given or otherwise existing may be exercised from time to time and so often and in such order as may be deemed expedient by the Trustee or the Beneficiary, and the exercise, or the beginning of the exercise, or the abandonment, of any such right, power, privilege or remedy shall not be deemed a waiver of the right to exercise, at the same time or thereafter any other right, power, privilege or remedy. No delay or omission by the Trustee or the Beneficiary or any Other Secured Person in the exercise of any right, power or remedy shall impair any such right, power, privilege or remedy or operate as a waiver thereof or of any other right, power, privilege or remedy then or thereafter existing. Section 5.10. Discontinuance of Proceedings. If the Trustee or the Beneficiary shall have proceeded to invoke any right, remedy or recourse permitted hereunder or under any Secured Transaction Document or available at law and shall thereafter elect to discontinue or abandon same for any reason, then it shall have the unqualified right so to do and, in such an event, the parties shall be restored to their former positions with respect to the Secured Obligations, this Deed of Trust, the Credit Agreement, the Collateral and otherwise, and the rights, remedies, recourses and powers of the Trustee and the Beneficiary, as applicable, shall continue as if same had never been invoked. Section 5.11. No Release of Obligations. Neither the Grantor, any Guarantor nor any other person hereafter obligated for payment of all or any part of the Secured Obligations shall be relieved of such obligation by reason of: (a) the failure of the Trustee to comply with any request of the Grantor, or any Guarantor or any other Person so obligated to foreclose the Lien of this Deed of Trust or to enforce any provision hereunder or under the Credit Agreement; (b) the release, regardless of consideration, of the Mortgaged Property or any portion thereof or interest therein or the addition of any other property to the Mortgaged Property; (c) any agreement or stipulation between any subsequent owner of the Mortgaged Property and the Beneficiary extending, renewing, rearranging or in any other way modifying the terms of this Deed of Trust 13 without first having obtained the consent of, given notice to or paid any consideration to the Grantor, any Guarantor or such other Person, and in such event the Grantor, Guarantor and all such other person s shall continue to be liable to make payment according to the terms of any such extension or modification agreement unless expressly released and discharged in writing by the Beneficiary; or (d) by any other act or occurrence save and except if the Secured Obligations are Paid in Full and any other obligations hereunder or under the Credit Agreement are completely fulfilled. Section 5.12. Release of and Resort to Collateral. The Beneficiary may release, regardless of consideration, any part of the Collateral without, as to the remainder, in any way impairing, affecting, subordinating or releasing the Lien created in or evidenced by this Deed of Trust or its stature as a first and prior Lien in and to the Collateral, and without in any way releasing or diminishing the liability of any Person liable for the repayment of the Secured Obligations. For payment of the Secured Obligations, the Beneficiary may resort to any other security therefor held by the Beneficiary or the Trustee in such order and manner as the Beneficiary may elect. Section 5.13. Waiver of Redemption, Notice and Marshalling of Assets, Etc. To the fullest extent permitted by law, the Grantor hereby irrevocably and unconditionally waives and releases (a) all benefits that might accrue to the Grantor by virtue of any present or future moratorium law or other law exempting the Collateral from attachment, levy or sale on execution or providing for any appraisement, valuation, stay of execution, exemption from civil process, redemption or extension of time for payment; (b) all notices of any Event of Default or of the Beneficiary's or any other secured Person's intention to accelerate maturity of the Secured Obligations or of any election to exercise or any actual exercise of any right, remedy or recourse provided for hereunder or under any Secured Transaction Document or available at law; and (c) any right to a marshalling of assets or a sale in inverse order of alienation. If any law referred to in this Deed of Trust and now in force, of which the Grantor or its successor or successors might take advantage despite the provisions hereof, shall hereafter be repealed or cease to be in force, such law shall thereafter be deemed not to constitute any part of the contract herein contained or to preclude the operation or application of the provisions hereof. If the laws of any state which provides for a redemption period do not permit the redemption period to be waived, the redemption period shall be specifically reduced to the minimum amount of time allowable by statute. Section 5.14. Application of Proceeds. The proceeds of any sale of the Mortgaged Property or any part thereof and all other monies received in any proceedings for the enforcement hereof or otherwise, whose application has not elsewhere herein been specifically provided for, shall be applied: (a) First, to the payment of all expenses incurred by the Trustee or the Beneficiary incident to the enforcement of this Deed of Trust, the Credit Agreement or any Secured Transaction Document to collect any portion of the Secured Obligations (including, without limiting the generality of the foregoing, expenses of any entry or taking of possession, of any sale, of advertisement thereof, and of conveyances, and court costs, compensation of agents and employees, legal fees and a reasonable commission to the Trustee acting, if applicable), and to the payment of all other charges, expenses, 14 liabilities and advances incurred or made by the Trustee or the Beneficiary under this Deed of Trust or in executing any trust or power hereunder; and (b) Second, as set forth in Section 10.02(c) of the Credit Agreement. Section 5.15. Resignation of Operator. In addition to all rights and remedies under this Deed of Trust, at law and in equity, if any Event of Default shall occur and the Trustee or the Beneficiary shall exercise any remedies under this Deed of Trust with respect to any portion of the Mortgaged Property (or the Grantor shall transfer any Mortgaged Property "in lieu of" foreclosure) whereupon the Grantor is divested of its title to any of the Collateral, the Beneficiary shall have the right to request that any operator of any Mortgaged Property which is either the Grantor or any Affiliate of the Grantor to resign as operator under the joint operating agreement applicable thereto, and no later than 60 days after receipt by the Grantor of any such request, the Grantor shall resign (or cause such other Person to resign) as operator of such Collateral. Section 5.16. Indemnity. THE INDEMNIFIED PARTIES SHALL NOT BE LIABLE, IN CONNECTION WITH ANY ACTION TAKEN, FOR ANY LOSS SUSTAINED BY THE GRANTOR RESULTING FROM AN ASSERTION THAT THE BENEFICIARY HAS RECEIVED FUNDS FROM THE PRODUCTION OF HYDROCARBONS CLAIMED BY THIRD PERSONS OR ANY ACT OR OMISSION OF ANY INDEMNIFIED PARTY IN ADMINISTERING, MANAGING, OPERATING OR CONTROLLING THE MORTGAGED PROPERTY INCLUDING SUCH LOSS WHICH MAY RESULT FROM THE ORDINARY NEGLIGENCE OF AN INDEMNIFIED PARTY UNLESS SUCH LOSS IS CAUSED BY THE WILLFUL MISCONDUCT OR GROSS NEGLIGENCE OF THE INDEMNIFIED PARTY SEEKING INDEMNITY. NO INDEMNIFIED PARTY SHALL BE OBLIGATED TO PERFORM OR DISCHARGE ANY OBLIGATION, DUTY OR LIABILITY OF THE GRANTOR. THE GRANTOR SHALL AND DOES HEREBY AGREE TO INDEMNIFY EACH INDEMNIFIED PARTY FOR, AND TO HOLD EACH INDEMNIFIED PARTY HARMLESS FROM, ANY AND ALL LIABILITY, LOSS OR DAMAGE WHICH MAY OR MIGHT BE INCURRED BY ANY INDEMNIFIED PARTY BY REASON OF THIS DEED OF TRUST OR THE EXERCISE OF RIGHTS OR REMEDIES HEREUNDER. IF ANY INDEMNIFIED PARTY SHALL MAKE ANY EXPENDITURE ON ACCOUNT OF ANY SUCH LIABILITY, LOSS OR DAMAGE, THE AMOUNT THEREOF, INCLUDING COSTS, EXPENSES AND REASONABLE ATTORNEYS' FEES, SHALL BE A DEMAND OBLIGATION (WHICH OBLIGATION THE GRANTOR HEREBY EXPRESSLY PROMISES TO PAY) OWING BY THE GRANTOR TO SUCH INDEMNIFIED PARTY AND SHALL BEAR INTEREST FROM THE DATE EXPENDED UNTIL PAID AT THE DEFAULT RATE. THE GRANTOR HEREBY ASSENTS TO, RATIFIES AND CONFIRMS ANY AND ALL ACTIONS OF EACH INDEMNIFIED PARTY WITH RESPECT TO THE MORTGAGED PROPERTY TAKEN UNDER AND IN COMPLIANCE WITH THE TERMS OF THIS DEED OF TRUST. THE LIABILITIES OF THE GRANTOR AS SET FORTH IN THIS SECTION 5.16 SHALL SURVIVE THE TERMINATION OF THIS DEED OF TRUST. 15 ARTICLE VI THE TRUSTEE Section 6.01. Duties, Rights, and Powers of Trustee. The Trustee shall have no duty to see to any recording, filing or registration of this Deed of Trust or any other instrument in addition or supplemental thereto, or to give any notice thereof, or to see to the payment of or be under any duty in respect of any tax or assessment or other governmental charge which may be levied or assessed on the Mortgaged Property, or any part thereof, or against the Grantor, or to see to the performance or observance by the Grantor of any of the covenants and agreements contained herein. The Trustee shall not be responsible for the execution, acknowledgment or validity of this Deed of Trust or of any instrument in addition or supplemental hereto or for the sufficiency of the security purported to be created hereby, and makes no representation in respect thereof or in respect of the rights of the Beneficiary. The Trustee shall have the right to advise with counsel upon any matters arising hereunder and shall be fully protected in relying as to legal matters on the advice of counsel. The Trustee shall not incur any personal liability hereunder except for the Trustee's own willful misconduct; and the Trustee shall have the right to rely on any instrument, document, or signature authorizing or supporting any action taken or proposed to be taken by him hereunder, believed by him in good faith to be genuine. Section 6.02. Successor Trustee. The Trustee may resign by written notice addressed to the Beneficiary or be removed at any time with or without cause by an instrument in writing duly executed on behalf of the Beneficiary. In case of the death, resignation or removal of the Trustee, a successor may be appointed by the Beneficiary by instrument of substitution complying with any applicable law, or, in the absence of any such requirement under applicable law, without formality other than appointment and designation in writing. Written notice of such appointment and designation shall be given by the Beneficiary to the Grantor, but the validity of any such appointment shall not be impaired or affected by failure to give such notice or by any defect therein. Such appointment and designation shall be full evidence of the right and authority to make the same and of all the facts therein recited. Upon the making of any such appointment and designation, this Deed of Trust shall vest in the successor all the estate and title in and to all of the Mortgaged Property and the successor shall thereupon succeed to all of the rights, powers, privileges, immunities and duties hereby conferred upon the Trustee named herein, and one such appointment and designation shall not exhaust the right to appoint and designate an additional successor but such right may be exercised repeatedly until the Secured Obligations are Paid in Full. To facilitate the administration of the duties hereunder, the Beneficiary may appoint multiple trustees to serve in such capacity or in such jurisdictions as the Beneficiary may designate. Section 6.03. Retention of Moneys. All moneys received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other moneys (except to the extent required by law) and the Trustee shall be under no liability for interest on any moneys received by him hereunder. 16 ARTICLE VII MISCELLANEOUS Section 7.01. Instrument Construed as Mortgage, Etc. With respect to any portions of the Mortgaged Property located in any State or other jurisdiction the laws of which do not provide for the use or enforcement of a deed of trust or the office, rights and authority of the Trustee as herein provided, the general language of conveyance hereof to the Trustee is intended and the same shall be construed as words of mortgage unto and in favor of the Beneficiary and the rights and authority granted to the Trustee herein may be enforced and asserted by the Beneficiary in accordance with the laws of the jurisdiction in which such portion of the Mortgaged Property is located and the same may be foreclosed at the option of the Beneficiary as to any or all such portions of the Mortgaged Property in any manner permitted by the laws of the jurisdiction in which such portions of the Mortgaged Property is situated. This Deed of Trust may be construed as a mortgage, deed of trust, conveyance, assignment, security agreement, fixture filing, pledge, financing statement, hypothecation or contract, or any one or more of them, in order fully to effectuate the Lien hereof and the purposes and agreements herein set forth. Section 7.02. Releases. (a) Full Release. If all Secured Obligations shall be Paid In Full, the Beneficiary shall forthwith cause satisfaction and discharge of this Deed of Trust to be entered upon the record at the expense of the Grantor and shall execute and deliver or cause to be executed and delivered such instruments of satisfaction and reassignment as may be appropriate. Otherwise, this Deed of Trust shall remain and continue in full force and effect. (b) Partial Release. If any of the Mortgaged Property shall be sold, transferred or otherwise disposed of by the Grantor in a transaction permitted by the Credit Agreement, then the Beneficiary, at the request and sole expense of the Grantor, shall promptly execute and deliver to the Grantor all releases, re-conveyances or other documents reasonably necessary or desirable for the release of the Liens created hereby on the Mortgaged Property. (c) Possession of Notes. The Grantor acknowledges and agrees that possession of any Note (or any replacements of any said Note or other instrument evidencing any part of the Secured Obligations) at any time by the Grantor or any other guarantor shall not in any manner extinguish the Secured Obligations or this Deed of Trust, and the Grantor shall have the right to issue and reissue any of the Notes from time to time as its interest or as convenience may require, without in any manner extinguishing or affecting the Secured Obligations or the Lien of this Deed of Trust. Section 7.03. Severability. If any provision hereof is invalid or unenforceable in any jurisdiction, the other provisions hereof shall remain in full force and effect in such jurisdiction and the remaining provisions hereof shall be liberally construed in favor of the Trustee, the Beneficiary and the Other Secured Persons in order to effectuate the provisions hereof. The invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of any such provision in any other jurisdiction. Section 7.04. Successors and Assigns. The terms used to designate any party or group of persons shall be deemed to include the respective heirs, legal representatives, successors and assigns of such Persons. 17 Section 7.05. Satisfaction of Prior Encumbrance. To the extent that proceeds of the Credit Agreement are used to pay indebtedness by any outstanding Lien against the Mortgaged Property then the parties agree that: (a) such proceeds have been advanced at the Grantor's request, and (b) the Beneficiary and the Lenders shall be subrogated to any and all rights and Liens owned by any owner or holder of such outstanding Liens, irrespective of whether said Liens are or have been released. It is expressly understood that, in consideration of the payment of such other indebtedness, the Grantor hereby waives and releases all demands and causes of action for offsets and payments to, upon and in connection with the said indebtedness. This Deed of Trust is made with full substitution and subrogation of the Trustee and the Beneficiary and his successors in this trust and his and their assigns in and to all covenants and warranties by others heretofore given or made in respect of the Mortgaged Property or any part thereof. Section 7.06. Application of Payments to Certain Obligations. If any part of the Secured Obligations cannot be lawfully secured by this Deed of Trust or if any part of the Mortgaged Property cannot be lawfully subject to the Lien hereof to the full extent of the Secured Obligations, then all payments made shall be applied on said Secured Obligations first in discharge of that portion thereof which is not secured by this Deed of Trust. Section 7.07. Nature of Covenants. The covenants and agreements herein contained shall constitute covenants running with the land and interests covered or affected hereby and shall be binding upon the heirs, legal representatives, successors and assigns of the parties hereto. Section 7.08. Notices. All notices, requests, consents, demands and other communications required or permitted hereunder shall be in writing and shall be deemed sufficiently given or furnished if delivered by registered or certified United States mail, postage prepaid, or by personal service (including express or courier service) at the addresses specified in Section 7.12 (unless changed by similar notice in writing given by the particular party whose address is to be changed). Any such notice or communication shall be deemed to have been given either at the time of personal delivery or, in the case of delivery at the address and in the manner provided herein, upon receipt; provided that, service of notice as required by the laws of any state in which portions of the Mortgaged Property may be situated shall for all purposes be deemed appropriate and sufficient with the giving of such notice. Section 7.09. Counterparts. This Deed of Trust is being executed in several counterparts, all of which are identical, except that to facilitate recordation, if the Mortgaged Property is situated in or on more than one county, descriptions of only those portions of the Mortgaged Property located in or on the county in which a particular counterpart is recorded shall be attached as Exhibit A to such counterpart. Each of such counterparts shall for all purposes be deemed to be an original and all such counterparts shall together constitute but one and the same instrument. Complete copies of this Deed of Trust containing the entire Exhibit A have been retained by the Beneficiary. 18 Section 7.10. Governing Law. Insofar as permitted by otherwise applicable law, this Deed of Trust shall be construed under and governed by the laws of the State of Texas; provided, however, that, with respect to any portion of the Mortgaged Property located outside of the State of Texas, the laws of the place in which such property is located in, or offshore area adjacent to (and State law made applicable as a matter of Federal law), shall apply to the extent of procedural and substantive matters relating only to the creation, perfection, foreclosure of Liens and enforcement of rights and remedies against the Mortgaged Property. Section 7.11. Financing Statement; Fixture Filing. This Deed of Trust shall be effective as a financing statement filed as a fixture filing with respect to all Fixtures included within the Mortgaged Property and is to be filed or filed for record in the real estate records, mortgage records or other appropriate records of each jurisdiction where any part of the Mortgaged Property (including said fixtures) are situated. This Deed of Trust shall also be effective as a financing statement covering As-Extracted Collateral (including oil and gas and all other substances of value which may be extracted from the ground) and accounts financed at the wellhead or minehead of wells or mines located on the properties subject to the Applicable UCC and is to be filed for record in the real estate records, UCC records or other appropriate records of each jurisdiction where any part of the Mortgaged Property is situated. Section 7.12. Execution of Financing Statements. Pursuant to the Applicable UCC, the Grantor authorizes the Beneficiary, its counsel or its representative, at any time and from time to time, to file or record financing statements, continuation statements, amendments thereto and other filing or recording documents or instruments with respect to the Mortgaged Property without the signature of the Beneficiary in such form and in such offices as the Beneficiary reasonably determines appropriate to perfect the security interests of the Beneficiary under this Agreement. The Grantor also authorizes the Beneficiary, its counsel or its representative, at any time and from time to time, to file or record such financing statements that describe the collateral covered thereby as "all assets of the Beneficiary", "all personal property of the Beneficiary" or words of similar effect. The Grantor shall pay all costs associated with the filing of such instruments. In that regard, the following information is provided: Name of Debtor: Baron Production LLC Address of Debtor 300 S. CM Allen Pkwy, Suite 400 San Marcos, Texas 78666 State of Formation/Location Texas Organizational ID Number 801793395 Facsimile: (512) 392-7238 Telephone: (512) 392-5775 Principal Place of Business of Debtor: Texas Name of Secured Party: Petro Capital Energy Credit, LLC as Administrative Agent Address of Secured 3710 Rawlins Street Party: Dallas, Texas 75219 Facsimile: 214.661.7760 Telephone: 214.661.7761 Owner of Record of Real Property: Baron Production LLC 19 Section 7.13. Exculpation Provisions. EACH OF THE PARTIES HERETO SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS DEED OF TRUST; AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS DEED OF TRUST; THAT IT HAS IN FACT READ THIS DEED OF TRUST AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS OF THIS DEED OF TRUST; THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS DEED OF TRUST; AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS DEED OF TRUST; AND THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS DEED OF TRUST RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS DEED OF TRUST ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT "CONSPICUOUS". Section 7.14. References. The words "herein," "hereof," "hereunder" and other words of similar import when used in this Deed of Trust refer to this Deed of Trust as a whole, and not to any particular article, section or subsection. Any reference herein to a Section shall be deemed to refer to the applicable Section of this Deed of Trust unless otherwise stated herein. Any reference herein to an exhibit or schedule shall be deemed to refer to the applicable exhibit or schedule attached hereto unless otherwise stated herein. [SIGNATURES BEGIN NEXT PAGE] 20 EXECUTED this 28th day of July, 2014, to be effective as of the 28th day of July, 2014. BARON PRODUCTION LLC By: ----------------------------------------- Name: ----------------------------------------- Title: ----------------------------------------- STATE OF TEXAS ss. ss. COUNTY OF _______ ss. This instrument was acknowledged before me on July ___, 2014 by ___________________________, the __________________________ of Baron Production LLC, a Texas limited liability company, on behalf of said company. ----------------------------------- Notary Public Seal: 21 EXHIBIT A DEED OF TRUST, ASSIGNMENT OF AS-EXTRACTED COLLATERAL, SECURITY AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT Introduction The capitalized terms used but not defined in this Exhibit A are used as defined in the Deed of Trust. For purposes of this Exhibit A the capitalized terms not defined in the Deed of Trust are as follows: 1. "Working Interest" or "Gross Working Interest" and "W.I." or "G.W.I." means an interest owned in an oil, gas and mineral lease that determines the cost bearing percentage of the owner of such interest. 2. "Net Revenue Interest" or "N.R.I." means an interest (expressed as a percentage or decimal fraction), determined net of all royalties, overriding royalties, production payments or other burdens payable out of production, in and to all Hydrocarbons produced and saved from or attributable to a Well. In the case of any Well listed in Exhibit A, the Net Revenue Interest specified for such Well shall mean the sum of the percentage or decimal fraction set forth after the words "Net Revenue Interest" in the portion applicable to such Well plus, in the case of any Well with respect to which a royalty interest and/or overriding royalty is stated in this Exhibit A and applicable to such Well, the percentage or decimal fraction set forth after the words "Royalty Interest" or "Overriding Royalty Interest" in each such portion of Exhibit A. 3. "Well" means (i) any existing well identified in Exhibit A, including replacement well drilled in lieu thereof from which gas is now or hereafter produced and (ii) any well at any time producing or capable of producing gas attributable to the Hydrocarbons as defined above, including any well which has been shut-in, has temporarily ceased production or on which workover, reworking, plugging and abandonment or other operations are being conducted or planned. All references contained in this Exhibit A to the Oil and Gas Properties are intended to include references to (i) the volume or book and page, file, entry or instrument number of the appropriate records of the particular county in the State where each such lease or other instrument is recorded and (ii) all valid and existing amendments to such lease or other instrument of record in such county records regardless of whether such amendments are expressly described herein. A special reference is here made to each such lease or other instrument and the record thereof for a more particular description of the property and interests sought to be affected by the Deed of Trust and for all other purposes. For recording purposes, in regards to each county portion to this Exhibit A, this Introduction may be attached to an original executed copy of the Deed of Trust, Assignment of As-Extracted Collateral, Security Agreement, Fixture Filing and Financing Statement to be separately filed of record in each county. 22 East Pearsall (Stewart) Prospect TRACT 1 - 1985 ACRES Lease 1: Oil and Gas Lease dated August 13, 2009, from Federal Royalty LLC, as General Partner for Federal Royalty Partners, Ltd., as Lessor, to Sien Energy Company, as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 66, page 502, Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of land, more or less, out of the A.B.&M. Survey 5, A-29, the A.B.&M. Survey 7, A-30, the A.B.&M. Survey 9, A-31, the R.H. Adcock Survey 10, A-1341 and the B.S.&F. Survey 1, A-111, Frio County, Texas. Lease 2: Oil and Gas Lease dated March 26, 2009, from Cimarron Texas Minerals, Ltd., as Lessor, to Sien Energy Company, as Lessee, recorded by Memorandum of Oil and Gas Lease dated March 31, 2009 in Volume 67, page 831, Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of land, more or less, being the same land described above in Lease 1. Lease 3: Paid Up Oil and Gas Lease dated March 6, 2009, from Joseph M. Dawson, Jr., as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 504, Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 4: Paid Up Oil and Gas Lease dated March 6, 2009, from Dorothy D. Burlage, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 508, Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 5: Paid Up Oil and Gas Lease dated January 16, 2009, from Hager Oil & Gas, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 512, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 6: Paid Up Oil and Gas Lease dated September 28, 2009, from Bill Bishop, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 528, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 7: Paid Up Oil and Gas Lease dated September 28, 2009, from Robert L. Dow, Jr., as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 524, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 8: Paid Up Oil and Gas Lease dated September 28, 2009, from Wesley K. Winn, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 517, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. 23 Lease 9: Paid Up Oil and Gas Lease dated September 28, 2009, from Tolar N. Hamblen, III, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 67, page 828, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 10: Paid Up Oil and Gas Lease dated September 28, 2009, from Ginger Busboom, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 521, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 11: Paid Up Oil and Gas Lease dated August 24, 2009, from Mark E. McCourt and wife, Susan McCourt, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 536, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 12: Paid Up Oil and Gas Lease dated August 24, 2009, from A.L. Furnace and wife, Pauline Furnace, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 532, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 13: Paid Up Oil and Gas Lease dated August 10, 2009, from Dickerson Resources, Arthur J. Milbarger and Joseph E. Stewart, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 540, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 14: Paid Up Oil and Gas Lease dated March 20, 2009, from Douglas C. Koch, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 544, Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 15: Paid Up Oil and Gas Lease dated March 20, 2009, from Wayne A. Bissett, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 550, Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 16: Paid Up Oil and Gas Lease dated December 3, 2007, from Clarence J. Fraser, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 556, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 17: Paid Up Oil and Gas Lease dated August 12, 2009, from Dorothy L. Hardin, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 559, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 18: Paid Up Oil and Gas Lease dated August 12, 2009, from Anne L. Madigan, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 563, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 19: Paid Up Oil and Gas Lease dated September 2, 2009, from Jessica Stansell, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 567, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 20: Paid Up Oil and Gas Lease dated March 24, 2009, from Thornton Davis Minerals, L.P., as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 570, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 21: Paid-Up Oil and Gas Lease dated September 1, 2009, from Stewart Information Services Corporation, as Lessor, to Sien Energy Company, as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 66, page 574, Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 22: Paid-Up Oil and Gas Lease dated September 2, 2009, from Nathan Weaver, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 70, page 249, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 23: Paid-Up Oil and Gas Lease dated September 2, 2009, from Jesse Walker, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 73, page 621, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 24: Paid-Up Oil and Gas Lease dated March 23, 2011, from Wanda Weaver, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 91, page 773, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 25: Paid Up Oil and Gas Lease dated June 23, 2011, from Charles McClain, as Receiver for Mineral Interests in Cause No. 11-03-00095CVF, for Nancy Brown et al., as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 92, page 996, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. TRACT 2 - 640 ACRES Lease 1: Paid Up Oil and Gas Lease dated November 6, 2009, from Roxana Kelfer, Individually and as Trustee of the Louis A. Michael Trust, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 68, page 237, Official Public 24 Records, Frio County, Texas, covering 640 acres of land, more or less, out of the E.A. Mudd Survey 8, A-1333, Frio County, Texas. Lease 2: Paid Up Oil and Gas Lease dated November 6, 2009, from Lynn Kendrick, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 68, page 242, Official Public Records, Frio County, Texas, covering 640 acres of land, more or less, out of the E.A. Mudd Survey 8, A-1333, Frio County, Texas, being the same land described in Lease 1. Lease 3: Paid Up Oil and Gas Lease dated November 6, 2009, from Caroline J. Wanke, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 68, page 247, Official Public Records, Frio County, Texas, covering 640 acres of land, more or less, out of the E.A. Mudd Survey 8, A-1333, Frio County, Texas, being the same land described in Lease 1. Lease 4: Paid Up Oil and Gas Lease dated November 6, 2009, from Diana Morawski, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 68, page 251, Official Public Records, Frio County, Texas, covering 640 acres of land, more or less, out of the E.A. Mudd Survey 8, A-1333, Frio County, Texas, being the same land described in Lease 1. Lease 5: Paid Up Oil and Gas Lease dated November 6, 2009, from Claudia Davis, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 68, page 255, Official Public Records, Frio County, Texas, covering 640 acres of land, more or less, out of the E.A. Mudd Survey 8, A-1333, Frio County, Texas, being the same land described in Lease 1. Wells WI NRI ----- -- --- Ricochet - Stewart No. 1 Well 89.100000% 66.825000% (API #42-163-33411 / RRC ID #15635) Ricochet - Stewart No. 2 Well 89.100000% 66.825000% (API #42-163-33455 / RRC ID #15635) Ricochet - Stewart-Michael Unit No. 1 Well 89.100000% 66.907685% (API #42-163-33535 / RRC ID #16563) Ricochet - Stewart-Michael No. 2H Unit Well 89.100000% 66.825000% (API #42-163-33550 / RRC ID #16379) Ricochet - Stewart No. 4RE Well 95.466809% 71.600107% (API #42-163-33585 / RRC ID #17349) BREAZEALE PROSPECT (NEAL TRUST UNIT) Lease 1: Paid Up Oil and Gas Lease dated July 25, 2011, from Iven A. Neal and Ruby Neal, as Trustees of the Iven A. Neal and Ruby Neal Living Trust, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 95, page 113, Official Public Records, Frio County, Texas, insofar as and only insofar as said lease covers 148.37 acres of land, more or less, out of the B.S.&F. Survey No. 3, A-112, Frio County, Texas, being the lands pooled in the Ricochet Energy, Inc. - Neal Trust No. 1H Unit as described in a Declaration of Unit dated October 10, 2012, recorded in Volume 122, page 855, Official Records, Frio County, Texas. 25 Lease 2: Paid Up Oil and Gas Lease dated July 25, 2011, from James P. Neal and Coleen F. Neal, as Trustees of the James P. Neal and Coleen F. Neal Living Trust, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 95, page 110, Official Public Records, Frio County, Texas, insofar as and only insofar as said lease covers 148.37 acres of land, more or less, out of the B.S.&F. Survey No. 3, A-112, Frio County, Texas, being the lands pooled in the Ricochet Energy, Inc. - Neal Trust No. 1H Unit as described in a Declaration of Unit dated October 10, 2012, recorded in Volume 122, page 855, Official Records, Frio County, Texas, and being the same land described in Lease 1. Lease 3: Oil and Gas Lease dated July 18, 2011, from Providence Minerals, LLC, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 95, page 116, Official Public Records, Frio County, Texas, insofar as and only insofar as said lease covers 127.9 acres of land, more or less, out of the B.S.&F. Survey No. 3, A-112, Frio County, Texas, being the lands pooled in the Ricochet Energy, Inc. - Neal Trust No. 1H Unit as described in a Declaration of Unit dated October 10, 2012, recorded in Volume 122, page 855, Official Records, Frio County, Texas, and being part of the same land described in Lease 1. Lease 4: Oil and Gas Lease dated August 16, 2011, from Texas Osage Royalty Pool, Inc., as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 95, page 819, Official Public Records, Frio County, Texas, insofar as and only insofar as said lease covers 127.9 acres of land, more or less, out of the B.S.&F. Survey No. 3, A-112, Frio County, Texas, being the lands pooled in the Ricochet Energy, Inc. - Neal Trust No. 1H Unit as described in a Declaration of Unit dated October 10, 2012, recorded in Volume 122, page 855, Official Records, Frio County, Texas, and being part of the same land described in Lease 1. Lease 5: Paid Up Oil and Gas Lease dated September 30, 2011, from Vicki Lee Gates and Sherri Lynn Tope, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 99, page 37, Official Public Records, Frio County, Texas, insofar as and only insofar as said lease covers 65.59 acres of land, more or less, out of the B.S.&F. Survey No. 3, A-112, Frio County, Texas, being the lands pooled in the Ricochet Energy, Inc. - Neal Trust No. 1H Unit as described in a Declaration of Unit dated October 10, 2012, recorded in Volume 122, page 855, Official Records, Frio County, Texas. Lease 6: Paid Up Oil and Gas Lease dated October 14, 2011, from The Collis and Lucille Woodward Family Trust dated August 29, 1990, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 100, page 20, Official Public Records, Frio County, Texas, insofar as and only insofar as said lease covers 88.02 acres of land, more or less, out of the Frio County School Land League No. 1, A-310, Frio County, Texas, being the lands pooled in the Ricochet Energy, Inc. - Neal Trust No. 1H Unit as described in a Declaration of Unit dated October 10, 2012, recorded in Volume 122, page 855, Official Records, Frio County, Texas. Lease 7: Paid Up Oil and Gas Lease dated October 14, 2011, from The Clyde E. and Valerie V. Woodward Family Trust dated November 12, 1996, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 100, page 18, Official Public Records, Frio County, Texas, insofar as and 26 only insofar as said lease covers 88.02 acres of land, more or less, out of the Frio County School Land League No. 1, A-310, Frio County, Texas, being the lands pooled in the Ricochet Energy, Inc. - Neal Trust No. 1H Unit as described in a Declaration of Unit dated October 10, 2012, recorded in Volume 122, page 855, Official Records, Frio County, Texas, and being the same land described in Lease 6. Wells WI NRI ----- -- --- Ricochet - Neal Trust No. 1H Unit Well 100.000% 75.000% (API #42-163-33643 / RRC ID #17593) MAXWELL PROSPECT Lease 1: Paid Up Oil and Gas Lease dated December 22, 2011, from David Maxwell and wife, Kelli Maxwell et al., as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 105, page 918, Official Public Records, Frio County, Texas, covering 315 acres of land, more or less, out of the Pablo Ortiz Survey No. 1411, A-530, Frio County, Texas. Lease 2: Paid Up Oil and Gas Lease dated January 18, 2012, from James E. Deutsch and wife, Patricia Deutsch, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 105, page 914, Official Public Records, Frio County, Texas, covering 372.37 acres of land, more or less, out of the A.B.&M. Survey 5, A-29 and the Pablo Ortiz Survey No. 1411, A-530, Frio County, Texas. Lease 3: Paid Up Oil and Gas Lease dated January 3, 2012, from Howard M. Shelton, Jr., as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 105, page 916, Official Public Records, Frio County, Texas, covering 100.64 acres of land, more or less, out of the Pablo Ortiz Survey No. 1411, A-530, Frio County, Texas. Lease 4: Paid Up Oil and Gas Lease dated March 3, 2012, from Lida O. Pitts, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 110, page 413, Official Public Records, Frio County, Texas, covering 50.32 acres of land, more or less, out of the Pablo Ortiz Survey No. 1411, A-530, Frio County, Texas, being a part of the same land described in Lease 3. Lease 5: Paid Up Oil and Gas Lease dated March 27, 2012, from James Oliver Harle et al., as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 111, page 717, Official Public Records, Frio County, Texas, covering 50.32 acres of land, more or less, out of the Pablo Ortiz Survey No. 1411, A-530, Frio County, Texas, being a part of the same land described in Lease 3. Lease 6: Paid Up Oil and Gas Lease dated January 17, 2012, from William R. Hoyle and wife, Mona Hoyle, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 106, page 130, Official Public Records, Frio County, Texas, covering 18.26 acres of land, more or less, out of the Pablo Ortiz Survey No. 1411, A-530, Frio County, Texas. 27 Wells WI NRI ----- -- --- None 100.000% 75.000% PETTY PROSPECT Lease 1: Paid Up Oil and Gas Lease dated April 9, 2012, from David R. Petty and wife, Frankie Petty, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 110, page 781, Official Public Records, Frio County, Texas, covering 933.51 acres of land, more or less, out of the A.B.&M. Survey 5, A-29, the A.B.&M. Survey 7, A-30 and the A.B.&M. (W.T. Merriwether) Survey 6, A-963, Frio County, Texas. Lease 2: Paid Up Oil and Gas Lease dated April 11, 2012, from Janell McDermand Trees, joined pro forma by her husband, Jerry F. Trees, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 110, page 779, Official Public Records, Frio County, Texas, covering 613.32 acres of land, more or less, out of the A.B.&M. Survey 5, A-29 and the A.B.&M. Survey 7, A-30, Frio County, Texas, being part of the same land described in Lease 1. Lease 3: Paid Up Oil and Gas Lease dated April 18, 2012, from Jerry Leon Young, Jr., as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 113, page 400, Official Public Records, Frio County, Texas, covering 320.19 acres of land, more or less, out of the A.B.&M. (W.T. Merriwether) Survey 6, A-963, Frio County, Texas, being part of the same land described in Lease 1. Lease 4: Paid Up Oil and Gas Lease dated April 18, 2012, from Patricia Riley Hines, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 112, page 181, Official Public Records, Frio County, Texas, covering 320.19 acres of land, more or less, out of the A.B.&M. (W.T. Merriwether) Survey 6, A-963, Frio County, Texas, being part of the same land described in Lease 1. Lease 5: Paid Up Oil and Gas Lease dated April 18, 2012, from Peggy Riley Franell, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 112, page 179, Official Public Records, Frio County, Texas, covering 320.19 acres of land, more or less, out of the A.B.&M. (W.T. Merriwether) Survey 6, A-963, Frio County, Texas, being part of the same land described in Lease 1. Lease 6: Paid Up Oil and Gas Lease dated April 18, 2012, from Janice Claire Palmer, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 111, page 713, Official Public Records, Frio County, Texas, covering 320.19 acres of land, more or less, out of the A.B.&M. (W.T. Merriwether) Survey 6, A-963, Frio County, Texas, being part of the same land described in Lease 1. 28 Lease 7: Paid Up Oil and Gas Lease dated April 18, 2012, from Mary Jo Wainscott, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 111, page 715, Official Public Records, Frio County, Texas, covering 320.19 acres of land, more or less, out of the A.B.&M. (W.T. Merriwether) Survey 6, A-963, Frio County, Texas, being part of the same land described in Lease 1. Lease 8: Paid Up Oil and Gas Lease dated August 1, 2012, from Lucille Watson et al., as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 119, page 629, Official Public Records, Frio County, Texas, covering 320.19 acres of land, more or less, out of the A.B.&M. (W.T. Merriwether) Survey 6, A-963, Frio County, Texas, being part of the same land described in Lease 1. Lease 9: Oil and Gas Lease dated April 16, 2012, from Methodist Childrens Home, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 111, page 711, Official Public Records, Frio County, Texas, covering 320.19 acres of land, more or less, out of the A.B.&M. (W.T. Merriwether) Survey 6, A-963, Frio County, Texas. Lease 10: Paid Up Oil and Gas Lease dated May 15, 2012, from Edward Allen Keith, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 113, page 500, Official Public Records, Frio County, Texas, covering 10.105 acres of land, more or less, out of the A.B.&M. Survey 5, A-29 and the A.B.&M. Survey 7, A-30, Frio County, Texas. Lease 11: Paid Up Oil and Gas Lease dated May 15, 2012, from Connie Gail Beane, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 113, page 502, Official Public Records, Frio County, Texas, covering 20.106 acres of land, more or less, out of the A.B.&M. Survey 5, A-29 and the A.B.&M. Survey 7, A-30, Frio County, Texas. Lease 12: Paid Up Oil and Gas Lease dated May 15, 2012, from Sandra Eileen Keith, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 113, page 504, Official Public Records, Frio County, Texas, covering 20.106 acres of land, more or less, out of the A.B.&M. Survey 5, A-29 and the A.B.&M. Survey 7, A-30, Frio County, Texas. Wells WI NRI ----- -- --- None 100.000% 75.000% FRIO AUSTIN CHALK PROSPECT (CULPEPPER AREA) JANE T. CULPEPPER ET AL., LEASES 29 Lease 1: Oil and Gas Lease dated January 18, 2010, from Jane Culpepper, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 70, page 672, Official Public Records, Frio County, Texas, as amended by Amendment of Oil and Gas Lease recorded in Volume 73, page 441, Official Public Records, Frio County, Texas, covering 718 acres of land, more or less, out of the J. E. Roberts Survey No. 4, A-903, the L.I.M. & C. Co. Survey No. 112, A-754 and the B.S. & F Survey No. 3, A-109, Frio County, Texas. Lease 2: Oil and Gas Lease dated January 18, 2010, from John Culpepper, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 70, page 675, Official Public Records, Frio County, Texas, as amended by Amendment of Oil and Gas Lease recorded in Volume 73, page 444, Official Public Records, Frio County, Texas, covering 593 acres of land, more or less, being a portion of the same land described above in Lease 1. Lease 3: Oil and Gas Lease dated January 18, 2010, from Jim Culpepper, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 70, page 678, Official Public Records, Frio County, Texas, as amended by Amendment of Oil and Gas Lease recorded in Volume 73, page 446, Official Public Records, Frio County, Texas, covering 593 acres of land, more or less, being a portion of the same land described above in Lease 1. Lease 4: Oil and Gas Lease dated January 18, 2010, from Bill Culpepper, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 70, page 681, Official Public Records, Frio County, Texas, as amended by Amendment of Oil and Gas Lease recorded in Volume 73, page 448, Official Public Records, Frio County, Texas, covering 593 acres of land, more or less, being a portion of the same land described above in Lease 1. Lease 5: Oil and Gas Lease dated January 18, 2010, from Nancy C. Flores, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 70, page 684, Official Public Records, Frio County, Texas, as amended by Amendment of Oil and Gas Lease recorded in Volume 73, page 450, Official Public Records, Frio County, Texas, covering 593 acres of land, more or less, being a portion of the same land described above in Lease 1. Wells WI NRI ----- -- --- Ricochet - Culpepper No. 1H Unit Well 100.000% 80.000% (API #42-163-33480 / RRC ID #16214) Ricochet - Culpepper No. 2H Unit Well 100.000% 80.000% (API #42-163-33494 / RRC ID #16115) JAMES W. CULPEPPER ET AL., LEASES - (3C LEASES) Lease 1: Oil and Gas Lease dated February 3, 2010, from James Culpepper and wife, Kat Saunders, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 70, page 765, Official Public Records, Frio County, Texas, covering 657.28 acres of land, more or less, out of the J. E. Roberts Survey No. 2, A-904 and the James Cummings Survey No. 105, A-269, Frio County, Texas. 30 Lease 2: Oil and Gas Lease dated February 3, 2010, from John Culpepper and wife, Andrea M. Culpepper, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 70, page 770, Official Public Records, Frio County, Texas, covering 657.28 acres of land, more or less, being the same land described above in Lease 1. Lease 3: Oil and Gas Lease dated February 3, 2010, from Joe Culpepper, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 75, page 590, Official Public Records, Frio County, Texas, covering 104.14 acres of land, more or less, out of the J. E. Roberts Survey No. 2, A-904 and the James Cummings Survey No. 105, A-269, Frio County, Texas, being a portion of the same land described above in Lease 1. Lease 4: Oil and Gas Lease dated October 31, 2010, from Tommy J. Muston and wife, Deborah A. Muston, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 83, page 692, Official Public Records, Frio County, Texas, covering 224.14 acres of land, more or less, out of the J. E. Roberts Survey No. 2, A-904 and the J. E. Roberts Survey No. 6, A-905, Frio County, Texas, being a portion of the same land described above in Lease 1. Wells WI NRI ----- -- --- Ricochet - 3C No. 1H Unit Well 100.000% 79.715823% (API #42-163-33508 / RRC ID #16225) Ricochet - 3C No. 2H Unit Well 100.000% 79.715823% (API #42-163-33563 / RRC ID #16225) KOTZEBUE LEASE Oil and Gas Lease dated August 26, 2010, from David W. Kotzebue and wife, Deborah R. Kotzebue, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 79, page 752, Official Public Records, Frio County, Texas, originally covering 527.33 acres of land, more or less, out of the J. E. Roberts Survey No. 4, A-903, Frio County, Texas, insofar as and only insofar as said lease covers 400 acres of land, more or less, being the retained acreage allocated to the Kotzebue No. 1 Well, as described in that certain Partial Release of Oil and Gas Lease and Designation of Well Tract dated effective January 1, 2014, executed by Ricochet Energy, Inc. et al., recorded in Volume 150, page 793, Official Public Records, Frio County, Texas. Wells WI NRI ----- -- --- Ricochet - Kotzebue No. 1 Well 100.000% 75.000% (API #42-163-33589 / RRC ID #17063) EXPRESS RE-ENTRY PROSPECTS CANTU-HENDERSON UNIT Ricochet Energy, Inc. - Cantu-Henderson No. 1H Unit, being the pooled unit of 495.17 acres out of the J. Poitevent Survey No. 5, A-559 and the R.M. Harkness Survey No. 6, A-890, Frio County, Texas, as more particularly described in that 31 certain Declaration of Unit dated September 24, 2010, executed by Ricochet Energy, Inc., recorded in Volume 81, page 174, Official Public Records, Frio County, Texas, pooling the acreage covered by the following described leases. Lease 1: Oil, Gas and Mineral Lease dated September 17, 2008, from Herlinda G. Cantu, as Lessor, to Express Oil & Gas, as Lessee, recorded in Volume 57, page 798, Official Public Records, Frio County, Texas, (and also recorded by Memorandum of Oil and Gas Lease in Volume 57, page 796, Official Public Records, Frio County, Texas), as amended, covering 177.45 acres, more or less, out of the J. Poitevent Survey No. 5, A-559, Frio County, Texas, all of the 177.45 acres covered by said lease, as more particularly described therein, being included in this unit. Lease 2: Oil, Gas and Mineral Lease dated October 28, 2008, from Winfred Henderson and wife, Alice A. Henderson, as Lessor, to Express Oil & Gas, Co., as Lessee, recorded in Volume 60, page 193, Official Public Records, Frio County, Texas, covering 317.72 acres, more or less, out of the R. M. Harkness Survey No. 6, A-890 in Frio County, Texas and A-1014 in LaSalle County, Texas, all of the 317.72 acres covered by said lease, as more particularly described therein, being included in this unit. Lease 3: Oil, Gas and Mineral Lease dated October 28, 2008, from Jimmy Henderson, as Lessor, to Express Oil & Gas, Co., as Lessee, recorded in Volume 60, page 200, Official Public Records, Frio County, Texas, covering 317.72 acres, more or less, out of the R. M. Harkness Survey No. 6, A-890 in Frio County, Texas and A-1014 in LaSalle County, Texas, all of the 317.72 acres covered by said lease, comprising the same lands described above in Lease 2, being included in this unit. Lease 4: Oil, Gas and Mineral Lease dated October 28, 2008, from Selfa A. Garza, joined pro forma by her husband, Tino Garza, as Lessor, to Express Oil & Gas, Co., as Lessee, recorded in Volume 60, page 180, Official Public Records, Frio County, Texas, as ratified and amended, covering 317.72 acres, more or less, out of the R. M. Harkness Survey No. 6, A-890 in Frio County, Texas and A-1014 in LaSalle County, Texas, all of the 317.72 acres covered by said lease, comprising the same lands described above in Lease 2, being included in this unit. Lease 5: Oil, Gas and Mineral Lease dated November 17, 2008, from Linda Green, joined pro forma by her husband, Ken Green, as Lessor, to Express Oil & Gas, Co., as Lessee, recorded in Volume 60, page 173, Official Public Records, Frio County, Texas, covering 317.72 acres, more or less, out of the R. M. Harkness Survey No. 6, A-890 in Frio County, Texas and A-1014 in LaSalle County, Texas, all of the 317.72 acres covered by said lease, comprising the same lands described above in Lease 2, being included in this unit. Lease 6: Oil, Gas and Mineral Lease dated November 17, 2008, from Larry Myrick, as Lessor, to Express Oil & Gas, Co., as Lessee, recorded in Volume 60, page 187, Official Public Records, Frio County, Texas, covering 317.72 acres, more or less, out of the R. M. Harkness Survey No. 6, A-890 in Frio County, Texas and A-1014 in LaSalle County, Texas, all of the 317.72 acres covered by said lease, 32 comprising the same lands described above in Lease 2, being included in this unit. Lease 7: Oil, Gas and Mineral Lease dated July 10, 2009, from Donna Myrick, as Lessor, to Express Oil & Gas, as Lessee, recorded by Memorandum of Oil, Gas and Mineral Lease in Volume 63, page 76, Official Public Records, Frio County, Texas, covering 317.72 acres, more or less, out of the R. M. Harkness Survey No. 6, A-890 in Frio County, Texas and A-1014 in LaSalle County, Texas, all of the 317.72 acres covered by said lease, comprising the same lands described above in Lease 2, being included in this unit. Lease 8: Oil, Gas and Mineral Lease dated November 17, 2008, from Janice Hemphill, as Lessor, to Express Oil & Gas, Co., as Lessee, recorded in Volume 63, page 70, Official Public Records, Frio County, Texas, covering 317.72 acres, more or less, out of the R. M. Harkness Survey No. 6, A-890 in Frio County, Texas and A-1014 in LaSalle County, Texas, all of the 317.72 acres covered by said lease, comprising the same lands described above in Lease 2, being included in this unit. Wells WI NRI ----- -- --- Ricochet - Cantu-Henderson No. 1H Unit Well 100.000% 77.042448% (API #42-163-33426 / RRC ID #12392) HARRIS LEASE Oil, Gas and Mineral Lease dated January 13, 1976, from William Donald Harris and wife, Mary Ann Harris, as Lessor, to Charles R. Stubblefield, as Lessee, recorded in Volume 342, page 485, Deed Records, Frio County, Texas, covering 735.00 acres, more or less, out of the William Webber Survey, A-668 and the G.B. Pilant Survey, A-540, Frio County, Texas, insofar as and only insofar as said lease covers 281.4 acres of land, more or less, around the Ricochet Energy, Inc. - Harris No. 2 and Harris No. 3 Wells (but expressly excluding the well and wellbore for the Express Oil & Gas - Harris #4 Well [API # 42-163-32691]) in Frio County, Texas. Wells WI NRI ----- -- --- Ricochet - Harris No. 2 Well 90.000% 67.500% (API #42-163-32604 / RRC ID #15063) Ricochet - Harris No. 3 Well 90.000% 67.500% (API #42-163-32647 / RRC ID #15063) W.S. SHAFFER AND W.S. SHAFFER -B- LEASES Oil, Gas and Mineral Lease dated September 9, 1958, from W.S. Shaffer and wife, E.S. Shaffer, as Lessors to J.R. McLean, as Lessee, recorded in Volume 574, page 186, Deed Records, Taylor County, Texas, covering the following tracts: 33 Tract 1 Being 314.80 acres of land situated in Taylor County, Texas, and being the North Half of Survey No. 12, Certificate No. 17/368, Block No. 3, S. P. RR Company Lands, and being the same land described by metes and bounds in a Patent from the State of Texas to J. L. Pierce, dated April 12, 1951, recorded in Volume G-2, Page 143, of the Patent Records of Taylor County, Texas. Tract 2 Being 167.5 acres, more or less, out of Survey No. 6, Certificate No. 4508, G. C. & S. RR Company Lands in Taylor County, Texas being described as follows, to-wit: BEGINNING at the Northwest corner S. F. 15185, W. S. Shaffer Survey No. 1; THENCE South 15(degree)East with the West line S.F. 15185, 2,293 varas, to fence; THENCE in a westerly direction with said fence to an inner corner of said G. C. & S. RR Company Survey No. 6; THENCE North 15(degree)West with a west line of said G. C. & S. RR Company Survey No. 6, 2,152.2 varas to the South line of a tract owned by Sayles; THENCE North 75o 25' East 425.6 varas with a fence to the place of beginning. Wells WI NRI ----- -- --- Baron - W.S. Shaffer -B- #3 75.000% 56.250% (API #42-441-81191 / RRC ID #11127) Baron - W.S. Shaffer -B- #4 75.000% 56.250% (API #42-441-81192 / RRC ID #11127) W.S. SHAFFER -C- LEASE Oil, Gas and Mineral Lease dated April 30, 1970, from M.C. Shaffer, et al, as Lessors to J.D. Tompkins, as Lessee, recorded in Volume 880, page 501, Deed Records, Taylor County, Texas, covering all of the W.S. Shaffer Survey No. 1, S.F. 15185, Patented to W.S. Shaffer by the State of Texas on June 11, 1951, by Patent No. 475, Volume 17-B, and containing 136.55 acres, more or less. Wells WI NRI ----- -- --- Baron - W.S. Shaffer -C- #1 75.000% 56.250% (API #42-441-30235 / RRC ID #11495) 34

Exhibit 10.78 ----------------------------- Space above for County Recorder's Use SECOND LIEN DEED OF TRUST, ASSIGNMENT OF AS-EXTRACTED COLLATERAL, SECURITY AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT FROM BARON PRODUCTION LLC TO PCEC-B, LLC, AS TRUSTEE FOR THE BENEFIT OF PCEC SUB 1, LLC A CARBON, PHOTOGRAPHIC, OR OTHER REPRODUCTION OF THIS INSTRUMENT IS SUFFICIENT AS A FINANCING STATEMENT. A POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT. IN CERTAIN STATES, A POWER OF SALE MAY ALLOW THE TRUSTEE OR THE BENEFICIARY TO TAKE THE MORTGAGED PROPERTY AND SELL IT WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY THE GRANTOR UNDER THIS INSTRUMENT. THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS. THIS INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES. THIS INSTRUMENT COVERS PROCEEDS OF MORTGAGED PROPERTY. THIS INSTRUMENT COVERS MINERALS AND OTHER SUBSTANCES OF VALUE WHICH MAY BE EXTRACTED FROM THE EARTH (INCLUDING WITHOUT LIMITATION OIL AND GAS) AND THE ACCOUNTS RELATED THERETO, WHICH WILL BE FINANCED AT THE WELLHEADS OF THE WELL OR WELLS LOCATED ON THE PROPERTIES DESCRIBED IN THE EXHIBIT HERETO. THIS FINANCING STATEMENT IS TO BE FILED OR FILED FOR RECORD, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS OR SIMILAR RECORDS OF THE RECORDERS OF THE COUNTIES LISTED ON THE EXHIBIT HERETO. THE GRANTOR HAS AN INTEREST OF RECORD IN THE REAL ESTATE AND IMMOVABLE PROPERTY CONCERNED, WHICH INTEREST IS DESCRIBED IN THE EXHIBIT ATTACHED HERETO. PORTIONS OF THE MORTGAGED PROPERTY ARE GOODS WHICH ARE OR ARE TO BECOME AFFIXED TO OR FIXTURES ON THE LAND DESCRIBED IN OR REFERRED TO IN THE EXHIBIT HERETO. THIS FINANCING STATEMENT IS TO BE FILED FOR RECORD OR RECORDED, AMONG OTHER PLACES, IN THE REAL ESTATE RECORDS OR SIMILAR RECORDS OF EACH COUNTY IN WHICH SAID LAND OR ANY PORTION THEREOF IS LOCATED. THE GRANTOR IS THE OWNER OF RECORD INTEREST IN THE REAL ESTATE CONCERNED. THIS INSTRUMENT IS ALSO TO BE INDEXED IN THE INDEX OF FINANCING STATEMENTS OR THE UCC RECORDS. TABLE OF CONTENTS Page ---- ARTICLE I DEFINITIONS Section 1.01. Terms Defined Above...........................................1 Section 1.02. UCC and Other Defined Terms...................................2 Section 1.03. Definitions...................................................2 ARTICLE II GRANT OF LIEN AND SECURED OBLIGATIONS Section 2.01. Grant of Liens................................................4 Section 2.02. Grant of Security Interest....................................5 Section 2.03. Secured Obligations...........................................6 Section 2.04. Fixture Filing, Etc...........................................7 Section 2.05. Pro Rata Benefit..............................................7 ARTICLE III ASSIGNMENT OF AS-EXTRACTED COLLATERAL Section 3.01. Assignment....................................................7 Section 3.02. No Modification of Payment Obligations........................8 Section 3.03. Rights and Title of Consignee.................................9 ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS Section 4.01. Title.........................................................9 Section 4.02. Defend Title..................................................9 Section 4.03. Not a Foreign Person.........................................10 Section 4.04. Power to Create Lien and Security............................10 Section 4.05. Revenue and Cost Bearing Interest............................10 Section 4.06. Rentals Paid; Leases in Effect...............................10 Section 4.07. Operation By Third Parties...................................10 Section 4.08. Abandon, Sales...............................................10 Section 4.09. Failure to Perform...........................................11 ARTICLE V RIGHTS AND REMEDIES Section 5.01. Event of Default.............................................11 Section 5.02. Foreclosure and Sale.........................................11 Section 5.03. Substitute Trustees and Agents...............................13 i Section 5.04. Judicial Foreclosure; Receivership...........................13 Section 5.05. Foreclosure for Installments.................................13 Section 5.06. Separate Sales...............................................13 Section 5.07. Possession of Mortgaged Property.............................14 Section 5.08. Occupancy After Foreclosure..................................14 Section 5.09. Remedies Cumulative, Concurrent and Nonexclusive.............14 Section 5.10. Discontinuance of Proceedings................................15 Section 5.11. No Release of Obligations....................................15 Section 5.12. Release of and Resort to Collateral..........................15 Section 5.13. Waiver of Redemption, Notice and Marshalling of Assets, Etc..................................................15 Section 5.14. Application of Proceeds......................................16 Section 5.15. Resignation of Operator......................................16 Section 5.16. Indemnity....................................................17 ARTICLE VI THE TRUSTEE Section 6.01. Duties, Rights, and Powers of Trustee........................17 Section 6.02. Successor Trustee............................................18 Section 6.03. Retention of Moneys..........................................18 ARTICLE VII MISCELLANEOUS Section 7.01. Instrument Construed as Mortgage, Etc........................18 Section 7.02. Releases.....................................................19 Section 7.03. Severability.................................................19 Section 7.04. Successors and Assigns.......................................19 Section 7.05. Subordination................................................19 Section 7.06. Application of Payments to Certain Obligations...............19 Section 7.07. Nature of Covenants..........................................20 Section 7.08. Notices......................................................20 Section 7.09. Counterparts.................................................20 Section 7.10. Governing Law................................................20 Section 7.11. Financing Statement; Fixture Filing..........................20 Section 7.12. Execution of Financing Statements............................21 Section 7.13. Exculpation Provisions.......................................21 Section 7.14. References...................................................22 EXHIBITS Exhibit A Oil and Gas Properties ii THIS SECOND LIEN DEED OF TRUST, ASSIGNMENT OF AS-EXTRACTED COLLATERAL, SECURITY AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT (this "Deed of Trust") is entered into as of July 28, 2014 (the "Effective Date") by BARON PRODUCTION LLC, a Texas limited liability company (the "Grantor"), in favor of PCEC-B, LLC, as Trustee for the benefit of PCEC SUB 1, LLC, a Texas limited liability company (together with its successors and assigns, the "Beneficiary"). R E C I T A L S A. The Grantor, as seller, and the Beneficiary, as purchaser, have entered into that certain Purchase and Sale Agreement dated as of the date hereof (such Purchase and Sale Agreement, as amended, restated, supplemented, or otherwise modified from time to time, the "Purchase and Sale Agreement"), for the sale and purchase of the of Production Payment in the Subject Interests, as such terms are defined in the Conveyance described below. B. By way of that certain Conveyance of Term Overriding Royalty Interest dated as of the date hereof (such Conveyance, as amended, restated, supplemented, or otherwise modified from time to time, the "Conveyance"), the Grantor conveyed the Production Payment to the Beneficiary. C. Pursuant to that certain Production and Marketing Agreement dated as of the date hereof (such Production and Marketing Agreement, as amended, restated, supplemented, or otherwise modified from time to time, the "Production and Marketing Agreement"), the Grantor has agreed to perform certain obligations with respect to, among other things, the operation and production of the Subject Interests and the marketing of the Production Payment Hydrocarbons (each, as defined in the Conveyance). D. The payment and performance of the obligations of the Grantor under the Purchase and Sale Agreement, the Conveyance and the Production and Marketing Agreement, and the other Production Payment Documents (defined below) are guaranteed by Baron Energy, Inc., a Nevada corporation (the "Parent"), pursuant to that certain Guaranty Agreement dated as of the date hereof (such Guaranty Agreement, as amended, restated, supplemented, or otherwise modified from time to time, the "Parent Guaranty Agreement"). E. The Purchase and Sale Agreement requires that the Grantor execute and deliver this Deed of Trust. F. Therefore, in order to comply with the terms and conditions of the Purchase and Sale Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Grantor hereby agrees as follows: ARTICLE I DEFINITIONS Section 1.01 Terms Defined Above. As used in this Deed of Trust, each term defined above has the meaning indicated above. 1 Section 1.02 UCC and Other Defined Terms. Unless otherwise defined in the Applicable UCC, each capitalized term used in this Deed of Trust and not defined in this Deed of Trust, shall have the meaning ascribed to such term in the Conveyance. Any capitalized term not defined in either this Deed of Trust or the Conveyance shall have the meaning ascribed to such term in the Applicable UCC. Section 1.03 Definitions. "Applicable UCC" means the provisions of the Uniform Commercial Code presently in effect in the jurisdiction in which the relevant UCC Collateral is situated or which otherwise is applicable to the creation or perfection of the Liens described herein or the rights and remedies of Beneficiary under this Deed of Trust. "Collateral" means collectively all the Mortgaged Property and all the UCC Collateral. "Credit Agreement" means that certain Credit Agreement dated as of the date hereof, by and among, the Grantor, the Parent, and the lenders from time to time parties thereto, Petro Capital, as administrative agent for such lenders, as amended, restated, supplemented, or otherwise modified from time to time. "Default Rate" shall mean a rate of interest per annum equal to 17%. "Event of Default" has the meaning ascribed to such term in Section 5.01. "Guarantor" means the Parent and any other party which is a guarantor of the Secured Obligations, on any portion thereof, from time to time. "Hydrocarbon Interests" means all rights, titles, interests and estates and the lands and premises covered or affected thereby now or hereafter acquired by the Grantor in and to oil and gas leases, oil, gas and mineral leases, or other liquid or gaseous hydrocarbon leases, fee interests, surface interests, mineral fee interests, overriding royalty and royalty interests, net profit interests and production payment interests, including any reserved or residual interests of whatever nature, in each case, which are described on Exhibit A; provided that, it is the intent of the Grantor all of its interests be subject to the Lien of this Deed of Trust even if (i) its interests on Exhibit A shall be incorrectly described or a description of a part or all of such property or the Grantor's interests therein be omitted limited to particular lands, specified depths or particular types of property interests or (ii) such properties or interests may be hereafter acquired. "Hydrocarbons" means all oil, gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all products refined or separated therefrom and all other minerals which may be produced and saved from or attributable to the Oil and Gas Properties of the Grantor, including all oil in tanks, and all rents, issues, profits, proceeds, products, revenues and other incomes from or attributable to the Hydrocarbon Interests or other properties constituting Oil and Gas Properties; provided, that the term "Hydrocarbons" shall not include the Production Payment (as defined in the Conveyance). 2 "Indemnified Parties" means the Trustee, the Beneficiary, each Other Secured Person and their officers, directors, managers, employees, representatives, agents, attorneys, accountants and experts. "Lien" means any interest in property securing an obligation owed to, or a claim by, a Person other than the owner of the property, whether such interest is based on the common law, statute or contract, and whether such obligation or claim is fixed or contingent, and including but not limited to (a) the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes or (b) production payments and the like payable out of Oil and Gas Properties. "Mortgaged Property" means the Oil and Gas Properties and other properties and assets described in Section 2.01(a) through Section 2.01(e). The Mortgaged Property shall not include the Production Payment. "Oil and Gas Properties" means (a) Hydrocarbon Interests; (b) the properties now or hereafter pooled or unitized with Hydrocarbon Interests; (c) all presently existing or future unitization, communitization, pooling agreements and declarations of pooled units and the units created thereby (including without limitation all units created under orders, regulations and rules of any Governmental Authority) which may affect all or any portion of the Hydrocarbon Interests; (d) all operating agreements, production sales or other contracts, farmout agreements, farm-in agreements, area of mutual interest agreements, equipment leases and other agreements which relate to any of the Hydrocarbon Interests or any interests therein or to the production, sale, purchase, exchange, processing, handling, storage, transporting or marketing of the Hydrocarbons from or attributable to such Oil and Gas Properties; (e) all Hydrocarbons; (f) all tenements, hereditaments, appurtenances and properties in any manner appertaining, belonging, affixed or incidental to the Hydrocarbon Interests, including all compressor sites, settling ponds and equipment or pipe yards; and (g) all properties, rights, titles, interests and estates described or referred to above whether now owned or hereinafter acquired, including any and all property, real or personal, immoveable or moveable, situated upon, used, held for use or useful in connection with the operating, working or development of any of such Hydrocarbon Interests or property (excluding drilling rigs, automotive equipment, rental equipment or other personal property which may be on such premises for the purpose of drilling a well or for other similar temporary uses) and including any and all oil wells, gas wells, injection wells or other wells, structures, fuel separators, liquid extraction plants, plant compressors, pumps, pumping units, pipelines, sales and flow lines, gathering systems, field gathering systems, salt water disposal facilities, tanks and tank batteries, fixtures, valves, fittings, machinery and parts, engines, boilers, steam generation facilities, meters, apparatus, equipment, appliances, tools, implements, cables, wires, towers, casing, tubing and rods, surface leases, rights-of-way, easements, servitudes licenses and other surface and subsurface rights, together with all additions, substitutions, replacements, accessions and attachments to any and all of the foregoing. "Other Secured Persons" means each Indemnified Party and any legal owner, holder, assignee or pledgee of any of the Secured Obligations. "Paid In Full" means the irrevocable and indefeasible performance, and payment in full in cash, of all Secured Obligations. 3 "Petro Capital" means Petro Capital Energy Credit, LLC, a Texas limited liability company. "Permitted Encumbrances" has the meaning specified in the Conveyance. "Production Payment" has the meaning specified in the Conveyance. "Production Payment Documents" means, collectively, the Purchase and Sale Agreement, the Conveyance, the Production and Marketing Agreement, the Parent Guaranty Agreement, this Deed of Trust and each other agreement, instrument, certificate or other document at any time made or given by Grantor with or to Beneficiary in connection with the Purchase and Sale Agreement, the Conveyance, the Production and Marketing Agreement, the Parent Guaranty or this Deed of Trust, including all supplements and amendments to and restatements of any of the foregoing. "Secured Obligations" has the meaning specified in Section 2.03. "Trustee" means PCEC-B, LLC, whose address for notice hereunder is 3710 Rawlins Street, Suite 1000, Dallas, Texas 75219, and any successors and substitutes in trust hereunder. "UCC Collateral" means the property and other assets described in Section 2.02. ARTICLE II GRANT OF LIEN AND SECURED OBLIGATIONS Section 2.01. Grant of Liens. The Grantor does by these presents hereby GRANT, BARGAIN, SELL, ASSIGN, MORTGAGE, TRANSFER and CONVEY to the Trustee, for the use and benefit of the Beneficiary and the Other Secured Persons, all the following properties, rights and interests, TO HAVE AND TO HOLD unto the Trustee forever to secure the payment and performance of the Secured Obligations: (a) All rights, titles, interests and estates now owned or hereafter acquired by the Grantor in and to the Oil and Gas Properties described on Exhibit A. (b) All rights, titles, interests and estates now owned or hereafter acquired by the Grantor in and to all geological, geophysical, engineering, accounting, title, legal and other technical or business data concerning the Oil and Gas Properties, the Hydrocarbons or any other item of property which are in the possession of the Grantor, and all books, files, records, magnetic media, computer records and other forms of recording or obtaining access to such data. (c) All rights, titles, interests and estates now owned or hereafter acquired by the Grantor in and to all Hydrocarbons. (d) Any property that may from time to time hereafter, by delivery or by writing of any kind, be subjected to the Liens hereof by the Grantor or by anyone on the Grantor's behalf; and the Trustee and/or the Beneficiary are hereby authorized to receive the same at any time as additional security hereunder. 4 (e) All of the rights, titles and interests of every nature whatsoever now owned or hereafter acquired by the Grantor in and to the Oil and Gas Properties described in Exhibit A and all other rights, titles, interests and estates and every part and parcel thereof, including, without limitation, any rights, titles, interests and estates as the same may be enlarged by the discharge of any payments out of production or by the removal of any charges or Permitted Encumbrances to which any of such Oil and Gas Properties or other rights, titles, interests or estates are subject or otherwise; all rights of the Grantor to Liens securing payment of proceeds from the sale of production from any of such Oil and Gas Properties, together with any and all renewals and extensions of any of such related rights, titles, interests or estates; all contracts and agreements supplemental to or amendatory of or in substitution for the contracts and agreements described or mentioned above; and any and all additional interests of any kind hereafter acquired by the Grantor in and to the such related rights, titles, interests or estates. Notwithstanding any provision in this Deed of Trust to the contrary, in no event is any Building (as defined in the applicable Flood Insurance Regulation) or Manufactured (Mobile) Home (as defined in the applicable Flood Insurance Regulation) included in the definition of "Mortgaged Property" and no Building or Manufactured (Mobile) Home is hereby encumbered by this Deed of Trust. As used herein, "Flood Insurance Regulations" shall mean (i) the National Flood Insurance Act of 1968 as now or hereafter in effect or any successor statute thereto, (ii) the Flood Disaster Protection Act of 1973 as now or hereafter in effect or any successor statute thereto, (iii) the National Flood Insurance Reform Act of 1994 (amending 42 USC 4001, et. seq.), as the same may be amended or recodified from time to time, and (iv) the Flood Insurance Reform Act of 2004 and any regulations promulgated thereunder. Any fractions or percentages specified on Exhibit A in referring to the Grantor's interests are solely for purposes of the warranties made by the Grantor pursuant to Section 4.01 and Section 4.05 and shall in no manner limit the quantum of interest affected by this Section 2.01 with respect to any Oil and Gas Property or with respect to any unit or well identified on Exhibit A. Section 2.02. Grant of Security Interest. To further secure the payment and performance of the Secured Obligations, the Grantor hereby grants to the Beneficiary, for its benefit and the benefit of the Other Secured Persons, a security interest in and to all of the following (whether now or hereafter acquired by operation of law or otherwise) to the extent arising from or pertaining, relating or attributable to any of the Mortgaged Property: (a) all Accounts; (b) all General Intangibles and all rights under insurance contracts and rights to insurance proceeds; (c) all Instruments; (d) all Goods; (e) all As-Extracted Collateral from or attributable to the Oil and Gas Properties; (f) all books and records pertaining to the Oil and Gas Properties; 5 (g) all Fixtures; (h) all Hydrocarbons; (i) to the extent not otherwise included, any other property insofar as the it consists of personal property of any kind or character defined in and subject to the Applicable UCC; and (j) to the extent not otherwise included, all Proceeds and products of any and all of the foregoing and all collateral security, guarantees and other Supporting Obligations given with respect to any of the foregoing; provided that, notwithstanding any other provision set forth in this Deed of Trust, the term "Collateral" and the term "Mortgaged Properties" and the component definitions thereof shall not include, and this Deed of Trust shall not, at any time, constitute a grant of a security interest in or Lien on or otherwise encumber, the Production Payment or any products or proceeds thereof. Section 2.03. Secured Obligations. This Deed of Trust is executed and delivered by the Grantor to secure and enforce the following (the "Secured Obligations"): (a) Payment and performance of all obligations and liabilities of the Grantor and/or the Parent to the Beneficiary, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, any of the Production Payment Documents or any other document made, delivered or given in connection herewith or therewith, whether on account of covenants, agreements, indemnities, costs, expenses (including all fees, charges and disbursements of counsel to the Beneficiary that are required to be paid by the Grantor or the Parent pursuant to any Production Payment Document) or otherwise. (b) Any sums which may be advanced or paid by the Trustee or the Beneficiary or any Other Secured Person under the Production Payment Documents on account of the failure of the Grantor to comply with the covenants of the Grantor contained herein or the other Production Payment Documents whether pursuant to Section 4.09 or otherwise and all other obligations, liabilities and indebtedness of the Grantor or any Guarantor arising pursuant to the provisions of this Deed of Trust or any other Production Payment Document. (c) Any and all renewals, modifications, amendments, substitutions, rearrangements or extensions of any of the foregoing, whether in whole or in part. Notwithstanding anything herein to the contrary, the Secured Obligations do not include the Production Payment. Section 2.04. Fixture Filing, Etc. Without in any manner limiting the generality of any of the other provisions of this Deed of Trust: (i) some portions of the goods described or to which reference is made herein are or are to become Fixtures on the land described or to which reference is made herein or on Exhibit A; (ii) the security interests created hereby under applicable provisions of the Applicable UCC will attach to all As-Extracted Collateral (all minerals including oil and gas and the Accounts resulting from the sale thereof at the wellhead or minehead located on the Oil and Gas Properties described or to which reference is made herein or on Exhibit A) and all other Hydrocarbons; 6 (iii) this Deed of Trust is to be filed of record in the real estate records or other appropriate records as a financing statement; and (iv) the Grantor is the record owner of the real estate or interests in the real estate or immoveable property comprised of the Mortgaged Property. Section 2.05. Pro Rata Benefit. This Deed of Trust is executed and granted for the pro rata benefit and security of the Beneficiary and the Other Secured Persons to secure the Secured Obligations for so long as same remains unpaid and thereafter until the Secured Obligations have been Paid in Full. ARTICLE III ASSIGNMENT OF AS-EXTRACTED COLLATERAL Section 3.01. Assignment. (a) Subject to the last sentence of paragraph (b) below, the Grantor has absolutely and unconditionally assigned, transferred, conveyed and granted a security interest, and does hereby absolutely and unconditionally assign, transfer, convey and grant a security interest unto the Beneficiary in and to: (i) all of its As-Extracted Collateral located in or relating to the Mortgaged Properties located in the county where this Deed of Trust is filed, including without limitation, all As-Extracted Collateral relating to the Hydrocarbon Interests, the Hydrocarbons and all products obtained or processed therefrom; (ii) the revenues and proceeds now and hereafter attributable to such Mortgaged Properties, including the Hydrocarbons, and said products and all payments in lieu, such as "take or pay" payments or settlements; and (iii) all amounts and proceeds hereafter payable to or to become payable to the Grantor or now or hereafter relating to any part of such Mortgaged Properties and all amounts, sums, monies, revenues and income which become payable to the Grantor from, or with respect to, any of the Mortgaged Properties, present or future, now or hereafter constituting a part of the Hydrocarbon Interests. (b) The Hydrocarbons and products are to be delivered into pipe lines connected with the Mortgaged Property, or to the purchaser thereof, to the credit of the Beneficiary, for its benefit and the benefit of the Other Secured Persons, free and clear of all taxes, charges, costs and expenses; and all such revenues and proceeds shall be paid directly to the Beneficiary, at its offices in Dallas, Texas, with no duty or obligation of any party paying the same to inquire into the rights of the Beneficiary to receive the same, what application is made thereof, or as to any other matter. Notwithstanding anything to the contrary contained herein, so long as no Event of Default has occurred and is continuing, the Grantor shall have the right to collect all revenues and proceeds attributable to the Hydrocarbons that accrue to the Oil and Gas Properties or the products obtained or processed therefrom. (c) Subject to the last sentence of paragraph (b) above, the Grantor agrees to perform all such acts, and to execute all such further assignments, transfers 7 and division orders and other instruments as may be required or desired by the Beneficiary or any party in order to have said proceeds and revenues so paid to the Beneficiary. In addition to any and all rights of a secured party under Sections 9-607 and 9-609 of the Applicable UCC, the Beneficiary is fully authorized to receive and receipt for said revenues and proceeds; to endorse and cash any and all checks and drafts payable to the order of the Grantor or the Beneficiary for the account of the Grantor received from or in connection with said revenues or proceeds and to hold the proceeds thereof as additional collateral securing the Secured Obligations; and to execute transfer and division orders in the name of the Grantor, or otherwise, with warranties binding the Grantor. All proceeds received by the Beneficiary pursuant to this grant and assignment shall be applied as provided in Section 5.14. (d) The Beneficiary shall not be liable for any delay, neglect or failure to effect collection of any proceeds or to take any other action in connection therewith or hereunder; but the Beneficiary shall have the right, at its election, in the name of the Grantor or otherwise, to prosecute and defend any and all actions or legal proceedings deemed advisable by the Beneficiary in order to collect such funds and to protect the interests of the Beneficiary and/or the Grantor, with all costs, expenses and attorneys' fees incurred in connection therewith being paid by the Grantor. (e) The Grantor hereby appoints the Beneficiary as its attorney-in-fact to pursue any and all rights of the Grantor to Liens in the Hydrocarbons securing payment of proceeds of runs attributable to the Hydrocarbons. In addition to the Liens granted to the Trustee and/or the Beneficiary in Section 2.01(e), the Grantor hereby further transfers and assigns to the Beneficiary any and all such Liens, security interests, financing statements or similar interests of the Grantor attributable to its interest in the As-Extracted Collateral, any other Hydrocarbons and proceeds of runs therefrom arising under or created by said statutory provision, judicial decision or otherwise. The power of attorney granted to the Beneficiary in this Section 3.01, being coupled with an interest, shall be irrevocable until the Secured Obligations have been Paid in Full. Section 3.02. No Modification of Payment Obligations. Nothing herein contained shall modify or otherwise alter the obligation of the Grantor to make prompt payment of all amounts constituting Secured Obligations when and as the same become due regardless of whether the proceeds of the As-Extracted Collateral and Hydrocarbons are sufficient to pay the same and the rights provided in accordance with the foregoing assignment provision shall be cumulative of all other security of any and every character now or hereafter existing to secure payment of the Secured Obligations. Nothing in this Article III is intended to be an acceptance of collateral in satisfaction of the Secured Obligations. Section 3.03. Rights and Title of Consignee. In addition to the rights, titles and interests hereby conveyed pursuant to Section 2.01 of this Deed of Trust, the Grantor hereby grants to the Beneficiary those Liens given to purchasers of Hydrocarbons to secure their sale at the wellhead, including those rights provided in Tex. Bus. & Com. Code ss.9.343 ("Tex. UCC"), as amended from time to time. ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS The Grantor hereby represents, warrants and covenants as follows: Section 4.01. Title. To the extent of the undivided interests specified on Exhibit A, the Grantor has good and defensible title to and is possessed of the Hydrocarbon Interests and has good title to the UCC Collateral. The Collateral is free of all Liens except Permitted Encumbrances. 8 Section 4.02. Defend Title. This Deed of Trust is, and always will be kept, a direct second priority Lien upon the Collateral; provided that Permitted Encumbrances may exist, but no intent to subordinate the priority of the Liens created hereby is intended or inferred by such existence. The Grantor will not create or suffer to be created or permit to exist any Lien, security interest or charge prior or junior to or on a parity with the Lien of this Deed of Trust upon the Collateral or any part thereof other than such Permitted Encumbrances. The Grantor will warrant and defend the title to the Collateral against the claims and demands of all other Persons whomsoever and will maintain and preserve the Lien created hereby (and its priority) until the Secured Obligations shall be Paid in Full. If (i) an adverse claim be made against or a cloud develop upon the title to any part of the Collateral other than a Permitted Encumbrance or (ii) any Person, including the holder of a Permitted Encumbrance, shall challenge the priority or validity of the Liens created by this Deed of Trust, then the Grantor agrees to immediately defend against such adverse claim, take appropriate action to remove such cloud or subordinate such Permitted Encumbrance, in each case, at the Grantor's sole cost and expense. The Grantor further agrees that the Trustee and/or the Beneficiary may take such other action as they deem advisable to protect and preserve their interests in the Collateral, and in such event the Grantor will indemnify the Trustee and the Beneficiary against any and all cost, attorneys' fees and other expenses which they may incur in defending against any such adverse claim or taking action to remove any such cloud. Section 4.03. Not a Foreign Person. The Grantor is not a "foreign person" within the meaning of the Code, Sections 1445 and 7701 (i.e. the Grantor is not a non-resident alien, foreign corporation, foreign partnership, foreign trust or foreign estate as those terms are defined in the Code and any regulations promulgated thereunder). Section 4.04. Power to Create Lien and Security. The Grantor has full power and lawful authority to grant, bargain, sell, assign, transfer, mortgage and convey a security interest in all of the Collateral in the manner and form herein provided. No authorization, approval, consent or waiver of any lessor, sublessor, Governmental Authority or other party or parties whomsoever is required in connection with the execution and delivery by the Grantor of this Deed of Trust. Section 4.05. Revenue and Cost Bearing Interest. The Grantor's ownership of the Hydrocarbon Interests and the undivided interests therein as specified on Exhibit A will, after giving full effect to all Permitted Encumbrances, afford the Grantor not less than those net interests (expressed as a fraction, percentage or decimal) in the production from or which is allocated to such Hydrocarbon Interest specified as Net Revenue Interest (as specified on Exhibit A) on attached Exhibit A and will cause the Grantor to bear not more than that portion (expressed as a fraction, percentage or decimal), specified as Working Interest on Exhibit A, of the costs of drilling, developing and operating the wells identified on Exhibit A except to the extent of any proportionate corresponding increase in the Net Revenue Interest. Section 4.06. Rentals Paid; Leases in Effect. All rentals and royalties due and payable in accordance with the terms of any leases or subleases comprising a part of the Mortgaged Property have been duly paid or provided for, and all leases or subleases comprising a part of the Oil and Gas Property are in full force and effect. Section 4.07. Operation By Third Parties. If any portion of the Mortgaged Property is comprised of interests which are not working interests or which are not operated by the Grantor or one of its Affiliates, then with respect to such interests and properties, the Grantor's covenants as expressed in this Article IV are modified to require that the Grantor use reasonable commercial efforts to obtain compliance with such covenants by the working interest owners or the operator or operators of such Mortgaged Properties. Section 4.08. Abandon, Sales. The Grantor will not sell, lease, assign, transfer or otherwise dispose or abandon any of the Collateral except as permitted by the Production and Marketing Agreement. 9 Section 4.09. Failure to Perform. The Grantor agrees that if it fails to perform any act or to take any action which it is required to perform or take hereunder or pay any money which the Grantor is required to pay hereunder, each of the Beneficiary and the Trustee, in the Grantor's name or its or their own name, may, but shall not be obligated to, perform or cause to perform such act or take such action or pay such money, and any expenses so incurred by either of them and any money so paid by either of them shall be a demand obligation owing by the Grantor to the Beneficiary or the Trustee, as the case may be, and each of the Beneficiary and the Trustee, upon making such payment, shall be subrogated to all of the rights of the Person receiving such payment. Each amount due and owing by the Grantor to each of the Beneficiary and the Trustee pursuant to this Deed of Trust shall bear interest from the date of such expenditure or payment to such Person until paid at the Default Rate. ARTICLE V RIGHTS AND REMEDIES Section 5.01. Event of Default. The occurrence of any of the following shall be an "Event of Default" under this Deed of Trust: (a) any Performance Default (as defined in the Production and Marketing Agreement); or (b) any Event of Default (as defined in the Credit Agreement). Section 5.02. Foreclosure and Sale. (a) If an Event of Default shall occur and be continuing, to the extent provided by applicable law, the Beneficiary shall have the right and option to proceed with foreclosure and to sell all or any portion of such Mortgaged Property at one or more sales, as an entirety or in parcels, at such place or places in otherwise such manner and upon such notice as may be required by law, or, in the absence of any such requirement, as the Beneficiary may deem appropriate, and to make conveyance to the purchaser or purchasers. Where the Mortgaged Property is situated in more than one jurisdiction, notice as above provided shall be posted and filed in all such jurisdictions (if such notices are required by law), and all such Mortgaged Property may be sold in any such jurisdiction and any such notice shall designate the jurisdiction where such Mortgaged Property is to be sold. Nothing contained in this Section 5.02 shall be construed so as to limit in any way any rights to sell the Mortgaged Property or any portion thereof by private sale if and to the extent that such private sale is permitted under the laws of the applicable jurisdiction or by public or private sale after entry of a judgment by any court of competent jurisdiction so ordering. The Grantor hereby irrevocably appoints the Trustee and the Beneficiary, with full power of substitution, to be the attorneys-in-fact of the Grantor and in the name and on behalf of the Grantor to execute and deliver any deeds, transfers, conveyances, assignments, assurances and notices which the Grantor ought to execute and deliver and do and perform any and all such acts and things which the Grantor ought to do and perform under the covenants herein contained and generally, to use the name of the Grantor in the exercise of all or any of the powers hereby conferred on the Trustee and/or the Beneficiary. At any such sale: (i) whether made under the power herein contained or any other legal enactment, or by virtue of any judicial proceedings or any other legal right, remedy or recourse, it shall not be necessary for the Trustee or the 10 Beneficiary, as appropriate, to have physically present, or to have constructive possession of, the Mortgaged Property (the Grantor hereby covenanting and agreeing to deliver any portion of the Mortgaged Property not actually or constructively possessed by the Trustee or the Beneficiary immediately upon his or its demand) and the title to and right of possession of any such property shall pass to the purchaser thereof as completely as if the same had been actually present and delivered to purchaser at such sale, (ii) each instrument of conveyance executed by the Trustee or the Beneficiary shall contain a general warranty of title, binding upon the Grantor and its successors and assigns, (iii) each and every recital contained in any instrument of conveyance made by the Trustee or the Beneficiary shall conclusively establish the truth and accuracy of the matters recited therein, including, without limitation, nonpayment of the Secured Obligations, advertisement and conduct of such sale in the manner provided herein and otherwise by law and appointment of any successor trustee hereunder, (iv) any and all prerequisites to the validity thereof shall be conclusively presumed to have been performed, (v) the receipt of the Trustee, the Beneficiary or of such other party or officer making the sale shall be a sufficient discharge to the purchaser or purchasers for its purchase money and no such purchaser or purchasers, or its assigns or personal representatives, shall thereafter be obligated to see to the application of such purchase money, or be in any way answerable for any loss, misapplication or non-application thereof, (vi) to the fullest extent permitted by law, the Grantor shall be completely and irrevocably divested of all of its right, title, interest, claim and demand whatsoever, either at law or in equity, in and to the property sold and such sale shall be a perpetual bar both at law and in equity against the Grantor, and against any and all other persons claiming or to claim the property sold or any part thereof, by, through or under the Grantor, and (vii) to the extent and under such circumstances as are permitted by law, the Beneficiary may be a purchaser at any such sale, and shall have the right, after paying or accounting for all costs of said sale or sales, to credit the amount of the bid upon the amount of the Secured Obligations (in the order of priority set forth in Section 5.14) in lieu of cash payment. (b) If an Event of Default shall occur and be continuing, then (i) the Beneficiary shall be entitled to all of the rights, powers and remedies afforded a secured party by the Applicable UCC with reference to the UCC Collateral or (ii) the Trustee or the Beneficiary may proceed as to any Collateral in accordance with the rights and remedies granted under this Deed of Trust or applicable law in respect of the Collateral. Such rights, powers and remedies shall be cumulative and in addition to those granted to the Trustee or the Beneficiary under any other provision of this Deed of Trust or under any other Production Payment Document. Written notice mailed to the Grantor as provided herein at least ten (10) days prior to the date of public sale of any part of the Collateral which is personal property subject to the provisions of the Applicable UCC, or prior to the date after which private sale of any such part of the Collateral will be made, shall constitute reasonable notice. 11 Section 5.03. Substitute Trustees and Agents. The Trustee or Beneficiary may appoint or delegate any one or more persons as agent to perform any act or acts necessary or incident to any sale held by the Trustee or Beneficiary, including the posting of notices and the conduct of sale, but in the name and on behalf of the Trustee or Beneficiary. If the Trustee or Beneficiary shall have given notice of sale hereunder, any successor or substitute trustee appointed may complete the sale and the conveyance of the property pursuant thereto as if such notice had been given by the successor or substitute trustee conducting the sale. Section 5.04. Judicial Foreclosure; Receivership. If any of the Secured Obligations shall become due and payable and shall not be promptly paid, the Trustee or the Beneficiary shall have the right and power to proceed by a suit or suits in equity or at law, whether for the specific performance of any covenant or agreement herein contained or in aid of the execution of any power herein granted, or for any foreclosure hereunder or for the sale of the Collateral under the judgment or decree of any court or courts of competent jurisdiction, or for the appointment of a receiver pending any foreclosure hereunder or the sale of the Collateral under the order of a court or courts of competent jurisdiction or under executory or other legal process, or for the enforcement of any other appropriate legal or equitable remedy. Any money advanced by the Trustee and/or the Beneficiary in connection with any such receivership shall be a demand obligation (which obligation the Grantor hereby expressly promises to pay) owing by the Grantor to the Trustee and/or the Beneficiary and shall bear interest from the date of making such advance by the Trustee and/or the Beneficiary until paid at the Default Rate. Section 5.05. Foreclosure for Installments. The Beneficiary shall also have the option to proceed with foreclosure in satisfaction of any installments of the Secured Obligations which have not been paid when due either through the courts or by directing the Trustee to proceed with foreclosure in satisfaction of the matured but unpaid portion of the Secured Obligations as if under a full foreclosure, conducting the sale as herein provided and without declaring the entire principal balance and accrued interest and other Secured Obligations then due; such sale may be made subject to the unmatured portion of the Secured Obligations, and any such sale shall not in any manner affect the unmatured portion of the Secured Obligations, but as to such unmatured portion of the Secured Obligations this Deed of Trust shall remain in full force and effect just as though no sale had been made hereunder. It is further agreed that several sales may be made hereunder without exhausting the right of sale for any unmatured part of the Secured Obligations, it being the purpose hereof to provide for a foreclosure and sale of the security for any matured portion of the Secured Obligations without exhausting the power to foreclose and sell the Mortgaged Property for any subsequently maturing portion of the Secured Obligations. Section 5.06. Separate Sales. The Collateral may be sold in one or more parcels and to the extent permitted by applicable law in such manner and order as the Beneficiary, in its sole discretion, may elect, it being expressly understood and agreed that the right of sale arising out of any Event of Default shall not be exhausted by any one or more sales. Section 5.07. Possession of Mortgaged Property. If an Event of Default shall have occurred and be continuing, then, to the extent permitted by applicable law, the Trustee or the Beneficiary shall have the right and power to enter into and upon and take possession of all or any part of the Collateral in the possession of the Grantor, its successors or assigns, or its or their agents or servants, and may exclude the Grantor, its successors or assigns, and all 12 persons claiming under the Grantor, and it's or their agents or servants wholly or partly therefrom; and, holding the same, the Beneficiary may use, administer, manage, operate and control the Collateral and conduct the business thereof to the same extent as the Grantor, its successors or assigns, might at the time do and may exercise all rights and powers of the Grantor, in the name, place and stead of the Grantor, or otherwise as the Beneficiary shall deem best. All costs, expenses and liabilities of every character incurred by the Trustee and/or the Beneficiary in administering, managing, operating, and controlling the Mortgaged Property shall constitute a demand obligation (which obligation the Grantor hereby expressly promises to pay) owing by the Grantor to the Trustee and/or the Beneficiary and shall bear interest from date of expenditure until paid at the Default Rate. Section 5.08. Occupancy After Foreclosure. In the event there is a foreclosure sale hereunder and at the time of such sale the Grantor or the Grantor's heirs, devisees, representatives, successors or assigns or any other person claiming any interest in the Collateral by, through or under the Grantor, are occupying or using the Mortgaged Property or any part thereof, each and all shall immediately become the tenant of the purchaser at such sale, which tenancy shall be a tenancy from day to day, terminable at the will of either the landlord or tenant, or at a reasonable rental per day based upon the value of the property occupied, such rental to be due daily to the purchaser; to the extent permitted by applicable law, the purchaser at such sale shall, notwithstanding any language herein apparently to the contrary, have the sole option to demand immediate possession following the sale or to permit the occupants to remain as tenants at will. In the event the tenant fails to surrender possession of said property upon demand, the purchaser shall be entitled to institute and maintain a summary action for possession of the Mortgaged Property (such as an action for forcible entry and detainer) in any court having jurisdiction. Section 5.09. Remedies Cumulative, Concurrent and Nonexclusive. Every right, power, privilege and remedy herein given to the Trustee or the Beneficiary shall be cumulative and in addition to every other right, power and remedy herein specifically given or now or hereafter existing in equity, at law or by statute (including specifically those granted by the Applicable UCC in effect and applicable to the Collateral or any portion thereof). Each and every right, power, privilege and remedy whether specifically herein given or otherwise existing may be exercised from time to time and so often and in such order as may be deemed expedient by the Trustee or the Beneficiary, and the exercise, or the beginning of the exercise, or the abandonment, of any such right, power, privilege or remedy shall not be deemed a waiver of the right to exercise, at the same time or thereafter any other right, power, privilege or remedy. No delay or omission by the Trustee or the Beneficiary or any Other Secured Person in the exercise of any right, power or remedy shall impair any such right, power, privilege or remedy or operate as a waiver thereof or of any other right, power, privilege or remedy then or thereafter existing. Section 5.10. Discontinuance of Proceedings. If the Trustee or the Beneficiary shall have proceeded to invoke any right, remedy or recourse permitted hereunder or under any Production Payment Document or available at law and shall thereafter elect to discontinue or abandon same for any reason, then it shall have the unqualified right so to do and, in such an event, the parties shall be restored to their former positions with respect to the Secured Obligations, this Deed of Trust, the Collateral and otherwise, and the rights, 13 remedies, recourses and powers of the Trustee and the Beneficiary, as applicable, shall continue as if same had never been invoked. Section 5.11. No Release of Obligations. Neither the Grantor, any Guarantor nor any other person hereafter obligated for payment of all or any part of the Secured Obligations shall be relieved of such obligation by reason of: (a) the failure of the Trustee to comply with any request of the Grantor, or any Guarantor or any other Person so obligated to foreclose the Lien of this Deed of Trust or to enforce any provision hereunder or under any Production Payment Document; (b) the release, regardless of consideration, of the Mortgaged Property or any portion thereof or interest therein or the addition of any other property to the Mortgaged Property; (c) any agreement or stipulation between any subsequent owner of the Mortgaged Property and the Beneficiary extending, renewing, rearranging or in any other way modifying the terms of this Deed of Trust without first having obtained the consent of, given notice to or paid any consideration to the Grantor, any Guarantor or such other Person, and in such event the Grantor, Guarantor and all such other person s shall continue to be liable to make payment according to the terms of any such extension or modification agreement unless expressly released and discharged in writing by the Beneficiary; or (d) by any other act or occurrence save and except if the Secured Obligations are Paid in Full. Section 5.12. Release of and Resort to Collateral. The Beneficiary may release, regardless of consideration, any part of the Collateral without, as to the remainder, in any way impairing, affecting, subordinating or releasing the Lien created in or evidenced by this Deed of Trust or its stature as a first and prior Lien in and to the Collateral, and without in any way releasing or diminishing the liability of any Person liable for the repayment of the Secured Obligations. For payment of the Secured Obligations, the Beneficiary may resort to any other security therefor held by the Beneficiary or the Trustee in such order and manner as the Beneficiary may elect. Section 5.13. Waiver of Redemption, Notice and Marshalling of Assets, Etc. To the fullest extent permitted by law, the Grantor hereby irrevocably and unconditionally waives and releases (a) all benefits that might accrue to the Grantor by virtue of any present or future moratorium law or other law exempting the Collateral from attachment, levy or sale on execution or providing for any appraisement, valuation, stay of execution, exemption from civil process, redemption or extension of time for payment; (b) all notices of any Event of Default or of the Beneficiary's or any other secured Person's intention to accelerate maturity of the Secured Obligations or of any election to exercise or any actual exercise of any right, remedy or recourse provided for hereunder or under any Production Payment Document or available at law; and (c) any right to a marshalling of assets or a sale in inverse order of alienation. If any law referred to in this Deed of Trust and now in force, of which the Grantor or its successor or successors might take advantage despite the provisions hereof, shall hereafter be repealed or cease to be in force, such law shall thereafter be deemed not to constitute any part of the contract herein contained or to preclude the operation or application of the provisions hereof. If the laws of any state which provides for a redemption period do not permit the redemption period to be waived, the redemption period shall be specifically reduced to the minimum amount of time allowable by statute. 14 Section 5.14. Application of Proceeds. The proceeds of any sale of the Mortgaged Property or any part thereof and all other monies received in any proceedings for the enforcement hereof or otherwise, whose application has not elsewhere herein been specifically provided for, shall be applied: (a) First, to the payment of all expenses incurred by the Trustee or the Beneficiary incident to the enforcement of this Deed of Trust or any of the other Production Payment Documents to collect any portion of the Secured Obligations (including, without limiting, the generality of the foregoing, expenses of any entry or taking of possession, of any sale, of advertisement thereof, and of conveyances, and court costs, compensation of agents and employees, legal fees and a reasonable commission to the Trustee acting, if applicable), and to the payment of all other charges, expenses, liabilities and advances incurred or made by the Trustee or the Beneficiary under this Deed of Trust or in executing any trust or power hereunder; and (b) Second, to the Secured Obligations in such order and manner as Beneficiary shall determine from time to time at its sole discretion. Section 5.15. Resignation of Operator. In addition to all rights and remedies under this Deed of Trust, at law and in equity, if any Event of Default shall occur and the Trustee or the Beneficiary shall exercise any remedies under this Deed of Trust with respect to any portion of the Mortgaged Property (or the Grantor shall transfer any Mortgaged Property "in lieu of" foreclosure) whereupon the Grantor is divested of its title to any of the Collateral, the Beneficiary shall have the right to request that any operator of any Mortgaged Property which is either the Grantor or any Affiliate of the Grantor to resign as operator under the joint operating agreement applicable thereto, and no later than 60 days after receipt by the Grantor of any such request, the Grantor shall resign (or cause such other Person to resign) as operator of such Collateral. Section 5.16. Indemnity. THE INDEMNIFIED PARTIES SHALL NOT BE LIABLE, IN CONNECTION WITH ANY ACTION TAKEN, FOR ANY LOSS SUSTAINED BY THE GRANTOR RESULTING FROM AN ASSERTION THAT THE BENEFICIARY HAS RECEIVED FUNDS FROM THE PRODUCTION OF HYDROCARBONS CLAIMED BY THIRD PERSONS OR ANY ACT OR OMISSION OF ANY INDEMNIFIED PARTY IN ADMINISTERING, MANAGING, OPERATING OR CONTROLLING THE MORTGAGED PROPERTY INCLUDING SUCH LOSS WHICH MAY RESULT FROM THE ORDINARY NEGLIGENCE OF AN INDEMNIFIED PARTY UNLESS SUCH LOSS IS CAUSED BY THE WILLFUL MISCONDUCT OR GROSS NEGLIGENCE OF THE INDEMNIFIED PARTY SEEKING INDEMNITY. NO INDEMNIFIED PARTY SHALL BE OBLIGATED TO PERFORM OR DISCHARGE ANY OBLIGATION, DUTY OR LIABILITY OF THE GRANTOR. THE GRANTOR SHALL AND DOES HEREBY AGREE TO INDEMNIFY EACH INDEMNIFIED PARTY FOR, AND TO HOLD EACH INDEMNIFIED PARTY HARMLESS FROM, ANY AND ALL LIABILITY, LOSS OR DAMAGE WHICH MAY OR MIGHT BE INCURRED BY ANY INDEMNIFIED PARTY BY REASON OF THIS DEED OF TRUST OR THE EXERCISE OF RIGHTS OR REMEDIES HEREUNDER. IF ANY INDEMNIFIED PARTY SHALL MAKE ANY EXPENDITURE ON ACCOUNT OF ANY SUCH LIABILITY, LOSS OR DAMAGE, THE AMOUNT THEREOF, INCLUDING COSTS, EXPENSES AND REASONABLE ATTORNEYS' FEES, SHALL BE A DEMAND OBLIGATION (WHICH OBLIGATION THE GRANTOR HEREBY EXPRESSLY PROMISES TO PAY) OWING BY THE GRANTOR TO SUCH INDEMNIFIED PARTY AND SHALL BEAR INTEREST FROM THE DATE EXPENDED UNTIL PAID AT THE DEFAULT RATE. THE GRANTOR HEREBY ASSENTS TO, RATIFIES AND CONFIRMS ANY AND ALL ACTIONS OF EACH INDEMNIFIED PARTY WITH RESPECT TO THE MORTGAGED PROPERTY TAKEN UNDER AND IN COMPLIANCE WITH THE TERMS OF THIS DEED OF TRUST. THE LIABILITIES OF THE GRANTOR AS SET FORTH IN THIS SECTION 5.16 SHALL SURVIVE THE TERMINATION OF THIS DEED OF TRUST. 15 ARTICLE VI THE TRUSTEE Section 6.01. Duties, Rights, and Powers of Trustee. The Trustee shall have no duty to see to any recording, filing or registration of this Deed of Trust or any other instrument in addition or supplemental thereto, or to give any notice thereof, or to see to the payment of or be under any duty in respect of any tax or assessment or other governmental charge which may be levied or assessed on the Mortgaged Property, or any part thereof, or against the Grantor, or to see to the performance or observance by the Grantor of any of the covenants and agreements contained herein. The Trustee shall not be responsible for the execution, acknowledgment or validity of this Deed of Trust or of any instrument in addition or supplemental hereto or for the sufficiency of the security purported to be created hereby, and makes no representation in respect thereof or in respect of the rights of the Beneficiary. The Trustee shall have the right to advise with counsel upon any matters arising hereunder and shall be fully protected in relying as to legal matters on the advice of counsel. The Trustee shall not incur any personal liability hereunder except for the Trustee's own willful misconduct; and the Trustee shall have the right to rely on any instrument, document, or signature authorizing or supporting any action taken or proposed to be taken by him hereunder, believed by him in good faith to be genuine. Section 6.02. Successor Trustee. The Trustee may resign by written notice addressed to the Beneficiary or be removed at any time with or without cause by an instrument in writing duly executed on behalf of the Beneficiary. In case of the death, resignation, or removal of the Trustee, a successor may be appointed by the Beneficiary by instrument of substitution complying with any applicable law, or, in the absence of any such requirement under applicable law, without formality other than appointment and designation in writing. Written notice of such appointment and designation shall be given by the Beneficiary to the Grantor, but the validity of any such appointment shall not be impaired or affected by failure to give such notice or by any defect therein. Such appointment and designation shall be full evidence of the right and authority to make the same and of all the facts therein recited. Upon the making of any such appointment and designation, this Deed of Trust shall vest in the successor all the estate and title in and to all of the Mortgaged Property and the successor shall thereupon succeed to all of the rights, powers, privileges, immunities and duties hereby conferred upon the Trustee named herein, and one such appointment and designation shall not exhaust the right to appoint and designate an additional successor but such right may be exercised repeatedly until the Secured Obligations are Paid in Full. To facilitate the administration of the duties hereunder, the Beneficiary may appoint multiple trustees to serve in such capacity or in such jurisdictions as the Beneficiary may designate. Section 6.03. Retention of Moneys. All moneys received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other moneys (except to the extent required by law) and the Trustee shall be under no liability for interest on any moneys received by him hereunder. 16 ARTICLE VII MISCELLANEOUS Section 7.01. Instrument Construed as Mortgage, Etc. With respect to any portions of the Mortgaged Property located in any State or other jurisdiction the laws of which do not provide for the use or enforcement of a deed of trust or the office, rights and authority of the Trustee as herein provided, the general language of conveyance hereof to the Trustee is intended and the same shall be construed as words of mortgage unto and in favor of the Beneficiary and the rights and authority granted to the Trustee herein may be enforced and asserted by the Beneficiary in accordance with the laws of the jurisdiction in which such portion of the Mortgaged Property is located and the same may be foreclosed at the option of the Beneficiary as to any or all such portions of the Mortgaged Property in any manner permitted by the laws of the jurisdiction in which such portions of the Mortgaged Property is situated. This Deed of Trust may be construed as a mortgage, deed of trust, conveyance, assignment, security agreement, fixture filing, pledge, financing statement, hypothecation or contract, or any one or more of them, in order fully to effectuate the Lien hereof and the purposes and agreements herein set forth. Section 7.02. Releases. (a) Full Release. If all Secured Obligations shall be performed and Paid In Full, the Beneficiary shall forthwith cause satisfaction and discharge of this Deed of Trust to be entered upon the record at the expense of the Grantor and shall execute and deliver or cause to be executed and delivered such instruments of satisfaction and reassignment as may be appropriate. Otherwise, this Deed of Trust shall remain and continue in full force and effect. (b) Partial Release. If any of the Mortgaged Property shall be sold, transferred or otherwise disposed of by the Grantor in a transaction permitted by the Purchase and Marketing Agreement, then the Beneficiary, at the request and sole expense of the Grantor, shall promptly execute and deliver to the Grantor all releases, re-conveyances or other documents reasonably necessary or desirable for the release of the Liens created hereby on the Mortgaged Property. Section 7.03. Severability. If any provision hereof is invalid or unenforceable in any jurisdiction, the other provisions hereof shall remain in full force and effect in such jurisdiction and the remaining provisions hereof shall be liberally construed in favor of the Trustee, the Beneficiary and the Other Secured Persons in order to effectuate the provisions hereof. The invalidity or unenforceability of any provision hereof in any jurisdiction shall not affect the validity or enforceability of any such provision in any other jurisdiction. Section 7.04. Successors and Assigns. The terms used to designate any party or group of persons shall be deemed to include the respective heirs, legal representatives, successors and assigns of such Persons. Section 7.05. Subordination. This Deed of Trust is for all purposes subordinate, junior and subject to the liens, security interests and assignments created pursuant to the Security Documents (as defined in the Credit Agreement). Neither the Beneficiary nor the Trustee shall exercise any remedies under 17 Article III or Article V of this Deed of Trust without the prior written consent of Petro Capital. Section 7.06. Application of Payments to Certain Obligations. If any part of the Secured Obligations cannot be lawfully secured by this Deed of Trust or if any part of the Mortgaged Property cannot be lawfully subject to the Lien hereof to the full extent of the Secured Obligations, then all payments made shall be applied on said Secured Obligations first in discharge of that portion thereof which is not secured by this Deed of Trust. Section 7.07. Nature of Covenants. The covenants and agreements herein contained shall constitute covenants running with the land and interests covered or affected hereby and shall be binding upon the heirs, legal representatives, successors and assigns of the parties hereto. Section 7.08. Notices. All notices, requests, consents, demands and other communications required or permitted hereunder shall be in writing and shall be deemed sufficiently given or furnished if delivered by registered or certified United States mail, postage prepaid, or by personal service (including express or courier service) at the addresses specified in Section 7.12 (unless changed by similar notice in writing given by the particular party whose address is to be changed). Any such notice or communication shall be deemed to have been given either at the time of personal delivery or, in the case of delivery at the address and in the manner provided herein, upon receipt; provided that, service of notice as required by the laws of any state in which portions of the Mortgaged Property may be situated shall for all purposes be deemed appropriate and sufficient with the giving of such notice. Section 7.09. Counterparts. This Deed of Trust is being executed in several counterparts, all of which are identical, except that to facilitate recordation, if the Mortgaged Property is situated in or on more than one county, descriptions of only those portions of the Mortgaged Property located in or on the county in which a particular counterpart is recorded shall be attached as Exhibit A to such counterpart. Each of such counterparts shall for all purposes be deemed to be an original and all such counterparts shall together constitute but one and the same instrument. Complete copies of this Deed of Trust containing the entire Exhibit A have been retained by the Beneficiary. Section 7.10. Governing Law. Insofar as permitted by otherwise applicable law, this Deed of Trust shall be construed under and governed by the laws of the State of Texas; provided, however, that, with respect to any portion of the Mortgaged Property located outside of the State of Texas, the laws of the place in which such property is located in, or offshore area adjacent to (and State law made applicable as a matter of Federal law), shall apply to the extent of procedural and substantive matters relating only to the creation, perfection, foreclosure of Liens and enforcement of rights and remedies against the Mortgaged Property. Section 7.11. Financing Statement; Fixture Filing. This Deed of Trust shall be effective as a financing statement filed as a fixture filing with respect to all Fixtures included within the Mortgaged Property and is to be filed or filed for record in the real estate records, mortgage records or other appropriate records of each jurisdiction where any part of the Mortgaged Property (including said fixtures) are situated. This Deed of Trust shall also be effective as a 18 financing statement covering As-Extracted Collateral (including oil and gas and all other substances of value which may be extracted from the ground) and accounts financed at the wellhead or minehead of wells or mines located on the properties subject to the Applicable UCC and is to be filed for record in the real estate records, UCC records or other appropriate records of each jurisdiction where any part of the Mortgaged Property is situated. Section 7.12. Execution of Financing Statements. Pursuant to the Applicable UCC, the Grantor authorizes the Beneficiary, its counsel or its representative, at any time and from time to time, to file or record financing statements, continuation statements, amendments thereto and other filing or recording documents or instruments with respect to the Mortgaged Property without the signature of the Beneficiary in such form and in such offices as the Beneficiary reasonably determines appropriate to perfect the security interests of the Beneficiary under this Agreement. The Grantor also authorizes the Beneficiary, its counsel or its representative, at any time and from time to time, to file or record such financing statements that describe the collateral covered thereby as "all assets of the Beneficiary", "all personal property of the Beneficiary" or words of similar effect. The Grantor shall pay all costs associated with the filing of such instruments. In that regard, the following information is provided: Name of Debtor: Baron Production LLC Address of Debtor 300 S. CM Allen Pkwy, Suite 400 San Marcos, Texas 78666 State of Formation/Location Texas Organizational ID Number 801793395 Facsimile: (512) 392-7238 Telephone: (512) 392-5775 Principal Place of Business of Debtor: Texas Name of Secured Party: PCEC Sub 1, LLC Address of Secured 3710 Rawlins Street Party: Dallas, Texas 75219 Facsimile: 214.661.7760 Telephone: 214.661.7761 Owner of Record of Real Property: Baron Production LLC Section 7.13. Exculpation Provisions. EACH OF THE PARTIES HERETO SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS DEED OF TRUST; AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS DEED OF TRUST; THAT IT HAS IN FACT READ THIS DEED OF TRUST AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS, CONDITIONS AND EFFECTS OF THIS DEED OF TRUST; 19 THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS DEED OF TRUST; AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS DEED OF TRUST; AND THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS DEED OF TRUST RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS DEED OF TRUST ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT "CONSPICUOUS". Section 7.14. References. The words "herein," "hereof," "hereunder" and other words of similar import when used in this Deed of Trust refer to this Deed of Trust as a whole, and not to any particular article, section or subsection. Any reference herein to a Section shall be deemed to refer to the applicable Section of this Deed of Trust unless otherwise stated herein. Any reference herein to an exhibit or schedule shall be deemed to refer to the applicable exhibit or schedule attached hereto unless otherwise stated herein. [SIGNATURES BEGIN NEXT PAGE] 20 EXECUTED this 28th day of July, 2014, to be effective as of the 28th day of July, 2014. BARON PRODUCTION LLC By: ----------------------------------------- Name: ----------------------------------------- Title: ----------------------------------------- STATE OF TEXAS ss. ss. COUNTY OF _______ ss. This instrument was acknowledged before me on July ___, 2014, by _________________________, the _________________________ of Baron Production LLC, a Texas limited liability company, on behalf of said company. ----------------------------------- Notary Public Seal: 21 EXHIBIT A DEED OF TRUST, ASSIGNMENT OF AS-EXTRACTED COLLATERAL, SECURITY AGREEMENT, FIXTURE FILING AND FINANCING STATEMENT Introduction The capitalized terms used but not defined in this Exhibit A are used as defined in the Deed of Trust. For purposes of this Exhibit A the capitalized terms not defined in the Deed of Trust are as follows: 1. "Working Interest" or "Gross Working Interest" and "W.I." or "G.W.I." means an interest owned in an oil, gas and mineral lease that determines the cost bearing percentage of the owner of such interest. 2. "Net Revenue Interest" or "N.R.I." means an interest (expressed as a percentage or decimal fraction), determined net of all royalties, overriding royalties, production payments or other burdens payable out of production, in and to all Hydrocarbons produced and saved from or attributable to a Well. In the case of any Well listed in Exhibit A, the Net Revenue Interest specified for such Well shall mean the sum of the percentage or decimal fraction set forth after the words "Net Revenue Interest" in the portion applicable to such Well plus, in the case of any Well with respect to which a royalty interest and/or overriding royalty is stated in this Exhibit A and applicable to such Well, the percentage or decimal fraction set forth after the words "Royalty Interest" or "Overriding Royalty Interest" in each such portion of Exhibit A. 3. "Well" means (i) any existing well identified in Exhibit A, including replacement well drilled in lieu thereof from which gas is now or hereafter produced and (ii) any well at any time producing or capable of producing gas attributable to the Hydrocarbons as defined above, including any well which has been shut-in, has temporarily ceased production or on which workover, reworking, plugging and abandonment or other operations are being conducted or planned. All references contained in this Exhibit A to the Oil and Gas Properties are intended to include references to (i) the volume or book and page, file, entry or instrument number of the appropriate records of the particular county in the State where each such lease or other instrument is recorded and (ii) all valid and existing amendments to such lease or other instrument of record in such county records regardless of whether such amendments are expressly described herein. A special reference is here made to each such lease or other instrument and the record thereof for a more particular description of the property and interests sought to be affected by the Deed of Trust and for all other purposes. For recording purposes, in regards to each county portion to this Exhibit A, this Introduction may be attached to an original executed copy of the Deed of Trust, Assignment of As-Extracted Collateral, Security Agreement, Fixture Filing and Financing Statement to be separately filed of record in each county. 22 EXHIBIT A (Continued) EAST PEARSALL (STEWART) PROSPECT TRACT 1 - 1985 ACRES Lease 1: Oil and Gas Lease dated August 13, 2009, from Federal Royalty LLC, as General Partner for Federal Royalty Partners, Ltd., as Lessor, to Sien Energy Company, as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 66, page 502, Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of land, more or less, out of the A.B.&M. Survey 5, A-29, the A.B.&M. Survey 7, A-30, the A.B.&M. Survey 9, A-31, the R.H. Adcock Survey 10, A-1341 and the B.S.&F. Survey 1, A-111, Frio County, Texas. Lease 2: Oil and Gas Lease dated March 26, 2009, from Cimarron Texas Minerals, Ltd., as Lessor, to Sien Energy Company, as Lessee, recorded by Memorandum of Oil and Gas Lease dated March 31, 2009 in Volume 67, page 831, Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of land, more or less, being the same land described above in Lease 1. Lease 3: Paid Up Oil and Gas Lease dated March 6, 2009, from Joseph M. Dawson, Jr., as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 504, Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 4: Paid Up Oil and Gas Lease dated March 6, 2009, from Dorothy D. Burlage, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 508, Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 5: Paid Up Oil and Gas Lease dated January 16, 2009, from Hager Oil & Gas, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 512, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 6: Paid Up Oil and Gas Lease dated September 28, 2009, from Bill Bishop, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 528, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 7: Paid Up Oil and Gas Lease dated September 28, 2009, from Robert L. Dow, Jr., as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 524, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. 23 Lease 8: Paid Up Oil and Gas Lease dated September 28, 2009, from Wesley K. Winn, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 517, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 9: Paid Up Oil and Gas Lease dated September 28, 2009, from Tolar N. Hamblen, III, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 67, page 828, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 10: Paid Up Oil and Gas Lease dated September 28, 2009, from Ginger Busboom, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 521, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 11: Paid Up Oil and Gas Lease dated August 24, 2009, from Mark E. McCourt and wife, Susan McCourt, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 536, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 12: Paid Up Oil and Gas Lease dated August 24, 2009, from A.L. Furnace and wife, Pauline Furnace, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 532, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 13: Paid Up Oil and Gas Lease dated August 10, 2009, from Dickerson Resources, Arthur J. Milbarger and Joseph E. Stewart, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 540, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 14: Paid Up Oil and Gas Lease dated March 20, 2009, from Douglas C. Koch, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 544, Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 15: Paid Up Oil and Gas Lease dated March 20, 2009, from Wayne A. Bissett, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 550, Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 16: Paid Up Oil and Gas Lease dated December 3, 2007, from Clarence J. Fraser, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 556, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. 24 Lease 17: Paid Up Oil and Gas Lease dated August 12, 2009, from Dorothy L. Hardin, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 559, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 18: Paid Up Oil and Gas Lease dated August 12, 2009, from Anne L. Madigan, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 563, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 19: Paid Up Oil and Gas Lease dated September 2, 2009, from Jessica Stansell, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 567, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 20: Paid Up Oil and Gas Lease dated March 24, 2009, from Thornton Davis Minerals, L.P., as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 570, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 21: Paid-Up Oil and Gas Lease dated September 1, 2009, from Stewart Information Services Corporation, as Lessor, to Sien Energy Company, as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 66, page 574, Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 22: Paid-Up Oil and Gas Lease dated September 2, 2009, from Nathan Weaver, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 70, page 249, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 23: Paid-Up Oil and Gas Lease dated September 2, 2009, from Jesse Walker, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 73, page 621, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 24: Paid-Up Oil and Gas Lease dated March 23, 2011, from Wanda Weaver, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 91, page 773, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 25: Paid Up Oil and Gas Lease dated June 23, 2011, from Charles McClain, as Receiver for Mineral Interests in Cause No. 11-03-00095CVF, for Nancy Brown et al., as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 92, page 996, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. 25 TRACT 2 - 640 ACRES Lease 1: Paid Up Oil and Gas Lease dated November 6, 2009, from Roxana Kelfer, Individually and as Trustee of the Louis A. Michael Trust, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 68, page 237, Official Public Records, Frio County, Texas, covering 640 acres of land, more or less, out of the E.A. Mudd Survey 8, A-1333, Frio County, Texas. Lease 2: Paid Up Oil and Gas Lease dated November 6, 2009, from Lynn Kendrick, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 68, page 242, Official Public Records, Frio County, Texas, covering 640 acres of land, more or less, out of the E.A. Mudd Survey 8, A-1333, Frio County, Texas, being the same land described in Lease 1. Lease 3: Paid Up Oil and Gas Lease dated November 6, 2009, from Caroline J. Wanke, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 68, page 247, Official Public Records, Frio County, Texas, covering 640 acres of land, more or less, out of the E.A. Mudd Survey 8, A-1333, Frio County, Texas, being the same land described in Lease 1. Lease 4: Paid Up Oil and Gas Lease dated November 6, 2009, from Diana Morawski, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 68, page 251, Official Public Records, Frio County, Texas, covering 640 acres of land, more or less, out of the E.A. Mudd Survey 8, A-1333, Frio County, Texas, being the same land described in Lease 1. Lease 5: Paid Up Oil and Gas Lease dated November 6, 2009, from Claudia Davis, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 68, page 255, Official Public Records, Frio County, Texas, covering 640 acres of land, more or less, out of the E.A. Mudd Survey 8, A-1333, Frio County, Texas, being the same land described in Lease 1. THE LEASES DESCRIBED ABOVE COVER THE FOLLOWING WELLS: Wells WI NRI ----- -- --- Ricochet - Stewart No. 1 Well 89.100000% 66.825000% (API #42-163-33411 / RRC ID #15635) Ricochet - Stewart No. 2 Well 89.100000% 66.825000% (API #42-163-33455 / RRC ID #15635) Ricochet - Stewart-Michael Unit No. 1 Well 89.100000% 66.907685% (API #42-163-33535 / RRC ID #16563) Ricochet - Stewart-Michael No. 2H Unit Well 89.100000% 66.825000% (API #42-163-33550 / RRC ID #16379) Ricochet - Stewart No. 4RE Well 95.466809% 71.600107% (API #42-163-33585 / RRC ID #17349) BREAZEALE PROSPECT (NEAL TRUST UNIT) Lease 1: Paid Up Oil and Gas Lease dated July 25, 2011, from Iven A. Neal and Ruby Neal, as Trustees of the Iven A. Neal and Ruby Neal Living Trust, as 26 Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 95, page 113, Official Public Records, Frio County, Texas, insofar as and only insofar as said lease covers 148.37 acres of land, more or less, out of the B.S.&F. Survey No. 3, A-112, Frio County, Texas, being the lands pooled in the Ricochet Energy, Inc. - Neal Trust No. 1H Unit as described in a Declaration of Unit dated October 10, 2012, recorded in Volume 122, page 855, Official Records, Frio County, Texas. Lease 2: Paid Up Oil and Gas Lease dated July 25, 2011, from James P. Neal and Coleen F. Neal, as Trustees of the James P. Neal and Coleen F. Neal Living Trust, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 95, page 110, Official Public Records, Frio County, Texas, insofar as and only insofar as said lease covers 148.37 acres of land, more or less, out of the B.S.&F. Survey No. 3, A-112, Frio County, Texas, being the lands pooled in the Ricochet Energy, Inc. - Neal Trust No. 1H Unit as described in a Declaration of Unit dated October 10, 2012, recorded in Volume 122, page 855, Official Records, Frio County, Texas, and being the same land described in Lease 1. Lease 3: Oil and Gas Lease dated July 18, 2011, from Providence Minerals, LLC, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 95, page 116, Official Public Records, Frio County, Texas, insofar as and only insofar as said lease covers 127.9 acres of land, more or less, out of the B.S.&F. Survey No. 3, A-112, Frio County, Texas, being the lands pooled in the Ricochet Energy, Inc. - Neal Trust No. 1H Unit as described in a Declaration of Unit dated October 10, 2012, recorded in Volume 122, page 855, Official Records, Frio County, Texas, and being part of the same land described in Lease 1. Lease 4: Oil and Gas Lease dated August 16, 2011, from Texas Osage Royalty Pool, Inc., as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 95, page 819, Official Public Records, Frio County, Texas, insofar as and only insofar as said lease covers 127.9 acres of land, more or less, out of the B.S.&F. Survey No. 3, A-112, Frio County, Texas, being the lands pooled in the Ricochet Energy, Inc. - Neal Trust No. 1H Unit as described in a Declaration of Unit dated October 10, 2012, recorded in Volume 122, page 855, Official Records, Frio County, Texas, and being part of the same land described in Lease 1. Lease 5: Paid Up Oil and Gas Lease dated September 30, 2011, from Vicki Lee Gates and Sherri Lynn Tope, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 99, page 37, Official Public Records, Frio County, Texas, insofar as and only insofar as said lease covers 65.59 acres of land, more or less, out of the B.S.&F. Survey No. 3, A-112, Frio County, Texas, being the lands pooled in the Ricochet Energy, Inc. - Neal Trust No. 1H Unit as described in a Declaration of Unit dated October 10, 2012, recorded in Volume 122, page 855, Official Records, Frio County, Texas. Lease 6: Paid Up Oil and Gas Lease dated October 14, 2011, from The Collis and Lucille Woodward Family Trust dated August 29, 1990, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 100, page 20, Official Public Records, Frio County, Texas, insofar as and only insofar as said lease covers 88.02 acres of land, more or less, out of the Frio County School Land League No. 1, A-310, Frio County, Texas, being the lands pooled in the Ricochet Energy, Inc. - Neal Trust No. 1H Unit as described in a 27 Declaration of Unit dated October 10, 2012, recorded in Volume 122, page 855, Official Records, Frio County, Texas. Lease 7: Paid Up Oil and Gas Lease dated October 14, 2011, from The Clyde E. and Valerie V. Woodward Family Trust dated November 12, 1996, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 100, page 18, Official Public Records, Frio County, Texas, insofar as and only insofar as said lease covers 88.02 acres of land, more or less, out of the Frio County School Land League No. 1, A-310, Frio County, Texas, being the lands pooled in the Ricochet Energy, Inc. - Neal Trust No. 1H Unit as described in a Declaration of Unit dated October 10, 2012, recorded in Volume 122, page 855, Official Records, Frio County, Texas, and being the same land described in Lease 6. THE LEASES DESCRIBED ABOVE COVER THE FOLLOWING WELL: Wells WI NRI ----- -- --- Ricochet - Neal Trust No. 1H Unit Well 100.000% 75.000% (API #42-163-33643 / RRC ID #17593) FRIO AUSTIN CHALK PROSPECT (CULPEPPER AREA) JANE T. CULPEPPER ET AL., LEASES Lease 1: Oil and Gas Lease dated January 18, 2010, from Jane Culpepper, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 70, page 672, Official Public Records, Frio County, Texas, as amended by Amendment of Oil and Gas Lease recorded in Volume 73, page 441, Official Public Records, Frio County, Texas, covering 718 acres of land, more or less, out of the J. E. Roberts Survey No. 4, A-903, the L.I.M. & C. Co. Survey No. 112, A-754 and the B.S. & F Survey No. 3, A-109, Frio County, Texas. Lease 2: Oil and Gas Lease dated January 18, 2010, from John Culpepper, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 70, page 675, Official Public Records, Frio County, Texas, as amended by Amendment of Oil and Gas Lease recorded in Volume 73, page 444, Official Public Records, Frio County, Texas, covering 593 acres of land, more or less, being a portion of the same land described above in Lease 1. Lease 3: Oil and Gas Lease dated January 18, 2010, from Jim Culpepper, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 70, page 678, Official Public Records, Frio County, Texas, as amended by Amendment of Oil and Gas Lease recorded in Volume 73, page 446, Official Public Records, Frio County, Texas, covering 593 acres of land, more or less, being a portion of the same land described above in Lease 1. Lease 4: Oil and Gas Lease dated January 18, 2010, from Bill Culpepper, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 70, page 681, Official Public Records, Frio County, Texas, as amended by Amendment of Oil and Gas Lease recorded in Volume 73, page 448, Official Public Records, Frio County, 28 Texas, covering 593 acres of land, more or less, being a portion of the same land described above in Lease 1. Lease 5: Oil and Gas Lease dated January 18, 2010, from Nancy C. Flores, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 70, page 684, Official Public Records, Frio County, Texas, as amended by Amendment of Oil and Gas Lease recorded in Volume 73, page 450, Official Public Records, Frio County, Texas, covering 593 acres of land, more or less, being a portion of the same land described above in Lease 1. THE LEASES DESCRIBED ABOVE COVER THE FOLLOWING WELLS: Wells WI NRI ----- -- --- Ricochet - Culpepper No. 1H Unit Well 100.000% 80.000% (API #42-163-33480 / RRC ID #16214) Ricochet - Culpepper No. 2H Unit Well 100.000% 80.000% (API #42-163-33494 / RRC ID #16115) JAMES W. CULPEPPER ET AL., LEASES - (3C LEASES) Lease 1: Oil and Gas Lease dated February 3, 2010, from James Culpepper and wife, Kat Saunders, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 70, page 765, Official Public Records, Frio County, Texas, covering 657.28 acres of land, more or less, out of the J. E. Roberts Survey No. 2, A-904 and the James Cummings Survey No. 105, A-269, Frio County, Texas. Lease 2: Oil and Gas Lease dated February 3, 2010, from John Culpepper and wife, Andrea M. Culpepper, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 70, page 770, Official Public Records, Frio County, Texas, covering 657.28 acres of land, more or less, being the same land described above in Lease 1. Lease 3: Oil and Gas Lease dated February 3, 2010, from Joe Culpepper, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 75, page 590, Official Public Records, Frio County, Texas, covering 104.14 acres of land, more or less, out of the J. E. Roberts Survey No. 2, A-904 and the James Cummings Survey No. 105, A-269, Frio County, Texas, being a portion of the same land described above in Lease 1. Lease 4: Oil and Gas Lease dated October 31, 2010, from Tommy J. Muston and wife, Deborah A. Muston, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 83, page 692, Official Public Records, Frio County, Texas, covering 224.14 acres of land, more or less, out of the J. E. Roberts Survey No. 2, A-904 and the J. E. Roberts Survey No. 6, A-905, Frio County, Texas, being a portion of the same land described above in Lease 1. THE LEASES DESCRIBED ABOVE COVER THE FOLLOWING WELLS: 29 Wells WI NRI ----- -- --- Ricochet - 3C No. 1H Unit Well 100.000% 79.715823% (API #42-163-33508 / RRC ID #16225) Ricochet - 3C No. 2H Unit Well 100.000% 79.715823% (API #42-163-33563 / RRC ID #16225) KOTZEBUE LEASE Oil and Gas Lease dated August 26, 2010, from David W. Kotzebue and wife, Deborah R. Kotzebue, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 79, page 752, Official Public Records, Frio County, Texas, originally covering 527.33 acres of land, more or less, out of the J. E. Roberts Survey No. 4, A-903, Frio County, Texas, insofar as and only insofar as said lease covers 400 acres of land, more or less, being the retained acreage allocated to the Kotzebue No. 1 Well, as described in that certain Partial Release of Oil and Gas Lease and Designation of Well Tract dated effective January 1, 2014, executed by Ricochet Energy, Inc. et al., recorded in Volume 150, page 793, Official Public Records, Frio County, Texas. THE LEASE DESCRIBED ABOVE COVERS THE FOLLOWING WELL: Wells WI NRI ----- -- --- Ricochet - Kotzebue No. 1 Well 100.000% 75.000% (API #42-163-33589 / RRC ID #17063) EXPRESS RE-ENTRY PROSPECTS CANTU-HENDERSON UNIT Ricochet Energy, Inc. - Cantu-Henderson No. 1H Unit, being the pooled unit of 495.17 acres out of the J. Poitevent Survey No. 5, A-559 and the R.M. Harkness Survey No. 6, A-890, Frio County, Texas, as more particularly described in that certain Declaration of Unit dated September 24, 2010, executed by Ricochet Energy, Inc., recorded in Volume 81, page 174, Official Public Records, Frio County, Texas, pooling the acreage covered by the following described leases. Lease 1: Oil, Gas and Mineral Lease dated September 17, 2008, from Herlinda G. Cantu, as Lessor, to Express Oil & Gas, as Lessee, recorded in Volume 57, page 798, Official Public Records, Frio County, Texas, (and also recorded by Memorandum of Oil and Gas Lease in Volume 57, page 796, Official Public Records, Frio County, Texas), as amended, covering 177.45 acres, more or less, out of the J. Poitevent Survey No. 5, A-559, Frio County, Texas, all of the 177.45 acres covered by said lease, as more particularly described therein, being included in this unit. Lease 2: Oil, Gas and Mineral Lease dated October 28, 2008, from Winfred Henderson and wife, Alice A. Henderson, as Lessor, to Express Oil & Gas, Co., as 30 Lessee, recorded in Volume 60, page 193, Official Public Records, Frio County, Texas, covering 317.72 acres, more or less, out of the R. M. Harkness Survey No. 6, A-890 in Frio County, Texas and A-1014 in LaSalle County, Texas, all of the 317.72 acres covered by said lease, as more particularly described therein, being included in this unit. Lease 3: Oil, Gas and Mineral Lease dated October 28, 2008, from Jimmy Henderson, as Lessor, to Express Oil & Gas, Co., as Lessee, recorded in Volume 60, page 200, Official Public Records, Frio County, Texas, covering 317.72 acres, more or less, out of the R. M. Harkness Survey No. 6, A-890 in Frio County, Texas and A-1014 in LaSalle County, Texas, all of the 317.72 acres covered by said lease, comprising the same lands described above in Lease 2, being included in this unit. Lease 4: Oil, Gas and Mineral Lease dated October 28, 2008, from Selfa A. Garza, joined pro forma by her husband, Tino Garza, as Lessor, to Express Oil & Gas, Co., as Lessee, recorded in Volume 60, page 180, Official Public Records, Frio County, Texas, as ratified and amended, covering 317.72 acres, more or less, out of the R. M. Harkness Survey No. 6, A-890 in Frio County, Texas and A-1014 in LaSalle County, Texas, all of the 317.72 acres covered by said lease, comprising the same lands described above in Lease 2, being included in this unit. Lease 5: Oil, Gas and Mineral Lease dated November 17, 2008, from Linda Green, joined pro forma by her husband, Ken Green, as Lessor, to Express Oil & Gas, Co., as Lessee, recorded in Volume 60, page 173, Official Public Records, Frio County, Texas, covering 317.72 acres, more or less, out of the R. M. Harkness Survey No. 6, A-890 in Frio County, Texas and A-1014 in LaSalle County, Texas, all of the 317.72 acres covered by said lease, comprising the same lands described above in Lease 2, being included in this unit. Lease 6: Oil, Gas and Mineral Lease dated November 17, 2008, from Larry Myrick, as Lessor, to Express Oil & Gas, Co., as Lessee, recorded in Volume 60, page 187, Official Public Records, Frio County, Texas, covering 317.72 acres, more or less, out of the R. M. Harkness Survey No. 6, A-890 in Frio County, Texas and A-1014 in LaSalle County, Texas, all of the 317.72 acres covered by said lease, comprising the same lands described above in Lease 2, being included in this unit. Lease 7: Oil, Gas and Mineral Lease dated July 10, 2009, from Donna Myrick, as Lessor, to Express Oil & Gas, as Lessee, recorded by Memorandum of Oil, Gas and Mineral Lease in Volume 63, page 76, Official Public Records, Frio County, Texas, covering 317.72 acres, more or less, out of the R. M. Harkness Survey No. 6, A-890 in Frio County, Texas and A-1014 in LaSalle County, Texas, all of the 317.72 acres covered by said lease, comprising the same lands described above in Lease 2, being included in this unit. Lease 8: Oil, Gas and Mineral Lease dated November 17, 2008, from Janice Hemphill, as Lessor, to Express Oil & Gas, Co., as Lessee, recorded in Volume 63, page 70, Official Public Records, Frio County, Texas, covering 317.72 acres, more or less, out of the R. M. Harkness Survey No. 6, A-890 in Frio County, Texas and A-1014 in LaSalle County, Texas, all of the 317.72 acres covered by said lease, comprising the same lands described above in Lease 2, being included in this unit. 31 THE LEASES DESCRIBED ABOVE COVER THE FOLLOWING WELL: Wells WI NRI ----- -- --- Ricochet - Cantu-Henderson No. 1H Unit Well 100.000% 77.042448% (API #42-163-33426 / RRC ID #12392) HARRIS LEASE Oil, Gas and Mineral Lease dated January 13, 1976, from William Donald Harris and wife, Mary Ann Harris, as Lessor, to Charles R. Stubblefield, as Lessee, recorded in Volume 342, page 485, Deed Records, Frio County, Texas, covering 735.00 acres, more or less, out of the William Webber Survey, A-668 and the G.B. Pilant Survey, A-540, Frio County, Texas, insofar as and only insofar as said lease covers 281.4 acres of land, more or less, around the Ricochet Energy, Inc. - Harris No. 2 and Harris No. 3 Wells (but expressly excluding the well and wellbore for the Express Oil & Gas - Harris #4 Well [API # 42-163-32691]) in Frio County, Texas. THE LEASE DESCRIBED ABOVE COVERS THE FOLLOWING WELLS: Wells WI NRI ----- -- --- Ricochet - Harris No. 2 Well 90.000% 67.500% (API #42-163-32604 / RRC ID #15063) Ricochet - Harris No. 3 Well 90.000% 67.500% (API #42-163-32647 / RRC ID #15063) W.S. SHAFFER AND W.S. SHAFFER -B- LEASES Oil, Gas and Mineral Lease dated September 9, 1958, from W.S. Shaffer and wife, E.S. Shaffer, as Lessors to J.R. McLean, as Lessee, recorded in Volume 574, page 186, Deed Records, Taylor County, Texas, covering the following tracts: Tract 1 Being 314.80 acres of land situated in Taylor County, Texas, and being the North Half of Survey No. 12, Certificate No. 17/368, Block No. 3, S. P. RR Company Lands, and being the same land described by metes and bounds in a Patent from the State of Texas to J. L. Pierce, dated April 12, 1951, recorded in Volume G-2, Page 143, of the Patent Records of Taylor County, Texas. Tract 2 Being 167.5 acres, more or less, out of Survey No. 6, Certificate No. 4508, G. C. & S. RR Company Lands in Taylor County, Texas being described as follows, to-wit: BEGINNING at the Northwest corner S. F. 15185, W. S. Shaffer Survey No. 1; THENCE South 15(degree)East with the West line S.F. 15185, 2,293 varas, to fence; 32 THENCE in a westerly direction with said fence to an inner corner of said G. C. & S. RR Company Survey No. 6; THENCE North 15(degree)West with a west line of said G. C. & S. RR Company Survey No. 6, 2,152.2 varas to the South line of a tract owned by Sayles; THENCE North 75o 25' East 425.6 varas with a fence to the place of beginning. THE LEASE DESCRIBED ABOVE COVERS THE FOLLOWING WELLS: Wells WI NRI ----- -- --- Baron - W.S. Shaffer -B- #3 75.000% 56.250% (API #42-441-81191 / RRC ID #11127) Baron - W.S. Shaffer -B- #4 75.000% 56.250% (API #42-441-81192 / RRC ID #11127) W.S. SHAFFER -C- LEASE Oil, Gas and Mineral Lease dated April 30, 1970, from M.C. Shaffer, et al, as Lessors to J.D. Tompkins, as Lessee, recorded in Volume 880, page 501, Deed Records, Taylor County, Texas, covering all of the W.S. Shaffer Survey No. 1, S.F. 15185, Patented to W.S. Shaffer by the State of Texas on June 11, 1951, by Patent No. 475, Volume 17-B, and containing 136.55 acres, more or less. AS THE LEASE DESCRIBED ABOVE COVERS THE FOLLOWING WELL: Wells WI NRI ----- -- --- Baron - W.S. Shaffer -C- #1 75.000% 56.250% (API #42-441-30235 / RRC ID #11495) 33

Exhibit 10.79 PURCHASE AND SALE AGREEMENT BY AND BETWEEN RICOCHET ENERGY, INC., ET AL AS SELLERS AND BARON ENERGY, INC. AS BUYER INDEX PAGE ---- ARTICLE 1. DEFINITIONS........................................................1 ARTICLE 2. SALE AND PURCHASE.................................................6 ARTICLE 3. PURCHASE PRICE.....................................................6 3.1 Purchase Price....................................................6 3.2 Earnest Money Deposit.............................................7 3.3 Allocation........................................................7 3.4 Preferential Rights...............................................7 3.5 Consents..........................................................7 ARTICLE 4. REVIEW BY BUYER....................................................8 4.1 Review of Records.................................................8 4.2 Alleged Adverse Matters...........................................8 4.3 Adjustment of Purchase Price for Title Defects....................8 4.4 Waiver............................................................9 ARTICLE 5. INSPECTION OF PROPERTIES..........................................10 ARTICLE 6. ACCOUNTING.......................................................10 6.1 Revenues, Expenses and Capital Expenditures......................10 6.2 Taxes............................................................10 6.3 Obligations and Credits..........................................10 6.4 Gas Imbalances...................................................11 6.5 Miscellaneous Accounting.........................................11 6.6 Final Accounting Settlement......................................11 6.7 Post-Final Accounting Settlement.................................11 6.8 Audit Rights.....................................................11 ARTICLE 7. CASUALTY AND CONDEMNATION........................................12 ARTICLE 8. INDEMNITIES.......................................................12 8.1 Sellers' Indemnity Obligations (excluding Environmental Claims)..12 8.2 Buyer's Indemnity Obligations (excluding Environmental Claims)...13 8.3 Environmental Claims.............................................13 8.4 Asbestos and NORM................................................13 8.5 Notice and Cooperation...........................................14 8.6 Defense of Claims................................................14 8.7 Waiver of Certain Damages........................................14 8.8. Limitation on Indemnities........................................14 8.9. Sole Remedy......................................................15 ARTICLE 9. WARRANTIES AND DISCLAIMERS.......................................15 9.1 Special Warranty of Title........................................15 i 9.2 Disclaimer - Representations and Warranties......................15 9.3 Disclaimer - Statements and Information..........................15 ARTICLE 10. SELLERS' REPRESENTATIONS AND WARRANTIES.........................16 10.1 Organization and Good Standing...................................16 10.2 Corporate Authority; Authorization of Agreement..................16 10.3 No Violations....................................................16 10.4 Absence of Certain Changes.......................................16 10.5 Operating Costs..................................................17 10.6 Litigation and Other Disputes....................................17 10.7 Bankruptcy.......................................................17 10.8 Material Contracts...............................................17 10.9 Consents and Preferential Rights.................................17 10.10 Compliance with Law and Permits..................................17 10.11 Environmental Compliance.........................................18 10.12 Status of Contracts..............................................18 10.13 Production Burdens, Taxes, Expenses and Revenues.................18 10.14 Production Sales Matters.........................................18 10.15 Capital Commitments..............................................19 10.16 Limitation on Representations....................................19 10.17 Brokers..........................................................19 ARTICLE 11. BUYER'S REPRESENTATIONS AND WARRANTIES...........................19 11.1 Organization and Good Standing...................................19 11.2 Corporate Authority; Authorization of Agreement..................19 11.3 No Violations....................................................19 11.4 SEC Disclosure...................................................20 11.5 Independent Evaluation...........................................20 11.6 Buyer's Reliance.................................................20 11.7 Qualified Leaseholder............................................20 11.8 Brokers...........................................................20 ARTICLE 12. ADDITIONAL AGREEMENTS............................................20 12.1 Covenants of Sellers.............................................20 12.2 Notice of Loss...................................................21 12.3 Subsequent Operations............................................21 12.4 Buyer's Assumption of Obligations................................21 12.5 Records..........................................................21 ARTICLE 13. DISPUTE RESOLUTION...............................................21 13.1 Independent Expert................................................21 13.2 Rules and Procedure...............................................22 ARTICLE 14. CONDITIONS PRECEDENT TO CLOSING..................................22 14.1 Conditions Precedent to Sellers' Obligation to Close.............22 14.2 Conditions Precedent to Buyer's Obligation to Close..............23 ARTICLE 15. TERMINATION......................................................23 15.1 Grounds for Termination..........................................23 ii 15.2 Effect of Termination............................................24 15.3 Dispute over Right to Terminate..................................24 15.4 Return of Documents..............................................24 15.5 Confidentiality..................................................24 ARTICLE 16. THE CLOSING......................................................24 16.1. Preliminary Closing Statement....................................24 16.2 Obligations of Sellers at Closing................................25 16.3 Obligations of Buyer at Closing..................................25 16.4 Site of Closing..................................................26 16.5 Adjustments to Purchase Price at the Closing.....................26 ARTICLE 17. MISCELLANEOUS....................................................27 17.1 Notices..........................................................27 17.2 Conveyance Costs.................................................27 17.3 Brokers' Fees....................................................27 17.4 Further Assurances...............................................28 17.5 Survival of Representations and Warranties.......................28 17.6 Amendments and Severability......................................28 17.7 Successors and Assigns...........................................28 17.8 Headings.........................................................28 17.9 Governing Law....................................................28 17.10 No Partnership Created...........................................28 17.11 Public Announcements.............................................29 17.12 No Third Party Beneficiaries.....................................29 17.13 Deceptive Trade Practices........................................29 17.14 Tax Deferred Exchange Election...................................29 17.15 Not to be Construed Against Drafter..............................29 17.16 Entire Agreement.................................................29 17.17 Conspicuousness of Provisions....................................29 17.18 Execution in Counterparts........................................29 17.19 Affiliated Entity as Buyer and/or Operator.......................30 EXHIBITS EXHIBIT A - DESCRIPTION OF PROPERTIES EXHIBIT B - NONE EXHIBIT C - ASSIGNMENT AND BILL OF SALE EXHIBIT D - CERTIFICATE EXHIBIT E - NON-FOREIGN AFFIDAVIT EXHIBIT F - LIST OF CONTRACTS EXHIBIT G - LITIGATION AND CLAIMS EXHIBIT H - ALLOCATION OF PURCHASE PRICE EXHIBIT I - GAS IMBALANCES EXHIBIT J - APPROVALS AND PREFERENTIAL RIGHTS EXHIBIT K - VIOLATIONS OF LAWS EXHIBIT L - PRODUCTION SALES MATTERS EXHIBIT M - CAPITAL COMMITMENTS EXHIBIT N - AFFILIATED ENTITY FORM OF ASSIGNMENT ADDENDUM I - IDENTIFICATION OF RICOCHET PARTIES iii PURCHASE AND SALE AGREEMENT THIS PURCHASE AND SALE AGREEMENT (this "Agreement") is dated May 29, 2014 (the "Effective Date") by and between RICOCHET ENERGY, INC., a Texas corporation, with an office at 16111 Via Shavano, San Antonio, Texas 78249 ("Ricochet"), for itself and as limited agent for all of the parties listed in Addendum I (Ricochet, together with the parties in said Addendum I being hereinafter referred to as the "Ricochet Parties"), VAQUILLAS ENERGY EAST PEARSALL, LTD., LLP, a Texas limited partnership, and VAQUILLAS ENERGY RE-ENTRY LTD., LLP, a Texas limited partnership, (collectively "Vaquillas"), JOB ENERGY PARTNERS II, LTD., a Texas limited partnership, LORD'S ENERGY, LTD., a Texas limited partnership, HUBBERD-SMITH ENERGY INVESTMENTS, LTD., a Texas limited partnership, NETTLESHIP ENERGY INVESTMENTS, LTD., a Texas limited partnership, LAREDO GATEWAY ENERGY, LTD., a Texas limited partnership, and BORDEN JENKINS, an individual (collectively called "Sellers") and BARON ENERGY, INC., a Nevada corporation, with an office at 300 S.C.M. Allen Parkway, Suite 400, San Marcos, Texas 78666 (hereinafter referred to as "Buyer"), and is based on the following premises: WHEREAS, Sellers desire to sell, assign and convey to Buyer and Buyer desires to purchase and accept certain oil and gas properties and related interests; and WHEREAS, the parties have reached agreement regarding such sale and purchase. NOW, THEREFORE, for valuable consideration and the mutual covenants and agreements herein contained, Sellers and Buyer agree as follows: ARTICLE 1. DEFINITIONS 1. Definitions: In this Agreement, capitalized terms have the meanings provided in this Article 1, unless expressly provided otherwise in other Articles. All defined terms include both the singular and the plural. All references to Articles or Sections refer to Articles or Sections in this Agreement, and all references to Exhibits refer to the Exhibits attached to this Agreement. The Exhibits which are attached hereto are incorporated in and made a part of this Agreement. "Accounting Referee" has the meaning set forth in Section 6.8. "Affiliate" means and includes any entity that, directly or indirectly, through one or more intermediaries, controls or is controlled by or is under common control with the entity specified. "Alleged Adverse Matters" has the meaning set forth in Section 4.2. "Alleged Title Defect" means a Title Defect (as hereinafter defined) which is asserted by Buyer in accordance with Section 4.3. "Assignment and Bill of Sale" means a document in the form of Exhibit C. "Assumed Obligations" has the meaning set forth in Section 12.4. "Business Day" means a Day (as hereinafter defined) excluding Saturdays, Sundays and U.S. legal holidays. "Casualty Loss" means any loss, damage or reduction in value resulting from mechanical failure or defects, catastrophic occurrences, acts of God and any other losses which are not the result of normal wear and tear or of natural reservoir changes. 1 "Certificate" means a document in the form of Exhibit D. "Claim" means any and all claims, demands, suits, causes of action, investigations, administrative proceedings, other legal proceedings, losses, damages, liabilities, judgments, assessments, settlements, fines, notices of violation, penalties, interest, obligations, responsibilities and costs(including reasonable attorneys' fees and costs of litigation) of any kind or character(whether or not asserted prior to the date hereof, and whether known or unknown, fixed or unfixed, conditional or unconditional, based on negligence, strict liability or otherwise, choate or inchoate, liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent or otherwise) which are brought by or owed to a Third Party (as hereinafter defined). "Close" or "Closing" means the consummation of the transfer of title to the Properties to Buyer, including execution and delivery of all documents provided herein. "Closing Date" means 60 days after the Effective Date or such other date as may be mutually agreed upon by the parties or on which Closing occurs in accordance with the terms of this Agreement. "Day" means a calendar day consisting of twenty-four (24) hours from midnight to midnight. "Defensible Title" means, as to the Leases, such title held by Sellers that, subject to and except for the Permitted Encumbrances (as hereinafter defined): (a) Entitles Sellers to own and receive payment of revenues for not less than the "Net Revenue Interests" set forth on Exhibit A of all oil, gas and associated liquid and gaseous hydrocarbons produced, saved and marketed from the Leases; (b) Obligates Sellers to bear costs and expenses relating to the ownership, operation, maintenance and repair of the wells and facilities located on or attributable to the Leases in an amount not greater than the "Working Interests" set forth on Exhibit A, unless there is a corresponding proportionate increase in the Net Revenue Interests; and (c) Is free and clear of all liens, encumbrances, burdens and defects (except mortgages or liens that will be fully released at or prior to the Closing) that a reasonable and prudent person engaged in the business of ownership, development and operation of oil and gas properties with knowledge of all applicable facts and circumstances and the understanding of their legal significance would not be willing to accept with respect to portions of the Leases affected thereby. "Earnest Money Deposit" has the meaning set forth in Section 3.2. "Effective Time" means the first day of the month in which Closing occurs at 12:01 a.m., local time where the Properties are located. "Environmental Claims" means all Claims for pollution or environmental damages of any kind, including without limitation, those relating to: (a)remediation and/or clean-up thereof, (b) damage to and/or loss of any property or resource, and/or (c) injury or death of any person(s) whomsoever, including without limitation Claims relating to breach of Environmental Laws, common law causes of action such as negligence, gross negligence, strict liability, nuisance or trespass, or fault imposed by statute, rule, regulation or otherwise(but specifically excluding any Claims relating to asbestos or NORM (as hereinafter defined), which are covered by Section 8.4 hereof), and including all costs associated with remediation and clean up, and fines and penalties associated with any of the foregoing. 2 "Environmental Laws" means all laws, statutes, ordinances, permits, orders, judgments, rules or regulations which are promulgated, issued or enacted by a governmental entity having appropriate jurisdiction that, (a) relate to the prevention of pollution or environmental damage, (b) the remediation of pollution or environmental damage, or (c) the protection of the environment generally; including without limitation, the Clean Air Act, as amended, the Clean Water Act, as amended, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Federal Water Pollution Control Act, as amended, the Resource Conservation and Recovery Act of 1976, as amended, the Safe Drinking Water Act, as amended, the Toxic Substance and Control Act, as amended, the Superfund Amendments and Reauthorization Act of1986, as amended, the Hazardous and the Solid Waste Amendments Act of 1984, as amended, and the Oil Pollution Act of 1990, as amended. "Excluded Assets" means the following properties, interests and rights (contractual or otherwise), that are expressly retained by Sellers: (a) all rights and causes of action arising, occurring or existing in favor of Sellers to the extent attributable to the period prior to the Effective Time or arising out of the ownership of, operation of or production from the Properties prior to the Effective Time; (b) all Hydrocarbons produced from or attributable to the Leases with respect to all periods prior to the Effective Time, together with all proceeds from the sale of such Hydrocarbons; (c) all claims of Sellers for refunds of or loss carry forwards with respect to (i) ad valorem, severance, production or any other taxes attributable to any period prior to the Effective Time, (ii) income or franchise taxes, or (iii) any taxes attributable to the other Excluded Assets, and such other refunds, and rights thereto, for amounts paid in connection with the Properties and attributable to the period prior to the Effective Time; (d) all other proceeds, income, royalties or revenues (and any security or other deposits made) attributable to (i) the Properties for any period prior to the Effective Time, or (ii) any other Excluded Assets; (e) all of Sellers' motor vehicles, personal computers and associated peripherals and all radio, telephone and other communication equipment; (f) all of Sellers' proprietary computer software, technology, patents, trade secrets, copyrights, names, trademarks, logos and other intellectual property; (g) except to the extent included within the definition of the Records, all of Sellers' rights and interests in geological and geophysical data, specifically including all seismic licenses and permits of Sellers; (h) all documents and instruments of Sellers that may be protected by an attorney-client privilege; (i) data and other information that cannot be disclosed or assigned to Buyer as a result of confidentiality or similar arrangements under agreements with persons unaffiliated with any Seller; (j) all rights, interests and obligations under that certain Prospect Generation and Exploration Agreement dated December 17, 2003, between Vaquillas 3 Energy, Ltd. and Ricochet Energy, Inc., as amended, and the Prospect Generation and Exploration Agreement dated May 25, 2013, between JOB Energy Partners II, Ltd. and Ricochet Energy, Inc., as amended; (k) any assets excluded from the transactions contemplated by this Agreement pursuant to Sections 3.4, 3.5 and 4.3, if any; and (l) all general corporate, partnership, income tax and financial records of Sellers. "Final Accounting Settlement" has the meaning set forth in Section 6.6. "Final Settlement Date" has the meaning set forth in Section 6.6. "Hydrocarbons" has the meaning given to such term in the definition of Properties. "Laws" means any and all applicable laws, statutes, ordinances, permits, decrees, orders, judgments, rules or regulations (including without limitation Environmental Laws) which are promulgated, issued or enacted by a governmental entity having appropriate jurisdiction. "Leases" has the meaning given to such term in the definition of Properties. "Material Contracts" means those contracts listed on Exhibit F. "Non-Foreign Affidavit" means a document in the form of Exhibit E. "NORM" means naturally occurring radioactive materials. "Permitted Encumbrances" means: (a) Royalties, overriding royalties, production payments, reversionary interests, convertible interests, net profits interests, division orders and similar burdens encumbering the Properties as of the Effective Time to the extent the net cumulative effect of such burdens do not operate to (i)reduce the net revenue interests of the Properties to less than the net revenue interests set forth on Exhibit A or (ii) cause an increase in the working interest in any Property from that shown on Exhibit A without a proportionate increase in the net revenue interest for such Property; (b) Preferential purchase rights and required consents to assignment and similar contractual provisions encumbering the Properties with respect to which, prior to Closing, (i) waivers or consents are obtained from the appropriate parties, or (ii) notices have been given for the transaction contemplated hereby and the appropriate time period for asserting such rights have expired without an exercise of such rights; (c) Preferential purchase rights encumbering the Properties which are exercised by a Third Party, if the affected Properties are withdrawn from this sale transaction and handled in accordance with Section 3.4; (d) All rights to consent by, required notices to, filings with, or other actions by governmental entities in connection with the sale or conveyance of the Properties, if the same are customarily obtained subsequent to the transfer of title; 4 (e) Rights reserved to or vested in any governmental entity having appropriate jurisdiction to control or regulate the Properties in any manner whatsoever, and all Laws of any such governmental entity; (f) Easements, rights-of-way, servitudes, surface leases, sub-surface leases, pipelines, platforms, facilities, utility lines, telephone lines, power lines, and structures on, over and through the Properties, to the extent such rights, interests or structures do not materially interfere with the operation of the Properties; (g) Liens for taxes or assessments not yet due or not yet delinquent or, if delinquent, that are being contested by Sellers in good faith in the normal course of business; (h) Liens of operators relating to obligations not yet due or not yet delinquent; (i) The Material Contracts; and (j) Alleged Adverse Matters and Title Defects which Buyer has waived under Section 4.4. "Properties" means the following properties (real, personal or mixed) and rights (contractual or otherwise), other than the Excluded Assets: (a) All of Sellers' right, title and interest in, to and under or derived from the oil and gas leasehold interests, record title interests, operating rights interests, fee interests, mineral interests and overriding royalty interests described on Exhibit A (collectively, the "Leases"); (b) All of Sellers' right, title and interest in and to, or derived from, all of the presently existing and valid unitization and pooling agreements and units (including all units formed by voluntary agreement and those formed under the rules, regulations, orders or other official acts of any governmental entity having appropriate jurisdiction) to the extent they relate to any of the interests which are expressly described on Exhibit A; (c) All of Sellers' right, title and interest in and to all oil, gas and associated liquid and gaseous hydrocarbons (collectively, the "Hydrocarbons") produced from or attributable to Sellers' interest in the Leases and attributable to the period from and after the Effective Time; (d) All of Sellers' right, title and interest in and to, or derived from, all of the presently existing and valid oil sales contracts, casing head gas sales contracts, gas sales contracts, processing contracts, gathering contracts, transportation contracts, easements, rights-of-way, servitudes, surface leases and other contracts (including the Material Contracts), to the extent the same are assignable and relate to any of the interests which are expressly described on Exhibit A; (e) All of Sellers' right, title and interest in and to all personal property and improvements (collectively, the "Equipment"), including without limitation, wells (whether producing, plugged and abandoned, shut-in, injection, disposal or water supply), tanks, boilers, platforms, buildings, fixtures, machinery, equipment, pipelines, utility lines, power lines, telephone lines, telegraph lines and other appurtenances located on, in, under and about the Leases, to the extent the same are situated upon and used or held for use by Sellers solely in connection with the ownership, operation, maintenance and repair of the interests which are expressly described on Exhibit A, subject to the reservations stated below; (f) All of Sellers' Records to the extent the same are assignable and relate to any of the interests which are expressly described on Exhibit A; 5 (g) All franchises, licenses, permits, approvals, consents, certificates and other authorizations and other rights granted by governmental authorities and all certificates of convenience or necessity, immunities, privileges, grants and other rights that relate to the Properties or the ownership or operation of any thereof, to the extent the same are assignable (the "Permits"); and (h) All (i) accounts, instruments and general intangibles (as such terms are defined in the Uniform Commercial Code of Texas) attributable to the Properties with respect to any period of time on or after the Effective Time, and (ii) liens and security interests in favor of Sellers, whether choate or inchoate, under any law, rule or regulation or under any of the Material Contracts (a) arising from the ownership, operation or sale or other disposition of Hydrocarbons on or after the Effective Time of any of the Properties or (b) arising in favor of Sellers whether by contract or statute as the operator or non-operator of certain of the Properties. "Purchase Price" has the meaning set forth in Section 3.1. "Records" means all of Sellers' books, records and files related to the Properties, including all (i) abstracts, title opinions, title reports, environmental site assessments, environmental compliance reports, lease and land files, surveys, analyses, compilations, correspondence, filings with and reports to regulatory agencies and other documents and instruments to the extent same relate to the Properties, (ii) computer databases that are owned by or licensed to Sellers to the extent same relate to the Properties, (iii) geophysical and geological information (to the extent same may be assigned or transferred without restriction, or without the consent of or payment to any third party), and all engineering, exploration, production and other technical data, magnetic field recordings, digital processing tapes, field prints, summaries, reports and maps, whether written or in electronically reproducible form, that are in the possession of Sellers and relate to the Properties and (iv) all other books, records, files and magnetic tapes containing title or other information that are in the possession of Sellers and relate to the Properties (the "Data"), but specifically excluding (i) previous offers and economic analyses associated with the acquisition, sale or exchange of the Properties, (ii) interpretive information, (iii) personnel information, (iv) corporate, legal, financial and tax information, (v) information covered by a non-disclosure obligation, (vi)information covered by a legal privilege and (vii) any other information that Sellers do not have the right to assign to Buyer. "Title Adjustment" has the meaning set forth in Section 4.3. "Title/Casualty Basket Amount" means the sum of U.S. $50,000. "Title Defect" means any lien, encumbrance, encroachment or defect associated with Sellers' title to the Properties (excluding Permitted Encumbrances) that would cause Sellers not to have Defensible Title. "Third Party" means any person or entity, governmental or otherwise, other than Sellers and Buyer. ARTICLE 2. SALE AND PURCHASE On the Closing Date, effective as of the Effective Time, and upon the terms and conditions herein set forth, Sellers agree to sell and assign the Properties to Buyer and Buyer agrees to buy and accept the Properties. 6 ARTICLE 3. PURCHASE PRICE 3.1 Purchase Price. Subject to adjustments as set forth herein, the total purchase price for the Properties shall be Seven Million Nine Hundred Thirty-Nine Thousand Two Hundred Ninety-Three Dollars (US $7,939,293.00) (the "Purchase Price"), payable in full at Closing in immediately available funds. 3.2 Earnest Money Deposit. Upon the execution of this Agreement, Buyer shall pay to Sellers, in care of Ricochet, a deposit in the amount of Eighty-Five Thousand Dollars (US$85,000.00) (the "Earnest Money Deposit"). If Closing occurs, the Purchase Price shall be credited by the amount of the Earnest Money Deposit. If Closing does not occur, the Earnest Money Deposit shall be refunded to Buyer, unless (a) Closing does not occur because of Buyer's failure or refusal to Close in breach of this Agreement or (b) because the conditions precedent to Sellers' obligation to Close provided in Section 14.1 are unmet at the time set for Closing, in which case Sellers shall retain the Earnest Money Deposit as liquidated damages and not as a penalty. If, however, in the case of either (a) or (b) above, any conditions precedent to Buyer's obligation to Close provided in Section 14.2 are unmet at the time set for Closing, Sellers shall not be entitled to retain the Earnest Money Deposit as hereinabove provided. In the event that Closing occurs after July 31, 2014, through no fault of Sellers, interest shall be payable on the Purchase Price from July 31, 2014 through and including the Closing Date at the rate of ten percent (10%) per annum. 3.3 Allocation. Attached hereto as Exhibit H is Buyer's good faith allocation of the Purchase Price which Sellers approve for purposes of allocating the Purchase Price among the Properties, and which shall be used in providing any required preferential purchase right notifications. 3.4 Preferential Rights. If any of the Properties are burdened with preferential purchase rights, the assignment of the Properties subject to such preferential rights shall be conditioned upon Sellers obtaining the necessary waiver or expiration of such right, and this Agreement shall not constitute an assignment or attempted assignment thereof without such waiver or expiration. If the time for exercising any preferential purchase right has not expired and the holder thereof has not waived the same prior to the Closing Date, the Property affected by such preferential right shall be conveyed to Buyer at Closing, subject to the preferential right and without any reduction in the Purchase Price. If the holder of the preferential right elects to purchase the Property affected by the preferential right after Closing, Buyer shall be obligated to convey such Property to the holder of such preferential right and Buyer shall be entitled to the proceeds resulting therefrom. If, prior to Closing, a holder of a preferential purchase right notifies Sellers that it intends to exercise its rights with respect to any of the Properties to which its preferential purchase right applies, the Properties covered by said preferential purchase right shall be excluded from the Properties to be conveyed to Buyer, and the Purchase Price shall be reduced by the value allocated to said Properties by Buyer in accordance with Section 3.3. If the holder of the preferential purchase right fails to consummate the purchase of the Properties, Sellers shall promptly notify Buyer in writing. Within five (5) Business Days after Buyer's receipt of such notice or the Closing Date, whichever is later, Sellers shall sell to Buyer, and Buyer shall purchase from Sellers, such Properties under the terms of this Agreement for a price equal to the aforesaid value allocated to such Properties. Notwithstanding the foregoing, Buyer shall have no obligation to purchase such Properties if Buyer is not notified in writing of the preferential purchase right holder's failure to consummate the purchase of such Properties within sixty (60) Days following Closing. 3.5 Consents. If any of the oil, gas or mineral leases which are part of the Properties require the consent of a Third Party to assign Sellers' interest therein, the assignment of such lease(s) subject to consent requirements shall be conditioned upon Sellers obtaining such consent prior to Closing (except for (i) any consents to assignment that cannot be unreasonably withheld, or words of similar effect, and for which the third party has not objected to the transfer or affirmatively stated that the consent to assignment will not be forthcoming; and (ii) consents from governmental bodies customarily obtained after 7 assignment, which shall not be required to be obtained prior to Closing). With respect to any leasehold interest for which consent is not obtained prior to Closing, such interest shall not be conveyed to Buyer at Closing and the Purchase Price shall be reduced to account for exclusion of the affected Property. If Sellers obtain the required consent(s) within sixty (60) days following Closing, Sellers shall sell and Buyer shall purchase the interest(s) affected thereby under the terms of this Agreement for a price equal to the Purchase Price adjustment made therefore at Closing. There shall be no obligations of sale or purchase of the affected interest(s) in the Properties following sixty (60) days after the Closing Date. ARTICLE 4. REVIEW BY BUYER 4.1 Review of Records. Until 5:00 p.m. local time, fifty (50) days following the Effective Date (the "EXAMINATION PERIOD"), Sellers shall make available to Buyer Records in Sellers' possession relating to the Properties. Buyer shall be entitled to review said Records and shall have a right to request a reasonable number of copies of such Records, at Buyer's expense. All information made available to Buyer during the Examination Period, whether disclosed pursuant to this Article 4 or any other provision of this Agreement, shall be maintained confidential by Buyer as provided by the terms of the Confidentiality Agreement dated December 12, 2013, between Ricochet and Buyer (the "CONFIDENTIALITY AGREEMENT"). Buyer shall also take commercially reasonable steps in order to ensure that Buyer's employees, consultants and agents comply with the provisions of the Confidentiality Agreement. 4.2 Alleged Adverse Matters. If, as a result of Buyer's due diligence review and inspection of Sellers' Records, Buyer discovers provisions of any contract(s) (including the Material Contracts) which would (as to each such contractual or other matter discovered) have a material adverse effect on the value or operation of the Properties or any portion thereof (collectively, the "ALLEGED ADVERSE MATTERS"), then as soon as reasonably practicable after Buyer's review of the applicable Records, but in no event later than ten (10) Business Days prior to the Closing Date, Buyer shall notify Ricochet, on behalf of Sellers, in writing of any such Alleged Adverse Matters. For purposes hereof "material" means (i) as to each Alleged Adverse Matter a value or effect net to Sellers' interest in the Properties greater than Twenty Thousand Dollars (US $20,000) and (ii) as to all Alleged Adverse Matters a value or effect net to Sellers' interest in the Properties greater than One Hundred Thousand Dollars (US $100,000) in the aggregate. Buyer's notice of Alleged Adverse Matters shall include a description and full explanation of each such matter being claimed and a value which Buyer in good faith attributes to such matter. Sellers may undertake to satisfy some, all or none of Buyer's Alleged Adverse Matters at Sellers' sole cost and expense. Buyer and Sellers shall meet at least three (3) Business Days prior to the Closing Date in an attempt to mutually agree on a proposed resolution with respect to any Alleged Adverse Matters which remain uncured. For all Alleged Adverse Matters which are established by agreement of the parties or pursuant to the arbitration procedures established herein and not otherwise resolved by Sellers prior to Closing, there shall be a reduction in the Purchase Price equal to the amount or value thereof, as agreed by the parties or decided by arbitration, and an adjustment therefor shall be made in the preliminary Closing statement or in the Final Accounting Statement, as appropriate. If the parties cannot reach resolution of Alleged Adverse Matters within the time period specified above, Closing shall not be delayed, postponed or canceled, but either party has the right, exercisable within sixty (60) days after the Closing Date, to refer the same to arbitration in accordance with Article 13. Subject to the terms of Article 13, the decision of the arbitrators regarding such dispute over Alleged Adverse Matters shall be final as between the parties. 4.3 Adjustment of Purchase Price for Title Defects. As soon as reasonably practicable after the Examination Period in Section 4.1, but in no event later than ten (10) Business Days prior to the Closing Date, Buyer shall notify Ricochet, on behalf of Sellers, in writing of any Properties which are subject to Alleged Title Defects and/or whose net revenue interest and/or working interest is/are less than or greater than that amount specified on Exhibit A (collectively, the "Title Adjustments"). Sellers also shall promptly notify Buyer in writing of any such instances of which Sellers become aware. Notice of Title Defects or Title Adjustments shall include a description and full 8 explanation of each Title Defect and Title Adjustment being claimed and a value which Buyer in good faith attributes to each. With respect to Alleged Title Defects, Sellers may undertake to satisfy some, all or none of those raised by Buyer, at Sellers' sole cost and expense. Buyer and Sellers shall meet at least three (3) Business Days prior to the Closing Date in an attempt to mutually agree on a resolution with respect to any Alleged Title Defects or Title Adjustments which by such time have not been agreed between the parties in writing. It is recognized that good faith differences of opinion may exist between Buyer and Sellers in connection with Alleged Title Defects or Title Adjustments, including without limitation, disputes as to (i) whether or not the alleged defect constitutes a Title Defect within the meaning of this Agreement,(ii) whether or not the magnitude of such defect is great enough that Buyer is contractually entitled to assert such Title Defect, (iii) whether or not the Title Defect was properly and timely asserted by Buyer pursuant to this Article, and (iv) the appropriate upward or downward adjustment, if any, to be made to the Purchase Price on account of such Title Defect. In determining whether a portion of a Property contains a Title Defect, it is the intent of the parties to include, when possible, only that portion of the Property adversely affected. If the value properly allocated to a Title Defect cannot be determined directly from Exhibit H because the Title Defect is included within, but does not totally comprise the Property to which the allocated value relates, Sellers and Buyer shall attempt to proportionately reduce the allocated value on Exhibit H. Closing shall not be delayed, postponed or canceled because a resolution of a Title Defect or Title Adjustment is not agreed prior to the Closing Date, except to the extent that the Alleged Title Defect being asserted is failure of Sellers' title in whole or in part to any portion(s) of the Properties (a "Material Defect"). To the extent that any portion(s) of the Properties are alleged to be affected by a Material Defect which remains on the scheduled Closing Date uncured or otherwise unresolved by the parties, such affected portion(s) of the Properties shall be excluded from the Properties conveyed to Buyer at Closing and the Purchase Price shall be reduced accordingly. If the parties cannot mutually agree on a Purchase Price adjustment for a Material Defect, Buyer shall have the right to (i) proceed to Closing and accept the Property with the Material Defect with no Purchase Price adjustment or (ii) terminate this Agreement as to the Property affected by the Material Defect and receive a Purchase Price adjustment for such Property as set forth on Exhibit H or, where applicable, the proportionate allocated value. If any difference of opinion regarding an Alleged Title Defect (excluding any Material Defect) or Title Adjustment or value of the Title Defect (excluding any Material Defect) or Title Adjustment (collectively, the "Title Defect Dispute") is not resolved by mutual agreement of Buyer and Sellers prior to the Closing Date, then either party has the right, exercisable within sixty (60) days after the Closing Date, to refer the same to arbitration in accordance with Article 13, but using one (1)mutually agreeable arbitrator who is an attorney licensed in the state in which the Properties are located and who has at least fifteen (15) years oil and gas title experience in such state. Subject to the terms of Article 13, the decision of the arbitrator regarding Title Defect Dispute(s) shall be final as between the parties. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, IN NO EVENT SHALL EITHER PARTY HAVE ANY OBLIGATIONS HEREUNDER WITH RESPECT TO ANY TITLE DEFECTS OR TITLE ADJUSTMENTS EXCEPT TO THE EXTENT THAT (I) EACH SUCH TITLE DEFECT OR TITLE ADJUSTMENT EXCEEDS TEN THOUSAND DOLLARS ($10,000) AND (II) ALL SUCH TITLE DEFECTS AND TITLE ADJUSTMENTS, TOGETHER WITH THE VALUE OF ALL CASUALTY LOSSES AND/OR TAKINGS UNDER ARTICLE 7, EXCEED IN THE AGGREGATE THE TITLE/CASUALTY BASKET AMOUNT, AND EACH PARTY HEREBY WAIVES ALL UPWARD OR DOWNWARD ADJUSTMENTS TO THE PURCHASE PRICE FOR TITLE DEFECTS AND/OR TITLE ADJUSTMENTS THE INDIVIDUAL VALUE OF WHICH IS $10,000 OR LESS AND THE CUMULATIVE VALUE OF WHICH, TOGETHER WITH THE VALUE OF ALL CASUALTY LOSSES AND/OR TAKINGS UNDER ARTICLE 7, IS LESS THAN THE TITLE/CASUALTY BASKET AMOUNT. 4.4 WAIVER. EXCEPT FOR CLAIMS BUYER ASSERTS UNDER SELLERS' SPECIALWARRANTY OF TITLE DESCRIBED IN SECTION 9.1 AND CLAIMS ASSERTED UNDER ARTICLE 8, ALL ALLEGED ADVERSE MATTERS, ALLEGED TITLE DEFECTS AND TITLE ADJUSTMENTS WHICH ARE 9 NOT RAISED BY BUYER WITHIN THE TIME PERIODS PROVIDED IN SECTIONS 4.2 AND 4.3 OR WHICH ARE RAISED AND NOT THEREAFTER SUBMITTED TO ARBITRATION IN ACCORDANCE WITH SUCH SECTIONS SHALL BE DEEMED WAIVED BY BUYER FOR ALL PURPOSES AND SHALL CONSTITUTE PERMITTED ENCUMBRANCES, AND BUYERSHALL HAVE NO RIGHT TO SEEK AN ADJUSTMENT TO THE PURCHASE PRICE, MAKE A CLAIM AGAINST SELLERS OR SEEK INDEMNIFICATION FROM SELLERS ON ACCOUNT OF THE SAME. ALL UPWARD TITLE ADJUSTMENTS WHICH ARE NOT RAISED BY SELLERS WITHIN THE TIME PERIOD PROVIDED IN SECTION 4.3 OR WHICH ARE RAISED AND NOT THEREAFTER SUBMITTED TO ARBITRATION IN ACCORDANCE WITH SUCH SECTION SHALL BE DEEMED WAIVED BY SELLERS FOR ALL PURPOSES, AND SELLERS SHALL HAVE NO RIGHT TO SEEK AN ADJUSTMENT TO THE PURCHASE PRICE, MAKE A CLAIM AGAINST BUYER OR SEEK INDEMNIFICATION FROM BUYER ON ACCOUNT OF THE SAME. ARTICLE 5. INSPECTION OF PROPERTIES Prior to entering into this Agreement, Ricochet, on behalf of Sellers, has allowed Buyer access to the Properties for the purpose of conducting a physical and environmental inspection thereof, and Buyer represents that it is satisfied with the condition of the Properties. ARTICLE 6. ACCOUNTING 6.1 Revenues, Expenses and Capital Expenditures. All Hydrocarbons produced prior to the Effective Time (irrespective of whether payment for the same has been made or received) which are attributable to the Properties shall belong to Sellers, and all such Hydrocarbons produced from and after the Effective Time shall belong to Buyer. Sellers shall be entitled to all revenues and related accounts receivable attributable to the ownership or operation of the Properties, and shall be responsible for all costs and expenses and related accounts payable attributable to the ownership or operation of the Properties, to the extent they relate to the time prior to the Effective Time. Buyer shall be entitled to all revenues and related accounts receivable attributable to the ownership or operation of the Properties, and shall be responsible for all costs and expenses and related accounts payable attributable to the ownership or operation of the Properties, to the extent they relate to the time from and after the Effective Time. The actual amounts or values associated with the above shall be accounted for in the Preliminary Closing Statement, if possible, or in the Final Accounting Settlement. Buyer shall assume Sellers' suspense funds associated with the acquired Properties as of the Effective Time, and these funds shall be accounted for in the Final Accounting Settlement. 6.2 Taxes. All taxes and assessments, including without limitation, excise, ad valorem, property, production and severance taxes and any other federal, state and local taxes and assessments attributable to the ownership or operation of the Properties prior to the Effective Time shall remain Sellers' responsibility, and all deductions, credits and refunds pertaining to the aforementioned taxes and assessments, no matter when received, shall belong to Sellers. All taxes and assessments, including without limitation, excise, ad valorem, property, production and severance taxes and any other federal, state and local taxes and assessments attributable to the ownership or operation of the Properties after the Effective Time shall be Buyer's responsibility, and all deductions, credits and refunds pertaining to the aforementioned taxes and assessments, no matter when received, shall belong to Buyer. The actual amounts or values associated with the above, if any, shall be accounted for in the Final Accounting Settlement. The parties agree that the transaction contemplated herein is an occasional sale of assets by Sellers in which Sellers do not trade in the ordinary course of its business. Accordingly, the parties will take commercially reasonable actions to establish the occasional sale exemption from any sales tax associated with the transaction contemplated herein. Notwithstanding the foregoing, Buyer shall be solely responsible for all transfer, sales, use or similar taxes resulting from or associated with the transaction contemplated under this Agreement. 10 6.3 Obligations and Credits. Any and all prepaid insurance premiums, utility charges, taxes, rentals and any other prepays, to the extent applicable to periods of time after the Effective Time and to the extent attributable to the Properties shall be reimbursed to Sellers by Buyer; and accrued payables applicable to periods of time prior to the Effective Time, if any, and attributable to the Properties shall be the responsibility of Sellers. The actual amounts or values associated with the above shall be accounted for in the Final Accounting Settlement. 6.4 Gas Imbalances. Sellers' estimate of the aggregate gas imbalance as of the Effective Time for all the Properties (cumulative working interests), is set forth for each of the Properties on Exhibit I. On or before three (3) Business Days prior to the Closing Date, Sellers shall provide Buyer with a revised gas imbalance schedule for all the Properties as of the Effective Time if there is any change from that set forth in Exhibit I. There shall be a Purchase Price adjustment at Closing for the volumetric difference in the estimated and revised imbalance calculated on Sellers' net revenue interest at a price of [$4.00] per mcf. To the extent that there is any difference between Sellers' actual aggregate gas imbalance as of the Effective Time and the imbalance position settled at Closing, then an adjustment shall be made at the [$4.00] per net mcf rate in the Final Accounting Settlement. There shall be no further gas imbalance adjustments after the Final Settlement Date. In the event of a Title Defect affecting all or a portion of the Properties, the aggregate gas imbalance shown above shall be adjusted to take into account the affected Property. Any Purchase Price adjustments for gas imbalances shall be made only on those Properties purchased by Buyer. 6.5 Miscellaneous Accounting. 6.5.1 A Preliminary Closing Statement will be prepared for Closing, as provided in Section 16.1. 6.5.2 In addition to the items set forth in Sections 6.1 and 6.2, any other amounts due between Buyer and Sellers related to the ownership or operation of the Properties shall be accounted for in the Final Accounting Settlement. 6.6 Final Accounting Settlement. As soon as reasonably practicable, but in no event later than ninety (90) Days after Closing, Sellers shall deliver to Buyer a post-Closing statement setting forth a detailed final calculation of all post-Closing adjustments applicable to the period between the Effective Time and the Closing Date ("Final Accounting Settlement"). As soon as reasonably practicable, but in no event later than thirty (30) Days after Buyer receives the post-Closing statement, Buyer shall deliver to Sellers a written report containing any changes Buyer proposes to be made to such statement. As soon as reasonably practicable, but in no event later than thirty (30) days after Sellers receive Buyer's proposed changes to the post-Closing statement, the parties shall meet and undertake to agree on the post-Closing adjustments. If the parties fail to agree on the post-Closing adjustments, resolution shall be handled in accordance with Section 6.8. The date upon which all amounts associated with the Final Accounting Settlement are agreed to by the parties, whether by decision of the Accounting Referee or otherwise, shall be herein called the "Final Settlement Date". Any amounts owed by either party to the other as a result of such post-Closing adjustments shall be paid within five (5) Business Days after the Final Settlement Date. The adjustments to the Purchase Price under this Article 6 and the payments under this Section 6.6 shall not be limited by or applied against the deductible amounts set forth in Article 8hereof. 6.7 Post-Final Accounting Settlement. Any revenues received or costs and expenses paid by Buyer after the Final Accounting Settlement which are attributable to the ownership or operation of the Properties prior to the Effective Time shall be billed to or reimbursed to Sellers, as appropriate. Any revenues received or costs and expenses paid by Sellers after the Final Accounting Settlement which are attributable to the ownership or operation of the Properties after the Effective Time shall be billed to or reimbursed to Buyer, as appropriate. 11 6.8 Audit Rights. In order to verify the information provided by the parties under this Article 6, Buyer and Sellers shall each have the right to conduct, at such party's sole expense, an audit of the other party's records relating thereto for a period of six (6) months after the Closing Date. OBJECTIONS OR EXCEPTIONS WHICH ARE NOT RAISED WITHIN SUCH SIX MONTH AUDIT PERIODSHALL BE CONCLUSIVELY DEEMED TO BE WAIVED BY THE PARTIES FOR ALL PURPOSES, ANDNEITHER PARTY SHALL HAVE THE RIGHT TO MAKE A CLAIM AGAINST THE OTHER PARTY ORSEEK INDEMNIFICATION OR REIMBURSEMENT FROM THE OTHER PARTY ASSOCIATED WITH THESAME. If within fifteen (15) Days after receiving the results of a party's audit conducted in accordance with this Article, the parties still cannot reach agreement, the disputed items shall be resolved by submitting the same to a firm of independent accountants mutually acceptable to the parties (the "Accounting Referee"). The Accounting Referee shall be instructed to resolve the accounting dispute(s) within thirty (30) Days after having the relevant materials submitted to it for review. The decision of the Accounting Referee shall be binding and non-appealable by the parties. The fees and expenses associated with the Accounting Referee shall be borne equally by Buyer and Sellers. ARTICLE 7. CASUALTY AND CONDEMNATION If a substantial part of the Properties shall be (a) destroyed prior to Closing by a Casualty Loss, or (b) taken in condemnation or if proceedings for such purposes shall be pending (collectively referred to as a "Taking"); then either Buyer or Sellers may terminate this Agreement prior to the Closing. For the purpose of this Article 7, the term "substantial" shall be defined as ten percent (10%) of the unadjusted Purchase Price. If either party terminates this Agreement in accordance with this Section, neither party shall have any further obligations, except as provided in this Article and in Section 15.2.1. If neither party terminates this Agreement, this Agreement shall remain in full force and effect, and Sellers and Buyer shall attempt to agree on a reduction in the Purchase Price, reflecting the reduction in the value of the Properties affected by the Casualty Loss and/or Taking. If the parties cannot agree on a reduction, the Sellers' good faith calculation shall be used for purposes of Closing. Notwithstanding anything herein to the contrary, in no event shall either party have any obligations hereunder with respect to any Casualty Loss and/or Taking except to the extent that the value of all such Casualty Losses and/or Takings, together with the amount of all Title Defects and/or Title Adjustments allowed under Section 4.3, exceed in the aggregate the Title/Casualty Basket Amount, and Buyer hereby waives all downward adjustments to the Purchase Price for all Casualty Losses and/or Takings the cumulative value of which (together with the amount of all Title Defects and/or Title Adjustments allowed under Section 4.3) is less than the Title/Casualty Basket Amount. Unless otherwise agreed by the parties, Sellers shall retain any and all sums paid to Sellers, unpaid awards, insurance proceeds and other payments associated with or attributable to Casualty Losses and/or Takings. If there is a dispute over the value of any Casualty Loss and/or Taking, Buyer may submit the matter to arbitration in accordance with Article 13 within ninety (90) Days after Closing, or if a party terminates this Agreement under this provision and the other party disputes the party's right to terminate hereunder, the disputing party may submit the matter to arbitration in accordance with Article 13 within sixty (60) Days after the date which had been scheduled for Closing. IF BUYER DISPUTES THE PURCHASE PRICE ADJUSTMENT FOR ANY CASUALTY LOSS AND/OR TAKING OR A PARTY DISPUTES TERMINATION, AND BUYER OR THE DISPUTING PARTY, AS APPLICABLE, DOES NOT INITIATE AN ARBITRATION PROCEEDING TO RESOLVE THE MATTER WITHIN THE APPLICABLE TIME PERIODS SPECIFIED IN THE FOREGOING SENTENCE, SUCH PARTY IN EITHER CASE SHALL BE DEEMEDTO HAVE WAIVED ITS RIGHTS WITH RESPECT TO SUCH DISPUTE. 12 ARTICLE 8. INDEMNITIES 8.1 SELLERS' INDEMNITY OBLIGATIONS (EXCLUDING ENVIRONMENTAL CLAIMS). EXCEPT FOR ENVIRONMENTAL CLAIMS WHICH SHALL BE HANDLED IN ACCORDANCE WITH SECTION 8.3, PROVIDED THAT THE CLOSING OCCURS, SELLERS SHALL RELEASE BUYER AND BUYER'S AFFILIATES AND THEIR RESPECTIVE OFFICERS, DIRECTORS AND EMPLOYEES (COLLECTIVELY, THE "BUYER GROUP") FROM AND SHALL FULLY PROTECT, INDEMNIFY, AND DEFEND BUYER GROUP FROM AND AGAINST ANY AND ALL CLAIMS AND ANY AND ALL OCCURRENCES AND CONDITIONS WHICH WOULD CONSTITUTE CLAIMS BUT WHICH ARE ASSERTED BY SELLERS, RELATING TO, ARISING OUT OF, OR CONNECTED WITH (I) THE BREACH BY SELLERS OF THE REPRESENTATIONS CONTAINED IN ARTICLE 10 HEREOF, (II) THE MATTERS SET FORTH ON EXHIBIT G AND (III) SELLERS'OWNERSHIP OR OPERATION OF THE PROPERTIES PRIOR TO THE EFFECTIVE TIME, REGARDLESS OF ANY NEGLIGENCE OF ACT OR OMISSION BY BUYER GROUP; PROVIDED, HOWEVER, THAT, EXCEPT WITH RESPECT TO THE MATTERS DESCRIBED ON EXHIBIT G, PROPER NOTICE UNDER SECTION 8.5 SHALL HAVE BEEN SUBMITTED TO SELLERS WITHIN NINE (9) MONTHS AFTER THE CLOSING DATE, AND FURTHER PROVIDED THAT BUYER SHALL BEAR SOLE RESPONSIBILITY FOR THE COSTS ASSOCIATED WITH ALL SUCH CLAIMS (IN AGGREGATE) UP TO EIGHTY FIVE THOUSAND DOLLARS (US $85,000). WITH RESPECT TO THE MATTERS DESCRIBED ON EXHIBIT G, THERE SHALL BE NO TIME LIMIT FOR BUYER TO ASSERT A CLAIM FOR INDEMNITY AND BUYER SHALL NOT BEAR RESPONSIBILITY FOR ANY OF THE COSTS ASSOCIATED WITH SUCH MATTERS. 8.2 BUYER'S INDEMNITY OBLIGATIONS (EXCLUDING ENVIRONMENTAL CLAIMS). EXCEPT FOR ENVIRONMENTAL CLAIMS WHICH SHALL BE HANDLED IN ACCORDANCE WITH SECTION 8.3, PROVIDED THAT THE CLOSING OCCURS, BUYER SHALL RELEASE SELLERS AND SELLERS' AFFILIATES AND THEIR RESPECTIVE OFFICERS, DIRECTORS AND EMPLOYEES (COLLECTIVELY, THE "SELLER GROUP") FROM AND SHALL FULLY PROTECT, INDEMNIFY, AND DEFEND THE SELLER GROUP FROM AND AGAINST ANY AND ALL CLAIMS AND ANY AND ALL OCCURRENCES AND CONDITIONS WHICH WOULD CONSTITUTE CLAIMS BUT WHICH ARE ASSERTED BY BUYER RELATING TO, ARISING OUT OF, OR CONNECTED WITH (I) THE BREACH BY BUYER OF THE REPRESENTATIONS CONTAINED IN ARTICLE 11 HEREOF, (II) THE ASSUMED OBLIGATIONS AND (III) THE OWNERSHIP OR OPERATION OF THE PROPERTIES (A) PERTAINING TO THE PERIOD AFTER THE EFFECTIVE TIME, AND (B) PERTAINING TO THE PERIOD PRIOR TO THE EFFECTIVE TIME, UNLESS SUCH CLAIMS OR OCCURRENCES AND CONDITIONS SHALL HAVE BEEN SUBMITTED TO SELLERS IN ACCORDANCE WITH THE NOTICE PROVISIONS HEREOF WITHIN NINE (9) MONTHS AFTER THE CLOSING DATE AND ARE IN THE AGGREGATE GREATER THAN EIGHTY FIVE THOUSAND DOLLARS (US $85,000). THIS INDEMNITY SHALL APPLY REGARDLESS OF ANY NEGLIGENCE OF ACT OR OMISSION BY SELLER GROUP. 8.3 ENVIRONMENTAL CLAIMS. BUYER SHALL RELEASE SELLER GROUP AND SHALL FULLY PROTECT, INDEMNIFY, AND DEFEND SELLER GROUP FROM AND AGAINST ANY AND ALL ENVIRONMENTAL CLAIMS AND ANY AND ALL OCCURRENCES AND CONDITIONS WHICH WOULD CONSTITUTE ENVIRONMENTAL CLAIMS BUT WHICH ARE ASSERTED BY BUYER, RELATING TO, ARISING OUT OF OR CONNECTED WITH THE OWNERSHIP OR OPERATION OF THE PROPERTIES (I) PERTAINING TO THE PERIOD AFTER THE EFFECTIVE TIME, AND (II) PERTAINING TO THE PERIOD PRIOR TO THE EFFECTIVE TIME, UNLESS SUCH ENVIRONMENTAL CLAIMS OR OCCURRENCES AND CONDITIONS SHALL HAVE BEEN SUBMITTED TO SELLERS IN ACCORDANCE WITH THE NOTICE PROVISIONS HEREOF WITHIN NINE (9) MONTHS AFTER THE CLOSING DATE 13 AND ARE IN THE AGGREGATE GREATER THAN EIGHTY FIVE THOUSAND DOLLARS (US $85,000), IN WHICH CASE SELLERS SHALL INDEMNIFY BUYER WITH RESPECT TO SUCH ENVIRONMENTAL CLAIMS AS PROVIDED IN SECTION 8.1 ABOVE. 8.4 Asbestos and NORM. The parties acknowledge that the Properties may contain asbestos and/or NORM, and that special procedures may be required for the assessment, remediation, removal, transportation or disposal of asbestos and NORM. Buyer agrees to assume any and all liability associated with or attributable to the assessment, remediation, removal, transportation and disposal of the asbestos or NORM associated with or attributable to the Properties and shall conduct said activities in accordance with all applicable Laws. 8.5 Notice and Cooperation. If a Claim is asserted against a party for which the party would be liable under the provisions of this Agreement, it is a condition precedent to the indemnifying party's obligations hereunder that the indemnified party gives the indemnifying party written notice of such Claim setting forth full particulars of the Claim, as known by the indemnified party, including a copy of the Claim (if it was a written Claim.) The indemnified party shall make a good faith effort to notify the indemnifying party within one(1) month of receipt of a Claim and shall in all events effect such notice within such time as will allow the indemnifying party to defend against such Claim and no later than three (3) calendar months after receipt of the Claim by the indemnified party. The notice of a Claim given hereunder is referred to as a "Claim Notice." 8.6 Defense of Claims. 8.6.1 Counsel. Upon receipt of a Claim Notice, the indemnifying party may assume the defense thereof with counsel selected by the indemnifying party and reasonably satisfactory to the indemnified party. The indemnified party shall cooperate in all reasonable respects in such defense. If any Claim involves Claims with respect to which Buyer indemnifies Sellers and also Claims for which Sellers indemnify Buyer, each party shall have the right to assume the defense of and hire counsel for that portion of the Claim for which it has liability. The indemnified party shall have the right to employ separate counsel in any Claim and to participate in the defense thereof, provided the fees and expenses of counsel employed by an indemnified party shall be at the expense of the indemnified party unless otherwise agreed between the parties. 8.6.2 Settlement. If the indemnifying party does not notify the indemnified party within the earlier to occur of: (a) the time a response is due in the relevant litigation matter, or (b) three (3) calendar months after receipt of the Claim Notice, that the indemnifying party elects to undertake the defense thereof, the indemnified party has the right to defend, at the sole expense of the indemnifying party, the Claim with counsel of its own choosing, subject to the right of the indemnifying party to assume the defense of any Claim at any time prior to settlement or final determination thereof at the indemnifying party's sole expense. In such event, the indemnified party shall send a written notice to the indemnifying party of any proposed settlement of any Claim, which settlement the indemnifying party may accept or reject, in its reasonable judgment, within thirty (30) days of receipt of such notice, unless the settlement offer is limited to a shorter period of time in which case the indemnifying party shall have such shorter period of time in which to accept or reject the proposed settlement. Failure of the indemnifying party to accept or reject such settlement within the thirty (30)-day period shall be deemed to be its rejection of such settlement. The indemnified party may settle any matter over the objection of the indemnifying party but shall in so doing be deemed to have waived any right to indemnity therefor as to (and only as to) liabilities with respect to which the indemnifying party has recognized its liability. 8.7 WAIVER OF CERTAIN DAMAGES. EACH OF THE PARTIES HEREBY WAIVES, AND AGREES NOT TO SEEK, INDIRECT, CONSEQUENTIAL, PUNITIVE, EXEMPLARY OR SPECIAL DAMAGES OF ANY KIND WITH RESPECT TO ANY CLAIM, OCCURRENCE, CONDITION OR DISPUTE, ARISING OUT OF OR RELATING TO THIS AGREEMENT OR BREACH HEREOF; PROVIDED, HOWEVER, THAT THIS PROVISION DOES NOT DIMINISH OR AFFECT IN ANY WAY THE PARTIES' RIGHTS AND OBLIGATIONS UNDER ANY INDEMNITIES PROVIDED FOR IN THIS AGREEMENT. 8.8. LIMITATION ON INDEMNITIES. NOTWITHSTANDING ANY PROVISIONS IN SECTIONS 8.1 AND 8.2 TO THE CONTRARY, IN NO EVENT SHALL AN INDEMNIFYING PARTY HAVE ANY OBLIGATION OF INDEMNIFICATION TO THE OTHER PARTY, IF THE CLAIM, OCCURRENCE, 14 CONDITION OR DISPUTE FOR WHICH INDEMNITY IS SOUGHT WAS CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT ON THE PART OF THE INDEMNIFIED PARTY AND/OR ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, CONTRACTORS, SUBCONTRACTORS OR AFFILIATES. 8.9. SOLE REMEDY. If the Closing occurs, the sole and exclusive remedy of each of the Buyer Group with respect to the Properties, including this purchase and sale, shall be pursuant to the express indemnification provisions of this Article 8. Any and all (a) claims relating to the representations, warranties, covenants and agreements of Sellers contained in this Agreement, (b) other claims by Buyer pursuant to, or in connection with, this Agreement, or (c) other claims by Buyer relating to the Properties and the purchase and sale thereof, shall be subject and pursuant to the provisions set forth in this Article 8. If the Closing occurs, except for claims made pursuant to the express indemnification provisions of this Article 8, Buyer, on behalf of each of the Buyer Group shall be deemed to have waived, to the fullest extent permitted under applicable law, any right to contribution against Sellers or any of the Seller Group, and any and all other rights, claims, and causes of action it may have against Sellers or any of the Seller Group, arising under or on any federal, state, or local statute, law ordinance, rule or regulation, common law or otherwise. ARTICLE 9. WARRANTIES AND DISCLAIMERS 9.1 SPECIAL WARRANTY OF TITLE. SELLERS SHALL WARRANT AND DEFEND TITLE TO THE PROPERTIES CONVEYED TO BUYER AGAINST EVERY PERSON WHOMSOEVER LAWFULLY CLAIMING THE PROPERTIES OR ANY PART THEREOF BY, THROUGH OR UNDER SELLERS, BUT NOT OTHERWISE, AND SUBJECT TO THE PERMITTED ENCUMBRANCES. 9.2 DISCLAIMER - REPRESENTATIONS AND WARRANTIES. BUYER ACKNOWLEDGES AND AGREES THAT THE PROPERTIES ARE BEING SOLD, ASSIGNED AND CONVEYED FROM SELLERS TO BUYER "AS-IS, WHERE-IS", AND WITH ALL FAULTS IN THEIR PRESENT CONDITION AND STATE OF REPAIR, WITHOUT RECOURSE. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, SELLERS HEREBY DISCLAIM ANY AND ALL REPRESENTATIONS AND WARRANTIES CONCERNING THE PROPERTIES, EXPRESS, STATUTORY, IMPLIED OR OTHERWISE, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF TITLE (EXCEPT AS SET FORTH IN SECTION 9.1), THE QUALITY OF HYDROCARBON RESERVES, THE QUANTITY OF HYDROCARBON RESERVES, THE AMOUNT OF REVENUES, THE AMOUNT OF OPERATING COSTS, CONDITION (PHYSICAL OR ENVIRONMENTAL), QUALITY, COMPLIANCE WITH APPLICABLE LAWS, ABSENCE OF DEFECTS (LATENT OR PATENT), SAFETY, STATE OF REPAIR, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND BUYER EXPRESSLY RELEASES SELLERS FROM THE SAME. 9.3 DISCLAIMER - STATEMENTS AND INFORMATION. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, SELLERS DISCLAIM ANY AND ALL LIABILITY AND RESPONSIBILITY FOR AND ASSOCIATED WITH THE QUALITY, ACCURACY, COMPLETENESS OR MATERIALITY OF THE RECORDS AND ANY OTHER INFORMATION PROVIDED AT ANY TIME (WHETHER ORAL OR WRITTEN) 15 TO BUYER, ITS OFFICERS, AGENTS, EMPLOYEES AND REPRESENTATIVES IN CONNECTION WITH THE TRANSACTION CONTEMPLATED HEREIN, INCLUDING WITHOUT LIMITATION, QUALITY OF HYDROCARBON RESERVES, QUANTITY OF HYDROCARBON RESERVES, AMOUNT OF REVENUES, AMOUNT OF OPERATING COSTS, FINANCIAL DATA, CONTRACT DATA, ENVIRONMENTAL CONDITION OF THE PROPERTIES, PHYSICAL CONDITION OF THE PROPERTIES AND CONTINUED FINANCIAL VIABILITY OF THE PROPERTIES, AND BUYER EXPRESSLY RELEASES SELLERS FROM THE SAME. ARTICLE 10. SELLERS' REPRESENTATIONS AND WARRANTIES Each representation or warranty made herein by a Seller is made solely as to such Seller and the Properties and not as to any other Seller. Subject to the foregoing, each Seller (unless expressly limited to a specific Seller) hereby represents and warrants to Buyer that on the date hereof and as of the Closing Date: 10.1 Organization and Good Standing. Each Seller that is an organization is duly organized, validly existing and in good standing under the Laws of the State of Texas, and has all requisite corporate power and authority to own and lease the Properties. Each Seller that is an organization is duly licensed or qualified to do business in the State of Texas and is in good standing in all jurisdictions in which the Properties are located. 10.2 Corporate Authority; Authorization of Agreement. Each Seller that is an organization has all requisite corporate power and authority to execute and deliver this Agreement, to consummate the transactions contemplated herein and to perform all of the terms and conditions to be performed by it as provided for in this Agreement. The execution and delivery of this Agreement by Sellers, the performance by Sellers of all of the terms and conditions to be performed by it and the consummation of the transactions contemplated herein have been duly authorized and approved by all necessary corporate action. This Agreement has been duly executed and delivered by Sellers and constitutes the valid and binding obligation of Sellers, enforceable against each Seller in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency or other Laws relating to or affecting the enforcement of creditors' rights and general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). 10.3 No Violations. The execution and delivery of this Agreement by each Seller does not, and the fulfillment and compliance with the terms and conditions hereof and the consummation of the transactions contemplated herein, will not: (a) Conflict with or require the consent of any person or entity under any of the terms, conditions or provisions of the certificate of incorporation or bylaws of Sellers; (b) Violate any provision of, or require any filing, consent or approval under any Law applicable to or binding upon a Seller (assuming receipt of all consents and approvals of governmental entities customarily obtained subsequent to the transfers of title); (c) Conflict with, result in a breach of, constitute a default under or constitute an event that with notice or lapse of time, or both, would constitute a default under, accelerate or permit the acceleration of the performance required by, or require any consent, authorization or approval under, (i) any mortgage, indenture, loan, credit agreement or other agreement, evidencing indebtedness for borrowed money to which a Seller is a party or by which a Seller is bound or (ii) any order, judgment or decree of any governmental entity or tribal authority; or (d) Result in the creation or imposition of any lien or encumbrance upon the Properties. 16 10.4 Absence of Certain Changes. Between the execution date hereof and the Closing Date, there have not been and there shall not be without Buyer's prior written consent: (a) A sale, lease or other disposition of any material part of the Properties; (b) A mortgage, pledge or grant of a lien or security interest in any of the Properties; or (c) A contract or commitment to do any of the foregoing. 10.5 Operating Costs. To the best of Sellers' knowledge, all costs incurred in connection with operation of the Properties have been fully paid and discharged by Sellers, except normal expenses incurred in operating the Properties within the previous sixty (60) Days or as to which Sellers have not yet been billed or as to which Sellers are disputing in good faith. 10.6 Litigation and Other Disputes. Except for the matters listed on Exhibit G (liability for which shall be retained by the affected Seller), there is no action, suit or proceeding pending or, to the best of Sellers' knowledge, threatened against Sellers or the Properties which would reasonably be expected to have a material adverse effect on Buyer or Buyer's interest in the Properties after Closing or to prevent the consummation of the transaction contemplated by this Agreement. For purposes of this provision, "material" means an impact of greater than Ten Thousand Dollars (US$10,000). 10.7 Bankruptcy. There are no bankruptcy, reorganization or receivership proceedings pending, being contemplated by or, to the best of Sellers' knowledge, threatened against Sellers. 10.8 Material Contracts. To the best of Sellers' knowledge, Exhibit F sets forth a list of the material contracts, agreements, and commitments to which any of the Properties are bound: (a) any agreement with any affiliate of Sellers; (b) any agreement or contract of Sellers for the sale, exchange or other disposition of Hydrocarbons produced from the Properties that is not cancelable without penalty on not more than 31 days prior written notice; (c) any agreement of Sellers to sell, lease, farm out or otherwise dispose of any of its interests in any of the Properties other than conventional rights of reassignment; (d) any tax partnership agreement of Sellers affecting any of the Properties; (e) any operating agreement to which Sellers' interests in any of the Properties is subject; (f) any agreement pursuant to which Sellers has not consented to, or forfeited, its rights to participate in future oil and gas operations; (g) any agreement pursuant to which Sellers have received an advance payment, prepayment or similar deposit, and has a refund obligation, with respect to any gas or products purchased, sold, gathered, processed or marketed by or for Sellers out of the Properties, (h) any contract that requires Sellers to expend more than$25,000 in any year in connection with the Properties; (i) any option to purchase or call on the Hydrocarbons produced from the Properties; and (j) any lease, title retention agreement, or security interest affecting any of the Equipment. 10.9 Consents and Preferential Rights. To the best of Sellers' knowledge, except for those consents and approvals customarily obtained subsequent to the transfer of title, Exhibit J contains a complete and accurate list of all consents to assignment that are required to be obtained, made or given by Sellers for the assignment or transfer of the Properties to Buyer and all preferential purchase rights that affect the Properties. 10.10 Compliance with Law and Permits. Except for those matters set forth on Exhibit K hereto and such other matters as would not have a material adverse effect on the value of the Properties, to the best of Sellers' knowledge, Ricochet and those third parties operating any portion of the Properties, (a) are in material compliance with all laws, rules, regulations, ordinances, orders, decisions and decrees of all governmental authorities having jurisdiction with respect to the Properties or the ownership or operation of any thereof; (b) have obtained all necessary governmental permits, licenses, 17 approvals, consents, certificates and other authorizations with regard to the ownership or operation of the Properties and have maintained the same in effect and no material violations exist in respect of such permits, licenses, approvals, consents, certificates or authorizations; and (c) are not aware of any facts, conditions or circumstances in connection with, related to or associated with the Properties or the ownership or operation of any thereof that could reasonably be expected to give rise to any claim or assertion that Sellers, the Properties or the ownership or operation of any thereof is not in material compliance with any applicable law, rule, regulation, ordinance, order, decision or decree of any governmental authority or with any term or conditions of any applicable permit, license, approval, consent, certificate or other authorization. 10.11 Environmental Compliance. Except for those matters set forth on Exhibit K hereto and such other matters as would not have a material adverse effect on the value of the Properties, to the best of Sellers' knowledge, Ricochet and those third parties operating any portion of the Properties, (a) have obtained and maintained in effect all environmental and health and safety permits, licenses, approvals, consents, certificates and other authorizations necessary for the ownership or operation of the Properties ("Environmental Permits"); (b) are in material compliance with all applicable Environmental Laws and with all terms and conditions of all Environmental Permits, and all prior instances of noncompliance have been fully and finally resolved to the satisfaction of all governmental authorities with jurisdiction over such matters; (c) are not subject to any Environmental Claims arising from, based upon, associated with or related to the Properties or the ownership or operation of any thereof; (d) have not received any notice of any Environmental Claim or any violation, noncompliance or possible noncompliance with any Environmental Law or the terms or conditions of any Environmental Permit, arising from, based upon, associated with or related to the Properties or the ownership or operation of any thereof; and (e) are not otherwise aware of any facts, conditions or circumstances in connection with, related to or associated with the Properties or the ownership or operation of any thereof, that could reasonably be expected to give rise to any Environmental Claim or any claim or assertion that Sellers, the Properties or the ownership or operation thereof is not in compliance with Environmental Laws or the terms or conditions of any Environmental Permit. 10.12 Status of Contracts. (a) All of the Material Contracts are in full force and effect, and (b) neither Sellers nor, to the knowledge of Sellers, any other party to the Material Contracts (i) is in breach of or default, or with the lapse of time or the giving of notice, or both, would be in breach or default, with respect to any of its obligations thereunder to the extent that such breaches or defaults would have a material adverse impact on any of the Properties or (ii) has given or threatened to give notice of any default under or inquiry into any possible default under, or action to alter, terminate, rescind or procure a judicial reformation of any Material Contract. 10.13 Production Burdens, Taxes, Expenses and Revenues. To the best of Sellers' knowledge, (a) all rentals, royalties, excess royalty, overriding royalty interests and other payments due under or with respect to the Properties have been properly and timely paid, (b) all ad valorem, property, production, severance and other taxes based on or measured by the ownership of the Properties or the production of Hydrocarbons from the Properties have been properly and timely paid, (c) all expenses payable by Sellers under the terms of the Material Contracts have been properly and timely paid except for such expenses as are being currently paid prior to delinquency or are being contested in good faith in the ordinary course of business and (d) all of the proceeds from the sale of Hydrocarbons are being properly and timely paid to Sellers by the purchasers of production without suspension or indemnity other than standard division order indemnities. 10.14 Production Sales Matters. Except as set forth on Exhibit L, to the best of Sellers' knowledge, (a) none of the purchasers under any production sales contracts is entitled to "makeup" or otherwise receive deliveries of Hydrocarbons without paying at the time of such deliveries the full contract price therefore by reason of payments made prior to the Effective Time; (b) none of the purchasers under any production sales contracts has exercised any economic out provision; (c) none of the purchasers under any production sales 18 contracts has curtailed its takes of natural gas in violation of such contracts; (d) none of the purchasers under any production sales contracts has given notice that it desires to amend the production sales contracts with respect to price or quantity of deliveries undertake-or-pay provisions or otherwise; and (e) Sellers are not obligated to pay any penalties or other payments under any gas transportation or other agreement as a result of the delivery of quantities of gas from the Properties in excess of the contract requirements. 10.15 Capital Commitments. Exhibit M contains a complete and accurate list as of the date of this Agreement of (a) all authorities for expenditures("AFEs") to drill or rework wells or for capital expenditures pursuant to any of the Material Contracts that have been proposed by any person on or after the Effective Time, whether or not accepted by Sellers or any other person, and (b)all AFEs and oral or written commitments to drill or rework wells or for other capital expenditures pursuant to any of the Material Contracts that are equal to or greater than US $25,000 and for which all of the activities anticipated in such AFEs or commitments have not been completed by the date of this Agreement. 10.16 Limitation on Representations. The representations contained in Sections 10.5 through 10.15 shall survive Closing for a period of nine (9)months after the Closing Date and shall thereupon terminate. Furthermore, the representations contained in Sections 10.5 through 10.15 are limited in scope to those matters that either occurred or that Sellers received actual knowledge of during the time period extending from April 1, 2012 through the Closing Date. 10.17 Brokers. No Seller has incurred any liability, contingent or otherwise, for brokers' or finders' fees with respect to this transaction for which Buyer shall have any responsibility whatsoever. ARTICLE 11. BUYER'S REPRESENTATIONS AND WARRANTIES Buyer represents and warrants to Sellers that on the date hereof and as of the Closing Date: 11.1 Organization and Good Standing. Buyer is a corporation duly organized, validly existing and in good standing under the Laws of the State of Nevada and has all requisite corporate power and authority to own and lease the Properties. Buyer is duly licensed or qualified to do business as a foreign corporation and is in good standing in all jurisdictions in which the Properties are located. 11.2 Corporate Authority; Authorization of Agreement. Buyer has all requisite corporate power and authority to execute and deliver this Agreement, to consummate the transactions contemplated herein and to perform all the terms and conditions to be performed by it as provided for in this Agreement. The execution and delivery of this Agreement by Buyer, the performance by Buyer of all the terms and conditions to be performed by it and the consummation of the transactions contemplated herein have been duly authorized and approved by all necessary corporate action. This Agreement has been duly executed and delivered by Buyer and constitutes the valid and binding obligation of Buyer, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency or other Laws relating to or affecting the enforcement of creditors' rights and general principles of equity(regardless of whether such enforceability is considered in a proceeding at law or in equity). 11.3 No Violations. The execution and delivery of this Agreement by Buyer does not, and the fulfillment and compliance with the terms and conditions hereof and the consummation of the transactions contemplated herein, do not: (a) Conflict with or require the consent of any person or entity under any of the terms, conditions or provisions of the certificate of incorporation or bylaws of Buyer; (b) Violate any provision of, or require any filing, consent or approval under any Law applicable to or binding upon Buyer; 19 (c) Conflict with, result in a breach of, constitute a default under or constitute an event that with notice or lapse of time, or both, would constitute a default under, accelerate or permit the acceleration of the performance required by, or require any consent, authorization or approval under, (i) any mortgage, indenture, loan, credit agreement or other agreement evidencing indebtedness for borrowed money to which Buyer is a party or by which Buyer is bound, or (ii) any order, judgment or decree of any governmental entity or tribal authority; or (d) Result in the creation or imposition of any lien or encumbrance upon the Properties. 11.4 SEC Disclosure. Buyer is an experienced and knowledgeable investor and operator in the oil and gas business. Buyer is acquiring the Properties for its own account for use in its trade or business, and not with a view toward or for sale in connection with any distribution thereof, nor with any present intention of making a distribution thereof within the meaning of the Securities Act of 1933, as amended. 11.5 INDEPENDENT EVALUATION. AS OF CLOSING, BUYER REPRESENTS THAT IT IS SOPHISTICATED IN THE EVALUATION, PURCHASE, OPERATION AND OWNERSHIP OF OIL AND GAS PROPERTIES AND THAT IN MAKING ITS DECISION TO ENTER INTO THIS AGREEMENT AND TO CONSUMMATE THE TRANSACTION CONTEMPLATED HEREIN, BUYER HAS RELIED AND SHALL RELY SOLELY ON SELLERS' REPRESENTATIONS CONTAINED HEREIN AND ON ITS OWNINDEPENDENT INVESTIGATION AND EVALUATION OF THE PROPERTIES AND HAS SATISFIED ITSELF AS TO THE PHYSICAL CONDITION AND ENVIRONMENTAL CONDITION OF THE PROPERTIES. 11.6 BUYER'S RELIANCE. BUYER ACKNOWLEDGES AND AGREES THAT IT IS ENTITLED TO RELY ONLY ON THE EXPRESS REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS AGREEMENT. 11.7 Qualified Leaseholder. Buyer meets the operator designation and all bonding requirements of the state and/or other governmental authorities in which the Properties are located, and, after the Closing, Buyer will continue to be able to meet such bonding requirements. Buyer is and, after the Closing, is expected to continue to be, otherwise qualified to own the Properties. The consummation of the transactions contemplated hereby will not cause Buyer to be disqualified to be an owner of federal oil, gas, and mineral leases in the Gulf of Mexico region, or to exceed any acreage limitation imposed by any law, statute, rule or regulation. Buyer is not aware of any fact that could reasonably be expected to cause any governmental authorities to fail to approve the assignment of the Properties to Buyer. 11.8 Brokers. Buyer has not incurred any liability, contingent or otherwise, for brokers' or finders' fees with respect to this transaction for which Sellers shall have any responsibility whatsoever. ARTICLE 12. ADDITIONAL AGREEMENTS 12.1 Covenants of Sellers. From the date hereof until Closing, without first obtaining the consent of Buyer, Sellers have not and will not: (a) waive any righ1t of material value relating to the Properties; (b) convey, encumber, mortgage, pledge any of the Properties nor dispose of any of the Properties, other than the sale of production in the ordinary course of business and except as may be required in connection with the exercise of preferential rights affecting the Properties; (c) enter into, modify or terminate any contracts relating to the Properties; 20 (d) vote to commit to any material project or material expenditure under any operating agreement affecting the Properties or elect to participate in any operation on the Properties requiring an expenditure of greater than Twenty Five Thousand Dollars (US $25,000) to Sellers' interest, except to the extent required in an emergency to protect life or property from immediate harm or destruction; or (e) contract or commit itself to do any of the foregoing. 12.2 Notice of Loss. From the date hereof until Closing, Sellers shall promptly notify Buyer of any loss or damage to the Properties, or any part thereof, known to Sellers and in the aggregate exceeding Ten Thousand Dollars (US $10,000) net to Sellers' interest. 12.3 Subsequent Operations. Sellers make no representations or warranties to Buyer as to the transferability or assignability of operatorship of the Properties. Buyer acknowledges that the rights and obligations associated with operatorship of the Properties are governed by the applicable agreement(s) and that operatorship of the Properties shall be decided in accordance with the terms of said agreement(s); provided, however, Sellers agree to provide reasonable assistance to Buyer (at no expense to Sellers) in connection with Buyer's effort to be designated as operator of the Properties. 12.4 Buyer's Assumption of Obligations. Except as otherwise expressly provided in this Agreement, Buyer agrees to assume and shall timely perform and discharge all duties and obligations of Sellers insofar as the same relate to or arise out of Sellers' interest in the Properties relating to the period of time after the Closing, including, without limitation, all duties and obligations of Sellers under all the Material Contracts (the "Assumed Obligations"), and Buyer shall indemnify and hold Sellers harmless from and against any and all liabilities of whatsoever nature arising out of Buyer's failure to properly perform or discharge the Assumed Obligations, except to the extent the same relate to the breach of any representation or warranty of Sellers as set forth in and limited by this Agreement, or the breach of, or failure to perform or satisfy any covenant of Sellers set forth in this Agreement. Buyer agrees to accept full responsibility for Sellers' proportionate share of the costs and expenses associated with or attributable to the plugging and abandonment of all wells, and the removal of all equipment, platforms and facilities conveyed to Buyer under this Agreement and the remediation, restoration and cleanup of the Properties. In conducting the duties and obligations contained in this Section12.4, Buyer shall comply with the applicable Laws of all governmental entities and tribal authorities having appropriate jurisdiction. Buyer shall not assume(i) any duties, obligations or liabilities with respect to or relating to any matter disclosed under, or that should have been disclosed, under Exhibit G and(ii) any obligation of Sellers to pay or discharge any refunds, including interest and penalties, if any, that may be imposed by any governmental authority arising from the sale of Hydrocarbons and operation of the Properties prior to the Effective Time. 12.5 Records. Within thirty (30) Days after Closing, Sellers shall make available to Buyer all Records which are maintained by Sellers to be picked up at the offices of Ricochet, provided, however, that Sellers are entitled to retain copies of any or all such Records. Buyer agrees to maintain the Records received from Sellers in accordance herewith for a period of six (6) years after the Closing Date and to afford Sellers reasonable access to the Records as requested by Sellers. If Buyer desires to dispose of any such Records prior to the end of the six (6) year period, Buyer shall offer in writing to Sellers to deliver such Records to Sellers; if Sellers elect not to receive such Records or fail to respond to Buyer's notice within thirty (30) Business Days after receipt thereof, then Buyer may dispose of such Records within its discretion. 21 ARTICLE 13. DISPUTE RESOLUTION 13.1 Independent Expert. Any dispute arising under this Agreement that cannot be resolved informally by agreement of the parties, including disputes regarding title issues, environmental issues, or valuations of the Properties or revisions thereto (each a "DISPUTE"), shall be referred to and resolved by binding arbitration by an independent expert appointed in accordance with this Section 13.1 ( the "INDEPENDENT EXPERT"), who shall serve as sole arbitrator. The Independent Expert shall be appointed by mutual agreement of Buyer and Ricochet from among candidates with experience and expertise in the area that is the subject of such Dispute, and failing such agreement, such Independent Expert for such Dispute shall be selected as would a single arbitrator in accordance with the Rules (as hereinafter defined.) Disputes to be resolved by an Independent Expert shall be resolved in accordance with mutually agreed procedures and rules and failing such agreement, in accordance with the rules and procedures for arbitration provided in Section 13.2. The Independent Expert shall be instructed by Buyer and Ricochet to resolve such Dispute as soon as reasonably practicable in light of the circumstances. The decision and award of the Independent Expert shall be binding upon the Parties as an award under the Federal Arbitration Act and final and non-appealable to the maximum extent permitted by law, and judgment thereon may be entered in a court of competent jurisdiction and enforced by any Party as a final judgment of such court. 13.2 Rules and Procedures. 13.2.1 Arbitration of Disputes shall be conducted pursuant to the Federal Arbitration Act, except as expressly provided otherwise in this Agreement. The validity, construction, and interpretation of this Section 13.2, and all procedural aspects of the arbitration conducted pursuant hereto shall be decided by the Independent Expert. The arbitration shall be administered by the American Arbitration Association (the "AAA"), and shall be conducted pursuant to the Commercial Arbitration Rules of the AAA (the "Rules"), except as expressly provided otherwise in this Agreement. The arbitration proceedings shall be subject to any optional rules contained in the Rules for emergency measures and, in the case of Disputes with respect to amounts in excess of $1 million, optional rules for large and complex cases. 13.2.2 All arbitration proceedings hereunder shall be conducted in San Antonio, Texas or such other mutually agreeable location. 13.2.3 In deciding the substance of the Dispute, the Independent Expert shall refer to the substantive laws of the State of Texas for guidance (excluding choice-of-law principles that might call for the application of the laws of another jurisdiction). Matters relating to arbitration shall be governed by the Federal Arbitration Act. The parties agree that the Independent Expert shall not have the authority to grant or award indirect, consequential, punitive, exemplary or special damages. 13.2.4 The fees and expenses of the Independent Expert shall be borne equally by Buyer and Sellers, but the decision of the Independent Expert may include such award of the Independent Expert's fees and expenses and of other costs and attorneys' fees as the Independent Expert determines appropriate (provided that such award of costs and fees may not exceed the amount of such costs and fees incurred by the winning party in the arbitration). 13.2.5 The decision and award of the Independent Expert shall be binding upon the Parties and final and non-appealable to the maximum extent permitted by law, and judgment thereon may be entered in a court of competent jurisdiction and enforced by any Party as a final judgment of such court. 22 ARTICLE 14. CONDITIONS PRECEDENT TO CLOSING 14.1 Conditions Precedent to Sellers' Obligation to Close. Sellers shall be obligated to consummate the sale of the Properties as contemplated by this Agreement on the Closing Date, provided the following conditions precedent have been satisfied or have been waived by Sellers: 14.1.1 All representations and warranties of Buyer contained in this Agreement shall be true and correct in all material respects at and as of Closing as though such representations and warranties were made at and as of such time; 14.1.2 Buyer shall have complied in all material respects with all obligations and conditions contained in this Agreement to be performed or complied with by Buyer at or prior to the Closing; and 14.1.3 No suit, action or other proceedings shall be pending before any court or governmental entity in which it is sought by a person or entity (other than the parties hereto or any of their Affiliates, officers, directors, or employees) to restrain, enjoin or otherwise prohibit the consummation of the transactions contemplated by this Agreement, or to obtain substantial damages in connection with the transaction contemplated herein, nor shall there be any investigation by a governmental entity pending which might result in any such suit, action or other proceedings seeking to restrain, enjoin or otherwise prohibit the consummation of the transaction contemplated by this Agreement. 14.1.4 This Agreement shall not have been terminated pursuant to the provisions in Article 15 or otherwise contained herein. 14.2 Conditions Precedent to Buyer's Obligation to Close. Buyer shall be obligated to consummate the purchase of the Properties as contemplated by this Agreement on the Closing Date, provided that the following conditions precedent have been satisfied or have been waived by Buyer: 14.2.1 All representations and warranties of Sellers contained in this Agreement shall be true and correct in all material respects at and as of Closing as though such representations and warranties were made at and as of such time; 14.2.2 Sellers shall have complied in all material respects with all obligations and conditions contained in this Agreement to be performed or complied with by Sellers at or prior to the Closing; and 14.2.3 No suit, action or other proceedings shall be pending before any court or governmental entity in which it is sought by a person or entity (other than the parties hereto or any of their Affiliates, officers, directors, or employees) to restrain, enjoin or otherwise prohibit the consummation of the transactions contemplated by this Agreement, or to obtain substantial damages in connection with the transaction contemplated herein, nor shall there be any investigation by a governmental entity pending which might result in any such suit, action or other proceedings seeking to restrain, enjoin or otherwise prohibit the consummation of the transaction contemplated by this Agreement. 14.2.4 This Agreement shall not have been terminated pursuant to the provisions in Article 15 or otherwise contained herein. ARTICLE 15. TERMINATION 15.1 Grounds for Termination. This Agreement may be terminated at any time prior to Closing: 23 15.1.1 By the mutual written agreement of Sellers and Buyer; 15.1.2 By Sellers if Buyer fails or refuses to Close in breach of this Agreement or if the conditions precedent to Sellers' obligation to Close are unmet at the time set for Closing; 15.1.3 By Buyer if Sellers fail or refuse to Close in breach of this Agreement or if the conditions precedent to Buyer's obligation to Close are unmet at the time set forth Closing; 15.1.4 By either Sellers or Buyer pursuant to Article 7; 15.1.5 By Sellers if the Purchase Price would be adjusted downward by ten percent (10%) or more or by Buyer if the Purchase Price would be adjusted upward by ten percent (10%) or more in accordance with Article 4; or 15.1.6 By either party (provided the terminating party is not then in breach of any provisions of this Agreement), if Closing shall not have occurred within sixty (60) days following the originally scheduled Closing Date. 15.2 Effect of Termination. 15.2.1 Except as provided in Section 15.2.2 below, if this Agreement is terminated in accordance with Section 15.1, such termination shall be without liability of either party or any Affiliate, officer, director, or employee of such party, except for Sellers' obligation (if applicable) to return the Earnest Money Deposit, as provided in Article 3, the obligations to arbitrate any dispute arising from such termination and the obligations provided in Sections 15.3, 15.4, 15.5, and 17.3. 15.2.2 If this Agreement is terminated because of Buyer's failure or refusal to Close in breach of this Agreement or because the conditions precedent to Sellers' obligation to Close provided in Section 14.1 are unmet at the time set for Closing, Sellers shall be entitled to retain the Earnest Money Deposit as liquidated damages to reimburse Sellers for out-of-pocket fees and expenses incurred in connection with the transactions contemplated by this Agreement, unless any of the conditions precedent to Buyer's obligation to Close provided in Section 14.2 are also unmet at the time set for Closing, in which case Sellers shall return the Earnest Money Deposit to Buyer. 15.3 Dispute Over Right to Terminate. If there is a dispute between the parties over either party's right to terminate this Agreement under Section15.1, Closing shall not occur, as scheduled. The party which disputes the other party's right to terminate may initiate arbitration proceedings in accordance with Article 13 within thirty (30) Days after the date on which Closing was scheduled to occur and, if arbitration is so initiated, the dispute will be resolved through such arbitration proceeding. IF THE PARTY WHICH DISPUTES THE TERMINATION RIGHT DOES NOT INITIATE AN ARBITRATION PROCEEDING TO RESOLVE THE DISPUTE WITHIN THE TIME PERIOD SPECIFIED HEREINABOVE, SUCH PARTY SHALL BE DEEMEDTO HAVE WAIVED ITS RIGHT TO OBJECT TO SUCH TERMINATION. 15.4 Return of Documents. If this Agreement is terminated, each party shall return to the party which owns or is otherwise entitled thereto all books, records, maps, files, papers and other property in such party's possession relating to the transaction contemplated by this Agreement. 24 15.5 Confidentiality. Notwithstanding the termination of this Agreement or any other provision of this Agreement to the contrary, the terms of the Confidentiality Agreement (as defined in Section 4.1) shall remain in full force and effect. ARTICLE 16. THE CLOSING 16.1. Preliminary Closing Statement. At least five (5) Days prior to the Closing Date, Ricochet shall provide Buyer with a Preliminary Closing Statement setting forth the adjusted Purchase Price and wiring instructions designating the account or accounts to which the adjusted Purchase Price is to be delivered in accordance with Section 16.3.2. Within two (2) Business Days after receipt of the Preliminary Closing Statement from Ricochet, Buyer shall furnish Ricochet with Buyer's requested adjustments to such statement. Ricochet and Buyer shall attempt in good faith to resolve any differences between them, but if the parties are unable to agree, Sellers' Preliminary Closing Statement shall be used for Closing. 16.2 Obligations of Sellers at Closing. At the Closing, Sellers shall deliver to Buyer, unless waived by Buyer, the following: 16.2.1 Documents substantially in the form of the Assignment and Bill of Sale attached hereto as Exhibit C, conveying all of Sellers' right, title and interests in and to the Properties. The Assignment and Bill of Sale shall be executed and acknowledged in three (3) multiple originals or such greater number as agreed between the parties; 16.2.2 Evidence that all consents and approvals prerequisite to the sale and conveyance of the Properties (except for (i) consents to assignment that cannot be unreasonably withheld, or words of similar effect, and for which the third party has not objected to the transfer or affirmatively stated that the consent to assignment will not be forthcoming; and (ii) consents and approvals of governmental entities customarily obtained subsequent to the transfer of title or with respect to Properties which have been withdrawn from the transaction in accordance with the terms hereof) have been obtained, as well as evidence of waiver or lapse of any unexercised preferential purchase rights applicable to the Properties; 16.2.3 A Certificate substantially in the form of Exhibit D, executed by an authorized officer of each Seller, certifying as to the matters specified in Section 14.2.1; 16.2.4 A Non-Foreign Affidavit substantially in the form of Exhibit E, executed by an authorized officer of each Seller; 16.2.5 Change of operator forms on those Properties operated by any Seller and, subject to the other provisions of this Agreement, reasonably cooperate to have operations transferred to Buyer (and Buyer shall file all such change of operator forms with the Railroad Commission of Texas and provide filed copies of same to Ricochet within 30 days after the Closing); 16.2.6 Duly executed and acknowledged releases in recordable form of all mortgages, deeds of trust and security agreements that encumber the Properties; and 16.2.7 Such other instruments as are necessary to carry out Sellers' obligations under this Agreement. 16.3 Obligations of Buyer at Closing. At the Closing, Buyer shall deliver to Sellers, unless waived by Sellers, the following: 25 16.3.1 The Assignment and Bill of Sale referred to in Section 16.2.1, executed and properly acknowledged (with a recorded copy delivered to Ricochet within 30 days after Buyer records same in the Frio County public records); 16.3.2 The adjusted Purchase Price (calculated as set forth in Section 16.5), less the Earnest Money Deposit, by wire transfer in accordance with Article 3; 16.3.3 A Certificate substantially in the form of Exhibit D, executed by an authorized representative of Buyer, certifying as to the matters specified in Section 14.1.1. 16.3.4 Evidence of compliance with all requirements, if any, of the Applicable regulatory authorities in the states in which the Properties are located for the posting of plugging or other applicable bonds relating to the ownership or operation of the Properties; and 16.3.5 Such other instruments as are necessary to carry out Buyer's obligations under this Agreement. 16.4 Site of Closing. Closing shall be held in Ricochet's offices in San Antonio, Texas or any other location mutually agreed in writing by Sellers and Buyer. 16.5 Adjustments to Purchase Price at the Closing. 16.5.1 At the Closing, the Purchase Price shall be increased by the following amounts: (i) the amount, as of the Effective Time, of all prepaid lease obligations and prepaid ad valorem, property or similar taxes and assessments, in each case, based upon or measured by ownership of the Properties, insofar as such prepaid obligations and taxes relate to periods of time after the Effective Time; (ii) an amount equal to all costs and expenses (including rentals, royalties, production and severance taxes, capital expenditures, lease operating expenses and overhead) paid by Sellers that are attributable to the Properties and attributable to the period of time from and after the Effective Time; (iii) the value of all merchantable liquid Hydrocarbons produced prior to the Effective Time but in storage above the sales connection or upstream of the applicable sales meter on the basis of $90.00 per barrel (or actual sales price per barrel, if known) multiplied by the amount in storage in barrels as of the Effective Time; and (iv) any other amount provided for in this Agreement or agreed upon by Buyer and Ricochet. 16.5.2 At the Closing, the Purchase Price shall be decreased by the following amounts: (i) an amount equal to all unpaid ad valorem, property, production, severance and similar taxes and assessments based upon or measured by the ownership of the Properties that are attributable to periods of time prior to the Effective Time, which amounts shall, to the extent not actually assessed, be computed based on such taxes and assessments for the preceding tax year (such amount to be prorated for the period of Sellers' and Buyer's ownership before and after the Effective Time); 26 (ii) an amount equal to all costs and expenses (including rentals, royalties, production and severance taxes, capital expenditures, lease operating expenses and overhead) paid by Buyer that are attributable to the Properties and attributable to the period of time prior to the Effective Time; (iii) an amount equal to all revenues collected by Sellers with respect to the Properties and attributable to the period of time after the Effective Time; (iv) all downward Purchase Price adjustments for Title Adjustments (including adjustments for the interests of non-selling working interests owners in the Properties) determined in accordance with Section 4.3 herein; (v) all downward Purchase Price adjustments as provided in Sections 3.4 and 3.5 herein; and (vi) any other amount provided for in this Agreement or agreed upon by Buyer and Ricochet. ARTICLE 17. MISCELLANEOUS 17.1 Notices. All notices and other communications required, permitted or desired to be given hereunder must be in writing and sent by U.S. mail, properly addressed as shown below, and with all postage and other charges fully prepaid or by hand delivery or by facsimile transmission. Date of service by mail and hand delivery is the date on which such notice is received by the addressee and by facsimile is the date sent (as evidenced by fax machine confirmation of receipt), or if such date is not on a Business Day, then on the next date which is a Business Day. Each party may change its address by notifying the other party in writing. If to Seller Ricochet Energy, Inc. by mail or hand delivery: 16111 Via Shavano San Antonio, Texas 78249 Attention: Jerry L. Hamblin, President If to Seller Ricochet Energy, Inc. by facsimile: Number: (210) 490-3961 Attention: Jerry L. Hamblin, President If to Buyer Baron Energy, Inc. by mail or hand delivery: 300 S.C.M. Allen Parkway, Suite 400 San Marcos, Texas 78666 If to Buyer: Baron Energy, Inc. by facsimile: Number: (512) 392-7238 Attention: Ronnie L. Steinocher, President With Copy to: Gordon D. Dihle, Esq. Corporate Legal, LLC 12354 E. Caley Ave., Suite 201 Centennial, Colorado 80111 Facsimile: (303) 974-5587 27 17.2 Conveyance Costs. Buyer shall be solely responsible for filing and recording documents related to the transfer of the Properties from Sellers to Buyer and for all costs and fees associated therewith, including filing the assignment of the Properties with appropriate federal, state and local authorities as required by applicable Law. Promptly following Buyer's receipt of the recorded documents, Buyer shall furnish Ricochet with a copy of each such document with all recording data shown thereon and evidence of all required filings. 17.3 Brokers' Fees. Neither party has retained any brokers, agents or finders and none are affiliated with either party or authorized to act on behalf of either party in this matter. EACH PARTY AGREES TO RELEASE, PROTECT,INDEMNIFY, DEFEND AND HOLD THE OTHER HARMLESS FROM AND AGAINST ANY AND ALLCLAIMS WITH RESPECT TO ANY COMMISSIONS, FINDERS' FEES OR OTHER REMUNERATION DUETO ANY BROKER, AGENT OR FINDER CLAIMING BY, THROUGH OR UNDER SUCH PARTY. 17.4 Further Assurances. From and after Closing, at the request of Sellers but without further consideration, Buyer will execute and deliver or use reasonable efforts to cause to be executed and delivered such other instruments of conveyance and take such other actions as Sellers reasonably may request to more effectively put Sellers in possession of any property which was not intended by the parties to be conveyed to Buyer. From and after Closing, at the request of Buyer but without further consideration, Sellers shall execute and deliver or use reasonable efforts to cause to be executed and delivered such other instruments of conveyance and take such other actions as Buyer reasonably may request to more effectively put Buyer in possession of the Properties. If any of the Properties are incorrectly described, the description shall be corrected upon proof of the proper description. 17.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. THE COVENANTS AND AGREEMENTS OF SELLERS AND BUYER TO BE PERFORMED PRIOR TO OR AT THE CLOSING SHALL TERMINATE UPON THE CLOSING AND BE OF NO FURTHER FORCE OR EFFECT. UNLESS OTHERWISE EXPRESSLY LIMITED HEREIN, ALL OTHER REPRESENTATIONS, WARRANTIES, INDEMNITIES, COVENANTS AND AGREEMENTS CONTAINED IN THIS AGREEMENT, TO THE EXTENT NOT FULLY PERFORMED OR WAIVED PRIOR TO CLOSING, SHALL SURVIVE THE CLOSING. THE PARTIES HAVE MADE NO REPRESENTATIONS OR WARRANTIES EXCEPT THOSE EXPRESSLY SET FORTH IN THIS AGREEMENT. 17.6 Amendments and Severability. No amendments or other changes to this Agreement shall be effective or binding on either of the parties unless the same shall be in writing and signed by both Sellers and Buyer. The invalidity of anyone or more provisions of this Agreement shall not affect the validity of this Agreement as a whole, and in case of any such invalidity, this Agreement shall be construed as if the invalid provision had not been included herein. 17.7 Successors and Assigns. Except as set forth in Section 17.19 herein, this Agreement shall not be assigned, either in whole or in part, without the prior express written consent of the non-assigning party. Assignment of this Agreement by either party shall not relieve the assigning party of liability hereunder in the event of non-performance or breach of this Agreement by such party's assignee. The terms, covenants and conditions contained in this Agreement shall be binding upon and shall inure to the benefit of Sellers and Buyer and their respective successors and assigns, and such terms, covenants and conditions shall be covenants running with the land and with each subsequent transfer or assignment of the Properties. 17.8 Headings. The titles and headings set forth in this Agreement have been included solely for ease of reference and shall not be considered in the interpretation or construction of this Agreement. 28 17.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF THE STATE OF TEXAS, EXCLUDING ANY CHOICE OF LAW RULES WHICH MAY DIRECT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION. THIS PROVISION SURVIVES TERMINATION OF THIS AGREEMENT. 17.10 No Partnership Created. It is not the purpose or intention of this Agreement to create (and it shall not be construed as creating) a joint venture, partnership or any type of association, and the parties are not authorized to act as agent or principal for each other with respect to any matter related hereto. 17.11 Public Announcements. Neither the Seller Group nor the Buyer Group(as defined in Article 8) shall issue a public statement or press release with respect to the transaction contemplated herein (including the price and other terms) without the prior written consent of the other party, except as required by Law or listing agreement with a national security exchange and then only after prior consultation with the other party. 17.12 No Third Party Beneficiaries. Nothing contained in this Agreement shall entitle anyone other than Sellers or Buyer or their authorized successors and assigns to any claim, cause of action, remedy or right of any kind whatsoever. 17.13 DECEPTIVE TRADE PRACTICES. AS PARTIAL CONSIDERATION FOR THE PARTIES AGREEING TO ENTER INTO THIS AGREEMENT, THE PARTIES EACH CAN AND DO EXPRESSLY WAIVE THE PROVISIONS OF ALL CONSUMER PROTECTION LAWS OF THE STATE OF TEXAS, OR ANY OTHER STATE, APPLICABLE TO THIS TRANSACTION THAT MAY BE WAIVED BY THE PARTIES. IT IS NOT THE INTENT OF THE PARTIES TO WAIVE AND THE PARTIES SHALL NOT WAIVE ANY APPLICABLE LAW OR PROVISION THEREOF WHICH IS PROHIBITED BY LAW FROM BEING WAIVED. EACH PARTY REPRESENTS TO THE OTHER THAT SUCH PARTY HAS HAD AN ADEQUATE OPPORTUNITY TO REVIEW THE PRECEDING WAIVER PROVISION, INCLUDING THE OPPORTUNITY TO SUBMIT THE SAME TO LEGAL COUNSEL FOR REVIEW AND COMMENT, AND UNDERSTANDS THE RIGHTS BEING WAIVED HEREIN. 17.14 Tax Deferred Exchange Election. Either party may elect to structure the conveyance of the Properties as part of an exchange under Article 1031 of the Internal Revenue Code of 1986, as amended. The parties agree to execute all documents, conveyances or other instruments necessary to effectuate an exchange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ntire Agreement. This Agreement supersedes all prior negotiations, understandings, letters of intent and agreements (whether oral or written) and any contemporaneous oral agreements between the parties relating to the Properties and constitutes the entire understanding and agreement between the parties with respect to the sale and purchase of the Properties. 29 17.17 CONSPICUOUSNESS OF PROVISIONS. THE PARTIES ACKNOWLEDGE THAT THE PROVISIONS CONTAINED IN THIS AGREEMENT THAT ARE SET OUT IN "BOLD" SATISFY THE REQUIREMENT OF THE EXPRESS NEGLIGENCE RULE AND ANY OTHER REQUIREMENT AT LAW OR IN EQUITY THAT PROVISIONS CONTAINED IN A CONTRACT BE CONSPICUOUSLY MARKED OR HIGHLIGHTED. 17.18 Execution in Counterparts. This Agreement may be executed in counterparts, which shall when taken together constitute one valid and binding agreement. 17.19 Affiliated Entity as Buyer and/or Operator. Notwithstanding any provisions herein to the contrary, this Agreement may be assigned to a third party or joint venture type entity affiliated with Buyer so identified by Buyer to Sellers at Buyer's option, upon written notice to Sellers no later than three (3) Business Days prior the Closing Date. In the event Buyer elects to assign its rights hereunder to an affiliated entity Buyer shall provide to Sellers all pertinent information necessary for Sellers to prepare the Assignment and Bill of Sale to be delivered to and executed by the third party, which Assignment and Bill of Sale shall be in the form attached hereto as Exhibit N. Instead of Buyer succeeding Ricochet as operator, Buyer may designate an affiliate or affiliates of Buyer to so succeed Ricochet as operator (references herein to Buyer in the context of succession as operator shall be considered to include such designees. IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first set forth above. SELLERS RICOCHET ENERGY, INC. (for itself and on behalf of the Ricochet Parties identified in Addendum I) By: ------------------------------------------------- Jerry L. Hamblin, President VAQUILLAS ENERGY EAST PEARSALL, LTD., LLP By: Vaquillas Energy Management, LLC Its: General Partner By: ------------------------------------------------- James D. Walker, Managing Manager VAQUILLAS ENERGY RE-ENTRY, LTD., LLP By: Vaquillas Energy Management, LLC Its: General Partner By: ------------------------------------------------- James D. Walker, Managing Manager JOB ENERGY PARTNERS II, LTD. By: JOB Energy, LLC Its: General Partner By: ------------------------------------------------- James D. Walker, Managing Manager 30 LORD'S ENERGY, LTD. By: Lord's Energy Management, LLC Its: General Partner By: ------------------------------------------------- James D. Walker, Managing Manager HUBBERD-SMITH ENERGY INVESTMENTS, LTD. By: Hubberd-Smith, LLC Its: General Partner By: ------------------------------------------------- Clayborne L. Nettleship, Manager NETTLESHIP ENERGY INVESTMENTS, LTD. By: Nettleship Enterprises, Inc. Its: General Partner By: ------------------------------------------------- Clayborne L. Nettleship, President LAREDO GATEWAY ENERGY, LTD. By: Gateway Professional Builders, LC Its: General Partner By: ------------------------------------------------- Gerardo G. Salinas, Manager BORDEN JENKINS BUYER BARON ENERGY, INC. By: ------------------------------------------------- Ronnie L. Steinocher, President and CEO 31 EXHIBIT "A" (Attached to Purchase and Sale Agreement dated May 29, 2014, between Ricochet Energy, Inc. et al. and Baron Energy, Inc.) EAST PEARSALL (STEWART) PROSPECT TRACT 1 - 1985 ACRES Lease 1: Oil and Gas Lease dated August 13, 2009, from Federal Royalty LLC, as General Partner for Federal Royalty Partners, Ltd., as Lessor, to Sien Energy Company, as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 66, page 502, Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of land, more or less, out of the A.B.&M. Survey 5, A-29, the A.B.&M. Survey 7, A-30, the A.B.&M. Survey 9, A-31, the R.H. Adcock Survey 10, A-1341 and the B.S.&F. Survey 1, A-111, Frio County, Texas. Lease 2: Oil and Gas Lease dated March 26, 2009, from Cimarron Texas Minerals, Ltd., as Lessor, to Sien Energy Company, as Lessee, recorded by Memorandum of Oil and Gas Lease dated March 31, 2009 in Volume 67, page 831, Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of land, more or less, being the same land described above in Lease 1. Lease 3: Paid Up Oil and Gas Lease dated March 6, 2009, from Joseph M. Dawson, Jr., as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 504, Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 4: Paid Up Oil and Gas Lease dated March 6, 2009, from Dorothy D. Burlage, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 508, Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 5: Paid Up Oil and Gas Lease dated January 16, 2009, from Hager Oil & Gas, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 512, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 6: Paid Up Oil and Gas Lease dated September 28, 2009, from Bill Bishop, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 528, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 7: Paid Up Oil and Gas Lease dated September 28, 2009, from Robert L. Dow, Jr., as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 524, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 8: Paid Up Oil and Gas Lease dated September 28, 2009, from Wesley K. Winn, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 517, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 9: Paid Up Oil and Gas Lease dated September 28, 2009, from Tolar N. Hamblen, III, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 67, page 828, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 10: Paid Up Oil and Gas Lease dated September 28, 2009, from Ginger Busboom, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 521, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 11: Paid Up Oil and Gas Lease dated August 24, 2009, from Mark E. McCourt and wife, Susan McCourt, as Lessor, to Sien Energy Company, as Lessee, recorded 32 in Volume 66, page 536, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 12: Paid Up Oil and Gas Lease dated August 24, 2009, from A.L. Furnace and wife, Pauline Furnace, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 532, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 13: Paid Up Oil and Gas Lease dated August 10, 2009, from Dickerson Resources, Arthur J. Milbarger and Joseph E. Stewart, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 540, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 14: Paid Up Oil and Gas Lease dated March 20, 2009, from Douglas C. Koch, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 544, Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 15: Paid Up Oil and Gas Lease dated March 20, 2009, from Wayne A. Bissett, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 550, Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 16: Paid Up Oil and Gas Lease dated December 3, 2007, from Clarence J. Fraser, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 556, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 17: Paid Up Oil and Gas Lease dated August 12, 2009, from Dorothy L. Hardin, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 559, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 18: Paid Up Oil and Gas Lease dated August 12, 2009, from Anne L. Madigan, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 563, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 19: Paid Up Oil and Gas Lease dated September 2, 2009, from Jessica Stansell, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 567, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 20: Paid Up Oil and Gas Lease dated March 24, 2009, from Thornton Davis Minerals, L.P., as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 570, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 21: Paid-Up Oil and Gas Lease dated September 1, 2009, from Stewart Information Services Corporation, as Lessor, to Sien Energy Company, as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 66, page 574, Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 22: Paid-Up Oil and Gas Lease dated September 2, 2009, from Nathan Weaver, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 70, page 249, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 23: Paid-Up Oil and Gas Lease dated September 2, 2009, from Jesse Walker, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 73, page 621, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. 33 Lease 24: Paid-Up Oil and Gas Lease dated March 23, 2011, from Wanda Weaver, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 91, page 773, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 25: Paid Up Oil and Gas Lease dated June 23, 2011, from Charles McClain, as Receiver for Mineral Interests in Cause No. 11-03-00095CVF, for Nancy Brown et al., as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 92, page 996, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. TRACT 2 - 640 ACRES Lease 1: Paid Up Oil and Gas Lease dated November 6, 2009, from Roxana Kelfer, Individually and as Trustee of the Louis A. Michael Trust, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 68, page 237, Official Public Records, Frio County, Texas, covering 640 acres of land, more or less, out of the E.A. Mudd Survey 8, A-1333, Frio County, Texas. Lease 2: Paid Up Oil and Gas Lease dated November 6, 2009, from Lynn Kendrick, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 68, page 242, Official Public Records, Frio County, Texas, covering 640 acres of land, more or less, out of the E.A. Mudd Survey 8, A-1333, Frio County, Texas, being the same land described in Lease 1. Lease 3: Paid Up Oil and Gas Lease dated November 6, 2009, from Caroline J. Wanke, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 68, page 247, Official Public Records, Frio County, Texas, covering 640 acres of land, more or less, out of the E.A. Mudd Survey 8, A-1333, Frio County, Texas, being the same land described in Lease 1. Lease 4: Paid Up Oil and Gas Lease dated November 6, 2009, from Diana Morawski, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 68, page 251, Official Public Records, Frio County, Texas, covering 640 acres of land, more or less, out of the E.A. Mudd Survey 8, A-1333, Frio County, Texas, being the same land described in Lease 1. Lease 5: Paid Up Oil and Gas Lease dated November 6, 2009, from Claudia Davis, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 68, page 255, Official Public Records, Frio County, Texas, covering 640 acres of land, more or less, out of the E.A. Mudd Survey 8, A-1333, Frio County, Texas, being the same land described in Lease 1. Wells Sale WI Sale NRI ----- ------- -------- Ricochet - Stewart No. 1 Well 89.100000% 66.825000% (API #42-163-33411 / RRC ID #_______) Ricochet - Stewart No. 2 Well 89.100000% 66.825000% (API #42-163-33455 / RRC ID #_______) Ricochet - Stewart-Michael Unit No. 1 Well 89.100000% 66.907685%* (API #42-163-33535 / RRC ID #_______) Ricochet - Stewart-Michael No. 2H Unit Well 89.100000% 66.825000% (API #42-163-33550 / RRC ID #_______) Ricochet - Stewart No. 4RE Well 95.466809% 71.600107%** (API #42-163-33585 / RRC ID #_______) *These interests include an unleased 53/512 mineral interest in a 22.95-acre tract included within the boundaries of the subject pooled unit. Since the mineral interest remains unleased, but the land is included within the boundaries of the unit with the other interests in the acreage that are leased and pooled, we have allocated this interest to all of the working interest owners in proportion to their ownership of the working interest in the balance of the leases pooled in the subject unit. *Sien Energy Company, LLC tendered its "non-consent" election to drill the subject well, resulting in forfeiture of its rights in the well and in the undeveloped portions of the Leases and depths based on the terms of the Operation Agreement covering this acreage. The non-consenting 6.6% working interest share has been divided among the other working interest owners in the well based on their elections to acquire their pro-rata shares of the non-consent interest. 34 BREAZEALE PROSPECT (NEAL TRUST UNIT) Lease 1: Paid Up Oil and Gas Lease dated July 25, 2011, from Iven A. Neal and Ruby Neal, as Trustees of the Iven A. Neal and Ruby Neal Living Trust, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 95, page 113, Official Public Records, Frio County, Texas, insofar as and only insofar as said lease covers 148.37 acres of land, more or less, out of the B.S.&F. Survey No. 3, A-112, Frio County, Texas, being the lands pooled in the Ricochet Energy, Inc. - Neal Trust No. 1H Unit as described in a Declaration of Unit dated October 10, 2012, recorded in Volume 122, page 855, Official Records, Frio County, Texas. Lease 2: Paid Up Oil and Gas Lease dated July 25, 2011, from James P. Neal and Coleen F. Neal, as Trustees of the James P. Neal and Coleen F. Neal Living Trust, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 95, page 110, Official Public Records, Frio County, Texas, insofar as and only insofar as said lease covers 148.37 acres of land, more or less, out of the B.S.&F. Survey No. 3, A-112, Frio County, Texas, being the lands pooled in the Ricochet Energy, Inc. - Neal Trust No. 1H Unit as described in a Declaration of Unit dated October 10, 2012, recorded in Volume 122, page 855, Official Records, Frio County, Texas, and being the same land described in Lease 1. Lease 3: Oil and Gas Lease dated July 18, 2011, from Providence Minerals, LLC, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 95, page 116, Official Public Records, Frio County, Texas, insofar as and only insofar as said lease covers 127.9 acres of land, more or less, out of the B.S.&F. Survey No. 3, A-112, Frio County, Texas, being the lands pooled in the Ricochet Energy, Inc. - Neal Trust No. 1H Unit as described in a Declaration of Unit dated October 10, 2012, recorded in Volume 122, page 855, Official Records, Frio County, Texas, and being part of the same land described in Lease 1. Lease 4: Oil and Gas Lease dated August 16, 2011, from Texas Osage Royalty Pool, Inc., as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 95, page 819, Official Public Records, Frio County, Texas, insofar as and only insofar as said lease covers 127.9 acres of land, more or less, out of the B.S.&F. Survey No. 3, A-112, Frio County, Texas, being the lands pooled in the Ricochet Energy, Inc. - Neal Trust No. 1H Unit as described in a Declaration of Unit dated October 10, 2012, recorded in Volume 122, page 855, Official Records, Frio County, Texas, and being part of the same land described in Lease 1. Lease 5: Paid Up Oil and Gas Lease dated September 30, 2011, from Vicki Lee Gates and Sherri Lynn Tope, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 99, page 37, Official Public Records, Frio County, Texas, insofar as and only insofar as said lease covers 65.59 acres of land, more or less, out of the B.S.&F. Survey No. 3, A-112, Frio County, Texas, being the lands pooled in the Ricochet Energy, Inc. - Neal Trust No. 1H Unit as described in a Declaration of Unit dated October 10, 2012, recorded in Volume 122, page 855, Official Records, Frio County, Texas. Lease 6: Paid Up Oil and Gas Lease dated October 14, 2011, from The Collis and Lucille Woodward Family Trust dated August 29, 1990, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 100, page 20, Official Public Records, Frio County, Texas, insofar as and only insofar as said lease covers 88.02 acres of land, more or less, out of the Frio County School Land League No. 1, A-310, Frio County, Texas, being the lands pooled in the Ricochet Energy, Inc. - Neal Trust No. 1H Unit as described in a Declaration of Unit dated October 10, 2012, recorded in Volume 122, page 855, Official Records, Frio County, Texas. Lease 7: Paid Up Oil and Gas Lease dated October 14, 2011, from The Clyde E. and Valerie V. Woodward Family Trust dated November 12, 1996, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 100, page 18, Official Public Records, Frio County, Texas, insofar as and only insofar as said lease covers 88.02 acres of land, more or less, out of the Frio County School Land League No. 1, A-310, Frio County, Texas, being the lands pooled in the Ricochet Energy, Inc. - Neal Trust No. 1H Unit as described in a 35 Declaration of Unit dated October 10, 2012, recorded in Volume 122, page 855, Official Records, Frio County, Texas, and being the same land described in Lease 6. Wells Sale WI Sale NRI ----- ------- -------- Ricochet - Neal Trust No. 1H Unit Well 100.000% 75.000% (API #42-163-33643 / RRC ID #_______) MAXWELL PROSPECT Lease 1: Paid Up Oil and Gas Lease dated December 22, 2011, from David Maxwell and wife, Kelli Maxwell et al., as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 105, page 918, Official Public Records, Frio County, Texas, covering 315 acres of land, more or less, out of the Pablo Ortiz Survey No. 1411, A-530, Frio County, Texas. Lease 2: Paid Up Oil and Gas Lease dated January 18, 2012, from James E. Deutsch and wife, Patricia Deutsch, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 105, page 914, Official Public Records, Frio County, Texas, covering 372.37 acres of land, more or less, out of the A.B.&M. Survey 5, A-29 and the Pablo Ortiz Survey No. 1411, A-530, Frio County, Texas. Lease 3: Paid Up Oil and Gas Lease dated January 3, 2012, from Howard M. Shelton, Jr., as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 105, page 916, Official Public Records, Frio County, Texas, covering 100.64 acres of land, more or less, out of the Pablo Ortiz Survey No. 1411, A-530, Frio County, Texas. Lease 4: Paid Up Oil and Gas Lease dated March 3, 2012, from Lida O. Pitts, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 110, page 413, Official Public Records, Frio County, Texas, covering 50.32 acres of land, more or less, out of the Pablo Ortiz Survey No. 1411, A-530, Frio County, Texas, being a part of the same land described in Lease 3. Lease 5: Paid Up Oil and Gas Lease dated March 27, 2012, from James Oliver Harle et al., as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 111, page 717, Official Public Records, Frio County, Texas, covering 50.32 acres of land, more or less, out of the Pablo Ortiz Survey No. 1411, A-530, Frio County, Texas, being a part of the same land described in Lease 3. Lease 6: Paid Up Oil and Gas Lease dated January 17, 2012, from William R. Hoyle and wife, Mona Hoyle, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 106, page 130, Official Public Records, Frio County, Texas, covering 18.26 acres of land, more or less, out of the Pablo Ortiz Survey No. 1411, A-530, Frio County, Texas. Wells Sale WI Sale NRI ----- ------- -------- None 100.000% 75.000% 36 PETTY PROSPECT Lease 1: Paid Up Oil and Gas Lease dated April 9, 2012, from David R. Petty and wife, Frankie Petty, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 110, page 781, Official Public Records, Frio County, Texas, covering 933.51 acres of land, more or less, out of the A.B.&M. Survey 5, A-29, the A.B.&M. Survey 7, A-30 and the A.B.&M. (W.T. Merriwether) Survey 6, A-963, Frio County, Texas. Lease 2: Paid Up Oil and Gas Lease dated April 11, 2012, from Janell McDermand Trees, joined pro forma by her husband, Jerry F. Trees, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 110, page 779, Official Public Records, Frio County, Texas, covering 613.32 acres of land, more or less, out of the A.B.&M. Survey 5, A-29 and the A.B.&M. Survey 7, A-30, Frio County, Texas, being part of the same land described in Lease 1. Lease 3: Paid Up Oil and Gas Lease dated April 18, 2012, from Jerry Leon Young, Jr., as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 113, page 400, Official Public Records, Frio County, Texas, covering 320.19 acres of land, more or less, out of the A.B.&M. (W.T. Merriwether) Survey 6, A-963, Frio County, Texas, being part of the same land described in Lease 1. Lease 4: Paid Up Oil and Gas Lease dated April 18, 2012, from Patricia Riley Hines, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 112, page 181, Official Public Records, Frio County, Texas, covering 320.19 acres of land, more or less, out of the A.B.&M. (W.T. Merriwether) Survey 6, A-963, Frio County, Texas, being part of the same land described in Lease 1. Lease 5: Paid Up Oil and Gas Lease dated April 18, 2012, from Peggy Riley Franell, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 112, page 179, Official Public Records, Frio County, Texas, covering 320.19 acres of land, more or less, out of the A.B.&M. (W.T. Merriwether) Survey 6, A-963, Frio County, Texas, being part of the same land described in Lease 1. Lease 6: Paid Up Oil and Gas Lease dated April 18, 2012, from Janice Claire Palmer, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 111, page 713, Official Public Records, Frio County, Texas, covering 320.19 acres of land, more or less, out of the A.B.&M. (W.T. Merriwether) Survey 6, A-963, Frio County, Texas, being part of the same land described in Lease 1. Lease 7: Paid Up Oil and Gas Lease dated April 18, 2012, from Mary Jo Wainscott, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 111, page 715, Official Public Records, Frio County, Texas, covering 320.19 acres of land, more or less, out of the A.B.&M. (W.T. Merriwether) Survey 6, A-963, Frio County, Texas, being part of the same land described in Lease 1. Lease 8: Paid Up Oil and Gas Lease dated August 1, 2012, from Lucille Watson et al., as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 119, page 629, Official Public Records, Frio County, Texas, covering 320.19 acres of land, more or less, out of the A.B.&M. (W.T. Merriwether) Survey 6, A-963, Frio County, Texas, being part of the same land described in Lease 1. Lease 9: Oil and Gas Lease dated April 16, 2012, from Methodist Childrens Home, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 111, page 711, Official Public Records, Frio County, Texas, covering 320.19 acres of land, more or less, out of the A.B.&M. (W.T. Merriwether) Survey 6, A-963, Frio County, Texas. Lease 10: Paid Up Oil and Gas Lease dated May 15, 2012, from Edward Allen Keith, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid 37 Up Oil and Gas Lease in Volume 113, page 500, Official Public Records, Frio County, Texas, covering 10.105 acres of land, more or less, out of the A.B.&M. Survey 5, A-29 and the A.B.&M. Survey 7, A-30, Frio County, Texas. Lease 11: Paid Up Oil and Gas Lease dated May 15, 2012, from Connie Gail Beane, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 113, page 502, Official Public Records, Frio County, Texas, covering 20.106 acres of land, more or less, out of the A.B.&M. Survey 5, A-29 and the A.B.&M. Survey 7, A-30, Frio County, Texas. Lease 12: Paid Up Oil and Gas Lease dated May 15, 2012, from Sandra Eileen Keith, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 113, page 504, Official Public Records, Frio County, Texas, covering 20.106 acres of land, more or less, out of the A.B.&M. Survey 5, A-29 and the A.B.&M. Survey 7, A-30, Frio County, Texas. Wells Sale WI Sale NRI ----- ------- -------- None 100.000% 75.000% FRIO AUSTIN CHALK PROSPECT (CULPEPPER AREA) JANE T. CULPEPPER ET AL., LEASES Lease 1: Oil and Gas Lease dated January 18, 2010, from Jane Culpepper, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 70, page 672, Official Public Records, Frio County, Texas, as amended by Amendment of Oil and Gas Lease recorded in Volume 73, page 441, Official Public Records, Frio County, Texas, covering 718 acres of land, more or less, out of the J. E. Roberts Survey No. 4, A-903, the L.I.M. & C. Co. Survey No. 112, A-754 and the B.S. & F Survey No. 3, A-109, Frio County, Texas. Lease 2: Oil and Gas Lease dated January 18, 2010, from John Culpepper, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 70, page 675, Official Public Records, Frio County, Texas, as amended by Amendment of Oil and Gas Lease recorded in Volume 73, page 444, Official Public Records, Frio County, Texas, covering 593 acres of land, more or less, being a portion of the same land described above in Lease 1. Lease 3: Oil and Gas Lease dated January 18, 2010, from Jim Culpepper, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 70, page 678, Official Public Records, Frio County, Texas, as amended by Amendment of Oil and Gas Lease recorded in Volume 73, page 446, Official Public Records, Frio County, Texas, covering 593 acres of land, more or less, being a portion of the same land described above in Lease 1. Lease 4: Oil and Gas Lease dated January 18, 2010, from Bill Culpepper, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 70, page 681, Official Public Records, Frio County, Texas, as amended by Amendment of Oil and Gas Lease recorded in Volume 73, page 448, Official Public Records, Frio County, Texas, covering 593 acres of land, more or less, being a portion of the same land described above in Lease 1. Lease 5: Oil and Gas Lease dated January 18, 2010, from Nancy C. Flores, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 70, page 684, Official Public Records, Frio County, Texas, as amended by Amendment of Oil and Gas Lease recorded in Volume 73, page 450, Official Public Records, Frio County, Texas, covering 593 acres of land, more or less, being a portion of the same land described above in Lease 1. 38 Wells Sale WI Sale NRI ----- ------- -------- Ricochet - Culpepper No. 1H Unit Well 100.000% 80.000% (API #42-163-33480 / RRC ID #_______) Ricochet - Culpepper No. 2H Unit Well 100.000% 80.000% (API #42-163-33494 / RRC ID #_______) JAMES W. CULPEPPER ET AL., LEASES - (3C LEASES) Lease 1: Oil and Gas Lease dated February 3, 2010, from James Culpepper and wife, Kat Saunders, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 70, page 765, Official Public Records, Frio County, Texas, covering 657.28 acres of land, more or less, out of the J. E. Roberts Survey No. 2, A-904 and the James Cummings Survey No. 105, A-269, Frio County, Texas. Lease 2: Oil and Gas Lease dated February 3, 2010, from John Culpepper and wife, Andrea M. Culpepper, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 70, page 770, Official Public Records, Frio County, Texas, covering 657.28 acres of land, more or less, being the same land described above in Lease 1. Lease 3: Oil and Gas Lease dated February 3, 2010, from Joe Culpepper, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 75, page 590, Official Public Records, Frio County, Texas, covering 104.14 acres of land, more or less, out of the J. E. Roberts Survey No. 2, A-904 and the James Cummings Survey No. 105, A-269, Frio County, Texas, being a portion of the same land described above in Lease 1. Lease 4: Oil and Gas Lease dated October 31, 2010, from Tommy J. Muston and wife, Deborah A. Muston, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 83, page 692, Official Public Records, Frio County, Texas, covering 224.14 acres of land, more or less, out of the J. E. Roberts Survey No. 2, A-904 and the J. E. Roberts Survey No. 6, A-905, Frio County, Texas, being a portion of the same land described above in Lease 1. Wells Sale WI Sale NRI ----- ------- -------- Ricochet - 3C No. 1H Unit Well 100.000% 79.715823% (API #42-163-33508 / RRC ID #_______) Ricochet - 3C No. 2H Unit Well 100.000% 79.715823% (API #42-163-33563 / RRC ID #_______) KOTZEBUE LEASE Oil and Gas Lease dated August 26, 2010, from David W. Kotzebue and wife, Deborah R. Kotzebue, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 79, page 752, Official Public Records, Frio County, Texas, originally covering 527.33 acres of land, more or less, out of the J. E. Roberts Survey No. 4, A-903, Frio County, Texas, insofar as and only insofar as said lease covers 400 acres of land, more or less, being the retained acreage allocated to the Kotzebue No. 1 Well according to the lease and the rules of the Railroad Commission of Texas. Wells Sale WI Sale NRI ----- ------- -------- Ricochet - Kotzebue No. 1 Well 100.000% 75.000% (API #42-163-33589 / RRC ID #_______) RIGGAN LEASE Oil and Gas Lease dated August 18, 2010, from James M. Riggan et al., as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 79, page 460, Official Public Records, Frio County, Texas, covering 709 acres of land, more or less, out of the B.S.&F. Survey No. 1, A-111, the 39 A.B.&M. Survey No. 9, A-31, the Mason Maney Survey No. 1-1/2, A-1452 and the B.S.&F. Survey No. 3, A-112, Frio County, Texas. Wells Sale WI Sale NRI ----- ------- -------- Ricochet - Riggan No. 1H Well 100.000% 75.000% (API #42-163-33573 / RRC ID #_______) Ricochet - Riggan No. 2H Well 100.000% 75.000% (API #42-163-33593 / RRC ID #_______) EXPRESS RE-ENTRY PROSPECTS CANTU-HENDERSON UNIT Ricochet Energy, Inc. - Cantu-Henderson No. 1H Unit, being the pooled unit of 495.17 acres out of the J. Poitevent Survey No. 5, A-559 and the R.M. Harkness Survey No. 6, A-890, Frio County, Texas, as more particularly described in that certain Declaration of Unit dated September 24, 2010, executed by Ricochet Energy, Inc., recorded in Volume 81, page 174, Official Public Records, Frio County, Texas, pooling the acreage covered by the following described leases. Lease 1: Oil, Gas and Mineral Lease dated September 17, 2008, from Herlinda G. Cantu, as Lessor, to Express Oil & Gas, as Lessee, recorded in Volume 57, page 798, Official Public Records, Frio County, Texas, (and also recorded by Memorandum of Oil and Gas Lease in Volume 57, page 796, Official Public Records, Frio County, Texas), as amended, covering 177.45 acres, more or less, out of the J. Poitevent Survey No. 5, A-559, Frio County, Texas, all of the 177.45 acres covered by said lease, as more particularly described therein, being included in this unit. Lease 2: Oil, Gas and Mineral Lease dated October 28, 2008, from Winfred Henderson and wife, Alice A. Henderson, as Lessor, to Express Oil & Gas, Co., as Lessee, recorded in Volume 60, page 193, Official Public Records, Frio County, Texas, covering 317.72 acres, more or less, out of the R. M. Harkness Survey No. 6, A-890 in Frio County, Texas and A-1014 in LaSalle County, Texas, all of the 317.72 acres covered by said lease, as more particularly described therein, being included in this unit. Lease 3: Oil, Gas and Mineral Lease dated October 28, 2008, from Jimmy Henderson, as Lessor, to Express Oil & Gas, Co., as Lessee, recorded in Volume 60, page 200, Official Public Records, Frio County, Texas, covering 317.72 acres, more or less, out of the R. M. Harkness Survey No. 6, A-890 in Frio County, Texas and A-1014 in LaSalle County, Texas, all of the 317.72 acres covered by said lease, comprising the same lands described above in Lease 2, being included in this unit. Lease 4: Oil, Gas and Mineral Lease dated October 28, 2008, from Selfa A. Garza, joined pro forma by her husband, Tino Garza, as Lessor, to Express Oil & Gas, Co., as Lessee, recorded in Volume 60, page 180, Official Public Records, Frio County, Texas, as ratified and amended, covering 317.72 acres, more or less, out of the R. M. Harkness Survey No. 6, A-890 in Frio County, Texas and A-1014 in LaSalle County, Texas, all of the 317.72 acres covered by said lease, comprising the same lands described above in Lease 2, being included in this unit. Lease 5: Oil, Gas and Mineral Lease dated November 17, 2008, from Linda Green, joined pro forma by her husband, Ken Green, as Lessor, to Express Oil & Gas, Co., as Lessee, recorded in Volume 60, page 173, Official Public Records, Frio County, Texas, covering 317.72 acres, more or less, out of the R. M. Harkness Survey No. 6, A-890 in Frio County, Texas and A-1014 in LaSalle County, Texas, all of the 317.72 acres covered by said lease, comprising the same lands described above in Lease 2, being included in this unit. Lease 6: Oil, Gas and Mineral Lease dated November 17, 2008, from Larry Myrick, as Lessor, to Express Oil & Gas, Co., as Lessee, recorded in Volume 60, page 187, Official Public Records, Frio County, Texas, covering 317.72 acres, more or less, out of the R. M. Harkness Survey No. 6, A-890 in Frio County, Texas and 40 A-1014 in LaSalle County, Texas, all of the 317.72 acres covered by said lease, comprising the same lands described above in Lease 2, being included in this unit. Lease 7: Oil, Gas and Mineral Lease dated July 10, 2009, from Donna Myrick, as Lessor, to Express Oil & Gas, as Lessee, recorded by Memorandum of Oil, Gas and Mineral Lease in Volume 63, page 76, Official Public Records, Frio County, Texas, covering 317.72 acres, more or less, out of the R. M. Harkness Survey No. 6, A-890 in Frio County, Texas and A-1014 in LaSalle County, Texas, all of the 317.72 acres covered by said lease, comprising the same lands described above in Lease 2, being included in this unit. Lease 8: Oil, Gas and Mineral Lease dated November 17, 2008, from Janice Hemphill, as Lessor, to Express Oil & Gas, Co., as Lessee, recorded in Volume 63, page 70, Official Public Records, Frio County, Texas, covering 317.72 acres, more or less, out of the R. M. Harkness Survey No. 6, A-890 in Frio County, Texas and A-1014 in LaSalle County, Texas, all of the 317.72 acres covered by said lease, comprising the same lands described above in Lease 2, being included in this unit. Wells Sale WI Sale NRI ----- ------- -------- Ricochet - Cantu-Henderson No. 1H Unit Well 100.000% 77.042448% (API #42-163-33426 / RRC ID #12392) HARRIS LEASE Oil, Gas and Mineral Lease dated January 13, 1976, from William Donald Harris and wife, Mary Ann Harris, as Lessor, to Charles R. Stubblefield, as Lessee, recorded in Volume 342, page 485, Deed Records, Frio County, Texas, covering 735.00 acres, more or less, out of the William Webber Survey, A-668 and the G.B. Pilant Survey, A-540, Frio County, Texas, insofar as and only insofar as said lease covers 281.4 acres of land, more or less, around the Ricochet Energy, Inc. - Harris No. 2 and Harris No. 3 Wells (but expressly excluding the well and wellbore for the Express Oil & Gas - Harris #4 Well [API # 42-163-32691]) in Frio County, Texas. Wells Sale WI Sale NRI ----- ------- -------- Ricochet - Harris No. 2 Well 90.000% 67.500% (API #42-163-32604 / RRC ID #15063) Ricochet - Harris No. 3 Well 90.000% 67.500% (API #42-163-32647 / RRC ID #15063) [END] 41 EXHIBIT "C" (Attached to Purchase and Sale Agreement dated May 29, 2014, between Ricochet Energy, Inc. et al. and Baron Energy, Inc.) ASSIGNMENT AND BILL OF SALE THE STATE OF TEXAS ) : ss. COUNTY OF FRIO ) This Assignment and Bill of Sale, effective as of , 2014 ("Effective Date"), is by and between RICOCHET ENERGY, INC., a Texas corporation, RICOCHET INTERESTS, LTD., a Texas limited partnership, MAIER ENERGY INTERESTS, LP, a Texas limited partnership, G4S ENERGY, LTD., a Texas limited partnership, CRG ENERGY, Ltd., a Texas limited partnership, DCPMD ENERGY, LTD., a Texas limited partnership, STRICKER ENERGY, LTD., a Texas limited partnership, JRODS ENERGY INVESTMENTS, LTD., a Texas limited partnership, TRIPLE (H) ENERGY, LTD., a Texas limited partnership, MARVELL ENERGY, LTD., a Texas limited partnership, VAQUILLAS ENERGY EAST PEARSALL, LTD., a Texas limited partnership, VAQUILLAS ENERGY RE-ENTRY LTD., LLP, a Texas limited partnership, JOB ENERGY PARTNERS, II, LTD., a Texas limited partnership, LORD'S ENERGY, LTD., a Texas limited partnership, HUBBERD-SMITH ENERGY INVESTMENTS, LTD., a Texas limited partnership, NETTLESHIP ENERGY INVESTMENTS, LTD., a Texas limited partnership, LAREDO GATEWAY ENERGY, LTD., a Texas limited partnership, and BORDEN JENKINS, an individual (collectively the "Assignors", and each individually an "Assignor") and BARON ENERGY, INC., a Nevada corporation, whose address is 300 S. C.M. Allen Parkway, Suite 400, San Marcos, TX 78666, hereinafter referred to as "Assignee." WITNESSETH: For Ten Dollars ($10.00) and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Assignors hereby grant, sell, convey, assign and transfer to Assignee, effective as of the Effective Date and subject to the matters set forth herein, the following: (a) All of Assignors' right, title and interest in, to and under or derived from the oil and gas leasehold interests, record title interests, operating rights interests, fee interests, mineral interests and overriding royalty interests described on Exhibit A (collectively, the "Leases"); (b) All of Assignors' right, title and interest in and to, or derived from, all of the presently existing and valid unitization and pooling agreements and units (including all units formed by voluntary agreement and those formed under the rules, regulations, orders or other official acts of any governmental entity having appropriate jurisdiction) to the extent they relate to any of the interests which are expressly described on Exhibit A; (c) All of Assignors' right, title and interest in and to all oil, gas and associated liquid and gaseous hydrocarbons (collectively, the "Hydrocarbons") produced from or attributable to Assignors' interest in the Leases and attributable to the period from and after the Effective Date; (d) All of Assignors' right, title and interest in and to, or derived from, all of the presently existing and valid oil sales contracts, casing head gas sales contracts, gas sales contracts, processing contracts, gathering contracts, transportation contracts, easements, rights-of-way, servitudes, surface leases and other contracts (including the Material Contracts), to the extent the same are assignable and relate to any of the interests which are expressly described on Exhibit A; 42 (e) All of Assignors' right, title and interest in and to all personal property and improvements (collectively, the "Equipment"), including without limitation, wells (whether producing, plugged and abandoned, shut-in, injection, disposal or water supply), tanks, boilers, platforms, buildings, fixtures, machinery, equipment, pipelines, utility lines, power lines, telephone lines, telegraph lines and other appurtenances located on, in, under and about the Leases, to the extent the same are situated upon and used or held for use by Assignors solely in connection with the ownership, operation, maintenance and repair of the interests which are expressly described on Exhibit A, subject to the reservations stated below; (f) All of Assignors' Records to the extent the same are assignable and relate to any of the interests which are expressly described on Exhibit A; (g) All franchises, licenses, permits, approvals, consents, certificates and other authorizations and other rights granted by governmental authorities and all certificates of convenience or necessity, immunities, privileges, grants and other rights that relate to the Properties or the ownership or operation of any thereof, to the extent the same are assignable (the "Permits"); and (h) All (i) accounts, instruments and general intangibles (as such terms are defined in the Uniform Commercial Code of Texas) attributable to the Properties with respect to any period of time on or after the Effective Date, and (ii) liens and security interests in favor of Assignors, whether choate or inchoate, under any law, rule or regulation or under any of the Material Contracts (a) arising from the ownership, operation or sale or other disposition of Hydrocarbons on or after the Effective Date of any of the Properties or (b) arising in favor of Assignors whether by contract or statute as the operator or non-operator of certain of the Properties. All of the foregoing property and contract rights, titles, and interests described above are hereinafter collectively called the "PURCHASED PROPERTIES." Any capitalized terms used herein and not otherwise defined herein shall have the meaning attributed to such terms in the Purchase and Sale Agreement dated May 29, 2014 by and between Assignors and Assignee. Notwithstanding the foregoing, third-parties may rely on the terms of this Assignment alone to grant title to the Purchased Properties to the Assignee. TO HAVE AND TO HOLD the said Purchased Properties unto Assignee, its successors and assigns, forever subject to the terms, reservations, and conditions contained herein. All of the Purchased Properties, whether real or personal, are conveyed subject to a Special Warranty of Title, that the Purchased Properties are free and clear of and from any lien, claim, mortgage, or other encumbrance, whether similar or dissimilar, by any person claiming by, through, or under Assignors, and not otherwise. Assignors also hereby grant and transfer to Assignee, its successors and assigns, the benefit of the right to enforce the covenants and warranties, if any, which Assignors are entitled to enforce with respect to the Purchased Properties against Assignors' predecessors in title. By acceptance of this Assignment, on and after the Effective Date, Assignee assumes and agrees to pay, perform, and discharge all of Assignors' responsibilities, liabilities, and obligations related to the environmental condition of the Purchased Properties. 43 Assignee hereby assumes and agrees to perform all duties and obligations of the Assignors, present, past, and future, applicable to the operations or prescribed in the leases and all contracts, including the Material Contracts, covered hereby. Assignee agrees to defend, indemnify, and hold harmless Assignors from and against all losses, costs, claims, demands, suits, liability, and expenses with respect to the Purchased Properties which arise out of or relate to Assignee's ownership and/or operation of such properties, or which in any manner relates to the condition of the premises and equipment with regard to any event or occurrence occurring after the Effective Date. This Assignment may be executed in counterparts, which shall when taken together constitute one valid and binding agreement. If counterparts of this Assignment are executed, the signature pages and acknowledgments from various counterparts may be combined into one composite instrument for all purposes. IN WITNESS WHEREOF, this Assignment is executed by the parties on the date of their respective acknowledgments below, but shall be effective for all purposes as of the Effective Date. ASSIGNORS Ricochet Energy, Inc. Ricochet Interests, Ltd. By: Ricochet Management, LLC, General Partner -------------------------------------- -------------------------------------- By: Jerry L. Hamblin, President By: Jerry L. Hamblin, Manager Maier Energy Interests, LP G4S Energy, Ltd. By: Maier Energy Management LLC, By: Regallaw, LLC, General Partner General Partner -------------------------------------- -------------------------------------- By: Christopher S. Maier, Manager By: Ray Gallaway, Jr., Manager DCPMD Energy, Ltd. CRG Energy, Ltd. By: DCPMD Energy Management, LLC, By: CRG Energy Management, LLC, General Partner General Partner -------------------------------------- -------------------------------------- By: Dallas R. Plattner, Manager By: Lisa R. Garcia, Manager JRODS Energy Investments, Ltd. Stricker Energy, Ltd. By: JRODS Energy Management, LLC, By: Stricker EMC, LLC, General Partner General Partner -------------------------------------- -------------------------------------- By: J.R. Rodriguez, Manager By: Roy L. Stricker, Manager 44 Triple (H) Energy, Ltd. MarVell Energy, Ltd. By: 3H Family Interests, LLC, By: MarVell Management, LLC, General Partner General Partner -------------------------------------- -------------------------------------- By: Jerry L. Hamblin, Manager By: Jerry L. Hamblin, Manager Vaquillas Energy East Pearsall, Ltd., LLP Vaquillas Energy Re-Entry Ltd., LLP By: Vaquillas Energy Management, LLC By: Vaquillas Energy Management, LLC Its: General Partner Its: General Partner -------------------------------------- -------------------------------------- By: James D. Walker, Managing Member By: James D. Walker, Managing Member JOB Energy Partners II, Ltd. Lord's Energy, Ltd. By: JOB Energy, LLC, General Partner By: Lord's Energy Management, LLC General Partner -------------------------------------- -------------------------------------- By: James D. Walker, Managing Member By: James D. Walker, Managing Member Hubberd-Smith Energy Investments, Ltd. Nettleship Energy Interests, Ltd. By: Hubberd-Smith, LLC, By: Nettleship Enterprises, Inc. General Partner General Partner -------------------------------------- -------------------------------------- By: Clayborne L. Nettleship, Manager By: Clayborne L. Nettleship, President Laredo Gateway Energy, Ltd. By: Gateway Professional Builders, LC General Partner -------------------------------------- -------------------------------------- By: Gerardo G. Salinas, Manager Borden Jenkins ASSIGNEE Baron Energy, Inc. Date: By: --------------------------------- -------------------------------------- Ronnie L. Steinocher, President and CEO 45 [Acknowledgments and Exhibit A to be included on Execution Original.] 46 EXHIBIT "D" (Attached to Purchase and Sale Agreement dated May 29, 2014, between Ricochet Energy, Inc. et al. and Baron Energy, Inc.) FORM OF SELLER'S CERTIFICATE SELLER'S CERTIFICATE Reference is made to that certain Purchase and Sale Agreement dated as of May ___, 2014 (the "PSA"), by and between _________________, a _____________ ("Seller"), the other parties named therein as "Sellers", and Baron Energy, Inc., a Nevada corporation ("Buyer"). Capitalized terms used but not defined herein shall have the respective meanings assigned to such terms in the PSA. I, __________________, do hereby certify that I am the duly elected and acting _________________ of Seller and, in such capacity, I further certify on behalf of Seller to Buyer that: All representations and warranties of Seller contained in the PSA are true and correct in all material respects at and as of the Closing as though made at and as of such time. IN WITNESS WHEREOF, Seller has caused this certificate to be executed on its behalf by the undersigned as of , 2014. [COMPANY NAME] By: --------------------------------------- Printed Name: ----------------------------- Title: ------------------------------------ [END] 47 EXHIBIT "E" (Attached to Purchase and Sale Agreement dated May 29, 2014, between Ricochet Energy, Inc. et al. and Baron Energy, Inc.) FORM OF NON-FOREIGN AFFIDAVIT NON-FOREIGN AFFIDAVIT Exemption from Withholding of Tax For Dispositions of U. S. Real Property Interests Section 1445 of the Internal Revenue Code provides that a transferee of a U.S. real property interest must withhold tax if the transferor is a foreign person. To inform Baron Energy, Inc. that withholding of tax is not required upon the disposition of a U.S. real property interest by ___________________, the undersigned hereby certifies the following: (1) The undersigned is not a nonresident alien, foreign corporation, foreign partnership, foreign trust, or foreign estate for purposes of U. S. income taxation; (2) The taxpayer identifying number for ___________ is ____________; (3) The home office address of the undersigned is _____________________. The undersigned understands that this certification may be disclosed to the Internal Revenue Service by Baron Energy, Inc. and that any false statement contained herein could be punished by fine, imprisonment, or both. Under penalties of perjury, I declare that I have examined this certification and, to the best of my knowledge and belief, it is true, correct, and complete, and I further declare I have authority to sign this document. DATED this _________ day of ____________, 2014. [COMPANY NAME] By: --------------------------------------- Printed Name: ----------------------------- Title: ------------------------------------ [END] 48 EXHIBIT "F" (Attached to Purchase and Sale Agreement dated May 29, 2014, between Ricochet Energy, Inc. et al. and Baron Energy, Inc.) LIST OF MATERIAL CONTRACTS EAST PEARSALL (STEWART) PROSPECT Participation Agreement (East Pearsall Prospect) dated effective January 15, 2010, between Ricochet Energy, Inc., as Operator, and Sien Energy Company et al., as Participants, together with Joint Operating Agreement dated effective January 15, 2010 attached thereto, unrecorded. Participation Agreement (East Pearsall Prospect) dated effective May 1, 2010, between Ricochet Energy, Inc., as Operator, and Ricochet Interests, Ltd. et al., as Participants, unrecorded. Letter Agreement dated February 24, 2011, between Ricochet Energy, Inc., and Borden Jenkins, unrecorded, setting forth certain agreements to purchase interests in the East Pearsall Prospect Leases from Borden Jenkins. Letter Agreements dated June 1, 2012, between Ricochet Energy, Inc., and Sien Energy Company, LLC and Mark Thompson, unrecorded, setting forth certain agreements to purchase certain interests in the East Pearsall Prospect Leases from Sien Energy Company, LLC and Mark Thompson. Eastex Crude Company Contract No. 4900, as amended (currently Amendment #18), dated March 26, 2010, between Eastex Crude Company, and Ricochet Energy, Inc., setting forth the terms for sales of crude oil from wells located in Frio County. Base Contract for Sale and Purchase of Natural Gas, undated, between Faraday Pipeline Co., as purchaser, and Ricochet Energy, Inc., as seller, unrecorded. BREAZEALE PROSPECT (NEAL TRUST UNIT) Participation Agreement (Breazeale Prospect) dated effective August 1, 2012, between Ricochet Energy, Inc., as Operator, and Ricochet Interests, Ltd. et al., as Participants, together with Joint Operating Agreement dated effective August 1, 2012 attached thereto, unrecorded. MAXWELL PROSPECT Letter Agreements dated January 24, 2012, between Ricochet Energy, Inc. and Vaquillas Energy, Ltd., JOB Energy II, Ltd., Lord's Energy, Ltd., Hubberd-Smith Energy Investments, Ltd., Nettleship Energy Interests, Ltd. and Laredo Gateway Energy, Ltd., setting forth elections to participate in drilling and development activities on the referenced prospect area. PETTY PROSPECT Letter Agreements dated April 16, 2012, between Ricochet Energy, Inc. and Vaquillas Energy, Ltd., JOB Energy II, Ltd., Lord's Energy, Ltd., Hubberd-Smith Energy Investments, Ltd., Nettleship Energy Interests, Ltd. and Laredo Gateway Energy, Ltd., setting forth elections to participate in drilling and development activities on the referenced prospect area. 49 FRIO AUSTIN CHALK PROSPECT (CULPEPPER, 3C, KOTZEBUE AND RIGGAN) Participation Agreement (Frio Austin Chalk Prospect) dated effective June 1, 2011, between Ricochet Energy, Inc., as Operator, and Ricochet Interests, Ltd. et al., as Participants, together with Joint Operating Agreement dated effective June 1, 2011 attached thereto, unrecorded. Agreement dated April 21, 2010, between Sien Energy Company, Ricochet Energy, Inc. and Goodrich Petroleum Company, L.L.C., regarding the sale and conveyance of certain rights below the top of the Eagleford formation to Goodrich Petroleum in the "Culpepper" Leases listed therein, unrecorded. EXPRESS RE-ENTRY PROSPECTS (CANTU-HENDERSON UNIT AND HARRIS LEASE) Participation Agreement (Express Re-entry Prospects) dated effective July 15, 2009, between Ricochet Energy, Inc., as Operator, and Express Oil & Gas, Mark Pinson and Rustic Oil & Gas, L.L.C., covering the Cantu/Henderson Leases and the Harris Lease in Frio County, unrecorded. Operating Agreement dated July 15, 2009, between Ricochet Energy, Inc., as Operator, and Express Oil & Gas, as non-operator, recorded by Memorandum of Operating Agreement and Financing Statement dated effective July 15, 2009, in Volume 63, page 442, Official Records, Frio County, Texas, covering the Cantu/Henderson Lease Prospect. Operating Agreement dated July 15, 2009, between Ricochet Energy, Inc., as Operator, and Express Oil & Gas and Rustic Oil & Gas, L.L.C., as non-operators, recorded by Memorandum of Operating Agreement and Financing Statement dated effective July 15, 2009, in Volume 63, page 435, Official Records, Frio County, Texas, covering the Harris Lease (Re-entry) Prospect. Participation Agreement (Express Re-entry Prospects) dated effective November 10, 2009, between Ricochet Energy, Inc., as Operator, and Ricochet Interests, Ltd. et al, as Participants, covering the Cantu/Henderson Leases and the Harris Lease in Frio County, unrecorded. Gas Sales and Purchase Agreement dated December 1, 2010, between Frio LaSalle Pipeline, LLC, and Ricochet Energy, Inc., regarding sales of gas from the Cantu-Henderson No. 1H well in Frio County. Salt Water Disposal Agreement dated effective September 1, 2012, between Manuel Cantu Family Trust, as Owner, and Ricochet Energy, Inc., as Operator, regarding disposal of salt water from the Cantu-Henderson No. 1H Well into the wellbore of the former Cantu No. 1 Well, unrecorded. [END] 50 EXHIBIT "G" (Attached to Purchase and Sale Agreement dated May 29, 2014, between Ricochet Energy, Inc. et al. and Baron Energy, Inc.) LITIGATION AND CLAIMS JOB Energy Partners II, Ltd. (a Texas limited partnership) expressly reserves to itself, its successors and assigns, and does not bargain, assign, transfer, sell or convey any rights or interests it has individually and as assignee of JOB Energy Partners, Ltd. (a Texas limited partnership) in the following: 1. claims against Thomas A. Lamont, Rosendo A. Carranco, L.O.G. Energy Development, Ltd. (a Texas limited partnership), and Montecristo Energy Development II, Ltd. (a Texas limited partnership) made the basis of that certain lawsuit styled Vaquillas Energy, Ltd., et al., vs. Thomas A. Lamont, et al., Cause No. 2008-CVF-00353-D1, in the 49th District Court of Webb County, Texas, affirmed by the 4th Court of Appeals in San Antonio, and which is currently on appeal at the Texas Supreme Court; 2. that certain Final Judgment in favor of JOB Energy Partners II, Ltd. individually and as assignee of JOB Energy Partners, Ltd. in that certain lawsuit styled Vaquillas Energy, Ltd., et al., vs. Thomas A. Lamont, et al., Cause No. 2008-CVF-00353-D1, in the 49th District Court of Webb County, Texas; and 3. all right, title, and interest under that certain Agreement for Transfer of Prospect to Explore and Develop Oil, Gas, and Related Hydrocarbons entered into as of October 19, 2006 between JOB Energy Partners Ltd. and JOB Energy Partners II, Ltd. Ricochet Energy, Inc. (a Texas corporation) expressly reserves to itself, its successors and assigns, and does not bargain, assign, transfer, sell or convey any rights or interests it has in the following: 1. claims or counterclaims against Thomas A. Lamont, L.O.G. Energy Development, Ltd., L.O.G. Energy Management, LLC, Rosendo A. Carranco, Montecristo Energy II, Ltd. and Montecristo Management II, LLC in that certain lawsuit styled Thomas A. Lamont et al., vs. Jerry L. Hamblin, et al., Cause No. 2008-CVF-000665-D2, in the 111th District Court of Webb County, Texas, reversed in part by the 4th Court of Appeals in San Antonio. [END] 51 EXHIBIT H Attached to Purchase and Sale Agreement dated May 29, 2014 between Ricochet Energy, Inc. et al. and Baron Energy, Inc. 52 EXHIBIT "I" (Attached to Purchase and Sale Agreement dated May 29, 2014, between Ricochet Energy, Inc. et al. and Baron Energy, Inc.) GAS IMBALANCES NONE [END] 53 EXHIBIT "J" (Attached to Purchase and Sale Agreement dated May 29, 2014, between Ricochet Energy, Inc. et al. and Baron Energy, Inc.) CONSENTS AND PREFERENTIAL RIGHTS EAST PEARSALL (STEWART) PROSPECT Lease 1: Oil and Gas Lease dated August 13, 2009, from Federal Royalty LLC, as General Partner for Federal Royalty Partners, Ltd., as Lessor, to Sien Energy Company, as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 66, page 502, Official Public Records, Frio County, Texas, as amended. * Consent to assignment required (Section 8), not to be unreasonably withheld. Lease 2: Oil and Gas Lease dated March 26, 2009, from Cimarron Texas Minerals, Ltd., as Lessor, to Sien Energy Company, as Lessee, recorded by Memorandum of Oil and Gas Lease dated March 31, 2009 in Volume 67, page 831, Official Public Records, Frio County, Texas, as amended. * Consent to assignment required (Section 7). Lease 14: Paid Up Oil and Gas Lease dated March 20, 2009, from Douglas C. Koch, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 544, Official Public Records, Frio County, Texas, as amended. * Assignment is not effective until Lessor is furnished with a copy (Section 23). Lease 15: Paid Up Oil and Gas Lease dated March 20, 2009, from Wayne A. Bissett, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 550, Official Public Records, Frio County, Texas, as amended. * Assignment is not effective until Lessor is furnished with a copy (Section 23). Lease 21: Paid-Up Oil and Gas Lease dated September 1, 2009, from Stewart Information Services Corporation, as Lessor, to Sien Energy Company, as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 66, page 574, Official Public Records, Frio County, Texas, as amended. * Assignment is not binding on Lessor until Lessor is furnished with a copy (Section 9.0). BREAZEALE PROSPECT (NEAL TRUST UNIT) Lease 3: Oil and Gas Lease dated July 18, 2011, from Providence Minerals, LLC, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 95, page 116, Official Public Records, Frio County, Texas. * Consent to assignment required (Section 8), not to be unreasonably withheld or delayed. Lease 4: Oil and Gas Lease dated August 16, 2011, from Texas Osage Royalty Pool, Inc., as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 95, page 819, Official Public Records, Frio County, Texas. * Consent to assignment required (Section 6), for any assignments of operating rights. MAXWELL PROSPECT None PETTY PROSPECT None 54 FRIO AUSTIN CHALK PROSPECT CULPEPPER & 3C LEASES None KOTZEBUE LEASE Oil and Gas Lease dated August 26, 2010, from David W. Kotzebue and wife, Deborah R. Kotzebue, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 79, page 752, Official Public Records, Frio County, Texas. * Consent to assignment required (Section XI), not to be unreasonably withheld or delayed, and no assignment shall be binding on lessor until a recorded copy is delivered to lessor. RIGGAN LEASE Oil and Gas Lease dated August 18, 2010, from James M. Riggan et al., as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 79, page 460, Official Public Records, Frio County, Texas. * Consent to assignment required (Section XV.(a)), not to be unreasonably withheld or delayed, and no assignment will be effective until a copy is delivered to lessor. EXPRESS RE-ENTRY PROSPECTS (CANTU-HENDERSON UNIT AND HARRIS LEASE) Salt Water Disposal Agreement dated effective September 1, 2012, between Manuel Cantu Family Trust, as Owner, and Ricochet Energy, Inc., as Operator, regarding disposal of salt water from the Cantu-Henderson No. 1H Well into the wellbore of the former Cantu No. 1 Well, unrecorded. * This agreement shall not be assigned without first obtaining prior written consent (Section 17) from the Owner. [END] 55 EXHIBIT "K" (Attached to Purchase and Sale Agreement dated May 29, 2014, between Ricochet Energy, Inc. et al. and Baron Energy, Inc.) VIOLATIONS OF LAWS None [END] 56 EXHIBIT "L" (Attached to Purchase and Sale Agreement dated May 29, 2014, between Ricochet Energy, Inc. et al. and Baron Energy, Inc.) PRODUCTION SALES MATTERS NONE [END] 57 EXHIBIT "M" (Attached to Purchase and Sale Agreement dated May 29, 2014, between Ricochet Energy, Inc. et al. and Baron Energy, Inc.) CAPITAL COMMITMENTS NONE [END] 58 ADDENDUM I Identification of the Ricochet Parties Ricochet Interests, Ltd., a Texas limited partnership Maier Energy Interests, LP, a Texas limited partnership G4S Energy, Ltd., a Texas limited partnership CRG Energy, Ltd., a Texas limited partnership DCPMD Energy, Ltd., a Texas limited partnership Stricker Energy, Ltd., a Texas limited partnership JRODS Energy Investments, Ltd., a Texas limited partnership Triple (H) Energy, Ltd., a Texas limited partnership MarVell Energy, Ltd., a Texas limited partnership 59

Exhibit 10.80 PURCHASE AND SALE AGREEMENT BETWEEN BARON PRODUCTION LLC. AS SELLER AND PCEC SUB 1, LLC AS BUYER DATED AS OF JULY 28, 2014 Purchase and Sale Agreement 20 TABLE OF CONTENTS ARTICLE I. DEFINITIONS........................................................1 Section 1.1 Certain Definitions...............................................1 Section 1.2 Other Definitions; Incorporation of Conveyance and Production and Marketing Agreement Definitions...............................3 Section 1.3 Rules of Construction.............................................3 ARTICLE II. TRANSACTIONS......................................................4 Section 2.1 Purchase and Sale.................................................4 Section 2.2 Tax Reporting.....................................................4 ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS OF WORKING INTEREST OWNER...................................................4 Section 3.1 Representations and Warranties of Working Interest Owner..........4 Section 3.2 Use of Proceeds..................................................12 ARTICLE IV. REPRESENTATIONS OF ROYALTY OWNER.................................12 Section 4.1 Representations of Royalty Owner.................................12 ARTICLE V. CONDITIONS TO CLOSING.............................................12 Section 5.1 Conditions to Obligations of Working Interest Owner..............12 Section 5.2 Conditions to Obligations of Royalty Owner.......................13 ARTICLE VI. CLOSING..........................................................14 Section 6.1 Place of Closing.................................................14 Section 6.2 Closing Documents................................................14 Section 6.3 Preclosing and Funding...........................................16 ARTICLE VII. MISCELLANEOUS...................................................16 Section 7.1 Announcements; Confidentiality; Patriot Act......................16 Section 7.2 Survival.........................................................17 Section 7.3 Expenses.........................................................17 Section 7.4 Notices..........................................................18 Section 7.5 Governing Law....................................................18 Section 7.6 Successors and Assigns...........................................18 Section 7.7 Entire Agreement; Amendments; Waivers............................19 Section 7.8 Counterparts.....................................................19 Section 7.9 WAIVER OF JURY TRIAL AND OF PUNITIVE DAMAGES.....................20 Section 7.10 CONSENT TO JURISDICTION.........................................20 i EXHIBITS AND SCHEDULES EXHIBIT A Certification of Non-Foreign Status EXHIBIT B-1 Form of Legal Opinion of Stewart & Bonnett, LLP EXHIBIT B-2 Form of Legal Opinion of Lionel Sawyer & Collins SCHEDULE 3.1 Disclosure Schedule SCHEDULE 6.3 Wire Instructions ii PURCHASE AND SALE AGREEMENT This Purchase and Sale Agreement (this "Agreement") dated as of July 28 2014, is made by and between Baron Production LLC, a Texas limited liability company ("Working Interest Owner" and a "Party"), and PCEC Sub 1, LLC, a Texas limited liability company ("Royalty Owner" and a "Party"). W I T N E S S E T H: WHEREAS, Working Interest Owner is the owner of the Subject Interests (as defined in the Conveyance referred to below); and WHEREAS, Working Interest Owner desires to sell and Royalty Owner desires to purchase the Production Payment (as defined in the Conveyance); NOW, THEREFORE, in consideration of the mutual benefits and obligations of the Parties contained herein, the Parties hereby agree as follows: ARTICLE I. DEFINITIONS Section 1.1 Certain Definitions. As used herein, the following terms shall have the meanings set forth below, except as otherwise expressly provided: "Closing" means the completion of certain of the transactions contemplated hereby as described in Section 6.4. "Closing Date" means the date on which the Closing is completed. "Closing Documents" means, collectively, the Conveyance, and any other documents or instruments executed or delivered by or on behalf of any Party at or before or in connection with the Closing. "Conveyance" means the Conveyance of Term Overriding Royalty Interest dated as of the date hereof made by Working Interest Owner to Royalty Owner that is executed in connection herewith. "Disclosure Schedule" means Schedule 3.1 to this Agreement. "Good and Defensible Title" means such title to the Subject Interests (properly reflected of record) that, after giving effect to the Permitted Encumbrances, (a) will enable Working Interest Owner to truthfully make the representations and warranties in Section 1.9 of the Conveyance and (b) except for the Permitted Encumbrances (i) is free and clear of any encumbrances, liens, security interests, mortgages, pledges, preferential purchase rights (other than those that have been waived), or requirements for consents to assignment (other than those that have been obtained) that would be applicable to or exercisable 1 as a result of the Conveyance and the other Closing Documents, and (ii) is free and clear of any defects that would materially affect or interfere with the operation, use, possession, ownership or value thereof. "Initial Engineers" means Cawley, Gillespie and Associates and Haas Petroleum Engineering Services, Inc. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended. "Mortgage" means the Second Lien Deed of Trust, Assignment of As-Extracted Collateral, Security Agreement, Fixture Filing and Financing Statement of even date herewith executed in connection herewith by Working Interest Owner for the benefit of Royalty Owner with respect to the Retained Interests and certain Related Assets. "Parent" means Baron Energy, Inc. a Nevada corporation. "Parent Guaranty Agreement" means the Guaranty Agreement of even date herewith executed in connection herewith by Working interest Owner in favor of Royalty Owner. "Parties" means Working Interest Owner and Royalty Owner. "Production and Marketing Agreement" means the Production and Marketing Agreement dated as of the date hereof between Royalty Owner and Working Interest Owner that is executed in connection herewith. "Production Payment" has the meaning specified in the Conveyance. "Projected Yield" means twenty percent (20%) per annum. "Purchase Price" means $6,100,000.00. "Related Assets" means (i) the Subject Interests and the Subject Hydrocarbons, together with all rights, titles, interests, appurtenances, benefits and privileges of Working Interest Owner attributable to each Subject Interest; (ii) all of the real, immovable, personal and mixed property of the Working Interest Owner (whether located on or off the Subject Interests) used in connection with or attributable in any manner to the exploration or development of the Subject Interests for Hydrocarbons, the operation of the Subject Interests, the treating, storing or transporting of Hydrocarbons produced from the Subject Interests, or the disposal or transporting of water and other byproducts of such production (including salt water injection wells and related facilities); (iii) all rights of the Working Interest Owner with respect to any and all contracts, agreements, instruments, governmental orders and contractual rights insofar as they cover or relate in any manner whatsoever to the Subject Interests; (iv) all rights of the Working Interest Owner with respect to any and all easements, rights-of-way, rights, permits, licenses and servitudes insofar as they are used or held in connection with the exploration, development or 2 operation of the Subject Interests or the transportation of Hydrocarbons produced therefrom; (v) all proceeds of the foregoing; and (vi) all files, records, data and documentation of the Working Interest Owner pertaining or related to the Subject Interests or any of the assets described in the preceding clauses (i) through (v). "Ricochet PSA" means the Purchase and Sale Agreement dated as of May 29, 2014, among Ricochet Energy, Inc., the other sellers party thereto, and the Parent. Section 1.2 Other Definitions; Incorporation of Conveyance and Production and Marketing Agreement Definitions. Other capitalized terms defined elsewhere in this Agreement have the meanings so given them herein. Each capitalized term used herein but not defined herein has the meaning given to it in the Conveyance or (if not defined therein) in the Production and Marketing Agreement. Section 1.3 Rules of Construction. The headings of the articles and sections of this Agreement are for convenience of reference only and do not limit or otherwise affect any of the terms or provisions of this Agreement. All references in this Agreement to articles, sections, subsections and other subdivisions refer to corresponding articles, sections, subsections and other subdivisions of this Agreement unless expressly provided otherwise. Titles appearing at the beginning of any of such subdivisions are for convenience only, do not constitute part of such subdivisions, and will be disregarded in construing the language contained in such subdivisions. The words "this Agreement", "this instrument", "herein", "hereof", "hereunder" and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. Unless the context otherwise requires: "including" its grammatical variations mean "including without limitation"; "or" is not exclusive; words in the singular form will be construed to include the plural and vice versa; words in any gender include all other genders; references herein to the Conveyance, the Production and Marketing Agreement, the Mortgage, the Parent Guaranty Agreement or any other instrument or agreement refer to such instrument or agreement as it may be from time to time amended, supplemented or restated; and references herein to any Person include such Person's successors and assigns. All references in this Agreement to exhibits and schedules refer to exhibits and schedules to this Agreement unless expressly provided otherwise, and all such exhibits and schedules are hereby incorporated herein by reference and made a part hereof for all purposes. This Agreement and the other Closing Documents have been drafted with the joint participation of Working Interest Owner and Royalty Owner and are to be construed neither against nor in favor of either Party but rather in accordance with the fair meaning hereof. ARTICLE II. TRANSACTIONS Section 2.1 Purchase and Sale. Subject to and in accordance with the terms hereof, Working Interest Owner agrees to sell and convey to Royalty Owner, and Royalty Owner agrees to purchase from Working Interest Owner, the Production 3 Payment for consideration equal to the Purchase Price, and the Parties agree to execute and deliver the Closing Documents. Working Interest Owner acknowledges and agrees that the foregoing constitutes payment to Working Interest Owner of reasonably equivalent value for the Production Payment. Royalty Owner will pay the Purchase Price to Working Interest Owner at the Closing as provided in Section 6.3. Section 2.2 Tax Reporting. The Parties intend for the Production Payment to be treated for federal income tax purposes (and for the purpose of any similarly calculated state income or franchise taxes, but for no other purposes) as a mortgage loan (and not a "royalty" or other "economic interest" Hydrocarbons) within the meaning of the Internal Revenue Code and the regulations and judicial authority relating thereto, and the Parties agree to report the Production Payment accordingly on all applicable tax returns. In so doing, Working Interest Owner will apply the "noncontingent bond method" of calculating principal and interest as provided in Treasury Regulation section 1.1275-4(b), using a comparable yield equal to the Projected Yield and calculating a projected payment schedule based on the Scheduled Quantities provided in the Conveyance. If the Scheduled Quantities are ever adjusted as provided in the Production and Marketing Agreement, Working Interest Owner, with the approval of Royalty Owner, will adjust the projected payment schedule to reflect such changes in the Scheduled Quantities and will appropriately reflect such adjustment to projected payments in determining the amount of the net adjustment to be taken into account under Treasury Regulation section 1.1275-4(b)(6). ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS OF WORKING INTEREST OWNER Section 3.1 Representations and Warranties of Working Interest Owner. In order to induce Royalty Owner to enter into this Agreement and the Closing Documents and to consummate the transactions described herein, Working Interest Owner hereby represents and warrants to Royalty Owner, and to each beneficiary under any Mortgage, both as of the date Working Interest Owner executes this Agreement and as of the Closing Date, as follows: (a) Existence and Authorization. Working Interest Owner and is limited liability company duly organized, validly existing and in good standing under the Laws of the State of Texas. Working Interest Owner has the right, power, authority, and qualifications necessary to conduct its business and own its properties (including, as applicable, the Subject Interests and the Related Assets) in such State, to execute and deliver the Closing Documents to which it is a party, to perform all of its obligations under the same, and to convey to Royalty Owner the Production Payment. Working Interest Owner is not a "foreign person" within the meaning of Sections 1445 and 7701 of the Internal Revenue Code (i.e., Working Interest Owner is not a non-resident alien, foreign corporation, foreign partnership, foreign trust or foreign estate as those terms are defined in the Internal Revenue Code and any regulations promulgated thereunder). 4 (b) No Conflicts. The execution, delivery and performance by Working Interest Owner of the Closing Documents to which it is a party (including Working Interest Owner's application of the Purchase Price as provided in Section 3.2) are within the limited liability company power of Working Interest Owner, have been duly authorized by all necessary action on the part of Working Interest Owner and its members and managers, as applicable, and do not and will not (i) violate any provision of Working Interest Owner's charter documents or other governing documents, (ii) violate any provision of Law or any order, writ, judgment, decree or determination currently in effect having applicability to Working Interest Owner, (iii) result in a breach of or constitute a default under any Lease, any agreement binding or affecting the Subject Interests (or Working Interest Owner with respect to the Subject Interests), any indenture, bank loan, credit agreement or farmout agreement, program agreement, area of mutual interest agreement, unit agreement or operating agreement, or any other agreement or instrument to which Working Interest Owner is a party or by which Working Interest Owner or Working Interest Owner's properties may be currently bound or affected, (iv) cause Working Interest Owner to become obligated to (or obligated to offer to) prepay, redeem or purchase any indebtedness, or (v) except as set forth in Section 3.1(b) of the Disclosure Schedule and other than pursuant to the Mortgage, result in or require the creation or imposition of any mortgage, lien, pledge, security interest, charge or other encumbrance upon or of any of the properties or assets of Working Interest Owner (including the Subject Interests). Working Interest Owner is not in default under any order, writ, judgment, decree, determination, indenture, agreement or instrument in any manner that now or in the future could adversely affect the ability of Working Interest Owner to perform Working Interest Owner's obligations under this Agreement or the Closing Documents to which it is a party, and all consents or approvals under such indentures, agreements and instruments necessary to permit the valid execution, delivery, and performance by Working Interest Owner of the Closing Documents to which it is a party and the conveyance of the Production Payment to Royalty Owner have been obtained. (c) Consents, Preferential Rights and Required Notices. Except as disclosed in Section 3.1(c) of the Disclosure Schedule, all consents and waivers of preferential purchase or other rights necessary to permit the valid conveyance to Royalty Owner of the Production Payment and execution and delivery of this Agreement and the Closing Documents have been obtained. All advance notifications (if any) to third parties of the transactions contemplated herein and in the Closing Documents necessary to permit the valid conveyance to Royalty Owner of the Production Payment and execution and delivery of this Agreement and the Closing Documents have been or will be, prior to the Closing Date, timely and properly given. (d) Financial Statements; No Material Adverse Changes. Working Interest Owner has heretofore delivered to Royalty Owner true, correct and complete copies of the Parent's most recent audited annual financial statements (dated as of July 31, 2011), the Parent's most recent unaudited annual financial statements (dated July 31, 2013) and the Parent's most recent unaudited quarterly financial statements (dated as of April 30, 2014). Such financial statements were prepared in accordance with generally accepted accounting principles, consistently applied, and fairly represent the consolidated 5 financial position of Parent and its subsidiaries as of the dates thereof and their consolidated results of operations and consolidated cash flows for the periods indicated therein (subject, in the case of such unaudited financial statements, to normal year-end adjustments and the absence of footnotes). Except for matters described in Section 3.1(d) of the Disclosure Schedule, since the date of the most recent audited balance sheet contained in such financial statements, no material adverse change has occurred to the consolidated financial condition of Parent and its subsidiaries or to their consolidated operations, cash flows, properties or prospects. (e) Governmental Approvals. Except for approvals by governmental authorities that are customarily obtained after closing and listed in Section 3.1(e) of the Disclosure Schedule, (i) Working Interest Owner has obtained all authorizations, consents, approvals, licenses and exemptions of, and has made all filings and registrations with, any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, that are necessary for the valid execution and delivery by Working Interest Owner of the Closing Documents to which it is a party, and (ii) Working Interest Owner has obtained all such authorizations, consents, approvals, licenses and exemptions, and has made all such filings or registrations, that are currently required for the performance of its obligations under this Agreement and the Closing Documents to which it is a party. (f) Enforceability. This Agreement has been duly executed and delivered by Working Interest Owner, and as of the Closing Date each of the Closing Documents will have been duly executed and delivered by Working Interest Owner. This Agreement constitutes, and as of the Closing Date each of the Closing Documents will constitute, the legal, valid and binding acts and obligations of Working Interest Owner, enforceable in accordance with its terms, subject, however, to bankruptcy, insolvency, reorganization, moratorium and other Laws affecting creditors' rights generally and to general principles of equity. (g) Effective Conveyance of Property Interest. Upon due execution and delivery by Working Interest Owner of the Conveyance, (i) the Conveyance will constitute the legal, valid and binding conveyance of the Production Payment out of the Subject Interests, and (ii) the Production Payment will constitute an interest in real property owned by Royalty Owner (and not by Working Interest Owner) and will constitute a "production payment" as defined in Section 101(42A) of the Bankruptcy Code, and referred to in Section 541(b)(4)(B) of the Bankruptcy Code. Neither the Conveyance nor any Subject Interest constitutes, or will constitute, an executory contract or unexpired lease within the meaning of Section 365 of the United States Bankruptcy Code. (h) Full Disclosure. The information, memoranda, exhibits, reports, financial statements and other data furnished by or on behalf of Working Interest Owner to Royalty Owner and its Affiliates in connection with the transactions described herein, including the data supplied by or on behalf of Working Interest Owner to the Initial Engineers for use in evaluating the data supplied by Working Interest Owner to Royalty Owner, do not contain any untrue statement of a material fact or omit to state any material fact that is necessary in order to make the statements therein, in light of the circumstances 6 under which such statements were made, not misleading. There is no fact that has not been disclosed to Royalty Owner that could reasonably be expected to adversely affect the value of the Production Payment or adversely affect the value of the Subject Interests. Except as listed in Section 3.1(h) of the Disclosure Schedule, there are no reserves in the data supplied by Working Interest Owner to Royalty Owner's reserve engineers that are attributable to properties and interests other than the Subject Interests. Except for (i) production from the Subject Wells in the ordinary course of business, (ii) matters listed in Section 3.1(h) of the Disclosure Schedule, and (iii) changes in the general market prices of oil and natural gas, no material adverse change in the condition of or remaining recoverable proved reserves attributable to the existing Subject Wells or the Subject Interests has occurred since April 30, 2014. The actions of Working Interest Owner in furnishing information to Royalty Owner in connection with the transactions described herein do not and will not violate any duty owed by Working Interest Owner to any Person to which such information relates or any obligation of Working Interest Owner under any existing agreement, document, or instrument. (i) Title. Working Interest Owner owns Good and Defensible Title to each of the Subject Interests and the other Related Assets, free and clear of any encumbrances, liens or security interests (other than Permitted Encumbrances). (j) Taxes. All Taxes imposed or assessed with respect to or measured by or charged against or attributable to the Subject Interests, the Subject Hydrocarbons and the Related Assets have been duly paid (including all property and ad valorem taxes for 2013 and earlier years), except for those not yet due and payable or being contested in good faith by appropriate proceedings. Working Interest Owner has filed all Tax returns required to be filed and such returns comply with applicable Laws. Except as may be disclosed in Section 3.01(j) of the Disclosure Schedule, no taxing authority is asserting that Working Interest Owner is liable for past due taxes. (k) No Tax Partnership or Other Joint Venture. No Subject Interest is held by, or for any purpose treated as held by, any tax partnership (i.e., any entity, organization or group deemed to be a partnership within the meaning of section 761 of the Internal Revenue Code, after giving effect to any applicable elections and exclusions) or any other partnership or joint venture. (l) Status of Leases and Wells. The Leases are in full force and effect, and Working Interest Owner has complied with all of the terms of the Leases and all governmental orders or directives applicable to Working Interest Owner or to the Subject Interests. All rents, royalties and other payments due or payable with respect to the Leases have been paid in a timely manner, and all liabilities of any kind or nature incurred with respect to the Leases have been paid and performed before becoming delinquent. Working Interest Owner is not in default (and has not received any notice of default or claimed default) with respect to any Subject Interest or any Lease or any part thereof. All wells, facilities and equipment which constitute part of the Related Assets are in good repair and working condition (other than wells designated for plugging and abandonment and equipment related thereto) and have been installed and 7 maintained in accordance with good industry standards and all applicable statutes, rules, regulations, orders, permits or licenses of any governmental authority, agency or court. No well comprising part of the Subject Interests is or was subject to any penalty on allowables after the effective date of the Conveyance because of any over-production (or any other judgments, orders or decrees of any court or governmental authority or agency) which would (or did) prevent such well from being entitled to its full legal and regular allowable (as prescribed by any governmental authority, agency or court) from and after such effective date. If a tract or tracts of land are listed on the Property Exhibit to the Conveyance with respect to a Subject Well, such Subject Well is located on such tract or tracts of land. If the Subject Interests pertaining to a Subject Well are limited in the Conveyance to specified depths or formations, such Subject Well is producing only from such specified depths or formations, and all of such specified depths or formations are included within the Subject Interests that pertain to such Subject Well. None of the reserves which comprise Production Payment Hydrocarbons are being produced from any wells other than the Subject Wells listed on the Property Exhibit, and if the Subject Interests pertaining to a Subject Well are limited on the Property Exhibit to particular depths or formations, all of such reserves pertaining to such Subject Well are located within such depths or formations. (m) Commitments; Contracts. Except as set forth in Section 3.1(m) of the Disclosure Schedule: (i) no third party has any right to purchase any Subject Hydrocarbons (including any call, right of first refusal or preferential right to purchase) that does not terminate within one month or is not terminable by Working Interest Owner without penalty on notice of one month or less; (ii) neither the Subject Interests nor the Hydrocarbons attributable thereto are subject, committed, or dedicated to any joint operating agreement, unit operating agreement, or area of mutual interest agreement; and (iii) neither the Subject Interests nor the Hydrocarbons attributable thereto are subject, committed, or dedicated to any Subject Contract that will or could reasonably be expected to (A) reduce the percentage share of the Hydrocarbons produced from or allocated to any Subject Interest below the Warranted Net Revenue Interest for such Subject Interest, (B) cause Working Interest Owner to be obligated to bear a percentage share of the cost of operation of such Subject Interest that is greater than the Warranted Working Interest Percentage for such Subject Interest (without a corresponding proportional increase in the associated Net Revenue Interest or a right to reimbursement from a non-paying joint interest owner), or (C) prevent or interfere with the ownership, exploration, development, operation, maintenance or use of any of the Subject Interests in accordance with prudent industry practices or in accordance with the manner in which such Subject Interest is currently being owned, explored, developed, operated, maintained or used. (n) Take or Pay, etc. Except as set forth in Section 3.1(n) of the Disclosure Schedule, neither the Subject Interests nor the Hydrocarbons attributable thereto are subject to any contract, agreement or arrangement 8 (including advance payment agreements, prepayments, take-or-pay makeup obligations or otherwise) whereby the owner of the Hydrocarbons or any part thereof is not entitled to convey the Hydrocarbons or to market the Hydrocarbons and to obtain the full market price or value of the same. No Subject Interest is subject on the date hereof to any regulatory refund obligation and, to the best of Working Interest Owner's knowledge, no facts exist which might cause the same to be imposed. (o) Compliance with Laws. Except as set forth in Section 3.1(o) of the Disclosure Schedule, (i) the Subject Interests have been owned and operated, in accordance with all applicable Laws (including Environmental Laws) of all governmental authorities having or asserting jurisdiction relating to the ownership and operation of the Subject Interests, and Working Interest Owner and all other operators of the Subject Interests are in compliance in all respects with all licenses and permits required under any such Laws; (ii) Working Interest Owner has taken all steps reasonably necessary to determine and has determined that no Hazardous Substance has been disposed of or otherwise released on or to the Subject Lands or produced on the Subject Lands and disposed of or released elsewhere, and the use which Working Interest Owner make and intend to make of the Subject Lands will not result in any such disposal or release; (iii) none of the Subject Interests is the subject of any federal, state or local investigation evaluating whether any remedial action is needed to respond to a release of any Hazardous Substances into the environment or to the improper storage or disposal (including storage or disposal at offsite locations) of any Hazardous Substances; (iv) Working Interest Owner has not and, to the knowledge of Working Interest Owner no other Person, has filed any notice under any applicable Law indicating that any Working Interest Owner is responsible for the improper release into the environment, or the improper storage or disposal, of any Hazardous Substances or that any Hazardous Substances have been improperly released, or are improperly stored or disposed of, upon any of the Subject Lands; and (v) neither Working Interest Owner nor any Affiliate of a Working Interest Owner otherwise has any contingent liability under any Environmental Laws or in connection with the release into the environment, or the storage or disposal, of any Hazardous Substances. (p) No Casualties or Condemnation. Except as disclosed in Section 3.1(p) of the Disclosure Schedule, during the twelve months preceding the Closing Date no Casualty or Condemnation has occurred that, individually or in the aggregate, adversely affects any material portion of the Related Assets or the use or operation thereof, or adversely affects the ability of Working Interest Owner to perform its obligations under this Agreement or the Closing Documents to which it is a party. As used in this subsection, "Casualty or Condemnation" means (i) any fire, blowout, leak, explosion, accident, earthquake, act of public enemy or other casualty (whether above or below ground and regardless of whether covered by insurance) and (ii) any pending or threatened taking, in condemnation or under the right of eminent domain, of any Related Asset or portion thereof. (q) Litigation. Except as set forth in Section 3.1(q) of the Disclosure Schedule, there are no suits or proceedings pending or, to the knowledge of Working Interest Owner, threatened against or affecting Working Interest Owner 9 or the Related Assets that involve (i) a dispute or claim concerning title to, operation of, or production from any of the Subject Interests, (ii) any actual or purported lien, security interest, charge or burden upon any of the Subject Interests or Subject Hydrocarbons, or (iii) any other claim which would affect a transferee of any of the Subject Interests or would adversely affect the value of the Production Payment. Except as set forth in Section 3.1(q) of the Disclosure Schedule, there are no suits or proceedings pending or, to the knowledge of Working Interest Owner, threatened against Working Interest Owner or the Related Assets that, if decided adversely to the interest of Working Interest Owner could adversely affect Working Interest Owner, any of the Related Assets or the rights of Royalty Owner under the Closing Documents. There are no bankruptcy, reorganization or similar proceedings pending, being contemplated by or, to the knowledge of Working Interest Owner, threatened against Working Interest Owner, and Working Interest Owner has not made a general assignment for the benefit of creditors. (r) No Broker's or Finder's Fees. Working Interest Owner has not incurred any obligation or liability (or taken any action) which might impose upon Royalty Owner or Royalty Owner's lenders or Affiliates any obligation or liability, contingent or otherwise, for broker's or finder's fees in respect of any of the matters provided for in this Agreement or the other Closing Documents. (s) Copies of Permitted Encumbrances and Listed Documents. Working Interest Owner has furnished to Royalty Owner true and complete copies of all of the joint operating agreements, unit agreements, and other agreements and instruments evidencing the Permitted Encumbrances that exist as of the Closing. Working Interest Owner has provided Royalty Owner with true and complete copies of all contracts and instruments referred to in the Disclosure Schedule. (t) Solvency. Upon the execution, delivery and performance by Working Interest Owner of the Closing Documents to which it is a party (including Working Interest Owner's application of the Purchase Price as provided in Section 3.2), Working Interest Owner is and will be solvent (as such term is used in applicable bankruptcy, liquidation, receivership, or insolvency or similar Laws). Working Interest Owner's capital is adequate for the businesses in which Working Interest Owner is engaged and intends to be engaged. Working Interest Owner has not incurred (whether hereby or otherwise), nor does Working Interest Owner intend to incur or believe that it will incur, debts which will be beyond its ability to pay as such debts mature. None of the Closing Documents and none of the transactions thereunder constitutes a fraudulent or voidable transfer or conveyance within the scope of Section 548 of the Bankruptcy Code or any other applicable Law pertaining to fraudulent or voidable transfers or conveyances. (u) No ERISA Liabilities. Working Interest Owner does not have any liabilities or obligations of any kind with respect to any employee benefit plan that is subject to Title IV of the Employee Retirement Income Security Act of 1974, as amended. (v) Employee Disputes. Except as set forth in Section 3.1(v) of the Disclosure Schedule, (i) neither the workers who operate the Related Assets nor any other employees of Working Interest Owner are presently carrying out, or 10 threatening, any strike, slowdown, picketing or work stoppage, and (ii) within the last five years there have not been any strikes, work stoppages, slowdowns, lockouts or other material labor disputes involving any Working Interest Owner or any of its Affiliates or any of their respective employees, or the operation of the Related Assets. (w) Transmitting Utility. Working Interest Owner is not a "transmitting utility" as defined in Section 9.102(a)(81) of the Uniform Commercial Code presently in effect in the State of Texas. (x) Insurance. Working Interest Owner is carrying the insurance described on Schedule 3.7 to the Production and Marketing Agreement and is otherwise in compliance with Section 3.7 of the Production and Marketing Agreement. (y) No Reliance. Working Interest Owner (i) has made its own independent decision to enter into this Purchase and Sale Agreement, the other Production Payment Documents, and the transactions contemplated herein and therein and its own independent judgment as to whether such transactions are appropriate or proper for it, in each case, based upon its own judgment and upon advice from such advisers as it has deemed necessary, and in entering into such transactions is acting for its own account, (ii) is not relying on any communication (written or oral) of Royalty Owner, or of Royalty Owner's Affiliates, as investment advice or as a recommendation to enter into such transactions, it being understood that any information and explanations related to the terms and conditions of such transactions shall not be considered to be investment advice or a recommendation to enter into such transactions, (iii) is capable of assessing the merits of and understanding (on its own behalf or through independent professional advice), and understands and accepts the terms and conditions and risks of, such transactions and is also capable of assuming, and assumes, such risks, and (iv) acknowledges that Royalty Owner and Royalty Owner's Affiliates are not, and are not acting as, an adviser to Working Interest Owner in respect of such transactions with respect to legal, regulatory, accounting, taxation, financial or any other matters in any jurisdiction. Section 3.2 Use of Proceeds. Working Interest Owner warrants and agrees that it will use the Purchase Price to pay for its and Royalty Owner's out-of-pocket expenses and fees relating to the sale and purchase of the Production Payment and to the Closing Documents as further set forth herein, to provide for a portion of the purchase price for the Subject Interests located in Frio County, Texas, and for general corporate purposes. 11 ARTICLE IV. REPRESENTATIONS OF ROYALTY OWNER Section 4.1 Representations of Royalty Owner. Royalty Owner hereby represents and warrants to Working Interest Owner as follows: (a) Royalty Owner is a limited liability company duly organized, validly existing and in good standing under the Laws of the State of Texas. The execution, delivery and performance of this Agreement and the transactions described herein have been duly and validly authorized by all necessary action on the part of Royalty Owner. Royalty Owner is a "United States person" within the meaning of Section 7701 of the Internal Revenue Code. (b) This Agreement has been, and as of the Closing the Closing Documents to which Royalty Owner is a signatory will have been, duly executed and delivered by or on behalf of Royalty Owner. This Agreement constitutes, and as of the Closing each of the Closing Documents to which Royalty Owner is a party will constitute, the legal, valid and binding obligations of Royalty Owner enforceable against Royalty Owner in accordance with its terms, subject, however, to bankruptcy, insolvency, reorganization, moratorium and other Laws affecting creditors' rights generally and to general principles of equity. (c) Royalty Owner is acquiring the Production Payment for its own account and not with any intention to transfer all or any part of the Production Payment to others in violation of the Securities Act of 1933, as amended. ARTICLE V. CONDITIONS TO CLOSING Section 5.1 Conditions to Obligations of Working Interest Owner. The obligation of Working Interest Owner to proceed with the Closing is subject to the satisfaction, on or prior to the Closing Date, of all of the following conditions precedent, provided that any one or more of such conditions may be waived in whole or in part in writing by Working Interest Owner: (a) Royalty Owner shall have performed all covenants and agreements required to be performed by it hereunder at or prior to the Closing, and (b) Each of Royalty Owner's representations and warranties contained in Article IV hereof shall be true and correct on and as of the Closing Date as if made on such date. 12 Section 5.2 Conditions to Obligations of Royalty Owner. The obligation of Royalty Owner to proceed with the Closing is subject to the satisfaction on or prior to the Closing Date of all of the following conditions precedent, provided that any one or more of such conditions may be waived in whole or in part in writing by Royalty Owner: (a) Working Interest Owner shall have performed all covenants and agreements required to be performed by it hereunder at or prior to the Closing, and each of the representations and warranties contained in Article III hereof or in any of the other Closing Documents shall be true and correct on and as of the Closing Date as if made on such date. (b) The consummation of the Closing on the Closing Date shall not be prohibited by any applicable Law or any applicable order or decree of any federal or state court or agency having competent jurisdiction. No suit, action or other proceeding shall be pending (i) that could have any adverse effect on the Related Assets or the value of the Related Assets or any adverse effect on the value of the Production Payment, (ii) in which there is sought any remedy to restrain, enjoin or otherwise prevent the consummation of this Agreement or the transactions contemplated in connection herewith, or (iii) in which any allegation is made that this Agreement or any of the transactions contemplated hereby is in violation of any Lease, indenture, bank loan, credit agreement, farmout agreement, program agreement, unit agreement, operating agreement, or other agreement or instrument to which Working Interest Owner is a party or by which Working Interest Owner or Working Interest Owner's properties may be currently bound or affected. (c) The sellers under the Ricochet PSA Agreement shall have assigned to the Working Interest Owner the Subject Interests in Frio County, Texas, and the transactions contemplated by the Ricochet PSA shall be closed concurrently with the transactions contemplated by this Agreement. (d) Royalty Owner shall have received copies of (i) all of the documents and instruments referred to in the Disclosure Schedule hereto, (ii) all consents, waivers of preferential purchase rights, and advance notices that are referred to in Section 3.1(c), (iii) all operating agreements and other agreements and instruments relating to Permitted Encumbrances that are referred to in Section 3.1(s), and (iv) any other Subject Contracts requested by Royalty Owner; and all of the foregoing shall be in full force and effect. (e) Royalty Owner, in Royalty Owner's sole discretion, shall be satisfied with the results of any engineering, environmental or other review of the Related Assets that it chooses to undertake, any due diligence investigation with respect to the matters addressed by Working Interest Owner's representations and warranties in the Production Payment Documents, and with all legal matters related to the transactions contemplated in the Production Payment Documents, including the status of the consents and amendments obtained by Royalty Owner with respect to Working Interest Owner's loan agreements, mortgages and indentures. 13 (f) Royalty Owner shall have received title opinions, in form and substance reasonably acceptable to it, landman reports or other title information with respect to title to the Subject Interests as may be requested by Royalty Owner. (g) Royalty Owner shall have received certificates from the applicable public officials of the State of Texas showing that Working Interest Owner is organized, validly existing and in good standing under the Laws of such state. (h) Royalty Owner shall have received insurance certificates establishing that Working Interest Owner is in compliance with the requirements of Section 3.7 of the Production and Marketing Agreement. (i) Royalty Owner shall have received a Certification of Non-Foreign Status from Working Interest Owner, substantially in the form attached as Exhibit A hereto. (j) Working Interest Owner shall have paid, or reimbursed Royalty Owner, for the out-of-pocket costs and expenses incurred by Royalty Owner in connection with its retention of legal counsel and environmental, engineering and other professionals to assist with its due diligence investigation of the Subject Interests and the negotiation and preparation of the Transaction Documents. (k) The transactions contemplated by the Credit Agreement, dated as of the date hereof, among the Working Interest Owner, the Parent, the lenders party thereto, and Petro Capital Energy Credit, LLC, as administrative agent for such lenders, shall have closed concurrently with the transactions contemplated by this Agreement. ARTICLE VI. CLOSING Section 6.1 Place of Closing. The Closing will occur at 9:00 a.m. (Dallas, Texas, Time) at the offices of Condon Thornton Sladek Harrell PLLC in Dallas, Texas, on July 28, 2014, or at such other place and time as Working Interest Owner and Royalty Owner may specify. Section 6.2 Closing Documents. At or before the Closing the following instruments shall be duly executed and acknowledged, as applicable, and delivered, each in form and substance satisfactory to Royalty Owner in its sole discretion and in such numbers of counterparts as may be requested by either Party: (a) Counterparts of the Conveyance, executed by Royalty Owner and Working Interest Owner. (b) Counterparts of the (i) Production and Marketing Agreement, executed by Royalty Owner and Working Interest Owner and (ii) the Parent Guaranty Agreement executed by the Parent. (c) Counterparts of the Mortgage, executed by Working Interest Owner. 14 (d) Legal opinions to Royalty Owner, in form and substance satisfactory to Royalty Owner, from Stewart & Bonnet, LLP, special counsel for Working Interest Owner, and Lionel Sawyer & Collins, special counsel for the Parent, as set out on Exhibits B-1 and B-2 hereto (with such additional assumptions and qualifications as may be acceptable to Royalty Owner). (e) A certificate of a senior executive officer of Working Interest Owner given to Royalty Owner, dated as of the Closing Date, certifying (to the best of his knowledge, after due inquiry) as to the matters specified in Section 5.2(a) and (b). (f) Certificates of a senior executive officer of Working Interest Owner, given to Royalty Owner, containing the names and signatures of the officers of Working Interest Owner authorized to execute the Closing Documents to which Working Interest Owner is a party and certifying to the truth, correctness and completeness of the following exhibits attached thereto: (i) a copy of resolutions or written consents duly adopted by the Board of Directors, members or managers, as applicable, of Working Interest Owner and in full force and effect at the Closing Date, authorizing the execution of the Closing Documents to which Working Interest Owner is a party and the consummation of the transactions contemplated therein, and (ii) a copy of the charter documents of such company and all amendments thereto, certified, as applicable, by the appropriate official of the appropriate state of organization. (g) Certificates of a senior executive officer of Parent, given to Royalty Owner, containing the names and signatures of the officers of Parent authorized to execute the Closing Documents to which Parent is a party and certifying to the truth, correctness and completeness of the following exhibits attached thereto: (i) a copy of resolutions or written consents duly adopted by the Board of Directors, members or managers, as applicable, of Parent and in full force and effect at the Closing Date, authorizing the execution of the Closing Documents to which Parent is a party and the consummation of the transactions contemplated therein, and (ii) a copy of the charter documents of such company and all amendments thereto, certified, as applicable, by the appropriate official of the appropriate state of organization. (h) Such other documents as Royalty Owner may reasonably specify to effectuate the conveyance of the Production Payment to Royalty Owner and the other transactions contemplated herein and in the other Closing Documents. Section 6.3 Preclosing and Funding. The Conveyance and the Mortgage will be executed prior to the Closing and shall be delivered to Royalty Owner contemporaneously with the funding described below and recorded promptly thereafter. After receipt of such documents and the other items described in Sections 5.2 and 6.2, the Closing will be completed as follows: 15 (a) Working Interest Owner will irrevocably authorize, and Working Interest Owner does hereby irrevocably authorize, Royalty Owner to accept delivery of the Conveyance and the Mortgage concurrently with Royalty Owner's sending of the wire transfer described in Schedule 6.3 and to file such instruments for record thereafter, and Royalty Owner will pay the Purchase Price to Working Interest Owner by wire transfer of immediately available funds in the amounts and to the accounts set out on Schedule 6.3. (b) The Parties will take such other actions and make such other deliveries of documents as Royalty Owner deems necessary or appropriate to effectuate the conveyance of the Production Payment to Royalty Owner and the other transactions contemplated herein and in the other Closing Documents. (c) Concurrently with the Closing, Royalty Owner or its Affiliates may execute such commodity price hedges, interest rate hedges, or other derivative transactions as Royalty Owner deems appropriate in connection with the Production Payment, the marketing of the Production Payment Hydrocarbons and the calculation of the final Purchase Price. ARTICLE VII. MISCELLANEOUS Section 7.1 Announcements; Confidentiality; Patriot Act. (a) Each Party covenants and agrees with the other that, subject to applicable Law, each Party will promptly advise and consult with the other and obtain the other's written consent before issuing any press release or other public announcement with respect to this Agreement or the transactions described herein; provided, however, that if either Party believes that such release or announcement is required by applicable Laws or by a court or agency having jurisdiction, such Party may make such release or announcement after it has used its reasonable efforts to give the other Party written notice thereof, has provided the text of such release or announcement to the other Party, and has permitted the other Party reasonable opportunity to review and comment upon such release or announcement. Each Party will hold in confidence this Agreement, the other Production Payment Documents (except to the extent recorded in public records), and any confidential information it has obtained from another Party, provided that disclosure thereof is permitted: (i) to the lenders, hedge providers and investors of any Party or any partner or member of any such Party and to the Affiliates of any such Party, lender, hedge provider, investor, partner or member, (ii) to the officers, employees, agents, consultants, auditors and attorneys of any Party or any Person described in the preceding clause (i), (iii) in the course of any arbitration, trial, or other legal proceeding between any of the Parties or any partner or member of any such Party, their lenders, hedge providers or investors, or the Affiliates of any such Party, partner, member, lender, hedge provider, or investor, (iv) to the extent legally required 16 to be disclosed or otherwise subject to legal, judicial, arbitral, regulatory or self-regulatory requests for information or documents, and (v) in connection with any assignment or potential assignment of such Party's, partner's, member's, lender's, hedge provider's or investor's rights (provided that each such assignee or potential assignee is made aware that such information is required to be held in confidence). (b) Each Party notifies the other Party that, to the extent the notifying Party is subject to the USA PATRIOT Act (Title III of Pub. L. 107-56), such notifying Party is required to obtain, verify and record information that identifies the other Party, including the other Party's name and address and other information that will allow such the notifying Party to identify the other Party in accordance with such Act. Section 7.2 Survival. The representations, warranties, covenants, agreements and indemnities in this Agreement and the Closing Documents and other Production Payment Documents will survive the Closing and the consummation of the transactions described herein and therein. Section 7.3 Expenses. Working Interest Owner will from time to time, promptly on demand, reimburse Royalty Owner for its expenses incurred in connection with pursuing the transactions contemplated herein, including all of Royalty Owner's legal and title fees and expenses, engineering fees and expenses, environmental audit fees and expenses and other professional fees and expenses incurred by Royalty Owner or its Affiliates in connection with due diligence review and the preparation, review, negotiation or delivery of all documents for such transactions (whether or not any such documents are executed), including any term sheet or mandate or commitment letter, this Agreement, the Closing Documents, the other Production Payment Documents, and any and all proposed supplements, amendments or waivers from time to time prepared with respect to this Agreement, the Closing Documents, the other Production Payment Documents, and the transactions contemplated herein and therein. WORKING INTEREST OWNER SHALL INDEMNIFY AND HOLD HARMLESS ROYALTY OWNER FROM AND AGAINST ANY AND ALL LIABILITY FOR ANY BROKERS' OR FINDERS' FEES ARISING WITH RESPECT TO BROKERS OR FINDERS RETAINED OR ENGAGED BY WORKING INTEREST OWNER OR WORKING INTEREST OWNER'S AFFILIATES IN RESPECT OF THE TRANSACTIONS DESCRIBED HEREIN AND THEREIN. In the event that the Closing does not occur Working Interest Owner shall promptly reimburse Royalty Owner for any loss or expense resulting from reversing or terminating any commodity price hedge, interest rate hedge, or other derivative transactions described at the end of Section 6.3. Section 7.4 Notices. All notices, requests, demands, instructions and other communications required or permitted to be given hereunder or under the other Production Payment Documents must be in writing and must be delivered 17 personally, mailed by certified mail, postage prepaid and return receipt requested, sent by telecopier, or sent by email confirmed by another writing, to the Parties as follows: To Royalty Owner, addressed to: To Working Interest Owner, addressed to: ------------------------------ ---------------------------------------- PCEC Sub 1, LLC Baron Production LLC 3710 Rawlins Street, Suite 1000 300 S CM Allen Pkwy, Suite 400 Dallas, Texas 75219 San Marcos, Texas 78666 Attention: Rosser C. Newton Attention: Chief Financial Officer Fax No.: (214) 661-7760 Fax No.: (512) 392-5775 Phone No.: (214) 661-7761 Phone No.: (512) 392-7238 with a copy to: with a copy to: Condon Thornton Sladek Harrell PLLC Corporate Legal, LLC 8080 Park Lane, Suite 700 12354 E. Caley Ave. Suite 201 Dallas, Texas 75231 Centennial, CO 80111 Attention: Mark Knowles Attention: Gordon Dihle Fax No.: (214) 691-6311 Fax No.: (303) 974-5587 Phone No.: (214) 691-6316 Phone No.: (720) 458-4123 Each Party may designate for itself a new or different address by written notice to the other. In addition, a copy of all notices, requests, demands, instructions and other communications given under this Section will be provided to any mortgagee of the Production Payment that is from time to time designated by Royalty Owner or that from time to time requests such copies from Working Interest Owner. All notices given by personal delivery or mail will be effective on the date of actual receipt at the appropriate address. Notice given by telecopier or email will be effective upon actual receipt if received during recipient's normal business hours or at the beginning of the next Business Day after receipt if received after the recipient's normal business hours. Section 7.5 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. Section 7.6 Successors and Assigns. This Agreement will be binding upon the Parties hereto and their respective successors and assigns and, subject to the restrictions set forth in Section 1.8 of the Conveyance, shall inure to the benefit of the Parties and their respective successors and permitted assigns. Nothing contained herein or in the other Production Payment Documents will in any way limit or restrict the right of Royalty Owner, or Royalty Owner's successors and assigns, to transfer, assign or pledge their respective rights or obligations hereunder and under the other Production Payment Documents, in whole or in part. Working Interest Owner will not transfer, assign or pledge its 18 rights or obligations hereunder or under the other Production Payment Documents without the prior written consent of Royalty Owner. Section 7.7 Entire Agreement; Amendments; Waivers. This Agreement and the other Closing Documents and Production Payment Documents constitute the entire agreement between the Parties with respect to the transactions described herein and supersede all prior negotiations, discussions, agreements and understandings, whether oral or written, relating to such subject matter. This Agreement may not be amended or modified, and no rights hereunder may be waived, except by a written document signed by the Party to be charged with such amendment, modification or waiver. Provisions of this Agreement that refer to any consent, approval, amendment or waiver by either Party require such consent, approval, amendment or waiver to be in writing. No waiver of any of the provisions of this Agreement will constitute a waiver of any other provisions hereof (whether or not similar) nor will such waiver constitute a continuing waiver unless otherwise expressly provided. Each Party acknowledges that it has read and understands the terms of this Agreement and the other Production Payment Documents and has had the opportunity to consult with legal, tax and accounting counsel and advisers of its choice concerning the meaning and effect hereof and thereof. No Party has relied upon any other Party or its counsel or advisers with respect to the meaning or effect of any such agreement or instrument. THIS WRITTEN AGREEMENT AND THE OTHER PRODUCTION PAYMENT DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEENTHE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Section 7.8 Counterparts. This Agreement may be executed by Royalty Owner and Working Interest Owner in any number of counterparts, each of which shall be deemed an original instrument and all of which together shall constitute one and the same Agreement. Delivery of an executed counterpart of a signature page of this Agreement by facsimile or in electronic (i.e., "pdf" or "tif") format shall be effective as delivery of a manually executed counterpart of this Agreement. Section 7.9 WAIVER OF JURY TRIAL AND OF PUNITIVE DAMAGES. EACH PARTY HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY (A) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BYAPPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, OR DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER PRODUCTION PAYMENT DOCUMENTS OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY OR ASSOCIATED HEREWITH OR THEREWITH; (B) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY "SPECIAL DAMAGES" (AS DEFINED BELOW), (C) CERTIFIES THAT NO OTHER PARTY AND NO REPRESENTATIVE OR AGENT OR COUNSEL OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH OTHER PARTY WOULD NOT, 19 IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (D) ACKNOWLEDGES THAT IT HAS BEEN INDUCEDTO ENTER INTO THIS AGREEMENT, THE OTHER PRODUCTION PAYMENT DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION. AS USED IN THIS SECTION, "SPECIAL DAMAGES" MEANS ALL CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES (REGARDLESS OF HOW NAMED) BUT DOES NOT INCLUDE ANY PAYMENTS OR FUNDS WHICH ANY PARTY HAS EXPRESSLY PROMISED TO PAY OR DELIVER TO ANY OTHER PARTY. Section 7.10 CONSENT TO JURISDICTION. ANY LEGAL PROCEEDING ARISING OUT OF OR IN ANY WAY RELATED TO ANY OF THE PRODUCTION PAYMENT DOCUMENTS WILL BE BROUGHT AND LITIGATED EXCLUSIVELY IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS, TO THE EXTENT IT HAS SUBJECT MATTER JURISDICTION, AND OTHERWISE IN THE STATE COURTS SITTING IN DALLAS, TEXAS, AND EACH PARTY AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING RELATING TO ANY OF THE PRODUCTION PAYMENT DOCUMENTS BY ANY MEANS ALLOWED UNDER TEXAS OR FEDERAL LAW, PROVIDED THAT LEGAL PROCEEDINGS TO ENFORCE ANY LIEN OR SECURITY INTEREST GRANTED UNDER ANY PRODUCTION PAYMENT DOCUMENT MAY BE BROUGHT IN ANY COURT HAVING JURISDICTION OVER SUCH PROCEEDINGS. THE PARTIES HEREBY WAIVE AND AGREE NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, THAT ANY SUCH PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE THEREOF IS IMPROPER, AND FURTHER AGREE TO A TRANSFER OFANY SUCH PROCEEDING TO THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS, TO THE EXTENT THAT IT HAS SUBJECT MATTER JURISDICTION, AND OTHERWISE TO A STATE COURT IN DALLAS, TEXAS. IN FURTHERANCE THEREOF, EACH PARTY HEREBY ACKNOWLEDGES AND AGREES THAT IT WILL BE NEITHER INCONVENIENT NOR UNFAIR TO LITIGATE OR OTHERWISE RESOLVE ANY DISPUTES OR CLAIMS IN ANY SUCH COURT. [SIGNATURES ON NEXT PAGE] 20 IN WITNESS OF THE FOREGOING, Working Interest Owner and Royalty Owner have each duly executed and delivered this Agreement. WORKING INTEREST OWNER: BARON PRODUCTION LLC By: -------------------------------------------- Name: -------------------------------------------- Title: -------------------------------------------- 21 ROYALTY OWNER: PCEC SUB 1, LLC By: -------------------------------------------- Rosser C. Newton Vice President 22 EXHIBIT A CERTIFICATION OF NON-FOREIGN STATUS CERTIFICATION OF NON-FOREIGN STATUS Section 1445 of the Internal Revenue Code provides that a transferee of a U.S. real property interest must withhold tax if the transferor is a foreign corporation, foreign partnership, foreign trust or foreign estate. To inform PCEC SUB 1, LLC, a Texas limited liability company ("TRANSFEREE"), that withholding of tax is not required upon the disposition of a U.S. real property interest owned by Baron Production LLC, a Texas limited liability company ("TRANSFEROR"), the undersigned hereby certifies the following on behalf of Transferor: 1. Transferor is not a foreign corporation, foreign partnership, foreign trust or foreign estate (as those terms are defined in the United States Internal Revenue Code and the Regulations thereunder); 2. Transferor's tax identification number is ; and 3. Transferor's address is 300 S. CM Allen Pkwy, Suite 400, San Marcos, Texas 78666.. The undersigned understands that this certification may be disclosed to the Internal Revenue Service by Transferee and that any false statement contained herein could be punished by fine, imprisonment or both. Under penalties of perjury, the undersigned declares that it has full authority to execute this certification on behalf of Transferor and that it has examined this certification and to the best of its knowledge and belief it is true, correct and complete. DATED this 28th day of July, 2014. [SIGNATURE PAGE FOLLOWS] 23 BARON PRODUCTION LLC By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 24 EXHIBIT B-1 FORM OF LEGAL OPINION OF STEWART & BONNETT, LLP 25 EXHIBIT B-2 FORM OF LEGAL OPINION OF LIONEL SAWYER & COLLINS 26 SCHEDULE 3.1 TO PURCHASE AND SALE AGREEMENT DISCLOSURE SCHEDULE Section 3.1(b) Conflicts: None Section 3.1(c) Consents, Preferential Rights and Required Notices: None Section 3.1(d) Material Adverse Changes: None Section 3.1(e) Governmental Approvals: None Section 3.1(h) Full Disclosure: None Section 3.1(j) Tax Disclosures: None Section 3.1(n) Take or Pay, etc.: None Section 3.1(o) Compliance with Laws: None Section 3.1(p) No Casualties or Condemnation: None Section 3.1(q) Litigation:: None Section 3.1(v) Employee Disputes: None 27 SCHEDULE 6.3 TO PURCHASE AND SALE AGREEMENT WIRE INSTRUCTIONS In accordance the Disbursement Letter, dated the date hereof, among the Working Interest Owner, the Royalty Owner, the Parent, and Petro Capital Energy Credit, LLC, as Administrative Agent. 28

Exhibit 10.81 PRODUCTION AND MARKETING AGREEMENT BETWEEN BARON PRODUCTION LLC AND PCEC SUB 1, LLC JULY 28, 2014 Table of Contents Article I DEFINITIONS AND REFERENCES..........................................1 Section 1.1 Defined Terms...............................................1 Section 1.2 Rules of Construction; Monthly and Daily Equivalents; Publications................................................6 Article II NO ADVERSE CHANGES TO SUBJECT INTERESTS............................7 Section 2.1 Abandonment and Shut-In.....................................7 Section 2.2 Non-Consent Operations......................................7 Section 2.3 Production Imbalances.......................................7 Section 2.4 Defense of Agreement and Production Payment.................8 Section 2.5 Further Assurances..........................................9 Article III PRODUCTION OF SUBJECT INTERESTS...................................9 Section 3.1 General Operating Requirements..............................9 Section 3.2 Rates of Production........................................11 Section 3.3 Quality and Pressure Requirements..........................11 Section 3.4 Imbalance Charges..........................................12 Section 3.5 Environmental Compliance...................................12 Section 3.6 Maintaining and Restoring Productivity.....................12 Section 3.7 Insurance; Damage or Loss..................................13 Section 3.8 Continued Ability to Operate...............................13 Article IV [RESERVED]........................................................14 Article V OTHER AGREEMENTS...................................................14 Section 5.1 Performance of Production Payment Documents................14 Section 5.2 Interest on Late Payments; No Usury........................14 Section 5.3 Indemnity..................................................14 Section 5.4 Payment of Expenses........................................17 Section 5.5 Information and Reporting..................................17 Section 5.6 Marketing of Production Payment Hydrocarbons...............21 Section 5.7 Preservation of Subject Well Drainage......................22 Article VI LIENS TO SECURE PERFORMANCE; OTHER REMEDIES.......................22 Section 6.1 Mortgage...................................................22 Section 6.2 Production Proceeds........................................22 Section 6.3 Replacement of Operator....................................23 i Article VII MISCELLANEOUS....................................................23 Section 7.1 Notices....................................................23 Section 7.2 Successors and Assigns.....................................23 Section 7.3 Acknowledgments and Admissions.............................24 Section 7.4 Entire Agreement; Amendments; Waiver.......................24 Section 7.5 Counterpart Execution......................................24 Section 7.6 Applicable Law.............................................24 Section 7.7 Severability...............................................24 Section 7.8 Termination; Limited Survival..............................24 Section 7.9 WAIVER OF JURY TRIAL AND PUNITIVE DAMAGES..................25 Section 7.10 CONSENT TO JURISDICTION....................................25 ii PRODUCTION AND MARKETING AGREEMENT This Production and Marketing Agreement (this "Agreement"), dated as of July 28, 2014, is made by and between Baron Production LLC, a Texas limited liability company ("Working Interest Owner" and a "Party"), and PCEC Sub 1, LLC, a Texas limited liability company ("Royalty Owner" and a "Party"). WHEREAS, by means of a certain Conveyance of Term Overriding Royalty Interest dated as of the date hereof from Working Interest Owner to Royalty Owner (the "Conveyance"), Working Interest Owner has sold and conveyed to Royalty Owner the "Production Payment" (as such term is defined in the Conveyance) in the Subject Interests described therein; and WHEREAS, the Parties are entering into this Agreement to set out certain agreements with respect to the operation and production of the Subject Interests and the marketing of the Production Payment Hydrocarbons; NOW, THEREFORE, as a material inducement to cause Royalty Owner to purchase the Production Payment and in consideration of the mutual benefits and obligations of the Parties hereunder, Royalty Owner and Working Interest Owner have agreed, and hereby agree, as follows: ARTICLE I DEFINITIONS AND REFERENCES Section 1.1 Defined Terms. Reference is made to the Conveyance for the meaning of all capitalized terms defined therein, all of which will when used herein (unless otherwise expressly defined herein) have the meanings given them in the Conveyance. As used herein, the terms "Agreement" and "Conveyance" have the meanings given them above. For purposes of this Agreement, unless the context otherwise requires, the following terms have the following meanings: "Agreed Rate" means the rate of seventeen percent (17%) per annum, calculated on the basis of actual days elapsed and a year of 360 days. "Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banks in Dallas, Texas are authorized or required to close. "Company Engineers" means Cawley, Gillespie & Associates, Haas Petroleum Engineering Services, Inc. and any other nationally recognized independent reserve engineering firm that Working Interest Owner and Royalty Owner from time to time agree to designate as the Company Engineers for the purposes hereof. "Credit Agreement" means the Credit Agreement, dated as of the date hereof, among, Working Interest Owner, the Parent, the lenders from time to time party thereto, and Petro Capital Energy Credit, LLC, as administrative agent for such lenders. 1 "Downstream Contracts" means all contracts or arrangements to which Working Interest Owner (or any Person acting on behalf of Working Interest Owner) is a party that provide for or relate to the gathering, transportation, treatment, processing, marketing or sale of Subject Hydrocarbons. "Environmental Laws" means all applicable Laws regulating or otherwise pertaining to (a) the use, generation, migration, storage, removal, treatment, remedy, discharge, release, transportation, disposal or cleanup of pollutants, contamination, hazardous wastes, hazardous substances, hazardous materials, toxic substances or toxic pollutants, (b) environmental matters involving the soil, surface waters, groundwater, land, stream sediments, surface or subsurface strata, ambient air and any other environmental medium on or off any Subject Interest, or (c) the environment or health and safety-related matters; including the following as from time to time amended and all others whether similar or dissimilar and whether now existing or hereinafter enacted: the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal Act amendments of 1980, and the Hazardous and Solid Waste Amendments of 1984, the Hazardous Materials Transportation Act, as amended, the Toxic Substance Control Act, as amended, the Clean Air Act, as amended, the Clean Water Act, as amended, and all regulations promulgated pursuant thereto. "Event of Force Majeure" means any of the following: (a) physical events such as acts of God, landslides, lightning, earthquakes, fires, hurricanes, storms or storm warnings that result in evacuation of the affected area, floods, washouts, explosions, breakage or accident or necessity of repairs to wells, equipment or lines of pipe; (b) weather related events affecting an entire geographic region, such as low temperatures which cause freezing or failure of wells, equipment or lines of pipe; (c) interruption of firm transportation and/or storage by transporters of Hydrocarbons; and (d) orders of any court or governmental authority having jurisdiction (which in each case cannot be satisfied by actions taken with respect to wells other than Subject Wells, which actions do not violate other contractual duties of Working Interest Owner), strikes, lockouts or other industrial disturbances, riots, sabotage, insurrections, wars and similar acts of other Persons; provided that (i) in order to be entitled to assert an Event of Force Majeure, (1) the affected Party must be making all reasonable efforts to mitigate the adverse impacts of any such event or occurrence, to resolve the event or occurrence once it has occurred, and to resume performance (provided that such Party will not be obligated to settle any strike or lockout) and (2) the asserted Event of Force Majeure must not be within the control of and must not be caused by the fault or negligence of the affected Party and must be the type of event which, by the exercise of reasonable diligence, the affected Party is unable to prevent; (ii) no Party will be entitled to assert an Event of Force Majeure on account of economic hardship or to the extent such Party's performance is affected by the curtailment of interruptible or secondary firm transportation unless primary, 2 in-path, firm transportation is also curtailed; and (iii) no Party claiming an Event of Force Majeure will be excused from any responsibility to make cash payments that are due or become due during the period in which an Event of Force Majeure persists. "Hazardous Substances" means any substances regulated under any Environmental Law, whether as pollutants, contaminants, or chemicals, or as industrial, toxic or hazardous substances or wastes, or otherwise, including any asbestos or asbestos-containing materials, any naturally occurring radioactive materials, and any hydrocarbons or other substances that are released into the environment. "Imbalance Charges" means any fees, penalties, costs or charges (in cash or in kind, and whether or not denominated as price adjustments or as prices for spot sales in place of prices for nominated production) that are incurred, payable or suffered by Royalty Owner to any Person in connection with any imbalance between the amount of Production Payment Hydrocarbons delivered at the Delivery Points and the amounts of nominated sales thereof or transportation, gathering or processing capacity scheduled or available therefor, or that are otherwise assessed against Royalty Owner by a transporter or purchaser for failure to meet such Person's balance, delivery or nomination requirements. Interest and penalties owing with respect to Imbalance Charges will also constitute Imbalance Charges. "Losses" has the meaning given to such term in Section 5.3(b). "Mortgage" means the Second Lien Deed of Trust, Assignment of As-Extracted Collateral Security Agreement, Fixture Filing and Financing Statement of even date herewith executed in connection herewith by Working Interest Owner for the benefit of Royalty Owner with respect to the Retained Interests and certain related assets. "NYMEX Strip Prices" means, as of any Day, the arithmetic average of the settlement prices (per Barrel of Oil) on such Day of the applicable futures contract traded on the New York Mercantile Exchange for the first thirty-six Months after such Day. The NYMEX Strip Price for Oil will be the average of such prices for the West Texas Intermediate Crude Oil Futures Contract for Cushing, Oklahoma Delivery that is traded on such exchange. "Overtake" has the meaning given to such term in Section 2.3(a). "Parent" means Baron Energy, Inc., a Nevada corporation. "Parent Guaranty" means the Guaranty Agreement of even date herewith executed by Parent in favor of Royalty Owner. "Parties" means Working Interest Owner and Royalty Owner. "PDP Reserves" means proved developed producing reserves of Hydrocarbons, as determined in accordance with the definitions and standards promulgated by the Society of Petroleum Engineers. "Performance Default" means any of the following: 3 (a) any failure by Working Interest Owner to pay any money owing or belonging to Royalty Owner that continues unremedied for more than five (5) Business Days after Working Interest Owner becomes aware of such failure; (b) any breach by Working Interest Owner of any covenant or agreement made by Working Interest Owner herein or in any other Production Payment Document (other than as described in the preceding clause (a)) that continues unremedied for thirty (30) days following the earlier to occur of: (i) written notice thereof being delivered to Working Interest Owner by Royalty Owner or (ii) Working Interest Owner first becoming aware of such breach; (c) any of the representations or warranties made by Working Interest Owner herein or in any other Production Payment Document is false or incorrect in any material respect on any date made or as of which made; (d) the commencement of a voluntary case by Working Interest Owner under the United States Bankruptcy Code, or Working Interest Owner's application for or consent to any order for relief in any involuntary case filed under such code; (e) the commencement of any involuntary case against Working Interest Owner under such code that is not dismissed within thirty (30) days after filing; and (f) the appointment or taking possession of a receiver, liquidator, custodian, trustee, keeper or similar official of any of the Subject Interests which either (i) is not made ineffective or discharged within thirty (30) days thereafter or (ii) is requested, consented to or acquiesced to by Working Interest Owner. "Production Payment Documents" means this Agreement, the Conveyance, the Purchase and Sale Agreement, the Mortgage, the Parent Guaranty Agreement, and each other agreement, instrument, certificate or other document at any time made or given by Working Interest Owner with or to Royalty Owner in connection with this Agreement, the Conveyance, the Purchase and Sale Agreement or the Mortgage, including all supplements and amendments to and restatements of any of the foregoing. "Purchase and Sale Agreement" means the Purchase and Sale Agreement of even date herewith between Working Interest Owner and Royalty Owner, under which Working Interest Owner has agreed to sell and Royalty Owner has agreed to purchase the Production Payment. "Remaining Reserves" means, as of the date of any determination, the PDP Reserves projected to be attributable to the Subject Interests (i.e., both the Production Payment Hydrocarbons and the Retained Interest Hydrocarbons) after such date for the remaining expected productive life thereof. For the purpose of calculating Remaining Reserves, the sales prices of the Oil to be produced from each Subject Interest will be assumed to be the NYMEX Strip Price for Oil as calculated on the date of determination. Calculations of Remaining Reserves will otherwise be based on the then most recent Reserve Report, after disregarding any reserves shown in such Reserve Report that have actually been produced on or before the date of determination of such Remaining Reserves. 4 "Repair Operations" means reworking, redrilling, reconditioning, fracing, refracing, plugging back, deepening, or other operations to repair, restore, or enhance the productivity of one or more Subject Wells or to repair, restore, replace or enhance equipment and facilities used to produce and handle Subject Hydrocarbons. "Reserve Report" means any annual or semiannual reserve engineering report prepared by Company Engineers or Working Interest Owner's in-house reserve engineers with respect to the Subject Interests as required under Section 5.5(c). Each Reserve Report will be in form and detail acceptable to Royalty Owner and will set forth the following: (i) an estimation of the Oil and Gas reserves, classified by appropriate categories, as of such date attributable to the various Subject Interests, (ii) a projection of the future production of, and net revenue from, reserves, (iii) a calculation of the present worth of such net revenue discounted at the rate of ten percent per annum, and (iv) a schedule or description of the principal assumptions, estimates and projections made or used in the preparation of such report, including estimated future product prices, capital expenditures, operating expenses and taxes. Each such report will be prepared in accordance with customary and generally accepted standards and practices for independent professional petroleum engineers and will be based on the NYMEX Strip Prices on the effective date of such report. "Retained Interest Hydrocarbons" means the Subject Hydrocarbons other than the Production Payment Hydrocarbons. "Royalty Owner" refers to PCEC Sub 1, LLC, a Texas limited liability company, as well as to its successors and assigns hereunder. "Royalty Owner Indemnitees" has the meaning given to such term in Section 5.3(a). "Royalty Owner Spot Market PP Hydrocarbons" has the meaning given to such term in Section 5.6(b). "Subject Contracts" means all Upstream Contracts and Downstream Contracts. "Trustee" means the Person or Persons who from time to time serve (or have served) as the trustee under the Mortgage. "Undertake" has the meaning given to such term in Section 2.3(a). "Upstream Contracts" means all joint operating agreements, unit operating agreements, facilities leases or use agreements, water agreements (whether relating to water injection, supply, transportation or disposal), or other agreements or arrangements to which Working Interest Owner (or any Person acting on behalf of Working Interest Owner) is a party that provide for or relate to the operation of the Subject Interests or the production of Hydrocarbons therefrom. 5 "Working Interest Owner" refers to Baron Production LLC, a Texas limited liability company, as well as to its successors and assigns hereunder. "Working Interest Owner Spot Market PP Hydrocarbons" has the meaning given to such term in Section 5.6(b). Section 1.2 Rules of Construction; Monthly and Daily Equivalents; Publications. (a) Construction. All references in this Agreement to articles, sections, subsections and other subdivisions refer to corresponding articles, sections, subsections and other subdivisions of this Agreement unless expressly provided otherwise. Titles appearing at the beginning of any of such subdivisions are for convenience only and will not constitute part of such subdivisions and will be disregarded in construing the language contained in such subdivisions. The words "this Agreement", "this instrument", "herein", "hereof", "hereby", "hereunder " and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. Unless the context otherwise requires: "including" (and its grammatical variations) means "including without limitation"; "or" is not exclusive; words in the singular form will be construed to include the plural and vice versa; words in any gender include all other genders; references herein to the Conveyance, the Purchase and Sale Agreement, or any other instrument or agreement refer to such instrument or agreement as it may be from time to time supplemented, amended or restated; and references herein to any Person include such Person's successors and assigns. All references in this Agreement to exhibits and schedules refer to the exhibits and schedules to this Agreement unless expressly provided otherwise, and all such exhibits and schedules are hereby incorporated herein by reference and made a part hereof for all purposes. This Agreement has been drafted with the joint participation of Working Interest Owner and Royalty Owner and is to be construed neither against nor in favor of either Party but rather in accordance with the fair meaning hereof. (b) Monthly Equivalents. To the extent that this Agreement refers to information or data measured or based upon Daily production or deliveries of Hydrocarbons and such information or data is instead provided or available only with respect to Monthly production or deliveries of Hydrocarbons, such Monthly Hydrocarbons will be deemed produced or delivered in equal quantities on each Day during such Month. To the extent that this Agreement refers to Daily price information for production or deliveries of Hydrocarbons and such information or data is instead provided or available only on a Monthly basis, such Monthly price information will be deemed to apply on each Day during such Month. (c) Publications. To the extent that this Agreement (or any other Production Payment Document other than the Conveyance) incorporates prices, rates, adjustments to prices or rates, or other information from a specific source or publication and that source or publication temporarily fails or permanently ceases to publish such information, or ceases publication altogether, or changes the heading or format under which such information is published, or changes the source of information which it publishes under such heading or format, and in any such case the relevant Production Payment Document does not specify how to deal with such event, then Royalty Owner will designate a reasonable alternative source for the same or equivalent information and the Parties will thereafter use such designated alternative source. 6 ARTICLE II NO ADVERSE CHANGES TO SUBJECT INTERESTS Section 2.1 Abandonment and Shut-In. (a) Abandonment. Working Interest Owner will not, without first obtaining the consent of Royalty Owner, abandon (or propose or consent to the abandonment of) any Subject Well or surrender, abandon or release (or propose or consent to the surrender, abandonment or release of) any Subject Interest. (b) Shut-in of Subject Wells. Working Interest Owner will not, without first obtaining the consent of Royalty Owner, voluntarily shut-in a Subject Well (or propose or consent to such a shut-in), provided that a shut-in of a Subject Well will not be deemed to be voluntarily made if it is caused by or results from an Event of Force Majeure, or from well servicing or maintenance in the ordinary course of business, or if Working Interest Owner is waiting for a pipeline connection or other transportation services for Oil produced from a Subject Well for which transportation or a pipeline connection is not otherwise available. Section 2.2 Non-Consent Operations. Working Interest Owner will not, without the prior consent of Royalty Owner, elect to be a non-participating party with respect to any plugging back, reworking, sidetracking, drilling, completion or other operation on any Subject Interest or Subject Lands if the consequence of such election is that any part of Working Interest Owner's interest in such Subject Interest on Subject Lands is temporarily (e.g., during a recoupment period) or permanently forfeited to the parties participating in such operations or electing not to abandon such well. Upon any such election by Working Interest Owner that is consented to by Royalty Owner (or for which, pursuant to the preceding sentence, no consent is required), such election will also be binding on the Production Payment as to the interest so temporarily or permanently forfeited but will not cause any modification in the Scheduled Quantities or in any component of the Adjustment Quantity. Section 2.3 Production Imbalances. (a) Definitions. As used herein, "Undertake" means that an owner of production from a Subject Well takes a lesser share of Hydrocarbons produced from such Subject Well than the share of Hydrocarbons which such owner is entitled to take by virtue of its ownership interest, determined without regard to any rights under any production balancing agreement or similar arrangement or any rights under common law with respect to production balancing, and "Overtake" means that an owner of production from a Subject Well takes a greater share of Hydrocarbons produced from such Subject Well than the share of Hydrocarbons which such owner is entitled to take by virtue of its ownership interest, again determined without regard to any rights under any production balancing agreement or similar arrangement or any rights under common law with respect to production balancing. Adjustments due to Non-Consent Provisions, however, will not be considered Undertakes or Overtakes. (b) No Undertakes Without Consent. Subject to Section 3.2, without Royalty Owner's prior consent Working Interest Owner will not Undertake from a Subject Well (either for itself or on behalf of Royalty Owner), except as a result of an Event of Force Majeure or a joint interest owner in one or more Subject Wells 7 electing to Overtake in order to balance previous Overtakes from such Subject Wells by Working Interest Owner or any of its predecessors in title to such Subject Wells, but only to the extent that such previous Overtakes either occurred after the Effective Time or occurred prior to the Effective Time and are disclosed in Schedule 1 attached to the Purchase and Sale Agreement, provided that Working Interest Owner may Undertake from any Subject Well on any Day so long as Royalty Owner's actual share of production on such Day from all Subject Wells is the entire Scheduled Quantity and Adjustment Quantity for such Day. If any Undertake by Working Interest Owner occurs in violation of this section, the Production Payment will be determined (to the maximum extent allowed under applicable Law and any applicable Permitted Encumbrances) without regard thereto. (c) Limitation on Overtakes. Subject to Section 3.2, without Royalty Owner's prior consent Working Interest Owner will not Overtake from a Subject Well on any Day (either for itself or on behalf of Royalty Owner), except either (i) in order to produce and take up to 110% of the Scheduled Quantities and Adjustment Quantities for such Day from the Subject Wells, or (ii) if one or more other owners of production from such Subject Well elects to Undertake, in order to produce and take the same amount of Hydrocarbons that Working Interest Owner and Royalty Owner would have received had such joint interest owner not elected to Undertake. If, pursuant to applicable contracts and Law, Working Interest Owner does Overtake, then the additional Hydrocarbons so taken by Working Interest Owner will be included among the Subject Hydrocarbons and will be subject to the Production Payment. (d) No Balancing From Other Properties. Working Interest Owner will not allow any Subject Interest to be subject to any production balancing arrangement or agreement under which one or more third Persons may Overtake a portion of the production attributable to such Subject Interest as a result of Undertakes or Overtakes (or other actions or inactions) with respect to properties other than such Subject Interest. For the purposes of this subsection (d), a production unit in which all parties have uniform interests will be considered to be a single Subject Interest. Section 2.4 Defense of Agreement and Production Payment. If any Person (including Working Interest Owner or its Affiliates but excluding Royalty Owner and its Affiliates) ever challenges or attacks (a) the validity or priority of the Production Payment Documents or of any rights, titles or interests of Royalty Owner that are created or evidenced thereby or (b) the title of Working Interest Owner to any Subject Interest or of Royalty Owner to any part of the Production Payment, then upon learning thereof Working Interest Owner will give prompt written notice thereof to Royalty Owner and at Working Interest Owner's own cost and expense will diligently endeavor to defeat such challenge or attack and to cure any defect that may be developed or claimed, and Working Interest Owner will take all necessary or advisable steps for the defense of any legal proceedings with respect thereto, including the employment of counsel to represent Working Interest Owner, the prosecution or defense of litigation, and the release or discharge of all adverse claims. Royalty Owner is hereby authorized and empowered, at the expense of Working Interest Owner, to take such additional steps as in its judgment and discretion may be necessary or proper for the defense of any such legal proceedings or the protection of the validity or priority of the Production Payment Documents and the rights, titles, and interests created or evidenced thereby, including the employment of independent counsel to represent Royalty Owner, the prosecution or defense of litigation, 8 the compromise or discharge of any adverse claims made with respect to the Production Payment, the purchase of any tax title and the removal of prior liens or security interests, and all reasonable and related expenditures so made of every kind and character will be paid to Royalty Owner by Working Interest Owner on demand. Section 2.5 Further Assurances. Working Interest Owner will, on request of Royalty Owner, (a) promptly correct any defect, error or omission which may be discovered in the contents, execution or acknowledgment of any Production Payment Document, (b) execute, acknowledge, deliver and record or file such further instruments and do such further acts as may be necessary, desirable or proper, in the judgment of Royalty Owner, to carry out more effectively the purposes of the Production Payment Documents and to more fully identify and make subject to the Production Payment Documents any property intended to be covered thereby, including any renewals, additions, substitutions, replacements, or appurtenances to the Subject Interests; and (c) execute, acknowledge, deliver, and file or record any document or instrument reasonably requested by Royalty Owner to protect its rights, title and interests under the Production Payment Documents against the rights or interests of third Persons. Working Interest Owner will provide to Royalty Owner any assurances of title to the Subject Interests which Royalty Owner may from time to time request concerning the Production Payment, including the recording and filing of the Conveyance (it being understood that no title deficiencies learned of by Royalty Owner will in any way be deemed to qualify any of Working Interest Owner's warranties of title or indemnities with respect to title in any Production Payment Document). ARTICLE III PRODUCTION OF SUBJECT INTERESTS Section 3.1 General Operating Requirements. At all times from the date hereof until the termination of the Production Payment, and whether or not Working Interest Owner is the operator of the relevant Subject Interests, Working Interest Owner, at Working Interest Owner's cost and expense, will: (a) Cause the Subject Interests to be maintained in full force and effect, free of any right of cancellation, forfeiture or termination, and to be developed, protected against drainage, and continuously operated for the production of Hydrocarbons in a good and workmanlike manner as would a prudent operator (and without regard to the burden of the Production Payment), all in accordance with generally accepted industry practices, applicable operating agreements, the Leases, and all applicable Laws, and will otherwise comply in all material respects with all applicable Laws, the Leases, and all other contracts or agreements forming a part of or related to the Subject Interests. (b) Pay, or cause to be paid, as and when due and payable, all rentals, royalties, Taxes and other amounts payable in respect of the Subject Interests or the production therefrom, and all costs, expenses, capital expenditures and liabilities incurred in or arising from the operation, maintenance or development of the Subject Interests, or the producing, treating, gathering, storing, marketing or transporting of Hydrocarbons therefrom at or prior to the Delivery Points (except, in each case, to the extent contested in good faith by appropriate proceedings that effectively delay any remedy for non-payment thereof). 9 (c) Cause all Subject Wells, and all machinery, equipment and facilities of any kind now or hereafter necessary or useful in the operation of such Subject Wells (as well as all separation, metering and related facilities that are located at or prior to each Delivery Point and all related wells for the supply, injection or disposal of water, to the extent owned or operated by Working Interest Owner or its Affiliates) to be maintained and kept in good and effective operating condition as would a prudent operator (and without regard to the burden of the Production Payment), and all repairs, renewals, replacements, additions and improvements thereof or thereto, useful or needful to such end, to be promptly made. (d) Give or cause to be given to Royalty Owner written notice of every adverse claim or demand made by any Person affecting the Subject Interests, the Hydrocarbons produced therefrom, the Production Payment or the Production Payment Hydrocarbons in any manner whatsoever, and of any suit or other legal proceeding instituted with respect thereto, and at Working Interest Owner's expense cause all necessary and proper steps to be taken with reasonable diligence to protect and defend the Subject Interests, the Subject Hydrocarbons produced therefrom, the Production Payment and the Production Payment Hydrocarbons against any such adverse claim or demand, including the employment of counsel for the prosecution or defense of litigation and the contest, release or discharge of such adverse claim or demand. (e) Cause the Subject Interests to be kept free and clear of liens, charges and encumbrances of every character, other than the Permitted Encumbrances. (f) Except to the extent contested in good faith by appropriate proceedings that effectively delay any remedy for non-payment thereof, pay all Taxes when due and before they become delinquent (and provide Royalty Owner with proof of such payment upon request), and reimburse Royalty Owner for any Taxes paid by Royalty Owner relating to the Production Payment or the Production Payment Hydrocarbons. (g) Maintain or cause to be maintained in full force and effect in accordance with prudent operator standards, all permits, licenses, easements, servitudes, contracts and other rights reasonably necessary or useful in connection with the development, operation or management of the Subject Interests and the production, treating, gathering, storing, marketing or transportation of the Subject Hydrocarbons or of water produced or used in connection therewith. (h) Not (i) resign as operator (or otherwise voluntarily relinquish such position) of any of the Subject Interests that are or hereafter become operated by Working Interest Owner until and unless the successor operator has been approved in writing by Royalty Owner, or (ii) permit Parent to resign as operator (or otherwise voluntarily relinquish such position) of any of the Subject Interests that are or hereafter become operated by Parent until and unless the successor operator has been approved in writing by Royalty Owner . (i) Not conduct any work or operation in any wellbore of a Subject Well, which work or operation is related to any horizon, zone, formation or interval not included in the Subject Interests, without the prior written consent of Royalty Owner. 10 Whenever Working Interest Owner is not the operator of a Subject Interest, it will use its reasonable best efforts and diligently enforce its rights under any operating agreement for such Subject Interest in order to cause such Subject Interest to be operated and dealt with as contemplated in this Agreement. Section 3.2 Rates of Production. (a) Rates of Production. Working Interest Owner will prudently operate and produce the Subject Interests and Subject Wells operated by Working Interest Owner, and Working Interest Owner will use all commercially reasonable efforts to cause the Subject Interests and Subject Wells not operated by Working Interest Owner to be prudently operated and produced by whomever is the operator thereof, in each case in accordance with prudent industry practices and the following additional requirements: (i) the amount of Hydrocarbons produced from any Subject Well shall not exceed in any Month the lower of (1) the maximum amount that the Subject Well is capable of producing at its maximum efficient rate of flow or (2) the respective allowable rate of flow under applicable orders and Laws, if any; and (ii) the amount of Hydrocarbons produced from the Subject Wells shall be sufficient to prevent a material net migration of Hydrocarbons from the reservoirs to which proved reserves are attributed underlying the Subject Interests. (b) Production Goals. Subject to the provisions of the preceding subsection (a) and Sections 2.1, 2.2, 2.3, 3.6, 3.7(b) and 3.8, Working Interest Owner will use all commercially reasonable efforts to ensure that the rate of production from the Subject Wells, taken as a whole, is sufficient to allow the delivery to Royalty Owner of the Scheduled Quantity and the Adjustment Quantity for such Day. Section 3.3 Quality and Pressure Requirements. All Production Payment Hydrocarbons delivered to Royalty Owner, or to Royalty Owner's credit, will satisfy the quality and pressure requirements and specifications as set forth in: (a) all applicable agreements with or requirements of Delivery Point Recipients (including tariffs filed with regulatory agencies) for acceptance and transportation of such Production Payment Hydrocarbons, (b) all applicable agreements with or requirements of operators of processing plants or treatment facilities for acceptance of such Production Payment Hydrocarbons, and (c) all applicable agreements with or requirements of first purchasers for acceptance and purchase of such Production Payment Hydrocarbons, in each case without penalty or deduction for nonconformity. All costs and expenses to satisfy such quality and pressure requirements will be borne and paid by Working Interest Owner. Section 3.4 Imbalance Charges. WORKING INTEREST OWNER WILL EXERCISE ITS BEST EFFORTS TO PREVENT ANY IMBALANCE CHARGES FROM BECOMING PAYABLE BY ROYALTY 11 OWNER, WILL PAY IN PLACE OF ROYALTY OWNER ALL SUCH IMBALANCE CHARGES NOT PREVENTED, AND WILL IN ALL CIRCUMSTANCES INDEMNIFY AND HOLD ROYALTY OWNER HARMLESS FROM AND AGAINST ALL IMBALANCE CHARGES. Section 3.5 Environmental Compliance. Working Interest Owner will not (a) cause or permit the Subject Lands or the condition thereof or operations thereon to be in violation of any Environmental Laws, (b) cause or permit the disposal or other release of any Hazardous Substance on or to the Subject Lands in violation of any Environmental Law, (c) fail to timely remove or remediate any Hazardous Substance which has been or now or hereafter is released on the Subject Lands in amounts which would violate any Environmental Laws, or (d) take or omit to take any action that will subject Working Interest Owner or the Subject Lands to any remedial obligation (or Royalty Owner to any remedial obligation) under any Environmental Laws pertaining to the Subject Lands, assuming in each case disclosure to the applicable governmental authorities of all relevant facts, conditions and circumstances, if any. Working Interest Owner will promptly notify Royalty Owner in writing of any existing, pending or, to the best knowledge of Working Interest Owner, threatened investigation or inquiry of a affecting any Subject Lands by any private party or governmental authority in connection with any Environmental Laws. Working Interest Owner will take all steps reasonably necessary to determine that no Hazardous Substances are disposed of or otherwise released or being released on or to the Subject Lands in violation of any Environmental Laws. Section 3.6 Maintaining and Restoring Productivity. (a) If any Subject Well at any time ceases to be a Commercial Well for any reason, then Working Interest Owner will carry out such Repair Operations on such Subject Well to increase its productivity as may be reasonably requested by Royalty Owner. (b) A well will be deemed to be a "Commercial Well" unless and until a condition arises such that such well is no longer capable of producing in paying quantities (without regard to the burden of the Production Payment). Section 3.7 Insurance; Damage or Loss. (a) Insurance. Working Interest Owner will maintain or cause to be maintained, at Working Interest Owner's sole cost and expense and with financially sound and reputable insurers reasonably satisfactory to Royalty Owner, insurance against such liabilities, casualties, risks and contingencies, and in such types as is customary in the case of independent oil and gas companies engaged in operations of similar properties, including insurance of the types and coverages described in Schedule 3.7 and with limits of coverage no less than those set out in Schedule 3.7. Such insurance will name Royalty Owner as an additional insured and as a loss payee as provided in Schedule 3.7, and Working Interest Owner will otherwise take all actions described in Schedule 3.7. Any loss proceeds from such property insurance, whether collected by Working Interest Owner or Royalty Owner, will be applied to the costs of repairing or replacing the property loss or damage unless otherwise agreed by Working Interest Owner and Royalty Owner. Working Interest Owner will furnish certificates of such insurance to Royalty Owner and will obtain endorsements to 12 such policies providing that the insurer will notify Royalty Owner not less than 30 days prior to the expiration or termination of such policy of insurance. (b) Repair. In the event of any damage to or loss of any platform, pipeline, well, equipment or facility on the Subject Lands or otherwise owned by any of Working Interest Owner and used in connection with the operation of any Subject Interest or the production of Subject Hydrocarbons, or the balancing, treating, gathering, transporting, tender, processing or other handling of Subject Hydrocarbons, or the marketing, sale or transfer of Subject Hydrocarbons, Working Interest Owner will (at no cost to Royalty Owner and without regard to whether insurance proceeds are available to Working Interest Owner) will promptly carry out or cause to be carried out Repair Operations as necessary or appropriate to repair, restore or replace such damaged or lost property (or carry out other Repair Operations reasonably expected to replace the future production lost by such damage or loss). Section 3.8 Continued Ability to Operate. Working Interest Owner will at all times be a limited liability company, corporation or limited partnership that is validly existing and in good standing under the Laws of its state of formation and duly qualified to do business and in good standing in each jurisdiction where any Subject Lands are located. Working Interest Owner (and any Person operating the Subject Interest on its behalf) will at all times obtain and possess (or cause to be obtained and possessed) all consents, bonds, permits, licenses, right-of-ways, easements, authorizations and waivers reasonably necessary under any applicable Law or any Lease or material contract, indenture, instrument or agreement binding on or affecting Working Interest Owner or the Subject Interests in order to permit the performance by Working Interest Owner of the Production Payment Documents. ARTICLE IV [RESERVED] ARTICLE V OTHER AGREEMENTS Section 5.1 Performance of Production Payment Documents. Working Interest Owner will, at its sole cost and expense, perform all of its covenants and other obligations under this Agreement and the other Production Payment Documents, as and when provided therein and herein. Section 5.2 Interest on Late Payments; No Usury. Should Working Interest Owner fail to pay Royalty Owner any amount of money due under any Production Payment Document at the time when such amount is due, Working Interest Owner will also pay interest on such amount at the Agreed Rate from the date such amount is due until it is paid. Working Interest Owner and Royalty Owner stipulate and agree, however, that they intend to contract in strict compliance with applicable usury Law from time to time in effect. In furtherance thereof they further stipulate and agree that neither this Section 5.2 nor any of the other terms and provisions contained in any Production Payment Document will ever be construed to create a contract to pay, for the use, forbearance or detention of money, interest in excess of the maximum amount of interest permitted to be charged by applicable Law from time to time in effect. No party to any Production Payment Document will ever be liable for unearned interest or 13 will ever be required to pay interest in excess of the maximum amount that may be lawfully charged under applicable Law from time to time in effect, and the provisions of this section will control over all other provisions of the Production Payment Documents which may be in conflict or apparent conflict herewith. In determining whether or not the interest paid or payable, under any specific circumstance, exceeds the maximum amount permitted under applicable Law, the parties to the Production Payment Documents will to the greatest extent permitted under applicable Law prorate, allocate, and spread the total amount of interest throughout the entire contemplated term of the interest bearing obligations in accordance with the amounts thereof outstanding from time to time and the maximum legal rate of interest from time to time in effect under applicable Law in order to lawfully charge the maximum amount of interest permitted under applicable Law. Section 5.3 Indemnity. (a) AS USED HEREIN, "ROYALTY OWNER INDEMNITEES" MEANS (I) ROYALTY OWNER, (II) EACH OF ROYALTY OWNER'S SUCCESSORS AND ASSIGNS (INCLUDING ITS MORTGAGEES AND LENDERS), (III) ALL OF THE AFFILIATES OF EACH PERSON REFERRED TO IN EITHER OF THE PRECEDING CLAUSES (I) AND (II), AND (IV) ALL OF THE PARTNERS, MEMBERS, MANAGERS, SHAREHOLDERS, OFFICERS, DIRECTORS, AGENTS, REPRESENTATIVES, BENEFICIARIES, TRUSTEES (INCLUDING TRUSTEE), ATTORNEYS AND EMPLOYEES OF EACH PERSON DESCRIBED IN ANY OF THE PRECEDING CLAUSES (I), (II) AND (III). (b) WORKING INTEREST OWNER AGREES TO INDEMNIFY AND HOLD EACH ROYALTY OWNER INDEMNITEE HARMLESS FROM AND AGAINST ALL CLAIMS, DEMANDS, DAMAGES, LIABILITIES, LIENS, LOSSES, FINES, PENALTIES, CHARGES, ADMINISTRATIVE AND JUDICIAL PROCEEDINGS, ORDERS, JUDGMENTS, REMEDIAL ACTION REQUIREMENTS, INVESTIGATIONS, AND ENFORCEMENT ACTIONS OF ANY KIND, TOGETHER WITH ALL INTEREST THEREON AND ALL COSTS AND EXPENSES RELATED THERETO (INCLUDING ALL FEES AND DISBURSEMENTS OF COUNSEL AND OTHER ADVISORS) AND ALL OTHER OBLIGATIONS WHATSOEVER (COLLECTIVELY, "LOSSES") ARISING, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, FROM OR IN CONNECTION WITH ANY OF THE FOLLOWING: (i) THE EXPLORING, DRILLING, DEVELOPING, OPERATING, MAINTAINING, REWORKING, REDRILLING OR RECOMPLETING OF THE SUBJECT INTERESTS, SUBJECT LANDS, OR SUBJECT WELLS, OR OTHER OPERATIONS THEREON, OR THE PRODUCTION OF SUBJECT HYDROCARBONS, OR THE BALANCING, TREATING, GATHERING, TRANSPORTING, TENDER, PROCESSING OR OTHER HANDLING OF SUBJECT HYDROCARBONS, OR THE MARKETING, SALE OR TRANSFER OF SUBJECT HYDROCARBONS; (ii) THE PRESENCE OF ANY HAZARDOUS SUBSTANCES IN, AROUND, UNDER OR ABOUT ANY OF THE SUBJECT LANDS, ANY OTHER PROPERTIES OR ASSETS OF WORKING INTEREST 14 OWNER, OR ANY OTHER PROPERTIES OR NATURAL RESOURCES IN THE VICINITY THEREOF OR AFFECTED THEREBY (IN THIS SUBSECTION, ALL OF THE FOREGOING ARE REFERRED TO AS THE "RELEVANT PROPERTY"); (iii) THE PRESENCE, USE, GENERATION, TRANSPORTATION, TREATMENT, STORAGE, REMEDIATION, DISPOSAL, RELEASE, OR DISCHARGE AT ANY TIME OF ANY HAZARDOUS SUBSTANCE ON, UNDER OR FROM THE RELEVANT PROPERTY; ANY FAILURE AT ANY TIME BY ANY PERSON (WHETHER WORKING INTEREST OWNER, ROYALTY OWNER, ANY OF THEIR AFFILIATES, OR ANY OTHER PERSONS) TO COMPLY WITH ANY ENVIRONMENTAL LAWS OR WITH ANY OTHER DUTIES IN RESPECT OF DAMAGE TO OR REMEDIATION OF THE ENVIRONMENT THAT ARE IN ANY WAY RELATED TO THE RELEVANT PROPERTY; OR THE EXPOSURE OF ANY PERSON OR PROPERTY AT ANY TIME TO ANY HAZARDOUS SUBSTANCE ON, UNDER OR FROM THE RELEVANT PROPERTY OR IN CONNECTION WITH ANY OPERATIONS CONDUCTED ON OR IN RESPECT OF THE RELEVANT PROPERTY BY ANY PERSON; (iv) ANY INJURY OR ALLEGED INJURY TO PERSONS OR PROPERTIES OCCURRING OR ALLEGEDLY OCCURRING IN CONNECTION WITH ANY OF THE MATTERS DESCRIBED IN THE PRECEDING SUBSECTIONS (I) OR (II); (v) ANY BREACH OF WORKING INTEREST OWNER'S WARRANTIES IN SECTION 1.9 OF THE CONVEYANCE (INCLUDING ANY LOSSES SUFFERED BY ANY ROYALTY OWNER INDEMNITEE AS A RESULT OF ANY CLAIM THAT SUCH ROYALTY OWNER INDEMNITEE LACKS GOOD TITLE TO THE PRODUCTION PAYMENT HYDROCARBONS OR OTHERWISE MUST DELIVER OR PAY OVER TO ANY PERSON ANY PART OF THE PRODUCTION PAYMENT HYDROCARBONS OR ANY PROCEEDS THEREOF AT ANY TIME PREVIOUSLY RECEIVED OR THEREAFTER TO BE RECEIVED BY SUCH ROYALTY OWNER INDEMNITEE); (vi) THE BREACH OR ALLEGED BREACH OF ANY SUBJECT CONTRACT BY WORKING INTEREST OWNER OR ANY OTHER PERSON (INCLUDING ROYALTY OWNER); (vii) ANY VIOLATION OR ALLEGED VIOLATION OF THE RIGHTS OF ANY PERSON AS A RESULT OF WORKING INTEREST OWNER'S CONVEYANCE OF THE PRODUCTION PAYMENT TO ROYALTY OWNER OR WORKING INTEREST OWNER'S EXECUTION, DELIVERY OR PERFORMANCE OF ANY PRODUCTION PAYMENT DOCUMENT; OR (viii) ANY BREACH BY WORKING INTEREST OWNER OF ANY OF ITS REPRESENTATIONS, WARRANTIES, COVENANTS OR AGREEMENTS IN ANY OF THE PRODUCTION PAYMENT DOCUMENTS, 15 OR ANY MATTERS RELATING TO THE ENFORCEMENT OR DEFENSE OF THE PRODUCTION PAYMENT DOCUMENTS BY ROYALTY OWNER. (c) THE FOREGOING INDEMNITY WILL APPLY WHETHER OR NOT ANY LOSSES ARISE OUT OF THE SOLE, JOINT OR CONCURRENT NEGLIGENCE, FAULT OR STRICT LIABILITY OF ANY ROYALTY OWNER INDEMNITEE OR IN CONNECTION WITH ANY LIABILITY IMPOSED UPON ANY ROYALTY OWNER INDEMNITEE AS ARESULT OF ANY THEORY OF STRICT LIABILITY OR ANY OTHER DOCTRINE OF LAW (IN EACH CASE WHETHER ALLEGED, ARISING OR IMPOSED IN A LEGALPROCEEDING BROUGHT BY OR AGAINST WORKING INTEREST OWNER, ANY AFFILIATE OFWORKING INTEREST OWNER, ANY ROYALTY OWNER INDEMNITEE, OR ANY OTHER PERSON), PROVIDED THAT THE FOREGOING INDEMNITY WILL NOT APPLY TO ANY LOSSES INCURRED BY ANY ROYALTY OWNER INDEMNITEE TO THE EXTENT PROXIMATELY CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH ROYALTY OWNER INDEMNITEE AS DETERMINED IN A FINAL JUDGMENT BY A COURT OF COMPETENT JURISDICTION. THE FOREGOING INDEMNITY WILL NOT BE QUALIFIED OR LIMITED BY ANY OTHER PROVISIONS OF ANY PRODUCTION PAYMENT DOCUMENTS AND WILL SURVIVE THE TERMINATION OF THE PRODUCTION PAYMENT AND OF THIS AGREEMENT AND THE OTHER PRODUCTION PAYMENT DOCUMENTS. WITHOUT LIMITATION OF THE FOREGOING PROVISIONS, THE FOREGOING INDEMNITY WILL APPLY IN THE EVENT OF ANY DISPUTE, ADVERSARY PROCEEDING, LITIGATION OR OTHER ACTION AMONG OR BETWEEN WORKING INTEREST OWNER AND ANY OF THE ROYALTY OWNER INDEMNITEES. Section 5.4 Payment of Expenses. Working Interest Owner will promptly (and in any event, within ten (10) days after any invoice or other statement or notice) pay: (a) all transfer, stamp, mortgage, documentary or other similar taxes, assessments or charges levied by any governmental or revenue authority in respect of any of the Production Payment Documents or any other document or transaction referred to herein or therein, (b) all costs and expenses incurred by or on behalf of Royalty Owner (including attorneys' fees, consultants' fees, engineering fees, travel costs and miscellaneous expenses) in connection with (i) the amendment, filing, recording, refiling or re-recording of any Production Payment Document (or any waiver in connection therewith) or any other document or instrument or further assurances obtained, provided, filed or recorded or refiled or re-recorded in connection with the terms of any Production Payment Document, the analysis of the Production Payment, the administration of the Production Payment Documents, or the monitoring of the Production Payment or Working Interest Owner's compliance with the Production Payment Documents, and (c) all costs and expenses incurred by or on behalf of Royalty Owner (including attorneys' fees, consultants' fees, engineering fees, travel costs and miscellaneous expenses whether or not related to disputes, adversary proceedings or litigation between or involving Working Interest Owner and Royalty Owner) in connection with the defense or enforcement of any of the Production Payment Documents, any attempt to cure any breach thereunder, or the defense of Royalty Owner's exercise of its rights thereunder. 16 Section 5.5 Information and Reporting. (a) Monthly Statements. Until the termination of the Production Payment and the completion of all payments for Production Payment Hydrocarbons, Working Interest Owner, at its own expense, will furnish to Royalty Owner within 30 Days after the end of each Month, a lease operating statement in form acceptable to Royalty Owner, showing (1) gross volumes of Hydrocarbons produced and sold from the Subject Lands during such Month and the portions thereof that constituted Subject Hydrocarbons, (2) the average sales prices paid to Working Interest Owner for the Retained Interest Hydrocarbons, and (3) the severance Taxes, lease operating expenses, capital expenditures and any other expenses for such Month. Each such lease operating statement will be in a form and level of detail acceptable to Royalty Owner and certified by an authorized officer of Working Interest Owner to be materially true and correct. (b) Quarterly Reports. Until the termination of the Production Payment and the completion of all payments for Production Payment Hydrocarbons, Working Interest Owner, at its own expense, will furnish to Royalty Owner the following reports and information within 30 days after the end of each March, June, September, and December: (i) A certificate executed by an authorized officer of Working Interest Owner certifying that, to the best of his knowledge after reasonable investigation, all Taxes, royalties, rentals and other amounts with respect to the Subject Interests (other than amounts disputed in good faith by appropriate proceedings and royalties held in suspense due to title disputes or title questions) have been paid in full and in accordance with the terms of the Leases, any other applicable agreements and all applicable Laws, and that Working Interest Owner is in compliance in all respects with the terms of the Production Payment Documents, the Leases, and the Subject Contracts, or if not, specifying in reasonable detail any exceptions thereto. (ii) Reports concerning any material change in methods of treatment or operation of all or any Subject Wells which are productive of Hydrocarbons, any new drilling or development, any method of secondary or tertiary recovery by repressuring or otherwise, or any other action with respect to the Subject Interests, the decision as to which may materially increase or reduce the quantity of Hydrocarbons ultimately recoverable from the Subject Interests, or the rate of production therefrom, or which may shorten or prolong the period of time required for termination of the Production Payment. (iii) A report setting out the current status of all production imbalances by Subject Well or Subject Interest. (iv) Unaudited consolidated financial statements of Working Interest Owner as of the end of and for the fiscal quarter then ending, including a balance sheet and statements of income and cash flows, prepared in accordance with generally accepted accounting principles (other than the omission of footnotes), consistently applied, accompanied by a certificate of Working Interest Owner's chief financial officer stating that such financial statements were so prepared and fairly present the matters addressed therein, subject to normal year-end adjustments. 17 (c) Annual and Semiannual Reports. Until the termination of the Production Payment and the completion of all payments for Production Payment Hydrocarbons, Working Interest Owner, at Working Interest Owner's own expense, will furnish to Royalty Owner the following reports and information: (i) Semi-annually, on or before April 1 and October 1 of each year, a Reserve Report prepared as of the preceding February 1 and August 1, respectively. Each report dated as of August 1 will be prepared or audited by the Company Engineers, and each report dated as of February 1 will, at Royalty Owner's election, be prepared by Working Interest Owner's in-house reserve engineers or by the Company Engineers. Each report will incorporate all current information and data available to Working Interest Owner pertinent to the estimation of Oil and Gas reserves attributable to the Subject Interests and the Production Payment. Working Interest Owner will also furnish to Royalty Owner Working Interest Owner's internally prepared summary of such report, if any, and a copy of any other reserve report from time to time prepared for Working Interest Owner by any independent petroleum engineering firm covering the Subject Interests or any part thereof. (ii) Annually, within 105 days after the end of each fiscal year, audited financial statements of Working Interest Owner as of the end of and for such year, including a balance sheet and statements of income, owner's equity and cash flows, prepared in accordance with generally accepted accounting principles, accompanied by a report of Working Interest Owner's independent certified public accountants stating that their examination was made in accordance with generally accepted auditing standards and that in their opinion such financial statements fairly present Working Interest Owner's financial position, results of operations, owner's equity and cash flows in accordance with generally accepted accounting principles consistently applied. Notwithstanding the preceding sentence, the foregoing audited financial statements of Working Interest Owner for the first fiscal year following the execution of this Agreement shall be delivered to Royalty Owner within 150 days of such fiscal year end. (iii) At least 10 days prior to the expiration date of any policy, evidence satisfactory to Royalty Owner confirming timely renewal of the insurance policies required hereunder. (d) Notices. Until the termination of the Production Payment and the completion of all payments for Production Payment Hydrocarbons, Working Interest Owner, at Working Interest Owner's own expense, will furnish to Royalty Owner the following as and when indicated below: (i) As soon as possible and in any event within 5 days after Working Interest Owner becomes aware thereof, written notice of (A) any breach of any Production Payment Document or any breach (by any party thereto) of any Subject Contract, (B) any action, event or occurrence that could reasonably be expected to have a material adverse effect on the Production Payment, or (C) any material change in the rate of production of Subject Hydrocarbons from the Subject Wells. (ii) Promptly after obtaining actual knowledge thereof, written notice of any adverse claim or demand made by any Person affecting the Subject Interests 18 or the Hydrocarbons produced therefrom in any manner whatsoever, or of any proceedings instituted or threatened with respect thereto, or of any other matter required to be reported under Section 3.1(d) or Section 3.5. (iii) Promptly after the filing thereof, copies of any notices and filings made by Working Interest Owner or the Parent with the Securities and Exchange Commission. (iv) At least 30 days prior to the occurrence thereof, notice of any change in Working Interest Owner's name, identity or organizational structure, or any change to its jurisdiction of organization, including in such notice a ratification of Royalty Owner's authority to file any related financing statement amendments contemplated in the Uniform Commercial Code. In connection with any change in Working Interest Owner's name, identity or organizational structure, or any change to its jurisdiction of organization, Royalty Owner is hereby authorized (whether or not Working Interest Owner's gives the ratification described in the preceding subsection (iv)) to file any related financing statement amendments contemplated in the Uniform Commercial Code. (e) Other Information Upon Request. Until the termination of the Production Payment and the completion of all payments for Production Payment Hydrocarbons, Working Interest Owner, at Working Interest Owner's own expense, will, upon request, furnish to Royalty Owner and its consultants and representatives the following information and access as and when requested from time to time: (i) Access to the Company Engineers or other engineers who prepared the most recent annual and semiannual Reserve Reports delivered hereunder, and to their engineering databases and other relevant data, for the purpose of discussing and reviewing their data, analysis, and conclusions. (ii) copies of surface maps showing property lines and well locations, well logs, core analysis data, flow and pressure tests, production analysis, casing programs and other similar information related to the Subject Interests, the Subject Wells or the production therefrom. (iii) A schedule of the Upstream Contracts pursuant to which operations relating to the Subject Interests are carried out, all reasonably requested information pertaining thereto, and copies of each such Upstream Contract (or amendment thereto). (iv) A schedule of the Downstream Contracts under which the Subject Hydrocarbons were transported, treated, processed, resold or otherwise dealt with during the most recent Month(s), setting out the amount of Subject Hydrocarbons dealt with under each such Downstream Contract and the prices paid or received thereunder by Working Interest Owner, the Leases covered thereby, and the remaining term thereof, and a copy of each such Downstream Contract (or amendment thereto). (v) Access to remote field monitoring data specifically related to the wells subject to the Production Payment, such as SCADA data that is available electronically. 19 (vi) Such other information relating to the Subject Interests or the matters addressed in the Production Payment Documents as Royalty Owner may from time to time request. (f) Audit and Inspection Rights. Royalty Owner will, at the expense of Working Interest Owner, have the right from time to time to audit the books and records of Working Interest Owner with respect to the Subject Interests and the Subject Hydrocarbons, including all information with respect to the matters to be reported on by Working Interest Owner as provided herein. Such audits will be conducted during normal business hours at Working Interest Owner's offices or at the offices where Working Interest Owner maintains the records relating to the items set forth above. This right to audit will survive the termination of the Production Payment for two years. If, as a result of any such audit, it is determined that any amount is due Royalty Owner under the Production Payment Documents, whether as a result of the failure of Working Interest Owner to properly deliver all Production Payment Hydrocarbons, or the proceeds thereof, to Royalty Owner in accordance with the terms of the Production Payment Documents, or otherwise, Working Interest Owner will pay such amount to Royalty Owner together with interest at the Agreed Rate from the date that such amount should have been delivered or paid in accordance with the terms of the Production Payment Documents to the date of payment. Working Interest Owner will also permit the duly authorized representatives of Royalty Owner, at any reasonable time, to make such inspections of the Subject Interests and the property, equipment and facilities used in the operation thereof (or any records of Working Interest Owner related thereto) as such representatives may deem proper. Section 5.6 Marketing of Production Payment Hydrocarbons. (a) General Provision. As provided in the Conveyance, the Production Payment Hydrocarbons will be delivered to Royalty Owner in kind or to the credit of Royalty Owner, free of Delivery Point Charges and other costs and expenses, at the applicable Delivery Points. Royalty Owner will take and market the Production Payment Hydrocarbons upon delivery by Working Interest Owner at the applicable Delivery Points. (b) Spot Market PP Hydrocarbons. Royalty Owner will have the right to take and market all or any portion of the Production Payment Hydrocarbons and also the right to require Working Interest Owner to process and/or market, as Royalty Owner's agent, all or any portion of the Production Payment Hydrocarbons on the same terms and conditions as Working Interest Owner's Retained Interest Hydrocarbons are processed and/or marketed. Any such Production Payment Hydrocarbons so marketed by Royalty Owner are called "Royalty Owner Spot Market PP Hydrocarbons" and any such Production Payment Hydrocarbons that Royalty Owner so requires Working Interest Owner to process or market as Royalty Owner's agent are herein called "Working Interest Owner Spot Market PP Hydrocarbons". (c) Assistance with Marketing. Working Interest Owner will, without charge, render all assistance that may be useful or necessary to Royalty Owner in marketing the Royalty Owner Spot Market PP Hydrocarbons, including giving Royalty Owner access to and the use of all treating, gathering, processing, storage, transportation and other facilities available to Working Interest Owner or Working Interest Owner's Affiliates, whether by ownership, contract or otherwise, which access and use will, to the maximum extent allowed by Law or 20 other agreements existing on the date hereof, (i) be made available to the Subject Hydrocarbons prior to any other Hydrocarbons owned or controlled by Working Interest Owner, (ii) be allocated between the Production Payment Hydrocarbons and the Retained Interest Hydrocarbons in proportion to the relative amounts thereof, and (iii) be without charge by Working Interest Owner or its Affiliates for any such treating, gathering or other facilities in the area of production and with the same charges per unit of Oil as are paid by Working Interest Owner to third parties for any other facilities. Working Interest Owner will process and market all Working Interest Owner Spot Market PP Hydrocarbons on the same terms as its own Retained Interest Hydrocarbons. Working Interest Owner will use its best efforts to cause all proceeds of Working Interest Owner Spot Market PP Hydrocarbons and Retained Interest Hydrocarbons to be paid directly to Royalty Owner by the purchasers thereof, and upon receipt thereof, Royalty Owner will retain the proceeds from the Production Payment Hydrocarbons and promptly remit the remainder to Working Interest Owner. Until such designation is effective (and if Working Interest Owner otherwise receives any such proceeds), Working Interest Owner will receive such proceeds in trust on behalf of Royalty Owner and pay such proceeds to Royalty Owner by wire transfer on or before the third Business Day after receipt thereof, without any setoff, defense or counterclaim, all of which are hereby waived by Working Interest Owner. (d) Nominations. Whenever any Royalty Owner Spot Market PP Hydrocarbons are being sold, Working Interest Owner will, not less than five Business Days prior to the first day of each Month in which such sales will occur, notify Royalty Owner of the daily quantities of such Production Payment Hydrocarbons that Working Interest Owner expects to be produced and delivered for Royalty Owner's account at each Delivery Point during such Month. Section 5.7 Preservation of Subject Well Drainage. From the Effective Date of this Agreement through the termination of the Production Payment and the completion of all payments to Royalty Owner that are required under any of the Production Payment Documents, Working Interest Owner will not take any action in drilling or completing any well that is not a Subject Well (or other operations in connection therewith) that has, or would reasonably be expected to have, a negative impact on the performance characteristics of any Subject Well. ARTICLE VI LIENS TO SECURE PERFORMANCE; OTHER REMEDIES Section 6.1 Mortgage. The Conveyance is the grant of a property interest in the Subject Interests and the Subject Hydrocarbons, pursuant to which Royalty Owner will own and possess the Production Payment Hydrocarbons if, as and when produced. Royalty Owner will look solely to the Production Payment Hydrocarbons for satisfaction and discharge of the Production Payment, and Working Interest Owner will not be personally liable for such satisfaction and discharge (and the indemnity provided in Section 5.3 will not be construed to make Working Interest Owner personally liable for such satisfaction and discharge). Working Interest Owner has, however, made various covenants, agreements, representations, warranties and indemnities in the various Production Payment Documents for which it is personally liable. In order to secure the performance by Working Interest Owner of all of Working Interest Owner's obligations and liabilities under this 21 Agreement or any other Production Payment Document, Working Interest Owner is concurrently herewith executing and delivering the Mortgage. Section 6.2 Production Proceeds. Notwithstanding that, by the terms of the Mortgage, Working Interest Owner is granting to Royalty Owner the right to collect directly all of the "As-Extracted Collateral" (as defined therein), so long as no Performance Default has occurred Working Interest Owner may continue to receive from the purchasers of production all such Production Proceeds, subject, however, to the liens created under the Mortgage, which liens are hereby affirmed and ratified, and Royalty Owner will not exercise its rights and powers under Section 4.03 of the Credit Agreement. Upon the occurrence of a Performance Default, Royalty Owner may exercise all rights and remedies granted under the Mortgage, including the right to obtain possession of all Production Proceeds then held by Working Interest Owner and the right to receive directly from the purchasers of production all other Production Proceeds. In no case shall any failure, whether intentioned or inadvertent, by Royalty Owner to collect directly any Production Proceeds constitute in any way a waiver, remission or release of any of its rights under the Production Payment Documents, nor shall any release of any Production Proceeds by Royalty Owner to Working Interest Owner constitute a waiver, remission, or release of any other Production Proceeds or of the rights of Royalty Owner to collect all other Production Proceeds thereafter. Section 6.3 Replacement of Operator. In addition to its other remedies under the Production Payment Documents, upon the continuance of a Performance Default for thirty consecutive days without being cured, Royalty Owner may require Working Interest Owner to do (or require Working Interest Owner to cause Parent to do) either or both of the following: (i) employ a contract operator designated by Royalty Owner for any or all of the Subject Interests, or (ii) resign as operator of any or all of the Subject Interests, whereupon Working Interest Owner will so resign and will appoint, vote for, and otherwise support a substitute operator acceptable to Royalty Owner. ARTICLE VII MISCELLANEOUS Section 7.1 Notices. All notices, requests, demands, instructions and other communications required or permitted to be given hereunder or under the Conveyance will be in writing and will be given as provided in the Purchase and Sale Agreement. Section 7.2 Successors and Assigns. The covenants, provisions and conditions contained in this Agreement will be binding upon and (subject to the restrictions concerning the Subject Interests that are contained in Section 1.8 of the Conveyance) inure to the benefit of Working Interest Owner and Royalty Owner and their respective successors and permitted assigns. Working Interest Owner will not transfer, assign or pledge its rights or obligations hereunder or under the other Production Payment Documents except as allowed under Section 1.8 of the Conveyance. Royalty Owner and its successors and assigns may, and nothing contained in the Production Payment Documents will in any way limit or restrict the right of Royalty Owner, or Royalty Owner's successors and assigns, to, sell, convey, assign, transfer, pledge, mortgage or otherwise transfer the Production Payment or its rights and obligations under the Production Payment Documents in whole or in part. If Royalty Owner, or any of Royalty Owner's successors and assigns, at any time executes a mortgage, pledge or deed of trust covering all or any part of the Production Payment as security for any obligation, then the mortgagee, the pledgee or the trustee therein named or the holder of the 22 obligation secured thereby will be entitled, when and to the extent such mortgage, pledge or deed of trust so provides or Royalty Owner otherwise agrees, to exercise all of the rights, remedies, powers and privileges conferred upon Royalty Owner under the Production Payment Documents and to give or withhold all consents required or permitted to be obtained from Royalty Owner pursuant to the Production Payment Documents. All references herein to either Working Interest Owner or Royalty Owner will include their respective successors and permitted assigns. Section 7.3 Acknowledgments and Admissions. Working Interest Owner hereby represents, warrants, agrees, acknowledges and admits that Royalty Owner is not a fiduciary or an advisor for Working Interest Owner with respect to any Production Payment Document or the transactions contemplated thereby and that no partnership or joint venture exists with respect to the Production Payment Documents between Working Interest Owner and Royalty Owner. Section 7.4 Entire Agreement; Amendments; Waiver. This Agreement and the other Production Payment Documents constitute the entire agreement between the Parties. This Agreement may not be amended or modified, and no rights hereunder may be waived, except by a written document signed by the Party to be charged with such amendment, modification or waiver. Provisions of this Agreement that refer to any consent, approval, amendment or waiver by either Party require such consent, approval, amendment or waiver to be in writing. No waiver of any of the provisions of this Agreement will be deemed to be or will constitute a waiver of any other provisions hereof (whether or not similar), nor will such waiver constitute a continuing waiver unless otherwise expressly provided. THIS WRITTEN AGREEMENT AND THE OTHER PRODUCTION PAYMENT DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THEPARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Section 7.5 Counterpart Execution. This Agreement may be executed by Working Interest Owner and Royalty Owner in any number of counterparts, each of which will be deemed an original instrument and all of which will constitute but one and the same Agreement. Section 7.6 Applicable Law. This Agreement will be governed by and construed in accordance with the Laws of the State of Texas. Section 7.7 Severability. If any term or provision of this Agreement or any other Production Payment Document is ever determined to be illegal or unenforceable to any extent, such term or provision will otherwise remain effective and be enforced, and all other terms and provisions of the hereof or thereof will nevertheless remain effective and will be enforced, to the fullest extent permitted by applicable Law. Section 7.8 Termination; Limited Survival. Upon both (i) the termination of the Production Payment as provided in the Conveyance and (ii) the full and complete payment and performance of all obligations and duties of Working 23 Interest Owner under this Agreement and the other Production Payment Documents, Working Interest Owner will be entitled to request and receive the release by Royalty Owner of the liens and security interests under the Mortgage, and at such time Royalty Owner will, at the request and expense of Working Interest Owner, execute and deliver an appropriate release to Working Interest Owner. Notwithstanding the foregoing or anything to the contrary herein or in any other Production Payment Document, the following will survive any termination of the Production Payment, this Agreement, or any other Production Payment Document: (a) all waivers or admissions made by Working Interest Owner herein or therein, (b) all obligations that any Person may have to indemnify or compensate Royalty Owner or any Royalty Owner Indemnitee hereunder or thereunder, and (c) all other provisions hereof or thereof that are expressly stated to survive the termination of the Production Payment or of this Agreement, the Conveyance, or any other Production Payment Document. Section 7.9 WAIVER OF JURY TRIAL AND PUNITIVE DAMAGES. WORKING INTEREST OWNER AND ROYALTY OWNER HEREBY RATIFY AND REMAKE THEIR WAIVERS OF AND AGREEMENTS CONCERNING JURY TRIAL AND PUNITIVE AND OTHER DAMAGES MADE IN SECTION 7.9 OF THE PURCHASE AND SALE AGREEMENT. Section 7.10 CONSENT TO JURISDICTION. WORKING INTEREST OWNER AND ROYALTY OWNER HEREBY RATIFY AND REMAKE THEIR CONSENTS TO AND AGREEMENTS CONCERNING JURISDICTION, FORUM AND VENUE MADE IN SECTION 7.10 OF THE PURCHASE AND SALE AGREEMENT. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 24 IN WITNESS WHEREOF, Working Interest Owner and Royalty Owner have duly executed and delivered this Agreement as of the date set forth above. BARON PRODUCTION LLC By: ----------------------------------------- Name: --------------------------------------- Title: -------------------------------------- 25 PCEC SUB 1, LLC By: ----------------------------------------- Rosser C. Newton Vice President 26 SCHEDULE 3.7 TO PRODUCTION AND MARKETING AGREEMENT INSURANCE Required Coverage Working Interest Owner will at all times while operations are conducted on the Subject Interests procure and maintain with responsible insurance companies for the benefit and protection of the Parties the following insurance and such other insurance as Working Interest Owner deems appropriate: (a) Worker's Compensation Insurance and Employer's Liability Insurance in compliance with all applicable Laws. (b) Comprehensive General Liability Insurance (including pollution) with a combined single limit of not less than $1,000,000 per occurrence and $2,000,000 in the aggregate. This policy will be endorsed to provide coverage for explosion, collapse and underground damage hazards to property of others; contractual liability; and products and completed operations; (c) Comprehensive Liability Insurance covering all owned, hired or non-owned vehicles with a combined single limit of not less than $1,000,000 per occurrence; (d) Excess Umbrella Liability Insurance with a combined single limit of not less than $5,000,000 per occurrence, provided that after August 15, 2014, the Working Interest Owner shall maintain Excess Umbrella Liability Insurance with a Combined single limit of not less than $10,000,000; (e) Well Control Operator's Excess Expense Liability Insurance (including cost of well control, relief wells, redrilling) in an amount not less than $15,000,000 per occurrence; and (f) Property Insurance (subject to deductibles that are customary in the case of independent oil and gas companies engaged in operations of similar properties) fully covering the property subject to this Production and Marketing Agreement including the value of all facilities and well surface equipment. Additional Requirements 1. All insurance policies will be endorsed to be primary and noncontributory with any other valid and collectible insurance. 2. Working Interest Owner will provide to Royalty Owner from time to time as requested a Certificate of Insurance, in form satisfactory to Royalty Owner, as evidencing that satisfactory coverages of the type and limits set forth hereinabove are in effect. Policies providing such coverages will contain provisions that no cancellation or material changes in the policies will become effective except on 30 days' advance written notice thereof to Royalty Owner. Irrespective of the requirements as to insurance to be carried as provided for herein, the insolvency, bankruptcy or failure of any insurance company carrying insurance of Working Interest Owner, the failure of any insurance company to pay 27 claims accruing, or the inadequacy of the limits of the insurance, will not affect, negate or waive any of the provisions of any Production Payment Document applicable to the property, including, without exception, the indemnity obligations of Working Interest Owner. Working Interest Owner will furnish to Royalty Owner copies of all renewal applications or applications for replacement insurance promptly following submission of the same. 3. Working Interest Owner will promptly notify Royalty Owner of any one or more claims made under any insurance policy where Working Interest Owner is a named or additional insured (whether such claim is made by Working Interest Owner or any other person insured thereunder) where such claim(s) are for an aggregate amount in excess of 50% of any aggregate policy limit. 4. Working Interest Owner will require any policies of liability insurance, except workers compensation coverage, that are in any way related to the Subject Interests, and that are obtained or maintained by Working Interest Owner, to include Royalty Owner, its parent and affiliated companies and mortgagees, and their directors, officers, employees and agents, as Additional Insureds, without any limitations based on the fault or negligence, in whole or in part, of such Additional Insureds. Working Interest Owner will require any property and casualty policies that are in any way related to the Subject Interests, and that are obtained or maintained by Working Interest Owner, to name Royalty Owner as the loss payee to the extent of Royalty Owner's or Working Interest Owner's interests. If any insurance policy is issued with the name of the insured being other than the name of Working Interest Owner, then Working Interest Owner will be added as a named insured and Royalty Owner and its parent and affiliated companies and mortgagees, and their directors, officers, employees and agents will be named as Additional Insureds and loss payee as required in the preceding sentences of this paragraph. 5. Working Interest Owner will require all policies of insurance that are in any way related to this Production and Marketing Agreement and that are obtained or maintained by Working Interest Owner to include clauses providing that each underwriter will waive its rights of recovery, under subrogation or otherwise, against Royalty Owner, its parent and affiliated companies and mortgagees, and their directors, officers, employees and agents. 28

Exhibit 10.82 NOTICE OF CONFIDENTIALITY RIGHTS: IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR STRIKE ANY OF THE FOLLOWING INFORMATION FROM THIS INSTRUMENT BEFORE IT IS FILED FOR RECORD IN THE PUBLIC RECORDS: YOUR SOCIAL SECURITY NUMBER OR YOUR DRIVER'S LICENSE NUMBER. CONVEYANCE OF TERM OVERRIDING ROYALTY INTEREST FROM BARON PRODUCTION LLC AS GRANTOR TO PCEC SUB 1, LLC AS GRANTEE JULY 28 2014 TABLE OF CONTENTS Article I CONVEYANCE..........................................................2 Section 1.1 Conveyance..................................................2 Section 1.2 Non-Operating, Non-Expense-Bearing Interest.................2 Section 1.3 Royalties; Taxes............................................3 Section 1.4 Termination.................................................3 Section 1.5 Delivery to Royalty Owner...................................4 Section 1.6 Certain Limitations.........................................4 Section 1.7 Measurement.................................................5 Section 1.8 No Mortgage, Assignment or Pooling by Working Interest Owner.......................................................5 Section 1.9 Title.......................................................5 Section 1.10 No Proportionate Reduction..................................7 Section 1.11 Government Regulation.......................................7 Section 1.12 Partial Release and Replacement.............................7 Article II DEFINITIONS........................................................8 Section 2.1 Definitions.................................................8 Section 2.2 Rules of Construction; Monthly and Daily Equivalents; Publications...............................................15 Article III MISCELLANEOUS....................................................16 Section 3.1 Nature of Production Payment; Intentions of the Parties....16 Section 3.2 Governing Law..............................................17 Section 3.3 Successors and Assigns.....................................17 Section 3.4 Counterpart Execution......................................17 Section 3.5 Further Assurances.........................................17 Section 3.6 No Subordination to Permitted Encumbrance..................17 Section 3.7 Partial Invalidity.........................................18 Section 3.8 Waiver of Jury Trial and Special Damages...................18 Section 3.9 Consent to Jurisdiction....................................18 Section 3.10 Partition..................................................18 Section 3.11 Addresses..................................................18 Section 3.12 Amendments and Waivers.....................................19 i CONVEYANCE OF TERM OVERRIDING ROYALTY INTEREST This Conveyance of Term Overriding Royalty Interest (this "Conveyance"), dated for reference purposes as of July 28, 2014, is made by Baron Production LLC, a Texas limited liability company ("Working Interest Owner" and a "Party"), to PCEC Sub 1, LLC, a Texas limited liability company ("Royalty Owner" and a "Party"). Working Interest Owner is the owner of the Subject Interests (defined below), and Working Interest Owner has agreed to convey to Royalty Owner the following described term overriding royalty interest in such Subject Interests. Capitalized terms used herein have the meanings given to them in Article II hereof unless otherwise defined herein. Accordingly, Working Interest Owner hereby makes the following conveyance and assignment to, and the following agreements for the benefit of, Royalty Owner: ARTICLE I CONVEYANCE Section 1.1 Conveyance. For and in consideration of One Thousand Dollars ($1,000.00) and other good and valuable consideration paid by Royalty Owner to Working Interest Owner, the receipt and sufficiency of which are hereby acknowledged, Working Interest Owner hereby GRANTS, BARGAINS, SELLS, CONVEYS, ASSIGNS, TRANSFERS, SETS OVER AND DELIVERS unto Royalty Owner a term overriding royalty interest in and to the Subject Interests and in and to the Subject Hydrocarbons attributable thereto that is equal to the Production Payment Percentage with respect to each Subject Interest and the Subject Hydrocarbons attributable thereto (but not to exceed during any Month the Scheduled Quantities plus any Adjustment Quantity of the Subject Hydrocarbons produced and saved that Month), together with all and singular the rights and appurtenances thereto in anywise belonging thereto (the "Production Payment") insofar as and limited to the Subject Wells described in the Property Exhibit. TO HAVE AND TO HOLD the Production Payment unto Royalty Owner, its successors and assigns until the Termination Time. Section 1.2 Non-Operating, Non-Expense-Bearing Interest. The Production Payment conveyed hereby is a non-operating, non-expense-bearing limited term overriding royalty interest, free of all cost and expense of production, operations and delivery to the applicable Delivery Points. The Production Payment and the Production Payment Hydrocarbons will be free and clear of, and in no event will Royalty Owner ever be liable or responsible in any way for payment of, any and all (a) costs, expenses and liabilities associated with acquiring, exploring, developing, drilling, redrilling, maintaining, producing, operating, reworking, repairing, recompleting, and remediating the Subject Interests, or (b) cash balancing obligations or Delivery Point Charges. All costs and expenses associated with acquiring, exploring, developing, drilling, redrilling, maintaining, producing, operating, reworking, repairing, recompleting, and remediating the Subject Interests and all cash balancing 2 obligations and Delivery Point Charges will be borne by the Retained Interests and paid by Working Interest Owner promptly, on or before the dates the same become delinquent. Section 1.3 Royalties; Taxes. The Production Payment will be free and clear of (and without deduction of) any and all royalties, overriding royalties, other production payments, and other burdens on production and will bear no part of the same; the Retained Interests will be burdened with, and Working Interest Owner will timely pay, all such royalties, overriding royalties, other production payments, and other burdens on production. WORKING INTEREST OWNER WILL DEFEND, INDEMNIFY AND HOLD ROYALTY OWNER HARMLESS FROM AND AGAINST ANY LOSS OR CLAIM WITH RESPECT TO ANY SUCH ROYALTIES AND OTHER BURDENS ON PRODUCTION OR ANY CLAIM BY THE OWNERS OR HOLDERS OF SUCH ROYALTIES AND OTHER BURDENS ON PRODUCTION. WORKING INTEREST OWNER WILL BEAR AND PAY ALL TAXES WITH RESPECT TO THE PRODUCTION PAYMENT AND THE PRODUCTION PAYMENT HYDROCARBONS, AND THE PRODUCTION PAYMENT HYDROCARBONS WILL BE FREE OF TAXES AND DELIVERED WITHOUT DEDUCTION FOR TAXES. Section 1.4 Termination. (a) The Production Payment will remain in full force and effect until the Termination Time. At the Termination Time, all rights, titles and interests hereby conveyed to Royalty Owner in the Subject Interests will automatically terminate and vest in Working Interest Owner and, upon request by Working Interest Owner, Royalty Owner (at Working Interest Owner's expense) will execute and deliver such instruments (in recordable form) as may be reasonably necessary to evidence the termination of the Production Payment, provided that, notwithstanding the foregoing or anything herein to the contrary, any obligations which any Person may have to indemnify, reimburse, or compensate Royalty Owner, or to make payments to Royalty Owner on account of Production Payment Hydrocarbons produced before the Termination Time, or to give reports or take other actions with respect to such Production Payment Hydrocarbons or such payments, will survive any termination of the Production Payment. (b) No pipeline company or other Person purchasing, taking or processing Production Payment Hydrocarbons will be required to take notice of or to keep informed concerning termination of the Production Payment until actual receipt of a termination instrument signed by Royalty Owner as contemplated in the preceding subsection. (c) If any individual Subject Interest (or portion thereof, as applicable) should by its terms terminate before the Termination Time and not be extended, renewed or replaced, then the Production Payment will no longer apply to that particular Subject Interest (or such portion thereof, as applicable), but the Production Payment will remain in full force and effect and undiminished as to all remaining Subject Interests (and all remaining portions of such Subject Interest, as applicable), as well as to any new lease referred to in the last sentence of the definition of "Lease" in Section 2.1. No Scheduled Quantity, Adjustment Quantity or Monthly Adjustment Amount will ever be reduced or diminished by reason of the termination of all or any portion of a Subject Interest. 3 Section 1.5 Delivery to Royalty Owner. Working Interest Owner will cause the Production Payment Hydrocarbons to be delivered each Day to Royalty Owner, or to the credit of Royalty Owner, into the facilities of the Delivery Point Recipient at the applicable Delivery Point, in a condition satisfactory to meet or exceed all specifications and requirements of such Delivery Point Recipient and free of all Delivery Point Charges. Such delivery will be made on a first priority basis (along with the other Subject Hydrocarbons), to the extent permitted by applicable Law and by any contracts existing on the date hereof, and Working Interest Owner hereby dedicates to the Subject Hydrocarbons all gathering, transportation, processing, treating and compression plants and equipment (whether owned or possessed by contract right) and all contract rights and other rights useful in making such delivery and agrees that the same will be used to deliver the Subject Hydrocarbons in such condition prior to being used for other Hydrocarbons belonging to Working Interest Owner or its Affiliates. Although the Production Payment Hydrocarbons are owned by Royalty Owner when and as produced at the wellhead, Working Interest Owner will be solely responsible for causing delivery thereof to occur at the Delivery Points and for the handling, management and care of the Production Payment Hydrocarbons until such delivery has been completed and solely responsible for any damage, injury or loss that may occur in connection therewith. To the extent it has the right to do so, Working Interest Owner hereby grants to Royalty Owner and its purchasers and agents easements and rights-of-way over and across the Leases and all lands subject thereto or pooled, communitized and/or unitized therewith, together with rights of ingress and egress to go on or about such lands and all related production, processing, handling and other facilities, for the purposes of receiving, accepting and taking Production Payment Hydrocarbons at the applicable Delivery Points and for the further transportation thereof. Section 1.6 Certain Limitations. The Production Payment will be subject to the following provisions: (a) Royalty Owner will look solely to the Production Payment Hydrocarbons for satisfaction and discharge of the Production Payment, and Working Interest Owner will not be personally liable under this Conveyance for the payment and discharge thereof (although Working Interest Owner will be personally liable for the performance of its representations, warranties, agreements and indemnities in the Production Payment Documents (as defined in the Purchase and Sale Agreement)). (b) The Oil produced from the Subject Interests will be allocated first to the Production Payment. (c) Neither the occurrence of an event of force majeure nor any other event or condition reducing or eliminating production or delivery of Subject Hydrocarbons will suspend the calculation and increase of any Monthly Deficiency or other component of the Monthly Adjustment Amount. Section 1.7 Measurement. Measurement of Subject Hydrocarbons will be determined under the applicable agreement with the Delivery Point Recipient (or under the applicable marketing agreement with any Person purchasing such Oil at the Delivery Point) and, if such agreement does not specify measurement procedures, in accordance with generally accepted industry practices in effect at the time and place of delivery using then current testing methods of the 4 American Society for Testing Materials or the American Petroleum Institute. All measurements of Oil will be subject to the rights of Working Interest Owner and Royalty Owner to audit and confirm such measurements. Working Interest Owner hereby represents, warrants and covenants to Royalty Owner that, with respect to the Subject Hydrocarbons, production of Oil from each Subject Well is and will continue to be measured at a point prior to any point where Oil from such Subject Well is commingled with Oil from any other well or wells that are not Subject Wells. Section 1.8 No Mortgage, Assignment or Pooling by Working Interest Owner. During the term of the Production Payment, (a) Working Interest Owner will not mortgage, pledge or hypothecate the Subject Interests or create or allow to remain any lien or security interest thereon or on any Hydrocarbons produced therefrom, other than Permitted Encumbrances, and (b) Working Interest Owner will not assign, sell, convey or otherwise transfer the Subject Interests or any part thereof, unless in each case Royalty Owner expressly consents thereto in writing, the transferee expressly agrees to assume and perform all of Working Interest Owner's obligations under this Conveyance and the other documents executed in connection herewith (contingent, in the case of a mortgagee, upon taking possession), and, except for the Security Documents (as defined in the Credit Agreement), such mortgage, pledge, hypothecation, lien, security interest, assignment, sale, conveyance or other transfer is made and accepted expressly subject and subordinate to this Conveyance. Any purported mortgage, pledge, hypothecation, lien, security interest, assignment, sale, conveyance, or other transfer in violation hereof will be null and void. During the term of the Production Payment, Working Interest Owner will not (except as may be required by the terms of any existing or new Lease or by the terms of any Law or any order of a court or regulatory authority having jurisdiction, or unless Working Interest Owner and Royalty Owner have the same or larger Net Revenue Interest in each affected Subject Interest both before and after pooling or unitization) pool, communitize or unitize the Production Payment or the Subject Interests (or amend any presently existing pooling, communitization or unitization agreement with respect thereto) without the express written consent of Royalty Owner, and any purported pooling, communitization, unitization or amendment in contravention of the preceding clause will be null and void as to Royalty Owner and will not have the effect of pooling or otherwise affecting the Production Payment. Section 1.9 Title. Working Interest Owner hereby binds itself and its successors and assigns to WARRANT and forever DEFEND all and singular title to the Production Payment and the Production Payment Hydrocarbons unto Royalty Owner, its successors and assigns, against every Person lawfully claiming or who may claim the same or any part thereof, including any Person claiming under a Permitted Encumbrance. In addition, and without limitation of the foregoing, Working Interest Owner warrants and represents to Royalty Owner that: (a) each Lease is a valid and subsisting oil, gas and/or mineral lease, deed or other instrument covering the lands and depths described in such Lease (subject to any limitations as to depth or areal extent set forth in the Property Exhibit with respect to such Lease). (b) the ownership of Working Interest Owner of the Subject Interests does and will, with respect to each Lease, unit, formation, or well identified in the Property Exhibit, (i) entitle Working Interest Owner and Royalty Owner collectively to receive and retain a percentage Net Revenue Interest share of 5 the Hydrocarbons produced from (or, to the extent pooled or unitized, allocated to) such Lease, unit, formation or well equal to (or exceeding) the Warranted Net Revenue Interest Percentage set forth in the Property Exhibit, determined after taking all Non-Consent Provisions, if any, into account, and (ii) cause Working Interest Owner to be obligated to bear a percentage share of the costs associated with operations on such Lease, unit, formation, or well that is no more than the Warranted Working Interest Percentage set forth in the Property Exhibit, which share of costs is not subject to increase (except as specifically described in such Exhibit) without either a corresponding proportional increase in the associated Net Revenue Interest or the right to receive immediate reimbursement for such increased costs from another owner of interests in such Lease, unit, formation or well. (c) such shares of production, as reflected on the Property Exhibit, which Working Interest Owner and Royalty Owner are entitled to receive and retain, and such shares of expenses, as reflected on the Property Exhibit, which Working Interest Owner is obligated to bear, are not subject to change upon Working Interest Owner's or any other Person's achievement of payout or some other measure of recovery of costs incurred with respect to any of the Subject Interests prior to the Effective Time, except as expressly described in the Property Exhibit. (d) Working Interest Owner's title to the Subject Interests, the Subject Hydrocarbons and the facilities, equipment, and all related contractual rights needed for the operation of the Subject Interests and the production of the Subject Hydrocarbons is free and clear of (i) any encumbrances, liens, mortgages or pledges, other than Permitted Encumbrances and any liens and security interests being released concurrently with the grant of the Production Payment, (ii) any preferential purchase rights (other than those that have been waived or the time period for exercise of which has expired without exercise) or requirements for consents to assignment (other than those that have been obtained or waived) that would be applicable to or exercisable as a result of this Conveyance, and (iii) any other defects that would materially and adversely affect or interfere with the operation, use, possession, ownership or value thereof as currently owned, operated, conducted and used by Working Interest Owner or, if not Working Interest Owner, the current operator of the applicable Lease. This Conveyance is made with full substitution and subrogation of Royalty Owner in and to all covenants, representations and warranties by others heretofore given or made with respect to the Subject Interests. Section 1.10 No Proportionate Reduction. It is understood and agreed that the Production Payment Hydrocarbons and the Production Payment Percentages will be determined based on 100% of the full Warranted Net Revenue Interest Percentages of the Hydrocarbons produced from (or, to the extent pooled or unitized, allocated to) the Subject Lands and will not be reduced for any reason except to the extent expressly provided in Section 1.11. Among other things, the Production Payment Hydrocarbons and the Production Payment Percentages will not be reduced due to (a) the undivided interest owned by Working Interest Owner in a Lease being less than the entire interest in such Lease, or (b) the interest in Hydrocarbons or other minerals underlying any portion of the Subject Lands which is covered by a particular Lease (or group of Leases) being less than the entire interest in the Hydrocarbons and other minerals underlying such portion of the Subject Lands. 6 Section 1.11 Government Regulation. The obligations of Working Interest Owner hereunder will be subject to all applicable Laws. Working Interest Owner will timely make all filings with all applicable agencies, boards, officials and commissions having jurisdiction with respect to the Subject Interests, the operation thereof or the Production Payment prior to or at the time any such filing becomes due. Should any Laws, any Leases or any presently existing provisions in presently existing private contracts (including those limiting the size of overriding royalties and similar interests but excluding any contracts directly entered into by Royalty Owner) be applicable to the Subject Interests so as to limit the portion of the Hydrocarbons produced from a particular Subject Interest which may be attributable to the Production Payment, the Production Payment will, as to such Subject Interest and for the period of time during which such Law, Lease or contractual provision is applicable, be limited to the maximum amount of production from such Subject Interest which can be attributed to the Production Payment under such Law, Lease or contractual provision; provided, however, should such limitation be in effect as to any one or more Subject Interests, then (without prejudice to other rights Royalty Owner may have) the portion of production from (or, to the extent pooled or unitized, allocated to) the other Subject Interests which would be attributable to the Production Payment in the absence of the provisions of this subsection will be increased to the maximum extent permitted (up to 90%) to cause Royalty Owner to receive, by virtue of ownership of the Production Payment, the same aggregate amount of Oil that Royalty Owner would have received had such Law, Lease or contractual provision not reduced the share of production from such Subject Interest with respect to which the Production Payment could be paid. Section 1.12 Partial Release and Replacement. Working Interest Owner and Royalty Owner agree that in the event that the Subject Interests located in Taylor County, Texas, are to be sold by Working Interest Owner, Royalty Owner will agree to reconvey to Working Interest Owner its remaining term overriding royalty interest in such Subject Interests in exchange for either (at the election of Royalty Owner) (a) the conveyance to Royalty Owner by Working Interest Owner, upon substantially the same terms as this Conveyance, of a term overriding royalty interest in additional Leases that will serve to replace the Production Payment Hydrocarbons attributable to the Subject Interests being sold, such additional Leases, term overriding royalty interest and all related documents to be satisfactory in form and substance to Royalty Owner in its sole discretion or (b) a reconveyance payment to Royalty Owner, in an amount to be determined by Royalty Owner, and corresponding reductions in the Aggregate Quantity and Scheduled Quantities as evidenced by a duly executed amendment to this Conveyance, such reconveyance payment, such reductions and such amendment to be satisfactory in form and substance to Royalty Owner. ARTICLE II DEFINITIONS Section 2.1 Definitions. As used herein and in the exhibits hereto, the following terms have the respective meanings ascribed to them below: "Adjustment Quantity" means, during each Month, the quantity of Oil determined by dividing the Monthly Adjustment Amount as of the commencement of such Month by the Field Price of Oil for such Month. 7 "Affiliate" means, with respect to any Person, any other Person that either directly or indirectly controls or manages, is controlled or managed by or is under common control or management with such first Person. For the purposes hereof, "control" means the right or power to direct the policies of another through management authority, equity ownership, delegated authority, voting rights or otherwise. "Aggregate Quantity" means 90,000 Barrels of Oil. "Bankruptcy Code" means Title 11 of the United States Code,ss.101, ET SEQ., as amended. "Barrel" means 42 United States standard gallons at 60 degrees Fahrenheit. "Business Day" means any day other than a Saturday, a Sunday or a holiday on which national banking associations in the State of Texas are closed. "Calculation Date" has the meaning specified in the definition of "Monthly Adjustment Amount". "Central Time" means Central Standard Time or Central Daylight Savings Time in effect in Dallas, Texas on the date in question. "Credit Agreement" means the Credit Agreement, dated as of the date hereof, among Working Interest Owner, the Parent, the lenders from time to time party thereto, and Petro Capital Energy Credit, LLC, as administrative agent for such lenders, as amended restated, supplemented or otherwise modified from time to time. "Day" means a period of 24 consecutive hours beginning at 9:00 a.m. Central Time, on each calendar day, and "Daily" has the correlative meaning. "Delivery Point" means the meter at each point of delivery of Subject Hydrocarbons into a pipeline or gathering system or other transportation facilities (including vehicles) of a Delivery Point Recipient, or any other point or points mutually agreed to in writing by Working Interest Owner and Royalty Owner. "Delivery Point Charges" means all costs and charges associated with the delivery of the Production Payment Hydrocarbons into the facilities of a Delivery Point Recipient in a condition and at pressures sufficient to satisfy all requirements in the applicable contract with such Delivery Point Recipient, including all gathering, transportation, marketing, treating, compression, dehydration, fuel and handling costs and charges. "Delivery Point Recipient" means, at any time with respect to any Subject Interest, the owner of the gathering system or transporting vehicles immediately downstream of each applicable Delivery Point. "Effective Time" means 9:00 a.m., Central Time, on August 1, 2014. "Field Price" means with respect to Oil the price per Barrel of Oil for each Month that is determined in accordance with Schedule 2. 8 "Gas" means natural gas and other gaseous hydrocarbons, including casinghead gas and the liquid products of gas processing, but excluding condensate and other liquid hydrocarbons removed by conventional mechanical field separation at or near the wellhead. "Hydrocarbons" means Oil and Gas. "Index Rate" means the rate of seventeen percent (17.0%) per annum, calculated on the basis of actual days elapsed and a year of 360 days. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time. "Law" means any statute, law, regulation, ordinance, rule, treaty, judgment, order, decree, permit, concession, franchise, license, agreement or other governmental restriction of the United States or any state or political subdivision thereof, of any Indian nation or tribal authority, or of any foreign country or any department, province or other political subdivision thereof. Any reference to a Law includes any amendment or modification to such Law, and all regulations, rulings, and other Laws promulgated under such Law. "Lease" means (subject to the depth limitations described in Exhibit A) any oil, gas and/or mineral lease described, referred to or identified in the Property Exhibit and any other deed, assignment, order, contract or instrument creating or evidencing ownership of a Subject Interest, in each case as to all lands and depths described in such lease, deed, assignment, order, contract or instrument (or the applicable part or portion of such lands and depths if specifically limited in depth or areal extent in the Property Exhibit), together with any renewal, amendment, ratification or extension of such lease, deed, assignment, order, contract or instrument. This Conveyance will also apply to, and the term "Lease" will include, any new lease to the extent that such new lease covers any interest covered by any oil, gas and/or mineral lease described, referred to or identified in the Property Exhibit if such new lease is acquired by Working Interest Owner or its Affiliates during the term of or within one (1) year after expiration of the predecessor lease (provided that no such new lease will be subject to this Conveyance if such new lease is executed and delivered after the Termination Time). "Lease Use Hydrocarbons" means any Hydrocarbons that are unavoidably lost in the production thereof or that are used by Working Interest Owner or the operator of the Subject Interests or any unit in which the Subject Interests are pooled or unitized in compliance herewith for drilling and production operations conducted prudently and in good faith for the purpose of producing Hydrocarbons from the Subject Interests or from such unit, but only for so long as and to the extent such Hydrocarbons are so used. "Month" means the time period beginning at 9:00 a.m., Central Time, on the first day of each calendar month and ending at 9:00 a.m., Central Time, on the first day of the next succeeding calendar month, and "Monthly" has the correlative meaning. "Monthly Adjustment Amount" means zero dollars as of the Effective Time. As of the commencement of each succeeding Month after the Effective Time (a "Calculation Date"), such term means an amount of dollars equal to the sum of the following: 9 (a) the Monthly Adjustment Amount as of the commencement of the immediately preceding Month, plus (b) any Monthly Deficiency for the immediately preceding Month, minus (c) any Monthly Credit for the immediately preceding Month, plus (d) an amount equal to the notional interest that would accrue at the Index Rate on a principal amount equal to the Monthly Adjustment Amount (if any) as determined as of the end of the immediately preceding Month for the period from and including the first Calculation Date to but not including the first Monthly Settlement Date following such Calculation Date. For a Calculation Date that is the first Day in September, 2014, for example, such notional principal amount would be the Monthly Adjustment Amount as of the end of the preceding Month of August 2014 (i.e., as of 9:00 a.m. on September 1, 2014) and the period for which such notional interest would be calculated would be the period from and including the first Business Day of September 2014 to but not including the last Business Day of September 2014. "Monthly Credit" means for each Month the product obtained by multiplying (a) the aggregate amount, if any, by which the quantity of Production Payment Hydrocarbons actually received by, or sold on behalf of, Royalty Owner during such Month exceeds the Scheduled Quantity for such Month, times (b) the Field Price of Oil for such Month. "Monthly Deficiency" means for each Month the product obtained by multiplying (a) the aggregate amount, if any, by which the quantity of Production Payment Hydrocarbons actually received by, or sold on behalf of, Royalty Owner during such Month is less than the Scheduled Quantity for such Month times (b) the Field Price of Oil for such Month. "Monthly Settlement Date" means, for each Month, the last Business Day of the following Month. The Monthly Settlement Date for production during August 2014 will be the last Business Day of September 2014, and so forth. "Mortgage" means the Second Lien Deed of Trust, Assignment of As-Extracted Collateral, Security Agreement, Fixture Filing and Financing Statement from Working Interest Owner for the benefit of Royalty Owner, dated as of the Closing Date. "Net Revenue Interest" means a percentage share of the Hydrocarbons (and the proceeds thereof) produced and saved from or attributable to a particular Lease, Subject Interest or Subject Well, after deducting all royalties, overriding royalties, non-participating royalties, net profits interests, production payments, and other burdens on or payments out of production, other than the Production Payment itself. "Non-Affiliate" means any Person other than Working Interest Owner and its Affiliates. "Non-Consent Hydrocarbons" means those Hydrocarbons produced from a Subject Interest during the applicable period of recoupment or reimbursement pursuant to a Non-Consent Provision covering that Subject Interest, which Hydrocarbons have been relinquished to the consenting party or participating party under the terms of such Non-Consent Provision as the result of an election by Working Interest Owner not to participate in the particular operation, provided that such 10 election by Working Interest Owner has been made in good faith and as a prudent operator and in compliance with the terms of this Conveyance and any other agreements made in connection herewith by Working Interest Owner and Royalty Owner. "Non-Consent Provision" means a contractual provision contained in an applicable Non-Affiliate third-party operating agreement, unit agreement, contract for development or other similar instrument that is a Permitted Encumbrance, which provision covers so-called non-consent operations or sole benefit operations and provides for relinquishment of production by non-consenting or non-participating parties during a period of recoupment or reimbursement of costs and expenses of the consenting or participating parties. "Oil" means crude oil, condensate and other liquid hydrocarbons, including liquid hydrocarbons removed by conventional mechanical field separation at the wellhead but excluding casinghead gas and the products of gas processing. "Parent" means Baron Energy, Inc., a Nevada corporation. "Parties" means Working Interest Owner and Royalty Owner. "Permitted Encumbrance\" means the following with respect to any Subject Interest: (a) lessors' royalties, overriding royalties, reversionary interests and similar burdens that (i) are of record on the date hereof, (ii) do not at any time reduce the share of production from (or, if pooled or unitized, allocated to) any Lease, unit, formation, or well set forth on the Property Exhibit to which Working Interest Owner is entitled by virtue of its ownership of the Subject Interests (as calculated before giving effect to this Conveyance) below the Warranted Net Revenue Interest Percentage for such Lease, unit, formation, or well, and (iii) do not at any time increase Working Interest Owner's Working Interest in any Lease, unit, formation or well set forth on the Property Exhibit without a corresponding increase in Working Interest Owner's Net Revenue Interest for such Lease, unit, formation or well; (b) operating agreements and unitization, pooling and communitization agreements described in Section 3.1(m) of the Disclosure Schedule to the Purchase and Sale Agreement that (i) are in existence on the date hereof, (ii) do not at any time reduce the share of production from (or, if pooled or unitized, allocated to) any Lease, unit, formation, or well set forth on the Property Exhibit to which Working Interest Owner is entitled by virtue of its ownership of the Subject Interests (as calculated before giving effect to this Conveyance) below the Warranted Net Revenue Interest Percentage for such Lease, unit, formation, or well, and (iii) do not at any time increase Working Interest Owner's Working Interest in any Lease, unit, formation, or well set forth on the Property Exhibit without a corresponding increase in Working Interest Owner's Net Revenue Interest for such Lease, unit, formation, or well; (c) contracts and other matters that (i) specifically affect such Subject Interest, (ii) do not at any time reduce the share of production from (or, if pooled or unitized, allocated to) any Lease, unit, formation, or well set forth on the Property Exhibit to which Working Interest Owner is entitled by virtue of its ownership of the Subject Interests (as calculated before giving effect to this Conveyance) below the Warranted Net Revenue Interest Percentage for such Lease, unit, formation, or well, and (iii) do not at any time increase Working 11 Interest Owner's Working Interest in any Lease, unit, formation, or well set forth on the Property Exhibit without a corresponding increase in Working Interest Owner's Net Revenue Interest for such Lease, unit, formation, or well; (d) Oil sales contracts on normal market terms that provide for an initial term of one year or less or are terminable without penalty upon no more than thirty (30) days' notice to the purchaser or are not binding on the Production Payment; (e) liens for Taxes or governmental assessments that are not yet delinquent or are being contested in good faith by appropriate proceedings which effectively delay any enforcement thereof; (f) materialman's, mechanic's, repairman's, employee's, contractor's, operator's and other similar liens or charges arising by Law or contract in the ordinary course of business to the extent securing current accounts payable (owing with respect to goods or services provided with respect to the Subject Interests) that are not more than 30 days past the invoice or due date, whichever is earlier, unless being contested in good faith by appropriate proceedings which effectively delay any enforcement thereof; (g) easements, rights-of-way, restrictions, servitudes, permits, surface leases and other rights in respect of surface operations that do not interfere materially with the operation, value or use of such Subject Interest or adversely affect the value of the Production Payment; (h) liens and security interests in favor of Royalty Owner; (i) liens and security interests created pursuant to the requirements of the Credit Agreement; (j) liens under any mortgage, pledge or security agreement entered into pursuant to the requirements of any indenture, loan agreement or similar document for borrowed money, provided that liens under any such mortgage, pledge or security agreement are made and accepted expressly subject and subordinate to this Conveyance and the Mortgage; and (k) All other charges, encumbrances, title defects and irregularities (other than liens and security interests) affecting the Subject Interests which taken individually or together: (i) do not reduce the value of the Production Payment or interfere with the operation, value or use of any of the Subject Interests; (ii) do not prevent Working Interest Owner from receiving the unencumbered proceeds of production from any of the Subject Interests or Royalty Interest Owner from receiving Production Payment Hydrocarbons, or the proceeds thereof; (iii) do not reduce the share of production from (or, if pooled or unitized, allocated to) any Lease, unit, formation, or well set forth on Exhibit A to which Working Interest Owner is entitled by virtue of its ownership of the Subject Interest (as calculated before giving effect to this Conveyance) below the Warranted Net Revenue Interest Percentage for such Lease, unit, formation, or well and (iv) do not increase Working Interest Owner's Working Interest in any Lease or unit set forth on Exhibit A without a corresponding increase in Working Interest Owner's Net Revenue Interest for such Lease, unit, formation, or well. 12 "Person" means an individual, corporation, partnership, limited liability company, association, joint stock company, pension fund, trust or trustee thereof, estate or executor thereof, unincorporated organization or joint venture, court or governmental unit or any agency or subdivision thereof, or any other legally recognizable entity. "Production Payment" has the meaning given such term in Section 1.1. "Production Payment Hydrocarbons" means the Subject Hydrocarbons conveyed and assigned to Royalty Owner pursuant to Section 1.1. "Production Payment Percentage" means, with respect to each Subject Interest and the Subject Hydrocarbons produced therefrom (or, to the extent pooled or unitized, allocated thereto), ninety percent (90%) of the Warranted Net Revenue Interest Percentage specified in the Property Exhibit for such Subject Interest. "Property Exhibit" means Exhibit A attached hereto. "Purchase and Sale Agreement" means the Purchase and Sale Agreement dated as of the Closing Date between Working Interest Owner and Royalty Owner. "Retained Interests" means the rights and interests retained by Working Interest Owner in the Subject Interests after conveyance of the Production Payment hereunder, including both the rights and interests in the Subject Interests that are retained by Working Interest Owner during the term of the Production Payment and the entire Subject Interests at any time when the Production Payment has terminated or is otherwise not in effect. "Royalty Owner" refers to Baron Production LLC, a Texas limited liability company, as well as to its successors and assigns hereunder. "Scheduled Quantity" means with respect to each Month the aggregate quantity of Hydrocarbons that is set forth for such Month on Schedule 1. "Subject Hydrocarbons" means the Oil in and under and that may be produced after the Effective Time from (or, to the extent pooled or unitized, allocated to) the Subject Lands that are attributable to the Subject Interests (determined after deducting all royalties, overriding royalties, production payments and similar burdens, excluding only the Production Payment, which both burden the Subject Interests on the date hereof and are reflected in the Warranted Net Revenue Interest Percentages set out on the Property Exhibit). The Subject Hydrocarbons will not be deemed to include any Lease Use Hydrocarbons or Non-Consent Hydrocarbons attributable to the Subject Interests, and no Lease Use Hydrocarbons or Non-Consent Hydrocarbons will be included in the determination of Production Payment Hydrocarbons. "Subject Interests" means: (a) all of the interests set forth in the Property Exhibit in and to the Leases, units and wells described therein and the other property interests (if any) described in the Property Exhibit, limited in each instance to each subject Well described on the Property Exhibit. 13 (b) all other right, title, interest or claim (of every kind and character, whether legal or equitable and whether vested or contingent) of Working Interest Owner in and to (i) any Lease or any such unit or other property interest, (ii) the lands and estates covered by the Leases or by such units and other property interests, and (iii) all other lands and estates now or hereafter pooled, communitized or unitized therewith, or in and to the oil, gas and other minerals that may be produced therefrom or allocated thereto, even though Working Interest Owner's interest be incorrectly or incompletely described in, or omitted from, the Property Exhibit, and (c) all rights, titles and interests of Working Interest Owner in and to, or otherwise derived from, all presently existing or hereafter created oil, gas or mineral unitization, pooling, or communitization agreements, declarations or orders and in and to the properties covered and the units created thereby (including all units formed under orders, rules, regulations, or other official acts of any federal, state, or other authority having jurisdiction, voluntary unitization agreements, designations or declarations, and so-called "working interest units" created under operating agreements or otherwise) relating to the properties described in paragraphs (a) or (b) above in this definition, all as the same may be enlarged from time to time by the discharge of any burdens or by the removal of any charges or encumbrances to which any of the same may be subject on the date hereof, and any and all renewals and extensions of any of the same, but limited in each instance to each Subject Well on the Property Exhibit. "Subject Lands" means all lands described, referred to or identified in the Property Exhibit and all lands subject to each Lease or other property interest that is described in the Property Exhibit, but limited in each instance to each Subject Well on the Property Exhibit. "Subject Wells" means all wells identified in the Property Exhibit. "Taxes" means all ad valorem, property, gathering, transportation, pipeline regulating, gross receipts, severance, production, excise, heating content, carbon, environmental, occupation, sales, use, value added, fuel, franchise, and other taxes and governmental charges and assessments imposed on or as a result of all or any part of the Subject Interests, the Hydrocarbons produced from Subject Interests or the proceeds thereof, the Production Payment, the Production Payment Hydrocarbons or the proceeds thereof, regardless of the point at which or the manner in which or the Person against whom such taxes, charges or assessments are charged, collected, levied or otherwise imposed. Interest, penalties and withholding obligations owing to governmental authorities with respect to any Taxes also constitute Taxes. The only taxes which are not Taxes are federal and state income and franchise taxes imposed on Royalty Owner's income or business generally (provided that "windfall profits" taxes and other taxes imposed on Oil production or the revenues or income therefrom do constitute "Taxes"). "Termination Time" means 9:00 a.m., Central Time, on July 31, 2017, provided that if at such time the Royalty Owner has not received the Aggregate Quantity, the Termination Time will not occur until the time and date that the Royalty Owner shall have received and realized, out of the Production Payment Hydrocarbons, the Aggregate Quantity. "Warranted Net Revenue Interest Percentage" means the percentage set forth on the Property Exhibit indicating Working Interest Owner's claimed Net Revenue 14 Interest in a particular Lease, unit, formation, or well, generally by reference to "Net Revenue Interest," "NRI," "NRI Percentage" or words of similar import. "Warranted Working Interest Percentage" means the percentage set forth on the Property Exhibit indicating Working Interest Owner's claimed Working Interest in a particular Lease, unit, formation, or well, generally by reference to "Working Interest," "WI," "WI Percentage" or words of similar import. "Working Interest" means the interest owned in oil and gas leases, leaseholds, contracts or other oil and gas interests (including leasehold interests, operating rights interests or other cost-bearing interests, and mineral fee or ownership interests) that determines the percentage share of costs borne by the owner of such interest. "Working Interest Owner" refers to Baron Production LLC, a Texas limited liability company, as well as to its successors and assigns hereunder. Section 2.2 Rules of Construction; Monthly and Daily Equivalents; Publications. (a) All references in this Conveyance to articles, sections, subsections and other subdivisions refer to corresponding articles, sections, subsections and other subdivisions of this Conveyance unless expressly provided otherwise. Titles appearing at the beginning of any of such subdivisions are for convenience only, do not constitute part of such subdivisions, and are to be disregarded in construing the language contained in such subdivisions. The words "this Conveyance", this instrument", "herein", "hereof", "hereunder" and words of similar import refer to this Conveyance as a whole and not to any particular subdivision unless expressly so limited. Unless the context otherwise requires, "including" and its grammatical variations mean "including without limitation"; "or" is not exclusive; words in the singular form include the plural and vice versa; words in any gender include all other genders; references herein to any instrument or agreement refer to such instrument or agreement as it may be from time to time amended, restated, or supplemented; and references herein to any Person include such Person's successors and assigns. All references in this Conveyance to exhibits and schedules refer to exhibits and schedules to this Conveyance unless expressly provided otherwise, and the Property Exhibit and all other exhibits and schedules to this Conveyance are hereby incorporated herein by reference and made a part hereof for all purposes. This Conveyance has been drafted with the joint participation of Working Interest Owner and Royalty Owner and is to be construed neither against nor in favor of either Party but rather in accordance with the fair meaning hereof. (b) To the extent that this Conveyance refers to information or data measured or based upon Daily production or deliveries of Hydrocarbons and such information or data is instead provided or available only with respect to Monthly production or deliveries of Hydrocarbons, such Monthly Hydrocarbons will be deemed produced or delivered in equal quantities on each Day during such Month. To the extent that this Conveyance refers to Daily price information for production or deliveries of Hydrocarbons and such information or data is instead provided or available only on a Monthly basis, then such Monthly price information will be deemed to apply on each Day during such Month. 15 (c) To the extent that this Conveyance incorporates prices, rates, adjustments to prices or rates or other information from a specific source or publication and that source or publication for any reason temporarily fails or permanently ceases to publish such information, or ceases publication altogether, or changes the heading or format under which such information is published, or changes the source of information which it publishes under such heading or format, and in any such case this Conveyance does not otherwise specify how to deal with such event, then for so long as such situation continues Royalty Owner will designate, in good faith, a reasonable alternative source for the same or equivalent information and the Parties will thereafter use such designated alternative source. ARTICLE III MISCELLANEOUS Section 3.1 Nature of Production Payment; Intentions of the Parties. This Conveyance is an absolute conveyance of an interest in real property. The Production Payment constitutes a "production payment" as defined in Section 101(42A) of the Bankruptcy Code and referred to in Section 541(b)(4)(B)(i) of the Bankruptcy Code. The Parties intend for the Production Payment to at all times be treated for federal income tax purposes (and for the purpose of any similarly calculated state income or franchise taxes, but for no other purposes) as a mortgage loan (and not a "royalty" or other "economic interest" in Hydrocarbons) within the meaning of the Internal Revenue Code and the regulations and judicial authority relating thereto, and the Parties agree to report the Production Payment accordingly on all applicable tax returns. Nothing in this Conveyance may be construed to constitute either Party (under state Law or for tax purposes) in partnership with the other Party or to constitute an assignment by Working Interest Owner to Royalty Owner of an interest in any tax partnership burdening the Subject Interests. The Production Payment does not include any ownership interest in and to any of the fixtures, structures, equipment or other tangible personal property now or hereafter placed on, or used in connection with, the Subject Interests or any right to conduct operations with any of the foregoing. Section 3.2 Governing Law. THIS CONVEYANCE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCEWITH THE LAWS OF THE STATE OF TEXAS. Section 3.3 Successors and Assigns. The covenants, provisions and conditions contained in this Conveyance are agreed and acknowledged to be covenants running with the land and the respective interests of Working Interest Owner and Royalty Owner and will be binding upon and (subject to the restrictions in Section 1.8) inure to the benefit of Working Interest Owner and Royalty Owner and their respective successors and permitted assigns. Royalty Owner and its successors and assigns may, and nothing contained in this instrument will in any way limit or restrict the right of Royalty Owner, or Royalty Owner's successors and assigns to, sell, convey, assign, mortgage or otherwise transfer the Production Payment or its rights and obligations under this Conveyance in whole or in part. If at any time Royalty Owner, or Royalty Owner's successors and assigns, execute a mortgage, pledge or deed of trust covering all or any part of the Production Payment as security for any obligation, the mortgagee, the pledgee or the trustee therein named or the holder of the obligation secured thereby will be entitled, to the extent such mortgage, pledge or deed of trust so provides, to exercise all of the rights, remedies, powers and privileges herein conferred upon Royalty Owner and to give 16 or withhold all consents herein required or permitted to be obtained from Royalty Owner. All references herein to either Working Interest Owner or Royalty Owner include their respective successors and permitted assigns. Section 3.4 Counterpart Execution. This Conveyance is executed in multiple originals all of which constitute one and the same Conveyance; provided, however, in order to facilitate recording of this Conveyance in the public records of each of the jurisdictions in which the Subject Interests are located (or in each of the jurisdictions adjacent to any offshore Subject Interests), the exhibits attached to a counterpart recorded in a single jurisdiction may contain only those pages (or portions thereof) which apply to Subject Interests that are located in (or are adjacent to) such jurisdiction. Complete counterparts of this Conveyance have been retained by each of the Parties, and a complete counterpart of this Conveyance is recorded in Harrison County, Texas. Section 3.5 Further Assurances. Working Interest Owner will take all such further actions and will execute, acknowledge and deliver all such further documents that may reasonably be requested by Royalty Owner to effectuate this Conveyance or to carry out the purposes of this Conveyance. Section 3.6 No Subordination to Permitted Encumbrance. Certain agreements, contracts and other documents are listed in the Property Exhibit and included in the definition of Permitted Encumbrances. References herein or in the Property Exhibit to Permitted Encumbrances are made solely for the purpose of modifying Working Interest Owner's warranties and representations as to the Subject Interests, and without regard to whether or not any Permitted Encumbrance is valid, subsisting, legal or enforceable or affects or is senior to the Production Payment. Such references are not intended to constitute and do not constitute any express or implied recognition or acknowledgment by any Party as to the validity, legality, enforceability or priority of the same or of any term, provision or condition thereof or the applicability or seniority thereof to the Production Payment and do not revive or ratify the same or create any rights in any third Person. No provision in this Conveyance may be construed as an agreement or expression of intent by Royalty Owner to acquire the Production Payment subject to any unrecorded Permitted Encumbrance. Section 3.7 Partial Invalidity. Except as otherwise expressly stated herein, in the event any term or provision contained in this Conveyance is for any reason held invalid, illegal or unenforceable to any extent by a court or regulatory agency of competent jurisdiction, such term or provision will otherwise remain effective and be enforced, and all other terms and provisions hereof will nevertheless remain effective and will be enforced, to the fullest extent permitted by applicable Law. Section 3.8 Waiver of Jury Trial and Special Damages. EACH PARTY HEREBY RATIFIES AND CONFIRMS ITS WAIVERS OF JURY TRIAL AND SPECIAL DAMAGES MADE IN SECTION 7.9 OF THE PURCHASE AND SALE AGREEMENT. Section 3.9 Consent to Jurisdiction. EACH PARTY HEREBYRATIFIES AND CONFIRMS ITS CONSENT TO AND AGREEMENTS CONCERNING JURISDICTION, FORUM AND VENUE MADE IN SECTION 7.10 OF THE PURCHASE AND SALE AGREEMENT. 17 Section 3.10 Partition. Each Party acknowledges and agrees that neither Party has any right or interest that would permit it to partition any portion of the Subject Interests as against the other Party and each Party hereby waives any such right. Section 3.11 Addresses. The addresses of Royalty Owner and Working Interest Owner are as follows: PCEC Sub 1, LLC 3710 Rawlins Street, Suite 1000 Dallas, TX 75219 Attention: Rosser C. Newton Fax No.: 214-661-7760 Phone No.: (214) 661-7761 Baron Production LLC 300 S. CM Allen Pkwy, Suite 400 San Marcos, Texas 78666 Attention: Lisa P. Hamilton Fax No.: (512) 392-7238 Phone No.: (512) 392-5775 All notices, requests, demands, instructions and other communications required or permitted to be given hereunder must be in writing and must be given as provided in the Purchase and Sale Agreement. Section 3.12 Amendments and Waivers. This Conveyance may not be amended or modified, and no rights hereunder may be waived, except by a written document signed by the Party to be charged with such amendment, modification or waiver. Provisions of this Conveyance that refer to any consent, approval, amendment or waiver by either Party require such consent, approval, amendment or waiver to be in writing. IN WITNESS WHEREOF, Working Interest Owner and Royalty Owner have each executed this Conveyance on the dates set forth in their respective acknowledgments below and Working Interest Owner has delivered this Conveyance to Royalty Owner as the transfer and conveyance to Royalty Owner of a presently vested property interest, to be effective with respect to production of Subject Hydrocarbons as of the Effective Time. [SIGNATURES ON NEXT PAGE] 18 EXECUTED this 28th day of July, 2014, to be effective as of the 28th day of July, 2014. BARON PRODUCTION LLC By: -------------------------------------------- Name: -------------------------------------------- Title: -------------------------------------------- STATE OF TEXAS ss. ss. COUNTY OF _______ ss. This instrument was acknowledged before me on July ___, 2014 by __________________________, the _______________________ of Baron Production LLC, a Texas limited liability company, on behalf of said company. ----------------------------------- Notary Public Printed Name: ---------------------- Seal: 19 PCEC SUB 1, LLC By: -------------------------------------------- Rosser C. Newton Vice President STATE OF TEXAS ss. ss. COUNTY OF DALLAS ss. This instrument was acknowledged before me on July ____, 2014 by Rosser C. Newton, the Vice President of PCEC Sub 1 LLC, a Texas limited liability company, on behalf of said company. ----------------------------------- Notary Public Printed Name: ---------------------- Seal: 20 EXHIBIT A PROPERTY EXHIBIT EAST PEARSALL (STEWART) PROSPECT TRACT 1 - 1985 ACRES Lease 1: Oil and Gas Lease dated August 13, 2009, from Federal Royalty LLC, as General Partner for Federal Royalty Partners, Ltd., as Lessor, to Sien Energy Company, as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 66, page 502, Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of land, more or less, out of the A.B.&M. Survey 5, A-29, the A.B.&M. Survey 7, A-30, the A.B.&M. Survey 9, A-31, the R.H. Adcock Survey 10, A-1341 and the B.S.&F. Survey 1, A-111, Frio County, Texas. Lease 2: Oil and Gas Lease dated March 26, 2009, from Cimarron Texas Minerals, Ltd., as Lessor, to Sien Energy Company, as Lessee, recorded by Memorandum of Oil and Gas Lease dated March 31, 2009 in Volume 67, page 831, Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of land, more or less, being the same land described above in Lease 1. Lease 3: Paid Up Oil and Gas Lease dated March 6, 2009, from Joseph M. Dawson, Jr., as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 504, Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 4: Paid Up Oil and Gas Lease dated March 6, 2009, from Dorothy D. Burlage, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 508, Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 5: Paid Up Oil and Gas Lease dated January 16, 2009, from Hager Oil & Gas, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 512, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 6: Paid Up Oil and Gas Lease dated September 28, 2009, from Bill Bishop, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 528, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 7: Paid Up Oil and Gas Lease dated September 28, 2009, from Robert L. Dow, Jr., as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 524, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. 21 Lease 8: Paid Up Oil and Gas Lease dated September 28, 2009, from Wesley K. Winn, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 517, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 9: Paid Up Oil and Gas Lease dated September 28, 2009, from Tolar N. Hamblen, III, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 67, page 828, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 10: Paid Up Oil and Gas Lease dated September 28, 2009, from Ginger Busboom, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 521, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 11: Paid Up Oil and Gas Lease dated August 24, 2009, from Mark E. McCourt and wife, Susan McCourt, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 536, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 12: Paid Up Oil and Gas Lease dated August 24, 2009, from A.L. Furnace and wife, Pauline Furnace, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 532, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 13: Paid Up Oil and Gas Lease dated August 10, 2009, from Dickerson Resources, Arthur J. Milbarger and Joseph E. Stewart, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 540, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 14: Paid Up Oil and Gas Lease dated March 20, 2009, from Douglas C. Koch, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 544, Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 15: Paid Up Oil and Gas Lease dated March 20, 2009, from Wayne A. Bissett, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 550, Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 16: Paid Up Oil and Gas Lease dated December 3, 2007, from Clarence J. Fraser, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 556, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 17: Paid Up Oil and Gas Lease dated August 12, 2009, from Dorothy L. Hardin, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 559, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. 22 Lease 18: Paid Up Oil and Gas Lease dated August 12, 2009, from Anne L. Madigan, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 563, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 19: Paid Up Oil and Gas Lease dated September 2, 2009, from Jessica Stansell, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 567, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 20: Paid Up Oil and Gas Lease dated March 24, 2009, from Thornton Davis Minerals, L.P., as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 66, page 570, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 21: Paid-Up Oil and Gas Lease dated September 1, 2009, from Stewart Information Services Corporation, as Lessor, to Sien Energy Company, as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 66, page 574, Official Public Records, Frio County, Texas, as amended, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 22: Paid-Up Oil and Gas Lease dated September 2, 2009, from Nathan Weaver, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 70, page 249, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 23: Paid-Up Oil and Gas Lease dated September 2, 2009, from Jesse Walker, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 73, page 621, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 24: Paid-Up Oil and Gas Lease dated March 23, 2011, from Wanda Weaver, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 91, page 773, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. Lease 25: Paid Up Oil and Gas Lease dated June 23, 2011, from Charles McClain, as Receiver for Mineral Interests in Cause No. 11-03-00095CVF, for Nancy Brown et al., as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 92, page 996, Official Public Records, Frio County, Texas, covering 1,985 acres of land, more or less, being the same land described in Lease 1. 23 TRACT 2 - 640 ACRES Lease 1: Paid Up Oil and Gas Lease dated November 6, 2009, from Roxana Kelfer, Individually and as Trustee of the Louis A. Michael Trust, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 68, page 237, Official Public Records, Frio County, Texas, covering 640 acres of land, more or less, out of the E.A. Mudd Survey 8, A-1333, Frio County, Texas. Lease 2: Paid Up Oil and Gas Lease dated November 6, 2009, from Lynn Kendrick, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 68, page 242, Official Public Records, Frio County, Texas, covering 640 acres of land, more or less, out of the E.A. Mudd Survey 8, A-1333, Frio County, Texas, being the same land described in Lease 1. Lease 3: Paid Up Oil and Gas Lease dated November 6, 2009, from Caroline J. Wanke, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 68, page 247, Official Public Records, Frio County, Texas, covering 640 acres of land, more or less, out of the E.A. Mudd Survey 8, A-1333, Frio County, Texas, being the same land described in Lease 1. Lease 4: Paid Up Oil and Gas Lease dated November 6, 2009, from Diana Morawski, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 68, page 251, Official Public Records, Frio County, Texas, covering 640 acres of land, more or less, out of the E.A. Mudd Survey 8, A-1333, Frio County, Texas, being the same land described in Lease 1. Lease 5: Paid Up Oil and Gas Lease dated November 6, 2009, from Claudia Davis, as Lessor, to Sien Energy Company, as Lessee, recorded in Volume 68, page 255, Official Public Records, Frio County, Texas, covering 640 acres of land, more or less, out of the E.A. Mudd Survey 8, A-1333, Frio County, Texas, being the same land described in Lease 1. INSOFAR AS, AND ONLY INSOFAR AS, THE LEASES DESCRIBED ABOVE COVER THE FOLLOWING WELLS: Wells WI NRI ----- -- --- Ricochet - Stewart No. 1 Well 89.100000% 66.825000% (API #42-163-33411 / RRC ID #15635) Ricochet - Stewart No. 2 Well 89.100000% 66.825000% (API #42-163-33455 / RRC ID #15635) Ricochet - Stewart-Michael Unit No. 1 Well 89.100000% 66.907685% (API #42-163-33535 / RRC ID #16563) Ricochet - Stewart-Michael No. 2H Unit Well 89.100000% 66.825000% (API #42-163-33550 / RRC ID #16379) Ricochet - Stewart No. 4RE Well 95.466809% 71.600107% (API #42-163-33585 / RRC ID #17349) 24 BREAZEALE PROSPECT (NEAL TRUST UNIT) Lease 1: Paid Up Oil and Gas Lease dated July 25, 2011, from Iven A. Neal and Ruby Neal, as Trustees of the Iven A. Neal and Ruby Neal Living Trust, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 95, page 113, Official Public Records, Frio County, Texas, insofar as and only insofar as said lease covers 148.37 acres of land, more or less, out of the B.S.&F. Survey No. 3, A-112, Frio County, Texas, being the lands pooled in the Ricochet Energy, Inc. - Neal Trust No. 1H Unit as described in a Declaration of Unit dated October 10, 2012, recorded in Volume 122, page 855, Official Records, Frio County, Texas. Lease 2: Paid Up Oil and Gas Lease dated July 25, 2011, from James P. Neal and Coleen F. Neal, as Trustees of the James P. Neal and Coleen F. Neal Living Trust, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 95, page 110, Official Public Records, Frio County, Texas, insofar as and only insofar as said lease covers 148.37 acres of land, more or less, out of the B.S.&F. Survey No. 3, A-112, Frio County, Texas, being the lands pooled in the Ricochet Energy, Inc. - Neal Trust No. 1H Unit as described in a Declaration of Unit dated October 10, 2012, recorded in Volume 122, page 855, Official Records, Frio County, Texas, and being the same land described in Lease 1. Lease 3: Oil and Gas Lease dated July 18, 2011, from Providence Minerals, LLC, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 95, page 116, Official Public Records, Frio County, Texas, insofar as and only insofar as said lease covers 127.9 acres of land, more or less, out of the B.S.&F. Survey No. 3, A-112, Frio County, Texas, being the lands pooled in the Ricochet Energy, Inc. - Neal Trust No. 1H Unit as described in a Declaration of Unit dated October 10, 2012, recorded in Volume 122, page 855, Official Records, Frio County, Texas, and being part of the same land described in Lease 1. Lease 4: Oil and Gas Lease dated August 16, 2011, from Texas Osage Royalty Pool, Inc., as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 95, page 819, Official Public Records, Frio County, Texas, insofar as and only insofar as said lease covers 127.9 acres of land, more or less, out of the B.S.&F. Survey No. 3, A-112, Frio County, Texas, being the lands pooled in the Ricochet Energy, Inc. - Neal Trust No. 1H Unit as described in a Declaration of Unit dated October 10, 2012, recorded in Volume 122, page 855, Official Records, Frio County, Texas, and being part of the same land described in Lease 1. Lease 5: Paid Up Oil and Gas Lease dated September 30, 2011, from Vicki Lee Gates and Sherri Lynn Tope, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 99, page 37, Official Public Records, Frio County, Texas, insofar as and only insofar as said lease covers 65.59 acres of land, more or less, out of the B.S.&F. Survey No. 3, A-112, Frio County, Texas, being the lands pooled in the Ricochet Energy, Inc. - Neal Trust No. 1H Unit as described in a Declaration of Unit dated October 10, 2012, recorded in Volume 122, page 855, Official Records, Frio County, Texas. Lease 6: Paid Up Oil and Gas Lease dated October 14, 2011, from The Collis and Lucille Woodward Family Trust dated August 29, 1990, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in 25 Volume 100, page 20, Official Public Records, Frio County, Texas, insofar as and only insofar as said lease covers 88.02 acres of land, more or less, out of the Frio County School Land League No. 1, A-310, Frio County, Texas, being the lands pooled in the Ricochet Energy, Inc. - Neal Trust No. 1H Unit as described in a Declaration of Unit dated October 10, 2012, recorded in Volume 122, page 855, Official Records, Frio County, Texas. Lease 7: Paid Up Oil and Gas Lease dated October 14, 2011, from The Clyde E. and Valerie V. Woodward Family Trust dated November 12, 1996, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Paid Up Oil and Gas Lease in Volume 100, page 18, Official Public Records, Frio County, Texas, insofar as and only insofar as said lease covers 88.02 acres of land, more or less, out of the Frio County School Land League No. 1, A-310, Frio County, Texas, being the lands pooled in the Ricochet Energy, Inc. - Neal Trust No. 1H Unit as described in a Declaration of Unit dated October 10, 2012, recorded in Volume 122, page 855, Official Records, Frio County, Texas, and being the same land described in Lease 6. INSOFAR AS, AND ONLY INSOFAR AS, THE LEASES DESCRIBED ABOVE COVER THE FOLLOWING WELL: Wells WI NRI ----- -- --- Ricochet - Neal Trust No. 1H Unit Well 100.000% 75.000% (API #42-163-33643 / RRC ID #17593) FRIO AUSTIN CHALK PROSPECT (CULPEPPER AREA) JANE T. CULPEPPER ET AL., LEASES Lease 1: Oil and Gas Lease dated January 18, 2010, from Jane Culpepper, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 70, page 672, Official Public Records, Frio County, Texas, as amended by Amendment of Oil and Gas Lease recorded in Volume 73, page 441, Official Public Records, Frio County, Texas, covering 718 acres of land, more or less, out of the J. E. Roberts Survey No. 4, A-903, the L.I.M. & C. Co. Survey No. 112, A-754 and the B.S. & F Survey No. 3, A-109, Frio County, Texas. Lease 2: Oil and Gas Lease dated January 18, 2010, from John Culpepper, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 70, page 675, Official Public Records, Frio County, Texas, as amended by Amendment of Oil and Gas Lease recorded in Volume 73, page 444, Official Public Records, Frio County, Texas, covering 593 acres of land, more or less, being a portion of the same land described above in Lease 1. Lease 3: Oil and Gas Lease dated January 18, 2010, from Jim Culpepper, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 70, page 678, Official Public Records, Frio County, Texas, as amended by Amendment of Oil and Gas Lease recorded in Volume 73, page 446, Official Public Records, Frio County, Texas, covering 593 acres of land, more or less, being a portion of the same land described above in Lease 1. 26 Lease 4: Oil and Gas Lease dated January 18, 2010, from Bill Culpepper, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 70, page 681, Official Public Records, Frio County, Texas, as amended by Amendment of Oil and Gas Lease recorded in Volume 73, page 448, Official Public Records, Frio County, Texas, covering 593 acres of land, more or less, being a portion of the same land described above in Lease 1. Lease 5: Oil and Gas Lease dated January 18, 2010, from Nancy C. Flores, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 70, page 684, Official Public Records, Frio County, Texas, as amended by Amendment of Oil and Gas Lease recorded in Volume 73, page 450, Official Public Records, Frio County, Texas, covering 593 acres of land, more or less, being a portion of the same land described above in Lease 1. INSOFAR AS, AND ONLY INSOFAR AS, THE LEASES DESCRIBED ABOVE COVER THE FOLLOWING WELLS: Wells WI NRI ----- -- --- Ricochet - Culpepper No. 1H Unit Well 100.000% 80.000% (API #42-163-33480 / RRC ID #16214) Ricochet - Culpepper No. 2H Unit Well 100.000% 80.000% (API #42-163-33494 / RRC ID #16115) JAMES W. CULPEPPER ET AL., LEASES - (3C LEASES) Lease 1: Oil and Gas Lease dated February 3, 2010, from James Culpepper and wife, Kat Saunders, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 70, page 765, Official Public Records, Frio County, Texas, covering 657.28 acres of land, more or less, out of the J. E. Roberts Survey No. 2, A-904 and the James Cummings Survey No. 105, A-269, Frio County, Texas. Lease 2: Oil and Gas Lease dated February 3, 2010, from John Culpepper and wife, Andrea M. Culpepper, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 70, page 770, Official Public Records, Frio County, Texas, covering 657.28 acres of land, more or less, being the same land described above in Lease 1. Lease 3: Oil and Gas Lease dated February 3, 2010, from Joe Culpepper, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded in Volume 75, page 590, Official Public Records, Frio County, Texas, covering 104.14 acres of land, more or less, out of the J. E. Roberts Survey No. 2, A-904 and the James Cummings 27 Survey No. 105, A-269, Frio County, Texas, being a portion of the same land described above in Lease 1. Lease 4: Oil and Gas Lease dated October 31, 2010, from Tommy J. Muston and wife, Deborah A. Muston, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 83, page 692, Official Public Records, Frio County, Texas, covering 224.14 acres of land, more or less, out of the J. E. Roberts Survey No. 2, A-904 and the J. E. Roberts Survey No. 6, A-905, Frio County, Texas, being a portion of the same land described above in Lease 1. INSOFAR AS, AND ONLY INSOFAR AS, THE LEASES DESCRIBED ABOVE COVER THE FOLLOWING WELLS: Wells WI NRI ----- -- --- Ricochet - 3C No. 1H Unit Well 100.000% 79.715823% (API #42-163-33508 / RRC ID #16225) Ricochet - 3C No. 2H Unit Well 100.000% 79.715823% (API #42-163-33563 / RRC ID #16225) KOTZEBUE LEASE Oil and Gas Lease dated August 26, 2010, from David W. Kotzebue and wife, Deborah R. Kotzebue, as Lessor, to Ricochet Energy, Inc., as Lessee, recorded by Memorandum of Oil and Gas Lease in Volume 79, page 752, Official Public Records, Frio County, Texas, originally covering 527.33 acres of land, more or less, out of the J. E. Roberts Survey No. 4, A-903, Frio County, Texas, insofar as and only insofar as said lease covers 400 acres of land, more or less, being the retained acreage allocated to the Kotzebue No. 1 Well, as described in that certain Partial Release of Oil and Gas Lease and Designation of Well Tract dated effective January 1, 2014, executed by Ricochet Energy, Inc. et al., recorded in Volume 150, page 793, Official Public Records, Frio County, Texas. INSOFAR AS, AND ONLY INSOFAR AS, THE LEASE DESCRIBED ABOVE COVERS THE FOLLOWING WELL: Wells WI NRI ----- -- --- Ricochet - Kotzebue No. 1 Well 100.000% 75.000% (API #42-163-33589 / RRC ID #17063) EXPRESS RE-ENTRY PROSPECTS CANTU-HENDERSON UNIT Ricochet Energy, Inc. - Cantu-Henderson No. 1H Unit, being the pooled unit of 495.17 acres out of the J. Poitevent Survey No. 5, A-559 and the R.M. Harkness Survey No. 6, A-890, Frio County, Texas, as more particularly described in that certain Declaration of Unit dated September 24, 2010, executed by Ricochet Energy, Inc., recorded in Volume 81, page 174, Official Public Records, Frio County, Texas, pooling the acreage covered by the following described leases. Lease 1: Oil, Gas and Mineral Lease dated September 17, 2008, from Herlinda G. Cantu, as Lessor, to Express Oil & Gas, as Lessee, recorded in Volume 57, page 798, Official Public Records, Frio County, Texas, (and also recorded by Memorandum of Oil and Gas Lease in Volume 57, page 796, Official Public Records, 28 Frio County, Texas), as amended, covering 177.45 acres, more or less, out of the J. Poitevent Survey No. 5, A-559, Frio County, Texas, all of the 177.45 acres covered by said lease, as more particularly described therein, being included in this unit. Lease 2: Oil, Gas and Mineral Lease dated October 28, 2008, from Winfred Henderson and wife, Alice A. Henderson, as Lessor, to Express Oil & Gas, Co., as Lessee, recorded in Volume 60, page 193, Official Public Records, Frio County, Texas, covering 317.72 acres, more or less, out of the R. M. Harkness Survey No. 6, A-890 in Frio County, Texas and A-1014 in LaSalle County, Texas, all of the 317.72 acres covered by said lease, as more particularly described therein, being included in this unit. Lease 3: Oil, Gas and Mineral Lease dated October 28, 2008, from Jimmy Henderson, as Lessor, to Express Oil & Gas, Co., as Lessee, recorded in Volume 60, page 200, Official Public Records, Frio County, Texas, covering 317.72 acres, more or less, out of the R. M. Harkness Survey No. 6, A-890 in Frio County, Texas and A-1014 in LaSalle County, Texas, all of the 317.72 acres covered by said lease, comprising the same lands described above in Lease 2, being included in this unit. Lease 4: Oil, Gas and Mineral Lease dated October 28, 2008, from Selfa A. Garza, joined pro forma by her husband, Tino Garza, as Lessor, to Express Oil & Gas, Co., as Lessee, recorded in Volume 60, page 180, Official Public Records, Frio County, Texas, as ratified and amended, covering 317.72 acres, more or less, out of the R. M. Harkness Survey No. 6, A-890 in Frio County, Texas and A-1014 in LaSalle County, Texas, all of the 317.72 acres covered by said lease, comprising the same lands described above in Lease 2, being included in this unit. Lease 5: Oil, Gas and Mineral Lease dated November 17, 2008, from Linda Green, joined pro forma by her husband, Ken Green, as Lessor, to Express Oil & Gas, Co., as Lessee, recorded in Volume 60, page 173, Official Public Records, Frio County, Texas, covering 317.72 acres, more or less, out of the R. M. Harkness Survey No. 6, A-890 in Frio County, Texas and A-1014 in LaSalle County, Texas, all of the 317.72 acres covered by said lease, comprising the same lands described above in Lease 2, being included in this unit. Lease 6: Oil, Gas and Mineral Lease dated November 17, 2008, from Larry Myrick, as Lessor, to Express Oil & Gas, Co., as Lessee, recorded in Volume 60, page 187, Official Public Records, Frio County, Texas, covering 317.72 acres, more or less, out of the R. M. Harkness Survey No. 6, A-890 in Frio County, Texas and A-1014 in LaSalle County, Texas, all of the 317.72 acres covered by said lease, comprising the same lands described above in Lease 2, being included in this unit. Lease 7: Oil, Gas and Mineral Lease dated July 10, 2009, from Donna Myrick, as Lessor, to Express Oil & Gas, as Lessee, recorded by Memorandum of Oil, Gas and Mineral Lease in Volume 63, page 76, Official Public Records, Frio County, Texas, covering 317.72 acres, more or less, out of the R. M. Harkness Survey No. 6, A-890 in Frio County, Texas and A-1014 in LaSalle County, Texas, all of the 317.72 acres covered by said lease, comprising the same lands described above in Lease 2, being included in this unit. 29 Lease 8: Oil, Gas and Mineral Lease dated November 17, 2008, from Janice Hemphill, as Lessor, to Express Oil & Gas, Co., as Lessee, recorded in Volume 63, page 70, Official Public Records, Frio County, Texas, covering 317.72 acres, more or less, out of the R. M. Harkness Survey No. 6, A-890 in Frio County, Texas and A-1014 in LaSalle County, Texas, all of the 317.72 acres covered by said lease, comprising the same lands described above in Lease 2, being included in this unit. INSOFAR AS, AND ONLY INSOFAR AS, THE LEASES DESCRIBED ABOVE COVER THE FOLLOWING WELL: Wells WI NRI ----- -- --- Ricochet - Cantu-Henderson No. 1H Unit Well 100.000% 77.042448% (API #42-163-33426 / RRC ID #12392) HARRIS LEASE Oil, Gas and Mineral Lease dated January 13, 1976, from William Donald Harris and wife, Mary Ann Harris, as Lessor, to Charles R. Stubblefield, as Lessee, recorded in Volume 342, page 485, Deed Records, Frio County, Texas, covering 735.00 acres, more or less, out of the William Webber Survey, A-668 and the G.B. Pilant Survey, A-540, Frio County, Texas, insofar as and only insofar as said lease covers 281.4 acres of land, more or less, around the Ricochet Energy, Inc. - Harris No. 2 and Harris No. 3 Wells (but expressly excluding the well and wellbore for the Express Oil & Gas - Harris #4 Well [API # 42-163-32691]) in Frio County, Texas. INSOFAR AS, AND ONLY INSOFAR AS, THE LEASE DESCRIBED ABOVE COVERS THE FOLLOWING WELLS: Wells WI NRI ----- -- --- Ricochet - Harris No. 2 Well 90.000% 67.500% (API #42-163-32604 / RRC ID #15063) Ricochet - Harris No. 3 Well 90.000% 67.500% (API #42-163-32647 / RRC ID #15063) W.S. SHAFFER AND W.S. SHAFFER -B- LEASES Oil, Gas and Mineral Lease dated September 9, 1958, from W.S. Shaffer and wife, E.S. Shaffer, as Lessors to J.R. McLean, as Lessee, recorded in Volume 574, page 186, Deed Records, Taylor County, Texas, covering the following tracts: Tract 1 Being 314.80 acres of land situated in Taylor County, Texas, and being the North Half of Survey No. 12, Certificate No. 17/368, Block No. 3, S. P. RR Company Lands, and being the same land described by metes and bounds in a Patent from 30 the State of Texas to J. L. Pierce, dated April 12, 1951, recorded in Volume G-2, Page 143, of the Patent Records of Taylor County, Texas. Tract 2 Being 167.5 acres, more or less, out of Survey No. 6, Certificate No. 4508, G. C. & S. RR Company Lands in Taylor County, Texas being described as follows, to-wit: BEGINNING at the Northwest corner S. F. 15185, W. S. Shaffer Survey No. 1; THENCE South 15(degree)East with the West line S.F. 15185, 2,293 varas, to fence; THENCE in a westerly direction with said fence to an inner corner of said G. C. & S. RR Company Survey No. 6; THENCE North 15(degree)West with a west line of said G. C. & S. RR Company Survey No. 6, 2,152.2 varas to the South line of a tract owned by Sayles; THENCE North 75o 25' East 425.6 varas with a fence to the place of beginning. INSOFAR AS, AND ONLY INSOFAR AS, THE LEASE DESCRIBED ABOVE COVERS THE FOLLOWING WELLS: Wells WI NRI ----- -- --- Baron - W.S. Shaffer -B- #3 75.000% 56.250% (API #42-441-81191 / RRC ID #11127) Baron - W.S. Shaffer -B- #4 75.000% 56.250% (API #42-441-81192 / RRC ID #11127) W.S. SHAFFER -C- LEASE Oil, Gas and Mineral Lease dated April 30, 1970, from M.C. Shaffer, et al, as Lessors to J.D. Tompkins, as Lessee, recorded in Volume 880, page 501, Deed Records, Taylor County, Texas, covering all of the W.S. Shaffer Survey No. 1, S.F. 15185, Patented to W.S. Shaffer by the State of Texas on June 11, 1951, by Patent No. 475, Volume 17-B, and containing 136.55 acres, more or less. INSOFAR AS, AND ONLY INSOFAR, AS THE LEASE DESCRIBED ABOVE COVERS THE FOLLOWING WELL: Wells WI NRI ----- -- --- Baron - W.S. Shaffer -C- #1 75.000% 56.250% (API #42-441-30235 / RRC ID #11495) 31 SCHEDULE 1 SCHEDULED QUANTITIES (IN BARRELS) VPP Delivery Period VPP Scheduled Quantities, in Barrels ------------------- ------------------------------------ August 2014 2,500 September 2014 2,500 October 2014 2,500 November 2014 2,500 December 2014 2,500 January 2015 2,500 February 2015 2,500 March 2015 2,500 April 2015 2,500 May 2015 2,500 June 2015 2,500 July 2015 2,500 August 2015 2,500 September 2015 2,500 October 2015 2,500 November 2015 2,500 December 2015 2,500 January 2016 2,500 February 2016 2,500 March 2016 2,500 April 2016 2,500 May 2016 2,500 June 2016 2,500 July 2016 2,500 32 VPP Delivery Period VPP Scheduled Quantities, in Barrels ------------------- ------------------------------------ August 2016 2,500 September 2016 2,500 October 2016 2,500 November 2016 2,500 December 2016 2,500 January 2017 2,500 February 2017 2,500 March 2017 2,500 April 2017 2,500 May 2017 2,500 June 2017 2,500 July 2017 2,500 33 SCHEDULE 2 FIELD PRICE FOR OIL The "Field Price" of Oil for each Month means the final settlement price per Barrel on the date of expiry of the applicable West Texas Intermediate Crude Oil Futures Contract for Cushing, Oklahoma Delivery traded on the New York Mercantile Exchange for such Month. For example, the Field Price for the Month of September 2014 will be the final settlement price on August 21, 2014 of the contract that expires on August 30, 2014 34

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BROE Baron Energy Inc (CE)