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EXHIBIT “_____” MEMORANDUM OF OPERATING AGREEMENT AND FINANCING STATEMENT (FORM 2) THE STATE OF _______________________ COUNTY/PARISH OF __________________ This Agreement is executed to evidence that the undersigned parties have on the effe ctive date provided below, entered into a Joint Operating Agreement, in which _____, as Operator, and the undersigned party, as Non-operator, have made certain agreements for oil and gas exploration and development on lands described in Exhibit “A” attached to this Agreement and referred to in the Joint Operating Agreement as the Contract Area. The Joint Operating Agreement provides for the creation of liens and security interests on the interests of the parties to it, and each party to this Agreement grants to the other party, a lien on and security interest in its interest in the lands and leases described in Exhi bit “A,” (and the lands and leases acquired by the parties pursuant to the Joint Operating Agreement) in accordance with the terms of the following provisions as set forth in the Operating Agreement: ARTICLE VII EXPENDITURES AND LIABILITY OF PARTIES B. Liens and Payment Defaults: 1. Each Non-operator grants to Operator a lien on its oil and gas rights in the Contra ct Area, and a security interest in its share of oil and/or gas when extracted and its interest in all equipment, to secure payment of its share of expense, together with interest on those amounts, at the rate provided in Exhibit “C.” To the extent tha t Operator has a security interest under the Uniform Commercial Code of the State, Operator shall be entitled to exercise the rights and remedies of a secured party unde r the Code. The bringing of a suit and the obtaining of judgment by Operator for the secured indebtedness shall not be deemed an election of remedies or otherwise affe ct the lien rights or security interest as security for all payments. In addition, on defaul t by a Non-operator in the payment of its share of expense, Operator shall have the right, without prejudice to other rights or remedies, to collect from the purchaser the proceeds from the sale of the Non-operator's share of oil and/or gas until the amount owed by that Non-operator, plus interest, has been paid. Each purchaser shall be entitled to rely on Operator's written statement concerning the amount of any default . Operator grants a like lien and security interest to the Non-operators to secure payment of Operator's proportionate share of expense. 2. If any party fails or is unable to pay its share of expense within sixty (60) days after rendition of a statement of them by Operator, the non-defaulting parties, including Operator, shall, on request by Operator, pay the unpaid amount in the proportionate that the interest of each party bears to the interest of all parties. Each party so paying its share of the unpaid amount shall, to obtain reimbursement, be subrogated to the security rights described in the foregoing paragraph. 3. If any party (“defaulting party”) fails at any time to pay Operator its proportionat e share of an advance bill within fifteen (15) days as provided in said Article VII.C., then Operator shall have the right at any time after fifteen (15) days after t he default to bill the defaulting party for its share of the total cost of the operation as det ermined by the AFE for the operation. In that event, credit shall be given for the amount of any previous advance billings paid by the defaulting party. If Operator proceeds in accordance with this paragraph, defaulting party's payment of its share of estimated expenses shall in no event be deemed a limitation on its liability for its sha re of actual costs in the event actual costs of operations exceed the estimated expenses paid by the defaulting party. If actual costs of operations are less than the amount paid by the defaulting party, an adjustment shall be made by payment to the defaulting party as soon as actual costs have been determined. 4. If the Operator shall invoice a defaulting party for its share of total costs pursuant t o the preceding paragraph and defaulting party fails to pay those costs within thirty (30) days after receipt of invoice, the Operator shall have the option at any time the reafter to do any of the following, on written notice to the party of the option selected: a. Pay the defaulting party's share of all further costs incurred in connection with the operation and seek by appropriate legal action to recover the costs, together with interest at the rate provided for in the Accounting Procedure, and reasonable costs and attorney's fees. In this event the Operator shall have all the lien rights provided for in this Article VII.B. b. Pay the defaulting party's share of all further costs incurred for the operation and recover from the defaulting party's share of the proceeds from the sale of production from the Contract Area, after deducting gross production taxes, severance taxes, and other similar taxes and operating costs, and all lease burdens, _____ hundred percent (_____%) of all costs advanced for and on behalf of the defaulting party. c. If the operation as to which the default has occurred is the drilling, reworking, deepening, plugging back, or completing a well and the defaulting party has previously elected to participate in the operation but has paid less than 25% of it s share of the costs or expenses with respect to the operation on the well, then Operator may elect to declare a forfeiture of the defaulting party's interest by giving notice to that effect to the defaulting party. After that time, the defa ulting party shall have fifteen (15) days to pay in full all sums due to avoid forfeiture. If those sums are not paid by the defaulting party within the fifteen (15) days period, the party shall have no further right or interest in the well, the equipment on or in it, or the production from it. Further, the defaulting party shall, on demand by Operator, assign to Operator and all other parties who have paid a portion of the defaulting party's obligation, all of defaulting party's interest in the Contract Area insofar and only insofar as the same pertains to the well and the production from it, but otherwise the defaulting party's leasehold interest in the Contract Area shal l remain unchanged. If the defaulting party has paid more than 25% of the costs of the operation, Operator shall have the right to forfeit the defaulting party's interest as provided above, except that the defaulting party shall have thirty (30) days after notice of default in which to pay in full all sums due to redeem the forfeited property. 5. If Operator pays a defaulting party's share of any costs or expenses pursuant to Article VII.B.4, all other parties to this Agreement shall, on being billed by Operator, contribute their proportionate share of all sums advanced by Operator for and on behalf of the defaulting party. The contributing parties shall, in addition to any other right they may have, receive a share of any interest in the Contract Area forfeited by the defaulting party as well as any percentage penalty recoupment from the defaulti ng party. The share for each contributing party shall be in proportion to its contribution. 6. These provisions shall apply equally for the benefit of the Non-operator(s) in the event Operator fails to pay its share of the costs of an operation or fails to pay the costs after receipt of Non-operator's share. 7. If a defaulting party remains in default for more than thirty (30) days, Operator or any non-defaulting party who has paid a portion of defaulting party's obligation may elect to proceed to foreclose the lien granted in this Article VII by non-judicial sale under the laws of the state in which the Contract Area is located. The Operator is appointed as Trustee for that purpose. The Trustee shall proceed with the non-judicial sale of the interest of the defaulting party which is subject to the lien granted in acc ordance with the requirements of the laws of the state in which the Contract Area is loca ted. In the absence of requirements to the contrary, the Trustee shall at least twenty-one (21) days preceding the date of non-judicial sale serve written notice of the proposed sale by certified mail on the defaulting party. Service of this notice shall be deemed completed on deposit in a post office or the official depository under the care and custody of the United States Postal Service of a notice enclosed in a postpaid wrapper properly addressed to the defaulting party and each other party obligated to pay the obligation at the most recent address or addresses as shown on the records of Operator and certified by the United States Postal Service. The affidavit of any person having knowledge of the facts to the effect that this service was completed shall be prima facie evidence of the facts of service. After the notice, the Trustee shall proceed to sell all of the oil and gas rights of the defaulting party in the Contract Area and its share of oil and/or gas when extracted from it and its interest in al l equipment on or in the Contract Area at public auction to the highest bidder for cash after having given notice of the time and place of sale and in the manner and aft er the advertisement of the sale as is now required by the statutes of the state where the Contract Area is located in making sales of real estate under deeds of trust. T he sale of part of the interests or properties will not exhaust the power of sale and sales ma y be made time to time until all of the property is sold or the obligations paid in full. The Trustee shall have authority to appoint an attorney-in-fact to act as Trustee in conducting the foreclosure sale and executing a deed to the purchasers; and it is further agreed that the Trustee or its successor may sell the property together or in parcels as to it shall seem expedient and after the sales shall make, exec ute, and deliver to the purchaser or purchasers good and sufficient deeds, assignments, or other lawful conveyances to vest in the purchaser or purchasers title to the interest of the defaulting party in fee simple together with all of the equipment on or in it, and proceeds of production attributable to it, including proceeds of production held by any party for the payment or the defaulting party. From the proceeds of the sale the Trustee shall first pay all charges, cost, and expenses in executing these provisions, and secondly, pay any sums due by the Trustee for taxes in the preservation of the security, and then pay all of the remaining sums to Operator or non-defaulting parties for the satisfaction of the debts of the defaulting party (including reimbursement to all non-defaulting parties who paid their share of the debt) and the balance, if any, shall be paid to the defaulting party. It is agreed that a sale shall be a perpetual bar against the defaulting party and its heirs, successors, and assigns, and legal representatives and all other persons claiming under him, them, or any of them. It is further agreed that the Trustee or any holder or holders of the obligation or Operator or non- defaulting parties shall have the right to become the purchaser or purchasers at a sale if the highest bidder or bidders, in which event the bid or bids may be credited on the indebtedness of the defaulting party. It is stipulated and agreed that in case of any sale by the Trustee or his or its successor, all prerequisites of the sale shall be presumed to have been performed, and that in any conveyance given, all statements of fact as to default under the terms of this Agreement, or as to the request of the Trustee to enforce this trust, or as to the proper and due appointment of any successor or substitute Trustee, or as to the advertisement of sale, or the time, place, and terms of the sale, or as to any other preliminary act or thing, shall be taken in all c ourts of law an equity as prima facie evidence that the facts so stated are true. Ope rator may appoint a substitute or successor Trustee in the event the Trustee named above is unable for any reason to serve. If the Operator fails or refuses to act as Trustee or is disqualified to act as Trustee because it is a defaulting party, a majority in interest of the remaining non-defaulting parties who have paid a portion of the defaulting party's obligation may appoint a substitute Trustee to act in place of Operator as Trustee. The name and address of each of the parties to the Joint Operating Agreement, each of whom is both a debtor and secured party under the terms of the above security provisions, are: An executed copy of the Joint Operating Agreement with all exhibits attached to it is on file in the offices of _____. This instrument may be executed in any number of counterpart s, no one of which needs to be executed by all parties. Each executed counterpart shall be binding on the party executing it as fully as if all parties executed one instrument, and each counterpart may be recorded separately or may be combined to form one instrument for recording purposes. Failure of any party to the Joint Operating Agreement to execute this instrument shal l not render it ineffective as to any party which does execute it. This Memorandum of Joint Operating Agreement and Financing Statement is executed by each party as of the date of the acknowledgment of their signature, but is effective as of the effective date of the Joint Operating Agreement referred to in this Memorandum. OPERATOR: NON - OPERATORS: (acknowledgments) [Exhibit “A”: Description of Lands and Leases in the Contract Area.