-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LSqPf1TVNF90yI3ikgDXZ6ytK3poCC6dTLrLEb+ludBNZT14fJOmY4praEv/qXGw VmYPr/GXHNwDL8j28Vr06w== 0000950134-99-008690.txt : 19991018 0000950134-99-008690.hdr.sgml : 19991018 ACCESSION NUMBER: 0000950134-99-008690 CONFORMED SUBMISSION TYPE: 10-12G/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19991005 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLUE RIDGE ENERGY INC CENTRAL INDEX KEY: 0001050957 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] FILING VALUES: FORM TYPE: 10-12G/A SEC ACT: SEC FILE NUMBER: 000-27443 FILM NUMBER: 99722866 BUSINESS ADDRESS: STREET 1: 632 ADAMS STREET STREET 2: SUITE 710 CITY: BOWLING GREEN STATE: KY ZIP: 42101 BUSINESS PHONE: 8007983389 MAIL ADDRESS: STREET 1: 632 ADAMS ST SUITE 710 CITY: BOWLING GREEN STATE: KY ZIP: 42101 10-12G/A 1 AMENDMENT NO. 1 TO FORM 10 PURSUANT TO 12(G) 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Amendment Number 1 to FORM 10-SB GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b) OR 12(g) OF THE SECURITIES ACT OF 1934 BLUE RIDGE ENERGY, INC (Name of Small Business Issuer in Its Charter) NEVADA 61-1306702 (State of Organization) (I.R.S. Employer Identification No.) 632 ADAMS STREET, SUITE 710, BOWLING GREEN, KY 42101 (502) 842-2421 (Address and telephone number of principal executive offices) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock par value $.005 per value. 2 SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the Registrant and in the capacities and on the date indicated. Blue Ridge Energy, Inc. Registrant Date: October 5, 1999 By: /s/ J. THOMAS COOK, JR. ----------------------------------- J. Thomas Cook, Jr. Senior Vice President-Finance and Chief Financial Officer 3 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- (3)(i) Articles of Incorporation of Blue Ridge Energy, Inc. (3)(ii) Bylaws of Blue Ridge Energy, Inc. (10) Material contracts (11) Computation of per share earnings -included in Part F/S
EX-3.I 2 ARTICLES OF INCORPORATION OF BLUE RIDGE ENERGY INC 1 EXHIBIT (3)(i) [STAMP] ARTICLES OF INCORPORATION OF GEM SOURCE, INCORPORATED KNOW ALL MEN BY THESE PRESENTS: That we, the undersigned, have this day voluntarily associated ourselves together for the purpose of forming a Corporation under and pursuant to the laws of the State of Nevada, and we do hereby certify that: ARTICLE I - NAME: The exact name of this corporation is: Gem Source, Incorporated ARTICLE II - RESIDENT AGENT: The Resident Agent of the Corporation is Max C. Tanner, Esq., The Law Offices of Max C. Tanner, 2950 East Flamingo Road, Suite G, Las Vegas, Nevada 89121. ARTICLE III - DURATION: The Corporation shall have perpetual existence. ARTICLE IV - PURPOSES: The purpose, object and nature of the business for which this Corporation is organized are: (a) To engage in any lawful activity; (b) To carry on such business as may be necessary, convenient, or desirable to accomplish the above purposes, and to do all other things incidental thereto which are not forbidden by law or by these Articles of Incorporation. ARTICLE V - POWERS: The powers of the Corporation shall be those powers granted by 78.060 and 78.070 of the Nevada Revised Statutes under which this corporation is formed. In addition, the Corporation shall have the following specific powers: (a) To elect or appoint officers and agents of the Corporation and to fix their compensation; 2 (b) To act as an agent for or any individual, association, partnership, corporation or other legal entity; (c) To receive, acquire, hold, exercise rights arising out of the ownership or possession thereof, sell, or otherwise dispose of, shares or other interests in, or obligations of, individuals, associations, partnerships, corporations, or governments; (d) To receive, acquire, hold, pledge, transfer, or otherwise dispose of shares of the corporation, but such shares may only be purchased, directly or indirectly, out of earned surplus; (e) To make gifts or contributions for the public welfare or for charitable, scientific or educational purposes, and in time of war, to make donations in aid of war activities. ARTICLE VI - CAPITAL STOCK: Section 1. Authorized Shares. The total number of shares which this Corporation is authorized to issue is 25,000,000 shares of Common Stock at $.001 par value per share. Section 2. Voting Rights of Shareholders. Each holder of the Common Stock shall be entitled to one vote for each share of stock standing in his name on the books of the Corporation. Section 3. Consideration for Shares. The Common Stock shall be issued for such consideration, as shall be fixed from time to time by the Board of Directors. In the absence of fraud, the judgment of the Directors as to the value of any property for shares shall be conclusive. When shares are issued upon payment of the consideration fixed by the Board of Directors, such shares shall be taken to be fully paid stock and shall be non-assessable. The Articles shall not be amended in this particular. Section 4. Pre-emptive Rights. Except as may otherwise be provided by the Board of Directors, no holder of any shares of the stock of the Corporation, shall have any preemptive right to purchase, subscribe for, or otherwise acquire any shares of stock of the Corporation of any class now or hereafter authorized, or any securities exchangeable for or convertible into such shares, or any warrants or other instruments evidencing rights or options to subscribe for, purchase, or otherwise acquire such shares. 2 3 Section 5. Stock Rights and Options. The Corporation shall have the power to create and issue rights, warrants, or options entitling the holders thereof to purchase from the corporation any shares of its capital stock of any class or classes, upon such terms and conditions and at such times and prices as the Board of Directors may provide, which terms and conditions shall be incorporated in an instrument or instruments evidencing such rights. In the absence of fraud, the judgment of the Directors as to the adequacy of consideration for the issuance of such rights or options and the sufficiency thereof shall be conclusive. ARTICLE VII - ASSESSMENT OF STOCK: The capital stock of this Corporation, after the amount of the subscription price has been fully paid in, shall not be assessable for any purpose, and no stock issued as fully paid up shall ever be assessable or assessed. The holders of such stock shall not be individually responsible for the debts, contracts, or liabilities of the Corporation and shall not be liable for assessments to restore impairments in the capital of the Corporation. ARTICLE VIII - DIRECTORS: For the management of the business, and for the conduct of the affairs of the Corporation, and for the future definition, limitation, and regulation of the powers of the Corporation and its directors and shareholders, it is further provided: Section 1. Size of Board. The members of the governing board of the Corporation shall be styled directors. The number of directors of the Corporation, their qualifications, terms of office, manner of election, time and place of meeting, and powers and duties shall be such as are prescribed by statute and in the by-laws of the Corporation. The name and post office address of the directors constituting the first board of directors, which shall be One (1) in number are: NAME ADDRESS Dennis Evans 6357 Vicuna Drive Las Vegas, Nevada 89102 3 4 Section 2. Powers of Board. In furtherance and not in limitation of the powers conferred by the laws of the State of Nevada, the Board of Directors is expressly authorized and empowered: (a) To make, alter, amend, and repeal the By-Laws subject to the power of the shareholders to alter or repeal the By-Laws made by the Board of Directors. (b) Subject to the applicable provisions of the ByLaws then in effect, to determine, from time to time, whether and to what extent, and at what times and places, and under what conditions and regulations, the accounts and books of the Corporation, or any of them, shall be open to shareholder inspection. No shareholder shall have any right to inspect any of the accounts, books or documents of the Corporation, except as permitted by law, unless and until authorized to do so by resolution of the Board of Directors or of the Shareholders of the Corporation; (c) To issue stock of the corporation for money, property, services rendered, labor performed, cash advanced, acquisitions for other corporations or for any other assets of value in accordance with the action of the board of directors without vote or consent of the shareholders and the judgment of the board of directors as to value received and in return therefore shall be conclusive and said stock, when issued, shall be fully-paid and non-assessable. (d) To authorize and issue, without shareholder consent, obligations of the Corporation, secured and unsecured, under such terms and conditions as the Board, in its sole discretion, may determine, and to pledge or mortgage, as security therefore, any real or personal property of the Corporation, including after-acquired property; (e) To determine whether any and, if so, what part, of the earned surplus of the Corporation shall be paid in dividends to the shareholders, and to direct and determine other use and disposition of any such earned surplus; (f) To fix, from time to time, the amount of the profits of the Corporation to be reserved as working capital or for any other lawful purpose; (g) To establish bonus, profit-sharing, stock option, or other types of incentive compensation plans for the employees, including officers and directors, of the Corporation, and to fix the amount of profits to be shared or distributed, and to determine the persons to 4 5 participate in any such plans and the amount of their respective participations. (h) To designate, by resolution or resolutions passed by a majority of the whole Board, one or more committees, each consisting of two or more directors, which, to the extent permitted by law and authorized by the resolution or the By-Laws, shall have and may exercise the powers of the Board; (i) To provide for the reasonable compensation of its own members by By-Law, and to fix the terms and conditions upon which such compensation will be paid; (j) In addition to the powers and authority herein before, or by statute, expressly conferred upon it, the Board of Directors may exercise all such powers and do all such acts and things as may be exercised or done by the corporation, subject, nevertheless, to the provisions of the laws of the State of Nevada, of these Articles of Incorporation, and of the By-Laws of the Corporation. Section 3. Interested Directors. No contract or transaction between this Corporation and any of its directors, or between this Corporation and any other corporation, firm, association, or other legal entity shall be invalidated by reason of the fact that the director of the Corporation has a direct or indirect interest, pecuniary or otherwise, in such corporation, firm, association, or legal entity, or because the interested director was present at the meeting of the Board of Directors which acted upon or in reference to such contract or transaction, or because he participated in such action, provided that: (1) the interest of each such director shall have been disclosed to or known by the Board and a disinterested majority of the Board shall have nonetheless ratified and approved such contract or transaction (such interested director or directors may be counted in determining whether a quorum is present for the meeting at which such ratification or approval is given); or (2) the conditions of N.R.S. 78.140 are met. ARTICLE IX - LIMITATION OF LIABILITY OF OFFICERS OR DIRECTORS: The personal liability of a director or officer of the corporation to the corporation or the Shareholders for damages for breach of fiduciary duty as a director or officer shall be limited to acts or omissions which involve intentional misconduct, fraud or a knowing violation of law. ARTICLE X - INDEMNIFICATION: Each director and each officer of the corporation may be indemnified by the corporation as follows: 5 6 (a) The corporation may indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred by him in connection with the action, suit or proceeding, if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suite or proceeding, by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, does not of itself create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and that, with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful. (b) The corporation may indemnify any person who was or is a party, or is threatened to be made a party, to any threatened, pending or completed action or suit by or in the right of the corporation, to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses including amounts paid in settlement and attorneys' fees actually and reasonably incurred by him in connection with the defense or settlement of the action or suit, if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals there from, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that 6 7 in view of all the circumstances of the case the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper. (c) To the extent that a director, of officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of this Article, or in defense of any claim, issue or matter therein, he must be indemnified by the corporation against expenses, including attorney's fees, actually and reasonably incurred by him in connection with the defense. (d) Any indemnification under subsections (a) and (b) unless ordered by a court or advanced pursuant to subsection (e), must be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. The determination must be made: (i) By the stockholders; (ii) By the board of directors by majority vote of a quorum consisting of directors who were not parties to the act, suit or proceeding; (iii) If a majority vote of a quorum consisting of directors who were not parties to the act, suit or proceeding so orders by independent legal counsel in a written opinion; or (iv) If a quorum consisting of directors who were not parties to the act, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion. (e) Expenses of officers and directors incurred in defending a civil or criminal action, suit or proceeding must be paid by the corporation as they are incurred and in advance of the final disposition of the action, suit or proceeding, upon receipt of an undertaking by or on behalf of the director or officer to repay the amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the corporation. The provisions of this subsection do not affect any rights to advancement of expenses to which corporate personnel other than directors or officers may be entitled under any contract or otherwise by law. 7 8 (f) The indemnification and advancement of expenses authorized in or ordered by a court pursuant to this section: (i) Does not exclude any other rights to which a person seeking indemnification or advancement of expenses may be entitled under the certificate or articles of incorporation or any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, for either an action in his official capacity or an action in another capacity while holding his office, except that indemnification, unless ordered by a court pursuant to subsection (b) or for the advancement of expenses made pursuant to subsection (e) may not be made to or on behalf of any director or officer if a final adjudication establishes that his acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and was material to the cause of action. (ii) Continues for a person who has ceased to be a director, officer, employee or agent and inures to the benefit of the heirs, executors and administrators of such a person. ARTICLE XI - PLACE OF MEETING; CORPORATE BOOKS: Subject to the laws of the State of Nevada, the shareholders and the Directors shall have power to hold their meetings, and the Directors shall have power to have an office or offices and to maintain the books of the Corporation outside the State of Nevada, at such place or places as may from time to time be designated in the By-Laws or by appropriate resolution. ARTICLE XII - AMENDMENT OF ARTICLES: The provisions of these Articles of Incorporation may be amended, altered or repealed from time to time to the extent and in the manner prescribed by the laws of the State of Nevada, and additional provisions authorized by such laws as are then in force may be added. All rights herein conferred on the directors, officers and shareholders are granted subject to this reservation. ARTICLE XIII - INCORPORATOR: The name and address of the sole incorporator signing these Articles of Incorporation is as follows: NAME POST OFFICE ADDRESS 1. Max C. Tanner 2950 East Flamingo Road, Suite G Las Vegas, Nevada 89121 8 9 IN WITNESS WHEREOF, the undersigned incorporator has executed these Articles of Incorporation this 30th day of November, 1994. /s/ MAX C. TANNER ---------------------------------------- Max C. Tanner STATE OF NEVADA ) )ss: COUNTY OF CLARK ) On November 30, 1994, personally appeared before me, a Notary Public, Max C. Tanner, who acknowledged to me that he executed the foregoing Articles of Incorporation for Gem Source, Incorporated, a Nevada corporation. /s/ JUNE Y. KELSAY ---------------------------------------- Notary Public [NOTARY STAMP] 9 10 [STAMP] CERTIFICATE OF ACCEPTANCE OF APPOINTMENT BY RESIDENT AGENT IN MATTER OF GEM SOURCE, INCORPORATED We, The Law Offices of Max C. Tanner, do hereby certify that on the 30th day of November, 1994, we accepted the appointment as Resident Agent of the above-entitled corporation in accordance with Sec. 78.090, NRS 1957. Furthermore, that the principal office in this state is located at The Law Offices of Max C. Tanner, 2950 East Flamingo Road, Suite G, City of Las Vegas 89121, County of Clark, State of Nevada. IN WITNESS WHEREOF, I have hereunto set my hand this 30th day of November, 1994. THE LAW OFFICES OF MAX C. TANNER By: /s/ MAX C. TANNER ------------------------------------ Max C. Tanner, Esq. Resident Agent 10 11 EXHIBIT A AMENDMENT TO THE ARTICLES OF INCORPORATION 12 CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF GEM SOURCE, INCORPORATED Pursuant to NRS 78.385 and 78.390, the undersigned President and Secretary of Gem Source, Incorporated do hereby certify: That the following amendments to the articles of incorporation were unanimously approved by the Board of Directors of said corporation by written consent in lieu of a special meeting of the Board of Directors dated May 6, 1996 and by a majority of the outstanding shares entitled to vote. Article I is hereby amended to read as follows: The exact name of this Corporation is Blue Ridge Energy, Inc. Article VI Section 1 - Capital Stock - Authorized Shares is hereby amended to read as follows: Section 1. Authorized Shares. The total number of shares which this Corporation is authorized to issue is 25,000,000 Shares of Capital Stock at $.001 par value per share. (a) The total number of shares of Common stock which this Corporation is authorized to issue is 20,000,000 shares at $.001 par value per share. (b) The total number of shares of Preferred Stock which this Corporation is authorized to issue is 5,000,000 shares at $.001 par value per share, which Preferred Stock may contain special preferences as determined by the Board of Directors of the Corporation, including, but not limited to, the bearing of interest and convertibility into shares of Common Stock of the Corporation. /s/ ROBERT D. BURR ----------------------------------- Robert D. Burr, President /s/ JAMES T. COOK, JR. ----------------------------------- James T. Cook, Jr., Secretary State of Kentucky ) )ss. County of ) On the 16th day of May, 1996, personally appeared before me, a Notary Public, Robert D. Burr, President of the above mentioned Corporation, who acknowledged that he executed the above instrument. /s/ NANCY A. BRIDGES ----------------------------------- Signature of Notary (Notary stamp or seal) 13 State of Kentucky ) )ss. County of ) On the 16th day of May, 1996, personally appeared before me, a Notary Public, James T. Cook, Jr., Secretary of the above mentioned Corporation, who acknowledged that he executed the above instrument. /s/ NANCY A. BRIDGES ----------------------------------- Signature of Notary (Notary stamp or seal) EX-3.II 3 BYLAWS OF BLUE RIDGE ENERGY, INC. 1 EXHIBIT (3)(ii) BY-LAWS 2 BY-LAWS OF GEM SOURCE, INCORPORATED ARTICLE I SHAREHOLDERS Section 1.01 Annual Meeting. The annual meeting of the shareholders shall be held at such date and time as shall be designated by the board of directors and stated in the notice of the meeting or in a duly-executed waiver of notice thereof. If the corporation shall fail to provide notice of the annual meeting of the shareholders as set forth above, the annual meeting of the shareholders of the corporation shall be held during the month of November or December of each year as determined by the Board of Directors, for the purpose of electing directors of the corporation to serve during the ensuing year and for the transaction of such other business as may properly come before the meeting. If the election of the directors is not held on the day designated herein for any annual meeting of the shareholders, or at any adjournment thereof, the president shall cause the election to be held at a special meeting of the shareholders as soon thereafter as is convenient. Section 1.02 Special Meetings. Special meetings of the shareholders may be called by the president or the Board of Directors and shall be called by the president at the written request of the holders of not less than 51% of the issued and outstanding shares of capital stock of the corporation. All business lawfully to be transacted by the shareholders may be transacted at any special meeting at any adjournment thereof. However, no business shall be acted upon at a special meeting, except that referred to in the notice calling the meeting, unless all of the outstanding capital stock of the corporation is represented either in person or by proxy. Where all of the capital stock is represented, any lawful business may be transacted and the meeting shall be valid for all purposes. Section 1.03 Place of Meetings. Any meeting of the shareholders of the corporation may be held at its principal office in the State of Nevada or such other place in or out of the United States as the Board of Directors may designate. A waiver of notice signed by the shareholders entitled to vote may designate any place for the holding of such meeting. 3 Section 1.04 Notice of Meetings. (a) The secretary shall sign and deliver to all shareholders of record written or printed notice of any meeting at least ten (10) days, but not more than sixty (60) days, before the date of such meeting; which notice shall state the place, date and time of the meeting, the general nature of the business to be transacted, and, in the case of any meeting at which directors are to be elected, the names of nominees, if any, to be presented for election. (b) In the case of any meeting, any proper business may be presented for action, except that the following items shall be valid only if the general nature of the proposal is stated in the notice or written waiver of notice: (1) Action with respect to any contract or transaction between the corporation and one or more of its directors or another firm, association, or corporation in which one or more of its directors has a material financial interest; (2) Adoption of amendments to the Articles of Incorporation; or (3) Action with respect to the merger, consolidation, reorganization, partial or complete liquidation, or dissolution of the corporation. (c) The notice shall be personally delivered or mailed by first class mail to each shareholder of record at the last known address thereof, as the same appears on the books of the corporation, and the giving of such notice shall be deemed delivered the date the same is deposited in the United States mail, postage prepaid. If the address of any shareholder does not appear upon the books of the corporation, it will be sufficient to address any notice to such shareholder at the principal office of the corporation. (d) The written certificate of the person calling any meeting, duly sworn, setting forth the substance of the notice, the time and place the notice was mailed or personally delivered to the several shareholders, and the addresses to which the notice was mailed shall be prima facie evidence of the manner and fact of giving such notice. Section 1.05 Waiver of Notice. If all of the shareholders of the corporation shall waive notice of a meeting, no notice shall be required, and, whenever all of the shareholders shall meet in - 2 - 4 person or by proxy, such meeting shall be valid for or all purposes without call or notice, and at such meeting any corporate action may be taken. Section 1.06 Determination of Shareholders of Record. (a) The Board of Directors may at any time fix a future date as a record date for the determination of the shareholders entitled to notice of any meeting or to vote or entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action. The record date so fixed shall not be more than sixty (60) days prior to the date of such meeting nor more than sixty (60) days prior to any other action. When a record date is so fixed, only shareholders of record on that date are entitled to notice of and to vote at the meeting or to receive the dividend, distribution or allotment of rights, or to exercise their rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date. (b) If no record date is fixed by the Board of Directors, then (1) the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (2) the record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which written consent is given; and (3) the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later. Section 1.07 Quorum: Adjourned Meetings. (a) At any meeting of the shareholders, a majority of the issued and outstanding shares of the corporation represented in person or by proxy, shall constitute a quorum. (b) If less than a majority of the issued and outstanding shares are represented, a majority of shares so represented may adjourn from time to time at the meeting, until holders of the amount of stock required to constitute a quorum shall be in attendance. At any such adjourned meeting - 3 - 5 at which a quorum shall be present, any business may be transacted which might have been transacted as originally called. When a shareholders' meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken, unless the adjournment is for more than ten (10) days in which event notice thereof shall be given. Section 1.08 Voting. (a) Each shareholder of record, such shareholder's duly authorized proxy or attorney-in-fact act shall be entitled to one (1) vote for each share of stock standing registered in such shareholder's name on the books of the corporation on the record date. (b) Except as otherwise provided herein, all votes with respect to shares standing in the name of an individual on the record date (included pledged shares) shall be cast only by that individual or such individual's duly authorized proxy or attorney-in-fact. With respect to shares held by a representative of the estate of a deceased shareholder, guardian, conservator, custodian or trustee, votes may be cast by such holder upon proof of capacity, even though the shares do not stand in the name of such holder. In the case of shares under the control of a receiver, the receiver may cast votes carried by such shares even though the shares do not stand in the name of the receiver provided that the order of the court of competent jurisdiction which appoints the receiver contains the authority to cast votes carried by such shares. If shares stand in the name of a minor, votes may be cast only by the duly-appointed guardian of the estate of such minor if such guardian has provided the corporation with written notice and proof of such appointment. (c) With respect to shares standing in the name of a corporation on the record date, votes may be cast by such officer or agents as the by-laws of such corporation prescribe or, in the absence of an applicable by-law provision, by such person as may be appointed by resolution of the Board of Directors of such corporation. In the event no person is so appointed, such votes of the corporation may be cast by any person (including the officer making the authorization) authorized to do so by the Chairman of the Board of Directors, President or any Vice President of such corporation. (d) Notwithstanding anything to the contrary herein contained, no votes may be cast by shares owned by this corporation or its subsidiaries, if any. If shares are held by this corporation or its subsidiaries, if any, in a - 4 - 6 fiduciary capacity, no votes shall be cast with respect thereto on any matter except to the extent that the beneficial owner thereof possesses and exercises either a right to vote or to give the corporation holding the same binding instructions on how to vote. (e) With respect to shares standing in the name of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, husband and wife as community property, tenants by the entirety, voting trustees, persons entitled to vote under a shareholder voting agreement or otherwise and shares held by two or more persons (including proxy holders) having the same fiduciary relationship respect in the same shares, votes may be cast in the following manner: (1) If only one such person votes, the votes of such person binds all. (2) If more than one person casts votes, the act of the majority so voting binds all. (3) If more than one person casts votes, but the vote is evenly split on a particular matter, the votes shall be deemed cast proportionately as split. (f) Any holder of shares entitled to vote on any matter may cast a portion of the votes in favor of such matter and refrain from casting the remaining votes or cast the same against the proposal, except in the case of elections of directors. If such holder entitled to vote fails to specify the number of affirmative votes, it will be conclusively presumed that the holder is casting affirmative votes with respect to all shares held. (g) If a quorum is present, the affirmative vote of holders of a majority of the shares represented at the meeting and entitled to vote on any matter shall be the act of the shareholders, unless a vote of greater number or voting by classes is required by the laws of the State of Nevada, the Articles of Incorporation and these ByLaws. Section 1.09 Proxies. At any meeting of shareholders, any holder of shares entitled to vote may authorize another person or persons to vote by proxy with respect to the shares held by an instrument in writing and subscribed to by the holder of such shares entitled to vote. No proxy shall be valid after the expiration of six (6) months from the date of execution thereof, unless coupled with an interest or unless otherwise specified in the proxy. In no event shall the term of a proxy exceed seven (7) years from the date of its execution. Every proxy shall continue - 5 - 7 in full force and effect until its expiration or revocation. Revocation may be effected by filing an instrument revoking the same or a duly-executed proxy bearing a later date with the secretary of the corporation. Section 1.10 Order of Business. At the annual shareholders meeting, the regular order of business shall be as follows: (1) Determination of shareholders present and existence of quorum; (2) Reading and approval of the minutes of the previous meeting or meetings; (3) Reports of the Board of Directors, the president, treasurer and Secretary of the corporation, in the order named; (4) Reports of committee; (5) Election of directors; (6) Unfinished business; (7) New business; (8) Adjournment. Section 1. 11 Absentees Consent to Meetings. Transactions of any meeting of the shareholders are as valid as though had at a meeting duly-held after regular call and notice if a quorum is present, either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy (and those who, although present, either object at the beginning of the meeting to the transaction of any business because the meeting has not been lawfully called or convened or expressly object at the meeting to the consideration of matters not included in the notice which are legally required to be included therein), signs a written waiver of notice and/or consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents, and approvals shall be filed with the corporate records and made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person objects at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters not included in the notice if such objection is expressly made at the beginning. Neither the business to be transacted at nor the purpose of any regular or special - 6 - 8 meeting of shareholders need be specified in any written waiver of notice, except as otherwise provided in Section 1.04(b) of these ByLaws. Section 1.12 Action Without Meeting. Any action which may be taken by the vote of the shareholders at a meeting may be taken without a meeting if consented to by the holders of a majority of the shares entitled to vote or such greater proportion as may be required by the laws of the State of Nevada, the Articles of Incorporation, or these Bylaws. Whenever action is taken by written consent, a meeting of shareholders needs not be called or noticed. ARTICLE II DIRECTORS Section 2.01 Number, Tenure and Qualification. Except as otherwise provided herein, the Board of Directors of the corporation shall consist of at least one (1) but no more than nine (9) persons, who shall be elected at the annual meeting of the shareholders of the corporation and who shall hold office for one (1) year or until their successors are elected and qualify. Section 2.02 Resignation. Any director may resign effective upon giving written notice to the chairman of the Board of Directors, the president, or the secretary of the corporation, unless the notice specifies a later time for effectiveness of such resignation. If the Board of Directors accepts the resignation of a director tendered to take effect at a future date, the Board or the shareholders may elect a successor to take office when the resignation becomes effective. Section 2.03 Reduction in Number. No reduction of the number of directors shall have the effect of removing any director prior to the expiration of his term of office. Section 2.04 Removal. (a) The Board of Directors or the shareholders of the corporation, by a majority vote, may declare vacant the office of a director who has been declared incompetent by an order of a court of competent jurisdiction or convicted of a felony. - 7 - 9 Section 2.05 Vacancies. (a) A vacancy in the Board of Directors because of death, resignation, removal, change in number of directors, or otherwise may be filled by the shareholders at any regular or special meeting or any adjourned meeting thereof or the remaining directors(s) by the affirmative vote of a majority thereof. A Board of Directors consisting of less than the maximum number authorized in section 2.01 of ARTICLE II constitutes vacancies on the Board of Directors for purposes of this paragraph and may be filled as set forth above including by the election of a majority of the remaining directors. Each successor so elected shall hold office until the next annual meeting of shareholders or until a successor shall have been duly-elected and qualified. (b) If, after the filling of any vacancy by the directors, the directors then in office who have been elected by the shareholders shall constitute less than a majority of the directors then in office, any holder or holders of an aggregate of five percent (5%) or more of the total number of shares entitled to vote may call a special meeting of shareholders to be held to elect the entire Board of Directors. The term of office of any director shall terminate upon such election of a successor. Section 2.06 Regular Meetings. Immediately following the adjournment of, and at the same place as, the annual meeting of the shareholders, the Board of Directors, including directors newly elected, shall hold its annual meeting without notice, other than this provision, to elect officers of the corporation and to transact such further business as may be necessary or appropriate. The Board of Directors may provide by resolution the place, date and hour for holding additional regular meetings. Section 2.07 Special Meetings. Special meetings of the Board of Directors may be called by the chairman and shall be called by the chairman upon the request of any two (2) directors or the president of the corporation. Section 2.08 Place of Meetings. Any meeting of the directors of the corporation may be held at its principal office in the State of Nevada, or at such other place in or out of the United States as the Board of Directors may designate. A waiver or notice signed by the directors may designate any place for the holding of such meeting. - 8 - 10 Section 2.09 Notice of Meetings. Except as otherwise provided in Section 2.06, the chairman shall deliver to all directors written or printed notice of any special meeting, at least three (3) days before the date of such meeting, by delivery of such notice personally or mailing such notice first class mail, or by telegram. If mailed, the notice shall be deemed delivered two (2) business days following the date the same is deposited in the United States mail, postage prepaid. Any director may waive notice of any meeting, and the attendance of a director at a meeting shall constitute a waiver of notice of such meeting, unless such attendance is for the express purpose of objecting to the transaction of business threat because the meeting is not properly called or convened. Section 2.10 Quorum: Adjourned Meetings. (a) A majority of the Board of Directors in office shall constitute a quorum. (b) At any meeting of the Board of Directors where a quorum is not present, a majority of those present may adjourn, from time to time, until a quorum is present, and no notice of such adjournment shall be required. At any adjourned meeting where a quorum is present, any business may be transacted which could have been transacted at the meeting originally called. Section 2.11 Action Without Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if a written consent thereto is signed by all of the members of the Board of Directors or of such committee. Such written consent or consents shall be filed with the minutes of the proceedings of the Board of Directors or committee. Such action by written consent shall have the same force and effect as the unanimous vote of the Board of Directors or committee. Section 2.12 Telephonic Meetings. Meetings of the Board of Directors may be held through the use of a conference telephone or similar communications equipment so long as all members participating in such meeting can hear one another at the time of such meeting. Participation in such a meeting constitutes presence in person at such meeting. Section 2.13 Board Decisions. The affirmative vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. - 9 - 11 Section 2.14 Powers and Duties. (a) Except as otherwise provided in the Articles of Incorporation or the laws of the State of Nevada, the Board of Directors is invested with the complete and unrestrained authority to manage the affairs of the corporation, and is authorized to exercise for such purpose as the general agent of the corporation, its entire corporate authority in such manner as it sees fit. The Board of Directors may delegate any of its authority to manage, control or conduct the current business of the corporation to any standing or special committee or to any officer or agent and to appoint any persons to be agents of the corporation with such powers, including the power to sub-delegate, and upon such terms as may be deemed fit. (b) The Board of Directors shall present to the shareholders at annual meetings of the shareholders, and when called for by a majority vote of the shareholders at a special meeting of the shareholders, a full and clear statement of the condition of the corporation, and shall, at request, furnish each of the shareholders with a true copy thereof. (c) The Board of Directors, in its discretion, may submit any contract or act for approval or ratification at any annual meeting of the shareholders or any special meeting properly called for the purpose of considering any such contract or act, provided a quorum is present. The contract or act shall be valid and binding upon the corporation and upon all the shareholders thereof, if approved and ratified by the affirmative vote of a majority of the shareholders at such meeting. (d) In furtherance and not in limitation of the powers conferred by the laws of the State of Nevada, the Board of Directors is expressly authorized and empowered to issue stock of the Corporation for money, property, services rendered, labor performed, cash advanced, acquisitions for other corporations or for or any other assets of value in accordance with the action of the Board of Directors without vote or consent of the shareholders and the judgment of the Board of Directors as to the value received and in return therefore shall be conclusive and said stock, when issued, shall be fully-paid and non-assessable. Section 2.15 Compensation. The directors shall be allowed and paid all necessary expenses incurred in attending any meetings of the Board, but shall not receive any compensation for or their services as directors until such time as the corporation is able to declare and pay dividends on its capital stock. - 10 - 12 Section 2.16 Board Officers. (a) At its annual meeting, the Board of Directors shall elect, from among its members, a chairman to preside at the meetings of the Board of Directors. The Board of Directors may also elect such other board officers and for such term as it may, from time to time, determine advisable. (b) Any vacancy in any board office because of death, resignation, removal or otherwise may be filled by the Board of Directors for the unexpired portion of the term of such office. Section 2.17 Order of Business. The order of business at any meeting of the Board of Directors shall be as follows: (1) Determination of members present and existence of quorum; (2) Reading and approval of the minutes of any previous meeting or meetings; (3) Reports of officers and committeemen; (4) Election of officers; (5) Unfinished business; (6) New business; (7) Adjournment. ARTICLE III OFFICERS Section 3.01 Election. The Board of Directors, at its first meeting following the annual meeting of shareholders, shall elect a president, a secretary and a treasurer to hold office for one (1) year next coming and until their successors are elected and qualify. Any person may hold two or more offices. The Board of Directors may, from time to time, by resolution, appoint one or more vice presidents, assistant secretaries, assistant treasurers and transfer agents of the corporation as it may deem advisable; prescribe their duties; and fix their compensation. 11 13 Section 3.02 Removal; Resignation. Any officer or agent elected or appointed by the Board of Directors may be removed by it whenever, in its judgment, the best interest of the corporation would be served thereby. Any officer may resign at any time upon written notice to the corporation without prejudice to the rights, if any, of the corporation under any contract to which the resigning officer is a party. Section 3.03 Vacancies. Any vacancy in any office because of death, resignation, removal, or otherwise may be filled by the Board of Directors for the unexpired portion of the term of such office. Section 3.04 President. The president shall be the general manager and executive officer of the corporation, subject to the supervision and control of the Board of Directors, and shall direct the corporate affairs, with full power to execute all resolutions and orders of the Board of Directors not especially entrusted to some other officer of the corporation. The president shall preside at all meetings of the shareholders and shall sign the certificates of stock issued by the corporation, and shall perform such other duties as shall be prescribed by the Board of Directors. Unless otherwise ordered by the Board of Directors, the president shall have full power and authority on behalf of the corporation to attend and to act and to vote at any meetings of the shareholders of any corporation in which the corporation may hold stock and, at any such meetings, shall possess and may exercise any and all rights and powers incident to the ownership of such stock. The Board of Directors, by resolution from time to time, may confer like powers on any person or persons in place of the president to represent the corporation for these purposes. Section 3.05 Vice President. The Board of Directors may elect one or more vice presidents who shall be vested with all the powers and perform all the duties of the president whenever the president is absent or unable to act, including the signing of the certificates of stock issued by the corporation, and the vice president shall perform such other duties as shall be prescribed by the Board of Directors. Section 3.06 Secretary. The secretary shall keep the minutes of all meetings of the shareholders and the Board of Directors in books provided for that purpose. The secretary shall attend to the giving and service of all notices of the corporation, may sign with the president in the name of the corporation all contracts authorized by the Board of Directors or appropriate committee, shall have the custody of the corporate seal, shall affix the - 12 - 14 corporate seal to all certificates of stock duly issued by the corporation, shall have charge of stock certificate books, transfer books and stock ledgers, and such other books and papers as the Board of Directors or appropriate committee may direct, and shall, in general perform all duties incident to the office of the secretary. All corporate books kept by the secretary shall be open for examination by any director at any reasonable time. Section 3.07 Assistant Secretary. The Board of Directors may appoint an assistant secretary who shall have such powers and perform such duties as may be prescribed for him by the secretary of the corporation or by the Board of Directors. Section 3.08 Treasurer. The treasurer shall be the chief financial officer of the corporation, subject to the supervision and control of the Board of Directors, and shall have custody of all the funds and securities of the corporation. When necessary or proper, the treasurer shall endorse on behalf of the corporation for collection checks, notes and other obligations, and shall deposit all monies to the credit of the corporation in such bank or banks or other depository as the Board of Directors may designate, and shall sign all receipts and vouchers for payments made by the corporation. Unless otherwise specified by the Board of Directors, the treasurer shall sign with the president all bills of exchange and promissory notes of the corporation, shall also have the care and custody of the stocks, bonds, certificates, vouchers, evidence of debts, securities and such other property belonging to the corporation as the Board of Directors shall designate, and shall sign all papers required by law, by these By-laws or by the Board of Directors to be signed by the treasurer. The treasurer shall enter regularly in the books of the corporation, to be kept for that purpose, full and accurate accounts of all monies received and paid on account of the corporation and whenever required by the Board of Directors, the treasurer shall render a statement of any or all accounts. The treasurer shall at all reasonable times exhibit the books of account to any directors of the corporation and shall perform all acts incident to the position of treasurer subject to the control of the Board of Directors. The treasurer shall, if required by the Board of Directors, given a bond to the corporation in such sum and with such security as shall be approved by the Board of Directors for the faithful performance of all the duties of the treasurer and for restoration to the corporation in the event of the treasurer's death, resignation, retirement, or removal from office, of all books, records, papers, vouchers, money and other property belonging to the corporation. The expense of such bond shall be borne by the corporation. - 13 - 15 Section 3.09 Assistant Treasurer. The Board of Directors may appoint an assistant treasurer who shall have such powers and perform such duties as may be prescribed by the treasurer of the corporation or by the Board of Directors, and the Board of Directors may require the assistant treasurer to give a bond to the corporation in such sum and with such security as it may approve, for the faithful performance of the duties of assistant treasurer, and for the restoration to the corporation, in the event of the assistant treasurer's death, resignation, retirement or removal from office, of all books, records, papers, vouchers, money and other property belonging to the corporation. The expense of such bond shall be borne by the corporation. ARTICLE IV CAPITAL STOCK Section 4.01 Issuance. Shares of capital stock of the corporation shall be issued in such manner and at such times and upon such conditions as shall be prescribed by the Board of Directors. Section 4.02 Certificates. Ownership in the corporation shall be evidenced by certificates for shares of stock in such form as shall be prescribed by the Board of Directors, shall be under the seal of the corporation and shall be signed by the president or the vice president and also by the secretary or an assistant secretary. Each certificate shall contain the name of the record holder, the number, designation, if any, class or series of shares represented, a statement of summary of any applicable rights, preferences, privileges, or restrictions thereon, and a statement that the shares are assessable, if applicable. All certificates shall be consecutively numbered. The name and address of the shareholder, the number of shares, and the date of issue shall be entered on the stock transfer books of the corporation. Section 4.03 Surrender: Lost or Destroyed Certificates. All certificates surrendered to the corporation, except those representing shares of treasury stock, shall be canceled and no new certificates shall be issued until the former certificate for a like number of shares shall have been canceled, except that in case of a lost, stolen, destroyed or mutilated certificate, a new one may be issued therefor. However, any shareholder applying for the issuance of a stock certificate in lieu of one alleged to have been lost, stolen, destroyed or mutilated shall, prior to the issuance of a replacement, provide the corporation with his, her or its affidavit of the facts surrounding the loss, theft, destruction or mutilation and an indemnity bond in an amount and upon such terms - 14 - 16 as the treasurer, or the Board of Directors, shall require. In no case shall the bond be in amount less than twice the current market value of the stock and it shall indemnify the corporation against any loss, damage, cost or inconvenience arising as a consequence of the issuance of a replacement certificate. Section 4.04 Replacement Certificate. When the Articles of Incorporation are amended in any way affecting the statements contained in the certificates for outstanding shares of capital stock of the corporation or it becomes desirable for any reason, including, without limitation, the merger or consolidation of the corporation with another corporation or the reorganization of the corporation, to cancel any outstanding certificate for shares and issue a new certificate therefor conforming to the rights of the holder, the Board of Directors may order any holders of outstanding certificates for shares to surrender and exchange the same for new certificates within a reasonable time to be fixed by the Board of Directors. The order may provide that a holder of any certificate(s) ordered to be surrendered shall not be entitled to vote, receive dividends or exercise any other rights of shareholders until the holder has complied with the order provided that such order operates to suspend such rights only after notice and until compliance. Section 4.05 Transfer of Shares. No transfer of stock shall be valid as against the corporation except on surrender and cancellation by the certificate therefor, accompanied by an assignment or transfer by the registered owner made either in person or under assignment. Whenever any transfer shall be expressly made for collateral security and not absolutely, the collateral nature of the transfer shall be reflected in the entry of transfer on the books of the corporation. Section 4.06 Transfer Agent. The Board of Directors may appoint one or more transfer agents and registrars of transfer and may require all certificates for shares of stock to bear the signature of such transfer agent and such registrar of transfer. Section 4.07 Stock Transfer Books. The stock transfer books shall be closed for or a period of ten (10) days prior to all meetings of the shareholders and shall be closed for the payment of dividends as provided in Article V hereof and during such periods as, from time to time, may be fixed by the Board of Directors, and, during such periods, no stock shall be transferable. - 15 - 17 Section 4.08 Miscellaneous. The Board of Directors shall have the power and authority to make such rules and regulations not inconsistent herewith as it may deem expedient concerning the issue, transfer and registration of certificates for shares of the capital stock of the corporation. ARTICLE V DIVIDENDS Section 5.01 Dividends may be declared, subject to the provisions of the laws of the State of Nevada and the Articles of Incorporation, by the Board of Directors at any regular or special meeting and may be paid in cash, property, shares of corporate stock, or any other medium. The Board of Directors may fix in advance a record date, as provided in Section 1.06 of these By-laws, prior to the dividend payment for the purpose of determining shareholders entitled to receive payment of any dividend. The Board of Directors may close the stock transfer books for such purpose for a period of not more than ten (10) days prior to the payment date of such dividend. ARTICLE VI OFFICES; RECORDS; REPORTS; SEAL AND FINANCIAL MATTERS Section 6.01 Principal Office. The principal office of the corporation in the State of Nevada shall be the Law offices of Max C. Tanner, 2950 East Flamingo Road, Suite G, Las Vegas, Nevada 89121, and the corporation may have an office in any other state or territory as the Board of Directors may designate. Section 6.02 Records. The stock transfer books and a certified copy of the By-laws, Articles of Incorporation, any amendments thereto, and the minutes of the proceedings of the shareholders, the Board of Directors, and committees of the Board of Directors shall be kept at the principal office of the corporation for the inspection of all who have the right to see the same and for the transfer of stock. All other books of the corporation shall be kept at such places as may be prescribed by the Board of Directors. - 16 - 18 Section 6.03 Financial Report on Request. Any shareholder or shareholders holding at least five percent (5%) of the outstanding shares of any class of stock may make a written request for an income statement of the corporation for the three (3) month, six (6) month, or nine (9) month period of the current fiscal year ended more than thirty (30) days prior to the date of the request and a balance sheet of the corporation as of the end of such period. In addition, if no annual report for the last fiscal year has been sent to shareholders, such shareholder or shareholders may make a request for a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year. The statement shall be delivered or mailed to the person making the request within thirty (30) days thereafter. A copy of the statements shall be kept on file in the principal office of the corporation for twelve (12) months, and such copies shall be exhibited at all reasonable times to any shareholder demanding an examination of them or a copy shall be mailed to each shareholder. Upon request by any shareholder, there shall be mailed to the shareholder a copy of the last annual, semiannual or quarterly income statement which it has prepared and a balance sheet as of the end of the period. The financial statements referred to in this Section 6.03 shall be accompanied by the report thereon, if any, of any independent accountants engaged by the corporation or the certificate of an authorized officer of the corporation that such financial statements were prepared without audit from the books and records of the corporation. Section 6.04 Right of Inspection. (a) The accounting books and records and minutes of proceedings of the shareholders and the Board of Directors and committees of the Board of Directors shall be open to inspection upon the written demand of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours for a purpose reasonably related to such holder's interest as a shareholder or as the holder of such voting trust certificate. This right of inspection shall extend to the records of the subsidiaries, if any, of the corporation. Such inspection may be made in person or by agent or attorney, and the right of inspection includes the right to copy and make extracts. (b) Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation and/or its subsidiary corporations. Such inspection may be made in person or by agent or attorney, and the right of inspection includes the right to copy and make extracts. - 17 - 19 Section 6.05 Corporate Seal. The Board of Directors may, by resolution, authorize a seal, and the seal may be used by causing it, or a facsimile, to be impressed or affixed or reproduced or otherwise. Except when otherwise specifically provided herein, any officer of the corporation shall have the authority to affix the seal to any document requiring it. Section 6.06 Fiscal Year. The fiscal year-end of the corporation shall be the calendar year or such other term as may be fixed by resolution of the Board of Directors. Section 6.07 Reserves. The Board of Directors may create, by resolution, out of the earned surplus of the corporation such reserves as the directors may, from time to time, in their discretion, think proper to provide for contingencies, or to equalize dividends or to repair or maintain any property of the corporation, or for such other purpose as the Board of Directors may deem beneficial to the corporation, and the directors may modify or abolish any such reserves in the manner in which they were created. ARTICLE VII INDEMNIFICATION Section 7.01 Indemnification. The corporation shall, unless prohibited by Nevada Law, indemnify any person (an "Indemnitee") who is or was involved in any manner (including, without limitation, as a party or a witness) or is threatened to be so involved in any threatened, pending or completed action suit or proceeding, whether civil, criminal, administrative, arbitrative or investigative, including without limitation, any action, suit or proceeding brought by or in the right of the corporation to procure a judgment in its favor (collectively, a "Proceeding") by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other entity or enterprise, against all Expenses and Liabilities actually and reasonably incurred by him in connection with such Proceeding. The right to indemnification conferred in this Article shall be presumed to have been relied upon by the directors, officers, employees and agents of the corporation and shall be enforceable as a contract right and inure to the benefit of heirs, executors and administrators of such individuals. - 18 - 20 Section 7.02 Indemnification Contracts. The Board of Directors is authorized on behalf of the corporation, to enter into, deliver and perform agreements or other arrangements to provide any Indemnitee with specific rights of indemnification in addition to the rights provided hereunder to the fullest extent permitted by Nevada Law. Such agreements or arrangements may provide (i) that the Expenses of officers and directors incurred in defending a civil or criminal action, suit or proceeding, must be paid by the corporation as they are incurred and in advance of the final disposition of any such action, suit or proceeding provided that, if required by Nevada Law at the time of such advance, the officer or director provides an undertaking to repay such amounts if it is ultimately determined by a court of competent jurisdiction that such individual is not entitled to be indemnified against such expenses, (iii) that the Indemnitee shall be presumed to be entitled to indemnification under this Article or such agreement or arrangement and the corporation shall have the burden of proof to overcome that presumption, (iii) for procedures to be followed by the corporation and the Indemnitee in making any determination of entitlement to indemnification or for appeals therefrom and (iv) for insurance or such other Financial Arrangements described in Paragraph 7.02 of this Article, all as may be deemed appropriate by the Board of Directors at the time of execution of such agreement or arrangement. Section 7.03 Insurance and Financial Arrangements. The corporation may, unless prohibited by Nevada Law, purchase and maintain insurance or make other financial arrangements ("Financial Arrangements") on behalf of any Indemnitee for any liability asserted against him and liability and expenses incurred by him in his capacity as a director, officer, employee or agent, or arising out of his status as such, whether or not the corporation has the authority to indemnify him against such liability and expenses. Such other Financial Arrangements may include (i) the creation of a trust fund, (ii) the establishment of a program of self-insurance, (iii) the securing of the corporation's obligation of indemnification by granting a security interest or other lien on any assets of the corporation, or (iv) the establishment of a letter of credit, guaranty or surety. Section 7.04 Definitions. For purposes of this Article: Expenses. The word "Expenses" shall be broadly construed and, without limitation, means (i) all direct and indirect costs incurred, paid or accrued, (ii) all attorneys' fees, retainers, court costs, transcripts, fees of experts, witness fees, travel expenses, food and lodging expenses while traveling, duplicating costs, printing and binding costs, telephone charges, postage, delivery service, freight or other transportation fees and expenses, (iii) all other - 19 - 21 disbursements and out-of-pocket expenses, (iv) amounts paid in settlement, to the extent permitted by Nevada Law, and (v) reasonable compensation for time spent by the Indemnitee for which he is otherwise not compensated by the corporation or any third party, actually and reasonably incurred in connection with either the appearance at or investigation, defense, settlement or appeal of a Proceeding or establishing or enforcing a right to indemnification under any agreement or arrangement, this Article, the Nevada Law or otherwise; provided, however, that "Expenses" shall not include any judgments or fines or excise taxes or penalties imposed under the Employee Retirement Income Security Act of 1974, as amended ("ERISA") or other excise taxes or penalties. Liabilities. "Liabilities" means liabilities of any type whatsoever, including, but not limited to, judgments or fines, ERISA or other excise taxes and penalties, and amounts paid in settlement. Nevada Law. "Nevada Law" means Chapter 78 of the Nevada Revised Statutes as amended and in effect from time to time or any successor or other statutes of Nevada having similar import and effect. This Article. "This Article" means Paragraphs 7.01 through 7.04 of these bylaws or any portion of them. Power of Stockholders. Paragraphs 7.01 through 7.04, including this Paragraph, of these Bylaws may be amended by the stockholders only by vote of the holders of sixty-six and two-thirds percent (66 2/3%) of the entire number of shares of each class, voting separately, of the outstanding capital stock of the corporation (even though the right of any class to vote is otherwise restricted or denied); provided, however, no amendment or repeal of this Article shall adversely affect any right of any Indemnitee existing at the time such amendment or repeal becomes effective. Power of Directors. Paragraphs 7.01 through 7.04 and this Paragraph of these Bylaws may be amended or repealed by the Board of Directors only by vote of eighty percent (80%) of the total number of Directors and the holders of sixty-six and two-thirds percent (66 2/3) of the entire number of shares of each class, voting separately, of the outstanding capital stock of the corporation (even though the right of any class to vote is otherwise restricted or denied); provided, however, no amendment or repeal of this Article shall adversely affect any right of any Indemnitee existing at the time such amendment or repeal becomes effective. - 20 - 22 ARTICLE VIII BY-LAWS Section 8.01 Amendment. Amendments and changes of these By-Laws may be made at any regular or special meeting of the Board of Directors by a vote of not less than all of the entire Board, or may be made by a vote of, or a consent in writing signed by the holders of a majority of the issued and outstanding capital stock. Section 8.02 Additional By-Laws. Additional by-laws not inconsistent herewith may be adopted by the Board of Directors at any meeting of the Board of Directors at which a quorum is present by an affirmative vote of a majority of the directors present or by the unanimous consent of the Board of Directors in accordance with Section 2.11 of these By-laws. CERTIFICATION I, the undersigned, being the duly elected secretary of the Corporation, do hereby certify that the foregoing By-laws were adopted by the Board of Directors on the 2nd day of December, 1994. /s/ MARCI EVANS --------------------------------- Marci Evans, Secretary - 21 - 23 EXHIBIT "D" FORM OF STOCK CERTIFICATE 24 INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA NUMBER [GRAPHIC] SHARES 21 GEM SOURCE, INC. This Corporation is authorized to Issue 25,000,000 Common Shares at $ Par Value ---- THIS CERTIFIES THAT __________________________________ is the owner of ____________________________ fully paid and nonassessable shares of the above Corporation transferable only on the books of the Corporation by the holder hereof in person or by duly authorized Attorney upon surrender of this Certificate properly endorsed. IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be signed by its duly authorized officers and its Corporate Seal to be hereunto affixed this ______ day of ___________ A.D. 19 ______ - --------------------------------- (SEAL) ------------------------------ PRESIDENT SECRETARY/TREASURER EX-10 4 MATERIAL CONTRACTS 1 EXHIBIT NO. (10) BLUE RIDGE ENERGY, INC. MATERIAL CONTRACTS - ----------------------- 1. Turnkey Drilling Contracts with the various oil and gas Partnerships. 2. Turnkey Drilling Contract with Blue Ridge Group, Inc. for the drilling of various wells. 3. Purchase Contracts for Drilling Rigs 4. The agreement in 1996 for Blue Ridge Group, Inc. to loan Blue Ridge Energy, Inc. $126,000 and purchase 1,000,000 shares of stock of Blue Ridge Energy. 5. The 1998 Agreement with Group for BRE to acquire and develop oil and gas wells in Appalachian Basin and acquire two drilling rigs. 6. Overhead Agreement for $20,000 per month with Blue Ridge Group, Inc. 7. Option Agreements for Blue Ridge Group, Inc. to acquire 2,000,000 shares and 5,000,000 shares of Blue Ridge Energy, Inc. common stock. 2 TURNKEY DRILLING CONTRACT THIS AGREEMENT, is made and entered into as of 1st day of August, 1996 by and between the parties herein designated as "Joint Venture" and "Contractor." Joint Venture: Blue Ridge Energy Production Fund Address: 1953 Scottsville Road, Suite 201 Bowling Green, Kentucky 42104 Contractor: Blue Ridge Energy, Inc. Address: 1953 Scottsville Road, Suite 201 Bowling Green, Kentucky 42104 IN CONSIDERATION of the mutual promises, conditions and agreements herein contained, Joint Venture engages Contractor as an Independent Contractor to furnish the equipment, labor and services to acquire, rework, drill, test, and complete its portion of eight oil and gas wells to be located in Fayette County, Texas, (referred to herein as "wells") in search of oil and/or gas. The Joint Venture will make the specified payments to Contractor in order (i) to obtain a price from Contractor for the drilling and completion of the wells to specified depths, (ii) to assure that Contractor will be available to drill, test and complete the subject wells for the Joint Venture, (iii) to assure that Contractor will make available on a preferential basis sufficient drilling and completion apparatus needed to drill, test and complete the wells at the earliest possible time, (iv) to obtain a preferential use of Contractor's services, and (v) to assure competent supervisory personnel are available in the drilling and completion of the subject wells. Contractor agrees to furnish all equipment, labor and services necessary for the drilling to the depth indicated herein and the completion of such wells. Contractor agrees that the work to be conducted under the terms of this Agreement will be done with diligence and care in a good and workmanlike manner and agrees to provide competent supervision of the work performed hereunder. Unless specifically otherwise provided for herein, all the required equipment, services and labor are furnished for the price set forth herein. 1. LOCATION OF WELLS: See Exhibit "1" attached hereto and made a part hereof. 2. TERMINATION DATE: Contractor agrees to use its best efforts to complete operations for the acquisition, drilling and testing of the wells by March 31, 1997, and Contractor and the Joint Venture agree that time is of the essence under this Agreement. D-1 3 3. BASIS OF DETERMINING AMOUNTS PAYABLE TO CONTRACTOR: Contractor shall be paid at the following rate for the work performed hereunder: "Acquisition Price": $748,445 "Drilling, Completion, and Equipping Price": $293,455 4. DEPTH: Subject to the right of the Joint Venture to direct the stoppage of work at any time (as provided in paragraph 6), the wells shall be drilled to the depth as specified in Exhibit "1" or to the depth at which the production casing (oil string) is set, whichever depth is first reached, which depth is hereinafter referred to as the "Contract Depth." 5. TIME OF PAYMENT: 5.1 Basis: Payment by the Joint Venture to the Contractor of the Drilling Price becomes due and payable upon execution of this Agreement. Neither commencement nor completion of Contractor's performance shall be a condition precedent to this obligation to pay. 5.2 Attorneys' Fees: If this Agreement is placed in the hands of an attorney for collection of any sums due hereunder, or suit is brought on same, or sums due hereunder are collected through bankruptcy or probate proceedings, then the Joint Venture agrees that there shall be added to the amount due reasonable attorneys' fees and costs. 6. COMPLETION PROGRAM: The Joint Venture shall determine whether Contractor shall set an oil string. In the event the Joint Venture directs that drilling operations cease and to abandon the wells, Contractor shall plug the wells, remove all drilling apparatus from the well sites and the obligations of the parties hereunder shall cease. In the event the Joint Venture directs Contractor to set an oil string and makes timely payment to the Contractor of the completion price, Contractor shall commence the operations necessary to complete the wells for commercial production, including the setting of an oil string and the acquisition, delivery and installation of a pump jack, holding tank and all other necessary equipment needed to extract and contain oil from the wells. If Contractor should enter into an assignment with another entity to undertake the Completion Program, Contractor may bill Joint Venture, and Joint Venture will pay for any completion costs over and above the Completion Price set forth herein. 7. STOPPAGE OF WORK BY JOINT VENTURE: Notwithstanding the provisions of paragraph 3 with respect to the depth to be drilled, the Joint Venture shall have the right to direct the stoppage of the work to be performed by the Contractor hereunder at any time prior to reaching the Contract Depth and even though Contractor has made no default hereunder. If Joint Venture exercises its right to discontinue drilling a well, the Joint Venture will not receive a refund for any unused portion of the Drilling Price allocable to the discontinued well but the Joint Venture may direct Contractor to apply the unused portion of the Drilling Price to the intangible cost of another well that the Joint Venture shall specify. The unused portion of the Drilling Price will be determined as follows: D-2 4 Contractor shall determine a sum equal to all the actual expenses reasonably and necessarily incurred up to the date the Joint Venture notified Contractor to discontinue drilling plus such additional expenses reasonably and necessarily incurred in order for Contractor to cease operations, including plugging and abandoning the hole, and dismantling the rig plus the sum of 15% of such total actual expenses. This sum shall be deducted from the Drilling Price of the wells. The resulting difference shall be the unused portion of the price. 8. REPORTS TO BE FURNISHED BY CONTRACTOR: 8.1 Contractor shall keep and furnish to the Joint Venture an accurate record of the work performed and formations drilled on the IADC-API Daily Drilling Report form or other form acceptable to the Joint Venture. A legible copy of said form signed by Contractor's representative shall be furnished by Contractor to the Joint Venture. 8.2 Delivery tickets, if requested by the Joint Venture, covering any material or supplies furnished by the Joint Venture shall be turned in each day with the daily drilling report. The quantity, description and condition of materials and supplies so furnished shall be checked by Contractor and such tickets shall be properly certified by Contractor. 9. RESPONSIBILITY FOR A SOUND LOCATION: Contractor shall prepare a sound location, adequate in size and capable of properly supporting the drilling rig. Contractor shall be responsible for a conductor pipe program adequate to prevent soil and subsoil washout. In the event subsurface conditions cause a cratering or shifting of the location surface, and loss or damage to the rig or its associated equipment results therefrom, the Joint Venture shall not be responsible for reimbursing Contractor for any such loss or damage including payment of work stoppage rate during repair and/or demobilization if applicable. 10. RESPONSIBILITY FOR ROAD AND LOCATIONS: Contractor agrees at all times to maintain roads to locations and each location in such a condition that will allow free access and movement to and from the drilling site in an ordinarily equipped highway type vehicle. 11. PAYMENT OF CLAIMS: Contractor agrees to pay all claims for labor, material, services and supplies to be furnished by Contractor hereunder, and agrees to allow no lien or charge to be fixed upon the lease, the wells or other property of the Joint Venture or the land upon which said wells are located. 12. RESPONSIBILITY FOR LOSS OR DAMAGE: 12.1 Contractor's Surface Equipment: Contractor shall assume liability at all times for damage to or destruction of Contractor's surface equipment, including but not limited to all drilling tools, machinery and appliances, for use above the surface, regardless of when or how such damage or destruction occurs. D-3 5 12.2 Contractor's In-Hole Equipment Basis: Contractor shall assume liability at all times for damage to or destruction of Contractor's in-hole equipment, including but not limited to drill pipe, drill collars and tool joints, and the Joint Venture shall be under no liability to reimburse Contractor for any such loss. 12.3 Joint Venture's Equipment: The Joint Venture shall assume liability at all times for any defective equipment owned by it, including but not limited to casing, tubing, well head equipment, and Contractor shall be under no liability to reimburse the Joint Venture for any such loss or damage. 12.4 Fire or Blow-Out: Should a fire or blowout occur or should the hole for any cause attributable to Contractor's operators be lost or damaged while Contractor is engaged in the performance of work hereunder, all such loss of or damage to the hole including cost of regaining control of a fire or blowout, shall be borne by Contractor; and if the hole is not in condition to be carried to the Contract Depth as herein provided, Contractor shall, if requested by the Joint Venture, commence a new hole without delay at Contractor's cost; and the drilling of the new hole shall be conducted under the terms and conditions of this Agreement in the same manner as though it were the first hole and Contractor shall be responsible for replacement of any casing lost in a junked and abandoned hole as well as the cost of preparing a new drill site for the new hole and the road thereto. In such case, Contractor shall not be entitled to any payment or compensation for expenditures made or incurred by Contractor on or in connection with the abandoned hole. 13. NO WAIVER EXCEPT IN WRITING: It is fully understood and agreed that none of the requirements of this Agreement shall be considered as waived by either party unless the same is done in writing, and then only by the persons executing this Agreement, or other duly authorized agent or representative of the party. 14. FORCE MAJEURE: If either party hereto is rendered unable, wholly or in part (and its performance hereunder is not rendered merely commercially impracticable) by force majeure to carry out its obligation under this Agreement, it shall give the other party prompt written notice of the force majeure with reasonably full particulars. Thereupon, the obligations of the notifying party, so far as they are affected by the force majeure, shall be suspended during, but not longer than, the continuance of the force majeure, and the notifying party agrees to use reasonable diligence to remove the force majeure as quickly as possible. This paragraph shall not relieve either party hereto for its obligations to expend sums of money or to indemnify the other party hereto, as provided elsewhere in this Agreement. The term "force majeure" as herein employed shall mean an act of God, strike, lockout or other industrial disturbance, act of the public enemy, war, blockade, public riot, lightning, fire, storm, flood, explosion, extreme weather conditions, or governmental restraint. 15. INFORMATION CONFIDENTIAL: Upon written request by the Joint Venture, information obtained by Contractor in the conduct of drilling operation on the wells, including, but not limited to depth, formations penetrated, the results of coring, testing and surveying, shall be considered confidential and shall not be divulged by Contractor or its employees, to any person, firm or any corporation other than the Joint Venture's designated representative. D-4 6 16. ASSIGNMENT: Neither party may assign this Agreement without the prior written consent of the other, and prompt notice of any such intent to assign shall be given to the other party. If any assignment is made that materially alters Contractor's financial burden, Contractor's compensation shall be adjusted to give effect to any increase or decrease in Contractor's operating costs. 17. NOTICES AND PLACE OF PAYMENT: All notices to be given with respect to this Agreement unless otherwise provided for shall be given to Contractor and to the Joint Venture respectively at the addresses hereinabove shown. All sums payable hereunder to Contractor shall be payable at the address hereinabove shown unless otherwise specified herein. BLUE RIDGE ENERGY, INC. By: /s/ ROBERT D. BURR ------------------------------- Robert D. Burr, President BLUE RIDGE ENERGY PRODUCTION FUND A KENTUCKY JOINT VENTURE By: Blue Ridge Energy, Inc. Joint Venture Manager By: /s/ ROBERT D. BURR -------------------------------- Robert D. Burr, President D-5 7 EXHIBIT "1" TO EXHIBIT "D" AUGUST 01, 1996 FAYETTE AND REAGAN PROSPECTS: The primary investment objective of the Joint Venture is the acquisition of approximately 52% of the Working Interest, which is approximately 39% of the Net Revenue Interest in seven producing wells (the Equity #1, Justice Wilcox #2, Justice Wilcox #4, Schultz Pietsch #1, Andrew Pietsch #1, Showdown Justice #1-H and the Showdown Justice #2-H and the drilling and completion attempt of an eighth oil well (the Reagan #1) on the Fayette and Reagan Prospects (hereinafter referred to as "Venture Wells"), which consists of more than 1,142 acres of oil and gas leases in Fayette County, Texas, and the production and sale of oil and/or gas therefrom. The eighth Venture Well will be drilled to a depth of 5,400', or a depth sufficient to test the Wilcox Sandstone formation. D-6 8 TURNKEY DRILLING CONTRACT THIS AGREEMENT, is made and entered into as of 1st day of October, 1996 by and between the parties herein designated as "Joint Venture" and "Contractor." Joint Venture: Smackover / Woodbine I Joint Venture Address: 1953 Scottsville Road, Suite 201 Bowling Green, Kentucky 42104 Contractor: Blue Ridge Energy, Inc. Address: 1953 Scottsville Road, Suite 201 Bowling Green, Kentucky 42104 IN CONSIDERATION of the mutual promises, conditions and agreements herein contained, Joint Venture engages Contractor as an Independent Contractor to furnish the equipment, labor and services to drill, test, and complete its portion of a Venture Well to be located in Navarro County, Texas, (referred to herein as "Venture Well") in search of oil and/or gas. The Joint Venture will make the specified payments to Contractor in order (i) to obtain a price from Contractor for the drilling and completion of the Venture Well to specified depths, (ii) to assure that Contractor will be available to drill, test and complete the subject Venture Well for the Joint Venture, (iii) to assure that Contractor will make available on a preferential basis sufficient drilling and completion apparatus needed to drill, test and complete the Venture Well at the earliest possible time, (iv) to obtain a preferential use of Contractor's services, and (v) to assure competent supervisory personnel are available in the drilling and completion of the subject Venture Well. Contractor agrees to furnish all equipment, labor and services necessary for the drilling to the depth indicated herein and the completion of such Venture Well. Contractor agrees that the work to be conducted under the terms of this Agreement will be done with diligence and care in a good and workmanlike manner and agrees to provide competent supervision of the work performed hereunder. Unless specifically otherwise provided for herein, all the required equipment, services and labor are furnished for the price set forth herein. 1. LOCATION OF VENTURE WELL: See Exhibit "1" attached hereto and made a part hereof. 2. TERMINATION DATE: Contractor agrees to use its best efforts to complete operations for the acquisition, drilling and testing of the Venture Well by March 31, 1997, and Contractor and the Joint Venture agree that time is of the essence under this Agreement. D-1 9 3. BASIS OF DETERMINING AMOUNTS PAYABLE TO CONTRACTOR: Contractor shall be paid at the following rate for the work performed hereunder: "Acquisition Price": $ 70,000 "Drilling, Completion, and Equipping Price": $547,500 4. DEPTH: Subject to the right of the Joint Venture to direct the stoppage of work at any time (as provided in paragraph 6), the Venture Well shall be drilled to the depth as specified in Exhibit "1" or to the depth at which the production casing (oil string) is set, whichever depth is first reached, which depth is hereinafter referred to as the "Contract Depth." 5. TIME OF PAYMENT: 5.1 Basis: Payment by the Joint Venture to the Contractor of the Drilling Price becomes due and payable upon execution of this Agreement. Neither commencement nor completion of Contractor's performance shall be a condition precedent to this obligation to pay. 5.2 Attorneys' Fees: If this Agreement is placed in the hands of an attorney for collection of any sums due hereunder, or suit is brought on same, or sums due hereunder are collected through bankruptcy or probate proceedings, then the Joint Venture agrees that there shall be added to the amount due reasonable attorneys' fees and costs. 6. COMPLETION PROGRAM: The Joint Venture shall determine whether Contractor shall set an oil string. In the event the Joint Venture directs that drilling operations cease and to abandon the Venture Well, Contractor shall plug the Venture Well, remove all drilling apparatus from the well sites and the obligations of the parties hereunder shall cease. In the event the Joint Venture directs Contractor to set an oil string and makes timely payment to the Contractor of the completion price, Contractor shall commence the operations necessary to complete the Venture Well for commercial production, including the setting of an oil string and the acquisition, delivery and installation of a pump jack, holding tank and all other necessary equipment needed to extract and contain oil from the Venture Well. If Contractor should enter into an assignment with another entity to undertake the Completion Program, Contractor may bill Joint Venture, and Joint Venture will pay for any completion costs over and above the Completion Price set forth herein. 7. STOPPAGE OF WORK BY JOINT VENTURE: Notwithstanding the provisions of paragraph 3 with respect to the depth to be drilled, the Joint Venture shall have the right to direct the stoppage of the work to be performed by the Contractor hereunder at any time prior to reaching the Contract Depth and even though Contractor has made no default hereunder. If Joint Venture exercises its right to discontinue drilling a well, the Joint Venture will not receive a refund for any unused portion of the Drilling Price allocable to the discontinued well but the Joint Venture may direct Contractor to apply the unused portion of the Drilling Price to the intangible cost of another well that the Joint Venture shall specify. The unused portion of the Drilling Price will be determined as follows: D-2 10 Contractor shall determine a sum equal to all the actual expenses reasonably and necessarily incurred up to the date the Joint Venture notified Contractor to discontinue drilling plus such additional expenses reasonably and necessarily incurred in order for Contractor to cease operations, including plugging and abandoning the hole, and dismantling the rig plus the sum of 15% of such total actual expenses. This sum shall be deducted from the Drilling Price of the Venture Well. The resulting difference shall be the unused portion of the price. 8. REPORTS TO BE FURNISHED BY CONTRACTOR: 8.1 Contractor shall keep and furnish to the Joint Venture an accurate record of the work performed and formations drilled on the IADC-API Daily Drilling Report form or other form acceptable to the Joint Venture. A legible copy of said form signed by Contractor's representative shall be furnished by Contractor to the Joint Venture. 8.2 Delivery tickets, if requested by the Joint Venture, covering any material or supplies furnished by the Joint Venture shall be turned in each day with the daily drilling report. The quantity, description and condition of materials and supplies so furnished shall be checked by Contractor and such tickets shall be properly certified by Contractor. 9. RESPONSIBILITY FOR A SOUND LOCATION: Contractor shall prepare a sound location, adequate in size and capable of properly supporting the drilling rig. Contractor shall be responsible for a conductor pipe program adequate to prevent soil and subsoil washout. In the event subsurface conditions cause a cratering or shifting of the location surface, and loss or damage to the rig or its associated equipment results therefrom, the Joint Venture shall not be responsible for reimbursing Contractor for any such loss or damage including payment of work stoppage rate during repair and/or demobilization if applicable. 10. RESPONSIBILITY FOR ROAD AND LOCATIONS: Contractor agrees at all times to maintain roads to locations and each location in such a condition that will allow free access and movement to and from the drilling site in an ordinarily equipped highway type vehicle. 11. PAYMENT OF CLAIMS: Contractor agrees to pay all claims for labor, material, services and supplies to be furnished by Contractor hereunder, and agrees to allow no lien or charge to be fixed upon the lease, the Venture Well or other property of the Joint Venture or the land upon which said Venture Well is located. 12. RESPONSIBILITY FOR LOSS OR DAMAGE: 12.1 Contractor's Surface Equipment: Contractor shall assume liability at all times for damage to or destruction of Contractor's surface equipment, including but not limited to all drilling tools, machinery and appliances, for use above the surface, regardless of when or how such damage or destruction occurs. D-3 11 12.2 Contractor's In-Hole Equipment Basis: Contractor shall assume liability at all times for damage to or destruction of Contractor's in-hole equipment, including but not limited to drill pipe, drill collars and tool joints, and the Joint Venture shall be under no liability to reimburse Contractor for any such loss. 12.3 Joint Venture's Equipment: The Joint Venture shall assume liability at all times for any defective equipment owned by it, including but not limited to casing, tubing, well head equipment, and Contractor shall be under no liability to reimburse the Joint Venture for any such loss or damage. 12.4 Fire or Blow-Out: Should a fire or blowout occur or should the hole for any cause attributable to Contractor's operators be lost or damaged while Contractor is engaged in the performance of work hereunder, all such loss of or damage to the hole including cost of regaining control of a fire or blowout, shall be borne by Contractor; and if the hole is not in condition to be carried to the Contract Depth as herein provided, Contractor shall, if requested by the Joint Venture, commence a new hole without delay at Contractor's cost; and the drilling of the new hole shall be conducted under the terms and conditions of this Agreement in the same manner as though it were the first hole and Contractor shall be responsible for replacement of any casing lost in a junked and abandoned hole as well as the cost of preparing a new drill site for the new hole and the road thereto. In such case, Contractor shall not be entitled to any payment or compensation for expenditures made or incurred by Contractor on or in connection with the abandoned hole. 13. NO WAIVER EXCEPT IN WRITING: It is fully understood and agreed that none of the requirements of this Agreement shall be considered as waived by either party unless the same is done in writing, and then only by the persons executing this Agreement, or other duly authorized agent or representative of the party. 14. FORCE MAJEURE: If either party hereto is rendered unable, wholly or in part (and its performance hereunder is not rendered merely commercially impracticable) by force majeure to carry out its obligation under this Agreement, it shall give the other party prompt written notice of the force majeure with reasonably full particulars. Thereupon, the obligations of the notifying party, so far as they are affected by the force majeure, shall be suspended during, but not longer than, the continuance of the force majeure, and the notifying party agrees to use reasonable diligence to remove the force majeure as quickly as possible. This paragraph shall not relieve either party hereto for its obligations to expend sums of money or to indemnify the other party hereto, as provided elsewhere in this Agreement. The term "force majeure" as herein employed shall mean an act of God, strike, lockout or other industrial disturbance, act of the public enemy, war, blockade, public riot, lightning, fire, storm, flood, explosion, extreme weather conditions, or governmental restraint. 15. INFORMATION CONFIDENTIAL: Upon written request by the Joint Venture, information obtained by Contractor in the conduct of drilling operation on the Venture Well, including, but not limited to depth, formations penetrated, the results of coring, testing and surveying, shall be considered confidential and shall not be divulged by Contractor or its employees, to any person, firm or any corporation other than the Joint Venture's designated representative. D-4 12 16. ASSIGNMENT: Neither party may assign this Agreement without the prior written consent of the other, and prompt notice of any such intent to assign shall be given to the other party. If any assignment is made that materially alters Contractor's financial burden, Contractor's compensation shall be adjusted to give effect to any increase or decrease in Contractor's operating costs. 17. NOTICES AND PLACE OF PAYMENT: All notices to be given with respect to this Agreement unless otherwise provided for shall be given to Contractor and to the Joint Venture respectively at the addresses hereinabove shown. All sums payable hereunder to Contractor shall be payable at the address hereinabove shown unless otherwise specified herein. BLUE RIDGE ENERGY, INC. By: /s/ ROBERT D. BURR ------------------------------- Robert D. Burr, President SMACKOVER / WOODBINE I JOINT VENTURE A KENTUCKY JOINT VENTURE By: Blue Ridge Energy, Inc. Joint Venture Manager By: /s/ ROBERT D. BURR -------------------------------- Robert D. Burr, President D-5 13 EXHIBIT "1" TO EXHIBIT "D" OCTOBER 01, 1996 WEST CURRIE PROSPECT: The primary investment objective of the Joint Venture is the acquisition of approximately 65.37% of the Working Interest, which is approximately 49.02% of the Net Revenue Interest in a well site on the West Currie Prospect which consists of approximately 1,500 acres of oil and gas leases in Navarro County, Texas and the well to be drilled thereon (hereinafter referred to as "Venture Well"), and the production and sale of oil and/or gas therefrom. The Venture Well will be drilled to a depth of 8,800', or a depth sufficient to test the Norpthlet Sand formation. D-6 14 TURNKEY DRILLING CONTRACT THIS AGREEMENT, is made and entered into as of 1st day of October, 1996 by and between the parties herein designated as "Joint Venture" and "Contractor." Joint Venture: Blue Ridge Energy, Inc. Address: 1953 Scottsville Road, Suite 201 Bowling Green, Kentucky 42104 Contractor: Blue Ridge Group, Inc. Address: 1953 Scottsville Road, Suite 201 Bowling Green, Kentucky 42104 IN CONSIDERATION of the mutual promises, conditions and agreements herein contained, Joint Venture engages Contractor as an Independent Contractor to furnish the equipment, labor and services to drill, test, and complete its portion of a Venture Well to be located in Navarro County, Texas, (referred to herein as "Venture Well") in search of oil and/or gas. The Joint Venture will make the specified payments to Contractor in order (i) to obtain a price from Contractor for the drilling and completion of the Venture Well to specified depths, (ii) to assure that Contractor will be available to drill, test and complete the subject Venture Well for the Joint Venture, (iii) to assure that Contractor will make available on a preferential basis sufficient drilling and completion apparatus needed to drill, test and complete the Venture Well at the earliest possible time, (iv) to obtain a preferential use of Contractor's services, and (v) to assure competent supervisory personnel are available in the drilling and completion of the subject Venture Well. Contractor agrees to furnish all equipment, labor and services necessary for the drilling to the depth indicated herein and the completion of such Venture Well. Contractor agrees that the work to be conducted under the terms of this Agreement will be done with diligence and care in a good and workmanlike manner and agrees to provide competent supervision of the work performed hereunder. Unless specifically otherwise provided for herein, all the required equipment, services and labor are furnished for the price set forth herein. 1. LOCATION OF VENTURE WELL: See Exhibit "1" attached hereto and made a part hereof. 2. TERMINATION DATE: Contractor agrees to use its best efforts to complete operations for the acquisition, drilling and testing of the Venture Well by March 31, 1997, and Contractor and the Joint Venture agree that time is of the essence under this Agreement. D-1 15 3. BASIS OF DETERMINING AMOUNTS PAYABLE TO CONTRACTOR: Contractor shall be paid at the following rate for the work performed hereunder: "Drilling, Completion, and Equipping Price": $402,500 4. DEPTH: Subject to the right of the Joint Venture to direct the stoppage of work at any time (as provided in paragraph 6), the Venture Well shall be drilled to the depth as specified in Exhibit "1" or to the depth at which the production casing (oil string) is set, whichever depth is first reached, which depth is hereinafter referred to as the "Contract Depth." 5. TIME OF PAYMENT: 5.1 Basis: Payment by the Joint Venture to the Contractor of the Drilling Price becomes due and payable upon execution of this Agreement. Neither commencement nor completion of Contractor's performance shall be a condition precedent to this obligation to pay. 5.2 Attorneys' Fees: If this Agreement is placed in the hands of an attorney for collection of any sums due hereunder, or suit is brought on same, or sums due hereunder are collected through bankruptcy or probate proceedings, then the Joint Venture agrees that there shall be added to the amount due reasonable attorneys' fees and costs. 6. COMPLETION PROGRAM: The Joint Venture shall determine whether Contractor shall set an oil string. In the event the Joint Venture directs that drilling operations cease and to abandon the Venture Well, Contractor shall plug the Venture Well, remove all drilling apparatus from the well sites and the obligations of the parties hereunder shall cease. In the event the Joint Venture directs Contractor to set an oil string and makes timely payment to the Contractor of the completion price, Contractor shall commence the operations necessary to complete the Venture Well for commercial production, including the setting of an oil string and the acquisition, delivery and installation of a pump jack, holding tank and all other necessary equipment needed to extract and contain oil from the Venture Well. If Contractor should enter into an assignment with another entity to undertake the Completion Program, Contractor may bill Joint Venture, and Joint Venture will pay for any completion costs over and above the Completion Price set forth herein. 7. STOPPAGE OF WORK BY JOINT VENTURE: Notwithstanding the provisions of paragraph 3 with respect to the depth to be drilled, the Joint Venture shall have the right to direct the stoppage of the work to be performed by the Contractor hereunder at any time prior to reaching the Contract Depth and even though Contractor has made no default hereunder. If Joint Venture exercises its right to discontinue drilling a well, the Joint Venture will not receive a refund for any unused portion of the Drilling Price allocable to the discontinued well but the Joint Venture may direct Contractor to apply the unused portion of the D-2 16 Drilling Price to the intangible cost of another well that the Joint Venture shall specify. The unused portion of the Drilling Price will be determined as follows: Contractor shall determine a sum equal to all the actual expenses reasonably and necessarily incurred up to the date the Joint Venture notified Contractor to discontinue drilling plus such additional expenses reasonably and necessarily incurred in order for Contractor to cease operations, including plugging and abandoning the hole, and dismantling the rig plus the sum of 15% of such total actual expenses. This sum shall be deducted from the Drilling Price of the Venture Well. The resulting difference shall be the unused portion of the price. 8. REPORTS TO BE FURNISHED BY CONTRACTOR: 8.1 Contractor shall keep and furnish to the Joint Venture an accurate record of the work performed and formations drilled on the IADC-API Daily Drilling Report form or other form acceptable to the Joint Venture. A legible copy of said form signed by Contractor's representative shall be furnished by Contractor to the Joint Venture. 8.2 Delivery tickets, if requested by the Joint Venture, covering any material or supplies furnished by the Joint Venture shall be turned in each day with the daily drilling report. The quantity, description and condition of materials and supplies so furnished shall be checked by Contractor and such tickets shall be properly certified by Contractor. 9. RESPONSIBILITY FOR A SOUND LOCATION: Contractor shall prepare a sound location, adequate in size and capable of properly supporting the drilling rig. Contractor shall be responsible for a conductor pipe program adequate to prevent soil and subsoil washout. In the event subsurface conditions cause a cratering or shifting of the location surface, and loss or damage to the rig or its associated equipment results therefrom, the Joint Venture shall not be responsible for reimbursing Contractor for any such loss or damage including payment of work stoppage rate during repair and/or demobilization if applicable. 10. RESPONSIBILITY FOR ROAD AND LOCATIONS: Contractor agrees at all times to maintain roads to locations and each location in such a condition that will allow free access and movement to and from the drilling site in an ordinarily equipped highway type vehicle. 11. PAYMENT OF CLAIMS: Contractor agrees to pay all claims for labor, material, services and supplies to be furnished by Contractor hereunder, and agrees to allow no lien or charge to be fixed upon the lease, the wells or other property of the Joint Venture or the land upon which said wells are located. D-3 17 12. RESPONSIBILITY FOR LOSS OR DAMAGE: 12.1 Contractor's Surface Equipment: Contractor shall assume liability at all times for damage to or destruction of Contractor's surface equipment, including but not limited to all drilling tools, machinery and appliances, for use above the surface, regardless of when or how such damage or destruction occurs. 12.2 Contractor's In-Hole Equipment Basis: Contractor shall assume liability at all times for damage to or destruction of Contractor's in-hole equipment, including but not limited to drill pipe, drill collars and tool joints, and the Joint Venture shall be under no liability to reimburse Contractor for any such loss. 12.3 Joint Venture's Equipment: The Joint Venture shall assume liability at all times for any defective equipment owned by it, including but not limited to casing, tubing, well head equipment, and Contractor shall be under no liability to reimburse the Joint Venture for any such loss or damage. 12.4 Fire or Blow-Out: Should a fire or blowout occur or should the hole for any cause attributable to Contractor's operators be lost or damaged while Contractor is engaged in the performance of work hereunder, all such loss of or damage to the hole including cost of regaining control of a fire or blowout, shall be borne by Contractor; and if the hole is not in condition to be carried to the Contract Depth as herein provided, Contractor shall, if requested by the Joint Venture, commence a new hole without delay at Contractor's cost; and the drilling of the new hole shall be conducted under the terms and conditions of this Agreement in the same manner as though it were the first hole and Contractor shall be responsible for replacement of any casing lost in a junked and abandoned hole as well as the cost of preparing a new drill site for the new hole and the road thereto. In such case, Contractor shall not be entitled to any payment or compensation for expenditures made or incurred by Contractor on or in connection with the abandoned hole. 13. NO WAIVER EXCEPT IN WRITING: It is fully understood and agreed that none of the requirements of this Agreement shall be considered as waived by either party unless the same is done in writing, and then only by the persons executing this Agreement, or other duly authorized agent or representative of the party. 14. FORCE MAJEURE: If either party hereto is rendered unable, wholly or in part (and its performance hereunder is not rendered merely commercially impracticable) by force majeure to carry out its obligation under this Agreement, it shall give the other party prompt written notice of the force majeure with reasonably full particulars. Thereupon, the obligations of the notifying party, so far as they are affected by the force majeure, shall be suspended during, but not longer than, the continuance of the force majeure, and the notifying party agrees to use reasonable diligence to remove the force majeure as quickly as possible. This paragraph shall not relieve either party hereto for its obligations to expend sums of money or to indemnify the other party hereto, as provided elsewhere in this Agreement. The term "force majeure" as herein employed shall mean an act of God, strike, lockout or other industrial disturbance, act of the public enemy, war, blockade, public riot, lightning, fire, storm, flood, explosion, extreme weather conditions, or governmental restraint. D-4 18 15. INFORMATION CONFIDENTIAL: Upon written request by the Joint Venture, information obtained by Contractor in the conduct of drilling operation on the wells, including, but not limited to depth, formations penetrated, the results of coring, testing and surveying, shall be considered confidential and shall not be divulged by Contractor or its employees, to any person, firm or any corporation other than the Joint Venture's designated representative. 16. ASSIGNMENT: Neither party may assign this Agreement without the prior written consent of the other, and prompt notice of any such intent to assign shall be given to the other party. If any assignment is made that materially alters Contractor's financial burden, Contractor's compensation shall be adjusted to give effect to any increase or decrease in Contractor's operating costs. 17. NOTICES AND PLACE OF PAYMENT: All notices to be given with respect to this Agreement unless otherwise provided for shall be given to Contractor and to the Joint Venture respectively at the addresses hereinabove shown. All sums payable hereunder to Contractor shall be payable at the address hereinabove shown unless otherwise specified herein. BLUE RIDGE ENERGY, INC. By: /s/ ROBERT D. BURR ------------------------------- Robert D. Burr, President BLUE RIDGE GROUP, INC. By: /s/ JAMES T. COOK, JR. ------------------------------- James T. Cook, Jr., Vice President--Finance & C.F.O. D-5 19 EXHIBIT "1" TO EXHIBIT "D" OCTOBER 01, 1996 WEST CURRIE PROSPECT: The primary investment objective of the Joint Venture is the acquisition of approximately 65.37% of the Working Interest, which is approximately 49.02% of the Net Revenue Interest in a well site on the West Currie Prospect which consists of approximately 1,500 acres of oil and gas leases in Navarro County, Texas and the well to be drilled thereon (hereinafter referred to as "Venture Well"), and the production and sale of oil and/or gas therefrom. The Venture Well will be drilled to a depth of 8,800', or a depth sufficient to test the Norpthlet Sand formation. D-6 20 TURNKEY DRILLING CONTRACT THIS AGREEMENT, is made and entered into as of 24th day of February, 1997 by and between the parties herein designated as "Joint Venture" and "Contractor." Joint Venture: Paluxy Joint Venture, Ltd. Address: 632 Adams Street, Suite 710 Bowling Green, Kentucky 42101 Contractor: Blue Ridge Energy, Inc. Address: 632 Adams Street, Suite 710 Bowling Green, Kentucky 42101 IN CONSIDERATION of the mutual promises, conditions and agreements herein contained, Joint Venture engages Contractor as an Independent Contractor to furnish the equipment, labor and services to drill, test, and complete its portion of a Venture Well to be located in Smith County, Texas, (referred to herein as "Venture Well") in search of oil and/or gas. The Joint Venture will make the specified payments to Contractor in order (i) to obtain a price from Contractor for the drilling and completion of the Venture Well to specified depths, (ii) to assure that Contractor will be available to drill, test and complete the subject Venture Well for the Joint Venture, (iii) to assure that Contractor will make available on a preferential basis sufficient drilling and completion apparatus needed to drill, test and complete the Venture Well at the earliest possible time, (iv) to obtain a preferential use of Contractor's services, and (v) to assure competent supervisory personnel are available in the drilling and completion of the subject Venture Well. Contractor agrees to furnish all equipment, labor and services necessary for the drilling to the depth indicated herein and the completion of such Venture Well. Contractor agrees that the work to be conducted under the terms of this Agreement will be done with diligence and care in a good and workmanlike manner and agrees to provide competent supervision of the work performed hereunder. Unless specifically otherwise provided for herein, all the required equipment, services and labor are furnished for the price set forth herein. 1. LOCATION OF VENTURE WELL: See Exhibit "1" attached hereto and made a part hereof. 2. TERMINATION DATE: Contractor agrees to use its best efforts to complete operations for the acquisition, drilling and testing of the Venture Well by June 30, 1997, and Contractor and the Joint Venture agree that time is of the essence under this Agreement. D-1 21 3. BASIS OF DETERMINING AMOUNTS PAYABLE TO CONTRACTOR: Contractor shall be paid at the following rate for the work performed hereunder: "Drilling, Price": $647,280 "Completion and Equipping Price": $190,948 4. DEPTH: Subject to the right of the Joint Venture to direct the stoppage of work at any time (as provided in paragraph 7), the Venture Well shall be drilled to the depth as specified in Exhibit "1" or to the depth at which the production casing (oil string) is set, whichever depth is first reached, which depth is hereinafter referred to as the "Contract Depth." 5. TIME OF PAYMENT: 5.1 Basis: Payment by the Joint Venture to the Contractor of the Drilling Price becomes due and payable upon the receipt by the Joint Venture of an invoice from the Contractor. Neither commencement nor completion of Contractor's performance shall be a condition precedent to this obligation to pay. 5.2 Attorneys' Fees: If this Agreement is placed in the hands of an attorney for collection of any sums due hereunder, or suit is brought on same, or sums due hereunder are collected through bankruptcy or probate proceedings, then the Joint Venture agrees that there shall be added to the amount due reasonable attorneys' fees and costs. 6. COMPLETION PROGRAM: The Joint Venture shall determine whether Contractor shall set an oil string. In the event the Joint Venture directs that drilling operations cease and to abandon the Venture Well, Contractor shall plug the Venture Well, remove all drilling apparatus from the well sites and the obligations of the parties hereunder shall cease. In the event the Joint Venture directs Contractor to set an oil string and makes timely payment to the Contractor of the completion price, Contractor shall commence the operations necessary to complete the Venture Well for commercial production, including the setting of an oil string and the acquisition, delivery and installation of a pump jack, holding tank and all other necessary equipment needed to extract and contain oil from the Venture Well. If Contractor should enter into an assignment with another entity to undertake the Completion Program, Contractor may bill Joint Venture, and Joint Venture will pay for any completion costs over and above the Completion Price set forth herein. 7. STOPPAGE OF WORK BY JOINT VENTURE: Notwithstanding the provisions of paragraph 3 with respect to the depth to be drilled, the Joint Venture shall have the right to direct the stoppage of the work to be performed by the Contractor hereunder at any time prior to reaching the Contract Depth and even though Contractor has made no default hereunder. If Joint Venture exercises its right to discontinue drilling a well, the Joint Venture will not receive a refund for any unused portion of the Drilling Price allocable to the discontinued well but the Joint Venture may direct Contractor to apply the unused portion of the Drilling Price to the intangible cost of another well that the Joint Venture shall specify. The unused portion of the Drilling Price will be determined as follows: D-2 22 Contractor shall determine a sum equal to all the actual expenses reasonably and necessarily incurred up to the date the Joint Venture notified Contractor to discontinue drilling plus such additional expenses reasonably and necessarily incurred in order for Contractor to cease operations, including plugging and abandoning the hole, and dismantling the rig plus the sum of 15% of such total actual expenses. This sum shall be deducted from the Drilling Price of the wells. The resulting difference shall be the unused portion of the price. 8. REPORTS TO BE FURNISHED BY CONTRACTOR: 8.1 Contractor shall keep and furnish to the Joint Venture an accurate record of the work performed and formations drilled on the IADC-API Daily Drilling Report form or other form acceptable to the Joint Venture. A legible copy of said form signed by Contractor's representative shall be furnished by Contractor to the Joint Venture. 8.2 Delivery tickets, if requested by the Joint Venture, covering any material or supplies furnished by the Joint Venture shall be turned in each day with the daily drilling report. The quantity, description and condition of materials and supplies so furnished shall be checked by Contractor and such tickets shall be properly certified by Contractor. 9. RESPONSIBILITY FOR A SOUND LOCATION: Contractor shall prepare a sound location, adequate in size and capable of properly supporting the drilling rig. Contractor shall be responsible for a conductor pipe program adequate to prevent soil and subsoil washout. In the event subsurface conditions cause a cratering or shifting of the location surface, and loss or damage to the rig or its associated equipment results therefrom, the Joint Venture shall not be responsible for reimbursing Contractor for any such loss or damage including payment of work stoppage rate during repair and/or demobilization if applicable. 10. RESPONSIBILITY FOR ROAD AND LOCATIONS: Contractor agrees at all times to maintain roads to locations and each location in such a condition that will allow free access and movement to and from the drilling site in an ordinarily equipped highway type vehicle. 11. PAYMENT OF CLAIMS: Contractor agrees to pay all claims for labor, material, services and supplies to be furnished by Contractor hereunder, and agrees to allow no lien or charge to be fixed upon the lease, the wells or other property of the Joint Venture or the land upon which said wells are located. 12. RESPONSIBILITY FOR LOSS OR DAMAGE: 12.1 Contractor's Surface Equipment: Contractor shall assume liability at all times for damage to or destruction of Contractor's surface equipment, including but not limited to all drilling tools, machinery and appliances, for use above the surface, regardless of when or how such damage or destruction occurs. 12.2 Contractor's In-Hole Equipment Basis: Contractor shall assume liability at all times for damage to or destruction of Contractor's in-hole equipment, including but not limited to drill pipe, D-3 23 drill collars and tool joints, and the Joint Venture shall be under no liability to reimburse Contractor for any such loss. 12.3 Joint Venture's Equipment: The Joint Venture shall assume liability at all times for any defective equipment owned by it, including but not limited to casing, tubing, well head equipment, and Contractor shall be under no liability to reimburse the Joint Venture for any such loss or damage. 12.4 Fire or Blow-Out: Should a fire or blowout occur or should the hole for any cause attributable to Contractor's operators be lost or damaged while Contractor is engaged in the performance of work hereunder, all such loss of or damage to the hole including cost of regaining control of a fire or blowout, shall be borne by Contractor; and if the hole is not in condition to be carried to the Contract Depth as herein provided, Contractor shall, if requested by the Joint Venture, commence a new hole without delay at Contractor's cost; and the drilling of the new hole shall be conducted under the terms and conditions of this Agreement in the same manner as though it were the first hole and Contractor shall be responsible for replacement of any casing lost in a junked and abandoned hole as well as the cost of preparing a new drill site for the new hole and the road thereto. In such case, Contractor shall not be entitled to any payment or compensation for expenditures made or incurred by Contractor on or in connection with the abandoned hole. 13. NO WAIVER EXCEPT IN WRITING: It is fully understood and agreed that none of the requirements of this Agreement shall be considered as waived by either party unless the same is done in writing, and then only by the persons executing this Agreement, or other duly authorized agent or representative of the party. 14. FORCE MAJEURE: If either party hereto is rendered unable, wholly or in part (and its performance hereunder is not rendered merely commercially impracticable) by force majeure to carry out its obligation under this Agreement, it shall give the other party prompt written notice of the force majeure with reasonably full particulars. Thereupon, the obligations of the notifying party, so far as they are affected by the force majeure, shall be suspended during, but not longer than, the continuance of the force majeure, and the notifying party agrees to use reasonable diligence to remove the force majeure as quickly as possible. This paragraph shall not relieve either party hereto for its obligations to expend sums of money or to indemnify the other party hereto, as provided elsewhere in this Agreement. The term "force majeure" as herein employed shall mean an act of God, strike, lockout or other industrial disturbance, act of the public enemy, war, blockade, public riot, lightning, fire, storm, flood, explosion, extreme weather conditions, or governmental restraint. 15. INFORMATION CONFIDENTIAL: Upon written request by the Joint Venture, information obtained by Contractor in the conduct of drilling operation on the Venture Well, including, but not limited to depth, formations penetrated, the results of coring, testing and surveying, shall be considered confidential and shall not be divulged by Contractor or its employees, to any person, firm or any corporation other than the Joint Venture's designated representative. D-4 24 16. ASSIGNMENT: Neither party may assign this Agreement without the prior written consent of the other, and prompt notice of any such intent to assign shall be given to the other party. If any assignment is made that materially alters Contractor's financial burden, Contractor's compensation shall be adjusted to give effect to any increase or decrease in Contractor's operating costs. 17. NOTICES AND PLACE OF PAYMENT: All notices to be given with respect to this Agreement unless otherwise provided for shall be given to Contractor and to the Joint Venture respectively at the addresses hereinabove shown. All sums payable hereunder to Contractor shall be payable at the address hereinabove shown unless otherwise specified herein. BLUE RIDGE ENERGY, INC. By: /s/ ROBERT D. BURR ------------------------------- Robert D. Burr, President PALUXY JOINT VENTURE, LTD. A KENTUCKY LIMITED PARTNERSHIP By: Blue Ridge Energy, Inc. Joint Venture Manager By: /s/ ROBERT D. BURR -------------------------------- Robert D. Burr, President D-5 25 EXHIBIT "1" TO EXHIBIT "D" FEBRUARY 24, 1997 MOLLY JANE PROSPECT: The primary investment objective of the Joint Venture is the acquisition of approximately a 50.00% Working Interest, which is approximately a 35.00% Net Revenue Interest in a well site on the Molly Jane Prospect and the production and sale of oil and/or gas therefrom. This prospect consists of approximately 80 acres of oil and gas leases in Smith County, Texas and the well to be re-entered and drilled thereon (the "Venture Well"). The Venture Well will be drilled to a depth of 7,700', or a depth sufficient to test the Paluxy Sandstone formation. D-6 26 TURNKEY DRILLING CONTRACT THIS AGREEMENT, is made and entered into as of 24th day of February, 1997 by and between the parties herein designated as "Joint Venture" and "Contractor." Joint Venture: Blue Ridge Energy, Inc. Address: 632 Adams Street, Suite 710 Bowling Green, Kentucky 42101 Contractor: Blue Ridge Energy, Inc. Address: 632 Adams Street. Suite 700 Bowling Green, Kentucky 42101 IN CONSIDERATION of the mutual promises, conditions and agreements herein contained, Joint Venture engages Contractor as an Independent Contractor to furnish the equipment, labor and services to drill, test, and complete its portion of a Venture Well to be located in Smith County, Texas, (referred to herein as "Venture Well") in search of oil and/or gas. The Joint Venture will make the specified payments to Contractor in order (i) to obtain a price from Contractor for the drilling and completion of the Venture Well to specified depths, (ii) to assure that Contractor will be available to drill, test and complete the subject Venture Well for the Joint Venture, (iii) to assure that Contractor will make available on a preferential basis sufficient drilling and completion apparatus needed to drill, test and complete the Venture Well at the earliest possible time, (iv) to obtain a preferential use of Contractor's services, and (v) to assure competent supervisory personnel are available in the drilling and completion of the subject Venture Well. Contractor agrees to furnish all equipment, labor and services necessary for the drilling to the depth indicated herein and the completion of such Venture Well. Contractor agrees that the work to be conducted under the terms of this Agreement will be done with diligence and care in a good and workmanlike manner and agrees to provide competent supervision of the work performed hereunder. Unless specifically otherwise provided for herein, all the required equipment, services and labor are furnished for the price set forth herein. 1. LOCATION OF VENTURE WELL: See Exhibit "1" attached hereto and made a part hereof. 2. TERMINATION DATE: Contractor agrees to use its best efforts to complete operations for the acquisition, drilling and testing of the Venture Well by June 30, 1997, and Contractor and the Joint Venture agree that time is of the essence under this Agreement. D-1 27 3. BASIS OF DETERMINING AMOUNTS PAYABLE TO CONTRACTOR: Contractor shall be paid at the following rate for the work performed hereunder: "Drilling, Price": $445,800 "Completion and Equipping Price": $164,200 4. DEPTH: Subject to the right of the Joint Venture to direct the stoppage of work at any time (as provided in paragraph 7), the Venture Well shall be drilled to the depth as specified in Exhibit "1" or to the depth at which the production casing (oil string) is set, whichever depth is first reached, which depth is hereinafter referred to as the "Contract Depth." 5. TIME OF PAYMENT: 5.1 Basis: Payment by the Joint Venture to the Contractor of the Drilling Price becomes due and payable upon the receipt by the Joint Venture of an invoice from the Contractor. Neither commencement nor completion of Contractor's performance shall be a condition precedent to this obligation to pay. 5.2 Attorneys' Fees: If this Agreement is placed in the hands of an attorney for collection of any sums due hereunder, or suit is brought on same, or sums due hereunder are collected through bankruptcy or probate proceedings, then the Joint Venture agrees that there shall be added to the amount due reasonable attorneys' fees and costs. 6. COMPLETION PROGRAM: The Joint Venture shall determine whether Contractor shall set an oil string. In the event the Joint Venture directs that drilling operations cease and to abandon the Venture Well, Contractor shall plug the Venture Well, remove all drilling apparatus from the well sites and the obligations of the parties hereunder shall cease. In the event the Joint Venture directs Contractor to set an oil string and makes timely payment to the Contractor of the completion price, Contractor shall commence the operations necessary to complete the Venture Well for commercial production, including the setting of an oil string and the acquisition, delivery and installation of a pump jack, holding tank and all other necessary equipment needed to extract and contain oil from the Venture Well. If Contractor should enter into an assignment with another entity to undertake the Completion Program, Contractor may bill Joint Venture, and Joint Venture will pay for any completion costs over and above the Completion Price set forth herein. 7. STOPPAGE OF WORK BY JOINT VENTURE: Notwithstanding the provisions of paragraph 3 with respect to the depth to be drilled, the Joint Venture shall have the right to direct the stoppage of the work to be performed by the Contractor hereunder at any time prior to reaching the Contract Depth and even though Contractor has made no default hereunder. If Joint Venture exercises its right to discontinue drilling a well, the Joint Venture will not receive a refund for any unused portion of the Drilling Price allocable to the discontinued well but the Joint Venture may direct Contractor to apply the unused portion of the Drilling Price to the intangible cost of another well that the Joint Venture shall specify. The unused portion of the Drilling Price will be determined as follows: D-2 28 Contractor shall determine a sum equal to all the actual expenses reasonably and necessarily incurred up to the date the Joint Venture notified Contractor to discontinue drilling plus such additional expenses reasonably and necessarily incurred in order for Contractor to cease operations, including plugging and abandoning the hole, and dismantling the rig plus the sum of 15% of such total actual expenses. This sum shall be deducted from the Drilling Price of the Venture Well. The resulting difference shall be the unused portion of the price. 8. REPORTS TO BE FURNISHED BY CONTRACTOR: 8.1 Contractor shall keep and furnish to the Joint Venture an accurate record of the work performed and formations drilled on the IADC-API Daily Drilling Report form or other form acceptable to the Joint Venture. A legible copy of said form signed by Contractor's representative shall be furnished by Contractor to the Joint Venture. 8.2 Delivery tickets, if requested by the Joint Venture, covering any material or supplies furnished by the Joint Venture shall be turned in each day with the daily drilling report. The quantity, description and condition of materials and supplies so furnished shall be checked by Contractor and such tickets shall be properly certified by Contractor. 9. RESPONSIBILITY FOR A SOUND LOCATION: Contractor shall prepare a sound location, adequate in size and capable of properly supporting the drilling rig. Contractor shall be responsible for a conductor pipe program adequate to prevent soil and subsoil washout. In the event subsurface conditions cause a cratering or shifting of the location surface, and loss or damage to the rig or its associated equipment results therefrom, the Joint Venture shall not be responsible for reimbursing Contractor for any such loss or damage including payment of work stoppage rate during repair and/or demobilization if applicable. 10. RESPONSIBILITY FOR ROAD AND LOCATIONS: Contractor agrees at all times to maintain roads to locations and each location in such a condition that will allow free access and movement to and from the drilling site in an ordinarily equipped highway type vehicle. 11. PAYMENT OF CLAIMS: Contractor agrees to pay all claims for labor, material, services and supplies to be furnished by Contractor hereunder, and agrees to allow no lien or charge to be fixed upon the lease, the Venture Well or other property of the Joint Venture or the land upon which said Venture Well is located. 12. RESPONSIBILITY FOR LOSS OR DAMAGE: 12.1 Contractor's Surface Equipment: Contractor shall assume liability at all times for damage to or destruction of Contractor's surface equipment, including but not limited to all drilling tools, machinery and appliances, for use above the surface, regardless of when or how such damage or destruction occurs. 12.2 Contractor's In-Hole Equipment Basis: Contractor shall assume liability at all times for damage to or destruction of Contractor's in-hole equipment, including but not limited to drill pipe, D-3 29 drill collars and tool joints, and the Joint Venture shall be under no liability to reimburse Contractor for any such loss. 12.3 Joint Venture's Equipment: The Joint Venture shall assume liability at all times for any defective equipment owned by it, including but not limited to casing, tubing, well head equipment, and Contractor shall be under no liability to reimburse the Joint Venture for any such loss or damage. 12.4 Fire or Blow-Out: Should a fire or blowout occur or should the hole for any cause attributable to Contractor's operators be lost or damaged while Contractor is engaged in the performance of work hereunder, all such loss of or damage to the hole including cost of regaining control of a fire or blowout, shall be borne by Contractor; and if the hole is not in condition to be carried to the Contract Depth as herein provided, Contractor shall, if requested by the Joint Venture, commence a new hole without delay at Contractor's cost; and the drilling of the new hole shall be conducted under the terms and conditions of this Agreement in the same manner as though it were the first hole and Contractor shall be responsible for replacement of any casing lost in a junked and abandoned hole as well as the cost of preparing a new drill site for the new hole and the road thereto. In such case, Contractor shall not be entitled to any payment or compensation for expenditures made or incurred by Contractor on or in connection with the abandoned hole. 13. NO WAIVER EXCEPT IN WRITING: It is fully understood and agreed that none of the requirements of this Agreement shall be considered as waived by either party unless the same is done in writing, and then only by the persons executing this Agreement, or other duly authorized agent or representative of the party. 14. FORCE MAJEURE: If either party hereto is rendered unable, wholly or in part (and its performance hereunder is not rendered merely commercially impracticable) by force majeure to carry out its obligation under this Agreement, it shall give the other party prompt written notice of the force majeure with reasonably full particulars. Thereupon, the obligations of the notifying party, so far as they are affected by the force majeure, shall be suspended during, but not longer than, the continuance of the force majeure, and the notifying party agrees to use reasonable diligence to remove the force majeure as quickly as possible. This paragraph shall not relieve either party hereto for its obligations to expend sums of money or to indemnify the other party hereto, as provided elsewhere in this Agreement. The term "force majeure" as herein employed shall mean an act of God, strike, lockout or other industrial disturbance, act of the public enemy, war, blockade, public riot, lightning, fire, storm, flood, explosion, extreme weather conditions, or governmental restraint. 15. INFORMATION CONFIDENTIAL: Upon written request by the Joint Venture, information obtained by Contractor in the conduct of drilling operation on the Venture Well, including, but not limited to depth, formations penetrated, the results of coring, testing and surveying, shall be considered confidential and shall not be divulged by Contractor or its employees, to any person, firm or any corporation other than the Joint Venture's designated representative. D-4 30 16. ASSIGNMENT: Neither party may assign this Agreement without the prior written consent of the other, and prompt notice of any such intent to assign shall be given to the other party. If any assignment is made that materially alters Contractor's financial burden, Contractor's compensation shall be adjusted to give effect to any increase or decrease in Contractor's operating costs. 17. NOTICES AND PLACE OF PAYMENT: All notices to be given with respect to this Agreement unless otherwise provided for shall be given to Contractor and to the Joint Venture respectively at the addresses hereinabove shown. All sums payable hereunder to Contractor shall be payable at the address hereinabove shown unless otherwise specified herein. BLUE RIDGE ENERGY, INC. By: /s/ ROBERT D. BURR ------------------------------- Robert D. Burr, President BLUE RIDGE INC. By: /s/ JAMES T. COOK, JR. -------------------------------- James T. Cook, Jr., Vice President-Finance & C.F.O. D-5 31 EXHIBIT "1" TO EXHIBIT "D" FEBRUARY 24, 1997 MOLLY JANE PROSPECT: The primary investment objective of the Joint Venture is the acquisition of approximately a 50.00% Working Interest, which is approximately a 35.00% Net Revenue Interest in a well site on the Molly Jane Prospect and the production and sale of oil and/or gas therefrom. This prospect consists of approximately 80 acres of oil and gas leases in Smith County, Texas and the well to be re-entered and drilled thereon (the "Venture Well"). The Venture Well will be drilled to a depth of 7,700', or a depth sufficient to test the Paluxy Sandstone formation. D-6 32 TURNKEY DRILLING CONTRACT THIS AGREEMENT, is made and entered into as of 21st day of May, 1997 by and between the parties herein designated as "Joint Venture" and "Contractor." Joint Venture: Home Stake Joint Venture, Ltd. Address: 632 Adams Street, Suite 710 Bowling Green, Kentucky 42101 Contractor: Blue Ridge Energy, Inc. Address: 632 Adams Street, Suite 710 Bowling Green, Kentucky 42101 IN CONSIDERATION of the mutual promises, conditions and agreements herein contained, Joint Venture engages Contractor as an Independent Contractor to furnish the equipment, labor and services to drill, test, and complete its portion of a Re-Entry Well to be located in Lea County, New Mexico and a Venture Well to be located in Throckmorton County, Texas, (referred to herein as "Re-Entry and/or Venture Wells") in search of oil and/or gas. The Joint Venture will make the specified payments to Contractor in order (i) to obtain a price from Contractor for the drilling and completion of the Re-Entry and/or Venture Wells to specified depths, (ii) to assure that Contractor will be available to drill, test and complete the subject Re-Entry and/or Venture Wells for the Joint Venture, (iii) to assure that Contractor will make available on a preferential basis sufficient drilling and completion apparatus needed to drill, test and complete the Re-Entry and/or Venture Wells at the earliest possible time, (iv) to obtain a preferential use of Contractor's services, and (v) to assure competent supervisory personnel are available in the drilling and completion of the subject Re-Entry and/or Venture Wells. Contractor agrees to furnish all equipment, labor and services necessary for the drilling to the depth indicated herein and the completion of such Re-Entry and/or Venture Wells. Contractor agrees that the work to be conducted under the terms of this Agreement will be done with diligence and care in a good and workmanlike manner and agrees to provide competent supervision of the work performed hereunder. Unless specifically otherwise provided for herein, all the required equipment, services and labor are furnished for the price set forth herein. 1. LOCATION OF RE-ENTRY AND/OR VENTURE WELLS: See Exhibit "1" attached hereto and made a part hereof. 2. TERMINATION DATE: Contractor agrees to use its best efforts to complete operations for the acquisition, drilling and testing of the Re-Entry and/or Venture Wells by September 30, 1997, and Contractor and the Joint Venture agree that time is of the essence under this Agreement. D-1 33 3. BASIS OF DETERMINING AMOUNTS PAYABLE TO CONTRACTOR: Contractor shall be paid at the following rate for the work performed hereunder: "Acquisition Price": $ 80,000 "Drilling Price": $552,684 "Completion and Equipping Price": $438,500 4. DEPTH: Subject to the right of the Joint Venture to direct the stoppage of work at any time (as provided in paragraph 7), the Re-Entry and/or Venture Wells shall be drilled to the depths as specified in Exhibit "1" or to the depths at which the production casing (oil string) is set, whichever depth is first reached, which depth is hereinafter referred to as the "Contract Depth." 5. TIME OF PAYMENT: 5.1 Basis: Payment by the Joint Venture to the Contractor of the Drilling Price becomes due and payable upon the receipt by the Joint Venture of an invoice from the Contractor. Neither commencement nor completion of Contractor's performance shall be a condition precedent to this obligation to pay. 5.2 Attorneys' Fees: If this Agreement is placed in the hands of an attorney for collection of any sums due hereunder, or suit is brought on same, or sums due hereunder are collected through bankruptcy or probate proceedings, then the Joint Venture agrees that there shall be added to the amount due reasonable attorneys' fees and costs. 6. COMPLETION PROGRAM: The Joint Venture shall determine whether Contractor shall set an oil string. In the event the Joint Venture directs that drilling operations cease and to abandon the Re-Entry and/or Venture Wells, Contractor shall plug the Re-Entry and/or Venture Wells, remove all drilling apparatus from the well sites and the obligations of the parties hereunder shall cease. In the event the Joint Venture directs Contractor to set an oil string and makes timely payment to the Contractor of the completion price, Contractor shall commence the operations necessary to complete the Re-Entry and/or Venture Wells for commercial production, including the setting of an oil string and the acquisition, delivery and installation of a pump jack, holding tank and all other necessary equipment needed to extract and contain oil from the Re-Entry and/or Venture Wells. If Contractor should enter into an assignment with another entity to undertake the Completion Program, Contractor may bill the Joint Venture, and the Joint Venture will pay for any completion costs over and above the Completion Price set forth herein. 7. STOPPAGE OF WORK BY THE JOINT VENTURE: Notwithstanding the provisions of paragraph 3 with respect to the depth to be drilled, the Joint Venture shall have the right to direct the stoppage of the work to be performed by the Contractor hereunder at any time prior to reaching the Contract Depths and even though Contractor has made no default hereunder. If the Joint Venture exercises its right to discontinue drilling a well, the Joint Venture will not receive a refund for any unused portion of the Drilling Price allocable to the discontinued well but the Joint Venture may direct Contractor to apply the unused portion of D-2 34 the Drilling Price to the intangible cost of another well that the Joint Venture shall specify. The unused portion of the Drilling Price will be determined as follows: Contractor shall determine a sum equal to all the actual expenses reasonably and necessarily incurred up to the date the Joint Venture notified Contractor to discontinue drilling plus such additional expenses reasonably and necessarily incurred in order for Contractor to cease operations, including plugging and abandoning the hole, and dismantling the rig plus the sum of 15% of such total actual expenses. This sum shall be deducted from the Drilling Price of the Re-Entry and/or Venture Wells. The resulting difference shall be the unused portion of the price. 8. REPORTS TO BE FURNISHED BY CONTRACTOR: 8.1 Contractor shall keep and furnish to the Joint Venture an accurate record of the work performed and formations drilled on the IADC-API Daily Drilling Report form or other form acceptable to the Joint Venture. A legible copy of said form signed by Contractor's representative shall be furnished by Contractor to the Joint Venture. 8.2 Delivery tickets, if requested by the Joint Venture, covering any material or supplies furnished by the Joint Venture shall be turned in each day with the daily drilling report. The quantity, description and condition of materials and supplies so furnished shall be checked by Contractor and such tickets shall be properly certified by Contractor. 9. RESPONSIBILITY FOR A SOUND LOCATION: Contractor shall prepare a sound location, adequate in size and capable of properly supporting the drilling rig. Contractor shall be responsible for a conductor pipe program adequate to prevent soil and subsoil washout. In the event subsurface conditions cause a cratering or shifting of the location surface, and loss or damage to the rig or its associated equipment results therefrom, the Joint Venture shall not be responsible for reimbursing Contractor for any such loss or damage including payment of work stoppage rate during repair and/or demobilization if applicable. 10. RESPONSIBILITY FOR ROAD AND LOCATIONS: Contractor agrees at all times to maintain roads to locations and each location in such a condition that will allow free access and movement to and from the drilling site in an ordinarily equipped highway type vehicle. 11. PAYMENT OF CLAIMS: Contractor agrees to pay all claims for labor, material, services and supplies to be furnished by Contractor hereunder, and agrees to allow no lien or charge to be fixed upon the lease, the Re-Entry and/or Venture Wells or other property of the Joint Venture or the land upon which said Re-Entry and/or Venture Wells are located. 12. RESPONSIBILITY FOR LOSS OR DAMAGE: 12.1 Contractor's Surface Equipment: Contractor shall assume liability at all times for damage to or destruction of Contractor's surface equipment, including but not limited to all drilling tools, machinery and appliances, for use above the surface, regardless of when or how such damage or destruction occurs. D-3 35 12.2 Contractor's In-Hole Equipment Basis: Contractor shall assume liability at all times for damage to or destruction of Contractor's in-hole equipment, including but not limited to drill pipe, drill collars and tool joints, and the Joint Venture shall be under no liability to reimburse Contractor for any such loss. 12.3 Joint Venture's Equipment: The Joint Venture shall assume liability at all times for any defective equipment owned by it, including but not limited to casing, tubing, well head equipment, and Contractor shall be under no liability to reimburse the Joint Venture for any such loss or damage. 12.4 Fire or Blow-Out: Should a fire or blowout occur or should the hole for any cause attributable to Contractor's operators be lost or damaged while Contractor is engaged in the performance of work hereunder, all such loss of or damage to the hole including cost of regaining control of a fire or blowout, shall be borne by Contractor; and if the hole is not in condition to be carried to the Contract Depth as herein provided, Contractor shall, if requested by the Joint Venture, commence a new hole without delay at Contractor's cost; and the drilling of the new hole shall be conducted under the terms and conditions of this Agreement in the same manner as though it were the first hole and Contractor shall be responsible for replacement of any casing lost in a junked and abandoned hole as well as the cost of preparing a new drill site for the new hole and the road thereto. In such case, Contractor shall not be entitled to any payment or compensation for expenditures made or incurred by Contractor on or in connection with the abandoned hole. 13. NO WAIVER EXCEPT IN WRITING: It is fully understood and agreed that none of the requirements of this Agreement shall be considered as waived by either party unless the same is done in writing, and then only by the persons executing this Agreement, or other duly authorized agent or representative of the party. 14. FORCE MAJEURE: If either party hereto is rendered unable, wholly or in part (and its performance hereunder is not rendered merely commercially impracticable) by force majeure to carry out its obligation under this Agreement, it shall give the other party prompt written notice of the force majeure with reasonably full particulars. Thereupon, the obligations of the notifying party, so far as they are affected by the force majeure, shall be suspended during, but not longer than, the continuance of the force majeure, and the notifying party agrees to use reasonable diligence to remove the force majeure as quickly as possible. This paragraph shall not relieve either party hereto for its obligations to expend sums of money or to indemnify the other party hereto, as provided elsewhere in this Agreement. The term "force majeure" as herein employed shall mean an act of God, strike, lockout or other industrial disturbance, act of the public enemy, war, blockade, public riot, lightning, fire, storm, flood, explosion, extreme weather conditions, or governmental restraint. 15. INFORMATION CONFIDENTIAL: Upon written request by the Joint Venture, information obtained by Contractor in the conduct of drilling operation on the Re-Entry and/or Venture Wells, including, but not limited to depth, formations penetrated, the results of coring, testing and surveying, shall be considered confidential and shall not be divulged by Contractor or its employees, to any person, firm or any corporation other than the Joint Venture's designated representative. D-4 36 16. ASSIGNMENT: Neither party may assign this Agreement without the prior written consent of the other, and prompt notice of any such intent to assign shall be given to the other party. If any assignment is made that materially alters Contractor's financial burden, Contractor's compensation shall be adjusted to give effect to any increase or decrease in Contractor's operating costs. 17. NOTICES AND PLACE OF PAYMENT: All notices to be given with respect to this Agreement unless otherwise provided for shall be given to Contractor and to the Joint Venture respectively at the addresses hereinabove shown. All sums payable hereunder to Contractor shall be payable at the address hereinabove shown unless otherwise specified herein. BLUE RIDGE ENERGY, INC. By: /s/ ROBERT D. BURR ------------------------------- Robert D. Burr, President HOME STAKE JOINT VENTURE, LTD. A KENTUCKY LIMITED PARTNERSHIP By: Blue Ridge Energy, Inc. Joint Venture Manager By: /s/ ROBERT D. BURR -------------------------------- Robert D. Burr, President D-5 37 EXHIBIT "1" TO EXHIBIT "D" MAY 21, 1997 HOME STAKE PROSPECT: The primary investment objectives of the Joint Venture are the acquisition of approximately a 66.67% Working Interest, which is approximately 50.00% of the Net Revenue Interest, in a well site on the Home Stake Prospect and the acquisition of a 100.00% Working Interest, which is approximately 75.00% of the Net Revenue Interest in the Kelly Prospect and the production and sale of oil and/or gas therefrom. The Home Stake Prospect consists of approximately 160 acres of oil and gas leases in Lea County, New Mexico, and the well to be re-entered and drilled thereon (the "Re-Entry Well"). The Re-Entry Well will be drilled to a depth of 11,200', or a depth sufficient to test the Strawn Limestone formation. The Kelly Prospect consists of approximately 70 acres of oil and gas leases in Throckmorton County, Texas and the well to be drilled thereon (the "Venture Well"). The Venture Well will be drilled to a depth of 4,600', or a depth sufficient to test the Mississippian Chapel Limestone formations. D-6 38 TURNKEY DRILLING CONTRACT THIS AGREEMENT, is made and entered into as of 21st day of May, 1997 by and between the parties herein designated as "Joint Venture" and "Contractor." Joint Venture: Blue Ridge Energy, Inc. Address: 632 Adams Street, Suite 710 Bowling Green, Kentucky 42101 Contractor: Blue Ridge Group, Inc. Address: 632 Adams Street, Suite 700 Bowling Green, Kentucky 42101 IN CONSIDERATION of the mutual promises, conditions and agreements herein contained, Joint Venture engages Contractor as an Independent Contractor to furnish the equipment, labor and services to drill, test, and complete its portion of a Re-Entry Well to be located in Lea County, New Mexico and a Venture Well to be located in Throckmorton County, Texas, (referred to herein as "Re-Entry and/or Venture Wells") in search of oil and/or gas. The Joint Venture will make the specified payments to Contractor in order (i) to obtain a price from Contractor for the drilling and completion of the Re-Entry and/or Venture Wells to specified depths, (ii) to assure that Contractor will be available to drill, test and complete the subject Re-Entry and/or Venture Wells for the Joint Venture, (iii) to assure that Contractor will make available on a preferential basis sufficient drilling and completion apparatus needed to drill, test and complete the Re-Entry and/or Venture Wells at the earliest possible time, (iv) to obtain a preferential use of Contractor's services, and (v) to assure competent supervisory personnel are available in the drilling and completion of the subject Re-Entry and/or Venture Wells. Contractor agrees to furnish all equipment, labor and services necessary for the drilling to the depth indicated herein and the completion of such Re-Entry and/or Venture Wells. Contractor agrees that the work to be conducted under the terms of this Agreement will be done with diligence and care in a good and workmanlike manner and agrees to provide competent supervision of the work performed hereunder. Unless specifically otherwise provided for herein, all the required equipment, services and labor are furnished for the price set forth herein. 1. LOCATION OF RE-ENTRY AND/OR VENTURE WELLS: See Exhibit "1" attached hereto and made a part hereof. 2. TERMINATION DATE: Contractor agrees to use its best efforts to complete operations for the acquisition, drilling and testing of the Re-Entry and/or Venture Wells by September 30, 1997, and Contractor and the Joint Venture agree that time is of the essence under this Agreement. D-1 39 3. BASIS OF DETERMINING AMOUNTS PAYABLE TO CONTRACTOR: Contractor shall be paid at the following rate for the work performed hereunder: "Drilling, Price": $682,500 "Completion and Equipping Price": $485,000 4. DEPTH: Subject to the right of the Joint Venture to direct the stoppage of work at any time (as provided in paragraph 7), the Re-Entry and/or Venture Wells shall be drilled to the depth as specified in Exhibit "1" or to the depth at which the production casing (oil string) is set, whichever depth is first reached, which depth is hereinafter referred to as the "Contract Depth." 5. TIME OF PAYMENT: 5.1 Basis: Payment by the Joint Venture to the Contractor of the Drilling Price becomes due and payable upon the receipt by the Joint Venture of an invoice from the Contractor. Neither commencement nor completion of Contractor's performance shall be a condition precedent to this obligation to pay. 5.2 Attorneys' Fees: If this Agreement is placed in the hands of an attorney for collection of any sums due hereunder, or suit is brought on same, or sums due hereunder are collected through bankruptcy or probate proceedings, then the Joint Venture agrees that there shall be added to the amount due reasonable attorneys' fees and costs. 6. COMPLETION PROGRAM: The Joint Venture shall determine whether Contractor shall set an oil string. In the event the Joint Venture directs that drilling operations cease and to abandon the Re-Entry and/or Venture Wells, Contractor shall plug the Re-Entry and/or Venture Wells, remove all drilling apparatus from the well sites and the obligations of the parties hereunder shall cease. In the event the Joint Venture directs Contractor to set an oil string and makes timely payment to the Contractor of the completion price, Contractor shall commence the operations necessary to complete the Re-Entry and/or Venture Wells for commercial production, including the setting of an oil string and the acquisition, delivery and installation of a pump jack, holding tank and all other necessary equipment needed to extract and contain oil from the Re-Entry and/or Venture Wells. If Contractor should enter into an assignment with another entity to undertake the Completion Program, Contractor may bill Joint Venture, and Joint Venture will pay for any completion costs over and above the Completion Price set forth herein. 7. STOPPAGE OF WORK BY JOINT VENTURE: Notwithstanding the provisions of paragraph 3 with respect to the depth to be drilled, the Joint Venture shall have the right to direct the stoppage of the work to be performed by the Contractor hereunder at any time prior to reaching the Contract Depths and even though Contractor has made no default hereunder. If Joint Venture exercises its right to discontinue drilling a well, the Joint Venture will not receive a refund for any unused portion of the Drilling Price allocable to the discontinued well but the Joint Venture may direct Contractor to apply the unused portion of D-2 40 the Drilling Price to the intangible cost of another well that the Joint Venture shall specify. The unused portion of the Drilling Price will be determined as follows: Contractor shall determine a sum equal to all the actual expenses reasonably and necessarily incurred up to the date the Joint Venture notified Contractor to discontinue drilling plus such additional expenses reasonably and necessarily incurred in order for Contractor to cease operations, including plugging and abandoning the hole, and dismantling the rig plus the sum of 15% of such total actual expenses. This sum shall be deducted from the Drilling Price of the Re-Entry and/or Venture Wells. The resulting difference shall be the unused portion of the price. 8. REPORTS TO BE FURNISHED BY CONTRACTOR: 8.1 Contractor shall keep and furnish to the Joint Venture an accurate record of the work performed and formations drilled on the IADC-API Daily Drilling Report form or other form acceptable to the Joint Venture. A legible copy of said form signed by Contractor's representative shall be furnished by Contractor to the Joint Venture. 8.2 Delivery tickets, if requested by the Joint Venture, covering any material or supplies furnished by the Joint Venture shall be turned in each day with the daily drilling report. The quantity, description and condition of materials and supplies so furnished shall be checked by Contractor and such tickets shall be properly certified by Contractor. 9. RESPONSIBILITY FOR A SOUND LOCATION: Contractor shall prepare a sound location, adequate in size and capable of properly supporting the drilling rig. Contractor shall be responsible for a conductor pipe program adequate to prevent soil and subsoil washout. In the event subsurface conditions cause a cratering or shifting of the location surface, and loss or damage to the rig or its associated equipment results therefrom, the Joint Venture shall not be responsible for reimbursing Contractor for any such loss or damage including payment of work stoppage rate during repair and/or demobilization if applicable. 10. RESPONSIBILITY FOR ROAD AND LOCATIONS: Contractor agrees at all times to maintain roads to locations and each location in such a condition that will allow free access and movement to and from the drilling site in an ordinarily equipped highway type vehicle. 11. PAYMENT OF CLAIMS: Contractor agrees to pay all claims for labor, material, services and supplies to be furnished by Contractor hereunder, and agrees to allow no lien or charge to be fixed upon the lease, the Re-Entry and/or Venture Wells or other property of the Joint Venture or the land upon which said Re-Entry and/or Venture Wells are located. 12. RESPONSIBILITY FOR LOSS OR DAMAGE: 12.1 Contractor's Surface Equipment: Contractor shall assume liability at all times for damage to or destruction of Contractor's surface equipment, including but not limited to all drilling tools, machinery and appliances, for use above the surface, regardless of when or how such damage or destruction occurs. D-3 41 12.2 Contractor's In-Hole Equipment Basis: Contractor shall assume liability at all times for damage to or destruction of Contractor's in-hole equipment, including but not limited to drill pipe, drill collars and tool joints, and the Joint Venture shall be under no liability to reimburse Contractor for any such loss. 12.3 Joint Venture's Equipment: The Joint Venture shall assume liability at all times for any defective equipment owned by it, including but not limited to casing, tubing, well head equipment, and Contractor shall be under no liability to reimburse the Joint Venture for any such loss or damage. 12.4 Fire or Blow-Out: Should a fire or blowout occur or should the hole for any cause attributable to Contractor's operators be lost or damaged while Contractor is engaged in the performance of work hereunder, all such loss of or damage to the hole including cost of regaining control of a fire or blowout, shall be borne by Contractor; and if the hole is not in condition to be carried to the Contract Depth as herein provided, Contractor shall, if requested by the Joint Venture, commence a new hole without delay at Contractor's cost; and the drilling of the new hole shall be conducted under the terms and conditions of this Agreement in the same manner as though it were the first hole and Contractor shall be responsible for replacement of any casing lost in a junked and abandoned hole as well as the cost of preparing a new drill site for the new hole and the road thereto. In such case, Contractor shall not be entitled to any payment or compensation for expenditures made or incurred by Contractor on or in connection with the abandoned hole. 13. NO WAIVER EXCEPT IN WRITING: It is fully understood and agreed that none of the requirements of this Agreement shall be considered as waived by either party unless the same is done in writing, and then only by the persons executing this Agreement, or other duly authorized agent or representative of the party. 14. FORCE MAJEURE: If either party hereto is rendered unable, wholly or in part (and its performance hereunder is not rendered merely commercially impracticable) by force majeure to carry out its obligation under this Agreement, it shall give the other party prompt written notice of the force majeure with reasonably full particulars. Thereupon, the obligations of the notifying party, so far as they are affected by the force majeure, shall be suspended during, but not longer than, the continuance of the force majeure, and the notifying party agrees to use reasonable diligence to remove the force majeure as quickly as possible. This paragraph shall not relieve either party hereto for its obligations to expend sums of money or to indemnify the other party hereto, as provided elsewhere in this Agreement. The term "force majeure" as herein employed shall mean an act of God, strike, lockout or other industrial disturbance, act of the public enemy, war, blockade, public riot, lightning, fire, storm, flood, explosion, extreme weather conditions, or governmental restraint. 15. INFORMATION CONFIDENTIAL: Upon written request by the Joint Venture, information obtained by Contractor in the conduct of drilling operation on the Re-Entry and/or Venture Wells, including, but not limited to depth, formations penetrated, the results of coring, testing and surveying, shall be considered confidential and shall not be divulged by Contractor or its employees, to any person, firm or any corporation other than the Joint Venture's designated representative. D-4 42 16. ASSIGNMENT: Neither party may assign this Agreement without the prior written consent of the other, and prompt notice of any such intent to assign shall be given to the other party. If any assignment is made that materially alters Contractor's financial burden, Contractor's compensation shall be adjusted to give effect to any increase or decrease in Contractor's operating costs. 17. NOTICES AND PLACE OF PAYMENT: All notices to be given with respect to this Agreement unless otherwise provided for shall be given to Contractor and to the Joint Venture respectively at the addresses hereinabove shown. All sums payable hereunder to Contractor shall be payable at the address hereinabove shown unless otherwise specified herein. BLUE RIDGE ENERGY, INC. By: /s/ ROBERT D. BURR ------------------------------- Robert D. Burr, President BLUE RIDGE GROUP, INC. By: /s/ JAMES T. COOK, JR. -------------------------------- James T. Cook, Jr., Vice President-Finance & C.F.O. D-5 43 EXHIBIT "1" TO EXHIBIT "D" MAY 21, 1997 HOME STAKE PROSPECT: The primary investment objectives of the Joint Venture are the acquisition of approximately a 66.67% Working Interest, which is approximately 50.00% of the Net Revenue Interest, in a well site on the Home Stake Prospect and the acquisition of a 100.00% Working Interest, which is approximately 75.00% of the Net Revenue Interest in the Kelly Prospect and the production and sale of oil and/or gas therefrom. The Home Stake Prospect consists of approximately 160 acres of oil and gas leases in Lea County, New Mexico, and the well to be re-entered and drilled thereon (the "Re-Entry Well"). The Re-Entry Well will be drilled to a depth of 11,200', or a depth sufficient to test the Strawn Limestone formation. The Kelly Prospect consists of approximately 70 acres of oil and gas leases in Throckmorton County, Texas and the well to be drilled thereon (the "Venture Well"). The Venture Well will be drilled to a depth of 4,600', or a depth sufficient to test the Mississippian Chapel Limestone formations. D-6 44 TURNKEY DRILLING CONTRACT THIS AGREEMENT, is made and entered into as of 26th day of September, 1997 by and between the parties herein designated as "Joint Venture" and "Contractor." Joint Venture: Sherman / Moore #1 Joint Venture, Ltd. Address: 632 Adams Street, Suite 710 Bowling Green, Kentucky 42101 Contractor: Blue Ridge Energy, Inc. Address: 632 Adams Street, Suite 710 Bowling Green, Kentucky 42101 IN CONSIDERATION of the mutual promises, conditions and agreements herein contained, Joint Venture engages Contractor as an Independent Contractor to furnish the equipment, labor and services to drill, test, and complete its portion of two Venture Wells to be located in Sherman County, Texas, (referred to herein as "Venture Wells") in search of oil and/or gas. The Joint Venture will make the specified payments to Contractor in order (i) to obtain a price from Contractor for the drilling and completion of the wells to specified depths, (ii) to assure that Contractor will be available to drill, test and complete the subject Venture Wells for the Joint Venture, (iii) to assure that Contractor will make available on a preferential basis sufficient drilling and completion apparatus needed to drill, test and complete the Venture Wells at the earliest possible time, (iv) to obtain a preferential use of Contractor's services, and (v) to assure competent supervisory personnel are available in the drilling and completion of the subject Venture Wells. Contractor agrees to furnish all equipment, labor and services necessary for the drilling to the depth indicated herein and the completion of such Venture Wells. Contractor agrees that the work to be conducted under the terms of this Agreement will be done with diligence and care in a good and workmanlike manner and agrees to provide competent supervision of the work performed hereunder. Unless specifically otherwise provided for herein, all the required equipment, services and labor are furnished for the price set forth herein. 1. LOCATION OF VENTURE WELLS: See Exhibit "1" attached hereto and made a part hereof. 2. TERMINATION DATE: Contractor agrees to use its best efforts to complete operations for the acquisition, drilling and testing of the Venture Wells by December 31, 1997, and Contractor and the Joint Venture agree that time is of the essence under this Agreement. D-1 45 3. BASIS OF DETERMINING AMOUNTS PAYABLE TO CONTRACTOR: Contractor shall be paid at the following rate for the work performed hereunder: "Drilling, Price": $704,860 "Completion and Equipping Price": $391,530 4. DEPTH: Subject to the right of the Joint Venture to direct the stoppage of work at any time (as provided in paragraph 7), the Venture Wells shall be drilled to the depth as specified in Exhibit "1" or to the depths at which the production casing (oil string) is set, whichever depth is first reached, which depth is hereinafter referred to as the "Contract Depth." 5. TIME OF PAYMENT: 5.1 Basis: Payment by the Joint Venture to the Contractor of the Drilling Price becomes due and payable upon the receipt by the Joint Venture of an invoice from the Contractor. Neither commencement nor completion of Contractor's performance shall be a condition precedent to this obligation to pay. 5.2 Attorneys' Fees: If this Agreement is placed in the hands of an attorney for collection of any sums due hereunder, or suit is brought on same, or sums due hereunder are collected through bankruptcy or probate proceedings, then the Joint Venture agrees that there shall be added to the amount due reasonable attorneys' fees and costs. 6. COMPLETION PROGRAM: The Joint Venture shall determine whether Contractor shall set an oil string. In the event the Joint Venture directs that drilling operations cease and to abandon the Venture Wells, Contractor shall plug the Venture Wells, remove all drilling apparatus from the well sites and the obligations of the parties hereunder shall cease. In the event the Joint Venture directs Contractor to set an oil string and makes timely payment to the Contractor of the completion price, Contractor shall commence the operations necessary to complete the Venture Wells for commercial production, including the setting of an oil string and the acquisition, delivery and installation of a pump jack, holding tank and all other necessary equipment needed to extract and contain oil from the Venture Wells. If Contractor should enter into an assignment with another entity to undertake the Completion Program, Contractor may bill the Joint Venture, and the Joint Venture will pay for any completion costs over and above the Completion Price set forth herein. 7. STOPPAGE OF WORK BY THE JOINT VENTURE: Notwithstanding the provisions of paragraph 3 with respect to the depth to be drilled, the Joint Venture shall have the right to direct the stoppage of the work to be performed by the Contractor hereunder at any time prior to reaching the Contract Depths and even though Contractor has made no default hereunder. If the Joint Venture exercises its right to discontinue drilling a well, the Joint Venture will not receive a refund for any unused portion of the Drilling Price allocable to the discontinued well but the Joint Venture may direct Contractor to apply the unused portion of the Drilling Price to the intangible cost of another well that the Joint Venture shall specify. The unused portion of the Drilling Price will be determined as follows: D-2 46 Contractor shall determine a sum equal to all the actual expenses reasonably and necessarily incurred up to the date the Joint Venture notified Contractor to discontinue drilling plus such additional expenses reasonably and necessarily incurred in order for Contractor to cease operations, including plugging and abandoning the hole, and dismantling the rig plus the sum of 15% of such total actual expenses. This sum shall be deducted from the Drilling Price of the Venture Wells. The resulting difference shall be the unused portion of the price. 8. REPORTS TO BE FURNISHED BY CONTRACTOR: 8.1 Contractor shall keep and furnish to the Joint Venture an accurate record of the work performed and formations drilled on the IADC-API Daily Drilling Report form or other form acceptable to the Joint Venture. A legible copy of said form signed by Contractor's representative shall be furnished by Contractor to the Joint Venture. 8.2 Delivery tickets, if requested by the Joint Venture, covering any material or supplies furnished by the Joint Venture shall be turned in each day with the daily drilling report. The quantity, description and condition of materials and supplies so furnished shall be checked by Contractor and such tickets shall be properly certified by Contractor. 9. RESPONSIBILITY FOR A SOUND LOCATION: Contractor shall prepare a sound location, adequate in size and capable of properly supporting the drilling rig. Contractor shall be responsible for a conductor pipe program adequate to prevent soil and subsoil washout. In the event subsurface conditions cause a cratering or shifting of the location surface, and loss or damage to the rig or its associated equipment results therefrom, the Joint Venture shall not be responsible for reimbursing Contractor for any such loss or damage including payment of work stoppage rate during repair and/or demobilization if applicable. 10. RESPONSIBILITY FOR ROAD AND LOCATIONS: Contractor agrees at all times to maintain roads to locations and each location in such a condition that will allow free access and movement to and from the drilling site in an ordinarily equipped highway type vehicle. 11. PAYMENT OF CLAIMS: Contractor agrees to pay all claims for labor, material, services and supplies to be furnished by Contractor hereunder, and agrees to allow no lien or charge to be fixed upon the lease, the Venture Wells or other property of the Joint Venture or the land upon which said Venture Wells are located. 12. RESPONSIBILITY FOR LOSS OR DAMAGE: 12.1 Contractor's Surface Equipment: Contractor shall assume liability at all times for damage to or destruction of Contractor's surface equipment, including but not limited to all drilling tools, machinery and appliances, for use above the surface, regardless of when or how such damage or destruction occurs. D-3 47 12.2 Contractor's In-Hole Equipment Basis: Contractor shall assume liability at all times for damage to or destruction of Contractor's in-hole equipment, including but not limited to drill pipe, drill collars and tool joints, and the Joint Venture shall be under no liability to reimburse Contractor for any such loss. 12.3 Joint Venture's Equipment: The Joint Venture shall assume liability at all times for any defective equipment owned by it, including but not limited to casing, tubing, well head equipment, and Contractor shall be under no liability to reimburse the Joint Venture for any such loss or damage. 12.4 Fire or Blow-Out: Should a fire or blowout occur or should the hole for any cause attributable to Contractor's operators be lost or damaged while Contractor is engaged in the performance of work hereunder, all such loss of or damage to the hole including cost of regaining control of a fire or blowout, shall be borne by Contractor; and if the hole is not in condition to be carried to the Contract Depth as herein provided, Contractor shall, if requested by the Joint Venture, commence a new hole without delay at Contractor's cost; and the drilling of the new hole shall be conducted under the terms and conditions of this Agreement in the same manner as though it were the first hole and Contractor shall be responsible for replacement of any casing lost in a junked and abandoned hole as well as the cost of preparing a new drill site for the new hole and the road thereto. In such case, Contractor shall not be entitled to any payment or compensation for expenditures made or incurred by Contractor on or in connection with the abandoned hole. 13. NO WAIVER EXCEPT IN WRITING: It is fully understood and agreed that none of the requirements of this Agreement shall be considered as waived by either party unless the same is done in writing, and then only by the persons executing this Agreement, or other duly authorized agent or representative of the party. 14. FORCE MAJEURE: If either party hereto is rendered unable, wholly or in part (and its performance hereunder is not rendered merely commercially impracticable) by force majeure to carry out its obligation under this Agreement, it shall give the other party prompt written notice of the force majeure with reasonably full particulars. Thereupon, the obligations of the notifying party, so far as they are affected by the force majeure, shall be suspended during, but not longer than, the continuance of the force majeure, and the notifying party agrees to use reasonable diligence to remove the force majeure as quickly as possible. This paragraph shall not relieve either party hereto for its obligations to expend sums of money or to indemnify the other party hereto, as provided elsewhere in this Agreement. The term "force majeure" as herein employed shall mean an act of God, strike, lockout or other industrial disturbance, act of the public enemy, war, blockade, public riot, lightning, fire, storm, flood, explosion, extreme weather conditions, or governmental restraint. 15. INFORMATION CONFIDENTIAL: Upon written request by the Joint Venture, information obtained by Contractor in the conduct of drilling operation on the Venture Wells, including, but not limited to depth, formations penetrated, the results of coring, testing and surveying, shall be considered confidential and shall not be divulged by Contractor or its employees, to any person, firm or any corporation other than the Joint Venture's designated representative. D-4 48 16. ASSIGNMENT: Neither party may assign this Agreement without the prior written consent of the other, and prompt notice of any such intent to assign shall be given to the other party. If any assignment is made that materially alters Contractor's financial burden, Contractor's compensation shall be adjusted to give effect to any increase or decrease in Contractor's operating costs. 17. NOTICES AND PLACE OF PAYMENT: All notices to be given with respect to this Agreement unless otherwise provided for shall be given to Contractor and to the Joint Venture respectively at the addresses hereinabove shown. All sums payable hereunder to Contractor shall be payable at the address hereinabove shown unless otherwise specified herein. BLUE RIDGE ENERGY, INC. By: /s/ ROBERT D. BURR ------------------------------- Robert D. Burr, President SHERMAN / MOORE #1 JOINT VENTURE, LTD. A KENTUCKY LIMITED PARTNERSHIP By: Blue Ridge Energy, Inc. Joint Venture Manager By: /s/ ROBERT D. BURR -------------------------------- Robert D. Burr, President D-5 49 EXHIBIT "1" TO EXHIBIT "D" SEPTEMBER 26, 1997 SHERMAN/MOORE #1 PROSPECT: The primary investment objectives of the Joint Venture are the acquisition of approximately a 100.00% Working Interest, which is approximately 75.00% of the Net Revenue Interest, in two well sites on the Sherman/Moore Prospect and the production and sale of oil and/or gas therefrom. The Sherman/Moore Prospect consists of approximately 1,120 acres of oil and gas leases in Sherman County, Texas, and the wells to be reentered and drilled thereon (the "Venture Wells"). The Venture Wells will be drilled to a depth of 3,200', or a depth sufficient to test the Brown Dolomite formation. D-6 50 TURNKEY DRILLING CONTRACT THIS AGREEMENT, is made and entered into as of 26th day of September, 1997 by and between the parties herein designated as "Joint Venture" and "Contractor." Joint Venture: Blue Ridge Energy, Inc. Address: 632 Adams Street, Suite 710 Bowling Green, Kentucky 42101 Contractor: Blue Ridge Group, Inc. Address: 632 Adams Street, Suite 700 Bowling Green, Kentucky 42101 IN CONSIDERATION of the mutual promises, conditions and agreements herein contained, Joint Venture engages Contractor as an Independent Contractor to furnish the equipment, labor and services to drill, test, and complete its portion of two Venture Wells to be located in Sherman County, Texas, (referred to herein as "Venture Wells") in search of oil and/or gas. The Joint Venture will make the specified payments to Contractor in order (i) to obtain a price from Contractor for the drilling and completion of the Venture Wells to specified depths, (ii) to assure that Contractor will be available to drill, test and complete the subject Venture Wells for the Joint Venture, (iii) to assure that Contractor will make available on a preferential basis sufficient drilling and completion apparatus needed to drill, test and complete the Venture Wells at the earliest possible time, (iv) to obtain a preferential use of Contractor's services, and (v) to assure competent supervisory personnel are available in the drilling and completion of the subject Venture Wells. Contractor agrees to furnish all equipment, labor and services necessary for the drilling to the depth indicated herein and the completion of such Venture Wells. Contractor agrees that the work to be conducted under the terms of this Agreement will be done with diligence and care in a good and workmanlike manner and agrees to provide competent supervision of the work performed hereunder. Unless specifically otherwise provided for herein, all the required equipment, services and labor are furnished for the price set forth herein. 1. LOCATION OF WELLS: See Exhibit "1" attached hereto and made a part hereof. 2. TERMINATION DATE: Contractor agrees to use its best efforts to complete operations for the acquisition, drilling and testing of the Venture Wells by December 31, 1997, and Contractor and the Joint Venture agree that time is of the essence under this Agreement. D-1 51 3. BASIS OF DETERMINING AMOUNTS PAYABLE TO CONTRACTOR: Contractor shall be paid at the following rate for the work performed hereunder: "Drilling, Price": $625,000 "Completion and Equipping Price": $292,900 4. DEPTH: Subject to the right of the Partnership to direct the stoppage of work at any time (as provided in paragraph 7), the Venture Wells shall be drilled to the depth as specified in Exhibit "1" or to the depth at which the production casing (oil string) is set, whichever depth is first reached, which depth is hereinafter referred to as the "Contract Depth." 5. TIME OF PAYMENT: 5.1 Basis: Payment by the Joint Venture to the Contractor of the Drilling Price becomes due and payable upon receipt by the Joint Venture of an invoice from the Contractor. Neither commencement nor completion of Contractor's performance shall be a condition precedent to this obligation to pay. 5.2 Attorneys' Fees: If this Agreement is placed in the hands of an attorney for collection of any sums due hereunder, or suit is brought on same, or sums due hereunder are collected through bankruptcy or probate proceedings, then the Joint Venture agrees that there shall be added to the amount due reasonable attorneys' fees and costs. 6. COMPLETION PROGRAM: The Joint Venture shall determine whether Contractor shall set an oil string. In the event the Joint Venture directs that drilling operations cease and to abandon the Venture Wells, Contractor shall plug the Venture Wells, remove all drilling apparatus from the well sites and the obligations of the parties hereunder shall cease. In the event the Joint Venture directs Contractor to set an oil string and makes timely payment to the Contractor of the completion price, Contractor shall commence the operations necessary to complete the Venture Wells for commercial production, including the setting of an oil string and the acquisition, delivery and installation of a pump jack, holding tank and all other necessary equipment needed to extract and contain oil and/or gas from the Venture Wells. If Contractor should enter into an assignment with another entity to undertake the Completion Program, Contractor may bill the Joint Venture, and the Joint Venture will pay for any completion costs over and above the Completion Price set forth herein. 7. STOPPAGE OF WORK BY JOINT VENTURE: Notwithstanding the provisions of paragraph 3 with respect to the depth to be drilled, the Joint Venture shall have the right to direct the stoppage of the work to be performed by the Contractor hereunder at any time prior to reaching the Contract Depth and even though Contractor has made no default hereunder. If the Joint Venture exercises its right to discontinue drilling a well, the Joint Venture will not receive a refund for any unused portion of the Drilling Price allocable to the discontinued well but the Joint Venture may direct Contractor to apply the unused portion of the Drilling Price to the intangible cost of another well that the Joint Venture shall specify. The unused portion of the Drilling Price will be determined as follows: D-2 52 Contractor shall determine a sum equal to all the actual expenses reasonably and necessarily incurred up to the date the Joint Venture notified Contractor to discontinue drilling plus such additional expenses reasonably and necessarily incurred in order for Contractor to cease operations, including plugging and abandoning the hole, and dismantling the rig plus the sum of 15% of such total actual expenses. This sum shall be deducted from the Drilling Price of the Venture Wells. The resulting difference shall be the unused portion of the price. 8. REPORTS TO BE FURNISHED BY CONTRACTOR: 8.1 Contractor shall keep and furnish to the Joint Venture an accurate record of the work performed and formations drilled on the IADC-API Daily Drilling Report form or other form acceptable to the Joint Venture. A legible copy of said form signed by Contractor's representative shall be furnished by Contractor to the Joint Venture. 8.2 Delivery tickets, if requested by the Joint Venture, covering any material or supplies furnished by the Joint Venture shall be turned in each day with the daily drilling report. The quantity, description and condition of materials and supplies so furnished shall be checked by Contractor and such tickets shall be properly certified by Contractor. 9. RESPONSIBILITY FOR A SOUND LOCATION: Contractor shall prepare a sound location, adequate in size and capable of properly supporting the drilling rig. Contractor shall be responsible for a conductor pipe program adequate to prevent soil and subsoil washout. In the event subsurface conditions cause a cratering or shifting of the location surface, and loss or damage to the rig or its associated equipment results therefrom, the Joint Venture shall not be responsible for reimbursing Contractor for any such loss or damage including payment of work stoppage rate during repair and/or demobilization if applicable. 10. RESPONSIBILITY FOR ROAD AND LOCATIONS: Contractor agrees at all times to maintain roads to locations and each location in such a condition that will allow free access and movement to and from the drilling site in an ordinarily equipped highway type vehicle. 11. PAYMENT OF CLAIMS: Contractor agrees to pay all claims for labor, material, services and supplies to be furnished by Contractor hereunder, and agrees to allow no lien or charge to be fixed upon the lease, the Venture Wells or other property of the Joint Venture or the land upon which said Venture Wells are located. 12. RESPONSIBILITY FOR LOSS OR DAMAGE: 12.1 Contractor's Surface Equipment: Contractor shall assume liability at all times for damage to or destruction of Contractor's surface equipment, including but not limited to all drilling tools, machinery and appliances, for use above the surface, regardless of when or how such damage or destruction occurs. D-3 53 12.2 Contractor's In-Hole Equipment Basis: Contractor shall assume liability at all times for damage to or destruction of Contractor's in-hole equipment, including but not limited to drill pipe, drill collars and tool joints, and the Joint Venture shall be under no liability to reimburse Contractor for any such loss. 12.3 Joint Venture's Equipment: The Joint Venture shall assume liability at all times for any defective equipment owned by it, including but not limited to casing, tubing, well head equipment, and Contractor shall be under no liability to reimburse the Joint Venture for any such loss or damage. 12.4 Fire or Blow-Out: Should a fire or blowout occur or should the hole for any cause attributable to Contractor's operators be lost or damaged while Contractor is engaged in the performance of work hereunder, all such loss of or damage to the hole including cost of regaining control of a fire or blowout, shall be borne by Contractor; and if the hole is not in condition to be carried to the Contract Depth as herein provided, Contractor shall, if requested by the Joint Venture, commence a new hole without delay at Contractor's cost; and the drilling of the new hole shall be conducted under the terms and conditions of this Agreement in the same manner as though it were the first hole and Contractor shall be responsible for replacement of any casing lost in a junked and abandoned hole as well as the cost of preparing a new drill site for the new hole and the road thereto. In such case, Contractor shall not be entitled to any payment or compensation for expenditures made or incurred by Contractor on or in connection with the abandoned hole. 13. NO WAIVER EXCEPT IN WRITING: It is fully understood and agreed that none of the requirements of this Agreement shall be considered as waived by either party unless the same is done in writing, and then only by the persons executing this Agreement, or other duly authorized agent or representative of the party. 14. FORCE MAJEURE: If either party hereto is rendered unable, wholly or in part (and its performance hereunder is not rendered merely commercially impracticable) by force majeure to carry out its obligation under this Agreement, it shall give the other party prompt written notice of the force majeure with reasonably full particulars. Thereupon, the obligations of the notifying party, so far as they are affected by the force majeure, shall be suspended during, but not longer than, the continuance of the force majeure, and the notifying party agrees to use reasonable diligence to remove the force majeure as quickly as possible. This paragraph shall not relieve either party hereto for its obligations to expend sums of money or to indemnify the other party hereto, as provided elsewhere in this Agreement. The term "force majeure" as herein employed shall mean an act of God, strike, lockout or other industrial disturbance, act of the public enemy, war, blockade, public riot, lightning, fire, storm, flood, explosion, extreme weather conditions, or governmental restraint. 15. INFORMATION CONFIDENTIAL: Upon written request by the Joint Venture, information obtained by Contractor in the conduct of drilling operation on the Venture Wells, including, but not limited to depth, formations penetrated, the results of coring, testing and surveying, shall be considered confidential and shall not be divulged by Contractor or its employees, to any person, firm or any corporation other than the Joint Venture's designated representative. D-4 54 16. ASSIGNMENT: Neither party may assign this Agreement without the prior written consent of the other, and prompt notice of any such intent to assign shall be given to the other party. If any assignment is made that materially alters Contractor's financial burden, Contractor's compensation shall be adjusted to give effect to any increase or decrease in Contractor's operating costs. 17. NOTICES AND PLACE OF PAYMENT: All notices to be given with respect to this Agreement unless otherwise provided for shall be given to Contractor and to the Joint Venture respectively at the addresses hereinabove shown. All sums payable hereunder to Contractor shall be payable at the address hereinabove shown unless otherwise specified herein. BLUE RIDGE ENERGY, INC. By: /s/ ROBERT D. BURR ----------------------------------- Robert D. Burr, President BLUE RIDGE GROUP, INC. By: /s/ JAMES T. COOK, JR. ----------------------------------- James T. Cook, Jr., Vice President--Finance & C.F.O. D-5 55 EXHIBIT "1" TO EXHIBIT "D" SEPTEMBER 26, 1997 SHERMAN/MOORE #1 PROSPECT: The primary investment objectives of the Joint Venture are the acquisition of approximately a 100.00% Working Interest, which is approximately 75.00% of the Net Revenue Interest, in two well sites on the Sherman/Moore Prospect and the production and sale of oil and/or gas therefrom. The Sherman/Moore Prospect consists of approximately 1,120 acres of oil and gas leases in Sherman County, Texas, and the wells to be re-entered and drilled thereon (the "Venture Wells"). The Venture Wells will be drilled to a depth of 3,200', or a depth sufficient to test the Brown Dolomite formation. D-6 56 TURNKEY DRILLING CONTRACT THIS AGREEMENT, is made and entered into as of 10th day of February, 1998 by and between the parties herein designated as "Partnership" and "Contractor." Partnership: Phillips / Blue Ridge Joint Venture #1, Ltd. Address: 632 Adams Street, Suite 710 Bowling Green, Kentucky 42101 Contractor: Blue Ridge Energy, Inc. Address: 632 Adams Street, Suite 700 Bowling Green, Kentucky 42101 IN CONSIDERATION of the mutual promises, conditions and agreements herein contained, Partnership engages Contractor as an Independent Contractor to furnish the equipment, labor and services to drill, test, and complete its portion of one Venture Well to be located in Sherman County, Texas, (referred to herein as "Venture Well") in search of oil and/or gas. The Partnership will make the specified payments to Contractor in order (i) to obtain a price from Contractor for the drilling and completion of the Venture Well to specified depth, (ii) to assure that Contractor will be available to drill, test and complete the subject Venture Well for the Partnership, (iii) to assure that Contractor will make available on a preferential basis sufficient drilling and completion apparatus needed to drill, test and complete the Venture Well at the earliest possible time, (iv) to obtain a preferential use of Contractor's services, and (v) to assure competent supervisory personnel are available in the drilling and completion of the subject Venture Well. Contractor agrees to furnish all equipment, labor and services necessary for the drilling to the depth indicated herein and the completion of such Venture Well. Contractor agrees that the work to be conducted under the terms of this Agreement will be done with diligence and care in a good and workmanlike manner and agrees to provide competent supervision of the work performed hereunder. Unless specifically otherwise provided for herein, all the required equipment, services and labor are furnished for the price set forth herein. 1. LOCATION OF VENTURE WELL: See Exhibit "1" attached hereto and made a part hereof. 2. TERMINATION DATE: Contractor agrees to use its best efforts to complete operations for the acquisition, drilling and testing of the Venture Well by May 31, 1998, and Contractor and the Partnership agree that time is of the essence under this Agreement. D-1 57 3. BASIS OF DETERMINING AMOUNTS PAYABLE TO CONTRACTOR: Contractor shall be paid at the following rate for the work performed hereunder: "Drilling, Price": $651,580 "Completion, and Equipping Price": $323,790 4. DEPTH: Subject to the right of the Partnership to direct the stoppage of work at any time (as provided in paragraph 7), the Venture Well shall be drilled to the depth as specified in Exhibit "1" or to the depth at which the production casing (oil string) is set, whichever depth is first reached, which depth is hereinafter referred to as the "Contract Depth." 5. TIME OF PAYMENT: 5.1 Basis: Payment by the Partnership to the Contractor of the Drilling Price becomes due and payable upon the receipt by the Partnership of an invoice from the Contractor. Neither commencement nor completion of Contractor's performance shall be a condition precedent to this obligation to pay. 5.2 Attorneys' Fees: If this Agreement is placed in the hands of an attorney for collection of any sums due hereunder, or suit is brought on same, or sums due hereunder are collected through bankruptcy or probate proceedings, then the Partnership agrees that there shall be added to the amount due reasonable attorneys' fees and costs. 6. COMPLETION PROGRAM: The Partnership shall determine whether Contractor shall set an oil string. In the event the Partnership directs that drilling operations cease and to abandon the Venture Well, Contractor shall plug the Venture Well, remove all drilling apparatus from the well sites and the obligations of the parties hereunder shall cease. In the event the Partnership directs Contractor to set an oil string and makes timely payment to the Contractor of the completion price, Contractor shall commence the operations necessary to complete the Venture Well for commercial production, including the setting of an oil string and the acquisition, delivery and installation of a pump jack, holding tank and all other necessary equipment needed to extract and contain oil and/or gas from the Venture Well. If Contractor should enter into an assignment with another entity to undertake the Completion Program, Contractor may bill the Partnership, and the Partnership will pay for any completion costs over and above the Completion Price set forth herein. 7. STOPPAGE OF WORK BY THE PARTNERSHIP: Notwithstanding the provisions of paragraph 3 with respect to the depth to be drilled, the Partnership shall have the right to direct the stoppage of the work to be performed by the Contractor hereunder at any time prior to reaching the Contract Depth and even though Contractor has made no default hereunder. If the Partnership exercises its right to discontinue drilling a well, the Partnership will not receive a refund for any unused portion of the Drilling Price allocable to the discontinued well but the Partnership may direct Contractor to apply the unused portion of the Drilling Price to the intangible cost of another well that the Partnership shall specify. The unused portion of the Drilling Price will be determined as follows: D-2 58 Contractor shall determine a sum equal to all the actual expenses reasonably and necessarily incurred up to the date the Partnership notified Contractor to discontinue drilling plus such additional expenses reasonably and necessarily incurred in order for Contractor to cease operations, including plugging and abandoning the hole, and dismantling the rig plus the sum of 15% of such total actual expenses. This sum shall be deducted from the Drilling Price of the Venture Well. The resulting difference shall be the unused portion of the price. 8. REPORTS TO BE FURNISHED BY CONTRACTOR: 8.1 Contractor shall keep and furnish to the Partnership an accurate record of the work performed and formations drilled on the IADC-API Daily Drilling Report form or other form acceptable to the Partnership. A legible copy of said form signed by Contractor's representative shall be furnished by Contractor to the Partnership. 8.2 Delivery tickets, if requested by the Partnership, covering any material or supplies furnished by the Partnership shall be turned in each day with the daily drilling report. The quantity, description and condition of materials and supplies so furnished shall be checked by Contractor and such tickets shall be properly certified by Contractor. 9. RESPONSIBILITY FOR A SOUND LOCATION: Contractor shall prepare a sound location, adequate in size and capable of properly supporting the drilling rig. Contractor shall be responsible for a conductor pipe program adequate to prevent soil and subsoil washout. In the event subsurface conditions cause a cratering or shifting of the location surface, and loss or damage to the rig or its associated equipment results therefrom, the Partnership shall not be responsible for reimbursing Contractor for any such loss or damage including payment of work stoppage rate during repair and/or demobilization if applicable. 10. RESPONSIBILITY FOR ROAD AND LOCATIONS: Contractor agrees at all times to maintain roads to locations and each location in such a condition that will allow free access and movement to and from the drilling site in an ordinarily equipped highway type vehicle. 11. PAYMENT OF CLAIMS: Contractor agrees to pay all claims for labor, material, services and supplies to be furnished by Contractor hereunder, and agrees to allow no lien or charge to be fixed upon the lease, the Venture Well or other property of the Partnership or the land upon which Venture well is located. 12. RESPONSIBILITY FOR LOSS OR DAMAGE: 12.1 Contractor's Surface Equipment: Contractor shall assume liability at all times for damage to or destruction of Contractor's surface equipment, including but not limited to all drilling tools, machinery and appliances, for use above the surface, regardless of when or how such damage or destruction occurs. D-3 59 12.2 Contractor's In-Hole Equipment Basis: Contractor shall assume liability at all times for damage to or destruction of Contractor's in-hole equipment, including but not limited to drill pipe, drill collars and tool joints, and the Partnership shall be under no liability to reimburse Contractor for any such loss. 12.3 Partnership's Equipment: The Partnership shall assume liability at all times for any defective equipment owned by it, including but not limited to casing, tubing, well head equipment, and Contractor shall be under no liability to reimburse the Partnership for any such loss or damage. 12.4 Fire or Blow-Out: Should a fire or blowout occur or should the hole for any cause attributable to Contractor's operators be lost or damaged while Contractor is engaged in the performance of work hereunder, all such loss of or damage to the hole including cost of regaining control of a fire or blowout, shall be borne by Contractor; and if the hole is not in condition to be carried to the Contract Depth as herein provided, Contractor shall, if requested by the Partnership, commence a new hole without delay at Contractor's cost; and the drilling of the new hole shall be conducted under the terms and conditions of this Agreement in the same manner as though it were the first hole and Contractor shall be responsible for replacement of any casing lost in a junked and abandoned hole as well as the cost of preparing a new drill site for the new hole and the road thereto. In such case, Contractor shall not be entitled to any payment or compensation for expenditures made or incurred by Contractor on or in connection with the abandoned hole. 13. NO WAIVER EXCEPT IN WRITING: It is fully understood and agreed that none of the requirements of this Agreement shall be considered as waived by either party unless the same is done in writing, and then only by the persons executing this Agreement, or other duly authorized agent or representative of the party. 14. FORCE MAJEURE: If either party hereto is rendered unable, wholly or in part (and its performance hereunder is not rendered merely commercially impracticable) by force majeure to carry out its obligation under this Agreement, it shall give the other party prompt written notice of the force majeure with reasonably full particulars. Thereupon, the obligations of the notifying party, so far as they are affected by the force majeure, shall be suspended during, but not longer than, the continuance of the force majeure, and the notifying party agrees to use reasonable diligence to remove the force majeure as quickly as possible. This paragraph shall not relieve either party hereto for its obligations to expend sums of money or to indemnify the other party hereto, as provided elsewhere in this Agreement. The term "force majeure" as herein employed shall mean an act of God, strike, lockout or other industrial disturbance, act of the public enemy, war, blockade, public riot, lightning, fire, storm, flood, explosion, extreme weather conditions, or governmental restraint. 15. INFORMATION CONFIDENTIAL: Upon written request by the Partnership, information obtained by Contractor in the conduct of drilling operation on the Venture Well, including, but not limited to depth, formations penetrated, the results of coring, testing and surveying, shall be considered confidential and shall not be divulged by Contractor or its employees, to any person, firm or any corporation other than the Partnership's designated representative. D-4 60 16. ASSIGNMENT: Neither party may assign this Agreement without the prior written consent of the other, and prompt notice of any such intent to assign shall be given to the other party. If any assignment is made that materially alters Contractor's financial burden, Contractor's compensation shall be adjusted to give effect to any increase or decrease in Contractor's operating costs. 17. NOTICES AND PLACE OF PAYMENT: All notices to be given with respect to this Agreement unless otherwise provided for shall be given to Contractor and to the Partnership respectively at the addresses hereinabove shown. All sums payable hereunder to Contractor shall be payable at the address hereinabove shown unless otherwise specified herein. BLUE RIDGE ENERGY, INC. By: /s/ ROBERT D. BURR ------------------------------- Robert D. Burr, President PHILLIPS / BLUE RIDGE JOINT VENTURE #1, LTD. A KENTUCKY LIMITED PARTNERSHIP By: Blue Ridge Energy, Inc. Managing General Partner By: /s/ ROBERT D. BURR ------------------------------- Robert D. Burr, President D-5 61 EXHIBIT "1" TO EXHIBIT "D" FEBRUARY 10, 1998 PHILLIPS PUGH PROSPECT: The primary investment objective of the Partnership is the acquisition of approximately a 93.75% Working Interest, which is approximately 70.31% of the Net Revenue Interest, in one well site on the Phillips Pugh Prospect and the production and sale of oil and/or gas therefrom. The Phillips Pugh Prospect consists of approximately 640 acres of oil and gas leases in Sherman County, Texas, and the well to be drilled thereon (the "Venture Well"). The Venture Well will be drilled to a depth of 2,900', or a depth sufficient to test the Brown Dolomite formation. D-6 62 TURNKEY DRILLING CONTRACT THIS AGREEMENT, is made and entered into as of 10th day of February, 1998 by and between the parties herein designated as "Partnership" and "Contractor." Partnership: Blue Ridge Energy, Inc. Address: 632 Adams Street, Suite 710 Bowling Green, Kentucky 42101 Contractor: Blue Ridge Group, Inc. Address: 632 Adams Street, Suite 700 Bowling Green, Kentucky 42101 IN CONSIDERATION of the mutual promises, conditions and agreements herein contained, Partnership engages Contractor as an Independent Contractor to furnish the equipment, labor and services to drill, test, and complete its portion of one Venture Well to be located in Sherman County, Texas, (referred to herein as "Venture Well") in search of oil and/or gas. The Partnership will make the specified payments to Contractor in order (i) to obtain a price from Contractor for the drilling and completion of the Venture Well to a specified depth, (ii) to assure that Contractor will be available to drill, test and complete the subject Venture Well for the Partnership, (iii) to assure that Contractor will make available on a preferential basis sufficient drilling and completion apparatus needed to drill, test and complete the Venture Well at the earliest possible time, (iv) to obtain a preferential use of Contractor's services, and (v) to assure competent supervisory personnel are available in the drilling and completion of the subject Venture Wells. Contractor agrees to furnish all equipment, labor and services necessary for the drilling to the depth indicated herein and the completion of such Venture Well. Contractor agrees that the work to be conducted under the terms of this Agreement will be done with diligence and care in a good and workmanlike manner and agrees to provide competent supervision of the work performed hereunder. Unless specifically otherwise provided for herein, all the required equipment, services and labor are furnished for the price set forth herein. 1. LOCATION OF VENTURE WELL: See Exhibit "1" attached hereto and made a part hereof. 2. TERMINATION DATE: Contractor agrees to use its best efforts to complete operations for the acquisition, drilling and testing of the Venture Well by May 31, 1998, and Contractor and the Partnership agree that time is of the essence under this Agreement. D-1 63 3. BASIS OF DETERMINING AMOUNTS PAYABLE TO CONTRACTOR: Contractor shall be paid at the following rate for the work performed hereunder: "Drilling, Price": $457,625 "Completion and Equipping Price": $228,390 4. DEPTH: Subject to the right of the Partnership to direct the stoppage of work at any time (as provided in paragraph 7), the Partnership Wells shall be drilled to the depth as specified in Exhibit "1" or to the depth at which the production casing (oil string) is set, whichever depth is first reached, which depth is hereinafter referred to as the "Contract Depth." 5. TIME OF PAYMENT: 5.1 Basis: Payment by the Partnership to the Contractor of the Drilling Price becomes due and payable upon the receipt by the Partnership of an invoice from the Contractor. Neither commencement nor completion of Contractor's performance shall be a condition precedent to this obligation to pay. 5.2 Attorneys' Fees: If this Agreement is placed in the hands of an attorney for collection of any sums due hereunder, or suit is brought on same, or sums due hereunder are collected through bankruptcy or probate proceedings, then the Partnership agrees that there shall be added to the amount due reasonable attorneys' fees and costs. 6. COMPLETION PROGRAM: The Partnership shall determine whether Contractor shall set an oil string. In the event the Partnership directs that drilling operations cease and to abandon the Texas and Kentucky Venture Wells, Contractor shall plug the Venture Well, remove all drilling apparatus from the well site and the obligations of the parties hereunder shall cease. In the event the Partnership directs Contractor to set an oil string and makes timely payment to the Contractor of the completion price, Contractor shall commence the operations necessary to complete the Venture Well for commercial production, including the setting of an oil string and the acquisition, delivery and installation of a pump jack, holding tank and all other necessary equipment needed to extract and contain oil and/or gas from the Venture Well. If Contractor should enter into an assignment with another entity to undertake the Completion Program, Contractor may bill the Partnership, and the Partnership will pay for any completion costs over and above the Completion Price set forth herein. 7. STOPPAGE OF WORK BY THE PARTNERSHIP: Notwithstanding the provisions of paragraph 3 with respect to the depth to be drilled, the Partnership shall have the right to direct the stoppage of the work to be performed by the Contractor hereunder at any time prior to reaching the Contract Depth and even though Contractor has made no default hereunder. If the Partnership exercises its right to discontinue drilling a well, the Partnership will not receive a refund for any unused portion of the Drilling Price allocable to the discontinued well but the Partnership may direct Contractor to apply the unused portion of the Drilling Price to the intangible cost of another well that the Partnership shall specify. The unused portion of the Drilling Price will be determined as follows: D-2 64 Contractor shall determine a sum equal to all the actual expenses reasonably and necessarily incurred up to the date the Partnership notified Contractor to discontinue drilling plus such additional expenses reasonably and necessarily incurred in order for Contractor to cease operations, including plugging and abandoning the hole, and dismantling the rig plus the sum of 15% of such total actual expenses. This sum shall be deducted from the Drilling Price of the Venture Well. The resulting difference shall be the unused portion of the price. 8. REPORTS TO BE FURNISHED BY CONTRACTOR: 8.1 Contractor shall keep and furnish to the Partnership an accurate record of the work performed and formations drilled on the IADC-API Daily Drilling Report form or other form acceptable to the Partnership. A legible copy of said form signed by Contractor's representative shall be furnished by Contractor to the Partnership. 8.2 Delivery tickets, if requested by the Partnership, covering any material or supplies furnished by the Partnership shall be turned in each day with the daily drilling report. The quantity, description and condition of materials and supplies so furnished shall be checked by Contractor and such tickets shall be properly certified by Contractor. 9. RESPONSIBILITY FOR A SOUND LOCATION: Contractor shall prepare a sound location, adequate in size and capable of properly supporting the drilling rig. Contractor shall be responsible for a conductor pipe program adequate to prevent soil and subsoil washout. In the event subsurface conditions cause a cratering or shifting of the location surface, and loss or damage to the rig or its associated equipment results therefrom, the Partnership shall not be responsible for reimbursing Contractor for any such loss or damage including payment of work stoppage rate during repair and/or demobilization if applicable. 10. RESPONSIBILITY FOR ROAD AND LOCATIONS: Contractor agrees at all times to maintain roads to locations and each location in such a condition that will allow free access and movement to and from the drilling site in an ordinarily equipped highway type vehicle. 11. PAYMENT OF CLAIMS: Contractor agrees to pay all claims for labor, material, services and supplies to be furnished by Contractor hereunder, and agrees to allow no lien or charge to be fixed upon the lease, the Venture Well or other property of the Partnership or the land upon which said Venture Well is located. 12. RESPONSIBILITY FOR LOSS OR DAMAGE: 12.1 Contractor's Surface Equipment: Contractor shall assume liability at all times for damage to or destruction of Contractor's surface equipment, including but not limited to all drilling tools, machinery and appliances, for use above the surface, regardless of when or how such damage or destruction occurs. D-3 65 12.2 Contractor's In-Hole Equipment Basis: Contractor shall assume liability at all times for damage to or destruction of Contractor's in-hole equipment, including but not limited to drill pipe, drill collars and tool joints, and the Partnership shall be under no liability to reimburse Contractor for any such loss. 12.3 Partnership's Equipment: The Partnership shall assume liability at all times for any defective equipment owned by it, including but not limited to casing, tubing, well head equipment, and Contractor shall be under no liability to reimburse the Partnership for any such loss or damage. 12.4 Fire or Blow-Out: Should a fire or blowout occur or should the hole for any cause attributable to Contractor's operators be lost or damaged while Contractor is engaged in the performance of work hereunder, all such loss of or damage to the hole including cost of regaining control of a fire or blowout, shall be borne by Contractor; and if the hole is not in condition to be carried to the Contract Depth as herein provided, Contractor shall, if requested by the Partnership, commence a new hole without delay at Contractor's cost; and the drilling of the new hole shall be conducted under the terms and conditions of this Agreement in the same manner as though it were the first hole and Contractor shall be responsible for replacement of any casing lost in a junked and abandoned hole as well as the cost of preparing a new drill site for the new hole and the road thereto. In such case, Contractor shall not be entitled to any payment or compensation for expenditures made or incurred by Contractor on or in connection with the abandoned hole. 13. NO WAIVER EXCEPT IN WRITING: It is fully understood and agreed that none of the requirements of this Agreement shall be considered as waived by either party unless the same is done in writing, and then only by the persons executing this Agreement, or other duly authorized agent or representative of the party. 14. FORCE MAJEURE: If either party hereto is rendered unable, wholly or in part (and its performance hereunder is not rendered merely commercially impracticable) by force majeure to carry out its obligation under this Agreement, it shall give the other party prompt written notice of the force majeure with reasonably full particulars. Thereupon, the obligations of the notifying party, so far as they are affected by the force majeure, shall be suspended during, but not longer than, the continuance of the force majeure, and the notifying party agrees to use reasonable diligence to remove the force majeure as quickly as possible. This paragraph shall not relieve either party hereto for its obligations to expend sums of money or to indemnify the other party hereto, as provided elsewhere in this Agreement. The term "force majeure" as herein employed shall mean an act of God, strike, lockout or other industrial disturbance, act of the public enemy, war, blockade, public riot, lightning, fire, storm, flood, explosion, extreme weather conditions, or governmental restraint. 15. INFORMATION CONFIDENTIAL: Upon written request by the Partnership, information obtained by Contractor in the conduct of drilling operation on the Venture Well, including, but not limited to depth, formations penetrated, the results of coring, testing and surveying, shall be considered confidential and shall not be divulged by Contractor or its employees, to any person, firm or any corporation other than the Partnership's designated representative. D-4 66 16. ASSIGNMENT: Neither party may assign this Agreement without the prior written consent of the other, and prompt notice of any such intent to assign shall be given to the other party. If any assignment is made that materially alters Contractor's financial burden, Contractor's compensation shall be adjusted to give effect to any increase or decrease in Contractor's operating costs. 17. NOTICES AND PLACE OF PAYMENT: All notices to be given with respect to this Agreement unless otherwise provided for shall be given to Contractor and to the Partnership respectively at the addresses hereinabove shown. All sums payable hereunder to Contractor shall be payable at the address hereinabove shown unless otherwise specified herein. BLUE RIDGE ENERGY, INC. By: /s/ ROBERT D. BURR ------------------------------- Robert D. Burr, President BLUE RIDGE GROUP, INC. By: /s/ JAMES T. COOK, JR. ------------------------------- James T. Cook, Jr., Vice President - Finance & C.F.O. D-5 67 EXHIBIT "1" TO EXHIBIT "D" FEBRUARY 10, 1998 PHILLIPS PUGH PROSPECT: The primary investment objective of the Partnership is the acquisition of approximately a 93.75% Working Interest, which is approximately 70.31% of the Net Revenue Interest, in one well site on the Phillips Pugh Prospect and the production and sale of oil and/or gas therefrom. The Phillips Pugh Prospect consists of approximately 640 acres of oil and gas leases in Sherman County, Texas, and the well to be drilled thereon (the "Venture Well"). The Venture Well will be drilled to a depth of 2,900', or a depth sufficient to test the Brown Dolomite formation. D-6 68 TURNKEY DRILLING CONTRACT THIS AGREEMENT, is made and entered into as of 1st day of December, 1998 by and between the parties herein designated as "Partnership" and "Contractor." Partnership: 1998 Year End Drilling Programs, Ltd. Address: 632 Adams Street, Suite 710 Bowling Green, Kentucky 42101 Contractor: Blue Ridge Energy, Inc. Address: 632 Adams Street, Suite 710 Bowling Green, Kentucky 42101 IN CONSIDERATION of the mutual promises, conditions and agreements herein contained, Partnership engages Contractor as an Independent Contractor to furnish the equipment, labor and services to drill, test, and complete its portion of one Venture Well to be located in Shelby County, Texas, (referred to herein as "Texas Venture Well") and nine Venture Wells to be located in Bell and Knox Counties, Kentucky (referred to herein as "Kentucky Venture Wells") in search of oil and/or gas. The Partnership will make the specified payments to Contractor in order (i) to obtain a price from Contractor for the drilling and completion of the Texas and Kentucky Venture Wells to a specified depth, (ii) to assure that Contractor will be available to drill, test and complete the subject Texas and Kentucky Venture Wells for the Partnership, (iii) to assure that Contractor will make available on a preferential basis sufficient drilling and completion apparatus needed to drill, test and complete the Texas and Kentucky Venture Wells at the earliest possible time, (iv) to obtain a preferential use of Contractor's services, and (v) to assure competent supervisory personnel are available in the drilling and completion of the subject Texas and Kentucky Venture Wells. Contractor agrees to furnish all equipment, labor and services necessary for the drilling to the depth indicated herein and the completion of such Texas and Kentucky Venture Wells. Contractor agrees that the work to be conducted under the terms of this Agreement will be done with diligence and care in a good and workmanlike manner and agrees to provide competent supervision of the work performed hereunder. Unless specifically otherwise provided for herein, all the required equipment, services and labor are furnished for the price set forth herein. 1. LOCATION OF VENTURE WELLS: See Exhibit "1" attached hereto and made a part hereof. 2. TERMINATION DATE: Contractor agrees to use its best efforts to complete operations for the acquisition, drilling and testing of the Texas and Kentucky Venture Wells by March 31, 1999, and Contractor and the Partnership agree that time is of the essence under this Agreement. D-1 69 3. BASIS OF DETERMINING AMOUNTS PAYABLE TO CONTRACTOR: Contractor shall be paid $1,482,500 for the drilling, completion and equipping. 4. DEPTH: Subject to the right of the Partnership to direct the stoppage of work at any time (as provided in paragraph 7), the Texas and Kentucky Venture Wells shall be drilled to the depth as specified in Exhibit "1" or to the depth at which the production casing (oil string) is set, whichever depth is first reached, which depth is hereinafter referred to as the "Contract Depth." 5. TIME OF PAYMENT: 5.1 Basis: Payment by the Partnership to the Contractor of the Drilling Price becomes due and payable upon the receipt by the Partnership of an invoice from the Contractor. Neither commencement nor completion of Contractor's performance shall be a condition precedent to this obligation to pay. 5.2 Attorneys' Fees: If this Agreement is placed in the hands of an attorney for collection of any sums due hereunder, or suit is brought on same, or sums due hereunder are collected through bankruptcy or probate proceedings, then the Partnership agrees that there shall be added to the amount due reasonable attorneys' fees and costs. 6. COMPLETION PROGRAM: The Partnership shall determine whether Contractor shall set an oil string. In the event the Partnership directs that drilling operations cease and to abandon the Texas and Kentucky Venture Wells, Contractor shall plug the Texas and Kentucky Venture Wells, remove all drilling apparatus from the well sites and the obligations of the parties hereunder shall cease. In the event the Partnership directs Contractor to set an oil string and makes timely payment to the Contractor of the completion price, Contractor shall commence the operations necessary to complete the Texas and Kentucky Venture Wells for commercial production, including the setting of an oil string and the acquisition, delivery and installation of a pump jack, holding tank and all other necessary equipment needed to extract and contain oil and/or gas from the Texas and Kentucky Venture Wells. If Contractor should enter into an assignment with another entity to undertake the Completion Program, Contractor may bill the Partnership, and the Partnership will pay for any completion costs over and above the Completion Price set forth herein. 7. STOPPAGE OF WORK BY THE PARTNERSHIP: Notwithstanding the provisions of paragraph 3 with respect to the depth to be drilled, the Partnership shall have the right to direct the stoppage of the work to be performed by the Contractor hereunder at any time prior to reaching the Contract Depth and even though Contractor has made no default hereunder. If the Partnership exercises its right to discontinue drilling a well, the Partnership will not receive a refund for any unused portion of the Drilling Price allocable to the discontinued well but the Partnership may direct Contractor to apply the unused portion of the Drilling Price to the intangible cost of another well that the Partnership shall specify. The unused portion of the Drilling Price will be determined as follows: Contractor shall determine a sum equal to all the actual expenses reasonably and necessarily incurred up to the date the Partnership notified Contractor to discontinue drilling plus such additional expenses reasonably and necessarily D-2 70 incurred in order for Contractor to cease operations, including plugging and abandoning the hole, and dismantling the rig plus the sum of 15% of such total actual expenses. This sum shall be deducted from the Drilling Price of the Texas and Kentucky Venture Wells. The resulting difference shall be the unused portion of the price. 8. REPORTS TO BE FURNISHED BY CONTRACTOR: 8.1 Contractor shall keep and furnish to the Partnership an accurate record of the work performed and formations drilled on the IADC-API Daily Drilling Report form or other form acceptable to the Partnership. A legible copy of said form signed by Contractor's representative shall be furnished by Contractor to the Partnership. 8.2 Delivery tickets, if requested by the Partnership, covering any material or supplies furnished by the Partnership shall be turned in each day with the daily drilling report. The quantity, description and condition of materials and supplies so furnished shall be checked by Contractor and such tickets shall be properly certified by Contractor. 9. RESPONSIBILITY FOR A SOUND LOCATION: Contractor shall prepare a sound location, adequate in size and capable of properly supporting the drilling rig. Contractor shall be responsible for a conductor pipe program adequate to prevent soil and subsoil washout. In the event subsurface conditions cause a cratering or shifting of the location surface, and loss or damage to the rig or its associated equipment results therefrom, the Partnership shall not be responsible for reimbursing Contractor for any such loss or damage including payment of work stoppage rate during repair and/or demobilization if applicable. 10. RESPONSIBILITY FOR ROAD AND LOCATIONS: Contractor agrees at all times to maintain roads to locations and each location in such a condition that will allow free access and movement to and from the drilling site in an ordinarily equipped highway type vehicle. 11. PAYMENT OF CLAIMS: Contractor agrees to pay all claims for labor, material, services and supplies to be furnished by Contractor hereunder, and agrees to allow no lien or charge to be fixed upon the lease, the Texas and Kentucky Venture Wells or other property of the Partnership or the land upon which said Texas and Kentucky Venture Wells are located. 12. RESPONSIBILITY FOR LOSS OR DAMAGE: 12.1 Contractor's Surface Equipment: Contractor shall assume liability at all times for damage to or destruction of Contractor's surface equipment, including but not limited to all drilling tools, machinery and appliances, for use above the surface, regardless of when or how such damage or destruction occurs. 12.2 Contractor's In-Hole Equipment Basis: Contractor shall assume liability at all times for damage to or destruction of Contractor's in-hole equipment, including but not limited to drill pipe, drill collars and tool joints, and the Joint Venture shall be under no liability to reimburse Contractor for any such loss. D-3 71 12.3 Partnership's Equipment: The Partnership shall assume liability at all times for any defective equipment owned by it, including but not limited to casing, tubing, well head equipment, and Contractor shall be under no liability to reimburse the Partnership for any such loss or damage. 12.4 Fire or Blow-Out: Should a fire or blowout occur or should the hole for any cause attributable to Contractor's operators be lost or damaged while Contractor is engaged in the performance of work hereunder, all such loss of or damage to the hole including cost of regaining control of a fire or blowout, shall be borne by Contractor; and if the hole is not in condition to be carried to the Contract Depth as herein provided, Contractor shall, if requested by the Partnership, commence a new hole without delay at Contractor's cost; and the drilling of the new hole shall be conducted under the terms and conditions of this Agreement in the same manner as though it were the first hole and Contractor shall be responsible for replacement of any casing lost in a junked and abandoned hole as well as the cost of preparing a new drill site for the new hole and the road thereto. In such case, Contractor shall not be entitled to any payment or compensation for expenditures made or incurred by Contractor on or in connection with the abandoned hole. 13. NO WAIVER EXCEPT IN WRITING: It is fully understood and agreed that none of the requirements of this Agreement shall be considered as waived by either party unless the same is done in writing, and then only by the persons executing this Agreement, or other duly authorized agent or representative of the party. 14. FORCE MAJEURE: If either party hereto is rendered unable, wholly or in part (and its performance hereunder is not rendered merely commercially impracticable) by force majeure to carry out its obligation under this Agreement, it shall give the other party prompt written notice of the force majeure with reasonably full particulars. Thereupon, the obligations of the notifying party, so far as they are affected by the force majeure, shall be suspended during, but not longer than, the continuance of the force majeure, and the notifying party agrees to use reasonable diligence to remove the force majeure as quickly as possible. This paragraph shall not relieve either party hereto for its obligations to expend sums of money or to indemnify the other party hereto, as provided elsewhere in this Agreement. The term "force majeure" as herein employed shall mean an act of God, strike, lockout or other industrial disturbance, act of the public enemy, war, blockade, public riot, lightning, fire, storm, flood, explosion, extreme weather conditions, or governmental restraint. 15. INFORMATION CONFIDENTIAL: Upon written request by the Partnership, information obtained by Contractor in the conduct of drilling operation on the Texas and Kentucky Venture Wells, including, but not limited to depth, formations penetrated, the results of coring, testing and surveying, shall be considered confidential and shall not be divulged by Contractor or its employees, to any person, firm or any corporation other than the Joint Venture's designated representative. 16. ASSIGNMENT: Neither party may assign this Agreement without the prior written consent of the other, and prompt notice of any such intent to assign shall be given to the other party. If any assignment is made that materially alters Contractor's financial burden, Contractor's compensation shall be adjusted to give effect to any increase or decrease in Contractor's operating costs. D-4 72 17. NOTICES AND PLACE OF PAYMENT: All notices to be given with respect to this Agreement unless otherwise provided for shall be given to Contractor and to the Partnership respectively at the addresses hereinabove shown. All sums payable hereunder to Contractor shall be payable at the address hereinabove shown unless otherwise specified herein. BLUE RIDGE ENERGY, INC. By: /s/ ROBERT D. BURR ------------------------------- Robert D. Burr, President 1998 YEAR END DRILLING PROGRAM, LTD. A KENTUCKY LIMITED PARTNERSHIP By: Blue Ridge Energy, Inc. Managing General Partner By: /s/ ROBERT D. BURR ------------------------------- Robert D. Burr, President D-5 73 EXHIBIT "1" TO EXHIBIT "D" DECEMBER 1, 1998 The primary investment objectives of the Partnership are: (i) the acquisition of the following Working Interests and Net Revenue Interests in ten oil and gas wells:
PARTNERSHIP PARTNERSHIP WORKING NET REVENUE TARGET WELL NAME INTEREST INTEREST COUNTY, STATE DEPTH FORMATION - --------- -------- -------- ------------- ----- --------- Huber-EREC #15 25.0% 18.2500% Bell, KY 2,500' Maxon Sand Huber-EREC #16 25.0% 18.2500% Bell, KY 2,500' Maxon Sand Huber-EREC #20 25.0% 18.2500% Bell, KY 2,500' Maxon Sand Evan Big Sandy #158 25.0% 18.2500% Johnson, KY 3,500' Devonian Shale Evan Big Sandy #159 25.0% 18.2500% Magoffin, KY 3,500' Devonian Shale Evan Big Sandy #160 25.0% 18.2500% Letcher, KY 3,500' Devonian Shale Evan Big Sandy #162 25.0% 18.2500% Johnson, KY 3,500' Devonian Shale Evan Big Sandy #133 50.0% 36.5000% Knott, KY 3,500' Devonian Shale Evan Harlan $531 15.9% 12.6535% Harlan, KY 6,000' Coniferous Sand USA-Thomas Hailey #1 30.0% 23.0000% Shelby, KY 6,400' James Limestone
D-6 74 TURNKEY DRILLING CONTRACT THIS AGREEMENT, is made and entered into as of 1st day of December, 1998 by and between the parties herein designated as "Partnership" and "Contractor." Partnership: Blue Ridge Energy, Inc. Address: 632 Adams Street, Suite 710 Bowling Green, Kentucky 42101 Contractor: Blue Ridge Group, Inc. Address: 632 Adams Street, Suite 700 Bowling Green, Kentucky 42101 IN CONSIDERATION of the mutual promises, conditions and agreements herein contained, Partnership engages Contractor as an Independent Contractor to furnish the equipment, labor and services to drill, test, and complete its portion of one Venture Well to be located in Shelby County, Texas, (referred to herein as "Texas Venture Well") and nine Venture Wells to be located in Bell and Knox Counties, Kentucky, (referred to herein as "Kentucky Venture Wells") in search of oil and/or gas. The Partnership will make the specified payments to Contractor in order (i) to obtain a price from Contractor for the drilling and completion of the Texas and Kentucky Venture Wells to a specified depth, (ii) to assure that Contractor will be available to drill, test and complete the subject Texas and Kentucky Venture Wells for the Partnership, (iii) to assure that Contractor will make available on a preferential basis sufficient drilling and completion apparatus needed to drill, test and complete the Texas and Kentucky Venture Wells at the earliest possible time, (iv) to obtain a preferential use of Contractor's services, and (v) to assure competent supervisory personnel are available in the drilling and completion of the subject Texas and Kentucky Venture Wells. Contractor agrees to furnish all equipment, labor and services necessary for the drilling to the depth indicated herein and the completion of such Texas and Kentucky Venture Wells. Contractor agrees that the work to be conducted under the terms of this Agreement will be done with diligence and care in a good and workmanlike manner and agrees to provide competent supervision of the work performed hereunder. Unless specifically otherwise provided for herein, all the required equipment, services and labor are furnished for the price set forth herein. 1. LOCATION OF VENTURE WELLS: See Exhibit "1" attached hereto and made a part hereof. 2. TERMINATION DATE: Contractor agrees to use its best efforts to complete operations for the acquisition, drilling and testing of the Texas and Kentucky Venture Wells by March 31, 1999, and Contractor and the Partnership agree that time is of the essence under this Agreement. D-1 75 3. BASIS OF DETERMINING AMOUNTS PAYABLE TO CONTRACTOR: Contractor shall be paid $1,050,000 for the drilling, completion and equipping. 4. DEPTH: Subject to the right of the Partnership to direct the stoppage of work at any time (as provided in paragraph 7), the Texas and Kentucky Venture Wells shall be drilled to the depth as specified in Exhibit "1" or to the depth at which the production casing (oil string) is set, whichever depth is first reached, which depth is hereinafter referred to as the "Contract Depth." 5. TIME OF PAYMENT: 5.1 Basis: Payment by the Partnership to the Contractor of the Drilling Price becomes due and payable upon the receipt by the Partnership of an invoice from the Contractor. Neither commencement nor completion of Contractor's performance shall be a condition precedent to this obligation to pay. 5.2 Attorneys' Fees: If this Agreement is placed in the hands of an attorney for collection of any sums due hereunder, or suit is brought on same, or sums due hereunder are collected through bankruptcy or probate proceedings, then the Partnership agrees that there shall be added to the amount due reasonable attorneys' fees and costs. 6. COMPLETION PROGRAM: The Partnership shall determine whether Contractor shall set an oil string. In the event the Partnership directs that drilling operations cease and to abandon the Texas and Kentucky Venture Wells, Contractor shall plug the Texas and Kentucky Venture Wells, remove all drilling apparatus from the well sites and the obligations of the parties hereunder shall cease. In the event the Partnership directs Contractor to set an oil string and makes timely payment to the Contractor of the completion price, Contractor shall commence the operations necessary to complete the Texas and Kentucky Venture Wells for commercial production, including the setting of an oil string and the acquisition, delivery and installation of a pump jack, holding tank and all other necessary equipment needed to extract and contain oil and/or gas from the Texas and Kentucky Venture Wells. If Contractor should enter into an assignment with another entity to undertake the Completion Program, Contractor may bill the Partnership, and the Partnership will pay for any completion costs over and above the Completion Price set forth herein. 7. STOPPAGE OF WORK BY THE PARTNERSHIP: Notwithstanding the provisions of paragraph 3 with respect to the depth to be drilled, the Partnership shall have the right to direct the stoppage of the work to be performed by the Contractor hereunder at any time prior to reaching the Contract Depth and even though Contractor has made no default hereunder. If the Partnership exercises its right to discontinue drilling a well, the Partnership will not receive a refund for any unused portion of the Drilling Price allocable to the discontinued well but the Partnership may direct Contractor to apply the unused portion of the Drilling Price to the intangible cost of another well that the Partnership shall specify. The unused portion of the Drilling Price will be determined as follows: Contractor shall determine a sum equal to all the actual expenses reasonably and necessarily incurred up to the date the Partnership notified Contractor to discontinue drilling plus such additional expenses reasonably and necessarily D-2 76 incurred in order for Contractor to cease operations, including plugging and abandoning the hole, and dismantling the rig plus the sum of 15% of such total actual expenses. This sum shall be deducted from the Drilling Price of the Texas and Kentucky Venture Wells. The resulting difference shall be the unused portion of the price. 8. REPORTS TO BE FURNISHED BY CONTRACTOR: 8.1 Contractor shall keep and furnish to the Partnership an accurate record of the work performed and formations drilled on the IADC-API Daily Drilling Report form or other form acceptable to the Partnership. A legible copy of said form signed by Contractor's representative shall be furnished by Contractor to the Partnership. 8.2 Delivery tickets, if requested by the Partnership, covering any material or supplies furnished by the Partnership shall be turned in each day with the daily drilling report. The quantity, description and condition of materials and supplies so furnished shall be checked by Contractor and such tickets shall be properly certified by Contractor. 9. RESPONSIBILITY FOR A SOUND LOCATION: Contractor shall prepare a sound location, adequate in size and capable of properly supporting the drilling rig. Contractor shall be responsible for a conductor pipe program adequate to prevent soil and subsoil washout. In the event subsurface conditions cause a cratering or shifting of the location surface, and loss or damage to the rig or its associated equipment results therefrom, the Partnership shall not be responsible for reimbursing Contractor for any such loss or damage including payment of work stoppage rate during repair and/or demobilization if applicable. 10. RESPONSIBILITY FOR ROAD AND LOCATIONS: Contractor agrees at all times to maintain roads to locations and each location in such a condition that will allow free access and movement to and from the drilling site in an ordinarily equipped highway type vehicle. 11. PAYMENT OF CLAIMS: Contractor agrees to pay all claims for labor, material, services and supplies to be furnished by Contractor hereunder, and agrees to allow no lien or charge to be fixed upon the lease, the Texas and Kentucky Venture Wells or other property of the Partnership or the land upon which said Texas and Kentucky Venture Wells are located. 12. RESPONSIBILITY FOR LOSS OR DAMAGE: 12.1 Contractor's Surface Equipment: Contractor shall assume liability at all times for damage to or destruction of Contractor's surface equipment, including but not limited to all drilling tools, machinery and appliances, for use above the surface, regardless of when or how such damage or destruction occurs. 12.2 Contractor's In-Hole Equipment Basis: Contractor shall assume liability at all times for damage to or destruction of Contractor's in-hole equipment, including but not limited to drill pipe, drill collars and tool joints, and the Partnership shall be under no liability to reimburse Contractor for any such loss. D-3 77 12.3 Partnership's Equipment: The Partnership shall assume liability at all times for any defective equipment owned by it, including but not limited to casing, tubing, well head equipment, and Contractor shall be under no liability to reimburse the Partnership for any such loss or damage. 12.4 Fire or Blow-Out: Should a fire or blowout occur or should the hole for any cause attributable to Contractor's operators be lost or damaged while Contractor is engaged in the performance of work hereunder, all such loss of or damage to the hole including cost of regaining control of a fire or blowout, shall be borne by Contractor; and if the hole is not in condition to be carried to the Contract Depth as herein provided, Contractor shall, if requested by the Partnership, commence a new hole without delay at Contractor's cost; and the drilling of the new hole shall be conducted under the terms and conditions of this Agreement in the same manner as though it were the first hole and Contractor shall be responsible for replacement of any casing lost in a junked and abandoned hole as well as the cost of preparing a new drill site for the new hole and the road thereto. In such case, Contractor shall not be entitled to any payment or compensation for expenditures made or incurred by Contractor on or in connection with the abandoned hole. 13. NO WAIVER EXCEPT IN WRITING: It is fully understood and agreed that none of the requirements of this Agreement shall be considered as waived by either party unless the same is done in writing, and then only by the persons executing this Agreement, or other duly authorized agent or representative of the party. 14. FORCE MAJEURE: If either party hereto is rendered unable, wholly or in part (and its performance hereunder is not rendered merely commercially impracticable) by force majeure to carry out its obligation under this Agreement, it shall give the other party prompt written notice of the force majeure with reasonably full particulars. Thereupon, the obligations of the notifying party, so far as they are affected by the force majeure, shall be suspended during, but not longer than, the continuance of the force majeure, and the notifying party agrees to use reasonable diligence to remove the force majeure as quickly as possible. This paragraph shall not relieve either party hereto for its obligations to expend sums of money or to indemnify the other party hereto, as provided elsewhere in this Agreement. The term "force majeure" as herein employed shall mean an act of God, strike, lockout or other industrial disturbance, act of the public enemy, war, blockade, public riot, lightning, fire, storm, flood, explosion, extreme weather conditions, or governmental restraint. 15. INFORMATION CONFIDENTIAL: Upon written request by the Partnership, information obtained by Contractor in the conduct of drilling operation on the Texas and Kentucky Venture Wells, including, but not limited to depth, formations penetrated, the results of coring, testing and surveying, shall be considered confidential and shall not be divulged by Contractor or its employees, to any person, firm or any corporation other than the Partnership's designated representative. 16. ASSIGNMENT: Neither party may assign this Agreement without the prior written consent of the other, and prompt notice of any such intent to assign shall be given to the other party. If any assignment is made that materially alters Contractor's financial burden, Contractor's compensation shall be adjusted to give effect to any increase or decrease in Contractor's operating costs. D-4 78 17. NOTICES AND PLACE OF PAYMENT: All notices to be given with respect to this Agreement unless otherwise provided for shall be given to Contractor and to the Partnership respectively at the addresses hereinabove shown. All sums payable hereunder to Contractor shall be payable at the address hereinabove shown unless otherwise specified herein. BLUE RIDGE ENERGY, INC. By: /s/ ROBERT D. BURR ------------------------------- Robert D. Burr, President BLUE RIDGE GROUP, INC. By: /s/ JAMES T. COOK, JR. ------------------------------- James T. Cook, Jr. Sr. Vice President - Finance & C.F.O. D-5 79 EXHIBIT "1" TO EXHIBIT "D" DECEMBER 1, 1998 The primary investment objectives of the Partnership are: (i) the acquisition of the following Working Interests and Net Revenue Interests in ten oil and gas wells:
PARTNERSHIP PARTNERSHIP WORKING NET REVENUE TARGET WELL NAME INTEREST INTEREST COUNTY, STATE DEPTH FORMATION - --------- -------- -------- ------------- ----- --------- Huber-EREC #15 25.0% 18.2500% Bell, KY 2,500' Maxon Sand Huber-EREC #16 25.0% 18.2500% Bell, KY 2,500' Maxon Sand Huber-EREC #20 25.0% 18.2500% Bell, KY 2,500' Maxon Sand Evan Big Sandy #158 25.0% 18.2500% Johnson, KY 3,500' Devonian Shale Evan Big Sandy #159 25.0% 18.2500% Magoffin, KY 3,500' Devonian Shale Evan Big Sandy #160 25.0% 18.2500% Letcher, KY 3,500' Devonian Shale Evan Big Sandy #162 25.0% 18.2500% Johnson, KY 3,500' Devonian Shale Evan Big Sandy #133 50.0% 36.5000% Knott, KY 3,500' Devonian Shale Evan Harlan $531 15.9% 12.6535% Harlan, KY 6,000' Coniferous Sand USA-Thomas Hailey #1 30.0% 23.0000% Shelby, KY 6,400' James Limestone
D-6 80 TURNKEY DRILLING CONTRACT THIS AGREEMENT, is made and entered into as of 4th day of March, 1999 by and between the parties herein designated as "Partnership" and "Contractor." Partnership: Harlan County Limited Partnership, Ltd. Address: 632 Adams Street, Suite 710 Bowling Green, Kentucky 42101 Contractor: Blue Ridge Energy, Inc. Address: 632 Adams Street, Suite 710 Bowling Green, Kentucky 42101 IN CONSIDERATION of the mutual promises, conditions and agreements herein contained, Partnership engages Contractor as an Independent Contractor to furnish the equipment, labor and services to drill, test, and complete its portion of five Venture Wells to be located in Harlan County, Kentucky, (referred to herein as "Venture Wells") in search of oil and/or gas. The Partnership will make the specified payments to Contractor in order (i) to obtain a price from Contractor for the drilling and completion of the Venture Wells to specified depths, (ii) to assure that Contractor will be available to drill, test and complete the subject Venture Wells for the Partnership, (iii) to assure that Contractor will make available on a preferential basis sufficient drilling and completion apparatus needed to drill, test and complete the Venture Wells at the earliest possible time, (iv) to obtain a preferential use of Contractor's services, and (v) to assure competent supervisory personnel are available in the drilling and completion of the subject Venture Wells. Contractor agrees to furnish all equipment, labor and services necessary for the drilling to the depth indicated herein and the completion of such Venture Wells. Contractor agrees that the work to be conducted under the terms of this Agreement will be done with diligence and care in a good and workmanlike manner and agrees to provide competent supervision of the work performed hereunder. Unless specifically otherwise provided for herein, all the required equipment, services and labor are furnished for the price set forth herein. 1. LOCATION OF VENTURE WELLS: See Exhibit "1" attached hereto and made a part hereof. 2. TERMINATION DATE: Contractor agrees to use its best efforts to complete operations for the acquisition, drilling and testing of the Venture Wells by March 31, 2000, and Contractor and the Partnership agree that time is of the essence under this Agreement. D-1 81 3. BASIS OF DETERMINING AMOUNTS PAYABLE TO CONTRACTOR: Contractor shall be paid at the following rate for the work performed hereunder: "Drilling, Completing, and Equipping Price": $705,600 4. DEPTH: Subject to the right of the Partnership to direct the stoppage of work at any time (as provided in paragraph 7), the Venture Wells shall be drilled to the depth as specified in Exhibit "1" or to the depth at which the production casing (oil string) is set, whichever depth is first reached, which depth is hereinafter referred to as the "Contract Depth." 5. TIME OF PAYMENT: 5.1 Basis: Payment by the Partnership to the Contractor of the Drilling Price becomes due and payable upon the receipt by the Partnership of an invoice from the Contractor. Neither commencement nor completion of Contractor's performance shall be a condition precedent to this obligation to pay. 5.2 Attorneys' Fees: If this Agreement is placed in the hands of an attorney for collection of any sums due hereunder, or suit is brought on same, or sums due hereunder are collected through bankruptcy or probate proceedings, then the Partnership agrees that there shall be added to the amount due reasonable attorneys' fees and costs. 6. COMPLETION PROGRAM: The Partnership shall determine whether Contractor shall set an oil string. In the event the Partnership directs that drilling operations cease and to abandon the Venture Wells, Contractor shall plug the Venture Wells, remove all drilling apparatus from the well sites and the obligations of the parties hereunder shall cease. In the event the Partnership directs Contractor to set an oil string and makes timely payment to the Contractor of the completion price, Contractor shall commence the operations necessary to complete the Venture Wells for commercial production, including the setting of an oil string and the acquisition, delivery and installation of a pump jack, holding tank and all other necessary equipment needed to extract and contain oil and/or gas from the Venture Wells. If Contractor should enter into an assignment with another entity to undertake the Completion Program, Contractor may bill the Partnership, and the Partnership will pay for any completion costs over and above the Completion Price set forth herein. 7. STOPPAGE OF WORK BY THE PARTNERSHIP: Notwithstanding the provisions of paragraph 3 with respect to the depth to be drilled, the Partnership shall have the right to direct the stoppage of the work to be performed by the Contractor hereunder at any time prior to reaching the Contract Depth and even though Contractor has made no default hereunder. If the Partnership exercises its right to discontinue drilling a well, the Partnership will not receive a refund for any unused portion of the Drilling Price allocable to the discontinued well but the Partnership may direct Contractor to apply the unused portion of the Drilling Price to the intangible cost of another well that the Partnership shall specify. The unused portion of the Drilling Price will be determined as follows: D-2 82 Contractor shall determine a sum equal to all the actual expenses reasonably and necessarily incurred up to the date the Partnership notified Contractor to discontinue drilling plus such additional expenses reasonably and necessarily incurred in order for Contractor to cease operations, including plugging and abandoning the hole, and dismantling the rig plus the sum of 15% of such total actual expenses. This sum shall be deducted from the Drilling Price of the Venture Wells. The resulting difference shall be the unused portion of the price. 8. REPORTS TO BE FURNISHED BY CONTRACTOR: 8.1 Contractor shall keep and furnish to the Partnership an accurate record of the work performed and formations drilled on the IADC-API Daily Drilling Report form or other form acceptable to the Partnership. A legible copy of said form signed by Contractor's representative shall be furnished by Contractor to the Partnership. 8.2 Delivery tickets, if requested by the Joint Venture, covering any material or supplies furnished by the Partnership shall be turned in each day with the daily drilling report. The quantity, description and condition of materials and supplies so furnished shall be checked by Contractor and such tickets shall be properly certified by Contractor. 9. RESPONSIBILITY FOR A SOUND LOCATION: Contractor shall prepare a sound location, adequate in size and capable of properly supporting the drilling rig. Contractor shall be responsible for a conductor pipe program adequate to prevent soil and subsoil washout. In the event subsurface conditions cause a cratering or shifting of the location surface, and loss or damage to the rig or its associated equipment results therefrom, the Partnership shall not be responsible for reimbursing Contractor for any such loss or damage including payment of work stoppage rate during repair and/or demobilization if applicable. 10. RESPONSIBILITY FOR ROAD AND LOCATIONS: Contractor agrees at all times to maintain roads to locations and each location in such a condition that will allow free access and movement to and from the drilling site in an ordinarily equipped highway type vehicle. 11. PAYMENT OF CLAIMS: Contractor agrees to pay all claims for labor, material, services and supplies to be furnished by Contractor hereunder, and agrees to allow no lien or charge to be fixed upon the lease, the wells or other property of the Partnership or the land upon which said Venture Wells is located. 12. RESPONSIBILITY FOR LOSS OR DAMAGE: 12.1 Contractor's Surface Equipment: Contractor shall assume liability at all times for damage to or destruction of Contractor's surface equipment, including but not limited to all drilling tools, machinery and appliances, for use above the surface, regardless of when or how such damage or destruction occurs. D-3 83 12.2 Contractor's In-Hole Equipment Basis: Contractor shall assume liability at all times for damage to or destruction of Contractor's in-hole equipment, including but not limited to drill pipe, drill collars and tool joints, and the Partnership shall be under no liability to reimburse Contractor for any such loss. 12.3 Partnership's Equipment: The Partnership shall assume liability at all times for any defective equipment owned by it, including but not limited to casing, tubing, well head equipment, and Contractor shall be under no liability to reimburse the Partnership for any such loss or damage. 12.4 Fire or Blow-Out: Should a fire or blowout occur or should the hole for any cause attributable to Contractor's operators be lost or damaged while Contractor is engaged in the performance of work hereunder, all such loss of or damage to the hole including cost of regaining control of a fire or blowout, shall be borne by Contractor; and if the hole is not in condition to be carried to the Contract Depth as herein provided, Contractor shall, if requested by the Partnership, commence a new hole without delay at Contractor's cost; and the drilling of the new hole shall be conducted under the terms and conditions of this Agreement in the same manner as though it were the first hole and Contractor shall be responsible for replacement of any casing lost in a junked and abandoned hole as well as the cost of preparing a new drill site for the new hole and the road thereto. In such case, Contractor shall not be entitled to any payment or compensation for expenditures made or incurred by Contractor on or in connection with the abandoned hole. 13. NO WAIVER EXCEPT IN WRITING: It is fully understood and agreed that none of the requirements of this Agreement shall be considered as waived by either party unless the same is done in writing, and then only by the persons executing this Agreement, or other duly authorized agent or representative of the party. 14. FORCE MAJEURE: If either party hereto is rendered unable, wholly or in part (and its performance hereunder is not rendered merely commercially impracticable) by force majeure to carry out its obligation under this Agreement, it shall give the other party prompt written notice of the force majeure with reasonably full particulars. Thereupon, the obligations of the notifying party, so far as they are affected by the force majeure, shall be suspended during, but not longer than, the continuance of the force majeure, and the notifying party agrees to use reasonable diligence to remove the force majeure as quickly as possible. This paragraph shall not relieve either party hereto for its obligations to expend sums of money or to indemnify the other party hereto, as provided elsewhere in this Agreement. The term "force majeure" as herein employed shall mean an act of God, strike, lockout or other industrial disturbance, act of the public enemy, war, blockade, public riot, lightning, fire, storm, flood, explosion, extreme weather conditions, or governmental restraint. 15. INFORMATION CONFIDENTIAL: Upon written request by the Partnership, information obtained by Contractor in the conduct of drilling operation on the Venture Wells, including, but not limited to depth, formations penetrated, the results of coring, testing and surveying, shall be considered confidential and shall not be divulged by Contractor or its employees, to any person, firm or any corporation other than the Partnership's designated representative. D-4 84 16. ASSIGNMENT: Neither party may assign this Agreement without the prior written consent of the other, and prompt notice of any such intent to assign shall be given to the other party. If any assignment is made that materially alters Contractor's financial burden, Contractor's compensation shall be adjusted to give effect to any increase or decrease in Contractor's operating costs. 17. NOTICES AND PLACE OF PAYMENT: All notices to be given with respect to this Agreement unless otherwise provided for shall be given to Contractor and to the Partnership respectively at the addresses hereinabove shown. All sums payable hereunder to Contractor shall be payable at the address hereinabove shown unless otherwise specified herein. BLUE RIDGE ENERGY, INC. By: /s/ ROBERT D. BURR ------------------------------- Robert D. Burr, President HARLAN COUNTY LIMITED PARTNERSHIP, LTD. A KENTUCKY LIMITED PARTNERSHIP By: Blue Ridge Energy, Inc. Managing General Partner By: /s/ ROBERT D. BURR ------------------------------- Robert D. Burr, President D-5 85 EXHIBIT "1" TO EXHIBIT "D" MARCH 4, 1999 The primary investment objective of the Partnership is the acquisition of approximately a 30.00% Working Interest, which is approximately 18.75% of the Net Revenue Interest in five well sites out of fifteen to be drilled on the Harlan County Prospect and the production and sale of oil/gas therefrom. William W. Kelley, Jr., an Independent Petroleum Geologist to the Managing General Partner, will select the five wells to be acquired by the Partnership. Mr. Kelley will utilize various criteria including production notes, sand thickness, sand porosity, sand permeability, and geographical location. The Harlan County Prospect consists of approximately 6,500 acres of oil and gas leases in Harlan County, Kentucky and the wells to be drilled thereon (the "Partnership Wells"). The Partnership Wells will be drilled to depths of approximately 6,000' or depths sufficient to test the Maxon Sand formation. D-6 86 TURNKEY DRILLING CONTRACT THIS AGREEMENT, is made and entered into as of 4th day of March, 1999 by and between the parties herein designated as "Partnership" and "Contractor." Partnership: Blue Ridge Energy, Inc. Address: 632 Adams Street, Suite 710 Bowling Green, Kentucky 42101 Contractor: Blue Ridge Group, Inc. Address: 632 Adams Street, Suite 700 Bowling Green, Kentucky 42101 IN CONSIDERATION of the mutual promises, conditions and agreements herein contained, Partnership engages Contractor as an Independent Contractor to furnish the equipment, labor and services to drill, test, and complete its portion of five Partnership Wells to be located in Harlan County, Kentucky, (referred to herein as "Partnership Wells") in search of oil and/or gas. The Partnership will make the specified payments to Contractor in order (i) to obtain a price from Contractor for the drilling and completion of the Partnership Wells to a specified depth, (ii) to assure that Contractor will be available to drill, test and complete the subject Partnership Wells for the Partnership, (iii) to assure that Contractor will make available on a preferential basis sufficient drilling and completion apparatus needed to drill, test and complete the Partnership Wells at the earliest possible time, (iv) to obtain a preferential use of Contractor's services, and (v) to assure competent supervisory personnel are available in the drilling and completion of the five Partnership Wells. Contractor agrees to furnish all equipment, labor and services necessary for the drilling to the depth indicated herein and the completion of such Partnership Wells. Contractor agrees that the work to be conducted under the terms of this Agreement will be done with diligence and care in a good and workmanlike manner and agrees to provide competent supervision of the work performed hereunder. Unless specifically otherwise provided for herein, all the required equipment, services and labor are furnished for the price set forth herein. 1. LOCATION OF PARTNERSHIP WELLS: See Exhibit "1" attached hereto and made a part hereof. 2. TERMINATION DATE: Contractor agrees to use its best efforts to complete operations for the acquisition, drilling and testing of the five Partnership Wells by March 31, 2000, and Contractor and the Partnership agree that time is of the essence under this Agreement. D-1 87 3. BASIS OF DETERMINING AMOUNTS PAYABLE TO CONTRACTOR: Contractor shall be paid at the following rate for the work performed hereunder: "Drilling, Completing, and Equipping Price": $565,000 4. DEPTH: Subject to the right of the Partnership to direct the stoppage of work at any time (as provided in paragraph 7), the Partnership Wells shall be drilled to the depth as specified in Exhibit "1" or to the depth at which the production casing (oil string) is set, whichever depth is first reached, which depth is hereinafter referred to as the "Contract Depth." 5. TIME OF PAYMENT: 5.1 Basis: Payment by the Partnership to the Contractor of the Drilling Price becomes due and payable upon the receipt by the Partnership of an invoice from the Contractor. Neither commencement nor completion of Contractor's performance shall be a condition precedent to this obligation to pay. 5.2 Attorneys' Fees: If this Agreement is placed in the hands of an attorney for collection of any sums due hereunder, or suit is brought on same, or sums due hereunder are collected through bankruptcy or probate proceedings, then the Partnership agrees that there shall be added to the amount due reasonable attorneys' fees and costs. 6. COMPLETION PROGRAM: The Partnership shall determine whether Contractor shall set an oil string. In the event the Partnership directs that drilling operations cease and to abandon the five Partnership Wells, Contractor shall plug the Partnership Wells, remove all drilling apparatus from the well sites and the obligations of the parties hereunder shall cease. In the event the Partnership directs Contractor to set an oil string and makes timely payment to the Contractor of the completion price, Contractor shall commence the operations necessary to complete the Partnership Wells for commercial production, including the setting of an oil string and the acquisition, delivery and installation of a pump jack, holding tank and all other necessary equipment needed to extract and contain oil and/or gas from the Partnership Wells. If Contractor should enter into an assignment with another entity to undertake the Completion Program, Contractor may bill the Partnership, and the Partnership will pay for any completion costs over and above the Completion Price set forth herein. 7. STOPPAGE OF WORK BY THE PARTNERSHIP: Notwithstanding the provisions of paragraph 3 with respect to the depth to be drilled, the Partnership shall have the right to direct the stoppage of the work to be performed by the Contractor hereunder at any time prior to reaching the Contract Depth and even though Contractor has made no default hereunder. If the Partnership exercises its right to discontinue drilling a well, the Partnership will not receive a refund for any unused portion of the Drilling Price allocable to the discontinued well but the Partnership may direct Contractor to apply the unused portion of the Drilling Price to the intangible cost of another well that the Partnership shall specify. The unused portion of the Drilling Price will be determined as follows: D-2 88 Contractor shall determine a sum equal to all the actual expenses reasonably and necessarily incurred up to the date the Partnership notified Contractor to discontinue drilling plus such additional expenses reasonably and necessarily incurred in order for Contractor to cease operations, including plugging and abandoning the hole, and dismantling the rig plus the sum of 15% of such total actual expenses. This sum shall be deducted from the Drilling Price of the Partnership Wells. The resulting difference shall be the unused portion of the price. 8. REPORTS TO BE FURNISHED BY CONTRACTOR: 8.1 Contractor shall keep and furnish to the Partnership an accurate record of the work performed and formations drilled on the IADC-API Daily Drilling Report form or other form acceptable to the Partnership. A legible copy of said form signed by Contractor's representative shall be furnished by Contractor to the Partnership. 8.2 Delivery tickets, if requested by the Partnership, covering any material or supplies furnished by the Partnership shall be turned in each day with the daily drilling report. The quantity, description and condition of materials and supplies so furnished shall be checked by Contractor and such tickets shall be properly certified by Contractor. 9. RESPONSIBILITY FOR A SOUND LOCATION: Contractor shall prepare a sound location, adequate in size and capable of properly supporting the drilling rig. Contractor shall be responsible for a conductor pipe program adequate to prevent soil and subsoil washout. In the event subsurface conditions cause a cratering or shifting of the location surface, and loss or damage to the rig or its associated equipment results therefrom, the Partnership shall not be responsible for reimbursing Contractor for any such loss or damage including payment of work stoppage rate during repair and/or demobilization if applicable. 10. RESPONSIBILITY FOR ROAD AND LOCATIONS: Contractor agrees at all times to maintain roads to locations and each location in such a condition that will allow free access and movement to and from the drilling site in an ordinarily equipped highway type vehicle. 11. PAYMENT OF CLAIMS: Contractor agrees to pay all claims for labor, material, services and supplies to be furnished by Contractor hereunder, and agrees to allow no lien or charge to be fixed upon the lease, the Partnership Wells or other property of the Partnership or the land upon which said Partnership Wells are located. 12. RESPONSIBILITY FOR LOSS OR DAMAGE: 12.1 Contractor's Surface Equipment: Contractor shall assume liability at all times for damage to or destruction of Contractor's surface equipment, including but not limited to all drilling tools, machinery and appliances, for use above the surface, regardless of when or how such damage or destruction occurs. D-3 89 12.2 Contractor's In-Hole Equipment Basis: Contractor shall assume liability at all times for damage to or destruction of Contractor's in-hole equipment, including but not limited to drill pipe, drill collars and tool joints, and the Partnership shall be under no liability to reimburse Contractor for any such loss. 12.3 Partnership's Equipment: The Partnership shall assume liability at all times for any defective equipment owned by it, including but not limited to casing, tubing, well head equipment, and Contractor shall be under no liability to reimburse the Partnership for any such loss or damage. 12.4 Fire or Blow-Out: Should a fire or blowout occur or should the hole for any cause attributable to Contractor's operators be lost or damaged while Contractor is engaged in the performance of work hereunder, all such loss of or damage to the hole including cost of regaining control of a fire or blowout, shall be borne by Contractor; and if the hole is not in condition to be carried to the Contract Depth as herein provided, Contractor shall, if requested by the Partnership, commence a new hole without delay at Contractor's cost; and the drilling of the new hole shall be conducted under the terms and conditions of this Agreement in the same manner as though it were the first hole and Contractor shall be responsible for replacement of any casing lost in a junked and abandoned hole as well as the cost of preparing a new drill site for the new hole and the road thereto. In such case, Contractor shall not be entitled to any payment or compensation for expenditures made or incurred by Contractor on or in connection with the abandoned hole. 13. NO WAIVER EXCEPT IN WRITING: It is fully understood and agreed that none of the requirements of this Agreement shall be considered as waived by either party unless the same is done in writing, and then only by the persons executing this Agreement, or other duly authorized agent or representative of the party. 14. FORCE MAJEURE: If either party hereto is rendered unable, wholly or in part (and its performance hereunder is not rendered merely commercially impracticable) by force majeure to carry out its obligation under this Agreement, it shall give the other party prompt written notice of the force majeure with reasonably full particulars. Thereupon, the obligations of the notifying party, so far as they are affected by the force majeure, shall be suspended during, but not longer than, the continuance of the force majeure, and the notifying party agrees to use reasonable diligence to remove the force majeure as quickly as possible. This paragraph shall not relieve either party hereto for its obligations to expend sums of money or to indemnify the other party hereto, as provided elsewhere in this Agreement. The term "force majeure" as herein employed shall mean an act of God, strike, lockout or other industrial disturbance, act of the public enemy, war, blockade, public riot, lightning, fire, storm, flood, explosion, extreme weather conditions, or governmental restraint. 15. INFORMATION CONFIDENTIAL: Upon written request by the Partnership, information obtained by Contractor in the conduct of drilling operation on the Partnership Wells, including, but not limited to depth, formations penetrated, the results of coring, testing and surveying, shall be considered confidential and shall not be divulged by Contractor or its employees, to any person, firm or any corporation other than the Joint Venture's designated representative. D-4 90 16. ASSIGNMENT: Neither party may assign this Agreement without the prior written consent of the other, and prompt notice of any such intent to assign shall be given to the other party. If any assignment is made that materially alters Contractor's financial burden, Contractor's compensation shall be adjusted to give effect to any increase or decrease in Contractor's operating costs. 17. NOTICES AND PLACE OF PAYMENT: All notices to be given with respect to this Agreement unless otherwise provided for shall be given to Contractor and to the Partnership respectively at the addresses hereinabove shown. All sums payable hereunder to Contractor shall be payable at the address hereinabove shown unless otherwise specified herein. BLUE RIDGE ENERGY, INC. By: /s/ ROBERT D. BURR ------------------------------- Robert D. Burr, President BLUE RIDGE GROUP, INC. By: /s/ ROBERT D. BURR ------------------------------- Robert D. Burr, President D-5 91 EXHIBIT "1" TO EXHIBIT "D" MARCH 4, 1999 The primary investment objective of the Partnership is the acquisition of approximately a 30.00% Working Interest, which is approximately 18.75% of the Net Revenue Interest in five well sites out of fifteen to be drilled on the Harlan County Prospect and the production and sale of oil/gas therefrom. William W. Kelley, Jr., an Independent Petroleum Geologist to the Managing General Partner, will select the five wells to be acquired by the Partnership. Mr. Kelley will utilize various criteria including production notes, sand thickness, sand porosity, sand permeability, and geographical location. The Harlan County Prospect consists of approximately 6,500 acres of oil and gas leases in Harlan County, Kentucky and the wells to be drilled thereon (the "Partnership Wells"). The Partnership Wells will be drilled to depths of approximately 6,000' or depths sufficient to test the Maxon Sand formation. D-6 92 TURNKEY DRILLING CONTRACT THIS AGREEMENT, is made and entered into as of 13th day of April, 1999 by and between the parties herein designated as "Partnership" and "Contractor." Partnership: Cumberland Gap 10 Limited Partnership, Ltd. Address: 632 Adams Street, Suite 710 Bowling Green, Kentucky 42101 Contractor: Blue Ridge Energy, Inc. Address: 632 Adams Street, Suite 710 Bowling Green, Kentucky 42101 IN CONSIDERATION of the mutual promises, conditions and agreements herein contained, Partnership engages Contractor as an Independent Contractor to furnish the equipment, labor and services to drill, test, and complete its portion of ten Partnership Wells to be located in Harlan County, Kentucky, (referred to herein as "Partnership Wells") in search of oil and/or gas. The Partnership will make the specified payments to Contractor in order (i) to obtain a price from Contractor for the drilling and completion of the Partnership Wells to a specified depth, (ii) to assure that Contractor will be available to drill, test and complete the subject Partnership Wells for the Partnership, (iii) to assure that Contractor will make available on a preferential basis sufficient drilling and completion apparatus needed to drill, test and complete the Partnership Wells at the earliest possible time, (iv) to obtain a preferential use of Contractor's services, and (v) to assure competent supervisory personnel are available in the drilling and completion of the ten Partnership Wells. Contractor agrees to furnish all equipment, labor and services necessary for the drilling to the depth indicated herein and the completion of such Partnership Wells. Contractor agrees that the work to be conducted under the terms of this Agreement will be done with diligence and care in a good and workmanlike manner and agrees to provide competent supervision of the work performed hereunder. Unless specifically otherwise provided for herein, all the required equipment, services and labor are furnished for the price set forth herein. 1. LOCATION OF PARTNERSHIP WELLS: See Exhibit "1" attached hereto and made a part hereof. 2. TERMINATION DATE: Contractor agrees to use its best efforts to complete operations for the acquisition, drilling and testing of the ten Partnership Wells by March 31, 2000, and Contractor and the Partnership agree that time is of the essence under this Agreement. D-1 93 3. BASIS OF DETERMINING AMOUNTS PAYABLE TO CONTRACTOR: Contractor shall be paid at the following rate for the work performed hereunder: "Drilling, Completing, and Equipping Price": $1,411,200 4. DEPTH: Subject to the right of the Partnership to direct the stoppage of work at any time (as provided in paragraph 7), the Partnership Wells shall be drilled to the depth as specified in Exhibit "1" or to the depth at which the production casing (oil string) is set, whichever depth is first reached, which depth is hereinafter referred to as the "Contract Depth." 5. TIME OF PAYMENT: 5.1 Basis: Payment by the Partnership to the Contractor of the Drilling Price becomes due and payable upon the receipt by the Partnership of an invoice from the Contractor. Neither commencement nor completion of Contractor's performance shall be a condition precedent to this obligation to pay. 5.2 Attorneys' Fees: If this Agreement is placed in the hands of an attorney for collection of any sums due hereunder, or suit is brought on same, or sums due hereunder are collected through bankruptcy or probate proceedings, then the Partnership agrees that there shall be added to the amount due reasonable attorneys' fees and costs. 6. COMPLETION PROGRAM: The Partnership shall determine whether Contractor shall set an oil string. In the event the Partnership directs that drilling operations cease and to abandon the five Partnership Wells, Contractor shall plug the Partnership Wells, remove all drilling apparatus from the well sites and the obligations of the parties hereunder shall cease. In the event the Partnership directs Contractor to set an oil string and makes timely payment to the Contractor of the completion price, Contractor shall commence the operations necessary to complete the Partnership Wells for commercial production, including the setting of an oil string and the acquisition, delivery and installation of a pump jack, holding tank and all other necessary equipment needed to extract and contain oil and/or gas from the Partnership Wells. If Contractor should enter into an assignment with another entity to undertake the Completion Program, Contractor may bill the Partnership, and the Partnership will pay for any completion costs over and above the Completion Price set forth herein. 7. STOPPAGE OF WORK BY THE PARTNERSHIP: Notwithstanding the provisions of paragraph 3 with respect to the depth to be drilled, the Partnership shall have the right to direct the stoppage of the work to be performed by the Contractor hereunder at any time prior to reaching the Contract Depth and even though Contractor has made no default hereunder. If the Partnership exercises its right to discontinue drilling a well, the Partnership will not receive a refund for any unused portion of the Drilling Price allocable to the discontinued well but the Partnership may direct Contractor to apply the unused portion of the Drilling Price to the intangible cost of another well that the Partnership shall specify. The unused portion of the Drilling Price will be determined as follows: D-2 94 Contractor shall determine a sum equal to all the actual expenses reasonably and necessarily incurred up to the date the Partnership notified Contractor to discontinue drilling plus such additional expenses reasonably and necessarily incurred in order for Contractor to cease operations, including plugging and abandoning the hole, and dismantling the rig plus the sum of 15% of such total actual expenses. This sum shall be deducted from the Drilling Price of the Partnership Wells. The resulting difference shall be the unused portion of the price. 8. REPORTS TO BE FURNISHED BY CONTRACTOR: 8.1 Contractor shall keep and furnish to the Partnership an accurate record of the work performed and formations drilled on the IADC-API Daily Drilling Report form or other form acceptable to the Partnership. A legible copy of said form signed by Contractor's representative shall be furnished by Contractor to the Partnership. 8.2 Delivery tickets, if requested by the Partnership, covering any material or supplies furnished by the Partnership shall be turned in each day with the daily drilling report. The quantity, description and condition of materials and supplies so furnished shall be checked by Contractor and such tickets shall be properly certified by Contractor. 9. RESPONSIBILITY FOR A SOUND LOCATION: Contractor shall prepare a sound location, adequate in size and capable of properly supporting the drilling rig. Contractor shall be responsible for a conductor pipe program adequate to prevent soil and subsoil washout. In the event subsurface conditions cause a cratering or shifting of the location surface, and loss or damage to the rig or its associated equipment results therefrom, the Partnership shall not be responsible for reimbursing Contractor for any such loss or damage including payment of work stoppage rate during repair and/or demobilization if applicable. 10. RESPONSIBILITY FOR ROAD AND LOCATIONS: Contractor agrees at all times to maintain roads to locations and each location in such a condition that will allow free access and movement to and from the drilling site in an ordinarily equipped highway type vehicle. 11. PAYMENT OF CLAIMS: Contractor agrees to pay all claims for labor, material, services and supplies to be furnished by Contractor hereunder, and agrees to allow no lien or charge to be fixed upon the lease, the Partnership Wells or other property of the Partnership or the land upon which said Partnership Wells are located. 12. RESPONSIBILITY FOR LOSS OR DAMAGE: 12.1 Contractor's Surface Equipment: Contractor shall assume liability at all times for damage to or destruction of Contractor's surface equipment, including but not limited to all drilling tools, machinery and appliances, for use above the surface, regardless of when or how such damage or destruction occurs. D-3 95 12.2 Contractor's In-Hole Equipment Basis: Contractor shall assume liability at all times for damage to or destruction of Contractor's in-hole equipment, including but not limited to drill pipe, drill collars and tool joints, and the Partnership shall be under no liability to reimburse Contractor for any such loss. 12.3 Partnership's Equipment: The Partnership shall assume liability at all times for any defective equipment owned by it, including but not limited to casing, tubing, well head equipment, and Contractor shall be under no liability to reimburse the Partnership for any such loss or damage. 12.4 Fire or Blow-Out: Should a fire or blowout occur or should the hole for any cause attributable to Contractor's operators be lost or damaged while Contractor is engaged in the performance of work hereunder, all such loss of or damage to the hole including cost of regaining control of a fire or blowout, shall be borne by Contractor; and if the hole is not in condition to be carried to the Contract Depth as herein provided, Contractor shall, if requested by the Partnership, commence a new hole without delay at Contractor's cost; and the drilling of the new hole shall be conducted under the terms and conditions of this Agreement in the same manner as though it were the first hole and Contractor shall be responsible for replacement of any casing lost in a junked and abandoned hole as well as the cost of preparing a new drill site for the new hole and the road thereto. In such case, Contractor shall not be entitled to any payment or compensation for expenditures made or incurred by Contractor on or in connection with the abandoned hole. 13. NO WAIVER EXCEPT IN WRITING: It is fully understood and agreed that none of the requirements of this Agreement shall be considered as waived by either party unless the same is done in writing, and then only by the persons executing this Agreement, or other duly authorized agent or representative of the party. 14. FORCE MAJEURE: If either party hereto is rendered unable, wholly or in part (and its performance hereunder is not rendered merely commercially impracticable) by force majeure to carry out its obligation under this Agreement, it shall give the other party prompt written notice of the force majeure with reasonably full particulars. Thereupon, the obligations of the notifying party, so far as they are affected by the force majeure, shall be suspended during, but not longer than, the continuance of the force majeure, and the notifying party agrees to use reasonable diligence to remove the force majeure as quickly as possible. This paragraph shall not relieve either party hereto for its obligations to expend sums of money or to indemnify the other party hereto, as provided elsewhere in this Agreement. The term "force majeure" as herein employed shall mean an act of God, strike, lockout or other industrial disturbance, act of the public enemy, war, blockade, public riot, lightning, fire, storm, flood, explosion, extreme weather conditions, or governmental restraint. 15. INFORMATION CONFIDENTIAL: Upon written request by the Partnership, information obtained by Contractor in the conduct of drilling operation on the Partnership Wells, including, but not limited to depth, formations penetrated, the results of coring, testing and surveying, shall be considered confidential and shall not be divulged by Contractor or its employees, to any person, firm or any corporation other than the Joint Venture's designated representative. D-4 96 16. ASSIGNMENT: Neither party may assign this Agreement without the prior written consent of the other, and prompt notice of any such intent to assign shall be given to the other party. If any assignment is made that materially alters Contractor's financial burden, Contractor's compensation shall be adjusted to give effect to any increase or decrease in Contractor's operating costs. 17. NOTICES AND PLACE OF PAYMENT: All notices to be given with respect to this Agreement unless otherwise provided for shall be given to Contractor and to the Partnership respectively at the addresses hereinabove shown. All sums payable hereunder to Contractor shall be payable at the address hereinabove shown unless otherwise specified herein. BLUE RIDGE ENERGY, INC. By: /s/ ROBERT D. BURR ----------------------------------- Robert D. Burr, President CUMBERLAND GAP 10 LIMITED PARTNERSHIP, LTD. A KENTUCKY LIMITED PARTNERSHIP By: Blue Ridge Energy, Inc. Managing General Partner By: /s/ ROBERT D. BURR ----------------------------------- Robert D. Burr, President D-5 97 EXHIBIT "1" TO EXHIBIT "D" APRIL 13, 1999 The primary investment objectives of the Partnership are: (1) the acquisition of approximately a 30.00% Working Interest, which is approximately 23.00% of the Net Revenue Interest in ten well sites to be drilled on the Cumberland Gap 10 Prospect and the production and sale of oil/gas therefrom. The Cumberland Gap 10 Prospect consists of approximately 6,500 acres of oil and gas leases in Harlan County, Kentucky and the wells to be drilled thereon (the "Kentucky Partnership Wells"). The Kentucky Partnership Wells will be drilled to depths of approximately 6,000' or depths sufficient to test the Corniferous Sand formation and (2) the assignment of income from a 25% Working Interest which is an 18.75% Net Revenue Interest in the Colton Williams #44-1 Well ("Texas Well") to be drilled on the 960 acre Rocksprings Prospect in Edwards County. The Texas Well will be drilled to a depth of 7,000 feet or a depth sufficient to test the Holman Sands. There will be no cost to the Partnership for the assignment of income from the Colton Williams #44-1 well and the assignment of income is limited to when twice the partners' original capital contributions, or $3,600,000, is received by the Partners from the production of all Partnership wells. D-6 98 TURNKEY DRILLING CONTRACT THIS AGREEMENT, is made and entered into as of 13th day of April, 1999 by and between the parties herein designated as "Partnership" and "Contractor." Partnership: Blue Ridge Energy, Inc. Address: 632 Adams Street, Suite 710 Bowling Green, Kentucky 42101 Contractor: Blue Ridge Group, Inc. Address: 632 Adams Street, Suite 700 Bowling Green, Kentucky 42101 IN CONSIDERATION of the mutual promises, conditions and agreements herein contained, Partnership engages Contractor as an Independent Contractor to furnish the equipment, labor and services to drill, test, and complete its portion of ten Partnership Wells to be located in Harlan County, Kentucky, (referred to herein as "Partnership Wells") in search of oil and/or gas. The Partnership will make the specified payments to Contractor in order (i) to obtain a price from Contractor for the drilling and completion of the Partnership Wells to specified depths, (ii) to assure that Contractor will be available to drill, test and complete the subject Partnership Wells for the Partnership, (iii) to assure that Contractor will make available on a preferential basis sufficient drilling and completion apparatus needed to drill, test and complete the Partnership Wells at the earliest possible time, (iv) to obtain a preferential use of Contractor's services, and (v) to assure competent supervisory personnel are available in the drilling and completion of the ten Partnership Wells. Contractor agrees to furnish all equipment, labor and services necessary for the drilling to the depth indicated herein and the completion of such Partnership Wells. Contractor agrees that the work to be conducted under the terms of this Agreement will be done with diligence and care in a good and workmanlike manner and agrees to provide competent supervision of the work performed hereunder. Unless specifically otherwise provided for herein, all the required equipment, services and labor are furnished for the price set forth herein. 1. LOCATION OF PARTNERSHIP WELLS: See Exhibit "1" attached hereto and made a part hereof. 2. TERMINATION DATE: Contractor agrees to use its best efforts to complete operations for the acquisition, drilling and testing of the Partnership Wells by March 31, 2000, and Contractor and the Partnership agree that time is of the essence under this Agreement. D-1 99 3. BASIS OF DETERMINING AMOUNTS PAYABLE TO CONTRACTOR: Contractor shall be paid at the following rate for the work performed hereunder: "Drilling, Completing, and Equipping Price": $1,125,000 4. DEPTH: Subject to the right of the Partnership to direct the stoppage of work at any time (as provided in paragraph 7), the Partnership Wells shall be drilled to the depth as specified in Exhibit "1" or to the depth at which the production casing (oil string) is set, whichever depth is first reached, which depth is hereinafter referred to as the "Contract Depth." 5. TIME OF PAYMENT: 5.1 Basis: Payment by the Partnership to the Contractor of the Drilling Price becomes due and payable upon the receipt by the Partnership of an invoice from the Contractor. Neither commencement nor completion of Contractor's performance shall be a condition precedent to this obligation to pay. 5.2 Attorneys' Fees: If this Agreement is placed in the hands of an attorney for collection of any sums due hereunder, or suit is brought on same, or sums due hereunder are collected through bankruptcy or probate proceedings, then the Partnership agrees that there shall be added to the amount due reasonable attorneys' fees and costs. 6. COMPLETION PROGRAM: The Partnership shall determine whether Contractor shall set an oil string. In the event the Partnership directs that drilling operations cease and to abandon the five Partnership Wells, Contractor shall plug the Partnership Wells, remove all drilling apparatus from the well sites and the obligations of the parties hereunder shall cease. In the event the Partnership directs Contractor to set an oil string and makes timely payment to the Contractor of the completion price, Contractor shall commence the operations necessary to complete the Partnership Wells for commercial production, including the setting of an oil string and the acquisition, delivery and installation of a pump jack, holding tank and all other necessary equipment needed to extract and contain oil and/or gas from the Partnership Wells. If Contractor should enter into an assignment with another entity to undertake the Completion Program, Contractor may bill the Partnership, and the Partnership will pay for any completion costs over and above the Completion Price set forth herein. 7. STOPPAGE OF WORK BY THE PARTNERSHIP: Notwithstanding the provisions of paragraph 3 with respect to the depth to be drilled, the Partnership shall have the right to direct the stoppage of the work to be performed by the Contractor hereunder at any time prior to reaching the Contract Depth and even though Contractor has made no default hereunder. If the Partnership exercises its right to discontinue drilling a well, the Partnership will not receive a refund for any unused portion of the Drilling Price allocable to the discontinued well but the Partnership may direct Contractor to apply the unused portion of the Drilling Price to the intangible cost of another well that the Partnership shall specify. The unused portion of the Drilling Price will be determined as follows: D-2 100 Contractor shall determine a sum equal to all the actual expenses reasonably and necessarily incurred up to the date the Partnership notified Contractor to discontinue drilling plus such additional expenses reasonably and necessarily incurred in order for Contractor to cease operations, including plugging and abandoning the hole, and dismantling the rig plus the sum of 15% of such total actual expenses. This sum shall be deducted from the Drilling Price of the Partnership Wells. The resulting difference shall be the unused portion of the price. 8. REPORTS TO BE FURNISHED BY CONTRACTOR: 8.1 Contractor shall keep and furnish to the Partnership an accurate record of the work performed and formations drilled on the IADC-API Daily Drilling Report form or other form acceptable to the Partnership. A legible copy of said form signed by Contractor's representative shall be furnished by Contractor to the Partnership. 8.2 Delivery tickets, if requested by the Joint Venture, covering any material or supplies furnished by the Partnership shall be turned in each day with the daily drilling report. The quantity, description and condition of materials and supplies so furnished shall be checked by Contractor and such tickets shall be properly certified by Contractor. 9. RESPONSIBILITY FOR A SOUND LOCATION: Contractor shall prepare a sound location, adequate in size and capable of properly supporting the drilling rig. Contractor shall be responsible for a conductor pipe program adequate to prevent soil and subsoil washout. In the event subsurface conditions cause a cratering or shifting of the location surface, and loss or damage to the rig or its associated equipment results therefrom, the Partnership shall not be responsible for reimbursing Contractor for any such loss or damage including payment of work stoppage rate during repair and/or demobilization if applicable. 10. RESPONSIBILITY FOR ROAD AND LOCATIONS: Contractor agrees at all times to maintain roads to locations and each location in such a condition that will allow free access and movement to and from the drilling site in an ordinarily equipped highway type vehicle. 11. PAYMENT OF CLAIMS: Contractor agrees to pay all claims for labor, material, services and supplies to be furnished by Contractor hereunder, and agrees to allow no lien or charge to be fixed upon the lease, the Partnership Wells or other property of the Partnership or the land upon which said Partnership Wells are located. 12. RESPONSIBILITY FOR LOSS OR DAMAGE: 12.1 Contractor's Surface Equipment: Contractor shall assume liability at all times for damage to or destruction of Contractor's surface equipment, including but not limited to all drilling tools, machinery and appliances, for use above the surface, regardless of when or how such damage or destruction occurs. D-3 101 12.2 Contractor's In-Hole Equipment Basis: Contractor shall assume liability at all times for damage to or destruction of Contractor's in-hole equipment, including but not limited to drill pipe, drill collars and tool joints, and the Partnership shall be under no liability to reimburse Contractor for any such loss. 12.3 Partnership's Equipment: The Partnership shall assume liability at all times for any defective equipment owned by it, including but not limited to casing, tubing, well head equipment, and Contractor shall be under no liability to reimburse the Partnership for any such loss or damage. 12.4 Fire or Blow-Out: Should a fire or blowout occur or should the hole for any cause attributable to Contractor's operators be lost or damaged while Contractor is engaged in the performance of work hereunder, all such loss of or damage to the hole including cost of regaining control of a fire or blowout, shall be borne by Contractor; and if the hole is not in condition to be carried to the Contract Depth as herein provided, Contractor shall, if requested by the Partnership, commence a new hole without delay at Contractor's cost; and the drilling of the new hole shall be conducted under the terms and conditions of this Agreement in the same manner as though it were the first hole and Contractor shall be responsible for replacement of any casing lost in a junked and abandoned hole as well as the cost of preparing a new drill site for the new hole and the road thereto. In such case, Contractor shall not be entitled to any payment or compensation for expenditures made or incurred by Contractor on or in connection with the abandoned hole. 13. NO WAIVER EXCEPT IN WRITING: It is fully understood and agreed that none of the requirements of this Agreement shall be considered as waived by either party unless the same is done in writing, and then only by the persons executing this Agreement, or other duly authorized agent or representative of the party. 14. FORCE MAJEURE: If either party hereto is rendered unable, wholly or in part (and its performance hereunder is not rendered merely commercially impracticable) by force majeure to carry out its obligation under this Agreement, it shall give the other party prompt written notice of the force majeure with reasonably full particulars. Thereupon, the obligations of the notifying party, so far as they are affected by the force majeure, shall be suspended during, but not longer than, the continuance of the force majeure, and the notifying party agrees to use reasonable diligence to remove the force majeure as quickly as possible. This paragraph shall not relieve either party hereto for its obligations to expend sums of money or to indemnify the other party hereto, as provided elsewhere in this Agreement. The term "force majeure" as herein employed shall mean an act of God, strike, lockout or other industrial disturbance, act of the public enemy, war, blockade, public riot, lightning, fire, storm, flood, explosion, extreme weather conditions, or governmental restraint. 15. INFORMATION CONFIDENTIAL: Upon written request by the Partnership, information obtained by Contractor in the conduct of drilling operation on the Partnership Wells, including, but not limited to depth, formations penetrated, the results of coring, testing and surveying, shall be considered confidential and shall not be divulged by Contractor or its employees, to any person, firm or any corporation other than the Partnership designated representative. D-4 102 16. ASSIGNMENT: Neither party may assign this Agreement without the prior written consent of the other, and prompt notice of any such intent to assign shall be given to the other party. If any assignment is made that materially alters Contractor's financial burden, Contractor's compensation shall be adjusted to give effect to any increase or decrease in Contractor's operating costs. 17. NOTICES AND PLACE OF PAYMENT: All notices to be given with respect to this Agreement unless otherwise provided for shall be given to Contractor and to the Partnership respectively at the addresses hereinabove shown. All sums payable hereunder to Contractor shall be payable at the address hereinabove shown unless otherwise specified herein. BLUE RIDGE ENERGY, INC. By: /s/ ROBERT D. BURR ------------------------------- Robert D. Burr, President BLUE RIDGE GROUP, INC. By: /s/ ROBERT D. BURR ------------------------------- Robert D. Burr, President D-5 103 EXHIBIT "1" TO EXHIBIT "D" APRIL 13, 1999 The primary investment objectives of the Partnership are: (1) the acquisition of approximately a 30.00% Working Interest, which is approximately 23.00% of the Net Revenue Interest in ten well sites to be drilled on the Cumberland Gap 10 Prospect and the production and sale of oil/gas therefrom. The Cumberland Gap 10 Prospect consists of approximately 6,500 acres of oil and gas leases in Harlan County, Kentucky and the wells to be drilled thereon (the "Kentucky Partnership Wells"). The Kentucky Partnership Wells will be drilled to depths of approximately 6,000' or depths sufficient to test the Corniferous Sand formation and (2) the assignment of income from a 25% Working Interest which is an 18.75% Net Revenue Interest in the Colton Williams #44-1 Well ("Texas Well") to be drilled on the 960 acre Rocksprings Prospect in Edwards County. The Texas Well will be drilled to a depth of 7,000 feet or a depth sufficient to test the Holman Sands. There will be no cost to the Partnership for the assignment of income from the Colton Williams #44-1 well and the assignment of income is limited to when twice the partners' original capital contributions, or $3,600,000, is received by the Partners from the production of all Partnership wells. D-6 104 NOLAND COMPANY DRILLING EQUIPMENT BRANCH DRILL RIG - QUOTATION AND BUYER'S ORDER QUOTATION AND/OR CONTRACT NO. -------------------------------------------------- DATE: February 6, 1998 ------------------------- NOLAND REPRESENTATIVE Charles H. Powell ---------------------------------------------------------- QUOTED TO (BUYER): NAME Blue Ridge Group --------------------------------------------------------------------------- ADDRESS 632 Adams Street Suite #700 ------------------------------------------------------------------------ CITY Bowling Green STATE KY ZIP 42101 -------------------- ------- ----------------------------------- PHONE NUMBER 502-842-2421 ------------------------------------------------------------------- SELLER: NOLAND COMPANY 2227 SHENANDOAH AVENUE, N.W. ROANOKE, VA 24017 (703) 982-8001 NO LIABILITY INSURANCE INCLUDED I. WE ARE PLEASED TO QUOTE ON THE WITHIN STATED EQUIPMENT: Rig: Ingersoll-Rand RD-20 S/N ---------------------- -------------------------------------- Drill Mounted On CMC 4 Axle Carrier ------------------------------------------------------ Other (Specify) S/N ------------------- ------------------------------- Compressor Ingersoll-Rand HR 2.5 1250 CFM@ 350 PSI ----------------------------------- ------ ------ Power Unit Cummins QSK 19C 700 Horsepower @ 1800 RPM ------------------------------------------------------------ Vehicle Identification No. New Equipment - VIN # will be provided when -------------------------------------------- available ----------------------------------------------------------------------- ----------------------------------------------------------------------- 7/95 Page 1 of 6 105
WITH FOLLOWING EXTRA EQUIPMENT: Yes No Optional Truck 4 Axle CMC Carrier [ ] [ ] ---------------------------------- Optional Compressor I - R 1250 / 350 [X] [ ] ----------------------------- Air Line Lubricator 60 gal [X] [ ] ----------------------------- Air Pressure Regulator [X] [ ] -------------------------- Heavy Hoist Package 110,000 Lb Pullback [X] [ ] ----------------------------- Hot Box Pre-Heater Diesel Fired [X] [ ] ------------------------------ Water Injection System 25 gpm [X] [ ] -------------------------- Night Lighting [X] [ ] ---------------------------------- Water Mud Pump [ ] [X] ---------------------------------- Petol Wrench [X] [ ] ------------------------------------ Table Bushing 4 1/2" Solid [X] [ ] ---------------------- Table Bushing Split 5 3/8" [ ] [X] ---------------------- 4 1/2" x 9 1/2" Spindle Sub [ ] [X] --------------------- 4 1/2" x 24" Spindle Sub [ ] [X] ------------------------ 4 1/2" x 48" Spindle Sub [X] [ ] ------------------------ Drill Steel [ ] [X] ------------------------------------- Hammer [ ] [X] ------------------------------------------ Hammer Bits [ ] [X] ------------------------------------- Stabilizer [ ] [X] -------------------------------------- 4 1/2" x 3 1/2" Bit Sub Reg. API [ ] [X] ---------------- Roller Bits [ ] [X] ------------------------------------- Auxiliary 175 Gallon Fuel or Water Tank [ ] [X] --------- Rapid Travel Kit [ ] [X] -------------------------------- 6 1/4" Bit Basket [X] [ ] -------------------------------- 8" Bit Basket [X] [ ] ----------------------------------- 10" Bit Basket [ ] [X] ----------------------------------
7/95 Page 2 of 6 106
YES NO Hammer Sub 3 1/2" API Box & Pin 18" Long [ ] [X] -------- Includes Hammer breakout tools for [X] [ ] -------------- 6" and 8" Hammers [X] [ ] -------------------------------- Special Paint [ ] [ ] ----------------------------------- [ ] [ ] -------------------------------------------------
Total Quoted Price $741,000.00 ------------------ Sales Tax ------------------ Total ------------------ II. DESCRIPTION OF TRADE-IN: Year 1989 Make I-R T4WLT ------- --------------------------------------------------- Model No. 900/350 Long Derrick RIG S/N 3057 ------------------------- -------------------------- Power Unit KT-19 Cumming Compressor I-R HR2 900 CFM@ 350 PSI ---------------- ------------- ------ Drill Mounted On: Year 1986 Make Pettibone ----------- ----------------------------------- Model Crane Carrier Chassis Vehicle I.D.# 2P9428HC2F0002513 ---------------------- --------------------------- Truck Engine Detroit 6-71 --------------------------------------------------------- Water Injection 25 gpm Cast DHD Lube 50 gal ------------------- ------------------------- Rotary Head 2-Motor Spur ---------------------------------------------------------- III. PAYMENT AND DELIVERY AGREEMENTS: Quoted Price (Excluding Taxes and Titling Fees): $ 741,000.00 --------------- (A) State Sales Tax: $ --------------- (B) Local Sales Tax: $ --------------- Less: (A) Trade-In Allowance: $ --------------- (B) Lease Conversion: $ --------------- (C) Deposit With Order: $ --------------- BALANCE DUE: $ ----------------- (Plus other fees as itemized on page 4) Terms of Sale: [ ] Cash on Delivery [X] To be financed by ------ Center Capital ------------------------
Any applicable sales taxes will be added. /s/ CHP 2/6/98 7/95 Page 3 of 6 107 Additional Amount to be Collected For: Registration Fee $ N/A Title Fee $ N/A ----- ----- Uninsured Motor Vehicle Fee $ N/A Other Fees $ N/A ----- ----- Amount of processing fee charged, if any. If no processing fee is charged, please indicate "none": none --------------------------------- Local dealer's business license tax: none ----------------------------- Delivery Terms F.O.B. Eastern Kentucky ----------------------------------------------------------------- IV. ADDITIONAL TERMS AND CONDITIONS: In the event the foregoing quotation and its terms and conditions are acceptable to the Buyer, then it is the intent and agreement of Buyer and Noland Company ("Seller") that this document shall become a contract and subject to the additional terms and conditions as follows: a. Unless otherwise provided herein, the prices quoted apply to this quotation only, are subject to change without notice prior to acceptance, are based upon current market costs, are subject to any applicable manufacturer price escalation and, except where noted, do not include shipping or transportation charges. Any change in quantities, delivery dates, handling or destination may incur a price adjustment. Federal, state or local applicable taxes or titling charges are not a part of the quoted price and are the responsibility of the Buyer. It is the responsibility of the Buyer to provide the proper authorities or certificates whenever a tax exempt status is claimed. b. Terms of sale are cash unless otherwise provided herein. The title and right to possession of the machinery and materials quoted herein and any replacements or substitutions shall remain with the Seller until all amounts due are fully paid and, if financing is provided by the Seller, a security interest is hereby granted until full remittance is made for all negotiated documents including specified late charges, interest, collection and attorney's fees, etc. c. If Seller arranges financing for this purchase, the following notice is applicable: "This sale is conditioned upon approval of buyer's proposed retail installment sale contract as submitted to or through the Seller. If that proposed retail installment sale contract is not approved under the terms agreed to with the Seller, the buyer may cancel this sale and any down payment and/or trade-in submitted by the buyer will be returned to the buyer, provided that any vehicle delivered to the buyer by the Seller pursuant to this agreement is returned to the Seller in the 7/95 Page 4 of 6 108 same condition as delivered to the buyer, normal wear and tear excepted, within twenty-four hours of written or oral notice to the buyer of the credit denial". d. Seller shall not be responsible for delay caused by fires or other casualties, strikes, lockouts, differences with workmen, accidents, war insurrections, government regulations, delay in transportation, delay by suppliers of materials, or contingencies beyond its control. Receipt of the machinery or materials covered by this contract from a common carrier shall constitute an acceptance and release or waiver of any responsibility on the part of the Seller for damages in transit or loss due to delay in delivery. e. Seller does not manufacture the goods it sells but will pass on to the buyer, to the extent possible, all benefits realized under whatever warranty, if any, which may be extended by the manufacturer of the goods sold. Seller hereby disclaims any and all warranties, expressed or implied, including but not limited to the warranties of merchantability and fitness for a particular purpose or any warranties arising from a course of dealing or usage of trade. No employee of Seller is authorized to make or assume any warranty, liability or responsibility with regard to the goods on behalf of Seller. f. When material defects are discovered, Buyer shall comply with all requirements of any applicable manufacturer's warranty before proceeding with replacement or repairs. The goods are sold "as is" and the Seller assumes no liability in the event the goods are defective in any way. Seller shall not be liable under any circumstances for consequential, special or punitive damages, or lost profits arising from faulty installation, application or operation by Buyer; or those caused by defective goods and any attendant labor, repairs, or other expense incident to their removal and replacement; or on account of the use or resale of goods. g. On refurbished or used equipment, no warranties are stated or implied by the Seller except as otherwise noted in writing. The Seller has no liability for damage or failure due to negligence, misuse, accident, improper operation, improper application or installation caused by the Buyer. On components manufactured by others and contained on refurbished or used equipment, Seller assigns to the Buyer, to the extent assignable, the manufacturer's standard warranty and any transferrable extended warranties which may be in effect. The Buyer shall pay all expenses of removal, installation and/or transportation costs to and from the location where warranty service is performed. Such repair on replacement shall be done at the soonest practical time. Defective goods will be returned within 10 days to Seller, freight prepaid, for inspection and credit if applicable. Under no circumstances will Seller be liable for incidental or consequential damages. h. Cancellation of this quotation/buyer's order or any other failure of buyer to consummate the purchase contemplated hereby for any reason other than Seller's failure to give final acceptance of this quotation/buyer's order will result in forfeiture of any deposit paid to Seller and liability for any damages exceeding the deposit amount. Page 5 of 6 109 i. All contracts or agreements are subject to the approval of the Seller's corporate headquarters, to be indicated by the written acceptance of an authorized agent of the Seller. This agreement shall become effective on the date and at the place of such acceptance. j. THIS QUOTATION WILL EXPIRE UNLESS ACCEPTED ON OR BEFORE THE ___ DAY (OR IF THIS BLANK IS NOT FILLED IN, THE SEVENTH DAY) FOLLOWING THE DATE SET FORTH ON THE FIRST PAGE HEREOF, AND IN ANY EVENT IS SUBJECT TO RECEIPT BY SELLER OF SATISFACTORY CREDIT INFORMATION AND CREDIT APPROVAL. k. Seller makes no warranty that the description or performance of equipment contained herein conforms to any plans, specifications or requirements of Buyer, who is cautioned to compare this quotation with actual specified requirements to avoid error. Seller assumes no responsibility for any addenda and/or alternates unless expressly stated in this quotation. Any alternate offered is based on Seller's interpretation of the specifications and Buyers is cautioned to carefully compare the alternate with actual requirements. SUBMITTED BY: NOLAND COMPANY By: /s/ CHARLES H. POWELL ------------------------ Title: Sales Representative ---------------------- THE FOREGOING QUOTATION IS HEREBY ACCEPTED AS A CONTRACT THIS 6th day of FEBRUARY, 1998, SUBJECT TO FURTHER ACCEPTANCE OF THE SELLER, AND BUYER ACKNOWLEDGES RECEIPT OF A COPY OF THIS CONTRACT. BUYER: /s/ BLUE RIDGE GROUP ---------------------- (Print full corporate, partnership or individual name) By: /s/ [ILLEGIBLE] ------------------------- Title: Vice President ---------------------- FINAL ACCEPTANCE: NOLAND COMPANY Title: ---------------------- Date: ---------------------- 2/6/98 110 BILL OF SALE COMMONWEALTH OF KENTUCKY, ) County of Warren ) That Blue Ridge Group, Inc. of the County and Commonwealth aforesaid, for and in consideration of the sum of Four Hundred Ninety Five Thousand and no/xx Dollars as applied to the sale of an Ingersoll Rand T-4 Drilling Rig by Blue Ridge Group, Inc. of 632 Adams Street, Ste. 700, Bowling Green, Kentucky 42101 to Blue Ridge Energy, Inc. of 632 Adams Street, Ste. 710, Bowling Green, Kentucky 42101, the receipt for which is hereby acknowledged, have BARGAINED, SOLD AND DELIVERED, and by these presents do BARGAIN, SELL and DELIVER unto the said Blue Ridge Energy, Inc. of 632 Adams Street, Ste. 710 Bowling Green, Kentucky 42101, the following described personal property in Warren County, Kentucky, to-wit: Ingersoll Rand T-4 Drilling Rig, Serial #29801 And we do hereby bind ourselves and our heirs, executors, administrators and assigns, to forever WARRANT and DEFEND to title to the said property unto the said Blue Ridge Energy, Inc. of 632 Adams Street, Ste. 710, Bowling Green, Kentucky 42101, and its heirs, executors, administrators and assigns, against every person whomsoever lawfully claiming, or to claim the same, or any part thereof. WITNESS my hand at Bowling Green, Kentucky, this 30th day of June, 1999. 1999. BLUE RIDGE GROUP, INC. BLUE RIDGE ENERGY, INC. By: /s/ GREGORY B. SHEA By: /s/ JAMES T. COOK, JR. ----------------------------------- ----------------------------------- Gregory B. Shea, Sr. Vice President James T. Cook, Jr. Vice President 111 PROMISSORY NOTE $126,000.00 Bowling Green, Kentucky June 30, 1996 FOR VALUE RECEIVED, the undersigned promises to pay to the order of Blue Ridge Group, Inc. the principal sum of One Hundred Twenty Six Thousand AND no/100 ($126,000.00) with interest from date at the rate of 8% per annum on the unpaid balance until paid. The entire principal balance and all accrued interest shall be payable on the 30th day of September, 1996. Privilege is reserved to prepay at any time, without premium or fee, or any penalty whatsoever the entire indebtedness or any part thereof at any time prior to maturity. If any deficiency in the payment of this note is not made on the due date, the entire principal balance plus accrued interest shall at once become due and payable without notice at the option of the Holders/Payees. In the event of foreclosure or collection proceedings, the undersigned shall reimburse the Holders/Payees for all reasonable attorney fees and court costs as permitable by the Kentucky Revised Statutes. This note shall not be assumed without the prior written consent of the Holders/Payees, nor the financing assumed by anyone without the consent of the Holders/Payees. The undersigned shall be bound and waives presentment for payment, demand, protest, and notice of demand, protest and nonpayment. /s/ JAMES T. COOK, JR. ------------------------------------ Blue Ridge Energy, Inc. 112 August 31, 1998 Blue Ridge Group, Inc. 632 Adams Street, Suite 710 Bowling Green, KY 42101 Dear Mr. Burr: When executed by you, this letter shall serve as an agreement by and between Blue Ridge Energy, Inc., (herein "Energy") and Blue Ridge Group, Inc. (herein "Group") regarding the acquisition by Energy of a 25% Working Interest in up to fifty (50) oil and gas wells located in the Appalachian Basin as well as the acquisition of drilling rigs and ancillary equipment to drill oil and gas wells. Our agreement with respect to these acquisitions is as follows: 1: Group intends to locate, drill and develop up to fifty (50) wells in the Appalachian Basin. Energy will purchase a 25% Working Interest resulting in an 18.75% Net Revenue Interest in each well located, drilled and developed for $55,000. 2: Energy intends to acquire drilling rigs and related equipment for ongoing operations in the Appalachian Basin. Group may sell to Energy, at historical cost any excess drilling rigs and equipment in its possession that would suit Energy's ongoing needs. 3: In order to facilitate the foregoing, Energy agrees to extend a line of credit of $1,500,000 to Group for a period of one year from which Group may draw funds as required. Group will pay interest of 12% per annum on all outstanding balances under this arrangement. Amounts due under this line of credit will be repaid as funds generated by Group's operations become available, by the sale of drilling rigs and equipment to Energy and/or by the exchange of 25% Working Interest in oil and gas wells located in the Appalachian Basin at a rate of $55,000 per 25% Working Interest conveyed. If the foregoing fully describes your understanding of the agreement between Blue Ridge and Premier, please acknowledge your assent to the terms and conditions hereof by signing in the space provided below. Truly Yours, /s/ JAMES T. COOK, JR. James T. Cook, Jr. Sr. Vice President-Finance Agreed and accepted this 31st day August, 1998 by Blue Ridge Energy, Inc. /s/ ROBERT D. BURR - ----------------------------------- By: Robert D. Burr -------------- Its: President --------- 113 MANAGEMENT SERVICES CONTRACT September 30, 1996 Blue Ridge Group, Inc. hereby agrees to provide Blue Ridge Energy, Inc. with the following services: 1. General Management 2. Administration 3. Financial and Accounting Records 4. Tax and Audit Preparation As compensation for these services Blue Ridge Group, Inc. will receive a monthly fee of $20,000.00 on the 30th day of the month in which such services are performed. This contract will continue in force indefinitely or until such time as it is terminated by either party with a 30 day written notice. Agreed to and Accepted by: Agreed to and Accepted by: Blue Ridge Group, Inc. Blue Ridge Energy, Inc. /s/ ROBERT D. BURR /s/ JAMES T. COOK, JR. - ----------------------------------- ------------------------------------ 114 WARRANT THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS, UNLESS THE HOLDER OF THIS WARRANT AND/OR SHARES DELIVERS TO THE COMPANY AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. BLUE RIDGE ENERGY, INC. COMMON STOCK PURCHASE WARRANT Expiring June 30, 2001 THIS CERTIFIES THAT, for value received, Blue Ridge Group, Inc. (the "Warrant Holder"), at any time and from time to time on any Business Day on or prior to 5:00 p.m., Central Time, on June 30, 2001 (the "Expiration Date") is entitled to subscribe for and purchase from BLUE RIDGE ENERGY, INC., a Nevada corporation (the "Company"), 2,000,000 shares of Common Stock at a price per share equal to the Exercise Price. 1. CERTAIN DEFINITIONS The following terms, as used herein, have the following meanings: "Business Day" means any day except a Saturday, Sunday, or other day on which commercial banks in Bowling Green, Kentucky, are authorized by law to close. "Commission" means the Securities and Exchange Commission. "Common Stock" means the Company's currently authorized common stock, $.01 par value, and stock of any other class or other consideration into which such currently authorized common stock may hereafter have been changed. "Exercise Price" means Five cents ($0.05) per share. "Securities Act" means the Securities Act of 1933, or any successor Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect a the time. "Warrant Shares" means the 2,000,000 shares of Common Stock issued or issuable upon exercise for this Warrant. 115 2. EXERCISE OF WARRANT The Warrant Holder or its assignee may exercise this Warrant, in whole or in part, at any time or from time to time on any Business Day prior to the Expiration Date, by delivering to the Company a duly executed notice (a "Notice of Exercise") in the form of Exhibit A hereto and by payment to the Company of the Exercise Price per Warrant Share by cashier's check in an amount equal to the product of (I) the Exercise Price time (ii) the number of Warrant Shares as to which this warrant is being exercised. As soon as reasonably practicable but not later than twenty Business Days after the Company shall have received such Notice of Exercise and payment, the Company shall execute and deliver certificates representing the number of shares of Common Stock specified in such Notice of Exercise, issued in the name of the Warrant Holder. This Warrant shall be deemed to have been exercised and such share certificate or certificates shall be deemed to have been issued, and such Warrant Holder shall be deemed for all purposes to have become a holder of record of shares of Common Stock, as of the first Business Day after the date that such Notice of Exercise and payment shall has been received by the Company. The Warrant Holder shall surrender this Warrant Certificate to the Company when it delivers the Notice of Exercise, and in the event of a partial exercise of the Warrant, the Company shall execute and deliver to the Warrant Holder, at the time the Company delivers the share certificate or certificates issued pursuant to such Notice of Exercise, a new Warrant Certificate for the unexercised balance of the Warrant. Each Certificate for Warrant Shares issued upon exercise of this Warrant, unless at the time of exercise such Warrant Shares are registered under the Securities Act, shall bear the following legend: THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS, UNLESS THE HOLDER OF THE SHARES DELIVERS TO THE COMPANY AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. Any certificate for Warrant Shares issued at any time in exchange or substitution for any certificate bearing such legend shall also bear such legend unless, in the written opinion of counsel, which counsel and opinion shall be reasonably accepted to the Company, the Warrant Shares represented thereby need no longer be subject to restrictions on resale under the Securities Act. The Company shall not be required to issue fractions of shares of Common Stock upon an exercise 2 116 of the Warrant. If any fraction of a share would, but for this restriction, be issuable upon an exercise of the Warrant, in lieu of delivering such fractional share, the Company shall pay to the Warrant Holder, in cash, an amount equal to the same fraction times the Closing Price on the trading day immediately prior to the date -of such exercise. 3. INVESTMENT REPRESENTATION By accepting the Warrant, the Warrant Holder represents that he is acquiring the Warrant for his own account for investment purposes and not with the view to any sale or distribution, and that the Warrant Holder will not offer, sell or otherwise dispose of the Warrant or the Warrant Shares except under circumstances as will not result in a violation of applicable securities laws. 4. VALIDITY OF WARRANT AND ISSUANCE OF SHARES The Company represents and warrants that this Warrant has been duly authorized and is validly issued. The Company further represents and warrants that on the date hereof it duly authorized and reserved, and the Company hereby agrees that it will at all times until the Expiration Date have duly authorized and reserved, such number of shares of Common Stock as will be sufficient to permit the exercise in full of the Warrant, and that all such shares are and will be duly authorized and, when issued upon exercise of the Warrant, will be validly issued, fully paid and non-assessable, and free and clear of all security interests, claims, liens, equities and other encumbrances. 5. ADJUSTMENTS The Exercise Price in effect at any time, and the number of Warrant Shares that may be purchased upon any exercise of the Warrant, shall be subject to change or adjustment as follows: (a) Common Stock Reorganization. If the Company shall subdivide its outstanding shares of Common Stock into a greater number of shares, by way of stock split, stock dividend or otherwise, or consolidate its outstanding shares of Common Stock into a smaller number of shares (any such event being herein call a "Common Stock Reorganization"), then (I) the Exercise Price shall be adjusted, effective immediately after the effective date of such Common Stock Reorganization, to a price determined by multiplying the Exercise Price in effect immediately prior to such effective date by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on such effective date before giving effect to such Common Stock Reorganization and the denominator of which shall be the number of shares of Common Stock outstanding after giving effect to such Common Stock Reorganization, and (ii) the number of shares of Common Stock subject to purchase upon exercise of this Warrant shall be adjusted, effective at such time, to a number determined by multiplying the number of shares of Common Stock subject 3 117 to purchase immediately before such Common Stock Reorganization by a fraction, the numerator of which shall be the number of shares outstanding after giving effect to such Common Stock Reorganization and the denominator of which shall be the number of shares of Common Stock outstanding immediately before giving effect to such Common Stock Reorganization. (b) Capital Reorganization. If there shall be any consolidation or merger to which the Company is a party, other than a consolidation or a merger of which the company is the surviving corporation and which does not result in any reclassification of, or change (other than a Common Stock Reorganization) in, outstanding shares of Common Stock, or any sale or conveyance of the property of the company as an entirety or substantially as an entirety, or any recapitalization of the Company (any such event being called a "Capital Reorganization"), then, effective upon the effective date of such Capital Reorganization, the Warrant holder shall no longer have the right to purchase Common Stock, but shall have instead the right to purchase, upon exercise of this Warrant, the kind and amount of shares of stock and other securities and property (including cash) which the Warrant Holder would have owned or have been entitled to receive pursuant to such Capital Reorganization if this Warrant had been exercised immediately prior to the effective date of such Capital Reorganization. As a condition to effecting any Capital Reorganization, the Company or the successor or surviving corporation, as the case may be, shall execute and deliver to the Warrant Holder an agreement as to the Warrant Holder's rights in accordance with this Section 5(b), providing, to the extent of any right to purchase equity securities hereunder, for subsequent adjustments as nearly equivalent as may be practicable to the adjustments provided for in this Section 5. The provisions of this Section 5 (b) shall similarly apply to successive Capital Reorganizations. (c) Notice of Adjustment. The Company shall give notice to the Warrant Holder of any event which requires an adjustment pursuant to this Section 5, describing such event in reasonable detail and specifying the record date or effective date, as the case may be, and, if determinable, the required adjustment and computation thereof. If the required adjustment is not determinable as the time of such notice, the Company shall give notice to the Warrant Holder of such adjustment and computation as soon as reasonably practicable after such ad adjustment becomes determinable. 6. LOST, MUTILATED OR MISSING WARRANT CERTIFICATES Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of any Warrant Certificate, and, in the case of loss, theft or destruction, upon receipt of an indemnification or bond satisfactory to the Company, or, in the case of mutilation, upon surrender and cancellation of the mutilated Warrant Certificate, the Company shall execute and deliver a new replacement Warrant Certificate of like tenor and representing the right to purchase the same 4 118 aggregate number of Warrant Shares. The recipient of any such Warrant Certificate shall reimburse the Company for all reasonable expenses incidental to the replacement of such missing or mutilated Warrant Certificate. 7. NOTICES All notices, requests, demands and other communications under this Warrant must be in writing and will be deemed duly given: (i) when personally delivered, (ii) upon receipt of a facsimile transmission with a confirmed transmission answer back, (iii) three (3) days after having been deposited in the United States mail, certified or registered, return receipt requested, postage prepaid, or (iv) one (1) business day after having been dispatched by a nationally recognized overnight courier service, addressed to the parties as follows: If to the Company: Blue Ridge Energy, Inc. 1953 Scottsville Road Bowling Green, Kentucky 42104 If to the Warrant Holder: Blue Ridge Group, Inc. 1953 Scottsville Road Bowling Green, Kentucky 42104 Any party may change its address for notice purposes by giving notice of such change of address in accordance with the foregoing provisions. 8. MISCELLANEOUS (a) This Warrant shall not entitle the Warrant Holder, prior to the exercise of the Warrant, to any rights as a shareholder of the Company. (b) In case any one or more of the provisions contained in this Warrant shall be invalid, illegal or unenforceable in any respect, the validity, legality and unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. The parties shall endeavor in good faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. (c) This Warrant is personal to the Warrant Holder and may not be assigned without the prior written consent of the Company and any attempt to assign without such written consent shall be null and void. All of the provisions of this Warrant by or for the benefit of the Company or the Warrant Holder bind and inure to the benefit 5 119 of their respective successors and permitted assigns. (d) This Warrant, the construction, interpretation and enforcement hereof and the rights of the parties hereto shall be determined under, governed by and construed in accordance with the laws of the State of Kentucky without regard to principles of conflicts of interest. (e) The section headings used herein are for convenience of reference only and shall not be construed in any way to affect the interpretation of any provisions of the Warrant. (f) This Warrant constitutes the entire agreement between the Company and the Warrant Holder regarding the subject matter hereof and supersedes all previous agreements. There are no verbal agreements, representations, warranties, undertakings or agreements among the parties. This Warrant may not be amended or modified in any respect, except by a written instrument signed by the Company and the Warrant Holder. IN WITNESS WHEREOF, the Company and the Warrant Holder agree to the foregoing terms and conditions and have executed this Warrant as of the day and year first above written. COMPANY BLUE RIDGE ENERGY, INC., a Nevada Corporation /s/ ROBERT D. BURR -------------------------------------- By: Robert D. Burr, President and CEO BLUE RIDGE GROUP, INC. /s/ JAMES T. COOK, JR. -------------------------------------- By: James T. Cook, Jr. Vice President - Finance 6 120 EXHIBIT A COMMON STOCK WARRANT FORM OF NOTICE OF EXERCISE TO: BLUE RIDGE ENERGY, INC. Reference is made to the Common Stock Purchase Warrant dated June 30, 1996 (the "Warrant"). Initially capitalized terms used herein have the meaning as defined in the Warrant. The undersigned, pursuant to the provisions set forth in the Warrant, hereby irrevocably elects and agrees to purchase 2,000,000 shares of Common Stock, and makes payment herewith in full therefor at the Exercise Price of Five cents ($0.05) by cash or check. The undersigned hereby represents that it is exercising the Warrant for its own account for investment purposes and not with the view to any sale or distribution and that the Warrant Holder will not offer, sell or otherwise dispose of the Warrant or any underlying Warrant Shares in violation of applicable securities laws. ------------------------------------ Printed Name: Blue Ridge Group, Inc. Date: ------------------------------- 7 121 WARRANT THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS, UNLESS THE HOLDER OF THIS WARRANT AND/OR SHARES DELIVERS TO THE COMPANY AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. BLUE RIDGE ENERGY, INC. COMMON STOCK PURCHASE WARRANT Expiring February 28, 2003 THIS CERTIFIES THAT, for value received, Blue Ridge Group, Inc. (the "Warrant Holder"), at any time and from time to time on any Business Day on or prior to 5:00 p.m., Central Time, on February 28, 2003 (the "Expiration Date") is entitled to subscribe for and purchase from BLUE RIDGE ENERGY, INC., a Nevada corporation (the "Company"), 5,000,000 shares of Common Stock at a price per share equal to the Exercise Price. 1. CERTAIN DEFINITIONS The following terms, as used herein, have the following meanings: "Business Day" means any day except a Saturday, Sunday, or other day on which commercial banks in Bowling Green, Kentucky, are authorized by law to close. "Commission" means the Securities and Exchange Commission. "Common Stock" means the Company's currently authorized common stock, $.01 par value, and stock of any other class or other consideration into which such currently authorized common stock may hereafter have been changed. "Exercise Price" means Five cents ($0.05) per share. "Securities Act" means the Securities Act of 1933, or any successor Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Warrant Shares" means the 2,000,000 shares of Common Stock issued or issuable upon exercise for this Warrant. 1 122 2. EXERCISE OF WARRANT The Warrant Holder or its assignee may exercise this Warrant, in whole or in part, at any time or from time to time on any Business Day prior to the Expiration Date, by delivering to the Company a duly executed notice (a "Notice of Exercise") in the form of Exhibit A hereto and by payment to the Company of the Exercise Price per Warrant Share by cashier's check in an amount equal to the product of (I) the Exercise Price time (ii) the number of Warrant Shares as to which this warrant is being exercised. As soon as reasonably practicable but not later than twenty Business Days after the Company shall have received such Notice of Exercise and payment, the Company shall execute and deliver certificates representing the number of shares of common Stock specified in such Notice of Exercise, issued in the name of the Warrant Holder. This Warrant shall be deemed to have been exercised and such share certificate or certificates shall be deemed to have been issued, and such Warrant Holder shall be deemed for all purposes to have become a holder of record of shares of Common Stock, as of the first Business Day after the date that such Notice of Exercise and payment shall has been received by the Company. The Warrant Holder shall surrender this Warrant Certificate to the Company when it delivers the Notice of Exercise, and in the event of a partial exercise of the Warrant, the Company shall execute and deliver to the Warrant Holder, at the time the Company delivers the share certificate or certificates issued pursuant to such Notice of Exercise, a new Warrant Certificate for the unexercised balance of the Warrant. Each Certificate for Warrant Shares issued upon exercise of this Warrant, unless at the time of exercise such Warrant Shares are registered under the Securities Act, shall bear the following legend: THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS, UNLESS THE HOLDER OF THE SHARES DELIVERS TO THE COMPANY AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. Any certificate for Warrant Shares issued at any time in exchange or substitution for any certificate bearing such legend shall also bear such legend unless, in the written opinion of counsel, which counsel and opinion shall be reasonably accepted to the Company, the Warrant Shares represented thereby need no longer be subject to restrictions on resale under the Securities Act. The Company shall not be required to issue fractions of shares of common Stock upon an exercise 2 123 of the Warrant. If any fraction of a share would, but for this restriction, be issuable upon an exercise of the Warrant, in lieu of delivering such fractional share, the Company shall pay to the Warrant Holder, in cash, an amount equal to the same fraction times the Closing Price on the trading day immediately prior to the date of such exercise. 3. INVESTMENT REPRESENTATION By accepting the Warrant, the Warrant Holder represents that he is acquiring the Warrant for his own account for investment purposes and not with the view to any sale or distribution, and that the Warrant Holder will not offer, sell or otherwise dispose of the Warrant or the Warrant Shares except under circumstances as will not result in a violation of applicable securities laws. 4. VALIDITY OF WARRANT AND ISSUANCE OF SHARES The Company represents and warrants that this Warrant has been duly authorized and is validly issued. The Company further represents and warrants that on the date hereof it duly authorized and reserved, and the Company hereby agrees that it will at all times until the Expiration Date have duly authorized and reserved, such number of shares of Common Stock as will be sufficient to permit the exercise in full of the Warrant, and that all such shares are and will be duly authorized and, when issued upon exercise of the Warrant, will be validly issued, fully paid and non-assessable, and free and clear of all security interests, claims, liens, equities and other encumbrances. 5. ADJUSTMENTS The Exercise Price in effect at any time, and the number of Warrant Shares that may be purchased upon any exercise of the Warrant, shall be subject to change or adjustment as follows: (a) Common Stock Reorganization. If the Company shall subdivide its outstanding shares of Common Stock into a greater number of shares, by way of stock split, stock dividend or otherwise, or consolidate its outstanding shares of Common Stock into a smaller number of shares (any such event being herein call a "Common Stock Reorganization"), then (I) the Exercise Price shall be adjusted, effective immediately after the effective date of such Common Stock Reorganization, to a price determined by multiplying the Exercise Price in effect immediately prior to such effective date by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding on such effective date before giving effect to such Common Stock Reorganization and the denominator of which shall be the number of shares of Common Stock outstanding after giving effect to such Common Stock Reorganization, and (ii) the number of shares of Common Stock subject to purchase upon exercise of this Warrant shall be adjusted, effective at such time, to a number determined by multiplying the number of shares of Common Stock subject 3 124 to purchase immediately before such Common Stock Reorganization by a fraction, the numerator of which shall be the number of shares outstanding after giving effect to such Common Stock Reorganization and the denominator of which shall be the number of shares of Common Stock outstanding immediately before giving effect to such Common Stock Reorganization. (b) Capital Reorganization. If there shall be any consolidation or merger to which the Company is a party, other than a consolidation or a merger of which the company is the surviving corporation and which does not result in any reclassification of, or change (other than a Common Stock Reorganization) in, outstanding shares of Common Stock, or any sale or conveyance of the property of the company as an entirety or substantially as an entirety, or any recapitalization of the Company (any such event being called a "Capital Reorganization"), then, effective upon the effective date of such Capital Reorganization, the Warrant holder shall no longer have the right to purchase Common Stock, but shall have instead the right to purchase, upon exercise of this Warrant, the kind and amount of shares of stock and other securities and property (including cash) which the Warrant Holder would have owned or have been entitled to receive pursuant to such Capital Reorganization if this Warrant had been exercised immediately prior to the effective date of such Capital Reorganization. As a condition to effecting any Capital Reorganization, the Company or the successor or surviving corporation, as the case may be, shall execute and deliver to the Warrant Holder an agreement as to the Warrant Holder's rights in accordance with this Section 5(b), providing, to the extent of any right to purchase equity securities hereunder, for subsequent adjustments as nearly equivalent as may be practicable to the adjustments provided for in this Section 5. The provisions of this Section 5 (b) shall similarly apply to successive Capital Reorganizations. (c) Notice of Adjustment. The Company shall give notice to the Warrant Holder of any event which requires an adjustment pursuant to this Section 5, describing such event in reasonable detail and specifying the record date or effective date, as the case may be, and, if determinable, the required adjustment and computation thereof. If the required adjustment is not determinable as the time of such notice, the Company shall give notice to the Warrant Holder of such adjustment and computation as soon as reasonably practicable after such adjustment becomes determinable. 6. LOST, MUTILATED OR MISSING WARRANT CERTIFICATES Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of any Warrant Certificate, and, in the case of loss, theft or destruction, upon receipt of an indemnification or bond satisfactory to the Company, or, in the case of mutilation, upon surrender and cancellation of the mutilated Warrant Certificate, the Company shall execute and deliver a new replacement Warrant Certificate of like tenor and representing the right to purchase the same 4 125 aggregate number of Warrant Shares. The recipient of any such Warrant Certificate shall reimburse the Company for all reasonable expenses incidental to the replacement of such missing or mutilated Warrant Certificate. 7. NOTICES All notices, requests, demands and other communications under this Warrant must be in writing and will be deemed duly given: (i) when personally delivered, (ii) upon receipt of a facsimile transmission with a confirmed transmission answer back, (iii) three (3) days after having been deposited in the United States mail, certified or registered, return receipt requested, postage prepaid, or (iv) one (1) business day after having been dispatched by a nationally recognized overnight courier service, addressed to the parties as follows: If to the Company: Blue Ridge Energy, Inc. 632 Adams Street, Suite 710 Bowling Green, Kentucky 42101 If to the Warrant Holder: Blue Ridge Group, Inc. 632 Adams Street, Suite 700 Bowling Green, Kentucky 42101 Any party may change its address for notice purposes by giving notice of such change of address in accordance with the foregoing provisions. 8. MISCELLANEOUS (a) This Warrant shall not entitle the Warrant Holder, prior to the exercise of the Warrant, to any rights as a shareholder of the Company. (b) In case any one or more of the provisions contained in this Warrant shall be invalid, illegal or unenforceable in any respect, the validity, legality and unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. The parties shall endeavor in good faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. (c) This Warrant is personal to the Warrant Holder and may not be assigned without the prior written consent of the Company and any attempt to assign without such written consent shall be null and void. All of the provisions of this Warrant by or for the benefit of the Company or the Warrant Holder bind and inure to the benefit 5 126 of their respective successors and permitted assigns. (d) This Warrant, the construction, interpretation and enforcement hereof and the rights of the parties hereto shall be determined under, governed by and construed in accordance with the laws of the State of Kentucky without regard to principles of conflicts of interest. (e) The section headings used herein are for convenience of reference only and shall not be construed in any way to affect the interpretation of any provisions of the Warrant. (f) This Warrant constitutes the entire agreement between the Company and the Warrant Holder regarding the subject matter hereof and supersedes all previous agreements. There are no verbal agreements, representations, warranties, undertakings or agreements among the parties. This Warrant may not be amended or modified in any respect, except by a written instrument signed by the Company and the Warrant Holder. IN WITNESS WHEREOF, the Company and the Warrant Holder agree to the foregoing terms and conditions and have executed this Warrant as of the day and year first above written. COMPANY BLUE RIDGE ENERGY, INC., a Nevada Corporation /s/ ROBERT D. BURR -------------------------------------- By: Robert D. Burr, President and CEO BLUE RIDGE GROUP, INC. /s/ JAMES T. COOK, JR. -------------------------------------- By: James T. Cook, Jr. Vice President- Finance 6 127 EXHIBIT A COMMON STOCK WARRANT FORM OF NOTICE OF EXERCISE TO: BLUE RIDGE ENERGY, INC. Reference is made to the Common Stock Purchase Warrant dated February 28, 1998 (the "Warrant"). Initially capitalized terms used herein have the meaning as defined in the Warrant. The undersigned, pursuant to the provisions set forth in the Warrant, hereby irrevocably elects and agrees to purchase 5,000,000 shares of Common Stock, and makes payment herewith in full therefor at the Exercise Price of Five cents ($0.05) by cash or check. The undersigned hereby represents that it is exercising the Warrant for its own account for investment purposes and not with the view to any sale or distribution and that the Warrant Holder will not offer, sell or otherwise dispose of the Warrant or any underlying Warrant Shares in violation of applicable securities laws. ------------------------------------ Printed Name: Blue Ridge Group, Inc. Date: ------------------------------- 7 -----END PRIVACY-ENHANCED MESSAGE-----