UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10

GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934

Infinity Energy Resources, Inc.
(Exact Name of Registrant as Specified in its Charter)

Delaware
20-3126427
(State of Incorporation or Organization)
(I.R.S. Employer Identification No.)

11900 College Blvd, Suite 204, Overland Park, KS
66210
(Address of principal executive office)
(Zip Code)

Registrant’s telephone number, including area code           (913) 948-9512

Securities to be registered pursuant to Section 12(b) of the Act:               None

Title of each class
to be so registered
Name of each exchange on which
each class is to be registered

Securities to be registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.0001
(Title of class)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer ¨   (Do not check if a smaller reporting company)
Smaller reporting company x

 
 

 

TABLE OF CONTENTS

Item 1.
Business
3
     
Item 1A.
Risk Factors
11
     
Item 2.
Financial Information
21
     
Item 3.
Properties
25
     
Item 4.
Security Ownership of Certain Beneficial Owners and Management
29
     
Item 5.
Directors and Executive Officers
30
     
Item 6.
Executive Compensation
32
     
Item 7.
Certain Relationships and Related Transactions, and Director Independence
36
     
Item 8.
Legal Proceedings
37
     
Item 9.
Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters
37
     
Item 10.
Recent Sales of Unregistered Securities
38
     
Item 11.
Description of Registrant’s Securities to be Registered
38
     
Item 12.
Indemnification of Directors and Officers
39
     
Item 13.
Financial Statements and Supplementary Data
40
     
Item 14.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
40
     
Item 15.
Financial Statements and Exhibits
40

 
 

 

ITEM 1.
BUSINESS

GENERAL

Infinity Energy Resources, Inc. (“Infinity” or the “Company”) was incorporated as a Colorado corporation in April 1987 and reincorporated as a Delaware corporation in September 2005.  As used in this registration statement, “ Infinity,” “we,” “us” and “ our” refer collectively to Infinity Energy Resources, Inc., its predecessors and subsidiaries or one or more of them as the context may require.  Infinity is an independent energy company that was engaged in the acquisition, exploration and development of natural gas and oil properties in the United States through our wholly-owned subsidiaries, Infinity Oil and Gas of Texas, Inc. (“Infinity-Texas”) and Infinity Oil & Gas of Wyoming, Inc. (“Infinity-Wyoming”).  We are pursuing an oil and gas exploration opportunity offshore of Nicaragua in the Caribbean Sea.  Infinity previously operated in the Fort Worth Basin of north central Texas and Wyoming and still holds leases in those regions.

From January 1, 2002 through December 31, 2004, we produced natural gas and oil and grew our production through exploration and development drilling exclusively in the Rocky Mountain region. During this period, we completed the drilling of 36 oil and gas wells with a success rate of 75% at our two projects in the Greater Green River Basin. Exploratory wells accounted for 69%, or 25 of the total wells drilled. Beginning in 2005, our primary exploration focus shifted to the Fort Worth Basin in north central Texas. During 2005, 2006 and 2007, we completed the drilling of 29 gas wells in the Fort Worth Basin.  Exploratory wells accounted for 100% of the total wells drilled.

On January 7, 2008, Infinity-Wyoming completed the sale of essentially all of its producing oil and gas properties in Colorado and Wyoming, along with 80% of the working interest owned by it in undeveloped leaseholds in Routt County, Colorado and Sweetwater County, Wyoming to Forest Oil Corporation, a New York corporation (“Forest”).  In addition, concurrent with the sale, on December 27, 2007, Infinity-Texas entered into a Farmout and Acquisition Agreement (“Farmout Agreement”) for certain oil and gas leaseholds owned by Infinity-Texas in Erath County, Texas. The Farmout Agreement provided that Forest would operate and earn a 75% interest in the spacing unit for each well in a 10-well drilling program. If Forest completed the drilling program, Forest Oil would have earned a 50% interest in the approximate 25,000 remaining undeveloped net acres and existing Erath County infrastructure owned by Infinity-Texas. The drilling obligation under the Farmout Agreement was not completed and Infinity-Texas retained its interest. Infinity-Texas retained 100% of its interest in all currently completed wells and 100 acres surrounding each currently completed well however due to non production the domestic acreage may be lost.  For the year end December 31, 2008 we wrote down to zero the remaining value of the Infinity-Texas and Infinity-Wyoming oil and gas assets as they were determined to be uneconomical to operate, and we are focused solely on the development of the Nicaraguan Concessions which is discussed below.

On December 15, 2006, we sold our oilfield services subsidiaries, Consolidated Oil Well Services, Inc. and CIS-Oklahoma, Inc. to Q Consolidated Oil Well Services, LLC, a Delaware limited liability company.

Our corporate office is located at 11900 College Boulevard Suite 204 Overland Park, Kansas 66210. Our telephone number is (913) 948-9512.

Nicaragua

Since 1999, we have pursued an oil and gas exploration opportunity offshore Nicaragua in the Caribbean Sea. Over such time period, we have built relationships with the Instituto Nicaraguense de Energia (“INE”) and undertook the geological and geophysical research that helped us to become one of only six companies qualified to bid on offshore blocks in the first international bidding round held by INE in January 2003.

 
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On March 5, 2009, we signed the contracts relating to our Nicaraguan concessions (the “Nicaraguan Concessions”). We are conducting an environmental study and the development of geological information from reprocessing and additional evaluation of existing 2-D seismic data that was acquired over the concession blocks offshore Nicaragua. We are seeking offers from other industry operators for interests in the acreage in exchange for cash and a carried interest in exploration and development operations or other strategic partnership. The funds raised through the subordinated note transaction described below were used to fund these expenses.  Effective February 16, 2011, we entered into a Fifth Forbearance Agreement (the "Fifth Forbearance")  with Amegy Bank ("Amegy") under which advances of $1,050,000 were approved.  As of December 31, 2010, advances of $454,053 had been made with remaining advances of $595,947 available for 2011 under the Fifth Forbearance.  No assurance can be given that these funds will be sufficient to cover the exploration cost until a partner is found.

We conducted an environmental study and developed geological information from the reprocessing and additional evaluation of existing 2-D seismic data acquired over our Perlas and Tyra concession blocks offshore Nicaragua.  We issued letters of credit totaling approximately $1.0 million for this initial work on the leases.  We commenced significant activity under the initial work plan and are waiting for governmental approval of the environmental study.  We intend to seek joint venture or working interest partners prior to the commencement of any exploratory drilling operations on these concessions.

Infinity-Texas

Infinity-Texas was engaged in the acquisition, exploration, development and production of natural gas in the Fort Worth Basin of north central Texas. This subsidiary is a Delaware corporation with its headquarters located in Overland Park, Kansas.

Infinity-Texas was formed in June 2004 to acquire, explore, develop and produce natural gas from the Barnett Shale formation and other producing formations in the Fort Worth Basin. The Barnett Shale is a marine shale formation that is natural gas bearing at depths believed to range from 1,000 to 8,500 feet and is believed to be ubiquitous across the Fort Worth Basin.

During the year ended December 31, 2008, Infinity Texas property was not cash flowing and operations were scaled back.  The main salt water disposal well was struck by lightning in April, 2009 and we made the decision to cease operations under the force majeure clause of the leases.  Infinity-Texas currently is not operating and it continues to seek potential buyers or operators.  We entered into a contingent sales contract for the Texas based assets in 2010 for $800,000, but the vendors refused to release their liens on the wells in exchange for partial payment and the escrow funds were returned to the buyer. Currently acreage and leases may be lost due to nonproduction.  For the year end December 31, 2008 the remaining value of the Infinity-Texas and Infinity-Wyoming properties were determined to be uneconomical to operate  and as such, were written down to zero as the Company focused solely on the development of the Nicaraguan Concessions.

Infinity-Wyoming

Infinity-Wyoming was engaged in the acquisition, exploration, development and production of natural gas, condensate and crude oil in the Rocky Mountain region in Wyoming and Colorado. This subsidiary is a Wyoming corporation.  On January 7, 2008, Infinity-Wyoming completed the sale of essentially all of its producing oil and gas properties in Colorado and Wyoming, along with 80% of the working interest owned by it   in undeveloped leaseholds in Routt County, Colorado and Sweetwater County, Wyoming to Forest.  Following the sale, Infinity-Wyoming had no wells producing crude oil or natural gas and it is inactive.

 
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Revolving Credit Facility and Fifth Forbearance Agreement

On January 10, 2007, we entered into a reserve-based revolving credit facility (the “Revolving Credit Facility”) with Amegy. Under the related loan agreement (the “Loan Agreement”) between us, Infinity-Texas and Infinity-Wyoming (each a wholly-owned subsidiary and together, the “Guarantors”) and Amegy, we could borrow, repay and re-borrow on a revolving basis up to the aggregate sums permitted under the borrowing base, $22,000,000 (reduced to $10,500,000 effective as of August 10, 2007 and subsequently reduced to $3,806,000 effective as of March 26, 2008) and subsequently reduced to $2,900,000 on December 4, 2009. The Revolving Credit Facility had an initial term of two years. Amounts borrowed bear interest at a stated rate of 5.5% at December 31, 2010 and 2009. Interest payments were due on a monthly basis, and principal payments may be required to meet a borrowing base deficiency or monthly borrowing commitment reductions. The borrowing base under the Revolving Credit Facility and the applicable interest rate was subject to adjustment at least once every three months. Amounts borrowed under the Revolving Credit Facility are collateralized by substantially all of the assets of us and our subsidiaries and are guaranteed by our subsidiaries. The Revolving Credit Facility contains certain standard continuing covenants and agreements and requires us to maintain certain financial ratios and thresholds.

We previously entered into four separate forbearance agreements resulting from our breach of certain covenants in the Loan Agreement.  Effective as of February 16, 2011, we entered into the Fifth Forbearance Agreement under the Loan Agreement.  The Fifth Forbearance relates to the breach by us and Guarantors of (i) substantially all financial covenants set forth in Section 8 of the Loan Agreement and (ii) certain covenants set forth in Section 7 of the Loan Agreement (the “Existing Defaults”). Under the Fifth Forbearance, the borrowing base remained the same.  The borrowing base shall not be subject to redetermination by Amegy during the period from January 31, 2010 to December 31, 2011 (the "Forbearance Period"). The borrowing base deficiency must be cured by the end of the Forbearance Period through the sale of assets, refinancing of the loan, or some other means of raising capital.  Under the Fifth Forbearance, Amegy agrees to forebear from exercising any remedies under the Loan Agreement and related loan documents and to waive the Existing Defaults for the Forbearance Period, unless otherwise extended or earlier terminated by Amegy due to a further default under the Loan Agreement.  In connection with the Fifth Forbearance, the maturity date of the Loan Agreement and related note was extended until December 31, 2011.  There can be no assurance that Amegy will extend the maturity date after December 31, 2011.

During the Forbearance Period, the interest rate will continue at the stated rate plus the applicable margin, which is 5.5% at December 31, 2010 and 2009 as set forth under the revolving note, and certain operating and financial limitations remain in place.  In addition, under the Fifth Forbearance Amegy agrees, upon the request of the Company, to issue one or more letters of credit in an amount not to exceed $850,000 as security for the Company’s obligations with respect to the Nicaragua Concessions.

Additional Forbearance Period advances of $1,050,000 were approved with an interest rate of prime plus 2% and the personal guarantee of the Company’s President and Chief Executive Officer for up to $500,000 of the advances.  At December 31, 2010, $232,462 of the advances were personally guaranteed by the Company’s CEO.  As of December 31, 2010, advances of $454,053 had been made with remaining advances of $595,947 available for 2011.

In connection with the Fifth Forbearance, effective February 16, 2011, Infinity granted Amegy a common stock purchase warrant exercisable to purchase 931,561 shares of the Company common stock at a price of $5.01 per share for a ten-year period following the issuance of the warrant.

BUSINESS STRATEGY

Our principal objective is to create stockholder value through the development of our Nicaraguan Concessions. We will seek to commence the geological and geophysical exploration of the Nicaraguan Concessions while also seeking joint venture or working interest partners.

 
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We intend to finance our business strategy through external financing, which may include debt and equity capital raised in public and private offerings, joint ventures, sale of working or other interests, employment of working capital and cash flow from operations, if any, net proceeds from the sales of assets.  Essentially all of our assets serve as collateral under our Amegy credit facility, and as such, any disposition of material assets would require its approval.

EXPLORATION AND PRODUCTION

Nicaragua Oil and Natural Gas Concessions

Preliminary analyses and interpretation of available 2-D seismic data by independent consultants has revealed that the Nica-Tinkham Ridge, the single most important structure in the basin, traverses both of the blocks (Tyra and Perlas) in Infinity’s offshore concessions and controlled the deposition of Eocene and possibly younger reef systems.  Such preliminary analyses have identified four prospects covering a total of over 547 square miles.  The Company’s consultants, Brazilian-based Consultoria em Geologia Geofísica e Informática do Petróleo LTDA (“CGGIP”) and its senior geological consultant, Luciano Seixas Chagas, working in concert with Thompson & Knight Global Energy Services LLC, are building a credible model suggesting that the Eocene geologic zone alone has a potential that hydrocarbons could be present, based upon certain assumptions involving porosity, saturation, recovery and other parameters.  This model is also subject to the complex geology of the region and the fact that the reef system has never been drilled.  While 2-D seismic data is not sufficient to identify or evaluate prospects in the deeper Cretaceous zone, the Company and its consultants continue to believe that Cretaceous, as well as Eocene, hydrocarbons could be present within the Nicaraguan Concessions, although we can offer no assurances in this regard.

These estimates are based upon preliminary conclusions and are subject to further analysis, additional seismic data and interpretation, and various assumptions that cannot be confirmed or disproved until the prospects are drilled. We believe these estimate and model support our long-held belief that the Nicaraguan Concessions have the potential for multiple oil discoveries.  We are seeking to partner with a larger entity that has the resources to assist in the further exploration and development of the concessions.

In April 2011 we filed with the Nicaraguan government an Environmental Impact Assessment ("EIA") covering proposed seismic activities on our Nicaraguan Concessions.  The filing of the EIA will be followed by a comment period during which there will be interaction between us the Ministerio del Ambiente y los Recursos Naturales de Nicaragua, an agency of the Nicaraguan government; and the autonomous regions of Nicaragua that are nearest to the Nicaraguan Concessions.  After the EIA has been formally approved, we expect to be cleared to commence 2-D and 3-D seismic mapping activities in the area.

For the year end December 31, 2008 we wrote down to zero the remaining value of the Infinity-Texas and Infinity-Wyoming oil and gas assets as they were determined to be uneconomic, and we focused solely on the development of the Nicaraguan Concessions.

Customers and Markets

We have no production and no customers.

Competition

We compete in virtually all facets of our businesses with numerous other companies in the oil and gas industry, including many that have significantly greater financial and other resources. Such competitors will be able to pay more for desirable oil and gas leases and to evaluate, bid for, and purchase a greater number of properties than our financial or personnel resources permit.

 
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Our business strategy includes highly competitive oil and natural gas exploration, development and production. We face intense competition from a large number of independent exploration and development companies as well as major oil and gas companies in a number of areas such as:

 
Obtaining financing to pursue our Nicaraguan Concessions;
 
Seeking to acquire the services, equipment, labor and materials necessary to explore, operate and develop those properties.

Many of our competitors have financial and technological resources substantially exceeding those available to us. We cannot be sure that we will be successful in developing and operating profitable properties in the face of this competition.

Government Regulation of the Oil and Gas Industry

In April 2011 we filed with the Nicaraguan government an Environmental Impact Assessment ("EIA") covering proposed seismic activities on our Nicaraguan Concessions.  The filing of the EIA will be followed by a comment period during which there will be interaction between us the Ministerio del Ambiente y los Recursos Naturales de Nicaragua, an agency of the Nicaraguan government; and the autonomous regions of Nicaragua that are nearest to the Nicaraguan Concessions.  After the EIA has been formally approved, we expect to be cleared to commence 2-D and 3-D seismic mapping activities in the area.

General

Infinity’s business is affected by numerous laws and regulations, including, among others, laws and regulations relating to energy, environment, conservation and tax. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and/or criminal penalties, the imposition of injunctive relief or both. Moreover, changes in any of these laws and regulations could have a material adverse effect on our business. In view of the many uncertainties with respect to current and future laws and regulations, including their applicability to Infinity, we cannot predict the overall effect of such laws and regulations on our future operations.

The following discussion contains summaries of certain laws and regulations and is qualified as mentioned above.

Federal Regulation of the Sale of Oil and Gas

Various aspects of Infinity’s oil and natural gas operations are regulated by agencies of the federal government. The Federal Energy Regulatory Commission (“FERC”) regulates the transportation of natural gas in interstate commerce pursuant to the Natural Gas Act of 1938 (“NGA”) and the Natural Gas Policy Act of 1978 (“NGPA”). In the past, the federal government has regulated the prices at which oil and gas could be sold. While “first sales” by producers of natural gas and all sales of crude oil, condensate and natural gas liquids can currently be made at uncontrolled market prices, Congress could reenact price controls in the future. Deregulation of wellhead sales in the natural gas industry began with the enactment of the NGPA in 1978. In 1989, Congress enacted the Natural Gas Wellhead Decontrol Act (the “Decontrol Act”). The Decontrol Act removed all NGA and NGPA price and non-price controls affecting wellhead sales of natural gas effective January 1, 1993.

Commencing in April 1992, the FERC issued Order Nos. 636, 636-A, 636-B, 636-C and 636-D (“Order No. 636”), which require interstate pipelines to provide transportation services separate, or “unbundled,” from the pipelines’ sales of gas. Also, Order No. 636 requires pipelines to provide open access transportation on a nondiscriminatory basis that is equal for all natural gas shippers. Although Order No. 636 would not directly regulate Infinity’s production domestic activities if any, FERC has stated that it intends for Order No. 636 to foster increased competition within all phases of the natural gas industry.

 
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Regulation of Operations

Federal oil and gas leases, which are administered by the Bureau of Land Management (“BLM”). Of Infinity-Wyoming’s Pipeline Field acreage at December 31, 2010, approximately 15,000 gross acres are leases that are administered by the BLM. The Piceance Basin Prospect and Sand Wash Prospect acreage also include acreage that is administered by the BLM. Federal leases contain relatively standard terms and require compliance with detailed BLM regulations and orders, which are subject to change. Among other restrictions, the BLM has regulations restricting the flaring or venting of natural gas, and the BLM has proposed to amend such regulations to prohibit the flaring of liquid hydrocarbons and oil without prior authorization. Under certain circumstances, the BLM may require any company operations on federal leases to be suspended or terminated. Any such suspension or termination could materially and adversely affect Infinity’s financial condition, cash flows and operations if any.

The Minerals Management Service (“MMS”) administers the valuation, payment and reporting for royalties on oil and gas produced from federal leases. The BLM issued a final rule that amended its regulations governing the valuation of gas produced from federal leases. This rule primarily affects the transportation allowance used to value the federal royalty.

Exploration and production operations, if any, of Infinity-Texas and Infinity-Wyoming are subject to various types of regulation at the federal, state, and local levels. These regulations include requiring permits and drilling bonds for the drilling of wells and regulating the location of wells, the method of drilling and casing wells, and the surface use and restoration of properties upon which wells are drilled. Many states also have statutes or regulations addressing conservation matters, including provisions for the unitization or pooling of oil and gas properties, the establishment of maximum rates of production from oil and gas wells and the regulation of spacing, plugging and abandonment of such wells. The operation and production, if any, of Infinity-Wyoming’s properties would be subject to the rules and regulations of the Wyoming Oil and Gas Conservation Commission (WYOGCC) and the Colorado Oil and Gas Conservation Commission (COGCC). In addition a portion of the properties are on federal lands and are subject to Onshore Orders 1 and 2, The National Historic Preservation Act (NHPA), National Environmental Policy Act (NEPA) and the Endangered Species Act. The operation and production, if any, of Infinity-Texas’ properties would be subject to the rules and regulations of the Railroad Commission of Texas (RRC).

Additional proposals and proceedings that might affect the oil and gas industry are pending before Congress, the FERC, BLM, MMS, state commissions and the courts. Infinity cannot predict when or whether any such proposals and proceedings may become effective. In the past, the natural gas industry has been heavily regulated. There is no assurance that the regulatory approach currently pursued by various agencies will continue indefinitely.  Infinity may not be in compliance with certain federal, state and local laws, rules and regulations for its domestic properties and this could have a material or significantly adverse effect upon the liquidity, capital expenditures, earnings or competitive position of Infinity.  The Company’s known compliance issues relate to the Texas Railroad Commission regarding administrative filings and renewal permits.

Environmental and Land Use Regulation

Various federal, state and local laws and regulations relating to the protection of the environment affect our operations and costs. The areas affected include:

 
 unit production expenses primarily related to the control and limitation of air emissions, spill prevention and the disposal of produced water;

 
capital costs to drill development wells resulting from expenses primarily related to the management and disposal of drilling fluids and other oil and natural gas exploration wastes;

 
capital costs to construct, maintain and upgrade equipment and facilities;

 
8

 

 
operational costs associated with ongoing compliance and monitoring activities; and

 
exit costs for operations that we are responsible for closing, including costs for dismantling and abandoning wells and remediating environmental impacts.

The environmental and land use laws and regulations affecting oil and natural gas operations have been changed frequently in the past, and in general, these changes have imposed more stringent requirements that increase operating costs and/or require capital expenditures in order to remain in compliance. Our business operations are not in compliance with current laws and regulations. Failure to comply with these requirements can result in civil and/or criminal fines and liability for non-compliance, clean-up costs and other environmental damages. It is also possible that unanticipated developments or changes in law could cause us to make environmental expenditures significantly greater than those we currently expect.

The following is a summary discussion of the framework of key environmental and land use regulations and requirements affecting our oil and natural gas exploration, development, production and transportation operations.

Discharges to Waters.   The Federal Water Pollution Control Act of 1972, as amended (the “Clean Water Act”), and comparable state statutes impose restrictions and controls, primarily through the issuance of permits, on the discharge of produced waters and other oil and natural gas wastes into regulated waters and wetlands. These controls have become more stringent over the years, and it is possible that additional restrictions will be imposed in the future, including potential restrictions on the use of hydraulic fracturing. These laws prohibit the discharge of produced waters and sand, drilling fluids, drill cuttings and other substances related to the oil and natural gas industry into onshore, coastal and offshore waters without a permit.

The Clean Water Act also regulates storm water discharges from industrial properties and construction activities and requires separate permits and implementation of a storm water management plan establishing best management practices, training, and periodic monitoring. Certain operations are also required to develop and implement “Spill Prevention, Control, and Countermeasure” plans or Facility Response Plans to address potential oil spills.

The Clean Water Act provides for civil, criminal and administrative penalties for unauthorized discharges of oil, hazardous substances and other pollutants. It also imposes substantial potential liability for the costs of removal or remediation associated with discharges of oil or hazardous substances. State laws governing discharges to water also provide varying civil, criminal and administrative penalties and impose liabilities in the case of a discharge of petroleum or its derivatives, or other hazardous substances into regulated waters.

Oil Spill Regulations.   The Oil Pollution Act of 1990, as amended (the “OPA”), amends and augments oil spill provisions of the Clean Water Act, imposing potentially unlimited liability on responsible parties, without regard to fault, for the costs of cleanup and other damages resulting from an oil spill in U.S. waters. Responsible parties include (i) owners and operators of onshore facilities and pipelines and (ii) lessees or permit tees of offshore facilities.

Air Emissions.   Our operations are subject to local, state and federal regulations governing emissions of air pollution. Administrative enforcement actions for failure to comply strictly with air pollution regulations or permits are generally resolved by payment of monetary fines and correction of any identified deficiencies. Alternatively, regulatory agencies could require us to forego construction, modification or operation of certain air emission sources. Air emissions from oil and natural gas operations also are regulated by oil and natural gas permitting agencies including the MMS, BLM and state agencies.

 
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We may generate wastes, including hazardous wastes that are subject to the federal Resource Conservation and Recovery Act (“RCRA”) and comparable state statutes, although certain oil and natural gas exploration and production wastes currently are exempt from regulation under RCRA. The EPA has limited the disposal options for certain wastes that are designated as hazardous under RCRA (“Hazardous Wastes”). Furthermore, it is possible that certain wastes generated by our historical oil and natural gas operations that are currently exempt from treatment as Hazardous Wastes may in the future be designated as Hazardous Wastes, and therefore be subject to more rigorous and costly operating, disposal and clean-up requirements. State and federal oil and natural gas regulations also provide guidelines for the storage and disposal of solid wastes resulting from the production of oil and natural gas, both on- and off-shore.

Superfund.   Under some environmental laws, such as the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, also known as CERCLA or the Superfund law, and similar state statutes, responsibility for the entire cost of cleanup of a contaminated site, as well as natural resource damages, can be imposed upon any current or former site owners or operators, or upon any party who discharged one or more designated substances (“Hazardous Substances”) at the site, regardless of the lawfulness of the original activities that led to the contamination. CERCLA also authorizes the EPA and, in some cases, third parties to take actions in response to threats to the public health or the environment and to seek to recover from the potentially responsible parties the costs of such action. Although CERCLA generally exempts petroleum from the definition of Hazardous Substances, in the course of our operations we may have generated and may generate wastes that fall within CERCLA’s definition of Hazardous Substances. We may also be an owner or operator of facilities at which Hazardous Substances have been released by previous owners or operators. We may be responsible under CERCLA for all or part of the costs to clean up facilities at which such substances have been released and for natural resource damages. We have not, to our knowledge, been identified as a potentially responsible party under CERCLA, nor are we aware of any prior owners or operators of our properties that have been so identified with respect to their ownership or operation of those properties.

Abandonment and Remediation Requirements.   Federal, state and local regulations provide detailed requirements for the abandonment of wells, closure or decommissioning of production and transportation facilities, and the environmental restoration of operations sites. The Colorado Oil and Gas Conservation Commission, Wyoming Oil and Gas Conservation Commission and the Texas Railroad Commission are the principal state agencies and BLM the primary federal agency responsible for regulating the drilling, operation, maintenance and abandonment of all oil and natural gas wells in the state. State and BLM regulations require operators to post performance bonds.

Potentially Material Costs Associated with Environmental Regulation of Our Oil and Natural Gas Operations.  Significant potential costs relating to environmental and land use regulations associated with our existing properties and operations include those relating to (i) plugging and abandonment of facilities, (ii) clean-up costs and damages due to spills or other releases and (iii) civil penalties imposed for spills, releases or non-compliance with applicable laws and regulations.

Infinity-Texas and Infinity-Wyoming currently own or lease properties that are being used for the disposal of drilling and produced fluids from exploration, development and production of oil and gas. Although these subsidiaries follow operating and disposal practices that they considers appropriate under applicable laws and regulations, hydrocarbons or other wastes may have been disposed of or released on or under the properties owned or leased by the subsidiaries or on or under other locations where such wastes were taken for disposal. Infinity could incur liability under the Comprehensive Environmental Response, Compensation and Liability Act or comparable state statutes for contamination caused by wastes it generated or for contamination existing on properties it owns or leases, even if the contamination was caused by the waste disposal practices of the prior owners or operators of the properties. In addition, it is not uncommon for landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of produced fluids or other pollutants into the environment.

Title to Properties

Currently domestic acreage and leases may be lost due to nonproduction.  For the year end December 31, 2008 the remaining value of the Infinity-Texas and Infinity-Wyoming properties were determined to be uneconomical to operate  and as such, were written down to zero as the Company focused solely on the development of the Nicaraguan concessions.

 
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Operating Hazards and Insurance

The oil and natural gas business involves a variety of operating risks, such as those described under “Risk Factors.” Infinity was unable to maintain insurance against potential risks and losses.
In addition, pollution and environmental risks are not insured. If a significant accident or other event occurs not covered by insurance, it could adversely affect us.

Employees

On December 31, 2010, Infinity and its subsidiaries had two employees with all salaries deferred.  We also use outside contractors to perform services.

Exploration and Development
 
We incurred exploration expenditures on our Nicaraguan Concessions in the fiscal years ended December 31, 2010 and 2009 of $510,811 and $680,738, respectively.

ITEM 1A.
RISK FACTORS

We have been unable to comply with certain requirements of our Revolving Credit Facility and may not be able to repay our borrowing base deficiency under the Revolving Credit Facility or satisfy other current liabilities.

Effective as of February 16, 2011, we entered into a Fifth Forbearance under the Loan Agreement.  This agreement relates to the breach by us and Guarantors of (i) substantially all financial covenants set forth in Section 8 of the Loan Agreement and (ii) certain covenants set forth in Section 7 of the Loan Agreement (the “Existing Defaults”). Under this agreement, the borrowing base was not reduced from $2,900,000.  The borrowing base shall not be subject to redetermination by Amegy during the Forbearance Period. The borrowing base deficiency must be cured by the end of the Forbearance Period through the sale of assets, refinancing of the loan, or some other means of raising capital.  Under this Agreement, Amegy agrees to forebear from exercising any remedies under the Loan Agreement and related loan documents and to waive the Existing Defaults for the Forbearance Period, unless otherwise extended or earlier terminated by Amegy due to a further default under the Agreement.  In connection with the Fifth Forbearance, the maturity date of the Loan Agreement and related note was extended until December 31, 2011 and there can be no assurance that Amegy will continue to extend the maturity date.

During the Forbearance Period, the interest rate will continue at the stated rate plus the applicable margin, which is 5.5% at December 31, 2010 and 2009 as set forth under the revolving note, and certain operating and financial limitations remain in place.  In addition, Amegy agrees, upon our request, to issue one or more letters of credit in an amount not to exceed $850,000 as security for our obligations with respect to the Nicaragua Concessions.

Additional Forbearance Period advances of $1,050,000 were approved with an interest rate of prime plus 2% and the personal guarantee of our CEO for up to $500,000 of the advances.  At December 31, 2010, $232,462 of the advances were personally guaranteed by the Company’s CEO.  As of December 31, 2010 advances of $454,053 had been made under the Fifth Forbearance with remaining advances of $595,947 available for 2011.

 
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Should the Company fail to comply with the terms of the Fifth Forbearance Agreement, Amegy would be entitled to impose a default interest rate (prime plus 6.5%) or to declare an event of default, at which point the entire unpaid principal balance of the loan, together with all accrued and unpaid interest and other amounts then owing to Amegy would become immediately due and payable.  Amegy or other creditors may take action to enforce their rights with respect to outstanding obligations, and Infinity may be forced to liquidate.  Because substantially all of the Company’s assets are collateral under the Revolving Credit Facility, if Amegy declares an event of default, it would be entitled to foreclose on and take possession of the Company’s assets.

These matters, as well as the other risk factors related to our liquidity and financial position raise substantial doubt as to our ability to continue as a going concern.  Even after sale of our remaining assets, we will likely be left with significant continuing liquidity concerns.

We have a history of losses and are currently experiencing substantial liquidity problems.

We incurred a net loss in our fiscal years ended December 31, 2010 and 2009 of approximately $3.8 million and $6.9 million, respectively. In addition, we are currently experiencing substantial liquidity problems.  Although we are currently operating under the Fifth Forbearance with Amegy, the current Forbearance Period expires on December, 31, 2011 and under the terms of the Loan Agreement, at such time we are required to repay the approximately $10.2 million borrowing base deficiency.  We do not have the funds to repay such deficiency or to satisfy various other existing debts and obligations.  If we cannot find a satisfactory resolution to our liquidity problems, we may be forced to cease operations and may be required to liquidate.

If we are able to address our immediate liquidity problems, our history of losses may impair our ability to obtain financing for exploration and development and other business activities on favorable terms or at all. It may also impair our ability to attract investors if we attempt to raise additional capital, to grow our business or for other business purposes, by selling additional debt or equity securities in a private or public offering.  If we are unable to obtain additional financing, we may be unable to maintain and develop our properties, including our Nicaraguan Concessions.

We are continuing to negotiate with our creditors and may face additional claims in the future.

We continue to have substantial liabilities, in addition to amounts owed to Amegy, which we are currently unable to pay.  We continue to negotiate with our creditors to mitigate and settle our known liabilities to them or their claims of liabilities and in some cases, to secure releases of liens which have been filed on certain of our properties.  Various suits have been filed to enforce payments of liabilities and we are working to address these suits We may incur additional liabilities if our liquidity situation deteriorates further and may face additional claims from creditors seeking to protect their interests in light of our announcements regarding our financial condition and business plans. We are not able to predict our success in attempting to negotiate with these parties nor the expense related to such negotiations or in defending any litigation related to these claims.  These creditors may take action to force us into bankruptcy involuntarily.  In addition, if we are unable to manage our current liabilities or substantial additional claims are asserted against us, we may be forced to seek protection under the Bankruptcy Code.

If we are unable to obtain lien releases on our Texas properties, a sale may continue to be delayed and will be jeopardized.

Various liens have been filed on properties in Texas.  The presence of these liens has delayed any sale of the Texas properties.  We continue to work with our creditors to mitigate and settle our liabilities and obtain releases for these liens, but we are unable to predict our success in attempting to settle with these parties and obtain releases.  If we are unable to have such liens released it could have a substantial adverse impact on us.

We may be unable to continue to operate due to our inability to obtain supplies and services.

We rely on a number of suppliers for day-to-day operations. We are experiencing delays in our ability to satisfy trade payables. In addition, as creditors react to news of our deteriorating financial situation, we may have further difficulties in obtaining supplies and services on a timely and cost-effective basis, and may be unable to obtain such supplies and services at all.  Our inability to obtain the requisite supplies and services would have a substantial adverse impact on our ability to continue our operations and we could be forced to liquidate.

 
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Our reduced exploration and development activities have caused us to lose certain leases and we may continue to lose substantial acreage.

We have had no exploration and development activities to conserve cash.  We are not actively working on any domestic property.  This has caused us to lose certain leases, and we are likely to continue to lose acreage as our liquidity concerns continue.  If we are unable to resolve our liquidity issues in the near term, these losses could have a material adverse impact on our business, prospects and financial condition.

Our common stock is traded on the Pink Sheets.

Our common stock is traded on the Pink Sheets, which may negatively impact shareholder value, access to capital markets and the liquidity of our common stock.

Our Nicaraguan Concessions and planned future exploration activities are in a country with a developing economy and are subject to the risks of political and economic instability associated with such economies.

Nicaragua has from time to time experienced economic or political instability. We may be materially adversely affected by risks associated with conducting operations in countries with developing economies, including:

• political instability and violence;
• war and civil disturbance;
• acts of terrorism;
• expropriation or nationalization;
• changing fiscal regimes;
• fluctuations in currency exchange rates;
• high rates of inflation;
• underdeveloped industrial and economic infrastructure; and
• unenforceability of contractual rights.
• adherence to the Foreign Corrupt Practice Act by our contractors and/or representatives.

We cannot accurately predict the effect of these factors on our concessions. In addition, legislation in the United States regulating foreign trade, investment and taxation could have a material adverse effect on our financial condition, results of operations and cash flows.

Oil and gas prices are volatile, and declines in prices would hurt our ability to achieve profitable operations.

The carrying value of oil and gas properties will depend heavily on prevailing market prices for oil and gas. We expect the market for oil and gas to continue to be volatile for the foreseeable future.

Various factors beyond our control affect prices of oil and gas, including:

 
worldwide and domestic supplies of oil and gas;

 
political instability or armed conflict in oil or gas producing regions;

 
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the ability of the members of the Organization of Petroleum Exporting Countries to agree to and maintain oil prices;

 
production controls;

 
the price and level of foreign imports;

 
worldwide economic conditions;

 
marketability of production;

 
the level of consumer demand and particularly from rapidly developing countries, such as China and India;

 
the price, availability and acceptance of alternative fuels;

 
the price, availability and capacity of commodity processing and gathering facilities, and pipeline transportation;

 
weather conditions; and

 
actions of federal, state, local and foreign authorities.

These external factors and the volatile nature of the energy markets generally make it difficult to estimate future prices of oil and gas. Significant declines in oil and natural gas prices for an extended period may cause various negative effects on our business, including:

 
further impairing our financial condition, cash flows and liquidity;

 
limiting our ability to finance planned capital expenditures;

 
reducing our revenue, operating income and profitability; and

 
reducing the carrying value of our oil and natural gas properties;

A charge to earnings and book value would occur if there is a further ceiling write-down of the carrying value of our oil and gas properties. Impairments can occur when oil and gas prices are depressed or unusually volatile. Once incurred, a ceiling write-down of oil and gas properties is not reversible at a later date when better industry conditions may exist. We review, on a quarterly basis, the carrying value of our oil and gas properties under the full cost accounting rules of the SEC. Under these rules, costs of proved oil and gas properties may not exceed the present value of estimated future net revenue after giving effect to cash flow from hedges but excluding the future cash out flows associated with settling asset retirement obligations, discounted at 10%, net of taxes.  Application of the ceiling test generally requires pricing future revenue at the unescalated prices in effect as of the end of each fiscal quarter, after giving effect to our cash flow hedge positions, if any, and requires a write-down for accounting purposes if the ceiling is exceeded, even if prices were depressed for only a short period of time.

We recorded an aggregate ceiling write-down of the remaining value of the domestic properties at December 31, 2008. A decrease in oil or gas prices (which continue to remain volatile), an increase in production costs, a decrease in estimated gas production in future periods, or the reclassification of development costs to properties subject to depletion without an increase in associated proved reserves could result in a ceiling write-down during future periods.

 
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Prices may be affected by regional factors.

The prices that we may receive for the natural gas production, if any, from our Wyoming and Texas properties will be determined mainly by factors affecting the regional supply of, and demand for, natural gas, which include the degree to which pipeline and processing infrastructure exists in the region. Regional differences could cause negative basis differentials, which could be significant, between the published indices generally used to establish the price that we receive for regional natural gas production and the actual price that we receive for any natural gas production.

Forward sales and hedging transactions may limit our potential gains or expose us to losses.

To manage our exposure to price risks in the marketing of our natural gas, we have in the past and may in the future enter into fixed price natural gas physical delivery contracts for a portion of our current or future production. These transactions could limit our potential gains if natural gas prices were to rise substantially over the prices established by the contracts. In addition, such transactions may expose us to the risk of financial loss in certain circumstances, including instances in which:

 
our production is less than expected;

 
the counterparties to our contracts fail to perform under the contracts; or

 
our production costs on the contracted production significantly increase.

Exploration and development of our oil and gas projects will require large amounts of capital which we may not be able to obtain.

We expect that our primary exploration and development activities in Nicaragua will take place only upon us finding a partner.  If we achieve success or are otherwise able to consider future exploration and development of our properties, and especially the Nicaraguan Concessions, we would be required to obtain large amounts of additional capital, subjecting existing shareholders to potential significant dilution.  The terms under which such capital may be available, if at all, may not be on acceptable terms to us.  Our potential sources of financing for these activities in the longer term will be cash availability under credit facilities, if any, and future sales of equity securities or subordinated debt securities.

Future cash flows and the availability of financing are subject to a number of variables, such as:

 
our success in locating and producing new reserves;

 
prices of crude oil and natural gas;

 
the level of production from existing wells; and

 
amounts of necessary working capital and expenses.

Issuing equity securities to satisfy our financing or refinancing requirements could cause substantial dilution to existing stockholders. Debt financing could lead to:

 
all or a substantial portion of our operating cash flow, if any, being dedicated to the payment of principal and interest;

 
an increase in interest expense as the amount of debt outstanding increases or as variable interest rates increase;

 
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increased vulnerability to competitive pressures and economic downturns; and

 
restrictions on our operations that may be contained in any contract entered into with lenders.

In order to reduce our capital needs, while continuing development of our oil and gas projects, we could enter into partnerships with another oil and gas company or companies in which we would maintain a carried or reduced working interest in the oil and gas properties. However, this would reduce our ownership and control over the projects and could significantly reduce our future revenue generated from oil and gas production.

Information concerning our reserves, future net cash flow estimates, and potential future ceiling write-downs is uncertain.

As of December 31, 2010 and 2009, we did not have any proved reserves.

As of December 31, 2010, we had approximately $3.1 million invested in unproved oil and gas properties not subject to amortization. During 2011, a portion of the investment in unproved oil and gas properties may be reclassified to the full cost pool subject to depletion and the ceiling test, following our required periodic evaluation of the fair value of our unproved properties. The amount of any such reclassification could be significant. We could be required to write down a portion of the full cost pool of oil and gas properties subject to amortization upon reclassification of the unproved oil and gas property costs.

The oil and gas exploration business involves a high degree of business and financial risk.

The business of exploring for and developing oil and gas properties involves a high degree of business and financial risk. Property acquisition decisions generally are based on assumptions about the quantity, quality, production costs, marketability, and sales price for the acreage or reserves being acquired. Although available geological and geophysical information can provide information about the potential of a property, it is impossible to predict accurately the ultimate production potential, if any, of a particular property or well. Any decision to acquire a property is also influenced by our subjective judgment as to whether we will be able to locate the reserves, drill and equip the wells to produce the reserves, operate the wells economically, and market the production from the wells.

If we commence operations again, they will be dependent upon the availability of certain resources, including drilling rigs, steel casing, water, chemicals, and other materials necessary to support our development plans and maintenance requirements. The lack of availability of one or more of these resources at an acceptable price could have a material adverse affect on our business.

The successful completion of an oil or gas well does not ensure a profit on investment. A variety of factors may negatively affect the commercial viability of any particular well, including:

 
defects in title;

 
the absence of producible quantities of oil and gas;

 
insufficient formation attributes, such as porosity, to allow production;

 
water production requiring disposal; and

 
improperly pressured reservoirs from which to produce the reserves.

In addition, market-related factors may cause a well to become uneconomic or only marginally economic, such as:

 
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availability and cost of equipment and transportation for the production;

 
demand for the oil and gas produced; and

 
price for the oil and gas produced.

Our business is subject to operating hazards that could result in substantial losses against which we may not be insured.

The oil and natural gas business involves operating hazards, any of which could cause substantial losses, such as:

 
well blowouts;

 
craterings;

 
explosions;

 
uncontrollable flows of oil, natural gas or well fluids;

 
fires;

 
formations with abnormal pressures;

 
pipeline ruptures or spills; and

 
releases of toxic gas and other environmental hazards and pollution.

As protection against operating hazards, we maintain insurance coverage against some, but not all, potential losses. This insurance has deductibles or self-insured retentions and contains certain coverage exclusions. Our insurance premiums can be increased or decreased based on the claims we make under insurance policies. The insurance does not cover damages from breach of contract by us or based on alleged fraud or deceptive trade practices. Whenever possible, we obtain agreements from customers that limit our liability; however, insurance and customer agreements do not provide complete protection against losses and risks and losses could occur for uninsurable or uninsured risks, or in amounts in excess of existing insurance coverage. The Company no longer carries insurance on the domestic properties.  The occurrence of an event that is not covered by insurance would materially harm our business, financial condition and results of operations.

In addition, we may be liable for environmental damage caused by previous owners of property we own or lease. As a result, we may face substantial potential liabilities to third parties or governmental entities that could reduce or eliminate funds available for exploration, development or acquisitions or cause us to incur losses. An event that is not covered by insurance, such as losses resulting from pollution and environmental risks that are not insured, would cause us to incur material losses.

Our future production is contingent on successful exploration, development and acquisitions to establish reserves and revenue in the future.

Our future natural gas and oil production is highly dependent on our level of success in finding or acquiring additional reserves. The business of exploring for, developing or acquiring reserves is capital intensive. Exploration will require significant additional capital expenditures and successful drilling operations. In our current financial situation, we are unable to engage in significant exploration or development efforts or acquisitions of additional properties, and if we are unable to address our liquidity problems and make the necessary capital investment our future operations will be impaired.

 
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Exploratory drilling is an uncertain process with many risks.

Exploratory drilling involves numerous risks, including the risk that we will not find commercially productive natural gas or oil reservoirs. The cost of drilling, completing and operating wells is often uncertain, and a number of factors can delay or prevent drilling operations, including:

 
unexpected drilling conditions;

 
pressure or irregularities in formations;

 
equipment failures or accidents;

 
adverse weather conditions;

 
defects in title;

 
compliance with governmental requirements, rules and regulations; and

 
shortages or delays in the availability of drilling rigs, the delivery of equipment and adequately trained personnel.

Our future drilling activities may not be successful, and we cannot be sure of our overall drilling success rate. Unsuccessful drilling activities would result in significant expenses being incurred without any financial gain.

Our business depends on transportation facilities owned by others.

The marketability of future gas production, if any, depends in part on the availability, proximity and capacity of pipeline systems owned by third parties. Generally, we historically have delivered natural gas through gas gathering systems and gas pipelines that we do not own under interruptible or short-term transportation agreements. In the event that we are able to resume production, the transportation of our gas may be interrupted due to capacity constraints on the applicable system, or for maintenance or repair of the system. Our ability to produce and market natural gas on a commercial basis could be harmed by any significant change in the cost or availability of markets, systems or pipelines.

The oil and gas industry is heavily regulated and we must comply with complex governmental regulations.

Federal, state and local authorities extensively regulate the oil and gas industry and the drilling and completion of oil and gas wells. Legislation and regulations affecting the industry are under constant review for amendment or expansion, raising the possibility of changes that may adversely affect, among other things, the pricing and production or marketing of oil and gas. Noncompliance with statutes and regulations may lead to substantial penalties and the overall regulatory burden on the industry increases the cost of doing business and, in turn, decreases profitability. Federal, state and local authorities regulate various aspects of oil and gas drilling, service and production activities, including the drilling of wells through permit and bonding requirements, the spacing of wells, the unitization or pooling of oil and gas properties, environmental matters, safety standards, the sharing of markets, production limitations, plugging and abandonment, and restoration.

 
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Our operations are subject to complex and constantly changing environmental laws and regulations adopted by federal, state and local government authorities. It can be costly to drill, equip and operate a water disposal well. New laws or regulations, or changes to current requirements, could result in our incurring significant additional costs. We could face significant liabilities to government and third parties for discharges of oil, natural gas or other pollutants into the air, soil or water, and we could have to spend substantial amounts on investigations, litigation and remediation.

Although we believe that we are in substantial compliance with all applicable laws and regulations, we cannot be certain that existing laws or regulations, as currently interpreted or reinterpreted in the future, or future laws or regulations, will not harm our business, results of operations and financial condition. Laws and regulations applicable to us include those relating to:

 
land use restrictions;

 
drilling bonds and other financial responsibility requirements;

 
spacing of wells;

 
emissions into the air;

 
unitization and pooling of properties;

 
habitat and endangered species protection, reclamation and remediation;

 
the containment and disposal of hazardous substances, oil field waste and other waste materials;

 
the use of underground storage tanks;

 
the use of underground injection wells, which affects the disposal of water from our wells;

 
safety precautions;

 
the prevention of oil spills;

 
the closure of production facilities;

 
operational reporting; and

 
taxation.

Under these laws and regulations, we could be liable for:

 
personal injuries;

 
property and natural resource damages;

 
releases or discharges of hazardous materials;

 
well reclamation costs;

 
oil spill clean-up costs;

 
other remediation and clean-up costs;

 
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plugging and abandonment costs, which may be particularly high in the case of offshore facilities;

 
governmental sanctions, such as fines and penalties; and

 
other environmental damages.

Any noncompliance with these laws and regulations could subject us to material administrative, civil or criminal penalties or other liabilities.

Our operations and facilities are subject to numerous environmental laws, rules and regulations, including laws concerning:

 
the containment and disposal of hazardous substances, oilfield waste and other waste materials;

 
the use of underground storage tanks; and

 
the use of underground injection wells.

Compliance with and violations of laws protecting the environment may become more costly. Sanctions for failure to comply with these laws, rules and regulations, many of which may be applied retroactively, may include:

 
administrative, civil and criminal penalties;

 
revocation of permits; and

 
corrective action orders.

In the United States, environmental laws and regulations typically impose strict liability. Strict liability means that in some situations we could be exposed to liability for cleanup costs and other damages as a result of our conduct, even if such conduct was lawful at the time it occurred, or as a result of the conduct of prior operators or other third parties. Cleanup costs, natural resource damages and other damages arising as a result of environmental laws and regulations, and costs associated with changes in environmental laws and regulations, could be substantial. From time to time, claims have been made against us under environmental laws.

The oil and gas industry is highly competitive.

We operate in the highly competitive areas of oil and natural gas acquisition, exploration, development and production with many other companies. We face intense competition from a large number of independent companies as well as major oil and natural gas companies in a number of areas such as:

 
acquisition of desirable producing properties or new leases for future exploration;

 
marketing our oil and natural gas production;

 
arranging for growth capital on attractive terms; and

 
seeking to acquire or secure the equipment, service, labor, other personnel and materials necessary to explore, operate and develop those properties.

 
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Many of our competitors have financial and technological resources substantially exceeding those available to us. Many oil and gas properties are sold in a competitive bidding process in which we may lack technological information or expertise or financial resources available to other bidders. We cannot be sure that we will be successful in acquiring and developing profitable properties in the face of this competition.

We depend on key personnel.

The loss of key members of our management team, or difficulty attracting and retaining experienced technical personnel, could reduce our competitiveness and prospects for future success. Our success depends on the continued services of our executive officers and a limited number of other senior management and technical personnel. Loss of the services of any of these people could have a material adverse effect on our operations. We do not have employment agreements with any of our executive officers. Our exploratory drilling success and the success of other activities integral to our operations will depend, in part, on our ability to attract and retain experienced explorers, engineers and other professionals. Competition for experienced explorers, engineers and some other professionals is extremely intense. If we cannot retain our technical personnel or attract additional experienced technical personnel, our ability to compete could be harmed.

ITEM 2.
FINANCIAL INFORMATION

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following information should be read in conjunction with the Consolidated Financial Statements and Notes presented elsewhere in this Registration Statement on Form 10. Infinity follows the full-cost method of accounting for oil and gas properties. See “Summary of Significant Accounting Policies,” included in Note 1 to the Consolidated Financial Statements.

Infinity Energy Resources, Inc. and its subsidiaries, Infinity-Texas and Infinity-Wyoming (collectively, “Infinity” or the “Company”) are engaged in the acquisition, exploration, development and production of natural gas and crude oil in the United States and the acquisition and exploration of oil and gas properties offshore Nicaragua in the Caribbean Sea.

On March 5, 2009 Infinity signed the contracts relating to our Nicaraguan concessions. Infinity has submitted an environmental study and the development of geological information from reprocessing and additional evaluation of existing 2-D seismic data that was acquired over the concession blocks offshore Nicaragua. Infinity is currently seeking offers from other industry operators for interests in the acreage in exchange for cash and a carried interest in exploration and development operations. The funds raised through the subordinated note transaction described below and Forbearance advances from the bank were used to fund these expenses.  No assurance can be given that these funds will be sufficient to cover the exploration and development cost until a partner is found.

On January 7, 2008, Infinity-Wyoming completed the sale of essentially all of its producing oil and gas properties in Colorado and Wyoming, along with 80% of the working interest owned by the Company in undeveloped leaseholds in Routt County, Colorado and Sweetwater County, Wyoming to Forest Oil Corporation, a New York corporation (“Forest”).  The transaction resulted in the sale of approximately 62% of the Company’s proved reserve quantities and 73% of the standardized measure of discounted future net cash flow at that time.  In addition, concurrent with the sale, on December 27, 2007, Infinity-Texas entered into a Farmout and Acquisition Agreement (the “Farmout Agreement”) for certain oil and gas leases owned by Infinity-Texas in Erath County, Texas. The Farmout Agreement provides that Forest would operate and earn a 75% interest in the spacing unit for each well in a 10-well drilling program. If Forest had completed the drilling program, Forest would have earned a 50% interest in the approximate 25,000 remaining undeveloped net acres and existing Erath County infrastructure owned by Infinity-Texas. Infinity-Texas retains 100% of its interest in all previously completed wells and 100 acres surrounding each such completed well.  Forest did not complete the terms of the Farmout and Acquisition Agreement and did not earn any interest in the properties.

 
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For the year end December 31, 2008 the remaining value of the Infinity-Texas and Infinity-Wyoming were written down to zero as such properties were deemed to be uneconomical and the Company focused solely on the development of the Nicaraguan concessions.

We do not have any off-balance sheet debt nor did we have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons that may have material current or future effect on financial conditions, changes in the financial conditions, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses.

Liquidity; Going Concern

The Company has had a history of losses.   In addition, the Company has a significant working capital deficit and is currently experiencing substantial liquidity issues.  As also discussed in Note 2 of the Financial Statements, the Company was operating under the Fourth Forbearance Agreement with Amegy Bank, N. A. (“Amegy”) under the Revolving Credit Facility.

The Company entered into the Fifth Forbearance Agreement under the Revolving Credit Facility as a result of the Company’s failure to meet substantially all financial and certain other covenants during 2007, 2008, 2009 and 2010.  Under this Agreement, Amegy agreed to forebear from exercising any remedies under the Revolving Credit Facility, the revolving note and the related loan documents and to temporarily waive the covered events of default through December 31, 2011.  The Company is required to repay the borrowing base deficiency by December 31, 2011 through the sale of assets, refinancing of the loan or some other means of raising capital.  The Company continues to operate under the Fifth Forbearance Agreement and there can be no assurance Amegy will continue under the agreement.

The Company has classified all $10,242,956 outstanding under the Revolving Credit Facility at December 31, 2010 as current liabilities in the accompanying Consolidated Balance Sheets.

We conducted an environmental study and developed geological information from the reprocessing and additional evaluation of existing 2-D seismic data acquired over our Perlas and Tyra concession blocks offshore Nicaragua.  We issued letters of credit totaling $851,550 and entered into a subordinated loan with Off-Shore Finance, LLC, a Nevada limited liability company (“Off-Shore”), in an aggregate amount of $1,275,000 which was released as the Company needed funds for the initial work on the Nicaraguan Concessions. We commenced significant activity under the initial work plan and are waiting for governmental approval of the environmental study.  We intend to seek joint venture or working interest partners prior to the commencement of any exploratory drilling operations on these concessions.

No assurance can be given that funds advanced under the Fifth Forbearance Agreement will be sufficient to cover the exploration cost until a partner is found.

Due to the uncertainties related to these matters, there exists substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

 
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2011 Operational and Financial Objectives

Corporate Activities

On April 14, 2011 the Company announced that it has completed and filed with the Nicaraguan government its Environmental Impact Assessment (“EIA”) covering proposed seismic activities on its 1.4 million-acre oil and gas concessions in the Caribbean Sea offshore Nicaragua.

The filing of the EIA will be followed by a “comment period” during which there will be considerable interaction between Infinity; the Ministerio del Ambiente y los Recursos Naturales de Nicaragua, an agency of the Nicaraguan government; and the autonomous regions of Nicaragua that are nearest the offshore concessions.  Based on conversations with the government, the Company anticipates that this process should be completed within the next 90 days.  Once the EIA has been formally approved, Infinity will be cleared to commence 2-D and 3-D seismic mapping activities in the area.

During this process, Infinity has continued its relationship with the autonomous regions. Management does not expect any major problems gaining approval of our EIA, based upon the previous approval granted Noble Energy, Inc. for its recently completed 3-D seismic mapping program on its oil and gas concessions, which are located adjacent to and east of Infinity’s concessions offshore Nicaragua.

Management has a current business plan that anticipates, subject to sufficient capital availability, Infinity will commence its seismic mapping activities during the fourth quarter of 2011 or in the first quarter of 2012.  The 3-D seismic program will seek to further evaluate the structures that were previously identified with 2-D seismic in the Eocene Zone.  The Company geological consultants have estimated that these Eocene structures may contain recoverable oil in place.  In addition, 3-D seismic should provide our first look at the potential for oil resources in the Cretaceous Zone, which we could not evaluate using less precise 2-D seismic mapping.

We intend to finance our business strategy through external financing, which may include debt and equity capital raised in public and private offerings, joint ventures, sale of working or other interests, employment of working capital and cash flow from operations, if any, net proceeds from the sales of assets.  Essentially all of our assets serve as collateral under our Amegy credit facility, and as such, any disposition of material assets would require its approval.

The Company’s ability to complete these activities is dependent on a number of factors including, but not limited to:

 
The availability of the capital resources required to fund the activity;

 
The availability of third party contractors for completion services; and

 
The approval by regulatory agencies of applications for permits to conduct exploration activities in a timely manner.

Results of operations for the year ended December 31, 2010 compared to the year ended December 31, 2009

Net Loss

Infinity incurred a net loss of $3.8 million, or $0.20 per diluted share, in 2010 compared to a net loss of $7 million, or $0.38 per diluted share, in 2009. The change between periods was the result of the items discussed below.

 
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Revenue
 
Revenue decreased from $.5 million in 2009 to zero in 2010 as the remaining value of the Infinity-Texas and Infinity-Wyoming were written down to zero as such properties were shut in and as the Company focused solely on the development of the Nicaraguan concessions.  The Company continued to produce nominal gas volumes in 2009 prior to the properties being shut-in.

Production and Other Operating Expenses

Oil and gas production expenses continued to accrue due to limited production in 2009. Operating expenses were incurred in 2010 to bring the Texas wells in compliance with State requirements for a potential sell of the property. Off-Shore Finance, LLC had made available working capital of up to $300,000 in 2009 to bring the wells into compliance.  A contingent sales contract for the Texas property was entered into in 2009 and 2010 but could not be closed due to trade vendors unwilling to release liens on the properties for partial settlement of payables.  The Company has substantial doubts that any of the leases are still in force and discontinued efforts to sell the property.

In June 2005, the Company entered into a long-term gas gathering contract for natural gas production from its properties in Erath County, Texas, under which it pays a gathering fee of $0.35 per Mcf gathered. The contract contains minimum delivery volume commitments through December 31, 2011 associated with firm transportation rights. As of December 31, 2010 and 2009, the Company has accrued approximately $1,916,250 for 2010 and $929,208 for 2009 as delivery commitment shortfalls under the contract and is classified as an operating expense.

We have had no domestic exploration and development activities to conserve cash.  We are not actively working on any domestic property.  This has caused us to lose certain leases, and we are likely to continue to lose acreage as our liquidity concerns continue.  If we are unable to resolve our liquidity issues in the near term, these losses could have a material adverse impact on our business, prospects and financial condition.

Production Taxes

Oil and gas production taxes for 2010 decreased to $6,481 from $24,151 in 2009 as a result of the decrease in revenue and production.

General and Administrative Expenses

General and administrative expenses decreased to $0.6 million for 2010, from $2.1 million in the prior year. The decrease was due the Company filing to be a non reporting Company and shutting down the Denver office at the end of 2008.

Depreciation, Depletion, Amortization and Accretion

Infinity recognized depreciation, depletion, amortization and accretion (“DD&A”) expense of approximately $95,000 during 2010, compared to DD&A expense of approximately $88,000 in the prior year. The higher DD&A expense was due higher asset retirement obligations expense.

Ceiling Write-down
 
For the year end December 31, 2008 the remaining value of the Infinity-Texas and Infinity-Wyoming were written down to zero as such properties were deemed to be uneconomical to operate and the Company focused solely on the development of the Nicaraguan concessions.

 
24

 

Other Income (Expense)

Other income and expense was a net expense of $.6 million in 2010 compared to a net expense of $3 million in the prior year. The change of was principally due the change in the fair value of derivative liabilities from a $1.3 million expense in 2009 to $1.3 million in income in 2010 resulting from fluctuations in the price of the Company's common stock.

Income Tax

Infinity reflected no net tax benefit or expense in 2010 and 2009. The net operating losses generated in those periods increased Infinity’s net deferred tax asset. Due to uncertainty as to the ultimate utilization of the Company’s net deferred tax asset, as of December 31, 2010 and 2009, the Company recorded a full valuation allowance for its net deferred tax asset.

ITEM 3.
PROPERTIES

This section is an explanation and detail of some of the relevant project groupings from our overall inventory of projects and prospects. Our principal focus is our Nicaraguan Concessions, which are located in the Caribbean Sea, offshore Nicaragua. Our prior year’s operations were primarily focused in the Fort Worth Basin of Texas and the Greater Green River and Sand Wash Basins in the Rocky Mountain region.

Nicaragua

Subsequent to being awarded two concessions in 2003, we negotiated a number of key terms and conditions of an exploration and production contract covering the approximate 1.4 million acre Tyra (approximately 823,000 acres in the north) and Perlas (approximately 566,000 acres in the south) concession areas offshore Nicaragua. The contract, which was finalized in May 2006, contemplates an exploration period of up to six years with four sub-phases and a production period of up to 30 additional years (with a potential five-year extension). We have completed and submitted an environmental study and to develop geological information from the reprocessing and additional evaluation of existing 2-D seismic data to be acquired over the Perlas and Tyra concession blocks.  We have not commenced significant activity under the initial work plan, because we have not received the specific requirements associated with the conduct of the environmental study from the responsible governmental agency.

We expect that our exploration offshore Nicaragua will focus on Eocene and Cretaceous Carbonate reservoirs and our management and consultants believe: (i) numerous analogies can be made between the our concession block and production from fractured Cretaceous carbonates in Mexico, Venezuela and Guatemala and (ii) the presence of Cretaceous source rocks onshore Honduras and Nicaragua can be projected into the offshore Caribbean Shelf. We plan to seek offers from industry operators for interests in the acreage in exchange for cash and a carried interest in exploration and development operations. No assurance can be given that any such transactions will be consummated or the terms of such transaction.

Fort Worth Basin

For purposes of presentation, we divide our Fort Worth Basin operations into two main property areas: Erath and Hamilton Counties, Texas and Comanche County, Texas.

Erath and Hamilton Counties, Texas

Infinity- Texas limited production in 2009 in this area, which is located in the southwest portion of the Fort Worth Basin in north central Texas.  There was no production in 2010.  A contingent sales contract for the Texas property was entered into in 2009 and 2010 but could not be closed due to trade vendors unwilling to release liens on the properties for partial settlement of payables.  The Company has substantial doubts that any of the leases are still in force and discontinued all sales efforts.

 
25

 

Comanche County, Texas

Infinity-Texas produced only insignificant amounts of natural gas from the field and has not produced from this field since   2007.  The Company has substantial doubts that any of the leases are still in force and has discontinued all operations.

Greater Green River Basin

For purposes of presentation, we divide our Greater Green River Basin operations into two main property areas: Pipeline Field and Labarge Field.

Pipeline Field

Infinity-Wyoming has not produced from the Pipeline Field since 2007.

Labarge Field

Infinity-Wyoming has not produced from the Labarge field since 2006.

Northwest Colorado

For purposes of presentation, we divide our northwest Colorado operations into two main property areas: Sand Wash Prospect and Piceance Basin Prospect.

Sand Wash Prospect

Infinity-Wyoming has not produced from the Sand Wash Prospect since 2007.

Piceance Basin Prospect

Infinity-Wyoming has not produced from the Piceance Basin Prospect since 2007.

Proved Reserves Reporting

Infinity had no proved reserves as of December 31, 2010 and 2009.

 
26

 

Production, Prices and Production Costs

The following table provides statistical information for the years ended December 31, 2010 and 2009:

   
For the
Year Ended
December 31,
 
   
2010
   
2009
 
Production:
           
Natural gas (MMcf)
    -       58.6  
Crude oil (thousands of barrels)
    -       -  
Total (MMcfe)
    -       58.6  
Financial Data (thousands of dollars):
               
Total revenue
  $ -     $ 520.7  
Production expenses
    -       1,158.3  
Production taxes
    -       24.1  
Financial Data per Unit ($ per Mcfe):
               
Total revenue
  $ -     $ 8.87  
Production expenses
    -       19.76  
Production taxes
    -       .41  

Development, Exploration and Acquisition Capital Expenditures

The following table sets forth certain information regarding the costs incurred by Infinity in the purchase of proved and unproved properties and in development and exploration activities of Nicaragua:

   
2010
   
2009
 
Property acquisition costs
           
Proved
  $ -     $ -  
Unproved
    510,811       680,738  
Total property acquisition costs
    510,811       680,738  
Development costs
    -       -  
Exploration costs
    -       -  
Total costs
  $ 510,811     $ 680,738  

There were no development, exploration or acquisition costs incurred during 2010 and 2009 on the Company’s domestic properties.

Drilling Activity

The following table sets forth certain information regarding the wells completed during the years indicated. Frequently wells are spud or drilled in one period and completed in a subsequent period. In the table, “gross” refers to the total number of wells in which we have a working interest and “net” refers to gross wells multiplied by our working interest therein.
   
2010
   
2009
 
   
Gross
   
Net
   
Gross
   
Net
 
Exploratory Wells
                       
Productive
    -       -       -       -  
Nonproductive
    -       -       -       -  
Total
    -       -       -       -  
Development Wells
                               
Service
    -       -       -       -  
Productive
    -       -       -       -  
Nonproductive
    -       -       -       -  
Total
    -       -       -       -  

 
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Acreage Data
 
The following table sets forth the gross and net acres of developed and undeveloped oil and gas leases held by Infinity-Texas and Infinity-Wyoming as of December 31, 2010. Developed acreage is acreage assigned to producing wells for the spacing unit of the producing formation.  Domestic acreage may be lost due to nonproduction.  For the year end December 31, 2008 the remaining value of the Infinity-Texas and Infinity-Wyoming were written down to zero due to uneconomical operating conditions and as the Company focused solely on the development of the Nicaraguan concessions.

   
Developed Acreage
   
Undeveloped Acreage
 
   
Gross
   
Net
   
Gross
   
Net
 
                         
Onshore U.S.
    -       -       -       -  
Offshore Nicaragua
    -       -       1,386,000       1,386,000  
Total
    -       -       1,386,000       1,386,000  

Present Activities

Infinity holds a 100% interest in the Perlas Block(560,000 acres/2,268 km) and Tyra Block (826,000 acres/3,342 km) located in shallow waters offshore Nicaragua  The sub-periods start on the acceptance of the Environmental Impact Study (EIS).  The Company submitted the EIS to the Nicaraguan government on April 14, 2011.  Management anticipates the approval process will be complete within 90 days.

Within 15 days of entering an exploration sub-period, the Company is required to provide an irrevocable guarantee (“Irrevocable Guarantee”) in favor of the Nicaraguan Ministry of Energy, payable in Nicaragua, in an amount equal to the estimated cost of such exploration sub-period, subject to an accumulated credit carry forward for the excess of work performed in the preceding exploration sub-period, as provided in the concession agreements.
 
Minimum Work Program - Perlas

Block Perlas – Exploration Minimum Work Commitment and Relinquishments
 
Exploration Period
(6 Years)
 
Duration
(Years)
  Work Commitment  
Relinquishment
 
Irrevocable
Guarantee
 
Sub-Period 1
  2  
Environmental Impact Study
 
26km 2
  $ 443,100  
       
Acquisition & interpretation of
           
         
333km of new 2D seismic
           
       
Acquisition, processing & interpretation of
           
         
667km of new 2D seismic (or equivalent in 3D)
           
Sub-Period 2
  1  
Acquisition, processing & interpretation of
 
53km 2
  $ 1,356,227  
Optional
       
200km 2 of 3D seismic
           
Sub-Period 3
  1  
Drilling of one exploration well to the
 
80km 2
  $ 10,220,168  
Optional
       
Cretaceous or 3,500m, whichever is shallower
           
Sub-Period 4
  2  
Drilling of one exploration well to the
 
All acreage except
  $ 10,397,335  
Optional
       
Cretaceous or 3,500m, whichever is shallower
 
areas with discoveries
       
       
Geochemical analysis
           

 
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Minimum Work Program - Tyra

Block Tyra – Exploration Minimum Work Commitment and Relinquishments
 
Exploration Period
(6 Years)
 
Duration
(Years)
  Work Commitment  
Relinquishment
 
Irrevocable
Guarantee
 
Sub-Period 1
  1.5  
Environmental Impact Study
 
26km 2
  $ 408,450  
       
Acquisition & interpretation of
           
         
667km of existing 2D seismic
           
       
Acquisition of 667km of new 2D seismic (or
           
         
equivalent in 3D)
           
Sub-Period 2
  0.5  
Processing & interpretation of the 667km 2D
 
40km 2
  $ 278,450  
Optional
       
seismic (or equivalent in 3D) acquired in the
           
         
previous sub-period
           
Sub-Period 3
  2  
Acquisition, processing & interpretation of
 
160km 2
  $ 1,818,667  
Optional
       
250km 2 of new 3D seismic
           
Sub-Period 4
  2  
Drilling of one exploration well to the
 
All acreage except
  $ 10,418,667  
Optional
       
Cretaceous or 3,500m, whichever is shallower
 
areas with discoveries
       
       
Geochemical analysis
           

Contractual and Fiscal Terms

Training Program
US $50,000 per year, per block
Area Fee
Yr 1-3
 
$0.05/hectare
 
Yr 4-7
 
$0.10/hectare
 
Yr 8 fwd
 
$0.15/hectare
Royalties
Recovery Factor
 
Percentage
 
0 – 1.5
 
5%
 
1.5 – 3.0
 
10%
 
>3.0
 
15%
Natural Gas Royalties
Market value at production
 
5%
Corporate Tax
Rate no higher than 30%
Social Contribution
3% of the net profit (1.5% for each autonomous region)
Investment Protection
ICSID arbitration
 
OPIC insurance

Delivery Commitments

In June 2005, the Company entered into a long-term gas gathering contract for natural gas production from the Company’s properties in Erath County, Texas, under which the Company pays a gathering fee of $0.35 per Mcf gathered. In December 2006, under provisions of the contract, the Company reduced the minimum daily delivery volumes by 50%.

The contract contains minimum delivery volume commitments through June 30, 2015 associated with firm transportation rights. As of December 31, 2010 and 2009, the Company had accrued approximately $929,000, respectively for each year, as delivery commitment shortfalls under the contract.  The Company has no current production to meet the delivery commitments for 2011 to 2015.

ITEM 4.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of March 31, 2011, the number and percentage of outstanding shares of common stock beneficially owned by each person known by us to beneficially own more than five percent of such stock. We have no other class of capital stock outstanding.

 
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Security Ownership of Certain Beneficial Owners
 
Name and address of beneficial owner
 
Amount and nature
of beneficial
ownership
   
Percent
of class
 
5% Stockholders (excluding executive officers and directors) :
           
None (1)
    -       -  
 

 
 
(1)
Based solely on a Schedule 13D, there are no 5% stockholders other than Stanton E. Ross, our Chairman, Chief Executive Officer and President.

The following table sets forth, as of March 31, 2011, the number and percentage of outstanding shares of common stock beneficially owned by each director of the Company, each named officer of the Company, and all our directors and executive officers as a group.  We have no other class of capital stock outstanding.

Security Ownership of Management

Name and address of beneficial owner
 
Amount and nature
of beneficial
ownership
   
Percent
of class  (2)
 
Executive Officers & Directors : (1)
           
                 
Stanton E. Ross (3)
    929,200       7.4 %
Leroy C. Richie (4)
    320,750       2.2 %
Daniel F. Hutchins (5)
    380,750       2.8 %
                 
All officers and directors as a group (3 individuals)
    1,630,700       12.4 %
 

 
 
(1)
The address of these persons is c/o 8000 West 110th Street, Suite 200, Overland Park, KS 66210.
 
(2)
The percent of Common Stock owned is calculated using the sum of (A) the number of shares of Common Stock owned and (B) the number of warrants and options of the Beneficial Owner that are exercisable within 60 days, as the numerator, and the sum of (Y) the total number of shares of Common Stock outstanding (18,668,575) and (Z) the number of warrants and options of the Beneficial Owner that are exercisable within 60 days as the denominator
 
(3)
Mr. Ross’s shares include:  vested options to purchase 340,000 shares of common stock exercisable within 60 days. Mr. Ross has pledged 929,200 common shares and all of his outstanding options to purchase common stock to financial institutions and one individual as collateral for personal loans.  The financial institution notified Mr. Ross that he is in default under a loan that it made to him and that it planned to sell all or part of the pledged shares to satisfy the obligation. It has sold 10,000 shares to date, which is reflected in total in the table.  Mr. Ross does not agree with such action, but has not been able to, and in all likelihood, will not be able to stop such sales in the future.
 
(4)
Mr. Richie’s total shares include vested options to purchase 320,750 shares of common stock exercisable within 60 days.
 
(5)
Mr. Hutchins’ total shares include vested options to purchase 180,750 shares of common stock exercisable within 60 days.

ITEM 5.
DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth the names, positions and ages of our directors and executive officers. Our directors were elected by the majority written consent of our stockholders in lieu of a meeting. Our directors are typically elected at each annual meeting and serve for one year and until their successors are elected and qualify. Officers are elected by our board of directors and their terms of office are at the discretion of our board.

Name 
 
Age
 
Positions and Offices Held
         
Stanton E. Ross
 
49
 
Chairman, President and Chief Executive Officer
Daniel F. Hutchins
 
55
 
Director, Chief Financial Officer, Secretary
Leroy C. Richie
 
69
 
Director

 
30

 

Stanton E. Ross .   From March 1992 to June 2005, Mr. Ross was Infinity’s Chairman and President and served as an officer and director of each of its subsidiaries. He resigned all of these positions with Infinity in June 2005, except Chairman, but was reappointed as Infinity’s President in October 2006. Mr. Ross has served as Chairman, President and Chief Executive Officer of Digital Ally, Inc. (“Digital”) since September 2005. Digital is a publicly held company where common stock is traded on the Nasdaq Capital Market under the symbol DGLY. From 1991 until March 1992, he founded and served as President of Midwest Financial, a financial services corporation involved in mergers, acquisitions and financing for corporations in the Midwest. From 1990 to 1991, Mr. Ross was employed by Duggan Securities, Inc., an investment banking firm in Overland Park, Kansas, where he primarily worked in corporate finance. From 1989 to 1990, he was employed by Stifel, Nicolaus & Co., a member of the New York Stock Exchange, where he was an investment executive. From 1987 to 1989, Mr. Ross was self-employed as a business consultant. From 1985 to 1987, Mr. Ross was President and founder of Kansas Microwave, Inc., which developed a radar detector product. From 1981 to 1985, he was employed by Birdview Satellite Communications, Inc., which manufactured and marketed home satellite television systems, initially as a salesman and later as National Sales Manager.  Mr. Ross devotes such time to the business of the Company as he deems necessary to discharge his fiduciary duties to it.  Mr. Ross estimated that he divided his time equally between Infinity and Digital through the first quarter of 2007.  Thereafter, he has devoted the majority of his time to Digital.  Mr. Ross holds no public company directorships other than with Digital and Infinity currently and for the previous five years.  The Company believes that Mr. Ross’ broad entrepreneurial, financial and business experience and his experience with micro-cap public companies and role as Chairman, President and CEO qualify him to serve as a director.

Daniel F. Hutchins . Mr. Hutchins was appointed to serve as Chief Financial Officer of Infinity effective as of August 13, 2007. Mr. Hutchins was elected as a Director of Digital in December 2007 and serves as Chairman of Digital’s Audit Committee and is its financial expert. He is also a member of Digital's Compensation and Strategic Planning Committees.  Mr. Hutchins, a Certified Public Accountant, is a Principal with the accounting firm of Hutchins & Haake, LLC. He was previously a member of the Advisory Board of Digital Ally. Mr. Hutchins has served as an instructor for the Becker CPA exam with the Keller Graduate School of Management and has over 17 years of teaching experience preparing CPA candidates for the CPA exam. He has 30 years of public accounting experience, including five years with Deloitte & Touche, LLP. He has served on the boards of various non-profit groups and is a member of the American Institute of Certified Public Accountants. Mr. Hutchins earned his Bachelor of Business Administration degree in Accounting at Washburn University in Topeka, Kansas. Mr. Hutchins holds no other public company directorships currently and for the previous five years.  The Company believes that Mr. Hutchins’ significant experience in finance and accounting gives him the qualifications to serve as a director.

Leroy C. Richie .  Since June 1, 1999 Mr. Richie has been a director of Infinity.  Mr. Richie has been the Lead Outside Director of Digital since September 2005.  He is also a member Digital’s Audit and Compensation Committees and is the Chairman of Digital’s Nominating and Governance Committee.  Additionally, Mr. Richie serves as a member of the boards of directors of the following corporations and serves in the additional capacities noted:  OGE Energy Corp., Chairman of the Compensation Committee and a member of the Corporate Governance Committee; RiverSource Funds, member of the board of directors of the mutual fund family managed by Ameriprise Financial, Inc., Vibration Control Technologies, LLC, Great Lakes Assemblies, LLC and Gulf Shore Assemblies, LLC.  Since 2004, he has been of counsel to the Detroit law firm of Lewis & Munday, P.C.  From September 2000 to November 2004, he was Chairman and Chief Executive Officer of Q Standards World Wide, Inc.  From April 1999 to August 2000, he was President of Capitol Coating Technologies, Inc.  Mr. Richie was formerly Vice President of Chrysler Corporation and General Counsel for automotive legal affairs, where he directed all legal affairs for that company’s automotive operations from 1986 until his retirement in 1997.  Before joining Chrysler, he served as director of the New York office of the Federal Trade Commission.  Mr. Richie received a B.A. from City College of New York, where he was valedictorian, and a J.D. from the New York University School of Law, where he was awarded an Arthur Garfield Hays Civil Liberties Fellowship.  The Company believes that Mr. Richie’s extensive experience as a lawyer and as an officer or director of public companies gives him the qualifications and skills to serve as a director.

 
31

 

There is no family relationship between any of our directors, director nominees and executive officers.

ITEM 6.
EXECUTIVE COMPENSATION

The following table shows compensation paid, accrued or awarded with respect to our named executive officers during the years indicated, all compensation after 2008 is accrued but not paid:

2010 Summary Compensation Table (1)
Name and
Principal Position (2)
 
Year
 
Salary
($)
   
Bonus
($) (4)
   
Stock
Awards
($)
   
Option
Awards ($)
   
Non Equity
Incentive Plan
Compensation
ORRI (3)
   
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings 
($)
   
All Other
Compensation
($)
   
Total ($)
 
Stanton Ross
 
2010
  $ 100,000                                                     $ 100,000  
CEO
 
2009
  $ 100,000                     $ 57,085     $ 286,929                     $ 444,014  
Daniel F Hutchins
 
2010
  $ 100,000                                             $ 142,117     $ 242,117  
CFO
 
2009
  $ 100,000                     $ 35,678     $ 223,167             $ 175,990     $ 534,835  

 
(1)
Due to the financial condition of the Company, Mr. Ross has deferred the receipt of his salary since January 2009. As of December 31, 2010, a total of $135,208 of salary has accrued.  $64,792 of deferred salary was to exercise 249,200 shares at $0.26 in July 2010.

 
(2)
Mr. Hutchins began serving the Company as Vice President, Chief Financial Officer in August 2007. Mr. Hutchins is compensated $100,000 per year.  Since January 2009 he has deferred his compensation, which totaled $200,000 as of December 31, 2010. His other compensation is indirect and consist of services are billed at the CFO firm’s normal standard billing rate plus out-of-pocket expenses.  For the year ending 2010 the Company was billed $142,117 and for the year ended 2009 the Company was billed $175,990.

 
(3)
On June 6, 2009 the Company entered into a Revenue Sharing Agreement with the officers and directors for services provided.   Infinity assigned to officers and directors a monthly payment (the “RSP”) equal to the revenue derived from one percent (1%) of 8/8ths of Infinity’s share of the hydrocarbons produced at the wellhead from the Concessions.  The RSP shall bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including its share of production, severance and similar taxes, and certain additional costs. The RSP shall be paid by the last day of each month based on the revenue received by Infinity from the purchaser of the production during the previous month from the Concessions. The Revenue Agreement does not create any obligation for Infinity to maintain or develop the Concessions, and does not create any rights in the Concessions for officers and directors.

Compensation Policies and Objectives

We structure compensation for executive officers, including the named executive officers, to drive performance, to accomplish both our short-term and long-term objectives, and to enable us to attract, retain and motivate well qualified executives by offering competitive compensation and by rewarding superior performance. We also seek to link our executives’ total compensation to the interests of our shareholders. To accomplish this, our board of directors relies on the following elements of compensation, each of which is discussed in more detail below:

 
·
salary;

 
32

 

 
·
annual performance-based cash awards;
 
·
equity incentives in the form of stock and/or stock options; and
 
·
other benefits.

Our board of directors believes that our executive compensation package, consisting of these components, is comparable to the compensation provided in the market in which we compete for executive talent and is critical to accomplishing our recruitment and retention aims.

In setting the amounts of each component of an executive’s compensation and considering the overall compensation package, the Committee generally considers the following factors:

Benchmarking— For executive officers, the board of directors considers the level of compensation paid to individuals in comparable executive positions of other oil and gas exploration and production companies of a similar size. The board of directors believes that these companies are the most appropriate for review because they are representative of the types of companies with which we compete to recruit and retain executive talent. The information reviewed by the board of directors includes data on salary, annual and long-term cash incentive bonuses and equity compensation, as well as total compensation.

Internal Equity— The board of directors considers the salary level for each executive officer and each position in overall management in order to reflect their relative value to us.

Individual Performance— The board of directors considers the individual responsibilities and performance of each named executive officer, which is based in part on the board of directors’ assessment of that individual’s performance as well as the evaluation of the individual by the Chief Executive Officer.

All executive officers are eligible for annual cash bonuses and equity incentive awards that reinforce the relationship between pay and performance by conditioning compensation on the achievement of the Company’s short- and long-term financial and operating goals, including operating profits, reserve finding costs, and growth in the Company’s daily oil and gas production and estimated proved, probable and possible recoverable oil and gas reserves.

Components of Executive Compensation

The following provides an analysis of each element of compensation, what each element is designed to reward and why the board of directors chose to include it as an element of our executive compensation.

Salaries

Salaries for executive officers are intended to incentivize the officers to focus on executing the Company’s day-to-day business and are reviewed annually. Changes are typically effective in April of each year and are based on the factors discussed above. Compensation arrangements with Mr. Hutchins were determined through arms-length negotiations.

Annual Bonuses

The awarding of annual bonuses to executives is at the Committee’s discretion. The objective of the annual bonus element of compensation is to align the interest of executive officers with the achievement of superior Company performance for the year and also to encourage and reward extraordinary individual performance. In light of the Company’s operating results for 2010, the Committee determined that it was appropriate to withhold annual bonuses from all executive officers for 2010.

 
33

 

Stock Options

Including an equity component in executive compensation closely aligns the interests of the executives and our shareholders and rewards executives consistent with shareholder gains. Stock options produce value for executives only if our stock price increases over the exercise price, which is set at the market price on the date of grant. Also, through vesting and forfeiture provisions, stock options serve to encourage executive officers to remain with the Company. Awards made other than pursuant to the annual equity grants are typically made to newly hired or recently promoted employees.

In determining the stock option grants for Messrs. Ross and Hutchins, the Committee considered the number of options previously granted that remained outstanding, the number and value of shares underlying the options being granted and the related effect on dilution. The Committee also took into account the number of shares that remained available for grant under our stock incentive plans. Awards were made to key employees, with weighted distribution toward individuals with the greatest responsibilities.  Messrs. Ross and Hutchins were granted 200,000 and 175,000 options, respectively, in February 2011. Further, in April 2009 Messrs. Ross and Hutchins were granted 249,200 and 155,750 options, respectively.  Information regarding all outstanding equity awards as of December 31, 2010 for the named executive officers is set forth below in the “Outstanding Equity Awards at Fiscal Year End” table.

Other Elements of Executive Compensation

We have not provided cash perquisites to our executive officers given our limited funds.

On June 6, 2009 the Company entered into a Revenue Sharing Agreement with the officers and directors for services provided.   Infinity assigned to officers and directors a monthly payment (the “RSP”) equal to the revenue derived from one percent (1%) of 8/8ths of Infinity’s share of the hydrocarbons produced at the wellhead from the Concessions.  The RSP shall bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including its share of production, severance and similar taxes, and certain additional costs. The RSP shall be paid by the last day of each month based on the revenue received by Infinity from the purchaser of the production during the previous month from the Concessions. The Revenue Agreement does not create any obligation for Infinity to maintain or develop the Concessions, and does not create any rights in the Concessions for officers and directors.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

   
Option Awards
   
Stock Awards
 
Name
 
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
   
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
   
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
   
Option
Exercise
Price
($)
   
Option
Expiration
Date
   
Number of
Shares or
United of
Stock That
Have Not
Vested (#)
   
Market Value
of Shares or
Units of
Stock That
Have Not
Vested ($)
   
Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested (#)
   
Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
($)
 
                                                                       
Ross (1)
    60,000                     $ 4.26    
06/17/2014
                                 
      20,000                     $ 8.50    
02/03/2015
                                 
      40,000                     $ 7.51    
07/18/2015
                                 
      50,000                     $ 6.48    
05/23/2016
                                 
      100,000                     $ 3.97    
10/10/2016
                                 
      70,000                     $ 3.06    
05/17/2017
                                 

 
34

 

   
Option Awards
   
Stock Awards
 
Name
 
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
   
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
   
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
   
Option
Exercise
Price
($)
   
Option
Expiration
Date
   
Number of
Shares or
United of
Stock That
Have Not
Vested (#)
   
Market Value
of Shares or
Units of
Stock That
Have Not
Vested ($)
   
Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested (#)
   
Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
($)
 
                                                                       
Hutchins (1)
            25,000             $ 2.15    
08/21/2017
                                 
              155,750             $ 0.26    
04/01/2018
                                 

 
(1)
In February 2011, the following options were issued at an exercise price of $5.25 and will expire on 02/09/2021:  Stanton Ross 200,000 shares and Daniel Hutchins 175,000 shares.

DIRECTOR COMPENSATION

The following table discloses the cash, equity awards and other compensation earned, paid or awarded, as the case may be, to each of the Company’s directors during the fiscal years ended December 31, 2010 and 2009.

Name
 
Year
   
Fees
Earned or
Paid in
Cash ($)
   
Stock
Awards
($)
   
Option
Awards
($) (1)
   
Non-Equity
Incentive Plan
Compensation
ORRI ($)(3)
   
Change in Pension
Value and Non-
Qualified Deferred
Compensation
Earnings ($)
   
All Other
Compensation
($) (2)
   
Total ($)
 
Leroy C. Richie
  2010     $ 36,000                                             $ 36,000  
    2009     $ 37,000                     $ 127,524                     $ 174,024  
Robert O. Lorenz (4)
  2010     $ -                                             $ -  
    2009     $ 9,500                                             $ 9,500  

 
(1)
Mr. Richie received no cash compensation in 2010, but has accrued $111,500 for his services on the Board since January 1, 2008.  In February 2011 he was granted 125,000 stock options for his service on the Board. Such options vested immediately, are exercisable at a price of $5.25 per share and will expire on February 9, 2021.  In April 2009 he was granted 155,750 stock options that vested immediately and are exercisable at a price of $0.26 per share for a ten-year term.
 
(2)
Mr. Ross’ and Mr. Hutchins’ compensation and option awards are noted in the Executive Compensation table because neither of them received compensation or stock options for their services as a director.
 
(3)
On June 6, 2009 the Company entered into a Revenue Sharing Agreement with the officers and directors for services provided.   Infinity assigned to officers and directors a monthly payment (the “RSP”) equal to the revenue derived from one percent (1%) of 8/8ths of Infinity’s share of the hydrocarbons produced at the wellhead from the Concessions.  The RSP shall bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including its share of production, severance and similar taxes, and certain additional costs. The RSP shall be paid by the last day of each month based on the revenue received by Infinity from the purchaser of the production during the previous month from the Concessions. The Revenue Agreement does not create any obligation for Infinity to maintain or develop the Concessions, and does not create any rights in the Concessions for officers and directors.
 
(4)
Robert O. Lorenz resigned from his position as a member of the Company’s Board of Directors on March 16, 2009.

Compensation Committee Interlocks and Insider Participation

Leroy C. Richie is the sole member of the Compensation Committee in 2010.  Mr. Richie is not currently and has not ever been an officer or employee of Infinity or its subsidiaries.

 
35

 

ITEM 7.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The charter for the Company’s Audit Committee includes a requirement for the Audit Committee to review and approve any transaction involving the Company and a related party at least once a year or upon any significant change in the transaction or relationship. For these purposes, a “related party transaction” includes any transaction required to be disclosed pursuant to Item 404 of Regulation S-K.

On June 6, 2009 we entered into a revenue sharing agreement with Messrs. Ross, Richie and Hutchins for services provided.  We assigned to them a monthly payment (the “RSP”) equal to the revenue derived from one percent (1%) of 8/8ths of our share of the hydrocarbons produced at the wellhead from the Nicaraguan Concessions.  The RSP shall bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including its share of production, severance and similar taxes, and certain additional costs.  The RSP shall be paid by the last day of each month based on the revenue received by Infinity from the purchaser of the production during the previous month from the Nicaraguan Concessions.  The Revenue Agreement does not create any obligation for Infinity to maintain or develop the Nicaraguan Concessions, and does not create any rights in them for officers and directors

On March 23, 2009, the Company entered into a Securities Purchase Agreement dated effective as of March 23, 2009, with Off-Shore Finance, LLC, a Nevada limited liability company (“Off-Shore”) an accredited investor, to issue a subordinated secured promissory note in the aggregate principal amount of up to $1,275,000 and a one percent (1%) revenue sharing interest with respect to the Company’s Nicaragua concessions in the Tyra and Perlas Blocks, offshore Nicaragua. The managing partner of Off-Shore Finance, LLC and Mr. Hutchins, the CFO of Infinity are business partners in the firm which the company uses for its corporate office.

Under the Revenue Sharing Agreement (the “Revenue Agreement”), Infinity assigned to Off-Shore a monthly payment (the “RSP”) equal to the revenue derived from one percent (1%) of 8/8ths of Infinity’s share of the hydrocarbons produced at the wellhead from the Concessions.  The RSP shall bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including its share of production, severance and similar taxes, and certain additional costs. The RSP shall be paid to Off-Shore by the last day of each month based on the revenue received by Infinity from the purchaser of the production during the previous month from the Concessions. The Revenue Agreement does not create any obligation for Infinity to maintain or develop the Concessions, and does not create any rights in the Concessions for Off-Shore. At any time within three (3) years from the date of the Revenue Agreement, Infinity shall have the right to redeem the RSP by paying Off-Shore an amount as follows:  (i) if during the first year of the Revenue Agreement, a sum equal to three (3) times the amount of investor funding by Off-Shore Finance, LLC to Infinity as of   December 31, 2009 (the “Funding Amount”); (ii) if during the second year of the Revenue Agreement, a sum equal to five (5) times the Funding Amount; or (iii) if during the third year of the  Revenue Agreement, a sum equal to ten (10) times the Funding Amount.  Upon the redemption of the RSP by Infinity, the Revenue Agreement shall terminate.

The corporate office was located in Denver, Colorado until November 2008 when the Denver office was closed.  The corporate office moved to the business office of the CFO of the Company.  The Company currently does not have any employees and the staff of the interim CFO provides the office services.  These services are billed at the CFO firm’s normal standard billing rate plus out-of-pocket expenses.  For the year ending 2010 the Company was billed $142,117 and for the year ended 2009 the Company was billed $175,990.  The amount due to the CFOs firm for services provided was $323,929 for December 31, 2010 and $183,850 at December 13, 2009.

Under the Fifth Forbearance Agreement, Additional Forbearance Period advances of $1,050,000 were approved with an interest rate of prime plus 2% and the personal guarantee of the Company’s President and Chief Executive Officer for up to $500,000 of the advances. At December 31, 2010, $232,462 of the advances were personally guaranteed by the Company’s CEO.

 
36

 

Our board of directors undertook its annual review of the independence of the directors and considered whether any director had a material relationship with us or our management that could compromise his ability to exercise independent judgment in carrying out his responsibilities.  As a result of this review, the board affirmatively determined that Leroy C. Richie is an “independent director” as such term is used under the rules and regulations of the Securities and Exchange Commission.

In February 2011, we granted options to purchase 50,000 shares of common stock to a partner of Quarles & Brady, LP, our outside legal counsel.  Such options are exercisable at $5.25 per share until February 9, 2021.  In June 2009 it also issued such person options to exercisable to purchase 30,000 shares of common stock at a price of $0.78 per share for a term of ten years.

ITEM 8.
LEGAL PROCEEDINGS

The Company is currently involved in the following material litigation:

Exterran Energy Solutions, L.P. f/k/a Hanover Compression Limited Partnership, filed an action in the District Court of Erath County, Texas, number CV30512, on March 31, 2010 against Infinity Oil and Gas of Texas, Inc., Infinity Energy Resources, Inc., Longhorn Properties, LLC, and Forest Oil Corporation.  Exterran Energy Solutions, L.P. provided certain gas compressor and related equipment pursuant to a Gas Compressor/Production Equipment Master Rental & Servicing Agreement with Infinity dated January 3, 2005 in Erath County, Texas and is claiming breach of contract for failure to pay amounts due.

LDH Gas Development, L.P. filed an action in the District Court of Harris County, Texas, number 201030709, on May 14, 2010 against Infinity Oil and Gas of Texas, Inc.   In May 2005 LDH Gas Development, L.P. entered into a Gas Purchase Agreement with Infinity Oil and Gas of Texas, Inc. In the agreement, LDH agreed to purchase specified quantities of gas from leasehold interests held by Infinity that are located close to LDH’s Gathering System, and is claiming breach of gas purchase agreement for failure to meet minimum quantities of gas.

ITEM 9.
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Principal Market and Price Range of Common Stock

Infinity’s common stock trades on the Pink Sheets under the symbol “IFNY.PK.” The following table sets forth the high and low closing bid prices for Infinity’s common stock as reported by the Pink Sheets. The closing price of the common stock on March 31, 2011 was $2.85 per share. The quotations reflect interdealer bid prices without retail markup, markdown or commission and may not represent actual transactions.

Year Ended December 31, 2010
 
High
   
Low
 
1st Quarter
  $ 2.99     $ 1.85  
2nd Quarter
    2.25       1.00  
3rd Quarter
    1.63       0.70  
4th Quarter
    1.45       0.75  
                 
Year Ended December 31, 2009
 
High
   
Low
 
1st Quarter
  $ 0.54     $ 0.14  
2nd Quarter
    0.89       0.25  
3rd Quarter
    0.84       0.51  
4th Quarter
    3.30       0.50  

 
37

 

Approximate Number of Holders of Common Stock

At December 31 2010, there were approximately 400 stockholders of record of Infinity’s $0.0001 par value common stock and an estimated 400 beneficial holders whose common stock is held in street name by brokerage houses.

Dividends

Holders of common stock are entitled to receive such dividends as may be declared by Infinity’s Board of Directors. Infinity has not declared nor paid and does not anticipate declaring or paying any dividends on its common stock in the near future. Any future determination as to the declaration and payment of dividends will be at the discretion of Infinity’s board of directors and will depend on then-existing conditions, including Infinity’s financial condition, results of operations, contractual restrictions, capital requirements, business prospects and such other factors as the board deems relevant. Pursuant to the terms of its Credit Facility, Infinity is prohibited from paying dividends.

Securities Authorized for Issuance under Equity Compensation Plans

In May 2006, the Infinity’s stockholders approved the 2006 Equity Incentive Plan (the “2006 Plan”), under which both incentive and non-statutory stock options may be granted to employees, officers, non-employee directors and consultants. An aggregate of 470,000 shares of the Infinity’s common stock are reserved for issuance under the 2006 Plan. Options granted under the 2006 Plan allow for the purchase of common stock at prices not less than the fair market value of such stock at the date of grant, become exercisable immediately or as directed by the Infinity’s Board of Directors and generally expire ten years after the date of grant. Infinity also has other equity incentive plans with terms similar to the 2006 Plan. As of December 31, 2010, 148,463 shares were available for future grants under all plans.

The following table sets forth certain information regarding the stock option plans adopted by Infinity as of December 31, 2010:

Plan category
 
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a)
   
Weighted-average exercise
price of outstanding options,
warrants and rights
(b)
   
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c)
 
Equity compensation plans approved by stockholders
    903,500     $ 2.92       146,681  
Equity compensation plans not approved by stockholders
    500,000       5.25       100,000  
Total
    1,403,500     $ 3.75       246,681  

ITEM 10.
RECENT SALES OF UNREGISTERED SECURITIES

Infinity had no sales of unregistered securities in the past three years.

ITEM 11.
DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED

Common Stock .

General . Infinity is authorized to issue 75,000,000 shares of common stock, par value $0.0001 per share, and 10,000,000 shares of preferred stock, par value $0.0001.

 
38

 

Voting Rights . Holders of common stock are entitled to one vote per share on each matter to be decided by the stockholders, subject to the rights of holders of any series of preferred stock that may be outstanding from time to time. Pursuant to the Infinity’s certificate of incorporation, there are no cumulative voting rights in the election of directors. The affirmative vote of 66 2/3% of the outstanding shares of the Infinity’s common stock are required to amend the articles of the Infinity’s certificate of incorporation pertaining to directors, voting requirements, liability of officer and directors and indemnification.

Divided Rights and Limitations . Holders of common stock will be entitled to receive ratably any dividends or distributions that the board of directors may declare from time to time out of funds legally available for this purpose. Dividends and other distributions on common stock are also subject to the rights of holders of any series of preferred stock that may be outstanding from time to time and the Infinity’s ability to declare dividends may be limited by restrictions in the Infinity’s financing arrangements.

Liquidation Rights . In the event of liquidation, dissolution or winding up of the Infinity’s affairs, after payment or provision for payment of all of the debts and obligations and any preferential distribution to holders of shares of preferred stock, if any, the holders of the common stock will be entitled to share ratably in the remaining assets available for distribution.

Miscellaneous . All of the Infinity’s outstanding shares of common stock are validly issued, fully paid and nonassesable. The holders of common stock have no preemptive, subscription, redemption or conversion rights.

ITEM 12.
INDEMNIFICATION OF DIRECTORS AND OFFICERS

The General Corporation Law of the State of Delaware, under which the Company is organized, permits the inclusion in the certificate of incorporation of a corporation of a provision limiting or eliminating the potential monetary liability of directors to a corporation or its stockholders by reason of their conduct as directors. The provision would not permit any limitation on, or the elimination of, liability of a director for disloyalty to his or her corporation or its stockholders, failing to act in good faith, engaging in intentional misconduct or a knowing violation of the law, obtaining an improper personal benefit or paying a dividend or approving a stock repurchase that was illegal under Delaware law. Accordingly, the provisions limiting or eliminating the potential monetary liability of directors permitted by Delaware law apply only to the “duty of care” of directors, i.e., to unintentional errors in their deliberations or judgments and not to any form of “bad faith” conduct.

The certificate of incorporation of the Company contains a provision which eliminates the personal monetary liability of directors to the extent allowed under Delaware law. Accordingly, a stockholder is able to prosecute an action against a director for monetary damages only if he or she can show a breach of the duty of loyalty, a failure to act in good faith, intentional misconduct, a knowing violation of law, an improper personal benefit or an illegal dividend or stock repurchase, as referred to in the amendment, and not “negligence” or “gross negligence” in satisfying his or her duty of care. Delaware law applies only to claims against a director arising out of his or her role as a director and not, if he or she is also an officer, his or her role as an officer or in any other capacity or to his or her responsibilities under any other law, such as the federal securities laws.

In addition, the Company’s certificate of incorporation and bylaws provide that the Company will indemnify our directors, officers, employees and other agents to the fullest extent permitted by Delaware law. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise. The Company has been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 
39

 

ITEM 13.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements are listed in Item 15 of this Registration Statement on Form 10 and are incorporated by reference in this Item 13.

ITEM 14.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 15.
FINANCIAL STATEMENTS AND EXHIBITS

(a) Documents filed as part of this Registration Statement on Form 10.

 
(1)
Our consolidated financial statements are listed on the “Index to Consolidated Financial Statements” on Page F-1 to this report.

 
(2)
Financial Statement Schedules (omitted because not applicable or not required. Information is disclosed in the notes to the financial statements).

 
(3)
The following exhibits are filed with this report on Form.

 
40

 

EXHIBITS

 
Exhibit Number
 
Description of Exhibits
2.1
 
Agreement and Plan of Merger between Infinity Energy Resources, Inc. and Infinity, Inc.
3.1
 
Certificate of Incorporation
3.2
 
Bylaws
10.1
 
2004 Stock Option Plan
10.2
 
2005 Equity Incentive Plan
10.3
 
2006 Equity Incentive Plan
10.4
 
Form of Incentive Stock Option for 2006 Equity Incentive Plan
10.5
 
Form of Nonqualified Stock Option for 2006 Equity Incentive Plan
10.6
 
Loan Agreement between Infinity Energy Resources, Inc., and Infinity Oil and Gas of Texas, Inc. and Infinity Oil & Gas of Wyoming, Inc. and Amegy Bank N.A., dated effective as of January 9, 2007
10.7
 
Revolving Promissory Note between Infinity Energy Resources, Inc. and Amegy Bank N.A., dated January 10, 2007
10.8
 
Nicaraguan Concession - Perlas Prospect
10.9
 
Nicaraguan Concession - Tyra Prospect
10.10
 
Forbearance Agreement with Amegy Bank N.A., dated August 31, 2007
10.11
 
Second Forbearance Agreement with Amegy Bank N.A., dated March 26, 2008
10.12
 
Third Forbearance Agreement with Amegy Bank N.A., dated October 16, 2008
10.13
 
First Amendment to Revolving Promissory Note - Amegy Bank, N.A., dated October 16, 2008
10.14
 
Fourth Forbearance Agreement with Amegy Bank N.A., dated December 4, 2009
10.15
 
Fifth Forbearance Agreement with Amegy Bank N.A., dated February 16, 2011
10.16
 
Guarantee of Obligation with Amegy Bank N.A., dated February 16, 2011
10.17
 
Omnibus Amendment with Amegy Bank N.A., dated February 16, 2011
10.18
 
Third Amendment to Revolving Promissory Note with Amegy Bank N.A., dated January 31, 2010
10.19
 
Forbearance Period Advance Promissory Note with Amegy Bank N.A., dated February 16, 2011
10.20
 
Registration Rights with Amegy Bank N.A., dated February 16, 2011
10.21
 
Securities Purchase Agreement with Amegy Bank N.A., dated February 16, 2011
10.22
 
Warrant to Purchase Common Stock with Amegy Bank N.A., dated February 16, 2011
10.23
 
Subordinate Secured Promissory Note Off-Shore Finance, LLC, dated March 23, 2009
10.24
 
Securities Purchase Agreement Off-Shore Finance, LLC, dated March 23, 2009
10.25
 
Revenue Sharing Agreement  with Off-Shore Finance, LLC, dated March 23, 2009
10.26
 
Revenue Sharing Agreement with Officers and Directors, dated June 6, 2009
10.27
 
Revenue Sharing Agreement with Jeff Roberts, dated September 8, 2009
10.28
 
Revenue Sharing Agreement with Thompson Knight Global Energy, dated September 8, 2009
21
 
Subsidiaries of the Registrant
23.1
 
Consent of Ehrhardt Keefe Steiner & Hottman PC
 
41

 

SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, Infinity has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

 
INFINITY ENERGY RESOURCES, INC.
   
 
By: /s/ Stanton E. Ross
 
 
Stanton E. Ross
 
 
Chief Executive Officer
 

Dated: May 12, 2011

 
42

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm
F-2
Consolidated Financial Statements:
 
Consolidated Balance Sheets
F-3
Consolidated Statements of Operations
F-4
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
F-5
Consolidated Statements of Cash Flows
F-6
Notes to Consolidated Financial Statements
F-7

 
F-1

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Infinity Energy Resources, Inc. and Subsidiaries
Overland Park, Kansas

We have audited the accompanying consolidated balance sheets of Infinity Energy Resources, Inc. and Subsidiaries (the “Company”) as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the two year periods then ended.  These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over consolidated financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Infinity Energy Resources, Inc. and Subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses and has a significant working capital deficit, which raises substantial doubt about its ability to continue as a going concern.  Management’s plans in regards to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Ehrhardt Keefe Steiner & Hottman PC
May 9, 2011
Denver, Colorado

 
F-2

 

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets

   
December 31,
   
December 31,
 
   
2010
   
2009
 
             
ASSETS
           
             
Current assets
           
Cash and cash equivalents
  $ -     $ 52,194  
Restricted cash
    -       158,737  
Accounts receivable
    2,992       2,992  
Prepaid expenses and other
    4,333       -  
Total current assets
    7,325       213,923  
                 
Oil and gas properties, using full cost accounting, net of accumulated depreciation, depletion, amortization and ceiling write-down
               
Proved
    -       -  
Unproved
    3,112,733       2,167,653  
                 
Total assets
  $ 3,120,058     $ 2,381,576  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
               
                 
Current liabilities
               
Checks written in excess of cash
  $ 166,419     $ -  
Current portion of debt
    10,242,956       10,010,494  
Note payable to vendor
    278,022       278,022  
Accounts payable
    3,423,220       2,870,214  
Accrued liabilities
    4,469,338       1,994,373  
Accrued interest and fees
    5,750,103       3,867,829  
Current portion of asset retirement obligations
    432,027       432,027  
Total current liabilities
    24,762,085       19,452,959  
                 
Long-term liabilities
               
Asset retirement obligations, less current portion
    746,411       650,517  
Subordinated note payable to a related party, net of discount of $350,483 and $533,930 for 2010 and 2009, respectively
    918,958       613,575  
Accrued interest on subordinated note
    155,613       79,113  
Derivative liabilities
    -       1,335,065  
                 
Total liabilities
    26,583,067       22,131,229  
                 
Commitments and contingencies (Note 7)
               
                 
Stockholders’ equity (deficit)
               
Preferred stock, par value $.0001, authorized 10,000,000 shares, issued and outstanding 0 (12/31/10) and 0 (12/31/09) shares
    -       -  
Common stock, par value $.0001, authorized 75,000,000 shares, issued and outstanding 18,668,575 (12/31/10) and 18,419,375 (12/31/09) shares
    1,866       1,841  
Additional paid-in capital
    80,107,816       80,043,049  
Accumulated deficit
    (103,572,691 )     (99,794,543 )
Total stockholders’ equity (deficit)
    (23,463,009 )     (19,749,653 )
                 
Total liabilities and stockholders’ equity (deficit)
  $ 3,120,058     $ 2,381,576  

 
F-3

 

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations

   
For the Years Ended
December 31,
 
   
2010
   
2009
 
             
Revenue
           
Oil and gas sales
  $ -     $ 520,753  
                 
Operating expenses
               
Oil and gas production expenses
    -       1,158,254  
Oil and gas production taxes
    -       24,151  
Other operating expenses
    2,453,431       929,208  
General and administrative expenses
    639,817       2,186,359  
Depreciation, depletion, amortization and accretion
    95,894       87,976  
Total operating expenses
    3,189,142       4,385,948  
                 
Operating loss
    (3,189,142 )     (3,865,195 )
                 
Other income (expense)
               
Interest expense, net of capitalization
    (1,939,428 )     (1,831,108 )
Change in derivative fair value
    1,335,065       (1,317,526 )
Other
    15,357       52,640  
Total other income (expense)
    (589,006 )     (3,095,994 )
                 
Net loss
  $ (3,778,148 )   $ (6,961,189 )
                 
Basic and diluted net loss per share
               
Net loss
  $ (.20 )   $ (.38 )
                 
Weighted average shares outstanding-basic and diluted
    18,668,575       18,419,375  

 
F-4

 

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
For the Years Ended December 31, 2010 and 2009

         
Additional
             
   
Common Stock
   
Paid-in
   
Accumulated
   
Stockholders’
 
   
Shares
   
Amount
   
Capital
   
Deficit
   
Equity (Deficit)
 
                               
Balance, December 31, 2008
    18,419,375     $ 1,841     $ 79,924,558     $ (92,833,354 )   $ (12,906,955 )
                                         
Stock-based compensation
    -       -       118,491       -       118,491  
                                         
Net loss
    -       -       -       (6,961,189 )     (6,961,189 )
                                         
Balance, December 31, 2009
    18,419,375       1,841       80,043,049       (99,794,543 )     (19,749,653 )
                                         
Issuance of common stock
    249,200       25       64,767       -       64,792  
                                         
Net loss
    -       -       -       (3,778,148 )     (3,778,148 )
                                         
Balance, December 31, 2010
    18,668,575     $ 1,866     $ 80,107,816     $ (103,572,691 )   $ (23,463,009 )

 
F-5

 

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows

   
For the Years Ended
 
   
December 31,
 
   
2010
   
2009
 
Cash flows from operating activities
           
Net loss
  $ (3,778,148 )   $ (6,961,189 )
Adjustments to reconcile net loss to net cash used in operating activities
               
Depreciation, depletion and amortization
    95,894       87,976  
Accretion of debt discount
    183,447       103,690  
Fair value of overriding royalty interests granted, net of capitalization
    -       669,501  
Stock-based compensation
    -       118,491  
Change in fair value of derivative liability
    (1,335,065 )     1,317,526  
Write-off of insurance proceeds receivable
    -       159,217  
Change in operating assets and liabilities
               
Decrease in accounts receivable
    -       162,042  
(Increase) decrease in prepaid expenses and other
    (4,333 )     7,124  
Increase in accounts payable and accrued liabilities (including accrued interest)
    4,617,267       3,671,712  
Net cash used in operating activities
    (220,938 )     (663,910 )
                 
Cash flows from investing activities
               
Investment in oil and gas properties
    (510,810 )     (680,738 )
Change in restricted cash
    158,737       137,542  
Net cash used in investing activities
    (352,073 )     (543,196 )
                 
Cash flows from financing activities
               
Proceeds from debt and subordinated note payable
    354,398       1,247,505  
Increase in checks written in excess of cash
    166,419       -  
Net cash provided by financing activities
    520,817       1,247,505  
                 
Net decrease in cash and cash equivalents
    (52,194 )     40,399  
                 
Cash and cash equivalents
               
Beginning
    52,194       11,795  
Ending
  $ -     $ 52,194  
                 
Cash paid for taxes
  $ -     $ -  
Cash paid for interest
    -       -  
                 
Supplemental noncash disclosures
               
ORRI granted to subordinated note holders
  $ -     $ 637,620  
Noncash capitalized overhead and interest (accrued)
    434,270       152,952  
Noncash exercise of options
    64,792       -  
Conversion of accounts payable to vendor note payable
    -       278,022  

 
F-6

 

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2010 and 2009

Note 1 — Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies

Nature of Operations

Infinity Energy Resources, Inc. and its subsidiaries (collectively, “Infinity” or the “Company”) are engaged in the acquisition, exploration and development of natural gas and crude oil in the United States and the acquisition and exploration of oil and gas properties offshore Nicaragua in the Caribbean Sea.

Basis of Presentation

The consolidated financial statements include the accounts of Infinity Energy Resources, Inc. and its wholly-owned subsidiaries, which include Infinity Oil and Gas of Texas, Inc. (“Infinity-Texas”) and Infinity Oil & Gas of Wyoming, Inc. (“Infinity-Wyoming”).  All significant intercompany balances and transactions have been eliminated in consolidation.

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States.

On March 5, 2009 Infinity signed the contracts relating to its Nicaraguan concessions. Infinity is conducting an environmental study and the development of geological information from reprocessing and additional evaluation of existing 2-D seismic data that was acquired over the concession blocks offshore Nicaragua. Infinity is seeking offers from other industry operators and other third parties for interests in the acreage in exchange for cash and a carried interest in exploration and development operations. The funds raised through the subordinated note transaction described below and Forbearance advances from Amegy Bank, N.A. (“Amegy”) were used to fund these expenses.  No assurance can be given that these funds will be sufficient to cover the exploration and development cost until a partner is found.

On January 7, 2008, Infinity-Wyoming completed the sale of essentially all of its producing oil and gas properties in Colorado and Wyoming, along with 80% of the working interest owned by the Company in undeveloped leaseholds in Routt County, Colorado and Sweetwater County, Wyoming to Forest Oil Corporation, a New York corporation (“Forest”).  The transaction resulted in the sale of approximately 62% of the Company’s proved reserve quantities and 73% of the standardized measure of discounted future net cash flow at that time.  In addition, concurrent with the sale, on December 27, 2007, Infinity-Texas entered into a Farmout and Acquisition Agreement (the “Farmout Agreement”) for certain oil and gas leases owned by Infinity-Texas in Erath County, Texas. The Farmout Agreement provides that Forest would operate and earn a 75% interest in the spacing unit for each well in a 10-well drilling program. If Forest had completed the drilling program, Forest would have earned a 50% interest in the approximate 25,000 remaining undeveloped net acres and existing Erath County infrastructure owned by Infinity-Texas. Infinity-Texas retains 100% of its interest in all previously completed wells and 100 acres surrounding each such completed well.  Forest did not complete the terms of the Farmout and Acquisition Agreement and did not earn any interest in the properties.

For the year end December 31, 2008 the remaining value of Infinity-Texas and Infinity-Wyoming, representing the entire US full cost pool, were written down to zero as they were deemed to be uneconomical to operate.  The Company focused solely on the development of the Nicaraguan concessions.

Going Concern

As reflected in the accompanying Consolidated Statements of Operations, the Company has had a history of losses.   In addition, the Company has a significant working capital deficit and is currently experiencing substantial liquidity issues.  As also discussed in Note 2, the Company was operating under the Fourth Forbearance Agreement with Amegy under the Revolving Credit Facility as of December 31, 2010.

In 2011, the Company entered into the Fifth Forbearance Agreement under the Revolving Credit Facility as a result of the Company’s failure to meet substantially all financial and certain other covenants during 2007, 2008, 2009 and 2010.  Under this Agreement, Amegy agreed to forebear from exercising any remedies under the Revolving Credit Facility, the revolving note and the related loan documents and to temporarily waive the covered events of default through December 31, 2011.  The Company is required to repay the borrowing base deficiency by December 31, 2011 through the sale of assets, refinancing of the loan or some other means of raising capital.  The Company and Amegy continue to operate under the Fifth Forbearance Agreement.

 
F-7

 

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2010 and 2009

The Company has classified all $10,242,956 outstanding under the Revolving Credit Facility at December 31, 2010 as current liabilities in the accompanying Consolidated Balance Sheets.

No assurance can be given that funds advanced under the Fifth Forbearance agreement will be sufficient to cover the exploration cost until a partner is found.

We conducted an environmental study and developed geological information from the reprocessing and additional evaluation of existing 2-D seismic data acquired over our Perlas and Tyra concession blocks offshore Nicaragua.  We issued letters of credit totaling $851,550 for this initial work on the leases.  We commenced significant activity under the initial work plan and are waiting for governmental approval of the environmental study.  We intend to seek joint venture or working interest partners prior to the commencement of any exploratory drilling operations on these concessions.

Due to the uncertainties related to these matters, there exists substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

Management Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates with regard to the consolidated financial statements include the estimated carrying value of unproved properties, the estimated cost and timing related to asset retirement obligations, the estimated fair value of derivative liabilities, stock based awards and overriding royalty interests, and the realization of deferred tax assets.

Oil and Gas Properties

The Company follows the full cost method of accounting for exploration and development activities. Accordingly, all costs incurred in the acquisition, exploration, and development of properties (including costs of surrendered and abandoned leaseholds, delay lease rentals, dry holes and seismic costs) and the fair value of estimated future costs of site restoration, dismantlement, and abandonment activities are capitalized. Overhead related to exploration and development activities is also capitalized.  In 2009 overhead costs of $214,000 was capitalized and $228,000 in 2010.  Costs associated with production and general corporate activities are expensed in the period incurred.

Depletion of proved oil and gas properties is computed on the units-of-production method, with oil and gas being converted to a common unit of measure based on relative energy content, whereby capitalized costs, as adjusted for estimated future development costs and estimated asset retirement costs, are amortized over the total estimated proved reserve quantities. The costs of wells in progress and unevaluated properties, including directly related seismic costs and any related capitalized interest and capitalized internal costs, are not amortized. On a quarterly basis, such costs are evaluated for inclusion in the costs to be amortized resulting from the determination of proved reserves, impairments, or reductions in value. To the extent that the evaluation indicates these properties are impaired, the amount of the impairment is added to the capitalized costs to be amortized. Abandonments of unproved properties are accounted for as an adjustment to capitalized costs related to proved oil and gas properties, with no losses recognized.

Proceeds from the sales of oil and gas properties are accounted for as adjustments to capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in income. Expenditures for maintenance and repairs are charged to oil and gas production expense in the period incurred.

 
F-8

 

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2010 and 2009

Pursuant to full cost accounting rules, the Company must perform a “ceiling test” each quarter. The ceiling test provides that capitalized costs less related accumulated depletion and deferred income taxes for each cost center may not exceed the sum of (1) the present value of future net revenue from estimated production of proved oil and gas reserves using prices based on the arithmetic mean of the previous 12 months’ first-of-month prices and current costs, including the effects of derivative instruments accounted for as cash flow hedges but excluding the future cash outflows associated with settling asset retirement obligations that have been accrued on the balance sheet, and a discount factor of 10%; plus (2) the cost of properties not being amortized, if any; plus (3) the lower of cost or estimated fair value of unproved properties included in the costs being amortized, if any; less (4) income tax effects related to differences in the book and tax basis of oil and gas properties.  If capitalized costs exceed the ceiling, the excess must be charged to expense and may not be reversed in future periods.  As of December 31, 2010 and 2009, the Company did not have any proved oil and gas properties, and all unproved property costs relate to the Company’s Nicaragua concessions.

Concentration of Credit Risk and Major Customers

Financial instruments that potentially subject the Company to concentrations of credit risk consist of the note payable to Amegy.

The Company’s only asset is the concessions in Nicaragua and the Company expects to be active in Nicaragua for the foreseeable future.  The political climate in Nicaragua could become unstable and subject to radical change over a short period of time.  In the event of a significant negative change in political and economic stability in the vicinity of the Company’s Nicaragua operations, the Company may be forced to abandon or suspend their efforts.

The Company’s only revenue in 2009 was from the Infinity-Texas operations which sold its gas production to one customer.

Derivative Instruments

The Company accounts for derivative instruments or hedging activities under the provisions of ASC 815 (formerly Statement of Financial Accounting Standards (“SFAS”) No. 133, Accounting for Derivative Instruments and Hedging Activities .)  ASC 815 requires the Company to record derivative instruments at their fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded in other comprehensive income (loss) and are recognized in the statement of operations when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow hedges, if any, are recognized in earnings. Changes in the fair value of derivatives that do not qualify for hedge treatment are recognized in earnings.

The purpose of the hedges is to provide a measure of stability to the Company’s cash flows in an environment of volatile oil and gas prices and to manage the exposure to commodity price risk.  As of December 31, 2010 and 2009, the Company had no oil and natural gas derivative arrangements outstanding.

As a result of certain terms, conditions and features included in certain common stock purchase warrants issued by the Company, those warrants are required to be accounted for as derivatives at estimated fair value.

Income Taxes

The Company uses the asset and liability method of accounting for income taxes. This method requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between financial accounting bases and tax bases of assets and liabilities. The tax benefits of tax loss carryforwards and other deferred taxes are recorded as an asset to the extent that management assesses the utilization of such assets to be more likely than not. When the future utilization of some portion of the deferred tax asset is determined not to be more likely than not, a valuation allowance is provided to reduce the recorded deferred tax asset. As of December 31, 2010 and December 31, 2009, the Company had recorded a full valuation allowance for its net deferred tax asset.

Comprehensive Income (Loss)

The Company has elected to report comprehensive income (loss) in the consolidated statements of stockholders’ equity.  Comprehensive income (loss) is composed of net income (loss) and all changes to stockholders’ equity, except those due to investments by stockholders, changes in additional paid-in-capital and distributions to stockholders. For the years ended December 31, 2010 and 2009, there were no differences between net loss and comprehensive loss.

 
F-9

 

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2010 and 2009

Cash and cash equivalents

For purposes of reporting cash flows, cash and cash equivalents consist of cash on hand and demand deposits with financial institutions. At times, the Company maintains deposits in financial institutions in excess of federally insured limits. Management monitors the soundness of the financial institutions and believes the Company’s risk is negligible. The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Restricted cash

Restricted cash at December 31, 2009 was cash held in escrow by Amegy Bank from the sale of certain Infinity-Texas assets.

Asset Retirement Obligations

The Company records estimated future asset retirement obligations pursuant to the provisions of ASC 410 (formerly SFAS No. 143, Accounting for Asset Retirement Obligations .)  ASC 410 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred with a corresponding increase in the carrying amount of the related long-lived asset. Subsequent to initial measurement, the asset retirement liability is required to be accreted each period to present value. The Company’s asset retirement obligations consist of costs related to the plugging of wells, the removal of facilities and equipment, and site restoration on oil and gas properties.  Capitalized costs are depleted as a component of the full cost pool using the units of production method.  The following table summarizes the activity for the Company’s asset retirement obligations at December 31, 2010 and 2009:

   
2010
   
2009
 
             
Asset retirement obligations at beginning of period
  $ 1,082,544     $ 994,568  
Accretion expense
    95,894       87,976  
Liabilities incurred
    -       -  
Liabilities settled
    -       -  
Liabilities settled through sale of assets
    -       -  
Revisions of estimates
    -       -  
Asset retirement obligations at end of period
    1,178,438       1,082,544  
Less: current portion of asset retirement obligations
    (432,027 )     (432,027 )
Asset retirement obligations, less current portion
  $ 746,411     $ 650,517  

Capitalized Interest and Debt Discount Amortization

The Company capitalizes interest costs and debt discount amortization to oil and gas properties on expenditures made in connection with exploration and development projects that are not subject to current depletion. Such costs are capitalized only for the period that activities are in progress to bring these projects to their intended use. Interest costs and debt discount amortization capitalized for the years ended December 31, 2010 and 2009 was $206,758 and $102,952, respectively.

Intangible Assets

The Company capitalizes amortization of loan costs to oil and gas properties on expenditures made in connection with exploration and development projects that are not subject to current depletion.  Amortization of loan costs is capitalized only for the period that activities are in progress to bring these projects to their intended use. Total loan cost capitalized for the years ended December 31, 2010 and 2009 was $0.

 
F-10

 

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2010 and 2009

Fair Value of Financial Instruments

The carrying values of the Company’s cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities represent the estimated fair value due to the short-term nature of the accounts.

The carrying value of the Company’s debt under its Revolving Credit Facility represents its estimated fair value due to its short-term nature, its adjustable rate of interest and associated fees and expenses.

The estimated fair value of the Company’s non-current derivative liabilities, all of which relate to warrants, is estimated using various models and assumptions related to the term of the instruments, estimated volatility of the price of the Company’s common stock and interest rates, among other items (ASC 820, Fair Value Measurements ("ASC 820") fair value hierarchy level 2).  As defined in ASC 820, fair value is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique.  These inputs can be readily observable, market corroborated, or generally unobservable.  The Company classifies fair value balances based upon observability of those inputs.  ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement), pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable and are valued using models or other valuation methodologies (level 2), and the lowest priority to unobservable inputs (level 3 measurement).

Items measured at fair value on a nonrecurring basis:

Subordinated Note Payable: The initial fair value of the Company’s Subordinated Note Payable was based on a discounted cash flow model utilizing the Company’s estimate of a market rate of interest to obtain similar financing.  The Company estimated the market rate of interest through a review of other companies, financial information and disclosures with similar credit risk and operations in the oil and gas industry.  As the inputs that significantly impacted this valuation were unobservable, such valuation of the initial Subordinated Note Payable and related discount is classified as a Level 3 fair value measurement.

Revenue Sharing Agreements: The Company estimated the fair value of the Revenue Sharing Arrangements issued to employees, directors, contractors and Off-Shore based on i) an evaluation of the difference between the stated interest rate of the Subordinated Note Payable and the estimated market effective rate discussed above, and ii) a historical analysis of compensation issued to employees and directors.  As the inputs that significantly impacted this valuation were unobservable, such valuation of the Revenue Sharing Agreements is classified as a Level 3 fair value measurement.

Net Income (Loss) Per Share

Pursuant to FASB ASC Topic 260, Earnings Per Share , basic net income (loss) per share is computed by dividing the net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to common shareholders by the weighted-average number of common and common equivalent shares outstanding during the period. Common share equivalents included in the diluted computation represent shares issuable upon assumed exercise of stock options and warrants using the treasury stock and “if converted” method. For periods in which net losses are incurred, weighted average shares outstanding is the same for basic and diluted loss per share calculations, as the inclusion of common share equivalents would have an anti-dilutive effect.

For the year ended December 31, 2010, 903,500 options and 880,000 warrants to purchase common stock were excluded from the calculation of diluted net loss per share because they were anti-dilutive. For the year ended December 31, 2009, 1,152,700 options and 5,829,726 warrants to purchase common stock were excluded from the calculation of diluted net loss per share because they were anti-dilutive.

 
F-11

 

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2010 and 2009

Foreign Currency

The United States dollar is the functional currency for the Company’s operations.  Although the Company’s acquisition and exploration activities have been conducted in Nicaragua, a significant portion of the payments incurred for exploration activities are denominated in United States dollars.  The Company expects that a significant portion of its required and discretionary expenditures in the foreseeable future will also be denominated in United States dollars.  Any foreign currency gains and losses are included in the consolidated results of operations in the period in which they occur.  The Company does not have any cash accounts denominated in foreign currencies.

Recent Accounting Pronouncements

In December 2009, the Company adopted revised oil and gas reserve estimation and disclosure requirements. The primary impact of the new disclosures is to conform the definition of proved reserves with the SEC Modernization of Oil and Gas Reporting rules, which were issued by the SEC at the end of 2008. The accounting standards update revised the definition of proved oil and gas reserves to require that the average, first-day-of-the-month price during the 12-month period before the end of the year rather than the year-end price, must be used when estimating whether reserve quantities are economical to produce. This same 12-month average price is also used in calculating the aggregate amount of (and changes in) future cash inflows related to the standardized measure of discounted future net cash flows. The rules also allow for the use of reliable technology to estimate proved oil and gas reserves if those technologies have been demonstrated to result in reliable conclusions about reserve volumes. The unaudited supplemental information on oil and gas exploration and production activities for 2010 and 2009 has been presented in accordance with the new reserve estimation and disclosure rules, which may not be applied retrospectively.  The adoption of the new rule did not have a significant impact on the Company as we did not have any proved reserves at December 31, 2009 and 2010.  Disclosures by geographic area include the United States and Central America, which consists of our interests in Nicaragua.

Note 2 — Debt

Debt consists of the following:
   
As of
 
    
December 31,
2010
   
December 31,
2009
 
              
Revolving Credit Facility
  $ 10,242,956     $ 10,010,494  
Subordinated Note Payable, net of discount
    918,958       613,575  
Less current portion
    (10,242,956 )     (10,010,494 )
Long-term debt
  $ 918,958     $ 613,575  
 
Revolving Credit Facility

On January 10, 2007, the Company entered into a reserve-based revolving credit facility (the “Revolving Credit Facility”) with Amegy. Under the related loan agreement (the “Loan Agreement”) between Infinity, Infinity-Texas and Infinity-Wyoming (each wholly-owned subsidiaries of the Company and together, the “Guarantors”) and Amegy, Infinity could borrow, repay and re-borrow on a revolving basis up to the aggregate sums permitted under the borrowing base, $22,000,000.  Such amount was reduced to $10,500,000 effective as of August 10, 2007, and then reduced to $3,806,000 effective as of March 26, 2008 and finally reduced to $2,900,000 on December 4, 2009. The Revolving Credit Facility had an initial term of two years. Amounts borrowed bear interest 5.5% at December 31, 2010 and 2009. Interest payments were due on a monthly basis, and principal payments may be required to meet a borrowing base deficiency or monthly borrowing commitment reductions. The borrowing base under the Revolving Credit Facility and the applicable interest rate was subject to adjustment at least once every three months. Amounts borrowed under the Revolving Credit Facility are collateralized by substantially all of the assets of Infinity and its subsidiaries and are guaranteed by Infinity’s subsidiaries. The Revolving Credit Facility contains certain standard continuing covenants and agreements and requires the Company to maintain certain financial ratios and thresholds.

 
F-12

 

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2010 and 2009

On August 31, 2007, the Company entered into a Forbearance Agreement, effective as of August 10, 2007, under the Loan Agreement among the Company, the Guarantors, and Amegy. The Forbearance Agreement related to the breach by the Company and Guarantors of: (i) the “Interest Coverage Ratio” set forth in Section 8(a) of the Loan Agreement; (ii) the “Funded Debt to EBITDA Ratio” set forth in Section 8(d) of the Loan Agreement and (iii) the requirement to deliver certain lien releases under Section 9 of the Loan Agreement.  The Company entered into the Second Forbearance Agreement, under the Revolving Credit Facility as a result of the Company’s failure to meet substantially all financial and certain other covenants during certain periods of 2007.  The Company entered into the Third Forbearance Agreement, effective October 16, 2008 under the Revolving Credit Facility as a result of the Company’s failure to meet substantially all financial and certain other covenants during certain periods of 2008.  Under this agreement, the borrowing base remained at $3,806,000, with a resulting borrowing base deficiency of $6,104,000. The borrowing base was not subject to redetermination by Amegy during the Forbearance Period.  Under this agreement, Amegy agreed to forebear from exercising any remedies under the Loan Agreement and related loan documents and to waive the Existing Defaults for the forbearance period commencing as of June 1, 2008 and continuing through May 31, 2009.  In connection with the Third Forbearance Agreement, the term of the Loan Agreement and related note was extended until May 31, 2009.

Effective as of December 4, 2009 the Company entered into a Fourth Forbearance Agreement under the Loan Agreement.  This agreement relates to the breach by the Company and Guarantors of (i) substantially all financial covenants set forth in Section 8 of the Loan Agreement and (ii) certain covenants set forth in Section 7 of the Loan Agreement (the “Existing Defaults”). Under this agreement, the borrowing base was reduced to $2,900,000 with a resulting borrowing base deficiency of $8,003,468. The borrowing base was not subject to redetermination by Amegy during the Forbearance Period (as defined below). The borrowing base deficiency must be cured by the end of the Forbearance Period through the sale of assets, refinancing of the loan, or some other means of raising capital.  Under this Agreement, Amegy agreed to forebear from exercising any remedies under the Loan Agreement and related loan documents and to waive the Existing Defaults for the forbearance period commencing as of June 1, 2008 and continuing through January 31, 2010, unless otherwise extended or earlier terminated by Amegy due to a further default under the Agreement.  In connection with the Fourth Forbearance Agreement, the term of the Loan Agreement and related note was extended until January 31, 2010.

During the Forbearance Period, the interest rate will continue at the stated rate plus the applicable margin, which is 5.5% at December 31, 2010 and 2009 as set forth under the revolving note, and certain operating and financial limitations remain in place. Certain officers of the Company were required to exercise stock options for 550,000 shares, with the $209,000 of proceeds allowed to be used by the Company for general and administrative expenses without restriction.  These options were exercised on October 21, 2008. In addition, Amegy agreed, upon the request of the Company, to issue one or more letters of credit in an amount not to exceed $850,000 as security for the Company’s obligations with respect to the Nicaragua Concessions (as defined in Note 7).

Effective as of February 16, 2011 the Company entered into a Fifth Forbearance Agreement under the Loan Agreement.  This agreement relates to the breach by the Company and Guarantors of (i) substantially all financial covenants set forth in Section 8 of the Loan Agreement and (ii) certain covenants set forth in Section 7 of the Loan Agreement (the “Existing Defaults”). Under this agreement, the borrowing base was not reduced.  The borrowing base shall not be subject to redetermination by Amegy during the Forbearance Period (as defined below). The borrowing base deficiency must be cured by the end of the Forbearance Period through the sale of assets, refinancing of the loan, or some other means of raising capital.  Under this Agreement, Amegy agrees to forebear from exercising any remedies under the Loan Agreement and related loan documents and to waive the Existing Defaults for the forbearance period commencing as of January 31, 2010 and continuing through December 31, 2011, unless otherwise extended or earlier terminated by Amegy due to a further default under the Agreement.  In connection with the Fifth Forbearance Agreement, the term of the Loan Agreement and related note was extended until December 31, 2011.

During the Forbearance Period, the interest rate will continue at the stated rate plus the applicable margin, which is 5.5% at December 31, 2010 and 2009 as set forth under the revolving note, and certain operating and financial limitations remain in place.  In addition, Amegy agrees, upon the request of the Company, to issue one or more letters of credit in an amount not to exceed $850,000 as security for the Company’s obligations with respect to the Nicaragua Concessions (as defined in Note 7).

Additional Forbearance period advances of $1,050,000 were approved with an interest rate of prime plus 2% and the personal guarantee of the Company CEO for up to $500,000 of the advances.  At December 31, 2010, $232,462 of the advances were personally guaranteed by the Company’s CEO.  No additional compensation was granted for the personal guarantee.  As of December 31, 2010 advances of $454,053 had been made with remaining advances of $595,947 available for 2011.  In 2011, Infinity granted Amegy a warrant to purchase 931,561 shares of the Company’s common stock at an exercise price of $5.01 per share during a ten-year period following the issuance of the warrant.

 
F-13

 

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2010 and 2009

The Fourth Forbearance Agreement allowed the Company to award up to an additional 4% revenue sharing agreement for services of outside consultants, officers and directors.

The Company intends to market and sell all remaining assets of Infinity-Wyoming and Infinity-Texas and to apply the net sales proceeds to payment of the revolving note.

All cash receipts of the Company are deposited in a lockbox held by Amegy as restricted cash.  All cash disbursements must be approved by Amegy.

The Company also agreed to pay Amegy a monthly forbearance/waiver fee of 1.0% of the average daily outstanding principal balance of the revolving note until January 31, 2010.  If any cash equity contributions to the Company are used to pay monthly interest due under the agreement, Amegy agrees to credit the Company 300% of the amount of the equity contributions.

Should the Company fail to comply with the terms of the Fifth Forbearance Agreement, Amegy would be entitled to impose a default interest rate (prime plus 6.5%) or to declare an event of default, at which point the entire unpaid principal balance of the loan, together with all accrued and unpaid interest and other amounts then owing to Amegy would become immediately due and payable.  Amegy or other creditors may take action to enforce their rights with respect to outstanding obligations, and Infinity may be forced to liquidate.  Because substantially all of the Company’s assets are collateral under the Revolving Credit Facility, if Amegy declares an event of default, it would be entitled to foreclose on and take possession of the Company’s assets.

Infinity has accrued interest, forbearance and additional fees due in connection with the Forbearance Agreements of $5,488,416 and $3,797,112 as of December 31, 2010 and 2009, respectively.

Subordinated Note Payable

Effective March 5, 2009, the Company entered into two contracts relating to the Company’s concessions in the Tyra and Perlas Blocks, offshore Nicaragua, (the “Concessions”) as awarded by the Republic of Nicaragua in 2003.  In addition, the Company has entered into a subordinated loan with Off-Shore Finance, LLC, a Nevada limited liability company (“Off-Shore”), in an aggregate amount of $1,275,000 which is released as the Company needs funds for the Concessions.  Amegy allowed the subordinated loans to be secured by the assets of the Company, subject to Amegy’s security interest.  The note bears interest at 6% and is due March 23, 2012.

Further, Amegy allowed the Company to grant a one percent revenue sharing interest with respect to the Concessions to Off-Shore to obtain the subordinated loan.

Debt Discount

In connection with the issuance of the Subordinated Note Payable discussed above, the Company recorded a debt discount, through a reduction to unproved properties, of $637,620 which was being amortized over the maturity of the Note utilizing the effective interest method. The Company capitalizes amortization of debt discount to oil and gas properties on expenditures made in connection with exploration and development projects that are not subject to current depletion. Amortization of debt discount was capitalized only for the period that activities are in progress to bring these projects to their intended use. Total debt discount amortized and included in interest expense during the years ended December 31, 2010 and 2009 was $36,678 (net of $146,758 capitalized to oil and gas properties) and $20,738 (net of $82,952 capitalized to oil and gas properties).

Notes Payable to Vendors

The Company has notes to certain vendors of $278,022 and has agreed to pay interest on certain payables aggregating $410,500 for both December 31, 2010 and 2009 bearing interest at 8% to 18%.  The total amount of interest accrued relating to these vendor notes for the years ending December 31, 2010 and 2009 was $89,129 and $25,292, respectively.  The notes are included in accounts payable and the interest is included in accrued interest.

 
F-14

 

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2010 and 2009

Note 3 — Stock Options

Effective January 1, 2006, the Company adopted ASC 718, Stock Compensation (formerly SFAS No. 123(R), Share-Based Payment) , which requires companies to recognize compensation expense for share-based payments based on the estimated fair value of the awards. ASC 718 also requires tax benefits relating to the deductibility of increases in the value of equity instruments issued under share-based compensation arrangements that are not included in costs applicable to sales (“excess tax benefits”) to be presented as financing cash inflows in the statement of cash flows. Compensation cost is recognized based on the grant-date fair value for all share-based payments granted or modified subsequent to December 31, 2005, estimated in accordance with the provisions of ASC 718.

Options Under Employee Option Plans

In May 2006, the Company’s stockholders approved the 2006 Equity Incentive Plan (the “2006 Plan”), under which both incentive and non-statutory stock options may be granted to employees, officers, non-employee directors and consultants. An aggregate of 470,000 shares of the Company’s common stock are reserved for issuance under the 2006 Plan. Options granted under the 2006 Plan allow for the purchase of common stock at prices not less than the fair market value of such stock at the date of grant, become exercisable immediately or as directed by the Company’s Board of Directors and generally expire ten years after the date of grant. The Company also has other equity incentive plans with terms similar to the 2006 Plan. As of December 31, 2010, 148,463 shares were available for future grants under all plans.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model, which requires the input of subjective assumptions, including the expected term of the option award, expected stock price volatility and expected dividends. These estimates involve inherent uncertainties and the application of management judgment. For purposes of estimating the expected term of options granted, the Company aggregates option recipients into groups that have similar option exercise behavioral traits. Expected volatilities used in the valuation model are based on the expected volatility that would be used by an independent market participant in the valuation of certain of the Company’s warrants. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.  The Company’s forfeiture rate assumption used in determining its stock-based compensation expense is estimated based on historical data and have varied during the years ended December, 2010 and 2009. The actual forfeiture rate could differ from these estimates. The following table summarizes the inputs used in the calculation of fair value of options granted during the year ended December, 2009 (none in 2010):

   
Years Ended
 
    
December 31,
 
    
2009
 
Expected term (in years)
  4.5 – 5.0  
Expected stock price volatility
  83.5 - 85.9%  
Expected dividends
  -  
Risk-free rate
  1.65 - 2.75%  

 
F-15

 

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2010 and 2009

The following table summarizes stock option activity as of and for the years ended December 31, 2010 and 2009:

         
Weighted Average
 
Weighted Average
 
Aggregate
 
          
Exercise
 
Remaining
 
Intrinsic
 
   
Number of Options
   
Price Per Share
 
Contractual Term
 
Value
 
Outstanding at January 1, 2009
    870,000     $ 5.29          
Granted
    622,700                  
Forfeited or expired
    (340,000 )                
Outstanding and exercisable at December 31, 2009
    1,152,700     $ 2.34  
6.9 years
  $ 576,350  
Exercised in July 2010
    (249,200 )                  
Outstanding and exercisable at December 31, 2010
    903,500     $ 2.92  
5.8 years
  $ -  

The weighted-average grant-date fair value of options granted during the year ended December 31, 2009 was $0.19. During the year ended December 31, 2009, the Company recognized compensation expense of $118,491 (none in 2010). The Company did not recognize a tax benefit related to the stock-based compensation recognized during the year ended December 31, 2009, as the Company has a fully reserved deferred tax asset. There was no unrecognized compensation cost as of December 31, 2010 or 2009 related to unvested stock and stock options.

In July 2010 $64,792 of stock options were exercised by the CEO in exchange for part of his unpaid accrued salary.

Note 4 — Derivative Instruments

Commodity Derivatives

As of December 31, 2010 and 2009, the Company had no oil and natural gas derivative arrangements outstanding.

Other Derivatives

As discussed below, during 2005 and 2006, the Company issued Notes and Warrants. Under the provisions of ASC 815 and ASC 815-40 the Company bifurcated the conversion option associated with the Notes and accounted for it and the Warrants as derivatives. During the years ended December 31, 2010 and 2009, the Company recognized other income (expense) of $1,335,065 and $(1,317,526), respectively, related to the change in the fair value of the Warrants.

The Company had a senior secured notes facility (the “Senior Secured Notes Facility”) with a group of lenders (collectively, the “Buyers”), under which the Company sold, and the Buyers purchased, on four separate occasions, an aggregate of $53 million principal amount of senior secured notes (the “Notes”) and five-year warrants to purchase an aggregate 5,829,726 shares of the Company’s common stock at an exercise price of $5.00 per share (the “Warrants”). The Notes were repaid in December 2006.  The warrants expire as follows:

January 13, 2010
    3,299,470  
September 7, 2010
    1,045,110  
December 9, 2010
    605,146  
March 17, 2011
    880,000  

All of the above warrants expired unexercised on their respective expiration dates.

Note 5 — Supplemental Oil and Gas Information

Estimated Proved Oil and Gas Reserves (Unaudited)

As of December 31, 2010, 2009, and 2008, the Company had no proved reserves.  As such, there are no estimates of proved reserves to disclose, nor standardized measure of discounted future net cash flows relating to proved reserves.

 
F-16

 

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2010 and 2009

Costs Incurred in Oil and Gas Activities

Costs incurred in connection with the Company’s oil and gas acquisition, exploration and development activities are shown below.
   
December 31,
   
December 31,
 
   
2010
   
2009
 
Property acquisition costs
           
Proved
  $
 
    $
 
 
Unproved
    510,811       680,738  
Total property acquisition costs
    510,811       680,738  
Development costs
               
Exploration costs
             -  
Total costs
  $ 510,811     $ 680,738  

Aggregate capitalized costs relating to the Company’s oil and gas producing activities, and related accumulated depreciation, depletion, amortization and ceiling write-downs are as follows:
   
December 31,
   
December 31,
 
   
2010
   
2009
 
             
Proved oil and gas properties
  $ -     $ -  
Unproved oil and gas properties
    3,112,733       2,167,653  
Total
    3,112,733       2,167,653  
Less accumulated depreciation, depletion, amortization and ceiling write-downs
    -       -  
Net capitalized costs
  $ 3,112,733     $ 2,167,653  

Costs Not Being Amortized

Oil and gas property costs not being amortized at December 31, 2010, by year that the costs were incurred are as follows:

Year Ended December 31,
     
2010
  $ 945,080  
2009
    997,546  
Prior
    1,170,107  
Total costs not being amortized
  $ 3,112,733  

The above unevaluated costs relate to the Company’s approximate 1,400,000 acre concessions offshore Nicaragua.

The Company anticipates that these unproved costs in the table above will be reclassified to proved costs within the next five years.

In January 2008, the Company completed the sale of essentially all of its producing oil and gas properties in Colorado and Wyoming, along with 80% of the working interest owned by the Company in undeveloped leaseholds in Routt County, Colorado and Sweetwater County, Wyoming to Forest.  The transaction resulted in the sale of proved reserves of 1,405,209 Mcf of natural gas (all of which was proved developed) and 569,591 barrels of crude oil of the Company’s proved reserve quantities.

For the year ended December 31, 2008, the remaining value of the Infinity-Texas and Infinity-Wyoming properties were determined to be uneconomical to operate and as such the reserves were written down to zero as the Company focused solely on the development of the Nicaraguan concessions.

 
F-17

 

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2010 and 2009

Note 6 — Income Taxes

The provision for income taxes consists of the following:
   
For the Years Ended
 
    
December 31,
 
    
2010
   
2009
 
    
(in thousands)
 
Current income tax expense
  $ -     $ -  
Deferred income tax benefit
    (1,892 )     (2,066 )
Change in valuation allowance
    1,892       2,066  
Total income tax benefit
  $ -     $ -  

The effective income tax rate varies from the statutory federal income tax rate as follows:

   
For the Years Ended
 
    
December 31,
 
    
2010
   
2009
 
Federal income tax rate
    34.0 %     34.0 %
State income tax rate
    4.1       2.4  
Other
    12.0       (6.7 )
Change in valuation allowance
    (50.1 )     (29.7 )
Effective tax rate
    - %     - %

The significant temporary differences and carry-forwards and their related deferred tax asset (liability) and deferred tax asset valuation allowance balances are as follows:
   
For the Years Ended
 
    
December 31,
 
    
2010
   
2009
 
    
(in thousands)
 
Deferred tax assets
           
Accruals and other
  $ 1,075     $ 959  
Property and equipment
    3,049       3,210  
Alternative minimum tax credit carry-forward
    405       405  
Statutory depletion carry-forward
    1,599       1,599  
Net operating loss carry-forward
    29,231       27,295  
Gross deferred tax assets
    35,359       33,468  
Less valuation allowance
    (35,359 )     (33,468 )
Deferred tax asset
  $ -     $ -  

For income tax purposes, the Company has net operating loss carry-forwards of approximately $79,000,000, which expire from 2025 through 2027. The Company has provided for a full valuation allowance due to the uncertainty of realizing the tax benefits from its net deferred tax asset.

During the years ended December 31, 2010 and 2009, the Company realized certain tax benefits related to stock option plans in the amounts of $0 and $45,000, respectively. Such benefits were recorded as a deferred tax asset as they increased the Company’s net operating losses and an increase in additional paid in capital. The recognition of the valuation allowance offset the impact of this benefit.

The Internal Revenue Code contains provisions under Section 382 which limit a company 's ability to utilize net operating loss carry-forwards in the event that it has experienced a more than 50% change in ownership over a three-year period.  Current estimates prepared by the Company indicate that no ownership changes have occurred, and are currently not subject to an annual limitation but may be further limited by additional ownership changes which may occur in the future

As discussed in Note 1, "Summary of Significant Accounting Policies," tax positions are evaluated in a two-step process. We first determine whether it is more likely than not that a tax position will be sustained upon examination. If a tax position meets the more-likely-than-not recognition threshold, it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Management has identified no tax positions taken that would meet or exceed these thresholds and therefore there are no gross interest, penalties and unrecognized tax expense/benefits that are not expected to ultimately result in payment or receipt of cash in the consolidated financial statements.

 
F-18

 

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2010 and 2009

The Company’s federal and state income tax returns are closed for examination purposes by relevant statute for 2006 and all prior tax years.  

Note 7 — Commitments and Contingencies

The Company has no insurance coverage on its U.S domestic oil and gas properties.  The Company is currently not in compliance with Federal and State laws regarding the U.S. domestic oil and gas properties.  The Company’s known compliance issues relate to the Texas Railroad Commission regarding administrative filings and renewal permits.

Nicaragua Concessions

The significant terms and work commitments associated with the Company’s Nicaraguan concessions are summarized below.  Within 15 days of entering an exploration sub-period, the Company is required to provide an irrevocable guarantee (“Irrevocable Guarantee”) in favor of the Nicaraguan Ministry of Energy, payable in Nicaragua, in an amount equal to the estimated cost of such exploration sub-period, subject to an accumulated credit carry forward for the excess of work performed in the preceding exploration sub-period, as provided in the concession agreements.

Minimum Work Program – Perlas

Block Perlas – Exploration Minimum Work Commitment and Relinquishments
 
Exploration Period
 
Duration
         
Irrevocable
 
(6 Years)
 
(Years)
 
Work Commitment
 
Relinquishment
 
Guarantee
 
Sub-Period 1
  2  
- Environmental Impact Study
 
26km 2
  $ 443,100  
       
- Acquisition & interpretation of
           
       
  333km of new 2D seismic
           
       
- Acquisition, processing & interpretation of
           
       
  667km of new 2D seismic (or equivalent in 3D)
           
Sub-Period 2
  1  
- Acquisition, processing & interpretation of
 
53km 2
  $ 1,356,227  
Optional
     
  200km 2 of 3D seismic
           
Sub-Period 3
  1  
- Drilling of one exploration well to the
 
80km 2
  $ 10,220,168  
Optional
     
  Cretaceous or 3,500m, whichever is shallower
           
Sub-Period 4
  2  
- Drilling of one exploration well to the
 
All acreage except
  $ 10,397,335  
Optional
     
  Cretaceous or 3,500m, whichever is shallower
 
areas with discoveries
       
       
- Geochemical analysis
           

Minimum Work Program - Tyra

Block Tyra – Exploration Minimum Work Commitment and Relinquishments
 
Exploration Period
 
Duration
         
Irrevocable
 
(6 Years)
 
(Years)
 
Work Commitment
 
Relinquishment
 
Guarantee
 
Sub-Period 1
  1.5  
- Environmental Impact Study
 
26km 2
  $ 408,450  
       
- Acquisition & interpretation of
           
       
  667km of existing 2D seismic
           
       
- Acquisition of 667km of new 2D seismic (or
           
       
  equivalent in 3D)
           
Sub-Period 2
  0.5  
- Processing & interpretation of the 667km 2D
 
40km 2
  $ 278,450  
Optional
     
  seismic (or equivalent in 3D) acquired in the
           
       
  previous sub-period
           
Sub-Period 3
  2  
- Acquisition, processing & interpretation of
 
160km 2
  $ 1,818,667  
Optional
     
  250km 2 of new 3D seismic
           
Sub-Period 4
  2  
- Drilling of one exploration well to the
 
All acreage except
  $ 10,418,667  
Optional
     
  Cretaceous or 3,500m, whichever is shallower
 
areas with discoveries
       
       
- Geochemical analysis
           
 
 
F-19

 

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2010 and 2009

Contractual and Fiscal Terms

Training Program
 
US $50,000 per year, per block
Area Fee
 
Yr 1-3
 
$0.05/hectare
   
Yr 4-7
 
$0.10/hectare
   
Yr 8 fwd
 
$0.15/hectare
Royalties
 
Recovery Factor
 
Percentage
   
0 – 1.5
 
5%
   
1.5 – 3.0
 
10%
   
>3.0
 
15%
Natural Gas Royalties
 
Market value at production
 
5%
Corporate Tax
 
Rate no higher than 30%
Social Contribution
 
3% of the net profit (1.5% for each autonomous region)
Investment Protection
 
ICSID arbitration
   
OPIC insurance

The minimum payments required under the Nicaraguan concessions for 2011 is budgeted at approximately $208,000 of which $176, 454 has been incurred and paid through the date of this report.

Delivery Commitments

In June 2005, the Company entered into a long-term gas gathering contract for natural gas production from the Company’s properties in Erath County, Texas, under which the Company pays a gathering fee of $0.35 per Mcf gathered. The contract contains minimum delivery volume commitments through December 31, 2011 associated with firm transportation rights. As of December 31, 2010 and 2009, the Company has accrued approximately $1,916,250 for 2010 and $929,208 for 2009 as delivery commitment shortfalls under the contract.

Infinity is not in compliance with existing federal, state and local laws, rules and regulations for its domestic properties and this could have a material or significantly adverse effect upon the liquidity, capital expenditures, earnings or competitive position of Infinity.  For the year end December 31, 2008 the remaining value of the Infinity-Texas and Infinity-Wyoming were written down to zero as the Company focused solely on the development of the Nicaraguan concessions.  Management believes the estimate of the Company’s asset retirement obligations consisting of costs related to the plugging of wells, the removal of facilities and equipment, and site restoration on oil and gas properties would be sufficient to cover any noncompliance liabilities.  The Company no longer carries insurance on the domestic properties.

Revenue Sharing Commitments

On March 23, 2009, the Company entered into a Securities Purchase Agreement dated effective as of March 23, 2009, with Off-Shore, an accredited investor, to issue a subordinated secured promissory note in the aggregate principal amount of up to $1,275,000 and a one percent (1%) revenue sharing interest in the Company’s Concessions in the Tyra and Perlas Blocks.

Under the Revenue Sharing Agreement (the “Revenue Agreement”), Infinity assigned to Off-Shore a monthly payment (the “RSP”) equal to the revenue derived from one percent (1%) of 8/8ths of Infinity’s share of the hydrocarbons produced at the wellhead from the Concessions.  The RSP shall bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including its share of production, severance and similar taxes, and certain additional costs. The RSP shall be paid to Off-Shore by the last day of each month based on the revenue received by Infinity from the purchaser of the production during the previous month from the Concessions. The Revenue Agreement does not create any obligation for Infinity to maintain or develop the Concessions, and does not create any rights in the Concessions for Off-Shore. At any time within three (3) years from the date of the Revenue Agreement, Infinity shall have the right to redeem the RSP by paying Off-Shore an amount as follows:  (i) if during the first year of the Revenue Agreement, a sum equal to three (3) times the amount of investor funding by Off-Shore Finance, LLC to Infinity as of   December 31, 2009 (the “Funding Amount”); (ii) if during the second year of the Revenue Agreement, a sum equal to five (5) times the Funding Amount; or (iii) if during the third year of the  Revenue Agreement, a sum equal to ten (10) times the Funding Amount.  Upon the redemption of the RSP by Infinity, the Revenue Agreement shall terminate.  As of December 31, 2010, the Company had not exercised its right to redeem.

 
F-20

 

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2010 and 2009

On June 6, 2009 the Company entered into a Revenue Sharing Agreement with the officers and directors for services provided.   Infinity assigned to officers and directors a monthly payment (the “RSP”) equal to the revenue derived from one percent (1%) of 8/8ths of Infinity’s share of the hydrocarbons produced at the wellhead from the Concessions.  The RSP shall bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including its share of production, severance and similar taxes, and certain additional costs. The RSP shall be paid by the last day of each month based on the revenue received by Infinity from the purchaser of the production during the previous month from the Concessions. The Revenue Agreement does not create any obligation for Infinity to maintain or develop the Concessions, and does not create any rights in the Concessions for officers and directors.

On September 8, 2009 the Company entered into a Revenue Sharing Agreement with Jeff Roberts to assist the Company with its technical studies of gas and oil holdings in Nicaragua and managing and assisting in the Farmout . Infinity assigned to Jeff Roberts a monthly payment (the “RSP”) equal to the revenue derived from one percent (1%) of 8/8ths of Infinity’s share of the hydrocarbons produced at the wellhead from the Concessions.  The RSP shall bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including its share of production, severance and similar taxes, and certain additional costs. The RSP shall be paid to Jeff Roberts by the last day of each month based on the revenue received by Infinity from the purchaser of the production during the previous month from the Concessions. The Revenue Agreement does not create any obligation for Infinity to maintain or develop the Concessions, and does not create any rights in the Concessions for Jeff Roberts.

On September 8, 2009 the Company entered into a Revenue Sharing Agreement with Thompson Knight Global Energy Services (“Thompson Knight”) to assist the Company with its technical studies of gas and oil holdings in Nicaragua and managing and assisting in the Farmout.  Infinity assigned to Thompson Knight a monthly payment (the “RSP”) equal to the revenue derived from one percent (1%) of 8/8ths of Infinity’s share of the hydrocarbons produced at the wellhead from the Concessions.  The RSP shall bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including its share of production, severance and similar taxes, and certain additional costs. The RSP shall be paid to Thompson Knight by the last day of each month based on the revenue received by Infinity from the purchaser of the production during the previous month from the Concessions. The Revenue Agreement does not create any obligation for Infinity to maintain or develop the Concessions, and does not create any rights in the Concessions for Thompson Knight.

The Revenue Sharing Agreement of 1% were each valued at $637,620 using the same method as the 1% RSP assigned to Off-Shore as debt discount.   Of the aggregate $1,912,860 initially expensed in 2009 for the three 1% RSP’s (with an offset to unproved properties), $1,243,359 was recapitalized to unproved properties as such amounts were deemed to be representative of those amounts incurred for the acquisition and exploration of the Nicaraguan concessions.

Contingent Fees

In addition to the Revenue Sharing Agreement with Thompson Knight to assist the Company with its technical studies of gas and oil holdings in Nicaragua and managing and assisting in the Farmout the Company agreed to compensate Thompson Knight a success fee of 5% of the upfront cash fee paid to Infinity by a third party earning an interest in the Nicaragua asset up to $20 million and 10% of any amount exceeding the $20 million.  A 2% success fee would be paid to Thompson Knight of the remaining cash investment in subsequent years.  At such time the Company enters into an agreement with a partner on the Nicaragua Concession and the Company receives and collects up to $20,000,000 in upfront fees then officers Mr. Ross and Mr. Hutchins shall receive a bonus of 5% of the first $20,000,000 and 10% of any amount over $20,000,000 to be divided 50% to each officer.

 
F-21

 

INFINITY ENERGY RESOURCES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
December 31, 2010 and 2009

Litigation

The Company is subject to numerous claims and legal actions in which vendors are claiming breach of contract due to the Company’s failure to pay amounts due.  The Company believes that it has made adequate provision for these claims in the accompanying balance sheets.

The Company is currently involved in the following material litigation:

(i) Exterran Energy Solutions, L.P. f/k/a Hanover Compression Limited Partnership, filed an action in the District Court of Erath County, Texas, number CV30512, on March 31, 2010 against Infinity Oil and Gas of Texas, Inc., Infinity Energy Resources, Inc., Longhorn Properties, LLC, and Forest Oil Corporation.  Exterran Energy Solutions, L.P. provided certain gas compressor and related equipment pursuant to a Gas Compressor/Production Equipment Master Rental & Servicing Agreement with Infinity dated January 3, 2005 in Erath County, Texas and is claiming breach of contract for failure to pay amounts due.

(ii) LDH Gas Development, L.P. filed an action in the District Court of Harris County, Texas, number 201030709, on May 14, 2010 against Infinity Oil and Gas of Texas, Inc.   In May 2005 LDH Gas Development, L.P. entered into a Gas Purchase Agreement with Infinity Oil and Gas of Texas, Inc. In the agreement, LDH agreed to purchase specified quantities of gas from leasehold interests held by Infinity that are located close to LDH’s Gathering System, and is claiming breach of gas purchase agreement for failure to meet minimum quantities of gas.

The above amounts are included in accounts payable and accrued interest as the Company does not dispute the amount payable.

Note 8 — Related Party Transactions

The corporate office was located in Denver, Colorado until November 2008 when the Denver office was closed.  The corporate office moved to the business office of the interim CFO of the Company.  The Company currently does not have any employees and the staff of the interim CFO provides the office services.  These services are billed at the CFO firm’s normal standard billing rate plus out-of-pocket expenses.  For the year ending 2010 the Company was billed $142,117 and for the year ended 2009 the Company was billed $175,990.  The amount due to the CFO’s firm for services provided was $323,929 for December 31, 2010 and $183,850 at December 13, 2009.

The Company has entered into a subordinated loan with Off-Shore in the aggregate amount of $1,275,000 for funds for the Concessions.  The managing partner of Off-Shore and the CFO are business partners in the firm which the Company uses for its corporate office.

The Company CEO has personally guaranteed up to $500,000 of the Forbearance advances from Amegy bank.

As of December 31, 2010 and 2009, the Company had accrued compensation to officers and directors of $508,708 and $337,500, respectively.

Note 9 — Subsequent Events

The Company entered into the Fifth Forbearance Agreement on February 16, 2011 as discussed in Note 2.  931,000 warrants at $5.01 per share were issued in connection with the agreement.

The Company has drawn an additional $478,192 since December 31, 2010 on the forbearance advance and has $117,755 available at May 10, 2011.

In February 2011, the Company issued 500,000 options to directors and management of the Company at an exercise price of $5.25 for a term of 10 years.  At the same time, the Company also issued 50,000 options to a partner of their outside law firm at the same exercise price and for the same term.

 
F-22

 

Exhibit 2.1
AGREEMENT AND PLAN OF MERGER

This AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of April 29, 2005, to be effective September 9,2005, is entered into between Infinity, Inc., a Colorado corporation (the "Company"), and Infinity Energy Resources, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company ("Infinity Delaware").

Recitals
 
 
WHEREAS, the board of directors of each of the Company and Infinity Delaware deems it advisable, upon the terms and subject to the conditions herein stated, that the Company be merged with and into Infinity Delaware, and that Infinity Delaware be the surviving corporation (the "Reincorporation Merger"); and

WHEREAS, the Company's shareholders have approved this Agreement;
NOW, THEREFORE, in consideration of the premises and of the agreements of the parties hereto contained herein, the parties hereto agree as follows:

ARTICLE I
THE REINCORPORATION MERGER; EFFECTIVE TIME

1.1 The Reincorporation Merger. Upon the terms and subject to the conditions set forth in this Agreement, at the Effective Time (as defined in Section 1.2), the Company shall be merged with and into Infinity Delaware whereupon the separate existence of the Company shall cease. Infinity Delaware shall be the surviving corporation (sometimes hereinafter referred to as the "Surviving Corporation") in the Reincorporation Merger and shall continue to be governed by the laws of the State of Delaware. The Reincorporation Merger shall have the effects specified in the Delaware General Corporation Law, as amended (the "DGCL"), and in the Colorado Business Corporation Act, as amended (the "CBCA"), and the Surviving Corporation shall succeed, without other transfer, to all of the assets and property (whether real, personal or mixed), rights, privileges, franchises, immunities and powers of the Company, and shall assume and be subject to all of the duties, liabilities, obligations and restrictions of every kind and description of the Company, including, without limitation, the obligations under the Company's 2004 Stock Option Plan, and all outstanding indebtedness of the Company.

1.2 Effective Time. Provided that the condition set forth in Section 5.1 has been fulfilled or waived in accordance with this Agreement and that this Agreement has not been terminated or abandoned pursuant to Section 6.1, on the date of the closing of the Reincorporation Merger, the Company and Infinity Delaware shall cause a Statement of Merger to be executed and filed with the Secretary of State of Colorado (the "Colorado Statement of Merger") and a Certificate of Merger to be executed and filed with the Secretary of State of Delaware (the "Delaware Certificate of Merger"). The Reincorporation Merger shall become effective upon the date and time specified in the Colorado Statement of Merger and the Delaware Certificate of Merger (the "Effective Time").

ARTICLE II
CHARTER AND BYLAWS OF THE SURVIVING CORPORATION

2.1 The Certificate of Incorporation. The certificate of incorporation of lnfinity Delaware in effect at the Effective Time shall be the certificate of incorporation of the Surviving Corporation, until amended in accordance with the provisions provided therein or applicable law.
 
 
 

 
2.2 The Bylaws. The bylaws of Infinity Delaware in effect at the Effective Time shall be the bylaws of the Surviving Corporation, until amended in accordance with the provisions provided therein or applicable law.
 
ARTICLE III
OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION
 
3.1 Officers. The officers of the Company at the Effective Time shall, from and after the Effective Time, be the officers of the Surviving Corporation, until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal.
 
3.2 Directors. The directors of the Company at the Effective Time shall, from and after the Effective Time, be the following: Elliot Kaplan, Robert Lorenz, Leroy Richie, Stanton Ross and James Tuell, each with terms expiring at the 2006 annual meeting of stockholders, to serve until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal.

ARTICLE IV
EFFECT OF MERGER ON CAPITAL STOCK
 
4.1 Effect of Merger on Capital Stock. At the Effective Time, as a result of the Reincorporation Merger and without any action on the part of the Company, Infinity Delaware or the shareholders of the Company:
 
 
(a) Each share of Infinity common stock issued and outstanding immediately prior to the Effective Time shall be converted (without the surrender of stock certificates or any other action) into one fully paid and non-assessable share of common stock, par value $0.0001, of Infinity Delaware ("Infinity Delaware Common Stock") and all shares of Infinity common stock shall be cancelled and retired and shall cease to exist.

(b) No shares of Infinity Preferred Stock were issued or outstanding immediately prior to the Effective Time. All shares of Infinity Preferred Stock shall be cancelled and retired and shall cease to exist.
 
 
(c) Each option, warrant, purchase right or other security of the Company issued and outstanding immediately prior to the Effective Time, if any, shall be converted into and shall be an identical security of Infinity Delaware. The same number of shares of Infinity Delaware Common Stock shall be reserved for purposes of the exercise of such options, warrants, purchase rights, units or other securities as is equal to the number of shares of Infinity common stock so reserved as of the Effective Time.
(d) Each share of Infinity Delaware Common Stock owned by the Company shall no longer be outstanding and shall be cancelled and retired and shall cease to exist.

4.2 Certificates. At and after the Effective Time, all of the outstanding certificates which immediately prior thereto represented shares of Infinity common stock or options, warrants, purchase rights or other securities of the Company, if any, shall be deemed for all purposes to evidence ownership of and to represent the shares of the respective Infinity Delaware Common Stock, or options, warrants, purchase rights, units or other securities of Infinity Delaware, if any, as the case may be, into which the shares of Infinity common stock, or options, warrants, purchase rights or other securities of the Company represented by such certificates have been converted as herein provided and shall be so registered on the books and records of the Surviving Corporation or its transfer agent. The registered owner of any such outstanding certificate shall, until such certificate shall have been surrendered for transfer or otherwise accounted for to the Surviving Corporation or its transfer agent, have and be entitled to exercise any voting and other rights with respect to, and to receive any dividends and other distributions upon, the shares of Infinity Delaware Common Stock, or options, warrants, purchase rights or other securities of Infinity Delaware, if any, as the case may be, evidenced by such outstanding certificate, as above provided.

 
 

 
ARTICLE V
CONDITION
 
5.1 Condition to Each Party's Obligation to Effect the Reincorporation Merger. The respective obligation of each party hereto to effect the Reincorporation Merger is subject to receipt prior to the Effective Time of the requisite approval of this Agreement and the transactions contemplated hereby by each of the holders of Infinity common stock pursuant to the CBCA and the articles of incorporation of the Company.
 
ARTICLE VI
TERMINATION
 
6.1 Termination. This Agreement may be terminated, and the Reincorporation Merger may be abandoned, at any time prior to the Effective Time, whether before or after approval of this Agreement by the shareholders of the Company, if the board of directors of the Company determines for any reason, in its sole judgment and discretion, that the consummation of the Reincorporation Merger would be inadvisable or not in the best interests of the Company and its shareholders. In the event of the termination and abandonment of this Agreement, this Agreement shall become null and void and have no effect, without any liability on the part of either the Company or Infinity Delaware, or any of their respective shareholders, directors or officers.

ARTICLE VII
MISCELLANEOUS AND GENERAL
 
7.1 Modification or Amendment. Subject to the provisions of applicable law, at any time prior to the Effective Time, the parties hereto may modify or amend this Agreement; provided, however, that an amendment made subsequent to the approval of this Agreement by the holders of Infinity common stock shall not (i) alter or change the amount or kind of shares and/or rights to be received in exchange for or on conversion of all or any of the shares or any class or series thereof of such corporation or (ii) alter or change any of the terms or conditions of this Agreement if such alteration or change would adversely affect the holders of any class or series of capital stock of any of the parties hereto.

7.2 Counterparts. This Agreement may be executed in any number of counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement.

7.3 GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF.

7.4 Entire Agreement. This Agreement constitutes the entire agreement and supercedes all other prior agreements, understandings, representations and warranties both written and oral, among the parties, with respect to the subject matter hereof.

7.5 No Third Party Beneficiaries. This Agreement is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder.
 
7.6 Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application thereof to any person or any circumstance, is determined by any court or other authority of competent jurisdiction to be invalid or unenforceable, (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.

 
 

 
7.7 Headings. The headings therein are for convenience of reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof.

[SIGNATURE PAGE FOLLOWS]
 
 
 
 

 

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of the parties hereto as of the date first written above.
 
  INFININTY, INC.
a Colorado corporation
 
       
 
By:
/s/ James A. Tuell  
    Name: James A. Tuell  
    Title:   President and Chief Executive Officer  
       

 
  INFINITY ENERGY RESOURCES, INC.
a Delaware corporation
 
       
 
By:
/s/ James A. Tuell  
    Name: James A. Tuell  
    Title: President  
       

 
 

 

Exhibit 3.1
 
CERTIFICATE OF INCORPORATION
 
OF
 
INFINITY ENERGY RESOURCES, INC.
 

 
ARTICLE 1
NAME
 
The name of the corporation is Infinity Energy Resources, Inc. (the "Company").
 
ARTICLE 2
REGISTERED AGENT
 
The address of the registered office of the Company in the State of Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle. The name of its registered agent at that address is Corporation Trust Company.
 
ARTICLE 3
PURPOSE
 
The purpose of the Company is to engage in any lawful act or activity for which a Corporation may be organized under the General Corporation Law of Delaware, as amended (the "DGCL").
 
ARTICLE 4
CAPITAL STOCK
4.1 Common Stock.
 
(a) The total number of shares of common stock, par value $.0001 per share, that the Company is authorized to issue is 75,000,000.
 
(b) Each holder of common stock shall be entitled to one vote for each share of common stock held on all matters as to which holders of common stock shall be entitled to vote. Except for and subject to those preferences, rights, and privileges expressly granted to the holders of all classes of stock at the time outstanding having prior rights, and any series of preferred stock which may from time to time come into existence, and except as may be otherwise provided by the laws of the State of Delaware, the holders of common stock shall have exclusively all other rights of stockholders of the Company, including, but not limited to, (i) the right to receive dividends when, as and if declared by the Board of Directors out of assets lawfully available therefore, and (ii) in the event of any distribution of assets upon the dissolution and liquidation of the Company, the right to receive ratably and equally all of the assets of the Company remaining after the payment to the holders of preferred stock of the specific amounts, if any, which they are entitled to receive as may be provided herein or pursuant hereto.

 
 

 
 
4.2 Preferred Stock.
 
(a) The total number of shares of preferred stock, par value $.0001 per share, that the Company is authorized to issue is 10,000,000.
 
(b) The Board of Directors is expressly authorized at any time, and from time to time, to provide for the issuance of shares of preferred stock in one or more series, with such voting powers, full or limited, or without voting powers and with such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions providing for the issue thereof adopted by the Board of Directors, subject to the limitations prescribed by law and in accordance with the provisions hereof, including but not limited to the following:
 
(1) The designation of the series and the number of shares to constitute the series.
 
(2) The dividend rate of the series, the conditions and dates upon which such dividends shall be payable, the relation which such dividends shall bear to the dividends payable on any other class or classes of stock, and whether such dividends shall be cumulative or noncumulative.
 
(3) Whether the shares of the series shall be subject to redemption by the corporation and, if made subject to such redemption, the times, prices and other terms and conditions of such redemption.
 
(4) The terms and amount of any sinking fund provided for the purchase or redemption of the shares of the series.
 
(5) Whether or not the shares of the series shall be convertible into or exchangeable for shares of any other class or classes or of any other series of any class or classes of stock of the corporation, and, if provision be made for conversion or exchange, the times, prices, rates, adjustments and other terms and conditions of such conversion or exchange.
 
(6) The extent, if any, to which the holders of the shares of the series shall be entitled to vote with respect to the election of directors or otherwise.
 
(7) The restrictions, if any, on the issue or reissue of any additional preferred stock.
 
(8) The rights of the holders of the shares of the series upon the dissolution, liquidation, or winding up of the corporation.

 
 

 
ARTICLES 5
DIRECTORS
 
5.1 Authority, Number and Election of Directors. The affairs of the Company shall be conducted by the Board of Directors. The number of directors of the Company shall be fixed from time to time in the manner provided in the bylaws of the Company and may be increased or decreased from time to time in the manner provided in the bylaws; provided, however, that, except as otherwise provided in this Article 5, the number of directors shall not be less than three or more than seven. Election of directors need not be by written ballot except and to the extent provided in the bylaws. The directors shall be divided into three classes designated as Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the number of directors constituting the entire Board of Directors. The term of office of the initial Class I directors will expire in 2006, the term of office of the initial Class II directors will expire in 2007 and the term of office of the initial Class III directors will expire in 2008. Initial class assignments shall be determined by the Board of Directors. At each annual meeting of stockholders, successors to the directors whose terms expired at that annual meeting shall be elected for a three-year term. If the number of directors changes, any increase or decrease shall be apportioned among the classes such that the number of directors in each class shall remain as nearly equal as possible, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and qualified, subject, however, to such director's prior death, resignation, retirement, disqualification or removal from office.
 
In the event that the holders of any class or series of preferred stock shall be entitled, by a separate class vote, to elect directors as may be specified pursuant to Article 4, then the provisions of such class or series of stock with respect to their rights shall apply. The number of directors that may be elected by the holders of any such class or series of preferred stock shall be in addition to the number fixed pursuant to the preceding paragraph of this Article 5.
 
5.2 Removal. Subject to any rights of the holders of any series of preferred stock, a director may be removed from office by the stockholders prior to the expiration of his or her term of office only for cause.
 
5.3 Quorum. A quorum of the Board of Directors for the transaction of business shall not consist of less than a majority of the total number of directors, except as otherwise may be provided in this Certificate of Incorporation or in the bylaws with respect to filling vacancies.
 
5.4 Newly Created Directorships and Vacancies. Except as otherwise fixed pursuant to the rights of the holders of any class or series of preferred stock to elect directors under specified circumstances, newly created directorships resulting from any increase in the number of directors and any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other cause shall be filled solely by the affirmative vote of a majority of the remaining directors then in office, or by a sole remaining director, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the new directorship which was created or in which the vacancy occurred and until such director's successor shall have been elected and qualified.

 
 

 
 
ARTICLE 6
BYLAWS
 
Except as otherwise provided in this Certificate of Incorporation, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to adopt, repeal, alter, amend and rescind any or all of the bylaws of the Company.
 
ARTICLE 7
STOCKHOLDERS
 
7.1 Meetings. Meetings of stockholders may be held within or without the State of Delaware, as determined by the Board of Directors. Each meeting of stockholders will be held on the date and at the time and place determined by the Board of Directors. Except as otherwise required by law and subject to the rights of the holders of any class or series of preferred stock, special meetings of the stockholders may be called only by the chairman of the board, the chief executive officer, the president or any officer of the Company upon the written request of a majority of the Board of Directors, or as provided in the bylaws.
 
7.2 Action by Written Consent. Action required or permitted to be taken at any annual or special meeting of stockholders may be taken without a meeting, by written consent, only if all the stockholders entitled to vote on such action consent in writing to the action.
 
ARTICLES 8
VOTING REQUIREMENT
 
Notwithstanding any other provisions of this Certificate of Incorporation or of the bylaws of the Company (and notwithstanding the fact that a lesser percentage may be otherwise specified by law, this Certificate of Incorporation or the bylaws), the affirmative vote of the holders of not less than sixty six and two-thirds percent (66-2/3%) of the outstanding shares of the capital stock of the Company entitled to vote generally in the election of directors (considered for this purpose as one class), shall be required to amend or repeal or adopt any provisions inconsistent with Articles 5,8,9 or 10 of this Certificate of Incorporation.
 
ARTICLE 9
LIABILITY OF OFFICERS AND DIRECTORS
 
9.1 General. A director of the Company shall not be liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the DGCL as currently in effect or as the same may hereafter be amended.

 
 

 

9.2 Amendment. No amendment, modification or repeal of this Article 9 shall adversely affect any right or protection of a director that exists at the time of such amendment, modification or repeal.
 
ARTICLE 10
INDEMNIFICATION
 
10.1 General. The Company shall indemnify to the fullest extent permitted by and in the manner permissible under the DGCL, as amended from time to time (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than said law permitted the Company to provide prior to such amendment), any person made, or threatened to be made, a party to any threatened, pending or completed action, suit, or proceeding, whether criminal, civil, administrative, or investigative, by reason of the fact that such person (a) is or was a director or officer of the Company or any predecessor of the Company or (b) is or was a director or officer of the Company or any predecessor of the Company and served any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner, trustee, employee or agent at the request of the Company or any predecessor of the Company; provided, however, that except as provided in Section 10.4, the Company shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors.
 
10.2 Advancement of Expenses. The right to indemnification conferred in this Article 10 shall be a contract right and shall include the right to be paid by the Company the expenses incurred in defending any such proceeding in advance of its final disposition, such advances to be paid by the Company within twenty days after the receipt by the Company of a statement or statements from the claimant requesting such advance or advances from time to time; provided, however, that if the DGCL requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Company of an undertaking by or on behalf of such director or officer to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Article 10 or otherwise.
 
10.3 Procedure for Indemnification. To obtain indemnification under this Article 10, a claimant shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to the claimant and is reasonably necessary to determine whether and to what extent the claimant is entitled to indemnification. Upon written request by a claimant for indemnification pursuant to the first sentence of this Section 10.3, a determination, if required by applicable law, with respect to the claimant's entitlement thereto shall be made as follows: (a) if requested by the claimant or if there are no Disinterested Directors (as hereinafter defined), by Independent Counsel (as hereinafter defined), or (b) by a majority vote of the Disinterested Directors, even though less than a quorum, or by a majority vote of a committee of Disinterested Directors designated by a majority vote of Disinterested Directors, even though less than a quorum. If it is so determined that the claimant is entitled to indemnification, payment to the claimant shall be made within 10 days after such determination.

 
 

 
 
10.4 Certain Remedies. If a claim under Section 10.1 is not paid in full by the Company within thirty days after a written claim pursuant to Section 10.3 has been received by the Company, the claimant may at any time thereafter bring suit against the Company to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to the Company) that the claimant has not met the standard of conduct which makes it permissible under the DGCL for the Company to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Company. Neither the failure of the Company (including its Board of Directors, Independent Counselor stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Company (including its Board of Directors, Independent Counselor stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct.
 
10.5 Binding Effect. If a determination shall have been made pursuant to Section 10.3 that the claimant is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding commenced pursuant to Section 10.4.
 
10.6 Validity of this Article. The Company shall be precluded from asserting in any judicial proceeding commenced pursuant to Section 10.4 that the procedures and presumptions of this Article 10 are not valid, binding and enforceable and shall stipulate in such proceeding that the Company is bound by all the provisions of this Article 10.
 
10.7 No exclusivity. etc. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article 10 shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, bylaws, agreement, vote of stockholders or Disinterested Directors or otherwise. No repeal or modification of this Article 10 shall in any way diminish or adversely affect the rights of any present or former director, officer, employee or agent of the Company or any predecessor thereof hereunder in respect of any occurrence or matter arising prior to any such repeal or modification.
 
10.8 Insurance. The Company may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Company or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Company would have the power to indemnify such person against such expense, liability or loss under the DGCL.

 
 

 
 
10.9 Indemnification of Other Persons. The Company may grant rights to indemnification, and rights to be paid by the Company the expenses incurred in defending any proceeding in advance of its final disposition, to any present or former employee or agent of the Company or any predecessor of the Company to the fullest extent of the provisions of this Article 10 with respect to the indemnification and advancement of expenses of directors and officers of the Company.
 
10.10 Severability. If any provision or provisions of this Article 10 shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Article 10 (including, without limitation, each portion of any paragraph of this Article 10 containing any such provision held to be invalid, illegal or unenforceable, that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and (b) to the fullest extent possible, the provisions of this Article 10 (including, without limitation, each such portion of any paragraph of this Article 10 containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.
 
10.11 Certain Definitions. For purposes of this Article 10:
 
(a) "Disinterested Director" means a director of the Company who is not and was not a party to the matter in respect of which indemnification is sought by the claimant.
 
(b) "Independent Counsel" means a law firm, a member of a law firm, or an independent practitioner that is experienced in matters of corporation law and shall include any such person who, under the applicable standards of professional conduct then prevailing, would not have a conflict of interest in representing either the Company or the claimant in an action to determine the claimant's rights under this Article 10. Independent Counsel shall be selected by the Board of Directors.
 
ARTICLE 11
INITIAL DIRECTORS
 
11.1 Incorporator. The name and mailing address of the incorporator is Katelin R. Oakley, Esq., c/o Davis Graham & Stubbs LLP, 1550 Seventeenth Street, Suite 500, Denver, Colorado 80202. Immediately upon filing of this certificate, the powers of the incorporator shall cease.
 
11.2 Initial Director. The names and mailing addresses of the initial directors are Stanton E. Ross, c/o Infinity, Inc., 1401 W. Main Street, Suite C, Chanute, Kansas 66720, James A. Tuell and James A. Dean, each c/o Infinity Oil & Gas of Wyoming, Inc., 950 Seventeenth Street, Suite 800, Denver, Colorado 80202.

 
 

 
 
IN WITNESS WHEREOF, I, the undersigned, being the incorporator hereinbefore named, do hereby further certify that the facts hereinabove stated are truly set forth and, accordingly, I have hereunto set my hand this 26th   day of April, 2005.
 
Katelin R. Oakley Incorporator

 
 

 

Exhibit 3.2
 
BYLAWS
 
OF
 
INFINITY ENERGY RESOURCES, INC.
 
Adopted April 29, 2005
 

 
ARTICLE 1
 
OFFICES
 
The registered office of Infinity Energy Resources, Inc. (the " Company ") in the State of Delaware will be as provided for in the Certificate of Incorporation of the Company (the " Certificate of Incorporation "). The Company will have offices at such other places as the Board of Directors may from time to time determine.
 
ARTICLE 2
 
STOCKHOLDERS
 
2.1 Annual Meetings. The annual meeting of stockholders for the election of directors and for the transaction of such other business as may properly come before the meeting will be held on the date and at the time fixed, from time to time, by resolution of the Board of Directors.
 
2.2 Special Meetings. Except as otherwise required by law, special meetings of stockholders may be called by those persons specified in the Certificate of Incorporation and shall be called by the Secretary of the Company upon the written request of stockholders owning of record 25% or more of the capital stock of the Company entitled to vote generally in the election of directors. Any such written request shall set forth the purpose of the proposed meeting and shall include all relevant information contemplated by Section 2.5. Business transacted at any special meeting of stockholders shall be limited to those matters properly set forth in the written request and as to which all information required pursuant to Section 2.5 has been timely provided.
 
2.3 Notice of Meeting. Written notice stating the place, date and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, will be given not less than ten nor more than sixty days before the date of the meeting, except as otherwise required by law or the Certificate of Incorporation, either personally or by mail, prepaid telegram, telex, facsimile transmission, cablegram or overnight courier, to each stockholder of record entitled to vote at such meeting. If mailed, such notice will be deemed to be given when deposited in the United States mail, postage prepaid, addressed to the stockholder at the stockholder's address as it appears on the stock records of the Company.
 
 
 

 
 
2.4 Waiver. Attendance of a stockholder of the Company, either in person or by proxy, at any meeting, whether annual or special, will constitute a waiver of notice of such meeting, except where a stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. A written waiver of notice of any such meeting signed by a stockholder or stockholders entitled to such notice, whether before, at or after the time for notice or the time of the meeting, will be equivalent to notice. Neither the business to be transacted at, nor the purposes of, any meeting need be specified in any written waiver of notice.
 
2.5 Notice of Business to be Transacted at Meetings of Stockholders. No business may be transacted at any meeting of stockholders, including the nomination or election of persons to the Board of Directors, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof) with respect to an annual meeting or a special meeting called by any of the persons specified in Section 7.1 of the Certificate of Incorporation, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the meeting by any stockholder of the Corporation (1) who is a stockholder of record on the date of the giving of the notice provided for in this Section 2.5 and on the record date for the determination of stockholders entitled to vote at such meeting and (2) who complies with the notice procedures set forth in this Section 2.5. In addition to any other applicable requirements, for business to be properly brought before a meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation.
 
(a) To be timely, a stockholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than ninety days nor more than one hundred twenty days prior to the date of the meeting; provided, however, that (1) in the event that public disclosure of the date of the meeting is first made less than one hundred days prior to the date of the meeting, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth day following the day on which such public disclosure of the date of the meeting was made and (2) the foregoing notwithstanding, with respect to a special meeting called at the written request of stockholders pursuant to Section 2.2, any notice submitted by a stockholder making the request must be provided simultaneously with such request.
 
(b) To be in proper written form, a stockholder's notice to the Secretary regarding any business other than nominations of persons for election to the Board of Directors must set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the meeting to bring such business before the meeting.
 
 
 

 
 
(c) To be in proper written form, a stockholder's notice to the Secretary regarding nominations of persons for election to the Board of Directors must set forth (a) as to each proposed nominee, (i) the name, age, business address and residence address of the nominee, (ii) the principal occupation or employment of the nominee, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the nominee and (iv) any other information relating to the nominee that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice, (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.
 
(d) No business shall be conducted at any meeting of stockholders, and no person nominated by a stockholder shall be eligible for election as a director, unless proper notice was given with respect to the proposed action in compliance with the procedures set forth in this Section 2.5. Determinations of the chairman of the meeting as to whether those procedures were complied with in a particular case shall be final and binding.
 
2.6 Quorum. Except as otherwise required by law, the Certificate of Incorporation or these bylaws, the holders of not less than a majority of the shares entitled to vote at any meeting of the stockholders, present in person or by proxy, will constitute a quorum, and the act of the majority of such quorum will be deemed the act of the stockholders, except with respect to the election of directors. If a quorum is not present at any meeting, the chairman of the meeting may adjourn the meeting from time to time, without notice if the time and place are announced at the meeting, until a quorum will be present. At such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than thirty days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting will be given to each stockholder of record entitled to vote at the meeting.
 
2.7 Procedure. The order of business and all other matters of procedure at every meeting of the stockholders may be determined by the chairman of the meeting. The chairman of any meeting of the stockholders shall be the chairman of the Board of Directors or, in his or her absence, the most senior officer of the Company present at the meeting.
 
 
 

 
 
ARTICLE 3
 
DIRECTORS
 
3.1 Number. Subject to the provisions of the Certificate of Incorporation, the number of directors will be fixed from time to time exclusively by resolutions adopted by the Board of Directors.
 
3.2 Regular Meetings. The Board of Directors shall meet immediately after, and at the same place as, the annual meeting of the stockholders, provided a quorum is present, and no notice of such meeting will be necessary in order to legally constitute the meeting. Regular meetings of the Board of Directors will be held at such times and places as the Board of Directors may from time to time determine.
 
3.3 Special Meetings. Special meetings of the Board of Directors may be called at any time, at any place and for any purpose by the chairman of the board, the chief executive officer, or by a majority of the Board of Directors.
 
3.4 Notice of Meetings. Notice of regular meetings of the Board of Directors need not be given. Notice of every special meeting of the Board of Directors will be given to each director at his usual place of business or at such other address as will have been furnished by him for such purpose. Such notice will be properly and timely given if it is (a) deposited in the United States mail not later than the third calendar day preceding the date of the meeting or (b) personally delivered, telegraphed, sent by facsimile transmission or communicated by telephone at least twenty-four hours before the time of the meeting. Such notice need not include a statement of the business to be transacted at, or the purpose of, any such meeting.
 
3.5 Waiver. Attendance of a director at a meeting of the Board of Directors will constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. A written waiver of notice signed by a director or directors entitled to such notice, whether before, at, or after the time for notice or the time of the meeting, will be equivalent to the giving of such notice.
 
3.6 Quorum. Except as may be otherwise provided by law, the Certificate of Incorporation or these bylaws, the presence of a majority of the directors then in office will be necessary and sufficient to constitute a quorum for the transaction of business at any meeting of the Board of Directors, and the act of a majority of the directors present at a meeting at which a quorum is present will be deemed the act of the Board of Directors. Less than a quorum may adjourn any meeting of the Board of Directors from time to time without notice.
 
3.7 Participation in Meetings by Telephone. Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and such participation will constitute presence in person at such meeting.
 
 
 

 
 
3.8 Action Without a Meeting. Unless otherwise restricted by the Certificate of Incorporation or these bylaws, 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 written consent thereto is signed by all members of the Board of Directors or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the board or committee. Any such consent may be in counterparts and will be effective on the date of the last signature thereon unless otherwise provided therein.
 
ARTICLE 4
 
COMMITTEES
 
4.1 Designation of Committees. The Board of Directors may establish committees for the performance of delegated or designated functions to the extent permitted by law, each committee to consist of one or more directors of the Company. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not such members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of such absent or disqualified member.
 
4.2 Committee Powers and Authority. Except to the extent otherwise required by law, the Board of Directors may provide, by resolution or by amendment to these bylaws, that a committee may exercise all the power and authority of the Board of Directors in the management of the business and affairs of the Company.
 
ARTICLES 5
 
OFFICERS
 
5.1 Number. The officers of the Company will be appointed or elected by the Board of Directors. The officers will be a chief executive officer, a president, such number, if any, of executive vice presidents as the Board of Directors may from time to time determine, such number, if any, of vice presidents as the Board of Directors may from time to time determine, a secretary, such number, if any, of assistant secretaries as the Board of Directors may from time to time determine, and a treasurer. Any person may hold two or more offices at the same time.
 
5.2 Additional Officers. The Board of Directors may appoint such other officers as it may deem appropriate.
 
5.3 Term of Office; Resignation. All officers, agents and employees of the Company will hold their respective offices or positions at the pleasure of the Board of Directors and may be removed at any time by the Board of Directors with or without cause. Any officer may resign at any time by giving written notice of his resignation to the chief executive officer, the president, or to the secretary, and acceptance of such resignation will not be necessary to make it effective unless the notice so provides. Any vacancy occurring in any office will be filled by the Board of Directors.
 
5.4 Duties. The officers of the Company will perform the duties and exercise the powers as may be assigned to them from time to time by the Board of Directors or the president and chief executive officer.
 
 
 

 
 
ARTICLE 6
 
CAPITAL STOCK
 
6.1 Certificates. The Board of Directors may authorize the issuance of stock in certificated or uncertificated form. Each stockholder of the Company, upon written request, will be entitled to a certificate or certificates signed by or in the name of the Company by (a) the chief executive officer or the president and (b) the secretary or an assistant secretary, certifying the number of shares of stock of the Company owned by such stockholder. Any or all the signatures on the certificate may be a facsimile.
 
6.2 Registered Stockholders. The Company will be entitled to treat the holder ofrecord of any share or shares of stock of the Company as the holder in fact thereof and, accordingly, will not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it has actual or other notice thereof, except as provided by law.
 
6.3 Cancellation of Certificates. All certificates surrendered to the Company will be canceled and, except in the case of lost, stolen or destroyed certificates, no new certificates will be issued until the former certificate or certificates for the same number of shares of the same class of stock have been surrendered and canceled.
 
6.4 Lost. Stolen, or Destroyed Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Company alleged to have been lost, stolen, or destroyed upon the making of an affidavit of that fact in a form acceptable to the Board of Directors by the person claiming the certificate or certificates to be lost, stolen or destroyed. In its discretion, and as a condition precedent to the issuance of any such new certificate or certificates, the Board of Directors may require that the owner of such lost, stolen or destroyed certificate or certificates, or such person's legal representative, give the Company and its transfer agent or agents, registrar or registrars a bond in such form and amount as the Board of Directors may direct as indemnity against any claim that may be made against the Company and its transfer agent or agents, registrar or registrars on account of the alleged loss, theft, or destruction of any such certificate or the issuance of such new certificate.
 
ARTICLE 7
 
FISCAL YEAR
 
7.1 Fiscal Year. The fiscal year for the Company will end on the 31st of December of each year.
 
ARTICLE 8
 
AMENDMENTS
 
8.1 Amendments. Subject to the provisions of the Certificate of Incorporation, these bylaws may be altered, amended, or repealed at any annual meeting of the stockholders or at any special meeting of the stockholders duly called for that purpose by a majority vote of the shares represented and entitled to vote at such meeting. Subject to the laws of the State of Delaware, the Certificate of lncorporation and these bylaws, the Board of Directors may amend these bylaws or enact such other bylaws as in their judgment may be advisable for the regulation of the conduct of the affairs of the Company.
 
 
 

 

EXHIBIT 10.1
 
INFINITY, INC.
2004 STOCK OPTION PLAN
410,000 SHARES
 
This Stock Option Plan was adopted this 16th day of April 2004, by Infinity, Inc., a Colorado corporation, upon the following terms and conditions:
 
1.           Definitions. Except as otherwise expressly provided in this Plan, the following capitalized terms shall have the respective meanings hereafter ascribed to them:
 
(a)           “Board” shall mean the Board of Directors of the Corporation;
 
(b)           “Code” shall mean the Internal Revenue Code of 1986, as amended;
 
(c)           “Consultant” shall mean a person who provides services to the Corporation as an independent contractor;
 
(d)           “Corporation” means Infinity, Inc. and each and all of any present and future subsidiaries;
 
(e)           “Date of Grant” shall mean, for each participant in the Plan, the date on which the Board approves the specific grant of stock options to that participant;
 
(f)           “Employee” shall be an employee of the Corporation or any subsidiary of the Corporation;
 
(g)           “Grantee” shall mean the recipient of an Incentive Stock Option or a Non-statutory Option under the Plan;
 
(h)           “Incentive Stock Option” shall refer to a stock option which qualifies under Section 422 of the Code.
 
(i)           “Non-statutory Option” shall mean an option which is not an Incentive Stock Option.
 
(j)           “Shares” shall mean the Corporation’s common stock, $.0001 par value;
 
(k)           “Shareholders” shall mean owners of record of any Shares.
 
2.           Purpose. The purpose of this Stock Option Plan (the “Plan”) is two-fold. First, the Plan will further the interests of the Corporation and its shareholders by providing incentives in the form of stock options to employees who contribute materially to the success and profitability of the Corporation. Such stock options will be granted to recognize and reward outstanding individual performances and contributions and will give selected employees an interest in the Corporation parallel to that of the shareholders, thus enhancing their proprietary interest in the Corporation’s continued success and progress. This program also will enable the Corporation to attract and retain experienced employees. Second, the Plan will provide the Corporation flexibility and the means to reward directors and consultants who render valuable contributions to the Corporation.
 
 
 

 
 
3.           Administration. This Plan will be administered by the Board. The Board has the exclusive power to select the participants in this Plan, fix the awards to each participant, and make all other determinations necessary or advisable under the Plan, to determine whether the performance of an eligible employee warrants an award under this Plan, and to determine the amount and duration of the award. The Board has full and exclusive power to construe and interpret this Plan, to prescribe, amend and rescind rules and regulations relating to this Plan, and to take all actions necessary or advisable for this plan’s administration. The Board shall have full power and authority to determine, and at the time such option is granted shall clearly set forth, whether the option shall be an Incentive Stock Option or a Non-statutory Option. Any such determination made by the Board will be final and binding on all persons. A member of the Board will not be liable for performing any act or making any determination required by or pursuant to the Plan, if such act or determination is made in good faith. The Board has the authority to set up a committee of directors to administer the Plan and to delegate whichever of the above powers it determines.
 
4.           Participants. Any employee, officer, director or consultant that the Board, in its sole discretion, designates is eligible to participate in this Plan. However, only employees of the Corporation shall be eligible to receive grants of Incentive Stock Options. The Board’s designation of a person as a participant in any year does not require the Board to designate that person to receive an award under this Plan in any other year or, if so designated, to receive the same award as any other participant in any year. The Board may consider such factors as it deems pertinent in selecting participants and in determining the amount of their respective awards, including, but without being limited to: (a) the financial condition of the Corporation; (b) expected profits for the current or future years; (c) the contributions of a prospective participant to the profitability and success of the Corporation; and (d) the adequacy of the prospective participant’s other compensation. The Board, in its discretion, may grant benefits to a participant under this Plan, even though stock, stock options, stock appreciation rights or other benefits previously were granted to him under this or another plan of the Corporation, whether or not the previously granted benefits have been exercised, but the participant may hold such options only on the terms and subject to the restrictions hereafter set forth. Subject to the foregoing limitation, a person who has participated in another benefit plan of the Corporation may also participate in this Plan.
 
5.           Kinds of Benefits. Awards under this Plan, if any, will be granted in options to acquire Shares as described below.
 
6.           Options; Expiration; Limitations. Any Incentive Stock Option granted under this Plan shall automatically expire ten years after the Date of Grant or at such earlier time as may be described in Article 9 or directed by the Board in the grant of the option. Notwithstanding the preceding sentence, no Incentive Stock Option granted to a Shareholder who owns, as of the Date of Grant, stock possessing more than ten percent of the total combined voting power of all classes of stock of the Corporation shall, in any event, be exercisable after the expiration of five years from the Date of Grant. For the purpose of determining under any provision of this Plan whether a shareholder owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Corporation, such Shareholder shall be considered as owning the stock owned, directly or indirectly, by or for his brothers and sisters (whether by the whole or half blood), spouse, ancestors and lineal descendants, and stock owned, directly or indirectly, by or for a corporation, partnership, estate or trust shall be considered as being owned proportionately by or for its shareholders, partners or beneficiaries.
 
 
 

 
 
Upon the exercise of an option, the Corporation shall deliver to the participant certificates representing authorized but unissued Shares. The cumulative total number of shares which may be subject to options issued and outstanding pursuant to this Plan is limited to 410,000 shares. This amount automatically will be adjusted in accordance with Article 21 of this Plan. If an option is terminated, in whole or in part, for any reason other than its exercise, the Board may reallocate the shares subject to that option (or to the part thereof so terminated) to one or more other options to be granted under this Plan.
 
7.           Option Exercise Price. Each option shall state the option price, which shall be not less than 100% of the fair market value of the Shares on the Date of Grant or the par value thereof whichever is greater. Notwithstanding the preceding sentence, in the case of a grant of an Incentive Stock Option to an employee who, as of the Date of Grant, owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Corporation or its Parent or Subsidiaries, the option price shall not be less than 110% of the fair market value of the Shares on the Date of Grant or the par value thereof, whichever is greater.
 
During such time as the Shares are not traded in any securities market, the fair market value per share shall be determined by a good faith effort of the Board, using its best efforts and judgment. During such time as the Shares are traded in a securities market but not listed upon an established stock exchange, the fair market value per share shall be the highest closing bid price in the securities market in which it is traded on the Date of Grant, as reported by the National Association of Securities Dealers, Inc. If the Shares are listed upon an established stock exchange or exchanges such fair market value shall be deemed to be the highest closing price on such stock exchange or exchanges on the Date of Grant, or if no sale of any Shares shall have been made on any stock exchange on that day, on the next preceding day on which there was such a sale. Subject to the foregoing, the Board shall have full authority and discretion in fixing the option price and shall be fully protected in doing so.
 
8.           Maximum Option Exercise. The aggregate fair market value (determined as of the Date of Grant) of the stock with respect to which Incentive Stock Options are exercisable for the first time by a grantee during any calendar year (under all such plans of the Corporation and its parent or subsidiary, if any) shall not exceed $100,000. For purposes of this Article 8, the value of stock acquired through the exercise of Non-statutory Options shall not be included in the computation of the aggregate fair market value.
 
 
 

 
 
9. Exercise of Options.
 
(a)           No stock option granted under this Plan may be exercised before the Grantee’s completion of such period of services as may be specified by the Board on the Date of Grant. Furthermore, the timing of the exercise of any option granted under this Plan may be subject to a vesting schedule based upon years of service or an expiration schedule as may be specified by the Board on the Date of Grant. Thereafter, or if no such period is specified subject to the provisions of subsections (c), (d), (e), (f) and (g) of this Article 9, the Grantee may exercise the option in full or in part at any time until expiration of the option.
 
A Grantee cannot exercise an Incentive Stock Option granted under this Plan unless, at the time of exercise, he has been continuously employed by the Corporation since the date the option was granted. The Board may decide in each case to what extent bona fide leaves of absence for illness, temporary disability, government or military service, or other reasons will not be deemed to interrupt continuous employment.
 
(b)           Unless an Option specifically provides to the contrary, all options granted under this Plan shall immediately become exercisable in full in the event of the consummation of any of the following transactions:
 
(i)           A merger or acquisition in which the Corporation is not the surviving entity;
 
(ii)         The sale, transfer or other disposition of all or substantially all of the assets of the Corporation; or
 
(iii)         Any merger in which the Corporation is the surviving entity but in which fifty percent (50%) or more of the Corporation’s outstanding voting stock is issued to holders different from those who held the stock immediately prior to such merger.
 
(c)           Except as provided in subsections (d), (e) and (f) of this Article 9, a Grantee cannot exercise an Incentive Stock Option after he ceases to be an employee of the Corporation, unless the Board, in its sole discretion, grants the recipient an extension of time to exercise the Incentive Stock Option after cessation of employment. The extension of time of exercise that may be granted by the Board under this subsection (c) shall not exceed three months after the date on which the Grantee ceases to be an employee and in no case shall extend beyond the stated expiration date of the option.
 
(d)           If the employment of a Grantee is terminated by the Corporation for a cause as defined in subsection (i) of this Article 9, all rights to any stock option granted under this Plan shall terminate, including but not limited to the ability to exercise such stock options.
 
(e)           If a Grantee ceases to be an employee as a result of retirement, he may exercise the Incentive Stock Option within three months after the date on which he ceases to be an employee (but no later than the stated expiration date of the option) to the extent that the Incentive Stock Option was exercisable when he ceased to be an employee. An employee shall be regarded as retired if he terminates employment after his sixty-fifth birthday.
 
 
 

 
 
(f)           If a Grantee ceases to be an employee because of disability (within the meaning of Section 105(d) (4) of the Code), or if a Grantee dies, and if at the time of the Grantee’s disability or death he was entitled to exercise an Incentive Stock Option granted under this Plan, the Incentive Stock Option can be exercised within 12 months after his death or termination of employment on account of disability (but no later than the stated expiration date of the option), by the Grantee in the case of disability or, in case of death, by his personal representative, estate or the person who acquired by gift, bequest or inheritance his right to exercise the Incentive Stock Option. Such options can be exercised only as to the number of shares for which they could have been exercised at the time the Grantee died or became disabled.
 
(g)           With respect to Non-statutory Options granted to Board members, the Board may provide on the Date of the Grant that such options will expire a specified number of days after such Board member ceases to be a member of the Board. In the absence of any such provision, the option will expire on the stated expiration date of the option.
 
(h)           Any stock option granted under the Plan will terminate, as a whole or in part, to the extent that, in accordance with this Article 9, it no longer can be exercised.
 
(i)           For purposes of this Article 9, “cause” shall mean the following:
 
 
(1)
Fraud or criminal misconduct;
 
 
(2)
Gross negligence;
 
 
(3)
Willful or continuing disregard for the safety or soundness of the Corporation;
 
 
(4)
Willful or continuing violation of the published rules of the Corporation.
 
10.         Exercise of Options.
 
10.1           Notice. Options may be exercised only by delivery to the Corporation of a written stock option exercise agreement (the “Exercise Agreement”) in a form approved by the Board (which need not be the same for each Grantee), stating the number of shares being purchased, the restrictions imposed on the shares, if any, and such representations and agreements regarding Grantee’s investment intent and access to information, if any, as may be required by the Corporation to comply with applicable securities laws, together with payment in full of the exercise price for the number of Shares being purchased.
 
10.2           Payment. Payment for the shares may be made in cash (by check) or, where approved by the Board in its sole discretion and where permitted by law: (a) by cancellation of indebtedness of the Corporation to the Grantee; (b) by surrender of shares of common stock of the Corporation having a Fair Market Value equal to the applicable exercise price of the Option that have been owned by Grantee for more than six months (and which have been paid for within the meaning of the Securities and Exchange Commission (“SEC”) Rule 144 and, if such shares were purchased from the Corporation by use of a promissory note, such note has been fully paid with respect to such shares), or were obtained by Grantee in the open public market; (c) by waiver of compensation due or accrued to Grantee for services rendered; (d) provided that a public market for the Corporation’s stock exists, through a “same day sale” commitment from Grantee and a broker-dealer that is a member of the National Association of Securities Dealers (an “NASD Dealer”) whereby Grantee irrevocably elects to exercise the Option and to sell a portion of the shares so purchased to pay for the exercise price and whereby the NASD Dealer irrevocably commits upon receipt of such shares to forward the exercise price directly to the Corporation; (e) provided that a public market for the Corporation’s stock exists, through a “margin” commitment from Grantee and an NASD Dealer whereby Grantee irrevocably elects to exercise the Option and to pledge the shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the exercise price, and whereby the NASD Dealer irrevocably commits upon receipt of such shares to forward the exercise price directly to the Corporation; or (f) by any combination of the foregoing.
 
 
 

 
 
11.         Taxes; Compliance with Law; Approval of Regulatory Bodies. The Corporation, if necessary or desirable, may payor withhold the amount of any tax attributable to any amount payable or shares deliverable under this Plan and the Corporation may defer making payment on delivery until it is indemnified to its satisfaction for that tax. Stock options are exercisable, and shares can be delivered under this Plan, only in compliance with all applicable federal and sate laws and regulations, including, without limitation, state and federal securities laws, and the rules of all stock exchanges on which the Corporation’s shares are listed at any time. Any certificate issued pursuant to options granted under this Plan shall bear such legends and statements as the Board deems advisable to assure compliance with federal and state laws and regulations. No option may be exercised, and shares may not be issued under this Plan, until the Corporation has obtained the consent or approval of every regulatory body, federal or state, having jurisdiction over such matters as the Board deems advisable.
 
Specifically, in the event that the Corporation deems it necessary or desirable to file a registration statement with the Securities and Exchange Commission or any State Securities Commission, no option granted under the Plan may be exercised, and shares may not be issued, until the Corporation has obtained the consent or approval of such Commission.
 
In the case of the exercise of an option by a person or estate acquiring by bequest or inheritance the right to exercise such option, the Board may require reasonable evidence as to the ownership of the option and may require such consents and releases of taxing authorities as the Board deems advisable.
 
12.         Assignability. Each option granted under this Plan is not transferable other than by will or the laws of descent and distribution. Each option is exercisable during the life of the Grantee only by him.
 
13.         Tenure. A participant’s right, if any, to continue to serve the Corporation as an officer, employee or otherwise, will not be enlarged or otherwise affected by his designation as a participant under this Plan, and such designation will not in any way restrict the right of the Corporation to terminate at any time the employment or affiliation of any participant for cause or otherwise.
 
 
 

 
 
14.         Amendment and Termination of Plan. The Board may alter, amend or terminate this Plan from time to time without approval of the shareholders. However, without the approval of the shareholders, no amendment will be effective that:
 
(a)           materially increases the benefits accruing to participants under the Plan;
 
(b)           increases the cumulative number of shares that may be delivered upon the exercise of options granted under the Plan or the aggregate fair market value of options which a participant may exercise in any calendar year;
 
(c)           materially modifies the eligibility requirements for participation in the Plan; or
 
(d)           amends the requirements of paragraphs (a)-(c) of this Article
 
Any amendment, whether with or without the approval of shareholders, that alters the terms or provisions of an option granted before the amendment will be effective only with the consent of the participant to whom the option was granted or the holder currently entitled to exercise it, except for adjustments expressly authorized by this Plan.
 
15.         Expenses of Plan. The expenses of the Plan will be borne by the Corporation.
 
16.         Duration of Plan. Options may only be granted under this Plan during the ten years immediately following the earlier of the adoption of the Plan or its approval by the Shareholders. Options granted during that ten year period will remain valid thereafter in accordance with their terms and the provisions of this Plan.
 
17.         Other Provisions. The option agreements authorized under the Plan shall contain such other provisions including, without limitation, restrictions upon the exercise of the option, as the Board shall deem advisable. Any such option agreements, which are intended to be “Incentive Stock Options” shall contain such limitations and restrictions upon the exercise of the option as shall be necessary in order that such option will be an “Incentive Stock Option” as defined in Section 422 of the Code.
 
18.         Indemnification of the Board. In addition to such other rights of indemnification as they may have as directors, the members of the Board shall be indemnified by the Corporation against the reasonable expenses, including attorneys’ fees actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any option granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Corporation) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such director is liable for negligence or misconduct in the performance of his duties.
 
19.         Application of Funds. The proceeds received by the Corporation from the sale of stock pursuant to options granted under this Plan will be used for general corporate purposes.
 
 
 

 
 
20.         No Obligation to Exercise Option. The granting of an option shall impose no obligation upon the Grantee to exercise such option.
 
21.         Adjustment Upon Change of Shares. If a reorganization, merger, consolidation, reclassification, recapitalization, combination or exchange of shares, stock split, stock dividend, rights offering, or other event affecting shares of the Corporation occurs, then the number and class of shares to which options are authorized to be granted under this Plan, the number and class of shares then subject to options previously granted under this Plan, and the price per share payable upon exercise of each option outstanding under this Plan shall be equitably adjusted by the Board to reflect such changes.
 
22.         Number and Gender. Unless otherwise clearly indicated in this Plan, words in the singular or plural shall include the plural and singular, respectively, where they would so apply, and words in the masculine or neuter gender shall include the feminine, masculine or neuter gender where applicable.
 
23.         Applicable Law. The validity, interpretation and enforcement of this Plan are governed in all respects by the laws of Colorado.
 
24.         Effective Date of Plan. This Plan shall not take effect until adopted by the Board. This Plan shall terminate if it is not approved by the shareholders of the capital stock of the Corporation, which approval must occur within the period beginning twelve months before and ending twelve months after the Plan is adopted by the Board.
 
 
 

 

Exhibit 10.2
 
INFINITY, INC.
2005 EQUITY INCENTIVE PLAN
475,000 SHARES
 
This Equity Incentive Plan was adopted this 17th day of April 2005, by Infinity, Inc., a Colorado corporation, upon the following terms and conditions:
 
1.            Definitions .  Except as otherwise expressly provided in this Plan, the following capitalized terms shall have the respective meanings hereafter ascribed to them:
 
(a)           “ Board ” shall mean the Board of Directors of the Company;
 
(b)           “ Code ” shall mean the Internal Revenue Code of 1986, as amended;
 
(c)           “ Consultant ” shall mean a person who provides services to the Company as an independent contractor;
 
(d)           “ Company ” means Infinity, Inc. and each and all of any present and future subsidiaries;
 
(e)           “ Date of Grant ” shall mean, for each participant in the Plan, the date on which the Board approves the specific grant to that participant under the plan;
 
(f)           “ Employee ” shall be an employee of the Company or any subsidiary of the Company;
 
(g)           “ Grantee ” shall mean the recipient of an Incentive Stock Option, a Non-statutory Option or a Restricted Share Award under the Plan;
 
(h)           “ Incentive Stock Option ” shall refer to a stock option which qualifies under Section 422 of the Code;
 
(i)           “ Non-statutory Option ” shall mean an option which is not an Incentive Stock Option;
 
(j)           “ Restricted Share Award ” shall mean a right any right to acquire restricted shares under the Plan;
 
(k)           “ Shares ” shall mean the Company’s common stock, $.0001 par value;
 
(l)           “ Shareholders ” shall mean owners of record of any Shares.

 
 

 

2.            Purpose .  The purpose of this Equity Incentive Plan (the “Plan”) is two-fold.  First, the Plan will further the interests of the Company and its shareholders by providing incentives in the form of stock options or restricted shares (each a “Share Award”) to employees who contribute materially to the success and profitability of the Company.  Share Awards will be granted to recognize and reward outstanding individual performances and contributions and will give selected employees an interest in the Company parallel to that of the shareholders, thus enhancing their proprietary interest in the Company’s continued success and progress.  This program also will enable the Company to attract and retain experienced employees.  Second, the Plan will provide the Company flexibility and the means to reward directors and consultants who render valuable contributions to the Company.
 
3.            Administration .  This Plan will be administered by the Board.  The Board has the exclusive power to select the participants in this Plan, fix the awards to each participant, and make all other determinations necessary or advisable under the Plan, to determine whether the performance of an eligible employee warrants an award under this Plan, and to determine the amount and duration of the award.  The Board has full and exclusive power to construe and interpret this Plan, to prescribe, amend and rescind rules and regulations relating to this Plan, and to take all actions necessary or advisable for this Plan’s administration.  The Board shall have full power and authority to determine, and at the time such option is granted shall clearly set forth, whether the option shall be an Incentive Stock Option or a Non-statutory Option.  Any such determination made by the Board will be final and binding on all persons.  A member of the Board will not be liable for performing any act or making any determination required by or pursuant to the Plan, if such act or determination is made in good faith.  The Board has the authority to set up a committee of directors to administer the Plan and to delegate whichever of the above powers it determines.
 
4.            Participants .  Any employee, officer, director or consultant that the Board, in its sole discretion, designates is eligible to participate in this Plan.  However, only employees of the Company shall be eligible to receive grants of Incentive Stock Options.  The Board’s designation of a person as a participant in any year does not require the Board to designate that person to receive an award under this Plan in any other year or, if so designated, to receive the same award as any other participant in any year.  The Board may consider such factors as it deems pertinent in selecting participants and in determining the amount of their respective awards, including, but without being limited to: (a) the financial condition of the Company; expected profits for the current or future years; (c) the contributions of a prospective participant to the profitability and success of the Company; and (d) the adequacy of the prospective participant’s other compensation.  The Board, in its discretion, may grant benefits to a participant under this Plan, even though stock, stock options, stock appreciation rights or other benefits previously were granted to him under this or another plan of the Company, whether or not the previously granted benefits have been exercised, but the participant may hold such options only on the terms and subject to the restrictions hereafter set forth.  Subject to the foregoing limitation, a person who has participated in another benefit plan of the Company may also participate in this Plan.
 
5.            Option Awards .  Awards of options to acquire Shares under this Plan, if any, will be granted described below.
 
(a)            Limitations.   Upon the exercise of an option, the Company shall deliver to the participant certificates representing authorized but unissued Shares.  The cumulative total number of shares which may be subject to options issued and outstanding pursuant to this Plan is limited to 475,000 shares.  This amount will be automatically adjusted in accordance with Section 17 of this Plan.  If an option is terminated, in whole or in part, for any reason other than its exercise, the Board may reallocate the shares subject to that option (or to the part thereof so terminated) to one or more other options to be granted under this Plan.

 
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(b)            Expiration.   Any Incentive Stock Option granted under this Plan shall automatically expire ten years after the Date of Grant or at such earlier time as may be described in Section 6 or directed by the Board in the grant of the option.  Notwithstanding the preceding sentence, no Incentive Stock Option granted to a Shareholder who owns, as of the Date of Grant, stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company shall, in any event, be exercisable after the expiration office years from the Date of Grant.  For the purpose of determining under any provision of this Plan whether a shareholder owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company, such shareholder shall be considered as owning the stock owned, directly or indirectly, by or for his brothers and sisters (whether by the whole or half blood), spouse, ancestors and lineal descendants, and stock owned, directly or indirectly, by or for a corporation, partnership, estate or trust shall be considered as being owned proportionately by or for its shareholders, partners or beneficiaries.
 
(c)            Option Exercise Price.   Each option shall state the option price, which shall be not less than 100% of the fair market value of the Shares on the Date of Grant or the par value thereof whichever is greater.  Notwithstanding the preceding sentence, in the case of a grant of an Incentive Stock Option to an employee who, as of the Date of Grant, owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or its Parent or Subsidiaries, the option price shall not be less than 110% of the fair market value of the Shares on the Date of Grant or the par value thereof, whichever is greater.  During such time as the Shares are not traded in any securities market, the fair market value per share shall be determined by a good faith effort of the Board, using its best efforts and judgment.  During such time as the Shares are traded in a securities market but not listed upon an established stock exchange, the fair market value per share shall be the highest closing bid price in the securities market in which it is traded on the Date of Grant, as reported by the National Association of Securities Dealers, Inc.  If the Shares are listed upon an established stock exchange or exchanges such fair market value shall be deemed to be the highest closing price on such stock exchange or exchanges on the Date of Grant, or if no sale of any Shares shall have been made on any stock exchange on that day, on the next preceding day on which there was such a sale.  Subject to the foregoing, the Board shall have full authority and discretion in fixing the option price and shall be fully protected in doing so.
 
(d)            Maximum Option Exercise.   The aggregate fair market value (determined as of the Date of Grant) of the stock with respect to which Incentive Stock Options are exercisable for the first time by a grantee during any calendar year (under all such plans of the Company and its parent or subsidiary, if any) shall not exceed $100,000.  For purposes of this Section 5, the value of stock acquired through the exercise of Non-statutory Options shall not be included in the computation of the aggregate fair market value.

 
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6.            Exercise of Options .
 
(a)           No stock option granted under this Plan may be exercised before the Grantee’s completion of such period of services as may be specified by the Board on the Date of Grant.  Furthermore, the timing of the exercise of any option granted under this Plan may be subject to a vesting schedule based upon years of service or an expiration schedule as may be specified by the Board on the Date of Grant.  Thereafter, or if no such period is specified subject to the provisions of subsections (c), (d), (e), (t) and (g) of this Section 6, the Grantee may exercise the option in full or in part at any time until expiration of the option.
 
A Grantee cannot exercise an Incentive Stock Option granted under this Plan unless, at the time of exercise, he has been continuously employed by the Company since the date the option was granted.  The Board may decide in each case to what extent bona fide leaves of absence for illness, temporary disability, government or military service, or other reasons will not be deemed to interrupt continuous employment.
 
(b)           Unless an Option specifically provides to the contrary, all options granted under this Plan shall immediately become exercisable in full in the event of the consummation of any of the following transactions:
 
 (i)           A merger or acquisition in which the Company is not the surviving entity;
 
 (ii)          The sale, transfer or other disposition of all or substantially all of the assets of the Company; or
 
 (iii)         Any merger in which the Company is the surviving entity but in which fifty percent (50%) or more of the Company’s outstanding voting stock is issued to holders different from those who held the stock immediately prior to such merger.
 
(c)           Except as provided in subsections (d), (e) and (t) of this Section 6, a Grantee cannot exercise an Incentive Stock Option after he ceases to be an employee of the Company, unless the Board, in its sole discretion, grants the recipient an extension of time to exercise the Incentive Stock Option after cessation of employment.  The extension of time of exercise that may be granted by the Board under this subsection (c) shall not exceed three months after the date on which the Grantee ceases to be an employee and in no case shall extend beyond the stated expiration date of the option.
 
(d)           If the employment of a Grantee is terminated by the Company for a cause as defined in subsection (i) of this Section 6, all rights to any stock option granted under this Plan shall terminate, including but not limited to the ability to exercise such stock options.
 
(e)           If a Grantee ceases to be an employee as a result of retirement, he may exercise the Incentive Stock Option within three months after the date on which he ceases to be an employee (but no later than the stated expiration date of the option) to the extent that the Incentive Stock Option was exercisable when he ceased to be an employee.  An employee shall be regarded as retired if he terminates employment after his sixty-fifth birthday.

 
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(f)           If a Grantee ceases to be an employee because of disability (within the meaning of Section l05(d)(4) of the Code), or if a Grantee dies, and if at the time of the Grantee’s disability or death he was entitled to exercise an Incentive Stock Option granted under this Plan, the Incentive Stock Option can be exercised within 12 months after his death or termination of employment on account of disability (but no later than the stated expiration date of the option), by the Grantee in the case of disability or, in case of death, by his personal representative, estate or the person who acquired by gift, bequest or inheritance his right to exercise the Incentive Stock Option.  Such options can be exercised only as to the number of shares for which they could have been exercised at the time the Grantee died or became disabled.
 
(g)           With respect to Non-statutory Options granted to Board members, the Board may provide on the Date of the Grant that such options will expire a specified number of days after such Board member ceases to be a member of the Board.  In the absence of any such provision, the option will expire on the stated expiration date of the option.
 
(h)           Any stock option granted under the Plan will terminate, as a whole or in part, to the extent that, in accordance with this Section 6, it no longer can be exercised.
 
(i)           For purposes of this Section 6, “cause” shall mean the following:
 
 (i)           Fraud or criminal misconduct;
 
 (ii)          Gross negligence;
 
 (iii)         Willful or continuing disregard for the safety or soundness of the Company;
 
 (iv)         Willful or continuing violation of the published rules of the Company.
 
(j)            Notice.   Options may be exercised only by delivery to the Company of a written stock option exercise agreement (the “Exercise Agreement”) in a form approved by the Board (which need not be the same for each Grantee), stating the number of shares being purchased, the restrictions imposed on the shares, if any, and such representations and agreements regarding Grantee’s investment intent and access to information, if any, as may be required by the Company to comply with applicable securities laws, together with payment in full of the exercise price for the number of Shares being purchased.

 
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(k)            Payment.   Payment for the shares may be made in cash (by check) or, where approved by the Board in its sole discretion and where permitted by law: (a) by cancellation of indebtedness of the Company to the Grantee; (b) by surrender of shares of common stock of the Company having a Fair Market Value equal to the applicable exercise price of the Option that have been owned by Grantee for more than six months (and which have been paid for within the meaning of the Securities and Exchange Commission (“SEC”) Rule 144 and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares), or were obtained by Grantee in the open public market; (c) by waiver of compensation due or accrued to Grantee for services rendered; provided that a public market for the Company’s stock exists, through a “same day sale” commitment from Grantee and a broker-dealer that is a member of the National Association of Securities Dealers (an “NASD Dealer”) whereby Grantee irrevocably elects to exercise the Option and to sell a portion of the shares so purchased to pay for the exercise price and whereby the NASD Dealer irrevocably commits upon receipt of such shares to forward the exercise price directly to the Company; (e) provided that a public market for the Company’s stock exists, through a “margin” commitment from Grantee and an NASD Dealer whereby Grantee irrevocably elects to exercise the Option and to pledge the shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the exercise price, and whereby the NASD Dealer irrevocably commits upon receipt of such shares to forward the exercise price directly to the Company; or (f) by any combination of the foregoing.
 
(l)            Taxes; Compliance with Law; Approval o/Regulatory Bodies.   The Company, if necessary or desirable, may pay or withhold the amount of any tax attributable to any amount payable or shares deliverable under this Plan and the Company may defer making payment on delivery until it is indemnified to its satisfaction for that tax.  Stock options are exercisable, and shares can be delivered under this Plan, only in compliance with all applicable federal and sate laws and regulations, including, without limitation, state and federal securities laws, and the rules of all stock exchanges on which the Company’s shares are listed at any time.  Any certificate issued pursuant to options granted under this Plan shall bear such legends and statements as the Board deems advisable to assure compliance with federal and state laws and regulations.  No option may be exercised, and shares may not be issued under this Plan, until the Company has obtained the consent or approval of every regulatory body, federal or state, having jurisdiction over such matters as the Board deems advisable.
 
Specifically, in the event that the Company deems it necessary or desirable to file a registration statement with the
 
Securities and Exchange Commission or any State Securities Commission, no option granted under the Plan may be exercised, and shares may not be issued, until the Company has obtained the consent or approval of such Commission.
 
In the case of the exercise of an option by a person or estate acquiring by bequest or inheritance the right to exercise such option, the Board may require reasonable evidence as to the ownership of the option and may require such consents and releases of taxing authorities as the Board deems advisable.
 
7.            Restricted Share Awards .  Each restricted share award agreement shall be in such form and shall contain such restrictions, terms and conditions, if any, as the Board shall deem appropriate and shall be subject to the terms and conditions of this Plan.  The terms and conditions of restricted share award agreements may change from time to time, and the terms and conditions of separate restricted share award agreements need not be identical, but each restricted share award agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:
 
(a)            Consideration.   A restricted share award may be awarded in consideration for past services actually rendered, or for future services to be rendered, to the Company or an affiliate of the Company for its benefit.

 
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(b)            Vesting.   Common Stock awarded under the restricted share award agreement may (A) be subject to a vesting schedule to be determined by the Board, or (B) be fully vested at the time of grant.
 
(c)            Termination of Grantee’s Service.   Unless otherwise provided in the restricted share award agreement, in the event a Grantee’s service terminates prior to a vesting date set forth in the restricted share award agreement, any unvested restricted share award shall be forfeited and automatically transferred to and reacquired by the Company at no cost to the Company, and neither the Grantee nor his or her heirs, executors, administrators or successors shall have any right or interest in the restricted share award.  Notwithstanding the foregoing, unless otherwise provided in the restricted share award agreement, in the event a Grantee’s service terminates as a result of (A) being terminated by the Company for reasons other than for cause, (B) death, (C) Disability, (D) Retirement, or (E) a Change of Control (subject to the provisions of Section 11(c) hereof), then any unvested restricted share award shall vest immediately upon such date.
 
(d)            Transferability.   Rights to acquire Common Stock under the restricted share award agreement shall be transferable by the Grantee only upon such terms and conditions as are set forth in the restricted share award agreement, as the Board shall determine in its discretion, so long as Ordinary Shares awarded under the restricted share award agreement remain subject to the terms of the restricted share award agreement.
 
8.            Assignability .  No Share Award granted under this Plan is transferable other than by will or the laws of descent and distribution.  Each Share Award is exercisable during the life of the Grantee only by him.
 
9.            Tenure .  A participant’s right, if any, to continue to serve the Company as an officer, employee or otherwise, will not be enlarged or otherwise affected by his designation as a participant under this Plan, and such designation will not in any way restrict the right of the Company to terminate at any time the employment or affiliation of any participant for cause or otherwise.
 
10.          Amendment and Termination of Plan .  The Board may alter, amend or terminate this Plan from time to time without approval of the shareholders.  However, without the approval of the shareholders, no amendment will be effective that:
 
(a)           materially increases the benefits accruing to participants under the Plan;
 
(b)           increases the cumulative number of shares that may be delivered upon the exercise of options granted under the Plan or the aggregate fair market value of options which a participant may exercise in any calendar year;
 
(c)           materially modifies the eligibility requirements for participation in the Plan; or
 
(d)           amends the requirements of paragraphs (a)-(c) of this Section 10.

 
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Any amendment, whether with or without the approval of shareholders, that alters the terms or provisions of an option granted before the amendment will be effective only with the consent of the participant to whom the option was granted or the holder currently entitled to exercise it, except for adjustments expressly authorized by this Plan.
 
11.            Expenses of Plan .  The expenses of the Plan will be borne by the Company.
 
12.            Duration of Plan .  Share Awards may only be granted under this Plan during the ten years immediately following the earlier of the adoption of the Plan or its approval by the Shareholders.  Share Awards granted during that ten year period will remain valid thereafter in accordance with their terms and the provisions of this Plan.
 
13.            Other Provisions .  The award agreements authorized under the Plan shall contain such other provisions including, without limitation, restrictions upon the exercise of the option, as the Board shall deem advisable.  Any such option agreements, which are intended to be “Incentive Stock Options” shall contain such limitations and restrictions upon the exercise of the option as shall be necessary in order that such option will be an “Incentive Stock Option” as defined in Section 422 of the Code.
 
14.            Indemnification of the Board .  In addition to such other rights of indemnification as they may have as directors, the members of the Board shall be indemnified by the Company against the reasonable expenses, including attorneys’ fees actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any option granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such director is liable for negligence or misconduct in the performance of his duties.
 
15.            Application of Funds .  The proceeds received by the Company from the sale of stock pursuant to options granted under this Plan will be used for general corporate purposes.
 
16.            No Obligation to Exercise Option .  The granting of an option shall impose no obligation upon the Grantee to exercise such option.
 
17.            Adjustment Upon Change of Shares .  If a reorganization, merger, consolidation, reclassification, recapitalization, combination or exchange of shares, stock split, stock dividend, rights offering, or other event affecting shares of the Company occurs, then the number and class of shares to which options are authorized to be granted under this Plan, the number and class of shares then subject to options previously granted under this Plan, and the price per share payable upon exercise of each option outstanding under this Plan shall be equitably adjusted by the Board to reflect such changes.

 
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18.            Number and Gender .  Unless otherwise clearly indicated in this Plan, words in the singular or plural shall include the plural and singular, respectively, where they would so apply, and words in the masculine or neuter gender shall include the feminine, masculine or neuter gender where applicable.
 
19.            Applicable Law .  The validity, interpretation and enforcement of this Plan are governed in all respects by the laws of Colorado.
 
20.            Effective Date of Plan .  This Plan shall not take effect until adopted by the Board.  This Plan shall terminate if it is not approved by the shareholders of the capital stock of the Company, which approval must occur within the period beginning twelve months before and ending twelve months after the Plan is adopted by the Board.

 
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Exhibit 10.3
 
INFINITY ENERGY RESOURCES, INC.
2006 EQUITY INCENTIVE PLAN
470,000 SHARES
 
This Equity Incentive Plan was adopted this 1st day of March 2006, by Infinity Energy Resources, Inc., a Colorado corporation, upon the following terms and conditions:
 
1. Definitions. Except as otherwise expressly provided in this Plan, the following capitalized terms shall have the respective meanings hereafter ascribed to them:
 
(a) " Board " shall mean the Board of Directors of the Company;
 
(b) " Code " shall mean the Internal Revenue Code of 1986, as amended;
 
(c) " Consultant " shall mean a person who provides services to the Company as an independent contractor;
 
(d) " Company " means Infinity Energy Resources, Inc. and each and all of any present and future subsidiaries;
 
(e) " Date of Grant " shall mean, for each participant in the Plan, the date on which the Board approves the specific grant to that participant under the plan;
 
(t) " Employee " shall be an employee of the Company or any subsidiary of the Company;
 
(g) " Grantee " shall mean the recipient of an Incentive Stock Option, a Non-statutory Option or a Restricted Share Award under the Plan;
 
(h) " Incentive Stock Option " shall refer to a stock option which qualifies under Section 422 of the Code;
 
(i) " Non-statutory Option " shall mean an option which is not an Incentive Stock Option;
 
G) " Shares " shall mean the Company's common stock, $.0001 par value;
 
(k) " Shareholders " shall mean owners of record of any Shares.
 
2. Purpose. The purpose of this Equity Incentive Plan (the "Plan") is two-fold. First, the Plan will further the interests of the Company and its shareholders by providing incentives in the form of stock options or restricted shares (each a "Share Award") to employees who contribute materially to the success and profitability of the Company. Share Awards will be granted to recognize and reward outstanding individual performances and contributions and will give selected employees an interest in the Company parallel to that of the shareholders, thus enhancing their proprietary interest in the Company's continued success and progress. This program also will enable the Company to attract and retain experienced employees. Second, the Plan will provide the Company flexibility and the means to reward directors and consultants who render valuable contributions to the Company.
 
 
 

 
3. Administration. This Plan will be administered by the Board. The Board has the exclusive power to select the participants in this Plan, fix the awards to each participant, and make all other determinations necessary or advisable under the Plan, to determine whether the performance of an eligible employee warrants an award under this Plan, and to determine the amount and duration of the award. The Board has full and exclusive power to construe and interpret this Plan, to prescribe, amend and rescind rules and regulations relating to this Plan, and to take all actions necessary or advisable for this Plan's administration. The Board shall have full power and authority to determine, and at the time such option is granted shall clearly set forth, whether the option shall be an Incentive Stock Option or a Non-statutory Option. Any such determination made by the Board will be final and binding on all persons. A member of the Board will not be liable for performing any act or making any determination required by or pursuant to the Plan, if such act or determination is made in good faith. The Board has the authority to set up a committee of directors to administer the Plan and to delegate whichever of the above powers it determines.
 
4. Participants. Any employee, officer, director or consultant that the Board, in its sole discretion, designates is eligible to participate in this Plan. However, only employees of the Company shall be eligible to receive grants of Incentive Stock Options. The Board's designation of a person as a participant in any year does not require the Board to designate that person to receive an award under this Plan in any other year or, if so designated, to receive the same award as any other participant in any year. The Board may consider such factors as it deems pertinent in selecting participants and in determining the amount of their respective awards, including, but without being limited to: (a) the financial condition of the Company; (b) expected profits for the current or future years; (c) the contributions of a prospective participant to the profitability and success of the Company; and (d) the adequacy of the prospective participant's other compensation. The Board, in its discretion, may grant benefits to a participant under this Plan, even though stock, stock options, stock appreciation rights or other benefits previously were granted to him under this or another plan of the Company, whether or not the previously granted benefits have been exercised, but the participant may hold such options only on the terms and subject to the restrictions hereafter set forth. Subject to the foregoing limitation, a person who has participated in another benefit plan of the Company may also participate in this Plan.
 
5. Option Awards. Awards of options to acquire Shares under this Plan, if any, will be granted as described below.
 
(a) Limitations. Upon the exercise of an option, the Company shall deliver to the participant certificates representing authorized but unissued Shares. The cumulative total number of shares which may be subject to options issued and outstanding pursuant to this Plan is limited to 470,000 shares. This amount will be automatically adjusted in accordance with Section 17 of this Plan. If an option is terminated, in whole or in part, for any reason other than its exercise, the Board may reallocate the shares subject to that option (or to the part thereof so terminated) to one or more other options to be granted under this Plan.
 
 
 

 
(b) Expiration. Any Incentive Stock Option granted under this Plan shall automatically expire ten years after the Date of Grant or at such earlier time as may be described in Section 6 or directed by the Board in the grant of the option. Notwithstanding the preceding sentence, no Incentive Stock Option granted to a Shareholder who owns, as of the Date of Grant, stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company shall, in any event, be exercisable after the expiration of five years from the Date of Grant. For the purpose of determining under any provision of this Plan whether a shareholder owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company, such shareholder shall be considered as owning the stock owned, directly or indirectly, by or for his brothers and sisters (whether by the whole or half blood), spouse, ancestors and lineal descendants, and stock owned, directly or indirectly, by or for a corporation, partnership, estate or trust shall be considered as being owned proportionately by or for its shareholders, partners or beneficiaries.
 
(c) Option Exercise Price. Each option shall state the option price, which shall be not less than 100% of the fair market value of the Shares on the Date of Grant or the par value thereof whichever is greater. Notwithstanding the preceding sentence, in the case of a grant of an Incentive Stock Option to an employee who, as of the Date of Grant, owns stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company or its parent or subsidiaries, the option price shall not be less than 110% of the fair market value of the Shares on the Date of Grant or the par value thereof, whichever is greater.
 
During such time as the Shares are not traded in any securities market, the fair market value per share shall be determined by a good faith effort of the Board, using its best efforts and judgment. During such time as the Shares are traded in a securities market but not listed upon an established stock exchange, the fair market value per share shall be the highest closing bid price in the securities market in which it is traded on the Date of Grant, as reported by the National Association of Securities Dealers, Inc. If the Shares are listed upon an established stock exchange or exchanges such fair market value shall be deemed Table of Contents
 
to be the highest closing price on such stock exchange or exchanges on the Date of Grant, or if no sale of any Shares shall have been made on any stock exchange on that day, on the next preceding day on which there was such a sale. Subject to the foregoing, the Board shall have full authority and discretion in fixing the option price and shall be fully protected in doing so.
 
(d) Maximum Option Exercise. The aggregate fair market value (determined as of the Date of Grant) of the stock with respect to which Incentive Stock Options are exercisable for the first time by a grantee during any calendar year (under all such plans of the Company and its parent or subsidiary, if any) shall not exceed $100,000. For purposes of this Section 5, the value of stock acquired through the exercise of Non-statutory Options shall not be included in the computation of the aggregate fair market value.
 
 
 
 

 
6. Exercise of Options.
 
(a) No stock option granted under this Plan may be exercised before the Grantee's completion of such period of services as may be specified by the Board on the Date of Grant. Furthermore, the timing of the exercise of any option granted under this Plan may be subject to a vesting schedule based upon years of service or an expiration schedule as may be specified by the Board on the Date of Grant. Thereafter, or if no such period is specified subject to the provisions of subsections ( c), (d), (e), (f) and (g) of this Section 6, the Grantee may exercise the option in full or in part at any time until expiration of the option.
 
A Grantee cannot exercise an Incentive Stock Option granted under this Plan unless, at the time of exercise, he has been continuously employed by the Company since the date the option was granted. The Board may decide in each case to what extent bona fide leaves of absence for illness, temporary disability, government or military service, or other reasons will not be deemed to interrupt continuous employment.
 
(b) Unless an Option specifically provides to the contrary, all options granted under this Plan shall immediately become exercisable in full in the event of the consummation of any of the following transactions (individually, a "Change of Control"):
 
 (i) A merger or acquisition in which the Company is not the surviving entity;
 
 (ii) The sale, transfer or other disposition of all or substantially all of the assets of the Company; or
 
 (iii) Any merger in which the Company is the surviving entity but in which fifty percent (50%) or more of the Company's outstanding voting stock is issued to holders different from those who held the stock immediately prior to such merger.
 
(c) Except as provided in subsections (d), (e) and (f) of this Section 6, a Grantee cannot exercise an Incentive Stock Option after he ceases to be an employee of the Company, unless the Board, in its sole discretion, grants the recipient an extension of time to exercise the Incentive Stock Option after cessation of employment. The extension of time of exercise that may be granted by the Board under this subsection (c) shall not exceed three months after the date on which the Grantee ceases to be an employee and in no case shall extend beyond the stated expiration date of the option.
 
(d) If the employment of a Grantee is terminated by the Company for cause as defined in subsection (i) of this Section 6, all rights to any stock option granted under this Plan shall terminate, including but not limited to the ability to exercise such stock options.
 
(e) If a Grantee ceases to be an employee as a result of retirement, he may exercise the Incentive Stock Option within three months after the date on which he ceases to be an employee (but no later than the stated expiration date of the option) to the extent that the Incentive Stock Option was exercisable when he ceased to be an employee. An employee shall be regarded as retired if he terminates employment after his sixty-fifth birthday.
 
(f) If a Grantee ceases to be an employee because of disability (within the meaning of Section 105(d)(4) of the Code), or if a Grantee dies, and if at the time of the Grantee's disability or death he was entitled to exercise an Incentive Stock Option granted under this Plan, the Incentive Stock Option can be exercised within 12 months after his death or termination of employment on account of disability (but no later than the stated expiration date of the option), by the Grantee in the case of disability or, in case of death, by his personal representative, estate or the person who acquired by gift, bequest or inheritance his right to exercise the Incentive Stock Option. Such options can be exercised only as to the number of shares for which they could have been exercised at the time the Grantee died or became disabled.
 
 
 

 
(g) With respect to Non-statutory Options granted to Board members, the Board may provide on the Date of the Grant that such options will expire a specified number of days after such Board member ceases to be a member of the Board. In the absence of any such provision, the option will expire on the stated expiration date of the option.
 
(h) Any stock option granted under the Plan will terminate, as a whole or in part, to the extent that, in accordance with this Section 6, it no longer can be exercised.
 
(i) For purposes of this Section 6, "cause" shall mean the following:
 
(1) Fraud or criminal misconduct;
 
(2) Gross negligence;
 
(3) Willful or continuing disregard for the safety or soundness of the Company;
 
(4) Willful or continuing violation of the published rules of the Company.
 
(j) Notice. Options may be exercised only by delivery to the Company of a written stock option exercise agreement (the "Exercise Agreement") in a form approved by the Board (which need not be the same for each Grantee), stating the number of shares being purchased, the restrictions imposed on the shares, if any, and such representations and agreements regarding Grantee's investment intent and access to information, if any, as may be required by the Company to comply with applicable securities laws, together with payment in full of the exercise price for the number of Shares being purchased.
 
(k) Payment. Payment for the shares may be made in cash (by check) or, where approved by the Board in its sole discretion and where permitted by law: (a) by cancellation of indebtedness of the Company to the Grantee; (b) by surrender of shares of common stock of the Company having a Fair Market Value equal to the applicable exercise price of the Option that have been owned by Grantee for more than six months (and which have been paid for within the meaning of the Securities and Exchange Commission ("SEC") Rule 144 and, if such shares were purchased from the Company by use of a promissory note, such note has been fully paid with respect to such shares), or were obtained by Grantee in the open public market; (c) by waiver of compensation due or accrued to Grantee for services rendered; (d) provided that a public market for the Company's stock exists, through a "same day sale" commitment from Grantee and a broker-dealer that is a member of the National Association of Securities Dealers (an "NASD Dealer") whereby Grantee irrevocably elects to exercise the Option and to sell a portion of the shares so purchased to pay for the exercise price and whereby the NASD Dealer irrevocably commits upon receipt of such shares to forward the exercise price directly to the Company; (e) provided that a public market for the Company's stock exists, through a "margin" commitment from Grantee and an NASD Dealer whereby Grantee irrevocably elects to exercise the Option and to pledge the shares so purchased to the NASD Dealer in a margin account as security for a loan from the NASD Dealer in the amount of the exercise price, and whereby the NASD Dealer irrevocably commits upon receipt of such shares to forward the exercise price directly to the Company; or (f) by any combination of the foregoing.
 
 
 

 
(l) Taxes; Compliance with Law; Approval of Regulatory Bodies. The Company, if necessary or desirable, may payor withhold the amount of any tax attributable to any amount payable or shares deliverable under this Plan and the Company may defer making payment on delivery until it is indemnified to its satisfaction for that tax. Stock options are exercisable, and shares can be delivered under this Plan, only in compliance with all applicable federal and state laws and regulations, including, without limitation, state and federal securities laws, and the rules of all stock exchanges on which the Company's shares are listed at any time. Any certificate issued pursuant to options granted under this Plan shall bear such legends and statements as the Board deems advisable to assure compliance with federal and state laws and regulations. No Option may be exercised, and shares may not ne issued under this Plan, until the Company has obtained the consent or approval of every regulatory body, federal or state, having jurisdiction over such matters as the Board deems advisable.
 
Specifically, in the event that the Company deems it necessary or desirable to file a registration statement with the Securities and Exchange Commission or any State Securities Commission, no option granted under the Plan may be exercised, and shares may not be issued, until the Company has obtained the consent or approval of such Commission.
 
In the case of the exercise of an option by a person or estate acquiring by bequest or inheritance the right to exercise such option, the Board may require reasonable evidence as to the ownership of the option and may require such consents and releases of taxing authorities as the Board deems advisable.
 
7. Restricted Share Awards. Each restricted share award agreement shall be in such form and shall contain such restrictions, terms and conditions, if any, as the Board shall deem appropriate and shall be subject to the terms and conditions of this Plan. The terms and conditions of restricted share award agreements may change from time to time, and the terms and conditions of separate restricted share award agreements need not be identical, but each restricted share award agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:
 
(a) Consideration. A restricted share award may be awarded in consideration for past services actually rendered, or for future services to be rendered, to the Company or an affiliate of the Company for its benefit.
 
(b) Vesting. Common Stock awarded under the restricted share award agreement may (A) be subject to a vesting schedule to be determined by the Board, or (B) be fully vested at the time of grant.
 
(c) Termination of Grantee's Service. Unless otherwise provided in the restricted share award agreement, in the event a Grantee's service terminates prior to a vesting date set forth in the restricted share award agreement, any unvested restricted share award shall be forfeited and automatically transferred to and reacquired by the Company at no cost to the Company, and neither the Grantee nor his or her heirs, executors, administrators or successors shall have any right or interest in the restricted share award. Notwithstanding the foregoing, unless otherwise provided in the restricted share award agreement, in the event a Grantee's service terminates as a result of (A) being terminated by the Company for reasons other than for cause, (B) death, (C) disability, (D) retirement, or (E) a Change of Control, then any unvested restricted share award shall vest immediately upon such date.
 
 
 

 
(d) Transferability. Rights to acquire Common Stock under the restricted share award agreement shall be transferable by the Grantee only upon such terms and conditions as are set forth in the restricted share award agreement, as the Board shall determine in its discretion, so long as Shares awarded under the restricted share award agreement remain subject to the terms of the restricted share award agreement.
 
8. Assignability. No Share Award granted under this Plan is transferable other than by will or the laws of descent and distribution. Each Share Award is exercisable during the life of the Grantee only by him.
 
9. Tenure. A participant's right, if any, to continue to serve the Company as an officer, employee or otherwise, will not be enlarged or otherwise affected by his designation as a participant under this Plan, and such designation will not in any way restrict the right of the Company to terminate at any time the employment or affiliation of any participant for cause or otherwise.
 
10. Amendment and Termination of Plan. The Board may alter, amend or terminate this Plan from time to time without approval of the shareholders. However, without the approval of the shareholders, no amendment will be effective that:
 
(a) materially increases the benefits accruing to participants under the Plan;
 
(b) increases the cumulative number of shares that may be delivered upon the exercise of options granted under the Plan or the aggregate fair market value of options which a participant may exercise in any calendar year;
 
(c) materially modifies the eligibility requirements for participation in the Plan; or
 
(d) amends the requirements of paragraphs (a)-(c) of this Section 10.
 
Any amendment, whether with or without the approval of shareholders, that alters the terms or provisions of an option granted before the amendment will be effective only with the consent of the participant to whom the option was granted or the holder currently entitled to exercise it, except for adjustments expressly authorized by this Plan.
 
11. Expenses of Plan. The expenses of the Plan will be borne by the Company.
 
12. Duration of Plan. Share Awards may only be granted under this Plan during the ten years immediately following the earlier of the adoption of the Plan or its approval by the Shareholders. Share Awards granted during that ten year period will remain valid thereafter in accordance with their terms and the provisions of this Plan.
 
 
 

 
13. Other Provisions. The award agreements authorized under the Plan shall contain such other provisions including, without limitation, restrictions upon the exercise of the option, as the Board shall deem advisable. Any such option agreements, which are intended to be "Incentive Stock Options" shall contain such limitations and restrictions upon the exercise of the option as shall be necessary in order that such option will be an "Incentive Stock Option" as defined in Section 422 of the Code.
 
14. Indemnification of the Board. In addition to such other rights of indemnification as they may have as directors, the members of the Board shall be indemnified by the Company against the reasonable expenses, including attorneys' fees actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any option granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such director is liable for negligence or misconduct in the performance of his duties.
 
15. Application of Funds. The proceeds received by the Company from the sale of stock pursuant to options granted under this Plan will be used for general corporate purposes.
 
16. No Obligation to Exercise Option. The granting of an option shall impose no obligation upon the Grantee to exercise such option.
 
17. Adjustment Upon Change of Shares. If a reorganization, merger, consolidation, reclassification, recapitalization, combination or exchange of shares, stock split, stock dividend, rights offering, or other event affecting shares of the Company occurs, then the number and class of shares to which options are authorized to be granted under this Plan, the number and class of shares then subject to options previously granted under this Plan, and the price per share payable upon exercise of each option outstanding under this Plan shall be equitably adjusted by the Board to reflect such changes.
 
18. Number and Gender. Unless otherwise clearly indicated in this Plan, words in the singular or plural shall include the plural and singular, respectively, where they would so apply, and words in the masculine or neuter gender shall include the feminine, masculine or neuter gender where applicable.
 
19. Applicable Law. The validity, interpretation and enforcement of this Plan are governed in all respects by the laws of Colorado.
 
20. Effective Date of Plan. This Plan shall not take effect until adopted by the Board. This Plan shall terminate if it is not approved by the shareholders of the capital stock of the Company, which approval must occur within the period beginning twelve months before and ending twelve months after the Plan is adopted by the Board.
 
 
 

 
 

Exhibit 10.4
 
INFINITY ENERGY RESOURCES, INC.
2006 EQUITY INCENTIVE PLAN
FORM OF INCENTIVE STOCK OPTION AGREEMENT
 
This Incentive Stock Option Agreement (the “Agreement”), made as of the ____ day of _____________, 200__, and between Infinity Energy Resources, Inc., a corporation duly formed and existing under the laws of Delaware (the “Company”), and _________________________ (the “Participant”).
 
WHEREAS , the Company desires to encourage and enable the Participant to acquire a proprietary interest in the Company through the ownership of the Company’s common stock, par value US$0.0001 per share (the “Common Stock”) pursuant to the terms and conditions of the 2006 Equity Incentive Plan (the “Plan”) and this Agreement.  Such ownership will provide the Participant with a more direct stake in the future of the Company and encourage the Participant to remain with the Company and/or its Affiliates, as applicable.
 
NOW, THEREFORE , in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the parties agree as follows:
 
1.             DEFINITIONS .   For purposes of this Agreement, all capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Plan.
 
2.             GRANT OF OPTION .  The Company hereby grants to the Participant an Incentive Stock Option (the “Option”) to purchase _Shares at the exercise price (the “Exercise Price”) of $ per share, subject to the terms and conditions of this Agreement and the Plan.
 
3.             OPTION TERM .  The Option granted hereby shall expire on ____, 201__ (the “Expiration Date”), unless sooner terminated or modified under the provisions of this Agreement or the Plan.  Except as otherwise set forth herein, the Option may not be exercised after the Expiration Date.
 
4.             WHEN VESTED AND EXERCISABLE .  The Option shall vest and be exercisable by the Participant on the one year anniversary of the grant date, ___, 200__.
 
5.             EMPLOYMENT TERMINATION: DEATH; DISABILITY; RETIREMENT; CAUSE .
 
(a)           If the services of the Participant are terminated for any reason other than death, disability, retirement, Change in Control, or cause (in each case as defined below), the portion of this Option to purchase Common Stock that is not vested on the date of such termination of service shall terminate and be forfeited on such date of termination; however, the vested portion of this Option shall be exercisable by the Participant at any time on or prior to the earlier of (i) the Expiration Date or (ii) the three month anniversary of the date of such termination of service.  Any portion of this Option not exercised within the period described in the preceding sentence, for whatever reason, shall terminate.
 
 
 

 
 
(b)           In the event of the death or disability (as defined in Section 6(f) of the Plan) of the Participant, the unvested portion of this Option shall immediately terminate and be forfeited, and the vested portion of the Option on such date shall be exercisable at any time on or prior to the 12 month anniversary of such date by the beneficiary designated by the Participant for such purpose (the “Designated Beneficiary”) or if no Designated Beneficiary shall be appointed or if the Designated Beneficiary shall predecease the Participant, by the Participant’s personal representatives, heirs or legatees.  Any portion of the Option not exercised within the period described in the preceding sentence, for whatever reason, shall terminate.
 
(c)           In the event of the retirement of the Participant pursuant to Section 6( e) of the Plan, this Option shall be exercisable by such Participant at any time on or prior to the earlier of (i) the stated expiration date of the Option, or (ii) the three month anniversary of the date of such retirement.
 
(d)           In the event the service of the Participant is terminated for cause as defined in Section 6(i) of the Plan, this Option (including any vested portion) shall be forfeited as of the date of termination.
 
6.             CHANGE IN CONTROL .  In the event of a Change in Control, the Company shall give the Participant notice thereof and this Option, whether or not currently vested and exercisable, shall become immediately vested and exercisable immediately prior to the effective date of the Change in Control, and the Board shall have the power and discretion to provide alternatives regarding the terms and conditions for the exercise of, or modification of, this Option in accordance with the Plan.
 
“Change in Control” as used in this Agreement shall mean the first to occur of the following events specified in (i), (ii), (iii), (iv), (v) or (vi) (but no event other than the specified events): (i) any person becomes the beneficial owner, directly or indirectly, of securities of the Company representing thirty-five percent (35%) or more of the combined voting power of the Company’s then outstanding voting securities (other than (x) the Company, (y) any subsidiary of the Company, (z) one or more employee benefit plans maintained by the Company), or (xx) any noteholders or warrantholders under the Securities Purchase Agreement dated as of January 13,2005 among Infinity, Inc., the predecessor of the Company, and HFTP Investment L.L.C., AG Domestic Convertibles, L.P.  and AG Offshore Convertibles Ltd., as further amended, supplemented and modified (the “Promethean Purchase Agreement”»; (ii) any noteholders or warrantholders under the Promethean Purchase Agreement, whether individually or as a group (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) become the owner, directly or indirectly, of outstanding voting securities (including voting securities acquired on conversion of notes or exercise of warrants) of the Company representing thirty-five percent (35%) or more of the combined voting power of the Company’s then outstanding voting securities; (iii) three or more Directors of the Company, whose election or nomination for election is not approved by a majority of the applicable Incumbent Board, are elected within any single twelve month period to serve on the Board; (iv) members of the applicable Incumbent Board cease to constitute a majority of the Board; (v) the consummation of a merger or consolidation of the Company with or into any other corporation or entity or person, or any other corporate reorganization, in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization own less than 50% of the outstanding voting securities of the surviving entity (or its parent) following the consolidation, merger or reorganization or (vi) the consummation of a sale, lease or other disposition of all or substantially all of the assets of the Company.  For purposes of this Section, the terms “person” and “beneficial owner” shall have the meanings set forth in Rule 13d-3 of the Exchange Act and in the regulations promulgated thereunder.  For purposes of this paragraph, “Incumbent Board” shall mean (i) members of the Board of Directors of the Company as of the date hereof, to the extent that they continue to serve as members of the Board, and (ii) any individual who becomes a member of the Board after the date hereof, if such individual’s election or nomination for election as a Director was approved by a vote of at least seventy-five percent (75%) of the then applicable Incumbent Board.
 
 
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7.             INCENTIVE STOCK OPTION TAX MATTERS .
 
(a)           This Option is intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.  The Board may take all appropriate action to achieve this result.  The Exercise Price has been determined to be equal to or greater than the fair market value per Share at the time of grant.
 
(b)           To the extent the aggregate fair market value (determined at the time of grant in accordance with Section 5(c) of the Plan) of the Common Stock with respect to which the Option plus all other incentive stock options Participant holds that are exercisable for the first time by Participant during any calendar year exceeds one hundred thousand dollars ($100,000), Participant’s option(s) or portions thereof that exceed such limit (according to the order in which they were granted) shall be treated as Non-Statutory Options.
 
8.             NON-ASSIGNABILITY .  The Option granted hereby and any right arising thereunder may not be transferred, assigned, pledged or hypothecated (whether by operation of law or otherwise), except by will or the applicable laws of descent and distribution, and the Option and any right arising thereunder shall not be subject to execution, attachment or similar process.  Any attempted assignment, transfer, pledge, hypothecation or other disposition of an Option not specifically permitted herein or in the Plan shall be null and void and without effect.  An Option may be exercised solely by the Participant during his or her lifetime, or following his or her death pursuant to Section 5(b) hereof.
 
9.             MODE OF EXERCISE .   The Option may be exercised in whole or in part.  Common Stock purchased upon the exercise of the Option shall be paid for in full at the time of such purchase.  Such payment shall be made in cash or by wire transfer in immediately available funds in either event denominated in U.S. dollars.  Upon receipt of notice of exercise and payment in accordance with procedures to be established by the Board, the Company or its agent shall deliver to the person exercising the Option (or his or her designee) a certificate for such Common Stock.
 
 
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10.           RECAPITALIZATION .   The number of shares of Common Stock covered by this Option and the exercise price shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock as set forth in the Plan; provided, however, that any fractional shares resulting from any such adjustment shall be eliminated.  The Board may also make any other changes, including changes in the classes of securities available, to the extent it is deemed necessary or desirable to preserve the intended benefits of the Plan for the Company and the Participants in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction.  Notwithstanding any other provision of the Plan or this Agreement, the Board may cause the Option granted hereunder to be canceled in consideration of a cash payment or alternative stock award made to the holder of such canceled Option equal in value to the fair market value of such canceled Option.
 
11.           PLAN CONTROLLING .   This Agreement is intended to conform in all respects with the requirements of the Plan.  Inconsistencies between the requirements of this Agreement and the Plan shall be resolved according to the terms of the Plan.  The Participant acknowledges receipt of a copy of the Plan.
 
12.           RIGHTS PRIOR TO EXERCISE OF OPTION .   The Participant shall not have any rights as a stockholder with respect to any Common Stock subject to the Option prior to the date on which he is recorded as the holder of such Common Stock on the records of the Company.
 
13.           WITHHOLDING TAXES .   The Company shall have the right to require Participants or their beneficiaries or legal representatives to remit to the Company an amount sufficient to satisfy any United States federal, state and local withholding tax requirements, including upon the grant, vesting or exercise of this Option.  Whenever payments under the Plan or this Agreement are to be made to any Participant in cash, such payments shall be net of any amounts sufficient to satisfy all applicable taxes, including without limitation, all applicable United States federal, state and local withholding tax requirements to be withheld or submitted by the Company concerning such payments.  The Board may, in its sole discretion, permit a Participant to satisfy his or her tax withholding obligation either by (i) surrendering Common Stock owned by the Participant or (ii) having the Company withhold from Common Stock otherwise deliverable to the Participant.  Common Stock surrendered or withheld shall be valued at its Fair Market Value as of the date on which income is required to be recognized for income tax purposes.
 
14.           NO LIABILITY OF BOARD COMMITTEE MEMBERS .   No member of the Board or any Committee or their designees shall be personally liable by reason of any contract or other instrument executed by such member or on his behalf in his capacity as a member of the Board or a Committee nor for any mistake of judgment made in good faith.
 
15.           GOVERNING LAW .   This Agreement and all rights arising hereunder shall be governed by, and construed and interpreted in accordance with, the laws of the Delaware.
 
NEITHER THE PLAN NOR THIS AGREEMENT SHALL BE CONSTRUED AS GIVING THE PARTICIPANT THE RIGHT TO BE RETAINED IN THE EMPLOY OR SERVICE OF THE COMPANY OR ANY AFFILIATE THEREOF, NOR SHALL THEY INTERFERE IN ANY WAY WITH THE RIGHT OF THE COMPANY OR ANY AFFILIATE THEREOF, AS APPLICABLE, TO TERMINATE THE PARTICIPANT’S EMPLOYMENT OR SERVICE AT ANY TIME WITH OR WITHOUT CAUSE.
 
 
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* * * * *
 
Executed as of the day and year first above written.
 
 
INFINITY ENERGY RESOURCES, INC.
     
 
By:
 
 
Name:
 
 
Title:
 
     
 
PARTICIPANT
     
 
By:
 
 
Name:
 

 
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Exhibit 10.5
 
INFINITY ENERGY RESOURCES, INC.
2006 EQUITY INCENTIVE PLAN
FORM OF NONQUALIFIED STOCK OPTION AGREEMENT
 
This Nonqualified Stock Option Agreement (the “Agreement”), made as of the ___day of ______________,200__, by and between Infinity Energy Resources, Inc., a corporation duly formed and existing under the laws of Delaware (the “Company”), and ___________________ (the “Participant”).
 
WHEREAS , the Company desires to encourage and enable the Participant to acquire a proprietary interest in the Company through the ownership of the Company’s common stock, par value US$0.0001 per share (the “Common Stock”) pursuant to the terms and conditions of the 2006 Equity Incentive Plan (the “Plan”) and this Agreement.  Such ownership will provide the Participant with a more direct stake in the future of the Company and encourage the Participant to remain with the Company and/or its Affiliates, as applicable.
 
NOW, THEREFORE , in consideration of the mutual covenants hereinafter set forth and for other good and valuable consideration, the parties agree as follows:
 
1.             DEFINITIONS .  For purposes of this Agreement, all capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the Plan.
 
2.             GRANT OF OPTION .  The Company hereby grants to the Participant a Nonqualified Stock Option (the “Option”) to purchase __ Shares at the exercise price (the “Exercise Price”) of $ per share, subject to the terms and conditions of this Agreement and the Plan.
 
3.             OPTION TERM .  The Option granted hereby shall expire on ___, 201_(the “Expiration Date”), unless sooner terminated or modified under the provisions of this Agreement or the Plan.  Except as otherwise set forth herein, the Option may not be exercised after the Expiration Date.
 
4.             VESTING .  The Option shall vest as follows:

No. of Options
 
Vesting Date
100%
  
On the one year anniversary of the grant date
 
5.             EMPLOYMENT TERMINATION: DEATH; DISABILITY; RETIREMENT; CAUSE .
 
(a)           If the services of the Participant are terminated for any reason other than death, disability, retirement, Change in Control, or cause (in each case as defined below), the portion of this Option to purchase Common Stock that is not vested on the date of such termination of service shall terminate and be forfeited on such date of termination; however, the vested portion of this Option shall be exercisable by the Participant at any time on or prior to the earlier of (i) the Expiration Date or (ii) the three month anniversary of the date of such termination of service.  Any portion of this Option not exercised within the period described in the preceding sentence, for whatever reason, shall terminate.

 
 

 
 
(b)           In the event of the death or disability (as defined in Section 6(f) of the Plan) of the Participant, the unvested portion of this Option shall immediately terminate and be forfeited, and the vested portion of the Option on such date shall be exercisable at any time on or prior to the 12 month anniversary of such date by the beneficiary designated by the Participant for such purpose (the “Designated Beneficiary”) or if no Designated Beneficiary shall be appointed or if the Designated Beneficiary shall predecease the Participant, by the Participant’s personal representatives, heirs or legatees.  Any portion of the Option not exercised within the period described in the preceding sentence, for whatever reason, shall terminate.
 
(c)           In the event of the retirement of the Participant pursuant to Section 6(e) of the Plan, this Option shall be exercisable by such Participant at any time on or prior to the earlier of (i) the stated expiration date of the Option, or (ii) the three month anniversary of the date of such retirement.
 
(d)           In the event the service of the Participant is terminated for cause as defined in Section 6(i) of the Plan, this Option (including any vested portion) shall be forfeited as of the date of termination.
 
6.             CHANGE IN CONTROL .  In the event of a Change in Control, the Company shall give the Participant notice thereof and this Option, whether or not currently vested and exercisable, shall become immediately vested and exercisable immediately prior to the effective date of the Change in Control, and the Board shall have the power and discretion to provide alternatives regarding the terms and conditions for the exercise of, or modification of, this Option in accordance with the Plan.
 
“Change in Control” as used in this Agreement shall mean the first to occur of the following events specified in (i), (ii), (iii), (iv), (v) or (vi) (but no event other than the specified events): (i) any person becomes the beneficial owner, directly or indirectly, of securities of the Company representing thirty-five percent (35%) or more of the combined voting power of the Company’s then outstanding voting securities (other than (x) the Company, (y) any subsidiary of the Company, (z) one or more employee benefit plans maintained by the Company), or (xx) any noteholders or warrantholders under the Securities Purchase Agreement dated as of January 13, 2005 among Infinity, Inc., the predecessor of the Company, and HFTP Investment L.L.C., AG Domestic Convertibles, L.P. and AG Offshore Convertibles Ltd., as further amended, supplemented and modified (the “Promethean Purchase Agreement”)); (ii) any noteholders or warrantholders under the Promethean Purchase Agreement, whether individually or as a group (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) become the owner, directly or indirectly, of outstanding voting securities (including voting securities acquired on conversion of notes or exercise of warrants) of the Company representing thirty-five percent (35%) or more of the combined voting power of the Company’s then outstanding voting securities; (iii) three or more Directors of the Company, whose election or nomination for election is not approved by a majority of the applicable Incumbent Board, are elected within any single twelve month period to serve on the Board; (iv) members of the applicable Incumbent Board cease to constitute a majority of the Board; (v) the consummation of a merger or consolidation of the Company with or into any other corporation or entity or person, or any other corporate reorganization, in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization own less than 50% of the outstanding voting securities of the surviving entity (or its parent) following the consolidation, merger or reorganization or (vi) the consummation of a sale, lease or other disposition of all or substantially all of the assets of the Company.  For purposes of this Section, the terms “person” and “beneficial owner” shall have the meanings set forth in Rule 13d-3 of the Exchange Act and in the regulations promulgated thereunder.  For purposes of this paragraph, “Incumbent Board” shall mean (i) members of the Board of Directors of the Company as of the date hereof, to the extent that they continue to serve as members of the Board, and (ii) any individual who becomes a member of the Board after the date hereof, if such individual’s election or nomination for election as a Director was approved by a vote of at least seventy-five percent (75%) of the then applicable Incumbent Board.

 
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7.             NON-ASSIGNABILITY .  The Option granted hereby and any right arising thereunder may not be transferred, assigned, pledged or hypothecated (whether by operation of law or otherwise), except by will or the applicable laws of descent and distribution, and the Option and any right arising thereunder shall not be subject to execution, attachment or similar process.  Any attempted assignment, transfer, pledge, hypothecation or other disposition of an Option not specifically permitted herein or in the Plan shall be null and void and without effect.  An Option may be exercised solely by the Participant during his or her lifetime, or following his or her death pursuant to Section 5(b) hereof.
 
8.             MODE OF EXERCISE .  The Option may be exercised in whole or in part.  Common Stock purchased upon the exercise of the Option shall be paid for in full at the time of such purchase.  Such payment shall be made in cash or by wire transfer in immediately available funds in either event denominated in U.S.  dollars.  Upon receipt of notice of exercise and payment in accordance with procedures to be established by the Board, the Company or its agent shall deliver to the person exercising the Option (or his or her designee) a certificate for such Common Stock.
 
9.             RECAPITALIZATION .  The number of shares of Common Stock covered by this Option and the exercise price shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock as set forth in the Plan; provided, however, that any fractional shares resulting from any such adjustment shall be eliminated.  The Board may also make any other changes, including changes in the classes of securities available, to the extent it is deemed necessary or desirable to preserve the intended benefits of the Plan for the Company and the Participants in the event of any other reorganization, recapitalization, merger, consolidation, spin-off, extraordinary dividend or other distribution or similar transaction.  Notwithstanding any other provision of the Plan or this Agreement, the Board may cause the Option granted hereunder to be canceled in consideration of a cash payment or alternative stock award made to the holder of such canceled Option equal in value to the fair market value of such canceled Option.

 
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10.             PLAN CONTROLLING .  This Agreement is intended to conform in all respects with the requirements of the Plan.  Inconsistencies between the requirements of this Agreement and the Plan shall be resolved according to the terms of the Plan.  The Participant acknowledges receipt of a copy of the Plan.
 
11.             RIGHTS PRIOR TO EXERCISE OF OPTION .  The Participant shall not have any rights as a stockholder with respect to any Common Stock subject to the Option prior to the date on which he is recorded as the holder of such Common Stock on the records of the Company.
 
12.             WITHHOLDING TAXES .  The Company shall have the right to require Participants or their beneficiaries or legal representatives to remit to the Company an amount sufficient to satisfy any United States federal, state and local withholding tax requirements, including upon the grant, vesting or exercise of this Option.  Whenever payments under the Plan or this Agreement are to be made to any Participant in cash, such payments shall be net of any amounts sufficient to satisfy all applicable taxes, including without limitation, all applicable United States federal, state and local withholding tax requirements to be withheld or submitted by the Company concerning such payments.  The Board may, in its sole discretion, permit a Participant to satisfy his or her tax withholding obligation either by (i) surrendering Common Stock owned by the Participant or (ii) having the Company withhold from Common Stock otherwise deliverable to the Participant.  Common Stock surrendered or withheld shall be valued at its Fair Market Value as of the date on which income is required to be recognized for income tax purposes.
 
13.             NO LIABILITY OF BOARD COMMITTEE MEMBERS .  No member of the Board or any Committee or their designees shall be personally liable by reason of any contract or other instrument executed by such member or on his behalf in his capacity as a member of the Board or a Committee nor for any mistake of judgment made in good faith.
 
14.             GOVERNING LAW .   This Agreement and all rights arising hereunder shall be governed by, and construed and interpreted in accordance with, the laws of the Delaware.
 
NEITHER THE PLAN NOR THIS AGREEMENT SHALL BE CONSTRUED AS GIVING THE PARTICIPANT THE RIGHT TO BE RETAINED IN THE EMPLOY OR SERVICE OF THE COMPANY OR ANY AFFILIATE THEREOF, NOR SHALL THEY INTERFERE IN ANY WAY WITH THE RIGHT OF THE COMPANY OR ANY AFFILIATE THEREOF, AS APPLICABLE, TO TERMINATE THE PARTICIPANT’S EMPLOYMENT OR SERVICE AT ANY TIME WITH OR WITHOUT CAUSE.
 
* * * * *
 
Executed as of the day and year first above written.
 
 
INFINITY ENERGY RESOURCES, INC.
   
 
By:
 
 
Name:
 
 
Title:
 

 
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PARTICIPANT
   
 
By:
 
 
Name:
 
 
 
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EXHIBIT 10.6
 
AMEGY BANK N.A.
1807 Ross Avenue, Suite 400
Dallas, Texas 75201
 
January 9, 2007
INFINITY ENERGY RESOURCES, INC.
633 Seventeenth Street, Suite 1800
Denver, Colorado 80202
 
Re: Loan Agreement
 
Ladies and Gentlemen:
 
This letter sets forth the Loan Agreement (this “ Loan Agreement ”) among INFINITY ENERGY RESOURCES, INC. (“ Borrower ”), a Delaware corporation; INFINITY OIL AND GAS OF TEXAS, INC., a Delaware corporation, and INFINITY OIL & GAS OF WYOMING, INC., a Wyoming corporation (collectively “ Guarantors ”); and AMEGY BANK N.A.  (“ Lender ”), with respect to loans from Lender to Borrower and obligations of Borrower and Guarantors to Lender.
 
1.            Loan .  (a) Subject to the terms and conditions set forth in this Loan Agreement and the other agreements, instruments, and documents executed and delivered in connection herewith (collectively the “ Loan Documents ”), Lender agrees to make a revolving loan in the maximum amount of $50,000,000.00 to Borrower (the “ Revolving Loan ”) on the terms set forth in the Revolving Promissory Note attached as Exhibit A (the “ Revolving Note ”), for the purposes set forth below.  Subject to the terms and conditions hereof, Borrower may borrow, repay, and reborrow on a revolving basis from time to time during the period commencing on the date hereof and continuing through 11:00 a.m. (Dallas, Texas time) on January 9, 2009 (the “ Termination Date ”), such amounts as Borrower may request under the Revolving Loan; provided, however, the total principal amount outstanding at any time shall not exceed the lesser of (i) the aggregate sums permitted under the Borrowing Base (as defined below), which is initially set at $27,000,000.00, or (ii) $50,000,000.00.  All sums advanced under the Revolving Loan, together with all accrued but unpaid interest thereon, shall be due and payable in full on the Termination Date.  Borrower has the right to request a one year extension of the Termination Date in connection with the October 1 Borrowing Base redetermination each year.  Any extension is subject to appropriate credit approval of Lender and may be subject to additional conditions.  Lender has not yet committed to any extension of the Termination Date.

 
 

 

(b)           The unpaid principal balance of the Revolving Note shall bear interest from the date advanced until paid or until default or maturity at the rates per annum elected by Borrower from the following options under the terms of the Revolving Note: (i) the sum of the Stated Rate plus the Applicable Margin, or (ii) the sum of the LIBOR Rate plus the LIBOR Spread; provided that in no event shall such rate exceed the Maximum Rate (as defined below).  The Applicable Margin and the LIBOR Spread will vary based on the Borrowing Base Utilization (as defined below) as in effect from time to time, with each change in the applicable rate resulting from a change in the Borrowing Base Utilization to take effect on the day such change in the Borrowing Base Utilization occurs.  “ Borrowing Base Utilization ” is defined as an amount expressed as a percentage, equal to the quotient of (i) the sum of (A) the aggregate principal amount of the Revolving Loan outstanding, plus (B) the aggregate undrawn amount of all outstanding Letters of Credit (as defined below), divided by (ii) the Borrowing Base.  Based on the Borrowing Base Utilization, the Applicable Margin and the LIBOR Spread will vary as set forth below:
 
Borrowing Base Utilization
 
Applicable Margin
   
LIBOR Spread
 
Greater than or equal to 85%
    0.50 %     3.25 %
Less than 85%, but greater than or equal to 66%
    0.25 %     3.00 %
Less than 66%, but greater than or equal to 33%
    0.00 %     2.75 %
Less than 33%
    0.00 %     2.50 %

The “ Stated Rate ” shall be equal to the greater of (i) the interest rate publicly announced by Lender from time to time as its general reference rate of interest, which prime rate shall change upon any change in such announced or published general reference interest rate and which prime rate may not be the lowest interest rate charged by the Lender, or (ii) the sum of the rate of interest, then most recently published in the Money Rates section of The Wall Street Journal as the “federal funds” rate for reserves traded among commercial banks for overnight use, plus one-half of one percent (0.5 %); and the “ LIBOR Rate ” means the rate of interest per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) equal to the average of the offered quotations appearing at Page or Ticker US0001M, US0002M, US0003M, or US0006M, as the case may be for the applicable Interest Period (as defined in the Revolving Note) in Bloomberg Financial Markets Commodities News as published by BLOOMBERG L.P. (or such other similar news reporting service as Lender may subscribe to at the time such LIBOR Rate is determined), at which deposits in U.S. dollars are offered by the major London clearing banks in the London interbank offered market for a period of time equal or comparable to one, two, three, or six months and in an amount equal to or comparable to the principal amount of the LIBOR Balance (as determined in the Revolving Note) to which such interest period relates.
 
(c)           Advances on the Revolving Loan may be used only for the following purposes: (i) for the Closing Date Advances (as defined below), (ii) for the Approved Plan of Development (as defined below), (iii) the issuance of Letters of Credit (as defined below), (iv) auction letters and letters of guarantee; and (v) for other business purposes approved by Lender in advance.  On or after the date of the closing of this Loan Agreement, Borrower may request advances on the Revolving Loan for the following purposes only (the “ Closing Date Advances ”):
 
(i)          Borrower may advance up to $8,000,000.00 for the purpose of paying Borrower’s and Guarantors’ past-due accounts payable (the “ Accounts Payable ”);
 
(ii)         Borrower may advance on the Revolving Loan to pay closing costs, expenses, and fees incurred in connection with this Loan Agreement; and
 
(iii)        Borrower may advance up to $500,000.00 for working capital.

 
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(d)          Except for the Closing Date Advances, all subsequent advances on the Revolving Loan shall be used only to fund the budgeted capital expenditures under the Approved Plan of Development.  As used in this Loan Agreement, “ Approved Plan of Development ” means the written and scheduled plan of development approved by Lender, with respect to budgeted capital expenditures and expected schedule for Guarantors’ development activities with respect to those proved oil and gas properties and undeveloped oil and gas properties in Comanche and Erath Counties, Texas, Routt County, Colorado, and Sweetwater County, Wyoming (the “ Project Areas ”).  The initial Approved Plan of Development approved by Lender is attached as Schedule l(d) to this Loan Agreement.  The Approved Plan of Development may not be materially modified without Lender’s prior written consent.  If Borrower wishes to so modify the Approved Plan of Development, Borrower shall provide an amended Plan of Development for Lender’s approval at least ten (10) days before it is proposed to be effective; and Lender must respond to such request for written consent within such ten-day period.  Borrower and Guarantors shall use all “Free Operating Cash Flow” (as defined below) for the purpose of funding the capital expenditures under the Approved Plan of Development.
 
(e)           At the request of Borrower, Lender may from time to time issue one or more letters of credit for the account of Borrower, Guarantors, or any affiliates (the “ Letters of Credit ”).  Borrower’s availability on the Revolving Loan will be reduced by the aggregate undrawn amount of all unexpired Letters of Credit.  Any fundings under any Letters of Credit will be treated as an advance on the Revolving Loan and will be secured by the Security Documents (as defined below).  At no time may the aggregate undrawn amount of all outstanding Letters of Credit exceed twenty percent (20%) of the Borrowing Base.  All Letters of Credit shall be for a term of up to one year (or longer if necessary for regulatory requirements) but shall expire not later than five days prior to the Termination Date, unless adequately secured by cash collateral held by Lender.  Borrower will sign and deliver Lender’s customary forms for the issuance of Letters of Credit.  Borrower agrees to pay to Lender a Letter of Credit Fee equal to the Letter of Credit Fee Rate per annum set forth below, calculated on the aggregated stated amount of each Letter of Credit for the stated duration thereof (computed on the basis of actual days elapsed as if each year consisted of 360 days).  The Letter of Credit Fee Rate will vary as set forth below based on the Borrowing Base Utilization:
 
Borrowing Base Utilization
 
Letter of Credit Fee Rate
 
Greater than or equal to 85%
    3.25 %
Less than 85%, but greater than or equal to 66%
    3.00 %
Less than 66%, but greater than or equal to 33%
    2.75 %
Less than 33%
    2.50 %

Any renewal or extension of a Letter of Credit will be treated as a new issuance for the purpose of the Letter of Credit Fee.  These Letter of Credit Fees are payable quarterly in arrears within fifteen (15) days of the end of each calendar quarter.

 
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(f)           At the request of Borrower and in the sole discretion of Lender, Lender may from time to time issue one or more auction letters or letters of guarantee in connection with auctions or other purchases of oil and gas properties by Borrower.  Each auction letter and letter of guarantee will have an expiration date not longer than five (5) days from the date of the letter.  Notwithstanding any provision to the contrary, Borrower’s availability on the Revolving Loan will be reduced by the aggregate maximum amount stated in all unexpired auction letters and letters of guarantee until Lender is satisfied that (i) Borrower was unsuccessful in the auction or purchase, or (ii) Borrower consummates the purchase of the oil and gas properties.  Any fundings pursuant to an auction letter or letter of guarantee will be treated as an advance on the Revolving Loan and will be secured by the Security Documents.
 
(g)          Borrower agrees to pay to Lender the following fees that are non-refundable and earned by Lender upon execution of this Loan Agreement unless otherwise stated:
 
(i)          Upon execution of the term sheet, Borrower previously paid Lender a Due Diligence Fee in the amount of $50,000.00.
 
(ii)         Upon execution of this Loan Agreement, Borrower agrees to pay Lender an Arrangement Fee in the amount of $270,000.00; provided, however, that the Due Diligence Fee shall be credited to this Arrangement Fee at closing.
 
(iii)        Borrower agrees to pay to Lender a Non-Use Fee equal to the applicable Non-Use Fee Rate set forth below per annum (computed on the basis of actual days elapsed and as if each calendar year consisted of 360 days), payable quarterly in arrears, multiplied by an amount determined daily equal to the difference between the Borrowing Base and the sum of (i) the aggregate outstanding principal balance of the Revolving Loan at such time, plus (ii) the aggregate undrawn amount on all outstanding Letters of Credit.  The Non-Use Fee Rate will vary as set forth below based on the Borrowing Base Utilization:
 
Borrowing Base Utilization
 
Non-Use Fee Rate
 
Greater than or equal to 85%
    0.750 %
Less than 85%, but greater than or equal to 66%
    0.625 %
Less than 66%, but greater than or equal to 33%
    0.500 %
Less than 33%
    0.375 %

This Non-Use Fee is payable quarterly within fifteen (15) days of the end of each calendar quarter.
 
(h)           The Revolving Loan, all other loans now or hereafter made by Lender to Borrower, and any renewals or extensions of or substitutions for those loans, will be referred to collectively as the “ Loans .”  The Revolving Note, all other promissory notes now or hereafter payable by Borrower to Lender, and any renewals or extensions of or substitutions for those notes, will be referred to collectively as the “ Notes .”

 
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2.            Collateral .  (a) Payment of the Notes and the Hedge Liabilities (as defined below) will be secured by the first liens and first security interests, subject to Permitted Encumbrances (as defined below) created or described in the following (collectively the “ Security Documents ”): (i) a Deed of Trust and Security Agreement of even date, executed by Infinity Oil and Gas of Texas, Inc., in favor of Lender, and covering oil and gas properties located in Erath and Comanche Counties, Texas; (ii) a Deed of Trust and Security Agreement of even date, executed by Infinity Oil & Gas of Wyoming, Inc. in favor of Lender, and covering oil and gas properties located in Routt County, Colorado; (iii) a Deed of Trust and Security Agreement of even date, executed by Infinity Oil & Gas of Wyoming, Inc.  in favor of Lender, and covering oil and gas properties located in Sweetwater County, Wyoming; and (iv) any other security documents now or hereafter executed in connection with the Loans.  The three deeds of trust described above shall collectively be referred to as the “ Deeds of Trust ”; and all oil and gas properties now or hereafter mortgaged to Lender by Borrower or Guarantors, including the oil and gas properties covered by the Deeds of Trust, will be referred to as the “ Properties .”  If requested by Lender, Borrower and Guarantors will execute in favor of Lender mortgages, deeds of trust, security agreements, or amendments, in Proper Form (as defined below), mortgaging any additional oil and gas properties and all additional interests in the Properties acquired by Borrower or Guarantors so that Lender will continuously maintain under mortgage not less than ninety percent (90%) of the aggregate present value (as calculated by Lender in its sole discretion in accordance with the methods set forth below for the Borrowing Base) assigned to Borrower’s and Guarantors’ oil and gas properties based upon Lender’s in-house evaluation.
 
(b)          Payment of the Notes and the Hedge Liabilities will also be guaranteed by each of the Guarantors pursuant to Commercial Guaranties in Proper Form (collectively the “ Guaranties ”).
 
(c)           In connection with the Deeds of Trust and at such time as Lender requires Borrower to mortgage additional oil and gas properties, Borrower and Guarantors shall, upon request of Lender, deliver to Lender title opinions and/or other title information acceptable to Lender covering at least eighty-one percent (81%) of the present value (as determined by Lender in the manner set forth for Borrowing Base determinations below) of the Properties and the oil and gas properties which are to become Properties, along with such other information regarding title as Lender shall reasonably request, all in Proper Form and from attorneys or landmen acceptable to Lender.  Lender reserves the right to immediately exclude any oil and gas property from the Borrowing Base if Lender learns of any material title issue with respect to the oil and gas property or if Lender’s review of Borrower’s and Guarantors’ title to the oil and gas property indicates that Borrower’s title is unacceptable to Lender, in its sole discretion.
 
(d)          During the continuance of an Event of Default (as defined below), Lender reserves the right to require Borrower and Guarantors to set up a lockbox account to be managed by Lender for the purpose of collection of production proceeds attributable to Borrower’s and Guarantors’ interest in the Properties.  Borrower and Guarantors agree that upon Lender’s election to require the lockbox after an Event of Default, Lender will receive the proceeds of oil and gas produced from or attributable to Borrower’s and Guarantors’ interest in the Properties for application as set forth in Section 3.2 of the Deed of Trust; and Borrower and Guarantors hereby direct all production purchasers or operators distributing proceeds to pay Borrower’s and Guarantors’ distributions attributable to Borrower’s and Guarantors’ interest in .the Properties directly to Lender, if Lender so elects.  All production proceeds attributable to the Properties received in the lockbox account by Lender with respect to production, severance, ad valorem, or other taxes on production proceeds (excluding income taxes) or that are attributable to another person’s or entities’ interest in the Properties shall be released immediately to Borrower upon Borrower’s request.  All production proceeds attributable to Borrower’s and Guarantors’ interest in the Properties received in the lockbox account by Lender in excess of the current scheduled monthly payment and any other fees or expenses owed to Lender will be transferred to Borrower at the end of each month for its use consistent with the provisions of this Loan Agreement, so long as there is no existing Event of Default.  If the production proceeds attributable to Borrower’s and Guarantors’ interest in the Properties received by Lender during any month are not sufficient to make the scheduled monthly payment, Borrower will pay Lender the deficiency within ten (10) days of notice from Lender of such shortfall.  Contemporaneously with the execution of this Loan Agreement, Guarantors will sign and deliver to Lender letters in lieu of transfer orders to all purchasers of production directing those parties to pay all proceeds attributable to Guarantors’ interest in the Properties to the lockbox account, and these letters, signed in blank, will be held by Lender until such time as Lender elects to require the lockbox after an Event of Default.

 
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(e)           Unless a security interest would be prohibited by law or would render a nontaxable account taxable, Borrower and Guarantors grant to Lender a contractual possessory security interest in, and hereby assigns, pledges, and transfers to Lender all of Borrower’s and Guarantors’ rights in any deposits or accounts now or hereafter maintained with Lender (whether checking, savings, or any other account), excluding, however, accounts maintained by Borrower and Guarantors at Lender for the purpose of revenue distribution to third parties entitled to those revenues, including payroll accounts and any other accounts held by Borrower or Guarantors for the benefit of a third party.  While an Event of Default is outstanding, Borrower and Guarantors authorize Lender, to the extent permitted by applicable law, to charge or setoff any sums owing on the Loans or the Hedge Liabilities against any and all such deposits and accounts; and Lender shall be entitled to exercise the rights of offset and banker’s lien against all such accounts and other property or assets of Borrower and Guarantors with or in the possession of Lender to the extent of the full amount of the Loans and the Hedge Liabilities.
 
3.            Borrowing Base .  (a) On or about April 1 and October 1 of each year, commencing April 1, 2007, Lender may determine or redetermine, in its sole discretion, a Borrowing Base.  In addition, Lender may require an unscheduled redetermination once during each six month period, and Borrower shall have the right to request an unscheduled redetermination of the Borrowing Base by Lender once per six-month period between scheduled redeterminations, and Lender shall conduct such redetermination using the methods described in this section.  The term “ Borrowing Base ” refers to the designated loan value (as calculated by Lender in its sole discretion) assigned to the discounted present value of future net income accruing to Borrower’s and Guarantors’ oil and gas properties (and related gathering systems and processing and plant operations) based upon Lender’s in-house evaluation.  Lender’s determination of the Borrowing Base will use such methodology, assumptions, and discount rates customarily used by Lender with respect to credits of a similar size and nature in assigning collateral value to oil and gas properties and will be based upon such other credit factors or financial information available to Lender at the time of each determination, including, without limitation, current market conditions and Borrower’s and Guarantors’ assets, liabilities, cash flow, liquidity, business, properties, prospects, management, and ownership.  Borrower and Guarantors acknowledge that increases in the Borrowing Base are subject to appropriate credit approval by Lender.

 
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(b)           The outstanding principal balance owing on the Revolving Note, plus the aggregate undrawn amount of all Letters of Credit, may not exceed the Borrowing Base at any time, subject to the payout provisions below in the event of a Borrowing Base decrease.  A decrease in the Borrowing Base will result in an immediate decrease in Lender’s commitment under the Revolving Loan.  If the redetermined Borrowing Base is less than the sum of the outstanding principal then owing on the Revolving Note, plus the aggregate undrawn amount of all Letters of Credit, Lender will notify Borrower of the amount of the Borrowing Base and the amount of the deficiency.  Within thirty (30) days after notice is sent by Lender, Borrower shall remedy the deficiency by either: (i) making a lump sum payment on the Revolving Note to reduce the principal outstanding plus Letters of Credit to an amount equal to or less than the new Borrowing Base; (ii) committing to make six equal monthly installment payments to reduce the principal plus Letters of Credit to an amount equal to or less than the new Borrowing Base; or (iii) mortgaging additional collateral, which must be acceptable to Lender as to type, value, and title.
 
(c)           At the time of any redetermination, Lender reserves the right to establish an equal Monthly Commitment Reduction (“ MCR ”) amount by which the Borrowing Base shall be automatically reduced effective as of the fifth (5 th ) day of each successive calendar month until the next Borrowing Base redetermination.  Lender’s determination of the MCR will use such methodology, assumptions, and discount rates customarily used by Lender with respect to credits of a similar size and nature in determining commitment reductions and will be based upon such other credit factors or financial information available to Lender at the time of each determination, including, without limitation, the economic half-life of the Properties, and Borrower’s and Guarantors’ assets, liabilities, cash flow, liquidity, business, properties, prospects, management, and ownership.  The MCR will initially be set at zero dollars ($0).  If the outstanding principal balance owing on the Revolving Note, plus the aggregate undrawn amount of all unexpired and outstanding Letters of Credit, shall exceed the Borrowing Base solely because of an MCR reduction, Borrower shall within ten (10) days of such event make a single lump sum payment in an amount not to exceed the MCR to reduce the sum of the outstanding principal balance owing on the Revolving Note, plus the aggregate undrawn amount of all unexpired and outstanding Letters of Credit, to an amount below the Borrowing Base.  If the outstanding principal balance owing on the Revolving Note, plus the aggregate undrawn amount of all unexpired and outstanding Letters of Credit, shall exceed the Borrowing Base because of a Borrowing Base redetermination (or a Borrowing Base redetermination combined with a required MCR), Borrower shall have the right to cure set forth in subsection (b) above; provided, however, that if the MCR was applicable before the Borrowing Base redetermination, then the MCR amount will be due in a lump sum within ten (10) days of notice from Lender and Lender may continue the MCR at the same amount or change the MCR effective on the redetermination date.
 
(d)           If Borrower or Guarantors sell, transfer, or otherwise dispose of any oil and gas properties included in the Borrowing Base that have an aggregate sales price in excess of five percent (5%) of the most recent Borrowing Base in any fiscal year, Lender reserves the right to redetermine the Borrowing Base in accordance with this Section 3, which redetermination will be in addition to any special redeterminations permitted to Lender under subsection (a) above.  Any Borrowing Base deficiency resulting from the sale of any oil and gas properties shall be immediately reduced by a single lump sum payment in an amount not to exceed the net proceeds from the sale of the oil and gas properties, and any remaining deficiency after the Borrowing Base redetermination shall be cured by Borrower pursuant to subsection (b) above.
 
4.            Hedges and Swaps .  (a) Definitions.   As used in this Loan Agreement and the Loan Documents, the following terms have the meanings assigned below:

 
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(i)           “ ISDA Agreement ” means any International Swaps and Derivatives Association, Inc.  master agreement or any similar agreement (with all related schedules, annexes, exhibits, amendments, and confirmations), now existing or hereafter entered into by Borrower or Guarantors, as amended, modified, replaced, consolidated, extended, renewed, or supplemented from time to time.
 
(ii)          “ Hedge Transaction ” means all Transactions (as defined in the ISDA Agreement) and any other derivative transaction, including, without limitation, any commodity swap (including price protection for future production of oil, gas, or other hydrocarbons or mineral or mining interests and rights therein), commodity option, interest rate swap (including rate hedge products), basis or currency or cross-currency rate swap, forward rate, cap, call, floor, put, collar, future rate, forward agreement, spot contract, or other credit, price, foreign exchange, rate, equity, equity index option, bond option, interest rate option, rate protection agreement, currency option, or other option, or commodities derivative, exchange, risk management, or protection agreement, or commodity, securities, index, market, or price-linked transaction or agreement, or any option with respect to any such transaction or similar transaction or combination of any of the foregoing, now existing or hereafter entered into by Borrower, Guarantors, or any of them, whether linked to one or more interest rates, foreign currencies, commodity prices, equity prices, indexes, or other financial measures and whether such transactions or combinations thereof are governed by or subject to any ISDA Agreement or other similar agreement or arrangement, including all obligations and liabilities thereunder, and including all renewals, extensions, amendments, and other modifications or substitutions.
 
(iii)         “ Hedge Liabilities ” means any and all liabilities and obligations of every nature and howsoever created, direct, indirect, absolute, contingent, or otherwise, whether now existing or hereafter arising, created, or accrued, of Borrower, Guarantors, or any of them, from time to time owed or owing to Lender or Hedge Provider in connection with any ISDA Agreement and each Transaction (as defined in the ISDA Agreement) and each Confirmation (as defined in the ISDA Agreement) or any Hedge Transaction, including, but not limited to, obligations and liabilities arising in connection with or as a result of early or premature termination, cancellation, rescission, buy back, reversal, or assignment or other transfer of a Hedge Transaction, and including any obligations or liabilities under any Letters of Credit issued in connection with Hedge Transactions to which another entity is a counter-party, whether for principal, interest (including interest which, but for the filing of a petition in bankruptcy with respect to such obligor, would have accrued on such obligation, whether or not a claim is allowed for such interest in the related bankruptcy proceedings), reimbursement obligations, fees, expenses, indemnification, or otherwise.
 
(iv)        “ Hedge Provider ” means any affiliate of Lender or any other party now or hereafter contracting with Lender with respect to Hedge Transactions for Borrower.

 
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(b)            ISDA Agreement.   Borrower, Guarantors, and Lender or Hedge Provider may enter into an ISDA Agreement, governing certain Hedge Transactions available to Borrower or Guarantors from Lender or Hedge Provider.  Borrower and Guarantors may enter into Transactions (as defined in the ISDA Agreement) subject to the provisions of Confirmations (as defined in the ISDA Agreement).  Upon payment in full of the Notes and termination of any obligation of Lender to make further advances on the Revolving Loan, and upon either termination of all Hedge Transactions with Lender or Hedge Provider or Borrower and Guarantors providing appropriate support and security for then-outstanding Hedge Liabilities on terms satisfactory to Lender in its sole discretion, including substitution on the outstanding Hedge Transactions on terms acceptable to Lender of a counterparty meeting the requirements of Section 4(e)(iv) below and that is otherwise acceptable to Lender (such liabilities to thereafter be deemed “ Supported Hedge Liabilities ”), this Loan Agreement may be terminated and the Security Documents released.
 
(c)            Security.   Borrower and Guarantors agree that the Security Documents shall secure payment of all Hedge Liabilities.  Borrower, Guarantors, and Lender hereby agree that the Loans and the Hedge Liabilities shall rank pari passu and shall collectively be secured by the Security Documents on a pro rata basis.  Lender shall hold the Properties and all related collateral under the Security Documents, along with all payments and proceeds arising therefrom, for the benefit of Lender, as security for the payment of all Loans and as security for all Hedge Liabilities on a ratable basis.  The benefit of the Security Documents and of the provisions of this Loan Agreement relating to the collateral shall also extend to and be available to Lender and Hedge Provider to the extent either is a counter-party to any Hedge Transactions on a pro rata basis with respect to any obligations, liabilities, or indebtedness of Borrower or Guarantors.
 
(d)            Termination.   If and to the extent any Hedge Transaction is used in calculation of the Borrowing Base, such Hedge Transaction cannot be cancelled, liquidated, or “unwound” without the prior written consent of Lender.
 
(e)            Hedging Limitations.   Borrower and Guarantors shall not enter into any Hedge Transaction related to crude oil, natural gas, or other commodities, except hedging required by Lender and except for Hedge Transactions which meet the following requirements:
 
(i)           Hedge Transactions resulting in a cap on the price to be received by Borrower and Guarantors, involving in the aggregate at any time not more than eighty percent (80%) of Guarantors’ anticipated production from their proved developed producing oil and gas properties (as forecast in Lender’s most recent engineering valuation of the Properties); provided, however, that (1) Hedge Transactions relating to oil volumes from the Wolf Mountain 15-2-7-87 well in Routt County, Colorado, shall be limited to not more than forty percent (40%) of Guarantors’ anticipated production from that well until such time as the well constitutes twenty percent (20%) or less of the total present value of Guarantors’ proved developed producing oil and gas properties (as forecast in Lender’s most recent engineering valuation of the Properties), and (2) there shall be no limitation on the volume of Hedge Transactions resulting only in a floor price per barrel or mcf; and
 
(ii)         Hedge Transactions that would not result in a fixed price per barrel or mcf lower than the base case price used by Lender in the most-recent engineering evaluation of Guarantors’ oil and gas properties, adjusted for variances between the hedging price and Guarantors’ actual product price as determined by Lender, in each case as disclosed by Lender to Borrower, or otherwise at hedging prices acceptable to Lender as disclosed to Borrower; and
 
(iii)         Hedge Transactions that are each for a period not to exceed forty-eight (48) months; and

 
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(iv)        To the extent that Lender requires Hedge Transactions in connection with a Borrowing Base, Hedge Transactions where, in each case, the underlying contracts are with Lender or Hedge Provider, as counterparty, with a counter-party (or the parent entity thereof) who at the time the contract is made has long-term obligations rated BBB or better by Standard & Poor’s Ratings Group or Baa or better by Moody’s Investors Services, Inc., or with a counter-party that is otherwise approved by Lender in writing; and
 
(v)         Hedge Transactions that are not effective at concurrent or overlapping periods of time on the same volumes of production on both a physical and financial basis, unless the combined volumes are in compliance with the volume limitations set forth above.
 
Borrower may enter into swaps, collars, floors, caps, options, corridors, or other contracts, as such terms are commonly known within the capital markets, which are intended to reduce or eliminate the risk of fluctuation in interest rates for the purpose and effect of fixing and capping interest rates on a principal amount of indebtedness of Borrower; provided that (A) the floating rate index of each such contract generally matches the index used to determine the floating rates of interest on the corresponding indebtedness of Borrower to be hedged by such contract and the interest rate exposure would not cause the notional amount of all such Hedge Transactions then in effect for the purpose of hedging interest rate exposure to exceed one hundred percent (100%) of the total consolidated indebtedness of Borrower projected to be outstanding for any period covered by such Hedge Transaction, and (B) Borrower shall not establish or maintain any margin accounts with respect to such contracts.
 
(f)            Required Hedges.   On or before three (3) business days after the date of this Loan Agreement, Guarantors will enter into Hedge Transactions covering crude oil and natural gas meeting the following requirements: (i) Hedge Transactions resulting in at least seventy percent (70%) of Guarantors’ anticipated production from their proved developed producing oil and gas properties (as forecast in Lender’s most recent engineering valuation of the Properties) in the aggregate; (ii) Hedge Transactions for a period of not less than forty-eight (48) months; (iii) Hedge Transactions resulting in a fixed price or floor price per barrel or mcf equal to the prevailing NYMEX swap price or, if approved by Lender, a regional basis swap price, or otherwise at hedging prices acceptable to Lender; and (iv) Hedge Transactions that are assignable to Lender as additional security for the Loans.
 
(g)            Speculation.   Borrower and Guarantors shall not invest for speculative purposes in any Hedge Transactions or in any other options, futures, or derivatives.
 
(h)            Additional Collateral.   If a Hedge Transaction is entered into with an outside counter-party, Borrower and Guarantors shall, if requested by Lender, collaterally assign and pledge in favor of Lender a first-priority continuing security interest in the applicable trading account and the hedging contract as additional security for the Loans.  In connection therewith, Borrower and Guarantors shall execute and deliver to Lender such security agreements, control agreements, and financing statements as deemed appropriate by Lender to create and perfect the continuing security interest therein.

 
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5.            Conditions Precedent .  (a) The obligation of Lender to make the initial advance on the Revolving Loan is subject to Borrower’s satisfaction, in Lender’s sole discretion, of the following conditions precedent:
 
(i)            Lender’s receipt and satisfactory review by Lender of the September 30, 2006 financial statements of Borrower and Guarantors, on a consolidated and consolidating (except for the cash flow statement) basis, including a balance sheet, a statement of operations, and a cash flow statement, prepared in conformity with generally accepted accounting principles in effect on the date such statement was prepared, consistently applied (“ GAAP ”).
 
(ii)           Lender’s receipt and satisfactory review by Lender of the Approved Plan of Development.
 
(iii)          Lender’s receipt and satisfactory review of evidence from Borrower that the aggregate Accounts Payable that are more than thirty (30) days outstanding are less than or equal to $8,000,000.00.
 
(iv)          Borrower and Guarantors shall have performed and be in compliance in all material respects, with all covenants and agreements required by this Loan Agreement or the other Loan Documents to be performed prior to closing, and all representations and warranties contained in this Loan Agreement or the other Loan Documents must be true in all material respects.
 
(v)           the negotiation, execution, and delivery of Loan Documents in Proper Form, including, but not limited to, the following:
 
(1)           this Loan Agreement;
 
(2)           the Revolving Note;
 
(3)           the Deeds of Trust;
 
(4)           the Guaranties;
 
(5)           Borrowing Resolution;
 
(6)           Guarantor Resolutions; and
 
(7)           Letters in Lieu.

 
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(vi)          satisfactory evidence that Lender holds perfected liens and security interests in all collateral for the Loans, subject to no other liens or security interests except Permitted Encumbrances.  “ Permitted Encumbrances ” shall mean the following (i) those liens and security interests existing and disclosed to Lender in Schedule 5(a)(6) attached, (ii) liens for taxes not delinquent or being contested in good faith, (iii) mechanic’s and materialman’s liens with respect to obligations not overdue or being contested in good faith, (iv) liens resulting from deposits to secure the payments of workers’ compensation or social security, (v) purchase money security interests or construction liens and that are in an aggregate amount not to exceed $500,000.00, (vi) capital leases entered into in the ordinary course of business, and (vii) liens that arise in the ordinary course of business under or in connection with operating agreements, oil and gas leases, farm-out agreements, contracts for the sale, transportation, or exchange of oil and natural gas, unitization and pooling declarations and agreements, area of mutual interest agreements, marketing agreements, processing agreements, development agreements, gas balancing or deferred production agreements, injection, repressuring, and recycling agreements, salt water or other disposal agreements, seismic or other geophysical permits or agreements, and other agreements which are usual and customary in the oil and gas business and are for claims which are not delinquent or which are being contested in good faith.
 
(vii)         receipt and satisfactory review by Lender of Reserve Reports for the Borrowing Base properties.
 
(viii)       except as disclosed in Schedule 5(a)(8) attached, there shall not have occurred a material adverse change in the business, assets, liabilities (actual and contingent), operations, or condition (financial or otherwise) of Borrower or Guarantors, from that reflected in Borrower’s financial statements for the quarter ended September 30, 2006, or in the SEC Reports.  “ SEC Reports ” means those filing made by the Borrower with the Securities and Exchange Commission including annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K.
 
(ix)          except as disclosed in Schedule 5(a)(9) attached, there being no order or injunction or other pending or threatened litigation which would reasonably be expected to materially adversely affect the ability of Borrower or Guarantors to perform under the Loan Documents.
 
(x)           Lender shall have completed and approved a review of title to, and the status of the environmental condition of, Borrower’s and Guarantors’ oil and gas properties, including the Borrowing Base properties, and the results of such review shall be acceptable to Lender in its sole discretion.
 
(xi)          Lender’s receipt and review, with results satisfactory to Lender and its counsel, of information regarding litigation, tax, accounting, insurance, pension liabilities (actual or contingent), real estate leases, material contracts, debt agreements, property ownership, and contingent liabilities of Borrower, Guarantors, and any subsidiaries.
 
(xii)         Lender’s receipt of satisfactory evidence that Borrower and Guarantors have no outstanding indebtedness required by GAAP to be disclosed in their financial statements for the quarter ended September 30, 2006, which has not been so disclosed, and all outstanding obligations and liabilities incurred since September 30, 2006 have been incurred in the ordinary course of business.
 
(xiii)         Lender’s receipt and review, with results satisfactory to Lender and its counsel, of a schedule showing information regarding any existing litigation affecting Borrower or the Properties.

 
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(xiv)        Lender’s receipt of releases of the mortgages and UCC   financing statements in connection with Borrower’s Senior Secured Notes Facility.  “ Senior Secured Notes Facility ” means certain senior secured notes and warrants to purchase shares of Borrower’s common stock pursuant to that certain Securities Purchase Agreement, dated as of January 13, 2005, by and among the Borrower and HFTP Investment, L.L.C., AG Domestic Convertibles, L.P., and AG Offshore Convertibles, Ltd., as amended, restated, supplemented or otherwise modified and in effect as of the date of this Loan Agreement.
 
(xv)         Borrower’s establishment of an operating account with Lender for advances on the Revolving Loan.
 
(xvi)        Borrower shall deliver legal opinions in Proper Form, from Borrower’s and Guarantors’ counsel, regarding Borrower’s and Guarantors’ authority, the enforceability of the Loan Documents, and other matters reasonably required by Lender.
 
(b)           Lender will not be obligated to make the Loans or any subsequent advance on the Loans, if, prior to the time that a loan or advance is made, (i) there has been any material adverse change in Borrower’s or any Guarantors’ financial condition since the most-recent financial statements furnished to Lender, (ii) any representation or warranty made by Borrower or Guarantors in this Loan Agreement or the other Loan Documents is untrue or incorrect in any material respect as of the date of the advance or loan, (iii) Lender has not received all Loan Documents appropriately executed by Borrower, Guarantors, and all other proper parties, (iv) Lender has requested that Borrower or Guarantors execute additional loan or security documents and those documents have not yet been properly executed, delivered, and recorded, (v) Borrower is not in compliance with the Borrowing Base and all reporting requirements, or (vi) an Event of Default (as defined below) has occurred and is continuing.
 
6.            Representations and Warranties .  Each of Borrower and Guarantors hereby represent and warrant to Lender as follows:
 
(a)           The execution, delivery, and performance of this Loan Agreement, the Notes, the Security Documents, and all of the other Loan Documents by Borrower and by Guarantors, to the extent they are party thereto, have been duly authorized by their respective boards of directors, and this Loan Agreement, the Notes, the Security Documents, and all of the other Loan Documents constitute legal, valid, and binding obligations of Borrower and Guarantors, to the extent they are party thereto, enforceable in accordance with their respective terms;
 
(b)           The execution, delivery, and performance of this Loan Agreement, the Notes, the Security Documents, and the other Loan Documents, and the consummation of the transaction contemplated, do not require the consent, approval, or authorization of any third party and do not and will not conflict with, result in a violation of, or constitute a default under (i) any provision of Borrower’s or Guarantors’ respective articles of incorporation or bylaws, or (ii) any other agreement or instrument binding upon Borrower or any Guarantors, or (iii) any law, governmental regulation, court decree, or order applicable to Borrower or any Guarantors, except with respect to (ii) and (iii) for matters that would not reasonably be expected to have a material adverse effect on Borrower, any Guarantors, or the Properties;

 
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(c)           Each financial statement of Borrower and Guarantors, now or hereafter supplied to Lender, was (or will be) prepared in accordance with GAAP, and discloses and fairly presents (or will disclose and fairly present) in all material respects Borrower’s and Guarantors’ financial condition, on a consolidated and consolidating (except for cash flow statements) basis, as of the date of each such statement, and except as disclosed in the SEC Reports, there has been (or will have been) no material adverse change in such financial condition subsequent to the date of the most recent financial statement supplied to Lender;
 
(d)          Except as disclosed in Schedule 5(a)(9) attached, there are no actions, suits, or proceedings pending or, to Borrower’s or Guarantors’ knowledge, threatened against or affecting Borrower, any Guarantors, or the Properties, before any court or governmental department, commission, or board, which would reasonably be expected to have a material adverse effect on the Properties or the operations or financial condition of Borrower or any Guarantors;
 
(e)           Borrower and Guarantors have filed all material federal, state, and local tax reports and returns required by any law or regulation to be filed and have either duly paid all taxes, duties, and charges indicated due on the basis of such returns and reports, or made adequate provision for the payment thereof, and !he assessment of any material amount of additional taxes in excess of those paid and reported is not reasonably expected, except as disclosed in Schedule 6(e) attached;
 
(f)           Borrower is in compliance in all material respects with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended or recodified from time to time (“ ERISA ”); Borrower has not violated any provision of any “defined benefit plan” (as defined in ERISA) maintained or contributed to by Borrower (each a “ Plan ”); no “Reportable Event” as defined in ERISA has occurred and is continuing with respect to any Plan initiated by Borrower, unless the reporting requirements have been waived by the Pension Benefit Guaranty Corporation; and Borrower has met its minimum funding requirements under ERISA with respect to each Plan;
 
(g)          Borrower and Guarantors have provided to Lender copies of all material agreements affecting Borrower’s and Guarantors’ oil and gas properties or their operations, including all gas balancing agreements and advance payment contracts;
 
(h)           Borrower certifies that Schedule 6(h) sets forth a true and correct organizational chart showing all subsidiaries or other entities owned by Borrower and the ownership in each; and
 
(i)            Schedule 6(i) sets forth, as of the date of this Loan Agreement, a true and complete list of all existing ISDA Agreements and Hedge Transactions of Borrower and Guarantors, the material terms thereof (including the type, term, effective date, termination date, and notional volumes and prices), the net mark-to-market value thereof as reflected in the most-recent SEC Reports, all credit support agreements relating thereto (including any margin required or supplied), and the counter-party to each such Hedge Transactions.
 
7.            Covenants .  Until the Loans and the Hedge Liabilities and all other obligations and liabilities of Borrower under this Loan Agreement, the Notes, the Security Documents, and the other Loan Documents are fully paid and satisfied (except for unasserted indemnification obligations thereunder and except for Hedge Liabilities that are Supported Hedge Liabilities under Section 4 (b) above), Borrower and Guarantors shall, unless Lender otherwise consents in writing:

 
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(a)           (i) Except as contemplated in subclause (vi) below, maintain their existence in good standing in their respective states of incorporation, maintain their authority to do business in all states in which any is required to qualify, except where such failure to qualify would not reasonably be expected to have a material adverse effect on Borrower or any Guarantors, and maintain full legal capacity to perform all their respective obligations under this Loan Agreement and the Loan Documents, to continue to operate their business as presently conducted, () not permit any changes in Borrower’s directors that alter a majority of the current directors, () except as contemplated in subclause (vi) below, not permit their dissolution, liquidation, or other termination of existence or forfeiture of right to do business, () not form any subsidiary without notifying Lender in writing at least thirty (30) days in advance, () not permit a merger or consolidation (unless Borrower or Guarantor, as the case may be, is the surviving entity), and () not acquire all or substantially all of the assets of any other entity without first notifying Lender in writing at least thirty (30) days in advance.
 
(b)          Manage the Properties in an orderly and efficient manner consistent with good business practices, and perform and comply in all material respects with all statutes, rules, regulations, and ordinances imposed by any governmental unit upon the Properties or Borrower, Guarantors, and their operations including, without limitation, compliance with all applicable laws relating to the environment.
 
(c)           Maintain insurance as customary in the industry or as reasonably required by Lender, including but not limited to, casualty, comprehensive property damage, and commercial general liability, and other insurance, including worker’s compensation (if necessary to comply with law), naming Lender as an additional insured or a loss payee, and containing provisions prohibiting their cancellation without prior written notice to Lender, and provide Lender with evidence of the continual coverage of those policies prior to the lapse of any policy.
 
(d)           Not sell, assign, transfer, or otherwise dispose of all or any interest in the Properties or any other collateral, except for (i) the sale of hydrocarbons in the ordinary course of business, (ii) the sale or transfer of equipment or inventory in the ordinary course of business or that is no longer necessary for the business of Borrower or that is obsolete or replaced by equipment of at least comparable value and use, and (iii) the sale of oil and gas properties having an aggregate sales price not in excess of five percent (5%) of the then-applicable Borrowing Base per fiscal year, without the prior written consent of Lender, provided that Lender shall not unreasonably withhold its consent for any sale, farmout, farmin, or other disposition of any oil and gas properties or any interest therein, so long as: (x) the net sales proceeds received by Borrower are equal to or greater than the Borrowing Base value attributable to the sold properties according to the most-recent Borrowing Base review by Lender; (y) any resulting Borrowing Base deficiency after exclusion of the sale properties from the Borrowing Base is immediately eliminated by a single lump sum payment; and (z) there is no existing Event of Default.

 
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(e)           Promptly inform Lender of (i) any and all material adverse changes in Borrower’s or any Guarantors’ financial condition, (ii) all litigation and claims which could reasonably be expected to materially and adversely affect the financial condition of Borrower, any Guarantor, or the Properties, (iii) all actual or contingent material liabilities of Borrower or any Guarantors, (iv) any change in name, identity, or structure of Borrower or any Guarantors, and (v) any uninsured or partially insured loss reasonably estimated in excess of $500,000.00 of any collateral through fire, theft, liability, or property damage.
 
(f)           Maintain full and accurate books and records and a standard system of accounting in accordance with GAAP, and permit Lender to examine, audit, and make and take away copies or reproductions of Borrower’ s and Guarantors’ books and records, reasonably required by Lender, at all reasonable times; and permit such persons as Lender may designate at reasonable times to visit and inspect the Properties and examine all records with respect to the Properties, and pay for the reasonable cost of such inspections required by Lender.
 
(g)           Pay and discharge when due all indebtedness and obligations, including without limitation, all assessments, taxes, governmental charges, levies, and liens, of every kind and nature, imposed upon Borrower, Guarantors, or the Properties, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a material lien or charge upon the Properties, income, or profits, and pay all trade payables and other current liabilities incurred in the ordinary course of business within ninety (90) days of their due date; provided, however, Borrower and Guarantors will not be required to pay and discharge any such assessment, tax, charge, levy, lien, or claim so long as (i) the legality of the same shall be contested in good faith by appropriate judicial, administrative, or other legal proceedings, and (ii) Borrower or Guarantors have established adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in accordance with GAAP.
 
(h)           Not directly or indirectly create, incur, assume, or permit to exist any indebtedness (including guaranties), secured or unsecured, absolute or contingent, except for (i) the indebtedness to Lender, (ii) any trade payables, taxes, and liabilities incurred in the ordinary course of business, (iii) any indebtedness already incurred and disclosed in Borrower’s financial statements for the quarter ended September 30, 2006, (iv) Borrower’s obligations with respect to the potential payment of a purchase price adjustment and its indemnification obligations under the Purchase Agreement dated December 1, 2006 between Borrower and Consolidated Oil Well Services, LLC, (v) obligations under capital leases, transportation deficiencies, or gas imbalances,(vi) indebtedness of up to $500,000.00 for the financing of insurance premiums, (vii) intercompany indebtedness among the Borrower and Guarantors, (viii) the obligations related to Borrower’s Nicaraguan concessions disclosed in Schedule 7(h) attached, (ix) obligations related to Hedge Transactions permitted by this Loan Agreement, and (x) additional indebtedness not to exceed $500,000.00 in the aggregate.
 
(i)           Not mortgage, assign, hypothecate, pledge, or encumber, and not create, incur, or assume any lien or security interest on or in, the Properties (or any interest in the Properties), any oil and gas properties included in the calculation of the Borrowing Base, or any of Borrower’s or Guarantors’ property or assets, except (i) those in favor of Lender, and (ii) Permitted Encumbrances.

 
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(j)           Except for transactions among Borrower and Guarantors, not make any loans, advances, dividends, or other distributions, other than in the ordinary course of business, to any party, including without limitation, shareholders, officers, directors, partners, joint venturers, members, managers, relatives, and affiliates, or any profit sharing or retirement plan.
 
(k)           Not purchase, acquire, redeem, or retire any stock or other ownership interest in Borrower; and not permit any transaction or contract with any affiliates or related parties, except in the ordinary course of business and except at arms length and on market terms.
 
(l)            Promptly open and maintain at least three depository accounts with Lender, and discuss with Lender moving their primary depository accounts and principal banking relationship to Lender.
 
(m)          Timely develop the proved oil and gas properties and undeveloped oil and gas properties in the Project Areas in accordance with the Approved Plan of Development and make capital expenditures on such oil and gas properties in accordance with the Approved Plan of Development.  Except to the extent of delays beyond the reasonable control of Borrower, such as acts of god, governmental inaction, restraint, or delay, unavailability of equipment, inability to obtain permits or other regulatory approvals, and the unavailability of rigs, for which Borrower provides evidence of such delays to Lender, Borrower and Guarantors shall diligently proceed to drill and complete each producing and injection well under the Approved Plan of Development and use reasonable diligence to connect each gas well to gathering systems and pipelines to permit the sale and marketing of natural gas in the ordinary course of business.
 
(n)          Meet with the Lender from time to time as reasonably requested by Lender to review all operational activities of Borrower and Guarantors with respect to the Properties, the Approved Plan of Development, the Project Areas, and all financial reports.  Each review shall be in scope reasonably satisfactory to Lender, but will include at a minimum, an update by Borrower on the development activities made pursuant to the Approved Plan of Development, any requests by Borrower that changes be made to the Approved Plan of Development, any cost or expense overruns or savings, any mechanical problems incurred, and any differences in reserves or production estimates.
 
(o)           Indemnify Lender against all losses, liabilities, withholding and other taxes, claims, damages, or expenses (other than income taxes) relating to the Loans, the Loan Documents, or Borrower’s use of the Loan proceeds, including but not limited to reasonable attorneys and other professional fees and settlement costs, but excluding, however, those caused solely by or resulting solely from any gross negligence or willful misconduct by Lender; and this indemnity shall survive the termination of this Loan Agreement.
 
(p)           Comply in all material respects with all applicable provisions of ERISA, except as set forth in Schedule 7(p) attached, not violate in any material respect any provision of any Plan, meet their minimum funding requirements under ERISA with respect to each Plan, and notify Lender in writing of the occurrence and nature of any Reportable Event or Prohibited Transaction, each as defined in ERISA, or any funding deficiency with respect to any Plan.

 
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(q)           If Borrower acquires any wholly-owned subsidiary or owns any issued and outstanding capital stock or partnership interests of any companies or partnerships, Borrower shall sign and deliver to Lender within fifteen (15) days after such acquisition a pledge agreement in Proper Form, creating a first-priority security interest covering the issued and outstanding capital stock or partnership interests of all existing and hereafter acquired companies, subsidiaries, or partnerships of Borrower, and Borrower shall cause each wholly-owned subsidiary to sign and deliver to Lender within fifteen (15) days after such acquisition a guaranty in substantially the same form as signed by Guarantors in connection with this Loan Agreement, guaranteeing payment of the Loans.
 
(r)           Execute and deliver, or cause to be executed and delivered, any and all other agreements, instruments, or documents which Lender may reasonably request in order to give effect to the transactions contemplated under this Loan Agreement and the Loan Documents, and to grant, perfect, and maintain liens and security interests on or in the Properties and related collateral, and promptly upon Lender’s request cure any defects in the execution and delivery of any Loan Documents.
 
8.            Financial Covenants .  Until the Loans and the Hedge Liabilities and all other obligations and liabilities of Borrower under this Loan Agreement, the Notes, the Security Documents, and the other Loan Documents are fully paid and satisfied (other than unasserted indemnification obligations thereunder and except for Hedge Liabilities that are Supported Hedge Liabilities under Section 4 (b) above), Borrower and Guarantors shall, unless Lender otherwise consents in writing, maintain the following financial covenants to be calculated on a consolidated basis commencing with the fiscal quarter ending March 31, 2007:
 
(a)           Maintain at the end of each fiscal quarter an Interest Coverage Ratio greater than or equal to 3.0 to 1.0. “ Interest Coverage Ratio ” is defined as the ratio of (i) the sum of Borrower’s and Guarantors’ most recent quarter’s net income, plus interest expense for the same period, plus income taxes for the same period, plus depreciation, depletion, amortization, and other non-cash charges for the same period, divided by (ii) interest expense for the same period.
 
(b)           Maintain at the end of each fiscal quarter a Current Ratio greater than or equal to 1.0 to 1.0. “ Current Ratio ” is defined as the ratio of (i) Borrower’s and Guarantors’ current assets, plus availability on the Revolving Loan, divided by (ii) current liabilities (excluding current maturities of long-term debt); provided, however, that the marked to market values for hedging positions in accordance with FASB 133 shall be excluded from this calculation until such time as the gains or losses from the hedges are actually realized and the hedges expire.
 
(c)           Maintain at the end of each fiscal quarter a Debt Service Coverage Ratio greater than or equal to 1.25 to 1.0. “ Debt Service Coverage Ratio ” is defined as the ratio of (i) the sum of Borrower’s and Guarantors’ most recent quarter’s net income, plus depletion, depreciation, amortization, and other non-cash charges for the same period, plus income taxes for the same period, minus gains from the sale of assets (or plus losses from the sale of assets), divided by (ii) the sum of the current maturities of long term debt (excluding the Revolving Loan) for the same period, plus the monthly commitment reductions for the same period as required by Lender.

 
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(d)           Maintain at the end of each fiscal quarter a Funded Debt to EBITDA Ratio less than or equal to (i) 4.25 to 1.0 for the fiscal quarter ending March 31, 2007, (ii) 4.0 to 1.0 for the fiscal quarter ending June 30, 2007, and (iii) 3.5 to 1.0 for each fiscal quarter thereafter.  “ Funded Debt to EBITDA Ratio ” is defined as the ratio of (i) the total amount outstanding on the Loans, divided by (ii) the sum of Borrower’s and Guarantors’ most recent quarter’s net income annualized, plus income taxes for the same period annualized, plus interest expense on the Loans for the same period annualized, plus depletion, depreciation, and amortization for the same period annualized, plus other non-cash charges for the same period annualized, minus gains from the sale of assets (or plus losses from the sale of assets) for the same period annualized; provided, however, that EBITDA from acquisitions may only be included in this covenant after Lender has reviewed and approved proforma financial statements demonstrating the effect of the acquisition.
 
(e)           Maintain at the end of each fiscal quarter a Collateral Coverage Ratio greater than or equal to 1.33 to 1.0. “ Collateral Coverage Ratio ” is defined as the ratio of (i) the aggregate present value of Guarantors’ proved developed producing oil and gas properties (as determined by Lender assuming NYMEX prices minus the differentials), divided by (ii) the total amount outstanding on the Loans.
 
(f)           Not permit quarterly general and administrative expenses on a consolidated basis to exceed $700,000.00 (excluding non-cash items) per fiscal quarter during 2007.
 
(g)          Shall use all “ Free Operating Cash Flow ” to the extent thereof, for the purpose of funding the capital expenditures under the Approved Plan of Development.  “ Free Operating Cash Flow ” is defined as net cash flow from operating activities, minus payments for general and administrative expenditures permitted under the Loan Agreement, minus interest expense, fees, expenses, and principal, if any, paid during such period in respect of Revolving Loan, and minus the Permitted Nicaraguan Contributions (as defined below), if any.
 
(h)           Shall not use any Free Operating Cash Flow or other cash, or make any loans, advances, capital contributions, or other distributions, for or with respect to Borrower’s Nicaraguan concessions; provided, however, that (1) this provision shall not limit or prevent draws under two letters of credit dated May 19, 2006, in the amounts of $408,450.00 and $443,100.00, respectively, issued by Cornerstone Bank, in favor of Direccion General de Hidrocarburos, Insituto Nicaraguense de Energia, for the account of Borrower, and (2) so long as there is no existing Event of Default or Borrowing Base deficiency, Borrower may use Free Operating Cash Flow or other cash, or make loans, advances, capital contributions, or other distributions, for or with respect to Borrower’s Nicaraguan concessions, in an aggregate amount not to exceed $200,000.00 per fiscal year (collectively the “ Permitted Nicaraguan Contributions ”).  Borrower shall notify Lender in writing when Permitted Nicaraguan Contributions are made, including the source for those contributions.
 
Unless otherwise specified, all accounting and financial terms and covenants set forth above are to be determined according to GAAP, consistently applied.
 
9.             Reporting Requirements .  Until the Loans and the Hedge Liabilities and all other obligations and liabilities of Borrower under this Loan Agreement, the Notes, the Security Documents, and the other Loan Documents are fully paid and satisfied (other than unasserted indemnification obligations thereunder or with respect to the Hedge Liabilities, all such outstanding Hedge Liabilities are Supported Hedge Liabilities under Section 4 (b) above), Borrower and Guarantors shall, unless Lender otherwise consents in writing, furnish to Lender:

 
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(a)           As soon as available, and in any event within one hundred twenty (120) days of the end of each fiscal year, audited annual financial statements for Borrower and Guarantors on a consolidated basis, consisting of at least a balance sheet, an income statement or statement of operations, a cash flow statement, and a statement of changes in owners’ equity, along with an auditor’s opinion from EKS&H or another independent certified public accountant acceptable to Lender and certified by an authorized officer of Borrower (i) as being true and correct in all material aspects to his knowledge, (ii) as fairly reporting the financial condition of Borrower and Guarantors as of the close of the fiscal year and the results of their operations for the year, and (iii) as having been prepared in accordance with GAAP; and unaudited annual financial statements for Borrower and Guarantors on a consolidating basis, consisting of at least a balance sheet, an income statement or statement of operations, and a statement of changes in owners’ equity, certified by an authorized officer of Borrower (i) as being true and correct in all material aspects to his knowledge, (ii) as fairly reporting the financial condition of Borrower and Guarantors as of the close of the fiscal year and the results of their operations for the year, and (iii) as having been prepared in accordance with GAAP;
 
(b)           As soon as available, and in any event within sixty (60) days of the end of each fiscal quarter, quarterly financial statements for Borrower and Guarantors on a consolidated and consolidating (except for the cash flow statement) basis, consisting of at least a balance sheet, an income statement or statement of operations, a cash flow statement, and a statement of changes in owners’ equity, for the quarter and for the period from the beginning of the fiscal year to the close of the quarter, certified by an authorized officer of Borrower (i) as being true and correct in all material aspects to his knowledge,
 
(ii) as fairly reporting the financial condition of Borrower and Guarantors as of the close of the fiscal quarter and the results of their operations for the quarter, and (iii) as having been prepared in accordance with GAAP, subject to normal year-end adjustments and the absence of footnotes;
 
(c)           With the quarterly and annual financial statements required above, a quarterly compliance certificate in the form of Exhibit B attached, signed by an authorized officer of Borrower and certifying compliance with the financial covenants and other matters in this Loan Agreement;
 
(d)           On or before March 1 of each year, a report dated as of January 1, prepared by an independent petroleum engineer or engineering firm or other designee acceptable to Lender, and on or before August 15 of each year, a report dated as of July 1, prepared by or on behalf of Borrower, both reports to be prepared on a consistent basis in accordance with the customary standards and procedures of the petroleum industry, estimating the quantity of oil, gas, and associated hydrocarbons recoverable from the Properties and all of Borrower’s and Guarantors’ oil and gas properties, and the projected income and expense attributable to the Properties and all of Borrower’s and Guarantors’ oil and gas properties, including, without limitation, a description of reserves, net revenue interests and working interests attributable to the reserves, rates of production, gross revenues, operating expenses, ad valorem taxes, capital expenditures necessary to cause the Properties and all of Borrower’s and Guarantors’ oil and gas properties to achieve the rate of production set forth in the report, net revenues and present value of future net revenues attributable to the reserves and production therefrom, a statement of the assumptions upon which the determinations were made and any other matters related to the operations of the Properties and all of Borrower’s and Guarantors’ oil and gas properties and the estimated income therefrom;

 
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(e)           Within fifteen (15) days of Lender’s request, copies of Borrower’s federal, state, and local income tax filings or returns, with all schedules, attachments, forms, and exhibits;
 
(f)           As soon as available, and in any event within thirty (30) days after the end of each calendar quarter, a hedging report setting forth as of the last business day of such prior fiscal quarter end, a summary of Borrower’s and Guarantors’ existing hedging positions under all Hedge Transactions (including forward agreements or contracts of sale which provide for prepayment for deferred shipment or delivery of oil, gas, and other commodities), including the type, term, effective date, termination date, and notional volumes and prices for such volumes, the hedged prices, interest rates, or exchange rates, as applicable, and any new credit support agreements relating thereto not previously disclosed to Lender;
 
(g)          Within five (5) days of Lender’s request, Borrower shall provide to Lender full and complete copies of all agreements, documents, and instruments evidencing all existing Hedge Transactions and such other information regarding Hedge Transactions as Lender may reasonably request;
 
(h)          Within sixty (60) days of the end of each month, a production report, on a lease-by-lease or unit basis, showing the gross proceeds from the sale of oil, gas, and associated hydrocarbons produced from the Properties, the quantity of oil, gas, and associated hydrocarbons sold, the severance, gross production, occupation, or gathering taxes deducted from or paid out of the proceeds, the lease operating expenses, intangible drilling costs, and capital expenditures, the number of wells operated, drilled, or abandoned, the name, address, telephone number, and contact of the first purchaser of production for all of the Properties, and such other information as Lender may reasonably request;
 
(i)           As soon as available, and in any event within thirty (30) days after the end of each calendar quarter, a gas balancing report, in Proper Form and duly certified by an authorized representative of Borrower as being true and correct in all material aspects to his or her knowledge;
 
(j)           At any time upon request by Lender, a list showing the name and address of each purchaser of oil, gas, and associated hydrocarbons produced from or attributable to the Properties;
 
(k)          Within thirty (30) days of the date of this Loan Agreement, evidence of the payment in full of the Accounts Payable, including lien releases to the extent necessary.
 
(l)           If requested by Lender, Borrower shall provide evidence that the budgeted capital expenditures for oil and gas properties have been completed as scheduled in accordance with the Approved Plan of Development, along with the associated paid vendor invoices.

 
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(m)          If requested by Lender, Borrower shall provide evidence that it reasonably expects to have the funds available to fund the budgeted capital expenditures under the Approved Plan of Development.
 
(n)          Within five (5) days after Borrower learns of any such occurrence, a written report of any pending or threatened litigation which would reasonably be expected to have a material adverse effect upon Borrower, Guarantors, the Properties, or Borrower’s or any Guarantors’ financial condition or which asserts damages or claims in an amount in excess of $100,000;
 
(o)           Within five (5) days after Borrower learns of any default under one or more Hedge Transactions that results in an obligation of Borrower or any Guarantors to make one or more material payments, written notice of the default and copies of all documentation relating to the default;
 
(p)           As soon as possible and in any event within five (5) days after the occurrence of any Event of Default, or any event which, with the giving of notice or lapse of time or both, would constitute an Event of Default, the written statement of the President or the Chief Financial Officer of Borrower setting forth the details of such Event of Default and the action which Borrower proposes to take with respect thereto; and
 
(q)           Such other information respecting the condition and the operations, financial or otherwise, of Borrower, Guarantors, and the Properties as Lender may from time to time reasonably request.
 
10.            Events of Default .  (a) The occurrence at any time of any of the following events or the existence of any of the following conditions, and the expiration of any notice, cure, or grace period provided in Section 10(b) below, shall be called an “ Event of Default ”:
 
(i)            Failure to make punctual payment when due of any sums owing on any of the Notes or any of the other secured indebtedness (as described in the Deeds of Trust) or any other amounts owed by Borrower to Lender; or
 
(ii)           Failure of any of the Obligated Parties (as defined below) to perform in any material respect any of the obligations, covenants, or agreements, contained in this Loan Agreement or any of the other Loan Documents; or any representation or warranty made by Borrower or Guarantors proves to have been false, misleading, or erroneous when made in any material respect; or
 
(iii)          A material default by Borrower or Guarantors under any ISDA Agreement or with respect to any Hedge Liabilities; or non-payment when due or the material breach by Borrower or Guarantors or any Obligated Parties of any term, provision, or condition contained in any Hedge Transaction or any confirmation or other transaction consummated thereunder, whether or not Lender is a party thereto; or

 
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(iv)          If Borrower or any Guarantor causes production payments for oil and gas produced from or attributable to Borrower’s oil and gas properties to be directed to any party other than the lockbox maintained by Lender following the establishment of the lockbox under Section 2(d) of this Loan Agreement; or
 
(v)           A failure by Borrower to resolve a Borrowing Base deficiency in accordance with Section 3(b) of this Loan Agreement; or
 
(vi)          Levy, execution, attachment, sequestration, or other writ against any material portion of the real or personal property representing the security for the Loans; or
 
(vii)        Any “Event of Default” under the Notes or any of the other Loan Documents, the Events of Default defined in the Notes and Loan Documents being cumulative to those contained in this Loan Agreement; or
 
(viii)        Except as expressly permitted by this Loan Agreement, the transfer, whether voluntarily or by operation of law, of all or any portion of the Properties without obtaining Lender’s consent; or
 
(ix)           The failure of any of the Obligated Parties to pay any money judgment in excess of $500,000.00, against that party before the expiration of thirty (30) days after the judgment becomes final, unless such judgment has been stayed, or the failure of any of the Obligated Parties to obtain dismissal within ninety (90) days of any involuntary proceeding filed against that party under any Debtor Relief Laws (as defined below); or
 
(x)           Borrower’s liquidation, termination of existence, merger or consolidation with another (unless Borrower is the surviving entity), forfeiture of right to do business, except where such forfeiture would not reasonably be expected to have a material adverse effect on Borrower or any Guarantors, or appointment of a trustee or receiver for any substantial part of its property or the filing of an action seeking to appoint a trustee or receiver for same; or
 
(xi)           A filing by any of the Obligated Parties of a voluntary petition in bankruptcy, or taking advantage of any Debtor Relief Laws; or an answer admitting the material allegations of a petition filed against any of the Obligated Parties, under any Debtor Relief Laws; or an admission by any of the Obligated Parties in writing of an inability to pay its or their debts as they become due; or the calling of any meeting of creditors of any of the Obligated Parties for the purpose of considering an arrangement or composition; or
 
(xii)         Any of the Obligated Parties revokes or disputes the validity of or liability under any of the Loan Documents, including any guaranty or security document.
 
(b)           The term “ Obligated Parties ” means Borrower, Guarantors, any other party liable, in whole or in part, for the payment of any of the Notes, whether as maker, endorser, guarantor, surety, or otherwise, and any party executing any deed of trust, mortgage, security agreement, pledge agreement, assignment, or other contract of any kind executed as security in connection with or pertaining to the Notes or the Loans.  The term “ Debtor Relief Laws ” means any applicable liquidation, conservatorship, receivership, bankruptcy, moratorium, rearrangement, insolvency, reorganization, or similar laws affecting the rights or remedies of creditors generally, as in effect from time to time.

 
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11.            Remedies .  (a) Upon the occurrence and during the continuance of anyone or more of the foregoing Events of Default, the entire unpaid principal balances of the Notes, together with all accrued but unpaid interest thereon, and all other indebtedness then owing by Borrower to Lender, shall, at the option of Lender, upon written notice to Borrower, become immediately due and payable without further presentation, demand for payment, notice of intent to accelerate, notice of acceleration or dishonor, protest or notice of protest of any kind, all of which are expressly waived by Borrower.  Any and all rights and remedies of Lender pursuant to this Loan Agreement or any of the other Loan Documents may be exercised by Lender, at its option, upon the occurrence and during the continuance of an Event of Default.  All remedies of Lender may be exercised singularly, concurrently, or consecutively, without waiver or election.
 
(b)          Upon any event described in Subsection 10 (a)(l) above regarding payment of sums owing to Lender, Lender shall provide Borrower with an invoice for the payment due and Borrower shall have five (5) days grace after the due date in order to cure the default prior to acceleration of the Notes and exercise of any remedies.  Upon any other event described in Subsection 10 (a) above, Lender shall provide Borrower with written notice of the default and Borrower shall have twenty (20) days after notice in order to cure the default prior to acceleration of the Notes and exercise of any remedies; except Borrower shall have no cure period for any voluntary filing by Borrower under any Debtor Relief Laws, for any voluntary transfer of any portion of the Properties, without obtaining Lender’s partial release, for any liquidation or termination of existence of Borrower, or for any Event of Default that is not capable of cure during that period, and provided that Lender is not obligated to provide written notice of any default which Borrower reports to Lender, but Borrower shall have the benefit of any applicable grace or cure period required herein.
 
(c)           All rights of Lender under the terms of this Loan Agreement shall be cumulative of, and in addition to, the rights of Lender under any and all other agreements between Borrower and Lender (including, but not limited to, the other Loan Documents), and not in substitution or diminution of any rights now or hereafter held by Lender under the terms of any other agreement.
 
12.            Waiver and Amendment .  Neither the failure nor any delay on the part of Lender to exercise any right, power, or privilege herein or under any of the other Loan Documents shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power, or privilege preclude any other or further exercise thereof or the exercise of any other right, power, or privilege.  No waiver of any provision in this Loan Agreement or in any of the other Loan Documents and no departure by Borrower therefrom shall be effective unless the same shall be in writing and signed by Lender, and then shall be effective only in the specific instance and for the purpose for which given and to the extent specified in such writing.  No modification or amendment to this Loan Agreement or to any of the other Loan Documents shall be valid or effective unless the same is signed by the party against whom it is sought to be enforced.

 
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13.            Savings Clause .  Regardless of any provision contained in this Loan Agreement, the Notes, or any of the Loan Documents, it is the express intent of the parties that at no time shall Borrower or any of the Obligated Parties pay interest in excess of the Maximum Rate (or any other interest amount which might in any way be deemed usurious), and Lender will never be considered to have contracted for or to be entitled to charge, receive, collect, or apply as interest on any of the Notes, any amount in excess of the Maximum Rate (or any other interest amount which might in any way be deemed usurious).  In the event that Lender ever receives, collects, or applies as interest any such excess, the amount which would be excessive interest will be applied to the reduction of the principal balances of the Notes, and, if the principal balances of the Notes are paid in full, any remaining excess shall forthwith be paid to Borrower.
 
In determining whether the interest paid or payable exceeds the Maximum Rate (or any other interest amount which might in any way be deemed usurious), Borrower and Lender shall, to the maximum extent permitted under applicable law: (i) characterize any non-principal payment (other than payments which are expressly designated as interest payments hereunder) as an expense or fee rather than as interest; (ii) exclude voluntary prepayments and the effect thereof; and (iii) amortize, pro rate, or spread the total amount of interest throughout the entire contemplated term of the Notes so that the interest rate is uniform throughout the term.  The term “ Maximum Rate ” means the maximum interest rate which may be lawfully charged under applicable law.
 
14.            Notices .  Any notice or other communications provided for in this Loan Agreement shall be in writing and shall be given to the party at the address shown below:
 
Lender:
AMEGY BANK N.A.
 
Attention: Tim E. Merrell, Senior Vice President
 
1807 Ross Avenue, Suite 400
 
Dallas, Texas 75201
 
Fax Number (214) 754-9687
   
With a copy to counsel for Lender:
Paul D. Bradford
 
HARRIS, FINLEY & BOGLE, P.C.
 
777 Main Street, Suite 3600
 
Fort Worth, Texas 76102-5341
 
Fax Number (817) 332-6121
   
Borrower and Guarantors:
INFINITY ENERGY RESOURCES, INC.
 
INFINITY OIL AND GAS OF TEXAS, INC.
 
INFINITY OIL & GAS OF WYOMING, INC.
 
Attention: James A. Tuell, President
 
633 Seventeenth Street, Suite 1800
 
Denver, Colorado 80202
 
Fax Number (720) 932-5409
   
With a copy to counsel for
 
Borrower and Guarantors:
Deborah L. Friedman
 
DAVIS GRAHAM & STUBBS LLP
 
1550 Seventeenth Street, Suite 500
 
Denver, Colorado 80202
 
Fax Number (303) 893-1379

 
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Any such notice or other communication shall be deemed to have been given on the day it is personally delivered or, if mailed, on the third day after it is deposited in an official receptacle for the United States mail, or, if faxed, on the date it is received by the party.  Any party may change its address for the purposes of this Loan Agreement by giving notice of such change in accordance with this paragraph.
 
15.           Miscellaneous .  (a) This Loan Agreement shall be binding upon and inure to the benefit of Lender, Borrower, and Guarantors, and their respective heirs, personal representatives, successors, and assigns; provided, however, that Borrower and Guarantors may not, without the prior written consent of Lender, assign any rights, powers, duties, or obligations under this Loan Agreement or any of the other Loan Documents.
 
(b)           THIS LOAN AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LA WS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA AND SHALL BE PERFORMED IN DALLAS COUNTY, TEXAS.  BORROWER, GUARANTORS, AND LENDER IRREVOCABLY AGREE THAT VENUE FOR ANY ACTION OR CLAIM RELATED TO THIS LOAN AGREEMENT, THE NOTES, THE LOANS, THE GUARANTIES, OR THE PROPERTIES SHALL BE IN COURT IN DALLAS COUNTY, TEXAS.
 
(c)           If any provision of this Loan Agreement or any other Loan Documents is held to be illegal, invalid, or unenforceable under present or future laws, such provision shall be fully severable and the remaining provisions of this Loan Agreement or any of the other Loan Documents shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance.
 
(d)           All covenants, agreements, undertakings, representations, and warranties made in this Loan Agreement and the other Loan Documents shall survive any closing hereunder.
 
(e)           All documents delivered by Borrower or Guarantors to Lender must be in Proper Form.  The term “ Proper Form ” means in form, substance, and detail satisfactory to Lender in its sole discretion.
 
(f)           Without limiting the effect of any provision of any Loan Document which provides for the payment of expenses and attorneys fees upon the occurrence of certain events, Borrower shall pay all costs and expenses (including, without limitation, the reasonable attorneys fees of Lender’s legal counsel) in connection with (i) the preparation of this Loan Agreement and the other Loan Documents, and any and all extensions, renewals, amendments, supplements, extensions, or modifications thereof, (ii) any action reasonably required in the course of administration of the Loans, (iii) resolution of any disputes with Borrower or Guarantors related to the Loans or this Loan Agreement, and (iv) any action in the enforcement of Lender’s rights upon the occurrence of an Event of Default.
 
(g)           If there is a conflict between the terms of this Loan Agreement and the terms of any of the other Loan Documents, the terms of this Loan Agreement will control.

 
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(h)           Lender shall have the right, with the consent of Borrower (unless an Event of Default has occurred and is continuing, in which case no consent is needed), which will not be unreasonably withheld, (i) to assign the Loans or commitment and be released from liability thereunder, and (ii) to transfer or sell participations in the Loans or commitment with the transferability of voting rights limited to principal, rate, fees, and term.
 
(i)           This Loan Agreement may be separately executed in any number of counterparts, each of which will be an original, but all of which, taken together, shall be deemed to constitute one agreement, and Lender is authorized to attach the signature pages from the counterparts to copies for Lender and Borrower.  At Lender’s option, this Loan Agreement and the Loan Documents may also be executed by Lender, Borrower, and Guarantors in remote locations with signature pages faxed to Lender and Borrower.  Lender, Borrower, and Guarantors agree that the faxed signatures are binding upon the parties thereto, and the parties further agree to promptly deliver the original signatures for this Loan Agreement and all Loan Documents by overnight mail or expedited delivery.  It will be an Event of Default if they fail to promptly deliver all required original signatures.
 
16.            Notice of Final Agreement .  (a) In connection with the Loans, Borrower, Guarantors, and Lender have executed and delivered this Loan Agreement and the Loan Documents (collectively the “ Written Loan Agreement ”).
 
(b)           It is the intention of Borrower, Guarantors, and Lender that this paragraph be incorporated by reference into each of the Loan Documents.  Borrower, Guarantors, and Lender each warrant and represent that their entire agreement with respect to the Loans is contained within the Written Loan Agreement, and that no agreements or promises have been made by, or exist by or among, Borrower, Guarantors, and Lender that are not reflected in the Written Loan Agreement.
 
(c)           THE WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
 
If the foregoing correctly sets forth our agreement, please so acknowledge by signing and returning the additional copy of this Loan Agreement enclosed to me.
 
 
Yours very truly,
   
 
AMEGY BANK N.A.
   
 
By:
/s/ Tim E. Merrell
   
Tim E. Merrell,
   
Senior Vice President
 
 
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Accepted and agreed to this 9 th day of January, 2007:
 
BORROWER:
 
INFINITY ENERGY RESOURCES, INC.
 
By:
/s James A. Tuell
 
 
James A. Tuell, President
 
 
GUARANTORS:
 
INFINITY OIL AND GAS OF TEXAS, INC.
 
By:
/s/   James A. Tuell
 
 
James A. Tuell, President
 
 
INFINITY OIL & GAS OF WYOMING, INC.
 
By:
/s/ James A. Tuell
 
 
James A. Tuell, President
 

 
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Exhibits and Schedules
Exhibit A -Revolving Note
Exhibit B -Compliance Certificate
Schedule 1 (d) -Approved Plan of Development
Schedule 5(a)(6) -Liens and security interests
Schedule 5(a)(8) -Material adverse change
Schedule 5(a)(9) -Order, injunction, or other pending or threatened actions, suits, or proceedings
Schedule 6( e) -Additional taxes
Schedule 6(h) -Organizational Chart
Schedule 6(i) -Hedge Transactions
Schedule 7(h) -Obligations on Nicaraguan concessions
Schedule 7(P) -ERISA issues

 
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Exhibit 10.7
 
REVOLVING PROMISSORY NOTE
 
$50,000,000.00
Dallas, Texas
January 9, 2007    

1.           Promise to Pay.  For value received, on or before January 9, 2009 (“ Maturity Date ”), INFINITY ENERGY RESOURCES, INC. (“ Borrower ”), a Delaware corporation, promises to pay to the order of AMEGY BANK, N.A. (“ Lender ”), at its offices in Dallas County, Texas, at 1807 Ross Avenue, Suite 400, Dallas, Dallas County, Texas 75201, the principal amount of Fifty Million Dollars ($50,000,000.00) (“ Total Principal Amount ”), or such amount less than the Total Principal Amount which has been advanced to Borrower and remains unpaid under this Revolving Promissory Note (“ Note ”), together with interest on the portion of the Total Principal Amount advanced to Borrower from the date advanced until paid at the rates per annum provided below.
 
2.           Definitions.  For purposes of this Note, unless the context otherwise requires, certain terms used herein shall be defined as follows:
 
Adjusted LIBOR Rate ” means with respect to each Interest Period, a rate per annum equal to the sum of (i) the LIBOR Spread, plus (ii) the LIBOR Rate with respect to such Interest Period.  Each determination by Lender of the Adjusted LIBOR Rate shall, in the absence of manifest error, be conclusive and binding.
 
Adjusted Stated Rate ” means a rate per annum equal to the sum of (i) the Stated Rate, plus (ii) the Applicable Margin.  Each determination by Lender of the Adjusted Stated Rate shall, in the absence of manifest error, be conclusive and binding.
 
Applicable Margin ” means the “Applicable Margin” as defined in the Loan Agreement; and the Applicable Margin will vary as set forth in the Loan Agreement, based on the Borrowing Base Utilization (as defined in the Loan Agreement) as in effect from time to time, with each change in the applicable percentage resulting from a change in the Borrowing Base Utilization to take effect on the day such change in the Borrowing Base Utilization occurs.
 
Business Day ” means any day other than a Saturday, Sunday or any other day on which national banking associations are authorized to be closed.
 
Consequential Loss ” means, with respect to Borrower’s payment of all or any portion of the then-outstanding principal amount of any LIBOR Balance on a day other than the last day of the Interest Period related thereto, any loss, cost, or expense incurred by Lender in redepositing such principal amount, including the sum of (i) the interest which, but for such payment, Lender would have earned in respect of such principal amount so paid, for the remainder of the Interest Period applicable to such sum, reduced, if Lender is able to redeposit such principal amount so paid for the balance of such Interest Period, by the interest earned by Lender as a result of so redepositing such principal amount plus (ii) any expense or penalty incurred by Lender on redepositing such principal amount, but excluding taxes on the income of Lender imposed by any governmental authority.

 
 

 
 
Contract Rate ” means the Adjusted LIBOR Rate or the Adjusted Stated Rate, as in effect from time to time under this Note.
 
Dollars ” means lawful currency of the United States of America.
 
Excess Interest Amount ” means, on any date, the amount by which (i) the amount of all interest which would have accrued prior to such date on the principal of this Note, had the applicable Contract Rate at all times been in effect without limitation by the Maximum Rate, exceeds (ii) the aggregate amount of interest accrued on this Note on or prior to such date as limited by the Maximum Rate.
 
Interest Notice ” means the notice given by Borrower to Lender of an Interest Option selected hereunder.  Each Interest Notice given by Borrower under this Note shall be irrevocable and must be given not later than 11 :00 a.m. (Dallas, Texas time) on a day which is not less than the number of Business Days or LIBOR Business Days required below for an Interest Option.
 
Interest Option ” means Borrower’s option to select an Adjusted LIBOR Rate or the Adjusted Stated Rate, as described more fully below.
 
Interest Payment Date ” means the first day of each month hereafter for interest on the Stated Rate Balance, the last day of the applicable Interest Period for interest on the LIBOR Balance, and the Maturity Date.
 
Interest Period ” means, with respect to any LIBOR Balance, a period commencing: (i) on any date which, pursuant to an Interest Notice, the principal amount of such LIBOR Balance begins to accrue interest at the Adjusted LIBOR Rate, or the Business Day following the last day of the immediately preceding Interest Period in the case of a rollover to a successive Interest Period, and ending one, two, three, or six months thereafter as Borrower shall elect in accordance with the provisions hereof; provided that: (A) any Interest Period which would otherwise end on a day which is not a LIBOR Business Day shall be extended to the succeeding LIBOR Business Day and (B) any Interest Period which would otherwise end after the Maturity Date shall end on the Maturity Date.
 
LIBOR Balance ” means the principal balance of this Note, which, pursuant to an Interest Notice, bears interest at an Adjusted LIBOR Rate.
 
LIBOR Business Day ” means a day on which dealings in Dollars are carried out in the London interbank offered rate market.
 
LIBOR Rate ” means the rate of interest per annum (rounded upwards, if necessary, to the nearest 1116 of 1%) equal to the average of the offered quotations appearing at Page or Ticker US0001M, US0002M, US0003M, or US0006M, as the case may be for applicable Interest Period in Bloomberg Financial Markets Commodities News as published by BLOOMBERG L.P. (or such other similar news reporting service as Lender may subscribe to at the time such LIBOR Rate is determined), at which deposits in U.S. dollars are offered by the major London clearing banks in the London interbank offered market for a period of time equal or comparable to one, two, three, or six months and in an amount equal to or comparable to the principal amount of the LIBOR Balance to which such interest period relates.  The LIBOR Rate for the Interest Period to which it relates shall be determined as of 11:00 a.m. (London, England time) two (2) LIBOR Business Days prior to the first day of such Interest Period.

 
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LIBOR Spread ” means the “LIBOR Spread” as defined in the Loan Agreement; and the LIBOR Spread will vary as set forth in the Loan Agreement, based on the Borrowing Base Utilization (as deemed in the Loan Agreement) as in effect from time to time, with each change in the applicable percentage resulting from a change in the Borrowing Base Utilization to take effect on the day such change in the Borrowing Base Utilization occurs.
 
Loan Agreement ” means the Loan Agreement of even date, by and among Borrower, Lender, and others, as amended.
 
Maximum Rate ” means at the particular time in question the maximum rate of interest which, under applicable law, may then be charged on this Note.  If the maximum rate of interest changes after the date hereof, the Maximum Rate shall be automatically increased or decreased, as the case may be, without notice to Borrower from time to time as of the effective date of each change in the maximum rate.  If applicable law ceases to provide for a maximum rate of interest, the Maximum Rate shall be equal to eighteen percent (18%) per annum.
 
Stated Rate ” means the greater of(i) the interest rate publicly announced by Lender from time to time as its general reference rate of interest, which prime rate shall change upon any change in such announced or published general reference interest rate and which prime rate may not be the lowest interest rate charged by the Lender, or (ii) the sum of the rate of interest, then most recently published by The Wall Street Journal as the “federal funds” rate for reserves traded among commercial banks for overnight use, plus one half of one percent (0.5%).
 
Stated Rate Balance ” means the principal balance of this Note bearing interest at a rate based upon the Adjusted Stated Rate.
 
3.           Payments of Interest and Principal.  The principal of and ail accrued but unpaid interest on this Note shall be due and payable as follows:
 
(a)           accrued, unpaid interest on this Note shall be due and payable on each Interest Payment Date, commencing on the first (lst) day of February, 2007, and continuing until the Maturity Date;
 
(b)           the principal of this Note shall be due and payable as required by the Loan Agreement to meet any Borrowing Base deficiency or Monthly Commitment Reductions (if and when required by Lender under the Loan Agreement); and
 
(c)           the outstanding principal balance of this Note, together with all accrued but unpaid interest, shall be due and payable on the Maturity Date.

 
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4.           Revolving Credit.  Under the Loan Agreement, Borrower may request advances and make payments hereunder from time to time, provided that it is understood and agreed that the aggregate principal amount outstanding from time to time hereunder shall not at any time exceed the Total Principal Amount or the Borrowing Base (as deemed in the Loan Agreement), subject to the right to cure Borrowing Base deficiencies in the Loan Agreement.  In addition, Lender may set a monthly commitment reduction pursuant to the Loan Agreement, and thereafter the Borrowing Base and Lender’s commitment under this Note will decline monthly and the amount outstanding under this Note may not exceed this declining Borrowing Base as and to the extent provided in the Loan Agreement.  The unpaid balance of this Note shall increase and decrease with each new advance or payment hereunder, as the case may be.  This Note shall not be deemed terminated or canceled prior to the Maturity Date, although the entire principal balance hereof may from time to time be paid in full.  Borrower may borrow, repay and reborrow hereunder.  Unless otherwise agreed to in writing or otherwise required by applicable law, payments will be applied first to unpaid accrued interest, then to principal, and any remaining amount to any unpaid collection costs, delinquency charges, and other charges; provided, however, while an Event of Default (as deemed below) is outstanding, Lender reserves the right to apply payments among principal, interest, delinquency charges, collection costs, and other charges, in such order and manner as the holder of this Note may from time to time determine in its sole discretion.  All payments and prepayments of principal of or interest on this Note shall be made in Dollars in immediately available funds, at the address of Lender indicated above, or such other place as the holder of this Note shall designate in writing to Borrower.  If any payment of principal of or interest on this Note shall become due on a day which is not a Business Day or LIBOR Business Day, as applicable, such payment shall be made on the next succeeding Business Day or LIBOR Business Day, as applicable, and any such extension of time shall be included in computing interest in connection with such payment.  The books and records of Lender shall be prima facie evidence of all outstanding principal of and accrued and unpaid interest on this Note.
 
5.           Accrual of Interest.  The unpaid principal of the Stated Rate Balance shall bear interest at a rate per annum which shall from day to day be equal to the lesser of (i) the Adjusted Stated Rate, or (ii) the Maximum Rate.  The unpaid principal of each LIBOR Balance shall bear interest at a rate per annum which shall be equal to the lesser of (i) the Adjusted LIBOR Rate for the Interest Period in effect with respect to such LIBOR Balance, or (ii) the Maximum Rate.  Each change in the Adjusted Stated Rate shall become effective without prior notice to Borrower automatically as of the opening of business on the date of such change in the Adjusted Stated Rate.  Interest on this Note shall be calculated on the basis of the actual days elapsed, but computed as if each year consisted of 360 days.
 
6.           Interest Options.  Subject to the provisions hereof, Borrower shall have the option (the “ Interest Option ”) of having the unpaid principal balance of this Note bear interest at the Adjusted LIBOR Rate or the Adjusted Stated Rate; provided, however, that only four (4) Interest Period options shall be in effect at anyone time during the term hereof and the selection of the Adjusted LIBOR Rate for a particular Interest Period shall be for no less than $1,000,000.00 of unpaid principal and in even multiples of $100,000.00 in principal.  The Interest Option shall be exercised in the manner provided below:
 
(a)            Advances.   Each advance on the Note will initially be funded as a Stated Rate Balance and will accrue interest from the date advanced at the Adjusted Stated Rate.

 
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(b)            Conversion From Adjusted Stated Rate.   During any period in which the principal hereof bears interest at the Adjusted Stated Rate, Borrower shall have the right, on any LIBOR Business Day (the “ Conversion Date ”), to convert all or part of the principal balance owed on the Note from the Stated Rate Balance to a LIBOR Balance by giving Lender an Interest Notice of such selection at least two (2) LIBOR Business Days prior to the Conversion Date.
 
(c)            At Expiration o/Interest Periods.   At least two (2) LIBOR Business Days prior to the termination of each Interest Period, Lender shall receive from Borrower an Interest Notice indicating the Interest Option to be applicable to the corresponding LIBOR Balance upon the expiration of such Interest Period.  If the required Interest Notice shall not have been timely received by Lender, Borrower shall be deemed to have selected the Adjusted Stated Rate to be applicable to the corresponding LIBOR Balance upon the expiration of the Interest Period and to have given Lender notice of such selection.
 
7.           Interest Recapture.  If on each Interest Payment Date or any other date on which interest payments are required hereunder, Lender does not receive interest on this Note computed at the Adjusted Stated Rate or Adjusted LIBOR Rate because such Contract Rate exceeds or has exceeded the Maximum Rate, then Borrower shall, upon the written demand of Lender, pay to Lender in addition to the interest otherwise required to be paid hereunder, on each Interest Payment Date thereafter, the Excess Interest Amount (calculated as of such later Interest Payment Date); provided that in no event shall Borrower be required to pay, for any Interest Period, interest at a rate exceeding the Maximum Rate effective during such period.
 
8.           Interest on Past Due Amounts and Default Interest.  To the extent any interest is not paid on or before the date it becomes due and payable, Lender may, at its option, add such accrued but unpaid interest to the principal of this Note.  Notwithstanding anything herein to the contrary, (i) while any Event of Default (as defined below) is outstanding, (ii) upon acceleration of the maturity hereof following an uncured Event of Default, or (iii) at the Maturity Date, all principal of this Note shall, at the option of Lender, bear interest until paid at the lesser of (i) the sum of the Stated Rate plus six percent (6.0%) per annum, or (ii) the Maximum Rate.
 
9.           Loan Agreement/Security.  This Note is subject to the terms and provisions of the Loan Agreement.  In the event of any conflict or inconsistency between this Note and the Loan Agreement, the Loan Agreement shall govern.  This Note is secured by all liens and security interests described in the Loan Agreement.  This Note, the Loan Agreement, and all other documents evidencing, securing, governing, guaranteeing, or pertaining to this Note are hereinafter collectively referred to as the “ Loan Documents .”  The holder of this Note is entitled to the benefits and security provided in the Loan Documents.
 
10.         Prepayments; Consequential Loss.  Borrower may from time to time prepay all or any portion of the principal of this Note without premium or penalty, except as set forth herein.  Any prepayment made hereunder shall be made together with all interest accrued but unpaid on this Note through the date of such prepayment.  If Borrower makes any prepayment of principal with respect to any LIBOR Balance on any day prior to the last day of the Interest Period applicable to such LIBOR Balance, Borrower shall reimburse the Lender on demand the Consequential Loss incurred by Lender as a result of the timing of such payment.  A certificate of Lender setting forth the basis for the determination of a Consequential Loss shall be delivered to Borrower and shall, in the absence of manifest error, be prima facie evidence as to such determination and amount.
 
 
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11.         Special Provisions for LIBOR Pricing.  Borrower agrees to the following special provisions regarding LIBOR pricing:
 
(a)           If Lender determines that, by reason of circumstances affecting the London interbank offered rate market generally, deposits in Dollars (in the applicable amounts) are not being offered to United States financial institutions in the London interbank offered rate market for the applicable Interest Period, or that the rate at which such Dollar deposits are being offered will not adequately and fairly reflect the cost to Lender of making or maintaining a LIBOR Balance for the applicable Interest Period, Lender shall forthwith give written notice to Borrower, and thereafter until Lender notifies Borrower that the circumstances giving rise to such suspension no longer exist, (i) the right of Borrower to select the Adjusted LIBOR Rate as an Interest Option under this Note shall be suspended, and (ii) Borrower shall be deemed to have converted each LIBOR Balance to a Stated Rate Balance under this Note in accordance with the provisions hereof on the last day of the then-current Interest Period applicable to such LIBOR Balance.
 
(b)           If the adoption of any applicable law, rule, or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank, or agency charged with the interpretation or administration thereof, or compliance by Lender with any request or directive (whether or not having the force of law) of any such authority, central bank, or agency shall make it unlawful or impossible for Lender to make or maintain a LIBOR Balance, Lender shall so notify Borrower.  Upon receipt of such written notice, Borrower shall be deemed to have converted any LIBOR Balance to a Stated Rate Balance under this Note, on either (i) the last day of the then-current Interest Period applicable to such LIBOR Balance if Lender may lawfully continue to maintain and fund such LIBOR Balance to such day, or (ii) immediately if Lender may not lawfully continue to maintain such LIBOR Balance to such day.
 
(c)           If any governmental authority, central bank, or other comparable authority, shall at any time after the date of this Note impose, modify, or deem applicable any reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System), special deposit, or similar requirement against assets of, deposits with or for the account of, or credit extended by, Lender, or shall impose on Lender (or its LIBOR lending office) or the London interbank offered rate market any other condition affecting its LIBOR Balance, this Note, or its obligation to make LIBOR advances; and the result of any of the foregoing is to increase the cost to Lender of making or maintaining its LIBOR Balance, or to reduce the amount of any sum received or receivable by Lender under this Note by an amount reasonably deemed by Lender to be material; then, within five (5) days after demand by Lender, Borrower shall pay to Lender, such additional amount or amounts as will compensate Lender for such increased cost or reduction.  Lender will promptly notify Borrower of any event of which it has knowledge, occurring after the date hereof, which will entitle Lender to compensation pursuant to this Subsection.  A certificate of Lender claiming compensation under this Subsection and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error.  If Lender demands compensation under this Subsection, then Borrower may at any time, upon at least five (5) Business Days prior notice to Lender, either (i) repay in full the then outstanding LIBOR Balance, together with accrued interest thereon to the date of prepayment, or (ii) convert such LIBOR Balance to Stated Rate Balance in accordance with the provisions of this Note; provided, however, that Borrower shall be liable for any Consequential Loss arising pursuant to such actions.

 
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(d)           If (i) the obligation of Lender to permit LIBOR Balance has been suspended pursuant to subsections (a) or (b) above or (ii) Lender has demanded compensation under subsection (c) above, then, unless and until Lender notifies Borrower that the circumstances giving rise to such suspension or demand for compensation no longer apply, all advances on this Note which would otherwise be made by Lender as LIBOR Balance shall be made instead as Stated Rate Balance.
 
12.         Business Loan.  Borrower represents to and covenants with Lender that: (1) all loans evidenced by this Note are and shall be “business loans” as that term is used in the Depository Institutions Deregulation and Monetary Control Act of 1980, as amended; and (2) the loans are for business, commercial, investment, or other similar purposes and not for personal, family, household, or agricultural use, as those terms are used in the Texas Finance Code.
 
13.         Event of Default.  Borrower agrees that upon the occurrence of anyone or more of the following events of default and the expiration of any notice, grace, or cure period provided for in the Loan Agreement (“ Event of Default ”):
 
(a)           failure of Borrower to pay any installment of principal of or interest on this Note or on any other indebtedness of Borrower to Lender when due; or
 
(b)           the occurrence of any Event of Default specified in the Loan Agreement;
 
the holder of this Note may, at its option, without further notice or demand, except such notice as is required by the Loan Agreement, (i) declare the outstanding principal balance of and accrued but unpaid interest on this Note at once due and payable, without presentment, demand for payment, notice of intent to accelerate, other notice of acceleration or dishonor, protest, or notice of protest of any kind, all of which are expressly waived by Borrower (ii) refuse to advance any additional amounts under this Note, (iii) foreclose all liens securing payment hereof, (iv) pursue any and all other rights, remedies, and recourses available to the holder hereof, including but not limited to any such rights, remedies, or recourses under the Loan Documents, at law or in equity, or (v) pursue any combination of the foregoing.
 
14.         No Waiver by Lender.  The failure to exercise the option to accelerate the maturity of this Note or any other right, remedy, or recourse available to the holder hereof upon the occurrence of an Event of Default hereunder shall not constitute a waiver of the right of the holder of this Note to exercise the same at that time or at any subsequent time with respect to such Event of Default or any other Event of Default while such Event of Default is outstanding.  The rights, remedies, and recourses of the holder hereof, as provided in this Note and in any other Loan Documents, shall be cumulative and concurrent and may be pursued separately, successively, or together as often as occasion therefor shall arise, at the sole discretion of the holder hereof.  The acceptance by the holder hereof of any payment under this Note which is less than the payment in full of all amounts due and payable at the time of such payment shall not (i) constitute a waiver of or impair, reduce, release, or extinguish any right, remedy, or recourse of the holder hereof, or nullify any prior exercise of any such right, remedy, or recourse, or (ii) impair, reduce, release, or extinguish the obligations of any party liable under any of the Loan Documents as originally provided herein or therein.

 
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15.         Usury Savings Clause.  This Note and all other Loan Documents are intended to be performed in accordance with, and only to the extent permitted by, all applicable usury laws.  If any provision hereof or of any other Loan Documents or the application thereof to any person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, neither the application of such provision to any other person or circumstance nor the remainder of the instrument in which such provision is contained shall be affected thereby, and all provisions shall be enforced to the greatest extent permitted by law.  It is expressly stipulated and agreed to be the intent of the holder hereof to at all times comply with the usury and other applicable laws now or hereafter governing the interest payable on the indebtedness evidenced by this Note.  If the applicable law is ever revised, repealed, or judicially interpreted so as to render usurious any amount called for under this Note or under any other Loan Documents, or contracted for, charged, taken, reserved, or received with respect to the indebtedness evidenced by this Note, or if Lender’s exercise of the option to accelerate the maturity of this Note or if any prepayment by Borrower results in Borrower having paid any interest in excess of that permitted by law, then it is the express intent of Borrower and Lender that all excess amounts theretofore collected by Lender be credited on the principal balance of this Note (or, if this Note and all other indebtedness arising under or pursuant to the other Loan Documents have been paid in full, refunded to Borrower), and the provisions of this Note and the other Loan Documents immediately be deemed reformed and the amounts thereafter collectable hereunder and thereunder reduced, without the necessity of the execution of any new document, so as to comply with the then-applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder or thereunder.  All sums paid, or agreed to be paid, by Borrower for the use, forbearance, detention, taking, charging, receiving, or reserving of the indebtedness of Borrower to Lender under this Note or arising under or pursuant to the other Loan Documents shall, to the maximum extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full term of such indebtedness until payment in full so that the rate or amount of interest on account of such indebtedness does not exceed the usury ceiling from time to time in effect and applicable to such indebtedness for so long as such indebtedness is outstanding.  To the extent federal law permits Lender to contract for, charge, or receive a greater amount of interest, Lender will rely on federal law instead of Texas Finance Code, for the purpose of determining the Maximum Rate.  Additionally, to the maximum extent permitted by applicable law now or hereafter in effect, Lender may, at its option and from time to time, implement any other method of computing the Maximum Rate under the Texas Finance Code, or under other applicable law by giving notice, if required, to Borrower as provided by applicable law now or hereafter in effect.  Notwithstanding anything to the contrary contained herein or in any other Loan Documents, it is not the intention of Lender to accelerate the maturity of any interest that has not accrued at the time of such acceleration or to collect unearned interest at the time of such acceleration.
 
16.         Applicability of Laws.  In no event shall Chapter 346 of the Texas Finance Code (which regulates certain revolving loan accounts and revolving tri-party accounts) apply to this Note.  To the extent that Chapter 303 of the Texas Finance Code is applicable to this Note, the “weekly ceiling” specified in Chapter 303 is the applicable ceiling; provided that, if any applicable law permits greater interest, the law permitting the greatest interest shall apply.

 
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17.         Attorneys Fees.  If this Note is placed in the hands of an attorney for collection, or is collected in whole or in part by suit or through bankruptcy, or other legal proceedings of any kind, Borrower agrees to pay, in addition to all other sums payable hereunder, all costs and expenses of collection, including but not limited to reasonable attorneys fees.
 
18.         Borrower’s Waiver.  Except as expressly provided herein, Borrower and any and all endorsers and guarantors of this Note severally waive presentment for payment, notice of nonpayment, protest, demand, notice of protest, notice of intent to accelerate, notice of acceleration and dishonor, diligence in enforcement and indulgences of every kind and without further notice hereby agree to renewals, extensions, exchanges or releases of collateral, taking of additional collateral, indulgences, or partial payments, either before or after maturity.
 
19.         Applicable Law.  EXCEPT TO THE EXTENT THAT THE LAWS OF THE UNITED STATES MAY APPLY, THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.  THIS INSTRUMENT IS MADE AND IS PERFORMABLE IN DALLAS, DALLAS COUNTY, TEXAS, AND IN THE EVENT OF A DISPUTE INVOLVING THIS NOTE OR ANY OTHER INSTRUMENT EXECUTED IN CONNECTION HEREWITH, BORROWER IRREVOCABLY AGREES THAT VENUE FOR SUCH DISPUTES SHALL BE IN ANY COURT OF COMPETENT JURISDICTION IN DALLAS COUNTY, TEXAS.
 
20.         Captions.  Captions used herein are for convenience only and should not be used in interpreting this Note.
 
21.          Final Agreement.   THE WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
 
Executed and delivered to Lender in Dallas, Texas, on the date stated above.
 
 
BORROWER:
   
 
INFINITY ENERGY RESOURCES, Inc.
   
 
By:
/s/ James A. Tuell
   
James A. Tuell, President

This note was prepared by:
HARRIS, FINLEY & BOGLE, P.C.
777 Main Street, Suite 3600
Fort Worth, Texas 76102
(817) 870-8700

 
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Exhibit 10.8
 
REPUBLIC OF NICARAGUA
CENTRAL AMERICA

STATE NOTARY PUBLIC

AUTHENTICATED COPY
VALE TRES CORDOBAS
 
Seal:
 
Republic of Nicaragua
 
Central America
SERIES “M”
 
No. 1766001
 
PUBLIC DEED NUMBER SEVENTY ONE (No.71).- CONCESSION AGREEMENT FOR THE EXPLORATION AND EXPLOITATION OF HYDROCARBONS FOR THE “PERLAS” PROSPECT.   In the city of Managua, at three o’clock in the afternoon of March five of the year two thousand nine.- Before me, GEOVANNY FRANCISCO SALINAS BRENES, Attorney and Notary Public for the Republic of Nicaragua, domiciled and residing in this city of Managua, duly authorized by the Supreme Court to act as the Eleventh Notary Public for the State during the five year period ending August one of the year two thousand nine, pursuant to the Minutes of Certificate of Office number one hundred fourteen dash two thousand eight (114-2008) beginning at eight hours of the morning of the first day of November of the year two thousand eight, in accordance with the Book of Agreements number seventy six seventy six of the year two thousand eight, page seventy six of the Book of Contracts of the year two thousand eight and the Certification of the Book of Records of Ownership Number seventy Six (76), dated eight o’clock and fifteen minutes of the morning of the first day of November of the year two thousand eight, page number seventy six, of the Book of Records of Ownership, filed with the Attorney General’s Executive Office for the Republic, appear: A) Dr. JOAQUIN HERNAN ESTRADA SANTAMARIA, of age, married, attorney and Notary Public, at this domicile, bearer of the citizenship identification number zero, eight, one, dash, two, one, one, zero, five, seven, dash, zero, zero, zero, nine  U (081-211057-0009U), and B) Mr. STANTON EDWARD ROSS, of age, married, businessman, domiciled in Chanute, State of Kansas, in transit through this city, passport number  three zero eight two one zero four six nine (308210469) of the United Status of America, issued on April 6, 2006 (04/06/2006) and expiration date of April 5, 2016 (04/05/2016), and C) also appearing Mr. Roberto Octavio Argüello Villavicencio, of age, single, Attorney, domiciled in Managua, bearer of the identification card number zero, zero, one, dash, zero, seven, zero, eight, seven, eight, dash, zero, zero, six, zero, letter “B” (001-070878-0060B) who has ample knowledge of the English and Spanish languages and who will act as the interpreter for the transaction, as designated by Mr. Stanton Edward Ross, who does not have knowledge of the Spanish language, all in accordance with Law number one hundred thirty nine (139), the Law that gives greater responsibility to the office of the Notary Public.  At the end of this public instrument, Mr. Roberto Octavio Argüello Villavicencio will sign this instrument along with the appearing parties, and the undersigned Notary.  I hereby swear to know the appearing parties and that, in my opinion, they have the necessary legal civil capacity to bind and contract and especially to sign this public instrument as follows.  A) Doctor JOAQUIN HERNAN ESTRADA SANTAMARIA, on behalf of the State and Government of the Republic of Nicaragua, as the Attorney General for the Republic of Nicaragua in accordance with article two, item two, articles eleven and twelve of the Organic Law of the Attorney General’s Office of the Republic published in La Gaceta, the Official Daily Newspaper number two hundred forty four (244) of December twenty four of the year two thousand one and article five (5) of Decree thirty three dash two thousand four (33-2004), Reforms and Additions to Decree number twenty four dash two thousand two (24-2002), Regulation of the Organic Law of the Attorney General’s Office of the Republic published in La Gaceta, the Official Daily Newspaper number eighty nine (89) of May seven of the year two thousand four.  He accepts his nomination and takes office as follows: One (1) The Certification that integrates and literally says “CERTIFICATION Paul Herbert Oquist Kelley, National Policies Council Coordinator, hereby certifies the Presidential Agreement No. 12-2007 and Act No. 1 that literally reads as follows: “PRESIDENTIAL AGREEMENT No. 12-2007.   The President of the Republic of Nicaragua, in accordance with the powers granted unto him through the Political Constitution, AGREES to Article 1. To nominate the following citizen, Doctor Joaquin Hernán Estrada Santamaria, as the Attorney General for the Republic (referenced herein); Article 2.  The following citizens are nominated as Presidents, Vice-Presidents, Directors and Sub-directors of Autonomous and Decentralized Entities: (referenced herein).  Article 3. This agreement will be in effect as of this date.  Be it published in La Gaceta, the Official Daily Newspaper. In Managua, the Presidential House, on January ten of the year two thousand seven.  Daniel Ortega Saavedra, President of the Republic of Nicaragua.  ACT No. 1, in the city of Managua, at Plaza de los No Alineados Omar Torrijos Herrera, at six o’clock in the evening of January ten of the year two thousand seven.  I, Daniel Ortega Saavedra, President of the Republic of Nicaragua, in order for the following individuals, Members of the Cabinet and Directors of Autonomous Entities to take the office for which they were nominated by Presidential Agreements No. 11-2007, 12-2007, 13-2007, 14-2007, 15-2007 and 16-2007, as follows:  Dr. Joaquin Hernán Estrada Santamaria is nominated as the Attorney General for the Republic (referenced herein).  The following citizens are nominated Presidents, Vice-Presidents, Directors and Sub-directors of Autonomous and Decentralized Entities (referenced herein).  To this end, I proceeded with the Oath of Office under the Law as follows: “Do you solemnly promise, before God, the Country, our national heroes and your honor, to faithfully comply with the duties of the position conferred unto you?” to which he replied: “Yes, I promise” and I concluded by saying: “If you so do, the country will reward you; otherwise, you will be held responsible”.  This concluded the act and the nominated party was in charge of his position.  The certification of this act will serve as sufficient document of qualification for all legal purposes.  This document was fully read, agreed to, approved, ratified and signed.  Daniel Ortega Saavedra, President of the Republic of Nicaragua, Joaquin Hernán Estrada Santamaria (referenced herein)”. This agrees with the originals, against which it was duly verified.  At the request of the interested party, I hereby prepare this Certification, in the City of Managua, Presidential House, on January sixteen of the year two thousand seven. (signature) Paul Herbert Oquist Kelley, National Policies Council Coordinator. Seal of the National Policies Council Coordinator.”  It is in accordance with the original against which it was compared.   And 2 Presidential Agreement Number four hundred sixty seven dash two thousand eight (467-2008) published in La Gaceta, Official Newspaper  number two hundred fifteen 9215) of November eleven (11) of the year two thousand eight (2008) which is integrated and literally reads as follows: PRESIDENTIAL AGREEMENT No. 467-2008.  The President of the Republic, CONSIDERING that the Political Constitution of the Republic of Nicaragua in article 102 institutes that the natural resources are a national asset and that preservation of the environment and the conservation, development and exploitation of same revert to the State who has the option to sign contracts for the exploration of such resources whenever such are of national interest.  II. That in accordance with the Political Constitution of the Republic of Nicaragua, article 181, second paragraph, which establishes that the concessions and exploration contracts of natural resources must have the approval of the Autonomous Regional Council.  III That the attributions established in Law No. 286, the Special Law of Exploration and Exploitation of Hydrocarbons published in La Gaceta, Official Daily Newspaper Number 109 of June 12, 1998, and Decree No. 43-98, Regulation to the Special Law of Exploration and Exploitation of Hydrocarbons, published in La Gaceta, Official Daily Newspaper No. 117 of June 24, 1998, of the Instituto Nicaragüense de Energia (INE) have been transferred to the Ministry of Energy and Mines (MEM), an entity created by Law No. 612, the Law of Reform and Addition to Law No. 290, the Law of Organization, Competence and Procedures of the Executive Power, published in La Gaceta, Official Daily Newspaper No. 20 of January 29, 2007.  IV  That in accordance with Resolution No. 08-2003 of April 11, 2003, published in La Gaceta, Official Daily Newspaper Number 100 of May 30, 2003, the INE’s Administrative Council granted Infinity, INC., which changed its legal name to INFINITY ENERGY RESOURCE, INC., the concession area denominated “Perlas Prospect”, Offshore the Caribbean. V  That the Presidential Agreement 185-2006 published in La Gaceta, Official Daily Newspaper No. 93 of May 15, 2006, authorized the signature of the petroleum concession contract for the area identified as the Perlas Prospect between the Republic of Nicaragua and the Petroleum Company INFINITY ENERGY RESOURCES, INC,INFINITY ENERGY RESOURCES INC.  VI  That citizens of the Autonomous Regions of the Atlantic of the Republic of Nicaragua submitted aan appeal (Recurso de Amparo) against signature of the Contracts for the Exploration and Exploitation of Hydrocarbons between them and the Concession Contract granted to the petroleum company INFINITY ENERGY RESOURCES, INC and whereby the Supreme Court of the Republic of Nicaragua through Sentence No. 92 of May 2, 2007, declared that the Appeal (Recurso de Amparo)  to have grounds since the Concession Contracts were signed without approval of the North Atlantic Autonomous Region and the South Atlantic Autonomous Region Councils.  VII  That the award of the “Perlas Prospect” concession area to INFINITY ENERGY RESOURCES, INC is legal  since once the concession is approved by the North Atlantic Autonomous Region and South Atlantic Autonomous Region Councils the corresponding Contract must be subscribed.  VIII  That the North Atlantic Autonomous Regional Council in a meeting on August 13, 2008, and the South Atlantic Autonomous Regional Council in a meeting on July 4 and 5, 2008, approved the Concession Contract for the Exploration and Exploitation of Hydrocarbons in the Perlas Prospect granted on behalf of INFINITY ENERGY RESOURCES, INC.  IX  That the Ministry of Energy and Mines (MEM) submitted to the President of the Republic the Minutes of the Concession Contract for Petroleum Exploration and Exploitation to be signed with INFINITY ENERGY RESOURCES, INC. in accordance with article 24 of Law No. 286, the Law for Exploration and Exploitation of Hydrocarbons, in accordance with the laws in effect.    By the powers vested by the Political Constitution, it is hereby AGREED Article 1.  Having fulfilled the requirements established in the Political Constitution of the Republic of Nicaragua and pertaining laws, the Attorney General of the Republic, on behalf and in representation of the State for the Republic of Nicaragua, is empowered to proceed with the subscription of the Concession Contract for Petroleum Exploration and Exploitation with the petroleum company INFINITY ENERGY RESOURCES, INC. under the terms negotiated by the Ministry of Energy and Mines and with the approval of the North Atlantic Autonomous Region Council in a meeting held on August 13, 2008, and the South Atlantic Autonomous Region Council, in a meeting held on July 4 and 5 , 2008.  The area to be granted, identified as the Perlas Prospect, will proceed in accordance with Resolution No. 08-2003 of April 11, 2003, published in la Gaceta, Official Daily Newspaper Number 100, of May 30, 2003, Article 2.  The Attorney General for the Republic must have the respective justifying and required documents to fulfill the provision in the previous article of this Agreement.  Article 3.  The Certification of this Agreement and the taking of office by the Attorney General for the Republic are sufficient documents to accredit his representation.  Article 4.  This Agreement goes into effect as of this date.  Be it published in La Gaceta, Official Daily Newspaper.  In the city of Managua, Government House, on October thirty one of the year two thousand eight.  Daniel Ortega Saavedra, president of the republic of Nicaragua.  Paul Oquist Kelly, National Policies Private Secretary.  B)  Mr. STANTON EDWARD ROSS, acting in the name and representation of the business company denominated INFINITY ENERGY RESOURCES INC., an American company constituted in accordance with the laws of the State of Delaware, United States of America, accredits his representation through the following documents: I – Deed Number thirteen of April ten of the year two thousand six, which integrates and literally says: PUBLIC DEED NUMBER THIRTEEN (13) TRANSLATION OF THE DOCUMENT.  In the city of Managua, Republic of Nicaragua, at three o’clock in the afternoon of April ten of the year two thousand six.  Before me, BOANERGE ANTONIO OJEDA BACA, Attorney and Notary Public for Nicaragua, with domicile and residence in the city of Managua and duly authorized to act before the Supreme Court  during the five year period that expires on June eight of the year eight, appear Angélica Arguello Damha, of age, single, attorney, domiciled in Managua, bearer of identification card number zero, zero, one, dash, seven, two, zero, three, eight, one, dash, zero, zero, five, three, Letter “N” (001-270381-0053N) and Roberto Octavio Arguello Villavicencio, of age, single, attorney, domiciled in Managua, bearer of identification card number zero, zero, one, dash, zero, seven, zero, eight, seven, eight, dash, zero, zero, six, zero, letter “B” (001-070878-0060B) the last appearing party, acting as interpreter.  I swear to personally know the appearing parties and that, in my judgment, have the legal civil capacity necessary to bind and to contract and especially to execute this instrument, whereby the appearing parties express themselves in their own name and representation.  FIRST: The first appearing party is in possession of the ARTICLES OF INCORPORATION AND BY- LAWS OF INFINITY RESOURCES, INC. and such articles and by-laws are in the English language, two of the authenticated copies are in English, and we hereby request a notarial translation of the document and its originals through an interpreter in order for this document to be valid in the Republic of Nicaragua.  In accordance with Law number one hundred thirty, the Law which gives more power to the office of Notary Public and article one thousand one hundred thirty two of the Code of Civil Procedure, the undersigned Notary proceeds with the translation of the documents that are in English through an interpreter.  To this end, based on the mentioned law, the undersigned Notary, with more than ten years of service with the Supreme Court, hereby nominates and designates as interpreter the appearing party Roberto Arguello Villavicencio, who has vast knowledge of both the Spanish and English languages, to verify the translation from English into Spanish of said documents.  SECOND: TRANSLATION:  having understood it, he accepts the nomination, being warned of the penalties for false testimony, promising to tell the truth, and states that: to the best of his knowledge and understanding, the Minutes in English read as follows in Spanish: ONE) State of Delaware, Secretary of the State, Corporations Division.  Delivered at 04:43 PM 04/29/2005 PRESENTED AT 04:27 PM 04/29/2005 SRV 050348989 – 3944450 file.  ARTICLES OF INCORPORATION OF INFINITY ENERGY RESOURCES, INC.  ARTICLE 1 – NAME:  The name of the company is Infinity Energy Resource, Inc. (“Company”).  ARTICLE 2 – REGISTERED AGENT.  The domicile of the head offices of the Company in the State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, County of New Castle.  The name of its registered agent at such domicile is Corporation Trust Company. – ARTICLE 3 – PURPOSE  The purpose of the Corporation is to participate in any legal act for which a corporation can be created in accordance with the General Law of Corporations in Delaware and its amendments (“DGCL”) – ARTICLE 4 – CAPITAL STOCK 4.1 Ordinary Shares (a) The total number or ordinary shares of $0.00001 nominal value per share that the Company is authorized to issue is: 75,000,000.  (b) Each bearer of ordinary shares will have the right to one vote for each share it owns with respect to all matters for which the bearers of ordinary shares have the right to vote.  Except for and subject to the preferences, rights and privileges expressly granted to the bearers of all types of shares that are currently in circulation and that prior rights, and all series of preferential shares that can be in effect in the future, except as otherwise stipulated by the laws of the State of Delaware, the bearers of ordinary shares will have all other rights of the Company’s shareholders, including, but not limited to (i) the right to receive dividends whenever so declared by the Board of Directors with respect to the assets legally available for such; and (ii) in case of any distribution of assets due to dissolution and liquidation of the Company, the right to receive in proportionally and equitably all the assets of the Company remaining after payment of the specific amounts to preferred stockholders, if any, who have the right to receive them as stipulated in this instrument or in accordance with this instrument.  4.2 Preferred Stock . (a) The total number of preferred shares in the nominal value of $0.0001 per share that the Company is authorized to issue is of 10,000,000 (b) The Board of Directors is expressly authorized at any time and periodically to issue preferred shares in one or more series, with the right to vote, complete or limited or without the right to vote and with those designations, preferences and special, participating, optional or other rights and requirements, limitations or restrictions of same that are indicated and expressed in the resolution or resolutions established by their issuance as adopted by the Board, subject to the limitations prescribed by law and in accordance with the provisions established in this instrument, including, but not limited to, the following: (1) The designation of the series and number of shares that will integrate the series. (2) The rate of dividends of the series, the conditions and dates in which such dividends will be payable, the relation that such dividends will have with the dividends payable in any other class of classes of shares and if such dividends will or will not be cumulative. (3) If the shares of the series will be subject to ransom on the part of the company, and, if so, the terms, prices and other clauses and conditions of such ransom.  (4) The clauses and the amount of any amortization fund estimated for the purchase or ransom of shares of the series. (5) If the shares of the series will be convertible into or interchangeable with shares of any other class or classes or of all other series of any class or classes of shares of the company and if the conversion or exchange, terms, prices, rates, modifications and other clauses and conditions of such conversion or exchange are available.  (6) The measure in which the holders of shares of the series will or will not have the right to vote with respect to the election of directors.  (7) The restrictions, if any,   with respect to the issuance or reimbursement of any preferred share.  (8) The rights of bearers of the shares of the series in case of liquidation or dissolution of the company.  ARTICLE 5 – DIRECTORS: .5.1 Powers: Number and Election of Directors.   The operations of the Company will be performed by the Board.  The number of directors of the Company must be periodically established in accordance with the By-laws of the company and may be increased or reduced from time to time in accordance with the By-Laws, so long as the number of directors is no less than three nor greater than seven, except as otherwise provided in this Article 5.  The election of the directors does not necessarily have to be by the written vote except and in accordance with what is established in the By-Laws.  The directors will be divided into three classes, designated as Class I, Class II and Class III.   Each class will consist, as much as possible, of one third of the total number of directors forming the Board.  The term of the initial Class I Directors will end in the year 2006; the term of the initial Class II Directors will end in the year 2007 and the term of the initial Class III directors will end in the year 2008.  The functions of the initial class will be determined by the Board of Directors.  In each ordinary shareholders’ meetings the successors of directors whose term has ended on such ordinary meeting and the term of the successors will be of three years.  If the number of directors changes, every increase or reduction will be distributed among the classes so that the number of directors in each class remains as uniform as possible, but under no circumstance will a reduction in the number of directors reduce the term of a director occupying its position.  Each director will exercise his/her functions until the ordinary meeting of the year in which his/her term expires and until his/her successor is elected and qualified; however, this will be subject to death, resignation, retirement, incapacity or dismissal of such director from his/her position.  In case any of the bearers of any class or series of preferred shares has the right, through a separate class vote, to elect directors, as specified in Article 4, then the provisions of such class or series of shares will apply with respect to its rights.  The number of directors that the bearers of any of those classes or series of preferred shares can elect will be in addition to the fixed number set forth in the preceding paragraph of Article 5.  5.2 Dismissal.  Subject any right of the bearers of all series of preferred shares, a director may only be dismissed from his/her position prior to the expiration of his/her term by just cause.  5.3 Quorum.   The quorum of the Board for business transaction will consist of no less than a majority of the total number of directors, except as otherwise provided in these Articles of Incorporation or in the By-Laws with respect to the filling of vacancies.  5.4 Directors positions and recent vacancies .  Except as otherwise established with respect to the rights of bearers of any class or series of preferred shares to elect directors under specific circumstances, the positions of directors recently created that result from an increase in the number of directors and the vacancies in the Board resulting from death, resignation, incapacity, dismissal or any other cause, must be filled only with the affirmative vote of the majority of the remaining directors exercising their function or of a single remaining director, although it may represent less than a quorum of the Board.  Every director elected in accordance with the previous sentence will exercise his/her functions for the remaining period of time until the expiration of the term of the new director’s position created or the one created from the vacancy and until the successor of such director has been elected and qualified.  ARTICLE 6 BY-LAWS – Except as otherwise provided in these Articles of Incorporation, including but not limited to the powers granted by the By-Laws, the Board is expressly empowered to adopt, revoke, alter, amend and rescind any or all the by-laws of the Company.   ARTICLE 7  SHAREHOLDERS – 7.1 – Meetings – The shareholders meetings may take place in or outside the State of Delaware, as established by the Board.  Each shareholders meeting will take place on the date, time and place established by the Board.  Except as otherwise established by law and subject to the rights of the bearers of any class or series of preferred shares, the shareholders extraordinary meetings may only be convoked by the Chairman of the Board, the executive director, the president or any employee of the Company through prior written request from the majority of the Board or as established in the By-Laws.  7.2 Action by written consent .  An action that is required or allowed to be taken in any ordinary or extraordinary shareholders meeting that can be taken without a meeting through written consent, only if all the shareholders with the right to vote in such action consent, in writing, to such action.  ARTICLE 8 – VOTING REQUIREMENTS – Notwithstanding any other provision of these Articles of Incorporation or the By-Laws of the Company (and in spite of the fact that it can be specified otherwise a lower percentage by law, these Articles of Incorporation or the By-Laws) the affirmative vote of the bearers of at least sixty six and two thirds percent (66-2/3%) of the shares of capital stock of the Company in circulation with the right to generally vote in the election of directors (considered for this purpose as a class) will be required if it is necessary to amend, revoke or adopt any provision contrary to Articles 5, 8, 9 or 10 of these Articles of Incorporation.  ARTICLE 9 – RESPONSIBILITIES OF EMPLOYEES AND DIRECTORS  9.1 General – A director of a Company will not be responsible before the Company or its shareholders for monetary damages caused by non-compliance with a fiduciary obligation as director, except in the case where such exemption of responsibility or limitation of same is not allowed in accordance with the DGCL in effect then or in accordance with its future amendments.  9.2 Amendment .  No amendment, modification or revocation of this Article 9 will harm all of the rights or protection of a director at the time of such amendment, modification or revocation.  ARTICLE 10. INDEMNIFICATION. 10.1 General.   The Company will indemnify, to the limit allowed and in the form admissible by the DGCL and its future amendments (however, if there are any amendments, they will only be accepted if they allow the Company to grant rights of indemnification that are more ample than those granted by such law to the Company prior to such amendments) any individual who is a part, or subject to being a part of any legal action, complaint, judgment, or imminent, pending or complete process whether penal, civil, administrative or investigative, due to the fact that such individual (a) is or has been a director or employee of the Company or a predecessor to the Company or (b) is or has been a director of employee of the Company or any predecessor of the Company and has worked for any other company, general partnership, joint venture, trust, benefit plan for employees or another business as director, employee, partner, trustee, employee or agent at the request of the Company or a predecessor of the Company under the condition that , except as indicated in Section 10.4, the Company will indemnify any individual who seeks indemnification associated with a legal process (or part of the same) initiated by same individual, only if such process (or part of same) has been authorized by the Board.  10.2 Expense advances .  The right to indemnification granted in this Article 10 will be a contractual right and will include the right to receive payment from the Company for the expenses incurred with any legal process prior to the final judgment   Such advances will be paid by the Company within twenty days from the receipt of a report or reports from the claimant requesting such timely advance or advances, subject to the condition that if the DGCL so requirements, payment of such expenses incurred by a director or employee in their capacity as director or employee (and not in another capacity such person provides or has provided during his/her term as director or employee, including, but not limited to, services with respect to a benefits plan for employees) prior to the final judgment of a legal process, be made only through previous presentation to the Company of a commitment from such director or employee or in the name of such director or employee to reimburse all the amounts delivered to them as advance if it is determined in a higher court that such director or employee does not have the right to be indemnified in accordance with this Article 10 or another.  10.3 Procedure to obtain indemnification .  In order to obtain indemnification in accordance with this Article 10, a claimant must submit to the Company a request, in writing, that must include all the documentation and information available and necessary to determine if the claimant has such right, and up to what point, to receive indemnification.  Upon presentation by the claimant of the written request for indemnification in accordance with the first sentence of this Section 10.3, a decision with respect to the right of the claimant to receive such indemnification, in accordance with the applicable law, will be made as follows: (a) if it is requested by the claimant or if the are no disinterested Directors (such as defined below) or (b) by a majority vote of the disinterested Directors, although a quorum is not reached.  If it is determined that the claimant has the right to receive indemnification, payment will be made within 10 days following such determination.  10.4 Appeals.    If the Company does not pay the total amount of a claim under Section 10.1 within thirty days following receipt of the written claim by the Company in accordance with Section 10.3, the claimant may, at any time thereafter, initiate an action against the Company to collect the unpaid amount of the claim and, in case of total or partial success, the claimant will have the right to also collect for costs incurred to present such claim. It will be a defense with respect to such action (distinct from an action submitted for compliance with a claim for expenses incurred in defense of such procedure prior to  is final disposition, where the required procedure, if the case, has been offered to the Company) that the claimant has not fulfilled with the Code of Conduct, which makes possible, according to the DGCL, for the Company to indemnify the claimant for the amount demanded, but the Company will have the obligation to provide such defense.  If the Company (including its Board, the independent legal counsel or the shareholders) does not reach an agreement prior to the beginning of the action that the indemnification of the claimant is appropriate under the circumstances due to the fact that he or she has complied with the applicable Code of Conduct established by the DGCL , as the effective determination on the part of the Company (including its Board, the independent legal counsel or the shareholders) that the claimant has not complied with such applicable Code of Conduct, may not be considered as a defense of the action nor will they create an assumption that the claimant has not complied with the applicable Code of Conduct.  10.5 Obligatory Effect .  A determination must be made, in accordance with Section 10.3, that the claimant has the right to receive indemnification, whereby the Company will be obligated through such determination for all legal procedures initiated in accordance with Section 10.4.1.06 Validity of this Article .  The Company may not allege, in any legal procedure initiated in accordance with Section 10.4 that the procedures and presumptions of this Article 10 are not valid, obligatory and apply, and must stipulate in such procedure that the Company commits to comply with all the clauses of this Article 10.  10.07 Non Exclusivity, etc .  The right to indemnification and payment of the expenses incurred to defend a process prior to its final disposition granted in this Article 10 will not be exclusive of any other right that every individual may have, or to acquire, in accordance with any decree, clause of constitutive certificate, by-laws, agreement, vote  of disinterested shareholders or directors, or otherwise.  Non revocation or modification of this Article 10 may lessen, under any circumstance, or affect in an adverse manner the rights of any director, employee, or current or previous employee or agent of this Company or any predecessor of the same, with respect to any event or problem that arises prior to such amendment or modification.  10.08. Insurance .  The Company may maintain an insure, at its expense, to protect itself and any director, employee or agent of the Company or corporation, partnership, joint-venture, trust or another company against all cost, debt or loss, whether the Company has the capacity to indemnify such individual or not against such cost, debt or loss in accordance with the DGCL.  10.09 Indemnification of other individuals .  The Company may grant the right to an indemnification and to receive payment by the Company for expenses incurred in defending any process prior to its final disposition, to any current or former employee or agent of the Company or to any predecessor of the Company, in full compliance with the clauses of this Article 10 with respect to the indemnification and advance of expenses incurred by the directors and employees of the Company.  10.10 Divisibility.   If any clause or clauses of this Article 10 is or are deemed invalid, illegal or not applicable for any reason: (a) the validity, legality and applicability of the remaining clauses of this Article 10 (including, without limitation, each part or each paragraph of this Article 10 that does not contain such clause deemed to be invalid, illegal or not applicable that is not considered in itself invalid, illegal or inapplicable) will not be affected in any way or canceled for such reason and (b) as much as possible, the clauses of this Article 10 (including, but not limited to, each part of each paragraph of this Article 10 that contains such clause deemed to be invalid, illegal or not applicable) will be interpreted in such manner as to make effective the intention manifested by the clause deemed to be invalid, illegal or not applicable.  BYLAWS OF INFINITY ENERGY RESOURCES, INC. Adopted on April 29, 2005. ARTICLE 1 OFFICES -   The head offices of Infinity energy resources, Inc. (“Company”) in the State of Delaware will be in accordance with the Articles of Incorporation of the Company (“Articles of Incorporation”).  The Company will have offices located in any place that the Board so timely agrees.  ARTICLE 2 SHAREHOLDERS – 2.1 Ordinary meetings .  The ordinary meeting of shareholders to elect its directors and to discuss all other business deemed adequate prior to the meeting will be held on the date and hour established by resolution of the Board.  2.02 Extraordinary meetings .  Except as otherwise provided by law, the extraordinary meetings of the shareholders will be convoked by those individuals specified in the Articles of Incorporation and must be convoked by the Secretary of the Company in accordance with written request by the shareholders who have registered 25% or more of the capital stock of the Company with the right to general vote in the election of directors.  Such written request will indicate the purpose of the proposed meeting and will include all the relevant information set forth in Section 2.5.  The topic to be discussed in all extraordinary meeting of the shareholders will be limited to those duly established in the written request and for which all necessary information has been provided in a timely fashion in accordance with Section 2.5.  2.03 Notice of Meeting .  Written notice of the meeting will be delivered no less than ten days and no more than sixteen days prior to the date of the meeting, indicating the place, date and time of such meeting and, in case of an extraordinary meeting, the purpose for which the meeting is convoked; except as otherwise provided in the Articles of Incorporation.  Delivery can be made personally, through the postal service, prepaid telegram, telex, facsimile transmission, cablegram or messenger to each shareholder subscribed in the registry as authorized to vote in such meeting.  If such notice is sent by mail, it will be deemed as received whenever it is deposited in the postal service of the United States, prepaid postage, addressed to the shareholder and sent to his/her address,  as it appears in the shareholders registry of the Company.  2.04 Waiver .  The presence of a shareholder of the Company, whether in person or through proxy in a meeting, whether ordinary or extraordinary, will constitute the waiver of the right of notice to such meeting except when a shareholder is present in the meeting for the express purpose of objecting, at the beginning of such meeting, the discussion of any topic due to the fact the meeting has not been convoked in a legitimate manner. A written waiver to the right to receive notice of such meeting, signed by the shareholder or shareholders authorized to such notice prior, during of after the time of notice or the hour of the meeting, will be equivalent to a notice.  It will not be necessary to specify the matter to be discussed nor the purpose of the entire meeting in the written waiver to the right to receive notice.  2.5 Notice of the matter to be discussed in the shareholders meeting .  No matter can be discussed in any shareholders meeting, including the nomination or election of individuals to the Board, other than (a) those specified in the meeting notice (or any attachment to it) granted by or subject to the direction of the Board (or committee duly authorized by the Board) with respect to an ordinary meeting or an extraordinary meeting convoked by any of the individuals specified in Section 7.1 of the Articles of Incorporation, (b) duly presented at the meeting by or according to the direction of the Board (or any committee duly authorized by the board) or (c) duly presented at the meeting by any shareholder of the Company (1) that is a shareholder subscribed in the registry on the date on which notice was given as specified in Section 2.5 and on the date of registration to determine the shareholders authorized to vote in such meeting and (2) that it complies with the procedures for notice established in this Section 2.5.  Besides all other applicable requirement for the matter to be duly presented at the meeting by a shareholder, the shareholder must have given written notice of the matter in due time and format to the Secretary of the Company. (a) In order for the shareholder’s notice reaches the Secretary in a timely manner,  it must be delivered or sent by mail to be received at the main office of the Company no less than ninety days and no more than one hundred twenty days of the date of the meeting; however, (1) in case the public disclosure of the date of the meeting takes place less than one hundred twenty days prior to the meeting, in order for the shareholder’s notice to be timely it cannot be received after the closing of the tenth business day following the day on which the public disclosure of the date of the meeting has taken place and (2) notwithstanding the preceding item, with respect to an extraordinary meeting convoked through written notice from the shareholders, in accordance with section 2.2, every notice submitted by a shareholder making the request must be delivered simultaneously with such request. (b) In order for the shareholder’s notice to reach the Secretary in a timely manner with respect to any subject other than the nomination of individuals for election of the Board, must make reference to each of the topics such shareholder proposes to discuss at the ordinary meeting and must include (i) a brief description of the matter to be discussed; (ii) the name and address of subscription of the shareholder; (iii) the class or series and number of shares of capital stock of the Company owned by the shareholder, registered or usufruct; (iv) a description of all arrangements or agreements between such shareholder and any other individual or individuals (including their names) with respect to the proposal of such matters and (v) a statement that such shareholder intends to appear in person or through proxy in the meeting to submit such matter at the meeting. (c)  In order for the shareholder’s notice associated wit h the naming of individuals for the Board reaches the secretary in an appropriate manner, it must establish (a)  with respect to each of the proposed candidates, (i) the name, age, business and residential address of the candidate, (ii) main job or position of the candidate, (iii) the class or series and number of shares of the capital stock of the Company owned by the candidate, whether registered or usufruct and (iv) any other information associated with the candidate that could be required for information in a statement of representation or other presentations with respect to requests of representation for the election of directors in accordance with Section 14 of the 1934 Securities Exchange Act and its modifications (the “Securities Exchange Act”) and the provisions and regulations established below; and (b) with respect to the shareholder that delivers the notice, (i) the name and address of subscription; (ii) the lass or series and number of shares of the capital stock of the Company owned by said shareholder, whether registered or usufruct; (iii) a description of all arrangements or agreement between such shareholder and each of the proposed candidates and any other individual or individuals (including their names) in accordance to which the nomination(s) will take place; (iv) a statement that such shareholder has the intention of appearing in person or through proxy in the meeting to nominate the individuals mentioned in such notice and (v) all other information related to such shareholder that need to be disclosed in a statement of representation or other necessary presentations with respect to requests of representation for the election of directors in accordance with Section 14 of the Securities exchange Act and the provisions or regulations promulgated by virtue of the same.  Such notice must be accompanied of a written consent from each candidate proposed to be nominated and to provide services as director in case he/she is elected. (d) In the shareholders meet, no matter can be discussed and the individuals nominated by a shareholder cannot be elected as director unless notice has been given with respect to the proposed action in accordance with the procedures established in this Section 2.5.  The determinations of the president of the meeting as to whether such procedures were fulfilled or not, in a particular case, will be binding and definitive.  2.06 Quorum .  Except as otherwise provided by law, in the Articles of Incorporation of these By-laws, the holders of no less than the majority of the shares with the right to vote in the shareholders meeting who are present in person or through proxy, will constitute a quorum and whatever the majority of such quorum decides will be deemed as the decision of the shareholders except with respect to the election of directors.  If a quorum is not present in the meeting, the president of the meeting will suspend the meeting without prior notice if the time and place are announced in the meeting until such time a quorum is present.  In the suspended meeting in which a quorum is present, any matter can be discussed that was discussed in the original meeting.  In case the suspension lasts for more than thirty days or if soon after it is suspended a new date is entered for the suspended meeting, notice of suspension of the meeting will be delivered to each registered shareholder with the right to vote in a meeting.  2.07 Procedure.  The order of the day and all other topics in each shareholders meeting will be determined by the president of the meeting.  The president of every shareholders meeting will be the president of the Board or, in his/her absence, the member present in the meeting the most seniority in the Company.  ARTICLE 3 – DIRECTORS - 3.01 Number .  Subject to the clauses of the Articles of Incorporation, the number of directors will be determined exclusively and timely through resolution adopted by the Board.  3.2 Ordinary Meetings .  The Board will meet immediately after and at the same place where the shareholders ordinary meeting took place whenever a quorum is present and without the need of notice of such meeting in order to legitimately constitute it.  The ordinary meetings of the Board will be held at the places and times timely determined by the Board. 3.3. Extraordinary Meetings .  The extraordinary meetings of the Board may be convoked at any time and place and for any reason by the president of the board, by the general director or by the majority members of the Board.  3.4 Notice of Meetings .  It is not necessary to give notice for the ordinary meetings of the Board.  Notice will be sent with respect to each extraordinary meeting of the Board to each director, at their usual place of work or to the address provided by the members for such purpose.  Such notice will be deemed sent in the time and form established whenever it (a) is placed in the postal service of the United states no more than three calendar days prior to the date of the meeting or (b) is delivered in person, by telegram, through facsimile or communicated by telephone, at least twenty four hours prior to the time set for the meeting.  It is not necessary for such notice to include a statement of the matter to be discussed nor the purpose of the same.  3.5 Waiver .  The presence of the director in a Board meeting will constitute a waiver to the right of notice of such meeting, except when the director participates in a meeting for the express purpose of objecting, at the beginning of same, to the discussion of any topic due to the fact the meeting has not been formally called or convened.  A written waiver to the right to receive notice signed by the authorized director or directors to such notice, whether before, during or after the time of notice or the time of the meeting will be equivalent to a notice.  3.06 Quorum .   Except as otherwise provided by law, the Articles of Incorporation or these By-laws, it will be necessary to have the presence of the majority of the directors in service at that time and this will be sufficient to constitute a quorum to discuss the matters of every board meeting, and the decision made by the majority of the directors present in the meeting in which a quorum is present will be deemed as made by the Board.  In case a quorum is not reached, the Board meeting will be timely suspended without notice.  3.07 Telephone participation in the meetings .  The members of the Board or any Board committee may participate in a Board meeting or committee meeting through a telephone or similar communication equipment conference call through which all individuals participating in the meeting can hear each other and each participation will constitute the presence of the individual in the meeting.  3.08 Decisions without a meeting Except as otherwise established in the Articles of Incorporation or these By-laws, all decisions that can be made or are allowed to be made can so be made in any meeting of the Board or any of its committees without a meeting in case all members of the Board or its committees sign a written consent, as the case may be, and such written consent is filed with the minutes of procedures of the board or committee.  Any consent may be equivalent to and will be valid on the date of the last signature entered on the same unless otherwise established.  ARTICLE 4 COMMITTEES – 4.01 Designation of committees .  The Board will establish committees to perform the delegated or designated duties as much as permitted by law.  Each committee will consist of one or more directors of the Company.  In the absence or disqualification of a member of a committee, he/she or the members present in all meetings and disqualified to vote, whether or not such members constitute a quorum, may designated, in unanimous form, another member of the Director to act in the meeting in the place of such absent or disqualified member.  4.02 Authority and powers of the committee.   Except as otherwise provided by law, the board may establish, through resolution or amendment to these by-laws, that a committee may exercise all the powers and authority of the Board in handling the business and matters of the Company. ARTICLE 5 – EMPLOYEES – 5.0 Number.   The employees of the Company will be designated or elected by the Board.  The employees will include a general director, a president, if applicable, the number of vice-presidents the Board determines, a secretary, if applicable, the number of secretary assistants as determined by the Board and a treasurer.  Any individual can have two or more positions at the same time.  5.02  Additional Employees .  The Board may nominate any other employee it deems appropriate.  5.03  Duration of the positions.  Resignation .  All employees, agents and employees of the Company will maintain their respective positions or functions according to the will of the Board and may be removed from their positions at any time that board deems appropriate, with or without cause.  Every employee may resign at any time by submitting written notice of such resignation to the general director, the president or the secretary and it is not necessary for such resignation to be accepted in order for it to be effective unless the notice does not establish so.  Any vacancy to a position will be covered by the Board.  Functions.  The employees of the Company will perform the duties and exercise the powers conferred unto them as assigned by the Board or the president and general director.  ARTICLE 6 - CAPITAL STOCK – 6.01  Certificates .  The Board will authorize the issuance of certified or uncertified capital.   Each shareholder of the Company, through written request, will have the right to one or more certificates signed by or in the name of the Company (a) by the general director or president and (b) the secretary or the secretary’s assistant, certifying the number of shares of capital of the Company owned by said shareholder.  Any or all the signatures of the certificate may be sent facsimile.  6.02  Registered shareholders -  The Company will have the right to treat the holder of any registered share or shares of capital of the Company as the holder in fact of such share or shares and, consequently, it will not be subject to acknowledge any equivalent claim or participation in said share or shares in the name of any other individual, whether there is real notice of it or not, except as otherwise provided by law.  6.03 Cancellation of certificates .  All certificates delivered to the Company will be canceled and, except in case of loss, theft or destruction of the certificates, no new certificate will be issued until the previous one(s) with the same number of shares of the same class of capital have been delivered and cancelled.  6.04. Lost or destroyed certificates . The Board may establish that new certificates be issued instead of any certificate or certificates issued until then by the Company that have been declared lost, stolen or destroyed, by preparing a sworn statement of such fact in an acceptable manner to the Board by the person claiming the certificate or certificates have been lost or stolen or destroyed.  At its own discretion and as prior condition for the issuance of any new certificate or certificates, the Board may require that the owner of thee lost, stolen or destroyed certificate(s), or the legal representative of such individual, provide the Company and its transfer or registered agent(s) a title in such manner and amount as specified by the Board as indemnification for any claim that might arise against the Company and its transfer or registered agent(s) due to the loss, theft or destruction of any certificate or the issuance of a new certificate.  ARTICLE 7 – FISCAL PERIOD – 7.1 The Company’s fiscal period will end on December 31 of each year.  ARTICLE 8 – AMENMENT -  The expert continues to talk and says that the authentication from the state of Colorado in English says the following in Spanish: TWO) STATE OF COLORADO, DEPARTMENT OF STATE, CERTIFICATE, UNITED STATES OF AMERICA, STATE OF COLORADO, SS.  I, GINETTE DENNIS, Secretary of State for the State of Colorado, hereby certify that DIANNE HAWK-BROWN, whose name is subscribed on the certificate of acknowledgement of the attached instrument was, at the time of such acknowledgment, a NOTARY PUBLIC duly commissioned, sworn and authorized by the laws of the State of Colorado.  And I now further certify that the signature and official seal attached of the NOTARY PUBLIC mentioned above, to the best of my knowledge, is genuine.  The signature of the notary was compared to the signature on file at my office.  In witness whereof I affix the great seal of the State of Colorado, in the city of Denver, on the 8th day of the month of March, A.D. 2006 (f) Ginette Dennos.  Secretary of State.  Following is a certification of the Secretary of INFINITY ENERGY RESOURCES, INC., which reads as follows in Spanish:  THREE) CERTIFICATE FROM THE SECRETARY OF INFINITY ENERGY RESOURCES, INC.  I, Timothy A. Ficker, duly elected, qualified and acting in the quality of Secretary in accordance with the By-Laws of Infinity energy Resources, Inc., a company organized and existing under the laws of the State of Delaware, U.S.A. (“Company”), hereby certify that the Company’s Articles of Incorporation and the By-Laws and said Articles of Incorporation and By-Laws have not been modified, changed or revoked.  In my presence, I sign, as Secretary of Infinity energy resources, Inc., on the 6th day of the month of March, 2006. (F) Timothy A. Ficker.  Secretary of Infinity energy Resources, Inc. Before me, on the 6th day of March, 2006, appears Timothy A. Ficker, in the quality of Secretary of Infinity Energy Resources, Inc. who signed the certificate and witnesses my signature and seal of office.  (F) Legible.  Notary Public in and for the State of Colorado.  My commission expires: eleven/zero, five/zero, seven (11/05/07) Seal.  For greater integrity of the document, the Consulate General of the Republic of Nicaragua in Houston and the Ministry of Foreign Affairs of Nicaragua authenticate the document which is in Spanish and says the following: FOUR) The Consulate General of the Republic of Nicaragua in Houston, hereby CERTIFIES  the preceding signature that says: GINETTE DENNIS, is authentic and corresponds to that of the name: Ginnette Dennis.  Position: Secretary of the State of Colorado.  Date: March 28, 2006.  “THIS CONSULATE DOES NOT ASSUME RESPONSIBILITY WITH RESPECT TO THE CONTENT OF THE DOCUMENT. “Finally, the authentication from the Ministry of Foreign Affairs of Nicaragua, which says the following: FIVE) Ministry of Foreign Affairs of Nicaragua, Consular Division.  Managua, Nicaragua.  The undersigned, General Consular Director hereby “certifies” that the preceding signature that says: MARIAMERCEDESBECK is authentic and is verified against that used on this date (ba).  MARIA MERCEDES BECK, CONSUL FOR THE REPUBLIC OF NICARAGUA IN HOUSTON, TEXAS, UNITED STATES OF NORTH AMERICA.  The Institution and the Employee (a) do not assume responsibility with respect to the content of the document.  Managua, Wednesday, April 05, 2006, 11;15:45 a.m. (F) Legible.  Lic. Maria Josefina Rojas Romero.  Director of consular Services.  Seal: Ministry of Foreign relations, Managua, Nicaragua.”  So expressed the appearing parties, well instructed by me, Notary Public, concerning the object, value and legal effect of this document, the general clauses that ensure its validity, the special clauses it contains and those that address waivers and implicit and explicit stipulations.  This Deed was read by me, Notary Public, to the appearing parties, who agree, approve, ratify and sign it along with me, who swears to all. (F) Angelica Arguello D. (f) Roberto Octavio Arguello V. (f) Boanerge Ojeada B.  - THE FRONT PAGE NUMBER FORTY SEVEN IS PASSED ON TO PAGE FIFTY SEVEN OF MY PROTOCOL BOOK NUMBER THIRTEEN OF THE CURRENT YEAR, AT THE REQUEST OF MIS ANGELICA ARGUELLO DAMHA, THE FIRST AUTHENTICATED COPY OF SEVEN PAGES THAT I SIGN, SEAL AND INITIAL IN THE CITY OF MANAGUA, AT THREE THIRTY IN THE AFTERNOON OF APRIL TEN OF THE YEAR TWO THOUSAND SIX”   Signature and Notary seal of BOANERGE ANTONIO QUEDA BACA, II. WITNESS PUBLIC DEED NUMBER TWO HUNDRED THIRTY SIX (236).  TRANSLATION OF THE DOCUMENT.  In the city of Managua, Republic of Nicaragua, at eight o’clock in the morning of December ten of the year two thousand eight, before me, WILLIAM MIGUEL ESPINOZA NARVAEZ, attorney and Notary Public for the Republic of Nicaragua, with domicile and residence in this city, duly authorized to act before the Supreme Court  during the five year period that expires on September nineteen two thousand nine, appear Mr. Favio Josué Batres Pérez, of age, single, attorney, with domicile and residence in this city of Managua, identified through identification card number zero zero one dash one six zero six eight zero dash zero three L (001-160680-0073L) and Ms. Ana Cecilia Chamorro Callejas, of age, single, student, with domicile and residence in this city of Managua, identified through identification card number eight eight eight dash one three zero one eight six dash zero zero zero one M (888-130186-001M).  I swear to personally know the appearing parties and that in my judgment they have the necessary legal civil capacity to bind and to contract, and especially to execute this instrument, in their own name and representation.  The first appearing party, Favio Josué Batres Pérez speaks and says: FIRST:   that he is in possession of a Certificate issued by the Secretary of the Board of Directors of Infinity Energy Resources, Inc, an American company constituted in accordance with the laws of the state of Delaware of the United States of America, which contains, as an Annex,  a Resolution of the Board of Directors associated with the negotiation and execution of some Nicaraguan Concession Agreements, as well as a Special power of Attorney on behalf of Mr. Roberto Arguello and Mr. Stanton Ross.  Such Certificate, as well as the Notarial Certificate and two authentic copies of the same are in English; therefore, through this Instrument it is requested that a Notarial translation be provided of the documents that are in English into Spanish through an interpreter, so that such Certificate and its annexes, that is, the Resolution of the Board of Directors and the Special Power of Attorney already mention may be valid in the republic of Nicaragua.  In accordance with article five of law number one hundred thirty nine, “LAW THAT GIVES GREATER POWER TO THE INSTITUTION OF NOTARY PUBLIC” and article one thousand one hundred thirty two of the Code of Civil Procedure of the Republic of Nicaragua, the undersigned notary proceeds with the mentioned translation through an interpreter.  To this end, based on the mentioned law, the undersigned notary, with more than ten years in office as described in the previous instrument and each one having acknowledged that he executed the same by the authority conferred unto him, hereby signs and places his official seal on it. Signature (illegible).  My commission expires on August twenty nine of the year two thousand nine. (seal) CHRISTA R. MORROW, Notary Public in and for the State of Kansas.  My commission expires on August twenty nine of the year two thousand nine. (iii) Certificate from the Secretary of State of the State of Kansas: “STATE OF KANSAS.  Office of the Secretary of State.  Ron Thornburgh (seal: Great Seal of the State of Kansas, January twenty nine 1861.  To all who see this document, Greetings: I, Ron Thornburgh, Secretary of State for the State of Kansas, hereby certify that the files in my office show that on August twenty nine of the year two thousand five CHRISTA R. MORROW was a Notary Public in and for the State of Kansas, with her commission expiring on August 29, 2009 and that, as Notary Public, all the official acts are fully valid.  I further certify that said Notary Public is authorized by the laws of the State of Kansas to give oaths, acknowledgments and perform any other official duty.  In witness whereof, I hereby sign and authorize my seal of office to be affixed hereto. In the city of Topeka, on November twelve of the year two thousand eight. (Seal: SECRETARY OF STATE FOR THE STATE OF KANSAS).  Signature (illegible).  RON THORNBURGH, Secretary of State.” (iv) Certificate from the Office of the Governor of the State of Kansas: STATE OF KANSAS (seal) Office of the Governor.  I, KATHLEEN SEBELIUS, Governor of the State of Kansas, hereby  certify that RON THORNBURGH is the Secretary of State for the State of Kansas, duly elected and qualified; that the signature on the certificate is his authentic signature and that said certificate and witness are in agreement and official.  IN WITHNESS WHEREOF, I have subscribed my name and authorized that the Great Seal of the State be affixed: on November twelve of the year two thousand eight (signature: illegible) Governor (v) Annex A  Resolution of the Board of Directors: “ACTION BY UNANIMOUS WRITTEN CONSENT OF THE BOARD OF DIRECTORS OF INFINITY ENERGY RESOURCES, INC.  On November six, 2008, in accordance with Section one hundred forty one of the General Law of Companies of Delaware and its amendments, the undersigned, all members of the Board of Directors (“Board) of Infinity Energy Resources, Inc., a  Delaware company, sign this instrument to show their consent to execute the actions   described in this document and the adoption of the following preambles and resolutions without holding a meeting: Negotiation and Execution of the Nicaraguan Concession Contracts   Considering that the Concession Contracts (as defined below) have been approved by the North Atlantic Autonomous Region and the South Atlantic Region; Considering that the Board of Directors of the Company has determined that it feasible and in the best interest of the Company to delegate the authority to Messrs Ross and Arguello Villavicencio to approve, negotiate and execute the Concession Contracts as deemed convenient; THEREFORE, it is resolved that Stanton Edward Ross, of age, married, businessman, domiciled in Chanute, Kansas, identified through the United States Passport number Z eight four, one, one, five, two, four (Z8411524) as President of the Board of Directors and Executive Officer of the Company, be and hereby is authorized to approve the form, terms and provisions, and negotiate and subscribe the PETROLEUM CONCESSION CONTRACT BETWEEN THE STATE OF NICARAGUA AND INFINITY for (i) the area of Perlas, granted to the company in accordance with Resolution thirty nine dash zero two dash two thousand six (39-02-2006) (the “Perlas Contract”) and (ii) the area of Tyra, granted to the Company in accordance with Resolution thirty eight dash zero two two thousand six (38-02-2006) (the “Tyra contract”) together with the Perlas Contract, the “Concession Contracts”); both Resolutions were issued by the INSTITUTO NICARAGUENSE DE ENERGIA (INE) and both contracts were approved by the North Atlantic Autonomous Regional Council and the South Atlantic Autonomous Regional Council and any other act nece4ssary to carry out the negotiation and subscription of the Concession Contract; Furthermore, it is RESOLVED that if Mr. Ross is unable to negotiate and execute the Concession Contracts, alternatively, Roberto Octavio Arguello Villavicencio, of age, single, attorney, identified through the identification card number zero, zero, one, dash, zero, seven, zero, eight, seven, eight, dash, zero, zero, six, zero B (001-070878-0060B) domiciled in this city of Managua, Republic of Nicaragua, is hereby authorized to (a) approve the form, terms and provision, and to negotiate and subscribe the Concession Contracts on behalf of the Company and (b) to execute any other act that is necessary to carry out the negotiation and execution of the mentioned Concession Contracts.  IT IS FURTHER RESOLVED, that a Special Power-of-Attorney is granted on behalf of Messrs. Ross and Arguello Villavicencio in the form of Annex A – General Authorization .  RESOLVE that  any and all acts of the officers previously performed or decided with respect to the preceding resolutions are hereby adopted, ratified and affirmed as   acts authorized and approved by the Company, and FINALLY:  RESOLVE that the officers and directors are and each one hereby is authorized and guided by and on behalf of the Company to execute all documents and carry out all actions they deem necessary, appropriate or recommended to perform the objectives of each of the preceding resolutions.  The actions taken by this agreement will have the same strength and effect as if they had been taken by the undersigned in a Board of Directors meeting, duly called and constituted in accordance with the By-laws and the Articles of Association of the Company.  This agreement can be executed in duplicate copies through signature by facsimile and a signature through facsimile will be deemed an original signature.  IN WITNESS WHEREOF the undersigned have executed this Unanimous Agreement as of November six (6) 2008.  (F) illegible: Stanton E. Ross (F ) illegible: Daniel F. Hutchins, Leroy C. Richie, Robert O. Lorenz.  IN WITNESS WHEREOF, the undersigned have executed this Unanimous Agreement as of November six (6) 2008.  Stanton E. Ross, Daniel F. Hutchins, Leroy C. Richie.  (F) illegible; Robert O. Lorenz. Annex A – SPECIAL POWER.   Be it known to all that through this instrument, the undersigned constitute and grant special powers to Stanton Edward Ross and Roberto Octavio Arguello Villavicencio, to (i) approve the form, terms and provisions, as well as to negotiate and to sign the PETROLEUM CONCESSION CONTRACT BETWEEN THE STATE OF NICARAGUA AND INFINITY ENERGY RESOURCES, INC. for (i) the area of Perlas, granted to the Company in accordance with Resolution thirty nine dash zero two das two thousand six (39-02-2006) (“Perlas Contract”) and (ii) the Tyra area, granted to the company in accordance with resolution thirty eight dash zero two two thousand six (38-02-2006) (“Tyra Contract, together with the Perlas Contract, the “Concession Contracts), both Resolutions issued by the INSTITUTO NICARAGUENSE DE ENERGIA (INE) and both contracts were approved by the North Atlantic Autonomous Regional Council and the South Atlantic Autonomous Regional Council, and (ii) to take any other action  with respect to the above that in the opinion of the attorney-in-fact would be beneficial or in the best interest or legally required by the undersigned, it being understood that the documents signed by the attorney-in-fact  on behalf of the undersigned in accordance with this Special power-of-Attorney will be acts and will contain such terms and conditions that the attorney-in-fact approves at his discretion.  The undersigned hereby grant to each attorney-in-fact the power and authority to act upon and perform any and each act and thing necessary or appropriate in the exercise of any of the rights and powers granted herein, regardless of the requirement, with the power of substitution or revocation, as if the undersigned were personally present,  hereby ratifying and confirming all that said attorney-in-fact or his substitute individual or individuals legally execute by virtue of this special power and the rights and powers granted herein.  This Special power will remain in effect until the Concession Contracts have ended from all aspects, unless it is early revoked by the undersigned through a document signed and delivered to the attorneys-in-fact.  IN WITNESS WHEREOF the undersigned have executed this Unanimous Agreement as of November _____, 2008.  Stanton E. Ross, Daniel F. Hutchins, Leroy C. Richie, Robert O. Lorenz.”  (vi) Annex B. – SPECIAL POWER . Be it known to all that through this instrument, the undersigned constitute and grant special powers to Stanton Edward Ross and Roberto Octavio Arguello Villavicencio, to (i) approve the form, terms and provisions, as well as to negotiate and to sign the PETROLEUM CONCESSION CONTRACT BETWEEN THE STATE OF NICARAGUA AND INFINITY ENERGY RESOURCES, INC. for (i) the area of Perlas, granted to the Company in accordance with Resolution thirty nine dash zero two das two thousand six (39-02-2006) (“Perlas Contract”) and (ii) the Tyra area, granted to the company in accordance with resolution thirty eight dash zero two two thousand six (38-02-2006) (“Tyra Contract, together with the Perlas Contract, the “Concession Contracts”),  both Resolutions issued by the INSTITUTO NICARAGUENSE DE ENERGIA (INE) and both contracts were approved by the North Atlantic Autonomous Regional Council and the South Atlantic Autonomous Regional Council, and (ii) to take any other action  with respect to the above that in the opinion of the attorney-in-fact would be beneficial or in the best interest or legally required by the undersigned, it being understood that the documents signed by the attorney-in-fact  on behalf of the undersigned in accordance with this Special power-of-Attorney will be acts and will contain such terms and conditions that the attorney-in-fact approves at his discretion.  The undersigned hereby grant to each attorney-in-fact the power and authority to act upon and perform any and each act and thing necessary or appropriate in the exercise of any of the rights and powers granted herein, regardless of the requirement, with the power of substitution or revocation, as if the undersigned were personally present,  hereby ratifying and confirming all that said attorney-in-fact or his substitute individual or individuals legally execute by virtue of this special power and the rights and powers granted herein.  This Special power will remain in effect until the Concession Contracts have ended from all aspects, unless it is early revoked by the undersigned through a document signed and delivered to the attorneys-in-fact.  IN WITNESS WHEREOF the undersigned have executed this Unanimous Agreement as of November six (6), 2008.  (F) Stanton E. Ross (F) Illigible.  Daniel F. Hutchins, Leroy C. Richie, Robert O. Lorenz.  IN WITNESS WHEREOF the undersigned executed this Unanimous Consent as of November six (6), 2008.  Stanton E. Ross, Daniel F. Hutchins.  (F) Illegible.  Leroy C. Richie, Robert O. Lorenz.  IN WITNESS WHEREOF the undersigned have executed this Unanimous Consent as of November six (6), 2008.  Stanton E. Ross.  Daniel F. Hutchins.  Leroy C. Richie (F) Illegible.  Robert O. Lorenz.”   The interpreter declares that the preceding translations are correct and true and that he has translated them to the best of his knowledge and understanding.  THIRD:   INSERTIONS:  The appearing party, Favio Josué Batres Pérez declares that the Certificate issued by the Secretary of the Company: ENERGY RESOURCES, INC., SECRETARY”S CERTIFICATE.  Reference is hereby made to certain resolutions (the “Resolutions”) of the Board of Directors of Infinity Energy resources, Inc., a Delaware corporation (the “Company”).  Capitalized terms used and not deemed herein shall have the meanings ascribed to them in the Resolutions.  The undersigned hereby certifies that he is the Secretary of the Company and that, as such, he is authorized to execute this Certificate on behalf of the Company and further certifies that the date hereof: 1. Attached hereto as Exhibit A is a true, correct and complete copy of the power of attorney executed by the Board of Directors of the Company on November 6, 2008, granting certain powers to Messrs. Ross and Arguello Villavicencio in connection with the negotiation and execution of the Nicaraguan concession contracts.  Such power of attorney has not been amended, modified or rescinded, and are in full force and effect in the form adopted {Signature Page Follows].- IN WITNESS WHEREOF, I have signed this certificate as of the 6th day of November 2008 (F) Illegible.  Name: Daniel F. Hutchins Title Secretary.  I, Stanton E. Ross, Chief Executive Officer of the Company, do hereby certify that Daniel F. Hutchins is on the date hereof the duly elected or appointed, qualified and Secretary of the Company and that the signature set forth above is the genuine signature of such officer. (F) Illegible.  Name: Stanton E. Ross.  Title: Chief Executive Officer” (ii) Annex A.   Resolution of the Board of Directors.  EXHIBIT A.  ACTION BY UNANIMOUS WRITTEN CONSENT OF THE BOARD OF DIRECTORS OF INFINITY ENERGY RESOURCES, INC.  November 6, 2008.  In accordance with Section 141 of the Delaware General Corporation law, as amended, the undersigned, being all of the numbers of the Board of Directors (the “Board”) of Infinity Energy Resources, Inc., a Delaware corporation (the “Company”) hereby execute this instrument to evidence their consent to the taking of the actions set forth herein, and the adoption of the following preambles and resolutions without the holding of a meeting.  Negotiation and Execution of the Nicaraguan Concession Contracts. WHEREAS the Concession Contracts (as defined below) have been approved by the Autonomous region of the Northern Atlantic and the Autonomous region of the Southern Atlantic; and WHEREAS the Board of Directors of the Company has determined that it is advisable and in the best interests of the Company to delegate the authority to Messrs. Ross and Arguello Villavicencio to approve. Negotiate and execute the Concession Contracts as they deem advisable.  NOW THEREFORE, BE IT RESOLVED that Stanton Edward Ross, of legal age and a married businessman from Chanute, Kansas, with a United States passport (number Z8411524), in his role as Chairman Board of Directors and Chief Executive Officer of the Company be, and hereby is, authorized to (a) approve the form, terms and provisions, and negotiate and execute the Pertroleum Concession Contract between the State of Nicaragua and Infinity Energy resources, Inc. for (i) the Perlas Area, awarded to the Company according to Resolution 39-02-2006 (the “Perlas Contract”) and (ii) the Tyra Area, awarded to the Company, according to Resolution 38-02-2006 (the “Tyra Contract”, together with the Perlas Contract, the “Concession Contracts”) both Resolutions having been issued by the INSTITUTO NICARAGUENSE DE ENERGIA (“MEM”) and subsequently both contracts having been approved by the North Atlantic Autonomous Regional Council and the South Atlantic Autonomous Regional Council and (b) to perform any other act that he deems necessary to accomplish the negotiation and execution of the aforementioned Concession Contracts; FURTHER RESOLVED, that if Mr. Ross is unable to negotiate and execute the Concession Contracts, alternatively Roberto Octavio Arguello Villavicencio, of legal age, single and licensed attorney, identification No. 001-070878-0060B, domiciled in the city of Managua, Republic of Nicaragua, shall be authorized to: (a) approve the form, terms and provisions, and negotiate and execute, on behalf of the Company Concession Contracts; and (b) to perform any other act that he deems necessary to accomplish the negotiation and execution of the aforementioned Concession Contracts.  FURTHER RESOLVED that a Special Power of Attorney be issued to Mr. Ross and Mr. Arguello Villavicencio in the from attached as Exhibit A – General Authorization  RESOLVED that any and all acts of the officers and directors heretofore  done, made or taken in connection with any foregoing resolution be, and they hereby are, adopted, ratified and affirmed as the authorized and approved acts of the Company, and finally FURTHER RESOLVED that the officers and directors are, and each of them hereby is, authorized and directed for and on behalf of the Company, to execute all documents and take such further actions as they deem necessary, appropriate or advisable to effect the   purposes of each of the foregoing resolutions.  The actions taken by this consent shall have the same force and effect as if   taken by the undersigned at a regular meeting of the Board of Directors of the Company, duly called and constituted pursuant to the Bylaws of the Company and the Act. This consent may be executed in counterparts by facsimile signature and a facsimile signature will constitute an original signature. [Signature page follows].  IN WITNESS WHEREOF, the und4ersigned have executed this Unanimous Consent as of this 6th day of November 2008 (F) Illegible.  Stanton E. Ross (F) Illegible. Daniel F. Hutchins, Leroy C. Richie, Robert O. Lorenz.  IN WITNESS WHEREOF, the undersigned have executed this Unanimous Consent as of this 6th day of November 2008.  Stanton E. Ross, Daniel F. Hutchins, Leroy C. Richie.  (F) Illegible.  Robert O. Lorenz.  Exhibit A POWER OF ATTORNEY.  Know all by these presents, that the undersigned hereby constitute and appoint Stanton Edward Ross and Roberto Octavio Arguello Villavicencio, the undersigned’s true and lawful attorneys-in-fact to (1) approve the form, terms and provisions, and negotiate and execute the PETROLEUM CONCESSION CONTRACT BETWEEN THE STATE OF NICARAGUA AND INFINITY ENERGY RESOURCES, INC. for (i) the Perlas Area, awarded to the Company according to Resolution 39-02-2006 (the “Perlas Contract”) and (ii) the Tyra Area, awarded to the Company according to Resolution 38-02-2006 (the “Tyra Contract”, together with the Perlas Contract, the “Concession Contracts”), both Resolutions having been issued by the INSTITUTO NICARAGUENSE DE ENERGIA (“MEM”) and subsequently both contracts having been approved by the North Atlantic  Autonomous Regional Council and the South Atlantic Autonomous Regional Council and (2) take any other action of any type whatsoever in connection with the foregoing which, in the opinion of such attorney-in-fact may be of benefit to, in the best interest of, or legally required by the undersigned, it being understood that documents executed by such attorney-in-fact on behalf of the undersigned pursuant to this Power of Attorney shall be in such form and shall contain such terms and conditions as such attorney-in-fact may approve in such attorney-in-fact’s discretion.  The undersigned hereby grants to each such attorney-in-fact full power and authority to do and perform any and every act and thing whatsoever requisite necessary or proper to be done in the exercise of any of the rights and powers herein granted, as fully to all intents and purposes as the undersigned might or could do if personally present, with full power of substitution or revocation, hereby ratifying and confirming all that such attorney-in-fact, or such attorney-in-fact’s substitute of substitutes shall lawfully do or cause to be done by virtue of this power-of-attorney and the rights and powers herein granted.  This Power-of-Attorney shall remain in full force and effect until the Concession Contracts have been finalized in all respects, unless earlier revoked by the undersigned in a signed writing delivered to the foregoing attorneys-in-fact.  IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be executed as of this ___ day of November, 2008.  Stanton E. Ross, Daniel F. Hutchins, Leroy C. Richie, Robert O. Lorenz”.  (iii) Annex B – Special Power – « EXHIBIT B POWER OF ATTORNEY – Know all by these presents that the undersigned hereby constitute and appoint Stanton Edward Ross and Roberto Octavio Arguello Villavicencio, the undersigned’s true and lawful attorneys-in-fact to: (1) approve the form, terms and provisions , and negotiate and execute the PETROLEUM CONCESSION CONTRACT BETEEN THE STATE OF NICARAGUA AND INFINITY ENERGY RESOURCES, INC. for (i) the Perlas Area, awarded to the Company according to resolution 39-02-2006 (the “Perlas Contract”) and (ii) the Tyra Area, awarded to the Company according to Resolution 38-02-2006 (the “Tyra Contract” together with the Perlas Contract, the “Concession Contracts), both resolutions having been issued by the INSTITUTO NICARAGUENSE DE ENERGIA (“MEM”), and subsequently both contracts having been approved by the North Atlantic Autonomous Regional Council and the South Atlantic Autonomous Regional Council, and 92) take any other action of any type whatsoever in  connection with the foregoing which, in the opinion of such attorney-in-fact ay be benefit to, in the best interest of, or legally required by the undersigned, it being understood that the documents executed by the attorney-in-fact on behalf of the undersigned pursuant to this Power of Attorney shall be in such form and shall contain such terms and conditions as such attorney-in-fact may approve at such attorney-in-fact’s discretion.  The undersigned hereby grants to each such attorney-in-fact full power and authority to do and perform any and every act and thing whatsoever, requisite, necessary, or proper to be done in the exercise of any of the rights and powers herein granted as fully to all intents and purposes as the undersigned might or could do if personally present, with full power of substitution or revocation, hereby ratifying and confirming all that such attorney-in-fact, or such attorney-in-fact’s substitute or substitutes, shall lawfully do or cause to be done by virtue of this power of attorney and the rights and powers herein granted.  This power of Attorney shall remain in full force and effect until the Concession Contracts have been finalized in all respects, unless earlier revoked by the undersigned in a signed writing delivered to the foregoing attorneys-in-fact.  IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be executed as of this 6th day of November, 2008. (F) Illegible.  Stanton E. Ross (F) Illegible.  Daniel F. Hutchins, Leroy C. Richie, Robert O. Lorenz.  IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be executed as of this 6th day of November, 2008.  Stanton E. Ross, Daniel F. Hutchins, (F) Illegible.  Leroy C. Richie, Robert O. Lorenz.  IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be executed as of this 6th day of November, 2008.  Stanton E. Ross, Daniel F. Hutchins, Leroy C. Richie.  (F) Illegible.  Robert O. Lorenz.”  (iv) Notary Certification. “STATE OF KANSAS)) ss COUNTY OF Johnson) On November 6, 2008, before me, Christa Morrow, a Notary Public in and for the State of Kansas, personally appeared before me Mr. DANIEL F. HUTCHINS, Secretary of Infinity Energy Resources, Inc. a Delaware corporation, and Mr. STANTON E. ROSS, Chief Executive Officer of Infinity Energy Resources, Inc., a Delaware corporation, each personally known to me to be the person whose name is affixed to the foregoing instrument, with each having acknowledged that he executed the same in his authorized capacity.  WITNESS my hand and official seal.  Signature.  Christa R. Morrow.  My commission expires 8/29/09.  SEAL CHRISTA R. MORROW.  Notary Public – State of Kansas.  Appt. Expires 8/29/09”.  (v) Certification from the Office of the Secretary of State of Kansas: “STATE OF KANSAS – Office of Secretary of State RON THORNBURGH  To all to whom these presents shall come, Greetings: I, RON THORNBURGH, Secretary of State of the State of Kansas, do hereby certify the records of my office show that on the 29th day of August, 2005, CHRISTA R. MORROW was appointed a Notary Public in the State of Kansas, with an expiration date of August 29, 2009, and that as such Notary Public all official acts are entitled to full faith and credit.  I further certify that said Notary Public is empowered by the laws of the state of Kansas to administer oaths, take acknowledgments and perform other official duties.  IN TESTIMONY WHEREOF: I hereto set my hand and cause to be affixed my official seal.  Done at the City of Topeka, this 12th day of November, 2008, (F) Illegible.  RON THORNBURGH, SECRETARY OF STATE.”  (vi) Certification from the Office of the Governor of the State of Kansas: “State of Kansas.  Office of the Governor.  I, KATHLEEN SEBELIUS, Governor of the State of Kansas, do hereby certify that RON THORNBURGH is the duly elected and qualified Secretary of State of Kansas; that the signature attached to the certificate within is his genuine; and that said certificate and attestation are in due form and by proper officer.  IN TESTIMONY WHEEOF, I have hereunto subscribed my name and caused to be affixed the Great Seal of the state of Kansas this 12th day of November, 2007.  (F) Kathleen Sebelius, Governor.” (vii) Authentication from the Consulate General of Nicaragua in Washington D.C.: “Consulate General of Nicaragua 1627 New Hampshire Ave., NW Washington, D.C. 20009, No. 2546-2008 The Consulate General of the Republic of Nicaragua, in this City of Washington, District of Columbia, United States of America, hereby certifies that the signature of Ron Thornburg, Secretary of State of the State of Kansas, United States of America, which appears in this document, is authentic.  Issued in the City of Washington, D.C. on November 17 of the year 2008.  (F) Alcides Montiel.  Alcides Montiel, Advising Minister with Consular functions.  THE CONSULATE GENERAL OF NICARAGUA DOES NOT ASSUME ANY RESPONSIBILITY WITH RESPECT TO THE CONTENT OF THE AUTHENTICATED DOCUMENT.”  (viii) Authentication by the Ministry of Foreign Affairs of Nicaragua “No. 2008082758.  Ministry of Foreign Affairs, Consulate General.  Managua, Nicaragua.  The undersigned, Martha de los Angeles Rodriguez Duarte, Director of Consular Services, hereby “Certifies” that the preceding signatures that says ALCIDES MONTIEL “Is authentic and matches” the one used on the date (ba), ALCIDES MONTIEL, ADVISING MINISTER WITH CONSULAR FUNCTIONS IN WASHINGTON D.C. – UNITED STATES.  The Institution and Employee (a) do not assume responsibility with respect to the content of the document.  Managua, Thursday, November 20, 2008, 02:49 p.m. (F) Illegible Martha de los Angeles Rodriguez Duarte. Consular Services Director (Seal).”  So expressed those present as instructed by me, the Notary, concerning the matter, value and legality of this act, of the general clauses that ensure its validity, specific ones contained therein and those involving waivers and implicit and explicit provisions.  This deed, having been read by me in full to those present, was found to be in agreement, and they approve, ratify and sign it along with me, who swears to all associated with it.    (f) Favio Batres (f) Illegible.  Drawn before me on the back of the page number four seven one, and the back of page number four seven seven (477) in my Protocol number fifteen of the current year and book, this first witness on behalf of FAVIO JOSÉ BATRES PEREZ, in his own name and representation, in seven (seven) pages that I sign, initial and seal in the city of Managua, at eight hours and thirty minutes of the morning of December ten of the year two thousand eight.    Signature and Seal of the Notary WILLIAM MIGUEL ESPINOZA NARVAEZ – III. – “PUBLIC DEED NUMBER TWENTY FIVE (25) OPENING OF BRANCH -  In the city of Managua, Republic of Nicaragua, at eight o’clock in the morning of April twenty four of the year two thousand six, before me, ANA TERESA RIZO BRISEÑO, Attorney and Notary Public for the Republic of Nicaragua, with domicile and residence in the city of Managua, Republic, duly authorized to act  before the Supreme Court during the five year period ending September first of the year two thousand seven, appears before me Miss ANGÉLICA ARGUELLO DAMHA, of age, single, attorney, domiciled in Managua, republic of Nicaragua, identified through identification card number zero, zero, one, dash, two, zero, three, eight, one, dash, zero, zero, five, three, letter “N” (-001-270381-0053N).  I swear to personally know that appearing party and that she has, in my judgment, the legal capacity necessary to bind and contract, especially to sign this instrument whereby she acts in the name and representation of INFINITY ENERGY RESOURCES INC., a company organized and existing in accordance with the laws of the state of Delaware of the United states of America.  Miss Arguello demonstrates her representation through witness of public deed number thirty two 932), translation of the minutes of the Board of Directors meeting, which is literally transcribed later.  The appearing party, in the capacity described above, speaks and says: (FIRST): That for the purpose of establishing and requesting the Public Registration of Real Estate and Commercial Property from the Department of Managua for a branch of INFINITY ENERGY RESOURCES INC.,  Miss Arguello has the duly legalized documents issued by the Consulate of the Republic of Nicaragua in the city of Houston, State of Texas, United States of America and before the Ministry of Foreign Affairs in Nicaragua, which were duly translated into Spanish and read as follows:  A) PUBLIC WITNESS NUMBER THIRTY TWO (32) TRANSLATION OF THE BOARD OF DIRECTORS MEETING OF INFINITY ENERGY RESOURCES, INC.  which expressly authorizes the opening of the branch through a telephone conference call on March seventeen of the year two thousand six at twelve o’clock and thirty minutes, Rocky Mountain time, which deed includes and literally reads as follows: WITNESS – PUBLIC DEED NUMBER THIRTY TWO (32) PROTOCOL NUMBER THIRTEEN (13) TRANSLATION OF DOCUMENT- In the city of Managua, Republic of Nicaragua, at two thirty in the afternoon of April ten of the year two thousand six.  Before me, BOANERGE ANTONIO OJEDA BACA, Attorney and Notary Public for the Republic of Nicaragua, with domicile and residence in the city of Managua, duly authorized to act before the Supreme Court during the five year period that expires on the day of the year two thousand eight, appear Angélica Arguello Damha, of age, single, attorney and domiciled in Managua, bearer of the identification card number zero, zero, one, dash, seven, two, zero, three, eight, one, dash, zero, zero, five, three, letter “N” (001-270391-0053N) and Roberto Octavio Arguello Villavicencio, of age, single, attorney and domiciled in Managua, bearer of the identification card number zero, zero, one, dash, zero, seven, zero, eight, seven, eight, dash, zero, zero, six, zero, letter “B” (001-070878-0060B) the latter acting in the quality of interpreter.  I swear to personally know the appearing parties who, in my judgment, have the civil legal capacity necessary to bind and contract and in particular to execute this instrument; the appearing parties express themselves in their own name and representation.  FIRST: the first appearing party has the MINUTES OF THE BOARD OF DIRECTORS MEETING of INFINITY ENERGY RESOURCES INC. and that the minutes is in English and two of its originals are in English, the reason why it is hereby it is hereby requested that a notary translation be provided through an interpreter of said minutes and authenticated copies in order for this document to be valid in the Republic of Nicaragua.  In accordance with Law number one hundred thirty, the Law that gives greater power to the Institution of Notary, and article one thousand one hundred thirty two of the Code of Civil Procedure, the undersigned Notary proceeds with the translation of the portions of the document that are in English through an interpreter.   To this end, based on the mentioned law, the undersigned Notary, with more than ten years with the Supreme Court, hereby nominates and designates Roberto Arguello Villaviciencio as interpreter to verify the translation from English into Spanish as requested to him, who possesses ample knowledge of both the English and Spanish languages.  SECOND TRANSLATION.   Having understood it, he accepts the nomination, being warned of the penalties of false testimony, promising to speak the truth, and hereby declares: that to the best of his knowledge and understanding, the minutes in English say the following in Spanish: ONE) “INFINITY ENERGY RESOURCES, INC. MINUTES OF THE BOARD MEETING OF MARCH 17, 2006.  A special meeting of the Board of Directors (“Board”) of Infinity Energy resources Inc., a company constituted in the State of Delaware (the “Company”) was held through a conference call on March 17, 2006, which began as 12:30 hours, Rocky Mountain Time (MST).  The following directors participated in said meeting: Stanton E. Ross, Elliot Kaplan, Leroy Richie and James Tuell.  The following also participated in part of all of the meeting: Timothy Ficker, Vice President, Chief Financial Officer and Secretary, Deborah Friedman, from the Law Firm of Davis Graham & Stubbs LLP, Counsel for the Firm, and Andrew Melsheimer, of Thompson & Knight LLP, Counsel for the Firm with respect to the Nicaragua Project.  At the request of Mr. Ross, Mr. Tuell acted as Chairman of the meeting; Mr. Tuell confirmed the presence of a quorum and started the meeting.  Following Mr. Tuell, Mrs. Freidman acted as Secretary of the Meeting.  Nicaragua Mr. Ross made reference to the information provided in the Board Meeting held on March 1 with respect to the recent progress made in obtaining the concessions in Nicaragua and described the request for formal approval by the Board in said meeting to authorize the Execution of the documents related to the Concession contracts, the establishment of a Company Branch and offices in Nicaragua and to grant limited and general powers to the Company’s local Counsel in Nicaragua.  Mrs. Friedman described the powers proposed and the possibility of limitations with respect to certain powers.  The Board discussed in detail certain limitations of the powers to be granted through a General Power-of-Attorney, including the express limitation of powers relative to the sale, transfer or taxation of the Concession contracts. Mr. Melsheimer participated in the meeting and described the requirements of the General Corporate laws of Nicaragua with respect to the establishment of a Company branch and the Hydrocarbons Law, which usually require the designation of a legal representative domiciled in Nicaragua with power to bind the Company.  Mr. Melsheimer described his discussions with legal counsel concerning possible limitations of powers granted in the general and limited powers.  The Board continued discussing about the limitation of powers granted to the Nicaraguan legal counsel according to the general and limited powers and posed questions and received answers from Mr. Melsheimer concerning same.  After said discussion and the motion made and seconded, the board unanimously adopted the following resolutions: RESOLVES that Stanton Edwards Ross, of age, marries, businessman in Chanute, State of Kansas, United States of America passport number Z8411524, as chairman of the Board of Directors of the Company, is hereby authorized to negotiate and sign (a) Negotiate and sign the PETROLEUM CONCESSION CONTRACTBETWEEN THE STATE OF NICARAGUA AND INFINITY ENERGY RESOURCES INC. for (i) the Area of Perlas, awarded to the company pursuant to Resolution 39-02-2006 and (ii) the Area of Tyra, awarded to the company pursuant to Resolution 38-02-2006,; both Resolutions were issued by the INSTITUTO NICARAGUENSE DE ENERGIA (MEM); (b) to grant, on behalf of the company, a limited power (special power of Representation) in accordance with ANNEX A of this Act, Mr. Roberto Octavio Villavicencio, of age, single, attorney and identification No. 001-070878-0060B, domiciled in this city of Managua, Republic of Nicaragua and (c) to perform any other act necessary to negotiate and execute the above mentioned contracts; and RESULVE that (i) the Company, through a branch (“Branch”) established for this purpose, is hereby authorized to operate and carry out  any and all businesses in the Republic of Nicaragua that constitute the purpose of the Company as defined in the Articles of Incorporation of the Company and its amendments; and FURTHER RESOLVE that (i) the Company hereby allocates the amount of one hundred seventy five thousand córdobas (C$175,000.00) as the initial capital of the Branch; (ii) the Branch office will be located in the city of Managua, Nicaragua, and (iii) the opening of additional offices in other cities in the entire territory of the Republic of Nicaragua is hereby authorized; and FURTHER RESOLVE that Ms. Angélica Arguello Damha, of age, single, attorney, identification card No. 001-270381-0053N, domiciled in the City of Managua, Republic of Nicaragua, is hereby authorized  to (i) perform any and all act necessary and to sign all documents necessary to establish the Branch of the Company and to incorporate the Branch in the republic of Nicaragua; (ii) to appear before a Notary Public in Nicaragua to request registration of the documents necessary to legalize the establishment of the Branch; however, Ms. Arguello Damha may not act on behalf of the Company or the Branch to grant any power or to make any decision that is not duly authorized by the Board of the Company in this instrument; FURTHER RESOLVE that this minutes of the meeting of the Board of the Company will be sufficient in order for Ms. Arguello to prove her authority to establish the Branch of the Company; FURTHER RESOLVE that  once the Branch is registered in the Public Trade Registry of Managua, Nicaragua, Angélica Arguello Damha, of age, single, attorney, identification No. 001-270381-0053N, domiciled in the city of Managua, Republic of Nicaragua, is hereby authorized to appear before a Nicaraguan Notary Public to grant, on behalf of the Branch, a General Power, in accordance with the annex to this minutes, Annex B, to Mr. Roberto Octavio Arguello Villavicencio, of age, single, attorney, identification No. 001-070878-0060B, domiciled in this city of Managua, Republic of Nicaragua, granting the attorney-in-fact authority to represent the Branch in all of its activities carried ou in Niaragua, to sell, mortgage, or otherwise transfer or encumber all types of the Branch assets in Nicaragua and to legally manage, sign all types of contracts and perform all other legal activities that the Branch performs in Nicaragua, except: (i) the activities that, pursuant to the law, must be personally performed by the owners of the Company; (ii) the activities for which the law expressly requires special powers granted by the Company; (iii) activities that involve a sum greater than ten thousand seven hundred córdobas (C$10,700.00) which must be expressly approved by the Board of the Company; (iv) the power to sell, mortgage or otherwise transfer or encumber the Petroleum Concession Contract for the Area of Perlas (pursuant to Resolution 39-02-2006) and the Concession Contract for the Area of Tyra (pursuant to resolution 38-02-2006) and (v) the power to delegate to any other person any of the powers granted to him in accordance with these general powers; and FURTHER RESOLVE that no power associated with the business of the Company in Nicaragua that is not expressly authorized in these resolutions may be granted by or in the name of the Company without the express approval of the Board. Adjournment.  Without further business to be discussed before the Board, the meeting was adjourned at approximately 13:25 hours.  Submitted. (F) Illegible.  Deborah Friedman.  Meeting Secretary.”  ANNEX A.  SPECIAL POWER OF REPRESENTATION.   The undersigned, as President of the Board of Directors of Infinity Energy Resources, Inc. (“the Company”), a company organized and existing in accordance with the laws of Delaware and domiciled in Denver, Colorado, with sufficient power granted herein, hereby grants a SPECIAL POWER OF REPRESENTATION to ROBERTO OCTAVIO ARGUELLO VILLAVICENCIO, of age, single, attorney, domiciled in Managua, identified through identification card number zero, zero, one, dash, zero, seven, zero, eight, seven, eight, seven, eight, dash, zero, zero, six, zero, letter B (001-070878-0060B) with power to represent the Company before the Instituto Nicaraguense de Energia (MEM), Ministerio del Ambiente y los Recursos Naturales (MARENA) and any other administrative and/or government institution of the republic of Nicaragua in all transactions carried out by the company with such institutions with respect to the Company’s operation associated with the exploration and exploitation of hydrocarbons project in the republic of Nicaragua and in particular with respect to administrative matters with MEM and the acquiring of an environmental permit from MARENA or any other necessary transaction with MEM or MARENA.  This SPECIAL POWER of Representation does not grant power or authority to negotiate terms or to sell, rescind, change, transfer, mortgage, loan, deliver as collateral or charge, dispose of  or encumber in any way the Petroleum Concession Contract between the State of the Republic of Nicaragua and Infinity Energy Resources, Inc. with respect to the area of Perlas in accordance with resolution 39-02-2006 issued by MEM or the Contra Petrolera between the state of the Republic of Nicaragua and Infinity Energy Resources, Inc. for the area of Perlas pursuant to Resolution 39-02-2006 issued by MEM or the Petroleum Concession Contract between the State of the Republic of Nicaragua and Infinity Energy Resources, Inc. for the area of Tyra, pursuant to Resolution 38-02-2006 issued by MEM, which is expressly reserved to the Board of Directors of the Company.   This Special Power of representation does not grant the power or the authority to delegate powers herein granted to another person or to grant powers of any kind to third parties in the name of the Company, which is expressly reserved to the Board of Directors of the Company.  Given and signed in Chanute, Kansas on ____ of March of two thousand six.  Stanton E. Ross, Chairman of the Board of Directors of Infinity Energy Resources, Inc.  Before me, on this ___ day of March of 2006, appeared Stanton E. Ross, known to me to be the President of Infinity Energy Resources Inc., who signed, before me, the preceding certificate and I hereby certify and give under my hand and seal of office. Notary Public, in and for the State of Kansas.  My Commission Expires ____ ANNEX B DEED NUMBER _____() POWER G In the city of ____, at ____ of the ___ of ___ of the year two thousand six, before me, Attorney and Notary Public Republic of Nicaragua, with domicile and residence in this city and duly authorized to act before the Supreme Court  during ____ appears Mr. ____, of age _____ (general provisions).  I swear to personally know the appearing party and that in my judgment he has the legal capacity necessary to bind, and contract and especially with respect to what is granted herein, who acts in the name and representation of INFINITY ENERGY RESOURCES, INC., NICARAGUA BRANCH, recorded in the Minutes of the Board of Directors Meeting of “INFINITY ENERGY RESOURCES INC.” held in the city of ____ at ____ of ____  of the year two thousand six (2006), duly authenticated by the Ministry of Foreign Relations.  I swear to have seen the documents mentioned above that empower the appearing party for execution of this document.  Mr. _____ appears and says: SOLE PARAGRAPH: That through this public instrument, ample and sufficient GENERAL POWERS  are granted to ROBERTO OCTAVIO ARGUELLO VILLAVICENCIO, of age, single, attorney, domiciled in Managua and identified through identification card number zero, zero, one, dash, zero, seven, zero, eight, seven, eight, dash, zero, zero, six, zero, letter B (001-070878-0060B) to represent the branch of INFINITY ENERGY RESOURCES, INC. opened in the Republic of Nicaragua, with respect to said branch’s matters and business to be carried out exclusively in the Republic of Nicaragua, for which the attorney-in-fact will intervene through the power granted unto him through this instrument to sell, mortgage and otherwise transfer and encumber all types of assets; to legally manage, sign all types of contracts and carry out all other legal activities the grantor could himself perform, except those that according to the law must be carried out by the owner in person and those activities for which the law expressly requires very special powers, limited to the sum of seven thousand córdobas (C$17,000), requiring prior approval from the Board of Directors.    This General Power does not grant the authority to negotiate terms or to rescind, sell, change, transmit, mortgage, loan, delivery as guarantee, or burden, transfer or encumber the Petroleum Concession Contract between the State of the Republic of Nicaragua and Infinity Energy Resources, Inc. for the area of Perlas pursuant to Resolution 39-02-2006 issued by the MEM or the Petroleum Concession Contract between the State of the Republic of Nicaragua and Infinity Energy Resources, Inc for the area of Tyra, pursuant to Resolution 38-02-2006 issued by MEM, which is expressly reserved to the Board of Directors of the Company.  This General Power of Representation does not grant the authority to delegate the powers granted herein to another individual nor to grant any type of powers to a third party on behalf of the Company, which is expressly reserved to the Board of Directors of the Company. So expressed the appearing party as instructed by me, the Notary Public, with respect to the object, value and legal criteria of this act, the general clauses that ensure its validity, the special clauses herein and those concerning waivers and implicit and explicit stipulations, as well as its registration with the competent Public Registry.  This deed was fully read by me, Notary Public, in to the appearing party, found to be in agreement, the appearing party approves, ratifies and signs it with me, Notary Public, who swears to all contained herein.  The expert continues to speak and expresses that the authentication from the State of Colorado which is in English saws the following in Spanish: DOS) STATE OF COLORADO, DEPARTMENT OF STATE, CERTIFICATE, UNITED STATES OF AMERICA, STATE OF COLORADO SS.  I, GINETTE DENNIS,  Secretary of State for the State of Colorado, hereinafter certify that DIANNE HAWK-BROWN, whose name is subscribed in the certificate that proves acknowledgment of the attached instrument and that a duly commissioned, sworn and authorized Notary Public by the laws of the State of Colorado was present at that time.  And I hereby certify that the signature and official seal of the above mentioned Notary Public, to the best of my knowledge, is genuine.  The signature of the notary was compared to the signature on file in my office.  In witness whereof, I hereinafter affix the great seal of the State of Colorado, in the city of Denver, on the 22nd day of the month of March A.D. 2006 (f) Ginette Dennos, Secretary of State. The authentication in Spanish reads as follows: THREE) subject to those preferences, rights and privileges expressly granted to the holders of all types of shares that are in circulation at the moment  with previous rights and all series of preferred shares that may be in effect in the future, except as otherwise stipulated by the State of Delaware, the holders of ordinary shares will have exclusively all other rights of the Company’s shareholders, including .but not limited to the right to dividends whenever declared by the Board with respect to the legally available assets and (ii) in case of distribution of assets due to dissolution or liquidation of the Company, the right to receive all of the Company’s assets in a proportionate and equitable manner upon payment of the specific amounts to the holders of preferred shares, if applicable, that have the right to such or is so stipulated herein or is in accordance with this instrument. 4.2  Preferred Shares (a) The total number of preferred shares of $0.,0001 nominal value per share that the Company is authorized to issue is 10,000,000 (b) The Board is expressly authorized at any time and periodically to issue preferred shares in one or more series, with the right to vote, complete or limited or without the right to vote and with those designations, preferences and special rights that are relative, participating, optional or others and requirements, limitations or restrictions to same that indicate or express, in the resolution or resolutions that determine the issuance of such shares as adopted by the Board, subject to the limitations prescribed by law and in accordance with the provisions set forth in this instrument, including but not limited to the following: (1) the designation of the series and number of shares that make up the series; (2) the rate of dividends of the series, the conditions and dates on which such dividends are due, the relation such dividends will have with respect to the payable dividends in any other class or classes of shares and if such dividends will be cumulative or not; (3) if the shares in the series will be subject to repurchase by the company and, if so, the period, prices and other clauses and conditions of such repurchase; (4) the clauses and the amount of any amortization fund for the purchase r repurchase of the shares of the series; (5) if the shares of the series will be converted to or exchanged for shares of another class or classes or another series of any class or classes of shares of the company and, in case of conversion or exchange, the periods, prices, rates, modifications and other clauses and conditions of said conversion or exchange; (6) as the holders of shares of the series will or will not have the right to vote in the election for directors; (7) the restrictions, if applicable, with respect to the issuance or reissuance of any preferred share; (8) the rights of the holders of the shares of the series in case of liquidation or dissolution of the company.  ARTICLE 5 – DIRECTORS. 5.1 Duties, Number and Election of Directors.  The operations of the Company will be carried out by the Board.  The number of directors of the Company must be established periodically as indicated in the by-laws and may be increased or decreased periodically as stipulated in the by-laws,  under the condition that the number of directors is not less than three or more than seven, unless otherwise provided in this Article.  5. the election of the directors does not necessarily have to be by written vote except as provided in the by-laws.  The directors will be divided into three classes designated as Class I, Class II and Class III.  Each class will consist, as much as possible, of a third of the total number of directors that constitute the Board.  The term of the directors for the initial Class I will end in 2006, the terms of the directors for the initial Class II will end in 2007, and the terms of the directors for the initial Class III will end in 2008.  The functions of the initial class will be determined by the Board.  In each ordinary shareholders meeting, the successors of the directors whose term will end on such ordinary meeting will be elected and the successors’ term will run for three years.  If the number of directors changes, any increase or decrease will be distributed among the classes so that the number of directors in each class remains as homogenous as possible, but under no circumstance will a decrease in the number of directors reduce the term of a director in the current term.  Each director will exercise his/her functions up to the ordinary meeting of the year in which his/her term expires and until his/her successor is elected and qualified, subject however, to death, resignation, retirement, incapacity or destitution of such director from his position.  In the event the holders of any class or series of preferred shares have the right, through a separate class vote, to elect directors, in accordance with Article 4, then the provisions of such class or series of shares will apply with respect to his/her rights. The number of directors that the holders of any of such classes or series of preferred shares can elect will be in addition to the number established in the preceding paragraph.  Articl4.  5.2 Removal from office .  Subject to all rights of holders of all series of preferred shares, a director may be removed from office by the shareholders prior to the expiration of his/her term for just cause only.  5.3 Quorum.    .The Quorum for the Board for a business transaction will be of no less than a majority with respect to the total number of directors except as otherwise provided in this instrument or the by-laws with respect to the filling of vacancies.  5.4 Directors positions and recent vacancies.  Except as otherwise provided in accordance with the rights of the holders of any class or series of preferred shares to elect directors under specific circumstances, the position of director recently created that result in an increase in the number of directors an those resulting from death, resignation, incapacity, removal or any other reason, must be filled only with the affirmative vote by the majority of the directors remaining in office or by a single remaining director, although representing less than a quorum for the Board.   Every director elected in accordance with the preceding sentence will exercise his/her functions for the remaining period until the expiration of the term of the new director position created or that of the vacant office and until the successor of such director has been elected and qualified.  ARTICLE 6 - BY-LAWS.  Except as otherwise provided herein, but not limited to the powers granted by the by-laws, the Board is expressly authorized to adopt, revoke, alter, amend and rescind any or all of the Company’s by-laws.  ARTICLE 7 – STATE OF COLORADO, CITY AND COUNTY OF DENVER.  The previous minutes of the board of Infinity Energy Resources Inc. of March 17, 2006 was acknowledged before me on _____ 22, of James A. Tuell.   For the purpose of greater integrity of the document, following is the authentication from the Consulate General of Nicaragua in Houston and the Ministry of Foreign Affairs of Nicaragua, in the ___ language.  FOUR)   The Consulate General of the republic of Nicaragua in Houston, hereby CERTIFIES that the preceding signature that says: GINETTE DENNIS is AUTHENTIC and corresponds to the name Ginnette Dennis, Position: Secretary of State for Colorado.  Date: March 28, 2006.  “THIS CONSULATE DOES NOT ASSUME RESPONSIBILITY WITH RESPECT TO THE CONTENT OF THE DOCUMENT.”  (F) Illegible.  Seal.  “Authentication from the Ministry of Foreign Affairs of Nicaragua inserted for greater integrity of the document, which says: FIVE) “Ministry of Foreign Relations. Consular Office in Managua, Nicaragua.  The undersigned, Consular Director General, hereby “Certifies” that the preceding signature that says MARIA MERCEDES BECK  is “authentic and corresponds” to the one this date used by Maria Mercedes Beck, Consul for the Republic of Nicaragua in Houston, Texas, United States of North America.  The employee (a) does not assume responsibility with respect to the content of the document.  Managua, Wednesday, April 05, 2006, 11:16:27 a.m. (F) Illegible.  Lic. Maria Josefina Rojas Romero., Consular Services Director.  Seal from the Ministry of Foreign Affairs.  Managua, Nicaragua.” So expressed the appearing parties, well instructed by me, Notary Public, concerning the object, value and legal effect of this deed, of the general clauses that ensure its validity, the special ones they contain and those that involve waivers and implicit and explicit stipulations.  This deed was read in full by me, Notary Public, to the appearing parties and having been found in agreement, they approve, ratify and sign it with me, who swears to all  (F) Angélica Arguello D. (f) Roberto Octavio Arguello V (f) Boanerge Ojeda B – PRESENTED TO ME THE FRONT OF THE PAGE NUMBER FORTY SEVEN, THE FRONT OF PAGE NUMBER FIFTY OF MY PROTOCOL NUMBER THIRTEEN OF THIS YEAR AT THE REQUEST OF ANGELICA ARGUELLO DAMHA, THE BOOK OF FIRST  WITNESS IN FOUR PAGES THAT I SIGN, SEAL AND INITIAL IN THE CITY OF MANAGUA AT TWO O’CLOCK AND THIRTY MINUTES OF THE AFTERNOON OF APRIL TEN OF THE YEAR TWO THOUSAND SIX- Boanerges Ojeda B., Notary Public (S) – BOANAERGE ANTONIO OJEDA BACA, Attorney and Notary Public B) WITNESS OF PUBLIC DEED NUMBER THIRTY THREE (33) TRANSLATION OF THE ARTICLES OF INCORPORATION AND BY-LAWS OF INFINITY ENERGY RESOURCES INC., which integrates and literally says: WITNESS OF DEED NUMBER THIRTY THREE (33) PROTOCOL NUMBER THIRTEEN TRANSLATION OF DOCUMENT. In the city of Managua, Republic of Nicaragua, at three o’clock in the afternoon of April ten of the year two thousand six.  Before me, BOANERGE ANTONIO OJEDA BACA, Attorney and Notary Public for the Republic of Nicaragua, with domicile and residence in the city of Managua, duly authorized to act before the Supreme Court during the five year period that expires on June eight of the year two thousand eight, appear Angelica Arguello Damha, of age, single, attorney, domiciled in Managua, bearer of identification card number zero, zero, one, dash, seven, two, zero, three, eight, one, zero, five, three, letter “N” (001-270381-0053N) and Roberto Octavio Arguello Villavicencio, of age, single, attorney and domiciled in Managua, bearer of identification card number zero, zero, one, dash, zero, seven, zero, eight, seven, eight dash zero, zero, six, zero, letter B” (001-0708787-0060B) the latter acting  as Interpreter.  I swear to personally know the appearing parties and that in my judgment they have the legal civil capacity necessary to bind and to contract, and particularly to execute this instrument; the appearing parties express themselves in their own name and representation.  FIRST: The first appearing party has in her possession the ARTICLES OF INCORPORATION AND BY-LAWS OF INFINITY ENERGY RESOURCES, INC.  and that the articles and by-laws are in the English language and two of their authenticated copies are in English; therefore, it is hereby requested a notarized translation of the documents and authenticated copies be provided through an interpreter so that this instrument is valid in the republic of Nicaragua.  In accordance with Law number one hundred thirty, the Law that gives greater responsibility to the office of notary Public, and article one thousand thirty two of the Code of Civil Procedure, the undersigned Notary Public proceeds with the translation of the portions of the document that are in English, through an interpreter.   To this end, based on the mentioned law, the undersigned Notary Public, with more than ten years of association with the Supreme Court, hereby nominates and designates as interpreter, to verify the translation from English into Spanish, to the appearing party, Roberto Arguello Villavicencio, who has vast knowledge of English and Spanish.  SECOND: TRANSLATION.  Having understood it, he accepts the nomination made and was warned of the penalties for false testimony, thereby promising to tell the truth, and says that:  To his knowledge, the document in English says the following in Spanish: ONE ) State of Delaware, Secretary of State, Companies Division.  Delivered at 04:43 pm on 04/29/2005 SRV 0503-48989-34944450  File: ARTICLES OF INCORPORATION OF INFINITY ENERGY RESOURCES, INC.  ARTICLE 1. LEGAL NAME.  The legal name of the company is Infinity Energy Resources, Inc. (“Company”).  ARTICLE 2.  REGISTRATION.  The domicile of the head offices of the Company in the State of Delaware is the Trust Center Corporation, 1209 Orange Street, Wilmington, County of New Castle. The name of its registered agent   at said domicile is Corporation Trust Company.  ARTICLE 3.  PURPOSE.  The purpose of the Company is to participate in any legal activity for which it can organize a company in accordance with the Delaware General Law of Corporations and its amendments (“GDCL”).  ARTICLE 4 – REGISTERED CAPITAL 4.1 ORDINARY SHARES (a) The total number of ordinary shares of $0.0001 nominal value per share that the Company is authorized to issue is: 75,000,000 (b) Each holder of ordinary shares will have the right to one vote per each of these shares owned for all holders of ordinary shares have the right to vote.  Except for and SHAREHOLDERS. 7.1 Meeting.  The shareholders meetings in or outside the State of Delaware, as determined by the shareholders meeting will take place at the date, time and place, the Board.  Except as otherwise required by law and subject to the rights of the holders of any class or preferred shares, the extraordinary shareholders meetings can only be called by the president, executive director, the president or any employee of the Company through prior request submitted in writing by a majority of the Board or in accordance with the by-laws.  7.2 Action through written consent .  Action that is required or can be taken in any ordinary or extraordinary shareholders meeting that can only be taken without a meeting, in writing.  ARTICLE 8 VOTING REQUIREMENTS   Notwithstanding any other provision in these Articles of Incorporation or the by-laws (of the Company (and in spite of the fact that a lower percentage can be specified otherwise by law, by these Articles of Incorporation or the by-laws) the affirmative vote of the shareholders will be required at least sixty six days and two-thirds percent (66-2/3%) of the shares in circulation of the Company with the right to vote, usually in the election of directors (considered for this purpose as a class), if necessary to amend, revoke or adopt any provision contrary to Articles 5,8,9,10 of these Articles of Incorporation. ARTICLE 9 OBLIGATIONS OF EMPLOYEES AND DIRECTORS 9.1 General.   A director of the Company will not be responsible before the Company or its shareholders for monetary damages caused by a breach of fiduciary obligat8ion as director, except in case such exemption of responsibility or limitation of same is not allowed in accordance with the DGCL in effect or in accordance with its future amendments.  9.2 Amendment.   No amendment, modification or revocation of this Article 9 can impair any right or protection of a director in office at the time of such amendments, modification or revocation.  ARTICLE 10 INDEMNIFICATION 10.1 – General . The Company will indemnify up to the limit allowed and in accordance with the DGCL and its future amendments (however, in case of amendments, they will only be accepted if they allow the Company to provide indemnification rights that are more ample than the law allows prior to such amendments) to any person who is a party to, or subject to being a party to any legal action, complaint, judgment or imminent process, pending or completed, whether criminal, civil, administrative or under investigation, due to the fact that such person (a) is or has been a director ro employee of the Company or any predecessor or the Company, and has worked for any other company, union, joint company, trust, benefit plan for employees or other position, such as director, employee, partner, trustee, employee or agent at the request of the Company or any predecessor of the Company, subject to the condition that, except as indicated in Section 10.4, the Company will indemnify any person that seeks indemnification associated with a legal process (or part thereof) initiated by said person, only if said process (or part thereof) was authorized by the Board.  10.2  Expense Advance – The right of indemnification as granted in this Article 10 will be a contractual right and will include the right to receive payment by the Company for expenses incurred with any legal process prior to the final judgment.  Such advances will be paid by the Company within twenty day from the date of receipt of a report or reports from the claimant requesting such advance or advances on a timely basis, under the condition that if DGCL so requires, payment of said expenses incurred by such director or employee in his/her capacity as director or employee (and not in another capacity provided or that has been provided by such person during his/her term as director or employee, including but not limited to, services to benefit the employee) prior to the final judgment of a legal process be carried out only through previous presentation before the Company of a commitment by such director or employee or on behalf of the same to reimburse all amounts paid to same as an advance if it is determined that said director or employee does not have the right to be indemnified in accordance with this Article 10 or another.  10.03 Procedure to obtain indemnification.   In order to obtain indemnification in accordance with this Article 10, a claimant must submit to the company a request in writing including all documentation and information available and necessary to determine if the claimant has the right, and up to what point, to receive indemnification.  Based on the claimant’s written request for indemnification, in accordance with the first sentence in this section 10.3, a decision with respect to the claimant’s right to receive such indemnification, if required by the applicable law, will be taken as follows:  (a) if requested by the claimant or if there are no uninterested Directors (as defined below) or (b) if it is requested by a majority vote of the uninterested Directors, although a quorum is not reached, or by a majority vote of a uninterested Directors committee designated by a majority vote of uninterested Directors, although a quorum is not reached. If it is determined that the claimant has the right to receive indemnification, payment will be made within ten days following such determination. 10.04 Appeals .  If the Company does not pay the full amount of a claim under section 10.1 within thirty days from the date the written claim as established in Section 10.3 is received by the Company, the Claimant may, at any time thereafter, file a claim against eh Company to collect the amount of the claim unpaid; if successful, as a whole or in part, the claimant will have the right to also charge for expenses incurred when submitting such claim. It will be a defense to such action (distinct from an action submitted to require a claim to be fulfilled with respect to expenses incurred in defense of such procedure prior to its final disposition whereby the procedure required, if applicable, will have been offered to the Company) that the claimant has not complied with the code of conduct, which make possible, according to the DGCL, for the Company to indemnify the claimant for the amount claimed,; however, the obligation to provide such defense will rest on the Company (including the Board, the independent legal counsel or the shareholders), has not made a determination prior to the beginning of the action where the indemnification of the claimant is valid under the circumstances due to the fact that the claimant has met the applicable code of conduct, may not be considered as a defense to the action and will not create an assumption that the claimant has not complied with the applicable code of conduct.  10.5 Obligatory Effect . If it was necessary to determine that the claimant has the right to an indemnification, in accordance with section 10.3, the Company will be bound by such determination throughout the legal process initiated in accordance with Section 10.41.06  Validity of this article .  The Company will not any legal procedure initiated in accordance with Section 10.4 than the procedures and provisions of this Article 10 are not valid, obligatory and applicable, and must stipulate in said procedure that the Company commits to comply with all clauses of this Article 10.  10.07    No Exclusivity, etc.   The right to indemnification and payment of expenses incurred with the defense of a procedure prior to its final judgment granted through this Article 10 will not be exclusive of all other right that any person can have or acquire in accordance with any decree, clause of constitutive certificate, by-laws, agreement, shareholders or non interested directors vote or any other form.  No revocation or modification of the Article 10 will decrease in any way or affect in an adverse manner the rights of any director, employee, agent, present or past of this Company or of any predecessor of the same with respect to any event or problem arising prior to said amendment or modification.  10.08 Insurance.  The Company can maintain an insurance on its own to protect itself and any director, employee or agent of the Company, partnership, joint venture, trust or another company, against all cost, debt or loss, whether the Company has the capacity to indemnify such person or not  against such cost, debt or loss in accordance with the DGCL.  10.09 Indemnification of other persons. The Company may grant the right of indemnification and to receive payment from the Company to any of its employees or agents, current or past, for expenses incurred with respect to any procedure prior to the final judgment, in accordance with the clauses of this Article 10 addressing indemnification and estimate of expenses incurred by the directors and employees of the Company.  10.10 Divisibility.   If any clause or clauses of this Article 10 are deemed invalid, illegal or not applicable for any reason: (a) the validity, legality and applicability of the remaining clauses of this Article 10 (including, but not limited to, each part of every paragraph of this Article 10 that contains such clause deemed invalid, illegal or not applicable) will be interpreted in such manner as to give effect to the intent manifested by the clause deemed invalid, illegal or not applicable.  BY-LAWS OF INFINITY ENERGY RESOURCES, INC.  Adopted on April 29, 2006.  ARTICLE 01.  Office.  The head office of Infinity Energy Resources, Inc. (“Company”) in the State of Delaware will be in accordance with the Articles of Incorporation of the Company (“Articles of Incorporation”).  The Company will have offices in every place the Board so decides.  ARTICLE 2 SHAREHOLDERS – 2.1 Ordinary Meetings .  The shareholders ordinary meetings for the election of directors and to address any other business that is deemed appropriate prior to the meeting will be carried out on the date and time set by resolution of the Board. 2.02 Extraordinary Meetings .  Except as otherwise established, the shareholders extraordinary meetings will be convoked by the individuals indicated in the Articles of Incorporation and must be called by the Secretary of the Company at the written request of the shareholders that have 25% or more of the capital stock of the Company with the right to vote with respect to the directors.   Such written request will establish the purpose of the proposed meeting and will include all relevant information contemplated in Section 2.5.  The topics discussed in every shareholders extraordinary meeting will be limited to those duly included in the written request and about which all necessary information has been timely provided in accordance with Section 2.5, 2.03 Notice of Meeting.  Written notice will be given no less than ten days and no more than sixteen days prior to the date of the meeting showing the place, date and time of the meeting, and in case of an extraordinary meeting, include the purpose for which such meeting was called, except as otherwise provided by law or the Articles of Incorporation.  Such notice will be delivered in person or by postal service, prepaid telegram, telex, facsimile transmission, cablegram or express courier to each registered shareholder authorized to vote in such meeting.  If such notice is sent by mail, it will be deemed received when deposited in the United States mail, prepaid, addressed to the shareholder and sent to his/her address as shown in the Company’s shareholders registry.  2.04 Waiver.  The presence of a Company’s shareholder, whether in person or through proxy, in any meeting, whether ordinary or extraordinary, will constitute a waiver to the right of notice and such meeting, except when a shareholder is present at the meeting for the express purpose of objecting, at the beginning of such meeting, the addressing of every topic due to the fact the meeting was not properly called.  A written waiver to the right of receiving notice of such meeting, signed by the shareholder or shareholders authorized to received such notice before, during or after the time of the notice of said meeting, signed by the shareholder or shareholders authorized to receive such notice before, during or after the time of the notice or time of the meeting, will be equivalent to notice.    It will not be necessary to specify the matter to be discussed nor the purpose of every meeting in the written waiver to the right of receiving notice.  2.5 Notice of the topic to be discussed in the shareholders meeting. No topic will be discussed in any shareholders meeting, including the designation or election of individuals for the Board other than those specified in the meeting notice (or any attachment to same) granted by the Board (or committee duly authorized by the Board) with respect to an ordinary meeting or extraordinary meeting called by any of the individuals listed  in Section 7.1 of the Articles of Incorporation; (b) duly presented before the meeting by or according to the direction of the Board, duly authorized by it); or (c) duly presented before the meeting by any of the Company’s shareholders (1) that is a registered shareholder on the date in which the notice mentioned in Section 2l5 was given and on the date of registration for determination by the shareholders authorized to vote in said meeting and (2) that complies with the notice procedures established in this Section 2.5.  Besides all other applicable requirement in order for the topic to be duly presented at the meeting  by a shareholder, the shareholder must have submitted written notice concerning such topic in a timely manner and proper format to the Secretary of the Company (a) so that the shareholder’s notice be timely delivered or sent by mail and is received at the Company’s main office no less than ninety days and no more than one hundred twenty days prior to the date of the meeting; nevertheless (1) in case of public disclosure of the date of the meeting started in less than one hundred twenty days with respect to the date of the meeting, in order for the shareholder’s notice to be timely, it cannot be received after the closing of the tenth business day following the date on which the public disclosure of the meeting date has been made and (3) notwithstanding the preceding, with respect to an extraordinary meeting called through written request by the shareholders in accordance with Section 2.2, all notices submitted by a shareholder with a request must be delivered simultaneously with such request (b) in order for the shareholder’s  notice to reach the Secretary in a timely manner with respect to any matter other than the nomination of individuals for election of the Board, must make reference to each of the topics said shareholder proposes to discuss before the ordinary meeting and must establish (i) a brief description of the matter to be discussed during the ordinary meeting and the reasons for which such topic should be discussed; (ii) the name and registered address  of said shareholder; (iii) the class or series and number of shares in the Company owned by such shareholder, whether as usufruct or registered; (iv) a description of all understandings and agreements between said shareholder  and any other person or persons (including their names) with respect to the proposal of such topics and (v) a statement that such shareholder intends to be show up in person or through proxy in a meeting to present such topic before the meeting.  (c) in order for the shareholder’s notice related to the nomination of individuals for the board reach the Secretary in a timely manner, it must establish (a) with respect to each of the proposed candidates (i) name, age, business and residence address; (iii) the class or series and number of shares in the Company owned by the candidate, whether as usufruct or registered and (iv) any other information related to the candidate that could be required to be disclosed in a statement of representation with respect to the requests for representation for election of board members in accordance with Section 14 of the Securities Exchange Act of 1934 and its modifications (“Securities Exchange Act”) and the provisions and regulations established below and (b) with respect to the shareholder delivering the notice, (i) the name and address of registration, (ii) the class or series and the number of shares of the Company owned by the shareholder, whether as usufruct or registered; (iii) a description of all understandings or agreements between said shareholder and each of the proposed candidates and of any other person or persons (including their names) in accordance with the nominations , (iv) a statement that said shareholder has the intent of appearing in person or through a proxy at the meeting to nominate the individuals mentioned in the notice and (v) any other information related to said shareholder that needs to be disclosed in a statement of representation or other necessary presentations with respect to the requests of representation for the election of board members in accordance with Section 14 of the Securities Exchange Act  with the provisions or norms promulgated by virtue of the same.  Such notice must be accompanied by a written consent from each candidate proposed to be nominated as such and to provide services as a director in case said individual is elected. (d) in the shareholders meeting there can be no discussion of any topic and the individuals nominated by a shareholder may not be elected as director unless notice has been given with respect to the action proposed in accordance with the procedures set forth in this Section 2.5.  The decisions of the president concerning those procedures will either be complied with or not and, in a particular case, it will be definitive and binding.  2.06 Quorum .  Except as otherwise provided by law or in the Articles of Incorporation or the By-Laws, the holders of no less than the majority of the shares with the right to vote in the shareholders meetings, whether appearing in person or through proxy, will constitute a quorum and whatever the majority of said quorum decides will be deemed as a decision by the shareholders, except in the case of the election of directors.  If a quorum is not present at the meeting, the president of the meeting will suspend the meeting without prior notice if the time and the place are announced in the meeting, until such time a quorum is present.  In the suspended meeting, where a quorum is present, any topic may be discussed that could have been discussed in the original meeting.  In case the suspension lasts more than thirty days or right after it is suspended a new date is established for the suspended meeting, notice of suspension will be given to each shareholder registered with the right to vote in a meeting. 2.07 Procedure .   The items in the agenda of the day and all other topics to be discussed in each shareholders meeting will be determined by the president of the meeting.  The president of every shareholders meeting will be the President of the Board or, in his/her absence, it will be the one present at the meeting with the most seniority with the Company.  ARTICLE 3 DIRECTORS.  3.01 Number Subject to the clauses of the Articles of Incorporation, the number of directors will be determined exclusively and in a timely manner based on a resolution adopted by the Board.  3.2. Ordinary Meetings.   The Board will meet immediately after and at the same place where the shareholders ordinary meeting took place whenever a quorum is present and without the need of notice of said meeting to legitimately hold it.  The ordinary meetings of the Board will be carried out at the places and times as determined by the Board.  3.3 – Extraordinary Meetings.   The extraordinary meetings of the Board can be called at any time or place and for any reason by the president of the board, the general director or the majority members of the Board.  3.04 Notice of meetings.   It is not necessary to give notice of ordinary meetings of the Board.  Notice will be given with regard to each extraordinary meeting of the Board to each director, at their habitual work address or to an address such Director provides for such purpose.   Such notice will be deemed as timely given  when such notice is (a) placed in the mail of the United States no later than three calendar days prior to the date of the meeting or (b) personally delivered by telegram, facsimile or telephone communication at least twenty four hours prior to the time set for the meeting.  It is not necessary for such notice to include either a statement of the subject to be discussed or the purpose of same.  3.5  Waiver   The presence of the director in a Board meeting will constitute a waiver to the right of notice to said meeting, except when the director participates in a meeting with the for the express purpose of objecting, at the beginning of the meeting, to the discussion of any topic due to the fact the meeting was not formally convoked or called.  A waiver in writing to the right to receive notice, signed by the authorized director or directors to said notice, whether before, during or after the time of notice or the time of the meeting will be the equivalent of a notice.  3.06  Quorum.   Except as otherwise provided by law, the Articles of Incorporation or the By-Laws, it will be necessary to have a majority of directors present at this time and this will be sufficient to constitute a quorum to discuss the topics in any Board meeting, and the decision reached by the majority of the directors present in the meeting in which there is a quorum will be deemed as presented by the Board.  In case it does not arrive, the Board meeting will be timely suspended without prior notice.  3.07  Telephone participation in the meetings.   The Board members or members of any Board committee may participate in a Board meeting or committee meeting through a conference call or similar communication equipment through which all individuals participating in the meeting can mutually hear each other and said participation will constitute a personal presence in such meeting.  3.8  Decisions without a meeting.   Except as otherwise provided by the Articles of Incorporation or the By-laws, any necessary action can be taken in case all of the Board members or members of the Board committee sign an agreement, in writing, and such consent in writing, is filed with the minutes of the Board or committee procedure.  Any consent may be equivalent and will be in effect on the date of the last signature on it, unless otherwise established.  ARTICLE 4 COMMISSIONS – 4.01 Designation of committees.  The Board will establish committees for the performance of delegated or designated functions as allowed by law; each committee will be composed of one or more directors of the Company.  In the absence or disqualification of a member of a committee, he/she or the members present at all meetings who are not disqualified to vote, whether such members constitute a quorum or not, may unanimously designate another member of the Board to represent said absent or disqualified member at the meeting.  4.02  Authority and powers of the committee .  Except as otherwise provided by law, the Board d may. Establish, through resolution or amendment to these By-Laws, that a committee may exercise all powers and authority of the Board in managing the business and matters of the Company.  ARTICLE 5 – OFFICERS. 5.01 – Number – The officers of the Company will be designated or elected by the Board.  The officers will consist of a general director, a president, if applicable, the number of executive vice-presidents that the Board so determines, a secretary, if applicable, the number of assistant secretaries that the Board so determines, and a treasurer.  Any individual may hold two or more positions at the same time.  5.02  Additional Officers.   The Board may nominate any other officer as it deems appropriate.  5.03 Term of office .  Waiver.  All officers, agents and employees of the Company will maintain their respective positions as desired by the Board and may be removed from their positions at any time the Board deems appropriate, with or without cause.  Any officer may resign at any time by giving notice in writing to the general direct, president or secretary, in order for it to be effective, and acceptance of such resignation is not necessary for it to be effective unless the notice so establishes.. Any vacancy of a position will be covered by the Board.  Functions:   The officers of the Company will carry out the functions and will exercise the powers as delegated by the Board or the president and the director general.  ARTICLE 6 – CAPITAL STOCK – 6.01 Certificates – The Board will authorize the issuance of certified or not certified capital.  Each shareholder, through written request, will have the right to one or more certificates signed by or in the name of the Company by the (a) director general or the president and (b) the secretary or the assistant secretary certifying the number of capital shares of the Company owned by said shareholder.  Any or all the signatures in the certificate can be by facsimile.  6.02 – Registered Shareholders.  The Company will have the right to treat the holder of the registry of any share or shares of the Company as the holder in fact of such share or shares and, as a result, such holder will not be subject to acknowledge any equivalent claim or participation in said share or shares in the name of any person, whether such holder has or not notice of same, unless otherwise established.  6.003  Cancelation of the certificates.  All certificates delivered to the Company will be cancelled and, except in case of loss, theft or destruction of the certificates, no new certificate will be issued until they, or previous ones (for the same number of shares of the same class of capital), have been delivered and canceled.  6.04 Stolen or destroyed certificates. The Board may establish that new certificates be issued in place of any certificate or certificates issued to date by the Company that have been declared to be lost, stolen or destroyed, by preparing a sworn statement to do in an acceptable manner to the Board or the person who claims the certificate or certificates have been lost, stolen or destroyed.  The Board, at its discretion and as prior condition  for the issuance of any new certificate or certificates, may require that the owner of the lost, stolen or destroyed certificate or certificates, or their legal representative, provide the Company or its agent or agents in charge of transfers, registration or registrations a title in such manner and amount as specified by the Board, as indemnification for all claims that may arise against the Company and its transfer or registration agent or agents with respect to the loss, theft or destruction of any certificate or the issuance of a new one.  ARTICLE 7 FISCAL YEAR  Fiscal Year.   The Company’s fiscal year   will end on December 31 of each year.  ARTICLE 8 – AMENDMENT.   The expert continues to speak and says that the authentication from the State of Colorado that is in English reads as follows in Spanish:  TWO) STATE OF COLORADO, DEPARTMENT OF STATE, CERTIFICATE, UNITED STATES OF AMERICA, STATE OF COLORADO. SS.  I, GINETTE DENNIS, Secretary of State for the State of Colorado, hereby certify that HAWK-BROWNS , whose name is subscribed on the certificate of acknowledgement of the attached instrument was, at the time of taking such acknowledgment  a NOTARY PUBLIC duly commissioned, sworn and authorized by the laws of the State of Colorado.  And I hereby certify that the signature and affixed official seal of said NOTARY PUBLIC, to the best of knowledge is genuine.  The signature of the notary has been compared with the signature on file at my office.  In witness whereof, I hereby affix the great seal of the state of Colorado, in the city of Denver, on march 8, A.D. 2006 (f) Ginette Dennos.  Secretary of State.  Following is the certification of the Secretary of INFINITY ENERGY RESOURCES, INC.,    which reads as follows in Spanish:  THREE) CERTIFICATE OF THE SECRETARY OF INFINITY ENERGY RESOURCES, INC.  I, Timothy A. Ficker, duly elected, qualified and acting as Secretary in accordance with the By-laws of Infinity Energy Resources, Inc., a company organized and existing under the laws of the State of Delaware, U.S.A. (“Company”), hereby certify that the Articles of Incorporation and the By-Laws of the Company, which are attached to this certificate, are true and correct copies of the original Articles of Incorporation and By-laws of the Company and said Articles of Incorporation and By-Laws have not been modified, reformed or revoked.  In my presence I sign it as Secretary of Infinity Energy Resources, Inc. on March 6, 2006 (F) Timothy A. Ficker.  Secretary of Infinity Energy Resources, Inc.  Before me on March 6, 2006 appears Timothy A. Ficker, as Secretary of Infinity Energy Resources, Inc. who, before me, signed the certificate and, to certify it, in witness whereof, I set my signature (f) illegible, Notary Public in and for the State of Colorado.  My commission expires eleven/zero, five/zero, seven (11/05/07).  Seal.  For greater effect of the document, below is the authentication from the Consulate General of the republic of Nicaragua in Houston and the Ministry of Foreign Affairs in Nicaragua , which is in Spanish and reads as follows: FOUR) The General of the Republic of Nicaragua in Houston CERTIFIES that the preceding signature says: GINETTE DENNIS is authentic and corresponds to that of the name: Ginnette Dennis.  Position: Secretary General of Colorado.  Date: March 28, 2006.  “ THIS CONSULATE DOES NOT ASSUME ANY RESPONSIBILITY WITH RESPECT TO THE CONTENT OF THE DOCUMENT.”    Finally, the authentication from the Ministry of Foreign Affairs of Nicaragua which reads as follows: FIVE) “Ministry of Foreign Affairs, Consular Department, Managua, Nicaragua.  The undersigned, Consular General Director “Certifies” that the preceding signature and says MARIA MERCEDES BECK is authentic and corresponds” to the on used on this date by MAARIA MERCEDES BECK, Consul for the Republic of Nicaragua in Houston, Texas, United States of North America.  The Institution and the employee (a) do not assume responsibility with respect to the content of the document.  Managua, Wednesday, April 5, 2006, 11.15.45 a.m. (F) Illegible.  Lic. Maria Josefina Rojas Romero.  Director of Consular Services.  Stamp. Ministry of Foreign Relations. Managua, Nicaragua.”  So expressed the appearing parties, well instructed by me, Notary Public, concerning the object, value and legal matter of this document, the general clauses that ensure its validity, the special clauses it contains and those that involve waivers and implicit and explicit stipulations.  This deed was read by me, Notary Public, in full, to the appearing parties, who found it to be in agreement.  They approve, ratify and sign, together with me (F) Angelica Arguello D (f) Roberto Octavio Arguello V (f) Boanerge Ojeda B.  FROM PAGE NUMBER FIFTY TO THE FRONT OF PAGE NUMBER FIFTY SEVEN IN MY PROTOCOL THIRTEEN OF THIS YEAR AT THE REQUEST OF ANGELEICA ARGUELLO DAMHA, FIRST BOOK WITH SEVEN USEFUL PAGES THAT I SIGN, SEAL AND INITIAL IN THE CITY OF MANAGUA AT THREE THIRTY OF THE AFTERNOON OF APRIL TEN OF THE YEAR TWO THOUSAND SIX. (F) Boanerge Ojeda B, Notary Public (S) BOARNERGE ANTONIO OJEDA BACA, Attorney and Notary Public.  I swear to have seen the documents listed above which grant sufficient power to the appearing party. (SECOND) REQUEST FOR REGISTRATION OF BRANCH: The appearing party, acting in its capacity as described above says that it is requesting the registration of said branch to perform its activities and therefore wishes to begin its operations as of the registration date in the  Public Registry of Companies  for the purpose of completing the transactions for acquiring its legal entity in accordance with the Code of Commerce in effect and therefore kindly requests to the Public Registry Clerk to register such branch in the Public Registry writing at the foot of the testimony in the deed the corresponding reason for its registration.    The appearing party also declares that the copies of the original documents in English of the opening minutes of the branch and the articles of incorporation of Infinity Energy Resources Inc. will also be attached to this document.    So expressed the appearing party, well instructed by me, Notary Public, with respect to the object, value and legal content of this document and the general clauses that ensure its validity, the special clauses that contain and those that involve waivers and implicit and explicit stipulations, as well as the need to register this deed in the corresponding registry. This deed was read in its entirety by me , Notary Public, in  .the presence of the appearing party, and found to be in order; it was approved, ratified and signed with me, Notary Public, who swears to all of its contents.  (F) Angelica Arguello D. (F) Ana Teresa Rizo B, Notary Pubic.  Before me, entered in the front of page number forty six and the front of page number fifty six in my Protocol Number Ten of this year, at the request of Angelica Arguello D, in the name and representation of INFINITY ENERGY RESOURCES INC., which book contains eleven (11) useful pages of law, that I sign, seal and initial in the city of Managua, at ten o’clock and two minutes of the morning of April twenty five of the year two thousand six, registered under number twenty one thousand seven hundred twenty one dash b two (21,721-B2), page five hundred fifty one and five hundred seventy (551-570) volume seven hundred eight five dash B two (785-B2), Second Book of Companies, under number fifty seven thousand two hundred sixteen dash A (57,216-A), pages two hundred eighty and two hundred eighty one (280 and 281) of volume one hundred fifty nine dash A 9159-A) of the Book of Individuals, both part of the Public Trade Registry of the Managua department.  The undersigned, Notary Public, records and swears that the documents listed grant sufficient powers to the appearing parties to execute this document.  Both appearing parties together state that once the requirement established in article twenty six (26) of law two hundred eighty six (286) “Special Law of Exploration and Exploitation of Hydrocarbons and article fifty seven (57) of its Regulation is fulfilled, and the Ministry of Energy and Mines has the Public Deed Number Four of Several Guarantee in its possession, authorized in the city of Managua at five o’clock in the afternoon of January twenty two of the year two thousand nine at the Notary Public Office of Ramón Alberto Castro Romero, which has the required guarantee in accordance with the provisions mentioned above, proceed to sign a

 
 

 

CONCESSION AGREEMENT FOR THE EXPLORATION AND EXPLOITATION OF HYDROCARBONS, “PERLAS” PROSPECT , which will be governed by the following Clauses:
 
CLAUSE ONE (1) BACKGROUND AND OBJECT:
 
One (1) BACKGROUND : Through Resolution number zero, eight, dash, two thousand three (No. 08-2003) issued by the Administrative Council of the Instituto Nicaraguense de Energia, which establishes the order for Negotiation of Concession Agreements and the Granting of Areas for the Exploration and Exploitation of Hydrocarbons, the Area of the “Perlas” Prospect was awarded to the company INFINITY, INC. as a result of the first international bid round.  Such company changed its legal name in the state of Delaware, United States of America, to the new legal name of INFINITY ENERGY RESOURCES, INC., having submitted to the Instituto Nicaraguense de Energia the respective documentation in accordance with the legal procedures.  Therefore, within the text of this Contract, INFINITY ENERGY RESOURCES, INC. is acknowledged as the Contractor.
 
Two (2) OBJECT :  The object of this Contract is to establish the rights and obligations of the parties with respect to the Petroleum Concession for the Exploration and Exploitation of Hydrocarbons located in the Caribbean Region Offshore Nicaragua, granted by the Republic of Nicaragua to INFINITY ENERGY RESOURCES, INC.
 
CLAUSE TWO (2): DEFINITIONS .
 
The following words and terms used in this Contract, unless otherwise expressly specified in the Contract, shall have the following respective meanings.
 
1 (ONE): "Calendar Year" means a period of twelve (12) consecutive months, beginning on the first day of January and ending on the following thirty first (31) day of December.
 
2 (TWO): "Contractual Year" means a period of twelve (12) consecutive months within the terms of the Contract, beginning on the Effective Date or on any anniversary date.
 
3 (THREE): "Contract Area" means the specific area in which the Contractor has a concession to perform exploration and/or exploitation activities of the hydrocarbons resources located in such area.
 
4 (FOUR): “Exploration Area” means the portion of the Contract Area that consists of rectangular blocks oriented from North to South, East to West, designated for the study of the Minimum Exploration Program.
 
5 (FIVE): “Exploitation Area" means the portion of the Contract Area designated in the approved Development Plan that covers a Commercial Discovery and a reasonable security boundary.

 
 

 
 
6 (SIX): "Barrel" means a barrel consisting of 158.9074 liters (42 United States gallons) in liquid measure, corrected to a temperature of 15.56 degrees centigrade under one atmosphere of pressure (14.7 pounds per square inch).
 
7 (SEVEN): “C.I.F” (Cost, Insurance, Freight): means the sum of the cost of the product, insurance plus freight. Term used in international commerce.
 
8 (EIGHT):  "Affiliated Company" or "Affiliate" means a company or organization : in which an entity comprising the Contractor owns directly or indirectly share capital that confers unto it a majority of votes at the stockholders' meeting of such company; which is the owner, directly or indirectly, of share capital that confers unto it a majority of votes at the stockholders' meeting of a company or entity comprising the Contractor;  which is the owner, directly or indirectly of share capital that confers unto it a majority of votes at the stockholders' meeting of such company and a majority of votes at the stockholders' meeting of an entity comprising the Contractor, and are owned directly or indirectly by the same company.
 
9 (NINE): “Contractor” means any natural or legal person, national or foreign, that has entered into a contractual relationship with the State to perform exploration and exploitation activities of Hydrocarbons in Nicaragua. In this Contract, it means Infinity Energy Resources, Inc. or its successors.
 
10 (TEN): "Contract" means this Exploration and Exploitation contract and its annexes, executed by the State’s representative and the Contractor, pursuant to the Law and its Regulation and covers the Contract Area.
 
11 (ELEVEN): "Commercial Discovery" means a discovery of Hydrocarbons in the Contract Area that the Contractor considers being commercially exploitable and commits to develop and produce it under the terms of the Contract.

 
 

 

12 (TWELVE): "Development" or "Development Operations" of the "Development Work" means all the work performed under a Development and Production Program submitted by the Contractor and approved by the MEM, which must include, but not be limited to the following: all the operations and activities under the Contract with respect to the drilling of development wells, production wells, maintenance wells, plugging, completing and equipping of such wells, together with the design, construction and installation of such equipment, pipes or lines, installations, production units and all other systems relating to such wells as may be necessary; pursuant to the international petroleum industry practices and regulations in effect.;  all operations and activities relative to the servicing and maintenance of pipelines, lines, installations, production units and all activities associated with the production and management of the wells.
 
13 (THIRTEEN): “State" means the State of the Republic of Nicaragua.
 
14 (FOURTEEN): "Appraisal" means work conducted for the purpose of evaluating the commercial potential of a geological structure or prospect in which Hydrocarbons have been discovered.
 
15 (FIFTEEN): “"Exploration" or "Exploration Operations" means the activities that shall include, but will not be limited to geological, geo-chemical, geophysical, seismic and other surveys; any interpretation of data relating thereto as may be contained in the Minimum Exploration Program (PME); as well as drilling to obtain core samples, and stratigraphic tests, Wildcat wells for the discovery of Hydrocarbons, Appraisal wells and other related operations.
 
16 (SIXTEEN): "Effective Date" means the date of signature of this Contract by both parties
 
17. (SEVENTEEN): “F.O.B.” (Free on Board): Value of the merchandise placed in the means of transportation at the Shipping Port.  Term used in international commerce.
 
18 (EIGHTEEN): “Natural Gas”: is the mixture of Hydrocarbons in gaseous state.
 
19 (NINETEEN): “Associated Natural Gas”: means all gaseous Hydrocarbons produced in association with crude oil and separated therefrom.

 
 

 
 
20 (TWENTY). “Non-Associated Natural Gas”: means all gaseous Hydrocarbons produced from gas wells, including wet gas, dry gas and residual gas remaining after the extraction of Liquid Hydrocarbons from the wet gas.
 
21 (TWENTY ONE): “Hydrocarbons”: is the organic chemical compound of carbon (C) and hydrogen (H), whatever their physical state, be it oil, gas, condensate, as well as associated or derivative substances.
 
22 (TWENTY TWO): “Liquid Hydrocarbons” : means any Hydrocarbon produced from the Contract Area which remains in a liquid state under atmospheric pressure and temperature conditions.
 
23 (TWENTY THREE): . “Law”: ” is the Special Law for Exploration and Exploitation of Hydrocarbons, Law No. 286, published in the Official Gazette No. 109 on June 12, 1998.
 
24 (TWENTY FOUR): “MARENA ”: means the Ministerio del Ambiente y Recursos Naturales of the  Republic  of Nicaragua (The Environmental and Natural Resources Ministry) or any entity that may succeed it.
 
25 (TWENTY FIVE): MEM: “Ministry ”, means the Ministry of Energy and Mines of the Republic of Nicaragua.
 
26 (TWENTY SIX):“Month” or “Calendar Month”: means a Calendar Month.
 
27(TWENTY SEVEN): “MHCP”: means the Ministerio de Hacienda y Credito Público of the Republic of Nicaragua (The Treasury Department of the Republic of Nicaragua).
 
28 (TWENTY EIGHT): “Petroleum Operations”: means operations and activities carried out by the Contractor by virtue of the rights granted to the Contractor under this Contract.
 
29 (TWENTY NINE):“Parties”: in this Contract are the State and the Contractor.

 
 

 
 
30 (THIRTY): “Wildcat Well”: means any well drilled with the objective of finding Hydrocarbons in a structure or geologic trap in which Hydrocarbons in quantities having commercial potential have not been previously encountered.
 
31 (THIRTY ONE): “Development and Production Program”: means the work program during the first five years for the development and operation of the field, which must  specify the location of the transportation and storage facilities to the Fiscalization Point agreed upon, as well as other transportation and storage facilities to the point or points of internal or external commercialization.
 
32 (THIRTY TWO): “Minimum Exploration Program”: (MEP ) is the work program provided for in Clause 6.1 that is divided into sub phases under which the Contractor has committed itself to carry out exploration activities in the Contract Area.
 
33 (THIRTY THREE): “Work Program”: means the program that specifies the Petroleum Operations to be conducted within a designated area and time schedule for accomplishing such operations.
 
34 (THIRTY FOUR): “Fiscalization Point”: means the location or locations approved as part of the Development and Production Plan where Hydrocarbons are metered for fiscal purposes, which in no event shall be beyond the point of export or point of first sale of such Hydrocarbons in Nicaragua, pursuant to the Law.
 
35 (THIRTY FIVE). “Prospect”: is a hydrocarbon trap delimited by a rock.
 
36 (THRITY SIX): “Regulation” : means the Regulation to the Special Law for Exploration and Exploitation of Hydrocarbons, Decree No. 43-98 (forty three dash ninety eight), published in the Official Gazette No. 117 on June 24, 1998.
 
37 (THIRTY SEVEN): “Subcontractor ”: is a specialized entity contracted by the Contractor to carry out a specific exploration or exploitation job under the supervision and for the account of the Contractor.

 
 

 
 
38 (THIRTY EIGHT):“Quarter” or “Calendar Quarter”: means a period of three (3) consecutive months beginning on the first day of January, April, July, or October.
 
CLAUSE THREE (3): GRANT OF RIGHTS .
 
ONE (1). Subject to the provisions of this Contract and by virtue of the same, the Contractor is hereby granted the exclusive rights, during the term of this Contract, to explore and exploit Hydrocarbons in the Contract Area, as well as the non-exclusive right to construct and operate such facilities and infrastructure within or outside of the Contract Area up to the Fiscalization Point, as may be required in relation to the exploration and exploitation operations.  Subject to making the payments to the State as set forth herein, the Contractor shall be entitled to receive, upon extraction, the Hydrocarbons that are produced within the Contract Area.  However, this Contract does not grant the Contractor ownership of the Hydrocarbons in situ or any preferential rights to the surface or subsurface of the Contract Area.
 
TWO (2). The Contractor, by virtue of this Contract, has the right to transport, store and commercialize, on its own behalf, any Hydrocarbons that such Contractor produces within the Contract Area and does not consume in the Petroleum Operations.  Such right refers to the activities engaged by the Contractor in Nicaragua between the Fiscalization Point and the point of export or point of first sale in Nicaragua of such Hydrocarbons.  Activities in Nicaragua beyond such point of export or point of first sale are outside of the scope of this Contract and are governed by Law No. 277, Supply of Hydrocarbons, of February 6, 1998.
 
THREE (3).   For the operations authorized under this Contract, the Contractor shall have the right to the following: 3.1 Free access to and from the Contract Area and to and from facilities and infrastructure within or outside of the Contract Area and to the use, without restriction, of the area required by the Contractor pursuant to Clause 27, of this Contract, and, 3.2  To use the following for its operations as authorized under this Contract: sand, alluvial material, select banks of materials and water belonging to the public domain by prior arrangement with the competent authorities and based on payment of the prevailing charges for such resources.
 
 
 

 
 
FOUR (4). The Contractor may not begin any Exploration operation in situ until it has complied with the requirement of preparing the Environmental Impact Study  (EIA) in accordance with the Terms of Reference prepared by MARENA in coordination with the MEM and the Interdisciplinary  and Inter-institutional Committee, as established by Decree seventy six dash two thousand six (No. 76-2006) published in La Gaceta number two hundred forty eight (248) , item b) of article fifty one (51) of Law Number two hundred eighty six (286), and has not submitted the Environmental Management Program. The Contractor must request the Environmental Form from MARENA which, within forty-five (45) days from the date or receipt of such request, will provide the Contractor with the Terms of Reference, pursuant to Article 51 of  Law number two hundred eighty six (286) and Decree seventy six dash two thousand six (76-2006)..  The Exploration Period and the first phase set forth in Clause 6.1 of this Contract will begin once the Contractor receives such Environmental Permit from MARENA. Once the Environmental Impact Assessment (“EIA”) has been submitted by Contractor, the Exploration Period contained in Clause 6.1 will be suspended until such time MARENA issues the Environmental Permit.  The Contractor must obtain the Environmental Permit from MARENA prior to the commencement of on-site operations, pursuant to Article 51 (Fifty One) of the Law, the environmental regulations and the national and international technical and environmental norms.. In the event that MARENA does not issue the Environmental Permit within one hundred twenty (120) business days, to a maximum of two hundred forty (240) business days as of the date the Contractor submits its EIA pursuant to the Terms of Reference prepared by MARENA, the Contractor shall have an additional right to invoke Force Majeure at the end of the aforementioned period.
 
CLAUSE FOUR (4): RISK .
 
ONE (1). The Contractor assumes all risks, costs and responsibilities for the activities object of this Contract, as well as for obtaining the Environmental Permit required to carry out Petroleum Operations, and agrees to provide the capital, machinery, equipment, materials, personnel and technology necessary to comply with all of its obligations hereunder.
 
TWO (2). The State does not assume, under any circumstance, any risk or responsibility for the investments, nor for the exploration and exploitation operations to be performed, nor for any damages that may result from same, even when the act or deed may result from an action on the part of the Contractor that has been approved by MEM. Three (3) If there is no Commercial Discovery in the Contract Area or if production from the Contract Area is insufficient to cover the Contractor's cost of the Petroleum Operations, the Contractor shall bear and be solely responsible for such losses.

 
 

 
 
CLAUSE FIVE (5): CONTRACT AREA .
 
The Area awarded to INFINITY is defined as the “PERLAS PROSPECT” OFFSHORE CARIBBEAN, pursuant to Resolution No. zero, eight, dash, two thousand three (08-2003) published in La Gaceta Number one hundred (100) of May thirty (30) two thousand three (2003).  The Are granted in this contract is in accordance with the laws in effect for the purpose of complying with article thirty three (33) of Law No. four four five (445) “Law of Community Property of the Indigenous People and Ethnic Communities of the Autonomous Regions of the Atlantic Coast of Nicaragua and the Rivers Bocay, Coco, Indio and Maiz., published in La Gaceta No. sixteen (16) of January twenty three (23) of two thousand three (2003) as follows: One (1). The Contract Area of the “Perlas Prospect” Offshore Caribbean, as of the Effective Date of this Contract, comprises an area of two hundred twenty six thousand seven hundred seventy four Hectares (226,774 Ha) equivalent to two thousand, two hundred sixty eight two square kilometers (2,268 km2) rectangular in shape, divided into blocks adjacent to each other, in accordance with the coordinates described in number three of this clause, located in the Nicaragua Offshore Caribbean Region, in the area denominated as “PERLAS PROSPECT”. Two (2). Except for the rights expressly set forth in the Contract, no right is granted to the Contractor with respect to the surface area, sea-bed, sub-soil or to any natural or aquatic resources. Three (3). The Concession Contract Area includes the following blocks with their respective identification within the Area Opening Map: AH-01: AH-02, AH-03, AH-04, AH-07, AH-08, AH-09, AH-14, AH-15, AH-21 and AH 27, corresponding to eleven (11) blocks defined by the following coordinates:  Vertex 1: Latitude  North 13° 00´ 00”, Longitude West 82° 54´ 00”,  Vertex 2: 13° 00´ 00”, Longitude West 82° 20´ 00”, Vertex 3: Latitude North 13° 00´ 00”, Longitude West 82° 20´ 00”, Vertex 4: Latitude  North 12° 50´ 00”, Longitude West 82° 30´ 00”; Vertex 5: Latitude North 12° 10´ 00”, Longitude West 82° 30´ 00”, Vertex 6: Latitude  North 12° 10´ 00”, Longitude West 82° 32´ 00”, Vertex 7: Latitude North 12° 26´00”, Longitude West 82° 32´00”; Vertex 8: Latitude North 12° 26´00”, Longitude West 82° 34´00”, Vertex Nine: Latitude North 12° 30’ 00”, Longitude West 82° 34´00”; Vertex Ten: Latitude North 12° 30’ 00”, Longitude West 82° 36´00”; Vertex Eleven: Latitude North: 12° 34’ 00”, Longitude West 82° 36´00”; Vertex Twelve: Latitude North 12° 34’ 00”, Longitude West 82° 38´00”; Vertex Thirteen: Latitude North 12° 36’ 00”, Longitude West 82° 38´00”; Vertex Fourteen: Latitude North  12° 36’ 00”, Longitude West 82° 40´00”; Vertex Fifteen: Latitude North 12° 38’ 00”, Longitude West 82° 40´00”; Vertex Sixteen: Latitude North 12° 36’ 00”, Longitude West 82° 44´00”; Vertex Seventeen: Latitude North 12° 36’ 00”, Longitude West 82° 44´00”; Vertex Eighteen: Latitude North 12° 40’ 00”, Longitude West 82° 46´00”; Vertex Nineteen: Latitude North 12° 42’ 00”, Longitude West 82° 46´00”; Vertex Twenty: Latitude North 12° 42’ 00”, Longitude West 82° 52´00”; Vertex Twenty-One: Latitude North 12° 54’ 00”, Longitude West 82° 54´00”; Vertex Twenty-Two: Latitude North 12° 54’ 00”, Longitude West 82° 52´00”; Vertex One: Latitude North 13° 00’ 00”, Longitude West 82° 54´00”.

 
 

 
 
CLAUSE SIX (6) – CONTRACTUAL TERMS :
 
ONE (1)  The exploration period shall be for six (6) Contractual Years (“Exploration Period”) as of the Effective Date, divided as follows: 1.1) A first sub-period of two (2) Contractual Years, divided into a one (1) year environment phase and a one (1) year operational phase. 1.2) A second optional sub-period of one (1) Contractual Year. 1.3) A third optional sub-period of one (1) Contractual Year.  1.4) A fourth optional sub-period of two (2) Contractual Years. The Contractor's right to enter the next sub-period is subject to the fulfillment of its obligations for the preceding sub-period.
 
TWO (2). The Contractor shall notify MEM of its decision to enter the next sub-period at least ninety (90) days prior to the expiration of the previous sub-period.  Such notice shall be accompanied by the guarantee required by Clause 9 of this Contract covering the Minimum Exploration Program corresponding to such sub-period.  If the Contractor decides not to enter the next sub-period, the Contract shall terminate at the end of the then current sub-period.
 
THREE (3).  At the Contractor’s written request submitted to the MEM within a period of no more than thirty (30) days prior to the expiration of the Exploration Period set forth in number 1 of this Clause, the MEM may grant an extension of up to one (1) Contractual Year to the Exploration Period in order to enable the Contractor to complete (1) the drilling of a Wildcat Well in progress or (2) an appraisal program under the terms set forth in Clause 12, number 2, of this Contract, or any other study the Contractor may have requested.  In any case, the decision of the MEM granting the requested extension must be pursuant to the provisions set forth in Articles 97 and 99 of Regulation.

 
 

 
 
FOUR (4). In the event of a Commercial Discovery, the term of the Exploitation Contract shall be of thirty (30) years from the Effective Date, plus the period relative to the Natural Gas Exploitation Area for any market development phase utilized in accordance with Clause 14, number 2 of this Contract associated with such Exploitation Area.
 
FIVE (5). If the commercial production of an Exploitation Area would be possible beyond the applicable term specified in the preceding Clause, the Contractor may request, through notice submitted to the MEM at least one year prior to the end of such term, to extend the duration of the Contract with respect to such Exploitation Area for up to an additional period of five (5) years under the terms and conditions mutually agreed between the MEM and the Contractor.  Such terms and conditions must be established between the date of notice given by the Contractor and the effective date of such extension.
 
CLAUSE SEVEN (7): RELINQUISHMENT OF AREAS .
 
ONE (1).   The Contractor must relinquish part of the Contract Area at the end of each sub-period of exploration as follows:  For the First Sub-Period, at least 1.16% (one point sixteen percent) of the Contract Area, equivalent to two lots of 2 minutes x 2 minutes each, corresponding to an area measuring 2,666 (two thousand six hundred sixty six) hectares. For the Second Sub-Period, at least 2.33% (two point thirty three percent) of the Contract Area, equivalent to four lots of  2 minutes x 2 minutes each, corresponding to an area measuring 5,332 (five thousand three hundred thirty three) hectares. For the Third Sub-Period, at least 3.49% (three point forty nine percent) of the Contract Area, equivalent to six lots measuring 2 minutes x 2 minutes each, corresponding to an area measuring 7,998 (seven thousand nine hundred ninety eight) hectares.
 
TWO (2).  At the end of the last sub-period, the Contractor shall relinquish all portions of the Contract Area, except (i) Exploitation Areas and (ii) Natural Gas discovery Area retained for a market development phase pursuant to Clause 14, number 1, of this Contract.

 
 

 
 
THREE (3) The Contract Area shall be reduced to the commercial fields under production and development, plus a surrounding area for technical security for each field that shall not exceed five (5) kilometers.
 
FOUR (4). The Contractor must relinquish the lots that have been the object of extension of the Exploration Period as set forth in Clause 6.3 of this Contract, at the end of the extension of the Exploration Period, except for the lots described in number 2 of this Clause.
 
FIVE (5). Unless the Contract is terminated early, the Contractor shall inform the MEM of the number of lots that will be relinquished not more than thirty (30) days prior to the deadline for the relinquishment set forth in this Clause, under number 1, items 1.1),1.2), 1.3) and number 2.
 
SIX (6). The lots designated for relinquishment pursuant to number 4 of this Clause shall consist, as much as possible, of groups comprising an area of sufficient size and shape to enable Petroleum Operations to be conducted by third parties. Within a group, the lots must be contiguous and joined by at least two sides. No group shall be less than twenty (20%) percent of the total area being relinquished at such time.
 
SEVEN (7). At the request of the Ministry of Energy and Mines, the Contractor shall waive its rights to conduct Petroleum Operations in the lots corresponding to an Exploitation Area where, for reasons other than force majeure or scheduled maintenance, as approved in the Contractor’s Work Program, production of such Exploitation Area has ceased for more than one hundred eighty (180) consecutive days for oil and three hundred sixty five (365) days for gas.
 
EIGHT (8).  No relinquishment shall relieve the Contractor of accumulated or unfulfilled obligations under the Contract.
 
NINE (9). Prior to the surrender or relinquishment of any area, the Contractor shall perform all necessary clean-up activities to reasonably restore such area as much as possible to its condition on the Effective Date, including the removal of the facilities that were built and used for the Contractor’s Petroleum Operations and its equipment, following the instructions provided by the Ministry of Energy and Mines, and shall take all other action necessary to prevent hazards to human life, property and the environment.  Upon the Ministry of Energy and Mine’s acceptance of such relinquishment, the MEM will issue the respective final discharge to the Contractor.

 
 

 

CLAUSE EIGHT (8): OBLIGATIONS DERIVING FROM THE MINIMUM EXPLORATION PROGRAM .
 
ONE (1). The Contractor shall commence the Minimum Exploration Program (PME) activities, attached hereto as an “Annex”, which is an integral part of this Contract and is within this same clause, within ninety (90) days after receiving the Environmental Permit issued by MARENA.  Such Exploration Operations shall be diligently carried out for the duration of the Exploration Period.
 
TWO (2).  During the first sub-period of the PME, the Contractor shall carry out and process all the activities pursuant to the Petroleum Industry International Practices and Regulations in effect.
 
THREE (3). .During the second sub-period of the PME, the Contractor shall carry out and process all the activities pursuant to the Petroleum Industry International Practices and Regulations in effect.
 
FOUR (4). During the third sub-period of the PME, the Contractor shall carry out and process all the activities pursuant to the Petroleum Industry International Practices and Regulations in effect.
 
FIVE (5). During the fourth sub-period of the PME, the Contractor shall carry out and process all the activities pursuant to the Petroleum Industry International Practices and Regulations in effect.

 
 

 

SIX (6). For purposes of compliance with the PME under numbers 2 through 4 of this Clause, the following is taken under consideration:  6.1 The obligations related to the second, third and fourth sub-period of the PME will accrue only if the Contractor opts to enter the following sub-period and continues to hold areas of exploration operations in the Contract Area.  6.2 Each Wildcat well shall be drilled to a minimum depth of at least three thousand five hundred (3,500) meters or a depth that intercepts the Cretaceous era, whichever is less.  6.3 Additional seismic surveys and Wildcat wells beyond the minimum required for any sub-period of the PME that could be carried out to satisfy the respective seismic survey and drilling obligations of a subsequent sub-period of the PME.  6.4 The prevailing PME obligation is the performance of the specified work with the estimated cost being used solely for establishing the guarantees of performance and the applicable non-performance penalties.  Below is the  transcription of the annex relative to the Minimum Exploratory Program for the Area of  Perlas, which says: “PME Annex of the Perlas Area – INFINITY RESOURCES INC. (INFINITY ENERGY RESOURCES INC.).  The duration of the first sub-period is of two (2) years which will be divided in two phases: First Phase: The Contractor must prepare the Environmental Impact Study (EIA).  Second Phase: a) Purchase, evaluation and interpretation of three hundred thirty three kilometers (333 km) of new 2 D seismic or the option to perform this seismic survey in 3D; and b) Acquisition of six hundred sixty seven kilometers of 2D seismic or the option to perform this seismic survey in 3D.  During the second sub-period of the Exploration Period, which is of one (1) year, the Contractor must carry out the processing and interpretation of two hundred  kilometers (200 km) of new 2D seismic or the option to perform this seismic survey in 3D.  During the third sub-period, which is of one (1) year, the Contractor must drill one (1) wildcat with sufficient depth to drill the Cretaceous era or three thousand five hundred meters (3.500m), whichever is the lesser of the two.  During the fourth sub-period, which is of two (2) years, the Contractor must perform the following: a) The drilling of one (1) Wildcat with sufficient depth to drill the Cretaceous Era or three thousand five hundred meters (3.500 m) whichever is the lesser of the two (2); and b) A geochemical analysis of the petroleum.“
 
CLAUSE NINE (9): GUARANTEES
 
. ONE (1). Within fifteen (15) days following the Effective Date of the Contract and submittal of each of the notices mentioned in CLAUSE 6, number 2, of this Contract to enter the following Exploration sub-period, the Contractor shall provide an irrevocable guarantee in favor of the Ministry of Energy and Mines, which must be irrevocable, payable in Nicaragua at the request of the Ministry of Energy and Mines, issued by a guarantor financially acceptable to the Ministry of Energy and Mines, for an amount equal to the estimated cost, specified in number 2 of this Clause, to carry out the Minimum Exploration Work for such sub-period, with an accumulated credit carried forward pursuant to Clause 8, sub-Clause 6.3, for the excess work performed in the preceding sub-period.  Such guarantee shall be in the form and fund acceptable to the Ministry of Energy and Mines and may not be the object of compensation with any other obligation.

 
 

 

TWO (2). The respective amounts of such guarantees will be:  For the first sub-period of the Exploration Period, four hundred forty three thousand one hundred United States Dollars (US$443,100.00).  For the second sub-period of the Exploration Period, one million thee hundred fifty six thousand two hundred twenty seven United States Dollars (US$1,356,227.00). For the third sub-period of the Exploration Period, ten million two hundred twenty thousand one hundred sixty eight (US10,220,168.00). For the fourth sub-period of the Exploration Period, ten million three hundred ninety seven thousand three hundred thirty five United States Dollars (US$10,397,335.00).
 
THREE (3). These guarantees will be granted within the first fifteen (15) days as of the Effective Date of the Contract for the first sub-period and for the following sub-periods within the first fifteen (15) days of the date of request for continuation.
 
FOUR (4). The relevant guarantee shall be reduced in accordance with the procedures established in Article 59 of the Regulation to the Law.
 
FIVE (5). If, at the end of any sub-period of the Exploration Period, or upon termination of the Contract, the Contractor has failed to perform all or any part of the accrued Minimum Exploration Program, the Contractor or its guarantor shall, upon request from the MEM immediately pay the entire amount of such outstanding work to be performed under the PME, except where the MEM and the Contractor agree that such pending obligations can be transferred to other Contract Areas.
 
SIX (6).Upon signature or subscription of the Contract, the Contractor will provide the MEM with a guarantee document issued by the parent company of each company comprising the Contractor, whereby the parent company will provide technical and financial resources that the subsidiary may require to meet the Contractor’s obligations in a timely manner under the Contract, including liability for any damages or losses that the operations herein may cause to the State, third parties or the environment pursuant to Article 26 of the Law.
 
CLAUSE TEN (10): CONTRACTOR’S OBLIGATIONS .
 
ONE (1).The Contractor shall maintain throughout the term of this Contract a legal representative domiciled in Nicaragua, who shall have full authority to represent the Contractor with respect to legal matters related to the Contract and to receive notices addressed to the Contractor.

 
 

 
 
TWO (2). Within ninety (90) days following the Effective Date, the Contractor shall establish an office in Managua.
 
THREE (3). The Contractor shall conduct all operations hereunder in a diligent and professional manner, in accordance with applicable law, and the provisions set forth in this Contract, and the International Petroleum Industry practices and regulations in effect and the environmental standards applicable under similar circumstances.  The Contractor shall ensure that all materials, equipment, technologies and facilities used for the operations described below comply with generally accepted engineering and environmental standards in the international Petroleum industry, and are kept in good working order.  The Contractor shall carry out its operations in a manner that will maximize the optimum economic recovery in the Contract Area.
 
FOUR (4).  The Contractor shall provide the MEM with regular and complete information concerning all operations under this Contract, including the schedule for execution of specific work.
 
FIVE (5). The Contractor shall prepare and maintain in Nicaragua accurate and current records of its operations under the Contract throughout the term of the Contract.
 
SIX (6). The Contractor shall keep the MEM continuously informed regarding all operations under this Contract and shall deliver to the MEM, without cost, in the form and frequency prescribed by the MEM, all materials, samples, studies, information, documents and data, unprocessed, processed, and interpreted that is obtained by the Contractor, including pertinent financial information. Furthermore, the Contractor must inform the MEM of the results of other activities from the exploration and development activities of the hydrocarbon resources investigated.  The delivery requirement is extended to all information, data and work product of whatever nature for which the cost is entered by the Contractor as Petroleum Operation cost.  The Contractor shall keep all technical-economic data related to its activities hereunder at the office in Managua.

 
 

 

SEVEN (7).  The Contractor shall enable authorized representatives of the State to inspect any part of its operations and all facilities, installations, offices, records, books, or data related to operations under this Contract.  The authorized State representatives will bear any costs related to all such inspections.
 
EIGHT (8). The  Contractor shall provide facilities to a reasonable number of authorized personnel and representatives of the MEM or other Government agencies, to perform their duties and obligations associated with this Contract, including, in the case of field operations, transportation, lodging, food and other provisions similar to those provided by the Contractor to its own personnel.
 
NINE (9).  The Contractor shall bear responsibility, in accordance with the applicable law, for any loss or damage to third parties caused by its employees or sub-contractors or their employees related with the activities under this Contract, for wrongful or negligent acts contrary to the Law, or omissions, and will indemnify the proper party against any third-party’s claim.
 
TEN (10). The Contractor expressly waives diplomatic claims and submits to the jurisdiction of Nicaraguan courts.  Without prejudice to the foregoing, the State and the Contractor hereby consent to submit to the International Centre for Settlement of Investment Disputes of the World Bank (“ICSID”) any dispute arising out of or relating to this Contract for settlement by arbitration pursuant to the Arbitration Rules established for such cases with the ICSID in accordance with Clause Thirty One (31) of this Contract.
 
ELEVEN (11). In performing their activities, the Contractor and Subcontractor must comply with the national and international environmental protection laws and the technical security norms, and apply the international recommended practice for each case. Such activities shall be performed in a manner compatible with the protection of human life, property, conservation of Hydrocarbons, and other resources, avoiding as much as possible damage to the infrastructure, historical sites and ecosystems of the country, whether land or marine.

 
 

 

TWELVE (12). Prior to the beginning of the PME, the Contractor must submit to the MARENA the Environmental Impact Study (EIA), based on the Terms of Reference (ToR) as defined by MARENA and the MEM. In addition, the Contractor must submit the Environmental Protection Plans and Contingency Plans that must be updated at least once a year and/or whenever the MEM so requests. Through these Plans, the Contractor must: 12.1. ensure the security areas around all machinery and equipment; 12.2. provide secure storage areas for all explosives, detonators, and similar dangerous materials used in operations under this Contract; 12.3. prevent pollution or damage to any water and other Natural Resources;12.4. contain any blowout, fire or other emergency situation that would result in loss of reserves or damage to the reservoir; 12.5. prevent unintentional entrance of fluids into hydrocarbon bearing formations and the production of Hydrocarbons from reservoirs at higher rates than those consistent with the international petroleum industry practices and regulations in effect; 12.6. take all reasonable precautions to prevent the pollution of or damage to the environment, including the undertaking of remedial measures within a reasonable period of time to repair or offset damage to the environment in cases where any work or installations erected by the Contractor or any operations conducted by or on behalf of the Contractor endanger third party property or cause pollution or harm to the wildlife or the environment, including where pollution occurs rapidly, in order to treat or disperse it in an environmentally acceptable manner; 12.7.report to the MEM and other entities, pursuant to the laws in effect, if any worker is injured while performing duties associated with the operations under this Contract; 12.8. have an adequate supply of first-aid medicines and equipment in each area and maintain a healthy environment for the workers;  12.9.provide safety and fire-fighting equipment in each work area; and 12.10 prepare and submit to MEM for approval prior to commencing any drilling activities, an oil spill and fire contingency plan, which plan shall be implemented in the event of such a catastrophe.
 
THIRTEEN (13).  In case of an accident or emergency involving damage to persons or property, the Contractor must immediately inform the MEM of such event and take reasonable steps, including temporary suspension of the operations, to protect the safety of individuals and property.
 
FOURTEEN (14). A Regulation and Monitoring Committee will be formed, consisting of employees of MEM, MARENA and other State institutions associated with these activities, two qualified members of each Regional Council of the Caribbean Coast and two of the Contractor’s employees. The Committee shall meet at least twice (2) a year unless otherwise agreed by the parties.  The meetings will take place in the city of Managua or in the field where the Contractor’s exploration and exploitation activities are performed.  It is understood that the meetings to be held in the city of Managua may be open, that is, other MEM and MARENA members may be invited to participate in such meetings, whenever such nominated parties are directly involved in the exploration and exploitation activities in the Contract Area.  With respect to the meetings to be held in the field, it is hereby understood that the number of MEM and MARENA participants is to be agreed between the MEM and the Contractor for budget and safety reasons; the criteria for participation in such meetings will be based on the activities carried out in the field.  Each party shall bear its own costs of the representatives attending the meetings.

 
 

 

FIFTEEN (15). The MEM will have the opportunity to attend, as an observer, without the right to speak or vote, the Contractor’s annual shareholders meetings where investment and important decisions will be made regarding the Minimum Exploration Program (PME) and the project of the Contractor in Nicaragua. The MEM commits to keep the information gathered at the meetings confidential and will assume all costs incurred to attend such meetings.
 
SIXTEEN (16). The Contractor will submit to the MEM, on a yearly basis, a proposal for qualification and training of the MEM personnel in relation to the PME and the contract in general, for which a minimum annual budget of US$50,000 (fifty thousand United States Dollars) will be submitted by the Contractor.  Qualification and training may include the purchase of books, software, hardware and any other supplement item needed.  The types of qualification and training for the MEM personnel will be on site whenever referring to seismic operations and wildcat drilling.  Furthermore, within the annual budget, the Contractor will offer at least two (2) annual seminars in Managua in connection with the PME and will also offer, on a yearly basis, participation in international seminars and conferences emphasizing the exploration and production of Hydrocarbons. In addition, the MEM may include topics of qualification and training of its interest, which must correspond to the budget in this clause and be mutually agreed upon with the Contractor.
 
CLAUSE ELEVEN (11) ASSISTANCE BY THE MINISTRY OF ENERGY AND MINES :
 
ONE (1). To enable the Contractor to fulfill the Contract in an expeditious and efficient manner, the MEM shall assist the Contractor, whenever specifically requested by the latter, in the following matters:1.1 obtaining the right to use the land as may be required for the operations under the Contract;1.2 obtaining licenses or permits for transportation and communication facilities;1.3 complying with customs formalities and regulations, and import/export control;1.4 obtaining entry and exit visas for the Contractor’s and Sub-Contractor’s foreign personnel that will come to Nicaragua to perform the Contract, including family members.

 
 

 
 
TWO (2). All reasonable expenses incurred associated with the assistance provided by MEM in accordance with this Clause, shall be reimbursed by the Contractor within thirty (30) days after receipt of the corresponding invoice.
 
CLAUSE TWELVE (12): DISCOVERY AND COMMERCIALIZATION .
 
ONE (1).  If Hydrocarbons are encountered in a Wildcat well, the Contractor shall immediately notify the MEM of such discovery and within thirty (30) days thereafter; the Contractor shall also provide the MEM all available information regarding the discovery, including a preliminary classification of the discovery as (1) Liquid Hydrocarbons or (2) Natural Gas.
 
TWO (2). The Contractor shall notify the MEM in writing within one hundred eighty (180) days if the discovery of Liquid Hydrocarbons has commercial potential, based on the Appraisal Program described in this Clause, which will be deemed approved if no objections are submitted in writing by the MEM within thirty (30) days following receipt of such notice.  The Appraisal Program shall: specify the appraisal work in a reasonably detailed form, including seismic, drilling of wells, production tests, and studies to be carried out and the time frame within which the Contractor shall commence and complete the program; and identify the lots to be appraised ("Appraisal Area") which shall not exceed the lots encompassing the geological structure or prospect plus a buffer area not to exceed five (5) kilometers in length surrounding the perimeter of such structure or prospect.
 
THREE (3). If the Contractor notifies that a discovery of Natural Gas has commercial potential, the Contractor shall, within ninety (90) days after the notice, present to MEM a plan for assessing the discovery in sufficient detail for approval, to be able to seek a market for the Natural Gas ("Assessment Plan").  The Contractor must notify the MEM in writing within one hundred and eighty (180) days if the discovery of Natural Gas has commercial potential, based on the Assessment Plan. The Assessment Plan shall be deemed approved if no written objections are raised by MEM within thirty (30) days after receipt thereof.  As soon as the Contractor develops a market for such Natural Gas, but in any event pursuant to the terms of the Contract, including any market development phase, under Clause 14, number 2 of this Contract, the Contractor shall conduct an Appraisal Program as set forth in number 1 of this Clause.

 
 

 
 
FOUR (4). If the Contractor notifies MEM, pursuant to number 1 of this Clause, of a discovery that the Contractor deems to have no commercial potential or if the Contractor fails to present an Evaluation Program, pursuant to number 2 of this Clause, or an Assessment Plan, pursuant to number 3 of this Clause, the Contractor, upon MEM’s request, must surrender at any moment the area that contains at least the blocks encompassing the geological structure or prospect where the discovery was made.
 
FIVE (5). The Contractor shall carry out the approved Appraisal Program within the timeframe specified therein.  Within one hundred eighty (180) days after completion of such Appraisal Program, the Contractor shall submit to MEM a comprehensive appraisal report concerning the Appraisal Program.  Such appraisal report shall include, but will not be limited to the following information:  geological conditions, such a structural configuration; physical properties and extent of reservoir rocks; pressure, volume and temperature analysis of the reservoir fluids; fluid characteristics, including the gravity of the Liquid Hydrocarbons, sulfur percentage, sediment and water percentage, and product yield pattern; Natural Gas composition; results of production tests; production forecasts (per well and per field); and estimates of recoverable reserves.
 
SIX (6). With the submission of the appraisal report, the Contractor shall submit a written declaration to the MEM indicating one of the following: that it has determined that the discovery is a Commercial Discovery; or  that it has determined that the discovery is not a Commercial Discovery, in which case the Contractor must relinquish the respective Appraisal Area immediately; or that it has determined that the discovery is a significant discovery which may become a Commercial Discovery subject to the outcome of future work that the Contractor commits to carry out under a future Exploration or Appraisal Program in specific areas within or outside the Appraisal Area.

 
 

 

SEVEN (7). In the event the Contractor makes a declaration pursuant to number 6.3 of this Clause, the Contractor shall be entitled to retain an Appraisal Area subject to its completion within the Exploration Period of future work committed pursuant to the provision set forth in number 6.3, at which time the Contractor shall notify the MEM about its decision with respect to the discovery, as to whether or not it is a Commercial Discovery, and the provisions set forth in number  6.1 or  6.2 of this Clause will apply accordingly.
 
EIGHT (8). If the Contractor declares, pursuant to number 6.1 of this Clause, that a discovery is a Commercial Discovery, the Contractor shall submit, together with the appraisal report (1) a Development Plan proposal including all installations and facilities for the operations under this Contract, (2) a proposal of designation of the lots that comprise the Exploitation Area, and (3) a comprehensive environmental impact study including the Development proposal and any facilities or infrastructure inside or outside of the Contractual Area and up to and beyond the Fiscalization Point. All three items shall be subject to MEM’s approval which will not be unreasonably withheld, and shall be deemed approved if the MEM does not submit any objections to it, in writing, within sixty (60) days from its receipt.  In the event the MEM and the Contractor are unable to reach an agreement concerning the objections raised or changes proposed by the MEM within ninety (90) days following the date of notice to the MEM expressing such objections or proposed changes, the Contractor shall have the right to request that the matter in dispute be resolved through experts, in which case the decision of the expert, regardless of the case, will involve both the MEM and the Contractor.   Following the approval of the documents submitted by the Contractor in accordance with items (1), (2) and (3) mentioned above, the Contractor will proceed, promptly and diligently, in accordance with the good international petroleum industry practices, to develop the discovery, installing all the infrastructure described in the Development Program in order to start up the commercial production and produce the discovery in such manner as to reach the maximum economic recovery of the reserves.
 
NINE (9). The Contractor's proposed Development Plan under the preceding item will detail the Contractor’s proposals for the development and operation of the Exploitation Area, shall include all the information required under Article 111 of the Regulation and will specify the Fiscalization Point it proposes.  Furthermore, it shall identify any facility and infrastructure required outside the Contract Area, specifying those that are located before the Fiscalization Point and those that fall within the category authorized by Clause 3 number 2 of this Contract.  The Development Plan will detail the parameters of production, number and distance between the wells; the facilities and infrastructure (including the proposed locations) to be installed for production; storage, transportation and loading of Hydrocarbons and a time estimate to conclude each phase of the Development Program, a production forecast and an estimate of ongoing capital and operating expenses involved to achieve the production forecast, as well as any other factor that might affect the economic or technical feasibility of the proposed development, and any such other particulars as the MEM may request.

 
 

 
 
CLAUSE THIRTEEN (13): EXPLOITATION WORK PROGRAMS .
 
ONE (1). Commencing with the Calendar Year in which the first Development Plan for the Contract Area is approved, the Contractor shall prepare and submit to the MEM for approval, in such format as the MEM may require, an Exploitation Work Program specifying by Calendar Quarter all aspects of the proposed operations to be carried out in relation to each Exploitation Area and related facilities and infrastructure up to the Fiscalization Point, the estimated cost thereof, the duration and location of each operation, and, where applicable, the estimated monthly rate of production for each field.  Each such proposed Work Program shall also include a forecast of yearly Development and Production activities and costs resulting from the four (4) Calendar Years or the corresponding period up to the end of the term of the Contract, whichever is shorter.
 
TWO (2).  The first such Exploitation Work Program, covering the balance of the Calendar Year, in which the Development Plan is approved, shall be submitted within thirty (30) days following the date of approval of such Development Plan.  Thereafter, the Contractor shall submit its proposed annual Exploitation Work Program at least ninety (90) days before the beginning of the relevant Calendar Year.
 
THREE (3). The Contractor’s Exploitation Work Program proposed and submitted to the MEM shall be deemed approved if the MEM does not raise any objections thereto following the sixty (60) days from the date of receipt.

 
 

 

FOUR (4). If MEM objects to any part of the Contractor's proposal, the MEM shall notify the Contractor within the sixty (60) day period specified in the preceding item number. The notice from the MEM shall specify the suggested modifications. If the Contractor deems that any revision required by the MEM renders the Exploitation Work Program unacceptable to the Contractor, the Contractor shall notify and substantiate to MEM, within ten (10) days after receipt of such notice, the reasons for its decision.  Following receipt of the justification from the Contractor, the Parties shall meet for the purpose of resolving any differences.  If they are unable to reach a resolution to such differences by the beginning of the Calendar Year in which the Exploitation Work Program is to begin, the Contractor shall incorporate the modifications required by the MEM in the proposed Exploitation Work Program pursuant to Clause 13, number 2, of this Contract, to the extent such changes do not increase or reduce the budget proposed by the Contractor by more than ten (10) per cent and do not substantially alter the general objectives of the Work Program as submitted by the Contractor.  With regard to the levels of production, MEM may require the Contractor to modify the proposed rate of production for any Exploitation Area in which more than fifty per cent (50%) of the production on an energy equivalent basis is Liquid Hydrocarbons for any of the following reasons: 4.1 to optimize overall recovery of Hydrocarbons, 4.2 to minimize waste of Natural Gas, 4.3 for safety reasons, and 4.4 for operational reasons.
 
FIVE (5). The Contractor shall deliver to MEM within ten (10) days following each Calendar Quarter a status report concerning the progress of the operations carried out and the costs incurred under the approved Exploitation Work Program during such Calendar Quarter.  The status report shall forecast any significant changes to such Exploitation Work Program that Contractor anticipates may be necessary during the balance of the Calendar Year.  The report corresponding to the last Quarter of each Calendar Year shall also include a summary of the operations and costs incurred during such Year.
 
CLAUSE FOURTEEN (14) NATURAL GAS
 
ONE (1). Upon completion of an Assessment Program agreed with MEM under Clause 12, number 3 of this Contract, the Contractor shall notify the MEM whether or not it wishes to retain the Natural Gas discovery for a market development phase.  If the Contractor requests a market development phase for such discovery, the Contractor shall notify the MEM within the following thirty (30) days, of the selection of the lots within the Contract Area that will be subject to such phase. The selected area shall not exceed the lots encompassing the geological structure or prospect where the discovery was made, as well as the lots containing a reasonable margin not to exceed five (5) kilometers in length surrounding the perimeter of such structure or prospect.

 
 

 

TWO (2). The duration of such market development phase shall not exceed ten (10) years from the date of the Contractor's notice mentioned in the preceding sub-clause, whereby the Contractor decides to enter into the market development phase.  The market development phase shall end upon the occurrence of the first of the following events: 2.1 the date on which the Contractor declares the Natural Gas discovery to be a Commercial Discovery, 2.2 the date on which the Contractor voluntarily abandons the market development area or 2.3 the end of the market development phase.
 
THREE (3). The Contractor shall lose all its rights over a Natural Gas discovery if it does not declare such discovery as being a Commercial Discovery at the end of the market development phase or if it relinquishes the lots corresponding to the market development areas or terminates the Contract early.
 
FOUR (4). For availing itself of such market development phase, the Contractor shall pay the MEM at the end of each Calendar Year of the market development phase an annual tenancy fee of one hundred thousand (US$100,000.00) United States dollars, which will be reduced by duly verified amounts that the Contractor has expended during such year under specific programs approved by the MEM on activities or projects directly attributable to the market development area.  Expenditures for the following types of activities will be eligible as credits against the tenancy fee: 4.1 future geochemical, geophysical or geological surveys in the market development area; 4.2 the drilling and testing of any additional wells in the market development area; 4.3 consulting, feasibility and marketing studies; and 4.4 other market development activities approved by the MEM. Excess amounts expended in a particular year with respect to the tenancy fee, may be entered as a credit against the next year's tenancy fee.
 
FIVE (5). The tenancy fee shall be applied pro rata on a daily basis in the event the Contractor relinquishes the market development area or declares the Natural Gas discovery to be a Commercial Discovery prior to such year, payable within thirty (30) days following such relinquishment or declaration of Commercial Discovery, as the case may be.

 
 

 
 
SIX (6). Together with the notice requesting to enter into the market development phase, the Contractor shall provide the MEM the results of the Assessment Program carried out pursuant to Clause 12, number 3 of this Contract including the estimated recoverable reserves, projected delivery rate and pressure, quality specifications and any other relevant technical and economic factors.
 
SEVEN (7). All the available Natural Gas existing in such market development area, shall be considered from the beginning as freely available by the Contractor to any market or markets, including exportation, as arranged by the Contractor, in a gaseous or transformed phase, or a combination of such phases.
 
EIGHT (8). The Contractor shall notify the MEM concerning the sales contract or contracts for Natural Gas, as well as any exportation arrangements.  In such notice, the Contractor must demonstrate that the price of Natural Gas at the Fiscalization Point is representative of the fair market price, having taken into consideration a fair market price for transporting the Natural Gas from the Fiscalization Point to the consumer and, whenever applicable, for liquefaction and re-gasification costs.
 
NINE (9). The Contractor shall give priority to the Petroleum Operations of Associated Natural Gas, including reinjection for maintaining pressure and recycling operations in order to obtain maximum economic recovery of Liquid Hydrocarbons.
 
TEN (10). The MEM may, at any time, call upon the Contractor to deliver to it or to any MEM designated third party at the proper delivery point, without compensation, any quantity of Associated Natural Gas not being required for the Contractor's Petroleum Operations or committed for sale, in the event the MEM requires the associated natural gas, the MEM will take such associated natural gas in a manner as agreed between the parties, to be used for public interest, whenever such delivery does not negatively interfere with the Contractor's Petroleum Operations or add to the cost of Contractor’s Petroleum Operations.  In such case, the MEM shall provide and maintain, for its own account, any facility beyond the delivery point required in connection with the gathering, compression, transport, or utilization of such Associated Natural Gas.

 
 

 
 
ELEVEN (11). Under no circumstance may the Contractor release Natural Gas into the atmosphere.
 
TWELVE (12). Whenever the Contractor does not require the Natural Gas for the Petroleum Operations, cannot sell it or the MEM does not elect to take it pursuant to number 10, of this Clause, the Contractor shall endeavor to reinject the gas into a suitable stratum or, as a second option, store it underground in accordance with the international petroleum industry practices and regulations in effect.  The Contractor shall seek to obtain prior approval from the MEM and MARENA to flare any Natural Gas that cannot be reinjected due to specific reservoir considerations or for other reasons, including economic reasons, acceptable to the international Petroleum industry and in line with good oil field practices.  Before flaring the gas, the Contractor shall take reasonable measures to ensure the extraction of natural gasoline and other liquids contained in the Associated Natural Gas if the Contractor deems that such extraction is economically justifiable.  Notwithstanding anything in this Clause to the contrary, the Associated Natural Gas may be flared at any time if necessary in order to run well and/or production tests and on an emergency.
 
CLAUSE FIFTEEN (15): FINANCES AND AUDITING .
 
ONE (1). Notwithstanding the books required by the Commercial Code of Nicaragua, the Contractor shall maintain in Nicaragua, in accordance with the generally accepted accounting practices used in the international petroleum industry, accounting books and such other books and records as may be necessary to show the work performed under the Contract, as well as the costs incurred, and the quantity and value of all Hydrocarbons inspected at the Fiscalization Point.
 
TWO (2). The Contractor shall prepare, for each Calendar Year, separate balance sheets and profit and loss statements reflecting its operations under the Contract 1) up to the Fiscalization Point and 2) beyond the Fiscalization Point.  The accounting procedures, rules and practices applied for determining revenue and expenses shall be consistent with sound and usual international petroleum industry practices.  Each such balance sheet and profit and loss statement shall be certified by an independent firm of certified public accountants of international standing acceptable to MEM and the MHCP.  Such balance sheet and loss and profit statements must be submitted, along with the auditor's report, to MEM and the MHCP within ninety (90) days after the end of the Calendar Year to which it belongs.

 
 

 
 
THREE (3). The MEM has the right to inspect and audit the Contractor's books, accounts and records relating to the operations under this Contract for the purpose of verifying the Contractor's compliance with the terms and conditions herein.  Such books, accounts and records shall also be available at any reasonable time for inspection and audit by duly authorized representatives of the MEM and the MHCP, including independent auditors that may be employed by them, for fiscal audits. The MEM and the MHCP may conduct their audits within two (2) years after the end of each Calendar Year.  Any exception by MEM or the MHCP must be communicated to the Contractor within the earlier of 1) twelve (12) months after the commencement of the specific authorized audit or 2) two (2) years after the end of the Calendar Year under audit, provided, however, that if information is required under the Clause number below, the period for filing exceptions shall commence upon receipt by the Government authority that requested the audit of such requested information from the parent company's independent auditors.
 
FOUR (4). The MEM and the MHCP may require the Contractor to engage Contractor’s parent company’s auditors to examine at Contractor’s cost and in accordance with generally accepted auditing standards, the books and records of Contractor’s Affiliate to verify the accuracy and compliance with the terms of the Contract insofar as a charge from the Contractor’s Affiliate (or of any entity comprising the Contractor) is included directly or through the Contractor as a) a Petroleum Operations cost or b) a part of a tariff for infrastructure beyond the Fiscalization Point. The request from the Governmental authority shall specify in writing the item or items for which it requires verification from such independent audit. A copy of the independent auditor’s findings shall be delivered to the Government authority that requested such verification within thirty (30) days after the completion of such audit.

 
 

 

FIVE (5). The Contractor's books for its operations under this Contract shall be kept on the accrual basis in United States dollars.  Accounts reflecting operations up to the Fiscalization Point shall be set apart from those reflecting operations beyond the Fiscalization Point.  Such accounting books shall be in the Spanish and English languages and shall comply with internationally accepted accounting principles consistent with modern petroleum industry practices and procedures and the provisions set forth in the Contract.  All U.S. dollar income shall be entered in the amount received and all U.S. dollar expenditures shall be charged in the amount expended.  Income received or expenditures made in foreign exchange other than U.S. dollars shall be entered or charged at the applicable rate of exchange for U.S. dollars pursuant to the rate of exchange posted by the Central Bank of Nicaragua on the last business day of the week in which such income is received or expenditure made.  All expenditures in local currency shall be converted to U.S. dollars at the documented cost of the national currency purchased by the Contractor with foreign currency.  All income in local currency and costs paid with such national currency shall be converted to U.S. dollars at the rate of exchange for commercial transactions quoted by the Central Bank of Nicaragua in effect on the business day when the national currency was received by the Contractor.
 
SIX (6).  The Parties agree to use the depreciation method pursuant to the principles established in Law 453 (four hundred fifty three), the Law of Fiscal Equity and its modifications and Decree No. 46-2003 (Forty Six dash Two Thousand Three), Regulation of the Fiscal Equity Law, that are hereby incorporated to this Contract.
 
SEVEN (7). The Contractor will be subject to payment of Income Tax at the rate of 30%, applicable to the net income originating from its exploitation activities.  This rate is the maximum rate and shall apply throughout the term of this Contract, pursuant to Clause 64 of the Law and the principles prescribed by Law No. 453 (four hundred fifty three), the Law of Fiscal Equity, that are incorporated to the Contract through this provision.
 
CLAUSE SIXTEEN (16): PRODUCTION, MEASUREMENTS AND RIGHTS OF EXPORT .
 
ONE (1). The Contractor shall have the right to use, free of charge, the Hydrocarbons produced within the Contract Area to the extent reasonably required for the Petroleum Operations pursuant to this Contract.  The Contractor must purchase, at market value, the Hydrocarbons from the Contract Area it uses for its operations beyond the Fiscalization Point.

 
 

 

TWO (2). All the Liquid Hydrocarbons and/or Natural Gas produced and reserved from the Contract Area and not used in the Petroleum Operations shall be measured at the applicable Fiscalization Point(s) approved in the Development Plan.  Such measurements and measuring devices shall comply with Chapter XII of the Regulation and the international petroleum industry practices and regulations in effect.  Production tests or experiments shall also belong to the Contractor and no royalty shall be paid for such production.  The market value of such production tests or experiments at the point of production shall be entered as income to the Contractor.  Even though the Contractor is authorized to receive all the Hydrocarbons produced within the Contract Area, for purposes of any calculations hereunder involving volumes of production, the volume measured at the Fiscalization Point shall govern.
 
THREE (3).  Subject only to Clause 14, number 7, and Clause 17 of this Contract, the Contractor may freely export any Hydrocarbons that it produces within the Contract Area and that it does not use in the Petroleum Operations.

 
 

 

CLAUSE SEVENTEEN (17): SUPPLY TO THE INTERNAL MARKET .
 
ONE (1).  Whenever so requested by the MEM, the Contractor shall supply Liquid Hydrocarbons from the Contract Area to meet the internal market requirements of Nicaragua.
 
TWO (2). Such request from the MEM shall be in writing and shall be given no less than sixty (60) days before commencement of deliveries by Contractor.  The request shall indicate the volume of the Contractor's Liquid Hydrocarbons required, based on estimates and forecasts, and the duration of the desired supply.
 
THREE (3). The maximum volume that the MEM may require the Contractor to supply, pursuant to this Clause, shall be determined by multiplying the total estimated volume of Liquid Hydrocarbons needed to meet the internal market demand during the first corresponding Calendar Quarter by a fraction which numerator will be the Contractor’s Liquid Hydrocarbons inspected and estimated within the Contract Area for such Calendar Quarter and which denominator will be the total estimated Liquid Hydrocarbons to which the MEM is entitled and all the products in Nicaragua for such period.
 
FOUR (4). Delivery of the Liquid Hydrocarbons supplied shall be at the Fiscalization Point or another Point agreed between the Contractor and the MEM.  The Liquid Hydrocarbons supplied may be refined in Nicaragua.
 
FIVE (5). The price to be paid to the Contractor for such Liquid Hydrocarbons shall be the export market value at the Fiscalization Point determined in accordance with Clause 18 of this Contract, satisfactorily adjusted to reflect the cost of transport if the agreed delivery point is not the Fiscalization Point.
 
SIX (6). Payment for the Liquid Hydrocarbons supplied shall be in U.S. dollars to a bank account outside Nicaragua, as specified by the Contractor.

 
 

 
 
SEVEN (7). The MEM and the Contractor may enter into a Liquid Hydrocarbons sales contract covering the duration of the desired purchases. The MEM may assign its rights as purchaser to one or more local or regional refineries subject to the assignee's providing the Contractor, at the time of each delivery, with an irrevocable letter of credit acceptable to the Contractor covering the corresponding purchase.  The Contractor has the right to cease deliveries under any sales contract if it does not receive timely payment for each delivery.
 
CLAUSE EIGHTEEN (18) VALUATION .
 
ONE (1). The value of Liquid Hydrocarbons within the Contract Area shall be the competitive international market value of such Liquid Hydrocarbons at the Fiscalization Point.
 
TWO (2). The competitive international market value of the Liquid Hydrocarbons, other than natural gasoline, shall be the price in United States dollars at which an independent third party buyer would be prepared to buy such Liquid Hydrocarbons at a particular time at the Fiscalization Point, on independent basis, taking into account the quality, volume, cost of transportation, payment terms, and any other relevant condition, including the then prevailing world market conditions.
 
THREE (3). Whenever different grades of Liquid Hydrocarbons are produced within the Contract Area, the value shall be determined and applied for each grade of Liquid Hydrocarbons.  However, in the event that different grades of Liquid Hydrocarbons are blended together for sale, the value of such blend shall be determined by the grade that determines the  applicable price in the international market.

 
 

 

FOUR (4). The value of Liquid Hydrocarbons, other than natural gasoline, shall be determined in United States dollars per barrel for each Calendar Month as follows:  4.1 The Contractor shall present to the MEM its proposal as to the value of the particular Liquid Hydrocarbons for the preceding Month, within the first ten (10) business days of the current month during which the Liquid Hydrocarbons, other than natural gasoline, will be produced and measured from the Contract Area, such proposal shall be accompanied by information supporting the Contractor's proposal, including evidence of independent current prices, F.O.B. sales prices to third parties effected by the Contractor for Liquid Hydrocarbons within the Contract Area during such Calendar Month, as well as F.O.B. prices published from Liquid Hydrocarbons exportation prices comparable and applicable to that same period.  Such value shall be netback price from the point of export or the first sale in Nicaragua to the Fiscalization Point applying the tariffs for transportation and storage beyond the Fiscalization Point approved by the MEM in accordance with the Law governing the supply of Hydrocarbons. 4.2 If the MEM accepts the value proposed by the Contractor set forth in the preceding clause number, or does not make any objections in writing within ten (10) business days after receipt of same, the value proposed by the Contractor shall be deemed the value for the Calendar Month for which the price is being determined.  4.3 If the MEM objects, in writing, to the Contractor's proposal within the prescribed period, the MEM shall include, together with such notice, a counter-proposal for the value, as well as information supporting the counter-proposal. 4.4 If the Contractor accepts the MEM's proposal or does not object to it in writing within ten (10) business days after receipt of same, the MEM's counter-proposal shall be the value for the Calendar Month for which the price is being determined.  4.5 If the Contractor objects in writing to the MEM's proposal within the prescribed period, the MEM and the Contractor’s authorized representatives shall meet within forty eight (48) hours after MEM's receipt of the Contractor's notice of objection in an endeavor to establish, through negotiation, the price to be used as the value for the Calendar Month for which the determination is being made. 4.6 If within fifteen (15) days after receipt of the Contractor's objection notice under item 4.5 of this Clause, a value has not been agreed upon through negotiation, such value shall be determined in accordance with number 5 of this Clause.

 
 

 

FIVE (5). The following procedure shall apply for determining the value of Liquid Hydrocarbons, other than natural gasoline, whenever the procedure under number 4 of this Clause does not result in timely agreement:  5.1 The value shall be determined on the basis of three internationally traded crude oil prices.  The crude oils that qualify for inclusion in the price basket shall be those for which the market value or F.O.B. price is published in the Platt’s Oilgram.  The price of crude oils will be from three different regions of the world, which physiochemical properties must be similar to those found in the Caribbean Margin.  5.2 The crude oils to be included in the price basket shall be proposed by the Contractor as part of the Development Plan under Clause 12, number 8 of this Contract for approval by the MEM. 5.3  In the event that one or more of the crude oils agreed upon do not meet the requirements of number 5.1 of this Clause, a replacement crude oil shall be determined by agreement between the MEM and the Contractor. 5.4 For each of the reference crude oils included in the price basket agreed upon, the equivalent C.I.F. value in Houston, Texas, U.S.A., shall be determined as follows: 5.4.1 the arithmetic average of the daily export price for the Calendar Month under consideration, plus the competitive and independent transportation costs from the point of export of the reference crude oils to Houston, Texas, U.S.A. 5.4.2 the quality differential between the reference crude oil and the Liquid Hydrocarbons for which the value is being determined.  5.5 The quality differential shall be based on the yields under normal distillation and the market prices in the Gulf Coast of the United States published in the Platt's Oilgram for the products obtained. 5.6  The arithmetic average of the three equivalent values shall be determined pursuant to number 5.4 of this Clause and the transport costs of the Liquid Hydrocarbons being valued from the relevant Fiscalization Point in Nicaragua to Houston, Texas U.S.A. shall be deducted from the results obtained in order to reach the value.
 
SIX (6).   The value of natural gasoline at the Fiscalization Point shall be the average for the Calendar Month for which the calculation is being made of the daily average of the high and low prices as published in the Platt's Oilgram Price Service for motor gasoline which physiochemical properties are similar to those found in the Caribbean Margin.
 
SEVEN (7).  The value of the Natural Gas shall be the weighted average sales price at the Fiscalization Point for deliveries of Natural Gas during the Calendar Month.
 
CLAUSE NINETEEN (19): ROYALTIES .
 
ONE (1). The Contractor shall pay to MEM a royalty, in cash, based on the Production from the Contract Area measured at the Fiscalization Point during each Calendar Month. The royalty will be calculated separately for Liquid Hydrocarbons and for Natural Gas in accordance with Articles 54 and 57 of the Law, which are incorporated herein by this reference, and the norms issued by the Board of Directors of the MEM.

 
 

 

TWO (2). The rate of the royalty for Liquid Hydrocarbons will be determined at the end of each Calendar Month on the basis of the "R" factor established in Article 58 of the Law.  The rates of the royalty on Liquid Hydrocarbons are as follows: Value of "R" Factor of zero (0) to less than 1.5 (one point five), a Royalty Percentage of 5.0% (five percent); Value of “R” Factor of 1.5 (one point five) to less than 3 (three), a Royalty Percentage of 10% (ten percent); Value of “R” Factor greater than 3.0 (three), Royalty Percentage of 15.0% (fifteen percent).
 
THREE (3). The royalty rate for Natural gas is of 5% (five percent) of the value of the production measured at the Fiscalization Point.
 
FOUR (4). For calculating the amount of royalty to be paid, the Hydrocarbons shall be valued at the market value determined in accordance with Clause 18 of this Contract.
 
FIVE (5). With respect to its exploration and exploitation activities, the Contractor is subject to the special regime established by Article 58 of the Law, which provisions are incorporated herein through this reference and is exempt from payment of any other fiscal or municipal tax by virtue of the provision set forth in Article 62 of the Law.
 
SIX (6). The Contractor’s activities other than the Exploration and Exploitation of Hydrocarbons are subject to the general fiscal regime in effect in Nicaragua.
 
CLAUSE TWENTY (20): CONTRIBUTIONS .
 
ONE (1).  For the purpose of supporting and fulfilling its social function in the Autonomous Regions in connection with the social, economic and infrastructure development, environmental preservation, health, education and services, the Contractor will contribute and/or donate, on a yearly basis, a total of three percent (3.0%) of its net utilities obtained as a result of the exploitation of Hydrocarbons based on its operations as established in the Concession Contract (hereinafter such contribution or donation will be called “Community Development Fund” or simply “FDC”) to the Atlantic North Autonomous Regions (RAAN) and the South Atlantic Autonomous Region (RAAS).  The FDC shared between the corresponding Regions will be of one point five percent (1.5%) to each Region.  The FDC will be deposited in the accounts indicated by the North Atlantic Regional Council and the South Atlantic Regional Council.  Therefore, the Contractor will calculate the FDC based on each fiscal/accounting year, in accordance with the principles established by Law number four hundred fifty three (No.453), the law of Fiscal Equity, which is hereby incorporated to this Contract.

 
 

 
 
CLAUSE TWENTY ONE (21) PAYMENTS .
 
ONE (1) The Contractor .to the MEM at the beginning of each contractual year, a nonrefundable area fee based on the number of hectares (ha) comprising the Contract Area.  The rate per hectare for the area of Perlas is as follows:  from 1 to 3 years: US$0.05 (zero point zero five cents of United States Dollar) per hectare; from 4 to 7 years:US$0.10 (zero point ten cents of United States Dollar) per hectare; from 8 years on:US$0.15 (zero point fifteen cents of United States Dollar) per hectare.  Those rates per area will be readjusted annually on the date immediately preceding the anniversary payment date on the basis of the average variation in the "Consumer Price Index" as published by the U.S. Department of Commerce during the preceding twelve (12) month period.  This fee shall be used by the MEM to help defray its general administrative costs of the activities described in this Contract, but not in lieu of amounts payable by Contractor under Clause 11, to cover the costs of assistance provided by the MEM.
 
TWO (2). All payments which the Contract obligates the Contractor to make to the State, even when the amount is expressed in U.S. dollars, shall be made in national currency.  The conversion to national currency shall be at the rate of exchange posted by the Central Bank in effect for commercial transactions on the date of fulfillment of the obligation.
 
THREE (3). Notwithstanding the applicable exchange regulations to the contrary, the Contractor is guaranteed, through the terms of this Contract, the financial rights granted by Article 63 of the Law, which are incorporated to this Contract through this reference.
 
FOUR (4). For the purpose of filing and calculating the Income Tax, the applicable revenue and expenses as shown in U.S. dollars shall be converted into the national currency at the rate of exchange posted by the Central Bank of Nicaragua at the opening of business on the date of compliance with the obligation.  Payments of estimated tax shall be entered according to its cost in U.S. dollars corresponding to the national currency cost incurred, calculated in accordance with Clause 15, number 5 of this Contract and then reconverted to the national currency at the time of filing of the income tax.

 
 

 
 
CLAUSE TWENTY-TWO (22): MATERIALS AND EQUIPMENT .
 
ONE (1). The Contractor shall provide all materials, equipment, machinery, tools, spare parts and any other similar materials required for the operations under this Contract.
 
TWO (2). Such Materials shall be provided by the Contractor in accordance with its Work Program set forth in Clause 13 of this Contract.
 
THREE (3). The Contractor shall give preference, although not obligated to do so,  to locally available materials when such are comparable to and compete with imported materials in quality and availability and the price of which does not exceed the C.I.F. price (including import duties where applicable) of the imported materials placed in Nicaragua.
 
FOUR (4). Subject to the preceding number, the Contractor shall have the right to import any materials required for its activities under this Contract.  With regard to the temporary importation and the exemption from import duty during the Exploration Period and the first four (4) years after declaration of Commercial Discovery, the provisions of Articles 60 and 61 of the Law shall govern, and by this reference are incorporated as part of this Contract..
 
CLAUSE TWENTY-THREE (23): OWNERSHIP OF ASSETS
 
ONE (1). The Contractor owns the assets provided by it under the terms of this Contract.  Subject to the provision under the clause number below, ownership of any such asset, whether fixed or moveable, whether within or outside of the Contract Area, used in connection with the rights granted to the Contractor under this Contract, including pipelines and storage facilities, shall become the property of the State, free of any charge or encumbrance, at the end of the term of the Contract, except where the State notifies the Contractor that it will not accept the transfer of property of a particular asset.  Where the State elects not to accept ownership of an asset, the Contractor shall carry out the approved clean-up program under Clause 34 of this Contract with respect to such assets and the area where they are located and shall be free to dispose of such asset in accordance with the applicable laws.

 
 

 
 
TWO (2). Where the installations serve more than one Contract Area assigned to the Contractor, the Contractor may continue to use such facilities for the other Contract Areas until the end of the term of other Contracts.  In this case, the State, through the MEM, and the Contractor shall enter into an operating agreement that will govern the actual use, operation and maintenance of such facilities.
 
THREE (3). The provisions of number 1 under this Clause shall not apply to materials or other property that are rented or leased to the Contractor or which belong to the Contractor’s employees, provided that the ownership of any such materials by other than the Contractor, is clearly documented with the State at the time of entry into Nicaragua or its local acquisition.
 
CLAUSE TWENTY-FOUR (24): SUBCONTRACTORS, PERSONNEL AND TRAINING . ONE (1). The Contractor has the right to use qualified Sub-Contractors to provide specialized equipment or services.
 
TWO (2). The Contractor shall offer similar opportunities to the national companies that compete with foreign entities with respect to the provision of any service or equipment required with respect to its operations.  The Contractor shall give preference to Nicaraguan professionals and Sub-Contractors that are competitive with foreign bidders in skills, experience, availability and price.
 
THREE (3) The Contractor shall provide the MEM all necessary information covering each Sub-Contractor including, at the request of the MEM, an executed legalized copy of any contract or change thereto.
 
FOUR (4). The Contractor and its Sub-Contractors shall give priority of employment to local personnel in order to satisfy the staffing requirements to the extent that nationals of Nicaragua fulfill the qualification, experience and availability requirements.

 
 

 
 
FIVE (5).  The Contractor and its Sub-Contractors may employ foreign nationals, 5.1 to the extent that qualified nationals cannot be found to fill the positions required, 5.2 to fill a reasonable number of technical or managerial positions, and 5.3 to provide short-term expertise.
 
SIX (6) The Contractor shall undertake the development and training of its national personnel (including training for the specific purposes, such as taking over positions held by expatriate personnel) for all positions including administrative, technical and executive management positions. The Contractor shall prepare and submit its annual development and training programs to the MEM for approval, subject to Article 70 of the Regulation.
 
SEVEN (7). In accordance with Article 28 of the Law, the Contractor guarantees payment of taxes, fines and other tributes for the services provided by its Sub-Contractors under their respective sub-contract, as well as payment of the salaries and social benefits for its sub-contractors’ local personnel. Likewise, and in accordance with Article 68 of the Regulation, the Contractor assumes joint liability with its Sub-Contractors to guarantee payment of any legally binding obligation contracted by the Sub-contractor on behalf of any individual resident in Nicaragua for goods or services provided to the Sub-contractor associated with the Contractor’s activities.
 
CLAUSE TWENTY-FIVE (25): UNITIZATION .
 
ONE (1). If a Hydrocarbons discovery in the Contract Area extends beyond the boundaries of the Contract Area, MEM may require, in accordance with Article 47 of the Law, that the Development of the discovery and the Production of Hydrocarbons therefrom be carried out in collaboration with the entity or entities that have the right to conduct Petroleum Operations in the area into which the discovery extends.
 
TWO (2).  In such case, the procedures and terms established in Articles 126 through 131 of the Regulation shall apply.

 
 

 
 
THREE (3). In case the Hydrocarbons deposit extends beyond the national boundaries, the unitization agreement shall be negotiated between the affected governments. The Contractor shall provide technical assistance to the Government of the State in the negotiation of such agreement.

 
 

 

CLAUSE TWENTY-SIX (26): CONFIDENTIALITY .
 
ONE (1). All technical data and any other information related to operations under this Contract shall be maintained by the contracting parties as strictly confidential and shall not be disclosed by either party without the prior written consent of the other party for a period of two (2) years after receipt of the written consent by either of the Parties, except to the extent required to comply with a decision of a competent court, pursuant to Article 32 of the Law or as required to comply with any law, regulation or procedure from the Arbitration Court, governmental investigation, or the Stock Exchange.
 
TWO (2). Either Party may disclose any information to its employees, Affiliates, consultants, buyers, potential investors, bank institutions, insurance companies, and sub-contractors to the extent required for the efficient conduct of its activities, provided it obtains from such individuals or entities, prior to disclosure, a written confidentiality undertaking approved by both Parties.
 
THREE (3). For the purpose of obtaining bids on open areas, the MEM may, after the two (2) year period from the date of receipt of the information from the Contractor has elapsed, disclose the information associated with the areas relinquished by the Contractor within the Contract Area.
 
FOUR (4). After the two (2) year period from the date of the receipt of the information from the Contractor, MEM shall be entitled, in the national interest, to prepare or cause to prepare by third parties and publish reports or studies of a general or regional nature using information derived from any reports or data related to the Contract Area.  Geo-scientific reports can be prepared for publication upon previous written consent by the Contractor

 
 

 

CLAUSE TWENTY-SEVEN (27): PIPELINES AND STORAGE .
 
ONE (1). The Contractor has the right to construct and operate within and outside of the Contract Area such pipelines and other facilities as required to transport and store the Hydrocarbons produced from the Contract Area up to the point of export or point of first sale in Nicaragua, subject to compliance with the technical, safety and environmental regulations.
 
TWO (2). All the infrastructure shall be included in the Development Plan set forth in Clause 12, number 8 of this Contract.
 
THREE (3). In accordance with Article 68 of the Law, the Contractor is obligated to transport, store and ship Hydrocarbons owned by third parties, including the State, whenever and to the extent that its installations have available capacity and the Hydrocarbons are compatible with the normal operations.  Likewise, the Contractor shall have access on non-discriminatory terms to third parties transportation and storage facilities with available capacity.  This Clause number specifically excludes gathering lines or other installations belonging to the Contractor or third parties that are used for its own exploitation and are located before the applicable Point or Points of Fiscalization under the respective owner’s exploration and exploitation contract.  The tariff for use of such installations shall be calculated and approved by the MEM as the Regulatory Authority in accordance with Article 163 of the Regulation and supplement regulations that may be issued by MEM from time to time.
 
CLAUSE TWENTY-EIGHT (28): INSURANCE .
 
ONE (1). The Contractor shall provide all the insurance required by the applicable law and such other insurance as the Contractor deems justified.
 
TWO (2). Except for insurance policies issued by the Overseas Private Investment Corporation (“OPIC”), all such insurance policies shall contain and express a waiver of subrogation against the State and any of its agencies.
 
THREE (3). The Contractor shall provide copies of all insurance policies to the MEM.

 
 

 

CLAUSE TWENTY NINE (29): ASSIGNMENT .
 
ONE (1). Subject to the prior written approval from the MEM, which shall not be unreasonably withheld, Contractor may assign all or an indivisible percentage interest in its rights and obligations under this Contract.  For consideration to be given to any such request: 1.1 all accrued obligations of the assignor deriving from the Contract must have been duly fulfilled as of the date such request is made, or assignor and assignee must jointly and severally guarantee fulfillment of any unfulfilled accrued obligations by the assignor; 1.2 the proposed assignee or assignees must be qualified in accordance with the Regulation to be a Contractor and must have satisfied the requirements of the Law in regard to constitution and naming of a legal representative; 1.3 the instruments of assignment shall be submitted to MEM for their review and approval and shall include provisions stating precisely that the assignee is bound by all covenants contained in the Contract; and 1.4 Where the assignment will result in the Contractor being comprised of more than one entity, the designation of the entity that will act as operator shall be stipulated, along with a copy of the joint operating agreement among such entities comprising the Contractor.
 
TWO (2). Any assignment made pursuant to the provisions of this Clause shall be free of any transfer or related taxes, stamp duty charges or other charges. 3. No assignment shall in any way release the assignor from its obligations undertaken under the Contract except to the extent that such obligations are in fact performed by the assignee.
 
CLAUSE THIRTY (30): MISCELLANEOUS .
 
ONE (1). The validity, interpretation and application of this Contract shall be governed by the laws of the Republic of Nicaragua.
 
TWO (2). This Contract may only be amended by mutual written agreement of the Parties.
 
THREE (3). The Spanish text of this Contract is the only official text and shall govern for all purposes.

 
 

 

FOUR (4). In accordance with Article 64 of the Law, the State guarantees to the Contractor throughout the term of this Contract, the stability of the tax regime and the royalties set forth in Articles 58 to 62 of the Law and the exchange regime set forth in Article 63 of the Law in effect on the Effective Date of this Contract. No changes to those regimes will be adversely applied to the Contractor with respect to its Exploration and Exploitation activities under this Contract.
 
FIVE (5). The Contractor will be treated, for all legal purposes, as a private law entity and therefore expressly renounces the right to invoke diplomatic intervention in any matter related to this Contract.
 
SIX (6). In accordance with Article 4 of the Law, the exploration and exploitation activities under this Contract have been declared to be of national interest and public utility.  In the event the Contractor would be required to use property owned by third parties, the MEM shall assist the Contractor pursuant to the laws in effect governing the declaration of public utility and rights of way.
 
CLAUSE THIRTY ONE (31): SETTLEMENT OF DISPUTES .
 
ONE (1). The Parties shall endeavor to settle amicably through consultation any dispute related to or arising out of the performance or interpretation of any Clause of this Contract.
 
TWO (2). If any dispute has not been settled within thirty (30) days after the dispute arises, either Party may, through notice given to the other Party, propose that the dispute be referred to a sole expert or to arbitration for resolution in accordance with the provisions of this Clause.  The waiting period will not apply in the cases set forth in Clause 12, number 8 or Clause 33, number 3 of this Contract.
 
THREE (3). Following the notice given pursuant to the preceding Clause number, the Parties agree to refer the dispute for determination by a sole expert to be appointed by agreement between the Parties.
 
FOUR (4). If the Parties fail to refer such dispute to a sole expert under number 3 of this Clause within thirty (30) days of the notice given, as set forth in number 2 of this Clause, the parties hereby consent to submit to the International Centre for Settlement of Investment Disputes of the World Bank (“ICSID”) any dispute arising out of or relating to this Contract for settlement by arbitration pursuant to the Arbitration Rules established for such cases with the ICSID.

 
 

 
 
FIVE (5). For arbitration purposes, the Parties agree to apply the rules of arbitration of the ICSID as follows: 5.1 The arbitration shall be heard and determined by three (3) arbitrators.  Each side shall appoint an arbitrator of its choice within thirty (30) days of the submission of a notice of arbitration.  The Party-appointed arbitrators shall in turn appoint a presiding arbitrator of the tribunal within fifteen (15) days following the appointment of both Party-appointed arbitrators.  If the Party-appointed arbitrators cannot reach agreement on a presiding arbitrator of the tribunal and/or one Party refuses to appoint its Party-appointed arbitrator within said fifteen (15) day period, the appointing authority for the implementation of such procedure shall be the ICSID, who shall appoint an independent arbitrator who does not have any financial interest in the dispute, controversy or claim.  All decisions and awards by the arbitration tribunal shall be final, binding and made by majority vote. 5.2 Unless otherwise expressly agreed in writing by the Parties to the arbitration proceedings: ONE (1) The arbitration proceedings shall be held in Mexico City, Mexico; TWO (2) The official language will be Spanish with translation to the English language during the arbitration proceedings.  The arbitrators shall be fluent in the both the Spanish and English languages.  All of the materials used at the hearings, the complaint or defense documents, the arbitral award and the reasons supporting it will be in Spanish with translation to the English language; THREE (3) The arbitrators shall be and remain at all times wholly independent and impartial; FOUR (4) The arbitration proceedings shall be conducted under the Arbitration Rules of the ICSID, as amended from time to time; FIVE (5) Any procedural issues not determined under the arbitral rules shall be determined by the arbitration act and any other applicable laws of the site of the arbitration, other than those laws that would refer the matter to another jurisdiction; SIX (6) The costs of the arbitration proceedings (including attorneys' fees and costs) shall be borne in the manner determined by the arbitrators; SEVEN (7) The decision of the majority of the arbitrators shall be reduced to writing; final and binding without the right of appeal; the sole and exclusive remedy regarding any claims, counterclaims, issues or accountings presented to the arbitrator; made and promptly paid in U.S. dollars free of any deduction or offset; and any costs or fees incident to enforcing the award, shall to the maximum extent permitted by law be charged against the Party resisting such enforcement; EIGHT (8) The award shall include interest from the date of any breach or violation of this Agreement, as determined by the arbitral award, and from the date of the award until paid in full; NINE (9) Judgment upon the award may be entered in any court having jurisdiction over the person or the assets of the Party owing the judgment or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be; TEN (10) The arbitration shall proceed in the absence of a Party who, after due notice, fails to answer or appear.  An award shall not be made solely on the default of a Party, but the arbitrators shall require the Party who is present to submit such evidence as the arbitrators may determine is reasonably required to make an award; and ELEVEN (11) If an arbitrator should die, withdraw or otherwise become incapable of serving, or refuse to serve, a successor arbitrator shall be selected and appointed in the same manner as the original arbitrator. SIX (6). The parties agree that this Contract is an investment agreement between the State and the Contractor and that the activities associated with this Contract are commercial in nature.  The Parties agree that they do not have the right, and through this Contract, expressly and irrevocably renounce whatever right to assert as a defense any immunity from jurisdiction they may have or immunity from execution of a judgment, award, or seizure of property, from execution of any award or judgment, or any attachment of assets in order to seize assets prior to judgment or issuance of an award, with respect to activities or any legal action or procedure arising out of or related to this Contract.

 
 

 
 
CLAUSE THIRTY-TWO (32): FORCE MAJEURE .
 
ONE (1). Neither Party shall be considered in default of the performance of any of its obligations under this Contract if the failure to perform or the delay in performing such obligations results from events occurring under the following circumstances:  1.1 the performance of any obligation hereunder is prevented, hindered or delayed because of any event or combination of events including, but not limited to earthquake, war, fire, flood or other natural disaster beyond the reasonable control of such Party; 1.2  any event or combination of events that is the direct cause for preventing, hindering or delaying any of the Parties from performing its obligations under this Contract; 1.3 whenever any such event or combination of events has occurred, such Party shall take all necessary actions to overcome any cause that prevents, hinders or delays performance of its obligations, as well as to minimize its consequences and, insofar as is practicable, to continue to perform its obligations hereunder and 1.4 The provision set forth in Clause 3, number 4 of this Contract associated with the issuance of the Environmental Permit by MARENA. 2. Notice of any force majeure event and their conclusion shall be immediately given to the other Party by the Party invoking force majeure.  3. If the operations under this Contract are partially or entirely suspended as a result of a force majeure event, the period for carrying out the suspended operations shall be extended by a period equivalent to the suspension.

 
 

 
 
CLAUSE THIRTY-THREE (33): NOTICES .
 
ONE (1). Any notice and other communications required or given under this Contract shall be deemed given when delivered in writing either by hand or fax transmission, appropriately addressed as follows:  To The Ministry of Energy and Mines, to the attention of: Ing. Emilio Rappaccioli Baltodano R. Via fax: 505 + 2224629 (FIVE ZERO FIVE + TWO TWO TWO FOUR SIX TWO NINE); Correo Postal 159 (ONE FIVE NINE); Email at emilio.rappaccioli@mem.gob.ni ; Physical Address: Hospital Bautista una (1) cuadra al oeste y una (1) cuadra al norte, Managua.Telephone: (505.228.1278).  To the CONTRACTOR: Infinity Energy Resources, Inc, to the attention of: Mr. Stanton E. Ross, at 11900 (one one nine zero zero) College Boulevard, Suite two hundred four (204), Overland Park, Kansas, six, six, two, one, zero (66210), USA; By fax to one, nine, one, three, three, three, eight dash four, four, five eight (1 (913) 338-4458), Attention: Infinity Energy Resources, Inc.   2. Either Party may change its address or addresses or representatives for the purpose of receiving notices by giving at least ten (10) days prior written notice of the change to the other Party.
 
CLAUSE THIRTY-FOUR (34): TERMINATION .
 
ONE (1). This Contract will terminate by its own terms in the cases specified in Article 70 of the Law, which by reference is incorporated herein.
 
TWO (2).  The Contractor shall have the right to terminate this Contract by electing to relinquish the entire Contract Area pursuant to number 2 of Clause 7 of this Contract.
 
THREE (3). If either Party to the Contract commits a material breach of Contract not covered by Article 70 of The Law, the other Party shall have the right to terminate the Contract using the following procedure: 3.1 The Party claiming the right to terminate shall give notice to the other Party specifying the particular material breach and requiring the other Party, within ninety (90) days of such notice, to remedy the same or make reasonable compensation to the complaining Party, as the case may be; 3.2 If the Party receiving the notice fails to comply with said notice, the complaining Party may, after the expiration of the ninety (90) days notice, terminate this Contract immediately provided; however, that in the event the breach has been referred to arbitration or to an expert, pursuant to Clause 31 of this Contract, Miscellaneous Provisions, the complaining Party may not exercise its right of termination until such time the result of the determination by an arbiter or expert is made known; whenever the Party that elects to refer the dispute to the determination of an arbiter or expert is willing to continue its claim diligently under such procedures.

 
 

 
 
FOUR (4). Notwithstanding termination of the Contract and without prejudice to number 6 of Clause 7 of this Contract, the Contractor remains responsible for the clean-up of the Contract Area pursuant to Clauses 7 number 7 and 35 of this Contract.
 
FIVE (5). In the event the Environmental Permit required for the exploration phase is not issued by MARENA at the end of one (1) year as of the Effective Date or if the permit is issued within such period but contains conditions that restrict the Contractor's access to or the right to conduct Petroleum Operations in more than twenty percent (20%) of the Contract Area, or if as a direct result of such conditions the cost of the Minimum Exploration Program is increased for the first sub-period by more than fifty percent (50%) of the estimated investment, pursuant to Clause 8, number 2, of this Contract, the Contractor within thirty (30) days after the expiration of one (1) year or the date of issuance of the conditional permit by MARENA, whatever the situation may be, may elect to terminate the Contract by giving notice to MEM without further responsibility or obligation, unless the Environmental Permit problems are resolved to the satisfaction of the Contractor within thirty (30) days from the date of the notice given of its intention to terminate the Contract.  If the Contract is terminated pursuant to this Clause, the MEM shall release the guarantees provided by the Contractor and its parent company pursuant to Clause 9 of this Contract.  The area rental paid under Clause 21, number 1 of this Contract shall not be reimbursed and the Contractor shall have no claim against MEM or the State for costs it incurred in relation to this Contract.
 
CLAUSE THIRTY-FIVE (35): CLEAN-UP AND ABANDONMENT .
 
ONE (1). Within sixty (60) days after the expiration of the term of the Contract or the relinquishment of all or a part of the Contract Area, the Contractor shall propose and carry out to the satisfaction of the MEM and the MARENA an abandonment program mutually agreed with the MEM, for all of the Contractor’s facilities that MEM does not elect to receive in accordance with Clause 22, number 1 of this Contract.  With respect to the area and/or facilities being relinquished, such abandonment program shall comply with the internationally accepted standards at the time of the relinquishment.

 
 

 
 
TWO (2). No later than three (3) years before the earlier of (a) the scheduled expiry of the term of the Contract or (b) Contractor's early termination of production from an Exploitation Area or termination of an infrastructure operation included in the approved Development Plan, the Contractor shall submit a proposed abandonment program covering all such facilities for MEM’s approval.
 
THREE (3). The MEM shall make a decision, within ninety (90) days, concerning the proposal submitted by the Contractor pursuant to the preceding sub-clause and may approve or modify or impose conditions.  Prior to modifying or imposing conditions to the proposal, the MEM shall notify the Contractor concerning the modifications or conditions proposed and shall give the Contractor the opportunity to submit written statements within the following sixty (60) days concerning the proposed modifications.  After reviewing such statements, the MEM shall issue its final decision with respect to the Contractor’s proposal.
 
FOUR (4). In the event the Contractor does not present a timely proposal to the MEM under sub-clause 2 of this Clause, the MEM, after giving thirty (30) day notice to the Contractor requesting it to do so, may prepare an abandonment program for such facilities if the Contractor does not present a proposal by the end of the thirty (30) day period, and whenever the MEM has prepared such program, it shall have the same effect as if it had been submitted by the Contractor and approved by the MEM.

 
 

 

FIVE (5). The approved budget for carrying out the approved abandonment program shall be consolidated with the Contractor’s payment into an account that generates interest with a depositary approved by the MEM, per unit of production calculated by dividing the approved abandonment budget by the estimated units of production to be produced and reserved by the Contractor between the date of the MEM’s approval and the anticipated date of abandonment.  Such cost shall be considered for purposes of calculation of the Contractor’s income tax as an operating cost incurred at the time of payment of the accounts.  If the Contractor carries out the abandonment program, any portion of the account, including accrued interest not required for the abandonment program, shall belong to the Contractor, but will be deemed taxable income in the year received.  If the amount deposited (including accrued interest) is insufficient to complete the abandonment program, the Contractor shall pay all additional costs required to complete the abandonment program.  With respect to the facilities transferred to the MEM pursuant to Clause 22, number 1, of this Contract, the portion of the account corresponding to the clean-up of such facilities shall be transferred to the Ministry of Energy and Mines, who shall assume all responsibility for the facility and its abandonment and shall hold the Contractor harmless against any liability with respect to the accumulation after the date of such transfer to the Ministry of Energy and Mines.  The parties appearing before me, Notary Public, so expressed with respect to the object, value and legal effect of this instrument, the object and significance of the special clauses contained herein and the general clauses that ensure its validity.  The undersigned Notary Public states to have seen the documents inserted and associated with this deed. This deed was read by me, Notary Public, in its entirety, before the appearing parties, who fully agree with, approve and ratify it in all and each of its parts, without any changes made, and sign it together with me, Notary Public.  I swear to all listed (f) Legible; (f) legible; Dr. Joaquin Hernán Estrada Santamaría (f) Illegible: Stanton Edward Ross. (f) Illegible: Roberto Octavio Arguello Villavicencil. (f) Illegible: Geovanny Francisco Salinas Brenes , State Notary Public.
 
BEFORE ME: the front of page number two hundred thirteen to the back of page number two hundred sixty four of protocol number Two of the 11 th Notary Office of the State during the current year and at the request of the Attorney General for the Republic, Doctor Joaquin Hernán Estrada Santamaría,  I hereby release this first authenticated copy in fifty three pages that I sign, seal and initial in the city of Managua at eleven o’clock in the morning of March twenty four of the year two thousand nine.

 
 

 

(Signature and Seal for the Attorney General’s office of the Republic)
Republic of Nicaragua
Central America
GEOVANNY FRANCISCO SALINAS BRENES

ELEVENTH NOTARY PUBLIC FOR THE STATE

 
 

 
 

Exhibit 10.9

REPUBLIC OF NICARAGUA
CENTRAL AMERICA

STATE NOTARY PUBLIC

AUTHENTICATED COPY
VALE TRES CORDOBAS
Seal:
 
Republic of Nicaragua
 
Central America
SERIES “M”
 
No. 1766054
 
PUBLIC DEED NUMBER SEVENTY TWO (No.72) - CONCESSION AGREEMENT FOR THE EXPLORATION AND EXPLOITATION OF HYDROCARBONS FOR THE “TYRA” PROSPECT.   In the city of Managua, at three o’clock and thirty minutes in the afternoon of March five of the year two thousand nine.- Before me, GEOVANNY FRANCISCO SALINAS BRENES, Attorney and Notary Public for the Republic of Nicaragua, domiciled and residing in this city of Managua, duly authorized by the Supreme Court to act as the Eleventh Notary Public for the State during the five year period ending August one of the year two thousand nine, pursuant to the Minutes of Certificate of Office number one hundred fourteen dash two thousand eight (114-2008) beginning at eight hours of the morning of the first day of November of the year two thousand eight, in accordance with the Book of Agreements number seventy six of the year two thousand eight, page seventy six of the Minutes of Certificate of Office of the year two thousand eight and the Certification of the Book of Records of Ownership Number seventy Six (76), dated eight o’clock and fifteen minutes of the morning of the first day of November of the year two thousand eight, page number seventy six, of the Book of Records of Ownership, filed with the Attorney General’s Executive Office for the Republic, appear: A) Dr. JOAQUIN HERNAN ESTRADA SANTAMARIA, of age, married, attorney and Notary Public, at this domicile, bearer of the citizenship identification number zero, eight, one, dash, two, one, one, zero, five, seven, dash, zero, zero, zero, nine  U (081-211057-0009U), and B) Mr. STANTON EDWARD ROSS, of age, married, businessman, domiciled in Chanute, State of Kansas, in transit through this city, passport number  three zero eight two one zero four six nine (308210469) of the United Status of America, issued on April 6, 2006 (04/06/2006) and expiration date of April 5, 2016 (04/05/2016), and C) also appearing Mr. Roberto Octavio Argüello Villavicencio, of age, single, Attorney, domiciled in Managua, bearer of the identification card number zero, zero, one, dash, zero, seven, zero, eight, seven, eight, dash, zero, zero, six, zero, letter “B” (001-070878-0060B) who has ample knowledge of the English and Spanish languages and who will act as the interpreter for the transaction, as designated by Mr. Stanton Edward Ross, who does not have knowledge of the Spanish language, all in accordance with Law number one hundred thirty nine (139), the Law that gives greater responsibility to the office of the Notary Public.  At the end of this public instrument, Mr. Roberto Octavio Argüello Villavicencio will sign this instrument along with the appearing parties, and the undersigned Notary.  I hereby swear to know the appearing parties and that, in my opinion, they have the necessary legal civil capacity to bind and contract and especially to sign this public instrument as follows.  A) Doctor JOAQUIN HERNAN ESTRADA SANTAMARIA, on behalf of the State and Government of the Republic of Nicaragua, as the Attorney General for the Republic of Nicaragua in accordance with article two, item two, articles eleven and twelve of the Organic Law of the Attorney General’s Office of the Republic published in La Gaceta, the Official Daily Newspaper number two hundred forty four (244) of December twenty four of the year two thousand one and article five (5) of Decree thirty three dash two thousand four (33-2004), Reforms and Additions to Decree number twenty four dash two thousand two (24-2002), Regulation of the Organic Law of the Attorney General’s Office of the Republic published in La Gaceta, the Official Daily Newspaper number eighty nine (89) of May seven of the year two thousand four.  He accepts his nomination and takes office as follows: One (1) The Certification that integrates and literally says “CERTIFICATION Paul Herbert Oquist Kelley, National Policies Council Coordinator, hereby certifies the Presidential Agreement No. 12-2007 and Act No. 1 that literally reads as follows: “PRESIDENTIAL AGREEMENT No. 12-2007.   The President of the Republic of Nicaragua, the President of the Republic of Nicaragua, in accordance with the powers granted unto him through the Political Constitution, AGREES to Article 1. To nominate the following citizen, Doctor Joaquin Hernán Estrada Santamaria, as the Attorney General for the Republic (referenced herein); Article 2.  The following citizens are nominated as Presidents, Vice-Presidents, Directors and Sub-directors of Autonomous and Decentralized Entities: (referenced herein).  Article 3. This agreement will be in effect as of this date.  Be it published in La Gaceta, the Official Daily Newspaper. In Managua, the Presidential House, on January ten of the year two thousand seven.  Daniel Ortega Saavedra, President of the Republic of Nicaragua.  ACT No. 1, in the city of Managua, at Plaza de los No Alineados Omar Torrijos Herrera, at six o’clock in the evening of January ten of the year two thousand seven.  I, Daniel Ortega Saavedra, President of the Republic of Nicaragua, in order for the following individuals, Members of the Cabinet and Directors of Autonomous Entities to take the office for which they were nominated by Presidential Agreements No. 11-2007, 12-2007, 13-2007, 14-2007, 15-2007 and 16-2007, as follows:  Dr. Joaquin Hernán Estrada Santamaria is nominated as the Attorney General for the Republic (referenced herein).  The following citizens are nominated Presidents, Vice-Presidents, Directors and Sub-directors of Autonomous and Decentralized Entitities (referenced herein).  To this end, I proceeded with the Oath of Office under the Law as follows: “Do you solemnly promise, before God, the Country, our national heroes and your honor, to faithfully comply with the duties of the position conferred unto you?” to which he replied: “Yes, I promise” and I concluded by saying: “If you so do, the country will reward you; otherwise, you will be held responsible”.  This concluded the act and the nominated party was in charge of his position.  The certification of this act will serve as sufficient document of qualification for all legal purposes.  This document was fully read, agreed to, approved, ratified and signed.  Daniel Ortega Saavedra, President of the Republic of Nicaragua, Joaquin Hernán Estrada Santamaria (referenced herein)”. This agrees with the originals, against which it was duly verified.  At the request of the interested party, I hereby prepare this Certification, in the City of Managua, Presidential House, on January sixteen of the year two thousand seven. (signature) Paul Herbert Oquist Kelley, National Policies Council Coordinator. Seal of the National Policies Council Coordinator.”  It is in accordance with the original against which it was compared.   And 2 Presidential Agreement Number four hundred sixty seven dash two thousand eight (467-2008) published in La Gaceta, Official Newspaper  number two hundred fifteen 9215) of November eleven (11) of the year two thousand eight (2008) which is integrated and literally reads as follows: PRESIDENTIAL AGREEMENT No. 467-2008.  The President of the Republic, CONSIDERING that the Political Constitution of the Republic of Nicaragua in article 102 institutes that the natural resources are a national asset and that preservation of the environment and the conservation, development and exploitation of same revert to the State who has the option to sign contracts for the exploration of such resources whenever such are of national interest.  II. That in accordance with the Political Constitution of the Republic of Nicaragua, article 181, second paragraph, which establishes that the concessions and exploration contracts of natural resources must have the approval of the Autonomous Regional Council.  III That the attributions established in Law No. 286, the Special Law of Exploration and Exploitation of Hydrocarbons published in La Gaceta, Official Daily Newspaper Number 109 of June 12, 1998, and Decree No. 43-98, Regulation to the Special Law of Exploration and Exploitation of Hydrocarbons, published in La Gaceta, Official Daily Newspaper No. 117 of June 24, 1998, of the Instituto Nicaragüense de Energia (INE) have been transferred to the Ministry of Energy and Mines (MEM), an entity created by Law No. 612, the Law of Reform and Addition to Law No. 90, the Law of Organization, Competence and Procedures of the Executive Power, published in La Gaceta, Official Daily Newspaper No. 20 of January 29, 2007.  IV  That in accordance with Resolution No. 08-2003 of April 11, 2003, published in La Gaceta, Official Daily Newspaper Numer 100 of May 30, 2003, the MEM’s Administrative Council granted Infinity, INC., which changed its legal name to INFINITY ENERGY RESOURCE, INC., the concession area denominated “Tyra Prospect”, Offshore the Caribbean. V  That the Presidential Agreement 185-2006 published in La Gaceta, Official Daily Newspaper No. 93 of May 15, 2006, authorized the signature of the petroleum concession contract for the area identified as the Tyra Prospect between the Republic of Nicaragua and the Petroleum Company INFINITY ENERGY RESOURCES, INC, INFINITY ENERGY RESOURCES INC.  VI  That citizens of the Autonomous Regions of the Atlantic of the Republic of Nicaragua submitted aan appeal (Recurso de Amparo) against signature of the Contracts for the Exploration and Exploitation of Hydrocarbons between them and the Concession Contract granted to the petroleum company INFINITY ENERGY RESOURCES, INC and whereby the Supreme Court of the Republic of Nicaragua through Sentence No. 92 of May 2, 2007, declared that the Appeal (Recurso de Amparo)  to have grounds since the Concession Contracts were signed without approval of the North Atlantic Autonomous Region and the South Atlantic Autonomous Region Councils.  VII  That the award of the “Tyra Prospect” concession area to INFINITY ENERGY RESOURCES, INC is legal  since once the concession is approved by the North Atlantic Autonomous Region and South Atlantic Autonomous Region Councils the corresponding Contract must be subscribed.  VIII  That the North Atlantic Autonomous Regional Council in a meeting on August 13, 2008, and the South Atlantic Autonomous Regional Council in a meeting on July 4 and 5, 2008, approved the Concession Contract for the Exploration and Exploitation of Hydrocarbons in the Tyra Prospect granted on behalf of INFINITY ENERGY RESOURCES, INC.  IX  That the Ministry of Energy and Mines (MEM) submitted to the President of the Republic the Minutes of the Concession Contract for Petroleum Exploration and Exploitation to be signed with INFINITY ENERGY RESOURCES, INC. in accordance with article 24 of Law No. 286, the Law for Exploration and Exploitation of Hydrocarbons, in accordance with the laws in effect.    By the powers vested by the Political Constitution, it is hereby AGREED Article 1.  Having fulfilled the requirements established in the Political Constitution of the Republic of Nicaragua and pertaining laws, the Attorney General of the Republic, on behalf and in representation of the State for the Republic of Nicaragua, is empowered to proceed with the subscription of the Concession Contract for Petroleum Exploration and Exploitation with the petroleum company INFINITY ENERGY RESOURCES, INC. under the terms negotiated by the Ministry of Energy and Mines and with the approval of the North Atlantic Autonomous Region Council in a meeting held on August 13, 2008, and the South Atlantic Autonomous Region Council, in a meeting held on July 4 and 5 , 2008.  The area to be granted, identified as the Tyra Prospect, will proceed in accordance with Resolution No. 08-2003 of April 11, 2003, published in la Gaceta, Official Daily Newspaper Number 100, of May 30, 2003, Article 2.  The Attorney General for the Republic must have the respective justifying and required documents to fulfill the provision in the previous article of this Agreement.  Article 3.  The Certification of this Agreement and the taking of office by the Attorney General for the Republic are sufficient documents to accredit his representation.  Article 4.  This Agreement goes into effect as of this date.  Be it published in La Gaceta, Official Daily Newspaper.  In the city of Managua, Government House, on October thirty one of the year two thousand eight.  Daniel Ortega Saavedra, president of the republic of Nicaragua.  Paul Oquist Kelly, National Policies Private Secretary.  B)  Mr. STANTON EDWARD ROSS, acting in the name and representation of the business company denominated INFINITY ENERGY RESOURCES INC., an American company constituted in accordance with the laws of the State of Delaware, United States of America, accredits his representation through the following documents: I – Deed Number thirteen of April ten of the year two thousand six, which integrates and literally says: PUBLIC DEED NUMBER THIRTEEN (13) TRANSLATION OF THE DOCUMENT.  In the city of Managua, Republic of Nicaragua, at three o’clock in the afternoon of April ten of the year two thousand six.  Before me, BOANERGE ANTONIO OJEDA BACA, Attorney and Notary Public for Nicaragua, with domicile and residence in the city of Managua and duly authorized to act before the Supreme Court  during the five year period that expires on June eight of the year eight, appear Angélica Arguello Damha, of age, single, attorney, domiciled in Managua, bearer of identification card number zero, zero, one, dash, seven, two, zero, three, eight, one, dash, zero, zero, five, three, Letter “N” (001-270381-0053N) and Roberto Octavio Arguello Villavicencio, of age, single, attorney, domiciled in Managua, bearer of identification card number zero, zero, one, dash, zero, seven, zero, eight, seven, eight, dash, zero, zero, six, zero, letter “B” (001-070878-0060B) the last appearing party, acting as interpreter.  I swear to personally know the appearing parties and that, in my judgment, have the legal civil capacity necessary to bind and to contract and especially to execute this instrument, whereby the appearing parties express themselves in their own name and representation.  FIRST: The first appearing party is in possession of the ARTICLES OF INCORPORATION AND BY- LAWS OF INFINITY RESOURCES, INC. and such articles and by-laws are in the English language, two of the authenticated copies are in English, and we hereby request a notarial translation of the document and its originals through an interpreter in order for this document to be valid in the Republic of Nicaragua.  In accordance with Law number one hundred thirty, the Law which gives more power to the office of Notary Public and article one thousand one hundred thirty two of the Code of cil Procedure, the undersigned Notary proceeds with the translation of the documents that are in English through an interpreter.  To this end, based on the mentioned law, the undersigned Notary, with more than ten years of service with the Supreme Court, hereby nominates and designates as interpreter the appearing party Roberto Arguello Villavicencio, who has vast knowledge of both the Spanish and English languages, to verify the translation from English into Spanish of said documents.  SECOND: TRANSLATION:  having understood it, he accepts the nomination, being warned of the penalties for false testimony, promising to tell the truth, and states that: to the best of his knowledge and understanding, the Minutes in English read as follows in Spanish: ONE) State of Delaware, Secretary of the State, Corporations Division.  Delivered at 04:43 PM 04/29/2005 PRESENTED AT 04:27 PM 04/29/2005 SRV 050348989 – 3944450 file.  ARTICLES OF INCORPORATION OF INFINITY ENERGY RESOURCES, INC.  ARTICLE 1 – NAME:  The name of the company is Infinity Energy Resource, Inc. (“Company”).  ARTICLE 2 – REGISTERED AGENT.  The domicile of the head offices of the Company in the State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, County of New Castle.  The name of its registered agent at such domicile is Corporation Trust Company. – ARTICLE 3 – PURPOSE  The purpose of the Corporation is to participate in any legal act for which a corporation can be created in accordance with the General Law of Corporations in Delaware and its amendments (“DGCL”) – ARTICLE 4 – CAPITAL STOCK 4.1 Ordinary Shares (a) The total number or ordinary shares of $0.00001 nominal value per share that the Company is authorized to issue is: 75,000,000.  (b) Each bearer of ordinary shares will have the right to one vote for each share it owns with respect to all matters for which the bearers of ordinary shares have the right to vote.  Except for and subject to the preferences, rights and privileges expressly granted to the bearers of all types of shares that are currently in circulation and that prior rights, and all series of preferential shares that can be in effect in the future, except as otherwise stipulated by the laws of the State of Delaware, the bearers of ordinary shares will have all other rights of the Company’s shareholders, including, but not limited to (i) the right to receive dividends whenever so declared by the Board of Directors with respect to the assets legally available for such; and (ii) in case of any distribution of assets due to dissolution and liquidation of the Company, the right to receive in proportionally and equitably all the assets of the Company remaining after payment of the specific amounts to preferred stockholders, if any, who have the right to receive them as stipulated in this instrument or in accordance with this instrument.  4.2 Preferred Stock . (a) The total number of preferred shares in the nominal value of $0.0001 per share that the Company is authorized to issue is of 10,000,000 (b) The Board of Directors is expressly authorized at any time and periodically to issue preferred shares in one or more series, with the right to vote, complete or limited or without the right to vote and with those designations, preferences and special, participating, optional or other rights and requirements, limitations or restrictions of same that are indicated and expressed in the resolution or resolutions established by their issuance as adopted by the Board, subject to the limitations prescribed by law and in accordance with the provisions established in this instrument, including, but not limited to, the following: (1) The designation of the series and number of shares that will integrate the series. (2) The rate of dividends of the series, the conditions and dates in which such dividends will be payable, the relation that such dividends will have with the dividends payable in any other class of classes of shares and if such dividends will or will not be cumulative. (3) If the shares of the series will be subject to ransom on the part of the company, and, if so, the terms, prices and other clauses and conditions of such ransom.  (4) The clauses and the amount of any amortization fund estimated for the purchase or ransom of shares of the series. (5) If the shares of the series will be convertible into or interchangeable with shares of any other class or classes or of all other series of any class or classes of shares of the company and if the conversion or exchange, terms, prices, rates, modifications and other clauses and conditions of such conversion or exchange are available.  (6) The measure in which the holders of shares of the series will or will not have the right to vote with respect to the election of directors.  (7) The restrictions, if any,   with respect to the issuance or reimbursement of any preferred share.  (8) The rights of bearers of the shares of the series in case of liquidation or dissolution of the company.  ARTICLE 5 – DIRECTORS: .5.1 Powers: Number and Election of Directors.   The operations of the Company will be performed by the Board.  The number of directors of the Company must be periodically established in accordance with the By-laws of the company and may be increased or reduced from time to time in accordance with the By-Laws, so long as the number of directors is no less than three nor greater than seven, except as otherwise provided in this Article 5.  The election of the directors does not necessarily have to be by the written vote except and in accordance with what is established in the By-Laws.  The directors will be divided into three classes, designated as Class I, Class II and Class III.   Each class will consist, as much as possible, of one third of the total number of directors forming the Board.  The term of the initial Class I Directors will end in the year 2006; the term of the initial Class II Directors will end in the year 2007 and the term of the initial Class III directors will end in the year 2008.  The functions of the initial class will be determined by the Board of Directors.  In each ordinary shareholders’ meetings the successors of directors whose term has ended on such ordinary meeting and the term of the successors will be of three years.  If the number of directors changes, every increase or reduction will be distributed among the classes so that the number of directors in each class remains as uniform as possible, but under no circumstance will a reduction in the number of directors reduce the term of a director occupying its position.  Each director will exercise his/her functions until the ordinary meeting of the year in which his/her term expires and until his/her successor is elected and qualified; however, this will be subject to death, resignation, retirement, incapacity or dismissal of such director from his/her position.  In case any of the bearers of any class or series of preferred shares has the right, through a separate class vote, to elect directors, as specified in Article 4, then the provisions of such class or series of shares will apply with respect to its rights.  The number of directors that the bearers of any of those classes or series of preferred shares can elect will be in addition to the fixed number set forth in the preceding paragraph of Article 5.  5.2 Dismissal.  Subject any right of the bearers of all series of preferred shares, a director may only be dismissed from his/her  position prior to the expiration of his/her term by just cause.  5.3 Quorum.   The quorum of the Board for business transaction will consist of no less than a majority of the total number of directors, except as otherwise provided in these Articles of Incorporation or in the By-Laws with respect to the filling of vacancies.  5.4 Directors positions and recent vacancies .  Except as otherwise established with respect to the rights of bearers of any class or series of preferred shares to elect directors under specific circumstances, the positions of directors recently created that result from an increase in the number of directors and the vacancies in the Board resulting from death, resignation, incapacity, dismissal or any other cause, must be filled only with the affirmative vote of the majority of the remaining directors exercising their function or of a single remaining director, although it may represent less than a quorum of the Board.  Every director elected in accordance with the previous sentence will exercise his/her functions for the remaining period of time until the expiration of the term of the new director’s position created or the one created from the vacancy and until the successor of such director has been elected and qualified.  ARTICLE 6 BY-LAWS – Except as otherwise provided in these Articles of Incorporation, including but not limited to the powers granted by the By-Laws, the Board is expressly empowered to adopt, revoke, alter, amend and rescind any or all the by-laws of the Company.   ARTICLE 7  SHAREHOLDERS – 7.1 – Meetings – The shareholders meetings may take place in or outside the State of Delaware, as established by the Board.  Each shareholders meeting will take place on the date, time and place established by the Board.  Except as otherwise established by law and subject to the rights of the bearers of any class or series of preferred shares, the shareholders extraordinary meetings may only be convoked by the Chairman of the Board, the executive director, the president or any employee of the Company through prior written request from the majority of the Board or as established in the By-Laws.  7.2 Action by written consent .  An action that is required or allowed to be taken in any ordinary or extraordinary shareholders meeting that can be taken without a meeting through written consent, only if all the shareholders with the right to vote in such action consent, in writing, to such action.  ARTICLE 8 – VOTING REQUIREMENTS – Notwithstanding any other provision of these Articles of Incorporation or the By-Laws of the Company (and in spite of the fact that it can be specified otherwise a lower percentage by law, these Articles of Incorporation or the By-Laws) the affirmative vote of the bearers of at least sixty six and two thirds percent (66-2/3%) of the shares of capital stock of the Company in circulation with the right to generally vote in the election of directors (considered for this purpose as a class) will be required if it is necessary to amend, revoke or adopt any provision contrary to Articles 5, 8, 9 or 10 of these Articles of Incorporation.  ARTICLE 9 – RESPONSIBILITIES OF EMPLOYEES AND DIRECTORS  9.1 General – A director of a Company will not be responsible before the Company or its shareholders for monetary damages caused by non-compliance with a fiduciary obligation as director, except in the case where such exemption of responsibility or limitation of same is not allowed in accordance with the DGCL in effect then or in accordance with its future amendments.  9.2 Amendment .  No amendment, modification or revocation of this Article 9 will harm all of the rights or protection of a director at the time of such amendment, modification or revocation.  ARTICLE 10. INDEMNIFICATION. 10.1 General.   The Company will indemnify, to the limit allowed and in the form admissible by the DGCL and its future amendments (however, if there are any amendments, they will only be accepted if they allow the Company to grant rights of indemnification that are more ample than those granted by such law to the Company prior to such amendments) any individual who is a part, or subject to being a part of any legal action, complaint, judgment, or imminent, pending or complete process whether penal, civil, administrative or investigative, due to the fact that such individual (a) is or has been a director or employee of the Company or a predecessor to the Company or (b) is or has been a director of employee of the Company or any predecessor of the Company and has worked for any other company, general partnership, joint venture, trust, benefit plan for employees or another business as director, employee, partner, trustee, employee or agent at the request of the Company or a predecessor of the Company under the condition that , except as indicated in Section 10.4, the Company will indemnify any individual who seeks indemnification associated with a legal process (or part of the same) initiated by same individual, only if such process (or part of same) has been authorized by the Board.  10.2 Expense advances .  The right to indemnification granted in this Article 10 will be a contractual right and will include the right to receive payment from the Company for the expenses incurred with any legal process prior to the final judgment   Such advances will be paid by the Company within twenty days from the receipt of a report or reports from the claimant requesting such timely advance or advances, subject to the condition that if the DGCL so requirements, payment of such expenses incurred by a director or employee in their capacity as director or employee (and not in another capacity such person provides or has provided during his/her term as director or employee, including, but not limited to, services with respect to a benefits plan for employees) prior to the final judgment of a legal process, be made only through previous presentation to the Company of a commitment from such director or employee or in the name of such director or employee to reimburse all the amounts delivered to them as advance if it is determined in a higher court that such director or employee does not have the right to be indemnified in accordance with this Article 10 or another.  10.3 Procedure to obtain indemnification .  In order to obtain indemnification in accordance with this Article 10, a claimant must submit to the Company a request, in writing, that must include all the documentation and information available and necessary to determine if the claimant has such right, and up to what point, to receive indemnification.  Upon presentation by the claimant of the written request for indemnification in accordance with the first sentence of this Section 10.3, a decision with respect to the right of the claimant to receive such indemnification, in accordance with the applicable law, will be made as follows: (a) if it is requested by the claimant or if the are no disinterested Directors (such as defined below) or (b) by a majority vote of the disinterested Directors, although a quorum is not reached.  If it is determined that the claimant has the right to receive indemnification, payment will be made within 10 days following such determination.  10.4 Appeals.    If the Company does not pay the total amount of a claim under Section 10.1 within thirty days following receipt of the written claim by the Company in accordance with Section 10.3, the claimant may, at any time thereafter, initiate an action against the Company to collect the unpaid amount of the claim and, in case of total or partial success, the claimant will have the right to also collect for costs incurred to present such claim. It will be a defense with respect to such action (distinct from an action submitted for compliance with a claim for expenses incurred in defense of such procedure prior to  is final disposition, where the required procedure, if the case, has been offered to the Company) that the claimant has not fulfilled with the Code of Conduct, which makes possible, according to the DGCL, for the Company to indemnify the claimant for the amount demanded, but the Company will have the obligation to provide such defense.  If the Company (including its Board, the independent legal counsel or the shareholders) does not reach an agreement prior to the beginning of the action that the indemnification of the claimant is appropriate under the circumstances due to the fact that he or she has complied with the applicable Code of Conduct established by the DGCL , as the effective determination on the part of the Company (including its Board, the independent legal counsel or the shareholders) that the claimant has not complied with such applicable Code of Conduct, may not be considered as a defense of the action nor will they create an assumption that the claimant has not complied with the applicable Code of Conduct.  10.5 Obligatory Effect .  A determination must be made, in accordance with Section 10.3, that the claimant has the right to receive indemnification, whereby the Company will be obligated through such determination for all legal procedures initiated in accordance with Section 10.4.1.06 Validity of this Article .  The Company may not allege, in any legal procedure initiated in accordance with Section 10.4 that the procedures and presumptions of this Article 10 are not valid, obligatory and apply, and must stipulate in such procedure that the Company commits to comply with all the clauses of this Article 10.  10.07 Non Exclusivity, etc .  The right to indemnification and payment of the expenses incurred to defend a process prior to its final disposition granted in this Article 10 will not be exclusive of any other right that every individual may have, or to acquire, in accordance with any decree, clause of constitutive certificate, by-laws, agreement, vote  of disinterested shareholders or directors, or otherwise.  Non revocation or modification of this Article 10 may lessen, under any circumstance, or affect in an adverse manner the rights of any director, employee, or current or previous employee or agent of this Company or any predecessor of the same, with respect to any event or problem that arises prior to such amendment or modification.  10.08. Insurance .  The Company may maintain an insure, at its expense, to protect itself and any director, employee or agent of the Company or corporation, partnership, joint-venture, trust or another company against all cost, debt or loss, whether the Company has the capacity to indemnify such individual or not against such cost, debt or loss in accordance with the DGCL.  10.09 Indemnification of other individuals .  The Company may grant the right to an indemnification and to receive payment by the Company for expenses incurred in defending any process prior to its final disposition, to any current or former employee or agent of the Company or to any predecessor of the Company, in full compliance with the clauses of this Article 10 with respect to the indemnification and advance of expenses incurred by the directors and employees of the Company.  10.10 Divisibility.   If any clause or clauses of this Article 10 is or are deemed invalid, illegal or not applicable for any reason: (a) the validity, legality and applicability of the remaining clauses of this Article 10 (including, without limitation, each part or each paragraph of this Article 10 that does not contain such clause deemed to be invalid, illegal or not applicable that is not considered in itself invalid, illegal or inapplicable) will not be affected in any way or canceled for such reason and (b) as much as possible, the clauses of this Article 10 (including, but not limited to, each part of each paragraph of this Article 10 that contains such clause deemed to be invalid, illegal or not applicable) will be interpreted in such manner as to make effective the intention manifested by the clause deemed to be invalid, illegal or not applicable.  BYLAWS OF INFINITY ENERGY RESOURCES, INC. Adopted on April 29, 2005. ARTICLE 1 OFFICES -   The head offices of Infinity energy resources, Inc. (“Company”) in the State of Delaware will be in accordance with the Articles of Incorporation of the Company (“Articles of Incorporation”).  The Company will have offices located in any place that the Board so timely agrees.  ARTICLE 2 SHAREHOLDERS – 2.1 Ordinary meetings .  The ordinary meeting of shareholders to elect its directors and to discuss all other business deemed adequate prior to the meeting will be held on the date and hour established by resolution of the Board.  2.02 Extraordinary meetings .  Except as otherwise provided by law, the extraordinary meetings of the shareholders will be convoked by those individuals specified in the Articles of Incorporation and must be convoked by the Secretary of the Company in accordance with written request by the shareholders who have registered 25% or more of the capital stock of the Company with the right to general vote in the election of directors.  Such written request will indicate the purpose of the proposed meeting and will include all the relevant information set forth in Section 2.5.  The topic to be discussed in all extraordinary meeting of the shareholders will be limited to those duly established in the written request and for which all necessary information has been provided in a timely fashion in accordance with Section 2.5.  2.03 Notice of Meeting .  Written notice of the meeting will be delivered no less than ten days and no more than sixteen days prior to the date of the meeting, indicating the place, date and time of such meeting and, in case of an extraordinary meeting, the purpose for which the meeting is convoked; except as otherwise provided in the Articles of Incorporation.  Delivery can be made personally, through the postal service, prepaid telegram, telex, facsimile transmission, cablegram or messenger to each shareholder subscribed in the registry as authorized to vote in such meeting.  If such notice is sent by mail, it will be deemed as received whenever it is deposited in the postal service of the United States, prepaid postage, addressed to the shareholder and sent to his/her address,  as it appears in the shareholders registry of the Company.  2.04 Waiver .  The presence of a shareholder of the Company, whether in person or through proxy in a meeting, whether ordinary or extraordinary, will constitute the waiver of the right of notice to such meeting except when a shareholder is present in the meeting for the express purpose of objecting, at the beginning of such meeting, the discussion of any topic due to the fact the meeting has not been convoked in a legitimate manner. A written waiver to the right to receive notice of such meeting, signed by the shareholder or shareholders authorized to such notice prior, during of after the time of notice or the hour of the meeting, will be equivalent to a notice.  It will not be necessary to specify the matter to be discussed nor the purpose of the entire meeting in the written waiver to the right to receive notice.  2.5 Notice of the matter to be discussed in the shareholders meeting .  No matter can be discussed in any shareholders meeting, including the nomination or election of individuals to the Board, other than (a) those specified in the meeting notice (or any attachment to it) granted by or subject to the direction of the Board (or committee duly authorized by the Board) with respect to an ordinary meeting or an extraordinary meeting convoked by any of the individuals specified in Section 7.1 of the Articles of Incorporation, (b) duly presented at the meeting by or according to the direction of the Board (or any committee duly authorized by the board) or (c) duly presented at the meeting by any shareholder of the Company (1) that is a shareholder subscribed in the registry on the date on which notice was given as specified in Section 2.5 and on the date of registration to determine the shareholders authorized to vote in such meeting and (2) that it complies with the procedures for notice established in this Section 2.5.  Besides all other applicable requirement for the matter to be duly presented at the meeting by a shareholder, the shareholder must have given written notice of the matter in due time and format to the Secretary of the Company. (a) In order for the shareholder’s notice reaches the Secretary in a timely manner,  it must be delivered or sent by mail to be received at the main office of the Company no less than ninety days and no more than one hundred twenty days of the date of the meeting; however, (1) in case the public disclosure of the date of the meeting takes place less than one hundred twenty days prior to the meeting, in order for the shareholder’s notice to be timely it cannot be received after the closing of the tenth business day following the day on which the public disclosure of the date of the meeting has taken place and (2) notwithstanding the preceding item, with respect to an extraordinary meeting convoked through written notice from the shareholders, in accordance with section 2.2, every notice submitted by a shareholder making the request must be delivered simultaneously with such request. (b) In order for the shareholder’s notice to reach the Secretary in a timely manner with respect to any subject other than the nomination of individuals for election of the Board, must make reference to each of the topics such shareholder proposes to discuss at the ordinary meeting and must include (i) a brief description of the matter to be discussed; (ii) the name and address of subscription of the shareholder; (iii) the class or series and number of shares of capital stock of the Company owned by the shareholder, registered or usufruct; (iv) a description of all arrangements or agreements between such shareholder and any other individual or individuals (including their names) with respect to the proposal of such matters and (v) a statement that such shareholder intends to appear in person or through proxy in the meeting to submit such matter at the meeting. (c)  In order for the shareholder’s notice associated wit h the naming of individuals for the Board reaches the secretary in an appropriate manner, it must establish (a)  with respect to each of the proposed candidates, (i) the name, age, business and residential address of the candidate, (ii) main job or position of the candidate, (iii) the class or series and number of shares of the capital stock of the Company owned by the candidate, whether registered or usufruct and (iv) any other information associated with the candidate that could be required for information in a statement of representation or other presentations with respect to requests of representation for the election of directors in accordance with Section 14 of the 1934 Securities Exchange Act and its modifications (the “Securities Exchange Act”) and the provisions and regulations established below; and (b) with respect to the shareholder that delivers the notice, (i) the name and address of subscription; (ii) the lass or series and number of shares of the capital stock of the Company owned by said shareholder, whether registered or usufruct; (iii) a description of all arrangements or agreement between such shareholder and each of the proposed candidates and any other individual or individuals (including their names) in accordance to which the nomination(s) will take place; (iv) a statement that such shareholder has the intention of appearing in person or through proxy in the meeting to nominate the individuals mentioned in such notice and (v) all other information related to such shareholder that need to be disclosed in a statement of representation or other necessary presentations with respect to requests of representation for the election of directors in accordance with Section 14 of the Securities exchange Act and the provisions or regulations promulgated by virtue of the same.  Such notice must be accompanied of a written consent from each candidate proposed to be nominated and to provide services as director in case he/she is elected. (d) In the shareholders meet, no matter can be discussed and the individuals nominated by a shareholder cannot be elected as director unless notice has been given with respect to the proposed action in accordance with the procedures established in this Section 2.5.  The determinations of the president of the meeting as to whether such procedures were fulfilled or not, in a particular case, will be binding and definitive.  2.06 Quorum .  Except as otherwise provided by law, in the Articles of Incorporation of these By-laws, the holders of no less than the majority of the shares with the right to vote in the shareholders meeting who are present in person or through proxy, will constitute a quorum and whatever the majority of such quorum decides will be deemed as the decision of the shareholders except with respect to the election of directors.  If a quorum is not present in the meeting, the president of the meeting will suspend the meeting without prior notice if the time and place are announced in the meeting until such time a quorum is present.  In the suspended meeting in which a quorum is present, any matter can be discussed that was discussed in the original meeting.  In case the suspension lasts for more than thirty days or if soon after it is suspended a new date is entered for the suspended meeting, notice of suspension of the meeting will be delivered to each registered shareholder with the right to vote in a meeting.  2.07 Procedure.  The order of the day and all other topics in each shareholders meeting will be determined by the president of the meeting.  The president of every shareholders meeting will be the president of the Board or, in his/her absence, the member present in the meeting the most seniority in the Company.  ARTICLE 3 – DIRECTORS - 3.01 Number .  Subject to the clauses of the Articles of Incorporation, the number of directors will be determined exclusively and timely through resolution adopted by the Board.  3.2 Ordinary Meetings .  The Board will meet immediately after and at the same place where the shareholders ordinary meeting took place whenever a quorum is present and without the need of notice of such meeting in order to legitimately constitute it.  The ordinary meetings of the Board will be held at the places and times timely determined by the Board. 3.3. Extraordinary Meetings .  The extraordinary meetings of the Board may be convoked at any time and place and for any reason by the president of the board, by the general director or by the majority members of the Board.  3.4 Notice of Meetings .  It is not necessary to give notice for the ordinary meetings of the Board.  Notice will be sent with respect to each extraordinary meeting of the Board to each director, at their usual place of work or to the address provided by the members for such purpose.  Such notice will be deemed sent in the time and form established whenever it (a) is placed in the postal service of the United states no more than three calendar days prior to the date of the meeting or (b) is delivered in person, by telegram, through facsimile or communicated by telephone, at least twenty four hours prior to the time set for the meeting.  It is not necessary for such notice to include a statement of the matter to be discussed nor the purpose of the same.  3.5 Waiver .  The presence of the director in a Board meeting will constitute a waiver to the right of notice of such meeting, except when the director participates in a meeting for the express purpose of objecting, at the beginning of same, to the discussion of any topic due to the fact the meeting has not been formally called or convened.  A written waiver to the right to receive notice signed by the authorized director or directors to such notice, whether before, during or after the time of notice or the time of the meeting will be equivalent to a notice.  3.06 Quorum .   Except as otherwise provided by law, the Articles of Incorporation or these By-laws, it will be necessary to have the presence of the majority of the directors in service at that time and this will be sufficient to constitute a quorum to discuss the matters of every board meeting, and the decision made by the majority of the directors present in the meeting in which a quorum is present will be deemed as made by the Board.  In case a quorum is not reached, the Board meeting will be timely suspended without notice.  3.07 Telephone participation in the meetings .  The members of the Board or any Board committee may participate in a Board meeting or committee meeting through a telephone or similar communication equipment conference call through which all individuals participating in the meeting can hear each other and each participation will constitute the presence of the individual in the meeting.  3.08 Decisions without a meeting Except as otherwise established in the Articles of Incorporation or these By-laws, all decisions that can be made or are allowed to be made can so be made in any meeting of the Board or any of its committees without a meeting in case all members of the Board or its committees sign a written consent, as the case may be, and such written consent is filed with the minutes of procedures of the board or committee.  Any consent may be equivalent to and will be valid on the date of the last signature entered on the same unless otherwise established.  ARTICLE 4 COMMITTEES – 4.01 Designation of committees .  The Board will establish committees to perform the delegated or designated duties as much as permitted by law.  Each committee will consist of one or more directors of the Company.  In the absence or disqualification of a member of a committee, he/she or the members present in all meetings and disqualified to vote, whether or not such members constitute a quorum, may designated, in unanimous form, another member of the Director to act in the meeting in the place of such absent or disqualified member.  4.02 Authority and powers of the committee.   Except as otherwise provided by law, the board may establish, through resolution or amendment to these by-laws, that a committee may exercise all the powers and authority of the Board in handling the business and matters of the Company. ARTICLE 5 – EMPLOYEES – 5.0 Number.   The employees of the Company will be designated or elected by the Board.  The employees will include a general director, a president, if applicable, the number of vice-presidents the Board determines, a secretary, if applicable, the number of secretary assistants as determined by the Board and a treasurer.  Any individual can have two or more positions at the same time.  5.02  Additional Employees .  The Board may nominate any other employee it deems appropriate.  5.03  Duration of the positions.  Resignation .  All employees, agents and employees of the Company will maintain their respective positions or functions according to the will of the Board and may be removed from their positions at any time that board deems appropriate, with or without cause.  Every employee may resign at any time by submitting written notice of such resignation to the general director, the president or the secretary and it is not necessary for such resignation to be accepted in order for it to be effective unless the notice does not establish so.  Any vacancy to a position will be covered by the Board.  Functions.  The employees of the Company will perform the duties and exercise the powers conferred unto them as assigned by the Board or the president and general director.  ARTICLE 6 - CAPITAL STOCK – 6.01  Certificates .  The Board will authorize the issuance of certified or uncertified capital.   Each shareholder of the Company, through written request, will have the right to one or more certificates signed by or in the name of the Company (a) by the general director or president and (b) the secretary or the secretary’s assistant, certifying the number of shares of capital of the Company owned by said shareholder.  Any or all the signatures of the certificate may be sent facsimile.  6.02  Registered shareholders -  The Company will have the right to treat the holder of any registered share or shares of capital of the Company as the holder in fact of such share or shares and, consequently, it will not be subject to acknowledge any equivalent claim or participation in said share or shares in the name of any other individual, whether there is real notice of it or not, except as otherwise provided by law.  6.03 Cancellation of certificates .  All certificates delivered to the Company will be canceled and, except in case of loss, theft or destruction of the certificates, no new certificate will be issued until the previous one(s) with the same number of shares of the same class of capital have been delivered and cancelled.  6.04. Lost or destroyed certificates . The Board may establish that new certificates be issued instead of any certificate or certificates issued until then by the Company that have been declared lost, stolen or destroyed, by preparing a sworn statement of such fact in an acceptable manner to the Board by the person claiming the certificate or certificates have been lost or stolen or destroyed.  At its own discretion and as prior condition for the issuance of any new certificate or certificates, the Board may require that the owner of thee lost, stolen or destroyed certificate(s), or the legal representative of such individual, provide the Company and its transfer or registered agent(s) a title in such manner and amount as specified by the Board as indemnification for any claim that might arise against the Company and its transfer or registered agent(s) due to the loss, theft or destruction of any certificate or the issuance of a new certificate.  ARTICLE 7 – FISCAL PERIOD – 7.1 The Company’s fiscal period will end on December 31 of each year.  ARTICLE 8 – AMENMENT -  The expert continues to talk and says that the authentication from the state of Colorado in English says the following in Spanish: TWO) STATE OF COLORADO, DEPARTMENT OF STATE, CERTIFICATE, UNITED STATES OF AMERICA, STATE OF COLORADO, SS.  I, GINETTE DENNIS, Secretary of State for the State of Colorado, hereby certify that DIANNE HAWK-BROWN, whose name is subscribed on the certificate of acknowledgement of the attached instrument was, at the time of such acknowledgment, a NOTARY PUBLIC duly commissioned, sworn and authorized by the laws of the State of Colorado.  And I now further certify that the signature and official seal attached of the NOTARY PUBLIC mentioned above, to the best of my knowledge, is genuine.  The signature of the notary was compared to the signature on file at my office.  In witness whereof I affix the great seal of the State of Colorado, in the city of Denver, on the 8th day of the month of March, A.D. 2006 (f) Ginette Dennos.  Secretary of State.  Following is a certification of the Secretary of INFINITY ENERGY RESOURCES, INC., which reads as follows in Spanish:  THREE) CERTIFICATE FROM THE SECRETARY OF INFINITY ENERGY RESOURCES, INC.  I, Timothy A. Ficker, duly elected, qualified and acting in the quality of Secretary in accordance with the By-Laws of Infinity energy Resources, Inc., a company organized and existing under the laws of the State of Delaware, U.S.A. (“Company”), hereby certify that the Company’s Articles of Incorporation and the By-Laws and said Articles of Incorporation and By-Laws have not been modified, changed or revoked.  In my presence, I sign, as Secretary of Infinity energy resources, Inc., on the 6th day of the month of March, 2006. (F) Timothy A. Ficker.  Secretary of Infinity energy Resources, Inc. Before me, on the 6th day of March, 2006, appears Timothy A. Ficker, in the quality of Secretary of Infinity Energy Resources, Inc. who signed the certificate and witnesses my signature and seal of office.  (F) Legible.  Notary Public in and for the State of Colorado.  My commission expires: eleven/zero, five/zero, seven (11/05/07) Seal.  For greater integrity of the document, the Consulate General of the Republic of Nicaragua in Houston and the Ministry of Foreign Affairs of Nicaragua authenticate the document which is in Spanish and says the following: FOUR) The Consulate General of the Republic of Nicaragua in Houston, hereby CERTIFIES  the preceding signature that says: GINETTE DENNIS, is authentic and corresponds to that of the name: Ginnette Dennis.  Position: Secretary of the State of Colorado.  Date: March 28, 2006.  “THIS CONSULATE DOES NOT ASSUME RESPONSIBILITY WITH RESPECT TO THE CONTENT OF THE DOCUMENT. “Finally, the authentication from the Ministry of Foreign Affairs of Nicaragua, which says the following: FIVE) Ministry of Foreign Affairs of Nicaragua, Consular Division.  Managua, Nicaragua.  The undersigned, General Consular Director hereby “certifies” that the preceding signature that says: MARIAMERCEDESBECK is authentic and is verified against that used on this date (ba).  MARIA MERCEDES BECK, CONSUL FOR THE REPUBLIC OF NICARAGUA IN HOUSTON, TEXAS, UNITED STATES OF NORTH AMERICA.  The Institution and the Employee (a) do not assume responsibility with respect to the content of the document.  Managua, Wednesday, April 05, 2006, 11;15:45 a.m. (F) Legible.  Lic. Maria Josefina Rojas Romero.  Director of consular Services.  Seal: Ministry of Foreign relations, Managua, Nicaragua.”  So expressed the appearing parties, well instructed by me, Notary Public, concerning the object, value and legal effect of this document, the general clauses that ensure its validity, the special clauses it contains and those that address waivers and implicit and explicit stipulations.  This Deed was read by me, Notary Public, to the appearing parties, who agree, approve, ratify and sign it along with me, who swears to all. (F) Angelica Arguello D. (f) Roberto Octavio Arguello V. (f) Boanerge Ojeada B.  - THE FRONT PAGE NUMBER FORTY SEVEN IS PASSED ON TO PAGE FIFTY SEVEN OF MY PROTOCOL BOOK NUMBER THIRTEEN OF THE CURRENT YEAR, AT THE REQUEST OF MIS ANGELICA ARGUELLO DAMHA, THE FIRST AUTHENTICATED COPY OF SEVEN PAGES THAT I SIGN, SEAL AND INITIAL IN THE CITY OF MANAGUA, AT THREE THIRTY IN THE AFTERNOON OF APRIL TEN OF THE YEAR TWO THOUSAND SIX”   Signature and Notary seal of BOANERGE ANTONIO QUEDA BACA, II. WITNESS PUBLIC DEED NUMBER TWO HUNDRED THIRTY SIX (236).  TRANSLATION OF THE DOCUMENT.  In the city of Managua, Republic of Nicaragua, at eight o’clock in the morning of December ten of the year two thousand eight, before me, WILLIAM MIGUEL ESPINOZA NARVAEZ, attorney and Notary Public for the Republic of Nicaragua, with domicile and residence in this city, duly authorized to act before the Supreme Court  during the five year period that expires on September nineteen two thousand nine, appear Mr. Favio Josué Batres Pérez, of age, single, attorney, with domicile and residence in this city of Managua, identified through identification card number zero zero one dash one six zero six eight zero dash zero three L (001-160680-0073L) and Ms. Ana Cecilia Chamorro Callejas, of age, single, student, with domicile and residence in this city of Managua, identified through identification card number eight eight eight dash one three zero one eight six dash zero zero zero one M (888-130186-001M).  I swear to personally know the appearing parties and that in my judgment they have the necessary legal civil capacity to bind and to contract, and especially to execute this instrument, in their own name and representation.  The first appearing party, Favio Josué Batres Pérez speaks and says: FIRST:   that he is in possession of a Certificate issued by the Secretary of the Board of Directors of Infinity Energy Resources, Inc, an American company constituted in accordance with the laws of the state of Delaware of the United States of America, which contains, as an Annex,  a Resolution of the Board of Directors associated with the negotiation and execution of some Nicaraguan Concession Agreements, as well as a Special power of Attorney on behalf of Mr. Roberto Arguello and Mr. Stanton Ross.  Such Certificate, as well as the Notarial Certificate and two authentic copies of the same are in English; therefore, through this Instrument it is requested that a Notarial translation be provided of the documents that are in English into Spanish through an interpreter, so that such Certificate and its annexes, that is, the Resolution of the Board of Directors and the Special Power of Attorney already mention may be valid in the republic of Nicaragua.  In accordance with article five of law number one hundred thirty nine, “LAW THAT GIVES GREATER POWER TO THE INSTITUTION OF NOTARY PUBLIC” and article one thousand one hundred thirty two of the Code of Civil Procedure of the Republic of Nicaragua, the undersigned notary proceeds with the mentioned translation through an interpreter.  To this end, based on the mentioned law, the undersigned notary, with more than ten years in office as described in the previous instrument and each one having acknowledged that he executed the same by the authority conferred unto him, hereby signs and places his official seal on it. Signature (illegible).  My commission expires on August twenty nine of the year two thousand nine. (seal) CHRISTA R. MORROW, Notary Public in and for the State of Kansas.  My commission expires on August twenty nine of the year two thousand nine. (iii) Certificate from the Secretary of State of the State of Kansas: “STATE OF KANSAS.  Office of the Secretary of State.  Ron Thornburgh (seal: Great Seal of the State of Kansas, January twenty nine 1861.  To all who see this document, Greetings: I, Ron Thornburgh, Secretary of State for the State of Kansas, hereby certify that the files in my office show that on August twenty nine of the year two thousand five CHRISTA R. MORROW was a Notary Public in and for the State of Kansas, with her commission expiring on August 29, 2009 and that, as Notary Public, all the official acts are fully valid.  I further certify that said Notary Public is authorized by the laws of the State of Kansas to give oaths, acknowledgments and perform any other official duty.  In witness whereof, I hereby sign and authorize my seal of office to be affixed hereto. In the city of Topeka, on November twelve of the year two thousand eight. (Seal: SECRETARY OF STATE FOR THE STATE OF KANSAS).  Signature (illegible).  RON THORNBURGH, Secretary of State.” (iv) Certificate from the Office of the Governor of the State of Kansas: STATE OF KANSAS (seal) Office of the Governor.  I, KATHLEEN SEBELIUS, Governor of the State of Kansas, hereby  certify that RON THORNBURGH is the Secretary of State for the State of Kansas, duly elected and qualified; that the signature on the certificate is his authentic signature and that said certificate and witness are in agreement and official.  IN WITHNESS WHEREOF, I have subscribed my name and authorized that the Great Seal of the State be affixed: on November twelve of the year two thousand eight (signature: illegible) Governor (v) Annex A  Resolution of the Board of Directors: “ACTION BY UNANIMOUS WRITTEN CONSENT OF THE BOARD OF DIRECTORS OF INFINITY ENERGY RESOURCES, INC.  On November six, 2008, in accordance with Section one hundred forty one of the General Law of Companies of Delaware and its amendments, the undersigned, all members of the Board of Directors (“Board) of Infinity Energy Resources, Inc., a  Delaware company, sign this instrument to show their consent to execute the actions   described in this document and the adoption of the following preambles and resolutions without holding a meeting: Negotiation and Execution of the Nicaraguan Concession Contracts   Considering that the Concession Contracts (as defined below) have been approved by the North Atlantic Autonomous Region and the South Atlantic Region; Considering that the Board of Directors of the Company has determined that it feasible and in the best interest of the Company to delegate the authority to Messrs Ross and Arguello Villavicencio to approve, negotiate and execute the Concession Contracts as deemed convenient; THEREFORE, it is resolved that Stanton Edward Ross, of age, married, businessman, domiciled in Chanute, Kansas, identified through the United States Passport number Z eight four, one, one, five, two, four (Z8411524) as President of the Board of Directors and Executive Officer of the Company, be and hereby is authorized to approve the form, terms and provisions, and negotiate and subscribe the PETROLEUM CONCESSION CONTRACT BETWEEN THE STATE OF NICARAGUA AND INFINITY for (i) the area of Perlas, granted to the company in accordance with Resolution thirty nine dash zero two dash two thousand six (39-02-2006) (the “Perlas Contract”) and (ii) the area of Tyra, granted to the Company in accordance with Resolution thirty eight dash zero two two thousand six (38-02-2006) (the “Tyra contract”) together with the Perlas Contract, the “Concession Contracts”); both Resolutions were issued by the INSTITUTO NICARAGUENSE DE ENERGIA (MEM) and both contracts were approved by the North Atlantic Autonomous Regional Council and the South Atlantic Autonomous Regional Council and any other act nece4ssary to carry out the negotiation and subscription of the Concession Contract; Furthermore, it is RESOLVED that if Mr. Ross is unable to negotiate and execute the Concession Contracts, alternatively, Roberto Octavio Arguello Villavicencio, of age, single, attorney, identified through the identification card number zero, zero, one, dash, zero, seven, zero, eight, seven, eight, dash, zero, zero, six, zero B (001-070878-0060B) domiciled in this city of Managua, Republic of Nicaragua, is hereby authorized to (a) approve the form, terms and provision, and to negotiate and subscribe the Concession Contracts on behalf of the Company and (b) to execute any other act that is necessary to carry out the negotiation and execution of the mentioned Concession Contracts.  IT IS FURTHER RESOLVED, that a Special Power-of-Attorney is granted on behalf of Messrs. Ross and Arguello Villavicencio in the form of Annex A – General Authorization .  RESOLVE that  any and all acts of the officers previously performed or decided with respect to the preceding resolutions are hereby adopted, ratified and affirmed as   acts authorized and approved by the Company, and FINALLY:  RESOLVE that the officers and directors are and each one hereby is authorized and guided by and on behalf of the Company to execute all documents and carry out all actions they deem necessary, appropriate or recommended to perform the objectives of each of the preceding resolutions.  The actions taken by this agreement will have the same strength and effect as if they had been taken by the undersigned in a Board of Directors meeting, duly called and constituted in accordance with the By-laws and the Articles of Association of the Company.  This agreement can be executed in duplicate copies through signature by facsimile and a signature through facsimile will be deemed an original signature.  IN WITNESS WHEREOF the undersigned have executed this Unanimous Agreement as of November six (6) 2008.  (F) illegible: Stanton E. Ross (F ) illegible: Daniel F. Hutchins, Leroy C. Richie, Robert O. Lorenz.  IN WITNESS WHEREOF, the undersigned have executed this Unanimous Agreement as of November six (6) 2008.  Stanton E. Ross, Daniel F. Hutchins, Leroy C. Richie.  (F) illegible; Robert O. Lorenz. Annex A – SPECIAL POWER.   Be it known to all that through this instrument, the undersigned constitute and grant special powers to Stanton Edward Ross and Roberto Octavio Arguello Villavicencio, to (i) approve the form, terms and provisions, as well as to negotiate and to sign the PETROLEUM CONCESSION CONTRACT BETWEEN THE STATE OF NICARAGUA AND INFINITY ENERGY RESOURCES, INC. for (i) the area of Perlas, granted to the Company in accordance with Resolution thirty nine dash zero two das two thousand six (39-02-2006) (“Perlas Contract”) and (ii) the Tyra area, granted to the company in accordance with resolution thirty eight dash zero two two thousand six (38-02-2006) (“Tyra Contract, together with the Perlas Contract, the “Concession Contracts), both Resolutions issued by the INSTITUTO NICARAGUENSE DE ENERGIA (MEM) and both contracts were approved by the North Atlantic Autonomous Regional Council and the South Atlantic Autonomous Regional Council, and (ii) to take any other action  with respect to the above that in the opinion of the attorney-in-fact would be beneficial or in the best interest or legally required by the undersigned, it being understood that the documents signed by the attorney-in-fact  on behalf of the undersigned in accordance with this Special power-of-Attorney will be acts and will contain such terms and conditions that the attorney-in-fact approves at his discretion.  The undersigned hereby grant to each attorney-in-fact the power and authority to act upon and perform any and each act and thing necessary or appropriate in the exercise of any of the rights and powers granted herein, regardless of the requirement, with the power of substitution or revocation, as if the undersigned were personally present,  hereby ratifying and confirming all that said attorney-in-fact or his substitute individual or individuals legally execute by virtue of this special power and the rights and powers granted herein.  This Special power will remain in effect until the Concession Contracts have ended from all aspects, unless it is early revoked by the undersigned through a document signed and delivered to the attorneys-in-fact.  IN WITNESS WHEREOF the undersigned have executed this Unanimous Agreement as of November _____, 2008.  Stanton E. Ross, Daniel F. Hutchins, Leroy C. Richie, Robert O. Lorenz.”  (vi) Annex B. – SPECIAL POWER . Be it known to all that through this instrument, the undersigned constitute and grant special powers to Stanton Edward Ross and Roberto Octavio Arguello Villavicencio, to (i) approve the form, terms and provisions, as well as to negotiate and to sign the PETROLEUM CONCESSION CONTRACT BETWEEN THE STATE OF NICARAGUA AND INFINITY ENERGY RESOURCES, INC. for (i) the area of Perlas, granted to the Company in accordance with Resolution thirty nine dash zero two das two thousand six (39-02-2006) (“Perlas Contract”) and (ii) the Tyra area, granted to the company in accordance with resolution thirty eight dash zero two two thousand six (38-02-2006) (“Tyra Contract, together with the Perlas Contract, the “Concession Contracts”),  both Resolutions issued by the INSTITUTO NICARAGUENSE DE ENERGIA (MEM) and both contracts were approved by the North Atlantic Autonomous Regional Council and the South Atlantic Autonomous Regional Council, and (ii) to take any other action  with respect to the above that in the opinion of the attorney-in-fact would be beneficial or in the best interest or legally required by the undersigned, it being understood that the documents signed by the attorney-in-fact  on behalf of the undersigned in accordance with this Special power-of-Attorney will be acts and will contain such terms and conditions that the attorney-in-fact approves at his discretion.  The undersigned hereby grant to each attorney-in-fact the power and authority to act upon and perform any and each act and thing necessary or appropriate in the exercise of any of the rights and powers granted herein, regardless of the requirement, with the power of substitution or revocation, as if the undersigned were personally present,  hereby ratifying and confirming all that said attorney-in-fact or his substitute individual or individuals legally execute by virtue of this special power and the rights and powers granted herein.  This Special power will remain in effect until the Concession Contracts have ended from all aspects, unless it is early revoked by the undersigned through a document signed and delivered to the attorneys-in-fact.  IN WITNESS WHEREOF the undersigned have executed this Unanimous Agreement as of November six (6), 2008.  (F) Stanton E. Ross (F) Illigible.  Daniel F. Hutchins, Leroy C. Richie, Robert O. Lorenz.  IN WITNESS WHEREOF the undersigned executed this Unanimous Consent as of November six (6), 2008.  Stanton E. Ross, Daniel F. Hutchins.  (F) Illegible.  Leroy C. Richie, Robert O. Lorenz.  IN WITNESS WHEREOF the undersigned have executed this Unanimous Consent as of November six (6), 2008.  Stanton E. Ross.  Daniel F. Hutchins.  Leroy C. Richie (F) Illegible.  Robert O. Lorenz.”   The interpreter declares that the preceding translations are correct and true and that he has translated them to the best of his knowledge and understanding.  THIRD:   INSERTIONS:  The appearing party, Favio Josué Batres Pérez declares that the Certificate issued by the Secretary of the Company: ENERGY RESOURCES, INC., SECRETARY”S CERTIFICATE.  Reference is hereby made to certain resolutions (the “Resolutions”) of the Board of Directors of Infinity Energy resources, Inc., a Delaware corporation (the “Company”).  Capitalized terms used and not deemed herein shall have the meanings ascribed to them in the Resolutions.  The undersigned hereby certifies that he is the Secretary of the Company and that, as such, he is authorized to execute this Certificate on behalf of the Company and further certifies that the date hereof: 1. Attached hereto as Exhibit A is a true, correct and complete copy of the power of attorney executed by the Board of Directors of the Company on November 6, 2008, granting certain powers to Messrs. Ross and Arguello Villavicencio in connection with the negotiation and execution of the Nicaraguan concession contracts.  Such power of attorney has not been amended, modified or rescinded, and are in full force and effect in the form adopted {Signature Page Follows].- IN WITNESS WHEREOF, I have signed this certificate as of the 6th day of November 2008 (F) Illegible.  Name: Daniel F. Hutchins Title Secretary.  I, Stanton E. Ross, Chief Executive Officer of the Company, do hereby certify that Daniel F. Hutchins is on the date hereof the duly elected or appointed, qualified and Secretary of the Company and that the signature set forth above is the genuine signature of such officer. (F) Illegible.  Name: Stanton E. Ross.  Title: Chief Executive Officer” (ii) Annex A.   Resolution of the Board of Directors.  EXHIBIT A.  ACTION BY UNANIMOUS WRITTEN CONSENT OF THE BOARD OF DIRECTORS OF INFINITY ENERGY RESOURCES, INC.  November 6, 2008.  In accordance with Section 141 of the Delaware General Corporation law, as amended, the undersigned, being all of the numbers of the Board of Directors (the “Board”) of Infinity Energy Resources, Inc., a Delaware corporation (the “Company”) hereby execute this instrument to evidence their consent to the taking of the actions set forth herein, and the adoption of the following preambles and resolutions without the holding of a meeting.  Negotiation and Execution of the Nicaraguan Concession Contracts. WHEREAS the Concession Contracts (as defined below) have been approved by the Autonomous region of the Northern Atlantic and the Autonomous region of the Southern Atlantic; and WHEREAS the Board of Directors of the Company has determined that it is advisable and in the best interests of the Company to delegate the authority to Messrs. Ross and Arguello Villavicencio to approve. Negotiate and execute the Concession Contracts as they deem advisable.  NOW THEREFORE, BE IT RESOLVED that Stanton Edward Ross, of legal age and a married businessman from Chanute, Kansas, with a United States passport (number Z8411524), in his role as Chairman Board of Directors and Chief Executive Officer of the Company be, and hereby is, authorized to (a) approve the form, terms and provisions, and negotiate and execute the Pertroleum Concession Contract between the State of Nicaragua and Infinity Energy resources, Inc. for (i) the Perlas Area, awarded to the Company according to Resolution 39-02-2006 (the “Perlas Contract”) and (ii) the Tyra Area, awarded to the Company, according to Resolution 38-02-2006 (the “Tyra Contract”, together with the Perlas Contract, the “Concession Contracts”) both Resolutions having been issued by the INSTITUTO NICARAGUENSE DE ENERGIA (“MEM”) and subsequently both contracts having been approved by the North Atlantic Autonomous Regional Council and the South Atlantic Autonomous Regional Council and (b) to perform any other act that he deems necessary to accomplish the negotiation and execution of the aforementioned Concession Contracts; FURTHER RESOLVED, that if Mr. Ross is unable to negotiate and execute the Concession Contracts, alternatively Roberto Octavio Arguello Villavicencio, of legal age, single and licensed attorney, identification No. 001-070878-0060B, domiciled in the city of Managua, Republic of Nicaragua, shall be authorized to: (a) approve the form, terms and provisions, and negotiate and execute, on behalf of the Company Concession Contracts; and (b) to perform any other act that he deems necessary to accomplish the negotiation and execution of the aforementioned Concession Contracts.  FURTHER RESOLVED that a Special Power of Attorney be issued to Mr. Ross and Mr. Arguello Villavicencio in the from attached as Exhibit A – General Authorization  RESOLVED that any and all acts of the officers and directors heretofore  done, made or taken in connection with any foregoing resolution be, and they hereby are, adopted, ratified and affirmed as the authorized and approved acts of the Company, and finally FURTHER RESOLVED that the officers and directors are, and each of them hereby is, authorized and directed for and on behalf of the Company, to execute all documents and take such further actions as they deem necessary, appropriate or advisable to effect the   purposes of each of the foregoing resolutions.  The actions taken by this consent shall have the same force and effect as if   taken by the undersigned at a regular meeting of the Board of Directors of the Company, duly called and constituted pursuant to the Bylaws of the Company and the Act. This consent may be executed in counterparts by facsimile signature and a facsimile signature will constitute an original signature. [Signature page follows].  IN WITNESS WHEREOF, the und4ersigned have executed this Unanimous Consent as of this 6th day of November 2008 (F) Illegible.  Stanton E. Ross (F) Illegible. Daniel F. Hutchins, Leroy C. Richie, Robert O. Lorenz.  IN WITNESS WHEREOF, the undersigned have executed this Unanimous Consent as of this 6th day of November 2008.  Stanton E. Ross, Daniel F. Hutchins, Leroy C. Richie.  (F) Illegible.  Robert O. Lorenz.  Exhibit A POWER OF ATTORNEY.  Know all by these presents, that the undersigned hereby constitute and appoint Stanton Edward Ross and Roberto Octavio Arguello Villavicencio, the undersigned’s true and lawful attorneys-in-fact to (1) approve the form, terms and provisions, and negotiate and execute the PETROLEUM CONCESSION CONTRACT BETWEEN THE STATE OF NICARAGUA AND INFINITY ENERGY RESOURCES, INC. for (i) the Perlas Area, awarded to the Company according to Resolution 39-02-2006 (the “Perlas Contract”) and (ii) the Tyra Area, awarded to the Company according to Resolution 38-02-2006 (the “Tyra Contract”, together with the Perlas Contract, the “Concession Contracts”), both Resolutions having been issued by the INSTITUTO NICARAGUENSE DE ENERGIA (“MEM”) and subsequently both contracts having been approved by the North Atlantic  Autonomous Regional Council and the South Atlantic Autonomous Regional Council and (2) take any other action of any type whatsoever in connection with the foregoing which, in the opinion of such attorney-in-fact may be of benefit to, in the best interest of, or legally required by the undersigned, it being understood that documents executed by such attorney-in-fact on behalf of the undersigned pursuant to this Power of Attorney shall be in such form and shall contain such terms and conditions as such attorney-in-fact may approve in such attorney-in-fact’s discretion.  The undersigned hereby grants to each such attorney-in-fact full power and authority to do and perform any and every act and thing whatsoever requisite necessary or proper to be done in the exercise of any of the rights and powers herein granted, as fully to all intents and purposes as the undersigned might or could do if personally present, with full power of substitution or revocation, hereby ratifying and confirming all that such attorney-in-fact, or such attorney-in-fact’s substitute of substitutes shall lawfully do or cause to be done by virtue of this power-of-attorney and the rights and powers herein granted.  This Power-of-Attorney shall remain in full force and effect until the Concession Contracts have been finalized in all respects, unless earlier revoked by the undersigned in a signed writing delivered to the foregoing attorneys-in-fact.  IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be executed as of this ___ day of November, 2008.  Stanton E. Ross, Daniel F. Hutchins, Leroy C. Richie, Robert O. Lorenz”.  (iii) Annex B – Special Power – « EXHIBIT B POWER OF ATTORNEY – Know all by these presents that the undersigned hereby constitute and appoint Stanton Edward Ross and Roberto Octavio Arguello Villavicencio, the undersigned’s true and lawful attorneys-in-fact to: (1) approve the form, terms and provisions , and negotiate and execute the PETROLEUM CONCESSION CONTRACT BETEEN THE STATE OF NICARAGUA AND INFINITY ENERGY RESOURCES, INC. for (i) the Perlas Area, awarded to the Company according to resolution 39-02-2006 (the “Perlas Contract”) and (ii) the Tyra Area, awarded to the Company according to Resolution 38-02-2006 (the “Tyra Contract” together with the Perlas Contract, the “Concession Contracts), both resolutions having been issued by the INSTITUTO NICARAGUENSE DE ENERGIA (“MEM”), and subsequently both contracts having been approved by the North Atlantic Autonomous Regional Council and the South Atlantic Autonomous Regional Council, and 92) take any other action of any type whatsoever in  connection with the foregoing which, in the opinion of such attorney-in-fact ay be benefit to, in the best interest of, or legally required by the undersigned, it being understood that the documents executed by the attorney-in-fact on behalf of the undersigned pursuant to this Power of Attorney shall be in such form and shall contain such terms and conditions as such attorney-in-fact may approve at such attorney-in-fact’s discretion.  The undersigned hereby grants to each such attorney-in-fact full power and authority to do and perform any and every act and thing whatsoever, requisite, necessary, or proper to be done in the exercise of any of the rights and powers herein granted as fully to all intents and purposes as the undersigned might or could do if personally present, with full power of substitution or revocation, hereby ratifying and confirming all that such attorney-in-fact, or such attorney-in-fact’s substitute or substitutes, shall lawfully do or cause to be done by virtue of this power of attorney and the rights and powers herein granted.  This power of Attorney shall remain in full force and effect until the Concession Contracts have been finalized in all respects, unless earlier revoked by the undersigned in a signed writing delivered to the foregoing attorneys-in-fact.  IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be executed as of this 6th day of November, 2008. (F) Illegible.  Stanton E. Ross (F) Illegible.  Daniel F. Hutchins, Leroy C. Richie, Robert O. Lorenz.  IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be executed as of this 6th day of November, 2008.  Stanton E. Ross, Daniel F. Hutchins, (F) Illegible.  Leroy C. Richie, Robert O. Lorenz.  IN WITNESS WHEREOF, the undersigned has caused this Power of Attorney to be executed as of this 6th day of November, 2008.  Stanton E. Ross, Daniel F. Hutchins, Leroy C. Richie.  (F) Illegible.  Robert O. Lorenz.”  (iv) Notary Certification. “STATE OF KANSAS)) ss COUNTY OF Johnson) On November 6, 2008, before me, Christa Morrow, a Notary Public in and for the State of Kansas, personally appeared before me Mr. DANIEL F. HUTCHINS, Secretary of Infinity Energy Resources, Inc. a Delaware corporation, and Mr. STANTON E. ROSS, Chief Executive Officer of Infinity Energy Resources, Inc., a Delaware corporation, each personally known to me to be the person whose name is affixed to the foregoing instrument, with each having acknowledged that he executed the same in his authorized capacity.  WITNESS my hand and official seal.  Signature.  Christa R. Morrow.  My commission expires 8/29/09.  SEAL CHRISTA R. MORROW.  Notary Public – State of Kansas.  Appt. Expires 8/29/09”.  (v) Certification from the Office of the Secretary of State of Kansas: “STATE OF KANSAS – Office of Secretary of State RON THORNBURGH  To all to whom these presents shall come, Greetings: I, RON THORNBURGH, Secretary of State of the State of Kansas, do hereby certify the records of my office show that on the 29th day of August, 2005, CHRISTA R. MORROW was appointed a Notary Public in the State of Kansas, with an expiration date of August 29, 2009, and that as such Notary Public all official acts are entitled to full faith and credit.  I further certify that said Notary Public is empowered by the laws of the state of Kansas to administer oaths, take acknowledgments and perform other official duties.  IN TESTIMONY WHEREOF: I hereto set my hand and cause to be affixed my official seal.  Done at the City of Topeka, this 12th day of November, 2008, (F) Illegible.  RON THORNBURGH, SECRETARY OF STATE.”  (vi) Certification from the Office of the Governor of the State of Kansas: “State of Kansas.  Office of the Governor.  I, KATHLEEN SEBELIUS, Governor of the State of Kansas, do hereby certify that RON THORNBURGH is the duly elected and qualified Secretary of State of Kansas; that the signature attached to the certificate within is his genuine; and that said certificate and attestation are in due form and by proper officer.  IN TESTIMONY WHEEOF, I have hereunto subscribed my name and caused to be affixed the Great Seal of the state of Kansas this 12th day of November, 2007.  (F) Kathleen Sebelius, Governor.” (vii) Authentication from the Consulate General of Nicaragua in Washington D.C.: “Consulate General of Nicaragua 1627 New Hampshire Ave., NW Washington, D.C. 20009, No. 2546-2008 The Consulate General of the Republic of Nicaragua, in this City of Washington, District of Columbia, United States of America, hereby certifies that the signature of Ron Thornburg, Secretary of State of the State of Kansas, United States of America, which appears in this document, is authentic.  Issued in the City of Washington, D.C. on November 17 of the year 2008.  (F) Alcides Montiel.  Alcides Montiel, Advising Minister with Consular functions.  THE CONSULATE GENERAL OF NICARAGUA DOES NOT ASSUME ANY RESPONSIBILITY WITH RESPECT TO THE CONTENT OF THE AUTHENTICATED DOCUMENT.”  (viii) Authentication by the Ministry of Foreign Affairs of Nicaragua “No. 2008082758.  Ministry of Foreign Affairs, Consulate General.  Managua, Nicaragua.  The undersigned, Martha de los Angeles Rodriguez Duarte, Director of Consular Services, hereby “Certifies” that the preceding signatures that says ALCIDES MONTIEL “Is authentic and matches” the one used on the date (ba), ALCIDES MONTIEL, ADVISING MINISTER WITH CONSULAR FUNCTIONS IN WASHINGTON D.C. – UNITED STATES.  The Institution and Employee (a) do not assume responsibility with respect to the content of the document.  Managua, Thursday, November 20, 2008, 02:49 p.m. (F) Illegible Martha de los Angeles Rodriguez Duarte. Consular Services Director (Seal).”  So expressed those present as instructed by me, the Notary, concerning the matter, value and legality of this act, of the general clauses that ensure its validity, specific ones contained therein and those involving waivers and implicit and explicit provisions.  This deed, having been read by me in full to those present, was found to be in agreement, and they approve, ratify and sign it along with me, who swears to all associated with it.    (f) Favio Batres (f) Illegible.  Drawn before me on the back of the page number four seven one, and the back of page number four seven seven (477) in my Protocol number fifteen of the current year and book, this first witness on behalf of FAVIO JOSÉ BATRES PEREZ, in his own name and representation, in seven (seven) pages that I sign, initial and seal in the city of Managua, at eight hours and thirty minutes of the morning of December ten of the year two thousand eight.    Signature and Seal of the Notary WILLIAM MIGUEL ESPINOZA NARVAEZ – III. – “PUBLIC DEED NUMBER TWENTY FIVE (25) OPENING OF BRANCH -  In the city of Managua, Republic of Nicaragua, at eight o’clock in the morning of April twenty four of the year two thousand six, before me, ANA TERESA RIZO BRISEÑO, Attorney and Notary Public for the Republic of Nicaragua, with domicile and residence in the city of Managua, Republic, duly authorized to act  before the Supreme Court during the five year period ending September first of the year two thousand seven, appears before me Miss ANGÉLICA ARGUELLO DAMHA, of age, single, attorney, domiciled in Managua, republic of Nicaragua, identified through identification card number zero, zero, one, dash, two, zero, three, eight, one, dash, zero, zero, five, three, letter “N” (-001-270381-0053N).  I swear to personally know that appearing party and that she has, in my judgment, the legal capacity necessary to bind and contract, especially to sign this instrument whereby she acts in the name and representation of INFINITY ENERGY RESOURCES INC., a company organized and existing in accordance with the laws of the state of Delaware of the United states of America.  Miss Arguello demonstrates her representation through witness of public deed number thirty two 932), translation of the minutes of the Board of Directors meeting, which is literally transcribed later.  The appearing party, in the capacity described above, speaks and says: (FIRST): That for the purpose of establishing and requesting the Public Registration of Real Estate and Commercial Property from the Department of Managua for a branch of INFINITY ENERGY RESOURCES INC.,  Miss Arguello has the duly legalized documents issued by the Consulate of the Republic of Nicaragua in the city of Houston, State of Texas, United States of America and before the Ministry of Foreign Affairs in Nicaragua, which were duly translated into Spanish and read as follows:  A) PUBLIC WITNESS NUMBER THIRTY TWO (32) TRANSLATION OF THE BOARD OF DIRECTORS MEETING OF INFINITY ENERGY RESOURCES, INC.  which expressly authorizes the opening of the branch through a telephone conference call on March seventeen of the year two thousand six at twelve o’clock and thirty minutes, Rocky Mountain time, which deed includes and literally reads as follows: WITNESS – PUBLIC DEED NUMBER THIRTY TWO (32) PROTOCOL NUMBER THIRTEEN (13) TRANSLATION OF DOCUMENT- In the city of Managua, Republic of Nicaragua, at two thirty in the afternoon of April ten of the year two thousand six.  Before me, BOANERGE ANTONIO OJEDA BACA, Attorney and Notary Public for the Republic of Nicaragua, with domicile and residence in the city of Managua, duly authorized to act before the Supreme Court during the five year period that expires on the day of the year two thousand eight, appear Angélica Arguello Damha, of age, single, attorney and domiciled in Managua, bearer of the identification card number zero, zero, one, dash, seven, two, zero, three, eight, one, dash, zero, zero, five, three, letter “N” (001-270391-0053N) and Roberto Octavio Arguello Villavicencio, of age, single, attorney and domiciled in Managua, bearer of the identification card number zero, zero, one, dash, zero, seven, zero, eight, seven, eight, dash, zero, zero, six, zero, letter “B” (001-070878-0060B) the latter acting in the quality of interpreter.  I swear to personally know the appearing parties who, in my judgment, have the civil legal capacity necessary to bind and contract and in particular to execute this instrument; the appearing parties express themselves in their own name and representation.  FIRST: the first appearing party has the MINUTES OF THE BOARD OF DIRECTORS MEETING of INFINITY ENERGY RESOURCES INC. and that the minutes is in English and two of its originals are in English, the reason why it is hereby it is hereby requested that a notary translation be provided through an interpreter of said minutes and authenticated copies in order for this document to be valid in the Republic of Nicaragua.  In accordance with Law number one hundred thirty, the Law that gives greater power to the Institution of Notary, and article one thousand one hundred thirty two of the Code of Civil Procedure, the undersigned Notary proceeds with the translation of the portions of the document that are in English through an interpreter.   To this end, based on the mentioned law, the undersigned Notary, with more than ten years with the Supreme Court, hereby nominates and designates Roberto Arguello Villaviciencio as interpreter to verify the translation from English into Spanish as requested to him, who possesses ample knowledge of both the English and Spanish languages.  SECOND TRANSLATION.   Having understood it, he accepts the nomination, being warned of the penalties of false testimony, promising to speak the truth, and hereby declares: that to the best of his knowledge and understanding, the minutes in English say the following in Spanish: ONE) “INFINITY ENERGY RESOURCES, INC. MINUTES OF THE BOARD MEETING OF MARCH 17, 2006.  A special meeting of the Board of Directors (“Board”) of Infinity Energy resources Inc., a company constituted in the State of Delaware (the “Company”) was held through a conference call on March 17, 2006, which began as 12:30 hours, Rocky Mountain Time (MST).  The following directors participated in said meeting: Stanton E. Ross, Elliot Kaplan, Leroy Richie and James Tuell.  The following also participated in part of all of the meeting: Timothy Ficker, Vice President, Chief Financial Officer and Secretary, Deborah Friedman, from the Law Firm of Davis Graham & Stubbs LLP, Counsel for the Firm, and Andrew Melsheimer, of Thompson & Knight LLP, Counsel for the Firm with respect to the Nicaragua Project.  At the request of Mr. Ross, Mr. Tuell acted as Chairman of the meeting; Mr. Tuell confirmed the presence of a quorum and started the meeting.  Following Mr. Tuell, Mrs. Freidman acted as Secretary of the Meeting.  Nicaragua Mr. Ross made reference to the information provided in the Board Meeting held on March 1 with respect to the recent progress made in obtaining the concessions in Nicaragua and described the request for formal approval by the Board in said meeting to authorize the Execution of the documents related to the Concession contracts, the establishment of a Company Branch and offices in Nicaragua and to grant limited and general powers to the Company’s local Counsel in Nicaragua.  Mrs. Friedman described the powers proposed and the possibility of limitations with respect to certain powers.  The Board discussed in detail certain limitations of the powers to be granted through a General Power-of-Attorney, including the express limitation of powers relative to the sale, transfer or taxation of the Concession contracts. Mr. Melsheimer participated in the meeting and described the requirements of the General Corporate laws of Nicaragua with respect to the establishment of a Company branch and the Hydrocarbons Law, which usually require the designation of a legal representative domiciled in Nicaragua with power to bind the Company.  Mr. Melsheimer described his discussions with legal counsel concerning possible limitations of powers granted in the general and limited powers.  The Board continued discussing about the limitation of powers granted to the Nicaraguan legal counsel according to the general and limited powers and posed questions and received answers from Mr. Melsheimer concerning same.  After said discussion and the motion made and seconded, the board unanimously adopted the following resolutions: RESOLVES that Stanton Edwards Ross, of age, marries, businessman in Chanute, State of Kansas, United States of America passport number Z8411524, as chairman of the Board of Directors of the Company, is hereby authorized to negotiate and sign (a) Negotiate and sign the PETROLEUM CONCESSION CONTRACTBETWEEN THE STATE OF NICARAGUA AND INFINITY ENERGY RESOURCES INC. for (i) the Area of Perlas, awarded to the company pursuant to Resolution 39-02-2006 and (ii) the Area of Tyra, awarded to the company pursuant to Resolution 38-02-2006,; both Resolutions were issued by the INSTITUTO NICARAGUENSE DE ENERGIA (MEM); (b) to grant, on behalf of the company, a limited power (special power of Representation) in accordance with ANNEX A of this Act, Mr. Roberto Octavio Villavicencio, of age, single, attorney and identification No. 001-070878-0060B, domiciled in this city of Managua, Republic of Nicaragua and (c) to perform any other act necessary to negotiate and execute the above mentioned contracts; and RESULVE that (i) the Company, through a branch (“Branch”) established for this purpose, is hereby authorized to operate and carry out  any and all businesses in the Republic of Nicaragua that constitute the purpose of the Company as defined in the Articles of Incorporation of the Company and its amendments; and FURTHER RESOLVE that (i) the Company hereby allocates the amount of one hundred seventy five thousand córdobas (C$175,000.00) as the initial capital of the Branch; (ii) the Branch office will be located in the city of Managua, Nicaragua, and (iii) the opening of additional offices in other cities in the entire territory of the Republic of Nicaragua is hereby authorized; and FURTHER RESOLVE that Ms. Angélica Arguello Damha, of age, single, attorney, identification card No. 001-270381-0053N, domiciled in the City of Managua, Republic of Nicaragua, is hereby authorized  to (i) perform any and all act necessary and to sign all documents necessary to establish the Branch of the Company and to incorporate the Branch in the republic of Nicaragua; (ii) to appear before a Notary Public in Nicaragua to request registration of the documents necessary to legalize the establishment of the Branch; however, Ms. Arguello Damha may not act on behalf of the Company or the Branch to grant any power or to make any decision that is not duly authorized by the Board of the Company in this instrument; FURTHER RESOLVE that this minutes of the meeting of the Board of the Company will be sufficient in order for Ms. Arguello to prove her authority to establish the Branch of the Company; FURTHER RESOLVE that  once the Branch is registered in the Public Trade Registry of Managua, Nicaragua, Angélica Arguello Damha, of age, single, attorney, identification No. 001-270381-0053N, domiciled in the city of Managua, Republic of Nicaragua, is hereby authorized to appear before a Nicaraguan Notary Public to grant, on behalf of the Branch, a General Power, in accordance with the annex to this minutes, Annex B, to Mr. Roberto Octavio Arguello Villavicencio, of age, single, attorney, identification No. 001-070878-0060B, domiciled in this city of Managua, Republic of Nicaragua, granting the attorney-in-fact authority to represent the Branch in all of its activities carried ou in Niaragua, to sell, mortgage, or otherwise transfer or encumber all types of the Branch assets in Nicaragua and to legally manage, sign all types of contracts and perform all other legal activities that the Branch performs in Nicaragua, except: (i) the activities that, pursuant to the law, must be personally performed by the owners of the Company; (ii) the activities for which the law expressly requires special powers granted by the Company; (iii) activities that involve a sum greater than ten thousand seven hundred córdobas (C$10,700.00) which must be expressly approved by the Board of the Company; (iv) the power to sell, mortgage or otherwise transfer or encumber the Petroleum Concession Contract for the Area of Perlas (pursuant to Resolution 39-02-2006) and the Concession Contract for the Area of Tyra (pursuant to resolution 38-02-2006) and (v) the power to delegate to any other person any of the powers granted to him in accordance with these general powers; and FURTHER RESOLVE that no power associated with the business of the Company in Nicaragua that is not expressly authorized in these resolutions may be granted by or in the name of the Company without the express approval of the Board. Adjournment.  Without further business to be discussed before the Board, the meeting was adjourned at approximately 13:25 hours.  Submitted. (F) Illegible.  Deborah Friedman.  Meeting Secretary.”  ANNEX A.  SPECIAL POWER OF REPRESENTATION.   The undersigned, as President of the Board of Directors of Infinity Energy Resources, Inc. (“the Company”), a company organized and existing in accordance with the laws of Delaware and domiciled in Denver, Colorado, with sufficient power granted herein, hereby grants a SPECIAL POWER OF REPRESENTATION to ROBERTO OCTAVIO ARGUELLO VILLAVICENCIO, of age, single, attorney, domiciled in Managua, identified through identification card number zero, zero, one, dash, zero, seven, zero, eight, seven, eight, seven, eight, dash, zero, zero, six, zero, letter B (001-070878-0060B) with power to represent the Company before the Instituto Nicaraguense de Energia (INE), Ministerio del Ambiente y los Recursos Naturales (MARENA) and any other administrative and/or government institution of the republic of Nicaragua in all transactions carried out by the company with such institutions with respect to the Company’s operation associated with the exploration and exploitation of hydrocarbons project in the republic of Nicaragua and in particular with respect to administrative matters with MEM and the acquiring of an environmental permit from MARENA or any other necessary transaction with MEM or MARENA.  This SPECIAL POWER of Representation does not grant power or authority to negotiate terms or to sell, rescind, change, transfer, mortgage, loan, deliver as collateral or charge, dispose of  or encumber in any way the Petroleum Concession Contract between the State of the Republic of Nicaragua and Infinity Energy Resources, Inc. with respect to the area of Perlas in accordance with resolution 39-02-2006 issued by MEM or the Contra Petrolera between the state of the Republic of Nicaragua and Infinity Energy Resources, Inc. for the area of Perlas pursuant to Resolution 39-02-2006 issued by MEM or the Petroleum Concession Contract between the State of the Republic of Nicaragua and Infinity Energy Resources, Inc. for the area of Tyra, pursuant to Resolution 38-02-2006 issued by MEM, which is expressly reserved to the Board of Directors of the Company.   This Special Power of representation does not grant the power or the authority to delegate powers herein granted to another person or to grant powers of any kind to third parties in the name of the Company, which is expressly reserved to the Board of Directors of the Company.  Given and signed in Chanute, Kansas on ____ of March of two thousand six.  Stanton E. Ross, Chairman of the Board of Directors of Infinity Energy Resources, Inc.  Before me, on this ___ day of March of 2006, appeared Stanton E. Ross, known to me to be the President of Infinity Energy Resources Inc., who signed, before me, the preceding certificate and I hereby certify and give under my hand and seal of office. Notary Public, in and for the State of Kansas.  My Commission Expires ____ ANNEX B DEED NUMBER _____() POWER G In the city of ____, at ____ of the ___ of ___ of the year two thousand six, before me, Attorney and Notary Public Republic of Nicaragua, with domicile and residence in this city and duly authorized to act before the Supreme Court  during ____ appears Mr. ____, of age _____ (general provisions).  I swear to personally know the appearing party and that in my judgment he has the legal capacity necessary to bind, and contract and especially with respect to what is granted herein, who acts in the name and representation of INFINITY ENERGY RESOURCES, INC., NICARAGUA BRANCH, recorded in the Minutes of the Board of Directors Meeting of “INFINITY ENERGY RESOURCES INC.” held in the city of ____ at ____ of ____  of the year two thousand six (2006), duly authenticated by the Ministry of Foreign Relations.  I swear to have seen the documents mentioned above that empower the appearing party for execution of this document.  Mr. _____ appears and says: SOLE PARAGRAPH: That through this public instrument, ample and sufficient GENERAL POWERS  are granted to ROBERTO OCTAVIO ARGUELLO VILLAVICENCIO, of age, single, attorney, domiciled in Managua and identified through identification card number zero, zero, one, dash, zero, seven, zero, eight, seven, eight, dash, zero, zero, six, zero, letter B (001-070878-0060B) to represent the branch of INFINITY ENERGY RESOURCES, INC. opened in the Republic of Nicaragua, with respect to said branch’s matters and business to be carried out exclusively in the Republic of Nicaragua, for which the attorney-in-fact will intervene through the power granted unto him through this instrument to sell, mortgage and otherwise transfer and encumber all types of assets; to legally manage, sign all types of contracts and carry out all other legal activities the grantor could himself perform, except those that according to the law must be carried out by the owner in person and those activities for which the law expressly requires very special powers, limited to the sum of seven thousand córdobas (C$17,000), requiring prior approval from the Board of Directors.    This General Power does not grant the authority to negotiate terms or to rescind, sell, change, transmit, mortgage, loan, delivery as guarantee, or burden, transfer or encumber the Petroleum Concession Contract between the State of the Republic of Nicaragua and Infinity Energy Resources, Inc. for the area of Perlas pursuant to Resolution 39-02-2006 issued by the MEM or the Petroleum Concession Contract between the State of the Republic of Nicaragua and Infinity Energy Resources, Inc for the area of Tyra, pursuant to Resolution 38-02-2006 issued by MEM, which is expressly reserved to the Board of Directors of the Company.  This General Power of Representation does not grant the authority to delegate the powers granted herein to another individual nor to grant any type of powers to a third party on behalf of the Company, which is expressly reserved to the Board of Directors of the Company. So expressed the appearing party as instructed by me, the Notary Public, with respect to the object, value and legal criteria of this act, the general clauses that ensure its validity, the special clauses herein and those concerning waivers and implicit and explicit stipulations, as well as its registration with the competent Public Registry.  This deed was fully read by me, Notary Public, in to the appearing party, found to be in agreement, the appearing party approves, ratifies and signs it with me, Notary Public, who swears to all contained herein.  The expert continues to speak and expresses that the authentication from the State of Colorado which is in English saws the following in Spanish: DOS) STATE OF COLORADO, DEPARTMENT OF STATE, CERTIFICATE, UNITED STATES OF AMERICA, STATE OF COLORADO SS.  I, GINETTE DENNIS,  Secretary of State for the State of Colorado, hereinafter certify that DIANNE HAWK-BROWN, whose name is subscribed in the certificate that proves acknowledgment of the attached instrument and that a duly commissioned, sworn and authorized Notary Public by the laws of the State of Colorado was present at that time.  And I hereby certify that the signature and official seal of the above mentioned Notary Public, to the best of my knowledge, is genuine.  The signature of the notary was compared to the signature on file in my office.  In witness whereof, I hereinafter affix the great seal of the State of Colorado, in the city of Denver, on the 22nd day of the month of March A.D. 2006 (f) Ginette Dennos, Secretary of State. The authentication in Spanish reads as follows: THREE) subject to those preferences, rights and privileges expressly granted to the holders of all types of shares that are in circulation at the moment  with previous rights and all series of preferred shares that may be in effect in the future, except as otherwise stipulated by the State of Delaware, the holders of ordinary shares will have exclusively all other rights of the Company’s shareholders, including .but not limited to the right to dividends whenever declared by the Board with respect to the legally available assets and (ii) in case of distribution of assets due to dissolution or liquidation of the Company, the right to receive all of the Company’s assets in a proportionate and equitable manner upon payment of the specific amounts to the holders of preferred shares, if applicable, that have the right to such or is so stipulated herein or is in accordance with this instrument. 4.2  Preferred Shares (a) The total number of preferred shares of $0.,0001 nominal value per share that the Company is authorized to issue is 10,000,000 (b) The Board is expressly authorized at any time and periodically to issue preferred shares in one or more series, with the right to vote, complete or limited or without the right to vote and with those designations, preferences and special rights that are relative, participating, optional or others and requirements, limitations or restrictions to same that indicate or express, in the resolution or resolutions that determine the issuance of such shares as adopted by the Board, subject to the limitations prescribed by law and in accordance with the provisions set forth in this instrument, including but not limited to the following: (1) the designation of the series and number of shares that make up the series; (2) the rate of dividends of the series, the conditions and dates on which such dividends are due, the relation such dividends will have with respect to the payable dividends in any other class or classes of shares and if such dividends will be cumulative or not; (3) if the shares in the series will be subject to repurchase by the company and, if so, the period, prices and other clauses and conditions of such repurchase; (4) the clauses and the amount of any amortization fund for the purchase r repurchase of the shares of the series; (5) if the shares of the series will be converted to or exchanged for shares of another class or classes or another series of any class or classes of shares of the company and, in case of conversion or exchange, the periods, prices, rates, modifications and other clauses and conditions of said conversion or exchange; (6) as the holders of shares of the series will or will not have the right to vote in the election for directors; (7) the restrictions, if applicable, with respect to the issuance or reissuance of any preferred share; (8) the rights of the holders of the shares of the series in case of liquidation or dissolution of the company.  ARTICLE 5 – DIRECTORS. 5.1 Duties, Number and Election of Directors.  The operations of the Company will be carried out by the Board.  The number of directors of the Company must be established periodically as indicated in the by-laws and may be increased or decreased periodically as stipulated in the by-laws,  under the condition that the number of directors is not less than three or more than seven, unless otherwise provided in this Article.  5. the election of the directors does not necessarily have to be by written vote except as provided in the by-laws.  The directors will be divided into three classes designated as Class I, Class II and Class III.  Each class will consist, as much as possible, of a third of the total number of directors that constitute the Board.  The term of the directors for the initial Class I will end in 2006, the terms of the directors for the initial Class II will end in 2007, and the terms of the directors for the initial Class III will end in 2008.  The functions of the initial class will be determined by the Board.  In each ordinary shareholders meeting, the successors of the directors whose term will end on such ordinary meeting will be elected and the successors’ term will run for three years.  If the number of directors changes, any increase or decrease will be distributed among the classes so that the number of directors in each class remains as homogenous as possible, but under no circumstance will a decrease in the number of directors reduce the term of a director in the current term.  Each director will exercise his/her functions up to the ordinary meeting of the year in which his/her term expires and until his/her successor is elected and qualified, subject however, to death, resignation, retirement, incapacity or destitution of such director from his position.  In the event the holders of any class or series of preferred shares have the right, through a separate class vote, to elect directors, in accordance with Article 4, then the provisions of such class or series of shares will apply with respect to his/her rights. The number of directors that the holders of any of such classes or series of preferred shares can elect will be in addition to the number established in the preceding paragraph.  Articl4.  5.2 Removal from office .  Subject to all rights of holders of all series of preferred shares, a director may be removed from office by the shareholders prior to the expiration of his/her term for just cause only.  5.3 Quorum.    .The Quorum for the Board for a business transaction will be of no less than a majority with respect to the total number of directors except as otherwise provided in this instrument or the by-laws with respect to the filling of vacancies.  5.4 Directors positions and recent vacancies.  Except as otherwise provided in accordance with the rights of the holders of any class or series of preferred shares to elect directors under specific circumstances, the position of director recently created that result in an increase in the number of directors an those resulting from death, resignation, incapacity, removal or any other reason, must be filled only with the affirmative vote by the majority of the directors remaining in office or by a single remaining director, although representing less than a quorum for the Board.   Every director elected in accordance with the preceding sentence will exercise his/her functions for the remaining period until the expiration of the term of the new director position created or that of the vacant office and until the successor of such director has been elected and qualified.  ARTICLE 6 - BY-LAWS.  Except as otherwise provided herein, but not limited to the powers granted by the by-laws, the Board is expressly authorized to adopt, revoke, alter, amend and rescind any or all of the Company’s by-laws.  ARTICLE 7 – STATE OF COLORADO, CITY AND COUNTY OF DENVER.  The previous minutes of the board of Infinity Energy Resources Inc. of March 17, 2006 was acknowledged before me on _____ 22, of James A. Tuell.   For the purpose of greater integrity of the document, following is the authentication from the Consulate General of Nicaragua in Houston and the Ministry of Foreign Affairs of Nicaragua, in the ___ language.  FOUR)   The Consulate General of the republic of Nicaragua in Houston, hereby CERTIFIES that the preceding signature that says: GINETTE DENNIS is AUTHENTIC and corresponds to the name Ginnette Dennis, Position: Secretary of State for Colorado.  Date: March 28, 2006.  “THIS CONSULATE DOES NOT ASSUME RESPONSIBILITY WITH RESPECT TO THE CONTENT OF THE DOCUMENT.”  (F) Illegible.  Seal.  “Authentication from the Ministry of Foreign Affairs of Nicaragua inserted for greater integrity of the document, which says: FIVE) “Ministry of Foreign Relations. Consular Office in Managua, Nicaragua.  The undersigned, Consular Director General, hereby “Certifies” that the preceding signature that says MARIA MERCEDES BECK  is “authentic and corresponds” to the one this date used by Maria Mercedes Beck, Consul for the Republic of Nicaragua in Houston, Texas, United States of North America.  The employee (a) does not assume responsibility with respect to the content of the document.  Managua, Wednesday, April 05, 2006, 11:16:27 a.m. (F) Illegible.  Lic. Maria Josefina Rojas Romero., Consular Services Director.  Seal from the Ministry of Foreign Affairs.  Managua, Nicaragua.” So expressed the appearing parties, well instructed by me, Notary Public, concerning the object, value and legal effect of this deed, of the general clauses that ensure its validity, the special ones they contain and those that involve waivers and implicit and explicit stipulations.  This deed was read in full by me, Notary Public, to the appearing parties and having been found in agreement, they approve, ratify and sign it with me, who swears to all  (F) Angélica Arguello D. (f) Roberto Octavio Arguello V (f) Boanerge Ojeda B – PRESENTED TO ME THE FRONT OF THE PAGE NUMBER FORTY SEVEN, THE FRONT OF PAGE NUMBER FIFTY OF MY PROTOCOL NUMBER THIRTEEN OF THIS YEAR AT THE REQUEST OF ANGELICA ARGUELLO DAMHA, THE BOOK OF FIRST  WITNESS IN FOUR PAGES THAT I SIGN, SEAL AND INITIAL IN THE CITY OF MANAGUA AT TWO O’CLOCK AND THIRTY MINUTES OF THE AFTERNOON OF APRIL TEN OF THE YEAR TWO THOUSAND SIX- Boanerges Ojeda B., Notary Public (S) – BOANAERGE ANTONIO OJEDA BACA, Attorney and Notary Public B) WITNESS OF PUBLIC DEED NUMBER THIRTY THREE (33) TRANSLATION OF THE ARTICLES OF INCORPORATION AND BY-LAWS OF INFINITY ENERGY RESOURCES INC., which integrates and literally says: WITNESS OF DEED NUMBER THIRTY THREE (33) PROTOCOL NUMBER THIRTEEN TRANSLATION OF DOCUMENT. In the city of Managua, Republic of Nicaragua, at three o’clock in the afternoon of April ten of the year two thousand six.  Before me, BOANERGE ANTONIO OJEDA BACA, Attorney and Notary Public for the Republic of Nicaragua, with domicile and residence in the city of Managua, duly authorized to act before the Supreme Court during the five year period that expires on June eight of the year two thousand eight, appear Angelica Arguello Damha, of age, single, attorney, domiciled in Managua, bearer of identification card number zero, zero, one, dash, seven, two, zero, three, eight, one, zero, five, three, letter “N” (001-270381-0053N) and Roberto Octavio Arguello Villavicencio, of age, single, attorney and domiciled in Managua, bearer of identification card number zero, zero, one, dash, zero, seven, zero, eight, seven, eight dash zero, zero, six, zero, letter B” (001-0708787-0060B) the latter acting  as Interpreter.  I swear to personally know the appearing parties and that in my judgment they have the legal civil capacity necessary to bind and to contract, and particularly to execute this instrument; the appearing parties express themselves in their own name and representation.  FIRST: The first appearing party has in her possession the ARTICLES OF INCORPORATION AND BY-LAWS OF INFINITY ENERGY RESOURCES, INC.  and that the articles and by-laws are in the English language and two of their authenticated copies are in English; therefore, it is hereby requested a notarized translation of the documents and authenticated copies be provided through an interpreter so that this instrument is valid in the republic of Nicaragua.  In accordance with Law number one hundred thirty, the Law that gives greater responsibility to the office of notary Public, and article one thousand thirty two of the Code of Civil Procedure, the undersigned Notary Public proceeds with the translation of the portions of the document that are in English, through an interpreter.   To this end, based on the mentioned law, the undersigned Notary Public, with more than ten years of association with the Supreme Court, hereby nominates and designates as interpreter, to verify the translation from English into Spanish, to the appearing party, Roberto Arguello Villavicencio, who has vast knowledge of English and Spanish.  SECOND: TRANSLATION.  Having understood it, he accepts the nomination made and was warned of the penalties for false testimony, thereby promising to tell the truth, and says that:  To his knowledge, the document in English says the following in Spanish: ONE ) State of Delaware, Secretary of State, Companies Division.  Delivered at 04:43 pm on 04/29/2005 SRV 0503-48989-34944450  File: ARTICLES OF INCORPORATION OF INFINITY ENERGY RESOURCES, INC.  ARTICLE 1. LEGAL NAME.  The legal name of the company is Infinity Energy Resources, Inc. (“Company”).  ARTICLE 2.  REGISTRATION.  The domicile of the head offices of the Company in the State of Delaware is the Trust Center Corporation, 1209 Orange Street, Wilmington, County of New Castle. The name of its registered agent   at said domicile is Corporation Trust Company.  ARTICLE 3.  PURPOSE.  The purpose of the Company is to participate in any legal activity for which it can organize a company in accordance with the Delaware General Law of Corporations and its amendments (“GDCL”).  ARTICLE 4 – REGISTERED CAPITAL 4.1 ORDINARY SHARES (a) The total number of ordinary shares of $0.0001 nominal value per share that the Company is authorized to issue is: 75,000,000 (b) Each holder of ordinary shares will have the right to one vote per each of these shares owned for all holders of ordinary shares have the right to vote.  Except for and SHAREHOLDERS. 7.1 Meeting.  The shareholders meetings in or outside the State of Delaware, as determined by the shareholders meeting will take place at the date, time and place, the Board.  Except as otherwise required by law and subject to the rights of the holders of any class or preferred shares, the extraordinary shareholders meetings can only be called by the president, executive director, the president or any employee of the Company through prior request submitted in writing by a majority of the Board or in accordance with the by-laws.  7.2 Action through written consent .  Action that is required or can be taken in any ordinary or extraordinary shareholders meeting that can only be taken without a meeting, in writing.  ARTICLE 8 VOTING REQUIREMENTS   Notwithstanding any other provision in these Articles of Incorporation or the by-laws (of the Company (and in spite of the fact that a lower percentage can be specified otherwise by law, by these Articles of Incorporation or the by-laws) the affirmative vote of the shareholders will be required at least sixty six days and two-thirds percent (66-2/3%) of the shares in circulation of the Company with the right to vote, usually in the election of directors (considered for this purpose as a class), if necessary to amend, revoke or adopt any provision contrary to Articles 5,8,9,10 of these Articles of Incorporation. ARTICLE 9 OBLIGATIONS OF EMPLOYEES AND DIRECTORS 9.1 General.   A director of the Company will not be responsible before the Company or its shareholders for monetary damages caused by a breach of fiduciary obligat8ion as director, except in case such exemption of responsibility or limitation of same is not allowed in accordance with the DGCL in effect or in accordance with its future amendments.  9.2 Amendment.   No amendment, modification or revocation of this Article 9 can impair any right or protection of a director in office at the time of such amendments, modification or revocation.  ARTICLE 10 INDEMNIFICATION 10.1 – General . The Company will indemnify up to the limit allowed and in accordance with the DGCL and its future amendments (however, in case of amendments, they will only be accepted if they allow the Company to provide indemnification rights that are more ample than the law allows prior to such amendments) to any person who is a party to, or subject to being a party to any legal action, complaint, judgment or imminent process, pending or completed, whether criminal, civil, administrative or under investigation, due to the fact that such person (a) is or has been a director ro employee of the Company or any predecessor or the Company, and has worked for any other company, union, joint company, trust, benefit plan for employees or other position, such as director, employee, partner, trustee, employee or agent at the request of the Company or any predecessor of the Company, subject to the condition that, except as indicated in Section 10.4, the Company will indemnify any person that seeks indemnification associated with a legal process (or part thereof) initiated by said person, only if said process (or part thereof) was authorized by the Board.  10.2  Expense Advance – The right of indemnification as granted in this Article 10 will be a contractual right and will include the right to receive payment by the Company for expenses incurred with any legal process prior to the final judgment.  Such advances will be paid by the Company within twenty day from the date of receipt of a report or reports from the claimant requesting such advance or advances on a timely basis, under the condition that if DGCL so requires, payment of said expenses incurred by such director or employee in his/her capacity as director or employee (and not in another capacity provided or that has been provided by such person during his/her term as director or employee, including but not limited to, services to benefit the employee) prior to the final judgment of a legal process be carried out only through previous presentation before the Company of a commitment by such director or employee or on behalf of the same to reimburse all amounts paid to same as an advance if it is determined that said director or employee does not have the right to be indemnified in accordance with this Article 10 or another.  10.03 Procedure to obtain indemnification.   In order to obtain indemnification in accordance with this Article 10, a claimant must submit to the company a request in writing including all documentation and information available and necessary to determine if the claimant has the right, and up to what point, to receive indemnification.  Based on the claimant’s written request for indemnification, in accordance with the first sentence in this section 10.3, a decision with respect to the claimant’s right to receive such indemnification, if required by the applicable law, will be taken as follows:  (a) if requested by the claimant or if there are no uninterested Directors (as defined below) or (b) if it is requested by a majority vote of the uninterested Directors, although a quorum is not reached, or by a majority vote of a uninterested Directors committee designated by a majority vote of uninterested Directors, although a quorum is not reached. If it is determined that the claimant has the right to receive indemnification, payment will be made within ten days following such determination. 10.04 Appeals .  If the Company does not pay the full amount of a claim under section 10.1 within thirty days from the date the written claim as established in Section 10.3 is received by the Company, the Claimant may, at any time thereafter, file a claim against eh Company to collect the amount of the claim unpaid; if successful, as a whole or in part, the claimant will have the right to also charge for expenses incurred when submitting such claim. It will be a defense to such action (distinct from an action submitted to require a claim to be fulfilled with respect to expenses incurred in defense of such procedure prior to its final disposition whereby the procedure required, if applicable, will have been offered to the Company) that the claimant has not complied with the code of conduct, which make possible, according to the DGCL, for the Company to indemnify the claimant for the amount claimed,; however, the obligation to provide such defense will rest on the Company (including the Board, the independent legal counsel or the shareholders), has not made a determination prior to the beginning of the action where the indemnification of the claimant is valid under the circumstances due to the fact that the claimant has met the applicable code of conduct, may not be considered as a defense to the action and will not create an assumption that the claimant has not complied with the applicable code of conduct.  10.5 Obligatory Effect . If it was necessary to determine that the claimant has the right to an indemnification, in accordance with section 10.3, the Company will be bound by such determination throughout the legal process initiated in accordance with Section 10.41.06  Validity of this article .  The Company will not any legal procedure initiated in accordance with Section 10.4 than the procedures and provisions of this Article 10 are not valid, obligatory and applicable, and must stipulate in said procedure that the Company commits to comply with all clauses of this Article 10.  10.07    No Exclusivity, etc.   The right to indemnification and payment of expenses incurred with the defense of a procedure prior to its final judgment granted through this Article 10 will not be exclusive of all other right that any person can have or acquire in accordance with any decree, clause of constitutive certificate, by-laws, agreement, shareholders or non interested directors vote or any other form.  No revocation or modification of the Article 10 will decrease in any way or affect in an adverse manner the rights of any director, employee, agent, present or past of this Company or of any predecessor of the same with respect to any event or problem arising prior to said amendment or modification.  10.08 Insurance.  The Company can maintain an insurance on its own to protect itself and any director, employee or agent of the Company, partnership, joint venture, trust or another company, against all cost, debt or loss, whether the Company has the capacity to indemnify such person or not  against such cost, debt or loss in accordance with the DGCL.  10.09 Indemnification of other persons. The Company may grant the right of indemnification and to receive payment from the Company to any of its employees or agents, current or past, for expenses incurred with respect to any procedure prior to the final judgment, in accordance with the clauses of this Article 10 addressing indemnification and estimate of expenses incurred by the directors and employees of the Company.  10.10 Divisibility.   If any clause or clauses of this Article 10 are deemed invalid, illegal or not applicable for any reason: (a) the validity, legality and applicability of the remaining clauses of this Article 10 (including, but not limited to, each part of every paragraph of this Article 10 that contains such clause deemed invalid, illegal or not applicable) will be interpreted in such manner as to give effect to the intent manifested by the clause deemed invalid, illegal or not applicable.  BY-LAWS OF INFINITY ENERGY RESOURCES, INC.  Adopted on April 29, 2006.  ARTICLE 01.  Office.  The head office of Infinity Energy Resources, Inc. (“Company”) in the State of Delaware will be in accordance with the Articles of Incorporation of the Company (“Articles of Incorporation”).  The Company will have offices in every place the Board so decides.  ARTICLE 2 SHAREHOLDERS – 2.1 Ordinary Meetings .  The shareholders ordinary meetings for the election of directors and to address any other business that is deemed appropriate prior to the meeting will be carried out on the date and time set by resolution of the Board. 2.02 Extraordinary Meetings .  Except as otherwise established, the shareholders extraordinary meetings will be convoked by the individuals indicated in the Articles of Incorporation and must be called by the Secretary of the Company at the written request of the shareholders that have 25% or more of the capital stock of the Company with the right to vote with respect to the directors.   Such written request will establish the purpose of the proposed meeting and will include all relevant information contemplated in Section 2.5.  The topics discussed in every shareholders extraordinary meeting will be limited to those duly included in the written request and about which all necessary information has been timely provided in accordance with Section 2.5, 2.03 Notice of Meeting.  Written notice will be given no less than ten days and no more than sixteen days prior to the date of the meeting showing the place, date and time of the meeting, and in case of an extraordinary meeting, include the purpose for which such meeting was called, except as otherwise provided by law or the Articles of Incorporation.  Such notice will be delivered in person or by postal service, prepaid telegram, telex, facsimile transmission, cablegram or express courier to each registered shareholder authorized to vote in such meeting.  If such notice is sent by mail, it will be deemed received when deposited in the United States mail, prepaid, addressed to the shareholder and sent to his/her address as shown in the Company’s shareholders registry.  2.04 Waiver.  The presence of a Company’s shareholder, whether in person or through proxy, in any meeting, whether ordinary or extraordinary, will constitute a waiver to the right of notice and such meeting, except when a shareholder is present at the meeting for the express purpose of objecting, at the beginning of such meeting, the addressing of every topic due to the fact the meeting was not properly called.  A written waiver to the right of receiving notice of such meeting, signed by the shareholder or shareholders authorized to received such notice before, during or after the time of the notice of said meeting, signed by the shareholder or shareholders authorized to receive such notice before, during or after the time of the notice or time of the meeting, will be equivalent to notice.    It will not be necessary to specify the matter to be discussed nor the purpose of every meeting in the written waiver to the right of receiving notice.  2.5 Notice of the topic to be discussed in the shareholders meeting. No topic will be discussed in any shareholders meeting, including the designation or election of individuals for the Board other than those specified in the meeting notice (or any attachment to same) granted by the Board (or committee duly authorized by the Board) with respect to an ordinary meeting or extraordinary meeting called by any of the individuals listed  in Section 7.1 of the Articles of Incorporation; (b) duly presented before the meeting by or according to the direction of the Board, duly authorized by it); or (c) duly presented before the meeting by any of the Company’s shareholders (1) that is a registered shareholder on the date in which the notice mentioned in Section 2l5 was given and on the date of registration for determination by the shareholders authorized to vote in said meeting and (2) that complies with the notice procedures established in this Section 2.5.  Besides all other applicable requirement in order for the topic to be duly presented at the meeting  by a shareholder, the shareholder must have submitted written notice concerning such topic in a timely manner and proper format to the Secretary of the Company (a) so that the shareholder’s notice be timely delivered or sent by mail and is received at the Company’s main office no less than ninety days and no more than one hundred twenty days prior to the date of the meeting; nevertheless (1) in case of public disclosure of the date of the meeting started in less than one hundred twenty days with respect to the date of the meeting, in order for the shareholder’s notice to be timely, it cannot be received after the closing of the tenth business day following the date on which the public disclosure of the meeting date has been made and (3) notwithstanding the preceding, with respect to an extraordinary meeting called through written request by the shareholders in accordance with Section 2.2, all notices submitted by a shareholder with a request must be delivered simultaneously with such request (b) in order for the shareholder’s  notice to reach the Secretary in a timely manner with respect to any matter other than the nomination of individuals for election of the Board, must make reference to each of the topics said shareholder proposes to discuss before the ordinary meeting and must establish (i) a brief description of the matter to be discussed during the ordinary meeting and the reasons for which such topic should be discussed; (ii) the name and registered address  of said shareholder; (iii) the class or series and number of shares in the Company owned by such shareholder, whether as usufruct or registered; (iv) a description of all understandings and agreements between said shareholder  and any other person or persons (including their names) with respect to the proposal of such topics and (v) a statement that such shareholder intends to be show up in person or through proxy in a meeting to present such topic before the meeting.  (c) in order for the shareholder’s notice related to the nomination of individuals for the board reach the Secretary in a timely manner, it must establish (a) with respect to each of the proposed candidates (i) name, age, business and residence address; (iii) the class or series and number of shares in the Company owned by the candidate, whether as usufruct or registered and (iv) any other information related to the candidate that could be required to be disclosed in a statement of representation with respect to the requests for representation for election of board members in accordance with Section 14 of the Securities Exchange Act of 1934 and its modifications (“Securities Exchange Act”) and the provisions and regulations established below and (b) with respect to the shareholder delivering the notice, (i) the name and address of registration, (ii) the class or series and the number of shares of the Company owned by the shareholder, whether as usufruct or registered; (iii) a description of all understandings or agreements between said shareholder and each of the proposed candidates and of any other person or persons (including their names) in accordance with the nominations , (iv) a statement that said shareholder has the intent of appearing in person or through a proxy at the meeting to nominate the individuals mentioned in the notice and (v) any other information related to said shareholder that needs to be disclosed in a statement of representation or other necessary presentations with respect to the requests of representation for the election of board members in accordance with Section 14 of the Securities Exchange Act  with the provisions or norms promulgated by virtue of the same.  Such notice must be accompanied by a written consent from each candidate proposed to be nominated as such and to provide services as a director in case said individual is elected. (d) in the shareholders meeting there can be no discussion of any topic and the individuals nominated by a shareholder may not be elected as director unless notice has been given with respect to the action proposed in accordance with the procedures set forth in this Section 2.5.  The decisions of the president concerning those procedures will either be complied with or not and, in a particular case, it will be definitive and binding.  2.06 Quorum .  Except as otherwise provided by law or in the Articles of Incorporation or the By-Laws, the holders of no less than the majority of the shares with the right to vote in the shareholders meetings, whether appearing in person or through proxy, will constitute a quorum and whatever the majority of said quorum decides will be deemed as a decision by the shareholders, except in the case of the election of directors.  If a quorum is not present at the meeting, the president of the meeting will suspend the meeting without prior notice if the time and the place are announced in the meeting, until such time a quorum is present.  In the suspended meeting, where a quorum is present, any topic may be discussed that could have been discussed in the original meeting.  In case the suspension lasts more than thirty days or right after it is suspended a new date is established for the suspended meeting, notice of suspension will be given to each shareholder registered with the right to vote in a meeting. 2.07 Procedure .   The items in the agenda of the day and all other topics to be discussed in each shareholders meeting will be determined by the president of the meeting.  The president of every shareholders meeting will be the President of the Board or, in his/her absence, it will be the one present at the meeting with the most seniority with the Company.  ARTICLE 3 DIRECTORS.  3.01 Number Subject to the clauses of the Articles of Incorporation, the number of directors will be determined exclusively and in a timely manner based on a resolution adopted by the Board.  3.2. Ordinary Meetings.   The Board will meet immediately after and at the same place where the shareholders ordinary meeting took place whenever a quorum is present and without the need of notice of said meeting to legitimately hold it.  The ordinary meetings of the Board will be carried out at the places and times as determined by the Board.  3.3 – Extraordinary Meetings.   The extraordinary meetings of the Board can be called at any time or place and for any reason by the president of the board, the general director or the majority members of the Board.  3.04 Notice of meetings.   It is not necessary to give notice of ordinary meetings of the Board.  Notice will be given with regard to each extraordinary meeting of the Board to each director, at their habitual work address or to an address such Director provides for such purpose.   Such notice will be deemed as timely given  when such notice is (a) placed in the mail of the United States no later than three calendar days prior to the date of the meeting or (b) personally delivered by telegram, facsimile or telephone communication at least twenty four hours prior to the time set for the meeting.  It is not necessary for such notice to include either a statement of the subject to be discussed or the purpose of same.  3.5  Waiver   The presence of the director in a Board meeting will constitute a waiver to the right of notice to said meeting, except when the director participates in a meeting with the for the express purpose of objecting, at the beginning of the meeting, to the discussion of any topic due to the fact the meeting was not formally convoked or called.  A waiver in writing to the right to receive notice, signed by the authorized director or directors to said notice, whether before, during or after the time of notice or the time of the meeting will be the equivalent of a notice.  3.06  Quorum.   Except as otherwise provided by law, the Articles of Incorporation or the By-Laws, it will be necessary to have a majority of directors present at this time and this will be sufficient to constitute a quorum to discuss the topics in any Board meeting, and the decision reached by the majority of the directors present in the meeting in which there is a quorum will be deemed as presented by the Board.  In case it does not arrive, the Board meeting will be timely suspended without prior notice.  3.07  Telephone participation in the meetings.   The Board members or members of any Board committee may participate in a Board meeting or committee meeting through a conference call or similar communication equipment through which all individuals participating in the meeting can mutually hear each other and said participation will constitute a personal presence in such meeting.  3.8  Decisions without a meeting.   Except as otherwise provided by the Articles of Incorporation or the By-laws, any necessary action can be taken in case all of the Board members or members of the Board committee sign an agreement, in writing, and such consent in writing, is filed with the minutes of the Board or committee procedure.  Any consent may be equivalent and will be in effect on the date of the last signature on it, unless otherwise established.  ARTICLE 4 COMMISSIONS – 4.01 Designation of committees.  The Board will establish committees for the performance of delegated or designated functions as allowed by law; each committee will be composed of one or more directors of the Company.  In the absence or disqualification of a member of a committee, he/she or the members present at all meetings who are not disqualified to vote, whether such members constitute a quorum or not, may unanimously designate another member of the Board to represent said absent or disqualified member at the meeting.  4.02  Authority and powers of the committee .  Except as otherwise provided by law, the Board d may. Establish, through resolution or amendment to these By-Laws, that a committee may exercise all powers and authority of the Board in managing the business and matters of the Company.  ARTICLE 5 – OFFICERS. 5.01 – Number – The officers of the Company will be designated or elected by the Board.  The officers will consist of a general director, a president, if applicable, the number of executive vice-presidents that the Board so determines, a secretary, if applicable, the number of assistant secretaries that the Board so determines, and a treasurer.  Any individual may hold two or more positions at the same time.  5.02  Additional Officers.   The Board may nominate any other officer as it deems appropriate.  5.03 Term of office .  Waiver.  All officers, agents and employees of the Company will maintain their respective positions as desired by the Board and may be removed from their positions at any time the Board deems appropriate, with or without cause.  Any officer may resign at any time by giving notice in writing to the general direct, president or secretary, in order for it to be effective, and acceptance of such resignation is not necessary for it to be effective unless the notice so establishes.. Any vacancy of a position will be covered by the Board.  Functions:   The officers of the Company will carry out the functions and will exercise the powers as delegated by the Board or the president and the director general.  ARTICLE 6 – CAPITAL STOCK – 6.01 Certificates – The Board will authorize the issuance of certified or not certified capital.  Each shareholder, through written request, will have the right to one or more certificates signed by or in the name of the Company by the (a) director general or the president and (b) the secretary or the assistant secretary certifying the number of capital shares of the Company owned by said shareholder.  Any or all the signatures in the certificate can be by facsimile.  6.02 – Registered Shareholders.  The Company will have the right to treat the holder of the registry of any share or shares of the Company as the holder in fact of such share or shares and, as a result, such holder will not be subject to acknowledge any equivalent claim or participation in said share or shares in the name of any person, whether such holder has or not notice of same, unless otherwise established.  6.003  Cancelation of the certificates.  All certificates delivered to the Company will be cancelled and, except in case of loss, theft or destruction of the certificates, no new certificate will be issued until they, or previous ones (for the same number of shares of the same class of capital), have been delivered and canceled.  6.04 Stolen or destroyed certificates. The Board may establish that new certificates be issued in place of any certificate or certificates issued to date by the Company that have been declared to be lost, stolen or destroyed, by preparing a sworn statement to do in an acceptable manner to the Board or the person who claims the certificate or certificates have been lost, stolen or destroyed.  The Board, at its discretion and as prior condition  for the issuance of any new certificate or certificates, may require that the owner of the lost, stolen or destroyed certificate or certificates, or their legal representative, provide the Company or its agent or agents in charge of transfers, registration or registrations a title in such manner and amount as specified by the Board, as indemnification for all claims that may arise against the Company and its transfer or registration agent or agents with respect to the loss, theft or destruction of any certificate or the issuance of a new one.  ARTICLE 7 FISCAL YEAR  Fiscal Year.   The Company’s fiscal year   will end on December 31 of each year.  ARTICLE 8 – AMENDMENT.   The expert continues to speak and says that the authentication from the State of Colorado that is in English reads as follows in Spanish:  TWO) STATE OF COLORADO, DEPARTMENT OF STATE, CERTIFICATE, UNITED STATES OF AMERICA, STATE OF COLORADO. SS.  I, GINETTE DENNIS, Secretary of State for the State of Colorado, hereby certify that HAWK-BROWNS , whose name is subscribed on the certificate of acknowledgement of the attached instrument was, at the time of taking such acknowledgment  a NOTARY PUBLIC duly commissioned, sworn and authorized by the laws of the State of Colorado.  And I hereby certify that the signature and affixed official seal of said NOTARY PUBLIC, to the best of knowledge is genuine.  The signature of the notary has been compared with the signature on file at my office.  In witness whereof, I hereby affix the great seal of the state of Colorado, in the city of Denver, on march 8, A.D. 2006 (f) Ginette Dennos.  Secretary of State.  Following is the certification of the Secretary of INFINITY ENERGY RESOURCES, INC.,    which reads as follows in Spanish:  THREE) CERTIFICATE OF THE SECRETARY OF INFINITY ENERGY RESOURCES, INC.  I, Timothy A. Ficker, duly elected, qualified and acting as Secretary in accordance with the By-laws of Infinity Energy Resources, Inc., a company organized and existing under the laws of the State of Delaware, U.S.A. (“Company”), hereby certify that the Articles of Incorporation and the By-Laws of the Company, which are attached to this certificate, are true and correct copies of the original Articles of Incorporation and By-laws of the Company and said Articles of Incorporation and By-Laws have not been modified, reformed or revoked.  In my presence I sign it as Secretary of Infinity Energy Resources, Inc. on March 6, 2006 (F) Timothy A. Ficker.  Secretary of Infinity Energy Resources, Inc.  Before me on March 6, 2006 appears Timothy A. Ficker, as Secretary of Infinity Energy Resources, Inc. who, before me, signed the certificate and, to certify it, in witness whereof, I set my signature (f) illegible, Notary Public in and for the State of Colorado.  My commission expires eleven/zero, five/zero, seven (11/05/07).  Seal.  For greater effect of the document, below is the authentication from the Consulate General of the republic of Nicaragua in Houston and the Ministry of Foreign Affairs in Nicaragua , which is in Spanish and reads as follows: FOUR) The General of the Republic of Nicaragua in Houston CERTIFIES that the preceding signature says: GINETTE DENNIS is authentic and corresponds to that of the name: Ginnette Dennis.  Position: Secretary General of Colorado.  Date: March 28, 2006.  “ THIS CONSULATE DOES NOT ASSUME ANY RESPONSIBILITY WITH RESPECT TO THE CONTENT OF THE DOCUMENT.”    Finally, the authentication from the Ministry of Foreign Affairs of Nicaragua which reads as follows: FIVE) “Ministry of Foreign Affairs, Consular Department, Managua, Nicaragua.  The undersigned, Consular General Director “Certifies” that the preceding signature and says MARIA MERCEDES BECK is authentic and corresponds” to the on used on this date by MAARIA MERCEDES BECK, Consul for the Republic of Nicaragua in Houston, Texas, United States of North America.  The Institution and the employee (a) do not assume responsibility with respect to the content of the document.  Managua, Wednesday, April 5, 2006, 11.15.45 a.m. (F) Illegible.  Lic. Maria Josefina Rojas Romero.  Director of Consular Services.  Stamp. Ministry of Foreign Relations. Managua, Nicaragua.”  So expressed the appearing parties, well instructed by me, Notary Public, concerning the object, value and legal matter of this document, the general clauses that ensure its validity, the special clauses it contains and those that involve waivers and implicit and explicit stipulations.  This deed was read by me, Notary Public, in full, to the appearing parties, who found it to be in agreement.  They approve, ratify and sign, together with me (F) Angelica Arguello D (f) Roberto Octavio Arguello V (f) Boanerge Ojeda B.  FROM PAGE NUMBER FIFTY TO THE FRONT OF PAGE NUMBER FIFTY SEVEN IN MY PROTOCOL THIRTEEN OF THIS YEAR AT THE REQUEST OF ANGELEICA ARGUELLO DAMHA, FIRST BOOK WITH SEVEN USEFUL PAGES THAT I SIGN, SEAL AND INITIAL IN THE CITY OF MANAGUA AT THREE THIRTY OF THE AFTERNOON OF APRIL TEN OF THE YEAR TWO THOUSAND SIX. (F) Boanerge Ojeda B, Notary Public (S) BOARNERGE ANTONIO OJEDA BACA, Attorney and Notary Public.  I swear to have seen the documents listed above which grant sufficient power to the appearing party. (SECOND) REQUEST FOR REGISTRATION OF BRANCH: The appearing party, acting in its capacity as described above says that it is requesting the registration of said branch to perform its activities and therefore wishes to begin its operations as of the registration date in the  Public Registry of Companies  for the purpose of completing the transactions for acquiring its legal entity in accordance with the Code of Commerce in effect and therefore kindly requests to the Public Registry Clerk to register such branch in the Public Registry writing at the foot of the testimony in the deed the corresponding reason for its registration.    The appearing party also declares that the copies of the original documents in English of the opening minutes of the branch and the articles of incorporation of Infinity Energy Resources Inc. will also be attached to this document.    So expressed the appearing party, well instructed by me, Notary Public, with respect to the object, value and legal content of this document and the general clauses that ensure its validity, the special clauses that contain and those that involve waivers and implicit and explicit stipulations, as well as the need to register this deed in the corresponding registry. This deed was read in its entirety by me , Notary Public, in  .the presence of the appearing party, and found to be in order; it was approved, ratified and signed with me, Notary Public, who swears to all of its contents.  (F) Angelica Arguello D. (F) Ana Teresa Rizo B, Notary Pubic.  Before me, entered in the front of page number forty six and the front of page number fifty six in my Protocol Number Ten of this year, at the request of Angelica Arguello D, in the name and representation of INFINITY ENERGY RESOURCES INC., which book contains eleven (11) useful pages of law, that I sign, seal and initial in the city of Managua, at ten o’clock and two minutes of the morning of April twenty five of the year two thousand six, registered under number twenty one thousand seven hundred twenty one dash b two (21,721-B2), page five hundred fifty one and five hundred seventy (551-570) volume seven hundred eight five dash B two (785-B2), Second Book of Companies, under number fifty seven thousand two hundred sixteen dash A (57,216-A), pages two hundred eighty and two hundred eighty one (280 and 281) of volume one hundred fifty nine dash A 9159-A) of the Book of Individuals, both part of the Public Trade Registry of the Managua department.  The undersigned, Notary Public, records and swears that the documents listed grant sufficient powers to the appearing parties to execute this document.  Both appearing parties together state that once the requirement established in article twenty six (26) of law two hundred eighty six (286) “Special Law of Exploration and Exploitation of Hydrocarbons and article fifty seven (57) of its Regulation is fulfilled, and the Ministry of Energy and Mines has the Public Deed Number Four of Several Guarantee in its possession, authorized in the city of Managua at five o’clock in the afternoon of January twenty two of the year two thousand nine at the Notary Public Office of Ramón Alberto Castro Romero, which has the required guarantee in accordance with the provisions mentioned above, proceed to sign a
 
 
 

 
 
CONCESSION AGREEMENT FOR THE EXPLORATION AND EXPLOITATION OF HYDROCARBONS, “TYRA” PROSPECT , which will be governed by the following Clauses:
 
CLAUSE ONE (1) OBJECT
 
The object of this Contract is to establish the rights and obligations of the parties with respect to the Petroleum Concession for the Exploration and Exploitation of Hydrocarbons located in the Caribbean Region Offshore Nicaragua, granted by the Republic of Nicaragua to INFINITY ENERGY RESOURCES, INC.
 
CLAUSE TWO (2): DEFINITIONS
 
The following words and terms used in this Contract, unless otherwise expressly specified in the Contract, shall have the following respective meanings.
 
1 (ONE): "Calendar Year" means a period of twelve (12) consecutive months, beginning on the first day of January and ending on the following thirty first (31) day of December.
 
2 (TWO): "Contractual Year" means a period of twelve (12) consecutive months within the terms of the Contract, beginning on the Effective Date or on any anniversary date.
 
3 (THREE): "Contract Area" means the specific area in which the Contractor has a concession to perform exploration and/or exploitation activities of the hydrocarbons resources located in such area.
 
4 (FOUR): “Exploration Area” means the portion of the Contract Area that consists of rectangular blocks oriented from North to South, East to West, designated for the study of the Minimum Exploration Program.
 
5 (FIVE): “Exploitation Area" means the portion of the Contract Area designated in the approved Development Plan that covers a Commercial Discovery and a reasonable security boundary.
 
6 (SIX): "Barrel" means a barrel consisting of 158.9074 liters (42 United States gallons) in liquid measure, corrected to a temperature of 15.56 degrees centigrade under one atmosphere of pressure (14.7 pounds per square inch).
 
7 (SEVEN): “C.I.F” (Cost, Insurance, Freight): means the sum of the cost of the product, insurance plus freight. Term used in international commerce.
 
8 (EIGHT):  "Affiliated Company" or "Affiliate" means a company or organization : in which an entity comprising the Contractor owns directly or indirectly share capital that confers unto it a majority of votes at the stockholders' meeting of such company; which is the owner, directly or indirectly, of share capital that confers unto it a majority of votes at the stockholders' meeting of a company or entity comprising the Contractor;  which is the owner, directly or indirectly of share capital that confers unto it a majority of votes at the stockholders' meeting of such company and a majority of votes at the stockholders' meeting of an entity comprising the Contractor, and are owned directly or indirectly by the same company.
 
 
 

 
 
9 (NINE): “Contractor” means any natural or legal person, national or foreign, that has entered into a contractual relationship with the State to perform exploration and exploitation activities of Hydrocarbons in Nicaragua. In this Contract, it means Infinity Energy Resources, Inc. or its successors.
 
10 (TEN): "Contract" means this Exploration and Exploitation contract and its annexes, executed by the State’s representative and the Contractor, pursuant to the Law and its Regulation and covers the Contract Area.
 
11 (ELEVEN): "Commercial Discovery" means a discovery of Hydrocarbons in the Contract Area that the Contractor considers being commercially exploitable and commits to develop and produce it under the terms of the Contract.
 
12 (TWELVE): "Development" or "Development Operations" of the "Development Work" means all the work performed under a Development and Production Program submitted by the Contractor and approved by the MEM, which must include, but not be limited to the following: all the operations and activities under the Contract with respect to the drilling of development wells, production wells, maintenance wells, plugging, completing and equipping of such wells, together with the design, construction and installation of such equipment, pipes or lines, installations, production units and all other systems relating to such wells as may be necessary; pursuant to the international petroleum industry practices and regulations in effect.;  all operations and activities relative to the servicing and maintenance of pipelines, lines, installations, production units and all activities associated with the production and management of the wells.
 
13 (THIRTEEN): “State" means the State of the Republic of Nicaragua.
 
14 (FOURTEEN): "Appraisal" means work conducted for the purpose of evaluating the commercial potential of a geological structure or prospect in which Hydrocarbons have been discovered.
 
15 (FIFTEEN): “"Exploration" or "Exploration Operations" means the activities that shall include, but will not be limited to geological, geo-chemical, geophysical, seismic and other surveys; any interpretation of data relating thereto as may be contained in the Minimum Exploration Program (PME); as well as drilling to obtain core samples, and stratigraphic tests, Wildcat wells for the discovery of Hydrocarbons, Appraisal wells and other related operations.
 
 
 

 
 
16 (SIXTEEN): "Effective Date" means the date of signature of this Contract by both parties
 
17. (SEVENTEEN): “F.O.B.” (Free on Board): Value of the merchandise placed in the means of transportation at the Shipping Port.  Term used in international commerce.
 
18 (EIGHTEEN): “Natural Gas” : is the mixture of Hydrocarbons in gaseous state.
 
19 (NINETEEN): “Associated Natural Gas” : means all gaseous Hydrocarbons produced in association with crude oil and separated therefrom.
 
20 (TWENTY). “Non-Associated Natural Gas” : means all gaseous Hydrocarbons produced from gas wells, including wet gas, dry gas and residual gas remaining after the extraction of Liquid Hydrocarbons from the wet gas.
 
21 (TWENTY ONE): “Hydrocarbons” : is the organic chemical compound of carbon (C) and hydrogen (H), whatever their physical state, be it oil, gas, condensate, as well as associated or derivative substances.
 
22 (TWENTY TWO): “Liquid Hydrocarbons” : means any Hydrocarbon produced from the Contract Area which remains in a liquid state under atmospheric pressure and temperature conditions.
 
23 (TWENTY THREE):“Law”: means the Special Law for Exploration and Exploitation of Hydrocarbons, Law No. 286, published in the Official Gazette No. 109 on June 12, 1998.
 
24 (TWENTY FOUR): “MARENA” : means the Ministerio del Ambiente y Recursos Naturales of the  Republic  of Nicaragua (The Environmental and Natural Resources Ministry) or any entity that may succeed it.
 
25 (TWENTY FIVE): MEM: “Ministry” , which is the Ministry of Energy and Mines of the Republic of Nicaragua.
 
26 (TWENTY SIX):“Month” or “Calendar Month” : means a Calendar Month.
 
 
 

 
 
27 (TWENTY SEVEN): “MHCP” : means the Ministerio de Hacienda y Credito Público of the Republic of Nicaragua (The Treasury Department of the Republic of Nicaragua).
 
28 (TWENTY EIGHT): “Petroleum Operations” : means operations and activities carried out by the Contractor by virtue of the rights granted to the Contractor under this Contract.
 
29 (TWENTY NINE):“Parties” : in this Contract are the State and the Contractor.
 
30 (THIRTY): “Wildcat Well” : means any well drilled with the objective of finding Hydrocarbons in a structure or geologic trap in which Hydrocarbons in quantities having commercial potential have not been previously encountered.
 
31 (THIRTY ONE): “Development and Production Program” : means the work program during the first five years for the development and operation of the field, which must  specify the location of the transportation and storage facilities to the Fiscalization Point agreed upon, as well as other transportation and storage facilities to the point or points of internal or external commercialization.
 
32 (THIRTY TWO): “Minimum Exploration Program” (MEP): is the work program provided for in Clause 6.1 that is divided into sub phases under which the Contractor has committed itself to carry out exploration activities in the Contract Area.
 
33 (THIRTY THREE): “Work Program”: means the program that specifies the Petroleum Operations to be conducted within a designated area and time schedule for accomplishing such operations.
 
34 (THIRTY FOUR): “Fiscalization Point”: means the location or locations approved as part of the Development and Production Plan where Hydrocarbons are metered for fiscal purposes, which in no event shall be beyond the point of export or point of first sale of such Hydrocarbons in Nicaragua, pursuant to the Law.
 
35 (THIRTY FIVE): “Prospect” is a hydrocarbon trap delimited by a rock.
 
36 (THRITY SIX): “Regulation” : means the Regulation to the Special Law for Exploration and Exploitation of Hydrocarbons, Decree No. 43-98 (forty three dash ninety eight), published in the Official Gazette No. 117 on June 24, 1998.
 
 
 

 
 
37 (THIRTY SEVEN): “Subcontractor” : is a specialized entity contracted by the Contractor to carry out a specific exploration or exploitation job under the supervision and for the account of the Contractor.
 
38 (THIRTY EIGHT):“Quarter” or “Calendar Quarter”: means a period of three (3) consecutive months beginning on the first day of January, April, July, or October.
 
CLAUSE THREE (3): GRANT OF RIGHTS
 
One (1). Subject to the provisions of this Contract and by virtue of the same, the Contractor is hereby granted the exclusive rights, during the term of this Contract, to explore and exploit Hydrocarbons in the Contract Area, as well as the non-exclusive right to construct and operate such facilities and infrastructure within or outside of the Contract Area up to the Fiscalization Point, as may be required in relation to the exploration and exploitation operations.  Subject to making the payments to the State as set forth herein, the Contractor shall be entitled to receive, upon extraction, the Hydrocarbons that are produced within the Contract Area.  However, this Contract does not grant the Contractor ownership of the Hydrocarbons in situ or any preferential rights to the surface or subsurface of the Contract Area.
 
Two (2). The Contractor, by virtue of this Contract, has the right to transport, store and commercialize, on its own behalf, any Hydrocarbons that such Contractor produces within the Contract Area and does not consume in the Petroleum Operations.  Such right refers to the activities engaged by the Contractor in Nicaragua between the Fiscalization Point and the point of export or point of first sale in Nicaragua of such Hydrocarbons.  Activities in Nicaragua beyond such point of export or point of first sale are outside of the scope of this Contract and are governed by Law No. 277, Supply of Hydrocarbons, of February 6, 1998.
 
Three (3).   For the operations authorized under this Contract, the Contractor shall have the right to the following: 3.1 Free access to and from the Contract Area and to and from facilities and infrastructure within or outside of the Contract Area and to the use, without restriction, of the area required by the Contractor pursuant to Clause 27, of this Contract, and, 3.2  To use the following for its operations as authorized under this Contract: sand, alluvial material, select banks of materials and water belonging to the public domain by prior arrangement with the competent authorities and based on payment of the prevailing charges for such resources.
 
 
 

 
 
Four (4). The Contractor may not begin any Exploration operation in situ until it has complied with the requirement of preparing the Environmental Impact Study  (EIA) in accordance with the Terms of Reference prepared by MARENA in coordination with the MEM and the Interdisciplinary  and Inter-institutional Committee, as established by Decree seventy six dash two thousand six (No. 76-2006) published in La Gaceta number two hundred forty eight (248) , item b) of article fifty one (51) of Law Number two hundred eighty six (286), and has not submitted the Environmental Management Program. The Contractor must request the Environmental Form from MARENA which, within forty-five (45) days from the date or receipt of such request, will provide the Contractor with the Terms of Reference, pursuant to Article 51 of  Law number two hundred eighty six (286) and Decree seventy six dash two thousand six (76-2006)..  The Exploration Period and the first phase set forth in Clause 6.1 of this Contract will begin once the Contractor receives such Environmental Permit from MARENA. Once the Environmental Impact Assessment (“EIA”) has been submitted by Contractor, the Exploration Period contained in Clause 6.1 will be suspended until such time MARENA issues the Environmental Permit.  The Contractor must obtain the Environmental Permit from MARENA prior to the commencement of on-site operations, pursuant to Article 51 (Fifty One) of the Law, the environmental regulations and the national and international technical and environmental norms.. In the event that MARENA does not issue the Environmental Permit within one hundred twenty (120) business days, to a maximum of two hundred forty (240) business days as of the date the Contractor submits its EIA pursuant to the Terms of Reference prepared by MARENA, the Contractor shall have an additional right to invoke Force Majeure at the end of the aforementioned period.
 
CLAUSE FOUR (4): RISK
 
One (1). The Contractor assumes all risks, costs and responsibilities for the activities object of this Contract, as well as for obtaining the Environmental Permit required to carry out Petroleum Operations, and agrees to provide the capital, machinery, equipment, materials, personnel and technology necessary to comply with all of its obligations hereunder.
 
Two (2). The State does not assume, under any circumstance, any risk or responsibility for the investments, nor for the exploration and exploitation operations to be performed, nor for any damages that may result from same, even when the act or deed may result from an action on the part of the Contractor that has been approved by MEM. Three (3) If there is no Commercial Discovery in the Contract Area or if production from the Contract Area is insufficient to cover the Contractor's cost of the Petroleum Operations, the Contractor shall bear and be solely responsible for such losses.
 
 
 

 
 
CLAUSE FIVE (5): CONTRACT AREA .
 
The Area awarded to INFINITY is defined as the “TYRA PROSPECT” OFFSHORE CARIBBEAN, pursuant to Resolution No. zero, eight, dash, two thousand three (08-2003) published in La Gaceta Number one hundred (100) of May thrity (30) two thousand three (2003).  The Are granted in this contract is in accordance with the laws in effect for the purpose of complying with article thirty three (33) of Law No. four four five (445) “Law of Community Property of the Indigenous People and Ethnic Communities of the Autonomous Regions of the Atlantic Coast of Nicaragua and the Rivers Bocay, Coco, Indio and Maiz., published in La Gaceta No. sixteen (16) of January twenty three (23) of two thousand three (2003) as follows: One (1). The Contract Area of the “Tyra Prospect” Offshore Caribbean, as of the Effective Date of this Contract, comprises an area of three hundred thirty four thousand two hundred thirty Hectares (334,230 Ha) equivalent to three thousand, three hundred forty two square kilometers (3,342 km2) rectangular in shape, divided into blocks adjacent to each other, located in the Nicaragua Offshore Caribbean Region, in the area denominated as “TYRA PROSPECT”. Two (2). Except for the rights expressly set forth in the Contract, no right is granted to the Contractor with respect to the surface area, sea-bed, sub-soil or to any natural or aquatic resources. Three (3). The Concession Contract Area includes the following blocks with their respective identification within the Area Opening Map: AG-10: AG-15, AG-16, AG-21, AG-22, AG-27, AG-28, AG-32, AG-33, AG-34, corresponding to ten (10) blocks defined by the following coordinates:  Vertex 1: Latitude  North 13° 50´ 00”, Longitude West 82° 30´ 00”,  Vertex 2: 13° 50´ 00”, Longitude West 82° 20´ 00”, Vertex 3: Latitude North 13° 00´ 00”, Longitude West 82° 20´ 00”, Vertex 4: Latitude  North 13° 00´ 00”, Longitude West 82° 50´ 00”; Vertex 5: Latitude North 13° 10´ 00”, Longitude West 82° 50´ 00”, Vertex 6: Latitude  North 13° 10´ 00”, Longitude West 82° 40´ 00”, Vertex 7: Latitude North 13° 40´00”, Longitude West 82° 40´00”; Vertex 8: Latitude North 13° 40´00”, Longitude West 82° 30´00”, Vertex One: Latitude North 13° 50´00”, Longitude West 82° 30´00”,
 
 
 

 
 
CLAUSE SIX (6): CONTRACTUAL TERMS :
 
One (1)  The exploration period shall be for six (6) Contractual Years (“Exploration Period”) as of the Effective Date, divided as follows: 1.1) A first sub-period of one point five (1.5) Contractual Years, divided into a nine (9) month environment phase and a nine (9) month operational phase. 1.2) A second optional sub-period of half (0.5) Contractual Year. 1.3) A third optional sub-period of two (2) Contractual Years.  1.4) A fourth optional sub-period of two (2) Contractual Years. The Contractor's right to enter the next sub-period is subject to the fulfillment of its obligations for the preceding sub-period.
 
TWO (2). The Contractor shall notify MEM of its decision to enter the next sub-period at least ninety (90) days prior to the expiration of the previous sub-period.  Such notice shall be accompanied by the guarantee required by Clause 9 of this Contract covering the Minimum Exploration Program corresponding to such sub-period.  If the Contractor decides not to enter the next sub-period, the Contract shall terminate at the end of the then current sub-period.
 
THREE (3).  At the Contractor’s written request submitted to the MEM within a period of no more than thirty (30) days prior to the expiration of the Exploration Period set forth in number 1 of this Clause, the MEM may grant an extension of up to one (1) Contractual Year to the Exploration Period in order to enable the Contractor to complete (1) the drilling of a Wildcat Well in progress or (2) an appraisal program under the terms set forth in Clause 12, number 2, of this Contract, or any other study the Contractor may have requested.  In any case, the decision of the MEM granting the requested extension must be pursuant to the provisions set forth in Articles 97 and 99 of the Regulation.
 
FOUR (4). In the event of a Commercial Discovery, the term of the Exploitation Contract shall be of thirty (30) years from the Effective Date, plus the period relative to the Natural Gas Exploitation Area for any market development phase utilized in accordance with Clause 14, number 2 of this Contract associated with such Exploitation Area.
 
FIVE (5). If the commercial production of an Exploitation Area would be possible beyond the applicable term specified in the preceding Clause, the Contractor may request, through notice submitted to the MEM at least one year prior to the end of such term, to extend the duration of the Contract with respect to such Exploitation Area for up to an additional period of five (5) years under the terms and conditions mutually agreed between the MEM and the Contractor.  Such terms and conditions must be established between the date of notice given by the Contractor and the effective date of such extension.
 
 
 

 
 
CLAUSE SEVEN (7): RELINQUISHMENT OF AREAS .
 
ONE (1).   The Contractor must relinquish part of the Contract Area at the end of each sub-period of exploration as follows:  For the First Sub-Period, at least 0.8% (zero point eight percent) of the Contract Area, equivalent to two lots of 2 minutes x 2 minutes each, corresponding to an area measuring 2,666 (two thousand six hundred sixty six) hectares. For the Second Sub-Period, at least 1.2% (one point two percent) of the Contract Area, equivalent to four lots of  2 minutes x 2 minutes each, corresponding to an area measuring 3.999 (three thousand nine hundred ninety nine) hectares. For the Third Sub-Period, at least 4.8% (four point eight percent) of the Contract Area, equivalent to twelve lots measuring 2 minutes x 2 minutes each, corresponding to an area measuring 15,996 (fifteen thousand nine hundred ninety six) hectares.
 
TWO (2).  At the end of the last sub-period, the Contractor shall relinquish all portions of the Contract Area, except (i) Exploitation Areas and (ii) Natural Gas discovery Area retained for a market development phase pursuant to Clause 14, number 1, of this Contract. The Contract Area shall be reduced to the commercial fields under production and development, plus a surrounding area for technical security for each field that shall not exceed five   (5) kilometers.
 
THREE (3). The Contractor must relinquish the lots that have been the object of extension of the Exploration Period as set forth in Clause 6.3 of this Contract, at the end of the extension of the Exploration Period, except for the lots described in number 2 of this Clause.
 
FOUR (4). Unless the Contract is terminated early, the Contractor shall inform the MEM of the number of lots that will be relinquished not more than thirty (30) days prior to the deadline for the relinquishment set forth in this Clause, under number 1, items 1.1),1.2), 1.3) and number 2.
 
FIVE (5). The lots designated for relinquishment pursuant to number 4 of this Clause shall consist, as much as possible, of groups comprising an area of sufficient size and shape to enable Petroleum Operations to be conducted by third parties. Within a group, the lots must be contiguous and joined by at least two sides. No group shall be less than twenty (20%) percent of the total area being relinquished at such time.
 
SIX (6). At the request of the Ministry of Energy and Mines, the Contractor shall waive its rights to conduct Petroleum Operations in the lots corresponding to an Exploitation Area where, for reasons other than force majeure or scheduled maintenance, as approved in the Contractor’s Work Program, production of such Exploitation Area has ceased for more than one hundred eighty (180) consecutive days for oil and three hundred sixty five (365) days for gas.
 
 
 

 
 
SEVEN (7).  No relinquishment shall relieve the Contractor of accumulated or unfulfilled obligations under the Contract.
 
EIGHT (8). Prior to the surrender or relinquishment of any area, the Contractor shall perform all necessary clean-up activities to reasonably restore such area as much as possible to its condition on the Effective Date, including the removal of the facilities that were built and used for the Contractor’s Petroleum Operations and its equipment, following the instructions provided by the Ministry of Energy and Mines, and shall take all other action necessary to prevent hazards to human life, property and the environment.  Upon the Ministry of Energy and Mine’s acceptance of such relinquishment, the MEM will issue the respective final discharge to the Contractor.
 
CLAUSE EIGHT (8): OBLIGATIONS DERIVING FROM THE MINIMUM EXPLORATION PROGRAM .
 
ONE (1). The Contractor shall commence the Minimum Exploration Program (PME) activities, attached hereto as an “Annex”, which is an integral part of this Contract and is within this same clause, within ninety (90) days after receiving the Environmental Permit issued by MARENA.  Such Exploration Operations shall be diligently carried out for the duration of the Exploration Period.
 
TWO (2).   During the first sub-period of the PME, the Contractor shall carry out and process all the activities pursuant to the Petroleum Industry International Practices and Regulations in effect.
 
THREE (3). .During the second sub-period of the PME, the Contractor shall carry out and process all the activities pursuant to the Petroleum Industry International Practices and Regulations in effect.
 
FOUR (4). During the third sub-period of the PME, the Contractor shall carry out and process all the activities pursuant to the Petroleum Industry International Practices and Regulations in effect.
 
FIVE (5). During the fourth sub-period of the PME, the Contractor shall carry out and process all the activities pursuant to the Petroleum Industry International Practices and Regulations in effect.
 
 
 

 
 
SIX (6). For purposes of compliance with the PME under numbers 2 through 4 of this Clause, the following is taken under consideration:  6.1 The obligations related to the second, third and fourth sub-period of the PME will accrue only if the Contractor opts to enter the following sub-period and continues to hold areas of exploration operations in the Contract Area.  6.2 Each Wildcat well shall be drilled to a minimum depth of at least three thousand five hundred (3,500) meters or a depth that intercepts the Cretaceous era, whichever is less.  6.3 Additional seismic surveys and Wildcat wells beyond the minimum required for any sub-period of the PME that could be carried out to satisfy the respective seismic survey and drilling obligations of a subsequent sub-period of the PME.  6.4 The prevailing PME obligation is the performance of the specified work with the estimated cost being used solely for establishing the guarantees of performance and the applicable non-performance penalties.  Below is the transcription of the annex relative to the Minimum Exploratory Program for the Area of Perlas, which says: “PME Annex of the Tyra Prospect Area – INFINITY RESOURCES INC. (INFINITY ENERGY RESOURCES INC.).  The duration of the first sub-period is of one and one half year (1-1/2) which will be divided in two phases: First Phase: The Contractor must prepare the Environmental Impact Study (EIA).  Second Phase: a) Purchase, evaluation and interpretation of six hundred sixty seven kilometers (667 km) of Fugro-Geoteam 2 D seismic; and b) Acquisition of six hundred sixty seven kilometers of 2D seismic or the option to perform this seismic survey in 3D.  During the second sub-period of the Exploration Period, which is half a year (1/2), the Contractor must carry out the processing and interpretation of six hundred sixty seven kilometers (667 km) of 2D seismic acquired in the previous sub-period or the option to perform this seismic survey in 3D.  During the third sub-period, which is of two (2) years, the Contractor must carry out the acquisition, processing and interpretation of two hundred fifty square kilometers (250 Km2) of 3D seismic. During the fourth sub-period, which is of two (2) years, the Contractor must perform the following: a) The drilling of one (1) Wildcat with sufficient depth to drill the Cretaceous Era or three thousand five hundred meters (3.500 m) whichever is the lesser of the two (2); and b) A geochemical analysis of the petroleum.“
 
CLAUSE NINE (9): GUARANTEES .
 
ONE (1). Within fifteen (15) days following the Effective Date of the Contract and submittal of each of the notices mentioned in Clause 6, number 2, of this Contract to enter the following Exploration sub-period, the Contractor shall provide an irrevocable guarantee in favor of the Ministry of Energy and Mines, which must be irrevocable, payable in Nicaragua at the request of the Ministry of Energy and Mines, issued by a guarantor financially acceptable to the Ministry of Energy and Mines, for an amount equal to the estimated cost, specified in number 2 of this Clause, to carry out the Minimum Exploration Work for such sub-period, with an accumulated credit carried forward pursuant to Clause 8, sub-Clause 6.3, for the excess work performed in the preceding sub-period.  Such guarantee shall be in the form and fund acceptable to the Ministry of Energy and Mines and may not be the object of compensation with any other obligation.
 
 
 

 
 
TWO (2). The respective amounts of such guarantees will be:  For the first sub-period of the Exploration Period, four hundred eight thousand four hundred fifty United States Dollars (US$408,450.00).  For the second sub-period of the Exploration Period, two hundred seventy eight thousand four hundred fifty (US$278,450.00).  For the third sub-period of the Exploration Period, one million eight hundred eighteen thousand six hundred sixty seven (US$1,818,667.00).  For the fourth sub-period of the Exploration Period, ten million, four hundred eighteen thousand six hundred sixty seven United States Dollars (US$10,418,667.00).
 
THREE (3). The guarantees will be granted within the first fifteen (15) days as of the Effective Date of the Contract for the first sub-period and for the following sub-periods within the first fifteen (15) days of the date of request for continuation.
 
FOUR (4). The relevant guarantee shall be reduced in accordance with the procedures established in Article 59 of the Regulation to the Law.
 
FIVE (5). If, at the end of any sub-period of the Exploration Period, or upon termination of the Contract, the Contractor has failed to perform all or any part of the accrued Minimum Exploration Program, the Contractor or its guarantor shall, upon request from the MEM immediately pay the entire amount of such outstanding work to be performed under the PME, except where the MEM and the Contractor agree that such pending obligations can be transferred to other Contract Areas. SIX (6).Upon signature or subscription of the Contract, the Contractor will provide the MEM with a guarantee document issued by the parent company of each company comprising the Contractor, whereby the parent company will provide technical and financial resources that the subsidiary may require to meet the Contractor’s obligations in a timely manner under the Contract, including liability for any damages or losses that the operations herein may cause to the State, third parties or the environment pursuant to Article 26 of the Law.
 
 
 

 

CLAUSE TEN (10): CONTRACTOR’S OBLIGATIONS .
 
ONE (1).The Contractor shall maintain throughout the term of this Contract a legal representative domiciled in Nicaragua, who shall have full authority to represent the Contractor with respect to legal matters related to the Contract and to receive notices addressed to the Contractor.
 
TWO (2). Within ninety (90) days following the Effective Date, the Contractor shall establish an office in Managua.
 
THREE (3). The Contractor shall conduct all operations hereunder in a diligent and professional manner, in accordance with applicable law, and the provisions set forth in this Contract, and the International Petroleum Industry practices and regulations in effect and the environmental standards applicable under similar circumstances.  The Contractor shall ensure that all materials, equipment, technologies and facilities used for the operations described below comply with generally accepted engineering and environmental standards in the international Petroleum industry, and are kept in good working order.  The Contractor shall carry out its operations in a manner that will maximize the optimum economic recovery in the Contract Area.
 
FOUR (4).  The Contractor shall provide the MEM with regular and complete information concerning all operations under this Contract, including the schedule for execution of specific work.
 
FIVE (5). The Contractor shall prepare and maintain in Nicaragua accurate and current records of its operations under the Contract throughout the term of the Contract.
 
SIX (6). The Contractor shall keep the MEM continuously informed regarding all operations under this Contract and shall deliver to the MEM, without cost, in the form and frequency prescribed by the MEM, all materials, samples, studies, information, documents and data, unprocessed, processed, and interpreted that is obtained by the Contractor, including pertinent financial information. Furthermore, the Contractor must inform the MEM of the results of other activities from the exploration and development activities of the hydrocarbon resources investigated.  The delivery requirement is extended to all information, data and work product of whatever nature for which the cost is entered by the Contractor as Petroleum Operation cost.  The Contractor shall keep all technical-economic data related to its activities hereunder at the office in Managua.
 
 
 

 
 
SEVEN (7).  The Contractor shall enable authorized representatives of the State to inspect any part of its operations and all facilities, installations, offices, records, books, or data related to operations under this Contract.  The authorized State representatives will bear any costs related to all such inspections.
 
EIGHT (8). The  Contractor shall provide facilities to a reasonable number of authorized personnel and representatives of the MEM or other Government agencies, to perform their duties and obligations associated with this Contract, including, in the case of field operations, transportation, lodging, food and other provisions similar to those provided by the Contractor to its own personnel.  NINE (9).  The Contractor shall bear responsibility, in accordance with the applicable law, for any loss or damage to third parties caused by its employees or sub-contractors or their employees related with the activities under this Contract, for wrongful or negligent acts contrary to the Law, or omissions, and will indemnify the proper party against any third-party’s claim.
 
TEN (10). The Contractor expressly waives diplomatic claims and submits to the jurisdiction of Nicaraguan courts.  Without prejudice to the foregoing, the State and the Contractor hereby consent to submit to the International Centre for Settlement of Investment Disputes of the World Bank (“ICSID”) any dispute arising out of or relating to this Contract for settlement by arbitration pursuant to the Arbitration Rules established for such cases with the ICSID in accordance with Clause Thirty One (31) of this Contract.
 
ELEVEN (11). In performing their activities, the Contractor and Subcontractor must comply with the national and international environmental protection laws and the technical security norms, and apply the international recommended practice for each case. Such activities shall be performed in a manner compatible with the protection of human life, property, conservation of Hydrocarbons, and other resources, avoiding as much as possible damage to the infrastructure, historical sites and ecosystems of the country, whether land or marine.
 
 
 

 
 
TWELVE (12). Prior to the beginning of the PME, the Contractor must submit to the MARENA the Environmental Impact Study (EIA), based on the Terms of Reference (ToR) as defined by MARENA and the MEM. In addition, the Contractor must submit the Environmental Protection Plans and Contingency Plans that must be updated at least once a year and/or whenever the MEM so requests. Through these Plans, the Contractor must: 12.1. ensure the security areas around all machinery and equipment; 12.2. provide secure storage areas for all explosives, detonators, and similar dangerous materials used in operations under this Contract; 12.3. prevent pollution or damage to any water and other Natural Resources;12.4. contain any blowout, fire or other emergency situation that would result in loss of reserves or damage to the reservoir; 12.5. prevent unintentional entrance of fluids into hydrocarbon bearing formations and the production of Hydrocarbons from reservoirs at higher rates than those consistent with the international petroleum industry practices and regulations in effect; 12.6. take all reasonable precautions to prevent the pollution of or damage to the environment, including the undertaking of remedial measures within a reasonable period of time to repair or offset damage to the environment in cases where any work or installations erected by the Contractor or any operations conducted by or on behalf of the Contractor endanger third party property or cause pollution or harm to the wildlife or the environment, including where pollution occurs rapidly, in order to treat or disperse it in an environmentally acceptable manner; 12.7.report to the MEM and other entities, pursuant to the laws in effect, if any worker is injured while performing duties associated with the operations under this Contract; 12.8. have an adequate supply of first-aid medicines and equipment in each area and maintain a healthy environment for the workers;  12.9.provide safety and fire-fighting equipment in each work area; and 12.10. prepare and submit to MEM for approval prior to commencing any drilling activities, an oil spill and fire contingency plan, which plan shall be implemented in the event of such a catastrophe.
 
THIRTEEN (13).  In case of an accident or emergency involving damage to persons or property, the Contractor must immediately inform the MEM of such event and take reasonable steps, including temporary suspension of the operations, to protect the safety of individuals and property.
 
FOURTEEN (14). A Regulation and Monitoring Committee will be formed, consisting of employees of MEM, MARENA and other State institutions associated with these activities, two qualified members of each Regional Council of the Caribbean Coast and two of the Contractor’s employees. The Committee shall meet at least twice (2) a year unless otherwise agreed by the parties.  The meetings will take place in the city of Managua or in the field where the Contractor’s exploration and exploitation activities are performed.  It is understood that the meetings to be held in the city of Managua may be open, that is, other MEM and MARENA members may be invited to participate in such meetings, whenever such nominated parties are directly involved in the exploration and exploitation activities in the Contract Area.  With respect to the meetings to be held in the field, it is hereby understood that the number of MEM and MARENA participants is to be agreed between the MEM and the Contractor for budget and safety reasons; the criteria for participation in such meetings will be based on the activities carried out in the field.  Each party shall bear its own costs of the representatives attending the meetings.
 
 
 

 
 
FIFTEEN (15). The MEM will have the opportunity to attend, as an observer, without the right to speak or vote, the Contractor’s annual shareholders meetings where investment and important decisions will be made regarding the Minimum Exploration Program (PME) and the project of the Contractor in Nicaragua. The MEM commits to keep the information gathered at the meetings confidential and will assume all costs incurred to attend such meetings.
 
SIXTEEN (16). The Contractor will submit to the MEM, on a yearly basis, a proposal for qualification and training of the MEM personnel in relation to the PME and the contract in general, for which a minimum annual budget of US$50,000 (fifty thousand United States Dollars) will be submitted by the Contractor.  Qualification and training may include the purchase of books, software, hardware and any other supplement item needed.  The types of qualification and training for the MEM personnel will be on site whenever referring to seismic operations and wildcat drilling.  Furthermore, within the annual budget, the Contractor will offer at least two (2) annual seminars in Managua in connection with the PME and will also offer, on a yearly basis, participation in international seminars and conferences emphasizing the exploration and production of Hydrocarbons. In addition, the MEM may include topics of qualification and training of its interest, which must correspond to the budget in this clause and be mutually agreed upon with the Contractor.
 
CLAUSE ELEVEN (11) ASSISTANCE BY THE MINISTRY OF ENERGY AND MINES :
 
ONE (1). To enable the Contractor to fulfill the Contract in an expeditious and efficient manner, the MEM shall assist the Contractor, whenever specifically requested by the latter, in the following matters:1.1 obtaining the right to use the land as may be required for the operations under the Contract;1.2 obtaining licenses or permits for transportation and communication facilities;1.3 complying with customs formalities and regulations, and import/export control;1.4 obtaining entry and exit visas for the Contractor’s and Sub-Contractor’s foreign personnel that will come to Nicaragua to perform the Contract, including family members.
 
TWO (2). All reasonable expenses incurred associated with the assistance provided by MEM in accordance with this Clause, shall be reimbursed by the Contractor within thirty (30) days after receipt of the corresponding invoice.
 
 
 

 
 
CLAUSE TWELVE (12): DISCOVERY AND COMMERCIALIZATION .
 
ONE (1).  If Hydrocarbons are encountered in a Wildcat well, the Contractor shall immediately notify the MEM of such discovery and within thirty (30) days thereafter; the Contractor shall also provide the MEM all available information regarding the discovery, including a preliminary classification of the discovery as (1) Liquid Hydrocarbons or (2) Natural Gas.
 
TWO (2). The Contractor shall notify the MEM in writing within one hundred eighty (180) days if the discovery of Liquid Hydrocarbons has commercial potential, based on the Appraisal Program described in this Clause, which will be deemed approved if no objections are submitted in writing by the MEM within thirty (30) days following receipt of such notice.  The Appraisal Program shall: specify the appraisal work in a reasonably detailed form, including seismic, drilling of wells, production tests, and studies to be carried out and the time frame within which the Contractor shall commence and complete the program; and identify the lots to be appraised ("Appraisal Area") which shall not exceed the lots encompassing the geological structure or prospect plus a buffer area not to exceed five (5) kilometers in length surrounding the perimeter of such structure or prospect.
 
THREE (3). If the Contractor notifies that a discovery of Natural Gas has commercial potential, the Contractor shall, within ninety (90) days after the notice, present to MEM a plan for assessing the discovery in sufficient detail for approval, to be able to seek a market for the Natural Gas ("Assessment Plan").  The Contractor must notify the MEM in writing within one hundred and eighty (180) days if the discovery of Natural Gas has commercial potential, based on the Assessment Plan. The Assessment Plan shall be deemed approved if no written objections are raised by MEM within thirty (30) days after receipt thereof.  As soon as the Contractor develops a market for such Natural Gas, but in any event pursuant to the terms of the Contract, including any market development phase, under Clause 14, number 2 of this Contract, the Contractor shall conduct an Appraisal Program as set forth in number 1 of this Clause.
 
FOUR (4). If the Contractor notifies MEM, pursuant to number 1 of this Clause, of a discovery that the Contractor deems to have no commercial potential or if the Contractor fails to present an Evaluation Program, pursuant to number 2 of this Clause, or an Assessment Plan, pursuant to number 3 of this Clause, the Contractor, upon MEM’s request, must surrender at any moment the area that contains at least the blocks encompassing the geological structure or prospect where the discovery was made.
 
 
 

 
 
FIVE (5). The Contractor shall carry out the approved Appraisal Program within the timeframe specified therein.  Within one hundred eighty (180) days after completion of such Appraisal Program, the Contractor shall submit to MEM a comprehensive appraisal report concerning the Appraisal Program.  Such appraisal report shall include, but will not be limited to the following information:  geological conditions, such a structural configuration; physical properties and extent of reservoir rocks; pressure, volume and temperature analysis of the reservoir fluids; fluid characteristics, including the gravity of the Liquid Hydrocarbons, sulfur percentage, sediment and water percentage, and product yield pattern; Natural Gas composition; results of production tests; production forecasts (per well and per field); and estimates of recoverable reserves.
 
SIX (6). With the submission of the appraisal report, the Contractor shall submit a written declaration to the MEM indicating one of the following: that it has determined that the discovery is a Commercial Discovery; or  that it has determined that the discovery is not a Commercial Discovery, in which case the Contractor must relinquish the respective Appraisal Area immediately; or that it has determined that the discovery is a significant discovery which may become a Commercial Discovery subject to the outcome of future work that the Contractor commits to carry out under a future Exploration or Appraisal Program in specific areas within or outside the Appraisal Area.
 
SEVEN (7). In the event the Contractor makes a declaration pursuant to number 6.3 of this Clause, the Contractor shall be entitled to retain an Appraisal Area subject to its completion within the Exploration Period of future work committed pursuant to the provision set forth in number 6.3, at which time the Contractor shall notify the MEM about its decision with respect to the discovery, as to whether or not it is a Commercial Discovery, and the provisions set forth in number  6.1 or  6.2 of this Clause will apply accordingly.
 
EIGHT (8). If the Contractor declares, pursuant to number 6.1 of this Clause, that a discovery is a Commercial Discovery, the Contractor shall submit, together with the appraisal report (1) a Development Plan proposal including all installations and facilities for the operations under this Contract, (2) a proposal of designation of the lots that comprise the Exploitation Area, and (3) a comprehensive environmental impact study including the Development proposal and any facilities or infrastructure inside or outside of the Contractual Area and up to and beyond the Fiscalization Point. All three items shall be subject to MEM’s approval which will not be unreasonably withheld, and shall be deemed approved if the MEM does not submit any objections to it, in writing, within sixty (60) days from its receipt.  In the event the MEM and the Contractor are unable to reach an agreement concerning the objections raised or changes proposed by the MEM within ninety (90) days following the date of notice to the MEM expressing such objections or proposed changes, the Contractor shall have the right to request that the matter in dispute be resolved through experts, in which case the decision of the expert, regardless of the case, will involve both the MEM and the Contractor.   Following the approval of the documents submitted by the Contractor in accordance with items (1), (2) and (3) mentioned above, the Contractor will proceed, promptly and diligently, in accordance with the good international petroleum industry practices, to develop the discovery, installing all the infrastructure described in the Development Program in order to start up the commercial production and produce the discovery in such manner as to reach the maximum economic recovery of the reserves.
 
 
 

 
 
NINE (9). The Contractor's proposed Development Plan under the preceding item will detail the Contractor’s proposals for the development and operation of the Exploitation Area, shall include all the information required under Article 111 of the Regulation and will specify the Fiscalization Point it proposes.  Furthermore, it shall identify any facility and infrastructure required outside the Contract Area, specifying those that are located before the Fiscalization Point and those that fall within the category authorized by Clause 3 number 2 of this Contract.  The Development Plan will detail the parameters of production, number and distance between the wells; the facilities and infrastructure (including the proposed locations) to be installed for production; storage, transportation and loading of Hydrocarbons and a time estimate to conclude each phase of the Development Program, a production forecast and an estimate of ongoing capital and operating expenses involved to achieve the production forecast, as well as any other factor that might affect the economic or technical feasibility of the proposed development, and any such other particulars as the MEM may request.
 
CLAUSE THIRTEEN (13): EXPLOITATION WORK PROGRAMS .
 
ONE (1). Commencing with the Calendar Year in which the first Development Plan for the Contract Area is approved, the Contractor shall prepare and submit to the MEM for approval, in such format as the MEM may require, an Exploitation Work Program specifying by Calendar Quarter all aspects of the proposed operations to be carried out in relation to each Exploitation Area and related facilities and infrastructure up to the Fiscalization Point, the estimated cost thereof, the duration and location of each operation, and, where applicable, the estimated monthly rate of production for each field.  Each such proposed Work Program shall also include a forecast of yearly Development and Production activities and costs resulting from the four (4) Calendar Years or the corresponding period up to the end of the term of the Contract, whichever is shorter.
 
 
 

 
 
TWO (2).  The first such Exploitation Work Program, covering the balance of the Calendar Year, in which the Development Plan is approved, shall be submitted within thirty (30) days following the date of approval of such Development Plan.  Thereafter, the Contractor shall submit its proposed annual Exploitation Work Program at least ninety (90) days before the beginning of the relevant Calendar Year.
 
THREE (3). The Contractor’s Exploitation Work Program proposed and submitted to the MEM shall be deemed approved if the MEM does not raise any objections thereto following the sixty (60) days from the date of receipt.
 
FOUR (4). If MEM objects to any part of the Contractor's proposal, the MEM shall notify the Contractor within the sixty (60) day period specified in the preceding item number. The notice from the MEM shall specify the suggested modifications. If the Contractor deems that any revision required by the MEM renders the Exploitation Work Program unacceptable to the Contractor, the Contractor shall notify and substantiate to MEM, within ten (10) days after receipt of such notice, the reasons for its decision.  Following receipt of the justification from the Contractor, the Parties shall meet for the purpose of resolving any differences.  If they are unable to reach a resolution to such differences by the beginning of the Calendar Year in which the Exploitation Work Program is to begin, the Contractor shall incorporate the modifications required by the MEM in the proposed Exploitation Work Program pursuant to Clause 13, number 2, of this Contract, to the extent such changes do not increase or reduce the budget proposed by the Contractor by more than ten (10) per cent and do not substantially alter the general objectives of the Work Program as submitted by the Contractor.  With regard to the levels of production, MEM may require the Contractor to modify the proposed rate of production for any Exploitation Area in which more than fifty per cent (50%) of the production on an energy equivalent basis is Liquid Hydrocarbons for any of the following reasons: 4.1 to optimize overall recovery of Hydrocarbons, 4.2 to minimize waste of Natural Gas, 4.3 for safety reasons, and 4.4 for operational reasons.
 
 
 

 
 
FIVE (5). The Contractor shall deliver to MEM within ten (10) days following each Calendar Quarter a status report concerning the progress of the operations carried out and the costs incurred under the approved Exploitation Work Program during such Calendar Quarter.  The status report shall forecast any significant changes to such Exploitation Work Program that Contractor anticipates may be necessary during the balance of the Calendar Year.  The report corresponding to the last Quarter of each Calendar Year shall also include a summary of the operations and costs incurred during such Year.
 
CLAUSE FOURTEEN (14) NATURAL GAS
 
ONE (1). Upon completion of an Assessment Program agreed with MEM under Clause 12, number 3 of this Contract, the Contractor shall notify the MEM whether or not it wishes to retain the Natural Gas discovery for a market development phase.  If the Contractor requests a market development phase for such discovery, the Contractor shall notify the MEM within the following thirty (30) days, of the selection of the lots within the Contract Area that will be subject to such phase. The selected area shall not exceed the lots encompassing the geological structure or prospect where the discovery was made, as well as the lots containing a reasonable margin not to exceed five (5) kilometers in length surrounding the perimeter of such structure or prospect.
 
TWO (2). The duration of such market development phase shall not exceed ten (10) years from the date of the Contractor's notice mentioned in the preceding sub-clause, whereby the Contractor decides to enter into the market development phase.  The market development phase shall end upon the occurrence of the first of the following events: 2.1 the date on which the Contractor declares the Natural Gas discovery to be a Commercial Discovery, 2.2 the date on which the Contractor voluntarily abandons the market development area or 2.3 the end of the market development phase.
 
THREE (3). The Contractor shall lose all its rights over a Natural Gas discovery if it does not declare such discovery as being a Commercial Discovery at the end of the market development phase or if it relinquishes the lots corresponding to the market development areas or terminates the Contract early.
 
FOUR (4). For availing itself of such market development phase, the Contractor shall pay the MEM at the end of each Calendar Year of the market development phase an annual tenancy fee of one hundred thousand (US$100,000) United States dollars, which will be reduced by duly verified amounts that the Contractor has expended during such year under specific programs approved by the MEM on activities or projects directly attributable to the market development area.  Expenditures for the following types of activities will be eligible as credits against the tenancy fee: 4.1 future geochemical, geophysical or geological surveys in the market development area; 4.2 the drilling and testing of any additional wells in the market development area; 4.3 consulting, feasibility and marketing studies; and 4.4 other market development activities approved by the MEM. Excess amounts expended in a particular year with respect to the tenancy fee, may be entered as a credit against the next year's tenancy fee.
 
 
 

 
 
FIVE (5). The tenancy fee shall be applied pro rata on a daily basis in the event the Contractor relinquishes the market development area or declares the Natural Gas discovery to be a Commercial Discovery prior to such year, payable within thirty (30) days following such relinquishment or declaration of Commercial Discovery, as the case may be.
 
SIX (6). Together with the notice requesting to enter into the market development phase, the Contractor shall provide the MEM the results of the Assessment Program carried out pursuant to Clause 12, number 3 of this Contract including the estimated recoverable reserves, projected delivery rate and pressure, quality specifications and any other relevant technical and economic factors.
 
SEVEN (7). All the available Natural Gas existing in such market development area, shall be considered from the beginning as freely available by the Contractor to any market or markets, including exportation, as arranged by the Contractor, in a gaseous or transformed phase, or a combination of such phases.
 
EIGHT (8). The Contractor shall notify the MEM concerning the sales contract or contracts for Natural Gas, as well as any exportation arrangements.  In such notice, the Contractor must demonstrate that the price of Natural Gas at the Fiscalization Point is representative of the fair market price, having taken into consideration a fair market price for transporting the Natural Gas from the Fiscalization Point to the consumer and, whenever applicable, for liquefaction and re-gasification costs.
 
NINE (9). The Contractor shall give priority to the Petroleum Operations of Associated Natural Gas, including reinjection for maintaining pressure and recycling operations in order to obtain maximum economic recovery of Liquid Hydrocarbons.
 
 
 

 
 
TEN (10). The MEM may, at any time, call upon the Contractor to deliver to it or to any MEM designated third party at the proper delivery point, without compensation, any quantity of Associated Natural Gas not being required for the Contractor's Petroleum Operations or committed for sale, in the event the MEM requires the associated natural gas, the MEM will take such associated natural gas in a manner as agreed between the parties, to be used for public interest, whenever such delivery does not negatively interfere with the Contractor's Petroleum Operations or add to the cost of Contractor’s Petroleum Operations.  In such case, the MEM shall provide and maintain, for its own account, any facility beyond the delivery point required in connection with the gathering, compression, transport, or utilization of such Associated Natural Gas.
 
ELEVEN (11). Under no circumstance may the Contractor release Natural Gas into the atmosphere.
 
TWELVE (12). Whenever the Contractor does not require the Natural Gas for the Petroleum Operations, cannot sell it or the MEM does not elect to take it pursuant to number 10, of this Clause, the Contractor shall endeavor to reinject the gas into a suitable stratum or, as a second option, store it underground in accordance with the international petroleum industry practices and regulations in effect.  The Contractor shall seek to obtain prior approval from the MEM and MARENA to flare any Natural Gas that cannot be reinjected due to specific reservoir considerations or for other reasons, including economic reasons, acceptable to the international Petroleum industry and in line with good oil field practices.  Before flaring the gas, the Contractor shall take reasonable measures to ensure the extraction of natural gasoline and other liquids contained in the Associated Natural Gas if the Contractor deems that such extraction is economically justifiable.  Notwithstanding anything in this Clause to the contrary, the Associated Natural Gas may be flared at any time if necessary in order to run well and/or production tests and on an emergency.
 
CLAUSE FIFTEEN (15): FINANCES AND AUDITING .
 
ONE (1). Notwithstanding the books required by the Commercial Code of Nicaragua, the Contractor shall maintain in Nicaragua, in accordance with the generally accepted accounting practices used in the international petroleum industry, accounting books and such other books and records as may be necessary to show the work performed under the Contract, as well as the costs incurred, and the quantity and value of all Hydrocarbons inspected at the Fiscalization Point.
 
TWO (2). The Contractor shall prepare, for each Calendar Year, separate balance sheets and profit and loss statements reflecting its operations under the Contract 1) up to the Fiscalization Point and 2) beyond the Fiscalization Point.  The accounting procedures, rules and practices applied for determining revenue and expenses shall be consistent with sound and usual international petroleum industry practices.  Each such balance sheet and profit and loss statement shall be certified by an independent firm of certified public accountants of international standing acceptable to MEM and the MHCP.  Such balance sheet and loss and profit statements must be submitted, along with the auditor's report, to MEM and the MHCP within ninety (90) days after the end of the Calendar Year to which it belongs.
 
 
 

 
 
THREE (3). The MEM has the right to inspect and audit the Contractor's books, accounts and records relating to the operations under this Contract for the purpose of verifying the Contractor's compliance with the terms and conditions herein.  Such books, accounts and records shall also be available at any reasonable time for inspection and audit by duly authorized representatives of the MEM and the MHCP, including independent auditors that may be employed by them, for fiscal audits. The MEM and the MHCP may conduct their audits within two (2) years after the end of each Calendar Year.  Any exception by MEM or the MHCP must be communicated to the Contractor within the earlier of 1) twelve (12) months after the commencement of the specific authorized audit or 2) two (2) years after the end of the Calendar Year under audit, provided, however, that if information is required under the Clause number below, the period for filing exceptions shall commence upon receipt by the Government authority that requested the audit of such requested information from the parent company's independent auditors.
 
FOUR (4). The MEM and the MHCP may require the Contractor to engage Contractor’s parent company’s auditors to examine at Contractor’s cost and in accordance with generally accepted auditing standards, the books and records of Contractor’s Affiliate to verify the accuracy and compliance with the terms of the Contract insofar as a charge from the Contractor’s Affiliate (or of any entity comprising the Contractor) is included directly or through the Contractor as a) a Petroleum Operations cost or b) a part of a tariff for infrastructure beyond the Fiscalization Point. The request from the Governmental authority shall specify in writing the item or items for which it requires verification from such independent audit. A copy of the independent auditor’s findings shall be delivered to the Government authority that requested such verification within thirty (30) days after the completion of such audit.
 
 
 

 
 
FIVE (5). The Contractor's books for its operations under this Contract shall be kept on the accrual basis in United States dollars.  Accounts reflecting operations up to the Fiscalization Point shall be set apart from those reflecting operations beyond the Fiscalization Point.  Such accounting books shall be in the Spanish and English languages and shall comply with internationally accepted accounting principles consistent with modern petroleum industry practices and procedures and the provisions set forth in the Contract.  All U.S. dollar income shall be entered in the amount received and all U.S. dollar expenditures shall be charged in the amount expended.  Income received or expenditures made in foreign exchange other than U.S. dollars shall be entered or charged at the applicable rate of exchange for U.S. dollars pursuant to the rate of exchange posted by the Central Bank of Nicaragua on the last business day of the week in which such income is received or expenditure made.  All expenditures in local currency shall be converted to U.S. dollars at the documented cost of the national currency purchased by the Contractor with foreign currency.  All income in local currency and costs paid with such national currency shall be converted to U.S. dollars at the rate of exchange for commercial transactions quoted by the Central Bank of Nicaragua in effect on the business day when the national currency was received by the Contractor.
 
SIX (6).  The Parties agree to use the depreciation method pursuant to the principles established in Law 453 (four hundred fifty three), the Law of Fiscal Equity and its modifications and Decree No. 46-2003 (Forty Six dash Two Thousand Three), Regulation of the Fiscal Equity Law, that are hereby incorporated to this Contract.
 
SEVEN (7). The Contractor will be subject to payment of Income Tax at the rate of 30%, applicable to the net income originating from its exploitation activities.  This rate is the maximum rate and shall apply throughout the term of this Contract, pursuant to Clause 64 of the Law and the principles prescribed by Law No. 453 (four hundred fifty three), the Law of Fiscal Equity, that are incorporated to the Contract through this provision.
 
CLAUSE SIXTEEN (16): PRODUCTION, MEASUREMENTS AND RIGHTS OF EXPORT .
 
ONE (1). The Contractor shall have the right to use, free of charge, the Hydrocarbons produced within the Contract Area to the extent reasonably required for the Petroleum Operations pursuant to this Contract.  The Contractor must purchase, at market value, the Hydrocarbons from the Contract Area it uses for its operations beyond the Fiscalization Point.
 
 
 

 
 
TWO (2). All the Liquid Hydrocarbons and/or Natural Gas produced and reserved from the Contract Area and not used in the Petroleum Operations shall be measured at the applicable Fiscalization Point(s) approved in the Development Plan.  Such measurements and measuring devices shall comply with Chapter XII of the Regulation and the international petroleum industry practices and regulations in effect.  Production tests or experiments shall also belong to the Contractor and no royalty shall be paid for such production.  The market value of such production tests or experiments at the point of production shall be entered as income to the Contractor.  Even though the Contractor is authorized to receive all the Hydrocarbons produced within the Contract Area, for purposes of any calculations hereunder involving volumes of production, the volume measured at the Fiscalization Point shall govern.
 
THREE (3).  Subject only to Clause 14, number 7, and Clause 17 of this Contract, the Contractor may freely export any Hydrocarbons that it produces within the Contract Area and that it does not use in the Petroleum Operations.
 
CLAUSE SEVENTEEN (17): SUPPLY TO THE INTERNAL MARKET .
 
ONE (1).  Whenever so requested by the MEM, the Contractor shall supply Liquid Hydrocarbons from the Contract Area to meet the internal market requirements of Nicaragua.
 
TWO (2). Such request from the MEM shall be in writing and shall be given no less than sixty (60) days before commencement of deliveries by Contractor.  The request shall indicate the volume of the Contractor's Liquid Hydrocarbons required, based on estimates and forecasts, and the duration of the desired supply.
 
THREE (3). The maximum volume that the MEM may require the Contractor to supply, pursuant to this Clause, shall be determined by multiplying the total estimated volume of Liquid Hydrocarbons needed to meet the internal market demand during the first corresponding Calendar Quarter by a fraction which numerator will be the Contractor’s Liquid Hydrocarbons inspected and estimated within the Contract Area for such Calendar Quarter and which denominator will be the total estimated Liquid Hydrocarbons to which the MEM is entitled and all the products in Nicaragua for such period.
 
FOUR (4). Delivery of the Liquid Hydrocarbons supplied shall be at the Fiscalization Point or another Point agreed between the Contractor and the MEM.  The Liquid Hydrocarbons supplied may be refined in Nicaragua.
 
FIVE (5). The price to be paid to the Contractor for such Liquid Hydrocarbons shall be the export market value at the Fiscalization Point determined in accordance with Clause 18 of this Contract, satisfactorily adjusted to reflect the cost of transport if the agreed delivery point is not the Fiscalization Point.
 
 
 

 
 
SIX (6). Payment for the Liquid Hydrocarbons supplied shall be in U.S. dollars to a bank account outside Nicaragua, as specified by the Contractor.
 
SEVEN (7). The MEM and the Contractor may enter into a Liquid Hydrocarbons sales contract covering the duration of the desired purchases. The MEM may assign its rights as purchaser to one or more local or regional refineries subject to the assignee's providing the Contractor, at the time of each delivery, with an irrevocable letter of credit acceptable to the Contractor covering the corresponding purchase.  The Contractor has the right to cease deliveries under any sales contract if it does not receive timely payment for each delivery.
 
CLAUSE EIGHTEEN (18): VALUATION .
 
ONE (1). The value of Liquid Hydrocarbons within the Contract Area shall be the competitive international market value of such Liquid Hydrocarbons at the Fiscalization Point.
 
TWO (2). The competitive international market value of the Liquid Hydrocarbons, other than natural gasoline, shall be the price in United States dollars at which an independent third party buyer would be prepared to buy such Liquid Hydrocarbons at a particular time at the Fiscalization Point, on independent basis, taking into account the quality, volume, cost of transportation, payment terms, and any other relevant condition, including the then prevailing world market conditions.
 
THREE (3). Whenever different grades of Liquid Hydrocarbons are produced within the Contract Area, the value shall be determined and applied for each grade of Liquid Hydrocarbons.  However, in the event that different grades of Liquid Hydrocarbons are blended together for sale, the value of such blend shall be determined by the grade that determines the applicable price in the international market.
 
 
 

 
 
FOUR (4). The value of Liquid Hydrocarbons, other than natural gasoline, shall be determined in United States dollars per barrel for each Calendar Month as follows:  4.1 The Contractor shall present to the MEM its proposal as to the value of the particular Liquid Hydrocarbons for the preceding Month, within the first ten (10) business days of the current month during which the Liquid Hydrocarbons, other than natural gasoline, will be produced and measured from the Contract Area, such proposal shall be accompanied by information supporting the Contractor's proposal, including evidence of independent current prices, F.O.B. sales prices to third parties effected by the Contractor for Liquid Hydrocarbons within the Contract Area during such Calendar Month, as well as F.O.B. prices published from Liquid Hydrocarbons exportation prices comparable and applicable to that same period.  Such value shall be netback price from the point of export or the first sale in Nicaragua to the Fiscalization Point applying the tariffs for transportation and storage beyond the Fiscalization Point approved by the MEM in accordance with the Law governing the supply of Hydrocarbons. 4.2 If the MEM accepts the value proposed by the Contractor set forth in the preceding clause number, or does not make any objections in writing within ten (10) business days after receipt of same, the value proposed by the Contractor shall be deemed the value for the Calendar Month for which the price is being determined.  4.3 If the MEM objects, in writing, to the Contractor's proposal within the prescribed period, the MEM shall include, together with such notice, a counter-proposal for the value, as well as information supporting the counter-proposal. 4.4 If the Contractor accepts the MEM's proposal or does not object to it in writing within ten (10) business days after receipt of same, the MEM's counter-proposal shall be the value for the Calendar Month for which the price is being determined.  4.5 If the Contractor objects in writing to the MEM's proposal within the prescribed period, the MEM and the Contractor’s authorized representatives shall meet within forty eight (48) hours after MEM's receipt of the Contractor's notice of objection in an endeavor to establish, through negotiation, the price to be used as the value for the Calendar Month for which the determination is being made. 4.6 If within fifteen (15) days after receipt of the Contractor's objection notice under item 4.5 of this Clause, a value has not been agreed upon through negotiation, such value shall be determined in accordance with number 5 of this Clause.
 
 
 

 
 
FIVE (5). The following procedure shall apply for determining the value of Liquid Hydrocarbons, other than natural gasoline, whenever the procedure under number 4 of this Clause does not result in timely agreement:  5.1 The value shall be determined on the basis of three internationally traded crude oil prices.  The crude oils that qualify for inclusion in the price basket shall be those for which the market value or F.O.B. price is published in the Platt’s Oilgram.  The price of crude oils will be from three different regions of the world, which physiochemical properties must be similar to those found in the Caribbean Margin.  5.2 The crude oils to be included in the price basket shall be proposed by the Contractor as part of the Development Plan under Clause 12, number 8 of this Contract for approval by the MEM. 5.3  In the event that one or more of the crude oils agreed upon do not meet the requirements of number 5.1 of this Clause, a replacement crude oil shall be determined by agreement between the MEM and the Contractor. 5.4 For each of the reference crude oils included in the price basket agreed upon, the equivalent C.I.F. value in Houston, Texas, U.S.A., shall be determined as follows: 5.4.1 the arithmetic average of the daily export price for the Calendar Month under consideration, plus the competitive and independent transportation costs from the point of export of the reference crude oils to Houston, Texas, U.S.A. 5.4.2 the quality differential between the reference crude oil and the Liquid Hydrocarbons for which the value is being determined.  5.5 The quality differential shall be based on the yields under normal distillation and the market prices in the Gulf Coast of the United States published in the Platt's Oilgram for the products obtained. 5.6  The arithmetic average of the three equivalent values shall be determined pursuant to number 5.4 of this Clause and the transport costs of the Liquid Hydrocarbons being valued from the relevant Fiscalization Point in Nicaragua to Houston, Texas U.S.A. shall be deducted from the results obtained in order to reach the value.
 
SIX (6).   The value of natural gasoline at the Fiscalization Point shall be the average for the Calendar Month for which the calculation is being made of the daily average of the high and low prices as published in the Platt's Oilgram Price Service for motor gasoline which physiochemical properties are similar to those found in the Caribbean Margin.
 
SEVEN (7).  The value of the Natural Gas shall be the weighted average sales price at the Fiscalization Point for deliveries of Natural Gas during the Calendar Month.
 
CLAUSE NINETEEN (19): ROYALTIES .
 
ONE (1). The Contractor shall pay to MEM a royalty, in cash, based on the Production from the Contract Area measured at the Fiscalization Point during each Calendar Month. The royalty will be calculated separately for Liquid Hydrocarbons and for Natural Gas in accordance with Articles 54 and 57 of the Law, which are incorporated herein by this reference, and the norms issued by the Board of Directors of the MEM.
 
TWO (2). The rate of the royalty for Liquid Hydrocarbons will be determined at the end of each Calendar Month on the basis of the "R" factor established in Article 58 of the Law.  The rates of the royalty on Liquid Hydrocarbons are as follows: Value of "R" Factor of zero (0) to less than 1.5 (one point five), a Royalty Percentage of 5.0% (five percent); Value of “R” Factor of 1.5 (one point five) to less than 3 (three), a Royalty Percentage of 10% (ten percent); Value of “R” Factor greater than 3.0 (three), Royalty Percentage of 15.0% (fifteen percent).
 
 
 

 
 
THREE (3). The royalty rate for Natural gas is of 5% (five percent) of the value of the production measured at the Fiscalization Point.
 
FOUR (4). For calculating the amount of royalty to be paid, the Hydrocarbons shall be valued at the market value determined in accordance with Clause 18 of this Contract.
 
FIVE (5). With respect to its exploration and exploitation activities, the Contractor is subject to the special regime established by Article 58 of the Law, which provisions are incorporated herein through this reference and is exempt from payment of any other fiscal or municipal tax by virtue of the provision set forth in Article 62 of the Law.
 
SIX (6). The Contractor’s activities other than the Exploration and Exploitation of Hydrocarbons are subject to the general fiscal regime in effect in Nicaragua.
 
CLAUSE TWENTY (20): CONTRIBUTIONS .
 
ONE (1).  For the purpose of supporting and fulfilling its social function in the Autonomous Regions in connection with the social, economic and infrastructure development, environmental preservation, health, education and services, the Contractor will contribute and/or donate, on a yearly basis, a total of three percent (3.0%) of its net utilities obtained as a result of the exploitation of Hydrocarbons based on its operations as established in the Concession Contract (hereinafter such contribution or donation will be called “Community Development Fund” or simply “FDC”) to the Atlantic North Autonomous Regions (RAAN) and the South Atlantic Autonomous Region (RAAS).  The FDC shared between the corresponding Regions will be of one point five percent (1.5%) to each Region.  The FDC will be deposited in the accounts indicated by the North Atlantic Regional Council and the South Atlantic Regional Council.  Therefore, the Contractor will calculate the FDC based on each fiscal/accounting year, in accordance with the principles established by Law number four hundred fifty three (No.453), the law of Fiscal Equity, which is hereby incorporated to this Contract.
 
 
 

 
 
CLAUSE TWENTY ONE (21): PAYMENTS .
 
ONE (1) The Contractor .to the MEM at the beginning of each contractual year, a nonrefundable area fee based on the number of hectares (ha) comprising the Contract Area.  The rate per hectare for the area of Perlas is as follows:  from 1 to 3 years: US$0.05 (zero point zero five cents of United States Dollar) per hectare; from 4 to 7 years: US$0.10 (zero point ten cents of United States Dollar) per hectare; from 8 years on:US$0.15 (zero point fifteen cents of United States Dollar) per hectare.  Those rates per area will be readjusted annually on the date immediately preceding the anniversary payment date on the basis of the average variation in the "Consumer Price Index" as published by the U.S. Department of Commerce during the preceding twelve (12) month period.  This fee shall be used by the MEM to help defray its general administrative costs of the activities described in this Contract, but not in lieu of amounts payable by Contractor under Clause 11, to cover the costs of assistance provided by the MEM
 
. TWO (2). All payments which the Contract obligates the Contractor to make to the State, even when the amount is expressed in U.S. dollars, shall be made in national currency.  The conversion to national currency shall be at the rate of exchange posted by the Central Bank in effect for commercial transactions on the date of fulfillment of the obligation.
 
THREE (3). Notwithstanding the applicable exchange regulations to the contrary, the Contractor is guaranteed, through the terms of this Contract, the financial rights granted by Article 63 of the Law, which are incorporated to this Contract through this reference.
 
FOUR (4). For the purpose of filing and calculating the Income Tax, the applicable revenue and expenses as shown in U.S. dollars shall be converted into the national currency at the  rate of exchange posted by the Central Bank of Nicaragua at the opening of business on the date of compliance with the obligation.  Payments of estimated tax shall be entered according to its cost in U.S. dollars corresponding to the national currency cost incurred, calculated in accordance with Clause 15, number 5 of this Contract and then reconverted to the national currency at the time of filing of the income tax.
 
CLAUSE TWENTY-TWO (22): MATERIALS AND EQUIPMENT .
 
(ONE) 1. The Contractor shall provide all materials, equipment, machinery, tools, spare parts and any other similar materials required for the operations under this Contract.
 
 
 

 
 
TWO (2). Such Materials shall be provided by the Contractor in accordance with its Work Program set forth in Clause 13 of this Contract.
 
THREE (3). The Contractor shall give preference, although not obligated to do so,  to locally available materials when such are comparable to and compete with imported materials in quality and availability and the price of which does not exceed the C.I.F. price (including import duties where applicable) of the imported materials placed in Nicaragua.
 
FOUR (4). Subject to the preceding number, the Contractor shall have the right to import any materials required for its activities under this Contract.  With regard to the temporary importation and the exemption from import duty during the Exploration Period and the first four (4) years after declaration of Commercial Discovery, the provisions of Articles 60 and 61 of the Law shall govern, and by this reference are incorporated as part of this Contract..
 
CLAUSE TWENTY-THREE (23): OWNERSHIP OF ASSETS .
 
ONE (1). The Contractor owns the assets provided by it under the terms of this Contract.  Subject to the provision under the clause number below, ownership of any such asset, whether fixed or moveable, whether within or outside of the Contract Area, used in connection with the rights granted to the Contractor under this Contract, including pipelines and storage facilities, shall become the property of the State, free of any charge or encumbrance, at the end of the term of the Contract, except where the State notifies the Contractor that it will not accept the transfer of property of a particular asset.  Where the State elects not to accept ownership of an asset, the Contractor shall carry out the approved clean-up program under Clause 34 of this Contract with respect to such assets and the area where they are located and shall be free to dispose of such asset in accordance with the applicable laws.
 
TWO (2). Where the installations serve more than one Contract Area assigned to the Contractor, the Contractor may continue to use such facilities for the other Contract Areas until the end of the term of other Contracts.  In this case, the State, through the MEM, and the Contractor shall enter into an operating agreement that will govern the actual use, operation and maintenance of such facilities.
 
THREE (3). The provisions of number 1 under this Clause shall not apply to materials or other property that are rented or leased to the Contractor or which belong to the Contractor’s employees, provided that the ownership of any such materials by other than the Contractor, is clearly documented with the State at the time of entry into Nicaragua or its local acquisition.
 
 
 

 

CLAUSE TWENTY-FOUR (24): SUBCONTRACTORS, PERSONNEL AND TRAINING .
 
ONE (1). The Contractor has the right to use qualified Sub-Contractors to provide specialized equipment or services.
 
TWO (2). The Contractor shall offer similar opportunities to the national companies that compete with foreign entities with respect to the provision of any service or equipment required with respect to its operations.  The Contractor shall give preference to Nicaraguan professionals and Sub-Contractors that are competitive with foreign bidders in skills, experience, availability and price.
 
THREE (3) The Contractor shall provide the MEM all necessary information covering each Sub-Contractor including, at the request of the MEM, an executed legalized copy of any contract or change thereto.
 
FOUR (4). The Contractor and its Sub-Contractors shall give priority of employment to local personnel in order to satisfy the staffing requirements to the extent that nationals of Nicaragua fulfill the qualification, experience and availability requirements.
 
FIVE (5).  The Contractor and its Sub-Contractors may employ foreign nationals, 5.1 to the extent that qualified nationals cannot be found to fill the positions required, 5.2 to fill a reasonable number of technical or managerial positions, and 5.3 to provide short-term expertise.
 
SIX (6) The Contractor shall undertake the development and training of its national personnel (including training for the specific purposes, such as taking over positions held by expatriate personnel) for all positions including administrative, technical and executive management positions. The Contractor shall prepare and submit its annual development and training programs to the MEM for approval, subject to Article 70 of the Regulation.
 
SEVEN (7). In accordance with Article 28 of the Law, the Contractor guarantees payment of taxes, fines and other tributes for the services provided by its Sub-Contractors under their respective sub-contract, as well as payment of the salaries and social benefits for its sub-contractors’ local personnel. Likewise, and in accordance with Article 68 of the Regulation, the Contractor assumes joint liability with its Sub-Contractors to guarantee payment of any legally binding obligation contracted by the Sub-contractor on behalf of any individual resident in Nicaragua for goods or services provided to the Sub-contractor associated with the Contractor’s activities.
 
 
 

 
 
CLAUSE TWENTY-FIVE (25): UNITIZATION .
 
ONE (1). If a Hydrocarbons discovery in the Contract Area extends beyond the boundaries of the Contract Area, MEM may require, in accordance with Article 47 of the Law, that the Development of the discovery and the Production of Hydrocarbons therefrom be carried out in collaboration with the entity or entities that have the right to conduct Petroleum Operations in the area into which the discovery extends.
 
TWO (2). In such case, the procedures and terms established in Articles 126 through 131 of the Regulation shall apply. 3.In case the Hydrocarbons deposit extends beyond the national boundaries, the unitization agreement shall be negotiated between the affected governments. The Contractor shall provide technical assistance to the Government of the State in the negotiation of such agreement.
 
CLAUSE TWENTY-SIX (26): CONFIDENTIALITY .
 
ONE (1). All technical data and any other information related to operations under this Contract shall be maintained by the contracting parties as strictly confidential and shall not be disclosed by either party without the prior written consent of the other party for a period of two (2) years after receipt of the written consent by either of the Parties, except to the extent required to comply with a decision of a competent court, pursuant to Article 32 of the Law or as required to comply with any law, regulation or procedure from the Arbitration Court, governmental investigation, or the Stock Exchange.
 
TWO (2). Either Party may disclose any information to its employees, Affiliates, consultants, buyers, potential investors, bank institutions, insurance companies, and sub-contractors to the extent required for the efficient conduct of its activities, provided it obtains from such individuals or entities, prior to disclosure, a written confidentiality undertaking approved by both Parties.
 
THREE (3). For the purpose of obtaining bids on open areas, the MEM may, after the two (2) year period from the date of receipt of the information from the Contractor has elapsed, disclose the information associated with the areas relinquished by the Contractor within the Contract Area.
 
FOUR (4). After the two (2) year period from the date of the receipt of the information from the Contractor, MEM shall be entitled, in the national interest, to prepare or cause to prepare by third parties and publish reports or studies of a general or regional nature using information derived from any reports or data related to the Contract Area.  Geo-scientific reports can be prepared for publication upon previous written consent by the Contractor
 
 
 

 
 
CLAUSE TWENTY-SEVEN (27): PIPELINES AND STORAGE .
 
ONE (1). The Contractor has the right to construct and operate within and outside of the Contract Area such pipelines and other facilities as required to transport and store the Hydrocarbons produced from the Contract Area up to the point of export or point of first sale in Nicaragua, subject to compliance with the technical, safety and environmental regulations.
 
TWO (2). All the infrastructure shall be included in the Development Plan set forth in Clause 12, number 8 of this Contract.
 
THREE (3). In accordance with Article 68 of the Law, the Contractor is obligated to transport, store and ship Hydrocarbons owned by third parties, including the State, whenever and to the extent that its installations have available capacity and the Hydrocarbons are compatible with the normal operations.  Likewise, the Contractor shall have access on non-discriminatory terms to third parties transportation and storage facilities with available capacity.  This Clause number specifically excludes gathering lines or other installations belonging to the Contractor or third parties that are used for its own exploitation and are located before the applicable Point or Points of Fiscalization under the respective owner’s exploration and exploitation contract.  The tariff for use of such installations shall be calculated and approved by the MEM as the Regulatory Authority in accordance with Article 163 of the Regulation and supplement regulations that may be issued by MEM from time to time.
 
CLAUSE TWENTY-EIGHT (28): INSURANCE .
 
ONE (1). The Contractor shall provide all the insurance required by the applicable law and such other insurance as the Contractor deems justified.
 
TWO (2). Except for insurance policies issued by the Overseas Private Investment Corporation (“OPIC”), all such insurance policies shall contain and express a waiver of subrogation against the State and any of its agencies.
 
THREE (3). The Contractor shall provide copies of all insurance policies to the MEM.
 
 
 

 

CLAUSE TWENTY NINE (29): ASSIGNMENT .
 
ONE (1). Subject to the prior written approval from the MEM, which shall not be unreasonably withheld, Contractor may assign all or an indivisible percentage interest in its rights and obligations under this Contract.  For consideration to be given to any such request: 1.1 all accrued obligations of the assignor deriving from the Contract must have been duly fulfilled as of the date such request is made, or assignor and assignee must jointly and severally guarantee fulfillment of any unfulfilled accrued obligations by the assignor; 1.2 the proposed assignee or assignees must be qualified in accordance with the Regulation to be a Contractor and must have satisfied the requirements of the Law in regard to constitution and naming of a legal representative; 1.3 the instruments of assignment shall be submitted to MEM for their review and approval and shall include provisions stating precisely that the assignee is bound by all covenants contained in the Contract; and 1.4 Where the assignment will result in the Contractor being comprised of more than one entity, the designation of the entity that will act as operator shall be stipulated, along with a copy of the joint operating agreement among such entities comprising the Contractor.
 
TWO (2). Any assignment made pursuant to the provisions of this Clause shall be free of any transfer or related taxes, stamp duty charges or other charges. 3. No assignment shall in any way release the assignor from its obligations undertaken under the Contract except to the extent that such obligations are in fact performed by the assignee.
 
CLAUSE THIRTY (30): MISCELLANEOUS .
 
ONE (1). The validity, interpretation and application of this Contract shall be governed by the laws of the Republic of Nicaragua.
 
TWO (2). This Contract may only be amended by mutual written agreement of the Parties.
 
THREE (3). The Spanish text of this Contract is the only official text and shall govern for all purposes.
 
FOUR (4). In accordance with Article 64 of the Law, the State guarantees to the Contractor throughout the term of this Contract, the stability of the tax regime and the royalties set forth in Articles 58 to 62 of the Law and the exchange regime set forth in Article 63 of the Law in effect on the Effective Date of this Contract. No changes to those regimes will be adversely applied to the Contractor with respect to its Exploration and Exploitation activities under this Contract.
 
 
 

 
 
FIVE (5). The Contractor will be treated, for all legal purposes, as a private law entity and therefore expressly renounces the right to invoke diplomatic intervention in any matter related to this Contract.
 
SIX (6). In accordance with Article 4 of the Law, the exploration and exploitation activities under this Contract have been declared to be of national interest and public utility.  In the event the Contractor would be required to use property owned by third parties, the MEM shall assist the Contractor pursuant to the laws in effect governing the declaration of public utility and rights of way.
 
CLAUSE THIRTY ONE (31): SETTLEMENT OF DISPUTES .
 
ONE (1). The Parties shall endeavor to settle amicably through consultation any dispute related to or arising out of the performance or interpretation of any Clause of this Contract.
 
TWO (2). If any dispute has not been settled within thirty (30) days after the dispute arises, either Party may, through notice given to the other Party, propose that the dispute be referred to a sole expert or to arbitration for resolution in accordance with the provisions of this Clause.  The waiting period will not apply in the cases set forth in Clause 12, number 8 or Clause 33, number 3 of this Contract.
 
THREE (3). Following the notice given pursuant to the preceding Clause number, the Parties agree to refer the dispute for determination by a sole expert to be appointed by agreement between the Parties.
 
FOUR (4). If the Parties fail to refer such dispute to a sole expert under number 3 of this Clause within thirty (30) days of the notice given, as set forth in number 2 of this Clause, the parties hereby consent to submit to the International Centre for Settlement of Investment Disputes of the World Bank (“ICSID”) any dispute arising out of or relating to this Contract for settlement by arbitration pursuant to the Arbitration Rules established for such cases with the ICSID.
 
 
 

 
 
FIVE (5). For arbitration purposes, the Parties agree to apply the rules of arbitration of the ICSID as follows: 5.1 The arbitration shall be heard and determined by three (3) arbitrators.  Each side shall appoint an arbitrator of its choice within thirty (30) days of the submission of a notice of arbitration.  The Party-appointed arbitrators shall in turn appoint a presiding arbitrator of the tribunal within fifteen (15) days following the appointment of both Party-appointed arbitrators.  If the Party-appointed arbitrators cannot reach agreement on a presiding arbitrator of the tribunal and/or one Party refuses to appoint its Party-appointed arbitrator within said fifteen (15) day period, the appointing authority for the implementation of such procedure shall be the ICSID, who shall appoint an independent arbitrator who does not have any financial interest in the dispute, controversy or claim.  All decisions and awards by the arbitration tribunal shall be final, binding and made by majority vote. 5.2 Unless otherwise expressly agreed in writing by the Parties to the arbitration proceedings: ONE (1) The arbitration proceedings shall be held in Mexico City, Mexico; TWO (2) The official language will be Spanish with translation to the English language during the arbitration proceedings.  The arbitrators shall be fluent in the both the Spanish and English languages.  All of the materials used at the hearings, the complaint or defense documents, the arbitral award and the reasons supporting it will be in Spanish with translation to the English language; THREE (3) The arbitrators shall be and remain at all times wholly independent and impartial; FOUR (4) The arbitration proceedings shall be conducted under the Arbitration Rules of the ICSID, as amended from time to time; FIVE (5) Any procedural issues not determined under the arbitral rules shall be determined by the arbitration act and any other applicable laws of the site of the arbitration, other than those laws that would refer the matter to another jurisdiction; SIX (6) The costs of the arbitration proceedings (including attorneys' fees and costs) shall be borne in the manner determined by the arbitrators; SEVEN (7) The decision of the majority of the arbitrators shall be reduced to writing; final and binding without the right of appeal; the sole and exclusive remedy regarding any claims, counterclaims, issues or accountings presented to the arbitrator; made and promptly paid in U.S. dollars free of any deduction or offset; and any costs or fees incident to enforcing the award, shall to the maximum extent permitted by law be charged against the Party resisting such enforcement; EIGHT (8) The award shall include interest from the date of any breach or violation of this Agreement, as determined by the arbitral award, and from the date of the award until paid in full; NINE (9) Judgment upon the award may be entered in any court having jurisdiction over the person or the assets of the Party owing the judgment or application may be made to such court for a judicial acceptance of the award and an order of enforcement, as the case may be; TEN (10) The arbitration shall proceed in the absence of a Party who, after due notice, fails to answer or appear.  An award shall not be made solely on the default of a Party, but the arbitrators shall require the Party who is present to submit such evidence as the arbitrators may determine is reasonably required to make an award; and ELEVEN (11) If an arbitrator should die, withdraw or otherwise become incapable of serving, or refuse to serve, a successor arbitrator shall be selected and appointed in the same manner as the original arbitrator. SIX (6). The parties agree that this Contract is an investment agreement between the State and the Contractor and that the activities associated with this Contract are commercial in nature.  The Parties agree that they do not have the right, and through this Contract, expressly and irrevocably renounce whatever right to assert as a defense any immunity from jurisdiction they may have or immunity from execution of a judgment, award, or seizure of property, from execution of any award or judgment, or any attachment of assets in order to seize assets prior to judgment or issuance of an award, with respect to activities or any legal action or procedure arising out of or related to this Contract.
 
 
 

 
 
CLAUSE THIRTY-TWO (32): FORCE MAJEURE .
 
ONE (1). Neither Party shall be considered in default of the performance of any of its obligations under this Contract if the failure to perform or the delay in performing such obligations results from events occurring under the following circumstances:  1.1 the performance of any obligation hereunder is prevented, hindered or delayed because of any event or combination of events including, but not limited to earthquake, war, fire, flood or other natural disaster beyond the reasonable control of such Party; 1.2  any event or combination of events that is the direct cause for preventing, hindering or delaying any of the Parties from performing its obligations under this Contract; 1.3 whenever any such event or combination of events has occurred, such Party shall take all necessary actions to overcome any cause that prevents, hinders or delays performance of its obligations, as well as to minimize its consequences and, insofar as is practicable, to continue to perform its obligations hereunder and 1.4 The provision set forth in Clause 3, number 4 of this Contract associated with the issuance of the Environmental Permit by MARENA. 2. Notice of any force majeure event and their conclusion shall be immediately given to the other Party by the Party invoking force majeure.  3. If the operations under this Contract are partially or entirely suspended as a result of a force majeure event, the period for carrying out the suspended operations shall be extended by a period equivalent to the suspension.
 
 
 

 
 
CLAUSE THIRTY-THREE (33): NOTICES .  Any notice and other communications required or given under this Contract shall be deemed given when delivered in writing either by hand or fax transmission, appropriately addressed as follows:  To The Ministry of Energy and Mines, to the attention of: Ing. Emilio Rappaccioli Baltodano R. Via fax: 505 + 2224629 (FIVE ZERO FIVE + TWO TWO TWO FOUR SIX TWO NINE); Correo Postal 159 (ONE FIVE NINE); Email at emilio.rappaccioli@mem.gob.ni ; Physical Address: Hospital Bautista una (1) cuadra al oeste y una (1) cuadra al norte, Managua.  To the CONTRACTOR: Infinity Energy Resources, Inc, to the attention of: Mr. Stanton E. Ross, at 11900 (one one nine zero zero) College Boulevard, Suite rtwo hundred four (204), Overland Park, Kansas, six, six, two, one, zero (66210), USA; By fax to one, nine, one, three, three, three, eight dash four, four, five eight (1 (913) 338-4458), Attention: Infinity Energy Resources, Inc.   2. Either Party may change its address or addresses or representatives for the purpose of receiving notices by giving at least ten (10) days prior written notice of the change to the other Party.
 
CLAUSE THIRTY-FOUR (34): TERMINATION .
 
ONE (1). This Contract will terminate by its own terms in the cases specified in Article 70 of the Law, which by reference is incorporated herein.
 
TWO (2).  The Contractor shall have the right to terminate this Contract by electing to relinquish the entire Contract Area pursuant to number 2 of Clause 7 of this Contract.
 
THREE (3). If either Party to the Contract commits a material breach of Contract not covered by Article 70 of The Law, the other Party shall have the right to terminate the Contract using the following procedure: 3.1 The Party claiming the right to terminate shall give notice to the other Party specifying the particular material breach and requiring the other Party, within ninety (90) days of such notice, to remedy the same or make reasonable compensation to the complaining Party, as the case may be; 3.2 If the Party receiving the notice fails to comply with said notice, the complaining Party may, after the expiration of the ninety (90) days notice, terminate this Contract immediately provided; however, that in the event the breach has been referred to arbitration or to an expert, pursuant to Clause 31 of this Contract, Miscellaneous Provisions, the complaining Party may not exercise its right of termination until such time the result of the determination by an arbiter or expert is made known; whenever the Party that elects to refer the dispute to the determination of an arbiter or expert is willing to continue its claim diligently under such procedures.
 
FOUR (4). Notwithstanding termination of the Contract and without prejudice to number 6 of Clause 7 of this Contract, the Contractor remains responsible for the clean-up of the Contract Area pursuant to Clauses 7 number 7 and 35 of this Contract.
 
 
 

 
 
FIVE (5). In the event the Environmental Permit required for the exploration phase is not issued by MARENA at the end of one (1) year as of the Effective Date or if the permit is issued within such period but contains conditions that restrict the Contractor's access to or the right to conduct Petroleum Operations in more than twenty percent (20%) of the Contract Area, or if as a direct result of such conditions the cost of the Minimum Exploration Program is increased for the first sub-period by more than fifty percent (50%) of the estimated investment, pursuant to Clause 8, number 2, of this Contract, the Contractor within thirty (30) days after the expiration of one (1) year or the date of issuance of the conditional permit by MARENA, whatever the situation may be, may elect to terminate the Contract by giving notice to MEM without further responsibility or obligation, unless the Environmental Permit problems are resolved to the satisfaction of the Contractor within thirty (30) days from the date of the notice given of its intention to terminate the Contract.  If the Contract is terminated pursuant to this Clause, the MEM shall release the guarantees provided by the Contractor and its parent company pursuant to Clause 9 of this Contract.  The area rental paid under Clause 21, number 1 of this Contract shall not be reimbursed and the Contractor shall have no claim against MEM or the State for costs it incurred in relation to this Contract.
 
CLAUSE THIRTY-FIVE (35): CLEAN-UP AND ABANDONMENT .
 
ONE (1). Within sixty (60) days after the expiration of the term of the Contract or the relinquishment of all or a part of the Contract Area, the Contractor shall propose and carry out to the satisfaction of the MEM and the MARENA an abandonment program mutually agreed with the MEM, for all of the Contractor’s facilities that MEM does not elect to receive in accordance with Clause 22, number 1 of this Contract.  With respect to the area and/or facilities being relinquished, such abandonment program shall comply with the internationally accepted standards at the time of the relinquishment.
 
TWO (2). No later than three (3) years before the earlier of (a) the scheduled expiry of the term of the Contract or (b) Contractor's early termination of production from an Exploitation Area or termination of an infrastructure operation included in the approved Development Plan, the Contractor shall submit a proposed abandonment program covering all such facilities for MEM’s approval.
 
THREE (3). The MEM shall make a decision, within ninety (90) days, concerning the proposal submitted by the Contractor pursuant to the preceding sub-clause and may approve or modify or impose conditions.  Prior to modifying or imposing conditions to the proposal, the MEM shall notify the Contractor concerning the modifications or conditions proposed and shall give the Contractor the opportunity to submit written statements within the following sixty (60) days concerning the proposed modifications.  After reviewing such statements, the MEM shall issue its final decision with respect to the Contractor’s proposal.
 
 
 

 
 
FOUR (4). In the event the Contractor does not present a timely proposal to the MEM under sub-clause 2 of this Clause, the MEM, after giving thirty (30) day notice to the Contractor requesting it to do so, may prepare an abandonment program for such facilities if the Contractor does not present a proposal by the end of the thirty (30) day period, and whenever the MEM has prepared such program, it shall have the same effect as if it had been submitted by the Contractor and approved by the MEM. FIVE (5). The approved budget for carrying out the approved abandonment program shall be consolidated with the Contractor’s payment into an account that generates interest with a depositary approved by the MEM, per unit of production calculated by dividing the approved abandonment budget by the estimated units of production to be produced and reserved by the Contractor between the date of the MEM’s approval and the anticipated date of abandonment.  Such cost shall be considered for purposes of calculation of the Contractor’s income tax as an operating cost incurred at the time of payment of the accounts.  If the Contractor carries out the abandonment program, any portion of the account, including accrued interest not required for the abandonment program, shall belong to the Contractor, but will be deemed taxable income in the year received.  If the amount deposited (including accrued interest) is insufficient to complete the abandonment program, the Contractor shall pay all additional costs required to complete the abandonment program.  With respect to the facilities transferred to the MEM pursuant to Clause 22, number 1, of this Contract, the portion of the account corresponding to the clean-up of such facilities shall be transferred to the Ministry of Energy and Mines, who shall assume all responsibility for the facility and its abandonment and shall hold the Contractor harmless against any liability with respect to the accumulation after the date of such transfer to the Ministry of Energy and Mines.  The parties appearing before me, Notary Public, so expressed with respect to the object, value and legal effect of this instrument, the object and significance of the special clauses contained herein and the general clauses that ensure its validity.  The undersigned Notary Public states to have seen the documents inserted and associated with this deed. This deed was read by me, Notary Public, in its entirety, before the appearing parties, who fully agree with, approve and ratify it in all and each of its parts, without any changes made, and sign it together with me, Notary Public.  I swear to all listed (f) Legible; (f) legible; Dr. Joaquin Hernán Estrada Santamaría (f) Illegible: Stanton Edward Ross. (f) Illegible: Roberto Octavio Arguello Villavicencil. (f) Illegible: Geovanny Francisco Salinas Brenes , State Notary Public –.
 
 
 

 
 
BEFORE ME: the front of page number two hundred sixty five to the front of page number three hundred sixteen of protocol number Two of the 11 th Notary Office of the State during the current year and at and at the request of the Attorney General for the Republic, Doctor Joaquin Hernán Estrada Santamaría,  I hereby release this first authenticated copy in fifty two pages that I sign, seal and initial in the city of Managua at eleven o’clock in the morning of March twenty four of the year two thousand nine.
 
(Signature and Seal for the Attorney General’s office of the Republic)
Republic of Nicaragua
Central America
GEOVANNY FRANCISCO SALINAS BRENES
 
ELEVENTH NOTARY PUBLIC FOR THE STATE
 
 
 

 
 

EXHIBIT 10.10
 
AMEGY BANK NATIONAL ASSOCIATION
1807 Ross Avenue, Suite 400
Dallas, Texas 75201
 
August 31, 2007

INFINITY ENERGY RESOURCES, INC.
633 Seventeenth Street, Suite 1800
Denver, Colorado 80202

Re: Forbearance Agreement
 
Ladies and Gentlemen:
 
This letter (this “ Agreement ”) sets forth the forbearance agreement among INFINITY ENERGY RESOURCES, INC.  (“ Borrower ”), a Delaware corporation; INFINITY OIL AND GAS OF TEXAS, INC., a Delaware corporation, and INFINITY OIL & GAS OF WYOMING, INC., a Wyoming corporation (collectively “ Guarantors ”); and AMEGY BANK NATIONAL ASSOCIATION (“ Lender ”).  Capitalized terms below have the meanings assigned in the Loan Agreement dated January 9, 2007, among Borrower, Guarantors, and Lender, as amended (the “ Loan Agreement ”).
 
1.            Borrowing Base .  Effective as of August 10,2007, Lender has reduced the Borrowing Base to $10,500,000.00, until reset by Lender in connection with the next redetermination of the Borrowing Base.  Lender reserves the right to make the next redetermination of the Borrowing Base at any time,
 
2.           Borrowing Base Deficiency.  The new Borrowing Base results in a Borrowing Base deficiency in the amount of $11,500,000.00 (the “ Deficiency ”).  On or before the end of the Forbearance Period (as defined below), Borrower and Guarantors agree to cure the Deficiency by sale of assets as provided below to pay down the Revolving Loan and cure the Deficiency, refinance of the Revolving Loan, or raise capital on terms acceptable to Lender to pay down the Revolving Loan and cure the Deficiency.
 
3.           Events of Default.  Borrower and Guarantors acknowledge that the following Events of Default have occurred and remain outstanding (the “ Existing Defaults ”):
 
(a)           Borrower and Guarantors breached the Interest Coverage Ratio set forth in Subsection (a) of Section 8 of the Loan Agreement for the period ended June 30, 2007;
 
(b)           Borrower and Guarantors breached the Funded Debt to EBITDA Ratio set forth in Subsection (d) of Section 8 of the Loan Agreement for the period ended June 30, 2007; and

 
 

 
 
(c)           Borrower and Guarantors failed to deliver all lien releases required by Subsection (k) of Section 9 of the Loan Agreement.
 
4.           Forbearance.  Lender, Borrower, and Guarantors agree to a forbearance period commencing as of the date of this Agreement, and continuing through November 30, 2007, unless terminated earlier by Lender due to a Default, as defined below (the “ Forbearance Period ”).  During the Forbearance Period, but subject to a Default, Lender will forebear from exercising any remedies under the Loan Agreement, the Revolving Note, the Security Documents, the Guaranties, and the other Loan Documents.  Borrower and Guarantors agree that all statutes of limitation with respect to enforcement of the Revolving Note, the Guaranties, and the Security Documents will be tolled during the Forbearance Period and for ninety days thereafter.  If a Definitive Sale Agreement (as defined below) has been executed on or before November 30, 2007, and there is no additional Default, then Lender will seek credit approval for an extension of the Forbearance Period through January 31, 2008.
 
5.           Temporary Waiver.  Borrower and Guarantors have requested that Lender temporarily waive the Existing Defaults.  Lender hereby waives the Existing Defaults through the Forbearance Period only.  This is a temporary and limited waiver, and Lender reserves the right to require strict compliance with all covenants under the Loan Agreement, including the covenants violated as set forth above, in the future.  This waiver does not modify, supplement, or alter any of the terms of the Loan Agreement or any other Loan Document.  Further, this waiver shall not be construed as a commitment by Lender to waive any future violation of the same or any other term or condition of the Loan Agreement or any of the Loan Documents.  Neither the negotiation or execution of this Agreement will be an election of any right or remedy available to Lender; and, except as specifically limited or postponed herein, Lender reserves all rights and remedies.
 
6.           Interest.  Borrower and Lender hereby agree that during the Forbearance Period and so long thereafter as any Event of Default remains uncured and outstanding, the entire unpaid principal balance owed on the Revolving Note shall accrue interest at the default rate of Stated Rate, plus six percent (6.0%) (the “ Default Rate ”), as set forth in the Revolving Note; provided, however, that accrued interest on the entire unpaid principal balance owed on the Revolving Note shall be payable monthly on each Interest Payment Date (as defined in the Revolving Note) calculated at the sum of the Stated Rate, plus the Applicable Margin; and the difference between the Default Rate and the sum of the Stated Rate, plus the Applicable Margin, shall accrue and shall be payable only upon the earlier of (i) the termination of the Forbearance Period, or (ii) the cure of the Deficiency.  Effective as of the date of this Agreement, the LIBOR Balance (as defined in the Revolving Note) is hereby converted to the Stated Rate Balance (as defined in the Revolving Note); and Borrower shall be obligated to pay Lender for any LIBOR breakage costs required under the Revolving Note or any Consequential Loss (as defined in the Revolving Note).

 
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7.           Additional Collateral.  Borrower and Guarantors agree to mortgage all oil and gas properties and leasehold interests (excluding the Nicaragua concessions) owned by Borrower or Guarantors and not previously mortgaged to Lender as additional security for the Notes.   In this regard, Borrower and Guarantors agree within five (5) days of Lender’s written request (i) to sign and deliver mortgages, deeds of trust, or amendments in Proper Form, covering all such oil and gas properties and leasehold interests owned by Borrower or Guarantors and not previously mortgaged to Lender; and (ii) to provide copies of recorded assignments and all title information requested by Lender, relating to Borrower’s and Guarantors’ oil and gas properties and leasehold interests.  Further, Borrower and Guarantors agree to use their reasonable best efforts to obtain a waiver of the prohibition against liens from the lessors on the Murray lease, Erath County, Texas, and thereafter to mortgage this lease.
 
8.           Lockbox.  Borrower and Guarantors agree to the following provisions regarding production proceeds attributable to their oil and gas properties:
 
(a)           Borrower and Guarantors will direct all production proceeds attributable to their oil and gas properties to be paid to a lockbox account to be set up and maintained with Lender for the purpose of collection of production proceeds (the “ Lockbox Account ”).  Contemporaneously with the execution of this Agreement, Guarantors will sign and deliver to Lender letters in lieu of transfer orders to all purchasers of production directing those parties to pay all proceeds attributable to Guarantors’ interest in the Properties to the Lockbox Account and will provide a schedule with the name, address, telephone number, and contact of the first purchaser of production for all of the oil and gas properties.
 
(b)           All production proceeds received in the Lockbox Account by Lender with respect to production, severance, ad valorem, or other taxes on production proceeds (excluding income taxes) or that are attributable to another person’s or entities’ royalty or other interest in the oil and gas properties shall be released immediately to Borrower upon Borrower’s request and verification of those amounts.  Borrower and Guarantors shall provide evidence of the timely payment of production, severance, ad valorem, or other taxes on production proceeds (excluding income taxes) and of the royalty and overriding royalty owners; provided, however, that no royalties and overriding royalty interests owned by Borrower, Guarantors, or any affiliates of Borrowers or Guarantors within the meaning of Securities and Exchange Commission Rule 144, shall be paid from the Lockbox Account proceeds.
 
(c)           Borrower will provide Lender with a proposed budget of recurring operating expenses, non-recurring operating expenses, general and administrative expenses, and any capital expenditures for the oil and gas properties expected to be paid during the Forbearance Period and supporting documentation for those expenses and expenditures.
 
(d)           At Borrower’s request, production proceeds in the Lockbox Account may be used to pay operating expenses, general and administrative expenses (subject to the limits below), capital expenditures, and transaction costs related to the sale of the Sale Properties, including broker fees, if any, due prior to closing, all as approved by Lender (which approval shall not be unreasonably withheld, delayed, or denied).  Borrower and Guarantors shall not pay in any month operating expenses, general and administrative expenses, capital expenditures, or transaction costs exceeding the aggregate budgeted expenses for each such category for that month, unless Lender has approved such payments.  Borrower shall, not later than two business days prior to the date on which Borrower proposes to pay such operating expenses, general and administrative expenses, capital expenditures, and transaction costs and as a condition precedent to requesting such approval, deliver to Lender in usual and customary form reasonably acceptable to Lender reasonable detail of all expenses and expenditures proposed to be paid in respect of such month.  Any excess production proceeds in the Lockbox Account may be used only for such other purposes as approved by Lender, in its discretion.

 
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(e)           All sums remaining in the Lockbox Account after payment of the taxes and royalties as provided above and the operating expenses and discretionary amounts as provided above will be applied by Lender on the last day of each month to the Revolving Note and collection costs as set forth in Section 3.2 of the Deed of Trust.  If the production proceeds received in the Lockbox during any month are not sufficient to make the scheduled monthly payment on the Revolving Loan, Borrower will pay Lender the deficiency within ten (10) days of notice from Lender of such shortfall.
 
(f)           Notwithstanding the provisions of Subsection (t) of Section 8 of the Loan Agreement, Borrower and Guarantors shall not permit cash general and administrative expenses on a consolidated basis to exceed $150,000.00 (excluding broker fees as approved by Lender, if any, due prior to closing) per month during term of this Agreement; provided, however, that general and administrative expenses in excess of this monthly limit may be accrued and paid only after the Revolving Loan and Hedge Liabilities have been paid in full.
 
9.           Sale of Oil and Gas Properties.  In order to cure the Deficiency, Borrower and Guarantors have advised Lender that they intend to sell the assets of Infinity Oil & Gas of Wyoming, Inc. (“ IOGW ”), and Borrower and Guarantors have requested that Lender allow Borrower to accomplish these sales.  In this regard, Borrower and Guarantors agree to take the following actions:
 
(a)           Borrower and Guarantors shall proceed with the sale and marketing of all assets of IOGW (the “ Sale Properties ”); and Borrower and Guarantors shall accept any commercially reasonable offer to buy the Sale Properties; provided no oil and gas property or leasehold interest which is mortgaged to Lender shall be sold except on terms and price acceptable to Lender and with the prior written approval of Lender.
 
(b)           Borrower and Guarantors shall deliver on or before August 31, 2007 an updated evaluation of the Sale Properties with target sale prices.
 
(c)           On or before September 4,2007, Borrower and Guarantors shall enter into an agreement with an oil and gas broker or consultant, reasonably acceptable to Lender, to facilitate the sale and marketing of the Sale Properties.  Thereafter, Borrower and Guarantors shall use their best efforts to (i) promptly open a data room on the Sale Properties, (ii) to obtain firm proposals for the sale of the Sale Properties on or before October 31,2007, (iii) to execute a definitive agreement or agreements, subject to stockholder approval if required, for the sale of Sale Properties with proceeds sufficient to repay the Deficiency (a “ Definitive Sale Agreement ”) on or before November 30, 2007, and (iv) seek stockholder approval, if required, and consummate the sale of the Sale Properties as soon as practicable thereafter, but in no event later than the end of the Forbearance Period (as it may be extended).  Borrower and Guarantors shall promptly provide Lender with a copy of the agreement or engagement letter with the oil and gas broker or consultant; and thereafter Borrower and Guarantors shall provide a monthly report on the first (I SI) day of each month, to be prepared by the oil and gas broker or consultant engaged by Borrower and Guarantors to facilitate the sale of the oil and gas properties and leasehold interests, including the Texas Properties (as defined below), that includes any and all information pertaining to property bids, the current status of any bids or sale discussions, and all marketing efforts employed to sell the Sale Properties and the Texas Properties.  Notwithstanding any provision to the contrary, at least two business days prior to the date on which Borrower proposes to pay such, Borrower shall deliver to Lender in usual and customary form reasonably acceptable to Lender reasonable detail of all broker fees and other transaction costs related to the sale of the Sale Properties proposed to be paid from proceeds in the Lockbox Accounts, and thereafter Borrower may pay such fees and costs as are approved by Lender (which approval shall not be unreasonably withheld, delayed, or denied).

 
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(d)           In addition, upon the written directive of Lender, to be exercised in Lender’s sole discretion, Borrower and Guarantors shall proceed with the sale and marketing of all Texas assets of Infinity Oil and Gas of Texas, Inc. (the “ Texas Properties ”); and if elected by Lender, Borrower and Guarantors shall thereafter accept any commercially reasonable offer to buy the Texas Properties; provided no oil and gas property or leasehold interest which is mortgaged to Lender shall be sold except on terms and price acceptable to Lender and with the prior written approval of Lender.  To facilitate this future sale, Borrower and Guarantors shall promptly provide the oil and gas broker or consultant retained with respect to the sale of the Sale Properties with all information needed for the future sale of the Texas Properties.  Upon Lender’s election to proceed with the sale of the Texas Properties, Borrower and Guarantors shall thereafter use their best efforts to (i) promptly open a data room on the Texas Properties, (ii) to promptly obtain firm proposals for the sale of the Texas Properties, (iii) to execute a definitive agreement or agreements, subject to stockholder approval if required, for the sale of Texas Properties with proceeds sufficient to repay the Deficiency, and (iv) seek stockholder approval, if required, and consummate the sale of the Texas Properties as soon as practicable thereafter, but in no event later than the end of the Forbearance Period.
 
(e)           Borrower and Guarantors shall devote their substantial efforts, time, talents, and expertise to the sale and marketing of the Sale Properties and, if required by Lender, the Texas Properties, and will take all lawful actions as will result in the prompt payment of the Deficiency as provided herein.
 
(f)            No sale of any of the Sale Properties or the Texas Properties will be permitted to an affiliate of Borrower or Guarantors, unless Lender consents in writing.
 
(g)           Borrower and Guarantors will direct the net sale proceeds from the sale of any of the Sale Properties and the Texas Properties to be paid to Lender to be applied to the Revolving Note and collection costs in such order as determined by Lender and shall take all lawful actions to ensure that the proceeds of any such sales are contemporaneously with the closing thereof applied to the Revolving Note and collection costs as herein provided.
 
10.         Joint Venture of Barnett Shale Acreage.  Lender acknowledges and agrees that Borrower and Guarantors may proceed with the negotiation and documentation of a joint venture arrangement, on substantially the terms previously disclosed to Lender or other terms required by Lender to preserve the leasehold interests and the value of the Texas Properties, with respect to the Barnett Shale acreage.  Borrower and Guarantors will seek formal consent under the Loan Agreement prior to the execution of a definitive agreement regarding this joint venture.

 
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11.          Nicaragua Concession.  So long as the Deficiency remains uncured or there is any outstanding Event of Default, Borrower and Guarantors agree that:
 
(a)           They shall not sell, assign, transfer, or otherwise dispose of all or any interest in the Nicaragua concession, without the prior written consent of Lender, except for (i) the sale of hydrocarbons in the ordinary course of business, and (ii) the sale or transfer of equipment or inventory in the ordinary course of business or that is no longer necessary for the business of Borrower or that is obsolete or replaced by equipment of at least comparable value and use; and
 
(b)           They shall not mortgage, assign, hypothecate, pledge, or encumber, and not create, incur, or assume any lien or security interest on or in, the Nicaragua concession (or any interest in the Nicaragua concession), without the prior written consent of Lender, except Permitted Encumbrances.
 
12.          Hedge Transactions.  Borrower acknowledges that the Existing Defaults also constitute an “Event of Default” under Section 5(a)(vi) of the ISDA Master Agreement dated January 9, 2007, between Borrower and Lender (the “ ISDA Master Agreement ”).  Notwithstanding Section 6(a) of the ISDA Master Agreement, upon any termination of the Forbearance Period for any reason, Lender may immediately designate an “Early Termination Date” as defined in the ISDA Master Agreement for any or all outstanding Hedge Transactions, without the notice required by the ISDA Master Agreement.  Lender has not yet designated any Early Termination Date, and Lender reserves all rights and remedies in this regard.
 
13.          Audit and Inspections.  (a) Borrower and Guarantors agree that Lender and its auditors or accountants may, during the term of this Agreement, conduct an audit at Borrower’s and Guarantors’ offices and examine, audit, and make and take away copies or reproductions of Borrower’s and Guarantors’ books and records reasonably required by Lender, relating to (i) the sources and uses of all funds advanced by Lender under the Revolving Note, and (ii) the sources and uses of all production proceeds attributable to Borrower’s and Guarantors’ oil and gas properties.  Lender will provide Borrower and Guarantors with one business day written notice of its intention to commence the audit.  Borrower and Guarantors agree to cooperate with Lender and comply with all reasonable requests in connection with the audit, and Borrower and Guarantors hereby consent to the review and use by Lender’s auditors of Borrower’s third-party audit of the books and records of Borrower, Guarantors, and any other subsidiaries, including the supporting documentation and work papers of such independent auditors.
 
14.          Reporting Requirements.  Until the Revolving Note and all other obligations and liabilities of Borrower under the Revolving Note and the other loan documents are fully paid and satisfied, Borrower and Guarantors will furnish to Lender the following in Proper Form:
 
(a)           On or before August 31, 2007, a ISO-day operating/cash flow forecast for Borrower and Guarantors and a proforma working capital balance for Borrower and Guarantors as of August 22, 2007.
 
(b)           Within five (5) days of the end of each month, a pro-forma working capital balance for Borrower and Guarantors as of the end of the prior month.

 
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(c)           On or before August 31, 2007, a written plan to pay-down the pro forma Accounts Payable balance of $5,767,351.00.
 
(d)           On or before August 31, 2007, an in-house valuation of Borrower’s and Guarantors’ entire leasehold/producing assets.
 
(e)           As received and available, Borrower and Guarantors shall promptly provide to Lender all information related in any way to their ability to raise additional capital.
 
(f)           As received and available, Borrower and Guarantors shall promptly provide to Lender copies of any agreement or engagement letter with an oil and gas broker or consultant, all written purchase bids, purchase agreements, and farm-in proposals related in any way to the prospective sale of any of the Sale Properties and shall promptly inform Lender of any unwritten offers or bids.
 
(g)           As received and available, Borrower and Guarantors shall promptly provide to Lender copies of any term sheets or financing proposals received that would result in the Deficiency being cured or a refinance of the entire outstanding amount owed on the Revolving Note and Hedge Liabilities.
 
(h)           Notwithstanding the provisions of Subsection (h) of Section 9 of the Loan Agreement, within forty-five (45) days of the end of each month, a production report, on a lease-by-lease or unit basis, showing the gross proceeds from the sale of oil, gas, and associated hydrocarbons produced from the Properties, the quantity of oil, gas, and associated hydrocarbons sold, the severance, gross production, occupation, or gathering taxes deducted from or paid out of the proceeds, settlements of any Hedge Transactions, the cash lease operating expenses, including non-recurring cash operating expenses, intangible drilling costs, and capital expenditures, general and administrative expenses, the number of wells operated, drilled, or abandoned, the name, address, telephone number, and contact of the first purchaser of production for all of the Properties, and such other information as Lender may reasonably request;
 
(i)           On or before August 31, 2007, evidence of the payments and all lien releases required by Subsection (k) of Section 9 of the Loan Agreement, or evidence of Borrower’s and Guarantors’ efforts in this regard if unable to provide any lien releases; and
 
(j)           such other information respecting the condition and the operations, financial or otherwise, of Borrower, Guarantors, and the Properties as Lender may from time to time reasonably request.
 
15.          Forbearance Fee.  In consideration of the forbearance by Lender under this Agreement and the waiver of the Existing Defaults and for other valuable consideration, the receipt and sufficiency of which are acknowledged, Borrower agrees to pay to Lender a forbearance/waiver fee in the amount of $220,000.00, due on or before the earlier of the following: (i) the end of the Forbearance Period, (ii) the cure of the Deficiency, or (iii) refinance of the Revolving Note by another lender; provided, however, that if Borrower and Guarantors are able to fully resolve the Deficiency by the sale of the Sale Properties closed and funded on or before November 30,2007, then the amount of the forbearance/waiver fee shall be reduced to $110,000.00.  All fees are non-refundable and earned by Lender upon execution of this Agreement.

 
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16.         Conditions Precedent.  The obligation of Lender to enter into this Agreement and to forbear with respect to the Existing Defaults is subject to Borrower’s satisfaction, in Lender’s sole discretion, of the following conditions precedent:
 
(a)           Except for the Existing Defaults, Borrower shall be in material compliance with the conditions set forth in Subsection (a) of Section 5 of the Loan Agreement as of the date of this Agreement, and all representations and warranties set forth in Section 6 of the Loan Agreement must be true as of the date of this Agreement.
 
(b)           the negotiation, execution, and delivery of Loan Documents in Proper Form, including, but not limited to, the following:
 
(i)           this Agreement; and
 
(ii)          a Lockbox Account agreement using Lender’s typical form;
 
(iii)         Letters in Lieu; and
 
(iv)         a Borrowing Resolution.
 
(c)           there shall not have occurred a material adverse change in the business, assets, liabilities (actual and contingent), operations, or financial condition of Borrower or in the facts and information regarding such entities as represented to date.
 
17.         Default and Remedies.  (a) As used in this Agreement, “ Default ” means (i) any breach by Borrower or Guarantors of their obligations under this Agreement, (ii) any misrepresentation by Borrower or Guarantors of the representations or warranties set forth in this Agreement, or (iii) any further Event of Default under the Loan Agreement, including additional defaults under the provisions covered by the Existing Defaults.
 
(b)           Upon a Default, Lender may terminate the Forbearance Period and exercise any and all rights and remedies available to it, including, without limitation, those under the Loan Agreement, the Revolving Note, the Security Documents, the Guaranties, the Loan Documents, this Agreement, and any other instrument or agreement relating hereto, or anyone or more of them.  All rights and remedies of Lender shall be cumulative and concurrent and, after a Default, may be pursued separately, successively, or together as often as occasion therefore shall arise, at the sole discretion of the Lender.
 
18.         Other Representations.  Borrower and Guarantors hereby represent to Lender as follows:
 
(a)           The execution, delivery, and performance of this Agreement by Borrower and Guarantors have been duly authorized by Borrower’s and Guarantors’ respective boards of directors and this Agreement constitutes their legal, valid, and binding obligations, enforceable in accordance with their respective terms; and

 
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(b)           There are no actions, suits, or proceedings pending or threatened against or affecting Borrower, Guarantors, or the Properties, before any court or governmental department, commission, or board, which, if determined adversely, would have a material adverse effect on any of the Properties or the operations or financial condition of any of Borrower or Guarantors.
 
19.         Confirmations.  (a) Borrower and Guarantors agree that the following amounts are due and outstanding with respect to Borrower and Guarantors agree that there is no set off or defense to payment of the Revolving Note or the Hedge Liabilities.
 
Principal
  $ 22,000,000.00  
Interest
  $ 190,723.39  
Non Use Fee
  $ 950.01  
Total
  $ 22,191,673.40  

(b)           As security for the Notes, Borrower and Guarantors previously executed the Security Documents.  Borrower and Guarantors ratify and confirm the Security Documents, acknowledge that they are valid, subsisting, and binding, and agree that the Security Documents secure payment of the Notes (including the Revolving Note) and the Loans (including the Revolving Loan).
 
(c)           In connection with the Revolving Note, Guarantors executed the Guaranties.  Guarantors ratify and confirm the Guaranties, acknowledge that the Guaranties are valid, subsisting, and binding upon Guarantors, and agree that the Guaranties guarantee payment of the Revolving Note.  Guarantors agree that there is no defense to payment under the Guaranties.
 
(d)           Borrower and Guarantors hereby represent to Lender that all representations and warranties set forth in Section 6 of the Loan Agreement are true and correct as of the date of execution of this Agreement; and that, except for the Existing Defaults, Borrower and Guarantors are in compliance as of the date of execution of this Agreement with all covenants set forth in Section 7 of the Loan Agreement, all financial covenants set forth in Section 8 of the Loan Agreement, and all reporting requirements set forth in Section 9 of the Loan Agreement.
 
20.         Validity and Defaults.  The Loan Agreement remains in full force and effect.  Borrower and Guarantors acknowledge that the Loan Agreement, the Revolving Note, the Security Documents, the Guaranties, and the other Loan Documents are valid, subsisting, and binding upon Borrower and Guarantors; no uncured breaches or defaults exist under the Loan Agreement, except for the Existing Defaults; and no other event has occurred or circumstance exists which, with the passing of time or giving of notice, will constitute a default or breach under the Loan Agreement.  Borrower and Guarantors ratify the Loan Agreement.

 
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21.           Release.  For valuable consideration, the receipt and sufficiency of which are acknowledged, Borrower and Guarantors hereby RELEASE AND FOREVER DISCHARGE Lender and its officers, directors, employees, agents, representatives, attorneys, subsidiaries, and affiliates (collectively “ Released Parties ”), from any and all claims, counterclaims, demands, damages, debts, suits, obligations, liabilities, offsets, rights, actions, and causes of action of any nature whatsoever (collectively “ Claims ”), caused by, because of, as a result of, arising from, or related in any way to the Loan Agreement, the Revolving Note, the Security Documents, the Loan Documents, this Agreement, any other transaction between Lender and Borrower, or any act, omission, communication, transaction, occurrence, representation, promise, breach, fraud, violation of any statute or law, or any other matter whatsoever or thing done, omitted, or suffered by any of the Released Parties, whether those Claims are now or hereafter accrued or possessed, whether known or unknown, direct or indirect, liquidated or unliquidated, absolute or contingent, foreseen or unforeseen, at law or in equity, and now or hereafter asserted, including, without limitation, claims for contribution or indemnity, claims of control, fraud, duress, mistake, tortuous interference, usury, negligence, or violations of the Texas Consumer Protection and Deceptive Trade Practices Act.
 
22.           Advice from Counsel.  Borrower and Guarantors understand that this Agreement is legally binding and represent to Lender that each has obtained independent legal counsel from the attorney of their choice regarding the meaning and legal significance of this Agreement.  The parties agree that no provision of this Agreement shall be interpreted or construed against a party because that party prepared the provision, it being agreed that all parties have participated in the drafting of this Agreement and have had legal counsel of their choice.
 
23.           Governing Law and Venue.  THIS AGREEMENT, THE LOAN AGREEMENT, THE REVOLVING NOTE, AND ALL LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND SHALL BE PERFORMED IN DALLAS COUNTY, TEXAS.  BORROWER, GUARANTORS, AND LENDER IRREVOCABLY AGREE THAT VENUE FOR ANY ACTION OR CLAIM RELATED TO THIS AGREEMENT, THE LOAN AGREEMENT, THE REVOLVING NOTE, OR ANY LOAN DOCUMENTS SHALL BE IN DALLAS COUNTY, TEXAS.
 
24.           Savings Clause.  Regardless of any provision contained in the Loan Agreement, the Revolving Note, the Security Documents, the other Loan Documents, or this Agreement, it is the express intent of the parties that at no time shall Borrower or Guarantors pay interest in excess of the maximum lawful rate (or any other interest amount which might in any way be deemed usurious), and Lender will never be considered to have contracted for or to be entitled to charge, receive, collect, or apply as interest on the Revolving Note, any amount in excess of the maximum lawful rate (or any other interest amount which might in any way be deemed usurious), and, in the event that Lender ever receives, collects, or applies as interest any such excess, the amount which would be excessive interest will be applied to the reduction of the principal balance of the Revolving Note, and, if the principal balance of the Revolving Note is paid in full, any remaining excess shall forthwith be paid to Borrower.  In determining whether the interest paid or payable exceeds the maximum lawful rate (or any other interest amount which might in any way be deemed usurious), Borrower and Lender shall, to the maximum extent permitted under applicable law, spread the total amount of interest throughout the entire contemplated term of the Revolving Note so that the interest rate is uniform throughout the term.

 
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25.         Fax Provision.  This Agreement and the related Loan Documents may be executed in counterparts, and Lender is authorized to attach the signature pages from the counterparts to copies for Lender and Borrower.  At Lender’s option, this Agreement and the related Loan Documents may also be executed by Borrower and Guarantors in remote locations with signature pages faxed to Lender.  Borrower and Guarantors agree that the faxed signatures are binding upon Borrower and Guarantors, and Borrower and Guarantors further agree to promptly deliver the original signatures for this Agreement and the related Loan Documents by overnight mail or expedited delivery.   It will be an Event of Default if Borrower or Guarantors fail to promptly deliver all required original signatures.
 
26.         Captions.  Captions are for convenience only and should not be used in interpreting this Agreement.
 
27.         Final Agreement.  (a) In connection with the Loans, Borrower, Guarantors, and Lender have executed and delivered this Agreement, the Loan Agreement, and the Loan Documents (collectively the “ Written Loan Agreement ”).
 
(b)           It is the intention of Borrower, Guarantors, and Lender that this paragraph be incorporated by reference into each of the Loan Documents.  Borrower, Guarantors, and Lender each warrant and represent that their entire agreement with respect to the Loans is contained within the Written Loan Agreement, and that no agreements or promises have been made by, or exist by or among, Borrower, Guarantors, and Lender that are not reflected in the Written Loan Agreement.
 
(c)           THE LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
 
If the foregoing correctly sets forth your understanding of our agreement, please sign and return one copy of this letter.  Notwithstanding any provision to the contrary, this Agreement shall only be effective if Borrower and Guarantors sign and return to Lender by 3 p.m., Texas time, on Friday, August 31, 2007.
 
 
Yours very truly,
   
 
AMEGY BANK NATIONAL ASSOCIATION
   
   
 
By:
/s/ Tim E. Merrell
   
Tim E. Merrell,
   
Senior Vice President
 
 
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Accepted and agreed to
this 31st day of August, 2007:
 
BORROWER:
 
INFINITY ENERGY RESOURCES, INC.
 
By:
/s/ Stanton E. Ross, Chairman
 
 
Stanton E. Ross, Chairman
 
and Chief Executive Officer
 
GUARANTORS:
 
INFINITY OIL AND GAS OF TEXAS, INC.
 
By:
/s/ James A. Tuell
 
 
James A. Tuell, President
 
INFINITY OIL & GAS OF WYOMING, INC.
 
By:
/s/ James A. Tuell
 
 
James A. Tuell, President

Exhibits :
None

 
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EXHIBIT 10.11
 
AmegyBank
1807 Ross Avenue, Suite 400
Dallas, Texas 75201
 
March 26, 2008

INFINITY ENERGYRESOURCES, INC.
633 Seventeenth Street, Suite 1800
Denver, Colorado 80202

Re: Second Forbearance Agreement
 
Ladies and Gentlemen:
 
This letter (this “ Agreement ”) sets forth the second forbearance agreement among INFINITY ENERGY RESOURCES, INC.  (“ Borrower ”), a Delaware corporation; INFINITY OIL AND GAS OF TEXAS, INC., a Delaware corporation, and INFINITY OIL & GAS OF WYOMING, INC., a Wyoming corporation (collectively “ Guarantors ”); and AMEGY BANK NATIONAL ASSOCIATION (“ Lender ”).  Borrower, Guarantors, and Lender previously entered into a Forbearance Agreement (the “ First Forbearance Agreement ”) dated August 31, 2007.  Capitalized terms below have the meanings assigned in the Loan Agreement dated January 9, 2007, among Borrower, Guarantors, and Lender, as amended (the “ Loan Agreement ”).
 
1.            Forest Transactions .  Borrower and Guarantors have consummated the following transactions as contemplated by the First Forbearance Agreement:
 
(a)           The sale of certain oil and gas properties of Infinity Oil & Gas of Wyoming, Inc. (“ IOGWy ”), excluding, however, an undivided 20% interest retained in all undeveloped leasehold acreage, pursuant to an Asset Purchase and Sale Agreement dated December 26, 2007, but effective October 1, 2007, between IOGWy, as seller, and FOREST OIL CORPORATION (“ Forest ”), a New York corporation, as buyer; and
 
(b)           The farmout of certain undeveloped leasehold acreage of Infinity Oil and Gas of Texas, Inc. (“ IOGTx ”), pursuant to a Farmout and Acquisition Agreement (the “ Farmout Agreement ”) dated December 26, 2007, between IOGTx, as farmor, and Forest, as farmee.
 
2.            Borrowing Base .  Effective as of the date of this Agreement, Lender has reduced the Borrowing Base to $3,806,000.00, until reset by Lender in connection with the next redetermination of the Borrowing Base.  Lender reserves the right to make the next redetermination of the Borrowing Base at any time.
 
3.            Borrowing Base Deficiency .  The new Borrowing Base results in a Borrowing Base deficiency in the amount of $7,097,468.29 (the “ Deficiency ”).  On or before the end of the Forbearance Period (as defined below), Borrower and Guarantors agree to cure the Deficiency by selling assets, refinancing of the Revolving Loan, or raising capital on terms acceptable to Lender.

 
 

 
 
4.            Events of Default .  Borrower and Guarantors acknowledge that the following Events of Default have occurred and remain outstanding (the “ Existing Defaults ”):
 
(a)           The Existing Defaults set forth in the First Forbearance Agreement;
 
(b)           Borrower and Guarantors breached the financial covenants set forth in Subsection (a)-(h) of Section 8 of the Loan Agreement for the periods ended September 30 and December 31, 2007; and
 
(c)           Borrower and Guarantors breached the covenants set forth in Subsections (g), (h), (i), and (m) of Section 7 of the Loan Agreement for the periods ended September 30, 2007 and December 31, 2007.
 
5.            Forbearance .  Lender, Borrower, and Guarantors agree to a forbearance period commencing as of December 1, 2007, and continuing through May 31, 2008, unless terminated earlier by Lender due to a Default, as defined below (the “ Forbearance Period ”).  During the Forbearance Period, but subject to a Default, Lender will forebear from exercising any remedies under the Loan Agreement, the Revolving Note, the Security Documents, the Guaranties, and the other Loan Documents.  Borrower and Guarantors agree that all statutes of limitation with respect to enforcement of the Revolving Note, the Guaranties, and the Security Documents will be tolled during the Forbearance Period and for ninety (90) days thereafter.
 
6.            Temporary Waiver .  Borrower and Guarantors have requested that Lender temporarily waive the Existing Defaults and additional defaults under the provisions covered by the Existing Defaults, excluding, however, the following (the “ Excluded Defaults ”): (i) any additional defaults under the additional debt prohibitions in Subsection (h) of Section 7 of the Loan Agreement, and (ii) any additional defaults under the use of Free Operating Cash Flow prohibitions in Subsection (h) of Section 8 of the Loan Agreement.  Lender hereby waives the Existing Defaults through the Forbearance Period only.  This is a temporary and limited waiver, and Lender reserves the right to require strict compliance with all covenants under the Loan Agreement, including the covenants violated as set forth above, in the future.  This waiver does not modify, supplement, or alter any of the terms of the Loan Agreement or any other Loan Document.  Further, this waiver shall not be construed as a commitment by Lender to waive any future violation of the same or any other term or condition of the Loan Agreement or any of the Loan Documents.  Neither the negotiation or execution of this Agreement will be an election of any right or remedy available to Lender; and, except as specifically limited or postponed herein, Lender reserves all rights and remedies.
 
7.            Interest .  Borrower and Lender hereby agree that during the Forbearance Period (including the Forbearance Period under the First Forbearance Agreement), the entire unpaid principal balance owed on the Revolving Note shall accrue interest at the sum of the Stated Rate, plus the Applicable Margin as set forth in the Revolving Note; provided, however, that Lender reserves the right to impose the default rate of Stated Rate, plus six percent (6.0%) (the “ Default Rate ”), as set forth in the Revolving Note, at any time after the termination of the Forbearance Period, in the event that an Event of Default remains uncured and outstanding.  Further, in lieu of the additional interest accrued and unpaid under the First Forbearance Agreement, calculated as the difference between the Default Rate and the sum of the Stated Rate, plus the Applicable Margin, Borrower shall pay the Forbearance/Waiver Fee set forth below.

 
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8.            Additional Collateral .  In consideration of the forbearance under this Agreement, Borrower agrees to sign and deliver a Commercial Security Agreement (the “ Security Agreement ”) in Proper Form, granting a security interest in any future sale proceeds from the sale of all or any part of the rights Borrower may have in the Tyra and Perl as Blocks, offshore Nicaragua, as awarded to Borrower by the Republic of Nicaragua in 2003, as hereafter amended and modified (the “ Nicaragua Concessions ”), and affected by Sentencia No. 92, Expediente No. 591-06, rendered by the Supreme Court of Justice of the Republic of Nicaragua, Constitutional Hall, dated May 2, 2006, in any future subsidiaries in which the rights with respect to the Nicaragua Concessions are assigned, and in any proceeds or rights related to Borrower’s insurance policies issued by the Overseas Private Investment Corporation (“ OPIC ”) related to the Nicaragua Concessions (the “ OPIC Policies ”).  Borrower and Guarantors agree to mortgage all oil and gas properties and leasehold interests (excluding the Nicaragua Concessions) owned by Borrower or Guarantors and not previously mortgaged to Lender as additional security for the Notes.  Further, Borrower and Guarantors agree to use their reasonable best efforts to obtain within thirty (30) days of the date of this Agreement a waiver of the prohibition against liens from the lessors on the Murray lease, Erath County, Texas, and thereafter to mortgage this lease.  Lender agrees to release without delay the Security Agreement in the event that the OPIC notifies Borrower of payment of compensation for a claim made by Borrower under the OPIC Policies; provided, however that if released the Security Agreement under such circumstances, Borrower agrees that the compensation for a claim made by Borrower under the OPIC Policies shall still be paid to Lender for application to the Revolving Loan.
 
9.            Lockbox .  Section 8 of the First Forbearance Agreement regarding payment of all production proceeds to the Lockbox Account shall remain in effect until all amounts lawfully due and owing on the Revolving Note and the Hedge Liabilities are paid in full, except Subsection (f) of Section 8 of the First Forbearance Agreement is modified to read as follows:
 
“(f) Notwithstanding the provisions of Subsection (f) of Section 8 of the Loan Agreement, beginning April l, 2008, Borrower and Guarantors shall not permit cash general and administrative expenses on a consolidated basis to exceed $75,000.00 per month during term of this Agreement; provided, however, that general and administrative expenses in excess of this monthly limit may be accrued and paid only after the Revolving Loan and Hedge Liabilities have been paid in full.”
 
10.            Sale of Oil and Gas Properties .  In order to cure the Deficiency, Borrower and Guarantors agree to take the following actions:

 
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(a)           Upon the written directive of Lender, to be exercised in Lender’s sole discretion, but subject to shareholder approval to the extent required by applicable law, Borrower and Guarantors shall proceed with (i) the sale and marketing of the interest retained in the oil and gas properties ofIOGWy (the “ Rockies Properties ”); and (ii) the sale and marketing of interests in the Texas oil and gas properties of IOGTx (the “ Texas Properties ”).  If elected by Lender, Borrower and Guarantors shall devote their substantial efforts, time, talents, and expertise to the sale and marketing of the Rockies Properties and the Texas Properties, will take all lawful actions as will result in the prompt payment of the Deficiency, and will thereafter accept any commercially reasonable offer to buy the Rockies Properties and the Texas Properties, or any of them; provided no oil and gas property or leasehold interest which is mortgaged to Lender shall be sold except on terms and price acceptable to Lender and with the prior written approval of Lender.
 
(b)           Upon Lender’s election to proceed with the sale of the Rockies Properties and the Texas Properties, or any of them, Borrower and Guarantors shall thereafter use their best efforts to (i) promptly open a data room on the properties to be sold, (ii) to promptly obtain firm proposals for the sale of the properties, (iii) to execute a definitive agreement or agreements, subject to stockholder approval if required, for the sale of properties with proceeds sufficient to repay the Deficiency, and (iv) seek stockholder approval, if required, and consummate the sale of the properties as soon as practicable thereafter, but in no event later than the end of the Forbearance Period.
 
(c)           Borrower and Guarantors shall promptly provide Lender with a copy of the agreement or engagement letter with any oil and gas broker or consultant retained to assist with sales under this Section; and thereafter Borrower and Guarantors shall provide a monthly report on the first (1st) day of each month, to be prepared by the oil and gas broker or consultant engaged by Borrower and Guarantors to facilitate the sale of the oil and gas properties and leasehold interests, that includes any and all information pertaining to property bids, the current status of any bids or sale discussions, and all marketing efforts employed to sell the Rockies Properties and the Texas Properties.  Notwithstanding any provision to the contrary, at least two business days prior to the date on which Borrower proposes to pay such, Borrower shall deliver to Lender in usual and customary form reasonably acceptable to Lender reasonable detail of all broker fees and other transaction costs related to the sale of the properties proposed to be paid from proceeds in the Lockbox Accounts, and thereafter Borrower may pay such fees and costs as are approved by Lender (which approval shall not be unreasonably withheld, delayed, or denied).
 
(d)           No sale of any of the Rockies Properties and the Texas Properties, or any of them, will be permitted to an affiliate of Borrower or Guarantors, unless Lender consents in writing.
 
(e)           Borrower and Guarantors will direct the net sale proceeds from the sale of any of the Rockies Properties and the Texas Properties to be paid to Lender to be applied to the Revolving Note and collection costs in such order as determined by Lender and shall take all lawful actions to ensure that the proceeds of any such sales are contemporaneously with the closing thereof applied to the Revolving Note and collection costs as herein provided.
 
11.           Nicaragua Concessions .  So long as the Deficiency remains uncured or there is any outstanding Event of Default, Borrower and Guarantors agree that:

 
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(a)           They shall not sell, assign, transfer, or otherwise dispose of all or any interest in the Nicaragua Concessions, without the prior written consent of Lender, except for (i) the sale of hydrocarbons in the ordinary course of business, and (ii) the sale or transfer of equipment or inventory in the ordinary course of business or that is no longer necessary for the business of Borrower or that is obsolete or replaced by equipment of at least comparable value and use, and (iii) the assignment or transfer required under Section 10.02 of the OPIC Policies after payment of compensation for a claim made by Borrower under the OPIC Policies; and
 
(b)           They shall not mortgage, assign, hypothecate, pledge, or encumber, and not create, incur, or assume any lien or security interest on or in, the Nicaragua Concessions (or any interest in the Nicaragua Concessions), without the prior written consent of Lender, except for any security interest in favor of Lender and the Permitted Encumbrances.
 
12.           Escrow Agreement .  In   connection with the Farmout Agreement with Forest, IOGTx, Forest, Lender, and Amegy Bank National Association, as escrow agent, have entered into an Escrow Agreement (the “ Escrow Agreement ”) dated December 27, 2007, providing for the payment of certain liens and claims from funds held in escrow, in accordance with the terms therein.
 
13.           Lease Operating Expense .  By March 31, 2008, Borrower and IOG Tx shall provide evidence to Lender that the lease operating expense on the Texas properties of IOGTx does not exceed an average of $2,500 per well per month; and thereafter Borrower and IOGTx shall not permit the lease operating expense on the Texas properties of IOGTx to exceed an average of $2,500 per well per month.
 
14.           Hedge Transactions .
 
(a)           In   connection with the sale of the Rockies oil and gas properties to Forest, Borrower and Guarantors terminated all outstanding Hedge Transactions.  A hedge termination fee in the amount of $56,085.00 is owed by Borrower to Lender in connection with the termination of those Hedge Transactions, and this hedge termination fee shall be payable on or before the Deferral Date (as defined below).
 
(b)           Notwithstanding the terms of Section 4 of the Loan Agreement, Borrower and Guarantors agree that during the Forbearance Period and so long thereafter as any Event of Default remains outstanding and uncured, Borrower and Guarantors shall not enter into any Hedge Transaction without the prior written consent of Lender.  If Lender consents to any additional Hedge Transactions, those Hedge Transactions must comply with the terms of Section 4 of the Loan Agreement.
 
15.           Audit and Inspections .  (a) Borrower and Guarantors agree that Lender and its auditors or accountants may, during the term of this Agreement, conduct an audit at Borrower’s and Guarantors’ offices and examine, audit, and make and take away copies or reproductions of Borrower’s and Guarantors’ books and records reasonably required by Lender, relating to (i) the sources and uses of all funds advanced by Lender under the Revolving Note, and (ii) the sources and uses of all production proceeds attributable to Borrower’s and Guarantors’ oil and gas properties.  Lender will provide Borrower and Guarantors with one business day written notice of its intention to commence the audit.  Borrower and Guarantors agree to cooperate with Lender and comply with all reasonable requests in connection with the audit, and Borrower and Guarantors hereby consent to the review and use by Lender’s auditors of Borrower’s third-party audit of the books and records of Borrower, Guarantors, and any other subsidiaries, including the supporting documentation and work papers of such independent auditors.

 
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16.           Reporting Requirements .  Until the Revolving Note and all other obligations and liabilities of Borrower under the Revolving Note and the other loan documents are fully paid and satisfied, Borrower and Guarantors will furnish to Lender the following in Proper Form:
 
(a)           On or before March 31, 2008, a 180-day operating/cash flow forecast for Borrower and Guarantors and a pro-forma working capital balance for Borrower and Guarantors as of February 29, 2008.
 
(b)           Within ten (10) days of the end of each month, a pro-forma working capital balance for Borrower and Guarantors as of the end of the prior month.
 
(c)           On or before March 31, 2008, a written plan to pay-down the pro forma Accounts Payable balance.
 
(d)           As received and available, Borrower and Guarantors shall promptly provide to Lender all information related in any way to their ability to raise additional capital.
 
(e)           As received and available, Borrower and Guarantors shall promptly provide to Lender copies of any agreement or engagement letter with an oil and gas broker or consultant, all written purchase bids, purchase agreements, and farm-in proposals related in any way to the prospective sale of any of the Rockies Properties and the Texas Properties and shall promptly inform Lender of any unwritten offers or bids.
 
(f)           As received and available, Borrower and Guarantors shall promptly provide to Lender copies of any term sheets or financing proposals received that would result in the Deficiency being cured or a refinance of the entire outstanding amount owed on the Revolving Note and Hedge Liabilities.
 
(g)           Notwithstanding the provisions of Subsection (h) of Section 9 of the Loan Agreement, within fifty (50) days of the end of each month, a production report, on a lease-by-lease or unit basis, showing the gross proceeds from the sale of oil, gas, and associated hydrocarbons produced from the Properties, the quantity of oil, gas, and associated hydrocarbons sold, the severance, gross production, occupation, or gathering taxes deducted from or paid out of the proceeds, settlements of any Hedge Transactions, the cash lease operating expenses, including non-recurring cash operating expenses, intangible drilling costs, and capital expenditures, general and administrative expenses, the number of wells operated, drilled, or abandoned, the name, address, telephone number, and contact of the first purchaser of production for all of the Properties, and such other information as Lender may reasonably request;
 
(h)           Within ten (10) days of the release of any funds under the Escrow Agreement, evidence of the payments made under the Escrow Agreement and lien releases in recordable form acceptable to Lender, releasing any lien claims made with respect to those amount paid under the Escrow Agreement;

 
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(i)           On or before March 31, 2008, Borrower will provide Lender with a proposed budget of recurring operating expenses, non-recurring operating expenses, general and administrative expenses, and any capital expenditures for the oil and gas properties expected to be paid during the Forbearance Period and supporting documentation for those expenses and expenditures; and
 
(j)           Such other information respecting the condition and the operations, financial or otherwise, of Borrower, Guarantors, and the Properties as Lender may from time to time reasonably request.
 
17.           Forbearance Fee .  In consideration of the forbearance by Lender under this Agreement and the waiver of the Existing Defaults and for other valuable consideration, the receipt and sufficiency of which are acknowledged, Borrower agrees to pay to Lender a Forbearance/Waiver Fee calculated as follows, and due on or before the earlier of the following (the “ Deferral Date ”): (i) the termination of the Forbearance Period, (ii) the cure of the Deficiency, or (iii) the refinance of the Revolving Note by another lender:
 
(a)           Forbearance Waiver Fee under the First Forbearance Agreement in the amount of $220,000.00; plus
 
(b)           Forbearance/Waiver Fee due because of the failure to pay the additional interest and the original Forbearance Waiver Fee under the First Forbearance Agreement in the amount of $333,666.67; plus
 
(c)           Forbearance/Waiver Fee for December 2007 in the amount of $223,666.67; plus
 
(d)           Forbearance/Waiver Fee for each month from January 2008 through May 2008, inclusive, calculated as one percent (1.0%) of the average daily outstanding principal balance on the Revolving Note for the month as of the last day of each of those months (or as of the Deferral Date if such occurs during any month).
 
The Forbearance/Waiver Fees and all other fees are non-refundable and earned by Lender upon execution of this Agreement.
 
18.            Conditions Precedent .  The obligation of Lender to enter into this Agreement and to forbear with respect to the Existing Defaults is subject to Borrower’s satisfaction, in Lender’s sole discretion, of the following conditions precedent:
 
(a)          Except for the Deficiency and the Existing Defaults, all representations and warranties set forth in Section 6 of the Loan Agreement must be true as of the date of this Agreement, except for Subsection (d) of Section 6 which is qualified by the lawsuits set forth in Schedule A attached.
 
(b)          the negotiation, execution, and delivery of Loan Documents in Proper Form, including, but not limited to, the following:
 
(i)           this Agreement;

 
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(ii)           the Security Agreement; and
 
(iii)          Borrower and Guarantors Resolutions.
 
(c)          there shall not have occurred a material adverse change in the business, assets, liabilities (actual and contingent), operations, or financial condition of Borrower or in the facts and information regarding such entities as represented to date.
 
19.           Default and Remedies .
 
(a)           As used in this Agreement, “ Default ” means (i) any breach by Borrower or Guarantors of their obligations under this Agreement, (ii) any misrepresentation by Borrower or Guarantors of the representations or warranties set forth in this Agreement, or (iii) any further Event of Default under the Loan Agreement, other than additional defaults under the provisions covered by the Existing Defaults, excluding the Excluded Defaults.
 
(b)           Upon a Default, Lender may terminate the Forbearance Period and exercise any and all rights and remedies available to it, including, without limitation, those under the Loan Agreement, the Revolving Note, the Security Documents, the Guaranties, the Loan Documents, this Agreement, and any other instrument or agreement relating hereto, or anyone or more of them.  All rights and remedies of Lender shall be cumulative and concurrent and, after a Default, may be pursued separately, successively, or together as often as occasion therefore shall arise, at the sole discretion of the Lender.
 
20.           Other Representations .  Borrower and Guarantors hereby represent to Lender as follows:
 
(a)           The execution, delivery, and performance of this Agreement by Borrower and Guarantors have been duly authorized by Borrower’s and Guarantors’ respective boards of directors and this Agreement constitutes their legal, valid, and binding obligations, enforceable in accordance with their respective terms; and
 
(b)           Except as set forth on Schedule A hereto, there are no actions, suits, or proceedings pending or threatened against or affecting Borrower, Guarantors, or the Properties, before any court or governmental department, commission, or board, which, if determined adversely, would have a material adverse effect on any of the Properties or the operations or financial condition of any of Borrower or Guarantors.
 
21.           Confirmations .
 
(a)           Borrower and Guarantors agree that the following amounts are due and outstanding with respect to the Revolving Note as of March 12, 2008:
 
Principal
  $ 10,903,468.29  
Interest
  $ 21,655.50  
Total
  $ 10,925,655.50  

 
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Borrower and Guarantors agree that there is no set off or defense to payment of the Revolving Note or the Hedge Liabilities.
 
(b)           As security for the Notes, Borrower and Guarantors previously executed the Security Documents.  Borrower and Guarantors ratify and confirm the Security Documents, acknowledge that they are valid, subsisting, and binding, and agree that the Security Documents secure payment of the Notes (including the Revolving Note) and the Loans (including the Revolving Loan).
 
(c)           In connection with the Revolving Note, Guarantors executed the Guaranties.  Guarantors ratify and confirm the Guaranties, acknowledge that the Guaranties are valid, subsisting, and binding upon Guarantors, and agree that the Guaranties guarantee payment of the Revolving Note.  Guarantors agree that there is no defense to payment under the Guaranties.
 
(d)           Borrower and Guarantors hereby represent to Lender that all representations and warranties set forth in Section 6 of the Loan Agreement are true and correct as of the date of execution of this Agreement, except for Subsection (d) of Section 6 which is qualified by the lawsuits set forth in Schedule A attached; and that, except for the Existing Defaults, Borrower and Guarantors are in compliance as of the date of execution of this Agreement with all covenants set forth in Section 7 of the Loan Agreement, all financial covenants set forth in Section 8 of the Loan Agreement, and all reporting requirements set forth in Section 9 of the Loan Agreement.
 
22.            Validity and Defaults .  The Loan Agreement remains in full force and effect.  Borrower and Guarantors acknowledge that the Loan Agreement, the Revolving Note, the Security Documents, the Guaranties, and the other Loan Documents are valid, subsisting, and binding upon Borrower and Guarantors; no uncured breaches or defaults exist under the Loan Agreement, except for the Existing Defaults; and no other event has occurred or circumstance exists which, with the passing of time or giving of notice, will constitute a default or breach under the Loan Agreement.  Borrower and Guarantors ratify the Loan Agreement.
 
23.            Release .  For valuable consideration, the receipt and sufficiency of which are acknowledged, Borrower and Guarantors hereby RELEASE AND FOREVER DISCHARGE Lender and its officers, directors, employees, agents, representatives, attorneys, subsidiaries, and affiliates (collectively “ Released Parties ”), from any and all claims, counterclaims, demands, damages, debts, suits, obligations, liabilities, offsets, rights, actions, and causes of action of any nature whatsoever (collectively “ Claims ”), caused by, because of, as a result of, arising from, or related in any way to the Loan Agreement, the Revolving Note, the Security Documents, the Loan Documents, this Agreement, any other transaction between Lender and Borrower, or any act, omission, communication, transaction, occurrence, representation, promise, breach, fraud, violation of any statute or law, or any other matter whatsoever or thing done, omitted, or suffered by any of the Released Parties, whether those Claims are now or hereafter accrued or possessed, whether known or unknown, direct or indirect, liquidated or unliquidated, absolute or contingent, foreseen or unforeseen, at law or in equity, and now or hereafter asserted, including, without limitation, claims for contribution or indemnity, claims of control, fraud, duress, mistake, tortuous interference, usury, negligence, or violations of the Texas Consumer Protection and Deceptive Trade Practices Act.

 
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24.            Advice from Counsel .  Borrower and Guarantors understand that this Agreement is legally binding and represent to Lender that each has obtained independent legal counsel from the attorney of their choice regarding the meaning and legal significance of this Agreement.  The parties agree that no provision of this Agreement shall be interpreted or construed against a party because that party prepared the provision, it being agreed that all parties have participated in the drafting of this Agreement and have had legal counsel of their choice.
 
25.            Governing Law and Venue .  THIS AGREEMENT, THE LOAN AGREEMENT, THE REVOLVING NOTE, AND ALL LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND SHALL BE PERFORMED IN DALLAS COUNTY, TEXAS.  BORROWER, GUARANTORS, AND LENDER IRREVOCABLY AGREE THAT VENUE FOR ANY ACTION OR CLAIM RELATED TO THIS AGREEMENT, THE LOAN AGREEMENT, THE REVOLVING NOTE, OR ANY LOAN DOCUMENTS SHALL BE IN DALLAS COUNTY, TEXAS.
 
26.            Savings Clause .  Regardless of any provision contained in the Loan Agreement, the Revolving Note, the Security Documents, the other Loan Documents, or this Agreement, it is the express intent of the parties that at no time shall Borrower or Guarantors pay interest in excess of the maximum lawful rate (or any other interest amount which might in any way be deemed usurious), and Lender will never be considered to have contracted for or to be entitled to charge, receive, collect, or apply as interest on the Revolving Note, any amount in excess of the maximum lawful rate (or any other interest amount which might in any way be deemed usurious), and, in the event that Lender ever receives, collects, or applies as interest any such excess, the amount which would be excessive interest will be applied to the reduction of the principal balance of the Revolving Note, and, if the principal balance of the Revolving Note is paid in full, any remaining excess shall forthwith be paid to Borrower.  In determining whether the interest paid or payable exceeds the maximum lawful rate (or any other interest amount which might in any way be deemed usurious), Borrower and Lender shall, to the maximum extent permitted under applicable law, spread the total amount of interest throughout the entire contemplated term of the Revolving Note so that the interest rate is uniform throughout the term.
 
27.            Fax Provision .  This Agreement and the related Loan Documents may be executed in counterparts, and Lender is authorized to attach the signature pages from the counterparts to copies for Lender and Borrower.  At Lender’s option, this Agreement and the related Loan Documents may also be executed by Borrower and Guarantors in remote locations with signature pages faxed to Lender.  Borrower and Guarantors agree that the faxed signatures are binding upon Borrower and Guarantors, and Borrower and Guarantors further agree to promptly deliver the original signatures for this Agreement and the related Loan Documents by overnight mail or expedited delivery.  It will be an Event of Default if Borrower or Guarantors fail to promptly deliver all required original signatures.
 
28.            Captions .  Captions are for convenience only and should not be used in interpreting this Agreement.

 
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29.           Final Agreement .
 
(a)           In connection with the Loans, Borrower, Guarantors, and Lender have executed and delivered this Agreement, the Loan Agreement, and the Loan Documents (collectively the “ Written Loan Agreement ”).
 
(b)           It is the intention of Borrower, Guarantors, and Lender that this paragraph be incorporated by reference into each of the Loan Documents.  Borrower, Guarantors, and Lender each warrant and represent that their entire agreement with respect to the Loans is contained within the Written Loan Agreement, and that no agreements or promises have been made by, or exist by or among, Borrower, Guarantors, and Lender that are not reflected in the Written Loan Agreement.
 
(c)           THE LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
 
If the foregoing correctly sets forth your understanding of our agreement, please sign and return one copy of this letter.  Notwithstanding any provision to the contrary, this Agreement shall only be effective if Borrower and Guarantors sign and return to Lender by 3 p.m., Houston, Texas time, on Thursday, March 27, 2008.
 
 
Yours very truly,
   
 
AMEGY BANK NATIONAL ASSOCIA TION
   
 
By:
/s/ A.  Stephen Kennedy
   
A. Stephen Kennedy, Senior Vice President/
Manager - Energy Group
 
 
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Accepted and agreed to
this 27th day of March, 2008:
 
BORROWER:
 
INFINITY ENERGY RESOURCES, INC.
 
By:
/s/ Stanton E. Ross
 
 
Stanton E. Ross, Chairman
 
and Chief Executive Officer
 
GUARANTORS:
 
INFINITY OIL AND GAS OF TEXAS, INC.
 
 
By:
/s/ Stanton E. Ross
 
 
Stanton E. Ross, President
 
INFINITY OIL & GAS OF WYOMING, INC.
 
 
By:
/s/ Stanton E. Ross
 
 
Stanton E. Ross, President

Exhibits and Schedules :
Schedule A -Lawsuits

 
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Exhibit 10.12
 
AmegyBank
1807 Ross Avenue, Suite 400
Dallas, Texas 75201
 
October 16, 2008
 
INFINITY ENERGY RESOURCES, INC.
633 Seventeenth Street, Suite 1800
Denver, Colorado 80202
 
Re: Third Forbearance Agreement
 
Ladies and Gentlemen:
 
This letter (this " Agreement ") sets forth the third forbearance agreement among INFINITY ENERGY RESOURCES, INC. (" Borrower "), a Delaware corporation; INFINITY OIL AND GAS OF TEXAS, INC., a Delaware corporation, and INFINITY OIL & GAS OF WYOMING, INC., a Wyoming corporation (collectively " Guarantors "); and AMEGY BANK NATIONAL ASSOCIATION (" Lender ").  Borrower, Guarantors, and Lender previously entered into a Forbearance Agreement (the " First Forbearance Agreement ") dated August 31, 2007, and a Second Forbearance Agreement (the " Second Forbearance Agreement ") dated March 26, 2008.  Capitalized terms below have the meanings assigned in the Loan Agreement dated January 9, 2007, among Borrower, Guarantors, and Lender, as amended (the " Loan Agreement ").
 
1.            Forbearance .  (a) Lender, Borrower, and Guarantors agree to a forbearance period commencing as of June 1, 2008, and continuing through May 31, 2009, unless extended as set forth in Subsection (b) below or unless terminated earlier by Lender due to a Default, as defined below (the " Forbearance Period ").  During the Forbearance Period, but subject to a Default, Lender will forebear from exercising any remedies under the Loan Agreement, the Revolving Note, the Security Documents, the Guaranties, and the other Loan Documents.  Borrower and Guarantors agree that all statutes of limitation with respect to enforcement of the Revolving Note, the Guaranties, and the Security Documents will be tolled during the Forbearance Period and for ninety (90) days thereafter.
 
(b)          The Forbearance Period shall be extended until June 15, 2009, if Borrower has satisfied the following conditions as of May 31, 2009:
 
(i)           The sum of the principal amount outstanding on the Revolving Loan, plus the aggregate undrawn amount on the Nicaragua Letters of Credit (as defined below), is $5,000,000.00 or less; and
 
(ii)          There is no existing Default.

 
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2.            Extension of Revolving Loan .  The " Termination Date " as defined in the Loan Agreement is hereby extended until 11:00 a.m. (Dallas, Texas time) on May 31, 2009.  Borrower agrees to sign and deliver a First Amendment of the Revolving Note to reflect this extension.
 
3.            Events of Default .  Borrower and Guarantors acknowledge that the following Events of Default have occurred and remain outstanding (the " Existing Defaults "):
 
(a)           The Existing Defaults set forth in the First Forbearance Agreement and the Second Forbearance Agreement;
 
(b)           Borrower and Guarantors breached the financial covenants set forth in Subsection (a) - (h) of Section 8 of the Loan Agreement for the periods ended March 31 and June 30, 2008; and
 
(c)           Borrower and Guarantors breached the covenants set forth in Subsections (g), (i), and (m) of Section 7 of the Loan Agreement for the periods ended March 31 and June 30, 2008; provided, however, that the breach of Subsection (i) of Section 7 of the Loan Agreement was solely attributable to involuntary mineral lien claims made under Chapter 56 of the Texas Property Code or similar applicable law.
 
4.            Temporary Waiver .  Borrower and Guarantors have requested that Lender temporarily waive the Existing Defaults and additional defaults under the provisions covered by the Existing Defaults, excluding, however, the following (the " Excluded Defaults "): (i) except as contemplated under this Agreement, any additional defaults under the additional debt prohibitions in Subsection (h) of Section 7 of the Loan Agreement, and (ii) any additional defaults under the use of Free Operating Cash Flow prohibitions in Subsection (h) of Section 8 of the Loan Agreement.  Lender hereby waives the Existing Defaults through the Forbearance Period only.  This is a temporary and limited waiver, and Lender reserves the right to require strict compliance with all covenants under the Loan Agreement, including the covenants violated as set forth above, in the future.  This waiver does not modify, supplement, or alter any of the terms of the Loan Agreement or any other Loan Document.  Further, this waiver shall not be construed as a commitment by Lender to waive any future violation of the same or any other term or condition of the Loan Agreement or any of the Loan Documents.  Neither the negotiation or execution of this Agreement will be an election of any right or remedy available to Lender; and, except as specifically limited or postponed herein, Lender reserves all rights and remedies.
 
5.            Borrowing Base and Deficiency .  (a) The Borrowing Base has not been redetermined since the Second Forbearance Agreement and remains at $3,806,000.00, until reset by Lender in connection with the next redetermination of the Borrowing Base.  Lender agrees that it will not redetermine the Borrowing Base during the Forbearance Period.
 
(b)           As of September 3, 2008, the Borrowing Base results in a Borrowing Base deficiency in the amount of $6,104,493.64 (the " Deficiency ").  On or before the end of the Forbearance Period, Borrower and Guarantors agree to cure the Deficiency by selling assets, refinancing of the Revolving Loan, or raising capital on terms acceptable to Lender.

 
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6.            Nicaragua Concessions .  (a) On or before December 31, 2008, or such later date as agreed by Lender in writing, Borrower shall have received all governmental authorizations necessary for the validation and ratification of the concessions (" Governmental Approval ") in the Tyra and Perlas Blocks, offshore Nicaragua, as awarded to Borrower by the Republic of Nicaragua in 2003, as hereafter amended and modified (the " Nicaragua Concessions "), and affected by Sentencia No. 92, Expediente No 591-06, rendered by the Supreme Court of Justice of the Republic of Nicaragua, Constitutional Hall, dated May 2, 2006.
 
(b)           So long as the Deficiency remains uncured or there is any outstanding Event of Default, Borrower and Guarantors agree that:
 
(i)           They shall not sell, assign, transfer, or otherwise dispose of all or any interest in the Nicaragua Concessions, without the prior written consent of Lender, except for (1) the sale of hydrocarbons in the ordinary course of business, (2) the sale or transfer of equipment or inventory in the ordinary course of business or that is no longer necessary for the business of Borrower or that is obsolete or replaced by equipment of at least comparable value and use, (3) the assignment or transfer required under Section 10.02 of Borrower's insurance policies issued by the Overseas Private Investment Corporation (" OPIC ") related to the Nicaragua Concessions (the " OPIC Policies "), after payment of compensation for a claim made by Borrower under the OPIC Policies, and (4) in connection with capital raising transactions, the conveyance of one or more overriding royalty interests in the Nicaragua Concessions in an aggregate net revenue amount not to exceed four percent (4.0%), in exchange for cash equity contributions or Subordinate Loans (as defined below) to Borrower in an amount not less than $100,000.00 for each two-tenths of one percent (0.2%) of royalty conveyed; and
 
(ii)           They shall not mortgage, assign, hypothecate, pledge, or encumber, and not create, incur, or assume any lien or security interest on or in, the Nicaragua Concessions (or any interest in the Nicaragua Concessions), without the prior written consent of Lender, except for any security interest in favor of Lender and the Permitted Encumbrances.
 
7.            Nicaragua Letters of Credit .  Lender agrees, upon the request of Borrower, to issue one or more Letters of Credit in an aggregate amount not to exceed $850,000.00, in favor of the Direccion General de Hidrocarburos, Insituto Nicaraguense de Energia, for the account of Borrower and as security for Borrower's obligations with respect to the Nicaragua Concessions (the " Nicaragua Letters of Credit ").  Any fundings under the Nicaragua Letters of Credit will be treated as an advance on the Revolving Loan and will be secured by the Security Documents.  The Nicaragua Letters of Credit shall be on terms reasonably acceptable to Lender and shall be for a term of up to one year and, if necessary, to renew automatically unless Lender gives prior written notice.  Borrower will sign and deliver Lender's customary forms for the issuance of Letters of Credit.  Lender agrees to take any and an reasonable actions in relation to the Nicaragua Letters of Credit as may be reasonably requested, and comply with the terms and conditions reasonably set forth, by the Nicaraguan government.  Borrower agrees to pay to Lender a Letter of Credit fee on the Nicaragua Letters of Credit equal to three and one-quarter percent (3.25%) per annum, calculated on the aggregated stated amount of the Nicaragua Letters of Credit for the stated duration thereof (computed on the basis of actual days elapsed as if each year consisted of 360 days), and due on or before the Deferral Date (as defined below).

 
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8.            Stock Options .  On or before October 31, 2008, Borrower shall cause Stanton E. Ross and Dan Hutchins to exercise existing stock options granted at the most-recent annual meeting of Borrower for shares in Borrower (the " Stock Options ") at a cash price of not less than 38¢ per share and for an aggregate cash equity contribution received by Borrower of not less than $200,000.00.  The net proceeds from the Stock Options may be used by Borrower for general and administrative expenses in excess of the monthly limit set forth in Section 15 below or for development of the Nicaragua Concessions.
 
9.             Subordinate Loans .  On or before October 31, 2008, Borrower shall receive one or more subordinate loans in an aggregate amount not less than $1,500,000.00, which shall be subordinated in writing to the Loans and Hedge Liabilities on terms acceptable to Lender (the " Subordinate Loans ").  Lender will allow the Subordinate Loans to be secured by the Security Documents on a fully-subordinated basis, pursuant to loan documents or amendments reasonably acceptable to Lender.  The proceeds from the Subordinate Loans will be held in an escrow account at Lender until such time as Borrower shall have received the Governmental Approval, and thereafter, the proceeds from the Subordinate Loans may be used by Borrower for general and administrative expenses in excess of the monthly limit set forth in Section 15 below or for development of the Nicaragua Concessions; provided, however, that if the Governmental Approval is not obtained, all escrowed proceeds from the Subordinate Loans shall be promptly returned to the Subordinate Creditor.
 
10.           Cash Flow .  Borrower agrees that it will use its commercially reasonable best efforts to cause the contribution of cash to Borrower to the extent necessary so that Borrower's consolidated cash flow is a minimum of break even, after payment of interest expense on the Revolving Loan, to prevent any additional accounts payable from becoming past due, and to prevent any mineral liens under Chapter 56 of the Texas Property Code or similar applicable law from being filed against the Properties.
 
11.           Lockbox .  Borrower and Guarantors agree that the following provisions regarding production proceeds attributable to their oil and gas properties continue to apply:
 
(a)           Borrower and Guarantors will direct all production proceeds attributable to their oil and gas properties to be paid to a lockbox account to be set up and maintained with Lender for the purpose of collection of production proceeds (the " Lockbox Account ").
 
(b)           All production proceeds received in the Lockbox Account by Lender with respect to production, severance, ad valorem, or other taxes on production proceeds (excluding income taxes) or that are attributable to another person's or entities' royalty or other interest in the oil and gas properties shall be released immediately to Borrower upon Borrower's request and verification of those amounts.  Borrower and Guarantors shall provide evidence of the timely payment of production, severance, ad valorem, or other taxes on production proceeds (excluding income taxes) and of the royalty and overriding royalty owners; provided, however, that no royalties and overriding royalty interests owned by Borrower, Guarantors, or any affiliates of Borrower or Guarantors within the meaning of Securities and Exchange Commission Rule 144, shall be paid from the Lockbox Account proceeds.

 
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(c)           Borrower will provide Lender with a proposed budget of recurring operating expenses, non-recurring operating expenses, general and administrative expenses, and any capital expenditures for the oil and gas properties expected to be paid during the Forbearance Period and supporting documentation for those expenses and expenditures.
 
(d)           At Borrower's request, production proceeds in the Lockbox Account may be used to pay operating expenses, general and administrative expenses (subject to the limits in Section 15 below), and capital expenditures, all as approved by Lender (which approval shall not be unreasonably withheld, delayed, or denied).  Borrower and Guarantors shall not pay in any month operating expenses, general and administrative expenses, or capital expenditures exceeding the aggregate budgeted expenses for each such category for that month, unless Lender has approved such payments.  Borrower shall, not later than two (2) business days prior to the date on which Borrower proposes to pay such operating expenses, general and administrative expenses, or capital expenditures and as a condition precedent to requesting such approval, deliver to Lender in usual and customary form reasonably acceptable to Lender reasonable detail of all expenses and expenditures proposed to be paid in respect of such month.  Any excess production proceeds in the Lockbox Account may be used only for such other purposes as approved by Lender, in its discretion.
 
(e)           All production proceeds remaining in the Lockbox Account after payment of the taxes and royalties as provided above and the operating expenses and discretionary amounts as provided above will be applied by Lender on the last day of each month to the Revolving Note and collection costs as set forth in Section 3.2 of the Deed of Trust.  If the production proceeds received in the Lockbox during any month are not sufficient to make the scheduled monthly payment on the Revolving Loan, Borrower will pay Lender the deficiency within ten (10) days of notice from Lender of such shortfall.
 
12.          Escrow Account .  Under the Second Forbearance Agreement, INFINITY OIL AND GAS OF TEXAS, INC. (" IOGTx "), FOREST OIL CORPORATION (" Forest "), a New York corporation, Lender, and AMEGY BANK NATIONAL ASSOCIATION, as escrow agent, entered into the Escrow Agreement (the " Escrow Agreement ") dated December 27, 2007.  The purpose for which the Escrow Agreement was set up has been completed.  Borrower and Guarantors shall cause Forest and IOGTx to terminate the Escrow Agreement in writing.  Upon termination of the Escrow Agreement, one-half of all sums in the Escrow Account covered by the Escrow Agreement shall be transferred by Lender into the Lockbox Account and shall thereafter be held and used solely for the payment of monthly interest payments on the Revolving Loan and any other fees due under the Loan Agreement or this Agreement (other than fees due on the Deferral Date) and one-half of all sums in the Escrow Account shall be applied by Lender to the reduction of the principal balance of the Revolving Note.
 
13.          Sale of Oil and Gas Properties .  In order to cure the Deficiency, Borrower and Guarantors agree to take the following actions:

 
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(a)           Borrower and INFINITY OIL & GAS OF WYOMING, INC. (" IOGWy ") shall proceed with the sale and marketing of the interest retained in the oil and gas properties of IOGWy (the " Rockies Properties ").  Borrower and Guarantors shall devote their substantial efforts, time, talents, and expertise to the sale and marketing of the Rockies Properties and the Texas Properties, will take all lawful actions as will result in the prompt payment of the Deficiency, and will thereafter accept any commercially reasonable offer to buy the Rockies Properties, or any of them; provided no oil and gas property or leasehold interest which is mortgaged to Lender shall be sold except on terms and price acceptable to Lender and with the prior written approval of Lender.  Borrower and Guarantors shall use their best efforts to (i) promptly open a data room on the properties to be sold, (ii) to promptly obtain firm proposals for the sale of the properties, (iii) to execute a definitive agreement or agreements, subject to stockholder approval if required, for the sale of properties with proceeds sufficient to repay the Deficiency, and (iv) seek stockholder approval, if required, and consummate the sale of the properties as soon as practicable thereafter, but in no event later than the end of the Forbearance Period.  Borrower further agrees to deliver marketing packages on the Rockies Properties to not less than ten (10) prospective buyers on or before December 15, 2008.
 
(b)           After Borrower obtains the Governmental Approval, upon the written directive of Lender, to be exercised in Lender's sole discretion, Borrower and Guarantors shall proceed with the sale and marketing of interests in the Texas oil and gas properties of IOGTx (the " Texas Properties ").  If elected by Lender, Borrower and Guarantors shall devote their substantial efforts, time, talents, and expertise to the sale and marketing of the Texas Properties, will take all lawful actions as will result in the prompt payment of the Deficiency, and will thereafter accept any commercially reasonable offer to buy the Texas Properties, or any of them; provided no oil and gas property or leasehold interest which is mortgaged to Lender shall be sold except on terms and price acceptable to Lender and with the prior written approval of Lender.  Upon Lender's election to proceed with the sale of the Texas Properties, or any of them, Borrower and Guarantors shall thereafter use their best efforts to (i) promptly open a data room on the properties to be sold, (ii) to promptly obtain firm proposals for the sale of the properties, (iii) to execute a definitive agreement or agreements, subject to stockholder approval if required, for the sale of properties with proceeds sufficient to repay the Deficiency, and (iv) seek stockholder approval, if required, and consummate the sale of the properties as soon as practicable thereafter, but in no event later than the end of the Forbearance Period.
 
(c)           Borrower and Guarantors shall promptly provide Lender with a copy of the agreement or engagement letter with any oil and gas broker or consultant retained to assist with sales under this Section; and thereafter Borrower and Guarantors shall provide a monthly report on the first (1st) day of each month, to be prepared by the oil and gas broker or consultant engaged by Borrower and Guarantors to facilitate the sale of the oil and gas properties and leasehold interests, that includes any and all information pertaining to property bids, the current status of any bids or sale discussions, and all marketing efforts employed to sell the Rockies Properties and, when applicable, the Texas Properties.  Notwithstanding any provision to the contrary, at least two business days prior to the date on which Borrower proposes to pay such, Borrower shall deliver to Lender in usual and customary form reasonably acceptable to Lender, reasonable detail of all broker fees and other transaction costs related to the sale of the properties proposed to be paid from proceeds in the Lockbox Accounts, and thereafter Borrower may pay such fees and costs as are approved by Lender (which approval shall not be unreasonably withheld, delayed, or denied).
 
(d)           No sale of any of the Rockies Properties and the Texas Properties, or any of them, will be permitted to an affiliate of Borrower or Guarantors, unless Lender consents in writing.

 
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(e)           Except as set forth below, Borrower and Guarantors will direct all of the net sale proceeds from the sale of any of the Rockies Properties and the Texas Properties to be paid to Lender to be applied to the Revolving Note and collection costs in such order as determined by Lender and shall take all lawful actions to ensure that the proceeds of any such sales are contemporaneously with the closing thereof applied to the Revolving Note and collection costs as herein provided.  Lender hereby agrees that, so long as there is no Default at the time of the sale of the Rockies Properties, Borrower and IOGWy may retain ten percent (10%) of the net sale proceeds from the sale and use those net sale proceeds solely for working capital and development of the Nicaragua Concessions; and if Borrower receives the full amount of the Subordinate Loans required by Section 9 above, then Borrower and IOGWy may retain twenty percent (20%) of the net sale proceeds from the sale and use those net sale proceeds solely for working capital and development of the Nicaragua Concessions.
 
14.            Lease Operating Expense .  Borrower and IOGTx shall not permit the lease operating expense on the Texas properties of IOGTx to exceed an average of $2,500 per well per month.
 
15.            General and Administrative Expense .  Notwithstanding the provisions of Subsection (f) of Section 8 of the Loan Agreement, Borrower and Guarantors shall not permit cash general and administrative expenses on a consolidated basis to exceed $75,000.00 per month during term of this Agreement; provided, however, that (i) the net proceeds from the Stock Options under Section 8 above and the proceeds from the Subordinate Loans under Section 9 above may be used by Borrower for general and administrative expenses in excess of this monthly limit, (ii) reasonable costs and expenses incurred by Borrower in connection with the Subordinate Loans shall not be subject to this limit, and (iii) unpaid general and administrative expenses in excess of this monthly limit may be accrued and paid only after the Revolving Note and all other obligations under this Agreement and the Loan Agreement are paid in full, and all outstanding Letters of Credit, including the Nicaragua Letters of Credit, are terminated or cash secured to Lender's satisfaction.
 
16.            Use of Proceeds .  Notwithstanding any term of this Agreement or the Loan Agreement to the contrary, Borrower and Guarantors shall not use any proceeds from the Lockbox Account, any proceeds from any capital contribution, including under the Stock Options, any proceeds of the Subordinate Loans, or any net sale proceeds from the sale of any of the Rockies Properties or the Texas Properties for the purpose of acquiring any oil and gas properties or leases or drilling any well, without the prior written consent of Lender.
 
17.            Hedge Transactions .  Notwithstanding the terms of Section 4 of the Loan Agreement, Borrower and Guarantors agree that during the Forbearance Period and so long thereafter as any Event of Default remains outstanding and uncured, Borrower and Guarantors shall not enter into any Hedge Transaction without the prior written consent of Lender.  If Lender consents to any additional Hedge Transactions, those Hedge Transactions must comply with the terms of Section 4 of the Loan Agreement.

 
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18.           Audit and Inspections .  (a) Borrower and Guarantors agree that Lender and its auditors or accountants may, during the term of this Agreement, conduct an audit at Borrower's and Guarantors' offices and examine, audit, and make and take away copies or reproductions of Borrower's and Guarantors' books and records reasonably required by Lender, relating to (i) the sources and uses of all funds advanced by Lender under the Revolving Note, and (ii) the sources and uses of all production proceeds attributable to Borrower's and Guarantors' oil and gas properties.  Lender will provide Borrower and Guarantors with five (5) business days written notice of its intention to commence the audit.  Borrower and Guarantors agree to cooperate with Lender and comply with all reasonable requests in connection with the audit, and Borrower and Guarantors hereby consent to the review and use by Lender's auditors of Borrower's third-party audit of the books and records of Borrower, Guarantors, and any other subsidiaries, including the supporting documentation and work papers of such independent auditors.
 
19.           Reporting Requirements .  Until the Revolving Note, the Hedge Liabilities, and all other obligations and liabilities of Borrower under the Revolving Note and the other loan documents are fully paid and satisfied, Borrower and Guarantors will furnish to Lender the following in Proper Form:
 
(a)           Within ten (10) days of the end of each month, a report showing Borrower's consolidated actual cash flow for the month and for the period from the beginning of the fiscal year through the end of the month and consolidated projected cash flow for the next six months.
 
(b)           Within ten (10) days of the end of each month, a pro-forma working capital balance for Borrower and Guarantors as of the end of the prior month.
 
(c)           Within ten (10) days of the end of each month, an accounts payable listing and aging, along with copies of all additional liens or claims made by any account creditors.
 
(d)           As received and available, Borrower and Guarantors shall promptly provide to Lender all information related in any way to their ability to raise additional capital.
 
(e)           As received and available, Borrower and Guarantors shall promptly provide to Lender copies of any agreement or engagement letter with an oil and gas broker or consultant, all written purchase bids, purchase agreements, and farm-in proposals related in any way to the prospective sale of any of the Rockies Properties and the Texas Properties and shall promptly inform Lender of any unwritten offers or bids.
 
(f)           As received and available, Borrower and Guarantors shall promptly provide to Lender copies of any term sheets or financing proposals received that would result in the Deficiency being cured or a refinance of the entire outstanding amount owed on the Revolving Note and Hedge Liabilities.
 
(g)           Notwithstanding the provisions of Subsection (h) of Section 9 of the Loan Agreement, within fifty (50) days of the end of each month, a production report, on a lease-by-lease or unit basis, showing the gross proceeds from the sale of oil, gas, and associated hydrocarbons produced from the Properties, the quantity of oil, gas, and associated hydrocarbons sold, the severance, gross production, occupation, or gathering taxes deducted from or paid out of the proceeds, settlements of any Hedge Transactions, the cash lease operating expenses, including non-recurring cash operating expenses, intangible drilling costs, and capital expenditures, general and administrative expenses, the number of wells operated, drilled, or abandoned, the name, address, telephone number, and contact of the first purchaser of production for all of the Properties, and such other information as Lender may reasonably request.

 
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(h)           As received and available, copies of the daily farmout activity reports from Forest, including any additional information received from Forest related to the Farmout and Acquisition Agreement (the " Farmout Agreement ") dated December 26, 2007, between IOGTx, as farmor, and Forest, as farmee.
 
(i)           such other information respecting the condition and the operations, financial or otherwise, of Borrower, Guarantors, and the Properties as Lender may from time to time reasonably request.
 
20.           Additional Collateral .  Borrower and Guarantors agree to mortgage all oil and gas properties and leasehold interests (excluding the Nicaragua Concessions) owned by Borrower or Guarantors and not previously mortgaged to Lender as additional security for the Notes.  Within thirty (30) days of the date of this Agreement, Borrower and IOGTx agree to provide evidence to Lender documenting their efforts to obtain a waiver of the prohibition against liens from the lessors on the Murray lease, Erath County, Texas.
 
21.           Interest .  Borrower and Lender hereby agree that during the Forbearance Period (including the Forbearance Period under the First Forbearance Agreement and the Second Forbearance Agreement), the entire unpaid principal balance owed on the Revolving Note shall accrue interest at the sum of the Stated Rate, plus the Applicable Margin as set forth in the Revolving Note; provided, however, that Lender reserves the right to impose the default rate of Stated Rate, plus six percent (6.0%) (the " Default Rate "), as set forth in the Revolving Note, at any time after the termination of the Forbearance Period, in the event that an Event of Default remains uncured and outstanding.  Further, in lieu of the additional interest accrued and unpaid under this Agreement, Borrower shall pay the Forbearance/Waiver Fee set forth below.
 
22.           Forbearance Fee .  (a) In consideration of the forbearance by Lender under this Agreement and the waiver of the Existing Defaults and for other valuable consideration, the receipt and sufficiency of which are acknowledged, Borrower agrees to pay to Lender a Forbearance/Waiver Fee calculated as follows, and due on or before the earlier of the following (the " Deferral Date "): (i) the termination of the Forbearance Period, (ii) the cure of the Deficiency, or (iii) the refinance of the Revolving Note by another lender:
 
(i)           Forbearance/Waiver Fee under the First Forbearance Agreement in the amount of$553,666.67; plus
 
(ii)          Forbearance/Waiver Fee under the Second Forbearance Agreement in the amount of $723,666.33; plus
 
(iii)         Until Borrower has received Governmental Approval, a Forbearance/Waiver Fee shall be due for each month from June 2008 through the end of the Forbearance Period, inclusive, calculated as one percent (1.0%) of the average daily outstanding principal balance on the Revolving Note for the month as of the last day of each of those months (or as of the Deferral Date if such occurs during any month).

 
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(iv)           After Borrower has received Governmental Approval, a Forbearance/Waiver Fee shall be due for each month through the end of the Forbearance Period, calculated as three-quarters of one percent (0.75%) of the average daily outstanding principal balance on the Revolving Note for the month as of the last day of each of those months (or as of the Deferral Date if such occurs during any month).
 
Except as set forth below, the Forbearance/Waiver Fees and all other fees are non-refundable and earned by Lender upon execution of this Agreement.
 
(b)           If on or before January 31, 2009, the Revolving Note, the Hedge Liabilities, and all other obligations under this Agreement and the Loan Agreement are paid in full, and all outstanding Letters of Credit, including the Nicaragua Letters of Credit, are terminated or cash secured to Lender's satisfaction, then Lender hereby agrees to waive all of the Forbearance/Waiver Fees accrued, but unpaid, under subsection (a) above.  If on or before January 31, 2009, the outstanding principal balance owed on the Revolving Note has been paid down, then Lender hereby agrees to waive a pro-rata portion of the Forbearance/Waiver Fees accrued, but unpaid, under subsection (a) above, equal to the percentage of the current principal balance of $9,910,493.64 owed on the Revolving Note that has been paid as of that date.
 
(c)           Borrower may make a written proposal to Lender regarding the payment of the Forbearance/Waiver Fees due under this Section by (i) delivery of unrestricted, marketable stock in Borrower to Lender or its nominee, or (ii) assignment of an overriding royalty interest in the Nicaragua Concessions to Lender or its nominee.  The proposal will be subject to Lender's credit approval and must be upon terms and pricing acceptable to Lender, in its sole discretion.  Lender does not yet have credit approval for payment of the Forbearance/Waiver Fees by delivery of stock or assignment of royalty.
 
23.           Other Fees .  Borrower acknowledges the following additional fee owed to Lender that is due on or before the Deferral Date: a hedge termination fee in the amount of $56,085.00, due pursuant to the Second Forbearance Agreement in connection with the termination of Hedge Transactions.
 
24.           Conditions Precedent .  The obligation of Lender to enter into this Agreement and to forbear with respect to the Existing Defaults is subject to Borrower's satisfaction, in Lender's sole discretion, of the following conditions precedent:
 
(a)           Except for the Deficiency and the Existing Defaults, all representations and warranties set forth in Section 6 of the Loan Agreement must be true as of the date of this Agreement, except for Subsection (d) of Section 6, which is qualified by the lawsuits set forth in Schedule A attached, and Subsection (i) of Section 6, which is no longer applicable.
 
(b)           the negotiation, execution, and delivery of Loan Documents in Proper Form, including, but not limited to, the following:
 
(i)           this Agreement;
 
(ii)          First Amendment to Revolving Note; and

 
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(iii)         Borrower and Guarantors Resolutions.
 
(c)           other than as contemplated in this Agreement, there shall not have occurred a material adverse change in the business, assets, liabilities (actual and contingent), operations, or financial condition of Borrower or in the facts and information regarding such entities as represented to date.
 
(d)           Lender's receipt and satisfactory review of a 180-day operating/cash flow forecast for Borrower and Guarantors.
 
(e)           Lender's receipt and satisfactory review of a proposed budget from Borrower of recurring operating expenses, non-recurring operating expenses, general and administrative expenses, and any capital expenditures for the oil and gas properties expected to be paid during the Forbearance Period and supporting documentation for those expenses and expenditures.
 
25.           Default and Remedies .  (a) As used in this Agreement, " Default " means (i) any breach by Borrower or Guarantors of their obligations under this Agreement, (ii) any misrepresentation by Borrower or Guarantors of the representations or warranties set forth in this Agreement, (iii) any default by IOGTx under the Farmout Agreement that results in Forest declaring an event of default and giving notice of its intent to exercise its remedies under the Farmout Agreement, or (iv) any further Event of Default under the Loan Agreement, other than the existing Borrowing Base deficiency or any additional defaults under the provisions covered by the Existing Defaults, excluding the Excluded Defaults.
 
(b)           Upon a Default, Lender may terminate the Forbearance Period and exercise any and all rights and remedies available to it, including, without limitation, those under the Loan Agreement, the Revolving Note, the Security Documents, the Guaranties, the Loan Documents, this Agreement, and any other instrument or agreement relating hereto, or anyone or more of them.  All rights and remedies of Lender shall be cumulative and concurrent and, after a Default, may be pursued separately, successively, or together as often as occasion therefore shall arise, at the sole discretion of the Lender.
 
26.           Other Representations .  Borrower and Guarantors hereby represent to Lender as follows:
 
(a)           The execution, delivery, and performance of this Agreement by Borrower and Guarantors have been duly authorized by Borrower's and Guarantors' respective boards of directors and this Agreement constitutes their legal, valid, and binding obligations, enforceable in accordance with their respective terms; and
 
(b)           Except as set forth on Schedule A hereto, there are no actions, suits, or proceedings pending or threatened against or affecting Borrower, Guarantors, or the Properties, before any court or governmental department, commission, or board, which, if determined adversely, would have a material adverse effect on any of the Properties or the operations or financial condition of any of Borrower or Guarantors.

 
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27.           Confirmations .  (a) Borrower and Guarantors agree that the following amounts are due and outstanding with respect to
 
Principal
  $ 9,910,493.64  
Interest
  $ 96,902.60  
Total
  $ 10,007,902.60  

Borrower and Guarantors agree that there is no set off or defense to payment of the Revolving Note or the Hedge Liabilities.
 
(b)           As security for the Notes, Borrower and Guarantors previously executed the Security Documents, including the Security Agreement (as defined in the Second Forbearance Agreement).  Borrower and Guarantors ratify and confirm the Security Documents, acknowledge that they are valid, subsisting, and binding, and agree that the Security Documents secure payment of the Notes (including the Revolving Note) and the Loans (including the Revolving Loan).
 
(c)           In connection with the Revolving Note, Guarantors executed the Guaranties.  Guarantors ratify and confirm the Guaranties, acknowledge that the Guaranties are valid, subsisting, and binding upon Guarantors, and agree that the Guaranties guarantee payment of the Revolving Note.  Guarantors agree that there is no defense to payment under the Guaranties.
 
(d)           Borrower and Guarantors hereby represent to Lender that all representations and warranties set forth in Section 6 of the Loan Agreement are true and correct as of the date of execution of this Agreement, except for Subsection (d) of Section 6, which is qualified by the lawsuits set forth in Schedule A attached, and Subsection (i) of Section 6, which is no longer applicable; and that, except for the Existing Defaults, Borrower and Guarantors are in compliance as of the date of execution of this Agreement with all covenants set forth in Section 7 of the Loan Agreement, all financial covenants set forth in Section 8 of the Loan Agreement, and all reporting requirements set forth in Section 9 of the Loan Agreement.
 
28.            Validity and Defaults .  The Loan Agreement remains in full force and effect.  Borrower and Guarantors acknowledge that the Loan Agreement, the Revolving Note, the Security Documents, the Guaranties, and the other Loan Documents are valid, subsisting, and binding upon Borrower and Guarantors; no uncured breaches or defaults exist under the Loan Agreement, except for the Existing Defaults; and except as contemplated by this Agreement, no other event has occurred or circumstance exists which, with the passing of time or giving of notice, will constitute a default or breach under the Loan Agreement.  Borrower and Guarantors ratify the Loan Agreement.

 
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29.           Release .  For valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and Guarantors hereby RELEASE AND FOREVER DISCHARGE Lender and its officers, directors, employees, agents, representatives, attorneys, subsidiaries, and affiliates (collectively " Released Parties "), from any and all claims, counterclaims, demands, damages, debts, suits, obligations, liabilities, offsets, rights, actions, and causes of action of any nature whatsoever (collectively " Claims "), caused by, because of, as a result of, arising from, or related in any way to the Loan Agreement, the Revolving Note, the Security Documents, the Loan Documents, this Agreement, any other transaction between Lender and Borrower, or any act, omission, communication, transaction, occurrence, representation, promise, breach, violation of any statute or law, or any other matter whatsoever or thing done, omitted, or suffered by any of the Released Parties in connection with the Loan Agreement, the Revolving Note, the Security Documents, the Loan Documents, this Agreement, any other transaction between Lender and Borrower, whether those Claims are now or hereafter accrued or possessed, whether known or unknown, direct or indirect, liquidated or unliquidated, absolute or contingent, foreseen or unforeseen, at law or in equity, and now or hereafter asserted, including, without limitation, claims for contribution or indemnity, claims of control, duress, mistake, tortuous interference, usury, negligence, or violations of the Texas Consumer Protection and Deceptive Trade Practices Act; provided, however, that any acts of willful misconduct or fraud by the Releases Parties shall not be released or discharged.
 
30.           Advice from Counsel .  Borrower and Guarantors understand that this Agreement is legally binding and represent to Lender that each has obtained independent legal counsel from the attorney of their choice regarding the meaning and legal significance of this Agreement.  The parties agree that no provision of this Agreement shall be interpreted or construed against a party because that party prepared the provision, it being agreed that all parties have participated in the drafting of this Agreement and have had legal counsel of their choice.
 
31.           Governing Law and Venue .  THIS AGREEMENT, THE LOAN AGREEMENT, THE REVOLVING NOTE, AND ALL LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND SHALL BE PERFORMED IN DALLAS COUNTY, TEXAS.  BORROWER, GUARANTORS, AND LENDER IRREVOCABLY AGREE THAT VENUE FOR ANY ACTION OR CLAIM RELATED TO THIS AGREEMENT, THE LOAN AGREEMENT, THE REVOLVING NOTE, OR ANY LOAN DOCUMENTS SHALL BE IN DALLAS COUNTY, TEXAS.
 
32.           Savings Clause .  Regardless of any provision contained in the Loan Agreement, the Revolving Note, the Security Documents, the other Loan Documents, or this Agreement, it is the express intent of the parties that at no time shall Borrower or Guarantors pay interest in excess of the maximum lawful rate (or any other interest amount which might in any way be deemed usurious), and Lender will never be considered to have contracted for or to be entitled to charge, receive, collect, or apply as interest on the Revolving Note, any amount in excess of the maximum lawful rate (or any other interest amount which might in any way be deemed usurious), and, in the event that Lender ever receives, collects, or applies as interest any such excess, the amount which would be excessive interest will be applied to the reduction of the principal balance of the Revolving Note, and, if the principal balance of the Revolving Note is paid in full, any remaining excess shall forthwith be paid to Borrower.  In determining whether the interest paid or payable exceeds the maximum lawful rate (or any other interest amount which might in any way be deemed usurious), Borrower and Lender shall, to the maximum extent permitted under applicable law, spread the total amount of interest throughout the entire contemplated term of the Revolving Note so that the interest rate is uniform throughout the term.

 
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33.            Fax Provision .  This Agreement and the related Loan Documents may be executed in counterparts, and Lender is authorized to attach the signature pages from the counterparts to copies for Lender and Borrower.  At Lender's option, this Agreement and the related Loan Documents may also be executed by Borrower and Guarantors in remote locations with signature pages faxed to Lender.  Borrower and Guarantors agree that the faxed signatures are binding upon Borrower and Guarantors, and Borrower and Guarantors further agree to promptly deliver the original signatures for this Agreement and the related Loan Documents by overnight mail or expedited delivery.  It will be an Event of Default if Borrower or Guarantors fail to promptly deliver all required original signatures.
 
34.            Captions .  Captions are for convenience only and should not be used in interpreting this Agreement.
 
35.            Final Agreement .  (a) In connection with the Loans, Borrower, Guarantors, and Lender have executed and delivered this Agreement, the Loan Agreement, and the Loan Documents (collectively the " Written Loan Agreement ").
 
(b)           It is the intention of Borrower, Guarantors, and Lender that this paragraph be incorporated by reference into each of the Loan Documents.  Borrower, Guarantors, and Lender each warrant and represent that their entire agreement with respect to the Loans is contained within the Written Loan Agreement, and that no agreements or promises have been made by, or exist by or among, Borrower, Guarantors, and Lender that are not reflected in the Written Loan Agreement.
 
(c)           THE LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
 
If the foregoing correctly sets forth your understanding of our agreement, please sign and return one copy of this letter.  Notwithstanding any provision to the contrary, this Agreement shall only be effective if Borrower and Guarantors sign and return to Lender by 3 p.m., Houston, Texas time, on October 17, 2008.
 
 
Yours very truly,
   
 
AMEGY BANK NATIONAL ASSOCIATION
   
 
By:
 
   
A. Stephen Kennedy,
   
Senior Vice President/
   
Manager - Energy Group
 
 
-14-

 

Accepted and agreed to
this __day of October, 2008:
 
BORROWER:
 
INFINITY ENERGY RESOURCES, INC.
 
 
By:
   
 
Stanton E. Ross, President
 
and Chief Executive Officer
 
GUARANTORS:
 
INFINITY OIL AND GAS OF TEXAS, INC.
 
 
By:
   
 
Stanton E. Ross, President
 
INFINITY OIL & GAS OF WYOMING, INC.
 
 
By:
   
 
Stanton E. Ross, President
 
Exhibits and Schedules :
Schedule A - Lawsuits
 
 
-15-

 

SCHEDULE A
 
Lawsuits
 
Southwest Aviation Specialist, LLC filed an action in the District Court in and for the County of Tulsa, State of Oklahoma, number CS200708783, on October 31, 2007, against Infinity Oil and Stan Ross.
 
 
 

 

Exhibit 10.13
 
AmegyBank
 
FIRST AMENDMENT TO REVOLVING PROMISSORY NOTE
 
This First Amendment to Revolving Promissory Note is executed effective October 16, 2008, by INFINITY ENERGY RESOURCES, INC. (“ Borrower ”), a Delaware corporation, and AMEGY BANK NATIONAL ASSOCIATION (“ Lender ”).
 
Recitals:
 
Borrower is legally obligated to pay a Revolving Promissory Note (the “ Revolving Note ”) dated January 9, 2007, in the maximum principal amount of $50,000,000.00, executed by Borrower, and payable to the order of Lender. The Revolving Note is governed by the Loan Agreement dated January 9, 2007, among Borrower, Lender, and Guarantors (as defined therein), as amended (the “ Loan Agreement ”), as modified by the Forbearance Agreement dated August 31,2007, among Borrower, Lender, and Guarantors, the Second Forbearance Agreement dated March 26, 2008, among Borrower, Lender, and Guarantors, and the Third Forbearance Agreement (the “ Third Forbearance Agreement ”) of even date herewith, among Borrower, Lender, and Guarantors. The Revolving Note matures on January 9, 2009, and Borrower has requested that Lender extend the Maturity Date in connection with the Third Forbearance Agreement as set forth below. Unless otherwise defined herein, capitalized terms herein have the meanings assigned in the Revolving Note.
 
Agreement:
 
For valuable consideration, including the funds previously advanced by Lender to Borrower under the Revolving Note, the receipt and sufficiency of which are hereby acknowledged, Borrower and Lender agree and stipulate as follows:
 
1.           The recitals above are true and correct and form the basis for this amendment.
 
2.           The Maturity Date of the Revolving Note is extended until May 31, 2009.
 
3.           The Revolving Note will continue to be due and payable as follows:
 
(a)           accrued, unpaid interest on this Note shall be due and payable on each Interest Payment Date, commencing on the date of this Amendment, and continuing until the Maturity Date;
 
(b)           the principal of this Note shall be due and payable as required by the Loan Agreement as modified by the Third Forbearance Agreement, to meet any Borrowing Base deficiency or Monthly Commitment Reductions (if and when required by Lender under the Loan Agreement); and
 
(c)           the outstanding principal balance of the Revolving Note, together with all accrued but unpaid interest, shall be due and payable on the Maturity Date, as extended.

 
 

 

4.           Borrower acknowledges that the outstanding principal balance of the Revolving Note as of September 3,2008, is $9,910,493.64, and that Borrower has no defenses or setoffs to payment of the Revolving Note.
 
5.           Except as specifically amended herein, the Revolving Note remains unchanged; and Borrower ratifies the Revolving Note, as amended. All liens and security interests securing payment of the Revolving Note are renewed and extended until the Revolving Note is paid in full.
 
6.           At Lender’s option, this Amendment may be executed by Borrower in remote locations with signature pages faxed to Lender. Borrower agrees that the faxed signatures are binding upon Borrower, and Borrower further agrees to promptly deliver the original signatures for this Amendment by overnight mail or expedited delivery.
 
THE WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
 
THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
 
Executed effective on the date stated above.
 
BORROWER:
 
 
INFINITY ENERGY RESOURCES, INC.
   
 
By:
 
   
Stanton E. Ross, President
   
and Chief Executive Officer
   
 
LENDER:
   
 
AMEGY BANK NATIONAL ASSOCIATION
   
 
By:
 
   
A. Stephen Kennedy,
   
Senior Vice President/
   
Manager - Energy Group
 
This Amendment was prepared by:
Paul D. Bradford
HARRIS, FINLEY & BOGLE, P.C.
777 Main Street, Suite 3600
Fort Worth, Texas 76102-5341
(817) 870-8700

 
 

 
 
Exhibit 10.14
AMEGY BANK
1807 Ross Avenue, Suite 400
Dallas, Texas 75201
 
December 4, 2009
 

INFINITY ENERGY RESOURCES, INC.
633 Seventeenth Street, Suite 1800
Denver, Colorado 80202
 
Re:           Fourth Forbearance Agreement
 
Ladies and Gentlemen:
 
This letter (this “ Agreement ”) sets forth the fourth forbearance agreement among INFINITY ENERGY RESOURCES, INC. (“ Borrower ”), a Delaware corporation; INFINITY OIL AND GAS OF TEXAS, INC., a Delaware corporation, and INFINITY OIL & GAS OF WYOMING, INC., a Wyoming corporation (collectively “ Guarantors ”); and AMEGY BANK NATIONAL ASSOCIATION (“ Lender ”). Borrower, Guarantors, and Lender previously entered into a Forbearance Agreement (the “ First Forbearance Agreement ”) dated August 31, 2007, a Second Forbearance Agreement (the “ Second Forbearance Agreement ”) dated March 26, 2008, and a Third Forbearance Agreement (the “ Third Forbearance Agreement ”) dated October 16, 2008. Capitalized terms below have the meanings assigned in the Loan Agreement dated January 9, 2007, among Borrower, Guarantors, and Lender, as amended (the “ Loan Agreement ”).
 
1.            Forbearance . Lender, Borrower, and Guarantors agree to a forbearance period commencing as of June 1, 2008, and continuing through January 31, 2010, unless terminated earlier by Lender due to a Default, as defined below (the “ Forbearance Period ”). During the Forbearance Period, but subject to a Default, Lender will forebear from exercising any remedies under the Loan Agreement, the Revolving Note, the Security Documents, the Guaranties, and the other Loan Documents.  Borrower and Guarantors agree that all statutes of limitation with respect to enforcement of the Revolving Note, the Guaranties, and the Security Documents will be tolled during the Forbearance Period and for ninety (90) days thereafter.
 
2.            Revolving Loan . (a) The “ Termination Date ” as defined in the Loan Agreement is hereby extended until 11:00 a.m. (Dallas, Texas time) on January 31, 2010.  Borrower agrees to sign and deliver a Second Amendment of the Revolving Note to reflect this extension.
 
(b)           Notwithstanding any provision in the Loan Agreement or the Revolving Note to the contrary, Borrower may not request any further advances on the Revolving Loan without the prior written consent of Lender.
 
3.            Events of Default . Borrower and Guarantors acknowledge that the following Events of Default have occurred and remain outstanding (the “ Existing Defaults ”):
 
(a)           The Existing Defaults set forth in the First Forbearance Agreement, the Second Forbearance Agreement, and the Third Forbearance Agreement;
 
 
 
 

 
INFINITY ENERGY RESOURCES, INC.
December 4, 2009
Page 2 of 18
 
(b)           Borrower and Guarantors breached the financial covenants set forth in Subsection (a) - (h) of Section 8 of the Loan Agreement for the periods ended September 30, 2008, December 31, 2008, March 31, 2009, June 30, 2009, and September 30, 2009; and
 
(c)           Borrower and Guarantors breached the covenants set forth in Subsections (g), (i), and (m) of Section 7 of the Loan Agreement during the periods ended  September 30, 2008, December 31, 2008, March 31, 2009, June 30, 2009, and September 30, 2009; provided, however, that the breach of Subsection (i) of Section 7 of the Loan Agreement was solely attributable to involuntary mineral lien claims made under Chapter 56 of the Texas Property Code or similar applicable law.
 
4.            Temporary Waiver . Borrower and Guarantors have requested that Lender temporarily waive the Existing Defaults and additional defaults under the provisions covered by the Existing Defaults, excluding, however, the following (the “ Excluded Defaults ”): (i) except as contemplated under this Agreement, any additional defaults under the additional debt prohibitions in Subsection (h) of Section 7 of the Loan Agreement, and (ii) any additional defaults under the use of Free Operating Cash Flow prohibitions in Subsection (h) of Section 8 of the Loan Agreement.  Lender hereby waives the Existing Defaults through the Forbearance Period only. This is a temporary and limited waiver, and Lender reserves the right to require strict compliance with all covenants under the Loan Agreement, including the covenants violated as set forth above, in the future. This waiver does not modify, supplement, or alter any of the terms of the Loan Agreement or any other Loan Document.  Further, this waiver shall not be construed as a commitment by Lender to waive any future violation of the same or any other term or condition of the Loan Agreement or any of the Loan Documents.  Neither the negotiation or execution of this Agreement will be an election of any right or remedy available to Lender; and, except as specifically limited or postponed herein, Lender reserves all rights and remedies.
 
5.            Borrowing Base and Deficiency . (a) Lender has set the Borrowing Base as of the date of this Agreement at $2,900,000.00, until reset by Lender in connection with the next redetermination of the Borrowing Base.  Lender agrees that it will not redetermine the Borrowing Base during the Forbearance Period.
 
(b)           As of the date of this Agreement, the Borrowing Base results in a Borrowing Base deficiency in the amount of $8,003,468.00 (the “ Deficiency ”). On or before the end of the Forbearance Period, Borrower and Guarantors agree to pay the Revolving Loan and all other fees and obligations under this Agreement and the Loan Agreement, in full and cure the Deficiency by selling assets, refinancing of the Revolving Loan, or raising capital on terms acceptable to Lender.
 
6.            Nicaragua Concessions . (a) Borrower has received all governmental authorizations necessary for the validation and ratification of the concessions (“ Governmental Approval ”) in the Tyra and Perlas Blocks, offshore Nicaragua, as awarded to Borrower by the Republic of Nicaragua in 2003, as hereafter amended and modified (the “ Nicaragua Concessions ”), and affected by Sentencia No. 92, Expediente No 591-06, rendered by the Supreme Court of Justice of the Republic of Nicaragua, Constitutional Hall, dated May 2, 2006.
 
 
 

 
INFINITY ENERGY RESOURCES, INC.
December 4, 2009
Page 3 of 18
 
(b)           So long as the Deficiency remains uncured or there is any outstanding Event of Default, Borrower and Guarantors agree that:
 
(i)           They shall not sell, assign, transfer, or otherwise dispose of all or any interest in the Nicaragua Concessions, without the prior written consent of Lender, except for (1) the sale of hydrocarbons in the ordinary course of business, (2) the sale or transfer of equipment or inventory in the ordinary course of business or that is no longer necessary for the business of Borrower or that is obsolete or replaced by equipment of at least comparable value and use, (3) the assignment or transfer required under Section 10.02 of Borrower’s insurance policies issued by the Overseas Private Investment Corporation (“ OPIC ”) related to the Nicaragua Concessions (the “ OPIC Policies ”), after payment of compensation for a claim made by Borrower under the OPIC Policies, (4) in connection with the consulting arrangements identified on Schedule B attached, the conveyance of the overriding royalty interest in the Nicaragua Concessions identified thereon, and (5) such conveyances of one or more overriding royalty interests in the Nicaragua Concessions as approved by Lender in writing; and
 
(ii)           They shall not mortgage, assign, hypothecate, pledge, or encumber, and not create, incur, or assume any lien or security interest on or in, the Nicaragua Concessions (or any interest in the Nicaragua Concessions), without the prior written consent of Lender, except for any security interest in favor of Lender and the Permitted Encumbrances.
 
7.            Nicaragua Letters of Credit . Lender has issued two Letters of Credit in an aggregate amount equal to $851,550.00, in favor of the Direccion General de Hidrocarburos, Insituto Nicaraguense de Energia, for the account of Borrower and as security for Borrower’s obligations with respect to the Nicaragua Concessions (the “ Nicaragua Letters of Credit ”). Any fundings under the Nicaragua Letters of Credit will be treated as an advance on the Revolving Loan and will be secured by the Security Documents.  The Nicaragua Letters of Credit shall be on terms reasonably acceptable to Lender and shall be for a term of up to one year and, if necessary, to renew automatically unless Lender gives prior written notice.  Borrower will sign and deliver Lender’s customary forms for the issuance of Letters of Credit.  Lender agrees to take any and all reasonable actions in relation to the Nicaragua Letters of Credit as may be reasonably requested, and comply with the terms and conditions reasonably set forth, by the Nicaraguan government. Borrower agrees to pay to Lender a Letter of Credit fee on the Nicaragua Letters of Credit equal to three and one-quarter percent (3.25%)  per annum, calculated on the aggregated stated amount of the Nicaragua Letters of Credit for the stated duration thereof (computed on the basis of actual days elapsed as if each year consisted of 360 days), and due on or before the Deferral Date (as defined below).
 
8.            Subordinate Loans . Borrower has entered into one or more subordinate loans in an aggregate amount not less than $1,250,000.00, which are subordinated to the Loans (the “ Subordinate Loans ”).  The Subordinate Loans are secured by security documents on a fully-subordinated basis. Unless otherwise agreed by Lender in writing, the proceeds from the Subordinate Loans may be used by Borrower for general and administrative expenses in excess of the monthly limit set forth below or for development of the Nicaragua Concessions .
 
9.            Cash Flow . Borrower agrees that it will use its commercially reasonable best efforts to cause the contribution of cash to Borrower to the extent necessary so that Borrower’s consolidated cash flow is a minimum of break even, after payment of interest expense on the Revolving Loan, to prevent any additional accounts payable from becoming past due, and to prevent any mineral liens under Chapter 56 of the Texas Property Code or similar applicable law from being filed against the Properties.
 
 
 

 
INFINITY ENERGY RESOURCES, INC.
December 4, 2009
Page 4 of 18
 
10.            Lockbox . Borrower and Guarantors agree that the following provisions regarding production proceeds attributable to their oil and gas properties continue to apply:
 
(a)           Borrower and Guarantors will direct all production proceeds attributable to their oil and gas properties to be paid to a lockbox account to be set up and maintained with Lender for the purpose of collection of production proceeds (the “ Lockbox Account ”).
 
(b)           All production proceeds received in the Lockbox Account by Lender with respect to production, severance, ad valorem, or other taxes on production proceeds (excluding income taxes) or that are attributable to another person’s or entities’ royalty or other interest in the oil and gas properties shall be released immediately to Borrower upon Borrower’s request and verification of those amounts. Borrower and Guarantors shall provide evidence of the timely payment of production, severance, ad valorem, or other taxes on production proceeds (excluding income taxes) and of the royalty and overriding royalty owners; provided, however, that no royalties and overriding royalty interests owned by Borrower, Guarantors, or any affiliates of Borrower or Guarantors within the meaning of Securities and Exchange Commission Rule 144, shall be paid from the Lockbox Account proceeds.
 
(c)           Borrower will provide Lender with a proposed budget of recurring operating expenses, non-recurring operating expenses, general and administrative expenses, and any capital expenditures for the oil and gas properties expected to be paid during the Forbearance Period and supporting documentation for those expenses and expenditures.
 
(d)           At Borrower’s request, production proceeds in the Lockbox Account may be used to pay operating expenses, general and administrative expenses (subject to the limits in Section 15 below), and capital expenditures, all as approved by Lender (which approval shall not be unreasonably withheld, delayed, or denied).  Borrower and Guarantors shall not pay in any month operating expenses, general and administrative expenses, or capital expenditures exceeding the aggregate budgeted expenses for each such category for that month, unless Lender has approved such payments.  Borrower shall, not later than two (2) business days prior to the date on which Borrower proposes to pay such operating expenses, general and administrative expenses, or capital expenditures and as a condition precedent to requesting such approval, deliver to Lender in usual and customary form reasonably acceptable to Lender reasonable detail of all expenses and expenditures proposed to be paid in respect of such month.  Any excess production proceeds in the Lockbox Account may be used only for such other purposes as approved by Lender, in its discretion.
 
(e)           All production proceeds remaining in the Lockbox Account after payment of the taxes and royalties as provided above and the operating expenses and discretionary amounts as provided above will be applied by Lender on the last day of each month to the principal and interest on the Revolving Note and all other fees and obligations under this Agreement and the Loan Agreement as set forth in Section 3.2 of the Deed of Trust.  If the production proceeds received in the Lockbox during any month are not sufficient to make the scheduled monthly interest payment on the Revolving Loan, Borrower will pay Lender the deficiency within ten (10) days of notice from Lender of such shortfall.
 
 
 

 
INFINITY ENERGY RESOURCES, INC.
December 4, 2009
Page 5 of 18
 
(f)           Borrower and Guarantors agree that the insurance proceeds in the approximate amount of $100,000.00, from the 2008 saltwater disposal tank fire, shall be promptly deposited upon receipt, into the Lockbox Account and used for the purposes set forth above.
 
11.            Sale of Oil and Gas Properties . In order to cure the Deficiency and pay the Revolving Note and all other fees and obligations under this Agreement and the Loan Agreement in full, Borrower and Guarantors agree to take the following actions:
 
(a)           Borrower, INFINITY OIL & GAS OF WYOMING, INC. (“ IOGWy ”), and INFINITY OIL AND GAS OF TEXAS, INC. (“ IOGTx ”) shall proceed with the sale and marketing of the interest retained in the oil and gas properties of IOGWy (the “ Rockies Properties ”) and the Texas oil and gas properties of IOGTx (the “ Texas Properties ”). Borrower and Guarantors shall devote their substantial efforts, time, talents, and expertise to the sale and marketing of the Rockies Properties and the Texas Properties, will take all lawful actions as will result in the prompt payment of the Deficiency, and will thereafter accept any commercially reasonable offer to buy the Rockies Properties and the Texas Properties, or any of them; provided no oil and gas property or leasehold interest which is mortgaged to Lender shall be sold except on terms and price acceptable to Lender and with the prior written approval of Lender.  Borrower and Guarantors shall use their best efforts to (i) promptly open a data room on the properties to be sold, (ii) to promptly obtain firm proposals for the sale of the properties, (iii) to execute a definitive agreement or agreements, subject to stockholder approval if required, for the sale of properties with proceeds sufficient to repay the Deficiency, and (iv) seek stockholder approval, if required, and consummate the sale of the properties as soon as practicable thereafter.
 
(b)           Borrower and Guarantors have entered into an agreement with an oil and gas divestiture firm acceptable to Lender, to assist with sales of the Rockies Properties and the Texas Properties under this Section . Borrower and Guarantors shall promptly provide Lender with a copy of the agreement or engagement letter with any oil and gas divestiture firm retained to assist with sales under this Section ; and thereafter Borrower and Guarantors shall provide a monthly report on the first (1 st ) day of each month, to be prepared by the oil and gas divestiture firm engaged by Borrower and Guarantors to facilitate the sale of the oil and gas properties and leasehold interests, that includes any and all information pertaining to property bids, the current status of any bids or sale discussions, and all marketing efforts employed to sell the Rockies Properties and the Texas Properties. Notwithstanding any provision to the contrary, at least two business days prior to the date on which Borrower proposes to pay such, Borrower shall deliver to Lender in usual and customary form reasonably acceptable to Lender, reasonable detail of all broker fees and other transaction costs related to the sale of the properties proposed to be paid from proceeds in the Lockbox Accounts, and thereafter Borrower may pay such fees and costs as are approved by Lender (which approval shall not be unreasonably withheld, delayed, or denied).
 
(c)           No sale of any of the Rockies Properties and the Texas Properties, or any of them, will be permitted to an affiliate of Borrower or Guarantors, unless Lender consents in writing.
 
 
 

 
INFINITY ENERGY RESOURCES, INC.
December 4, 2009
Page 6 of 18
 
(d)           Except as set forth below, Borrower and Guarantors will direct all of the net sale proceeds from the sale of any of the Rockies Properties and the Texas Properties to be paid to Lender to be applied to the Revolving Note and all other fees and obligations under this Agreement and the Loan Agreement, and to cash securing all outstanding Letters of Credit, including the Nicaragua Letters of Credit, in such order as determined by Lender and shall take all lawful actions to ensure that the proceeds of any such sales are contemporaneously with the closing thereof applied to the Revolving Note and all other fees and obligations under this Agreement and the Loan Agreement, and cash security for all outstanding Letters of Credit, including the Nicaragua Letters of Credit, as herein provided.  Lender hereby agrees that, so long as there is no Default at the time of the sale of the Rockies Properties, Borrower and IOGWy may retain twenty percent (20%) of the net sale proceeds from the sale and use those net sale proceeds solely for working capital and development of the Nicaragua Concessions.
 
12.            Use of Proceeds . Notwithstanding any term of this Agreement or the Loan Agreement to the contrary, Borrower and Guarantors shall not use any proceeds from the Lockbox Account, any proceeds from any capital contribution, any proceeds of the Subordinate Loans, or any net sale proceeds from the sale of any of the Rockies Properties or the Texas Properties for the purpose of acquiring any oil and gas properties or leases or drilling any well, without the prior written consent of Lender.
 
13.            Hedge Transactions . Notwithstanding the terms of Section 4 of the Loan Agreement, Borrower and Guarantors agree that during the Forbearance Period and so long thereafter as any Event of Default remains outstanding and uncured, Borrower and Guarantors shall not enter into any Hedge Transaction without the prior written consent of Lender.  If Lender consents to any additional Hedge Transactions, those Hedge Transactions must comply with the terms of Section 4 of the Loan Agreement.
 
14.            Audit and Inspections . (a) Borrower and Guarantors agree that Lender and its auditors or accountants may, during the term of this Agreement, conduct an audit at Borrower’s and Guarantors’ offices and examine, audit, and make and take away copies or reproductions of Borrower’s and Guarantors’ books and records reasonably required by Lender, relating to (i) the sources and uses of all funds advanced by Lender under the Revolving Note, and (ii) the sources and uses of all production proceeds attributable to Borrower’s and Guarantors’ oil and gas properties. Lender will provide Borrower and Guarantors with five (5) business days written notice of its intention to commence the audit.  Borrower and Guarantors agree to cooperate with Lender and comply with all reasonable requests in connection with the audit, and Borrower and Guarantors hereby consent to the review and use by Lender’s auditors of Borrower’s third-party audit of the books and records of Borrower, Guarantors, and any other subsidiaries, including the supporting documentation and work papers of such independent auditors.
 
15.            Reporting Requirements . Until the Revolving Note and all other fees and obligations under this Agreement and the Loan Agreement are paid in full, and all outstanding Letters of Credit, including the Nicaragua Letters of Credit, are terminated or cash secured to Lender’s satisfaction, Borrower and Guarantors will furnish to Lender the following in Proper Form:
 
 
 

 
INFINITY ENERGY RESOURCES, INC.
December 4, 2009
Page 7 of 18
 
(a)           Within ten (10) days of the end of each month, a report showing Borrower’s consolidated actual cash flow for the month and for the period from the beginning of the fiscal year through the end of the month and consolidated projected cash flow for the next six months.
 
(b)           Within ten (10) days of the end of each month, an accounts payable listing and aging, along with copies of all additional liens or claims made by any account creditors.
 
(c)           As received and available, Borrower and Guarantors shall promptly provide to Lender all information related in any way to their ability to raise additional capital.
 
(d)           As received and available, Borrower and Guarantors shall promptly provide to Lender copies of any agreement or engagement letter with an oil and gas divestiture firm, all written purchase bids, purchase agreements, and farm-in proposals related in any way to the prospective sale of any of the Rockies Properties and the Texas Properties and shall promptly inform Lender of any unwritten offers or bids.
 
(e)           As received and available, Borrower and Guarantors shall promptly provide to Lender copies of any term sheets or financing proposals received that would result in the Deficiency being cured or a refinance of the entire outstanding amount owed on the Revolving Note.
 
(f)           Notwithstanding the provisions of Subsection (h) of Section 9 of the Loan Agreement, within fifty (50) days of the end of each month , a production report, on a lease-by­lease or unit basis, showing the gross proceeds from the sale of oil, gas, and associated hydrocarbons produced from the Properties, the quantity of oil, gas, and associated hydrocarbons sold, the severance, gross production, occupation, or gathering taxes deducted from or paid out of the proceeds, settlements of any Hedge Transactions, the cash lease operating expenses, including non-recurring cash operating expenses, intangible drilling costs, and capital expenditures, general and administrative expenses, the number of wells operated, drilled, or abandoned, the name, address, telephone number, and contact of the first purchaser of production for all of the Properties, and such other information as Lender may reasonably request;
 
(g)           such other information respecting the condition and the operations, financial or otherwise, of Borrower, Guarantors, and the Properties as Lender may from time to time reasonably request.
 
16.            Additional Collateral . In consideration of the forbearance under this Agreement, Borrower agrees to sign and deliver a Restated Commercial Security Agreement (the “ Security Agreement ”) in Proper Form, amending and restating the March 26, 2008, granting a security interest in any future sale proceeds from the sale of all or any part of the rights Borrower may have in the Tyra and Perlas Blocks, offshore Nicaragua, as awarded to Borrower by the Republic of Nicaragua in 2003, as hereafter amended and modified (the “ Nicaragua Concessions ”), in any future subsidiaries in which the rights with respect to the Nicaragua Concessions are assigned, and in any proceeds or rights related to Borrower’s insurance policies issued by the Overseas Private Investment Corporation (“ OPIC ”) related to the Nicaragua Concessions (the “ OPIC Policies ”), and acknowledged by the Overseas Private Investment Corporation.  Borrower and Guarantors agree to mortgage all oil and gas properties and leasehold interests (excluding the Nicaragua Concessions) owned by Borrower or Guarantors and not previously mortgaged to Lender as additional security for the Notes.  Within thirty (30) days of the date of this Agreement, Borrower and IOGTx agree to provide evidence to Lender documenting their efforts to obtain a waiver of the prohibition against liens from the lessors on the Murray lease, Erath County, Texas. Lender agrees to release without delay the Security Agreement in the event that the OPIC notifies Borrower of payment of compensation for a claim made by Borrower under the OPIC Policies; provided, however that if released the Security Agreement under such circumstances, Borrower agrees that the compensation for a claim made by Borrower under the OPIC Policies shall still be paid to Lender for application to the Revolving Loan.
 
 
 

 
INFINITY ENERGY RESOURCES, INC.
December 4, 2009
Page 8 of 18
 
17.            Interest . (a) Borrower and Lender hereby agree that during the Forbearance Period (including the Forbearance Period under the First Forbearance Agreement, the Second Forbearance Agreement, and the Third Forbearance Agreement), the entire unpaid principal balance owed on the Revolving Note shall accrue interest at the sum of the Stated Rate, plus the Applicable Margin as set forth in the Revolving Note; provided, however, that Lender reserves the right to impose the default rate of Stated Rate, plus six percent (6.0%) (the “ Default Rate ”), as set forth in the Revolving Note, at any time after the termination of the Forbearance Period, in the event that an Event of Default remains uncured and outstanding.  Further, in lieu of the additional interest accrued and unpaid under this Agreement, Borrower shall pay the Forbearance/Waiver Fee set forth below.
 
(b)           Lender has suspended the interest payments due on May 1, 2009, and June 1, 2009, and that accrued interest shall be due and payable on the Deferral Date.  Accrued, unpaid interest on the Revolving Note shall be due and payable monthly, commencing on July 1, 2009, and continuing on the first (1 st ) day of each month thereafter during the Forbearance Period. Interest payments shall be made from the funds available from the Lockbox Account, or from additional cash equity contributions to Borrower deposited into the Lockbox Account, or from a combination of both. If any cash equity contribution to Borrower is deposited into the Lockbox Account for the purpose of paying the monthly interest payments due under this Forbearance Agreement, then Borrower shall be entitled to the credit against the Forbearance/Waiver Fee as set forth in Section 21(c) below.
 
18.            Forbearance Fee . (a) In consideration of the forbearance by Lender under this Agreement and the waiver of the Existing Defaults and for other valuable consideration, the receipt and sufficiency of which are acknowledged, Borrower agrees to pay to Lender a Forbearance/Waiver Fee calculated as follows, and due on or before the earlier of the following (the “ Deferral Date ”): (i) the termination of the Forbearance Period, (ii) the cure of the Deficiency, or (iii) the refinance of the Revolving Note by another lender:
 
(i)           Forbearance/Waiver Fee under the First Forbearance Agreement in the amount of $553,666.67; plus
 
(ii)           Forbearance/Waiver Fee under the Second Forbearance Agreement in the amount of $723,666.33; plus
 
(iii)           Forbearance/Waiver Fee under the Third Forbearance Agreement in the amount of $1,189,259.24; plus
 
 
 

 
INFINITY ENERGY RESOURCES, INC.
December 4, 2009
Page 9 of 18
 
(iv)           A Forbearance/Waiver Fee shall be due for each month from June 1, 2009 through the end of the Forbearance Period, inclusive, calculated as one percent (1.0%) of the average daily outstanding principal balance on the Revolving Note for the month as of the last day of each of those months (or as of the Deferral Date if such occurs during any month).
 
Except as set forth below, the Forbearance/Waiver Fees and all other fees are non-refundable and earned by Lender upon execution of this Agreement.
 
(b)           If on or before January 31, 2010, the Revolving Note and all other fees and obligations under this Agreement and the Loan Agreement are paid in full, and all outstanding Letters of Credit, including the Nicaragua Letters of Credit, are terminated or cash secured to Lender’s satisfaction, then Lender hereby agrees to waive one-half of the Forbearance/Waiver Fees accrued, but unpaid, under Subsection (a) above.
 
(c)           If any cash equity contribution to Borrower is deposited into the Lockbox Account for the purpose of paying the monthly interest payments due under this Forbearance Agreement, then Borrower shall receive a credit to the Forbearance/Waiver Fees accrued, but unpaid, under Subsection (a) above, equal to three hundred percent (300%) of the amount of the equity contribution used for the purpose of paying the monthly interest payments due under this Forbearance Agreement, up to the full amount of the Forbearance/Waiver Fees accrued, but unpaid, under Subsection (a) above.
 
(d)           Borrower may make a written proposal to Lender regarding the payment of the Forbearance/Waiver Fees due under this Section by (i) delivery of stock in Borrower to Lender or its nominee, or (ii) assignment of an overriding royalty interest in the Nicaragua Concessions to Lender or its nominee. The proposal will be subject to Lender’s credit approval and must be upon terms and pricing acceptable to Lender, in its sole discretion.  Lender does not yet have credit approval for payment of the Forbearance/Waiver Fees by delivery of stock or assignment of royalty.
 
19.            Other Fees . Borrower acknowledges the following additional fee owed to Lender that is due on or before the Deferral Date: a hedge termination fee in the amount of $56,085.00, due pursuant to the Second Forbearance Agreement in connection with the termination of Hedge Transactions.
 
20.            Conditions Precedent . The obligation of Lender to enter into this Agreement and to forbear with respect to the Existing Defaults is subject to Borrower’s satisfaction, in Lender’s sole discretion, of the following conditions precedent:
 
(a)           Except for the Deficiency and the Existing Defaults, all representations and warranties set forth in Section 6 of the Loan Agreement must be true as of the date of this Agreement , except for Subsection (d) of Section 6, which is qualified by the lawsuits set forth in Schedule A attached, and Subsection (i) of Section 6, which is no longer applicable.
 
(b)           the negotiation, execution, and delivery of Loan Documents in Proper Form, including, but not limited to, the following:
 
 
 

 
INFINITY ENERGY RESOURCES, INC.
December 4, 2009
Page 10 of 18
 
(i)           this Agreement;
 
(ii)           Second Amendment to Revolving Note;
 
(iii)           Restated Security Agreement signed by Borrower and acknowledged by the Overseas Private Investment Corporation; and
 
(iv)           Borrower and Guarantors Resolutions.
 
(c)           other than as contemplated in this Agreement, there shall not have occurred a material adverse change in the business, assets, liabilities (actual and contingent), operations, or financial condition of Borrower or in the facts and information regarding such entities as represented to date.
 
(d)           Lender’s receipt and satisfactory review of a 180-day operating/cash flow forecast for Borrower and Guarantors.
 
(e)           Lender’s receipt and satisfactory review of a proposed budget from Borrower of recurring operating expenses, non-recurring operating expenses, general and administrative expenses, and any capital expenditures for the oil and gas properties expected to be paid during the Forbearance Period and supporting documentation for those expenses and expenditures.
 
(f)           Lender’s receipt of satisfactory written evidence that Borrower was provided with an additional commitment on the Subordinate Loan in May, 2009, in an amount not less than $250,000.00, for the payment of trade payables with respect to the Rockies Properties and the Texas Properties, and that as of the date of this Agreement, Borrower has funded not less than $100,000.00 from this additional commitment and used the funds for payment of trade payables with respect to the Rockies Properties and the Texas Properties.
 
21.            Default and Remedies . (a) As used in this Agreement, “ Default ” means (i) any breach by Borrower or Guarantors of their obligations under this Agreement, (ii) any misrepresentation by Borrower or Guarantors of the representations or warranties set forth in this Agreement, or (iii) any further Event of Default under the Loan Agreement, other than the existing Borrowing Base deficiency or any additional defaults under the provisions covered by the Existing Defaults , excluding the Excluded Defaults.
 
(b)           Upon a Default, Lender may terminate the Forbearance Period and the maturity of the Revolving Note shall automatically be accelerated as of the date of the termination of the Forbearance Period, without presentment, demand for payment, notice of intent to accelerate, other notice of acceleration or dishonor, protest, or notice of protest of any kind, all of which are expressly waived by Borrower.  Thereafter Lender may exercise any and all rights and remedies available to it, including, without limitation, those under the Loan Agreement, the Revolving Note, the Security Documents, the Guaranties, the Loan Documents, this Agreement, and any other instrument or agreement relating hereto, or any one or more of them. All rights and remedies of Lender shall be cumulative and concurrent and, after a Default, may be pursued separately, successively, or together as often as occasion therefore shall arise, at the sole discretion of the Lender.
 
 
 

 
INFINITY ENERGY RESOURCES, INC.
December 4, 2009
Page 11 of 18
 
22.            Other Representations . Borrower and Guarantors hereby represent to Lender as follows:
 
(a)           The execution, delivery, and performance of this Agreement by Borrower and Guarantors have been duly authorized by Borrower’s and Guarantors’ respective boards of directors and this Agreement constitutes their legal, valid, and binding obligations, enforceable in accordance with their respective terms; and
 
(b)           Except as set forth on Schedule A hereto, there are no actions, suits, or proceedings pending or threatened against or affecting Borrower, Guarantors, or the Properties, before any court or governmental department, commission, or board, which, if determined adversely, would have a material adverse effect on any of the Properties or the operations or financial condition of any of Borrower or Guarantors.
 
(c)           Borrower has fully performed all of its obligations under the Farmout and Acquisition Agreement (the “ Farmout Agreement ”) dated December 26, 2007, between IOGTx, as farmor, and Forest, as farmee; and the Farmout Agreement has terminated under its terms.
 
23.            Confirmations . (a) Borrower and Guarantors agree that the following amounts are due and outstanding with respect to the Revolving Note as of December 3, 2009:
 
Principal
    $ 10,010,493.64  
Interest
    $ 420,703.59  
  Total   $ 10,431,197.23  
 
Borrower and Guarantors agree that there is no set off or defense to payment of the Revolving Note.
 
(b)           As security for the Notes, Borrower and Guarantors previously executed the Security Documents, including the Security Agreement.  Borrower and Guarantors ratify and confirm the Security Documents, acknowledge that they are valid, subsisting, and binding, and agree that the Security Documents secure payment of the Notes (including the Revolving Note) and the Loans (including the Revolving Loan).
 
(c)           In connection with the Revolving Note, Guarantors executed the Guaranties. Guarantors ratify and confirm the Guaranties, acknowledge that the Guaranties are valid, subsisting, and binding upon Guarantors, and agree that the Guaranties guarantee payment of the Revolving Note. Guarantors agree that there is no defense to payment under the Guaranties.
 
(d)           Borrower and Guarantors hereby represent to Lender that all representations and warranties set forth in Section 6 of the Loan Agreement are true and correct as of the date of execution of this Agreement, except for Subsection (d) of Section 6, which is qualified by the lawsuits set forth in Schedule A attached, and Subsection (i) of Section 6, which is no longer applicable; and that, except for the Existing Defaults, Borrower and Guarantors are in compliance as of the date of execution of this Agreement with all covenants set forth in Section 7 of the Loan Agreement, all financial covenants set forth in Section 8 of the Loan Agreement, and all reporting requirements set forth in Section 9 of the Loan Agreement.
 
 
 

 
INFINITY ENERGY RESOURCES, INC.
December 4, 2009
Page 12 of 18
 
24.            Validity and Defaults . The Loan Agreement remains in full force and effect. Borrower and Guarantors acknowledge that the Loan Agreement, the Revolving Note, the Security Documents, the Guaranties, and the other Loan Documents are valid, subsisting, and binding upon Borrower and Guarantors; no uncured breaches or defaults exist under the Loan Agreement, except for the Existing Defaults; and except as contemplated by this Agreement, no other event has occurred or circumstance exists which, with the passing of time or giving of notice, will constitute a default or breach under the Loan Agreement.  Borrower and Guarantors ratify the Loan Agreement.
 
25.            Release . For valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and Guarantors hereby RELEASE AND FOREVER DISCHARGE Lender and its officers, directors, employees, agents, representatives, attorneys, subsidiaries, and affiliates (collectively “ Released Parties ”), from any and all claims, counterclaims, demands, damages, debts, suits, obligations, liabilities, offsets, rights, actions, and causes of action of any nature whatsoever (collectively “ Claims ”), caused by, because of, as a result of, arising from, or related in any way to the Loan Agreement, the Revolving Note, the Security Documents, the Loan Documents, this Agreement, any other transaction between Lender and Borrower, or any act, omission, communication, transaction, occurrence, representation, promise, breach, violation of any statute or law, or any other matter whatsoever or thing done, omitted, or suffered by any of the Released Parties in connection with the Loan Agreement, the Revolving Note, the Security Documents, the Loan Documents, this Agreement, any other transaction between Lender and Borrower, whether those Claims are now or hereafter accrued or possessed, whether known or unknown, direct or indirect, liquidated or unliquidated, absolute or contingent, foreseen or unforeseen, at law or in equity, and now or hereafter asserted, including, without limitation, claims for contribution or indemnity, claims of control, duress, mistake, tortuous interference, usury, negligence, or violations of the Texas Consumer Protection and Deceptive Trade Practices Act; provided, however, that any acts of willful misconduct or fraud by the Releases Parties shall not be released or discharged.
 
26.            Advice from Counsel . Borrower and Guarantors understand that this Agreement is legally binding and represent to Lender that each has obtained independent legal counsel from the attorney of their choice regarding the meaning and legal significance of this Agreement.  The parties agree that no provision of this Agreement shall be interpreted or construed against a party because that party prepared the provision, it being agreed that all parties have participated in the drafting of this Agreement and have had legal counsel of their choice.
 
27.            Governing Law and Venue . THIS AGREEMENT, THE LOAN AGREEMENT, THE REVOLVING NOTE, AND ALL LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND SHALL BE PERFORMED IN DALLAS COUNTY, TEXAS.  BORROWER, GUARANTORS, AND LENDER IRREVOCABLY AGREE THAT VENUE FOR ANY ACTION OR CLAIM RELATED TO THIS AGREEMENT, THE LOAN AGREEMENT, THE REVOLVING NOTE, OR ANY LOAN DOCUMENTS SHALL BE IN DALLAS COUNTY, TEXAS.
 
 
 

 
INFINITY ENERGY RESOURCES, INC.
December 4, 2009
Page 13 of 18
 
28.            Savings Clause . Regardless of any provision contained in the Loan Agreement, the Revolving Note, the Security Documents, the other Loan Documents, or this Agreement, it is the express intent of the parties that at no time shall Borrower or Guarantors pay interest in excess of the maximum lawful rate (or any other interest amount which might in any way be deemed usurious), and Lender will never be considered to have contracted for or to be entitled to charge, receive, collect, or apply as interest on the Revolving Note, any amount in excess of the maximum lawful rate (or any other interest amount which might in any way be deemed usurious), and, in the event that Lender ever receives, collects, or applies as interest any such excess, the amount which would be excessive interest will be applied to the reduction of the principal balance of the Revolving Note, and, if the principal balance of the Revolving Note is paid in full, any remaining excess shall forthwith be paid to Borrower.  In determining whether the interest paid or payable exceeds the maximum lawful rate (or any other interest amount which might in any way be deemed usurious), Borrower and Lender shall, to the maximum extent permitted under applicable law, spread the total amount of interest throughout the entire contemplated term of the Revolving Note so that the interest rate is uniform throughout the term.
 
29.            Fax Provision .  This Agreement and the related Loan Documents may be executed in counterparts, and Lender is authorized to attach the signature pages from the counterparts to copies for Lender and Borrower.  At Lender’s option, this Agreement and the related Loan Documents may also be executed by Borrower and Guarantors in remote locations with signature pages faxed to Lender.  Borrower and Guarantors agree that the faxed signatures are binding upon Borrower and Guarantors, and Borrower and Guarantors further agree to promptly deliver the original signatures for this Agreement and the related Loan Documents by overnight mail or expedited delivery.  It will be an Event of Default if Borrower or Guarantors fail to promptly deliver all required original signatures.
 
30.            Captions . Captions are for convenience only and should not be used in interpreting this Agreement.
 
31.            Final Agreement . (a) In connection with the Loans, Borrower, Guarantors, and Lender have executed and delivered this Agreement, the Loan Agreement, and the Loan Documents (collectively the “ Written Loan Agreement ”).
 
(b)           It is the intention of Borrower, Guarantors, and Lender that this paragraph be incorporated by reference into each of the Loan Documents.  Borrower, Guarantors, and Lender each warrant and represent that their entire agreement with respect to the Loans is contained within the Written Loan Agreement, and that no agreements or promises have been made by, or exist by or among, Borrower, Guarantors, and Lender that are not reflected in the Written Loan Agreement.
 
(c)           THE LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
 
 
 

 
INFINITY ENERGY RESOURCES, INC.
December 4, 2009
Page 14 of 18
 
If the foregoing correctly sets forth your understanding of our agreement, please sign and return one copy of this letter.  Notwithstanding any provision to the contrary, this Agreement shall only be effective if Borrower and Guarantors sign and return to Lender by 3 p.m., Houston, Texas time, on Wednesday, December 9, 2009.
 
 
 
Yours very truly,

AMEGY BANK NATIONAL ASSOCIATION
 
       
 
By:
   
   
A. Stephen Kennedy,
Senior Vice President/
Manager - Energy Group
 
       
       
 
 
 

 
INFINITY ENERGY RESOURCES, INC.
December 4, 2009
Page 15 of 18
 
 
Accepted and agreed to
this ____ day of December, 2009:
 
BORROWER:

INFINITY ENERGY RESOURCES, INC.
       
         
B y:
 
   
 
 
 
Stanton E. Ross, President
and Chief Executive Officer
   
 
 
 
 
   
 
 
 
GUARANTORS:

INFINITY OIL AND GAS OF TEXAS, INC.
       
         
B y:
 
   
 
 
 
Stanton E. Ross, President
   
 
 
 
 
   
 
 
 
INFINITY OIL & GAS OF WYOMING, INC.
       
         
B y:
 
   
 
 
 
Stanton E. Ross, President
   
 
 
 

Exhibits and Schedules :
Schedule A - Lawsuits
Schedule B - Overriding Royalty conveyances
 
 
 
 

 
SCHEDULE A
 
Lawsuits
 
Southwest Aviation Specialist, LLC filed an action in the District Court in and for the County of Tulsa, State of Oklahoma, number CS200708783, on October 31, 2007, against Infinity Oil and Stan Ross.
 
 
 

 
SCHEDULE B
 
Overriding Royalty conveyances
 
 
 
 

 
 
Exhibit 10.15
 
[Amegy Bank, N.A. Letterhead]



February 11, 2011

Via Federal Express

Infinity Energy Resources, Inc.
Infinity Oil and Gas of Texas, Inc.
Infinity Oil & Gas of Wyoming, Inc.
Attention: Stanton E. Ross
11900 College Blvd., Suite 204
Overland Park, KS 66210

Re:           Fifth Forbearance Agreement; Forbearance Period Advances

Ladies and Gentlemen:
 
This letter (this “ Agreement ”) sets forth (i) the fifth forbearance agreement among Infinity Energy Resources, Inc. , a Delaware corporation (“ Borrower ”), Infinity Oil and Gas of Texas, Inc., a Delaware corporation (“ Infinity Texas ”), Infinity Oil & Gas of Wyoming, Inc., a Wyoming corporation (“ Infinity Wyoming ” and, together with Infinity Texas, “ Guarantors ”; Guarantors and Borrower are referred to herein collectively as the “ Credit Parties ”), and Amegy Bank, N.A. (“ Lender ”) and (ii) the terms and conditions of certain forbearance period advances to be made under the Loan Agreement (as hereinafter defined).  The Credit Parties and Lender previously entered into a Forbearance Agreement dated August 31, 2007 (the “ First Forbearance Agreement ”), a Second Forbearance Agreement dated March 26, 2008 (the “ Second Forbearance Agreement ”), a Third Forbearance Agreement dated October 16, 2008 (the “ Third Forbearance Agreement ”) and a Fourth Forbearance Agreement dated December 4, 2009 (the “ Fourth Forbearance Agreement ” and, together with the First Forbearance Agreement, the Second Forbearance Agreement and the Third Forbearance Agreement, the “ Forbearance Agreements ”). Unless otherwise defined herein, capitalized terms below have the meanings assigned in the Loan Agreement dated January 9, 2007, among the Credit Parties and Lender, as amended (the “ Loan Agreement ”).
 
1.             Forbearance .  Subject to the complete satisfaction of each of the conditions precedent set forth in Section 19 hereof, Lender and the Credit Parties hereby agree to a forbearance period commencing as of January 31, 2010, and continuing through December 31, 2011, unless terminated earlier due to a Default, as defined in Section 20 hereof (such period, the “ Forbearance Period ”). During the Forbearance Period, but subject to the occurrence of a Default, Lender will forebear from exercising any remedies under the Loan Agreement, the Revolving Note, the Security Documents (as used herein, Security Documents shall include the Security Agreement defined in Section 16 of the Fourth Forbearance Agreement), the Guaranties, and the other Loan Documents (collectively, the “ Transaction Documents ”).  The Credit Parties agree that all statutes of limitation with respect to enforcement of any Transaction Document will be tolled during the Forbearance Period and for ninety (90) days thereafter.
 
2.             Revolving Loan .  The “ Termination Date ” as defined in the Loan Agreement is hereby extended until 11:00 a.m. (Houston, Texas time) on December 31, 2011; provided, however, that notwithstanding any provision in any Transaction Document to the contrary, the parties hereto acknowledge and agree that (a) Borrower shall not be entitled to any further advances on the Revolving Loan, except as expressly set forth in Section 3 and Section 6 hereof, and (b) any advance made by Lender under the Loan Agreement (i) prior to the date hereof or (ii) at any time during the Forbearance Period, in each case, in excess of the Borrowing Base then in effect, and notwithstanding the existence of any Deficiency (as defined in any Forbearance Agreement, as applicable), constitutes a Revolving Loan.
 
 
 
 

 
Infinity Energy Resources, Inc.
Infinity Oil and Gas of Texas, Inc.
Infinity Oil & Gas of Wyoming, Inc.
Page 2
 
 
3.             Forbearance Period Advances .
 
(a)             Lender Commitment .
 
(i)            Subject to the terms and conditions set forth in this Section 3 , Lender agrees to make, on the date hereof, and at any time prior to the Forbearance Period Advance Maturity Date (as hereinafter defined), one or more Revolving Loans to Borrower in an aggregate amount not to exceed the $1,050,000.00 (collectively, the “ Forbearance Period Advances ”).  “ Forbearance Period Advance Maturity Date ” means the earlier to occur of (A) the Termination Date and (B) a Default (as defined in Section 20 hereof).
 
(ii)            Any amount borrowed under Section 3(a)(i) hereof and subsequently repaid or prepaid may not be reborrowed.  Subject to Section 3(h) hereof, all amounts owed with respect to the Forbearance Period Advances shall be paid in full no later than the Forbearance Period Advance Maturity Date.  Lender’s commitment shall terminate immediately and without further action on the Forbearance Period Advance Maturity Date.
 
(b)             Borrowing Mechanics for Forbearance Period Advances .
 
(i)            Following the date hereof, whenever Borrower desires that Lender make Forbearance Period Advances, Borrower shall deliver to Lender a fully executed and delivered Funding Notice no later than 12:00 p.m. (Houston, Texas time) at least one business day in advance of the proposed borrowing.  “ Funding Notice ” means a notice substantially in the form of Exhibit A , executed and delivered by any individual holding the position of chairman of the board (if an officer), chief executive officer, president or one of its vice presidents (or the equivalent thereof), chief operating officer, chief financial officer or treasurer of Borrower (such Person, an “ Authorized Officer ”), which notice shall be irrevocable and shall specify (A) the aggregate principal amount of the requested Forbearance Period Advance, (B) the requested borrowing date (which shall be a business day), (C) the location and number of Borrower’s account in which the proceeds of such requested Forbearance Period Advance are to be deposited and (D) a detailed request specifying the use of proceeds of the entire amount of such requested Forbearance Period Advance and attaching supporting documentation, including invoices, if any, with respect thereto.
 
(ii)            Notwithstanding Section 5(b) of the Loan Agreement, upon satisfaction of the conditions precedent specified in the immediately succeeding clauses (A) through (D), then Lender shall make its Forbearance Period Advance available to Borrower not later than 2:00 p.m. (Houston, Texas time) on the applicable borrowing date to Borrower’s account designated in the applicable Funding Notice.
 
A.            Lender shall have received a fully executed and delivered Funding Notice;
 
B.            as of such borrowing date, the representations and warranties contained herein and in the other Transaction Documents, except for the Existing Defaults and Section 6(i) of the Loan Agreement, which is no longer applicable, in each case, shall be true and correct in all material respects on and as of such borrowing date to the same extent as though made on and as of that date.
 
 
 

 
Infinity Energy Resources, Inc.
Infinity Oil and Gas of Texas, Inc.
Infinity Oil & Gas of Wyoming, Inc.
Page 3
 
C.            as of such borrowing date, no event shall have occurred and be continuing or would result from the consummation of the applicable Forbearance Period Advance that would constitute a Default (as defined in Section 20 hereof) or, other than with respect to the Existing Defaults, a Default.
 
D.            Lender consents, in its sole discretion, to make such Forbearance Period Advance.
 
E.            Lender shall be entitled, but not obligated to, request and receive, prior to the making of any Forbearance Period Advance, additional information satisfactory to it confirming the satisfaction of any of the foregoing.
 
(c)             Use of Proceeds .  The proceeds of the Forbearance Period Advances shall be used by Borrower (i) on the date hereof, to repay in an amount not less than $452,459.89 a portion of Existing Amegy Indebtedness (as hereinafter defined) as follows:  $100,000 principal amount of the June 2010 Note (as hereinafter defined), $10,000 principal amount of the October 2010 Note (as hereinafter defined), $122,462.44 principal amount of the December 2010 Note (as hereinafter defined), $163,912.45 principal amount of the Overdraft Fees (as hereinafter defined) and $56,085.00 principal amount of the Hedging Termination Fee (as hereinafter defined), it being understood and agreed that any interest owing on any Existing Amegy Indebtedness repaid on the date hereof shall be due and payable on the Forbearance Period Advance Maturity Date, (ii) on the date hereof, to pay Transaction Costs (as hereinafter defined) and (iii) on or after the date hereof, for working capital and general corporate purposes related to the Nicaragua Concessions (as defined in Section 6 hereof) and as set forth in Budgeted Expenses in Section 15(e) below.  Neither Borrower nor any of its directors, officers, agents, employees or other Persons associated with or active on behalf of Borrower, will directly or indirectly, use the proceeds of any Forbearance Period Advance (y) in any manner that causes or might cause such Forbearance Period Advance or the application of such proceeds to violate Regulation T, Regulation U or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation thereof or to violate the Securities Exchange Act of 1934, as amended from time to time, and any successor statute or (z) to lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other Person, to make any offer, payment, promise to pay or authorization of the payment of any money, or other property, gift, promise to give, or authorization of the giving of anything of value directly or indirectly to or for the benefit of any public official including any foreign officials as such terms is defined in the Foreign Corrupt Practices Act of 1977, as amended, or any foreign political party of official thereof or any candidate for foreign political office or for a third party to benefit any of the foregoing, if doing so would or might violate the law of any relevant jurisdiction.  “ Existing Amegy Indebtedness ” means indebtedness and other obligations (i) outstanding under the Loan Agreement, including certain overdraft fees (“the “ Overdraft Fees ”) in respect thereof, (ii) outstanding under that certain Demand Promissory Note dated June 30, 2010 (the “ June 2010 Note ”), between Borrower and Lender, (iii) outstanding under that certain Demand Promissory Note dated October 8, 2010 (the “ October 2010 Note ”), between Borrower and Lender, (iv) outstanding under that certain Demand Promissory Note dated December 6, 2010 (the “ December 2010 Note ”), between Borrower and Lender and (v) outstanding in respect of that certain hedge termination fee (the “ Hedge Termination Fee ”) due pursuant to the Second Forbearance Agreement.  “ Transaction Costs ” means the fees, costs and expenses payable by Borrower or any of Borrower’s Subsidiaries on or before the date hereof in connection with the transactions contemplated by this Agreement not to exceed, unless otherwise approved in writing by Lender, $15,000.
 
 
 

 
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(d)             Evidence of Forbearance Period Advance .  Borrower shall execute and deliver to Lender a promissory note in form and substance satisfactory to Lender to evidence Lender’s Forbearance Period Advances (the “ Forbearance Period Advance Note ”).
 
(e)             Interest on Forbearance Period Advances .
 
(i)            Except as otherwise set forth herein, each Forbearance Period Advance shall bear interest on the unpaid principal amount thereof from the date made through repayment (whether by acceleration or otherwise) thereof at Prime Rate (as hereinafter defined) plus 2%.  “ Prime Rate ” means, on any day, the rate of interest per annum most recently publicly announced by Lender as its prime rate in effect at its principal office in Houston, Texas; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective.
 
(ii)            Interest payable pursuant to Section 3(e)(i) hereof shall be computed on the basis of a 360 day year, in each case for the actual number of days elapsed in the period during which it accrues.  In computing interest on any Forbearance Period Advance, the date of the making of such Forbearance Period Advance shall be included, and the date of payment of such Forbearance Period Advance shall be excluded; provided, if a Forbearance Period Advance is repaid on the same day on which it is made, one day’s interest shall be paid on that Forbearance Period Advance.
 
(iii)            Except as otherwise set forth herein, interest on each Forbearance Period Advance shall be payable in arrears on and to (i) the date of any voluntary prepayment of that Forbearance Period Advance and to the extent accrued on the amount being prepaid; and (ii) the Forbearance Period Advance Maturity Date.
 
(f)             Default Interest .  Upon the occurrence and during the continuance of a Default (as defined in Section 20 hereof), the principal amount of all Forbearance Period Advances outstanding and, to the extent permitted by applicable law, any interest payments on the Forbearance Period Advances or any fees or other amounts then due and owing hereunder, shall thereafter bear interest (including post petition interest in any proceeding under applicable bankruptcy laws) payable on demand at a rate that is 3.0% per annum in excess of the interest rate otherwise payable hereunder with respect to the Forbearance Period Advances (or, in the case of any such fees and other amounts then due and owing hereunder, at a rate which is 3.0% per annum in excess of the interest rate otherwise payable hereunder with respect to the Forbearance Period Advances).  Payment or acceptance of the increased rates of interest provided for in this Section 3(f) is not a permitted alternative to timely payment and shall not constitute a waiver of any Default (as defined in Section 20 hereof) or otherwise prejudice or limit any rights or remedies of Lender.
 
(g)             Fees .
 
(i)            Borrower agrees to pay to Lender a commitment fee equal to $21,000.00.  This commitment fee shall be payable on the Forbearance Loan Maturity Date.
 
 
 

 
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(ii)            Borrower agrees to pay to Lender such other fees in the amounts and at the times separately agreed upon between Borrower and Lender.
 
(h)             Mandatory Prepayments/Commitment Reductions .
 
(i)             Asset Sales .  No later than the first business day following the date of receipt, in any given month, by Borrower or any of its Subsidiaries of any Net Asset Sale Proceeds (as hereinafter defined) in excess of the aggregate amount of Budgeted Expenses (as defined in Section 15(e) hereof) as set forth in the most recent Budget (as defined in Section 15(e) ) required to be delivered pursuant to Section 15(e) hereof, Borrower shall prepay the Forbearance Period Advances as set forth in Section 3(i) hereof in an aggregate amount equal to such excess amount; provided, that (A) such Net Asset Sale Proceeds shall be deposited directly by the payee thereof into a deposit account held by Borrower at Amegy Bank, N.A. and (B) if, within 30 days of Borrower’s receipt of such Net Asset Sale Proceeds, Borrower has not paid one or more such Budgeted Expenses in an aggregate amount equal to 100% of the amount of such proceeds not otherwise required to prepay the Forbearance Period Advances, then Borrower shall prepay the Forbearance Period Advances as set forth in Section 3(i) hereof in an amount equal to the amount not so paid.  “ Net Asset Sale Proceeds ” means, with respect to any Asset Sale (as hereinafter defined), an amount equal to: (1) cash payments received by Borrower or any of its Subsidiaries from such Asset Sale, minus (2) any bona fide direct costs and expenses incurred in connection with such Asset Sale to the extent paid or payable to non-Affiliates, including (x) income or gains taxes payable or reasonably estimated to be payable by the seller as a result of any gain recognized in connection with such Asset Sale during the tax period the sale occurs, (y) payment of the obligations (other than the Loans) secured by a Lien on the assets in question, which is required to be repaid under the terms thereof as a result of such Asset Sale, and (z) a reasonable reserve for any adjustments in respect to sale price of such assets and any indemnification payments (fixed or contingent) attributable to seller’s indemnities and representations and warranties to purchaser in respect of such Asset Sale undertaken by Borrower or any of its Subsidiaries in connection with such Asset Sale; provided that upon release of any such reserve, the amount released shall be considered Net Asset Sale Proceeds).  “ Asset Sale ” means a sale, lease or sublease (as lessor or sublessor), sale and leaseback, assignment, conveyance, transfer, license or other disposition to, or any exchange of property with, any Person (other than to or with a Credit Party), in one transaction or a series of transactions, of all or any part of any Credit Party’s businesses, assets or properties of any kind, whether real, personal, or mixed and whether tangible or intangible, whether now owned or hereafter acquired, leased or licensed, including, without limitation, the capital stock of any Credit Party, other than inventory or other assets sold or leased, or cash or cash equivalents disposed of, in each case, in the ordinary course of business.  For purposes of clarification, “Asset Sale” shall (i) include (x) the sale or other disposition for value of any contracts or (y) the early termination or modification of any contract resulting in the receipt by any Credit Party of a cash payment or other consideration in exchange for such event (other than payments in the ordinary course of business for accrued and unpaid amounts due through the date of termination or modification) and (ii) exclude any taking or other disposition by means of power of eminent domain, condemnation or similar power, threat or right.
 
(ii)             Insurance/Condemnation Proceeds .  No later than the first business day following the date of receipt, in any given month, by Borrower or any of its Subsidiaries, or Lender as loss payee, of any Net Insurance/Condemnation Proceeds (as hereinafter defined) in excess of the aggregate amount of Budgeted Expenses (as defined in Section 15(e) hereof) as set forth in the most recent Budget (as defined in Section 15(e) hereof) required to be delivered pursuant to Section 15(e) hereof, Borrower shall prepay the Forbearance Period Advances as set forth in Section 3(i) hereof in an aggregate amount equal to such excess amount; provided, that (A) such Net Insurance/Condemnation Proceeds shall be deposited directly by the payee thereof into a deposit account held by Borrower at Amegy Bank, N.A. and (B) if, within 30 days of Borrower’s receipt of such Net Insurance/Condemnation Proceeds, Borrower has not paid one or more such Budgeted Expenses in an aggregate amount equal to 100% of the amount of such proceeds not otherwise required to prepay the Forbearance Period Advances, then Borrower shall prepay the Forbearance Period Advances as set forth in Section 3(i) hereof in an amount equal to the amount not so paid.  “ Net Insurance/Condemnation Proceeds ” means an amount equal to: (1) any cash payments or proceeds received by Borrower or any of its Subsidiaries (a) under any casualty, business interruption or “key man” insurance policies in respect of any covered loss thereunder, or (b) as a result of the taking of any assets of Borrower or any of its Subsidiaries by any Person pursuant to the power of eminent domain, condemnation or otherwise, or pursuant to a sale of any such assets to a purchaser with such power under threat of such a taking, minus (2) (a) any actual and reasonable costs incurred by Borrower or any of its Subsidiaries in connection with the adjustment, prosecution or settlement of any claims of Borrower or such Subsidiary in respect thereof, and (b) any bona fide direct costs incurred in connection with any sale of such assets as referred to in clause (1)(b) of this definition to the extent paid or payable to non-Affiliates, including income or gains taxes payable or reasonably estimated to be payable as a result of any gain recognized in connection therewith.
 
 
 

 
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(iii)             Issuance of Equity Securities .  On the date of receipt, in any given month, by Borrower or any of its Subsidiaries of cash proceeds from (A) any capital contribution to, or the issuance of any capital stock of, Borrower or any of its Subsidiaries, (B) any capital stock issued pursuant to any employee stock or stock option compensation plan other than any such issuance that constitutes and Exempted Issuance (as defined in the Warrants (as defined in Section 19(b) hereof) or (C) any capital stock issued for purposes approved in writing by Lender, in an aggregate value in excess of the aggregate amount of Budgeted Expenses (as defined in Section 15(e) hereof) as set forth in the most recent Budget (as defined in Section 15(e) hereof) required to be delivered pursuant to Section 15(e) hereof, Borrower shall prepay the Forbearance Period Advances as set forth in Section 3(i) hereof in an aggregate amount equal to such excess amount; provided, that (1) such proceeds shall be deposited directly by the payee thereof into a deposit account held by Borrower at Amegy Bank, N.A. and (2) if, within 30 days of Borrower’s receipt of such cash proceeds, Borrower has not paid one or more such Budgeted Expenses in an aggregate amount equal to 100% of the amount of such proceeds not otherwise required to prepay the Forbearance Period Advances, then Borrower shall prepay the Forbearance Period Advances as set forth in Section 3(i) hereof in an amount equal to the amount not so paid.
 
(iv)             Issuance of Debt .  On the date of receipt, in any given month, by Borrower or any of its Subsidiaries of any cash proceeds from the incurrence of any indebtedness of Borrower or any of its Subsidiaries (other than with respect to any indebtedness permitted to be incurred pursuant to Section 7(h) of the Loan Agreement) in excess of the aggregate amount of Budgeted Expenses (as defined in Section 15(e) hereof) as set forth in the most recent Budget (as defined in Section 15(e) hereof) required to be delivered pursuant to Section 15(e) hereof, Borrower shall prepay the Forbearance Period Advances as set forth in Section 3(i) hereof in an aggregate amount equal to such excess amount; provided, that (A) such proceeds shall be deposited directly by the payee thereof into a deposit account held by Borrower at Amegy Bank, N.A. and (B) if, within 30 days of Borrower’s receipt of such cash proceeds, Borrower has not paid one or more such Budgeted Expenses in an aggregate amount equal to 100% of the amount of such proceeds not otherwise required to prepay the Forbearance Period Advances, then Borrower shall prepay the Forbearance Period Advances as set forth in Section 3(i) hereof in an amount equal to the amount not so paid.
 
 
 

 
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(v)             Prepayment Certificate .  Concurrently with any prepayment of the Forbearance Period Advances pursuant to Sections 3(h)(i) through 3(h)(iv)   hereof, Borrower shall deliver to Lender a certificate of an Authorized Officer demonstrating the calculation of the amount of the applicable net proceeds and compensation owing to Lender.  Within 30 days of Borrower’s receipt of any such proceeds pursuant to Sections 3(h)(i) through 3(h)(iv) hereof, Borrower shall deliver to Lender a certificate of an Authorized Officer identifying the Budgeted Expenses so paid and supporting documentation reasonably satisfactory to Lender.   In the event that Borrower shall subsequently determine that the actual amount received exceeded the amount set forth in such certificate, Borrower shall promptly make an additional prepayment of the Forbearance Period Advances in an amount equal to such excess, and Borrower shall concurrently therewith deliver to Lender a certificate of an Authorized Officer demonstrating the derivation of such excess.
 
(i)             Application of Prepayments/Reductions .  Any voluntary prepayments of Forbearance Period Advances and any mandatory prepayment of any Forbearance Period Advance pursuant to Section 3(h) hereof shall be applied as follows:
 
(i)             first , to the payment of all fees and all expenses owed to Lender which are then due and payable;
 
(ii)             second , to the payment of any accrued and unpaid interest on the Forbearance Period Advances at the Default Rate, if any;
 
(iii)             third , to the payment of any accrued and unpaid interest on the Forbearance Period Advances (other than Default Rate interest); and
 
(iv)             fourth , to prepay the Forbearance Period Advances.
 
4.             Events of Default .  The Credit Parties have identified to Lender and acknowledge that the following Events of Default have occurred and remain outstanding as of the date hereof (the “ Existing Defaults ”):
 
(a)            The Existing Defaults set forth in the First Forbearance Agreement, the Second Forbearance Agreement, the Third Forbearance Agreement and the Fourth Forbearance Agreement;
 
(b)            The Credit Parties breached the financial covenants set forth in Subsections (a) - (h) of Section 8 of the Loan Agreement for the periods ended March 31, 2010, June 30, 2010 and September 30, 2010; and the Credit Parties breached the covenants set forth in Subsections (g), (i), and (m) of Section 7 of the Loan Agreement during the periods ended March 31, 2010, June 30, 2010 and September 30, 2010; provided, however, that the breach of Subsection (i) of Section 7 of the Loan Agreement was solely attributable to involuntary mineral lien claims made under Chapter 56 of the Texas Property Code or similar applicable law.
 
 
 

 
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5.             Temporary Waiver; No Novation .   The Credit Parties have requested that Lender temporarily waive the Existing Defaults.  Subject to (a) the complete satisfaction of each of the conditions precedent set forth in Section 19 hereof and (b) the occurrence of a Default, Lender hereby temporarily waives the Existing Defaults through the Forbearance Period only.  This is a temporary and limited waiver, and Lender reserves the right to require strict compliance with all applicable provisions under each of the Transaction Documents, including the provisions violated as set forth above, in the future.  Except as otherwise expressly provided in this Agreement, and both during and following the expiration of the Forbearance Period, each of the Transaction Documents and the indebtedness and other obligations of the Credit Parties thereunder shall remain in full force and effect, and shall not be waived, modified, superseded or otherwise affected by this Agreement, except as expressly set forth herein.  This Agreement is not a novation nor is it to be construed as a release, waiver or modification of any of the terms, conditions, representations, warranties, covenants, rights or remedies set forth in any Transaction Document, except as expressly set forth herein.  Further, this waiver shall not be construed as a commitment by Lender to waive any future violation of the same or any other term or condition of the Loan Agreement or any other Transaction Document.  Neither the negotiation nor execution of this Agreement will be an election of any right or remedy available to Lender and, except as specifically limited or postponed herein, Lender reserves all rights and remedies provided under each of the Transaction Documents or by law.
 
6.             Nicaragua Concessions .   a)  Borrower represents and warrants to Lender (i) that Borrower has received all governmental authorizations necessary for the validation and ratification of the concessions (“ Governmental Approval ”) in the Tyra and Perlas Blocks, offshore Nicaragua, as awarded to Borrower by the Republic of Nicaragua in 2003, as hereafter amended and modified (the “ Nicaragua Concessions ”), and affected by Sentencia No. 92, Expediente No 591-06, rendered by the Supreme Court of Justice of the Republic of Nicaragua, Constitutional Hall, dated May 2, 2006, (ii) that such Governmental Approval remains in full force and effect and (iii) that no adverse change or modification to such Governmental Approval or the Nicaragua Concessions has occurred or is reasonably expected to occur.
 
(b)            Each Credit Party represents and warrants to Lender that such Credit Party has not, and covenants that such Credit Party shall not, sell, assign, transfer, or otherwise dispose of all or any interest in the Nicaragua Concessions, without the prior written consent of Lender, except for (A) the sale of hydrocarbons in the ordinary course of business, (B) the sale or transfer of equipment or inventory in the ordinary course of business or that is no longer necessary for the business of Borrower or that is obsolete or replaced by equipment of at least comparable value and use, (C) the assignment or transfer required under Section 10.02 of Borrower’s insurance policies issued by the Overseas Private Investment Corporation (“ OPIC ”) related to the Nicaragua Concessions (the “ OPIC Policies ”), after payment of compensation for a claim made by Borrower under the OPIC Policies, (D) in connection with the consulting arrangements identified in the Forbearance Agreements pre-dating this Fifth Forbearance Agreement, the conveyance of the overriding royalty interest in the Nicaragua Concessions identified thereon, and (E) such conveyances of one or more overriding royalty and similar interests in the Nicaragua Concessions as approved by Lender in writing, which include conveyances to the officers, directors and consultants previously approved by the Lender; and
 
(c)           Each Credit Party represents and warrants to Lender that such Credit Party has not, and covenants that such Credit Party shall not, mortgage, assign, hypothecate, pledge, or encumber, and not create, incur, or assume any lien or security interest on or in, the Nicaragua Concessions (or any interest in the Nicaragua Concessions), without the prior written consent of Lender, except for any security interest in favor of Lender and the Permitted Encumbrances.
 
 
 

 
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7.             Nicaragua Letters of Credit .  Lender has issued two Letters of Credit in an aggregate amount equal to $851,550.00, in favor of the Direccion General de Hidrocarburos, Instituto Nicaraguense de Energia, for the account of Borrower and as security for Borrower’s obligations with respect to the Nicaragua Concessions (the “ Nicaragua Letters of Credit ”).  Any fundings under the Nicaragua Letters of Credit will be treated as an advance on the Revolving Loan and will be secured by the Security Documents.  The Nicaragua Letters of Credit shall be on terms reasonably acceptable to Lender and shall be for a term of up to one year and, if necessary, to renew automatically unless Lender gives prior written notice.  Borrower will sign and deliver Lender’s customary forms for the issuance of Letters of Credit.  Lender agrees to take any and all reasonable actions in relation to the Nicaragua Letters of Credit as may be reasonably requested, and comply with the terms and conditions reasonably set forth, by the Nicaraguan government. Borrower agrees to pay to Lender a Letter of Credit fee on the Nicaragua Letters of Credit equal to three and one-quarter percent (3.25%) per annum, calculated on the aggregated stated amount of the Nicaragua Letters of Credit for the stated duration thereof (computed on the basis of actual days elapsed as if each year consisted of 360 days), and due on or before the Deferral Date (as defined in Section 17(a) hereof); provided, however, that Lender reserves the right to impose, at any time after the termination of the Forbearance Period, the default rate of Stated Rate, plus six percent (6.0%) (the “ Default Rate ”), as set forth in the Revolving Note in the event that an Event of Default remains uncured and outstanding.
 
8.             Subordinate Loans .  [Borrower has entered into one or more subordinate loans in an aggregate amount equal to $1,275,000.00, which are subordinated to the Loans (the “ Subordinate Loans ”).  The Subordinate Loans are secured by security documents on a fully-subordinated basis.] 1   Unless otherwise agreed by Lender in writing, the proceeds from the Subordinate Loans may be used by Borrower for general and administrative expenses in excess of the monthly limit set forth below or for development of the Nicaragua Concessions.
 
9.             Cash Flow .  Borrower agrees that it will use its commercially reasonable best efforts (a) to cause the contribution of cash to Borrower to the extent necessary so that Borrower’s consolidated cash flow is a minimum of break even, after payment of interest expense on the Revolving Loan, (b) to prevent any additional accounts payable from becoming past due, and (c) to prevent any additional mineral liens under Chapter 56 of the Texas Property Code or similar applicable law from being filed against the Properties.
 
10.             Lockbox .  The Credit Parties agree that the following provisions continue to apply:
 
(a)            The Credit Parties will direct all production proceeds attributable to their oil and gas properties to be paid to a lockbox account to be set up and maintained with Lender for the purpose of collection of production proceeds (the “ Lockbox Account ”).
 
(b)            All production proceeds received in the Lockbox Account by Lender with respect to production, severance, ad valorem, or other taxes on production proceeds (excluding income taxes) or that are attributable to another person’s or entities’ royalty or other interest in the oil and gas properties shall be released immediately to Borrower upon Borrower’s request and verification of those amounts.  The Credit Parties shall provide evidence of the timely payment of production, severance, ad valorem, or other taxes on production proceeds (excluding income taxes) and of the royalty and overriding royalty owners; provided, however, that no royalties and overriding royalty interests owned by the Credit Parties or any affiliate (within the meaning of Rule 144 of the Securities Act of 1933, as amended) thereof shall be paid from the Lockbox Account proceeds.
 
 
 

 
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(c)            Borrower will provide Lender with a proposed budget of recurring operating expenses, non-recurring operating expenses, general and administrative expenses, and any capital expenditures for the oil and gas properties expected to be paid during the Forbearance Period and supporting documentation for those expenses and expenditures.
 
(d)            At Borrower’s request, production proceeds in the Lockbox Account may be used to pay operating expenses, general and administrative expenses (subject to the limits in Section 15 below), and capital expenditures, all as approved by Lender (which approval shall not be unreasonably withheld, delayed, or denied).  The Credit Parties shall not pay in any month operating expenses, general and administrative expenses, or capital expenditures exceeding the aggregate budgeted expenses for each such category for that month set forth pursuant to Section 10(c) above, unless Lender has approved such payments.  Borrower shall, not later than two (2) business days prior to the date on which Borrower proposes to pay such operating expenses, general and administrative expenses, or capital expenditures and as a condition precedent to requesting such approval, deliver to Lender in usual and customary form reasonably acceptable to Lender reasonable detail of all expenses and expenditures proposed to be paid in respect of such month.  Any excess production proceeds in the Lockbox Account may be used only for such other purposes as approved by Lender, in its discretion.
 
(e)            All production proceeds remaining in the Lockbox Account after payment of the taxes and royalties as provided above and the operating expenses and discretionary amounts as provided above will be applied by Lender on the last day of each month to the principal and interest on the Revolving Note and all other fees and obligations under this Agreement and the Loan Agreement as set forth in Section 3.2 of each of the Deeds of Trust.  Subject to Section 16(b) hereof, if the production proceeds received in the Lockbox during any month are not sufficient to make the scheduled monthly interest payment on the Revolving Loan, Borrower will pay Lender the deficiency within ten (10) days of notice from Lender of such shortfall.
 
11.             Sale of Oil and Gas Properties .  In order to pay a portion of the Revolving Note and other fees and obligations under this Agreement and the Loan Agreement, the Credit Parties proposed to Lender, and agree to take, the following actions:
 
(a)            The Credit Parties shall proceed with the sale and marketing of the interest retained in the oil and gas properties of Infinity Wyoming (the “ Rockies Properties ”) and the Texas oil and gas properties of Infinity Texas (the “ Texas Properties ”).  The Credit Parties shall use their best efforts i)   to promptly obtain firm proposals for the sale of the properties, ii)  to execute a definitive agreement or agreements, subject to stockholder approval if required, for the sale of properties with proceeds sufficient to repay the Revolving Note, iii)  to seek stockholder approval, if required, and consummate the sale of the properties as soon as practicable thereafter and iv)  to notify Lender of any developments with respect to any of the foregoing.
 
(b)            The Credit Parties shall promptly provide Lender with a copy of the agreement or engagement letter with any oil and gas divestiture firm acceptable to Lender and retained to assist with sales under this Section 11 ; and thereafter the Credit Parties shall provide a monthly report on the first (l st ) day of each month, to be prepared by the oil and gas divestiture firm engaged by the Credit Parties to facilitate the sale of the oil and gas properties and leasehold interests, that includes any and all information pertaining to property bids, the current status of any bids or sale discussions, and all marketing efforts employed to sell the Rockies Properties and the Texas Properties.  Notwithstanding any provision to the contrary, at least two (2) business days prior to the date on which Borrower proposes to pay such, Borrower shall deliver to Lender in usual and customary form reasonably acceptable to Lender, reasonable detail of all broker fees and other transaction costs related to the sale of the properties proposed to be paid from proceeds in the Lockbox Account, and thereafter Borrower may pay such fees and costs as are approved by Lender (which approval shall not be unreasonably withheld, delayed, or denied).
 
 
 

 
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(c)            No sale of any of the Rockies Properties and the Texas Properties, or any of them, will be permitted to an affiliate of the Credit Parties, unless Lender consents in writing.
 
(d)            The Credit Parties will direct all of the sale proceeds (the “ Sale Proceeds ”) from the sale of any of the Rockies Properties and the Texas Properties to be paid to Lender to be applied to reduce the amounts owing to Lender under any Transaction Document or as otherwise agreed by Lender, in each case, in its sole discretion.
 
12.             Use of Proceeds .  Notwithstanding any term of this Agreement or any Transaction Document to the contrary, the Credit Parties shall not use any proceeds from the Lockbox Account, any proceeds from any capital contribution, any proceeds of the Subordinate Loans, or any net sale proceeds from the sale of any of the Rockies Properties or the Texas Properties for the purpose of acquiring any oil and gas properties or leases or drilling any well, without the prior written consent of Lender.
 
13.             Hedge Transactions .  Notwithstanding the terms of Section 4 of the Loan Agreement or any term of any Transaction Document to the contrary, the Credit Parties agree that during the Forbearance Period and so long thereafter as any Event of Default has occurred and is continuing, the Credit Parties shall not enter into any Hedge Transaction without the prior written consent of Lender.  If Lender consents to any additional Hedge Transactions, those Hedge Transactions must comply with the terms of Section 4 of the Loan Agreement.
 
14.             Audit and Inspections; Financial Adviser .   b)  The Credit Parties agree that Lender and its auditors, accountants or other representatives (including the financial advisors and financial professionals referred to in the immediately succeeding clause (b)) may, from time to time until the Revolving Note and all other fees and obligations under this Agreement and the Loan Agreement are paid in full, and all outstanding Letters of Credit, including the Nicaragua Letters of Credit, are terminated or cash secured to Lender’s satisfaction, conduct an inspection or an audit at each Credit Party’s offices and examine, audit, and make and take away copies or reproductions of each Credit Party’s books and records reasonably requested by Lender or any of its representatives, relating to i)  the sources and uses of all funds advanced by Lender under the Revolving Note, ii)  the sources and uses of all production proceeds attributable to any Credit Party’s oil and gas properties, iii)  the sources and uses of the Sale Proceeds, iv)  the sources and uses of all proceeds received from the issuance of any subordinated debt or capital raises, v)  the Governmental Consent and the Nicaragua Concessions, vi)  each Credit Party’s compliance with the terms of any Transaction Document, vii) any collateral granted by any Credit Party to secure the performance by the Credit Parties of their obligations under the Transaction Documents and viii)  the transactions contemplated under this Agreement and any other Transaction Document.  Lender will provide the applicable Credit Party with three (3) business days written notice of its intention to commence the inspection or audit.  Each Credit Party agrees to cooperate with Lender and its representatives and comply with all reasonable requests in connection with the audit, and each Credit Party hereby consents to the review and use by Lender and its representatives of any Credit Party’s third-party audit of the books and records of the Credit Parties and any other subsidiaries thereof, including the supporting documentation and work papers of such independent auditors.
 
 
 

 
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c)  During the Forbearance Period, Lender shall have the right, in its sole discretion, to engage at Borrower’s expense, one or more financial advisors or other financial professionals in connection with any “workout” or restructuring of the Credit Parties and during any legal proceeding, including any proceeding under the Bankruptcy Code or any other law relating to bankruptcy, insolvency or reorganization or relief of debtors.
 
15.             Reporting Requirements .  Until the Revolving Note and all other fees and obligations under this Agreement and the Loan Agreement are paid in full, and all outstanding Letters of Credit, including the Nicaragua Letters of Credit, are terminated or cash secured to Lender’s satisfaction, the Credit Parties will furnish to Lender the following in Proper Form:
 
(a)            As soon as available, and in any event within thirty (30) days after the end of each month, the consolidated balance sheet of Borrower and its Subsidiaries as at the end of such month and the related consolidated and consolidating statements of operations, consolidated statements of stockholders’ equity and consolidated statements of cash flows of Borrower and its Subsidiaries for such month and for the period from the beginning of the then current fiscal year of Borrower to the end of such month, setting forth in each case in comparative form the corresponding figures for the corresponding periods of the previous fiscal year, all in reasonable detail, together with (i) a certificate from the chief financial officer of Borrower, certifying that such financial statements fairly present, in all material respects, the financial condition of Borrower and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments, and (ii) any other operating reports prepared by management for such period.
 
(b)            Together with each delivery of financial statements of Borrower and each other Credit Party pursuant to Section 15(a) hereof and Sections 9(a) and 9(b) of the Loan Agreement, (i) a summary of the accounts receivable aging report of each Credit Party as of the end of such period, and (ii) a summary of accounts payable aging report of each Credit Party as of the end of such period.
 
(c)            Within ten (10) days of the end of each month, a report showing Borrower’s consolidated actual cash flow for the month and for the period from the beginning of the fiscal year through the end of the month and consolidated projected cash flow for the immediately succeeding six-month period.
 
(d)            Within ten (10) days of the end of each month, an accounts payable listing and aging, along with copies of all additional liens or claims made by any account creditors.
 
(e)            Within ten (10) days of the end of each month, a budget (the “ Budget ”) of recurring operating expenses, non-recurring operating expenses, general and administrative expenses, and any capital expenditures for the oil and gas properties (the “ Budgeted Expenses ”) expected to be paid during the next succeeding month and supporting documentation for those expenses and expenditures, as well as a reconciliation of such amounts to the amounts provided pursuant to Section 10(c) hereof.
 
 
 

 
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(f)            On Monday of each week, a report showing Borrower’s consolidated projected cash flow for the immediately succeeding thirteen (13)-week period.
 
(g)            As received, the Credit Parties shall promptly provide to Lender all information related in any way to their ability to raise additional capital, including sale and capital raise materials and other expressions of interest, and other information reasonably requested by Lender.
 
(h)            As received, the Credit Parties shall promptly provide to Lender copies of any agreement or engagement letter with an oil and gas divestiture firm, all written purchase bids, purchase agreements, and farm-in proposals related in any way to the prospective sale of any of the Rockies Properties and the Texas Properties and shall promptly inform Lender of any unwritten offers or bids.
 
(i)            As received, the Credit Parties shall promptly provide to Lender copies of any term sheets or financing proposals received that would result in the repayment of all or any portion of the outstanding amount owed on the Revolving Note.
 
(j)            Within ten (10) days of the end of each month, a notice to Lender indicating whether any Credit Party obtained production from any of its Properties and an identification of such Properties.
 
(k)            Notwithstanding the provisions of Section 9(h) of the Loan Agreement, within fifty (50) days of the end of each month for which production is obtained from any of its Properties, a production report, on a lease-by-lease or unit basis, showing the gross proceeds from the sale of oil, gas, and associated hydrocarbons produced from the Properties, the quantity of oil, gas, and associated hydrocarbons sold, the severance, gross production, occupation, or gathering taxes deducted from or paid out of the proceeds, settlements of any Hedge Transactions, the cash lease operating expenses, including non-recurring cash operating expenses, intangible drilling costs, and capital expenditures, general and administrative expenses, the number of wells operated, drilled, or abandoned, the name, address, telephone number, and contact of the first purchaser of production for all of the Properties, and such other information as Lender may reasonably request.
 
(l)            such other information as Lender may from time to time reasonably request.
 
16.             Interest .   d)  The parties hereto hereby agree that during the Forbearance Period (including the forbearance period under each of the First Forbearance Agreement, the Second Forbearance Agreement, the Third Forbearance Agreement and the Fourth Forbearance Agreement), the entire unpaid principal balance owed on the Revolving Note shall accrue interest at the sum of the Stated Rate, plus the Applicable Margin as set forth in the Revolving Note; provided, however, that Lender reserves the right to impose, at any time after the termination of the Forbearance Period, the Default Rate, in the event that an Event of Default remains uncured and outstanding.
 
(b)            Lender has suspended the interest payments due during the Forbearance Period.  Interest shall continue to accrue during the Forbearance Period and any such suspended interest shall be due and payable on the earlier to occur of (i) the Deferral Date and (ii) receipt of the Sale Proceeds.  Subject to a Default, accrued, unpaid interest on the Revolving Note shall be due and payable monthly, commencing on December 31, 2011, and continuing on the first (1 st ) day of each month thereafter.  Interest payments shall be made from the funds available from the Lockbox Account.
 
 
 

 
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17.             Forbearance Fee .   e)  In consideration of the forbearance by Lender under this Agreement and the waiver of the Existing Defaults and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower agrees to pay to Lender a Forbearance/Waiver Fee calculated as follows, and due on or before the earlier of the following (the “ Deferral Date ”):  (i) the expiration or termination of the Forbearance Period, (ii) the repayment in full of the Revolving Note or (iii) the refinance in full of the Revolving Note by another person or entity:
 
(i)            Forbearance/Waiver Fee under the First Forbearance Agreement in the amount of $553,666.67; plus
 
(ii)            Forbearance/Waiver Fee under the Second Forbearance Agreement in the amount of $723,666.33; plus
 
(iii)            Forbearance/Waiver Fee under the Third Forbearance Agreement in the amount of $1,189,259.24; plus
 
(iv)            Forbearance/Waiver Fee under the Fourth Forbearance Agreement in the amount of $800,839.52; plus
 
(v)            A Forbearance/Waiver Fee shall be due for each month from January 31, 2010 through the end of the Forbearance Period, inclusive, calculated as one percent (1.0%) of the average daily outstanding principal balance on the Revolving Note for the month as of the last day of each of those months (or as of the Deferral Date if such occurs during any month); provided, however, that Lender reserves the right to impose, at any time after the termination of the Forbearance Period, the Default Rate, in the event that an Event of Default remains uncured and outstanding.
 
The Forbearance/Waiver Fees and all other fees are non-refundable and earned by Lender upon execution of this Agreement.
 
18.             Other Fees .  Borrower acknowledges the following additional fee owed to Lender that is due on or before the Deferral Date: a hedge termination fee in the amount of $56,085.00, due pursuant to the Second Forbearance Agreement in connection with the termination of Hedge Transactions.
 
19.             Conditions Precedent . The obligation of Lender to forebear from exercising any remedies with respect to the Existing Defaults, pursuant to the terms and conditions of this Agreement, is subject to Lender’s satisfaction, in Lender’s sole discretion, of the following conditions precedent:
 
(a)            All representations and warranties set forth (i) in this Agreement and (ii) in the Transaction Documents, except for the Existing Defaults and Section 6(i) of the Loan Agreement, which is no longer applicable, in each case, must be true and correct as of the date of this Agreement.
 
(b)            the negotiation, execution, and delivery of Transaction Documents in Proper Form, including, but not limited to, the following:
 
(i)            this Agreement;
 
(ii)            Third Amendment to Revolving Note;
 
 
 

 
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(iii)            Forbearance Period Advance Note;
 
(iv)            Personal guaranty by Stanton E. Ross of the Forbearance Period Advances, pursuant to documentation in Proper Form and not to exceed $500,000.00;
 
(v)            Resolutions of the board of directors of each Credit Party; and
 
(vi)            Documents executed by the Credit Parties, Holder (as defined in that certain Subordinate Secured Promissory Note, dated March 23, 2009, by Borrower in favor of the Holder (the “ Subordinate Note ”)), or its permitted assigns, and Lender, in each case, with respect to the subordination of repayment of the Subordinate Note to the Revolving Note and Forbearance Period Advance Note, as amended.
 
(vii)            the negotiation, execution and delivery of warrant(s) (the “ Warrants ”) of Borrower to be issued to Lender or its designee, which warrant(s) shall initially be exercisable into 4.99% of the issued and outstanding Common Stock of Borrower and a registration rights agreement with respect thereto, in each case pursuant to documentation in Proper Form.
 
(viii)            other than as contemplated in this Agreement, there shall not have occurred a material adverse change in the business, assets, liabilities (actual and contingent), operations, financial condition or prospects of the Credit Parties or in the facts and information regarding such entities as represented to date.
 
(c)            Lender’s receipt and satisfactory review of a 180-day operating/cash flow forecast for the Credit Parties and the documents required pursuant to Section 10(c) hereof.
 
(d)            Lender’s receipt and satisfactory review of a proposed budget from Borrower of recurring operating expenses, non-recurring operating expenses, general and administrative expenses, and any capital expenditures for the oil and gas properties expected to be paid during the Forbearance Period and supporting documentation for those expenses and expenditures.
 
(e)           Lender’s receipt of satisfactory written evidence of the location and account number of each of Credit Party’s operating accounts.
 
20.             Default and Remedies .   f)  As used in this Agreement, “ Default ” means i)  the failure of any Credit Party to observe or perform any term, covenant, condition, agreement or other obligation under this Agreement, ii)  the failure of any representation or warranty made in this Agreement to be true and correct, or iii)  the occurrence of an Event of Default under the Loan Agreement or any other Transaction Document, other than the Existing Defaults.
 
(b)            Each Credit Party acknowledges and agrees that, upon a Default, Lender may terminate the Forbearance Period and the maturity of the Revolving Note and the payment of all other interest, fees and obligations shall automatically be accelerated as of the date of the termination of the Forbearance Period, without presentment, demand for payment, notice of intent to accelerate, other notice of acceleration or dishonor, protest, or notice of protest of any kind, all of which are expressly waived by Borrower.  Thereafter Lender may exercise any and all rights and remedies available to it, including, without limitation, those under the Loan Agreement, the Revolving Note, the Security Documents, the Guaranties, the Transaction Documents, this Agreement, and any other instrument or agreement relating hereto, or any one or more of them.  All rights and remedies of Lender shall be cumulative and concurrent and, after a Default, may be pursued separately, successively, or together as often as occasion therefore shall arise, at the sole discretion of Lender.
 
 
 

 
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21.             Other Representations and Warranties .  Each Credit Party hereby represents and warrants to Lender as follows:
 
(a)            The execution, delivery, and performance of this Agreement by such Credit Party has been duly authorized by such Credit Party’s boards of directors and this Agreement constitutes such Credit Party’s legal, valid, and binding obligations, enforceable in accordance with their respective terms; and
 
(b)            Except as set forth on Schedule A hereto, there are no actions, suits, or proceedings pending or threatened against or affecting such Credit Party, or the Properties, before any court or governmental department, commission, or board, which, if determined adversely, would have a material adverse effect on any of the Properties or the operations or financial condition of any Credit Party, or the Credit Parties, taken as a whole.
 
(c)            Set forth on Schedule B hereto are all liens, statutory, contractual or otherwise, on any assets of any Credit Party, as well as the payment or other obligations underlying such liens.
 
(d)            Borrower has fully performed all of its obligations under the Farmout and Acquisition Agreement (the “ Farmout Agreement ”) dated December 26, 2007, between Infinity Texas, as farmor, and Forest, as farmee; and the Farmout Agreement has terminated under its terms.
 
22.             Remedies .   Section 11(a) of the Loan Agreement is hereby amended by adding the following text at the end of the first sentence thereof:  “; provided, however, that upon the occurrence and during the continuation of any Event of Default specified in Subsection 10(a)(10) or Subsection 10(a)(11), the entire unpaid principal balances of the Notes, together with all accrued but unpaid interest thereon, and all other indebtedness then owing by Borrower to Lender shall automatically become immediately due and payable without such further presentation, demand, protest or notice.”
 
23.             Confirmations .   g)  The Credit Parties agree that, after giving effect to this Agreement but subject to any Default, the following amounts are due and outstanding with respect to the Revolving Note as of January 31, 2011:
 
Principal
  $ 10,010,493.64  
Interest
  $ 1,069,037.30  
      0  
Total:
  $ 11,079,530.94  

Each Credit Party agrees that there is no set off or defense to payment of the Revolving Note.
 
 
 

 
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(b)             The Credit Parties agree that s ubsequent to January 31, 2010, additional sums were advanced and are or have become due and payable.  As of January 31, 2011, and, after giving effect to this Agreement but subject to any Default, the following amounts are due and payable as set forth below:
 
Overdraft
  $ 163,912.45  
Letter of Credit Fees
  $ 19,431.31  
      0  
Total:
  $ 183,343.76 2

(c)            On June 30, 2010, pursuant to a Demand Promissory Note, Lender advanced to Borrower a principal amount of $100,000.00.  The Credit Parties agree that, as of January 31, 2011, interest in the amount of $2,986.11 has accrued on the principal amount thereof.
 
(d)            On October 8, 2010, pursuant to a Demand Promissory Note, Lender advanced to Borrower a principal amount of $10,000.00.  The Credit Parties agree that, as of January 31, 2011, interest in the amount of $159.72 has accrued on the principal amount thereof.
 
(e)            On December 6, 2010, pursuant to a Demand Promissory Note, Lender advanced to Borrower a principal amount of $122,462.44.  The Credit Parties agree that, as of January 31, 2011, interest in the amount of $952.49 has accrued on the principal amount thereof.
 
(f)             As security for the Notes, the Credit Parties previously executed the Security Documents, including the Security Agreement. Each Credit Party hereby (i) ratifies and confirms the Security Documents and the Security Agreement to which it is a party, (ii) acknowledges that the Security Documents and the Security Agreement to which it is a party are valid, subsisting, and binding upon such Credit Party, and (iii) agrees that the Security Documents to which it is a party secure payment of the Notes (including the Revolving Note) and the Loans (including the Revolving Loan) and all other obligations of the Credit Parties under the Transaction Documents.
 
(g)             In connection with the Revolving Note, Guarantors executed the Guaranties. Each Guarantor (i) ratifies and confirms the Guaranty to which it is a party, (ii) acknowledges that the Guaranty to which it is a party is valid, subsisting, and binding upon such Guarantor, and (iii) agrees that the Guaranty to which it is a party guarantees payment of the Notes (including the Revolving Note) and the Loans (including the Revolving Loan) and all other obligations of the Credit Parties under the Transaction Documents . Each Guarantor agrees that there is no defense to payment under the Guaranties.
 
(h)             Borrower and Guarantors hereby represent to Lender that all representations and warranties set forth in Section 6 of the Loan Agreement are true and correct as of the date of execution of this Agreement, except for Section 7(d) hereof, which is qualified by the lawsuits set forth in Schedule A attached, and Section 7(i) hereof, which is no longer applicable; and that, except for the Existing Defaults, Borrower and Guarantors are in compliance as of the date of execution of this Agreement with all covenants set forth in Section 7 of the Loan Agreement, all financial covenants set forth in Section 8 of the Loan Agreement, and all reporting requirements set forth in Section 9 of the Loan Agreement.
 
24.             Validity and Defaults .  The Loan Agreement remains in full force and effect. Each Credit Party acknowledges that (a) the Loan Agreement, the Revolving Note, the Security Documents, the Guaranties, and the other Transaction Documents to which it is a party are valid, subsisting, and binding upon such Credit Party, (b) no uncured breaches or defaults exist under the Loan Agreement, except for the Existing Defaults, and (c) except as expressly contemplated by this Agreement, no other event has occurred or circumstance exists which, with the passing of time or giving of notice, will constitute a default or breach under the Loan Agreement. Borrower and Guarantors ratify the Loan Agreement and each other Transaction Document to which it is a party.
 
 
 

 
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25.             Fees and Expenses .  The Credit Parties agree (a) to pay or reimburse Lender for all reasonable fees, costs and expenses incurred in connection with the evaluation, preparation, negotiation, and execution of this Agreement and any Transaction Document and any amendment, waiver, consent or other modification of the provisions hereof or thereof (whether or not the transactions contemplated hereby are consummated), including all reasonable attorneys’ fees and expenses and (b) to pay or reimburse Lender for all costs and expenses incurred in connection with the enforcement, attempted enforcement or preservation of any rights or remedies under this Agreement or any Transaction Document (including such costs and expenses incurred during any “workout” or restructuring in respect hereof or thereof and during any legal proceeding, including any proceeding under the Bankruptcy Code or any other law relating to bankruptcy, insolvency or reorganization or relief of debtors, including all financial advisors’ and attorneys’ fees and expenses).
 
26.             Release .  For valuable consideration, the receipt and sufficiency of which are hereby acknowledged, including this Agreement, each Credit Party hereby RELEASES AND FOREVER DISCHARGES Lender and its affiliates and its and their respective officers, directors, employees, agents, representatives, attorneys, subsidiaries, and affiliates (collectively “ Released Parties ”), from any and all claims, counterclaims, demands, damages, debts, suits, obligations, liabilities, offsets, rights, actions, and causes of action of any nature whatsoever (collectively “ Claims ”‘), caused by, because of, as a result of, arising from, or related in any way to the Loan Agreement, the Revolving Note, the Security Documents, the Transaction Documents, this Agreement, any other transaction between Lender and any Credit Party, or any act, omission, communication, transaction, occurrence, representation, promise, breach, violation of any statute or law, or any other matter whatsoever or thing done, omitted, or suffered by any of the Released Parties in connection with the Loan Agreement, the Revolving Note, the Security Documents, the Transaction Documents, this Agreement, any other transaction between Lender and any Credit Party, whether those Claims are now or hereafter accrued or possessed, whether known or unknown, direct or indirect, liquidated or unliquidated, absolute or contingent, foreseen or unforeseen, at law or in equity, and now or hereafter asserted, including, without limitation, claims for contribution or indemnity, claims of control, duress, mistake, tortuous interference, usury, negligence, or violations of the Texas Consumer Protection and Deceptive Trade Practices Act; provided, however, that any acts of willful misconduct or fraud by the Released Parties shall not be released or discharged.
 
27.             Advice from Counsel .  Each Credit Party understands that this Agreement is legally binding and represents to Lender that each has obtained independent legal counsel from the attorney of their choice regarding the meaning and legal significance of this Agreement. The decision by each signatory to enter into this Agreement is a fully-informed decision, and each such signatory is aware of all legal and other ramifications of such decision.  The parties agree that no provision of this Agreement shall be interpreted or construed against a party because that party prepared the provision, it being agreed that all parties have participated in the drafting of this Agreement and have had legal counsel of their choice.
 
28.             Governing Law and Venue .  THIS AGREEMENT, THE LOAN AGREEMENT, THE REVOLVING NOTE, AND ALL TRANSACTION DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND SHALL BE PERFORMED IN HARRIS COUNTY, TEXAS. EACH CREDIT PARTY AND LENDER IRREVOCABLY AGREE THAT VENUE FOR ANY ACTION OR CLAIM RELATED TO THIS AGREEMENT, THE LOAN AGREEMENT, THE REVOLVING NOTE, OR ANY TRANSACTION DOCUMENT SHALL BE IN HARRIS COUNTY, TEXAS.
 
 
 

 
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29.             Waiver of Jury Trial .  NOTWITHSTANDING ANYTHING IN ANY TRANSACTIOON DOCUMENT TO THE CONTRARY, EACH OF THE PARTIES HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING HEREUNDER OR UNDER THIS AGREEMENT OR ANY TRANSACTION DOCUMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY TRANSACTION DOCUMENT OR THE LENDER/BORROWER RELATIONSHIP THAT HAS BEEN ESTABLISHED.  THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.  EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO CONTINUE THEIR BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS.  EACH PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.  THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 29 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS HERETO OR ANY TRANSACTION DOCUMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE EXTENSIONS OF CREDIT MADE HEREUNDER AND THEREUNDER.  IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
 
30.             Savings Clause .  Regardless of any provision contained in the Loan Agreement, the Revolving Note, the Security Documents, the other Transaction Documents, or this Agreement, it is the express intent of the parties that at no time shall any Credit Party pay interest in excess of the maximum lawful rate (or any other interest amount which might in any way be deemed usurious), and Lender will never be considered to have contracted for or to be entitled to charge, receive, collect, or apply as interest on the Revolving Note, any amount in excess of the maximum lawful rate (or any other interest amount which might in any way be deemed usurious), and, in the event that Lender ever receives, collects, or applies as interest any such excess, the amount which would be excessive interest will be applied to the reduction of the principal balance of the Revolving Note, and, if the principal balance of the Revolving Note is paid in full, any remaining excess shall forthwith be paid to Borrower. In determining whether the interest paid or payable exceeds the maximum lawful rate (or any other interest amount which might in any way be deemed usurious), Borrower and Lender shall, to the maximum extent permitted under applicable law, spread the total amount of interest throughout the entire contemplated term of the Revolving Note so that the interest rate is uniform throughout the term.
 
 
 

 
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31.             Fax and PDF Provision .  This Agreement and the related Transaction Documents may be executed in counterparts, and Lender is authorized to attach the signature pages from the counterparts to copies for Lender and Borrower.  At Lender’s option, this Agreement and the related Transaction Documents may also be executed by the Credit Parties in remote locations with signature pages faxed or electronically submitted in .pdf format to Lender.  Each Credit Party agrees that the faxed signatures or signatures electronically submitted in .pdf format are binding upon such Credit Party, and each Credit Party further agrees to promptly deliver such Credit Party’s original signatures for this Agreement and the related Transaction Documents by overnight mail or expedited delivery.  It will be an Event of Default if any Credit Party fails to promptly deliver all required original signatures.
 
32.             Captions .  Captions are for convenience only and should not be used in interpreting this Agreement.
 
33.             Final Agreement .   h) In connection with the Loans, the Credit Parties and Lender have executed and delivered this Agreement, the Loan Agreement, and the Transaction Documents to which it is a party (collectively the “ Written Loan Agreement ”).
 
(b)            It is the intention of the Credit Parties and Lender that this paragraph be incorporated by reference into each of the Transaction Documents. The Credit Parties and Lender each warrant and represent that their entire agreement with respect to the Loans is contained within the Written Loan Agreement, and that no agreements or promises have been made by, or exist by or among, the Credit Parties and Lender that are not reflected in the Written Loan Agreement.
 
(c)            THE WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
 
34.             Severability .  In case any provision in or obligation hereunder or any other Loan Document shall be invalid, illegal or unenforceable in any jurisdiction, (a) the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic and legal effect of which comes as close as possible to the intent of the illegal, invalid or unenforceable provisions.
 
35.             Reaffirmation of Guaranty and Liens.
 
(a)            Infinity Texas and Infinity Wyoming each (i) has consented and agreed to the incurrence by Borrower of the Forbearance Period Advances, (ii) has reviewed this Agreement, including the terms of the Forbearance Period Advances, (iii) waives any defense arising by reason of any disability, lack of organizational authority or power, or other defense of Borrower or any other guarantor of the obligations hereunder or under any Transaction Document, and (iv) agrees that the guaranty by such Person, pursuant to the terms of that certain Commercial Guaranty, effective January 9, 2007, by Infinity Texas for the benefit of Lender and that certain Commercial Guaranty, effective January 9, 2007, by Infinity Wyoming for the benefit of Lender, as applicable, will each continue in full force and effect to guaranty the obligations hereunder, including the Forbearance Period Advances, and under the Loan Agreement and the other Transaction Documents (collectively, the “ Obligations ”), as the same are hereby and may in the future be amended, supplemented, or otherwise modified.
 
 
 

 
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Infinity Oil and Gas of Texas, Inc.
Infinity Oil & Gas of Wyoming, Inc.
Page 21
 
(b)            The Credit Parties (i) are party to certain Security Documents securing and supporting the Obligations, (ii) has reviewed this Agreement, including the terms of the Forbearance Period Advances, (iii) waive any defense arising by reason of any disability, lack of organizational authority or power, or other defense of such Credit Party, and agrees that according to their terms the Security Documents to which the applicable Credit Party is a party will continue in full force and effect to secure the Obligations under the Transaction Documents, as the same are hereby and may in the future be amended, supplemented, or otherwise modified, and (iv) acknowledge, represent, and warrant that the liens and security interests created by the Security Documents are valid and subsisting and create a first priority perfected security interest subject to liens permitted under the Loan Agreement.
 
36.             Expenses .  Whether or not the transactions contemplated hereby shall be consummated, Borrower agrees to pay promptly (a) all Lender’s actual and reasonable costs and expenses of preparation of the Transaction Documents and any consents, amendments, waivers or other modifications thereto; (b) all the reasonable fees, expenses and disbursements of counsel to Lender in connection with the negotiation, preparation, execution and administration of the Transaction Documents and any consents, amendments, waivers or other modifications thereto and any other documents or matters requested by Borrower; (c) all Lender’s actual costs and reasonable fees, expenses for, and disbursements of any of Lender’s, auditors, accountants, consultants or appraisers whether internal or external, and all reasonable attorneys’ fees (including allocated costs of internal counsel and expenses and disbursements of outside counsel) incurred by Lender; (d) all other actual and reasonable costs and expenses incurred by Lender in connection with the negotiation, preparation and execution of the Transaction Documents and any consents, amendments, waivers or other modifications thereto and the transactions contemplated thereby; and (e) after the occurrence of a Default (as defined in Section 20 hereof), all costs and expenses, including attorneys’ fees (including allocated costs of internal counsel) and costs of settlement, incurred by Lender in enforcing any Obligations of or in collecting any payments due from any Credit Party hereunder or under the other Transaction Documents by reason of such Default (including in connection with the enforcement of any guaranty of the such Obligations) or in connection with any refinancing or restructuring of the credit arrangements provided hereunder in the nature of a “work out” or pursuant to any insolvency or bankruptcy cases or proceedings.
 
37.             Indemnity .
 
(a)            Whether or not the transactions contemplated hereby shall be consummated, each Credit Party agrees to defend (subject to Indemnitees’ selection of counsel), indemnify, pay and hold harmless, Lender, its Affiliates and its and their respective officers, partners, directors, trustees, employees and agents (each, an “ Indemnitee ”), from and against any and all Indemnified Liabilities (as hereinafter defined), IN ALL CASES, WHETHER OR NOT CAUSED BY OR ARISING, IN WHOLE OR IN PART, OUT OF THE COMPARATIVE, CONTRIBUTORY, OR SOLE NEGLIGENCE OF SUCH INDEMNITEE; provided, no Credit Party shall have any obligation to any Indemnitee hereunder with respect to any Indemnified Liabilities to the extent such Indemnified Liabilities arise from the gross negligence or willful misconduct, as determined by a court of competent jurisdiction in a final, non-appealable order of that Indemnitee.  To the extent that the undertakings to defend, indemnify, pay and hold harmless set forth in this Section 37 may be unenforceable in whole or in part because they are violative of any law or public policy, the applicable Credit Party shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Indemnitees or any of them. “ Indemnified Liabilities ” means, collectively, any and all liabilities, obligations, losses, damages (including natural resource damages), penalties, claims (including environmental claims), costs (including the costs of any investigation, study, sampling, testing, abatement, cleanup, removal, remediation or other response action necessary to remove, remediate, clean up or abate any hazardous materials activity), expenses and disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened by any Person, whether or not any such Indemnitee shall be designated as a party or a potential party thereto, and any fees or expenses incurred by Indemnitees in enforcing this indemnity), whether direct, indirect or consequential and whether based on any federal, state or foreign laws, statutes, rules or regulations (including securities and commercial laws, statutes, rules or regulations and environmental laws), on common law or equitable cause or on contract or otherwise, that may be imposed on, incurred by, or asserted against any such Indemnitee, in any manner relating to or arising out of (i) this Agreement or the other Transaction Documents or the transactions contemplated hereby or thereby (including the Lender’s agreement to make Revolving Loans or Forbearance Period Advances or the use or intended use of the proceeds thereof, or any enforcement of any of the Transaction Documents (including the enforcement of any guaranty of the Obligations)) or (ii) any environmental claim or any hazardous materials activity relating to or arising from, directly or indirectly, any past or present activity, operation, land ownership, or practice of the Borrower or any of its Subsidiaries.
 
 
 

 
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Infinity Oil and Gas of Texas, Inc.
Infinity Oil & Gas of Wyoming, Inc.
Page 22
 
(b)            To the extent permitted by applicable law, no Credit Party shall assert, and each Credit Party hereby waives, any claim against Lender and its respective Affiliates, directors, employees, attorneys or agents, on any theory of liability, for special, indirect, consequential or punitive damages  (as opposed to direct or actual damages) (whether or not the claim therefor is based on contract, tort or duty imposed by any applicable legal requirement) arising out of, in connection with, as a result of, or in any way related to, this Agreement or any Transaction Document or any agreement or instrument contemplated hereby or thereby or referred to herein or therein, the transactions contemplated hereby or thereby, any Revolving Loan or Forbearance Period Advance or the use of the proceeds thereof or any act or omission or event occurring in connection therewith, and Borrower hereby waives, releases and agrees not to sue upon any such claim or any such damages, whether or not accrued and whether or not known or suspected to exist in its favor.
 
38.             Set Off .  In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, Lender and its Affiliates are each hereby authorized by each Credit Party at any time or from time to time subject to the consent of Lender (such consent not to be unreasonably withheld or delayed), without notice to any Credit Party or to any other Person (other than Lender), any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts (in whatever currency)) and any other indebtedness at any time held or owing by Lender to or for the credit or the account of any Credit Party (in whatever currency) against and on account of the obligations and liabilities of any Credit Party to Lender hereunder and under the other Transaction Documents, including all claims of any nature or description arising out of or connected hereto or with any other Transaction Document, irrespective of whether or not (a) Lender shall have made any demand hereunder, (b) the principal of or the interest on the Loans or any other amounts due hereunder shall have become due and payable pursuant to Section 2 and although such obligations and liabilities, or any of them, may be contingent or unmatured or (c) such obligation or liability is owed to a branch or office of Lender different from the branch or office holding such deposit or obligation or such indebtedness.
 
 
 

 
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Infinity Oil and Gas of Texas, Inc.
Infinity Oil & Gas of Wyoming, Inc.
Page 23
 
39.             Patriot Act .  Lender hereby notifies Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), it is required to obtain, verify and record information that identifies Borrower, which information includes the name and address of Borrower and other information that will allow Lender to identify Borrower in accordance with the Act.
 
40.             No Fiduciary Relationship .  No fiduciary relationship has been or will be created between Lender and any Credit Party in respect of any of the transactions contemplated by the Transaction Documents, irrespective of whether Lender and/or its affiliates have advised or are advising any Credit Party on other matters, and no provision therein shall be deemed to impose on Lender any fiduciary or implied duties to any Credit Party.  Furthermore, Lender has not taken any actions to control the day-to-day management or operations of any Credit Party and each Credit Party should refrain from advising any person or entity to the contrary or otherwise referring any such person or entity to Lender for payment of any outstanding amounts owed or to be owed.  Neither Lender nor its affiliates shall have any liability to any Credit Party in respect of any fiduciary duty or to any person or entity asserting a fiduciary duty claim on behalf of or in right of any Credit Party, including its equityholders, employees and/or creditors.
 
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If the foregoing correctly sets forth your understanding of our agreement, please sign and return one copy of this letter. Notwithstanding any provision to the contrary, this Agreement shall only be effective if each Credit Party returns an executed copy hereof to Lender by 5:00 p.m., Houston, Texas time, on February 11, 2011.
 
Yours very truly,
 

 
Amegy Bank, N.A.
 

 
By :                                                                        
Hank Holmes
Executive Vice President
 

 

 
Accepted and agreed to
this 11th day of February, 2011:

BORROWER:

Infinity Energy Resources, Inc.


By :                                                                   
Stanton E. Ross, President
and Chief Executive Officer


GUARANTORS:

Infinity Oil and Gas of Texas, Inc.


By :                                                                   
Stanton E. Ross, President

Infinity Oil & Gas of Wyoming, Inc.


By :                                                                   
Stanton E. Ross, President

Exhibits and Schedules:

Exhibit A – Funding Notice

Schedule A – Lawsuits
Schedule B – Liens
 

 
 
 

 
Exhibit 10.17
 
Execution Version
 
OMNIBUS AMENDMENT AND AGREEMENT
TO THE SUBORDINATION DOCUMENTS IDENTIFIED HEREIN
 
T his Omnibu s Amend m e nt and Ag r eeme nt (this " A greement " ) i s mad e effective a s of Fe bruary 16 ,2 011 , b y a n d a mong Amegy Bank , N . A. (" Se nior Lend er " ), Of f- S hore Finance , LL C, a Nevada lim i ted liabili ty com pan y (" S ub o rdinate Lender " ) , Infinity En e r gy Re s o ur ces, In c., a Delawar e corporatio n ( " Borr ower " ) , Infini ty Oi l and Gas of Texa s , I nc. , a Dela ware corporation (" Infini ty T exa s " ) , an d I nfi nit y O i l & Ga s of Wyom in g, In c. , a W yo m i n g corporat i o n ( " Infini ty Wyom ing " a n d , toget h e r w it h B orro wer and In finit y Texas , t h e " Loan Partie s " ) . Ca pi ta l ize d t e rm s u s ed but n o t defined he r ei n s h all ha v e th e m ea n ing s a s c ribed to s u c h term s i n the Loa n Agree men t referen ced b e l ow.
 
Reference i s hereb y made to (i) that ce rtain Loa n Agree ment dat ed Ja nu ary 9 , 2007 (as amend e d , r es tated , modifi ed, s upplemented . e x tended , r e plac ed o r renewed from lim e to time , and including that certa in F o rbearan ce Agree m e nt dated A u gust 3 1 , 2007, Second Forbearanc e Ag r eement dated March 26, 2008 , Third Forbea ran ce Agree m ent dated Octobe r 16 ,2008, Fourth Forbeara n ce Agreem e nt dated Decembe r 4 , 2009 and F i ft h Forbearan ce Agreeme nt dated Feb ruary 16 , 20 1 1, the " 2 00 7 Loan Ag r ee m ent " ) , by a n d among Sen i or Len der a n d t he Loan Parties, ( ii ) t hat certa i n Secu ritie s Purcha s e Agree m e nt , dated as o f Marc h 23 . 2009 ( the " Sec u r i ti es Pu rchase Agreement " ) , by and betwee n B o rr owe r and Su b o r dina t e Le n de r , (ii) t ha t c ertain S u bor din ate Sec u red P ro m issory Not e, d a t e d March 23 , 2 00 9 ( th e " S u bor din ate Promi ss ory No t e ") , made b y Borrower in favor of Subordinate Le n der , (i i i) t ha t certai n S ub or dinate Deed o f Tru s t a n d Sec urity Agreement (O il and Gas) filed i n Comanche and E ra t h Cou nti e s, Texas dated Ma r c h 23 , 2009 (t he " Subordinat e Deed of Trus t- TX " ), b y Infinit y Te xas in fa vo r of S ub o rdinate Lend er , ( i v) that certa in Subordinate Deed of T ru s t and Security Agree m e nt (Oi l and Gas) fil ed in Routt Co un ty , Co l o rado and Sweetwater Co unty , Wyoming d a ted Marc h 23, 2009 (th e " S ub or dinate Deed of Tru s t--CO / WY "), b y Infini ty Wyoming in favor of S u bordinate Lender, (v) that ce rtain Co mmer c i al G u aranty dated March 23 , 2 00 9 ( t he " Subo rdin ate Gua r anty " ) made b y t he Loan Part ies f o r t h e benefit of S u bo rdinate Le n d er , a n d (vi) that ce rtain Subordi n at i on and I n t erc r ed it or Agreeme nt da ted a s o f Ma r c h 23, 200 9 (t h e " S u bordi n at i o n Ag r eemen t " a n d , toget h e r with the Sec u ritie s P ur c hase Agree m e n t , S ub o rdinat e Pr om i ssory Note , S ubord ina te D ee d of Tr u s t-TX , Su b o rdinate Deed of T ru s t -CO-WY and S u bord i n ate Guaranty , th e " S u bordina ti o n D ocu ment s " ) by an d among Senio r Lender, Subord i nat e Lender and Bo r rower.
 
Sec tion 1.   No twithstanding a n ythin g in any S ub o rdination D oc um e nt t o th e contrary , eac h o f th e parties her eto agrees as f o ll ows:
 
(a) the Subordi n ate Lo an ( a s defined i n t h e S u bordina ti on Ag r eeme n t) i s s u bor d i na ted t o t he i nd efeas i ble r epay m e nt in fu ll o f th e Re vo l v in g Loa n s, in cl u d i ng t h e F orbeara nc e Per i o d A d v an ces (as eac h is defined i n t h e 2007 Loa n Agreemen t ) and a ll o ther p aymen t o b l i ga ti on s of a n y Loa n P arty s et fo rt h in the F i ft h Fo rb eara n c e Agre emen t o r an y o t he r T r ansactio n D ocu ment (co ll ec ti ve l y, t he " Se ni o r Ob l igatio n s ").
 
( b) Sen i o r Deb t (as defined in the S u bo rdinat e Promissory Note) s h a ll be deemed to includ e th e Se ni o r Ob li ga ti o n s.
 
(c) u po n a n d a ft er the executi o n o f thi s Ag reement b y ea c h of the pa rt ies heret o , each r eference in an y Subo r dinat i on D oc ument t o any Subordina ti on D ocu m e nt sha ll m ean an d be a refe r ence t o s uc h S u bo rd i n at i on Docume n t as modified he r eby .
 
 
 

 
( d ) except a s mo difi e d herein , t h e 2007 Loa n Ag re ement, each ot h er the Tra nsac t i o n Documen t a n d each S u bordination D ocume nt t o which it is a party sh all r e m a in in fu ll f o rce and effect a s or i g inall y executed an d amended o n o r prior to t h e dale h ereo f , and n ot hin g h erei n s h a ll act as a waiver of any of Se nior Lender 's rig h ts u nder the 2007 Loan Agreemen t , any ot her Tra n sac tion D ocu ment or any Su b o rdination Document.
 
(e) at any tim e and from time to tim e up o n the request of Senior Le nd e r , each Loan Party and Su b o rdinate Lender will , at their ow n expen se, pr ompt l y exec ute, a c kn ow l edge an d deliver s u c h further documents and do s u c h o th er acts and things as Senior Len d er may reasonably request in orde r to effect fu ll y the purposes of foregoin g. In fu rt he ran ce and n ot in l i m ita tion of t he foregoing , each Loa n Party a n d Subordi n a t e Lend er sha l l take such actions as Se ni o r Lender may rea sonab l y reque st f r om time to ti m e t o e n s ur e (i) tha t repayme n t of t h e i ndebted ness and o bli ga ti ons owing b y each Loa n Party t o Su b o rd i n ate Len d e r u n d er the S u bordina t io n Documents i s s u bo rdinat ed to repayment of t h e Se ni or Ob li g at ions and
(i i ) th a t the lien s, sec uri ty i nterests and guarantee s made i n favor o f Subordinate Le n der a re s ubordinat ed t o the lien s, security intere s t s and g uarante es m a d e in favor of Se ni o r Lend er.

Section 2.   Eac h party hereto und e r sta nd s that this Agreement i s l eg all y binding and represents to Se ni or Lender that each has o btain ed indep e ndent legal co un s el from the a ttorne y of their c h o i ce rega rdin g th e mean in g and legal sign ifi cance of this letter agreement . T h e decision by each s i g nat ory to enter into thi s Agree ment i s a f u ll y- in formed decis i on, an d each such s i g n a t ory is aware o f a ll l ega l and o t he r ramification s of s u c h d ec i s i o n . The parti es agree t h a t n o pr ov i sio n of th is Agre em e nt s hall b e i n te rpret ed or co n st ru e d aga in st a party beca u se that party p r epa red t h e pr ovis i on, it be in g agreed t ha t a ll parties have pa rti c ip ated in the draftin g o f th i s Agreement and have had l ega l counsel o f t h eir choice .
 
Section 3 .   THE SU BORDI NA TI ON DOCUMENTS, AS AMENDED HEREBY, SHALL BE GOVERNED BY AND CONST RUED IN A CCO RDANCE WITH THE LAWS OF THE STAT E OF TEXAS AND S HA LL BE PERFORM ED I N HARRI S COUN TY , TEXA S. EACH PARTY HERET O AGREES THAT VENUE FOR ANY AC TI ON OR CLA I M RELAT E D TO ANY SUBO RDI NAT I ON DOCUMEN T SHALL BE IN HARRIS COUNTY, TEXAS .
 
Sec tion 4.   Thi s Ag r ee ment may b e exec uted i n coun t erparts , a n d Se ni o r Lender i s aut h or i ze d t o attach t h e s i g n a t ure pa ges from th e coun t erpa rt s to co p ies fo r Senior Lender . Subordinate Le n der and eac h Loan Party. At Se ni or Lender 's option, this Ag re ement may a l so be executed b y the part ie s he reto i n r emote locations wi th sig n atu re p ages faxed or electronically s ubmitted in .pdf f ormat to Se ni o r L ender . Each p arty h ere t o agrees that the faxed s i g natures o r s i g n a tur es e l ec tronicall y s ubmitted in . pdf format are bindin g upon such party , and eac h party hereto further agree s to pr o mptly deliver t o Se ni o r Lender s uch party' s o riginal signatures f o r this Agreement b y ove rni g ht mail or expedited delivery.
 
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E xec uted a s o f the date fir s t w ritten above.
Amegy Bank, N.A.
 
       
 
By:
/s/:Hank Holmes  
    Hank Ho lm es
Exec uti ve V i ce President
 
       
       
 
 
Accep t ed and agreed to
 
thi s l 6'h day of February , 20 11:
       
         
SUBORDINATE LENDER:
 
Off-S h ore Finance , L L C
       
         
B y::
/s/:Daniel Haake
   
 
 
 
N ame : Daniel Haake
   
 
 
 
Title: Managing member
   
 
 
 
 
BORROWER:
 
Infinity E n ergy Reso ur ces, In c .
       
         
B y:
/s/: Stanton Ross
   
 
 
 
Sta nt o n E . R oss, P re s ident
and Ch ie f Execu ti ve Officer
   
 
 
 
 
   
 
 
 
GUARANTORS :
 
Infinit y Oi l and Gas of Texas , Inc.
       
         
B y:
/s/: Stanton Ross
   
 
 
 
Stanton E. Ross, Pre s id e nt
   
 
 
 
 
   
 
 
 
Infini ty Oi l & Gas o f Wyoming, I n c.        
         
B y:
/s/: Stanton Ross
   
 
 
 
Stanto n E . Ross, Preside nt
   
 
 
 
 
   
 
 
 
 
 
 

 
Exhibit 10.18

  THIRD AMENDMENT
TO REVOLVING PROMISSORY NOTE
 
This Third Amendment to Revolving Promissory N ote is executed effective January 31,2010, by INFINITY ENERGY RESOURCES , INC. ("Borrower"), a Delaware corporation, in favor of AMEGY BA N K, N .A. ( " Lender").
 
Recital s:
 
Borrower is legally obligated to pay a Revolving Promissory Note dated January 9, 2007 , in the maximum principal amount of $50,000,000.00, executed by Borrower, and payable to the order of L ender , as amended by the First Amendment dated October 16, 2008 and the Second Amendment dated May 31, 2009 (as amended, the " Revolving N ote "). The Revol v ing Note is governed by the Loan Agreement dated January 9, 2007 , among Borrower , Lender , and Guarantors (as defined therein) (as amend e d, supplemented or otherwise modified and including each forbearance agreement with respect thereto , including without limitation the Fifth Forbearance Agreement dated the date hereof, among the Borrower, Lender and Guarantors, the " Loan Agreement"). The Revolving Note matured on January 31 , 2010 and Borrower has requested that Lender extend the Maturity Date in connection with the Fifth Forbearance Agreement as set forth below. U nless otherwise defined herein , capitalized terms herein have the meanings assigned in the Revolving Note.
 
Agreement:
 
For valuable consideration , including the funds previously advanced by Lender to Borrower under the Revolving Note, the receipt and sufficiency of which are hereby acknowledged, Borrower and Lender agree and stipulate a s follows:
 
1. The recitals abo v e are true and correct and form the ba s is for thi s amendment.
 
2. The Maturity Date of the Revolving N ote is extended until 11 :00 a.m. (Houston, Texas time) on December 31,2011.
 
3 . The Revolving Note will be due and payable as required by the Loan Agreement.
 
4. Except as specifically amended herein , the Revolving Note remains unchanged; and Borrower ratifies the Revolving Note, as amended. All lien s and security interests securing payment of the Re vo lving N ote are renewed and extended until the Revol v ing Note is paid in full.

THIS REVOLVING PROMISSORY NO TE , THE LOAN AGREEMENT AND THE OTHER TRA N S ACTION DOCUMENTS EXEC UTE D BY BORROWER , LENDER OR ANY GUARANTOR REPRESE NT THE FINAL AGREEMENT BETWEEN OR AMONG SUCH PARTIES, AS THE CASE MAY BE, AND MAY N OT BE CONTRADICTED BY EVIDE NC E OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEE N THE P A RTIES.
 
 
 

 
Executed effective on the date stated above.
 
INFINITY ENERGY RESOURCES, INC.
       
         
B y:
/s/Stanton E. Ross
   
 
 
 
Name: Stanton E. Ross
Title: President
   
 
 
 
 
   
 
 
 
 
 
 

 
Exhibit 10.19
 
FORBEARANCE PERIOD ADVANCE
PROMISSORY NOTE
 
$1,050,000
February 16, 2011
 
FOR VALUE RECEIVED, the undersigned, INFINITY ENERGY RESOURCES, INC., a Delaware corporation (the " Borrower " ), promises and agrees to pay to the order of AMEGY BANK, N.A. (the " Lender "), at the principal office of Amegy Bank, N.A. at 4400 Post Oak Parkway, Suite 1300, Houston, Texas 77027, on the Forbearance Period Advance Maturity Date, the principal sum of One Million Fifty Dollars ($1,050,000.00) , or such lesser amount as shall equal the aggregate unpaid principal amount of the Forbearance Period Advances owed to the Lender under the Loan Agreement. The Borrower further agrees to pay interest on the unpaid principal amount of each such Forbearance Period Advance, at such office, in like funds, for the period commencing on the date of such Forbearance Period Advance until such principal amount is paid in full , at the rates per annum and on the dates provided in the Loan Agreement. All payments of principal and interest hereunder in respect of each Forbearance Period Advance shall be made in immediately available funds in U.S. dollars. If any amount is not paid in full when due hereunder , such unpaid amount shall bear interest from the due date thereof until the date of actual payment (and before as well as after judgment) computed at the per annum rate and payable at the times set forth in the Loan Agreement.
 
This Promissory Note evidences the Forbearance Period Advances owed to the Lender under that certain Loan Agreement, dated January 9, 2007, among the Borrower, Infinity Oil and Gas of Texas, Inc., a Delaware corporation (" Infinity Texas "), Infinity Oil & Gas of Wyoming, Inc. , a Wyoming corporation (" Infinity Wyoming " and, together with the Borrower and Infinity Texas, the " Credit Parties "), and the Lender (as amended, supplemented or otherwise modified and including, without limitation, that certain Fifth Forbearance Agreement, dated February 16, 2011 , among the Credit Parties and the Lender, the " Loan Agreement " ), and shall be governed by the Loan Agreement. Capitalized terms used in this Promissory Note and not defined in this Promissory Note , but which are defined in the Loan Agreement, have the respective meanings herein as are assigned to them in the Loan Agreement.
 
The Borrower and any and all co-makers, endorsers, guarantors and sureties severally waive notice (including but not limited to notice of intent to accelerate and notice of acceleration, notice of protest and notice of dishonor), demand, presentment for payment, protest, diligence in collecting and the filing of suit for the purpose of fixing liability, and consent that the time of payment hereof may be extended and re-extended from time to time without notice to any of them. Each such person agrees that his , her or its liability on or with respect to this Promissory Note shall not be affected by any release of or change in any guaranty or security at any time existing or by any failure to perfect or maintain perfection of any lien against or security interest in any such security or the partial or complete unenforceability of any guaranty or other surety obligation, in each case in whole or in part, with or without notice and before or after maturity.
 
The Loan Agreement provides for the acceleration of the maturity of this Promissory Note upon the occurrence of certain events and for prepayment of Forbearance
 
 
 

 
Period Advances upon the terms and conditions specified therein. Reference is made to the Loan Agreement for all other pertinent purposes.
 
This Promissory Note is issued pursuant to the Loan Agreement and i s entitled to the benefits of the Loan Agreement and the other Transaction Documents.
 
THIS PROMISSORY NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND SHALL BE PERFORMED IN HARRIS COUNTY, TEXAS.
 
 
 
IN WITNESS WHEREOF:
 
INFINITY ENERGY RESOURCES , INC.,
a Delaware corporation
 
       
 
By:
/s/: Stanton E. Ross  
   
Name: Stanton E. Ross
Title: President
 
       
       
 
 
 

 
Exhibit 10.20
 
REGISTRATION RIGH TS AGREEMENT
 
REGI STRAITON   ON RI G HTS AGREEMENT (t hi s " AG REE MEN T") , da ted a s o f Febru ary 16, 20 11 , b y a nd am o n g Infi n i ty Energy Re so urces , Inc ., a De l a ware co rp o rati on , with h ea dqu a rt ers l ocated at 1 1 900 Co ll ege Bl vd . S uite 204 , Overland Park , Ka n sas 66210 (the " C OMPA NY " ) , a nd A m egy Bank , N . A. (the " B UYE R ").
 
W H EREAS,
 
A.            In conne c tion w ith the Securiti e s Purchase Agreement by and amo ng the partie s hereto o f eve n date here wi th ( t he "SECUR I T I ES PURCHASE AGREEMENT") , the Company ha s ag ree d , u po n the terms and s ubj ect to th e co nditi on s o f t he Sec u ri t ies Pu rchase Agreement , t o i s s u e an d s e ll o n the C los in g Dat e t o the Bu ye r warrants t o pu rchase s h a re s of Co mmon Stoc k (the " WA RRA N TS , " a nd the s hares of Common Stock i s s uabl e upon ex e r c i se o f the Warrants , the " WARRA N T SHARES");
 
B.           To indu c e the Buye r to exec ute and deliver t he Secu ritie s P u rchase Ag re ement , the Company ha s agreed t o prov ide ce rtain r eg i s tration ri g ht s under th e Sec uriti es Ac t of 19 33 , as amended , a n d t h e r ule s a nd regu l at i o n s th er e u nde r, or any s imi lar s u cce ss or s tat u t e (co ll ec ti ve l y . t he " 1933 Act " ) , and a p plicab l e sta t e s ec uriti e s laws.
 
NOW, THEREFORE, i n co n si der a t io n o f the prem i se s and the mutual cove nan ts con tain e d herein and o ther goo d a n d v al uab l e co n s id eratio n , t h e receipt a nd s u ffic i e n cy o f wh i c h a r e hereby ac kn ow l e d ge d , the Co mpany and the B u ye r her eby ag ree as fo llo ws:
 
1.            DEFINITIONS
 
As u se d in thi s Agreement , the f o ll ow in g term s s hall h av e th e fo llo w in g m ea nin g s :
 
(a)            " EF FE CTIVENESS DEADLINE " means th e Init ial Effective n e ss Dead l i ne o r a Defici e n cy Eff ect ivene ss Dead lin e (e ach as d e fined be l ow), a s ap pli cab l e.
 
(b)            " F IL ING DEADLINE " m ea n s th e In i t ia l Fil i n g Deadlin e o r a Defic ie nc y F i lin g Deadline (each as defin e d be low ) , as applic a ble.
 
(c)            " REG I S TRATI ON S T ATEMENT ' mea n s a reg i s tr a t io n sta tem e nt o r r egis tr a ti o n s tatem e nts o f the Co mp a n y filed und er th e 19 33 Act cov erin g the Re g i s trable Secu rit ies.
 
(d)            " INVESTO R " mean s the Buye r , a ny t ran sferee or as s ig n e e t he r eo f to whom the Buyer a s si g ns it s right s under this Agree me nt and w h o agre e s t o be co m e bound by the pr ovis i o n s of thi s Agreemen t i n acco rdan ce w ith Sec ti on 9 and an y tr a n sf eree or assign ee there of t o whom a tran s fe ree or assignee assign s it s right s under t h i s Ag r eement and w h o agree s to bec o me bo und b y th e pr ovision s o f this Agreeme nt in accordance w it h Section 9.
 
[Signa ture Pag e to R eg istration Rights Agreement]
 
 
 
 

 
(e)            " PERSON " me a n s a n i ndi vid ual , a limit e d liability co m pa n y , a partne r s hi p , a joi n t venture, a corpo r ation, a trus t , an unincorporated organ iz a t ion and a governmental or an y department or agency thereof .
 
(f)            " REGISTER ," " REG I STERED ," and " REGI S TRATI O N" ref e r t o a re g i s t r ation eff e cted by preparing and filin g one o r m ore Reg i s tr atio n Statem e nt s (a s d e fined be l ow) in com pli ance w ith the 1933 A c t and pur s u ant to R u l e 415 u nde r the 1 933 Act or any successo r ru l e providin g f o r offe rin g sec u r it ies on a cont inu ous or d elayed ba s i s ( " RULE 4 1 5 " ) , a nd the d ecla r ation or ord e ri ng of eff e ct iv e ness of s uch Reg i s tration Statement( s ) b y the U nit ed S t ates Se c u rities and Ex c h a n ge Commi ssi on (t h e "SEC").
 
(g)           "REGISTRA BL E S ECU R ITI ES " means (i) th e Wa rr a nt Share s i ss ued o r i ss uable up o n exercise of the Warrant s and (i i ) any shares of capital s t oc k i ss ued or issuabl e wit h r espect t o the Warra nt Share s a n d t h e Wa rr a n ts a s a r e s u lt o f a n y s t ock s pli t , s tock d i v i d e nd , re c apit a li za tion , excha n ge o r s i m ilar event or ot h erwise , with o ut r egard t o a n y limit atio n s on exerci s e s of th e Warrants ; prov i de d , howe ver, that any s uch Regi s trable Securiti es s hall cease to be Regi s trable Se c urities w h en (x) a Regi s tratio n Statement w ith re s pect to the sa l e of s uch secur iti es become s e ffective und e r t h e 1933 Act a nd s u c h secu rities ar e di s posed o f in accordance w i th s uc h Re gis tration Stat e men t , (y) s u c h sec u r i ti es ar c so ld in a cco r da n ce wit h R ul e 1 44 (a s defined in Section 8) o r (z) suc h se c u r i t i es beco m e t ransfera ble w i t h ou t a n y re s tricti o ns in accordance with Rule 144(k) (or any s uc cessor provision) .
 
(h)            "TRADING DAY " mea n s a n y da y on whic h th e Co mmon S t o ck i s trad ed on the p r i n ci pal s ec u r iti es exc han ge or s ecuri ti es m arket o n wh i c h the Co mm on Stock is then tr a ded ; pro v i ded th at " Trading Da y" s ha l l n o t incl u de a n y da y o n which t h e Commo n Stock i s sc h edu l ed t o tra de , o r a c tu ally trade s o n s uch ex chang e or market , for le ss than 4.5 h ours.
 
C apitali zed terms u sed herein and n ot ot herwise defined herein s h a ll have the re s pective me a nin gs set fo rth in the Secu r i ti es Pur c h a s e Agreement.
 
2.            REGISTRATION
 
(a)            Man datory   Regist r atio n .   The Co mp any s hall prepa re, and , as soo n a s pra cticable b ut in n o e v e n t l ater than 120 d ays afte r t he Buyer 's re q ues t (the " INITIAL FILING DEADLI N E "), fil e w ith the SEC the Regi s t rat i o n Sta t emen t o n Fo rm S-3, cove ri ng the re s a l e of a ll o f t h e Re g i s trable Securitie s; provided , h owever, that the B u yer 's request shall not be made unle ss the Company 's Commo n Stock i s re g i ste red und e r Sec ti o n 1 2 of the 19 34 Act (as d efined in Sec ti o n 3( b)) . In the event th a t Form S-3 i s u nava il able for s u c h a regi s trati o n, the Com pa n y sha ll u s e s u c h other for m as is avai l ab l e f o r s u ch a r egi s t ra ti o n , s u bject t o th e p rov i s i ons of Sectio n 2( d) .   Th e Regist r atio n State m ent pr e p ared p u r sua n t h ereto sha l l register f or resale Re g i s t rable Securitie s co n s i s tin g of a t least t h at n u mbe r of   s hares of Commo n Stock equa l to 110 % o f the nu m ber of Warra n t S h are s i ss uab l e upon exerc i s e of a ll the o ut s tanding Warrant s as of th e se co nd Trading Day imm ediate l y precedin g the date t h at the Regi s tration Statement is initiall y filed with the SEC. The ca lculation s set f o rt h in thi s pa r agrap h s hall be made with ou t regard to a n y lim ita ti o n s o n th e exercise o f the Warrant s a n d s u c h ca lcu lat ion sha ll a ss um e t h at t h e Warrants are t h en exerc isable int o s hares of Co m m o n Stock at t he then-pr evai li ng Warrant E x e r cise P r ice (a s define d in the Warrants).  The Co mpan y s h a ll use it s be s t efforts to ha ve the Regi s tration Statement d ec l are d effective by the SEC a s so o n as pr act i ca ble after s u c h filin g (t h e " I NI TI AL EFFECT I VENESS DEADLINE ") .
 
 
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(b)            A ll oc ation of Reg i s trable Sec uriti es .  The i nitia l nu m b er o f Re g i s trab l e Securities includ ed in a n y Re g i s tratio n Statem e nt a nd ea c h in crease in th e number of Regi s t r ab le Se c urities includ e d therein s h a ll be allo cated pro rat a among the In ve s t o r s based o n t h e number of s u c h Re gi s trab l e Se cu ritie s h eld b y each Inve stor at t he time the Registrati on Sta teme nt cover in g s u c h i nitia l nu mber o f Re g i st rab l e Se c ur i t ies o r in c re ase t h e reof is d ec l ared effe c ti ve b y t h e SEC.   I n t he eve n t th a t an In v e s t o r se ll s or otherw i se tran s fers any of suc h In ves t o r 's Registrable Secu ritie s, each tran s feree sha ll be a l located a p ro rata p o rtion of th e then remaining nu mber of Registrab l e Sec uritie s includ ed in s u c h R egis tration Statement for s u c h transfer o r .   A n y s ha re s of C ommon Stock inclu ded in a Regi s trati o n S tatement an d which remain all ocat ed to a n y Per so n wh ic h ce a s es to hold an y Regi s t rable Securitie s covered by s u c h Reg i st ration Sta t em en t s h a ll be a ll ocate d to t h e re m aini n g In ves t ors, pro r ata based o n t h e n um ber of R egis tr a b l e Secu riti es then h e l d by s u c h Inv estors which are covered by s u c h Regist r atio n Statement.   For purposes hereof, t he n u m ber of Registrable Securities held by an Inve stor i n clu d es a ll Reg i st r ab l e Secu ri ties i ss uable upon exercise of Warran t s h eld by s uch In vestor, w i thout regard to a n y limitation on the exercise of the Warrants.
 
(c)            Lega l Cou n se l .   S ubj ect t o Sect i on 5 hereof, t h e I nves t ors h ol ding securit ie s representing at least tw o-t h ir d s (2/3) of t h e Regi st rable Sec u rit i es s hall h ave the r i g h t to se l ect o n e l ega l co unsel to review and oversee any offering pursuant to this Section 2 ("LEGAL COUNSE L "), which s h a ll be designated in w ritin g to t h e Company by the In vesto r h o lde rs of at lea s t two-thirds (2 /3) of the Reg istrable Securities.   The Compa n y shall reasonably cooperate with Lega l Counse l in performing t h e Compa n y's obligations und er th is Agreement.
 
(d)            Ineligibility fo r Form S-3 .   In the eve nt that Fo rm S-3 is n ot available for the registra ti on of the resale of Registrable Sec urities h ereunder, th e Compa n y s hall undertake t o regi ste r the Reg i strab l e Secu ritie s on Form S-3 as soo n as suc h form is ava i lable , provided that the Co m pany sha ll ma int ain the effectiveness of t h e Reg i s t rat i on S tatement t he n i n effe c t until s u ch t ime as a Reg istrat i on Stateme n t on Form S-3 cove r ing t h e Regis tr able Secu ritie s h as bee n declared effe ctive by the SEC.
 
(e)            S u fficient Nu mber of Shares Registered .   In the event t h e number of s h ares o f Co m mon Stock availab l e under t h e In itia l Regi stratio n Statement filed p ursuant to Section 2(a)( i ) i s i nsuffic i en t to cove r a ll of th e Initial Reg i s tr ab l e Securit i es required to be covered by t h e Ini tial Registration Statement o r an In vesto r 's allocated portion of the Initial Regist r a b le Secu r ities pursuant to Sect i o n 2(b), th e Co mpany s h a ll , as soo n as practicable , but in a n y event n ot l ate r than 1 5 days after the fir s t date on w hi c h the number of s hares available under the I nitial Registration Sta t e ment i s so insufficient (the " DEF I C IENCY FILING DEADLINE") , ame n d the Ini tia l Regi stration Sta t ement, or file a new Registration S t atement (o n t h e s h ort f o rm ava i lable t herefo r , if appli cab l e), o r both, so that th ere a r e registered for re sa l e In i tial Regist r able Securities co n s i sting of at l east that n um ber of s hares of Common S t ock eq ual to 110 % of the num ber of Initial Wa rr a nt S h a r es i ss uable upon exerc i se of a ll the o ut sta ndin g Initial Warrants as of t h e second Trading Day immedi ate l y preceding t h e date of the filing of the amendme nt or new Registration Statemen t wi th t h e SEC.  The Co m pa n y sha ll use i ts best efforts t o cause suc h amendme nt and/o r n ew Regist r at i o n Statement to become effec ti ve as soon as practicab l e, but in a n y event not lat e r than 75 day s following th e app l icable Deficiency F il ing Dead lin e (the " DEFICIEN CY EFFECTIV E NESS DEADLINE").  F or purp oses o f th e forego ing provi s ion , th e numb e r of s h a r es of Common S t ock ava i lab l e under the Initial Regi st ration Statement shall be deemed "i n sufficie nt to cover a ll of th e Initi al Re g i stra ble Securities" if as of a n y date of determinatio n , the nu mb e r o f sha r es of Co m mon Stock eq u al to 100% o f the number of Init i al Warrant Shares i ss u ab l e as of s uch time upon exercise of all the outsta n d in g Initial Wa rrant s is grea ter than the number of sha res of Co mmon Stock ava il ab l e for re sa le under the Initi a l Regist ration Stateme nt.  Th e ca l c ul a tion s set fort h in thi s paragraph s h a ll be mad e wi th o ut regard to any limi tations on the exercis e of the Initial Warrants.
 
 
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(f)           Effect of Failu r e to File a n d Obtain and Maintain Effectiveness o f R eg i s tration Stateme nt.
 
(i)           If (i) a Registration Statement coveri n g all the Regi strab le Secu r i tie s a n d required to b e fi l ed by t h e Compa n y p u rs u ant to Sectio n 2(a) of th i s Agree men t i s not (A) filed wit h the SEC on o r before the appl i cable Fi l ing Dead l ine o r (B) declared effect i ve by th e SEC on or before the applicable Effect iv e n ess De adlin e or (ii) on any day after th e Reg i stratio n S tatement ha s bee n declared effective by the SEC sa l es of all t h e Registrab l e Sec uriti es r eq uired t o be inclu ded o n s uch Reg istration Stateme n t ca n not b e made (other than during an A l lowable Grace Period (as defined in Sectio n 3(s)) pur s uant t o the Registration Statement (including becau se of a failure to keep the Registration State ment effec tive , to disclose suc h inf ormat ion as i s ne cessary for sales to be made pursuant to the Registration Statement or to regi ste r s uffi cient shares of Common Stock as determined in accordance with Sect i on 2(e), then , as partial re l ief for t h e damages to a n y holder of the Warra n ts by rea so n of any s u ch de l ay in or reductio n of its ability to se ll the underlying s hares of Co mmon Stock (which remedy s hall not be exclusive of any other remedie s available at law or in equ ity) , the Co mpan y sha ll p ay to suc h h o l de r an amount in cas h equal t o the product of (i) t he total Aggregate Exerc i se Price (as defined in the Warrants) of all Warrant s h eld by such holder and t o w hi ch the Regi st ration S t ate m ent relat es, m u ltipl ied by ( ii ) the s um o f (A) 0.02 , if the Regi st ration Statement i s not filed by the app li cable Filing Dead l i n e, plus (B) 0.02, if the Registration Statement is n ot dec l ared effective by the applicable Effectiveness Deadline, plus (C) the product of ( I ) 0.000667 m ult ipl i ed by (II) the s um (without dupli ca ti o n) of (x) the number of days after the app l icable Fil i ng Dead li ne that such Registration Statement i s n ot filed w it h the SEC, plu s (y) t h e number of days after the app li cab l e Effectiveness Deadline that such Registratio n Statement is not declared effective by t he SEC, p lu s (z) the num b er of days after suc h Regi stra tion Statement h as been declared effective by the SEC that s u c h Regi s tr atio n S t ateme n t i s not available (ot h er than during an Allowab l e Grace Period) f o r the sale of at lea st a ll th e Regis tr ab l e Securi ti es required to be in cluded and maintained on s u c h Reg is tration S tatement pursuant to Sect ion 2(e).
 
(ii)           Th e payment s to w h ich a h o ld er s hall be e ntitl ed pursuant to this Sect i on  2(f) are referred t o herein as " REGIS T RAT I ON DELAY P AYMENTS."  Registration Delay Pay ment s s hall b e paid on th e ear lier of (I) the l ast day of the ca lend ar month during which s u ch Registration Delay Payments are incurred and (II) the third Busine ss Day after the event or failure giv in g r i se to the Reg i s t ratio n Delay Pa y ments i s c ured.   I n th e event the Com pan y fa i ls t o mak e Registration De l ay Pa y ments in a timely manner, suc h Registrati o n Dela y Payments s hall bear interest at the rate of t h e l esser of 1.5% per month (prorated for partial month s) or the highest la wfu l maximum inter est rate, in each case, until paid in full.
 
 
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3.            RELATED OBLIGATIONS
 
At suc h time as the Company is obligated, to file a Registrati o n Statement wit h the SEC pursuant to Sec ti o n 2(a) , t h e Company w il l u se its be st efforts to effect t h e registrat i on of t h e Regi s trable Secur i ties in accordance with the intended m e thod of d ispo sition there o f and, pursuant thereto, the Compa n y sha ll have the f o ll owing ob li ga ti ons:
 
(a)           The Co m pany s hall pro m p tl y p r epare a n d file with t h e SEC a Re gis tr a tion Stateme n t wit h respect to the applica bl e Registrable Secur ities (but in no event later than the applicable F ilin g Deadline) and u se it s be s t effo rt s to ca u se suc h Registration Sta tem ent relating t o the Regi s trable Secu riti es to becom e effect i ve as soo n as practicabl e afte r suc h fi l ing (but in no event later than the app l icable Effectiveness Deadline).  The Co mpa ny s h a ll k eep eac h Regi s tration Sta t e m en t effective pursuant to Rule 415 at all time s until the earlier of (i) the date as of which th e Investor s may sell all of the Registrable Sec uriti es cove red by s uch Regi s tration Stateme nt witho ut restri ction pursuant to Rule 144(d) (o r s ucce ssor theret o) p romulgated under the 1 933 Act or (ii) t h e date on which the Inv estors s hall have so l d all the Re g i st rable Secur i ties cove r ed b y suc h Registration Stateme n t (the " REG I STRATION PERIOD " ).  Suc h Re g i strat ion Statement (incl udin g any amendments or supp lem ents thereto and pro spec tuses co ntained therein) shall not contain any unt rue statement of a material fact or omit to state a material fact required t o be stated therein , or necessary to make the s tatement s there in , in light of the c ircumst ances in which they were m ade, not mi s l eading.   The term "bes t efforts" sha l l mean, among ot h er thing s, t h at the Co mpany sha ll submit to t he SE C , within two (2) Busine ss Days aft e r the Compa n y learn s that no review of a particu l ar Registrati o n Statement wi ll be made by the s taff of the SEC or that the staff ha s n o further comme n ts on the Regi s tration Statemen t , as t h e c a se m ay be, a r equest for acceleratio n of effective n ess of s uch Re g i s tr a tion S tatem e nt to a time and d ate n ot l a ter than 48 h o ur s after the s ubmi ss i on of s uch r eq uest.
 
(b)           T h e Compa n y sha ll p r epare and fi l e wit h t h e SEC suc h amendments (incl udin g post-effective amendments) and s upplem ents to a Reg i st ration Statement and the pro spec tus u se d in connect ion with such Registration Stateme nt , wh i c h pro spect u s i s to be filed pur s uant to Rule 424 p r om ul gated u nder the 1933 Act, as may be necessary to keep suc h Regis tr ation S tat ement effective at all times during the Registrat i o n Peri o d , and , dur i ng suc h pe ri od, co m p l y w it h t he prov i sio n s of t he 1933 Act wit h re spect to the disposition of a ll Regi s trable Securities of the Co mpany cove red by s u c h Registration Stateme nt until suc h time as a ll of s u c h Registrab le Securi tie s s hall ha ve been disp osed of in accordance with t h e intended methods of disposi t ion b y the selle r or se ll ers thereo f as set forth i n suc h Registratio n State m ent.  In the case of amendments and s upplement s to a Regi st r ation Statement wh i ch are requ i red to be filed pur s uant to thi s Agree ment (inc ludin g purs uant to thi s Sectio n 3(b) by rea so n of the Co mpan y filing a report o n Form 10-K , For m 10-Q   or Form 8 - K or any ana l ogo u s report under the Sec u rities Exc h ange Ac t of 1 934, as amen d ed (the " 1 934 Act " ), t h e Co m pa n y sha l l h ave in corpo r ated s u c h report b y r eference into the Registration Stateme nt , if appli cab le , o r sha ll file s u ch ame nd ments or s u pplemen t s with the SEC o n the sa m e da y on w hi c h the 1 934 Act repo rt i s fil ed w hich create d the r equ ir e m e nt fo r the Company t o amend or s upplement the R egist r ation S t ateme nt.
 
(c)           The Company s hall (A) permit Legal Counse l to rev i ew a n d com m en t upon (i) the Reg i st ra t i on S tatem ent at lea st five (5) Bu s in ess Day s prior t o it s filing w ith the SEC a nd all amendments and suppleme nt s t o a ll R egistrat i o n State m ents (except fo r An nu a l R eports o n F orm 10 -K , Q u arte rl y Repo rt s o n Form 10 -Q an d Cu r re n t Reports o n Form 8-K an d a n y sim i la r o r successo r reports) within a reasonab l e number of da ys prior to t h eir filin g w it h t h e SEC, a n d (8) not fi l e any document, reg i s trati on s tatement , a mendm e n t or s uppl eme nt de sc rib ed in th e foregoing clause (A) in a form t o w hi c h Legal Counse l rea so nabl y objects.  T h e Co m pany sha ll not s u bmit a reque st for acce l eratio n of the effec ti ve n ess of a Registrat i on Statemen t or a n y ame n dme n t o r su pplement t hereto wit h out pro v iding prior not i ce ther eof to Legal Cou nsel and eac h Inve s tor.   The Co mp any sha ll furni sh to Legal Counsel, without c harge , (i) p r om ptl y afte r the same i s prepared and filed with t h e S E C, one copy of a n y Re gis tr atio n Statement and any amendment(s) t her eto , including financial statements and sc he dules, all documents in corpora t ed therein by refere n ce t hat ha ve not been fi l ed via EDGAR, and a ll exhibits an d (i i ) u po n t h e effec ti veness of any Registration S tatement , one copy o f th e pr ospec tu s included in s u c h Regi strat i on Sta tement a nd all amendments and s uppl e m e nt s ther eto.   The Compa n y s h a ll r easo n ab l y coo perat e w ith Lega l Cou n se l i n performing th e Co m pany 's ob li gatio n s pursuant to this Section 3.
 
 
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(d)           The Co m pany sha ll furn i s h t o each Investor whose Regi strab le Securities are in c lu ded in any Regi s tration Statem ent , witho ut c h arge, (i) pr ompt l y after the sa me i s prepared a nd filed wit h t he SEC , at least o ne co p y of s u ch Regi st ra t i o n Statement and a n y amendment(s) t h ereto, including financial stateme nt s a n d sc hedule s, all docu men ts in corporate d the re in by refere n ce th at h ave no t bee n fi l ed via EDGAR, al l exhibits an d each preliminary prospectus , (i i ) up o n the effectiveness of any Regi s tration Statement, te n ( 10) copies o f the prospect u s included in s u c h Regi s tration Stateme nt a n d a ll am e ndm e nt s an d su p plemen t s t h e r eto (or such o ther n um be r of copies as s u ch Investor ma y reasonably reque s t ) and (i ii ) suc h other documents , i n cludi n g cop i es of a n y preliminary o r final prospect u s, as s u ch In ves t o r may reasonab l y r e que st fr o m time to time in o r der to facilitate th e dispos iti on of the Regi st r ab l e Secu riti es ow n ed by s uch Invest or.
 
(e)           T h e Co m pany s hall u se it s best effo rt s t o (i) reg i s ter and qua li fy, u n l ess an exe mpti o n fro m re gistratio n and qualification appli es, t h e re sa l e by the Investors of the Regi st rable Sec uritie s covered by a Registration Statement under the sec uritie s or " blue sky" laws of a ll the states of the United S tates , (ii) prep a r e and file in those ju risdic ti ons, s uch a m endments ( includin g p os t -effec ti ve ame n d m e n ts) an d s u pplements t o such registrat i o n s a n d q u alifica ti ons as m ay be n ecessary to m ainta i n t h e effect i ve n ess thereof durin g th e Registration Period, ( iii ) take such o th er actions as may be necessary to m a int a in s uch reg i s trati ons a nd qualification s in eff ec t at all times duri ng the Regis trati o n Period , and ( i v) take a ll ot h er actio n s reasonab l y ne cessary o r a d v i sable t o qu a l ify the Reg i st rabl e Secu r ities for sa l e i n s uch jurisdictions; provided, h ow ever , that t he Compa n y s h all not be required in connection therewit h or as a condition ther eto to (x) qua lify t o do bu s in ess in an y ju risdi c ti o n where it wo ul d not otherwise be required to q u a li fy but fo r t hi s Sec tion 3(e) or (y) su bject i tse l f to general taxat i on in any such j u risdiction.  The Company s h a ll prompt l y notify Legal Counsel a n d eac h I nvestor who h o ld s Registrab l e Sec u rities o f t h e receipt by the Co mpan y of   a ny n o tification wit h re spe ct t o the s uspen s i o n o f t he regis trati o n or qu a li fica ti o n of any of the Registrab l e Secur i ties for sa l e under the sec uritie s or "blue sky" law s of a ny jurisdict i on in the Un i ted S tate s or its re ce ip t of actua l notice of th e initiati o n o r th reate nin g of a n y proceed in g fo r s u c h purp ose.
 
(f)           T h e Com p a n y s h a ll n o tify L ega l Cou n se l and eac h In vestor i n wr i ti n g of t h e happenin g of a n y event, as pr o mptl y as practi cab le after b eco min g aware of suc h event, as a result of which the pro spec tus included in a Reg i st r ation Stat e ment , as then in effect, includes an untrue state m e nt of a mater i a l fact o r om i ss i o n t o state a m a t er i a l fa c t requ ir ed t o be stated t herei n or n ecessary to m ake t he s tatem e nt s therein , in li ght of t h e circumstances under which t hey were made, not mis l eading ( pro vided that in n o eve nt s h a ll such notice co ntain any mat eria l , nonpubli c in for mati on) , a nd pr o mptly pr e pare a su p p l eme n t o r amend m e n t to s u c h Reg i s t ratio n S t ateme n t t o corre ct s u c h un tru e s tatement or omission, an d deli ver t e n ( 1 0) co pies of su ch supp l e me nt or amendme n t t o Legal Counsel and each In vestor (o r suc h ot h er numb e r o f copie s as Lega l Counse lor such Inv estor ma y rea so nabl y req u est).  T he Com pany s hall also promptly noti fy L egal Counse l and each I nvestor in writi n g (i) whe n a p r ospec t us or any prospect u s s uppl eme nt o r p os t-e ffec tive amend m e n t h as been filed , and w h e n a Registratio n State m e n t or any post-effective a mendment ha s be co me effe ct i ve (n o tification of s u ch effec ti veness shall be delivered to Lega l Co un se l and each Invest or by facsimile o n the sam e day of s uch ef fectivene ss and by ove rni g ht mail ), (ii) of   any r eques t b y t h e S E C for amendmen t s or s u p pl ements to a Regist r at i on S t a t e m ent o r re l a t ed pro spect us or related in format i on, a nd (iii ) of the Compa n y's reasonable determin a tion that a post- effect i ve ame n dment to a Registratio n Statement wou ld be app r op riat e .
 
 
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(g)           The Co m pany s h a ll use it s best efforts to pre vent the issuance of any stop o rd er or o ther suspe n s i on of eff e ctivene ss of a Regi s tration S t ateme nt , o r the s u s pension of the qualifi c ation of a ny of t h e Reg i st rab le Sec ur it i es fo r sa l e i n any juri sd icti o n a n d , i f s u c h an o r der o r suspensio n is issued, to obtain the w ithdrawal of s u ch or d er o r s u spe n s i on at the ea rlie st poss ible moment a n d to n ot i fy Lega l Co un se l an d each Invest or w h o h o l ds Regi s trable Securities being so ld o f th e i ss uance of s u ch o rd er a nd the r eso l u ti o n ther eof or i ts rece ip t of actu al notice o f th e ini tiati on o r t hre at of any proceeding for such purpose.
 
(h)           At t h e rea so nable request ( in t he context of the sec uriti es la ws) of any Investor , the Company sha ll fu rni s h to such In vestor, o n th e date of t h e effectiveness of the Re gis tration Sta t eme n t a n d t h e r ea fte r fro m t im e to t ime o n s u ch dates as an In v e stor may rea s o n ably req u est (i) a l etter , dated s uch dat e, fro m th e Co mpan y's independent certified publi c ac co untant s in fo rm a n d s ubstan ce as i s customarily g i ven by ind epe ndent certified publi c acco un tan t s to und e rwriter s in a n underwritten pub li c offe r i n g , add r e s se d t o t h e In v e stors, a n d (i i ) a n op in io n , dated as o f s uch da t e , o f co u nse l r epresenti n g the Company for purp os e s of su ch Re g i s trati on State m ent , in form , s co pe a n d su b s tan ce as i s c u stoma r ily given in an und erwr itt e n public offer in g, addressed t o the In ves t ors; provi d ed that s u c h Invest o r s hall r eimb ur se the Com pan y for it s o u t - o f-po c ket expenses inc ur red i n co n nec ti o n wi th t h e furnis h ing of a n y suc h l etter and op ini o n.
 
(i)           At the reasonable request (in the context o f th e s ecuritie s la ws) o f an y In vestor, t h e Co mpan y s h all m a k e a va il a ble f o r i nspec ti o n d u ring reg ular b u sin e ss h o u rs b y (i) a ny Inv estor, (ii) Leg al Coun s el and ( iii ) on e firm of acco untant s or o th e r age nt s retained by the In vestors (co ll ect i ve l y, th e " I NSPECTORS "), all pert i nent financial a nd oth e r recor ds , an d pert inent co rporate d oc u me n ts a n d pro perti es o f the Co mpa ny (co llecti ve l y, t he " RECORDS " ) , as s h a ll be r easo na bly d ee med ne ce ssa ry by eac h In spec t o r , and ca u se the Co mp a n y's o ffi cers, directors and emp l oyees t o supp l y all information whic h any In s pect or may re aso nabl y request; prov ided , h ow ever , that each In specto r s hall ag ree t o h old in str i c t confi den ce a nd sha ll n o t ma ke any di sc losure (excep t t o an In vesto r) or u se of a n y Re co rd o r o the r i n formation which t he Company determ in e s i n goo d fai th t o b e co nfidenti a l , and of w h ic h determination the Inspe c t o r s ar c so notified , unles s (a) the di sc l os ure of s uch R eco rds i s n ecessary t o avoid o r correc t a mi ss tate m e n t o r om i ssio n in an y Registration Statement or i s o ther w i se required under t h e 1 933 Act , (b) t h e rel ease of such Re co rd s is o r dere d pur s ua n t t o a fina l , no n-appealab le s u b p oena o r or d er from a court or gove rnm en t bod y o f competent juri s diction , o r (c ) the in formation in s u c h Record s has b een made generall y av a il able to th e pub l ic ot her than by discl os ure in v i o lati on o f thi s o r a n y o th e r agr eeme nt of w hi c h t h e In spec t o r h as k now l edge.   Eac h In ves t o r agrees t ha t it s h al l , u pon l earning t hat d is cl os u re of suc h Re cords is sought in o r by a co urt o r go ve rnm e nt al body of com petent ju ri s di c ti o n o r thr o u g h other means, give pro mpt n o tice to th e Co mpan y a nd all ow the Com pan y, at its exp e n s e, t o undertake appropr i ate action t o pr eve n t disc l osu re of, o r to o b ta in a protec t ive o r d er fo r , t h e Records d ee m e d confidential.  Each In spector which exerc i ses its right s und er this Section 3( i) s h a ll be ob li gated t o execute a non -di s closure ag re eme nt containing s u c h rea so n a ble term s as the C ompany ma y reque s t. Th e fees and expe n ses of th e Inspect o rs s h all be born e b y t h e ap pl ic abl e In v e stor.
 
 
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(j)           T he Compa n y s h a ll h o ld in co nfid e n ce and n o t mak e any dis c l os ure of in f orma t ion concern i ng an In v e stor p r ov i ded to t he Co mpan y un le ss (i) di s cl osure of s uc h inf or m ation i s ne cessary to co mpl y w ith federal or state sec u rities l aws, ( ii) th e disclo s ur e of s u ch i n formatio n i s necessary to av o id o r correc t a mi ss tatem e nt o r om i ss ion in a n y Regi s tration Sta tement, ( iii ) th e r elease of s u ch i nf ormat i on is o rdered pursu a n t to a s u bpoe na or ot her fina l , non - ap peal ab l e o rder from a co urt o r gove rn me n ta l bo d y o f co mpetent ju r i s di c ti on, o r (iv) s u ch info rmati o n ha s bee n made genera l l y a vai l ab l e t o the public o th er than b y d i s closur e in vio l a ti o n of thi s Ag r eeme nt o r any other ag reem ent.   The Co mpany agree s t hat it s h a ll , up on l ea rnin g that discl os ure o f s uch inf ormat ion c o n ce rnin g a n Inve s t o r is soug ht in or b y a court o r gove rnme nta l body of co m pete nt j u r i sdic tion or t h ro u g h o ther m eans, give prompt wr itt en noti ce t o s uch In vestor a nd allow s u c h In vesto r , at th e In v e s t o r 's expen se, to und erta ke appropriate action to prevent disclo s ure of, o r t o obtain a protective or de r f o r , suc h informati o n .
 
(k)           The Company shall use its best effort s to (i) cause all t he R eg i s trab l e Securit i es cov ered by a Reg istrati o n S tat ement to be li s ted on each securit i es exc h a nge o n w hi ch s ecu ritie s of t h e sa me cla ss o r ser i es i ss ued by the Com pan y are t h en li s ted , if any , if the li s ting of s uch R egistr able S ecur it i es is then permitted under t h e rul e s o f s u ch exc han ge, o r ( ii ) sec ure des i gnatio n a n d q u o t ation of all the R eg i s trable Sec uriti es cover e d by th e Regi s tration Sta t e m e nt o n The NAS DAQ Na tional Market System, o r ( i i i ) i f , des pit e the Company's be s t effort s to s ati sfy t h e pre cedi ng clau s e (i) o r (ii), the Company is un suc cessf ul i n sat i sfying t he p rece d i n g cl ause (i) o r ( i i), t o sec u re t he i ncl u sio n f o r qu o tati on on T h e NASDAQ Small Ca p Marke t for s u c h R egis trabl e Sec uritie s and, wit h o ut limiting th e ge neralit y of th e foregoing , to arrange f o r at l ea s t two m arket mak ers to r egister wit h th e Financ i a l Indu s try R eg ulatory Au t hority (" FI NRA") a s s uch with re s p ec t to s u ch R eg i stra bl e S e cu r i t ies.   The Com p a n y s hall pay a ll fees a nd expe n ses in co nn ection w it h s atisfying it s obligation und er thi s Sec ti o n 3 (k).
 
(l)            T h e Company s h al l coope r a t e w ith t he In ves t o r s w h o h o l d R eg i s trabl e Securities be i ng o ffered a n d, t o the extent ap plicabl e, facilitate th e ti m ely preparati o n a n d del ivery of ce rtifi ca tes (not bearin g any re s trictive l ege nd) r e pre s enting the R eg i s trabl e Sec uriti es to be o ffered pu rsua nt t o a R eg i s tration Statement a nd e nable s uch cert ifi ca t es to be in s uch denominations or amounts , as the c a s e ma y be, as the Inve s t o r s ma y rea so nabl y reque s t and regi s t e r ed in such name s as the In ves t ors ma y request.
 
(m)           The Company s hall pro v ide a transfer agent and regi s trar of a ll s u c h Reg i s t r ab le Se c u rities not later th an the eff ec ti v e date of th e appl i c able Regi s trat io n Stateme nt.
 
 
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(n)           If reque sted by an In vestor, the Co mp any s hall (i) as soo n as pr acticable in co rporate in a pro s pectus s upplement or p os t - effectiv e ame ndment s uch information as an Inv estor request s to be inclu ded therein relating to the sa le and di s tribution of Re g i s trable Sec u rities, in c lu ding in format i on wi t h re s pec t to th e n umber of R eg i st rable Secur iti es be in g o ffered o r sold, the purcha se price bein g paid theref or and an y other terms of the offer in g of the Regi stra ble Securities to be so l d in suc h offe rin g; (ii) a s soo n as practicable make all required filings of s uch prospectu s supplement o r po st -effective amendme nt after being n otified of the matter s to be incorporated in s uch pr ospec tus s upplement or p os t-eff ect i ve amend ment ; and ( i i i) as s oo n as practicable , s upplement o r make amendments to any Registration S tatement if r eason abl y req u es ted b y a n In v e s t o r of s uch Registrab le Secu r i tie s.
 
(o)           T h e Company s hall use it s be s t efforts t o ca u s e the Regi s trable Securitie s covered b y the app li cab le R eg i st ration Statement t o be registered w ith or approved by su c h o ther gove rnmental agen c i es or author itie s in th e U nite d State s as ma y be necessary to co nsummate the di s posit i o n of s u c h Registrable Securit ie s.
 
(p)           The Company s hall mak e gener ally available to it s s ecurity hold ers as soo n as practi cal , but not later than 90 da ys after the cl ose of the peri o d covered th ere b y, an earni n gs s t a t eme n t ( in f o rm co mplyin g with the pro v i sio n s of Rule 158 u n de r the 1 933 Act) covering a twelve - m o nth pe r iod beginning n o t later than t h e first day of the Co m pany's fi sca l q ua rt e r n ext f o ll ow in g the eff ective date of a Registrati o n Sta tement.
 
(q)           Within tw o (2) Business Days after a Regi s tration Statement which covers applicable Regi s tr a bl e Securitie s i s ordered effect i ve b y the SEC, th e Com pany s h a ll del i ve r , and s hall cau s e l ega l c o un se l for t he Compa n y to deliv er, to the tran s fer agent f o r such Regi s trable Secu r it i es (w i th cop i es to the In vesto rs who se Registrabl e Se curities are included in s u ch Regi s tration Stat eme nt) confirmation that s uch Registrati o n Statement h as been declared effective by the SE C in s ub s tantiall y the form attac hed hereto as Exhib i t A, provid ed that if the Co mpany changes its tran s fer agent , it s hall i mmed i ate l y de li ve r any p rev i ous l y de l ivered n o tice s u nder this Sect i on 3(q) and any s ub se quent n ot i ces to s u c h new tran s fer age n t.
 
(r)           T he Company s hall mak e s uch filing s with the Nat i o nal Associati o n of Securities Dealer s, I nc. (incl ud ing providing a ll required inf orm ati on and paying required fees thereto) as a n d w h e n requ ested by an In ve s t o r and make a ll o ther filing s reasonab ly necessary fo r I nvestors t o se ll Re g i st rable Securitie s pursuant to a Registra tio n Statement.
 
(s)           Notw ith standing anything to the contrary in Sect i on 3(f), at any time afte r the R e gi s tration S t a tement ha s been declared effect i v e by the SEC, the Com pan y ma y dela y the di sclos ure of materia l n on-pub l i c information co n ce rnin g the Company t h e d i sclo s u re o f w h ic h a t th e time i s n o t , i n the good faith op ini o n of the Boa rd o f Dire cto r s of the Company and it s co un se l, in the best interest o f the Co mpan y and , in the opinion o f cou n se l to the Company , o therwise required (a "G RA C E PERIOD"); pro v id ed, that the Co mpany s hall promptly (i) n o tify the In vestors in writing of the exi s tence of material n o n-publi c inf orm a t i on g i v in g r i se to a Gra ce Period (provided that in each not i ce th e Co m pany s hall not di sclose t he co nt ent of s u ch m a t e r ia l non-public information to th e In vestors) and t he date o n which the G r ace Period w ill begin , and (ii) n o tify t h e I nvestors in w r iti n g of t he d ate o n wh ich t he Grace Peri od en d s; and , p r ov ided further , that n o Grace P e riod s h a ll exceed 20 consec uti ve day s and during a n y 365 day period s u c h G race Peri ods s h a ll not exceed an ag g re gate o f 40 day s and th e fir s t day of any G r ace Period mu st b e at l east two (2) Trading Days after t h e last day o f any prior Grace Peri o d (a n "ALLOWA BLE GRACE PERIOD ").   For purp os es of dete rm in in g t h e l e n gt h o f a Grace Period above. th e Grace Period s h a ll begin on and inclu d e the da t e the h o ld ers receive the notice r eferred to in clause (i) and shall e n d on and incl u de th e lat er of the date the hold ers r ece i ve the notice referr ed t o in clause (ii) and the d ate referred t o in s u c h n o ti ce.   The p rovisions o f Section  3(g) her eof s hall not be ap plicable during the p e ri od of any A ll owab l e Grace Period.   Upon expiratio n of the Grace Period , the Company shall again be bound by the first sentence of Sec tion 3(t) w it h r espec t to the in formatio n g i v i ng r ise t heret o u n l ess s u c h material non-publi c information is no l onger app li cable.
 
 
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4.            OBLIGATIONS OF THE INVESTORS
 
(a)           At le as t s i x (6) Busines s Days p r ior t o t he first ant ic ip ated fi l i ng da t e o f a Regi stra ti o n Stateme n t and at least fi ve (5) Busin e ss Da ys prior to th e filing of a n y a mendm en t or s uppl eme nt t o a Reg i s trati o n S tatement , th e Co mpan y s h a ll notif y eac h Inve s t or in writing of the in format i o n , if any , t h e Company requires from each s u ch I nves tor if s uch Inve stor e l ec ts t o ha ve a n y of s u c h Investor 's Regist r a ble Secu ri t ie s included i n s u c h Regist ra tion State ment or, wit h respect to a n ame n d m e n t o r a s u pp l e men t, i f s uch Inve s t or's Regis t ra b le Sec uri ties are in cluded i n suc h Re g i stra ti o n Stateme nt ( e ach a n " I NFORMATION REQUEST ") .   Pro vide d that the Com p a n y s h all have complied with it s o bli ga tions se t forth in the pr eced ing sentence, it shall be a co nditi o n precedent to the ob li g ati o n s of the Company to co m p l ete the re gistration pursuant to thi s Ag r eemen t with re spec t t o the Registrable Sec uritie s of a particular Inves t or th a t s uch In v e s t or sha ll f urn is h t o t h e Compa n y , in respo n se to an I n f o rm ation Reques t , such i nforma t io n r ega r d in g i tse l f, t h e Registrable Secu r i tie s he ld b y it and t he i nt en d ed m e t hod of dispos i tion of the Registra bl e Sec urities h e ld by it as s h all be reasonabl y required to effect the re gistration o f s u c h Registrabl e Sec uritie s a nd s hall e xec ut e s uch do c ument s in connection with s u c h registration as th e Co m pany ma y r easonab l y r equest.
 
(b)           Eac h In vestor , by such In vestor's acceptan ce of t he Regi s t rable Sec u rities, agree s to cooperate w ith the Co mpany as r easona bl y requested by the Co mpany i n connec ti on with the preparation and filin g of any Reg i s trati o n Sta t e ment h ere under , unl ess s u c h In vesto r ha s notifi ed the Co m pany in writing of   such Inve sto r 's e lection to exc l ude al l of   such In vestor's Registrable Secu rit ies fro m s u c h Regis t ratio n Sta t ement.
 
(c)            Eac h In vestor agrees that , upon receipt of   a ny notice fr o m the Company o f th e h appe nin g of a ny eve nt of the kind de sc rib ed in Section 3(g) or the fi rst se ntence of 3(f) o r written notice from the Com p a n y or a G r ace Perio d , s u c h Inve sto r wi ll immediately di scontin ue dispo s i tion of Regi strab l e Sec ur i tie s p u rs u a n t t o any R eg i s t ratio n Sta t e m e n t(s) cove rin g s u ch R eg i s tra b l e Sec urit ies u nti l s u ch In vestor's receipt of the copies of th e supp l eme n ted or ame n ded prospectus contemp l ated by Sec ti o n 3(g) or th e first sentence o f 3(f ) o r receipt of n ot i ce t hat no s uppl em ent or a m en dment is required or that the Grace Period ha s ende d .   Notwithstanding a n yt hin g to th e co ntrary , th e Co mpan y s h a ll ca u se it s t r a n s fer agent to del iv er u n l egend e d s h ares of Com m o n Stock t o a transferee of an Investor in acco rd ance w ith the t erms of th e Sec uri ties Purcha se Ag re emen t in co nn ect i o n w it h an y sa l e o f Reg i s tr able Sec u r i ties with r espect t o which an I nvestor ha s ente red int o a con tract for sa l e prior t o the I nvestor's receipt o f a not i ce from the Co mp a n y of the happ e nin g o f a ny eve nt o f the kind descr ib ed in Sect ion 3(g) o r the fir s t sente n ce of 3(f) an d for which the In vestor has not yet se ttled.
 
 
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5.            EXPENSES OF REGISTRA TION
 
A ll reaso n ab l e expense s, othe r tha n underwriting di sco u nts and co mmi ss i ons , incurred i n con necti o n with registrations , filings or qualification s pursuant to Section s 2 a n d 3, incl ud in g a ll r eg i stra ti o n , li s tin g and qualifications fe es , pr inter s and acco un ting fees, and fees and disbursement s of cou n se l for the Company s hall b e paid b y th e Co mpan y, exc ept as provided in Sec tion 3(h).   The Co mpany sha ll a l so re im b u rse the Investor s f o r the rea sonab l e fee s a n d disbur se m ents of Lega l Counsel i n connection w i t h re g i s tr a ti o n , filing or qualification p u rsua n t to Sectio n s 2 a nd 3 of t his Agree m e nt.
 
6.            INDEMNIFICATION
 
I n t he event any Registrable Secur iti es are inclu de d in a Reg i s tra tio n Sta t e ment und e r thi s Ag r e em e n t:
 
(a)           To the f u ll e s t ex tent perm i tted by law, the Co m pa n y w ill , and hereb y does , i nde m nify , ho l d harm l ess and d e fend eac h In ves t o r , th e dir ec t ors, officers , partners , emp l oyees , agen t s , rep re s ent atives of, and eac h Per so n, if a ny, who co nt ro l s a n y Inve s t o r w ithin the meanin g of the 193 3 Act o r the 1934 Act (each, an " INDEMNIFIED PERSON " ) , aga in s t any l osses, c l a im s, damages , li abi litie s, judgment s, fines, pena ltie s, c h a r ges, costs , r easonab l e atto rn eys ' fees , am o unts paid in sett l ement or expenses , j o in t o r seve r a l , (co ll ective l y, "C LAIMS " ) in cu rr ed in invest i gat in g, preparing or de f e nd ing any ac ti o n , claim , s uit , inqui ry, pr oceedi n g, in vest i gat i o n or ap peal t ake n from the fo r egoing by or b efore any co urt or govern ment al, adm ini s trative or othe r regulatory agency , body o r the SEC, whet her pendin g or t hrea ten ed , w h e ther o r not a n i nde mnifi ed party is o r m ay be a pa rty thereto ( " I N DEM N IFIED DAMAGES " ), to wh i c h a n y of them may become s ub ject insofar as such C l aims (or action s or proceed i ngs, w h e ther co mmenced o r threatened, in r espect ther eof) a ri se o ut of or are based upon : (i) any un true s tatement or a ll eged untrue sta t e m e nt of a mater ial fact in a Regi strat i o n Statemen t or any post-effe c tive amen d me n t t h ereto or in any filing made in con n ect i o n w ith t he q u al ifi cat i o n of t he offer in g u n de r t h e s ecu r ities or othe r "bl u e sky" law s of an y jurisdictio n i n w hi c h Regi s trable Securit ie s are off ered ( " BLUE SKY FILING") , or th e o mission or a lleged o mi ss ion to s tate a mat er ial fact r eq uired t o be s tated therein or necessary t o make the s tatement s there in not misl ead i ng, (ii) any untru e s tatement or alleged untrue s t ate men t of a material fac t con t ai n e d in a n y preliminary p ros p ectus i f used prior to t he e ffective date of s uch R egistration State m e nt , or con tain ed in t he final p r ospectus (as amended o r supplemented, if the Co mpan y files any amendment thereof or s upplement thereto wi th the SEC) o r the o mi ss ion o r a ll ege d omission to sta te therein any mater i al fact necessary to make the stateme nt s made therein , in li ght o f the c ir cu m sta n ces under wh i c h the s tatemen t s therein were made, n o t mi s leading , ( i i i ) an y viola ti o n or al l ege d v i o lati o n by the Company of th e 1933 Act , the 1934 Act , any other law, including any state sec u rities law, or a n y rul e o r regulati on thereund e r relatin g to the offer o r s ale of the Regi s tr a bl e Securities pur s u ant to a Regis t rat i o n S ta t em ent or (iv) any mat e ri a l violation of this Agreeme n t b y the Co m pany (the matters in the f o re goi n g cla u ses ( i ) through (iv) being , co l lectively , " V I OLA TI ONS " ).   S u bject t o Sec t ion 6(c) , the Co mpan y sha ll reimbur se the Indemnified Perso n s, promptly a s suc h expenses a r e in curred an d are due and paya ble , for any le ga l fees or o th er rea so nabl e expe ns es incurred by them in co nnecti o n with in vest i gat ing or defendin g any s u c h C l a im .   No t with s t anding anyth i ng to the contrary con tai ned herein , the i n de m n ifi ca tion agree m e nt contained i n thi s Sec ti o n 6(a ) : ( i ) shall n o t ap pl y to a C lai m b y an I nde mn ified Perso n aris in g o ut of o r based upon a V i o l atio n w hi ch occ ur s in re lian ce up o n and in conformity wit h inf o rmati on f urni s h ed in wr itin g to the Company by suc h Indemnifi ed Person fo r s uch Ind e mnifi ed Pe r so n exp ressl y for u se in connectio n wit h t h e preparatio n of the Re g i st r at i on Stateme n t or any s uch amendment t hereo f or s u pp lem e nt thereto , if s u c h p rospect u s was t im ely made ava il ab l e b y t h e Compa n y p u rs u a nt to Sect i o n 3(d); (ii) w ith respect to any preli minary pro spec tus, shall not inur e to the benefit of any s uch pe r so n from w h om the person assert ing any s uch Claim purcha se d t he Re gistrab le Secur iti es that are th e s u bjec t t h ereof (or to t he benefit o f any per son co n tro llin g s u c h p erson) if the u n tr u e sta tement o r omi ss io n of   m aterial fa c t co n ta in e d in th e prel im inary p rospect u s was co rrected in th e prospectus , as t h e n a m ended o r su pp le m e nted , if   s u ch p rospect u s was time ly made avai l a bl e by the Company pu rs u a nt to S ection  3( d ), and the In de mnifi ed Person was promp tl y advi sed in writing not to use th e in correct p r e l iminary pro s p ect u s pri o r to the use giv in g ri s e t o a violation and s u c h Indemnifi ed Person, n otw ith s tandin g s u c h advice , u se d it ; and (iv) sha ll not be availab l e to the exte n t such C l a im i s ba se d on a failure of the I nv e stor to de li ve r or to cause t o be d e l ive r e d th e p r ospectus m ade avai l able by t he Co m pa n y, if s u c h prospectus was ti m ely ma d e available by the Compa n y purs u ant to Sec ti on 3 (d); and (iv) s h a ll not app l y t o a m ou nt s paid i n se ttlem e n t o f any C l ai m if   s u ch se tt l e ment i s effecte d wit h out the pri or wr i tte n consent of the Co m pany, w hi ch co n se n t s hall n o t be unr easona bl y withheld.  Such i ndemnity sha ll r e main in full f o r c e a nd effect re g ard l es s of a ny in vestiga ti on made by or o n be h alf o f the Indemnified Person and sha ll s u rvive t he transfer of the R egistrab l e Securities b y the In vestors pu rs u a nt to S e c ti o n 9.
 
 
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(b)           In co nne c ti o n with an y Reg i s trati o n State ment in whic h an Inve sto r i s parti c ipating , ea c h s uch In ves t o r ag r ees t o seve rall y and not j o intl y ind e mni fy, h o l d h arm l ess and d efend , to th e sa m e ex t en t a n d in the sa m e manne r a s i s set fort h in Sec ti o n 6(a ) , the Co mpan y, each o f it s dir ecto r s , each of its o ffi cers w h o s i gns t h e Re g i s tr a ti o n Sta t ement , an d ea c h P erso n , i f a n y , who co n tro l s t h e Compa n y w it hin the meaning of the 19 33 Act or the 1 934 Act (each an " I NDE1vfN I FIED PART Y " ), a g ain s t a n y C lai m or Indemnifi ed Dam age s to w hi c h an y o f them may become s ubje ct, under the 1 933 Act, the 1 934 Act o r o th erwise, in so f ar as s uch C l aim o r Indemnified Dama ges ar i s e out of o r are ba se d up o n a n y Vio l a ti on, in eac h case to th e exten t , a n d o nl y to t he exte n t, that suc h Violation occ ur s in rel i a nce upon a n d in co n form i ty w ith writte n info rm at i on f urn is h e d to t h e Co m pany by s u c h I nv e stor exp re ssly fo r u se in con n ec tion wit h s u ch Registrati o n Statement; and , s ubject to Sec tion 6(c ), s u c h In vestor w ill r eimb u rse any leg a l o r ot her e xpe n ses reas o n ab l y incurr ed by a n Ind e mnifi ed Party in con n ec tion with in ves ti gati n g or defending an y such C laim ; pro v ided , however , that the ind em ni ty agreement co ntain ed in this Sec ti on 6(b) and t h e agreeme nt w ith re s pe ct t o co n t ri bu ti on con ta ined in Sectio n 7 s h all no t app l y to am o u nts paid in se ttl e me n t of any C l aim if s u c h settle m ent is e ff ec ted wi th o ut the pri or wr i tte n co n se nt of s u c h Investor, wh i c h cons en t s hall n ot be unrea sona bly withheld; provided , furt h er, h oweve r , that t he agg r egate li ability o f th e Investor in con n ec tion with a n y V i o l ation s hall n ot exceed the net pr ocee d s to suc h In ves tor as a re s ult of th e sa le o f Registrab l e Secu riti es p u r s u ant t o t h e Regi s trati o n S tat e m ent giving ri se to s uch C l aim. S u c h indem ni ty s hall r e m a in i n full f o r ce an d effec t r ega rdle ss of a n y in ves ti ga ti on m ade by o r on be half   of s u ch In dem ni fied Party a nd s hall s urvive the tra n sfer o f the R egis trable Sec uriti es b y th e I nves t o r s p ursua nt t o Sectio n 9.  No t withstanding a n y thing t o the co n trary containe d her ein, th e indemnifi ca tion ag r eement containe d in thi s S ecti o n 6(b) with re spec t t o a n y pre limin ary p r os pectu s s ha ll n o t inur e t o the benefit of   a ny Ind e mn i fied Part y i f the u ntrue stat ement or o mission o f ma teria l fact contained in t h e preliminary prospectus was correct ed o n a tim ely bas i s i n th e prospe ct u s, as then a m e nded o r su pplemented .
 
 
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(c)           Promptly after r ece ipt b y a n Indemnifi ed Person or In dem nifi ed Party und e r th i s Sec ti on 6 of n o ti ce o f the co mm e n c ement o f any a c ti on or proceeding ( includin g a n y governm ental action or procee di ng) inv o l v ing a C l ai m , such Indemnified Person or Ind e mnified P arty sha ll, i f a Cla im i n respect there o f i s to be made against a n y i nd e m nifying p arty u nde r t h is Section 6, deli ve r t o t h e ind em n ify in g party a w r itten n otice of the commenceme nt the r eof , and the i n dem n ifying part y s hall have th e right to p art i c i pate in , and , t o the extent the ind e mni fying party so des ir es, j o intly w ith an y o ther indemnifying part y S imilarl y n o ti ce d, to assume co ntr o l of the defen se thereof with cou nsel mutua ll y sat i sfactory to the indemnifyin g party and t h e Indemn ified Person or the I nde mnifi e d Party , as the case may be.   I n a n y s u ch pr ocee ding , any Ind e m n ifi ed Pe r so n or I n d e mnified P arty m ay re ta in it s own cou n se l , b ut , ex cep t as p r ovided in the fo ll owing se ntence , t he fee s and expenses of   that cou n s el w ill be a t the expense of th a t Inde mnifi ed Perso n or In demn ifi e d Party , as the c a se m ay be, unles s ( i ) the indemnif y ing party and th e Ind em nified Per son or Indemnified Party , a s app li cab le , s hall h ave mutu a ll y ag reed to the retention of that counsel , (ii) t h e in dem n ify in g p arty do e s n o t assu m e the defe nse of suc h p r oceed i ng in a time l y m anner or (iii) i n the reasonable op ini on of co u nse l r etaine d b y t he in d e m n i fying p arty , t he represe ntati o n b y s u ch counse l for the Indemnified Person o r Indemn ified Party a nd the ind em ni fy in g party wo uld be i napp rop r iate d ue to ac tua l o r p o ten t i al differi n g int erests bet wee n s u c h Ind e mnifi ed Pers on or Ind e m nified Party a nd an y o ther pa rty r ep resented by suc h cou n sel i n s uch pr ocee din g.   The Compa n y s h a ll pa y reas o n ab l e fee s for up to o ne separ ate l ega l co un se l for th e In v e stor s, and s uch leg a l co unsel s hall be selecte d b y t h e Inves t or s h o ldin g a t leas t tw o-t hir ds (2/3) i n inte r es t of the Re g i strab le Securities included in t h e Re g i s tra ti on St atem ent t o which the C l ai m re l ate s.   The Inde m n ified Party or In dem n ifie d Pe rso n s hall cooperate fully w ith t h e indemni fy ing part y in conn ec ti o n wit h any negotiati o n or def ens e of any s u ch ac ti o n or C l a i m by t h e inde m n i fy in g party and s h all furni s h to the indem ni fying part y a ll inf ormat i on reasonabl y avai l a b le t o th e In demnified Pa rty or In dem n i fie d Pe rso n wh i c h rel a t es t o s u c h ac ti o n or Cla i m.   The indemnif y in g part y s hall ke ep the Ind e mnified Part y or In de mnifi ed Perso n fu ll y apprised at all time s as to t h e s tatu s of t h e d efe n se o r any se ttl eme nt ne got iati ons wi th re spec t ther eto.  No indemnify in g party s hall be l i a bl e f or any s ett l e m en t o f any ac ti o n , c l a im or pr oce ed i n g effec t e d w it ho ut i t s p r io r wr itten co n sent , pro v i ded, how eve r , that t h e indemnifyin g party s ha ll n ot unrea so n ab ly wit h ho l d, de l ay o r con di ti o n its co n se nt.   No indemnifying party s hall , w ithout the pri o r wri tten consen t of the Ind e mn i fie d Pa rty or I n d e m n ifi ed Per son, co n se n t t o e ntry of any ju dgme nt or en ter in t o any settleme nt or othe r compromise w ith r espec t to any pending o r threat ened ac ti on or claim in respect of whi c h in demn ification or contribu ti on may be o r has been so u g ht h e reund e r (w he t h e r o r n o t the Indemnified P arty o r Ind e mnified Per so n is an actua l or po t e nt ia l party to such ac ti o n or cla im), wh i c h d oes not in cl ud e a s a n un cond it ional te r m the r eof t h e giving by the claimant or plai nti ff to suc h Indemnified Party o r In demnified Per son of a relea s e from a ll li a bili ty in r espect to s u c h C laim or liti g ati o n .   Followin g ind e mnificati o n as pro vi d e d for h ereunder , th e i nd em ni fy in g party s h al l be su brogated to all r ights of the Indemn ifie d P a rt y o r Ind em nified Per so n w ith r es pe ct to a ll t h i rd partie s, firm s o r corporations r e latin g t o t h e matter f o r whic h indemnificati o n has b een mad e.   T he failu re to deli ve r written notic e t o the ind e mnifying part y wit hin a reasonable tim e o f the co mmenceme n t of any s uc h act i o n sha ll n o t relieve suc h indemnify in g party o f an y l ia b il i t y t o t he In de m n ifi ed Per so n o r Ind e m nifie d P arty un der thi s Sec ti on 6 , exce pt to the exte nt that t h e ind emnify in g p arty i s prejudiced in its abili t y to d efend s uch act i on.
 
 
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(d)           The in dem nificat io n re quired b y t h i s Sec tion 6 s h a ll b e m a de by p er i odic paym e nt s of th e amount thereof d u ring th e co urs e of the in v es t igation or def e n se, as and w h en bills a re re c eiv ed or In demni fie d Dam a ge s a re in curred .
 
(e)           The ind emn ity agreements co ntai n ed h ere in sha ll be i n addition to (i) a n y ca u se of action or si milar right of the Ind em nified Party or Indemnifi ed Pers o n aga in st the indemni fy in g pa rt y o r ot h er s, a n d ( i i) any l i abili t i es th e i n dem ni fying pa rty ma y be s ubject t o pursuant to the law.
 
7.            CONTRIBUTION
 
To t he ext ent any inde m n ific ati on by an i nde m nify in g party i s p rohibit e d or l imit ed by law, the ind em ni fy in g party agr ees t o m ake the m ax imum co ntributi o n w ith re s pec t t o a n y am o unt s for w hi ch it would otherw i se be li abl e u n der Sect i o n 6 t o the full est extent pe rmitted by l aw; provided , h owev er , that (i) no Per son in vo l ved i n the sa l e o f Reg i st rabl e S ec uriti es w hi c h Per so n i s gu i lty o f f raud ul ent misrepr ese ntati o n (w ithi n th e meaning of Sec tion II (f) of the 1933 A ct) in co n nect i on wi th s u ch sa l e, s hall be entit l ed to co n t ributi o n from any Pers on in vo l ve d in su c h s a le of Regis tr ab l e Sec uriti es wh o was not gui l ty o f fraudul e n t m isrep re sen tati on; a n d ( ii ) co n tr i but i o n by an y sel l e r of Re gis trable Sec uriti es s h a ll be l imited t o an amo unt eq u a l t o the net am o unt o f proceeds received by s u c h se ller f ro m t h e sa l e of suc h Regi s tr ab l e Secur i t ie s pur s uant t o the R eg i s trati o n S tatem e nt giving ri s e t o s u c h actio n or clai m f o r in d em nifi ca t ion le ss t h e amo u nt o f an y damag e s t h at s uc h se l l e r ha s o th erw i s e b een requi red t o pay in co nn ect i o n wi th s u ch sa l e.
 
8.            REPORTS UNDER THE 1934 ACT
 
Wi th a view to making ava il ab le to the I nvestors the benefits of Rule 1 44 promul gat ed under the 1 933 Act or any other s imil ar ru l e or re g ul ation o f the SEC that may at any time permit the In vestors to se ll securities of t h e Com pany t o the p u b l ic wi t hout registrati on ( " RULE 144") , the Company agrees to :
 
(a)           make and keep public in format i on available , as tho se terms are u nderstood and defined in Rule 144;
 
(b)           file with th e SEC in a time l y man ner a ll reports and other documents required of t he Co mpan y under the 1 933 Act and t he 1934 Act so l ong as the Company rema in s s u bject to suc h requiremen ts (it being und erstoo d that no thing h erein s hall limit the Company's ob ligati ons under Section 4(c) of the Sec uritie s Purc ha se Agreeme n t) and the filing of such reports a n d othe r document s i s required for the applicab le pr ovisio ns of Rule 144 ; a nd
 
(c)           fu rni s h t o eac h I nvestor so lo n g as s u c h I nvestor ow n s R egis t ra b l e Securit i es, promptl y upon w ri tten request, (i) a written s tatement by the Co mpany t h at it has comp li ed w i th the reporting requirements of Rule 1 44, th e 1 933 Ac t and the 1934 Act, (i i ) a co p y of t he most recent ann u a l or quarterly report of the Company a n d such othe r reports and documents so fi l ed by the Co mpany , a n d (iii) s u ch o ther i nfo rm a t ion as m ay be reas o na b l y requested to pe rmit t h e Investors to se ll suc h secur it ies pur sua nt to Rule 144 without re g i s tration.
 
 
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9.            ASSIGNMENT OF REGISTRATION RIGHTS
 
The ri ghts un der t hi s Agreement sha l l be automatically assignable b y th e Inve s t ors to any transfe r ee of all or a n y p ortio n of Registrable Secur iti es if : ( i ) t h e In ve s tor agrees in w riting with th e t r ansferee o r a ss ignee to as s i gn such right s, and a copy of suc h agreement i s furnished to the Company w ithi n five (5) Bus in ess Day s after s uch tran s fer or assignmen t ; (ii) the Co mp any i s, w ithin five (5) Business Days after s uch transfer or assign m ent, furnished with wr itten notice of (a) th e name and address of   s uch transfere e or assig n ee , a n d ( b) t he sec ur i tie s with respect to w h ich such reg i s trat ion r i ghts are being tra n sfe rred o r as si gned; ( i i i ) imm ediate l y follow in g suc h transfe r or assignment t h e further disp os i tion o f such sec urities b y th e transferee o r assignee i s restricted und er the 1933 Act and applicable state securities l aws; (iv) at or bef o re the tim e th e Co mpan y receives the written noti ce co ntemp l ated by clause (i i) of this sentence, the t r ansferee or assignee agrees i n writing wit h t h e Compa ny to be bou n d by a ll of the provisions co n tai n ed here i n; and (v) s u c h tran s fer s h a ll ha ve been made in acco rd a n ce w ith t h e a ppli cable r equire m ents o f the Sec u r iti es Purchase Agreement.
 
10.            AMENDMENT OF REGISTRATION RIGHTS
 
Pro vis i o n s o f this Agreeme n t may be a mended a n d t h e observance thereof may be waived (ei ther generally or in a parti c u l ar in stance a n d ei t her r et roa c ti vely or p r ospective l y), o nl y wit h t h e wr itt en conse n t of th e Co mp any and Investors who then hold at l east two - th ir ds (2/3) of the Registrable Sec urit ies.  Any amendment or waiver ef fect ed in accorda n ce with this Section 10 s hall be b inding up on eac h In vestor an d the Co m pany.  No suc h amendment shall be effective to the extent that i t app l ies t o le ss tha n all of the h older s o f th e Regi strab l e Sec u rities.  No co n si derati on sha ll be o ffered or paid to a n y Per s o n to a m end o r conse n t to a waiver or m odificat i o n of any pr ovis ion of any of this Ag reem ent u n less th e sa me consideration al so is offered to all of t h e parti es to t hi s Agreemen t .
 
11.            MISCELLANEOUS
 
(a)           A P erso n i s deemed t o be a h o l der of Registrable Secur iti es wheneve r s u ch Person owns or is deemed to ow n of   rec ord s u ch Reg i st r a b le Sec uriti es.   If t he Compa n y r ece i ves con fli cti n g instructi ons, notices or election s from two or more Persons with respect t o the sa m e Regist r able Secu riti es, the Co mp any s hall act up on th e basis of in str u ctions, notice or e l ectio n received from the registered owner o f such Regi s trable Securitie s.
 
(b)           A n y notice s, conse nt s, wa i vers or o ther communications req ui red o r pe rmitt ed t o be g i v en un der th e te rm s o f th is Ag r ee m e n t m u st b e in w riti ng and will b e deemed to ha ve bee n d eli vered: (i) upon rece ipt , when de l ive red persona ll y; ( i i) upon rece i pt , when se n t by facsi m i le (p r ov id ed co nfirm ation of transmissi o n is mechanically or elect r o ni cally ge n e r ate d and kept o n file by th e sending party ); or ( iii ) o n e (1) Bu s in ess Day after dep os it wit h a nationall y recognized ove rni ght delivery service, in e ach case properly addressed to the party t o r eceive the s ame .   T h e addresses and fa csim il e number s for s u ch co m munications shall be:
 
 
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I f t o the Co m pany:

Infinity E n e r gy Re so urce s, Inc:
1 1 900 Co llege Bl v d. , S uite 20 4
Overland Park, Kan sas 662 10
Te l ephone: ( 913) 948 - 0512
Facs i m i le: (9 1 3) 938-4458
Attent i o n : Ch i ef Exec u tive Office r

If to the Buyer , to it s address and fac sim ile number set forth o n t he Schedu l e of Buyers attach ed heret o, w ith cop ie s to suc h Buyer's representatives as se t f o rth o n th e Sc h ed ule of Buye r s, or if, in the case o f the Buyer o r other party n amed above, to s u ch ot her addre ss an d /or facsimile number and/or t o the attention o f suc h o th er person as the recipient party h as sp ecifi ed by wr itten notice given to each othe r party at leas t five (5) days prior to the effect iv eness of s u c h change.
 
If to an Investor (other tha n the Buyer) , to s u c h Inve stor at the address and/or facsimi l e nu m ber reflected in t h e r eco rd s of th e Co mpany.   Written co nfirmati on of receipt (A)   given b y the recipient of s uch notice , co n se nt , waiver o r o th e r communicati o n , (B) mech a ni ca ll y o r electronically ge nerated by the se nd er's facsimi le machine conta inin g the tim e, date , recipient fac s imile number and a n ima ge of th e fir st page o f s uch transmission or (C) prov id ed by a co u rier or overnight courier service s hall be rebuttable evide n ce of   pers o nal service , rece i p t by f acs imi le or deposit with a n at i o n a ll y recog ni zed ove rni g h t delivery serv i ce in accorda n c e w ith cl ause (i) , ( ii) o r (iii) above, r es pe ct i ve l y .
 
(c)            Fa ilure of an y part y to ex er c i se any right o r remed y under this Ag r ee m ent or otherwi se, o r dela y b y a party in exercising s uch right or remed y, s h a ll n o t operate as a w aiver ther eof.
 
(d)           A ll q u estio n s conce rnin g t he co n s tru ctio n , va lidi ty , enfo rcem e n t and in terpr etatio n of th is Agreement s h a ll be governed b y the i n te rn a l laws o f t h e S tat e of Texas, w i t h o ut giv in g effect t o any c hoice of l aw or conflict of l aw provi s ion or rule (w hether of t he State of Texas o r a n y other jurisdiction s) that would cause the application of the la ws of a n y juri sd i ctio n s o th er than the S t ate of New York.   Eac h party hereb y irr evoca bl y s ubmit s to the exc lusive juri s diction of the s tate and federal co urt s s ittin g th e City of Houston, for the adjudication of a n y disput e h ereunde r or in connecti o n h e rewith or w ith any t r a n sactio n cont emplat ed hereby or di sc u ssed herein, and he r e b y irrevoc abl y wa i ves , and agree s n ot to asse rt in a n y s ui t, act i o n o r p r oceed i ng, an y cla im t h at i t is n ot p erso nally su b ject to t h e ju ri s diction of any s u ch co urt , that suc h su i t, action or proceedi n g is brought i n an in co n venie n t forum o r t hat the ven u e of s u ch suit , act i o n o r pr ocee ding i s im p r o per .   Each party hereb y irrevocably waives personal se rvice of p r ocess and consents to process being s erved in any such su it , actio n o r proceeding by mailing a copy thereof to such party at the address for s uch notices to it under this Agreement and agrees that s uch service sh all constitute good and s ufficient se rvice of process and notice thereof.   Nothi ng contained herein sha ll be deem ed to li mit in any way any right to serve process in any manner permitted by law .   If any provi s i o n of thi s Ag r ee men t s h a ll be in va li d or u nenf orceab le i n any juri sd i ct i on, s uch inv a l idity o r unenforceab il i ty s h all not affect the validity or enfo rceabil ity of the remainder of this Agreement i n t hat jurisdict i on or the validity or enf orceability of any provision of this Agreement in any other jurisdiction.   EACH PARTY HEREBY IRR EVOC ABLY WAIVES ANY RIGHT I T MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRJAL FOR THE ADJUDICATION OF ANY DISPUTE H EREUN DER OR IN CONNECTION HEREWITH OR AR ISI NG OUT OF TH I S AGREEMENT OR ANY TRANSACT I ON CONTEM PLATED HEREBY .
 
 
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(e)           This Agreement and the other Transaction Documents constitu te th e entire agreeme n t among the partie s hereto w ith re s pect to the s ubject matter hereof and thereof.  There are n o r estr i ctions, promi ses, wa rranti es or undertaking s, ot h er than t h ose set forth or r eferred to herein and therein.   This Agreement and the other Transaction D ocu m ents supersede all pri or agreements and under s tandings among the p arties hereto w ith respect to the s ubject matter hereof and thereof.
 
(f)           Subject to the requirements o f Sect i on 9, this Ag re ement s hall inure to the benefit of a nd be b in ding up on the pe rmitt ed successors and ass i g n s of each o f the partie s hereto.
 
(g)           T he headin gs in this Agreement are for conve nience of reference on l y and shall not limit o r o therwise affect the meaning hereof.
 
(h)           This Ag r eement ma y be executed in t wo o r m o r e id ent i ca l co unt erparts, all of whic h sha ll be considered one an d the same agreement and shall be come effective w h en counterparts ha ve been signed by eac h party and delivered to each other party; provided that a fac s imile signature sha ll be considered due exec uti o n and s hall be binding upon the s ignatory thereto wit h the same force and effect as if the signa ture we r e an o ri g in a l , not a fac s imile signat u re.
 
(i)            Each pa rty s hall do and perform, or cau se to be done and performed , all s u ch further act s and things , and s hall execute and deliver all suc h other agreements, certificates , instr uments and documents, as the ot he r party may reasonabl y request in order to carry o ut the intent and accompl i s h the purpo ses of th is Ag r eement and t h e consu mm at i on of the transact i o n s contemplated h ereby.
 
(j)           A ll co n sents and ot her determination s to be made by the Inve sto rs pur s uant to this Agree ment s h all be mad e, unless o ther wise s pecified in this Ag r eement, by In vestors holding a t lea s t two-th ird s (2/3) of the Registrable Securities, determined as if all of the Notes and the Warrants t h en outstand in g h ave been converted into or exercised for Regi s trable Securities without reg a rd to any limitati o n s on conve r s i o n of the Notes or the exercise of the Warrants.  Any co n sent or other determination approved by Inve s t o rs as provided in the immediately pr eceding sen ten ce s h al l be binding on all Inve s tors.
 
(k)           The lan g u age u se d in thi s Ag r eement wi ll be dee m ed to be the l anguage chosen by the partie s to express their mutual intent and n o rule s of strict construct i on will be applied against any party.
 
(l)            Thi s Agr ee ment i s intended f o r the b e n e fit o f th e parti es heret o and their re s pe ctive p ermitted s u ccesso r s an d ass i g n s , and , t o the ex te n t p ro vid e d in Sec ti o ns 6 (a ) a nd 6( b ) h e reof , each I n v e s t o r , th e dire c t o r s, o ffi ce r s, partn e r s, empl oy ee s, a g ent s, represe n t at iv e s o f , an d e ach Pe r so n , if a n y w h o c o ntr o l s a n y In v e s tor within th e meanin g o f the 1 933 Act a nd the 1 93 4 A ct a nd ea c h o f the Com p any's d i recto rs , eac h o f th e Co mp any's o ffi cers w h o s i gns t h e R egi s tr a t ion S t a t e m e nt , an d e a c h Per so n , if an y, w h o c on t rols t h e Co mpa ny w ithin t h e me a nin g o f th e 1 933 Ac t an d th e 1 934 Act, a n d i s n o t f o r th e b e nefit o f , nor m ay an y pr ov i s ion h e reof be e nforced b y, an y o th e r Per so n .
 
 
-17-

 
(m)            U n less t h e co n t e xt o t h erwi se req uires, ( a ) a ll refer e n ces t o Sect i o n s , Schedul es or Ex hibits ar e t o Secti o n s, Sch e dul e s or Ex hibit s co ntained in o r atta c h e d to thi s Agreem e nt, (b) e a c h acco untin g te rm n o t o the rw i se d efin e d i n thi s Ag reemen t h as th e m e a nin g a ss i g n e d to it in a ccor dance wi th GAA P , (c) wo rd s in th e s in g u lar o r p l u ra l includ e the s i ngu lar a nd plural a n d pron ou n s sta t ed in e i t h er the ma s culine , th e feminin e or neut e r gend e r s hall include th e mas c ulin e, feminine and n eu ter and ( d ) th e u se of t h e word "i ncludin g" in th is Ag ree men t s hall be b y w ay o f e xa mpl e rath er than l i mitation.
 
[ R e m a in d er o f pa ge in t ent iona l ly left b lan k]
 
 
-18-

 
IN WITNESS WHEREOF, the part i es have ca u sed thi s Registration Rights Ag r eeme n t to be du l y executed as of day a n d year fir s t above w ritt en.
 
 
 
Com pany:

Infinity Energy Resources, In c.
 
       
 
By:
   
  Name: 
Stanton E. Ross
 
  Title:  President an d C h ief Exec uti ve Officer  
       
 
 
Buyer:

A m egy Bank , N.A.
 
       
 
By:
   
  Name: 
Hank H o lm es
 
  Title:  Exec uti ve Vice President  
       
 
[Signa ture Pag e 10 R eg istration Rights Agreement]
 
 
 
[Signa ture Pag e to R eg istration Rights Agreement]
 
 

 

Sc h e dul e o f Bu y er s
 
Am e gy Ba n k, N.A .
4 40 0 P os t Oa k P a r kw a y, S uit e 1 30 0
Houst o n , T exas 77 027
 
 
 
 
 
 
 
 
 

 
 
 

 
EXHIBIT A
 
FORM OF NOTICE OF EFFECTIVENESS OF REGISTRAT I ON STATEMENT
 
[TRANSFER AGENT]
 
ATTN:                                                      
 
RE: INFIN I TY ENERGY RESOU R CES , INC .
 
L ad i es and Ge n tlemen:
 
We are co un se l to I nfinity E n e r gy Re s ources, In c., a De l aware co rp o r ation (t h e "COMPANY") , a nd h ave represe nt ed t h e Compa n y in co nn ect i on w ith t h a t certain Sec uri t i es Purchase Ag reem e n t (t h e " P URCHASE AGREEMENT") e n tered into by and a m o n g the Company and t h e b u yer named t herein (the " H OLDER " ) pu r s u ant t o w h ich the Compa n y i ss ued to t he Holder warran t s to p u rcha s e an aggrega t e of _____ s h ares of Co mm on Stock , s u bjec t to adj u st m e n t (t h e " WARRANTS " ) . as set forth i n , and subject to the terms and conditio n s of, the Secu r it i es Purchase Agreement .   Pur s uant t o the Purcha s e Agreement , t h e Co m pany a l s o h as entered i nto a Registra t ion Rights Agreement with the Ho l der (the " R EG I STRATION RJ GHTS AGREEMENT") p ur s u a nt t o w h ich t h e Co mp a n y ag r eed, am o n g ot h e r t hin gs, to register t h e Reg i strab l e Secu r i ti es (as defined i n t he Registra t io n R i g h ts Agree m e n t) , i ncl u ding the s h ares of C ommon Stock i ss uab l e upon exercise of the Warrant s, under the Securitie s Act of 1933 , a s ame n ded (the " 1 933 ACT ' ) .   In co n nec ti o n with t h e Com p a n y ' s ob l igat i o n s u nder t h e Reg i stra ti o n Right s Ag r eement , o n ________________ , 201 1 , t he Compa n y filed a Re g i s trat i o n S t atement o n Form S-3 (File No. 333 -________________ ) (the " REGIS T RATION S T ATEMENT") with t h e Securities and Exc h ange Commission (the "SEC") relati n g t o Reg i st r a bl e Securities (s u b j ect to adjustme nt ) i ss u ed or i ss u ab l e u pon EXERC I SE OF WARRANTS ISSUED ON _________________ , 2 011 , w hi ch names th e Ho l der as a se ll i n g stock h o l der t h ereu n der. In co n nection with the forego i ng , we advise you that a m embe r of the SEC's s t aff has adv i sed u s b y telephone t h at the SEC h as e n tered an o rd er declar in g the Reg i stration Sta t eme n t effec ti ve u nd er the 1933 Ac t at [ENTER TIME OF EFFE C TIVENESS] o n [EN T ER DATE OF EFFECTIVENESS ) and we h ave no k now l edge , after telephonic inquiry of a member of t h e SEC's staff , t h at a n y stop order s u spending i t s effec ti veness has been i ssued or that any pr oceeding s for that p urpo s e are p e ndin g before, o r thre a t e n ed by , th e S E C a n d t h e Reg i s trabl e Securi ti es a r e a va il ab l e for r esa l e un de r th e 19 33 Act pursuan t to th e Reg i s trat i on Sta t ement.
 
 
Very tru l y yo u rs , [I SSUER ' S COUNSEL]
 
     
     
       
 
By:
   
       
 
cc: [LIST NAME OF H OLDER]
 
 
 
 

 
 

 
 
 
 
 
Exhibit 10.22

  TH E SECU RI TIES REPRESENTED BY THI S WARRANT H AVE NOT BEEN REGISTERED UNDER THE SECURIT I ES ACT OF 1933 , AS AMENDED , OR APPLICABLE STATE SECUR ITIE S LAWS. THE SECURIT I ES MAY NOT BE OFFERED FOR SALE , SOLD , TRANSFERRED OR ASSIGNED (I) IN TH E ABSENCE OF (A) AN EFFECT IV E REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECUR ITIES ACT OF 1933 , AS AMENDED , OR AP PLI CA BL E STATE SECURITIES LAWS OR (B) AN OPIN I ON OF COUNSEL , I N A GENERAL LY ACCEPTABLE FORM , THAT REGISTRATION IS NOT REQUIRED UNDER SA ID ACT OR APPLICABLE STATE SECURITIES LAWS OR ( II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT. N O TWI THSTANDING THE FOREGOING , THE SECUR ITI ES MAY B E PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINAN C ING ARRANGEMENT SECURED BY THE SECURITIES . ANY TRANSFEREE OF T HI S WARRANT SHOULD CAREFULLY REVIEW THE TERMS OF THIS WARRANT , I NCLUDING SECTION 2(1) HEREOF. THE SECURITIES REPR ESENTED BY THIS WARRANT MAY BE LESS THAN TH E NUMBER SET FORTH ON THE FACE HEREOF PURSUANT TO SEC TI ON 2(1) HEREOF.
 
INFINITY ENERGY RESOURCES, INC.
 
WARRANT TO PURCHASE COMMON STOCK
 
 Warrant N o.: I AB
Numbe r of Shares : 931 , 561
Date of I ssuance: February 16, 20 1 1
 
Infini ty Energy Resource s, In c. , a Delaware corporation (the "COMPANY " ) , hereby certifies that , f or Ten United State s Dollars ($10.00) a nd ot her good and va lua b l e consideration , t h e receipt and suffic i e n c y of which are h ereby acknowledged, Amegy Bank, N.A . , or the regi stered h older hereof or its a ss igns, is entitled , subject to the terms set fort h below , to purchase from the Company upon s urrender of this Warrant (i f required b y Sect io n 2(0) , at an y time or ti me s on o r after t h e dat e hereof, b ut n o t after II :59 P.M. New York Time on the Expiration Date (as defined herein) 931 , 561 (Nine Hundred Thirty One Th ou s and Five Hundred S ixty One) full y paid nonassessable s hare s of Common Stock (as defined in Sect i o n l(b» of the Compa n y (the " WARRANT SHARES") at the Warrant Exercise Pr i ce (as defi n ed in Section 1(b»; prov ided , however , that in no event s hall the Holder (as defined in Section 1 (b)); be e n tit led or r equired to exerc ise this Warrant for a number of Warrant Sha re s in excess of that number of Warrant Share s that, upo n g i v in g effec t to s uc h exercise , would cause the aggregate number of s h ares of C ommo n Stock beneficially ow n ed by the Holder and its affiliates to exceed 4.99 % of the o utstanding share s of t he Co mm o n Stock following s uch exercise. Fo r purposes of th e foregoing proviso, the a ggrega te number of s h are s of Co m mon Stock beneficially owned by the Holder and its affiliates sha ll include the number of s hare s of Common Stock i ssuab l e upon exercise of this Warrant w ith respect t o which t h e determination of such proviso is being made, but sha ll exclude shares of Commo n Stock that would be i s suable upon (i) exerc i se of the remaining . unexercised SPA Warrant s (as defined in Sectio n 1 (a)) beneficially owned by the Holder and it s affiliate s a nd (ii) exerc i s e , conver s ion o r exc ha nge of the unexercised , unconverted or unex changed portion of any other sec uriti es o f th e Company beneficially owned by the Holder and its affiliate s (including any ot her convertible notes or preferred s tock) s ubje ct t o a limitati on o n conversion. exe r cise o r exchange analogous t o the l imita tio n conta ine d herein. Exce p t as s et forth i n the preceding sentence. for purposes of this paragraph, beneficial ownership shall be calculated in accorda n ce with Section 13(d ) of the Securities Exc han ge Act of 1934 , as ame nded. For purposes of this Warrant, in determining t he number of outsta n ding s h ares of Co mm o n Stock the Holder may rely o n the number of outstandi ng shares of Common Stock as reflected in (I) the Company ' s most recent Form 10-Q or Form l0-K, a s the ca s e ma y be , (2) a more recent public announcement by th e Co mpan y or (3) any other notice by t he Co mp any or it s transfer agent setti n g forth the num ber of shares of Common Stock outstanding. Upon the written reque s t o f any Holder , th e Company s h all prompt l y . but in n o e vent l ater t h an o n e (I)
Bu si n ess Da y (as defin ed in Secti on l(b» fo ll owing the re ce ip t o f s uch reque s t , co nfirm in writi n g t o any s u ch H ol der t he n u mb e r o f s h a r es of Co m mon Stoc k th e n o u ts t a n d in g. In any case , t he n u mber of o ut s tanding s h ares of Co mmon S t oc k s hall be de t ermined aft e r g i v i ng effec t to the co n versio n, exercise o r exc h ange of sec uritie s of the Com pan y, includin g the SPA Warra nt s b y su c h Holder a nd it s affi liate s, s in ce th e dat e as o f w h ich s u c h nu m b e r of o u tstand in g s h ares of Co mm o n Stoc k was repo rted. F o r p u rpo ses o f dete rm i n ing the ma xim um number o f s h ares of Co mm on Stoc k th at the Compa n y may iss u e to th e Ho ld er u po n exerci s e of thi s Warrant , s uch H o lder 's d e li very of a n Exerc i se No ti ce (as defi n e d in Section 2(a» w ith re s p ec t to s u c h exe r cise s ha ll const i t ute a representat i on (on w h ic h the Com pan y m ay rely wit h ou t in ves tiga tion) b y t h e H older that u pon the iss u a n ce of the s h a r es of Co mm on Stock to be i s su e d t o s u ch Ho ld er, the s hare s of Common S t ock b e nefi cially ow n e d by s u c h Holder a nd it s affiliates s ha ll not exceed 4.99% of the t o tal o u tstanding shares of Com m o n Stoc k of the Co mp any im med iatel y after giv in g effect t o such exe r c i se as d etermi ned i n acco rdan ce w ith t his parag r ap h .
 
 
 

 
Se cti on 1.
 
(a) Sec uriti es Pur c h ase Agreement. Th i s Wa rrant i s o ne o f th e wa rrant s issued pur s u ant t o Section 1 of that certain Securitie s Pur c h ase Agreement dated as of Feb ruary 1 6, 2011 , a mon g t he Co mp any and A m egy Ba n k, N.A. (as s u ch agr ee m en t m ay be amended fr om t ime to time as provided in such agreement, th e " SECURIT I ES PU RCH ASE AGREEMENT") or of an y warrants i ss u ed in e xc han ge or s ub s titution t h erefor o r repla ce ment th ereo f (all s uch warrants bein g colle c tively r efe rred to as th e " SPA WAR RA NTS " ).
 
(b) Defi niti o n s. The followi n g wo rds and te rm s as u se d in thi s Warrant sha ll h ave th e follow in g meanings:
 
(i) " 20 0 7 L OAN AGR EEM EN T" m eans that certain Loan Ag reem e nt dated January 9, 2 0 07, as am ended, re s t ated, m odifie d , supp lement e d , extended, repl aced or renewed fr o m time t o ti me, a nd i n clud i n g t h a t ce rtain Forbearance Agree men t d a t ed August 3 1 , 2007, Secon d F o r bea ra nce Agreement d ate d Ma r c h 26, 2008 , Third Forbearance Ag r ee m ent da t e d Octo ber 16, 2008 , Fou rth Forbearance Agree ment dated December 4, 2 009 and Fifth Forbearance Ag reement dated the dat e hereof , i n each case, a m o n g Com pa ny, Infin i ty O i l and Gas o f Te xas . In c. , a Texas co rporati o n , I n finit y Oi l & G a s of Wyom in g, Inc. , a Wyoming co rp o r at i on, and Amegy Ba nk , N . A.
 
(ii) "A PPROVED STOCK PLA N" mean s any e m p l oyee be n e fi t p l a n that ha s been approved by the board of directors a n d s h a r eholders of th e Company, pursuant to which the C ompan y's securities m ay be i ssued to an y co n sultant , emp l oyee, officer or dir ecto r for se rv ic es provided t o t h e Co m pany .

( iii ) "A RTICLES OF I NCO RP ORA TIO N" means the Compa n y's Artic le s of I nco r poration, as am end e d fro m lime to tim e as permitted here by.
 
( iv) "BU SINESS DA Y " mean s any day o th er than Satu rda y, Su nd ay or other da y on w hich co mmer cia l bank s in the City o f New York are authorized or r eq uired b y l aw t o r e main cl osed .
 
(v) "CA PIT AL ST O CK" m eans , as to th e Co mpan y. its s h a re s of Co mmon S t ock , preferred s tock , a n d/o r a n y ot her ca pital stock o r o th e r e q u i ty intere sts au th or i zed fr o m time to time, and any ot h e r securit i es, options, int erests, participation s o r other eq u iva l e n ts (how ev er designated) o f or in the Co mpan y, w h et her vo ting or n o nv oting, includin g, without limi tat i o n , optio n s , warrants, ph a n tom s tock , s t ock appreci a tio n r i g ht s, co n v ert ib l e n o te s or debentures, s t ock p urchase right s, and all

 
 

 
agreem e nts , in s trument s , document s and sec uritie s convertib l e , exerci sa ble , or ex changeable, in whole or in part , i nto a n yo ne or mo re o f th e foreg o i ng.
 
(v i ) "CO MMO N STO CK" mean s (i) the Co mpan y's comm o n s tock , $0.0 001 par va l u e per s h a r e, and (ii) any Ca pital Stock int o w hi c h s u ch co mm on s tock s hall ha ve been changed or any Ca pital St oc k re s ultin g from a r eclassification o f s u c h commo n stoc k .
 
(vi i ) "CONVER TIBL E SECU RITY " mean s any evide n ce of indebted ness o r C apital Stock (othe r than Opt i ons) dire c tl y o r indirectly convertible into or e xc h a n geab l e or exerc i s able for Co mmon Stock.
 
(vi ii) "EX PIRA T ION DATE " mea n s t h e date t h a t i s t e n ( 10 ) y ea rs afte r th e Warrant Date (a s defined in Section 12) o r, if such date d oes n o t fall on a Bu s iness Day, then the ne xt Bu si n ess Day .
 
(ix) " HOLDER " mean s eac h and every h o lder or beneficial owner o f an y porti o n o f thi s Wa rran t or any of the Warrant S hare s. Without in any way limitin g the f o re g oing , the tem " H o ld er " s hall i nclud e Amegy Bank , N.A. a nd i ts s u ccessors and/ o r ass i gns that at an y t i me h o l ds or otherwise own s any p ortio n of thi s Warrant or the Warra nt S hares. If at an y t i me there sh all exist more than one Holder , then , with respect to an y act ion , approval o r co nsent of t he Holder required or ot herwi se permitt ed pur s u a nt t o th e provisions hereof , such ac tion , approval o r conse nt sh all b e deemed t o have been taken, received or o therwi se obtained if s u c h actio n , approval o r co n se nt i s t a ken . r eceived or otherwi s e obtained by or from th e Requisi te Holder s.
 
(x) "O PTIO NS" mea ns any r i g ht s , warrants or opt i ons 1 0 su b scr i be for or purcha s e Common Stock o r Convertible Sec uritie s.
 
(xi) " PERSO N " means an i ndivid ual , a l im i ted li abi lity company , a partner s hip, a j o int venture , a corporation , a trust , an unincorp o rated orga nizati o n or a government o r an y department or agency there o f or any other le g al entity .

(xii) " PRINC I PAL MARKET " mea n s. with re spec t 10 the Co mmon Stoc k or any other security , the principal sec uritie s exc han ge o r tradin g market for th e Co mm on Stock o r s uch ot h e r s ec u rity .
 
(xiii) " REGISTRATION RIGHT S AGR EE MENT" m eans that certai n Regi s tr a tion Rights Agreemen t dated a s of February 16 , 20 II, b y and a mon g the Company and Amegy Bank , N . A., a s suc h ag re ement m ay be amended, r estated, modified, s up ple m e nted . ex ten ded, rep lace d or renewed from time to time as provided in s uch agre e ment.
 
(xiv) " REQU I S ITE H OLD ERS " mea n s H o lde rs t ha t o wn or ot h erwise ho l d more than fifty perce nt ( 50% ) of the Warrant S hare s i s s ued o r i ss uabl e upon exercise of the Warrant.
 
(xv) " SEC URITIES ACT' m ea n s t h e Se c u r itie s Act o f 19 33 , a s am en d ed.
 
(xvi) " TRADING DAY " mean s any day on whi c h the Co mmon S t oc k IS t r a d ed o n the Prin ci pal Mar k et.
 
(xv ii) "WA RRA N T " me a n s this Warrant and all Warrants i ss ued in exchange , tran sfer o r repla ce ment th ereo f pur s ua nt 1 0 the terms of this Warrant.
 
 
 

 
(xv iii ) " WARRANT EXERCISE PRICE" s h a ll be equal to, with respect to an y Warrant Sha r e $5.0 I , subject t o ad ju st ment a nd h ere ina fte r p rov ided .
 
(xix) " WEIGHTED AVERAGE PRICE" means, for any sec urity as of an y dat e, t he d o ll a r vol um e-weig hte d ave ra ge p r i ce f or s u ch security on it s Pri n cipa l Market d uri ng t he period beginnin g at 9:30 a.m. , N e w York City Time (or s u ch other time as the Pri n cipa l Mar k et publicl y announces i s th e o fficial op en of trading), a nd ending at 4:00 p . m., New York C ity Time (or s u c h o ther tim e as t h e Principal Market pub l icly announce s i s the officia l close of trading), as reported by Bloomberg Fi n ancia l Markets (or any successor th ere t o, " BLOOMBERG ") through it s "Vo l u m e a t Price " functi o n s, or , if the foreg o ing d ocs not appl y, the dollar vo lume-wei g hted a ve r age pri ce of such sec urity in t he over -th e-co unter market o n the e l ec tro nic bul letin boar d for s uch sec urity during the peri od beg in ning at 9 :30 a.m., New York C ity T im e (or suc h ot he r t im e as such over-the-co u n t e r mar k et p u b li cly announces is th e o fficial o pen of trading) , an d endin g at 4:00 p.m., New York C i ty Ti m e (o r suc h o th e r time as s u c h ove r - the- co unter m a rk et publicly announces i s the official close of tradin g), as rep orte d b y Bl oo mber g, o r , if no do ll ar vol um e - weig h ted average p r ice i s r epo rte d f o r s u c h sec urity by Bloomberg f or s uch h ou r s, the av era ge o f the hi g he s t cl os ing bi d price a n d the l owest closing ask pri ce of any of t h e mark e t maker s for suc h s ecurity as rep orted in th e " pink s h eets" b y the Pink OTC Markets Inc . If th e Weigh t ed Average P r i ce can n ot be calc ul a t ed for suc h secur i ty on s u c h dat e o n a n y o f t he foregoing ba ses, the Weighte d Ave r age Price of s u c h secu r ity on s u c h date s h a ll be the fair ma rket va lue as mutu a ll y determin e d b y the Company and the H o ld e r. If th e Co mpan y a nd th e Holder are unabl e to agree u po n t he fa i r m a r ket va lu e o f t h e Common Stoc k . t h en such dis pute sha ll be re so l ved pur s uant to Sec tion 2(a) below. A ll s u c h det e rminati ons to be a ppropriately adjus t ed for any s t oc k di v id e nd , s t oc k sp l i t , s t oc k combination or o ther similar tran sac tion during an y period during whi c h the Weighted Ave ra ge P rice i s be in g determin ed.
 
Sec ti o n 2 . Exerci se of Warra nt.
 
(a) Subjec t t o the term s and co nd it io ns hereo f , thi s Warra nt m ay b e exercised by t he Hold er then registe red o n the b ooks of th e Co mpan y, in whole o r in p art, at any ti m e on any Bu si n ess Day o n or after th e o p e nin g of busine ss o n th e date her eo f and pri o r t o 11   :5 9 P.M . N ew York Tim e o n th e Ex pira tio n Date by (i) delivery of a wr itt e n no t ice, i n t he form of t he subscri pti on for m attached as E xhi bit A h ereto ( the "EXE RCISE NOT I CE"), of s uch Holder 's election t o exercise t h is Warrant , w hi ch notic e s hall specify the number of Warrant S hares to be purch as ed , (ii ) (A) pa y m e nt to the Co mpany of an amount eq u al t o t h e Warran t Exerci se Pric e m u lti plied b y the number of Warrant S ha res as to which this Warrant is bein g exerc i s ed ( th e "A GGR EG ATE EXE RCI SE P RI CE") b y wire transfer o f i mmed i ate l y available fund s (o r by check if th e Co mpany ha s n o t provid ed the H o ld e r with wire tran s f e r in s tru ct ion s for s u c h pa y m e n t), (8) by notif y i ng the Co mpan y tha t thi s Warrant i s being exercised pursuant t o a Cas h less Exe r c i se (as defined in Sec ti o n 2(e» o r (C) any co mbination o f t he f orego in g, and ( ii i) if requir ed by Section 2(0 o r unle ss the Hold e r has previously delivered thi s Warrant to th e Co mp a n y a nd it o r a n ew replaceme nt Warrant h as not y e t bee n delivered to the Holder , the surre nd e r t o a com m on ca rrier fo r overnigh t d e li very to t h e Com p a n y as soo n as prac ti cable f o ll ow in g s u c h da te , t hi s Warrant (o r an indemnifi c ati o n undert ak ing with r es pe ct t o this Warrant in the case of it s loss. theft o r destruction); provided , that if s uch Warra nt Sha res are to be i ss ued in a n y nam e o ther than that o f the r eg i s tered H o ld er, suc h i ssua nce s h a ll b e de e m e d a t rans fer and t he p r ovis i o n s o f Sec t ion 7 s h a ll be appl icable. In the event o f an y exerci se of the ri g ht s represe n ted by th i s Warrant in comp li ance w ith this Section 2(a). the Co mpan y s hall on th e s econd (2nd) Bus ines s Day (the " WARRANT SHARE D ELIVE RY DATE") f o ll owing t he d ate of i ts r ecei pt of the l a t e r of the Exer c i se Notice, th e Agg re gate Ex erci se Price (or n ot i ce of Cas hl ess Exercise) and if required by Section 2(0 (o r u nl ess t he H olde r has previou s l y del i vered t hi s Warrant to th e Co mpany a nd it o r a new r ep lacement Warrant has n o t ye t b ee n delivered to th e "f o lder ), t hi s Warran t (or an indemnificati o n un d erta kin g wit h respect to this Wa rran t in the case of its l oss , theft or destr u c tion) (th e "EXE R C I SE DELIVERY DO CU ME N T S " ) , (A) prov id e d t h a t th e tra n s f e r agent i s
participating in The Depo s it ory Trust Com pan y ( " DT C " ) Fa st Automated Secur i t i es T r a n s fer P r ogra m and pro v id e d that the H o l de r is eligible t o r e cei ve sha re s through DTC , cre dit suc h aggregate number of shares of Co mm o n Stock to whic h the H o l der sha ll be e n t itled to the Holder' s o r it s d esig ne e's balance account wit h DTC t h ro u g h it s Deposit W i t hdra wal Age n t Co mmi ss i on syste m a n d p ro mpt ly execu t e a n d d e li ve r t o the H o ld e r the Ack no w l e d g ment attac h e d to th e Exercise No ti ce o r (8) i ss ue and d elive r to the addre ss s p ec ifi ed in t he Exe r cise Not i ce, a certificate, regi ste red in the name of the Holder or its designee , fo r the number of s hare s of Co mm o n Stock t o which the Holder s h a ll be e n titled. Upon the late r of th e date of d e li very of (x) the Exercise No ti ce and (y) the Agg re gate Exercise Price ref erred to in c lau se ( i i)(A) abo ve o r notifica t ion to t h e Co mp a n y o f a Cas h less Exe r cise referred to i n Sectio n 2(c), t he Holder sha ll be deemed fo r a ll purp oses to ha ve become the H olde r of r ecord of the Wa r ra nt Sha r es with respect to wh i ch this Warrant h as been exerci se d (the dat e the re of being referred t o as th e " DEEMED I SSUANCE DATE " ), irr espec ti ve of th e date of del i very o f thi s Warra nt as req u i red b y c l a u se ( i i i ) abo ve or the certificates ev iden cing such W arrant S har es. In the case of a dispute as to the d eterminatio n of the Warrant Exercise Price, the Weighted Average P ri c e of a security o r the arithmetic ca l cu lati on of th e num ber of Warrant Shares, t h e Com p a n y sh all prom ptl y i ssue t o t h e H o l der the n u m ber o f s h ar e s of Com mon S t oc k that i s not di s puted a nd shall s ubmit the disputed det erm inati ons o r ari thm etic ca l c ula tio n s to th e Holder v i a fac si mile with i n tw o (2) Bus ine ss Da y s of receipt of the Holder' s Ex erci se Not i ce. If the H o l der and the Com pan y a re un ab le to agree upon t he de termin a ti on of t h e Warrant Exe rci se Price, th e Weighted Average Price or arit hmeti c calculation of the numb e r of Wa rrant S har es wit hi n one ( I) B us i ness Day of suc h d i sputed determinat io n o r arithmet i c calc ul at i o n be in g submitted to (he Holder, then the Company s hall promptly submit via facsimile (i) the disputed de termin a ti on of the Warra nt Exe rcise P ri ce or the Weighted Ave ra ge Price to a n ind epe ndent , reput ab le inv est ment banking firm agreed to by t h e Company a n d the H o lder or (i i ) t he dis put e d a r ithmet i c calcu la t i on of the n u mber of Warrant Shares to i ts independent , outside publi c accountant. The Company s h a ll direct the inv est ment bank in g firm o r t h e accountant , as the case may be , t o pe rf orm the det e rminati ons or ca lcul atio n s and notif y t h e Co m pany a nd the H o ld er of t h e re s ult s no l a t er than t wo (2) B u siness Da ys afte r t he date it r eceives th e disput ed d eter minati ons o r ca lcul atio n s. S u c h in vestment banking firm 's o r accoun t a n t's de termin a ti on   o r ca l cu lati o n , as the ease may be, s hall be deemed conclusive ab se nt demonstrable error. Notwithstanding t h e foreg oi ng , t h e H olde r may, u pon w ritt e n notice deli vere d to th e Com pany conc urrentl y with the surrender of thi s Warrant f or e xe r cise as provided h e rein , e l ec t th at the exercise of all or any p o rti on of th is Warra nt be co n ditio n ed upon t he cons u mmat i on of an y transactio n o r even t , i n w h ich case (x) s u c h exercise s h a ll not be deemed to be eff ective u n le ss and until t he co n su mm ation of such tran sact ion o r eve nt occ ur s and (y) s u c h exercise m ay be r evo ked by the H o lder at a n y tim e prior t o t h e co n s u mmatio n o f s u c h transa c ti o n o r eve nt . I f s u ch transaction o r event is not co n su mmated or i s so revoked, the Company sha ll promptly ret urn t h e surrendered Warra nt a n d the Aggregate Exercise P rice paid , unle ss o therwi se in structed b y s u c h H older.

 
 

 
(b) If this Warrant i s s ubmitt ed f o r exercise, as ma y be required by Sec tion 2<0, and unless the r i g ht s rep re sented by this Warrant sha ll ha ve ex pired or shall h ave bee n fully exerc i se d , th e Com pany s hall, as soo n a s practicable and in no even t l ate r t h an fo u r (4) B u siness D ays afte r rece ipt of thi s Warrant ( the " WARRANT DELIVERY DATE") a nd at it s ow n expe n se, i ss u e a ne w War rant i dentical in a ll resp ects t o this Warrant except it sha ll represe n t r i ghts to purcha se t h e number of Warrant S h ares purchasable immediately prior to s uch exe r cise u n de r th i s Wa rr an t , less the n u mbe r of Wa rr ant S h ares with respect to which such Warrant i s exercised (toge th er with , in the ca se o f a cas hle ss exerc i se, t h e n u mber of Warra nt Shares surre n de r ed in lieu of pa y m e n t of th e Exe r c i se Pri ce).
 
( c) No fr acti ona l s har es of Com m o n Sto ck a r e to b e i ss ued up o n the exe r c i se o f thi s Warran t , b u t rat h er t he num ber of s h ares of Co m mon Stock iss u e d u po n exerc i se o f t h i s Warran t sha ll b e r o unded up o r do wn to th e nearest w h o le number (with 0.5 rou nd ed up).
 
(d)             (i) The Company stipu late s that the remedies at l aw available to the Holder in th e event of a n y default o r t h reate n ed default by the Co mpan y in the perf ormance of o r compl ian ce wi t h any of the terms of this Warrant arc not and will not be adequate and that , to the fullest extent permitted by law , such term s may, wit hout the necessity of s h owi ng economic l oss and without any bond or o ther sec u ring be i ng required , be specifica ll y enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. Subject to the la st sentence of Sect ion 6, if the Comp any s hall fail to issue and deliver to the Holder within three (3) Busine ss Days of rece ipt of the Exercise Delivery Documents a certificate for th e number of s ha res of Com m on Stock to whic h the Holder i s entitled (taking in to acc o unt the l imita ti o n s o n th e exercise of thi s Warrant s et forth in the first paragraph of this Warrant) or to credit the Holder 's balance account wi th DTC for suc h numb er of shares of Common Stock to w hi ch the Holder i s entit l ed (taki ng into ac co unt the limita t i o n s on the exercise of this Warrant set fort h in the first paragraph of t hi s Warran t ) upon the Ho l der 's exercise of this Warrant , in either case , the is sua n ce and delivery of which would vio l ate existing sec uriti es law applicable to the Company, then the Com pan y sha ll , in addition to any o ther reme d ies un de r thi s Warrant or the Sec urit ies Purcha s e Agreement o r ot h e rwi se ava ilabl e to suc h Holder , including any indemnification under Section 5 of the Securities Purchase Ag reement , pay as additional damages in cash to such Holder on each day after s u c h third (3rd) Busine ss Day that such s har es of Common Stock a re n o t i ss ued and delivered t o t h e Holder, an amount equa l to the product of (A) the number of shares of Commo n Stock not is s ued to the Holder o n or prior to the Warrant Share Delivery Date and (B) the Weighted Average Price of the Com mon Stoc k on the Warrant Share Delivery Date .
 
 
 

 
( ii) If the Comp any s hall fai l to issue and deliver to the Holder o n the Warrant Delivery Date a n ew Warrant for the number of shares of Common Stock to which such Holder i s enti tled (taking into account th e l imita t ions on t he exerc i se of this Warrant set forth in t h e first paragraph of th is Warrant) pur s uant to Sect ion 2(b), if any, then, at the election of the Holder m ade in the Hold er's sale d i scretion, the Co mpa ny s hall, in addition to any othe r remedies und er this Warrant or the Secur itie s Pu r c h ase Ag r eement or o therwise avai l able to suc h Ho l der , i ncl u ding a n y in demn ifi catio n u n der Section .2. of the Sec uritie s Pur chase Agreement , pay as additional damages in cash to s uch Holder on eac h day after such f o urth (4th) Business Day that suc h Warrant is n ot de li vered, an amount equal to 0.5% of the product of (i) the numb e r of s h ares of Com mon Stock is s uable u pon exerc i se of the Warrant a s of the Warrant Delivery Date , and (ii) the Weighted Average Price of the Common Stock on the Warrant Delivery Date.

( iii ) Notwithstand in g the foregoing, in n o event sha ll cash damages accrue pur s uant t o this Sect ion 2(d) during th e peri od, if any, in which a n y Warrant Shares are the s u bject of a bona fide dispute that is s u bjec t to and being resolved pursuant t o, and in compliance with the time p eriods a nd other provision s of, t h e d i sp ute resolution provision s of Section 2(a).

(iv) Alte rna t iv ely, subject to the dispute resolut i on provisions of Sect i on 2(a), at the election of the Ho l der made in t h e Holder 's so le discretion , t he Co mp a n y s hall pay to the Ho l der , in l i eu of th e add ition a l damages referred to in the immediately preceding clauses (i) and ( ii) (but in addition to all other available remedies that the Holder may pursue hereunder and under the Securities Purchase Agreement ( inclu ding i nde mnifi ca ti on p ur sua n t t o Sect i on 5 thereof) , 110 % of t he amount by w hi c h (A) the Holder's total purchase price (i ncludin g brokerage com mi ss i ons, if any) for shares of Common Stock purchased to make delivery in sat i sfac tion of a sale by such Holder of the shares of Co mmon Stoc k to which the Holder i s en titl ed b ut h as not rece i ved upo n a n exercise, exceeds (B) the net proceeds received by th e Holder from the sa l e of t he s hare s of Co mm on Stock to w hi ch the Holder is enti tled but has not received upon such exercise.
 
(e) Notwithstandi n g anyt hin g contained herein to the contrary, th e Holder may , at it s election exe r c i se d in i ts sal e discretion , exercise thi s Warrant in whole o r in part a nd , in lieu of mak in g the cash payment o therwi s e contemp lat ed to be made to the Co mpany upon such exercise in pa y ment of the Aggregate Exercise Price, elect instead to receive upon s uch exercise the "N et N umber" of sha res of Common Stock determined acc o r ding to the following formula (a "CAS HLESS EXERC I SE"):

 
 

 
Net Number = (A x B) - (A x C)
 
B
 
For purposes of the foregoing formula :
 
A = the total numb e r of shares with respect to which thi s Warrant is th en being exercised ;
 
B = th e Weighted Average Price of the Common Stoc k on the trading da y immediately preceding the date of the delivery of the Exerc ise Notice; and
 
C= the Warrant Exercise Price then in effect for the applicable War ran t Sha re s at the time of s uch exercise.
 
(f) Book - Entry. Notwithsta nd ing anything t o the contrary set forth herein, upon exe r c i se of thi s Warrant in accordance with th e term s hereof, the Holder s hall not be requir ed t o physically surrende r thi s Warrant to th e Company unless it i s being exercised for all of the Warrant Shares rep re se nted by the Warrant. The Holder and the Compa n y sha ll maintain record s showing the number of Warrant S h ares exerci se d and iss ued and the date s of such exercises or sha ll use such other method, reasonably sat i sfac tory to the Holder and the Company, so a s not t o require phy s ical surrender of this Warrant u pon each s uch exercise. In t h e event of any di s pute or d i screpancy, s uch records o f the Company establi s hing the number of Warrant Share s to which the H o lder is entitled shall be controlling and determinative in th e absence of demonstrable error. Notwithstanding the foregoing, if this Warrant is exerc i sed as aforesaid, t h e Holder ma y not tran sfe r t hi s Warra n t unless the Hold er fir s t ph ys i cally surrenders this Warrant t o t he Company, whereupon the Company will forthwith issue and deliver upon the order of the Ho lder a new Warrant of lik e tenor , registered as the Ho lder may request , representing in the aggregate t he remaining number of Warrant Shares repre sen ted by t h is Warrant. The Holder and any assignee , by acceptance of this Warra n t, a ckno wledge and ag r ee that , by re ason of the pr ov i s i ons of t hi s paragraph, following exercise of a n y portion of thi s Warrant , the number of Warrant Shares represented by thi s Warrant may be l ess than the number stated o n the face hereof. Each Warrant shall bear the following legend:
 
ANY TRANSFEREE OF TH I S WARRANT SHOULD CAREFU L LY REVIEW THE TERMS OF THIS WARRANT , I NCLUDING SECT I ON 2(1) HEREOF . THE SECURIT IE S REPRESENTED BY THIS WARRANT MAY BE LESS THAN THE NUMBER SET FORTH ON TH E FACE HEREOF PURSUANT TO SEC TI ON 2(1) HEREOF .
 
(g) Co mpany to Reaffirm Obligations. The Company will , at the time of eac h exercise of this Warra nt , u pon the request of the Holder , acknow l edge in writ i ng it s co nt inuing obligation to afford to s uch Holde r all rights to whic h such Holder is entitled after s uch exercise in accordance with the terms of this Warrant; provided , however , that if th e Holder s hall fail to make any such request , then such failure s hall not affect the cont in uing obligation of the Company to afford such rights t o s uch Holder.
 
 
 
 

 
S e ct i o n 3. (a) Repr ese ntati ons and Warrantie s of the Compa n y. T he Co mpan y h ereby repre se nt s a n d warrants that eac h of the representations an d wa rran ties of the Co mp any and its s ubsidiaries set f o rth in the Transaction Docu m ents (as defined in t h e Securities Purchase Agree m ent) are true and correct as of the date he reof, each such r e pre senta ti o n a nd warranty being h ere b y incor po rated by reference herein , mutatis mutandi, for all pu r poses.
 
( b ) Cove n a nt s as to Common Stock. The Com pan y hereby covenants and agrees as fo ll ows:
 
( i ) Thi s Warran t i s, and any Warrants i ss ued in s ub stit uti on for or replacement o f th i s Warrant w ill up o n issuance be, duly aut h orized and val idl y issued .
 
(i i ) A ll Wa rr a nt S h ares t h at ma y be issued upon the ex ercise of t h e rig h ts represented by thi s W arr a nt s h a ll be duly authorized and w ill , upo n i ss uan ce, be val idl y i ss u ed , fu ll y paid and nonassessable an d free fr om a ll tax es, li ens and c ha rges wit h res pe ct to the i ss ue thereof .

( iii ) During th e period w ithi n which th e rights represented b y thi s Warrant may be exercised, t h e Co mpan y wi ll at all time s h ave au th orized an d reserved , so l ely for issua n ce a n d de l ivery upon exe rci se o f thi s W arr ant, at l eas t 11 0% of t h e number of s hare s of Com m o n Stoc k needed to pro v ide for t h e exe r cise o f the right s then represented by this Warrant.
 
(iv) The Co m pany sha ll n ot close it s book s against th e tra n sfer o f thi s Wa rr a nt or any Warrant Sha r es i n a n y manner w hi ch in terferes w i t h the ti m e l y ex e r c i se of thi s Warrant in a cco r da n ce wi th the term s her eof.
 
(v) The Compa n y s h a ll as sist and coo perate with the H old er in m a ki ng a ny required governmen t al fi l i n gs o r obta inin g any r e q uired governmen tal a pprovals pri or to or in connection w ith any exe r cise of this Warrant (including , witho ut l i m it ation, making any fil in gs req ui re d to be made b y t he Co mpan y) .
 
(v i ) If the Pr in c ipal Mar k e t require s , the Co mpa ny s hall promptly sec u re the li st ing of t h e shares of Commo n Stock issuable upon exercise of t hi s Warra n t on the Principa l Ma rket (subject to o fficial n o ti ce of issuance upon exercise of th i s Wa rr ant) and eac h othe r market o r excha n ge o n which t h e Co mm on Stock i s traded o r l isted and sha ll mai n t a in , so lon g as an y ot h e r s hares of Co mm o n Stoc k s h a ll be so traded or li sted , s u ch li s tin g of a ll sha re s of Com m o n Stoc k fro m time t o time issua bl e upo n the exe r c i se o f thi s Warrant ; a n d if th e P rin cipa l Ma rket requires , the Co mpan y sh all so list o n th e P rin cipal Ma r ket an d eac h ot h e r m a r ke t or exchange on which the Com mon Stock is traded or li s ted and sha ll maintain s u ch listing of, any other s hare s of Cap i tal Stock of the Compa n y i ss u ab l e upo n t h e exercise of this Warrant i f an d so long as an y sh ares o f the sa me cla ss s h a ll be li ste d on the Prin cipa l Market an d eac h othe r mar k et or exc h a n ge on which the Co m mon Stock i s tra ded or li sted .
 
(v ii ) Th e Co mpan y wi ll n ot, by a m e n dme n t o f its Articles of In co rp oration or throug h a n y reorganization, transfer of as sets, consolidation, merger, d i sso lut ion, i ss u e or sa l e of sec u rities, or any othe r vo l u n tary act i on. avoid or see k to avoid the observance or perfo rm ance of any of the t erms to be obs erved or pe rf ormed by it hereunder, but w ill at a ll times in good faith ass i st i n t h e carry in g o u t of a ll the prov i s i ons of thi s Warrant and in th e ta kin g of all s u c h action a s ma y reasonably be r eq ue s t ed by the Ho l de r in order to protect the exerc i se privi l ege o f the H o ld er again s t impa irm e n t. cons i ste n t with the t e nor and pur pos e of this Warrant. W ith out limi ting th e ge n era lit y of the foregoing, t he Co m pany (A) will n o t i n crease the par value of any s hares o f Common Stoc k rece i vab l e upon the exercise of thi s Warrant above $0. 0 00 I per sha re . a n d (8) w ill take all such actions as m ay be nece ssary or approp ri ate in o r der that the Compa n y m ay va l idly and le ga ll y i ss u e fully pa id and n onassessab l e s h ares of Co mm o n Stock u pon t h e exe r cise o f t hi s Wa r ra nt .
 
(v i i i ) This Warrant wi ll be b i n di n g u p o n a n y entity succeed in g to t h e Co m pa n y by mer ger, consolidation o r acqu isiti o n of all or s ub s tantiall y a ll of the Co mpan y's assets .
 
 
 

 
Sec ti on 4. Taxes. The Co mp any s h a ll pay an y an d a ll taxes (exclud in g in co m e taxes, franchi se ta xes o r other t axes l evied on g r oss earnings, profits or t he like of the H olde r ) th at may be pa yab l e with re s pect t o the issuance and d e li very of Warrant S h a res upon exerci s e of thi s Warrant.
 
Section 5.             (a)             Fiduciary Duties of the Compa n y. The Co m pa n y ack n ow l edges and agre es that , for so lon g as any of the Warrants are outstanding and re g ardl ess o f whether th e Holder hereof ha s exercised any portion of t hi s Warra nt, (i) t h e officers and directors of the Comp an y w ill owe th e same duti es (fiduciary an d ot h erw i se) to the H ol d e r as a re owed to t he o ther holders of Com m o n Stock a nd (ii) th e Holder will b e enti tled to a ll right s and r emed ies with respect to s u ch dut i es or that are ot h erw i s e available to a s hareh o l der of th e Com p any under the Delaware Gene ral Corporation Law, a s a m ende d f ro m time t o t ime.
 
(b) Wa rrant Holder Not Deem e d a Shareholder. No Hold er, as such, of thi s Warrant sha ll be e n t it led to vote or recei ve dividends o r be d eemed the h o l der o f shares of the Co mpan y for an y purpo se (o th er t han t o the extent t hat th e Holder is deem ed to be a beneficial holder of sha r es under applicable sec u r ities law s after taking int o account the limitation se t forth in the fir s t paragraph of thi s Wa rra nt), n o r s hall anything contained i n this Warran t be const r ued to con fe r upon the Holder , as such, any of the right s o f a share h o ld er of the Com pan y or any r i g ht t o vote, give or withho ld consent to any corporate acti o n (whether any r eo r g anizati o n , is s u e o f stock, recla ss ifi c ati o n of s t ock, co n so lidation , mer ger, conveya n ce o r o therwise) , receive notice of meeting s, receive dividend s or subscription rights , or otherwise, prior to t he Deemed I ssu ance Date of th e Warrant S har es that s u c h H o ld e r is th e n entitled to recei ve upon the due exercise of this Warrant. In add iti o n , nothing co ntained in thi s Warra nt s hall be construed as imposing a n y ob li gat i on o n s uch H older to purchase any sec uriti es (upon exercise of thi s Warra n t or ot h erwise) o r as im pos in g any liabi l i ty o n s u c h Holder as a sha r e h o lder of the Com pan y, whether s uch ob ligati o n o r li ab ilities are asse rted by the Co mpan y o r by creditors of the Compa n y. Notwithsta ndin g this Section 5, the Co mp a n y will provide the Holder with copies of the sa me notic es and ot h e r i nformatio n g i ven t o the s h are h olders o f the Com p a n y ge n e r a ll y, co n te mp o r aneo u s l y w i t h the g i v in g thereof to the shareho lder s.
 
(c) No Effec t on Lender Relation s hip . T h e Company acknowledges an d agrees that , notwith s tanding anything in t h is Warrant or the Loan Agreement to the c o ntra ry, nothing con ta i n ed i n thi s Warrant s hall affect, limit o r imp a ir the ri g ht s and remedies of any H o ld e r or any of it s affiliates (i) in it s o r their capacity as a l ende r to the Co m pany or any o f its s u bsidiar i es pursuant to any agreement under wh i c h the Company or a n y of its su b s idi aries has bo rr owe d money , including , with o ut l imit ation, th e Loan Agreement , or (ii) in its or th e ir cap ac ity as a l e nder t o a n y other Person who ha s borrowed money. Without limitin g the genera lit y of the foregoing, any such Person, in exerci s ing its rights a s a l e nder , i n cludi ng making its deci s i on o n w heth e r to fore close o n a n y co ll a t eral secu r ity, w ill ha ve no duty t o co n side r (x) it s o r an y of it s affi liate s' s tatus a s a Hold er, (y) t h e intere s t s of the Company or it s s ub s idi ar ies or (z) any duty it m ay have to any other h o lder s or any s h are hold ers o f th e Com pan y. excep t as may be required u n der t he applicable loa n d ocu m e n ts or by commercial law appli c able to c reditors generally. No co n sent, approval, vo te or other acti on taken o r requir ed to be taken by any Holder in such capacity s hall in any way impact , a ffe ct o r alter th e right s a nd remedies of the H o ld e r or any o f it s affi li ates as a lende r.

Sec tion 6. Repre se ntati o n s o f Holder. The H o lder , b y the a ccepta nce h e reof , repre se nt s that it i s acq uiri ng thi s Warrant, and u po n exercise hereo f (other than purs uant to a Cashle ss Exerci s e) will acq uire the Warrant Shares, f or i ts ow n accou n t and n ot with a view towar d s , or fo r r esale in co n nect i on wi th , the public s ale or distribution of this Warrant or the Warrant Shares, except pur s uant to sa le s regi stere d or exempted under t he Secu r ities Act ; provided, h owever, that b y making the represe n ta t i o ns here i n , the Holder does n ot agree to hold this Warrant or any of th e Warrant Sha res for any m inim um o r ot her specific terms and reser ves the right to dispose of this Warrant and the Warrant Share s at any time in accordance w ith o r pursuant to a registrat i o n s tat eme nt or a n exemptio n un der the Secu ritie s Act. The H o ld er further represent s, by acceptance hereof, that, as of this date, such Holder i s an " accredited investor" as suc h term i s defined in Rule 501(a) of Regulation 0 promulgated by the Securities and Exchange Co mmi ss ion u nde r the Securities Act (a n "ACCRED ITED INVESTOR"). Each delivery of an Exerci s e Notice, o ther than in con nection with a Cas hles s Exercise , sha ll constitute confirmation at suc h tim e by the Holder of the representations concerning th e Warrant S hare s set forth in the first two sentences of thi s Section 6 . unless contemporaneous wi th the delivery of s uch E xercise Notice, the Holder n otifies the Company in wr itin g t hat it i s not m ak ing s u c h repre sentat i o n s (a "REPRESENTATION NOT I CE").

 
 

 
Sect i on 7. Owner s hip and Transfer .
 
 
(a)             The Company sha ll maint a in at it s principal executive office s (or suc h other office or agency of the Company a s it ma y des i g nat e by n o t ice t o the Holder) , a regi ster for this Warrant, in which the Compa n y s hall rec o rd the n a m e and address of the per so n in who se name this Warrant h as been i ss ued , a s well as the name an d addre ss of each transferee. The Co mpany may treat the person in whose name any Warrant i s regi s t ere d on t he regi s ter as the ow ner and holder thereof for all purposes , notwithstanding any notice to the contrary , but in all events recognizing any tran s fers made in accordance with the terms of this Warrant.
 
(b) This Warrant and t h e rights gran te d hereunder s hall be assig nabl e by th e Holder without the consent of the Co mpan y.
 
(c) The Co m pany i s Ob l igated to register the Warrant Sha re s for resale under the Securities Act pursuant to the Registration Rights Agreement, and the initial Hold er (and assignees thereof) is entitled to the re g istrati o n rights in respect of the Warrant Sha re s as set forth in the Registration Right s Agreement.
 

Section 8. Adjustment of Warrant Exe rcise Price and Number of Warrant Shares. The Warrant Exercise Price a nd t he n umber of s har es of Common Stock iss uable upon exerc i se of this Warrant s hall be adjusted from time to time as follow s:
 
(a) ADJUSTMENT OF WARRANT EXERCISE PRICE A N D NUMBER OF SHA R ES UPON I SSUANCE OF COMMON STOCK. IF AND WHE N EVER ON OR AFTER THE WARRANT DATE , THE COMPANY ISSUES OR SE LL S, OR IS DEEMED TO HAVE ISSUED OR SOLD, ANY SHARES OF CO MMON STOCK (INCLUDING THE ISSUANCE OR SALE OF SHARES OF COMMON STOCK OWNED OR HELD BY OR FOR THE ACCOUNT OF THE COMPANY , BUT EXCLUDING EXEMPTED IS SUANCES (AS DEFINED BELOW)) , FOR A CONSIDERAT I ON PER S HA RE LESS THAN A PRICE EQUAL TO THE WARRANT EXERC I SE PRI CE IN EFF ECT IMMEDIATELY PRI OR TO SUC H ISSUANCE OR SALE (THE "A PPLICABLE PRICE "), THEN IMM EDIATELY AFTER SUCH I SSUE OR SALE THE WARRANT EXERCISE PRICE THEN IN EFFECT SHALL BE REDUCED TO AN AMOUNT EQUAL TO SUCH CONSIDERATION PER SHARE. UPON EACH SUCH ADJUSTMENT OF THE WARRANT EXERC I SE PRICE PURSUANT TO THE IMM EDIATELY PRE CEDING SENTENCE, THE NUMBER OF SHARES OF COMMON STOCK ACQUIRABLE UPON EXE R C I SE OF THIS WARRANT SHA LL BE ADJUSTED TO THE NUMBER OF SHARES DETERMINED BY MULTIPLY I NG THE WARRANT EXERCISE PRICE I N EFFECT IMMEDIATELY PRIOR TO SUCH ADJUSTME N T BY THE NUMBER OF S HAR ES OF COMMON STOCK ACQU I RABLE UPON EXERC I SE OF T HI S WARRAN T IMMEDIATELY PRIOR T O SUCH AD J USTM E NT AND DIV ID ING THE PRODUCT THEREOF BY THE WARRANT EXERC I SE P R I CE RESU LT ING FR O M SUCH AD JUSTM ENT. FO R PURPOSES OF THI S WARRANT, "EXEMPTED I SSUANCES " SHALL MEAN: ( I ) SHARES OF COMMON STOCK I SSU ED OR DE E MED TO BE I SSUED BY THE C OMPANY , PROVIDED THAT THE NUMBER OF SUCH SHARES ISSUED O R DEEMED TO B E ISSU ED IN 201 1 DOES NOT EXCEED 10 . 0 % OF THE NUMBER OF OUTSTANDING SHARES O F COMMON STOCK AS OF DECEMBER 3 1 , 20 1 0 OR (II) SHARES OF CO MMON STO C K I SSU E D O R DEEMED TO BE ISS UE D BY TH E COM PA NY UPON EXERC I SE OF TH E SPA WARRANTS.
 
 
 

 

(b)             Effec t on Wa rr a n t Exe r c ise Pri ce o f Ce rtain Eve nt s. For pur poses of determining th e adjus t e d Warra n t Exercise Price u n d er Sectio n 8(a) , t he fo ll owing s h a l l b e applicable to i ssu an ces ot h e r than Exempted I ss uance s:
 
(i) I ss uan ce of Opt i o n s. I f t he Compa n y i n a n y m an n e r g rant s o r sells a n y O p tio n s and the l owes t pri ce per s h a r e for w hich o ne s h a r e of Common S t oc k i s i ss uabl e u po n the exe r c i se o f a n y suc h Opti o n o r u p o n conversion, exchange or exe rci se o f a n y Co n vert ibl e Sec uritie s i ssuab l e upon exerc i se of any s u c h Opti o n i s less than t he App l icab l e Pri ce, the n s u ch s h a re of Co mm on Stock sha ll be de e med t o be o u tsta ndin g a nd t o h ave be e n i ss u ed a nd so ld by th e Co mp any at th e time of the g r a ntin g o r sa le of s u ch O pti o n for such pric e per s h a re . For p urp oses o f t hi s Sect i on 8(b)(i) , the " l ow e s t price per s h a r e f or which o ne s h are of Co mmon Stock i s issuable upon exer ci se of any s u c h O pti on or u pon conve r s ion , exc h ange or exerc i se o f any Co n vertib l e Se c urity i ssuab le u po n ex e r cise of any s uch O ption " s h a ll be eq u a l t o t he su m o f the l owest amou n ts of co n s id eratio n ( i f a n y) received or receivab l e by th e Co mpany wi th r espect to anyone s hare of Co mm o n S tock upon th e granting o r sale of suc h Option, u pon exercise of suc h Option and upon conversion, exchange or exerc i se o f any Convert ibl e Security i ss uabl e u pon exe r cise of su ch Option. No furth er a dju s tm en t of t h e Warra n t Exerc i se P ri ce sha ll be made upon th e actual i ss uan ce of s u c h C omm o n St oc k or of s uch Co nverti b l e Secur ity up o n the exerc i se of such Optio n or upon th e actual i ssu an ce o f suc h Co mm o n S t ock upo n conve rsi o n , exchange or exe rc ise o f such Co n ve rti b l e Sec urit y.
 
(i i ) I ssuance of Conve rtible Sec urit ies . If th e Com pan y in any manner iss u es o r sells any Co n vert i ble Securi t ies a n d t h e l owest pri ce per sha re for w h ich o n e share of Com m o n S t ock is i ss uable u pon the co nver sio n , exc hange o r exer c i se ther eof is l ess than the Appl ica bl e P ri ce, then s u c h share o f Co m mo n S t ock sha ll be deem e d t o be o u tst a n ding a nd to h ave bee n issued a nd so l d by th e Co mpan y at the time of the issuance or sa l e of s u c h Co n ve rtible Sec uriti es for s u c h pri ce pe r s h are. F or th e purposes o f thi s Section 8( b )(ii), the " l owes t price per s hare f or which one s h a re of Co mmon S tock i s issuable u pon s u ch co n ve r sio n , excha n ge o r exe r cise" s h a ll be eq u al t o th e s um of the l owes t a m o u nts of co n s ider ation ( if any) re ceived or rece i vab l e by th e Co mp a n y wi th respe ct t o o n e sha re of Co mm on Stock up o n the i ssua n ce o r sa l e of a n y s u c h Co n ve rtible Security a nd u po n con ve rsion , exc h ange or e xerc ise of suc h Co n ve rtible Sec u r i ty . No furt h e r adjustment of th e Warrant Ex erci se Pr ice s hall be ma de up on t he actual i ss u a n c e of s uch Co mm o n S t oc k upon co n v er s i o n , e xc h a n ge o r exer cise of s uch Convert ibl e Secu rity , a nd i f any s uch issue or sale o f suc h Conve rti b l e Sec u rity i s mad e u pon exercise o f an y Op t io n f or which ad ju st m e nt o f th e Warrant Exe rcise Price ha d been or are t o be made p u rsua n t t o o t her pr ov i s i o n s o f thi s S ection 8( b), n o furth er adju s tment of the Warra nt Exerc i se Pr i ce s h a ll be made b y r easo n of s u ch iss ue or sa l e.
 
( i ii) C hange in Option Price o r Rat e of Convers i o n . If th e purcha s e , ex c h a n g e or exercise p rice p rov id e d for in an y Opt i ons, th e a dd i tional considera ti on, i f an y, paya bl e u p o n th e i ss u e, conve rsi o n , exchange or exe rci se o f an y Co nvertible Secur iti es , or th e rate at wh i ch a n y Optio n s or Conve rtibl e Sec u rities are co n vertib le int o o r e xc h a n geable or exercisab l e fo r Co mm on S t oc k changes at an y tim e, the Warr an t Exe r cise Price in e ff ec t a t t he ti m e o f s u c h change sha ll be a dju sted to t h e Warra nt Exercise Pri ce t h a t wou l d have been in effect a t s uch time had suc h Options or Convert ibl e Sec urities pro vi d e d f o r such cha n ged p ur chase, exchange or exerc i se price, add i t i o n a l co n s id erat i o n o r cha n ged conversion rat e, as th e case m ay be, at the time i nitially granted, issued or sold and the number of s h ares o f Common Stoc k acq uir ab l e h ere under s h a ll be corres pondin g l y re adjuste d . Fo r purpo ses of thi s Sec tion 8(b)( i ii), if t h e ter m s of any Optio n o r Co n ve rtible Sec ur i t y that was outsta n d in g as of the date of issuance of t his Warrant are changed in the man n er described in t h e immediately prec ed i ng sen t e nce , then s u ch O pti on or Convert ible Sec uri ty and the Co mm on Stoc k d ee m e d i ssuab le up o n exercise, co n vers i on or excha n ge ther eof s hall be deemed to have been issued as of the date of suc h c hange. No adjustment s hall be made if such a djustm en t wou l d result i n a n i n c rea se o f t h e Warra n t Exe r c i se Pr i ce t h e n in effect.
 
(c) Effect on Warrant Exercise Price of Certain Events. For p u rposes of determi n ing the adjusted Warran t Exercise Price under Sectio n s 8(a) an d 8(b), the fo l lowing sha ll be appli ca ble :
 
( i ) Calc ulati on of Co n s iderati o n Recei ve d. In case any Options are i ss ued in con n ect i on wit h t h e i ssue o r sale of o t he r sec uriti es of the Com pan y , t og ether co m pr i si n g o n e inte g rated transa ct ion or se ri es of related transact i o n s , (A) th e Options wi ll be deemed to h ave been i ss u ed for a co n s ideration equa l to the greater o f $0.0 I and the spec ific agg re gate co n siderat i on, if a n y, all oca ted to s u c h Opt i o n s (in e ith er case, th e " OPTION CONSIDERATION") and, f or purpo ses of applyi n g the provi sio n s of this Section 8, t h e Option Consi derati on s hall be a ll ocated pro rata a m ong a ll t h e sha r es of Common S to ck issuab l e upon exercise of s uch Option s to determine th e co n s id erat i o n per eac h suc h s har e of Common Stock and (B) the ot her securities will   be dee m ed to have b een issued fo r an aggregate cons i derat i on equal to t h e aggregate consideration received b y t h e Com pan y for the Options and o t her sec uri ties (determined as pr ovided below with re s pect to eac h s h a r e of Commo n Stock repre se nted thereby) , less the sum of (I) the Black-Scholes Value (as defined below) of s uch Opt i ons and (2) t h e Option Consi d era ti o n . I f any Commo n S t oc k , Opt i ons or Co n vertib l e Sec u r i ties are i ss u ed o r so l d o r deem ed to ha ve bee n i ssued o r sold for cas h , the consideration received therefor wi ll be deemed to be th e net amou n t received b y the Co m pany theref or. If any Common Stock , Op ti o n s or Convert ibl e Secu riti es are issued o r sold fo r a co n side rat io n ot h er than cash , the amou n t of s u c h considerat i o n r ece i ved by the Company w ill be t h e fair va lu e of such co n siderat i o n , except where such co nsiderat ion consists of market ab l e securities, in wh ich case the amount of co n sideratio n received b y t h e Compa n y wi ll be th e Weighted Average Pri ce of s uch sec uritie s on t h e date of rec ei pt of s u c h sec u r i t i es. If an y Co mm on Stock, Options or Convertible Sec ur ities are issu ed to t he owne rs of the non-surviving e nti ty in connection wi t h any merger in w hi c h the Co mp any is th e s urviving ent ity , the amount of con s ideration therefor w ill be deemed to b e th e fa ir va l ue of suc h porti o n o f the net asse t s and b u s in ess of the non - surviving entity as i s attributab l e t o suc h Common Stock, Op t ions o r Convertible Sec u r i ties, as t he case may be . The fair v alue of any co n si d erat i o n ot h er than cas h o r sec uritie s w ill b e dete rmin ed jointly by the Co mpan y and th e H older. If s uch parties arc unable to reach ag r eement w ithi n ten ( 10) days after the occurrence of an event r equiri n g v aluat io n ( t he "V ALUATION   EVENT") , t h e fa ir va l ue o f suc h co n s id e r at i o n w i ll be determin ed w ith in fi ve (5) Busi n ess D a ys after the tent h (10th) day follow in g the Va lu ation Event by an indep ende n t, reputa bl e appraiser jointly selected by the Company a n d the Holder. The dete rmi natio n of suc h a ppraiser s hall be fina l a nd b ind i n g upon all parties abse nt dem o n s tr ab l e error, and t he fees and expe n ses of s u ch appra i ser s hall be borne by the Company.
 
 
 

 
( ii ) Rec o rd Date. If th e Co m pany takes a reco r d o f t h e holder s o f Co mmon Stock f or the purpose of en titlin g them (1) t o receiv e a di vidend or other distribution payable in Co m mon Stoc k , Options or in Co nvertible Securities or (2) to sub sc ribe f o r or pur c h ase Com m o n Stoc k , Optio n s or Co n vertible Secur itie s , t h e n such record date will be deem ed to be the date o f t h e i ssue o r sale of the s h ares of Common Stock deemed t o have been issued o r so l d u pon t he declara ti on of such di v idend or the makin g of s u c h other di s tribution or t he date of the gra ntin g of s uch right of s ub sc ripti on o r pur chase, as the case may be.
 
(ii i ) B la ck-Scho l es Va l ue. Th e " B L ACK-SC H OLES VALUE" of any Op t i o n s s hall mean t h e s um of t h e a m ou n ts r es u l t i n g fro m a p pl y i ng t he B l ack-Scholes pr i c i ng model t o eac h suc h O p t i on, w hi c h ca l c ul a ti on i s m ade w i t h th e fo ll ow i ng in p uts: ( i ) t he " optio n stri ki ng price " be i ng equ a l t o t h e l owes t exercise pri ce poss i b l e u n der t h e te rm s o f s u c h Op tion on t he d ate o f th e i ss uan ce of s u c h Op t ion (t h e "VALUATION D ATE"), (i i ) the " i nterest rate " being equa l to t he inte r es t r a t e o n one-year Un i ted Sta t es Treas u ry B i lls i ss u ed most rece n tly p r ior to t h e Valuation Date , ( i i i ) the " t ime unti l o p tion ex p iratio n " being th e ti me f ro m th e Va lu at i o n D ate until th e expir a ti o n d ate o f s u c h O pti o n , ( i v) th e "c urr ent stoc k p r ice" being e q ua l to the Weig h ted Average Price of the Co m mon Stock on the Val u ation Date , (v) t h e " vo l at il ity " bei n g the 1 00 - day h i sto r ica l vo l at i l i ty of t he Common S t oc k as of t h e Val u at i on D at e (as re p orted b y th e B l o om berg " H VT" sc r ee n ), an d (vi) th e "d i v id e n d rate" bei n g e qu a l to ze r o. W i t hi n three (3) Business Days after the Co m pany Va l uation Date, eac h o f the Com p a n y and t he Ho ld er sha ll de li v e r t o t h e ot h er a w ri tten ca l c u lation of its d e t er m ina t io n of t h e B l ac k- Scholes val u e o f t he O pti ons. If th e Ho ld e r and th e Com pan y arc un ab l e t o a gree up on t h e calc u lat i on of t h e B la ck - Sc h o le s Value of t he Options w i thi n five (5) Business Days o f th e Val u at i on Date, th en t h e Com p a n y s h a ll s ubmit v i a facsimi l e t he dis put ed calc u latio n to a n i nvestme n t ban kin g fi rm (join tl y selec t e d by t h e Co m pany a n d th e Ho ld er) wit h i n seven (7) Bus in ess Days of t h e V al uat i o n Date. The Company sha ll direct such i nvestment ba n ki n g fi rm to pe r form t h e ca lcul at i ons a n d n otify t h e Compa n y and t h e H o l de r o f th e res ult s no late r t h an t en ( 1 0) Bus i ness Days after the Valuat i o n D a t e. Such i nvest m e n t ban kin g firm's calcu l a ti on of t h e Black - Scho l es Va lu e o f t he O p tions s h a ll be deemed concl u sive absent demo n s trable error. T h e Co m pany s h a ll bea r t he f ees and ex p enses of suc h in vest m e nt ba nkin g fi rm fo r p r ov i d in g s uch calc u la ti on.
 
 
 

 
( d) A dju s tm e n t o f Wa rr a nt Exe r c i se Pr i ce up o n S ubd ivisio n o r Co mbin at i o n of Co mm o n Stoc k . If the Company at a n y t i me after the d ate of i ssuance of t h is Warra n t subdiv i des ( b y any stock s p lit , stock di v i dend, r ecapita li zation or o t herw i se) its o u ts t a n di n g shares of Com m o n S t ock i n t o a greater numb er of s h ares, th e Wa rrant Exe r c i se P ri c e in effec t im me diat e l y pr i or to s u c h subd i v i s i on wi ll be proport i onate l y red u ced an d t he nu m ber of s h a r es of Co m mon Stock ob t a i nab l e u po n exe r c i se of th is Warra n t w ill be propo rti onate l y increased. I f t h e Co m pa n y at a n y time after t h e d a t e of i ss u ance o f t his W a rrant co m bines (by comb in at i on, reverse s t oc k sp l it or o t herwise) its outstand i ng shares of Common Stock into a s m a ll er n umbe r of s h a r es, the Warrant E x ercise P ri ce in e ffe c t immedi a t e l y pr ior to s u c h com bin at i o n wi ll be pr opo rti onate l y in creased a nd the n umbe r o f s h ares of Commo n Stock obtai n able u pon exe r cise of t hi s Warran t w ill be pro p ortio n ately d ec r eased. Any adjustme n t under t h is Sectio n 8(d)) s hall beco m e effec ti ve at t h e close o f busi n ess on t h e d a t e th e s u bd i v i s i o n o r co m b in a ti o n beco me s effective.
 
(e) D i s tribut io n of Asse t s. I f t h e Co m pa n y s h a ll decl are o r m ake an y di v id e nd or o th e r dis t rib u tion of its assets (or rights to acquire i t s assets) t o holders of Commo n Stock , by way of return of capita l or otherw i se (i n clu d ing any dis t r i but i o n of cas h , s t ock or ot h e r sec uriti es, pro p erty o r op ti o n s by w a y of a di v i de nd , sp in o ff , r e cl ass ifi cat i o n , co r po r ate r earra n g em ent o r other s im i l a r t ran saction) (a "DISTRIBUT I ON"), at any time after the iss u ance of this Warra n t, then , in each s u c h case:
 
( i ) th e W a r r an t Exe r c i se P ri ce in e ff ec t im m e d iate l y p ri o r to t h e close of b u s i ness on t h e reco r d date fix e d for t h e determ i natio n o f h o lde rs of C o m m on Stock e ntitl ed to r ece i ve th e Distr i b u tion s h a ll b e r ed u ced . effective a s o f t he close of b usiness on such r eco r d date , t o a p r i ce de t ermined by m u l t ipl y i ng such War r ant Exerc i se Pr i ce by a f r ac t ion of w h ich (A) t h e numerator sha ll be th e We i g h t ed Ave r a g e Price o f t h e Co mm on S t oc k o n t h e tr ad in g d ay imme d i ate l y pr eced in g s u c h r eco rd d ate mi n us t h e va lu e of t h e D i st ri b u t i o n (as de t ermine d in good faith by the Compa n y's Board of D i rectors) applicable t o o n e sha r e of Common Stock, and (B) the denom i nator s h a ll be t h e We i g h ted Average P ri ce of t h e Com mon S t ock on th e t r a din g day imm ed i a t e l y prece din g s u c h r eco r d d at e; a n d

(ii) e i t her (A) th e num ber of Warra nt Shares obtainable up o n exerci se o f thi s Wa rrant s hal l be inc r ea s ed t o a n u mb e r of s hare s e q ua l to t h e num be r o f s h ar e s of Co mm o n S t oc k o bt a inabl e imm ed iatel y pri or to th e close o f busine ss on the reco rd d ate fi xed fo r the d ete rm i n ation of h o lder s o f Common Stock e ntitled t o receiv e t h e Di str ibution m ultipli ed b y the r ec ipro c al o f the fra c tion se t f o rth in t h e im medi at e l y p re ced in g clau se ( i ), o r ( B ) i n th e even t th at t h e D is tribut io n i s of com m o n s t ock of a co m pany who se co mm on s tock is trad ed o n a nationa l sec u rities exc han ge or a nationa l automated quot a ti o n system , then th e Holder s h a ll r ece i ve an add iti o nal wa rrant , th e term s of w hi c h s hall b e i de ntical to t hose o f thi s Wa rr ant , excep t th at s u c h wa rran t sh all be exerc i sab l e for t he amo u nt of the a sse ts that would ha v e been payable to the H o ld er p u rs uant t o t he Di st ri but i on h ad t he H o l de r exe r cised th is W arrant imm e diately pri o r to s u c h re cord date and with an exerci se pri ce e qual to the amount b y w hi c h th e exercise pri ce of this Warran t was dec rea se d with respect to the Distribut i on p urs uant to the term s o f the im mediately p r eced in g c l a u se (i) .

(f) Ce rtain Eve nts. If any e ve nt occ u r s as to w h ic h t he pr ov i s ion s o f thi s Sec tion 8 a r e not st ri c tl y appli ca bl e b u t w ith respect t o w hi ch th e fail ure t o make a n y a d jus tm e nt wo u ld not fa irl y pr ot e c t the H o l der or fair l y p re se rve and g ive effect (0 th e anti-diluti o n r i g h ts repr ese nted by t h is Warra n t in acco r dance with it s e sse ntial int en t and principle s ( includi ng the g r an tin g of s tock appreciati o n ri g ht s, pha n t o m s t oc k righ ts or ot h e r r i g ht s wi th equ i ty fe a ture s), th e n , in eac h such case , t h e Com p an y s hall appoint a firm of in depen dent investment banker s o f recogn ized nat i o nal s tanding (whic h s hal l be complete l y ind epe nd e nt o f the Co mpan y a nd s hall be s ati s factory t o the H o ld e r) , that s hall g i ve their opinion u pon t he adj u st ment , if any, necessary to preserve, without dil u ti o n, the rig ht s represented by this Warrant; pro vide d t hat no such adj u stment will in crease th e Warrant Exer cise Pr ice or d ecrea se t he numb e r o f s h are s o f Co mmon St oc k o btain ab le as o th e rwi se d e termin ed pur s uant to thi s Se ction 8.
 
(g) No ti ces.
 
(i) Wit hi n one ( I ) Bu s i ness Day o f an y adj u s tm e nt of th e Warrant Ex erci se Price , t h e Co m pa n y w ill give writte n n o t ice thereof to t he H o ld e r , s ett ing f o rth i n reasonable deta i l, and c ertif y ing , the ca lculati o n o f s u ch ad justm e nt.
 
 
 

 
( i i) The Compa n y wi ll give w ritt e n n o ti ce t o th e H o l der at l e a st ten (10) da ys pri or t o the d a te o n which the Com pan y c l oses it s books or ta ke s a r eco r d (A) w i t h r espect to a n y divid end or distribution u pon the Co mmon S t oc k , (B) w ith r espect to any pro rat a s ub sc ription offer t o h o ld ers of Com m o n Stoc k or (C) f o r de term i n ing r igh t s t o vo t e wi th respec t to a n y Organic Change (as defined in Sec ti on 9(b), dissolution o r l i qu idat i o n , prov i ded tha t such in f ormatio n s h a ll be made kn ow n to t h e public prior t o or in conjunction with s u c h n o tice b e in g provid e d to s u c h Holder.
 
(ii i ) T h e Company w ill a l so give w ritt en not i ce to the H o ld e r at l eas t ten (10) da ys prior to the dat e o n which a n y Orga ni c C h a n ge , di sso luti o n o r liquid at ion w ill take pla ce, p rovided that s u c h i n f o r mation s hall b e made known to the publi c p ri or t o o r in co njuncti o n with suc h notice bein g p r ov id ed to s u c h H o ld e r .
 
Sec ti on 9. Purchase R i g ht s; Reorganizat i o n , Reclassificat i on , Co n s olidation , Merge r or S a le. (a) In additi o n t o a n y adj u s t m e n ts purs uant to Sec ti o n 8 above , if a t a n y ti me t h e Co mpa ny g rants , i s sue s o r s ells any Option s, C on vert ible Sec urities or ri g ht s t o purchase s t ock, warrants, sec uri t ie s or ot her propert y pro rat a to th e rec ord h o ld e r s of any cl ass o f it s Ca pital St oc k (the " P U RCH AS E RIGHTS") , t h en t h e H o ld e r w ill be e n t i t l ed t o acquire , u p o n the t e rm s app li ca ble t o s uch Purcha s e Right s, the aggregate Purchase Rig h t s that such Hold e r co ul d h ave a c quir ed i f such H o l der had h e ld t he n umbe r of s har es o f Co m mon Stock acq uir ab l e upon co mplet e exe rci se o f this Warrant immediat e l y before the date o n whic h a r ecord i s t ake n f or th e gr ant , i ss uance or sa l e of suc h Purch ase Ri ghts, o r , if no suc h reco rd is taken , the date as o f which the r eco rd h o ld e r s of Com mon Stock are t o be determined f o r the grant, i ss u e o r sa l e o f s u c h Pur chase Rights .

(b) An y re ca pitalizati o n , reorg a nization , recla ss ification , co nsolidation , mer ge r , sale of all or s u bsta n ti all y a ll of t h e Co mpan y ' s assets to a n other Per so n or o ther tran sac ti o n that is effec ted in s uch a way t ha t hold ers of Co mm o n Stock a re en titled to receive (either dir ec tl y or upon s u bseque nt liqui da tion ) s tock , sec uriti e s or asset s with r esp ect to o r in exchange f o r Co mm o n Stock i s referr e d to herein a s an " ORGAN I C C H ANGE. " Prior to the cons u mmati o n of any ( i ) sa l e o f all o r s ubstantially all o f the Company 's as se t s t o an a cq u iring Per so n o r ( ii) other Organic C ha nge fo ll ow in g w hi c h the Co m pa n y i s not a s urvivin g ent ity , the Co mp any will se cure fr o m the P erso n purcha s ing s u c h asset s or the s u ccesso r resulting from s uch Or g anic Change ( in each case , th e "ACQU IRI NG EN TITY " ) a written agreement (i n f o rm and s ub s tance sat i s factory t o the R e qui s i t e H o lders ) to deli ve r to each ho lder of S P A Warrants i n exchange for eac h su c h S PA Warrant, a sec urity o f th e Ac quiring Entity evidenced by a w ritten instrument sub sta ntiall y s imilar in f o rm an d s ub s tan ce to thi s Warrant a nd sa ti s factory t o the h o ld e rs of s u c h S PA Warrant (i nclu ding, an adj u s t e d warra nt ex erci se price eq u a l t o th e v alue f o r the Co mmon Stock reflected by the t e rm s of s u c h con so lidation , merger or s ale , and exerci sa b le f or a corre spo nding numb e r o f s hare s of Co mmon Stoc k a cq uirable and recei va ble up o n exerci s e of s uch SPA Warrant (w ith ou t rega rd to any limitati ons o n exerci ses), i f t h e va l ue so reflected i s less than t h e Warrant Exercise Price in effect i mmediately pri o r to su ch conso l idati o n , merger or sa l e). Pri or to the c o n su mmati o n o f any ot her Org anic C hange , the C ompany s hall make appr o priate pr ov isi on (i n form and sub s tance satisfactory to th e Requisit e H o lders ) to en s u re t hat eac h o f the h o lder s of t he S P A Warrant s will thereafter ha v e the r ig ht t o acquire a nd re ceive in lieu o f or in ad diti o n to (as the cas e ma y be ) th e s hare s o f C omm o n S tock immediately theretofore acq uirabl e and receivable upon th e exercise of such holder 's SPA W a rrant s (without re gar d t o an y li m i t ati o n s o n exer cises), suc h shares o f s tock , s ecuritie s or assets that would have been iss u ed or paya ble in s uch O r gan i c C h a n g e with respect t o o r in e x change f or the number of s hare s o f Co mm o n Stock that would have been acquirab l e and recei va ble up o n th e exercise of s uch h o lder 's Warrant as of the date of s uch Organic Cha n ge (without taki ng into accou nt an y limit ati o n s o r re s tri c tion s on th e exe rci sabi l i t y o f t his Warr a nt ).
 
 
 

 
(c) In the eve nt that an Acquiring Entity i s not a publicly traded co rporati o n whose co mmon s t oc k i s li s te d o n the NAS DAQ G l o bal Ma r ket , the NAS DA Q Glo bal S ele c t M arket o r the New York S tock Excha n ge (a " Pr iva t e Company Or ganic Chan ge" ) , the H o ld er s h a ll ha ve the right ( in additi on t o all o ther ri g ht s h e r e under) t o requir e the Compan y to r ed eem thi s Warrant for a cas h payment equal to the Pr iva t e Co mp any Redemptio n Amo unt (a s defined be l ow). Suc h ri g ht ma y be exe rci se d as t o a ll o r an y portion o f t hi s Warrant and s hall be exerci se d , i f at a ll , by a n o ti c e (or notice s) s p e cifyi ng the number o f Warrant Shares a s to w hi c h this Warra nt i s to be redeemed (each, a " Wa rrant Rede mpti o n Right Exe rci se N otice " and the date o f d e li v e ry t hereof, t he " Warra nt Red e m ptio n Ri g ht Exer cise Notice Date " ) , which s hall be i rrev oca bl e provided th a t t he Co m pa n y compl i es w ith its o bligation s h e r e u nd e r and except a s expres s l y provided in thi s S ection 9, g i ven t o the Co mpany at a ny tim e during th e peri od (i) be g inning o n and incl u ding th e earlier o f (A) the date written n o tic e of a Pr i vate Company Orga nic C h ange i s delivered t o the Holde r , wh i c h writte n notice th e Com pan y s h a ll deli ver n o t le ss t h an twenty (20 ) Tra d i n g Da ys prior t o s uch Private Co mpan y O r g anic C hange (pr ov ided that the Co mpan y s hall pr ov ide such n o tice contemporaneou s l y with ( but n o t ea rlier than) th e fir s t public discl os ure of the information contained there i n an d s imu lta ne o u s l y t o t h e h olders of a ll out s tandin g Warrant s), and (8) t he d a te th a t i s twen ty (20) Tradin g Days pri o r to th e consummation of s uch P rivate Company Organic C han ge ( th e ea rlier of (A) and (8) , t h e " Warr a nt Redemption Right Exerci s e Peri o d Comm e ncem ent Date " ) , and (ii) endi n g o n and includ i n g t h e da te t h a t i s three (3) Tradin g Days p r ior to the cons ummation o f s u ch Pri v ate Co mpany O r gan ic Change. Following the d e l i very by the H o ld er o f a Warra n t Redempti o n Righ t Exercise No ti c e , the Co mpany and the H o ld er shall eac h pr o mptly determine the applic a ble Priv a te Company Red e mption Va lu e (as defined bel ow) and n o tif y in w riting t h e o ther of the Pri vate Co m pany R edempt i on V a lue so d etermined. If t h e H o ld e r a nd t h e Co m pany are u n ab l e t o ag ree on t h e ca l cu l ati o n of th e app li ca ble Pri vate Compa n y Redemption Value , such di sp ut e re ga rdin g the calcula tion of the a p p licabl e Private Company Redemption Value shall be r eso lved in accordance with the procedures set forth in Section 8(b)(iii) of this Warrant. The applicable " Pri vate Company Redemption Value " shall be the Blacks h o les Value of thi s Warrant as to one (I) Warrant Share , except that in ca lculating such Black-Schole s Value, (x) the Valuation Date shall be the applicable Warrant Redemption Right Exercise Notice Dat e, (y) the "o ption st rikin g price" s hall be the Warrant Exercise Price on such Valuation Date, and (z) the "current stock pri ce" s hall be the Weighted Average Pr ice of the Co mmon S t ock on such Valua ti o n Date . The Co mpany shall pay th e Private Co mpany Red e mption Amount to the Holder s imultaneously with th e con s umma t i o n of t he P r iv ate Compa n y Orga nic C han ge. To th e exten t perm itt ed by applicable l aw, th e Com pan y s hall n ot enter into any bindin g agreement or o ther arrangeme nt w ith respect t o a Private Company Organ ic C han ge (ot her than a sa le of all o r sub s tantially a ll of the Company's assets) unless th e Co m pa n y provide s that the payments provided for in thi s Sectio n 9 sha ll ha ve priority to pa y ments t o stockholders in connection with suc h Private Company Orga nic Change a nd the Com pan y complies w ith s u ch provision. The applicab l e "Private Company Redemption Amount" s hall be the product of (I) th e re su lt of (X) the Private Com pan y Redemption Value, minus (Y) if all of the Conditio n s to Redemption Amount Reduction (as defined bel ow) have been sat isfied as of the dat e of consummation of (he Private Company Organic Change, the amount, if any, by which the Weighted Average Price of the Common Stock on the applicable Warrant Redemption Right Exercise Notice Date exceeds the Warrant Exercise Pri ce on suc h Warrant Redemption Right Ex erci se Notice Date , o r if one of m o re of the Conditions t o Private Co m pa n y Redemption Reduction have n ot been s atisfied as o f the date of consum mati on of the Private Compa n y O r ga ni c Change, zero (0), multiplied by (II) the number of Warrant S h a re s as to which the Holder has demanded this Warrant be redeemed, a s se t forth in the applicable Warrant Redempti o n Right Exercise Not i ce (th e date of delive ry the reof by t he H o ld er bei ng r eferred to as t he " Applicable Redemption Notice Date " ), and has not revoked s uch demand as provided i n this Section 9; provided , h owev er , that such number sh all not exceed the number of Warrant Shares for which this Warrant could be exercised on the a pplic ab le Warrant Redemption Right Exerci se Period Co mmenc e m e nt Date , minu s
(a) the number of Warrant Shares as t o which this Warrant has been exerci s ed since the Warrant Redemption Right Exe r cise Peri od Comme ncement Date an d (b) the number of Warrant Shares as to which the Holder h as dem ande d thi s Warrant be redee m ed, as se t fort h in a n y Redemption Right Exercise Notices delivered o n date s prior to the Applicable Redemption No tice Date, and has not revoked such demand as provided in thi s Section 9. Notwi th s t and ing anything to the contrary contained in this Section 9, a Warrant Redemption Exercise No ti ce s hall be deemed re vo k ed in full, a nd sha ll be of n o furth er f orce and effect , o n an applicable Termination Date (as defined below) .

(d) For purposes of this Se ctio n 9, " Conditions to Redemption Amo unt Reduction " mean s th e following conditions: ( i) during the period beginning on the Warrant Date and e nding o n and i nclu d in g the date of co n s ummati o n of t he Private Co mpa ny Organic Change (the applicable "Transac ti o n Consummation Date"), the Co mp any shall have delivered Warrant Shares upon exerc i se of the Warrant s on a timel y basis as se t forth in Section 2(a); (ii) o n each day during the period (the "Rede mption Amo unt R e duction Con diti on Period " ) beginning o n and including the Warrant Redemption Right Exerci se Period Commencement Date relating to suc h Transaction Co nsummation Date and ending on and includin g such Transaction Consumm ati on Date, the Common Stock is listed on the NASDAQ Global Market, the NASDAQ Global Se l ect Ma rket o r the New York S t ock Exc hange and the Common Stock ha s not been suspended from trading on the NASDAQ G lobal Market, the NASDAQ G l o bal Select Market or the New York S t oc k Exc h a n ge; (i i i) on each day d uring t h e Redemption Amount Reduction Condition Period , a Registration Statement (a s defined in the Registration Ri g ht s Agreement) s hall be effective and available for the sale of all of the Registrable Securities issuable up on exercise of the Warrants, in acco rdance with the Registration Rights Agreement, and there sha ll not have been any Grace Period (a s defined in the R egist rati on Rights Agreement) applicable to such Registration Statement; and ( iv) the Company s h a ll hav e obtained all requisite approvals of its stockholders for th e issuance of all of the Warrant Share s issuable upon exerci se o f the Warrants.

 
 

 
(e ) If a t any time durin g a p e r iod (a "C o mpen s ated Exe r c i se Pe ri od " ) beginning o n a Warrant R ede m p ti on Ri gh t Ex erci se Per i od Co mmen c eme nt Date and ending on the ea rl ier of ( i ) the Tradin g Da y immediat e l y p re ceding the app l ica ble Tra n s a c t io n C o n su mm a ti o n Da te an d (i i ) the term i n a ti o n or abandonm e nt of th e Pri vate Company Orga nic C hang e as to w hich suc h Wa rrant R e dempti o n Ri g ht Exerc i se Per i od Co mmen ce m ent Date re l ates and t h e p u bl i c di s cl os ure t hereof, w hi c h p u bl i c d i sc lo s ur e th e Co mp any s h a ll make n o lat er than th e firs t Bu si ne ss Da y foll ow ing suc h te rm ina t io n or aband o nment (a date o f s uch public di sc l os u re, a "Te rminati o n Date "), the Holder exe rci ses this Warrant as to an y Warra n t S h ares (a n y s u c h ex erci se bei n g refe rred t o a s a " C o m pen sa ted Exe r cise"), and if t h e H olde r h as d e li ve r ed a Warrant Red em pti on R i ght Exe r cise Not i ce o n o r after s u c h Warra nt Redempt io n Right Exerc i se Pe ri o d Co mmen ce ment Date and prior t o the date o f s uc h e xercis e ( th e "Exe r c i se D a te "), th e H old er s h a l l d es i gnat e in the app l ica bl e Exerc i se N otice   whe th er s u c h exe r c i se r evo k es s u ch Warrant R ede mpti o n Right Exe rci s e N oti ce as to th e Warrant Share s s ubj ect to such exercise. W i th resp ect to any Compensate d Exerc i s e , but with ou t lim iting or ot herwise affect in g th e Co mp a n y's o bligati ons und er Sect i o n 2 w i t h r espec t th ereto, th e Com pan y sh all pa y t o the H o ld er a n a m ou n t eq u al to t h e prod u ct (a " Warrant Ex erci se Ad diti ona l Co mp e nsati o n A m o unt " ) of (I) th e re s ult of (A) th e B la ck~Sc h o l es Va lu e of t hi s Warra n t as t o o ne (I) Warrant S ha re, except that in ca lcul ating s u ch Black - Sc h o l es Valu e, (x) the Valua tion Date s h all be th e app li cab le Exerc i s e Date, (y) t he "o ption str ikin g p rice " s h all b e t he Wa rr ant Exe r cise Price on s uch Valuation Da te , a nd (z) t h e " curr e nt s to ck price " s hall be the We i g hted Ave ra ge Price of the Common Stock o n such V alua t i o n Date (wi t h a n y d isp u te r eg ardin g th e ca l c ula t i o n o f s u ch Bla c k- Scho l es Value be ing re so l ved in a c c o rd ance w it h the procedures set f o rth in Sec ti o n 8(b) (i ii ) , minu s (B ) the am o unt , i f any, b y w hi c h the Weig ht ed Ave ra ge Price of th e Co mm o n Stock o n th e applicab l e Exe r c i se Da t e excee d s th e Warra n t Exerc i se Price on s u c h Exercise Date. Th e Co mp a n y sha ll pay th e Wa rrant Exe rci se Ad diti o nal Compe n sa ti o n Amoun t t o the H o l de r n o l ate r than the ea rlie st t o occ ur of (I) a Tran sac ti o n Co n s ummati on Da te , (2) a Te r minati o n Date , a nd (3) t he thi rt ieth (30 th ) d ay after s u c h Exerc i se Da t e.

(f) U p o n an y Wa rr ant Redemptio n Rig h t Exerc i se Per i od Com men ceme nt Date rel at in g to a Pri vate Compa n y O r ga ni c C h a n ge, t h e Wa rr ant Exe r cise Pr ice th e n i n eff ect s h a ll be re d u ce d , effective a s of s u c h Warrant Exe rci s e Pe ri o d Co mm ence ment Date , to the We i g hted Av era ge Pric e of th e Co mm o n S t oc k o n the Tradin g Da y immed i a t ely p reced i n g suc h Warra n t Redempt i on R i g h t Exe rci se Peri od Co mmen ce ment Date; pr ov ided that, in the case of a Warrant Red e mpti o n Right Exerc i se Period Comm en cem ent Date rel a ting t o a Pri vate Compa n y O rganic C han ge that i s not a s ale of all o r s u bs t an ti a ll y a ll of t h e as se t s of th e Co mp a n y, th e Warrant Exercise Pr i ce th e n i n e ff ect s h a ll i n s tea d be redu ce d t o a pric e e qual to the va lu e, a s determined j o in tly b y the Co mpan y a nd [ h e Hold er, of the cons iderati o n to b e rec ei ved per s h a re o f Co mm o n Stock by stock h o lder s o f th e Co mpan y in su c h Privat e Com pan y Org anic C h a n ge if suc h va lu e is l ess th an such We igh ted A ve r age Pri c e. In no eve nt s hall th e Warra nt Exerc i se Pr i c e be increa se d pu rsua nt to t hi s Section 9(F).

Sectio n 10 .   Lost, Sto l en , Muti l a ted o r De s t royed Wa rr a n t. If t h i s Wa rra n t i s l os t , sto l en , mutilated o r de s tr oyed, th e C ompany shall promptl y, o n r ece ipt of a n ind e mnifi cat i o n un dert akin g by the H o l de r (or i n t h e case o f a mu til ated Warran t, the Warrant) , issue a n ew Warrant o f li k e denominat i o n and tenor as t h is Warra n t so l ost, s to len, mutilat ed o r destroyed .
 
 
Sectio n 11 .   No tice . Any n otices, co n sen t s, wa i ver s or other comm uni c ati ons require d o r pe r mitted to be given und e r the term s of thi s Wa rr an t m ust be in wr iting and w ill be deemed to have bee n deli ve red : (1) up o n rece i pt , whe n de li ve r ed personall y; (ii) up o n r ece ipt , when se nt by fa cs imile (provided co nfirmati o n of t r a n s mi ss i on i s mec h a ni ca ll y or elect r o ni ca ll y gener ated a nd ke p t o n fil e b y t he se n din g p arty); or ( iii) one ( I ) Bu s in ess Day after depos it wit h a nat i o nall y r ecognized ove rni ght delivery s erv i ce , in eac h case properly ad d ressed t o the part y to r ece i v e th e sa me . The addr esses a n d fac s imile num be r s f or s u ch c omm u nicati o n s s h a ll b e:
 
 
 

 
If to the C o mp a n y :
 
Infini ty Energy Re s o urce s , Inc.
Atte nti o n : S tan ton E . Ro ss
11900 C o ll eg e Blvd., Suite 204
Ove rland Park, KS 66210
Te l ep h o n e: (913) 948 -0 512
Facsimile : (913) 9 3 8-4458
 
If to a Holder, to it at t he address and fac s i mile number se t fort h in the Sec uri t i es P urchase Agreement , wi t h co pi es t o suc h H o ld er ' s repre s en tati ve s as set forth the rein , or, in t he case o f th e H o l de r or any ot h e r Per so n named abo ve , at s uch other address a nd/or facsimi l e number and / or t o t h e attention of such o ther pe rson a s the r ecipient party ha s speci fie d by w ritt en notice to the o th er p arty a t l eas t fi ve (5) da y s pr i o r t o t he effec ti ve n e ss of such cha n ge . Written con firm atio n o f re c eipt (A) given b y the rec ipient o f suc h n o ti ce , consent , wa iv er or o ther com muni cat i o n , (8) m echan i ca ll y o r electronically generated by the s end er's facsimile ma ch in e co n taini n g th e time, d ate , recipient facsimile numb e r and an ima ge of the fir s t pa ge of s uch t r a n s m i ss i o n or (C) p r ovided by a nat i o nall y re c og ni zed ove rni ght delivery s ervice s ha ll be rebutt able e vidence of personal s ervice , rece ipt b y facsimil e o r deposi t wit h a nationa ll y re cog niz ed ov erni g ht delivery s ervi ce in ac corda nce wit h clau se ( i) , ( ii ) o r (i ii) ab ove, re spec tivel y .
 
Sectio n 12.             Date. The date of t h is Warra n t is F e bruary 1 6 , 201 1 ( t he " WARRAN T DATE " ). Thi s Warrant, in a ll e ve n ts, s hall be wholly void an d o f n o effec t after II :59 P . M., New York Ti m e, o n t h e E xp i ratio n Date , except t ha t no t w i thstandi n g a n y o ther provision s hereof, the provisions of Sect i o n 7 sha ll c o ntinue in full for c e and effec t after s uc h d ate as t o an y Wa rr ant Share s o r ot h e r s ecuriti es iss ued upon th e ex er c i s e o f thi s Wa rrant.
 
Sec ti on 13 .             A m e nd ment and Waiver. E x ce p t a s o therwi s e prov id ed herei n , the pro vi si ons of the SPA W arr a nt s ma y be a mend ed and the Co mp any ma y take an y actio n h erein prohibi t ed, or om it to p erform a n y act herein requ ir ed to be performed b y it , o nl y if the Co mpan y ha s o bt ai ned th e w ritten consent o f t h e Req ui si t e H o ld ers ; p rov id ed th a t no s u ch ac t ion m ay in c r ease th e Warra nt Exe r c i s e Price of a n y SPA Warrant o r decrease the number of sha re s o r c h ange the cla ss o f s t oc k obtainable upon e x ercise o f any SPA Warra nt without the wr itten co n s en t of the hold e r of s u c h SPA Warrant.
 
Sec ti on 14.             Desc r iptive He a d ings; Gov e rni n g Law. The d es c ri ptive head in g s o f the s evera l sect i ons and paragraph s of this Warrant a r e in se rt ed f o r con ve nien ce o nl y and do not const itute a part of th is Warrant. Al l que st i o n s conce rnin g the c o n struct i o n, va li dity , enf o rce m e n t a n d interpretation of this Warrant sha l l be governed by t h e inte rn a l laws of t h e S tat e o f Texa s, w ith out g i v in g effec t to a n y choice of law o r conflict o f l aw provision o r r ule (whether of th e State of Texas o r a n y other jurisdicti on) that wou l d c a u se th e appl i cati o n of th e laws of an y jurisdiction other than the St at e of Texas.
 
Sec ti o n 15 .             S eve rabili ty . In ca s e a n y provision in o r ob li gatio n h e reund er s ha ll b e inva lid , ill ega l o r unenf o rceable in a n y juri s diction , (a) t h e va lidi ty , l ega lity a nd e nf orceabi li ty of the remainin g pr ov i s ions o r ob li ga ti on s, or o f s u c h provi s i on or o bligation in a n y o t he r jurisdiction, sha ll n o t in any wa y be affected o r impaired thereby and ( b ) the pa rt ies s h a ll endeavor in good fait h nego tiati o n s to replace the i ll egal , inva li d or unen forcea bl e provision s w ith valid provision s the eco nomi c a nd le ga l e ffect of which come s as close a s p ossib l e to the i n ten t o f the ille ga l , inva l id o r u n e n forceab l e pro v i s i o n s .
 
 
 

 
 
Sec ti o n 1 6.             Ru le s o f Co n s tru c ti o n. Un l e ss the context otherwise r e quire s, (a) a ll refer e n ces to Sec ti o n s, Sche d u les o r E x h i b i ts are to Se c ti o ns , S c hedules o r Exh i bit s co ntai ned i n o r attached to this Warrant , (b) ea c h accounting terms n ot ot h er w i se d e fined i n thi s Warran t h a s th e m e an i n g a ss i g n ed t o it i n accordance with GAAP, (c ) words in the s ingular or plural include the singu l ar and plur al and pronouns s tated in either the ma sc ul ine , the feminine o r ne u ter ge nder s hall include the masculine, feminine and neuter and (d) the use of the word " includin g " in this Warrant s h all be b y way o f exam ple rathe r than limitation.
 

 
[Remaind e r of page intentionall y left blank]
 
 
 

 
IN WITNESS WHEREOF, the Company has caused thi s Warrant t o be exe cute d a s of the 16 th day of February, 20 I I.
 
 
 
INFINITY ENERGY RESOURCES, INC.
 
       
 
By:
   
  Name:
Stanton E. Ross
 
       
  Title: President and Chief Executive Officer  
       
 
 
 
 

 
 
EXHIBIT A TO WARRANT
 
EXE R C I SE NO TI CE
 
TO BE EXECUTE D B Y THE REGISTERED HOLDER TO EXERC I SE THIS WA RRA N T
INF I N ITY EN ERGY RES OURC ES , I NC.
 
The unde r si gned h o ld er hereby exerc i ses t h e r ight t o pu rc hase of the sha re s o f Co mmon Stock ("WARRANT SHARES") of Infinity Energy Re so ur ces, In c. , a Del awa re corpora tion (t h e "COM PANY " ) , ev i dence d b y the attached Warr ant (t h e "WARRANT"). Ca pitali ze d terms used h er e in a n d not ot h erw i se defined sha ll ha ve the re spectiv e mea nin gs set fo rth i n t he Warrant.
 
1             Fo rm of Warrant Exercise Price . The h o ld e r intend s that pay m e nt o f the Wa rrant Exerc i se Pri ce s h a ll be made as:
 
 
_____________
a "CAS H EXE RCI SE" with re s pect t o ___ _________ __ ____ Warra nt S h ares; and/or
 
 
_____________
a "C ASHLESS EXERCISE " with re s p ec t to _______   Warrant Sh a r es (to the extent permitted by th e terms of the Warra n t).
 
2             Payment of Wa rr ant Ex e rcise Pri ce. I n th e event that the holder h as e l ected a Cash Exer c i se wit h respect to som e or a l l o f t he Warra n t S ha res to be i ssued p urs uant heret o, the h o l de r s ha ll pa y th e Aggregate Exercise Pri ce in th e s um o f $ t o th e Co mp any in acco rdance w ith th e t erms of th e Warrant.
 
3             Delivery of Warrant Share s. The Co mpan y s hall deliver ________ Wa rrant S h a r es in accordance with the ter ms of the Warrant in the f o ll ow ing n ame a nd to the foll ow in g addr ess:
I ss u e to : ____________________________________________________________________
 
Facsimi l e Num b e r :_____________________________________________________
 
DTC Participant N umber and Name (if el ect r o nic b ook e ntry tr a n s fer ): ____________
 
Accoun t N umber (i f e lec t ro ni c book e n try tran s fe r ): ___________________________
 
Date : ________________
 
Name o f Registered Hold e r
 
B y:_________________________
Name:
 
Title :
 
 
 

 
 
ACKNOWLEDGMENT
 
The Co mpan y hereby acknowledges this Exercise No ti ce and h ere by direct s [ TRA NSFE R AGENT] to i ss ue the above indicated n umber o f shares of Co mmon Stock to th e Re g i s tered Ho ld er in accordance wit h the Transfe r Agent In st ru c tion s dated _______________ , 2 0 __ fr o m the Compan y and acknow ledged and agreed t o by [TRANSFER AGENT] (a copy of whic h i s attac h ed hereto) .
 
 
 
 
I NF I N ITY ENERGY R ESOU R C ES, I NC.
 
       
 
By:
   
  Name:
 
 
  Title:    
       
 
 
 
 

 

Exhibit 10.23
 
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR ANY STATE SECURITIES LAWS. IT MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR AN EXEMPTION THEREFROM. THE COMPANY MAY REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT ANY PROPOSED TRANSER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT.
 
SUBORDINATE SECURED PROMISSORY NOTE
 
$1,275,000
March 23, 2009
 
Denver, Colorado

FOR VALUE RECEIVED, Infinity Energy Resources, Inc., a Delaware corporation (the “Company”), promises to pay to the order of Off-Shore Finance, LLC, a Nevada limited liability company (the “Holder”), the principal sum of One Million Two Hundred Seventy Five Thousand Dollars (US$I,275,000) or, if less, the aggregate unpaid principal amount loaned and outstanding when due, whether upon the Maturity Date, as defined below, acceleration, redemption or otherwise (the “Note”) (in each case in accordance with the terms thereof). Payment of the Note will be secured by (i) two second-lien Deeds of Trust and Security Agreements dated March 23,2009 (collectively, the “Security Agreement”), by and between Infinity Oil and Gas of Texas, Inc. and Infinity Oil and Gas of Wyoming, Inc., respectively, and the Buyer, covering certain collateral as more particularly described therein and (ii) a Commercial Guaranty by each of Infinity Oil and Gas of Texas, Inc. and Infinity Oil & Gas of Wyoming, Inc. in favor of Holder (the “Commercial Guaranties”) and the Note is further subject to a Subordination and Intercreditor Agreement dated March 23, 2009 (the “Subordination Agreement”), by and among the Holder, the Company and Amegy. This Note is issued in connection with that certain Securities Purchase Agreement, dated March 23, 2009 between the Company and the Holder (the “Purchase Agreement”) and any terms used but not defined in this Note shall have the definitions assigned to them in the Purchase Agreement.
 
The Company agrees to pay interest on the outstanding unpaid principal amount of the Note at a rate of6.0% per annum (“Interest”) from the date of borrowing, and continuing until paid in accordance with the provisions of this Note, subject, however, to the provisions of the Subordination Agreement. Interest on this Note shall be computed on the basis of a 360-day year and actual days elapsed. Amounts are deemed borrowed under the Note as follows:
 
1.           For amounts loaned under Section 2 hereof, as of the date such funds are deposited in the Company’s operating account at U.S. Bank.
 
2.           For amounts required to be funded by Holder by Amegy under Section 1.3(c) of the Off-Shore Escrow Agreement, as of the date such funds are transferred out of the Off-Shore Escrow Account.
 
 
 

 
 
The Loan Origination Fee and all Commitment Fees (as charged to the Company from time to time as provided in the Purchase Agreement) shall be deemed accrued interest hereunder.
 
1.            Payment of Principal and Interest . The entire unpaid balance of principal and all unpaid and accrued interest shall become fully due and payable on March 23, 2012 (the “Maturity Date”) or such earlier date as the maturity hereof shall be accelerated in accordance with the terms of Section 3 below. The principal and unpaid accrued Interest under this Note may be prepaid, in whole or in part, in cash, at any time and from time to time, without penalty, in the sole discretion of the Company by fifteen (15) days prior notice.
 
2.            Draw Down Procedure . The Holder shall make loans to the Company upon the Company’s request and in accordance with this Section 2, from time to time until the Maturity Date, provided that in no event shall the aggregate principal amount of such loans at any time exceed $1,275,000. A request for a loan, in substantially the form attached hereto as Exhibit 1, shall be executed by the Company’s Chief Executive Officer or Chief Financial Officer and be delivered to the Holder, specifying the requested amount and date of the loan (a “Loan Request”). Prior to making any Loan Requests, the Company shall have submitted a budget to the Holder and Amegy for approval, setting forth the proposed use of the funds being borrowed hereunder (the “Approved Budget”). All items under the Approved Budget shall relate to the Company’s direct and indirect expenditures in connection with the concessions in the Tyra and Perlas Blocks, offshore Nicaragua, as awarded to the Company by the Republic of Nicaragua in 2003, as hereafter amended and modified (the “Nicaragua Concessions”). Each Loan Request shall identify how the requested loan amount fits within the Approved Budget. Any Loan Request which either alone or with previous loan amounts designated for the same purpose exceeds the corresponding Approved Budget line item by ten percent (10%) or more shall require the Holder to convene a meeting of its executive committee to consider the Loan Request, and approval of such amounts shall be in the reasonable discretion of the Holder’s executive committee. The Approved Budget may be periodically revised with the written approval of the Holder, Amegy and Infinity. Loans shall be made by the Holder to the Company not less than five (5) business days after a Loan Request has been delivered to the Holder, and the amount of the Loan Request shall be deposited into the Company’s operating account at U.S. Bank.
 
3.            Events of Default; Acceleration . (a) An “Event of Default” under this Note shall occur upon the occurrence of any of the following events: (i) failure to make any payment of any amount owed to the Holder pursuant to this Note when the same shall be due and payable and such failure continues for ten (10) days after written notice thereof to the Company; (ii) appointment of a receiver for any part of the property of, or assignment for the benefit of creditors by, the Company; (iii) the commencement of any proceedings under any bankruptcy or insolvency laws by the Company; (iv) the commencement of any involuntary proceedings under any bankruptcy or insolvency laws against the Company if the same have not been fully discharged within sixty (60) days after the commencement thereof; or (v) the Company defaults in the performance of or compliance with any material term, covenant or agreement contained in this Note, if any, and such failure continues for ten (10) days after written notice thereof to the Company.
 
 
 

 
 
(b)         If any Event of Default shall occur and be continuing, the Holder may, at any time, at its option by prior written notice to the Company, declare this Note to be immediately due and payable. The Company shall reimburse the Holder for all court costs and the reasonable out-of-pocket fees and expenses of the Holder and its legal counsel paid by the Holder in connection with the Holder’s collection of any amounts due and payable to the Holder.
 
(c)         Upon this Note becoming due and payable under this Section 3, this Note will forthwith mature and the entire unpaid principal amount of this Note, plus all accrued and unpaid interest, shall all be immediately due and payable.
 
4.            Priority of Note . Except with respect to the debt evidenced by the Company’s Loan Agreement with Amegy dated January 9, 2007, as amended and supplemented by the First, Second and Third Forbearance Agreements (“Senior Debt”), which is senior to the Note in all respects, no indebtedness of the Company will rank senior to or pari passu with the Note in right of payment, whether with respect of payment of principal, interest, damages or upon liquidation or dissolution or otherwise.
 
5.            Voting Rights . The Holder shall have no voting rights as the Holder of this Note.
 
6.            Release . Upon the payment in full of the amounts specified in this Note, the Company shall be released from all its obligations and liabilities under this Note.
 
7.            Governing Law; Waiver of Jury Trial . This Note shall be governed by, and construed and enforced in accordance with, the laws of the State of Colorado, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
 
8.            Agreement, Amendment and Waiver . This Note and the agreements, documents and instruments referenced herein and therein contain the entire understanding of the parties with respect to the matters covered herein and therein and constitute the entire agreement of the parties with respect to the transactions contemplated hereby and supersede all other prior agreements or understandings among the parties hereto with respect to the subject matter hereof. This Note may be amended only upon the written consent of the Company and the Holder.
 
9.            Severability . Any provision of this Note which is prohibited or unenforceable in any jurisdiction where such provision would otherwise be applied shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Note or affecting the validity or enforceability of such provision in any other jurisdiction.
 
10.          Successors and Assigns . Neither this Note nor any of the rights, interests or obligations hereunder may be assigned in whole or in part by either the Company or the Holder without the prior express written consent of the other party (or its permitted assigns). Except as otherwise provided herein, the terms and conditions of this Note shall inure to the benefit of, and be binding upon, the respective successors and assigns of the Company and the Holder. Nothing in this Note, express or implied, is intended to confer upon any party other than the Company, the Holder or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Note.
 
 
 

 
 
11.          Waiver . The Company waives delivery, acceptance, performance, presentment and demand for payment, notice of dishonor, protest and notice of protest of this Note, and any defense by reason of extension of time for payment or other indulgences. The right to plead any and all statutes of limitations as a defense to any demands hereunder is hereby waived by the Company to the fullest extent permitted by law. The acceptance of any partial payment or other payment which does not fully pay all amounts then due hereunder and fully cure all defaults hereunder shall not constitute a waiver of the right to payment of the balance of such payment or other amount then or thereafter due, of any default hereunder, of the right to declare a default hereunder or cause the entire unpaid balance hereof to become immediately due and payable in full, or of any other right or remedy.
 
12.          Note Record . The Holder shall, and is hereby authorized, to record on the Note Record attached to this Note as Exhibit 2, the date and principal amount of each loan and the date and amount of each principal payment hereunder; provided, however, that neither the failure to so record nor any error in this recordation shall affect the Company’s obligations under this Note.
 
13.          Computation of Time . If any event or performance under this Note is scheduled or required to occur on a date which is on a Saturday, Sunday, or legal state or federal holiday in Denver, Colorado, the event or performance shall be required to occur on the next day which is not a Saturday, Sunday or legal state or federal holiday in Denver, Colorado.
 
[Signatures on Following Page]
 
 
 

 

In Witness Whereof, the Company has executed this Note as of the date first above written.
 
 
INFINITY ENERGY RESOURCES, INC.
   
 
/s/ Stanton E. Ross
 
By:    Stanton E. Ross, its Chief Executive Officer

Accepted and Agreed as of the date
First written above.

 
OFF-SHORE FINANCE, LLC
   
 
/s/ Daniel J. Haake
 
By:    Daniel J. Haake, Managing Member

 
 

 

Exhibit 10.25
 
Execution Version
 
REVENUE SHARING AGREEMENT
 
This Revenue Sharing Agreement (the “ Agreement ”) dated March 23, 2009 is entered into by and between INFINITY ENERGY RESOURCES, INC. (“ Assignor ”) and OFF-SHORE FINANCE, LLC, a Nevada limited liability company (“ Assignee ”). Assignor and Assignee are collectively referred to as the “Parties.”
 
In consideration of the premises and mutual covenants and obligations below, the Parties agree as follows:
 
1.           Assignor hereby assigns unto Assignee a monthly payment (the “ RSP ”) equal to the revenue derived from one percent (1 %) of 8/8ths of Assignor’s share of the hydrocarbons produced at the wellhead from certain oil and gas concessions in the Tyra and Perlas Blocks, offshore Nicaragua (the “ Concessions ”). The RSP shall bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including without limitation, its share of production, severance and similar taxes, as well as its share of all costs of gathering, treating, compressing, dehydrating and processing produced hydrocarbons (or otherwise rendering the same marketable) and transporting the same to the point of sale. Assignor will employ the accounting procedures and standards in the 2005 COPAS Accounting Procedure.
 
2.           Assignor shall pay the RSP to Assignee by the last day of each month based on the revenue received by Assignor from the purchaser of the production during the previous month from the Concessions. The Parties expressly agree that this Agreement does not create any rights in the Concessions. No obligation, express or implied, shall arise by reason of the RSP that obligates Assignor to maintain or develop either of the Concessions. All operations under the Concessions shall be solely at the discretion of Assignor.
 
3.           Assignee, upon notice in writing to Assignor, shall have the right to audit Assignor’s accounts and records relating to the RSP (“ Audit Rights ”), for any calendar year within the twenty-four (24) month period following the end of such calendar year. Assignor shall bear no portion of Assignee’ audit cost, and the audits shall not be conducted more than once each year without prior approval of Assignor.
 
4.           At any time within three (3) years from the date of this Agreement, Assignor shall have the right to redeem the RSP by paying to Assignee an amount as follows: (i) if during the first year of this Agreement, a sum equal to three (3) times the amount of investor funding by Off-Shore Finance, LLC to Assignor as of December 31, 2009 (the “ Funding Amount ”); (ii) if during the second year of this Agreement, a sum equal to five (5) times the Funding Amount; or (iii) if during the third year of this Agreement, a sum equal to ten (10) times the Funding Amount. Upon the redemption of the RSP by Assignor, this Agreement shall terminate and all rights of Assignee under this Agreement shall immediately cease, provided Assignee shall be entitled to payment of the RSP accruing up until the redemption of the RSP.
 
 
 

 
 
5.           This Agreement may be executed in several counterparts, all of which are identical. All of such counterparts together shall constitute one and the same instrument.
 
6.           This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the Parties. This Agreement shall not be assignable or transferable by Assignee without the prior written consent of Assignor.
 
7.           This Agreement contains the entire agreement between the Parties relating to the subject matter of this Agreement at the date hereof to the exclusion of any terms implied by law which may be excluded by contract and supersedes any previous written or oral agreement between the Parties in relation to the matters dealt with in this Agreement.
 
8.           This Agreement will be governed by, construed, interpreted and applied in accordance with the laws of the State of Colorado, excluding any choice of law rules which would refer the matter to the laws of another jurisdiction. All disputes arising out of or related to the interpretation or enforcement of this Agreement shall be fully and finally resolved under Commercial Arbitration Rules of the American Arbitration Association by a panel of three arbitrators appointed in accordance with those rules. The arbitration proceeding shall take place in Denver, Colorado, or any such other location as the Parties may mutually agree, and shall be conducted in the English language. The arbitration award shall be final and binding on the Parties. A Party may enter judgment upon the award in any court of appropriate jurisdiction upon application thereto.
 
9.           The Parties agree that this Agreement and its contents shall be considered confidential and shall not be disclosed to any other person or entity without the prior written consent of Assignor.
 
 
ASSIGNOR:
   
 
INFINITY ENERGY RESOURCES, INC.
   
 
Name:
/s/   Stanton E. Ross
   
 
By: Stanton E. Ross
   
 
Title: Chief Executive Officer
   
 
ASSIGNEE:
   
 
OFF-SHORE FINANCE, LLC
   
 
Name:
/s/   Daniel J. Haake
   
 
By: Daniel J. Haake
   
 
Title: Managing Member
 
 
 

 

Execution Version
 
Exhibit 10.26
 
REVENUE SHARING AGREEMENT
 
This Revenue Sharing Agreement (the “Agreement”), dated June 6, 2009, is entered into by INFINITY ENERGY RESOURCES, INC. ( “Assignor” ) and Stanton E. Ross (“Ross”), Leroy C. Richie (“Richie”) and Daniel E. Hutchins (“Hutchins”) (the “Assignees” ).  Assignor and the Assignees are collectively referred to as the “ Parties .”
 
RECITALS
 
WHEREAS, the Assignor has an interest in certain oil and gas concessions in the Tyra and Perlas Blocks, off shore Nicaragua, as more specifically defined in Exhibit A attached hereto (the “ Concessions ”);
 
WHEREAS, the Assignees are directors and/or officers of the Assignor and have provided services to the Assignor without compensation for a substantial period of time and Assignor desires to compensate the Assignees with such services;
 
WHEREAS, the Assignees who are directors of the Assignor are interested parties in the transaction and have approved the transaction, they have determined that such terms are fair and in the best interests of the Assignor.
 
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties agree as follows:
 
1.            Assignment .  Assignor hereby assigns unto the Assignees an amount equal to the revenue derived from one percent (1%) of 8/8ths of Assignor’s share (the “RSP” ) of the hydrocarbons produced at the wellhead from the Concessions. The RSP shall bear its proportionate share of all costs incurred to deliver the hydrocarbons to the point of sale to an unaffiliated purchaser, including without limitation, its share of production, severance and similar taxes, as well as its share of all costs of gathering, treating, compressing, dehydrating and processing produced hydrocarbons (or otherwise rendering the same marketable) and transporting the same to the point of sale.  Assignor will employ the accounting procedures and standards in the 2005 COPAS Accounting Procedure in calculating the RSP.  Assignor shall pay the RSP to the Assignees on or before the last day of each month based on the revenue received by Assignor during the previous month from the purchaser of the production from the Concessions.  The RSP shall be reduced in proportion to any reduction in Assignor’s interest in the Concessions. For example, if Assignor’s revenue from the Concessions is reduced by 80%, whether through sales or transfers of interest in the Concessions to third parties or otherwise, the RSP of the Assignees shall be equal to 1% multiplied by the remaining 20%, or 0.002 of the revenue that Assignor derives from the Concessions.
 
2.            Interest in Concessions . The Parties expressly agree that this Agreement does not create any rights in the Concessions, but rather is an interest in the revenue derived from the Concessions.  No obligation, express or implied, shall arise by reason of the RSP that obligates Assignor to maintain or develop either of the Concessions.  All operations under the Concessions shall be solely at the discretion of Assignor.
 
 
 

 

3.            Audit Rights .  The Assignees, upon notice in writing to Assignor, shall have the right to audit Assignor’s accounts and records relating to the RSP (the “ Audit Rights ”) for any calendar year within the twenty-four (24) month period following the end of such calendar year.  Assignor shall bear no portion of the Assignees’ audit cost, and the audits shall not be conducted more than once each year without prior approval of Assignor.
 
4.            Ownership of RSP . The Assignees shall own the RSP as tenants in common in the following percentages:  Ross - forty percent (40%); Hutchins - thirty-five percent (35%); and Richie - twenty-five percent (25%). Assignor shall pay each Assignee’s portion of the RSP to each Assignee in such percentages at the Assignee’s direction.
 
5.            Conditions Precedent to Effectiveness. The effectiveness of this Agreement is subject to satisfaction of the following:
 
 
(i)
Execution of a fourth Forbearance Agreement with Amegy Bank that consents to this Agreement; and
 
 
(ii)
Approval of this Agreement by the holders of a majority in interest of Offshore, LLC.
 
6.            Subordination of RSP.   Assignor’s obligation to pay and Assignees' right to receive the RSP under this Agreement shall be subordinated to the following:
 
 
(i)
Payment of Assignor’s obligation to Amegy  Bank in full;
 
 
(ii)
Payment in full of Assignor’s outstanding obligations to third party vendors; and
 
 
(iii)
Repayment of the promissory note of Offshore Finance, LLC.
 
7.            Counterparties.   This Agreement may be executed in several counterparts, all of which are identical.  All of such counterparts together shall constitute one and the same instrument.
 
8.            Term. This Agreement shall commence on the date first above written and terminate upon Assignor’s sale or transfer of its right, title and interest in and to the Concessions, including its right to receive distributions from operation or sale of the Concessions.
 
9.            Benefit. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the Parties and to the legal representatives, heirs, successors and permitted the assigns of the Assignees.
 
10.          Assignment of RSP .  This Agreement shall be not be assignable or transferable by the Assignor without the prior written consent of Assignees. The respective interests of the Assignees in the RSP under this Agreement are assignable and transferrable by any of the Assignees in whole or in part, provided that the transferee agrees to be bound by each and every provision of this Agreement. The Parties shall amend this Agreement to effect the Assignees transfers or assignments of their RSP interests.
 
 
2 of 3

 
 
11.          Entire Agreement .  This Agreement contains the entire agreement between the Parties relating to the subject matter of this Agreement at the date hereof to the exclusion of any terms implied by law which may be excluded by contract and supersedes any previous written or oral agreement between the Parties in relation to the matters dealt with in this Agreement.
 
12.          Governing Law .  This Agreement will be governed by, construed, interpreted and applied in accordance with the laws of the State of Kansas, excluding any choice of law rules which would refer the matter to the laws of another jurisdiction.  All disputes arising out of or related to the interpretation or enforcement of this Agreement shall be fully and finally resolved under Commercial Arbitration Rules of the American Arbitration Association by a panel of three arbitrators appointed in accordance with those rules.  The arbitration proceeding shall take place in Overland Park, Kansas, or any such other location as the Parties may mutually agree, and shall be conducted in the English language.  The arbitration award shall be final and binding on the Parties.  A Party may enter judgment upon the award in any court of appropriate jurisdiction upon application thereto.
 
13.          Confidentiality .  The Parties agree that this Agreement and its contents shall be considered confidential and shall not be disclosed to any other person or entity without the prior written consent of Assignor.
 
IN WITNESS WHEREOF, the undersigned have executed this Agreement to be effective as of the date and year first above written.
 
 
ASSIGNOR:
   
 
INFINITY ENERGY RESOURCES, INC.
   
   
 
Stanton E. Ross
 
Its Chief Executive Officer
   
   
 
Daniel F. Hutchins
 
Its Chief Financial Officer
   
 
ASSIGNEES:
   
   
 
Stanton E. Ross
   
   
 
Daniel F. Hutchins
   
   
 
Leroy C. Richie

 
3 of 3

 
Exhibit 10.28
 
INFINITY ENERGY RESOURCES, INC.
 
September 16, 2009
 
Jeff Roberts
The Unconventionals
1420 Dudley Dr.
Carrollton, TX  75007-2769
 
Via Email - jeff@theunconventinals.gmail
 
Dear Jeff:
 
This letter Will confirm Jeff Roberts’ engagement to assist Infinity Energy Resources, Inc. in its oil and gas holdings in Nicaragua.
 
Jeff Roberts will assist in the following in connection with Infinity Energy Resource Inc.’s Nicaragua oil and gas holdings.
 
Phase I - Technical Studies
 
 
·
Preparation of a geological and geophysical interpretation of existing data in the two blocks (in coordination with TKGES).
 
·
An evaluation of the petroleum system and potential reserves in the area.
 
·
An economic assessment considering various scenarios and sensitivities.
 
·
Prepare final report
 
Phase II - Farmout
 
Oversee:
 
 
·
Preparation and disseminating of promotional materials
 
·
Organizing of data room
 
·
Management of the data and the sales process.
 
·
Assist in all negotiations.
 
Jeff Roberts will be compensated as follows
 
 
·
A success fee of 5% of the upfront cash paid to Infinity by a third party earning an interest in the Nicaragua assets up to $20,000,000 and 10% of any amount exceeding $20,000,000.
 
·
A success fee of 2% of the remainder value of the transaction, which will include all investment and any other form of contribution firmly committed by a third party to the Nicaragua project.
 
·
A cost fee 1% overriding royalty interest on all oil and gas produced.
 
11900 College Blvd., Ste. 204 • Overland Park, KS 66210 • PH (913) 948-9512 • FAX (913) 338-4458
 
 
 

 
Jeff Roberts’ work product will be based on information furnished by and through Infinity Energy Resources, Inc. and Jeff Roberts makes no representation or warranties with regard to its work product nor the success of any work associated with this agreement.  Infinity Energy Resources, Inc. release and indemnities Jeff Roberts for all claims associated with this agreement.
 
Jeff Roberts we look forward to working with you.
 
      Sincerely,
 
Stanton e. Ross
 
CEO & Chairman
Infinity Energy Resources, Inc.
 
 
 
Agreed to and accepted this 17th day of December, 2009.
 
         
Jeff Roberts
   
 
 
 
   
 
 
 
11900 College Blvd., Ste. 204 • Overland Park, KS 66210 • PH (913) 948-9512 • FAX (913) 338-4458
 

 
 

 
Exhibit 10.29
 
Thompson & Knight
   
GLOBAL
ENERGY
SERVICES
 
333 Clay Street, Suite 3300
Houston, TX 77002
Tel 713 653 4787, Fax 832 397 8230
     


September 8th, 2009


Stanton E. Ross
Chairman and CEO
Infinity Energy Resources, Inc.
7311 W 130th St., Suite 170
Overland Park, KS 66213

Via Email - rossy1979@aol.com

Re:           Consulting Services

Dear Stan:

This letter will confirm Thompson & Knight Global Energy Services’ (“TKGES”) engagement to assist Infinity Energy Resources, Inc. in its oil and gas holdings in Nicaragua.

TKGES will perform the following in connection with Infinity Energy Resources, Inc.’s Nicaragua oil and gas holdings.

Phase I - Technical Studies

 
·
Preparation of a geological and geophysical interpretation of existing data in the two blocks (in coordination with Jeff Roberts).
 
·
An evaluation of the petroleum system and potential reserves in the area.
 
·
An economic assessment considering various scenarios and sensitivities.
 
·
Prepare final report.

TKGES will be compensated as follows:

 
·
$100,000 ($50,000 per block) as follows:  50% upon completion seismic interpretation and mapping and preliminary assessment of the petroleum systems, and 50% upon presentation of the final report.

Phase II - Farmout

 
·
Prepare and disseminate promotional materials
 
·
Organize a data room.
 
·
Manage the data and the sales process.
 
·
Assist in all negotiations.

 
 

 
Exhibit 10.29
 
Thompson & Knight
   
GLOBAL
ENERGY
SERVICES
 
333 Clay Street, Suite 3300
Houston, TX 77002
Tel 713 653 4787, Fax 832 397 8230
     

 
TKGES will be compensated as follows

 
·
A success fee of 5% of the upfront cash paid to Infinity by a third party earning an interest in the Nicaragua assets up to $20,000,000 and 10% of any amount exceeding $20,000,000.
 
·
A success fee of 2% of the remainder value of the transaction (which will include all investments and any other form of contribution firmly committed by a third party to the Nicaragua project;
 
·
A cost-free 1% overriding royalty interest on all oil and gas produced.

Delivery of E&P Business Management Program: as part of the training program committed by Infinity under the two Nicaragua contracts TKGES will deliver, at the venue and dates mutually agreed with the Nicaragua government, its four day E&P Management Program, subject to the approval of such program by the government.

TKGES will be compensated as follows:

 
·
a total of $25,000.00 ($12,500.00 per block) plus expenses.

The above terms do not include legal services or expenses.  Infinity Energy Resources, Inc. will separately compensate Thompson & Knight LLP for legal services and will reimburse TKGES for expenses as provided in Attachment A.  Attachment A to this letter is a description of TKGES’s client cost reimbursement policies that reflect the basis upon which we will request reimbursement of expenses.  We will seek Infinity Energy Resources, Inc.’s approval before incurring any extraordinary reimbursable expenses.

TKGES’s work product will be based on information furnished by and through Infinity Energy Resources, Inc. and TKGES makes no representations or warranties with regard to its work product nor the success of any work associated with this agreement.  Infinity Energy Resources, Inc. releases and indemnities TKGES for all claims associated with this agreement.\

We appreciate your confidence in entrusting this matter to us and we look forward to working with you.
 
     
Sincerely,



Andrew B. Derman
Vice-Chairman
Thompson & Knight Global Energy Services
 
 
 
 

 
Exhibit 10.29
 
 
Thompson & Knight
   
GLOBAL
ENERGY
SERVICES
 
333 Clay Street, Suite 3300
Houston, TX 77002
Tel 713 653 4787, Fax 832 397 8230
     
 
AGREED AND APPROVED BY INFINITY ENERGY RESOURCES, INC.

 
         
 
   
 
 
STANTON E. ROSS
   
 
 

 
         
 
   
 
 
INFINITY ENERGY RESOURCES, INC.
CHAIRMAN AND CEO
   
 
 

 
SEPTEMBER 9th, 2009

AGREED AND APPROVED BY AMEGY BANK

 
         
 
   
 
 
SIGNATURE
   
 
 
 
         
 
   
 
 
PRINT NAME
   
 
 
         
 
   
 
 
TITLE
   
 
 
 
SEPTEMBER ___, 2009
 
 
 
 

 
Exhibit 10.29
 
Thompson & Knight
   
GLOBAL
ENERGY
SERVICES
 
333 Clay Street, Suite 3300
Houston, TX 77002
Tel 713 653 4787, Fax 832 397 8230
     
 

ATTACHMENT A

Policy Regarding Expenses Incurred on Behalf of Clients

 
 
General Policy

TKGES asks its clients to pay for certain incremental costs which are incurred in the course of providing consulting services.  These costs, which are detailed below, are itemized separately from professional time charges to ensure that each client is billed only for those services utilized on its behalf.  It is TKGES’s general policy to provide these incremental services to clients at or near its actual cost.  TKGES frequently reviews its expense charges to ensure ongoing compliance with this general policy.  It should be recognized that many expense charges are positively influenced by volume economies.  Lower costs derived from volume discounts are calculated into our expense charges to benefit tour clients.

Long Distance Telephone Calls

TKGES’s telephone tracking system generates long distance long distance telephone charges based on rate tables used by our service provider.  This rate is adjusted by a factor that blends the volume discount the Firm has negotiated with the service provider and taxes associated with all such calls.  Long distance calls made via a calling card, cellular phone or from a hotel are billed to clients at the our actual cost.

Photocopies

TKGES uses an Equitrac automated system for accurately capturing the number of copies made on behalf of each client matter.  Clients are billed a flat rate of $.10 per page for both letter and legal size photocopies.  Dual sided copies are billed at $.10 per side.  We staff an in-house print shop to provide cost effective and expedient client service.  Personnel intensive projects, including glass work, book copying, binding and Bates stamping, will be charged at competitive rates, generally from $.12 to $.20 per copy.

Airfare, Hotels, Car Rentals and Meals

All charges to clients for out-of-town travel on their behalf are billed at actual cost.  Our standard approved travel class for domestic travel in the United States is economy class and business class foreign travel.  We may charge clients fares above these stated classes of service only with the client’s prior approval.
 
 
 

 
Exhibit 10.29
 
Thompson & Knight
   
GLOBAL
ENERGY
SERVICES
 
333 Clay Street, Suite 3300
Houston, TX 77002
Tel 713 653 4787, Fax 832 397 8230
     
 

 
Courier Costs

Federal Express, DHL and other long distance delivery costs are also charged to clients at actual cost.

Telecopy (FAX) Costs

The standard rate for all outgoing facsimiles is $.45 per page, whether local or long distance.  The rate covers the cost of facsimile machines, paper, supplies, any fax related long distance costs, maintenance, and personnel (non-secretaries) dedicated or partially dedicated to the sending and receiving of faxes.  We do not bill for incoming faxes.  Based on current utilization, the standard rate billed does not exceed our total costs to provide telecopy services.

Mileage

Our personnel may charge a client a mileage charge when using a personal motor vehicle for client work that takes them outside the city limits of their office location.  Mileage is not charged for travel within the city.  The mileage rate is based on the Internal Revenue Service deductible rate.  Actual parking costs may be charged to clients when a personal motor vehicle is used for client work outside the office.

Postage and Related Supplies

Postage and related supplies for routine letters, documents and informational mailings are not billed to clients.  Postage and envelope costs are billed to clients at cost for large mailings that are made on behalf of a client at its request.  No extra charges are made for personnel who facilitate the mailings.

 
 

 

EXHIBIT 21

SUBSIDIARIES OF THE REGISTRANT

NAME
 
JURISDICTION OF FORMATION
     
Infinity Oil & Gas of Kansas, Inc.
 
Kansas
Infinity Oil and Gas of Texas, Inc.
 
Delaware
Infinity Oil & Gas of Wyoming, Inc.
 
Wyoming
 
 
 

 

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the use of our report dated May 9, 2011, with respect to the consolidated balance sheets of Infinity Energy Resources, Inc. and subsidiaries (the “Company”) as of December 31, 2010 and 2009, and the related consolidated statements of the operations, changes in stockholders’ equity and cash flows for the years ended December 31, 2010 and 2009 included in this Registration Statement on Form 10.

   
/s/ Ehrhardt Keefe Steiner & Hottman PC
     
May 9, 2011
   
Denver, Colorado