EXHIBIT 10.3

 

REGISTRATION RIGHTS AGREEMENT

 

THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is made and entered into
as of June 15, 2005, by and among Whittier Energy Corporation, a Nevada
corporation (the “Company”), on the one hand, and Friedman, Billings, Ramsey &
Co., Inc., a Delaware corporation (“FBR”), for the benefit of the Holders (as
hereinafter defined), on the other hand.

 

W I T N E S S E T H :

 

WHEREAS, the Company and FBR entered into that certain Placement Agreement dated
as of June 7, 2005 (the “Placement Agreement”), in connection with which on
June 15, 2005, the Company sold 852,912 newly issued shares (the “Preferred
Shares”) of its Series A 8% Automatically Convertible Preferred Stock, par value
$0.001 per share (the “Series A Preferred Stock”), each of which is convertible
into 30 shares (the “Common Shares”) of the Company’s common stock, par value
$0.001 (the “Common Stock”), with FBR acting as placement agent;

 

WHEREAS, to induce FBR to enter into the Placement Agreement, the Company has
agreed to provide the registration rights provided for in this Agreement for the
holders of Registrable Shares (as defined below); and

 

WHEREAS, the execution of this Agreement is a condition to the closing of the
transactions contemplated by the Placement Agreement.

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants of the
parties hereto, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:

 

1.                                       DEFINITIONS.  AS USED IN THIS
AGREEMENT, THE FOLLOWING TERMS SHALL HAVE THE FOLLOWING MEANINGS:

 

“Additional Payments” is defined in Section 7(a).

 

“Additional Shares” means shares or other securities issued in respect of the
Shares by reason of or in connection with any stock dividend, stock
distribution, stock split or similar issuance.

 

“Agreement” is defined in the introductory paragraph of this Agreement.

 

“Affiliate” means, as to any specified Person, (i) any Person that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, the specified Person, (ii) any executive officer,
director, trustee or general partner of the specified Person and (iii) any legal
entity for which the specified Person acts as an executive officer, director,
trustee or general partner.  For purposes of this definition, “control”
(including the correlative meanings of the terms “controlled by” and “under
common control with”), as used with respect to any Person, means the possession,
directly, or indirectly through one or more intermediaries, of the power to
direct or cause the direction of the management and policies

 

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of such Person, whether by contract, through the ownership of voting securities,
partnership interests or other equity interests or otherwise.

 

“Business Day” means each Monday, Tuesday, Wednesday, Thursday and Friday that
is not a day on which banking institutions in New York, New York are authorized
or obligated by applicable law, regulation or executive order to close.

 

“Closing Date” means the Closing Date as defined in the Placement Agreement.

 

“Commission” means the Securities and Exchange Commission.

 

“Common Shares” is defined in the first recital clause of this Agreement.

 

“Common Stock” is defined in the first recital clause of this Agreement.

 

“Company” is defined in the introductory paragraph of this Agreement, and any
successor thereto.

 

“Controlling Person” is defined in Section 6(a).

 

“End of Suspension Notice” is defined in Section 5(b).

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated by the Commission pursuant thereto.

 

“FBR” is defined in the introductory paragraph of this Agreement, and any
successor thereto.

 

“FBR Merchant Banking” means Friedman, Billings, Ramsey Group, Inc. and any
successor thereto.

 

“FBR Mandatory Shelf Registration Statement” is defined in Section 2(a).

 

“Holder” means each record owner of any Registrable Shares from time to time but
including Preferred Shares before December 31, 2005.

 

“Holders Mandatory Shelf Registration Statement” is defined in Section 2(a).

 

“Indemnified Party” is defined in Section 6(c).

 

“Indemnifying Party” is defined in Section 6(c).

 

“Liabilities” is defined in Section 6(a).

 

“Mandatory Registration Statement” means any Mandatory Shelf Registration
Statement or any Subsequent Shelf Registration Statement.

 

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“Mandatory Shelf Registration Statement” is defined in Section 2(a).

 

“NASD” means the National Association of Securities Dealers, Inc.

 

“Person” means an individual, limited liability company, partnership,
corporation, trust, unincorporated organization, government or agency or
political subdivision thereof, or any other legal entity.

 

“Piggyback Registration Statement” is defined in Section 2(b).

 

“Placement Agreement” is defined in the first recital clause of this Agreement.

 

“Preferred Shares” is defined in the first recital clause of this Agreement.

 

“Prior Holder” means an investor a party to or other beneficiary of the
Registration Rights Agreement, dated September 9, 2003, between the Company and
Whittier Energy Company, the Registration Rights Agreement dated June 16, 2004,
among the Company, Texas Independent Exploration Limited, Gulfcoast Acquisitions
Limited, and Frederick W. Zimmerman, or any Subscription Agreement related to
the Company’s June 2004 private placement of Common Stock and warrants to
purchase Common Stock, between the Company and the investors party thereto, in
each case that has not waived its rights under the applicable agreement and
holding “Registrable Securities” or “Registrable Common Stock”, as the case may
be (as defined in the applicable agreement).

 

“Prospectus” means the prospectus included in any Registration Statement,
including any preliminary prospectus, and all other amendments and supplements
to any such prospectus, including post-effective amendments, and all material
incorporated by reference or deemed to be incorporated by reference, if any, in
such prospectus.

 

“Purchaser Indemnitee” is defined in Section 6(a).

 

“Registrable Shares” means each of (a) the Common Shares issued or issuable upon
conversion of the Preferred Shares and any Additional Shares in respect thereof,
and (b) if and only if the Preferred Shares have not automatically converted
into Common Stock by December 31, 2005, the Preferred Shares and any Additional
Shares in respect thereof, in each case, upon original issuance thereof other
than the Common Shares which are Registrable Shares from the date hereof, and at
all times subsequent thereto, including upon the transfer thereof by the
original holder or any subsequent holder, until, in the case of any such Shares
or Additional Shares, as applicable, the earliest to occur of:

 

(i)                                     the date on which they have been sold
pursuant to a Registration Statement or sold pursuant to Rule 144;

 

(ii)                                  the date on which they are saleable, in
the opinion of counsel to the Company, without registration under the Securities
Act, pursuant to Rule 144(k);

 

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(iii)                               the date on which they are saleable, without
restriction, pursuant to an available exemption from registration under the
Securities Act; or

 

(iv)                              the date on which they are sold to the Company
or its subsidiaries.

 

“Registration Default” is defined in Section 7(a).

 

“Registration Expenses” means any and all expenses incident to the performance
of or compliance with this Agreement, including:  (i) all Commission, securities
exchange, NASD registration, listing, inclusion and filing fees (including those
of FBR, FBR Merchant Banking and Holders associated or affiliated with FBR),
(ii) all fees and expenses incurred in connection with compliance with
international, federal or state securities or blue sky laws (including any
registration, listing and filing fees and reasonable fees and disbursements of
counsel in connection with blue sky qualification of any of the Registrable
Shares and the preparation of a blue sky memorandum and compliance with the
rules of the NASD), (iii) all expenses of any Persons in preparing or assisting
in preparing, word processing, duplicating, printing, delivering and
distributing any Registration Statement, any Prospectus, any amendments or
supplements thereto, any underwriting agreements, securities sales agreements,
certificates and any other documents relating to the performance under and
compliance with this Agreement, (iv) all fees and expenses incurred in
connection with the listing or inclusion of any of the Registrable Shares on the
NASDAQ Stock Market pursuant to Section 4(n) of this Agreement, (v) the fees and
disbursements of counsel for the Company and of the independent public
accountants of the Company (including the expenses of any special audit and
“cold comfort” letters required by or incident to such performance), and
(vi) any fees and disbursements customarily paid in issues and sales of
securities (including the fees and expenses of any experts retained by the
Company in connection with any Registration Statement), provided, however, that
Registration Expenses shall exclude brokers’ or underwriters’ discounts and
commissions and transfer taxes, if any, relating to the sale or disposition of
Registrable Shares by a Holder and the fees and disbursements of any counsel to
the Holders other than as provided for in clause (v) above.

 

“Registration Statement” means any Mandatory Registration Statement or Piggyback
Registration Statement.

 

“Rule 144”, “Rule 158”, “Rule 415”, or “Rule 424”, respectively, means such
specified rule promulgated by the Commission pursuant to the Securities Act, as
such rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission as a replacement thereto having
substantially the same effect as such rule.

 

“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated by the Commission thereunder.

 

“Series A Preferred Stock” is defined in the first recital clause of this
Agreement.

 

“Shares” means the Common Shares and the Preferred Shares.

 

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“Subsequent Shelf Registration Statement” is defined in Section 2(c).

 

“Suspension Event” is defined in Section 5(b).

 

“Suspension Notice” is defined in Section 5(b).

 

“Underwritten Offering” means a sale of securities of the Company to an
underwriter or underwriters for reoffering to the public.

 

2.                                       Registration Rights.

 

(a)                                  Mandatory Shelf Registration.  As set forth
in Section 4, the Company agrees to file with the Commission as soon as
reasonably practicable, but in no event later than 60 days following the Closing
Date, (A) a shelf registration statement on Form SB-2 or such other form under
the Securities Act then available to the Company providing for the resale
pursuant to Rule 415 from time to time by the Holders, other than those Holders
covered by (B), of any and all of such Holders’ Registrable Shares consisting of
(i) Common Shares and all Additional Shares in respect thereof, and (ii) if and
only if the Preferred Shares have not automatically converted into Common Stock
by December 31, 2005, the Preferred Shares and all Additional Shares issued in
respect thereof (in each case including any Additional Shares that are issued
prior to the effectiveness of such shelf registration statement) (including the
Prospectus, amendments and supplements to such registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto
and all material incorporated by reference or deemed to be incorporated by
reference, if any, in such registration statement, the “Holders Mandatory Shelf
Registration Statement”), and (B) a shelf registration statement on Form SB-2 or
such other form under the Securities Act then available to the Company providing
for the resale pursuant to Rule 415 from time to time by FBR, FBR Merchant
Banking and any Holder that is associated or affiliated with FBR of any and all
of such Holders’ Registrable Shares consisting of (i) Common Shares and all
Additional Shares in respect thereof, and (ii) if and only if the Preferred
Shares have not automatically converted into Common Stock by December 31, 2005,
the Preferred Shares and all Additional Shares issued in respect thereof (in
each case including any Additional Shares that are issued prior to the
effectiveness of such shelf registration statement) (including the Prospectus,
amendments and supplements to such registration statement or Prospectus,
including pre- and post-effective amendments, all exhibits thereto and all
material incorporated by reference or deemed to be incorporated by reference, if
any, in such registration statement, the “FBR Mandatory Shelf Registration
Statement”; both the Holders Mandatory Shelf Registration and the FBR Mandatory
Shelf Registration Statement may be referred to herein without distinction as a
“Mandatory Shelf Registration Statement”).  The fact that the Preferred Shares
have not automatically converted into Common Stock by December 31, 2005 shall
not affect the Company’s continuing obligation to use its best efforts to cause
such automatic conversion or to register the sale of such shares hereunder.  If
the Company has an effective Holders Mandatory Shelf Registration Statement on
Form SB-2 under the Securities Act and becomes eligible to use Form S-3 or such
other short-form

 

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registration statement form under the Securities Act, the Company shall promptly
give notice of such eligibility to the Holders covered thereby and may, or at
the request of such Holders with a majority of such Registrable Shares (on an as
converted basis) shall, promptly convert such Holders Mandatory Shelf
Registration Statement on Form SB-2 to a Registration Statement on Form S-3 or
such other short-form registration statement by means of a post-effective
amendment or otherwise, unless any Holder with Registrable Shares under the
initial Holders Mandatory Shelf Registration Statement notifies the Company
within 10 Business Days of receipt of the Company notice that such conversion
would interfere with its distribution of Registrable Shares already in progress
and provides a reasonable explanation therefor, in which case the Company will
delay the conversion of the Holders Mandatory Shelf Registration Statement for a
reasonable time after receipt of the first such notice, not to exceed 30 days in
the aggregate, for all Holders requesting such suspension (unless the Company,
at such time as the conversion from Form SB-2 to Form S-3 or such other
short-form registration statement may occur, would otherwise be required to
amend the Holders Mandatory Shelf Registration Statement and require that
Holders suspend sales under Section 4(i) or Section 5).  If the Company has an
effective FBR Mandatory Shelf Registration Statement on Form SB-2 under the
Securities Act and becomes eligible to use Form S-3 or such other short-form
registration statement form under the Securities Act, the Company shall promptly
give notice of such eligibility to the Holders covered thereby and may (unless
FBR or FBR Merchant Banking reasonably objects), or at the request of FBR or FBR
Merchant Banking shall, promptly convert such FBR Mandatory Shelf Registration
Statement on Form SB-2 to a Registration Statement on Form S-3 or such other
short-form registration statement by means of a post-effective amendment or
otherwise.

 

(i)                                     Effectiveness and Scope.  The Company
shall use its commercially reasonable efforts to cause any Mandatory
Registration Statement to be declared effective by the Commission as soon as
reasonably practicable following such filing, and to remain effective until the
date on which all Shares and any Additional Shares in respect thereof cease to
be Registrable Shares.  The Company may include any shares of Common Stock owned
by a Prior Holder (including upon exercise or conversion) in the Holders
Mandatory Shelf Registration Statement, but not in the FBR Mandatory Shelf
Registration Statement.  Other than Prior Holders, no other Person would have
the right to include securities on a Mandatory Shelf Registration Statement. 
Any Mandatory Shelf Registration Statement shall provide for the resale from
time to time, and pursuant to any method or combination of methods legally
available (including an Underwritten Offering, a direct sale to purchasers, a
sale through brokers or agents, or a sale over the internet) by the Holders of
any and all Registrable Shares.

 

(ii)                                  Underwriting.  If any Holder proposes to
conduct an Underwritten Offering under a Mandatory Shelf Registration Statement,
such Holder shall advise the Company, all other Holders, if applicable, and any
Prior Holders, if applicable, whose securities are included in such Mandatory
Shelf Registration Statement, of the managing underwriters for such proposed
Underwritten Offering (which may be FBR or an Affiliate thereof), such managing
underwriters to be subject to the approval of the Company, not to be
unreasonably withheld.  In such event, the Company shall enter into an
underwriting agreement in customary form with the managing underwriters, which
shall include, among other provisions, indemnities to the effect and to the
extent provided in Section 6, and shall take all such other reasonable actions
as are requested by the managing underwriter in order to expedite or facilitate
the registration and disposition of the Registrable Shares included in such
Underwritten Offering; provided, however, that the Company shall be required to
cause appropriate officers of the Company or its Affiliates to participate in a
“road show” or similar marketing effort being conducted by such underwriter with
respect to such Underwritten Offering only if the Holders reasonably anticipate
gross proceeds from such Underwritten Offering of at least $10 million.

 

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All Holders proposing to distribute their Registrable Shares through such
Underwritten Offering and, if a Prior Holder, if applicable, elects to
distribute its shares of Common Stock through such Underwritten Offering, such
Prior Holder, shall enter into an underwriting agreement in customary form with
the managing underwriters selected for such underwriting and complete and
execute any questionnaires, powers of attorney, indemnities, securities escrow
agreements and other documents reasonably required under the terms of such
underwriting, and furnish to the Company such information in writing as the
Company may reasonably request for inclusion in the Registration Statement;
provided, however, that neither any Holder nor any Prior Holder, if applicable,
shall be required to make any representations or warranties to or agreements
with the Company or the underwriters other than representations, warranties or
agreements as are customary and reasonably requested by the underwriters. 
Notwithstanding any other provision of this Agreement, with respect to an
Underwritten Offering in connection with the Holders Mandatory Shelf
Registration Statement, if the managing underwriters determine in good faith
that marketing factors require a limitation on the number of shares to be
included in such Underwritten Offering, then the managing underwriters may
exclude shares (including Registrable Shares) from the Underwritten Offering,
and any shares included in the Underwritten Offering shall be allocated first,
to each of the Holders requesting inclusion of their Registrable Shares in such
Underwritten Offering on a pro rata basis based on the total number of
Registrable Shares requested to be included, and second, to any Prior Holders
requesting inclusion of their shares in such Underwritten Offering.  In the case
of the FBR Mandatory Shelf Registration Statement, such exclusion shall be
negotiated by FBR, FBR Merchant Banking and the underwriters.

 

(iii)                               Selling Stockholder Questionnaires. Each
Holder agrees, by its acquisition of Preferred Shares, that if such Holder
wishes to sell Registrable Shares pursuant to the Mandatory Shelf Registration
Statement and related Prospectus, it will do so only in accordance with this
Section 2(a)(iii). Each Holder wishing to sell Registrable Shares pursuant to a
Mandatory Shelf Registration Statement and related Prospectus agrees to deliver
a written notice, substantially in form and substance of Annex A (a “Notice and
Questionnaire”), to the Company. The Company shall mail the Notice and
Questionnaire to the Holders no later than the date of initial filing of the
Mandatory Shelf Registration Statement with the Commission. No Holder shall be
entitled to be named as a selling securityholder in the Mandatory Shelf
Registration Statement as of the initial effective date of the Mandatory Shelf
Registration Statement, and no Holder may use the Prospectus forming a part
thereof for resales of Registrable Shares at any time, unless such Holder has
returned a completed and signed Notice and Questionnaire to the Company by the
deadline for response set forth therein; provided, however, Holders shall have
at least 20 calendar days from the date on which the Notice and Questionnaire is
first mailed to such Holders to return a completed and signed Notice and
Questionnaire to the Company. Notwithstanding the foregoing, (x) upon the
request of any Holder that did not return a Notice and Questionnaire on a timely
basis or did not receive a Notice and Questionnaire because it was a subsequent
transferee of Registrable Shares after the Company mailed the Notice and
Questionnaire, the Company shall distribute a Notice and Questionnaire to such
Holders at the address set forth in the request and (y) upon receipt of a
properly completed Notice and Questionnaire from such Holder, the Company shall
use all commercially reasonable efforts to name such Holder as a selling
securityholder in the Mandatory Shelf Registration Statement by means of a
pre-effective amendment, by means of a post-effective amendment or, if permitted
by the Commission, by means of a Prospectus supplement to the Mandatory Shelf
Registration

 

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Statement; provided, however, that the Company will have no obligation to add
Holders to the Shelf Mandatory Registration Statement as selling securityholders
more frequently than one time per every 30 calendar days.

 

(b)                                 Piggyback Registration.  If, after the date
hereof, the Company proposes to file a registration statement under the
Securities Act providing for a public offering of the Company’s securities,
other than the Holders Mandatory Shelf Registration Statement, the FBR Mandatory
Shelf Registration Statement or a registration statement on Form S-8 or Form S-4
or any similar form hereafter adopted by the Commission as a replacement
therefor (including the Prospectus, amendments and supplements to such
registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto and all material incorporated by reference or
deemed to be incorporated by reference, if any, in such registration statement,
the “Piggyback Registration Statement”), the Company will notify each Holder of
the proposed filing if clause (i) of the following sentence applies, or only
those affected Holders if clause (ii) or (iii) of the following sentence
applies.  If (i) the Piggyback Registration Statement relates to an Underwritten
Offering, (ii) the applicable Mandatory Shelf Registration Statement is not then
effective or (iii) Registrable Shares eligible for inclusion on a Mandatory
Shelf Registration Statement when initially declared effective were not included
in the Mandatory Shelf Registration Statement (unless such shares can and will
be added to the Mandatory Registration Statement at such time), then each Holder
in the case of clause (i), and each such affected Holder in the case of clause
(ii) and (iii), shall be given an opportunity to include in such Piggyback
Registration Statement all or any part of such Holder’s Registrable Shares. 
Each such Holder desiring to include in any such Piggyback Registration
Statement all or part of such Holder’s Registrable Shares shall, within ten days
after delivery of the above-described notice by the Company, so notify the
Company in writing, and in such notice shall inform the Company of the number of
Registrable Shares such Holder wishes to include in such Piggyback Registration
Statement and provide, as a condition to such inclusion, such information
regarding itself, its Registrable Shares and the intended method of disposition
of such securities as is required pursuant to Regulation S-K promulgated under
the Securities Act to effect the registration of the Registrable Shares.  Any
election by any Holder to include any Registrable Shares in such Piggyback
Registration Statement will not affect the inclusion of such Registrable Shares
in the Mandatory Shelf Registration Statement until such Registrable Shares have
been sold under the Piggyback Registration Statement; provided, however, that at
such time, the Company may remove from the Mandatory Shelf Registration
Statement the Registrable Shares sold pursuant to the Piggyback Registration
Statement.

 

(i)                                     Right to Terminate Piggyback
Registration.  At any time, the Company may terminate or withdraw any Piggyback
Registration Statement referred to in this Section 2(b), and without any
obligation to any such Holder whether or not any Holder has elected to include
Registrable Shares in such registration.  The Company may suspend the
effectiveness and use of any Piggyback Registration Statement at any time for an
unlimited amount of time whether or not any Holder has elected to include
Registrable Shares in such registration.

 

(ii)                                  Underwriting.  The Company shall advise
the Holders of the managing underwriters for any Underwritten Offering proposed
under the Piggyback Registration Statement.  The right of any such Holder’s
Registrable Shares to be included in any Piggyback Registration Statement
pursuant to this Section 2(b) shall be conditioned upon such Holder’s

 

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participation in such Underwritten Offering and the inclusion of such Holder’s
Registrable Shares in the Underwritten Offering to the extent provided herein. 
All Holders proposing to distribute their Registrable Shares through such
Underwritten Offering shall enter into an underwriting agreement in customary
form with the managing underwriters selected for such underwriting and complete
and execute any questionnaires, powers of attorney, indemnities, securities
escrow agreements and other documents reasonably required under the terms of
such underwriting, and furnish to the Company such information in writing as the
Company may reasonably request for inclusion in the Registration Statement;
provided, however, that no Holder shall be required to make any representations
or warranties to or agreements with the Company or the underwriters other than
representations, warranties or agreements as are customary and reasonably
requested by the underwriters.  Notwithstanding any other provision of this
Agreement, if the managing underwriters determine in good faith that marketing
factors require a limitation on the number of shares to be included, then the
managing underwriters may exclude shares (including Registrable Shares) from the
Piggyback Registration Statement and the Underwritten Offering, and any Shares
included in the Piggyback Registration Statement and the Underwritten Offering
shall be allocated, first, to the Company, and second, to each of the Holders
and the Prior Holder(s) requesting inclusion of their Registrable Shares (or
equivalent term under the applicable agreement with such Prior Holder) in such
Piggyback Registration Statement on a pro rata basis based on the total number
of such shares requested to be included.  If any Holder disapproves of the terms
of any Underwritten Offering, such Holder may elect to withdraw therefrom by
written notice to the Company and the underwriter, delivered at least 10
Business Days prior to the effective date of the Piggyback Registration
Statement.  Any Registrable Shares excluded or withdrawn from such Underwritten
Offering shall be excluded and withdrawn from the Piggyback Registration
Statement.

 

(iii)                               Hold-Back Agreement.  By electing to include
Registrable Shares in the Piggyback Registration Statement, if any, the Holder
shall be deemed to have agreed not to effect any sale or distribution of
securities of the Company of the same or similar class or classes of the
securities included in the Registration Statement or any securities convertible
into or exchangeable or exercisable for such securities, including a sale
pursuant to Rule 144 under the Securities Act, during such periods as reasonably
requested (but in no event for a period longer than 60 days following the
effective date of the Piggyback Registration Statement, provided each of the
executive officers and directors of the Company that hold shares of Common Stock
of the Company or securities convertible into or exchangeable or exercisable for
shares of Common Stock of the Company are subject to the same restriction for
the entire time period required of the Holders hereunder) by the representatives
of the underwriters, if an Underwritten Offering.

 

(iv)                              Mandatory Shelf Registration not Impacted by
Piggyback Registration Statement.  The Company’s obligation to file any
Mandatory Shelf Registration Statement shall not be affected by the filing or
effectiveness of the Piggyback Registration Statement.

 

(c)                                  Subsequent Shelf Registration for
Additional Shares Issued after Effectiveness of the Mandatory Shelf Registration
Statement.  If any Additional Shares are issued or distributed to Holders after
the effectiveness of the applicable Mandatory Shelf Registration Statement, or
such Additional Shares were otherwise not included in a prior Registration
Statement, then the Company shall as soon as practicable file an additional
shelf registration statement (including the Prospectus, amendments and
supplements to such registration statement or Prospectus, including

 

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pre- and post-effective amendments, all exhibits thereto and all material
incorporated by reference or deemed to be incorporated by reference, if any, in
such registration statement, a “Subsequent Shelf Registration Statement”)
covering such Additional Shares on behalf of the Holders thereof (other than
FBR, FBR Merchant Banking and Holders affiliated or associated with FBR) and/or
a separate Subsequent Shelf Registration Statement solely on behalf of FBR, FBR
Merchant Banking and Holders affiliated or associated with FBR, as the case may
be, in the same manner, and subject to the same provisions in this Agreement as
each Mandatory Shelf Registration Statement.

 

(d)                                 Expenses.  The Company shall pay all
Registration Expenses (including those of FBR, FBR Merchant Banking and Holders
affiliated or associated with FBR) in connection with the registration of the
Registrable Shares pursuant to this Agreement.  Each Holder participating in a
registration pursuant to this Section 2 shall bear such Holder’s proportionate
share (based on the total number of Registrable Shares sold in such
registration) of all discounts and commissions payable to underwriters or
brokers and all transfer taxes in connection with a registration of Registrable
Shares pursuant to this Agreement and any other expense of the Holders not
specifically allocated to the Company pursuant to this Agreement relating to the
sale or disposition of such Holder’s Registrable Shares pursuant to any
Registration Statement.

 

3.                                       Rule 144 Reporting.

 

With a view to making available the benefits of certain rules and regulations of
the Commission that may permit the sale of the Registrable Shares to the public
without registration, the Company agrees to, so long as any Holder owns any
Registrable Shares:

 

(a)                                  make and keep public information available,
as those terms are understood and defined in Rule 144(c) under the Securities
Act;

 

(b)                                 use its commercially reasonable efforts to
file with the Commission in a timely manner all reports and other documents
required to be filed by the Company under the Securities Act and the Exchange
Act; and

 

(c)                                  furnish to any Holder promptly upon request
a written statement by the Company as to its compliance with the reporting
requirements of Rule 144 and of the Exchange Act, a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company, and take such reasonable further actions consistent with this
Section 3, as a Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Holder to sell any such Registrable
Shares without registration.

 

4.                                       Registration Procedures.

 

In connection with the obligations of the Company with respect to any
registration pursuant to this Agreement, the Company shall:

 

(a)                                  notify FBR, in writing, at least 10
Business Days prior to filing a Registration Statement, of its intention to file
a Registration Statement with the Commission and, at least 5 Business Days prior
to filing, provide a copy of the Registration Statement to FBR; prepare and file
with the Commission, as specified in this Agreement, each Registration
Statement, which

 

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Registration Statement shall comply as to form in all material respects with the
requirements of the applicable form and include all financial statements
required by the Commission to be filed therewith and shall be acceptable to FBR;
notify FBR at least 5 Business Days prior to filing of any amendment or
supplement to such Registration Statement and, at least 3 Business Days prior to
filing, provide a copy of such amendment or supplement to FBR for review and
comment; promptly following receipt from the Commission, provide to FBR copies
of any comments made by the staff of the Commission relating to such
Registration Statement and the Company’s responses thereto for review and
comment; and use its commercially reasonable efforts to cause any Mandatory
Registration Statement to become and remain effective as set forth in
Section 2(a)(i); provided, however, that the Company shall not be required to
cause any Piggyback Registration Statement to become or remain effective;

 

(b)                                 subject to Section 4(i), (i) prepare and
file with the Commission such amendments and post-effective amendments to each
such Registration Statement as may be necessary to keep such Registration
Statement effective for the period described in Section 2(a)(i), (ii) cause each
Prospectus contained therein to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 or any
similar rule that may be adopted under the Securities Act, and (iii) comply in
all material respects with the provisions of the Securities Act with respect to
the disposition of all securities covered by each Registration Statement during
the applicable period in accordance with the intended method or methods of
distribution by the selling Holders thereof;

 

(c)                                  furnish to the Holders, without charge, as
many copies of each Prospectus, including each preliminary Prospectus, and any
amendment or supplement thereto and such other documents as such Holder may
reasonably request, in order to facilitate the public sale or other disposition
of the Registrable Shares; the Company hereby consenting to the use of such
Prospectus, including each preliminary Prospectus, by the Holders, if any, in
connection with the offering and sale of the Registrable Shares covered by any
such Prospectus;

 

(d)                                 use its commercially reasonable efforts to
register or qualify, or obtain exemption from registration or qualification for,
all Registrable Shares by the time the applicable Registration Statement is
declared effective by the Commission under all applicable state securities or
“blue sky” laws of such domestic jurisdictions as FBR or any Holder covered by a
Registration Statement shall reasonably request in writing, keep each such
registration or qualification or exemption effective during the period such
Registration Statement is required to be kept effective pursuant to
Section 4(a) and do any and all other acts and things that may be reasonably
necessary or advisable to enable such Holder to consummate the disposition in
each such jurisdiction of such Registrable Shares owned by such Holder;
provided, however, that the Company shall not be required to (i) qualify
generally to do business in any jurisdiction or to register as a broker or
dealer in such jurisdiction where it would not otherwise be required to qualify
but for this Section 4(d), (ii) subject itself to taxation in any such
jurisdiction, or (iii) submit to the general service of process in any such
jurisdiction;

 

(e)                                  use its commercially reasonable efforts to
cause all Registrable Shares covered by such Registration Statement to be
registered and approved by such other domestic governmental agencies or
authorities, if any, as may be necessary to enable the Holders thereof to
consummate the disposition of such Registrable Shares;

 

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(f)                                    notify FBR and each Holder with
Registrable Shares covered by a Registration Statement promptly and, if
requested by FBR or any such Holder, confirm such advice in writing (i) when
such Registration Statement has become effective and when any post-effective
amendments and supplements thereto become effective, (ii) of the issuance by the
Commission or any state securities authority of any stop order suspending the
effectiveness of such Registration Statement or the initiation of any
proceedings for that purpose, (iii) of any request by the Commission or any
other federal or state governmental authority for amendments or supplements to
such Registration Statement or related Prospectus or for additional information,
and (iv) of the happening of any event during the period such Registration
Statement is effective as a result of which such Registration Statement or the
related Prospectus or any document incorporated by reference therein contains
any untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading (which information shall be accompanied by an instruction to suspend
the use of the Registration Statement and the Prospectus until the requisite
changes have been made);

 

(g)                                 during the period of time referred to in
Section 2(a)(i), use its commercially reasonable efforts to avoid the issuance
of, or if issued, to obtain the withdrawal of, any order enjoining or suspending
the use or effectiveness of a Registration Statement or suspending the
qualification (or exemption from qualification) of any of the Registrable Shares
for sale in any jurisdiction, as promptly as practicable;

 

(h)                                 upon request, furnish to each requesting
Holder with Registrable Shares covered by a Registration Statement, without
charge, at least one conformed copy of such Registration Statement and any
post-effective amendment or supplement thereto (without documents incorporated
therein by reference or exhibits thereto, unless requested);

 

(i)                                     except as provided in Section 5, upon
the occurrence of any event contemplated by Section 4(f)(iv), use its
commercially reasonable efforts to promptly prepare a supplement or
post-effective amendment to a Registration Statement or the related Prospectus
or any document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of the Registrable
Shares, such Prospectus will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, and, upon request, promptly furnish to each
requesting Holder covered by such Registration Statement a reasonable number of
copies of each such supplement or post-effective amendment;

 

(j)                                     if requested by the representative of
the underwriters, if any, or any Holders of Registrable Shares being sold in
connection with an Underwritten Offering, (i) promptly incorporate in a
Prospectus supplement or post-effective amendment such material information as
the representative of the underwriters, if any, or such Holders indicate relates
to them or otherwise reasonably request be included therein and (ii) make all
required filings of such Prospectus supplement or such post-effective amendment
as soon as practicable after the Company has received notification of the
matters to be incorporated in such Prospectus supplement or post-effective
amendment;

 

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(k)                                  in the case of an Underwritten Offering,
use its commercially reasonable efforts to furnish or caused to be furnished to
each Holder of Registrable Shares covered by such Registration Statement and the
underwriters a signed counterpart, addressed to each such Holder and the
underwriters, of:  (i) an opinion of counsel for the Company, dated the date of
each closing under the underwriting agreement, reasonably satisfactory to the
underwriters; (ii) a “comfort” letter, dated the effective date of such
Registration Statement and the date of each closing under the underwriting
agreement, signed by the independent public accountants who have certified the
Company’s financial statements included in such Registration Statement, covering
substantially the same matters with respect to such Registration Statement (and
the Prospectus included therein) and with respect to events subsequent to the
date of such financial statements, as are customarily covered in accountants’
letters delivered to underwriters in underwritten public offerings of
securities, and such other financial matters as the underwriters may reasonably
request and customarily obtained by underwriters in underwritten offerings,
provided that, to be an addressee of the comfort letter, each Holder may be
required to confirm that it is in the category of persons to whom a comfort
letter may be delivered in accordance with applicable accounting literature; and
(iii) a “comfort” letter, dated the effective date of such Registration
Statement and the date of each closing under the underwriting agreement, signed
by the independent petroleum engineering consultants who have evaluated the
Company’s oil and gas reserves included in such Registration Statement, covering
substantially the same matters with respect to such Registration Statement (and
the Prospectus included therein) and with respect to events subsequent to the
date of its evaluation of such oil and gas reserves, as are customarily covered
in engineers’ letters delivered to underwriters in underwritten public offerings
of securities, and such other related matters as the underwriters may reasonably
request and customarily obtained by underwriters in underwritten offerings.

 

(l)                                     enter into customary agreements
(including in the case of an Underwritten Offering, an underwriting agreement in
customary form) and take all other action in connection therewith to expedite or
facilitate the distribution of the Registrable Shares included in such
Registration Statement and, in the case of an Underwritten Offering, make
representations and warranties to the underwriters in such form and scope as are
customarily made by issuers to underwriters in underwritten offerings and
confirm the same to the extent customary if and when requested;

 

(m)                               in connection with an Underwritten Offering,
use its commercially reasonable efforts to make available for inspection by the
representative of any underwriters participating in any disposition pursuant to
a Registration Statement, all financial and other records, pertinent corporate
documents and properties of the Company and cause the respective officers,
directors and employees of the Company to supply all information reasonably
requested by any such representatives, the representative of the underwriters,
counsel thereto or accountants in connection with a Registration Statement;
provided, however, that such records, documents or information that the Company
determines, in good faith, to be confidential and notifies such representatives,
representative of the underwriters, counsel thereto or accountants are
confidential shall not be disclosed by the representatives, representative of
the underwriters, counsel thereto or accountants unless (i) the disclosure of
such records, documents or information is necessary to avoid or correct a
misstatement or omission in a Registration Statement or Prospectus, (ii) the
release of such records, documents or information is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction, or (iii) such

 

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records, documents or information have been generally made available to the
public; provided further, that to the extent practicable, the foregoing
inspection and information gathering shall be coordinated on behalf of the
Holders and the other parties entitled thereto by one counsel designated by and
on behalf of the Holders and the other parties, which counsel the Company
determines in good faith is reasonably acceptable;

 

(n)                                 use its commercially reasonable efforts
(including seeking to cure in the Company’s listing or inclusion application any
deficiencies cited by the exchange or market) to list or include all Registrable
Shares on any securities exchange or the Nasdaq Stock Market on which the Common
Stock is then listed or included and thereafter maintain the listing on such
exchange or market;

 

(o)                                 prepare and file in a timely manner all
documents and reports required by the Exchange Act and, to the extent the
Company’s obligation to file such reports pursuant to Section 15(d) of the
Exchange Act expires prior to the expiration of the effectiveness period of the
Registration Statement as required by Section 2(a)(i), the Company shall
register the Registrable Shares under the Exchange Act and shall maintain such
registration through the effectiveness period required by Section 2(a)(i);

 

(p)                                 (i) otherwise use its commercially
reasonable efforts to comply in all material respects with all applicable
rules and regulations of the Commission, (ii) make generally available to its
stockholders, as soon as reasonably practicable, earnings statements covering at
least 12 months that satisfy the provisions of Section 11(a) of the Securities
Act and Rule 158 thereunder, and (iii) delay filing any Registration Statement
or Prospectus or amendment or supplement to such Registration Statement or
Prospectus to which any Holder of Registrable Shares covered by any such
Registration Statement shall have reasonably objected on the grounds that such
Registration Statement or Prospectus or amendment or supplement does not comply
in all material respects with the requirements of the Securities Act, such
Holder having been furnished with a copy thereof at least three Business Days
before the filing thereof, provided that the Company may file such Registration
Statement or Prospectus or amendment or supplement following such time as the
Company shall have made a good faith effort to resolve any such issue with the
objecting Holder and shall have advised the Holder in writing of its reasonable
belief that such filing complies in all material respects with the requirements
of the Securities Act;

 

(q)                                 cause to be maintained a registrar and
transfer agent for all Registrable Shares covered by any Registration Statement
from and after a date not later than the effective date of such Registration
Statement; and

 

(r)                                    in connection with any sale or transfer
of the Registrable Shares (whether or not pursuant to a Registration Statement)
that will result in the securities being delivered no longer constituting
Registrable Shares, cooperate with the Holders and the representative of the
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing the Registrable Shares to be sold, which certificates
shall not bear any transfer restrictive legends (other than as required by the
Company’s charter), and to enable such Registrable Shares to be in such
denominations and registered in such names as the representative of the
underwriters, if

 

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any, or the Holders may request at least three Business Days prior to any sale
of the Registrable Shares.

 

The Company may require the Holders to furnish to the Company such information
regarding the proposed distribution by such Holder as the Company may from time
to time reasonably request in writing or as shall be required to effect the
registration of the Registrable Shares, and no Holder shall be entitled to be
named as a selling stockholder in any Registration Statement and no Holder shall
be entitled to use the Prospectus forming a part thereof if such Holder does not
provide such information to the Company.  Each Holder further agrees to furnish
promptly to the Company in writing all information required from time to time to
make the information previously furnished by such Holder not misleading.

 

Each Holder agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 4(f)(ii), 4(f)(iii) or
4(f)(iv), such Holder will immediately discontinue disposition of Registrable
Shares pursuant to a Registration Statement until (i) any such stop order is
vacated or (ii) if an event described in Section 4(f)(iii) or 4(f)(iv) occurs,
such Holder’s receipt of the copies of the supplemented or amended Prospectus. 
If so directed by the Company, such Holder will deliver to the Company (at the
reasonable expense of the Company) all copies in its possession, other than
permanent file copies then in such Holder’s possession, of the Prospectus
covering such Registrable Shares current at the time of receipt of such notice.

 

5.                                       Suspension Period.

 

(a)                                  Subject to the provisions of this Section 5
and a good faith determination by a majority of the Board of Directors of the
Company that it is in the best interests of the Company to suspend the use of
any Mandatory Registration Statement, following the effectiveness of such
Mandatory Registration Statement (and the filings with any international,
federal or state securities commissions), the Company, by written notice to FBR
and the affected Holders, may direct such Holders to suspend sales of the
Registrable Shares pursuant to such Mandatory Registration Statement for such
times as the Company reasonably may determine is necessary and advisable (but in
no event for more than 45 days in any 90-day period or more than 60 days in any
12-month period), if any of the following events shall occur: pending
discussions relating to, or the consummation of, a transaction or the occurrence
of an event (x) that would require additional disclosure of material non-public
information by the Company in the Mandatory Registration Statement (or such
filings) not otherwise required to be disclosed under applicable law and which
has not been so disclosed, (y) as to which the Company has a bona fide business
purpose for preserving confidentiality, or (z) that renders the Company unable
to comply with Commission requirements, in each case under circumstances that
would make it impractical or inadvisable to promptly amend or supplement such
Mandatory Registration Statement on a post-effective basis, as applicable.  Upon
the earlier to occur of (i) the Company delivering to the affected Holders and
FBR an End of Suspension Notice, as hereinafter defined, or (ii) the end of the
maximum permissible suspension period, the Company shall use its commercially
reasonable efforts to promptly amend or supplement such Mandatory Registration
Statement on a post-effective basis, if necessary, or to take such action as is
necessary to make resumed use of such Mandatory Registration Statement
compatible with the Company’s best interests, as applicable, so as to permit the
affected Holders to resume sales of the Registrable Shares as soon as possible.

 

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The Company may suspend the effectiveness and use of any Piggyback Registration
Statement at any time for an unlimited amount of time.

 

(b)                                 In the case of an event that causes the
Company to suspend the use of a Registration Statement (a “Suspension Event”),
the Company shall give written notice (a “Suspension Notice”) to the affected
Holders to suspend sales of the Registrable Shares included on such Registration
Statement, and such notice shall state that such suspension shall continue only
for so long as the Suspension Event or its effect is continuing and the Company
is using its best efforts and taking all reasonable steps to terminate
suspension of the effectiveness of the Registration Statement as promptly as
possible.  The Holders shall not effect any sales of the Registrable Shares
pursuant to such Registration Statement (or such filings) at any time after it
has received a Suspension Notice from the Company and prior to receipt of an End
of Suspension Notice (as defined below) with respect to such Registration
Statement.  If so directed by the Company, each affected Holder will deliver to
the Company (at the expense of the Company) all copies other than permanent file
copies then in such Holder’s possession of the Prospectus covering the
Registrable Shares at the time of receipt of the Suspension Notice.  The Holders
may recommence effecting sales of the Registrable Shares pursuant to such
Registration Statement (or such filings) following further notice to such effect
(an “End of Suspension Notice”) from the Company, which End of Suspension Notice
shall be given by the Company to the affected Holders and FBR in the manner
described above promptly following the conclusion of any Suspension Event and
its effect.

 

(c)                                  Notwithstanding any provision herein to the
contrary, subject to any Suspension Events or as contemplated by
Section 4(f)(iv), each Registration Statement shall be maintained effective
pursuant to this Agreement until the Shares and Additional Shares are not
Registrable Shares.

 

6.                                       Indemnification and Contribution.

 

(a)                                  The Company agrees to indemnify and hold
harmless (i) FBR and each Holder and any underwriter (as determined in the
Securities Act) for such Holder (including, if applicable, FBR), (ii) each
Person, if any, who controls (within the meaning of Section 15 of the Securities
Act or Section 20(a) of the Exchange Act) any of the foregoing (a “Controlling
Person”), and (iii) the respective officers, directors, partners, members,
employees, representatives and agents of any such Person or any Controlling
Person (any Person referred to in clause (i), (ii) or (iii) may hereinafter be
referred to as an “Purchaser Indemnitee”) from and against any and all losses,
claims, damages, judgments, actions, reasonable out-of-pocket expenses, and
other liabilities, including, as incurred, reimbursement of all reasonable costs
of investigating, preparing, pursuing or defending any claim or action, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, including the reasonable fees and expenses of outside counsel to any
Purchaser Indemnitee, joint or several (the “Liabilities”), directly or
indirectly related to, based upon, arising out of or in connection with any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus (as amended or supplemented if the Company
shall have furnished to such Purchaser Indemnitee any amendments or supplements
thereto), or any preliminary Prospectus or any other document prepared by the
Company used to sell the Registrable Shares, or any omission or alleged omission
to state therein a material fact required

 

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to be stated therein or necessary to make the statements therein (in the case of
a Prospectus, in light of the circumstances under which they were made), not
misleading, except insofar as such Liabilities arise out of or are based upon
(i) any untrue statement or omission or alleged untrue statement or omission
made in reliance upon and in conformity with information relating to any
Purchaser Indemnitee furnished to the Company or any underwriter in writing by
such Purchaser Indemnitee expressly for use therein, (ii) any untrue statement
contained in or omission from a preliminary Prospectus if a copy of the
Prospectus (as then amended or supplemented, if the Company shall have furnished
to or on behalf of the Holder participating in the distribution relating to the
relevant Registration Statement any amendments or supplements thereto) was not
sent or given by or on behalf of such Holder to the Person asserting any such
Liabilities who purchased Shares, if such Prospectus (or Prospectus as amended
or supplemented) is required by law to be sent or given at or prior to the
written confirmation of the sale of such Shares to such Person and the untrue
statement contained in or omission from such preliminary Prospectus was
corrected in the Prospectus (or the Prospectus as amended or supplemented), or
(iii) any sales by any Holder after the delivery by the Company to such Holder
of a Suspension Notice and before the delivery by the Company of an End of
Suspension Notice.  The Company shall notify the Holders promptly of the
institution, threat or assertion of any claim, proceeding (including any
governmental investigation), or litigation which it shall have become aware in
connection with the matters addressed by this Agreement which involves the
Company or a Purchaser Indemnitee.  The indemnity provided for herein shall
remain in full force and effect regardless of any investigation made by or on
behalf of any Purchaser Indemnitee.

 

(b)                                 In connection with any Registration
Statement in which a Holder is participating, such Holder agrees, severally and
not jointly, to indemnify and hold harmless FBR, the Company, each Person who
controls the Company or FBR within the meaning of Section 15 of the Securities
Act or Section 20(a) of the Exchange Act, and the respective officers,
directors, partners, members, representatives, employees and agents of such
Person or Controlling Person to the same extent as the foregoing indemnity from
the Company to each Purchaser Indemnitee, but only with reference to (i) untrue
statements or omissions or alleged untrue statements or omissions made in
reliance upon and in strict conformity with information relating to such Holder
furnished to the Company in writing by such Holder expressly for use in any
Registration Statement or Prospectus, any amendment or supplement thereto, or
any preliminary Prospectus and (ii) any sales by any Holder after the delivery
by the Company to such Holder of a Suspension Notice and before the delivery by
the Company of an End of Suspension Notice.  The liability of any Holder
pursuant to clause (i) of the immediately preceding sentence shall in no event
exceed the net proceeds received by such Holder from sales of Registrable Shares
giving rise to such obligations.  If a Holder elects to include Registrable
Shares in an Underwritten Offering, the Holder shall be required to agree to
such customary indemnification provisions as may reasonably be required by the
underwriter in connection with such Underwritten Offering.

 

(c)                                  If any suit, action, proceeding (including
any governmental or regulatory investigation), claim or demand shall be brought
or asserted against any Person in respect of which indemnity may be sought
pursuant to Section 6(a) or 6(b), such Person (the “Indemnified Party”), shall
promptly notify the Person against whom such indemnity may be sought (the
“Indemnifying Party”), in writing (to the extent legally advisable) of the
commencement thereof (but the failure to so notify an Indemnifying Party shall
not relieve it from any Liability which it

 

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may have under this Section 6, except to the extent the Indemnifying Party is
materially prejudiced by the failure to give notice), and the Indemnifying
Party, upon request of the Indemnified Party, shall retain counsel reasonably
satisfactory to the Indemnified Party to represent the Indemnified Party and any
others the Indemnifying Party may reasonably designate in such proceeding and
shall assume the defense of such proceeding and pay the fees and expenses
actually incurred by such counsel related to such proceeding.  Notwithstanding
the foregoing, in any such proceeding, any Indemnified Party may retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party, unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed in writing to the contrary, (ii) the
Indemnifying Party failed within a reasonable time after notice of commencement
of the action to assume the defense and employ counsel reasonably satisfactory
to the Indemnified Party, (iii) the Indemnifying Party and its counsel do not
pursue in a reasonable manner the defense of such action or (iv) the named
parties to any such action (including any impleaded parties) include both such
Indemnified Party and the Indemnifying Party, or any affiliate of the
Indemnifying Party, and such Indemnified Party shall have been reasonably
advised by counsel that, either (x) there may be one or more legal defenses
available to it which are different from or additional to those available to the
Indemnifying Party or such affiliate of the Indemnifying Party or (y) a conflict
may exist between such Indemnified Party and the Indemnifying Party or such
affiliate of the Indemnifying Party, in which event the Indemnifying Party may
not assume or direct the defense of such action on behalf of such Indemnified
Party, it being understood, however, that the Indemnifying Party shall not, in
connection with any one such action or separate but substantially similar or
related actions arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for all such Indemnified Parties, which firm
shall be designated in writing by those Indemnified Parties who sold a majority
of the Registrable Shares sold by all such Indemnified Parties and any such
separate firm for the Company, the directors, the officers and such control
Persons of the Company as shall be designated in writing by the Company.  The
Indemnifying Party shall not be liable for any settlement of any proceeding
effected without its written consent, which consent shall not be unreasonably
withheld or delayed, but if settled with such consent or if there be a final
judgment for the plaintiff, the Indemnifying Party agrees to indemnify any
Indemnified Party from and against any Liability by reason of such settlement or
judgment to the extent provided in this Section 6 without reference to this
sentence.  No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending or threatened proceeding
in respect of which any Indemnified Party is or could have been a party and
indemnity could have been sought hereunder by such Indemnified Party, unless
such settlement includes an unconditional release of such Indemnified Party from
all Liability on claims that are the subject matter of such proceeding.

 

(d)                                 If the indemnification provided for in
Section 6(a) or 6(b) is for any reason held to be unavailable to an Indemnified
Party in respect of any Liabilities referred to therein (other than by reason of
the exceptions provided therein) or is insufficient to hold harmless a party
indemnified thereunder, then each Indemnifying Party under such sections, in
lieu of indemnifying such Indemnified Party thereunder, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such Liabilities
(i) in such proportion as is appropriate to reflect the relative benefits of the
Indemnified Party on the one hand and the Indemnifying Parties on the other in
connection with the statements or omissions that resulted in such

 

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Liabilities, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Indemnifying Parties and the Indemnified Party, as well as any
other relevant equitable considerations.  The relative fault of the Company, on
the one hand, and any Purchaser Indemnitees, on the other, shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or by such
Purchaser Indemnitees and the parties’ relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.

 

(e)                                  The parties agree that it would not be just
and equitable if contribution pursuant to this Section 6 were determined by pro
rata allocation (even if such Indemnified Parties were treated as one entity for
such purpose), or by any other method of allocation that does not take account
of the equitable considerations referred to in Section  6(d).  The amount paid
or payable by an Indemnified Party as a result of any Liabilities referred to in
Section 6(d) shall be deemed to include, subject to the limitations set forth
above, any reasonable legal or other expenses actually incurred by such
Indemnified Party in connection with investigating or defending any such action
or claim.  Notwithstanding the provisions of this Section 6, in no event shall a
Purchaser Indemnitee be required to contribute any amount in excess of the
amount by which proceeds received by such Purchaser Indemnitee from sales of
Registrable Shares exceeds the amount of any damages that such Purchaser
Indemnitee has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission.  For purposes of this
Section 6, each Person, if any, who controls (within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act) FBR or a Holder shall have the
same rights to contribution as FBR or such Holder, as the case may be, and each
Person, if any, who controls (within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act) the Company, and each officer, director,
partner, member, employee, representative, agent or manager of the Company shall
have the same rights to contribution as the Company.  Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties, notify each party or
parties from whom contribution may be sought, but the omission to so notify such
party or parties shall not relieve the party or parties from whom contribution
may be sought from any obligation it or they may have under this Section 6 or
otherwise, except to the extent that any party is materially prejudiced by the
failure to give notice.  No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act), shall be entitled
to contribution from any Person who was not guilty of such fraudulent
misrepresentation.

 

(f)                                    The indemnity and contribution agreements
contained in this Section 6 will be in addition to any Liability which the
indemnifying parties may otherwise have to the indemnified parties referred to
above.  Each Purchaser Indemnitee’s obligations to contribute pursuant to this
Section 6 are not joint but are several in the proportion that the number of
Shares sold by such Purchaser Indemnitee bears to the number of Shares sold by
all Purchaser Indemnities.

 

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7.                                       Additional Payments Under Certain
Circumstances.

 

(a)                                  Additional payments (“Additional Payments”)
with respect to the Shares shall be assessed as follows if any of the following
events occur (each such event in clauses (i) through (iii) below being herein
called a “Registration Default”):

 

(i)   either Mandatory Shelf Registration Statement has not been filed with the
Commission before August 15, 2005 or declared effective by the Commission before
December 12, 2005;

 

(ii) the Company fails, with respect to a Holder that supplies a Notice and
Questionnaire described in Section 2(a)(iii), to cause an amendment to the
already effective Mandatory Shelf Registration Statement to be filed or, if
permitted by the Commission, to prepare a Prospectus supplement to such
Mandatory Shelf Registration Statement and distribute such supplement to
Holders, in each case within the time period set forth in section 2(a)(iii) to
name such Holder as an additional selling securityholder; or

 

(iii)  any Mandatory Shelf Registration Statement is declared effective by the
Commission but (A) a Mandatory Shelf Registration Statement thereafter ceases to
be effective during the period contemplated by Section 2(a)(i) or (B) as
specified in Section 5(a), a Mandatory Shelf Registration Statement or the
Prospectus ceases to be usable in connection with resales of Registrable Shares
during the periods specified herein and the Company fails to (1) cure such
Mandatory Shelf Registration Statement within five business days by a
post-effective amendment or a report filed pursuant to the Exchange Act or
(2) if applicable, terminate the suspension period described in Section 5(a) by
the 45/th or the 60/th day, as applicable.

 

Each of the foregoing will constitute a Registration Default whatever the reason
for any such event and whether it is voluntary or involuntary or is beyond the
Company’s control or pursuant to operation of law or as a result of any action
or inaction by the Commission.

 

(b)                                 Additional Payments shall accrue on the
Shares from and including the date on which any such Registration Default occurs
to but excluding the date on which all such Registration Defaults have been
cured, (i) in the case of Preferred Shares, $1.20 per Preferred Share per annum,
and (ii) with respect to any Preferred Shares that have been converted to Common
Shares, $0.04 per Common Share per annum (subject to adjustment for splits,
recombinations and similar matters); provided, however, that in no event shall
Additional Payments accrue on any Shares for more than one Registration Default
at any one time, and in the case of a Registration Default the Company’s
obligation to pay Additional Payments extends only to the affected Registrable
Shares. Other than the obligation of payment of any Additional Payments in
accordance with the terms hereof, the Company will have no other liabilities for
monetary damages with respect to its registration obligations. With respect to
each Holder, the Company’s obligations to pay Additional Payments remain in
effect only so long as the securities held or issuable upon conversion of
securities held by the Holder are Registrable Shares.

 

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(c)                                  A Registration Default referred to in
Section 5(a)(iii) shall be deemed not to have occurred and be continuing, and no
Additional Payments shall accrue as a result thereof, in relation to a Mandatory
Shelf Registration Statement or the related prospectus if (i) (A) such
Registration Default has occurred solely as a result of material events, with
respect to the Company that would need to be described in such Mandatory Shelf
Registration Statement or the related prospectus or (B) the Registration Default
relates to any information supplied or failed to be supplied by a Holder of
Registrable Shares and (ii) the Company is proceeding promptly and in good faith
to amend or supplement the Mandatory Shelf Registration Statement and related
prospectus to describe such events as required by Section 5; provided, however,
that in any case if such Registration Default occurs for a continuous period in
excess of 30 days beyond any permitted 45 or 60 day suspension period (as
provided by Section 5), Additional Payments shall be payable in accordance with
the above paragraph from the day such Registration Default occurs until such
Registration Default is cured.

 

(d)                                 In the case of the Preferred Shares, any
amounts of Additional Payments due pursuant to Section 5(a) will be payable in
cash on the regular dividend payment dates described the certificate of
designations for the Preferred Shares. In the case of the Common Shares, any
amounts of Additional Payments pursuant to Section 5(a) will be payable in cash
on the regular dividend payment dates described in the certificate of
designation with respect to the Preferred Shares as if it were still in effect
and related to the Common Shares. The amount of Additional Payments will be
determined on the basis of a 360-day year comprised of twelve 30-day months, and
the actual number of days on which Additional Payments accrued during such
period.

 

8.                                       Termination of the Company’s
Obligations.

 

The Company shall have no further obligations pursuant to this Agreement at such
time as no Registrable Shares are outstanding after their original issuance,
provided, however, that the Company’s obligations under Sections 3, 6 and 10
(and any related definitions) shall remain in full force and effect following
such time.

 

9.                                       Limitations on Subsequent Registration
Rights.

 

From and after the date of this Agreement, the Company shall not, without the
prior written consent of the Holders (excluding FBR, FBR Merchant Banking and
Holders affiliated or associated with FBR with respect to the Holders Mandatory
Shelf Registration Statement) of a majority of the Registrable Shares of such
Holders (on an as converted basis), enter into any agreement with any holder or
prospective holder of any securities of the Company that would allow such holder
or prospective holder to include such securities in a Holders Mandatory Shelf
Registration Statement or Piggyback Registration Statement, if any, filed
pursuant to the terms hereof, unless under the terms of such agreement, such
holder or prospective holder may include such securities on the Holders
Mandatory Shelf Registration Statement or such Piggyback Registration Statement
only to the extent that the inclusion of his securities will not reduce the
amount of Registrable Shares of the Holders that is included on the Holders
Mandatory Shelf Registration Statement or such Piggyback Registration
Statement.  From and after the date of this Agreement, the Company shall not,
without the prior written consent of FBR or FBR Merchant Banking, enter into any
agreement with any holder or prospective holder of any

 

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securities of the Company that would allow such holder or prospective holder to
include such securities in the FBR Mandatory Shelf Registration Statement.

 

10.                                 Miscellaneous.

 

(a)                                  Remedies.  In the event of a breach by the
Company of any of its obligations under this Agreement, each Holder, in addition
to being entitled to exercise all rights provided herein or, in the case of FBR,
in the Placement Agreement, or granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. 
Subject to Section 6 and Section 7, the Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of any of the provisions of this Agreement and hereby further agrees that,
in the event of any action for specific performance in respect of such breach,
it shall waive the defense that a remedy at law would be adequate.

 

(b)                                 Amendments and Waivers.  This Agreement may
not be amended, modified or supplemented, and waivers or consents to or
departures from the provisions hereof may not be given, without the written
consent of the Company and Holders beneficially owning a majority of the
Registrable Shares (on an as converted basis); provided, however, that for
purposes of this Agreement, Registrable Shares owned, directly or indirectly, by
an entity that is an Affiliate of the Company due to the Company’s owning an
interest in such entity shall not be deemed to be outstanding.  Notwithstanding
the foregoing, a waiver or consent to or departure from the provisions hereof
with respect to a matter that relates exclusively to (i) a Holders Mandatory
Shelf Registration Statement or FBR Mandatory Shelf Registration Statement may
be given only with the consent of a majority of Registrable Shares covered
thereby and (ii) the rights of a Holder whose securities are being sold pursuant
to a Registration Statement and that does not directly or indirectly affect,
impair, limit or compromise the rights of other Holders may be given by such
Holder; provided that the provisions of this sentence may not be amended,
modified or supplemented except in accordance with the provisions of the
immediately preceding sentence.

 

(c)                                  Notices.  All notices and other
communications, provided for or permitted hereunder shall be made in writing and
delivered by facsimile (with receipt confirmed), overnight courier or registered
or certified mail, return receipt requested, or by telegram, addressed as
follows:

 

(i)                                     if to a Holder, at the most current
address given by the transfer agent and registrar of the Shares to the Company;

 

(ii)                                  if to the Company, at the offices of the
Company at 333 Clay Street, Suite 100, Houston, Texas  77002, Attention: 
Michael B. Young (facsimile (713)850-1879); with copies (which shall not
constitute notice) to Thompson & Knight LLP, 333 Clay Street, Suite 3300,
Houston, Texas  77002, Attention:  Dallas Parker, Esq. (facsimile
(832)397-8110); and

 

(iii)                               if to FBR, at the offices of FBR at 1001
Nineteenth Street North, Arlington, Virginia 22209, Attention:  William
Ginivan, Esq. (facsimile (703) 312-9698); with a copy (which shall not
constitute notice)  to Akin Gump Strauss Hauer & Feld LLP, 1111 Louisiana St.,
Houston, Texas 77002, Attention:  Julien R. Smythe, Esq. (facsimile (713)
236-0822).

 

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(d)                                 Successors and Assigns; Third Party
Beneficiaries.  This Agreement shall inure to the benefit of and be binding upon
the successors and assigns of each of the parties hereto and shall inure to the
benefit of each Holder.  The Company agrees that the Holders shall be third
party beneficiaries to the agreements made hereunder by FBR and the Company, and
each Holder shall have the right to enforce such agreements directly to the
extent it deems such enforcement necessary or advisable to protect its rights
hereunder; provided, however, that such Holder fulfills all of its obligations
hereunder.

 

(e)                                  Counterparts.  This Agreement may be
executed in any number of counterparts and by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.

 

(f)                                    Governing Law.  THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW.  EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES
DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK OR THE SUPREME COURT OF THE
STATE OF NEW YORK OR SITTING IN NEW YORK COUNTY IN RESPECT OF ANY SUIT, ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND IRREVOCABLY
ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS.  EACH OF THE PARTIES
HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER
APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF
THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND
ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM.

 

(g)                                 Severability.  If any term, provision,
covenant or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected, impaired or invalidated,
and the parties hereto shall use their commercially reasonable efforts to find
and employ an alternative means to achieve the same or substantially the same
result as that contemplated by such term, provision, covenant or restriction. 
It is hereby stipulated and declared to be the intention of the parties hereto
that they would have executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.

 

(h)                                 Entire Agreement.  This Agreement, together
with the Placement Agreement, is intended by the parties hereto as a final
expression of their agreement, and is intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein.  All of the obligations,
agreements,

 

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covenants, representations and warranties under the engagement letter, dated
April 18, 2005, between the Company and FBR (the “Engagement Letter”) shall
survive the execution, delivery and termination and the performance of this
Agreement and the consummation of the transactions contemplated hereby without
any modification thereof; provided, that to the extent there is a conflict
between the provisions of the Engagement Letter and the provisions of this
Agreement, this Agreement shall prevail to that extent.

 

(i)                                     Registrable Shares Held by the Company
or its Affiliates.  Whenever the consent or approval of Holders of a specified
percentage of Registrable Shares is required hereunder, Registrable Shares (or
securities convertible into Registrable Shares) held by the Company or entities
that are Affiliates of the Company due to the Company’s owning an interest in
such entities shall not be counted in determining whether such consent or
approval was given by the Holders of such required percentage.

 

(j)                                     Survival.  This Agreement is intended to
survive the consummation of the transactions contemplated by the Placement
Agreement.  The indemnification and contribution obligations under Section 6 of
this Agreement shall survive the termination of the Company’s obligations under
Section 2 of this Agreement.

 

(k)                                  Headings.  The headings in this Agreement
are for convenience of reference only and shall not limit or otherwise affect
the provisions of this Agreement.  All references made in this Agreement to
“Section” refer to such Section of this Agreement, unless expressly stated
otherwise.

 

(l)                                     Adjustment for Stock Splits, etc. 
Wherever in this Agreement there is a reference to a specific number of shares
with respect to any securities, then upon the occurrence of any subdivision,
combination, or stock dividend of such shares, the specific number of shares
with respect to any securities so referenced in this Agreement shall
automatically be proportionally adjusted to reflect the effect on the
outstanding shares of such class or series of stock by such subdivision,
combination, or stock dividend.

 

[Remainder of this Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

 

 

WHITTIER ENERGY CORPORATION

 

 

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

 

 

 

 

 

FRIEDMAN, BILLINGS, RAMSEY & CO.,
INC. (for the benefit of the Holders)

 

 

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

 

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