Exhibit 10.2




Exhibit 10.2
PARTICIPATION AGREEMENT
This Participation Agreement (this "Agreement")  is entered into on February 16, 2007 by and among  PRC Williston LLC, a Delaware limited liability company (the "Company''), and D.B. Zwim Special Opportunities  Fund, L.P., a Delaware limited partnership, (together  with its successors   and  assigns  "Holder"). The Company and Holder are sometimes referred to collectively herein as the "Parties" and individually as a "Party".
RECITALS
A.        The Company is engaged in the exploration and production, acquisition, enhancement and exploitation of oil and gas reserves (including production related thereto) in the State of North Dakota.
B.     The Members of the Company hold a single class of membership interests (the "Interests").
C.        As a material inducement for Holder to extend credit to the Company under the Credit Agreement (defined below), the Company has agreed to execute this Agreement with Holder.
AGREEMENT
Therefore, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows:
Section 1.     Definitions.
"Affiliate” means any person or entity, directly or indirectly, through one or more intermediaries, that controls, is controlled by, or is under common control with any other person or entity.  The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person or entity.
"Agreement" has the meaning set forth in the preface above.
"Applicable Equity Percentage" shall be six and one quarter percent (6-1/4%) as such amount may be adjusted pursuant to Section 2(c).
"Change of Control” shall mean an arm-length  transaction  resulting in any (a) sale of equity interests in the Company by any of its equity holders or their Affiliates, or (b) merger, consolidation or reorganization of the Company, if, in the case of both clause (a) and (b), equity holders and their Affiliates immediately prior to such transaction cease to beneficially  own, in the aggregate, at least 50% of the equity interests in the Company after such transaction.
"Change of Control Consideration” shall mean the consideration to be received by holders in respect of Interests in connection with a Change of Control.
"Change of Control Participation Amount" shall mean the product of (a) the Applicable Equity Percentage multiplied by (b) the Fair Market Value of the Company immediately prior to the Change of Control.
"Company” has the meaning set forth in the preface above.







"Credit Agreement” shall mean that Credit Agreement dated as of February 16, 2007 among PRC Williston LLC, as Borrower, D.B. Zwim Special Opportunities Fund, L.P., as Administrative Agent and the Lenders party thereto from time to time as amended or modified and in effect from time to time.
"Equity Distribution" shall mean any distribution of cash or other property from the Company to any Member on account of their membership interest or the ownership interest in the Company; provided, that an Equity Distribution shall not include any Tax Distribution.
"Equity Distribution Amount" shall mean the amount of cash plus the Fair Market Value of any other property distributed in an Equity Distribution.
"Equity Participation Amount" shall mean an amount equal to the Applicable Equity Percentage then in effect multiplied by the Equity Distribution Amount.
“Fair Market Value" shall mean, except as provided in the following sentence, the value that an unaffiliated third party would reasonably be expected to pay to purchase the item valued. The "Fair Market Value" of the Company shall mean the amount an arms-length third party would pay to receive all of the outstanding equity interests of the Company free and clear of any liens or encumbrances. The Fair Market Value of any item or the Company, as the case may be, shall be as determined in good faith by the Board of Directors or Parent and notified to Holder in writing, or, if Holder shall disagree with such determination, it may so notify the Company and a reputable investment bank or appraiser (the "independent Appraiser") mutually satisfactory to the Company and Holder shall be appointed to make such determination in accordance with the provisions of this Agreement.   If the Company and Holder shall be unable to agree upon an Independent  Appraiser,  then  Merrill  Lynch  or  its  successor  shall  serve  as  the  Independent Appraiser.  The  Independent  Appraiser  shall  make its determinations assuming, to the extent relevant, (i)  the consummation of  the  relevant  transaction  and  (ii)  such  other   valuation parameters  as deemed appropriate and (iii) without giving effect to this Agreement or any other participation  agreement  that  may  be  in  effect  at  such  time.  Subject  to  the  foregoing,  any valuation  or  determination  by  the Independent  Appraiser  shall  use  standard  valuation  and calculation   techniques   including  discounted  cash   flow   analysis,  multiples   of  comparable companies, prices paid in similar transactions, reserve report analysis or acquisitions of securities of  comparable  companies,  as  well  as  other  factors  deemed  relevant.    All  expenses  of  the Independent Appraiser  shall  be  paid  by  Company,  unless  the  determination  made  by  the Independent Appraiser differs from that of the Board of Directors of Parent by less than 10% of the quantity  or amount determined by the Board of Directors of  Parent, in which  case such expenses  shall  be paid by the Holder.   The decision of said Independent Appraiser shall be delivered in writing to the Company, not more than 60 days after selection of the Independent Appraiser and shall be final and binding.
"Holder” has the meaning set forth in the preface above. 
"lnterests" has the meaning set forth in the preface above. 
"Member" shall mean any member of the Company.
"Parent' shall mean Petro Resources Corporation, a Delaware corporation.
"Participation Amount" shall mean the Change of Control Participation Amount or the Equity Participation Amount, as the case may be.







"Party" has the meaning set forth in the preface above.
"Person” shall mean any natural person, corporation, limited liability company, general partnership, limited partnership, union, association, court, agency, government, tribunal, instrumentality, commission, arbitrator, board, bureau or other entity or authority.
"Tax  Distribution" means any distribution made for Taxes of the Members in connection with  the  income  of  the  Company  and  approved  by  the  Holder, such  approval  not  to  be unreasonably withheld.
Section 2.     Calculation and Payment of Participation Amounts. 
(a)    Timing of Payments.
(i)    Prior to or contemporaneously with making any Equity Distribution, the Company shall pay to Holder the Equity Participation Amount.
(ii)    Prior to or contemporaneously with the consummation of any Change of Control, the Company shall pay to Holder the Change of Control Participation Amount.
(b)       Form of Payment of Participation Amount.   The applicable  Participation Amount shall be paid in (a) cash, or (b) if and to the extent the Equity Distribution or Change of Control  Consideration  is  payable  in  the  form  of  securities  of  another  entity,  then  in  such securities,  but only to the extent and in the same  proportion that holders of Interests also are required to accept such securities.
(c)    Adjustment to the Applicable Equity Percentage.  If prior to the date that is 180 days after  the Effective Date (as defined in the Credit Agreement) Parent has made equity contributions to the Company, and such Equity Contributions are used to prepay principal under the Credit Agreement, the Applicable Equity Percentage shall be reduced by the Percentage set forth  in  the  table  below  with  respect  to  the  corresponding  amount  of  equity  that  has  been contributed to the Company, and is used to prepay principal under the Credit Agreement:










In no event shall the Participation Amount be reduced by more than 2.5% for any reason.   This Section 2(c) shall be of no further effect 180 days after the Effective Date (as defined in the Credit Agreement) and no further reductions to the Participation Amount shall be made.


Section 3.        Information  Rights.    At  any  time  after  repayment,  refinance or  other termination  of the obligations of the Company under the Credit Agreement, the Company shall provide  Holder  with  the  following  information,   which  Holder  shall  keep  confidential   in accordance with its customary practices and procedures:
(a)       In  connection  with  any  proposed  or completed Equity Distribution or Change of Control, reasonable access, during normal business hours, to the books and records of the Company and to the officers of the Company to discuss the Company's business and affairs;
(b)       As soon as available, and in any event within 45 days after the end of each quarterly period (the "Fiscal Quarter") of each fiscal year (the "Fiscal Year") of the Company, an unaudited consolidated statements of income, members' equity, changes in financial position and cash flow for the Company and its subsidiaries and the Parent and its Subsidiaries for such Fiscal Quarter and an unaudited balance sheet of the Company and its Subsidiaries and the Parent and its Subsidiaries  dated as of the end of such Fiscal Quarter, in each case prepared in accordance with generally accepted accounting principles consistently applied (subject to normal year-end adjustments)  accompanied  by the certificate of  a responsible officer of the Company  and the Parent, which certificate shall state that said financial statements fairly present the consolidated financial condition and results of operations of the Company and its subsidiaries or the Parent, as applicable, in accordance with generally accepted accounting principles, for such period (subject to normal year-end audit adjustments);
(c)       As soon as available, and in any event, within 90 days after the end of each Fiscal Year (i) the audited consolidated statements  of income, members' equity, changes in financial position and cash flow of the Company and its subsidiaries and the Parent and its Subsidiaries  for such Fiscal Year, and the related  consolidated  balance sheets of the Company and its subsidiaries  and the Parent and its Subsidiaries  as at the end of such  Fiscal Year, and accompanied  by the related opinion of Malone & Bailey or other independent public accountants of recognized national standing acceptable to Holder, which opinion shall state that said financial statements fairly present the consolidated financial condition and results of operations of the Company and its subsidiaries and the Parent and its subsidiaries, as the case may be, as at the end of, and for, such  Fiscal Year and that such financial statements have been prepared in accordance with generally accepted accounting  principles except for such changes in such  principles  with which the independent  public accountants shall  have concurred; and (ii) an audited statement showing  any amounts distributed  to the Members or their Affiliates in respect  of such  Fiscal Year;
(d)       Promptly  upon its becoming  available,  each  financial statement,  report, notice or proxy statement sent by the Company or any of subsidiaries to stockholders, members or holders of interests therein generally and each regular or periodic report and any registration statement,  prospectus  or  written  communication  (other  than  transmittal  letters, comments  to filings or other immaterial correspondence) in respect thereof filed by the Company or any of its subsidiaries with or received by the Company or any of its subsidiaries in connection therewith from any securities exchange or the Securities Exchange Commission.
(e)       At least thirty (30) days prior to any Tax Distribution, the Company shall deliver to Holder  a  calculation  in  reasonable  detail  prepared  by Malone  & Bailey or other independent  public accountants  of  recognized  national  standing acceptable  to Holder of the amount of such Tax Distributions.







(f)        Promptly following receipt or preparation thereof, copies of any reserve reports or estimates with respect to the Company's and its subsidiaries oil and gas properties.
In addition to the foregoing, not fewer than 15 days prior to a Change of Control, written notice of the tem1s of such transaction in reasonable detail, which will result in  such Change of Control , including the amount and type of anticipated Change of Control Consideration.
Section 4.        Termination.  This Agreement shall terminate upon the earlier of (a) the complete liquidation, dissolution and winding up of the Company, or (b) closing and funding of a Change of Control, so long as in each of (a) and (b) any Participation Amount due as a result of such transaction shall have been paid in full.
Section 5.        Restrictions.  The Company shall not incur any indebtedness for borrowed money to Members or Affiliates of Members or enter into any other agreements  with Members of Affiliates of Members, without the consent of Holder, unless the terms of such indebtedness or other  agreements  arc  on  an  arms-length basis,  in  the ordinary  course of  business  of  the Company and on fair and reasonable terms no less favorable to the Company  than the Company would obtain in a comparable transaction with a Person not an Affiliate of the Company.
Section 6.        Board Observation Rights.   The Holder shall be entitled to have one or more observers (the "Agent Observers") attend any regular meeting of the Members of the Borrower. The Agent Observers shall not be entitled to vote on matters presented to or discussed by the Members of the Borrower at any such meeting.  The Agent Observers shall be timely notified of the time and place of any such meeting and will be given written notice of all proposed actions to be taken by the Members of the Borrower at any such meeting as if the Agent Observers were members of the Members of the Borrower. Such notice shall describe in reasonable detail the nature and substance of the matters to he discussed and/or voted upon at any such meeting (or the proposed actions to be taken by written consent without a meeting).  The Agent Observers shall have the right to receive all information provided to the members of the Members of the Borrower in anticipation of or at any such meeting, in addition to copies of the records of the proceedings or minutes of any such meeting, when provided to the members of the Members of the Borrower. The  Borrower  shall  reimburse  the  Agent  Observers  for  all  reasonable  and documented out-of-pocket costs and expenses incurred in connection with their participation  in any such  meeting. The  Agent Observers  shall  also have the  right to receive all  information provided to each member of the Board of Directors of each Subsidiary (if any) of the Borrower (the "Other  Boards"), in anticipation of or at all meetings thereof (whether regular or special and whether  telephonic or Otherwise), in addition  to copies of the records of  the proceedings  or minutes of such meetings, when provided to the members of such Other Boards.  The Borrower will also furnish or will cause to be furnished to Administrative Agent and its counsel a copy of each written consent without a meeting adopted by the Members of the Borrower or any of the Other Boards not later than five (5) days after it has been signed by the last signatory thereto. The Members of the Borrower shall hold a regularly scheduled meeting at least quarterly.  The Borrower shall cause an amendment to its organizational documents to effect this schedule if necessary.  ln addition, the Company shall schedule, and the Holder shall be entitled to have one or more  observers  (the  ''Operator  Observers")  attend,  a formal  planning meeting  each  fiscal quarter between the Company and the Eagle Operating, Inc., as provided for in the Acquisition Documents  (as defined  in  the Credit Agreement). The Operator  Observers  shall  be  timely notified  of  the time  and place  of  any such meeting  and  will be given  written  notice of  all proposed agenda items.  Such notice shall describe in reasonable detail the nature and substance of the matters to be discussed and/or voted upon at any such meeting.  The Operator Observers shall have the right to receive all information provided to the Company in anticipation of or at any such meeting including, reserve reports, seismic information, authorizations for expenditure, well logs, unit plans and design 







documents.  The Company shall reimburse the Operator Observers for all reasonable and documented out-of-pocket costs and expenses incurred in connection with their participation in any such meeting.
Section 7.    Tax Treatment of Payments.
(a)       Solely  for  tax  purposes,   the   Holder's   rights  to  receive  the  Equity Participation   Amount   and  the  Charge  of  Control   Participation  Amount   pursuant  to  this Agreement shall be treated as a membership interest in the Company.
(b)     If-in any year, the Holder receives payments with respect to the Equity Participation  Amount or the Change of Control  Participation Amount,  such  Holder shall  be allocated an amount of gross income equal to the amount of such payments, provided, however, that in the event the Company does not have adequate gross income to allocate such amounts to such  Holder in such  year, then, in subsequent  years,  before any  income is allocated  to any Members of the Company, an amount of gross income shall be allocated to the Holder until such Holder has received allocations of gross income in a cumulative amount equal to the amount of such payments.   No such allocations of income to Holder shall cause Holder to have a capital account, nor give Holder any rights to Membership property other than as provided elsewhere herein, or in the Credit Agreement or other Loan Documents, as such are defined in the Credit Agreement.  Such  allocation  to Holder  shall  not  give the Holder  any  capital  account  or  rights except as expressly provided  herein to any other amounts from the Partnership.
(c)        For purposes  of Section  704(a)  of the Internal  Revenue  Code  of  1986,  as amended, the allocation  provisions set forth in paragraph (b) of this Section  7 shall  be treated  as part of the LLC Agreement  of the Company.


Section  8.     Miscellaneous.
(a)        No Third Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns.
(b)        Entire Agreement. This Agreement constitutes the entire agreement among the Parties with   regard to the subject matter hereof and supersedes any prior understandings, agreements, or representations by or among the Parties, written or oral, to the extent they related in any way to the subject matter hereof.
(c)        No Partnership, Agency, Etc. The relationship created hereby between the Company and Holder hereunder   is contractual.   Except  as  provided  in  Section  7(a),  nothing herein   shall   be  deemed   to  create   a  partnership,  agency,   independent  contractor  or  other relationship between  the parties for any purpose.   Nothing herein shall entitle Holder to rights as a Partner of the Company.
(d)        Succession and Assignment.   This  Agreement shall  be binding  upon  and inure  to the  benefit  of  the  Parties  and  their  respective successors and  permitted  assigns.    The Company may  not  assign  either  this  Agreement  or  any of  its  rights,  interests  or  obligations hereunder  without  the prior written approval  of Holder.
(e)        Counterparts.  This   Agreement    may   be executed    in   one   or   more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument.
(f)      Governing Law.  This  Agreement  shall  be construed in accordance with and  this Agreement and  any disputes  or  controversies related  hereto  shall  be governed by the domestic laws of the State  of New 







York  without  giving  effect  to any choice  or conflict of Jaw provision or rule that would mandatorily  apply the laws of any other jurisdiction.
(g)        Amendments and Waivers.   No  amendment  of  any   provision  of  this Agreement shall  be  valid  unless  the same  shall  be in writing  and  signed  by  each  Party. No waiver  by any  Party  of any default  or covenant  hereunder, whether  intentional or not, shall  be deemed  to extend  to any prior or subsequent default  or covenant  hereunder or affect  in any way any rights arising by virtue of any prior or subsequent such occurrence.
(h)       Severability.  Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.
(i)        Specific Performance.  Each of the Parties acknowledges and agrees that, to the extent permitted by law, the other Parties would be damaged irreparably in the event any of the provisions of this Agreement are not performed in any material respect in accordance with their specific terms or otherwise are breached.   Accordingly, each of the Parties agrees that, to the extent permitted by applicable law, the other Parties shall be entitled to an injunction or injunctions  (including temporary restraining orders and  preliminary  injunctions)  to  prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the Parties and the matter, in addition to any other remedy  to which they may be entitled, at law or in equity.
Q)       Savings Clause.    No action by Holder under this Agreement, and no express or implied term of this Agreement, shall be deemed to constitute an amendment, waiver of any of Holder's rights or benefits under the Credit Agreement, or any other Loan Documents (as defined in the Credit Agreement), or consent by Holder under the Credit Agreement or any of the other Loan Documents to any action that would otherwise be restricted under the Credit Agreement or any of the other Loan Documents.  Any such waiver or consent shall occur only pursuant to the express terms of the Credit Agreement.


[Signature page follows]









SIGNATURE PAGE TO
PARTICIPATION AGREEMENT (DBZ)




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
















































SIGNATURE PAGE TO
PARTICIPATION AGREEMENT (DBZ)




D. B. ZWIRN SPECIAL OPPORTUNITIES
FUND, L.P.