exv10w1



 





EXECUTION COPY




 





ULTRA RESOURCES, INC.




 






MASTER NOTE PURCHASE AGREEMENT




 






Dated as of March 6, 2008




Initial Issuance of

$100,000,000 5.45% Senior Notes, Series 2008-A, due March 1, 2015

$200,000,000 5.92% Senior Notes, Series 2008-B, due March 1, 2018




 





Series 2008-A PPN: 90388@ AA9

Series 2008-B PPN: 90388@ AB7





 









 








TABLE OF CONTENTS




	 	 	 	 	 
	Section	 	    Page	 
	1. AUTHORIZATION OF NOTES
	 	 	1	 
	1.1 Description of Notes to be Issued
	 	 	1	 
	1.2 Additional Series of Notes
	 	 	1	 
	1.3 Parent Guaranty
	 	 	2	 
	1.4 Floating Interest Rate Provisions for Floating Rate Notes
	 	 	2	 
	1.5 Additional Interest
	 	 	3	 
	 
	 	 	 	 
	2. SALE AND PURCHASE OF NOTES
	 	 	4	 
	 
	 	 	 	 
	3. CLOSING
	 	 	4	 
	 
	 	 	 	 
	4. CONDITIONS TO CLOSING
	 	 	4	 
	4.1 Representations and Warranties
	 	 	4	 
	4.2 Performance; No Default
	 	 	4	 
	4.3 Compliance Certificates
	 	 	5	 
	4.4 Opinions of Counsel
	 	 	5	 
	4.5 Purchase Permitted By Applicable Law, etc.
	 	 	5	 
	4.6 Sale of Other Notes
	 	 	5	 
	4.7 Payment of Special Counsel Fees
	 	 	6	 
	4.8 Private Placement Numbers
	 	 	6	 
	4.9 Changes in Corporate Structure
	 	 	6	 
	4.10 Parent Guaranty
	 	 	6	 
	4.11 Funding Instructions
	 	 	6	 
	4.12 Proceedings and Documents
	 	 	6	 
	 
	 	 	 	 
	5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
	 	 	6	 
	5.1 Organization; Power and Authority
	 	 	7	 
	5.2 Authorization, etc.
	 	 	7	 
	5.3 Disclosure
	 	 	7	 
	5.4 Organization and Ownership of Shares of Subsidiaries
	 	 	8	 
	5.5 Financial Statements; Material Liabilities
	 	 	8	 
	5.6 Compliance with Laws, Other Instruments, etc.
	 	 	8	 
	5.7 Governmental Authorizations, etc.
	 	 	9	 
	5.8 Litigation; Observance of Statutes and Orders
	 	 	9	 
	5.9 Taxes
	 	 	9	 
	5.10 Title to Property; Leases
	 	 	9	 
	5.11 Licenses, Permits, etc.
	 	 	10	 
	5.12 Compliance with ERISA
	 	 	10	 
	5.13 Private Offering by the Company
	 	 	11	 
	5.14 Use of Proceeds; Margin Regulations
	 	 	11	 
	5.15 Existing Indebtedness; Future Liens
	 	 	11	 
	5.16 Foreign Assets Control Regulations, etc.
	 	 	12	 






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	Section	 	    Page	 
	5.17 Status under Certain Statutes
	 	 	12	 
	 
	 	 	 	 
	6. REPRESENTATIONS OF THE PURCHASERS
	 	 	12	 
	6.1 Purchase for Investment
	 	 	12	 
	6.2 Source of Funds
	 	 	13	 
	 
	 	 	 	 
	7. INFORMATION AS TO THE PARENT AND THE COMPANY
	 	 	14	 
	7.1 Financial and Business Information
	 	 	14	 
	7.2 Officer’s Certificate
	 	 	16	 
	7.3 Electronic Delivery
	 	 	17	 
	7.4 Visitation
	 	 	17	 
	 
	 	 	 	 
	8. PREPAYMENT OF THE NOTES
	 	 	18	 
	8.1 Required Prepayments
	 	 	18	 
	8.2 Optional Prepayments
	 	 	18	 
	8.3 Mandatory Offer to Prepay Upon Change of Control
	 	 	19	 
	8.4 Allocation of Partial Prepayments
	 	 	20	 
	8.5 Maturity; Surrender, etc.
	 	 	20	 
	8.6 Purchase of Notes
	 	 	20	 
	8.7 Make-Whole Amount
	 	 	21	 
	8.8 LIBOR Breakage Amount
	 	 	22	 
	 
	 	 	 	 
	9. AFFIRMATIVE COVENANTS
	 	 	22	 
	9.1 Compliance with Law
	 	 	23	 
	9.2 Insurance
	 	 	23	 
	9.3 Maintenance of Properties
	 	 	23	 
	9.4 Payment of Taxes and Claims
	 	 	23	 
	9.5 Corporate Existence, etc.
	 	 	24	 
	9.6 Books and Records
	 	 	24	 
	9.7 Subsidiary Guaranty; Release of Guaranties
	 	 	24	 
	9.8 Pari Passu Ranking
	 	 	25	 
	 
	10. NEGATIVE COVENANTS
	 	 	26	 
	10.1 Consolidated Leverage Ratio
	 	 	26	 
	10.2 Priority Debt
	 	 	26	 
	10.3 Liens
	 	 	26	 
	10.4 Merger, Consolidation, etc.
	 	 	27	 
	10.5 Sale of Assets
	 	 	28	 
	10.6 Transactions with Affiliates
	 	 	29	 
	10.7 Terrorism Sanctions Regulations
	 	 	29	 
	 
	 	 	 	 
	11. EVENTS OF DEFAULT
	 	 	29	 
	 
	 	 	 	 
	12. REMEDIES ON DEFAULT, ETC.
	 	 	32	 
	12.1 Acceleration
	 	 	32	 
	12.2 Other Remedies
	 	 	32	 
	12.3 Rescission
	 	 	33	 






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	Section	 	    Page	 
	12.4 No Waivers or Election of Remedies, Expenses, etc.
	 	 	33	 
	 
	 	 	 	 
	13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES
	 	 	33	 
	13.1 Registration of Notes
	 	 	33	 
	13.2 Transfer and Exchange of Notes
	 	 	34	 
	13.3 Replacement of Notes
	 	 	34	 
	 
	 	 	 	 
	14. PAYMENTS ON NOTES
	 	 	35	 
	14.1 Place of Payment
	 	 	35	 
	14.2 Home Office Payment
	 	 	35	 
	 
	 	 	 	 
	15. EXPENSES, ETC.
	 	 	35	 
	15.1 Transaction Expenses
	 	 	35	 
	15.2 Survival
	 	 	36	 
	 
	 	 	 	 
	16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT
	 	 	36	 
	 
	 	 	 	 
	17. AMENDMENT AND WAIVER
	 	 	36	 
	17.1 Requirements
	 	 	36	 
	17.2 Solicitation of Holders of Notes
	 	 	37	 
	17.3 Binding Effect, etc.
	 	 	37	 
	17.4 Notes Held by Company, etc.
	 	 	38	 
	 
	 	 	 	 
	18. NOTICES
	 	 	38	 
	 
	 	 	 	 
	19. REPRODUCTION OF DOCUMENTS
	 	 	38	 
	 
	 	 	 	 
	20. CONFIDENTIAL INFORMATION
	 	 	39	 
	 
	 	 	 	 
	21. SUBSTITUTION OF PURCHASER
	 	 	39	 
	 
	 	 	 	 
	22. MISCELLANEOUS
	 	 	40	 
	22.1 Successors and Assigns
	 	 	40	 
	22.2 Payments Due on Non-Business Days
	 	 	40	 
	22.3 Accounting Terms
	 	 	40	 
	22.4 Severability
	 	 	40	 
	22.5 Construction
	 	 	41	 
	22.6 Counterparts
	 	 	41	 
	22.7 Governing Law
	 	 	41	 
	22.8 Jurisdiction and Process; Waiver of Jury Trial
	 	 	41	 






 iii 




 









 





	 	 	 	 	 
	SCHEDULE A

	 	—
	 	Information Relating to Purchasers [omitted]
	SCHEDULE B

	 	—
	 	Defined Terms
	 
	 	 	 	 
	SCHEDULE 5.3

	 	—
	 	Disclosure [omitted]
	SCHEDULE 5.5

	 	—
	 	Financial Statements [omitted]
	SCHEDULE 5.8

	 	—
	 	Litigation [omitted]
	SCHEDULE 5.15

	 	—
	 	Existing Indebtedness [omitted]
	SCHEDULE 10.3

	 	—
	 	Liens [omitted]
	 
	 	 	 	 
	EXHIBIT 1.1(a)

	 	—
	 	Form of Series 2008-A Note [omitted]
	EXHIBIT 1.1(b)

	 	—
	 	Form of Series 2008-B Note [omitted]
	EXHIBIT 1.2

	 	—
	 	Form of Supplement [omitted]
	EXHIBIT 1.3

	 	—
	 	Form of Parent Guaranty
	EXHIBIT 4.4(a)

	 	—
	 	Form of Opinion of Special Counsel for the Company and Special
Wyoming Counsel for the Company [omitted]
	EXHIBIT 4.4(b)

	 	—
	 	Form of Opinion of Special Counsel to the Purchasers [omitted]
	EXHIBIT 9.7

	 	—
	 	Form of Subsidiary Guaranty [omitted]






 iv 





 









 








ULTRA RESOURCES, INC.

363 N Sam Houston Parkway E

Suite 1200

Houston Texas 77060

Phone: 281-876-0120

Fax: 281-876-2831




Initial Issuance of

$100,000,000 5.45% Senior Notes, Series 2008-A, due March 1, 2015

$200,000,000 5.92% Senior Notes, Series 2008-B, due March 1, 2018




Dated as of March 6, 2008




TO EACH OF THE PURCHASERS LISTED IN

          THE ATTACHED SCHEDULE A:




Ladies and Gentlemen:




          ULTRA RESOURCES, INC., a Wyoming corporation (the “Company”), agrees with you as follows:




1. AUTHORIZATION OF NOTES.




1.1 Description of Notes to be Issued.




          The Company has authorized the issue and sale of $300,000,000 aggregate principal amount of
its Senior Notes consisting of (i) $100,000,000 aggregate principal amount of its 5.45% Senior
Notes, Series 2008-A, due March 1, 2015 (the “Series 2008-A Notes”); and (ii) $200,000,000
aggregate principal amount of its 5.92% Senior Notes, Series 2008-B, due March 1, 2018 (the “Series
2008-B Notes” and, together with the Series 2008-A Notes, the “Series 2008 Notes”, such term to
include any such notes issued in substitution therefor pursuant to Section 13 of this Agreement).
The Series 2008 Notes shall be substantially in the form set out in Exhibits 1.1(a) and 1.1(b),
with such changes therefrom, if any, as may be approved by the Purchasers and the Company. Certain
capitalized terms used in this Agreement are defined in Schedule B; references to a “Schedule” or
an “Exhibit” are, unless otherwise specified, to a Schedule or an Exhibit attached to this
Agreement.




1.2 Additional Series of Notes.




          In addition to the issuance and sale of the Series 2008 Notes, the Company may from time to
time issue and sell one or more additional series of notes (the “Additional Notes” and together
with the Series 2008 Notes, the “Notes,” such term to include any such Notes issued in substitution
therefor pursuant to Section 13 of this Agreement) pursuant to this Agreement. Each series of
Additional Notes will be issued pursuant to a supplement to this Agreement




 









 







(a “Supplement”) in substantially the form of Exhibit 1.2, and will be subject to the following
terms and conditions:





     (a) the designation of each series of Additional Notes shall distinguish such series
from the Notes of all other series;




     (b) each series of Additional Notes may consist of different and separate tranches and
may differ as to outstanding principal amounts, maturity dates, interest rates and premiums
or make-whole amounts, if any, and price and terms of redemption or payment prior to
maturity;




     (c) all Notes issued under this Agreement, including pursuant to any Supplement, shall
rank pari passu with each other and shall constitute Senior Indebtedness;




     (d) each series of Additional Notes shall be dated the date of issue, bear interest at
such rate or rates, mature on such date or dates, be subject to such mandatory or optional
prepayments, if any, on the dates and with the make-whole amounts, premiums or LIBOR
breakage amounts, if any, as are provided in the Supplement under which such Additional
Notes are issued, and shall have such additional or different conditions precedent to
closing and such additional or different representations and warranties or, subject to
Section 1.2(e), other terms and provisions as shall be specified in such Supplement; and




     (e) except to the extent provided in foregoing clause (d), all of the provisions of
this Agreement shall apply to all Additional Notes.



1.3 Parent Guaranty.




          The payment by the Company of all amounts due with respect to the Notes and the performance by
the Company of its obligations under this Agreement will be guaranteed by the Parent and UP Energy
pursuant to the Parent Guaranty in substantially the form of the attached Exhibit 1.3, as it
hereafter may be amended or supplemented from time to time (the “Parent Guaranty”).




1.4 Floating Interest Rate Provisions for Floating Rate Notes.





     (a) Adjusted LIBOR Rate. “Adjusted LIBOR Rate” means, for each Interest
Period, the rate per annum equal to LIBOR for such Interest Period plus the percentage
applicable to a series or tranche of floating rate Notes. For purposes of determining
Adjusted LIBOR Rate, the following terms have the following meanings:




     “LIBOR” means, for any Interest Period, the rate per annum (rounded upwards, if
necessary, to the next higher one hundred-thousandth of a percentage point) for
deposits in U.S. Dollars for a 3-month period (or such other period as is specified
in the applicable Supplement) that appears on the Bloomberg Financial Markets
Service Page BBAM-1 (or if such page is not available, the Reuters Screen LIBO Page)
as of 11:00 a.m. (London, England time) on the date two



2









 







Business Days before the commencement of such Interest Period (or three Business
Days before the commencement of the first Interest Period).




     “Reuters Screen LIBO Page” means the display designated as the “LIBO” page on
the Reuters Monitory Money Rates Service (or such other page as may replace the LIBO
page on that service) or such other service as may be nominated by the British
Bankers’ Association as the information vendor for the purpose of displaying British
Bankers’ Association Interest Settlement Rates for U.S. Dollar deposits.




     (b) Determination of the Adjusted LIBOR Rate. The Adjusted LIBOR Rate shall be
determined by the Company, and notice thereof shall be given to the holders of the
applicable series or tranche of floating rate Notes, within five Business Days after the
beginning of each Interest Period, together with (i) a copy of the relevant screen used for
the determination of LIBOR, (ii) a calculation of the Adjusted LIBOR Rate for such Interest
Period, (iii) the number of days in such Interest Period, (iv) the date on which interest
for such Interest Period will be paid and (v) the amount of interest to be paid to each
holder of Notes of such series or tranche on such date. If the holders of a majority in
principal amount of the Notes of such series or tranche outstanding do not concur with such
determination by the Company, as evidenced by a single written notice delivered to the
Company within 10 Business Days after receipt by such holders of the notice delivered by the
Company pursuant to the immediately preceding sentence, the determination of the Adjusted
LIBOR Rate shall be made by such holders of the Notes, and any such determination made in
accordance with the provisions of this Agreement shall be conclusive and binding absent
manifest error.




     (c) Interest Period. “Interest Period” means for any series or tranche of
floating rate Notes and for any period for which interest is to be calculated or paid, the
period commencing on an interest payment date for such series or tranche of floating rate
Notes, or on the date of Closing in the case of the first such period, and continuing up to,
but not including, the next interest payment date.



1.5 Additional Interest.




          If the Consolidated Leverage Ratio exceeds 3.50 to 1.00 as of any Quarter End Date, as
evidenced by an Officer’s Certificate delivered pursuant to Section 7.2(a), the interest rate
payable on the Notes shall be increased by 0.50% (the “Incremental Interest”) for a period of time
determined as follows: (a) such Incremental Interest shall begin to accrue on the first day of the
fiscal quarter following the fiscal quarter in respect of which such Officer’s Certificate was
delivered, and (b) shall continue to accrue until the Company has provided an Officer’s Certificate
pursuant to Section 7.2(a) demonstrating that, as of the last day of the fiscal quarter in respect
of which such Certificate is delivered, the Consolidated Leverage Ratio is not more than 3.50 to
1.00, and in the event such Officer’s Certificate is delivered, the Incremental Interest shall
cease to accrue on the last day of the fiscal quarter in respect of which such Certificate is
delivered. For the avoidance of doubt, if the Consolidated Leverage Ratio exceeds 3.50 to 1.00 as
of the last day of a fiscal quarter, Incremental Interest shall accrue as provided in this


3









 







Section 1.5 regardless of whether an Officer’s Certificate is timely delivered pursuant to
Section 7.2(a).




2. SALE AND PURCHASE OF NOTES.




          Subject to the terms and conditions of this Agreement, the Company will issue and sell to you
and each of the other purchasers named in Schedule A (the “Other Purchasers”), and you and the
Other Purchasers will purchase from the Company, at the Closing provided for in Section 3, Notes in
the principal amount specified opposite your names in Schedule A at the purchase price of 100% of
the principal amount thereof. Your obligation hereunder and the obligations of the Other
Purchasers are several and not joint obligations and you shall have no obligation and no liability
to any Person for the performance or non-performance by any Other Purchaser hereunder.




3. CLOSING.




          The sale and purchase of the Series 2008 Notes to be purchased by you and the Other Purchasers
shall occur at the offices of Foley & Lardner LLP, 321 North Clark Street, Suite 2800, Chicago,
Illinois 60610-4764, at 9:00 a.m., Chicago time, at a closing (the “Closing”) on March 6, 2008 or
on such other Business Day thereafter as may be agreed upon by the Company and you and the Other
Purchasers. At the Closing, the Company will deliver to you the Series 2008 Notes to be purchased
by you in the form of a single Note (or such greater number of Notes in denominations of at least
$500,000 as you may request) dated the date of such Closing and registered in your name (or in the
name of your nominee), against delivery by you to the Company or its order of immediately available
funds in the amount of the purchase price therefor by wire transfer for the account of the Company
to account number 192648101 at JP Morgan Chase Bank, NA, New York, New York, ABA number 021000021.
If at the Closing the Company shall fail to tender such Notes to you as provided above in this
Section 3, or any of the conditions specified in Section 4 shall not have been fulfilled to your
satisfaction, you shall, at your election, be relieved of all further obligations under this
Agreement, without thereby waiving any rights you may have by reason of such failure or such
nonfulfillment.




4. CONDITIONS TO CLOSING.




          Your obligation to purchase and pay for the Notes to be sold to you at the Closing is subject
to the fulfillment to your satisfaction, prior to or at the Closing, of the following conditions:




4.1 Representations and Warranties.




          The representations and warranties of the Company in this Agreement shall be correct when made
and at the time of the Closing.




4.2 Performance; No Default.




          The Company shall have performed and complied with all agreements and conditions contained in
this Agreement required to be performed or complied with by it prior to or at the Closing, and,
after giving effect to the issue and sale of the Series 2008 Notes (and the



4









 







application of the proceeds thereof as contemplated by Section 5.14), no Default or Event of
Default shall have occurred and be continuing. Neither the Company nor any Subsidiary shall have
entered into any transaction since December 31, 2007 that would have been prohibited by Section 10
had such Section applied since such date.



4.3 Compliance Certificates.





     (a) Officer’s Certificate. The Company shall have delivered to you an
Officer’s Certificate, dated the date of Closing, certifying that the conditions specified
in Sections 4.1, 4.2 and 4.9 have been fulfilled.




     (b) Secretary’s Certificates. Each of the Parent, UP Energy and the Company
shall have delivered to you a certificate of its Secretary or an Assistant Secretary, dated
the date of Closing, certifying as to the resolutions attached thereto and other corporate
proceedings relating to the authorization, execution and delivery of the Notes, this
Agreement and the Parent Guaranty, as applicable.



4.4 Opinions of Counsel.




          You shall have received opinions in form and substance satisfactory to you, dated the date of
such Closing (a) from (i) Haynes and Boone, LLP, counsel for the Company, and (ii) S. Thomas
Throne, special Wyoming counsel for the Company, covering the matters set forth in Exhibit 4.4(a)
and covering such other matters incident to the transactions contemplated hereby as you or your
counsel may reasonably request (and the Company instructs its counsel to deliver such opinion to
you), and (b) from Foley & Lardner LLP, your special counsel in connection with such transactions,
substantially in the form set forth in Exhibit 4.4(b) and covering such other matters incident to
such transactions as you may reasonably request.



4.5 Purchase Permitted By Applicable Law, etc.




          On the date of the Closing, your purchase of Notes shall (i) be permitted by the laws and
regulations of each jurisdiction to which you are subject, without recourse to provisions (such as
Section 1405(a)(8) of the New York Insurance Law) permitting limited investments by insurance
companies without restriction as to the character of the particular investment, (ii) not violate
any applicable law or regulation (including, without limitation, Regulation U, T or X of the Board
of Governors of the Federal Reserve System) and (iii) not subject you to any tax, penalty or
liability under or pursuant to any applicable law or regulation, which law or regulation was not in
effect on the date hereof. If requested by you, you shall have received an Officer’s Certificate
certifying as to such matters of fact as you may reasonably specify to enable you to determine
whether such purchase is so permitted.



4.6 Sale of Other Notes.




          Contemporaneously with the Closing, the Company shall sell to the Other Purchasers and the
Other Purchasers shall purchase the Notes to be purchased by them as specified in Schedule A.



5









 





4.7 Payment of Special Counsel Fees.




          Without limiting the provisions of Section 15.1, the Company shall have paid on or before the
Closing the fees, charges and disbursements of your special counsel to the extent reflected in a
statement of such counsel rendered to the Company at least two Business Days prior to the Closing.



4.8 Private Placement Numbers.




          Private Placement Numbers issued by Standard & Poor’s CUSIP Service Bureau (in cooperation
with the SVO) shall have been obtained by Foley & Lardner LLP for the Series 2008 Notes.



4.9 Changes in Corporate Structure.




          The Company shall not have changed its jurisdiction of incorporation or been a party to any
merger or consolidation or succeeded to all or any substantial part of the liabilities of any other
entity, at any time since the date of the most recent financial statements referred to in Schedule
5.5.



4.10 Parent Guaranty.




          Each of the Parent and UP Energy shall have executed and delivered the Parent Guaranty and you
shall have received an executed counterpart thereof.



4.11 Funding Instructions.




          At least three Business Days prior to the date of the Closing, you shall have received written
instructions signed by a Responsible Officer on letterhead of the Company confirming the
information specified in Section 3 including (i) the name and address of the transferee bank, (ii)
such transferee bank’s ABA number and (iii) the account name and number into which the purchase
price for the Notes is to be deposited.



4.12 Proceedings and Documents.




          All corporate and other proceedings in connection with the transactions contemplated by this
Agreement and all documents and instruments incident to such transactions shall be reasonably
satisfactory to you and your special counsel, and you and your special counsel shall have received
all such counterpart originals or certified or other copies of such documents as you or they may
reasonably request.



5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.




          The Company represents and warrants to you that:



6









 





5.1 Organization; Power and Authority.




          Each of the Parent, UP Energy and the Company is a corporation or limited liability company
duly organized and validly existing and in good standing under the laws of its jurisdiction of
organization, and is duly qualified and is in good standing in each jurisdiction in which such
qualification is required by law, other than those jurisdictions as to which the failure to be so
qualified or in good standing would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect. Each of the Parent, UP Energy and the Company has the corporate
or other requisite power and authority to own or hold under lease the properties it purports to own
or hold under lease, to transact the business it transacts and proposes to transact, to execute and
deliver this Agreement, and the Notes (in the case of the Company) and the Parent Guaranty (in the
case of the Parent and UP Energy) and to perform the provisions hereof and thereof.



5.2 Authorization, etc.




          This Agreement and the Notes have been duly authorized by all necessary corporate action on
the part of the Company, and this Agreement constitutes, and upon execution and delivery thereof
each Note will constitute, a legal, valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except as such enforceability may be limited by (i)
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, fraudulent transfer,
moratorium or other similar laws affecting the enforcement of creditors’ rights generally and
(ii) general principles of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).



          The Parent Guaranty has been duly authorized by all necessary corporate action on the part of
the Parent and UP Energy and upon execution and delivery thereof will constitute the legal, valid
and binding obligation of the Parent and UP Energy, enforceable against the Parent and UP Energy in
accordance with its terms, except as such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance, fraudulent transfer, moratorium or
other similar laws affecting the enforcement of creditors’ rights generally and (ii) general
principles of equity (regardless of whether such enforceability is considered in a proceeding in
equity or at law).



5.3 Disclosure.




          The Company, through its agents, J.P. Morgan Securities Inc., Citigroup Global Markets Inc.
and Deutsche Bank Securities Inc., has delivered to you and each Other Purchaser a copy of a
Private Placement Memorandum, dated January 2008 (the “Memorandum”), relating to the transactions
contemplated hereby. This Agreement, the Memorandum, the documents, certificates or other writings
identified in Schedule 5.3 by or on behalf of the Company in connection with the transactions
contemplated hereby, in each case, delivered to the Purchasers prior to February 7, 2008 and the
financial statements listed in Schedule 5.5 (this Agreement, the Memorandum and such documents,
certificates or other writings and such financial statements being referred to, collectively, as
the “Disclosure Documents”), taken as a whole, do not contain any untrue statement of a material
fact or omit to state any material fact necessary to make the statements therein not misleading in
light of the circumstances under which they were made.



7









 






	Except as disclosed in the Disclosure Documents, since December 31, 2007, there has been no
change in the financial condition, operations, business or properties of the Company or any
Subsidiary except changes that individually or in the aggregate would not reasonably be expected to
have a Material Adverse Effect.





5.4 Organization and Ownership of Shares of Subsidiaries.




          The Company has no Subsidiaries. All of the issued and outstanding capital stock of the
Company is owned of record and beneficially by UP Energy. All of the issued and outstanding
capital stock of UP Energy is owned of record and beneficially by the Parent.



5.5 Financial Statements; Material Liabilities.




          The Company has delivered to you and each Other Purchaser a copy of the financial statements
of the Parent and its Subsidiaries listed on Schedule 5.5. All of said financial statements
(including in each case the related schedules and notes) fairly present in all material respects
the consolidated financial position of the Parent and its Subsidiaries as of the respective dates
specified in such Schedule and the consolidated results of their operations and cash flows for the
respective periods so specified and have been prepared in accordance with GAAP consistently applied
throughout the periods involved except as set forth in the notes thereto (subject, in the case of
quarterly financial statements, to normal year-end adjustments and the absence of footnotes). The
Parent and its Subsidiaries do not have any Material liabilities that are not disclosed on such
financial statements or otherwise disclosed in the Disclosure Documents.



5.6 Compliance with Laws, Other Instruments, etc.




          The execution, delivery and performance by the Company of this Agreement and the Notes will
not (i) contravene, result in any breach of, or constitute a default under, or result in the
creation of any Lien in respect of any property of the Company or any Subsidiary under, any
indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or
by-laws, or any other Material agreement or instrument to which the Company or any Subsidiary is
bound or by which the Company or any Subsidiary or any of their respective properties may be bound
or affected, (ii) conflict with or result in a breach of any of the terms, conditions or provisions
of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority
applicable to the Company or any Subsidiary or (iii) violate any provision of any statute or other
rule or regulation of any Governmental Authority applicable to the Company or any Subsidiary.



          The execution, delivery and performance by the Parent and UP Energy of the Parent Guaranty
will not (i) contravene, result in any breach of, or constitute a default under, or result in the
creation of any Lien in respect of any property of the Parent or any Subsidiary under, any
indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or
by-laws, or any other Material agreement or instrument to which the Parent or any Subsidiary is
bound or by which the Parent or any Subsidiary or any of their respective properties may be bound
or affected, (ii) conflict with or result in a breach of any of the terms, conditions or provisions
of any order, judgment, decree, or ruling of any court, arbitrator or



8









 







Governmental Authority applicable to the Parent or any Subsidiary or (iii) violate any
provision of any statute or other rule or regulation of any Governmental Authority applicable to
the Parent or any Subsidiary.



5.7 Governmental Authorizations, etc.




          No consent, approval or authorization of, or registration, filing or declaration with, any
Governmental Authority is required in connection with: (i) the execution, delivery or performance
by the Company of this Agreement or the Notes; or (ii) the execution, delivery or performance by
the Parent and UP Energy of the Parent Guaranty.



5.8 Litigation; Observance of Statutes and Orders.





     (a) Except as disclosed in Schedule 5.8, there are no actions, suits, investigations or
proceedings pending or, to the knowledge of the Company threatened against or affecting the
Company or any Subsidiary or any property of the Company or any Subsidiary in any court or
before any arbitrator of any kind or before or by any Governmental Authority that,
individually or in the aggregate, would reasonably be expected to have a Material Adverse
Effect.




     (b) Neither the Company nor any Subsidiary is in default under any order, judgment,
decree or ruling of any court, arbitrator or Governmental Authority or is in violation of
any applicable law, ordinance, rule or regulation (including Environmental Laws and the USA
Patriot Act) of any Governmental Authority, which default or violation, individually or in
the aggregate, would reasonably be expected to have a Material Adverse Effect.



5.9 Taxes.




          The Company and its Subsidiaries have filed all income tax returns that are required to have
been filed in any jurisdiction, and have paid all taxes shown to be due and payable on such returns
and all other taxes and assessments payable by them, to the extent such taxes and assessments have
become due and payable and before they have become delinquent, except for any taxes and assessments
(i) the amount of which is not, individually or in the aggregate, Material or (ii) the amount,
applicability or validity of which is currently being contested in good faith by appropriate
proceedings and with respect to which the Company or a Subsidiary, as the case may be, has
established adequate reserves in accordance with GAAP. The Federal income tax liabilities of the
Company and its Subsidiaries have been finally determined (whether by reason of completed audits or
the statute of limitations having run) for all fiscal years up to and including the fiscal year
ended December 31, 1997.



5.10 Title to Property; Leases.




          The Company and its Subsidiaries have good and sufficient title to their respective Material
properties, including all such properties reflected in the most recent audited balance sheet
referred to in Section 5.5 or purported to have been acquired by the Company or any Subsidiary
after said date (except as sold or otherwise disposed of in the ordinary course of business), in
each case free and clear of Liens prohibited by this Agreement, except for those



9









 







defects in title and Liens that, individually or in the aggregate, would not have a Material
Adverse Effect. All Material leases are valid and subsisting and are in full force and effect in
all material respects.



5.11 Licenses, Permits, etc.




          The Company and its Subsidiaries own or possess all licenses, permits, franchises,
authorizations, patents, copyrights, proprietary software, service marks, trademarks and trade
names, or rights thereto, that are Material, without known conflict with the rights of others,
except for those conflicts that, individually or in the aggregate, would not have a Material
Adverse Effect.



5.12 Compliance with ERISA.





     (a) The Company and each ERISA Affiliate have operated and administered each Plan in
compliance with all applicable laws except for such instances of noncompliance as have not
resulted in and could not reasonably be expected to result in a Material Adverse Effect.
Neither the Company nor any ERISA Affiliate has incurred any liability pursuant to Title I
or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee
benefit plans (as defined in section 3 of ERISA), and no event, transaction or condition has
occurred or exists that would reasonably be expected to result in the incurrence of any such
liability by the Company or any ERISA Affiliate, or in the imposition of any Lien on any of
the rights, properties or assets of the Company or any ERISA Affiliate, in either case
pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions or to
section 401(a)(29) or 412 of the Code or section 4068 of ERISA, other than such liabilities
or Liens as would not be individually or in the aggregate Material.




     (b) The present value of the aggregate benefit liabilities under each of the Plans
(other than Multiemployer Plans), determined as of the end of such Plan’s most recently
ended plan year on the basis of the actuarial assumptions specified for funding purposes in
such Plan’s most recent actuarial valuation report, did not exceed the aggregate current
value of the assets of such Plan allocable to such benefit liabilities by an amount that,
individually, or in the aggregate for all Plans, is Material. The term “benefit
liabilities” has the meaning specified in section 4001 of ERISA and the terms “current
value” and “present value” have the meaning specified in section 3 of ERISA.




     (c) The Company and its ERISA Affiliates have not incurred withdrawal liabilities (and
are not subject to contingent withdrawal liabilities) under section 4201 or 4204 of ERISA in
respect of Multiemployer Plans that individually or in the aggregate are Material.




     (d) The expected postretirement benefit obligation (determined as of the last day of
the Company’s most recently ended fiscal year in accordance with Financial Accounting
Standards Board Statement No. 106, without regard to liabilities attributable to
continuation coverage mandated by section 4980B of the Code) of the Company and its
Subsidiaries is not Material.



10









 






     (e) The execution and delivery of this Agreement and the issuance and sale of the Notes
hereunder will not involve any transaction that is subject to the prohibitions of
section 406 of ERISA or in connection with which a tax could be imposed pursuant to
section 4975(c)(1)(A)-(D) of the Code. The representation by the Company in the first
sentence of this Section 5.12(e) is made in reliance upon and subject to the accuracy of
your representation in Section 6.2 as to the sources of the funds used to pay the purchase
price of the Notes to be purchased by you.



5.13 Private Offering by the Company.




          Neither the Company nor anyone acting on its behalf has offered the Notes or any similar
securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached
or negotiated in respect thereof with, any person other than you, the Other Purchasers and not more
than 38 other Institutional Investors, each of which has been offered the Notes at a private sale
for investment. Neither the Company nor anyone acting on its behalf has taken, or will take, any
action that would subject the issuance or sale of the Notes to the registration requirements of
Section 5 of the Securities Act or to the registration requirements of any securities or blue sky
laws of any applicable jurisdiction.



5.14 Use of Proceeds; Margin Regulations.




          Net proceeds from the sale of the Notes will be used to refinance existing Indebtedness and
for general corporate purposes. No part of the proceeds from the sale of the Notes will be used,
directly or indirectly, for the purpose of buying or carrying any margin stock within the meaning
of Regulation U of the Board of Governors of the Federal Reserve System (12 CFR 221), or for the
purpose of buying or carrying or trading in any securities, under such circumstances as to subject
you and the Other Purchasers to the reporting requirements of Regulation U (or a violation of such
Regulation) or to involve the Company in a violation of Regulation X of said Board (12 CFR 224) or
to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin
stock does not constitute more than 20% of the value of the consolidated assets of the Company and
its Subsidiaries and the Company does not have any present intention that margin stock will
constitute more than 20% of the value of such assets. As used in this Section, the terms “margin
stock” and “purpose of buying or carrying” shall have the meanings assigned to them in said
Regulation U.



5.15 Existing Indebtedness; Future Liens.





     (a) Except as described therein, Schedule 5.15 sets forth a complete and correct list
of all outstanding Indebtedness of the Company and its Subsidiaries as of December 31, 2007
(including a description of the obligors and obligees, principal amount outstanding and
collateral therefor, if any, and guaranty thereof, if any), since which date there has been
no Material change in the amounts, interest rates, sinking funds, installment payments or
maturities of the Indebtedness of the Company or its Subsidiaries. Neither the Company nor
any Subsidiary is in default and no waiver of default is currently in effect, in the payment
of any principal or interest on any Indebtedness of the Company or any Subsidiary and no
event or condition exists with respect to any Indebtedness of the Company or any Subsidiary
that would permit (or that



11









 







with notice or the lapse of time, or both, would permit) one or more Persons to cause
such Indebtedness to become due and payable before its stated maturity or before its
regularly scheduled dates of payment.




     (b) Neither the Company nor any Subsidiary is a party to, or otherwise subject to any
provision contained in, any instrument evidencing Indebtedness of the Company or such
Subsidiary, any agreement relating thereto or any other agreement (including its charter or
other organizational document) that limits the amount of, or otherwise imposes restrictions
on the incurring of, Indebtedness of the Company, except as specifically indicated in
Schedule 5.15.



5.16 Foreign Assets Control Regulations, etc.





     (a) Neither the sale of the Notes by the Company hereunder nor its use of the proceeds
thereof will violate the Trading with the Enemy Act, as amended, or any of the foreign
assets control regulations of the United States Treasury Department (31 CFR, Subtitle B,
Chapter V, as amended) or any enabling legislation or executive order relating thereto.




     (b) Neither the Company nor any Subsidiary (i) is a Person described or designated in
the Specially Designated Nationals and Blocked Persons List of the Office of Foreign Assets
Control or in Section 1 of the Anti-Terrorism Order or (ii) to the Company’s knowledge,
engages in any dealings or transactions with any such Person. The Company and its
Subsidiaries are in compliance, in all material respects, with the USA Patriot Act.




     (c) No part of the proceeds from the sale of the Notes hereunder will be used, directly
or indirectly, in violation of the United States Foreign Corrupt Practices Act of 1977, as
amended, assuming in all cases that such Act applies to the Company.



5.17 Status under Certain Statutes.




          Neither the Company nor any Subsidiary is subject to regulation under the Investment Company
Act of 1940, as amended, the ICC Termination Act, as amended, or the Federal Power Act, as amended.



6. REPRESENTATIONS OF THE PURCHASERS.




6.1 Purchase for Investment.




          You represent that you are purchasing the Notes for your own account or for one or more
separate accounts maintained by you or for the account of one or more pension or trust funds and
not with a view to the distribution thereof, provided that the disposition of your or their
property shall at all times be within your or their control. You understand that the Notes have
not been registered under the Securities Act and may be resold only if registered pursuant to the
provisions of the Securities Act or if an exemption from registration is available, except under
circumstances where neither such registration nor such an exemption is required by law, and that
the Company is not required to register the Notes.



12









 





6.2 Source of Funds.




          You represent that at least one of the following statements is an accurate representation as
to each source of funds (a “Source”) to be used by you to pay the purchase price of the Notes to be
purchased by you hereunder:




     (a) the Source is an “insurance company general account” (as the term is defined in the
United States Department of Labor’s Prohibited Transaction Exemption (“PTE”) 95-60) in
respect of which the reserves and liabilities (as defined by the annual statement for life
insurance companies approved by the National Association of Insurance Commissioners (the
“NAIC Annual Statement”)) for the general account contract(s) held by or on behalf of any
employee benefit plan together with the amount of the reserves and liabilities for the
general account contract(s) held by or on behalf of any other employee benefit plans
maintained by the same employer (or affiliate thereof as defined in PTE 95-60) or by the
same employee organization in the general account do not exceed 10% of the total reserves
and liabilities of the general account (exclusive of separate account liabilities) plus
surplus as set forth in the NAIC Annual Statement filed with your state of domicile; or




     (b) the Source is a separate account that is maintained solely in connection with your
fixed contractual obligations under which the amounts payable, or credited, to any employee
benefit plan (or its related trust) that has any interest in such separate account (or to
any participant or beneficiary of such plan (including any annuitant)) are not affected in
any manner by the investment performance of the separate account; or




     (c) the Source is either (i) an insurance company pooled separate account, within the
meaning of PTE 90-1 (issued January 29, 1990), or (ii) a bank collective investment fund,
within the meaning of PTE 91-38 (issued July 12, 1991) and, except as you have disclosed to
the Company in writing pursuant to this paragraph (c), no employee benefit plan or group of
plans maintained by the same employer or employee organization beneficially owns more than
10% of all assets allocated to such pooled separate account or collective investment fund;
or




     (d) the Source constitutes assets of an “investment fund” (within the meaning of Part V
of PTE 84-14 (the “QPAM Exemption”)) managed by a “qualified professional asset manager” or
“QPAM” (within the meaning of Part V of the QPAM Exemption), no employee benefit plan’s
assets that are included in such investment fund, when combined with the assets of all other
employee benefit plans established or maintained by the same employer or by an affiliate
(within the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or by the
same employee organization and managed by such QPAM, exceed 20% of the total client assets
managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are
satisfied, neither the QPAM nor a person controlling or controlled by the QPAM (applying the
definition of “control” in Section V(e) of the QPAM Exemption) owns a 5% or more interest in
the Company and (i) the identity of such QPAM and (ii) the names of all employee benefit
plans whose assets are included in such investment fund have been disclosed to the Company
in writing pursuant to this clause (d); or



13









 






     (e) the Source constitutes assets of a “plan(s)” (within the meaning of Section IV of
PTE 96-23 (the “INHAM Exemption”)) managed by an “in-house asset manager” or “INHAM” (within
the meaning of Part IV of the INHAM exemption), the conditions of Part I(a), (g) and (h) of
the INHAM Exemption are satisfied, neither the INHAM nor a person controlling or controlled
by the INHAM (applying the definition of “control” in Section IV(h) of the INHAM Exemption)
owns a 5% or more interest in the Company and (i) the identity of such INHAM and (ii) the
name(s) of the employee benefit plan(s) whose assets constitute the Source have been
disclosed to the Company in writing pursuant to this clause (e); or




     (f) the Source is a governmental plan; or




     (g) the Source is one or more employee benefit plans, or a separate account or trust
fund comprised of one or more employee benefit plans, each of which has been identified to
the Company in writing pursuant to this paragraph (g); or




     (h) the Source does not include assets of any employee benefit plan, other than a plan
exempt from the coverage of ERISA.


As used in this Section 6.2, the terms “employee benefit plan”, “governmental plan” and “separate
account” shall have the respective meanings assigned to such terms in Section 3 of ERISA.




7. INFORMATION AS TO THE PARENT AND THE COMPANY.




7.1 Financial and Business Information.




          The Company will deliver or cause the Parent to deliver to each holder of Notes that is an
Institutional Investor:




     (a) Quarterly Statements — within 60 days after the end of each quarterly
fiscal period (other than the last quarterly fiscal period) in each fiscal year of the
Parent (or such longer or shorter period as is 15 days after the date the Parent is required
by the SEC to file its Quarterly Report on Form 10-Q (“Form 10-Q”) with the SEC regardless
of whether the Parent is subject to the filing requirements thereof), duplicate copies of,




     (i) a consolidated balance sheet of the Parent and its Subsidiaries as at the
end of such quarter,




     (ii) consolidated statements of income of the Parent and its Subsidiaries for
such quarter and (in the case of the second and third quarters) for the portion of
the fiscal year ending with such quarter, and




     (iii) consolidated statements of cash flows of the Parent and its Subsidiaries
for such quarter or (in the case of the second and third quarters) for the portion
of the fiscal year ending with such quarter,



14









 




setting forth in each case in comparative form the figures for the corresponding periods in
the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP
applicable to quarterly financial statements generally, and certified by a Senior Financial
Officer as fairly presenting, in all material respects, the financial position of the
companies being reported on and their results of operations and cash flows, subject to
changes resulting from year-end adjustments and the absence of footnotes, provided that
delivery within the time period specified above of copies of the Parent’s Form 10-Q prepared
in compliance with the requirements therefor and filed with the SEC shall be deemed to
satisfy the requirements of this Section 7.1(a);





     (b) Annual Statements — within 120 days after the end of each fiscal year of
the Parent (or such longer or shorter period as is 15 days after the date the Parent is
required by the SEC to file its Annual Report on Form 10-K (the “Form 10-K”) with the SEC
regardless of whether the Parent is subject to the filing requirements thereof), duplicate
copies of




     (i) a consolidated balance sheet of the Parent and its Subsidiaries, as at the
end of such year, and




     (ii) consolidated statements of operations and retained earnings, changes in
shareholders’ equity and cash flows of the Parent and its Subsidiaries for such
year,




setting forth in each case in comparative form the figures for the previous fiscal year, all
in reasonable detail, prepared in accordance with GAAP, and accompanied by an opinion
thereon of independent certified public accountants of recognized national standing, which
opinion shall state that such financial statements present fairly, in all material respects,
the financial position of the companies being reported upon and their results of operations
and cash flows and have been prepared in conformity with GAAP, and that the audit has been
conducted in accordance with the standards of the Public Company Accounting Oversight Board,
and that such audit provides a reasonable basis for such opinion in the circumstances,
provided that the delivery within the time period specified above of the Parent’s Form 10-K
for such fiscal year (together with the Parent’s annual report to stockholders, if any,
prepared pursuant to Rule 14a-3 under the Exchange Act) prepared in accordance with the
requirements therefor and filed with the SEC shall be deemed to satisfy the requirements of
this Section 7.1(b);




     (c) Financial Statements Following Certain Permitted Reorganizations – if
following a Permitted Reorganization, the Company is no longer a Subsidiary of the Parent,
each reference to the Parent in Section 7.1(a) and 7.1(b) shall be deemed to be a reference
to the Company;




     (d) Consolidating Financial Statements — if, as of the date of any financial
statements delivered pursuant to Sections 7.1(a) or 7.1(b), the assets of the Company and
its Restricted Subsidiaries account for less than 90% of the consolidated total assets of
the Parent and its Subsidiaries, concurrently with the delivery of such financial
statements,



15









 







consolidating financial statements for the Company and its Restricted Subsidiaries for
the period and date covered by such financial statements;




     (e) SEC and Other Reports – within fifteen days after filing with the SEC, one
copy of (i) each financial statement, report, notice or proxy statement sent by the Parent
or any Subsidiary to its public securities holders generally and (ii) each regular or
periodic report, each registration statement that shall have become effective (without
exhibits except as expressly requested by such holder), and each final prospectus and all
amendments thereto filed by the Parent or any Subsidiary with the SEC;




     (f) Notice of Default or Event of Default — promptly, and in any event within
five Business Days after a Responsible Officer becoming aware of the existence of any
Default or Event of Default, a written notice specifying the nature and period of existence
thereof and what action the Company is taking or proposes to take with respect thereto;




     (g) ERISA Matters — promptly, and in any event within five Business Days after
a Responsible Officer becoming aware, a written notice setting forth the nature thereof and
the action, if any, that the Company or an ERISA Affiliate proposes to take with respect to
the occurrence of any ERISA Event that, alone or together with any other ERISA Events that
have occurred, could reasonably be expected to result in liability of the Company and its
Subsidiaries in an aggregate amount exceeding $50,000,000:




     (h) Notices from Governmental Authority — promptly, and in any event within 30
days of receipt thereof, copies of any notice to the Company or any Restricted Subsidiary
from any Federal or state Governmental Authority relating to any order, ruling, statute or
other law or regulation that could reasonably be expected to have a Material Adverse Effect;




     (i) Supplements — promptly and in any event within 10 Business Days after the
execution and delivery of any Supplement, a copy thereof; and




     (j) Requested Information — with reasonable promptness, such other data and
information relating to the business, operations, affairs, financial condition, assets or
properties of the Parent, the Company or any Restricted Subsidiary (including actual copies
of the Parent’s Forms 10-Q and Forms 10-K) or relating to the ability of the Company to
perform its obligations hereunder and under the Notes as from time to time may be reasonably
requested by any such holder of Notes.



7.2 Officer’s Certificate.




          Each set of financial statements delivered to a holder of Notes pursuant to Section 7.1(a) or
Section 7.1(b) will be accompanied by a certificate of a Senior Financial Officer setting forth:




     (a) Covenant Compliance — the information (including detailed calculations)
required in order to establish whether the Company was in compliance with the requirements
of Sections 10.1, 10.2 and Section 10.5, inclusive, during the quarterly or annual period
covered by the statements then being furnished (including with respect to



16









 







each such Section, where applicable, the calculations of the maximum or minimum amount,
ratio or percentage, as the case may be, permissible under the terms of such Sections, and
the calculation of the amount, ratio or percentage then in existence, and a statement
whether or not the Incremental Interest is due under Section 1.5); and




     (b) Event of Default — a statement that such Senior Financial Officer has
reviewed the relevant terms hereof and has made, or caused to be made, under his or her
supervision, a review of the transactions and conditions of the Company and its Subsidiaries
from the beginning of the quarterly or annual period covered by the statements then being
furnished to the date of the certificate and that such review shall not have disclosed the
existence during such period of any condition or event that constitutes a Default or an
Event of Default or, if any such condition or event existed or exists, specifying the nature
and period of existence thereof and what action the Company shall have taken or proposes to
take with respect thereto.



7.3 Electronic Delivery.




          Financial statements and officers’ certificates required to be delivered by the Company
pursuant to Sections 7.1(a), (b), (c), (d) or (e) and Section 7.2 shall be deemed to have been
delivered if (i) with respect to such financial statements, the Parent or the Company, as
applicable, shall have timely filed such Form 10-Q or Form 10-K, satisfying the requirements of
Section 7.1(a), (b) or (c) as the case may be, with the SEC on “EDGAR” and shall have made such
Form available on its home page on the worldwide web (at the date of this Agreement located at
http://www.ultrapetroleum.com) or (ii) such financial statements satisfying the requirements of
Section 7.1(a), (b), (c) or (d) and related certificate satisfying the requirements of Section 7.2
are timely posted by or on behalf of the Company on IntraLinks or on any other similar website to
which each holder of Notes has free access or (iii) the Parent shall have filed any of the items
referred to in Section 7.1(d) with the SEC on “EDGAR” and shall have made such items available on
its home page on the worldwide web or if any of such items are timely posted by or on behalf of the
Company on IntraLinks or on any other similar website to which each holder of Notes has free
access; provided however, that in the case of any of clause (i), (ii) or (iii), the Company shall,
not later than the date on which such information or financial statements are required by the
applicable provision of this Agreement to be delivered to holders of Notes, give notice to each
holder of Notes of such posting or filing.




7.4 Visitation.




          The Company shall permit the representatives of each holder of Notes that is an Institutional
Investor:





     (a) No Default — if no Default or Event of Default then exists, at the expense
of such holder and upon reasonable prior notice to the Company, to visit the principal
executive office of the Company, to discuss the affairs, finances and accounts of the
Company and its Material Restricted Subsidiaries with their respective officers, and (with
the consent of the Company, which consent will not be unreasonably withheld) to visit the
other offices and properties of the Company and its Restricted Subsidiaries, all at such
reasonable times during normal business hours as may be reasonably requested in



17









 







writing, provided that each holder shall not be entitled to more than one visitation
during any fiscal year; and




     (b) Default — if a Default or Event of Default then exists, at the expense of
the Company, to visit and inspect any of the offices or properties of the Company or any
Restricted Subsidiary during normal business hours, to examine all their respective books of
account, records, reports and other papers, to make copies and extracts therefrom, and to
discuss their respective affairs, finances and accounts with their respective officers and
independent public accountants (and by this provision the Company authorizes said
accountants to discuss the affairs, finances and accounts of the Company and its Restricted
Subsidiaries), all at such times and as often as may be requested.



8. PREPAYMENT OF THE NOTES.




8.1 Required Prepayments.




          No regularly scheduled prepayments are due on the Series 2008 Notes prior to their stated
maturity.



8.2 Optional Prepayments.





     (a) Fixed Rate Notes. The Company may, at its option, upon notice as provided
below, prepay at any time all, or from time to time any part of, one or more series or
tranches of fixed rate Notes, including the Series 2008 Notes, in an amount not less than
$2,000,000 in the aggregate in the case of a partial prepayment, at 100% of the principal
amount so prepaid, plus the Make-Whole Amount determined for the prepayment date with
respect to such principal amount. The Company will give each holder of each series or
tranche of fixed rate Notes to be prepaid written notice of each optional prepayment under
this Section 8.2(a) not less than 30 days and not more than 60 days prior to the date fixed
for such prepayment. Each such notice shall specify such date (which shall be a Business
Day), the aggregate principal amount of each series or tranche of fixed rate Notes to be
prepaid on such date, the principal amount of each Note held by such holder to be prepaid
(determined in accordance with Section 8.3), and the interest to be paid on the prepayment
date with respect to such principal amount being prepaid, and shall be accompanied by a
certificate of a Senior Financial Officer as to the estimated Make-Whole Amount due in
connection with such prepayment (calculated as if the date of such notice were the date of
the prepayment), setting forth the details of such computation. Two Business Days prior to
such prepayment, the Company shall deliver to each holder of the series or tranche of fixed
rate Notes being prepaid a certificate of a Senior Financial Officer specifying the
calculation of such Make-Whole Amount as of the specified prepayment date.




     (b) Floating Rate Notes. The terms on which floating rate Notes may be prepaid
at the option of the Company will be set forth in the Supplement pursuant to which such
Notes are issued. The Company will give each holder of each series or tranche of floating
rate Notes to be prepaid written notice of each optional prepayment under this
Section 8.2(b) not less than 30 days and not more than 60 days prior to the date



18









 







fixed for such prepayment. Each such notice shall specify such date (which shall be a
Business Day), the aggregate principal amount of each series or tranche of floating rate
Notes to be prepaid on such date, the principal amount of each floating rate Note held by
such holder to be prepaid (determined in accordance with Section 8.4), the interest to be
paid on the prepayment date with respect to such principal amount being prepaid and the
amount of any prepayment premium to be paid.




     (c) Prepayments During Defaults or Events of Defaults. Anything in Section
8.2(a) or (b) to the contrary notwithstanding, during the continuance of a Default or Event
of Default, the Company may prepay less than all of the outstanding Notes pursuant to
Section 8.2 only if such prepayment is allocated among all of the series of Notes at the
time outstanding in proportion, as nearly as practicable, to the respective unpaid principal
amounts of the Notes in each such series not theretofore called for prepayment.



8.3 Mandatory Offer to Prepay Upon Change of Control.





     (a) Notice of Change of Control or Control Event; Offer to Prepay if Change of
Control Has Occurred — The Company will, within five Business Days after any
Responsible Officer has knowledge of the occurrence of any Change of Control or Control
Event (subject to extension if necessary in order to comply with applicable law), give
notice of such Change of Control or Control Event to each holder of Notes. If a Change of
Control has occurred, such notice shall contain and constitute an offer to prepay Notes as
described in paragraph (b) of this Section 8.3 and shall be accompanied by the certificate
described in paragraph (e) of this Section 8.3.




     (b) Offer to Prepay; Time for Payment – The offer to prepay Notes contemplated
by paragraph (a) of this Section 8.3 shall be an offer to prepay, in accordance with and
subject to this Section 8.3, all, but not less than all, of the Notes held by each holder
(in the case of this Section 8.3(b) only, “holder” in respect of any Note registered in the
name of a nominee for a disclosed beneficial owner shall mean such beneficial owner) on a
date specified in such offer (the “Proposed Prepayment Date”). The Proposed Prepayment Date
shall be not more than 15 days after the date of such offer.




     (c) Acceptance; Rejection — A holder of Notes may accept the offer to prepay
made pursuant to this Section 8.3 by causing a notice of such acceptance to be delivered to
the Company on or before the date specified in the certificate described in
paragraph (e)(vii) of this Section 8.3. A failure by a holder of Notes to respond to an
offer to prepay made pursuant to this Section 8.3, or to accept an offer as to all of the
Notes held by the holder, within such time period shall be deemed to constitute rejection of
such offer by such holder.




     (d) Prepayment — Prepayment of the Notes to be prepaid pursuant to this
Section 8.3 shall be at 100% of the principal amount of such Notes, together with interest
on such Notes accrued to the date of prepayment and shall not require the payment of any
Make-Whole Amount, prepayment premium or LIBOR Breakage Amount. The prepayment shall be
made on the Proposed Prepayment Date.



19









 






     (e) Officer’s Certificate — Each offer to prepay the Notes pursuant to this
Section 8.3 shall be accompanied by a certificate, executed by a Senior Financial Officer of
the Company and dated the date of such offer, specifying: (i) the Proposed Prepayment Date,
(ii) that such offer is made pursuant to this Section 8.3, (iii) that the entire principal
amount of each Note is offered to be prepaid, (iv) the interest that would be due on each
Note offered to be prepaid, accrued to the Proposed Prepayment Date, (v) that the conditions
of this Section 8.3 required to be fulfilled prior to the giving of such notice have been
fulfilled, (vi) in reasonable detail, the nature and date of the Change of Control, and
(vii) the date by which any holder of a Note that wishes to accept such offer must deliver
notice thereof to the Company, which date shall not be earlier than 5 Business Days prior to
the Proposed Prepayment Date.



8.4 Allocation of Partial Prepayments.




          In the case of each partial prepayment of Notes of a series or tranche pursuant to Section
8.2(a) or (b), the principal amount of the Notes of the series or tranche to be prepaid shall be
allocated among all of the Notes of such series or tranche at the time outstanding in proportion,
as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called
for prepayment.




8.5 Maturity; Surrender, etc.




          In the case of each prepayment of Notes pursuant to this Section 8, the principal amount of
each Note to be prepaid shall mature and become due and payable on the date fixed for such
prepayment, together with interest on such principal amount accrued to such date and the applicable
Make-Whole Amount, if any, prepayment premium, if any, and LIBOR Breakage Amount, if any. From and
after such date, unless the Company shall fail to pay such principal amount when so due and
payable, together with the interest and Make-Whole Amount, if any, prepayment premium, if any, or
LIBOR Breakage Amount, if any, as aforesaid, interest on such principal amount shall cease to
accrue. Any Note paid or prepaid in full, after such payment and upon the written request of the
Company, shall be surrendered to the Company and canceled and shall not be reissued, and no Note
shall be issued in lieu of any prepaid principal amount of any Note.




8.6 Purchase of Notes.




          The Company will not and will not permit any Affiliate to purchase, redeem, prepay or
otherwise acquire, directly or indirectly, any of the outstanding Notes except (a) upon the payment
or prepayment of the Notes in accordance with the terms of this Agreement and the Notes or
(b) pursuant to an offer to purchase made by the Company or an Affiliate pro rata to the holders of
all Notes at the time outstanding upon the same terms and conditions. Any such offer shall provide
each holder with sufficient information to enable it to make an informed decision with respect to
such offer, and shall remain open for at least 15 Business Days. If the holders of more than 25%
of the principal amount of the Notes then outstanding accept such offer, the Company shall promptly
notify the remaining holders of such fact and the expiration date for the acceptance by holders of
Notes of such offer shall be extended by the number of days necessary to give each such remaining
holder at least ten Business Days from its receipt of such notice to




20












 




accept such offer. The Company will promptly cancel all Notes acquired by it or any Affiliate
pursuant to any payment, prepayment or purchase of Notes pursuant to any provision of this
Agreement and no Notes may be issued in substitution or exchange for any such Notes.




8.7 Make-Whole Amount.




          “Make-Whole Amount” means, with respect to any fixed rate Note, an amount equal to the excess,
if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called
Principal of such fixed rate Note over the amount of such Called Principal, provided that the
Make-Whole Amount may in no event be less than zero. For the purposes of determining the
Make-Whole Amount, the following terms have the following meanings:




          “Called Principal” means, with respect to any fixed rate Note, the principal of such Note that
is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and
payable pursuant to Section 12.1, as the context requires.




          “Discounted Value” means, with respect to the Called Principal of any fixed rate Note, the
amount obtained by discounting all Remaining Scheduled Payments with respect to such Called
Principal from their respective scheduled due dates to the Settlement Date with respect to such
Called Principal, in accordance with accepted financial practice and at a discount factor (applied
on the same periodic basis as that on which interest on the Notes is payable) equal to the
Reinvestment Yield with respect to such Called Principal.




          “Reinvestment Yield” means, with respect to the Called Principal of any fixed rate Note, .50%
over the yield to maturity implied by (i) the yields reported as of 10:00 a.m. (New York City time)
on the second Business Day preceding the Settlement Date with respect to such Called Principal, on
the display designated as “Page PX1” (or such other display as may replace Page PX1 on Bloomberg
Financial Markets (“Bloomberg”) or, if Page PX1 (or its successor screen on Bloomberg) is
unavailable, the Telerate Access Service screen which corresponds most closely to Page PX1 for the
most recently issued actively traded on-the-run U.S. Treasury securities having a maturity equal to
the Remaining Average Life of such Called Principal as of such Settlement Date, or (ii) if such
yields are not reported as of such time or the yields reported as of such time are not
ascertainable (including by way of interpolation), the Treasury Constant Maturity Series Yields
reported, for the latest day for which such yields have been so reported as of the second Business
Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve
Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S.
Treasury securities having a constant maturity equal to the Remaining Average Life of such Called
Principal as of such Settlement Date. Such implied yield will be determined, if necessary, by (a)
converting U.S. Treasury bill quotations to bond equivalent yields in accordance with accepted
financial practice and (b) interpolating linearly between (1) the actively traded U.S. Treasury
security with the maturity closest to and greater than such Remaining Average Life and (2) the
actively traded U.S. Treasury security with the maturity closest to and less than such Remaining
Average Life. The Reinvestment Yield shall be rounded to the number of decimal places as appears
in the interest rate of the applicable Note.




21









 








          “Remaining Average Life” means, with respect to any Called Principal, the number of years
(calculated to the nearest one-twelfth year) obtained by dividing (i) such Called Principal into
(ii) the sum of the products obtained by multiplying (a) the principal component of each Remaining
Scheduled Payment with respect to such Called Principal by (b) the number of years (calculated to
the nearest one-twelfth year) that will elapse between the Settlement Date with respect to such
Called Principal and the scheduled due date of such Remaining Scheduled Payment.




          “Remaining Scheduled Payments” means, with respect to the Called Principal of any fixed rate
Note, all payments of such Called Principal and interest thereon that would be due after the
Settlement Date with respect to such Called Principal if no payment of such Called Principal were
made prior to its scheduled due date, provided that if such Settlement Date is not a date on which
interest payments are due to be made under the terms of the Notes, then the amount of the next
succeeding scheduled interest payment will be reduced by the amount of interest accrued to such
Settlement Date and required to be paid on such Settlement Date pursuant to Section 8.2 or 12.1.




          “Settlement Date” means, with respect to the Called Principal of any fixed rate Note, the date
on which such Called Principal is to be prepaid pursuant to Section 8.2 or has become or is
declared to be immediately due and payable pursuant to Section 12.1, as the context requires.




8.8 LIBOR Breakage Amount.




          The term “LIBOR Breakage Amount” means any loss, cost or expense reasonably incurred by any
holder of a floating rate Note as a result of any payment or prepayment of such Note (whether
voluntary, mandatory, automatic, by reason of acceleration or otherwise) on a day other than an
interest payment date or at scheduled maturity thereof, and any loss or expense arising from the
liquidation or reemployment of funds obtained by such holder or from fees payable to terminate the
deposits from which such funds were obtained. Any such loss, cost or expense shall be limited to
the time period from the date of such prepayment through the earlier of the next interest payment
date or the maturity of such floating rate Note. Each holder of a floating rate Note shall
determine the LIBOR Breakage Amount with respect to the principal amount of its floating rate Notes
then being paid or prepaid (or required to be paid or prepaid) by written notice to the Company
setting forth such determination in reasonable detail (a “Notice of LIBOR Breakage Amount”). Each
such determination shall be conclusive absent manifest error. The LIBOR Breakage Amount reflected
in the Notice of LIBOR Breakage Amount shall be due and payable within five Business Days following
receipt by the Company of such written notice.




9. AFFIRMATIVE COVENANTS.




          The Company covenants that so long as any of the Notes are outstanding:




22









 








9.1 Compliance with Law.




          Without limiting Section 10.7, the Company will, and the Company will cause each Restricted
Subsidiary to, comply with all laws, ordinances or governmental rules or regulations to which each
of them is subject, including ERISA, the USA Patriot Act and Environmental Laws, and will obtain
and maintain in effect all licenses, certificates, permits, franchises and other governmental
authorizations necessary to the ownership of their respective properties or to the conduct of their
respective businesses, in each case to the extent necessary to ensure that non-compliance with such
laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect
such licenses, certificates, permits, franchises and other governmental authorizations would not,
individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.




9.2 Insurance.




          The Company will, and will cause each Restricted Subsidiary to, maintain, with financially
sound and reputable insurers, insurance with respect to their respective properties and businesses
against such casualties and contingencies, of such types, on such terms and in such amounts
(including deductibles, co-insurance and self-insurance) as is customary in the case of entities of
established reputations engaged in the same or a similar business and similarly situated.




9.3 Maintenance of Properties.




          The Company will, and will cause each Restricted Subsidiary to, maintain and keep, or cause to
be maintained and kept, their respective properties in good repair, working order and condition
(other than ordinary wear and tear), so that the business carried on in connection therewith may be
properly conducted at all times, provided that this Section shall not prevent the Company or any
Restricted Subsidiary from discontinuing the operation and the maintenance of any of its properties
if such discontinuance is desirable in the conduct of its business and the Company has concluded
that such discontinuance would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.




9.4 Payment of Taxes and Claims.




          The Company will, and will cause each Restricted Subsidiary to, file all tax returns required
to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on
such returns and all other taxes, assessments, governmental charges, or levies payable by any of
them, to the extent the same have become due and payable and before they have become delinquent,
provided that neither the Company nor any Subsidiary need pay any such tax, assessment, charge or
levy if (i) the amount, applicability or validity thereof is contested by the Company or such
Restricted Subsidiary on a timely basis in good faith and in appropriate proceedings, and the
Company or such Restricted Subsidiary has established adequate reserves therefor in accordance with
GAAP on the books of the Company or such Restricted Subsidiary or (ii) the nonpayment of all such
taxes, assessments, charges and levies in the aggregate would not reasonably be expected to have a
Material Adverse Effect.




23









 








9.5 Corporate Existence, etc.




          Subject to Section 10.4, the Company will at all times preserve and keep in full force and
effect its corporate existence; provided, that the Company may convert to a form other than a
corporate form so long as no Change of Control shall result therefrom. Subject to Section 10.5,
the Company will at all times preserve and keep in full force and effect the existence of each
Restricted Subsidiary (unless merged into the Company or a Restricted Subsidiary) and all rights
and franchises of the Company and its Restricted Subsidiaries unless, in the good faith judgment of
the Company, the termination of or failure to preserve and keep in full force and effect such
existence, right or franchise would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.




9.6 Books and Records.




          The Company will, and will cause each Restricted Subsidiary to, maintain proper books of
record and account in conformity with GAAP and all applicable requirements of any Governmental
Authority having legal or regulatory jurisdiction over the Company or such Subsidiary, as the case
may be.




9.7 Subsidiary Guaranty; Release of Guaranties.





     (a) Subsidiary Guarantors. The Company will cause each Restricted Subsidiary
that, on or after the date of the Closing, is or becomes a borrower or guarantor of
Indebtedness in respect of the Credit Agreement, on the date of the Closing or within 10
Business Days of its thereafter becoming a co-obligor, borrower or a guarantor of
Indebtedness in respect of the Credit Agreement to execute and deliver or become a party to
the Subsidiary Guaranty in substantially the form of the attached Exhibit 9.7 (the
“Subsidiary Guaranty), and shall deliver to each holder of Notes:




     (i) an executed counterpart of the Subsidiary Guaranty, or, if the Subsidiary
Guaranty has been previously executed and delivered, an executed counterpart of a
Joinder thereto;




     (ii) copies of such directors’ or other authorizing resolutions, charter,
bylaws and other constitutive documents of such Subsidiary as the Required Holders
may reasonably request; and




     (iii) an opinion of independent counsel reasonably satisfactory to the Required
Holders covering the authorization, execution, delivery, compliance with law, no
conflict with other documents, no consents and enforceability of the Subsidiary
Guaranty against such Subsidiary substantially in the form of Exhibit 4.4(a).




     (b) Release of Subsidiary Guarantor. Each holder of a Note fully releases and
discharges from the Subsidiary Guaranty a Subsidiary Guarantor, immediately and without any
further act, upon (i) the Disposition of such Subsidiary Guarantor by the Company in
compliance with Section 10.5 or (ii) such Subsidiary Guarantor being released and discharged
as a co-obligor, borrower or guarantor under and in respect of the



24









 







Credit Agreement; provided that in the case of clause (ii) if any fee or other
consideration is paid or given to any holder of Indebtedness under the Credit Agreement in
connection with such release, other than the repayment of all or a portion of such
Indebtedness under the Credit Agreement, if such fee is paid solely in consideration of such
release, each holder of a Note receives equivalent consideration on a pro rata basis;
provided, however, that in the event the Credit Agreement is amended or replaced or
refinanced, and upfront fees or similar fees are paid to the lenders and/or agents or
arrangers thereunder in consideration of their commitments to extend credit and/or in
consideration of their agreement to provide services, such fees shall not be subject to the
provisions of this subparagraph (b); and provided, further in the case of both clause (i)
and (ii): (x) no Default or Event of Default exists or will exist immediately following such
release and discharge; and (y) at the time of such release and discharge, the Company
delivers to each holder of Notes a certificate of a Responsible Officer certifying (A) that
a Disposition of such Subsidiary Guarantor has occurred in compliance with Section 10.5 or
that such Subsidiary Guarantor has been or is being released and discharged as a co-obligor,
borrower or guarantor under and in respect of the Credit Agreement and (B) as to the matters
set forth in clauses (x) and (y).




     (c) Release of Parent and UP Energy from Parent Guaranty. Each holder of a
Note fully releases and discharges from the Parent Guaranty the Parent or UP Energy (each, a
“Parent Guarantor”), immediately and without any further act upon (i) consummation of a
Permitted Reorganization the result of which is that such Parent Guarantor dissolves,
liquidates, merges out of existence or otherwise ceases to exist, or the Company is no
longer a wholly-owned Subsidiary of such Parent Guarantor or (ii) either being released and
discharged as a co-obligor, borrower or guarantor under and in respect of the Credit
Agreement; provided that in the case of both clauses (i) and (ii): (x) no Default or Event
of Default exists or will exist immediately following such release and discharge; and (y) at
the time of such release and discharge, the Company delivers to each holder of Notes a
certificate of a Responsible Officer certifying (A) that either a Permitted Reorganization
has been consummated or that the Parent or UP Energy has been or is being released and
discharged as a co-obligor, borrower or guarantor under and in respect of the Credit
Agreement and (B) as to the matters set forth in clause (x). Any Indebtedness of the
Company or any Restricted Subsidiary owed to a Parent Guarantor that is released from the
Parent Guaranty shall be deemed to be Incurred as of the date of such release.




     (d) Confirmation of Release. Upon written request of the Company following
release of a Guarantor pursuant to Section 9.7(b) or (c), each Holder of a Note agrees to
provide written confirmation of such release.



9.8 Pari Passu Ranking.




          The Indebtedness evidenced by the Notes will at all times rank at least pari passu with all
other unsecured Senior Indebtedness of the Company.




25









 








10. NEGATIVE COVENANTS.




          The Company covenants that so long as any of the Notes are outstanding:




10.1 Consolidated Leverage Ratio.




          The Company will not permit the Consolidated Leverage Ratio, determined as of any Quarter End
Date, to be greater than 3.50 to 1.00; provided that, for any one or more periods during the term
of this Agreement (each such period to consist of not more than six consecutive Quarter End Dates),
the Consolidated Leverage Ratio may be greater than 3.50 to 1.00, but in no event greater than 4.00
to 1.00, if the Company pays additional interest to the extent required by Section 1.5.




10.2 Priority Debt.




          The Company will not at any time permit the outstanding principal amount of Priority Debt to
exceed 10% of Consolidated Total Assets as of the end of the most recently completed fiscal
quarter.




10.3 Liens.




          The Company will not, and will not permit any Restricted Subsidiary to, create, incur, assume
or suffer to exist, directly or indirectly, any Lien on its properties or assets, including capital
stock, whether now owned or hereafter acquired, except:





     (a) Liens on property or assets of the Company or any Restricted Subsidiary if, at the
time such Liens are created, the Notes are equally and ratably secured by a Lien on the same
property and assets pursuant to an agreement or agreements (including an inter-creditor
agreement) reasonably acceptable to the Required Holders;




     (b) Permitted Encumbrances;




     (c) Liens existing on property or assets of the Company or any Subsidiary as of the
date of this Agreement that are described in Schedule 10.3;




     (d) any Lien existing on any property or asset prior to the acquisition thereof by the
Company or any Subsidiary or existing on any property or asset of any Person that becomes a
Subsidiary after the date of this Agreement prior to the time such Person becomes a
Subsidiary; provided that (i) such Lien is not created in contemplation of or in connection
with such acquisition or such Person becoming a Subsidiary, as the case may be, (ii) such
Lien does not apply to any other property or assets of the Company or any Subsidiary and
(iii) such Lien secures only those obligations that it secures on the date of such
acquisition or the date such Person becomes a Subsidiary, as the case may be, and
extensions, renewals and replacements thereof that do not increase the outstanding principal
amount thereof;




     (e) Liens on fixed or capital assets acquired, constructed or improved by the Company
or any Restricted Subsidiary; provided that (i) such Liens secure Indebtedness



26









 







permitted by Section 10.1, (ii) such Liens and the Indebtedness secured thereby are
incurred prior to or within 270 days after such acquisition or the completion of such
construction or improvement, (iii) the Indebtedness secured thereby does not exceed the cost
of acquiring, constructing or improving such fixed or capital assets, and (iv) such Liens do
not apply to any other property or assets of the Company or any Restricted Subsidiary;




     (f) Liens securing surety or other bonds required in the normal course of business;




     (g) Liens on cash deposits securing obligations under Swap Agreements;




     (h) any Lien renewing, extending or replacing any Lien permitted by paragraphs (c), (d)
or (e) of this Section 10.3, provided that (x) the principal amount Indebtedness so secured
and then outstanding is not increased, (y) the Lien is not extended to other property of the
Company or such Restricted Subsidiary and (z) the Indebtedness secured thereby is permitted
hereunder;




     (i) Liens securing Intercompany Indebtedness;




     (j) Liens securing judgments for the payment of money that individually or in the
aggregate do not constitute an Event of Default under Section 11(i);




     (k) Liens on the Oil and Gas Properties securing performance obligations under Advance
Payment Contracts permitted hereunder; and




     (l) Liens securing Indebtedness not otherwise permitted by paragraphs (a) through (k)
of this Section 10.3, provided that the outstanding principal amount of Priority Debt does
not at any time exceed 10% of Consolidated Total Assets as of the end of the most recently
completed fiscal quarter.



10.4 Merger, Consolidation, etc.




          The Company will not consolidate with or merge with any other Person or convey, transfer, sell
or lease all or substantially all of its assets in a single transaction or series of transactions
to any Person except that the Company may consolidate or merge with any other Person or convey,
transfer, sell or lease all or substantially all of its assets in a single transaction or series of
transactions to any Person, provided that





     (a) the successor formed by such consolidation or the survivor of such merger or the
Person that acquires by conveyance, transfer, sale or lease all or substantially all of the
assets of the Company as an entirety, as the case may be, is a solvent corporation or
limited liability company organized and existing under the laws of the United States or any
state thereof (including the District of Columbia) or Canada, and, if the Company is not
such successor or survivor, such corporation or limited liability company (i) shall have
executed and delivered to each holder of any Notes its assumption of the due and punctual
performance and observance of each covenant and condition of this Agreement and the Notes,
in the case of the Company and (ii) shall have caused to be delivered to



27









 







each holder of any Notes an opinion of nationally recognized independent counsel, or
other independent counsel reasonably satisfactory to the Required Holders, to the effect
that all agreements or instruments effecting such assumption are enforceable in accordance
with their terms and comply with the terms of this Section 10.4(a); and




     (b) after giving effect to such transaction, no Default or Event of Default shall
exist.


No such conveyance, transfer, sale or lease of all or substantially all of the assets of the
Company shall have the effect of releasing the Company or any successor that shall theretofore have
become such in the manner prescribed in this Section 10.4 from its liability under this Agreement.




10.5 Sale of Assets.




          Except as permitted by Section 10.4, the Company will not, and will not permit any Restricted
Subsidiary to, sell, lease, transfer or otherwise dispose of, including by way of merger
(collectively a “Disposition”), any assets, in one or a series of transactions, to any Person,
other than:





     (a) Dispositions of surplus equipment for fair and adequate consideration;




     (b) Dispositions of worthless or obsolete equipment;




     (c) Dispositions of equipment that is replaced by equipment of substantially equal
suitability and value;




     (d) Dispositions of inventory (including Hydrocarbons and seismic data) that is sold in
the ordinary course of business;




     (e) Dispositions not otherwise permitted by paragraphs (a), (b), (c) or (d) of this
Section 10.5 provided that:




     (i) in the good faith opinion of the Company, the Disposition is in exchange
for consideration having a fair market value at least equal to that of the property
subject to such Disposition and is in the best interest of the Company or such
Restricted Subsidiary;




     (ii) after giving effect to such transaction, no Default or Event of Default
shall exist; and




     (iii) immediately after giving effect to the Disposition, the aggregate net
book value of all assets that were the subject of any Disposition occurring in the
then current fiscal year would not exceed 25% of Consolidated Total Assets as of the
last day of the most recently ended fiscal year.


Notwithstanding the foregoing, the Company may, or may permit a Restricted Subsidiary to, make a
Disposition and the assets subject to such Disposition shall not be subject to or included


28









 






in the foregoing limitation and computation contained in paragraph (e)(iii) of the preceding
sentence if, within 365 days of such Disposition, an amount equal to the net proceeds from such
Disposition is:





     (A) reinvested in productive assets to be used in the existing business of the Company
or a Restricted Subsidiary; or




     (B) the net proceeds from such Disposition are applied to the payment or prepayment of
the Notes or any other outstanding Indebtedness of the Company or any Restricted Subsidiary
ranking pari passu with or senior to the Notes.


For purposes of foregoing clause (B), if the Company elects to prepay the Notes, the Company shall
offer to prepay (on a Business Day not less than 30 or more than 60 days following such offer) the
Notes, on a pro rata basis or greater than pro rata basis with any such other Indebtedness that the
Company elects to prepay, at a price of 100% of the principal amount of the Notes to be prepaid
(without any Make-Whole Amount) together with interest accrued to the date of prepayment; provided
that if any holder of the Notes declines or rejects such offer, the proceeds that would have been
paid to such holder shall be offered pro rata to the other holders of the Notes that have accepted
the offer. A failure by a holder of Notes to respond in writing not later than 10 Business Days
prior to the proposed prepayment date to an offer to prepay made pursuant to this Section 10.5
shall be deemed to constitute a rejection of such offer by such holder. Solely for the purposes of
foregoing clause (B), whether or not such offers are accepted by the holders, the entire principal
amount of the Notes subject thereto shall be deemed to have been prepaid.




10.6 Transactions with Affiliates.




          The Company will not, and will not permit any Restricted Subsidiary to, enter into directly or
indirectly any Material transaction or Material group of related transactions (including the
purchase, lease, sale or exchange of properties of any kind or the rendering of any service) with
any Affiliate (other than the Company, a Guarantor or another Restricted Subsidiary), except upon
fair and reasonable terms no less favorable to the Company or such Restricted Subsidiary than would
be obtainable in a comparable arm’s-length transaction with a Person not an Affiliate.




10.7 Terrorism Sanctions Regulations.




          The Company will not and will not permit any Subsidiary at any time to (a) become a Person
described or designated in the Specially Designated Nationals and Blocked Persons List of the
Office of Foreign Assets Control in effect at such time or in Section 1 of the Anti Terrorism Order
in effect at such time or (b) knowingly engage in any dealings or transactions with any such Person
in contravention of applicable law.




11. EVENTS OF DEFAULT.




          An “Event of Default” shall exist if any of the following conditions or events shall occur and
be continuing:




29









 









     (a) the Company defaults in the payment of any principal, Make-Whole Amount, if any,
prepayment premium, if any, or LIBOR Breakage Amount, if any, on any Note when the same
becomes due and payable, whether at maturity or at a date fixed for prepayment or by
declaration or otherwise; or




     (b) the Company defaults in the payment of any interest on any Note for more than five
Business Days after the same becomes due and payable; or




     (c) the Company defaults in the performance of or compliance with any term contained in
Section 7.1(f) or Sections 10.1 through 10.7; or




     (d) the Company defaults in the performance of or compliance with any term contained
herein (other than those referred to in paragraphs (a), (b) and (c) of this Section 11) and
such default is not remedied within 30 days after the earlier of (i) a Responsible Officer
obtaining actual knowledge of such default and (ii) the Company receiving written notice of
such default from any holder of a Note (any such written notice to be identified as a
“notice of default” and to refer specifically to this paragraph (d) of Section 11); or




     (e) any representation or warranty made in writing by or on behalf of the Company or by
any officer of the Company in this Agreement or in any writing furnished in connection with
the transactions contemplated hereby proves to have been false or incorrect in any material
respect on the date as of which made and if capable of being cured is not cured within 30
days; or




     (f) (i) the Company or any Material Restricted Subsidiary is in default (as principal
or as guarantor or other surety) in the payment of any principal of or premium or make-whole
amount, or interest on any Indebtedness that is outstanding in an aggregate principal amount
of at least the greater of $50,000,000 or 2% of Consolidated Total Assets beyond any period
of grace provided with respect thereto, or (ii) the Company or any Material Restricted
Subsidiary is in default in the performance of or compliance with any term of any evidence
of any Indebtedness that is outstanding in an aggregate principal amount of at least the
greater of $50,000,000 or 2% of Consolidated Total Assets or of any mortgage, indenture or
other agreement relating thereto or any other condition exists, and as a consequence of such
default or condition such Indebtedness has become, or has been declared (or 45 Business Days
have lapsed subsequent to a Responsible Officer becoming aware of such default or condition
and one or more Persons continue to be entitled to declare such Indebtedness to be), due and
payable before its stated maturity or before its regularly scheduled dates of payment, or
(iii) as a consequence of the occurrence or continuation of any event or condition (other
than the passage of time or the right of the holder of Indebtedness to convert such
Indebtedness into equity interests), (x) the Company or any Material Restricted Subsidiary
has become obligated to purchase or repay Indebtedness before its regular maturity or before
its regularly scheduled dates of payment in an aggregate outstanding principal amount of at
least the greater of $50,000,000 or 2% of Consolidated Total Assets, or (y) 45 Business Days
have lapsed subsequent to a Responsible Officer becoming aware of such event or condition
and one or more Persons continue to have the



30









 







right to require the Company or such Material Restricted Subsidiary to purchase or
repay such Indebtedness; provided, that clause (iii) shall not apply to Indebtedness that
becomes due as a result of a disposition of assets, issuance of equity or incurrence of
other debt, provided that such Indebtedness is purchased or paid when due or within the
grace period provided; or




     (g) the Company or any Material Restricted Subsidiary (i) is generally not paying, or
admits in writing its inability to pay, its debts as they become due, (ii) files, or
consents by answer or otherwise to the filing against it of, a petition for relief or
reorganization or arrangement or any other petition in bankruptcy, for liquidation or to
take advantage of any bankruptcy, insolvency, reorganization, moratorium or other similar
law of any jurisdiction, (iii) makes an assignment for the benefit of its creditors,
(iv) consents to the appointment of a custodian, receiver, trustee or other officer with
similar powers with respect to it or with respect to any substantial part of its property,
(v) is adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for the
purpose of any of the foregoing; or




     (h) a court or Governmental Authority of competent jurisdiction enters an order
appointing, without consent by the Company or any Material Restricted Subsidiary, a
custodian, receiver, trustee or other officer with similar powers with respect to it or with
respect to any substantial part of its property, or constituting an order for relief or
approving a petition for relief or reorganization or any other petition in bankruptcy or for
liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or
ordering the dissolution, winding-up or liquidation of the Company or any Material
Restricted Subsidiary, or any such petition shall be filed against the Company or any
Material Restricted Subsidiary and such petition shall not be dismissed within 60 days; or




     (i) a final judgment or judgments for the payment of money aggregating in excess of the
greater of $50,000,000 and 2% of Consolidated Total Assets are rendered against one or more
of the Company and its Material Restricted Subsidiaries, which judgments are not, within 60
days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged
within 60 days after the expiration of such stay;




     (j) if an ERISA Event has resulted in liability of the Company or any Restricted
Subsidiary under Title IV of ERISA to a Plan, a Multiemployer Plan or the PBGC in an
aggregate amount in excess of the greater of $50 million and 2% of Consolidated Total Assets
and such amount has not been paid when due;




     (k) the Parent Guaranty ceases to be in full force and effect (unless released in
accordance with the terms of this Agreement) or is declared to be null and void in whole or
in material part by a court or other governmental or regulatory authority having
jurisdiction or the validity or enforceability thereof shall be contested by the Parent or
UP Energy or either the Parent or UP Energy renounces any of the same or denies that it has
any or further liability thereunder; or




     (l) the Subsidiary Guaranty ceases to be in full force and effect (except in accordance
with and by reason of the provisions of Section 9.7(b)) or is declared to be



31









 







null and void in whole or in material part by a court or other governmental or
regulatory authority having jurisdiction or the validity or enforceability thereof shall be
contested by the Company or any Subsidiary Guarantor or any of them renounces any of the
same or denies that it has any or further liability thereunder.



12. REMEDIES ON DEFAULT, ETC.




12.1 Acceleration.





     (a) If an Event of Default with respect to the Company described in paragraph (g) or
(h) of Section 11 (other than an Event of Default described in clause (i) of paragraph (g)
or described in clause (vi) of paragraph (g) by virtue of the fact that such clause
encompasses clause (i) of paragraph (g)) has occurred, all the Notes then outstanding shall
automatically become immediately due and payable.




     (b) If any other Event of Default has occurred and is continuing, the Required Holders
may at any time at its or their option, by notice or notices to the Company, declare all the
Notes then outstanding to be immediately due and payable.




     (c) If any Event of Default described in paragraph (a) or (b) of Section 11 has
occurred and is continuing, any holder or holders of Notes at the time outstanding affected
by such Event of Default may at any time, at its or their option, by notice or notices to
the Company, declare all the Notes held by it or them to be immediately due and payable.



          Upon any Notes becoming due and payable under this Section 12.1, whether automatically or by
declaration, such Notes will forthwith mature and the entire unpaid principal amount of such Notes,
plus (w) all accrued and unpaid interest thereon (including, but not limited to, interest accrued
thereon at the Default Rate), (x) any applicable Make-Whole Amount determined in respect of such
principal amount (to the full extent permitted by applicable law), (y) any applicable prepayment
premium (to the full extent permitted by applicable law), and (z) any LIBOR Breakage Amount
determined in respect of such principal amount, shall all be immediately due and payable, in each
and every case without presentment, demand, protest or further notice, all of which are hereby
waived; provided however that any LIBOR Breakage Amount shall be due and payable in accordance with
Section 8.8 hereof. The Company acknowledges, and the parties hereto agree, that each holder of a
Note has the right to maintain its investment in the Notes free from repayment by the Company
(except as herein specifically provided for) and that the provision for payment of a Make-Whole
Amount, prepayment premium or LIBOR Breakage Amount by the Company, if any, in the event that the
Notes are prepaid or are accelerated as a result of an Event of Default, is intended to provide
compensation for the deprivation of such right under such circumstances.




12.2 Other Remedies.




          If any Default or Event of Default has occurred and is continuing, and irrespective of whether
any Notes have become or have been declared immediately due and payable under Section 12.1, the
holder of any Note at the time outstanding may proceed to protect and enforce



32









 






the rights of such holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in any Note, or for an
injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of
any power granted hereby or thereby or by law or otherwise.




12.3 Rescission.




          At any time after any Notes have been declared due and payable pursuant to clause (b) or (c)
of Section 12.1, the Required Holders, by written notice to the Company, may rescind and annul any
such declaration and its consequences if (a) the Company has paid all overdue interest on the
Notes, all principal of and any applicable Make-Whole Amount, prepayment premium and LIBOR Breakage
Amount on any Notes that are due and payable and are unpaid other than by reason of such
declaration, and all interest on such overdue principal and any Make-Whole Amount, prepayment
premium and LIBOR Breakage Amount and (to the extent permitted by applicable law) any overdue
interest in respect of the Notes, at the Default Rate, (b) neither the Company nor any other Person
shall have paid any amounts that have become due solely by reason of such declaration, (c) all
Events of Default and Defaults, other than non-payment of amounts that have become due solely by
reason of such declaration, have been cured or have been waived pursuant to Section 17, and (d) no
judgment or decree has been entered for the payment of any monies due pursuant hereto or to the
Notes. No rescission and annulment under this Section 12.3 will extend to or affect any subsequent
Event of Default or Default or impair any right consequent thereon.




12.4 No Waivers or Election of Remedies, Expenses, etc.




          No course of dealing and no delay on the part of any holder of any Note in exercising any
right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder’s
rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any Note
upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein
or therein or now or hereafter available at law, in equity, by statute or otherwise. Without
limiting the obligations of the Company under Section 15, the Company will pay to the holder of
each Note on demand such further amount as shall be sufficient to cover all costs and expenses of
such holder incurred in any enforcement or collection under this Section 12, including reasonable
attorneys’ fees, expenses and disbursements.




13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.




13.1 Registration of Notes.




          The Company shall keep at its principal executive office a register for the registration and
registration of transfers of Notes. The name and address of each holder of one or more Notes, each
transfer thereof and the name and address of each transferee of one or more Notes shall be
registered in such register. Prior to due presentment for registration of transfer, the Person in
whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof
for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the
contrary. The Company shall give to any holder of a Note that is an




33









 







Institutional Investor, promptly upon request therefor, a complete and correct copy of the
names and addresses of all registered holders of Notes.




13.2 Transfer and Exchange of Notes.




          Upon surrender of any Note to the Company at the address and to the attention of the
designated officer (all as specified in Section 18(iii)), for registration of transfer or exchange
(and in the case of a surrender for registration of transfer accompanied by a written instrument of
transfer duly executed by the registered holder of such Note or such holder’s attorney duly
authorized in writing and accompanied by the relevant name, address and other information for
notices of each transferee of such Note or part thereof), the Company shall execute and deliver
within 10 Business Days, at the Company’s expense (except as provided below), one or more new Notes
(as requested by the holder thereof) in exchange therefor, in an aggregate principal amount equal
to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to
such Person as such holder may request and shall be substantially in the form of Note specified for
the Notes of such series and tranche, if any. Each such new Note shall be dated and bear interest
from the date to which interest shall have been paid on the surrendered Note or dated the date of
the surrendered Note if no interest shall have been paid thereon. The Company may require payment
of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such
transfer of Notes. Notes shall not be transferred in denominations of less than $500,000, provided
that if necessary to enable the registration of transfer by a holder of its entire holding of
Notes, one Note may be in a denomination of less than $500,000. Any transferee, by its acceptance
of a Note registered in its name (or the name of its nominee), shall be deemed to have made the
representations set forth in Section 6.2.




13.3 Replacement of Notes.




          Upon receipt by the Company at the address and to the attention of the designated officer (all
as specified in Section 18(iii)) of evidence reasonably satisfactory to it of the ownership of and
the loss, theft, destruction or mutilation of any Note (which evidence shall be, in the case of an
Institutional Investor, notice from such Institutional Investor of such ownership and such loss,
theft, destruction or mutilation), and





     (a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to
it (provided that if the holder of such Note is, or is a nominee for, an original Purchaser
or another holder of a Note with a minimum net worth of at least $500,000,000, such Person’s
own unsecured agreement of indemnity shall be deemed to be satisfactory), or




     (b) in the case of mutilation, upon surrender and cancellation thereof,


the Company at its own expense shall execute and deliver within 10 Business Days, in lieu thereof,
of the same series and tranche, dated and bearing interest from the date to which interest shall
have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost,
stolen, destroyed or mutilated Note if no interest shall have been paid thereon.




34









 








14. PAYMENTS ON NOTES.




14.1 Place of Payment.




          Subject to Section 14.2, payments of principal, Make-Whole Amount, if any, prepayment premium,
if any, LIBOR Breakage Amount, if any, and interest becoming due and payable on the Notes shall be
made in New York, New York at the principal office of JPMorgan Chase Bank, N.A. in such
jurisdiction. The Company may at any time, by notice to each holder of a Note, change the place of
payment of the Notes so long as such place of payment shall be either the principal office of the
Company in such jurisdiction or the principal office of a bank or trust company in such
jurisdiction.




14.2 Home Office Payment.




          So long as you or your nominee shall be the holder of any Note, and notwithstanding anything
contained in Section 14.1 or in such Note to the contrary, the Company will pay all sums becoming
due on such Note for principal, Make-Whole Amount, if any, prepayment premium, if any, LIBOR
Breakage Amount, if any, and interest by the method and at the address specified for such purpose
below your name in Schedule A, or by such other method or at such other address as you shall have
from time to time specified to the Company in writing for such purpose, without the presentation or
surrender of such Note or the making of any notation thereon, except that upon written request of
the Company made concurrently with or reasonably promptly after payment or prepayment in full of
any Note, you shall surrender such Note for cancellation, reasonably promptly after any such
request, to the Company at its principal executive office or at the place of payment most recently
designated by the Company pursuant to Section 14.1. Prior to any sale or other disposition of any
Note held by you or your nominee you will, at your election, either endorse thereon the amount of
principal paid thereon and the last date to which interest has been paid thereon or surrender such
Note to the Company in exchange for a new Note or Notes pursuant to Section 13.2. The Company will
afford the benefits of this Section 14.2 to any Institutional Investor that is the direct or
indirect transferee of any Note purchased by you under this Agreement and that has made the same
agreement relating to such Note as you have made in this Section 14.2.




15. EXPENSES, ETC.




15.1 Transaction Expenses.




          Whether or not the transactions contemplated hereby are consummated, the Company will pay all
costs and expenses (including reasonable attorneys’ fees of one special counsel and, if reasonably
required by the Required Holders, local or other counsel) incurred by you and each Other Purchaser
or holder of a Note in connection with such transactions and in connection with any amendments,
waivers or consents under or in respect of this Agreement, the Notes, the Parent Guaranty or the
Subsidiary Guaranty (whether or not such amendment, waiver or consent becomes effective),
including, without limitation: (a) the costs and expenses incurred in enforcing or defending (or
determining whether or how to enforce or defend) any rights under this Agreement, the Notes, the
Parent Guaranty or the Subsidiary Guaranty or in responding to any subpoena or other legal process
or informal investigative demand issued in connection with





35












 




this Agreement, the Notes, the Parent Guaranty or the Subsidiary Guaranty, or by reason of
being a holder of any Note, (b) the costs and expenses, including financial advisors’ fees,
incurred in connection with the insolvency or bankruptcy of the Company or any Subsidiary or in
connection with any work-out or restructuring of the transactions contemplated hereby, by the
Notes, by the Parent Guaranty and the Subsidiary Guaranty and (c) the costs and expenses incurred
in connection with the initial filing of this Agreement and all related documents and financial
information with the SVO. The Company will pay, and will save you and each Other Purchaser or
holder of a Note harmless from, all claims in respect of any fees, costs or expenses, if any, of
brokers and finders (other than those, if any, retained by a Purchaser or other holder in
connection with its purchase of the Notes).




15.2 Survival.




          The obligations of the Company under this Section 15 will survive the payment or transfer of
any Note, the enforcement, amendment or waiver of any provision of this Agreement or the Notes, and
the termination of this Agreement.




16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.




          All representations and warranties contained herein shall survive the execution and delivery
of this Agreement and the Notes, the purchase or transfer by you of any Note or portion thereof or
interest therein and the payment of any Note, and may be relied upon by any subsequent holder of a
Note, regardless of any investigation made at any time by or on behalf of you or any other holder
of a Note. All statements contained in any certificate or other instrument delivered by or on
behalf of the Company pursuant to this Agreement shall be deemed representations and warranties of
the Company under this Agreement. Subject to the preceding sentence, this Agreement and the Notes
embody the entire agreement and understanding between you and the Company and supersede all prior
agreements and understandings relating to the subject matter hereof.




17. AMENDMENT AND WAIVER.




17.1 Requirements.




          This Agreement, the Notes, the Parent Guaranty and the Subsidiary Guaranty may be amended, and
the observance of any term hereof or thereof may be waived (either retroactively or prospectively),
with (and only with) the written consent of the Company and the Required Holders, except that (a)
no amendment or waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any
defined term (as it is used therein), will be effective as to you unless consented to by you in
writing, and (b) no such amendment or waiver may, without the written consent of the holder of each
Note at the time outstanding affected thereby, (i) subject to the provisions of Section 12 relating
to acceleration or rescission, change the amount or time of any prepayment or payment of principal
of, or reduce the rate or change the time of payment or method of computation of interest or of the
Make-Whole Amount on, the Notes, (ii) change the percentage of the principal amount of the Notes
the holders of which are required to consent to any such amendment or waiver, or (iii) amend any of
Sections 8, 11(a), 11(b), 12, 17 or 20.




36









 







Notwithstanding the foregoing, but subject to the provisions of Section 12 relating to
acceleration or rescission, (x) a specific series of Notes (and the related provisions of this
Agreement) may be amended by the Company and the holders of 100% of the aggregate principal amount
of such series of Notes if the effect of such amendment is solely to change the amount or time of
any prepayment or payment of principal of, or reduce the rate or change the time of payment or
method of computation of interest or the Make-Whole Amount or the LIBOR Breakage Amount on the
Notes of such series, and (y) if an amendment, waiver or consent affects one or more series or
tranches of Notes but not all series or tranches of Notes, such amendment, waiver or consent shall
only require approval of the requisite percentage, determined in accordance with this Section 17.1,
of the holders of the series or tranches affected thereby (voting together as a single class, if
more than one series or tranche is affected thereby).




17.2 Solicitation of Holders of Notes.





     (a) Solicitation. The Company will provide each holder of the Notes
(irrespective of the amount of Notes then owned by it) with sufficient information,
sufficiently far in advance of the date a decision is required, to enable such holder to
make an informed and considered decision with respect to any proposed amendment, waiver or
consent in respect of any of the provisions hereof or of the Notes. The Company will
deliver executed or true and correct copies of each amendment, waiver or consent effected
pursuant to the provisions of this Section 17 to each holder of outstanding Notes promptly
following the date on which it is executed and delivered by, or receives the consent or
approval of, the requisite holders of Notes.




     (b) Payment. The Company will not directly or indirectly pay or cause to be
paid any remuneration, whether by way of supplemental or additional interest, fee or
otherwise, or grant any security, to any holder of Notes as consideration for or as an
inducement to the entering into by any holder of Notes of any waiver or amendment of any of
the terms and provisions hereof unless such remuneration is concurrently paid, or security
is concurrently granted, on the same terms, ratably to each holder of Notes then outstanding
that also enters into such waiver or amendment. If, in the case of any waiver or amendment
of any of the terms and provisions hereof, remuneration is paid to any holder of Notes that
for any reason does not enter into such waiver or amendment, such remuneration shall also be
paid to all other non-consenting holders in respect of such waiver or amendment.



17.3 Binding Effect, etc.




          Any amendment or waiver consented to as provided in this Section 17 applies equally to all
holders of Notes and is binding upon them and upon each future holder of any Note and upon the
Company without regard to whether such Note has been marked to indicate such amendment or waiver.
No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default
or Event of Default not expressly amended or waived or impair any right consequent thereon. No
course of dealing between the Company and the holder of any Note nor any delay in exercising any
rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such
Note. As used herein, the term “this Agreement” or




37









 







“the Agreement” and references thereto shall mean this Note Purchase Agreement as it may from
time to time be amended or supplemented.




17.4 Notes Held by Company, etc.




          Solely for the purpose of determining whether the holders of the requisite percentage of the
aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver
or consent to be given under this Agreement or the Notes, or have directed the taking of any action
provided herein or in the Notes to be taken upon the direction of the holders of a specified
percentage of the aggregate principal amount of Notes then outstanding, Notes directly or
indirectly owned by the Company or any of its Affiliates shall be deemed not to be outstanding.




18. NOTICES.




          All notices and communications provided for hereunder shall be in writing and sent (a) by
telecopy if the sender on the same day sends a confirming copy of such notice by a recognized
overnight delivery service (charges prepaid), or (b) by registered or certified mail with return
receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with
charges prepaid). Any such notice must be sent:





     (i) if to you or your nominee, to you or it at the address specified for such
communications in Schedule A, or at such other address as you or it shall have
specified to the Company in writing,




     (ii) if to any other holder of any Note, to such holder at such address as such
other holder shall have specified to the Company in writing, or




     (iii) if to the Company, to the Company at its address set forth at the
beginning hereof to the attention of Marshall D. Smith, or at such other address as
the Company shall have specified to the holder of each Note in writing.


Notices under this Section 18 will be deemed given only when actually received.




19. REPRODUCTION OF DOCUMENTS.




          This Agreement and all documents relating hereto, including (a) consents, waivers and
modifications that may hereafter be executed, (b) documents received by you at a Closing (except
the Notes themselves), and (c) financial statements, certificates and other information previously
or hereafter furnished to you, may be reproduced by you by any photographic, photostatic,
electronic, digital or other similar process and you may destroy any original document so
reproduced. The Company agrees and stipulates that, to the extent permitted by applicable law, any
such reproduction shall be admissible in evidence as the original itself in any judicial or
administrative proceeding (whether or not the original is in existence and whether or not such
reproduction was made by you in the regular course of business) and any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in evidence. This Section
19 shall not prohibit the Company or any other holder of Notes from contesting any




38









 




such reproduction to the same extent that it could contest the original, or from introducing
evidence to demonstrate the inaccuracy of any such reproduction.




20. CONFIDENTIAL INFORMATION.




          For the purposes of this Section 20, “Confidential Information” means information delivered to
any Purchaser by or on behalf of the Company or any Subsidiary in connection with the transactions
contemplated by or otherwise pursuant to this Agreement that is proprietary in nature and that was
clearly marked or labeled or otherwise adequately identified when received by you as being
confidential information of the Company or such Subsidiary, provided that such term does not
include information that (a) was publicly known or otherwise known to you prior to the time of such
disclosure, (b) subsequently becomes publicly known through no act or omission by you or any Person
acting on your behalf, (c) otherwise becomes known to you other than through disclosure by the
Company or any Subsidiary, or (d) constitutes financial statements delivered to you under Section
7.1 that are otherwise publicly available. You will maintain the confidentiality of such
Confidential Information in accordance with procedures adopted by you in good faith to protect
confidential information of third parties delivered to you, provided that you may deliver or
disclose Confidential Information to (i) your directors, officers, employees, agents, attorneys and
affiliates (to the extent such disclosure reasonably relates to the administration of the
investment represented by your Notes), (ii) your financial advisors and other professional advisors
who agree to hold confidential the Confidential Information substantially in accordance with the
terms of this Section 20, (iii) any other holder of any Note, (iv) any Institutional Investor to
which you sell or offer to sell such Note or any part thereof or any participation therein (if such
Person has agreed in writing prior to its receipt of such Confidential Information to be bound by
the provisions of this Section 20), (v) any Person from which you offer to purchase any security of
the Company (if such Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Section 20), (vi) any federal or state regulatory
authority having jurisdiction over you, (vii) the NAIC or the SVO or, in each case, any similar
organization, or any nationally recognized rating agency that requires access to information about
your investment portfolio or (viii) any other Person to which such delivery or disclosure may be
necessary or appropriate (w) to effect compliance with any law, rule, regulation or order
applicable to you, (x) in response to any subpoena or other legal process, (y) in connection with
any litigation to which you are a party or (z) if an Event of Default has occurred and is
continuing, to the extent you may reasonably determine such delivery and disclosure to be necessary
or appropriate in the enforcement or for the protection of the rights and remedies under your Notes
and this Agreement. Each holder of a Note, by its acceptance of a Note, will be deemed to have
agreed to be bound by and to be entitled to the benefits of this Section 20 as though it were a
party to this Agreement. On reasonable request by the Company in connection with the delivery to
any holder of a Note of information required to be delivered to such holder under this Agreement or
requested by such holder (other than a holder that is a party to this Agreement or its nominee),
such holder will enter into an agreement with the Company embodying the provisions of this Section
20.




21. SUBSTITUTION OF PURCHASER.




          You shall have the right to substitute any one of your Affiliates as the purchaser of the
Notes that you have agreed to purchase hereunder, by written notice to the Company,




39









 




which notice shall be signed by both you and such Affiliate, shall contain such Affiliate’s
agreement to be bound by this Agreement and shall contain a confirmation by such Affiliate of the
accuracy with respect to it of the representations set forth in Section 6. Upon receipt of such
notice, wherever the word “you” is used in this Agreement (other than in this Section 21), such
word shall be deemed to refer to such Affiliate in lieu of you. In the event that such Affiliate
is so substituted as a purchaser hereunder and such Affiliate thereafter transfers to you all of
the Notes then held by such Affiliate, upon receipt by the Company of notice of such transfer,
wherever the word “you” is used in this Agreement (other than in this Section 21), such word shall
no longer be deemed to refer to such Affiliate, but shall refer to you, and you shall have all the
rights of an original holder of the Notes under this Agreement.




22. MISCELLANEOUS.




22.1 Successors and Assigns.




          All covenants and other agreements contained in this Agreement by or on behalf of any of the
parties hereto bind and inure to the benefit of their respective successors and assigns (including
any subsequent holder of a Note) whether so expressed or not.




22.2 Payments Due on Non-Business Days.




          Anything in this Agreement or the Notes to the contrary notwithstanding (but without limiting
the requirement in Section 8.2 that the notice of any optional prepayment specify a Business Day as
the date fixed for such prepayment), any payment of principal of or Make-Whole Amount, LIBOR
Breakage Amount or interest on any Note that is due on a date other than a Business Day shall be
made on the next succeeding Business Day without including the additional days elapsed in the
computation of the interest payable on such next succeeding Business Day; provided that if the
maturity date of any Note is a date other than a Business Day, the payment otherwise due on such
maturity date shall be made on the next succeeding Business Day and shall include the additional
days elapsed in the computation of interest payable on such next succeeding Business Day.




22.3 Accounting Terms.




          All accounting terms used herein that are not expressly defined in this Agreement have the
meanings respectively given to them in accordance with GAAP. Except as otherwise specifically
provided herein, (i) all computations made pursuant to this Agreement shall be made in accordance
with GAAP and (ii) all financial statements shall be prepared in accordance with GAAP.




22.4 Severability.




          Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof, and any such prohibition or unenforceability
in any jurisdiction shall (to the fullest extent permitted by law) not invalidate or render
unenforceable such provision in any other jurisdiction.




40









 








22.5 Construction.




          Each covenant contained herein shall be construed (absent express provision to the contrary)
as being independent of each other covenant contained herein, so that compliance with any one
covenant shall not (absent such an express contrary provision) be deemed to excuse compliance with
any other covenant. Where any provision herein refers to action to be taken by any Person, or
which such Person is prohibited from taking, such provision shall be applicable whether such action
is taken directly or indirectly by such Person.




          For the avoidance of doubt, all Schedules and Exhibits attached to this Agreement shall be
deemed to be a part hereof.




22.6 Counterparts.




          This Agreement may be executed in any number of counterparts, each of which shall be an
original but all of which together shall constitute one instrument. Each counterpart may consist
of a number of copies hereof, each signed by less than all, but together signed by all, of the
parties hereto.




22.7 Governing Law.




          This Agreement shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the law of the state of New York excluding choice of law principles
of the law of such state that would require the application of the laws of a jurisdiction other
than such state.




22.8 Jurisdiction and Process; Waiver of Jury Trial.





     (a) The Company irrevocably submits to the non-exclusive jurisdiction of any New York
state or federal court sitting in the Borough of Manhattan, The City of New York, over any
suit, action or proceeding arising out of or relating to this Agreement, the Parent
Guaranty, the Subsidiary Guaranty or the Notes. To the fullest extent permitted by
applicable law, the Company irrevocably waives and agrees not to assert, by way of motion,
as a defense or otherwise, any claim that it is not subject to the jurisdiction of any such
court, 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.




     (b) The Company consents to process being served by or on behalf of any holder of Notes
in any suit, action or proceeding of the nature referred to in Section 22.8(a) by mailing a
copy thereof by registered or certified mail (or any substantially similar form of mail),
postage prepaid, return receipt requested, to it at its address specified in Section 18 or
at such other address of which such holder shall then have been notified pursuant to said
Section. The Company agrees that such service upon receipt (i) shall be deemed in every
respect effective service of process upon it in any such suit, action or proceeding and (ii)
shall, to the fullest extent permitted by applicable law, be taken and held to be valid
personal service upon and personal delivery to it.



41









 







Notices hereunder shall be conclusively presumed received as evidenced by a delivery
receipt furnished by the United States Postal Service or any reputable commercial delivery
service.




     (c) Nothing in this Section 22.8 shall affect the right of any holder of a Note to
serve process in any manner permitted by law, or limit any right that the holders of any of
the Notes may have to bring proceedings against the Company in the courts of any appropriate
jurisdiction or to enforce in any lawful manner a judgment obtained in one jurisdiction in
any other jurisdiction.




     (d) THE PARTIES HERETO WAIVE TRIAL BY JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT TO
THIS AGREEMENT, THE NOTES OR ANY OTHER DOCUMENT EXECUTED IN CONNECTION HEREWITH OR
THEREWITH.




42












 





     If you are in agreement with the foregoing, please sign the form of agreement on a
counterpart of this Agreement and return it to the Company, whereupon this Agreement shall become a
binding agreement between you and the Company.



	 	 	 	 	 	 	 
	 	 	Very truly yours,	 	 
	 
	 	 	 	 	 	 
	 	 	ULTRA RESOURCES, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 /s/ Marshall D. Smith	 	 
	 

	 	Name:
	 	 

Marshall D. Smith
	 	 
	 

	 	Title:
	 	Chief Financial Officer	 	 






S-1









 





SCHEDULE B




DEFINED TERMS




     As used herein, the following terms have the respective meanings set forth below or set forth
in the Section hereof following such term:



     “Additional Notes” is defined in Section 1.2.



     “Adjusted LIBOR Rate” is defined in Section 1.4(a).



     “Advance Payment Contract” means (a) any production payment (whether volumetric or dollar
denominated) granted or sold by any Person payable from a specified share of proceeds received from
production from specified Oil and Gas Properties, together with all undertakings and obligations in
connection therewith or (b) any contract whereby any Person receives or becomes entitled to receive
(either directly or indirectly) any payment (an “Advance Payment”) as consideration for (i)
Hydrocarbons produced or to be produced from Oil and Gas Properties owned by such Person or its
Affiliates in advance of the delivery of such Hydrocarbons (and regardless of whether such
Hydrocarbons are actually produced or actual delivery is required) to or for the account of the
purchaser thereof or (ii) a right or option to receive such Hydrocarbons (or a cash payment in lieu
of such Hydrocarbons); provided that inclusion of customary and standard “take or pay” provisions
in any gas sales or purchase contract or any other similar contract shall not, in and of itself,
cause such gas sales or purchase contract to constitute an Advance Payment Contract for the
purposes of this definition.



     “Affiliate” means, with respect to a specified Person, another Person that directly, or
indirectly through one or more intermediaries, Controls or is Controlled by or is under common
Control with the Person specified. Unless the context otherwise clearly requires, any reference to
an “Affiliate” is a reference to an Affiliate of the Company.



     “Anti-Terrorism Order” means Executive Order 13224 of September 23, 2001, Blocking Property
and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (66
Fed. Reg. 49079 (2001)).



     “Business Day” means any day other than a Saturday, a Sunday or a day on which commercial
banks in New York City are required or authorized to be closed; provided that, if the applicable
Business Day relates to the determination of LIBOR, it means a day on which dealings are also
carried on in U.S. dollar deposits in the London interbank market.



     “Capital Lease Obligations” means with respect to a specified Person, the obligations of such
Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to
use) real or personal property, or a combination thereof, which obligations are required to be
classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and
the amount of such obligations shall be the capitalized amount thereof determined in accordance
with GAAP.



     “Change of Control” means an event or series of events by which: (a) the Parent shall cease to
own, directly or indirectly, 50% or more of the issued and outstanding Equity



Schedule B




 









 




Interests of the
Company entitled to vote other than as a consequence of a Permitted
Reorganization, or (b) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, but excluding any employee benefit plan, and any Person
acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan)
becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange
Act of 1934), directly or indirectly, of 50% or more of the Equity Interests entitled to vote, on a
fully diluted basis, for members of the board of directors or equivalent governing body of (i) the
Parent, if no Permitted Parent Reorganization has occurred or (ii) the Company, if a Permitted
Parent Reorganization has previously occurred. Notwithstanding the foregoing, a “Change of
Control” shall not be deemed to have occurred if, immediately following such Change of Control, the
Company (or the acquiring Person if it has acquired substantially all of the assets of the Company,
or the resulting or surviving Person if it has merged or consolidated with the Company and the
Company is not the surviving entity) has a rating of BBB- or higher by Standard & Poor’s Rating
Services or Baa3 or higher by Moody’s Investor Service or an equivalent rating by another rating
agency of recognized national standing if it has only a single rating or, if it has two or more
ratings, at least two of the ratings are BBB- or higher by Standard & Poor’s Rating Services or
Baa3 or higher by Moody’s Investor Service or an equivalent rating by another rating agency of
recognized national standing. As used in this paragraph “rating” of a Person means a rating of
long-term unsecured debt of such Person.




     “Closing” is defined in Section 3.



     “Code” means the Internal Revenue Code of 1986, as amended from time to time, and the rules
and regulations promulgated thereunder from time to time.



     “Company” means Ultra Resources, Inc., a Wyoming corporation.



     “Confidential Information” is defined in Section 20.



     “Consolidated EBITDAX” means, with respect to the Company and its Restricted Subsidiaries for
any period, Consolidated Net Income for such period plus, without duplication and to the extent
deducted, or otherwise not included, in the calculation of Consolidated Net Income for such period,
the sum of (a) Taxes imposed on or measured by income and franchise Taxes paid or accrued; (b)
Consolidated Interest Expense; (c) amortization, depletion and depreciation expense; (d) any
non-cash losses or charges on any Swap Agreement resulting from the requirements of FASB Statement
133 for that period; (e) oil and gas exploration expenses (including all drilling, completion,
geological and geophysical costs) for such period; (f) losses from sales or other dispositions of
assets (other than Hydrocarbons produced in the ordinary course of business) and other
extraordinary or non-recurring losses; (g) workover expenses for such period; (h) other non-cash
charges (excluding accruals for cash expenses made in the ordinary course of business); and (i)
cash distributions actually received from Unrestricted Subsidiaries and other entities (which are
not Subsidiaries) in which the Company or Restricted Subsidiary owns an Equity Interest; minus, to
the extent included in the calculation of Consolidated Net Income for such period; (j) any non-cash
gains on any Swap Agreements resulting from the requirements of FASB Statement 133 for that period;
(k) extraordinary or non-recurring gains; (l) gains from sales or other dispositions of assets
(other



Schedule B




2









 




than Hydrocarbons produced in the ordinary course of business) and (m) other non-cash gains
increasing Consolidated Net Income for such period (excluding accruals for cash revenues in the
ordinary course of business); provided, however, that Consolidated EBITDAX for any four quarter
period shall be calculated by the Company on a pro forma basis to give effect to any acquisitions
or divestitures (in a single transaction or a series of related transactions) of assets having an
aggregate fair market value equal to or exceeding $10,000,000 made during the period beginning on
the first day of the relevant four-quarter period and through the date of calculation, as if such
acquisition or divestiture had occurred on the first day of such four-quarter period.




     “Consolidated Funded Indebtedness” means, as of any date and without duplication, the Funded
Indebtedness of the Company and its Restricted Subsidiaries determined on a consolidated basis.



     “Consolidated Interest Expense” means, with respect to the Company and its Restricted
Subsidiaries for any period, without duplication, the aggregate of all interest paid or accrued by
the Company and its Restricted Subsidiaries, on a consolidated basis, in respect of Indebtedness of
any such Person, on a consolidated basis, including all interest, fees and costs payable with
respect to the obligations related to such Indebtedness (other than fees and related costs which
may be capitalized as transaction costs in accordance with GAAP) and the interest component of
Capitalized Lease Obligations, all as determined in accordance with GAAP.



     “Consolidated Leverage Ratio” means, as of any date of determination, the ratio of (a)
Consolidated Funded Indebtedness as of such date to (b) Consolidated EBITDAX for the period of the
four fiscal quarters ended on such date.



     “Consolidated Net Income” means, with respect to the Company and its Restricted Subsidiaries
for any period, the consolidated net income (or loss) of the Company and its Restricted
Subsidiaries, as applicable, determined on a consolidated basis in accordance with GAAP; provided
that there shall be excluded the undistributed earnings of any Restricted Subsidiary of the
Company, to the extent that the declaration or payment of dividends or similar distributions by
such Restricted Subsidiary is not at the time permitted by the terms of any contractual obligation
or by any law applicable to such Restricted Subsidiary.



     “Consolidated Total Assets” means, as of any date, the assets and properties of the Company
and its Restricted Subsidiaries as of such date, determined on a consolidated basis in accordance
with GAAP; provided, however, that Consolidated Total Assets shall be determined without giving
effect to non-cash charges associated with full cost ceiling test impairment or other similar tests
resulting in non-cash charges.



     “Control” means either the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of a Person, whether through the ability to exercise
voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative
thereto.



     “Control Event” means the execution by the Company of a definitive written agreement that,
when fully performed by the parties thereto, would result in a Change of Control.



Schedule B





3












 





          “Credit Agreement” means the Credit Agreement dated as of April 30, 2007 among the Company,
the various commercial banking institutions from time to time parties thereto, and JP Morgan Chase
Bank, N.A., as Administrative Agent and Issuing Bank, as amended by a First Amendment thereto, and
as such agreement hereafter may be further amended, restated, supplemented, modified, refinanced,
extended or replaced.




          “Crude Oil” means all crude oil and condensate.




          “Default” means an event or condition the occurrence or existence of which would, with the
lapse of time or the giving of notice or both, become an Event of Default.




          “Default Rate” means that rate of interest that is the greater of (i) 2% per annum above the
rate of interest stated in clause (a) of the first paragraph of the Notes or (ii) 2% over the rate
of interest publicly announced by JPMorgan Chase Bank, N.A. as its “base” or “prime” rate.




          “Disclosure Documents” is defined in Section 5.3.




          “Disposition” is defined in Section 10.5.




          “Environmental Laws” means any and all Federal, state, local, and foreign statutes, laws,
regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants,
franchises, licenses, agreements or governmental restrictions relating to pollution and the
protection of the environment or the release of any materials into the environment, including those
related to Hazardous Materials.




          “Equity Interests” means shares of capital stock, partnership interests, membership interests
in a limited liability company, beneficial interests in a trust or other equity ownership interests
in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or
acquire any such equity interest.




          “ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to
time, and the rules and regulations promulgated thereunder from time to time in effect.




          “ERISA Affiliate” means any trade or business (whether or not incorporated) that, together
with the Company, is treated as a single employer under Section 414(b) or (c) of the Code or,
solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single
employer under Section 414 of the Code.




          “ERISA Event” means (a) any “reportable event”, as defined in Section 4043 of ERISA or the
regulations issued thereunder with respect to a Plan (other than an event for which the 30-day
notice period is waived); (b) the existence with respect to any Plan of an “accumulated funding
deficiency” (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived;
(c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application
for a waiver of the minimum funding standard with




Schedule B




4









 




respect to any Plan; (d) the incurrence by the
Company or any of its ERISA Affiliates of any
liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt
by the Company or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating
to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f)
the incurrence by the Company or any of its ERISA Affiliates of any liability with respect to the
withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by the
Company or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the
Company or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or
a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization,
within the meaning of Title IV of ERISA.




          “Event of Default” is defined in Section 11.




          “Exchange Act” means the Securities Exchange Act of 1934, as amended.




          “Form 10-K” is defined in Section 7.1(b).




          “Form 10-Q” is defined in Section 7.1(a).




          “Funded Indebtedness” of any Person means, without duplication, any Indebtedness of such
Person of the type described in clauses (a), (b), (c), (d), (e), (f), (g), (h) or (k) of the
definition of Indebtedness; provided, however, that Funded Indebtedness shall not include
Indebtedness consisting of obligations in respect of Advance Payment Contracts to the extent that
such Indebtedness is without recourse to the Company and its Restricted Subsidiaries.




          “GAAP” means generally accepted accounting principles as in effect from time to time in the
United States of America.




          “Governmental Authority” means the government of the United States of America, any other
nation or any political subdivision thereof, whether state or local, and any agency, authority,
instrumentality, regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to
government.




          “Guarantor” means any Subsidiary Guarantor or Parent Guarantor.




          “Guaranty” means with respect to any Person, any obligation (except the endorsement in the
ordinary course of business of negotiable instruments for deposit or collection) of such Person
guaranteeing or in effect guaranteeing any Indebtedness of any other Person in any manner, whether
directly or indirectly, including (without limitation) obligations incurred through an agreement,
contingent or otherwise, by such Person: (a) to purchase such Indebtedness or obligation or any
property constituting security therefor; (b) to advance or supply funds (i) for the purchase or
payment of such Indebtedness or obligation, or (ii) to maintain any working capital or other
balance sheet condition or any income statement condition of any other Person or otherwise to
advance or make available funds for the purchase or payment of such Indebtedness or obligation; (c)
to lease properties or to purchase properties or services




Schedule B




5









 




primarily for the purpose of assuring the
owner of such Indebtedness or obligation of the ability
of any other Person to make payment of the Indebtedness or obligation; or (d) otherwise to assure
the owner of such Indebtedness or obligation against loss in respect thereof.




          “Hazardous Material” means any and all pollutants, toxic or hazardous wastes or other
substances that might pose a hazard to health and safety, the removal of which may be required or
the generation, manufacture, refining, production, processing, treatment, storage, handling,
transportation, transfer, use, disposal, release, discharge, spillage, seepage or filtration of
which is or shall be restricted, prohibited or penalized by any applicable law including, but not
limited to, asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls, petroleum,
petroleum products, lead based paint, radon gas or similar restricted, prohibited or penalized
substances.




          “holder” means, with respect to any Note, the Person in whose name such Note is registered in
the register maintained by the Company pursuant to Section 13.1.




          “Hydrocarbon” means all Crude Oil and Natural Gas produced from or attributable to the Oil and
Gas Properties of the Company and its Subsidiaries.




          “Incur” means issue, create, incur, assume, guarantee or otherwise become liable for.




          “INHAM Exemption” is defined in Section 6.2(e).




          “Indebtedness” of any Person means, without duplication, (a) all obligations of such Person
for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such
Person upon which interest charges are customarily paid (excluding current accounts payable
incurred in the ordinary course of business), (d) all obligations of such Person under conditional
sale or other title retention agreements relating to property acquired by such Person, (e) all
obligations of such Person in respect of the deferred purchase price of property or services
(excluding current accounts payable incurred in the ordinary course of business), (f) all
Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such
Person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guarantees by
such Person of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i) all
obligations, contingent or otherwise, of such Person as an account party in respect of letters of
credit and letters of guaranty, (j) all obligations, contingent or otherwise, of such Person in
respect of bankers’ acceptances and (k) all obligations of such Person with respect to Advance
Payment Contracts to which such Person is a party. The Indebtedness of any Person shall include
the Indebtedness of any other entity (including any partnership in which such Person is a general
partner) to the extent such Person is liable therefor as a result of such Person’s ownership
interest in or other relationship with such entity, except to the extent the terms of such
Indebtedness provide that such Person is not liable therefor.




Schedule B




6









 





          “Institutional Investor” means (a) any original purchaser of a Note, (b) any holder of
$20,000,000 or more in aggregate principal amount of the Notes and (c) any bank, trust
company, savings and loan association or other financial institution, any pension plan, any
investment company, any insurance company, any broker or dealer, or any other similar financial
institution or entity, regardless of legal form.




          “Intercompany Indebtedness” means Indebtedness among the Company, the Guarantors and the
Company’s Restricted Subsidiaries.




          “LIBOR” is defined in Section 1.4(a).




          “LIBOR Breakage Amount” is defined in Section 8.8.




          “Lien” means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge,
hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest
of a vendor or a lessor under any conditional sale agreement, capital lease or title retention
agreement (or any financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or
similar right of a third party with respect to such securities.




          “Make-Whole Amount” is defined in Section 8.7.




          “Material” means material in relation to the business, operations, affairs, financial
condition, assets or properties of the Company and its Subsidiaries taken as a whole.




          “Material Adverse Effect” means a material adverse effect on (a) the business, operations,
financial condition, assets or properties of the Company and its Subsidiaries taken as a whole, (b)
the ability of the Company to perform its obligations under this Agreement or the Notes, (c) the
ability of any Subsidiary Guarantor to perform its obligations under the Subsidiary Guaranty, (d)
the ability of either the Parent or UP Energy to perform its obligations under the Parent Guaranty,
or (e) the validity or enforceability of this Agreement, the Notes, the Parent Guaranty or the
Subsidiary Guaranty.




          “Material Restricted Subsidiary” means any Restricted Subsidiary of the Company representing
more than 5% of Consolidated Total Assets or 5% of total revenue (for the immediately preceding
four fiscal quarters) of the Company and its Restricted Subsidiaries.




          “Memorandum” is defined in Section 5.3.




          “Multiemployer Plan” means any Plan that is a “multiemployer plan” (as such term is defined in
section 4001(a)(3) of ERISA).




          “NAIC” means the National Association of Insurance Commissioners or any successor thereto.




          “NAIC Annual Statement” is defined in Section 6.2(a).




Schedule B




7









 





          “Natural Gas” means all natural gas, distillate or sulphur, natural gas liquids and all
products recovered in the processing of natural gas (other than condensate) including, without
limitation, natural gasoline, coalbed methane gas, casinghead gas, iso-butane, normal butane,
propane and ethane (including such methane allowable in commercial ethane).




          “Notes” is defined in Section 1.2.




          “Officer’s Certificate” means a certificate of a Senior Financial Officer or of any other
officer of the Company whose responsibilities extend to the subject matter of such certificate.




          “Oil and Gas Properties” means fee, leasehold or other interests in or under mineral estates
or oil, gas and other liquid or gaseous hydrocarbon leases with respect to properties situated in
the United States of America, including, without limitation, overriding royalty and royalty
interests, leasehold estate interests, net profits interests, production payment interests and
mineral fee interests, together with contracts executed in connection therewith and all tenements,
hereditaments, appurtenances and properties, real or personal, appertaining, belonging, affixed or
incidental thereto.




          “Other Purchasers” is defined in Section 2.




          “Parent” means Ultra Petroleum Corp., a Yukon Territory of Canada corporation.




          “Parent Guaranty” is defined in Section 1.3.




          “PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any
successor thereto.




          “Permitted Encumbrances” means:





     (a) Liens for taxes, assessments, or similar charges, incurred in the ordinary course
of business that are not yet due and payable;




     (b) Liens of mechanics, materialmen, warehousemen, carriers, landlords or other like
liens, securing obligations incurred in the ordinary course of business that are not yet due
and payable;




     (c) Pledges or deposits in connection with or to secure workmen’s compensation,
unemployment insurance, pensions or other employee benefits;




     (d) Encumbrances consisting of covenants, zoning restrictions, rights, easements,
liens, governmental environmental permitting and operation restrictions, operating
restrictions under leases, the exercise by governmental bodies or third parties of eminent
domain or condemnation rights, or any other restrictions on the use of real property, none
of which materially impairs the use of such property by the Company or



Schedule B




8









 






its Restricted Subsidiaries in the operation of its business, and none of which is
violated in any material respect by existing or proposed operations;




     (e) Liens of operators and/or co-working interest owners under joint operating
agreements or similar contractual arrangements with respect to the Company’s or its
Restricted Subsidiaries’ proportionate share of the expense of exploration, development and
operation of oil, gas and mineral leasehold or fee interests owned jointly with others, to
the extent that same relate to sums not yet overdue, or if they relate to sums that are
overdue, then to the extent that the same are being contested in good faith by appropriate
proceedings and with respect to which adequate reserves are set aside on its books;




     (f) The following, if the validity or amount thereof is being contested in good faith
by appropriate and lawful proceedings and with respect to which adequate reserves are set
aside on its books, and so long as they do not, in the aggregate, materially detract from
the value of the property of the Company, or materially impair the use thereof in the
operation of its business:




     (1) Claims or liens for taxes, assessments, or charges due and payable and
subject to interest or penalty;




     (2) Claims, liens, and encumbrances upon, and defects of title to, real or
personal property, including any attachment of personal or real property or other
legal process prior to adjudication of a dispute on the merits;




     (3) Claims or liens of mechanics, materialmen, warehousemen, carriers, or other
like liens; and




     (4) Adverse judgments on appeal; and




     (i) Inchoate liens in respect of royalty owners;


provided that the term “Permitted Encumbrances” shall not include any Lien securing Indebtedness.




          “Permitted Parent Reorganization” means a Permitted Reorganization of the type described in
clauses (i), (iii) or (iv) of the definition of Permitted Reorganization.




          “Permitted Reorganization” means any one or more of the following, and each shall constitute a
Permitted Reorganization: (i) the merger of the Parent into the Company resulting in the Company
being the surviving corporation, (ii) a transaction pursuant to which UP Energy dissolves,
liquidates, merges out of existence or otherwise ceases to exist, (iii) the distribution by the
Parent to its stockholders of all of the outstanding shares of capital stock of the Company, or
(iv) any other merger, consolidation, dissolution, transfer of Equity Interests or other
transaction the result of which is that the Parent no longer owns 50% or more of the outstanding
Equity Interests of the Company entitled to vote, provided that such transaction shall not result
in any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the




Schedule B




9









 




Securities Exchange Act of 1934, but excluding any employee benefit plan, and any Person
acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan),
other than the Parent or an entity Controlled by the Parent, becoming the “beneficial owner” (as
defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934), directly or
indirectly, of 50% or more of the Equity Interests entitled to vote, on a fully diluted basis, for
members of the board of directors or equivalent governing body of the Company.




          “Person” means an individual or a corporation, partnership, trust, incorporated or
unincorporated association, joint venture, joint stock company, limited liability company,
government (or an agency or political subdivision thereof) or other entity of any kind.




          “Plan” means an “employee benefit plan” (as defined in section 3(3) of ERISA) that is or,
within the preceding five years, has been established or maintained, or to which contributions are
or, within the preceding five years, have been made or required to be made, by the Company or any
ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability.




          “Priority Debt” means, as of any date, the sum (without duplication) of (a) Indebtedness of
the Company and its Restricted Subsidiaries secured by Liens not otherwise permitted by
Sections 10.3(a) through (k) and (b) Indebtedness of Restricted Subsidiaries other than (i)
Indebtedness of a Restricted Subsidiary outstanding on date hereof and set forth in Schedule 5.15,
and any extension, renewal, refinancing or refunding, provided that the principal amount of such
Indebtedness is not increased; (ii) Indebtedness of a Restricted Subsidiary owed to the Company or
a Guarantor; (iii) Indebtedness of a Restricted Subsidiary that is not a Guarantor owed to a
Restricted Subsidiary; (iv) Indebtedness of a Restricted Subsidiary outstanding at the time it
becomes a Restricted Subsidiary and extensions, renewals and refundings thereof, provided that (x)
such Indebtedness shall not have been incurred in contemplation of such Subsidiary becoming a
Restricted Subsidiary and (y) immediately after such Subsidiary becomes a Restricted Subsidiary, no
Default or Event of Default shall exist; and (v) Indebtedness of a Subsidiary Guarantor.




          “property” or “properties” means, unless otherwise specifically limited, real or personal
property of any kind, tangible or intangible, choate or inchoate.




          “Proposed Prepayment Date” is defined in Section 8.3(c).




          “PTE” is defined in Section 6.2(a).




          “Purchaser” means each purchaser listed in Schedule A.




          “QPAM Exemption” is defined in Section 6.2(d).




          “Qualified Institutional Buyer” means any Person that is a “qualified institutional buyer”
within the meaning of such term as set forth in Rule 144A(a)(1) under the Securities Act.




Schedule B




10









 





          “Quarter End Date” means the last day of a fiscal quarter.




          “Required Holders” means, at any time, the holders of at least 51% in principal amount of the
Notes at the time outstanding (exclusive of Notes then owned by the Company or any of its
Affiliates).




          “Responsible Officer” means any Senior Financial Officer and any other officer of the Company
with responsibility for the administration of the relevant portion of this Agreement.




          “Restricted Subsidiary” means any Subsidiary of the Company other than a Subsidiary that has
been designated by the Company as an Unrestricted Subsidiary, including a Subsidiary following its
undesignation by the Company as an Unrestricted Subsidiary.




          “SEC” shall mean the Securities and Exchange Commission of the United States, or any successor
thereto.




          “Securities Act” means the Securities Act of 1933, as amended from time to time.




          “Senior Financial Officer” means the chief financial officer, principal accounting officer,
treasurer or controller of the Company.




          “Senior Indebtedness” means any Indebtedness of the Company, other than any Indebtedness that
is in any manner subordinated in right of payment or security in any respect to the Notes.




          “Series 2008 Notes” is defined in Section 1.1.




          “Series 2008-A Notes” is defined in Section 1.1.




          “Series 2008-B Notes” is defined in Section 1.1.




          “Source” is defined in Section 6.2.




          “Subsidiary” means, with respect to any Person (the “parent”) at any date, any corporation,
limited liability company, partnership, association or other entity the accounts of which would be
consolidated with those of the parent in the parent’s consolidated financial statements if such
financial statements were prepared in accordance with GAAP as of such date, as well as any other
corporation, limited liability company, partnership, association or other entity (a) of which
securities or other ownership interests representing more than 50% of the ordinary voting power or,
in the case of a partnership, more than 50% of the general partnership interests are, as of such
date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the
parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of
the parent. Unless the context otherwise clearly requires, any reference to a “Subsidiary” is a
reference to a Subsidiary of the Company.




Schedule B




11









 





          “Supplement” is defined in Section 1.2.




          “Subsidiary Guarantor” means any Subsidiary that hereinafter becomes a party to the Subsidiary
Guaranty.




          “Subsidiary Guaranty” is defined in Section 9.7(a).




          “SVO” means the Securities Valuation Office of the NAIC or any successor to such Office.




          “Swap Agreement” means any agreement with respect to any swap, forward, future or derivative
transaction or option or similar agreement involving, or settled by reference to, one or more
rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or
pricing indices or measures of economic, financial or pricing risk or value or any similar
transaction or any combination of these transactions; provided that no phantom stock or similar
plan providing for payments only on account of services provided by current or former directors,
officers, employees or consultants of the Company or the Subsidiaries shall be a Swap Agreement.




          “Taxes” means any and all present or future taxes, levies, imposts, duties, deductions,
charges or withholdings imposed by any Governmental Authority.




          “this Agreement” or “the Agreement” is defined in Section 17.3.




          “UP Energy” means UP Energy Corporation, a Nevada corporation.




          “Unrestricted Subsidiary” means any Subsidiary of the Company that the Company designates as
an Unrestricted Subsidiary. The Company may designate or undesignate a Subsidiary as an
Unrestricted Subsidiary from time to time upon notice of such designation or undesignation to the
holders of the Notes, provided no Default or Event of Default would exist after giving effect
thereto.




          “USA Patriot Act” means United States Public Law 107-56, Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of
2001, as amended from time to time, and the rules and regulations promulgated thereunder from time
to time in effect.




          “Voting Stock” means, with respect to any Person, any class of shares of stock or other equity
interests of such Person having general voting power under ordinary circumstances to elect a
majority of the board of directors or other managing entities, as appropriate, of such Person
(irrespective of whether or not at the time stock of any other class or classes or other equity
interests of such Person shall have or might have voting power by reason of the happening of any
contingency).




          “Wholly Owned Subsidiary” means, at any time, any Subsidiary 100% of all of the Voting Stock
(except directors’ qualifying shares and other minority shares held solely to




Schedule B





12












 




satisfy organization requirements of the applicable jurisdiction) and voting interests of which are
owned by any one or more of the Company and its Wholly Owned Subsidiaries at such time.




Schedule B




13









 








EXHIBIT 1.3




PARENT GUARANTY




     THIS GUARANTY (this “Guaranty”) dated as of March 6, 2008 is made by each of Ultra Petroleum
Corp., a Yukon Territory of Canada corporation, and UP Energy Corporation, a Nevada corporation
(each a “Guarantor”), in favor of the holders from time to time of the Notes hereinafter referred
to, including each purchaser named in the Master Note Purchase Agreement hereinafter referred to,
and their respective successors and assigns (collectively, the “Holders” and each individually, a
“Holder”).



W I T N E S S E T H:




     WHEREAS, Ultra Resources, Inc., a Wyoming corporation (the “Company”), and the initial Holders
have entered into a Master Note Purchase Agreement dated as of March 6, 2008 (the Master Note
Purchase Agreement as amended, supplemented, restated or otherwise modified from time to time in
accordance with its terms and in effect, the “Note Purchase Agreement”);



     WHEREAS, the Note Purchase Agreement contemplates the issuance by the Company of Notes (as
defined in the Note Purchase Agreement) in one or more series and tranches;



     WHEREAS, the Company is a Subsidiary of each Guarantor and each Guarantor will derive
substantial benefits from the purchase by the Holders of the Company’s Notes;



     WHEREAS, it is a condition precedent to the obligation of the Holders to purchase the Notes
that each Guarantor shall have executed and delivered this Guaranty to the Holders; and



     WHEREAS, each Guarantor desires to execute and deliver this Guaranty to satisfy the conditions
described in the preceding paragraph;



     NOW, THEREFORE, in consideration of the premises and other benefits to each Guarantor, and of
the purchase of the Company’s Notes by the Holders, and for other good and valuable consideration,
the receipt and sufficiency of which are acknowledged, each Guarantor makes this Guaranty as
follows:



     SECTION 1. Definitions. Any capitalized terms not otherwise herein defined shall
have the meanings ascribed to them in the Note Purchase Agreement.



     SECTION 2. Guaranty. Each Guarantor, jointly and severally with each other
Guarantor, unconditionally and irrevocably guarantees to the Holders the due, prompt and complete
payment by the Company of the principal of, Make-Whole Amount, if any, or LIBOR Breakage Amount, if
any, and interest on (including interest accruing or becoming owing subsequent to the commencement
of any bankruptcy, reorganization or similar proceeding involving the Company), and each other
amount due under, the Notes or the Note Purchase



Exhibit 1.3




 









 




Agreement, when and as the same shall become due and payable (whether at stated maturity or by
required or optional prepayment or by declaration or otherwise) in accordance with the terms of the
Notes and the Note Purchase Agreement (the Notes and the Note Purchase Agreement being sometimes
hereinafter collectively referred to as the “Note Documents” and the amounts payable by the Company
under the Note Documents, and all other monetary obligations of the Company thereunder (including
any reasonable attorneys’ fees and expenses), being sometimes collectively hereinafter referred to
as the “Obligations”). This Guaranty is a guaranty of payment and not just of collectibility and
is in no way conditioned or contingent upon any attempt to collect from the Company or upon any
other event, contingency or circumstance whatsoever. If for any reason whatsoever the Company
shall fail or be unable duly, punctually and fully to pay such amounts as and when the same shall
become due and payable, each Guarantor, without demand, presentment, protest or notice of any kind,
will forthwith pay or cause to be paid such amounts to the Holders under the terms of such Note
Documents, in lawful money of the United States, at the place specified in the Note Purchase
Agreement, or perform or comply with the same or cause the same to be performed or complied with,
together with interest (to the extent provided for under such Note Documents) on any amount due and
owing from the Company. Each Guarantor, promptly after demand, will pay to the Holders the
reasonable costs and expenses of collecting such amounts or otherwise enforcing this Guaranty,
including, without limitation, the reasonable fees and expenses of counsel.




     SECTION 3. Guarantor’s Obligations Unconditional. The obligations of each Guarantor
under this Guaranty shall be primary, absolute and unconditional obligations of each Guarantor,
shall not be subject to any counterclaim, set-off, deduction, diminution, abatement, recoupment,
suspension, deferment, reduction or defense based upon any claim each Guarantor or any other person
may have against the Company or any other person, and to the full extent permitted by applicable
law shall remain in full force and effect without regard to, and except as provided in Section
9.7(c) of the Note Purchase Agreement, shall not be released, discharged or in any way affected by,
any circumstance or condition whatsoever (whether or not each Guarantor or the Company shall have
any knowledge or notice thereof), including:




     (a) any termination, amendment or modification of or deletion from or addition or
supplement to or other change in any of the Note Documents or any other instrument or
agreement applicable to any of the parties to any of the Note Documents;




     (b) any furnishing or acceptance of any security, or any release of any security, for
the Obligations, or the failure of any security or the failure of any person to perfect any
interest in any collateral;




     (c) any failure, omission or delay on the part of the Company to conform or comply with
any term of any of the Note Documents or any other instrument or agreement referred to in
paragraph (a) above, including, without limitation, failure to give notice to any Guarantor
of the occurrence of a “Default” or an “Event of Default” under any Note Document;



Exhibit 1.3




2









 






     (d) any waiver of the payment, performance or observance of any of the obligations,
conditions, covenants or agreements contained in any Note Document, or any other waiver,
consent, extension, indulgence, compromise, settlement, release or other action or inaction
under or in respect of any of the Note Documents or any other instrument or agreement
referred to in paragraph (a) above or any obligation or liability of the Company, or any
exercise or non-exercise of any right, remedy, power or privilege under or in respect of any
such instrument or agreement or any such obligation or liability;




     (e) any failure, omission or delay on the part of any of the Holders to enforce, assert
or exercise any right, power or remedy conferred on such Holder in this Guaranty, or any
such failure, omission or delay on the part of such Holder in connection with any Note
Document, or any other action on the part of such Holder;




     (f) any voluntary or involuntary bankruptcy, insolvency, reorganization, arrangement,
readjustment, assignment for the benefit of creditors, composition, receivership,
conservatorship, custodianship, liquidation, marshaling of assets and liabilities or similar
proceedings with respect to the Company, any Guarantor or to any other person or any of
their respective properties or creditors, or any action taken by any trustee or receiver or
by any court in any such proceeding;




     (g) any discharge, termination, cancellation, frustration, irregularity, invalidity or
unenforceability, in whole or in part, of any of the Note Documents or any other agreement
or instrument referred to in paragraph (a) above or any term hereof;




     (h) any merger or consolidation of the Company or any Guarantor into or with any other
corporation, or any sale, lease or transfer of any of the assets of the Company or the
Guarantor to any other person;




     (i) any change in the ownership of any shares of capital stock of the Company or any
change in the corporate relationship between the Company and any Guarantor, or any
termination of such relationship;




     (j) any release or discharge, by operation of law, of any other guarantor from the
performance or observance of any obligation, covenant or agreement contained in any other
guarantee of the Note Documents or the Obligations; or




     (k) any other occurrence, circumstance, happening or event whatsoever, whether similar
or dissimilar to the foregoing, whether foreseen or unforeseen, and any other circumstance
which might otherwise constitute a legal or equitable defense or discharge of the
liabilities of a guarantor or surety or which might otherwise limit recourse against any
Guarantor.



Exhibit 1.3





3












 





     SECTION 4. Full Recourse Obligations. The obligations of each Guarantor set forth
herein constitute the full recourse obligations of such Guarantor enforceable against it to the
full extent of all its assets and properties.



     SECTION 5. Waiver. Each Guarantor unconditionally waives, to the extent permitted by
applicable law, (a) notice of any of the matters referred to in Section 3, (b) notice to such
Guarantor of the incurrence of any of the Obligations, notice to such Guarantor or the Company of
any breach or default by the Company with respect to any of the Obligations or any other notice
that may be required, by statute, rule of law or otherwise, to preserve any rights of the Holders
against such Guarantor, (c) presentment to or demand of payment from the Company or such Guarantor
with respect to any amount due under any Note Document or protest for nonpayment or dishonor,
(d) any right to the enforcement, assertion or exercise by any of the Holders of any right, power,
privilege or remedy conferred in the Note Purchase Agreement or any other Note Document or
otherwise, (e) any requirement of diligence on the part of any of the Holders, (f) any requirement
to exhaust any remedies or to mitigate the damages resulting from any default under any Note
Document, (g) any notice of any sale, transfer or other disposition by any of the Holders of any
right, title to or interest in the Note Purchase Agreement or in any other Note Document and
(h) any other circumstance whatsoever which might otherwise constitute a legal or equitable
discharge, release or defense of a guarantor or surety or which might otherwise limit recourse
against such Guarantor.



     SECTION 6. Subrogation, Contribution, Reimbursement or Indemnity. Until one year and
one day after all Obligations have been paid in full, each Guarantor agrees not to take any action
pursuant to any rights which may have arisen in connection with this Guaranty to be subrogated to
any of the rights (whether contractual, under the United States Bankruptcy Code, as amended,
including section 509 thereof, under common law or otherwise) of any of the Holders against the
Company or against any collateral security or guaranty or right of offset held by the Holders for
the payment of the Obligations. Until one year and one day after all Obligations have been paid in
full, each Guarantor agrees not to take any action pursuant to any contractual, common law,
statutory or other rights of reimbursement, contribution, exoneration or indemnity (or any similar
right) from or against the Company which may have arisen in
connection with this Guaranty. So long as the Obligations remain, if any amount shall be paid by
or on behalf of the Company to any Guarantor on account of any of the rights waived in this
paragraph, such amount shall be held by such Guarantor in trust, segregated from other funds of
such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Holders
(duly endorsed by such Guarantor to the Holders, if required), to be applied against the
Obligations, whether matured or unmatured, in such order as the Holders may determine. The
provisions of this paragraph shall survive the term of this Guaranty and the payment in full of the
Obligations.



     SECTION 7. Effect of Bankruptcy Proceedings, etc. This Guaranty shall continue to be
effective or be automatically reinstated, as the case may be, if at any time payment, in whole or
in part, of any of the sums due to any of the Holders pursuant to the terms of the Note Purchase
Agreement or any other Note Document is rescinded or must otherwise be restored or returned by the
Holder upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the



Exhibit 1.3




4









 




Company
or any other person, or upon or as a result of the appointment of a custodian, receiver, trustee or
other officer with similar powers with respect to the Company or other person or any substantial
part of its property, or otherwise, all as though such payment had not been made. If an event
permitting the acceleration of the maturity of the principal amount of the Notes shall at any time
have occurred and be continuing and one or more Holders shall have attempted to accelerate the
maturity of the principal amount of the Notes pursuant to and in compliance with Section 12.1 of
the Note Purchase Agreement, or an event shall have occurred that pursuant to Section 12.1 of the
Note Purchase Agreement purportedly results in the automatic acceleration of the maturity of the
principal amount of the Notes, and in either such case such acceleration shall at such time be
prevented by reason of the pendency against the Company or any other Person of a case or proceeding
under a bankruptcy or insolvency law, each Guarantor agrees that, for purposes of this Guaranty and
its obligations hereunder, the maturity of the principal amount of the Notes and all other
Obligations shall be deemed to have been accelerated with the same effect as if any Holder had
accelerated the same in accordance with the terms of the Note Purchase Agreement or other
applicable Note Document, and such Guarantor shall forthwith pay such principal amount, Make-Whole
Amount, if any, LIBOR Breakage Amount, if any, and interest thereon and any other amounts
guaranteed hereunder without further notice or demand.




     SECTION 8. Term of Agreement. Subject to Section 9.7(c) of the Note Purchase
Agreement, this Guaranty and all guaranties, covenants and agreements of each Guarantor contained
herein shall continue in full force and effect and shall not be discharged until such time as all
of the Obligations shall be paid and performed in full and all of the agreements of each Guarantor
hereunder shall be duly paid and performed in full.



     SECTION 9. Representations and Warranties. Each Guarantor represents and warrants to
each Holder that:




     (a) such Guarantor is a corporation or other legal entity validly existing and in good
standing or equivalent status under the laws of its jurisdiction of organization and has the
corporate or other power and authority to own and operate its property, to lease
the property it operates as lessee and to conduct the business in which it is currently
engaged;




     (b) such Guarantor has the corporate or other power and authority and the legal right
to execute and deliver, and to perform its obligations under, this Guaranty, and has taken
all necessary corporate or other action to authorize its execution, delivery and performance
of this Guaranty;




     (c) this Guaranty constitutes a legal, valid and binding obligation of such Guarantor
enforceable in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors’ rights generally and by general equitable principles (regardless of whether
such enforceability is considered in a proceeding in equity or at law);



Exhibit 1.3




5









 









     (d) the execution, delivery and performance of this Guaranty will not violate any
provision of any requirement of law or material contractual obligation of such Guarantor
and, except as provided in the Note Purchase Agreement, will not result in or require the
creation or imposition of any Lien on any of the properties, revenues or assets of the
Guarantor pursuant to the provisions of any material contractual obligation of such
Guarantor or any requirement of law;




     (e) except as provided in the Note Purchase Agreement, no consent or authorization of,
filing with, or other act by or in respect of, any arbitrator or governmental authority is
required in connection with the execution, delivery, performance, validity or enforceability
of this Guaranty;




     (f) no litigation, investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or, to the knowledge of such Guarantor, threatened by or
against such Guarantor or any of its properties or revenues (i) with respect to this
Guaranty or any of the transactions contemplated hereby or (ii) which could reasonably be
expected to have a material adverse effect upon the business, operations or financial
condition of such Guarantor and its Subsidiaries taken as a whole;




     (g) the execution, delivery and performance of this Guaranty will not violate any
provision of any order, judgment, writ, award or decree of any court, arbitrator or
Governmental Authority, domestic or foreign, or of the charter or by-laws of such Guarantor
or of any securities issued by such Guarantor; and




     (h) after giving effect to the transactions contemplated herein, (i) the present fair
salable value of the assets of such Guarantor is in excess of the amount that will be
required to pay its probable liability on its existing debts as said debts become absolute
and matured, (ii)  such Guarantor has received reasonably equivalent value for executing and
delivering this Guaranty, (iii) the property remaining in the hands of such Guarantor is not
an unreasonably small capital, and (iv) such Guarantor is able to pay its debts as they
mature.



     SECTION 10. Notices. All notices and communications provided for hereunder shall be
in writing and sent by telecopy if the sender on the same day sends a confirming copy of such
notice by a recognized overnight delivery service (charges prepaid), or by registered or certified
mail with return receipt requested (postage prepaid), or by a recognized overnight delivery service
(with charges prepaid) (a) if to the Company or any Holder at the address set forth in the Note
Purchase Agreement or (b) if to any Guarantor, in care of the Company at the Company’s address set
forth in the Note Purchase Agreement, or in each case at such other address as the Company, any
Holder or such Guarantor shall from time to time designate in writing to the other parties. Any
notice so addressed shall be deemed to be given when actually received.



     SECTION 11. Survival. All warranties, representations and covenants made by each
Guarantor herein or in any certificate or other instrument delivered by it or on its behalf
hereunder shall be considered to have been relied upon by the Holders and shall survive the
execution and delivery of this Guaranty, regardless of any investigation made by any of the



Exhibit 1.3




6









 







Holders. All statements in any such certificate or other instrument shall constitute warranties
and representations by such Guarantor hereunder.




     SECTION 12. Jurisdiction and Process; Waiver of Jury Trial.




     (a) Each Guarantor irrevocably submits to the non-exclusive jurisdiction of any New
York state or federal court sitting in the Borough of Manhattan, The City of New York, over
any suit, action or proceeding arising out of or relating to this Parent Guaranty, the Note
Purchase Agreement or the Notes. To the fullest extent permitted by applicable law, each
Guarantor irrevocably waives and agrees not to assert, by way of motion, as a defense or
otherwise, any claim that it is not subject to the jurisdiction of any such court, 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.




     (b) Each Guarantor agrees, to the fullest extent permitted by applicable law, that a
final judgment in any suit, action or proceeding of the nature referred to in Section 12(a)
brought in any such court shall be conclusive and binding upon it subject to rights of
appeal, as the case may be, and may be enforced in the courts of the United States of
America (or any other courts to the jurisdiction of which it or any of its assets is or may
be subject) by a suit upon such judgment.




     (c) Each Guarantor consents to process being served in any suit, action or proceeding
of the nature referred to in Section 12(a) by mailing a copy thereof by registered or
certified or priority mail, postage prepaid, return receipt requested, or delivering a copy
thereof in the manner for delivery of notices specified in Section 10, to it. Each
Guarantor agrees that such service upon receipt (i) shall be deemed in every respect
effective service of process upon it in any such suit, action or proceeding and (ii) shall,
to the fullest extent permitted by applicable law, be taken and held to be valid
personal service upon and personal delivery to it. Notices hereunder shall be
conclusively presumed received as evidenced by a delivery receipt furnished by the United
States Postal Service or any reputable commercial delivery service.




     (d) Nothing in this Section 12 shall affect the right of any holder of a Note to serve
process in any manner permitted by law, or limit any right that the holders of any of the
Notes may have to bring proceedings against the Company in the courts of any appropriate
jurisdiction or to enforce in any lawful manner a judgment obtained in one jurisdiction in
any other jurisdiction.




     (e) EACH GUARANTOR WAIVES TRIAL BY JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT TO
THIS AGREEMENT, THE NOTES OR ANY OTHER DOCUMENT EXECUTED IN CONNECTION HEREWITH OR
THEREWITH.



Exhibit 1.3




7









 








     SECTION 13. Miscellaneous. Any provision of this Guaranty that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law,
each Guarantor hereby waives any provision of law that renders any provisions hereof prohibited or
unenforceable in any respect. The terms of this Guaranty shall be binding upon, and inure to the
benefit of, each Guarantor and the Holders and their respective successors and assigns. No term or
provision of this Guaranty may be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by each Guarantor and the Required Holders; provided, however, that a
Guarantor may be fully released and discharged from this Guaranty pursuant to the terms of Section
9.7(c) of the Note Purchase Agreement. The section and paragraph headings in this Guaranty and the
table of contents are for convenience of reference only and shall not modify, define, expand or
limit any of the terms or provisions hereof, and all references herein to numbered sections, unless
otherwise indicated, are to sections in this Guaranty. This Guaranty shall in all respects be
governed by, and construed in accordance with, the laws of the State of New York excluding
choice-of-law principles of the law of such State that would require the application of the laws of
a jurisdiction other than such State.



Exhibit 1.3




8









 








          IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed as of the day
and year first above written.




	 	 	 	 	 	 	 
	 	 	ULTRA PETROLEUM CORP.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

Marshall D. Smith
	 	 
	 

	 	Title:
	 	Chief Financial Officer	 	 
	 
	 	 	 	 	 	 
	 	 	UP ENERGY CORPORATION	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

Marshall D. Smith
	 	 
	 

	 	Title:
	 	Chief Financial Officer	 	 






Exhibit 1.3




9