THE
      SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
      ACT
      OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
      NOT
      BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A)
      AN
      EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
      OF
      1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR (B) AN OPINION OF
      COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
      UNDER
      SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD PURSUANT TO
      RULE 144 UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY
      BE
      PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
      ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD
      CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTION 5 HEREOF. THE
      PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE MAY BE LESS THAN THE AMOUNTS SET
      FORTH
      ON THE FACE HEREOF PURSUANT TO SECTION 5 HEREOF.

     

    SENIOR
      SECURED NOTE

     

    November
      13, 2008

     

    
      	
              Note
                No.: SR-001 

            	
              $8,875,000

            


    

     

    FOR
      VALUE RECEIVED, SONTERRA RESOURCES, INC. (f/k/a
      River Capital Group, Inc.), a
      Delaware corporation (the “Company”),
      hereby promises to pay to the order of Longview Marquis Master Fund, L.P.,
      a
      British Virgin Islands limited partnership, or its registered assigns (the
      “Holder”)
      the
      principal amount of Eight Million Eight Hundred Seventy-Five Thousand Dollars
      ($8,875,000) when due, whether upon maturity, acceleration, redemption or
      otherwise, and to pay interest (“Interest”)
      on the
      unpaid principal balance hereof on each Interest Payment Date (as defined in
      Section 2) and upon maturity, or earlier upon acceleration or prepayment
      pursuant to the terms hereof, at the Applicable Interest Rate (as defined in
      Section 2). Interest on this Note payable on each Interest Payment Date and
      upon
      maturity, or earlier upon acceleration or prepayment pursuant to the terms
      hereof, shall accrue from the Issuance Date (as defined in Section 2) and shall
      be computed on the basis of a 365-day year and actual days elapsed.


     

    (1) Payments
      of Principal and Interest.
      All
      payments under this Note shall be made in lawful money of the U.S. (as defined
      in Section 2) by wire transfer of immediately available funds to such account
      as
      the Holder may from time to time designate by written notice in accordance
      with
      the provisions of this Note. Interest on the Principal shall be paid in arrears
      on each Interest Payment Date and upon Maturity. The Company has no right,
      but
      under certain circumstances has an obligation, to make payments of Principal
      of
      this Note prior to the Maturity Date (as defined in Section 2), except as set
      forth in Section 3 hereof. Whenever any amount expressed to be due by the terms
      of this Note is due on any day that is not a Business Day (as defined in Section
      2), the same shall instead be due on the next succeeding day that is a Business
      Day. This Note and all Other Notes (as defined in Section 2) issued by the
      Company pursuant to the Securities Purchase Agreement (as defined in Section
      2)
      on the Closing Date (as defined in the Securities Purchase Agreement), and
      all
      notes issued in exchange or substitution therefor or replacement thereof are
      collectively referred to in this Note as the “Notes.”
      

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (2) Certain
      Defined Terms.
      Each
      capitalized term used in this Note, and not otherwise defined, shall have the
      meaning ascribed thereto in the Securities Purchase Agreement, dated as of
      November 13, 2008, pursuant to which this Note was originally issued (as such
      agreement may be amended, restated, supplemented or otherwise modified from
      time
      to time as provided therein, the “Securities
      Purchase Agreement”).
      For
      purposes of this Note, the following terms shall have the following
      meanings:

     

    (a) “Applicable
      Interest Rate”
means
      the Interest Rate, or, for so long as an Event of Default shall have occurred
      and be continuing, the Default Rate. 

     

    (b) “Bankruptcy
      Law”
means
      Title 11, U.S. Code, or any similar U.S. federal or state law or law of any
      applicable foreign government or political subdivision thereof for the relief
      of
      debtors. 

     

    (c) “Business
      Day”
means
      any day other than Saturday, Sunday or other day on which commercial banks
      in
      the city of New York are authorized or required by law to remain
      closed.

     

    (d) “Cash
      and Cash Equivalents”
means
      (I) cash, (II) certificates of deposit or time deposits, having in each case
      a
      tenor of not more than six (6) months, issued by any U.S. commercial bank or
      any
      branch or agency of a non-U.S. bank licensed to conduct business in the U.S.
      having combined capital and surplus of not less than $250,000,000, and (III)
      money market funds, provided that substantially all of the assets of such funds
      consist of securities of the type described in clauses (I) or (II) immediately
      above, all as determined in accordance with GAAP applied on a consistent
      basis.

     

    (e) “Change
      of Control”
means
      (i) the consolidation, merger or other business combination of the Company
      with
      or into another Person (other than (A) a consolidation, merger or other business
      combination in which holders of the Company’s voting power immediately prior to
      the transaction continue after the transaction to hold, directly or indirectly,
      a majority of the combined voting power of the surviving entity or entities
      entitled to vote generally for the election of a majority of the members of
      the
      board of directors (or their equivalent if other than a corporation) of such
      entity or entities, or (B) pursuant to a migratory merger effected solely for
      the purpose of changing the jurisdiction of incorporation of the Company),
      (ii)
      the sale or transfer of all or substantially all of the Company’s assets
      (including, for the avoidance of doubt, the sale of all or substantially all
      of
      the assets of the Subsidiaries in the aggregate); (iii) the consummation of
      a
      purchase, tender or exchange offer made to and accepted by the holders of more
      than the fifty percent (50%) of the outstanding shares of Common Stock; (iv)
      the
      acquisition by any Person or group (within the meaning of Section 13(d)(3)
      or
      14(d)(2) of the 1934 Act) of the beneficial ownership (within the meaning of
      Rule 13d-3 promulgated under the 1934 Act) of fifty percent (50%) or more of
      the
      outstanding shares of Common Stock or of the combined voting power of the then
      outstanding voting securities of the Company entitled to vote generally in
      the
      election of directors; or (v) any change in the composition of the Board of
      Directors of the Company (the “Board”)
      such
      that the individuals who, as of the date of the Securities Purchase Agreement,
      constituted the Board of the Company (such Board of the Company being
      hereinafter referred to as the “Incumbent
      Board”)
      cease
      for any reason to constitute at least a majority of the Board; provided,
      however, that any individual who becomes a member of the Board whose election,
      or nomination for election by the Company's stockholders, was approved by a
      vote
      of at least a majority of those individuals who are members of the Board and
      who
      were also members of the Incumbent Board (or deemed to be such pursuant to
      this
      proviso) shall be considered as though such individual were a member of the
      Incumbent Board; but, provided, further, that any such individual whose initial
      assumption of office occurs as a result of either an actual or threatened
      election contest (as such terms are used in Rule 14a-11 of Regulation 14A
      promulgated under the 1934 Act) or other actual or threatened solicitation
      of
      proxies or consents by or on behalf of a Person or group other than the Board
      shall not be so considered as a member of the Incumbent Board.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (f) “Collateral
      Agent”
shall
      have the meaning ascribed to such term in the Security Agreement.

     

    (g) “Custodian”
means
      any receiver, trustee, assignee, liquidator or similar official under any
      Bankruptcy Law. 

     

    (h) “Daily
      Production Average”
means,
      for any calendar quarter, the arithmetic average of the aggregate number of
      thousands of cubic feet equivalents (“Mcfe”)
      of
      natural gas produced by all of the Real Property of the Company and the FC
      Subsidiaries, net to the Working Interests (as defined in the Conveyances of
      Limited Overriding Royalty Interests) owned by the Company and such Subsidiaries
      in such Real Property, on each of the days in such calendar
      quarter.

     

    (i) “Daily
      Production Test Failure”
means
      that, as of any date of determination, the Daily Production Average for the
      calendar quarter ending on such date is less than the Required Daily Production
      Average for such calendar quarter.

     

    (j) “Daily
      Production Test Failure Percentage”
means,
      in the event that there is a Daily Production Test Failure as of any date of
      determination, an amount equal to the result of (A) one (1) minus (B) the
      quotient of the Daily Production Average for the calendar quarter ended on
      such
      date, divided by the Required Daily Production Average for such calendar
      quarter.

     

    (k) “Default
      Rate”
means
      the per annum interest rate equal to the sum of (i) the Interest Rate plus
      (ii)
      two percent (2.0%) (i.e., 200 basis points). 

     

    (l) “Dollars”
or
      “$”
means
      United States Dollars.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (m) “Excluded
      Taxes”
means,
      with respect to the Holder, or any other recipient of payment to be made by
      or
      on account of any obligations of the Company or any of the Subsidiaries under
      the Notes, the Securities Purchase Agreement or under any other Transaction
      Document, income or franchise taxes imposed on (or measured by) such recipient’s
      net income or gross receipts by the U.S. or such other jurisdiction under the
      laws of which such recipient is organized or its principal offices are
      located.

     

    (n) “FC
      Subsidiaries”
means
      the domestic Included Subsidiaries that (i) are directly or indirectly
      wholly-owned by the Company, (ii) are party to the Guaranty and the Security
      Agreement, and (iii) in all of the assets of which the holders of the Notes
      have
      a valid, first priority, perfected security interest as of the applicable date
      of determination.

     

    (o) “Financial
      Covenant Test Failure”
      means
      that, as of any date of determination, (A) there is a Daily Production Test
      Failure or (B) the PRV Ratio as of such date is less than the Required PRV
      Ratio
      as of such date.

     

    (p) “Financial
      Covenant Test Failure Amount”
means,
      in the event that there is a Financial Covenant Test Failure as of any date
      of
      determination, an amount equal to the sum of:

     

    (i) the
      product of (A) the result of (I) one (1) minus (II) the quotient of the Daily
      Production Average for the calendar quarter ended on such date, divided by
      the
      Required Daily Production Average for such calendar quarter (provided, however,
      that such result shall not be less than zero (0)), multiplied by (B) the
      aggregate outstanding principal amount of all Notes then outstanding;
      plus

     

    (ii) the
      product of (A) the result of (I) one (1) minus (II) the quotient of the PRV
      Ratio as of such date, divided by the Required PRV Ratio as of such date
      (provided, however, that such result shall not be less than zero (0)),
      multiplied by (B) the aggregate outstanding principal amount of all Notes then
      outstanding. 

     

    (q) “GAAP”
means
      U.S. generally accepted accounting principles, as in effect at the relevant
      time.

     

    (r) “Governmental
      Authority”
means
      the government of the U.S. or any other nation, or any political subdivision
      thereof, whether state, provincial or local, or any agency, authority,
      instrumentality, regulatory body, court, central bank or other entity exercising
      executive, legislative, judicial, taxing, regulatory or administration powers
      or
      functions of or pertaining to government over the Company, or any of their
      respective properties, assets or undertakings.

     

    (s) “Indemnified
      Taxes”
means
      all taxes other than Excluded Taxes.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (t) “Interest
      Amount”
means,
      as of any date, with respect to any Principal, all accrued and unpaid Interest
      (including any Interest at the Default Rate) on such Principal through and
      including such date.

     

    (u) “Interest
      Payment Date”
means
      the last Business Day of each of December 2008, March 2009 and June 2009, and
      thereafter on the first Business Day of each calendar month, beginning with
      August 2009, until this Note has been repaid in full.

     

    (v) “Interest
      Rate”
means
      thirteen percent (13.0%) per annum, subject to adjustment as provided in Section
      3(c)(iii). 

     

    (w) “Issuance
      Date”
means
      the original date of issuance of this Note pursuant to the Securities Purchase
      Agreement, regardless of any exchange or replacement hereof.

     

    (x) “Maturity
      Date”
means
      November 13, 2011, unless such date is not a Business Day, in which case
“Maturity Date” shall mean the first Business Day following November 13,
      2011.

     

    (y) “Other
      Notes”
means
      all of the senior secured notes, other than this Note, that have been issued
      by
      the Company pursuant to the Securities Purchase Agreement and all notes issued
      in exchange or substitution therefor, addition thereto or replacement
      thereof.

     

    (z) “PDNP”
as
      of
      any date of determination, means the total proved developed
      non-producing reserves
      (in Mcfe) of the Company and the FC Subsidiaries, determined as of such date
      of
      determination in accordance with SEC guidelines from an independent reserve
      report prepared in good faith by the Petroleum Engineer in accordance with
      industry standards and best practices (an “Independent
      Reserve Report”);
      provided, however, that PDNP shall mean zero (0) unless (A) it is based upon
      an
      Independent Reserve Report (or an update thereof prepared (but not certified)
      by
      the Petroleum Engineer, which update includes all material adjustments to the
      amounts set forth in the most recent Independent Reserve Report to reflect
      the
      Company’s and the Subsidiaries’ oil and gas drilling, exploration, development
      and production since the date of such Independent Reserve Report (a
“Reserve
      Update”))
      that
      was current as of a date within 92 days of such date of determination, (B)
      the
      Company has publicly disclosed the PDNP in a Periodic Report as of a date within
      274 days of such date of determination (based on an Independent Reserve Report
      that was current as of such date of determination), (C) the PDNP is based upon
      the same Independent Reserve Report or Reserve Update on which the PDP, PUD
      and
      Probable are based as of such date of determination, and (D) if the PDNP is
      not
      based upon an Independent Reserve Report (or a Reserve Update) that was current
      as of such date of determination, the Company reasonably believes, based upon
      its own analysis conducted in good faith and reflecting the Company’s and the FC
      Subsidiaries’ oil and gas drilling, exploration, development and production
      since the date of the Independent Reserve Report (or Reserve Update) on which
      the PDNP is based (the “Recent
      Production”)
      (and
      has certified to the Holder in the applicable Officer’s Certificate to the
      Holder that it so reasonably believes), that the PDNP is not less than that
      disclosed in the Independent Reserve Report (or Reserve Update) on which the
      PDNP is based.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (aa) “PDP”
means
      the total proved developed producing reserves (in Mcfe) of the Company and
      the
      FC Subsidiaries, determined in accordance with SEC guidelines from an
      Independent Reserve Report; provided, however, that PDP shall mean zero (0)
      unless (A) it is based upon an Independent Reserve Report (or a Reserve Update)
      that was current as of a date within 92 days of such date of determination,
      (B)
      the Company has publicly disclosed the PDP in a Periodic Report as of a date
      within 274 days of such date of determination (based on an Independent Reserve
      Report that was current as of such date of determination), (C) the PDP is based
      upon the same Independent Reserve Report or Reserve Update on which the PDNP,
      PUD and Probable are based as of such date of determination, and (D) if the
      PDP
      is not based upon an Independent Reserve Report (or a Reserve Update) that
      was
      current as of such date of determination, the Company reasonably believes,
      based
      upon its own analysis conducted in good faith and reflecting the Recent
      Production (and has certified to the Holder in the applicable Officer’s
      Certificate that it so reasonably believes), that the PDP is not less than
      that
      disclosed in the Independent Reserve Report (or Reserve Update) on which the
      PDP
      is based.

     

    (bb) “Periodic
      Report”
means
      a
      quarterly report on Form 10-Q (or successor thereto) or an annual report on
      Form
      10-K (or successor thereto), in the form required to be filed with the SEC.
      

     

    (cc) “Person”
means
      an individual, a limited liability company, a partnership, a joint venture,
      a
      corporation, a trust, an unincorporated organization or a government or any
      department or agency thereof or any other legal entity.

     

    (dd) “Petroleum
      Engineer”
means
      an independent petroleum engineer that is an SPE (Society of Petroleum
      Engineers) Certified Petroleum Professional and is selected and engaged by
      the
      Company and approved by the holders of Notes representing at least two thirds
      (2/3) of the aggregate principal amount of the Notes then outstanding, which
      approval shall not be unreasonably withheld, conditioned or
      delayed.

     

    (ee) “Prepayment
      Notice”
means
      a
      written notice from the Company to Holder indicating the Company’s commitment to
      prepay a specified amount of Principal, together with the applicable Interest
      Amount and Prepayment Premium with respect thereto on the applicable prepayment
      date.

     

    (ff) “Prepayment
      Premium”
means
      an amount equal to twenty-five percent (25%) of the amount of Principal so
      prepaid or required to be prepaid.

     

    (gg) “Principal”
means
      the outstanding principal amount of this Note as of any date. 

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    (hh) “Probable”
means
      the total probable undeveloped reserves (in Mcfe) of the Company and the FC
      Subsidiaries, determined in accordance with SEC guidelines based on an
      Independent Reserve Report; provided, however, that Probable shall mean zero
      (0)
      unless (A) it is based upon an Independent Reserve Report (or a Reserve Update)
      that was current as of a date within 92 days of such date of determination,
      (B)
      the Company has publicly disclosed the Probable in a Periodic Report as of
      a
      date within 274 days of such date of determination (based on an Independent
      Reserve Report that was current as of such date of determination), (C) the
      Probable is based upon the same Independent Reserve Report or Reserve Update
      on
      which the PDNP, PDP and PUD are based as of such date of determination, and
      (D)
      if the Probable is not based upon an Independent Reserve Report (or a Reserve
      Update) that was current as of such date of determination, the Company
      reasonably believes, based upon its own analysis conducted in good faith and
      reflecting the Recent Production (and has certified in the applicable Officer’s
      Certificate that it so reasonably believes), that the Probable is not less
      than
      that disclosed in the Independent Reserve Report (or Reserve Update) on which
      the Probable is based.

     

    (ii) “Pro
      Rata Financial Covenant Test Failure Amount”
means,
      as of the date of any determination, an amount equal to the sum of (i) the
      product of (A) a fraction, of which the numerator is the outstanding Principal
      as of such date, and of which the denominator is the aggregate outstanding
      principal amount of all Notes as of such date, multiplied by (B) the Financial
      Covenant Test Failure Amount, and (ii) the Interest Amount with respect to
      such
      Principal as of the date such amount is paid to the Holder.

     

    (jj) “PRV
      Ratio”
means,
      as of any date of determination, the quotient of:

     

    (I)
      the
      result of:

     

    (i)
      (A)
      the product of the aggregate actual PDP and PDNP of the Company’s and the FC
      Subsidiaries’ oil and gas properties and interests in which the holders of the
      Notes have a valid, first priority, perfected security interest as of such
      date
      of determination (the “PRV
      Properties”),
      multiplied by (B) the relevant hub spot price as of such date of determination,
      and multiplied by (C) 40%; plus 

     

    (ii)
      the
      product of (A) the actual PUD of the PRV Properties, multiplied by (B) the
      relevant hub spot price as of such date of determination, and multiplied by
      (C)
      15%; plus

     

    (iii)
      the
      product of (A) the actual Probable of the PRV Properties, multiplied by (B)
      the
      relevant hub spot price as of such date of determination and multiplied by
      (C)
      5%; plus

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    (iv)
      the
      aggregate Cash and Cash Equivalents of the Company and the FC Subsidiaries,
      the
      aggregate hydrocarbon receivables of the Company and the FC Subsidiaries (net
      of
      any provision for uncollectibility thereof and excluding any such receivables
      that are impaired or have been outstanding (and uncollected) for more than
      60
      days since the initial booking thereof), and the market value of hedges of
      the
      Company and the FC Subsidiaries, each as of such date of determination, as
      set
      forth in the financial statements included in the Periodic Report for the fiscal
      quarter or year ended on such date of determination; plus

     

    (v)
      $4,400,000 (representing the deemed liquidation value as of the Issuance Date
      of
      the drilling rigs, trucks and equipment of North Texas, which was acquired
      and
      became a Subsidiary as of the Issuance Date), adjusted as agreed upon by the
      Company and the holders of Notes representing at least two-thirds (2/3) of
      the
      aggregate principal amount outstanding under the Notes as of such date of
      determination, to reflect any sales, transfers or other dispositions of, or
      any
      failure of the holders of the Notes to have a valid, first priority, perfected
      security interest in, any of such drilling rigs, trucks and equipment (other
      than due to the FNBW Security Interest); minus

     

    (vi)
      the
      aggregate hedge margin collateral of the Company and the Subsidiaries, the
      aggregate hydrocarbon payables (including with respect to royalty payments
      and
      net profit interests) of the Company and the Subsidiaries, and the aggregate
      accrued production taxes payable by the Company and the Subsidiaries, each
      as of
      such date of determination, as set forth in the financial statements included
      in
      the Periodic Report for the fiscal quarter or year ended on such date of
      determination; and minus

     

    (vii)
      the
      aggregate Indebtedness of the Company and the Subsidiaries due prior to the
      Maturity Date (excluding the Notes), as of such date of determination, as set
      forth in the financial statements included in the Periodic Report for the fiscal
      quarter or year ended on such date of determination;

     

    divided
      by

     

    
      	 	
              (II)
                

            	
              the
                aggregate outstanding principal amount of all
                Notes.

            


    

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (kk) “PUD”
means
      the total proved undeveloped reserves (in Mcfe) of the Company and the FC
      Subsidiaries, determined in accordance with SEC guidelines based on an
      Independent Reserve Report; provided, however, that PUD shall mean zero (0)
      unless (A) it is based upon an Independent Reserve Report (or a Reserve Update)
      that was current as of a date within 92 days of such date of determination,
      (B)
      the Company has publicly disclosed the PUD in a Periodic Report as of a date
      within 274 days of such date of determination (based on an Independent Reserve
      Report that was current as of such date of determination), (C) the PUD is based
      upon the same Independent Reserve Report or Reserve Update on which the PDNP,
      PDP and Probable are based as of such date of determination, and (D) if the
      PUD
      is not based upon an Independent Reserve Report (or a Reserve Update) that
      was
      current as of such date of determination, the Company reasonably believes,
      based
      upon its own analysis conducted in good faith and reflecting the Recent
      Production (and has certified in the applicable Officer’s Certificate that it so
      reasonably believes), that the PUD is not less than that disclosed in the
      Independent Reserve Report (or Reserve Update) on which the PUD is
      based.

     

    (ll) “Required
      Daily Production Average”
means,
      with respect to any fiscal quarter ending on or after any date set forth below
      and prior to the next date set forth below, the Daily Production Average set
      forth below opposite such date (subject in each case to adjustment, as agreed
      upon in writing by the Company and the holders of Notes representing at least
      two thirds (2/3) of the aggregate principal amount of the Notes then
      outstanding, to reflect an Agreed Acquisition or otherwise): 

     

    
      	
              Date

            	 	
              Daily
                Production Average

            
	
              March
                31, 2009

            	 	
              1,200
                Mcfe

            
	
              September
                30, 2009

            	 	
              2,500
                Mcfe

            
	
              March
                31, 2010

            	 	
              4,000
                Mcfe

            


    

    


     

    (mm) “Required
      PRV Ratio”
means,
      with respect to any date set forth below, the ratio set forth below opposite
      such date (subject in each case to adjustment, as agreed upon in writing by
      the
      Company and the holders of Notes representing at least two thirds (2/3) of
      the
      aggregate principal amount of the Notes then outstanding, to reflect an Agreed
      Acquisition or otherwise):

     

    
      	
              Date

            	 	
              Ratio

            
	
              December
                31, 2008

            	 	
              1.00

            
	
              March
                31, 2009

            	 	
              1.50

            
	
              June
                30, 2009

            	 	
              1.75

            
	
              September
                30, 2009 and the last day of each fiscal quarter thereafter
                

            	 	
              2.00

            


    

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    (nn) “SEC”
means
      the U.S. Securities and Exchange Commission, or any successor
      thereto.

     

    (oo) “U.S.”
means
      the United States of America.

     

    (3) Principal
      Payments.
      

     

    (a) Optional
      Principal Prepayments.

     

    (i) General.
      The
      Company shall have the right, at any time not less than ten (10) Business
      Days following
      the receipt by the Holder of a Prepayment Notice delivered by the Company to
      the
      Holder, to voluntarily prepay this Note (an “Optional
      Prepayment”),
      in
      whole or in part, for an amount in cash equal to the sum of (A) the Principal
      then being prepaid pursuant to this Section 3(a), and (B) the Interest Amount
      with respect to such Principal as of the applicable prepayment date (the
“Optional
      Prepayment Date”)
      (collectively, the “Optional
      Prepayment Amount”);
      provided, however, that the Company may not take such action unless it
      simultaneously takes the same action with respect to the same percentage of
      the
      outstanding principal amount of each outstanding Other Note.

     

    (ii) Mechanics
      of Optional Prepayments.
      If the
      Company has delivered a Prepayment Notice in accordance with Section 3(a)(i),
      then the Company shall pay to the Holder the Optional Prepayment Amount in
      cash
      by wire transfer of immediately available funds to an account designated by
      the
      Holder. The delivery of a Prepayment Notice by the Company to the Holder shall
      be irrevocable, and the failure of the Company to prepay the Optional Prepayment
      Amount set forth therein on the applicable Optional Prepayment Date shall
      constitute an Event of Default hereunder. Any Optional Prepayment pursuant
      to
      this Section 3(a) shall be applied to the remaining mandatory Scheduled
      Principal Payments (as defined below) in inverse order of maturity as to the
      remaining scheduled installments thereof (i.e., the Optional Prepayment Amount
      shall be deducted first from the Scheduled Principal Payment nearest to the
      Maturity Date and then sequentially from the immediately preceding Scheduled
      Principal Payments).

     

    (iii) Condition
      to Optional Prepayment.
      Notwithstanding anything to the contrary contained in this Section 3(a), the
      Company shall not be permitted to deliver any Prepayment Notice or to effect
      any
      Optional Prepayment at any time after any Event of Default, or any event that
      with the passage of time or the giving of notice (or both) and without being
      cured would constitute an Event of Default, has occurred and is
      continuing.

     

    
      
        
        

      

      
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    (b) Scheduled
      Principal Payments.
      Subject
      to the reduction in the scheduled amount of installment payments in accordance
      with the application of prepayments pursuant to the preceding Section 3(a)
      and
      the following Section 3(c), the Company shall repay the Principal in
      twenty-eight (28) equal monthly installments, each in the amount of Three
      Hundred Sixteen Thousand, Nine Hundred Sixty-Four and 29/100 Dollars
      ($316,964.29), with such installments payable on the first Business Day of
      each
      calendar month, commencing with August 2009 (each such required repayment of
      Principal, a “Scheduled
      Principal Payment”);
      provided, that any remaining outstanding Principal shall be repaid on the
      Maturity Date.

     

    (c) Mandatory
      Prepayment Upon Financial Covenant Test Failure; Interest Rate
      Adjustment. 

     

    (i) On
      the
      second Business Day following each date that the Company files or is required
      to
      file a Periodic Report for any fiscal quarter or year ending after the date
      of
      consummation of an Agreed Acquisition (which in each case shall disclose the
      Company’s Daily Production Average for the calendar quarter ending on the last
      day of the period covered by such Periodic Report, and the PRV Ratio and any
      Financial Covenant Test Failure Amount as of such last day of the period covered
      by such Periodic Report, and details of the calculations and components
      thereof), the Company shall deliver to the Holder, by facsimile or overnight
      courier, a certificate executed by its principal financial officer (an
“Officer’s
      Certificate”)
      (1)
      certifying as to the accuracy of the Periodic Report and of the Daily Production
      Average, the PRV Ratio and any Financial Covenant Test Failure Amount disclosed
      therein, (2) if there is no Financial Covenant Test Failure disclosed therein,
      certifying that there was no Financial Covenant Test Failure as of the last
      day
      of the period covered by such Periodic Report, (3) if there was a Financial
      Covenant Test Failure as of the last day of the period covered by such Periodic
      Report, certifying as to whether there was a Daily Production Test Failure
      as of
      such last day and as to any Daily Production Test Failure Percentage and as
      to
      the Holder’s Pro Rata Financial Covenant Test Failure Amount as of such last
      day, and (4) certifying as to the Interest Rate, giving effect to any adjustment
      thereto on such date required by Section 3(c)(iii). Notwithstanding anything
      contained herein to the contrary, no Officer’s Certificate delivered by the
      Company to any Holder shall contain any material non-public information
      regarding the Company or any of the Subsidiaries. If the Company delivers (or
      is
      required, but fails, to deliver) an Officer’s Certificate that discloses (or is
      required to disclose) a Financial Covenant Test Failure, the Company shall
      immediately prepay, without demand or notice by the Holder, by wire transfer
      of
      immediately available funds to such account as the Holder may from time to
      time
      designate, an amount equal to the Holder’s Pro Rata Financial Covenant Test
      Failure Amount. Any mandatory prepayment pursuant to this Section 3(c) shall
      be
      applied to the remaining mandatory Scheduled Principal Payments in inverse
      order
      of maturity as to the remaining scheduled installments thereof (i.e., the
      Financial Covenant Test Failure Amount shall be deducted first from the
      Scheduled Principal Payment nearest to the Maturity Date and then sequentially
      from the immediately preceding Scheduled Principal Payments). 

     

    
      
        
        

      

      
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    (ii) In
      the
      case of a bona fide dispute as to the determination of the Daily Production
      Average, PUD, PDP, PDNP, Probable or PRV Ratio or the arithmetic calculation
      of
      any Daily Production Test Failure Percentage or Financial Covenant Test Failure
      Amount, the Company shall pay any amount that is not disputed and shall transmit
      an explanation of the disputed determinations or arithmetic calculations to
      the
      Holder via facsimile within two (2) Business Days of the occurrence of the
      dispute. If the Holder and the Company are unable to agree upon the
      determination of the Daily Production Average, PUD, PDP, PDNP, Probable or
      PRV
      Ratio or the arithmetic calculation of any Financial Covenant Test Failure
      Amount within two (2) Business Days of such disputed determination or arithmetic
      calculation being transmitted to the Holder, then the Company shall promptly
      (and in any event within two (2) Business Days) submit via facsimile (A) the
      disputed determination of the Daily Production Average, PUD, PDP, PDNP, Probable
      or PRV Ratio to a qualified, independent petroleum engineer (other than the
      Petroleum Engineer), agreed to by the Company and the holders of Notes
      representing at least two thirds (2/3) of the aggregate principal amount of
      Notes then outstanding, or (B) the disputed arithmetic calculation of the Daily
      Production Test Failure Percentage or the Financial Covenant Test Failure Amount
      to an independent, outside certified public accountant, agreed to by the Company
      and the holders of Notes representing at least two thirds (2/3) of the aggregate
      principal amount of the Notes then outstanding. The Company shall direct the
      petroleum engineer or the accountant, as the case may be, to perform the
      determinations or calculations, at the Company’s expense, and notify the Company
      and the Holder of the results no later than two (2) Business Days from the
      time
      it receives the disputed determinations or calculations. Such petroleum
      engineer’s or accountant’s determination or calculation, as the case may be,
      shall be binding upon all parties absent manifest error.

     

    (iii) On
      each
      day that the Company delivers (or is required, but fails, to deliver) an
      Officer’s Certificate to the Holder (each such day, an “Interest
      Reset Date”),
      (A)
      if such Officer’s Certificate discloses (or is required to disclose) a Daily
      Production Test Failure, the Interest Rate shall immediately and automatically,
      without any further action by any Person, be adjusted to the per annum rate
      equal to the greater of (I) the product of thirteen percent (13.0%), multiplied
      by the sum of one (1) plus the applicable Daily Production Test Failure
      Percentage, and (II) the Interest Rate in effect on and after the immediately
      preceding Interest Reset Date (giving effect to any adjustment occurring on
      such
      date), or (B) if such Officer’s Certificate does not disclose (and is not
      required to disclose) a Daily Production Test Failure, the Interest Rate shall
      immediately and automatically, without any further action by any Person, be
      adjusted to thirteen percent (13.0%) (or, if already at thirteen percent
      (13.0%), shall remain thereat). The adjusted Interest Rate will be applicable
      as
      of and after the Interest Reset Date on which it was so adjusted to, but not
      including, the next succeeding Interest Reset Date.

     

    
      
        
        

      

      
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    (d) Mandatory
      Payment by the Company on Maturity Date.
      If any
      Principal remains outstanding on the Maturity Date, then the Holder shall
      surrender this Note, duly endorsed for cancellation to the Company, and such
      Principal shall be redeemed by the Company as of the Maturity Date by payment
      on
      the Maturity Date to the Holder, by wire transfer of immediately available
      funds, of an amount equal to 100% of such Principal and the related Interest
      Amount, together with all other amounts then payable to the Holder under this
      Note, the Securities Purchase Agreement and the other Transaction Documents.
      

     

    (4) Reorganization,
      Reclassification, Consolidation, Merger or Sale.
      Any
      recapitalization, reorganization, reclassification, consolidation, merger,
      sale
      of all or substantially all of the Company’s assets to another Person or other
      transaction that is effected in such a way that holders of Common Stock are
      entitled to receive (either directly or upon subsequent liquidation) stock,
      securities or assets with respect to or in exchange for Common Stock is referred
      to herein as “Organic
      Change.”
Prior
      to the consummation of any (i) sale of all or substantially all of the Company’s
      assets to an acquiring Person (including, for the avoidance of any doubt, the
      sale of assets of the Subsidiaries) or (ii) other Organic Change following
      which
      the Company is not a surviving entity, the Company will secure from the Person
      purchasing such assets or the successor resulting from such Organic Change
      (in
      each case, the “Acquiring
      Entity”)
      a
      written agreement, in form and substance satisfactory to the holders of Notes
      representing at least two thirds (2/3) of the aggregate principal amount of
      the
      Notes then outstanding, to deliver to the Holder in exchange for this Note,
      a
      security of the Acquiring Entity evidenced by a written instrument substantially
      similar in form and substance to this Note and satisfactory to the holders
      of
      Notes representing at least two thirds (2/3) of the aggregate principal amount
      of the Notes then outstanding. 

     

    (5) Surrender
      of Note.
      Notwithstanding anything to the contrary set forth in this Note, upon any
      redemption or repayment of any of the Principal of this Note in accordance
      with
      the terms hereof, the Holder shall not be required to physically surrender
      this
      Note to the Company unless all of the Principal is being redeemed and/or repaid
      and the related Interest Amount and all other obligations payable under this
      Note (including any other amounts due under this Note) have been paid in full.
      The Register (as defined in Section 15 hereof) shall show the principal amount
      redeemed or repaid and the dates of such redemptions or repayments so as not
      to
      require physical surrender of this Note upon each such redemption or repayment.
      The Holder and any assignee, by acceptance of this Note, acknowledge and agree
      that, by reason of the provisions of this paragraph, following redemption or
      repayment of any portion of this Note, the Principal may be less than the
      principal amount stated on the face hereof. 

     

    (6) Interest.
       Interest
      shall be payable by the Company, on each Interest Payment Date and at the
      Maturity Date, to the record Holder of this Note on such Interest Payment Date
      by wire transfer of immediately available funds. Any accrued and unpaid Interest
      which is not paid within three (3) Business Days of such accrued and unpaid
      Interest’s Interest Payment Date shall bear interest at the Default Rate from
      such Interest Payment Date until the same is paid in full. 

     

    
      
        
        

      

      
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    (7) Voting
      Rights.
      The
      holders of the Notes, as such, shall have no rights to vote on the election
      of
      directors of the Company or on any other matter submitted to the vote of holders
      of capital stock of the Company. 

     

    (8) Defaults
      and Remedies.

     

    (a) Events
      of
      Default. An “Event
      of Default”
shall
      mean any of: 

     

    (i) default
      in payment of any Principal, Optional Prepayment Amount, Scheduled Principal
      Payment or Pro Rata Financial Covenant Test Failure Amount under this Note
      or
      any Other Note when and as due; 

     

    (ii) default
      in payment of any Interest or other amount due on this Note or any Other Note
      that is not included in an amount described in the immediately preceding clause
      (i) that is not cured within three Business Days from the date such Interest
      or
      other amount was due; 

     

    (iii) failure
      by the Company for 10 days to comply with any other provision of this Note
      in
      all material respects; 

     

    (iv) any
      “Event of Default” under any Other Note or any of the Sub Notes;

     

    (v) any
      default in payment of at least $100,000, individually or in the aggregate,
      under
      or acceleration prior to maturity of, or any event or circumstances arising
      such
      that, any person is entitled, or could, with the giving of notice and/or lapse
      of time and/or the fulfillment of any condition and/or the making of any
      determination, become entitled, to require repayment before its stated maturity
      of, or to take any step to enforce any security for, any mortgage, indenture
      or
      instrument under which there may be issued or by which there may be secured
      or
      evidenced any indebtedness
      for
      money borrowed of at least $100,000 by the Company or any of the Subsidiaries,
      or for money borrowed the repayment of at least $100,000 of which is guaranteed
      by the Company or any of the Subsidiaries, whether such indebtedness or
      guarantee exists on the Issuance Date or shall be created thereafter;


     

    (vi) the
      Company or any of the Subsidiaries pursuant to or within the meaning of any
      Bankruptcy Law (A) commences a voluntary case or applies for a receiving order,
      (B) consents to the entry of an order for relief against it in an involuntary
      case or consents to any involuntary application for a receiving order, (C)
      consents to the appointment of a Custodian of it or any of the Subsidiaries
      for
      all or substantially all of its property, (D) makes a general assignment for
      the
      benefit of its creditors, or (E) admits in writing that it is generally unable
      to pay its debts as the same become due; 

     

    
      
        
        

      

      
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    (vii) an
      involuntary case or other proceeding is commenced directly against the Company
      or any of the Subsidiaries seeking liquidation, reorganization or other relief
      with respect to it or its Indebtedness under any Bankruptcy Law now or hereafter
      in effect or seeking the appointment of a trustee, receiver, liquidator,
      custodian or other similar official of it or any substantial part of its
      property, and such involuntary case or other Bankruptcy Law proceeding remains
      undismissed and unstayed for a period of 45 days, or an order of relief is
      entered against the Company as debtor under the Bankruptcy Laws as are now
      or
      hereafter in effect; 

     

    (viii) the
      Company or any of the Subsidiaries breaches any covenant or other term or
      condition of the Security Documents; 

     

    (ix) the
      Company or any of the Subsidiaries breaches any covenant or other term or
      condition of the Securities Purchase Agreement, the Warrants, this Note or
      any
      other Transaction Document, except, in the case of a breach of a covenant or
      other term that is curable, only if such breach continues for a period of at
      least 20 days; 

     

    (x) the
      Company breaches, or otherwise does not comply with, Section 4(u), or any of
      the
      provisions of Section 5, of
      the
      Securities Purchase Agreement; 

     

    (xi) one
      or
      more judgments, non-interlocutory orders or decrees shall be entered by a U.S.
      state or federal or a foreign court or administrative agency of competent
      jurisdiction against the Company or any of the Subsidiaries involving, in the
      aggregate, a liability (to the extent not covered by independent third-party
      insurance) as to any single or related series of transactions, incidents or
      conditions, of $100,000 or more, and the same shall remain unsatisfied,
      unvacated, unbonded or unstayed pending appeal for a period of 30 days after
      the
      entry thereof; 

     

    (xii) there
      shall occur a Change of Control; 

     

    (xiii) any
      representation, warranty, certification or statement made by the Company or
      any
      of the Subsidiaries in the Securities Purchase Agreement, the Warrants, this
      Note, the Security Documents or any other Transaction Document or in any
      certificate, financial statement or other document delivered pursuant to any
      such Transaction Document is incorrect in any material respect when made (or
      deemed made); 

     

    (xiv) any
      Lien
      created by any of the Security Documents shall at any time fail to constitute
      a
      valid and perfected Lien on all of the Collateral purported to be secured
      thereby, subject to no prior or equal Lien except Permitted Liens, or the
      Company or any of the Subsidiaries shall so assert; 

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    (xv) the
      Company fails to file, or is determined to have failed to file, in a timely
      manner any Periodic Report or current report on Form 8-K (or successor thereto)
      (other than a current report on Form 8-K that is required solely pursuant to
      Item 1.01, 1.02, 2.03, 2.04, 2.05, 2.06, 4.02(a) or 5.02(e) of Form 8-K as
      in
      effect on the Issuance Date) required to be filed with the SEC pursuant to
      the
      1934 Act (provided that any filing made within the time period permitted by
      Rule
      12b-25 under the 1934 Act and pursuant to a timely filed Form 12b-25 shall,
      for
      purposes of this clause (xiv), be deemed to be timely filed); 

     

    (xvi) the
      Daily
      Production Average, the PRV Ratio or any Financial Covenant Test Failure Amount
      disclosed in any Periodic Report is not true and correct in all material
      respects as of the date of such Daily Production Average, PRV Ratio or Financial
      Covenant Test Failure Amount; or

     

    (xvii) the
      Company fails to deliver an Officer’s Certificate pursuant to Section 3(c)(i)
      within five (5) days after the date such Officer’s Certificate is required to be
      delivered pursuant to Section 3(c)(i), any Officer’s Certificate delivered to
      the Holder does not contain all of the information required to be included
      therein pursuant to Section 3(c)(i), or any of the information contained in
      any
      Officer’s Certificate delivered to the Holder is not true, correct and complete
      in all material respects as of the date of such Officer’s
      Certificate..

     

    Within
      two Business Days after the occurrence of any Event of Default, the Company
      shall deliver written notice thereof to the Holder.

     

    (b) Remedies.
      If an
      Event of Default occurs and is continuing, the Holder may declare all or any
      portion of this Note, including any or all amounts due hereunder, to be due
      and
      payable immediately, except that in the case of an Event of Default arising
      from
      events described in clauses (vi) and (vii) of Section 8(a) above, all amounts
      due hereunder shall immediately become due and payable without further action
      or
      notice. In addition to any remedy the Holder may have under this Note, the
      Security Documents and the other Transaction Documents, such unpaid amounts
      shall bear interest at the Default Rate, and any payment of Principal prior
      to
      the scheduled maturity thereof as a result of acceleration under this Section
      8(b) shall be accompanied by the Prepayment Premium in respect thereof. Nothing
      in this Section 8 shall limit any other rights the Holder may have under this
      Note, the Security Documents or the other Transaction Documents.

     

    (9) Vote
      to Change the Terms of the Notes.
      The
      written consent of the Company and the holders of Notes representing at least
      two-thirds (2/3) of the aggregate principal amount then outstanding under the
      Notes shall be required for any change to the Notes (including this Note),
      and
      upon receipt of such consent, each Note shall be deemed amended thereby. No
      such
      amendment shall be effective to the extent it applies to less than all of the
      Notes then outstanding.

     

    
      
        
        

      

      
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    (10) Lost
      or Stolen Notes.
      Upon
      receipt by the Company of evidence reasonably satisfactory to the Company of
      the
      loss, theft, destruction or mutilation of this Note, and, in the case of loss,
      theft or destruction, of an indemnification undertaking by the Holder to the
      Company in customary form and reasonably satisfactory to the Company and, in
      the
      case of mutilation, upon surrender and cancellation of this Note, the Company
      shall execute and deliver a new Note of like tenor and date.

     

    (11) Remedies,
      Characterizations, Other Obligations, Breaches and Injunctive
      Relief.
      The
      remedies provided in this Note shall be cumulative and in addition to all other
      remedies available under the Securities Purchase Agreement, the Security
      Documents and the other Transaction Documents, at law or in equity (including
      a
      decree of specific performance and/or other injunctive relief), and no remedy
      contained herein shall be deemed a waiver of compliance with the provisions
      giving rise to such remedy, and nothing herein shall limit the Holder’s right to
      pursue actual damages for any failure by the Company to comply with the terms
      of
      this Note. The Company covenants to the Holder that there shall be no
      characterization concerning this instrument other than as expressly provided
      herein. Amounts set forth or provided for herein with respect to payments and
      the like (and the computation thereof) shall be the amounts to be received
      by
      the Holder and shall not, except as expressly provided herein, be subject to
      any
      other obligation of the Company (or the performance thereof). The Company
      acknowledges that a breach by it of its obligations hereunder will cause
      irreparable harm to the Holder and that the remedy at law for any such breach
      may be inadequate. The Company therefore agrees that, in the event of any such
      breach or threatened breach, the Holder shall be entitled, in addition to all
      other available remedies, to an injunction restraining any breach, without
      the
      necessity of showing economic loss and without any bond or other security being
      required.

     

    (12) Specific
      Shall Not Limit General; Construction.
      No
      specific provision contained in this Note shall limit or modify any more general
      provision contained herein. This Note shall be deemed to be jointly drafted
      by
      the Company and the Buyers pursuant to the Securities Purchase Agreement and
      shall not be construed against any person as the drafter hereof.

     

    (13) Failure
      or Indulgence Not Waiver.
      No
      failure or delay on the part of the Holder in the exercise of any power, right
      or privilege hereunder shall operate as a waiver thereof, nor shall any single
      or partial exercise of any such power, right or privilege preclude other or
      further exercise thereof or of any other right, power or privilege.


     

    (14) Notice.
      Whenever notice is required to be given under this Note, unless otherwise
      provided herein, such notice shall be given in accordance with Section
      9(f) of
      the
      Securities Purchase Agreement.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    (15) Transfer
      of this Note; Note Register.
      The
      Holder may assign or transfer some or all of its rights hereunder, subject
      to
      compliance with applicable Securities Laws (if applicable) and the provisions
      of
      Section 2(f) of the Securities Purchase Agreement, without the consent of the
      Company; provided however, that no such transfer shall increase the liability
      of
      the Company under Section 19(b). The Company shall maintain, at one of its
      offices in the U.S., a register for the recordation of the names and addresses
      of each holder of the Notes and the principal amount of the Notes owed to each
      such holder pursuant to the terms hereof and of the Other Notes from time to
      time (the “Register”).
      The
      entries in the Register shall be conclusive absent manifest error, and the
      Company, the Collateral Agent and the Holder shall treat each Person whose
      name
      is recorded in the Register pursuant to the terms hereof as the Holder for
      all
      purposes, notwithstanding notice to the contrary. The Register shall be
      available for inspection by the Collateral Agent and any holder of the Notes,
      at
      any reasonable time and from time to time upon reasonable prior notice. The
      Notes are intended to be obligations in “registered form” for purposes of
      Sections 871 and 881 of the Internal Revenue Code of 1986, as amended, and
      the
      Treasury Regulations promulgated thereunder, and the provisions of this Note
      shall be interpreted consistently therewith. Notwithstanding anything to the
      contrary contained in this Section 15, each such assignee or transferee, upon
      becoming a Holder hereunder, acknowledges that it is bound by the terms and
      conditions of Section 5.11 of the Security Agreement and agrees to, promptly
      upon the request of the Collateral Agent, deliver to Collateral Agent a written
      Joinder to the Security Agreement and other Security Documents.

     

    (16) Payment
      of Collection, Enforcement and Other Costs.
      Without
      limiting the provisions of the Securities Purchase Agreement, the Security
      Documents and the other Transaction Documents, if (a) this Note is placed in
      the
      hands of an attorney for collection or enforcement or is collected or enforced
      through any legal proceeding; or (b) an attorney is retained to represent the
      Holder in any bankruptcy, reorganization, receivership of the Company or other
      proceedings affecting Company creditors’ rights and involving a claim under this
      Note, then the Company shall pay the costs incurred by the Holder for such
      collection, enforcement or action, including reasonable attorneys’ fees and
      disbursements.

     

    (17) Cancellation.
      After
      all principal and other amounts at any time owed under this Note have been
      paid
      in full in accordance with the terms hereof, this Note shall automatically
      be
      deemed canceled, shall be surrendered to the Company for cancellation and shall
      not be reissued.

     

    (18) Note
      Exchangeable for Different Denominations.
      Subject
      to Section 5, in the event of an option, mandatory or scheduled payment of
      less
      than all of the Principal pursuant to the terms hereof, the Company shall,
      upon
      the request of Holder and tender of this Note promptly cause to be issued and
      delivered to the Holder, a new Note of like tenor representing the remaining
      Principal that has not been so repaid. This Note is exchangeable, upon the
      surrender hereof by the Holder at the principal office of the Company, for
      a new
      Note or Notes containing the same terms and conditions and representing in
      the
      aggregate the Principal, and each such new Note will represent such portion
      of
      such Principal as is designated by the Holder at the time of such surrender.
      The
      date the Company initially issued this Note shall be the “Issuance Date” hereof
      regardless of the number of times a new Note shall be issued.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    (19) Taxes.
      

     

    (a) Payments
      Free of Taxes.
      Any and
      all payments by or on account of any obligation of the Company or any of the
      Subsidiaries under this Note, the Securities Purchase Agreement, the Security
      Documents or any other Transaction Document shall be made without any set-off,
      counterclaim or deduction and free and clear of and without deduction for any
      Indemnified Taxes; provided that, if the Company or any of the Subsidiaries
      shall be required to deduct any Indemnified Taxes from such payments, then
      (i)
      the sum payable shall be increased as necessary so that after making all
      required deductions (including deductions applicable to additional sums payable
      under this Section 19(a)), the Holder receives an amount equal to the sum it
      would have received had no such deductions been made, (ii) the Company or the
      applicable Subsidiary shall make such deductions and (iii) the Company or the
      applicable Subsidiary as applicable shall pay the full amount deducted to the
      relevant Governmental Authority in accordance with applicable law.

     

    (b) Indemnification
      by the Company.
      The
      Company shall indemnify the Holder, within ten (10) days after written demand
      therefor, for the full amount of any Indemnified Taxes paid by the Holder,
      on or
      with respect to any payment by or on account of any obligation of the Company
      or
      any of the Subsidiaries under the Notes, the Securities Purchase Agreement,
      the
      Security Documents or any of the other Transaction Documents (including
      Indemnified Taxes imposed or asserted on or attributable to amounts payable
      under this Section 19) and any penalties, interest and reasonable expenses
      arising therefrom or with respect thereto, whether or not such Indemnified
      Taxes
      were correctly or legally imposed or asserted by the relevant Governmental
      Authority. A certificate of the Holder as to the amount of such payment or
      liability under this Section 19 shall be delivered to the Company and shall
      be
      conclusive absent manifest error. In addition, the Company shall promptly pay
      the fees, costs and expenses incurred thereby in connection with the engagement
      of the Petroleum Engineer with respect to the determination of the PDNP, the
      PDP, the PUD, the Probable, the PRV Ratio, the Daily Production Average and
      the
      Financial Covenant Test Failure Amount.

     

    (20) Waiver
      of Notice.
      To the
      extent permitted by law, the Company hereby waives demand, notice, protest
      and
      all other demands and notices in connection with the delivery, acceptance,
      performance, default or enforcement of this Note, the Security Documents, the
      Securities Purchase Agreement and the other Transaction Documents.

     

    (21) Governing
      Law.
      This
      Note shall be construed and enforced in accordance with, and all questions
      concerning the construction, validity, interpretation and performance of this
      Note shall be governed by, the internal laws of the State of New York, without
      giving effect to any choice of law or conflict of law provision or rule (whether
      of the State of New York or any other country or jurisdiction) that would cause
      the application of the laws of any jurisdiction or country other than the State
      of New York. Each party hereby irrevocably submits to the exclusive jurisdiction
      of the state and federal courts sitting in the City of New York, borough of
      Manhattan, for the adjudication of any dispute hereunder or in connection
      herewith or with any transaction contemplated hereby or discussed herein, and
      hereby irrevocably waives, and agrees not to assert in any suit, action or
      proceeding, any claim that it is not personally subject to the jurisdiction
      of
      any such court, that such suit, action or proceeding is brought in an
      inconvenient forum or that the venue of such suit, action or proceeding is
      improper. Each party hereby irrevocably waives personal service of process
      and
      consents to process being served in any such suit, action or proceeding by
      mailing a copy thereof by registered or certified U.S. mail, return receipt
      requested, or by a nationally recognized overnight delivery service, to such
      party at the address for such notices to it under this Note and agrees that
      such
      service shall constitute good and sufficient service of process and notice
      thereof. Nothing contained herein shall be deemed to limit in any way any right
      to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY
      WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
      ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING
      OUT
      OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

     

    
      
        
        

      

      
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    (22) Further
      Assurances.
      The
      Company shall do and perform, or cause to be done and performed, all such
      further acts and things, and shall execute and deliver all such other
      agreements, certificates, instruments and documents, as the Holder may
      reasonably request in order to carry out the intent and accomplish the purposes
      of this Note and the consummation of the transactions contemplated
      hereby.

     

    (23) Payment
      Set Aside.
      To the
      extent that the Company makes a payment or payments to the Holder hereunder,
      or
      the Holder enforces or exercises its rights hereunder, and such payment or
      payments or the proceeds of such enforcement or exercise or any part thereof
      are
      subsequently invalidated, declared to be fraudulent or preferential, set aside,
      recovered from or disgorged by the Holder, or are required to be refunded,
      repaid or otherwise restored to the Company, by a trustee, receiver or any
      other
      person under any law (including any Bankruptcy Law, U.S. state or federal law,
      the laws of any foreign government or any political subdivision thereof, common
      law or equitable cause of action), then to the extent of any such restoration
      the obligation or part thereof originally intended to be satisfied shall be
      revived and continued in full force and effect as if such payment had not been
      made or such enforcement or exercise had not occurred. 

     

    (24) Interpretative
      Matters.
      Unless
      the context otherwise requires, (a) all references to Sections, Schedules or
      Exhibits are to Sections, Schedules or Exhibits contained in or attached to
      this
      Note, (b) each accounting term not otherwise defined in this Agreement has
      the
      meaning assigned to it in accordance with GAAP, (c) words in the singular or
      plural include the singular and plural and pronouns stated in either the
      masculine, the feminine or neuter gender shall include the masculine, feminine
      and neuter, (d) the use of the word “including” in this Note shall be by way of
      example rather than limitation, and (e) in calculating the Mcfe, each barrel
      of
      oil reserves shall be converted into Mcfe by multiplying such reserves by a
      factor of 6.

     

    
      
        
        

      

      
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    (25) Signatures.
      In the
      event that any signature to this Note or any amendment hereto is delivered
      by
      facsimile transmission or by e-mail delivery of a “.pdf” format data file, such
      signature shall create a valid and binding obligation of the party executing
      (or
      on whose behalf such signature is executed) with the same force and effect
      as if
      such facsimile or “.pdf” signature page were an original thereof.
      Notwithstanding the foregoing, the Company shall be required to deliver an
      originally executed Note to the Holder. No party hereto shall raise the use
      of a
      facsimile machine or e-mail delivery of a “.pdf” format data file to deliver a
      signature to this Note or any amendment hereto or the fact that such signature
      was transmitted or communicated through the use of a facsimile machine or e-mail
      delivery of a “.pdf” format data file as a defense to the formation or
      enforceability of a contract and each party hereto forever waives any such
      defense.

     

    [
      Remainder of Page Intentionally Left Blank; Signature Page Follows
      ]

     

    
      
        
        

      

      
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    IN
      WITNESS WHEREOF,
      the
      Company has caused this Note to be executed on its behalf by the undersigned
      as
      of the year and date first above written.

     

    
      	 	
              SONTERRA
                RESOURCES, INC.,

            
	 	
              a
                Delaware corporation

            
	 	 
	 	
              By:

            	 
	 	
              Name:
                D. E. Vandenberg

            
	 	
              Title:
                President

            


    

     

    
      
        
        

      

      
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