Exhibit 10.1


 


 


 


 


 


 


 


INVESTMENT NUMBER 24346


 


 


C Loan Agreement


 


 


between


 


 


BPZ RESOURCES, INC.

(formerly
BPZ Energy, Inc.)


 


 


and


 


INTERNATIONAL
FINANCE CORPORATION


 


 


 


 


 


 


 


 


Dated November 19, 2007


 


 

















 


 


TABLE OF CONTENTS


 


	
  Article/  Section

  	
   

  	
  Item

  	
   

  	
  Page No.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE I

  	
   

  	
  DEFINITIONS AND
  INTERPRETATION

  	
   

  	
  1

  
	
  Section 1.01.

  	
   

  	
  Definitions.

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 1.02.

  	
   

  	
  Financial Calculations. 

  	
   

  	
  13

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 1.03.

  	
   

  	
  Interpretation.

  	
   

  	
  13

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 1.04.

  	
   

  	
  Business Day Adjustment.

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE II 

  	
   

  	
  THE C LOAN

  	
   

  	
  14

  
	
  Section 2.01.

  	
   

  	
  The C Loan.

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 2.02.

  	
   

  	
  Disbursement Procedure.

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 2.03.

  	
   

  	
  Interest.

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 2.04.

  	
   

  	
  Change in Interest Period.

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 2.05.

  	
   

  	
  Default Rate Interest.

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 2.06.

  	
   

  	
  Repayment.

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 2.07.

  	
   

  	
  Prepayment.

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 2.08.

  	
   

  	
  Fees.

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 2.09.

  	
   

  	
  Currency and Place of Payments.

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 2.10.

  	
   

  	
  Allocation of Partial Payments.

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 2.11.

  	
   

  	
  Increased Costs.

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 2.12.

  	
   

  	
  Unwinding Costs.

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 2.13.

  	
   

  	
  Suspension or Cancellation by
  IFC.

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 2.14.

  	
   

  	
  Taxes. 

  	
   

  	
  20

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 2.15.  

  	
   

  	
  Expenses.

  	
   

  	
  20

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
   

  	
  REPRESENTATIONS AND
  WARRANTIES

  	
   

  	
  21

  
	
  Section 3.01.

  	
   

  	
  Representations and Warranties.

  	
   

  	
  21

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 3.02.

  	
   

  	
  IFC Reliance.

  	
   

  	
  30

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
   

  	
  CONDITIONS OF
  DISBURSEMENT

  	
   

  	
  30

  
	
  Section 4.01.

  	
   

  	
  Conditions of Disbursement.

  	
   

  	
  30

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 4.02.

  	
   

  	
  Borrower’s Certification.

  	
   

  	
  33

  



 

















 


 


	
  Section 4.03.

  	
   

  	
  Conditions for IFC Benefit.

  	
   

  	
  33

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
   

  	
  PARTICULAR COVENANTS

  	
   

  	
  33

  
	
  Section 5.01.

  	
   

  	
  Affirmative Covenants.

  	
   

  	
  33

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 5.02.

  	
   

  	
  Negative Covenants.

  	
   

  	
  35

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 5.03.

  	
   

  	
  Reporting Requirements.

  	
   

  	
  38

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 5.04.

  	
   

  	
  Insurance.  

  	
   

  	
  40

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VI

  	
   

  	
  EVENTS OF DEFAULT

  	
   

  	
  40

  
	
  Section 6.01.

  	
   

  	
  Acceleration after Default.

  	
   

  	
  40

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 6.02.

  	
   

  	
  Events of Default.

  	
   

  	
  40

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 6.03.

  	
   

  	
  Bankruptcy.

  	
   

  	
  44

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VII

  	
   

  	
  CONVERSION OF THE C
  LOAN

  	
   

  	
  44

  
	
  Section 7.01.

  	
   

  	
  Conversion by IFC or the
  Borrower.

  	
   

  	
  44

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 7.02.

  	
   

  	
  Conversion Procedure.

  	
   

  	
  44

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 7.03.

  	
   

  	
  Taxes on Conversion.

  	
   

  	
  45

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 7.04.

  	
   

  	
  Borrower to Reserve Common
  Stock.

  	
   

  	
  45

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 7.05.

  	
   

  	
  Adjustment for Change in
  Capital Stock.

  	
   

  	
  45

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 7.06.

  	
   

  	
  Adjustment for Rights Issue.

  	
   

  	
  46

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 7.07.

  	
   

  	
  Adjustment for Other
  Distributions.

  	
   

  	
  47

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 7.08.

  	
   

  	
  Adjustment for Common Stock
  Issue.

  	
   

  	
  48

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 7.09.

  	
   

  	
  Adjustment for Convertible
  Securities Issue.

  	
   

  	
  49

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 7.10.

  	
   

  	
  Notice of Adjustment.

  	
   

  	
  50

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  	
   

  	
  MISCELLANEOUS

  	
   

  	
  50

  
	
  Section 8.01.

  	
   

  	
  Saving of Rights.

  	
   

  	
  50

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 8.02.

  	
   

  	
  Notices.

  	
   

  	
  50

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 8.03.

  	
   

  	
  English Language.

  	
   

  	
  51

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 8.04.

  	
   

  	
  Term of Agreement.

  	
   

  	
  52

  



 


ii

















 


	
  Section 8.05.

  	
   

  	
  Applicable Law and Jurisdiction.

  	
   

  	
  52

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 8.06.

  	
   

  	
  Disclosure of Information.

  	
   

  	
  54

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 8.07.

  	
   

  	
  Successors and Assignees.

  	
   

  	
  54

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 8.08.

  	
   

  	
  Amendments, Waivers and
  Consents.

  	
   

  	
  54

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 8.09.

  	
   

  	
  Counterparts.

  	
   

  	
  54

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ANNEX A

  	
   

  	
  BORROWER/PROJECT
  AUTHORIZATIONS

  	
   

  	
  56

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ANNEX B

  	
   

  	
  INSURANCE REQUIREMENTS

  	
   

  	
  57

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ANNEX C

  	
   

  	
  ANTI-CORRUPTION
  GUIDELINES FOR IFC TRANSACTIONS

  	
   

  	
  64

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ANNEX D

  	
   

  	
  MATTERS TO BE COVERED
  IN LEGAL OPINION

  	
   

  	
  68

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SCHEDULE 3.01(A)

  	
   

  	
  KEY COMPANY
  SUBSIDIARIES, AFFILIATES, AND RELATED PARTIES

  	
   

  	
  70

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SCHEDULE 3.01(H)

  	
   

  	
  AUTHORIZED CAPITAL

  	
   

  	
  71

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SCHEDULE 3.01(Q)

  	
   

  	
  ERISA

  	
   

  	
  75

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  SCHEDULE 3.01(W)

  	
   

  	
  TITLE TO PROPERTIES

  	
   

  	
  83

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EXHIBIT A

  	
   

  	
  FORM OF CERTIFICATE OF
  INCUMBENCY AND AUTHORITY

  	
   

  	
  84

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EXHIBIT B

  	
   

  	
  FORM OF REQUEST FOR
  DISBURSEMENT

  	
   

  	
  86

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EXHIBIT C

  	
   

  	
  FORM OF DISBURSEMENT
  RECEIPT

  	
   

  	
  89

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EXHIBIT D

  	
   

  	
  FORM OF SERVICE OF
  PROCESS LETTER

  	
   

  	
  90

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EXHIBIT E

  	
   

  	
  FORM OF BORROWER’S
  CERTIFICATION ON DISTRIBUTION OF DIVIDENDS

  	
   

  	
  92

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  EXHIBIT F

  	
   

  	
  FORM OF CONVERSION
  NOTICE

  	
   

  	
  100

  



 


iii

















 


C LOAN AGREEMENT


 


C LOAN AGREEMENT (the “Agreement”) dated November 19, 2007, between BPZ
RESOURCES, INC. (formerly BPZ Energy, Inc.), a corporation organized and
existing under the laws of the State of Texas (the “Borrower”); and
INTERNATIONAL FINANCE CORPORATION, an international organization established by
Articles of Agreement among its member countries including the United States of
America and the Republic of Peru (“IFC”).


 


ARTICLE
I


 


Definitions and Interpretation


Section 1.01.  Definitions.  Wherever used in this Agreement, the
following terms have the meanings opposite them:


	
  “Accounting Standards”

  	
   

  	
  United States Generally Accepted Accounting
  Principles promulgated by the Financial Accounting Standards Board, together
  with its pronouncements thereon from time to time, and applied on a
  consistent basis;

  
	
   

  	
   

  	
   

  
	
  “Action Plan”

  	
   

  	
  the plan or plans
  developed by the Borrower setting out specific social and environmental
  measures to be undertaken by the Borrower, to enable the Project to comply
  with the Performance Standards, as such may be amended or supplemented from
  time to time with IFC’s consent;

  
	
   

  	
   

  	
   

  
	
  “Affiliate”

  	
   

  	
  any Person directly or indirectly controlling,
  controlled by or under common control with, the Borrower (for purposes of
  this definition, “control” means the power to direct the management or
  policies of a Person, directly or indirectly, whether through the ownership
  of shares or other securities, by contract or otherwise, and “controlling”
  and “controlled” have corresponding meanings);

  
	
   

  	
   

  	
   

  
	
  “Annual Monitoring 

  	
   

  	
   

  
	
  Report”

  	
   

  	
  the
  annual monitoring report setting out the specific social, environmental and
  developmental impact reporting requirements of the Borrower in respect of the
  Project, as such may be amended or supplemented from time to time with IFC’s
  consent;

  
	
   

  	
   

  	
   

  
	
  “Applicable S&E Law”

  	
   

  	
  all applicable statutes,
  laws, ordinances, rules and regulations of the Country, including but not
  limited to any license, permit or other governmental authorization imposing
  liability or setting standards of conduct concerning any environmental,
  social, labor,

  



 

















 


	
   

  	
   

  	
  health and safety or
  security risks of the type contemplated by the Performance Standards;

  
	
   

  	
   

  	
   

  
	
  “Auditors”

  	
   

  	
  Johnson Miller & Co. CPA’s PC or such other firm
  that the Borrower appoints from time to time as its auditors pursuant to
  Section 5.01 (e) (Affirmative Covenants);

  
	
   

  	
   

  	
   

  
	
  “Authority”

  	
   

  	
  any national, supranational, regional or local
  government or governmental, administrative, fiscal, judicial, or
  government-owned body, department, commission, authority, tribunal, agency or
  entity, or central bank (or any Person, whether or not government owned and
  howsoever constituted or called, that exercises the functions of a central
  bank);

  
	
   

  	
   

  	
   

  
	
  “Authorization”

  	
   

  	
  any consent, registration, filing, agreement,
  notarization, certificate, license, approval, permit, authority or exemption
  from, by or with any Authority, whether given by express action or deemed
  given by failure to act within any specified time period and all corporate,
  creditors’ and stockholders’ approvals or consents;

  
	
   

  	
   

  	
   

  
	
  “Authorized 

  	
   

  	
   

  
	
  Representative”

  	
   

  	
  any natural person who is duly authorized by the
  Borrower to act on its behalf for the purposes specified in, and whose name
  and a specimen of whose signature appear on, the Certificate of Incumbency
  and Authority most recently delivered by the Borrower to IFC;

  
	
   

  	
   

  	
   

  
	
  “Balance Sheet 

  	
   

  	
   

  
	
  Liabilities”

  	
   

  	
  the sum of (i) current liabilities plus long
  term liabilities plus commitments and contingencies (excluding
  footnote comments) as reflected on the Borrower’s balance sheet in its
  quarterly and annual filings with the U.S. Securities and Exchange
  Commission, in accordance with applicable Accounting Standards and (ii) the
  aggregate available amount under outstanding letters of credit, performance
  bonds and similar instruments issued on behalf of the Borrower or any
  Subsidiary;

  
	
   

  	
   

  	
   

  
	
  “Balance Sheet Liabilities  to Tangible 

  	
   

  	
   

  
	
  Net Worth Ratio”

  	
   

  	
  the result obtained by dividing Balance Sheet Liabilities
  by Tangible Net Worth;

  
	
   

  	
   

  	
   

  
	
  “Block
  Z-1 License”

  	
   

  	
  the
  agreement entitled “License Contract for Exploration and Exploitation of
  Hydrocarbons” dated November 30, 2001, as amended on January 23, 2003, March
  18, 2004 and February 3,

  



 


2

















 


	
   

  	
   

  	
  2005,
  between BPZ Exploración and Producción SRL (formerly, BPZ Energy Inc.,
  Sucursal Perú) and Perupetro, for the exploration and exploitation of Block
  Z-1;

  
	
   

  	
   

  	
   

  
	
  “Borrower Financial 

  	
   

  	
   

  
	
  Statements”

  	
   

  	
  as defined in Section 3.01 (i) (Representations
  and Warranties);

  
	
   

  	
   

  	
   

  
	
  “Business Day”

  	
   

  	
  a day when banks are open for business in New York,
  New York or, solely for the purpose of determining the applicable Interest
  Rate other than pursuant to Section 2.03 (d) (ii) (Interest),
  London, England;

  
	
   

  	
   

  	
   

  
	
  “C Loan”

  	
   

  	
  the loan specified in Section 2.01 (The C Loan) or, as the context requires, its principal
  amount from time to time outstanding;

  
	
   

  	
   

  	
   

  
	
  “CAO”

  	
   

  	
  Compliance Advisor Ombudsman, the independent
  accountability mechanism for IFC that impartially responds to environmental
  and social concerns of affected communities and aims to enhance outcomes;

  
	
   

  	
   

  	
   

  	
   

  
	
  “CAO’s Role”

  	
   

  	
  (i)

  	
  to respond to complaints by persons who have been or
  are likely to be directly affected by the social or environmental impacts of
  IFC projects; and

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (ii)

  	
  to oversee audits of IFC’s social and environmental
  performance, particularly in relation to sensitive projects, and to ensure
  compliance with IFC’s social and environmental policies, guidelines,
  procedures and systems;

  
	
   

  	
   

  	
   

  	
   

  
	
  “Certificate of Incumbency 

  	
   

  	
   

  	
   

  
	
  and Authority”

  	
   

  	
  a certificate provided to IFC by the Borrower in the
  form of Exhibit A;

  
	
   

  	
   

  	
   

  
	
  “Charter”

  	
   

  	
  the Borrower’s Certificate of Incorporation and
  By-laws;

  
	
   

  	
   

  	
   

  
	
  “Coercive Practice”

  	
   

  	
  the impairing or harming, or
  threatening to impair or harm, directly or indirectly, any party or the
  property of the party to influence improperly the actions of a party;

  
	
   

  	
   

  	
   

  
	
  “Collusive Practice”

  	
   

  	
  an arrangement between two or more
  parties designed to achieve an improper purpose, including to influence
  improperly the actions of another party;

  
	
   

  	
   

  	
   

  
	
  “Common Stock”

  	
   

  	
  the common stock of the Borrower;

  



 


3

















 


	
  “Consolidated”
  or 

  	
   

  	
   

  
	
  “Consolidated
  Basis”

  	
   

  	
  (with respect to
  any financial statements to be provided, or any financial calculation to be
  made, under or for the purposes of this Agreement) the method referred to in
  Section 1.02 (c) (Financial Calculations);
  and the entities whose accounts are to be consolidated with the accounts of
  the Borrower are all of its Subsidiaries;

  
	
   

  	
   

  	
   

  
	
  “Conversion Amount”

  	
   

  	
  as of the Conversion Date, the aggregate amount of the outstanding
  principal of the C Loan together with interest and all other amounts accrued
  but unpaid under this Agreement on such date;

  
	
   

  	
   

  	
   

  
	
  “Conversion Date”

  	
   

  	
  the date specified in the Conversion Notice, which shall be a date
  not later than ten (10) Business Days after the date of the Conversion
  Notice;

  
	
   

  	
   

  	
   

  
	
  “Conversion Notice”

  	
   

  	
  a written notice, substantially in the form of Exhibit F, provided by
  IFC or the Borrower, as the case may be, pursuant to Section 7.01 (a) (Conversion by IFC or the Borrower);

  
	
   

  	
   

  	
   

  
	
  “Conversion Period”

  	
   

  	
  the period commencing on the date of this Agreement and ending on the
  date when all amounts payable hereunder have been fully paid in accordance
  with the provisions of this Agreement;

  
	
   

  	
   

  	
   

  
	
  “Conversion Price”

  	
   

  	
  ten Dollars and thirty-nine cents ($10.39) per share of Common Stock,
  subject to adjustment in accordance with Article VII (Conversion
  of the C Loan);

  
	
   

  	
   

  	
   

  
	
  “Corporate Transaction”

  	
   

  	
  any merger, spin-off, consolidation, reorganization, sale or other
  disposition of all or substantially all of the Borrower’s or its
  Subsidiaries’ assets;

  
	
   

  	
   

  	
   

  
	
  “Corrupt Practice”

  	
   

  	
  the offering, giving, receiving or soliciting,
  directly or indirectly, of anything of value to influence improperly the
  actions of another party;

  
	
   

  	
   

  	
   

  
	
  “Co-Sale Agreement”

  	
   

  	
  the agreement entitled “Co-Sale Agreement” dated as
  of December 18, 2006 among IFC, the Borrower, Dr.
  Fernando Zúñiga y Rivero and Manuel Pablo Zúñiga Pflücker;

  
	
   

  	
   

  	
   

  
	
  “Country”

  	
   

  	
  the Republic of Peru;

  



 


4

















 


	
  “Current Market Price”

  	
   

  	
  per share of Common Stock, on the relevant
  determination date, the average of the last reported sales prices of the
  Common Stock as reported on the American Stock Exchange during the Trading
  Period;

  
	
   

  	
   

  	
   

  
	
  “Disbursement”

  	
   

  	
  a single disbursement of the C Loan;

  
	
   

  	
   

  	
   

  
	
  “Dollars” and “$”

  	
   

  	
  the lawful currency of the United States of America;

  
	
   

  	
   

  	
   

  
	
  “ERISA”

  	
   

  	
  the Employee Retirement Income Security Act of
  1974, as amended from time to time, and the regulations promulgated and
  rulings issued thereunder;

  
	
   

  	
   

  	
   

  
	
  “ESRS”

  	
   

  	
  the Environmental and
  Social Review Summary (ESRS) prepared by IFC, approved by the Borrower and
  published in the World Bank Infoshop on September 12, 2006;

  
	
   

  	
   

  	
   

  
	
  “Event of Default”

  	
   

  	
  any one of the events specified in Section 6.02 (Events of Default);

  
	
   

  	
   

  	
   

  
	
  “Financial Debt”

  	
   

  	
  any indebtedness of the Borrower and its
  Subsidiaries, on a Consolidated Basis, for or in respect of:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (i)

  	
  borrowed money;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (ii)

  	
  the outstanding principal amount of any bonds,
  debentures, notes, loan stock, commercial paper, acceptance credits, bills or
  promissory notes drawn, accepted, endorsed or issued by the Borrower;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (iii)

  	
  the deferred purchase price of assets or services
  (except trade accounts incurred and payable in the ordinary course of
  business to trade creditors within ninety (90) days of the date they are
  incurred and which are not overdue);

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (iv)

  	
  non-contingent obligations of the Borrower to
  reimburse any other person for amounts paid by that person under a letter of
  credit or similar instrument (excluding any letter of credit or similar
  instrument issued for the account of the Borrower with respect to trade
  accounts incurred and payable in the ordinary course of business to trade
  creditors within 90 days of the date they are incurred and which are not
  overdue);

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (v)

  	
  the amount of any obligation in respect of any
  Financial Lease;

  
	
   

  	
   

  	
   

  	
   

  



 


 


5

















 


	
   

  	
   

  	
  (vi)

  	
  amounts raised under any other transaction having
  the financial effect of a borrowing and which would be classified as a
  borrowing (and not as an off-balance sheet financing) under the Accounting
  Standards;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (vii)

  	
  the amount of the Borrower’s obligations under
  derivative transactions entered into in connection with the protection
  against or benefit from fluctuation in any rate or price (but only the net
  amount owing by the Borrower after marking the relevant derivative transactions
  to market);

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (viii)

  	
  any premium payable on a mandatory redemption or
  replacement of any of the foregoing items; and

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (ix)

  	
  the amount of any obligation in respect of any
  guarantee or indemnity given by the Borrower for any of the foregoing items
  incurred by any other person;

  
	
   

  	
   

  	
   

  	
   

  
	
  “Financial Lease”

  	
   

  	
  any lease or hire purchase contract which would,
  under the Accounting Standards, be treated as a finance or capital lease;

  
	
   

  	
   

  	
   

  	
   

  
	
  “Financial Year”

  	
   

  	
  the accounting year of the Borrower commencing each
  year on January 1 and ending on the following December 31, or such other
  period as the Borrower, with IFC’s consent, from time to time designates as
  its accounting year;

  
	
   

  	
   

  	
   

  	
   

  
	
  “Financing Documents”

  	
   

  	
  (i)

  	
  this Agreement;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (ii)

  	
  the Co-Sale Agreement; and

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (iii)

  	
  the Subscription Agreement;

  
	
   

  	
   

  	
   

  	
   

  
	
  “Fraudulent Practice”

  	
   

  	
  any action or omission, including
  misrepresentation, that knowingly or recklessly misleads, or attempts to
  mislead, a party to obtain a financial benefit or to avoid an obligation;

  
	
   

  	
   

  	
   

  	
   

  
	
  “Increased Costs”

  	
   

  	
  the amount certified in an Increased Costs
  Certificate to be the net incremental costs of, or reduction in return to,
  IFC in connection with the making or maintaining of the C Loan that result
  from:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (i)

  	
  any change in any applicable law or regulation or
  directive (whether or not having the force of law) or in its interpretation
  or application by any Authority charged with its administration; or

  



 


6






 












 


	
   

  	
   

  	
  (ii)

  	
  compliance with any request from, or requirement of,
  any central bank or other monetary or other Authority;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  which, in either case, after the date of this
  Agreement:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (A)

  	
  imposes, modifies or makes applicable any reserve,
  special deposit or similar requirements against assets held by, or deposits
  with or for the account of, or loans made by, IFC;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (B)

  	
  imposes a cost on IFC as a result of IFC having made
  the C Loan or reduces the rate of return on the overall capital of IFC that
  it would have achieved, had IFC not made the C Loan;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (C)

  	
  changes the basis of taxation on payments received
  by IFC in respect of the C Loan (otherwise than by a change in taxation of
  the overall net income of IFC, if any); or

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  (D)

  	
  imposes on IFC any other condition regarding the
  making or maintaining of the C Loan;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Increased Costs 

  	
   

  	
   

  	
   

  	
   

  
	
  Certificate”

  	
   

  	
  a certificate provided from time to time by IFC,
  certifying:

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (i)

  	
  the circumstances giving rise to the Increased
  Costs;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (ii)

  	
  that the costs of IFC have increased or the rate of
  return has been reduced;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (iii)

  	
  that IFC has, in IFC’s opinion, exercised reasonable
  efforts to minimize or eliminate the relevant increase or reduction, as the
  case may be; and

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (iv)

  	
  the amount of Increased Costs;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Independent Engineer”

  	
   

  	
  Gaffney Cline Associates or any other engineering
  company reasonably acceptable to IFC;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Interest Determination

  	
   

  	
   

  	
   

  	
   

  
	
  Date”

  	
   

  	
  except as otherwise provided in Section 2.03 (d)
  (ii) (Interest), the second Business Day
  before the beginning of each Interest Period;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Interest Payment Date”

  	
   

  	
  May 15 and November 15 in each year or, in the case
  of any Interest Period of less than six (6) months, pursuant to Section 2.04

  



 


7

















 


	
   

  	
   

  	
  (Change in Interest Period), any day that is the 15th
  day of the month in which the relevant Interest Period ends;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Interest Period”

  	
   

  	
  each period of six (6) months or, in the
  circumstances referred to in Section 2.04 (Change in
  Interest Period), each period of three (3) months or one (1) month
  determined pursuant to that Section, in each case beginning on an Interest
  Payment Date and ending on the day immediately before the next following
  Interest Payment Date, except in the case of the first period applicable to
  the Disbursement when it means the period beginning on the date on which the
  Disbursement is made and ending on the day immediately before the next
  following Interest Payment Date;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Interest Rate”

  	
   

  	
  for any Interest Period, the rate at which interest
  is payable on the C Loan during that Interest Period, determined in
  accordance with Section 2.03 (Interest)
  and, if applicable, Section 2.04 (Change in Interest
  Period);

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Intra-Group

  	
   

  	
   

  	
   

  	
   

  
	
  Restructurings”

  	
   

  	
  the merger, consolidation, reorganization, tax
  restructuring or other change to the corporate organization structure of the
  Borrower and its Subsidiaries that does not result in the loss of direct or
  indirect control of any controlled Affiliate of the Borrower; provided,
  that (i) in any transaction involving the Borrower, the Borrower is the
  surviving entity and (ii) no such change shall result in another entity
  controlling the Borrower;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Liabilities”

  	
   

  	
  the aggregate of all obligations of the Borrower and
  its Subsidiaries, on a Consolidated Basis, to pay or repay money, including,
  without limitation:

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (i)

  	
  Financial Debt;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (ii)

  	
  the amount of all liabilities of the Borrower
  (actual or contingent) under any conditional sale or a transfer with recourse
  or obligation to repurchase, including, without limitation, by way of
  discount or factoring of book debts or receivables;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (iii)

  	
  taxes (including deferred taxes);

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (iv)

  	
  trade accounts incurred and payable in the ordinary
  course of business to trade creditors within 90 days of the date they are
  incurred and which are not overdue (including letters of credit or similar
  instruments issued for the

  



 


8

















 


	
   

  	
   

  	
   

  	
  account of the Borrower with respect to such trade
  accounts);

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (v)

  	
  accrued expenses, including wages and other amounts
  due to employees and other services providers;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (vi)

  	
  the amount of all liabilities of the Borrower
  howsoever arising to redeem any of its shares; and

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (vii)

  	
  to the extent (if any) not included in the
  definition of Financial Debt, the amount of all liabilities of any person to
  the extent the Borrower guarantees them or otherwise obligates itself to pay
  them;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “LIBOR”

  	
   

  	
  the British Bankers’ Association (“BBA”) interbank
  offered rates for deposits in the Loan Currency which appear on the relevant
  page of the Reuters Service (currently page LIBOR01) or, if not available, on
  the relevant pages of any other service (such as Bloomberg Financial Markets
  Service) that displays such BBA rates; provided that if BBA for any
  reason ceases (whether permanently or temporarily) to publish interbank
  offered rates for deposits in the Loan Currency, “LIBOR” shall mean the rate
  determined pursuant to Section 2.03 (d) (Interest);

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Lien”

  	
   

  	
  any mortgage, pledge, charge, assignment,
  hypothecation, security interest, title retention, preferential right, trust
  arrangement, right of set-off, counterclaim or banker’s lien, privilege or
  priority of any kind having the effect of security, any designation of loss
  payees or beneficiaries or any similar arrangement under or with respect to
  any insurance policy or any preference of one creditor over another arising
  by operation of law;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Loan Currency”

  	
   

  	
  Dollars;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Long-term Debt”

  	
   

  	
  that part of Financial Debt whose final maturity
  falls due more than one year after the date it is incurred (including the
  current maturities thereof);

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Material

  	
   

  	
   

  	
   

  	
   

  
	
  Adverse Effect”

  	
   

  	
  a material adverse effect
  on any of the following:

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (i)

  	
  the Borrower’s
  consolidated assets or properties;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (ii)

  	
  the Borrower’s business
  prospects or consolidated financial condition;

  



 


9

















 


	
   

  	
   

  	
  (iii)

  	
  the implementation or carrying
  on of the Borrower’s and its Subsidiaries’ business or operations, taken as a
  whole; or

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (iv)

  	
  the ability of the
  Borrower and its Subsidiaries, taken as a whole, to comply with their
  obligations under this Agreement or under any other Transaction Document;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Obstructive Practice”

  	
   

  	
  (i) deliberately destroying,
  falsifying, altering or concealing of evidence material to the investigation
  or making of false statements to investigators, in order to materially impede
  a World Bank Group investigation into allegations of a Corrupt Practice,
  Fraudulent Practice, Coercive Practice or Collusive Practice, and/or
  threatening, harassing or intimidating any party to prevent it from
  disclosing its knowledge of matters relevant to the investigation or from
  pursuing the investigation, or (ii) acts intended to materially impede the
  exercise of IFC’s access
  to contractually required information in connection with a World Bank Group
  investigation into allegations of a Corrupt
  Practice, Fraudulent Practice, Coercive Practice or Collusive Practice;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Performance

  	
   

  	
   

  	
   

  	
   

  
	
  Standards”

  	
   

  	
  IFC’s Performance
  Standards on Social & Environmental Sustainability, dated April 30, 2006,
  copies of which have been delivered to and receipt of which has been
  acknowledged by the Borrower;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Person”

  	
   

  	
  any natural person, corporation, company,
  partnership, firm, voluntary association, joint venture, trust,
  unincorporated organization, Authority or any other entity whether acting in
  an individual, fiduciary or other capacity;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Perupetro”

  	
   

  	
  Perupetro S.A., a private law state company,
  organized under the laws of the Country;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Policy on Disclosure

  	
   

  	
   

  	
   

  	
   

  
	
  of Information”

  	
   

  	
  IFC’s Policy on Disclosure
  of Information, dated April 30, 2006, copies of which have been delivered to
  and receipt of which has been acknowledged by the Borrower;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Potential Event 

  	
   

  	
   

  	
   

  	
   

  
	
  of Default”

  	
   

  	
  any event or circumstance which would, with notice,
  lapse of time, the making of a determination or any combination thereof,
  become an Event of Default;

  



 


10

















 


	
  “Prepayment Premium”

  	
   

  	
  an amount determined from the following formula:

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  the lesser of:

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (a)  (i) 18.19
  minus the greater of (A) the ending daily Common Stock price as of the date
  that IFC provides its written non-consent to a Corporate Transaction pursuant
  to Section 5.02 (e)(i) (Negative Covenants),
  and (B) 10.39, times (ii) 1,491,532, times (iii) the Adjustment Factor for
  the twelve month period in which such prepayment is paid as provided below:

  



 




	
  Prepayment Period

  	
   

  	
  Adjustment Factor

  
	
   

  	
   

  	
   

  
	
  November 19, 2007 to November 18, 2008

  	
   

  	
  1.0

  
	
  November 19, 2008 to November 18, 2009

  	
   

  	
  .75

  
	
  November 19, 2009 to November 18, 2010

  	
   

  	
  .50

  
	
  November
  19, 2010 to November 18, 2011

  	
   

  	
  .25

  






 


	
   

  	
   

  	
  and

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (b)  an amount
  such that as of the date of prepayment, the net present value of the
  following payments as of the date such payments are made or disbursed, at a
  discount rate of twenty per cent (20%), is equal to zero: (i) the C Loan
  minus all fees pursuant to Section 2.08 (Fees) (except
  for Section 2.08 (b)(iii)), (ii) the Relevant Spread
  interest income paid on the outstanding principal balance of the C Loan on or
  with respect to each Interest Payment Date, (iii) the balance of the C Loan
  so prepaid, and (iv) the Prepayment Premium; and

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (c)  after
  November 19, 2011, zero;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Project”

  	
   

  	
  the drilling and completion of, and related services
  for, wells on the CX-11 Platform in Block Z-1’s Corvina field in northwest of
  the Country;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Project Documents”

  	
   

  	
  the Block Z-1 License;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Proprietary Rights”

  	
   

  	
  patents, trademarks, service marks, trade names,
  copyrights, licenses, trade secrets or other proprietary rights;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Relevant Spread”

  	
   

  	
  two per cent (2%) per annum;

  



 


11

















 


	
  “Sanctionable Practice”

  	
   

  	
  any Corrupt Practice, Fraudulent Practice, Coercive
  Practice, Collusive Practice, or Obstructive Practice, as those terms are
  defined herein and interpreted in accordance with the Anti-Corruption Guidelines
  attached to this Agreement as Annex C;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “S&EA”

  	
   

  	
  the social and
  environmental assessments prepared by the Borrower in accordance with the
  Performance Standards;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “S&E

  	
   

  	
   

  	
   

  	
   

  
	
  Management System”

  	
   

  	
  the social and
  environmental management system of the Borrower that enables the Borrower to
  identify, assess and manage risks in respect of the Project on an ongoing
  basis;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “SEC”

  	
   

  	
  U.S. Securities and Exchange Commission;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Stock Equivalents”

  	
   

  	
  preference shares, bonds, loans, warrants or other
  similar instruments or securities which are convertible into or exercisable
  or exchangeable for, or which carry a right to subscribe for or purchase,
  Common Stock convertible into or exercisable or exchangeable for Common
  Stock, in each case, on a converted basis;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Subscription Agreement”

  	
   

  	
  the agreement entitled “Subscription Agreement”
  dated December 18, 2006, as amended as of the date hereof, between the
  Borrower and IFC;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Subsidiary”

  	
   

  	
  with respect to the Borrower, an Affiliate over 50%
  of whose capital is owned, directly or indirectly, by the Borrower;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Tangible Net Worth”

  	
   

  	
  all total assets (valued at
  cost less normal accumulated depreciation) as stated on the Borrower’s
  consolidated balance sheet from time to time, less (a) all intangibles
  and (b) Balance Sheet Liabilities, all determined in accordance with the
  Accounting Standards.  The term
  “intangibles” shall include, without limitation, (1) deferred charges; (2)
  the amount of any write-up in the book value of any assets contained in any
  balance sheet resulting from revaluation thereof or any
  write-up in excess of the cost of such assets acquired, and (3) the aggregate
  of all amounts appearing on the assets side of any such balance sheet for
  franchises, licenses, permits, patents, patent applications, copyrights,
  trademarks, trade names, goodwill, treasury stock, experimental or
  organizational expenses and other like intangibles;

  



 


12

















 


	
  “Taxes”

  	
   

  	
  any present or future taxes, withholding
  obligations, duties and other charges of whatever nature levied by any
  Authority;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Trading Period”

  	
   

  	
  a period of twenty (20) consecutive Business Days
  prior to, and ending on, the relevant determination date, during which the
  issued Common Stock is traded on the American Stock Exchange;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “Transaction Documents”

  	
   

  	
  (i)

  	
  the Financing Documents; and

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (ii)

  	
  the Project Documents; and

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  “World Bank”

  	
   

  	
  the International Bank for Reconstruction and
  Development, an international organization established by Articles of
  Agreement among its member countries.

  



 


Section 1.02.  Financial Calculations.  (a) All financial calculations to be made
under, or for the purposes of, this Agreement and any other Financing Document  shall be made in accordance with the Accounting Standards
and, except as otherwise required to conform to any provision of this
Agreement, shall be calculated from the then most recently issued quarterly
report (Form 10-Q) which the Borrower is obligated to furnish to IFC under Section
5.03 (a) (Reporting Requirements).


(b)           The audited financial statements for
a Financial Year shall be used for the purpose of making financial calculations
with respect to the last quarter of such Financial Year.


(c)           If a financial calculation is to be
made under or for the purposes of this Agreement on a Consolidated Basis, that
calculation shall be made by reference to the sum of all amounts of similar
nature reported in the relevant financial statements of each of the entities
whose accounts are to be consolidated with the accounts of the Borrower plus or
minus the consolidation adjustments customarily applied to avoid double
counting of transactions among any of those entities, including the Borrower.


Section 1.03.  Interpretation.  In this Agreement, unless the context
otherwise requires:


(a)           headings are for convenience only and
do not affect the interpretation of this Agreement;


(b)           words importing the singular include
the plural and vice versa;


(c)           a reference to an Annex, Article,
party, Schedule or Section is a reference to that Article or Section of, or
that Annex, party or Schedule to, this Agreement;


(d)           a reference to a
document includes an amendment or supplement to, or replacement or novation of,
that document but disregarding any amendment, supplement, replacement or
novation made in breach of this Agreement; and


 


13

















 


(e)           a reference to a party to any
document includes that party’s successors and permitted assigns.


Section 1.04.  Business Day Adjustment.  (a) When an Interest Payment Date is not a
Business Day, then such Interest Payment Date shall be automatically changed to
the next Business Day in that calendar month (if there is one) or the preceding
Business Day (if there is not).


(b)           When the day on or by which a payment
(other than a payment of principal or interest) is due to be made is not a
Business Day, that payment shall be made on or by the next Business Day in that
calendar month (if there is one) or the preceding Business Day (if there is
not).


ARTICLE
II


 


The C Loan


Section 2.01.  The C Loan.  Subject to the provisions of this Agreement,
IFC agrees to lend, and the Borrower agrees to borrow, the C Loan consisting of
fifteen million five hundred thousand Dollars ($15,500,000).


Section 2.02.  Disbursement Procedure.  (a) The Borrower may request the Disbursement
by delivering to IFC, at least five (5) Business Days prior to the proposed
date of disbursement, a Disbursement request substantially in the form of
Exhibit B.


(b)           The Disbursement shall be made by IFC
at a bank in Houston, Texas or any other place acceptable to IFC, all as
specified by the Borrower in the Disbursement request.


(c)           The Borrower shall deliver to IFC a
receipt, substantially in the form of Exhibit C, within five (5) Business Days
following the Disbursement.


Section 2.03.  Interest.  Subject to the provisions of Section 2.05 (Default Rate Interest), the Borrower shall pay interest on
the C Loan in accordance with this Section 2.03:


(a)           During each Interest Period, the C
Loan shall bear interest at the applicable Interest Rate for that Interest
Period.


(b)           Interest on the C
Loan shall accrue from day to day, be prorated on the basis of a 360-day
year for the actual number of days in the relevant Interest Period and be
payable in arrears on the Interest Payment Date immediately following the end
of that Interest Period; provided that in the event the Disbursement is
made less than fifteen (15) days before an Interest Payment Date, interest on
the C Loan shall be payable commencing on the second Interest Payment Date
following the date of the Disbursement.


 


14

















 


(c)           Subject to Section 2.04 (Change in Interest Period), the Interest Rate for any
Interest Period shall be the rate which is the sum of:


(i)                                     the Relevant Spread; and


(ii)                                  LIBOR on the Interest Determination Date
for that Interest Period for six (6) months (or, in the case of the first
Interest Period, for one (1) month, two (2) months, three (3) months or six (6)
months, whichever period is closest to the duration of the relevant Interest
Period (or, if two periods are equally close, the longer one)) rounded upward
to the nearest three decimal places.


(d)           If, for any Interest Period, IFC
cannot determine LIBOR by reference to the Reuters Service or any other service
that displays BBA rates, IFC shall notify the Borrower and shall instead
determine LIBOR:


(i)                                     on the second Business Day before the
beginning of the relevant Interest Period by calculating the arithmetic mean
(rounded upward to the nearest three decimal places) of the offered rates
advised to IFC on or around 11:00 a.m., London time, for deposits in the Loan
Currency and otherwise in accordance with Section 2.03 (c) (ii), by any four
(4) major banks active in the Loan Currency in the London interbank market,
selected by IFC; provided that if less than four quotations are
received, IFC may rely on the quotations so received if not less than two (2);
or


(ii)                                  if less than two (2) quotations are
received from the banks in London in accordance with subsection (i) above, on
the first day of the relevant Interest Period, by calculating the arithmetic
mean (rounded upward to the nearest three decimal places) of the offered rates
advised to IFC on or around 11:00 a.m., New York time, for loans in the Loan
Currency and otherwise in accordance with Section 2.03 (c) (ii), by a major
bank or banks in New York, New York selected by IFC.


(e)           On each Interest Determination Date
for any Interest Period, IFC shall determine the Interest Rate applicable to
that Interest Period and promptly notify the Borrower of those rates.


(f)            The determination by IFC, from time
to time, of the applicable Interest Rate shall be final and conclusive and bind
the Borrower (unless the determination involves manifest error).


Section 2.04.  Change in Interest Period.  Without prejudice to the provisions of
Section 2.05 (Default Rate Interest), if at any
time the Borrower fails to pay any amount of principal of, or interest on, the
C Loan when due (whether at stated maturity or upon acceleration), and any part
of that amount remains unpaid on the third Business Day immediately preceding
any Interest Payment Date falling after that amount became due, then:


 


15

















 


(a)           IFC may elect that the duration of
the Interest Period commencing on that Interest Payment Date and, subject to
Section 2.04 (c), any subsequent Interest Period shall be either three (3)
months or one (1) month and shall notify the Borrower of that election in the
notice referred to in Section 2.03 (e) (Interest);


(b)           the Interest Rates applicable to any
Interest Period which is three (3) months or one (1) month shall be determined
in accordance with Section 2.03 (Interest) in
all respects, except that any reference in Section 2.03 (c) (ii) to six (6)
months shall be deemed to be a reference to three (3) months or, as the case
may be, one (1) month; and


(c)           unless an Event of Default or
Potential Event of Default has occurred and is continuing, IFC shall reinstate
Interest Periods of six (6) months as of the first Interest Payment Date which
is May 15 or November 15 falling at least three (3) Business Days after the
payment default is remedied in full and shall inform the Borrower of that
reinstatement in the notice referred to in Section 2.03 (e) (Interest).


Section 2.05.  Default Rate Interest.  (a) Without limiting the remedies available
to IFC under this Agreement or otherwise (and to the maximum extent permitted
by applicable law), if the Borrower fails to make any payment of principal,
interest (including interest payable pursuant to this Section) or any other
payment provided for in Section 2.08 (Fees) when due
as specified in this Agreement (whether at stated maturity or upon
acceleration), the Borrower shall pay interest on the amount of that payment
due and unpaid at the rate which shall be the sum of two per cent (2%) per
annum and the Interest Rate in effect from time to time.


(b)           Interest at the rate referred to in
Section 2.05 (a) shall accrue from the date on which payment of the relevant
overdue amount became due until the date of actual payment of that amount (as
well after as before judgment), and shall be payable on demand or, if not
demanded, on each Interest Payment Date falling after any such overdue amount
became due.


Section 2.06.  Repayment.  Subject to Section 1.04 (Business Day
Adjustment), the Borrower shall repay the C Loan in its entirety on
November 19, 2017.


Section 2.07.  Prepayment.  (a) The Borrower may prepay the C Loan in its
entirety, on not less than ten (10) days’ prior notice to IFC, only in the
event described in Section 5.02 (e) (Negative Covenants)  and only if:


(i)                                     the Borrower simultaneously pays all
accrued interest and Increased Costs (if any) on the amount of the C Loan to be
prepaid, together with the prepayment premium specified in Section 2.07 (b) and
all other amounts then due and payable under this Agreement, including the
amount payable under Section 2.12 (Unwinding Costs),
if the prepayment is not made on an Interest Payment Date; and


 


16






 


 












 


	
  (ii)

  	
   

  	
  if
  requested by IFC, the Borrower delivers to IFC, prior to the date of
  prepayment, evidence satisfactory to IFC that all necessary Authorizations
  with respect to the prepayment have been obtained.

  



 


(b)           On the date of the prepayment of the
C Loan in accordance with Section 2.07 (a), the Borrower shall pay the
Prepayment Premium.  The determination by
IFC of the Prepayment Premium shall be final and conclusive and bind the
Borrower (unless such determination involved manifest error).


(c)           Upon delivery of a notice in
accordance with Section 2.07 (a), the Borrower shall make the prepayment in
accordance with the terms of that notice; provided, that in the event a
Corporate Transaction (in connection with which such prepayment is intended)
does not close in accordance with its terms, the Borrower shall not be
obligated to make the prepayment as provided in such notice, subject to the
payment of any costs, expenses or losses payable under Section 2.12.


Section 2.08.  Fees.  (a) The Borrower shall pay to IFC a
commitment fee:


	
  (i)

  	
   

  	
  at
  the rate of one-half of one per cent (1⁄2 %) per annum on that part of the C
  Loan that from time to time has not been disbursed or canceled, beginning to
  accrue on the date of this Agreement;

  
	
   

  	
   

  	
   

  
	
  (ii)

  	
   

  	
  pro  rated on the basis of a 360-day
  year for the actual number of days elapsed; and

  
	
   

  	
   

  	
   

  
	
  (iii)

  	
   

  	
  payable
  semi-annually, in arrears, on each Interest Payment Date, the first such
  payment to be due on May 15, 2008.

  



 


(b)           The Borrower shall also pay to IFC:


	
  (i)

  	
   

  	
  a
  front-end fee on the C Loan of two hundred thirty two thousand five hundred
  Dollars ($232,500), to be paid on the date which is thirty (30) days after
  the date of this Agreement; provided, however, that in the
  event the Disbursement is made within thirty (30) days after the date of this
  Agreement, such front-end fee may be funded from the Disbursement proceeds;

  
	
   

  	
   

  	
   

  
	
  (ii)

  	
   

  	
  a
  portfolio supervision fee of fifteen thousand Dollars ($15,000) per annum,
  payable upon receipt of a statement from IFC; and

  
	
   

  	
   

  	
   

  
	
  (iii)

  	
   

  	
  if
  the Borrower and IFC agree to restructure all or part of the C Loan, the
  Borrower and IFC shall negotiate in good faith an appropriate amount to
  compensate IFC for the additional work of IFC staff required in connection
  with such restructuring.

  



 


17

















 


(c)           The Borrower shall also pay to IFC a
processing fee of five thousand Dollars ($5,000) for each waiver requested by
the Borrower under any Financing Document and for each amendment made to any
Financing Document after the Disbursement date.


Section 2.09.  Currency and Place of
Payments.  (a) The
Borrower shall make all payments of principal, interest, fees, and any other
amount due to IFC under this Agreement in the Loan Currency, in same day funds,
to the account of IFC at Citibank, N.A., 111 Wall Street, New York, New York,
U.S.A., ABA#021000089 for credit to IFC’s account number 36085579, or at such
other bank or account in New York as IFC from time to time designates in
writing.  Payments must be received in
IFC’s designated account no later than 1:00 p.m. New York time.


(b)           The tender or payment of any amount
payable under this Agreement (whether or not by recovery under a judgment) in
any currency other than the Loan Currency shall not novate, discharge or
satisfy the obligation of the Borrower to pay in the Loan Currency all amounts
payable under this Agreement except to the extent that (and as of the date
when) IFC actually receives funds in the Loan Currency in the account specified
in, or pursuant to, Section 2.09 (a).


(c)           The Borrower shall indemnify IFC
against any losses resulting from a payment being received or an order or
judgment being given under this Agreement in any currency other than the Loan
Currency or any place other than the account specified in, or pursuant to,
Section 2.09 (a); provided that the foregoing shall not apply if such
payment was requested by IFC to be made in any other currency other than the
Loan Currency.  The Borrower shall, as a
separate obligation, pay such additional amount as is necessary to enable IFC
to receive, after conversion to the Loan Currency at a market rate and transfer
to that account, the full amount due to IFC under this Agreement in the Loan
Currency and in the account specified in, or pursuant to, Section 2.09 (a).


(d)           Notwithstanding the provisions of
Section 2.09 (a) and Section 2.09 (b), IFC may require the Borrower to pay (or
reimburse IFC) for any Taxes, fees, costs, expenses and other amounts payable
under Section 2.14 (a) (Taxes) and
Section 2.15 (Expenses) in the currency in
which they are payable, if other than the Loan Currency.


Section 2.10.  Allocation of Partial
Payments.  If at any time
IFC receives less than the full amount then due and payable to it under this
Agreement, IFC may allocate and apply the amount received in any way or manner
and for such purpose or purposes under this Agreement as IFC in its sole
discretion determines, notwithstanding any instruction that the Borrower may
give to the contrary.


Section 2.11.  Increased Costs.  On each Interest Payment Date, the Borrower
shall pay, in addition to interest, the amount which IFC from time to time
notifies to the Borrower in an Increased Costs Certificate as being the
aggregate Increased Costs of IFC accrued and unpaid prior to that Interest
Payment Date.


 


18

















 


Section 2.12.  Unwinding Costs.  (a) If IFC incurs any cost, expense or loss
as a result of the Borrower:


	
  (i)

  	
   

  	
  failing
  to borrow in accordance with a request for Disbursement made pursuant to Section
  2.02 (Disbursement Procedure);

  
	
   

  	
   

  	
   

  
	
  (ii)

  	
   

  	
  failing
  to prepay in accordance with a notice of prepayment (regardless of whether
  the applicable Corporate Transaction closes);

  
	
   

  	
   

  	
   

  
	
  (iii)

  	
   

  	
  prepaying
  all or any portion of the C Loan on a date other than an Interest Payment
  Date; or

  
	
   

  	
   

  	
   

  
	
  (iv)

  	
   

  	
  after
  acceleration of the C Loan, paying all or a portion of the C Loan on a date
  other than an Interest Payment Date;

  



 


then
the Borrower shall immediately pay to IFC the amount that IFC from time to time
notifies to the Borrower as being the amount of those costs, expenses and
losses incurred; provided, however, that the Borrower shall not
be liable for any such costs, expenses or losses in connection with the
conversion of the Conversion Amount into Common Stock pursuant to Article VII (Conversion of the C Loan).


(b)           For the purposes of this Section, “costs,
expenses or losses” include any premium, penalty or expense incurred to
liquidate or obtain third party deposits, borrowings, hedges or swaps in order
to make, maintain, fund or hedge all or any part of the Disbursement or
prepayment of the C Loan, or any payment of all or part of the C Loan upon
acceleration.


Section 2.13.  Suspension or Cancellation
by IFC.  (a) IFC may, by
notice to the Borrower, suspend the right of the Borrower to the Disbursement
or cancel the Disbursement in whole or in part:


	
  (i)

  	
   

  	
  if
  any Event of Default has occurred and is continuing;

  
	
   

  	
   

  	
   

  
	
  (ii)

  	
   

  	
  if
  any event or condition has occurred which has or can be reasonably expected
  to have a Material Adverse Effect; or

  
	
   

  	
   

  	
   

  
	
  (iii)

  	
   

  	
  on
  or after February 15, 2008.

  



 


(b)           Upon the giving of
any such notice, the right of the Borrower to the Disbursement shall be
suspended or canceled, as the case may be. 
The exercise by IFC of its right of suspension shall not preclude IFC
from exercising its right of cancellation, either for the same or any other
reason specified in Section 2.13 (a) and shall not limit any other provision of
this Agreement. Upon any cancellation the Borrower shall pay to IFC all fees
and other amounts accrued (whether or not then due and payable) under this
Agreement up to the date of that cancellation.


 


19

















 


Section 2.14.  Taxes.  (a) The Borrower shall pay or cause to be
paid all Taxes (other than taxes, if any, payable on the overall income of IFC)  on or in
connection with the payment of any and all amounts due under this Agreement
that are now or in the future levied or imposed by any Authority of the Country
or by any organization of which the Country is a member or any jurisdiction
through or out of which a payment is made.


(b)           All payments of principal, interest,
fees and other amounts due under this Agreement shall be made without deduction
for or on account of any Taxes.


(c)           If the Borrower is prevented by
operation of law or otherwise from making or causing to be made those payments
without deduction, the principal or (as the case may be) interest, fees or
other amounts due under this Agreement shall be increased to such amount as may
be necessary so that IFC receives the full amount it would have received
(taking into account any Taxes payable on amounts payable by the Borrower under
this subsection) had those payments been made without that deduction.


(d)           If Section 2.14 (c) applies and IFC
so requests, the Borrower shall deliver to IFC official tax receipts evidencing
payment (or certified copies of them) within thirty (30) days of the later of
the date of that request or within ten (10) days after the receipt of such
official tax receipts.


Section 2.15.  Expenses.  (a) The Borrower shall pay or, as the case
may be, reimburse IFC or its assignees any amount paid by them on account of,
all taxes (including stamp taxes), duties, fees or other charges payable on or
in connection with the execution, issue, delivery, registration or notarization
of the Transaction Documents (excluding the Co-Sale Agreement) and any other
documents related to this Agreement or any other Transaction Document.


(b)           The Borrower shall pay to IFC or as
IFC may direct:


	
  (i)

  	
   

  	
  the
  reasonable fees and expenses of IFC’s outside counsel incurred in connection
  with:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (A)

  	
   

  	
  the
  preparation of the investment by IFC provided for under this Agreement and
  any other Transaction Document (excluding the Co-Sale Agreement);

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (B)

  	
   

  	
  the
  preparation and/or review, execution and, where appropriate, translation and
  registration of the Transaction Documents (excluding the Co-Sale Agreement)
  and any other documents related to them;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (C)

  	
   

  	
  the
  giving of any legal opinions required by IFC under this Agreement and any
  other Financing Document;

  



 


20

















 


	
   

  	
   

  	
  (D)

  	
   

  	
  the
  administration by IFC of the investment provided for in this Agreement or
  otherwise in connection with any amendment, supplement or modification to, or
  requested waiver under, any of the Transaction Documents (excluding the
  Co-Sale Agreement);

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (E)

  	
   

  	
  the
  registration (where appropriate) and the delivery of the evidences of
  indebtedness relating to the C Loan and its disbursement;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (F)

  	
   

  	
  the
  occurrence of any Event of Default or Potential Event of Default; and

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (G)

  	
   

  	
  the
  conversion of the Conversion Amount in accordance with Article VII (Conversion of the C Loan); and

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (ii)

  	
   

  	
  the
  costs and expenses incurred by IFC in relation to efforts to enforce or
  protect its rights under any Transaction Document (excluding the Co-Sale
  Agreement), the exercise of its rights or powers consequent upon or arising
  out of the occurrence of any Event of Default or Potential Event of Default,
  or the conversion of the Conversion Amount in accordance with Article VII (Conversion of the C Loan), including reasonable legal fees
  and expenses.

  



 


ARTICLE III


Representations
and Warranties


Section 3.01.  Representations and
Warranties.  The Borrower
represents and warrants that:


(a)           Organization,
etc.  The Borrower is a corporation,
duly organized, validly existing and in good standing under the laws of the
State of Texas, and is qualified or licensed to do business and is in good standing
as a foreign corporation in each other jurisdiction in which the conduct of its
business or the ownership of property requires such qualification or licensing,
except where failure to be so qualified or licensed could not reasonably be
expected to have a Material Adverse Effect. 
Each company listed in Schedule 3.01(a) hereof is duly organized, and
validly existing and in good standing under the laws of the jurisdiction of its
organization, and is qualified or licensed to do business and is in good standing
as a foreign corporation in each other jurisdiction in which the conduct of its
business or the ownership of property requires such qualification or licensing,
except where failure to be so qualified or licensed could not reasonably be
expected to have a Material Adverse Effect. 
Except for the Subsidiaries listed in Schedule 3.01(a), the Borrower
does not own, or control, directly or indirectly, any interest in any other
corporation, partnership, trust, joint venture, association or other entity;


 


21

















 


(b)           Authority.  The Borrower has the corporate power and
authority to execute and deliver the Transaction Documents and to perform its
obligations thereunder or will, in the case of any Transaction Document not
executed as at the date of this Agreement, when such Transaction Document is
executed, have the corporate power and authority to execute and deliver such
Transaction Document and to perform its obligations thereunder, and such
actions have been or will be, as the case may be, duly authorized by all
necessary action of the Borrower’s Board of Directors and no other corporate
action on the part of the Borrower is or will be necessary to authorize the
execution, delivery and performance of the Transaction Documents.  The shares of Common Stock issuable upon
conversion of the Conversion Amount have been duly reserved for issuance
(subject to any adjustable number of shares) and if, as and when issued in
accordance with the terms of this Agreement and delivered to IFC, such shares
will be duly and validly issued and outstanding, fully paid and non-assessable
and will be free of any Lien and will not be subject to preemptive rights,
rights of first refusal or other restrictions on transfer, other than those imposed
pursuant to the Subscription Agreement and securities laws of general
application.  The issuance of such shares
will not be subject to preemptive or other similar rights of any holder of the
Borrower’s securities;


(c)           Enforceability.  This Agreement and all other Transaction
Documents executed and delivered or to be executed and delivered by the
Borrower, when delivered in accordance with the terms hereof and thereof, shall
have been duly executed and delivered by the Borrower and constitute a legal, valid
and binding agreement and obligation of the Borrower enforceable against it in
accordance with their terms, subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect generally relating
to or affecting creditors’ rights;


(d)           Authorizations.  (i) (A) The Authorizations specified in Annex
A are all the Authorizations (other than Authorizations that are of a routine
nature and are obtained in the ordinary course of business) needed by the
Borrower and its Subsidiaries to conduct their respective businesses, carry out
the Project and execute, and comply with their obligations under, this
Agreement and each of the other Transaction Documents to which any of them is a
party;


	
   

  	
   

  	
  (B)

  	
   

  	
  all
  Authorizations specified in Section (1) of Annex A have been obtained and are
  in full force and effect; and

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (C)

  	
   

  	
  the
  Borrower and the relevant Subsidiaries have applied (or are making
  arrangements to apply) for all Authorizations specified in Section (2) and
  Section (3) of Annex A, and the Borrower has no reason to believe that it or
  any of such relevant Subsidiaries will not obtain those Authorizations in a
  timely manner;

  



 


and


 


22

















 


	
  (ii)

  	
   

  	
  except
  for rights that can reasonably be expected to be obtained on commercially
  reasonable terms at the time required, the Project Documents contain all
  rights that are necessary for:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (A)

  	
   

  	
  the
  construction, completion, operation and ownership of the Project, and

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (B)

  	
   

  	
  the
  conduct of the business of the Borrower and its Subsidiaries as contemplated
  by the Transaction Documents;

  



 


(e)           No Violation.  The execution and delivery by the Borrower of
the Transaction Documents and the performance by the Borrower of its
obligations thereunder do not and will not (i) conflict with or result in
a breach of the terms, conditions or provisions of, (ii) constitute a
default under, or (iii) result in a violation of, (x) any Authorization,
(y) any material written or oral agreement or instrument, including, without
limitation, trust instrument, indenture or evidence of indebtedness, lease,
contract or other obligation or commitment binding upon the Borrower or any
Subsidiary or any of their respective properties or assets, to the extent such
conflict, default or violation could reasonably be expected to have a Material
Adverse Effect, (z) any federal, state, or local law, rule, regulation or
ordinance, or any restriction, order, writ, judgment, award, determination,
injunction or decree of any Authority, or any decision or ruling of any
arbitrator binding upon or applicable to the Borrower or any Subsidiary or any
of their respective properties or assets, or (aa) any provision of the Charter
of the Borrower or organizational documents of any of its Subsidiaries;


(f)            Litigation.  Except as set forth in the Borrower’s public
SEC filings, there are no pending or, to the Borrower’s knowledge after due
inquiry, overtly threatened actions, claims, orders, decrees, investigations,
suits or proceedings by or before any governmental authority, arbitrator, court
or administrative agency which could reasonably be expected to have a Material
Adverse Effect, and no judgment or order has been issued which could reasonably
be expected to have a Material Adverse Effect;


(g)           Charter.  The Borrower has delivered to IFC a true and
correct copy of its Charter, which has not been amended since the effective
date of October 11, 2007;


(h)           Capitalization.
The authorized capital stock of the Borrower consists of 250,000,000 shares of
Common Stock, no par value, 63,771,069 shares of which have been validly issued
and are outstanding as of September 30, 2007 and are owned beneficially and
legally of record by the Persons indicated on Schedule 3.01(h) (and such issued
shares are fully paid and non-assessable), and 25,000,000 shares of preferred
stock, no par value, none of which are issued or outstanding as of September
30, 2007.  Except as set forth on
Schedule 3.01(h), the Borrower owns 100% of the capital stock of each of the
Subsidiaries.  Except as set forth on
Schedule 3.01(h), there do not exist any other authorized or outstanding
securities, options, warrants, calls, commitments, rights to subscribe or other
instruments, agreements or rights of any character, or any preemptive rights,
convertible into or exchangeable for, or requiring or 


 


23

















 


relating to the issuance, transfer or sale of, any
shares of capital stock or other securities of the Borrower or any
Subsidiary.  Schedule 3.01(h) contains a
capitalization table showing the number of shares of Common Stock and Stock
Equivalents owned by each category of holders of Common Stock and/or Stock
Equivalents of the Borrower;


(i)            Financial Statements.  All of the Consolidated financial statements
included in the most recent quarterly report (Form 10-Q) and annual report
(Form 10-K) filed by the Borrower with the SEC (the “Borrower Financial
Statements”): (i) have been prepared from and on the basis of, and are in
accordance with, the books and records of the Borrower and with the Accounting
Standards; (ii) fairly and accurately present in all material respects the
Consolidated financial condition of the Borrower as of the date of each such
Borrower Financial Statement and the results of its operations for the periods
therein specified; and (iii) in the case of the annual financial
statements, are accompanied by the audit opinion of the Auditors.  Except as disclosed in the Borrower’s public
SEC filings, the Borrower has no liabilities other than (i) liabilities
which are reflected or reserved against in the Borrower Financial Statements
and which remain outstanding and undischarged as of the date hereof,
(ii) liabilities arising in the ordinary course of business of the Borrower
since September 30, 2007, (iii) liabilities incurred as a result of the
transactions described in the Borrower’s public SEC filings, or
(iv) liabilities which were not required by the Accounting Standards to be
reflected or reserved on the Borrower Financial Statements;


(j)            No Material Adverse Effect.  Since September 30, 2007, except as disclosed
in the Borrower’s public SEC filings, there has not been any event or change
which has had or could reasonably be expected to have a Material Adverse Effect
and the Borrower has no knowledge of any event or circumstance that would
reasonably be expected to result in such a Material Adverse Effect;


(k)           Absence of Certain Changes.  Since September 30, 2007, except as disclosed
in the Borrower’s public SEC filings, neither the Borrower nor any of its
Subsidiaries has:


	
  (i)

  	
   

  	
  redeemed,
  purchased or otherwise acquired directly or indirectly any shares of any
  class or series of its capital stock, or any instrument or security which
  consists of or includes a right to acquire such shares;

  
	
   

  	
   

  	
   

  
	
  (ii)

  	
   

  	
  paid,
  discharged or satisfied any claim, liability or obligation (whether absolute,
  accrued, contingent or otherwise) other than the payment, discharge or
  satisfaction in the ordinary course of business and consistent with past practice
  of liabilities and obligations reflected or reserved against in the Borrower
  Financial Statements or incurred in the ordinary course of business and
  consistent with past practice since such date;

  
	
   

  	
   

  	
   

  
	
  (iii)

  	
   

  	
  permitted
  or allowed any of its material properties or assets (real, personal or mixed,
  tangible or intangible) to be subjected to any Lien of any kind outside of
  the ordinary course of business;

  



 


24

















 


	
  (iv)

  	
   

  	
  cancelled
  any debt or waived any claim or right of substantial value;

  
	
   

  	
   

  	
   

  
	
  (v)

  	
   

  	
  sold,
  transferred, licensed, leased, pledged, mortgaged or otherwise disposed of
  any of its material properties or assets (real, personal or mixed, tangible
  or intangible) or any material amount of property or assets, except in the
  ordinary course of business;

  
	
   

  	
   

  	
   

  
	
  (vi)

  	
   

  	
  disposed
  of or permitted to lapse any right to the use of any Proprietary Rights, or
  disposed of or disclosed to any Person, other than representatives of IFC and
  Persons subject to a nondisclosure agreement, any trade secret, formula,
  process, know-how or other Proprietary Right not yet a matter of public
  knowledge;

  
	
   

  	
   

  	
   

  
	
  (vii)

  	
   

  	
  granted
  any material increase or accrual in or accelerated any benefit or
  compensation payable or to become payable to any officer, director, employee
  or consultant, including any such increase, accrual or acceleration pursuant
  to any benefit plan except in connection with a promotion or job change or
  any general increase in the compensation payable or to become payable to officers,
  employees or directors in the ordinary course of business, or entered into or
  amended in any material way any employment, material consulting, severance,
  termination or material benefit plan agreement or arrangement other than in
  the ordinary course of business;

  
	
   

  	
   

  	
   

  
	
  (viii)

  	
   

  	
  declared,
  paid or set aside for payment any dividend or other distribution in respect
  of its capital stock or redeemed, purchased or otherwise acquired, directly
  or indirectly, any shares of capital stock or other securities of the
  Borrower or any of its Subsidiaries;

  
	
   

  	
   

  	
   

  
	
  (ix)

  	
   

  	
  made
  any change in any method of tax or financial statement accounting or
  accounting practice that would or would reasonably be expected to result in
  any material change in the Borrower Financial Statements;

  
	
   

  	
   

  	
   

  
	
  (x)

  	
   

  	
  paid,
  loaned or advanced any amount to, or sold, transferred or leased any material
  properties or assets (real, personal or mixed, tangible or intangible) to, or
  entered into any agreement or arrangement with, any of its officers or
  directors or employees or any Affiliate of any of its officers or directors
  or employees, except for directors’ fees and compensation to officers in the
  ordinary course of business;

  
	
   

  	
   

  	
   

  
	
  (xi)

  	
   

  	
  issued,
  sold, transferred, pledged, disposed of or encumbered any shares of any class
  or series of its capital stock, or securities convertible into or
  exchangeable for, or options, warrants, calls, commitments or rights of any
  kind to acquire, any shares of any class or series of its capital stock,
  other than shares of Common Stock reserved for issuance on the date of this 

  



 


25

















 


	
   

  	
   

  	
  Agreement
  pursuant to the Borrower’s 2005 Long-Term Incentive Compensation Plan, the
  exercise of any warrants or options to purchase Common Stock described on
  Schedule 3.01(h) or existing agreements described on Schedule 3.01(h) that
  require the Borrower to issue shares of Common Stock;

  
	
   

  	
   

  	
   

  
	
  (xii)

  	
   

  	
  terminated
  or materially modified or amended any of its material contracts or waived,
  released or assigned any material rights under any material contract or
  claims, except in the ordinary course of business and consistent with past
  practice;

  
	
   

  	
   

  	
   

  
	
  (xiii)

  	
   

  	
  revalued
  in any material respect any of its assets, including writing down the value
  of inventory or writing-off notes or accounts receivable, other than in the
  ordinary course of business consistent with past practice or as required by
  the Accounting Standards;

  
	
   

  	
   

  	
   

  
	
  (xiv)

  	
   

  	
  adopted
  a plan of complete or partial liquidation, dissolution, merger,
  consolidation, restructuring, recapitalization or other reorganization of the
  Borrower or any of its Subsidiaries; or

  
	
   

  	
   

  	
   

  
	
  (xv)

  	
   

  	
  agreed,
  whether in writing or otherwise, to take any action described in this Section
  3.01 (k);

  



 


(l)            Income Tax Returns.  The Borrower and the Subsidiaries have filed
all federal and state income tax returns which are required to be filed, and
have paid, or made provision for the payment of all taxes which have become due
pursuant to said returns or pursuant to any assessment received by the Borrower
or any Subsidiary, except such taxes, if any, as are being contested in good
faith and as to which adequate reserves have been provided.  The Borrower has no knowledge of any pending
assessments or adjustments of the income tax payable by the Borrower or its
Subsidiaries with respect to any year;


(m)          Compliance with Law.  To the best of the Borrower’s knowledge after
due inquiry, the Borrower and each Subsidiary are in compliance with all
federal, state, or local laws, rules, regulations or ordinances, or any
restrictions, orders, writs, judgments, awards, determinations, injunctions or
decrees of any Authority, or any decision or ruling of any arbitrator, in the
conduct of its business and corporate affairs, except where failure to comply,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.  Neither the
Borrower nor any of its Subsidiaries has received any written notice that any
violation of the foregoing is being or may be alleged;


(n)           Sanctionable Practices.  Neither the Borrower nor any Affiliates, nor
any Person acting on its or their behalf, has committed or engaged in, with
respect to the Project or any transaction contemplated by this Agreement, any
Sanctionable Practice;


 


26






 












(o)           Insurance.  The Borrower’s insurance policies cover such
risks and contain such policy limits, types of coverage and deductibles as are,
in the Borrower’s judgment, adequate to insure fully (subject to the
deductibles and retention amounts described in Schedule 3.01(o)) against risks
to which the Borrower and its employees, business, properties and other assets
may be exposed in the operation of the business as currently conducted.  All of the Borrower’s insurance policies are
valid and enforceable policies, all premiums due and payable under all such
policies have been paid and the Borrower is otherwise in compliance in all
material respects with the terms of such policies.  The Borrower has no knowledge of any threatened
termination of, or material change with respect to, the terms and conditions of
such policies.


(p)           Restrictions on Business
Activities.  There is no agreement,
judgment, injunction order or decree binding upon the Borrower which has or
could reasonably be expected to have the effect of prohibiting or impairing in
any material respect any of its current or future business practices, its
acquisition of property or the conduct of its business as it is currently
conducted or as proposed to be conducted;


(q)           ERISA.  Except as set forth in Schedule 3.01(q), each
of the Borrower and Subsidiaries is in compliance in all material respects with
any applicable provisions of ERISA; each of the Borrower and Subsidiaries has
not violated any provision of any employee benefit plan (the “Plan”) maintained
or contributed to by it; no Reportable Event (as defined in ERISA) has occurred
and is continuing with respect to any Plan initiated by the Borrower or any
Subsidiary; each of the Borrower and Subsidiaries has met its minimum funding
requirements under ERISA with respect to any Plan; and any Plan will be able to
fulfill its benefit obligations as they come due in accordance with the Plan
documents and under the Accounting Standards. 
Schedule 3.01(q) describes each Plan maintained by the Borrower and each
of its Subsidiaries; provided each description is intended as a summary and is
subject to the terms and conditions of each Plan;


(r)            Contracts.  With respect to any material written or oral
agreement or instrument, including, without limitation, trust instrument,
indenture or evidence of indebtedness, lease, contract or other obligation or
commitment (other than the Transaction Documents), to which the Borrower or any
Subsidiary is a party or to which any of its properties are subject (i) such
agreement or instrument is legal, valid, binding and enforceable and in full
force and effect, in each case except for bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditor’s rights generally; (ii) such agreement or instrument will continue to
be legal, valid, binding and enforceable and in full force and effect
immediately following the date hereof in accordance with the terms thereof as
in effect prior to the date hereof; (iii) to the knowledge of the Borrower after
due inquiry, the Borrower and the Subsidiaries each has performed all the
obligations required to be performed by it and is entitled to all benefits
thereunder, in each case, except where failure to perform individually or in
the aggregate could not reasonably be expected to have a Material Adverse
Effect, and except for bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditor’s rights generally; and (iv)
neither the Borrower nor, to the knowledge of the Borrower, any other party is
in breach or default, and no event has occurred which with notice or lapse of


 


27

















 


time would constitute a breach or default by the
Borrower or, to the knowledge of the Borrower, by any such other party, or
permit termination, modification or acceleration, under such agreement or
instrument;


(s)           Environmental Matters.


(i)                                     To the best of the Borrower’s knowledge
and belief, after due inquiry, there are no material social or environmental
risks or issues in relation to the Project other than those identified by the
S&EA; and


(ii)                                  The Borrower has not received nor is
aware of either (A) any existing or threatened complaint, order, directive,
claim, citation or notice from any Authority or (B) any material written
communication from any Person concerning the Project’s failure to comply with
any matter covered by the Performance Standards which failure has, or could
reasonably be expected to have, a Material Adverse Effect or a material adverse
impact on the implementation or operation of the Project in accordance with the
Performance Standards;


(t)            Proprietary Rights.  The Borrower and the Subsidiaries own, have
sufficient title to, or have the right to use (or can obtain the right to use on
reasonable commercial terms), all Proprietary Rights necessary to their
business as now conducted without infringing upon the right of any Person.  Except for employee confidentiality
agreements with employees and consultants, there are no outstanding material
options, licenses or agreements relating to intellectual property rights of the
Borrower or any Subsidiary necessary to their business as now conducted, nor is
the Borrower or any Subsidiary bound by or a party to any material options,
licenses or agreements with respect to the Proprietary Rights of any other
Person.  To the Borrower’s knowledge,
neither the Borrower nor any Subsidiary has violated or is in current violation
of, and neither the Borrower nor any Subsidiary has received any communications
alleging that the Borrower or any Subsidiary has violated or, by conducting its
business as proposed, would violate, any of the Proprietary Rights of any other
Person.  The Borrower and the
Subsidiaries are not aware of any material violation by a third party of any of
their Proprietary Rights necessary to their business as now conducted;


(u)           Employees.  (i) Subject to Section 3.01 (u)(ii), all
employees of the Borrower and each Subsidiary are employed “at will” and may be
terminated without payment of severance or incurrence of any other liability of
the Borrower or the Subsidiaries; no employee of the Borrower is in violation
of any material term of any employment contract, confidentiality agreement or
any other material contractual obligation relating to the right of any such
employee to be employed by the Borrower or any Subsidiary; and neither the
Borrower nor any Subsidiary has any employee severance agreement covering any
of its employees.  Subject to Section
3.01 (u)(ii), neither the Borrower nor any Subsidiary is a party to any
collective bargaining agreement or other labor union contract, nor are any
union organization proceedings pending or threatened against the Borrower or
any of the Subsidiaries;


 


28

















 


(ii)           The Borrower’s employees in the
Country are subject to employment laws of the Country and are entitled to any
benefits provided under such laws;


(v)           No Strikes, Etc.  There is no labor strike, slowdown or work
stoppage or lockout against the Borrower or any of the Subsidiaries or against
any contractor with respect to the Project;


(w)          Title to Properties.  The assets owned or leased by the Borrower
and its Subsidiaries are all of the assets necessary to conduct the business of
the Borrower and its Subsidiaries as currently being conducted.  The Borrower and its Subsidiaries have good
and marketable title to substantially all of the assets they own, real and
personal, movable and immovable, tangible and intangible, free and clear of all
Liens, except for (i) liens for taxes not yet due and payable,
(ii) artisan’s or mechanic’s liens arising in the ordinary course of
business, (iii) encumbrances described in Schedule 3.01(w), or
(iv) minor imperfections of title and encumbrances, if any, which
(A) are not substantial in amount, (B) do not detract from the value
of the property subject thereto, impair the operations of the business of the
Borrower, or the use or license of certain of the assets of the Borrower, and
(C) have arisen in the ordinary course of business consistent with past
practice;


(x)            Books and Records.  Since September 10, 2004, the books and
records of the Borrower, including, without limitation, its stock record books
and minute books, are complete and correct in all material respects and
accurately and fairly reflect all meetings and other corporate actions of the
Borrower’s stockholders and its Board of Directors and committees thereof and
all material information relating to its business, the nature, acquisition,
maintenance, location and character of its assets, and the nature of all
transactions giving rise to its obligations or accounts receivable;


(y)           Related Party Transactions.  Except as disclosed in the Borrower’s public
SEC filings, no existing material written or oral agreement or instrument,
including, without limitation, trust instrument, indenture or evidence of
indebtedness, lease, contract or other obligation or commitment of the Borrower
or its Subsidiaries is with or for the direct benefit of (i) any party
owning, or formerly owning, beneficially or of record, directly or indirectly,
in excess of five per cent (5%) of the outstanding capital stock of the
Borrower, (ii) any director, officer or similar representative of the
Borrower, (iii) any natural person related by blood, adoption or marriage
to any party described in (i) or (ii), or (iv) any entity in which
any of the foregoing parties has, directly or indirectly, at least a five per
cent (5%) beneficial interest (a “Related Party”).  Without limiting the generality of the
foregoing, no Related Party, directly or indirectly, owns or controls any
material assets or material properties which are used in the Borrower’s
business and to the actual knowledge of the Borrower, no Related Party,
directly or indirectly, engages in or has any significant interest in or
connection with any business which is, or has been within the last two (2)
years, a competitor, customer or supplier of the Borrower or has done business
with the Borrower or which currently sells or provides products or services
which are similar or related to the products or services sold or provided in
connection with the business of the Borrower;


 


29

















 


(z)            Securities Law Matters.  Except as disclosed in the Borrower’s public
SEC filings, since January 1, 2005, the Borrower has filed in a timely
manner all reports, registration statements, proxy statements and other
materials, together with any amendments required to be made with respect
thereto (the “Public Filings”), that were required to be filed with
(i) the SEC under the Securities Act of 1933, as amended (the “Securities
Act”), or the Securities Exchange Act of 1934, as amended, and (ii) any
applicable state securities authorities (the “Public Filing Rules”). The Public
Filings complied as to form in all material respects with the Public Filing
Rules as of their respective filing dates, and the information contained
therein as of the date thereof did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, except to the extent that information
contained in any such document has been revised or superseded by a later filed
Public Filing.  The Borrower is in
compliance in all material respects with the applicable requirements of the
Public Filing Rules, as amended, and the rules and regulations thereunder.  The issuance of any shares of Common Stock to
IFC upon conversion of the Conversion Amount will be exempt from registration
under the Securities Act;


(aa)         No Anti-Dilution Rights.  The transactions contemplated hereby will not
trigger any anti-dilution provisions contained in any existing agreements; and


(bb)         No Material Omissions.  Neither this Agreement nor any schedule,
exhibit or certificate of the Borrower made or delivered pursuant to this
Agreement contains or will contain any untrue statement of fact, or omits or
will omit to state a material fact the absence of which makes such
representation, warranty or other statement of the Borrower misleading.


Section 3.02.  IFC Reliance.  The Borrower acknowledges that it makes the
representations and warranties in Section 3.01 (Representations
and Warranties) with the intention of inducing IFC to enter into
this Agreement and that IFC enters into this Agreement on the basis of, and in
full reliance on, each of such representations and warranties.


ARTICLE IV


Conditions of Disbursement


Section 4.01.  Conditions of Disbursement.
 The obligation of IFC to make the
Disbursement is subject to the fulfillment prior to or concurrently with the
making of the Disbursement of the following conditions:


(a)           Transaction Documents.  All of the Transaction Documents, each in
form and substance satisfactory to IFC, have been entered into by all parties
to them and have become (or, as the case may be, remain) unconditional and
fully effective in accordance with their respective terms (except for this
Agreement having become unconditional and fully effective, if that is a
condition of any of those agreements), and IFC has received a copy of each of
those agreements to which it is not a party;


 


30

















 


(b)           Charter Amendments.  The Borrower has certified to IFC that no
amendment has been made to the Borrower’s Charter since the effective date of
October 11, 2007, or if any such amendment was made, IFC has received a copy of
the Borrower’s amended Charter and determined, in its reasonable judgment, that
it is not inconsistent with the provisions of any Transaction Document and does
not have or may not reasonably be expected to have a Material Adverse Effect;


(c)           Authorizations.  The Borrower has obtained, and provided to
IFC copies of, all Authorizations listed in Section (1) and Section (2) of
Annex A, and such other Authorizations not listed in those Sections that may
become necessary for:


(i)                                     the C Loan;


(ii)                                  the business of the Borrower as it is
presently carried on and is contemplated to be carried on;


(iii)                               the Project;


(iv)                              the due execution, delivery, validity and
enforceability of, and performance by the Borrower of its obligations under,
this Agreement and the other Transaction Documents, and any other documents
necessary or desirable to the implementation of any of those agreements or
documents; and


(v)                                 the remittance to IFC or its assigns in
Dollars of all monies payable by the Borrower with respect to the Transaction
Documents;


and
all those Authorizations are in full force and effect;


(d)           Legal Opinions.  IFC has received a legal opinion of Adams and
Reese LLP covering the matters set forth in Annex D and such other matters
relating to the transactions contemplated by this Agreement as IFC may
reasonably request, in form and substance satisfactory to IFC;


(e)           [Intentionally Omitted];


(f)            Insurance.  IFC has received copies of all insurance
policies required to be obtained pursuant to Section 5.04 (Insurance)
and Annex B, and a certification of the Borrower’s insurers or insurance agents
confirming that such policies are in full force and effect and all premiums
then due and payable under those policies have been paid;


(g)           Fees.   IFC has received the fees which Section 2.08
(Fees) requires to be paid before the
date of the Disbursement;


 


31

















 


(h)           Legal Fees and Expenses.   IFC has received the reimbursement of all
reasonable invoiced fees and expenses of IFC’s counsel as provided in Section
2.15 (b)(ii) or confirmation that those fees and expenses have been paid
directly to the counsel;


(i)            [Intentionally Omitted];


(j)            Incumbency. IFC has received
a Certificate of Incumbency and Authority;


(k)           Appointment of Agent. The
Borrower has delivered to IFC evidence, substantially in the form of Exhibit D,
of appointment of an agent for service of process pursuant to Section 8.05 (Applicable Law and Jurisdiction);


(l)            Environmental Matters.  (i) the Borrower has completed an S&EA
and delivered to IFC the Action Plan, each in form and substance acceptable to
IFC, (ii) the Borrower and IFC have agreed on the form of Annual Monitoring
Report, and (iii) the Borrower is implementing the S&E Management System
diligently and in accordance with the timetable described in the Action Plan
and in a manner consistent with the Performance Standards;


(m)          No Default.  No Event of Default and no Potential Event of
Default has occurred and is continuing;


(n)           Use of Proceeds.  The proceeds of the Disbursement:


(i)                                     are, at the date of the request, needed
by the Borrower for the purpose of the Project, or will be needed for that
purpose within five (5) months of that date; and


(ii)                                  are not in reimbursement of, or to be
used for, expenditures in the territories of any country that is not a member
of the World Bank or for goods produced in or services supplied from any such
country;


(o)           No Material Adverse Effect.  Since the date of this Agreement nothing has
occurred which has or could reasonably be expected to have a Material Adverse
Effect;


(p)           No Material Loss or Liability.   Since the date of this Agreement the
Borrower and its Subsidiaries have not incurred any loss or liability (except
such liabilities as may be incurred in accordance with Section 5.02 (Negative Covenants)) which could reasonably be expected to
have a Material Adverse Effect;


(q)           Representations and Warranties.
The representations and warranties made in Article III are true and correct in
all material respects on and as of the date of the Disbursement with the same
effect as if those representations and warranties had been made on and as of
the date of the Disbursement;


 


32

















 


(r)            No Violations.  After giving effect to the Disbursement, the
Borrower would not be in violation of:


(i)                                     its Charter;


(ii)                                  any provision contained in any document
to which the Borrower is a party (including this Agreement) or by which the
Borrower is bound; or


(iii)                               any law, rule, regulation, Authorization
or agreement or other document binding on the Borrower directly or indirectly
limiting or otherwise restricting the Borrower’s borrowing power or authority
or its ability to borrow; and


(s)           Financial Ratios.  Without limiting the generality of Section
4.02 (r), after taking into account the amount of the Disbursement and any
other Long-term Debt incurred by the Borrower and its Subsidiaries, on a
Consolidated Basis, and of any amounts of Tangible Net Worth paid into the
Borrower and its Subsidiaries, on a Consolidated Basis, after the date of the
latest quarterly report (Form 10-Q) of the Borrower delivered to IFC pursuant
to Section 5.03 (a) (Reporting Requirements),
the Balance Sheet Liabilities to Tangible Net Worth Ratio would not exceed
70:30.


Section 4.02.  Borrower’s Certification.  The Borrower shall deliver to IFC, with
respect to the request for Disbursement, certifications, in the form included
in Exhibit B, relating to the conditions specified in Section 4.01 (Conditions of Disbursement).


Section 4.03.  Conditions for IFC Benefit.  The conditions in Section 4.01 and Section
4.02 are for the benefit of IFC and may be waived only by IFC in its sole
discretion.


ARTICLE V


Particular Covenants


Section 5.01.  Affirmative Covenants.  Unless IFC otherwise agrees, the Borrower
shall:


(a)           Corporate Existence; Conduct of
Business.   Maintain its corporate
existence, comply with its Charter, and implement the Project and conduct its
business with due diligence and efficiency and in accordance with sound
industry, financial and business practices;


(b)           Use of Proceeds.  Cause the proceeds of the C Loan to be
applied exclusively to the direct and indirect expenditures of the Project;


(c)           Compliance with Laws; Taxes.


(i)                                     Conduct its business in compliance, in
all material respects, with all applicable requirements of law; and


 


33

















 


(ii)                                  Subject to lawful extensions of time,
file by the date due all returns, reports and filings in respect of Taxes
required to be filed by it and pay, when due, all Taxes due and payable by it;


(d)           Accounting and Financial
Management.  Promptly install and
maintain an accounting and control system, management information system and
books of account and other records, which together adequately present fairly
the consolidated financial condition of the Borrower and the consolidated
results of its operations in conformity with the Accounting Standards;


(e)           Auditors.   Appoint and maintain at all times a firm of internationally recognized independent public accountants
acceptable to IFC as auditors of the Borrower;


(f)            Access.  Upon IFC’s request, and with five (5)
Business Days prior notice to the Borrower, permit representatives of IFC and
the CAO (including IFC’s consultants) during normal office hours, to:


(i)                                     visit any of the sites and premises where
the business of the Borrower or its Subsidiaries is conducted;


(ii)                                  inspect any of the Borrower’s or its
Subsidiaries’ sites, facilities, premises and equipment;


(iii)                               have access to the Borrower’s or its
Subsidiaries’ books of account and all records; and


(iv)                              have access to those employees, agents,
contractors and subcontractors of the Borrower or its Subsidiaries who have or
may have knowledge of matters with respect to which IFC seeks information;


at
the Borrower’s reasonable expense and no more than twice annually (in the case
of IFC and its representatives) and at IFC’s expense (in the case of the CAO); provided
that (x) no such prior notice shall be necessary if an Event of Default or
Potential Event of Default is continuing or if special circumstances so require
and (y) in the case of the CAO, such access shall be for the purpose of
carrying out the CAO’s Role;


(g)           Environmental Matters.  (Through its employees, agents, contractors
and subcontractors), ensure that the design, construction, operation,
maintenance, management and monitoring of the Project’s sites, equipment,
operations and facilities are undertaken in compliance with (i) the Action
Plan, (ii) the Performance Standards and (iii) the ESRS;


(h)           Review of Annual Monitoring Report.  Periodically review the form of the Annual
Monitoring Report and advise IFC as to whether revision of the form is
necessary or appropriate in light of changes to the Borrower’s business or
operations, or in light of environmental or social


 


34

















 


risks identified by the Borrower’s S&E Management
System, and revise the form as agreed with IFC;


(i)            S&E Management System.  Use all reasonable efforts to ensure the
continuing operation of the S&E Management System to assess and manage the
social and environmental performance of the Project in a manner consistent with
the Performance Standards;


(j)            Block Z-1 License; Authorizations.


(i)                                     Obtain and maintain in force (and where
appropriate, renew in a timely manner) (i) the Block Z-1 License and (ii) all
Authorizations, including without limitation the Authorizations specified in
Annex A, which are necessary for the implementation of the Project, the
carrying out of the Borrower’s business and operations generally and the
compliance by the Borrower with all its obligations under the Transaction
Documents; and


(ii)                                  comply with all the conditions and
restrictions contained in, or imposed on the Borrower by, the Block Z-1 License
and those Authorizations;


unless in the case of the Authorizations, a failure to do so could not
reasonably be expected to have a Material Adverse Effect;


(k)           Financial Ratios.  Maintain a Balance Sheet Liabilities to
Tangible Net Worth Ratio of no greater than 70:30;


(l)            Public Disclosures.  Publicly disclose on an annual basis, all
material payments (such as taxes, royalties, profit shares) made in the
previous year to the local and/national governments of the Country and the
Republic of Ecuador under the applicable upstream license contracts; and


(m)          Further Assurances.  From time to time, execute, acknowledge and
deliver or cause to be executed, acknowledged and delivered such further
instruments as may reasonably be requested by IFC to enable the Borrower and
its Subsidiaries to comply with their obligations under the Transaction
Documents.


Section 5.02.  Negative Covenants.  Unless IFC otherwise agrees, the Borrower
shall not:


(a)           Distributions.  Declare or pay any dividend or make any cash
distribution on its capital stock (other than dividends or distributions payable
in Common Stock), or purchase, redeem or otherwise acquire any stock of the
Borrower or any option over them or make a payment under any subordinated
Financial Debt (including shareholder loans) unless:


(i)                                     in case of dividends, the proposed
payment or distribution is out of retained earnings or related to a Corporate
Transaction; provided always that the retained earnings out of which any
of the payments or distributions


35

















 


referred to in
this paragraph (i) may be made should in no event include any amount resulting
from the revaluation of any of the Borrower’s assets;


(ii)                                  before or after giving effect to any such
action, the Balance Sheet Liabilities to Tangible Net Worth Ratio is no greater
than 70:30;


(iii)                               no Event of Default or Potential Event of
Default has occurred and is continuing or will occur after giving effect to any
such action; and


(iv)                              no earlier than sixty (60) days nor later
than thirty (30) days prior to doing so, the Borrower certifies to each of the
matters referred to in Section 5.02 (a) (i)-(iii) to IFC in writing, in the
form attached as Exhibit E;


(b)           Permitted Liens.  Create or permit to exist any Lien on any
property, revenues or other assets, present or future, of the Borrower or any
Subsidiary, except for any Lien:


(i)                                     arising from any tax, assessment or other
governmental charge or other Lien arising by operation of law, in each case if
the obligation underlying any such Lien is not yet due or, if due, is being
contested in good faith by appropriate proceedings so long as:


(A)                              those proceedings do not involve any
substantial danger of the sale, forfeiture or loss of any part of the Project,
title thereto or any interest therein, nor interfere in any material respect
with the use or disposition thereof or the implementation of the Project or the
carrying on of the business of the Borrower or any Subsidiary; and


(B)                                the Borrower has set aside adequate
reserves sufficient to promptly pay in full any amounts that the Borrower may
be ordered to pay on final determination of any such proceedings;


(ii)                                  created in favor of IFC in connection
with any loan (other than the C Loan) from IFC to the Borrower or any
Subsidiary pursuant to the proposed financing arrangements described under the
caption “Management’s Discussion and Analysis of Financial Condition and
Results of Operation — Liquidity, Capital Resources and Capital Expenditures”
in the Borrower’s quarterly report on Form 10-Q for the period ended September
30, 2007 (the “IFC Senior Loan Financing”);


(iii)                               created in favor of any lender (other
than IFC) in connection with the refinancing of all or any portion of the IFC
Senior Loan Financing; provided, however, that (x) such
indebtedness of the Borrower or any Subsidiary to such lender shall be in an
amount not to exceed the principal amount of the IFC Senior Loan Financing so
refinanced (including accrued interest from the last scheduled payment of
interest on such indebtedness,


36

















 


fees, premium (if
applicable) and other amounts and expenses related to such refinancing), (y)
the average life shall not be shorter than that of the IFC Senior Loan
Financing being refinanced (as calculated based on the principal amounts
outstanding at the time of such refinancing), and (z) the final maturity of
such indebtedness shall not be shorter than the earlier of the final maturity
of the C Loan and the final maturity of the IFC Senior Loan Financing; and


(iv)                              created in favor of any lender (other
than IFC) in connection with a senior debt financing incurred in the principal
amount not to exceed one hundred fifty million Dollars ($150,000,000) and for
the same purposes as the IFC Senior Loan Financing; provided, however,
that such senior debt financing is a customary borrowing base financing for the
oil and gas industry, whereby the borrowing base is linked to an independently
certified reserve report;


(c)           Arm’s Length Transactions.   Enter into any transaction except in the
ordinary course of business on the basis of arm’s-length arrangements
(including, without limitation, transactions whereby the Borrower or any
Subsidiary might pay more than the ordinary commercial price for any purchase
or might receive less than the full ex-works commercial price (subject to
normal trade discounts) for its products);


(d)           Fundamental Changes.  Change:


(i)                                     its Charter in any manner which would be
inconsistent with the provisions of any Transaction Document;


(ii)                                  its Financial Year; or


(iii)                               without the prior written consent of IFC
which shall not be unreasonably withheld, the nature or scope of the Project or
change the nature of its business or operations;


(e)           Merger, Consolidation, Etc.  (i) Except for Intra-Group Restructurings,
consummate any Corporate Transaction without the prior written consent of IFC,
which consent shall not be unreasonably withheld; provided, that (i) IFC
shall provide its consent or non-consent to the Borrower in writing on or
before ten (10) Business Days after receipt of written request for consent from
the Borrower (together with a description of the proposed Corporate Transaction
in reasonable detail), and (ii) in the event IFC fails to so provide such
consent or non-consent on or before the expiration of such ten (10) Business
Day period, IFC’s consent shall be deemed to have been given to such proposed
Corporate Transaction; and provided, further, that in the event
IFC does not consent (or is not deemed to so consent) to such proposed
Corporate Transaction, the Borrower shall, subject to Section 5.02 (e)(ii), be
entitled to prepay the C Loan, together with payment of the Prepayment Premium
and all other amounts payable in accordance with Section 2.07 (b) (Prepayment); and


 


37






 












(ii)           In the event the Borrower prepays the
C Loan as described in clause (i) above, the Borrower does not waive any claim
it may have that IFC’s consent to the proposed Corporate Transaction was
unreasonably withheld, and shall be entitled to file any such claim with a
court of competent jurisdiction described in Section 8.05 (b) (Applicable Law and Jurisdiction) within a period of six (6)
months following consummation of such Corporate Transaction.  In the event the Borrower obtains a judgment
in its favor that such consent was unreasonably withheld, the parties agree
that the quantum of damages for such claim shall be the amount of the
Prepayment Premium paid to IFC.  IFC
shall not be liable for any consequential, indirect, special or punitive
damages in connection therewith; the Borrower shall be entitled to make
application to the court, however, for incidental expenses as permitted under
New York law, including pre-judgment interest and legal fees.  Nothing herein shall be deemed a waiver by
IFC of its immunities under its Articles of Agreement or applicable law;


(f)            Use of Proceeds.  Use the proceeds of the Disbursement in the
territories of any country that is not a member of the World Bank or for
reimbursements of expenditures in those territories or for goods produced in or
services supplied from any such country;


(g)           Amendment of Action Plan.  The Borrower shall not amend the Action Plan
in any material respect without the prior written consent of IFC; or


(h)           Sanctionable Practices.  Engage in (and shall not authorize or permit any
Affiliate or any other Person acting on its behalf to engage in) with respect
to the Project or any transaction contemplated by this Agreement, any
Sanctionable Practice.  The Borrower
further covenants that should IFC notify the Borrower of its concerns that
there has been a violation of the provisions of this Section or of Section 3.01
(n) (Representations and Warranties), it
shall cooperate in good faith with IFC and its representatives in determining
whether such a violation has occurred, and shall respond promptly and in
reasonable detail to any notice from IFC, and shall furnish documentary support
for such response upon IFC’s request.


Section 5.03.  Reporting Requirements.  Unless IFC otherwise agrees, the Borrower
shall:


(a)           Quarterly Requirements.  As soon as available but in any event within
forty-five (45) days after the end of each quarter of each Financial Year,
deliver to IFC:


(i)                                     a copy of the Borrower’s quarterly report
(Form 10-Q) as filed with the SEC; and


(ii)                                  a report (in the form pre-agreed by IFC),
signed by the Borrower’s chief financial officer, concerning compliance with
the financial covenants in this Agreement (including a clear description of the
methodology used in the respective calculations);


 


38

















(b)           Annual Requirements.  As soon as available but in any event within
ninety (90) days after the end of each Financial Year, deliver to IFC:


(i)                                     a copy of the Borrower’s annual report
(Form 10-K) as filed with the SEC;


(ii)                                  a report (in the form pre-agreed by IFC),
signed by the Borrower’s chief financial officer and reviewed by its Auditors,
concerning compliance with the financial covenants in this Agreement (including
a clear description of the methodology used in the respective calculations);


(iii)                               an updated certification of the reserves
in the Corvina field, and, if applicable, any other field reserves in Block
Z-1, prepared in accordance with SEC regulations by the Independent Engineer;


(iv)                              a capital and operating budget for the
next Financial Year; and


(v)                                 a consolidating statement by the Borrower
of all transactions between the Borrower and each of its Affiliates, if any,
during that Financial Year, and a certification by the Borrower’s chief financial
officer that those transactions were on the basis of arm’s-length arrangements;


(c)           Annual Monitoring Report.  Within sixty (60) days after the end of each
Financial Year, deliver to IFC the corresponding Annual Monitoring Report in a
form consistent with the requirements of this Agreement confirming compliance
with the Action Plan, the social and environmental covenants set forth in
Sections 5.01 and 5.02 and Applicable S&E Law, or, as the case may be,
identifying any non-compliance or failure, and the actions being taken to
remedy it; provided that the Borrower may supplement any Annual
Monitoring Report with such information as may be useful to enhance its clarity
and/or to better illustrate the Borrower’s performance over time (e.g., charts, graphs);


(d)           Notice of Accidents, Etc.  Within five (5) Business Days after its
occurrence, notify IFC of any social, labor, health and safety, security or
environmental incident, accident or circumstance having, or which could
reasonably be expected to have, a Material Adverse Effect or material adverse
impact on the implementation or operation of the Project in accordance with the
Performance Standards, specifying in each case the nature of the incident,
accident, or circumstance and any effect resulting or likely to result
therefrom, and the measures the Borrower is taking or plans to take to address
them and to prevent any future similar event; and keep IFC informed of the
on-going implementation of those measures and plans;


(e)           Shareholder Matters.  Give notice to IFC, concurrently with the
Borrower’s notification to its stockholders, of any meeting of its
stockholders, such notice to include the agenda of the meeting; and, as soon as
available, deliver to IFC copies of all notices, reports and other communications
of the Borrower to its stockholders, whether any such communication has been
made on an individual basis or by way of publication in a newspaper or other
communication medium;


(f)            Changes to Project; Material
Adverse Effect.  Promptly notify IFC
of any proposed change in the nature or scope of the Project or the business or
operations of the 


 


39

















Borrower and of any event or condition that has or may
reasonably be expected to have a Material Adverse Effect;


(g)           Litigation, Etc.  Promptly upon becoming aware of any
litigation, arbitration or administrative proceedings before any Authority or
arbitral body which has or may reasonably be expected to have a Material
Adverse Effect, notify IFC by facsimile of that event specifying the nature of
that litigation or those proceedings and the steps the Borrower is taking or
proposes to take with respect thereto;


(h)           Default.  Promptly upon the occurrence of an Event of
Default or Potential Event of Default, notify IFC by facsimile specifying the
nature of that Event of Default or Potential Event of Default and any steps the
Borrower is taking to remedy it; and


(i)            Other Information.  Promptly provide to IFC such other
information as IFC from time to time requests about the Borrower, its
Subsidiaries, their respective assets and the Project.


Section 5.04.  Insurance.  (a) The Borrower shall cause its operations
in the Country to effect and maintain the insurance coverage specified in Annex
B at all times, under forms of policies and with insurers and reinsurers
acceptable to IFC.  For the avoidance of
doubt, the Borrower’s obligations under this Section 5.04 shall survive a
conversion of the Conversion Amount into Common Stock pursuant to Article VII (Conversion of the C Loan).


(b)           All policies of liability insurance
required to be maintained in accordance with Annex B shall be endorsed to name IFC and its officers and employees as
additional insureds.


ARTICLE VI



Events of Default


Section 6.01.  Acceleration after Default.  If any Event of Default occurs and is
continuing (whether it is voluntary or involuntary, or results from operation
of law or otherwise), IFC may, by notice to the Borrower, require the Borrower
to repay the C Loan or such part of the C Loan as is specified in that
notice.  On receipt of any such notice,
the Borrower shall immediately repay the C Loan (or that part of the C Loan
specified in that notice) and pay all interest accrued on it, the prepayment
premium specified in Section 2.07 on the amount of the C Loan whose payment is
accelerated and any other amounts then payable under this Agreement. The
Borrower waives any right it might have to further notice, presentment, demand
or protest with respect to that demand for immediate payment.


Section 6.02.  Events of Default.  It shall be an Event of Default if:


(a)           Failure to Pay Principal or
Interest.   The Borrower fails to pay
when due any part of the principal of, or interest on, the C Loan and such
failure continues for a period of three (3) Business Days;


 


40

















(b)           Failure to Pay Other IFC Loans.  The Borrower fails to pay when due any part
of the principal of, or interest on, any loan from IFC to the Borrower other
than the C Loan and any such failure continues for the relevant grace period
allowed for in the agreement providing for that loan;


(c)           Failure to Comply with Obligations.   The Borrower (or, in the case of the Block
Z-1 License, any Subsidiary) fails to comply with any of its obligations under
this Agreement or any other Transaction Document or any other agreement between
the Borrower and IFC (other than for the payment of the principal of, or
interest on, the C Loan or any other loan from IFC to the Borrower), and any
such failure continues for a period of thirty (30) days after the earlier of
(x) the date on which IFC notifies the Borrower of that failure and (y) the date on which the Borrower should
reasonably have become aware of that failure; provided, however,
that such thirty (30) day cure period shall be extended to ninety (90) days in
aggregate if not curable within thirty (30) days and the Borrower is pursuing a
cure in good faith;


(d)           Failure by Other Parties to Comply
with Obligations.  Any party (other
than IFC or the Borrower) to a Transaction Document (excluding the Co-Sale
Agreement) fails to observe or perform any of its obligations under that
Transaction Document, and such failure continues for a period of thirty (30)
days after the earlier of (i) the date on which IFC notifies the Borrower of
that failure and (y) the date on which the Borrower should reasonably have
become aware of that failure; provided, however, that such thirty
(30) day period shall be extended to one hundred twenty (120) days in aggregate
if such failure is by a party not an Affiliate of the Borrower, is not curable
within thirty (30) days and the Borrower is pursuing a cure in good faith;


(e)           Misrepresentation.  Any representation or warranty made in
Article III or in connection with the execution of, or any request (including a
request for Disbursement) under, this Agreement or any other Financing Document
is found to be incorrect, except if such incorrectness could not reasonably be
expected to result in a Material Adverse Effect;


(f)            Expropriation, Nationalization,
Etc.  Any Authority condemns,
nationalizes, seizes, or otherwise expropriates all or any substantial part of
the property or other assets of the Borrower or any Subsidiary or of its
respective capital stock, or assumes custody or control of that property or
other assets or of the business or operations of the Borrower or any Subsidiary
or of its respective capital stock, or takes any action for the dissolution or
disestablishment of the Borrower or any Subsidiary or any action that would
prevent the Borrower or any Subsidiary or its respective officers from carrying
on all or a substantial part of its business or operations;


(g)           Involuntary Proceedings.  A decree or order by a court is entered
against the Borrower or any Subsidiary:


(i)                                     adjudging the Borrower or such Subsidiary
bankrupt or insolvent;


(ii)                                  approving as properly filed a petition
seeking reorganization, arrangement, adjustment or composition of, or with
respect to, the Borrower or such Subsidiary under any applicable law;


 


41

















(iii)                               appointing a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the Borrower or
such Subsidiary or of any substantial part of its respective property or other
assets; or


(iv)                              ordering the winding up or liquidation of
its affairs;


or
any petition is filed seeking any of the above and is not dismissed within
sixty (60) days;


(h)           Voluntary Proceedings.  The Borrower or any Subsidiary:


(i)                                     requests a moratorium or suspension of
payment of Liabilities from any court;


(ii)                                  institutes proceedings or takes any form
of corporate action to be liquidated, adjudicated bankrupt or insolvent;


(iii)                               consents to the institution of bankruptcy
or insolvency proceedings against it;


(iv)                              files a petition or answer or consent
seeking reorganization or relief under any applicable law, or consents to the
filing of any such petition or to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the Borrower or
such Subsidiary or of any substantial part of its respective property or other
assets;


(v)                                 makes a general assignment for the
benefit of creditors; or


(vi)                              admits in writing its inability to pay
its Liabilities generally as they become due or otherwise becomes insolvent;


(i)            Attachment.  An attachment or analogous process is levied
or enforced upon or issued against any of the assets of the Borrower for an
amount in excess of the equivalent of two hundred fifty thousand Dollars
($250,000) and is not discharged within thirty (30) days;


(j)            Analogous Events to Bankruptcy.  Any other event occurs which under any
applicable law would have an effect analogous to any of those events listed in
Section 6.02 (g), Section 6.02(h) and Section 6.02 (i);


(k)           Cross-Default.  The Borrower or any Subsidiary fails to (i)
make any payment in respect of any of its Liabilities (other than the C Loan or
any other loan from IFC to the Borrower or such Subsidiary) in excess of the
equivalent of three million Dollars ($3,000,000) or (ii) perform any of its
obligations under any agreement pursuant to which there is outstanding any such
Liability (as provided in clause (i) above), and any such failure continues for
more than any applicable period of grace or any such Liability becomes
prematurely due and payable or is placed on demand;


 


42

















(l)            Failure to Maintain
Authorizations.  Any Authorization
necessary for the Borrower or any Subsidiary to perform and observe its
obligations under any Transaction Document (excluding the Co-Sale Agreement),
or to carry out the Project, is not obtained when required or is rescinded or
terminated, lapses or otherwise ceases to be in full force and effect,
including with respect to the remittance to IFC or its assignees, in the Loan
Currency, of any amounts payable under any Transaction Document (excluding the
Co-Sale Agreement), unless such failure could not reasonably be expected to
have a Material Adverse Effect, and any such failure continues for a period of
thirty (30) days after the earlier of (x) the date on which IFC notifies the
Borrower of that failure and
(y) the date on which the Borrower should reasonably have become aware of that
failure; provided, however, that such thirty (30) day cure period
shall be extended to ninety (90) days in aggregate if not curable within thirty
(30) days and the Borrower is pursuing a cure in good faith;


(m)          Revocation, Etc., of
Transaction Documents. 
Any
Transaction Document (excluding the Co-Sale Agreement) or any of its material
provisions:


(i)                                     is revoked, terminated or ceases to be in
full force and effect without, in each case, the prior consent of IFC, and that
event, if capable of being remedied, is not remedied to the satisfaction of IFC
within thirty (30) days of the earlier of (x) the date on which IFC notifies
the Borrower of that event and (y) the date on which the Borrower should
reasonably have become aware of that event; provided, however,
that such thirty (30) day cure period shall be extended to ninety (90) days in
aggregate if not curable within thirty (30) days and the Borrower is pursuing a
cure in good faith;


(ii)                                  becomes unlawful or is declared void; or


(iii)                               is repudiated or the validity or
enforceability of any of its provisions at any time is challenged by any Person
and such repudiation or challenge is not withdrawn within thirty (30) days of
IFC’s notice to the Borrower requiring that withdrawal; provided, that
(A) in the case of the Block Z-1 License, such thirty (30) day period shall be
extended to one hundred twenty (120) days in aggregate if such repudiation or
challenge is not withdrawn within thirty (30) days and the Borrower is
diligently contesting such repudiation or challenge, and (B) no such notice
shall be required or, as the case may be, the notice period shall terminate if
and when such repudiation or challenge becomes effective;


(n)           Unsatisfied Judgments.  A judgment or judgments, decrees, orders or
arbitral awards for the payment of money the execution of which is not effectively
stayed or satisfied within sixty (60) or more consecutive days after it has
become final and non-appealable, is entered against the Borrower or any
Subsidiary in excess of two hundred fifty thousand Dollars ($250,000) in the
aggregate or the equivalent thereof in other currencies; or


 


43

















(o)           Project Abandonment.  The Borrower abandons the Project.


Section 6.03.  Bankruptcy.  If any event described in Section 6.02 (g) (Events of Default) occurs (or any analogous event under
Section 6.02 (j) (Events of Default)), the C Loan,
all interest accrued on it and any other amounts payable under this Agreement
will become immediately due and payable without any presentment, demand,
protest or notice of any kind, all of which the Borrower waives.


ARTICLE VII



Conversion of the C Loan


Section 7.01.  Conversion by IFC or the
Borrower.  (a) Either IFC
or the Borrower may, at its sole discretion, convert the Conversion Amount into
Common Stock at any time during the Conversion Period and in the manner
provided herein by delivering a Conversion Notice to the other party; provided,
however, that the Borrower shall be entitled to deliver a Conversion
Notice only if the Current Market Price exceeds one hundred and seventy five per
cent (175%) of the Conversion Price.


(b)           The number of shares to be issued and
delivered by the Borrower to IFC upon conversion of the Conversion Amount into
Common Stock shall be equal to the result of (x) the Conversion Amount divided
by (y) the Conversion Price.  The
Borrower shall deliver to IFC a check for cash in lieu of any fractional share
in accordance with Section 7.02 (c) (Conversion Procedure).


Section 7.02.  Conversion Procedure.  (a) As promptly as practicable after
receipt by the Borrower or IFC, as the case may be, of a Conversion Notice, the
Borrower shall take all such actions as may be necessary or desirable in
accordance with all applicable stock exchange or other legal requirements to
give effect to the conversion of the Conversion Amount into Common Stock,
including, without limitation:


(i)                                     obtaining all Authorizations and
corporate approvals that are required in connection with such conversion;


(ii)                                  causing any amendment to the Charter in
connection with such conversion to be filed with all relevant Authorities; and


(iii)                               taking all such other steps as may be
necessary for any increase in the authorized capital stock of the Borrower
necessary for giving effect to such conversion to be duly registered on the
books of the Borrower and with all relevant Authorities;


all
such actions to be made prior to and effective on and as of the Conversion
Date.


 


44

















(b)           As soon as practicable, but in any
event not later than forty-five (45) days after the Conversion Date, the
Borrower shall deliver to IFC (i) the certificates, each registered in the name
of IFC, for the number of full shares of Common Stock issued upon the
conversion, and (ii) a check for any fractional share in accordance with
Section 7.02 (c).  IFC shall be treated
as a stockholder of record with respect to such shares of Common Stock on and
after the Conversion Date.


(c)           The Borrower shall not issue a
fractional share of Common Stock upon conver­sion of the Conversion
Amount.  Instead, the Borrower shall
deliver a check for an amount in Dollars equal to the current market value of
the fractional share.  The current market
value of a fraction of a share shall be a product of (x) the Conversion Price
multiplied by (y) the fraction (rounded to the nearest cent).


(d)           The delivery by the Borrower of the
fixed number of shares of Common Stock pursuant to this Section 7.02 shall be
deemed to satisfy the Borrower’s obligation to pay the principal amount of the
C Loan, all accrued interest thereon and all other amounts accrued under this
Agreement that have not been paid.  Such
Common Stock shall be treated as issued first in payment of accrued interest,
second in payment of principal of the C Loan and then in payment of all other
unpaid amounts.


Section 7.03.  Taxes on Conversion.  The Borrower shall pay any documentary,
stamp or similar issue or transfer tax due on the issue of shares of Common
Stock upon the conversion.


Section 7.04.  Borrower to Reserve Common
Stock.  (a) The Borrower
shall at all times reserve out of its authorized but unissued Common Stock or
its Common Stock held in treasury enough shares of Common Stock to permit the
conversion of the Conversion Amount.


(b)           All shares of Common Stock issued
upon conversion of the Conversion Amount shall be fully paid, non-assessable,
freely transferable and free of any Liens and preemptive or other similar
rights.


(c)           The Borrower shall comply with all
securities laws regulating the offer and delivery of shares of Common Stock
upon conversion and shall list such shares on the American Stock Exchange.


Section 7.05.  Adjustment for Change in
Capital Stock.  (a) If the
Borrower:


(i)                                     pays a dividend or makes a distribution
on its Common Stock in shares of its Common Stock;


(ii)                                  subdivides its outstanding shares of
Common Stock into a greater number of shares;


(iii)                               combines its outstanding shares of Common
Stock into a smaller number of shares;


 


45

















(iv)                              makes a distribution on its Common Stock
in shares of its capital stock other than Common Stock; or


(v)                                 issues by reclassification of its Common
Stock any shares of its capital stock;


then
the conversion privilege and the Conversion Price in effect immediately prior
to such action shall be proportionately adjusted so that IFC may receive the
aggregate number and kind of shares of capital stock of the Borrower that IFC
would have owned immediately following such action if the Conversion Amount had
converted immediately prior to such action.


(b)           Each adjustment contemplated by
Section 7.05 (a) shall become effective immedi­ately after the record date in
the case of a dividend or distribution and immediately after the effective date
in the case of a subdivision, combination or reclassification.


(c)           If after such adjustment IFC may
receive shares of two or more classes of capital stock of the Borrower, the
Board of Directors of the Borrower, acting in good faith, shall determine the
allocation of the adjusted Conversion Price among the classes of capital stock.  After such allocation, the conversion
privilege and the Conversion Price of each class of capital stock shall
thereafter be subject to adjustment on terms comparable to those applicable to
Common Stock in this Article VII.  The
term “Common Stock” shall thereafter apply to each class of capital stock and
the Borrower shall enter into an amendment hereto, as may be necessary to
reflect such conversion privilege and Conversion Price.


(d)           The adjustment contemplated by this
Section 7.05 shall be made successively whenever any of the events listed above
shall occur.


Section 7.06.  Adjustment for Rights
Issue.  (a) If the
Borrower distributes any rights, options or warrants to all holders of its
Common Stock entitling them for a period expiring within sixty (60) days after
the record date men­tioned below to subscribe for or purchase shares of Common
Stock at a price per share less than the Current Market Price on that record
date, the Conversion Price shall be adjusted in accordance with the following
formula:





 


where:


C’ =          the adjusted Conversion Price


C =              the current Conversion Price


O =             the number of shares of Common Stock outstanding on
the record date


 


46

















N =             the number of additional shares of Common Stock subject
to such rights, options or warrants


P =               the offering price per share of the
additional shares


M =          the Current Market Price on
the record date


(b)           The adjustment contemplated by
Section 7.06 (a) shall be made successively whenever any such rights, options
or warrants are issued and shall become effective immediately after the record
date for the determination of stockholders entitled to receive the rights,
options or warrants.  If at the end of
the period during which such rights, options or warrants are exercis­able, not
all rights, options or warrants shall have been exercised, the Conversion Price
shall immediately be readjusted to what it would have been if “N” in the above
formula had been the number of shares actually issued.


Section 7.07.  Adjustment for Other
Distributions.  (a) If the
Borrower distributes to all holders of its Common Stock any of its assets
(including, but not limited to, cash), debt securities or other securities or
any rights, options or warrants to purchase assets, debt securities or other
securities of the Borrower, the Conversion Price shall be adjusted in
accordance with the following formula:


 





where:


C’ =          the adjusted Conversion Price


C =              the current Conversion Price


M =          the Current Market Price on the record date mentioned
below


F =               the fair market value on the
record date of the assets, securities, rights, options or warrants applicable
to one share of Common Stock.  Fair
market value shall be determined in good faith by the Board of Directors of the
Borrower; provided that the Borrower shall obtain an appraisal or other
valuation opinion in support of the Board of Directors’ determination from an
investment bank or accounting firm of recognized national standing if the
aggregate fair market value exceeds $1,000,000.


(b)           The adjustment contemplated by
Section 7.07 (a) shall be made successively whenever any such distribution is
made and shall become effective immediately after the record date for the
determination of stockholders entitled to receive the distribution.


(c)           This Section 7.07 does not apply to
cash dividends or cash distributions paid in any Financial Year out of
Consolidated net income of the Borrower for the current Financial Year or the
prior Financial Year, as shown on the books of the Borrower prepared in
accordance the Accounting Standards. 
Also, this Section 7.07 does not apply to rights, options or warrants
referred to in Section 7.06 (Adjustment for Rights
Issue).


 


47






 












Section
7.08.  Adjustment for Common Stock Issue. 
(a)  If the Borrower issues
shares of Common Stock for a consideration per share less than the Current
Market Price on the date the Borrower fixes the offering price of such
additional shares, the Conversion Price shall be adjusted in accordance with
the following formula:





 


where:


C' =            the adjusted Conversion Price


C =              the current Conversion Price


O =             the number of shares of Common Stock outstanding on
the record date


P =               the aggregate consideration received for the
issuance of such additional shares


M =          the Current Market Price on the record date


A =            the number of shares of
Common Stock outstanding immediately after the issuance of such additional
shares


(b)           The adjustment contemplated by this
Section 7.08 shall be made successively whenever any such issuance is made and
shall become effective immediately after the record date for the determination
of stockholders entitled to receive such additional shares of Common Stock.


(c)           This Section 7.08 shall not apply to:


(i)            any
of the transactions described in Section 7.06 (Adjustment
for Rights Issue) and Section 7.07 (Adjustment
for Other Distributions);


(ii)           the
conversion of the Conversion Amount or the conversion or exchange of securities
convertible into or exchangeable for Common Stock;


(iii)          the
issuance of Common Stock upon the exercise of rights, options or warrants
issued to the holders of Common Stock;


(iv)          the
issuance of Common Stock to the Borrower’s employees under bona fide employee
benefit plans adopted by the Board of Directors of the Borrower, and approved
by the holders of Common Stock when required by law, but only to the extent
that the aggregate number of shares excluded by this clause (iv) and issued
after the date of this Agreement shall not exceed five per cent (5%) of the
Common Stock outstanding as of the date of this Agreement;


 


48

















(v)           the
issuance of Common Stock to stockholders of any Person that merges into the
Borrower in proportion to their stock holdings of such Person immediately prior
to such merger, upon such merger;


(vi)          the
issuance of Common Stock in a bona fide public offering pursuant to a firm
commitment underwriting; or


(vii)         the
issuance of Common Stock in a bona fide private placement through a placement
agent that is a member firm of the National Association of Securities Dealers,
Inc. (except to the extent that any discount from the Current Market Price
shall exceed twenty per cent (20%) of the then current market price).


Section
7.09.  Adjustment for Convertible Securities Issue. 
(a)  If the Borrower issues any
securities, rights, options or warrants convertible into or exchangeable for
Common Stock (other than the shares issuable pursuant to this Agreement or
securities issued in transactions described in Section 7.06 (Adjustment for Rights
Issue), Section 7.07 (Adjustment for Other
Distributions) and Section 7.08 (Adjustment for Common
Stock Issue)) for a consideration per share of Common Stock
initially deliverable upon conversion or exchange of such securities less than
the Current Market Price on the date of issuance of such securities, the
Conversion Price shall be adjusted in accordance with the following formula:





where:


C' =            the adjusted Conversion Price


C =              the current Conversion Price


O =             the number of shares of Common Stock outstanding on
the record date


P =               the aggregate consideration received for the
issuance of such securities


M =          the Current Market Price of Common Stock on the
record date


D =             the maximum number of shares of Common Stock
deliverable upon conversion or exchange of such securities at the initial
conversion or exchange rate.


 


(b)           The adjustment contemplated
by this Section 7.09 shall be made successively whenever any such issuance is
made and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such securities, rights,
options or warrants.  If at the end of
the period during which such securities, rights, options or warrants are convertible
into or exchangeable for Common Stock, not all such securities, rights, options
or warrants shall have been so converted or exchanged, the Conversion Price
shall immediately be readjusted to what it would have been if “D” in the above
formula had been the number of shares actually issued upon conversion or
exchange.


 


49

















(c)           This Section 7.09
shall not apply to:


(i)            the
issuance of convertible securities to stockholders of any Person that merges
into the Borrower, or with a Subsidiary, in proportion to their stock holdings
of such Person immediately prior to such merger, upon such merger;


(ii)           the
issuance of convertible securities in a bona fide public offering pursuant to a
firm commitment underwriting; or


(iii)          the issuance of convertible securities
in a bona fide private placement through a placement agent that is a member
firm of the National Association of Securities Dealers, Inc. (except to the
extent that any discount from the Current Market Price shall exceed twenty per
cent (20%) of the then current market price).


Section 7.10.  Notice of Adjustment.  Whenever the Conversion Price is adjusted,
the Borrower shall promptly deliver to IFC a notice of the adjustment and a
certificate from the Auditors briefly stating the facts requiring the
adjustment and the manner of computing it. 
Such certificate shall be conclusive evidence that the adjustment is
correct, absent manifest error.


ARTICLE VIII



Miscellaneous


Section 8.01.  Saving of Rights.  (a) The rights and
remedies of IFC in relation to any misrepresentation or breach of warranty on
the part of the Borrower shall not be prejudiced by any investigation by or on
behalf of IFC into the affairs of the Borrower, by the execution or the
performance of this Agreement or by any other act or thing which may be done by
or on behalf of IFC in connection with this Agreement and which might, apart
from this Section, prejudice such rights or remedies.


(b)           No course of dealing or waiver by IFC
in connection with any condition of Disbursement under this Agreement shall
impair any right, power or remedy of IFC with respect to any other condition of
Disbursement, or be construed to be a waiver thereof.


(c)           No course of dealing and no failure
or delay by IFC in exercising, in whole or in part, any power, remedy,
discretion, authority or other right under this Agreement or any other
agreement shall waive or impair, or be construed to be a waiver of, such or any
other power, remedy, discretion, authority or right under this Agreement, or in
any manner preclude its additional or future exercise; nor shall the action of
IFC with respect to any default, or any acquiescence by it therein, affect or
impair any right, power or remedy of IFC with respect to any other default.


Section 8.02.  Notices.  Any notice, request or other communication to
be given or made under this Agreement shall be in writing.  Subject to Section 5.03 (g) and (h) (Reporting Requirements) and Section 8.05 (Applicable Law and Jurisdiction), any such communication 


 


50

















may be delivered by hand, airmail, facsimile or
established courier service to the party’s address specified below or at such
other address as such party notifies to the other party from time to time, and
will be effective upon receipt.


For the Borrower:


 


BPZ Resources, Inc.


580 Westlake Park
Blvd., Suite 525


Houston, Texas
77079


 


Facsimile:               (281) 556-6377


 


Attention:              Chief
Financial Officer


 


With a copy to:


 


Adams and Reese
LLP


4400 One Houston
Center


1221 McKinney


Houston, Texas
77010


 


Facsimile:               (713) 652-5152


 


Attention:              Mark W. Coffin


 


 


For IFC:


 


International Finance Corporation


2121 Pennsylvania Avenue, N.W.


Washington, D.C. 20433


United States of America


 


Facsimile:               (202)
974-4768


 


Attention:              Director,
Oil, Gas, Mining and Chemicals Department


 


With a copy (in the case of communications relating to payments) sent
to the attention of the Director, Department of Financial Operations, at:


Facsimile:               (202)
522-7419.


Section 8.03.  English Language.  (a) All documents to be provided or
communications to be given or made under this Agreement shall be in the English
language.


 


51

















(b)           To the extent that the original
version of any document to be provided, or communication to be given or made,
to IFC under this Agreement or any other Transaction Document is in a language
other than English, that document or communication shall be accompanied by an
English translation certified by an Authorized Representative to be a true and
correct translation of the original.  IFC
may, if it so requires, obtain an English translation of any document or
communication received in a language other than English at the cost and expense
of the Borrower.  IFC may deem any such
English translation to be the governing version between the Borrower and IFC.


Section 8.04.  Term of Agreement.  This Agreement shall continue in force until
the earlier of (i) the date on which all monies payable under it have been
fully paid in accordance with its provisions and (ii) upon the conversion of
the Conversion Amount into Common Stock in accordance with Article VII (Conversion of the C Loan), subject to the survival of the
following provisions: Sections 2.15 (Expenses), 5.02
(e)(ii) (Negative Covenants) and 8.05 (Applicable Law and Jurisdiction) and, to the extent
applicable after the Conversion Date, Sections 7.02 (b) (Conversion
Procedure), 7.02 (c) (Conversion Procedure),
7.03 (Taxes on Conversion) and 7.04 (Borrower to Reserve Common Stock).


Section 8.05.  Applicable Law  and
Jurisdiction.  (a) This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York, United States of America.


(b)           For the exclusive benefit of IFC, the
Borrower irrevocably agrees that any legal action, suit or proceeding arising
out of or relating to this Agreement may be brought in the courts of the United
States of America located in the Southern District of New York or in the courts
of the State of New York located in the Borough of Manhattan.  By the execution of this Agreement, the
Borrower irrevocably submits to the jurisdiction of any such court in any such
action, suit or proceeding.  Final judgment
against the Borrower in any such action, suit or proceeding shall be conclusive
and may be enforced in any other jurisdiction, including the Country, by suit
on the judgment, a certified or exemplified copy of which shall be conclusive
evidence of the judgment, or in any other manner provided by law.


(c)           Nothing in this Agreement shall
affect the right of IFC to commence legal proceedings or otherwise sue the
Borrower in the Country or any other appropriate jurisdiction, or concurrently
in more than one jurisdiction, or to serve process, pleadings and other legal
papers upon the Borrower in any manner authorized by the laws of any such
jurisdiction.


(d)           The Borrower hereby irrevocably
designates, appoints and empowers C T
Corporation System, with offices currently located at 111 Eighth Avenue, New
York, New York 10011, as its authorized agent solely to receive for and
on its behalf service of any summons, complaint or other legal process in any
action, suit or proceeding IFC may bring in the State of New York in respect of
this Agreement.


(e)           As long as this Agreement remains in
force, the Borrower shall maintain a duly appointed and authorized agent to
receive for and on its behalf service of any summons, 


 


52

















complaint or other legal process in any action, suit
or proceeding IFC may bring in New York, New York, United States of America,
with respect to this Agreement.  The
Borrower shall keep IFC advised of the identity and location of such agent.


(f)            The Borrower also irrevocably
consents, if for any reason its authorized agent for service of process of
summons, complaint and other legal process in any action, suit or proceeding is
not present in New York, New York, to the service of such papers being made out
of the courts of the United States of America located in the Southern District
of New York and the courts of the State of New York located in the Borough of
Manhattan by mailing copies of the papers by registered United States air mail,
postage prepaid, to the Borrower, at its address specified pursuant to Section
8.02 (Notices).  In such a case, IFC shall also send by
facsimile, or have sent by facsimile, a copy of the papers to the Borrower.


(g)           Service in the manner provided in
Sections 8.05 (d), (e) and (f) in any action, suit or proceeding will be deemed
personal service, will be accepted by the Borrower as such and will be valid
and binding upon the Borrower for all purposes of any such action, suit or
proceeding.


(h)           The Borrower irrevocably waives to
the fullest extent permitted by applicable law:


	
  (i)

  	
  any objection which it may have now or in the future
  to the laying of the venue of any action, suit or proceeding in any court
  referred to in this Section;

  
	
   

  	
   

  
	
  (ii)

  	
  any claim that any such
  action, suit or proceeding has been brought in an inconvenient forum;

  
	
   

  	
   

  
	
  (iii)

  	
  its right of removal of any matter commenced by IFC
  in the courts of the State of New York to any court of the United States of
  America; and

  
	
   

  	
   

  
	
  (iv)

  	
  any and all rights to demand
  a trial by jury in any such action, suit or proceeding brought against the
  Borrower by IFC.

  



 


(i)            To the extent that the Borrower may
be entitled in any jurisdiction to claim for itself or its assets immunity in
respect of its obligations under this Agreement or any other Transaction
Document to which it is a party, from any suit, execution, attachment (whether
provisional or final, in aid of execution, before judgment or otherwise) or
other legal process or to the extent that in any jurisdiction that immunity
(whether or not claimed) may be attributed to it or its assets, the Borrower
irrevocably agrees not to claim and irrevocably waives such immunity to the
fullest extent permitted now or in the future by the laws of such jurisdiction.


(j)            The Borrower hereby acknowledges
that IFC shall be entitled under applicable law, including the provisions of
the International Organizations Immunities Act, to immunity from a trial by
jury in any action, suit or proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby brought against IFC in any
court of the United States of America. The Borrower hereby waives any and all
rights to demand a trial by jury in any action, 


 


53

















suit or proceeding arising out of or relating to this
Agreement or the transactions contemplated by this Agreement, brought against
IFC in any forum in which IFC is not entitled to immunity from a trial by jury.


(k)           To the extent that the Borrower may, in
any action, suit or proceeding brought in any of the courts referred to in
Section 8.05 (b)  or a court of the Country or
elsewhere arising out of or in connection with this Agreement or any other
Transaction Document to which the Borrower is a party, be entitled to the
benefit of any provision of law requiring IFC in such action, suit or
proceeding to post security for the costs of the Borrower, or to post a bond or
to take similar action, the Borrower hereby irrevocably waives such benefit, in
each case to the fullest extent now or in the future permitted under the laws
of the Country or, as the case may be, the jurisdiction in which such court is
located.


Section 8.06.  Disclosure of Information.  (a) IFC may disclose any documents or records
of, or information about, this Agreement or any other Transaction Document, or
the assets, business or affairs of the Borrower and its Subsidiaries to:


(i)                                     its outside counsel, auditors and rating agencies, and


(ii)                                  any other Person as IFC may deem
appropriate in connection with any proposed sale, transfer, assignment or other
disposition of IFC’s rights under this Agreement or any Transaction Document or
otherwise for the purpose of exercising any power, remedy, right, authority, or
discretion relevant to this Agreement or any other Transaction Document.


(b)           The Borrower acknowledges and agrees
that, notwithstanding the terms of any other agreement between the Borrower and
IFC, a disclosure of information by IFC in the circumstances contemplated by
Section 8.06 (a) does not violate any duty owed to the Borrower under this
Agreement or under any such other agreement.


Section 8.07.  Successors and Assignees.  This Agreement binds and benefits the
respective successors and assignees of the parties. However, the Borrower may
not assign or delegate any of its rights or obligations under this Agreement
without the prior consent of IFC.


Section 8.08.  Amendments, Waivers and
Consents.  Subject to
Section 2.8 (c) (Fees), any amendment or waiver
of, or any consent given under, any provision of this Agreement shall be in
writing and, in the case of an amendment, signed by the parties.


Section 8.09.  Counterparts.  This Agreement may be executed in several
counterparts, each of which is an original, but all of which together
constitute one and the same agreement.


 


54

















IN WITNESS WHEREOF, the
parties have caused this Agreement to be signed in their respective names as of
the date first above written.


 


	
  BPZ RESOURCES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Manuel Pablo Zúñiga-Pflücker

  
	
   

  	
   

  
	
  Name:

  	
  Manuel Pablo Zúñiga-Pflücker

  
	
   

  	
   

  
	
  Title:

  	
  President and Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
  INTERNATIONAL FINANCE CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Delanson Crist

  
	
   

  	
   

  
	
  Name:

  	
  Delanson Crist

  
	
   

  	
   

  
	
  Title:

  	
  Senior Manager

  



 


 


55






 












ANNEX A


 


 


BORROWER/PROJECT AUTHORIZATIONS


(See Sections 3.01 (d)
and 4.01 (d) of the C Loan Agreement)


 


Section (1).         Authorizations Already
Obtained


 


(a)                                  A permit from Perupetro authorizing the
simultaneous production and extended well testing of the oil reservoirs in
Block Z-1’s Corvina oil field, which shall be in form and substance
satisfactory to IFC


 


Section (2).         Authorizations to be
Obtained Prior to the Disbursement


 


(a)                                  Perupetro’s
Temporary Financial
Procedure for Review of the Measurement of Oil from the Corvina
field in Patio Tanques de la Refineria de Talara - Petroperu (Block Z-1) (Procedimiento Temporal de
Fiscalizacion Por Aforo de Petroleo Proveniente del Yacimiento Corvina en Patio
Tanques de la Refinería de Talara — Petroperu Lote Z-1), which shall be in form and substance
satisfactory to IFC


 


(b)                                 Perupetro’s Temporary Fiscalized Procution and
Valutation Agreement for Oil from the Corvina field in Patio Tanques de la
Refineria de Talara - Petroperu (Block Z-1) (Procedimiento
de Fiscalizacion de la Produccion de Petroleo y un Acuerdo de Valorizacion de
la Production Fiscalizada),
which shall be in form and substance satisfactory to IFC


 


Section (3).         Authorizations to be
Obtained after the Disbursement


 


(a)                                  Procedure
for Purchase and Sale of Crude Oil between BPZ Exploración & Producción
S.R.L. (Block Z-1) and Petroleos del Peru-Petroperu S.A. (Procedimiento
de Compra — Venta de Petroleo Crudo Entre BPZ Exploración & Producción
S.R.L. (Lote Z-1) y Petroleos del Peru-Petroperu S.A.) to be executed
prior to, or simultaneously with, the execution of the relevant purchase and
sale agreement, each of which
shall be in form and substance satisfactory to IFC


 


56






 












ANNEX B


 


 


INSURANCE REQUIREMENTS


(See Section 5.04 of the
C Loan Agreement)


 


1.                                      Marine Cargo Insurance (for imported plant and equipment)  covering imports (and returns if applicable)
of plant, equipment, machinery and materials to the Project site;


 


                                                Cover is to be
on the basis of Institute Cargo Clauses (A) plus War, plus Strike, Riot and
Civil Commotion and should include a minimum of 60 days of storage on site.


 


	
  Sum Insured

  	
  :

  	
  No
  less than the value of all contract works, equipment and supplies, plus insurance
  and freight (CIF).

  
	
   

  	
   

  	
   

  
	
  Deductibles

  	
  :

  	
  Not
  to exceed $25,000 each loss.

  
	
   

  	
   

  	
   

  
	
  Insured

  	
  :

  	
  The  Borrower and Subsidiaries.

  
	
   

  	
   

  	
   

  
	
  General

  	
  :

  	
  Cover
  to include 50/50 Clause.

  



 


 


 


2.                                      Marine Delay in Start-Up (“MDSU”)


 


	
  Cover

  	
  :

  	
  Standing
  charges following delay in start of commercial operation of the Power Plant,
  as a direct result of physical loss or damage covered under the Marine Cargo
  insurance (see above).

  
	
   

  	
   

  	
   

  
	
  Sum Insured

  	
  :

  	
  An
  amount at least equal to the estimated Debt Service during the Indemnity
  Period.

  
	
   

  	
   

  	
   

  
	
  Indemnity Period

  	
  :

  	
  18
  months from the anticipated commercial operations date.

  
	
   

  	
   

  	
   

  
	
  Deductibles

  	
  :

  	
  No
  more than 60 days.

  
	
   

  	
   

  	
   

  
	
  Insured

  	
  :

  	
  The
  Borrower and Subsidiaries.

  



 


57

















 


3.                                      Construction/Erection “All Risks” (“CAR/EAR”)


 


 


	
  Cover

  	
  :

  	
  All
  contract works executed and in the course of execution, materials and
  temporary works, against “all risks” of physical loss or damage.

  
	
   

  	
   

  	
   

  
	
  Sum Insured

  	
  :

  	
  An
  amount sufficient to pay claims on a reinstatement basis.

  
	
   

  	
   

  	
   

  
	
  Deductibles

  	
  :

  	
  In
  respect of any one occurrence, arising during the construction and testing
  period:

  



 


 


	
   

  	
   

  	
  (i)

  	
  hot
  testing & commissioning of

  	
   

  	
  Not
  more than

  
	
   

  	
   

  	
   

  	
  Gas
  Turbines, LEG 2/96 and

  	
   

  	
  $ 350,000

  
	
   

  	
   

  	
   

  	
  maintenance
  losses

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (ii)

  	
  all
  other hot testing &

  	
   

  	
  Not
  more than

  
	
   

  	
   

  	
   

  	
  commissioning

  	
   

  	
  $ 250,000

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (iii)

  	
  earthquake

  	
   

  	
  Not
  more than

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  $ 250,000

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (iv)

  	
  all
  other events

  	
   

  	
  Not
  more than

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  $ 100,000

  



 


 


 


	
  Period of Cover

  	
  :

  	
  From
  (i) the notice to proceed and during the design, engineering, procurement,
  site preparation, construction, testing and commissioning and start-up and
  until entry into production to (ii) the commencement of the Operational Phase
  insurances as referred to herein, plus 12 months maintenance period.

  
	
   

  	
   

  	
   

  
	
  Insured

  	
  :

  	
  The
  Borrower, and the Project contractors and suppliers, as applicable.

  
	
   

  	
   

  	
   

  
	
  General

  	
  :

  	
  a)                                      Cover shall
  include transit within the Country of locally procured goods and materials.

  



 


 


58

















 


	
   

  	
   

  	
  b)

  	
  Claims will be paid in the currency in which the
  cost is incurred.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  c)

  	
  The
  insurers and reinsurers to waive all rights of subrogation against each
  insured party hereunder.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  d)

  	
  The
  policy shall also include a Third Party Liability section with a minimum
  limit of indemnity of $5,000,000 and should include full cross liabilities.
  (Third Party Liability policies may be placed separately.)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  e)

  	
  Both
  Ocean Marine and CAR covers shall carry a 50/50 hidden damage provision.

  	
   

  



 


 


4.                                      Advance Loss of Profits (“ALOP”)


 


	
  Cover

  	
  :

  	
  Standing
  charges following delay in start of commercial operations of the production
  facilities as a direct result of physical loss or damage covered under the
  EAR policy.

  
	
   

  	
   

  	
   

  
	
  Sum Insured

  	
  :

  	
  Gross
  estimated profits or an amount at least equal to the estimated Debt Service
  and Fixed Expenses during the Indemnity Period.

  
	
   

  	
   

  	
   

  
	
  Indemnity Period

  	
  :

  	
  18
  months from the anticipated completion date.

  
	
   

  	
   

  	
   

  
	
  Insured

  	
  :

  	
  The
  Borrower and Subsidiaries.

  
	
   

  	
   

  	
   

  
	
  Deductible

  	
  :

  	
  No
  more than 60 days.

  
	
   

  	
   

  	
   

  
	
  General

  	
  :

  	
  Cover
  to include denial of access; customers’ and suppliers’ extensions as
  applicable (including delay resulting from insured event offshore).

  



 


59

















 


 


5.                                      Operational Insurances — Energy Package: 


 


A.   COVERAGE:


 


Section A:                                        All Risks of
Physical Loss or Damage to property forming part of Borrower’s operations
and/or other Property in the Care, Custody or Control of the Assured including
Removal of Debris and/or Wreck and for Sue & Labor.  To cover onshore and offshore risks.


 


Section B:                                          Sabotage and
Terrorism


 


Section C:                                          Machinery
Breakdown.


 


Section D:                                         Operator’s
Extra Expense including Control of Well, Extended and Restoration Cost Redrill,
Seepage and Pollution and Clean Up and Containment, Underground Blowout, Making
Wells Safe, Removal of Debris/Wreck, Evacuation Expenses, Deliberate Well
Firing.


 


Section E:                                           Business
Interruption/Extra Expense.


 


Section F:                                           Comprehensive
General Liabilities arising out of or incidental to the Borrower’s operations.


 


Section G:                                          Hull &
Machinery


 


Section H:                                         Protection
& Indemnity


 


B.   SUM INSURED/LIMIT OF LIABILITY


 


Section A:                                        The replacement
value of the property insured, with a separate and additional limit of 25% of
insured values in respect of Removal of Debris and/or Wreck, and General
Average Salvage Costs.


 


Section B:                                          Full sum
insured based on new replacement value. 
First loss limit acceptable if based on a risk survey carried out by a
professional organization.


 


 


 


 


60

















 


 


Section C:                                          Full sum
insured based on new replacement value. 
First loss limit acceptable if based on a risk survey carried out by a
professional organization.


 


Section D:                                         $10,000,000 for
producing wells, $40,000,000 for wells being drilled


 


Section E:                                           Gross estimated
profits or an amount at least equal to the estimated Debt Service and Fixed
Expenses during the Indemnity Period.


 


Section F:                                           Minimum
$5,000,000


 


Section G:                                          Agreed Value
(to be confirmed by IFC)


 


Section H:                                         t.b.a.


 


 


C.   DEDUCTIBLES AND/OR EXCESS:


 


Section A:                                        $250,000


 


Section B:                                          $250,000


 


Section C                                             $250,000


 


Section D                                            $375,000 any
one accident or occurrence, but US$ 75,000 in respect of Care Custody and
Control


 


Section E:                                           Not more than
30 days.


 


Section F:                                           $50,000


 


Section G:                                          No more than
$50,000.


 


Section H:                                         t.b.a.


 


 


 


61

















 


6.                                      Miscellaneous


 


                                                Other insurance
which:


 


a)                                      is customary or
necessary to comply with local or other requirements, such as contractual
insuring responsibility, Workers’ Compensation and Employers’ Liability
insurances in relation to all workmen employed at the Project or in connection
with its operation; motor vehicle liability insurance for all vehicles owned,
hired, leased,  used or borrowed
for use in the Country in connection with the Project;


 


b)                                     is considered
by the Borrower to be desirable or prudent; or


 


c)                                      is required by
local legislation.


 


 


7.                                      General


 


a)                                      The Borrower
shall procure that each policy effected pursuant to this Annex B shall provide:


 


(i)                                     that policies
are not to be canceled, lapsed, suspended or changed in any material respect
without prior written notice (at least 45 days) to IFC and its agreement
obtained, or such lesser period as may be specified from time to time in
respect of war and kindred perils;


 


(ii)                                  that the
protection which is granted to IFC under the policies is not to be invalidated
by any act or failure to act on the part of the Borrower or its contractors or
subcontractors; and


 


(iii)                               that IFC is not
responsible to the insurers or reinsurers for the payment of insurance premiums
or any other obligations of the Borrower.


 


b)                                     Each policy effected pursuant to this Annex
B:


 


 


 


62

















 


(i)                                     shall be maintained with such reputable
insurers and reinsurers as may be approved by IFC;


 


(ii)                                  shall be in such form and substance as is
consistent with the obligations of the Borrower under this Annex B, as may be
approved by IFC, and


 


(iii)                               shall not include any provision for
self-insurance, or any self-insurance retention except to the extent of the
deductibles as specified in this Annex B.


 


c)                                      The Borrower shall provide to IFC such
information (including without limitation original policy documents and
evidence of premium payment) as may be reasonably required.


 


d)                                     If at any time and for any reason any
insurance required to be maintained under this Annex B is not in full force and
effect then, without prejudice to the rights of IFC, IFC shall be entitled
thereupon, or at any time while the same is continuing, to procure such insurance
at the expense of the Borrower.


 


e)                                      If IFC reasonably considers that, as a result
of a material change in the identified risk exposure, any of the terms,
conditions, amounts and deductibles of insurances procured pursuant to this
Annex B are inadequate or inappropriate, IFC may require that the Borrower
procure such amended and/or additional insurances as may be reasonably required
to cover such material change.


 


 


63
















ANNEX C


 


 


ANTI-CORRUPTION GUIDELINES FOR IFC TRANSACTIONS


The purpose of these Guidelines is to clarify the meaning of the terms “Corrupt
Practices”, “Fraudulent Practices”, “Coercive Practices”, “Collusive Practices”
and “Obstructive Practices” in the context of IFC operations.


 


1.                                      CORRUPT
PRACTICES


 


A “Corrupt Practice” is the offering, giving, receiving or soliciting,
directly or indirectly, of anything of value to influence improperly the
actions of another party.


 


INTERPRETATION


 


A.                                   Corrupt practices are understood as
kickbacks and bribery.  The conduct in
question must involve the use of improper means (such as bribery) to violate or
derogate a duty owed by the recipient in order for the payor to obtain an undue
advantage or to avoid an obligation.  Antitrust,
securities and other violations of law that are not of this nature are excluded
from the definition of corrupt practices.


 


B.                                     It is acknowledged that foreign
investment agreements, concessions and other types of contracts commonly
require investors to make contributions for bona fide social development
purposes or to provide funding for infrastructure unrelated to the project.
Similarly, investors are often required or expected to make contributions to
bona fide local charities. These practices are not viewed as Corrupt Practices
for purposes of these definitions, so long as they are permitted under local
law and fully disclosed in the payor’s books and records. Similarly, an
investor will not be held liable for corrupt or fraudulent practices committed
by entities that administer bona fide social development funds or charitable
contributions.


 


C.                                     In the context of conduct between private
parties, the offering, giving, receiving or soliciting of corporate hospitality
and gifts that are customary by internationally-accepted industry standards
shall not constitute corrupt practices unless the action violates applicable
law.


 


64

















 


D.                                    Payment by private sector persons of the
reasonable travel and entertainment expenses of public officials that are
consistent with existing practice under relevant law and international
conventions will not be viewed as Corrupt Practices.


 


E.                                      The World Bank Group does not condone
facilitation payments.  For the purposes
of implementation, the interpretation of “Corrupt Practices” relating to
facilitation payments will take into account relevant law and international
conventions pertaining to corruption.


 


2.                                      FRAUDULENT PRACTICES


 


A “Fraudulent Practice” is any action or omission,
including misrepresentation, that knowingly or recklessly misleads, or attempts
to mislead, a party to obtain a financial benefit or to avoid an obligation.


 


INTERPRETATION


 


A.                                   An action, omission, or
misrepresentation will be regarded as made recklessly if it is made with
reckless indifference as to whether it is true or false.  Mere inaccuracy in such information,
committed through simple negligence, is not enough to constitute a “Fraudulent
Practice” for purposes of this Agreement.


 


B.                                     Fraudulent Practices
are intended to cover actions or omissions that are directed to or against a
World Bank Group entity.  It also covers Fraudulent Practices directed
to or against a World Bank Group member country in connection with the award or
implementation of a government contract or concession in a project financed by
the World Bank Group.  Frauds on other third parties are not condoned but are not
specifically sanctioned in IFC, MIGA, or PRG operations.  Similarly, other illegal behavior is not
condoned, but will not be considered as a Fraudulent Practice for purposes of
this Agreement.


 


3.                                      COERCIVE PRACTICES


 


A “Coercive Practice” is impairing or harming, or
threatening to impair or harm, directly or indirectly, any party or the
property of the party to influence improperly the actions of a party.


 


65

















 


INTERPRETATION


 


A.                                   Coercive Practices are
actions undertaken for the purpose of bid rigging or in connection with public procurement or government
contracting or in furtherance of a Corrupt
Practice or a Fraudulent Practice.


 


B.                                     Coercive Practices are threatened or
actual illegal actions such as personal injury or abduction, damage to
property, or injury to legally recognizable interests, in order to obtain an
undue advantage or to avoid an obligation. It is not intended to cover hard
bargaining, the exercise of legal or contractual remedies or litigation.


 


4.                                      COLLUSIVE PRACTICES


 


A “Collusive Practice” is an arrangement between two
or more parties designed to achieve an improper purpose, including to influence
improperly the actions of another party.


 


INTERPRETATION


 


Collusive Practices are actions
undertaken for the purpose of bid rigging or in connection with public procurement or government
contracting or in furtherance of a Corrupt
Practice or a Fraudulent Practice.


 


 


5.                                      OBSTRUCTIVE  PRACTICES


 


An “Obstructive Practice” is (i) deliberately
destroying, falsifying, altering or concealing of evidence material to the
investigation or making of false statements to investigators, in order to
materially impede a World Bank Group investigation into allegations of a
corrupt, fraudulent, coercive or collusive practice, and/or threatening,
harassing or intimidating any party to prevent it from disclosing its knowledge
of matters relevant to the investigation or from pursuing the investigation, or
(ii) acts intended to materially impede the exercise of IFC’s access to contractually required
information in connection with a World Bank Group investigation into
allegations of a corrupt, fraudulent, coercive or collusive practice .


 


66

















 


INTERPRETATION


 


Any action legally or otherwise properly taken by a
party to maintain or preserve its regulatory, legal or constitutional rights
such as the attorney-client privilege, regardless of whether such action had
the effect of impeding an investigation, does not constitute an Obstructive
Practice.


 


 


GENERAL INTERPRETATION


 


A person should not be liable for actions taken by
unrelated third parties unless the first party participated in the prohibited
act in question.


 


67
















 


ANNEX D


 


MATTERS TO BE COVERED IN LEGAL OPINION


(See Section 4.01 (d) of
the C Loan Agreement)


 


1.                                       The Borrower is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Texas.(1)


2.                                       The Borrower
has all requisite corporate power and authority to own, lease and use its
properties and conduct the business in which it is engaged as described in the
Borrower’s SEC filings.(2)


3.                                       The Borrower
has all requisite corporate power and authority to execute and deliver each of
the Financing Documents and to perform its obligations thereunder.(3)


4.                                       Each of the
Financing Documents has been duly authorized, executed and delivered by the
Borrower, and each of the Financing Documents is a valid and binding obligation
of the Borrower, enforceable in accordance with its terms.(4)


5.                                       The execution,
delivery and performance of the Financing Documents by the Borrower and the
consummation by the Borrower of the transactions contemplated thereby do not
and will not (i) result in a violation of the Borrower’s Charter;
(ii) conflict with, or constitute a material default (or an event that
with notice or lapse of time or both would become a default) under, require a
consent under, or give to others any rights of termination, amendment, acceleration
or cancellation of, any material agreement to which the Borrower is a party
that is filed as an exhibit to the Borrower’s most recent filing on Form 10-K;
or (iii) result in a violation of any federal or state law, rule or
regulation applicable to the Borrower or by which any property or asset of the
Borrower is bound or affected, except in the case of clause (ii) for such
violations as would


 






(1)           Texas law opinion.


(2)           Texas law opinion.


(3)           Texas law opinion.


(4)           Texas/New York law opinion.


 


68

















 


 


not, individually or in the
aggregate, have a Material Adverse Effect on the Borrower.(5)


6.                                       To the counsel’s
knowledge, there are no actions, suits, proceedings or investigations pending
or threatened against the Borrower or its Subsidiaries or its properties or
business before any court or governmental agency or arbitrator.(6)


7.                                       No consent,
approval or authorization of, or declaration to or filing with, any Authority
is required under any federal or state law for the valid authorization,
execution and delivery by the Borrower of any Financing Document or the
consummation of the transactions contemplated by the Financing Documents.(7)


 






(5)           New York/Texas/federal law opinion.


(6)           New York/Texas law opinion.


(7)           New York/Texas/federal law opinion.


 


69






 


 












SCHEDULE 3.01(A)


 


KEY COMPANY SUBSIDIARIES, AFFILIATES, AND RELATED
PARTIES


(See Section 3.01 (a) of the C Loan Agreement)


 


 


BPZ Marine, Inc. (Texas), 100% owned by the
Borrower


 


SMC Ecuador, Inc. (Delaware), 100% owned by
the Borrower


 


SMC Ecuador, Inc., Sucursal Ecuador (a
registered branch office of SMC Ecuador, Inc.
(Delaware) in
Ecuador)


 


BPZ Energy International Holdings LP (British
Virgin Islands), 90%  owned by the
Borrower and 10%  by Manuel Pablo
Zúñiga Pflücker


 


BPZ Exploración & Producción S.R.L. (Peru),
a limited liability company in the Country transformed from the Borrower’s  former registered Peruvian branch called
BPZ Energy Inc. Sucursal Perú, and is 100% owned by the Borrower  and BPZ Energy International Holdings LP
(respective ownership percentages will vary in function of the successive
equity capital contributions made over time)


 


Empresa Eléctrica Nueva Esperanza S.R.L.
(Peru), a limited liability company in the Country, 100% owned by the Borrower  and BPZ Energy International Holdings LP (respective
ownership percentages will vary in function of the successive equity capital
contributions made over time)


 


International Support LP (British Virgin
Islands), 90% owned by the Borrower  and
10% by Francisco Gálvez


 


Soluciones Energéticas S.R.L. (Peru), a
limited liability company in the Country, 90% owned by International Support LP
and 10% by Francisco Gálvez


 


BPZ Energy Ecuador Cia. Limitada (Ecuador), a
limited liability company in Ecuador, 99.9% owned by the Borrower and 0.01% by
BPZ Energy International Holdings LP


 


70






 












 


SCHEDULE 3.01(H)


 


 


AUTHORIZED CAPITAL


 


(See
Section 3.01 (h) of the C Loan Agreement)


 


The Borrower has 250,000,000 shares of common
stock, no par value, and 25,000,000 shares of preferred stock authorized for
issuance.


 


As of September 30, 2007, the Borrower’s
common stock ownership is as follows:


 


	
  BPZ (Executive)
  Officers, Directors, Employees:

  	
   

  	
  14,142,321

  	
   

  	
  (22.18

  	
  )%

  
	
  Former BPZ
  Director (> 5%):

  	
   

  	
  3,465,486

  	
   

  	
  (5.43

  	
  )%

  
	
  Private
  Placement Investors:

  	
   

  	
  25,643,889

  	
   

  	
  (40.21

  	
  )%

  
	
  IFC:

  	
   

  	
  6,500,000

  	
   

  	
  (10.19

  	
  )%

  
	
  Incentive
  Earn-out Shares

  	
   

  	
  450,000

  	
   

  	
  (0.71

  	
  )%

  
	
  Others:

  	
   

  	
  13,569,373

  	
   

  	
  (21.28

  	
  )%

  
	
  Total shares
  issued & outstanding:

  	
   

  	
  63,771,069

  	
   

  	
  (100.00

  	
  )%

  



 


As of September 30, 2007, the Borrower has
the following potentially dilutive securities:


 


	
  Old Navidec
  Options Outstanding

  	
   

  	
  -0-

  	
   

  
	
  Merger Related
  Options Outstanding

  	
   

  	
  731,300

  	
   

  
	
  Morgan Keegan
  Warrants Outstanding

  	
   

  	
  250,000

  	
   

  
	
  Stock Options
  Under Long Term Incentive Plan and Directors Incentive Plan

  	
   

  	
  2,275,500

  	
   

  
	
  Contingent
  Earn-out Shares (Production target)

  	
   

  	
  9,000,000

  	
   

  
	
  Total
  potentially dilutive securities

  	
   

  	
  12,256,800

  	
   

  



 


Upon issuance of all of the above potentially
dilutive shares, IFC’s common stock ownership will be reduced to 8.55%, i.e.
6,500,000 IFC shares out of 76,027,869 total shares.


 


Long-Term Incentive Compensation Plan and Directors’
Compensation Incentive Plan


 


On August 17, 2007, the Borrower adopted the 2007 Long-Term Incentive
Compensation Plan (the “2007 LTIP”), which is an amendment and restatement of
its 2005 Long-Term Incentive Compensation Plan (the “2005 LTIP”). The amendment
and restatement was recommended by the Board of Directors and adopted pursuant
to the approval of the shareholders at the 2007 annual meeting of shareholders
held on August 17, 2007. The 2007 LTIP supersedes and replaces the 2005 LTIP
but will not impair the vesting or exercise of any award granted under the 2005
LTIP prior to the date the 2007 LTIP became effective.


 


71

















 


The provisions of the 2005 LTIP applicable to directors are set forth
in a separate 2007 Directors’ Compensation Incentive Plan (the “Directors’ Plan”),
which was also adopted by the Borrower pursuant to the approval of the
shareholders at the 2007 annual meeting of shareholders held August 17, 2007.


The
2007 LTIP increases the amount of securities available for incentive awards to
an aggregate of 4,000,000 shares, subject to adjustment to reflect stock splits
and other similar events. The 2007 LTIP terminates on the earlier of (1) ten
years from the date the 2007 LTIP becomes effective and (2) at such time as no
shares of common stock of the Borrower remain available for issuance through
the plan. The Borrower’s officers, employees and consultant and the employees
of certain of the Borrower’s affiliates are eligible to participate in the 2007
LTIP. The 2007 LTIP allows for the award of (1) incentive stock options under
Section 422 of the Tax Code, (2) non-statutory stock options not covered under
Section 422 of the Tax Code, (3) stock appreciation rights granting the
recipient the right to receive an excess in the fair market value (as defined
in the 2007 LTIP) of shares of stock over a specified reference price, (4)
restricted stock, which will be subject to a risk of forfeiture and
nontransferable until it vests over time, (5) qualified performance-based
incentive to employees who qualify as covered employees within the meaning of
Section 162(m) of the Tax Code, as amended, (6) unrestricted stock, which will
be immediately transferable, and (7) other stock-based incentive awards. Any
vesting provisions for an award made under the 2007 LTIP may be determined by
the Compensation Committee. Awards will generally vest in four years unless
otherwise determined by the Compensation Committee.  As of September 30, 2007, there were
3,339,500 shares available to be granted by the Borrower under the 2007 LTIP.


 


The Directors’ Plan supersedes and replaces the portions of the 2005
LTIP applicable to non-employee directors, but will not impair the vesting or
exercise of any incentive granted to a director under the 2005 LTIP prior to
the date the Directors’ Plan became effective. The Directors’ Plan will
terminate on the earlier of (1) ten years from the date that the Directors’
Plan becomes effective and (2) at such time as no shares of common stock of the
Borrower remain available for issuance through the plan. The Borrower’s
non-employee directors are eligible to participate in the Directors’ Plan. The
Directors’ Plan provides for the issuance of up to 2,500,000 shares of the Borrower’s
common stock to non-employee directors, subject to adjustment to reflect stock
splits and similar events. The Directors’ Plan allows for the award of (1)
non-statutory stock options not covered under Section 422 of the Tax Code, (2)
stock appreciation rights, granting the recipient the right to receive an
excess in the fair market value (as defined in the Directors’ Plan) of shares
of stock over a specified reference price, (3) restricted stock, which will be
subject to a risk of forfeiture and nontransferable until it vests over time,
(4) unrestricted stock, which will be immediately transferable, and


72

















 


(5) other stock-based incentive awards. Vesting under the Directors’
Plan will be determined by the Compensation Committee. Awards will generally
vest in four years unless otherwise determined by the Compensation
Committee.  As of September 30, 2007,
there were 2,125,000 shares available to be granted by the Borrower under the
Directors’ Plan.


73
















 


SCHEDULE 3.01(O)


 


INSURANCE


(See Section 3.01 (o) of the C Loan Agreement)


ENERGY PACKAGE POLICY


Term: April 12,
2006 to April 12, 2007


Insurer: RIMAC Seguros


Policy Number: 1301-512410


 


Property


	
  Sum Insured:

  	
   

  	
  $10,000,000 and in
  addition a combined limit of up to 25% of Agreed Value in respect of Removal
  of Wreck / Sue and Labour

  
	
   

  	
   

  	
   

  
	
  Deductible:

  	
   

  	
  $250,000 any one accident
  or occurrence

  



 


Operator’s Extra Expense


	
  Sum Insured:

  	
   

  	
  $40,000,000 any one
  occurrence, combined single limit, but limited to $1,500,000 in respect of
  Care Custody and Control Endorsement any one occurrence

  
	
   

  	
   

  	
   

  
	
  Deductible:

  	
   

  	
  $375,000 any one
  occurrence, but $75,000 any one occurrence in respect of Care, Custody and
  Control

  



 


Liabilities


	
  Limit:

  	
   

  	
  $5,000,000 any one
  accident or occurrence

  
	
   

  	
   

  	
   

  
	
  Deductible:

  	
   

  	
  $50,000
  any one accident or occurrence

  



 


74






 












 


SCHEDULE 3.01(Q)


 


 


ERISA


(See Section 3.01 (q) of the C Loan
Agreement)


ERISA
Compliance


 


N/A.


 


Employee
Benefit Plans


 


1.  BPZ
Resources, Inc. 2007 Long-Term Incentive Compensation Plan


 


The Borrower adopted the BPZ Resources, Inc. 2007 Long-Term Incentive
Compensation Plan (the “2007 LTIP”) in June 2007 and it was approved by the
Borrower’s shareholders in August 2007. 
The 2007 LTIP is administered and managed within the discretion of the
compensation committee of the Borrower or, in the absence of such committee, by
the Board of Directors.  Incentives under
the 2007 LTIP may be granted to eligible officers, employees, consultants and
employees of certain of the Borrower’s affiliates in any one or a combination
of incentive options, non-statutory stock options, stock appreciation rights,
restricted stock grants, stock grants and performance shares.


 


Key Terms


 


The
following is a summary of the key provisions of the 2007 LTIP:


 


	
  Plan
  Term:

  	
   

  	
  The 2007 LTIP will
  terminate on the earlier of (1) ten years from the date that the 2007 LTIP
  becomes effective and (2) at such time as no shares of Common Stock remain
  available for issuance through the plan.

  
	
   

  	
   

  	
   

  
	
  Eligible
  

  Participants:

  	
   

  	
  The Borrower’s officers,
  employees and consultants and the employees of certain of its affiliates. The
  Borrower currently has 4 officers and 34 employees who are eligible to
  participate under the 2007 LTIP.

  
	
   

  	
   

  	
   

  
	
  Shares 

  Authorized 

  Under the 2007 

  LTIP:

  	
   

  	
  4.0 million shares of
  Common Stock, subject to adjustment to reflect stock splits and similar
  events. 

  



 


75

















 


	
  Award
  Types:

  	
  •

  	
  incentive stock options
  under Section 422 of the Tax Code;

  
	
   

  	
  •

  	
  non-statutory stock
  options not covered under Section 422 of the Tax Code;

  
	
   

  	
  •

  	
  stock appreciation rights,
  granting the recipient the right to receive an excess in the fair market
  value (as defined in the 2007 LTIP) of shares of stock over a specified
  reference price;

  
	
   

  	
  •

  	
  restricted stock, which
  will be subject to a risk of forfeiture and nontransferable until it vests
  over time;

  
	
   

  	
  •

  	
  qualified
  performance-based incentives to employees who qualify as covered employees
  within the meaning of Section 162(m) of the Tax Code, as amended;

  
	
   

  	
  •

  	
  unrestricted stock, which
  will be immediately transferable; and

  
	
   

  	
  •

  	
  other stock-based
  incentive awards.

  
	
   

  	
   

  	
   

  
	
  Vesting:

  	
   

  	
  To be determined by the
  Compensation Committee. Awards will generally vest in four years unless
  otherwise determined in the Compensation Committee’s discretion.

  



 


Vesting
and Exercise of Stock Options


 


The exercise price of stock options or stock
appreciation rights granted under the 2007 LTIP may not be less than the fair
market value of the common stock on the date of grant. The term of these awards
may not be longer than ten years. The Compensation Committee will determine at
the date of grant when each such award becomes vested and/or exercisable.


 


Vesting of
Restricted Stock Awards and Options


 


The Compensation Committee may make the grant,
issuance, retention and/or vesting of restricted stock awards and options
contingent upon continued employment (or engagement) with the Borrower, the
passage of time, or such performance criteria and the level of achievement
compared to such criteria as it deems appropriate.


 


Eligibility
Under Section 162(m)


 


Awards may, but need not, include performance criteria
that satisfy Section 162(m) of the Tax Code. To the extent that awards are
intended to qualify as “performance-based


 


76

















 


compensation” under Section 162(m), the performance criteria may
include the following criteria, either individually, alternatively or in any
combination, applied to either the company as a whole or to a business unit or
subsidiary, either individually, alternatively, or in any combination, and
measured either annually or cumulatively over a period of years, on an absolute
basis or relative to a preestablished target, to previous years’ results or to
a designated comparison group, in each case as specified by the Compensation
Committee in the award:


 


•       pre-tax or after-tax net earnings,


•       sales growth,


•       operating earnings,


•       operating cash flow


•       return on net assets,


•       return on shareholders’ equity,


•       return on assets,


•       return on capital,


•       stock price grown,


•       gross or net profit margin,


•       earnings per share,


•       price per share of stock,


•       market share, and


•                          such other performance measures as the
Compensation Committee may determine.


 


To the extent that an award under the 2007 LTIP is
designated as a “performance award,” but is not intended to qualify as
performance-based compensation under Section 162(m), the performance
criteria can include the achievement of strategic objectives as determined by
the Board.


 


Notwithstanding satisfaction of any completion of any
performance criteria described above, to the extent specified at the time of
grant of an award, the number of shares of common stock, stock options or other
benefits granted, issued, retainable and/or vested under an award on account of
satisfaction of performance criteria may be reduced by the Compensation
Committee on the basis of such further considerations as the Compensation
Committee in its sole discretion determines.


 


77

















 


Transferability


 


Awards granted under the 2007 LTIP are not
transferable except by will, by the laws of descent and distribution, or, if
permitted by the document granting the award, to certain family members,
foundations, or entities controlled by either the grantee or certain family
members.


 


Amendments


 


The Board of
Directors may discontinue the 2007 LTIP at any time and may amend the plan at
any time, as permitted by applicable statutes. However, the Board may not
revoke or alter, in a manner unfavorable to the grantees of any incentives, the
terms of any award under the 2007 LTIP then outstanding. The Board of Directors
is further restricted from amending the 2007 LTIP without shareholder approval
if the absence of such approval would cause the 2007 LTIP to fail to comply
with the Securities Exchange Act of 1934, as amended, or any other applicable
law or regulation.


 


Adjustments


 


In the event of a stock dividend, recapitalization,
stock split, combination of shares, reorganization, or exchange of the Borrower’s
common stock, or any similar event affecting the Borrower’s common stock, the
Compensation Committee shall adjust the number and kind of shares available for
grant under the 2007 LTIP, and, subject to the various limitations set forth in
the 2007 LTIP, the number and kind of shares subject to outstanding awards
under the 2007 LTIP, and the exercise or settlement price of outstanding stock
options and of other awards.


 


The impact of a merger or other reorganization of the
Borrower on awards granted under the 2007 LTIP shall be specified in the
agreement relating to the merger or reorganization, subject to the limitations
and restrictions set forth in the 2007 LTIP. Such agreement may provide for,
among other things, assumption of outstanding awards, accelerated vesting or
accelerated expiration of outstanding awards, or settlement of outstanding
awards in cash.


 


2.  BPZ Directors’ Incentive Compensation Plan


 


The Borrower adopted the BPZ Resources, Inc.
Directors’ Compensation Incentive Plan (the “Directors’ Plan”) in June 2007 and
it was approved by the Borrower’s shareholders in August 2007.  The Directors’ Plan is administered and
managed within the discretion of the


 


78

















 


compensation committee of the Borrower or, in
the absence of such committee, by the Board of Directors.  The Directors’ Plan provides for the issuance
of up to 2,500,000 shares of the Borrower’s common stock to non-employee
directors, subject to adjustment to reflect stock splits and similar
events.  The Directors’ Plan allows for the award of (1) non-statutory
stock options not covered under Section 422 of the Tax Code, (2) stock
appreciation rights, granting the recipient the right to receive an excess in
the fair market value (as defined in the Directors’ Plan) of shares of stock
over a specified reference price, (3) restricted stock, which will be subject
to a risk of forfeiture and nontransferable until it vests over time, (4)
unrestricted stock, which will be immediately transferable, and (5) other
stock-based incentive awards.


 


Key Terms


 


The following is a summary of the key provisions of
the Directors’ Plan:


 


	
  Plan Term:

  	
   

  	
  The Directors’ Plan will terminate on the earlier of
  (1) ten years from the date that the Plan becomes effective and (2) at such
  time as no shares of Common Stock remain available for issuance through the
  plan.

  
	
   

  	
   

  	
   

  
	
  Eligible 

  Participants:

  	
   

  	
  The Borrower’s non-employee directors.  The Borrower currently has four
  non-employee directors who are eligible to participate under the Directors’
  Plan.

  
	
   

  	
   

  	
   

  
	
  Shares 

  Authorized 

  Under the 

  Directors’ Plan:

  	
   

  	
  2.5 million shares of Common Stock, subject to
  adjustment to reflect stock splits and similar events. 

  
	
   

  	
   

  	
   

  
	
  Award Types:

  	
  •

  	
  non-statutory stock options not covered under
  Section 422 of the Tax Code;

  
	
   

  	
  •

  	
  stock appreciation rights, granting the recipient
  the right to receive an excess in the fair market value (as defined in the
  Directors’ Plan) of shares of stock over a specified reference price;

  
	
   

  	
  •

  	
  restricted stock, which will be subject to a risk of
  forfeiture and nontransferable until it vests over time;

  
	
   

  	
  •

  	
  unrestricted stock, which will be immediately
  transferable; and

  
	
   

  	
  •

  	
  other stock-based incentive awards.

  



 


79
















 


	
  Vesting:

  	
   

  	
  To be determined by the
  Compensation Committee. Awards will generally vest in four years unless
  otherwise determined in the Compensation Committee’s discretion.

  



 


Vesting
and Exercise of Stock Options; Vesting of Restricted Stock Awards


 


The exercise price of stock options or stock
appreciation rights granted under the Directors’ Plan may not be less than the
fair market value of the common stock on the date of grant. The term of these
awards may not be longer than ten years. The Compensation Committee will
determine at the date of grant when each award of restricted stock or options
becomes vested and/or exercisable.  The
Compensation Committee may make the grant, issuance, retention and/or vesting
of restricted stock awards and options contingent upon continued service as a
director with the Borrower or the passage of time.


 


Transferability


 


Awards granted under the Directors’ Plan are not
transferable except by will, by the laws of descent and distribution, or, if
permitted by the document granting the award, to certain family members,
foundations, or entities controlled by either the grantee or certain family
members.


 


Amendments


 


The Board of Directors may discontinue the Directors’
Plan at any time and may amend the plan at any time, as permitted by applicable
statutes. However, the Board may not revoke or alter, in a manner unfavorable
to the grantees of any incentives, the terms of any award under the Directors’
Plan then outstanding. The Board of Directors is further restricted from
amending the Directors’ Plan without shareholder approval if the absence of
such approval would cause the Directors’ Plan to fail to comply with the
Securities Exchange Act of 1934, as amended, or any other applicable law or
regulation.


 


Adjustments


 


In the event of a stock dividend, recapitalization,
stock split, combination of shares, reorganization, or exchange of the Borrower’s
common stock, or any similar event affecting the Borrower’s common stock, the
Compensation Committee shall adjust the number and kind of shares available for
grant under the Directors’ Plan, and subject to the various limitations


 


80

















 


set forth in the Directors’ Plan, the number and kind of shares subject
to outstanding awards under the Directors’ Plan, and the exercise or settlement
price of outstanding stock options and of other awards.


 


The impact of a merger or other reorganization of the
Borrower on awards granted under the Directors’ Plan shall be specified in the
agreement relating to the merger or reorganization, subject to the limitations
and restrictions set forth in the Directors’ Plan. Such agreement may provide
for, among other things, assumption of outstanding awards, accelerated vesting
or accelerated expiration of outstanding awards, or settlement of outstanding
awards in cash.


 


3.  BPZ Resources 401 K Plan


 


	
  •  Plan date:

  	
   

  	
  January 1, 2006

  
	
  •  Investment Provider:

  	
   

  	
  John Hancock

  
	
  •  Plan type:

  	
   

  	
  Safe Harbor

  
	
  •  Company match:

  	
   

  	
   

  
	
  Safer Harbor

  	
   

  	
  $1 for $1 up to 5% of annual base salary

  
	
  •  Vesting:

  	
   

  	
  Immediate

  
	
  •  Loans

  	
   

  	
  Not permitted

  
	
  •  Hardship Withdrawals

  	
   

  	
  Yes

  
	
  •  Third Party Administrator

  	
   

  	
  July Business
  Services

  



 


4.  BPZ Energy, Inc. 2005
Long-Term Incentive Compensation Plan


 


                The BPZ Energy, Inc. 2005
Long-Term Incentive Compensation Plan (the “2005 LTIP”) permitted the
Board of Directors to award eligible employees, directors and consultants with
any one or a combination of incentive options, non-statutory stock options,
stock appreciation rights, restricted stock grants, stock grants and
performance shares. The 2005 LTIP was
superseded and replaced by the 2007 LTIP but did not impair the vesting
or exercise of any award granted under the 2005 LTIP prior to the date the 2007
LTIP became effective.  When the 2005 LTIP was replaced, there
were 1,013,500 shares available to be granted under the 2005 LTIP, which were
transferred to the 2007 LTIP.


 


81

















 


5.  Navidec, Inc.
2004 Stock Option Plan


 


Subsequent
to the merger, the Borrower discontinued the Navidec 2004 Stock Option Plan
(the “Navidec Plan”) and no options were granted under the Navidec Plan
subsequent to the merger.


 


82
















 


SCHEDULE 3.01(W)


 


TITLE TO PROPERTIES


(See Section 3.01 (w) of the C Loan
Agreement)


Purchase of
Land from the Regional Government of Tumbes (“GRT”).  The GRT has
adjudicated the land to the Borrower, pending the issuance of a Supreme Decree
(“SD”) from the Council of Ministers (the SD will be signed by the Prime
Minister).


 


The
acquisition procedure must follow certain steps executed in a determined order.
 The Borrower’s project involves both hydrocarbons and power
generation.  The hydrocarbon side is covered by the Block Z-1 contract.
 The Borrower must request Perupetro’s approval to install production
facilities outside of the Block Z-1 area.  Dirección General de
Hidrocarburos will then automatically approve the use of the terrain for the
Borrower’s hydrocarbon operations.  Power generation requires approval
from Dirección General de Electricidad, which in turn requires that the
Borrower file first for the Authorization to Become a Generator, which in turn
requires that the power company be established (this has occurred).  Once
both Direccións approve this land acquisition, they will pass a common Supreme
Decree to the Council of Ministers for ratification.  As soon as the SD is
published in the Official Government Paper (El Peruano), the land will belong
to the Borrower.


 


83






 












 


EXHIBIT A


 


 


FORM OF CERTIFICATE OF INCUMBENCY AND AUTHORITY


(See Section 1.01 and
Section 4.01(j) of the C Loan Agreement)


 


[Borrower’s Letterhead]


 


[Date]


 


International Finance Corporation


2121 Pennsylvania Avenue, N.W.


Washington, D.C. 20433


United States of America


 


Attention:  Director, Oil, Gas,
Mining and Chemicals Department


 


Ladies and Gentlemen:


 


 


Certificate of Incumbency
and Authority


 


 


                With reference to
the C Loan Agreement between us, dated November 19, 2007 (the “Loan Agreement”),
I, the undersigned [Chairman/Director] of BPZ Resources, Inc. (the “Borrower”),
duly authorized to do so, hereby certify that the following are the names,
offices and true specimen signatures of the persons [each] [any two] of whom
are, and will continue to be, authorized:


 


                (a)           to sign on behalf of the Borrower the
request for the disbursement of funds provided for in Section 2.02 of the Loan
Agreement;


 


                (b)           to sign the certifications provided
for in Section 4.01 and Section 4.02 of the Loan Agreement; and


 


84

















 


                (c)           to take any other action required or
permitted to be taken, done, signed or executed under the Loan Agreement or any
other agreement to which IFC and the Borrower may be parties.


 


 


	
  Name*

  	
   

  	
  Office

  	
   

  	
  Specimen
  Signature

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Manuel Pablo Zúñiga Pflücker

  	
   

  	
  President & Chief Executive Officer

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Edward G. Caminos

  	
   

  	
  Chief Financial Officer

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Edward J. Gilliard

  	
   

  	
  VP — Finance & Treasurer

  	
   

  	
   

  







	
  *

  	
   

  	
  Designations may be changed by the Borrower at any
  time by issuing a new Certificate of Incumbency and Authority authorized by
  the Board of Directors of the Borrower where applicable.

  



 


 


                You may assume
that any such person continues to be so authorized until you receive written
notice from an Authorized Representative of the Borrower that they, or any of
them, are no longer so authorized.


 


	
   

  	
  Yours truly,

  
	
   

  	
   

  
	
   

  	
  BPZ RESOURCES, INC.

  
	
   

  	
   

  
	
   

  	
  By 

  	
   

  	
   

  
	
   

  	
   

  	
  [Chairman/Director]

  



 


85
















EXHIBIT B


 


 


FORM OF REQUEST FOR DISBURSEMENT


(See Section 2.02 and
Section 4.02 of the C Loan Agreement)


 


[Borrower’s Letterhead]


 


[Date]


 


International Finance Corporation


2121 Pennsylvania Avenue, N.W.


Washington, D.C. 20433


United States of America


 


Attention:  Director, Oil, Gas,
Mining and Chemicals Department


 


Ladies and Gentlemen:


 


Investment No. 24346


Request for Loan
Disbursement


 


1.             Please refer to the
C Loan Agreement (the “Loan Agreement”) dated November 19, 2007, between BPZ
Resources, Inc. (the “Borrower”) and International Finance Corporation (“IFC”).
Terms defined in the Loan Agreement have their defined meanings whenever used
in this request.


 


2.             The Borrower
irrevocably requests the disbursement on                     ,
         (or as soon as practicable
thereafter) of the amount of fifteen million five hundred thousand Dollars
($15,500,000) (the “Disbursement”) in accordance with the provisions of Section
2.02 of the Loan Agreement.  You are
requested to pay such amount to the account in [          ]
of BPZ Resources, Inc., Account No.                         
at [Name and Address of Bank] [for further credit to the Borrower’s Account No.
                
at [Name and address of Bank] in [city and country].


 


3.             For the purpose of
Section 4.01 and Section 4.02 of the Loan Agreement, the Borrower certifies as
follows:


 


86

















 


 


                (a)           no Event of Default and no Potential
Event of Default has occurred and is continuing;


 


                (b)           the proceeds of the Disbursement are
at the date of this request needed by the Borrower for the purpose of the
Project, or will be needed for such purpose within five (5) months of such
date;


 


                (c)           since the date of the Loan Agreement
nothing has occurred which has or could reasonably be expected to have a
Material Adverse Effect;


 


                (d)           since the date of the Loan Agreement
the Borrower and its Subsidiaries have not incurred any loss or liability
(except such liabilities as may be incurred by the Borrower in accordance with
Section 5.02 of the Loan Agreement) which could reasonably be expected to have
a Material Adverse Effect;


 


                (e)           the representations and warranties
made in Article III of the Loan Agreement are true on the date of this request
and will be true on the date of Disbursement with the same effect as if such
representations and warranties had been made on and as of each such date;


 


                (f)            the proceeds of the Disbursement are
not in reimbursement of, or to be used for, expenditures in the territories of
any country that is not a member of the World Bank or for goods produced in or
services supplied from any such country;


 


                (g)           after giving effect to the
Disbursement, the Borrower will not be in violation of:


 


	
   

  	
   

  	
  (i)

  	
  its Charter;

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (ii)

  	
  any provision contained in any document to which the
  Borrower is a party (including the Loan Agreement) or by which the Borrower
  is bound; or

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  (iii)

  	
  any law, rule, regulation, Authorization or
  agreement or other document binding on the Borrower directly or indirectly,
  limiting or otherwise restricting the Borrower’s borrowing power or authority
  or its ability to borrow; and

  



 


87

















 


                (h)           After taking into account the amount
of the Disbursement and any other Long-term Debt incurred by the Borrower and
its Subsidiaries, on a Consolidated Basis, and of any amounts of Tangible Net
Worth paid into the Borrower and its Subsidiaries, on a Consolidated Basis,
after the date of the latest quarterly report of the Borrower delivered to IFC,
the Balance Sheet Liabilities to Tangible Net Worth Ratio would not exceed
70:30.


 


                The above
certifications are effective as of the date of this Request for Disbursement
and shall continue to be effective as of the date of the Disbursement.  If any of these certifications is no longer
valid as of or prior to the date of the requested Disbursement, the Borrower
undertakes to immediately notify IFC.


 


 


	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Yours truly,

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  BPZ RESOURCES, INC.

  	
   

  
	
   

  
	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
                             Authorized
  Representative

  
									



 


 


Copy to:   Director, Department of Financial Operations


International Finance
Corporation


 


88






 












EXHIBIT C


 


 


FORM OF DISBURSEMENT RECEIPT


(See
Section 2.02 of the Loan Agreement)


 


[Borrower’s
Letterhead]


 


International Finance Corporation


2121 Pennsylvania Avenue, N.W.


Washington, D.C. 20433


United States of America


 


Attention: 
Director, Department of Financial Operations


 


Ladies and Gentlemen:


 


Investment
No. 24346


Disbursement
Receipt


 


                We, BPZ
Resources, Inc., hereby acknowledge receipt on the date hereof, of the sum of
fifteen million five hundred thousand Dollars ($15,500,000) disbursed to us by International
Finance Corporation (“IFC”) under the C Loan Agreement dated November 19, 2007
between our company and IFC.


 


 


	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Yours truly,

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  BPZ RESOURCES, INC.

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  By 

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Authorized Representative*

  	
   

  



 


 


 


 


 


 






                *              As named in the Borrower’s
Certificate of Incumbency and Authority (see Exhibit A).


 


89






 












 


EXHIBIT D


 


 


 


FORM OF SERVICE OF PROCESS LETTER


[Letterhead of
Agent for Service of Process]


(See Section 4.01
(k) of the C Loan Agreement)


 


 


[Date]


 


 


International Finance Corporation


2121 Pennsylvania Avenue, N.W.


Washington, D.C. 
20433


Attention:                                  


Re:  [                  ]


 


Dear Sirs:


 


                Reference
is made to Section 8.05 of the C Loan Agreement dated November 19, 2007 (the “Loan  Agreement”)
between BPZ Resources, Inc. (the “Borrower”) and
International Finance Corporation (“IFC”).  Unless otherwise defined herein, capitalized
terms used here­in shall have the meaning specified in the Loan Agreement.


 


                Pursuant
to Section 8.05 (d) of the Loan Agreement, the  Borrower
has irrevocably designated and appointed the under­signed, C T Corporation
System, with offices currently located at 111 Eighth Avenue, New York, New York
10011, as its authorized agent to receive for and on its behalf service of
process in any legal action or proceeding with respect to the Loan Agreement
brought in the State of New York.


 


 


90

















 


 


 


                The
undersigned hereby informs you that it has irrevocably ac­cepted that
appointment as process agent as set forth in Section 8.05 (d) of the Loan
Agreement, from November 19, 2007 until February 19, 2018 and agrees with you
that the undersigned (i) shall inform the Borrower promptly in writing of any
change of its address in New York, (ii) shall perform its obligations as such
process agent in accordance with the relevant provisions of Section 8.05 of the
Loan Agreement, and (iii) shall forward promptly to the Borrower any legal
process received by the undersigned in its capacity as process agent.


 


                As
process agent, the undersigned and its successor or successors agree to
discharge the above-mentioned obligations.


 


 


	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Very truly yours,

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  C T Corporation System

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  By

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  



 


 


cc:  BPZ Resources, Inc.


 


 


91






 












 


EXHIBIT E


 


 


FORM OF BORROWER’S CERTIFICATION

ON DISTRIBUTION OF DIVIDENDS


(See Section 5.02 (a) of
the C Loan Agreement)


[Borrower’s
Letterhead]


 


 




	
  International Finance Corporation

  	
   

  	
  [Date]

  
	
  2121 Pennsylvania Avenue, N.W.

  	
   

  	
   

  
	
  Washington, D.C. 20433

  	
   

  	
   

  
	
  Attention:
  [                             ]

  	
   

  	
  Re:
  [                ]

  






 


 


Dear Sirs:


 


1.             Please refer to the
C Loan Agreement (the “Loan Agreement”) dated November 19, 2007 between BPZ
Resources, Inc. (the “Borrower”) and International Finance Corporation (“IFC”).
 Terms defined in the Loan Agreement have
their defined meanings whenever used in this request.


 


2.             This
is to inform you that the Borrower plans a distribution of dividends to its
shareholders in the aggregate amount of                          (          ),
such distribution to commence on or about               ,        .  Pursuant to Section 5.02 (a) of the Loan
Agreement, the Borrower hereby certifies that, as at the date hereof:


 


(a)                                  the proposed distribution will be
[entirely] out of retained earnings and such retained earnings do not include
any amount resulting from the revaluation of any of the Borrower’s assets;


 


(b)                                 before or after giving effect to the
proposed distribution, the Balance Sheet Liabilities to Tangible Net Worth
Ratio is no greater than 70:30; and


 


(c)                                  no Event of Default or Potential Event of
Default has occurred and is continuing or will occur after giving effect to the
proposed distribution.


 


92

















 


 


3.             The Borrower undertakes not to give
effect to the proposed distribution or any part thereof if, at the time of so
doing or after giving effect to it, the Borrower could not certify the matters
in section 2 of this certification.


 


 


	
   

  	
  Yours truly,

  
	
   

  	
   

  
	
   

  	
  BPZ RESOURCES, INC.

  
	
   

  	
   

  
	
   

  	
  By

  	
   

  
	
   

  	
   

  	
  Authorized
  Representative

  



 


93
















 


EXHIBIT F


 


FORM OF CONVERSION NOTICE


(See Sections 1.01 and
7.01 (a) of the C Loan Agreement)


 


[Date]


[BPZ Resources, Inc.


580 Westlake Park Blvd., Suite 525


Houston, Texas 77079


Attention:  [                    ]]


[International Finance Corporation


2121 Pennsylvania Avenue, N.W.


Washington, D.C. 
20433


Attention:  [                    ]]


 


                Ladies and
Gentlemen:


 


 


                Please refer to
the C Loan Agreement dated November 19, 2007 (the “Loan Agreement”), between
BPZ Resources, Inc. (the “Borrower”) and International Finance Corporation (“IFC”).
Terms defined in the Loan Agreement have their defined meanings whenever used
in this request.


 


                [IFC] [The
Borrower] hereby requests the conversion of the amount of [         ]
Dollars ($[         ])* into
Common Stock at the Conversion Price in accordance with the provisions of
Article VII of the Loan Agreement.  The
Conversion Date is [         ].  The number of shares to be issued and
delivered by the Borrower to IFC upon such conversion is [         ].






*  The Conversion Amount to be
inserted.


 


                [The Borrower
hereby certifies that, as at the date hereof, the Current Market Price exceeds
one hundred and seventy five per cent (175%) of the Conversion Price.]**






** To be included in the Notice of Conversion issued by the Borrower.


 


 


	
   

  	
  Yours truly,

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  [INTERNATIONAL FINANCE CORPORATION]

  
	
   

  	
  [BPZ RESOURCES, INC.]

  
	
   

  	
   

  	
   

  
	
   

  	
  By 

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  
				



 


94