Document:

abat8k20092005ex10-b.htm

    
      

      

    

     

    
      COMMON
STOCK PURCHASE WARRANT

      

      ADVANCED
BATTERY TECHNOLOGIES, INC.

       

      
        	
                Warrant
      Shares: _______

              	
                Initial
      Exercise Date: October 5, 2009

              

      

      

       

      THIS COMMON STOCK PURCHASE WARRANT (the
“Warrant”)
certifies that, for value received, _____________ (the “Holder”) is entitled,
upon the terms and subject to the limitations on exercise and the conditions
hereinafter set forth, at any time on or after October 5, 2009 (the “Initial Exercise
Date”) and on or prior to the close of business on the five year
anniversary of the Initial Exercise Date (the “Termination Date”),
but not thereafter, to subscribe for and purchase from Advanced Battery
Technologies, Inc., a Delaware corporation (the “Company”), up to
______ shares (the “Warrant Shares”) of
Common Stock.  The purchase price of one share of Common Stock under
this Warrant shall be equal to the Exercise Price, as defined in Section
2(b).

       

      Section
1.       Definitions.  Capitalized
terms used and not otherwise defined herein shall have the meanings set forth in
that certain Securities Purchase Agreement (the “Purchase Agreement”),
dated September 30, 2009, among the Company and the purchasers signatory
thereto.

       

      Section
2.       Exercise.

       

      a)         
   Exercise of
Warrant.  Exercise of the purchase rights represented by this
Warrant may be made, in whole or in part, at any time or times on or after the
Initial Exercise Date and on or before the Termination Date by delivery to the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the registered Holder at the address of the Holder
appearing on the books of the Company) of a duly executed facsimile copy of the
Notice of Exercise Form annexed hereto; and, within three (3) Trading Days of
the date said Notice of Exercise is delivered to the Company, the Company shall
have received payment of the aggregate Exercise Price of the shares thereby
purchased by wire transfer or cashier’s check drawn on a United States bank or,
if available, pursuant to the cashless exercise procedure specified in Section
2(c) below.  Notwithstanding anything herein to the contrary, the
Holder shall not be required to physically surrender this Warrant to the Company
until the Holder has purchased all of the Warrant Shares available hereunder and
the Warrant has been exercised in full, in which case, the Holder shall
surrender this Warrant to the Company for cancellation within three (3) Trading
Days of the date the final Notice of Exercise is delivered to the
Company.  Partial exercises of this Warrant resulting in purchases of
a portion of the total number of Warrant Shares available hereunder shall have
the effect of lowering the outstanding number of Warrant Shares purchasable
hereunder in an amount equal to the applicable number of Warrant Shares
purchased.  The Holder and the Company shall maintain records showing
the number of Warrant Shares purchased and the date of such
purchases.  The Company shall deliver any objection to any Notice of
Exercise Form within 1 Business Day of receipt of such notice.  In the
event of any dispute or discrepancy, the records of the Holder shall be
controlling and determinative in the absence of manifest error. The Holder and any assignee, by
acceptance of this Warrant, acknowledge and agree that, by reason of the
provisions of this paragraph, following the purchase of a portion of the Warrant
Shares hereunder, the number of Warrant Shares available for purchase hereunder
at any given time may be less than the amount stated on the face
hereof.

       

      
        
          
             

          

          
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      b)      
      Exercise
Price.  The exercise price per share of the Common Stock under
this Warrant shall be $4.70, subject to adjustment
hereunder (the “Exercise
Price”).

       

      c)     
       Cashless
Exercise.  If at the time of exercise hereof there is no
effective registration statement registering, or the prospectus contained
therein is not available for the issuance of the Warrant Shares to the Holder
and all of the Warrant Shares are not then registered for resale by Holder into
the market at market prices from time to time on an effective registration
statement for use on a continuous basis (or the prospectus contained therein is
not available for use), then this Warrant may also be exercised, in whole or in
part, at such time by means of a “cashless exercise” in which the Holder shall
be entitled to receive a certificate for the number of Warrant Shares equal to
the quotient obtained by dividing [(A-B) (X)] by (A), where:

       

      
        	
                 
      (A) =  

              	
                the
      VWAP on the Trading Day immediately preceding the date on which Holder
      elects to exercise this Warrant by means of a “cashless exercise,” as set
      forth in the applicable Notice of
Exercise;

              

      

      

      
        	
                 
      (B) =  

              	
                the
      Exercise Price of this Warrant, as adjusted hereunder;
  and

              

      

      

      
        	
                 
      (X) =  

              	
                the
      number of Warrant Shares that would be issuable upon exercise of this
      Warrant in accordance with the terms of this Warrant if such exercise were
      by means of a cash exercise rather than a cashless
    exercise.

              

      

      

      “VWAP” means, for any
date, the price determined by the first of the following clauses that applies:
(a) if the Common Stock is then listed or quoted on a Trading Market, the daily
volume weighted average price of the Common Stock for such date (or the nearest
preceding date) on the Trading Market on which the Common Stock is then listed
or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m.
(New York City time) to 4:02 p.m. (New York City time), (b)  if the OTC
Bulletin Board is not a Trading Market, the volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the OTC Bulletin
Board, (c) if the Common Stock is not then listed or quoted for trading on the
OTC Bulletin Board and if prices for the Common Stock are then reported in the
“Pink Sheets” published by Pink OTC Markets, Inc. (or a similar organization or
agency succeeding to its functions of reporting prices), the most recent bid
price per share of the Common Stock so reported, or (d) in all other cases,
the fair market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by the Holders of a majority in interest of the
Securities then outstanding and reasonably acceptable to the Company, the fees
and expenses of which shall be paid by the Company.

       

      
        
          
             

          

          
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      Notwithstanding
anything herein to the contrary and subject to Section 2(e), on the Termination
Date, this Warrant shall be automatically exercised via cashless exercise
pursuant to this Section 2(c).

      

      d)           Mechanics of
Exercise.

       

      i.      Delivery of Certificates
Upon Exercise.  Certificates for shares purchased hereunder
shall be transmitted by the Transfer Agent to the Holder by crediting the
account of the Holder’s prime broker with the Depository Trust Company through
its Deposit Withdrawal Agent Commission (“DWAC”) system if the
Company is then a participant in such system and either (A) there is an
effective Registration Statement permitting the issuance of the Warrant Shares
to or resale of the Warrant Shares by Holder or (B) this Warrant is being
exercised via cashless exercise, and otherwise by physical delivery to the
address specified by the Holder in the Notice of Exercise by the date that is
three (3) Trading Days after the latest of (A) the delivery to the Company of
the Notice of Exercise Form, (B) surrender of this Warrant (if required), and
(C) payment of the aggregate Exercise Price as set forth above (including by
cashless exercise, if permitted) (such date, the “Warrant Share Delivery
Date”).  This Warrant shall be deemed to have been exercised on
the first date on which all of the foregoing have been delivered to the
Company.  The Warrant Shares shall be deemed to have been issued, and
Holder or any other person so designated to be named therein shall be deemed to
have become a holder of record of such shares for all purposes, as of the date
the Warrant has been exercised, with payment to the Company of the Exercise
Price (or by cashless exercise, if permitted) and all taxes required to be paid
by the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance of
such shares, having been paid. If the Company fails for any reason to deliver to
the Holder certificates evidencing the Warrant Shares subject to a Notice of
Exercise by the Warrant Share Delivery Date, the Company shall pay to the
Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of
Warrant Shares subject to such exercise (based on the VWAP of the Common Stock
on the date of the applicable Notice of Exercise), $10 per Trading Day
(increasing to $20 per Trading Day on the fifth Trading Day after such
liquidated damages begin to accrue) for each Trading Day after such Warrant
Share Delivery Date until such certificates are delivered or Holder rescinds
such exercise.

       

      ii.      Delivery of New Warrants
Upon Exercise.  If this Warrant shall have been exercised in
part, the Company shall, at the request of a Holder and upon surrender of this
Warrant certificate, at the time of delivery of the certificate or certificates
representing Warrant Shares, deliver to Holder a new Warrant evidencing the
rights of Holder to purchase the unpurchased Warrant Shares called for by this
Warrant, which new Warrant shall in all other respects be identical with this
Warrant.

       

      
        
          
             

          

          
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      iii.      Rescission
Rights.  If the Company fails to cause the Transfer Agent to
transmit to the Holder a certificate or the certificates representing the
Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date,
then, the Holder will have the right to rescind such exercise.

       

      iv.      Compensation for Buy-In on
Failure to Timely Deliver Certificates Upon Exercise.  In
addition to any other rights available to the Holder, if the Company fails to
cause the Transfer Agent to transmit to the Holder a certificate or the
certificates representing the Warrant Shares pursuant to an exercise on or
before the Warrant Share Delivery Date, and if after such date the Holder is
required by its broker to purchase (in an open market transaction or otherwise)
or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to
deliver in satisfaction of a sale by the Holder of the Warrant Shares which the
Holder anticipated receiving upon such exercise (a “Buy-In”), then the
Company shall within three (3) Trading Days after the Holder’s request and in
the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to
the Holder’s total purchase price (including brokerage commissions, if any) for
the shares of Common Stock so purchased (the “Buy-In Price”), at which point the
Company’s obligation to deliver such certificate (and to issue such Warrant
Shares or credit such Holder’s balance account with The Depository Trust Company
(“DTC”)) shall
terminate, or (ii) promptly honor its obligation to deliver to the Holder a
certificate or certificates representing such Warrant Shares or credit such
Holder’s balance account with DTC and pay cash to the Holder in an amount equal
to the excess (if any) of the Buy-In Price over the product of (A) such number
of shares of Common Stock, times (B) the VWAP on the date of
exercise.  The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In and, upon
request of the Company, evidence of the amount of such loss.  Nothing
herein shall limit a Holder’s right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company’s
failure to timely deliver certificates representing shares of Common Stock upon
exercise of the Warrant as required pursuant to the terms hereof.

       

      v.      No Fractional Shares or
Scrip.  No fractional shares or scrip representing fractional
shares shall be issued upon the exercise of this Warrant.  As to any
fraction of a share which the Holder would otherwise be entitled to purchase
upon such exercise, the Company shall, at its election, either pay a cash
adjustment in respect of such final fraction in an amount equal to such fraction
multiplied by the Exercise Price or round up to the next whole
share.

       

      
        
          
             

          

          
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      vi.      Charges, Taxes and
Expenses.  Issuance of certificates for Warrant Shares shall be
made without charge to the Holder for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificate, all of which
taxes and expenses shall be paid by the Company, and such certificates shall be
issued in the name of the Holder or in such name or names as may be directed by
the Holder; provided, however, that in the
event certificates for Warrant Shares are to be issued in a name other than the
name of the Holder, this Warrant when surrendered for exercise shall be
accompanied by the Assignment Form attached hereto duly executed by the Holder
and the Company may require, as a condition thereto, the payment of a sum
sufficient to reimburse it for any transfer tax incidental thereto.

       

      vii.      Closing of
Books.  The Company will not close its stockholder books or
records in any manner which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.

       

      e)      
     Holder’s Exercise
Limitations.  The Company shall not effect any exercise of this
Warrant, and a Holder shall not have the right to exercise any portion of this
Warrant, pursuant to Section 2 or otherwise, to the extent that after giving
effect to such issuance after exercise as set forth on the applicable Notice of
Exercise, the Holder (together with the Holder’s Affiliates, and any other
Persons acting as a group together with the Holder or any of the Holder’s
Affiliates), would beneficially own in excess of the Beneficial Ownership
Limitation (as defined below).  For purposes of the foregoing sentence, the
number of shares of Common Stock beneficially owned by the Holder and its
Affiliates shall include the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to which such determination is being made,
but shall exclude the number of shares of Common Stock which would be issuable
upon (i) exercise of the remaining, nonexercised portion of this Warrant
beneficially owned by the Holder or any of its Affiliates and (ii) exercise or
conversion of the unexercised or nonconverted portion of any other securities of
the Company (including, without limitation, any other  Common Stock
Equivalents) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the Holder or any of its
Affiliates.  Except as set forth in the preceding sentence, for purposes of
this Section 2(e), beneficial ownership shall be calculated in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and
the rules and regulations promulgated thereunder, it being acknowledged by the
Holder that the Company is not representing to the Holder that such calculation
is in compliance with Section 13(d) of the Exchange Act and the Holder is solely
responsible for any schedules required to be filed in accordance
therewith.   To the extent that the limitation contained in this
Section 2(e) applies, the determination of whether this Warrant is exercisable
(in relation to other securities owned by the Holder together with any
Affiliates) and of which portion of this Warrant is exercisable shall be in the
sole discretion of the Holder, and the submission of a Notice of Exercise shall
be deemed to be the Holder’s

       

      
        
          
             

          

          
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      determination
of whether this Warrant is exercisable (in relation to other securities owned by
the Holder together with any Affiliates) and of which portion of this Warrant is
exercisable, in each case subject to the Beneficial Ownership Limitation, and
the Company shall have no obligation to verify or confirm the accuracy of such
determination.   In addition, a determination as to any group
status as contemplated above shall be determined in accordance with Section
13(d) of the Exchange Act and the rules and regulations promulgated
thereunder.  For purposes of this Section 2(e), in determining the
number of outstanding shares of Common Stock, a Holder may rely on the number of
outstanding shares of Common Stock as reflected in (A) the Company’s most recent
periodic or annual report filed with the Commission, as the case may be, (B) a
more recent public announcement by the Company or (C) a more recent written
notice by the Company or the Transfer Agent setting forth the number of shares
of Common Stock outstanding.  Upon the written or oral request of a Holder,
the Company shall within two Trading Days confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding.  In any case,
the number of outstanding shares of Common Stock shall be determined after
giving effect to the conversion or exercise of securities of the Company,
including this Warrant, by the Holder or its Affiliates since the date as of
which such number of outstanding shares of Common Stock was
reported.  The “Beneficial Ownership
Limitation” shall be 4.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common
Stock issuable upon exercise of this Warrant.  The Holder upon written
notice to the Company, may increase or decrease the Beneficial Ownership
Limitation provisions of this Section 2(e), provided that the Beneficial
Ownership Limitation in no event exceeds 9.99% of the number of shares of the
Common Stock outstanding immediately after giving effect to the issuance of
shares of Common Stock upon exercise of this Warrant held by the Holder and the
provisions of this Section 2(e) shall continue to apply.  Any such
increase will not be effective until the 61st day
after such notice is delivered to the Company.  The provisions of this
paragraph shall be construed and implemented in a manner otherwise than in
strict conformity with the terms of this Section 2(e) to correct this paragraph
(or any portion hereof) which may be defective or inconsistent with the intended
Beneficial Ownership Limitation herein contained or to make changes or
supplements necessary or desirable to properly give effect to such limitation.
The limitations contained in this paragraph shall apply to a successor holder of
this Warrant.

       

      Section
3.       Certain
Adjustments.

       

      a)            Stock Dividends and
Splits. If the Company, at any time while this Warrant is outstanding:
(i) pays a stock dividend or otherwise makes a distribution or distributions on
shares of its Common Stock or any other equity or equity equivalent securities
payable in shares of Common Stock (which, for avoidance of doubt, shall not
include any shares of Common Stock issued by the Company upon exercise of this
Warrant), (ii) subdivides outstanding shares of Common Stock into a larger
number of shares, (iii) combines (including by way of reverse stock split)
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issues by reclassification of shares of the Common Stock any shares of capital
stock of the Company, then in each case the Exercise Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding immediately before such
event and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event, and the number of shares issuable upon
exercise of this Warrant shall be proportionately adjusted such that the
aggregate Exercise Price of this Warrant shall remain unchanged.  Any
adjustment made pursuant to this Section 3(a) shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
re-classification.

       

      
        
          
             

          

          
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      b)     
       RESERVED.

       

      c)     
       Subsequent Rights
Offerings.  If the Company, at any time while the Warrant is
outstanding, shall issue rights, options or warrants to all holders of Common
Stock (and not to the Holders) entitling them to subscribe for or purchase
shares of Common Stock at a price per share less than the VWAP on the record
date mentioned below, then, the Exercise Price shall be multiplied by a
fraction, of which the denominator shall be the number of shares of the Common
Stock outstanding on the date of issuance of such rights, options or warrants
plus the number of additional shares of Common Stock offered for subscription or
purchase, and of which the numerator shall be the number of shares of the Common
Stock outstanding on the date of issuance of such rights, options or warrants
plus the number of shares which the aggregate offering price of the total number
of shares so offered (assuming receipt by the Company in full of all
consideration payable upon exercise of such rights, options or warrants) would
purchase at such VWAP.  Such adjustment shall be made whenever such
rights, options or warrants are issued, and shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such rights, options or warrants.

       

      d)      
      Pro Rata
Distributions.  If the Company, at any time while this Warrant
is outstanding, shall distribute to all holders of Common Stock (and not to the
Holders) evidences of its indebtedness or assets (including cash and cash
dividends) or rights or warrants to subscribe for or purchase any security other
than the Common Stock), then in each such case the Exercise Price shall be
adjusted by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the VWAP determined
as of the record date mentioned above, and of which the numerator shall be such
VWAP on such record date less the then per share fair market value at such
record date of the portion of such assets or evidence of indebtedness or rights
or warrants so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith.  In
either case the adjustments shall be described in a statement provided to the
Holder of the portion of assets or evidences of indebtedness so distributed or
such subscription rights applicable to one share of Common
Stock.  Such adjustment shall be made whenever any such distribution
is made and shall become effective immediately after the record date mentioned
above.

       

      
        
          
             

          

          
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      e)           Fundamental
Transaction. If, at any time while this Warrant is outstanding, in one or
more related transactions (i) the Company or any of its Subsidiaries, directly
or indirectly, in one or more related transactions effects any merger or
consolidation of the Company or any of its Subsidiaries with or into another
Person, (ii) the Company, directly or indirectly, effects any sale, lease,
license, assignment, transfer, conveyance or other disposition of all or
substantially all of its assets in one or a series of related transactions,
(iii) any, direct or indirect, purchase offer, tender offer or exchange offer
(whether by the Company or another Person) is completed pursuant to which
holders of Common Stock are permitted to sell, tender or exchange their shares
for other securities, cash or property and has been accepted by the holders of
50% or more of the outstanding Common Stock, (iv) the Company, directly or
indirectly, in one or more related transactions effects any reclassification,
reorganization or recapitalization of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property, (v) the Company, directly or
indirectly, in one or more related transactions consummates a stock or share
purchase agreement or other business combination (including, without limitation,
a reorganization, recapitalization, spin-off or scheme of arrangement) with
another Person whereby such other Person acquires more than 50% of the
outstanding shares of Common Stock (not including any shares of Common Stock
held by the other Person or other Persons making or party to, or associated or
affiliated with the other Persons making or party to, such stock or share
purchase agreement or other business combination), or (vi) any “person” or
“group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the
Exchange Act), to become the “beneficial owner” (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of 50% of the aggregate ordinary
voting power represented by issued and outstanding Common Stock (each a “Fundamental
Transaction”), then, upon any subsequent exercise of this Warrant, the
Holder shall have the right to receive, for each Warrant Share that would have
been issuable upon such exercise immediately prior to the occurrence of such
Fundamental Transaction, at the option of the Holder (without regard to any
limitation in Section 2(e) on the exercise of this Warrant), the number of
shares of Common Stock of the successor or acquiring corporation or of the
Company, if it is the surviving corporation, and any additional consideration
(the “Alternate
Consideration”) receivable as a result of such Fundamental Transaction by
a holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such Fundamental Transaction (without regard to
any limitation in Section 2(e) on the exercise of this Warrant).  For
purposes of any such exercise, the determination of the Exercise Price shall be
appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one share of Common
Stock in such Fundamental Transaction, and the Company shall apportion the
Exercise Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration.  If holders of Common Stock are given any choice as to
the securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate Consideration
it receives upon any exercise of this Warrant following such Fundamental
Transaction.  Notwithstanding anything to the contrary, in the event
of a Fundamental Transaction or a Change of Control Transaction other than one
in which a Successor Entity (as defined below) that is a publicly traded
corporation whose stock is quoted or listed for trading on an Eligible Market
assumes this Warrant such that the Warrant shall

       

      
        
          
             

          

          
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      be
exercisable for the publicly traded Common Stock of such Successor Entity, the
Company or any Successor Entity shall, at the Holder’s option, exercisable at
any time concurrently with, or within 30 days after, the consummation of the
Fundamental Transaction or the Change of Control Transaction, as applicable,
purchase this Warrant from the Holder by paying to the Holder an amount of cash
equal to the Black Scholes Value of the remaining unexercised portion of this
Warrant on the date of the consummation of such Fundamental Transaction or such
Change of Control Transaction, as applicable.  As used herein (w)
“Black Scholes
Value” means the value of this Warrant based on the Black and Scholes
Option Pricing Model obtained from the “OV” function on Bloomberg, L.P. (“Bloomberg”)
determined as of the day of consummation of the applicable Fundamental
Transaction for pricing purposes and reflecting (A) a risk-free interest rate
corresponding to the U.S. Treasury rate for a period equal to the time between
the date of the public announcement of the applicable Fundamental Transaction
and the Termination Date, (B) an expected volatility equal to the greater of
100% and the 100 day volatility obtained from the HVT function on Bloomberg as
of the Trading Day immediately following the public announcement of the
applicable Fundamental Transaction, (C) the underlying price per share used in
such calculation shall be the sum of the price per share being offered in cash,
if any, plus the value of any non-cash consideration, if any, being offered in
such Fundamental Transaction and (D) a remaining option time equal to the time
between the date of the public announcement of the applicable Fundamental
Transaction and the Termination Date, (x) “Successor Entity" means the Person
(as defined in the Purchase Agreement) (or, if so elected by the Holder, the
Parent Entity (as defined below)) formed by, resulting from or surviving any
Fundamental Transaction or the Person (or, if so elected by the Holder, the
Parent Entity) with which such Fundamental Transaction shall have been entered
into, (y) "Eligible Market" means the NYSE Amex, The NASDAQ Capital Market, The
NASDAQ Global Market, The NASDAQ Global Select Market or the New York Stock
Exchange (or any successors to any of the foregoing) and (z) "Parent Entity" of
a Person means an entity that, directly or indirectly, controls the applicable
Person and whose common stock or equivalent equity security is quoted or listed
on an Eligible Market, or, if there is more than one such Person or Parent
Entity, the Person or Parent Entity with the largest public market
capitalization as of the date of consummation of the Fundamental Transaction.
The Company shall cause any Successor Entity to assume in writing all of the
obligations of the Company under this Warrant and the other Transaction
Documents in accordance with the provisions of this Section 3(e) pursuant to
written agreements in form and substance reasonably satisfactory to the Holder
and approved by the Holder (without unreasonable delay) prior to such
Fundamental Transaction and shall, at the option of the holder of this Warrant,
deliver to the Holder in exchange for this Warrant a security of the Successor
Entity evidenced by a written instrument substantially similar in form and
substance to this Warrant which is exercisable for a corresponding number of
shares of capital stock of such Successor Entity (or its parent entity)
equivalent to the shares of Common Stock acquirable and receivable upon exercise
of this Warrant (without regard to any limitations on the exercise of this
Warrant) prior to such Fundamental Transaction, and with an exercise price which
applies the exercise price hereunder to such shares of capital stock (but taking
into account the relative value of the shares of Common Stock pursuant to such
Fundamental Transaction and the value of such shares of capital
stock,

       

      
        
          
             

          

          
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      such
number of shares of capital stock and such exercise price being for the purpose
of protecting the economic value of this Warrant immediately prior to the
consummation of such Fundamental Transaction), and which is reasonably
satisfactory in form and substance to the Holder. Upon the occurrence of any
such Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Warrant and the other Transaction Documents
referring to the “Company” shall refer instead to the Successor Entity), and may
exercise every right and power of the Company and shall assume all of the
obligations of the Company under this Warrant and the other Transaction
Documents with the same effect as if such Successor Entity had been named as the
Company herein. A  “Change of Control
Transaction” means the occurrence after the date hereof, in one or more
related transactions, of any of (a) an acquisition after the date hereof by an
individual or legal entity or “group” (as described in Rule 13D-5(b)(1)
promulgated under the Exchange Act) of effective control (whether through legal
or beneficial ownership of capital stock of the Company, by contract or
otherwise) of in excess of 33% of the voting securities of the Company (other
than by means of exercise of the Warrant), (b) the Company or any of its
Subsidiaries merges into or consolidates with any other Person, or any Person
merges into or consolidates with the Company or any of its Subsidiaries and,
after giving effect to such transaction, the stockholders of the Company
immediately prior to such transaction own less than 66% of the aggregate voting
power of the Company or the successor entity of such transaction, (c) the
Company sells or transfers all or substantially all of its assets to another
Person and the stockholders of the Company immediately prior to such transaction
own less than 66% of the aggregate voting power of the acquiring entity
immediately after the transaction, (d) a replacement at one time or within a one
year period of more than one-half of the members of the Board of Directors which
is not approved by a majority of those individuals who are members of the Board
of Directors on the Initial Exercise Date (or by those individuals who are
serving as members of the Board of Directors on any date whose nomination to the
Board of Directors was approved by a majority of the members of the Board of
Directors who are members on the Initial Exercise Date), or (e) the execution by
the Company of an agreement to which the Company  is a party or by
which it is bound, providing for any of the events set forth in clauses (a)
through (d) above.

      
      

      f)    
        Calculations. All
calculations under this Section 3 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of this Section 3,
the number of shares of Common Stock deemed to be issued and outstanding as of a
given date shall be the sum of the number of shares of Common Stock (excluding
treasury shares, if any) issued and outstanding. Upon each such adjustment of
the Exercise Price hereunder, the number of Warrant Shares shall be adjusted to
the number of shares of Common Stock determined by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of Warrant
Shares acquirable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment. No adjustment pursuant to this Section 3 will increase the
Exercise Price or decrease the number of Warrant Shares.

       

      
        
          
             

          

          
            10

            
              

            

          

          
             

          

        

      

       

      g) 
          Notice to
Holder.

       

      i.      Adjustment to Exercise
Price. Whenever the Exercise Price is adjusted pursuant to any provision
of this Section 3, the Company shall promptly mail to the Holder a notice
setting forth the Exercise Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. If the Company enters into a
Variable Rate Transaction, despite the prohibition thereon in the Purchase
Agreement, the Company shall be deemed to have issued Common Stock or Common
Stock Equivalents at the lowest possible conversion or exercise price at which
such securities may be converted or exercised.

       

      ii.      Notice to Allow Exercise by
Holder. If (A) the Company shall declare a dividend (or any other
distribution in whatever form) on the Common Stock, (B) the Company shall
declare a special nonrecurring cash dividend on or a redemption of the Common
Stock, (C) the Company shall authorize the granting to all holders of the Common
Stock rights or warrants to subscribe for or purchase any shares of capital
stock of any class or of any rights, (D) the approval of any stockholders of the
Company shall be required in connection with any reclassification of the Common
Stock, any consolidation or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of the Company, or any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property, or (E) the Company shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the affairs of the
Company, then, in each case, the Company shall cause to be mailed to the Holder
at its last address as it shall appear upon the Warrant Register of the Company,
at least 20 calendar days prior to the applicable record or effective date
hereinafter specified, a notice stating (x) the date on which a record is to be
taken for the purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which the holders of
the Common Stock of record to be entitled to such dividend, distributions,
redemption, rights or warrants are to be determined or (y) the date on which
such reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange; provided that the failure to mail such notice or any defect
therein or in the mailing thereof shall not affect the validity of the corporate
action required to be specified in such notice.  To the extent that
any notice provided hereunder constitutes, or contains, material, non-public
information regarding the Company or any of the Subsidiaries, the Company shall
simultaneously file such notice with the Commission pursuant to a Current Report
on Form 8-K.  The Holder shall remain entitled to exercise this
Warrant during the period commencing on the date of such notice to the effective
date of the event triggering such notice except as may otherwise be expressly
set forth herein.

       

      
        
          
             

          

          
            11

            
              

            

          

          
             

          

        

      

       

      Section
4.       Transfer of
Warrant.

       

      a)       
    Transferability.  This
Warrant and all rights hereunder (including, without limitation, any
registration rights) are transferable, in whole or in part, upon surrender of
this Warrant at the principal office of the Company or its designated agent,
together with a written assignment of this Warrant substantially in the form
attached hereto duly executed by the Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable upon the making of such
transfer.  Upon such surrender and, if required, such payment, the
Company shall execute and deliver a new Warrant or Warrants in the name of the
assignee or assignees, as applicable, and in the denomination or denominations
specified in such instrument of assignment, and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be cancelled.  The Warrant, if properly
assigned in accordance herewith, may be exercised by a new holder for the
purchase of Warrant Shares without having a new Warrant issued.

       

      b)    
       New Warrants. This
Warrant may be divided or combined with other Warrants upon presentation hereof
at the aforesaid office of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by the Holder or its agent or attorney.  Subject to compliance
with Section 4(a), as to any transfer which may be involved in such division or
combination, the Company shall execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance
with such notice. All Warrants issued on transfers or exchanges shall be dated
the initial issuance date set forth on the first page of this Warrant and shall
be identical with this Warrant except as to the number of Warrant Shares
issuable pursuant thereto.

       

      c)      
     Warrant Register. The
Company shall register this Warrant, upon records to be maintained by the
Company for that purpose (the “Warrant Register”),
in the name of the record Holder hereof from time to time.  The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, absent actual notice to the
contrary.

       

      d)           Understandings or
Arrangements.  Such Holder is acquiring this Warrant as
principal for its own account and has no direct or indirect arrangement or
understandings with any other persons to distribute or regarding the
distribution of such Warrant (this representation and warranty not limiting such
Holder’s right to sell the Warrant pursuant to the Registration Statement or
otherwise in compliance with applicable federal and state securities laws.) Such
Holder is acquiring this Warrant hereunder in the ordinary course of its
business.

       

      Section
5.       Miscellaneous.

       

      
        
          
             

          

          
            12

            
              

            

          

          
             

          

        

      

       

      a)   
        No Rights as Stockholder
Until Exercise.  This Warrant does not entitle the Holder to
any voting rights, dividends or other rights as a stockholder of the Company
prior to the exercise hereof as set forth in Section 2(d)(i).

       

      b)      
     Loss, Theft, Destruction or
Mutilation of Warrant. The Company covenants that upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant or any stock certificate relating to
the Warrant Shares, and in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it (which, in the case of the Warrant, shall
not include the posting of any bond), and upon surrender and cancellation of
such Warrant or stock certificate, if mutilated, the Company will make and
deliver a new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of such Warrant or stock certificate.

       

      c)     
      Saturdays, Sundays,
Holidays, etc.  If the last or appointed day for the taking of
any action or the expiration of any right required or granted herein shall not
be a Business Day, then, such action may be taken or such right may be exercised
on the next succeeding Business Day.

       

      d)    
       Authorized
Shares.

       

      The
Company covenants that, during the period the Warrant is outstanding, it will
reserve from its authorized and unissued Common Stock a sufficient number of
shares to provide for the issuance of the Warrant Shares upon the exercise of
any purchase rights under this Warrant.  The Company further covenants
that its issuance of this Warrant shall constitute full authority to its
officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for the Warrant Shares upon the
exercise of the purchase rights under this Warrant.  The Company will
take all such reasonable action as may be necessary to assure that such Warrant
Shares may be issued as provided herein without violation of any applicable law
or regulation, or of any requirements of the Trading Market upon which the
Common Stock may be listed.  The Company covenants that all Warrant
Shares which may be issued upon the exercise of the purchase rights represented
by this Warrant will, upon exercise of the purchase rights represented by this
Warrant and payment for such Warrant Shares in accordance herewith, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges created by the Company in respect of the issue thereof
(other than taxes in respect of any transfer occurring contemporaneously with
such issue).

       

      Except
and to the extent as waived or consented to by the Holder, the Company shall not
by any action, including, without limitation, amending its certificate of
incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such actions as may be necessary or
appropriate to protect the rights of Holder as set forth in this Warrant against
impairment.  Without limiting the generality of the foregoing, the
Company will (i) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase in
par value, (ii) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon the exercise of this Warrant and (iii) use commercially
reasonable efforts to obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof, as may be,
necessary to enable the Company to perform its obligations under this
Warrant.

       

      
        
          
             

          

          
            13

            
              

            

          

          
             

          

        

      

       

      Before
taking any action which would result in an adjustment in the number of Warrant
Shares for which this Warrant is exercisable or in the Exercise Price, the
Company shall obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.

       

      e)      
     Jurisdiction. All
questions concerning the construction, validity, enforcement and interpretation
of this Warrant shall be determined in accordance with the provisions of the
Purchase Agreement.

       

      f)        
    Restrictions.  The
Holder acknowledges that the Warrant Shares acquired upon the exercise of this
Warrant, if not registered, and the Holder does not utilize cashless exercise,
will have restrictions upon resale imposed by state and federal securities
laws.

       

      g)     
      Nonwaiver and
Expenses.  No course of dealing or any delay or failure to
exercise any right hereunder on the part of Holder shall operate as a waiver of
such right or otherwise prejudice Holder’s rights, powers or remedies,
notwithstanding the fact that all rights hereunder terminate on the Termination
Date.  If the Company willfully and knowingly fails to comply with any
provision of this Warrant, which results in any material damages to the Holder,
the Company shall pay to Holder such amounts as shall be sufficient to cover any
costs and expenses including, but not limited to, reasonable attorneys’ fees,
including those of appellate proceedings, incurred by Holder in collecting any
amounts due pursuant hereto or in otherwise enforcing any of its rights, powers
or remedies hereunder.

       

      h)    
       Notices.  Any
notice, request or other document required or permitted to be given or delivered
to the Holder by the Company shall be delivered in accordance with the notice
provisions of the Purchase Agreement.

       

      i)      
      Limitation of
Liability.  No provision hereof, in the absence of any
affirmative action by Holder to exercise this Warrant to purchase Warrant
Shares, and no enumeration herein of the rights or privileges of Holder, shall
give rise to any liability of Holder for the purchase price of any Common Stock
or as a stockholder of the Company, whether such liability is asserted by the
Company or by creditors of the Company.

       

      
        
          
             

          

          
            14

            
              

            

          

          
             

          

        

      

       

      j)      
      Remedies.  The
Holder, in addition to being entitled to exercise all rights granted by law,
including recovery of damages, will be entitled to specific performance of its
rights under this Warrant.  The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of this Warrant and hereby agrees to waive and not to
assert the defense in any action for specific performance that a remedy at law
would be adequate.

       

      k)      
     Successors and
Assigns.  Subject to applicable securities laws, this Warrant
and the rights and obligations evidenced hereby shall inure to the benefit of
and be binding upon the successors and permitted assigns of the Company and the
successors and permitted assigns of Holder.  The provisions of this
Warrant are intended to be for the benefit of any Holder from time to time of
this Warrant and shall be enforceable by the Holder or holder of Warrant
Shares.

       

      l)      
      Amendment.  This
Warrant may be modified or amended or the provisions hereof waived with the
written consent of the Company and Holders holding Warrants at least equal to
100% of the Warrant Shares issuable upon exercise of all then outstanding
Warrants.

       

      m)      
     Severability.  Wherever
possible, each provision of this Warrant shall be interpreted in such manner as
to be effective and valid under applicable law, but if any provision of this
Warrant shall be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provisions or the remaining provisions of
this Warrant.

       

      n)    
        Headings.  The
headings used in this Warrant are for the convenience of reference only and
shall not, for any purpose, be deemed a part of this Warrant.

       

      

      ********************

      

      (Signature
Pages Follow)

      

      
        
          
             

          

          
            15

            
              

            

          

          
             

          

        

      

       

      IN
WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officer thereunto duly authorized as of the date first above
indicated.

       

      

       
 

      
        	 	
                ADVANCED
      BATTERY TECHNOLOGIES, INC.  

                 

                 

              
	 	
                By:__________________________________________

                   
        Name:  Dan Chang

                   
        Title:    Senior Vice
      President

                 

              

      

      

       

       

      
        16Exhibit 4.1

 

Execution Version

 

 

VENOCO, INC.

 

 

THE GUARANTORS PARTIES
HERETO,

 

 

AND

 

 

U.S. BANK NATIONAL
ASSOCIATION,

AS TRUSTEE

 

 

11.50% Senior Notes due 2017

 

 

INDENTURE

 

Dated as of October 7,
2009

 

 

 

TABLE OF
CONTENTS

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I Definitions and
  Incorporation by Reference

  	
  1

  
	
   

  	
   

  	
   

  
	
  Section 1.1

  	
  Definitions

  	
  1

  
	
  Section 1.2

  	
  Other Definitions

  	
  31

  
	
  Section 1.3

  	
  Incorporation by Reference of Trust Indenture Act

  	
  32

  
	
  Section 1.4

  	
  Rules of Construction

  	
  33

  
	
   

  	
   

  	
   

  
	
  ARTICLE II The Notes

  	
  34

  
	
   

  	
   

  	
   

  
	
  Section 2.1

  	
  Form, Dating and Terms

  	
  34

  
	
  Section 2.2

  	
  Execution and Authentication

  	
  39

  
	
  Section 2.3

  	
  Registrar and Paying Agent

  	
  40

  
	
  Section 2.4

  	
  Paying Agent to Hold Money in Trust

  	
  40

  
	
  Section 2.5

  	
  Holder Lists

  	
  40

  
	
  Section 2.6

  	
  Transfer and Exchange

  	
  41

  
	
  Section 2.7

  	
  Form of Certificate to be Delivered in Connection with
  Transfers Pursuant to Regulation S

  	
  43

  
	
  Section 2.8

  	
  Mutilated, Destroyed, Lost or Wrongfully Taken Notes

  	
  45

  
	
  Section 2.9

  	
  Outstanding Notes

  	
  46

  
	
  Section 2.10

  	
  Cancellation

  	
  47

  
	
  Section 2.11

  	
  Payment of Interest; Defaulted Interest

  	
  47

  
	
  Section 2.12

  	
  Computation of Interest

  	
  48

  
	
  Section 2.13

  	
  CUSIP Numbers

  	
  48

  
	
   

  	
   

  	
   

  
	
  ARTICLE III Covenants

  	
  48

  
	
   

  	
   

  	
   

  
	
  Section 3.1

  	
  Payment of Notes

  	
  48

  
	
  Section 3.2

  	
  Reports

  	
  49

  
	
  Section 3.3

  	
  Incurrence of Indebtedness and Issuance of Preferred Stock

  	
  49

  
	
  Section 3.4

  	
  Restricted Payments

  	
  53

  
	
  Section 3.5

  	
  Liens

  	
  57

  
	
  Section 3.6

  	
  Dividend and Other Payment Restrictions Affecting
  Subsidiaries

  	
  57

  
	
  Section 3.7

  	
  Assets Sales

  	
  59

  
	
  Section 3.8

  	
  Transactions with Affiliates

  	
  61

  
	
  Section 3.9

  	
  Change of Control

  	
  63

  
	
  Section 3.10

  	
  Future Subsidiary Guarantees

  	
  65

  
	
  Section 3.11

  	
  Business Activities

  	
  65

  
	
  Section 3.12

  	
  Designation of Restricted and Unrestricted Subsidiaries

  	
  65

  
	
  Section 3.13

  	
  Maintenance of Office or Agency

  	
  65

  
	
  Section 3.14

  	
  Corporate Existence

  	
  66

  
	
  Section 3.15

  	
  Payment of Taxes and Other Claims

  	
  66

  
	
  Section 3.16

  	
  Compliance Certificate

  	
  66

  
	
  Section 3.17

  	
  Further Instruments and Acts

  	
  67

  
	
  Section 3.18

  	
  Statement by Officers as to Default

  	
  67

  
	
  Section 3.19

  	
  Payments for Consent

  	
  67

  

 

i

 

	
  ARTICLE IV Successor Company

  	
  67

  
	
   

  	
   

  	
   

  
	
  Section 4.1

  	
  Merger, Consolidation or Sale of Assets

  	
  67

  
	
   

  	
   

  	
   

  
	
  ARTICLE V Redemption of Notes

  	
  68

  
	
   

  	
   

  	
   

  
	
  Section 5.1

  	
  Optional Redemption

  	
  68

  
	
  Section 5.2

  	
  Applicability of Article

  	
  69

  
	
  Section 5.3

  	
  Election to Redeem; Notice to Trustee

  	
  69

  
	
  Section 5.4

  	
  Selection by Trustee of Notes to Be Redeemed

  	
  69

  
	
  Section 5.5

  	
  Notice of Redemption

  	
  70

  
	
  Section 5.6

  	
  Deposit of Redemption Price

  	
  71

  
	
  Section 5.7

  	
  Notes Payable on Redemption Date

  	
  71

  
	
  Section 5.8

  	
  Notes Redeemed in Part

  	
  71

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI Defaults and Remedies

  	
  72

  
	
   

  	
   

  	
   

  
	
  Section 6.1

  	
  Events of Default

  	
  72

  
	
  Section 6.2

  	
  Acceleration

  	
  74

  
	
  Section 6.3

  	
  Other Remedies

  	
  74

  
	
  Section 6.4

  	
  Waiver of Past Defaults

  	
  75

  
	
  Section 6.5

  	
  Control by Majority

  	
  75

  
	
  Section 6.6

  	
  Limitation on Suits

  	
  75

  
	
  Section 6.7

  	
  Rights of Holders to Receive Payment

  	
  76

  
	
  Section 6.8

  	
  Collection Suit by Trustee

  	
  76

  
	
  Section 6.9

  	
  Trustee May File Proofs of Claim

  	
  76

  
	
  Section 6.10

  	
  Priorities

  	
  76

  
	
  Section 6.11

  	
  Undertaking for Costs

  	
  77

  
	
  Section 6.12

  	
  Additional Payments

  	
  77

  
	
  Section 6.13

  	
  Waiver of Stay, Extension and Usury Laws

  	
  77

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII Trustee

  	
  78

  
	
   

  	
   

  	
   

  
	
  Section 7.1

  	
  Duties of Trustee

  	
  78

  
	
  Section 7.2

  	
  Rights of Trustee

  	
  79

  
	
  Section 7.3

  	
  Individual Rights of Trustee

  	
  80

  
	
  Section 7.4

  	
  Trustee’s Disclaimer

  	
  80

  
	
  Section 7.5

  	
  Notice of Defaults

  	
  81

  
	
  Section 7.6

  	
  Reports by Trustee to Holders

  	
  81

  
	
  Section 7.7

  	
  Compensation and Indemnity

  	
  81

  
	
  Section 7.8

  	
  Replacement of Trustee

  	
  82

  
	
  Section 7.9

  	
  Successor Trustee by Merger

  	
  83

  
	
  Section 7.10

  	
  Eligibility; Disqualification

  	
  83

  
	
  Section 7.11

  	
  Preferential Collection of Claims Against Company

  	
  83

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII Legal Defeasance and Covenant Defeasance

  	
  83

  
	
   

  	
   

  	
   

  
	
  Section 8.1

  	
  Option to Effect Legal Defeasance or Covenant Defeasance

  	
  83

  
	
  Section 8.2

  	
  Legal Defeasance and Discharge

  	
  83

  
	
  Section 8.3

  	
  Covenant Defeasance

  	
  84

  

 

ii

 

	
  Section 8.4

  	
  Conditions to Legal or Covenant Defeasance

  	
  85

  
	
  Section 8.5

  	
  Deposited Cash and Government Securities to be Held in
  Trust; Other Miscellaneous Provisions

  	
  86

  
	
  Section 8.6

  	
  Repayment to Company

  	
  86

  
	
  Section 8.7

  	
  Reinstatement

  	
  87

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX Amendments

  	
  87

  
	
   

  	
   

  	
   

  
	
  Section 9.1

  	
  Without Consent of Holders

  	
  87

  
	
  Section 9.2

  	
  With Consent of Holders

  	
  88

  
	
  Section 9.3

  	
  Compliance with Trust Indenture Act

  	
  89

  
	
  Section 9.4

  	
  Revocation and Effect of Consents and Waivers

  	
  89

  
	
  Section 9.5

  	
  Notation on or Exchange of Notes

  	
  90

  
	
  Section 9.6

  	
  Trustee To Sign Amendments

  	
  90

  
	
   

  	
   

  	
   

  
	
  ARTICLE X Subsidiary Guarantee

  	
  90

  
	
   

  	
   

  	
   

  
	
  Section 10.1

  	
  Subsidiary Guarantee

  	
  90

  
	
  Section 10.2

  	
  Limitation on Liability; Termination, Release and Discharge

  	
  91

  
	
  Section 10.3

  	
  Limitation of Guarantors’ Liability

  	
  93

  
	
  Section 10.4

  	
  Contribution

  	
  93

  
	
   

  	
   

  	
   

  
	
  ARTICLE XI Satisfaction and Discharge

  	
  93

  
	
   

  	
   

  	
   

  
	
  Section 11.1

  	
  Satisfaction and Discharge

  	
  93

  
	
   

  	
   

  	
   

  
	
  ARTICLE XII Miscellaneous

  	
  94

  
	
   

  	
   

  	
   

  
	
  Section 12.1

  	
  Trust Indenture Act Controls

  	
  94

  
	
  Section 12.2

  	
  Notices

  	
  94

  
	
  Section 12.3

  	
  Communication by Holders with other Holders

  	
  95

  
	
  Section 12.4

  	
  Certificate and Opinion as to Conditions Precedent

  	
  95

  
	
  Section 12.5

  	
  Statements Required in Certificate or Opinion

  	
  96

  
	
  Section 12.6

  	
  When Notes Disregarded

  	
  96

  
	
  Section 12.7

  	
  Rules by Trustee, Paying Agent and Registrar

  	
  96

  
	
  Section 12.8

  	
  Legal Holidays

  	
  96

  
	
  Section 12.9

  	
  GOVERNING LAW

  	
  97

  
	
  Section 12.10

  	
  No Recourse Against Others

  	
  97

  
	
  Section 12.11

  	
  Successors

  	
  97

  
	
  Section 12.12

  	
  Multiple Originals

  	
  97

  
	
  Section 12.13

  	
  Qualification of Indenture

  	
  97

  
	
  Section 12.14

  	
  Severability

  	
  97

  
	
  Section 12.15

  	
  No Adverse Interpretation of Other Agreements

  	
  97

  
	
  Section 12.16

  	
  Table of Contents; Headings

  	
  97

  
	
   

  	
   

  	
   

  
	
  EXHIBIT A

  	
  Form of
  the Note

  	
   

  
	
  EXHIBIT B

  	
  Form of
  the Exchange Note

  	
   

  
	
  EXHIBIT C

  	
  Form of
  Subsidiary Guarantee

  	
   

  
				

 

iii

 

CROSS-REFERENCE
TABLE

 

	
  TIA

  Section

  	
   

  	
  Indenture

  Section

  
	
   

  	
   

  	
   

  
	
  310(a)(1)

  	
   

  	
  7.10

  
	
  (a)(2)

  	
   

  	
  7.10

  
	
  (a)(3)

  	
   

  	
  N.A.

  
	
  (a)(4)

  	
   

  	
  N.A.

  
	
  (b)

  	
   

  	
  7.8;
  7.10

  
	
  (c)

  	
   

  	
  N.A.

  
	
  311(a)

  	
   

  	
  7.11

  
	
  (b)

  	
   

  	
  7.11

  
	
  (c)

  	
   

  	
  N.A.

  
	
  312(a)

  	
   

  	
  2.5

  
	
  (b)

  	
   

  	
  12.3

  
	
  (c)

  	
   

  	
  12.3

  
	
  313(a)

  	
   

  	
  7.6

  
	
  (b)(1)

  	
   

  	
  7.6

  
	
  (b)(2)

  	
   

  	
  7.6

  
	
  (c)

  	
   

  	
  7.6

  
	
  (d)

  	
   

  	
  7.6

  
	
  314(a)

  	
   

  	
  3.2;
  12.2

  
	
  (b)

  	
   

  	
  N.A.

  
	
  (c)(1)

  	
   

  	
  11.4

  
	
  (c)(2)

  	
   

  	
  11.4

  
	
  (c)(3)

  	
   

  	
  N.A.

  
	
  (d)

  	
   

  	
  N.A.

  
	
  (e)

  	
   

  	
  12.5

  
	
  315(a)

  	
   

  	
  7.1

  
	
  (b)

  	
   

  	
  7.5;
  12.2

  
	
  (c)

  	
   

  	
  7.1

  
	
  (d)

  	
   

  	
  7.1

  
	
  (e)

  	
   

  	
  6.11

  
	
  316(a)(last
  sentence)

  	
   

  	
  12.6

  
	
  (a)(1)(A)

  	
   

  	
  6.5

  
	
  (a)(1)(B)

  	
   

  	
  6.4

  
	
  (a)(2)

  	
   

  	
  N.A.

  
	
  (b)

  	
   

  	
  6.7

  
	
  317(a)(1)

  	
   

  	
  6.8

  
	
  (a)(2)

  	
   

  	
  6.9

  
	
  (b)

  	
   

  	
  2.4

  
	
  318(a)

  	
   

  	
  12.1

  

 

N.A. means Not Applicable.

 

Note:  This Cross-Reference Table shall not, for any
purpose, be deemed to be part of this Indenture.

 

iv

 

INDENTURE dated as of October 7,
2009, among VENOCO, INC., a Delaware corporation (the “Company”), the
GUARANTORS (as defined herein) and U.S. BANK NATIONAL ASSOCIATION, a national
banking association, as trustee (the “Trustee”).

 

Each party agrees as follows
for the benefit of the other parties and for the equal and ratable benefit of
the Holders of (i) the Company’s 11.50% Senior Notes due 2017, issued on
the date hereof (the “Initial Notes”), (ii) if and when issued, an
unlimited principal amount of additional 11.50% Senior Notes due 2017 in a
non-registered offering or in a registered offering of the Company that may be
offered from time to time subsequent to the Issue Date (the “Additional
Notes”) and (iii) if and when issued, the Company’s 11.50% Senior
Notes due 2017 that may be issued from time to time in exchange for Initial
Notes or any Additional Notes in an offer registered under the Securities Act
as provided in the Registration Rights Agreement (as hereinafter defined) (the “Exchange
Notes,” and together with the Initial Notes and Additional Notes, the “Notes”).

 

ARTICLE I

 

Definitions and
Incorporation by Reference

 

Section 1.1             Definitions.

 

“Acquired Debt”
means, with respect to any specified Person:

 

(1)           Indebtedness of any other Person
existing at the time such other Person was merged with or into or became a
Subsidiary of such specified Person, whether or not such Indebtedness is
incurred in connection with, or in contemplation of, such other Person merging
with or into, or becoming a Subsidiary of, such specified Person; and

 

(2)           Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.

 

“Additional Assets”
means:

 

(1)           any assets used or useful in the Oil
and Gas Business;

 

(2)           the Capital Stock of a Person that
becomes a Restricted Subsidiary as a result of the acquisition of such Capital
Stock by the Company or another Restricted Subsidiary; or

 

(3)           Capital Stock constituting a minority
in any Person that at such time is a Restricted Subsidiary;

 

provided, however, that any such
Restricted Subsidiary described in clause (2) or (3) is primarily
engaged in the Oil and Gas Business.

 

“Additional Interest”
has the meaning set forth in the Registration Rights Agreement.  The Trustee shall be under no obligation to
determine or calculate the Additional Interest, whether the Additional Interest
is due and payable, or to give notice with respect 

 

1

 

thereto.  The Trustee may conclusively assume, in the
absence of written notice to the contrary from the Company or a Holder or
Holders of Notes, that no Additional Interest is due and payable.

 

“Additional Notes”
has the meaning ascribed to it in the second introductory paragraph of this
Indenture.

 

“Adjusted Consolidated
Net Tangible Assets” means (without duplication), as of the date of
determination, the remainder of:

 

(1)           the sum of:

 

(a)           discounted future net revenues from proved oil and gas
reserves of the Company and its Restricted Subsidiaries calculated in
accordance with Commission guidelines before any provincial, territorial,
state, federal or foreign income taxes, as estimated by the Company in a
reserve report prepared as of the first day of the fiscal year following the
fiscal year for which audited financial statements are available and giving
effect to applicable commodity Hedging Obligations, as increased by, as of the
date of determination, the estimated discounted future net revenues from

 

(i)            estimated proved oil and gas reserves acquired since such
year end, which reserves were not reflected in such year end reserve report,
and

 

(ii)           estimated oil and gas reserves attributable to upward
revisions of estimates of proved oil and gas reserves since such year end (including
previously estimated development costs incurred during the period and the
accretion of discount since the prior year end) due to exploration, development
or exploitation activities,

 

in each case calculated in
accordance with Commission guidelines (utilizing the prices utilized in such
year-end reserve reports), and decreased by, as of the date of determination,
the estimated discounted future net revenues from

 

(iii)          estimated proved oil and gas reserves produced or disposed
of since such year end, and

 

(iv)          estimated oil and gas reserves attributable to downward
revisions of estimates of proved oil and gas reserves since such year end due
to changes in geological conditions or other factors which would, in accordance
with standard industry practice, cause such revisions,

 

in each case calculated on a
pre-tax basis and substantially in accordance with Commission guidelines, in
each case as estimated by the Company’s petroleum engineers or any independent
petroleum engineers engaged by the Company for that purpose; provided, however, that, in the case of each of the
determinations made pursuant to clauses (i) through (iv), such increases
and decreases shall be as estimated by the Company’s engineers, except that if
as a result of such acquisitions, dispositions, discoveries, extensions or
revisions, there is a Material 

 

2

 

Change, then such increases
and decreases in the discounted future net revenues shall be confirmed in
writing by an independent petroleum engineer;

 

(b)           the capitalized costs that are attributable to oil and gas
properties of the Company and its Restricted Subsidiaries to which no proved
oil and gas reserves are attributable, based on the Company’s books and records
as of a date no earlier than the date of the Company’s latest available annual
or quarterly financial statements;

 

(c)           the Net Working Capital on a date no earlier than the date
of the Company’s latest annual or quarterly financial statements; and

 

(d)           the greater of:

 

(i)            the net book value of other tangible assets of the
Company and its Restricted Subsidiaries, as of a date no earlier than the date
of the Company’s latest annual or quarterly financial statements, and

 

(ii)           the appraised value, as estimated by independent appraisers,
of other tangible assets of the Company and its Restricted Subsidiaries, as of
a date no earlier than the date of the Company’s latest audited financial
statements (provided that the
Company shall not be required to obtain such appraisal solely for the purpose
of determining this value); minus

 

(2)           the sum of:

 

(a)           Minority Interests;

 

(b)           any net gas balancing liabilities of the Company and its
Restricted Subsidiaries reflected in the Company’s latest audited financial
statements;

 

(c)           to the extent included in (1)(a) above, the
discounted future net revenues, calculated in accordance with Commission
guidelines (utilizing the prices utilized in the Company’s year end reserve
report), attributable to reserves which are required to be delivered to third
parties to fully satisfy the obligations of the Company and its Restricted
Subsidiaries with respect to Volumetric Production Payments (determined, if
applicable, using the schedules specified with respect thereto); and

 

(d)           the discounted future net revenues, calculated in
accordance with Commission guidelines, attributable to reserves subject to
Dollar-Denominated Production Payments which, based on the estimates of
production and price assumptions included in determining the discounted future
net revenues specified in (a)(i) above, would be necessary to fully
satisfy the payment obligations of the Company and its Subsidiaries with
respect to Dollar-Denominated Production Payments (determined, if applicable,
using the schedules specified with respect thereto).

 

If the Company changes its
method of accounting from the full cost method to the successful efforts or a
similar method of accounting, “Adjusted Consolidated Net Tangible 

 

3

 

Assets” will continue
to be calculated as if the Company were still using the full cost method of
accounting.

 

“Adjusted Net Assets”
of a Guarantor at any date means the amount by which the fair value of the
properties and assets of such Guarantor exceeds the total amount of liabilities,
including, without limitation, contingent liabilities (after giving effect to
all other fixed and contingent liabilities incurred or assumed on such date),
but excluding liabilities under its Subsidiary Guarantee, of such Guarantor at
such date.

 

“Affiliate” of any
specified Person means any other Person directly or indirectly controlling or
controlled by or under direct or indirect common control with such specified
Person.  For purposes of this definition,
“control,” as used with respect to any Person, means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
or policies of such Person, whether through the ownership of voting securities,
by agreement or otherwise; provided that
beneficial ownership of 10% or more of the Voting Stock of a Person will be
deemed to be control.  For purposes of
this definition, the terms “controlling,” “controlled by” and “under common
control with” have correlative meanings.

 

“Asset Sale” means:

 

(1)           the
sale, lease, conveyance or other disposition of any properties or assets
(including by way of a Production Payment or sale and leaseback transaction); provided that the disposition of all or substantially all of
the properties or assets of the Company and its Restricted Subsidiaries taken
as a whole will be governed by Sections 3.9 and/or 4.1 and
not by Section 3.7; and

 

(2)           the
issuance of Equity Interests in any of the Company’s Restricted Subsidiaries or
the sale of Equity Interests in any of its Restricted Subsidiaries.

 

Notwithstanding the
preceding, the following items will not be deemed to be Asset Sales:

 

(1)           any
single transaction or series of related transactions that involves properties
or assets having a fair market value of less than $10,000,000;

 

(2)           a
transfer of assets between or among any of the Company and its Restricted
Subsidiaries;

 

(3)           an
issuance or sale of Equity Interests by a Restricted Subsidiary to the Company
or to another Restricted Subsidiary;

 

(4)           a
disposition of Hydrocarbons or mineral products inventory in the ordinary
course of business;

 

(5)           a
disposition of obsolete or worn out equipment or equipment that is no longer
useful in the conduct of the business of the Company and its Restricted
Subsidiaries and that is disposed of in each case in the ordinary course of
business;

 

4

 

(6)           dispositions
of past due accounts and notes receivable arising in the ordinary course of
business, but only in connection with the compromise or collection thereof;

 

(7)           the
licensing or sublicensing of intellectual property or other general intangibles
and licenses, leases or subleases of other property in the ordinary course of
business and which do not materially interfere with the business of the Company
and its Restricted Subsidiaries;

 

(8)           the
sale or transfer (whether or not in the ordinary course of business) of crude
oil and natural gas properties or direct or indirect interests in real
property; provided, that at the time of such sale
or transfer such properties do not have associated with them any proved
reserves;

 

(9)           the
farm-out, lease or sublease of developed or undeveloped crude oil or natural
gas properties owned or held by the Company or such Restricted Subsidiary in
exchange for crude oil and natural gas properties owned or held by another
Person;

 

(10)         the sale or other disposition of cash
or Cash Equivalents;

 

(11)         a
Restricted Payment that is permitted by Section 3.4 or is a
Permitted Investment;

 

(12)         any
trade or exchange by the Company or any Restricted Subsidiary of oil and gas
properties or other properties or assets for oil and gas properties or other
properties or assets owned or held by another Person, provided
that the fair market value of the properties or assets traded or exchanged by
the Company or such Restricted Subsidiary (together with any cash) is
reasonably equivalent to the fair market value of the properties or assets
(together with any cash) to be received by the Company or such Restricted
Subsidiary, and provided further, that any net
cash received must be applied in accordance with Section 3.7;

 

(13)         the
creation or perfection of a Lien (but not the sale or other disposition of the
properties or assets subject to such Lien); and

 

(14)         a
surrender or waiver of contract rights or the settlement, release or surrender
of contract, tort or other claims of any kind.

 

“Attributable Debt”
in respect of a sale and leaseback transaction means, at the time of
determination, the present value of the obligation of the lessee for net rental
payments during the remaining term of the lease included in such sale and
leaseback transaction including any period for which such lease has been
extended or may, at the option of the lessor, be extended.  Such present value shall be calculated using
a discount rate equal to the rate of interest implicit in such transaction,
determined in accordance with GAAP.

 

“Bankruptcy Law”
means Title 11, United States Code or any similar Federal or state law for the
relief of debtors.

 

“Beneficial Owner”
has the meaning given to such term in Rule 13d-3 and Rule 13d-5 under
the Exchange Act, except that in calculating the beneficial ownership of any 

 

5

 

particular
“person” (as that term is used in Section 12(d)(3) of the Exchange
Act), such “person” will be deemed to have beneficial ownership of all securities
that such “person” has the right to acquire by conversion or exercise of other
securities, whether such right is currently exercisable or is exercisable only
upon the occurrence of a subsequent condition. 
The terms “Beneficially Owns” and “Beneficially Owned” have
correlative meanings.

 

“Board of Directors”
means:

 

(1)           with respect to a corporation, the
board of directors of the corporation;

 

(2)           with
respect to a partnership, the board of directors of the general partner of the
partnership; and

 

(3)           with
respect to any other Person, the board or committee of such Person serving a
similar function.

 

“Board Resolution”
means a copy of a resolution certified by the Secretary or an Assistant
Secretary of the applicable Person to have been duly adopted by the Board of
Directors of such Person and to be in full force and effect on the date of such
certification, and delivered to the Trustee.

 

“Business Day” means
each day that is not a Saturday, Sunday or other day on which banking
institutions in New York, New York or another place of payment for the Notes
are authorized or required by law to close.

 

“Capital Lease
Obligations” means, at the time any determination is to be made, the amount
of the liability in respect of a capital lease that would at that time be
required to be capitalized on a balance sheet in accordance with GAAP, and the
amount of Indebtedness represented by such obligation will be the capitalized
amount of such obligation at the time any determination thereof is to be made
as determined in accordance with GAAP, and the Stated Maturity thereof will be
the date of the last payment of rent or any other amount due under such lease
prior to the first date such lease may be terminated without penalty.

 

“Capital Stock”
means:

 

(1)           in the case of a corporation,
corporate stock;

 

(2)           in
the case of an association or business entity, any and all shares, interests,
participations, rights or other equivalents (however designated) of corporate
stock;

 

(3)           in
the case of a partnership or limited liability company, partnership or
membership interests (whether general or limited); and

 

(4)           any
other interest or participation that confers on a Person the right to receive a
share of the profits and losses of, or distributions of assets of, the issuing
Person.

 

6

 

“Cash Equivalents”
means:

 

(1)           United States dollars;

 

(2)           securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality of the United States government (provided that the full faith and credit of the United States
is pledged in support of those securities) having maturities of not more than
six months from the date of acquisition;

 

(3)           certificates
of deposit and Eurodollar time deposits with maturities of six months or less
from the date of acquisition, bankers’ acceptances with maturities not
exceeding six months and overnight bank deposits, in each case, with any lender
party to the Credit Agreement or with any domestic commercial bank having
capital and surplus in excess of $500,000,000 and a Thomson Bank Watch Rating
of “B” or better;

 

(4)           repurchase
obligations with a term of not more than seven days for underlying securities
of the types described in clauses (2) and (3) above entered into with
any financial institution meeting the qualifications specified in clause (3) above;

 

(5)           commercial
paper having the highest rating obtainable from Moody’s Investors Service, Inc.
or Standard & Poor’s Ratings Services and in each case maturing within
six months after the date of acquisition; and

 

(6)           money
market funds at least 95% of the assets of which constitute Cash Equivalents of
the kinds described in clauses (1) through (5) of this definition.

 

“Change of Control”
means the occurrence of any of the following:

 

(1)           any
“person” or “group” of related persons (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act), other than Permitted Holders, is or becomes
the Beneficial Owner, directly or indirectly, of more than 50% of the total
voting power of the Voting Stock of the Company (or its successor by merger,
consolidation or purchase of all or substantially all of its assets) (for the
purposes of this clause, such person or group shall be deemed to Beneficially
Own any Voting Stock of the Company held by an entity, if such person or group “Beneficially
Owns”, directly or indirectly, more than 50% of the voting power of the
Voting Stock of such entity);

 

(2)           the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any “person” (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) other than an entity the majority of the Voting
Stock of which is owned by a Permitted Holder; or

 

(3)           the
adoption of a plan or proposal for the liquidation or dissolution of the
Company.

 

“Code” means the
Internal Revenue Code of 1986, as amended.

 

7

 

“Commission” or “SEC”
means the Securities and Exchange Commission.

 

“Comparable Treasury
Issue” means the U.S. Treasury security selected by an Independent
Investment Banker as having a maturity most nearly equal to the period from the
Redemption Date to October 1, 2013, at the time of selection and in
accordance with customary financial practice in pricing new issues of corporate
debt securities; provided that if such period is
less than one year, then the U.S. Treasury security having a maturity of one
year shall be used.

 

“Comparable Treasury
Price” means, with respect to any Redemption Date, (1) the average of
four Reference Treasury Dealer Quotations for such Redemption Date, after
excluding the highest and lowest of such Reference Treasury Dealer Quotations,
or (2) if the Trustee or, at the election of the Trustee, an agent
selected by the Trustee obtains fewer than four such Reference Treasury Dealer
Quotations, the average of all such Reference Treasury Dealer Quotations.

 

“Consolidated Cash Flow”
means, with respect to any specified Person for any period, the Consolidated
Net Income of such Person for such period plus:

 

(1)           an
amount equal to any extraordinary loss plus any net loss realized by such
Person or any of its Restricted Subsidiaries in connection with an Asset Sale,
to the extent such losses were deducted in computing such Consolidated Net
Income; plus

 

(2)           provision
for taxes based on income or profits of such Person and its Restricted
Subsidiaries for such period, to the extent that such provision for taxes was
deducted in computing such Consolidated Net Income; plus

 

(3)           consolidated
interest expense of such Person and its Restricted Subsidiaries for such
period, whether paid or accrued and whether or not capitalized (excluding any
interest attributable to Dollar-Denominated Production Payments but including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers’ acceptance financings), and net of the effect of all
payments made or received pursuant to Hedging Obligations, to the extent that
any such expense was deducted in computing such Consolidated Net Income; plus

 

(4)           depreciation,
depletion and amortization (including amortization of intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period),
impairment and other non-cash expenses (excluding any such non-cash expense to
the extent that it represents an accrual of or reserve for cash expenses in any
future period or amortization of a prepaid cash expense that was paid in a
prior period) of such Person and its Restricted Subsidiaries for such period to
the extent that such depreciation, depletion and amortization, impairment and
other non-cash expenses were deducted in computing such Consolidated Net
Income; plus

 

8

 

(5)           unrealized
non-cash losses resulting from foreign currency balance sheet adjustments
required by GAAP to the extent such losses were deducted in computing such
Consolidated Net Income; minus

 

(6)           non-cash
items increasing such Consolidated Net Income for such period, other than items
that were accrued in the ordinary course of business (to the extent included in
determining Consolidated Net Income); and minus

 

(7)           the
sum of (x) the amount of deferred revenues that are amortized during such
period and are attributable to reserves that are subject to Volumetric
Production Payments and (y) amounts recorded in accordance with GAAP as
repayments of principal and interest pursuant to Dollar- Denominated Production
Payments,

 

in each case, on a
consolidated basis and determined in accordance with GAAP.

 

“Consolidated Net Income”
means, with respect to any specified Person for any period, the aggregate of
the Net Income of such Person and its Restricted Subsidiaries for such period,
on a consolidated basis, determined in accordance with GAAP; provided that:

 

(1)           the
Net Income (but not loss) of any Person that is not a Restricted Subsidiary or
that is accounted for by the equity method of accounting will be included, but
only to the extent of the amount of dividends or distributions paid in cash to
the specified Person or a Restricted Subsidiary of the Person;

 

(2)           the
Net Income of any Restricted Subsidiary will be excluded to the extent that the
declaration or payment of dividends or similar distributions by that Restricted
Subsidiary of that Net Income is not at the date of determination permitted
without any prior governmental approval (that has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, Rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders, partners or members;

 

(3)           the
cumulative effect of a change in accounting principles will be excluded;

 

(4)           income
resulting from transfers of assets (other than cash) between such Person or any
of its Restricted Subsidiaries, on the one hand, and an Unrestricted
Subsidiary, on the other hand, will be excluded;

 

(5)           any
gain (loss) realized upon the sale or other disposition of any property, plant
or equipment of such Person or its consolidated Restricted Subsidiaries
(including pursuant to any sale and leaseback transaction) which is not sold or
otherwise disposed of in the ordinary course of business and any gain (loss)
realized upon the sale or other disposition of any Capital Stock of any Person
will be excluded;

 

(6)           any
extraordinary gain or loss will be excluded;

 

(7)           any
asset impairment writedowns on Oil and Gas Properties under GAAP or Commission
guidelines will be excluded; and

 

9

 

(8)           any
unrealized non-cash gains or losses or charges in respect of hedge or non-hedge
derivatives (including those resulting from the application of FAS 133) will be
excluded.

 

In addition, notwithstanding
the preceding, for the purposes of Section 3.4 only, there shall be
excluded from Consolidated Net Income any nonrecurring charges relating to any
premium or penalty paid, write-off of deferred finance costs or other charges
in connection with redeeming or retiring any Indebtedness prior to its Stated
Maturity.

 

“Company”
has the meaning ascribed to it in the first introductory paragraph of this
Indenture.

 

“Credit Agreement”
means that certain Second Amended and Restated Credit Agreement, dated as of March 30,
2006, among the Company, the Guarantors, the financial institutions parties
thereto, Bank of Montreal, as Administrative Agent and Lead Syndication Agent,
and Harris Nesbitt Corp., as Lead Arranger, providing for revolving credit
borrowings, including any related notes, Guarantees, collateral documents,
instruments and agreements executed in connection therewith, and in each case
as amended, restated, modified, renewed, refunded, replaced or refinanced
(including through capital markets transactions) from time to time.

 

“Credit Facilities”
means, (i) the Credit Agreement, (ii) the Term Loan Agreement and (iii) one
or more other debt facilities or commercial paper facilities, in case of clause
(iii) with banks or other institutional lenders or institutional investors
providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special
purpose entities formed to borrow from such lenders against such receivables)
or letters of credit, as provided for in one or more agreements or instruments,
in each case as amended, restated, modified, supplemented, increased, renewed,
refunded, replaced (including replacement after the termination of such credit
facility), supplemented, restructured or refinanced (including through capital
markets transactions) in whole or in part from time to time in one or more
agreements or instruments.

 

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

 

“Default” means any
event that is, or with the passage of time or the giving of notice or both
would be, an Event of Default.

 

“Definitive Note”
means a certificated Note registered in the name of the Holder thereof and
issued in accordance with Section 2.1 hereof, in the form of Exhibit A
hereto except that such Note shall not bear the Global Note legend specified in
Section 2.1(d)(ii).

 

“Disqualified Stock”
means any Capital Stock that, by its terms (or by the terms of any security
into which it is convertible, or for which it is exchangeable, in each case at
the option of the holder of the Capital Stock), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder of the
Capital Stock, in whole or in part, on or prior to the date that is
91 days after the date on which the Notes mature.  Notwithstanding the preceding sentence, any 

 

10

 

Capital
Stock that would constitute Disqualified Stock solely because the holders of
the Capital Stock have the right to require the Company to repurchase or redeem
such Capital Stock upon the occurrence of a change of control or an asset sale
will not constitute Disqualified Stock if the terms of such Capital Stock
provide that the Company may not repurchase or redeem any such Capital Stock
pursuant to such provisions unless such repurchase or redemption complies with Section 3.4.

 

“Distribution Compliance
Period” means the 40-day restricted period as defined in Regulation S.

 

“Dollar-Denominated
Production Payments” means production payment obligations recorded as
liabilities in accordance with GAAP, together with all undertakings and
obligations in connection therewith.

 

“Domestic Subsidiary”
means any Restricted Subsidiary of the Company other than a Foreign Subsidiary.

 

“DTC” means The
Depository Trust Company, its nominees and their respective successors and
assigns, or such other depositary institution hereinafter appointed by the
Company.

 

“Equity Interests”
means Capital Stock and all warrants, options or other rights to acquire
Capital Stock (but excluding any debt security that is convertible into, or
exchangeable for, Capital Stock).

 

“Equity Offering”
means any public or private sale of Capital Stock (other than Disqualified
Stock and the sale of Capital Stock upon the exercise of options and other
rights under the Company’s equity incentive plans) made for cash on a primary
basis by the Company after the date of this Indenture.

 

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

 

“Exchange Notes” has
the meaning ascribed to it in the second introductory paragraph of this
Indenture.

 

“Existing Indebtedness”
means the aggregate principal amount of Indebtedness of the Company and its
Restricted Subsidiaries (other than Indebtedness incurred under clauses (i), (iii) and
(vi) of Section 3.3(b)) in existence on the date of this
Indenture, until such amounts are repaid.

 

“Fixed Charge Coverage
Ratio” means with respect to any specified Person for any four-quarter reference
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period; provided,
however, that:

 

(1)           if the Company or any Restricted
Subsidiary:

 

(a)           has incurred any Indebtedness since the beginning of such
period that remains outstanding on such date of determination or if the
transaction giving rise to 

 

11

 

the need to calculate the Fixed Charge
Coverage Ratio is an incurrence of Indebtedness, Consolidated Cash Flow and
Fixed Charges (taking into account any interest rate agreements applicable to
such Indebtedness) for such period will be calculated after giving effect on a
pro forma basis to such Indebtedness as if such Indebtedness had been incurred
on the first day of such period (except that in making such computation, the
amount of Indebtedness under any revolving credit facility outstanding on the
date of such calculation will be computed based on (i) the average daily
balance of such Indebtedness during such four fiscal quarters or such shorter
period for which such facility was outstanding or (ii) if such facility
was created after the end of such four fiscal quarters, the average daily
balance of such Indebtedness during the period from the date of creation of
such facility to the date of such calculation) and the discharge of any other
Indebtedness repaid, repurchased, defeased or otherwise discharged with the
proceeds of such new Indebtedness as if such discharge had occurred on the
first day of such period; or

 

(b)           has repaid, repurchased, defeased or otherwise discharged
any Indebtedness since the beginning of the period that is no longer
outstanding on such date of determination or if the transaction giving rise to
the need to calculate the Fixed Charge Coverage Ratio involves a discharge of
Indebtedness (in each case other than Indebtedness incurred under any revolving
credit facility unless such Indebtedness has been permanently repaid and the
related commitment terminated), Consolidated Cash Flow and Fixed Charges for
such period will be calculated after giving effect on a pro forma basis to such
discharge of such Indebtedness, including with the proceeds of such new
Indebtedness, as if such discharge had occurred on the first day of such
period;

 

(2)           if
since the beginning of such period the Company or any Restricted Subsidiary
will have made any Asset Sale or if the transaction giving rise to the need to
calculate the Fixed Charge Coverage Ratio is an Asset Sale:

 

(a)           the Consolidated Cash Flow for such period will be reduced
by an amount equal to the Consolidated Cash Flow (if positive) directly
attributable to the assets which are the subject of such Asset Sale for such
period or increased by an amount equal to the Consolidated Cash Flow (if
negative) directly attributable thereto for such period; and

 

(b)           Fixed Charges for such period will be reduced by an amount
equal to the Fixed Charges directly attributable to any Indebtedness of the
Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with such Asset Sale for such period (or, if the
Capital Stock of any Restricted Subsidiary is sold, the Fixed Charges for such
period directly attributable to the Indebtedness of such Restricted Subsidiary
to the extent the Company and its continuing Restricted Subsidiaries are no
longer liable for such Indebtedness after such sale);

 

(3)           if
since the beginning of such period the Company or any Restricted Subsidiary (by
merger or otherwise) will have made an Investment in any Restricted Subsidiary
(or any Person which becomes a Restricted Subsidiary or is merged with or into
the Company) or 

 

12

 

an
acquisition of assets, including any acquisition of assets occurring in
connection with a transaction causing a calculation to be made hereunder,
including a single asset or all or substantially all of an operating unit,
division or line of business, Consolidated Cash Flow and Fixed Charges for such
period will be calculated after giving pro forma effect thereto (including the
incurrence of any Indebtedness) as if such Investment or acquisition occurred
on the first day of such period; and

 

(4)           if
since the beginning of such period any Person (that subsequently became a
Restricted Subsidiary or was merged with or into the Company or any Restricted
Subsidiary since the beginning of such period) will have made any Asset Sale or
any Investment or acquisition of assets that would have required an adjustment
pursuant to clause (2) or (3) above if made by the Company or a
Restricted Subsidiary during such period, Consolidated Cash Flow and Fixed
Charges for such period will be calculated after giving pro forma effect
thereto as if such Asset Sale or Investment or acquisition of assets occurred
on the first day of such period.

 

For purposes of this
definition, whenever pro forma effect is to be given to any calculation under
this definition, the pro forma calculations will be determined in the
reasonable judgment of a responsible financial or accounting officer of the
Company (including pro forma expense and cost reductions and any pro forma
expense and cost reductions that have occurred or are reasonably expected to
occur, in the reasonable judgment of the chief financial officer of the Company
(regardless of whether those cost savings or operating improvements could then
be reflected in pro forma financial statements in accordance with Regulation S
X promulgated under the Securities Act or any regulation or policy of the
Commission related thereto)).  If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest expense on such Indebtedness will be calculated as if the
rate in effect on the date of determination had been the applicable rate for
the entire period (taking into account any interest rate agreement applicable
to such Indebtedness if such interest rate agreement has a remaining term in excess
of 12 months).

 

“Fixed Charges”
means, with respect to any specified Person for any period, the sum, without
duplication, of:

 

(1)           the
consolidated interest expense of such Person and its Restricted Subsidiaries
for such period, whether paid or accrued (excluding any interest attributable
to Dollar-Denominated Production Payments but including, without limitation,
amortization of debt issuance costs and original issue discount, non-cash
interest payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations, imputed interest with respect to Attributable Debt, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers’ acceptance financings), and net of the effect of all payments made or
received pursuant to Hedging Obligations; plus

 

(2)           the
consolidated interest expense of such Person and its Restricted Subsidiaries
that was capitalized during such period; plus

 

13

 

(3)           any
interest expense on Indebtedness of another Person that is Guaranteed by such
Person or one of its Restricted Subsidiaries or secured by a Lien on assets of
such Person or one of its Restricted Subsidiaries, whether or not such
Guarantee or Lien is called upon; plus

 

(4)           all
dividends, whether paid or accrued and whether or not in cash, on any series of
preferred stock of such Person or any of its Restricted Subsidiaries, other
than dividends on Equity Interests payable solely in Equity Interests of the
Company (other than Disqualified Stock) or to the Company or a Restricted
Subsidiary of the Company; plus

 

(5)           the
cash contributions to any employee stock ownership plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or
fees to any Person (other than the Company) in connection with Indebtedness
incurred by such plan or trust; provided, however,
that there will be excluded therefrom any such interest expense of any
Unrestricted Subsidiary to the extent the related Indebtedness is not
Guaranteed or paid by the Company or any Restricted Subsidiary;

 

in each case, on a
consolidated basis and in accordance with GAAP.

 

“Foreign Subsidiary”
means any Restricted Subsidiary of the Company that was not formed under the
laws of the United States or any state of the United States or the District of
Columbia and that conducts substantially all of its operations outside the
United States.

 

“GAAP” means
generally accepted accounting principles in the United States, which are in
effect on the date of this Indenture, including those set forth in the opinions
and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such other
entity as approved by a significant segment of the accounting profession.  All ratios and computations based on GAAP
contained in the Indenture will be computed in conformity with GAAP.

 

“Government Securities”
means direct obligations of, or obligations guaranteed by, the United States of
America for the payment of which obligations or guarantee the full faith and
credit of the United States of America is pledged.

 

“Guarantee” a
guarantee, direct or indirect, in any manner including, without limitation, by
way of a pledge of assets or through letters of credit or reimbursement
agreements in respect thereof, of all or any part of any Indebtedness and any
obligation, direct or indirect, contingent or otherwise, of such Person:

 

(1)           to
purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise); or

 

(2)           entered
into for purposes of assuring in any other manner the obligee of such
Indebtedness of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part);

 

14

 

provided, however, that the term
“Guarantee” will not include endorsements for collection or deposit in
the ordinary course of business.  When
used as a verb, “guarantee” has a correlative meaning.

 

“Guarantors” means
each of:

 

(1)           Whittier
Pipeline Corporation, TexCal Energy (LP) LLC, TexCal Energy (GP) LLC, TexCal
Energy South Texas L.P. and Catco Energy LLC; and

 

(2)           any
other Restricted Subsidiary of the Company that becomes a Guarantor in
accordance with the provisions of this Indenture;

 

and their respective
successors and assigns, in each case, until the Subsidiary Guarantee of such
Person has been released in accordance with the provisions of this Indenture.

 

“Hedging Obligations”
means, with respect to any specified Person, the obligations of such Person
incurred in the normal course of business and consistent with past practices
and not for speculative purposes under:

 

(1)           interest
rate swap agreements, interest rate cap agreements and interest rate collar
agreements entered into with one or more financial institutions and designed to
protect the Person or any of its Restricted Subsidiaries entering into the
agreement against fluctuations in interest rates with respect to Indebtedness
incurred and not for purposes of speculation;

 

(2)           foreign
exchange contracts and currency protection agreements entered into with one or
more financial institutions and designed to protect the Person or any of its
Restricted Subsidiaries entering into the agreement against fluctuations in
currency exchanges rates with respect to Indebtedness incurred and not for
purposes of speculation;

 

(3)           any
commodity futures contract, commodity option or other similar agreement or
arrangement designed to protect against fluctuations in the price of oil,
natural gas or other commodities used, produced, processed or sold by that
Person or any of its Restricted Subsidiaries at the time; and

 

(4)           other
agreements or arrangements designed to protect such Person or any of its
Restricted Subsidiaries against fluctuations in interest rates, commodity
prices or currency exchange rates.

 

“Holder” means a
Person in whose name a Note is registered.

 

“Hydrocarbons” means
oil, gas, casinghead gas, drip gasoline, natural gasoline, condensate,
distillate, liquid hydrocarbons, gaseous hydrocarbons and all constituents,
elements or compounds thereof and products refined or processed therefrom.

 

“Indebtedness” means,
with respect to any specified Person, any indebtedness of such Person, whether
or not contingent:

 

(1)           in respect of borrowed money;

 

15

 

(2)           evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof);

 

(3)           in respect of bankers’ acceptances;

 

(4)           representing Capital Lease
Obligations and all Attributable Debt;

 

(5)           representing
the balance deferred and unpaid of the purchase price of any property, except any
such balance that constitutes an accrued expense or trade payable; or

 

(6)           representing any Hedging Obligations,

 

if and to the extent any of
the preceding items (other than Attributable Debt, letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP.  In addition, the term “Indebtedness”
includes all Indebtedness of others secured by a Lien on any asset of the
specified Person (whether or not such Indebtedness is assumed by the specified
Person) and, to the extent not otherwise included, the Guarantee by the
specified Person of any Indebtedness of any other Person (including, with
respect to any Production Payment, any warranties or Guarantees of production
or payment by such Person with respect to such Production Payment, but
excluding other contractual obligations of such Person with respect to such
Production Payment).  Subject to the
preceding sentence, neither Dollar-Denominated Production Payments nor Volumetric
Production Payments shall be deemed to be Indebtedness.

 

The amount of any
Indebtedness outstanding as of any date will be:

 

(1)           the
accreted value of the Indebtedness, in the case of any Indebtedness issued with
original issue discount;

 

(2)           in
the case of any Hedging Obligation, the termination value of the agreement or
arrangement giving rise to such Hedging Obligation that would be payable by
such Person at such date; and

 

(3)           the
principal amount of the Indebtedness, together with any interest on the
Indebtedness that is more than 30 days past due, in the case of any other
Indebtedness.

 

The amount of Indebtedness
of any Person at any date will be the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability, upon
the occurrence of the contingency giving rise to the obligation, of any
contingent obligations at such date.

 

In addition, “Indebtedness”
of any Person shall include Indebtedness described in the preceding paragraph
that would not appear as a liability on the balance sheet of such Person if:

 

(1)           such
Indebtedness is the obligation of a partnership or joint venture that is not a
Restricted Subsidiary (a “Joint Venture”);

 

16

 

(2)           such
Person or a Restricted Subsidiary of such Person is a general partner of the
Joint Venture (a “General Partner”); and

 

(3)           there
is recourse, by contract or operation of law, with respect to the payment of
such Indebtedness to property or assets of such Person or a Restricted
Subsidiary of such Person; and then such Indebtedness shall be included in an
amount not to exceed:

 

(a)           the lesser of (i) the net assets of the General
Partner and (ii) the amount of such obligations to the extent that there
is recourse, by contract or operation of law, to the property or assets of such
Person or a Restricted Subsidiary of such Person; or

 

(b)           if less than the amount determined pursuant to clause (a) immediately
above, the actual amount of such Indebtedness that is recourse to such Person
or a Restricted Subsidiary of such Person, if the Indebtedness is evidenced by
a writing and is for a determinable amount and the related interest expense
shall be included in Fixed Charges to the extent actually paid by such Person
or its Restricted Subsidiaries.

 

“Indenture” means
this Indenture as amended or supplemented from time to time.

 

“Independent Investment
Banker” means UBS Securities LLC and its successors, at the Company’s
option, or, if such firm or its successors, if any, are unwilling or unable to
select the Comparable Treasury Issue, an independent investment banking
institution of national standing appointed by the Company.

 

“Initial Notes” has
the meaning ascribed to it in the second introductory paragraph of this
Indenture.

 

“Investment” means,
with respect to any Person, all direct or indirect investments by such Person
in other Persons (including Affiliates) in the forms of loans (including
Guarantees or other obligations), advances or capital contributions (excluding
commission, travel and similar advances to officers and employees made in the
ordinary course of business), purchases or other acquisitions for consideration
of Indebtedness, Equity Interests or other securities, together with all items
that are or would be classified as investments on a balance sheet prepared in
accordance with GAAP; provided that
endorsements of negotiable instruments and documents in the ordinary course of
business shall in each case not be deemed to be an Investment.

 

For purposes of Section 3.4:

 

(1)           “Investment”
will include the portion (proportionate to the Company’s Equity Interest in a
Restricted Subsidiary to be designated as an Unrestricted Subsidiary) of the
fair market value of the net assets of such Restricted Subsidiary of the Company
at the time that such Restricted Subsidiary is designated an Unrestricted
Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company will
be deemed to continue to have a permanent “Investment” in an
Unrestricted Subsidiary in an amount (if positive) equal to (a) the
Company’s “Investment” in such Subsidiary at the time of such
redesignation less (b) the portion (proportionate to the Company’s Equity
Interest in such 

 

17

 

Subsidiary)
of the fair market value of the net assets (as determined by the Board of
Directors of the Company in good faith) of such Subsidiary at the time that
such Subsidiary is so re-designated a Restricted Subsidiary; and

 

(2)           any
property transferred to or from an Unrestricted Subsidiary will be valued at
its fair market value at the time of such transfer, in each case as determined
in good faith by the Board of Directors of the Company.

 

If the Company or any
Restricted Subsidiary of the Company sells or otherwise disposes of any Voting
Stock of any Restricted Subsidiary of the Company such that, after giving
effect to any such sale or disposition, such entity is no longer a Subsidiary
of the Company, the Company shall be deemed to have made an Investment on the
date of any such sale or disposition equal to the fair market value (as
determined by the Board of Directors of the Company in good faith) of the
Capital Stock of such Subsidiary not sold or disposed of.

 

“Issue Date” means October 7,
2009.

 

“Lien” means, with
respect to any asset, any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind in respect of such asset, whether or not filed,
recorded or otherwise perfected under applicable law, including any conditional
sale or other title retention agreement, any lease in the nature thereof, any
option or other agreement to sell or give a security interest in and any filing
of or agreement to give any financing statement under the Uniform Commercial
Code (or equivalent statutes) of any jurisdiction other than a precautionary
financing statement not intended as a security agreement.

 

“Make-Whole Price”
means an amount equal to the greater of:

 

(1)           100% of the principal amount of the
Notes to be redeemed; and

 

(2)           the
sum of the present values of (A) the redemption price of the Notes at October 1,
2013 and (B) the remaining scheduled payments of interest from the
Redemption Date to October 1, 2013 (not including any portion of such
payments of interest accrued as of the Redemption Date) discounted back to the
Redemption Date on a semi-annual basis (assuming a 360 day year consisting of
twelve 30 day months) at the Treasury Rate plus 50 basis points,

 

plus, in the case of both (1) and
(2), accrued and unpaid interest and Additional Interest, if any, to the
Redemption Date.  Unless the Company
defaults in payment of the Make-Whole Price, on and after the applicable
Redemption Date, interest will cease to accrue on the Notes to be redeemed.

 

“Material Change”
means an increase or decrease (excluding changes that result solely from
changes in prices and changes resulting from the incurrence of previously
estimated future development costs) of more than 25% during a fiscal quarter in
the discounted future net revenues from proved crude oil and natural gas
reserves of the Company and its Restricted Subsidiaries, calculated in
accordance with clause (1)(a) of the definition of Adjusted
Consolidated Net Tangible Assets; provided, however,
that the following will be excluded from the calculation of Material Change:

 

18

 

(1)           any
acquisitions during the fiscal quarter of oil and gas reserves that have been
estimated by independent petroleum engineers and with respect to which a report
or reports of such engineers exist; and

 

(2)           any
disposition of properties existing at the beginning of such fiscal quarter that
have been disposed of in compliance with Section 3.7.

 

“Minority Interest”
means the percentage interest represented by any shares of stock of any class
of Capital Stock of a Restricted Subsidiary of the Company that are not owned
by the Company or a Restricted Subsidiary of the Company.

 

“Net Cash Proceeds”,
with respect to any issuance or sale of Capital Stock, means the cash proceeds
of such issuance or sale net of attorneys’ fees, accountants’ fees,
underwriters’ or placement agents’ fees, listing fees, discounts or commissions
and brokerage, consultant and other fees and charges actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result of such issuance or sale (after taking into account any available tax
credits or deductions and any tax sharing arrangements).

 

“Net Income” means,
with respect to any specified Person, the net income (loss) of such Person,
determined in accordance with GAAP and before any reduction in respect of
preferred stock dividends, excluding, however:

 

(1)           any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with: 
(a) any Asset Sale; or (b) the disposition of any securities
by such Person or any of its Subsidiaries or the extinguishment of any
Indebtedness of such Person or any of its Subsidiaries; and

 

(2)           any
extraordinary gain (but not loss), together with any related provision for
taxes on such extraordinary gain (but not loss).

 

“Net Proceeds” means
the aggregate cash proceeds received by the Company or any of its Restricted
Subsidiaries in respect of any Asset Sale (including, without limitation, any
cash received upon the sale or other disposition of any non-cash consideration
received in any Asset Sale), net of:

 

(1)           all
legal, accounting, investment banking, title and recording tax expenses,
commissions and other fees and expenses incurred, and all Federal, state,
provincial, foreign and local taxes required to be paid or accrued as a
liability under GAAP (after taking into account any available tax credits or
deductions and any tax sharing agreements), as a consequence of such Asset
Sale;

 

(2)           all
payments made on any Indebtedness which is secured by any assets subject to
such Asset Sale, in accordance with the terms of any Lien upon such assets, or
which must by its terms, or in order to obtain a necessary consent to such
Asset Sale, or by applicable law be repaid out of the proceeds from such Asset
Sale;

 

(3)           all
distributions and other payments required to be made to holders of Minority
Interests in Subsidiaries or joint ventures as a result of such Asset Sale; and

 

19

 

(4)           the
deduction of appropriate amounts to be provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the assets
disposed of in such Asset Sale and retained by the Company or any Restricted
Subsidiary after such Asset Sale.

 

“Net Working Capital”
means (a) all current assets of the Company and its Restricted
Subsidiaries except current assets from commodity price risk management
activities arising in the ordinary course of business, less (b) all
current liabilities of the Company and its Restricted Subsidiaries, except
current liabilities included in Indebtedness and any current liabilities from
commodity price risk management activities arising in the ordinary course of business,
in each case as set forth in the consolidated financial statements of the
Company prepared in accordance with GAAP.

 

“Non-Recourse Debt”
means Indebtedness:

 

(1)           as
to which neither the Company nor any of its Restricted Subsidiaries (a) provides
credit support of any kind (including any undertaking, agreement or instrument
that would constitute Indebtedness), (b) is directly or indirectly liable
as a guarantor or otherwise, or (c) is the lender;

 

(2)           no
default with respect to which (including any rights that the holders of the
Indebtedness may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time or both any holder of any
other Indebtedness (other than the Notes) of the Company or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment of the Indebtedness to be accelerated or payable prior to its Stated
Maturity; and

 

(3)           as
to which the lenders have been notified in writing that they will not have any
recourse to the stock or assets of the Company or any of its Restricted
Subsidiaries.

 

“Non-U.S. Person”
means a person who is not a U.S. person, as defined in Regulation S.

 

“Notes” has the
meaning ascribed to it in the second introductory paragraph of this Indenture.

 

“Note Register” means
the register of Notes, maintained by the Registrar, pursuant to Section 2.3.

 

“Obligations” means
any principal, premium, if any, interest (including interest accruing on or
after the filing of any petition in bankruptcy or for reorganization, whether
or not a claim for post-filing interest is allowed in such proceeding),
penalties, fees, charges, expenses, indemnifications, reimbursement
obligations, damages, Guarantees, and other liabilities or amounts payable under
the documentation governing any Indebtedness or in respect thereto.

 

“Officer” means the
Chairman of the Board, the Chief Executive Officer, the President, any Vice
President, the Treasurer or the Secretary of the Company.

 

20

 

“Officers’ Certificate”
means a certificate signed by two Officers or by an Officer and either an
Assistant Treasurer or an Assistant Secretary of the Company.

 

“Oil and Gas Business”
means:

 

(1)           the
acquisition, exploration, development, operation and disposition of interests
in oil, natural gas and other Hydrocarbon properties;

 

(2)           the
gathering, marketing, treating, processing (but not refining), storage, selling
and transporting (including the ownership and operation of common carrier
pipelines) of any production from those interests; and

 

(3)           any
activity necessary, appropriate or incidental to the activities described
above.

 

“Opinion of Counsel”
means a written opinion from legal counsel reasonably acceptable to the
Trustee.  The counsel may be an employee
of or counsel to the Company or the Trustee.

 

“Permitted Business
Investment” means Investments made in the ordinary course of, and of a
nature that is or shall have become customary in, the Oil and Gas Business,
including through agreements, transactions, interests or arrangements that
permit one to share risk or costs, comply with regulatory requirements
regarding local ownership or satisfy other objectives customarily achieved
through the conduct of the Oil and Gas Business jointly with third parties,
including without limitation:

 

(1)           direct
or indirect ownership of crude oil, natural gas, other related hydrocarbon and
mineral properties or any interest therein or gathering, transportation,
processing, storage or related systems; and

 

(2)           the
entry into operating agreements, joint ventures, processing agreements, working
interests, royalty interests, mineral leases, farm-in agreements, farm-out
agreements, development agreements, production sharing agreements, area of
mutual interest agreements, contracts for the sale, transportation or exchange
of crude oil and natural gas and related Hydrocarbons and minerals, unitization
agreements, pooling arrangements, joint bidding agreements, service contracts,
partnership agreements (whether general or limited), or other similar or
customary agreements, transactions, properties, interests or arrangements and
Investments and expenditures in connection therewith or pursuant thereto, in
each case made or entered into in the ordinary course of the Oil and Gas
Business, excluding, however, Investments in corporations and publicly traded
limited partnerships.

 

“Permitted Holders”
means:

 

(1)           Timothy M. Marquez and Bernadette B. Marquez, individually
or as Trustees of the Marquez Trust dated February 26, 2002;

 

21

 

(2)           any beneficiary of the Marquez Trust dated February 26,
2002 or any Person who is of lineal or collateral consanguinity to Timothy M.
Marquez or Bernadette B. Marquez; and

 

(3)           entities 80% or more of the Voting Stock of which is
directly or indirectly owned by any of the preceding Persons, but only for so
long as such Persons directly or indirectly own 80% or more of the Voting Stock
of such entities.

 

“Permitted Investment”
means an Investment by the Company or any Restricted Subsidiary in:

 

(1)            a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary;

 

(2)           another
Person if as a result of such Investment such other Person is merged or
consolidated with or into, or transfers or conveys all or substantially all its
assets to, the Company or a Restricted Subsidiary;

 

(3)           cash and Cash Equivalents;

 

(4)           receivables
owing to the Company or any Restricted Subsidiary created or acquired in the
ordinary course of business;

 

(5)           payroll,
travel and similar advances to cover matters that are expected at the time of
such advances ultimately to be treated as expenses for accounting purposes and
that are made in the ordinary course of business;

 

(6)           stock,
obligations or securities received in settlement of debts created in the
ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments or pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or insolvency of a
debtor;

 

(7)           any
acquisition of assets solely in exchange for the issuance of Capital Stock
(other than Disqualified Stock) of the Company;

 

(8)           Investments
made as a result of the receipt of non-cash consideration from an Asset Sale
that was made pursuant to and in compliance with Section 3.7;

 

(9)           Investments
in existence on the Issue Date and any renewal or replacement thereof on terms
and conditions not materially less favorable than that being renewed or
replaced;

 

(10)         Hedging
Obligations permitted to be incurred in compliance with Section 3.3;

 

(11)         any
Investment by the Company or any of its Restricted Subsidiaries, together with
all other outstanding Investments pursuant to this clause (11), having an
aggregate fair market value on the date such Investment was made and without
giving effect to any 

 

22

 

subsequent
change in value, in an amount not to exceed as of the date of such incurrence,
the greater of (i) $10,000,000 and (ii) 21⁄2% of Adjusted Consolidated
Net Tangible Assets;

 

(12)         Guarantees issued in accordance with Section 3.3;

 

(13)         prepaid
expenses, surety and performance bonds and lease, tax, utilities, workers’
compensation, performance and similar deposits made in the ordinary course of
business;

 

(14)         Investments
owned by a Person if and when it is acquired by the Company and becomes a
Restricted Subsidiary; provided, however,
that such Investments are not made in contemplation of such acquisition;

 

(15)         Permitted Business Investments;

 

(16)         Investments in any units of any oil and
gas royalty trust;

 

(17)         advances
by the Company or any Restricted Subsidiary to any of its full-time employees
for housing loans and for the payment or relocation expenses which do not
exceed $2,000,000 at any time outstanding in the aggregate to all employees of
the Company and its Restricted Subsidiaries; and

 

(18)         Investments
made as a result of the receipt of non-cash consideration from a sale of assets
that was made pursuant to and in compliance with clause (12) of the proviso of
the definition of “Asset Sale.”

 

“Permitted Liens”
means, with respect to any Person:

 

(1)           Liens
securing Indebtedness incurred under clauses (i) and (xiii) of Section 3.3(b) and
other related obligations of the Company and the Restricted Subsidiaries under
Credit Facilities;

 

(2)           pledges
or deposits by such Person under workmen’s compensation laws, unemployment
insurance laws or similar legislation, or good faith deposits in connection
with bids, tenders, contracts (other than for the payment of Indebtedness) or
leases to which such Person is a party, or deposits to secure public or
statutory obligations of such Person or deposits of cash or United States
government bonds to secure surety or appeal bonds to which such Person is a
party, or deposits as security for contested taxes or import or customs duties
or for the payment of rent, in each case incurred in the ordinary course of
business;

 

(3)           Liens
imposed by law, including carriers’, warehousemen’s and mechanics’ Liens, in
each case for sums not yet due or being contested in good faith by appropriate
proceedings if a reserve or other appropriate provisions, if any, as shall be
required by GAAP shall have been made in respect thereof;

 

(4)           Liens
for taxes, assessments or other governmental charges not yet subject to
penalties for nonpayment or which are being contested in good faith by
appropriate 

 

23

 

proceedings,
provided that appropriate reserves
required pursuant to GAAP have been made in respect thereof;

 

(5)           Liens
in favor of the issuers of surety or performance bonds or letters of credit or
bankers’ acceptances issued pursuant to the request of and for the account of
such Person in the ordinary course of its business, except to the extent that
that such letters of credit relate to trade payables and such obligations are
not satisfied within 5 Business Days of such incurrence;

 

(6)           encumbrances,
easements or reservations of, or rights of others for, licenses, rights of way,
sewers, electric lines, telegraph and telephone lines and other similar
purposes, or zoning or other restrictions as to the use of real properties or
Liens incidental to the conduct of the business of such Person or to the
ownership or lease of its properties which do not in the aggregate materially
adversely affect the value of said properties or materially impair their use in
the operation of the business of such Person;

 

(7)           Liens
securing Hedging Obligations of the Company and its Restricted Subsidiaries;

 

(8)           leases
and subleases of real property which do not materially interfere with the
ordinary conduct of the business of the Company or any of its Restricted
Subsidiaries;

 

(9)           judgment
Liens not giving rise to an Event of Default so long as such Lien is adequately
bonded and any appropriate legal proceedings which may have been duly initiated
for the review of such judgment have not been finally terminated or the period
within which such proceedings may be initiated has not expired;

 

(10)         Liens
for the purpose of securing the payment of all or a part of the purchase price
of, or Capitalized Lease Obligations with respect to, or the repair,
improvement or construction cost of, assets or property acquired or repaired,
improved or constructed in the ordinary course of business; provided that:

 

(a)           the aggregate principal amount of Indebtedness secured by
such Liens is otherwise permitted to be incurred under this Indenture and does
not exceed the cost of the assets or property so acquired or repaired, improved
or constructed plus fees and expenses in connection therewith; and

 

(b)           such Liens are created within 180 days of repair,
improvement, construction or acquisition of such assets or property and do not
encumber any other assets or property of the Company or any Restricted Subsidiary
other than such assets or property and assets affixed or appurtenant thereto
(including improvements);

 

(11)         Liens
arising solely by virtue of any statutory or common law provisions relating to
banker’s Liens, rights of set-off or similar rights and remedies as to deposit
accounts or other funds maintained or deposited with a depositary institution; provided that:

 

24

 

(a)           such deposit account is not a dedicated cash collateral
account and is not subject to restrictions against access by the Company in
excess of those set forth by regulations promulgated by the Federal Reserve
Board; and

 

(b)           such deposit account is not intended by the Company or any
Restricted Subsidiary to provide collateral to the depositary institution;

 

(12)         Liens
arising from Uniform Commercial Code financing statement filings regarding
operating leases entered into by the Company and its Restricted Subsidiaries in
the ordinary course of business;

 

(13)         Liens not otherwise described in item (1) above
existing on the Issue Date;

 

(14)         Liens
on property at the time the Company acquired the property, including any
acquisition by means of a merger or consolidation with or into the Company; provided, however, that such Liens are not created, incurred
or assumed in connection with, or in contemplation of, such acquisition; provided further, however, that such Liens may not extend to
any other property owned by the Company or any Restricted Subsidiary;

 

(15)         Liens
on property or shares of stock of a Person at the time such Person becomes a
Restricted Subsidiary; provided, however,
that such Liens are not created, incurred or assumed in connection with, or in
contemplation of, such other Person becoming a Restricted Subsidiary; provided further, however, that such Liens may not extend to
any other property owned by the Company or any Restricted Subsidiary;

 

(16)         Liens
securing Indebtedness or other obligations of a Restricted Subsidiary owing to
the Company or a Guarantor;

 

(17)         Liens
securing the Notes, the Subsidiary Guarantees and other Obligations arising
under this Indenture;

 

(18)         Liens
securing Permitted Refinancing Indebtedness of the Company or a Restricted
Subsidiary incurred to refinance Indebtedness of the Company or a Restricted
Subsidiary that was previously so secured; provided that
any such Lien is limited to all or part of the same property or assets (plus
improvements, accessions, proceeds or dividends or distributions in respect
thereof) that secured (or, under the written arrangements under which the
original Lien arose, could secure) the Indebtedness being refinanced or is in
respect of property or assets that is the security for a Permitted Lien
hereunder;

 

(19)         Liens in respect of Production Payments
and Reserve Sales;

 

(20)         Liens on pipelines and pipeline
facilities that arise by operation of law;

 

(21)         farmout,
carried working interest, joint operating, unitization, royalty, sales and
similar agreements relating to the exploration or development of, or production
from, oil and gas properties entered into in the ordinary course of business;

 

25

 

(22)         Liens
reserved in oil and gas mineral leases for bonus or rental payments and for
compliance with the terms of such leases;

 

(23)         Liens
encumbering assets under construction arising from progress or partial payments
by a customer of the Company or its Restricted Subsidiaries relating to such
assets;

 

(24)         Liens
arising under this Indenture in favor of the Trustee for its own benefit and
similar Liens in favor of other trustees, agents and representatives arising
under instruments governing Indebtedness permitted to be incurred under this
Indenture, provided, however, that such Liens are solely for the benefit of the
trustees, agents or representatives in their capacities as such and not for the
benefit of the holders of the Indebtedness; and

 

(25)         additional
Liens incurred in the ordinary course of business of the Company or any
Restricted Subsidiary of the Company with respect to obligations that do not
exceed $10,000,000 at any one time outstanding.

 

“Permitted
Refinancing Indebtedness” means any Indebtedness of the Company or any of
its Restricted Subsidiaries issued in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Restricted Subsidiaries (other than
intercompany Indebtedness); provided that:

 

(1)           the
principal amount (or accreted value, if applicable) of such Permitted Refinancing
Indebtedness does not exceed the principal amount (or accreted value, if
applicable) of the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded (plus all accrued interest on the Indebtedness and the
amount of all expenses and premiums incurred in connection therewith);

 

(2)           such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded;

 

(3)           if
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment to the Notes or the Subsidiary
Guarantees, such Permitted Refinancing Indebtedness is subordinated in right of
payment to the Notes or the Subsidiary Guarantees on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; and

 

(4)           such
Indebtedness is not incurred by a Restricted Subsidiary of the Company if the
Company is the obligor on the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; provided, however,
that a Restricted Subsidiary that is also a Guarantor may Guarantee Permitted
Refinancing Indebtedness incurred by the Company, whether or not such
Restricted Subsidiary was an obligor or guarantor of the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.

 

26

 

Notwithstanding the
preceding, any Indebtedness incurred under Credit Facilities pursuant to Section 3.3
shall be subject only to the refinancing provision in the definition of Credit
Facilities and not pursuant to the requirements set forth in the definition of
Permitted Refinancing Indebtedness.

 

“Person” means any
individual, corporation, partnership, joint venture, association, joint-stock
company, trust, unincorporated organization, limited liability company or
government or other entity.

 

“Preferred Stock”, as
applied to the Capital Stock of any corporation, means Capital Stock of any
class or classes (however designated) which is preferred as to the payment of
dividends, or as to the distribution of assets upon any voluntary or
involuntary liquidation or dissolution of such corporation, over shares of
Capital Stock of any other class of such corporation.

 

“Production Payments”
means, collectively, Dollar-Denominated Production Payments and Volumetric
Production Payments.

 

“Production Payments and
Reserve Sales” means the grant or transfer by the Company or a Restricted
Subsidiary of the Company to any Person of a royalty, overriding royalty, net
profits interest, production payment (whether volumetric or dollar
denominated), partnership or other interest in oil and gas properties, reserves
or the right to receive all or a portion of the production or the proceeds from
the sale of production attributable to such properties, including any such
grants or transfers pursuant to incentive compensation programs on terms that
are reasonably customary in the oil and gas business for geologists,
geophysicists and other providers of technical services to the Company or a
Subsidiary of the Company.

 

“Redemption Date”
when used with respect to any Note to be redeemed, in whole or in part, means
the date fixed for such redemption by or pursuant to this Indenture.

 

“Reference Treasury
Dealer” means UBS Securities LLC and three additional primary U.S.
government securities dealers in New York City (each a “Primary Treasury Dealer”)
selected by the Company, and their respective successors (provided, however,
that if any such firm or any such successor, as the case may be, shall cease to
be a primary U.S. government securities dealer in New York City, the Company
shall substitute therefor another Primary Treasury Dealer).

 

“Reference Treasury
Dealer Quotations” means, with respect to each Reference Treasury Dealer
and any Redemption Date, the average, as determined by the Trustee or, at the
election of the Trustee, an agent selected by the Trustee, of the bid and asked
prices for the Comparable Treasury Issue (expressed in each case as a
percentage of its principal amount) quoted in writing to the Trustee or such
agent by such Reference Treasury Dealer at 5:00 p.m., New York City time,
on the third Business Day preceding such Redemption Date.

 

“Registered Exchange
Offer” has the meaning set forth for such term in the Registration Rights
Agreement.

 

27

 

“Registration Rights
Agreement” means that certain exchange and registration rights agreement
dated as of the date of this Indenture by and between the Company, the
Guarantors and the initial purchasers set forth therein and future registration
rights agreements with respect to Additional Notes.

 

“Restricted Investment”
means an Investment other than a Permitted Investment.

 

“Restricted Notes”
means Notes bearing the Private Placement Legend.

 

“Restricted Subsidiary”
of a Person means any Subsidiary of the referent Person that is not an
Unrestricted Subsidiary.

 

“sale and leaseback
transaction” means an arrangement relating to property now owned or
hereafter acquired whereby the Company or a Restricted Subsidiary transfers
such property to a Person and the Company or a Restricted Subsidiary leases it
from such Person.

 

“Secured Indebtedness”
means Indebtedness that is secured by a Lien on the property or assets of the relevant
obligor.

 

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

 

“Senior Debt” means:

 

(1)           all
Indebtedness of the Company or any of its Restricted Subsidiaries outstanding
under Credit Facilities and all Hedging Obligations with respect thereto;

 

(2)            any
other Indebtedness of the Company or any of its Restricted Subsidiaries
permitted to be incurred under the terms of this Indenture, unless the
instrument under which such Indebtedness is incurred expressly provides that it
is subordinated in right of payment to the Notes or any Subsidiary Guarantee;
and

 

(3)           all Obligations with respect to the
items listed in the preceding clauses (1) and (2).

 

Notwithstanding anything to
the contrary in the preceding sentence, Senior Debt will not include:

 

(a)           any intercompany Indebtedness of the Company or any of its
Subsidiaries to the Company or any of its Affiliates; or

 

(b)           any Indebtedness that is incurred in violation of this
Indenture.

 

For the avoidance of doubt, “Senior
Debt” will not include any trade payables or taxes owed or owing by the Company
or any Restricted Subsidiary.

 

“Significant Subsidiary”
means any Subsidiary that would be a “significant subsidiary” as defined in Article 1,
Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act,
as such Regulation is in effect on the date of this Indenture.

 

28

 

“Stated Maturity”
means, with respect to any installment of interest or principal on any series
of Indebtedness, the date on which the payment of interest or principal was
scheduled to be paid in the documentation governing such Indebtedness, and will
not include any contingent obligations to repay, redeem or repurchase any such
interest or principal prior to the date scheduled for the payment thereof.

 

“Subordinated Obligation”
means any Indebtedness of the Company (whether outstanding on the Issue Date or
thereafter incurred) which is subordinate or junior in right of payment to the
Notes pursuant to a written agreement or any Indebtedness of a Guarantor
(whether outstanding on the Issue Date or thereafter incurred) which is
subordinate or junior in right of payment to the Subsidiary Guarantee pursuant
to a written agreement, as the case may be.

 

“Subsidiary” of any
Person means any corporation, association, partnership, joint venture, limited
liability company or other business entity of which more than 50% of the total
voting power of shares of Capital Stock or other interests (including
partnership and joint venture interests) entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or indirectly,
by (1) such Person, (2) such Person and one or more Subsidiaries of
such Person or (3) one or more Subsidiaries of such Person.  Unless otherwise specified herein, each
reference to a Subsidiary will refer to a Subsidiary of the Company.

 

“Subsidiary Guarantee”
means any guarantee by a Guarantor of the Company’s payment Obligations under
this Indenture and on the Notes.

 

“Term Loan Agreement”
means that certain Term Loan Agreement, dated as of May 7, 2007, among the
Company, the guarantors parties thereto, the financial institutions parties
thereto, Credit Suisse, Cayman Islands Branch, as Administrative Agent, and UBS
Securities LLC, as Syndication Agent, as amended, restated, modified, renewed,
refunded, replaced or refinanced (including through capital markets
transactions) from time to time.

 

“TIA” or “Trust
Indenture Act” means the Trust Indenture Act of 1939 (15 U.S.C. §§
77aaa-77bbbb), as in effect on the Issue Date.

 

“Treasury Rate”
means, with respect to any Redemption Date, (1) the yield, under the
heading which represents the average for the immediately preceding week,
appearing in the most recently published statistical release designated “H.
15(159)” or any successor publication that is published weekly by the Board of
Governors of the Federal Reserve System and that establishes yields on actively
traded U.S. Treasury securities adjusted to constant maturity under the caption
“Treasury Constant Maturities,” for the maturity corresponding to the
Comparable Treasury Issue (if no maturity is within three months before or
after the Stated Maturity, yields for the two published maturities most closely
corresponding to the Comparable Treasury Issue shall be determined, and the
Treasury Rate shall be interpolated or extrapolated from such yields on a
straight-line basis, rounding to the nearest month) or (2) if such release
(or any successor release) is not published during the week preceding the
calculation date or does not contain such yields, the rate per annum equal to
the semi-annual equivalent yield to maturity of the Comparable Treasury Issue,
calculated using a price for the Comparable Treasury Issue 

 

29

 

(expressed
as a percentage of its principal amount) equal to the Comparable Treasury Price
for such Redemption Date.  The Treasury
Rate shall be calculated on the third Business Day preceding the Redemption
Date.

 

“Trustee” means the
party named as such in this Indenture until a successor replaces it and,
thereafter, means the successor.

 

“Trust Officer” shall
mean, when used with respect to the Trustee, any officer within the corporate
trust department of the Trustee, including any vice president, assistant vice
president, assistant secretary, assistant treasurer, trust officer or any other
officer of the Trustee who customarily performs functions similar to those performed
by the Persons who at the time shall be such officers, respectively, or to whom
any corporate trust matter is referred because of such person’s knowledge of
and familiarity with the particular subject and who shall have direct
responsibility for the administration of this Indenture.

 

“Unrestricted Subsidiary”
means:

 

(1)          any
Subsidiary of the Company that at the time of determination shall be designated
an Unrestricted Subsidiary by the Board of Directors of the Company in the
manner provided below; and

 

(2)           any Subsidiary of an Unrestricted
Subsidiary.

 

The Board of Directors of
the Company may designate any Subsidiary of the Company (including any newly
acquired or newly formed Subsidiary or a Person becoming a Subsidiary through
merger or consolidation or Investment therein) to be an Unrestricted Subsidiary
only if:

 

(1)           such
Subsidiary or any of its Subsidiaries does not own any Capital Stock or
Indebtedness of or have any Investment in, or own or hold any Lien on any
property of, any other Subsidiary of the Company which is not a Subsidiary of
the Subsidiary to be so designated or otherwise an Unrestricted Subsidiary;

 

(2)           all
the Indebtedness of such Subsidiary and its Subsidiaries shall, at the date of
designation, and will at all times thereafter, consist of Non-Recourse Debt;

 

(3)           such
designation and the Investment of the Company in such Subsidiary complies with Section 3.4;

 

(4)           such
Subsidiary, either alone or in the aggregate with all other Unrestricted
Subsidiaries, does not operate, directly or indirectly, all or substantially
all of the business of the Company and its Subsidiaries taken as a whole;

 

(5)           such
Subsidiary is a Person with respect to which neither the Company nor any of its
Restricted Subsidiaries has any direct or indirect obligation:

 

(a)           to subscribe for additional Capital Stock of such Person;
or

 

30

 

(b)           to maintain or preserve such Person’s financial condition
or to cause such Person to achieve any specified levels of operating results;
and

 

(6)           on
the date such Subsidiary is designated an Unrestricted Subsidiary, such
Subsidiary is not a party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary with terms
substantially less favorable to the Company than those that might have been
obtained from Persons who are not Affiliates of the Company.

 

Any such designation by the
Board of Directors of the Company shall be evidenced for purposes of this
Indenture by filing with the Trustee a Board Resolution giving effect to such
designation and an Officers’ Certificate certifying that such designation
complies with the foregoing conditions. 
If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness
of such Subsidiary shall be deemed to be incurred as of such date.

 

The Board of Directors of
the Company may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that immediately after giving
effect to such designation, no Default or Event of Default shall have occurred
and be continuing or would occur as a consequence thereof and the Company could
incur at least $1.00 of additional Indebtedness under Section 3.3(a) on
a pro forma basis taking into account such designation.

 

“Volumetric Production
Payments” means production payment obligations recorded as deferred revenue
in accordance with GAAP, together with all related undertakings and
obligations.

 

“Voting Stock” of any
Person as of any date means the Capital Stock of such Person that is at the
time entitled (without regard to the occurrence of any contingency) to vote in
the election of the Board of Directors of such Person.

 

“Weighted Average Life to
Maturity” means, when applied to any Indebtedness at any date, the number
of years obtained by dividing:

 

(1)           the
sum of the products obtained by multiplying (a) the amount of each then
remaining installment, sinking fund, serial maturity or other required payments
of principal, including payment at final maturity, in respect of the
Indebtedness, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such payment;
by

 

(2)           the then outstanding principal amount
of such Indebtedness.

 

Section 1.2             Other
Definitions.

 

	
  Term

  	
   

  	
  Defined
  in

  Section

  
	
  “Additional
  Restricted Notes”

  	
   

  	
  2.1(b)

  
	
  “Affiliate
  Transaction”

  	
   

  	
  3.8(a)

  
	
  “Agent
  Member”

  	
   

  	
  2.1(e)(iii)

  
	
  “Asset
  Sale Offer”

  	
   

  	
  3.7(d)

  

 

31

 

	
  Term

  	
   

  	
  Defined
  in

  Section

  
	
  “Asset
  Sale Offer Amount”

  	
   

  	
  3.7(e)

  
	
  “Asset
  Sale Offer Period”

  	
   

  	
  3.7(e)

  
	
  “Asset
  Sale Payment Date”

  	
   

  	
  3.7(e)

  
	
  “Authenticating
  Agent”

  	
   

  	
  2.2

  
	
  “Certificate
  of Destruction”

  	
   

  	
  2.10

  
	
  “Change
  of Control Offer”

  	
   

  	
  3.9

  
	
  “Change
  of Control Payment”

  	
   

  	
  3.9

  
	
  “Change
  of Control Purchase Date”

  	
   

  	
  3.9

  
	
  “Change
  of Control Settlement Date”

  	
   

  	
  3.9

  
	
  “Company
  Order”

  	
   

  	
  2.2

  
	
  “Corporate
  Trust Office”

  	
   

  	
  3.13

  
	
  “Covenant
  Defeasance”

  	
   

  	
  8.3

  
	
  “Defaulted
  Interest”

  	
   

  	
  2.11

  
	
  “Event
  of Default”

  	
   

  	
  6.1

  
	
  “Excess
  Proceeds”

  	
   

  	
  3.7(c)

  
	
  “Exchange
  Global Note”

  	
   

  	
  2.1(b)

  
	
  “Funding
  Guarantor”

  	
   

  	
  10.4

  
	
  “General
  Partner”

  	
   

  	
  1.1
  (definition of “Indebtedness”)

  
	
  “Global
  Notes”

  	
   

  	
  2.1(b)

  
	
  “incur”

  	
   

  	
  3.3(a)

  
	
  “Joint
  Venture”

  	
   

  	
  1.1
  (definition of “Indebtedness”)

  
	
  “Legal
  Defeasance”

  	
   

  	
  8.2

  
	
  “Payment
  Default”

  	
   

  	
  6.1(6)(a)

  
	
  “Paying
  Agent”

  	
   

  	
  2.3

  
	
  “Permitted
  Debt”

  	
   

  	
  3.3(b)

  
	
  “Private
  Placement Legend”

  	
   

  	
  2.1(d)

  
	
  “protected
  purchaser”

  	
   

  	
  2.8

  
	
  “QIB”

  	
   

  	
  2.1(b)

  
	
  “Registrar”

  	
   

  	
  2.3

  
	
  “Regulation
  S”

  	
   

  	
  2.1(b)

  
	
  “Regulation
  S Global Note”

  	
   

  	
  2.1(b)

  
	
  “Regulation
  S Note”

  	
   

  	
  2.1(b)

  
	
  “Resale
  Restriction Termination Date”

  	
   

  	
  2.6(a)

  
	
  “Restricted
  Payment”

  	
   

  	
  3.4(a)

  
	
  “Rule 144A”

  	
   

  	
  2.1(b)

  
	
  “Rule 144A
  Global Note”

  	
   

  	
  2.1(b)

  
	
  “Rule 144A
  Note”

  	
   

  	
  2.1(b)

  
	
  “Securities
  Custodian”

  	
   

  	
  2.1(b)

  
	
  “Special
  Interest Payment Date”

  	
   

  	
  2.11(a)

  
	
  “Special
  Record Date”

  	
   

  	
  2.11(a)

  
	
  “Successor
  Company”

  	
   

  	
  4.1

  

 

Section 1.3             Incorporation
by Reference of Trust Indenture Act. 
This Indenture is subject to the mandatory provisions of the TIA which
are incorporated by reference in and made a part of this Indenture.  The following TIA terms have the following
meanings:

 

“Commission” means
the SEC.

 

“indenture securities”
means the Notes.

 

32

 

“indenture security
holder” means a Holder of a Note.

 

“indenture to be
qualified” means this Indenture.

 

“indenture trustee”
or “institutional trustee” means the Trustee.

 

“obligor” on the
Notes means the Company, the Guarantors and any other obligor on the Notes.

 

All other TIA terms used in
this Indenture that are defined by the TIA, defined in the TIA by reference to
another statute or defined by Commission’s Rule have the meanings assigned
to them by such definitions.

 

Section 1.4             Rules of
Construction.  Unless the context
otherwise requires:

 

(1)           a term has the meaning assigned to
it;

 

(2)           an
accounting term not otherwise defined has the meaning assigned to it in
accordance with GAAP;

 

(3)           “or” is not exclusive;

 

(4)           “including” means including without
limitation;

 

(5)           words
in the singular include the plural and words in the plural include the
singular;

 

(6)           the
principal amount of any noninterest bearing or other discount security at any
date shall be the principal amount thereof that would be shown on a balance
sheet of the Company dated such date prepared in accordance with GAAP; and

 

(7)           the
principal amount of any Preferred Stock shall be (i) the maximum liquidation
value of such Preferred Stock or (ii) the maximum mandatory redemption or
mandatory repurchase price with respect to such Preferred Stock, in each case,
at the date of determination, whichever is greater.

 

33

 

ARTICLE II

 

The Notes

 

Section 2.1             Form,
Dating and Terms.

 

(a)           The aggregate
principal amount of Notes that may be authenticated and delivered under this
Indenture is unlimited.  The Initial
Notes issued on the date hereof will be in an aggregate principal amount of
$150,000,000.  In addition, the Company
may issue, from time to time in accordance with the provisions of this
Indenture, including, without limitation, Section 3.3 hereof,
Additional Notes and Exchange Notes. 
Furthermore, Notes may be authenticated and delivered upon registration
or transfer, or in lieu of, other Notes pursuant to Section 2.6, 2.8,
2.9, 5.8 or 9.5 or in connection with an Asset Sale Offer
pursuant to Section 3.7 or a Change of Control Offer pursuant to Section 3.9.

 

With respect to any
Additional Notes, the Company shall set forth in a Board Resolution and an
Officer’s Certificate, the following information:

 

(1)           the aggregate principal amount of such Additional Notes to
be authenticated and delivered pursuant to this Indenture;

 

(2)           the issue price and the issue date of such Additional
Notes, including the date from which interest shall accrue; and

 

(3)           whether such Additional Notes shall be Restricted Notes
issued in the form of Exhibit A hereto and/or shall be issued in
the form of Exhibit B hereto.

 

The Initial Notes, the
Additional Notes and the Exchange Notes shall be considered collectively as a
single class for all purposes of this Indenture.  Holders of the Initial Notes, the Additional
Notes and the Exchange Notes will vote and consent together on all matters to
which such Holders are entitled to vote or consent as one class, and none of
the Holders of the Initial Notes, the Additional Notes or the Exchange Notes
shall have the right to vote or consent as a separate class on any matter to
which such Holders are entitled to vote or consent.

 

(b)           The Initial Notes
are being offered and sold by the Company pursuant to a Purchase Agreement,
dated October 2, 2009, among the Company, the Guarantors, UBS Securities LLC,
BMO Capital Markets Corp., Credit Suisse Securities (USA) LLC, RBS Securities
Inc. and the other initial purchasers named therein.  The Initial Notes and any Additional Notes
(if issued as Restricted Securities) (the “Additional Restricted Notes”)
will be resold initially only to (A) qualified institutional buyers (as
defined in Rule 144A under the Securities Act (“Rule 144A”))
in reliance on Rule 144A (“QIBs”) and (B) Persons other than
U.S. Persons (as defined in Regulation S under the Securities Act (“Regulation
S”)) in reliance on Regulation S. 
Such Initial Notes and Additional Restricted Notes thereafter be
transferred to, among others, QIBs and purchasers in reliance on Regulation S
in accordance with the procedure described herein.

 

34

 

Initial Notes and Additional
Restricted Notes offered and sold to qualified institutional buyers in the
United States of America in reliance on Rule 144A (the “Rule 144A
Notes”) shall be issued in the form of a permanent global Note, without
interest coupons, substantially in the form of Exhibit A, which is
hereby incorporated by reference and made a part of this Indenture, including
appropriate legends as set forth in Section 2.1(d) (the “Rule 144A
Global Note”), deposited with the Trustee, as custodian for DTC or its
nominee (the “Securities Custodian”), duly executed by the Company and
authenticated by the Trustee as hereinafter provided.  The Rule 144A Global Note may be
represented by more than one certificate, if so required by DTC’s rules regarding
the maximum principal amount to be represented by a single certificate.  The aggregate principal amount of the Rule 144A
Global Note may from time to time be increased or decreased by adjustments made
on the records of the Trustee, as Securities Custodian, as hereinafter
provided.

 

Initial Notes and Additional
Notes offered and sold outside the United States of America (the “Regulation
S Notes”) in reliance on Regulation S shall be issued in the form of a
permanent global Note, without interest coupons, substantially in the form of Exhibit A,
including appropriate legends as set forth in Section 2.1(d) (the
“Regulation S Global Note”) deposited with the Trustee as Securities
Custodian, duly executed by the Company and authenticated by the Trustee as
hereinafter provided.  The Regulation S
Global Note may be represented by more than one certificate, if so required by
DTC’s rules regarding the maximum principal amount to be represented by a
single certificate.  The aggregate
principal amount of the Regulation S Global Note may from time to time be
increased or decreased by adjustments made on the records of the Trustee, as
custodian for DTC or its nominee, as hereinafter provided.

 

Exchange Notes exchanged for
interests in the Rule 144A Notes and the Regulation S Notes will be issued
in the form of a permanent global Note, without interest coupons, substantially
in the form of Exhibit B, which is hereby incorporated by reference
and made a part of this Indenture, deposited with the Trustee as hereinafter
provided, including the appropriate legend set forth in Section 2.1(d) (the
“Exchange Global Note”).  The
Exchange Global Note may be represented by more than one certificate, if so
required by DTC’s rules regarding the maximum principal amount to be
represented by a single certificate.

 

The Rule 144A Global
Note, the Regulation S Global Note and the Exchange Global Note are sometimes
collectively herein referred to as the “Global Notes.”

 

If a Holder has given wire
transfer instructions to the Company, the Company will, or if the Company is
not then the Paying Agent, the Company will cause the Paying Agent to, pay all
principal, interest, Additional Interest, if any, and premium, if any, on that
Holder’s Notes in accordance with the instructions; all other payments of the
principal of (and premium, if any), interest and Additional Interest, if any,
on the Notes shall be payable at the office or agency of the Company maintained
for such purpose in The City of New York, or at such other office or agency of
the Company as may be maintained for such purpose pursuant to Section 2.3; provided, however, that, at the option of the Company,
each installment of interest and Additional Interest, if any, may be paid by
check mailed to addresses of the Persons entitled thereto as such addresses
shall appear on the Note Register. 
Payments in respect of Notes represented by a Global Note (including
principal, premium and interest and Additional Interest, 

 

35

 

if
any) will be made by wire transfer of immediately available funds to the
accounts specified by DTC.

 

The Notes may have
notations, legends or endorsements required by law, stock exchange Rule or
usage, in addition to those set forth on Exhibit A and Exhibit B
and in Section 2.1(d).  The
Company shall approve the forms of the Notes and any notation, endorsement or
legend on them.  Each Note shall be dated
the date of its authentication.  The
terms of the Notes set forth in Exhibit A and Exhibit B
are part of the terms of this Indenture and, to the extent applicable, the
Company, the Guarantors and the Trustee, by their execution and delivery of
this Indenture, expressly agree to be bound by such terms.

 

(c)           Denominations.  The Notes shall be issuable only in fully
registered form, without coupons, and only in denominations of $1,000 and any
integral multiple thereof.

 

(d)           Legends.  Unless and until (i) an Initial Note or
an Additional Restricted Note is sold under an effective registration statement
or (ii) an Initial Note or an Additional Restricted Note is exchanged for
an Exchange Note in connection with an effective registration statement, in
each case pursuant to the Registration Rights Agreement or a similar agreement,

 

(i)            the Initial Note or Additional Restricted Note, as the
case may be, shall bear the following legend (the “Private Placement Legend”)
on the face thereof:

 

THE NOTES AND THE GUARANTEES
EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED (THE ‘‘SECURITIES ACT’’), AND MAY NOT BE OFFERED,
SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) (1) TO A PERSON WHO
THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH
RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT
TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE), (4) TO AN INSTITUTIONAL INVESTOR THAT IS AN
ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501 OF REGULATION D UNDER THE
SECURITIES ACT IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS.

 

(ii)           the Initial Note or Additional Restricted Note, as the
case may be, shall bear the following legend on the face thereof:

 

36

 

THIS NOTE IS ISSUED WITH ORIGINAL ISSUE
DISCOUNT FOR PURPOSES OF SECTION 1271 ET SEQ. OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED, AND THE RULES AND REGULATIONS THEREUNDER. FOR EACH $1,000
PRINCIPAL AMOUNT OF THIS NOTE, (1) THE ISSUE PRICE IS $950.30; (2) THE
AMOUNT OF THE ORIGINAL ISSUE DISCOUNT IS $49.70; (3) THE ISSUE DATE IS
OCTOBER 7, 2009; AND (4) THE YIELD TO MATURITY IS 12.50% PER ANNUM.

 

(iii)                               The Global
Notes, whether or not an Initial Note, shall bear the following legend on the
face thereof:

 

“UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION (“DTC”), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

 

TRANSFERS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A
SUCCESSOR THEREOF OR SUCH SUCCESSOR’S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.”

 

(e)                                  Book-Entry
Provisions.

 

(i)                                     This Section 2.1(e) shall
apply only to Global Notes deposited with the Trustee, as custodian for DTC.

 

(ii)                                  Each Global Note initially shall (x) be registered in the name of DTC
for such Global Note or the nominee of DTC, (y) be delivered to the
Trustee as custodian for DTC and (z) bear legends as set forth in Section 2.1(d).

 

(iii)                               Members of, or
participants in, DTC (“Agent Members”) shall have no rights under this
Indenture with respect to any Global Note held on their behalf by DTC or by the
Trustee as the custodian of DTC or under such Global Note, and DTC may be
treated by the Company, the Trustee and any agent of the Company or the Trustee
as the absolute owner of such Global Note for all purposes whatsoever.  Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, 

 

37

 

proxy or other authorization
furnished by DTC or impair, as between DTC and its Agent Members, the operation
of customary practices of DTC governing the exercise of the rights of a Holder
of a beneficial interest in any Global Note.

 

(iv)                              In connection
with any transfer of a portion of the beneficial interest in a Global Note
pursuant to subsection (f) of this Section 2.1 to
beneficial owners who are required to hold Definitive Notes, the Securities
Custodian shall reflect on its books and records the date and a decrease in the
principal amount of such Global Note in an amount equal to the principal amount
of the beneficial interest in the Global Note to be transferred, and the
Company shall execute, and the Trustee shall authenticate and deliver, one or
more Definitive Notes of like tenor and amount.

 

(v)                                 In connection
with the transfer of an entire Global Note to beneficial owners pursuant to
subsection (f) of this Section 2.1, such Global Note shall be
deemed to be surrendered to the Trustee for cancellation, and the Company shall
execute, and the Trustee shall authenticate and deliver, to each beneficial
owner identified by DTC in exchange for its beneficial interest in such Global
Note, an equal aggregate principal amount of Definitive Notes of authorized
denominations.

 

(vi)                              The registered
Holder of a Global Note may grant proxies and otherwise authorize any person,
including Agent Members and persons that may hold interests through Agent
Members, to take any action which a Holder is entitled to take under this
Indenture or the Notes.

 

(f)                                    Definitive
Notes.

 

(i)                                     Except as
provided below, owners of beneficial interests in Global Notes will not be
entitled to receive Definitive Notes.  If
required to do so pursuant to any applicable law or regulation, beneficial
owners may obtain Definitive Notes in exchange for their beneficial interests
in a Global Note upon written request in accordance with DTC’s and the
Registrar’s procedures.  In addition,
Definitive Notes shall be transferred to all beneficial owners in exchange for
their beneficial interests in a Global Note if (a) DTC notifies the
Company that it is unwilling or unable to continue as depositary for such
Global Note or DTC ceases to be a clearing agency registered under the Exchange
Act, at a time when DTC is required to be so registered in order to act as
depositary, and in each case a successor depositary is not appointed by the
Company within 90 days of such notice or (b) an Event of Default has
occurred and is continuing and the Trustee has received a request from DTC.

 

(ii)                                  Any Definitive
Note delivered in exchange for an interest in a Global Note pursuant to Section 2.1(e)(iv) or
(v) shall, except as otherwise provided by Section 2.6(c),
bear the Private Placement Legend set forth in Section 2.1(d).

 

(iii)                               In connection
with the exchange of a portion of a Definitive Note for a beneficial interest
in a Global Note, the Trustee shall cancel such Definitive Note, and the
Company shall execute, and the Trustee shall authenticate and deliver, to the 

 

38

 

transferring Holder a new
Definitive Note representing the principal amount not so transferred.

 

Section 2.2                                      Execution and
Authentication.  One Officer
of the Company shall sign the Notes for the Company by manual or facsimile
signature.  If an Officer whose signature
is on a Note no longer holds that office at the time the Trustee authenticates
the Note, the Note shall be valid nevertheless, after giving effect to any
exchange of Initial Notes for Exchange Notes.

 

A Note shall not be valid until
an authorized signatory of the Trustee manually authenticates the Note.  The signature of the Trustee on a Note shall
be conclusive evidence that such Note has been duly and validly authenticated
and issued under this Indenture.  A Note
shall be dated the date of its authentication.

 

At any time and from time to
time after the execution and delivery of this Indenture, the Trustee shall
authenticate and make available for delivery: 
(1) Initial Notes for original issue on the Issue Date in an
aggregate principal amount of $150,000,000, (2) Additional Notes for
original issue and (3) Exchange Notes for issue only in an exchange offer
pursuant to the Registration Rights Agreement, and only in exchange for Initial
Notes or Additional Notes of an equal principal amount, in each case upon a
written order of the Company signed by two Officers of the Company or by an
Officer and either an Assistant Treasurer or an Assistant Secretary of the
Company (the “Company Order”).  Such
Company Order shall specify the amount of the Notes to be authenticated and the
date on which the original issue of Notes is to be authenticated and whether
the Notes are to be Initial Notes, Additional Notes or Exchange Notes.

 

The Trustee may appoint an
agent (the “Authenticating Agent”) reasonably acceptable to the Company
to authenticate the Notes.  Unless
limited by the terms of such appointment, any such Authenticating Agent may
authenticate Notes whenever the Trustee may do so.  Each reference in this Indenture to
authentication by the Trustee includes authentication by the Authenticating
Agent.

 

In case the Company or any
Guarantor, pursuant to Article IV or Section 10.2,
shall be consolidated or merged with or into any other Person or shall convey,
transfer, lease or otherwise dispose of all or substantially all of its
properties and assets to any Person, and the successor Person resulting from
such consolidation, or surviving such merger, or into which any Company or any
Guarantor shall have been merged, or the Person which shall have received a
conveyance, transfer, lease or other disposition as aforesaid, shall have
executed an indenture supplemental hereto with the Trustee pursuant to Article IV,
any of the Notes authenticated or delivered prior to such consolidation,
merger, conveyance, transfer, lease or other disposition may, from time to
time, at the request of the successor Person, be exchanged for other Notes
executed in the name of the successor Person with such changes in phraseology
and form as may be appropriate, but otherwise in substance of like tenor as the
Notes surrendered for such exchange and of like principal amount; and the
Trustee, upon Company Order of the successor Person, shall authenticate and
deliver Notes as specified in such order for the purpose of such exchange.  If Notes shall at any time be authenticated
and delivered in any new name of a successor Person pursuant to this Section 2.2
in exchange or substitution for or upon registration of transfer of any Notes,
such successor Person, at the option of the Holders but without expense 

 

39

 

to
them, shall provide for the exchange of all Notes at the time outstanding for
Notes authenticated and delivered in such new name.

 

Section 2.3                                      Registrar and
Paying Agent.  The Company
shall maintain an office or agency where Notes may be presented for
registration of transfer or for exchange (the “Registrar”) and an office
or agency where Notes may be presented for payment (the “Paying Agent”).  The Company shall cause each of the Registrar
and the Paying Agent to maintain an office or agency in the Borough of
Manhattan, The City of New York.  The
Registrar shall keep a register of the Notes and of their transfer and exchange
(the “Note Register”).  The
Company may have one or more co-registrars and one or more additional paying
agents.  The term “Paying Agent” includes
any additional paying agent.

 

The Company shall enter into
an appropriate agency agreement with any Registrar, Paying Agent or
co-registrar not a party to this Indenture, which shall incorporate the terms
of the TIA.  The agreement shall
implement the provisions of this Indenture that relate to such agent.  The Company shall notify the Trustee of the
name and address of each such agent.  If
the Company fails to maintain a Registrar or Paying Agent, the Trustee shall
act as such and shall be entitled to appropriate compensation therefor pursuant
to Section 7.7.  The Company
or any of its Restricted Subsidiaries may act as Paying Agent, Registrar,
co-registrar or transfer agent.

 

The Company initially
appoints the Trustee as Registrar and Paying Agent for the Notes.

 

Section 2.4                                      Paying Agent to
Hold Money in Trust.  By no later
than 11:00 a.m. (New York City time) on the date on which any principal
of, premium, if any, on or interest and Additional Interest, if any, on, any
Note is due and payable, the Company shall deposit with the Paying Agent a sum
sufficient in immediately available funds to pay such principal, premium,
interest and Additional Interest, if any, when due.  The Company shall require each Paying Agent
(other than the Trustee) to agree in writing that such Paying Agent shall hold
in trust for the benefit of the Holders or the Trustee all money held by such
Paying Agent for the payment of principal of, or premium, if any, on, and
interest and Additional Interest, if any, on, the Notes and shall notify the
Trustee in writing of any default by the Company or any Guarantor in making any
such payment.  If the Company or a
Subsidiary acts as Paying Agent, it shall segregate the money held by it as
Paying Agent and hold it as a separate trust fund.  The Company at any time may require a Paying
Agent (other than the Trustee) to pay all money held by it to the Trustee and
to account for any funds disbursed by such Paying Agent.  Upon complying with this Section 2.4,
the Paying Agent (if other than the Company or a Subsidiary) shall have no
further liability for the money delivered to the Trustee.  Upon any bankruptcy, reorganization or
similar proceeding with respect to the Company, the Trustee shall serve as
Paying Agent for the Notes.

 

Section 2.5                                      Holder Lists.  The Trustee shall preserve in as current a
form as is reasonably practicable the most recent list available to it of the
names and addresses of Holders.  If the
Trustee is not the Registrar, or to the extent otherwise required under the
TIA, the Company shall furnish to the Trustee, in writing at least five
Business Days before each interest 

 

40

 

payment
date and at such other times as the Trustee may request in writing, a list in
such form and as of such date as the Trustee may reasonably require of the
names and addresses of Holders.

 

Section 2.6                                      Transfer and
Exchange.

 

(a)                                  The following
provisions shall apply with respect to any proposed transfer of a Rule 144A
Note prior to the date which is one year after the later of the date of its
original issue and the last date on which the Company or any Affiliate of the
Company was the owner of such Notes (or any predecessor thereto) (the “Resale
Restriction Termination Date”):

 

(i)                                     a transfer of a
Rule 144A Note or a beneficial interest therein to a QIB shall be made
upon the representation of the transferee in the form as set forth on the
reverse of the Note that it is purchasing for its own account or an account
with respect to which it exercises sole investment discretion and that it and
any such account is a “qualified institutional buyer” within the meaning of Rule 144A,
and is aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding the Company as
the undersigned has requested pursuant to Rule 144A or has determined not
to request such information and that it is aware that the transferor is relying
upon its foregoing representations in order to claim the exemption from
registration provided by Rule 144A; and

 

(ii)                                  a transfer of a
Rule 144A Note or a beneficial interest therein to a Non-U.S. Person shall
be made upon receipt by the Trustee or its agent of a certificate substantially
in the form set forth in Section 2.7(a) from the proposed
transferor and, if requested by the Company or the Trustee, the delivery of an
opinion of counsel, certification and/or other information satisfactory to each
of them.

 

(b)                                 The following
provisions shall apply with respect to any proposed transfer of a Regulation S
Note prior to the expiration of the Distribution Compliance Period:

 

(i)                                     a transfer of a
Regulation S Note or a beneficial interest therein to a QIB shall be made upon:
(A) the delivery by the transferor of a written certificate substantially
in the form set forth in Section 2.7(b); and (B) the
representation of the transferee, in the form of assignment on the reverse of
the certificate, that it is purchasing the Note for its own account or an
account with respect to which it exercises sole investment discretion and that
it and any such account is a “qualified institutional buyer” within the meaning
of Rule 144A, and is aware that the sale to it is being made in reliance
on Rule 144A and acknowledges that it has received such information
regarding the Company as the undersigned has requested pursuant to Rule 144A
or has determined not to request such information and that it is aware that the
transferor is relying upon its foregoing representations in order to claim the
exemption from registration provided by Rule 144A; and

 

(ii)                                  a transfer of a
Regulation S Note or a beneficial interest therein to a Non-U.S. Person shall
be made upon receipt by the Trustee or its agent of a certificate substantially
in the form set forth in Section 2.7(a) from the proposed
transferor and, if 

 

41

 

requested by the Company or
the Trustee, receipt by the Trustee or its agent of an opinion of counsel,
certification and/or other information satisfactory to each of them.

 

After the expiration of the
Distribution Compliance Period, interests in the Regulation S Note may be
transferred without requiring the certification set forth in Section 2.7
or any additional certification.

 

(c)                                  Private
Placement Legend.  Upon the
transfer, exchange or replacement of Notes not bearing a Private Placement
Legend, the Registrar shall deliver Notes that do not bear a Private Placement
Legend unless such transferee is an affiliate (as defined in Rule 144) of
the Company.  Upon the transfer, exchange
or replacement of Notes bearing a Private Placement Legend, the Registrar shall
deliver only Notes that bear a Private Placement Legend unless there is
delivered to the Registrar an Opinion of Counsel to the effect that neither
such legend nor the related restrictions on transfer are required in order to
maintain compliance with the provisions of the Securities Act.

 

(d)                                 The Registrar
shall retain copies of all letters, notices and other written communications
received pursuant to Section 2.1 or this Section 2.6.  The Company shall have the right to inspect
and make copies of all such letters, notices or other written communications at
any reasonable time upon the giving of reasonable prior written notice to the
Registrar.

 

(e)                                  Obligations
with Respect to Transfers and Exchanges of Notes:

 

(i)                                     To permit
registrations of transfers and exchanges, the Company shall, subject to the
other terms and conditions of this Article II, execute, and the
Trustee shall authenticate, Definitive Notes and Global Notes at the Registrar’s
or co-registrar’s request.

 

(ii)                                  No service
charge shall be made to a Holder for any registration of transfer or exchange,
but the Company may require payment of a sum sufficient to cover any transfer
tax, assessments, or similar governmental charge payable in connection
therewith (other than any such transfer taxes, assessments or similar
governmental charges payable upon exchange or transfer pursuant to Sections
3.7, 3.9, 5.8 or 9.5).

 

(iii)                               The Registrar
or co-registrar shall not be required to register the transfer or exchange of (i) any
Notes selected for redemption (except in the case of Notes to be redeemed in
part, the portion of the Note not to be redeemed) or (ii) any Notes for a
period beginning 15 days before a selection of Notes to be redeemed.

 

(iv)                              Prior to the
due presentation for registration of transfer of any Note, the Company, the
Trustee, the Paying Agent, the Registrar or any co-registrar may deem and treat
the person in whose name a Note is registered as the absolute owner of such
Note for the purpose of receiving payment of principal of, premium, if any, on
and interest and Additional Interest, if any, on, such Note and for all other
purposes whatsoever, whether or not such Note is overdue, and none of the
Company, the Trustee, the Paying Agent, the Registrar or any co-registrar shall
be affected by notice to the contrary.

 

42

 

(v)                                 Any Definitive
Note delivered in exchange for an interest in a Global Note pursuant to Section 2.1(e) shall,
except as otherwise provided by Section 2.6(c), bear the Private
Placement Legend set forth in Section 2.1(d).

 

(vi)                              All Notes
issued upon any transfer or exchange pursuant to the terms of this Indenture
shall evidence the same debt and shall be entitled to the same benefits under
this Indenture as the Notes surrendered upon such transfer or exchange.

 

(f)                                    No Obligation
of the Trustee.

 

(i)                                     The Trustee
shall have no responsibility or obligation to any beneficial owner of a Global
Note, a member of, or a participant in, DTC or other Person with respect to the
accuracy of the records of DTC or its nominee or of any participant or member
thereof, with respect to any ownership interest in the Notes or with respect to
the delivery to any participant, member, beneficial owner or other Person
(other than DTC) of any notice (including any notice of redemption) or the
payment of any amount or delivery of any Notes (or other Note or property)
under or with respect to such Notes.  All
notices and communications to be given to the Holders and all payments to be
made to Holders in respect of the Notes shall be given or made only to or upon
the order of the registered Holders (which shall be DTC or its nominee in the
case of a Global Note).  The rights of
beneficial owners in any Global Note shall be exercised only through DTC
subject to the applicable rules and procedures of DTC.  The Trustee may rely and shall be fully
protected in relying upon information furnished by DTC with respect to its
members, participants and any beneficial owners.

 

(ii)                                  The Trustee
shall have no obligation or duty to monitor, determine or inquire as to
compliance with any restrictions on transfer imposed under this Indenture or
under applicable law with respect to any transfer of any interest in any Note
(including any transfers between or among DTC participants, members or
beneficial owners in any Global Note) other than to require delivery of such
certificates and other documentation or evidence as are expressly required by,
and to do so if and when expressly required by, the terms of this Indenture,
and to examine the same to determine substantial compliance as to form with the
express requirements hereof.

 

Section 2.7                                      Form of
Certificates to be Delivered in Connection with Certain Transfers.

 

(a)

 

[Date]

 

Venoco, Inc.

c/o U.S. Bank National

                   Association, as
Trustee

950 17th Street, 12th Floor

Denver, Colorado  80202

Attention:  Corporate Trust Services

 

43

 

Re:                              Venoco, Inc.

11.50%
Senior Notes due 2017 (the “Notes”)

 

Ladies and Gentlemen:

 

In connection with our
proposed sale of
$                      
aggregate principal amount of the Notes, we confirm that such sale has been
effected pursuant to and in accordance with Regulation S under the United
States Securities Act of 1933, as amended (the “Securities Act”), and,
accordingly, we represent that:

 

(i)                                     the offer of
the Notes was not made to a person in the United States;

 

(ii)                                  either (1) at
the time the buy order was originated, the transferee was outside the United
States or we and any person acting on our behalf reasonably believed that the
transferee was outside the United States or (2) the transaction was
executed in, on or through the facilities of a designated off-shore securities
market and neither we nor any person acting on our behalf knows that the
transaction has been pre-arranged with a buyer in the United States;

 

(iii)                               no directed
selling efforts have been made in the United States in contravention of the
requirements of Rule 903 or Rule 904 of Regulation S, as applicable;

 

(iv)                              the transaction
is not part of a plan or scheme to evade the registration requirements of the Securities
Act; and

 

(v)                                 we have advised
the transferee of the transfer restrictions applicable to the Notes.

 

In addition, if the sale is
made during the Distribution Compliance Period, we confirm that the interest
sold will be held immediately thereafter through the Euroclear System or
Clearstream Banking, socíeté anonyme.

 

You and the Company are
entitled to rely upon this letter and are irrevocably authorized to produce
this letter or a copy hereof to any interested party in any administrative or
legal proceedings or official inquiry with respect to the matters covered
hereby.  Terms used in this certificate
have the meanings set forth in Regulation S.

 

	
  Very
  truly yours,

  	
   

  
	
   

  	
   

  
	
  [Name
  of Transferor]

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
  Authorized
  Signature

  	
   

  

 

44

 

(b)

 

[Date]

 

Venoco, Inc.

c/o U.S. Bank National

      Association, as Trustee

950 17th Street, 12th Floor

Denver, Colorado  80202

Attention:  Corporate Trust Services

 

Re:          Venoco, Inc.

11.50%
Senior Notes due 2017 (the “Notes”)

 

Ladies and Gentlemen:

 

This Certificate relates to
$                          
principal amount of the above captioned Notes held in definitive form (the “Securities”)
by
                                          
(the “Transferor”).

 

The
Transferor has requested the Trustee by written order to exchange or register
the transfer of a Security or Securities.

 

In connection with such
request and in respect of each such Security, the Transferor does hereby
certify that such Security is being transferred to person whom the Transferor
reasonably believes to be a “qualified institutional buyer” (as defined in Rule 144A
under the Securities Act), in reliance on Rule 144A under the Securities
Act and in accordance with any applicable securities laws of any state of the
United States or any other jurisdiction, that is purchasing for its own account
or for the account of another qualified institutional buyer, in each case to
whom notice is given that the transfer is being made in reliance on Rule 144A.

 

	
   

  	
  Very
  truly yours,

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  [Name
  of Transferor]

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Authorized
  Signature

  	
   

  
				

 

Section 2.8             Mutilated,
Destroyed, Lost or Wrongfully Taken Notes.  If a mutilated Note is surrendered to the
Registrar or if the Holder of a Note claims that the Note has been lost,
destroyed or wrongfully taken, the Company shall issue and the Trustee shall
authenticate a replacement Note if the requirements of Section 8 405 of
the Uniform Commercial Code are met, such that the Holder (a) satisfies
the Company or the Trustee within a reasonable time after such Holder has
notice of such loss, destruction or wrongful taking and the Registrar does not
register a transfer prior to receiving such notification, (b) makes such
request to the Company or Trustee prior to the Note being acquired by a
protected purchaser as defined in Section 8 303 of the Uniform Commercial
Code (a “protected purchaser”) and (c) satisfies any other
reasonable requirements of the Trustee. 
If required by the Trustee or the Company, such Holder shall furnish an
indemnity bond sufficient in the judgment of the Company and the Trustee to
protect the Company, the Trustee, the Paying Agent, the Registrar and any
co-registrar 

 

45

 

from
any loss which any of them may suffer if a Note is replaced, and, in the
absence of notice to the Company or the Trustee that such Note has been
acquired by a protected purchaser, the Company shall execute and, upon a
Company Order, the Trustee shall authenticate and make available for delivery,
in exchange for any such mutilated Note or in lieu of any such destroyed, lost
or wrongfully taken Note, a new Note of like tenor and principal amount,
bearing a number not contemporaneously outstanding.

 

In case any such mutilated,
destroyed, lost or wrongfully taken Note has become or is about to become due
and payable, the Company in its discretion may, instead of issuing a new Note,
pay such Note.

 

Upon the issuance of any new
Note under this Section 2.8, the Company may require the payment of
a sum sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto and any other expenses (including the fees and
expenses of the Trustee) in connection therewith.

 

Every new Note issued
pursuant to this Section in lieu of any mutilated, destroyed, lost or
wrongfully taken Note shall constitute an original additional contractual
obligation of the Company, any Guarantor (if applicable) and any other obligor
upon the Notes, whether or not the mutilated, destroyed, lost or wrongfully
taken Note shall be at any time enforceable by anyone, and shall be entitled to
all benefits of this Indenture equally and proportionately with any and all
other Notes duly issued hereunder.

 

The provisions of this Section 2.8
are exclusive and shall preclude (to the extent lawful) all other rights and
remedies with respect to the replacement or payment of mutilated, destroyed,
lost or wrongfully taken Notes.

 

Section 2.9             Outstanding
Notes.  Notes outstanding at any time
are all Notes authenticated by the Trustee except for those canceled by it,
those delivered to it for cancellation and those described in this Section 2.9
as not outstanding.  A Note ceases to be
outstanding in the event the Company or a Subsidiary of the Company holds the
Note, provided, however, that (i) for
purposes of determining which are outstanding for consent or voting purposes
hereunder, the provisions of Section 12.6 shall apply and (ii) in
determining whether the Trustee shall be protected in making a determination
whether the Holders of the requisite principal amount of outstanding Notes are
present at a meeting of Holders of Notes for quorum purposes or have consented
to or voted in favor of any request, demand, authorization, direction, notice,
consent, waiver, amendment or modification hereunder, or relying upon any such
quorum, consent or vote, only Notes which a Trust Officer of the Trustee
actually knows to be held by the Company or an Affiliate of the Company shall
not be considered outstanding.

 

If a Note is replaced
pursuant to Section 2.8, it ceases to be outstanding unless the
Trustee and the Company receive proof satisfactory to them that the replaced
Note is held by a protected purchaser.

 

If the Paying Agent
segregates and holds in trust, in accordance with this Indenture, on a Redemption
Date or maturity date money sufficient to pay all principal, premium, if any,
and interest and Additional Interest, if any, payable on that date with respect
to 

 

46

 

the
Notes (or portions thereof) to be redeemed or maturing, as the case may be, and
the Paying Agent is not prohibited from paying such money to the Holders on
that date pursuant to the terms of this Indenture, then on and after that date
such Notes (or portions thereof) cease to be outstanding and interest on them
ceases to accrue.

 

Section 2.10           Cancellation.  The Company at any time may deliver Notes to
the Trustee for cancellation.  The
Registrar and the Paying Agent shall forward to the Trustee any Notes
surrendered to them for registration of transfer, exchange or payment.  The Trustee and no one else shall cancel all
Notes surrendered for registration of transfer, exchange, payment or
cancellation and destroy such Notes in accordance with its internal policies,
including delivery of a certificate (a “Certificate of Destruction”) to
the Company describing such Notes disposed (subject to the record retention
requirements of the Exchange Act).  The
Company may not issue new Notes to replace Notes it has paid or delivered to
the Trustee for cancellation for any reason other than in connection with a
transfer or exchange.

 

Section 2.11           Payment of
Interest; Defaulted Interest.  Interest and Additional Interest, if any, on
any Note which is payable, and is punctually paid or duly provided for, on any
interest payment date shall be paid to the Person in whose name such Note (or
one or more predecessor Notes) is registered at the close of business on the
regular record date for such interest at the office or agency of the Company
maintained for such purpose pursuant to Section 2.3.

 

Any interest and Additional
Interest, if any, on any Note which is payable, but is not paid when the same
becomes due and payable and such nonpayment continues for a period of 30 days
shall forthwith cease to be payable to the Holder on the regular record date,
and such defaulted interest and (to the extent lawful) interest on such
defaulted interest at the rate borne by the Notes (such defaulted interest and
interest thereon herein collectively called “Defaulted Interest”) shall
be paid by the Company, at its election in each case, as provided in clause (a) or
(b) below:

 

(a)           The Company may
elect to make payment of any Defaulted Interest to the Persons in whose names
the Notes (or their respective predecessor Notes) are registered at the close
of business on a Special Record Date (as defined below) for the payment of such
Defaulted Interest, which shall be fixed in the following manner.  The Company shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid on each Note
and the date (not less than 30 days after such notice) of the proposed payment
(the “Special Interest Payment Date”), and at the same time the Company
shall deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date of
the proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this clause
provided.  Thereupon the Trustee shall
fix a record date (the “Special Record Date”) for the payment of such
Defaulted Interest, which date shall be not more than 15 days and not less than
10 days prior to the Special Interest Payment Date and not less than 10 days
after the receipt by the Trustee of the notice of the proposed payment.  The Trustee shall promptly notify the Company
of such Special Record Date, and in the name and at the expense of the Company,
shall cause notice of the proposed payment of such Defaulted Interest and the
Special Record Date and Special Interest Payment Date therefor to be given in 

 

47

 

the
manner provided for in Section 12.2, not less than 10 days prior to
such Special Record Date.  Notice of the
proposed payment of such Defaulted Interest and the Special Record Date and
Special Interest Payment Date therefor having been so given, such Defaulted
Interest shall be paid on the Special Interest Payment Date to the Persons in
whose names the Notes (or their respective predecessor Notes) are registered at
the close of business on such Special Record Date and shall no longer be
payable pursuant to the following clause (b).

 

(b)           The Company may
make payment of any Defaulted Interest in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Notes may be listed, and upon such notice as may be required by such exchange,
if, after notice given by the Company to the Trustee of the proposed payment
pursuant to this clause, such manner of payment shall be deemed practicable by
the Trustee.

 

Subject to the foregoing
provisions of this Section 2.11, each Note delivered under this
Indenture upon registration of, transfer of or in exchange for or in lieu of
any other Note shall carry the rights to interest and Additional Interest, if
any, each as accrued and unpaid, and to accrue, which were carried by such
other Note.

 

Section 2.12           Computation of
Interest.  Interest on
the Notes shall be computed on the basis of a 360 day year of twelve 30 day
months.

 

Section 2.13           CUSIP Numbers.  The Company in issuing the Notes may use “CUSIP”
numbers (if then generally in use) and, if so, the Trustee shall use “CUSIP”
numbers in notices of redemption as a convenience to Holders; provided, however, that any such notice may state that no
representation is made as to the correctness of such numbers either as printed
on the Notes or as contained in any notice of a redemption and that reliance
may be placed only on the other identification numbers printed on the Notes,
and any such redemption shall not be affected by any defect in or omission of
such CUSIP numbers.  The Company shall
promptly notify the Trustee in writing of any change in the CUSIP numbers.

 

ARTICLE III

 

Covenants

 

Section 3.1             Payment of
Notes.  The Company shall promptly pay
the principal of, premium, if any, on, and interest and Additional Interest, if
any, on, the Notes on the dates and in the manner provided in the Notes and in
this Indenture.  Principal, premium, if
any, interest and Additional Interest, if any, shall be considered paid on the
date due if on such date the Trustee or the Paying Agent holds in accordance
with this Indenture immediately available funds sufficient to pay all
principal, premium, interest and Additional Interest, if any, then due and the
Trustee or Paying Agent, as the case may be, is not prohibited from paying
money to the Holders on that date pursuant to the terms of this Indenture.

 

The Company shall pay
interest on overdue principal at the rate specified therefor in the Notes, and
it shall pay interest on overdue installments of interest at the same rate to
the extent lawful.

 

48

 

Notwithstanding anything to
the contrary contained in this Indenture, the Company may, to the extent it is
required to do so by law, deduct or withhold income or other similar taxes
imposed by the United States of America from principal or interest payments
hereunder.

 

Section 3.2             Reports.  Whether or not required by the Commission, so
long as any Notes are outstanding, the Company will file with the Commission
for public availability within the time periods specified in the Commission’s rules and
regulations (unless the Commission will not accept such a filing), and the
Company will furnish to the Trustee and, upon its request, to any of the
Holders of Notes, within five Business Days of filing, or attempting to file,
the same with the Commission:

 

(a)           all quarterly
and annual financial and other information with respect to the Company and its
Subsidiaries that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and, with respect to the annual information only, a
report on the annual financial statements by the Company’s certified
independent accountants; and

 

(b)           all current
reports that would be required to be filed with the Commission on Form 8-K
if the Company were required to file such reports; provided,
however, that if the Company ceases to be subject to the reporting requirements
under Section 13(a) or 15(d) of the Exchange Act such
information and reports may exclude any certifications, reports or other
information required to be a part of, or filed with, such reports pursuant to
the provisions of the Sarbanes Oxley Act of 2002 or the rules and
regulations of the Commission thereunder.

 

If the Company has
designated any of its Subsidiaries as Unrestricted Subsidiaries, then the
quarterly and annual financial information required by the preceding paragraph
will include a reasonably detailed presentation, either on the face of the
financial statements or in the footnotes thereto, and in “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”, of
the financial condition and results of operations of the Company and its
Restricted Subsidiaries separate from the financial condition and results of
operations of the Unrestricted Subsidiaries of the Company.

 

In addition, the Company and
the Guarantors shall, for so long as any Notes remain outstanding, furnish to
the Holders and to securities analysts and prospective investors in the Notes,
upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under
the Securities Act, so long as the Notes are not freely transferable under the
Securities Act.

 

Section 3.3             Incurrence of
Indebtedness and Issuance of Preferred Stock.

 

(a)           The Company
will not, and will not permit any of its Restricted Subsidiaries to, directly
or indirectly, create, incur, issue, assume, Guarantee or otherwise become
directly or indirectly liable, contingently or otherwise, with respect to
(collectively, “incur”) any Indebtedness (including Acquired Debt),
neither the Company nor any Restricted Subsidiary will issue any Disqualified
Stock, and the Company will not permit any of its 

 

49

 

Restricted
Subsidiaries to issue any shares of Preferred Stock; provided,
however, that the Company and any Guarantor may incur Indebtedness
(including Acquired Debt) or issue Disqualified Stock, if the Fixed Charge Coverage
Ratio for the Company’s most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness or such Disqualified Stock is issued would
have been at least 2.5 to 1.0, determined on a pro forma basis (including a pro
forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred or Disqualified Stock had been issued, as the
case may be, at the beginning of such four-quarter period.

 

(b)           The provisions
of Section 3.3(a) hereof shall not prohibit the incurrence of any of
the following items of Indebtedness (collectively, “Permitted Debt”):

 

(i)            the incurrence by the
Company or any of its Restricted Subsidiaries of Indebtedness (including
letters of credit) under one or more Credit Facilities in an aggregate
principal amount at any one time outstanding under this clause (1) (with
letters of credit being deemed to have a principal amount equal to the maximum
potential liability of the Company and its Restricted Subsidiaries thereunder)
not to exceed an amount equal to the greater of (i) $50,000,000 or (ii) 30%
of Adjusted Consolidated Net Tangible Assets determined as of the date of the
incurrence of such Indebtedness;

 

(ii)           the incurrence by the
Company or any of its Restricted Subsidiaries of the Existing Indebtedness;

 

(iii)          the incurrence by the
Company and the Guarantors of Indebtedness represented by the Notes and the
related Subsidiary Guarantees to be issued on the date of this Indenture and
the Exchange Notes and the related Subsidiary Guarantees to be issued pursuant
to any Registration Rights Agreement;

 

(iv)          the incurrence by the
Company or any of its Restricted Subsidiaries of Indebtedness represented by
Capital Lease Obligations, mortgage financings or purchase money obligations,
in each case, incurred for the purpose of financing all or any part of the
purchase price or cost of construction or improvement of property, plant or
equipment used in the business of the Company or such Restricted Subsidiary, in
an aggregate principal amount, including all Permitted Refinancing Indebtedness
incurred to refund, refinance or replace any Indebtedness incurred pursuant to
this clause (iv), not to exceed $20,000,000 at any time outstanding;

 

(v)           the incurrence by the
Company or any of its Restricted Subsidiaries of Permitted Refinancing
Indebtedness in exchange for, or the net proceeds of which are used to refund,
refinance or replace Indebtedness (other than intercompany Indebtedness) that
was permitted by this Indenture to be incurred under Section 3.3(a) hereof
or clause (ii) or (iii) of this Section 3.3(b) or
this clause (v);

 

50

 

(vi)          the incurrence by the
Company or any of its Restricted Subsidiaries of intercompany Indebtedness
between or among the Company and any of its Restricted Subsidiaries; provided, however, that:

 

(A)           if the Company is the
obligor on such Indebtedness and a Guarantor is not the obligee, such Indebtedness
must be expressly subordinated to the prior payment in full in cash of all
Obligations with respect to the Notes, or if a Guarantor is the obligor on such
Indebtedness and neither the Company nor another Guarantor is the obligee, such
Indebtedness must be expressly subordinated to the prior payment in full in
cash of all Obligations with respect to the Subsidiary Guarantee of such
Guarantor; and

 

(B)           (i) any subsequent
issuance or transfer of Equity Interests that results in any such Indebtedness
being held by a Person other than the Company or a Restricted Subsidiary of the
Company and (ii) any sale or other transfer of any such Indebtedness to a
Person that is neither the Company nor a Restricted Subsidiary of the Company
will be deemed, in each case, to constitute an incurrence of such Indebtedness
by the Company or such Restricted Subsidiary, as the case may be, that was not
permitted by this clause (vi);

 

(vii)         the incurrence by the
Company or any of its Restricted Subsidiaries of Hedging Obligations;

 

(viii)        the Guarantee by the Company
or any of the Restricted Subsidiaries of Indebtedness of the Company or any
Guarantor that was permitted to be incurred pursuant to Section 3.3(a) or
pursuant to clause (i), (iii), (iv), (vi), (vii), (ix), (xi), (xii) or
(xiii) of this Section 3.3(b) or pursuant to clause (v) of
this Section 3.3(b) to the extent that the Permitted
Refinancing Indebtedness incurred thereunder directly or indirectly refinances
Indebtedness incurred pursuant to Section 3.3(a) or pursuant
to clause (ii) or (iii) of this Section 3.3(b); and

 

(ix)           the incurrence by the
Company or any of its Restricted Subsidiaries of obligations relating to net
gas balancing positions arising in the ordinary course of business and
consistent with past practice;

 

(x)            the incurrence by the
Company’s Unrestricted Subsidiaries of Non-Recourse Debt, provided, however, that if any such
Indebtedness ceases to be Non-Recourse Debt of an Unrestricted Subsidiary, such
event will be deemed to constitute an incurrence of Indebtedness by a
Restricted Subsidiary of the Company that was not permitted by this
clause (x);

 

(xi)           the incurrence by the
Company or any of its Restricted Subsidiaries of Indebtedness in respect of
bid, performance, surety and similar bonds issued for the account of the
Company and any of its Restricted Subsidiaries in the ordinary course of
business, including Guarantees and obligations of the Company and any of its
Restricted Subsidiaries with respect to letters of credit supporting such
obligations (in each case, other than an obligation for money borrowed);

 

51

 

(xii)          the incurrence by the
Company or any of its Restricted Subsidiaries of Indebtedness arising from
agreements of the Company or any of its Restricted Subsidiaries providing for
indemnification, adjustment of purchase price or similar obligations, in each
case, incurred or assumed in connection with the disposition of any business,
assets or Capital Stock of a Subsidiary, provided
that the maximum aggregate liability in respect of all such Indebtedness shall
at no time exceed the gross proceeds actually received by the Company and its
Restricted Subsidiaries in connection with such disposition; and

 

(xiii)         the incurrence by the
Company or any of its Restricted Subsidiaries of additional Indebtedness in an
aggregate principal amount (or accreted value, as applicable) at any time
outstanding, not to exceed the greater of $20,000,000 or 5% of Adjusted
Consolidated Net Tangible Assets determined as of the date of the incurrence of
such Indebtedness.

 

For purposes of determining
compliance with this Section 3.3, in the event that an item of
Indebtedness (including Acquired Debt) meets the criteria of more than one of
the categories of Permitted Debt described in clauses (i) through (xiii)
of Section 3.3(b) above, or is entitled to be incurred
pursuant to Section 3.3(a) above, the Company will be
permitted to classify (or later classify or reclassify in whole or in part in
its sole discretion) such item of Indebtedness in any manner that complies with
this covenant; provided that all Indebtedness
outstanding on the Issue Date under the Credit Agreement shall be deemed
incurred under clause (b)(i) above and not under clause (a) or clause
(b)(ii) above.

 

The accrual of interest, the
accretion or amortization of original issue discount, the payment of interest
on any Indebtedness in the form of additional Indebtedness with the same terms,
and the payment of dividends on Disqualified Stock in the form of additional
shares of the same class of Disqualified Stock will not be deemed to be an
incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of
this Section 3.3.  The amount
of any Indebtedness outstanding as of any date shall be (i) the accreted
value thereof in the case of any Indebtedness issued with original issue
discount and (ii) the principal amount or liquidation preference thereof,
together with any interest thereon that is more than 30 days past due, in the
case of any other Indebtedness.

 

In addition, the Company
will not permit any of its Unrestricted Subsidiaries to incur any Indebtedness
or issue any shares of Disqualified Stock, other than Non-Recourse Debt.  If at any time an Unrestricted Subsidiary
becomes a Restricted Subsidiary, any Indebtedness of such Subsidiary shall be
deemed to be incurred by a Restricted Subsidiary of the Company as of such date
(and, if such Indebtedness is not permitted to be incurred as of such date
under this Section 3.3, the Company shall be in Default of this Section 3.3).

 

For purposes of determining
compliance with any U.S. dollar-denominated restriction on the incurrence of
Indebtedness, the U.S. dollar-equivalent principal amount of Indebtedness
denominated in a foreign currency shall be calculated based on the relevant
currency exchange rate in effect on the date such Indebtedness was incurred, in
the case of term Indebtedness, or first committed, in the case of revolving
credit Indebtedness; provided that
if such Indebtedness is incurred to refinance other Indebtedness denominated in
a foreign currency, 

 

52

 

and
such refinancing would cause the applicable U.S. dollar-denominated restriction
to be exceeded if calculated at the relevant currency exchange rate in effect
on the date of such refinancing, such U.S. dollar-denominated restriction shall
be deemed not to have been exceeded so long as the principal amount of such
refinancing Indebtedness does not exceed the principal amount of such Indebtedness
being refinanced (plus all accrued interest on the Indebtedness being
refinanced and the amount of all expenses and premiums incurred in connection
therewith).  Notwithstanding any other
provision of this covenant, the maximum amount of Indebtedness that the Company
or any Restricted Subsidiary may incur pursuant to this covenant shall not be
deemed to be exceeded solely as a result of fluctuations in the exchange rate
of currencies.  The principal amount of
any Indebtedness incurred to refinance other Indebtedness, if incurred in a
different currency from the Indebtedness being refinanced, shall be calculated
based on the currency exchange rate applicable to the currencies in which such
Permitted Refinancing Indebtedness is denominated that is in effect on the date
of such refinancing.

 

Section 3.4             Restricted
Payments.

 

(a)           The Company
will not, and will not permit any of its Restricted Subsidiaries to, directly
or indirectly:

 

(i)            declare or pay
any dividend or make any other payment or distribution on account of the
Company’s or any of its Restricted Subsidiaries’ Equity Interests or to the
direct or indirect holders of the Company’s or any of its Restricted
Subsidiaries’ Equity Interests in their capacity as such (other than dividends
or distributions payable in Equity Interests (other than Disqualified Stock) of
the Company or payable to the Company or a Restricted Subsidiary of the
Company);

 

(ii)           purchase, redeem or
otherwise acquire or retire for value (including, without limitation, in connection
with any merger or consolidation involving the Company) any Equity Interests of
the Company or any direct or indirect parent of the Company;

 

(iii)          make any payment on or with
respect to, or purchase, redeem, defease or otherwise acquire or retire for
value any Indebtedness that is subordinated to the Notes or the Subsidiary
Guarantees, except a payment of interest or principal at the Stated Maturity
thereof; or

 

(iv)          make any Restricted
Investment (all such payments and other actions set forth in these clauses (i) through
(iii) above being collectively referred to as “Restricted Payments”),

 

unless, at the time of and
after giving effect to such Restricted Payment:

 

(i)            no Default or Event of
Default has occurred and is continuing or would occur as a consequence of such
Restricted Payment;

 

(ii)           the Company would, at the
time of such Restricted Payment and after giving pro forma effect thereto, have
been permitted to incur at least $1.00 of 

 

53

 

additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in Section 3.3(a) above;
and

 

(iii)          such Restricted Payment,
together with the aggregate amount of all other Restricted Payments made by the
Company and its Restricted Subsidiaries after the date of this Indenture
(excluding Restricted Payments permitted by clauses (ii), (iii), (vi),
(vii), (viii) and (ix) of Section 3.4(b) below), is
less than the sum, without duplication, of:

 

(A)           50% of the Consolidated Net
Income of the Company for the period (taken as one accounting period) from the
beginning of the fiscal quarter commencing October 1, 2004 to the end of
the Company’s most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit); plus

 

(B)           100% of the aggregate Net
Cash Proceeds received by the Company (including the fair market value of any
Additional Assets to the extent acquired in consideration of Equity Interests
of the Company (other than Disqualified Stock)) since the date of this
Indenture as a contribution to its common equity capital or from the issue or
sale of Equity Interests of the Company (other than Disqualified Stock) (other
than Net Cash Proceeds received from an issuance or sale of such Capital Stock
to a Subsidiary of the Company or an employee stock ownership plan, option plan
or similar trust to the extent such sale to an employee stock ownership plan, option
plan or similar trust is financed by loans from or Guaranteed by the Company or
any Restricted Subsidiary unless such loans have been repaid with cash on or
prior to the date of determination); plus

 

(C)           the amount by which
Indebtedness of the Company is reduced on the Company’s balance sheet upon the
conversion or exchange (other than by a Subsidiary of the Company) subsequent
to the Issue Date of any Indebtedness of the Company convertible or
exchangeable for Capital Stock (other than Disqualified Stock) of the Company
(less the amount of any cash, or other property, distributed by the Company
upon such conversion or exchange); plus

 

(D)           the amount equal to the net
reduction in Restricted Investments made by the Company or any of its
Restricted Subsidiaries in any Person resulting from:

 

(1)            repurchases or redemptions
of such Restricted Investments by such Person, proceeds realized upon the sale
of such Restricted Investment to a purchaser other than the Company or a
Subsidiary, repayments of loans or advances or other transfers of assets
(including by way of dividend or distribution) by such Person to the Company or
any Restricted Subsidiary of the Company; or

 

54

 

(2)            the redesignation of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as
provided in the definition of “Investment”) not to exceed, in the case
of any Unrestricted Subsidiary, the amount of Investments previously made by
the Company or any Restricted Subsidiary in such Unrestricted Subsidiary,

 

which amount in each case under this
clause (D) was included in the calculation of the amount of
Restricted Payments; provided, however,
that no amount will be included under this clause (D) to the extent
it is already included in Consolidated Net Income.

 

(b)           So long as no
Default or Event of Default has occurred and is continuing or would be caused
thereby, the preceding provisions will not prohibit:

 

(i)            the payment of any dividend
within 60 days after the date of declaration of the dividend, or a redemption
payment after the giving of an irrevocable notice of redemption, if at the date
of declaration the dividend payment or redemption payment would have complied
with the provisions of this Indenture;

 

(ii)           the redemption, repurchase,
retirement, defeasance or other acquisition of any Subordinate Obligations of
the Company or any Guarantor or of any Equity Interests of the Company in
exchange for, or out of the Net Cash Proceeds of the substantially concurrent
sale (other than to a Subsidiary of the Company) of, Equity Interests of the
Company (other than Disqualified Stock and other than Capital Stock issued or
sold to a Subsidiary or an employee stock ownership plan or similar trust to the
extent such sale to an employee stock ownership plan or similar trust is
financed by loans from or Guaranteed by the Company or any Restricted
Subsidiary unless such loans have been repaid with cash on or prior to the date
of determination); provided, however,
that (a) such purchase or redemption will be excluded in subsequent
calculations of the amount of Restricted Payments and (b) the Net Cash
Proceeds from such sale will be excluded from clause (iii)(B) of Section 3.4(a);

 

(iii)          any defeasance, retirement,
purchase, redemption or other acquisition of Subordinated Obligations of the
Company or any Guarantor, as the case may be, made by exchange for, or out of
the proceeds of the substantially concurrent sale (other than to a Restricted
Subsidiary of the Company) of, Subordinated Obligations of the Company or any
Subsidiary Guarantor, as the case may be, that qualify as Permitted Refinancing
Indebtedness, provided that the obligors on such new Subordinated Obligations
shall not include obligors that were not obligors on the Subordinated
Obligations being defeased, retired, repurchased, redeemed or acquired; provided, however, that such defeasance, retirement,
purchase, redemption or acquisition will be excluded in subsequent calculations
of the amount of Restricted Payments;

 

(iv)          in the event of a Change of
Control, and if no Default shall have occurred and be continuing, the payment,
purchase, redemption, defeasance or other acquisition or retirement of
Subordinated Obligations of the Company or any Guarantor, in each case, at a
purchase price not greater than 101% of the principal amount of such 

 

55

 

Subordinated Obligations,
plus any accrued and unpaid interest therein; provided,
however, that prior to such payment, purchase, redemption,
defeasance or other acquisition or retirement, the Company (or a third party to
the extent permitted by the Indenture) has made a Change of Control Offer with
respect to the Notes as a result of such Change of Control and has repurchased
all Notes validly tendered and not withdrawn in connection with such Change of
Control Offer; provided further, however, that such repurchase and other acquisitions shall
be included in the calculation of the amount of Restricted Payments;

 

(v)           in the event of an Asset
Sale that requires the Company to offer to repurchase Notes pursuant to the
covenant described
under Section 3.7 hereof, and if no Default shall have occurred and
be continuing, the payment, purchase, redemption, defeasance or other
acquisition or retirement of Subordinated Obligations of the Company or
any Subsidiary Guarantor, in each case, at a purchase price not greater than
100% of the principal amount (or, if such Subordinated Obligations were issued
with original issue discount, 100% of the accreted value) of such Subordinated
Obligations, plus any accrued and unpaid interest thereon; provided,
however, that prior to such payment, purchase, redemption,
defeasance or other acquisition or retirement, the Company has made an Asset
Sale Offer with respect to the Notes pursuant to the provisions of the covenant
described under Section 3.7 hereof; provided
further, however, that such repurchases and other acquisitions shall
be included in the calculation of the amount of Restricted Payments);

 

(vi)          the payment of any dividend
by a Restricted Subsidiary of the Company to the holders of its Equity
Interests on a pro rata basis;

 

(vii)         the repurchase, redemption
or other acquisition or retirement for value of any Equity Interests of the
Company or any Restricted Subsidiary of the Company held by any current or
former director or employee of the Company or any of its Restricted Subsidiaries pursuant
to any director or employee equity subscription agreement or plan, stock option
agreement or similar agreement or plan; provided that
the aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests may not exceed $1,000,000 in any twelve-month period; provided, that such payments will be excluded from any
subsequent calculation of the amounts of Restricted Payments; provided further, that such amount in any twelve-month
period may be increased in an amount not to exceed (a) the cash proceeds
from the issue or sale of Equity Interests (other than Disqualified Stock) to
any such officers, directors, employees or consultants that occurs after the
Issue Date to the extent proceeds from the issue or sale of such Equity
Interests have not otherwise been applied to make Restricted Payments plus (b) the
cash proceeds of key man life insurance received by the Company or its
Restricted Subsidiaries after the Issue Date;

 

(viii)        the acquisition of Equity
Interests by the Company in connection with the exercise of stock options or
stock appreciation rights by way of cashless exercise;

 

56

 

(ix)           the payment of cash in lieu
of fractional shares of Capital Stock in connection with any transaction
otherwise permitted under this covenant; and

 

(x)            other Restricted Payments in
an aggregate amount since the date of this Indenture not to exceed $25,000,000.

 

(c)           The amount of
all Restricted Payments (other than cash) will be the fair market value on the
date of the Restricted Payment of the asset(s) or securities proposed to
be transferred or issued by the Company or such Restricted Subsidiary, as the
case may be, pursuant to the Restricted Payment.  The fair market value of any assets or
securities that are required to be valued by this covenant will be determined (i) in
good faith by senior management of the Company and (ii) if the fair market
value exceeds $10,000,000, by the Board of Directors.

 

Section 3.5             Liens.  The Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur or
permit to exist any Lien (other than Permitted Liens) upon any of its property
or assets (whether now owned or hereafter acquired), unless:

 

(a)           in the case of
any Lien securing Subordinated Obligations of the Company or a Subsidiary
Guarantor, the Notes or Subsidiary Guarantee, as applicable, are secured by a
Lien on such property or assets on a senior basis to the Subordinated
Obligations so secured until such time as such Subordinated Obligations are no
longer so secured by that Lien; and

 

(b)           in the case of
any other Lien (other than a Permitted Lien) securing Indebtedness, the Notes
or Subsidiary Guarantees, as applicable, are secured by a Lien on such property
or assets on an equal and ratable basis with the Senior Debt so secured until
such time as such Senior Debt is no longer so secured by that Lien.

 

Section 3.6             Dividend and
Other Payment Restrictions Affecting Subsidiaries.

 

(a)           The Company
will not, and will not permit any of its Restricted Subsidiaries to, directly
or indirectly, create or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to:

 

(i)            pay dividends or make any
other distributions on its Capital Stock to the Company or any of its
Restricted Subsidiaries, or pay any Indebtedness or other obligations owed to
the Company or any of its Restricted Subsidiaries;

 

(ii)           make loans or advances to
the Company or any of its Restricted Subsidiaries; or

 

(iii)          transfer any of its
properties or assets to the Company or any of its Restricted Subsidiaries.

 

(b)           However, the
preceding restrictions will not apply to encumbrances or restrictions existing
under or by reason of:

 

57

 

(i)            agreements governing Existing Indebtedness and Credit
Facilities as in effect on the date of this Indenture and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings of those agreements, provided that the amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacement or refinancings are not materially more restrictive, taken as a
whole, with respect to such dividend and other payment restrictions than those
contained in those agreements on the date of this Indenture;

 

(ii)           this Indenture, the Notes and the Subsidiary Guarantees;

 

(iii)          applicable law;

 

(iv)          any instrument governing Indebtedness or Capital Stock of a
Person acquired by the Company or any of its Restricted Subsidiaries as in
effect at the time of such acquisition, which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, provided
that, in the case of Indebtedness, such Indebtedness was permitted by the terms
of this Indenture to be incurred;

 

(v)           any restriction that restricts in a customary manner the
subletting, assignment or transfer of any property, right or asset that is
subject to a lease, license or similar contract, or the assignment or transfer
of any such lease, license or other similar contract;

 

(vi)          purchase money obligations for property acquired in the
ordinary course of business that impose restrictions on that property of the
nature described in clause (iii) of Section 3.6(a) above;

 

(vii)         any restriction with respect to a Restricted Subsidiary (or
any of its property or assets) imposed pursuant to an agreement entered into
for the direct or indirect sale or disposition of all or substantially all the
Capital Stock or assets of such Restricted Subsidiary (or the property or
assets that are subject to such restriction) pending the closing of such sale
or disposition;

 

(viii)        Permitted Refinancing Indebtedness, provided
that the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are not materially more restrictive, taken as a whole,
than those contained in the agreements governing the Indebtedness being
refinanced;

 

(ix)           encumbrances or restrictions in instruments evidencing
Indebtedness of a Restricted Subsidiary incurred and outstanding on or prior to
the date on which such Subsidiary was acquired by the Company; provided, however, that such encumbrances or restrictions
are not created, incurred or assumed in connection with, or in contemplation
of, such acquisition;

 

(x)            Indebtedness permitted under this Indenture containing
encumbrances or restrictions that taken as a whole are not materially more
restrictive (as 

 

58

 

determined
in good faith by the Board of Directors of the Company) than the encumbrances
and restrictions otherwise contained in this Indenture;

 

(xi)           encumbrances or restrictions contained in Hedging
Obligations permitted from time to time under this Indenture;

 

(xii)          encumbrances securing Indebtedness otherwise permitted to be
incurred under the provisions of the covenant described under Section 3.5
that limit the right of the debtor to dispose of the assets subject to such
Liens;

 

(xiii)         provisions with respect to the disposition or distribution
of assets or property in joint venture agreements, agreements respecting
Permitted Business Investments and other similar agreements entered into in the
ordinary course of business; and

 

(xiv)        restrictions on cash or other deposits or net worth imposed
by customers under contracts entered into in the ordinary course of business.

 

Section 3.7             Assets Sales.

 

(a)           The Company
will not, and will not permit any of its Restricted Subsidiaries to, consummate
an Asset Sale unless:

 

(i)            the Company (or the Restricted Subsidiary, as the case may
be) receives consideration at the time of the Asset Sale at least equal to the
fair market value of the assets or Equity Interests issued or sold or otherwise
disposed of;

 

(ii)           such determination of fair market value shall be as
determined in good faith by senior management of the Company or, if the
consideration with respect to such Asset Sale exceeds $10,000,000, by the
Company’s Board of Directors; and

 

(iii)          at least 75% of the consideration received in the Asset Sale
by the Company or such Restricted Subsidiary is in the form of cash or Cash
Equivalents.  For purposes of this
provision, each of the following will be deemed to be cash:

 

(A)           any Indebtedness, as shown on the Company’s or such
Restricted Subsidiary’s most recent balance sheet, of the Company or any
Subsidiary (other than contingent liabilities and liabilities that are by their
terms subordinated to the Notes or any Subsidiary Guarantee) that is assumed by
the transferee of any such assets if and only if the Company or such Subsidiary
is released from any further liability; and

 

(B)          any securities, notes or
other obligations received by the Company or any such Restricted Subsidiary
from such transferee that are contemporaneously, subject to ordinary settlement
periods, converted by the Company or such Subsidiary into cash, to the extent
of the cash received in that conversion.

 

59

 

(b)           Within 360 days
after the receipt of any Net Proceeds from an Asset Sale, the Company or any
such Restricted Subsidiary may apply those Net Proceeds at its option to any
combination of the following:

 

(i)            to repay Senior Debt;

 

(ii)           to acquire all or substantially all of the properties or assets
of one or more other Persons primarily engaged in the Oil and Gas Business,
and, for this purpose, a division or line of business of a Person shall be
treated as a separate Person;

 

(iii)          to acquire a majority of the Voting Stock of one or more
other Persons primarily engaged in the Oil and Gas Business;

 

(iv)          to make one or more capital expenditures; or

 

(v)           to acquire other assets that are used or useful in the Oil
and Gas Business.

 

(c)           Pending the
final application of any Net Proceeds, the Company or any such Restricted
Subsidiary may temporarily reduce revolving credit borrowings or otherwise
invest the Net Proceeds in any manner that is not prohibited by this
Indenture.  Any Net Proceeds from Asset
Sales that are not applied or invested as provided in the preceding Section 3.7(b) will
constitute “Excess Proceeds.”

 

(d)           On the 361st
day after the Asset Sale (or, at the Company’s option, any earlier date), if
the aggregate amount of Excess Proceeds then exceeds $20,000,000, the Company
will make an offer (an “Asset Sale Offer”) to all Holders of Notes, and
all holders of other Indebtedness that is pari passu with
the Notes containing provisions similar to those set forth in this Indenture
with respect to offers to purchase or redeem with the proceeds of sales of
assets, to purchase the maximum principal amount of Notes and such other pari
passu Indebtedness that may be purchased out of the Excess Proceeds.  The offer price in any Asset Sale Offer will
be equal to 100% of the principal amount plus accrued and unpaid interest and
Additional Interest, if any, to the date of settlement, and will be payable in
cash.  If the Asset Sale Payment Date is
on or after an interest record date and on or before the related interest
payment date, any accrued and unpaid interest (including Additional Interest,
if any) will be paid to the Person in whose name a Note is registered at the
close of business on such record date, and no additional interest will be
payable to Holders who tender Notes pursuant to the Asset Sale Offer.  If any Excess Proceeds remain after
consummation of an Asset Sale Offer, the Company may use those Excess Proceeds
for any purpose not otherwise prohibited by this Indenture.  If the aggregate principal amount of Notes
and other pari passu Indebtedness tendered into
such Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee will
select the Notes to be purchased on a pro rata basis on the basis of the
aggregate principal amount of tendered Notes and other pari passu
Indebtedness.  Upon completion of each
Asset Sale Offer, the amount of Excess Proceeds will be reset at zero.

 

(e)           The Asset Sale
Offer will remain open for a period of 20 Business Days following its
commencement, except to the extent that a longer period is required by applicable
law (the “Asset Sale Offer Period”). 
No later than five Business Days after the termination of 

 

60

 

the
Asset Sale Offer Period (the “Asset Sale Payment Date”), the Company
will purchase the principal amount of Notes and other pari passu
Indebtedness required to be purchased pursuant to this covenant (the “Asset
Sale Offer Amount”) or, if less than the Asset Sale Offer Amount has been
so validly tendered, all Notes and other pari passu
Indebtedness validly tendered in response to the Asset Sale Offer.  On or before the Asset Sale Payment Date, the
Company will, to the extent lawful, accept for payment, on a pro rata basis to
the extent necessary, the Asset Sale Offer Amount of Notes and other pari passu Indebtedness or portions thereof so validly
tendered and not properly withdrawn pursuant to the Asset Sale Offer, or if
less than the Asset Sale Offer Amount has been validly tendered and not
properly withdrawn, all Notes and other pari passu
Indebtedness so validly tendered and not properly withdrawn.  The Company will deliver to the Trustee an
Officers’ Certificate stating that such Notes or portions thereof were accepted
for payment by the Company in accordance with the terms of this covenant; and,
in addition, the Company will make such deliveries of all certificates and
notes as are required by the agreements governing the other pari passu Indebtedness. 
The Company or the Paying Agent, as the case may be, will promptly (but
in any case not later than five Business Days after the termination of the
Asset Sale Offer Period) mail or deliver to each tendering Holder of Notes, an
amount equal to the purchase price of the Notes so validly tendered and not
properly withdrawn by such Holder and accepted by the Company for purchase, and
the Company will promptly issue a new Note, and the Trustee, upon delivery of
an Officers’ Certificate from the Company, will authenticate and mail or
deliver such new Note to such Holder, in a principal amount equal to any unpurchased
portion of the Note surrendered.  In
addition, the Company will take any and all other actions required by the
agreements governing the other pari passu
Indebtedness.  Any Note not so accepted
will be promptly mailed or delivered by the Company to the Holder thereof.  The Company will publicly announce the
results of the Asset Sale Offer on or as soon as practicable after the Asset
Sale Payment Date.

 

(f)            The Company
will comply with the requirements of Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the extent those laws
and regulations are applicable in connection with each repurchase of Notes
pursuant to an Asset Sale Offer.  To the
extent that the provisions of any securities laws or regulations conflict with
the Asset Sale provisions hereunder, the Company will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations under the Asset Sale provisions hereunder by virtue of
such conflict.

 

(g)           The Trustee
shall be under no obligation to ascertain the occurrence of an Asset Sale, or
to determine or calculate Excess Proceeds, the Asset Sale Offer Period, the
Asset Sale Payment Date or the Asset Sale Offer Amount, or give any notice with
respect thereto.  The Trustee may
conclusively assume, in the absence of written notice to the contrary from the
Company or a Holder or Holders of Notes, that no Asset Sale has occurred.

 

Section 3.8             Transactions
with Affiliates.

 

(a)           The Company
will not, and will not permit any of its Restricted Subsidiaries to, make any
payment to, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make or amend any transaction, contract, agreement, understanding, loan,
advance or Guarantee with, or for the benefit of, any Affiliate (each, an “Affiliate
Transaction”), unless:

 

61

 

(i)            the Affiliate Transaction is on terms that are no less
favorable to the Company or the relevant Restricted Subsidiary than those that
would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person; and

 

(ii)           the Company delivers to the Trustee:

 

(A)          with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $10,000,000, a resolution of the Board of
Directors set forth in an Officers’ Certificate certifying that such Affiliate
Transaction complies with this covenant and that such Affiliate Transaction has
been approved by a majority of the disinterested members of the Board of
Directors; and

 

(B)           with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $30,000,000, a written opinion as to the
fairness to the Holders of such Affiliate Transaction from a financial point of
view issued by an accounting, appraisal or investment banking firm of national
standing.

 

(b)           The following
items will not be deemed to be Affiliate Transactions and, therefore, will not
be subject to the provisions of Section 3.8(a) above:

 

(i)            any Restricted Payment permitted to be made pursuant to Section 3.4;

 

(ii)           any issuance of securities, or other payments, awards or
grants in cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans and other
reasonable fees, benefits and indemnities paid or entered into by the Company or
its Restricted Subsidiaries in the ordinary course of business to or with
officers, directors or employees of the Company and its Restricted
Subsidiaries;

 

(iii)          loans or advances to employees in the ordinary course of
business of the Company or any of its Restricted Subsidiaries in an aggregate
principal amount at any one time outstanding not to exceed $2,000,000;

 

(iv)          any transaction between the Company and one or more
Restricted Subsidiaries or between or among Restricted Subsidiaries;

 

(v)           the payment of reasonable and customary fees or compensation
paid to, and indemnity or liability insurance provided on behalf of, officers,
directors or employees of the Company or any Restricted Subsidiary of the
Company;

 

(vi)          any reasonable employment or severance agreement or other
employee compensation agreement, arrangement or plan, or any amendment thereto,
entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business;

 

62

 

(v)           the performance of obligations of the Company or any of its
Restricted Subsidiaries under the terms of any written agreement to which the
Company or any of its Restricted Subsidiaries is a party on the Issue Date, as
these agreements may be amended, modified or supplemented from time to time; provided, however, that any future amendment, modification
or supplement entered into after the Issue Date will be permitted to the extent
that its terms do not materially and adversely affect the rights of any Holders
of the Notes (as determined in good faith by the Board of Directors of the
Company) as compared to the terms of the agreements in effect on the Issue
Date;

 

(vi)          any issuance or sale of Equity Interests (other than
Disqualified Stock) of the Company to, or receipt of capital contribution from,
Affiliates (or a Person that thereby becomes an Affiliate) of the Company;

 

(vii)         transactions between the Company and any Person, a director
of which is also a director of the Company; provided, however,
that such director abstains from voting as a director of the Company on any
matter involving such other Person; and

 

(viii)        advances to or reimbursement of employees for moving,
entertainment and travel expenses, drawing accounts and similar expenditures in
the ordinary course of business.

 

Section 3.9             Change of
Control.  If a Change of Control occurs,
each Holder of Notes will have the right to require the Company to repurchase
all or any part (equal to $1,000 or an integral multiple thereof) of that
Holder’s Notes at a purchase price in cash equal to 101% of the principal
amount of the Notes plus accrued and unpaid interest and Additional Interest,
if any, to the date of settlement (subject to the right of Holders of record on
the relevant record date to receive interest due on the relevant interest
payment date that is on or prior to the Change of Control Settlement Date).

 

Within 30 days following any
Change of Control, the Company will mail a notice (the “Change of Control
Offer”) to each registered Holder with a copy to the Trustee stating:

 

(i)            that a Change of Control has occurred and that such Holder
has the right to require the Company to purchase such Holder’s Notes at a
purchase price in cash equal to 101% of the principal amount of such Notes plus
accrued and unpaid interest and Additional Interest, if any, to the date of
settlement (the “Change of Control Settlement Date”) (subject to the
right of Holders of record on a record date to receive interest on the relevant
interest payment date that is on or prior to the Change of Control Settlement
Date) (the “Change of Control Payment”);

 

(ii)           the purchase date (which shall be no earlier than 30 days
nor later than 60 days from the date such notice is mailed) (the “Change
of Control Purchase Date”); and

 

(iii)          the procedures determined by the Company, consistent with
this Indenture, that a Holder must follow in order to have its Notes purchased.

 

63

 

On the Change of Control
Purchase Date, the Company will, to the extent lawful, accept for payment all
Notes or portions of Notes (equal to $1,000 or an integral multiple of $1,000)
properly tendered pursuant to the Change of Control Offer.  Promptly thereafter on the Change of Control
Settlement Date, the Company will:

 

(i)            deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions of Notes properly tendered; and

 

(ii)           deliver or cause to be delivered to
the Trustee the Notes properly accepted together with an Officers’ Certificate
stating the aggregate principal amount of Notes or portions of Notes being
purchased by the Company.

 

On the Change of Control
Settlement Date, the Paying Agent will mail to each Holder of Notes properly
tendered the Change of Control Payment for such Notes, and the Trustee will
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that
each such new Note will be in a principal amount of $1,000 or an integral
multiple of $1,000.  The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Purchase Date.

 

If the Change of Control
Settlement Date is on or after an interest record date and on or before the
related interest payment date, any accrued and unpaid interest and Additional
Interest, if any, will be paid to the Person in whose name a Note is registered
at the close of business on such record date, and no additional interest will
be payable to Holders who tender pursuant to the Change of Control Offer.

 

A Change of Control Offer
may be made in advance of a Change of Control, and conditioned upon the
occurrence of such Change of Control, if a definitive agreement is in place for
such Change of Control at the time of the making of the Change of Control
Offer.

 

The Company will not be
required to make a Change of Control Offer upon a Change of Control if a third
party makes the Change of Control Offer in the manner, at the time and
otherwise in compliance with the requirements set forth in this Indenture
applicable to a Change of Control Offer made by the Company and purchases all
Notes validly tendered and not withdrawn under such Change of Control Offer.

 

The Company will comply, to
the extent applicable, with the requirements of Section 14(e) of the
Exchange Act and any other securities laws or regulations in connection with
the repurchase of Notes pursuant to this Section 3.9.  To the extent that the provisions of any
securities laws or regulations conflict with provisions of this Indenture, the
Company will comply with the applicable securities laws and regulations and will
not be deemed to have breached its obligations described in this Indenture by
virtue of the conflict.

 

The Trustee shall be under
no obligation to ascertain the occurrence of a Change of Control or to give
notice with respect thereto.  The Trustee
may conclusively assume, in the absence of written notice to the contrary from
the Company, or a Holder or Holders of Notes, that no Change of Control has
occurred.

 

64

 

Section 3.10           Future
Subsidiary Guarantees.  If any
Domestic Subsidiary that is not already a Guarantor, other than Ellwood
Pipeline, Inc. (if and so long as Ellwood Pipeline, Inc. constitutes
a crude oil common carrier prohibited from guaranteeing an affiliate shipper’s
debt), has outstanding or Guarantees any other Indebtedness of the Company or a
Guarantor, then in either case that Subsidiary will become a Guarantor by
executing a supplemental indenture substantially in the form of Exhibit C
hereto and delivering it to the Trustee within 20 Business Days of the date on
which it incurred or guaranteed such Indebtedness, as the case may be; provided, however, that the foregoing shall not apply to
Subsidiaries of the Company that have properly been designated as Unrestricted
Subsidiaries in accordance with this Indenture for so long as they continue to
constitute Unrestricted Subsidiaries.

 

Section 3.11           Business
Activities.  The Company will not,
and will not permit any Restricted Subsidiary to, engage in any business other
than the Oil and Gas Business, except to such extent as would not be material
to the Company and its Restricted Subsidiaries taken as a whole.

 

Section 3.12           Designation
of Restricted and Unrestricted Subsidiaries.  The Board of Directors of the Company may
designate any Restricted Subsidiary of the Company to be an Unrestricted
Subsidiary if that designation would not cause a Default.  If a Restricted Subsidiary of the Company is
designated as an Unrestricted Subsidiary, the aggregate fair market value of
all outstanding Investments owned by the Company and its Restricted
Subsidiaries in the Subsidiary properly designated will be deemed to be an
Investment made as of the time of the designation and will reduce the amount
available for Restricted Payments under the first paragraph of the covenant
described above in Section 3.4(a) or represent Permitted Investments,
as determined by the Company.  That
designation will only be permitted if the Investment would be permitted at that
time and if the Subsidiary so designated otherwise meets the definition of an
Unrestricted Subsidiary.

 

The Board of Directors of
the Company may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary of the Company; provided that
such designation will be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of the Company of any outstanding Indebtedness of such
Unrestricted Subsidiary and such designation will only be permitted if (1) such
Indebtedness is permitted under the covenant described above in Section 3.3,
calculated on a pro forma basis as if such designation had occurred at the
beginning of the four-quarter reference period, and (2) no Default or
Event of Default would be in existence following such designation.

 

Section 3.13           Maintenance
of Office or Agency.  The Company
will maintain in The City of New York, an office or agency where the Notes may
be presented or surrendered for payment, where, if applicable, the Notes may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may
be served.  The principal corporate trust
office of the Trustee, or if the Trustee’s principal corporate trust office is
not located in The City of New York, any other office or agency maintained by
the Trustee in The City of New York (the “Corporate Trust Office”),
shall be such office or agency of the Company, unless the Company shall
designate and maintain some other office or agency for one or more of such
purposes.  The Company will give prompt
written notice to the Trustee of any change in the location of any such office
or agency.  If at any 

 

65

 

time
the Company shall fail to maintain any such required office or agency or shall
fail to furnish the Trustee with the address thereof, such presentations,
surrenders, notices and demands may be made or served at the Corporate Trust
Office of the Trustee, and the Company hereby appoints the Trustee as its agent
to receive all such presentations, surrenders, notices and demands.

 

The
Company may also from time to time designate one or more other offices or
agencies (in or outside of The City of New York) where the Notes may be
presented or surrendered for any or all such purposes and may from time to time
rescind any such designation; provided, however,
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in The City of New York for
such purposes.  The Company will give prompt
written notice to the Trustee of any such designation or rescission and any
change in the location of any such other office or agency.

 

Section 3.14           Corporate
Existence.  Subject to Article IV
and Section 10.2, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence and that of each Restricted Subsidiary and the corporate rights
(charter and statutory) licenses and franchises of the Company and each
Restricted Subsidiary; provided, however,
that the Company shall not be required to preserve any such existence (except
the Company), right, license or franchise if the Board of Directors of the
Company shall determine that the preservation thereof is no longer desirable in
the conduct of the business of the Company and each of its Restricted
Subsidiaries, taken as a whole, and that the loss thereof would not have a
material adverse effect on the ability of the Company to perform its
obligations under the Notes or this Indenture, provided further, that the
Company and the Guarantors may merge in accordance with Sections 4.1
and 10.2.

 

Section 3.15           Payment
of Taxes and Other Claims.  The
Company will pay or discharge or cause to be paid or discharged, before the
same shall become delinquent, (i) all material taxes, assessments and
governmental charges levied or imposed upon the Company or any Restricted
Subsidiary or upon the income, profits or property of the Company or any
Restricted Subsidiary and (ii) all lawful claims for labor, materials and
supplies, which, if unpaid, might by law become a material liability or lien
upon the property of the Company or any Restricted Subsidiary, except for any
Lien permitted to be incurred pursuant to subsections (3) and (4) of
the definition of “Permitted Liens”; provided, however,
that the Company shall not be required to pay or discharge or cause to be paid
or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which appropriate reserves, if necessary (in the good faith
judgment of management of the Company), are being maintained in accordance with
GAAP or where the failure to pay or discharge the same would not have a
material adverse effect on the ability of the Company to perform its
obligations under the Notes or this Indenture.

 

Section 3.16           Compliance
Certificate.  The Company shall
deliver to the Trustee within 120 days after the end of each fiscal year of the
Company an Officers’ Certificate stating that in the course of the performance
by the signers of their duties as Officers of the Company they would normally
have knowledge of any Default or Event of Default and whether or not the
signers know of any Default or Event of Default that existed at the end of such
period and is continuing.  If they do,
the certificate shall describe the Default or Event of Default, its status and 

 

66

 

what
action the Company is taking or proposes to take with respect thereto.  The Company also shall comply with TIA §
314(a)(4).

 

Section 3.17           Further
Instruments and Acts.  Upon the
reasonable request of the Trustee, the Company will execute and deliver such
further instruments and do such further acts as may be reasonably necessary or
proper to carry out more effectively the purpose of this Indenture.

 

Section 3.18           Statement
by Officers as to Default.  The
Company shall deliver to the Trustee, as soon as possible and in any event
within 5 Business Days after the Company becomes aware of the occurrence of any
Event of Default or Default an Officers’ Certificate setting forth the details
of such Event of Default or Default and the action which the Company is taking
or proposes to take in respect thereof.

 

Section 3.19           Payments
for Consent.  Neither the Company nor
any of its Subsidiaries shall, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any
Beneficial Owner or Holder of any Notes for or as an inducement to any consent
to any waiver, supplement or amendment of any terms or provisions of this
Indenture or the Notes, unless such consideration is offered to be paid or
agreed to be paid to all Beneficial Owners and Holders of the Notes which so consent
in the time frame set forth in solicitation documents relating to such consent.

 

ARTICLE IV

 

Successor Company

 

Section 4.1             Merger,
Consolidation or Sale of Assets.  The
Company may not, directly or indirectly: 
(i) consolidate or merge with or into another Person (whether or
not the Company is the surviving Person) or continue in another jurisdiction;
or (ii) sell, assign, transfer, lease, convey or otherwise dispose of all
or substantially all of the properties or assets of the Company, in one or more
related transactions, to another Person, unless:

 

(a)           either:  (i) the Company is the surviving Person;
or (ii) the Person (the “Successor Company”) formed by or surviving
any such consolidation or merger (if other than the Company) or to which such
sale, assignment, transfer, lease, conveyance or other disposition has been
made is organized or existing under the laws of the United States, any state of
the United States or the District of Columbia; provided
that if the Person is a partnership or limited liability company, a corporation
wholly owned by such Person organized or existing under the laws of the United
States, any state of the United States or the District of Columbia that does
not and will not have any material assets or operations shall promptly
thereafter become a co-issuer of the Notes pursuant to a supplemental
indenture;

 

(b)           the Person formed by
or surviving any such consolidation or merger (if other than the Company) or
the Person to which such sale, assignment, transfer, lease, conveyance or other
disposition has been made assumes all the obligations of the Company under the
Notes, this Indenture and the Registration Rights Agreement pursuant to a
supplemental indenture and other agreements reasonably satisfactory to the
Trustee;

 

67

 

(c)           immediately after
such transaction no Default or Event of Default exists;

 

(d)           the Company or the
Person formed by or surviving any such consolidation or merger (if other than
the Company), or to which such sale, assignment, transfer, lease, conveyance or
other disposition has been made will, on the date of such transaction after
giving pro forma effect thereto and any related financing transactions as if
the same had occurred at the beginning of the applicable four-quarter period,
be permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in Section 3.3(a) hereof;
and

 

(e)           the Company shall
have delivered to the Trustee an Officers’ Certificate and an Opinion of
Counsel, each stating that such consolidation, merger or disposition and such
supplemental indenture (if any) comply with this Indenture.

 

For purposes of this
covenant, the sale, lease, conveyance, assignment, transfer, or other disposition
of all or substantially all of the properties and assets of one or more
Subsidiaries of the Company, which properties and assets, if held by the
Company instead of such Subsidiaries, would constitute all or substantially all
of the properties and assets of the Company on a consolidated basis, shall be
deemed to be the transfer of all or substantially all of the assets of the
Company.

 

Notwithstanding the
preceding clauses (c) and (d) of this Section 4.1, (x) any
Restricted Subsidiary of the Company may consolidate with, merge into or
transfer all or part of its properties and assets to the Company or any
Guarantor, and (y) the Company may merge with an Affiliate solely for the
purpose of reincorporating or reorganizing the Company in another jurisdiction
to realize tax or other benefits.

 

The Successor Company will
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Indenture, but, in the case of a lease of all or
substantially all its assets, the Company will not be released from the
obligation to pay the principal of, premium, if any, on and interest and
Additional Interest, if any, on, the Notes.

 

ARTICLE V

 

Redemption
of Notes

 

Section 5.1             Optional
Redemption.  Except as described
below, the Notes will not be redeemable at the Company’s option prior to October 1,
2013.

 

(a)           On or after October 1,
2013 the Company may redeem all or any part of the Notes upon not less than 30
nor more than 60 days’ notice, at the redemption prices (expressed as
percentages of principal amount) set forth below, plus accrued and unpaid
interest and Additional Interest, if any, on the Notes redeemed to the
applicable Redemption Date (subject to the right of Holders of record on the
relevant record date to receive interest due on an interest payment date that
is on or prior to the Redemption Date), if redeemed during the twelve-month
period beginning on October 1 of the years indicated below:

 

68

 

	
  Year

  	
   

  	
  Percentage

  	
   

  
	
  2013

  	
   

  	
  105.750

  	
  %

  
	
  2014

  	
   

  	
  102.875

  	
  %

  
	
  2015

  	
   

  	
  101.4375

  	
  %

  
	
  2016 and thereafter

  	
   

  	
  100.000

  	
  %

  

 

(b)           The Notes will also
be redeemable, in whole or in part, at the Company’s option at any time or from
time to time, prior to October 1, 2013, at the Make-Whole Price in
accordance with the provisions of this Indenture.

 

(c)           The notice of
redemption with respect to the foregoing redemption need not set forth the
Make-Whole Price but only the manner of calculation thereof.  The Company will notify the Trustee of  the Make-Whole Price with respect to any
redemption promptly after the calculation, and the Trustee shall not be
responsible for such calculation.

 

(d)           At any time prior to
October 1, 2012, the Company may on any one or more occasions redeem up to
35% of the aggregate principal amount of Notes issued hereunder at a redemption
price of 111.50% of the principal amount, plus accrued and unpaid interest and
Additional Interest, if any, to the Redemption Date (subject to the right of
Holders of record on the relevant record date to receive interest due on an
interest payment date that is on or prior to the Redemption Date), with the net
cash proceeds of one or more Equity Offerings by the Company, provided that:

 

(i)            at least 65% of the aggregate
principal amount of Notes issued hereunder remains outstanding immediately
after the occurrence of such redemption (excluding Notes held by the Company
and its Subsidiaries); and

 

(ii)           the redemption occurs within 120 days
of the date of the closing of such Equity Offering.

 

Section 5.2             Applicability
of Article.  Redemption of Notes at
the election of the Company or otherwise, as permitted or required by any
provision of this Indenture, shall be made in accordance with such provision
and this Article V.

 

Section 5.3             Election
to Redeem; Notice to Trustee.  The
election of the Company to redeem any Notes pursuant to Section 5.1
shall be evidenced by a Board Resolution. 
In case of any redemption at the election of the Company, the Company
shall, at least 45 days prior to the Redemption Date fixed by the Company
(unless a shorter notice shall be satisfactory to the Trustee in the sole
discretion of the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Notes to be redeemed and shall deliver to the Trustee
such documentation and records as shall enable the Trustee to select the Notes
to be redeemed pursuant to Section 5.4.

 

Section 5.4             Selection
by Trustee of Notes to Be Redeemed. 
If fewer than all of the Notes are to be redeemed at any time, the
Trustee will select Notes for redemption as follows:

 

69

 

(a)           if the Notes are
listed on any national securities exchange, in compliance with the requirements
of the principal national securities exchange on which the Notes are listed; or

 

(b)           if the Notes are not
listed on any national securities exchange, on a pro rata basis.

 

Section 5.5             Notice
of Redemption.  Notice of redemption
shall be given in the manner provided for in Section 12.2 not less
than 30 nor more than 60 days prior to the Redemption Date, to each Holder of
Notes to be redeemed, except that redemption notices may be mailed more than 60
days prior to a Redemption Date if such notice is issued in connection with a
defeasance of the Notes or a satisfaction and discharge of this Indenture.  Notices of redemption may not be
conditional.  The Trustee shall give
notice of redemption in the Company’s name and at the Company’s expense; provided, however, that the Company shall deliver to the
Trustee, at least 45 days prior to the Redemption Date (unless a shorter notice
shall be satisfactory to the Trustee), an Officers’ Certificate requesting that
the Trustee give such notice at the Company’s expense and setting forth the
information to be stated in such notice as provided in the following items.

 

All notices of redemption
shall state:

 

(a)           the Redemption Date;

 

(b)           the redemption price
and the amount of accrued interest and Additional Interest, if any, to the
Redemption Date payable as provided in Section 5.7;

 

(c)           if less than all
outstanding Notes are to be redeemed, the identification of the particular
Notes (or portion thereof) to be redeemed, as well as the aggregate principal
amount of Notes to be redeemed and the aggregate principal amount of Notes to
be outstanding after such partial redemption;

 

(d)           in case any Note is
to be redeemed in part only, the notice which relates to such Note shall state
that on and after the Redemption Date, upon surrender of such Note, the Holder
will receive, without charge, a new Note or Notes of authorized denominations
for the principal amount thereof remaining unredeemed;

 

(e)           that on the
Redemption Date the redemption price (and accrued interest, if any, to the
Redemption Date payable as provided in Section 5.7) will become due
and payable upon each such Note, or the portion thereof, to be redeemed, and,
unless the Company defaults in making the redemption payment, that interest and
Additional Interest, if any, on Notes (or the portions thereof) called for
redemption will cease to accrue on and after said date;

 

(f)            the place or places
where such Notes are to be surrendered for payment of the Redemption Price and
accrued interest, if any;

 

(g)           the name and address
of the Paying Agent;

 

70

 

(h)           that Notes called
for redemption (other than a Global Note) must be surrendered to the Paying
Agent to collect the redemption price;

 

(i)            the CUSIP number,
and that no representation is made as to the accuracy or correctness of the
CUSIP number, if any, listed in such notice or printed on the Notes; and

 

(j)            the section of this
Indenture and the paragraph of the Notes pursuant to which the Notes are to be
redeemed.

 

Any notice of redemption
pursuant to this Indenture may not be subject to the satisfaction of any
conditions.

 

Section 5.6             Deposit
of Redemption Price.  Not later than
11:00 a.m. New York time on the Redemption Date, the Company shall deposit
with the Trustee or with a Paying Agent (or, if the Company is acting as its
own Paying Agent, segregate and hold in trust as provided in Section 2.4)
an amount of money sufficient to pay the redemption price of, and accrued
interest and Additional Interest, if any, on, all the Notes which are to be
redeemed on that date.

 

Section 5.7             Notes
Payable on Redemption Date.  Notice
of redemption having been given as aforesaid, the Notes so to be redeemed
shall, on the Redemption Date, become due and payable at the redemption price
therein specified (together with accrued and unpaid interest and Additional
Interest, if any, to the Redemption Date), and from and after such date (unless
the Company shall default in the payment of the redemption price and accrued
interest and Additional Interest, if any) such Notes shall cease to bear
interest and Additional Interest, if any. 
Upon surrender of any such Note for redemption in accordance with said
notice, such Note shall be paid by the Company at the redemption price,
together with accrued and unpaid interest and Additional Interest, if any, to
the Redemption Date (subject to the rights of Holders of record on the relevant
record date to receive interest and Additional Interest, if any, due on an
interest payment date that is on or prior to the Redemption Date).

 

If any Note called for
redemption shall not be so paid upon surrender thereof for redemption, the
principal (and premium, if any) shall, until paid, bear interest and Additional
Interest, if any, from the Redemption Date at the rate borne by the Notes.

 

Section 5.8             Notes
Redeemed in Part.  Any Note which is
to be redeemed only in part (pursuant to the provisions of this Article V)
shall be surrendered at the office or agency of the Company maintained for such
purpose pursuant to Section 3.13 (with, if the Company or the
Trustee so require, due endorsement by, or a written instrument of transfer in
form satisfactory to the Company and the Trustee duly executed by, the Holder
thereof or such Holder’s attorney duly authorized in writing), and the Company
shall execute, and the Trustee shall authenticate and make available for
delivery to the Holder of such Note at the expense of the Company, a new Note
or Notes, of any authorized denomination as requested by such Holder, in an
aggregate principal amount equal to and in exchange for the unredeemed portion
of the principal of the Note so surrendered, provided
that each such new Note will be in a principal amount of $1,000 or integral
multiple thereof.  No Notes of $1,000 or
less may be redeemed in part.

 

71

 

 

ARTICLE VI

 

Defaults and Remedies

 

Section 6.1             Events
of Default.  Each of the following is
an “Event of Default”:

 

(a)           default in any
payment of interest or Additional Interest, if any, on any Note under this
Indenture when due, continued for 30 days;

 

(b)           default in the
payment of principal of or premium, if any, on any Note under this Indenture
when due at its Stated Maturity, upon optional redemption, upon required
repurchase, upon declaration or otherwise;

 

(c)           failure by the
Company to comply for 30 days with the provisions of Sections 3.3
or 3.4 hereof.

 

(d)           failure by the
Company to comply with the provisions of Sections 3.7, 3.9
or 4.1 hereof;

 

(e)           (i) failure by
the Company to comply with the provisions of Section 3.2 for 180
days; or (ii) failure by the Company for 60 days after notice to comply
with any of the other agreements in this Indenture;

 

(f)            default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Restricted Subsidiaries (or the payment of which is
Guaranteed by the Company or any of its Restricted Subsidiaries), whether such
Indebtedness or Guarantee now exists, or is created after the date of this Indenture,
if that default:

 

(i)            is caused by a failure to pay principal of, or interest,
Additional Interest or premium, if any, on, such Indebtedness prior to the
expiration of the grace period provided in such Indebtedness (a “Payment
Default”); or

 

(ii)           results in the acceleration of such Indebtedness prior to
its Stated Maturity, and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $20,000,000 or more;

 

(g)           failure by the
Company or any of its Subsidiaries to pay final judgments aggregating in excess
of $20,000,000 (net of any amounts with respect to which a reputable creditworthy
insurance company has acknowledged liability in writing), which judgments are
not paid, discharged or stayed (including a stay pending appeal) for a period
of 60 days after the date of such final judgment (or, if later, the date when
payment is due pursuant to such judgment);

 

(h)           except as permitted
by this Indenture, any Subsidiary Guarantee shall be held in any judicial
proceeding to be unenforceable or invalid or shall cease for any reason to be 

 

72

 

in
full force and effect or any Guarantor, or any Person acting on behalf of any
Guarantor, shall deny or disaffirm its obligations under its Subsidiary
Guarantee; and

 

(i)            (i)  the
Company or any Significant Subsidiary or a group of Restricted Subsidiaries
that, taken together (as of the latest audited consolidated financial
statements for the Company and its Restricted Subsidiaries), would constitute a
Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law:

 

(A)         commences a voluntary case or proceeding;

 

(B)          consents to the entry of a judgment, decree or order for
relief against it in an involuntary case or proceeding;

 

(C)          consents to the appointment of a Custodian of it or for any
substantial part of its property;

 

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

 

(E)          consents to or acquiesces in the institution of a
bankruptcy or an insolvency proceeding against it;

 

or takes any comparable
action under any foreign laws relating to insolvency; or

 

(ii)           a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:

 

(A)           is for relief against the Company or any Significant
Subsidiary or a group of Restricted Subsidiaries that, taken together (as of
the latest audited consolidated financial statements for the Company and its
Restricted Subsidiaries), would constitute a Significant Subsidiary in an
involuntary case;

 

(B)           appoints a Custodian of the Company or any Significant
Subsidiary or a group of Restricted Subsidiaries that, taken together (as of
the latest audited consolidated financial statements for the Company and its
Restricted Subsidiaries), would constitute a Significant Subsidiary or for any
substantial part of its Property; or

 

(C)           orders the winding up or liquidation of the Company or any
Significant Subsidiary or a group of Restricted Subsidiaries that, taken
together (as of the latest audited consolidated financial statements for the
Company and its Restricted Subsidiaries) would constitute a Significant
Subsidiary;

 

or any similar relief is
granted under any foreign laws and the order, decree or relief remains unstayed
and in effect for 60 days.

 

However, a Default under
clause (e) of this Section 6.1 will not constitute an
Event of Default until the Trustee or the Holders of 25% in aggregate principal
amount of the 

 

73

 

outstanding
Notes notify the Company, and the Trustee in the case of a notice given by the
Holders, of the Default and the Company does not cure such Default within the
time specified in clause (e) of this Section 6.1 after
receipt of such notice.

 

Section 6.2             Acceleration.  If any Event of Default (other than those of
the type described in clause (i) of Section 6.1) occurs
and is continuing, the Trustee or the Holders of at least 25% in aggregate
principal amount of outstanding Notes may declare the principal of all the
Notes, together with all accrued and unpaid interest and Additional Interest,
if any, and premium, if any, to be due and payable immediately by notice in
writing to the Company and the Trustee specifying the respective Event of
Default and that such notice is a notice of acceleration, and the same shall
become immediately due and payable.

 

In the case of an Event of
Default specified in clause (i) of Section 6.1 hereof, all
outstanding Notes shall become due and payable immediately without further
action or notice by the Trustee or the Holders. 
Holders may not enforce this Indenture or the Notes except as provided
in this Indenture.

 

During the 180 day cure
period  provided under clause (e)(i) of
Section 6.1 hereof, the interest rate on the Notes shall be
increased by 0.25% per annum.

 

At any time after a
declaration of acceleration with respect to the Notes, the Holders of a
majority in principal amount of the Notes then outstanding (by notice to the
Trustee) may rescind and cancel such declaration and its consequences if:

 

(a)           the rescission would
not conflict with any judgment or decree of a court of competent jurisdiction;

 

(b)           all existing
Defaults and Events of Default have been cured or waived except nonpayment of
principal of or interest on the Notes that has become due solely by reason of
such declaration of acceleration;

 

(c)           to the extent the
payment of such interest is lawful, interest (at the same rate specified in the
Notes) on overdue installments of interest and Additional Interest, if any, and
overdue payments of principal which has become due otherwise than by such
declaration of acceleration has been paid;

 

(d)           the Company has paid
the Trustee its reasonable compensation and reimbursed the Trustee for its
reasonable expenses, disbursements and advances; and

 

(e)           in the event of the
cure or waiver of an Event of Default of the type described in clause (i) of
Section 6.1, the Trustee has received an Officers’ Certificate and
Opinion of Counsel that such Event of Default has been cured or waived.

 

Section 6.3             Other
Remedies.  If an Event of Default
occurs and is continuing, the Trustee may pursue any available remedy to
collect the payment of principal of (or premium, if any) or interest or
Additional Interest, if any, on the Notes or to enforce the performance of any
provision of the Notes or this Indenture.

 

74

 

The Trustee may maintain a
proceeding even if it does not possess any of the Notes or does not produce any
of them in the proceeding.  A delay or
omission by the Trustee or any Holder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default.  No remedy is exclusive of any other
remedy.  All available remedies are
cumulative.

 

Section 6.4             Waiver
of Past Defaults.  The Holders of a
majority in principal amount of the then outstanding Notes by notice to the
Trustee may (a) waive, by their consent (including, without limitation
consents obtained in connection with a purchase of, or tender offer or exchange
offer for, Notes), an existing Default or Event of Default and its consequences
or compliance with any provisions except (i) a Default or Event of Default
in the payment of the principal of, or premium, if any, or interest or
Additional Interest, if any, on a Note or (ii) a Default or Event of
Default in respect of a provision that under Section 9.2 cannot be
amended without the consent of each Holder affected and (b) rescind any
such acceleration with respect to the Notes and its consequences if rescission
would not conflict with any judgment or decree of a court of competent
jurisdiction.  When a Default or Event of
Default is waived, it is deemed cured, but no such waiver shall extend to any
subsequent or other Default or Event of Default or impair any consequent right.

 

Section 6.5             Control
by Majority.  The Holders of a
majority in principal amount of the outstanding Notes may direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or of exercising any trust or power conferred on the Trustee.  However, the Trustee may refuse to follow any
direction that conflicts with law or this Indenture or, subject to Sections 7.1
and 7.2, that the Trustee determines is unduly prejudicial to the rights
of the other Holders or would involve the Trustee in personal liability.  Prior to taking any action hereunder, the
Trustee shall be entitled to indemnification satisfactory to it in its sole
discretion against all losses and expenses caused by taking or not taking such
action.

 

Section 6.6             Limitation
on Suits.  Subject to Section 6.7,
a Holder may not pursue any remedy with respect to this Indenture or the Notes
unless:

 

(a)           such Holder has
previously given to the Trustee written notice stating that an Event of Default
is continuing;

 

(b)           Holders of at least
25% in principal amount of the outstanding Notes have requested in writing that
the Trustee pursue the remedy;

 

(c)           such Holders have
offered to the Trustee reasonable security or indemnity against any loss,
liability or expense;

 

(d)           the Trustee has not
complied with such request within 60 days after receipt of the request and the
offer of security or indemnity; and

 

(e)           the Holders of a
majority in principal amount of the outstanding Notes have not given the
Trustee a direction that, in the opinion of the Trustee, is inconsistent with
such request within such 60 day period.

 

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A Holder may not use this
Indenture to prejudice the rights of another Holder or to obtain a preference
or priority over another Holder.

 

Section 6.7             Rights
of Holders to Receive Payment. 
Notwithstanding any other provision of this Indenture (including,
without limitation, Section 6.6), the right of any Holder to
receive payment of principal of, premium (if any) or interest or Additional
Interest, if any, when due on the Notes held by such Holder, on or after the
respective due dates expressed in the Notes, or to bring suit for the
enforcement of any such payment on or after such respective dates, shall not be
impaired or affected without the consent of such Holder.

 

Section 6.8             Collection
Suit by Trustee.  If an Event of
Default specified in clauses (a) or (b) of Section 6.1
occurs and is continuing, the Trustee may recover judgment in its own name and
as trustee of an express trust against the Company for the whole amount then
due and owing (together with interest on any unpaid interest to the extent
lawful) and the amounts provided for in Section 7.7.

 

Section 6.9             Trustee
May File Proofs of Claim.  The
Trustee may file such proofs of claim and other papers or documents as may be
necessary or advisable in order to have the claims of the Trustee and the
Holders allowed in any judicial proceedings relative to the Company, its
Subsidiaries or its or their respective creditors or properties and, unless
prohibited by law or applicable regulations, may vote on behalf of the Holders
in any election of a trustee in bankruptcy or other Person performing similar
functions, and any Custodian in any such judicial proceeding is hereby
authorized by each Holder to make payments to the Trustee and, in the event
that the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and its counsel, and any other amounts due the Trustee under Section 7.7.  To the extent that the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.7
hereof out of the estate in any such proceeding, shall be denied for any
reason, payment of the same shall be secured by a Lien on, and shall be paid
out of, any and all distributions, dividends, money, securities and other
properties that the Holders may be entitled to receive in such proceeding
whether in liquidation or under any plan of reorganization or arrangement or
otherwise.  Nothing herein contained
shall be deemed to authorize the Trustee to authorize or consent to or accept
on behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder, or to authorize
the Trustee to vote in respect of the claim of any Holder in any such
proceeding.

 

Section 6.10           Priorities.  If the Trustee collects any money or property
pursuant to this Article VI, it shall pay out the money or property
in the following order:

 

FIRST:  to the Trustee for amounts due under Section 7.7;

 

SECOND:  to Holders for amounts due and unpaid on the
Notes for principal, premium, if any, and interest and Additional Interest, if
any, ratably, without preference or priority of any kind, according to the
amounts due and payable on the Notes for principal, premium, if any, and
interest and Additional Interest, if any, respectively; and

 

76

 

THIRD:  to the Company or the Guarantors or to such
other party as a court of competent jurisdiction may direct.

 

The Trustee may fix a record
date and payment date for any payment to Holders pursuant to this Section 6.10.  At least 15 days before such record date, the
Company shall mail to each Holder and the Trustee a notice that states the
record date, the payment date and amount to be paid.

 

Section 6.11           Undertaking
for Costs.  In any suit for the
enforcement of any right or remedy under this Indenture or in any suit against
the Trustee for any action taken or omitted by it as Trustee, a court in its
discretion may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys’ fees, against any
party litigant in the suit, having due regard to the merits and good faith of
the claims or defenses made by the party litigant.  This Section 6.11 does not apply
to a suit by the Trustee, a suit by the Company, a suit by a Holder pursuant to
Section 6.7 or a suit by Holders of more than 10% in outstanding
principal amount of the Notes.

 

Section 6.12           Additional
Payments.  In the case of any Event
of Default occurring by reason of any willful action (or inaction) taken (or
not taken) by or on behalf of the Company with the intention of avoiding
payment of the premium that the Company would have had to pay if the Company
then had elected to redeem the Notes on or after October 1, 2013 pursuant
to the optional redemption provisions of this Indenture, an equivalent premium
shall also become and be immediately due and payable to the extent permitted by
law upon the acceleration of the Notes. 
If an Event of Default occurs prior to October 1, 2013 by reason of
any willful action (or inaction) taken (or not taken) by or on behalf of the
Company with the intention of avoiding the prohibition on redemption of the
Notes prior to such date, then the premium specified in this Indenture with the
respect to the first year that the Notes may be redeemed at the Company’s
option (other than with the net cash proceeds of an Equity Offering) shall also
become immediately due and payable to the extent permitted by law upon the
acceleration of the Notes.

 

Section 6.13           Waiver
of Stay, Extension and Usury Laws. 
Each of the Company and the Guarantors covenant (to the extent permitted
by applicable law) that it will not at any time insist upon, plead or in any
manner whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law or other law wherever enacted, now or at any time
hereafter in force, which would prohibit or forgive the Company or any
Guarantor from paying all of any portion of the principal of (premium, if any,
on) or interest and Additional Interest, if any, on the Notes as contemplated
herein, or which may affect the covenants or the performance of this Indenture;
and (to the extent that it may lawfully do so) each of the Company and the
Guarantors hereby expressly waive all benefit or advantage of any such law, and
covenants that they will not hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.

 

77

 

ARTICLE VII

 

Trustee

 

Section 7.1             Duties of Trustee.

 

(a)           If an Event of Default has occurred
and is continuing, the Trustee shall exercise the rights and powers vested in
it by this Indenture and use the same degree of care and skill in their
exercise as a prudent person would exercise or use under the circumstances in
the conduct of such person’s own affairs; provided that
if an Event of Default occurs and is continuing, the Trustee will be under no
obligation to exercise the rights or powers under this Indenture at the request
or direction of any of the Holders unless such Holders have offered to the
Trustee indemnity or security against loss, liability or expense satisfactory
to the Trustee in its sole discretion.

 

(b)           Except during the
continuance of an Event of Default:

 

(i)            the Trustee undertakes to perform
such duties and only such duties as are specifically set forth in this Indenture
and no implied covenants or obligations shall be read into this Indenture
against the Trustee; and

 

(ii)           in the absence of bad faith on its
part, the Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon certificates, opinions
or orders furnished to the Trustee and conforming to the requirements of this
Indenture.  However, in the case of any
such certificates or opinions which by any provisions hereof are specifically
required to be furnished to the Trustee, the Trustee shall examine such
certificates and opinions to determine whether or not they conform on their
face to the requirements of this Indenture (but need not confirm or investigate
the accuracy of mathematical calculations or other facts stated therein).

 

(c)           The Trustee may not
be relieved from liability for its own negligent action, its own negligent
failure to act or its own willful misconduct, except that:

 

(i)            this paragraph does not limit the
effect of paragraph (b) of this Section 7.1;

 

(ii)           the Trustee shall not be liable for
any error of judgment made in good faith by a Trust Officer unless it is proved
that the Trustee was negligent in ascertaining the pertinent facts; and

 

(iii)          the Trustee shall not be liable with respect
to any action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.5.

 

(d)           Every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b) and (c) of this Section 7.1.

 

78

 

(e)           The Trustee shall
not be liable for interest on any money received by it except as the Trustee
may agree in writing with the Company.

 

(f)            Money held in trust
by the Trustee need not be segregated from other funds except to the extent
required by law.

 

(g)           No provision of this
Indenture shall require the Trustee to expend or risk its own funds or
otherwise incur financial liability in the performance of any of its duties
hereunder or in the exercise of any of its rights or powers, if it shall have
reasonable grounds to believe that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.

 

(h)           Every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this Section 7.1
and to the provisions of the TIA.

 

(i)            Unless otherwise
specifically provided in this Indenture, any demand, request, direction or
notice from the Company shall be sufficient if signed by an Officer of the
Company.

 

(j)            The Trustee shall
be under no obligation to exercise any of the rights or powers vested in it by
this Indenture at the request or direction of any of the Holders unless such
Holders shall have offered to the Trustee reasonable security or indemnity
satisfactory to it against the costs, expenses (including reasonable attorneys’
fees and expenses) and liabilities that might be incurred by it in compliance
with such request or direction.

 

Section 7.2             Rights
of Trustee.  Subject to Section 7.1:

 

(a)           The Trustee may
conclusively rely on any document (whether in its original or facsimile form)
reasonably believed by it to be genuine and to have been signed or presented by
the proper person.  The Trustee need not
investigate any fact or matter stated in the document.

 

(b)           Before the Trustee
acts or refrains from acting, it may require an Officers’ Certificate and/or an
Opinion of Counsel.  The Trustee shall
not be liable for any action it takes or omits to take in good faith in
reliance on an Officers’ Certificate or Opinion of Counsel.

 

(c)           The Trustee may act
through its attorneys and agents and shall not be responsible for the
misconduct or negligence of any agent appointed with due care.

 

(d)           The Trustee shall
not be liable for any action it takes or omits to take in good faith which it
believes to be authorized or within its rights or powers, unless the Trustee’s
conduct constitutes willful misconduct or negligence.

 

(e)           The Trustee may
consult with counsel of its selection, and the advice or opinion of counsel
with respect to legal matters relating to this Indenture and the Notes shall be
full and complete authorization and protection from liability in respect of any
action taken, 

 

79

 

omitted
or suffered by it hereunder in good faith and in accordance with the advice or
opinion of such counsel.

 

(f)            The Trustee is not
required to make any inquiry or investigation into facts or matters stated in
any document but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit and, if the
Trustee determines to make such further inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Company.

 

(g)           The Trustee is not
required to take notice or shall not be deemed to have notice of any Default or
Event of Default hereunder, unless a Trust Officer of the Trustee has actual
knowledge thereof or has received notice in writing of such Default or Event of
Default from the Company or the Holders of at least 25% in aggregate principal
amount of the Notes then outstanding, and in the absence of any such notice,
the Trustee may conclusively assume that no such Default or Event of Default
exists.

 

(h)           The Trustee is not
required to give any bond or surety with respect to the performance of its
duties or the exercise of its powers under this Indenture.

 

(i)            In the event the
Trustee receives inconsistent or conflicting requests and indemnity from two or
more groups of Holders of Notes, each representing less than the aggregate
principal amount of Notes outstanding required to take any action thereunder,
the Trustee, in its sole discretion may determine what action, if any, shall be
taken.

 

(j)            The Trustee’s
immunities and protections from liability and its right to indemnification in
connection with the performance of its duties under this Indenture shall extend
to the Trustee’s officers, directors, agents, attorneys and employees.  Such immunities and protections and right to
indemnification, together with the Trustee’s right to compensation, shall
survive the Trustee’s resignation or removal, the discharge of this Indenture
and final payments of the Notes.

 

(k)           The permissive right
of the Trustee to take actions permitted by this Indenture shall not be
construed as an obligation or duty to do so.

 

Section 7.3             Individual
Rights of Trustee.  The Trustee in
its individual or any other capacity may become the owner or pledgee of Notes
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not Trustee. 
Any Paying Agent, Registrar, co-registrar or co-paying agent may do the
same with like rights.  However, the
Trustee must comply with Sections 7.10 and 7.11.

 

Section 7.4             Trustee’s
Disclaimer.  The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Notes, it shall not be accountable for the Company’s use
of the proceeds from the Notes, and it shall not be responsible for any
statement of the Company in this Indenture or in any document issued in
connection with the sale of the Notes or in the Notes other than the Trustee’s
certificate of authentication.

 

80

 

Section 7.5             Notice
of Defaults.  If a Default or Event
of Default occurs and is continuing and if a Trust Officer has actual knowledge
thereof, the Trustee shall mail to each Holder notice of the Default or Event
of Default within 90 days after it. 
Except in the case of a Default or Event of Default in payment of
principal of, premium, if any, or interest or Additional Interest, if any, on
any Note, the Trustee may withhold the notice if and so long as a committee of
its officers in good faith determines that withholding the notice is in the
interests of Holders.

 

Section 7.6             Reports
by Trustee to Holders.  As promptly
as practicable after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as the Notes remain outstanding,
the Trustee shall mail to each Holder a brief report dated as of such reporting
date that complies with TIA § 313(a). 
The Trustee also shall comply with TIA § 313(b).  The Trustee shall also transmit by mail all
reports required by TIA § 313(c).

 

A copy of each report at the
time of its mailing to Holders shall be filed with the Commission and each
stock exchange (if any) on which the Notes are listed.  The Company agrees to notify promptly the
Trustee whenever the Notes become listed on any stock exchange and of any
delisting thereof.

 

Section 7.7             Compensation
and Indemnity.  The Company shall pay
to the Trustee from time to time reasonable compensation for its acceptance of
this Indenture and services hereunder as the Company and the Trustee shall from
time to time agree in writing.  The
Trustee’s compensation shall not be limited by any law on compensation of a
trustee of an express trust.  The Company
shall reimburse the Trustee upon request for all reasonable out-of-pocket
expenses incurred or made by it, including costs of collection, costs of
preparing and reviewing reports, certificates and other documents, costs of
preparation and mailing of notices to Holders and costs of engaging agents in
connection with determining and calculating Reference Treasury Dealer
Quotations, in addition to the compensation for its services.  Such expenses shall include the reasonable
compensation and expenses, disbursements and advances of the Trustee’s agents,
counsel, accountants and experts.  The
Company shall indemnify the Trustee against any and all loss, liability,
damages, claims or expense (including reasonable attorneys’ fees and expenses)
incurred by it without negligence or willful misconduct on its part in
connection with the administration of this trust and the performance of its
duties hereunder, including the costs and expenses of enforcing this Indenture
(including this Section 7.7) and of defending itself against any
claims (whether asserted by any Holder, the Company or otherwise).  The Trustee shall notify the Company promptly
of any claim for which it may seek indemnity. 
Failure by the Trustee to so notify the Company shall not relieve the
Company of its obligations hereunder. 
The Company shall defend the claim and the Trustee shall provide
reasonable cooperation at the Company’s expense in the defense.  The Trustee may have separate counsel and the
Company shall pay the fees and expenses of such counsel; provided
that the Company shall not be required to pay such fees and expenses if it
assumes the Trustee’s defense with counsel reasonably satisfactory to the
Trustee, and, in the reasonable judgment of outside or internal counsel to the
Trustee, there is no conflict of interest between the Company and the Trustee
in connection with such defense.  The
Company shall not be under any obligation to pay for any written settlement
without its consent, which consent shall not be unreasonably delayed,
conditioned or withheld.  The Company
need not reimburse any expense or indemnify against any loss, liability or
expense incurred by the Trustee through the Trustee’s own willful misconduct or
negligence.

 

81

 

 

To secure the Company’s
payment obligations in this Section 7.7, the Trustee shall have a
Lien prior to the Notes on all money or property held or collected by the
Trustee other than money or property held in trust to pay principal of,
interest and Additional Interest, if any, on particular Notes.

 

The Company’s payment
obligations pursuant to this Section 7.7 shall survive the
discharge of this Indenture.  When the
Trustee incurs expenses after the occurrence of a Default specified in
clause (i) of Section 6.1 with respect to the Company,
the expenses are intended to constitute expenses of administration under any
Bankruptcy Law.

 

Section 7.8             Replacement
of Trustee.  The Trustee may resign
at any time by so notifying the Company. 
The Holders of a majority in principal amount of the then outstanding
Notes may remove the Trustee by so notifying the Trustee and may appoint a
successor Trustee.  The Company shall
remove the Trustee if:

 

(a)           the Trustee fails to
comply with Section 7.10;

 

(b)           the Trustee is adjudged
bankrupt or insolvent;

 

(c)           a receiver or other
public officer takes charge of the Trustee or its property; or

 

(d)           the Trustee
otherwise becomes incapable of acting.

 

If the Trustee resigns or is
removed by the Company or by the Holders of a majority in principal amount of
the then outstanding Notes and such Holders do not reasonably promptly appoint
a successor Trustee, or if a vacancy exists in the office of the Trustee for
any reason (the Trustee in such event being referred to herein as the retiring
Trustee), the Company shall promptly appoint a successor Trustee.

 

A successor Trustee shall
deliver a written acceptance of its appointment to the retiring Trustee and to
the Company.  Thereupon the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture.  The successor Trustee shall
mail a notice of its succession to Holders. 
The retiring Trustee shall promptly transfer all property held by it as
Trustee to the successor Trustee, subject to the Lien provided for in Section 7.7.

 

If a successor Trustee does
not take office within 60 days after the retiring Trustee resigns or is
removed, the retiring Trustee or the Holders of at least 10% in principal
amount of the then outstanding Notes may petition, at the Company’s expense,
any court of competent jurisdiction for the appointment of a successor Trustee.

 

If the Trustee fails to
comply with Section 7.10, unless the Trustee’s duty to resign is
stayed as provided in TIA § 310(b), any Holder who has been a bona fide Holder
of a Note for at least six months may petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.

 

82

 

Notwithstanding the
replacement of the Trustee pursuant to this Section 7.8, the
Company’s obligations under Section 7.7 shall continue for the benefit of
the retiring Trustee.

 

Section 7.9             Successor
Trustee by Merger.  If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.

 

In case at the time such
successor or successors by merger, conversion or consolidation to the Trustee
shall succeed to the trusts created by this Indenture, any of the Notes shall
have been authenticated but not delivered, any such successor to the Trustee
may adopt the certificate of authentication of any predecessor trustee, and
deliver such Notes so authenticated; and in case at that time any of the Notes
shall not have been authenticated, any successor to the Trustee may
authenticate such Notes either in the name of any predecessor hereunder or in
the name of the successor to the Trustee; and in all such cases such
certificates shall have the full force which it is anywhere in the Notes or in
this Indenture.

 

Section 7.10           Eligibility;
Disqualification.  The Trustee shall
at all times satisfy the requirements of TIA § 310(a).  The Trustee shall have a combined capital and
surplus of at least $100,000,000 as set forth in its most recent published
annual report of condition.  The Trustee
shall comply with TIA § 310(b); provided, however,
that there shall be excluded from the operation of TIA § 310(b)(1) any
indenture or indentures under which other securities or certificates of
interest or participation in other securities of the Company are outstanding if
the requirements for such exclusion set forth in TIA § 310(b)(1) are met.

 

Section 7.11           Preferential
Collection of Claims Against Company. 
The Trustee shall comply with TIA § 311(a), excluding any creditor relationship
listed in TIA § 311(b).  A Trustee who
has resigned or been removed shall be subject to TIA § 311(a) to the
extent indicated.

 

ARTICLE
VIII

 

Legal Defeasance and Covenant Defeasance

 

Section 8.1             Option
to Effect Legal Defeasance or Covenant Defeasance.  The Company may, at its option and at any
time, elect to have either Section 8.2 or 8.3 hereof be
applied to all outstanding Notes upon compliance with the conditions set forth
in this Article VIII.

 

Section 8.2             Legal
Defeasance and Discharge.  Upon the
Company’s exercise under Section 8.1 hereof of the option
applicable to this Section 8.2, the Company shall, subject to the
satisfaction of the conditions set forth in Section 8.4 hereof, be deemed
to have been discharged from its Obligations with respect to all outstanding
Notes on the date the conditions set forth below are satisfied (hereinafter, “Legal
Defeasance”) and each Guarantor shall be released from all of its
Obligations under its Subsidiary Guarantee. 
For this purpose, Legal Defeasance means that the Company shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, which shall thereafter be deemed to be 

 

83

 

“outstanding”
only for the purposes of Section 8.5 hereof and the other Sections
of this Indenture referred to in clauses (a) through (e) below,
and to have satisfied all its other obligations under the Notes and this
Indenture (and the Trustee, on demand of and at the expense of the Company,
shall execute proper instruments acknowledging the same), except for the
following provisions which shall survive until otherwise terminated or
discharged hereunder:  (a) the
rights of Holders of outstanding Notes to receive, solely from the trust fund
described in Sections 8.4 and 8.5 hereof, and as more fully
set forth in such Section, payments in respect of the principal of, premium, if
any, interest and Additional Interest, if any, on such Notes when such payments
are due, (b) the Company’s and the Guarantors’ Obligations with respect to
such Notes under Article II and Sections 3.1 and 3.13
hereof, (c) the rights, powers, trusts, duties and immunities of the
Trustee hereunder and the Company’s and the Guarantors’ obligations in
connection therewith, (d) the optional redemption provisions of this
Indenture, and (e) this Article VIII.  If the Company exercises under Section 8.1
hereof the option applicable to this Section 8.2, subject to the
satisfaction of the conditions set forth in Section 8.4 hereof,
payment of the Notes may not be accelerated because of an Event of
Default.  Subject to compliance with this
Article VIII, the Company may exercise its option under this Section 8.2
notwithstanding the prior exercise of its option under Section 8.3
hereof.

 

Section 8.3             Covenant
Defeasance.  Upon the Company’s
exercise under Section 8.1 hereof of the option applicable to this Section 8.3,
the Company shall, subject to the satisfaction of the conditions set forth in Section 8.4
hereof, be released from its obligations under the covenants contained in Sections 3.2
through 3.12, 3.14 (other than with respect to the Company’s
corporate existence), 3.15, and 3.16 hereof, and the operation of
clause (d) of Section 4.1 hereof, with respect to the
outstanding Notes on and after the date the conditions set forth in Section 8.4
hereof are satisfied (hereinafter, “Covenant Defeasance”) and each
Guarantor shall be released from all of its obligations under its Subsidiary
Guarantee with respect to such covenants in connection with such outstanding
Notes and the Notes shall thereafter be deemed not “outstanding” for the
purposes of any direction, waiver, consent or declaration or act of Holders
(and the consequences of any thereof) in connection with such covenants, but shall
continue to be deemed “outstanding” for all other purposes hereunder (it being
understood that such Notes shall not be deemed outstanding for accounting
purposes).  For this purpose, Covenant
Defeasance means that, with respect to the outstanding Notes, the Company and
the Guarantors may omit to comply with and shall have no liability in respect
of any term, condition or limitation set forth in any such covenant, whether
directly or indirectly, by reason of any reference elsewhere herein to any such
covenant or by reason of any reference in any such covenant to any other
provision herein or in any other document and such omission to comply shall not
constitute a Default or an Event of Default under Section 6.1
hereof, but, except as specified above, the remainder of this Indenture and
such Notes shall be unaffected thereby. 
If the Company exercises under Section 8.1 hereof the option
applicable to this Section 8.3, subject to the satisfaction of the
conditions set forth in Section 8.4 hereof, payment of the Notes
may not be accelerated because of an Event of Default specified in
clauses (c), (d) (with respect to the covenant contained in
clause (d) of Section 4.1 hereof), (e) (with respect
to Sections 3.2 through 3.12, 3.14 (other than with
respect to the Company’s corporate existence), 3.15, and 3.16
hereof), (f), (h) and (i) of such Section 6.1 (but in the case
of clause (i) of Section 6.1 hereof, with respect to
Significant Subsidiaries only).

 

84

 

Section 8.4             Conditions
to Legal or Covenant Defeasance.  The
following shall be the conditions to the application of either Section 8.2
or 8.3 hereof to the outstanding Notes.

 

In order to exercise Legal
Defeasance or Covenant Defeasance:

 

(a)           the Company must irrevocably
deposit with the Trustee, in trust, for the benefit of the Holders of the
Notes, cash in U.S. dollars, non-callable Government Securities, or a
combination of cash in U.S. dollars, and non-callable Government Securities, in
amounts as will be sufficient, in the opinion of a nationally recognized firm
of independent public accountants, to pay the principal of, and interest,
Additional Interest, if any, and premium, if any, on the outstanding Notes on
the date of fixed maturity or on the applicable Redemption Date, as the case
may be, and the Company must specify whether the Notes are being defeased to
the date of fixed maturity or to a particular Redemption Date

 

(b)           in the case of Legal
Defeasance, the Company shall deliver to the Trustee an Opinion of Counsel
confirming that:

 

(i)            the Company has received from, or there has been
published by, the Internal Revenue Service a ruling; or

 

(ii)           since the date of this Indenture, there has been a change
in the applicable federal income tax law,

 

in either case to the effect
that, and based thereon such Opinion of Counsel shall confirm that, the Holders
of the outstanding Notes shall not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and shall be subject to
federal income tax in the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had not occurred;

 

(c)           in the case of
Covenant Defeasance, the Company shall deliver to the Trustee an Opinion of
Counsel confirming that Holders of the outstanding Notes shall not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and shall be subject to federal income tax in the same
amounts, in the same manner and at the same times as would have been the case
if such Covenant Defeasance had not occurred;

 

(d)           no Default or Event
of Default shall have occurred and be continuing with respect to the Notes on
the date of such deposit (other than a Default or Event of Default resulting
from the borrowing of funds to be applied to such deposit) or insofar as Events
of Default pursuant to clause (i) of Section 6.1 hereof are
concerned, at any time in the period ending on the 91st day after the date of deposit;

 

(e)           such Legal Defeasance
or Covenant Defeasance shall not result in a breach or violation of, or
constitute a default under, any material agreement or instrument (other than
this Indenture) to which the Company or any of its Subsidiaries is a party or
by which the Company or any of its Subsidiaries is bound;

 

85

 

(f)            the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that after
the 91st day following the deposit (or, if any Holder or Beneficial Owner of
Notes is an insider of the Company, such later date as counsel may specify in
such opinion), the trust funds shall not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors’ rights generally;

 

(g)           the Company shall
have delivered to the Trustee an Officers’ Certificate stating that such
deposit was not made by the Company with the intent of preferring the Holders
of Notes over the other creditors of the Company with the intent of defeating,
hindering, delaying or defrauding creditors of the Company or others; and

 

(h)           the Company shall
have delivered to the Trustee an Officers’ Certificate and an Opinion of
Counsel, each stating that all conditions precedent relating to the Legal Defeasance
or the Covenant Defeasance have been complied with.

 

Section 8.5             Deposited
Cash and Government Securities to be Held in Trust; Other Miscellaneous
Provisions.  Subject to Section 8.6
hereof, all cash and non-callable Government Securities (including the proceeds
thereof) deposited with the Trustee (or other qualifying trustee), collectively
for purposes of this Section 8.5, the “Trustee”) pursuant to
Section 8.4 hereof in respect of the outstanding Notes shall be
held in trust and applied by the Trustee, in accordance with the provisions of
such Notes and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as Paying Agent) as the Trustee may
determine, to the Holders of all sums due and to become due thereon in respect
of principal, premium, if any, interest and Additional Interest, if any, but
such cash and securities need not be segregated from other funds except to the
extent required by law.

 

The Company shall pay and
indemnify the Trustee against any tax, fee or other charge imposed on or
assessed against the cash or non-callable Government Securities deposited
pursuant to Section 8.4 hereof or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of the outstanding Notes.

 

Anything in this Article VIII
to the contrary notwithstanding, the Trustee shall deliver or pay to the
Company from time to time upon the request of the Company any cash or
non-callable Government Securities held by it as provided in Section 8.4
hereof which, in the opinion of a nationally recognized independent registered
public accounting firm expressed in a written certification thereof delivered
to the Trustee (which may be the certification delivered under clause (a) of
Section 8.4 hereof), are in excess of the amount thereof that would
then be required to be deposited to effect an equivalent Legal Defeasance or
Covenant Defeasance.

 

Section 8.6             Repayment
to Company.  Any cash or non-callable
Government Securities deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of, premium, if
any, on, or interest or Additional Interest, if any, on, any Note and remaining
unclaimed for one year after such principal, premium, if any, or interest or
Additional Interest, if any, has become due and payable shall be paid to the
Company on its request (unless an abandoned property law designates another
Person) or (if then held by the Company) shall be discharged from such trust;
and the Holder shall thereafter, as an 

 

86

 

unsecured
creditor, look only to the Company for payment thereof, and all liability of
the Trustee or such Paying Agent with respect to such cash and securities, and
all liability of the Company as Trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent,
before being required to make any such repayment, may at the expense of the Company
cause to be published once, in The New York Times and The Wall Street Journal
(national edition), notice that such cash and securities remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such notification or publication, any unclaimed balance of such
cash and securities then remaining shall be repaid to the Company.

 

Section 8.7             Reinstatement.  If the Trustee or Paying Agent is unable to
apply any cash or non-callable Government Securities in accordance with Section 8.2,
8.3 or 8.5 hereof, as the case may be, by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, then the Company’s obligations under
this Indenture and the Notes shall be revived and reinstated as though no
deposit had occurred pursuant to Section 8.4 hereof until such time
as the Trustee or Paying Agent is permitted to apply all such cash and
securities in accordance with Section 8.2, 8.3 or 8.5
hereof, as the case may be; provided, however,
that, if the Company makes any payment of principal of, premium, if any, on, or
interest or Additional Interest, if any, on, any Note following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders to receive such payment from the cash and securities held by the
Trustee or Paying Agent.

 

ARTICLE IX

 

Amendments

 

Section 9.1             Without
Consent of Holders.  The Company, the
Guarantors and the Trustee may amend this Indenture or the Notes without notice
to or consent of any Holder:

 

(a)           to cure any
ambiguity, defect or inconsistency;

 

(b)           to provide for
uncertificated Notes in addition to or in place of certificated Notes;

 

(c)           to provide for the
assumption of the Company’s obligations to Holders of Notes in the case of a
merger or consolidation or sale of all or substantially all of the Company’s
properties or assets;

 

(d)           to make any change
that would provide any additional rights or benefits to the Holders of Notes or
that does not adversely affect the legal rights under this Indenture of any
Holder, provided that any change to conform this
Indenture to an offering memorandum relating to a Registered Exchange Offer of
the Notes will not be deemed to adversely affect the legal rights under this
Indenture of any Holder;

 

(e)           to secure the Notes
or the Subsidiary Guarantees pursuant to the requirements of the covenant
described in Section 3.5 hereof or otherwise;

 

87

 

(f)            to provide for the
issuance of Additional Notes in accordance with the limitations set forth in
this Indenture;

 

(g)           to add any
additional Guarantor or to evidence the release of any Guarantor from its
Subsidiary Guarantee, in each case as provided in this Indenture;

 

(h)           to comply with
requirements of the Commission in order to effect or maintain the qualification
of this Indenture under the Trust Indenture Act; or

 

(i)            to evidence or
provide for the acceptance of appointment under this Indenture of a successor
trustee.

 

After an amendment under
this Indenture becomes effective, the Company is required to mail to the
Holders a notice briefly describing such amendment.  However, the failure to give such notice to
all the Holders, or any defect therein, will not impair or affect the validity
of the amendment or supplemental indenture under this Section 9.1.

 

Section 9.2             With
Consent of Holders.  The Company, the
Guarantors and the Trustee may amend or supplement this Indenture or the Notes
without notice to any Holder but with the written consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing Default or
compliance with any provision of this Indenture or the Notes may be waived with
the consent of the Holders of at least a majority in principal amount of the
Notes then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes).

 

However, without the consent
of each Holder affected, an amendment, supplement or waiver may not (with
respect to any Notes held by a non-consenting Holder):

 

(a)           reduce the principal
amount of Notes whose Holders must consent to an amendment, supplement or
waiver;

 

(b)           reduce the principal
of or change the fixed maturity of any Note or alter the provisions with
respect to the redemption or repurchase of the Notes;

 

(c)           reduce the rate of
or change the time for payment of interest on any Note;

 

(d)           waive a Default or
Event of Default in the payment of principal of, or interest or premium, if
any, on the Notes (except a rescission of acceleration of the Notes by the
Holders of at least a majority in principal amount of the Notes and a waiver of
the payment default that resulted from such acceleration);

 

(e)           make any Note
payable in currency other than that stated in the Notes;

 

(f)            make any change in
the provisions of this Indenture relating to waivers of past Defaults or the
rights of Holders of Notes to receive payments of principal of, or interest or
premium, if any, on the Notes;

 

88

 

(g)           make any change in
the covenants and definitions used therein described above in Section 3.7,
3.9 and 5.1;

 

(h)           impair the right of
any Holder to receive payment of, premium, if any, principal of and interest
and Additional Interest, if any, on such Holder’s Notes issued hereunder on or
after the due dates therefor or to institute suit for the enforcement of any
payment on or with respect to such Holder’s Notes;

 

(i)            release any
Guarantor from any of its obligations under its Subsidiary Guarantee or this
Indenture, except in accordance with the terms of this Indenture; or

 

(j)            make any change in
the preceding amendment, supplement and waiver provisions.

 

It shall not be necessary
for the consent of the Holders under this Section 9.2 to approve
the particular form of any proposed amendment, but it shall be sufficient if
such consent approves the substance thereof. 
A consent to any amendment or waiver under this Indenture by any Holder
of the Notes given in connection with a tender of such Holder’s Notes will not
be rendered invalid by such tender.

 

After an amendment under
this Section becomes effective, the Company shall mail to Holders a notice
briefly describing such amendment.  The
failure to give such notice to all Holders, or any defect therein, shall not
impair or affect the validity of an amendment supplemental indenture or waiver
under this Section 9.2.

 

Section 9.3             Compliance
with Trust Indenture Act.  Every
amendment or supplement to this Indenture or the Notes shall comply with the
TIA as then in effect.

 

Section 9.4             Revocation
and Effect of Consents and Waivers. 
A consent to an amendment or a waiver by a Holder of a Note shall bind
the Holder and every subsequent Holder of that Note or portion of the Note that
evidences the same debt as the consenting Holder’s Note, even if notation of
the consent or waiver is not made on the Note. 
However, any such Holder or subsequent Holder may revoke the consent or
waiver as to such Holder’s Note or portion of the Note if the Trustee receives
the notice of revocation before the date the amendment or waiver becomes
effective.  After an amendment or waiver
becomes effective, it shall bind every Holder.

 

For purposes of this
Indenture, the written consent of the Holder of a Global Note shall be deemed
to include any consent delivered by an Agent Member by electronic means in
accordance with the Automated Tender Offer Procedures system or other customary
procedures of, and pursuant to authorization by, DTC.

 

The Company may, but shall
not be obligated to, fix a record date for the purpose of determining the Holders
entitled to give their consent or take any other action described above or
required or permitted to be taken pursuant to this Indenture.  If a record date is fixed, then
notwithstanding the immediately preceding paragraph, those Persons who were Holders
at such record date (or their duly designated proxies), and only those Persons,
shall be entitled to give such consent or to revoke any consent previously
given or to take any such action, whether or not 

 

89

 

such
Persons continue to be Holders after such record date.  No such consent shall become valid or
effective more than 120 days after such record date.

 

Section 9.5             Notation
on or Exchange of Notes.  If an
amendment changes the terms of a Note, the Trustee may require the Holder of
the Note to deliver it to the Trustee. 
The Trustee may place an appropriate notation on the Note regarding the
changed terms and return it to the Holder. 
Alternatively, if the Company or the Trustee so determines, the Company
in exchange for the Note shall issue and the Trustee shall authenticate a new
Note that reflects the changed terms. 
Failure to make the appropriate notation or to issue a new Note shall
not affect the validity of such amendment.

 

Section 9.6             Trustee
To Sign Amendments.  The Trustee
shall sign any amendment authorized pursuant to this Article IX if
the amendment does not adversely affect the rights, duties, liabilities or
immunities of the Trustee.  If it does,
the Trustee may but need not sign it.  In
signing such amendment the Trustee shall be entitled to receive indemnity
reasonably satisfactory to it and to receive, and (subject to Sections 7.1
and 7.2) shall be fully protected in relying upon an Officers’
Certificate and an Opinion of Counsel stating that such amendment is authorized
or permitted by this Indenture.

 

ARTICLE X

 

Subsidiary Guarantee

 

Section 10.1           Subsidiary
Guarantee.  Each Guarantor hereby
fully, unconditionally and irrevocably guarantees, as primary obligor and not
merely as surety, jointly and severally with each other Guarantor, to each
Holder of the Notes and the Trustee the full and punctual payment when due,
whether at maturity, by acceleration, by redemption or otherwise, of the
principal of, premium, if any, interest and Additional Interest, if any, on the
Notes and all other monetary Obligations of the Company under this
Indenture.  Each Guarantor further agrees
(to the extent permitted by law) that the Obligations may be extended or renewed,
in whole or in part, without notice or further assent from it, and that it will
remain bound under this Article X notwithstanding any extension or
renewal of any Obligation.

 

Each Guarantor waives
presentation to, demand of payment from and protest to the Company of any of
the Obligations and also waives notice of protest for nonpayment.  Each Guarantor waives notice of any default
under the Notes or the Obligations.  The
obligations of each Guarantor hereunder shall not be affected by (a) the
failure of any Holder to assert any claim or demand or to enforce any right or
remedy against the Company or any other Person under this Indenture, the Notes
or any other agreement or otherwise; (b) any extension or renewal of any
thereof; (c) any rescission, waiver, amendment or modification of any of
the terms or provisions of this Indenture, the Notes or any other agreement; (d) the
release of any Note held by any Holder or the Trustee for the Obligations or
any of them; (e) the failure of any Holder to exercise any right or remedy
against any other Guarantor; or (f) any change in the ownership of the
Company.

 

90

 

Each Guarantor further
agrees that its Subsidiary Guarantee herein constitutes a Guarantee of payment
when due (and not a Guarantee of collection) and waives any right to require
that any resort be had by any Holder to any Note held for payment of the
Obligations.

 

Except as expressly set
forth in Article VIII and Section 10.2, the obligations
of each Guarantor hereunder shall not be subject to any reduction, limitation,
impairment or termination for any reason (other than payment of the Obligations
in full), including any claim of waiver, release, surrender, alteration or
compromise, and shall not be subject to any defense of setoff, counterclaim,
recoupment or termination whatsoever or by reason of the invalidity, illegality
or unenforceability of the Obligations or otherwise.  Without limiting the generality of the
foregoing, the obligations of each Guarantor herein shall not be discharged or
impaired or otherwise affected by the failure of the Trustee or any Holder to
assert any claim or demand or to enforce any remedy under this Indenture, the
Notes or any other agreement, by any waiver or modification of any thereof, by
any default, failure or delay, willful or otherwise, in the performance of the
Obligations, or by any other act or thing or omission or delay to do any other
act or thing which may or might in any manner or to any extent vary the risk of
any Guarantor or would otherwise operate as a discharge of such Guarantor as a
matter of law or equity.

 

Each Guarantor further
agrees that its Subsidiary Guarantee herein shall continue to be effective or
be reinstated, as the case may be, if at any time payment, or any part thereof,
of principal of or interest or Additional Interest, if any, on any of the
Obligations is rescinded or must otherwise be restored by any Holder upon the
bankruptcy or reorganization of the Company or otherwise.

 

In furtherance of the
foregoing and not in limitation of any other right which any Holder has at law
or in equity against any Guarantor by virtue hereof, upon the failure of the
Company to pay any of the Obligations when and as the same shall become due,
whether at maturity, by acceleration, by redemption or otherwise, each
Guarantor hereby promises to and will, upon receipt of written demand by the
Trustee, forthwith pay, or cause to be paid, in cash, to the Holders an amount
equal to the sum of (i) the unpaid amount of such Obligations then due and
owing and (ii) accrued and unpaid interest on such Obligations then due
and owing (but only to the extent not prohibited by law) and except as provided
in Section 10.2.

 

Each Guarantor further
agrees that, as between such Guarantor, on the one hand, and the Holders, on
the other hand, (x) the maturity of the Obligations Guaranteed hereby may
be accelerated as provided in this Indenture for the purposes of its Subsidiary
Guarantee herein, notwithstanding any stay, injunction or other prohibition
preventing such acceleration in respect of the Obligations Guaranteed hereby
and (y) in the event of any such declaration of acceleration of such
Obligations, such Obligations (whether or not due and payable) shall forthwith
become due and payable by the Guarantor for the purposes of this Subsidiary
Guarantee.

 

Each Guarantor also agrees
to pay any and all reasonable costs and expenses (including reasonable
attorneys’ fees) incurred by the Trustee or the Holders in enforcing any rights
under this Section 10.1.

 

Section 10.2           Limitation
on Liability; Termination, Release and Discharge

 

91

 

(a)                                  The obligations
of each Guarantor hereunder will be limited to the maximum amount as will,
after giving effect to all other contingent and fixed liabilities of such
Guarantor (including, but not limited to, Senior Debt of a Guarantor) and after
giving effect to any collections from or payments made by or on behalf of any
other Guarantor in respect of the obligations of such other Guarantor under its
Subsidiary Guarantee or pursuant to its contribution obligations under this
Indenture, result in the obligations of such Guarantor under its Subsidiary
Guarantee not constituting a fraudulent conveyance or fraudulent transfer under
federal or state law.

 

(b)                                 Subject to Article IV
and Section 3.7, a Guarantor may not sell or otherwise dispose of
all or substantially all of its properties or assets to, or consolidate with or
merge into (whether or not such Guarantor is the surviving Person), another
Person, other than the Company or another Guarantor, unless:

 

(i)                                     immediately
after giving effect to such transaction, no Default or Event of Default exists;
and

 

(ii)                                  either:

 

(A)                            the Person
acquiring the properties or assets in any such sale or other disposition or the
Person formed by or surviving any such consolidation or merger (if other than
the Company or a Guarantor) unconditionally assumes all the obligations of that
Guarantor, pursuant to a supplemental indenture substantially in the form
specified in this Indenture, under the Notes, this Indenture and its Subsidiary
Guarantee on terms set forth therein; or

 

(B)                              the Net
Proceeds of such sale or other disposition are applied in accordance with the Section 3.7
hereof.

 

(c)                                  A Guarantor may
consolidate with or merge into or sell or otherwise dispose of all or
substantially all of its properties or assets to the Company or another
Guarantor without limitation, except to the extent that any such transaction is
subject to the provisions of Article IV and Section 3.7.

 

(d)                                 The Subsidiary
Guarantee of a Guarantor will be deemed released and the Guarantor will be
relieved of its obligations under this Indenture and its Subsidiary Guarantee
without any further action required on the part of the Company or such
Guarantor:

 

(i)                                     in connection
with any sale or other disposition of all or substantially all of the
properties or assets of that Guarantor (including by way of merger or
consolidation) to a Person that is not (either before or after giving effect to
such transaction) a Subsidiary of the Company, if the sale or other disposition
complies with Section 3.7 hereof; or

 

(ii)                                  in connection
with any sale or other disposition of all of the Capital Stock of that
Guarantor to a Person that is not (either before or after giving effect to such

 

92

 

transaction) a Subsidiary of
the Company, if the sale or other disposition complies with Section 3.7
hereof; or

 

(iii)                               if the Company
designates any Restricted Subsidiary that is a Guarantor as an Unrestricted
Subsidiary in accordance with the applicable provisions of this Indenture; or

 

(iv)                              at any time as
such Guarantor does not have outstanding any Indebtedness or guarantee any
Indebtedness of the Company or a Guarantor; or

 

(v)                                 upon Legal
Defeasance or Covenant Defeasance as provided in Article VIII or
upon satisfaction and discharge of this Indenture as provided in Article XI.

 

Section 10.3                                Limitation of
Guarantors’ Liability.  Each
Guarantor, and by its acceptance hereof each Holder, hereby confirms that it is
the intention of all such parties that the Guarantee by such Guarantor pursuant
to its Subsidiary Guarantee not constitute a fraudulent transfer or conveyance
for purposes of the Federal Bankruptcy Code, the Uniform Fraudulent Conveyance
Act, the Uniform Fraudulent Transfer Act or any similar federal or state law.  To effectuate the foregoing intention, the
Holders and each Guarantor hereby irrevocably agree that the obligations of
such Guarantor under its Subsidiary Guarantee will be limited to the maximum
amount as will, after giving effect to all other contingent and fixed liabilities
(including, but not limited to, Senior Debt of a Guarantor) of such Guarantor
and after giving effect to any collections from or payments made by or on
behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Subsidiary Guarantee or pursuant to Section 10.4
hereof, result in the obligations of such Guarantor under its Subsidiary
Guarantee not constituting such a fraudulent conveyance or fraudulent
transfer.  This Section 10.3
is for the benefit of the creditors of each Guarantor.

 

Section 10.4                                Contribution.  In order to provide for just and equitable
contribution among the Guarantors, the Guarantors agree that in the event any
payment or distribution is made by any Guarantor (a “Funding Guarantor”)
under its Subsidiary Guarantee, such Funding Guarantor will be entitled to a
contribution from each other Guarantor (if any) in a pro rata amount based on
the Adjusted Net Assets of each Guarantor (including the Funding Guarantor) for
all payments, damages and expenses incurred by that Funding Guarantor in
discharging the Company’s obligations with respect to the Notes or any other
Guarantor’s obligations with respect to its Subsidiary Guarantee.

 

ARTICLE XI

 

Satisfaction and Discharge

 

Section 11.1                                Satisfaction
and Discharge.  This
Indenture will be discharged and will cease to be of further effect as to all
Notes issued hereunder (except as to surviving rights of registration of
transfer or exchange of the Notes and as otherwise specified hereunder), when:

 

(a)                                  either:

 

93

 

(i)                                       all Notes that
have been authenticated, except lost, stolen or destroyed Notes that have been
replaced or paid and Notes for whose payment money has been deposited in trust
and thereafter repaid to the Company, have been delivered to the Trustee for
cancellation; or

 

(ii)                                all Notes that
have not been delivered to the Trustee for cancellation have become due and
payable or will become due and payable within one year by reason of the mailing
of a notice of redemption or otherwise and the Company or any Guarantor has
irrevocably deposited or caused to be deposited with the Trustee as trust funds
in trust solely for the benefit of the Holders, cash in U.S. dollars,
non-callable Government Securities, or a combination of cash in U.S. dollars
and non-callable Government Securities, in amounts as will be sufficient
without consideration of any reinvestment of interest, to pay and discharge the
entire indebtedness on the Notes not delivered to the Trustee for cancellation
for principal, premium, if any, and accrued interest and Additional Interest,
if any, to the date of fixed maturity or redemption;

 

(b)                                 no Default or
Event of Default has occurred and is continuing on the date of the deposit or
will occur as a result of the deposit and the deposit will not result in a
breach or violation of, or constitute a default under, any material agreement
or instrument (other than this Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound;

 

(c)                                  the Company or
any Guarantor has paid or caused to be paid all sums payable by it hereunder;

 

(d)                                 the Company has
delivered irrevocable instructions to the Trustee hereunder to apply the
deposited money toward the payment of the Notes at fixed maturity or the
Redemption Date, as the case may be; and

 

(e)                                  the Company has
delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel,
which, taken together, state that all conditions precedent under the Indenture
relating to the satisfaction and discharge of this Indenture have been complied
with.

 

ARTICLE XII

 

Miscellaneous

 

Section 12.1                                Trust Indenture
Act Controls.  If any
provision of this Indenture limits, qualifies or conflicts with another provision
which is required to be included in this Indenture by the TIA, the provision
required by the TIA shall control.  Each
Guarantor in addition to performing its obligations under its Subsidiary
Guarantee shall perform such other obligations as may be imposed upon it with
respect to this Indenture under the TIA.

 

Section 12.2                                Notices.  Any notice or communication shall be in
writing and delivered in person, by telecopier or overnight air courier
guaranteeing next day delivery or mailed by first-class mail addressed as
follows:

 

94

 

if to the Company:

 

Venoco, Inc.

370
17th Street, Suite 3900

Denver,
Colorado 80202-1370

Attention: 
General Counsel

 

if to the Trustee:

 

U.S.
Bank National Association

950
17th Street, 12th Floor

Denver,
Colorado  80202

Attention: 
Corporate Trust Services

 

The Company or the Trustee
by notice to the other may designate additional or different addresses for
subsequent notices or communications.

 

Any notice or communication
mailed to a registered Holder shall be mailed to the Holder at the Holder’s
address as it appears on the registration books of the Registrar and shall be
sufficiently given if so mailed within the time prescribed.  Any notice or communication shall also be
mailed to any Person described in TIA § 3.13(c), to the extent required by the
TIA.

 

Failure to mail a notice or
communication to a Holder or any defect in it shall not affect its sufficiency
with respect to other Holders.  If a
notice or communication is mailed in the manner provided above, it is duly
given, whether or not the addressee receives it.

 

Section 12.3                                Communication
by Holders with other Holders.  Holders may communicate pursuant to TIA § 312(b) with
other Holders with respect to their rights under this Indenture or the
Notes.  The Company, the Trustee, the
Registrar and anyone else shall have the protection of TIA § 312(c).

 

Section 12.4                                Certificate and
Opinion as to Conditions Precedent.  Upon any request or application by the
Company to the Trustee to take or refrain from taking any action under this
Indenture, the Company shall furnish to the Trustee:

 

(a)                                  an Officers’
Certificate stating that, in the opinion of the signers, all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with; and

 

(b)                                 an Opinion of
Counsel stating that, in the opinion of such counsel, all such conditions
precedent have been complied with.

 

In any case where several
matters are required to be certified by, or covered by an opinion of, any
specified Person, it is not necessary that all such matters be certified by, or
covered by the opinion of, only one such Person, or that they be so certified
or covered by only one document, but one such Person may certify or give an
opinion as to such matters in one or several documents.

 

95

 

Any certificate or opinion
of an Officer of the Company or any Guarantor may be based, insofar as it
relates to legal matters, upon a certificate or opinion of, or representations
by, counsel, unless such Officer knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
the matters upon which his certificate or opinion is based are erroneous.  Any such certificate or Opinion of Counsel
may be based, and may state that it is so based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
Officer or Officers of the Company or such Guarantor stating that the
information with respect to such factual matters known to the Company or such
Guarantor, unless such counsel knows that the certificate or opinion or
representations with respect to such matters are erroneous.

 

Where any Person is required
to make, give or execute two or more applications, requests, consents,
certificates, statements, opinions or other instruments under this Indenture,
they may, but need not, be consolidated and form one instrument.

 

Section 12.5                                Statements
Required in Certificate or Opinion.  Each certificate or opinion with respect to
compliance with a covenant or condition provided for in this Indenture shall
include:

 

(a)                                  a statement
that the individual making such certificate or opinion has read such covenant
or condition;

 

(b)                                 a brief
statement as to the nature and scope of the examination or investigation upon
which the statements or opinions contained in such certificate or opinion are
based;

 

(c)                                  a statement
that, in the opinion of such individual, he has made such examination or
investigation as is necessary to enable him to express an informed opinion as
to whether or not such covenant or condition has been complied with; and

 

(d)                                 a statement as
to whether or not, in the opinion of such individual, such covenant or
condition has been complied with.

 

Section 12.6                                When Notes
Disregarded.  In
determining whether the Holders of the required principal amount of Notes have
concurred in any direction, waiver or consent, Notes owned by the Company or by
any Person directly or indirectly controlling or controlled by or under direct
or indirect common control with the Company shall be disregarded and deemed not
to be outstanding, except that, for the purpose of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Notes which the Trustee knows are so owned shall be so disregarded.  Also, subject to the foregoing, only Notes
outstanding at the time shall be considered in any such determination.

 

Section 12.7                                Rules by
Trustee, Paying Agent and Registrar.  The Trustee may make reasonable rules for
action by, or a meeting of, Holders.  The
Registrar and the Paying Agent may make reasonable rules for their
functions.

 

Section 12.8                                Legal Holidays.  A “Legal Holiday” is a Saturday, a Sunday or
other day on which commercial banking institutions are authorized or required
to be closed in 

 

96

 

Denver,
Colorado or New York, New York.  If a
payment date is a Legal Holiday, payment shall be made on the next succeeding
day that is not a Legal Holiday, and no interest shall accrue for the
intervening period.  If a regular record
date is a Legal Holiday, the record date shall not be affected.

 

Section 12.9                                GOVERNING LAW.  THIS INDENTURE AND THE NOTES SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.

 

Section 12.10                          No Recourse
Against Others.  No
director, officer, employee, incorporator or stockholder or other owner of
Capital Stock of the Company or any Guarantor, as such, shall have any
liability for any obligations of the Company or any Guarantor under the Notes,
this Indenture or the Subsidiary Guarantees, or for any claim based on, in
respect of, or by reason of such obligations or their creation.  Each Holder of Notes by accepting a Note
waives and releases all such liability.

 

Section 12.11                          Successors.  All agreements of the Company in this
Indenture and the Notes shall bind its successors.  All agreements of the Trustee in this
Indenture shall bind its successors.

 

Section 12.12                          Multiple
Originals.  The parties
may sign any number of copies of this Indenture.  Each signed copy shall be an original, but
all of them together represent the same agreement.  One signed copy is enough to prove this Indenture.

 

Section 12.13                          Qualification
of Indenture.  The Company
shall qualify this Indenture under the TIA in accordance with the terms and
conditions of the Registration Rights Agreement and shall pay all reasonable
costs and expenses (including attorneys’ fees and expenses for the Company, the
Trustee and the Holders) incurred in connection therewith, including, but not
limited to, costs and expenses of qualification of this Indenture and the Notes
and printing this Indenture and the Notes. 
The Trustee shall be entitled to receive from the Company any such
Officers’ Certificates or other documentation as it may reasonably request in
connection with any such qualification of this Indenture under the TIA.

 

Section 12.14                          Severability.  In case any provision in this Indenture or in
the Notes shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.

 

Section 12.15                          No Adverse
Interpretation of Other Agreements.  This Indenture may not be used to interpret
any other indenture, loan or debt agreement of the Company or any Subsidiary or
any other Person.  Any such indenture,
loan or debt agreement may not be used to interpret this Indenture or the
Subsidiary Guarantees.

 

Section 12.16                          Table of
Contents; Headings.  The table
of contents, cross-reference sheet and headings of the Articles and Sections of
this Indenture have been inserted for convenience of reference only, are not
intended to be considered a part hereof and shall not modify or restrict any of
the terms or provisions hereof.

 

97

 

[Remainder of page intentionally left blank; signature pages follow.]

 

98

 

IN WITNESS WHEREOF, the
parties have caused this Indenture to be duly executed as of the date first
written above.

 

	
   

  	
  VENOCO,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  

  
	
   

  	
  Name:

  	
  Timothy
  M. Marquez

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GUARANTORS

  
	
   

  	
   

  
	
   

  	
  WHITTIER
  PIPELINE CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  

  
	
   

  	
  Name:

  	
  Timothy
  M. Marquez

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  TEXCAL
  ENERGY (LP) LLC

  
	
   

  	
   

  
	
   

  	
  By:
  Venoco, Inc., its Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  

  
	
   

  	
  Name:

  	
  Timothy
  M. Marquez

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  TEXCAL
  ENERGY (GP) LLC

  
	
   

  	
   

  
	
   

  	
  By:
  Venoco, Inc., its Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  

  
	
   

  	
  Name:

  	
  Timothy
  M. Marquez

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  

 

A-1

 

	
   

  	
  TEXCAL
  ENERGY SOUTH TEXAS L.P.

  
	
   

  	
   

  
	
   

  	
  By:
  TexCal Energy GP LLC, as general partner

  
	
   

  	
   

  
	
   

  	
  By:
  Venoco, Inc., its Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  

  
	
   

  	
  Name:

  	
  Timothy
  M. Marquez

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CATCO
  ENERGY LLC

  
	
   

  	
   

  
	
   

  	
  By:
  Venoco, Inc., its Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  

  
	
   

  	
  Name:

  	
  Timothy
  M. Marquez

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  U.S.
  BANK NATIONAL ASSOCIATION,

  
	
   

  	
  as
  Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  

  
	
   

  	
  Name:

  	
  Seth
  Dodson

  
	
   

  	
  Title:

  	
  VP

  

 

A-2

 

EXHIBIT A

 

[FORM OF FACE OF NOTE]

 

[Private Placement Legend]

[Depositary Legend, if applicable]

 

	
  No. [      ]

  	
  Principal Amount
  $[                    ]

  
	
   

  	
  CUSIP NO.
  [                    ]

  

 

VENOCO, Inc.

 

11.50% Senior Note due 2017

 

Venoco, Inc.,
a Delaware corporation (the “Company”), promises to pay to
                        ,
or registered assigns, the principal sum of
[                    ]
Dollars or such greater or lesser amount as shall be reflected on the books and
records of the custodian with respect to the Global Note (as appointed by DTC)
(the “Notes Custodian”)(1), on October 1, 2017.

 

Interest
Payment Dates:  April 1 and October 1

Record
Dates:  March 15 and September 15

 

Additional
provisions of this Note are set forth on the other side of this Note.

 

	
   

  	
  VENOCO,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

TRUSTEE’S
CERTIFICATE

OF AUTHENTICATION

 

U.S.
Bank National Association,

as
Trustee, certifies that this is

one
of the Notes referred

to
in the Indenture.

	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
  Authorized Signatory

  	
  Date:

  

 

(1) Global
Note only.

 

A-1

 

[FORM OF REVERSE SIDE
OF NOTE]

 

11.50% Senior Note due 2017

 

1.                                      Interest

 

Venoco, Inc.,
a Delaware corporation (the “Company”), promises to pay interest on the
principal amount of this Note at the rate per annum shown above.

 

The
Company will pay interest semiannually in arrears on April 1 and October 1
of each year commencing April 1, 2010. 
Interest on the Notes will accrue from the most recent date to which
interest has been paid on the Notes or, if no interest has been paid, from and
including October 7, 2009.  The
Company shall pay interest on overdue principal or premium, if any (plus
interest on such interest to the extent lawful), at the rate borne by the Notes
to the extent lawful and will pay Additional Interest as provided for in the
Registration Rights Agreement.  Interest
will be computed on the basis of a 360 day year of twelve 30 day months.

 

2.                                      Method of
Payment

 

By
no later than 11:00 a.m. (New York City time) on the date on which any
principal of, premium, if any, or interest or Additional Interest, if any, on,
any Note is due and payable, the Company shall deposit with the Trustee or the
Paying Agent money sufficient to pay such principal, premium, if any, interest and
Additional Interest, if any.  The Company
will pay interest (except Defaulted Interest) and Additional Interest, if any,
to the Persons who are registered Holders of Notes at the close of business on
the March 15 or September 15 next preceding the interest payment date
even if Notes are cancelled, repurchased or redeemed after the record date and
on or before the interest payment date. 
Holders must surrender Notes to a Paying Agent to collect principal
payments.  The Company will pay principal
and interest and Additional Interest, if any, in money of the United States
that at the time of payment is legal tender for payment of public and private
debts.  If a Holder has given wire
transfer instructions to the Company, the Company will, or if the Company is
not then the Paying Agent, the Company will cause the Paying Agent to, pay all
principal, interest, Additional Interest, if any, and premium, if any, on that
Holder’s Notes in accordance with the instructions; all other payments of the
principal of (and premium, if any), interest and Additional Interest, if any,
on the Notes shall be payable at the office or agency of the Company maintained
for such purpose in The City of New York, or at such other office or agency of
the Company as may be maintained for such purpose pursuant to Section 2.3
of the Indenture; provided, however, that, at the
option of the Company, each installment of interest and Additional Interest, if
any, may be paid by check mailed to addresses of the Persons entitled thereto
as such addresses shall appear on the Note Register.  Payments in respect of Notes represented by a
Global Note (including principal, premium, if any, and interest and Additional
Interest, if any) will be made by the transfer of immediately available funds
to the accounts specified by The Depository Trust Company.

 

3.                                      Paying Agent
and Registrar

 

Initially,
U.S. Bank National Association (the “Trustee”), will act as Trustee,
Paying Agent and Registrar.  The Company
may appoint and change any Paying Agent, Registrar or co-

 

A-2

 

registrar without notice to
any Holder of the Notes.  The Company or
any of the Restricted Subsidiaries may act as Paying Agent, Registrar or
co-registrar.

 

4.                                      Indenture

 

The
Company issued the Notes under an Indenture dated as of October 7, 2009
(as it may be amended or supplemented from time to time in accordance with the
terms thereof, the “Indenture”), among the Company, the Subsidiary
Guarantors party thereto and the Trustee. 
The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939 (15
U.S.C. §§ 77aaa-77bbbb) as in effect on the Issue Date (the “Act”).  Capitalized terms used herein and not defined
herein have the meanings ascribed thereto in the Indenture.  The Notes are subject to all terms in the
Indenture, and Noteholders are referred to the Indenture and the Act for a
statement of those terms.

 

The
Notes are general unsecured senior obligations of the Company.  The aggregate principal amount of Notes that
may be authenticated and delivered under the Indenture is unlimited.  The Indenture imposes certain limitations,
among other things, on the ability of the Company and the Restricted
Subsidiaries to make Investments; incur additional Indebtedness or issue
Preferred Stock, create certain Liens; sell assets; enter into agreements that
restrict dividends or other payments from the Restricted Subsidiaries;
consolidate, merge or transfer all or substantially all of the assets of the
Company and its Restricted Subsidiaries; engage in transactions with
Affiliates; pay dividends or make other distributions on Capital Stock or
subordinated Indebtedness; enter into different lines of business; and create
Unrestricted Subsidiaries.

 

To
guarantee the due and punctual payment of the principal of, premium, if any,
on, and interest and Additional Interest, if any, on, the Notes and all other
amounts payable by the Company under the Indenture and the Notes when and as
the same shall be due and payable, whether at maturity, by acceleration or
otherwise, according to the terms of the Notes and the Indenture, the
Subsidiary Guarantors have unconditionally guaranteed (and future Subsidiary
Guarantors, together with the Subsidiary Guarantors, will unconditionally
guarantee), jointly and severally, such obligations on a senior basis pursuant
to the terms of the Indenture.

 

5.                                      Redemption

 

Except as forth below, the Notes will not be
redeemable at the option of the Company prior to October 1, 2013.  On and after such date, the Notes will be
redeemable, at the Company’s option, in whole or in part, at any time upon not
less than 30 nor more than 60 days prior notice mailed by first-class mail to
each Holder’s registered address, at the following redemption prices (expressed
in percentages of principal amount), plus accrued and unpaid interest and
Additional Interest, if any, thereon, if any, to the Redemption Date (subject
to the right of Holders of record on the relevant record date to receive
interest due on an interest payment date that is on or prior to the Redemption
Date) if redeemed during the twelve-month period beginning on October 1 of
the years indicated below:

 

A-3

 

	
  Period

  	
   

  	
  Redemption Price

  	
   

  
	
  2013

  	
   

  	
  105.750

  	
  %

  
	
  2014

  	
   

  	
  102.875

  	
  %

  
	
  2015

  	
   

  	
  101.4375

  	
  %

  
	
  2016 and thereafter

  	
   

  	
  100.000

  	
  %

  

 

Notes
will also be redeemable, in whole or in part, at the option of the Company at
any time or from time to time, prior to October 1, 2013, at the Make-Whole
Price.

 

The
notice of redemption with respect to the foregoing redemption need not set
forth the Make-Whole Price but only the manner of calculation thereof.  The Company will notify the Trustee of the
Make-Whole Price with respect to any redemption promptly after the calculation,
and the Trustee shall not be responsible for such calculation.

 

In
addition, at any time and from time to time prior to October 1, 2012, the
Company may redeem in the aggregate up to 35% of the aggregate principal amount
of the Notes (which includes Additional Notes) with the net cash proceeds of
one or more Equity Offerings received by the Company at a redemption price
(expressed as a percentage of principal amount) of 111.50% of the principal
amount plus accrued and unpaid interest and Additional Interest, if any, to the
Redemption Date (subject to the right of Holders of record on the relevant
record date to receive interest due on an interest payment date that is on or
prior to the Redemption Date); provided, however,
that (1) at least 65% of the aggregate principal amount of the Notes,
including any Additional Notes, remains outstanding after each such redemption
and (2) each such redemption occurs within 120 days of the date of closing
of such Equity Offering.

 

Notice
of any redemption upon an Equity Offering may be given prior to the completion
of the related Equity Offering, and any such redemption or notice may at the
Company’s discretion, be subject to one or more conditions precedent, including
completion of the related Equity Offering.

 

If
the optional Redemption Date is on or after an interest record date and on or
before the related interest payment date, the accrued and unpaid interest and
Additional Interest, if any, will be paid to the Person in whose name the Note is
registered at the close of business on such record date, and no additional
interest will be payable to Holders whose Notes will be subject to redemption
by the Company.

 

In
the case of any partial redemption, selection of the Notes for redemption will
be made by the Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are listed or, if the
Notes are not listed, then on a pro rata basis, although no Notes of $1,000 in
original principal amount or less will be redeemed in part.  If any Note is to be redeemed in part only,
the notice of redemption relating to such Note shall state the portion of the
principal amount thereof to be redeemed. 
A new Note in principal amount equal to the unredeemed portion thereof
will be issued in the name of the Holder thereof upon cancellation of the
original Note.  On and after the
Redemption Date, interest will cease to accrue on Notes or portions thereof
called for redemption as long as the Company has deposited with the Paying
Agent funds in satisfaction of the applicable redemption price pursuant to the
Indenture.

 

A-4

 

6.                                      Repurchase
Provisions

 

(a)                                 Upon a Change
of Control any Holder of Notes will have the right to cause the Company to
repurchase all or any part of the Notes of such Holder at a purchase price in
cash equal to 101% of the principal amount thereof, plus accrued and unpaid
interest and Additional Interest, if any, to the date of repurchase (subject to
the right of Holders of record on the relevant record date to receive interest
due on an interest payment date that is on or prior to the date of repurchase)
as provided in, and subject to the terms of, the Indenture.

 

(b)                                 In the event of
an Asset Disposition that requires the purchase of Notes pursuant to Section 3.7(d) of
the Indenture, the Company will be required to apply such Excess Proceeds to
the repayment of the Notes and any pari passu
Indebtedness in accordance with the procedures set forth in Section 3.7
of the Indenture.

 

7.                                      Denominations;
Transfer; Exchange

 

The
Notes are in registered form without coupons in denominations of principal
amount of $1,000 and whole multiples of $1,000. 
A Holder may transfer or exchange Notes in accordance with the
Indenture.  The Registrar may require a
Holder, among other things, to furnish appropriate endorsements or transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture.  The Registrar need not
register the transfer or exchange of (i) any Notes selected for redemption
(except, in the case of a Note to be redeemed in part, the portion of the Note
not to be redeemed) or (ii) any Notes for a period of 15 days before a
selection of Notes to be redeemed.

 

8.                                      Persons Deemed
Owners

 

The
registered Holder of this Note may be treated as the owner of it for all
purposes

 

9.                                      Unclaimed Money

 

If
money for the payment of principal or interest remains unclaimed for one year,
the Trustee or Paying Agent shall pay the money back to the Company at its
request unless an abandoned property law designates another Person.  After any such payment, Holders entitled to
the money must look only to the Company and not to the Trustee for payment.

 

10.                               Defeasance

 

Subject
to certain conditions set forth in the Indenture, the Company at any time may
terminate some or all of its obligations under the Notes and the Indenture if
the Company deposits with the Trustee money or non-callable Government
Securities for the payment of principal, premium, interest and Additional
Interest, if any, on the Notes to redemption or maturity, as the case may be.

 

11.                               Amendment,
Waiver

 

Subject
to certain exceptions set forth in the Indenture, (i) the Indenture or the
Notes may be amended with the written consent or electronic consent pursuant to
the second paragraph of

 

A-5

 

Section 9.4 of the
Indenture, as applicable, of the Holders of at least a majority in principal
amount of the then outstanding Notes and (ii) any default (other than with
respect to nonpayment or in respect of a provision that cannot be amended
without the written consent of each Noteholder affected) or noncompliance with
any provision may be waived with the written consent or electronic consent
pursuant to the second paragraph of Section 9.4 of the Indenture,
as applicable, of the Holders of a majority in principal amount of the then
outstanding Notes.  Subject to certain
exceptions set forth in the Indenture, without the consent of any Noteholder,
the Company and the Trustee may amend the Indenture or the Notes to cure any
ambiguity, defect or inconsistency, or to comply with Article IV of
the Indenture, or to provide for uncertificated Notes in addition to or in
place of certificated Notes, or to add guarantees with respect to the Notes, to
release a Subsidiary Guarantor in accordance with the Indenture or to secure
the Notes, or to provide additional rights or benefits to the Holders of the
Notes, or to comply with any requirement of the Commission in connection with
qualifying or maintaining the qualification of the Indenture under the Act, or
to make any change that does not adversely affect the rights of any Noteholder,
or to provide for the issuance of Additional Notes or to evidence or provide
for a successor trustee.

 

12.                               Defaults and
Remedies

 

Under
the Indenture, Events of Default include in summary form:  (i) default for 30 days in payment of
interest or Additional Interest, if any, when due on the Notes; (ii) default
in payment of principal or premium, if any, on the Notes at Stated Maturity,
upon required repurchase, upon optional redemption pursuant to paragraphs 5 and
6 of the Notes, upon declaration or otherwise; (iii) the failure by the
Company to comply with its obligations under Article IV of the
Indenture; (iv) failure by the Company to comply for 30 days with any of
its obligations under the covenants described under Sections 3.3 or
3.4 of the Indenture; (v) failure to comply with the provisions of Sections 3.7,
3.9 or 4.1 of the Indenture; (vi) the failure by the Company
to comply with (a) the provisions of Section 3.2 of the
Indenture for 180 days or (b) with its other agreements contained in the
Indenture or under the Notes for 60 days after notice (other than those
referred to in (i), (ii), (iii), (iv) or (v) above); (vii) default
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any Indebtedness for money borrowed
by the Company or any of its Restricted Subsidiaries (or the payment of which
is guaranteed by the Company or any of its Restricted Subsidiaries), whether
such Indebtedness or guarantee now exists, or is created after the Issue Date,
if that default (a) is caused by a failure to pay principal of, or interest
or Additional Interest or premium, if any, on such Indebtedness prior to the
expiration of the grace period provided in such Indebtedness (“Payment
Default”) or (b) results in the acceleration of such Indebtedness
prior to its Stated Maturity and, in each case, the principal amount of any
such Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $20,000,000 or more; (viii) certain
events of bankruptcy, insolvency or reorganization of the Company or a
Significant Subsidiary or group of Restricted Subsidiaries that, taken together
(as of the latest audited consolidated financial statements for the Company and
its Restricted Subsidiaries), would constitute a Significant Subsidiary; (ix) failure
by the Company or any of its Subsidiaries to pay final judgments aggregating in
excess of $20,000,000 (net of any amounts with respect to which a reputable
creditworthy insurance company has acknowledged liability in writing), which
judgments are not paid, discharged or stayed for a period of 60 days or (x) any
Subsidiary

 

A-6

 

Guarantee shall be held in a
judicial proceeding to be not enforceable or valid or shall cease to be in full
force and effect or any Guarantor or other Person acting on its behalf shall
deny or disaffirm its obligations under its Subsidiary Guarantee (except
pursuant to the release or termination of any such Subsidiary Guarantee in
accordance with the Indenture).  However,
a default under clause (vi) will not constitute an Event of Default
until the Trustee or the Holders of at least 25% in aggregate principal amount
of the outstanding Notes notify the Company and the Trustee, in the case of a
notice given by the Holders, of the default and the Company does not cure such
default within the time specified in clause (vi) hereof after receipt of
such notice.

 

If
an Event of Default occurs and is continuing (other than an Event of Default
described in clause (viii) above), the Trustee or the Holders of at least
25% in aggregate principal amount of the Notes may declare all the Notes to be
due and payable.  Certain events of
bankruptcy or insolvency are Events of Default which will result in the Notes
being due and payable immediately upon the occurrence of such Events of
Default.

 

Noteholders
may not enforce the Indenture or the Notes except as provided in the
Indenture.  The Trustee may refuse to
enforce the Indenture or the Notes unless it receives reasonable indemnity or
security.  Subject to certain
limitations, Holders of a majority in principal amount of the Notes may direct
the Trustee in its exercise of any trust or power.  The Trustee may withhold from Noteholders
notice of any continuing Default or Event of Default (except a Default or Event
of Default in payment of principal or interest) if it determines that
withholding notice is in their interest.

 

During
the 180-day cure period provided under clause (e)(i) of Section 6.1
of the Indenture, the interest on the Notes shall be increased by 0.25% per
annum.

 

13.                               Trustee
Dealings with the Company

 

Subject
to certain limitations set forth in the Indenture, the Trustee under the
Indenture, in its individual or any other capacity, may become the owner or
pledgee of Notes and may otherwise deal with and collect obligations owed to it
by the Company or its Affiliates and may otherwise deal with the Company or its
Affiliates with the same rights it would have if it were not Trustee.

 

14.                               No Recourse
Against Others

 

No
director, officer, employee, incorporator, partner or stockholder of the
Company, or any Subsidiary Guarantor, as such, shall have any liability for any
obligations of the Company or the Subsidiary Guarantors under the Notes, the
Indenture, the Subsidiary Guarantees or for any claim based on, in respect of,
or by reason of, such obligations of their creation.  Each Holder by accepting a Note waives and
releases all such liability.  The waiver
and release are part of the consideration for issuance of the Notes.

 

15.                               Authentication

 

This
Note shall not be valid until an authorized signatory of the Trustee (or an
authenticating agent acting on its behalf) manually signs the certificate of
authentication on the other side of this Note.

 

A-7

 

16.                               Abbreviations

 

Customary
abbreviations may be used in the name of a Noteholder or an assignee, such as
TEN COM (= tenants in common), TEN ENT (= tenants by the entirety), JT TEN (=
joint tenants with rights of survivorship and not as tenants in common), CUST
(= custodian) and U/G/M/A (= Uniform Gift to Minors Act).

 

17.                               CUSIP Numbers

 

Pursuant
to a recommendation promulgated by the Committee on Uniform Security
Identification Procedures, the Company has caused CUSIP numbers to be printed
on the Notes and has directed the Trustee to use CUSIP numbers in notices of
redemption as a convenience to Noteholders. 
No representation is made as to the accuracy of such numbers either as
printed on the Notes or as contained in any notice of redemption and reliance
may be placed only on the other identification numbers placed thereon.

 

18.                               Governing Law

 

This Note shall be governed
by, and construed in accordance with, the laws of the State of New York.

 

The Company will furnish to
any Noteholder upon written request and without charge to the Noteholder a copy
of the Indenture, which has in it the text of this Note in larger type.  Requests may be made to:

 

	
   

  	
  Venoco,
  Inc

  
	
   

  	
  370
  17th Street, Suite 3900

  
	
   

  	
  Denver,
  Colorado 80202-1370

  
	
   

  	
  Attention: General Counsel

  

 

A-8

 

ASSIGNMENT FORM

 

To
assign this Note, fill in the form below:

 

I
or we assign and transfer this Note to

 

	
   

  	
   

  	
   

  
	
   

  	
  (Print
  or type assignee’s name, address and zip code)

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  (Insert assignee’s soc.
  sec. or tax I.D. No.)

  	
   

  

 

and irrevocably appoint
                              
agent to transfer this Note on the books of the Company.  The agent may substitute another to act for
him.

 

	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
  Your
  Signature:

  	
   

  
	
   

  	
   

  	
   

  
	
  Signature
  Guarantee:

  	
   

  	
   

  	
   

  
	
  (Signature
  must be guaranteed)

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
						

Sign
exactly as your name appears on the other side of this Note.

 

The signatures) should be
guaranteed by an eligible guarantor institution (banks, stockbrokers, savings
and loan associations and credit unions with membership in an approved
signature guarantee medallion program), pursuant to Commission Rule 17Ad
15.

 

In connection with any
transfer or exchange of any of the Notes evidenced by this certificate
occurring prior to the date that is one year after the later of the date of
original issuance of such Notes and the last date, if any, on which such Notes
were owned by the Company or any Affiliate of the Company, the undersigned
confirms that such Notes are being:

 

CHECK ONE BOX BELOW:

 

1
o                            acquired for
the undersigned’s own account, without transfer; or

 

2
o                            transferred to
the Company; or

 

3
o                            transferred
pursuant to and in compliance with Rule 144A under the Securities Act of
1933, as amended (the “Securities Act”); or

 

4
o                            transferred
pursuant to an effective registration statement under the Securities Act; or

 

5
o                            transferred
pursuant to and in compliance with Regulation S under the Securities Act; or

 

A-9

 

6
o                            transferred
pursuant to another available exemption from the registration requirements of
the Securities Act of 1933.

 

Unless one of the boxes is
checked, the Trustee will refuse to register any of the Notes evidenced by this
certificate in the name of any person other than the registered Holder thereof;
provided, however, that if box (5) or
(6) is checked, the Trustee or the Company may require, prior to
registering any such transfer of the Notes, in their sole discretion, such
legal opinions, certifications and other information as the Trustee or the
Company may reasonably request to confirm that such transfer is being made
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act of 1933, such as the exemption
provided by Rule 144 under such Act.

 

	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Signature

  
	
   

  	
   

  	
   

  
	
  Signature
  Guarantee:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  (Signature
  must be guaranteed)

  	
   

  	
  Signature

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

The signature(s) should
be guaranteed by an eligible guarantor institution (banks, stockbrokers,
savings and loan associations and credit unions with membership in an approved
signature guarantee medallion program), pursuant to Commission Rule 17Ad
15.

 

TO BE COMPLETED BY PURCHASER
IF (1) OR (3) ABOVE IS CHECKED.

 

The undersigned represents
and warrants that it is purchasing this Note for its own account or an account
with respect to which it exercises sole investment discretion and that it and
any such account is a “qualified institutional buyer” within the meaning of Rule 144A
under the Securities Act of 1933, as amended, and is aware that the sale to it
is being made in reliance on Rule 144A and acknowledges that it has
received such information regarding the Company as the undersigned has
requested pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying upon the
undersigned’s foregoing representations in order to claim the exemption from
registration provided by Rule 144A.

 

	
   

  	
   

  
	
  Dated:

  	
   

  

 

A-10

 

OPTION OF HOLDER TO ELECT
PURCHASE

 

If
you want to elect to have this Note purchased by the Company pursuant to Section 3.7
or Section 3.9 of the Indenture, check either box:

 

o            o

 

3.7          3.9

 

If you want to elect to have
only part of this Note purchased by the Company pursuant to Section 3.7
or Section 3.9 of the Indenture, state the amount in principal amount
(must be integral multiple of $1,000):  $                         

 

	
  Date:

  	
   

  	
   

  	
   

  	
  Your
  Signature

  	
   

  
	
   

  	
   

  	
   

  	
  (Sign
  exactly as your name appears on the other side of the Note)

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Signature
  Guarantee:

  	
   

  	
   

  	
   

  
	
   

  	
  (Signature must be
  guaranteed)

  	
   

  	
   

  

 

The signature(s) should
be guaranteed by an eligible guarantor institution (banks, stockbrokers,
savings and loan associations and credit unions with membership in an approved
signature guarantee medallion program), pursuant to Commission Rule 17Ad
15.

 

A-11

 

SCHEDULE OF INCREASES OR
DECREASES IN GLOBAL NOTE(2)

 

The following increases or
decreases in this Global Note have been made:

 

	
  Date
  of

  Exchange

  	
   

  	
  Amount of

  decrease in

  Principal

  Amount of this

  Global Note

  	
   

  	
  Amount of

  increase in

  Principal

  Amount of this

  Global Note

  	
   

  	
  Principal Amount of

  Global Note

  following such

  decrease or increase

  	
   

  	
  Signature of

  authorized signatory

  of Trustee or Notes

  Custodian

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

(2) Include only if security is issued in
global form.

 

B-12

 

EXHIBIT B

 

[FORM OF FACE OF
EXCHANGE NOTE]

 

[Depositary Legend, if
applicable]

 

	
  No. [      ]

  	
  Principal Amount
  $[                    ]

  
	
   

  	
  CUSIP NO.
  [                    ]

  

 

VENOCO, Inc.

 

11.50% Senior Note due 2017

 

Venoco, Inc.,
a Delaware corporation (the “Company”), promises to pay to
                      ,
or registered assigns, the principal sum of
[                    ]
Dollars or such greater or lesser amount as shall be reflected on the books and
records of the custodian with respect to the Global Note (as appointed by DTC)
(the “Notes Custodian”), on October 1, 2017.

 

Interest
Payment Dates:  April 1 and October 1

Record
Dates:  March 15 and September 15

 

Additional provisions of
this Note are set forth on the other side of this Note.

 

	
   

  	
  VENOCO,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

TRUSTEE’S
CERTIFICATE

OF
AUTHENTICATION

U.S.
Bank National Association,

as
Trustee, certifies that this is

one
of the Notes referred

to
in the Indenture.

 

	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
  Authorized Signatory

  	
  Date:

  

 

B-1

 

[FORM OF REVERSE SIDE
OF NOTE]

 

11.50% Senior Note due 2017

 

1.                                      Interest

 

Venoco, Inc.,
a Delaware corporation (the “Company”), promises to pay interest on the
principal amount of this Note at the rate per annum shown above.

 

The
Company will pay interest semiannually in arrears on April 1 and October 1
of each year commencing April 1, 2010. 
Interest on the Notes will accrue from the most recent date to which
interest has been paid on the Notes or, if no interest has been paid, from and
including October 7, 2009.  The
Company shall pay interest on overdue principal or premium, if any (plus
interest on such interest to the extent lawful), at the rate borne by the Notes
to the extent lawful and will pay Additional Interest as provided for in the
Registration Rights Agreement.  Interest
will be computed on the basis of a 360 day year of twelve 30 day months.

 

2.                                      Method of
Payment

 

By
no later than 11:00 a.m. (New York City time) on the date on which any
principal of, premium, if any, or interest or Additional Interest, if any, on,
any Note is due and payable, the Company shall deposit with the Trustee or the
Paying Agent money sufficient to pay such principal, premium, if any, interest
and Additional Interest, if any.  The
Company will pay interest (except Defaulted Interest) and Additional Interest,
if any, to the Persons who are registered Holders of Notes at the close of
business on the March 15 or September 15 next preceding the interest
payment date even if Notes are cancelled, repurchased or redeemed after the
record date and on or before the interest payment date.  Holders must surrender Notes to a Paying
Agent to collect principal payments.  The
Company will pay principal and interest and Additional Interest, if any, in
money of the United States that at the time of payment is legal tender for
payment of public and private debts.  If
a Holder has given wire transfer instructions to the Company, the Company will,
or if the Company is not then the Paying Agent, the Company will cause the
Paying Agent to, pay all principal, interest, Additional Interest, if any, and
premium, if any, on that Holder’s Notes in accordance with the instructions;
all other payments of the principal of (and premium, if any), interest and
Additional Interest, if any, on the Notes shall be payable at the office or
agency of the Company maintained for such purpose in The City of New York, or
at such other office or agency of the Company as may be maintained for such
purpose pursuant to Section 2.3 of the Indenture; provided, however, that, at the option of the Company, each
installment of interest and Additional Interest, if any, may be paid by check
mailed to addresses of the Persons entitled thereto as such addresses shall
appear on the Note Register.  Payments in
respect of Notes represented by a Global Note (including principal, premium, if
any, and interest and Additional Interest, if any) will be made by the transfer
of immediately available funds to the accounts specified by The Depository
Trust Company.

 

3.                                      Paying Agent
and Registrar

 

Initially,
U.S. Bank National Association (the “Trustee”), will act as Trustee,
Paying Agent and Registrar.  The Company
may appoint and change any Paying Agent, Registrar or co-

 

B-2

 

registrar without notice to
any Holder of the Notes.  The Company or
any of the Restricted Subsidiaries may act as Paying Agent, Registrar or
co-registrar.

 

4.                                      Indenture

 

The
Company issued the Notes under an Indenture dated as of October 7, 2009
(as it may be amended or supplemented from time to time in accordance with the
terms thereof, the “Indenture”), among the Company, the Subsidiary
Guarantors party thereto and the Trustee. 
The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939 (15
U.S.C. §§ 77aaa-77bbbb) as in effect on the Issue Date (the “Act”).  Capitalized terms used herein and not defined
herein have the meanings ascribed thereto in the Indenture.  The Notes are subject to all terms in the
Indenture, and Noteholders are referred to the Indenture and the Act for a
statement of those terms.

 

The
Notes are general unsecured senior obligations of the Company.  The aggregate principal amount of Notes that
may be authenticated and delivered under the Indenture is unlimited.  The Indenture imposes certain limitations,
among other things, on the ability of the Company and the Restricted
Subsidiaries to make Investments; incur additional Indebtedness or issue
Preferred Stock, create certain Liens; sell assets; enter into agreements that
restrict dividends or other payments from the Restricted Subsidiaries;
consolidate, merge or transfer all or substantially all of the assets of the
Company and its Restricted Subsidiaries; engage in transactions with
Affiliates; pay dividends or make other distributions on Capital Stock or
subordinated Indebtedness; enter into different lines of business; create
Unrestricted Subsidiaries; and enter into sale and leaseback transactions.

 

To
guarantee the due and punctual payment of the principal of, premium, if any,
on, and interest and Additional Interest, if any, on, the Notes and all other
amounts payable by the Company under the Indenture and the Notes when and as
the same shall be due and payable, whether at maturity, by acceleration or
otherwise, according to the terms of the Notes and the Indenture, the
Subsidiary Guarantors have unconditionally guaranteed (and future Subsidiary
Guarantors, together with the Subsidiary Guarantors, will unconditionally
guarantee), jointly and severally, such obligations on a senior basis pursuant
to the terms of the Indenture.

 

5.                                      Redemption

 

Except
as forth below, the Notes will not be redeemable at the option of the Company
prior to October 1, 2013.  On and
after such date, the Notes will be redeemable, at the Company’s option, in
whole or in part, at any time upon not less than 30 nor more than 60 days prior
notice mailed by first-class mail to each Holder’s registered address, at the
following redemption prices (expressed in percentages of principal amount),
plus accrued and unpaid interest and Additional Interest, if any, thereon, if
any, to the Redemption Date (subject to the right of Holders of record on the
relevant record date to receive interest due on an interest payment date that
is on or prior to the Redemption Date) if redeemed during the twelve-month
period beginning on October 1 of the years indicated below:

 

B-3

 

	
  Period

  	
   

  	
  Redemption Price

  	
   

  
	
  2013

  	
   

  	
  105.750

  	
  %

  
	
  2014

  	
   

  	
  102.875

  	
  %

  
	
  2015

  	
   

  	
  101.4375

  	
  %

  
	
  2016 and thereafter

  	
   

  	
  100.000

  	
  %

  

 

Notes
will also be redeemable, in whole or in part, at the option of the Company at
any time or from time to time, prior to October 1, 2013, at the Make-Whole
Price.

 

The
notice of redemption with respect to the foregoing redemption need not set
forth the Make-Whole Price but only the manner of calculation thereof.  The Company will notify the Trustee of the
Make-Whole Price with respect to any redemption promptly after the calculation,
and the Trustee shall not be responsible for such calculation.

 

In
addition, at any time and from time to time prior to October 1, 2012, the
Company may redeem in the aggregate up to 35% of the aggregate principal amount
of the Notes (which includes Additional Notes) with the net cash proceeds of
one or more Equity Offerings received by the Company at a redemption price
(expressed as a percentage of principal amount) of 111.50% plus accrued and
unpaid interest and Additional Interest, if any, to the Redemption Date
(subject to the right of Holders of record on the relevant record date to
receive interest due on an interest payment date that is on or prior to the
Redemption Date); provided, however, that (1) at
least 65% of the aggregate principal amount of the Notes, including any
Additional Notes, remains outstanding after each such redemption and (2) each
such redemption occurs within 120 days of the date of closing of such
Equity Offering.

 

Notice
of any redemption upon an Equity Offering may be given prior to the completion
of the related Equity Offering, and any such redemption or notice may at the
Company’s discretion, be subject to one or more conditions precedent, including
completion of the related Equity Offering.

 

If
the optional Redemption Date is on or after an interest record date and on or
before the related interest payment date, the accrued and unpaid interest and
Additional Interest, if any, will be paid to the Person in whose name the Note
is registered at the close of business on such record date, and no additional
interest will be payable to Holders whose Notes will be subject to redemption
by the Company.

 

In
the case of any partial redemption, selection of the Notes for redemption will
be made by the Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are listed or, if the
Notes are not listed, then on a pro rata basis, although no Notes of $1,000 in
original principal amount or less will be redeemed in part.  If any Note is to be redeemed in part only,
the notice of redemption relating to such Note shall state the portion of the
principal amount thereof to be redeemed. 
A new Note in principal amount equal to the unredeemed portion thereof
will be issued in the name of the Holder thereof upon cancellation of the
original Note.  On and after the
Redemption Date, interest will cease to accrue on Notes or portions thereof
called for redemption as long as the Company has deposited with the Paying
Agent funds in satisfaction of the applicable redemption price pursuant to the
Indenture.

 

B-4

 

6.                                      Repurchase
Provisions

 

(a)                                 Upon a Change
of Control any Holder of Notes will have the right to cause the Company to
repurchase all or any part of the Notes of such Holder at a purchase price in
cash equal to 101% of the principal amount thereof, plus accrued and unpaid
interest and Additional Interest, if any, to the date of repurchase (subject to
the right of Holders of record on the relevant record date to receive interest
due on an interest payment date that is on or prior to the date of repurchase)
as provided in, and subject to the terms of, the Indenture.

 

(b)                                 In the event of
an Asset Disposition that requires the purchase of Notes pursuant to Section 3.7(d) of
the Indenture, the Company will be required to apply such Excess Proceeds to
the repayment of the Notes and any pari passu
Indebtedness in accordance with the procedures set forth in Section 3.7
of the Indenture.

 

7.                                      Denominations;
Transfer; Exchange

 

The
Notes are in registered form without coupons in denominations of principal
amount of $1,000 and whole multiples of $1,000. 
A Holder may transfer or exchange Notes in accordance with the
Indenture.  The Registrar may require a
Holder, among other things, to furnish appropriate endorsements or transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture.  The Registrar need not
register the transfer or exchange of (i) any Notes selected for redemption
(except, in the case of a Note to be redeemed in part, the portion of the Note
not to be redeemed) or (ii) any Notes for a period of 15 days before a
selection of Notes to be redeemed.

 

8.                                      Persons Deemed
Owners

 

The
registered Holder of this Note may be treated as the owner of it for all
purposes

 

9.                                      Unclaimed Money

 

If
money for the payment of principal or interest remains unclaimed for one year,
the Trustee or Paying Agent shall pay the money back to the Company at its
request unless an abandoned property law designates another Person.  After any such payment, Holders entitled to
the money must look only to the Company and not to the Trustee for payment.

 

10.                               Defeasance

 

Subject
to certain conditions set forth in the Indenture, the Company at any time may
terminate some or all of its obligations under the Notes and the Indenture if
the Company deposits with the Trustee money or non-callable Government
Securities for the payment of principal, premium, interest and Additional Interest,
if any, on the Notes to redemption or maturity, as the case may be.

 

11.                               Amendment,
Waiver

 

Subject
to certain exceptions set forth in the Indenture, (i) the Indenture or the
Notes may be amended with the written consent or electronic consent pursuant to
the second paragraph of

 

B-5

 

Section 9.4 of the
Indenture, as applicable, of the Holders of at least a majority in principal
amount of the then outstanding Notes and (ii) any default (other than with
respect to nonpayment or in respect of a provision that cannot be amended
without the written consent of each Noteholder affected) or noncompliance with
any provision may be waived with the written consent or electronic consent
pursuant to the second paragraph of Section 9.4 of the Indenture,
as applicable, of the Holders of a majority in principal amount of the then
outstanding Notes.  Subject to certain
exceptions set forth in the Indenture, without the consent of any Noteholder,
the Company and the Trustee may amend the Indenture or the Notes to cure any
ambiguity, defect or inconsistency, or to comply with Article IV of
the Indenture, or to provide for uncertificated Notes in addition to or in
place of certificated Notes, or to add guarantees with respect to the Notes, to
release a Subsidiary Guarantor in accordance with the Indenture or to secure
the Notes, or to provide additional rights or benefits to the Holders of the
Notes, or surrender rights and powers conferred on the Company, or to comply
with any requirement of the Commission in connection with qualifying or
maintaining the qualification of the Indenture under the Act, or to make any
change that does not adversely affect the rights of any Noteholder, or to
provide for the issuance of Additional Notes or to evidence or provide for a
successor trustee.

 

12.                               Defaults and
Remedies

 

Under
the Indenture, Events of Default include in summary form:  (i) default for 30 days in payment of
interest or Additional Interest, if any, when due on the Notes; (ii) default
in payment of principal or premium, if any, on the Notes at Stated Maturity,
upon required repurchase, upon optional redemption pursuant to paragraphs 5 and
6 of the Notes, upon declaration or otherwise; (iii) the failure by the
Company to comply with its obligations under Article IV of the Indenture; (iv) failure
by the Company to comply for 30 days with any of its obligations under the
covenants described under Sections 3.3 or 3.4 of the
Indenture; (v) failure to comply with the provisions of Sections 3.7,
3.9 or 4.1 of the Indenture; (vi) the failure by the Company
to comply with (a) the provisions of Section 3.2 of the
Indenture for 180 days or (b) with its other agreements contained in the
Indenture or under the Notes for 60 days after notice (other than those
referred to in (i), (ii), (iii), (iv) or (v) above); (vii) default
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any Indebtedness for money borrowed
by the Company or any of its Restricted Subsidiaries (or the payment of which
is guaranteed by the Company or any of its Restricted Subsidiaries), whether
such Indebtedness or guarantee now exists, or is created after the Issue Date,
if that default (a) is caused by a failure to pay principal of, or
interest or Additional Interest or premium, if any, on such Indebtedness prior
to the expiration of the grace period provided in such Indebtedness (“Payment
Default”) or (b) results in the acceleration of such Indebtedness
prior to its Stated Maturity and, in each case, the principal amount of any
such Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $20,000,000 or more; (viii) certain
events of bankruptcy, insolvency or reorganization of the Company or a
Significant Subsidiary or group of Restricted Subsidiaries that, taken together
(as of the latest audited consolidated financial statements for the Company and
its Restricted Subsidiaries), would constitute a Significant Subsidiary; (ix) failure
by the Company or any of Subsidiaries to pay final judgments aggregating in
excess of $20,000,000 (net of any amounts with respect to which a reputable creditworthy
insurance company has acknowledged liability in writing), which

 

B-6

 

judgments are not paid,
discharged or stayed for a period of 60 days, or (x) any Subsidiary
Guarantee shall be held in a judicial proceeding to be not enforceable or valid
or shall cease to be in full force and effect or any Guarantor or other Person
acting on its behalf shall deny or disaffirm its obligations under its
Subsidiary Guarantee (except pursuant to the release or termination of any such
Subsidiary Guarantee in accordance with the Indenture).  However, a default under clause (vi) will
not constitute an Event of Default until the Trustee or the Holders of at least
25% in aggregate principal amount of the outstanding Notes notify the Company
and the Trustee, in the case of a notice given by the Holders, of the default
and the Company does not cure such default within the time specified in clause (vi) hereof
after receipt of such notice.

 

If
an Event of Default occurs and is continuing (other than an Event of Default
described in clause (viii) above), the Trustee or the Holders of at least
25% in aggregate principal amount of the Notes may declare all the Notes to be
due and payable.  Certain events of
bankruptcy or insolvency are Events of Default which will result in the Notes
being due and payable immediately upon the occurrence of such Events of
Default.

 

Noteholders
may not enforce the Indenture or the Notes except as provided in the
Indenture.  The Trustee may refuse to enforce
the Indenture or the Notes unless it receives reasonable indemnity or
security.  Subject to certain
limitations, Holders of a majority in principal amount of the Notes may direct
the Trustee in its exercise of any trust or power.  The Trustee may withhold from Noteholders
notice of any continuing Default or Event of Default (except a Default or Event
of Default in payment of principal or interest) if it determines that
withholding notice is in their interest.

 

During
the 180-day cure period provided under clause (e)(i) of Section 6.1
of the Indenture, the interest on the Notes shall be increased by 0.25% per
annum.

 

13.                               Trustee
Dealings with the Company

 

Subject
to certain limitations set forth in the Indenture, the Trustee under the
Indenture, in its individual or any other capacity, may become the owner or
pledgee of Notes and may otherwise deal with and collect obligations owed to it
by the Company or its Affiliates and may otherwise deal with the Company or its
Affiliates with the same rights it would have if it were not Trustee.

 

14.                               No Recourse
Against Others

 

No
director, officer, employee, incorporator, partner or stockholder of the
Company, or any Subsidiary Guarantor, as such, shall have any liability for any
obligations of the Company or the Subsidiary Guarantors under the Notes, the
Indenture, the Subsidiary Guarantees or for any claim based on, in respect of,
or by reason of, such obligations of their creation.  Each Holder by accepting a Note waives and
releases all such liability.  The waiver
and release are part of the consideration for issuance of the Notes.

 

B-7

 

15.                               Authentication

 

This
Note shall not be valid until an authorized signatory of the Trustee (or an
authenticating agent acting on its behalf) manually signs the certificate of
authentication on the other side of this Note.

 

16.                               Abbreviations

 

Customary
abbreviations may be used in the name of a Noteholder or an assignee, such as
TEN COM (= tenants in common), TEN ENT (= tenants by the entirety), JT TEN (=
joint tenants with rights of survivorship and not as tenants in common), CUST
(= custodian) and U/G/M/A (= Uniform Gift to Minors Act).

 

17.                               CUSIP Numbers

 

Pursuant
to a recommendation promulgated by the Committee on Uniform Security
Identification Procedures, the Company has caused CUSIP numbers to be printed
on the Notes and has directed the Trustee to use CUSIP numbers in notices of
redemption as a convenience to Noteholders. 
No representation is made as to the accuracy of such numbers either as
printed on the Notes or as contained in any notice of redemption and reliance
may be placed only on the other identification numbers placed thereon.

 

18.                               Governing Law

 

This
Note shall be governed by, and construed in accordance with, the laws of the
State of New York.

 

The
Company will furnish to any Noteholder upon written request and without charge
to the Noteholder a copy of the Indenture, which has in it the text of this
Note in larger type.  Requests may be
made to:

 

	
   

  	
  Venoco, Inc.

  
	
   

  	
  370
  17th Street, Suite 3900

  
	
   

  	
  Denver,
  Colorado 80202-1370

  
	
   

  	
  Attention: General Counsel

  

 

B-8

 

ASSIGNMENT FORM

 

	
  To
  assign this Note, fill in the form below:

  
	
   

  
	
  I
  or we assign and transfer this Note to

  
	
   

  
	
   

  	
   

  
	
  (Print
  or type assignee’s name, address and zip code)

  
	
   

  	
   

  
	
   

  	
   

  
	
  (Insert assignee’s soc.
  sec. or tax I.D. No.)

  

 

and irrevocably appoint                                
agent to transfer this Note on the books of the Company.  The agent may substitute another to act for
him.

 

	
   

  
	
   

  
	
  Date:

  	
   

  	
   

  	
  Your
  Signature:

  	
   

  
	
   

  
	
  Signature
  Guarantee:

  	
   

  
	
  (Signature must be guaranteed)

  
	
   

  
	
   

  
	
  Sign exactly as your name
  appears on the other side of this Note.

  	
   

  	
   

  
								

 

The signatures) should be
guaranteed by an eligible guarantor institution (banks, stockbrokers, savings
and loan associations and credit unions with membership in an approved
signature guarantee medallion program), pursuant to Commission Rule 17Ad
15.

 

B-9

 

OPTION OF HOLDER TO ELECT
PURCHASE

 

If
you want to elect to have this Note purchased by the Company pursuant to Section 3.7
or Section 3.9 of the Indenture, check either box:

 

o            o

3.7           3.9

 

If
you want to elect to have only part of this Note purchased by the Company
pursuant to Section 3.7 or Section 3.9 of the
Indenture, state the amount in principal amount (must be integral multiple of
$1,000):  $             

 

	
  Date:

  	
   

  	
   

  	
  Your Signature

  	
   

  
	
   

  	
   

  	
   

  	
  (Sign exactly as your name
  appears on the other side of the Note)

  

 

Signature Guarantee:

 

(Signature must be
guaranteed)

 

The signature(s) should
be guaranteed by an eligible guarantor institution (banks, stockbrokers,
savings and loan associations and credit unions with membership in an approved
signature guarantee medallion program), pursuant to Commission Rule 17Ad
15.

 

B-10

 

SCHEDULE OF INCREASES OR
DECREASES IN GLOBAL NOTE

 

The following increases or
decreases in this Global Note have been made:

 

	
  Date
  of

  Exchange

  	
   

  	
  Amount of

  decrease in

  Principal

  Amount of this

  Global Note

  	
   

  	
  Amount of 

  increase in

  Principal

  Amount of this

  Global Note

  	
   

  	
  Principal Amount of

  Global Note

  following such

  decrease or increase

  	
   

  	
  Signature of

  authorized signatory

  of Trustee or Notes

  Custodian

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

C-10

 

EXHIBIT C

 

FORM OF SUBSIDIARY
GUARANTEE

 

This
Supplemental Indenture, dated as of
                              
(this “Supplemental Indenture” or “Subsidiary Guarantee”), among
[name of future Subsidiary Guarantor] (the “Guarantor”), Venoco, Inc.
(together with its successors and assigns, the “Company”) and U.S. Bank
National Association, as Trustee under the Indenture referred to below.

 

W I T N E S S E T H:

 

WHEREAS,
the Company, certain of Domestic Subsidiaries (the “Subsidiary Guarantors”)
and the Trustee have heretofore executed and delivered an Indenture, dated as
of October 7, 2009 (as amended, supplemented, waived or otherwise
modified, the “Indenture”), providing for the initial issuance of an
aggregate principal amount of $150,000,000 of 11.50% Senior Notes due 2017 of
the Company (the “Notes”);

 

WHEREAS,
Section 3.10 of the Indenture provides that the Company is required
to cause each Restricted Subsidiary other than a Foreign Subsidiary created or
acquired by the Company after the Issue Date and other Restricted Subsidiaries,
to the extent set forth in the Indenture, to execute and deliver to the Trustee
a Subsidiary Guarantee pursuant to which such Subsidiary Guarantor will
unconditionally Guarantee, on a joint and several basis with the other Subsidiary
Guarantors, the full and prompt payment of the principal of, premium, interest
and Additional Interest, if any, on the Notes on a senior basis; and

 

WHEREAS,
pursuant to Section 9.1 of the Indenture, the Trustee and the
Company are authorized to execute and deliver this Supplemental Indenture to
amend the Indenture, without the consent of any Noteholder,

 

NOW,
THEREFORE, in consideration of the foregoing and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the Guarantor, the
Company and the Trustee mutually covenant and agree for the equal and ratable
benefit of the Holders of the Notes as follows:

 

ARTICLE I

 

Definitions

 

SECTION 1.1  Defined Terms.  As used in this Subsidiary Guarantee, terms
defined in the Indenture or in the preamble or recital hereto are used herein
as therein defined, except that the term “Holders” in this Subsidiary
Guarantee shall refer to the term “Noteholders” as defined in the
Indenture and the Trustee acting on behalf or for the benefit of such
Holders.  The words “herein,” “hereof’
and “hereby” and other words of similar import used in this Supplemental
Indenture refer to this Supplemental Indenture as a whole and not to any
particular section hereof.

 

C-1

 

ARTICLE II

 

Agreement to be Bound,
Subsidiary Guarantee

 

SECTION 2.1  Agreement to be Bound.  The Guarantor hereby becomes a party to the
Indenture as a Subsidiary Guarantor and as such will have all of the rights and
be subject to all of the obligations and agreements of a Subsidiary Guarantor
under the Indenture.  The Guarantor
agrees to be bound by all of the provisions of the Indenture applicable to a
Subsidiary Guarantor and to perform all of the obligations and agreements of a
Subsidiary Guarantor under the Indenture.

 

SECTION 2.2
 Subsidiary Guarantee. The
Guarantor hereby fully, unconditionally and irrevocably Guarantees, as primary
obligor and not merely as surety, jointly and severally with each Subsidiary
Guarantor, to each Holder of the Notes and the Trustee, the full and punctual
payment when due, whether at maturity, by acceleration, by redemption or
otherwise, of the Obligations pursuant to Article X of the
Indenture on a senior basis.

 

ARTICLE III

 

Miscellaneous

 

SECTION 3.1  Notices.  All notices and other communications to the
Guarantor shall be given as provided in the Indenture to the Guarantor, at its
address set forth below, with a copy to the Company as provided in the
Indenture for notices to the Company.

 

SECTION 3.2  Parties.  Nothing expressed or mentioned herein is
intended or shall be construed to give any Person, firm or corporation, other
than the Holders and the Trustee, any legal or equitable right, remedy or claim
under or in respect of this Supplemental Indenture or the Indenture or any
provision herein or therein contained.

 

SECTION 3.3  Governing Law.  This Supplemental Indenture shall be governed
by, and construed in accordance with, the laws of the State of New York.

 

SECTION 3.4  Severability Clause.  In case any provision in this Supplemental
Indenture shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby and such provision shall be ineffective only to the extent
of such invalidity, illegality or unenforceability.

 

SECTION 3.5  Ratification of Indenture; Supplemental
Indenture Part of Indenture. 
Except as expressly amended hereby, the Indenture is in all respects
ratified and confirmed and all the terms, conditions and provisions thereof
shall remain in full force and effect. 
This Supplemental Indenture shall form a part of the Indenture for all
purposes, and every Holder of Notes heretofore or hereafter authenticated and
delivered shall be bound hereby.  The
Trustee makes no representation or warranty as to the validity or sufficiency
of this Supplemental Indenture.

 

C-2

 

SECTION 3.6  Counterparts.  The parties hereto may sign one or more copies
of this Supplemental Indenture in counterparts, all of which together shall
constitute one and the same agreement.

 

SECTION 3.7  Headings.  The headings of the Articles and the sections
in this Subsidiary Guarantee are for convenience of reference only and shall
not be deemed to alter or affect the meaning or interpretation of any
provisions hereof.

 

IN
WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to
be duly executed as of the date first above written.

 

	
   

  	
  [GUARANTOR],

  
	
   

  	
  as
  a Subsidiary Guarantor

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  U.S.
  BANK NATIONAL ASSOCIATION,

  
	
   

  	
  as
  Trustee

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  VENOCO,
  INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  

 

C-3

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