Document:

f8k022610ex10iv_recovery.htm

     

    
      Exhibit
10.4

       

       

      WHEN
RECORDED

      AND/OR

      FILED
RETURN TO:

       

      Deborah
J. Thomas

      Holme
Roberts & Owen LLP

      1700
Lincoln, Suite 4100

      Denver,
Colorado 80203

       

      

       

      MORTGAGE, SECURITY
AGREEMENT,

      ASSIGNMENT OF PRODUCTION AND
PROCEEDS,

      FINANCING STATEMENT AND
FIXTURE FILING

       

      from

       

      RECOVERY
ENERGY, INC.

      (Organizational
I.D. No. 74-3231613),

      AS
DEBTOR

       

      to and
for the benefit of

       

      HEXAGON
INVESTMENTS, LLC, AS SECURED PARTY

      Dated as
of January 29, 2010

       

       

      
        

      

      
        

        
 

      

       

      THIS
INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS.

       

      THIS
INSTRUMENT SECURES PAYMENT OF FUTURE ADVANCES.

       

      EXHIBIT ”A”
CONTAINS A LEGAL DESCRIPTION OF THE REAL ESTATE CONCERNED.  DEBTOR HAS
AN INTEREST OF RECORD IN THE REAL ESTATE.  SOME OF THE PERSONAL
PROPERTY CONSTITUTING A PORTION OF THE COLLATERAL IS OR IS TO BECOME FIXTURES
RELATED TO THE REAL ESTATE.

       

      THIS
INSTRUMENT COVERS FIXTURES AND AS-EXTRACTED COLLATERAL.

       

      THIS
INSTRUMENT IS TO BE RECORDED IN THE REAL ESTATE RECORDS OF THE COUNTY RECORDER
IN EACH COUNTY WHERE THE REAL ESTATE IS LOCATED.

       

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

      

       

      MORTGAGE,

       

      SECURITY
AGREEMENT,

       

      ASSIGNMENT OF PRODUCTION AND
PROCEEDS,

       

      FINANCING
STATEMENT

       

      AND FIXTURE
FILING

       

      This
Mortgage, Security Agreement, Assignment of Production and Proceeds, Financing
Statement and Fixture Filing (this “Instrument”), dated
as of January 29, 2010, is from RECOVERY ENERGY, INC., a
Nevada corporation (“Debtor”), with
Organizational I.D. No. 74-3231613 and with an address of 1515 Wynkoop
Street, Suite 200, Denver, Colorado 80202, to and for the benefit of HEXAGON INVESTMENTS, LLC, a
Colorado limited liability company (“Secured Party”), with
an address of 730 17th
Street, Suite 800, Denver, Colorado  80202.

       

      COLLATERAL

       

      All of
the property described in paragraphs 1 through 8 below is herein collectively
called the “Collateral”:

       

      1. The
entire estates or the undivided interests therein as described in Exhibit “A” in
and to all of the mineral estates, surface estates, leasehold estates and other
estates described in Exhibit “A” and in and to the mineral interests, royalty
interests, working interests, operating rights interest, record title interests,
overriding royalty interests, production payment interests, net profit interests
and other interests described in Exhibit “A” and in and to the leases, licenses,
subleases, sublicenses, easements, rights-of-way, farmouts, farmins, minerals
agreements, unit agreements, cooperative development agreements, communitization
agreements, unit operating agreements, pooling agreements, joint operating
agreements and other documents and instruments described in Exhibit “A” and any
other estates, property interests and rights described in Exhibit “A”, covering
or relating to all or any part of the land described either in Exhibit “A” or in
the leases, licenses, subleases, sublicenses, easements, rights-of-way,
agreements and other documents and instruments described in Exhibit “A” (the
“Land”; the
term “Land” as
used herein includes, without limitation, the land specifically described in
Exhibit “A” and all land described in or covered by the leases, licenses,
subleases, sublicenses, easements, rights-of-way, agreements and other documents
and instruments described in Exhibit “A” whether or not such land is
specifically described in Exhibit “A”), together with any and all other right,
title and interest of Debtor of whatever kind or character (whether now owned or
hereafter acquired by operation of law or otherwise) (which right, title and
interest of Debtor shall, for all purposes of this Instrument, be deemed to
include, without limitation, any and all right, title and interest now owned or
hereafter acquired by Debtor in any amendment, modification, supplement,
restatement, extension, renewal or replacement of any of the leases, licenses,
subleases, sublicenses, easements, rights-of-way, agreements and other documents
and instruments described in Exhibit “A”) in, to and under or that covers,
affects or otherwise relates to the Land or the leases, licenses, subleases,
sublicenses, easements, rights of way, agreements and other documents and
instruments described in Exhibit “A” or to any of the estates, property,
interests or rights described or referred to above or herein, including the
following:

       

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

       

      (a) All of
Debtor’s right, title and interest of whatever kind or character (whether now
owned or hereafter acquired by operation of law or otherwise) in, to and under
or that covers, affects or otherwise relates to the Land or the leases,
licenses, subleases, sublicenses, easements, rights-of-way, agreements and other
documents and instruments described in Exhibit “A” or to any of the estates,
property, interests or rights described or referred to above or herein, even
though Debtor’s interest therein may be incorrectly described in, omitted from
or not described in Exhibit “A”;

       

      (b) All of
Debtor’s right, title and interest (whether now owned or hereafter acquired by
operation of law or otherwise) in, to and under all presently existing and
hereafter created oil, gas or mineral unitization, cooperative development,
pooling, spacing or communitization agreements, declarations or orders, and in
and to the lands and properties covered and the units created thereby (including
units formed under orders, rules, regulations or other official acts of any
federal, state, tribal, local or other authority having jurisdiction and so
called “working interest units” created under operating and similar agreements
or otherwise), that cover, affect or otherwise relate to the Land or the leases,
licenses, subleases, sublicenses, easements, rights-of-way, agreements and other
documents and instruments described in Exhibit “A” or to any of the estates,
property, interests or rights described or referred to above or
herein;

       

      (c) All of
Debtor’s right, title and interest (whether now owned or hereafter acquired by
operation of law or otherwise) in, to and under all presently existing and
hereafter created operating agreements, equipment leases, production sales,
purchase, exchange or processing agreements, transportation or gathering
agreements, farmout or farmin agreements, disposal agreements, area of mutual
interest agreements and other contracts or agreements that cover, affect or
otherwise relate to the Land or the leases, licenses, subleases, sublicenses,
easements, rights-of-way, agreements and other documents and instruments
described in Exhibit “A” or to any of the estates, property, interests or rights
described or referred to above or herein or the operations thereon, or the
production, treatment, storage, gathering, transportation, handling, processing,
manufacturing, sale or marketing of Hydrocarbons (as hereinafter defined)
produced therefrom or allocated or attributed thereto, including those contracts
and agreements listed in Exhibit “A” as the same may be amended or supplemented
from time to time; and

       

      (d) All of
Debtor’s right, title and interest of whatever kind or character (whether now
owned or hereafter acquired by operation of law or otherwise) in, to and under
all presently existing or hereafter created easements, servitudes,
rights-of-way, surface leases, licenses, permits and other surface rights used,
or held for use, in connection with the Land or any of the estates, property,
interests or rights described or referred to above or herein, or the operations
thereon, or the production, treatment, storage, gathering, transportation,
handling, processing, manufacturing, sale or marketing of Hydrocarbons produced
therefrom or allocated or attributed thereto, including the easements and
rights-of-way described in Exhibit “A” hereto as same may be amended or
supplemented from time to time;

       

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

       

      2. All of
the oil, gas, drip gasoline, natural gasoline, natural gas liquids, condensate,
distillate, casinghead gas and other solid, liquid or gaseous hydrocarbons and
other associated or related substances of whatever kind or character and in
whatever form or phase, including gases produced from coal-bearing formations
and strata such as so-called “coal-bed gas” and “coal-bed methane”
(collectively, “Hydrocarbons”) in,
on, under or allocated or attributed to any of the estates, property, interests
or rights described or referred to above or herein or any other interest of
Debtor (whether now owned or hereafter acquired by operation of law or
otherwise) in, to and under or that covers, affects or otherwise relates to the
Land or to any of the estates, property, interests or rights described or
referred to above or herein;

       

      3. All
wells, platforms, derricks, casing, tubing, tanks, tank batteries, treaters,
separators, rods, pumps, pumping units, flow lines, water lines, transportation
lines, gathering lines, gas lines, machinery, pipelines, power lines and other
goods and equipment, and all of the personal property and fixtures, as defined
under applicable state law, now or hereafter located in, on, under, affixed,
allocated or attributed to or obtained or used in connection with any of the
estates, property, interests or rights described or referred to above or herein
or any other interest of Debtor (whether now owned or hereafter acquired by
operation of law or otherwise) in, to and under or that covers, affects or
otherwise relates to the Land or to any of the estates, property, interests or
rights described or referred to above or herein, or that are used or purchased
for the production, treatment, storage, gathering, transportation, handling,
processing, manufacturing, sale or marketing of Hydrocarbons;

       

      4. All of
the accounts, contract rights and general intangibles now or hereafter arising
in connection with the production, treatment, storage, gathering,
transportation, handling, processing, manufacturing, sale or marketing of
Hydrocarbons produced from or allocated or attributed to any of the estates,
property, interests or rights described or referred to above or herein or any
other interest of Debtor (whether now owned or hereafter acquired by operation
of law or otherwise) in, to or under or that covers, affects or otherwise
relates to the Land or to any of the estates, property, interests or rights
described or referred to above or herein and all other accounts, contract rights
and general intangibles now or hereafter arising in connection with the estates,
property, interests or rights described or referred to above or
herein;

       

      5. All of
the severed and extracted Hydrocarbons, including “as-extracted collateral” (as
defined in the applicable version of the Uniform Commercial Code in effect in
each jurisdiction in which any of the Land is located) produced from or
allocated or attributed to any of the estates, property, interests or rights
described or referred to above or herein or any other interest of Debtor
(whether now owned or hereafter acquired by operation of law or otherwise) in,
to and under or that covers, affects or otherwise relates to the Land or to any
of the estates, property, interests or rights described or referred to above or
herein;

       

      6. All
renewals, extensions and restatements of, modifications, changes, amendments and
supplements to, and substitutions for the estates, property, interests and
rights described or referred to in paragraphs 1 through 5 above, and all
additions and accessions thereto;

       

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

       

      7. All of
the rights, privileges, benefits, hereditaments and appurtenances in any way
belonging, incidental or appertaining to the estates, property, interests and
rights described or referred to in paragraphs 1 through 6 above;
and

       

      8. All of
the proceeds and products of the estates, property, interests and rights
described or referred to in paragraphs 1 through 7 above, including,
condemnation awards and the proceeds of any and all insurance policies
(including title insurance policies as well as other types of insurance
policies) covering all or any part of said estates, property, interests or
rights and, to the extent they may constitute proceeds, instruments, accounts,
securities, general intangibles, contract rights and inventory.

       

      GRANTING
CLAUSES

       

      In
consideration of ten dollars and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by Debtor, and the
matters hereinafter set forth, Debtor hereby irrevocably:

       

      A. Real
Property.  Grants, bargains, sells, assigns, transfers,
mortgages and conveys to Secured Party, that part of the Collateral that is real
property (including any fixtures that are real property under applicable state
law), subject to the assignment made under paragraph C below; TO HAVE AND TO
HOLD all of the Collateral that is real property (including any fixtures that
are real property under applicable state law), together with all of the rights,
privileges, benefits, hereditaments and appurtenances in any way belonging,
incidental or pertaining thereto, to Secured Party and its successors and
assigns, forever, for the security and benefit of Secured Party and its
successors and assigns, subject to all of the terms, conditions, covenants,
agreements and trusts herein set forth;

       

      B. Personal
Property.  Grants to Secured Party a security interest in that
part of the Collateral that is personal property (including any fixtures that
are personal property under applicable state law); and

       

      C. Assignment of
Production.  Absolutely assigns to Secured Party all of the
severed and extracted Hydrocarbons produced from or allocated or attributed to
any of the Collateral or any other interest of Debtor (whether now owned or
hereafter acquired by operation of law or otherwise) in, to and under or that
covers, affects or otherwise relates to the Land or to any of the estates,
property rights or other interests described or referred to above, together with
all of the proceeds thereof.

       

      ARTICLE
I

       

      Obligations

       

      Section
1.1        Obligations
Secured.  This Instrument is executed, acknowledged and
delivered by Debtor to secure and enforce the following indebtedness,
liabilities and obligations (the “Obligations”):

       

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

       

      A. Note.  All
indebtedness (including principal, interest, fees and penalties), liabilities
and obligations under or pursuant to the Promissory Note, dated January 29,
2010, in the principal amount of $4,500,000, made by Debtor and payable to the
order of Secured Party (the “Note”);

       

      B. Credit
Agreement.  All indebtedness, liabilities and obligations of
whatever kind or character, now existing or hereafter created or arising under
or pursuant to that certain Credit Agreement (the “Credit Agreement”),
dated as of January 29, 2010, between Secured Party and
Debtor;

       

      C. This
Instrument.  All indebtedness, liabilities and obligations of
Debtor to Secured Party of whatever kind or character, now existing or hereafter
created or arising under or pursuant to this Instrument, including those arising
under or pursuant to the representations, warranties, covenants and indemnities
contained herein and any and all amounts advanced to protect the liens and
security interests herein granted and all reasonable attorneys’ fees, court
costs, and expenses of whatever kind or character now existing or hereafter
created or arising, incident thereto or to the collection of the indebtedness,
liabilities and obligations hereby secured and enforcement of the liens and
security interests herein granted and created;

       

      D. Other
Obligations.  All other indebtedness, liabilities and
obligations of Debtor to Secured Party of whatever kind or character now
existing or hereafter created or arising, whether fixed, absolute or contingent,
direct or indirect, primary or secondary, joint, several or joint and several,
due or to become due, and however evidenced whether by note, open account,
overdraft, endorsement, surety agreement, guarantee or otherwise, it being
contemplated that Debtor may hereafter become indebted to Secured Party in such
further sum or sums; and

       

      E. Renewals, Extensions and
Amendments.  All indebtedness, liabilities and obligations of
whatever kind or character, now existing or hereafter created or arising under
or pursuant to all renewals, extensions and restatements of, modifications,
changes, amendments and supplements to and substitutions for, all or any part of
the foregoing.

       

      Section
1.2       Indebtedness
Secured.  Debtor and Secured Party agree and acknowledge that
Secured Party may elect to make additional advances under the terms of the Note,
the Credit Agreement or otherwise, and that any such future advances shall be
subject to, and secured by, this Instrument.  Should the Obligations
decrease or increase pursuant to the terms of the Note, the Credit Agreement or
otherwise, at any time or from time to time, this Instrument shall retain its
priority position of record until the termination of the Credit Agreement and
until full, final and complete payment of all the Obligations.  The
aggregate unpaid principal amount of the Obligations outstanding at any
particular time (after having given effect to all advances and all repayments
made prior to such time) which is secured by the Collateral shall not aggregate
in excess of Nine Million Dollars ($9,000,000).  Such amount does not
in any way imply that Secured Party is obligated to make any future advances to
Debtor at any time unless specifically so provided in the Credit
Agreement  or any other loan document.

       

       

      
        
          
          

        

        
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      ARTICLE
II

       

      Warranties, Representations
and Covenants

       

      Section
2.1       Representations and
Warranties.  Debtor warrants and represents as
follows:

       

      A. Power and
Authority.  Debtor has the power and authority to mortgage,
pledge and hypothecate the Collateral as provided herein.

       

      B. Title.  Unless
otherwise indicated in Exhibit “A”, to the best of Debtor's knowledge the
oil and gas leases and licenses described in Exhibit “A” cover all of the oil,
gas and other Hydrocarbons in and under the Land.  Debtor has good and
defensible title to the Collateral; and Debtor has good and defensible title to
the undivided interests in the leases, licenses, sublicenses, sublicensing,
easements, rights-of-way, agreements and other documents and instruments as
described in Exhibit “A” free and clear of all royalties and other burdens,
charges, liens, security interests, encumbrances, agreements, contracts,
assignments and other matters, except (1) landowner’s royalties and the
overriding royalties and the agreements and contracts specifically described in
Exhibit “A”, (2) the liens and security interests evidenced by this Instrument,
(3) statutory liens for taxes which are not yet delinquent, (4) liens under
operating agreements, pooling orders and unitization agreements, and mechanics'
and materialmen's liens, with respect to obligations which are not yet due, and
(5) other interests in favor of Secured Party.  To the best of
Debtor's knowledge the leases, licenses, subleases, sublicenses, easements,
rights-of-way, agreements and other documents and instruments described in
Exhibit “A” are valid and subsisting and are in full force and
effect.  To the best of Debtor's knowledge, all rents and royalties
due and payable under the leases, licenses, subleases, sublicenses, easements,
rights-of-way, agreements and other documents and instruments described in
Exhibit “A” have been paid.  All wells located on the Land have been
drilled, operated and produced in conformity with all applicable laws and rules,
regulations and orders of all regulatory authorities having jurisdiction, and
are subject to no penalties on account of past production.  To the
best of Debtor's knowledge none of such wells are deviated from the vertical
more than the maximum permitted by applicable laws, rules, regulations and
orders.  To the best of Debtor's knowledge such wells are in fact
bottomed under and are producing from, and the well bores are wholly within, the
lands described in Exhibit “A”.  Debtor warrants and will forever
defend the title to the Collateral, subject to the aforesaid, against the claims
of all persons claiming or to claim the same or any part thereof by, through or
under the Debtor but not otherwise.

       

      C. Working and Net Revenue
Interests.

       

      1. With
respect to each of the oil and gas leases and wells described in
Exhibit “A,” Debtor’s share of development and operating costs with respect
to the portion of the Land covered thereby as described in Exhibit “A”,
without regard to pooling and unitization, is not greater than the “Working
Interest” or “WI” specified in Exhibit “A”; and Debtor’s share of the gross
production of all oil, gas and other Hydrocarbons produced, saved and marketed
from said Land, without regard to pooling and unitization, is no less than the
“Net Revenue Interest” or “NRI” specified in Exhibit “A”.

       

       

      
        
          
          

        

        
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      2. With
respect to each of the overriding royalty interests described in
Exhibit “A”, Debtor’s share of the gross production of oil, gas and other
Hydrocarbons produced, saved and marketed from the portion of the Land subject
thereto as described in Exhibit “A”, is no less than the percentage
specified in Exhibit “A”.

       

      3. With
respect to each of the mineral interests described in Exhibit “A”, Debtor’s
share of the oil, gas and other Hydrocarbons in and under and that may be
produced, saved and marketed from the portion of the Land subject thereto as
described in Exhibit “A” is no less than the stated percentage specified in
Exhibit “A”.

       

      4. With
respect to each of the royalty interests described in Exhibit “A”, Debtor’s
share of the gross production of oil, gas and other Hydrocarbons produced, saved
and marketed from the portion of the Land subject thereto as described in
Exhibit “A” is no less than the percentage specified in
Exhibit “A”.

       

      5. With
respect to each of the units and pools described in Exhibit “A”, Debtor’s
share of development and operating costs with respect to the portion of the Land
covered thereby as described in Exhibit “A” or in the agreements creating
such units and pools recorded as described in Exhibit “A” and the wells on
said Land, is no greater than the “Working Interest” or “WI” specified in
Exhibit “A”; and Debtor’s share of the gross production of oil, gas and
other Hydrocarbons produced, saved and marketed from said Land and said wells is
no less than the “Net Revenue Interest” or “NRI” specified in
Exhibit “A.”

       

      All such
shares of development and operating costs and of gross production are not and
will not be subject to change (other than changes that arise pursuant to
nonconsent provisions of operating agreements described in Exhibit “A” in
connection with operations hereafter proposed) except, and only to the extent
that such changes are reflected in Exhibit “A”.

       

      D. Operations of Oil and Gas
Properties.  The Collateral (and all properties spaced,
communitized, unitized or otherwise aggregated therewith) will be maintained,
operated and developed in a good and workmanlike manner and in conformity in all
material respects with all applicable laws, rules, regulations and orders of all
federal, state, tribal and local governmental bodies, authorities and agencies
and in conformity in all material respects with the provisions of all leases,
subleases or other contracts and agreements comprising a part of the
Collateral.  To the best of Debtor's knowledge none of the Collateral
is subject to having allowable production reduced below the full and regular
allowable (including the maximum permissible tolerance) because of an
overproduction (whether or not the same was permissible at the time) prior to
the date hereof.

       

       

      
        
          
          

        

        
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      E. Sale of
Production.

       

      1. All
proceeds from the sale of Debtor’s interests in Hydrocarbons from the Collateral
are currently being paid in full to Debtor by the purchaser or remitter thereof
on a timely basis and at prices and terms comparable to market prices and terms
generally available at the time such prices and terms were negotiated for oil
and gas production from producing areas situated near the Collateral, and none
of such proceeds are currently being held in suspense by such purchaser or any
other party.

       

      2. Neither
Debtor, nor to the best of Debtor's knowledge its predecessors in title, have
entered into or are subject to any agreement or arrangement (including “take or
pay” or similar arrangements) nor to the best of Debtor's knowledge is the
Collateral subject to any such agreement or arrangement, to deliver Hydrocarbons
produced or to be produced from the Collateral at some future time without then
or thereafter receiving full payment therefor.

       

      3. To the
best of Debtor's knowledge none of the Collateral is or will become subject to
any contractual or other arrangement whereby payment for production from such
Collateral is to be deferred for a substantial period after the month in which
such production is delivered (that is, in the case of oil, not in excess of 60
days, and in the case of gas, not in excess of 90 days).

       

      4. Except
for existing production sales contracts, processing agreements or transportation
agreements, none of the Collateral is or will become subject to any contractual
or other arrangement for the sale of crude oil that cannot be canceled on 180
days’ or less notice; and none of the Collateral is or will become subject to a
gas sales contract that contains terms that are not customary in the
industry.

       

      5. To the
best of Debtor's knowledge none of the Collateral is subject at the present time
to any regulatory refund obligation and, no facts exist that might cause the
same to be imposed.

       

      6. None of
the Collateral is subject to a gas balancing arrangement under which an
imbalance exists with respect to which imbalance Debtor or the Collateral is in
an overproduced status and is required to (i) permit one or more third
parties to take a portion of the production attributable to such Collateral
without payment (or without full payment) therefor or (ii) make payment in
cash, in order to correct such imbalance.

       

      F. Condition of Personal
Property.  The inventory, equipment, fixtures and other
tangible personal property and fixtures forming a part of the Collateral are in
good repair and condition.  All of such Collateral is located on the
Land.

       

      G. Contracts and
Agreements.  Except for contracts and agreements that do not
have a material effect on the use, ownership, value or operation of the
Collateral, to the best of Debtor's knowledge Exhibit “A” sets forth all
operating agreements, equipment leases, production sales, purchase, exchange or
processing 

       

       

      
        
          
          

        

        
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        agreements,
transportation or gathering agreements, farmout or farmin agreements, disposal
agreements, area of mutual interest agreements and other contracts and
agreements that cover, effect or otherwise relate to the Land or the leases,
licenses, subleases, sublicenses, easements, rights-of-way, agreements and other
documents and instruments described in Exhibit ”A” that relate to
operations thereon, or the production, treatment, storage, gathering,
transportation, handling, processing, manufacturing, sale or marketing of
hydrocarbons produced therefrom or allocated or attributed
thereto.

      

       

      H. Consents and Preferential
Rights to Purchase.  Except as specifically set forth in
Exhibit A, to the best of Debtor's knowledge there are no preferential
rights to purchase all or any portion of the Collateral and there are no rights
of third parties to consent to the transfer of all or any portion of the
Collateral.

       

      I. Taxes.  To
the best of Debtor's knowledge all ad valorem, property, production, severance,
excise and similar taxes and assessments based on or measured by the ownership
of property or the production of Hydrocarbons or the receipt of proceeds
therefrom relating to the Collateral that have become due and payable have been
properly and timely paid.

       

      J. Federal State and Tribal
Interests Leases.  Debtor is duly qualified to own, hold and
operate leases, easements, rights-of-way, mineral agreements and other
agreements covering, affecting or otherwise relating to federal, state and
tribal lands (including leases, easements and rights-of-way issued by the Bureau
of Land Management; leases, easements and rights-of-way issued by the Bureau of
Indian Affairs; and leases, easements, rights-of-way, mineral agreements and
other agreements with tribal governments or agencies or allottees).

       

      K. Environmental
Matters.

       

      1. To the
best of Debtor's knowledge the Collateral is being, operated in compliance with
all applicable Environmental Laws (as hereinafter defined); and no conditions
exist on or with respect to the Collateral or, on any property adjoining the
Collateral that would subject Debtor, Secured Party or the owner of any
adjoining property to any damages (including actual, consequential, exemplary
and punitive damages), penalties, injunctive relief or cleanup costs under any
Environmental Laws (as hereinafter defined), or that require or are likely to
require cleanup, removal, remedial action or other response by Debtor, Secured
Party or the owner of any adjoining property pursuant to any Environmental
Laws.  Debtor is not a party to any litigation or administrative
proceeding, nor, to the best of Debtor’s knowledge, is any litigation,
administrative proceeding or investigation threatened against Debtor or the
Collateral, that asserts or alleges that Debtor or its predecessors in title to
the Collateral violated or are violating Environmental Laws or that Debtor or
such predecessors are required to clean up, remove or take remedial or other
responsive action due to the use, storage, treatment, disposal, discharge,
leaking or release of any Hazardous Substances or Solid Waste (as such terms are
hereinafter defined).  Neither Debtor nor to the best of Debtor's
knowledge such predecessors or any part of the Collateral is subject to any
judgment, decree, order or citation related to or arising out of Environmental
Laws and Debtor has not been named or listed as a potentially responsible party
by any governmental or other entity in a matter arising under or relating to any
Environmental Laws.  This representation shall continue to be true and
correct following disclosure to the applicable governmental authorities of all
relevant facts, conditions, and circumstances, if any, pertaining to the
Collateral or to Debtor.

       

       

      
        
          
          

        

        
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      2. Debtor
undertook, at the time of acquisition of the Collateral, all appropriate inquiry
into the previous ownership and uses of the Collateral consistent with good
commercial and industry practice.  To the best of Debtor's knowledge
no Hazardous Substances or Solid Waste have been disposed of or otherwise
released on, to or from the Collateral, except in full compliance with all
Environmental Laws.  The use which Debtor makes and intends to make of
the Collateral will not result in the use or storage of any Hazardous Substances
or Solid Waste on, in or in connection with the Collateral, or disposal from the
Collateral, except in full compliance with all Environmental Laws, or result in
any requirement that Debtor apply for or obtain a permit under RCRA (as
hereinafter defined) or other Environmental Law for the treatment, storage or
disposal of Hazardous Substances or Solid Waste.  To the best of
Debtor's knowledge there are no regulated underground storage tanks located on
or in the Collateral.

       

      3. As used
herein, the term “Environmental Laws”
shall mean any and all present and future laws (whether common or statutory),
compacts, treaties, conventions or rules, regulations, codes, plans,
requirements, criteria, standards, orders, decrees, judgments, injunctions,
notices or demand letters issued, promulgated or entered thereunder by any
federal, tribal, state or local governmental entity relating to public or
employee health and safety, pollution or protection of the environment,
including the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended by the Superfund Amendment and Reauthorization Act of
1986 (“CERCLA”), the
Resource Conservation and Recovery Act of 1976, as amended by the Used Oil
Recycling Act of 1980, the Solid Waste Disposal Act Amendments of 1980, and the
Hazardous and Solid Waste Amendments of 1984, (“RCRA”), the Federal
Safe Drinking Water Act, the Federal Water Pollution Control Act, the Oil
Pollution Act of 1990, the Emergency Planning and Community Right-to-Know Act of
1986, the Clean Air Act and any and all other federal, state, tribal and local
laws, rules, regulations and orders relating to reclamation of land, wetlands
and waterways or relating to use, storage, emissions, discharge, cleanup,
release or threatened release of pollutants, contaminants, chemicals or
industrial, toxic or Hazardous Substances or Solid Waste on or into the
workplace or the environment (including ambient air, oceans, waterways,
wetlands, surface water, ground water (tributary and nontributary), land surface
or subsurface strata) or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transportation or handling of
pollutants, contaminants, chemicals or industrial, toxic, hazardous or similar
substances, as all of the foregoing may be amended, supplemented and
reauthorized from time to time.

       

      4. As used
herein, the term “Hazardous Substances” shall mean any and all
(a) “hazardous substances,” as defined by CERCLA; (b) “hazardous
wastes,” as defined by RCRA; (c) any pollutant, contaminate or hazardous,
dangerous or toxic chemicals, materials or substances within the meaning of any
Environmental Law; (d) any radioactive material, including any source,
special nuclear or by-product material

       

       

      
        
          
          

        

        
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        as
defined at 42 U.S.C. § 2011 et seq., as amended;
and (e) asbestos in any form or condition.  As used herein, the
term “release” shall have the meaning specified in CERCLA, and the terms “Solid Waste,”
“disposal” or “disposed” shall have the meaning specified in RCRA.  In
the event CERCLA, RCRA or any other applicable Environmental Law is amended so
as to broaden the meaning of any terms defined thereby, such broader meaning
shall apply subsequent to the effective date of such amendment; and to the
extent that the laws of any state in which the Collateral are located establish
a meaning for “hazardous substance,” “release,” “solid waste,” “hazardous
wastes,” or “disposal” that is broader than that specified in either CERCLA or
RCRA, such broader meaning shall apply.

      

       

      L. Non-Foreign Person
Status.  Debtor is not a “foreign person” within the meaning of
the Internal Revenue Code of 1986, as amended (the “Code”), Sections 1445
and 7701; that is, Debtor is not a nonresident alien, foreign corporation,
foreign partnership, foreign trust or foreign estate as those terms are defined
in the Code and any regulations promulgated thereunder.

       

      M. Structure.  Debtor’s
name, identity, entity structure, organizational identification number and state
of organization are correctly reflected in the preamble to this
Instrument.

       

      Section
2.2                       Covenants.  Debtor
covenants and agrees as follows:

       

      A. Obligations.  Debtor
shall pay when due and perform the Obligations in accordance with the terms
thereof and hereof.

       

      B. Recording and
Filing.  Debtor shall (1) promptly and at Debtor’s own
expense, file in such offices, at such times and as often as may be necessary,
this Instrument and every other instrument in addition or supplemental hereto,
including applicable financing statements, as may be necessary to create,
perfect, maintain and preserve the first priority of the liens and security
interests intended to be created hereby and the rights and remedies of Secured
Party hereunder; (2) promptly furnish to Secured Party evidence
satisfactory to Secured Party of all such filings; and (3) otherwise do all
things necessary or expedient to be done effectively to create, perfect,
maintain and preserve the priority of the liens and security interests intended
to be created hereby as a first lien on real property and fixtures and a first
priority security interest in personal property and fixtures.

       

      C. Modifications and
Dispositions.  Without the prior written consent of Secured
Party, Debtor shall not (1) amend, modify or otherwise revise any lease,
license or other agreement described in Exhibit “A”; (2) release,
surrender, abandon or forfeit the Collateral or any part thereof; (3) sell,
convey, assign, lease, sublease, alienate, mortgage or grant security interests
in or otherwise dispose of or encumber the Collateral or any part thereof,
except to the extent explicitly permitted by the Credit Agreement and except
sales of severed Hydrocarbons in the ordinary course of Debtor’s business and
for fair consideration, and except for the liens and security interests created
by this Instrument and liens for taxes, assessments and governmental charges not
delinquent; or (4) consent to, permit or authorize any such act by another
party with respect to the Land, the Collateral or any part thereof.

       

       

      
        
          
          

        

        
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      D. Maintenance of
Collateral.  Debtor shall, at Debtor’s own expense,
(1) keep in full force and effect all of the leases, licenses and other
agreements described in Exhibit “A” and all rights-of-way, easements and
privileges necessary or appropriate for the proper operation of such leases,
licenses and agreements, by the proper payment of all rentals, royalties and
other sums due thereunder and the proper performance of all obligations and
other acts required thereunder; (2) cause the Collateral to be properly
maintained, developed and continuously operated for the production of
Hydrocarbons and protected against drainage and damage in a good and workmanlike
manner as a prudent operator would in accordance with good oil field practice
and applicable federal, state, tribal and local laws, rules, regulations and
orders; (3) pay or cause to be paid when due all expenses incurred in
connection with such maintenance, development, operation and protection of the
Collateral; (4) keep all goods, including equipment, inventory and fixtures
included in the Collateral in good and effective repair, working order and
operating condition and make all repairs, renewals, replacements, substitutions,
additions and improvements thereto and thereof as are necessary and proper;
(5) permit Secured Party, and its respective agents, employees,
contractors, designees and consultants, to enter upon the Collateral for the
purpose of investigating and inspecting the condition and operation of the
Collateral, and do all things necessary or proper to enable Secured Party to
exercise this right whenever Secured Party so desires; and (6) do all other
things necessary to keep unimpaired Secured Party’s interests in the
Collateral.

       

      E. Notification of
Breach.  Debtor shall promptly, and in no event later than 3
days after becoming aware, notify Secured Party (1) if any representation
or warranty of Debtor contained in this Agreement is discovered to be or becomes
untrue, or (2) Debtor fails to perform or comply with any covenant or
agreement contained in this Agreement or it is reasonably anticipated that
Debtor will be unable to perform or comply with any covenant or agreement
contained in this Agreement.  Debtor shall cause all the
representations and warranties of Debtor contained in this Agreement to be true
and correct in all material respects from time to time and all
times.

       

      F. Defense of
Title.  If the title or interest of Debtor or Secured Party to
the Collateral or any part thereof, or the lien or encumbrance created by this
Instrument, or the rights or powers of Secured Party hereunder, shall be
attacked, either directly or indirectly, or if any legal proceedings are
commenced against Debtor or the Collateral, Debtor shall promptly give written
notice thereof to Secured Party and at Debtor’s own expense shall take all
reasonable steps diligently to defend against any such attack or proceedings,
employing attorneys acceptable to Secured Party.  Secured Party may
take such independent action in connection therewith as it may in its discretion
deem advisable, and all costs and expenses, including attorneys’ fees and legal
expenses, incurred by or on behalf of Secured Party in connection therewith
shall be a demand obligation owing by Debtor to Secured Party and shall bear
interest at the Default Rate (as defined in the Credit Agreement) until paid,
and shall constitute a part of the Obligations and be indebtedness secured and
evidenced by this Instrument.

       

       

      
        
          
          

        

        
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      G. Environmental
Matters.  Debtor shall comply with all Environmental Laws and
shall maintain and obtain all permits, licenses and approvals required under
Environmental Laws.  Debtor shall not cause or permit the Collateral
or Debtor to be in violation of, or do anything or permit anything to be done
that will subject the Collateral, Debtor or Secured Party to any remedial
obligations under any applicable Environmental Laws, assuming disclosure to the
applicable governmental authorities of all relevant facts, conditions and
circumstances, if any, pertaining to the Collateral or
otherwise.  Debtor shall promptly notify Secured Party in writing of
any existing, pending or threatened investigation or inquiry by any governmental
authority in connection with any applicable Environmental
Laws.  Debtor shall take all steps necessary to determine that no
Hazardous Substances or Solid Waste have been used or stored on, in or in
connection with the Collateral, or disposed of or otherwise released on, to or
from the Collateral, except in full compliance with all Environmental
Laws.  Debtor shall not cause or permit the use or storage of
Hazardous Substances or Solid Waste on, in or in connection with the Collateral
or disposal of Hazardous Substances or Solid Waste from the Collateral, except
in full compliance with all Environmental Laws, or make any use of the
Collateral that results in any requirement that Debtor apply for or obtain a
permit under RCRA or other Environmental Law for the treatment, storage or
disposal of Hazardous Substances or Solid Waste.  Debtor covenants and
agrees to keep or cause the Collateral to be kept free of any Hazardous
Substances or Solid Waste except in full compliance with all Environmental Laws,
and, promptly upon the discovery that the presence of any such substance on the
Collateral is not in full compliance, to remove the same (or if removal is
prohibited by law, to take whatever action is required by law) at its sole
expense.  Upon Secured Party’s reasonable request based upon the
condition of or operations on the Collateral, at any time and from time to time,
Debtor shall provide at Debtor’s sole expense inspections, tests and audits of
the Collateral from an engineering or consulting firm approved by Secured Party
indicating the presence or absence of Hazardous Substances or Solid Waste on, in
or under the Collateral that are not in compliance with applicable Environmental
Laws.  If Debtor fails to provide same after 20 days’ notice, Secured
Party may order same, and Debtor grants to Secured Party and its respective
employees, agents, contractors, designees and consultants access to the
Collateral and a license (which is coupled with an interest and irrevocable) to
perform inspections, tests and audits.  The cost of such inspections,
tests and audits shall be a demand obligation owing by Debtor to Secured Party
and shall bear interest at the Default Rate until paid, and shall constitute a
part of the Obligations and be indebtedness secured and evidenced by this
Instrument.  Nothing contained herein shall relieve Debtor from
conducting its own inspections, tests and audits or taking any other steps
necessary to comply with all Environmental Laws, nor shall anything contained
herein be construed to imply or impose any duty on Secured Party concerning
Debtor’s compliance or noncompliance therewith.  Secured Party’s
rights under this paragraph are for the sole purpose of protecting Secured
Party’s security for the repayment of the Obligations and shall not under any
circumstances be construed as granting the right to participate or constitute
participation in the management of the Collateral or the business conducted
thereon.

       

      H. Change in
Structure.   Debtor shall not cause or permit any change
to be made in its name, identity, entity structure, organizational
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        unless
Debtor shall have notified Secured Party of such change at least thirty days
prior to the effective date of such change, and shall have first taken all
action required by Secured Party for the purpose of further perfecting or
protecting the security interest in favor of Secured Party in the
Collateral.  In any notice furnished pursuant to this Subsection
2.2-H, Debtor shall expressly state that the notice is required by this
Instrument and contains facts that may require additional filings of financing
statements or other notices for the purposes of continuing perfection of Secured
Party’s security interest in the Collateral.

      

       

      I. Further
Assurances.  Debtor shall execute, acknowledge and deliver, or
cause to be executed, acknowledged or delivered, to Secured Party such other and
further instruments and do such other acts as in the reasonable opinion of
Secured Party may be necessary or desirable to effect the intent of this
Instrument, promptly upon request of Secured Party and at Debtor’s
expense.

       

      Section
2.3        Costs, Expenses and
Indemnities.  Debtor agrees to pay and indemnify Secured Party
as follows:

       

      A. Costs and
Expenses.  Debtor shall indemnify Secured Party from and
reimburse and pay Secured Party for all fees, costs and expenses (including
attorneys’ fees, court costs and legal expenses and consultant’s and expert’s
fees and expenses), incurred or expended by Secured Party in connection with
(1) the breach by Debtor of any representation or warranty contained in
this Instrument, the Credit Agreement, the Note or any other documents and
instruments evidencing, securing or otherwise relating to the Obligations,
(2) the failure by Debtor to perform any agreement, covenant, condition,
indemnity or obligation contained in this Instrument, the Credit Agreement, the
Note or any other documents and instruments evidencing, securing or otherwise
relating to the Obligations, (3) Secured Party’s exercise of any of its
rights and remedies under this Instrument, the Credit Agreement, the Note and
the other documents and instruments evidencing, securing or otherwise relating
to the Obligations, or (4) the protection of the Collateral and the liens
thereon and security interests therein.  All such fees, costs and
expenses shall be a demand obligation owing by Debtor to Secured Party and shall
bear interest at the Default Rate until paid, and shall constitute a part of the
Obligations and be indebtedness secured and evidenced by this
Instrument.  The liabilities of Debtor as set forth in this
Section 2.3-A shall survive the termination of this
Instrument.

       

      B. Indemnity.  Debtor
shall indemnify and hold harmless Secured Party and persons or entities owned or
controlled by or affiliated with Secured Party and their respective directors,
officers, shareholders, partners, employees, consultants and agents (herein
individually, an “Indemnified Party,”
and collectively, “Indemnified Parties”)
from and against, and reimburse and pay Indemnified Parties with respect to, any
and all claims, demands, liabilities, losses, damages (including actual,
consequential, exemplary and punitive damages), causes of action, judgments,
penalties, fees, costs and expenses (including attorneys’ fees, court costs and
legal expenses and consultant’s and expert’s fees and expenses), of any and
every kind or character, known or unknown, fixed or contingent, that may be
imposed upon, asserted against or incurred or paid by or 

       

       

      
        
          
          

        

        
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        on behalf
of any Indemnified Party on account of, in connection with, or arising out of
(1) any bodily injury or death or property damage occurring in or upon or
in the vicinity of the Collateral through any cause whatsoever, (2) any act
performed or omitted to be performed hereunder or the breach of or failure to
perform any warranty, representation, indemnity, covenant, agreement or
condition contained in this Instrument, the Credit Agreement, the Note or any
other documents and instruments evidencing, securing or relating to the
Obligations, (3) any transaction, act, omission, event or circumstance
arising out of or in any way connected with the Collateral or with this
Instrument, the Credit Agreement, the Note or any other documents and
instruments evidencing, securing or relating to the Obligations, and
(4) the violation of or failure to comply with any statute, law, rule,
regulation or order, including Environmental Laws and statutes, laws, rules,
regulations and orders relating to Hazardous Substances or Solid
Waste.  Without limiting the generality of the foregoing, it is the
intention of Debtor and Debtor agrees that the foregoing indemnities shall apply
to each Indemnified Party with respect to claims, demands, liabilities, losses,
damages (including actual, consequential, exemplary and punitive damages),
causes of action, judgments, penalties, fees, costs and expenses (including
attorneys’ fees, court costs and legal expenses and consultant’s and expert’s
fees and expenses) of any and every kind or character, known or unknown, fixed
or contingent, that in whole or in part are caused by or arise out of the
negligence of such Indemnified Party; however, such indemnities shall not apply
to any Indemnified Party to the extent the subject of the indemnification is
caused by or arises out of the gross negligence or willful misconduct of such
Indemnified Party.  The foregoing indemnities shall not terminate upon
the release, foreclosure or other termination of this Instrument, but shall
survive the foreclosure of the liens and security interests created by this
Instrument or conveyance in lieu of foreclosure and the repayment and
performance of the Obligations and the discharge and release of the liens and
security interest created by this Instrument and the other instruments and
documents evidencing, securing or relating to the Obligations.  Any
amount to be paid hereunder by Debtor to Secured Party or for which Debtor has
indemnified an Indemnified Party shall be a demand obligation owing by Debtor to
Secured Party and shall bear interest at the Default Rate until paid, and shall
constitute a part of the Obligations and be indebtedness secured and evidenced
by this Instrument.  The rights, powers and remedies herein conferred
are cumulative, and not exclusive, of any and all other rights, powers and
remedies existing at law or in equity (including rights, powers and remedies
under Environmental Laws) or provided for in any other documents or instruments
evidencing, securing or relating to the Obligations and nothing in this
paragraph or elsewhere in this Instrument or in any other documents or
instruments evidencing, securing or relating to the Obligations shall limit or
impair any rights, powers or remedies of Secured Party under any Environmental
Laws, including any rights of contribution or indemnification available
thereunder. The liabilities of Debtor as set forth in this Section 2.3-B
shall survive the termination of this Instrument.

      

       

      Section
2.4       Performance by Secured
Party.  Debtor agrees that, if Debtor fails to perform any act
which Debtor is required to perform hereunder, Secured Party may, but shall not
be obligated to, perform or cause to be performed such act, and any expense so
incurred by Secured Party in connection therewith shall be a demand obligation
owing by Debtor to Secured Party and shall bear interest at the Default Rate
until paid, and shall constitute a part of the Obligations and be indebtedness
secured and evidenced by this Instrument, and Secured Party 

       

       

      
        
          
          

        

        
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        shall be
subrogated to all of the rights of the party receiving such
payment.  Debtor hereby irrevocably appoints Secured Party as Debtor’s
attorney-in-fact and proxy, with full authority in the place and stead of Debtor
and in the name of Debtor or otherwise, from time to time to take any action and
to execute any instrument which Secured Party may deem necessary or advisable to
accomplish the purposes of this Agreement.  Such appointment is
coupled with an interest and shall be irrevocable from the date hereof and so
long as any part of the Obligations is outstanding.

      

       

      ARTICLE
III

       

      Collection of Proceeds of
Production

       

      Section
3.1        Assignment of
Proceeds.  Pursuant to paragraph C of the granting clause
of this Instrument, Secured Party is absolutely assigned and entitled to receive
all of the severed and extracted Hydrocarbons produced from or allocated or
attributed to all of the Collateral, together with all of the proceeds thereof
and payments in lieu thereof such as “take or pay” or similar
payments.  Debtor acknowledges and agrees that said assignment is
intended to be an absolute and unconditional assignment and not merely a pledge
of or creation of a security interest in said Hydrocarbons and proceeds or an
assignment as additional security.  Debtor shall execute, acknowledge
and deliver or cause to be executed, acknowledged and delivered, transfer orders
or letters-in-lieu thereof directing all pipeline companies or other purchasers
of Hydrocarbons to make payments directly to Secured Party.  All
parties producing, purchasing, receiving or having in their possession any such
Hydrocarbons or proceeds are hereby authorized and directed by Debtor to treat
and regard Secured Party as the party entitled in Debtor’s place and stead to
receive such Hydrocarbons and proceeds; and said parties shall be fully
protected in so treating and regarding Secured Party and shall be under no
obligation to see to the application by Secured Party of any such proceeds
received by it.  For its convenience, Secured Party may, with respect
to any or all such Hydrocarbons or proceeds, permit Debtor to receive such
Hydrocarbons or proceeds until such time as Secured Party shall have made
written demand therefor.  Such election by Secured Party shall not in
any way waive the right of Secured Party to demand and receive such Hydrocarbons
and proceeds thereafter allocated or attributed to the Collateral and shall not
in any way diminish the absolute and unconditional right of Secured Party to
receive all of such Hydrocarbons and proceeds and cash proceeds not theretofore
expended or distributed by Debtor.  Any such Hydrocarbons or proceeds
received by Debtor shall, when received, constitute trust funds in Debtor’s
hands and shall be held by Debtor for the benefit of Secured
Party.  Debtor hereby agrees that upon the first to occur of either
(A) written demand of Secured Party, or (B) the occurrence of any
event which constitutes an Event of Default (as hereinafter defined) or which
upon the giving (or receiving) of notice or lapse of time, or both, would
constitute such an Event of Default, all cash, proceeds, instruments and other
property, of whatever kind or character, received by Debtor on account of the
Collateral, whether received by Debtor in the exercise of its collection rights
hereunder or otherwise, shall, in accordance with instructions then given by
Secured Party, be remitted to Secured Party or deposited to an account
designated by Secured Party, in the form received (properly assigned or endorsed
to the order of Secured Party or for collection and in accordance with Secured
Party’s instructions) not later than the first banking business day following
the day of receipt, to be applied as provided in Section 3.2 hereof and, until
so applied, may be held by Secured Party in a separate account on which Debtor
may not draw.  Debtor agrees not to commingle any such property,
following the receipt of any such demand from Secured Party or the occurrence of
an Event of Default, with any of its other funds or property and agrees to hold
the same upon an express trust for Secured Party until remitted to Secured
Party.

       

       

      
        
          
          

        

        
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      Section
3.2       Application of
Proceeds.  Secured Party shall apply all of the proceeds
received pursuant to Section 3.1 hereof in satisfaction of the Obligations as
provided below, unless otherwise agreed to by Secured Party and
Debtor.  All such proceeds received and to be applied by Secured Party
up to the close of business on the last day of each calendar month shall be
applied by Secured Party on or before the fifth business day of the next
succeeding calendar month as follows (with any balance remaining after such
application to be paid to Debtor):

       

      A. First, to
the payment to Secured Party of all outstanding or unreimbursed fees, costs and
expenses incurred by Secured Party pursuant hereto, and any part of the
Obligations not evidenced by written instrument, including all charges and
penalties, including interest thereon, due Secured Party;

       

      B. Second,
to the payment of all interest accrued on the Obligations; and

       

      C. Third, to
the payment or prepayment of the principal of the Obligations in any order the
Secured Party may elect from time to time;

       

      If any
date of application specified above shall be a Saturday, Sunday or legal
holiday, the proceeds to be applied by Secured Party pursuant to this Section
3.2 shall be applied on the business day next succeeding such date which is not
a Saturday, Sunday or legal holiday, and the amount to be applied as described
above shall be the amount accrued up to such date.  If the proceeds
received by Secured Party pursuant to Section 3.1 during any month are not
sufficient to make the minimum payments of principal of and interest on the
Obligations required by the terms of the Credit Agreement or the Note, then
Debtor on or before the due date shall make payment to Secured Party of an
amount sufficient when added to such proceeds received to make the minimum
required payments of principal and interest of the Obligations.

       

      Section
3.3       Inclusion in
Sale.  Upon any sale of any of the Collateral pursuant to
Article V hereof and expiration of any mandatory redemption periods, the
Hydrocarbons thereafter produced from or attributed to the part of the
Collateral so sold, and the proceeds thereof, shall be included in such sale and
shall pass to the purchaser free and clear of the provisions of this Article
III.

       

      Section
3.4       No Liability in Secured
Party.  Secured Party is hereby absolved from all liability for
failure to enforce collection of any such proceeds and from all other
responsibility in connection therewith, except the responsibility to account to
Debtor for proceeds actually received.

       

      Section
3.5       Indemnity.  Debtor
shall indemnify Secured Party against all claims, actions, liabilities,
judgments, costs, attorneys’ fees or other charges of every kind or nature
(“Claims”) made
against or incurred by Secured Party as a consequence of the assertion, either
before or after the payment in full of the Obligations, that Secured Party
received Hydrocarbons or proceeds pursuant to this Article III which were
claimed by third persons.  Secured Party shall have the right to
employ attorneys and to defend against any Claims, and unless furnished with
reasonable indemnity, Secured Party shall 

       

       

      
        
          
          

        

        
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        have the
right to pay or compromise and adjust all Claims.  Debtor shall
indemnify and pay to Secured Party all such amounts as may be paid with respect
thereto or as may be successfully adjudicated against Secured Party, and such
amounts shall be a demand obligation owing by Debtor to Secured Party and shall
bear interest at the Default Rate until paid, and shall constitute a part of the
Obligations and be indebtedness secured and evidenced by this
Instrument.  The liabilities of Debtor as set forth in this
Section 3.5 shall survive the termination of this
Instrument.

      

       

      Section
3.6       Rights of Secured
Party.  Secured Party shall have the immediate and continuing
right to demand, collect, receive and receipt for all production, proceeds and
payments assigned hereunder, and Secured Party is hereby appointed agent and
attorney-in-fact of Debtor (which appointment is coupled with an interest and is
irrevocable) for the purpose of executing any release, receipt, division order,
transfer order, relinquishment or other instrument that Secured Party deems
necessary in order for Secured Party to collect and receive such production,
proceeds and payments.  In addition, Debtor agrees that, upon the
request of Secured Party, it will promptly execute and deliver to Secured Party
such transfer orders, payment orders, division orders and other instruments as
Secured Party may deem necessary, convenient or appropriate in connection with
the payment and delivery directly to Secured Party of all proceeds, production,
and payments assigned hereunder.  Debtor hereby authorizes and directs
that, upon the request of Secured Party, all pipeline companies, purchasers,
transporters and other parties now or hereafter purchasing oil, gas or other
mineral production produced from or allocated or attributed to the Collateral or
any other interest of Debtor (whether now owned or hereafter acquired by
operation of law or otherwise), in, to or relating to the Land or to any of the
estates, property, rights or other interests included in the Collateral, or any
part thereof, or now or hereafter having in their possession or control any
production from or allocated to the Collateral or any other interest of Debtor
(whether now owned or hereafter acquired by operation of law or otherwise), in,
to or relating to the Land or to any of the estates, property, rights or other
interests included in the Collateral, or any part thereof, or the proceeds
therefrom, or now or hereafter otherwise owing monies to Debtor under contracts
and agreements herein assigned, shall, until Secured Party directs otherwise,
pay and deliver such proceeds, production or amounts directly to Secured Party
at Secured Party’s address set forth in the introduction to this Instrument, or
in such other manner as Secured Party may direct such parties in writing, and
this authorization shall continue until the assignment of production and
proceeds contained herein is released and reassigned.  Debtor agrees
that all division orders, transfer orders, receipts and other instruments that
Secured Party may from time to time execute and deliver for the purpose of
collecting and receipting for such proceeds, production or payments may be
relied upon in all respects, and that the same shall be binding upon Debtor and
its successors and assigns.  No payor making payments to Secured Party
at its request under the assignment of production and proceeds contained herein
shall have any responsibility to see to the application of any of such funds,
and any party paying or delivering proceeds, production or amounts to Secured
Party under such assignments shall be released thereby from any and all
liability to Debtor to the full extent and amount of all payments, production or
proceeds so delivered.  Should Secured Party bring suit against any
third party for collection of any amounts or sums included within the assignment
of production and proceeds contained herein (and Secured Party shall have the
right to bring any such suit), it may sue either in its own name or in the name
of Debtor, or both.

       

       

      
        
          
          

        

        
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      Section
3.7       Change of
Connection.  Should any purchaser taking the production from
the Collateral or any other interest of Debtor (whether now owned or hereafter
acquired by operation of law or otherwise), in, to or relating to the Land or to
any of the estates, property, rights or other interests included in the
Collateral, or any part thereof, fail to make any payment promptly to Secured
Party, in accordance with the assignment of production and proceeds herein made,
then Secured Party, to the fullest extent permissible under applicable law,
shall have the right to demand a change of connection and to designate another
purchaser with whom a new connection may be made, without any liability on the
part of Secured Party in making such selection; and failure of Debtor to consent
to and promptly effect such change of connection shall constitute an Event of
Default under Article V below.

       

      Section
3.8       No Delegation or
Assumption.  Nothing in this Instrument shall be deemed or
construed to create a delegation to or assumption by Secured Party, of the
duties and obligations of Debtor under any agreement or contract relating to the
Collateral or any portion thereof, and all of the parties to any such contract
shall continue to look to Debtor for performance of all covenants and other
obligations and the satisfaction of all representations, warranties, covenants,
indemnities and other agreements of Debtor thereunder, notwithstanding the
assignment of production and proceeds contained herein or the exercise by
Secured Party, prior to foreclosure, of any of its rights hereunder or under
applicable law.

       

      Section
3.9       Cumulative.  The
assignment of production and proceeds contained herein shall not be construed to
limit in any way the other rights and remedies of Secured Party hereunder,
including its right to accelerate the indebtedness evidenced by the Obligations
upon an Event of Default and the other rights and remedies herein conferred,
conferred in the other documents and instruments evidencing, securing or
relating to the Obligations, or conferred by operation of law.  Monies
received under the assignment of production and proceeds contained herein shall
not be deemed to have been applied in payment of the Obligations unless and
until such monies actually are applied thereto by Secured Party.

       

      ARTICLE
IV

       

      Termination and
Release

       

      Section
4.1       Release Upon
Termination.  If all of the Obligations shall be paid in full
and otherwise satisfied pursuant to the terms and conditions of this Instrument
and the other documents and instruments evidencing, securing or relating to the
Obligations, and if Secured Party has no further obligation to advance any
amounts to Debtor, then all of the Collateral shall revert to Debtor, the liens
and security interests created by this Instrument shall terminate and Secured
Party shall, promptly after the request of Debtor or as otherwise required by
applicable law, execute, acknowledge and deliver to Debtor a release or
reconveyance of this Instrument and such other instruments as may be necessary
to evidence the termination of the liens and security interests created by this
Instrument.

       

      Section
4.2       Partial
Release.  No partial release or reconveyance from the liens and
security interests created by this Instrument of any part of the Collateral by
Secured Party shall in any way alter, vary or diminish the force or effect of
this Instrument or impair, release or subordinate the liens and security
interests created by this Instrument on the remainder of the
Collateral.  

       

       

      
        
          
          

        

        
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        Except as
specifically provided in any such partial release or reconveyance (i) this
Instrument and liens and security interests created hereby shall remain in full
force and effect, (ii) such partial release or reconveyance will not modify
or affect the terms, conditions or provisions of this Instrument, and
(iii) nothing contained in any such partial release or reconveyance shall
be deemed to be, or construed as, a waiver of any such terms, conditions or
provisions or as a waiver of any other term, condition or
provision.  All releases and reconveyances executed in connection with
this Instrument shall be without warranty of any kind, express, implied or
statutory.

      

       

      Section
4.3        Costs, Expenses and
Effect.  Debtor shall pay all legal fees and other fees, costs
and expenses incurred by Secured Party for preparing and reviewing instruments
of termination and release or reconveyance and the execution and delivery
thereof and Secured Party may require payment of the same prior to delivery of
such instruments.  The release and reconveyance of this Instrument and
the termination of the liens and security interests created by this Instrument,
in whole or in part, shall not terminate or otherwise affect Secured Party’s
right or ability to exercise any right, power or remedy relating to any claim
for breach of warranty or representation, for failure to perform any covenant or
other agreement, under any indemnity or for fraud, deceit or other
misrepresentation or omission.

       

      ARTICLE
V

       

      Default

       

      Section
5.1         Events of
Default.  The occurrence of any of the following events shall
constitute an event of default (“Event of Default”)
and upon the occurrence thereof the liens and security interests created hereby
shall be subject to foreclosure in any manner provided for herein or provided
for by applicable law:

       

      A. Failure
of Debtor to pay any fee or other amount due Secured Party under this Instrument
within 10 days after the date that any such payment is due;

       

      B. Failure
of Debtor to perform or observe any covenant, agreement, indemnity, condition or
provision in this Instrument and such failure shall continue for 30 days after
the earlier to occur of (1) Debtor becoming aware of such failure, and
(2) written notice of such failure has been given to Debtor;

       

      C. Any of
Debtor’s representations or warranties made in this Instrument or any statement
or certificate at any time given in writing pursuant hereto or in connection
herewith shall be false or misleading in any material respect as of the date
made or deemed made; or

       

      D. An “Event
of Default” as defined in the Credit Agreement  shall
occur.

       

      Section
5.2      Treatment of
Fixtures.  If an Event of Default shall have occurred and be
continuing, if deemed appropriate by Secured Party or if required by applicable
law, Secured Party may elect to treat the fixtures included in the Collateral
either as real property or as personal property, or both, and proceed to
exercise such rights as apply to the type of property selected.

       

       

      
        
          
          

        

        
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      Section
5.3       Acceleration and
Foreclosure.  If an Event of Default shall have occurred and be
continuing, in addition to any other rights, powers and remedies herein
conferred or conferred by operation of law, (a) Secured Party shall have
all of the rights, powers and remedies of a creditor, secured party and
mortgagee, (b) Secured Party may, without notice, demand or declaration of
default, which are hereby waived by Debtor to the extent such waiver is not
prohibited by applicable law, declare all indebtedness secured hereby due and
payable, and (c) whether or not Secured Party exercises such option, it
may, at its option and in its sole discretion, without any prior notice to or
demand upon Debtor, proceed by one or more actions in equity or at law for the
seizure and sale of the Collateral or any portion thereof, for the foreclosure
or sale of the Collateral or any portion thereof by judicial foreclosure by
appropriate proceedings in any court of competent jurisdiction or in any other
manner then permitted by law, for the specific performance of any covenant or
agreement of Debtor herein contained or in aid of the execution of any right,
power or remedy herein granted, or for the enforcement of any other appropriate
equitable or legal remedy and to recover judgment against Debtor.  In
furtherance, and not in limitation, thereof:

       

      A. Mortgage.  This
Instrument shall constitute a mortgage under applicable law, and if an Event of
Default shall have occurred and be continuing, may be foreclosed as to any of
the Collateral by judicial action or in any manner then permitted by applicable
law.

       

      B. Additional
Actions.  This Instrument shall also constitute and may be
enforced from time to time as an assignment, chattel mortgage, contract,
mortgage, financing statement and security agreement, and from time to time as
any one or more thereof as appropriate under applicable law.  Secured
Party shall be entitled to all of the rights, remedies and benefits of a secured
party, mortgagee and a beneficiary granted under applicable law; and, to the
fullest extent of such law, shall be entitled to enforce such rights, remedies
and benefits.  Debtor intends and hereby grants to Secured Party all
rights, powers and remedies accorded a secured party, mortgagee and a
beneficiary under applicable law whether or not such rights, powers and remedies
are expressly granted or reserved herein.

       

      C. Notice, Place and Manner of
Sale.  Any sale of the Collateral under this Article V
shall take place at such place or places and otherwise in such manner and upon
such notice as may be required by law; or, in the absence of any such
requirement, as Secured Party may deem appropriate.  Debtor expressly
agrees that, except as may be required by applicable law, Secured Party may
offer the Collateral as a whole or in such parcels or lots as Secured Party
elects, regardless of the manner in which the Collateral may be
described.

       

      D. Postponement of
Sale.  Any sale of the Collateral conducted under this
Article V may be postponed from time to time as provided by applicable law;
or, in the absence of any such provisions, Secured Party may postpone the sale
of the Collateral or any part thereof by public announcement at the time and
place of such sale, 

       

       

      
        
          
          

        

        
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        and from
time to time thereafter may further postpone such sale by public announcement
made at the time of sale fixed by the preceding postponement.  Sale of
a part of the Collateral will not exhaust the power of sale, and sales may be
made from time to time until all Collateral is sold or the Obligations are paid
in full.

      

       

      E. Secured Party’s Right to
Purchase.  Secured Party shall have the right to bid or to
become the purchaser at any sale made pursuant to the provisions of this
Article V, and shall have the right to credit upon the amount of the bid
made therefor the amount payable to it out of the net proceeds of such
sale.

       

      F. Conveyance to
Purchaser.  Any deed, bill of sale or other conveyance executed
by or on behalf of Secured Party, the sheriff or other official or party
responsible for conducting the sale shall be prima facie evidence of the
compliance with all statutory requirements for the sale and execution of such
deed, bill of sale or other conveyance and will conclusively establish the truth
and accuracy of the recitals and other matters stated therein, including
nonpayment or nonperformance of the Obligations, violation of the terms and
covenants contained herein, and the advertisement and conduct of such sale in
the manner provided herein or as provided by applicable law.  Debtor,
to the extent not prohibited by applicable law, does hereby ratify and confirm
all legal acts that Secured Party may do in carrying out the provisions of this
Instrument.  Any sale of the Collateral or any portion thereof
pursuant to the provisions of this Article V will operate to divest all
right, title, interest, claim and demand of Debtor in and to the property sold
and will be a perpetual bar against Debtor and shall, subject to applicable law,
vest title in the purchaser free and clear of all liens, security interests and
encumbrances, including liens, security interests and encumbrances junior or
subordinate to the liens, security interests and encumbrances created by this
Instrument.  Upon any sale of the Collateral or any portion thereof
pursuant to the provisions of this Article V, the receipt by Secured Party,
the sheriff or other official or party responsible for conducting the sale,
shall be sufficient discharge to the purchaser or purchasers at any sale for the
purchase money, and such purchaser or purchasers and the heirs, devisees,
personal representatives, successors and assigns thereof shall not, after paying
such purchase money and receiving such receipt of Secured Party, the sheriff or
such other official or party, be obliged to see to the application thereof or be
in anywise answerable for any loss, misapplication or nonapplication
thereof.  Any purchaser at a sale will, subject to mandatory
redemption periods, if any, receive immediate possession of the Collateral
purchased, and Debtor agrees that if Debtor retains possession of the Collateral
or any part thereof subsequent to such sale, Debtor will be considered a tenant
at sufferance of the purchaser, and will, if Debtor remains in possession after
demand to remove, be guilty of forcible detainer, and will be subject to
eviction and removal, forcible or otherwise, with or without process of law and
all damages to Debtor by reason thereof are hereby expressly waived by
Debtor.

       

      G. Federal
Transfers.  Upon a sale conducted pursuant to this
Article V of all or any portion of the Collateral consisting of interests
(the “Federal
Interests”) in leases, easements, rights-of-way, agreements or other
documents and instruments covering, affecting or otherwise relating to federal
lands (including leases, easements and rights-of-way issued by the Bureau of
Land Management); Debtor agrees to take all action and execute all instruments
necessary or advisable to transfer the Federal Interests to the purchaser at
such sale, including to execute, 

       

       

      
        
          
          

        

        
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        acknowledge
and deliver assignments of the Federal Interests on officially approved forms in
sufficient counterparts to satisfy applicable statutory and regulatory
requirements, to seek and request approval thereof and to take all other action
necessary or advisable in connection therewith.  By separate
instruments, Debtor has irrevocably appointed, and by this Instrument hereby
irrevocably appoints, Secured Party as Debtor’s attorney-in-fact and proxy, with
full power and authority in the place and steed of Debtor, in the name of Debtor
or otherwise, to take any such action and to execute any such instruments on
behalf of Debtor that Secured Party may deem necessary or advisable to so
transfer the Federal Interests, including the power and authority to execute,
acknowledge and deliver such assignments, to seek and request approval thereof
and to take all other action deemed necessary or advisable by Secured Party in
connection therewith; and Debtor hereby adopts, ratifies and confirms all such
actions and instruments.  By separate instruments Debtor has also
irrevocably appointed Secured Party as Debtor’s attorney-in-fact and proxy, with
full power and authority in the place and steed of Debtor, in the name of Debtor
or otherwise, to take any such action and to execute any such instruments on
behalf of Debtor that Secured Party may deem necessary or advisable to so
transfer the Federal Interests, including the power and authority to execute,
acknowledge and deliver such assignments, to seek and request approval thereof
and to take all other action deemed necessary or advisable by Secured Party in
connection therewith; and by such separate instruments Debtor has adopted,
ratified and confirmed all such actions and instruments.  Such powers
of attorney and proxies are coupled with an interest, shall survive the
dissolution, termination, reorganization or other incapacity of Debtor and shall
be irrevocable.  No action taken by Secured Party shall constitute
acknowledgment of, or assumption of liabilities relating to, the Federal
Interests, and neither Debtor nor any other party may claim that Secured Party
is bound, directly or indirectly, by any such action.

      

       

      Section
5.4        Personal
Property.  If an Event of Default shall have occurred and be
continuing, in addition to all other rights, powers and remedies herein
conferred or conferred by operation of law, Secured Party shall have all of the
rights and remedies of an assignee and secured party granted by applicable law,
including the applicable Uniform Commercial Code as then in effect, and shall,
to the extent permitted by applicable law, have the right and power, but not the
obligation, to take possession of the personal property included in the
Collateral and any proceeds thereof wherever located, and for that purpose
Secured Party may enter upon any premises on which any or all of such personal
property is located and take possession of and operate such personal property or
remove the same therefrom.  Secured Party may require Debtor to
assemble such personal property and make it available to Secured Party at a
place to be designated by Secured Party that is reasonably convenient to both
parties.  The following presumptions shall exist and shall be deemed
conclusive with regard to the exercise by Secured Party of any of its remedies
with respect to personal property:

       

      A. If notice
is required by applicable law, Debtor agrees that five days’ prior written
notice of the time and place of any public sale or of the time after which any
private sale or any other intended disposition thereof is to be made shall be
deemed reasonable notice to Debtor.  No such notice is necessary if
such property is perishable, threatens to decline speedily in value or is of a
type customarily sold on a recognized market.

       

       

      
        
          
          

        

        
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      B. If
Secured Party in good faith believes that the Securities Act of 1933 or any
other state or federal law prohibits or restricts the customary manner of sale
or distribution of any of such property, Secured Party may sell such property
privately or in any other manner deemed advisable by Secured Party at such price
or prices as Secured Party determines in its sole discretion.  Debtor
recognizes that such prohibition or restriction may cause such property to have
less value than it otherwise would have and that, consequently, such sale or
disposition by Secured Party may result in a lower sales price than if the sale
were otherwise held.

       

      Section
5.5        Possession.  If
an Event of Default shall have occurred and be continuing, in addition to all
other rights, powers and remedies herein conferred or conferred by operation of
law, Secured Party shall, to the extent not prohibited by applicable law, have
the right and power, but not the obligation, to enter upon and take immediate
possession of the Collateral or any portion thereof, to exclude Debtor
therefrom, to hold, use, operate, manage, enjoy and control such Collateral, to
make all such repairs, replacements, alterations, additions and improvements to
the same as Secured Party may deem proper or expedient, to sell all of the
severed and extracted Hydrocarbons included in the same subject to the
provisions of Article III hereof, to demand, collect and retain all other
earnings, rents, issues, profits, proceeds and other sums due or to become due
with respect to such Collateral accounting for and applying to the payment of
the Obligations only the net earnings arising therefrom after charging against
the receipts therefrom all fees, costs, expenses, charges, damages and losses
incurred by reason thereof plus interest thereon at the Default Rate without any
liability to Debtor in connection therewith.  Such possession shall at
once be delivered to Secured Party upon request, and on refusal or failure to so
deliver possession, the delivery of such possession may be enforced by Secured
Party by any appropriate civil suit, proceeding or other action.

       

      Section
5.6        Appointment of
Receiver.  If an Event of Default shall have occurred and be
continuing, in addition to all other rights, powers and remedies herein
conferred or conferred by operation of law, Secured Party shall be entitled to
the appointment of a receiver of the Collateral without the necessity of the
posting of a bond or notice; and shall, to the extent not prohibited by
applicable law, be entitled to such receiver as a matter of right, without
regard to the solvency or insolvency of Debtor, the value or adequacy of the
Collateral or the Collateral being in danger of being materially injured or
reduced in value as security by removal, destruction, deterioration,
accumulation of prior liens or otherwise; and such receiver may be appointed by
any court of competent jurisdiction upon ex parte application,
and without notice, notice being expressly waived by Debtor to the extent such
waiver is not prohibited by applicable law.  Debtor does hereby
consent to the appointment of such receiver or receivers, waives any and all
defenses to such appointment, and agrees not to oppose any application therefor
by Secured Party, and agrees that such appointment shall in no manner impair,
prejudice or otherwise affect the rights of Secured Party under this
Article V.  Nothing herein is to be construed to deprive Secured
Party of any other right, remedy or privilege it may now or hereafter have under
law to have a receiver appointed.  Any money advanced by Secured Party
in connection with any such receivership shall be a demand obligation owing by
Debtor to Secured Party and shall bear interest, from the date of making such
advancement until paid, at the Default Rate.  

       

       

      
        
          
          

        

        
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        Any such
receiver shall have all powers conferred by the court appointing such receiver,
which powers shall, to the extent not prohibited by applicable law include,
without limitation, the right to enter upon and take immediate possession of the
Collateral or any part thereof, to exclude Debtor therefrom, to hold, use,
operate, manage and control such Collateral, to make all such repairs,
replacements, alterations, additions and improvements to the same as such
receiver or Secured Party may deem proper or expedient, to lease, sell or
otherwise transfer the Collateral or any portion thereof as such receiver or
Secured Party may deem proper or expedient, to sell all of the Hydrocarbons
included in the same subject to the provisions of Article III hereof, to
demand and collect all of the other earnings, rents, issues, profits, proceeds
and other sums due or to become due with respect to such Collateral, accounting
for only the net earnings arising therefrom after charging against the receipts
therefrom all fees, costs, expenses, charges, damages and losses incurred by
reason thereof plus interest thereon at the Default Rate without any liability
to Debtor in connection therewith which net earnings shall be turned over by
such receiver to Secured Party to be applied by Secured Party to the payment of
the Obligations in the order set forth in Section 5.10.

      

       

      Section
5.7       Waiver by
Debtor.  To the extent not prohibited by applicable law, Debtor
agrees that Debtor shall not at any time have, invoke, utilize or assert any
right under any laws pertaining to the marshaling of assets or liens, the sale
of property in the inverse order of alienation, the exemption of homesteads, the
administration of estates of decedents, appraisement, moratorium, valuation,
stay, extension or redemption now or hereafter in force, and Debtor hereby
waives the benefit of all such laws to the fullest extent not prohibited by
applicable law.

       

      Section
5.8        Remedies
Cumulative.  All rights, powers and remedies herein conferred
are cumulative, and not exclusive, of (a) any and all other rights and remedies
herein conferred, (b) any and all rights, powers and remedies existing at law or
in equity, and (c) any and all other rights, powers and remedies provided for in
any other documents or instruments evidencing, securing or relating to the
Obligations, and Secured Party shall, in addition to the rights, powers and
remedies herein conferred, be entitled to avail itself of all such other rights,
powers and remedies as may now or hereafter exist at law or in equity for the
collection of and enforcement of the Obligations and the enforcement of the
warranties, representations, covenants, indemnities and other agreements
contained in this Instrument and the other documents and instruments evidencing,
securing or relating to the Obligations and the foreclosure of the liens and
security interests created by this Instrument.  Each and every such
right, power and remedy may be exercised from time to time and as often and in
such order as may be deemed expedient by Secured Party and the exercise of any
such right, power or remedy shall not be deemed a waiver of the right to
exercise, at the same time or thereafter, any other right, power or
remedy.  No delay or omission by Secured Party, the sheriff or other
official or person in the exercise of any right, power or remedy will impair any
such right, power or remedy or operate as a waiver thereof or of any other
right, power or remedy then or thereafter existing.

       

      Section
5.9       Costs and
Expenses.  All fees, costs and expenses (including reasonable
attorneys’ fees and legal expenses, court costs, filing fees, and mortgage,
transfer, stamp and other excise taxes, inspection fees, appraisers’ fees,
outlays for documentary and expert evidence, stenographers’ charges,
publication, notice and advertising costs, postage, photocopies, telephone
charges and costs of procuring all abstracts of title, title searches and
examinations,

       

       

      
        
          
          

        

        
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        title
opinions, title insurance policies and similar title data and assurances as
Secured Party may deem appropriate either to prosecute such suit or to evidence
to bidders at the sales that may be had pursuant to such proceeding the
condition of the title to or the value of the Collateral, sheriff’s fees and
expenses, receiver’s fees and expenses, and fees and expenses of agents of
Secured Party, costs and expenses of defending, protecting and maintaining the
Collateral and Secured Party’s interest therein including repair and maintenance
costs and expenses and costs and expenses of protecting and securing the
Collateral including insurance costs and all other fees, costs and expenses
provided for or authorized by applicable law), incurred by or on behalf of
Secured Party in protecting and enforcing its rights hereunder or incident to
the enforcement of this Instrument and the liens and security interests created
hereby, shall be a demand obligation owing by Debtor to Secured Party and shall
bear interest at the Default Rate until paid, and shall constitute a part of the
Obligations and be indebtedness secured and evidenced by this
Instrument.

      

       

      Section
5.10     Application of
Proceeds.  The proceeds of any sale of the Collateral or any
part thereof made pursuant to this Article V shall be applied as may be
required by applicable law, or, in the absence of any such requirements, as
follows:

       

      A. First, to
the payment of all fees, costs and expenses referred to in Section 6.1(k) of the
Credit Agreement and incident to the enforcement of this Instrument and the
liens and security interests created hereby, including the fees, costs and
expenses described in Section 5.9 hereof;

       

      B. Second,
to the payment of accrued interest remaining unpaid on the Note;

       

      C. Third, to
the payment or prepayment of principal remaining unpaid on the Note in such
order as Secured Party may elect;

       

      D. Fourth,
to the payment or prepayment of the Obligations other than the Obligations
evidenced by the Note in such order as Secured Party may elect; and

       

      E. Fifth,
the remainder, if any, shall be paid to Debtor or such other person or persons
as may be legally entitled thereto.

       

      Section
5.11    Waiver of Statute of
Limitations.  Debtor hereby waives the right to assert any
statute of limitations as a defense to the Obligations (including the
indebtedness, liabilities and obligations under and pursuant to this Instrument,
the Note, the Credit Agreement  and any other instrument evidencing,
securing or otherwise relating to the Obligations), to the fullest extent not
prohibited by applicable law.

       

      Section
5.12    Limitation on Rights and
Waivers.  All rights, powers and remedies herein conferred
shall be exercisable by Secured Party only to the extent not prohibited by
applicable law; and all waivers and relinquishments of rights and similar
matters shall only be effective to the extent such waivers or relinquishments
are not prohibited by applicable law.

       

      

      
        
          
          

        

        
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      ARTICLE
VI

       

      Miscellaneous
Provisions

       

      Section
6.1       Waiver.  Any
and all covenants of Debtor in this Instrument may from time to time, be waived
by Secured Party by an instrument in writing signed by Secured Party to such
extent and in such manner as Secured Party may desire, but no such waiver will
ever affect or impair Secured Party’s rights hereunder, except to the extent
specifically stated in such written instrument.  All changes to,
amendments and modifications of this Instrument must be in writing and signed by
Secured Party.

       

      Section
6.2       Severability.  If
any provision of this Instrument or of any of the instruments and documents
evidencing, securing or relating to the Obligations is invalid or unenforceable
in any jurisdiction, such provision shall be fully severable from this
Instrument and the other provisions hereof and of said instruments and documents
shall remain in full force and effect in such jurisdiction and the remaining
provisions hereof shall be liberally construed in favor of Secured Party in
order to carry out the provisions and intent hereof.  The invalidity
of any provision of this Instrument in any jurisdiction shall not affect the
validity or enforceability of any such provision in any other
jurisdiction.

       

      Section
6.3       Subrogation.  This
Instrument is made with full substitution and subrogation of Secured Party in
and to all covenants and warranties by others heretofore given or made with
respect to the Collateral or any part thereof.

       

      Section
6.4        Financing
Statement.  This Instrument shall be deemed to be and may be
enforced from time to time as an assignment, contract, deed of trust, financing
statement or security agreement, and from time to time as any one or more
thereof is appropriate under applicable state law.  Debtor hereby
authorizes Secured Party to file one or more financing or continuation
statements, and amendments thereto, relative to all or any part of the
Collateral without the signature of Debtor at any time after the execution of
this Instrument, and hereby ratifies any thereof filed prior to the execution of
this Instrument.  Any such financing statement may describe the
property subject thereto as “all assets of Debtor” or words of similar
meaning.

       

      Section
6.5        Rate of
Interest.  Except as otherwise provided in the Credit
Agreement, all interest required hereunder and under the Obligations shall be
calculated on the basis of a year of 360 days.

       

      Section
6.6        Recording.  All
recording references in the Exhibits hereto are to the official real
property records of the county in which the affected Land is located and in
which records such documents are or in the past have been customarily recorded,
whether real estate records, deed records, oil and gas records, oil and gas
lease records or other records.  The references in this Instrument and
in the Exhibits hereto to liens, encumbrances and other burdens are for the
purposes of defining the nature and extent of Debtor’s warranties and shall not
be deemed to ratify, recognize or create any rights in third
parties.

       

       

      
        
          
          

        

        
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      Section
6.7        Execution in
Counterparts.  This Instrument may be executed in one or more
original counterparts.  To facilitate filing and recording, there may
be omitted from any counterpart the parts of the Exhibits hereto containing
specific descriptions of the Collateral that relate to land located in counties
other than the county in which the particular counterpart is to be filed or
recorded.  Each counterpart shall be deemed to be an original for all
purposes, and all counterparts shall together constitute but one and the same
instrument.

       

      Section
6.8       Notices.  All
notices and other communications made or required to be given pursuant to this
Instrument shall be in writing and shall be deemed given if delivered personally
or by facsimile transmission (if receipt is confirmed by the facsimile operator
of the recipient), or delivered by overnight courier service or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice; provided that notices of a change of address
shall be effective only upon receipt thereof):

       

      To
Debtor:

       

      Recovery
Energy, Inc.

      1515
Wynkoop Street, Suite 200

      Denver,
Colorado 80202

      Attn:  Jeffrey
A. Beunier, Chief Executive Officer

      Fax:  888-887-4449

       

      To Secured
Party:

       

      Hexagon
Investments, LLC

      730
17th
Street, Suite 800

      Denver,
Colorado  80202

      Attn:  Brian
Fleischmann

      Facsimile
No.  303-571-1221

       

      Any
notice hereunder delivered in person or by facsimile (if receipt is confirmed by
the facsimile operator of the recipient) shall be deemed given on the date
thereof, any notice by registered or certified mail shall be deemed given three
days after the date of mailing; and any notice by overnight courier shall be
deemed given two days after shipment or the date of receipt, whichever is
earlier.

       

      Section
6.9       Binding
Effect.  This Instrument shall bind and inure to the benefit of
the respective successors and assigns of Debtor, Secured
Party.  Notwithstanding any other provision of this Instrument, if any
right, interest or estate in property granted by this Instrument or pursuant
hereto does not vest upon the date hereof, such right, interest or estate shall
vest, if at all, within 21 years less 1 day after the death of the last
surviving descendant of Joseph P. Kennedy, father of John F. Kennedy, former
President of the United States of America, who is living on the date of the
execution of this Instrument by Debtor or the effective date hereof, whichever
is earlier.

       

      Section
6.10      References.  All
references in this Instrument to Exhibits, Articles, Sections, Subsections,
paragraphs, subparagraphs and other subdivisions refer to the Exhibits,
Articles, Sections, Subsections, paragraphs, subparagraphs and other
subdivisions of this Instrument unless expressly provided
otherwise.  Titles and headings appearing at the beginning of any
subdivision are for convenience only and do not constitute any part of any such
subdivision and shall be disregarded in construing the language contained in
this Instrument.  

       

       

      
        
          
          

        

        
          29

          
            

          

        

        
          
          

        

         

         

        The words
“this Instrument,” “herein,” “hereof,” “hereby,” “hereunder” and words of
similar import refer to this Instrument as a whole and not to any particular
subdivision unless expressly so limited.  The phrases “this Section,”
“this Subsection” “this paragraph,” “this subparagraph” and similar phrases
refer only to the Sections, Subsections, paragraphs or subparagraphs hereof in
which the phrase occurs.  Capitalized terms used herein without
definition shall have the meanings ascribed thereto in the Credit
Agreement.  The word “or” is not exclusive, and the word “including”
(and its derivatives) shall mean “including, without limitation.”  All
references to days are to calendar days unless otherwise specifically
stated.  Pronouns in masculine, feminine and neuter gender shall be
construed to include any other gender.  Words in the singular form
shall be construed to include the plural and words in the plural form shall be
construed to include the singular, unless the context otherwise
requires.

      

       

      Section
6.11    Filing.  Some
of the above described goods are or are to become fixtures on the Land described
in Exhibit “A”.  This Instrument is to be filed for record in, among
other places, the real estate records of each county identified in Exhibit
“A”.  This Instrument covers fixtures.  Debtor is the owner
of an interest of record in the real estate concerned.

       

      Section
6.12    WAIVER OF JURY TRIAL,
PUNITIVE DAMAGES, ETC.  DEBTOR
HEREBY:  (A) KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND
IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT
MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION BASED HEREON, OR
DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS INSTRUMENT, THE NOTE, THE CREDIT AGREEMENT  OR ANY OTHER
DOCUMENTS AND INSTRUMENTS EVIDENCING, SECURING OR RELATING

       

       

      
        
          
          

        

        
          30

          
            

          

        

        
          
          

        

         

         

        TO THE
OBLIGATIONS OR ANY TRANSACTION PROVIDED FOR THEREIN OR ASSOCIATED THEREWITH,
BEFORE OR AFTER MATURITY; (B) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES
OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (C) CERTIFIES THAT NO PARTY
HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND
(D) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS INSTRUMENT,
THE NOTE, THE CREDIT AGREEMENT  AND ANY OTHER DOCUMENTS AND
INSTRUMENTS EVIDENCING, SECURING OR RELATING TO THE OBLIGATIONS AND THE
TRANSACTIONS PROVIDED FOR HEREIN AND THEREIN, AMONG OTHER THINGS, THE WAIVERS
AND CERTIFICATIONS CONTAINED IN THIS SECTION.

      

       

      Section
6.13    USURY
SAVINGS.  IT IS THE INTENTION OF THE PARTIES HERETO TO COMPLY
WITH ALL APPLICABLE USURY LAWS; ACCORDINGLY, IT IS AGREED THAT NOTWITHSTANDING
ANY PROVISIONS TO THE CONTRARY IN THIS INSTRUMENT, THE NOTE, THE CREDIT
AGREEMENT  OR ANY OTHER DOCUMENTS OR INSTRUMENTS EVIDENCING, SECURING
OR OTHERWISE RELATING TO THE OBLIGATIONS, IN NO EVENT SHALL SUCH DOCUMENTS OR
INSTRUMENTS REQUIRE THE PAYMENT OR PERMIT THE COLLECTION OF INTEREST (WHICH
TERM, FOR PURPOSES HEREOF, SHALL INCLUDE ANY AMOUNT WHICH, UNDER APPLICABLE LAW,
IS DEEMED TO BE INTEREST, WHETHER OR NOT SUCH AMOUNT IS CHARACTERIZED BY THE
PARTIES AS INTEREST) IN EXCESS OF THE MAXIMUM AMOUNT PERMITTED BY SUCH
LAWS.  IF ANY EXCESS INTEREST IS UNINTENTIONALLY CONTRACTED FOR,
CHARGED OR RECEIVED UNDER THE NOTE OR UNDER THE TERMS OF THIS INSTRUMENT, THE
CREDIT AGREEMENT  OR ANY OTHER DOCUMENTS OR INSTRUMENTS EVIDENCING,
SECURING OR RELATING TO THE OBLIGATIONS, OR IN THE EVENT THE MATURITY OF THE
INDEBTEDNESS EVIDENCED BY THE NOTE IS ACCELERATED IN WHOLE OR IN PART, OR IN THE
EVENT THAT ALL OR PART OF THE PRINCIPAL OR INTEREST OF THE NOTE SHALL BE
PREPAID, SO THAT THE AMOUNT OF INTEREST CONTRACTED FOR, CHARGED OR RECEIVED
UNDER THE AMOUNT OF INTEREST CONTRACTED FOR, CHARGED OR RECEIVED UNDER THE NOTE
OR UNDER THIS INSTRUMENT, THE CREDIT AGREEMENT  OR ANY OTHER DOCUMENTS
OR INSTRUMENTS EVIDENCING, SECURING OR RELATING TO THE OBLIGATIONS, ON THE
AMOUNT OF PRINCIPAL ACTUALLY OUTSTANDING FROM TIME TO TIME UNDER THE NOTE SHALL
EXCEED THE MAXIMUM AMOUNT OF INTEREST PERMITTED BY THE APPLICABLE USURY LAWS,
THEN IN ANY SUCH EVENT (A) THE PROVISIONS OF THIS SECTION SHALL GOVERN AND
CONTROL, (B) NEITHER DEBTOR NOR ANY OTHER PERSON OR ENTITY NOW OR HEREAFTER
LIABLE FOR THE PAYMENT THEREOF, SHALL BE OBLIGATED TO PAY THE AMOUNT OF SUCH
INTEREST TO THE EXTENT THAT IT IS IN EXCESS OF THE MAXIMUM AMOUNT OF INTEREST
PERMITTED BY SUCH APPLICABLE USURY LAWS, (C) ANY SUCH EXCESS WHICH MAY HAVE
BEEN COLLECTED SHALL BE EITHER APPLIED AS A CREDIT AGAINST THE THEN UNPAID
PRINCIPAL AMOUNT THEREOF OR REFUNDED TO DEBTOR AT SECURED PARTY’S OPTION, AND
(D) THE EFFECTIVE RATE OF INTEREST SHALL BE AUTOMATICALLY REDUCED TO THE MAXIMUM
LAWFUL RATE OF INTEREST ALLOWED UNDER THE APPLICABLE USURY LAWS AS NOW OR
HEREAFTER CONSTRUED BY THE COURTS HAVING JURISDICTION THEREOF.  IT IS
FURTHER AGREED THAT WITHOUT LIMITATION OF THE FOREGOING, ALL CALCULATIONS OF THE
RATE OF INTEREST CONTRACTED FOR, CHARGED OR RECEIVED UNDER THE NOTE OR UNDER
THIS INSTRUMENT, THE CREDIT AGREEMENT  OR ANY OTHER DOCUMENTS OR
INSTRUMENTS EVIDENCING, SECURING OR RELATING TO THE OBLIGATIONS WHICH ARE MADE
FOR THE PURPOSE OF DETERMINING WHETHER SUCH RATE EXCEEDS THE MAXIMUM LAWFUL RATE
OF INTEREST, SHALL BE MADE, TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAWS, BY
AMORTIZING, PRORATING, ALLOCATING AND SPREADING IN EQUAL PARTS DURING THE PERIOD
OF THE FULL STATED TERM OF THE OBLIGATIONS EVIDENCED THEREBY, ALL INTEREST AT
ANY TIME CONTRACTED FOR, CHARGED OR RECEIVED FROM DEBTOR OR OTHERWISE BY SECURED
PARTY IN CONNECTION WITH THE OBLIGATIONS.

       

       

      
        
          
          

        

        
          31

          
            

          

        

        
          
          

        

      

       

       

      Section
6.14    GOVERNING
LAW.  THIS INSTRUMENT AND ALL MATTERS ARISING UNDER OR GROWING
OUT HEREOF SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF COLORADO, WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS
OF LAWS, AND THE LAWS OF THE UNITED STATES OF AMERICA.

       

      Executed
as of the date first above written.

       

      
        	 
      	
                DEBTOR:

              
	 	 
	 
      	
                RECOVERY
      ENERGY, INC.,

              
	 
      	 
      	
                a
      Nevada corporation

              
	 	 	 
	 
      	
                By

              	
                   /s/
      Jeffrey A. Beunier

              
	 
      	 
      	
                  Jeffrey
      A. Beunier, Chief Executive Officer

              
	 	 	 
	 
      	
                Organizational
      I.D. No. 74-3231613

              

      

      

       

       

       

      
        
          
          

        

        
          32

          
            

          

        

        
          
          

        

      

       

       

      
 

      ACKNOWLEDGMENT
CERTIFICATE

       

      

       

      
        	
                STATE
      OF COLORADO

              	
                )

              	 
      
	 
      	
                )

              	
                ss.

              
	
                CITY
      AND COUNTY OF DENVER

              	
                )

              	 
      

      

      

      This
instrument was acknowledged before me this 26th day of February, 2010,
by Jeffrey A. Beunier, as Chief Executive Officer of RECOVERY ENERGY, INC.,
a Nevada corporation.

       

      Witness
my hand an official seal.

       

      /s/ Ruth L.
Elder                                                               

      Notary
Public

      Name:  Ruth
L. Elder

       

      My
commission expires: 4/30/2013

       

      (NOTARIAL
SEAL)

       

       

       

      
        
          
          

        

        
          33

          
            

          

        

        
          
          

        

      

       

       

      EXHIBIT
“A”

       

      Attached
to and made a part of that certain

      Mortgage,
Security Agreement, Assignment of Production and Proceeds,

      Financing
Statement and Fixture Filing,

      dated as
of January 29, 2010 (the “Mortgage”),

      from
Recovery Energy, Inc., as Debtor,

      to and
for the benefit of

      Hexagon
Investments, LLC, as Secured Party

       

      
        	
                1.  

              	
                Capitalized
      terms used herein without definition shall have the meaning ascribed
      thereto in the Mortgage.

              

      

       

      
        	
                2.  

              	
                The
      terms “Working Interest” and “WI” as used herein with respect to a lease,
      shall mean the interest in and to the full and entire leasehold estate
      created under and by virtue of the lease described as to the described
      lands and formations (or as to all formations if no formation is
      described) and arising therefrom, insofar as said interest in said
      leasehold estate is burdened with the obligation to bear and pay costs of
      operations, without regard of any valid lessor’s royalties, overriding
      royalties or similar burdens, and without regard to the percent of the
      mineral estate underlying the lands covered by the lease owned by the
      lessor(s) of the referenced lease.

              

      

       

      
        	
                3.  

              	
                The
      terms “Net Revenue Interest” and “NRI” as used herein with respect to a
      lease shall mean the interest in and to applicable production of all
      Hydrocarbons produced, saved and sold from, under or by virtue of the
      lease described herein as to the described lands and formations (or as to
      all formations if no formation is
described).

              

      

       

      
        	
                4.  

              	
                The
      terms “Working Interest” and “WI” as used herein with respect to a well,
      unit, pool or communitized area, shall mean the interest in and to the
      well or the full and entire unitized, pooled or communitized area created
      under and by virtue of each of the described unitization, pooling,
      communitization or similar agreements, and all rights of every kind and
      character appurtenant thereto, arising therefrom insofar as the said
      interest in said well or unitized, pooled, communitized or other interest
      is burdened with the obligation to bear and pay costs of operations,
      without regard to any valid lessor’s royalties, overriding royalties or
      similar burdens.

              

      

       

      
        	
                5.  

              	
                The
      terms “Net Revenue Interest” and “NRI” as used herein with respect to a
      well, unit, pool or communitized area, shall mean the interest in and to
      applicable production of all Hydrocarbons produced, saved and sold from,
      under or by virtue of such well or such unitized, pooled or communitized
      area.

              

      

       

      
        	
                6.  

              	
                The
      abbreviation “APO” means “after payout” and the abbreviation “BPO” means
      “before payout,” and such terms indicate that Debtor’s Working Interest
      and Net Revenue Interest are subject to change based on the terms of
      certain instruments or agreements specifically described and
      referenced.  The abbreviation “ORRI” means overriding royalty
      interest.

              

      

       

       

      
        
          
          

        

        
          i

          
            

          

        

        
          
          

        

      

       

       

       

      
        	
                7.  

              	
                The
      Mortgage covers all right, title and interest of Debtor (whether now owned
      or hereafter acquired by operation of law or otherwise) in and to the land
      specifically described in this Exhibit “A” and the land described in
      or covered by the leases, licenses, subleases, sublicenses, easements,
      rights-of-way, agreements and other documents and instruments described in
      this Exhibit “A” whether or not such land is specifically described
      in this Exhibit “A”; and any references to specific lands, depth
      limitations, horizons, formations, zones, unit designations, unit tract
      descriptions and descriptions of undivided leasehold interests, “Working
      Interest” or “WI” and “Net Revenue Interest” or “NRI” contained in this
      Exhibit “A” are for the purposes of defining the nature and extent of
      Debtor’s warranties and shall not be deemed to limit or restrict the
      interests covered by the Mortgage or the liens and security interests
      created thereby.

              

      

       

      
        	
                8.  

              	
                This
      Exhibit “A” consists of this Preamble and 1 page numbered
      A-1.

              

      

       

      
        	
                9.  

              	
                To
      facilitate recording, only the pertinent pages of the Exhibits will be
      filed for recording as follows:

              

      

       

      
        	
                     County

              	 	
                Pages

              
	 
      	 	 
      
	
                Arapahoe,
      Colorado

                 

                Washington,
      Colorado

              	 	
                A-1

                 

                A-1

              

      

       

       

       

      
        
          
          

        

        
          ii

          
            

          

        

        
          
          

        

      

       

      DESCRIPTION OF COLLATERAL
AND LAND

       

       

      

      
        
          	
                  PIEPER LEASE and LANDS:

                
	 
      	 
      
	
                  Lessor:

                	
                  Dean
      Reed and Beaulah Reed, husband and wife

                
	
                  Lessee:

                	
                  King
      Resources Company

                
	
                  Dated:

                	
                  August
      10, 1966

                
	
                  Recorded:

                	
                  Book
      583, Page 71

                
	
                  Description:

                	
                  Township 1 North, Range 53
    West

                
	 
      	
                  Section
      29:  NE/4

                

        

      

       

       

      PIEPER
WELL

      

      Well
Name:           Pieper
#3-29

      Located:                NE/4
of Section 29, T1N-R53W, Washington County, CO

      API:  05-121-08367          Working
Interest:  100.00%      Net Revenue
Interest: 80.00%

      Equipment
and Inventory:  consisting of a pumping unit, rods, tubing and
casing

      

      Pieper
Tank Battery consisting of 2 – PR&R 500 bolted bbl tanks and a 6 X 20
vertical inside leg cold weather treater

      

      COMANCHE FARMS PROSPECT
LEASES and LANDS:

      

      
        
          	
                  Lessor:

                	
                  State
      of Colorado    Lease # OG 8056.4

                
	 
      	
                  State
      Board of Land Commissioners

                
	
                  Lessee:

                	
                  Contex
      Energy Company

                
	
                  Dated:

                	
                  August
      19, 2004

                
	
                  Recorded:

                	
                  Reception
      Number B 4199551, in Arapahoe County, Colorado

                
	
                  Description:

                	
                  Township 4 South, Range 62 West, 6th P.M.

                
	 
      	
                  Section
      36:  ALL

                

        

      

       

       

       

      A-1exhibit103.htm

    

      Exhibit
10.3

       

      INVESTOR
RIGHTS AGREEMENT

       

       

      THIS
INVESTOR RIGHTS AGREEMENT (this “Agreement”) is
entered into as of November 13, 2009, by and among Conseco, Inc., a Delaware
corporation (the “Company”), and
Paulson & Co. Inc., a Delaware corporation on behalf of the several
investment funds and accounts managed by it (the “Stockholder”) and any
other Investors agreeing in writing to be bound by the terms of this
Agreement.

       

       

      W I T N E S S E T
H:

      

       

      WHEREAS,
pursuant to the Stock Purchase Agreement, dated as of October 13, 2009 (the
“Purchase
Agreement”), by and among the Company and the Stockholder, the Company
issued to the Stockholder shares of Common Stock (as defined below) and Warrants
(as defined below);

       

       

      WHEREAS,
as a result of and immediately following the consummation of the transactions
contemplated by the Purchase Agreement, the Stockholder owns 16,400,000 Shares
(as defined below) and Warrants (as defined below) to purchase 5,000,000 shares
of Common Stock; and

       

       

      WHEREAS,
in connection with the consummation of the transactions contemplated by the
Purchase Agreement, each of the Company and the Stockholder desire to enter into
this Agreement to set forth certain rights and obligations of the Company and
the Stockholder with respect to the ownership by the Stockholder of the
Company's securities and certain other matters, all in accordance with the terms
and conditions set forth herein.

       

       

      NOW,
THEREFORE, in consideration of the mutual covenants and agreements set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as
follows:

       

       

                       
ARTICLE
I                      

       

       

      DEFINITIONS

       

       

      SECTION
1.1 Certain Defined
Terms.  Capitalized
terms used and not otherwise defined herein shall have the respective meanings
ascribed to such terms in the Purchase Agreement.  For purposes of
this Agreement, the following terms shall have the following
meanings:

       

      
        
           

        

        
          
          

          
            

          

        

        
           

        

      

      “5% Shareholder” shall
mean a Person or group of Persons that is a “5-percent shareholder” of the
Company pursuant to Treasury Regulation § 1.382-2T(g).

       

      “Additional Effective
Date” shall have the meaning set forth in Sections 3.1(c) and
3.2(b).

      

      “Additional Filing
Date” shall have the meanings set forth in Sections 3.1(c) and
3.2(b).

       

      “Adjusted Ownership”
means, with respect to any Person a percentage determined by dividing (a)
the sum of (i) the number of issued and outstanding Voting Securities of
the Company owned by such person and (ii) the number of Voting
Securities issuable upon the conversion or exercise of any Equity Securities of
the Company owned by such person, by (b) the sum of (i) the number of issued and
outstanding Voting Securities of the Company in the aggregate and (ii) the
number of Voting Securities issuable upon the conversion or exercise of any
Equity Securities of the Company owned by such person, then multiplying such
quotient by 100%.

       

       

      “Affiliate” means,
with respect to any Person, any other Person that directly or indirectly through
one or more intermediaries, controls, is controlled by or is under common
control with, such specified Person, for so long as such Person remains so
associated to the specified Person.

       

       

      “Affiliated Assignee”
shall have the meaning set forth in Section 8.9.

       

      “Assignment Period”
shall have the meaning set forth in Section 3.1(d).

       

      “beneficial owner” or
“beneficially
own” has the meaning given such term in Rule 13d-3 under the Exchange Act
and a Person's beneficial ownership of either Common Stock or other Voting
Securities of the Company shall be calculated in accordance with the provisions
of such Rule; provided,
however, that for
purposes of determining beneficial ownership, a Person shall be deemed to be the
beneficial owner of any security which may be acquired by such Person whether
within sixty (60) days or thereafter, upon the conversion, exchange or exercise
of any options, rights or other securities.

       

      “Black Out Period”
shall have the meanings set forth in Sections 3.3(a)(i) and (ii).

       

      “Business Day” means
any day other than a day on which banks are required or authorized by law to be
closed in the State of New York or the State of Indiana.

       

      “Capital Stock” means,
with respect to any Person at any time, any and all shares, interests,
participations or other equivalents (however designated, whether voting or
non-voting) of capital stock, partnership interests (whether general or limited)
or equivalent ownership interests in or issued by such Person and, with respect
to the Company, includes any and all shares of Common Stock, preferred stock and
any other equity interests of the Company.

      
        
           

        

        
          2

          
            

          

        

        
           

        

      

      

      “Claims” shall have
the meaning set forth in Section 4.4(a).

       

       

      “Closing” has the
meaning assigned to such term in the Purchase Agreement.

       

       

      “Closing Date” has the
meaning assigned to such term in the Purchase Agreement.

       

       

      “Common Stock” means
the common stock, par value $0.01 per share, of the Company and any securities
issued in respect thereof, or in substitution therefor, in connection with any
stock split, dividend, spin-off or combination, or any reclassification,
recapitalization, merger, consolidation, exchange or other similar
reorganization or business combination.

       

      “Company Affiliate”
refers to any Investor during and for the three months following such time such
Investor (i) holds in excess of 10% of the Voting Securities of the Company or
(ii) has a material relationship with any director of the Company.

       

       

      “Company Board” means
the Board of Directors of the Company.

       

       

      “Company
Non-Affiliate” means any Investor other than a Company
Affiliate.

       

       

      “Company Offering”
means any public offering of securities of the Company, in whole or in part, by
the Company (other than pursuant to Form S-8 or Form S-4).

       

       

      “Confidentiality
Agreement” means the Mutual Nondisclosure Agreement dated as of August
27, 2009, by and between the Stockholder and the Company.

       

       

      “control” (including
the terms “controlled
by” and “under
common control with”), with respect to the relationship between or among
two or more Persons, means the possession, directly or indirectly, of the power
to direct or cause the direction of the affairs or management of a Person,
whether through the ownership of voting securities, as trustee or executor, by
contract or otherwise.

       

       

      “Covered Securities”
means Common Stock and any securities convertible into or exercisable or
exchangeable for Common Stock, other than securities that are (A) Indebtedness
issued in connection with the Company Refinancing (as such terms are defined in
the Purchase Agreement), (B) the Warrants, (C) issued by the Company
pursuant to any employment contract, employee or benefit plan, stock purchase
plan, stock ownership plan, stock option or equity compensation plan or other
similar plan where stock is being issued or offered to a trust, other entity to
or for the benefit of any employees, potential employees, consultants, officers
or director of the Company, (D) issued by the Company in connection with a
business combination

       

      
        
           

        

        
          3

          
            

          

        

        
           

        

      

       

      or other
merger, acquisition or disposition transaction, (E) issued with reference
to the common stock of a Subsidiary (i.e., a carve-out transaction),
(F) issued as a dividend or in connection with a dividend investment or
stockholder purchase plan or (G) issued in exchange for, or upon exercise
or conversion of, (i) currently outstanding securities or (ii) securities issued
hereafter that are securities described in clauses (A) through (F)
above.

       

      “Demand Limitation”
shall have the meaning set forth in Section 3.2.

       

      “Demand Notice” shall
have the meaning set forth in Section 3.2.

       

       

      “Designated
Securities” shall have the meaning set forth in Section 5.2.

       

      “Effective Date” shall
have the meaning set forth in Section 3.1(c).

       

      “Equity Securities”
means with respect to the Company, any and all shares of Capital Stock of the
Company or securities of the Company, options or other rights convertible into,
or exchangeable or exercisable for, such shares.

       

       

      “Excess Shares” shall
have the meaning set forth in Section 7.1(c).

       

       

      “Exchange Act” means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.

       

      “Filing Date” shall
have the meaning set forth in Section 3.1(c).

       

      “Holdback Period”
shall have the meaning set forth in Section 4.6.

       

       

      “incur” or “incurrence” means to
incur, create, assume, guarantee or otherwise become directly or indirectly
liable with respect to.

       

       

      “Indemnified Parties”
shall have the meaning set forth in Section 4.4(a).

       

       

      “Initial Effective
Date” shall have the meaning set forth in Section
3.1(a)(ii).

       

       

      “Initial Filing Date”
shall have the meaning set forth in Section 3.1(a)(i).

       

       

       “Investor” means any
of the Stockholder Parties and the Unaffiliated Assignees.

       

       

      “Investor
Representative” means the Stockholder or its Affiliated designee, or, on
or after such date as the Stockholder Parties hold less than 50% of the
Registrable Securities outstanding (determined based on the Registrable
Securities Purchase Price of the Registrable

       

      
        
           

        

        
          4

          
            

          

        

        
           

        

      

       

      Securities
then held by the Stockholder Parties as a percentage of the aggregate
Registrable Securities Purchase Price applicable to all Registrable Securities
then outstanding) for a 90 consecutive day period, the Investor or group of
Affiliated Investors who hold the largest single block of Registrable
Securities.

       

       

      “Liquidated Damages”
shall have the meaning set forth in Section 3.3(d)(i).

       

       

      “Lock-Up Period” means
the period commencing on the Closing Date and ending on the date that is the
earlier of (a) 90 days after the closing of the Public Offering (as defined in
the Purchase Agreement) and (b) six months after the Closing Date.

       

       

      “NYSE” means The New
York Stock Exchange, Inc.

       

       

      “Percentage Interest”
means, as of any date, the percentage equal to (i) the aggregate number of
Shares beneficially owned or otherwise held by the Stockholder Parties as of
such date, divided by (ii) the total number of outstanding shares of Company
Common Stock as of such date.

       

       

      “Person” means any
individual, corporation, limited liability company, limited or general
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivisions
thereof or any Group (as such term is defined in Section 13(d)(3) of the
Exchange Act) comprised of two or more of the foregoing.

       

       

      “Permitted Assignee”
shall have the meaning set forth in Section 8.9.

       

      “Plan of Distribution”
shall have the meaning set forth in Section 3.1(a)(i).

       

       

      “Private Placement”
shall have the meaning set forth in Section 5.3(b).

       

       

      “Public Offering” has
the meaning attributed thereto in the Purchase Agreement.

       

       

      “Purchase Agreement”
shall have the meaning set forth in the Recitals.

       

       

      “Qualified Offering”
shall have the meaning set forth in Section 5.1.

       

       

      “Registrable
Securities” means any Shares and Warrants issued to the Stockholder
pursuant to the Purchase Agreement or subsequently issued with respect thereto
(including,

       

      
        
           

        

        
          5

          
            

          

        

        
           

        

      

       

      without
limitation, upon exercise of the Warrants), any convertible Indebtedness issued
in connection with the Company Refinancing and any other shares of Common Stock
now owned or hereafter acquired by the Stockholder (including shares issued upon
conversion, exercise, or otherwise in respect of any Equity Securities), other
than (i) shares of Common Stock subject to registration or registration rights
pursuant to any past, present or future obligation of the Company under any
other Agreement (other than shares of Common Stock issued upon conversion of
convertible Indebtedness acquired by Stockholder in the Company Refinancing),
and (ii) in the case of any Permitted Assignee hereunder, shares of Common Stock
acquired by such Permitted Assignee that were not (or, if issuable upon
conversion or exercise of any Equity Securities of the Company, would not have
been if so converted by the prior holder) Registrable Securities immediately
prior to the acquisition of such shares of Common Stock or Equity Securities
convertible thereinto.  As to any particular Registrable Securities,
once issued, such Registrable Securities shall cease to be Registrable
Securities when (i) a registration statement with respect to the sale by the
Investor of such securities shall have become effective under the Securities Act
and such securities shall have been disposed of in accordance with such
registration statement, (ii) such securities shall have been distributed to the
public pursuant to Rule 144 (or any successor provision), (iii) such securities
are eligible to be a sold by the holder thereof pursuant to Rule 144 without
restriction or limitation thereunder on volume or manner of sale (other than
restrictions imposed hereunder) in the reasonable opinion of counsel to the
Company; (iv) such securities are sold in a private transaction in which the
transferor's rights under this Agreement are not assigned to the transferee of
the securities; or (v) such securities shall have ceased to be
outstanding.  For purposes of this Agreement, any required calculation
of the amount of, or percentage of, Registrable Securities shall be based on the
number of Shares or other shares of Common Stock which are Registrable
Securities.

       

       

      “Registrable Securities
Purchase Price” means, with respect to any Registrable Security, the
purchase price actually paid by the Investor holding such Registrable Security
(or, if such Registrable Security was acquired upon exercise or conversion of
other Equity Securities, the exercise price or conversion price thereof), in all
cases subject to adjustment for any stock split, dividend, spin-off or
combination, or any reclassification, recapitalization, merger, consolidation,
exchange or other similar reorganization or business
combination.  Notwithstanding the foregoing, the Registrable
Securities Purchase Price for (i) the Shares shall be $4.29 per Share and (ii)
the Warrants shall be $1.50 per share of common stock issuable upon exercise of
the Warrants, in all cases subject to adjustment for any stock split, dividend,
spin-off or combination, or any reclassification, recapitalization, merger,
consolidation, exchange or other similar reorganization or business
combination.

       

       

      “Registration Default”
shall have the meaning set forth in Section 3.1(d).

       

       

      “Registration
Expenses” means any and all expenses incident to performance of or
compliance with Articles III, IV and V of this Agreement, including (i) all SEC
and NYSE or other securities exchange registration and filing fees, (ii) all
fees and expenses of complying with securities or blue sky laws (including the
reasonable fees and disbursements of counsel for the

       

      
        
           

        

        
          6

          
            

          

        

        
           

        

      

       

      underwriters
in connection with blue sky qualifications of the Registrable Securities), (iii)
all printing, messenger and delivery expenses, (iv) all fees and expenses
incurred in connection with the listing of the Registrable Securities on the
NYSE or any other securities exchange pursuant to this Agreement and all rating
agency fees, (v) the fees and disbursements of counsel for the Company and of
the Company's independent public accountants, including the expenses of any
special audits and/or “cold comfort” letters required by or incident to such
performance and compliance, (vi) the reasonable fees and disbursements of
counsel, (vii) any reasonable fees and disbursements of underwriters and their
counsel customarily paid by the issuers or sellers of securities (including,
without limitation, fees and expenses related to filings with the Financial
Industry Regulatory Authority, Inc.), and the reasonable fees and expenses of
special experts retained in connection with the requested registration, but
excluding underwriting discounts and commissions and transfer taxes, if any, and
(viii) all expenses incurred in connection with any road shows (including the
reasonable out-of-pocket expenses of the holder of the applicable Registrable
Securities).

       

       

      “Registration
Statement” means any registration statement of the Company under the
Securities Act which covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the prospectus, amendments and
supplements to such registration statement, including post-effective amendments,
all exhibits and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.  For the
avoidance of doubt, the definition of “Registration Statement” includes any
Shelf Registration.

       

      “Response Period”
shall have the meaning set forth in Section 3.2.

       

       

      “Rule 144” means Rule
144 (or any successor provision) under the Securities Act.

       

       

      “Scheduled Earnings
Blackouts” shall have the meaning set forth in Section
3.3(a)(ii).

       

       

      “SEC” means the U.S.
Securities and Exchange Commission or any other federal agency then
administering the Securities Act or the Exchange Act and other federal
securities laws.

       

       

      “Securities Act” means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.

       

       

      “Sell-Down” shall have
the meaning set forth in Section 5.5.

       

       

      “Shares” shall mean
(a) the Shares acquired by the Stockholder pursuant to the Purchase Agreement,
(b) any Common Stock issued to any Investor in connection with the exercise of
the Warrants, and any securities issued in respect of (a) or (b), or in
substitution

       

      
        
           

        

        
          7

          
            

          

        

        
           

        

      

       

      therefor,
in connection with any stock split, dividend, spin-off or combination, or any
reclassification, recapitalization, merger, consolidation, exchange or other
similar reorganization or business combination.

       

       

      “Shelf Registration”
shall have the meaning set forth in Section 3.1(a)(i).

       

       

      “Stockholder Party”
means any of the Stockholder and the Affiliated Assignees.

       

       

      “Subsidiary” means (i)
any corporation of which a majority of the securities entitled to vote generally
in the election of directors thereof, at the time as of which any determination
is being made, are owned by another entity, either directly or indirectly, and
(ii) any joint venture, general or limited partnership, limited liability
company or other legal entity in which an entity is the record or beneficial
owner, directly or indirectly, of a majority of the voting interests or the
general partner and, with respect to the Company.

       

       

      “Suspension Notice”
shall have the meaning set forth in Section 3.3(a).

       

       

      “Transaction
Agreements” shall mean the Confidentiality Agreement and the Purchase
Agreement.

       

       

      “Transfer” shall mean,
with respect to any security or instrument, any voluntary or involuntary attempt
to, directly or indirectly, offer, sell, assign, transfer, grant a participation
in, pledge, hypothecate or otherwise encumber or dispose of, including, without
limitation, by way of entry into any swap or other agreement or transaction that
hedges or transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of such security or instrument, or the consummation of
any such transactions.

       

       

      “Unaffiliated
Assignee” shall have the meaning set forth in Section 8.9.

       

      “Underwriter Cutback”
shall have the meaning set forth in Section 3.2.

       

       

      “Underwritten
Offering” shall have the meaning set forth in Section 3.2.

       

       

      “Voting Securities”
means, at any time, shares of any class of Equity Securities which are then
entitled to vote generally in the election of Directors.

       

       

      “Voting Threshold”
means, at any time and with respect to any matter upon which holders of any
class or series of Capital Stock of the Company are then entitled to vote or
consent, 19.9% of the aggregate voting power of all Capital Stock so
entitled.  If approval of

       

      
        
           

        

        
          8

          
            

          

        

        
           

        

      

       

      such
matter requires the separate vote or consent of any class(es) or series of
Capital Stock of the Company, the “Voting Threshold” will be determined in
respect of, and by reference to, the aggregate voting power of all class(es) or
series of Capital Stock entitled to vote in each such vote or
consent.

       

       

      “Warrants” shall mean
the warrants to acquire an aggregate 5,000,000 shares of Common Stock purchased
by the Stockholder pursuant to the Purchase Agreement.

       

       

      “Withheld Shares”
shall have the meaning set forth in Section 7.1(b).

       

       

      SECTION
1.2 Other Definitional
Provisions. (a) The
words “hereof”, “herein” and “hereunder” and words of similar import when used
in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and Article and Section references are
to this Agreement unless otherwise specified.

       

      (b) The
meanings given to terms defined herein shall be equally applicable to both the
singular and plural forms of such terms.

       

       

                             
ARTICLE
II                                

       

       

      RESTRICTIONS ON
TRANSFER

       

       

      SECTION
2.1 Transfer of the Shares. No
Investor shall Transfer any Shares or Warrants without the Company’s written
consent except (i) any Transfer by a Stockholder Party to any Affiliate of the
Stockholder who agrees to be bound by all of the provisions of this Agreement as
a Stockholder Party (subject to Section 8.9), which Affiliate of the Stockholder
will then be a Stockholder Party entitled to further transfer as a Stockholder
Party hereunder to Affiliates of the Stockholder in accordance with the terms
hereof, or (ii) (x) upon the expiration of the Lock-Up Period, (y) pursuant to a
Transfer described in Section 2.3(b) or (z) in the event of a Sell-Down and, in
the case of clauses (x), (y) and (z):

       

      (a) pursuant
to an effective registration statement under the Securities Act;

       

       

      (b) pursuant
to Rule 144; or

       

       

      (c) upon
receipt by the Company of an opinion of counsel reasonably satisfactory to the
Company that such Transfer is exempt from registration under the Securities Act
and applicable state laws.

       

      
        
           

        

        
          9

          
            

          

        

        
           

        

      

      

      SECTION
2.2 Restrictive
Legends. Each of
the Investors hereby acknowledges and agrees that, during the term of this
Agreement, each of the certificates or book-entry confirmations representing
Shares or Warrants shall be subject to stop transfer instructions and shall
include the applicable portion(s) of the legends set forth below:

       

      “THE
SECURITIES REPRESENTED BY THIS CERTIFICATE OR CONFIRMATION HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND MAY NOT
BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
(“TRANSFERRED”) EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER.”

       

       

      In the
event that any Shares, Warrants or Common Stock issuable upon exercise of the
Warrants or upon conversion of convertible Indebtedness acquired by Stockholder
in the Company Refinancing (i) are no longer subject to the transfer
restrictions set forth in this Agreement, (ii) are Transferred in a transaction
registered under the Act, (iii) are Transferred in a transaction exempt from the
registration requirements of the Act, and upon delivery to the Company of such
documents as it may reasonably request with respect to such exemption, (iv) upon
an Investor’s request and receipt by the Company and its transfer agent of an
opinion of Investor’s counsel reasonably satisfactory to the Company and its
transfer agent to the effect that a “private placement” legend is no longer
required under the Act and applicable state laws or (v) upon an Investor’s
request and receipt by the Company and its transfer agent of the certificate
attached hereto as Exhibit A certifying that such shares of Common Stock are
eligible for resale without limitation under Rule 144 (other than Company
information requirements of Rule 144(c)), the Company shall promptly issue new
certificates or book-entry confirmations representing such Shares or Warrants,
at the expense of the Company.  The Company shall cause its counsel to
issue a legal opinion, if required (or requested by the Company’s transfer
agent), to effect the removal of such legend or notation, as applicable, in
accordance with this Section 2.2.

       

       

      SECTION
2.3 Restriction on Certain
Transactions.  From
and after the date hereof, each Investor hereby covenants and agrees that it
shall not, without the prior written consent of the Company, Transfer any of the
Shares to any person if such Transfer, taken together with any other Transfers
of shares of Common Stock by the Investor to the same person or any of its
Affiliates at any time, would, to the knowledge of the Investor, cause such
Person and its Affiliates to become a 5% Shareholder.  Notwithstanding
this Section 2.3, nothing shall prevent any Stockholder Party from making a
Transfer in violation of Section 2.3 under the following
circumstances:

       

       

      (a) Transfers
with the consent of the Company Board (such consent not to be withheld unless
the Company Board determines in good faith that such Transfer will jeopardize or
endanger the availability to the Company of its net operating loss carryforwards
to be used to offset its taxable income in such year or future years and the
basis for such determination is provided in writing to the applicable
Stockholder Party) to any Stockholder Party if the transferee agrees in writing
for the benefit of the Company (with a copy thereof to be

       

      
        
           

        

        
          10

          
            

          

        

        
           

        

      

      furnished
to the Company) to be bound by the terms of this Agreement and provided that, in conjunction
therewith, the transferee makes to the Company, at and as of the date of such
transfer, each of the representations and warranties contained in Sections 4.1,
4.2 and 4.7 of the Purchase Agreement as if such assignee were “Purchaser”
therein;

       

       

      (b) Transfers
pursuant to a merger, tender offer or exchange offer or other business
combination, acquisition of assets or similar transaction or change of control
involving the Company or any Subsidiary of the Company so long as (i) such
transaction has been approved by the Company Board or (ii) none of the
Stockholder Parties (x) is a member of the group (as such term is defined in
Section 13(d)(3) of the Exchange Act) conducting such transaction or (y) has
taken any actions otherwise prohibited pursuant to Section 6.2 hereunder in
connection with such transaction; and

       

       

      (c) Transfers
in connection with the sale of shares in a widely-distributed Underwritten
Offering.

       

       

      SECTION
2.4 Transfers Not In
Compliance.  A
purported or attempted Transfer of Shares or Warrants by an Investor, and any
purported assignment of Investor’s rights and obligations hereunder, that does
not comply with Section 2.1, Section 2.2, Section 2.3 and Section 8.9 shall be
void ab initio and the
purported transferee or successor by operation of law shall not be deemed to be
a stockholder or warrantholder of the Company for any purpose and shall not be
entitled to any of the rights of (i) in the case of a Transfer of Shares, a
stockholder, including, without limitation, the right to vote any Shares
entitled to vote or to receive a certificate or certificates for the Shares or
any dividends or other distributions on or with respect to the Shares or (ii) in
the case of a Transfer of Warrants, a warrantholder, including, without
limitation, the right to exercise such Warrants or to receive shares of Common
Stock in respect thereof.

       

                                  
  ARTICLE
III                                

       

       

       

      REGISTRATION RIGHTS WITH
RESPECT TO

       

      THE REGISTRABLE
SECURITIES

       

       

      SECTION
3.1 Shelf Registration Statement
Matters.

       

       

      (a) Shelf Registration
Statement.  Subject to Section 3.3, the Company
shall:

       

       

      (i)  on
or prior to the 60th day
after the Closing (the “Initial Filing
Date”), prepare and file with the SEC a “shelf” Registration Statement
covering the resale of 100% of the Registrable Securities (a “Shelf Registration”)
on such Initial Filing Date for an offering to be made on a continuous
basis

       

      
        
           

        

        
          11

          
            

          

        

        
           

        

      

      pursuant
to Rule 415 under the Securities Act (or any successor provisions), which Shelf
Registration shall be on Form S-3 (except if the Company is not then eligible to
register for resale the Registrable Securities on Form S-3, in which case such
registration shall be on Form S-1 or another reasonably appropriate form) and
shall contain substantially the “Plan of Distribution”
attached hereto as Annex A;

       

       

      (ii)  use
reasonable best efforts to cause the Shelf Registration to become effective as
soon as practicable after such filing, but in no event later than the 120th day
after the Closing (the “Initial Effective
Date”); provided, however, that in the event
the Company is notified by the SEC that the Shelf Registration will not be
reviewed or is no longer subject to further review and comments, the Initial
Effective Date shall be the fifth Business Day following the date on which the
Company is so notified if such date precedes the date otherwise required
above;

       

       

      (iii)  use
reasonable best efforts to maintain continuously in effect, supplement and
amend, if necessary, the Shelf Registration, as required by the instructions
applicable to such registration form or by the Securities Act, until there are
no remaining Registrable Securities;

       

       

      (iv)  furnish,
upon request, to the holders of the Registrable Securities to which the Shelf
Registration relates copies of any supplement or amendment to such Shelf
Registration prior to such supplement or amendment being used and/or filed with
the SEC; and

       

       

      (v)  pay
all Registration Expenses in connection with the Shelf Registration, whether or
not it becomes effective, and whether all, some or none of the Registrable
Securities to which it relates are sold pursuant to it.

       

       

      (b) Effective Shelf Registration
Statement. (i) If at any time, the Shelf Registration ceases to be
effective, the Company shall, subject to Section 3.3, file, not later than 30
days after such prior Shelf Registration ceased to be Effective (a “New Filing Date”),
and use its reasonable best efforts to cause to become effective a new Shelf
Registration as soon as practicable, but not later than the 90th day
after such New Filing Date (a “New Effective Date”);
provided, however, that in the event
the Company is notified by the SEC that the Shelf Registration will not be
reviewed or is no longer subject to further review or comments, the New
Effective Date shall be the fifth Business Day following the date on which the
Company is so notified if such date precedes the date otherwise required
above.

       

       

      (ii)  If,
after any Shelf Registration has become effective, it is interfered with by any
stop order, injunction or other order or requirement of the

       

      
        
           

        

        
          12

          
            

          

        

        
           

        

      

      SEC or
other governmental agency or authority, the Company shall use its reasonable
best efforts to prevent the issuance of any stop order suspending the
effectiveness of the Shelf Registration or of any order preventing or suspending
the use of any prospectus and, if any such order is issued, to obtain the
withdrawal of any such order at the earliest possible moment, but not later than
the 90th day
after such order is issued (a “Withdrawal
Date”).

       

       

      (c) Additional Registrable
Securities.  At any time that the Company knows that the number
of Registrable Securities at such time exceeds 115% of the number of shares of
Common Stock then registered on all Registration Statements applicable to the
Registrable Securities, the Company shall, subject to Section 3.3, use its
reasonable best efforts to amend any existing Registration Statement, or to file
an additional Registration Statement, to register for resale by the Holders of
not less than 100% of the Registrable Securities as soon as reasonably
practicable, but not later than the 30th day
after the Company first knows of such circumstance (an “Additional Filing
Date” and together with the Initial Filing Date, the New Filing Date, a
“Filing Date”),
and shall use its reasonable best efforts to cause such amendment or additional
Registration Statement to be declared effective, as soon as practicable, but not
later than the 60th day
after the Additional Filing Date (an “Additional Effective
Date” and together with the Initial Effective Date and the New Effective
Date and the Withdrawal Date, an “Effective Date”);
provided, however that in the event the
Company is notified by the SEC that such additional Registration Statement will
not be reviewed or is no longer subject to further review and comments, such
Additional Effective Date as to such Registration Statement shall be the fifth
Business Day following the date on which the Company is so notified if such date
precedes the date otherwise required above.

       

       

      (d) Delay
Payments.  (i) The Company and each Investor each agree that
the Investor will suffer damages, and it would not be feasible to ascertain the
extent of such damages with precision, if the Company fails to fulfill its
obligations under Article III hereof. Subject in all cases to Section 3.3
(including any applicable Blackout Period imposed in accordance therewith) and
Section 4.6 (including any Holdback Period imposed in accordance therewith,
whether such period is pursuant to the agreement set forth in Section 4.6 or a
separate agreement with the underwriters of any Company Offering or Underwritten
Offering), if (A) a Registration Statement is not filed on or prior to any
Filing Date applicable thereto, (B) a Registration Statement is not declared
effective by the SEC or any order of a governmental authority preventing or
suspending the use of any prospectus is not lifted prior to any Effective Date
applicable thereto, (C) the Company fails to file with the SEC a request for
acceleration of effectiveness in accordance with Rule 461 promulgated under the
Securities Act, within five Business Days after the date that the Company is
notified in writing by the SEC that a Registration Statement will not be
“reviewed,” or is not subject to further review, (D) after the Effective Date,
the Shares are not listed on the NYSE, (E) after the Effective Date, a
Registration Statement required to be effective hereunder ceases for any reason
to remain effective (without being succeeded immediately by a replacement
Registration Statement filed and declared effective) or usable (excluding during
the Lock-Up Period, and excluding as a result of a post-effective amendment
thereto that is required by applicable law in order to cause a Permitted
Assignee hereunder to be named as a selling securityholder therein, provided
that such post-

       

      
        
           

        

        
          13

          
            

          

        

        
           

        

      

      effective
amendment is filed by the Company within 10 Business Days after the Company
receiving notice from any Investor that such post-effective amendment is
required (any such 10 Business Day period, an “Assignment Period”)
for the resale of Registrable Securities, or the Investors are otherwise unable
to effect the resale of any Registrable Securities hereunder as a result of a
breach by the Company of its obligations hereunder, in each case for such period
of time (excluding the duration of any Black Out Period applicable to such
Registrable Securities, any Holdback Period, any Assignment Period or the
Lock-up Period) as to any Registrable Securities for which any Registration
Statement is then required to be effective hereunder (each of the events
referred to in clauses (A) through (E), a “Registration
Default”) the Company shall pay to any Investor holding any Registrable
Securities not eligible for resale as a result of such Registration Default, for
the duration of such Registration Default as it applies to such Registrable
Securities held by such Investor:

       

       

      (1)   if
such Investor is a Company Affiliate, an amount (the “Affiliate Liquidated
Damages”) equal to (i) one-half of one percent (0.5%) per year of the
Registrable Securities Purchase Price applicable to such Registrable Securities
for the period up to and including the 70th day
in any 360 consecutive-day period during which a Registration Default has
occurred and is continuing, payable in cash on each January 1 and July 1 and
calculated on the basis of a 360 calendar-day year consisting of twelve 30
calendar-day months, and (ii) one percent (1.0%) per 30 days of the Registrable
Securities Purchase Price applicable to such Registrable Securities for the
period exceeding the 70th day
in any 360 consecutive-day period during which a Registration Default has
occurred and is continuing, payable in cash on the second business day of each
calendar month in respect of payments accruing through the last day of the
preceding calendar month, with late payments accruing interest at a rate of 18%
per annum (or such lesser maximum amount that is permitted to be paid by
applicable law), compounding on each payment date; or

       

       

      (2)   If
such Investor is a Company Non-Affiliate, an amount equal to one percent (1.0%)
per 30 days of the Registrable Securities Purchase Price applicable to such
Registrable Securities, payable in cash on the second business day of each
calendar month in respect of payments accruing through the last day of the
preceding calendar month, with late payments accruing interest at a rate of 18%
per annum (or such lesser maximum amount that is permitted to be paid by
applicable law), compounding on each payment date (the payments described in
clauses (1) and (2) of this Section 3.3(d)(i), the “Liquidated
Damages”)

       

       

      (ii)  Notwithstanding
anything to the contrary herein, in no event shall the Company be liable for
Liquidated Damages in excess of $8,000,000 in any calendar year, pro-rated for
the remaining portion of the calendar year in which this Agreement is entered
into.  Each of the Company and each Investor agree that the Liquidated
Damages provided for in this Section

       

      
        
           

        

        
          14

          
            

          

        

        
           

        

      

      3.1(d)
constitute a reasonable estimate of the damages that may be incurred by the
Investor by reason of a Registration Default and that such Liquidated Damages
are the only monetary damages available to the Stockholder in the event of a
Registration Default.  Notwithstanding anything to the contrary set forth
in this Section 3.1, no event shall be considered a Registration Default
hereunder if such event or the primary cause thereof (i) was consented to in
writing by the Stockholder or Investors holding in excess of 50% of the
then-outstanding Registrable Securities (determined based on the Registrable
Securities Purchase Price applicable to the then-outstanding Registrable
Securities), or (ii) results (and shall not be considered a Registration Default
for as long as it continues to result) primarily from (x) any breach or delay in
performance by any Investor of any of its obligations set forth in this
Agreement, (y) an Investor’s objection pursuant to Section 4.1(c) or (z) any
delay caused or requested by any underwriter or underwriters in connection with
an Underwritten Offering, including as a result of any holdback period
contemplated by Section 4.6 hereof.

       

       

      SECTION
3.2 Underwritten Offerings;
Demand Registration. Subject
to Section 3.3 (including any Blackout Period imposed in accordance therewith)
and 4.6 (including any Holdback Period imposed in accordance therewith, whether
such period is pursuant to the agreement set forth in Section 4.6 or a separate
agreement with the underwriters of any Company Offering or Underwritten
Offering), the Stockholder or, if the Stockholder has assigned its rights under
this Section 3.2 in accordance with the terms of this Agreement, Investors
holding more than 50% of the Registrable Securities at such time (determined
based on the Registrable Securities Purchase Price applicable to the
then-outstanding Registrable Securities)) may deliver a notice to the Company
stating that it wishes to effect an underwritten offering of all or part of its
Registrable Securities (an “Underwritten
Offering”) and stating the number of the Registrable Securities to be
included in the Underwritten Offering (a “Demand
Notice”).  The Company shall, promptly after its receipt of a
Demand Notice, give all other Investors written notice of such
request.  Each such Investor may, by delivery of written notice to the
Company within twenty (20) days after the Company’s delivery of notice to such
Investor (the “Response Period”),
request that all or any portion of such Investor’s Registrable Securities be
included in such Underwritten Offering.  Notwithstanding the
foregoing, the Stockholder and the other Investors, collectively, shall be
entitled to deliver to the Company no more than three (3) Demand Notices in the
aggregate (the “Demand
Limitation”); provided that no Demand
Notice shall be counted against the Demand Limitation unless and until the
Registration Statement filed pursuant to such Demand Notice is declared
effective and the Registrable Securities registered thereunder have been sold
(other than any such Registrable Securities excluded from such Underwritten
Offering as a result of a determination by the underwriter that marketing
factors required a limitation on the number of shares to be underwritten in such
offering (an “Underwriter
Cutback”), except in the event that (i) the Stockholder or Investors
holding of more than 50% of the Registrable Securities requested to be
registered in such Underwritten Offering (determined based on the Registrable
Securities Purchase Price applicable to such Registrable Securities) elect to
abandon such offering or (ii) the Underwritten Offering is not consummated
primarily as a result of the action, or failure to act, of one or more Investors
holding Registrable Securities requested to be included
therein.  Notwithstanding the foregoing, if, in connection with an
Underwritten Offering requested pursuant to the final Demand Notice permitted
under

       

      
        
           

        

        
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      the
Demand Limitation set forth above, (i) the Stockholder Parties request that all
of their remaining Registrable Securities be included in such Underwritten
Offering, and (ii) solely as a result of an Underwriter Cutback, the Stockholder
Parties are required to sell less than 75% of such Registrable Securities
requested to be distributed in such Underwritten Offering, then the Stockholder
Parties will be entitled, collectively, to request one additional Underwritten
Offering with respect to all of their remaining Registrable Securities, in which
all Investors will be entitled to participate as if in connection with, and
pursuant to the procedures applicable to, the delivery of a Demand Notice; provided that, in connection
with such additional Underwritten Offering, any Underwriter Cutbacks shall be
applied first, pro rata, with respect to the Registrable Securities of
Unaffiliated Assignees requested to be included therein, and thereafter, pro
rata, with respect to the Registrable Securities of the Stockholder Parties
requested to be included therein.

       

      Upon
expiration of such Response Period (or, if the Lock-Up Period has not then
expired, upon expiration of the Lock-Up Period), and subject to Section 3.3
hereof, as soon as reasonably practicable and subject to such Underwriter
Cutbacks as may be requested by the managing underwriter(s) of such Underwritten
Offering:

       

       

      (a) if there
is, at such time, an effective Shelf Registration in respect of the Registrable
Securities, the Company shall promptly amend or supplement the Shelf
Registration if and as may be necessary in order to enable such Registrable
Securities to be distributed pursuant to an Underwritten Offering, but in any
event no later than 30 days after the expiration of the Response Period, and
shall use its reasonable best efforts to cause such amendment to become
effective as soon as practicable after such filing, but in any event no later
than 90 days after the expiration of the Response Period; or

       

       

      (b) if there
is, at such time, no effective Shelf Registration in effect in respect of the
Registrable Securities, the Company shall:

       

       

      (i)  cause
to be prepared and to file a Registration Statement as promptly as reasonably
practicable after expiration of the Response Period, but in any event no later
than 30 days thereafter;

       

       

      (ii)  use
reasonable best efforts to cause such Registration Statement to become effective
as soon as practicable after filing, but in any event no later than 90 days
after expiration of the Response Period;

       

      (iii)  use
reasonable best efforts to maintain in effect, supplement and amend, if
necessary, the Registration Statement, as required by the instructions
applicable to such registration form or by the Securities Act for the period
required to consummate the Underwritten Offering;

      

      (iv)  furnish,
upon request, to the holders of the Registrable Securities to which the
Registration Statement relates copies of any supplement or amendment
to such Registration Statement prior to such supplement or amendment being used
and/or filed with the SEC; and

         

      

       

      
        
           

        

        
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      (v)  pay
all Registration Expenses in connection with the Registration Statement, whether
or not it becomes effective, and whether all, some or none of the Registrable
Securities to which it relates are sold pursuant to it.

       

       

      The date
that is thirty (30) days after the expiration of the Response Period shall be an
“Additional Filing Date” for purposes of Section 3.1(d) hereunder, and the date
that is ninety (90) days after the expiration of the Response Period shall be an
“Additional Effective Date” for purposes of Section 3.1(d)
hereunder.

       

       

      SECTION
3.3 Suspension of Registration
Rights. (a)
Notwithstanding anything to the contrary herein, if the Company shall at any
time furnish to the Stockholder a certificate signed by any of its authorized
officers (a “Suspension Notice”)
stating that:

       

       

      (i)   the
Company has pending or in process a material transaction, the disclosure of
which would, in the good faith judgment of the Company Board, after consultation
with its outside counsel, materially and adversely affect the Company;
or

       

       

      (ii)   the
Company Board has made the good faith determination (after consultation with
counsel and including, without limitation, recurring earnings blackout periods
established by the Company Board or a designated committee thereof (“Scheduled Earnings
Blackouts”)) (i) that use or continued use of any proposed or effective
Registration Statement for purposes of effecting offers or sales of Registrable
Securities pursuant thereto would require, under the Securities Act, premature
disclosure in such Registration Statement (or the prospectus relating thereto)
of material, non-public information (without disclosing the specific material,
non-public information, unless the Stockholder specifically requests in writing
to receive such material, non-public information), (ii) that such premature
disclosure would not be in the best interest of the Company and (iii) that it is
therefore essential to defer the filing or to suspend the use of such
Registration Statement (and the prospectus relating thereto) for purposes of
effecting offers or sales of Registrable Securities pursuant
thereto,

       

       

      then the
right of the Investors to require the Company to file any Registration Statement
or, after the filing thereof, use any Registration Statement (and the prospectus
relating thereto) for purposes of effecting offers or sales of Registrable
Securities pursuant thereto shall be suspended for a period (a “Black Out Period”) of
not more than (i) with respect to any Company Affiliate, 180 days in any 360
consecutive-day period (and no more than

       

      
        
           

        

        
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      45
consecutive days in any 360 consecutive day period except, in the case of a
Suspension Notice delivered, or a Scheduled Earnings Blackout designated, in
respect of the Company’s year-end earnings reports, no more than 65 consecutive
days after delivery of such Suspension Notice or start of such Scheduled
Earnings Black Out), (ii) with respect to any Company Non-Affiliate, 90 days in
any 360 consecutive-day period (and no more than 45 consecutive days in any 360
consecutive day period except, in the case of a Suspension Notice delivered, or
Scheduled Earnings Blackout designated, in respect of the Company’s year-end
earnings reports, no more than 65 consecutive days after delivery of such
Suspension Notice or start of such Scheduled Earnings Black Out).  For avoidance of doubt,
with respect to any Registrable Security, no Registration Default shall be
applicable to such Registrable Security during any Black Out Period permitted to
be imposed on the holder of such Registrable Security pursuant to this Section
3.3.  Notwithstanding anything to the contrary in this Section 3.3(a),
the Company shall not impose any Black Out Period, including any Scheduled
Earnings Black Out, in a manner that is more restrictive (including, without
limitation, as to duration) than the comparable restrictions the Company may
impose on Transfers of the Company’s Equity Securities by its directors and
senior executive officers.

       

       

      (b) During
any Black Out Period, no Investor shall offer or sell any Registrable Securities
pursuant to or in reliance upon any Registration Statement (or the prospectus
relating thereto) filed by the Company.  Notwithstanding the
foregoing, if the public announcement of such material, nonpublic information is
made during a Black Out Period, then the Black Out Period shall terminate
without any further action of the parties and the Company shall immediately
notify the Investors of such termination.  Except in connection with
any notice required to be provided hereunder or in connection with any
reasonable response to unsolicited written or oral requests from a Stockholder
Party or its representatives and affiliates for information, the Company shall
use its reasonable best efforts to refrain from providing any Stockholder Party
with any material, non-public information without such Stockholder Party’s prior
written consent.

       

       

      SECTION
3.4 Incidental Registration
Rights.  If
the Company at any time proposes to offer Covered Securities in a registered
Company Offering for its own account, each such time it will promptly give
written notice to the Investors of its intention so to do.  Upon the
written request of any Investor, received by the Company within thirty (30) days
after delivery of any such notice by the Company, requesting to register any or
all of its Registrable Securities, the Company will use its reasonable best
efforts to cause such Registrable Securities to be included in the securities to
be covered by the Registration Statement proposed to be filed in connection with
the registered Company Offering to the extent required to permit the sale or
other disposition by such Investor of such Registrable Securities.  If such
registered Company Offering involves an underwriting, the Company shall so
advise the Investors as a part of the written notice given pursuant to this
Section 3.4.  In such event, the right of any Investor to registration
pursuant to this Section 3.4 shall be conditioned upon such Investor’s
participation in such underwriting to the extent provided herein.  If any
Investor proposes to distribute any or all of its Registrable Securities through
such underwritten Company Offering, it shall (together with the Company and any
other Investors so participating) enter into an underwriting agreement
in

       

      
        
           

        

        
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      customary
form with the underwriter or underwriters selected for underwriting by the
Company.  Notwithstanding any other provision of this Section 3.4, if there
is an Underwriter Cutback, such limitation will be imposed first pro rata with
respect to all securities whose holders have a contractual, incidental right to
include such securities in the Registration Statement (including, without
limitation, any Investors) and as to which inclusion has been requested pursuant
to such right.  The Company shall be obligated to include in such
Registration Statement only such limited portion of Registrable Securities with
respect to which any Investor has requested inclusion hereunder.
 Notwithstanding the foregoing provisions, the Company may withdraw any
Registration Statement referred to in this Section 3.4 without thereby incurring
any liability to any Investor.  If any Investor disapproves of the terms of
any such underwriting, it may elect to withdraw therefrom by written notice to
the Company and the underwriter or in such other manner as may be required by
any underwriting agreement to which the Investor becomes a party in connection
with such underwriting.  Any Registrable Securities or other securities
excluded or withdrawn from such underwriting shall be withdrawn from such
registration and the Company Offering, and the Registration Statement applicable
to such registration shall not be available for use by such Investor in respect
of such withdrawn Registrable Securities.  

       

       

                                 
ARTICLE
IV                                

       

       

       

      REGISTRATION
PROCEDURES

       

       

      SECTION
4.1 Registration
Procedures. If and
whenever the Company is required to effect or cause the registration of any
Registrable Securities under the Securities Act under this
Agreement:

       

      (b) The
Company will use its reasonable best efforts to cause the Registration Statement
applicable to such Registrable Securities to become effective and, subject to
Section 3.3 hereof, the Company will prepare and file with the SEC such
amendments and supplements to the Registration Statement and the prospectus or
prospectus supplement used in connection therewith as may be necessary (i) in
the case of a Shelf Registration, to keep such Shelf Registration continuously
effective and usable for resale of the Registrable Securities for a period from
the date of its initial effectiveness until such time as there are no such
Registrable Securities remaining (including by refiling the Shelf Registration
(or a new Shelf Registration) if the initial Shelf Registration expires, (ii) in
the case of any other Registration Statement, to keep such Registration
Statement effective and usable for resale of all of the Registrable Securities
intended to be sold pursuant thereto and (iii) to comply with the provisions of
the Securities Act with respect to the disposition of the Registrable Securities
covered by such Registration Statement. The Company shall use its reasonable
best efforts to cause any amendment to any Registration Statement to be declared
effective by the SEC as soon as practicable following the filing thereof with
the SEC. In the event that the Company is a well-known seasoned issuer (as
defined under Rule 405 of the Act) at the time of the filing of the Shelf
Registration with the SEC, such Shelf Registration shall be designated by the
Company as an automatic Shelf Registration.

      
        
           

        

        
          19

          
            

          

        

        
           

        

      

       

      (c) Not less
than five (5) Business Days prior to the filing of each Registration Statement
and not less than one (1) Business Day prior to the filing of any related
prospectus or any amendment or supplement thereto (including any document that
would be incorporated or deemed to be incorporated therein by reference), the
Company shall, upon request of any Investor (but not if such Investor does not
so request) (i) furnish to such Investor drafts of all such documents proposed
to be filed, which documents (other than those incorporated or deemed to be
incorporated by reference) will be subject to the review of such Investor, and
(ii) cause its officers and directors, counsel and independent certified public
accountants to respond, during normal business hours and upon reasonable notice,
to such inquiries as shall be necessary, in the reasonable opinion of counsel to
such Investor, to conduct a reasonable investigation within the meaning of the
Securities Act. If such Investor reasonably and in good faith objects in writing
and with specificity to any proposed disclosure in a draft Registration
Statement or prospectus (no later than three (3) Business Days after the
Stockholder has been furnished copies thereof) or any amendments or supplements
thereto (no later than one (1) Business Day after the Stockholder has been
furnished copies thereof) (i) regarding such Investor or (ii) on the basis that
the disclosure, as proposed, contains one or more untrue statements of a
material fact or omissions to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading, in each case whether
such disclosure is contained in the “selling stockholder” section thereof or
otherwise, the Company shall not file such Registration Statement or such
prospectus or amendments or supplements thereto until it has taken such steps as
it deems reasonably appropriate to address the Investor’s concerns.

       

       

      (d) The
Company will furnish to each Investor such number of copies of the applicable
Registration Statement and each such amendment and supplement thereto (including
in each case all exhibits) and of a prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as such Investor may reasonably request in order to facilitate
the disposition of Registrable Securities owned or to be distributed by such
Investor.

       

       

      (e) The
Company shall use its reasonable best efforts to register and qualify the
Registrable Securities under such other securities or “blue sky” laws of such
jurisdictions within the United States as shall be reasonably requested by the
Investors, to keep such registration or qualification in effect for so long as
such Registrable Securities remain outstanding, and to take any other action
which may be reasonably necessary to enable the Investors to consummate the
disposition in such jurisdictions within the United States of the Registrable
Securities; provided
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions.

       

      (f) After the
filing of any Registration Statement, the Company will promptly notify the
Investors of any stop order issued or threatened by the SEC and shall use its
reasonable best efforts to prevent the entry of such stop order or to remove it
if entered.

      
        
           

        

        
          20

          
            

          

        

        
           

        

      

       

      (g) The
Company shall use its reasonable best efforts to cause the Shares and the Common
Stock issued upon exercise of the Warrants to be listed on the NYSE or such
other securities exchange on which the Common Stock is then
listed.  The Company will comply in all material respects with the
Company’s reporting, filing and other obligations under the NYSE Listed Company
Manual or bylaws or other rules of the NYSE or comparable regulations of such
other securities exchanges on which the Common Stock is then
listed.  The Company will not take any action which would be
reasonably expected to result in the delisting or suspension of trading of the
Common Stock, including the Shares and the Common Stock issued upon exercise of
the Warrants, on the NYSE or a comparable national securities
exchange.

       

       

      (h) The
Company shall promptly notify the Investors:

       

       

      (i)  of
the existence of any fact of which the Company is aware or the occurrence of an
event or the passage of time that makes the financial statements included in a
Registration Statement ineligible for inclusion therein or any statement made in
a Registration Statement or related prospectus untrue in any material respect or
that otherwise requires the preparation of a supplement or amendment thereto so
that, as thereafter amended or supplemented, such Registration Statement or
related prospectus will not contain an untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statement therein, in light of the circumstances under which they are
made, not misleading and promptly make available to the Investors a reasonable
number of copies of any such supplement or amendment; provided that any Suspension
Notice (including, with respect to Scheduled Earnings Blackouts, any such
Suspension Notice describing the Company’s Scheduled Earnings Blackout policy)
shall satisfy the notice requirements hereunder;

       

       

      (ii)  when
any Registration Statement filed pursuant to this Agreement or any amendment
thereto (other than through the incorporation by reference therein of any
report, statement or other document required to be filed pursuant to the
Exchange Act and the rules and regulations thereunder) has been filed with the
SEC and when such Registration Statement or any post-effective amendment thereto
has become effective;

       

       

      (iii)  of
any request by the SEC for amendments or supplements to any Registration
Statement or the prospectus included therein; and

       

       

      (iv)  of
the receipt by the Company or its legal counsel of any notification with respect
to the suspension of the qualification of the Common Stock for sale in any
jurisdiction or the initiation or threatening of any proceeding for such purpose
or the issuance of any stop order suspending the effectiveness of any
registration statement.

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

      

      (i) The
Company shall use reasonable best efforts to procure the cooperation of the
Company’s transfer agent in settling any offering or sale of Registrable
Securities, including with respect to the transfer of physical stock
certificates into book-entry form in accordance with any procedures reasonably
requested by any Investor.

       

       

      (j) In
connection with an Underwritten Offering, the Company shall:

       

       

      (i)  enter
into such customary agreements, including a customary underwriting agreement, in
each case in form and substance reasonably satisfactory to the Company, which
may include indemnification provisions in favor of underwriters and other
Persons in addition to, or in substitution for the provisions of Section 4.4
hereof, and take such other actions as the Stockholder Parties, the Investor
Representative or the underwriters may reasonably request in order to expedite
or facilitate the disposition of such Registrable Securities;

       

       

      (ii)  obtain
one or more comfort letters, dated such date or dates as are customary for the
Company in the context of an underwritten Company Offering, addressed to any
underwriters of the Underwritten Offering, signed by the Company’s independent
public accountants, in form and covering such matters of the type customarily
covered by comfort letters delivered by the Company in connection with
underwritten Company Offerings as the lead underwriters may reasonably
request;

       

       

      (iii)   make
available for inspection by the Stockholder, by the Investor Representative, by
any underwriter participating in any disposition to be effected pursuant to an
Underwritten Offering and by any attorney, accountant or other agent retained by
the Stockholder, the Investor Representative or any such underwriter, all
pertinent financial and other records, pertinent corporate documents and
properties of the Company, and cause all of the Company's officers, directors
and employees to supply all information reasonably requested by the Stockholder,
the Investor Representative or any such underwriter, attorney, accountant or
agent in connection with such Underwritten Offering;

       

       

      (iv)   if
requested by the managing underwriter or agent or the Stockholder or the
Investor Representative, promptly incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriter or agent
or Investor Representative or the Stockholder reasonably requests to be included
therein, including, with respect to the number of Registrable Securities being
sold by the Investors to such underwriter or agent, the purchase price being
paid therefor by such underwriter or agent and with respect to any other terms
of the underwritten offering and make all required filings of such prospectus
supplement or post-effective amendment as soon as reasonably
practicable after being notified of the matters incorporated in such prospectus
supplement or post-effective amendment;

       

      
        
           

        

        
          22

          
            

          

        

        
           

        

      

       

       

       

      (v)   use
its reasonable best efforts to obtain for delivery to the underwriter or agent
an opinion or opinions from counsel for the Company in customary form and in
form, substance and scope reasonably satisfactory to such underwriters or agents
and their counsel;

       

       

      (vi)   use
its commercially reasonable efforts (taking into account the interests of the
Company) to make available the executive officers of the Company to participate
with the Stockholder, the Investor Representative and any underwriters in any
customary “road shows” or other selling efforts that may be reasonably requested
by the Stockholder and the Investor Representative, on the one hand, or managing
underwriters, on the other hand, in connection with an Underwritten
Offering.

       

       

      SECTION
4.2 Information
Supplied. The
Company may require any Investor to furnish the Company with, and such Investor
shall promptly furnish, such information regarding the Investor and pertinent to
the disclosure requirements reasonably relating to the registration and the
distribution of the Registrable Securities as the Company may from time to time
reasonably request in writing.

       

      SECTION
4.3 Restrictions on
Disposition. Each
Investor agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 4.1(h), such Investor
will forthwith discontinue disposition of Registrable Securities pursuant to the
registration statement covering such Registrable Securities until such
Investor’s receipt of the copies of the supplemented or amended prospectus
contemplated by Section 4.1(h), and, if so directed by the Company, such
Investor will deliver to the Company all copies, other than permanent file
copies then in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice; provided that, for the
duration of any such suspension of the use of the Registration Statement that is
not included as a Black Out Period, Liquidated Damages shall accrue and be
payable pursuant to Section 3.1(d) hereof.

       

      SECTION
4.4 Indemnification.  (a)
In the event of any registration of any Registrable Securities under the
Securities Act pursuant to Articles III or IV of this Agreement, the Company
shall, and it hereby does, indemnify and hold harmless, to the extent permitted
by law, the seller of any Registrable Securities covered by such registration
statement, each Affiliate of such seller and their respective directors,
officers, employees and stockholders or members or general and limited partners
(and any director, officer, Affiliate, employee, stockholder and controlling
Person of any of the foregoing), each Person who participates as an underwriter
in the offering or sale of such securities and each other Person, if any, who
controls such seller or any such underwriter within the meaning of the
Securities Act (collectively, the “Indemnified
Parties”), against any and all losses, claims, damages or liabilities,
joint or several, actions or proceedings (whether commenced or threatened) in
respect thereof (“Claims”) and expenses
(including reasonable attorney's fees and reasonable expenses of investigation)
to which such

      
        
           

        

        
          23

          
            

          

        

        
           

        

      

      Indemnified
Party may become subject under the Securities Act, common law or otherwise,
insofar as such Claims or expenses arise out of, relate to or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in any registration statement under which such securities were registered under
the Securities Act, any preliminary, final or summary prospectus contained
therein, or any amendment or supplement thereto, or (ii) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of a prospectus, in light
of the circumstances under which they were made) not misleading; provided, that the Company
shall not be liable to any Indemnified Party in any such case to the extent that
any such Claim or expense arises out of, relates to or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement or amendment or supplement thereto or in any such
preliminary, final or summary prospectus in reliance upon and in conformity with
written information furnished to the Company by or on behalf of such seller
specifically for use in the preparation thereof; and, provided, further, that the Company
will not be liable in any such case to the extent, but only to the extent, that
the foregoing indemnity with respect to any untrue statement contained in or
omitted from a registration statement or the prospectus shall not inure to the
benefit of any party (or any person controlling such party) who is obligated to
deliver a prospectus in transactions in a security as to which a registration
statement has been filed pursuant to the Securities Act and from whom the person
asserting any such Damages purchased any of the Registrable Securities to the
extent that it is finally judicially determined that such Damages resulted
solely from the fact that such party sold Registrable Securities to a person to
whom there was not sent or given, at or prior to the written confirmation of
such sale, a copy of the registration statement or the prospectus, as amended or
supplemented, and (x) the Company shall have previously and timely furnished
sufficient copies of the registration statement or prospectus, as so amended or
supplemented, to such party in accordance with this Agreement and (y) the
registration statement or prospectus, as so amended or supplemented, would have
corrected such untrue statement or omission of a material fact.  The
Company’s obligation to indemnify for Claims and expenses hereunder is
irrespective of whether the Indemnified Party has itself paid such Claims or
expenses.

       

      (b) As a
condition to including any Registrable Securities in any registration statement
filed in accordance with Sections 3.2 or 3.4 herein, the Company shall have
received a customary agreement from the prospective seller of such Registrable
Securities or any underwriter to indemnify and hold harmless (in the same manner
and to the same extent as set forth in Section 4.4(a)) the Company and all other
prospective sellers or any underwriter, as the case may be, with respect to any
untrue statement or alleged untrue statement in or omission or alleged omission
from such registration statement, any preliminary, final or summary prospectus
contained therein, or any amendment or supplement thereto, if such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company by or on behalf of such seller or underwriter specifically for use in
the preparation of such registration statement, preliminary, final or summary
prospectus or amendment or supplement, or a document incorporated by reference
into any of the foregoing. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company or any of
the prospective sellers, or any of their respective Affiliates, directors,
officers or controlling Persons and shall survive the transfer of securities by
any seller. In no event shall the liability of any selling holder of Registrable
Securities hereunder be greater in amount than the dollar amount of

       

      
        
           

        

        
          24

          
            

          

        

        
           

        

      

      the
proceeds received by such holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.

       

       

      (c) Each
indemnified party hereunder shall give prompt written notice to the indemnifying
party of any Claim commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify the indemnifying party shall not
relieve such indemnifying party from any liability which it may have under the
indemnity provided in this Section 4.4, unless and to the extent the
indemnifying party shall have been actually and materially prejudiced by the
failure of such indemnified party to so notify the indemnifying
party.  Such notice shall describe in reasonable detail such
Claim.  In case any Claim is brought against an indemnified party, the
indemnified party shall be entitled to hire, at its own expense, separate
counsel and participate in the defense thereof.  If the indemnifying
party so elects within a reasonable time after receipt of notice, the
indemnifying party may assume the defense of the Claim at the indemnifying
party’s own expense with counsel chosen by the indemnifying party and approved
by the indemnified party, which approval shall not be unreasonably withheld, and
the indemnified party may participate in such defense at its own expense; provided, however, that the
indemnifying party will not settle or compromise any Claim, or consent to the
entry of any judgment with respect to any such pending or threatened Claim,
without the written consent of the indemnified party unless such settlement,
compromise or consent secures the unconditional release of the indemnified party
from all liabilities arising out of such Claim; provided, further, that if the
defendants in any such Claim include both the indemnified party and the
indemnifying party and the indemnified party reasonably determines, based upon
advice of legal counsel, that such Claim involves a conflict of interest (other
than one of a monetary nature) that would reasonably be expected to make it
inappropriate for the same counsel to represent both the indemnifying party and
the indemnified party, then the indemnifying party shall not be entitled to
assume the defense of the indemnified party and the indemnified party shall be
entitled to separate counsel at the indemnifying party’s expense, which counsel
shall be chosen by the indemnified party and approved by the indemnifying party,
which approval shall not be unreasonably withheld; and provided, further, that it is
understood that the indemnifying party shall not be liable for the fees, charges
and disbursements of more than one separate firm for the indemnified
parties.  If the indemnifying party assumes the defense of any Claim,
all indemnified parties shall thereafter deliver to the indemnifying party
copies of all notices and documents (including court papers) received by such
indemnified parties relating to the Claim, and each indemnified party shall
cooperate in the defense or prosecution of such Claim.  Such
cooperation shall include the retention and (upon the indemnifying party’s
request) the provision to the indemnifying party of records and information that
are reasonably available to the Indemnified Party and that are reasonably
relevant to such Claim and making employees available on a mutually convenient
basis to provide additional information and explanation of any material provided
hereunder.  If the indemnifying party is not entitled to assume the
defense of such Claim as a result of the second proviso to the fourth sentence
of this Section 4.4(c), the indemnifying party’s counsel shall be entitled to
conduct the indemnifying party’s defense and counsel for the indemnified party
shall be entitled to conduct the defense of the indemnified party, it being
understood that both such counsel will cooperate with each other, to the extent
feasible in light of the conflict of interest or different available legal
defenses, to conduct the defense of such action or proceeding as efficiently as
possible.  If the indemnifying party is not so entitled to assume the
defense of such action or does not assume the defense, after having

       

      
        
           

        

        
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      received
the notice referred to in the first sentence of this Section 4.4(c), the
indemnifying party will pay the reasonable fees and expenses of counsel for the
indemnified party; in that event, however, the indemnifying party will not be
liable for any settlement of any Claim effected without the written consent of
the indemnifying party, which may not be unreasonably withheld, delayed or
conditioned.  If the indemnifying party is entitled to assume, and
assumes, the defense of an action or proceeding in accordance with this Section
4.4(c), the indemnifying party shall not be liable for any fees and expenses of
counsel for the indemnified party incurred thereafter in connection with that
action or proceeding except as set forth in the proviso in the fourth sentence
of this Section 4.4(c).  Unless and until a final judgment is rendered
that an indemnified party is not entitled to the costs of defense under the
provisions of this Section 4.4(c), the indemnifying party shall reimburse,
promptly as they are incurred, the indemnified party’s costs of
defense.  The indemnifying party’s obligation to indemnify the
indemnified parties for Claims hereunder is irrespective of whether the
indemnified party has itself made payments in respect of such
Claims.

       

       

      (d) (i)  If
the indemnification provided for in this Section 4.4 from the indemnifying party
is unavailable to an indemnified party hereunder in respect of any Claim or
expenses referred to herein, then the indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such Claim or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified party in connection with the actions which resulted in
such Claim or expenses, as well as any other relevant equitable considerations.
The relative fault of such indemnifying party and indemnified party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, has been made by, or relates to
information supplied by, such indemnifying party or indemnified party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action. The amount paid or payable by a party under this
Section 4.4(d) as a result of the Claim and expenses referred to above shall be
deemed to include any legal or other fees or expenses reasonably incurred by
such party in connection with any action or proceeding.

       

       

      (ii) The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 4.4(d) were determined by pro rata allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to in Section 4.4(d)(i). No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.

       

       

      (e) Indemnification
similar to that specified in this Section 4.4 (with appropriate modifications)
shall be given by the Company and each seller of Registrable Securities with
respect to any required registration or other qualification of securities under
any law or with any governmental authority other than as required by the
Securities Act.

       

      
        
           

        

        
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      (f) The
obligations of the parties under this Section 4.4 shall be in addition to any
liability which any party may otherwise have to any other party.

       

       

      SECTION
4.5 Required
Reports. So long
as there are Registrable Securities, the Company shall not terminate its status
as an issuer required to file reports under the Exchange Act (even if the
Exchange Act or the rules and regulations thereunder would permit such
termination) and the Company agrees that it will use reasonable best efforts to
timely file the reports required to be filed by it under the Securities Act and
the Exchange Act and it will take such further action as any Investor may
reasonably request, all to the extent required from time to time to enable such
Investor to sell shares of Registrable Securities pursuant to this Agreement,
including without registration under the Securities Act within the limitation of
the exemptions provided by (i) Rule 144 under the Securities Act, as such Rule
may be amended from time to time, or (ii) any similar rule or regulation
hereafter adopted by the SEC.  Upon the request of any Investor, the
Company will deliver to such Investor a written statement as to whether it has
complied with such requirements.

       

      SECTION
4.6 Holdback
Agreement. If any
Company Offering or any sale of securities in connection with a registration
under Article III hereof shall be in connection with an underwritten public
offering, each of the Company and each Investor agree and, if so requested by
any underwriter in connection with such offering or sale, shall enter into a
customary agreement with such underwriter agreeing, not to effect any sale or
distribution, including, in the case of Investors, any sale pursuant to Rule 144
under the Securities Act, of any such securities of the Company, or options or
other rights convertible into, or exchangeable or exercisable for, such
securities (other than as part of such underwritten public offering), within
seven (7) days before, or ninety (90) days (or such lesser period as the
managing underwriters may permit) after, the effective date of any such Company
Offering or registration pursuant to Article III or the closing of any sale of
securities in connection with a registration under Section 3.2 (except as part
of any such registration or sale) (such period, a “Holdback Period”);
provided, that,
notwithstanding the foregoing, with respect to any Company Offering, the
Investors shall have no obligation under this Section 4.6, and shall not be
required to enter into any agreement with an underwriter pursuant to this
Section 4.6, in each case that is more restrictive than the obligations imposed
on and agreements required to be entered into by the directors and senior
executive officers of the Company in connection with such Company Offering
and/or in each case that would restrict or prohibit a Sell-Down.

       

      SECTION
4.7 No Inconsistent
Agreement. The
Company represents and warrants that it will not enter into, or cause or permit
any of its Subsidiaries to enter into, any agreement which conflicts with or
limits or prohibits the exercise of the rights granted to the holders of
Registrable Securities in this Agreement.

      
        
           

        

        
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      ARTICLE
V

       

       

       

      PREEMPTIVE RIGHTS; SHARE
REPURCHASES

       

       

      SECTION
5.1 Company Sale of Covered
Securities.  If
the Company offers to sell Covered Securities in a public or private offering of
Covered Securities solely for cash (a “Qualified Offering”),
the Stockholder Parties shall be afforded the opportunity to acquire from the
Company, for the same price and on the same terms as such Covered Securities are
offered, in the aggregate up to the amount of Covered Securities required to
enable it to maintain its then-current Percentage Interest, but solely to the
extent that (i) any such issuance of shares of Covered Securities would not
result in the issuance of Covered Securities that would require a vote of the
stockholders of the Company pursuant to the rules of the NYSE and (ii) the
Company Board determines in its good faith discretion that the acquisition of
such Covered Shares by the Stockholder will not jeopardize or endanger the
availability to the Company of its net operating loss carryforwards to be used
to offset its taxable income in such year or future years, and the basis for
such determination shall be provided to the Stockholder in writing; provided, however, that this
Section 5.1 shall not apply to any Qualified Offering the gross proceeds of
which, together with the aggregate gross proceeds of any other Qualified
Offering of Covered Securities after the date hereof, do not exceed
$1,000,000.  For the avoidance of doubt, to the extent that the
Stockholder Parties’ acquisition of Covered Securities required to enable the
Stockholder Parties to maintain their then-current Percentage Interest would
result in an event described in clause (i) or (ii) of the preceding sentence,
the Stockholder Parties may nonetheless acquire up to the maximum amount that
would not result in the occurrence of such event. In addition prior to the date
of this Agreement, the Company and the Company Board will have taken all
necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti takeover provision under the Company’s
certificate of incorporation (or similar charter documents) or other agreements
or the laws of its state of incorporation (including, without limitation,
Section 203 of the Delaware General Corporation Law) that is or could become
applicable to Stockholder as a result of the Stockholder exercising its rights
under this Section 5.1 to acquire Covered Securities as set forth herein; provided that the Company and
the Company Board shall not be required to take any such action in respect of
the Company’s Section 382 Rights Agreement, dated as of January 20, 2009,
between the Company and American Stock Transfer & Trust Company, LLC (the
“382 Rights
Agreement”) (which will not be applicable to the extent clause (ii) above
does not apply).

       

      
         

         

        SECTION 5.2 Notice.  Prior
to making any Qualified Offering of Covered Securities, the Company shall give
the Stockholder written notice of its intention (including, in the case of a
registered public offering and to the extent possible, a copy of the prospectus
included in the registration statement filed in respect of such), describing, to
the extent then known, the anticipated amount of securities, price (or, in the
case of a registered public offering, an estimated range of prices) and other
material terms upon which the Company proposes to offer the same.  The
Stockholder shall have ten (10) days from the provision of such notice to notify
the Company in writing that it intends to exercise such preemptive purchase
rights and as to the amount of Covered Securities the Stockholder desires to
purchase, up to the maximum

       

      
        
           

        

        
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      amount
calculated pursuant to Section 5.1 (the “Designated
Securities”).  Such notice shall constitute a non-binding
indication of interest of the Stockholder to purchase the amount of Designated
Securities so specified (or a proportionately lesser amount if the amount of
Covered Securities to be offered in such Qualified Offering is subsequently
reduced) at the price (or range of prices) and other terms set forth in the
Company’s notice to it.  The failure to respond during such ten (10)
day period shall constitute a waiver of preemptive rights in respect of such
offering.  Any notice provided by the Company pursuant to this Section
5.2, and any information provided to the Stockholder otherwise in connection
with such Qualified Offering, shall be subject to the terms of the
Confidentiality Agreement applicable to “Evaluation Material” thereunder until
the 90th day
following the consummation of any such Qualified Offering of Covered Securities,
regardless of any termination thereof.  If the sale of Covered
Securities contemplated by the Qualified Offering described in such notice
delivered to the Stockholder (i) is not subject to a binding agreement between
the Company and the purchasers of such Covered Securities, (ii) is not otherwise
consummated within thirty (30) days of delivery of such notice to the
Stockholder, or (iii) if the terms of such binding agreement in respect of the
Qualified Offering are materially amended, or if the terms relating to price are
amended whatsoever, then such Qualified Offering shall again be subject to the
requirements of this Article V.

       

       

      
        	
                
                  SECTION
      5.3 Purchase
      Mechanism.  (a)  If the Stockholder
      exercises its preemptive purchase rights provided in this Article V with
      respect to a Qualified Offering that is an underwritten public offering or
      a private offering made to qualified institutional buyers (as such term is
      defined in Rule 144A under the Act) for resale pursuant to Rule 144A under
      the Act, the Company shall offer the Stockholder, if such underwritten
      public offering or Rule l44A offering is consummated, the Designated
      Securities (as adjusted downward or, at the Stockholder’s option, upward
      to reflect the actual size of such offering when priced) at the same price
      and on the same terms as the Covered Securities are offered to the initial
      purchasers in such offering and shall provide written notice of such price
      to the Stockholder as soon as practicable prior to such
      consummation.

                

              

      

       

       

      (b) If the
Stockholder exercises its preemptive rights provided in this Article V with
respect to a Qualified Offering that is not an underwritten public offering or
Rule 144A offering (a “Private Placement”),
the closing of the purchase of the Covered Securities with respect to which such
right has been exercised shall be conditioned on the consummation of the Private
Placement giving rise to such preemptive purchase rights and shall take place
simultaneously with the closing of the Private Placement or on such other date
as the Company and the Stockholder shall agree in writing; provided that the actual
amount of Covered Securities to be sold to the Stockholder pursuant to its
exercise of preemptive rights hereunder shall be reduced if the aggregate amount
of Covered Securities sold in the Private Placement is reduced and, at the
option of the Stockholder (to be exercised by delivery of written notice to the
Company within five (5) Business Days of receipt of notice of such increase),
shall be increased if such aggregate amount of Covered Securities sold in the
Private Placement is increased.  In connection with its purchase of
Designated Securities, the Stockholder shall, if it continues to wish to
exercise its preemptive rights with respect to such offering, execute an
agreement containing representations, warranties and agreements of the
Stockholder that are substantially

       

      
        
           

        

        
          29

          
            

          

        

        
           

        

      

      similar
in all material respects to the agreements executed by other purchasers in such
Private Placement.

       

       

      (c) If, prior
to consummation of Qualified Offering, the terms of the proposed issuance change
with the result that the price is less than the minimum price or more than the
maximum price set forth in the notice contemplated by Section 5.2 or the other
principal terms are more favorable in any material respect to the prospective
purchaser than those set forth in such notice, it shall be necessary for a
separate notice to be furnished, and the terms and provisions of this Article V
separately complied with.

       

       

      SECTION
5.4 Termination of Preemptive
Rights.  Anything
to the contrary in this Article V notwithstanding, the preemptive right to
purchase Covered Securities granted by this Article V shall terminate as of and
not be available for any offering that commences at any time after the date on
which the Stockholder Transfers any Shares, other than Transfers (i) to
Affiliates of the Stockholder or (ii) pursuant to a Sell-Down.

       

       

      SECTION
5.5 Notice of Share Repurchase,
Redemption.  Unless
otherwise instructed in writing by the Stockholder, following the date hereof
and until the earlier of (i) the fifth anniversary of the date hereof, (ii) such
time as the Stockholder Parties’ Adjusted Ownership no longer exceeds 10% and
(iii) such time as the Stockholder Parties no longer hold any indebtedness of
the Company, the Company will not, directly or indirectly, redeem, purchase or
otherwise acquire, any of its Voting Securities without providing the
Stockholder at least 90 days prior written notice, which notice shall not be
delivered prior to the date of public announcement of such proposed redemption
or repurchase. Beginning on the date of delivery of such notice until the first
to occur of (i) the date such share repurchase, redemption or acquisition is
commenced or (ii) the date such Stockholder receives notice from the Company
that it has abandoned the repurchase, redemption or acquisition disclosed in
such notice, the Stockholder Parties shall be permitted to Transfer Equity
Securities of the Company without regard to the Lock-Up Period and shall have no
obligation pursuant to Section 4.6 hereof, in each case to the extent reasonably
required to ensure that no Stockholder Party, or a direct or indirect owner of
such Stockholder Party (that is a non-U.S. person) is deemed to be a 10% or more
owner of the Company for purposes of the portfolio interest exemption from
withholding as set forth in Sections 871 and 881 of the Internal Revenue Code of
1986, as amended (a “Sell-Down”).  Notwithstanding
the foregoing, the Company shall not, directly or indirectly, redeem, purchase
or otherwise acquire any of its Voting Securities prior to the date which is 90
days following the closing of the Public Offering.

       

       

      ARTICLE
VI

       

       

      STANDSTILL

       

       

      SECTION
6.1 No
Acquisition.  Prior
to the first anniversary of the date of this Agreement, each of the Investors
shall not, and shall cause each of their respective controlled

       

      
        
           

        

        
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      Affiliates
not to, directly or indirectly, acquire, or agree to acquire, by purchase or
otherwise, beneficial ownership of any Capital Stock of the Company (except
pursuant to the Purchase Agreement, the provisions of Article V of this
Agreement, the exchange of rights issued pursuant to the 382 Rights Agreement,
the exercise of the Warrants, or the conversion of any convertible indebtedness
acquired in connection with the Company Refinancing or by way of any stock
split, dividend, spin-off, combination, reclassification or recapitalization of
the Company and its Common Stock) to the extent such acquisition would result in
such Investor and its controlled Affiliates beneficially owning in excess of
19.9% of the Voting Securities of the Company; provided that, for purposes
of this Section 6.1, “beneficial ownership” shall have the meaning given to such
term in Rule 13d-3 of the Exchange Act without regard to the proviso included in
the definition of “beneficial ownership” set forth in Section 1.1
hereof.  For the avoidance of doubt, this prohibition shall not apply
to acquisitions of (i) the Company’s convertible Indebtedness (or the conversion
of such convertible Indebtedness into Capital Stock of the Company) issued in
connection with the Company Refinancing, (ii) the Warrants (or the receipt of
the Common Stock of the Company upon exercise of the Warrants), (iii) in
connection with any exchange of rights under the 382 Rights Agreement; (iv)
purchases of Covered Securities in a Qualified Offering pursuant to and subject
to the limitations set forth in Article V hereof and (v) purchases of Common
Stock on the market if, and to the extent, required to maintain such Investor’s
Ownership Percentage after giving effect to any preemptive rights available to
such Investor pursuant to Article V.  Notwithstanding anything to the
contrary herein, nothing in this Agreement shall be construed as an exemption of
any Investor from the provisions of the 382 Rights Agreement, or a waiver of the
applicability thereof, absent (and solely to the extent of) an express
determination of exemption or inapplicability by the Company Board in accordance
with the terms of the 382 Rights Agreement.

       

       

      SECTION
6.2 Other
Restrictions.  Each
of the Investors shall not, and will cause its controlled Affiliates not to,
directly or indirectly, alone or in concert with others, unless specifically
requested in writing by the Chief Executive Officer of the Company or by a
resolution of the Company Board, take any of the actions set forth below (or
take any action that would require the Company to make an announcement regarding
any of the following:

       

       

      (a) effect,
seek, offer, engage in, propose (whether publicly or otherwise) or cause or
participate in, or assist any other Person to effect, seek, engage in, offer,
cause, propose (whether publicly or otherwise) or participate in:

       

       

      (i) any
acquisition of beneficial ownership of Voting Securities of the Company which
would result in a breach of Section 6.1 of this Agreement;

       

       

      (ii) any
tender or exchange offer, merger, consolidation, share exchange, business
combination, recapitalization, restructuring, liquidation, dissolution or other
extraordinary transaction involving the Company or any material portion of its
business or any purchase of all or any substantial part of the assets of the
Company or any material portion of its business; provided that,
if

       

      
        
           

        

        
          31

          
            

          

        

        
           

        

      

      such
transaction is being conducted by a third-party unaffiliated with such Investor,
the foregoing shall not prevent such Investor from tendering, exchanging,
exercising voting rights in respect of, or otherwise exercising rights in
respect of and opting to receive the benefit of such transactions in the same
manner as offered to other holders of the Company’s Common Stock not
participating in the “group” (as such term is used in Section 13(d)(3) of the
Exchange Act) conducting such transaction; or

       

       

      (iii) any
“solicitation” of “proxies” (as such terms are used in the proxy rules of the
SEC, but without regard to the exclusion set forth in Section 14a-1(l)(2)(iv)
from the definition of “solicitation”) with respect to the Company or any of its
Affiliates or any action resulting in the Stockholder, or any of its controlled
Affiliates, or such other Person becoming a “participant” in any “election
contest” (as such terms are used in the proxy rules of the SEC) with respect to
the Company or any of its Subsidiaries.

       

       

      (b) propose
any matter for submission to a vote of stockholders of the Company or any of its
Affiliates;

       

       

      (c) seek
election to, seek to place a representative on, or seek the removal of, any
director of the Company or any of its Affiliates;

       

       

      (d) except as
contemplated by this Agreement and except for proxies granted to Affiliates of
the Stockholder (and their respective employees, attorneys and agents (other
than Persons who are attorneys and agents solely as a result of the granting of
such proxy), grant any proxy with respect to any Capital Stock of the
Company;

       

       

      (e) form,
join or participate in a “group” (as such term is used in Section 13(d)(3) of
the Exchange Act) with respect to any Capital Stock of the Company, or deposit
any Capital Stock of the Company in a voting trust or, except as contemplated by
this Agreement, subject any Capital Stock of the Company to any arrangement or
agreement with respect to the voting of such Capital Stock or other agreement
having similar effect;

       

       

      (f) take any
other actions to seek to affect the control of the Company Board or the
management of the Company or any of its Affiliates, including publicly
suggesting or announcing its willingness to engage in or have another Person
engage in a transaction that could reasonably be expected to result in a
business combination or to increase the percentage of Capital Stock owned by the
Investor; provided that
from and after the first anniversary of this Agreement, each Investor and its
Affiliates shall not be prohibited by this clause (g) from acquiring Capital
Stock of the Company;

       

      
        
           

        

        
          32

          
            

          

        

        
           

        

      

      

      (g) enter
into any discussions, negotiations, arrangements or understandings with any
Persons with respect to any of the foregoing, or advise, assist, encourage or
seek to persuade others to take any action with respect to any of the foregoing;
or

       

       

      (h) disclose
to any Person (other than an Affiliate) or otherwise induce, encourage, discuss
or facilitate, any intention, plan or arrangement inconsistent with the
foregoing or with the restrictions on transfer set forth in Article II or form
any such intention which would result in the Company or any of its Affiliates or
any Investor or any of its Affiliates being required to make any such disclosure
in any filing with a Governmental Authority or being required to make a public
announcement with respect thereto;

       

       

      provided, however, that notwithstanding
the foregoing restrictions, each Investor shall be entitled to make any
disclosure required by securities or similar disclosure laws, as advised in
writing by outside counsel reasonably familiar with such matters; provided, further that the Stockholder
shall not be prohibited from requesting that the Company Board consider
nominating a designee of the Stockholder for election to the Company Board and,
if so elected, from assisting such designee in the conduct of such designee’s
office and the fulfillment of such designee’s fiduciary duties in such
office.  Subject to Section 7.1, nothing in this Agreement, including
this Section 6.2, will prohibit, limit, condition or delay each Investor’s
ability (i) to vote (including by proxy) or consent with respect to any matter
properly brought before stockholders of the Company for a vote or consent, or
(ii) to tender or exchange its shares); provided, further, that the Stockholder
shall not be required to take any such action as a result of the request of the
Company or a resolution of the Company Board, but, if so requested, prior to
receipt of written notice from the Company to the contrary, the Stockholder may
continue to take such actions that are reasonably related to the matters
addressed in, reasonably in furtherance of, and not in conflict with, such
request or resolution and, if available, the publicly stated position of the
Company with respect to the matters addressed therein.

       

       

      SECTION
6.3 Termination of
Standstill.  The
provisions of this Article VI (except for the last sentence of Section 6.1
hereof) shall terminate in respect of any individual Investor in the event (i)
the Company Board approves a tender offer for 50% or more of the outstanding
Capital Stock of the Company (provided that if such offer
is withdrawn or expires without being consummated, this Article VI shall be
reinstated),(ii) it is publicly disclosed that Capital Stock representing
33-1/3% or more of the voting power of the Company’s stockholders have been
acquired by any Person (including any group of Persons acting in concert) other
than such Investor and its Affiliates, (iii) of (a) the filing by the Company of
a
 voluntary petition in bankruptcy; (b) the
entry of an order of relief in any bankruptcy or insolvency proceeding in
respect of the Company or the entry of an order that the Company is a bankrupt
or insolvent; or (c) any involuntary proceeding seeking liquidation,
reorganization or other relief against the Company under any bankruptcy,
insolvency or other similar law now or hereafter in effect that has not been
dismissed 60 days after the commencement thereof, (iv) of the public
announcement of any merger, consolidation, share exchange, business combination,
recapitalization, restructuring, liquidation, dissolution or other extraordinary
transaction, in each case involving a change of control of the Company or
substantially all of its business or any

       

      
        
           

        

        
          33

          
            

          

        

        
           

        

      

      purchase
of all or substantially all of the assets of the Company or substantially all of
its business, in each case conducted by any Person (including any group of
Persons acting in concert) other than such Investor and its Affiliates, (v)
solely with respect to the Stockholder Parties, the Stockholder Parties’
aggregate Adjusted Ownership has not exceeded 9.9% for 120 consecutive days or
(vi) of the first anniversary of the first date upon which the Warrants may be
exercised in accordance with their terms.

       

       

      ARTICLE
VII

       

       

      VOTING
LIMITATION

       

       

      SECTION
7.1 Limitation on
Voting.  At
any meeting of the Company’s stockholders, however called, including any
adjournment or postponement thereof, or in connection with any written consent
of the Company’s stockholders, unless otherwise consented to by the Company
Board:

       

       

      (a) each
Investor shall, and shall cause its controlled Affiliates to, appear at each
such meeting or otherwise cause all Capital Stock of the Company beneficially
owned or owned of record by such Investor or its controlled Affiliates entitled
to vote on any matter at such meeting to be duly counted as present thereat for
purposes of calculating a quorum (to the extent such shares of Capital Stock may
be so counted);

       

       

      (b) with
respect to any proposals requiring approval by the affirmative vote of a
percentage of the votes cast in respect of such proposal, in person or by proxy,
at such meeting, each Investor shall, and shall cause its controlled Affiliates
to, vote, or cause to be voted, collectively, that number of shares of its and
their Capital Stock entitled to be voted in respect of such proposal
representing no more than the Voting Threshold in respect of such proposal, and
shall cause any remaining shares of its and their Capital Stock entitled to vote
thereon to be properly withheld (but not cast as abstaining votes) from voting
on such matter (such remaining shares, the “Withheld
Shares”);

       

       

      (c) with
respect to any proposals at any such meeting requiring approval by the
affirmative vote of a percentage of the outstanding shares of Capital Stock or
of aggregate voting power entitled to vote in respect of such proposal, in
person or by proxy, at such meeting, or in respect of any written consent of the
Company’s stockholders, or any proposal in respect of which the provisions of
Section 7.1(b) cannot or do not apply, each Investor shall, and shall cause its
controlled Affiliates to, vote, or cause to be voted, all shares of its and
their Capital Stock entitled to be voted in respect of such proposal in excess
of the Voting Threshold (such excess shares, the “Excess Shares”) in
the same proportion as all other votes cast on such proposal (including any
votes cast by such Investor and its controlled Affiliates other than Excess
Shares).

       

      
        
           

        

        
          34

          
            

          

        

        
           

        

      

      

      SECTION
7.2 No Inconsistent
Agreements.  Each
Investor hereby represents, warrants, covenants and agrees that, except for this
Agreement, the neither such Investor nor any of its controlled Affiliates (a)
have entered into, and none shall enter into at any time while this Agreement
remains in effect, any voting agreement or voting trust with respect to such
Investor’s or its controlled Affiliates’ Capital Stock of the Company and (b)
have granted, and none shall grant at any time while this Agreement remains in
effect, a proxy, consent or power of attorney with respect to such Investor’s or
its controlled Affiliates’ Capital Stock of the Company that is inconsistent
with this Agreement.

       

       

      SECTION
7.3 Termination of Voting
Rights.  The
provisions of this Article VII shall terminate in respect of any individual
Investor in the event (i) the Company Board approves a tender offer for 50% or
more of the outstanding Capital Stock of the Company (provided that if such offer
is withdrawn or expires without being consummated, this Article VII shall be
reinstated), (ii) it is publicly disclosed that Capital Stock representing
33-1/3% or more of the voting power of the Company’s stockholders has been
acquired by any Person (including any group of Persons acting in concert) other
than such Investor and its Affiliates, (iii) of (a) the filing by the Company of
a voluntary petition in bankruptcy; (b) the entry of an order of relief in any
bankruptcy or insolvency proceeding in respect of the Company or the entry of an
order that the Company is bankrupt or insolvent; or (c) any involuntary
proceeding seeking liquidation, reorganization or other relief against the
Company under any bankruptcy, insolvency or other similar law now or hereafter
in effect that has not been dismissed 60 days after the commencement thereof,
(iv) of the public announcement of any merger, consolidation, share exchange,
business combination, recapitalization, restructuring, liquidation, dissolution
or other extraordinary transaction, in each case involving a change of control
of the Company or substantially all of its business or any purchase of all or
substantially all of the assets of the Company or substantially all of its
business, in each case conducted by any Person (including any group of Persons
acting in concert) other than such Investor and its Affiliates, or (v) solely
with respect to the Stockholder Parties, upon the date that the Stockholder
Parties’ aggregate Adjusted Ownership has not exceeded 9.9% for 120 consecutive
days.

       

       

                                    
ARTICLE
VIII                                

       

       

      MISCELLANEOUS

       

       

      SECTION
8.1 Governing Law; Venue. This
Agreement shall be deemed to be made in and in all respects shall be
interpreted, construed and governed by and in accordance with the laws of the
State of New York (except to the extent that mandatory provisions of Delaware
law are applicable).  The parties hereby irrevocably submit to the
jurisdiction of the courts of the State of New York and the federal courts of
the United States of America located in the State of New York solely for the
purposes of any suit, action or other proceeding between any of the parties
hereto arising out of this Agreement or any transaction contemplated hereby, and
hereby waive, and agree to assert, as a defense in any action, suit or
proceeding for the interpretation or enforcement hereof, that it is not subject
thereto or that such action, suit or proceeding may not be brought or is not
maintainable in said courts or that the venue thereof

      
        
           

        

        
          35

          
            

          

        

        
           

        

      

      may not
be appropriate or that this Agreement may not be enforced in or by such courts,
and the parties hereto irrevocably agree that all claims with respect to such
action or proceeding shall be heard and determined in such New York state or
federal court.  The parties hereby consent to and grant any such court
jurisdiction over the person of such parties and over the subject matter of such
dispute and agree that mailing of process or other papers in connection with any
such action or proceeding in the manner provided in Section 8.5 or in such other
manner as may be permitted by law, shall be valid and sufficient service
thereof.    EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.

       

      
        	
                
                  SECTION
      8.2 Attorney’s
      Fees.  In the event of any action of any kind
      between the parties hereto with respect to this Agreement, the prevailing
      party shall be entitled to recover from the other party its reasonable
      attorney’s fees and related costs, expenses and disbursements incurred in
      connection with such action.

                

              

      

       

       

      SECTION
8.3 Termination.  The
provisions of Article III and Article IV of this Agreement shall terminate upon
the earliest to occur of (a) the date when no Registrable Securities remain
outstanding, (b) June 30, 2017 and (c), solely with respect to any individual
Investor, when such Investor no longer holds any Registrable Securities or
Warrants.    The remaining provisions of this agreement
shall terminate in accordance with their terms, or, if no such termination is
provided for hereunder, shall survive until terminated by written agreement of
each of the parties hereto.  Nothing herein shall relieve any party
from any liability for the breach of any provisions set forth in this
Agreement.

       

      SECTION
8.4 Entire Agreement;
Amendments. This
Agreement and the Transaction Agreements constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof, and no party shall be liable or bound to any other party in
any manner by any warranties, representations or covenants except as
specifically set forth herein or therein.  Except as expressly
provided herein, neither this Agreement nor any term hereof may be amended,
waived, discharged or terminated other than by a written instrument signed by
the party against whom enforcement of any such amendment, waiver, discharge or
termination is sought.

       

      SECTION
8.5 Notices. Any
notice, request, instruction or other document to be given hereunder by any
party to the other will be in writing and will be deemed to have been duly given
(a) on the date of delivery if delivered personally or by telecopy or facsimile,
upon confirmation of receipt, (b) on the first Business Day following the date
of dispatch if delivered by a recognized next-day courier service, or (c) on the
third Business Day following the date of mailing if delivered by registered or
certified mail, return receipt requested, postage prepaid.  All
notices hereunder shall be delivered as set forth below, or pursuant to such
other instructions as may be designated in writing by the party to receive such
notice.

      
        
           

        

        
          36

          
            

          

        

        
           

        

      

      

      If to the
Stockholder to it at:

       

      Paulson
& Co. Inc.

      1251
Avenue of the Americas, 50th
Floor

      New York,
New York 10020

      Attn:  Mr.
Michael Waldorf

      
Telephone:  (212)
956-2221

      Fax:  (212)
351-5886

       

      with a
copy to (which copy alone shall not constitute notice):

       

      Kleinberg,
Kaplan, Wolff & Cohen, P.C.

      551 Fifth
Avenue, 18th
Floor

      New York,
New York 10176

      Attn:    Stephen
M. Schultz, Esq.

      Telephone:  (212)
986-6000

      Fax:  (212)
986-8866

       

      If to the
Company:

       

      Conseco,
Inc.

      11825
North Pennsylvania Street

      Carmel,
Indiana 46032

      Attn:
General Counsel

      Telephone:  (317)
817-2889

      Fax:  (317)
817-2826

       

      with a
copy to (which copy alone shall not constitute notice):

       

      Simpson
Thacher & Bartlett LLP

      425
Lexington Avenue

      New York,
New York 10017

      Attn:
Gary I. Horowitz, Esq.

      Telephone:  (212)
455-2000

      Fax:  (212)
455-2502

       

      SECTION
8.6 Specific
Performance. The
Company and the Stockholder acknowledge and agree that irreparable damage to the
other party would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached.  It is accordingly agreed that each party shall be
entitled to an injunction, injunctions or other equitable relief, without the
necessity of posting a bond, to prevent or cure breaches of the provisions of
this Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which the parties may be entitled by
law or equity.

      
        
           

        

        
          37

          
            

          

        

        
           

        

      

      

       

      SECTION
8.7 Delays or
Omissions. It is
agreed that no delay or omission to exercise any right, power or remedy accruing
to any party, upon any breach, default or noncompliance by another party under
this Agreement, shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in any similar breach, default or noncompliance
thereafter occurring. It is further agreed that any waiver, permit, consent or
approval of any kind or character on the part of any party hereto of any breach,
default or noncompliance under this Agreement or any waiver on such party's part
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, by law, or otherwise afforded to any
party, shall be cumulative and not alternative.

       

      SECTION
8.8 No Third Party
Beneficiaries. Other
than as set forth in Section 4.4, nothing in this Agreement, expressed or
implied, is intended to confer upon any person, other than the parties hereto or
their respective successors, any rights, remedies, obligations or liabilities
under or by reason of this Agreement.

       

       

      SECTION
8.9 Successors, Assigns;
Transferees. This
Agreement shall bind and inure to the benefit of and be enforceable by the
parties hereto and their respective successors and permitted assigns and
transferees. Except as expressly provided herein, this Agreement may not be
assigned by any party hereunder except by operation of law or with the prior
written consent of the Company, in the case of any assignment by an Investor, or
of the Stockholder, in the case of the Company, except that an Investor
hereunder may assign the rights to cause the Company to register any Registrable
Securities that such Investor Transfers to a transferee pursuant to and in
accordance with this Agreement (but, for so long as such Investor holds Equity
Securities of the Company, no such Transfer or assignment shall relieve such
Investor of its obligations hereunder), if such transferee (a) (i) acquires at
least 10% of the Registrable Securities (other than convertible Indebtedness
issued in connection with the Company Refinancing) pursuant to such transfer and
(ii) as a result of such acquisition, beneficially owns at least 10% of the
Common Stock of the Company (excluding convertible Indebtedness issued in
connection with the Company Refinancing) or (b) is an Affiliate of the
Stockholder (a transferee described in clause (a), an “Unaffiliated
Assignee”, a transferee described in clause (b), an “Affiliated Assignee”,
and collectively, the “Permitted
Assignees”), in each case subject to the succeeding
sentence.  Any purported Permitted Assignee shall agree to be bound by
and subject to the obligations attributable to an Investor and of a holder of
Registrable Securities found in Articles I, II, III, IV, VI, VII and VIII of
this Agreement but excluding any rights and obligations attributable solely to
the Stockholder or, in the case of an Unaffiliated Assignee, to an Affiliated
Assignee) and, solely with respect to purported Permitted Assignees that are
Affiliates of the Stockholder, Article V hereof, and as a condition to such
transferee's receipt of such shares and such rights, such transferee, if not
already bound in writing by such provisions hereof, shall execute an agreement
in form and substance reasonably satisfactory to the Company, agreeing to be
bound by such provisions hereof.  For avoidance of doubt, however, no
such transfer and assignment shall (i) act to duplicate any limited rights to
which the Stockholder is otherwise entitled hereunder, including, without
limitation, the right to deliver no more than three Demand Notices pursuant to
Section 3.2 hereunder or (ii) act to assign or transfer any of

       

      
        
           

        

        
          38

          
            

          

        

        
           

        

      

      the
rights and obligations set forth in Article V hereof except in respect of a
transfer and assignment to a Permitted Assignee who is also an Affiliate of the
Stockholder.

       

       

      SECTION
8.10 Expenses.  Except
as otherwise expressly provided herein, each of the Company and the Stockholder
shall bear its own respective expenses incurred on its behalf with respect to
this Agreement.

       

       

      SECTION
8.11 Payment
Obligations.  Notwithstanding
anything to the contrary herein, the Company will make any payment required to
be made by it pursuant to the terms of this Agreement only to the extent not
prohibited by any material agreement of the Company in effect on the date
hereof, and any failure to make a payment otherwise so required hereunder shall
not constitute a default or breach of the Company’s obligations hereunder to the
extent so prohibited by any such material agreement.

       

       

      SECTION
8.12 Counterparts. This
Agreement may be executed in any number of counterparts, each of which shall be
enforceable against the parties actually executing such counterparts, and all of
which together shall constitute one instrument.  This Agreement may be
executed by facsimile signature(s).

       

      SECTION
8.13 Severability. In the
event that any provision of this Agreement becomes or is declared by a court of
competent jurisdiction to be illegal, unenforceable or void, this Agreement
shall continue in full force and effect without said provision; provided that no such
severability shall be effective if it materially changes the economic benefit of
this Agreement to any party.

       

      SECTION
8.14 Titles and
Subtitles.  The
titles and subtitles used in this Agreement are used for convenience only and
are not considered in construing or interpreting this
Agreement.

      
        
           

        

        
          39

          
            

          

        

        
           

        

      

      

       

      IN
WITNESS WHEREOF, the parties hereto have executed the INVESTOR RIGHTS AGREEMENT
as of the date set forth in the first paragraph hereof.

       

       

      CONSECO,
INC.

       

      

       

      By:  /s/ Edward J.
Bonach

          Name:  Edward
J. Bonach

      Title:  Executive
Vice President and

         Chief Financial
Officer

       
 

       

      PAULSON
& CO. INC., on behalf of the several investment funds and accounts managed
by it

       

      

      
        	
                 
      

              	
                By:  /s/ Michael
      Waldorf

              

      

      Name:  Michael
Waldorf

      Title:  Managing
Director

       
 

      
        
          
             

          

           

        

        
          
          

          
            

          

        

        
           

        

      

      Annex
A

      

      Plan
of Distribution

      

      We are
registering the shares offered by this prospectus on behalf of the selling
stockholders named in this prospectus.  The selling stockholders may,
from time to time, sell, transfer or otherwise dispose of any or all of their
shares of common stock or interests in shares of common stock on any stock
exchange, market or trading facility on which the shares are traded or in
private transactions directly or through one or more underwriters,
broker-dealers or agents.  If the shares of common stock are sold
through underwriters or broker-dealers, the selling stockholders will be
responsible for underwriting discounts or commissions or agent’s
commissions.  These dispositions may be at fixed prices, at prevailing
market prices at the time of sale, at prices related to the prevailing market
price, at varying prices determined at the time of sale, or at negotiated
prices.

       

      The
selling stockholders will act independently of us in making decisions as to the
timing, manner and size of each sale.  The selling stockholders may
use any one or more of the following methods when disposing of shares or
interests therein:

       

      
        	
                ·

              	
                in
      the over-the-counter market;

                 

              
	
                ·

              	
                on
      any national securities exchange or market, if any, on which our common
      stock may be listed at the time of sale;

                 

              
	
                ·

              	
                in
      transactions otherwise than on an exchange or in the over-the-counter
      market, or in a combination of any such transactions;

                 

              
	
                ·

              	
                through
      block trades in which the broker or dealer so engaged will attempt to sell
      the shares as agent, but may position and resell a portion of the block as
      principal to facilitate the transaction;

                 

              
	
                ·

              	
                through
      purchases by a broker or dealer as principal and resale by such broker or
      dealer for its account pursuant to this prospectus;

                 

              
	
                ·

              	
                in
      ordinary brokerage transactions and transactions in which the broker
      solicits purchasers;

                 

              
	
                ·

              	
                through
      writing of options, swaps, forwards, or derivatives;

                 

              
	
                ·

              	
                in
      privately negotiated transactions;

                 

              
	
                ·

              	
                in
      transactions to cover short sales;

                 

              
	
                ·

              	
                through
      transactions in which broker-dealers may agree with the selling
      stockholders to sell a specified number of such shares at a stipulated
      price per share;

                 

              
	
                ·

              	
                through
      a combination of any such methods of
sale.

              

      

       

      
 

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      The
selling stockholders may, from time to time, pledge or grant a security interest
in some or all of the shares of common stock owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties
may offer and sell the shares of common stock, from time to time, under this
prospectus, or under an amendment or supplement to this prospectus under
Rule 424(b)(3) or other applicable provision of the Securities Act of 1933,
as amended amending the list of selling stockholders to include the pledgee,
transferee or other successors in interest as selling stockholders under this
prospectus.

       

      The
selling stockholders may sell their shares of our common stock directly to
purchasers or may use brokers, dealers, underwriters or agents to sell such
shares. In effecting sales, brokers and dealers engaged by the selling
stockholders may arrange for other brokers or dealers to participate. Brokers or
dealers may receive commissions, discounts or concessions from a selling
stockholder or, if any such broker-dealer acts as agent for the purchaser of
such shares, from a purchaser in amounts to be negotiated. Such compensation
may, but is not expected to, exceed that which is customary for the types of
transactions involved. Broker-dealers may agree with a selling stockholder to
sell a specified number of such shares at a stipulated price per share, and, to
the extent such broker-dealer is unable to do so acting as agent for a selling
stockholder, to purchase as principal any unsold shares at the price required to
fulfill the broker-dealer commitment to the selling
stockholders.  Broker-dealers who acquire shares as principal may
thereafter resell such shares from time to time in transactions, which may
involve block transactions and sales to and through other broker-dealers,
including transactions of the nature described above, in the over-the-counter
market or otherwise at prices and on terms then prevailing at the time of sale,
at prices then related to the then-current market price or in negotiated
transactions. In connection with such resales, broker-dealers may pay to, or
receive from, the purchasers of such shares commissions as described
above.

       

      The
selling stockholders and any broker-dealers or agents that participate with the
selling stockholders in sales of their shares of our common stock may be deemed
to be “underwriters” within the meaning of the Securities Act of 1933, as
amended in connection with such sales. In such event, any commissions received
by such broker-dealers or agents and any profit on the resale of such shares
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act of 1933, as amended.

       

      From time
to time, the selling stockholders may engage in short sales, short sales against
the box, puts and calls and other hedging transactions in our securities, and
may sell and deliver their shares of our common stock in connection with such
transactions or in settlement of securities loans. These transactions may be
entered into with broker-dealers or other financial institutions. In addition,
from time to time a selling stockholder may pledge our shares pursuant to the
margin provisions of customer agreements with broker-dealers or other financial
institutions. Upon delivery of such shares or a default by a selling
stockholder, the broker-dealer or financial institution may offer and sell such
pledged shares from time to time under this prospectus, or under an amendment or
supplement to this prospectus under Rule 424(b)(3) or other applicable
provision of the Securities Act of 1933, as amended amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus.

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      The
selling stockholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act of
1933, as amended provided that they meet the criteria and conform to the
requirements of that rule.

       

      We are
required to pay all fees and expenses incident to the registration of the common
stock. We have agreed to indemnify the selling stockholders against certain
losses, claims, damages and liabilities under the Securities Act of 1933, as
amended.

       

      The
selling stockholders are subject to applicable provisions of the Securities
Exchange Act of 1934, as amended and the SEC’s rules and regulations, including
Regulation M, which provisions may limit the timing of purchases and sales of
the shares by the selling stockholders.

       

      In order
to comply with certain states’ securities laws, if applicable, the shares may be
sold in those jurisdictions only through registered or licensed brokers or
dealers.  In certain states the shares may not be sold unless the
shares have been registered or qualified for sale in such state, or unless an
exemption from registration or qualification is available and is
obtained.

      

      We will
file supplements to this prospectus as required by item 508 of Regulation S-K to
the extent applicable.

      

      The
selling stockholders are not restricted as to the price or prices at which they
may sell their common shares. Sales of such common shares may have an adverse
effect on the market price of the securities, including the market price of the
common shares. Moreover, the selling stockholders are not restricted as to the
number of common shares that may be sold at any time, and it is possible that a
significant number of common shares could be sold at the same time, which may
have an adverse effect on the market price of the common shares.

      

      We and
the selling stockholders may agree to indemnify any underwriter, broker-dealer
or agent that participates in transactions involving sales of the common shares
against certain liabilities, including liabilities arising under the Securities
Act.

      

      
        
          
             

          

           

        

        
          
          

          
            

          

        

        
           

        

      

      EXHIBIT
A

       

      FORM
OF REQUEST FOR REMOVAL OF RESTRICTIVE LEGEND IN CONNECTION WITH A TRANSFER
PURSUANT TO RULE 144

       

      To be
delivered to:

       

      Conseco,
Inc.

      11825
North Pennsylvania Street

      Carmel,
Indiana 46032

      Attn:
General Counsel

       

      [Address
of Transfer Agent]

       

      
        	
                 
      

              	
                Re:

              	
                Shares,
      Warrants or Common Stock issuable upon exercise of the Warrants or upon
      conversion of convertible Indebtedness acquired by Stockholder in the
      Company Refinancing (collectively, the “Securities”)

              

      

       

      Reference is hereby made to the
Investor Rights Agreement dated as of ______ __, 20__ (the “Rights Agreement”) by
and among Conseco, Inc., a Delaware corporation (the “Company”), and Paulson
& Co. Inc., a Delaware corporation, on behalf of the several investment
funds and accounts managed by it, and any other Investors agreeing in writing to
be bound by the terms of the Rights Agreement.  Capitalized terms used
by not defined herein will have the respective meanings ascribed to such terms
in the Rights Agreement.

      

      This letter relates to the following
Securities held by the undersigned Investor (the “Subject
Securities”):

      

      
        	
                 
      

              	 [     ]	
                Warrants
      to acquire _________ shares of Common Stock represented by certificate
      number(s):
  ________________________________________.

              

      

      

      
        	
                                
      [     ]

              	
                _________
      shares of Common Stock represented by certificate number(s):
      ________________________________________.

              

      

      

      The
undersigned Investor requests that the restrictive legend included on the face
of the Subject Securities described above pursuant to Section 2.2 of the Rights
Agreement (the “Restrictive Legend”)
be removed.  In connection with such request, the undersigned Investor
does hereby certify that neither the Restrictive Legend nor the restrictions on
transfer set forth therein are required to ensure that transfers of the Subject
Securities will not violate the registration requirements of the Securities Act
for the reason checked below:

       

      The
Subject Securities are being Transferred in a transaction exempt from
registration under the Securities Act pursuant to Rule 144.  The
Investor hereby certifies that the Subject Securities are eligible for resale
without limitation under Rule 144 (other than company information requirements
of paragraph (c) of Rule 144).  In connection with this Transfer, the
Investor hereby represents and warrants as follows:

       

      
        	
                1.  

              	
                The
      Investor is not, and has not been at any time during the three months
      preceding the date hereof, an affiliate (as defined under Rule 144) of the
      Company;

              

      

       

      
        	
                2.  

              	
                The
      Subject Securities were acquired from the Issuer or from an affiliate of
      the Issuer, and the full purchase price or other consideration was paid
      therefore, at least six months prior to the date hereof;
    and

              

      

       

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      
        	
                3.  

              	
                The
      Investor is not aware of any material adverse information with regard to
      the Company which has not been publicly
  disclosed.

              

      

       

      Notwithstanding
anything to the contrary herein, and without otherwise limiting the Investor’s
remedies under the Rights Agreement, if the Company is not in compliance with
the Company information requirements of paragraph (c) of Rule 144, the Investor
hereby instructs the Company to disregard this request until such time as the
Company is again in compliance with such requirements of paragraph (c) of Rule
144.

       

      This
certificate and the statements contained herein are made for the benefit of the
Company and the Company’s transfer agent on behalf of the undersigned
Investor.

       

      [NAME OF
INVESTOR]

      
        	
                 
      

              	
                By:
      _________________________________

              

      

       

      
        	
                 
      

              	
                  Name:

              

      

       

      
        	
                 
      

              	
                  Title:

              

      

       

      Dated:  ___________,
____

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