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Exhibit 10.4    
    

 
 

CREDIT AGREEMENT    
    
    DATED AS OF
  FEBRUARY 3, 2006    
    
    AMONG    
    
    ELLORA ENERGY INC.
  AND
  ELLORA OIL & GAS INC.,
  AS BORROWERS,    

    JPMORGAN CHASE BANK, N.A.,
  AS ADMINISTRATIVE AGENT    
    
    AND    
    
    THE LENDERS PARTY HERETO    
    
    $400,000,000    
    
    J.P. MORGAN SECURITIES INC.,    
    
    AS LEAD
ARRANGER AND BOOK MANAGER    

 
 
 

TABLE OF CONTENTS    
    

	 
	 	 
	 	Page:

	ARTICLE I

DEFINITIONS AND ACCOUNTING MATTERS
	

SECTION 1.01	
 	

TERMS DEFINED ABOVE	
 	

1
	SECTION 1.02	 	CERTAIN DEFINED TERMS	 	1
	SECTION 1.03	 	TYPES OF LOANS AND BORROWINGS	 	17
	SECTION 1.04	 	TERMS GENERALLY; RULES OF CONSTRUCTION	 	17
	SECTION 1.05	 	ACCOUNTING TERMS AND DETERMINATIONS; GAAP	 	17
	
ARTICLE II

THE CREDITS
	

SECTION 2.01	
 	

COMMITMENTS	
 	

18
	SECTION 2.02	 	LOANS AND BORROWINGS	 	18
	SECTION 2.03	 	REQUESTS FOR BORROWINGS	 	19
	SECTION 2.04	 	INTEREST ELECTIONS	 	19
	SECTION 2.05	 	FUNDING OF BORROWINGS	 	20
	SECTION 2.06	 	CHANGES IN THE AGGREGATE MAXIMUM CREDIT AMOUNT	 	21
	SECTION 2.07	 	BORROWING BASE	 	21
	SECTION 2.08	 	LETTERS OF CREDIT	 	24
	
ARTICLE III

PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES
	

SECTION 3.01	
 	

REPAYMENT OF LOANS	
 	

28
	SECTION 3.02	 	INTEREST	 	28
	SECTION 3.03	 	ALTERNATE RATE OF INTEREST	 	28
	SECTION 3.04	 	PREPAYMENTS	 	29
	SECTION 3.05	 	FEES	 	30
	SECTION 3.06	 	JOINT AND SEVERAL LIABILITY	 	31
	
ARTICLE IV

PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS.
	

SECTION 4.01	
 	

PAYMENTS GENERALLY; PRO RATA TREATMENT; SHARING OF SET-OFFS	
 	

32
	SECTION 4.02	 	PRESUMPTION OF PAYMENT BY THE BORROWERS	 	33
	SECTION 4.03	 	CERTAIN DEDUCTIONS BY THE ADMINISTRATIVE AGENT	 	33
	SECTION 4.04	 	DISPOSITION OF PROCEEDS	 	34
	
ARTICLE V

INCREASED COSTS; BREAK FUNDING PAYMENTS; TAXES; ILLEGALITY
	

SECTION 5.01	
 	

INCREASED COSTS	
 	

34
	SECTION 5.02	 	BREAK FUNDING PAYMENTS	 	35
	SECTION 5.03	 	TAXES	 	35
	SECTION 5.04	 	MITIGATION OBLIGATIONS	 	36
	SECTION 5.05	 	ILLEGALITY	 	36
	 	 	 	 	 

i

 

	
ARTICLE VI

CONDITIONS PRECEDENT
	

SECTION 6.01	
 	

EFFECTIVE DATE; INITIAL LOANS	
 	

37
	SECTION 6.02	 	EACH CREDIT EVENT	 	39
	
ARTICLE VII

REPRESENTATIONS AND WARRANTIES
	

SECTION 7.01	
 	

ORGANIZATION; POWERS	
 	

40
	SECTION 7.02	 	AUTHORITY; ENFORCEABILITY	 	40
	SECTION 7.03	 	APPROVALS; NO CONFLICTS	 	40
	SECTION 7.04	 	FINANCIAL CONDITION; NO MATERIAL ADVERSE CHANGE	 	40
	SECTION 7.05	 	LITIGATION	 	41
	SECTION 7.06	 	ENVIRONMENTAL MATTERS	 	41
	SECTION 7.07	 	COMPLIANCE WITH THE LAWS AND AGREEMENTS; NO DEFAULTS	 	42
	SECTION 7.08	 	INVESTMENT COMPANY ACT	 	42
	SECTION 7.09	 	PUBLIC UTILITY HOLDING COMPANY ACT	 	42
	SECTION 7.10	 	TAXES	 	42
	SECTION 7.11	 	ERISA	 	43
	SECTION 7.12	 	DISCLOSURE; NO MATERIAL MISSTATEMENTS	 	43
	SECTION 7.13	 	INSURANCE	 	44
	SECTION 7.14	 	RESTRICTION ON LIENS	 	44
	SECTION 7.15	 	SUBSIDIARIES	 	44
	SECTION 7.16	 	LOCATION OF BUSINESS AND OFFICES	 	44
	SECTION 7.17	 	PROPERTIES; TITLES, ETC.	 	44
	SECTION 7.18	 	MAINTENANCE OF PROPERTIES	 	45
	SECTION 7.19	 	GAS IMBALANCES, PREPAYMENTS	 	46
	SECTION 7.20	 	MARKETING OF PRODUCTION	 	46
	SECTION 7.21	 	SWAP AGREEMENTS	 	46
	SECTION 7.22	 	USE OF LOANS AND LETTERS OF CREDIT	 	46
	SECTION 7.23	 	SOLVENCY	 	46
	
ARTICLE VIII

AFFIRMATIVE COVENANTS
	

SECTION 8.01	
 	

FINANCIAL STATEMENTS; OTHER INFORMATION	
 	

47
	SECTION 8.02	 	NOTICES OF MATERIAL EVENTS	 	48
	SECTION 8.03	 	EXISTENCE; CONDUCT OF BUSINESS	 	49
	SECTION 8.04	 	PAYMENT OF OBLIGATIONS	 	49
	SECTION 8.05	 	PERFORMANCE OF OBLIGATIONS UNDER LOAN DOCUMENTS	 	49
	SECTION 8.06	 	OPERATION AND MAINTENANCE OF PROPERTIES	 	49
	SECTION 8.07	 	INSURANCE	 	50
	SECTION 8.08	 	BOOKS AND RECORDS; INSPECTION RIGHTS	 	50
	SECTION 8.09	 	COMPLIANCE WITH LAWS	 	50
	SECTION 8.10	 	ENVIRONMENTAL MATTERS	 	50
	SECTION 8.11	 	FURTHER ASSURANCES	 	51
	SECTION 8.12	 	RESERVE REPORTS	 	51
	SECTION 8.13	 	TITLE INFORMATION	 	52
	SECTION 8.14	 	ADDITIONAL COLLATERAL; ADDITIONAL GUARANTORS	 	53
	SECTION 8.15	 	ERISA COMPLIANCE	 	53
	 	 	 	 	 

ii

 

	
ARTICLE IX

NEGATIVE COVENANTS
	

SECTION 9.01	
 	

FINANCIAL COVENANTS	
 	

54
	SECTION 9.02	 	DEBT	 	54
	SECTION 9.03	 	LIENS	 	55
	SECTION 9.04	 	RESTRICTED PAYMENTS	 	55
	SECTION 9.05	 	INVESTMENTS, LOANS AND ADVANCES	 	55
	SECTION 9.06	 	NATURE OF BUSINESS; INTERNATIONAL OPERATIONS	 	56
	SECTION 9.07	 	LIMITATION ON LEASES	 	57
	SECTION 9.08	 	PROCEEDS OF NOTES/LOANS	 	57
	SECTION 9.09	 	ERISA COMPLIANCE	 	57
	SECTION 9.10	 	SALE OR DISCOUNT OF RECEIVABLES	 	58
	SECTION 9.11	 	MERGERS, ETC.	 	58
	SECTION 9.12	 	SALE OF PROPERTIES	 	58
	SECTION 9.13	 	ENVIRONMENTAL MATTERS	 	59
	SECTION 9.14	 	TRANSACTIONS WITH AFFILIATES	 	59
	SECTION 9.15	 	SUBSIDIARIES	 	59
	SECTION 9.16	 	SUBSIDIARY INDEBTEDNESS AND PREFERRED STOCK	 	59
	SECTION 9.17	 	NEGATIVE PLEDGE AGREEMENTS	 	59
	SECTION 9.18	 	TAKE-OR-PAY OR OTHER PREPAYMENTS	 	59
	SECTION 9.19	 	SWAP AGREEMENTS	 	59
	SECTION 9.20	 	ELLORA HOLDINGS	 	60
	
ARTICLE X

EVENTS OF DEFAULT; REMEDIES
	

SECTION 10.01	
 	

EVENTS OF DEFAULT	
 	

60
	SECTION 10.02	 	REMEDIES	 	62
	
ARTICLE XI

THE AGENTS
	

SECTION 11.01	
 	

APPOINTMENT; POWERS	
 	

62
	SECTION 11.02	 	DUTIES AND OBLIGATIONS OF ADMINISTRATIVE AGENT	 	62
	SECTION 11.03	 	ACTION BY ADMINISTRATIVE AGENT	 	63
	SECTION 11.04	 	RELIANCE BY ADMINISTRATIVE AGENT	 	63
	SECTION 11.05	 	SUBAGENTS	 	64
	SECTION 11.06	 	RESIGNATION OF AGENTS	 	64
	SECTION 11.07	 	AGENTS AS LENDERS	 	64
	SECTION 11.08	 	NO RELIANCE	 	64
	SECTION 11.09	 	AUTHORITY TO RELEASE COLLATERAL AND LIENS	 	65
	SECTION 11.10	 	THE ARRANGER AND AGENTS	 	65
	SECTION 11.11	 	FILING OF PROOFS OF CLAIM	 	65
	
ARTICLE XII

MISCELLANEOUS
	

SECTION 12.01	
 	

NOTICES	
 	

66
	SECTION 12.02	 	WAIVERS; AMENDMENTS	 	66
	SECTION 12.03	 	EXPENSES, INDEMNITY; DAMAGE WAIVER	 	67
	SECTION 12.04	 	SUCCESSORS AND ASSIGNS	 	69
	SECTION 12.05	 	SURVIVAL; REVIVAL; REINSTATEMENT	 	72
	SECTION 12.06	 	COUNTERPARTS; INTEGRATION; EFFECTIVENESS	 	72
	 	 	 	 	 

iii

 

	SECTION 12.07	 	SEVERABILITY	 	72
	SECTION 12.08	 	RIGHT OF SETOFF	 	73
	SECTION 12.09	 	GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS	 	73
	SECTION 12.10	 	HEADINGS	 	74
	SECTION 12.11	 	CONFIDENTIALITY	 	74
	SECTION 12.12	 	EXCULPATION PROVISIONS	 	74
	SECTION 12.13	 	NO THIRD PARTY BENEFICIARIES	 	75
	SECTION 12.14	 	COLLATERAL MATTERS; SWAP AGREEMENTS	 	75
	SECTION 12.15	 	US PATRIOT ACT NOTICE	 	75
	
ANNEXES, EXHIBITS AND SCHEDULES
	

Annex I	
 	

List of Maximum Credit Amounts	
 	

 
	

Exhibit A	
 	

Form of Note	
 	

 
	Exhibit B	 	Form of Borrowing Request	 	 
	Exhibit C	 	Form of Interest Election Request	 	 
	Exhibit D	 	Form of Compliance Certificate	 	 
	Exhibit E	 	Form of Assignment and Assumption	 	 
	Exhibit F	 	Form of Borrower Pledge Agreement	 	 
	Exhibit G	 	Form of Subsidiary Pledge Agreement	 	 
	Exhibit H	 	Form of Guaranty Agreement	 	 
	

Schedule 7.05	
 	

Litigation	
 	

 
	Schedule 7.15	 	Subsidiaries and Partnerships	 	 
	Schedule 7.17	 	Properties; Title Defects	 	 
	Schedule 7.19	 	Gas Imbalances	 	 
	Schedule 7.20	 	Marketing Contracts	 	 
	Schedule 7.21	 	Swap Agreements	 	 
	Schedule 9.05	 	Investments	 	 

iv

 
 

ELLORA ENERGY INC.
  CREDIT AGREEMENT    
    

        This
CREDIT AGREEMENT, dated as of February 3, 2006, is among ELLORA
ENERGY INC., a Delaware corporation ("Ellora Energy"), ELLORA OIL &
GAS INC., a Delaware corporation ("Ellora O&G" and, together with Ellora Energy, collectively the
"Borrowers" and each individually a "Borrower"), each of the Lenders from time to time party hereto,  JPMORGAN CHASE BANK,
N.A. (in its individual capacity, "JPMorgan"), as administrative agent for the
Lenders (in such capacity, together with its successors in such capacity, the "Administrative Agent"). 

 
 

R E C I T A L S    
    

        A.    The
Borrowers have requested that the Lenders provide certain loans to and extensions of credit on behalf of the Borrowers. 

        B.    The
Lenders have agreed to make such loans and extensions of credit subject to the terms and conditions of this Agreement. 

        C.    In
consideration of the mutual covenants and agreements herein contained and of the loans, extensions of credit and commitments hereinafter referred to, the parties
hereto agree as follows: 

 
 

ARTICLE I
  DEFINITIONS AND ACCOUNTING MATTERS    
    

        Section
1.01    Terms Defined Above.    As used in this Agreement, each term defined above has the meaning indicated
above. 

        Section
1.02    Certain Defined Terms.    As used in this Agreement, the following terms have the meanings specified
below: 

        "ABR", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing
interest at a rate determined by reference to the Alternate Base Rate. 

        "Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate. 

        "Administrative Agent" has the meaning given in the introductory paragraph. 

        "Administrative Questionnaire" means an Administrative Questionnaire in a form supplied by the Administrative Agent. 

        "Affected Loans" has the meaning assigned to such term in Section 5.05. 

        "Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries,
Controls or is Controlled by or is under common Control with the Person specified. 

        "Agents" means, collectively, the Administrative Agent and any other agent appointed hereunder from time to time; and
"Agent" shall mean any of them, as the context requires. 

        "Aggregate Maximum Credit Amount" at any time shall equal the sum of the Maximum Credit Amounts, as the same may be reduced or terminated
pursuant to Section 2.06. The Aggregate Maximum Credit Amount of the Lenders is $400,000,000. 

        "Agreement" means this Credit Agreement, as the same may from time to time be amended, modified, supplemented or restated. 

        "Alternate Base Rate" means, for any day, a rate per annum equal to the greater of (a) the Prime Rate in effect on such day, and
(b) the Federal Funds Effective Rate in effect on such day 

 

plus
1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of
such change in the Prime Rate or the Federal Funds Effective Rate, respectively. 

        "Annualized Consolidated EBITDAX" means, for purposes of calculating the financial ratio set forth in Section 9.01(b) for each
fiscal quarter, the Borrowers' actual Consolidated EBITDAX for the two (2) consecutive fiscal quarters ending on the calculation date multiplied by 2. 

        "Applicable Margin" means, for any day, with respect to any ABR Loan or Eurodollar Loan, or with respect to the Commitment Fee Rate, as
the case may be, the rate per annum set forth in the Borrowing Base Utilization Grid below based upon the Borrowing Base Utilization Percentage then in effect: 

	Borrowing Base Utilization Grid
	 
	Borrowing Base Utilization Percentage
 
	 	<50%
	 	350% <75%
	 	375% <90%
	 	390%
	 
	Eurodollar Loans	 	1.250	%	1.500	%	1.750	%	2.000	%
	ABR Loans	 	0.000	%	0.250	%	0.500	%	0.750	%
	Commitment Fee Rate	 	0.300	%	0.375	%	0.375	%	0.500	%

        Each
change in the Applicable Margin shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the
next such change. 

        "Applicable Percentage" means, with respect to any Lender, the percentage of the Aggregate Maximum Credit Amount represented by such
Lender's Maximum Credit Amount as such percentage is set forth on Annex I. 

        "Approved Counterparty" means (a) any Lender or any Affiliate of a Lender, or (b) any other Person whose long term senior
unsecured debt rating at the time of entry into the applicable Swap Agreement is A-/A3 by S&P or Moody's (or their equivalent) or higher. 

        "Approved Fund" means (a) a CLO and (b) with respect to any Lender that is a fund which invests in bank loans and similar
extensions of credit, any other fund that invests in bank loans and similar extensions of credit and is managed by the same investment advisor as such Lender or by an Affiliate of such investment
advisor. 

        "Approved Petroleum Engineer" means an independent petroleum engineer proposed by the Borrowers and reasonably acceptable to the
Administrative Agent. 

        "Arranger" mean J.P. Morgan Securities Inc., in its capacity as lead arranger and book manager hereunder. 

        "Assessment Rate" means, for any day, the annual assessment rate in effect on such day that is payable by a member of the Bank Insurance
Fund classified as "well-capitalized" and within supervisory subgroup "B" (or a comparable successor risk classification) within the meaning of 12 C.F.R. Part 327 (or any successor
provision) to the Federal Deposit Insurance Corporation for insurance by such Corporation of time deposits made in dollars at the offices of such member in the United States of America;  provided that if,
 as a result of any change in any law, rule or regulation, it is no
longer possible to determine the Assessment Rate as aforesaid, then the Assessment Rate shall be such annual rate as shall be reasonably determined by the Administrative Agent to be representative of
the cost of such insurance to the Lenders. 

        "Assignment and Assumption" means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party
whose consent is required by Section 12.04(b)), and 

2

 

accepted
by the Administrative Agent, in the form of Exhibit E or any other form approved by the Administrative Agent. 

        "Availability Period" means the period from and including the Effective Date to but excluding the Termination Date. 

        "Board" means the Board of Governors of the Federal Reserve System of the United States of America or any successor Governmental
Authority. 

        "Borrower" and "Borrowers" have the meanings given in the introductory paragraph. 

        "Borrower Pledge Agreement" means an agreement executed by a Borrower and being substantially in the form of  Exhibit F, pursuant to which such Borrower pledges to
the Administrative Agent, for the ratable benefit of the Lenders, all of the issued and
outstanding Equity Interests owned by such Borrower of each existing or hereafter acquired Subsidiary to secure the Indebtedness. 

        "Borrowing" means Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which
a single Interest Period is in effect. 

        "Borrowing Base" means at any time an amount equal to the amount determined in accordance with Section 2.07, as the same may be
adjusted from time to time pursuant to Section 8.13(c) or Section 9.12(d). 

        "Borrowing Base Utilization Percentage" means, as of any day, the fraction expressed as a percentage, the numerator of which is the sum of
the Credit Exposures of the Lenders on such day, and the denominator of which is the Borrowing Base in effect on such day. 

        "Borrowing Request" means a request by the Borrowers for a Borrowing in accordance with Section 2.03. 

        "Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banks in Chicago, Illinois or Dallas, Texas
are authorized or required by law to remain closed; and if such day relates to a Borrowing or continuation of, a payment or prepayment of principal of or interest on, or a conversion of or into, or
the Interest Period for, a Eurodollar Loan or a notice by the Borrowers with respect to any such Borrowing or continuation, payment, prepayment, conversion or Interest Period, any day which is also a
day on which dealings in dollar deposits are carried out in the London interbank market. 

        "Capital Leases" means, in respect of any Person, all leases that shall have been, or should have been, in accordance with GAAP, recorded
as capital leases on the balance sheet of the Person liable (whether contingent or otherwise) for the payment of rent thereunder. 

        "Casualty Event" means any loss, casualty or other insured damage to, or any nationalization, taking under power of eminent domain or by
condemnation or similar proceeding of, any Property of a Borrower or any of its Subsidiaries having a fair market value in excess of $1,000,000. 

        "Change in Control" means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or
group (within the meaning of the Securities Exchange Act of 1934 and the rules of the SEC thereunder as in effect on the date hereof) of Equity Interests representing more than 30% of the aggregate
ordinary voting power represented by the issued and outstanding Equity Interests of a Borrower or (b) the occupation of a majority of the seats (other than vacant seats) on the board of
directors of a Borrower by Persons who were neither (i) nominated by the board of directors of such Borrower nor (ii) appointed by directors so nominated. 

3

 

        "Change in Law" means (a) the adoption of any law, rule or regulation after the date of this Agreement, (b) any change in
any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by any Lender or any Issuing Bank
(or, for purposes of Section 5.01(b)), by any lending office of such Lender or by such Lender's or such Issuing Bank's holding company, if any) with any request, guideline or directive (whether
or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. 

        "CLO" means any entity (whether a corporation, partnership, limited liability company, trust or otherwise) that is engaged in making,
purchasing, holding or otherwise investing in bank loans and
similar extensions of credit in the ordinary course of its business and is administered or managed by a Lender or an Affiliate of such Lender. 

        "Code" means the Internal Revenue Code of 1986, as amended from time to time, and any successor statute. 

        "Commitment" means, with respect to each Lender, the commitment of such Lender to make Loans and to acquire participations in Letters of
Credit hereunder, expressed as an amount representing the maximum aggregate amount of such Lender's Credit Exposure hereunder, as such commitment may be (a) modified from time to time pursuant
to Section 2.06 and (b) modified from time to time pursuant to assignments by or to such Lender pursuant to Section 12.04(b), and
"Commitments" means the aggregate amount of the Commitments of all the Lenders. The amount representing each Lender's Commitment shall at any time be
the lesser of (i) such Lender's Maximum Credit Amount and (ii) such Lender's Applicable Percentage of the then effective Borrowing Base. 

        "Commitment Fee Rate" is the rate per annum set forth in the definition of "Applicable
Margin". 

        "Consolidated EBITDAX" means, with respect to the Borrowers and the Consolidated Subsidiaries for any period: (a) Consolidated Net
Income of the Borrowers and the Consolidated Subsidiaries for such period, plus, to the extent deducted in the calculation of Consolidated Net Income, (b) the sum of (i) income or
franchise Taxes paid or accrued; (ii) Consolidated Net Interest Expense; (iii) amortization, depletion and depreciation expense; (iv) any non-cash losses or charges on
any Swap Agreement resulting from the requirements of SFAS 133 for that period; (v) other non-cash charges (excluding accruals for cash expenses made in the ordinary course
of business), including, without limitation, non-cash employee compensation; and (vi) costs and expenses associated with, and attributable to, oil and gas capital expenditures that
are expensed rather than capitalized; less, to the extent included in the calculation of Consolidated Net Income, (c) the sum of (i) the
income of any Person (other than wholly-owned Subsidiaries of such Person) unless such income is received by such Person in a cash distribution; (ii) gains or losses from sales or other
dispositions of assets (other than Hydrocarbons produced in the normal course of business); (iii) any non-cash gains on any Swap Agreement resulting from the requirements of
SFAS 133 for that period; (iv) extraordinary or non-recurring gains, but not net of extraordinary or non-recurring "cash" losses; and (v) costs and
expenses associated with, and attributable to, oil and gas capital expenditures that are expensed rather than capitalized. Notwithstanding anything to the contrary contained herein, all calculations
of Consolidated EBITDAX shall be (A) in all respects, acceptable to, and approved by, the Administrative Agent, and (B) for any applicable period of determination during which a Borrower
has consummated an acquisition or disposition (to the extent permitted hereunder) of properties or assets, calculated and determined on a pro forma basis as if such acquisition or disposition was
consummated on the first day of such applicable period. 

4

 

        "Consolidated Net Income" means with respect to the Borrowers and the Consolidated Subsidiaries, for any period, the aggregate of the net
income (or loss) of the Borrowers and the Consolidated Subsidiaries after allowances for taxes for such period determined on a consolidated basis in accordance with GAAP;  provided that there shall be
excluded from such net income (to the extent otherwise included therein) the following: (a) the net income of any
Person in which a Borrower or any Consolidated Subsidiary has an interest (which interest does not cause the net income of such other Person to be consolidated with the net income of the Borrowers and
the Consolidated Subsidiaries in accordance with GAAP), except to the extent of the amount of dividends or distributions actually paid in cash during such period by such other Person to a Borrower or
to a Consolidated Subsidiary, as the case may be; (b) the net income (but not loss) during such period of any Consolidated Subsidiary to the extent that the declaration or payment of dividends
or similar distributions or transfers or loans by that Consolidated Subsidiary is not at the time permitted by operation of the terms of its charter or any agreement, instrument or Governmental
Requirement applicable to such Consolidated Subsidiary or is otherwise restricted or prohibited, in each case determined in accordance with GAAP; (c) the net income (or loss) of any Person
acquired in a pooling-of-interests transaction for any period prior to the date of such transaction; (d) any extraordinary gains or losses during such period;
(e) the cumulative effect of a change in accounting principles and any gains or losses attributable to writeups or writedowns of assets; and (f) any writeups or writedowns of
non-current assets. 

        "Consolidated Net Interest Expense" means, with respect to the Borrowers and the Consolidated Subsidiaries for any period, the remainder
of the following for such period: (a) interest expense, minus (b) interest income. 

        "Consolidated Subsidiaries" means each Subsidiary of a Borrower (whether now existing or hereafter created or acquired) the financial
statements of which shall be (or should have been) consolidated with the financial statements of such Borrower and/or the Borrowers in accordance with GAAP. 

        "Consolidated Total Debt" means, with respect to the Borrowers and the Consolidated Subsidiaries as of the last day of any fiscal quarter,
all Debt of the Borrowers and the Consolidated Subsidiaries determined on a consolidated basis as of the last day of any fiscal quarter. 

        "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by contract or otherwise. For the purposes of this definition, and without limiting the generality of the foregoing, any Person that owns
directly or indirectly 20% or more of the Equity Interests having ordinary voting power for the election of the directors or other governing body of a Person (other than as a limited partner of such
other Person) will be deemed to "control" such other Person. "Controlling" and "Controlled" have
meanings correlative thereto. 

        "Credit Exposure" means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender's Loans and
its LC Exposure at such time. 

        "Debt" means, for any Person, the sum of the following (without duplication): (a) all obligations of such Person for borrowed money
or evidenced by bonds, bankers' acceptances, debentures, notes or other similar instruments; (b) all obligations of such Person (whether contingent or otherwise) in respect of letters of
credit, surety or other bonds and similar instruments; (c) all accounts payable and all accrued expenses, liabilities or other obligations of such Person to pay the deferred purchase price of
Property or services; (d) all obligations under Capital Leases; (e) all obligations under Synthetic Leases; (f) all Debt (as defined in the other clauses of this definition) of
others secured by a Lien on any Property of such Person, whether or not such Debt is assumed by such Person; (g) all Debt (as defined in the other clauses of this 

5

 

definition)
of others guaranteed by such Person or in which such Person otherwise assures a creditor against loss of the Debt (howsoever such assurance shall be made) to the extent of the lesser of
the amount of such Debt and the maximum stated amount of such guarantee or assurance against loss; (h) all obligations or undertakings of such Person to maintain or cause to be maintained the
financial position or covenants of others or to purchase the Debt or Property of others; (i) all obligations to deliver commodities, goods or services, including, without limitation,
Hydrocarbons, in consideration of one or more advance payments, other than gas balancing arrangements in the ordinary course of business; (j) all obligations to pay for goods or services
whether or not such goods or services are actually received or utilized by such Person; (k) any Debt of a partnership for which such Person is liable either by agreement, by operation of law or
by a Governmental Requirement but only to the extent of such liability; (l) Disqualified Capital Stock; and (m) the undischarged balance of any production payment created by such Person
or for the creation of which such Person directly or indirectly received payment. The Debt of any Person shall include all obligations of such Person of the character described above to the extent
such Person remains legally liable in respect thereof notwithstanding that any such obligation is not included as a liability of such Person under GAAP. 

        "Default" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless
cured or waived, become an Event of Default. 

        "Disqualified Capital Stock" means any Equity Interest that, by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable) or upon the happening of any event, matures or is mandatorily redeemable for any consideration other than other Equity Interests (which would not constitute Disqualified
Capital Stock), pursuant to a sinking fund obligation or otherwise, or is convertible or exchangeable for Debt or redeemable for any consideration other than other Equity Interests (which would not
constitute Disqualified Capital Stock) at the option of the holder thereof, in whole or in part, on or prior to the date that is one year after the earlier of (a) the Maturity Date and
(b) the date on which there are no Loans, LC Exposure or other obligations hereunder outstanding and all of the Commitments are terminated. 

        "dollars" or "$" refers to lawful money of the United States of America. 

        "Domestic Subsidiary" means any Subsidiary that is organized under the laws of the United States of America or any state thereof or the
District of Columbia. 

        "Effective Date" means the date on which the conditions specified in Section 6.01 are satisfied (or waived in accordance with
Section 12.02). 

        "Election Notice" has the meaning assigned to such term in Section 3.04(c)(ii). 

        "Ellora Energy" has the meaning given in the introductory paragraph. 

        "Ellora Holdings" means Ellora Holdings, LLC. 

        "Ellora O&G" has the meaning given in the introductory paragraph. 

        "Engineering Reports" has the meaning assigned such term in Section 2.07(c)(i). 

        "Environmental Laws" means any and all Governmental Requirements pertaining in any way to health, safety, the environment or the
preservation or reclamation of natural resources, in effect in any and all jurisdictions in which any Borrower or any Subsidiary is conducting or at any time has conducted business, or where any
Property of any Borrower or any Subsidiary is located, including without limitation, the Oil Pollution Act of 1990 ("OPA"), as amended, the Clean Air
Act, as amended, the Comprehensive Environmental, Response, Compensation, and Liability Act of 1980 ("CERCLA"), as amended, the Federal Water Pollution
Control Act, as amended, the Occupational Safety and Health Act of 1970, as amended, the Resource Conservation and 

6

 

Recovery
Act of 1976 ("RCRA"), as amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as amended, the Superfund
Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended, and other environmental conservation or protection Governmental Requirements. The term
"oil" shall have the meaning specified in OPA, the terms "hazardous substance" and "release" (or
"threatened release") have the meanings specified in CERCLA, the terms "solid waste" and
"disposal" (or "disposed") have the meanings specified in RCRA and the term "oil
and gas waste" shall have the meaning specified in Section 91.1011 of the Texas Natural Resources Code
("Section 91.1011"); provided, however, that
(a) in the event either OPA, CERCLA, RCRA or Section 91.1011 is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply subsequent to the
effective date of such amendment and (b) to the extent the laws of the state or other jurisdiction in which any Property of any Borrower or any Subsidiary is located establish a meaning for
"oil," "hazardous substance," "release,"
"solid waste," "disposal" or "oil and gas waste" which
is broader than that specified in either OPA, CERCLA, RCRA or Section 91.1011, such broader meaning shall apply. 

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

        "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statutes, and all regulations and
guidances promulgated thereunder. 

        "ERISA Affiliate" means each trade or business (whether or not incorporated) which together with a Borrower or a Subsidiary would be
deemed to be a "single employer" within the meaning of section 4001(b)(1) of ERISA or subsections (b), (c), (m) or (o) of section 414 of the Code. 

        "ERISA Event" means (a) a "Reportable Event" described in section 4043 of ERISA, other than a Reportable Event as to which
the provisions of 30 days notice to the PBGC is expressly waived under applicable regulations, (b) the withdrawal of a Borrower, a Subsidiary or any ERISA Affiliate from a Plan during a
plan year in which it was a "substantial employer" as defined in section 4001(a)(2) of ERISA, (c) the filing of a notice of intent to terminate a Plan or the treatment of a Plan
amendment as a termination under section 4041 of ERISA, (d) the institution of proceedings to terminate a Plan by the
PBGC, (e) receipt of a notice of withdrawal liability pursuant to Section 4202 of ERISA or (f) any other event or condition which might constitute grounds under
section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan. 

        "Eurodollar", when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are
bearing interest at a rate determined by reference to the Adjusted LIBO Rate. 

        "Event of Default" has the meaning assigned such term in Section 10.01. 

        "Excepted Liens" means: (a) Liens for Taxes, assessments or other governmental charges or levies which are not delinquent or which
are being contested in good faith by appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (b) Liens in connection with workers' compensation,
unemployment insurance or other social security, old age pension or public liability obligations which are not delinquent or which are being contested in good faith by appropriate action and for which
adequate reserves have been maintained in accordance with GAAP; (c) statutory landlord's liens, operators', vendors', carriers', warehousemen's, repairmen's, mechanics', suppliers', workers',
materialmen's, construction or other like Liens arising by operation of law in the ordinary course of business or incident to the 

7

 

exploration,
development, operation and maintenance of Oil and Gas Properties each of which is in respect of obligations that are not delinquent or which are being contested in good faith by
appropriate action and for which adequate reserves have been maintained in accordance with GAAP; (d) contractual Liens that arise in the ordinary course of business under operating agreements,
joint venture agreements, oil and gas partnership agreements, oil and gas leases, farm-out agreements, division orders, contracts for the sale, transportation or exchange of oil and
natural gas, unitization and pooling declarations and agreements, area of mutual interest agreements, overriding royalty agreements, marketing agreements, processing agreements, net profits
agreements, development agreements, gas balancing or deferred production agreements, injection, repressuring and recycling agreements, salt water or other disposal agreements, seismic or other
geophysical permits or agreements, and other agreements which are usual and customary in the oil and gas business and are for claims which are not delinquent or which are being contested in good faith
by appropriate action and for which adequate reserves have been maintained in accordance with GAAP, provided that any such Lien referred to in this
clause does not materially impair the use of the Property covered by such Lien for the purposes for which such Property is held by any Borrower or any Subsidiary or materially impair the value of such
Property subject thereto; (e) Liens arising solely by virtue of any statutory or common law provision relating to banker's liens, rights of set-off or similar rights and remedies
and burdening only deposit accounts or other funds maintained with a creditor depository institution, provided that no such deposit account is a
dedicated cash collateral account or is subject to restrictions against access by the depositor in excess of those set forth by regulations promulgated by the Board and no such deposit account is
intended by any Borrower or any of its Subsidiaries to provide collateral to the depository institution; (f) easements, restrictions, servitudes, permits, conditions, covenants, exceptions or
reservations in any Property of any Borrower or any Subsidiary for the purpose of roads, pipelines, transmission lines, transportation lines, distribution lines for the removal of gas, oil, coal or
other minerals or timber, and other like purposes, or for the joint or common use of real estate, rights of way, facilities and equipment, which in the aggregate do not materially impair the use of
such Property for the purposes of which such Property is held by any Borrower or any Subsidiary or materially impair the value of such Property subject thereto; (g) Liens on cash or securities
pledged to secure performance of tenders, surety and appeal bonds, government contracts, performance and return of money bonds, bids, trade contracts, leases, statutory obligations, regulatory
obligations and other obligations of a like nature incurred in the ordinary course of business; (h) judgment and attachment Liens not giving rise to an Event of Default,  provided that any
appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally
terminated or the period within which such proceeding may be initiated shall not have expired and no action to enforce such Lien has been commenced; and (i) Liens arising from Uniform
Commercial Code financing statement filings regarding operating leases entered into by the Borrowers and the Subsidiaries in the ordinary course of business covering only the Property under lease;  provided, further that Liens described in clauses (a) through (e) shall remain "Excepted
Liens" only for so long as no action to enforce such Lien has been commenced and no intention to subordinate the first priority Lien granted in favor of the Administrative Agent and the Lenders is to
be hereby implied or
expressed by the permitted existence of such Excepted Liens. 

        "Excluded Taxes" means, with respect to any Agent, any Lender, any Issuing Bank or any other recipient of any payment to be made by or on
account of any obligation of any Borrower or any Guarantor hereunder or under any other Loan Document, (a) income or franchise taxes imposed on (or measured by) its net income by the United
States of America or such other jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable
lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any 

8

 

other
jurisdiction in which any Borrower or any Guarantor is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrowers under
Section 5.04(b)), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party to this Agreement (or designates a new lending
office) or is attributable to such Foreign Lender's failure to comply with Section 5.03(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of
designation of a new lending office (or assignment), to receive additional amounts with respect to such withholding tax pursuant to Section 5.03(a) or Section 5.03(c). 

        "Federal Funds Effective Rate" means, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the
rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank
of New York, New York or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for
such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. 

        "Fee Letter" means that certain letter agreement among the Borrowers (or either one of them), JPMorgan and Arranger related to the payment
of certain fees by the Borrowers. 

        "Financial Officer" means, for any Person, the chief financial officer, principal accounting officer, treasurer or controller of such
Person. Unless otherwise specified, all references herein to a Financial Officer means a Financial Officer of the Borrowers. 

        "Financial Statements" means the financial statement or statements of the Borrowers and their Consolidated Subsidiaries referred to in
Section 7.04(a). 

        "First Redetermination Date" means the first Interim Redetermination Date or Scheduled Redetermination Date after the Effective Date. 

        "Foreign Lender" means any Lender that is organized under the laws of a jurisdiction other than that in which a Borrower is located. For
purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction. 

        "Foreign Subsidiary" means any Subsidiary that is not a Domestic Subsidiary. 

        "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time subject to the terms
and conditions set forth in Section 1.05. 

        "Governmental Authority" means the government of the United States of America, any other nation or any political subdivision thereof,
whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government over any Borrower, any Subsidiary, any of their Properties, any Agent, any Issuing Bank or any Lender. 

        "Governmental Requirement" means any applicable law, statute, code, ordinance, order, determination, rule, regulation, judgment, decree,
injunction, franchise, permit, certificate, license, authorization or other directive or requirement, whether now or hereinafter in effect, including, without limitation, Environmental Laws, energy
regulations and occupational, safety and health standards or controls, of any Governmental Authority. 

        "Guarantors" means each Domestic Subsidiary that guarantees the Indebtedness pursuant to Section 8.14(b). 

9

 

        "Guaranty Agreement" means an agreement executed by the Guarantors and being substantially in the form of  Exhibit H, pursuant to which such Guarantors
unconditionally guarantee on a joint and several basis, payment of the Indebtedness, as the same may
be amended, modified or supplemented from time to time. 

        "Highest Lawful Rate" means, with respect to each Lender, the maximum nonusurious interest rate, if any, that at any time or from time to
time may be contracted for, taken, reserved, charged or received on the Notes or on other Indebtedness under laws applicable to such Lender which are presently in effect or, to the extent allowed by
law, under such applicable laws, which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws allow as of the date hereof. 

        "Hydrocarbon Interests" means all rights, titles, interests and estates now or hereafter acquired in and to oil and gas leases, oil, gas
and mineral leases, or other liquid or gaseous hydrocarbon leases, mineral fee interests, overriding royalty and royalty interests, net profit interests and production payment interests, including any
reserved or residual interests of whatever nature. 

        "Hydrocarbons" means oil, gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous
hydrocarbons and all products refined or separated therefrom. 

        "Indebtedness" means any and all amounts owing or to be owing by any Borrower, any Subsidiary or any Guarantor: (a) to any Agent,
any Issuing Bank or any Lender under any Loan Document; (b) to any Secured Swap Provider under any Swap Agreement including any Swap Agreement in existence prior to the date hereof, but
excluding any additional transactions or confirmations entered into (i) after such Secured Swap Provider ceases to be a Lender or an Affiliate of a Lender or (ii) after assignment by a
Secured Swap Provider to another Secured Swap Provider that is not a Lender or an Affiliate of a Lender and (c) all renewals, extensions and/or rearrangements of any of the above whether such
Person (or in the case of its Affiliate, the Person affiliated therewith) remains a Lender hereunder. 

        "Indemnified Taxes" means Taxes other than Excluded Taxes. 

        "Initial Borrowing Base" means a Borrowing Base in the amount of $110,000,000, which shall be in effect during the period commencing on
the Effective Date and continuing until the First Redetermination Date. 

        "Initial Reserve Report" means an engineering and economic analysis of the oil and gas reserves attributable to the Borrowers' Oil and Gas
Properties prepared by an Approved Petroleum Engineer in connection with establishment of the Initial Borrowing Base. 

        "Interest Election Request" means a request by the Borrowers to convert or continue a Borrowing in accordance with Section 2.04. 

        "Interest Payment Date" means (a) with respect to any ABR Loan, each Monthly Date, and (b) with respect to any Eurodollar
Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Borrowing with an Interest Period of more than three months'
duration, each day prior to the last day of such Interest Period that occurs at intervals of three months' duration after the first day of such Interest Period. 

        "Interest Period" means with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the
numerically corresponding day in the calendar month that is one, two, three or six months thereafter, as the Borrowers may elect; provided, that
(a) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day
would 

10

 

fall
in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (b) any Interest Period pertaining to a Eurodollar Borrowing that commences
on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of
the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of
the most recent conversion or continuation of such Borrowing. 

        "Interim Redetermination" means any redetermination of the Borrowing Base under Section 2.07(b)(ii). 

        "Interim Redetermination Date" means the date on which a Borrowing Base that has been redetermined pursuant to an Interim Redetermination
becomes effective as provided in Section 2.07(d). 

        "Investment" means, for any Person: (a) the acquisition (whether for cash, Property, services or securities or otherwise) of Equity
Interests of any other Person or any agreement to make any such acquisition (including, without limitation, any "short sale" or any sale of any securities at a time when such securities are not owned
by the Person entering into such short sale) or any capital contribution to any other Person; (b) the making of any deposit with, or advance, loan or capital contribution to, assumption of Debt
of, purchase or other acquisition of any other Debt or equity participation or interest in, or other extension of credit to, any other Person (including the purchase of Property from another Person
subject to an understanding or agreement, contingent or otherwise, to resell such Property to such Person); or (c) the entering into of any guarantee of, or other contingent obligation
(including the deposit of any Equity Interests to be sold, and including the issuance of a letter of credit for the account of such Person) with respect to, Debt or other liability of any other Person
and (without duplication) any amount committed to be advanced, lent or extended to such other Person. 

        "Issuing Bank" means JPMorgan and each Lender that agrees to act as an issuer of Letters of Credit hereunder at the request of the
Administrative Agent, in each case, in its capacity as the issuer of
Letters of Credit hereunder, and its successors in such capacity as provided in Section 2.08(i). Any Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued
by Affiliates of such Issuing Bank, in which case the term "Issuing Bank" shall include any such Affiliate with respect to Letters of Credit issued by
such Affiliate. 

        "JPMorgan" has the meaning given in the introductory paragraph. 

        "LC Commitment" at any time means Ten Million dollars ($10,000,000). 

        "LC Disbursement" means a payment made by any Issuing Bank pursuant to a Letter of Credit issued by such Issuing Bank. 

        "LC Exposure" means, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time
plus (b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of the Borrowers at such time. The LC Exposure of any Lender at any time shall be its
Applicable Percentage of the total LC Exposure at such time. 

        "Lenders" means the Persons listed on Annex I and any Person that shall have become a
party hereto pursuant to an Assignment and Assumption, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Assumption. 

        "Letter of Credit" means any letter of credit issued pursuant to this Agreement. 

11

 

        "Letter of Credit Agreements" means all letter of credit applications and other agreements (including any amendments, modifications or
supplements thereto) submitted by a Borrower, or entered into by a Borrower, with any Issuing Bank relating to any Letter of Credit issued by such Issuing Bank. 

        "LIBO Rate" means, with respect to any Eurodollar Borrowing for any Interest Period, the rate appearing on Page 3750 of the Dow Jones
Market Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such
page of such Service, as determined by the Administrative Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market)
at approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then
the "LIBO Rate" with respect to such Eurodollar Borrowing for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a
maturity comparable to such Interest Period are offered by the principal London office of the Administrative Agent in immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. 

        "Lien" means any interest in Property securing an obligation owed to, or a claim by, a Person other than the owner of the Property,
whether such interest is based on the common law, statute or contract, and whether such obligation or claim is fixed or contingent, and including but not limited to (a) the lien or security
interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes or (b) royalties,
production payments and the like payable out of Oil and Gas Properties. The term "Lien" shall include easements, restrictions, servitudes, permits,
conditions, covenants, encroachments, exceptions or reservations. For the purposes of this Agreement, the Borrowers and their Subsidiaries shall be deemed to be the owner of any Property which it has
acquired or holds subject to a conditional sale agreement, or leases under a financing lease or other arrangement pursuant to which title to the Property has been retained by or vested in some other
Person in a transaction intended to create a financing. 

        "Loan Documents" means this Agreement, the Notes, the Letter of Credit Agreements, the Letters of Credit and the Security Instruments. 

        "Loans" means the loans made by the Lenders to the Borrowers pursuant to this Agreement. 

        "Material Adverse Effect" means a material adverse effect on (a) the business, operations, Property, condition (financial or
otherwise) or prospects of any Borrower, individually, or the Borrowers and their Subsidiaries taken as a whole, (b) the ability of any Borrower, any Subsidiary or any Guarantor to perform any
of its obligations under any Loan Document, (c) the validity or enforceability of any Loan Document or (d) the rights and remedies of or benefits available to the Administrative Agent,
any other Agent, any Issuing Bank or any Lender under any Loan Document. 

        "Material Indebtedness" means Debt (other than the Loans and Letters of Credit), or obligations in respect of one or more Swap Agreements,
of any one or more of the Borrowers and their Subsidiaries in an aggregate principal amount exceeding $1,000,000. For purposes of determining Material Indebtedness, the "principal amount" of the
obligations of any Borrower or any Subsidiary in respect of any Swap Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that any such Borrower or
such Subsidiary would be required to pay if such Swap Agreement were terminated at such time. 

12

 

        "Maturity Date" means February 3, 2010. 

        "Maximum Credit Amount" means, as to each Lender, the amount set forth opposite such Lender's name on Annex
I under the caption "Maximum Credit Amount," as the same may be (a) reduced or terminated from time to time in connection with a reduction or termination of the
Aggregate Maximum Credit Amount pursuant to Section 2.06(b) or (b) modified from time to time pursuant to any assignment permitted by Section 12.04(b). 

        "Monthly Date" means the last day of each calendar month. 

        "Moody's" means Moody's Investors Service, Inc. and any successor thereto that is a nationally recognized rating agency. 

        "Mortgaged Property" means any Property owned by a Borrower or any Guarantor that is subject to the Liens existing and to exist under the
terms of the Security Instruments. 

        "Mortgages" means all mortgages, deeds of trust and similar documents, instruments and agreements (and all amendments, modifications and
supplements thereof) creating, evidencing, perfecting or otherwise establishing the Liens on Mortgaged Property to secure payment of the Indebtedness or any party thereof. All Mortgages shall be in
form and substance satisfactory to the Administrative Agent in its sole discretion. 

        "Multiemployer Plan" means a Plan which is a multiemployer plan as defined in section 3(37) or 4001 (a)(3) of ERISA. 

        "New Borrowing Base Notice" has the meaning assigned such term in Section 2.07(d). 

        "Notes" means the promissory notes of the Borrowers described in Section 2.02(d) and being substantially in the form of  Exhibit A, together with all amendments,
 modifications, replacements, extensions and rearrangements thereof. 

        "Oil and Gas Properties" means (a) Hydrocarbon Interests; (b) the Properties now or hereafter pooled or unitized with
Hydrocarbon Interests; (c) all presently existing or future unitization, pooling agreements and declarations of pooled units and the units created thereby (including without limitation all
units created under orders, regulations and rules of any Governmental Authority) which may affect all or any portion of the Hydrocarbon Interests; (d) all operating agreements, contracts and
other agreements, including production sharing contracts and agreements, which relate to any of the Hydrocarbon Interests or the production, sale, purchase, exchange or processing of Hydrocarbons from
or attributable to such Hydrocarbon Interests; (e) all Hydrocarbons in and under and which may be produced and saved or attributable to the Hydrocarbon Interests, including all oil in tanks,
and all rents, issues, profits, proceeds, products, revenues and other incomes from or attributable to the Hydrocarbon Interests; (f) all tenements, hereditaments, appurtenances and Properties
in any manner appertaining, belonging, affixed or incidental to the Hydrocarbon Interests and (g) all Properties, rights, titles, interests and estates described or referred to above, including
any and all Property, real or personal, now owned or hereinafter acquired and situated upon, used, held for use or useful in connection with the operating, working or development of any of such
Hydrocarbon Interests or Property (excluding drilling rigs, automotive equipment, rental equipment or other personal Property which may be on such premises for the purpose of drilling a well or for
other similar temporary uses) and including any and all oil wells, gas wells, injection wells or other wells, buildings, structures, fuel separators, liquid extraction plants, plant compressors,
pumps, pumping units, field gathering systems, tanks and tank batteries, fixtures, valves, fittings, machinery and parts, engines, boilers, meters, apparatus, equipment, appliances, tools, implements,
cables, wires, towers, casing, tubing and rods, surface leases, rights-of-way, easements and servitudes together with all additions, substitutions, replacements, accessions and
attachments to any and all of the foregoing. 

13

 

        "Other Taxes" means any and all present or future stamp or documentary taxes or any other excise or Property taxes, charges or similar
levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement and any other Loan Document. 

        "Participant" has the meaning set forth in Section 12.04(c)(i). 

        "Patriot Act" has the meaning set forth in Section 12.15. 

        "PBGC" means the Pension Benefit Guaranty Corporation, or any successor thereto. 

        "Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership,
Governmental Authority or other entity. 

        "Plan" means any employee pension benefit plan, as defined in section 3(2) of ERISA, which (a) is currently or hereafter
sponsored, maintained or contributed to by a Borrower, a Subsidiary or an ERISA Affiliate or (b) was at any time during the six calendar years preceding the date hereof, sponsored, maintained
or contributed to by a Borrower or a Subsidiary or an ERISA Affiliate. 

        "Pledge Agreement" means any Borrower Pledge Agreement or any Subsidiary Pledge Agreement, and "Pledge
Agreements" means all of such Pledge Agreements. 

        "Prime Rate" means the rate of interest per annum publicly announced from time to time by JPMorgan as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. Such rate is set by the
Administrative Agent as a general reference rate of interest, taking into account such factors as the Administrative Agent may deem appropriate; it being understood that many of the Administrative
Agent's commercial or other loans are priced in relation to such rate, that it is not necessarily the lowest or best rate actually charged to any customer and that the Administrative Agent may make
various commercial or other loans at rates of interest having no relationship to such rate. 

        "Property" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible, including,
without limitation, cash, securities, accounts and contract rights. 

        "Proposed Borrowing Base" has the meaning assigned to such term in Section 2.07(c)(i). 

        "Proposed Borrowing Base Notice" has the meaning assigned to such term in Section 2.07(c)(ii). 

        "Redemption" means with respect to any Debt, the repurchase, redemption, prepayment, repayment or defeasance (or the segregation of funds
with respect to any of the foregoing) of such Debt. "Redeem" has the correlative meaning thereto. 

        "Register" has the meaning assigned such term in Section 12.04(b)(iv). 

        "Regulation D" means Regulation D of the Board, as the same may be amended, supplemented or replaced from time to time. 

        "Related Parties" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees,
agents and advisors (including attorneys, accountants and experts) of such Person and such Person's Affiliates. 

        "Remedial Work" has the meaning assigned such term in Section 8.10(a). 

        "Required Lenders" means, at any time while no Loans or LC Exposure is outstanding, Lenders having at least sixty-six and two
thirds percent (662/3%) of the Aggregate Maximum Credit 

14

 

Amount;
and at any time while any Loans or LC Exposure is outstanding, Lenders holding at least sixty-six and two thirds percent (662/3%) of the outstanding aggregate
principal amount of the Loans or participation interests in such Letters of Credit (without regard to any sale by a Lender of a participation in any Loan under Section 12.04(c)). 

        "Reserve Report" means a report, in form and substance reasonably satisfactory to the Administrative Agent, setting forth, as of each
January 1st or July 1st (or such other date in the event of an Interim Redetermination) the oil and gas reserves attributable to the proved Oil and Gas Properties of the Borrowers and
their Subsidiaries (or as for Interim Redeterminations, the proved Oil and Gas Properties of the Borrowers and their Subsidiaries acquired since the last redetermination of the Borrowing Base),
together with a projection of the rate of production and future net income, taxes, operating expenses and capital expenditures with respect thereto as of such date, based upon the pricing assumptions
consistent with SEC reporting requirements at the time, and reflecting Swap Agreements in place with respect to such production. Until superseded by the delivery of a subsequent Reserve Report
pursuant to the terms of this Agreement, the Initial Reserve Report shall be considered the Reserve Report. 

        "Responsible Officer" means, as to any Person, the Chief Executive Officer, the Chief Operating Officer, the President, any Financial
Officer or any Vice President of such Person. Unless otherwise specified, all references to a Responsible Officer herein shall mean a Responsible Officer of the Borrowers. 

        "Restricted Payment" means any dividend or other distribution (whether in cash, securities or other Property) with respect to any Equity
Interests in any Borrower, or any payment (whether in cash, securities or other Property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement,
acquisition, cancellation or termination of any such Equity Interests in any Borrower or any option, warrant or other right to acquire any such Equity Interests in any Borrower. 

        "S&P" means Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies, Inc., and any successor
thereto that is a nationally recognized rating agency. 

        "Scheduled Redetermination" has the meaning assigned such term in Section 2.07(b)(i). 

        "Scheduled Redetermination Date" means the date on which a Borrowing Base that has been redetermined pursuant to a Scheduled
Redetermination becomes effective as provided in Section 2.07(d). 

        "SEC" means the U.S. Securities and Exchange Commission or any successor Governmental Authority. 

        "Secured Swap Provider" means any (a) Person that is a party to a Swap Agreement with any Borrower or any of its Subsidiaries that
entered into such Swap Agreement while such Person was a Lender or an Affiliate of a Lender, whether or not such Person at any time ceases to be a Lender or an Affiliate of a Lender, as the case may
be, or (ii) assignee of any Person described in clause (a) above so long as such assignee is an Approved Counterparty. 

        "Security Instruments" means any Guaranty Agreement, any Pledge Agreement, any Mortgage, security agreements and any and all other
agreements, instruments or certificates now or hereafter executed and delivered by any Borrower or any other Person (other than Swap Agreements with the Lenders or any Affiliate of a Lender or
participation or similar agreements between any Lender and any other lender or creditor with respect to any Indebtedness pursuant to this Agreement) in connection with, or as security for the payment
or performance of the Indebtedness, the Notes, this Agreement, or reimbursement obligations under the Letters of Credit, as such agreements may be amended, modified, supplemented or restated from time
to time. 

15

  

        "Statutory Reserve Rate" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which
is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board to which
the Administrative Agent is subject with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board). Such
reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements
without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory
Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. 

        "Subsidiary" means: (a) any Person of which at least a majority of the outstanding Equity Interests having by the terms thereof
ordinary voting power to elect a majority of the board of directors, manager or other governing body of such Person (irrespective of whether or not at the time Equity Interests of any other class or
classes of such Person shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by a Borrower or one or more of
its Subsidiaries and (b) any partnership of which any Borrower or any of its Subsidiaries is a general partner. Unless otherwise indicated herein, (i) each reference to the term
"Subsidiary" shall mean a Subsidiary of a Borrower, and (ii) Ellora Holdings shall not be deemed a Subsidiary of a Borrower. 

        "Subsidiary Pledge Agreement" means an agreement executed by each existing and future Subsidiary and being substantially in the form of  Exhibit G, pursuant to which
such Subsidiary pledges to the Administrative Agent, for the ratable benefit of the Lenders, all of the issued and
outstanding Equity Interests owned by such Subsidiary of any other Subsidiary to secure the Obligations. 

        "Swap Agreement" means any agreement with respect to any swap, forward, future or derivative transaction or option or similar agreement,
whether exchange traded, "over-the-counter" or otherwise, involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or
securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions;  provided that no
phantom stock or similar plan providing for payments only on account of services provided by current or former directors, officers,
employees or consultants of a Borrower or its Subsidiaries and no purchased put option (or floors) for Hydrocarbons shall be a Swap Agreement. 

        "Synthetic Leases" means, in respect of any Person, all leases which shall have been, or should have been, in accordance with GAAP,
treated as operating leases on the financial statements of the Person liable (whether contingently or otherwise) for the payment of rent thereunder and which were properly treated as indebtedness for
borrowed money for purposes of U.S. federal income taxes, if the lessee in respect thereof is obligated to either purchase for an amount in excess of, or pay upon early termination an amount in excess
of, 80% of the residual value of the Property subject to such operating lease upon expiration or early termination of such lease. 

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

        "Termination Date" means the earlier of the Maturity Date and the date of termination of the Commitments. 

        "Transactions" means, with respect to (a) each Borrower, the execution, delivery and performance by such Borrower of this
Agreement, each other Loan Document to which it is a 

16

 

party,
the borrowing of Loans, the use of the proceeds thereof and the issuance of Letters of Credit hereunder, and the grant of Liens by such Borrower on Mortgaged Properties and other Properties
pursuant to the Security Instruments and (b) each Guarantor, the execution, delivery and performance by such Guarantor of each Loan Document to which it is a party, the guaranteeing of the
Indebtedness and the other obligations under a Guaranty Agreement by such Guarantor and such Guarantor's grant of the security interests and provision of collateral thereunder, and the grant of Liens
by such Guarantor on Mortgaged Properties and other Properties pursuant to the Security Instruments. 

        "Type", when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising
such Borrowing, is determined by reference to the Alternate Base Rate or the Adjusted LIBO Rate. 

        "Wholly-Owned Subsidiary" means any Subsidiary of which all of the outstanding Equity Interests (other than any directors' qualifying
shares mandated by applicable law), on a fully-diluted basis, are owned by a Borrower or one or more of the Wholly-Owned Subsidiaries or by a Borrower and one or more of the Wholly-Owned Subsidiaries. 

        Section
1.03    Types of Loans and Borrowings.    For purposes of this Agreement, Loans and Borrowings, respectively,
may be classified and referred to by Type (e.g., a "Eurodollar Loan" or a "Eurodollar Borrowing"). 

        Section
1.04    Terms Generally; Rules of Construction.    The definitions of terms herein shall apply equally to the
singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and
"including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires
otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time
to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any law shall be
construed as referring to such law as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time, (c) any reference herein to any Person shall be construed
to include such Person's successors and assigns (subject to the restrictions contained herein), (d) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed
to refer to this Agreement in its entirety and not to any particular provision hereof, (e) with respect to the determination of any time period, the word "from" means "from and including" and
the word "to" means "to and including" and (f) any reference herein to Articles, Sections, Annexes, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Annexes,
Exhibits and Schedules to, this Agreement. No provision of this Agreement or any other Loan Document shall be interpreted or construed against any Person solely because such Person or its legal
representative drafted such provision. 

        Section
1.05    Accounting Terms and Determinations; GAAP.    Unless otherwise specified herein, all accounting terms
used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all financial statements and certificates and reports as to financial matters
required to be furnished to the Agents or the Lenders hereunder shall be prepared, in accordance with GAAP, applied on a basis consistent with the Financial Statements except for changes in which
Borrowers' independent certified public accountants concur and which are disclosed to Administrative Agent on the next date on which financial statements are required to be delivered to the Lenders
pursuant to Section 8.01(a); provided that, unless the Borrowers and the Required Lenders shall otherwise agree in writing, no such change shall
modify or affect the manner in which compliance 

17

 

with
the covenants contained herein is computed such that all such computations shall be conducted utilizing financial information presented consistently with prior periods. 

 
 

ARTICLE II
  THE CREDITS    
    

        Section
2.01    Commitments.    Subject to the terms and conditions set forth herein, each Lender agrees to make Loans
to the Borrowers during the Availability Period in an aggregate principal amount that will not result in (a) such Lender's Credit Exposure exceeding the lesser of (i) such Lender's
Maximum Credit Amount and (ii) such Lender's Applicable Percentage of the then effective Borrowing Base or (b) the total Credit Exposures exceeding the lesser of (i) the total
Maximum Credit Amount and (ii) the then effective Borrowing Base. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrowers may borrow, repay and
reborrow the Loans. 

        Section
2.02    Loans and Borrowings.    

        (a)    Borrowings; Several Obligations.    Each Loan shall be made as part of a Borrowing consisting of Loans made by
the Lenders ratably in accordance with their respective Commitments. The failure of any Lender to make any Loan required to be made by it shall not relieve any other Lender of its obligations
hereunder; provided that the Commitments are several and no Lender shall be responsible for any other Lender's failure to make Loans as required. 

        (b)    Types of Loans.    Subject to Section 3.03, each Borrowing shall be comprised entirely of ABR Loans or
Eurodollar Loans as the Borrowers may request in accordance herewith. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to
make such Loan; provided that any exercise of such option shall not affect the joint and several obligation of the Borrowers to repay such Loan in
accordance with the terms of this Agreement. 

        (c)    Minimum Amounts; Limitation on Number of Borrowings.    At the commencement of each Interest Period for any
Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $5,000,000. At the time that each ABR Borrowing is made, such
Borrowing shall be in an aggregate amount that is an integral multiple of $500,000 and not less than $2,500,000; provided that an ABR Borrowing may be
in an aggregate amount that is equal to the entire unused balance of the total Commitments or that is required to finance the reimbursement of an LC Disbursement as contemplated by
Section 2.08(e). Borrowings of more than one Type may be outstanding at the same time; provided that there shall not at any time be more than a
total of five (5) Eurodollar Borrowings outstanding. Notwithstanding any other provision of this Agreement, the Borrowers shall not be entitled to request, or to elect to convert or continue,
any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date. 

        (d)    Notes.    Any Lender may request that Loans made by it be evidenced by a single promissory note. In such event,
the Borrowers shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender in substantially the form of  Exhibit A, dated, in the case of (i) any
Lender party hereto as of the date of this Agreement, as of the date of this Agreement, or
(ii) any Lender that becomes a party hereto pursuant to an Assignment and Assumption, as of the effective date of the Assignment and Assumption, payable to the order of such Lender in a
principal amount equal to its Maximum Credit Amount as in effect on such date, and otherwise duly completed. If any Lender's Maximum Credit Amount increases or decreases for any reason (whether
pursuant to Section 2.06, Section 12.04(b) or otherwise), the Borrowers shall deliver or cause to be delivered on the effective date of such increase or decrease, a new Note payable to
the order of any Lender who requested a Note hereunder in a principal amount equal to its Maximum Credit Amount after giving effect to such increase or decrease, and otherwise duly 

18

 

completed,
and such Lender agrees to promptly thereafter return the previously issued Note held by such Lender marked canceled or otherwise similarly defaced. The date, amount, Type, interest rate
and, if applicable, Interest Period of each Loan made by each Lender that receives a Note, and all payments made on account of the principal thereof, shall be recorded by such Lender on its books for
its Note, and, prior to any transfer, may be endorsed by such Lender on a schedule attached to such Note or any continuation thereof or on any separate record maintained by such Lender. Failure to
make any such notation or to attach a schedule shall not affect any Lender's or any Borrower's rights or obligations in respect of such Loans or affect the validity of such transfer by any Lender of
its Note. 

        Section
2.03    Requests for Borrowings    To request a Borrowing, the Borrowers shall notify the Administrative Agent
of such request by telephone or by written Borrowing Request in substantially the form of Exhibit B and signed by the Borrowers (a
"written Borrowing Request"): (a) in the case of a Eurodollar Borrowing, not later than 12:00 noon, Chicago, Illinois time, three Business Days
before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 12:00 noon, Chicago, Illinois time, on the Business Day of the proposed Borrowing;  provided that no
such notice shall be required for any deemed request of an ABR Borrowing to finance the reimbursement of an LC Disbursement as provided
in Section 2.08(e). Each telephonic and written Borrowing Request shall be irrevocable and each telephonic Borrowing Request shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a written Borrowing Request. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.02: 

          (i)  the
aggregate amount of the requested Borrowing; 

         (ii)  the
date of such Borrowing, which shall be a Business Day; 

        (iii)  whether
such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; 

        (iv)  in
the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term
"Interest Period"; 

         (v)  the
amount of the then effective Borrowing Base, the current total Credit Exposures (without regard to the requested Borrowing) and the pro
forma total Credit Exposures (giving effect to the requested Borrowing); and 

        (vi)  the
location and number of the Borrowers' account to which funds are to be disbursed, which shall comply with the requirements of Section 2.05. 

If
no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Borrowing,
then the Borrowers shall be deemed to have selected an Interest Period of one month's duration. Each Borrowing Request shall constitute a representation that the amount of the requested Borrowing
shall not cause the total Credit Exposures to exceed the total Commitments (i.e., the lesser of the Aggregate Maximum Credit Amount and the then effective Borrowing Base). Promptly following receipt
of a Borrowing Request in accordance with this Section 2.03, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender's Loan to be made as part
of the requested Borrowing. 

        Section
2.04    Interest Elections.    

        (a)    Conversion and Continuance.    Each Borrowing initially shall be of the Type specified in the applicable
Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrowers may elect to convert such
Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section 2.04. The Borrowers
may elect different options with respect to different portions of the affected Borrowing, 

19

 

in
which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate
Borrowing. 

        (b)    Interest Election Requests.    To make an election pursuant to this Section 2.04, the Borrowers shall
notify the Administrative Agent of such election by telephone or by a written Interest Election Request in substantially the form of Exhibit Cand
signed by the Borrowers (a "written Interest Election Request") by the time that a Borrowing Request would be required under Section 2.03 if the
Borrowers were requesting a Borrowing of the Type resulting from such election to be made on the effective date of
such election. Each telephonic and written Interest Election Request shall be irrevocable and each telephonic Interest Election Request shall be confirmed promptly by hand delivery or telecopy to the
Administrative Agent of a written Interest Election Request. 

        (c)    Information in Interest Election Requests.    Each telephonic and written Interest Election Request shall
specify the following information in compliance with Section 2.02: 

          (i)  the
Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions
thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to Section 2.04(c)(iii) and (iv) shall be specified for each resulting
Borrowing); 

         (ii)  the
effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day; 

        (iii)  whether
the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and 

        (iv)  if
the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period
contemplated by the definition of the term "Interest Period". 

If
any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrowers shall be deemed to have selected an Interest Period of one month's
duration. 

        (d)    Notice to Lenders by the Administrative Agent.    Promptly following receipt of an Interest Election Request,
the Administrative Agent shall advise each Lender of the details thereof and of such Lender's portion of each resulting Borrowing. 

        (e)    Effect of Failure to Deliver Timely Interest Election Request and Events of Default on Interest Election.    If
the Borrowers fail to deliver a timely Interest Election Request with respect to a Eurodollar Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is
repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred
and is continuing: (i) no outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing (and any Interest Election Request that requests the conversion of any Borrowing to,
or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective) and (ii) unless repaid, each Eurodollar
Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto. 

        Section
2.05    Funding of Borrowings.    

        (a)    Funding by Lenders.    Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof
by wire transfer of immediately available funds by 1:00 p.m., Chicago, Illinois time, to the account of the Administrative Agent most recently designated by it for such 

20

 

purpose
by notice to the Lenders. The Administrative Agent will make such Loans available to the Borrowers by promptly crediting the amounts so received, in like funds, to an account of the Borrowers
maintained with the Administrative Agent in Chicago, Illinois and designated by the Borrowers in the applicable Borrowing Request; provided that ABR
Loans made to finance the reimbursement of an LC Disbursement as provided in Section 2.08(e) shall be remitted by the Administrative Agent to the Issuing Bank that made such LC Disbursement. 

        (b)    Presumption of Funding by the Lenders.    Unless the Administrative Agent shall have received notice from a
Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's share of such Borrowing, the Administrative Agent may assume that
such Lender has made such share available on such date in accordance with Section 2.05(a) and may, in reliance upon such assumption, make available to the Borrowers a corresponding amount. In
such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrowers severally agree to pay to the
Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrowers to but excluding the
date of payment to the Administrative Agent, at (i) in the case of such Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance
with banking industry rules on interbank compensation or (ii) in the case of the Borrowers, the interest rate applicable to ABR Loans. If such Lender pays such amount to the Administrative
Agent, then such amount shall constitute such Lender's Loan included in such Borrowing. 

        Section
2.06    Changes in the Aggregate Maximum Credit Amount.    

        (a)    Scheduled Termination of Commitments.    Unless previously terminated, the Commitments shall terminate on the
Maturity Date. If at any time the Aggregate Maximum Credit Amount or the Borrowing Base is terminated or reduced to zero, then the Commitments shall terminate on the effective date of such termination
or reduction. 

        (b)    Optional Termination and Reduction of Aggregate Maximum Credit Amount.    

          (i)  The
Borrowers may at any time terminate, or from time to time reduce, the Aggregate Maximum Credit Amount; provided that
(A) each reduction of the Aggregate Maximum Credit Amount shall be in an amount that is an integral multiple of $1,000,000 and not less than $10,000,000 and (B) the Borrowers shall not
terminate or reduce the Aggregate Maximum Credit Amount if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 3.04(c), the total Credit Exposures would
exceed the total Commitments. 

         (ii)  The
Borrowers shall notify the Administrative Agent of any election to terminate or reduce the Aggregate Maximum Credit Amount under Section 2.06(b)(i) at
least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the
Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrowers pursuant to this Section 2.06(b)(ii) shall be irrevocable. Any termination
or reduction of the Aggregate Maximum Credit Amount shall be permanent and may not be reinstated. Each reduction of the Aggregate Maximum Credit Amount shall be made ratably among the Lenders in
accordance with each Lender's Applicable Percentage. 

        Section
2.07    Borrowing Base.    

        (a)    Initial Borrowing Base.    The Borrowing Base in effect during the period from and including the Effective Date
to but excluding the First Redetermination Date shall be the Initial Borrowing Base. The Initial Borrowing Base shall remain in effect until redetermined in 

21

 

accordance
with the procedures set forth in this Section 2.07. Notwithstanding the foregoing, the Borrowing Base may be subject to further adjustments from time to time pursuant to
Section 8.13(c) or Section 9.12. 

        (b)    Scheduled and Interim Redeterminations.    

          (i)  The
Borrowing Base shall be redetermined semi-annually in accordance with this Section 2.07 (a "Scheduled
Redetermination"), and, subject to Section 2.07(d), such redetermined Borrowing Base shall become effective and applicable to the Borrowers, the Agents, each Issuing
Bank and the Lenders on May 1st and November 1st of each year, commencing May 1, 2006. 

         (ii)  The
Administrative Agent may, at the direction of the Required Lenders, by notifying the Borrowers thereof, one time during any calendar year, elect to cause the
Borrowing Base to be redetermined in accordance with this Section 2.07. 

        (iii)  The
Borrowers may elect, not more often than once in any calendar year, to have the Borrowing Base redetermined in accordance with this Section 2.07. 

        (c)    Scheduled and Interim Redetermination Procedure.    

          (i)  Each
Scheduled Redetermination and each Interim Redetermination shall be effectuated as follows: upon receipt by the Administrative Agent of (A) the Reserve
Report and the certificate required to be delivered by the Borrowers, in the case of a Scheduled Redetermination, pursuant to Section 8.12(a) and (c), and, in the case of an Interim
Redetermination, pursuant to Section 8.12(b) and (c), and (B) such other reports, data and supplemental information, including, without limitation, the information provided pursuant to
Section 8.12(c), as may, from time to time, be reasonably requested by the Required Lenders (the Reserve Report, such certificate and such other reports, data and supplemental information being
the "Engineering Reports"), the Administrative Agent shall evaluate the information contained in the Engineering Reports and shall, in good faith,
propose a new Borrowing Base (the "Proposed Borrowing Base") based upon such information and such other information (including, without limitation, the
status of title information with respect to the proved Oil and Gas Properties as described in the Engineering Reports and the existence of any other Debt) as the Administrative Agent deems appropriate
in its sole discretion and consistent with its normal oil and gas lending criteria as it exists at the particular time. In no event shall the Proposed Borrowing Base exceed the Aggregate Maximum
Credit Amount. 

         (ii)  The
Administrative Agent shall notify the Borrowers and the Lenders of the Proposed Borrowing Base (the "Proposed Borrowing Base
Notice"): 

        (A)  in
the case of a Scheduled Redetermination (1) if the Administrative Agent shall have received the Engineering Reports required to be delivered by the Borrowers
pursuant to Section 8.12(a) and (c) in a timely and complete manner, then on or before April 15th (or such date promptly thereafter as reasonably practicable) and
September 15th (or such date promptly thereafter as reasonably practicable) of such year following the date of delivery or (2) if the Administrative Agent shall not have received the
Engineering Reports required to be delivered by the Borrowers pursuant to Section 8.12(a) and (c) in a timely and complete manner, then promptly after the Administrative Agent has
received complete Engineering Reports from the Borrowers and has had a reasonable opportunity to determine the Proposed Borrowing Base in accordance with Section 2.07(c)(i), and in any event
within fifteen (15) days after the Administrative Agent has received the required Engineering Reports; and 

22

 

        (B)  in
the case of an Interim Redetermination, promptly, and in any event, within fifteen (15) days after the Administrative Agent has received the required
Engineering Reports. 

        (iii)  Any
Proposed Borrowing Base that would increase the Borrowing Base then in effect must be approved or deemed to have been approved by all of the Lenders as provided in
this Section 2.07(c)(iii); and any Proposed Borrowing Base that would decrease or maintain the Borrowing Base then in effect must be approved or be deemed to have been approved by the Required
Lenders as provided in this Section 2.07(c)(iii). Upon receipt of the Proposed Borrowing Base Notice, each Lender shall have fifteen (15) days to agree with the Proposed Borrowing Base
or disagree with the Proposed Borrowing Base by proposing an alternate Borrowing Base. If at the end of such fifteen (15) days, any Lender has not communicated its approval or disapproval in
writing to the Administrative Agent, such silence shall be deemed to be an approval of the Proposed Borrowing Base. If, at the end of such 15-day period, all of the Lenders, in the case of
a Proposed Borrowing Base that would increase the Borrowing Base then in effect, or the Required Lenders, in the case of a Proposed Borrowing Base that would decrease or maintain the Borrowing Base
then in effect, have approved or deemed to have approved, as aforesaid, then the Proposed Borrowing Base shall become the new Borrowing Base, effective on the date specified in Section 2.07(d).
If, however, at the end of such 15-day period, all of the Lenders or the Required Lenders, as applicable, have not approved or deemed to have approved, as aforesaid, then the
Administrative Agent shall (A) notify the Borrowers of the Proposed Borrowing Base and which Lenders have not approved or been deemed to have approved of the Proposed Borrowing Base and
(B) poll the Lenders to ascertain the highest Borrowing Base then acceptable to a number of Lenders sufficient to constitute the Required Lenders for purposes of this Section 2.07 and,
so long as such amount does not increase the Borrowing Base then in effect, such amount shall become the new Borrowing Base, effective on the date specified in Section 2.07(d). 

        (d)    Effectiveness of a Redetermined Borrowing Base.    After a redetermined Borrowing Base is approved or is deemed
to have been approved by all of the Lenders or the Required Lenders, as applicable, pursuant to Section 2.07(c)(iii), the Administrative Agent shall notify the Borrowers and the Lenders of the
amount of the redetermined Borrowing Base (the "New Borrowing Base Notice"), and such amount shall become the new Borrowing Base, effective and
applicable to the Borrowers, the Agents, each Issuing Bank and the Lenders: 

          (i)  in
the case of a Scheduled Redetermination, (A) if the Administrative Agent shall have received the Engineering Reports required to be delivered by the Borrowers
pursuant to Section 8.12(a) and (c) in a timely and complete manner, then on the May 1st or November 1st, as applicable, following such notice, or (B) if the
Administrative Agent shall not have received the Engineering Reports required to be delivered by the Borrowers pursuant to Section 8.12(a) and (c) in a timely and complete manner, then
on the Business Day next succeeding delivery of such notice; and 

         (ii)  in
the case of an Interim Redetermination, on the Business Day next succeeding delivery of such notice. 

Such
amount shall then become the Borrowing Base until the next Scheduled Redetermination Date, the next Interim Redetermination Date or the next adjustment to the Borrowing Base under
Section 8.13(c) or Section 9.12, whichever occurs first. Notwithstanding the foregoing, no Scheduled Redetermination or Interim Redetermination shall become effective until the New
Borrowing Base Notice related thereto is received by the Borrowers. 

23

 

        Section
2.08    Letters of Credit.    

        (a)    General.    Subject to the terms and conditions set forth herein, a Borrower may request any Issuing Bank to
issue Letters of Credit in dollars for its own account or for the account of any of its Subsidiaries, in a form reasonably acceptable to the Administrative Agent and such Issuing Bank, at any time and
from time to time during the Availability Period. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit
application or other agreement submitted by a Borrower to, or entered into by a Borrower with, an Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall
control. 

        (b)    Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions.    To request the issuance of a Letter
of Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), the Borrowers shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing
so have been approved by the Issuing Bank) to any Issuing Bank and the Administrative Agent (not less than three (3) Business Days in advance of the requested date of issuance, amendment,
renewal or extension) a notice: (i) requesting the issuance of a Letter of Credit or identifying the outstanding Letter of Credit issued by such Issuing Bank to be amended, renewed or extended;
(ii) specifying the date of issuance, amendment, renewal or extension (which shall be a Business Day); (iii) specifying the date on which such Letter of Credit is to expire (which shall
comply with Section 2.08(c)); (iv) specifying the amount of such Letter of Credit; (v) specifying the name and address of the beneficiary thereof and such other information as
shall be necessary to prepare, amend, renew or extend such Letter of Credit; and (vi) specifying the amount of the then effective Borrowing Base, the current total Credit Exposures (without
regard to the requested Letter of Credit or the requested amendment, renewal or extension of an outstanding Letter of Credit) and the pro forma total
Credit Exposures (giving effect to the requested Letter of Credit or the requested amendment, renewal or extension of an outstanding Letter of Credit). If requested by any Issuing Bank, the Borrowers
shall submit a letter of credit application on such Issuing Bank's standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended
only if (and with respect to each notice provided by the Borrowers above and any issuance, amendment, renewal or extension of each Letter of Credit, the Borrowers shall be deemed to represent and
warrant that), after giving effect to such issuance, amendment, renewal or extension (A) the LC Exposure shall not exceed the LC Commitment and (B) the total Credit Exposures shall not
exceed the total Commitments (i.e. the lesser of the Aggregate Maximum Credit Amount and the then effective Borrowing Base). 

        (c)    Expiration Date.    Each Letter of Credit shall expire at or prior to the close of business on the earlier of
(i) the date one year after the date of the issuance of such Letter of Credit (or, in the case of any renewal, which renewal may be provided for in the initial Letter of Credit, or extension
thereof, one year after such renewal or extension) and (ii) the date that is five Business Days prior to the Maturity Date. 

        (d)    Participations.    By the issuance of a Letter of Credit (or an amendment to an existing Letter of Credit
increasing the amount thereof) and without any further action on the part of the Issuing Bank that issues such Letter of Credit or the Lenders, each Issuing Bank that issues a Letter of Credit
hereunder hereby grants to each Lender, and each Lender hereby acquires from such Issuing Bank, a participation in such Letter of Credit equal to such Lender's Applicable Percentage of the aggregate
amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the Administrative
Agent, for the account of any Issuing Bank that issues a Letter of Credit hereunder, such Lender's Applicable Percentage of each LC Disbursement made by such Issuing Bank and not reimbursed by the
Borrowers on the date due as 

24

 

provided
in Section 2.08(e), or of any reimbursement payment required to be refunded to the Borrowers for any reason. Each Lender acknowledges and agrees that its obligation to acquire
participations pursuant to this Section 2.08(d) in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment,
renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset,
abatement, withholding or reduction whatsoever. 

        (e)    Reimbursement.    If any Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit issued by
such Issuing Bank, the Borrowers shall reimburse such LC Disbursement by paying to the Administrative Agent an amount equal to such LC Disbursement not later than 12:00 noon, Chicago, Illinois time,
on the date that such LC Disbursement is made, if the Borrowers shall have received notice of such LC Disbursement prior to 10:00 a.m., Chicago, Illinois time, on such date, or, if such notice
has not been received by the Borrowers prior to such time on such date, then not later than 12:00 noon, Chicago, Illinois time, on (i) the Business Day that the Borrowers receive such notice,
if such notice is received prior to 10:00 a.m., Chicago, Illinois time, on the day of receipt, or (ii) the Business Day immediately following the day that the Borrowers receive such
notice, if such notice is not received prior to such time on the day of receipt; provided that if such LC Disbursement is not less than $1,000,000, the
Borrowers shall, subject to the conditions to Borrowing set forth herein, be deemed to have requested, and the Borrowers do hereby request under such circumstances, that such payment be financed with
an ABR Borrowing in an equivalent amount and, to the extent so financed, the Borrowers' obligation to make such payment shall be discharged and replaced by the resulting ABR Borrowing. If the
Borrowers fail to make such payment when due, the Administrative Agent shall notify each Lender of the applicable LC Disbursement, the payment then due from the Borrowers in respect thereof and such
Lender's Applicable Percentage thereof. Promptly following receipt of such notice, each Lender shall pay to the Administrative Agent its Applicable Percentage of the payment then due from the
Borrowers, in the same manner as provided in Section 2.05 with respect to Loans made by such Lender (and Section 2.05 shall apply, mutatis
mutandis, to the payment obligations of the
Lenders), and the Administrative Agent shall promptly pay to the Issuing Bank that issued such Letter of Credit the amounts so received by it from the Lenders. Promptly following receipt by the
Administrative Agent of any payment from the Borrowers pursuant to this Section 2.08(e), the Administrative Agent shall distribute such payment to the Issuing Bank that issued such Letter of
Credit or, to the extent that Lenders have made payments pursuant to this Section 2.08(e) to reimburse such Issuing Bank, then to such Lenders and such Issuing Bank as their interests may
appear. Any payment made by a Lender pursuant to this Section 2.08(e) to reimburse any Issuing Bank for any LC Disbursement (other than the funding of ABR Loans as contemplated above) shall not
constitute a Loan and shall not relieve the Borrowers of their joint and several obligation to reimburse such LC Disbursement. 

        (f)    Obligations Absolute.    The Borrowers' obligation to reimburse LC Disbursements as provided in
Section 2.08(e) shall be absolute, unconditional, joint and several and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all
circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit, any Letter of Credit Agreement or this Agreement, or any term or provision
therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in
any respect, (iii) payment by any Issuing Bank under a Letter of Credit issued by such Issuing Bank against presentation of a draft or other document that does not comply with the terms of such
Letter of Credit or any Letter of Credit Agreement, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of
this Section 2.08(f), constitute a legal or equitable discharge of, or provide a right of setoff against, 

25

 

the
Borrowers' obligations hereunder. Neither the Administrative Agent, the Lenders nor any Issuing Bank, nor any of their Related Parties shall have any liability or responsibility by reason of or in
connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding
sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document
required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of any Issuing Bank;  provided that the foregoing shall
not be construed to excuse any Issuing Bank from liability to the Borrowers to the extent of any direct damages (as
opposed to consequential damages, claims in respect of which are hereby waived by the Borrowers to the extent permitted by applicable law) suffered by the Borrowers that are caused by such Issuing
Bank's failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the
absence of gross negligence or willful misconduct on the part of any Issuing Bank (as finally determined by a court of competent jurisdiction), such Issuing Bank shall be deemed to have exercised all
requisite care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on
their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank that issued such Letter of Credit may, in its sole discretion, either accept and make payment upon
such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are
not in strict compliance with the terms of such Letter of Credit. 

        (g)    Disbursement Procedures.    Each Issuing Bank shall, promptly following its receipt thereof, examine all
documents purporting to represent a demand for payment under a Letter of Credit issued by such Issuing Bank. Such Issuing Bank shall promptly notify the Administrative Agent and the Borrowers by
telephone (confirmed by telecopy) of such demand for payment and whether such Issuing Bank has made or will make an LC Disbursement thereunder; provided
that any failure to give or delay in giving such notice shall not relieve the Borrowers of their joint and several obligation to reimburse such Issuing Bank and the Lenders with respect to any such LC
Disbursement. 

        (h)    Interim Interest.    If any Issuing Bank shall make any LC Disbursement, then, until the Borrowers shall have
reimbursed such Issuing Bank for such LC Disbursement (either with its own funds or a Borrowing under Section 2.08(e)), the unpaid amount thereof shall bear interest, for each day from and
including the date such LC Disbursement is made to but excluding the date that the Borrowers reimburse such LC Disbursement, at the rate per annum then applicable to ABR Loans. Interest accrued
pursuant to this Section 2.08(h) shall be for the account of such Issuing Bank, except that interest accrued on and after the date of payment by any Lender pursuant to Section 2.08(e) to
reimburse such Issuing Bank shall be for the account of such Lender to the extent of such payment. 

        (i)    Replacement of an Issuing Bank.    Any Issuing Bank may be replaced or resign at any time by written agreement
among the Borrowers, the Administrative Agent, such resigning or replaced Issuing Bank and, in the case of a replacement, the successor Issuing Bank. The Administrative Agent shall notify the Lenders
of any such resignation or replacement of an Issuing Bank. At the time any such resignation or replacement shall become effective, the Borrowers shall pay all unpaid fees accrued for the account of
the resigning or replaced Issuing Bank pursuant to Section 3.05(b). In the case of the replacement of an Issuing Bank, from and after the effective date of such replacement, (i) the
successor Issuing Bank shall have all the rights and obligations of the replaced Issuing Bank under this Agreement with respect to Letters of Credit to be issued 

26

 

thereafter
and (ii) references herein to the term "Issuing Bank" shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks,
as the context shall require. After the resignation or replacement of an Issuing Bank hereunder, the resigning or replaced Issuing Bank shall remain a party hereto and shall continue to have all the
rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior to such resignation or replacement, but shall not be required to issue additional
Letters of Credit. 

        (j)    Cash Collateralization.    If (i) any Event of Default shall occur and be continuing and the Borrowers
receive notice from the Administrative Agent or the Required Lenders demanding the deposit of cash collateral pursuant to this Section 2.08(j), or (ii) the Borrowers are required to pay
to the Administrative Agent the excess attributable to an LC Exposure in connection with any prepayment pursuant to Section 3.04(c), then the Borrowers shall deposit, in an account with the
Administrative Agent, in the name of the Administrative Agent and for the benefit of the Lenders, an amount in cash equal to, in the case of an Event of Default, the LC Exposure, and in the case of a
payment required by Section 3.04(c), the amount of such excess as provided in Section 3.04(c), as of such date plus any accrued and unpaid interest thereon;  provided that the obligation to
deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and
payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to any Borrower or any Subsidiary described in Section 10.01(h) or
Section 10.01(i). The Borrowers hereby grant to the Administrative Agent, for the benefit of each Issuing Bank and the Lenders, an exclusive first priority and continuing perfected security
interest in and Lien on such account and all cash, checks, drafts, certificates and instruments, if any, from time to time deposited or held in such account, all deposits or wire transfers made
thereto, any and all investments purchased with funds deposited in such account, all interest, dividends, cash, instruments, financial assets and other Property from time to time received, receivable
or otherwise payable in respect of, or in exchange for, any or all of the foregoing, and all proceeds, products, accessions, rents, profits, income and benefits therefrom, and any substitutions and
replacements therefor. The Borrowers' obligation to deposit amounts pursuant to this Section 2.08(j) shall be absolute and unconditional, without regard to whether any beneficiary of any such
Letter of Credit has attempted to draw down all or a portion of such amount under the terms of a Letter of Credit, and, to the fullest extent permitted by applicable law, shall not be subject to any
defense or be affected by a right of set-off, counterclaim or recoupment which any Borrower or any of its Subsidiaries may now or hereafter have against any such beneficiary, any Issuing
Bank, the Administrative Agent, the Lenders or any other Person for any reason whatsoever. Such deposit shall be held as collateral securing the payment and performance of the Borrowers' and the
Guarantors' obligations under this Agreement and the other Loan Documents in a "securities account" (within the meaning of Article 8 of the Uniform Commercial Code in effect from time to time
in the State of Texas, the "UCC") over which the Administrative Agent shall have "control" (within the meaning of the UCC). Notwithstanding the
foregoing, the Borrowers may direct the Administrative Agent and the "securities intermediary" (within the meaning of the UCC) to invest amounts credited to the securities account, at the Borrowers'
risk and expense, in Investments described in Section 9.05(c) through (f). Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be
applied by the Administrative Agent to reimburse, on a pro rata basis, each Issuing Bank for LC Disbursements for which it has not been reimbursed and,
to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrowers for the LC Exposure at such time or, if the maturity of the Loans has been
accelerated, be applied to satisfy other obligations of the Borrowers and the Guarantors under this Agreement or the other Loan Documents. If the Borrowers are required to provide an amount of cash
collateral hereunder as a result of the occurrence of an Event of Default, and the Borrowers are not otherwise required to pay to the 

27

 

Administrative
Agent the excess attributable to an LC Exposure in connection with any prepayment pursuant to Section 3.04(c), then such amount (to the extent not applied as aforesaid) shall be
returned to the Borrowers within three Business Days after all Events of Default have been cured or waived. 

 
 

ARTICLE III
  PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES    
    

        Section
3.01    Repayment of Loans.    The Borrowers hereby unconditionally, and jointly and severally, promise to pay
to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Loan on the Termination Date. 

        Section
3.02    Interest.    

        (a)    ABR Loans.    The Loans comprising each ABR Borrowing shall bear interest at the Alternate Base Rate plus the
Applicable Margin, but in no event to exceed the Highest Lawful Rate. 

        (b)    Eurodollar Loans.    The Loans comprising each Eurodollar Borrowing shall bear interest at the Adjusted LIBO
Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin, but in no event to exceed the Highest Lawful Rate. 

        (c)    Post-Default Rate.    Notwithstanding the foregoing, if any principal of or interest on any Loan or
any fee or other amount payable by any Borrower or any Guarantor hereunder or under any other Loan Document is not paid when due, whether at stated maturity, upon acceleration or otherwise, such
overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to two percent (2%) plus the rate applicable to ABR Loans as provided in Section 3.02(a), but in
no event to exceed the Highest Lawful Rate. 

        (d)    Interest Payment Dates.    Accrued interest on each Loan shall be payable in arrears on each Interest Payment
Date for such Loan and on the Termination Date; provided that (i) interest accrued pursuant to Section 3.02(c) shall be payable on demand,
(ii) in the event of any repayment or prepayment of any Loan (other than an optional prepayment of an ABR Loan prior to the Termination Date), accrued interest on the principal amount repaid or
prepaid shall be payable on the date of such repayment or prepayment, and (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor,
accrued interest on such Loan shall be payable on the effective date of such conversion. 

        (e)    Interest Rate Computations.    All interest hereunder shall be computed on the basis of a year of
360 days, unless such computation would exceed the Highest Lawful Rate, in which case interest shall be computed on the basis of a year of 365 days (or 366 days in a leap year),
except that interest
computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a
leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate, Adjusted LIBO Rate or LIBO
Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error, and be binding upon the parties hereto. 

        Section
3.03    Alternate Rate of Interest.    If prior to the commencement of any Interest Period for a Eurodollar
Borrowing: 

        (a)    the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and
reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate for such Interest Period; or    

28

  

        (b)    the Administrative Agent is advised by the Required Lenders that the Adjusted LIBO Rate or LIBO Rate, as applicable, for
such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period;    

then
the Administrative Agent shall give notice thereof to the Borrowers and the Lenders by telephone or telecopy as promptly as practicable thereafter and, until the Administrative Agent notifies the
Borrowers and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation
of any Borrowing as, a Eurodollar Borrowing shall be ineffective, and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing. 

        Section
3.04    Prepayments.    

        (a)    Optional Prepayments.    The Borrowers shall have the right at any time and from time to time to prepay any
Borrowing in whole or in part, subject to prior notice in accordance with Section 3.04(b). 

        (b)    Notice and Terms of Optional Prepayment.    The Borrowers shall notify the Administrative Agent by telephone
(confirmed by telecopy) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later than 12:00 noon, Chicago, Illinois time, three Business Days before the
date of prepayment, or (ii) in the case of prepayment of an ABR Borrowing, not later than 12:00 noon, Chicago, Illinois time, on the Business Day of prepayment. Each such notice shall be
irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid. Promptly following receipt of any such notice relating to a Borrowing,
the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of an advance of a
Borrowing of the same Type as provided in Section 2.02. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied
by accrued interest to the extent required by Section 3.02. 

        (c)    Mandatory Prepayments.    

          (i)  If,
after giving effect to any termination or reduction of the Aggregate Maximum Credit Amount pursuant to Section 2.06(b), the total Credit Exposures exceeds
the total Commitments, then the Borrowers shall (A) prepay the Borrowings on the date of such termination or reduction in an aggregate
principal amount equal to such excess, and (B) if any excess remains after prepaying all of the Borrowings as a result of an LC Exposure, pay to the Administrative Agent on behalf of the
Lenders an amount equal to such excess to be held as cash collateral as provided in Section 2.08(j). 

         (ii)  Upon
any redetermination of or adjustment to the amount of the Borrowing Base in accordance with Section 2.07 or Section 8.13(c), if the total Credit
Exposure exceeds the redetermined or adjusted Borrowing Base, then the Borrowers shall, within 30 days following receipt of the New Borrowing Base Notice in accordance with
Section 2.07(d) or the date the adjustment occurs, provide written notice (the "Election Notice") to the Administrative Agent stating the action
which the Borrowers propose to take to remedy such excess, and the Borrowers shall thereafter, at their option, either (A) within 60 days following the delivery of the Election Notice,
prepay the Borrowings in an aggregate principal amount equal to such excess, (B) within 60 days following the delivery of the Election Notice, submit (and pledge as collateral)
additional Oil and Gas Properties owned by the Borrowers for consideration in connection with the determination of the Borrowing Base which the Administrative Agent and 

29

 

the
Lenders deem sufficient in their sole discretion to eliminate such excess, or (C) within 60 days following the delivery of the Election Notice, eliminate such excess through a
combination of prepayments and submission of additional Oil and Gas Properties as set forth in subclauses (A) and (B) above. If any excess remains after prepaying all of the Borrowings
as a result of an LC Exposure, then the Borrowers shall pay to the Administrative Agent on behalf of the Lenders an amount equal to such excess to be held as cash collateral as provided in
Section 2.08(j). The Borrowers shall be obligated to deposit such cash collateral amount within five (5) days following its receipt of the New Borrowing Base Notice in accordance with
Section 2.07(d) or the date the adjustment occurs; provided that all payments required to be made pursuant to this
Section 3.04(c)(ii) must be made on or prior to the Termination Date. 

        (iii)  Upon
any adjustments to the Borrowing Base pursuant to Section 9.12, if the total Credit Exposures exceeds the Borrowing Base as adjusted, then the Borrowers
shall (A) prepay the Borrowings in an aggregate principal amount equal to such excess, and (B) if any excess remains after prepaying all of the Borrowings as a result of an LC Exposure,
pay to the Administrative Agent on behalf of the Lenders an amount equal to such excess to be held as cash collateral as provided in Section 2.08(j). The Borrowers shall be obligated to make
such prepayment and/or deposit of cash collateral on the date it receives cash proceeds as a result of such disposition or such incurrence of Debt; provided  that all payments required to be made
pursuant to this Section 3.04(c)(iii) must be made on or prior to the Termination Date. 

        (iv)  Each
prepayment of Borrowings pursuant to this Section 3.04(c) shall be applied, first, ratably to any ABR Borrowings then outstanding, and, second, to any
Eurodollar Borrowings then outstanding, and if more than one Eurodollar Borrowing is then outstanding, to each such Eurodollar Borrowing in order of priority beginning with the Eurodollar Borrowing
with the least number of days remaining in the Interest Period applicable thereto and ending with the Eurodollar Borrowing with the most number of days remaining in the Interest Period applicable
thereto. 

         (v)  Each
prepayment of Borrowings pursuant to this Section 3.04(c) shall be applied ratably to the Loans included in the prepaid Borrowings. Prepayments pursuant to
this Section 3.04(c) shall be accompanied by accrued interest to the extent required by Section 3.02. 

        (d)    No Premium or Penalty.    Prepayments permitted or required under this Section 3.04 shall be without
premium or penalty, except as required under Section 5.02. 

        Section
3.05    Fees.    

        (a)    Commitment Fees.    The Borrowers jointly and severally agree to pay to the Administrative Agent for the
account of each Lender a commitment fee, which shall accrue at the applicable Commitment Fee Rate on the average daily amount of the unused amount of the Commitment of such Lender during the period
from and including the date of this Agreement to but excluding the Termination Date. Accrued commitment fees shall be payable in arrears on the last day of March, June, September and December of each
year and on the Termination Date, commencing on the first such date to occur after the date hereof. All commitment fees shall be computed on the basis of a year of 360 days, unless such
computation would exceed the Highest Lawful Rate, in which case interest shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and shall be payable for the
actual number of days elapsed (including the first day but excluding the last day). 

30

 

        (b)    Letter of Credit Fees.    The Borrowers agree to pay (i) to the Administrative Agent for the account of
each Lender a participation fee with respect to its participations in Letters of Credit, which shall equal a percentage (being the same Applicable Margin used to determine the interest rate applicable
to Eurodollar Loans) of the stated amount of each such Letter of Credit during the period from and including the date of this Agreement to but excluding the later of the date on which such Lender's
Commitment terminates and the date on which such Lender ceases to have any LC Exposure, (ii) to each Issuing Bank, for its own account, a fronting fee equal to 0.125% per annum of the stated
amount of each such Letter of Credit during the period from and including the date of this Agreement to but excluding the later of the date of termination of the Commitments and the date on which
there ceases to be any LC Exposure, provided that in no event shall such fee be less than $500, and (iii) to each Issuing Bank, for its own
account, its standard and customary fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit issued by such Issuing Bank or processing of drawings thereunder.
Participation fees and fronting fees with respect to any Letter of Credit shall be payable at the time of issuance of such Letter of Credit. Any other fees payable to an Issuing Bank pursuant to this
Section 3.05(b) shall be payable within 10 days after demand. All participation fees and fronting fees shall be computed on the basis of a year of 360 days, unless such
computation would exceed the Highest Lawful Rate, in which case interest shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and shall be payable for the
actual number of days elapsed (including the first day but excluding the last day). 

        (c)    Administrative Agent Fees.    The Borrowers agree to pay to the Administrative Agent, for its own account, fees
payable in the amounts and at the times separately agreed upon between or among the Borrowers and the Administrative Agent, including the fees set forth in the Fee Letter. 

        Section 3.06    Joint and Several Liability.    

        (a)   Each
Borrower states and acknowledges that: (i) pursuant to this Agreement, Borrowers desire to utilize their borrowing potential on a consolidated basis to the
same extent possible if they were merged into a single corporate entity; (ii) each Borrower has determined that it will benefit specifically and materially from the advances of credit
contemplated by this Agreement; (iii) it is both a condition precedent to the obligations of Agents and Lenders hereunder and a desire of each Borrower that each Borrower execute and deliver
this Agreement; and (iv) each Borrower has requested and bargained for the structure and terms of and security for the advances contemplated by this Agreement. 

        (b)   Each
Borrower hereby irrevocably and unconditionally: (i) agrees that it is jointly and severally liable to Agents and Lenders for the full and prompt payment and
performance of the obligations of each Borrower under this Agreement and each other Loan Document that may specify that a particular Borrower is responsible for a given payment or performance;
(ii) agrees to fully and promptly perform all of its obligations hereunder with respect to each advance of credit hereunder as if such advance had been made directly to it; and
(iii) agrees as a primary obligation to indemnify each Agent and each Lender, on demand, for and against any loss incurred by any Agent or any Lender as a result of any of the obligations of
any Borrower (the "subject Borrower") being or becoming void, voidable, unenforceable or ineffective for any reason whatsoever, whether or not known to
the subject Borrower or any Person, the amount of such loss being the amount which such Agent or Lender would otherwise have been entitled to recover from Borrowers. 

        (c)   It
is the intent of each Borrower that the indebtedness, obligations and liabilities hereunder of no one of them be subject to challenge on any basis related to any
federal or state Law dealing with fraudulent conveyances or any other Law related to transfers for less than fair or reasonably equivalent value. Accordingly, as of the date hereof, the liability of
each Borrower under this Section 3.06 together with all of its other liabilities to all Persons as of the date hereof and as of any other date on which a 

31

 

transfer
is deemed to occur by virtue of this Agreement, calculated in amount sufficient to pay its probable net liabilities on its existing indebtedness as the same become absolute and matured
("Dated Liabilities"), is and is to be, less than the amount of the aggregate of a fair valuation of its property as of such corresponding date
("Dated Assets"). To this end, each Borrower under this Section 3.06: (i) grants to and recognizes in each other Borrower ratably, rights
of subrogation and contribution in the amount, if any, by which the Dated Assets of such Borrower, but for the aggregate of subrogation and contribution in its favor recognized herein, would exceed
the Dated Liabilities of such Borrower, or (ii) as the case may be, acknowledges receipt of and recognizes its right to subrogation and contribution ratably from the other Borrowers in the
amount, if any, by which the Dated Liabilities of such Borrower, but for the aggregate of subrogation and contribution in its favor recognized herein, would exceed the Dated Assets of such Borrower
under this Section 3.06. In recognizing the value of the Dated Assets and the Dated Liabilities, it is understood that each Borrower will recognize, to at least the same extent of their
aggregate recognition of liabilities hereunder, their rights to subrogation and contribution hereunder. It is a material objective of this Section 3.06 that each Borrower recognizes rights to
subrogation and contribution rather than be deemed to be insolvent (or in contemplation thereof) by reason of an arbitrary interpretation of its joint and several obligations hereunder. 

        (d)   Each
Borrower agrees and acknowledges that the present structure of the credit facilities detailed in this Agreement is based in part upon the financial and other
information presently known to Agents and Lenders regarding each Borrower, the corporate and other organizational structure of Borrowers, and the present financial condition of each Borrower. Upon or
after the occurrence of an Event of Default and so long as it is continuing, each Borrower hereby agrees that Required Lenders shall have the right, in their sole credit judgment, to require that any
or all of the following changes be made to these credit facilities: (i) restrict loans and advances between Borrowers, (ii) separate the Loans into separate loans to each Borrower as
shall be determined by Required Lenders, and (iii) establish such other procedures as shall be reasonably deemed by Required Lenders to be useful in tracking where Loans are made under this
Agreement and the source of payments received by Lenders on such Loans. 

 
 

ARTICLE IV
  PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS.    
    

        Section
4.01    Payments Generally; Pro Rata Treatment; Sharing of Set-offs.    

        (a)    Payments by the Borrowers.    The Borrowers shall make each payment required to be made by it hereunder
(whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under Section 5.01, Section 5.02, Section 5.03 or otherwise) prior to 12:00 noon,
Chicago, Illinois time, on the date when due, in dollars that constitute immediately available funds, without defense, deduction, recoupment, set-off or counterclaim. Fees, once paid,
shall not be refundable under any circumstances absent manifest error (e.g., as a result of a clerical mistake). Any amounts received after such time on any date may, in the discretion of the
Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at
its offices specified in Section 12.01, except payments to be made directly to an Issuing Bank as expressly provided herein and except that payments pursuant to Section 5.01,
Section 5.02, Section 5.03 and Section 12.03 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for
the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall
be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be
made in dollars. 

32

 

        (b)    Application of Insufficient Payments.    If at any time insufficient funds are received by and available to the
Administrative Agent to pay fully all amounts of principal, unreimbursed LC Disbursements, interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of
interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, towards payment
of principal and unreimbursed LC Disbursements then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and unreimbursed LC Disbursements then due to
such parties. 

        (c)    Sharing of Payments by Lenders.    If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans or participations in LC Disbursements resulting in such Lender receiving payment of a greater
proportion of the aggregate amount of its Loans and participations in LC Disbursements and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such
greater proportion shall purchase (for cash at face value) participations in the Loans and participations in LC Disbursements of other Lenders to the extent necessary so that the benefit of all such
payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans and participations in LC Disbursements;  provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such
participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this Section 4.01(c) shall not be construed
to apply to any payment made by the Borrowers pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale
of a participation in any of its Loans or participations in LC Disbursements to any assignee or participant, other than to any Borrower or any Subsidiary or Affiliate thereof (as to which the
provisions of this Section 4.01(c) shall apply). The Borrowers consent to the foregoing and agree, to the extent they may
effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against any Borrower rights of set-off and
counterclaim with respect to such participation as fully as if such Lender were a direct creditor of any such Borrower in the amount of such participation. 

        Section
4.02    Presumption of Payment by the Borrowers.    Unless the Administrative Agent shall have received notice
from the Borrowers prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or any Issuing Bank that the Borrowers will not make such payment, the
Administrative Agent may assume that the Borrowers have made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or such Issuing Bank,
as the case may be, the amount due. In such event, if the Borrowers have not in fact made such payment, then each of the Lenders or such Issuing Bank, as the case may be, severally agrees to repay to
the Administrative Agent forthwith on demand the amount so distributed to such Lender or such Issuing Bank with interest thereon, for each day from and including the date such amount is distributed to
it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking
industry rules on interbank compensation. 

        Section
4.03    Certain Deductions by the Administrative Agent.    If any Lender shall fail to make any payment
required to be made by it pursuant to Section 2.05(b), Section 2.08(d), Section 2.08(e) or Section 4.02 then the Administrative Agent may, in its discretion
(notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender's obligations under such
Sections until all such unsatisfied obligations are fully paid. 

33

 

        Section
4.04    Disposition of Proceeds.    The Security Instruments contain an assignment by the Borrowers and/or the
Guarantors unto and in favor of the Administrative Agent for the benefit of the Lenders and Secured Swap Providers of all of each Borrower's or each Guarantor's interest in and to production and all
proceeds attributable thereto that may be produced from or allocated to the Mortgaged Property. The Security Instruments further provide in general for the application of such proceeds to the
satisfaction of the Indebtedness and other obligations described therein and secured thereby. Notwithstanding the assignment contained in such Security Instruments, until the occurrence of an Event of
Default, (a) the Administrative Agent and the Lenders agree that they will neither notify the purchaser or purchasers of such production nor take any other action to cause such proceeds to be
remitted to the Administrative Agent or the Lenders, but the Lenders will instead permit such proceeds to be paid to the Borrowers and their Subsidiaries and (b) the Lenders hereby authorize
the Administrative Agent to take such actions as may be necessary to cause such proceeds to be paid to the Borrowers and/or such Subsidiaries. 

 
 

ARTICLE V
  INCREASED COSTS; BREAK FUNDING PAYMENTS; TAXES; ILLEGALITY    
    

        Section
5.01    Increased Costs.    

        (a)    Eurodollar Changes in Law.    If any Change in Law shall: 

          (i)  impose,
modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any
Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate); or 

         (ii)  impose
on any Lender or the London interbank market any other condition affecting this Agreement or Eurodollar Loans made by such Lender; 

and
the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan) or to reduce
the amount of any sum received or receivable by such Lender (whether of principal, interest or otherwise), then the Borrowers will pay to such Lender such additional amount or amounts as will
compensate such Lender for such additional costs incurred or reduction suffered. 

        (b)    Capital Requirements.    If any Lender or any Issuing Bank determines that any Change in Law regarding capital
requirements has or would have the effect of reducing the rate of return on such Lender's or such Issuing Bank's capital or on the capital of such Lender's or such Issuing Bank's holding company, if
any, as a consequence of this Agreement or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by such Issuing Bank, to a level below that
which such Lender or such Issuing Bank or such Lender's or such Issuing Bank's holding company could have achieved but for such Change in Law (taking into consideration such Lender's or such Issuing
Bank's policies and the policies of such Lender's or such Issuing Bank's holding company with respect to capital adequacy), then from time to time the Borrowers will pay to such Lender or such Issuing
Bank, as the case may be, such additional amount or amounts as will compensate such Lender or such Issuing Bank or such Lender's or such Issuing Bank's holding company for any such reduction suffered. 

        (c)    Certificates.    A certificate of a Lender or any Issuing Bank setting forth the amount or amounts necessary to
compensate such Lender or such Issuing Bank or its holding company, as the case may be, as specified in Section 5.01(a) or (b) and reasonably detailed calculations therefor shall be
delivered to the Borrowers and shall be conclusive absent manifest error. The Borrowers shall pay such Lender or such Issuing Bank, as the case may be, the amount shown as due on any such certificate
within 10 days after receipt thereof. 

34

 

        (d)    Effect of Failure or Delay in Requesting Compensation.    Failure or delay on the part of any Lender or any
Issuing Bank to demand compensation pursuant to this Section 5.01 shall not constitute a waiver of such Lender's or such Issuing Bank's right to demand such compensation;  provided that the
Borrowers shall not be required to compensate a Lender or an Issuing Bank pursuant to this Section 5.01 for any increased costs
or reductions incurred more than 180 days prior to the date that such Lender or such Issuing Bank, as the case may be, notifies the Borrowers of the Change in Law giving rise to such increased
costs or reductions and of such Lender's or such Issuing Bank's intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions
is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof. 

        Section 5.02    Break Funding Payments.    In the event of (a) the payment of any principal of any
Eurodollar Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan into an ABR Loan
other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Eurodollar Loan on the date specified in any notice delivered
pursuant hereto, or (d) the assignment of any Eurodollar Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrowers pursuant to
Section 5.04(b), then, in any such event, the Borrowers shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost
or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount
of such Loan had such event not occurred, at the Adjusted LIBO Rate that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current
Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest
which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable
amount and period from other banks in the eurodollar market. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this
Section 5.02 and reasonably detailed calculations therefor shall be delivered to the Borrowers and shall be conclusive absent manifest error. The Borrowers shall pay such Lender the amount
shown as due on any such certificate within 10 days after receipt thereof. 

        Section
5.03    Taxes.    

        (a)    Payments Free of Taxes.    Any and all payments by or on account of any obligation of any Borrower or any
Guarantor under any Loan Document shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if any Borrower or any Guarantor shall be required to
deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 5.03(a)), the Agent, Lender or Issuing Bank (as the case may be) receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrowers shall or the Borrowers shall cause such Guarantor to make such deductions and (iii) the Borrowers shall or the Borrowers shall cause such
Guarantor to pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. 

        (b)    Payment of Other Taxes by the Borrowers.    The Borrowers shall pay any Other Taxes to the relevant
Governmental Authority in accordance with applicable law. 

        (c)    Indemnification by the Borrowers.    Each Borrower shall indemnify each Agent, each Lender and each Issuing
Bank, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by such Agent, such Lender or such Issuing Bank, as 

35

 

the
case may be, on or with respect to any payment by or on account of any obligation of any Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to
amounts payable under this Section 5.03) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were
correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate of such Agent, a Lender or an Issuing Bank as to the amount of such payment or liability under this
Section 5.03 shall be delivered to the Borrowers and shall be conclusive absent manifest error. 

        (d)    Evidence of Payments.    As soon as practicable after any payment of Indemnified Taxes or Other Taxes by a
Borrower or a Guarantor to a Governmental Authority, the Borrowers shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority
evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent. 

        (e)    Foreign Lenders.    Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax
under the law of the jurisdiction in which a Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement or any other Loan Document shall
deliver to the Borrowers (with a copy to the Administrative Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law
or reasonably requested by the Borrowers as will permit such payments to be made without withholding or at a reduced rate. 

        (f)    Tax Refunds.    If an Agent or a Lender determines, in its reasonable discretion, that it has received a refund
of any Taxes or Other Taxes as to which it has been indemnified by the Borrowers or with respect to which the Borrowers have paid additional amounts pursuant to this Section 5.03, it shall pay
over such refund to the Borrowers (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrowers under this Section 5.03 with respect to the Taxes or Other
Taxes giving rise to such refund), net of all out-of-pocket expenses of such Agent or such Lender and without interest (other than any interest paid by the relevant
Governmental Authority with respect to such refund); provided, that the Borrowers, upon the request of such Agent or such Lender, agrees to repay the
amount paid over to the Borrowers (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to such Agent or such Lender in the event such Agent or such Lender is
required to repay such refund to such Governmental Authority. This Section 5.03 shall not be construed to require any Agent or any Lender to make available its tax returns (or any other
information relating to its taxes which it deems confidential) to the Borrowers or any other Person. 

        Section
5.04    Mitigation Obligations.    

        (a)    Designation of Different Lending Office.    If any Lender requests compensation under Section 5.01, or
if any Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 5.03, then such Lender shall use
reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or
affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 5.01 or Section 5.03, as the case
may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrowers hereby agree to pay all
reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. 

        (b)    Replacement of Lenders.    If (i) any Lender requests compensation under Section 5.01,
(ii) any Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 5.03, (iii) any Lender
defaults in its 

36

 

obligation
to fund Loans hereunder, or (iv) any Lender has not approved (or is not deemed to have approved) an increase in the Borrowing Base proposed by the Administrative Agent pursuant to
Section 2.07(c)(iii), then the Borrowers may, at their sole expense and effort, upon notice to such Lender and the Administrative Agent, (A) require such Lender to assign and delegate,
without recourse (in accordance with and subject to the restrictions contained in Section 12.04(b)), all its interests, rights and obligations under this Agreement to an assignee that shall
assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment) or (B) require such Lender to be removed as a Lender under this Agreement and the other Loan
Documents with a corresponding reduction in the Aggregate Maximum Credit Amount equal to the Maximum Credit Amount of such Lender; provided that
(1) if a Lender is removed as a Lender hereunder, the Borrowers have paid such Lender all amounts due and owing under this Agreement and the other Loan Documents, including, without limitation,
all principal, accrued interest, fees and breakage costs, (2) in the case of a required assignment of interest, the Borrowers shall have received the prior written consent of the Administrative
Agent, which consent shall not unreasonably be withheld, (3) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in LC
Disbursements, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or
the Borrowers (in the case of all other amounts) and (4) in the case of any such assignment resulting from a claim for compensation under Section 5.01 or payments required to be made
pursuant to Section 5.03, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior
thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrowers to require such assignment and delegation cease to apply. 

        Section
5.05    Illegality.    Notwithstanding any other provision of this Agreement, in the event that it becomes
unlawful for any Lender or its applicable lending office to honor its obligation to make or maintain Eurodollar Loans either generally or having a particular Interest Period hereunder, then
(a) such Lender shall promptly notify the Borrowers and the Administrative Agent thereof and such Lender's obligation to make such Eurodollar Loans shall be suspended (the
"Affected Loans") until such time as such Lender may again make and maintain such Eurodollar Loans and (b) all Affected Loans which would
otherwise be made by such Lender shall be made instead as ABR Loans (and, if such Lender so requests by notice to the Borrowers and the Administrative Agent, all Affected Loans of such Lender then
outstanding shall be automatically converted into ABR Loans on the date specified by such Lender in such notice) and, to the extent that Affected Loans are so made as (or converted into) ABR Loans,
all payments of principal which would otherwise be applied to such Lender's Affected Loans shall be applied instead to its ABR Loans. 

 
 

ARTICLE VI
  CONDITIONS PRECEDENT    
    

        Section
6.01    Effective Date; Initial Loans.    This Agreement, and the obligations of the Lenders to make the
initial Loans and any Issuing Bank to issue Letters of Credit hereunder, shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with
Section 12.02): 

        (a)   The
Administrative Agent, the Arranger and the Lenders shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to
the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrowers hereunder. 

        (b)   The
Administrative Agent shall have received a certificate of the Secretary or an Assistant Secretary of each Borrower and its Subsidiaries setting forth
(i) resolutions of their 

37

 

respective
board of directors (or comparable managing board) with respect to the authorization of each Borrower and its Subsidiaries to execute and deliver the Loan Documents to which it is a party
and to enter into the transactions contemplated in those documents, (ii) the officers of each Borrower and its Subsidiaries (y) who are authorized to sign the Loan Documents to which
such Borrower and such Subsidiaries are a party and (z) who will, until replaced by another officer or officers duly authorized for that purpose, act as its representative for the purposes of
signing documents and giving notices and other communications in connection with this Agreement and the transactions contemplated hereby, (iii) specimen signatures of such authorized officers,
and (iv) the articles or certificate of incorporation, bylaws, articles of organization, regulations or comparable charter documents of each Borrower and its Subsidiaries, certified as being
true and complete. The Administrative Agent and the Lenders may conclusively rely on such certificate until the Administrative Agent receives notice in writing from the Borrowers to the contrary. 

        (c)   The
Administrative Agent shall have received certificates of the appropriate State agencies with respect to the existence, qualification and good standing of each
Borrower and its Subsidiaries. 

        (d)   The
Administrative Agent shall have received from each party hereto counterparts (in such number as may be requested by the Administrative Agent) of this Agreement
signed on behalf of such party. 

        (e)   The
Administrative Agent shall have received duly executed Notes payable to the order of each Lender that has requested a Note in a principal amount equal to its Maximum
Credit Amount dated as of the date hereof. 

        (f)    The
Administrative Agent shall have received from each party thereto duly executed counterparts (in such number as may be requested by the Administrative Agent) of the
applicable Security Instruments. In connection with the execution and delivery of the Security Instruments, the Administrative Agent shall be reasonably satisfied that the Security Instruments create
first priority, perfected Liens (subject only to Excepted Liens identified in clauses (a) to (d) and (f) of the definition thereof, but subject to the provisos at the end of such
definition) on at least 80% of the total value of the proved Oil and Gas Properties evaluated in the Initial Reserve Report. 

        (g)   The
Administrative Agent shall have received opinions of special counsel to the Borrowers and their Subsidiaries, and, as applicable and necessary (as determined by the
Administrative Agent in its sole reasonable discretion), opinions of local counsel, in each case, in a form reasonably acceptable to the Administrative Agent and its counsel. 

        (h)   The
Administrative Agent shall have received a certificate of insurance coverage of the Borrowers and their Subsidiaries evidencing that the Borrowers and their
Subsidiaries are carrying insurance in accordance with Section 7.13. 

        (i)    The
Administrative Agent and/or its counsel shall have received title information as they may reasonably require setting forth the status of title to at least 80% of the
total value of the proved Oil and Gas Properties evaluated in the Initial Reserve Report. 

        (j)    The
Administrative Agent shall be reasonably satisfied with the environmental condition of the Oil and Gas Properties of the Borrowers and their Subsidiaries. 

        (k)   The
Administrative Agent shall have received the Initial Reserve Report accompanied by a certificate covering the matters described in Section 8.12(c). 

        (l)    The
Administrative Agent shall have received appropriate UCC search certificates reflecting no prior Liens encumbering the Properties of the Borrowers and their
Subsidiaries in each jurisdiction requested by the Administrative Agent, other than Liens permitted by Section 9.03. 

38

 

        (m)  The
Administrative Agent shall have received a compliance certificate which shall be substantially in the form of  Exhibit D, duly and properly executed by a Responsible Officer. 

        (n)   The
Administrative Agent shall have received a certificate of a Responsible Officer of each Borrower and its Subsidiaries certifying that such Borrower and its
Subsidiaries have (i) received all consents and approvals required by Section 7.03 and (ii) no other Debt in respect of borrowed money. 

        (o)   The
Administrative Agent shall have received the financial statements referred to in Section 7.04(a). 

        (p)   The
Administrative Agent shall have received such other documents as the Administrative Agent or its special counsel may reasonably request. 

        The
Administrative Agent shall notify the Borrowers and the Lenders of the Effective Date, and such notice shall be conclusive and binding. 

        Section
6.02    Each Credit Event.    The obligation of each Lender to make a Loan on the occasion of any Borrowing
(including the initial funding), and of each Issuing Bank to issue, amend, renew or extend any Letter of Credit, is subject to the satisfaction of the following conditions: 

        (a)   At
the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no Default
shall have occurred and be continuing. 

        (b)   At
the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no event,
development or condition that has or could reasonably be expected to have a Material Adverse Effect shall have occurred. 

        (c)   The
representations and warranties of the Borrowers and their Subsidiaries set forth in this Agreement and in the other Loan Documents shall be true and correct on and
as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable, except to the extent any such representations and warranties are
expressly limited to an earlier date, in which case, on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable, such
representations and warranties shall continue to be true and correct as of such specified earlier date. 

        (d)   The
making of such Loan or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, would not conflict with, or cause any Lender or any
Issuing Bank to violate or exceed, any applicable Governmental Requirement, and no Change in Law shall have occurred, and no litigation shall be pending or threatened, which does or, with respect to
any threatened litigation, seeks to, enjoin, prohibit or restrain, the making or repayment of any Loan, the issuance, amendment, renewal, extension or repayment of any Letter of Credit or any
participations therein or the consummation of the transactions contemplated by this Agreement or any other Loan Document. 

        (e)   The
receipt by the Administrative Agent of a Borrowing Request in accordance with Section 2.03 or a request for a Letter of Credit in accordance with
Section 2.08(b), as applicable. 

        Each
request for a Borrowing and each issuance, amendment, renewal or extension of any Letter of Credit shall be deemed to constitute a representation and warranty by the Borrowers on
the date thereof as to the matters specified in Section 6.02(a) through (d). 

39

 
 
 

ARTICLE VII
  REPRESENTATIONS AND WARRANTIES    
    

        Each Borrower jointly and severally represents and warrants to the Lenders that: 

        Section 7.01    Organization; Powers.    Each of the Borrowers and their Subsidiaries are duly organized,
validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority, and has all material governmental licenses, authorizations,
consents and approvals necessary, to own its assets and to carry on its business as now conducted, and is qualified to do business in, and is in good standing in, every jurisdiction where such
qualification is required, except where failure to have such power, authority, licenses, authorizations, consents, approvals and qualifications could not reasonably be expected to have a Material
Adverse Effect. 

        Section
7.02    Authority; Enforceability.    The Transactions are within each Borrower's and each Guarantor's
corporate, limited liability company or other organizational powers and have been duly authorized by all necessary corporate, limited liability company or other organizational and, if required, member
or stockholder action (including, without limitation, any action required to be taken by any class of members, managers or directors of each Borrower or any other Person, whether interested or
disinterested, in order to ensure the due authorization of the Transactions). Each Loan Document to which each Borrower and each Guarantor is a party has been duly executed and delivered by such
Borrower and such Guarantor and constitutes a legal, valid and binding obligation of such Borrower and such Guarantor, as applicable, enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in
equity or at law. 

        Section
7.03    Approvals; No Conflicts.    The Transactions (a) do not require any consent or approval of,
registration or filing with, or any other action by, any Governmental Authority or any other third Person (including shareholders or any class of directors, whether interested or disinterested, of any
Borrower or any other Person), nor is any such consent, approval, registration, filing or other action necessary for the validity or enforceability of any Loan Document or the consummation of the
transactions contemplated thereby, except such as have been obtained or made and are in full force and effect other than (i) the recording and filing of the Security Instruments as required by
this Agreement and (ii) those third party approvals or consents which, if not made or obtained, would not cause a Default hereunder, could not reasonably be expected to have a Material Adverse
Effect or do not have an adverse effect on the enforceability of the Loan Documents, (b) will not violate any applicable law or regulation or the charter, regulations, by-laws or
other organizational documents of any Borrower or any Subsidiary or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or other
instrument binding upon any Borrower or any Subsidiary or its Properties, or give rise to a right thereunder to require any payment to be made by such Borrower or such Subsidiary and (d) will
not result in the creation or imposition of any Lien on any Property of any Borrower or any Subsidiary (other than the Liens created by the Loan Documents). 

        Section
7.04    Financial Condition; No Material Adverse Change.    

        (a)   The
Borrowers have heretofore furnished to the Lenders a pro forma balance sheet as of the Effective Date, and such other supporting financial information as the Lenders
have requested, and such balance sheet and other information does not contain any material misstatement of fact or omit to state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. 

        (b)   Since
the date of the last delivery of financial statements pursuant to Section 8.01, (i) there has been no event, development or circumstance that has had
or could reasonably be expected to have 

40

 

a
Material Adverse Effect and (ii) the business of the Borrowers and their Subsidiaries has been conducted only in the ordinary course consistent with past business practices. 

        (c)   Except
as set forth on Schedule 7.21, on the most recent financial statement of the Borrowers delivered pursuant
to Section 8.01(a) or (b), or in a certificate delivered pursuant to Section 8.01(d), neither any Borrower nor any Subsidiary has any material Debt (including Disqualified Capital Stock)
or any contingent liabilities, off-balance sheet liabilities or partnerships, liabilities for taxes or unrealized or anticipated losses from any unfavorable commitments. 

        Section
7.05    Litigation.    

        (a)   Except
as set forth on Schedule 7.05, there are no actions, suits, investigations or proceedings by or before any
arbitrator or Governmental Authority pending against or, to the knowledge of the Borrowers, threatened in writing against or affecting any Borrower or any Subsidiary (i) as to which there is a
reasonable possibility of an adverse determination that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect or
(ii) that involve any Loan Document or the Transactions. 

        (b)   Since
the date of this Agreement, there has been no change in the status of the matters disclosed in Schedule 7.05  that, individually or in the aggregate, has resulted in, or materially increased the
likelihood of, a Material Adverse Effect. 

        Section
7.06    Environmental Matters.    Except as could not reasonably be expected to have a Material Adverse Effect
(or with respect to (c), (d) and (e) below, where the failure to take such actions could not be reasonably expected to have a Material Adverse Effect): 

        (a)   neither
any Property of any Borrower or any Subsidiary nor the operations conducted thereon violate any order or requirement of any court or Governmental Authority or
any Environmental Laws. 

        (b)   no
Property of any Borrower or any Subsidiary nor the operations currently conducted thereon or, to the knowledge of the Borrowers, by any prior owner or operator of
such Property or operation, are in violation of or subject to any existing, pending or threatened action, suit, investigation, inquiry or proceeding by or before any court or Governmental Authority or
to any remedial obligations under Environmental Laws. 

        (c)   all
notices, permits, licenses, exemptions, approvals or similar authorizations, if any, required to be obtained or filed in connection with the operation or use of any
and all Property of each Borrower and each Subsidiary, including, without limitation, past or present treatment, storage, disposal or release of a hazardous substance, oil and gas waste or solid waste
into the environment, have been duly obtained or filed, and each Borrower and each Subsidiary are in compliance with the terms and conditions of all such notices, permits, licenses and similar
authorizations. 

        (d)   to
the knowledge of the Borrowers all hazardous substances, solid waste and oil and gas waste, if any, generated at any and all Property of any Borrower or any
Subsidiary have in the past been transported, treated and disposed of in accordance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare
or the environment, and all such transport carriers and treatment and disposal facilities have been and are operating in compliance with Environmental Laws and so as not to pose an imminent and
substantial endangerment to public health or welfare or the environment, and are not the subject of any existing, pending or threatened action, investigation or inquiry by any Governmental Authority
in connection with any Environmental Laws. 

        (e)   the
Borrowers have taken all steps reasonably necessary to determine and has determined that no oil, hazardous substances, solid waste or oil and gas waste, have been
disposed of or 

41

 

otherwise
released and there has been no threatened release of any oil, hazardous substances, solid waste or oil and gas waste on or to any Property of any Borrower or any Subsidiary except in
compliance with Environmental Laws and so as not to pose an imminent and substantial endangerment to public health or welfare or the environment. 

        (f)    to
the extent applicable, all Property of each Borrower and each Subsidiary currently satisfies all design, operation, and equipment requirements imposed by OPA, and the
Borrowers do not have any reason to believe that such Property, to the extent subject to OPA, will not be able to maintain compliance with OPA requirements during the term of this Agreement. 

        (g)   neither
any Borrower nor any Subsidiary has any known contingent liability or Remedial Work in connection with any release or threatened release of any oil, hazardous
substance, solid waste or oil and gas waste into the environment. 

        Section
7.07    Compliance with the Laws and Agreements; No Defaults.    

        (a)   Each
Borrower and each Subsidiary is in compliance with all Governmental Requirements applicable to it or its Property and all agreements and other instruments binding
upon it or its Property, and possesses all licenses, permits, franchises, exemptions, approvals and other governmental authorizations necessary for the ownership of its Property and the conduct of its
business, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. 

        (b)   Neither
any Borrower nor any Subsidiary is in default nor has any event or circumstance occurred which, but for the expiration of any applicable grace period or the
giving of notice, or both, would constitute a default or would require a Borrower or a Subsidiary to Redeem or make any offer to Redeem under any indenture, note, credit agreement or instrument
pursuant to which any Material Indebtedness is outstanding or by which any Borrower or any Subsidiary or any of their Properties is bound. 

        (c)   No
Default has occurred and is continuing. 

        Section
7.08    Investment Company Act.    Neither any Borrower nor any Subsidiary is an "investment company" or a
company "controlled" by an "investment company," within the meaning of, or subject to regulation under, the Investment Company Act of 1940, as amended. 

        Section
7.09    Public Utility Holding Company Act.    Neither any Borrower nor any Subsidiary is a "holding company,"
or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company," or a "public-utility company" within the meaning of, or
subject to regulation under, the Public Utility Holding Company Act of 1935, as amended. 

        Section
7.10    Taxes.    Each of the Borrowers and their Subsidiaries has timely filed or caused to be filed all Tax
returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by
appropriate proceedings and for which such Borrower or such Subsidiary, as applicable, has set aside on its books adequate reserves in accordance with GAAP or (b) to the extent that the failure
to do so could not reasonably be expected to result in a Material Adverse Effect. The charges, accruals and reserves on the books of the Borrowers and their Subsidiaries in respect of Taxes and other
governmental charges are, in the reasonable opinion of the Borrowers, adequate. No Tax Lien has been filed and, to the knowledge of the Borrowers, no claim is being asserted with respect to any such
Tax or other such governmental charge. 

42

   
        Section 7.11    ERISA.    

        (a)   The
Borrowers, the Subsidiaries and each ERISA Affiliate have complied in all material respects with ERISA and, where applicable, the Code regarding each Plan. 

        (b)   Each
Plan is, and has been, maintained in substantial compliance with ERISA and, where applicable, the Code. 

        (c)   Except
as could not reasonably be expected to result in liability in excess of $500,000, no act, omission or transaction has occurred which could result in imposition on
any Borrower, any Subsidiary or any ERISA Affiliate (whether directly or indirectly) of (i) either a civil penalty assessed pursuant to subsections (c), (i) or (l) of
section 502 of ERISA or a tax imposed pursuant to Chapter 43 of Subtitle D of the Code or (ii) breach of fiduciary duty liability damages under section 409 of ERISA. 

        (d)   No
liability to the PBGC (other than for the payment of current premiums which are not past due) by any Borrower, any Subsidiary or any ERISA Affiliate has been or is
expected by any Borrower, any Subsidiary or any ERISA Affiliate to be incurred with respect to any Plan. No ERISA Event with respect to any Plan has occurred. 

        (e)   Full
payment when due has been made of all amounts which the Borrowers, the Subsidiaries or any ERISA Affiliate is required under the terms of each Plan or applicable
law to have paid as contributions to such Plan as of the date hereof, and no accumulated funding deficiency (as defined in section 302 of ERISA and section 412 of the Code), whether or
not waived, exists with respect to any Plan. 

        (f)    The
actuarial present value of the benefit liabilities under each Plan which is subject to Title IV of ERISA does not, as of the end of the Borrowers' most recently
ended fiscal year, exceed the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities. The term
"actuarial present value of the benefit liabilities" shall have the meaning specified in section 4041 of ERISA. 

        (g)   Neither
the Borrowers, the Subsidiaries nor any ERISA Affiliate sponsors, maintains, or contributes to an employee welfare benefit plan, as defined in
section 3(1) of ERISA, including, without limitation, any such plan maintained to provide benefits to former employees of such entities, that may not be terminated by a Borrower, a Subsidiary
or any ERISA Affiliate in its sole discretion at any time without any material liability. 

        (h)   Neither
the Borrowers, the Subsidiaries nor any ERISA Affiliate sponsors, maintains or contributes to, or has at any time in the six-year period preceding
the date hereof sponsored, maintained or contributed to, any Multiemployer Plan. 

        (i)    Neither
the Borrowers, the Subsidiaries nor any ERISA Affiliate is required to provide security under section 401(a)(29) of the Code due to a Plan amendment that
results in an increase in current liability for the Plan. 

        Section
7.12    Disclosure; No Material Misstatements.    The Borrowers have disclosed to the Administrative Agent and
the Lenders all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, that, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect. Taken as a whole, none of the other reports, financial statements, certificates or other information furnished by or on
behalf of any Borrower or any Subsidiary to the Administrative Agent or any Lender or any of their Affiliates in connection with the negotiation of this Agreement or any other Loan Document or
delivered hereunder or under any other Loan Document (as modified or supplemented by other information so furnished) contain material misstatements of fact or omit to state material facts necessary to
make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected
financial information, prospect 

43

 

information,
geological and geophysical data and engineering projections, the Borrowers represent only that such information was prepared in good faith based upon assumptions believed to be reasonable
at the time. To the knowledge of the Borrowers, there is no fact peculiar to any Borrower or any Subsidiary which could reasonably be expected to have a Material Adverse Effect or in the future is
reasonably likely to have a Material Adverse Effect and which has not been set forth in this Agreement or the Loan Documents or the other documents, certificates and written statements furnished to
the Administrative Agent or the Lenders by or on behalf of any Borrower or any Subsidiary prior to, or on, the date hereof in connection with the transactions contemplated hereby. There are no
statements or conclusions known to the Borrowers in any Reserve Report which are based upon or include misleading information or fail to take into account material information regarding the matters
reported therein, it being understood that projections concerning volumes attributable to the Oil and Gas Properties and production and cost estimates contained in each Reserve Report are necessarily
based upon professional opinions, estimates and projections and that the Borrowers and the Subsidiaries do not warrant that such opinions, estimates and projections will ultimately prove to have been
accurate. 

        Section
7.13    Insurance.    The Borrowers have, and have caused all their Subsidiaries to have, (a) all
insurance policies sufficient for the compliance by each of them with all material Governmental Requirements and all material agreements and (b) insurance coverage in at least amounts and
against such risk (including, without limitation, public liability) that are usually insured against by companies similarly situated and engaged in the same or a similar business for the assets and
operations of the Borrowers and their Subsidiaries. The Administrative Agent and the Lenders have been named as additional insureds in respect of such liability insurance policies and the
Administrative Agent has been named as loss payee with respect to Property loss insurance. 

        Section
7.14    Restriction on Liens.    Neither any Borrower nor any of its Subsidiaries is a party to any material
agreement or arrangement (other than Capital Leases creating Liens permitted by Section 9.03(c), but then only on the Property subject of such
Capital Lease), or subject to any order, judgment, writ or decree, which either restricts or purports to restrict its ability to grant Liens to the Administrative Agent and the Lenders on or in
respect of their Properties to secure the Indebtedness and the Loan Documents. 

        Section
7.15    Subsidiaries.    Except as set forth on  Schedule 7.15, (a) the Borrowers have no Subsidiaries,
(b) each Subsidiary is a Wholly-Owned Subsidiary and (c) neither any
Borrower nor any Subsidiary has any Foreign Subsidiaries. 

        Section
7.16    Location of Business and Offices.    Each Borrower's jurisdiction of organization is Delaware, and the
name of each Borrower as listed in the public records of Delaware is Ellora Energy Inc. and Ellora Oil & Gas Inc., as applicable (or, in each case, as set forth in a notice
delivered to the Administrative Agent pursuant to Section 8.01(i) in accordance with Section 12.01). Each Borrower's principal place of business is located at the address
specified in Section 12.01 (or as set forth in a notice delivered pursuant to Section 8.01(i) and Section 12.01(c)). Each Subsidiary's jurisdiction of organization, name as
listed in the public records of its jurisdiction of organization, organizational identification number in its jurisdiction of organization, and the location of its principal place of business is
stated on Schedule 7.15 (or as set forth in a notice delivered pursuant to Section 8.01(i)). 

        Section 7.17    Properties; Titles, Etc.    

        (a)   Except
as disclosed in Schedule 7.17, each of the Borrowers and their Subsidiaries have good and defensible title
in all material respects to the proved Oil and Gas Properties evaluated in the most recently delivered Reserve Report (excluding, to the extent this representation and warranty is deemed to be made
after the Effective Date, any such Oil and Gas Properties sold or transferred in compliance with Section 9.12) and good title in all material respects to all its personal Properties, in each
case, free and clear of all Liens except Liens permitted by Section 9.03. After giving full effect to the Excepted 

44

 

Liens,
a Borrower or its Subsidiary specified as the owner owns the net interests in production attributable to the Hydrocarbon Interests as reflected in the most recently delivered Reserve Report,
and the ownership of such Properties shall not in any material respect obligate such Borrower or such Subsidiary to bear the costs and expenses relating to the maintenance, development and operations
of each such Property in an amount in excess of the working interest of each Property set forth in the most recently delivered Reserve Report that is not offset by a corresponding proportionate
increase in such Borrower's or such Subsidiary's net revenue interest in such Property. 

        (b)   All
material leases and agreements necessary for the conduct of the business of the Borrowers and their Subsidiaries are valid and subsisting, in full force and effect,
and there exists no default or event or circumstance which with the giving of notice or the passage of time or both would give rise to a default under any such lease or leases, which could reasonably
be expected to result in a Material Adverse Effect. 

        (c)   The
rights and Properties presently owned, leased or licensed by the Borrowers and their Subsidiaries including, without limitation, all easements and rights of way,
include all rights and Properties necessary to permit the Borrowers and their Subsidiaries to conduct their business in all material respects in the same manner as its business has been conducted
prior to the date hereof. 

        (d)   All
of the material Properties of the Borrowers and their Subsidiaries which are reasonably necessary for the operation of their businesses are in good working condition
and are maintained in accordance with prudent business standards. 

        (e)   Each
Borrower and each Subsidiary owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual Property material to its business,
and the use thereof by such Borrower and such Subsidiary does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect. The Borrowers and their Subsidiaries either own or have valid licenses or other rights to use all databases, geological data, geophysical
data, engineering data, seismic data, maps, interpretations and other technical information used in their businesses as presently conducted, subject to the limitations contained in the agreements
governing the use of the same, which limitations are customary for companies engaged in the business of the exploration and production of Hydrocarbons, with such exceptions as could not reasonably be
expected to have a Material Adverse Effect. 

        Section
7.18    Maintenance of Properties.    Except for such acts or failures to act as could not be reasonably
expected to have a Material Adverse Effect, the Oil and Gas Properties (and Properties unitized therewith) have been maintained, operated and developed in a good and workmanlike manner and in
conformity with all Government Requirements and in conformity with the provisions of all leases, subleases or other contracts comprising a part of the Hydrocarbon Interests and other contracts and
agreements forming a part of the Oil and Gas Properties. Specifically in connection with the foregoing, except for those as could not be reasonably expected to have a Material Adverse Effect,
(i) no Oil and Gas Property is subject to having allowable production reduced below the full and regular allowable (including the maximum permissible tolerance) because of any overproduction
(whether or not the same was permissible at the time) and (ii) to the knowledge of the Borrowers, none of the wells comprising a part of the Oil and Gas Properties (or Properties unitized
therewith) is deviated from the vertical more than the maximum permitted by Government Requirements, and such wells are, in fact, bottomed under and are producing from, and the well bores are wholly
within, the Oil and Gas Properties (or in the case of wells located on Properties unitized therewith, such unitized Properties). All pipelines, wells, gas processing plants, platforms and other
material improvements, fixtures and equipment owned in whole or in part by any Borrower or any of its Subsidiaries that are necessary to conduct normal operations are being maintained in a state
adequate to conduct normal operations, and with respect to such of the foregoing that are operated by any Borrower or any of its Subsidiaries, in a manner consistent with a Borrower's or its
Subsidiaries' past practices (other than 

45

 

those
the failure of which to maintain in accordance with this Section 7.18 could not reasonably be expect to have a Material Adverse Effect). 

        Section
7.19    Gas Imbalances, Prepayments.    As of the date hereof, except as set forth on  Schedule 7.19 or on the
most recent certificate delivered pursuant to Section 8.12(c), on a net basis there are no gas imbalances, take or
pay or other prepayments which would require any Borrower or any of its Subsidiaries to deliver Hydrocarbons produced from the Oil and Gas Properties at some future time without then or thereafter
receiving full payment therefor exceeding 50 mmcf equivalent in the aggregate. 

        Section
7.20    Marketing of Production.    Except for contracts listed and in effect on the date hereof on  Schedule 7.20, and thereafter either disclosed in writing to the Administrative Agent or included in the most recently delivered Reserve Report
(with respect to all of which contracts the Borrowers represent that they or their Subsidiaries are receiving a price for all production sold thereunder which is computed substantially in accordance
with the terms of the relevant contract and are not having deliveries curtailed substantially below the subject Property's delivery capacity), no material agreements exist which are not cancelable on
60 days notice or less without penalty or detriment for the sale of production from a Borrower's or its Subsidiaries' Hydrocarbons (including, without limitation, calls on or other rights to
purchase, production, whether or not the same are currently being exercised) that (a) pertain to the sale of production at a fixed price and (b) have a maturity or expiry date of longer
than six (6) months from the date hereof. 

        Section
7.21    Swap Agreements.    Schedule 7.21, as of the
date hereof, and after the date hereof, each report required to be delivered by the Borrowers pursuant to Section 8.01(d), sets forth, a true and complete list of all Swap Agreements of each
Borrower and each Subsidiary, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the net mark to market value thereof, all credit
support agreements relating thereto (including any margin required or supplied) and the counterparty to each such agreement. 

        Section
7.22    Use of Loans and Letters of Credit.    The proceeds of the Loans and the Letters of Credit shall be
used to provide working capital for exploration and production, and for general corporate purposes of the Borrowers and their Subsidiaries, including the acquisition of exploration and production
properties. The Borrowers and their Subsidiaries are not engaged principally, or as one of its or their important activities, in the business of extending credit for the purpose, whether immediate,
incidental or ultimate, of buying or carrying margin stock (within the meaning of Regulation T, U or X of the Board). No part of the proceeds of any Loan or Letter of Credit will be used for
any purpose which violates the provisions of Regulations T, U or X of the Board. 

        Section
7.23    Solvency.    Before and after giving effect to the transactions contemplated hereby, (a) the
aggregate assets, at a fair valuation, of the Borrowers and the Guarantors, taken as a whole, will exceed the aggregate Debt of the Borrowers and the Guarantors on a consolidated basis, as the Debt
becomes absolute and matures, (b) each of the Borrowers and the Guarantors will not have incurred or intended to incur, and will not believe that it will incur, Debt beyond its ability to pay
such Debt as such Debt becomes absolute and matures and (c) each of the Borrowers and the Guarantors will not have (and will have no reason to believe that it will have thereafter) unreasonably
small capital for the conduct of its business. 

ARTICLE VIII

AFFIRMATIVE COVENANTS  

        Until the Commitments have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder and all other amounts payable
under the Loan Documents shall have been paid in full and all Letters of Credit shall have expired or terminated and all LC 

46

 

Disbursements
shall have been reimbursed, each Borrower jointly and severally covenants and agrees with the Lenders that: 

        Section
8.01    Financial Statements; Other Information.    The Borrowers will furnish to the Administrative Agent and
each Lender: 

        (a)    Annual Financial Statements.    As soon as available, but in any event in accordance with then applicable law
and not later than 105 days after the end of each fiscal year of the Borrowers, their audited consolidated balance sheet and related statements of operations, stockholders' equity and cash
flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by a firm of independent public accountants proposed
by the Borrowers and approved by the Administrative Agent (without a "going concern" or like qualification or exception and without any qualification or exception as to the scope of such audit) to the
effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Borrowers and their Consolidated Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied. 

        (b)    Quarterly Financial Statements.    As soon as available, but in any event in accordance with then applicable
law and not later than 60 days after the end of each of the first three fiscal quarters of each fiscal year of the Borrowers, their consolidated balance sheet and related statements of
operations, stockholders' equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures
for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all
material respects the financial condition and results of operations of the Borrowers and their Consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject
to normal year-end audit adjustments and the absence of footnotes. 

        (c)    Certificate of Financial Officer—Compliance.    Concurrently with any delivery of financial
statements under Section 8.01(a) or Section 8.01(b), a certificate of a Financial Officer in substantially the form of Exhibit D
hereto (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto,
(ii) setting forth reasonably detailed calculations demonstrating compliance with Section 9.01 and (iii) stating whether any change in GAAP or in the application thereof has
occurred since the date of the audited financial statements referred to in Section 7.04 and, if any such change has occurred, specifying the effect of such change on the financial statements
accompanying such certificate. 

        (d)    Certificate of Financial Officer—Swap Agreements.    Concurrently with the delivery of each Reserve
Report hereunder, a certificate of a Financial Officer, in form and substance reasonably satisfactory to the Administrative Agent, setting forth as of a recent date, a true and complete list of all
Swap Agreements of each Borrower and each Subsidiary, the material terms thereof (including the type, term, effective date, termination date and notional amounts or volumes), the net
mark-to-market value therefor, any new credit support agreements relating thereto not listed on Schedule 7.21, any margin
required or supplied under any credit support document, and the counterparty to each such agreement. 

        (e)    SEC and Other Filings; Reports to Shareholders.    Promptly after the same become publicly available, copies of
all periodic and other reports, proxy statements and other materials filed by any Borrower or any Subsidiary with the SEC, or with any national securities exchange, or distributed by a Borrower to its
shareholders generally, as the case may be. 

        (f)    Notices Under Material Instruments.    Promptly after the furnishing thereof, copies of any financial
statement, report or notice furnished to or by any Person pursuant to the terms of any 

47

 

preferred
stock designation, indenture, loan or credit or other similar agreement, other than this Agreement and not otherwise required to be furnished to the Lenders pursuant to any other provision
of this Section 8.01. 

        (g)    Notice of Sales of Oil and Gas Properties.    In the event any Borrower or any Subsidiary intends to sell,
transfer, assign or otherwise dispose of any Oil or Gas Properties or any Equity Interests in any Subsidiary of any Borrower in accordance with Section 9.12(d), prior written notice of such
disposition, the price thereof and the anticipated date of closing. 

        (h)    Notice of Casualty Events.    Prompt written notice, and in any event within five Business Days, of the
occurrence of any Casualty Event or the commencement of any action or proceeding that could reasonably be expected to result in a Casualty Event. 

        (i)    Information Regarding Borrowers and Guarantors.    Prompt written notice (and in any event within ten
(10) Business Days prior thereto) of any change (i) in any Borrower's or any Guarantor's corporate name or in any trade name used to identify such Person in the conduct of its business
or in the ownership of its Properties, (ii) in the location of any Borrower's or any Guarantor's chief executive office or principal place of business, (iii) in any Borrower's or any
Guarantor's identity or corporate structure or in the jurisdiction in which such Person is incorporated or formed, (iv) in any Borrower's or any Guarantor's jurisdiction of organization or such
Person's organizational identification number in such jurisdiction of organization, and (v) in any Borrower's or any Guarantor's federal taxpayer identification number. 

        (j)    Production Report and Lease Operating Statements.    Concurrently with the delivery of each Reserve Report
pursuant to Section 8.12(a) hereof, a report setting forth, for the six (6) month period ending the preceding December 31 and June 30, respectively, the volume of
production and sales attributable to production (and the prices at which such sales were made and the revenues derived from such sales) for each such six (6) month period from the Oil and Gas
Properties, and setting forth the related ad valorem, severance and production taxes and lease operating expenses attributable thereto and incurred for each such period. 

        (k)    Notices of Certain Changes.    Promptly, but in any event within five (5) Business Days after the
execution thereof, copies of any amendment, modification or supplement to the certificate or articles of organization, regulations, any preferred stock designation or any other organic document of any
Borrower or any Subsidiary. 

        (l)    Other Requested Information.    Promptly following any request therefor, such other information regarding the
operations, business affairs and financial condition of any Borrower or any Subsidiary (including, without limitation, any Plan or Multiemployer Plan and any reports or other information required to
be filed under ERISA), or compliance with the terms of this Agreement or any other Loan Document, as the Administrative Agent or any Lender may reasonably request. 

        Section
8.02    Notices of Material Events.    The Borrowers will furnish to the Administrative Agent prompt written
notice of the following: 

        (a)   the
occurrence of any Default; 

        (b)   the
filing or commencement of, or the threat in writing of, any action, suit, proceeding, investigation or arbitration by or before any arbitrator or Governmental
Authority against any Borrower or any Affiliate thereof not previously disclosed in writing to the Lenders or any material adverse development in any action, suit, proceeding, investigation or
arbitration previously disclosed to the Lenders that, if adversely determined, could reasonably be expected to result in liability in excess of $1,000,000; 

48

 

        (c)   the
occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of the
Borrowers and their Subsidiaries in an aggregate amount exceeding $1,000,000; and 

        (d)   any
other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. 

Each
notice delivered under this Section 8.02 shall be accompanied by a statement of a Responsible Officer setting forth the details of the event or development requiring such notice and any
action taken or proposed to be taken with respect thereto. 

        Section
8.03    Existence; Conduct of Business.    The Borrowers will, and will cause each Subsidiary to, do or cause
to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its
business and maintain, if necessary, its qualification to do business in each other jurisdiction in which its Oil and Gas Properties are located or the ownership of its Properties requires such
qualification, except where the failure to so qualify could not reasonably be expected to have a Material Adverse
Effect; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 9.11. 

        Section
8.04    Payment of Obligations.    The Borrowers will, and will cause each Subsidiary to, pay its obligations,
including Tax liabilities of the Borrowers and all of their Subsidiaries before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being
contested in good faith by appropriate proceedings and the Borrowers or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP or (b) the
failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect or result in the seizure or levy of any material Property of any Borrower or any
Subsidiary. 

        Section
8.05    Performance of Obligations under Loan Documents.    The Borrowers will pay the Loans and the Notes
according to the reading, tenor and effect thereof, and the Borrowers will, and will cause each Subsidiary to, do and perform every act and discharge all of the obligations to be performed and
discharged by them under the Loan Documents, including, without limitation, this Agreement, at the time or times and in the manner specified. 

        Section
8.06    Operation and Maintenance of Properties.    Except, in each case, where the failure to comply could
not reasonably be expected to have a Material Adverse Effect, the Borrowers, at their own expense, will, and will cause each Subsidiary to: 

        (a)   operate
its Oil and Gas Properties and other material Properties or cause such Oil and Gas Properties and other material Properties to be operated in a careful and
efficient manner in accordance with the practices of the industry and in compliance with all applicable contracts and agreements and in compliance with all Governmental Requirements, including,
without limitation, applicable pro ration requirements and Environmental Laws, and all applicable laws, rules and regulations of every other Governmental Authority from time to time constituted to
regulate the development and operation of its Oil and Gas Properties and the production and sale of Hydrocarbons and other minerals therefrom. 

        (b)   keep
and maintain all Property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted preserve, maintain and keep
in good repair, working order and efficiency (ordinary wear and tear excepted) all of its material producing Oil and Gas Properties and other material Properties, including, without limitation, all
equipment, machinery and facilities. 

        (c)   promptly
pay and discharge, or make reasonable and customary efforts to cause to be paid and discharged, all delay rentals, royalties, expenses and indebtedness accruing
under the 

49

 

leases
or other agreements affecting or pertaining to its proved Oil and Gas Properties and will do all other things necessary to keep unimpaired their rights with respect thereto and prevent any
forfeiture thereof or default thereunder. 

        (d)   promptly
perform or make reasonable and customary efforts to cause to be performed, in accordance with industry standards, the obligations required by each and all of
the assignments, deeds, leases, sub-leases, contracts and agreements affecting its interests in its proved Oil and Gas Properties and other material Properties. 

        (e)   operate
its Oil and Gas Properties and other material Properties or cause or make reasonable and customary efforts to cause such Oil and Gas Properties and other
material Properties to be operated in accordance with the practices of the industry and in material compliance with all applicable contracts and agreements and in compliance in all material respects
with all Governmental Requirements. 

        (f)    to
the extent a Borrower is not the operator of any Property, the Borrowers shall use reasonable efforts to cause the operator to comply with this Section 8.06. 

        Section
8.07    Insurance.    The Borrowers will, and will cause each Subsidiary to, maintain, with financially sound
and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar businesses operating in the same or
similar locations. The loss payable clauses or provisions in said insurance policy or policies insuring any of the collateral for the Loans shall be endorsed in favor of and made payable to the
Administrative Agent as its interests may appear and such policies shall name the Administrative Agent and the Lenders as "additional insureds" and provide that the insurer will endeavor to give at
least 30 days prior notice of any cancellation to the Administrative Agent. 

        Section
8.08    Books and Records; Inspection Rights.    The Borrowers will, and will cause each Subsidiary to, keep
proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. The Borrowers will, and will cause each
Subsidiary to, permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice, to visit and inspect its Properties, to examine and make extracts from its
books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times during normal business hours and as often as
reasonably requested on an individual and aggregate basis. 

        Section
8.09    Compliance with Laws.    The Borrowers will, and will cause each Subsidiary to, comply with all laws,
rules, regulations and orders of any Governmental Authority applicable to it or its Property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Effect. 

        Section
8.10    Environmental Matters.    

        (a)   The
Borrowers shall at their sole expense: (i) comply, and shall cause its Properties and operations and each Subsidiary and each Subsidiary's Properties and
operations to comply, with all applicable Environmental Laws, the breach of which could be reasonably expected to have a Material Adverse Effect; (ii) not dispose of or otherwise release, and
shall cause each Subsidiary not to dispose of or otherwise release, any oil, oil and gas waste, hazardous substance, or solid waste on, under, about or from any Borrower's or any of its Subsidiaries'
Properties or any other Property to the extent caused by any Borrower's or any of its Subsidiaries' operations except in compliance with applicable Environmental Laws, the disposal or release of which
could reasonably be expected to have a Material Adverse Effect; (iii) timely obtain or file, and shall cause each Subsidiary to timely obtain or file, all notices, permits, licenses,
exemptions, approvals, registrations or other authorizations, if any, required under applicable Environmental Laws to be obtained or filed in connection with the operation or use of a Borrower's or
its Subsidiaries' Properties, which failure to obtain or file could reasonably be 

50

 

expected
to have a Material Adverse Effect; (iv) promptly commence and diligently prosecute to completion, and shall cause each Subsidiary to promptly commence and diligently prosecute to
completion, any assessment, evaluation, investigation, monitoring, containment, cleanup, removal, repair, restoration, remediation or other remedial obligations (collectively, the
"Remedial Work") in the event any Remedial Work is required or reasonably necessary under applicable Environmental Laws because of or in connection with
the actual or suspected past, present or future disposal or other release of any oil, oil and gas waste, hazardous substance or solid waste on, under, about or from any Borrower's or any of its
Subsidiaries' Properties, which failure to commence and diligently prosecute to completion could reasonably be expected to have a Material Adverse Effect; and (v) establish and implement, and
shall cause each Subsidiary to establish and implement, such procedures as may be necessary to continuously determine and assure that the Borrowers' and their Subsidiaries' obligations under this
Section 8.10(a) are timely and fully satisfied, which failure to establish and implement could reasonably be expected to have a Material Adverse Effect 

        (b)   The
Borrowers will promptly, but in no event later than five Business Days of the occurrence thereof, or of a Borrower obtaining knowledge thereof, notify the
Administrative Agent in writing of any threatened action, investigation or inquiry by any Governmental Authority or any threatened demand or lawsuit by any landowner or other third party against a
Borrower or its Subsidiaries or their Properties of which the Borrowers have knowledge in connection with any applicable Environmental Laws (excluding routine testing and corrective action) if the
Borrowers reasonably anticipate that such action will result in liability (whether individually or in the aggregate) in excess of $1,000,000, not fully covered by insurance, subject to normal
deductibles. 

        (c)   The
Borrowers will, and will cause each Subsidiary to, undertake reasonable environmental audits and tests upon reasonable request by the Administrative Agent no more
than once per year in the absence of any Event of Default (or as otherwise required to be obtained by the Administrative Agent or the Lenders by any Governmental Authority), in connection with any
future acquisitions of Oil and Gas Properties or other Properties. 

        Section
8.11    Further Assurances.    

        (a)   The
Borrowers at their expense will, and will cause each Subsidiary to, promptly execute and deliver to the Administrative Agent all such other documents, agreements and
instruments reasonably requested by the Administrative Agent to comply with, cure any defects or accomplish the conditions precedent, covenants and agreements of any Borrower or any Subsidiary, as the
case may be, in the Loan Documents, including the Notes, or to further evidence and more fully describe the collateral intended as security for the Indebtedness, or to correct any omissions in this
Agreement or the Security Instruments, or to state more fully the obligations secured therein, or to perfect, protect or preserve any Liens created pursuant to this Agreement or any of the Security
Instruments or the priority thereof, or to make any recordings, file any notices or obtain any consents, all as may be reasonably necessary or appropriate, in the sole discretion of the Administrative
Agent, in connection therewith. 

        (b)   The
Borrowers hereby authorize the Administrative Agent to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of
the Mortgaged Property without the signature of any Borrower or any Guarantor where permitted by law. A carbon, photographic or other reproduction of the Security Instruments or any financing
statement covering the Mortgaged Property or any part thereof shall be sufficient as a financing statement where permitted by law. 

        Section
8.12    Reserve Reports.    

        (a)   On
or before April 1st and September 1st of each year, commencing April 1, 2006, the Borrowers shall furnish to the Administrative Agent and the
Lenders a Reserve Report prepared as of the immediately preceding January 1st or July 1st, respectively. The Reserve Report as of January 1 of 

51

 

each
year and the Reserve Report delivered in connection with the first redetermination shall be prepared by the Borrowers and reviewed or audited by one or more Approved Petroleum Engineers, and the
July 1 Reserve Report of each year shall be prepared by or under the supervision of the chief engineer of the Borrowers. In each case, the chief engineer of the Borrowers shall certify that
such Reserve Report is based on information that was prepared in good faith based upon assumptions believed to be reasonable at the time and to have been prepared in accordance with the procedures
used in the immediately preceding Reserve Report. 

        (b)   In
the event of an Interim Redetermination, except in connection with the first redetermination, the Borrowers shall furnish to the Administrative Agent and the Lenders
a Reserve Report prepared by or under the supervision of the chief engineer of the Borrowers who shall certify such Reserve Report to be based on information that was prepared in good faith based upon
assumptions believed to be reasonable at the time and to have been prepared in accordance with the procedures used in the immediately preceding Reserve Report except that the Properties covered by
such report may, in the discretion of the Borrowers, be limited to the proved Oil and Gas Properties acquired since the last redetermination of the Borrowing Base. For any Interim Redetermination
requested by the Administrative Agent or the Borrowers pursuant to Section 2.07(b)(ii), the Borrowers shall provide such Reserve Report with an "as of" date as required by the Administrative
Agent as soon as possible, but in any event no later than forty-five (45) days following the receipt of such request. 

        (c)   With
the delivery of each Reserve Report, the Borrowers shall provide to the Administrative Agent and the Lenders a certificate from a Responsible Officer certifying
that to his knowledge, after reasonable investigation, in all material respects: (i) the information contained in the Reserve Report and any other information delivered in connection therewith
is based on information that was prepared in good faith based upon assumptions believed to be reasonable at the time, (ii) the Borrowers or their Subsidiaries owns good and defensible title to
the proved Oil and Gas Properties evaluated in such Reserve Report and such Properties are free of all Liens except for Liens permitted by Section 9.03, (iii) except as set forth on an
exhibit to the certificate, on a net basis there are no gas imbalances, take or pay or other prepayments in excess of the volume specified in Section 7.19 with respect to its Oil and Gas
Properties evaluated in such Reserve Report which would require any Borrower or any Subsidiary to deliver Hydrocarbons either generally or produced from such Oil and Gas Properties at some future time
without then or thereafter receiving full payment therefor, (iv) none of their proved Oil and Gas Properties have been sold since the date of the last Borrowing Base determination except as set
forth on an exhibit to the certificate, which certificate shall list all of its proved Oil and Gas Properties sold and in such detail as reasonably required by the Administrative Agent,
(v) attached to the certificate is a list of all marketing agreements entered into subsequent to the later of the date hereof or the most recently delivered Reserve Report which the Borrowers
could reasonably be expected to have been obligated to list on Schedule 7.20 had such agreement been in effect on the date hereof and
(vi) attached thereto is a schedule of the proved Oil and Gas Properties evaluated by such Reserve Report that are Mortgaged Properties and demonstrating the percentage of the Borrowing Base
that the value of such Mortgaged Properties represent. 

        Section
8.13    Title Information.    

        (a)   As
of the date hereof, the Administrative Agent or its counsel shall have received satisfactory title information on at least 80% of the total value of the proved Oil
and Gas Properties evaluated in the Initial Reserve Report. Additionally, on or before the delivery to the Administrative Agent and the Lenders of each Reserve Report required by
Section 8.12(a), the Borrowers will deliver title information in form and substance acceptable to the Administrative Agent covering enough of the proved Oil and Gas Properties evaluated by such
Reserve Report that were not included in the immediately preceding Reserve Report, so that the Administrative Agent shall have received together 

52

 

with
title information previously delivered, satisfactory title information on at least 80% of the total value of the proved Oil and Gas Properties evaluated by such Reserve Report. 

        (b)   If
the Borrowers have provided title information for additional Properties under Section 8.13(a), the Borrowers shall, within 60 days of notice from the
Administrative Agent that title defects or exceptions exist with respect to such additional Properties, either (i) cure any such title defects or exceptions (including defects or exceptions as
to priority) which are not permitted by Section 9.03 raised by such information, (ii) substitute acceptable Mortgaged Properties with no title defects or exceptions except for Excepted
Liens (other than Excepted Liens described in clauses (e), (g) and (h) of such definition) having an equivalent value or (iii) deliver title information in form and substance
acceptable to the Administrative Agent so that they shall have received, together with title information previously delivered, satisfactory title information on at least 80% of the value of the Oil
and Gas Properties evaluated by such Reserve Report. 

        (c)   If
the Borrowers are unable to cure any title defect requested to be cured within the 60-day period or the Borrowers do not comply with the requirements to
provide acceptable title information covering 80% of the value of the Oil and Gas Properties evaluated in the most recent Reserve Report, such default shall not be a Default, but instead the
Administrative Agent and/or the Required Lenders shall have the right to exercise the following remedy in their sole discretion from time to time, and any failure to so exercise this remedy at any
time shall not be a waiver as to future exercise of the remedy by any Agent or the Lenders. To the extent that the Administrative Agent or the Required Lenders are not satisfied with title to any
Mortgaged Property after the 60-day period has elapsed, such unacceptable Mortgaged Property shall not count towards the 80% requirement, and the Administrative Agent may send a notice to
the Borrowers and the Lenders that the then outstanding Borrowing Base shall be reduced by an amount as determined by the Required Lenders to cause the Borrowers to be in compliance with the
requirement to provide acceptable title information on 80% of the value of the Oil and Gas Properties. This new Borrowing Base shall become effective immediately after receipt of such notice. 

        Section
8.14    Additional Collateral; Additional Guarantors.    

        (a)   In
connection with each redetermination of the Borrowing Base, the Borrowers shall review the Reserve Report and the list of current Mortgaged Properties (as described
in Section 8.12(c)(vi)) to ascertain whether the Mortgaged Properties represent at least 80% of the total value of the proved Oil and Gas Properties evaluated in the most recently completed
Reserve Report after giving effect to exploration and production activities, acquisitions, dispositions and production. In the event that the Mortgaged Properties do not represent at least 80% of such
total value, then the Borrowers shall, and shall cause their Subsidiaries to, grant to the Administrative Agent as security for the Indebtedness a first-priority Lien interest (subject only to
Excepted Liens of the type described in clauses (a) to (d) and (f) of the definition thereof, but subject to the provisos at the end of such definition) on additional proved Oil and Gas
Properties not already subject to a Lien of the Security Instruments such that after giving effect thereto, the Mortgaged Properties will represent at least 80% of such total value. All such Liens
will be created and perfected by and in accordance with the provisions of mortgages, deeds of trust, security agreements and financing statements or other Security Instruments, all in form and
substance satisfactory to the Administrative Agent and in sufficient executed (and acknowledged where necessary or appropriate) counterparts for recording purposes. 

        (b)   The
Borrowers shall promptly cause each Domestic Subsidiary to guarantee the Indebtedness pursuant to the Guaranty Agreement. In connection with any such guaranty, the
Borrowers shall, or shall cause such Domestic Subsidiary to, (i) execute and deliver a supplement to the Guaranty Agreement executed by such Domestic Subsidiary, (ii) pledge all of the
Equity Interests of such Domestic Subsidiary (including, without limitation, delivery of original stock certificates or other certificates evidencing the Equity Interests of such Domestic Subsidiary,
together with an appropriate 

53

 

undated
stock powers for each certificate duly executed in blank by the registered owner thereof) and (iii) execute and deliver such other additional closing documents, certificates and legal
opinions as shall reasonably be requested by the Administrative Agent. 

        Section
8.15    ERISA Compliance.    Except as could not reasonably be expected to result in liability to the
Borrowers and their Subsidiaries of less than $1,000,000 individually or in the aggregate, the Borrowers will promptly furnish and will cause the Subsidiaries and any ERISA Affiliate to promptly
furnish to the Administrative Agent (a) promptly after the filing thereof with the United States Secretary of Labor, the Internal Revenue Service or the PBGC, copies of each annual and other
report with respect to each Plan or any trust created thereunder, (b) promptly upon becoming aware of the occurrence of any ERISA Event or of any "prohibited transaction," as described in
section 406 of ERISA or in section 4975 of the Code, in connection with any Plan or any trust created thereunder, a written notice signed by the President or the principal Financial
Officer, the Subsidiary or the ERISA Affiliate, as the case may be, specifying the nature thereof, what action the Borrowers, the Subsidiary or the ERISA Affiliate is taking or proposes to take with
respect thereto, and, when known, any action taken or proposed by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto, and (c) promptly upon receipt thereof,
copies of any notice of the PBGC's intention to terminate or to have a trustee appointed to administer any Plan. With respect to each Plan (other than a Multiemployer Plan) except as could not
reasonably be expected to result in liability to the Borrowers and their Subsidiaries of less than $1,000,000 individually or in the aggregate, the Borrowers will, and will cause each Subsidiary and
ERISA Affiliate to, (i) satisfy in full and in a timely manner, without incurring any late payment or underpayment charge or penalty and without giving rise to any lien, all
of the contribution and funding requirements of section 412 of the Code (determined without regard to subsections (d), (e), (f) and (k) thereof) and of section 302 of ERISA
(determined without regard to sections 303, 304 and 306 of ERISA), and (ii) pay, or cause to be paid, to the PBGC in a timely manner, without incurring any late payment or underpayment charge
or penalty, all premiums required pursuant to sections 4006 and 4007 of ERISA. 

ARTICLE IX

NEGATIVE COVENANTS  

        Until the Commitments have expired or terminated and the principal of and interest on each Loan and all fees payable hereunder and all other amounts payable under
the Loan Documents have been paid in full and all Letters of Credit have expired or terminated and all LC Disbursements shall have been reimbursed, each Borrower jointly and severally covenants and
agrees with the Lenders that: 

        Section
9.01    Financial Covenants.    

        (a)    Current Ratio.    Commencing with the fiscal quarter ending March 31, 2006, the Borrowers will not
permit, as of the last day of any fiscal quarter, their ratio of (i) consolidated current assets (including the unused amount of the total Commitments, but excluding non-cash assets
under FAS 133) to (ii) consolidated current liabilities (excluding non-cash obligations under FAS 133) to be less than 1.0 to 1.0. 

        (b)    Consolidated Total Debt to Consolidated EBITDAX.    Commencing with the fiscal quarter ending March 31,
2006, the Borrowers will not permit, as of the last day of any fiscal quarter, their ratio of Consolidated Total Debt (for the fiscal quarter ending on such date) to Annualized Consolidated EBITDAX to
be greater than 3.0 to 1.0 for each fiscal quarter. 

        Section
9.02    Debt.    The Borrowers will not, and will not permit any Subsidiary to, incur, create, assume or
suffer to exist any Debt, except: 

        (a)   the
Notes or other Indebtedness arising under the Loan Documents or any guaranty of or suretyship arrangement for the Notes or other Indebtedness arising under the Loan
Documents. 

54

 

        (b)   Debt
of the Borrowers and their Subsidiaries existing on the date hereof that is reflected in the Financial Statements. 

        (c)   accounts
payable and accrued expenses, liabilities or other obligations to pay the deferred purchase price of Property or services, from time to time incurred in the
ordinary course of business which are not greater than ninety (90) days past the date of invoice or which are being contested in good faith by appropriate action and for which adequate reserves
have been maintained in accordance with GAAP. 

        (d)   Debt
under Capital Leases or non-recourse purchase money Debt not to exceed $1,000,000 at any time. 

        (e)   Debt
associated with worker's compensation claims, performance, bid, surety or similar bonds or surety obligations required by Governmental Requirements or third parties
in connection with the operation of the Oil and Gas Properties. 

        (f)    intercompany
Debt between the Borrowers, or between Borrower and any Subsidiary or between any Subsidiary and any other Subsidiary to the extent permitted by
Section 9.05(g); provided that such Debt is not held, assigned, transferred, negotiated or pledged to any Person other than a Borrower or one of
its Wholly-Owned Subsidiaries, and, provided further, that any such Debt owed by either a Borrower or a Guarantor shall be subordinated to the
Indebtedness on terms set forth in the Guaranty Agreement. 

        (g)   endorsements
of negotiable instruments for collection in the ordinary course of business. 

        (h)   other
Debt not to exceed $1,000,000 in the aggregate at any one time outstanding. 

        Section
9.03    Liens.    The Borrowers will not, and will not permit any Subsidiary to, create, incur, assume or
permit to exist any Lien on any of its Properties (now owned or hereafter acquired), except: 

        (a)   Liens
securing the payment of any Indebtedness. 

        (b)   Excepted
Liens. 

        (c)   Liens
securing Capital Leases or purchase money Debt permitted by Section 9.02(d) but only on the Property under lease. 

        (d)   Liens
on Property not constituting collateral for the Indebtedness and not otherwise permitted by the foregoing clauses of this Section 9.03;  provided that the aggregate principal or face amount of all
Debt of the type described in this Section 9.03(d) shall not exceed $500,000. 

        Section
9.04    Restricted Payments.    The Borrowers will not, and will not permit any Subsidiary to, declare or
make, or agree to pay or make, directly or indirectly, any Restricted Payment, return any capital to its stockholders or make any distribution of its Property to its Equity Interest holders, except,
provided no Default or Event of Default exists on the date any such distribution is declared or paid, (a) Subsidiaries may declare and pay dividends ratably with respect to their Equity
Interests, and (b) Ellora Energy may make a one-time repurchase of its common stock from management of Ellora Energy for an aggregate cash consideration not to exceed $6,000,000. 

        Section
9.05    Investments, Loans and Advances.    The Borrowers will not, and will not permit any Subsidiary to,
make or permit to remain outstanding any Investments in or to any Person, except that the foregoing restriction shall not apply to: 

        (a)   Investments
reflected in the Financial Statements or which are disclosed to the Lenders in Schedule 9.05. 

        (b)   accounts
receivable arising in the ordinary course of business. 

55

  

        (c)   direct
obligations of the United States or any agency thereof, or obligations guaranteed by the United States or any agency thereof, in each case maturing within one
year from the date of creation thereof. 

        (d)   commercial
paper maturing within one year from the date of creation thereof rated in the highest grade by S&P or Moody's. 

        (e)   deposits
maturing within one year from the date of creation thereof with, including certificates of deposit issued by, any Lender or any office located in the United
States of any other bank or trust company which is organized under the laws of the United States or any state thereof, has capital, surplus and undivided profits aggregating at least $100,000,000 (as
of the date of such bank or trust company's most recent financial reports) and has a short term deposit rating of no lower than A2 or P2, as such rating is set forth from time to time, by S&P or
Moody's, respectively or, in the case of any Foreign Subsidiary, a bank organized in a jurisdiction in which the Foreign Subsidiary conducts operations having assets in excess of $500,000,000 (or its
equivalent in another currency). 

        (f)    deposits
in money market funds investing exclusively in Investments described in Section 9.05(c), Section 9.05(d) or Section 9.05(e). 

        (g)   Investments
(i) made by any Borrower in or to any Subsidiary which is a Guarantor and with respect to which 100% of the issued and outstanding Equity Interests
have been pledged to Administrative Agent, and (ii) made by any Guarantor in or to any Borrower or any other Guarantor. 

        (h)   subject
to the limits in Section 9.06, Investments in direct ownership interests in additional Oil and Gas Properties, gas gathering, processing and
transportation systems and all other assets contemplated by the permitted business of the Borrowers and their Subsidiaries located within the geographic boundaries of the United States of America
including the outer continental shelf thereof. 

        (i)    entry
into operating agreements, working interests, royalty interests, mineral leases, processing agreements, farm-out agreements, contracts for the sale,
transportation or exchange of oil and natural gas, unitization agreements, pooling arrangements, area of mutual interest agreements, production sharing agreements or other similar or customary
agreements, transactions, properties, interests or arrangements, and Investments and expenditures in connection therewith or pursuant thereto, in each case made or entered into in the ordinary course
of the oil and gas business, excluding,
however, Investments in other Persons; provided, however, that none of the foregoing shall involve the
incurrence of any Debt not permitted by Section 9.02. 

        (j)    repurchase
agreements of a commercial bank in the United States and Canada if the commercial paper of such bank or of the bank holding company of which such bank is a
wholly owned subsidiary is rated in the highest rating categories of S&P, Moody's, or any other rating agency satisfactory to the Required Lenders, that are fully secured by securities described in
Section 9.05(c). 

        (k)   Investments
arising from the endorsement of financial instruments in the ordinary course of business. 

        (l)    other
Investments not to exceed $1,000,000 in the aggregate at any time. 

        Section
9.06    Nature of Business; International Operations.    The Borrowers will not, and will not permit any
Subsidiary to, allow any material change to be made in the character of its business as an independent oil and gas exploration and production company. The Borrowers will not, and will not permit any
Subsidiary to conduct marketing and trading of Hydrocarbons, except that each Borrower and each Subsidiary may market its own Hydrocarbon production, and each Subsidiary that owns and operates
gathering systems may buy and sell gas from third parties in the ordinary course of their 

56

 

business.
From and after the date hereof, the Borrowers and their Subsidiaries will not acquire or make any other expenditure (whether such expenditure is capital, operating or otherwise) in or
related to, any Oil and Gas Properties not located within the geographical boundaries of the United States including the outer continental shelf thereof. 

        Section
9.07    Limitation on Leases.    The Borrowers will not, and will not permit any Subsidiary to, create, incur,
assume or suffer to exist any obligation for the payment of rent of any kind whatsoever (real or personal but excluding Capital Leases and leases of Hydrocarbon Interests), under leases or lease
agreements which would cause the aggregate amount of all payments made by the Borrowers and the Subsidiaries pursuant to all such leases or lease agreements, including, without limitation, any
residual payments at the end of any lease, to exceed $1,000,000 in any period of twelve consecutive calendar months during the life of such leases. 

        Section
9.08    Proceeds of Notes/Loans.    The Borrowers will not permit the Loans or the proceeds of the Notes to be
used for any purpose other than those permitted by Section 7.22. Neither any Borrower nor any Person acting on behalf of any Borrower has taken or will take any action which might cause any of
the Loan Documents to violate Regulations T, U or X or any other regulation of the Board or to violate Section 7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder, in
each
case as now in effect or as the same may hereinafter be in effect. If requested by the Administrative Agent, the Borrowers will furnish to the Administrative Agent and each Lender a statement to the
foregoing effect in conformity with the requirements of FR Form U-1 or such other form referred to in Regulation U, Regulation T or Regulation X of the Board,
as the case may be. 

        Section
9.09    ERISA Compliance.    Except as could not reasonably be expected to result in liability to the
Borrowers and their Subsidiaries of less than $1,000,000 individually or in the aggregate, the Borrowers and the Subsidiaries will not at any time: 

        (a)   engage
in, or permit any ERISA Affiliate to engage in, any transaction in connection with which a Borrower, a Subsidiary or any ERISA Affiliate could be subjected to
either a civil penalty assessed pursuant to subsections (c), (i) or (l) of section 502 of ERISA or a tax imposed by Chapter 43 of Subtitle D of the Code, if either of which would
have a Material Adverse Effect. 

        (b)   terminate,
or permit any ERISA Affiliate to terminate, any Plan in a manner, or take any other action with respect to any Plan, which could reasonably be expected to
result in any liability of a Borrower, a Subsidiary or any ERISA Affiliate to the PBGC. 

        (c)   fail
to make, or permit any ERISA Affiliate to fail to make, full payment when due of all amounts which, under the provisions of any Plan, agreement relating thereto or
applicable law, a Borrower, a Subsidiary or any ERISA Affiliate is required to pay as contributions thereto if such failure could reasonably be expected to have a Material Adverse Effect. 

        (d)   permit
to exist, or allow any ERISA Affiliate to permit to exist, any accumulated funding deficiency within the meaning of section 302 of ERISA or
section 412 of the Code, whether or not waived, with respect to any Plan which exceeds $500,000. 

        (e)   permit,
or allow any ERISA Affiliate to permit, the actuarial present value of the benefit liabilities under any Plan maintained by a Borrower, a Subsidiary or any ERISA
Affiliate which is regulated under Title IV of ERISA to exceed the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to
such benefit liabilities. The term "actuarial present value of the benefit liabilities" shall have the meaning specified in section 4041 of ERISA. 

        (f)    contribute
to or assume an obligation to contribute to, or permit any ERISA Affiliate to contribute to or assume an obligation to contribute to, any Multiemployer Plan. 

        (g)   acquire,
or permit any ERISA Affiliate to acquire, an interest in any Person that causes such Person to become an ERISA Affiliate with respect to a Borrower or a
Subsidiary or with 

57

 

respect
to any ERISA Affiliate of a Borrower or a Subsidiary if such Person sponsors, maintains or contributes to, or at any time in the six-year period preceding such acquisition has
sponsored, maintained, or contributed to, (i) any Multiemployer Plan, or (ii) any other Plan that is subject to Title IV of ERISA under which the actuarial present value of the benefit
liabilities under such Plan exceeds the current value of the assets (computed on a plan termination basis in accordance with Title IV of ERISA) of such Plan allocable to such benefit liabilities by
any amount in excess of $500,000. 

        (h)   incur,
or permit any ERISA Affiliate to incur, a liability to or on account of a Plan under sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA. 

        (i)    contribute
to or assume an obligation to contribute to, or permit any ERISA Affiliate to contribute to or assume an obligation to contribute to, any employee welfare
benefit plan, as defined in section 3(1) of ERISA, including, without limitation, any such plan maintained to provide benefits to former employees of such entities, that may not be terminated
by such entities in their sole discretion at any time without any material liability. 

        (j)    amend,
or permit any ERISA Affiliate to amend, a Plan resulting in a material increase in current liability such that a Borrower, a Subsidiary or any ERISA Affiliate is
required to provide security to such Plan under section 401(a)(29) of the Code. 

        Section
9.10    Sale or Discount of Receivables.    Except for receivables obtained by any Borrower or any Subsidiary
out of the ordinary course of business or the settlement of joint interest billing accounts in the ordinary course of business or discounts granted to settle collection of accounts receivable or the
sale of defaulted accounts arising in the ordinary course of business in connection with the compromise or collection thereof and not in connection with any financing transaction, neither any Borrower
nor any Subsidiary will discount or sell (with or without recourse) to any other Person that is not a Borrower or a Guarantor any of its notes receivable or accounts receivable. 

        Section
9.11    Mergers, Etc.    Neither any Borrower nor any Subsidiary will merge into or with or consolidate with
any other Person, or sell, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its Property to any other Person (any such transaction,
a "consolidation"); provided that (a) Ellora O&G may participate in a consolidation with Ellora Energy (provided that  Ellora Energy shall be the
continuing or surviving entity), and (b) any Subsidiary may participate in a consolidation with any Borrower (provided  that a Borrower shall be the continuing or surviving entity) or any other
Subsidiary that is a Domestic Subsidiary (provided  that if one of such parties to the consolidation is a Foreign Subsidiary, such Domestic Subsidiary shall be the continuing or
surviving Person) and if one of such Subsidiaries is a Wholly-Owned Subsidiary, then the surviving Person shall be a Wholly-Owned Subsidiary. 

        Section
9.12    Sale of Properties.    The Borrowers will not, and will not permit any Subsidiary to, sell, assign,
farm-out, convey or otherwise transfer any property containing proved reserves constituting a portion of the Borrowing Base except for (a) the sale of Hydrocarbons in the ordinary
course of business; (b) farmouts, sales or other dispositions of undeveloped acreage and assignments in connection with such transactions; (c) the sale or transfer of equipment in the
ordinary course of business or that is no longer necessary for the business of a Borrower or such Subsidiary or is replaced by equipment of at least comparable value and use; and (d) provided
no Event of Default exists, and provided further the total Credit Exposure does not exceed the Borrowing Base at the time of such sale or disposition, the sale or other disposition of any Oil and Gas
Property; provided that (i) the aggregate value (which, for purposes hereof, shall mean the value the Administrative Agent attributes to such Oil
and Gas Property for purposes of the most recent redetermination of the Borrowing Base) of such Oil and Gas Properties sold or disposed of pursuant to this clause (d) in any period between
Scheduled Redeterminations shall not exceed five percent (5%) of the Borrowing Base then in effect, (ii) the Borrowing Base shall be reduced, effective immediately upon such sale or
disposition, by an 

58

 

amount
equal to the value, if any, assigned such Property by the Administrative Agent in the most recently redetermined Borrowing Base, and (iii) no sale or other disposition shall be permitted
pursuant to this clause (d) unless all mandatory prepayments required by Section 3.04(c)(iii) are made concurrently therewith. 

        Section
9.13    Environmental Matters.    The Borrowers will not, and will not permit any Subsidiary to, cause or
permit any of its Property to be in violation of, or do anything or permit anything to be done which will subject any such Property to any Remedial Work under any applicable Environmental Laws,
assuming disclosure to the applicable Governmental Authority of all relevant facts, conditions and circumstances, if any, pertaining to such Property where such violations or remedial obligations
could reasonably be expected to have a Material Adverse Effect. 

        Section
9.14    Transactions with Affiliates.    The Borrowers will not, and will not permit any Subsidiary to, enter
into any transaction, including, without limitation, any purchase, sale, lease or exchange of Property or the rendering of any service, with any Affiliate (other than the Guarantors and Wholly-Owned
Subsidiaries of a Borrower) unless such transactions are otherwise permitted under this Agreement and are upon fair and reasonable terms no less favorable to it than it would obtain in a comparable
arm's length transaction with a Person not an Affiliate. 

        Section
9.15    Subsidiaries.    The Borrowers will not, and will not permit any Subsidiary to, create or acquire any
additional Subsidiary unless the Borrowers give prior written notice to the Administrative Agent of such creation or acquisition and complies with Section 8.14(b). The Borrowers will not, and
will not permit any Subsidiary to, sell, assign or otherwise dispose of any Equity Interests in any Subsidiary. Neither any Borrower nor any Subsidiary shall have any Foreign Subsidiaries. 

        Section
9.16    Subsidiary Indebtedness and Preferred Stock.    The Borrowers will not and will not, permit any
Subsidiary to, issue preferred stock or create, incur or assume any Debt, except for Debt permitted under Section 9.02. 

        Section
9.17    Negative Pledge Agreements.    The Borrowers will not, and will not permit any Subsidiary to, create,
incur, assume or suffer to exist any contract, agreement or understanding which in any way prohibits or restricts the granting, conveying, creation or imposition of any Lien on any of its Property in
favor of the Administrative Agent and the Lenders or restricts any Subsidiary from paying dividends or making distributions to any Borrower or any Guarantor, or which requires the consent of or notice
to other Persons in connection therewith; provided, however, that the preceding restrictions will not
apply to encumbrances or restrictions arising under or by reason of (a) this Agreement or the Security Instruments, (b) any leases or licenses or similar contracts as they affect any
Property or Lien subject to a lease or license, (c) any contract, agreement or understanding creating Liens on Capital Leases permitted by Section 9.03(c) (but only to the extent related
to the Property on which such Liens were created), or (d) any restriction with respect to a Subsidiary imposed pursuant to an agreement entered into for the direct or indirect sale or
disposition of all or substantially all the equity or Property of such Subsidiary (or the Property that is subject to such restriction) pending the closing of such sale or disposition. 

        Section
9.18    Take-or-Pay or Other Prepayments.    The Borrowers will not allow
take-or-pay or other prepayments with respect to the Oil and Gas Properties of any Borrower or any Subsidiary. 

        Section
9.19    Swap Agreements.    The Borrowers will not, and will not permit any Subsidiary to, enter into any Swap
Agreements with any Person other than (a) Swap Agreements in respect of commodities (i) with an Approved Counterparty and (ii) the notional volumes for which (when aggregated with
other commodity Swap Agreements then in effect other than basis differential swaps on volumes already hedged pursuant to other Swap Agreements) do not exceed, as of the date such Swap Agreement is
executed, 80% of the reasonably anticipated projected production from proved, developed, producing Oil and Gas Properties for each month during the period during which such Swap Agreement is in effect
for each of crude oil and natural gas, calculated separately, and (b) Swap 

59

 

Agreements
in respect of interest rates with an Approved Counterparty, the notional amounts of which (when aggregated with all other Swap Agreements of the Borrowers and their Subsidiaries then in
effect in respect of interest rates) do not exceed 100% of the then outstanding principal amount of the Borrowers' Debt for borrowed money; provided,  that,
the Borrowers may enter into Swap Agreements consisting solely of a floor price (i.e., floor, put or option) so long as the amount of Hydrocarbons
which are the subject of any such Swap Agreement in existence at any such time do not exceed 100% of the Borrowers' anticipated total proved production during the term of any such existing Swap
Agreement. In no event shall any Swap Agreement to which any Borrower or any Subsidiary is a party contain any requirement, agreement or covenant for any Borrower or any Subsidiary to post cash or
other collateral or margin to secure their obligations under such Swap Agreement or to cover market exposures. 

        Section
9.20    Ellora Holdings.    The Borrowers will not, and will not permit any Subsidiary to, incur any
liability, Debt or obligation to Ellora Holdings of any nature, or have any liability (whether by operation of law or otherwise) for any liability, Debt or obligation of Ellora Holdings. The Borrowers
will not permit Ellora Holdings to own any Property or conduct any operations other than to act as a nominee to hold record title to certain assets for the benefit of unrelated third parties. 

 
 

ARTICLE X
  EVENTS OF DEFAULT; REMEDIES    
    

        Section
10.01    Events of Default.    One or more of the following events shall constitute an
"Event of Default": 

        (a)   any
Borrower shall fail to pay any principal of any Loan or any reimbursement obligation in respect of any LC Disbursement when and as the same shall become due and
payable, whether at the due date thereof or at a date fixed for prepayment thereof, by acceleration or otherwise. 

        (b)   any
Borrower shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in Section 10.01(a)) payable under any
Loan Document, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three Business Days. 

        (c)   any
representation or warranty made or deemed made by or on behalf of any Borrower or any Subsidiary in or in connection with any Loan Document or any amendment or
modification of any Loan Document or waiver under such Loan Document, or in any report, certificate, financial statement or other material document furnished pursuant to or in connection with any Loan
Document or any amendment or modification thereof or waiver thereunder, shall prove to have been incorrect when made or deemed made. As used herein, "material
document" means a document that may not be terminated by a Borrower or a Subsidiary in its sole discretion at any time without material liability. 

        (d)   any
Borrower or any Subsidiary shall fail to observe or perform any covenant, condition or agreement contained in Section 8.01, Section 8.02,
Section 8.03, Section 8.07, Section 8.15 or in Article IX. 

        (e)   any
Borrower or any Subsidiary shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other than those specified in
Section 10.01(a), Section 10.01(b) or Section 10.01(d)) or any other Loan Document, and such failure shall continue unremedied for a period of 30 days after the earlier to
occur of (i) notice thereof from the Administrative Agent to the Borrowers (which notice will be given at the request of any Lender) or (ii) a Responsible Officer of a Borrower or such
Subsidiary otherwise becoming aware of such default. 

60

 

        (f)    any
Borrower or any Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when
and as the same shall become due and payable. 

        (g)   any
event or condition occurs that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with or without the
giving of notice, the lapse of time or both) the holder or holders of any Material Indebtedness or any trustee or agent on its or their behalf to cause any Material Indebtedness to become due, or to
require the Redemption thereof or any offer to Redeem to be made in respect thereof, prior to its scheduled maturity or require any Borrower or any Subsidiary to make an offer in respect thereof. 

        (h)   an
involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of any
Borrower or any Subsidiary or its debts,
or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for any Borrower or any Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall
continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered. 

        (i)    any
Borrower or any Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any
Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate
manner, any proceeding or petition described in Section 10.01(h), (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar
official for any Borrower or any Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such
proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing. 

        (j)    any
Borrower or any Subsidiary shall become unable, admit in writing its inability, or fail generally to pay its debts as they become due. 

        (k)   one
or more judgments for the payment of money in an aggregate amount in excess of $1,000,000 (to the extent not covered by independent third party insurance provided by
insurers of the highest claims paying rating or financial strength as to which the insurer does not dispute coverage and is not subject to an insolvency proceeding) shall be rendered against any
Borrower, any Subsidiary or any combination thereof and the same shall remain undischarged for a period of 60 consecutive days during which execution shall not be effectively stayed, or any action
shall be legally taken by a judgment creditor to attach or levy upon any assets of any Borrower or any Subsidiary to enforce any such judgment. 

        (l)    the
Loan Documents after delivery thereof shall for any reason, except to the extent permitted by the terms thereof, cease to be in full force and effect and valid,
binding and enforceable in accordance with their terms against a Borrower or a Guarantor party thereto or shall be repudiated, or cease to create a valid and perfected Lien of the priority required
thereby on any of the collateral purported to be covered thereby, except to the extent permitted by the terms of this Agreement, or any Borrower or any Subsidiary or any of their Affiliates shall so
state in writing. 

        (m)  an
ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be
expected to result in liability of the Borrowers and their Subsidiaries in an aggregate amount exceeding (i) $1,000,000 in any year or (ii) $2,000,000 for all periods. 

        (n)   a
Change in Control shall occur. 

61

 

        Section
10.02    Remedies.    

        (a)   In
the case of an Event of Default other than one described in Section 10.01(h), Section 10.01(i) or Section 10.01(j), at any time thereafter
during the continuance of such Event of Default, the Administrative Agent shall, at the request of the Required Lenders, by notice to the Borrowers, take either or both of the following actions, at
the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, and (ii) declare the Notes and the Loans then outstanding to be due
and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so
declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrowers and the Guarantors accrued hereunder and under the Notes and the other Loan
Documents (including, without limitation, the payment of cash collateral to secure the LC Exposure as provided in Section 2.08(j)), shall become due and payable immediately, without
presentment, demand, protest, notice of intent to accelerate, notice of acceleration or other notice of any kind, all of which are hereby waived by each Borrower and each Guarantor; and in case of an
Event of Default described in Section 10.01(h), Section 10.01(i) or Section 10.01(j), the Commitments shall automatically terminate and the Notes and the principal of the
Loans then outstanding, together with accrued interest thereon and all fees and the other obligations of the Borrowers and the Guarantors accrued hereunder and under the Notes and the other Loan
Documents (including, without limitation, the payment of cash collateral to secure the LC Exposure as provided in Section 2.08(j)), shall automatically become due and payable, without
presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Borrower and each Guarantor. 

        (b)   In
the case of the occurrence of an Event of Default, the Administrative Agent and the Lenders will have all other rights and remedies available at law and equity. 

        (c)   All
proceeds realized from the liquidation or other disposition of collateral or otherwise received after maturity of the Loans or the Notes, whether by acceleration or
otherwise, shall be applied: first, to reimbursement of expenses and indemnities provided for in this Agreement and the Security Instruments;  second, to
accrued interest on the Loans; third, to fees;  fourth, pro rata to principal outstanding on the Loans and Indebtedness referred to in Clause (b) of
the definition of Indebtedness owing to a
Lender or an Affiliate of a Lender; fifth, to any other Indebtedness; sixth, to serve as cash collateral
to be held by the Administrative Agent to secure the LC Exposure; and any excess shall be paid to the Borrowers or as otherwise required by any Governmental Requirement. 

 
 

ARTICLE XI
  THE AGENTS    
    

        Section
11.01    Appointment; Powers.    Each of the Lenders and each Issuing Bank hereby irrevocably (subject to
Section 11.06) appoints the Administrative Agent as its agent and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the
Administrative Agent by the terms hereof and the other Loan Documents, together with such actions and powers as are reasonably incidental thereto. 

        Section
11.02    Duties and Obligations of Administrative Agent.    The Administrative Agent shall not have any duties
or obligations except those expressly set forth in the Loan Documents. Without limiting the generality of the foregoing, the Administrative Agent (a) shall not be subject to any fiduciary or
other implied duties, regardless of whether a Default has occurred and is continuing, (b) shall not have any duty to take any discretionary action or exercise any discretionary powers, except
as provided in Section 11.03, and (c) except as expressly set forth herein, shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information
relating to any Borrower or any of its 

62

 

Subsidiaries
that is communicated to or obtained by the bank serving as an Agent or any of its Affiliates in any capacity. The Administrative Agent shall be deemed not to have knowledge of any Default
unless and until written notice thereof is given to it by the Borrowers or a Lender, and shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty
or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or under any other
Loan Document or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or in any other Loan
Document, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document, (v) the satisfaction
of any condition set forth in Article VI or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to it or as to those conditions precedent specifically
required to be to its satisfaction, (vi) the existence, value, perfection or priority of any collateral security or the financial or other condition of the Borrowers and their Subsidiaries or
any other obligor or guarantor, or (vii) any failure by any Borrower or any other Person (other than itself) to perform any of its obligations hereunder or under any other Loan Document or the
performance or observance of any covenants, agreements or other terms or conditions set forth herein or therein. 

        Section
11.03    Action by Administrative Agent.    The Administrative Agent shall not have any duty to take any
discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby that it is required to exercise in writing as directed by the Required
Lenders (or such other number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 12.02) and in all cases it shall be fully justified in failing or refusing to act hereunder or under any other Loan Documents unless it shall
(a) receive written instructions from the Required Lenders or the Lenders, as applicable, (or such other number or percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 12.02) specifying the action to be taken and (b) be indemnified to its satisfaction by the Lenders against any and all liability and expenses which may be incurred by
it by reason of taking or continuing to take any such action. The instructions as aforesaid and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders. If a Default
has occurred and is continuing, then the Administrative Agent shall take such action with respect to such Default as shall be directed by the requisite Lenders in the written instructions (with
indemnities) described in this Section 11.03, provided that, unless and until the Administrative Agent shall have received such directions, the
Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable in the best interests of the
Lenders. In no event, however, shall the Administrative Agent be required to take any action which exposes the Administrative Agent to personal liability or which is contrary to this Agreement, the
Loan Documents or applicable law. If a Default has occurred and is continuing, the Arranger shall not have any obligation to perform any act in respect thereof. No Agent shall be liable for any action
taken or not taken by it with the consent or at the request of the Required Lenders or the Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 12.02), and otherwise no Agent shall be liable for any action taken or not taken by it hereunder or under any other Loan Document or under any other document or instrument
referred to or provided for herein or therein or in connection herewith or therewith INCLUDING ITS OWN ORDINARY NEGLIGENCE, except for its own gross negligence or willful misconduct. 

        Section
11.04    Reliance by Administrative Agent.    The Administrative Agent shall be entitled to rely upon, and
shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent
by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability
for relying thereon and each of the Borrowers, the Lenders and each Issuing Bank hereby 

63

 

waives
the right to dispute the Administrative Agent's record of such statement, except in the case of gross negligence or willful misconduct by such Agent. The Administrative Agent may consult with
legal counsel (who may be counsel for the Borrowers), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the
advice of any such counsel, accountants or experts. The Agents may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until a written notice of the
assignment or transfer thereof permitted hereunder shall have been filed with the Administrative Agent. 

        Section
11.05    Subagents.    The Administrative Agent may perform any and all its duties and exercise its rights and
powers by or through any one or more sub-agents appointed by it. The Administrative Agent and any such sub-agent may perform any and all its duties and exercise its rights and
powers through their respective Related Parties. The exculpatory provisions of the preceding Sections of this Article XI shall apply to any such sub-agent and to the Related Parties
of each Agent and any such sub-agent, and shall apply to their
respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. 

        Section
11.06    Resignation of Agents.    Subject to the appointment and acceptance of a successor Agent as provided
in this Section 11.06, any Agent may resign at any time by notifying the Lenders, each Issuing Bank and the Borrowers. Upon any such resignation, the Required Lenders shall have the right, in
consultation with and upon the approval of the Borrowers (so long as no Event of Default has occurred and is continuing), which approval shall not be unreasonably withheld, to appoint a successor. If
no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Agent gives notice of its resignation, then the
retiring Agent may, on behalf of the Lenders and each Issuing Bank, appoint a successor Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the
acceptance of its appointment as Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the
retiring Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Borrowers to a successor Agent shall be the same as those payable to its predecessor unless
otherwise agreed between the Borrowers and such successor. After the Agent's resignation hereunder, the provisions of this Article XI and Section 12.03 shall continue in effect for the
benefit of such retiring Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Agent. 

        Section
11.07    Agents as Lenders.    Each bank serving as an Agent hereunder shall have the same rights and powers
in its capacity as a Lender as any other Lender and may exercise the same as though it were not an Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage
in any kind of business with any Borrower or any Subsidiary or other Affiliate thereof as if it were not an Agent hereunder. 

        Section
11.08    No Reliance.    Each Lender acknowledges that it has, independently and without reliance upon the
Administrative Agent, any other Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this
Agreement and each other Loan Document to which it is a party. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent, any other Agent or any
other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this
Agreement, any other Loan Document, any related agreement or any document furnished hereunder or thereunder. The Agents shall not be required to keep themselves informed as to the performance or
observance by any Borrower or any of its Subsidiaries of this Agreement, the Loan Documents or any other document referred to or provided for herein or to inspect the Properties or books of the
Borrowers or their Subsidiaries. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Administrative Agent hereunder, 

64

 

neither
the Agents nor the Arranger shall have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of any
Borrower (or any of its Affiliates) which may come into the possession of such Agent or any of its Affiliates. In this regard, each Lender acknowledges that Vinson & Elkins L.L.P. is acting in
this transaction as special counsel to the Administrative Agent only, except to the extent otherwise expressly stated in any legal opinion or any Loan Document. Each other party hereto will consult
with its own legal counsel to the extent that it deems necessary in connection with the Loan Documents and the matters contemplated therein. 

        Section
11.09    Authority to Release Collateral and Liens.    Each Lender and each Issuing Bank hereby authorizes the
Administrative Agent to release any collateral that is permitted to be sold or released pursuant to the terms of the Loan Documents. Each Lender and each Issuing Bank hereby authorizes the
Administrative Agent to execute and deliver to the Borrowers, at the Borrowers' sole cost and expense, any and all releases of Liens, termination statements, assignments or other documents reasonably
requested by the Borrowers in connection with any sale or other disposition of Property to the extent such sale or other disposition is permitted by the terms of Section 9.12 or is otherwise
authorized by the terms of the Loan Documents. 

        Section
11.10    The Arranger and Agents.    Neither the Arranger, any syndication agent (if any), nor any
documentation agent (if any) shall have any duties, responsibilities or liabilities under this Agreement and the other Loan Documents other than their duties, responsibilities and liabilities in their
capacity as Lenders hereunder. 

        Section
11.11    Filing of Proofs of Claim.    In case of any Default or Event of Default under
Section 10.01(g), Section 10.01(h) or Section 10.01(i), the Administrative Agent (regardless of whether the principal of any Loan or LC Exposure shall then be due and payable and
regardless of whether the Administrative Agent has made any demand on any Borrower or any Guarantor) shall be entitled and empowered, by intervention in such proceeding or otherwise: 

        (a)   to
(i) file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans, LC Exposure and all other Indebtedness
that is owing and unpaid and (ii) file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Administrative Agent (including any claim for the
reasonable compensation, expenses, disbursements and advances of the Lenders, the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders, the Administrative
Agent under Section 3.05 and Section 12.03) allowed in such judicial proceeding; and 

        (b)   to
collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same. 

        Each
Lender hereby authorizes any custodian, receiver, assignee, trustee, conservator, sequestrator or other similar official in any such judicial proceeding: (i) to make such
payments to the Administrative Agent; and (ii) if the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount
due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under
Section 3.05 and Section 12.03. Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any
plan of reorganization, arrangement, adjustment or composition affecting the Indebtedness or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any
Lender in any such proceeding. Each Lender retains its right to file and prove a claim separately. 

65

  

 
 

ARTICLE XII
  MISCELLANEOUS    
    

        Section
12.01    Notices.    

        (a)   Except
in the case of notices and other communications expressly permitted to be given by telephone (and subject to Section 12.01(b)), all notices and other
communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: 

          (i)  if
to the Borrowers, to them at 5480 Valmont, Suite 350, Boulder, Colorado 80301, Attention: James R. Casperson (Telecopy No. (303) 417-1000); 

         (ii)  if
to the Administrative Agent, to it at JPMorgan Chase Bank, N.A., 1717 Main Street, 4th Floor, Mail Code TX1-2448, Dallas, Texas 75201, Attention: J.
Scott Fowler (Telecopy No. (214) 290-2332); with a copy to: JPMorgan Chase Bank, N.A., 10 S. Dearborn, Suite 0010, Chicago, Illinois 60670-0010, Attention: Nanette
Wilson (Telecopy No. (312) 385-7096); and 

        (iii)  if
to any other Lender, in its capacity as such, or any other Lender in its capacity as an Issuing Bank, to it at its address (or telecopy number) set forth in its
Administrative Questionnaire. 

        (b)   Notices
and other communications to the Lenders hereunder may be delivered or furnished by electronic communications pursuant to procedures approved by the
Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Article II, Article III, Article IV and
Article V unless otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent or the Borrowers may, in their discretion, agree to accept notices and other
communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications. 

        (c)   Any
party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other
communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. 

        Section
12.02    Waivers; Amendments.    

        (a)   No
failure on the part of any Agent, any Issuing Bank or any Lender to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or
privilege, or any abandonment or discontinuance of steps to enforce such right, power or privilege, under any of the Loan Documents shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege under any of the Loan Documents preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies
of the Agents, each Issuing Bank and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver
of any provision of this Agreement or any other Loan Document or consent to any departure by the Borrowers therefrom shall in any event be effective unless the same shall be permitted by
Section 12.02(b), and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the
making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether any Agent, any Lender or any Issuing Bank may have had notice or knowledge
of such Default at the time. 

        (b)   Neither
this Agreement nor any provision hereof nor any Security Instrument nor any provision thereof may be waived, amended or modified except pursuant to an agreement
or agreements 

66

 

in
writing entered into by the Borrowers and the Required Lenders or by the Borrowers and the Administrative Agent with the consent of the Required Lenders; provided  that no such agreement shall
(i) increase the Commitment or the Maximum Credit Amount of any Lender without the written consent of such Lender, (ii) increase the
Borrowing Base without the written consent of each Lender, or modify Section 2.07 without the consent of each Lender, (iii) reduce the principal amount of any Loan or LC Disbursement or
reduce the rate of interest thereon, or reduce any fees payable hereunder, or reduce any other Indebtedness hereunder or under any other Loan Document, without the written consent of each Lender
affected thereby, (iv) postpone the scheduled date of payment of the principal amount of any Loan or LC Disbursement, or any interest thereon, or any fees payable hereunder, or any other
Indebtedness hereunder or under any other Loan Document, or reduce the amount of, waive or excuse any such payment, or postpone or extend the Termination Date without the written consent of each
Lender affected thereby, (v) change Section 4.01(b) or Section 4.01(c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent
of each Lender, (vi) waive or amend Section 8.14 or change the definition of the terms "Domestic Subsidiary", "Foreign Subsidiary" or "Subsidiary", without the written consent of each
Lender, (vii) release any Guarantor (except as set forth in the Guaranty Agreement), release any of the collateral (other than as provided in Section 11.09), or reduce the percentage set
forth in Section 8.14(a) to less than 80%, without the written consent of each Lender, (viii) change any of the provisions of Section 10.02(c), this Section 12.02(b) or the
definition of "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders or Secured Swap Providers required to waive, amend or modify any rights hereunder or under
any other Loan Documents or make any determination or grant any consent hereunder or any other Loan Documents, without the written consent of each Lender and, if applicable, each Secured Swap Provider
or (ix) change the description of the obligations secured or guaranteed by the Security Instruments or the priority of payments set forth in Section 10.02(c) without the written consent
of each Lender or Secured Swap Provider adversely affected thereby, provided that the addition of a new secured obligation shall not be deemed to
adversely affect any other secured party; provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of any
Agent or any Issuing Bank hereunder or under any other Loan Document without the prior written consent of such Agent or such Issuing Bank, as the case may be. Notwithstanding the foregoing, any
supplement to Schedule 7.15 (Subsidiaries) shall be effective simply by delivering to the Administrative Agent a supplemental schedule clearly
marked as such and, upon receipt, the Administrative Agent will promptly deliver a copy thereof to the Lenders. 

        Section
12.03    Expenses, Indemnity; Damage Waiver.    

        (a)   The
Borrowers shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and their Affiliates, including,
without limitation, the reasonable fees, charges and disbursements of counsel and other outside consultants for the Administrative Agent, the reasonable travel, photocopy, mailing, courier, telephone
and other similar expenses, and the cost of environmental audits and surveys and appraisals, in connection with the syndication of the credit facilities provided for herein, the preparation,
negotiation, execution, delivery and administration (both before and after the execution hereof and including advice of counsel to the Administrative Agent as to the rights and duties of the
Administrative Agent and the Lenders with respect thereto) of this Agreement and the other Loan Documents and any amendments, modifications or waivers of or consents related to the provisions hereof
or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all costs, expenses, Taxes, assessments and other charges incurred by any Agent or any
Lender in connection with any filing, registration, recording or perfection of any security interest contemplated by this Agreement or any Security Instrument or any other document referred to
therein, (iii) all reasonable out-of-pocket expenses incurred by each Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of
Credit issued by such Issuing Bank or any demand for payment thereunder, (iv) all out-of-pocket expenses incurred by any Agent, any Issuing Bank or any Lender, including
the fees, charges and disbursements of any counsel for any Agent, any 

67

 

Issuing
Bank or any Lender, in connection with the enforcement or protection of its rights in connection with this Agreement or any other Loan Document, including its rights under this
Section 12.03, or in connection with the Loans made or Letters of Credit issued hereunder, including, without limitation, all such out-of-pocket expenses incurred during
any workout, restructuring or negotiations in respect of such Loans or Letters of Credit. 

        (b)   EACH BORROWER SHALL INDEMNIFY THE ARRANGER, EACH AGENT, EACH ISSUING BANK AND EACH LENDER, AND EACH RELATED PARTY OF ANY OF THE FOREGOING PERSONS
(EACH SUCH PERSON BEING CALLED AN "INDEMNITEE") AGAINST, AND HOLD EACH INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES AND
RELATED EXPENSES, INCLUDING THE FEES, CHARGES AND DISBURSEMENTS OF ANY COUNSEL FOR ANY INDEMNITEE, INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF
(I) THE EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, THE PERFORMANCE BY THE PARTIES HERETO OR THE PARTIES TO
ANY OTHER LOAN DOCUMENT OF THEIR RESPECTIVE OBLIGATIONS HEREUNDER OR THEREUNDER OR THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY OR BY ANY OTHER LOAN DOCUMENT, (II) THE FAILURE OF
ANY BORROWER OR ANY SUBSIDIARY TO COMPLY WITH THE TERMS OF ANY LOAN DOCUMENT, INCLUDING THIS AGREEMENT, OR WITH ANY GOVERNMENTAL REQUIREMENT, (III) ANY INACCURACY OF ANY REPRESENTATION OR ANY
BREACH OF ANY WARRANTY OR COVENANT OF ANY BORROWER OR ANY GUARANTOR SET FORTH IN ANY OF THE LOAN DOCUMENTS OR ANY INSTRUMENTS, DOCUMENTS OR CERTIFICATIONS DELIVERED IN CONNECTION THEREWITH,
(IV) ANY LOAN OR LETTER OF CREDIT OR THE USE OF THE PROCEEDS THEREFROM, INCLUDING, WITHOUT LIMITATION, (A) ANY REFUSAL BY ANY ISSUING BANK TO HONOR A DEMAND FOR PAYMENT UNDER A LETTER OF
CREDIT ISSUED BY SUCH ISSUING BANK IF THE DOCUMENTS PRESENTED IN CONNECTION WITH SUCH DEMAND DO NOT STRICTLY COMPLY WITH THE TERMS OF SUCH LETTER OF CREDIT, OR (B) THE PAYMENT OF A DRAWING
UNDER ANY LETTER OF CREDIT NOTWITHSTANDING THE NON-COMPLIANCE, NON-DELIVERY OR OTHER IMPROPER PRESENTATION OF THE DOCUMENTS PRESENTED IN CONNECTION THEREWITH, (V) THE
OPERATIONS OF THE BUSINESS OF THE BORROWERS AND THEIR SUBSIDIARIES BY THE BORROWERS AND THEIR SUBSIDIARIES, (VI) ANY ASSERTION THAT THE LENDERS WERE NOT ENTITLED TO RECEIVE THE PROCEEDS
RECEIVED PURSUANT TO THE SECURITY INSTRUMENTS, (VII) ANY ENVIRONMENTAL LAW APPLICABLE TO ANY BORROWER OR ANY SUBSIDIARY OR ANY OF THEIR PROPERTIES, INCLUDING WITHOUT LIMITATION, THE PRESENCE,
GENERATION, STORAGE, RELEASE, THREATENED RELEASE, USE, TRANSPORT, DISPOSAL, ARRANGEMENT OF DISPOSAL OR TREATMENT OF OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS SUBSTANCES ON ANY OF THEIR
PROPERTIES, (VIII) THE BREACH OR NON-COMPLIANCE BY ANY BORROWER OR ANY SUBSIDIARY WITH ANY ENVIRONMENTAL LAW APPLICABLE TO ANY BORROWER OR ANY SUBSIDIARY, (IX) THE PAST
OWNERSHIP BY ANY BORROWER OR ANY SUBSIDIARY OF ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT
LIABILITY, (X) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT, DISPOSAL, GENERATION, THREATENED RELEASE, TRANSPORT, ARRANGEMENT FOR TRANSPORT OR ARRANGEMENT FOR DISPOSAL OF OIL, OIL AND GAS
WASTES, SOLID WASTES OR HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY ANY BORROWER OR ANY SUBSIDIARY OR ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS MATERIALS ON
OR FROM ANY PROPERTY OWNED OR OPERATED BY ANY BORROWER OR  

68

 

 ANY OF ITS SUBSIDIARIES, (XI) ANY ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO ANY BORROWER OR ANY OF ITS SUBSIDIARIES, OR (XII) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN
CONNECTION WITH THE LOAN DOCUMENTS, OR
(XIII) ANY ACTUAL OR PROSPECTIVE CLAIM, LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND REGARDLESS OF WHETHER
ANY INDEMNITEE IS A PARTY THERETO, AND SUCH INDEMNITY SHALL EXTEND TO EACH INDEMNITEE NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR
PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNITEES OR BY
REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNITEES; PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO ANY INDEMNITEE, BE
AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS, DAMAGES, LIABILITIES OR RELATED EXPENSES (A) ARE DETERMINED BY A COURT OF COMPETENT JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE
RESULTED FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE, (B) RELATE TO CLAIMS BETWEEN OR AMONG ANY OF THE LENDERS, THE AGENT, ARRANGER OR ANY OF THEIR SHAREHOLDERS, PARTNERS
OR MEMBERS OR (C) IN RESPECT OF ANY PROPERTY FOR ANY OCCURRENCE ARISING FROM THE ACTS OR OMISSIONS OF THE AGENT OR ANY LENDER DURING THE PERIOD AFTER WHICH SUCH PERSON, ITS SUCCESSORS OR
ASSIGNS SHALL HAVE OBTAINED POSSESSION OF SUCH PROPERTY (WHETHER BY FORECLOSURE OR DEED IN LIEU OF FORECLOSURE, AS MORTGAGEE-IN-POSSESSION OR
OTHERWISE).. 

        (c)   To
the extent that any Borrower fails to pay any amount required to be paid by it to any Agent or any Issuing Bank under Section 12.03(a) or (b), each Lender
severally agrees to pay to such Agent or such Issuing Bank, as the case may be, such Lender's Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity
payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as
the case may be, was incurred by or asserted against such Agent or such Issuing Bank in its capacity as such. 

        (d)   To
the extent permitted by applicable law, no Borrower shall assert, and each Borrower hereby waives, any claim against any Indemnitee, on any theory of liability, for
special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any
agreement or instrument contemplated hereby or thereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof. 

        (e)   All
amounts due under this Section 12.03 shall be payable promptly after written demand therefor. 

        (f)    Notwithstanding
any other provisions of this Section 12.03, no transfer or assignment of the interests or obligations of any Lender or any grant of participations
therein shall be permitted if such transfer, assignment or grant would require the Borrowers and the Guarantors to file a registration statement with the SEC or to qualify the Loans under the
"Blue Sky" laws of any state. 

        Section
12.04    Successors and Assigns.    

        (a)   The
provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby
(including any Affiliate of any Issuing Bank that issues any Letter of Credit), except that (i) no Borrower may assign or otherwise transfer any of its rights or obligations hereunder without
the prior written consent of each Lender 

69

 

(and
any attempted assignment or transfer by a Borrower without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder
except in accordance with this Section 12.04. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective
successors and assigns permitted hereby (including any Affiliate of any Issuing Bank that issues any Letter of Credit), Participants (to the extent provided in Section 12.04(c)) and, to the
extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, each Issuing Bank and the Lenders) any legal or equitable right, remedy or claim under or by reason of
this Agreement. 

        (b)   (i)    Subject
to the conditions set forth in Section 12.04(b)(ii), any Lender may assign to one or more assignees all or a portion of its rights and
obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it) with the prior written consent (such consent not to be unreasonably withheld or
delayed) of: (A) the Borrowers, provided that no consent of any Borrower shall be required for an assignment to a Lender, an Affiliate of a
Lender, an Approved Fund or, if an Event of Default has occurred and is continuing, any other assignee; and (B) the Administrative Agent and any Issuing Bank,  provided that no such consent shall be
required for an assignment to an assignee that is a Lender immediately prior to giving effect to such assignment. 

         (ii)  Assignments
shall be subject to the following additional conditions: (A) except in the case of an assignment to a Lender or an Affiliate of a Lender or an
assignment of the entire remaining amount of the assigning Lender's Commitment, the amount of the Commitment of the assigning Lender subject to each such assignment (determined as of the date the
Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent) shall not be less than $10,000,000, and the Commitments of any assigning Lender remaining a party
hereto after giving effect to the assignment shall be at least $10,000,000, unless, in each case, the Borrowers and the Administrative Agent otherwise consents,  provided that no such consent of the
Borrowers shall be required if an Event of Default has occurred and is continuing; (B) each partial
assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement; (C) the parties to each assignment shall execute and
deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500; (D) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire and shall deliver notice of the Assignment and Assumption to the Borrowers; and (E) in the case of an assignment to a CLO, the assigning
Lender shall retain the sole right to approve any amendment, modification or waiver of any provision of this Agreement, provided that the Assignment and
Assumption between such Lender and such CLO may provide that such Lender will not, without the consent of such CLO, agree to any amendment, modification or waiver described in the first proviso to
Section 12.02 that affects such CLO. 

        (iii)  Subject
to Section 12.04(b)(iv) and the acceptance and recording thereof, from and after the effective date specified in each Assignment and Assumption
the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the
assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment
and Assumption covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of
Section 5.01, Section 5.02, Section 5.03 and Section 12.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with
this Section 12.04 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 12.04(c). 

70

 

        (iv)  The
Administrative Agent, acting for this purpose as an agent of the Borrowers, shall maintain at one of its offices a copy of each Assignment and Assumption delivered
to it and a register for the recordation of the names and addresses of the Lenders, and the Maximum Credit Amount of, and principal amount of the Loans and LC Disbursements owing to, each Lender
pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and the Borrowers, the Administrative
Agent, each Issuing Bank and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement,
notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrowers, any Issuing Bank and any Lender, at any reasonable time and from time to time upon reasonable
prior notice. In connection with any changes to the Register, if necessary, the Administrative Agent will reflect the revisions on Annex I and
forward a copy of such revised Annex I to the Borrowers, each Issuing Bank and each Lender. 

         (v)  Upon
its receipt of a duly completed Assignment and Assumption executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire
(unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in Section 12.04(b) and any written consent to such assignment required by
Section 12.04(b), the Administrative Agent shall accept such Assignment and Assumption and record the information contained therein in the Register. No assignment shall be effective for
purposes of this Agreement unless it has been recorded in the Register as provided in this Section 12.04(b). 

        (c)   (i)    Any
Lender may, without the consent of the Borrowers, the Administrative Agent or any Issuing Bank, sell participations to one or more banks or other
entities (a "Participant") in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its
Commitment and the Loans owing to it); provided that (A) such Lender's obligations under this Agreement shall remain unchanged, (B) such
Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (C) the Borrowers, the Administrative Agent, each Issuing Bank and the other
Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender
sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement;  provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment,
modification or waiver described in the proviso to Section 12.02 that affects such Participant. In addition such agreement must provide that the Participant be bound by the provisions of
Section 12.03. Subject to Section 12.04(c)(ii), the Borrowers agree that each Participant shall be entitled to the benefits of Section 5.01, Section 5.02 and
Section 5.03 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 12.04(b). To the extent permitted by law, each Participant also
shall be entitled to the benefits of Section 12.08 as though it were a Lender, provided such Participant agrees to be subject to
Section 4.01(c) as though it were a Lender. 

         (ii)  A
Participant shall not be entitled to receive any greater payment under Section 5.01 or Section 5.03 than the applicable Lender would have been entitled
to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrowers' prior written consent. A Participant that
would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 5.03 unless the Borrowers are notified of the participation sold to such Participant and such
Participant agrees, for the benefit of the Borrowers, to comply with Section 5.03(e) as though it were a Lender. 

        (d)   Any
Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including
any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section 12.04(d) shall not apply to any such pledge or assignment of a security interest;  provided that no such
pledge or assignment of a security 

71

 

interest
shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. 

        Section
12.05    Survival; Revival; Reinstatement.    

        (a)   All
covenants, agreements, representations and warranties made by each Borrower herein and in the certificates or other instruments delivered in connection with or
pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the
making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, any other
Agent, any Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full
force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is
outstanding and so long as the Commitments have not expired or terminated. The provisions of Section 5.01, Section 5.02, Section 5.03 and Section 12.03 and
Article XI shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of
the Letters of Credit and the Commitments or the termination of this Agreement, any other Loan Document or any provision hereof or thereof. 

        (b)   To
the extent that any payments on the Indebtedness or proceeds of any collateral are subsequently invalidated, declared to be fraudulent or preferential, set aside or
required to be repaid to a trustee, debtor in possession, receiver or other Person under any bankruptcy law, common law or equitable cause, then to such extent, the Indebtedness so satisfied shall be
revived and continue as if such payment or proceeds had not been received and the Administrative Agent's, and the Lenders' Liens, security interests, rights, powers and remedies under this Agreement
and each Loan Document shall continue in full force and effect. In such event, each Loan Document shall be automatically reinstated and the Borrowers shall take such action as may be reasonably
requested by the Administrative Agent or the Lenders to effect such reinstatement. 

        Section
12.06    Counterparts; Integration; Effectiveness.    

        (a)   This
Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which
when taken together shall constitute a single contract. 

        (b)   This
Agreement, the other Loan Documents and any separate letter agreements with respect to fees payable to the Arranger and the Administrative Agent constitute the
entire contract among the parties relating to the subject matter hereof and thereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter
hereof and thereof. This Agreement and the other Loan Documents represent the final agreement among the parties hereto and thereto and may not be contradicted by evidence of prior, contemporaneous or
subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties. 

        (c)   Except
as provided in Section 6.01(a), this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the
Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a
manually executed counterpart of this Agreement. 

        Section
12.07    Severability.    Any provision of this Agreement or any other Loan Document held to be invalid,
illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to 

72

 

the
extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof or thereof; and the invalidity of a
particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. 

        Section
12.08    Right of Setoff.    If an Event of Default shall have occurred and be continuing, each Lender and
each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other obligations (of whatsoever kind, including, without limitations obligations under Swap Agreements) at any time owing by such Lender or Affiliate to or
for the credit or the account of any Borrower or any Subsidiary against any of and all the obligations of any Borrower or any Subsidiary owed to such Lender now or hereafter existing under this
Agreement or any other Loan Document, irrespective of whether or not such Lender shall have made any demand under this Agreement or any other Loan Document and although such obligations may be
unmatured. The rights of each Lender under this Section 12.08 are in addition to other rights and remedies (including other rights of setoff) which such Lender or its Affiliates may have. 

        Section
12.09    Governing Law; Jurisdiction; Consent to Service of Process.    

        (a)   THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.

        (b)   ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS SHALL BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES OF
AMERICA FOR THE NORTHERN DISTRICT OF TEXAS, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY,
GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR
BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. THIS SUBMISSION TO JURISDICTION IS
NON-EXCLUSIVE AND DOES NOT PRECLUDE A PARTY FROM OBTAINING JURISDICTION OVER ANOTHER PARTY IN ANY COURT OTHERWISE HAVING JURISDICTION.

        (c)   EACH PARTY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT THE ADDRESS SPECIFIED IN SECTION 12.01 OR SUCH OTHER ADDRESS AS IS SPECIFIED PURSUANT TO SECTION 12.01 (OR ITS
ASSIGNMENT AND ASSUMPTION), SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF A PARTY OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANOTHER PARTY IN ANY OTHER JURISDICTION.

        (d)   EACH PARTY HEREBY (I) IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN; (II) 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; (III) CERTIFIES THAT NO PARTY HERETO
NOR ANY REPRESENTATIVE OR AGENT OF COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR  

73

 

 IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (IV) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE LOAN
DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 12.09.

        Section
12.10    Headings.    Article and Section headings and the Table of Contents used herein are for convenience
of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. 

        Section
12.11    Confidentiality.    Each of the Agents, each Issuing Bank and the Lenders agrees to maintain the
confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants,
legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such
Information confidential), (b) to the extent requested by any regulatory authority or self-regulatory body, (c) to the extent required by applicable laws or regulations or by
any subpoena or similar legal process, (d) to any other party to this Agreement or any other Loan Document, (e) in connection with the exercise of any remedies hereunder or under any
other Loan Document or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement
containing provisions substantially the same as those of this Section 12.11, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights
or obligations under this Agreement or (ii) any actual or prospective counterparty (or its advisors) to any Swap Agreement relating to any Borrower and its obligations, (g) with the
consent of the Borrowers or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section 12.11 or (ii) becomes
available to any Agent, any Issuing Bank or any Lender on a nonconfidential basis from a source other than a Borrower. For the purposes of this Section 12.11,
"Information" means all information received from any Borrower or any Subsidiary relating to a Borrower or any Subsidiary and their businesses, other
than any such information that is available to the Administrative Agent, any Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by a Borrower or a Subsidiary. Any Person
required to maintain the confidentiality of Information as provided in this Section 12.11 shall be considered to have complied with its obligation to do so if such Person has exercised the same
degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. Notwithstanding anything herein to the contrary, any party hereto
(and each employee, representative or other agent of such party) may disclose without limitation of any kind, any information with respect to the "tax treatment" and "tax structure" (in each case,
within the meaning of Treasury Regulation Section 1.6011-4) of the transactions contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are
provided to that party relating to such tax treatment or tax structure; provided that with respect to any document or similar item that in either case
contains information concerning the tax treatment or tax structure of the transactions, as well as other information, this sentence shall only apply to such portions of the document or similar item
that relate to the tax treatment or tax structure of the transactions contemplated hereby. 

        Section 12.12    EXCULPATION
PROVISIONS.    EACH OF THE PARTIES HERETO SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND
AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT HAS IN FACT READ THIS AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND
KNOWLEDGE OF THE TERMS AND CONDITIONS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF THIS AGREEMENT
AND THE OTHER LOAN  

74

 

 DOCUMENTS; AND HAS RECEIVED THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS MAY RESULT, SUBJECT TO THE TERMS HEREOF AND THEREOF AND APPLICABLE LAW, IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER PARTY OF
ITS RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT "CONSPICUOUS."

        Section
12.13    No Third Party Beneficiaries.    This Agreement, the other Loan Documents, and the agreement of the
Lenders to make Loans and each Issuing Bank to issue, amend, renew or extend Letters of Credit hereunder are solely for the benefit of the Borrowers, and no other Person (including, without
limitation, any Subsidiary of any Borrower, any obligor, contractor, subcontractor, supplier or materialsman) shall have any rights, claims, remedies or privileges hereunder or under any other Loan
Document against the Administrative Agent, any other Agent, any Issuing Bank or any Lender for any reason whatsoever. There are no third party beneficiaries. 

        Section
12.14    Collateral Matters; Swap Agreements.    No Lender or any Affiliate of a Lender shall have any voting
rights under any Loan Document as a result of the existence of obligations owed to it under any Swap Agreements. 

        Section
12.15    US Patriot Act Notice.    Each Lender hereby notifies each Borrower that pursuant to the requirements
of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the "Patriot Act"), it is required to
obtain, verify and record information that identifies each Borrower, which information includes the name and address of each Borrower and other information that will allow such Lender to identify each
Borrower in accordance with the Patriot Act. 

[SIGNATURES BEGIN NEXT PAGE] 

75

   
        The parties hereto have caused this Agreement to be duly executed as of the day and year first above written. 

	BORROWERS:	 	ELLORA ENERGY INC.
	

 	
 	

By:	

/s/  JAMES R. CASPERSON      
 James R. Casperson,

Vice President and Chief Financial Officer
	

 	
 	
ELLORA OIL & GAS INC.
	

 	
 	

By:	

/s/  JAMES R. CASPERSON      
 James R. Casperson,

Vice President and Chief Financial Officer

Signature Page - 1

 

	ADMINISTRATIVE AGENT/LENDER:	 	JPMORGAN CHASE BANK, N.A.,

as Administrative Agent and a Lender
	

 	
 	

By:	

/s/  J. SCOTT FOWLER      
 J. Scott Fowler,

Vice President

Signature Page - 2

 

	LENDER:	 	KEYBANK, N.A.,

as a Lender
	

 	
 	

By:	

/s/  THOMAS RAJAN      

	 	 	Name:	Thomas Rajan
	 	 	Title:	Vice President

Signature Page - 3

 

	LENDER:	 	BANK OF OKLAHOMA, N.A.,

as a Lender
	

 	
 	

By:	

/s/  MICHAEL M. LOGAN      

	 	 	Name:	Michael M. Logan

	 	 	Title:	Senior Vice President

Signature Page - 4

 

	LENDER:	 	BANK OF SCOTLAND,

as a Lender
	

 	
 	

By:	

/s/  KAREN WEICH      

	 	 	Name:	Karen Weich

	 	 	Title:	Assistant Vice President

Signature Page - 5

 

	LENDER:	 	COMERICA BANK,

as a Lender
	

 	
 	

By:	

/s/  MATTHEW J. PURCHASE      

	 	 	Name:	Matthew J. Purchase

	 	 	Title:	Vice President

Signature Page - 6

 

	LENDER:	 	FORTIS CAPITAL CORP.,

as a Lender
	

 	
 	

By:	

/s/  DAVID MONTGOMERY      

	 	 	Name:	David Montgomery

	 	 	Title:	Senior Vice President

	

 	
 	

By:	

/s/  DARRELL HOLLEY      

	 	 	Name:	Darrell Holley

	 	 	Title:	Managing Director

Signature Page - 7

 
 

ANNEX I
  LIST OF MAXIMUM CREDIT AMOUNTS    
    

	Name of Lender
 
	 	Applicable

Percentage
	 	Maximum Credit

Amount

	JPMorgan Chase Bank, N.A.	 	20.4545454545	%	$	81,818,181.80
	KeyBank, N.A.	 	15.9090909091	%	$	63,636,363.64
	Bank of Oklahoma, N.A.	 	15.9090909091	%	$	63,636,363.64
	Bank of Scotland	 	15.9090909091	%	$	63,636,363.64
	Comerica Bank	 	15.9090909091	%	$	63,636,363.64
	Fortis Capital Corp.	 	15.9090909091	%	$	63,636,363.64
	 	 	
	 	

	TOTAL	 	100.00000	%	$	400,000,000.00

 
 
 

EXHIBIT A
  FORM OF NOTE    
    

	$[                        ]	 	[                        ], 200    

        FOR VALUE RECEIVED, ELLORA ENERGY INC., a Delaware corporation, and ELLORA
OIL & GAS INC., a Delaware corporation (the "Borrowers") hereby jointly and severally promise to pay to the order
of [                        ] (the "Lender"), at the principal office of JPMorgan
Chase Bank, N.A. (the
"Administrative Agent"), at [                        ], the principal sum of
[                        ] Dollars
($[                        ]) (or such lesser amount as shall equal the aggregate unpaid principal amount of the Loans made by the
Lender to the Borrowers under the Credit Agreement, as
hereinafter defined), in lawful money of the United States of America and in immediately available funds, on the dates and in the principal amounts provided in the Credit Agreement, and to pay
interest on the unpaid principal amount of each such Loan, at such office, in like money and funds, for the period commencing on the date of such Loan until such Loan shall be paid in full, at the
rates per annum and on the dates provided in the Credit Agreement. 

        The
date, amount, Type, interest rate, Interest Period and maturity of each Loan made by the Lender to the Borrowers, and each payment made on account of the principal thereof, shall be
recorded by the Lender on its books and, prior to any transfer of this Note, may be endorsed by the Lender on the schedules attached hereto or any continuation thereof or on any separate record
maintained by the Lender. Failure to make any such notation or to attach a schedule shall not affect any Lender's or the Borrowers' rights or obligations in respect of such Loans or affect the
validity of such transfer by any Lender of this Note. 

        This
Note is one of the Notes referred to in the Credit Agreement, dated as of February 3, 2006, among the Borrowers, the Administrative Agent, and the lenders signatory thereto
(including the Lender), and evidences Loans made by the Lender thereunder (such Credit Agreement as the same may be amended, supplemented, restated or otherwise modified from time to time, the
"Credit Agreement"). Capitalized terms used in this Note have the respective meanings assigned to them in the Credit Agreement. 

        This
Note is issued pursuant to the Credit Agreement and is entitled to the benefits provided for in the Credit Agreement and the other Loan Documents. The Credit Agreement provides for
the acceleration of the maturity of this Note upon the occurrence of certain events, for prepayments of Loans upon the terms and conditions specified therein and other provisions relevant to this
Note. 

        THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.

	 	 	ELLORA ENERGY INC.
	

 	
 	
By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	

	

 	
 	
ELLORA OIL & GAS INC.
	

 	
 	
By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	

A-1

   EXHIBIT B

FORM OF BORROWING REQUEST  

[                        ],
200[    ] 

        Ellora
Energy Inc., a Delaware corporation, and Ellora Oil & Gas Inc., a Delaware corporation (the "Borrowers"),
pursuant to Section 2.03 of the Credit Agreement dated as of February 3, 2006 (together with all amendments, restatements, supplements or other modifications thereto, the
"Credit Agreement"), among the Borrowers, JPMorgan Chase Bank, N.A., as Administrative Agent and the lenders (the
"Lenders") which are or become parties thereto (unless otherwise defined herein, each capitalized term used herein is defined in the Credit Agreement),
hereby requests a Borrowing as follows: 

          (i)  Aggregate
amount of the requested Borrowing is $[                        ]; 

         (ii)  Date
of such Borrowing is [                        ], 200[    ]; 

        (iii)  Requested
Borrowing is to be [an ABR Borrowing] [a Eurodollar Borrowing]; 

        (iv)  In
the case of a Eurodollar Borrowing, the initial Interest Period applicable thereto is [                        ]; 

         (v)  Amount
of Borrowing Base in effect on the date hereof is $[                        ]; 

        (vi)  Total
Credit Exposures on the date hereof (i.e., outstanding principal amount of Loans and total LC Exposure) is $
[                        ]; and 

       (vii)  Pro forma total Credit Exposures (giving effect to the requested Borrowing) is
$[                        ]; and 

      (viii)  Location
and number of the Borrowers' account to which funds are to be disbursed, which shall comply with the requirements of Section 2.05 of the Credit
Agreement, is as follows: 

	[	 	]	 	 
	 	
	 	 	 
	[	 	]	 	 
	 	
	 	 	 
	[	 	]	 	 
	 	
	 	 	 
	[	 	]	 	 
	 	
	 	 	 
	[	 	]	 	 
	 	
	 	 	 

B-1

 

        The
undersigned certifies that he/she is the [                        ] of each Borrower, and that as such he/she is authorized to
execute this certificate on behalf of
each Borrower. The undersigned further certifies, represents and warrants on behalf of each Borrower that such Borrower is entitled to receive the requested Borrowing under the terms and conditions of
the Credit Agreement. 

	 	 	ELLORA ENERGY INC.
	

 	
 	

By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	

	

 	
 	
ELLORA OIL & GAS INC.
	

 	
 	

By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	

B-2

   EXHIBIT C

FORM OF INTEREST ELECTION REQUEST  

[                        ],
200[    ] 

        Ellora
Energy Inc., a Delaware corporation, and Ellora Oil & Gas Inc., a Delaware corporation (the "Borrowers"),
pursuant to Section 2.04 of the Credit Agreement dated as of February 3, 2006 (together with all amendments, restatements, supplements or other modifications thereto, the
"Credit Agreement"), among the Borrowers, JPMorgan Chase Bank, N.A., as Administrative Agent and the lenders (the
"Lenders") which are or become parties thereto (unless otherwise defined herein, each capitalized term used herein is defined in the Credit Agreement),
hereby makes an Interest Election Request as follows: 

          (i)  The
Borrowing to which this Interest Election Request applies, and if different options are being elected with respect to different portions thereof, the portions
thereof to be allocated to each resulting Borrowing (in which case the information specified pursuant to (iii) and (iv) below shall be specified for each resulting Borrowing) is
[                  ]; 

         (ii)  The
effective date of the election made pursuant to this Interest Election Request is [                        ],
200[    ];[and] 

        (iii)  The
resulting Borrowing is to be [an ABR Borrowing] [a Eurodollar Borrowing][; and] 

       [(iv)  [If
the resulting Borrowing is a Eurodollar Borrowing] The Interest Period applicable to the resulting Borrowing after giving
effect to such election is [                  ]]. 

        The
undersigned certifies that he/she is the [                  ] of each Borrower, and that as such he/she is authorized to execute this certificate on behalf of
each Borrower. The undersigned further certifies, represents and warrants on behalf of each Borrower that each Borrower is entitled to receive the requested continuation or conversion under the terms
and conditions of the Credit Agreement. 

	 	 	ELLORA ENERGY INC.
	

 	
 	

By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	

	

 	
 	
ELLORA OIL & GAS INC.
	

 	
 	

By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	

C-1

   EXHIBIT D

FORM OF COMPLIANCE CERTIFICATE  

        The undersigned hereby certifies that he/she is the [            ] of Ellora Energy Inc., a Delaware corporation, and
Ellora
Oil& Gas, Inc., a Delaware corporation (the "Borrowers"), and that as such he/she is authorized to execute this certificate on behalf of each
Borrower. With reference to the Credit Agreement dated as of February 3, 2006 (together with all amendments, restatements, supplements or other modifications thereto being the
"Agreement"), among the Borrowers, JPMorgan Chase Bank, N.A., as Administrative Agent and the lenders (the
"Lenders") which are or become a party thereto, the undersigned represents and warrants to the best of his/her knowledge after reasonable enquiry as
follows (each capitalized term used herein having the same meaning given to it in the Agreement unless otherwise specified): 

        (a)   The
representations and warranties of the Borrowers contained in Article VII of the Agreement and in the Loan Documents and otherwise made in writing by or on
behalf of the Borrowers pursuant to the Agreement and the Loan Documents were true and correct when made, and are repeated at and as of the time of delivery hereof and are true and correct in all
material respects at and as of the time of delivery hereof, except to the extent such representations and warranties are expressly limited to an earlier date or the Required Lenders have expressly
consented in writing to the contrary. 

        (b)   The
Borrowers have performed and complied with all agreements and conditions contained in the Agreement and in the Loan Documents required to be performed or complied
with by it prior to or at the time of delivery hereof [or specify default and describe]. 

        (c)   Since                        ,
no change has occurred, either in any case or in the aggregate, in the condition, financial or otherwise, of any Borrower or any Subsidiary which
could reasonably be expected to have a Material Adverse Effect [or specify event]. 

        (d)   There
exists no Default or Event of Default [or specify Default and describe]. 

        (e)   Attached
hereto are the detailed computations necessary to determine whether the Borrowers are in compliance with Section 9.01 as of the end of the
[fiscal
quarter][fiscal year] ending [            ]. 

        EXECUTED
AND DELIVERED this [        ] day of [                  ]. 

	 	 	ELLORA ENERGY INC.
	

 	
 	

By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	

	

 	
 	
ELLORA OIL & GAS INC.
	

 	
 	

By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	

D-1

  

 
 

EXHIBIT E
  FORM OF ASSIGNMENT AND ASSUMPTION    
    

        Reference is made to the Credit Agreement, dated as of February 3, 2006 (as amended, restated, supplemented or otherwise modified from time to time and in
effect on the date hereof, the "Credit Agreement"), among Ellora Energy Inc., Ellora Oil & Gas Inc., the Lenders named therein and
JPMorgan Chase Bank, N.A., as Administrative Agent for the Lenders. Terms defined in the Credit Agreement are used herein with the same meanings. 

        The
Assignor named on the reverse hereof hereby sells and assigns, without recourse, to the Assignee named on the reverse hereof, and the Assignee hereby purchases and assumes, without
recourse, from the Assignor, effective as of the Assignment Date set forth on the reverse hereof, the interests set forth on the reverse hereof (the "Assigned
Interest") in the Assignor's rights and obligations under the Credit Agreement, including, without limitation, the interests set forth on the reverse hereof in the Commitment
of the Assignor on the Assignment Date and Loans owing to the Assignor which are outstanding on the Assignment Date, together with the participations in Letters of Credit and LC Disbursements held by
the Assignor on the Assignment Date, but excluding accrued interest and fees to and excluding the Assignment Date. The Assignee hereby acknowledges receipt of a copy of the Credit Agreement. From and
after the Assignment Date (i) the Assignee shall be a party to and be bound by the provisions of the Credit Agreement and, to the extent of the Assigned Interest, have the rights and
obligations of a Lender thereunder and (ii) the Assignor shall, to the extent of the Assigned Interest, relinquish its rights and be released from its obligations under the Credit Agreement. 

        This
Assignment and Assumption is being delivered to the Administrative Agent (with a copy to the Borrowers) together with (i) if the Assignee is a Foreign Lender, any
documentation required to be delivered by the Assignee pursuant to Section 5.03(e) of the Credit Agreement, duly completed and executed by the Assignee, and (ii) if the Assignee is not
already a Lender under the Credit Agreement, an Administrative Questionnaire in the form supplied by the Administrative Agent, duly completed by the Assignee. The
[Assignee/Assignor] shall pay the fee payable to the Administrative Agent pursuant to Section 12.04(b) of the Credit Agreement. 

        This
Assignment and Assumption shall be governed by and construed in accordance with the laws of the State of Texas. 

Date
of Assignment: 

Legal
Name of Assignor: 

Legal
Name of Assignee: 

Assignee's
Address for Notices: 

Effective
Date of Assignment 

("Assignment Date"): 

	Facility
 
	 	Principal Amount

Assigned
	 	Percentage Assigned of

Facility/Commitment (set

forth, to at least 8 decimals,

as a percentage of the

Facility and the aggregate

Commitments of all

Lenders thereunder)
	 
	Commitment Assigned:	 	$	 	 	 	%
	Loans:	 	 	 	 	 	 

E-1

 

The
terms set forth above and on the reverse side hereof are hereby agreed to: 

	 	 	[Name of Assignor], as Assignor
	

 	
 	

By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	

	

 	
 	

[Name of Assignee], as Assignee
	

 	
 	

By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	

The
undersigned hereby consent to the within assignment:(1) 

	ELLORA ENERGY INC.	 	JPMORGAN CHASE BANK, N.A.,

as Administrative Agent and Issuing Bank
	

By:	

 	
 	

By:	

 
	 	
	 	 	

	Name:	 	Name:
	 	
	 	 	

	Title:	 	Title:
	 	
	 	 	

	
ELLORA OIL & GAS INC.	
 	

 	

 
	

By:	

 	
 	

 	

 
	 	
	 	 	 
	Name:	 	 	 
	 	
	 	 	 
	Title:	 	 	 
	 	
	 	 	 

	(1)
	Consents
to be included to the extent required by Section 12.04(b) of the Credit Agreement 

E-2

  

 
 

EXHIBIT F
  FORM OF BORROWER PLEDGE AGREEMENT    
    

        THIS PLEDGE AGREEMENT (this "Agreement") is made as
of                        , 200    , by
[Ellora Energy Inc.][Ellora Oil &
Gas Inc.], a Delaware corporation (herein called "Pledgor"), in favor of JPMorgan Chase Bank, N.A., as
Administrative Agent for the ratable benefit of Lenders (as defined below), and, in the case of any Swap Agreement (as defined in the Credit Agreement), any Secured Swap Provider (as defined in the
Credit Agreement) (herein called "Pledgee"). 

W I T N E S S E T H:

        WHEREAS,
Pledgor, as a Borrower, the other Borrower party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and Lenders are parties to that certain Credit Agreement (as may be
amended from time to time, the "Credit Agreement") dated as of February 3, 2006, pursuant to which Lenders have agreed to make loans and other
extensions of credit to Borrowers for the purposes set forth therein; and 

        WHEREAS,
pursuant to the terms of the Credit Agreement, and as a condition precedent to the loans and extensions of credit thereunder, Pledgor is required to execute and deliver to
Pledgee a pledge agreement granting to Pledgee, for the benefit of Lenders, a security interest in the Collateral (as defined herein); and 

        WHEREAS,
the Board of Directors have determined that Pledgor's execution, delivery and performance of this Agreement may reasonably be expected to benefit Pledgor, directly or
indirectly, and are in the best interests of Pledgor. 

        NOW,
THEREFORE, in consideration of the premises and in order to induce Lenders to extend credit under the Credit Agreement, Pledgor hereby agrees with Pledgee as follows: 

ARTICLE I

Definitions and References 

        Section 1.1.    General Definitions.    As used herein, the terms defined above shall have the meanings
indicated above, and the following terms shall have the following meanings: 

        "Code" means the Uniform Commercial Code in effect in the State of Texas on the date hereof. 

        "Collateral" means all property of whatever type, in which Pledgee at any time has a security interest pursuant to Section 2.1
hereof. 

        "Commitment" means the agreement or commitment by Lenders to make loans, acquire participations in Letters of Credit or otherwise extend
credit to Pledgor under the Credit Agreement, and any other agreement, commitment, statement of terms or other document contemplating the making of loans or advances or other extension of credit by
Lenders to or for the account of Pledgor which is now or at any time hereafter intended to be secured by the Collateral under this Agreement. 

        "Equity" means shares of capital stock or a partnership, profits, capital or member interest, or options, warrants or any other right to
substitute for or otherwise acquire the capital stock or a partnership, profits, capital or member interest of each Subsidiary (as defined in Section 2.1(a)) hereof. 

        "Lender" means any financial institution reflected on Annex I to the Credit Agreement and its successors and assigns, and
"Lenders" shall mean all Lenders. 

F-1

 

        "Obligation Documents" means the Credit Agreement, the Notes, the Letter of Credit Agreements, the Letters of Credit and the Security
Instruments now or hereafter executed, the other Loan Documents, and all other documents and instruments under, by reason of which, or pursuant to which any or all of the Obligations are evidenced,
governed, secured, or otherwise dealt with, and all other agreements, certificates, and other documents, instruments and writings heretofore or hereafter delivered in connection herewith or therewith. 

        "Obligations" means all present and future indebtedness, obligations and liabilities of whatever type which are or shall be secured
pursuant to Section 2.2 hereof. 

        "Other Liable Party" means any Person, other than Pledgor, but including any other Borrower and the Subsidiaries, who may now or may at
any time hereafter be primarily or secondarily liable for any of the Obligations or who may now or may at any time hereafter have granted to Pledgee or Lenders a Lien upon any property as security for
the Obligations. 

        "Pledged Equity" has the meaning given it in Section 2.1(a) hereof. 

        Section 1.2.    Other Definitions.    Reference is hereby made to the Credit Agreement for a statement of the
terms thereof. All capitalized terms used in this Agreement which are defined in the Credit Agreement and not otherwise defined herein shall have the same meanings herein as set forth therein. All
terms used in this Agreement which are defined in the Code and not otherwise defined herein or in the Credit Agreement shall have the same meanings herein as set forth in the Code, except where the
context otherwise requires. 

        Section 1.3.    Exhibits.    All exhibits attached to this Agreement are a part hereof for all purposes. 

        Section 1.4.    Amendment of Defined Instruments.    Unless the context otherwise requires or unless otherwise
provided herein, references in this Agreement to a particular agreement, instrument or document also refer to and include all renewals, extensions, amendments, modifications, supplements or
restatements of any such agreement, instrument or document, provided that nothing contained in this Section 1.4 shall be construed to authorize any Person to execute or enter into any such
renewal, extension, amendment, modification, supplement or restatement. 

        Section 1.5.    References and Titles.    All references in this Agreement to Exhibits, Articles, Sections,
subsections, and other subdivisions refer to the Exhibits, Articles, Sections, subsections and other subdivisions of this Agreement unless expressly provided otherwise. Titles 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 Agreement. The words
"this Agreement," "herein," "hereof," "hereby," "hereunder" and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. The
phrases "this Section" and "this subsection" and similar phrases refer only to the Sections or subsections hereof in which the phrase occurs. The word "or" is not exclusive, and the word "including"
(in all of its forms) means "including without limitation". Pronouns in masculine, feminine and neuter gender shall be construed to include any other gender, and words in the singular form shall be
construed to include the plural and vice versa unless the context otherwise requires. 

ARTICLE II

Security Interest 

        Section 2.1.    Grant of Security Interest.    As collateral security for all of the Obligations, Pledgor
hereby pledges and assigns to Pledgee and grants to Pledgee a continuing security interest with at least 

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the
priority required by Section 3.1(d)(iv) hereof for the benefit of Lenders (and any Secured Swap Provider) in and to all of the following rights, interests and property: 

         (a)  all
of the issued and outstanding Equity
of                                         
       ,
                                         
       , and each other Subsidiary hereafter created, acquired or designated by Pledgor
(collectively, the "Subsidiaries," and each individually, a "Subsidiary") now owned or hereafter
acquired by Pledgor including, without limitation, the Equity of each Subsidiary owned by Pledgor on the date hereof (all of the foregoing being herein sometimes called the
"Pledged Equity"); 

         (b)  any
and all proceeds or other sums arising from or by virtue of, and all dividends and distributions (cash or otherwise) payable and/or distributable with respect to,
all or any of the Pledged Equity; and 

         (c)  all
cash, securities, dividends and other property at any time and from time to time receivable or otherwise distributed in respect of or in exchange for any or all of
the Pledged Equity and any other property substituted or exchanged therefor. 

        Section 2.2.    Obligations Secured.    The security interest created hereby in the Collateral constitutes
continuing collateral security for all of the following obligations, indebtedness and liabilities, whether now existing or hereafter incurred: 

        (a)    Credit Agreement Indebtedness.    The payment by Pledgor and each other Borrower and Guarantor, as and when due
and payable, of all amounts from time to time owing by Pledgor and each other Borrower and Guarantor under or in respect of the Credit Agreement, the Notes or any of the other Obligation Documents. 

        (b)    Renewals.    All renewals, extensions, amendments, modifications, supplements, or restatements of, or
substitutions for, any of the foregoing. 

        (c)    Performance.    The due performance and observance by Pledgor, any other Borrower and their Subsidiaries of all
of their other obligations from time to time existing under or in respect of any of the Obligation Documents. 

        (d)    Swap Agreements.    The payment and performance of any and all present or future obligations of Pledgor, any
other Borrower or any of their Subsidiaries according to the terms of any Swap Agreement now existing or hereafter entered into between and/or among Pledgor, any other Borrower, any of their
Subsidiaries, any Pledgee, any Lender or any affiliate of any of the foregoing (including, without limitation, any Secured Swap Provider). 

ARTICLE III

Representations, Warranties and Covenants 

        Section 3.1.    Representations and Warranties.    Pledgor represents and warrants as follows: 

        (a)    Ownership and Liens.    Pledgor has good and marketable title to the Collateral free and clear of all Liens,
encumbrances or adverse claims, except for the security interest created by this Agreement and except as provided in Section 3.1(d)(iv). No effective financing statement or other instrument
similar in effect covering all or any part of the Collateral is on file in any recording office except such as have been filed in favor of Pledgee relating to this Agreement or the other Loan
Documents. 

        (b)    No Conflicts or Consents.    Neither the ownership or the intended use of the Collateral by Pledgor, nor the
grant of the security interest by Pledgor to Pledgee herein, nor the exercise by Pledgee of its rights or remedies hereunder, will (i) conflict with any provision of (a) any domestic or
foreign law, statute, rule or regulation, (b) the articles of organization, certificate of formation, 

F-3

 

certificate
of incorporation, articles of incorporation, charter, bylaws, limited liability company agreement or other organizational document of any Subsidiary, or (c) any agreement, judgment,
license, order or permit applicable to or binding upon Pledgor or any Subsidiary; or (ii) result in or require the creation of any Lien, charge or encumbrance upon any assets or properties of
Pledgor except as expressly contemplated in the Obligation Documents. Except as expressly contemplated in the Obligation Documents, no consent, approval, authorization or order of, and no notice to or
filing with, any court, Governmental Authority, Subsidiary, or third party is required in connection with the grant by Pledgor of the security interest herein, or, except as may be required under the
Code, the exercise by Pledgee of its rights and remedies hereunder. 

        (c)    Security Interest.    Pledgor has and will have at all times full right, power and authority to grant a
security interest in the Collateral to Pledgee in the manner provided herein, free and clear of any Lien, adverse claim, or encumbrance (except as provided in Section 3.1(d)(iv)). This
Agreement creates a valid and binding security interest in favor of Pledgee in the Collateral securing the Obligations. The taking possession by Pledgee (for the ratable benefit of Lenders) of all
certificates, instruments and cash constituting Collateral from time to time, together with appropriate stock powers, and the filing of the financing statements delivered concurrently herewith by
Pledgor to Pledgee will perfect, and establish the priority required by Section 3.1(d)(iv) of, Pledgee's security interest hereunder in the Collateral securing the Obligations. No
further or subsequent filing, recording, registration, other public notice or other action is necessary or desirable to perfect or otherwise continue, preserve or protect such security interest except
for continuation statements or filings as contemplated in Section 3.3(b) or otherwise by the Code. 

        (d)    Pledged Equity.    (i) Pledgor is the legal and beneficial owner of the Pledged Equity; (ii) the
Pledged Equity is duly authorized and issued, fully paid and non-assessable (as applicable), and all documentary, stamp or other Taxes or fees owing in connection with the issuance,
transfer and/or pledge thereof hereunder have been paid; (iii) no dispute, right of setoff, counterclaim or defense exists with respect to all or any part of the Pledged Equity; (iv) the
Pledged Equity is free and clear of all Liens, options, warrants, puts, calls or other rights of third Persons, and restrictions, other than (A) those Liens arising under this Agreement or any
other of the Loan Documents, (B) Liens for Taxes or assessments not yet due or not yet delinquent, or, if delinquent, that are being contested in good faith in the normal course of business by
appropriate action, as required by Section 8.04 of the Credit Agreement, and (C) restrictions on transferability imposed by applicable state and federal securities laws;
(v) Pledgor has full right and authority to pledge the Pledged Equity for the purposes and upon the terms set out herein; (vi) certificates (as applicable) representing the Pledged
Equity have been delivered to Pledgee, together with a duly executed blank stock power for each certificate; and (vii) no Subsidiary has issued, and there are not outstanding, any options,
warrants or other rights to acquire Equity of any Subsidiary. 

        Section 3.2.    Affirmative Covenants.    Unless Pledgee shall otherwise consent in writing, Pledgor will at
all times comply with the covenants contained in this Section 3.2 from the date hereof and so long as any part of the Obligations or Commitments is outstanding. 

        (a)    Ownership and Liens.    Pledgor will maintain good and marketable title to all Collateral free and clear of all
Liens, encumbrances or adverse claims, except for (i) the security interest created by this Agreement, (ii) those provided in Section 3.1(d)(iv), and (iii) the security
interests and other encumbrances expressly permitted by the Credit Agreement. Pledgor will cause to be terminated any financing statement or other registration with respect to the Collateral, except
such as may exist or as may have been filed in favor of Pledgee. Pledgor will defend Pledgee's security interest in and to the Collateral against the claims of any Person. 

F-4

 

        (b)    Further Assurances.    Pledgor will at any time and from time to time promptly execute and deliver all further
instruments and documents and take all further action that may be necessary or desirable or that Pledgee may request in order (i) to perfect and protect the security interest created or
purported to be created hereby and the priority required by Section 3.1(d)(iv) of such security interest; (ii) to enable Pledgee to exercise and enforce its rights and remedies
hereunder in respect of the Collateral; or (iii) to otherwise effect the purposes of this Agreement, including: (A) executing and filing such financing or continuation statements, or
amendments thereto, as may be necessary or desirable or that Pledgee may request in order to perfect and preserve the security interest created or purported to be created hereby, and
(B) furnishing to Pledgee from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Pledgee may
reasonably request, all in reasonable detail. Upon the creation or acquisition by Pledgor of any Subsidiary, Pledgor and such Subsidiary shall execute an acknowledgement to this Agreement
substantially in the form of Exhibit A hereto promptly following the acquisition or creation by Pledgor of such Subsidiary, which confirms that the Equity of such Subsidiary shall be included
within the definition of Pledged Equity hereunder. 

        (c)    Delivery of Pledged Equity.    All certificates, instruments and writings evidencing the Pledged Equity shall
be delivered to Pledgee on or prior to the execution and delivery of this Agreement. All other certificates, instruments and writings hereafter evidencing or constituting Pledged Equity shall be
delivered to Pledgee promptly upon the receipt thereof by or on behalf of Pledgor. All Pledged Equity shall be held by or on behalf of Pledgee pursuant hereto and shall be delivered in the same manner
and with the same effect as described in Section 2.1 hereof and Section 3.1 hereof. Upon delivery, such Equity shall thereupon constitute "Pledged Equity" and shall be subject to the
Liens herein created, for the purposes and upon the terms and conditions set forth in this Agreement and the other Loan Documents. 

        (d)    Proceeds of Pledged Equity.    If Pledgor shall receive, by virtue of its being or having been an owner of any
Pledged Equity, any (i) Equity (including any certificate representing any Equity or distribution in connection with any increase or reduction of capital, reorganization, reclassification,
merger, consolidation, sale of assets, or spinoff or split-off), promissory note or other instrument or writing; (ii) option or right, whether as an addition to, substitution for,
or in exchange for, any Pledged Equity or otherwise; (iii) dividends or other distributions payable in cash (except such dividends or other distributions permitted to be retained by Pledgor
pursuant to Section 4.7 hereof) or in securities or other property; or (iv) dividends or other distributions in connection with (A) a partial or total liquidation or dissolution
or (B) a reduction of capital, capital surplus or paid-in surplus, Pledgor shall receive the same in trust for the benefit of Pledgee, shall segregate it from Pledgor's other
property, and shall promptly deliver it to Pledgee in the exact form received, with any necessary endorsement or appropriate stock powers duly executed in blank, to be held by Pledgee as Collateral. 

        (e)    Status of Pledged Equity.    The certificates evidencing the Pledged Equity (as applicable) shall at all times
be valid and genuine and shall not be altered. The Pledged Equity at all times shall be duly authorized, validly issued, fully paid, and non-assessable (as applicable), shall not be issued
in violation of the pre-emptive rights of any Person or of any agreement by which Pledgor or any Subsidiary is bound, and, except for the bylaws or other organizational documents of any
Subsidiary, shall not be subject to any restrictions or conditions with respect to the transfer, voting or capital of any Pledged Equity. 

        Section 3.3.    Negative Covenants.    Unless Pledgee shall otherwise consent in writing, Pledgor will at all
times comply with the covenants contained in this Section 3.3 from the date hereof and so long as any part of the Obligations or the Commitments is outstanding. 

F-5

 

        (a)    Transfer or Encumbrance.    Pledgor will not sell, assign (by operation of law or otherwise), transfer,
exchange, lease or otherwise dispose of any of the Collateral, nor will Pledgor grant a Lien upon or execute, file or record any financing statement or other registration with respect to the
Collateral (other than the security interests created by this Agreement), nor will Pledgor allow any such Lien, financing statement, or other registration to exist or deliver actual or constructive
possession of the Collateral to any other Person other than Liens in favor of Pledgee and those provided in Section 3.1(d)(iv). Notwithstanding the foregoing, so long as no Default or Event of
Default exists, Pledgor may transfer, exchange or otherwise dispose of Pledged Equity in connection with a merger or consolidation permitted by Section 9.11 of the Credit Agreement. Upon any
such merger or consolidation, Pledgee will, upon Pledgor's request and at Pledgor's expense, promptly (a) release its security interest in the Collateral that is being transferred, exchanged or
disposed of in connection with such merger or consolidation, (b) return to Pledgor such of the Collateral that is being transferred, exchanged or disposed of in connection with such merger or
consolidation, and (c) execute and deliver to Pledgor such documents as Pledgor may reasonably request to evidence Pledgee's release of its security interest in such Collateral. 

        (b)    Financing Statement Filings.    Pledgor recognizes that financing statements pertaining to the Collateral have
been or may be filed in the jurisdiction of Pledgor's organization, where Pledgor maintains any Collateral, has its records concerning any Collateral, has its chief executive office or chief place of
business, or has its principal place of residence. Without limitation of any other covenant herein, Pledgor will not cause or permit any change to be made in its name, identity, corporate structure or
jurisdiction of organization, or any change to be made to a jurisdiction other than as represented in the Credit Agreement in (i) the location of any records concerning any Collateral, or
(ii) the location of its chief executive office, chief place of business or principal place of residence, unless Pledgor shall have notified Pledgee of such change at least fifteen
(15) days prior to the effective date of such change, and shall have first taken all action reasonably required by Pledgee for the purpose of further perfecting or protecting the security
interest in favor of Pledgee in the Collateral. In any notice furnished pursuant to this subsection, Pledgor will expressly state that the notice is required by this Agreement and contains facts that
may require additional filings of financing statements or other notices for the purposes of continuing perfection of Pledgee's security interest in the Collateral. 

        (c)    Impairment of Security Interest.    Pledgor will not take or fail to take any action which would in any manner
impair the enforceability of Pledgee's security interest in any Collateral. 

        (d)    Restrictions on Pledged Equity.    Except for the bylaws or other charter or organizational documents of
Subsidiaries, Pledgor will not enter into any agreement creating, or otherwise permit to exist, any restriction or condition upon the transfer, voting or control of any Pledged Equity. 

ARTICLE IV

Remedies, Powers and Authorizations 

        Section 4.1.    Provisions Concerning the Collateral.    

        (a)    Additional Financing Statement Filings.    Pledgor hereby authorizes Pledgee to file, without the signature of
Pledgor where permitted by law, one (1) or more financing or continuation statements, and amendments thereto, relating to the Collateral. 

        (b)    Power of Attorney.    Pledgor hereby irrevocably appoints Pledgee as Pledgor's
attorney-in-fact and proxy, with full authority in the place and stead of Pledgor and in the name of Pledgor or otherwise, from time to time if an Event of Default shall have
occurred and be continuing, in Pledgee's discretion, to take any action (except for the exercise of any voting rights pertaining to the Pledged Equity or any part thereof) and to execute any
instrument, certificate or 

F-6

 

notice
which Pledgee may deem necessary or advisable to accomplish the purposes of this Agreement including: (i) to request or instruct Pledgor or any Subsidiary (and each registrar, transfer
agent, or similar Person acting on behalf of Pledgor or any Subsidiary) to register the Pledged Equity or transfer the Collateral to Pledgee; (ii) to otherwise give notification to Pledgor, any
Subsidiary, registrar, transfer agent, financial intermediary, or other Person of Pledgee's security interests hereunder; (iii) to ask, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; (iv) to receive, indorse and collect any drafts or other instruments, documents and
chattel paper; and (v) to file any claims or take any action or institute any proceedings which Pledgee may deem necessary or desirable for the collection of any of the Collateral or otherwise
to enforce the rights of Pledgee with respect to any of the Collateral. 

        (c)    Performance by Pledgee.    If Pledgor fails to perform any agreement or obligation contained herein, Pledgee
may itself perform, or cause performance of, such agreement or obligation, and the expenses of Pledgee incurred in connection therewith shall be payable by Pledgor under Section 4.4 hereof. 

        (d)    Collection Rights.    Pledgee shall have the right at any time, if an Event of Default shall have occurred and
be continuing, to notify any or all obligors (including any and all Subsidiaries) under any accounts or general intangibles included among the Collateral of the assignment thereof to Pledgee and to
direct such obligors to make payment of all amounts due or to become due to Pledgor thereunder directly to Pledgee and, upon such notification and at the expense of Pledgor and to the extent permitted
by law, to enforce collection thereof and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as Pledgor could have done. After Pledgor receives
notice that Pledgee has given any notice referred to above in this subsection, (i) all amounts and proceeds (including instruments and writings) received by Pledgor in respect of such accounts
or general intangibles shall be received in trust for the benefit of Pledgee hereunder, shall be segregated from other funds of Pledgor and shall be forthwith paid over to Pledgee in the same form as
so received (with any necessary endorsement) to be held as cash collateral and (A) released to Pledgor upon the remedy of all Events of Default, or (B) if any Event of Default shall have
occurred and be continuing, applied as specified in Section 4.3 hereof; and (ii) Pledgor will not adjust, settle or compromise the amount or payment of any such account or general
intangible or release wholly or partly any account debtor or obligor thereof or allow any credit or discount thereon. 

        Section 4.2.    Event of Default Remedies.    If an Event of Default shall have occurred and be continuing,
Pledgee may from time to time in its discretion, without limitation and without notice except as expressly provided below: 

         (a)  exercise
in respect of the Collateral, in addition to other rights and remedies provided for herein, under the other Obligation Documents or otherwise available to it,
all the rights and remedies of a secured party on default under the Code (whether or not the Code applies to the affected Collateral); 

         (b)  require
Pledgor to, and Pledgor hereby agrees that it will upon request of Pledgee forthwith, assemble all or part of the Collateral as directed by Pledgee and make it
available to Pledgee at a place to be designated by Pledgee which is reasonably convenient to both parties; 

         (c)  reduce
its claim to judgment against Pledgor or foreclose or otherwise enforce, in whole or in part, the security interest created hereby by any available judicial
procedure; 

         (d)  dispose
of, at its office, on the premises of Pledgor or elsewhere, all or any part of the Collateral, as a unit or in parcels, by public or private proceedings, and by
way of one or more contracts (it being agreed that the sale of any part of the Collateral shall not exhaust Pledgee's 

F-7

 

power
of sale, but sales may be made from time to time, and at any time, until all of the Collateral has been sold or until the Obligations have been paid and performed in full), and at any such sale
it shall not be necessary to exhibit any of the Collateral; 

         (e)  buy
(or allow any Lender to buy) the Collateral, or any part thereof, at any public sale; 

          (f)  buy
(or allow any Lender to buy) the Collateral, or any part thereof, at any private sale if the Collateral is of a type customarily sold in a recognized market or is
of a type which is the subject of widely distributed standard price quotations; and 

         (g)  apply
by appropriate judicial proceedings for appointment of a receiver for the Collateral, or any part thereof, and Pledgor hereby consents to any such appointment. 

Pledgor
agrees that, to the extent notice of sale shall be required by law, at least ten (10) days' notice to Pledgor of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification. Pledgee shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Pledgee may adjourn
any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so
adjourned. 

        Section 4.3.    Application of Proceeds.    If any Event of Default shall have occurred and be continuing,
Pledgee may in its discretion apply any cash held by Pledgee as Collateral, and any cash proceeds received by Pledgee in respect of any sale of, collection from, or other realization upon all or any
part of the Collateral, in the order and manner contemplated by Article IV of the Credit Agreement. 

        Section 4.4.    Release and Expenses.    In addition to, and not in qualification of, any similar obligations
under other Obligation Documents: 

         (a)  Pledgor
agrees to release and forever discharge Pledgee and each Lender from and against any and all claims, losses and liabilities growing out of or resulting from this
Agreement (including enforcement of this Agreement), except to the extent such claim, loss or liability is found in a final, non-appealable judgment of a court of competent jurisdiction to
have resulted from such person's gross negligence or willful misconduct. The foregoing release and discharge shall apply whether or not such claims, losses and liabilities are in any way or to any
extent owed, in whole or in part, under any claim or theory of strict liability or are, to any extent caused, in whole or in part, by any negligent (but not grossly negligent or willful as found in a
final, non-appealable judgment of a court of competent jurisdiction) act or omission of any kind by Pledgee or any Lender. 

         (b)  Pledgor
will upon demand pay to Pledgee the amount of any and all costs and expenses, including the reasonable fees and disbursements of Pledgee's counsel and of any
experts and agents, which Pledgee may incur in connection with (i) the transactions which give rise to this Agreement; (ii) the preparation of this Agreement and the perfection and
preservation of the security interest created under this Agreement; (iii) the administration of this Agreement; (iv) the custody, preservation, use or
operation of, or the sale of, collection from, or other realization upon, any Collateral; (v) the exercise or enforcement of any of the rights of Pledgee hereunder; or (vi) the failure
by Pledgor to perform or observe any of the provisions hereof, except expenses resulting from Pledgee's gross negligence or willful misconduct. 

        Section 4.5.    Non-Judicial Remedies.    In granting to Pledgee the power to enforce its rights
hereunder without prior judicial process or judicial hearing, Pledgor expressly waives, renounces and knowingly relinquishes any legal right which might otherwise require Pledgee to enforce its rights
by judicial process. In so providing for non-judicial remedies, Pledgor recognizes and concedes that such remedies are consistent with the usage of trade, are responsive to commercial
necessity, and are the 

F-8

 

result
of a bargain at arm's length. Nothing herein is intended to prevent Pledgee or Pledgor from resorting to judicial process at either party's option. 

        Section 4.6.    Other Recourse.    Pledgor waives any right to require Pledgee or Lenders to proceed against
any other Person, exhaust any Collateral or other security for the Obligations, or to have any Other Liable Party joined with Pledgor in any suit arising out of the Obligations or this Agreement, or
pursue any other remedy in Pledgee's power. Pledgor further waives any and all notice of acceptance of this Agreement and of the creation, modification, rearrangement, renewal or extension for any
period of any of the Obligations from time to time. Pledgor further waives any defense arising by reason of any disability or other defense of any Other Liable Party or by reason of the cessation from
any cause whatsoever of the liability of any Other Liable Party. Until all of the Obligations shall have been paid in full, Pledgor shall have no right to subrogation and Pledgor waives the right to
enforce any remedy which Pledgee or any Lender has or may hereafter have against any Other Liable Party, and waives any benefit of and any right to participate in any other security whatsoever now or
hereafter held by Pledgee. Pledgor authorizes Pledgee and each Lender, without notice or demand and without any reservation of rights against Pledgor and without affecting Pledgor's liability
hereunder or on the Obligations, from time to time to (a) take or hold any other property of any type from any other Person as security for the Obligations, and exchange, enforce, waive and
release any or all of such other property; (b) renew, extend for any period, accelerate, modify, compromise, settle or release any of the obligations of any Other Liable Party in respect to any
or all of the Obligations or other security for the Obligations; (c) waive, enforce, modify, amend or supplement any of the provisions of any Obligation Document with any Person other than
Pledgor; and (d) release or substitute any Other Liable Party. 

        Section 4.7.    Voting Rights, Dividends Etc. in Respect of Pledged Equity.    

         (a)  So
long as no Event of Default shall have occurred and be continuing Pledgor may receive and retain any and all dividends, distributions or interest paid in respect of
the Pledged Equity; provided, however, that any and all dividends, distributions and interest paid or
payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of or in exchange for, any Pledged Equity, shall be, and shall
forthwith be delivered to Pledgee to hold as, Pledged Equity and shall, if received by Pledgor, be received in trust for the benefit of Pledgee, be segregated from the other property or funds of
Pledgor, and be forthwith delivered to Pledgee in the exact form received with any necessary endorsement or appropriate stock powers duly executed in blank, to be held by Pledgee as Collateral. 

         (b)  If
an Event of Default shall have occurred and be continuing: 

          (i)  all
rights of Pledgor to receive and retain the dividends, distributions and interest payments which Pledgor would otherwise be authorized to receive and retain
pursuant to subsection (a) of this Section 4.7 shall automatically cease, and all such rights shall thereupon become vested in Pledgee which shall thereupon have the right to receive and
hold as Pledged Equity such dividends, distributions and interest payments; 

         (ii)  without
limiting the generality of the foregoing, Pledgee may at its option exercise any and all rights of conversion, exchange, subscription or any other rights,
privileges or options pertaining to any of the Pledged Equity (except voting rights) as if it were the absolute owner thereof, including the right to exchange, in its discretion, any and all of the
Pledged Equity upon the merger, consolidation, reorganization, recapitalization or other adjustment of Pledgor or any Subsidiary, or upon the exercise by Pledgor or any Subsidiary of any right,
privilege or option pertaining to any Pledged Equity, and, in connection therewith, to deposit and deliver any and all of the Pledged Equity with any committee, depository, transfer agent, registrar
or other designated agent upon such terms and conditions as it may determine; and 

F-9

 

        (iii)  all
dividends and interest payments which are received by Pledgor contrary to the provisions of subsection (b) (i) of this Section 4.7 shall be received
in trust for the benefit of Pledgee, shall be segregated from other funds of Pledgor, and shall be forthwith paid over to Pledgee as Pledged Equity in the exact form received, to be held by Pledgee as
Collateral. 

Anything
herein to the contrary notwithstanding, Pledgee may not exercise any voting rights pertaining to the Pledged Equity, and Pledgor may at all times exercise any and all voting rights pertaining
to the Pledged Equity or any part thereof for any purpose not inconsistent with the terms of this Agreement or any other Obligation Document; provided,
however, if an Event of Default shall have occurred and be continuing, Pledgor will not exercise or refrain from exercising any such right, as the case may be, if Pledgee gives
notice that, in Pledgee's judgment, such action would cause a Material Adverse Effect
with respect to the value of the Pledged Equity or the benefits to Pledgee of its security interest hereunder. 

        Section 4.8.    Private Sale of Pledged Equity.    Pledgor recognizes that Pledgee may deem it impracticable to
effect a public sale of all or any part of the Pledged Equity and that Pledgee may, therefore, determine to make one or more private sales of any such securities to a restricted group of purchasers
who will be obligated to agree, among other things, to acquire such securities for their own account, for investment and not with a view to the distribution or resale thereof. Pledgor acknowledges
that any such private sale may be at prices and on terms less favorable to the seller than the prices and other terms which might have been obtained at a public sale and, notwithstanding the
foregoing, agrees that such private sales shall be deemed to have been made in a commercially reasonable manner and that Pledgee shall have no obligation to delay the sale of any such securities for
the period of time necessary to permit Pledgor or any Subsidiary to register such securities (with no obligation of either Pledgor or any Subsidiary to accomplish such registration) for public sale
under the Securities Act of 1933, as amended (the "Securities Act"). Pledgor further acknowledges and agrees that any offer to sell such securities
which has been (a) publicly advertised on a bona fide basis in The Wall Street Journal, national
edition (to the extent that such an offer may be so advertised without prior registration under the Securities Act), or (b) made privately in the manner described above to not less than fifteen
(15) bona fide offerees shall be deemed to involve a "public disposition" for the purposes of Section 9.610 of the Code (or any successor
or similar, applicable statutory provision) as then in effect in the State of Texas, notwithstanding that such sale may not constitute a "public offering" under the Securities Act, and that Pledgee
may, in such event, bid for the purchase of such securities. 

        Section 4.9.    Limitation on Rights and Waivers.    All rights, powers and remedies herein conferred shall be
exercisable by Pledgee 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. 

ARTICLE V

Miscellaneous 

        Section 5.1.    Notices.    Any notice or communication required or permitted hereunder shall be given in
writing, sent by personal delivery, by telecopy, by delivery service with proof of delivery, or by 

F-10

 

registered
or certified United States mail, postage prepaid, addressed to the appropriate party as follows: 

	

 	
 	
To Pledgor:	
 	

[Ellora Energy Inc.] [Ellora Oil & Gas Inc.]

5480 Valmont

Suite 350

Boulder, Colorado 80301

Attn: James R. Casperson

Fax No.: (303) 417-1000
	

 	
 	
To Pledgee:	
 	

JPMorgan Chase Bank, N.A., as Administrative Agent for Lenders

1717 Main Street, 4th Floor

Mail Code TX1-2448

Dallas, Texas 75201

Attn: J. Scott Fowler

Fax No.: (214) 290-2332

or to such other address or to the attention of such other individual as hereafter shall be designated in writing by the applicable party sent in accordance herewith. Any such
notice or communication shall be deemed to have been given (a) in the case of personal delivery or delivery service, as of the date of first attempted delivery at the address or in the manner
provided herein, (b) in the case of telecopy, upon receipt with confirmation (if sent before 4:00 p.m. local time of the receiving party on a Business Day) or the next Business Day (if
sent after 4:00 p.m. of such local time or sent on a day that is not a Business Day), or (c) in the case of registered or certified United States mail, three (3) Business Days
after deposit in the mail. 

        Section 5.2.    Amendments.    No amendment of any provision of this Agreement shall be effective unless it is
in writing and signed by Pledgor, Pledgee and Required Lenders (or all Lenders if required pursuant to the terms of the Credit Agreement), and no waiver of any provision of this Agreement, and no
consent to any departure by Pledgor therefrom, shall be effective unless it is in writing and signed by Pledgee and Required Lenders (or all Lenders if required pursuant to the terms of the Credit
Agreement), and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given and to the extent specified in such writing. 

        Section 5.3.    Preservation of Rights.    No failure on the part of Pledgee or any Lender to exercise, and no
delay in exercising, any right hereunder or under any other Obligation Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right preclude any other or
further exercise thereof or the exercise of any other right. Neither the execution nor the delivery of this Agreement shall in any manner impair or affect any other security for the Obligations. The
rights and remedies of Pledgee and Lenders provided herein and in the other Obligation Documents are cumulative of and are in addition to, and not exclusive of, any rights or remedies provided by law.
The rights of Pledgee and Lenders under any Obligation Document against any party thereto are not conditional or contingent on any attempt by Pledgee or Lenders to exercise any of its or their rights
under any other Obligation Document against such party or against any other Person. 

        Section 5.4.    Unenforceability.    Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or invalidity without invalidating the remaining portions hereof or thereof or affecting the validity
or enforceability of such provision in any other jurisdiction. 

        Section 5.5.    Survival of Agreements.    All representations and warranties of Pledgor herein, and all
covenants and agreements herein shall survive the execution and delivery of this Agreement, the execution and delivery of any other Obligation Documents and the creation of the Obligations. 

F-11

 

        Section 5.6.    Other Liable Party.    Neither this Agreement nor the exercise by Pledgee or any Lender or the
failure of Pledgee or any Lender to exercise any right, power or remedy conferred herein or by law shall be construed as relieving any Other Liable Party from liability on the Obligations or any
deficiency thereon. This Agreement shall continue irrespective of the fact that the liability of any Other Liable Party may have ceased or irrespective of the validity or enforceability of any other
Obligation Document to which Pledgor or any Other Liable Party may be a party, and notwithstanding the reorganization, death, incapacity or bankruptcy of any Other Liable Party, and notwithstanding
the reorganization or bankruptcy or other event or proceeding affecting any Other Liable Party. 

        Section 5.7.    Binding Effect and Assignment.    This Agreement creates a continuing security interest in the
Collateral and (a) shall be binding on Pledgor and its successors and permitted assigns, and (b) shall inure, together with all rights and remedies of Pledgee hereunder, to the benefit
of Pledgee, Lenders, Secured Swap Providers and their respective successors, transferees and assigns. Without limiting the generality of the foregoing, Pledgee, Lenders and Secured Swap Providers may
pledge, assign or otherwise transfer any or all of their respective rights under any or all of the Obligation Documents to any other Person on the terms set forth in the Credit Agreement, and such
other Person shall thereupon become vested with all of the benefits in respect thereof granted herein or otherwise. None of the rights or duties of Pledgor hereunder may be assigned or otherwise
transferred without the prior written consent of Pledgee and Required Lenders (or all Lenders if required pursuant to the terms of the Credit Agreement). 

        Section 5.8.    Termination.    It is contemplated by the parties hereto that there may be times when no
Obligations are outstanding, but notwithstanding such occurrences, this Agreement shall remain valid and shall be in full force and effect as to subsequent outstanding Obligations. Upon the
satisfaction in full of the Obligations, upon the termination or expiration of the Credit Agreement and any other Commitment of Lenders to extend credit to Pledgor, and upon written request for the
termination hereof delivered by Pledgor to Pledgee and Lenders, this Agreement and the security interest created hereby shall terminate and all rights to the Collateral shall revert to Pledgor.
Pledgee will, upon Pledgor's request and at Pledgor's expense, (a) return to Pledgor such of the Collateral as shall not have
been sold or otherwise disposed of or applied pursuant to the terms hereof, and (b) execute and deliver to Pledgor such documents as Pledgor shall reasonably request to evidence such
termination. 

        Section 5.9.    GOVERNING LAW.    THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES OF AMERICA. 

        Section 5.10.    Counterparts.    This Agreement may be separately executed in any number of counterparts, all
of which when so executed shall be deemed to constitute one and the same Agreement. 

        Section 5.11.    Loan Document.    This Agreement is a "Loan Document", as defined in the Credit Agreement,
and, except as expressly provided herein to the contrary, this Agreement is subject to all provisions of the Credit Agreement governing the Loan Documents. 

[Signature
Pages to Follow] 

F-12

 

        IN
WITNESS WHEREOF, Pledgor has executed and delivered this Agreement, as of the date first above written. 

	 	 	[ELLORA ENERGY INC.] [ELLORA OIL & GAS INC.]
	

 	
 	

By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	

        Each
Subsidiary hereby acknowledges and consents to the pledge of the Collateral and hereby agrees to observe and perform each and every provision of this Agreement applicable to
Subsidiary. 

	 	 	                                        
                                          
              ,

a                                         
                               
	

 	
 	

By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	

	

 	
 	
                                        
                                          
              ,

a                                         
                               
	

 	
 	

By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	

	

 	
 	
                                        
                                          
              ,

a                                         
                               
	

 	
 	

By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	

F-13

 
EXHIBIT A

PLEDGE ACKNOWLEDGEMENT 

        This
Pledge Acknowledgement, dated                        ,        is delivered pursuant to
Section 3.2(b) of the Pledge Agreement referred to below. All defined terms herein
shall have the meanings ascribed thereto or incorporated by reference in the Pledge Agreement. [ELLORA ENERGY INC.]
[ELLORA OIL & GAS INC.], a Delaware corporation ("Pledgor"), hereby certifies that the representations and
warranties in Article III of the Pledge Agreement are and continue to be true and correct as to the Pledged Equity pledged prior to the date of this Pledge Acknowledgment and as to the Pledged
Equity pledged pursuant to this Pledge Acknowledgment. Pledgor and [INSERT NAME OF NEW SUBSIDIARY],
a                        
("Subsidiary"), agree that this Pledge Acknowledgment may be attached to that certain Pledge Agreement, dated as
of                        , 200    ,
among Pledgor and JPMorgan Chase Bank, N.A., as administrative agent (as amended, modified or supplemented from time to time, the "Pledge Agreement")
and that the Equity of Subsidiary owned by Pledgor shall be and become a part of the Pledged Equity referred to in said Pledge Agreement and shall secure all Obligations referred to in said Pledge
Agreement. 

	 	 	[ELLORA ENERGY INC.]

[ELLORA OIL & GAS INC.],

a Delaware corporation
	

 	
 	

By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

	 	 	Title:	 
	 	 	 	

Acknowledged
and agreed to this    day of 200    by: 

	                                        
                                          
              ,

a                                         
                               	 	 
	

 	

By:	
 	

 
	 	
	 	 
	 	Name:	 	 
	 	
	 	 
	 	Title:	 	 
	 	
	 	 

F-14

   EXHIBIT G

FORM OF SUBSIDIARY PLEDGE AGREEMENT  

        THIS PLEDGE AGREEMENT (this "Agreement") is made as
of                        ,
        by                        , a
                        (herein called "Pledgor"), in favor of JPMorgan Chase Bank,
N.A., as Administrative Agent for the ratable benefit of Lenders (as defined
below), and, in the case of any Swap Agreement (as defined in the Credit Agreement), any Secured Swap Provider (as defined in the Credit Agreement) (herein called
"Pledgee"). 

W I T N E S S E T H:  

        WHEREAS, Ellora Energy Inc., a Delaware corporation, and Ellora Oil & Gas Inc., a Delaware corporation
("Borrowers"), JPMorgan Chase Bank, N.A., as Administrative Agent, and Lenders are parties to that certain Credit Agreement (as may be amended from time
to time, the "Credit Agreement") dated as of February 3, 2006, pursuant to which Lenders have agreed to make loans and other extensions of credit
to Borrowers for the purposes set forth therein; and 

        WHEREAS,
pursuant to the terms of the Credit Agreement, and as a condition precedent to the loans and extensions of credit thereunder, Pledgor is required to execute and deliver to
Pledgee a pledge agreement granting to Pledgee, for the benefit of Lenders, a security interest in the Collateral (as defined herein); and 

        WHEREAS,
the [Members] [board of directors] [board of managers] of
Pledgor has determined that Pledgor's execution, delivery and performance of this Agreement may reasonably be expected to benefit Pledgor, directly or indirectly, and are in the best interests of
Pledgor. 

        NOW,
THEREFORE, in consideration of the premises and in order to induce Lenders to extend credit under the Credit Agreement, Pledgor hereby agrees with Pledgee as follows: 

ARTICLE I

Definitions and References 

        Section 1.1.    General Definitions.    As used herein, the terms defined above shall have the meanings
indicated above, and the following terms shall have the following meanings: 

        "Code" means the Uniform Commercial Code in effect in the State of Texas on the date hereof. 

        "Collateral" means all property of whatever type, in which Pledgee at any time has a security interest pursuant to Section 2.1
hereof. 

        "Commitment" means the agreement or commitment by Lenders to make loans, acquire participations in Letters of Credit or otherwise extend
credit to Borrowers under the Credit Agreement, and any other agreement, commitment, statement of terms or other document contemplating the making of loans or advances or other extension of credit by
Lenders to or for the account of Borrowers which is now or at any time hereafter intended to be secured by the Collateral under this Agreement. 

        "Equity" means shares of capital stock or a partnership, profits, capital or member interest, or options, warrants or any other right to
substitute for or otherwise acquire the capital stock or a partnership, profits, capital or member interest of each Subsidiary (as defined in Section 2.1(a) hereof). 

        "Lender" means any financial institution reflected on Annex I to the Credit Agreement and its successors and assigns, and
"Lenders" shall mean all Lenders. 

G-1

 

        "Obligation Documents" means the Credit Agreement, the Notes, the Letter of Credit Agreements, the Letters of Credit and the Security
Instruments now or hereafter executed, the other Loan Papers, and all other documents and instruments under, by reason of which, or pursuant to which, any or all of the Obligations are evidenced,
governed, secured, or otherwise dealt with, and all other agreements, certificates, and other documents, instruments and writings heretofore or hereafter delivered in connection herewith or therewith. 

        "Obligations" means all present and future indebtedness, obligations and liabilities of whatever type which are or shall be secured
pursuant to Section 2.2 hereof. 

        "Other Liable Party" means any Person, other than Pledgor, but including Borrowers and each Subsidiary, who may now or may at any time
hereafter be primarily or secondarily liable for any of the Obligations or who may now or may at any time hereafter have granted to Pledgee or Lenders a Lien upon any property as security for the
Obligations. 

        "Pledged Equity" has the meaning given it in Section 2.1(a) hereof. 

        Section 1.2.    Other Definitions.    Reference is hereby made to the Credit Agreement for a statement of the
terms thereof. All capitalized terms used in this Agreement which are defined in the Credit Agreement and not otherwise defined herein shall have the same meanings herein as set forth therein. All
terms used in this Agreement which are defined in the Code and not otherwise defined herein or in the Credit Agreement shall have the same meanings herein as set forth in the Code, except where the
context otherwise requires. 

        Section 1.3.    Exhibits.    All exhibits attached to this Agreement are a part hereof for all purposes. 

        Section 1.4.    Amendment of Defined Instruments.    Unless the context otherwise requires or unless otherwise
provided herein, references in this Agreement to a particular agreement, instrument or document also refer to and include all renewals, extensions, amendments, modifications, supplements or
restatements of any such agreement, instrument or document, provided that nothing contained in this Section 1.4 shall be construed to authorize any Person to execute or enter into any such
renewal, extension, amendment, modification, supplement or restatement. 

        Section 1.5.    References and Titles.    All references in this Agreement to Exhibits, Articles, Sections,
subsections, and other subdivisions refer to the Exhibits, Articles, Sections, subsections and other subdivisions of this Agreement unless expressly provided otherwise. Titles 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 Agreement. The words
"this Agreement," "herein," "hereof," "hereby," "hereunder" and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. The
phrases "this Section" and "this subsection" and similar phrases refer only to the Sections or subsections hereof in which the phrase occurs. The word "or" is not exclusive, and the word "including"
(in all of its forms) means "including without limitation". Pronouns in masculine, feminine and neuter gender shall be construed to include any other gender, and words in the singular form shall be
construed to include the plural and vice versa unless the context otherwise requires. 

ARTICLE II

Security Interest 

        Section 2.1.    Grant of Security Interest.    As collateral security for all of the Obligations, Pledgor
hereby pledges and assigns to Pledgee and grants to Pledgee a continuing security interest with at least 

G-2

 

the
priority required by Section 3.1(d)(iv) hereof for the benefit of Lenders (and any Secured Swap Provider) in and to all of the following rights, interests and property: 

        (a)   all
of the issued and outstanding Equity of                        ,
a                        and each other Subsidiary hereafter created, acquired or designated by Pledgor
(collectively, the "Subsidiaries," and each individually, a "Subsidiary") now owned or hereafter
acquired by Pledgor including, without limitation, the Equity of each Subsidiary owned by Pledgor on the date hereof (all of the foregoing being herein sometimes called the
"Pledged Equity"); 

        (b)   any
and all proceeds or other sums arising from or by virtue of, and all dividends and distributions (cash or otherwise) payable and/or distributable with respect to,
all or any of the Pledged Equity; and 

        (c)   all
cash, securities, dividends and other property at any time and from time to time receivable or otherwise distributed in respect of or in exchange for any or all of
the Pledged Equity and any other property substituted or exchanged therefor. 

        Section 2.2.    Obligations Secured.    The security interest created hereby in the Collateral constitutes
continuing collateral security for all of the following obligations, indebtedness and liabilities, whether now existing or hereafter incurred: 

        (a)    Credit Agreement Indebtedness.    The payment by Borrowers and each Guarantor as and when due and payable, of
all amounts from time to time owing by Borrowers and each such Guarantor under or in respect of the Credit Agreement, the Notes or any of the other Obligation Documents. 

        (b)    Renewals.    All renewals, extensions, amendments, modifications, supplements, or restatements of, or
substitutions for, any of the foregoing. 

        (c)    Performance.    The due performance and observance by Borrowers, Pledgor and their Subsidiaries of their
obligations from time to time existing under or in respect of any of the Obligation Documents. 

        (d)    Swap Agreements.    The payment and performance of any and all present or future obligations of Pledgor or any
of its Subsidiaries according to the terms of any Swap Agreement now existing or hereafter entered into between and/or among Pledgor, any Borrower, any of their Subsidiaries, any Pledgee, any Lender
or any affiliate of any of the foregoing (including, without limitation, any Secured Swap Provider). 

ARTICLE III

Representations, Warranties and Covenants 

        Section 3.1.    Representations and Warranties.    Pledgor represents and warrants as follows: 

        (a)    Ownership and Liens.    Pledgor has good and marketable title to the Collateral free and clear of all Liens,
encumbrances or adverse claims, except for the security interest created by this Agreement and except as provided in Section 3.1(d)(iv). No effective financing statement or other instrument
similar in effect covering all or any part of the Collateral is on file in any recording office except such as have been filed in favor of Pledgee relating to this Agreement or the other Loan Papers. 

        (b)    No Conflicts or Consents.    Neither the ownership or the intended use of the Collateral by Pledgor, nor the
grant of the security interest by Pledgor to Pledgee herein, nor the exercise by Pledgee of its rights or remedies hereunder, will (i) conflict with any provision of (a) any domestic or
foreign law, statute, rule or regulation, (b) the articles of organization, certificate of formation, certificate of incorporation, articles of incorporation, charter, bylaws, limited liability
company 

G-3

 

agreement
or other organizational document of any Subsidiary, or (c) any agreement, judgment, license, order or permit applicable to or binding upon Pledgor or any Subsidiary; or
(ii) result in or require the creation of any Lien, charge or encumbrance upon any assets or properties of Pledgor except as expressly contemplated in the Obligation Documents. Except as
expressly contemplated in the Obligation Documents, no consent, approval, authorization or order of, and no notice to or filing with, any court, Governmental Authority, any Subsidiary, or third party
is required in connection with the grant by Pledgor of the security interest herein, or, except as may be required under the Code, the exercise by Pledgee of its rights and remedies hereunder. 

        (c)    Security Interest.    Pledgor has and will have at all times full right, power and authority to grant a
security interest in the Collateral to Pledgee in the manner provided herein, free and clear of any Lien, adverse claim, or encumbrance (except as provided in Section 3.1(d)(iv)). This
Agreement creates a valid and binding security interest in favor of Pledgee in the Collateral securing the Obligations. The taking possession by Pledgee (for the ratable benefit of Lenders) of all
certificates, instruments and cash constituting Collateral from time to time, together with appropriate stock powers, and the filing of the financing statements delivered concurrently herewith by
Pledgor to Pledgee will perfect, and establish the priority required by Section 3.1(d)(iv) of, Pledgee's security interest hereunder in the Collateral securing the Obligations. No further or
subsequent filing, recording, registration, other public notice or other action is necessary or desirable to perfect or otherwise continue, preserve or protect such security interest except for
continuation statements or filings as contemplated in Section 3.3(b) or otherwise by the Code. 

        (d)    Pledged Equity.    (i) Pledgor is the legal and beneficial owner of the Pledged Equity; (ii) the
Pledged Equity is duly authorized and issued, fully paid and non-assessable (as applicable), and all documentary, stamp or other Taxes or fees owing in connection with the issuance,
transfer and/or pledge thereof hereunder have been paid; (iii) no dispute, right of setoff, counterclaim or defense exists with respect to all or any part of the Pledged Equity; (iv) the
Pledged Equity is free and clear of all Liens, options, warrants, puts, calls or other rights of third Persons, and restrictions, other than (A) those Liens arising under this Agreement or any
other of the Loan Papers, (B) Liens for Taxes or assessments not yet due or not yet delinquent, or, if delinquent, that are being contested in good faith in the normal course of business by
appropriate action, as required by Section 8.04 of the Credit Agreement, and (C) restrictions on transferability imposed by applicable state and federal securities laws;
(v) Pledgor has full right and authority to pledge the Pledged Equity for the purposes and upon the terms set out herein; (vi) certificates (as applicable) representing the Pledged
Equity have been delivered to Pledgee, together with a duly executed blank stock power for each certificate; and (vii) no Subsidiary has issued, and there are not outstanding, any options,
warrants or other rights to acquire Equity of any Subsidiary. 

        Section 3.2.    Affirmative Covenants.    Unless Pledgee shall otherwise consent in writing, Pledgor will at
all times comply with the covenants contained in this Section 3.2 from the date hereof and so long as any part of the Obligations or Commitments is outstanding. 

        (a)    Ownership and Liens.    Pledgor will maintain good and marketable title to all Collateral free and clear of all
Liens, encumbrances or adverse claims, except for (i) the security interest created by this Agreement, (ii) those provided in Section 3.1(d)(iv), and (iii) the security
interests and other encumbrances expressly permitted by the Credit Agreement. Pledgor will cause to be terminated any financing statement or other registration with respect to the Collateral, except
such as may exist or as may have been filed in favor of Pledgee. Pledgor will defend Pledgee's security interest in and to the Collateral against the claims of any Person. 

        (b)    Further Assurances.    Pledgor will at any time and from time to time promptly execute and deliver all further
instruments and documents and take all further action that may be 

G-4

 

necessary
or desirable or that Pledgee may request in order (i) to perfect and protect the security interest created or purported to be created hereby and the priority required by
Section 3.1(d)(iv) of such security interest; (ii) to enable Pledgee to exercise and enforce its rights and remedies hereunder in respect of the Collateral; or (iii) to
otherwise effect the purposes of this Agreement, including: (A) executing and filing such financing or continuation statements, or amendments thereto, as may be necessary or desirable or that
Pledgee may request in order to perfect and preserve the security interest created or purported to be created hereby, and (B) furnishing to Pledgee from time to time statements and schedules
further identifying and describing the Collateral and such other reports in connection with the Collateral as Pledgee may reasonably request, all in reasonable detail. Upon the creation or acquisition
by Pledgor of any Subsidiary, Pledgor and such Subsidiary shall execute an acknowledgement to this Agreement substantially in the form of  Exhibit A hereto promptly following the acquisition or
creation by Pledgor of such Subsidiary, which confirms that the Equity of such Subsidiary
shall be included within the definition of Pledged Equity hereunder. 

        (c)    Delivery of Pledged Equity.    All certificates, instruments and writings evidencing the Pledged Equity shall
be delivered to Pledgee on or prior to the execution and delivery of this Agreement. All certificates, instruments and writings hereafter evidencing or constituting Pledged Equity shall be delivered
to Pledgee promptly upon the receipt thereof by or on behalf of Pledgor. All Pledged Equity shall be held by or on behalf of Pledgee pursuant hereto and shall be delivered in the same manner and with
the same effect as described in Section 2.1 hereof and Section 3.1 hereof. Upon delivery, such Equity shall thereupon constitute "Pledged Equity" and shall be subject to the Liens herein
created, for the purposes and upon the terms and conditions set forth in this Agreement and the other Loan Papers. 

        (d)    Proceeds of Pledged Equity.    If Pledgor shall receive, by virtue of its being or having been an owner of any
Pledged Equity, any (i) Equity (including any certificate representing any Equity or distribution in connection with any increase or reduction of capital, reorganization, reclassification,
merger, consolidation, sale of assets, or spinoff or split-off), promissory note or other instrument or writing; (ii) option or right, whether as an addition to, substitution for,
or in exchange for, any Pledged Equity or otherwise; (iii) dividends or other distributions payable in cash (except such dividends or other distributions permitted to be retained by Pledgor
pursuant to Section 4.7 hereof) or in securities or other property; or (iv) dividends or other distributions in connection with (A) a partial or total liquidation or dissolution
or (B) a reduction of capital, capital surplus or paid-in surplus, Pledgor shall receive the same in trust for the benefit of Pledgee, shall segregate it from Pledgor's other
property, and shall promptly deliver it to Pledgee in the exact form received, with any necessary endorsement or appropriate stock powers duly executed in blank, to be held by Pledgee as Collateral. 

        (e)    Status of Pledged Equity.    The certificates evidencing the Pledged Equity (as applicable) shall at all times
be valid and genuine and shall not be altered. The Pledged Equity at all times shall be duly authorized, validly issued, fully paid, and non-assessable (as applicable), shall not be
issued in violation of the pre-emptive rights of any Person or of any agreement by which Pledgor or any Subsidiary is bound, and, except for the bylaws or other organizational documents of
any Subsidiary, shall not be subject to any restrictions or conditions with respect to the transfer, voting or capital of any Pledged Equity. 

        Section 3.3.    Negative Covenants.    Unless Pledgee shall otherwise consent in writing, Pledgor will at all
times comply with the covenants contained in this Section 3.3 from the date hereof and so long as any part of the Obligations or the Commitments is outstanding. 

        (a)    Transfer or Encumbrance.    Pledgor will not sell, assign (by operation of law or otherwise), transfer,
exchange, lease or otherwise dispose of any of the Collateral, nor will Pledgor grant a Lien 

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upon
or execute, file or record any financing statement or other registration with respect to the Collateral (other than the security interests created by this Agreement), nor will Pledgor allow any
such Lien, financing statement, or other registration to exist or deliver actual or constructive possession of the Collateral to any other Person other than Liens in favor of Pledgee and those
provided in Section 3.1(d)(iv). Notwithstanding the foregoing, so long as no Default or Event of Default exists, Pledgor may transfer, exchange or otherwise dispose of Pledged Equity in
connection with a merger or consolidation permitted by Section 9.11 of the Credit Agreement. Upon any such merger or consolidation, Pledgee will, upon Pledgor's request and at Pledgor's
expense, promptly (a) release its security interest in the Collateral that is being transferred, exchanged or disposed of in connection with such merger or consolidation, (b) return to
Pledgor such of the Collateral that is being transferred, exchanged or disposed of in connection with such merger or consolidation, and (c) execute and deliver to Pledgor such documents as
Pledgor may reasonably request to evidence Pledgee's release of its security interest in such Collateral. 

        (b)    Financing Statement Filings.    Pledgor recognizes that financing statements pertaining to the Collateral have
been or may be filed in the jurisdiction of Pledgor's organization, where Pledgor maintains any Collateral, has its records concerning any Collateral, has its chief executive office or chief place of
business, or has its principal place of residence. Without limitation of any other covenant herein, Pledgor will not cause or permit any change to be made in its name, identity, corporate structure or
jurisdiction of organization, or any change to be made to a jurisdiction other than as represented in the Credit Agreement in (i) the location of any records concerning any Collateral, or
(ii) the location of its chief executive office, chief place of business or principal place of residence, unless Pledgor shall have notified Pledgee of such change at least fifteen
(15) days prior to the effective date of such change, and shall have first taken all action reasonably required by Pledgee for the purpose of further perfecting or protecting the security
interest in favor of Pledgee in the Collateral. In any notice furnished pursuant to this subsection, Pledgor will expressly state that the notice is required by this Agreement and contains facts that
may require additional filings of financing statements or other notices for the purposes of continuing perfection of Pledgee's security interest in the Collateral. 

        (c)    Impairment of Security Interest.    Pledgor will not take or fail to take any action which would in any manner
impair the enforceability of Pledgee's security interest in any Collateral. 

        (d)    Restrictions on Pledged Equity.    Except for the bylaws or other charter or organizational documents of any
Subsidiary, Pledgor will not enter into any agreement creating, or otherwise permit to exist, any restriction or condition upon the transfer, voting or control of any Pledged Equity. 

ARTICLE IV

Remedies, Powers and Authorizations 

        Section 4.1.    Provisions Concerning the Collateral.    

        (a)    Additional Financing Statement Filings.    Pledgor hereby authorizes Pledgee to file, without the signature of
Pledgor where permitted by law, one (1) or more financing or continuation statements, and amendments thereto, relating to the Collateral. 

        (b)    Power of Attorney.    Pledgor hereby irrevocably appoints Pledgee as Pledgor's
attorney-in-fact and proxy, with full authority in the place and stead of Pledgor and in the name of Pledgor or otherwise, from time to time if an Event of Default shall have
occurred and be continuing, in Pledgee's discretion, to take any action (except for the exercise of any voting rights pertaining to the Pledged Equity or any part thereof) and to execute any
instrument, certificate or notice which Pledgee may deem necessary or advisable to accomplish the purposes of this Agreement including: (i) to request or instruct Pledgor or any Subsidiary (and
each registrar, transfer agent, or similar Person acting on behalf of Pledgor or any Subsidiary) to register the Pledged Equity or transfer the Collateral to Pledgee; 

G-6

 

(ii) to
otherwise give notification to Pledgor, any Subsidiary, registrar, transfer agent, financial intermediary, or other Person of Pledgee's security interests hereunder; (iii) to
ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; (iv) to receive,
indorse and collect any drafts or other instruments, documents and chattel paper; and (v) to file any claims or take any action or institute any proceedings which Pledgee may deem necessary or
desirable for the collection of any of the Collateral or otherwise to enforce the rights of Pledgee with respect to any of the Collateral. 

        (c)    Performance by Pledgee.    If Pledgor fails to perform any agreement or obligation contained herein, Pledgee
may itself perform, or cause performance of, such agreement or obligation, and the expenses of Pledgee incurred in connection therewith shall be payable by Pledgor under Section 4.4 hereof. 

        (d)    Collection Rights.    Pledgee shall have the right at any time, if an Event of Default shall have occurred and
be continuing, to notify any or all obligors (including any and all Subsidiaries) under any accounts or general intangibles included among the Collateral of the assignment thereof to Pledgee and to
direct such obligors to make payment of all amounts due or to become due to Pledgor thereunder directly to Pledgee and, upon such notification and at the expense of Pledgor or Borrowers and to the
extent permitted by law, to enforce collection thereof and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as Pledgor could have done. After
Pledgor receives notice that Pledgee has given any notice referred to above in this subsection, (i) all amounts and proceeds (including instruments and writings) received by Pledgor in respect
of such accounts or general intangibles shall be received in trust for the benefit of Pledgee hereunder, shall be segregated from other funds of Pledgor and shall be forthwith paid over to Pledgee in
the same form as so received (with any necessary endorsement) to be held as cash collateral and (A) released to Pledgor upon the remedy of all Events of Default, or (B) if any Event of
Default shall have occurred and be continuing, applied as specified in Section 4.3 hereof; and (ii) Pledgor will not adjust, settle or compromise the amount or payment of any such
account or general intangible or release wholly or partly any account debtor or obligor thereof (including Borrowers) or allow any credit or discount thereon. 

        Section 4.2.    Event of Default Remedies.    If an Event of Default shall have occurred and be continuing,
Pledgee may from time to time in its discretion, without limitation and without notice except as expressly provided below: 

        (a)   exercise
in respect of the Collateral, in addition to other rights and remedies provided for herein, under the other Obligation Documents or otherwise available to it,
all the rights and remedies of a secured party on default under the Code (whether or not the Code applies to the affected Collateral); 

        (b)   require
Pledgor to, and Pledgor hereby agrees that it will upon request of Pledgee forthwith, assemble all or part of the Collateral as directed by Pledgee and make it
available to Pledgee at a place to be designated by Pledgee which is reasonably convenient to both parties; 

        (c)   reduce
its claim to judgment against Pledgor or foreclose or otherwise enforce, in whole or in part, the security interest created hereby by any available judicial
procedure; 

        (d)   dispose
of, at its office, on the premises of Pledgor or elsewhere, all or any part of the Collateral, as a unit or in parcels, by public or private proceedings, and by
way of one or more contracts (it being agreed that the sale of any part of the Collateral shall not exhaust Pledgee's power of sale, but sales may be made from time to time, and at any time, until all
of the Collateral has been sold or until the
Obligations have been paid and performed in full), and at any such sale it shall not be necessary to exhibit any of the Collateral; 

        (e)   buy
(or allow any Lender to buy) the Collateral, or any part thereof, at any public sale; 

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        (f)    buy
(or allow any Lender to buy) the Collateral, or any part thereof, at any private sale if the Collateral is of a type customarily sold in a recognized market or is of
a type which is the subject of widely distributed standard price quotations; and 

        (g)   apply
by appropriate judicial proceedings for appointment of a receiver for the Collateral, or any part thereof, and Pledgor hereby consents to any such appointment. 

        Pledgor
agrees that, to the extent notice of sale shall be required by law, at least ten (10) days' notice to Pledgor of the time and place of any public sale or the time after
which any private sale is to be made shall constitute reasonable notification. Pledgee shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Pledgee may
adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so
adjourned. 

        Section 4.3.    Application of Proceeds.    If any Event of Default shall have occurred and be continuing,
Pledgee may in its discretion apply any cash held by Pledgee as Collateral, and any cash proceeds received by Pledgee in respect of any sale of, collection from, or other realization upon all or any
part of the Collateral, in the order and manner contemplated by Article IV of the Credit Agreement. 

        Section 4.4.    Release and Expenses.    In addition to, and not in qualification of, any similar obligations
under other Obligation Documents: 

        (a)   Pledgor
agrees to release and forever discharge Pledgee and each Lender from and against any and all claims, losses and liabilities growing out of or resulting from this
Agreement (including enforcement of this Agreement), except to the extent such claim, loss or liability is found in a final, non-appealable judgment by a court of competent jurisdiction to
have resulted from such person's gross negligence or willful misconduct. The foregoing release and discharge shall apply whether or not such claims, losses and liabilities are in any way or to any
extent owed, in whole or in part, under any claim or theory of strict liability or are, to any extent caused, in whole or in part, by
any negligent (but not grossly negligent or willful as found in a final, non-appealable judgment by a court of competent jurisdiction) act or omission of any kind by Pledgee or any Lender. 

        (b)   Borrowers
or Pledgor will upon demand pay to Pledgee the amount of any and all costs and expenses, including the reasonable fees and disbursements of Pledgee's counsel
and of any experts and agents, which Pledgee may incur in connection with (i) the transactions which give rise to this Agreement; (ii) the preparation of this Agreement and the
perfection and preservation of the security interest created under this Agreement; (iii) the administration of this Agreement; (iv) the custody, preservation, use or operation of, or the
sale of, collection from, or other realization upon, any Collateral; (v) the exercise or enforcement of any of the rights of Pledgee hereunder; or (vi) the failure by Pledgor to perform
or observe any of the provisions hereof, except expenses resulting from Pledgee's gross negligence or willful misconduct. 

        Section 4.5.    Non-Judicial Remedies.    In granting to Pledgee the power to enforce its rights
hereunder without prior judicial process or judicial hearing, Pledgor expressly waives, renounces and knowingly relinquishes any legal right which might otherwise require Pledgee to enforce its rights
by judicial process. In so providing for non-judicial remedies, Pledgor recognizes and concedes that such remedies are consistent with the usage of trade, are responsive to commercial
necessity, and are the result of a bargain at arm's length. Nothing herein is intended to prevent Pledgee or Pledgor from resorting to judicial process at either party's option. 

        Section 4.6.    Other Recourse.    Pledgor waives any right to require Pledgee or Lenders to proceed against
any other Person, exhaust any Collateral or other security for the Obligations, or to have any Other Liable Party joined with Pledgor in any suit arising out of the Obligations or this Agreement, or 

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pursue
any other remedy in Pledgee's power. Pledgor further waives any and all notice of acceptance of this Agreement and of the creation, modification, rearrangement, renewal or extension for any
period of any of the Obligations from time to time. Pledgor further waives any defense arising by reason of any disability or other defense of any Other Liable Party or by reason of the cessation from
any cause whatsoever of the liability of any Other Liable Party. Until all of the Obligations shall have been paid in full, Pledgor shall have no right to subrogation and Pledgor waives the right to
enforce any remedy which Pledgee or any Lender has or may hereafter have against any Other Liable Party, and waives any benefit of and any right to participate in any other security whatsoever now or
hereafter held by Pledgee. Pledgor authorizes Pledgee and each Lender, without notice or demand and without any reservation of rights against Pledgor and without affecting Pledgor's liability
hereunder or on the Obligations, from time to time to (a) take or hold any other property of any type from any other Person as security for the Obligations, and exchange, enforce, waive and
release any or all of such other property; (b) renew, extend for any period, accelerate, modify, compromise, settle or release any of the obligations of any Other Liable Party in respect to any
or all of the Obligations or other security for the Obligations; (c) waive, enforce, modify, amend or supplement any of the provisions of any Obligation Document with any Person other than
Pledgor; and (d) release or substitute any Other Liable Party. 

        Section 4.7.    Voting Rights, Dividends Etc. in Respect of Pledged Equity.    

        (a)   So
long as no Event of Default shall have occurred and be continuing Pledgor may receive and retain any and all dividends, distributions or interest paid in respect of
the Pledged Equity; provided, however, that any and all dividends, distributions and interest paid or payable other than in cash in respect of, and
instruments and other property received, receivable or otherwise distributed in respect of or in exchange for, any Pledged Equity, shall be, and shall forthwith be delivered to Pledgee to hold as,
Pledged Equity and shall, if received by Pledgor, be received in trust for the benefit of Pledgee, be segregated from the other property or funds of Pledgor, and be forthwith delivered to Pledgee in
the exact form received with any necessary endorsement or appropriate stock powers duly executed in blank, to be held by Pledgee as Collateral. 

        (b)   If
an Event of Default shall have occurred and be continuing: 

          (i)  all
rights of Pledgor to receive and retain the dividends, distributions and interest payments which Pledgor would otherwise be authorized to receive and retain
pursuant to subsection (a) of this Section 4.7 shall automatically cease, and all such rights shall thereupon become vested in Pledgee which shall thereupon have the right to receive and
hold as Pledged Equity such dividends, distributions and interest payments; 

         (ii)  without
limiting the generality of the foregoing, Pledgee may at its option exercise any and all rights of conversion, exchange, subscription or any other rights,
privileges or options pertaining to any of the Pledged Equity (except voting rights) as if it were the absolute owner thereof, including the right to exchange, in its discretion, any and all of the
Pledged Equity upon the merger, consolidation, reorganization, recapitalization or other adjustment of Pledgor or any Subsidiary, or upon the exercise by Pledgor or any Subsidiary of any right,
privilege or option pertaining to any Pledged Equity, and, in connection therewith, to deposit and deliver any and all of the Pledged Equity with any committee, depository, transfer agent, registrar
or other designated agent upon such terms and conditions as it may determine; and 

        (iii)  all
dividends and interest payments which are received by Pledgor contrary to the provisions of subsection (b) (i) of this Section 4.7 shall be received
in trust for the benefit of Pledgee, shall be segregated from other funds of Pledgor, and shall be forthwith paid over to Pledgee as Pledged Equity in the exact form received, to be held by Pledgee as
Collateral. 

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Anything
herein to the contrary notwithstanding, Pledgee may not exercise any voting rights pertaining to the Pledged Equity, and Pledgor may at all times exercise any and all voting rights pertaining
to the Pledged Equity or any part thereof for any purpose not inconsistent with the terms of this Agreement or any other Obligation Document; provided,
however, if an Event of Default shall have occurred and be continuing, Pledgor will not exercise or refrain from exercising any such right, as the case may be, if Pledgee gives
notice that, in Pledgee's judgment, such action would cause a Material Adverse Effect with respect to the value of the Pledged Equity or the benefits to Pledgee of its security interest hereunder. 

        Section 4.8.    Private Sale of Pledged Equity.    Pledgor recognizes that Pledgee may deem it impracticable to
effect a public sale of all or any part of the Pledged Equity and that Pledgee may, therefore, determine to make one or more private sales of any such securities to a restricted group of purchasers
who will be obligated to agree, among other things, to acquire such securities for their own account, for investment and not with a view to the distribution or resale thereof. Pledgor acknowledges
that any such private sale may be at prices and on terms less favorable to the seller than the prices and other terms which might have been obtained at a public sale and, notwithstanding the
foregoing, agrees that such private sales shall be deemed to have been made in a commercially reasonable manner and that Pledgee shall have no obligation to delay the sale of any such securities for
the period of time necessary to permit Pledgor or any Subsidiary to register such securities (with no obligation of either Pledgor or any Subsidiary to accomplish such registration) for public sale
under the Securities Act of 1933, as amended (the "Securities Act"). Pledgor further acknowledges and agrees that any offer to sell such securities
which has been (a) publicly advertised on a bona fide basis in The Wall Street Journal,
national edition (to the extent that such an offer may be so advertised without prior registration under the Securities Act), or (b) made privately in the manner described above to not less
than fifteen (15) bona fide offerees shall be deemed to involve a "public disposition" for the purposes of Section 9.610 of the
Code (or any successor or similar, applicable statutory provision) as then in effect in the State of Texas, notwithstanding that such sale may not constitute a "public offering" under the Securities
Act, and that Pledgee may, in such event, bid for the purchase of such securities. 

        Section 4.9.    Limitation on Rights and Waivers.    All rights, powers and remedies herein conferred shall be
exercisable by Pledgee 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. 

ARTICLE V

Miscellaneous 

        Section 5.1.    Notices.    Any notice or communication required or permitted hereunder shall be given in
writing, sent by personal delivery, by telecopy, by delivery service with proof of delivery, or by registered or certified United States mail, postage prepaid, addressed to the appropriate party as
follows: 

	To Pledgor:	 	c/o Ellora Energy Inc.

5480 Valmont

Suite 350

Boulder, Colorado 80301

Attn: James R. Casperson

Fax No.: (303) 417-1000
	 	 	 

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To Pledgee:	
 	

JPMorgan Chase Bank, N.A., as Administrative Agent for Lenders

1717 Main Street, 4th Floor

Mail Code TX1-2448

Dallas, Texas 75201

Attn: J. Scott Fowler

Fax No.: (214) 290-2332

or
to such other address or to the attention of such other individual as hereafter shall be designated in writing by the applicable party sent in accordance herewith. Any such notice or communication
shall be deemed to have been given (a) in the case of personal delivery or delivery service, as of the date of first attempted delivery at the address or in the manner provided herein,
(b) in the case of telecopy, upon receipt with confirmation (if sent before 4:00 p.m. local time of the receiving party on a Business Day) or the next Business Day (if sent after
4:00 p.m. of such local time or sent on a day that is not a Business Day), or (c) in the case of registered or certified United States mail, three (3) Business Days after deposit
in the mail. 

        Section 5.2.    Amendments.    No amendment of any provision of this Agreement shall be effective unless it is
in writing and signed by Pledgor, Pledgee and Required Lenders (or all Lenders if required pursuant to the terms of the Credit Agreement), and no waiver of any provision of this Agreement, and no
consent to any departure by Pledgor therefrom, shall be effective unless it is in writing and signed by Pledgee and Required Lenders (or all Lenders if required pursuant to the terms of the Credit
Agreement), and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given and to the extent specified in such writing. 

        Section 5.3.    Preservation of Rights.    No failure on the part of Pledgee or any Lender to exercise, and no
delay in exercising, any right hereunder or under any other Obligation Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right preclude any other or
further exercise thereof or the exercise of any other right. Neither the execution nor the delivery of this Agreement shall in any manner impair or affect any other security for the Obligations. The
rights and remedies of Pledgee and Lenders provided herein and in the other Obligation Documents are cumulative of and are in addition to, and not exclusive of, any rights or remedies provided by law.
The rights of Pledgee and Lenders under any Obligation Document against any party thereto are not conditional or contingent on any attempt by Pledgee or Lenders to exercise any of its or their rights
under any other Obligation Document against such party or against any other Person. 

        Section 5.4.    Unenforceability.    Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or invalidity without invalidating the remaining portions hereof or thereof or affecting the validity
or enforceability of such provision in any other jurisdiction. 

        Section 5.5.    Survival of Agreements.    All representations and warranties of Pledgor herein, and all
covenants and agreements herein shall survive the execution and delivery of this Agreement, the execution and delivery of any other Obligation Documents and the creation of the Obligations. 

        Section 5.6.    Other Liable Party.    Neither this Agreement nor the exercise by Pledgee or any Lender or the
failure of Pledgee or any Lender to exercise any right, power or remedy conferred herein or by law shall be construed as relieving any Other Liable Party from liability on the Obligations or any
deficiency thereon. This Agreement shall continue irrespective of the fact that the liability of any Other Liable Party may have ceased or irrespective of the validity or enforceability of any other
Obligation Document to which Pledgor or any Other Liable Party may be a party, and notwithstanding the reorganization, death, incapacity or bankruptcy of any Other Liable Party, and notwithstanding
the reorganization or bankruptcy or other event or proceeding affecting any Other Liable Party. 

G-11

 

        Section 5.7.    Binding Effect and Assignment.    This Agreement creates a continuing security interest in the
Collateral and (a) shall be binding on Pledgor and its successors and permitted assigns, and (b) shall inure, together with all rights and remedies of Pledgee hereunder, to the benefit
of Pledgee, Lenders, Secured Swap Providers and their respective successors, transferees and assigns. Without limiting the generality of the foregoing, Pledgee, Lenders and Secured Swap Providers may
pledge, assign or otherwise transfer any or all of their respective rights under any or all of the Obligation Documents to any other Person on the terms set forth in the Credit Agreement, and such
other Person shall thereupon become vested with all of the benefits in respect thereof granted herein or otherwise. None of the rights or duties of Pledgor hereunder may be assigned or otherwise
transferred without the prior
written consent of Pledgee and Required Lenders (or all Lenders if required pursuant to the terms of the Credit Agreement). 

        Section 5.8.    Termination.    It is contemplated by the parties hereto that there may be times when no
Obligations are outstanding, but notwithstanding such occurrences, this Agreement shall remain valid and shall be in full force and effect as to subsequent outstanding Obligations. Upon the
satisfaction in full of the Obligations, upon the termination or expiration of the Credit Agreement and any other Commitment of Lenders to extend credit to Borrowers, and upon written request for the
termination hereof delivered by Pledgor to Pledgee and Lenders, this Agreement and the security interest created hereby shall terminate and all rights to the Collateral shall revert to Pledgor.
Pledgee will, upon Pledgor's request and at Pledgor's expense, (a) return to Pledgor such of the Collateral as shall not have been sold or otherwise disposed of or applied pursuant to the terms
hereof, and (b) execute and deliver to Pledgor such documents as Pledgor shall reasonably request to evidence such termination. 

        Section 5.9.    GOVERNING LAW.    THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED STATES OF AMERICA. 

        Section 5.10.    Counterparts.    This Agreement may be separately executed in any number of counterparts, all
of which when so executed shall be deemed to constitute one and the same Agreement. 

        Section 5.11.    Loan Paper.    This Agreement is a "Loan Paper", as defined in the Credit Agreement, and,
except as expressly provided herein to the contrary, this Agreement is subject to all provisions of the Credit Agreement governing the Loan Papers. 

[Signature
Pages to Follow] 

G-12

 

        IN
WITNESS WHEREOF, Pledgor has executed and delivered this Agreement, as of the date first above written. 

	 	 	 	 	 
	 	 	
	,
	 	 	a	 	 
	 	 	 	

	

 	
 	

By:	

 	

 
	 	 	

	 	 	Name:	 	 
	 	 	 	

	 	 	Title:	 	 
	 	 	 	

        Each
Subsidiary hereby acknowledges and consents to the pledge of the Collateral and hereby agrees to observe and perform each and every provision of this Agreement applicable to
Subsidiary. 

	 	 	 	 	 
	 	 	
	,
	 	 	a	 	 
	 	 	 	

	

 	
 	

By:	

 	

 
	 	 	 	

	 	 	Name:	 	 
	 	 	 	

	 	 	Title:	 	 
	 	 	 	

	

 	
 	

 	

 	

 
	 	 	
	,
	 	 	a	 	 
	 	 	 	

	

 	
 	

By:	

 	

 
	 	 	 	

	 	 	Name:	 	 
	 	 	 	

	 	 	Title:	 	 
	 	 	 	

	

 	
 	

 	

 	

 
	 	 	
	,
	 	 	a	 	 
	 	 	 	

	

 	
 	

By:	

 	

 
	 	 	 	

	 	 	Name:	 	 
	 	 	 	

	 	 	Title:	 	 
	 	 	 	

G-13

 
EXHIBIT A

PLEDGE ACKNOWLEDGEMENT 

        This
Pledge Acknowledgement, dated                        ,        is delivered pursuant to
Section 3.2(b) of the Pledge Agreement referred to below. All defined terms herein
shall have the meanings ascribed thereto or incorporated by reference in the Pledge Agreement.                        ,
a                        ("Pledgor"), hereby
certifies that the representations and warranties in Article III of the Pledge Agreement are and continue to be true and correct as to the Pledged Equity pledged prior to the date of this
Pledge Acknowledgment and as to the Pledged Equity pledged pursuant to this Pledge Acknowledgment. Pledgor and [INSERT NAME OF NEW
SUBSIDIARY], a                        ("Subsidiary"), agree
that this Pledge Acknowledgment may be attached to that certain
Pledge Agreement, dated as of                        , 200  , among Pledgor and JPMorgan Chase Bank, N.A., as
administrative agent (as amended, modified or supplemented from time to time, the
"Pledge Agreement") and that the Equity of Subsidiary owned by Pledgor shall be and become a part of the Pledged Equity referred to in said Pledge
Agreement and shall secure all Obligations referred to in said Pledge Agreement. 

	 	 	 	 	 
	 	 	
	,
	 	 	a	 	 
	 	 	 	

	

 	
 	

By:	

 	

 
	 	 	 	

	 	 	Name:	 	 
	 	 	 	

	 	 	Title:	 	 
	 	 	 	

Acknowledged
and agreed to this    day of 200  by: 

	 	 	 	 
	
	,	 
	a	 	 	 
	 	
	 
	

By:	

 	

 	

 
	 	
	 
	Name:	 	 	 
	 	
	 
	Title:	 	 	 
	 	
	 

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   EXHIBIT H

FORM OF GUARANTY AGREEMENT  

        THIS GUARANTY AGREEMENT (this "Guaranty") is dated as of the            day
of                        ,
        , by [Subsidiary],
a                        ("Guarantor"), in favor of
JPMORGAN CHASE BANK, N.A., each of the other financial institutions from time to time listed on Annex I to the Credit Agreement (as hereinafter defined) as Lenders (as defined in the Credit
Agreement), and, in the case of any Swap Agreement (as defined in the Credit Agreement), any Secured Swap Provider (as defined in the Credit Agreement), and each of their successors and assigns as
permitted pursuant to the Credit Agreement (Lenders, any Secured Swap Provider, and each of their successors and assigns are collectively referred to herein as
"Beneficiaries"). 

W I T N E S S E T H:  

        WHEREAS, Ellora Energy Inc., a Delaware corporation, and Ellora Oil & Gas Inc., a Delaware corporation
("Borrowers"), Lenders, and JPMorgan Chase Bank, N.A., as Administrative Agent ("Administrative Agent")
are parties to that certain Credit Agreement (as amended, the "Credit Agreement") dated as of February 3, 2006, pursuant to which Lenders have
made a revolving credit loan to Borrowers (unless otherwise defined herein, all terms used herein with their initial letter capitalized shall have the meaning given such terms in the Credit
Agreement); and 

        WHEREAS,
Lenders have required, as a condition to extending credit under the Credit Agreement, that Guarantor execute and deliver this Guaranty; and 

        WHEREAS,
Guarantor has determined that valuable benefits will be derived by it as a result of the Credit Agreement and the extension of credit made (and to be made) by Lenders
thereunder; and 

        WHEREAS,
Guarantor has further determined that the benefits accruing to it from the Credit Agreement exceed Guarantor's anticipated liability under this Guaranty. 

        NOW,
THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged and confessed, Guarantor hereby covenants and agrees as follows: 

        1.     Guarantor
hereby absolutely and unconditionally guarantees the prompt, complete and full payment when due, no matter how such shall become due, of the Indebtedness, and
further guarantees that Borrowers will properly and timely perform the Indebtedness and other obligations and liabilities of Borrowers under the Credit Agreement, Notes and other Loan Documents.
Notwithstanding any contrary provision in this Guaranty, however, Guarantor's maximum liability under this Guaranty is limited, to the extent, if any, required so that its liability is not subject to
avoidance under applicable Debtor Relief Laws (as such term is defined in Paragraph 8 hereof). 

        2.     If
Guarantor is or becomes liable for any indebtedness owing by Borrowers to any Beneficiary by endorsement or otherwise than under this Guaranty, such liability shall
not be in any manner impaired or affected hereby, and the rights of Beneficiaries hereunder shall be cumulative of any and all other rights that Beneficiaries may ever have against Guarantor. The
exercise by any Beneficiary of any right or remedy hereunder or under any other instrument, at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy. 

        3.     In
the event of default by Borrowers in payment of the Indebtedness, or any part thereof, when such Indebtedness become due, either by its terms or as the result of the
exercise of any power to accelerate, Guarantor shall, on demand, and without further notice of dishonor and without any notice having been given to Guarantor previous to such demand of the acceptance
by Beneficiaries of this Guaranty, and without any notice having been given to such Guarantor previous to such demand of the creating or incurring of such Indebtedness, pay the amount due 

H-1

 

thereon
to Beneficiaries at Administrative Agent's office as set forth in the Credit Agreement, and it shall not be necessary for any Beneficiary, in order to enforce such payment by Guarantor, first,
to institute suit or exhaust its remedies against any Borrower or others liable on such Indebtedness, to have any Borrower joined with Guarantor in any suit brought under this Guaranty or to enforce
its rights against any security which shall ever have been given to secure such indebtedness; provided, however, that in the event any Beneficiary
elects to enforce and/or exercise any remedies it may possess with respect to any security for the Indebtedness prior to demanding payment from Guarantor, Guarantor shall nevertheless be obligated
hereunder for any and all sums still owing to Beneficiaries on the Indebtedness and not repaid or recovered incident to the exercise of such remedies. 

        4.     Notice
to Guarantor of the acceptance of this Guaranty and of the making, renewing or assignment of the Indebtedness and each item thereof, are hereby expressly waived by
Guarantor. 

        5.     Each
payment on the Indebtedness shall be deemed to have been made by Borrowers unless express written notice is given to Lenders at the time of such payment that such
payment is made by Guarantor as specified in such notice. 

        6.     If
all or any part of the Indebtedness at any time is secured, Guarantor agrees that Administrative Agent and/or Lenders may at any time and from time to time, at their
discretion and with or without valuable consideration, allow substitution or withdrawal of collateral or other security and release collateral or other security or compromise or settle any amount due
or owing under the Credit Agreement or amend or modify in whole or in part the Credit Agreement or any Loan Document executed in connection with same without impairing or diminishing the Indebtedness
of Guarantor hereunder. Guarantor further agrees that if any Borrower executes in favor of any Beneficiary any collateral agreement, mortgage or other security instrument, the exercise by any
Beneficiary of any right or remedy thereby conferred on such Beneficiary shall be wholly discretionary with such Beneficiary, and that the exercise or failure to exercise any such right or remedy
shall in no way impair or diminish the obligation of Guarantor hereunder. Guarantor further agrees that Beneficiaries and Administrative Agent shall not be liable for their failure to use diligence in
the collection of the Indebtedness or in preserving the liability of any person liable for the Indebtedness, and Guarantor hereby waives presentment for payment, notice of nonpayment, protest and
notice thereof (including, notice of acceleration), and diligence in bringing suits against any Person liable on the Indebtedness, or any part thereof. 

        7.     Guarantor
agrees that Beneficiaries, in their discretion, may (i) bring suit against all guarantors (including, without limitation, Guarantor hereunder) of the
Indebtedness jointly and severally or against any one or more of them, (ii) compound or settle with any one or more of such guarantors for such consideration as Beneficiaries may deem proper,
and (iii) release one or more of such guarantors from liability hereunder, and that no such action shall impair the rights of Beneficiaries to collect the Indebtedness (or the unpaid balance
thereof) from other such guarantors of the Indebtedness, or any of them, not so sued, settled with or released. Guarantor agrees, however, that nothing contained in this paragraph, and no action by
Beneficiaries permitted under this paragraph, shall in any way affect or impair the rights or Indebtedness of such guarantors among themselves. 

        8.     Guarantor
represents and warrants to each Lender that (i) Guarantor is a corporation, limited liability company or partnership duly organized and validly existing
under the laws of the jurisdiction of its incorporation or formation; (ii) Guarantor possesses all requisite authority and power to authorize, execute, deliver and comply with the terms of this
Guaranty; (iii) this Guaranty has been duly authorized and approved by all necessary action on the part of Guarantor and constitutes a valid and binding obligation of Guarantor enforceable in
accordance with its terms, except as (a) the enforcement thereof may be limited by applicable Debtor Relief Laws, and 

H-2

 

(b) the
availability of equitable remedies may be limited by equitable principles of general applicability; and (iv) no approval or consent of any court or governmental entity is
required for the authorization, execution, delivery or compliance with this Guaranty which has not been obtained (and copies thereof delivered to Lenders). As used in this Guaranty, the term
"Debtor Relief Laws" means the Bankruptcy Code of the United States of America and all other applicable liquidation, conservatorship, bankruptcy,
moratorium, rearrangement, receivership, insolvency, reorganization, suspension of payments or similar debtor relief laws from time to time in effect affecting the rights of creditors generally. 

        9.     Guarantor
covenants and agrees that until the Indebtedness is paid and performed in full, except as otherwise provided in the Credit Agreement or unless Lenders give
their prior written consent to any deviation therefrom, it will (i) at all times maintain its existence and authority to transact business in any state or jurisdiction where Guarantor has
assets and operations, except where the failure to maintain such existence or authority would not have a Material Adverse Effect, (ii) promptly deliver to Lenders and to Administrative Agent
such information respecting its business affairs, assets and liabilities as Lenders may reasonably request, and (iii) duly and punctually observe and perform all covenants applicable to
Guarantor under the Credit Agreement and the other Loan Documents. 

        10.   This
Guaranty is for the benefit of Lenders, Secured Swap Providers, their successors and assigns, and in the event of an assignment by Lenders or Secured Swap Providers
(or their successors or assigns) of the Indebtedness, or any part thereof, the rights and benefits hereunder, to the extent applicable to the Indebtedness so assigned, may be transferred with such
Indebtedness. This Guaranty is binding upon Guarantor and its successors and assigns. 

        11.   No
modification, consent, amendment or waiver of any provision of this Guaranty, nor consent to any departure by Guarantor therefrom, shall be effective unless the same
shall be in writing and signed by the Required Lenders (or all Lenders if required pursuant to the Credit Agreement), and then shall be effective only in the specific instance and for the purpose for
which given. No notice to or demand on Guarantor in any case shall, of itself, entitle Guarantor to any other or further notice or demand in similar or other circumstances. No delay or omission by
Lenders in exercising any power or right hereunder shall impair any such right or power or be construed as a waiver thereof or any acquiescence therein, nor shall any single or partial exercise of any
such power preclude other or further exercise thereof, or the exercise of any other right or power hereunder. All rights and remedies of Lenders hereunder are cumulative of each other and of every
other right or remedy which Lenders may otherwise have at law or in equity or under any other contract or document, and the exercise of one or more rights or remedies shall not prejudice or impair the
concurrent or subsequent exercise of other rights or remedies. 

        12.   No
provision herein or in any promissory note, instrument or any other Loan Document executed by any Borrower or Guarantor evidencing the Indebtedness shall require the
payment or permit the collection of interest in excess of the Highest Lawful Rate. If any excess of interest in such respect is provided for herein or in any such promissory note, instrument, or any
other Loan Document, the provisions of this paragraph shall govern, and neither any Borrower nor Guarantor shall be obligated to pay the amount of such interest to the extent that it is in excess of
the amount permitted by law. The intention of the parties being to conform strictly to any applicable federal or state usury laws now in force, all promissory notes, instruments and other Loan
Documents executed by any Borrower or Guarantor evidencing the Indebtedness shall be held subject to reduction to the amount allowed under said usury laws as now or hereafter construed by the courts
having jurisdiction. 

H-3

 

        13.   If
Guarantor should breach or fail to perform any provision of this Guaranty, Guarantor agrees to pay Beneficiaries all costs and expenses (including court costs and
reasonable attorneys fees) incurred by Beneficiaries in the enforcement hereof. 

        14.   (a)    The
liability of Guarantor under this Guaranty shall in no manner be impaired, affected or released by the insolvency, bankruptcy, making of an
assignment for the benefit of creditors, arrangement, compensation, composition or readjustment of any Borrower, or any proceedings affecting the status, existence or assets of any Borrower or other
similar proceedings instituted by or against any Borrower and affecting the assets of any Borrower. 

        (b)   Guarantor
acknowledges and agrees that any interest on any portion of the Indebtedness which accrues after the commencement of any proceeding referred to in
clause (a) above (or, if interest on any portion of the Indebtedness ceases to accrue by operation of law by reason of the commencement of said proceeding, such interest as would have accrued
on such portion of the Indebtedness if said proceedings had not been commenced) shall be included in the Indebtedness because it is the intention of Guarantor, Administrative Agent and Lenders that
the Indebtedness which is guaranteed by Guarantor pursuant to this Guaranty should be determined without regard to any rule of law or order which may relieve any Borrower of any portion of such
Indebtedness. Guarantor will permit any trustee in bankruptcy, receiver, debtor in possession, assignee for the benefit of creditors or similar person to pay Beneficiaries or Administrative Agent, or
allow the claim of Beneficiaries or Administrative Agent in respect of, any such interest accruing after the date on which such proceeding is commenced. 

        (c)   In
the event that all or any portion of the Indebtedness is paid by any Borrower, the obligations of Guarantor hereunder shall continue and remain in full force and
effect or be reinstated, as the case may be, in the event that all or any part of such payment(s) are rescinded or recovered directly or indirectly from Administrative Agent or any Beneficiary as a
preference, fraudulent transfer or otherwise, and any such payments which are so rescinded or recovered shall constitute Indebtedness for all purposes under this Guaranty. 

        15.   Guarantor
understands and agrees that any amounts of Guarantor on account with any Lender may, if an Event of Default shall have occurred and be continuing, be offset to
satisfy the obligations of Guarantor hereunder. 

        16.   Guarantor
hereby subordinates and makes inferior any and all indebtedness now or at any time hereafter owed by any Borrower to Guarantor to the Indebtedness evidenced by
the Credit Agreement and agrees if an Event of Default shall have occurred and be continuing, not to permit any Borrower to repay, or to accept payment from any Borrower of, such indebtedness or any
part thereof without the prior written consent of Lenders. 

        17.   During
the period that Lenders have any commitment to lend under the Loan Documents, or any amount payable under any Note remains unpaid, and throughout any additional
preferential period subsequent thereto, Guarantor hereby waives any and all rights of subrogation to which Guarantor may otherwise be entitled against any Borrower, or any other guarantor of the
Indebtedness, as a result of any payment made by Guarantor pursuant to this Guaranty. 

        18.   As
of the date hereof, the fair saleable value of the property of Guarantor is greater than the total amount of liabilities (including contingent and unliquidated
liabilities) of Guarantor, and Guarantor is able to pay all of its liabilities as such liabilities mature and Guarantor does not have unreasonably small capital within the meaning of
Section 548, Title 11, United States Code, as amended. In computing the amount of contingent or liquidated liabilities, such liabilities have been computed at the amount which, in light of all
the facts and circumstances existing as of the date 

H-4

 

hereof,
represents the amount that can reasonably be expected to become an actual or matured liability. 

        19.   If
any provision of this Guaranty is held to be illegal, invalid, or unenforceable, such provision shall be fully severable, this Guaranty shall be construed and
enforced as if such illegal, invalid, or unenforceable provision had never comprised a part hereof, and the remaining provisions hereof shall remain in full force and effect and shall not be affected
by the illegal, invalid, or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable provision there shall be added automatically as a part
of this Guaranty a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid and enforceable. 

        20.   (a)    Except
to the extent required for the exercise of the remedies provided in the other security instruments, Guarantor hereby irrevocably submits to the
nonexclusive jurisdiction of any Texas state or federal court over any action or proceeding arising out of or relating to this Guaranty or any other
Loan Document, and Guarantor hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such Texas state or federal court. Guarantor hereby
irrevocably waives, to the fullest extent permitted by Law, any objection which it may now or hereafter have to the laying of venue of any Litigation arising out of or in connection with this Guaranty
or any of the Loan Documents brought in district courts of Dallas County, Texas, or in the United States District Court for the Northern District of Texas, Dallas Division. Guarantor hereby
irrevocably waives any claim that any Litigation brought in any such court has been brought in an inconvenient forum. Guarantor hereby irrevocably consents to the service of process out of any of the
aforementioned courts in any such Litigation by the delivery of copies thereof by Federal Express or other nationally recognized overnight delivery service, to Guarantor's office c/o Ellora
Energy Inc., at 5480 Valmont, Suite 350, Boulder, Colorado 80301, Attn: James R. Casperson, Fax No. (303) 417-1000. Guarantor irrevocably agrees that any legal proceeding
against Lenders shall be brought in the district courts of Dallas County, Texas, or in the United States District Court for the Northern District of Texas, Dallas Division. Nothing herein shall affect
the right of Lenders to commence legal proceedings or otherwise proceed against Guarantor in any jurisdiction or to serve process in any manner permitted by applicable law. As used herein, the term
"Litigation" means any proceeding, claim, lawsuit or investigation (i) conducted or threatened by or before any court or governmental department,
commission, board, bureau, agency or instrumentality of the United States or of any state, commonwealth, nation, territory, possession, county, parish, or municipality, whether now or hereafter
constituted or existing, or (ii) pending before any public or private arbitration board or panel. 

        (b)   Nothing
in this Paragraph 20 shall affect any right of any Lender to serve legal process in any other manner permitted by law or affect the right of any Lender to
bring any action or proceeding against Guarantor in the courts of any other jurisdictions. 

        (c)   To
the extent that Guarantor has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice,
attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, Guarantor hereby irrevocably waives such immunity in respect of its
obligations under this Guaranty and the other Loan Documents. 

        21.   THIS
GUARANTY AND THE OTHER LOAN DOCUMENTS COLLECTIVELY REPRESENT THE FINAL AGREEMENT BY AND AMONG LENDERS, ADMINISTRATIVE AGENT AND GUARANTOR AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF LENDERS, ADMINISTRATIVE AGENT AND GUARANTOR. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG LENDERS, ADMINISTRATIVE
AGENT AND GUARANTOR. 

H-5

 

        22.   GUARANTOR,
FOR ITSELF, ITS SUCCESSORS AND ASSIGNS, HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ITS RIGHT TO A JURY TRIAL,
IN ANY LITIGATION ARISING OUT OF OR IN CONNECTION WITH THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS. 

        24.   THIS
GUARANTY AND THE OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS. 

        EXECUTED
and effective as of the date first above written. 

	 	 	GUARANTOR:
	

 	
 	
[SUBSIDIARY]
	

 	
 	

By:	

 
	 	 	 	

	 	 	Name:	 
	 	 	 	

H-6

   SCHEDULE 7.05

LITIGATION  

NONE

Schedule 7.05-1

   SCHEDULE 7.15

SUBSIDIARIES AND PARTNERSHIPS  

ENGLISH BAY PIPELINE, L.P., a Texas limited partnership

Filing Number: 800091246 

ELLORA LAND HOLDINGS, L.P., a Texas limited partnership

Filing Number: 800090895 

ELLORA OPERATING, L.P., a Texas limited partnership

Filing Number: 800090891 

ELLORA ENERGY GP, LLC, a Delaware limited liability company

Organizational Identification Number: 3533651 

ELLORA OPERATING GP, LLC, a Delaware limited liability company

Organizational Identification Number: 3533641 

ELLORA, LLC, a Colorado limited liability company

Organizational Identification Number: 19951063065 

PRESCO WESTERN, LLC, a Colorado limited liability company

Organizational Identification Number: 19971179962 

Each
of these entities has its principal place of business at

5480 Valmont, Suite 350, Boulder, Colorado 80301 

Schedule 7.15-1

   SCHEDULE 7.17

PROPERTIES; TITLE DEFECTS  

NONE

Schedule 7.17-1

   SCHEDULE 7.19

GAS IMBALANCES  

NONE

Schedule 7.19-1

   SCHEDULE 7.20

MARKETING CONTRACTS  

Call
and Right of First Refusal in favor of Amoco Production Company pursuant to Farmout Contract dated November 17, 1997, between Amoco Production Company and Presco, Inc. 

Schedule 7.20-1

   SCHEDULE 7.21

SWAP AGREEMENTS  

NONE

Schedule 7.21-1

   SCHEDULE 9.05

INVESTMENTS  

NONE

Schedule 9.05-1

QuickLinks

Exhibit 10.4

CREDIT AGREEMENT DATED AS OF FEBRUARY 3, 2006 AMONG ELLORA ENERGY INC. AND ELLORA OIL & GAS INC., AS BORROWERS, JPMORGAN CHASE BANK, N.A., AS ADMINISTRATIVE AGENT AND THE LENDERS PARTY HERETO $400,000,000 J.P.
MORGAN SECURITIES INC., AS LEAD ARRANGER AND BOOK MANAGER

TABLE OF CONTENTS

ELLORA ENERGY INC. CREDIT AGREEMENT

R E C I T A L S

ARTICLE I DEFINITIONS AND ACCOUNTING MATTERS

ARTICLE II THE CREDITS

ARTICLE III PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES

ARTICLE IV PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS.

ARTICLE V INCREASED COSTS; BREAK FUNDING PAYMENTS; TAXES; ILLEGALITY

ARTICLE VI CONDITIONS PRECEDENT

ARTICLE VII REPRESENTATIONS AND WARRANTIES

ARTICLE X EVENTS OF DEFAULT; REMEDIES

ARTICLE XI THE AGENTS

ARTICLE XII MISCELLANEOUS

ANNEX I LIST OF MAXIMUM CREDIT AMOUNTS

EXHIBIT A FORM OF NOTE

EXHIBIT E FORM OF ASSIGNMENT AND ASSUMPTION

EXHIBIT F FORM OF BORROWER PLEDGE AGREEMENTExhibit 10.1

    EXHIBIT
      10.1

     

    Execution
      Copy

     

    

     

    

     

    

     

    

     

    COLLABORATION
      AND LICENSE AGREEMENT

     

    

     

    by
      and
      between 

     

    

     

    POZEN
      INC.

     

    and

     

    ASTRAZENECA
      AB

     

    

     

    

     

    August
      1,
      2006

     

     

    
      
        
        

      

      
        
          

        

      

      
        
        

      

    

    TABLE
      OF
      CONTENTS

     

    
      	
              1.

            	
              DEFINITIONS

            	 

    

    
      	
              2.

            	
              COLLABORATION
                GOVERNANCE

            	 

    

    
      	 	
              2.1

            	
              Establishment.

            	 

    

    
      	 	
              2.2

            	
              Membership
                and Procedures.

            	 

    

    
      	 	
              2.3

            	
              Decision-Making.

            	 

    

    
      	
              3.

            	
              PRODUCT
                DEVELOPMENT

            	 

    

    
      	 	
              3.1

            	
              Development
                Plans.

            	 

    

    
      	 	
              3.2

            	
              Core
                Development Activities.

            	 

    

    
      	 	
              3.3

            	
              Additional
                Development Activities.

            	 

    

    
      	 	
              3.4

            	
              Development
                of Products by AstraZeneca.

            	 

    

    
      	 	
              3.5

            	
              Oversight
                of Proof of Concept Studies

            	 

    

    
      	 	
              3.6

            	
              Exchange
                of Know-How

            	 

    

    
      	 	
              3.7

            	
              Audits
                and Inspections.

            	 

    

    
      	
              4.

            	
              REGULATORY
                MATTERS

            	 

    

    
      	 	
              4.1

            	
              Responsibilities;
                Diligence.

            	 

    

    
      	 	
              4.2

            	
              Access
                to Filings

            	 

    

    
      	 	
              4.3

            	
              Interactions
                with Regulatory Authorities.

            	 

    

    
      	 	
              4.4

            	
              Information
                Sharing

            	 

    

    
      	 	
              4.5

            	
              Regulatory
                Audits

            	 

    

    
      	 	
              4.6

            	
              Adverse
                Event Reporting

            	 

    

    
      	
              5.

            	
              COMMERCIALIZATION

            	 

    

    
      	 	
              5.1

            	
              Commercialization

            	 

    

    
      	 	
              5.2

            	
              Regulatory
                Obligations during Commercialization

            	 

    

    
      	 	
              5.3

            	
              Performance;
                Diligence.

            	 

    

    
      	 	
              5.4

            	
              Commercialization
                Plan.

            	 

    

    
      	 	
              5.5

            	
              Threatened
                Removal

            	 

    

    
      	 	
              5.6

            	
              Compliance

            	 

    

    
      	 	
              5.7

            	
              Branding;
                Trademarks; Domain Names; Trade Dress; Logos.

            	 

    

    
      
        
        

      

      
        
          

        

      

      
        
        

      

    

    6. MANUFACTURE
      OF POZEN PRODUCTS

    
      	 	
              6.1

            	
              Manufacturing
                Development.

            	 

    

    
      	 	
              6.2

            	
              Process
                Transfer

            	 

    

    
      	 	
              6.3

            	
              Terms
                for Clinical Supply.

            	 

    

    
      	 	
              6.4

            	
              Commercial
                Supply

            	 

    

    
      	 	
              6.5

            	
              Audits
                and Inspections.

            	 

    

    
      	 	
              6.6

            	
              Reference
                Rights; Support

            	 

    

    
      	
              7.

            	
              LICENSES

            	 

    

    
      	 	
              7.1

            	
              Licensed
                Technology

            	 

    

    
      	 	
              7.2

            	
              Trademarks

            	 

    

    
      	 	
              7.3

            	
              Sublicenses

            	 

    

    
      	 	
              7.4

            	
              Reservation
                of Rights; No Implied Licenses

            	 

    

    
      	 	
              7.5

            	
              Restrictive
                Covenant

            	 

    

    
      	 	
              7.6

            	
              Japan
                Option

            	 

    

    
      	
              8.

            	
              FINANCIAL
                TERMS

            	 

    

    
      	 	
              8.1

            	
              Upfront
                Fee

            	 

    

    
      	 	
              8.2

            	
              Development
                Milestone Payments

            	 

    

    
      	 	
              8.3

            	
              Sales
                Milestone Payments

            	 

    

    
      	 	
              8.4

            	
              Royalties.

            	 

    

    
      	 	
              8.5

            	
              Payments
                and Sales Reporting.

            	 

    

    
      	 	
              8.6

            	
              Records;
                Audit

            	 

    

    
      	 	
              8.7

            	
              Taxes.

            	 

    

    
      	
              9.

            	
              INTELLECTUAL
                PROPERTY

            	 

    

    
      	 	
              9.1

            	
              Prosecution
                and Maintenance of Licensed Patents

            	 

    

    
      	 	
              9.2

            	
              Prosecution
                and Maintenance of Joint Patents

            	 

    

    
      	 	
              9.3

            	
              Ownership
                of Inventions

            	 

    

    
      	 	
              9.4

            	
              Disclosure

            	 

    

    
      	 	
              9.5

            	
              Cooperation

            	 

    

    
      	 	
              9.6

            	
              Enforcement
                of Licensed Patents.

            	 

    

    
      	 	
              9.7

            	
              Defense
                of Infringement Claims

            	 

    

    
      	 	
              9.8

            	
              Patent
                Term Extension and Supplementary Protection Certificate

            	 

    

    
      
        
        

      

      
        
          

        

      

      
        
        

      

    

     

    
      	 	
              9.9

            	
              Consequence
                of Patent Challenge

            	 

    

    
      	 	
              9.10

            	
              Patent
                Certifications.

            	 

    

    
      	 	
              9.11

            	
              Patent
                Marking

            	 

    

    
      	
              10.

            	
              REPRESENTATIONS,
                WARRANTIES; COVENANTS

            	 

    

    
      	 	
              10.1

            	
              POZEN
                Representations and Warranties

            	 

    

    
      	 	
              10.2

            	
              Notice
                of Developments

            	 

    

    
      	 	
              10.3

            	
              AstraZeneca
                Warranties

            	 

    

    
      	 	
              10.4

            	
              Reciprocal
                Representations and Warranties

            	 

    

    
      	 	
              10.5

            	
              DISCLAIMER
                OF WARRANTY

            	 

    

    
      	 	
              10.6

            	
              POZEN
                Non-Compete

            	 

    

    
      	 	
              10.7

            	
              POZEN
                Subcontractors

            	 

    

    
      	 	
              10.8

            	
              ******

            	 

    

    
      	 	
              10.9

            	
              Other
                Covenants.

            	 

    

    
      	
              11.

            	
              CONFIDENTIALITY.

            	 

    

    
      	 	
              11.1

            	
              Definition

            	 

    

    
      	 	
              11.2

            	
              Exclusions

            	 

    

    
      	 	
              11.3

            	
              Disclosure
                and Use Restriction

            	 

    

    
      	 	
              11.4

            	
              Authorized
                Disclosure

            	 

    

    
      	 	
              11.5

            	
              Use
                of Name

            	 

    

    
      	 	
              11.6

            	
              Press
                Releases.

            	 

    

    
      	 	
              11.7

            	
              Terms
                of Agreement to be Maintained in Confidence

            	 

    

    
      	
              12.

            	
              TERM
                AND TERMINATION

            	 

    

    
      	 	
              12.1

            	
              HSR
                Act

            	 

    

    
      	 	
              12.2

            	
              Term

            	 

    

    
      	 	
              12.3

            	
              Termination
                for Material Breach

            	 

    

    
      	 	
              12.4

            	
              Termination
                for Cause.

            	 

    

    
      	 	
              12.5

            	
              Termination
                at Will

            	 

    

    
      	 	
              12.6

            	
              Consequences
                of Expiration and Termination.

            	 

    

    
      	 	
              12.7

            	
              Termination
                for Insolvency

            	 

    

    
      	 	
              12.8

            	
              Effect
                of Bankruptcy

            	 

    

    
      	 	
              12.9

            	
              Post
                Termination Royalties

            	 

    

    
      
        
        

      

      
        
          

        

      

      
        
        

      

    

     

    
      	 	
              12.10

            	
              Formulation
                Technology

            	 

    

    
      	 	
              12.11

            	
              Survival

            	 

    

    
      	
              13.

            	
              INDEMNIFICATION
                AND INSURANCE

            	 

    

    
      	 	
              13.1

            	
              Indemnification
                by POZEN

            	 

    

    
      	 	
              13.2

            	
              Indemnification
                by AstraZeneca

            	 

    

    
      	 	
              13.3

            	
              Indemnification
                Procedure.

            	 

    

    
      	 	
              13.4

            	
              Expenses

            	 

    

    
      	 	
              13.5

            	
              Insurance

            	 

    

    
      	
              14.

            	
              LIMITATION
                OF LIABILITY

            	 

    

    
      	
              15.

            	
              MISCELLANEOUS

            	 

    

    
      	 	
              15.1

            	
              Assignment

            	 

    

    
      	 	
              15.2

            	
              Termination
                of Certain Rights Upon POZEN Change of Corporate Control

            	 

    

    
      	 	
              15.3

            	
              Severability

            	 

    

    
      	 	
              15.4

            	
              Governing
                Law; Dispute Resolution.

            	 

    

    
      	 	
              15.5

            	
              Notices

            	 

    

    
      	 	
              15.6

            	
              Entire
                Agreement; Modifications

            	 

    

    
      	 	
              15.7

            	
              Relationship
                of the Parties

            	 

    

    
      	 	
              15.8

            	
              Waiver

            	 

    

    
      	 	
              15.9

            	
              Counterparts

            	 

    

    
      	 	
              15.10

            	
              No
                Benefit to Third Parties

            	 

    

    
      	 	
              15.11

            	
              Further
                Assurance

            	 

    

    
      	 	
              15.12

            	
              No
                Drafting Party

            	 

    

    
      	 	
              15.13

            	
              Construction

            	 

    

     

    
      
        
        

      

      
        
          

        

      

      
        
        

      

    

    EXHIBITS
      AND SCHEDULES

     

    

     

    Exhibit
      A
      - Formulation Budget

     

    Exhibit
      B
      - Initial U.S. Development Plan

     

    Exhibit
      C
      -U.S. Development Timeline

     

    Exhibit
      D
      - Initial ROW Development Plan

     

    Exhibit
      E
      - ROW Development Timeline

     

    Exhibit
      F
      - TPP Studies

     

    Schedule
      1.58 - Licensed Patents

     

    Schedule
      4.1.2 - IMS MAT Data

     

    Schedule
      6.1 - Initial POZEN Product Specifications

     

    Schedule
      8.4.1 - Segregated Royalty Example

     

    Schedule
      8.4.3 - Market Reduction Example

     

    Schedule
      10.1 - Disclosure Schedule

     

    Schedule
      10.7 - POZEN Subcontractors

     

    
      
        
        

      

      
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          6
          -

        
          

        

      

      
        
        

      

    

    

     

    COLLABORATION
      AND LICENSE AGREEMENT

     

    THIS COLLABORATION
      AND LICENSE AGREEMENT
      (“Agreement”)
      is made
      and entered into effective as of August 1, 2006 (the “Execution
      Date”),
      by and
      between POZEN
      INC.,
      a
      Delaware corporation having offices at 1414 Raleigh Road, Suite 400, Chapel
      Hill, North Carolina (“POZEN”),
      and
      ASTRAZENECA AB, a Swedish corporation having an office at SE-431 83, Mölndal,
      Sweden (“AstraZeneca”).
      POZEN
      and AstraZeneca each may be referred to herein individually as a “Party,”
      or
      collectively as the “Parties.”

     

    RECITALS

     

    A. POZEN
      controls certain patents and other intellectual property pertaining to
      pharmaceutical products having gastroprotective agents in single fixed
      combination oral solid dosage form with non-steroidal anti-inflammatory
      drugs.

     

    B. AstraZeneca
      desires to obtain a license to POZEN’s intellectual property and to enter into a
      collaboration with POZEN for the purpose of developing and commercializing
      certain pharmaceutical products.

     

    C. POZEN
      desires to grant AstraZeneca such a license and to enter into such a
      collaboration on the terms and conditions set forth in this
      Agreement.

     

    In
      consideration of the foregoing premises, the mutual promises and covenants
      set
      forth in this Agreement, and other good and valuable consideration, the receipt
      and sufficiency of which are hereby acknowledged, POZEN and AstraZeneca hereby
      agree as follows:

     

    AGREEMENT

     

    
      	1.  	
              DEFINITIONS

            

    

     

    When
      used
      in this Agreement, capitalized terms will have the meanings as defined below
      and
      throughout the Agreement. All financial and accounting terms not otherwise
      defined in this Agreement, whether capitalized or not, shall have the meanings
      assigned to them in accordance with generally accepted accounting principles
      based on International Accounting Standards/International Financial Reporting
      Standards as in effect from time to time (“IFRS”).

     

    1.1  “ADA
      Budget”
      has the
      meaning set forth in Section 3.3.3
      (Expenses).

     

    1.2  “Additional
      Development Activities”
      means
      any activities related to the Development of the Initial POZEN Product that
      are
      not Core Development Activities. Additional Development Activities agreed upon
      as of the Execution Date are included in the Initial U.S. Development Plan
      and
      Initial ROW Development Plan.

     

    
      
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    1.3  “Adverse
      Event”
      means
      any adverse medical occurrence in a patient or clinical investigation subject
      that is administered a pharmaceutical product, as designated under 21 CFR §
312.32 and any other Applicable Law in the Territory.

     

    1.4  “Affiliate”
      means a
      legal entity that, directly or indirectly, through one or more intermediaries,
      controls, is controlled by, or is under common control with an entity. For
      purposes of this definition only, “control” and, with correlative meanings, the
      terms “controlled by” and “under common control with” means (a) the possession,
      directly or indirectly, of the power to direct the management or policies of
      a
      legal entity, whether through the ownership of voting securities or by contract
      relating to voting rights or corporate governance, or (b) the ownership,
      directly or indirectly, of more than 50% of the voting securities or other
      ownership interest of a legal entity; provided, that if local law restricts
      foreign ownership, control will be established by direct or indirect ownership
      of the maximum ownership percentage that may, under such local law, be owned
      by
      foreign interests.

     

    1.5  “Applicable
      Law”
      means
      the laws, rules, and regulations, including any statutes, rules, regulations,
      guidelines, or other requirements that may be in effect from time to time and
      apply to the activities contemplated by this Agreement in the
      Territory.

     

    1.6  “AstraZeneca
      House Marks”
      means
      any trademarks, trade names, domain names, or other names or marks used or
      registered by AstraZeneca or its Affiliates at any time during the Term to
      identify itself.

     

    1.7  “AstraZeneca
      Invention”
      means
      any Invention that is conceived solely by one or more employees, agents, or
      independent contractors of AstraZeneca or its Affiliate(s).

     

    1.8  “Blocking
      Patent”
      means a
      Patent owned or controlled by a Third Party, one or more Valid Claims of which,
      in the absence of a license thereunder, would be infringed by the making, use,
      sale, offering for sale, or importation of a POZEN Product.

     

    1.9  “Budgeted
      Development Activities”
      means
      the Additional Development Activities described in the first ADA Budget approved
      by the GPT pursuant to Section 3.3.3
      (Expenses) and the first U.S. Development Plan and first ROW Development Plan
      approved by the GPT pursuant to Section 3.1 (Development Plans), in each case
      consistent with the Initial U.S. Development Plan and Initial ROW Development
      Plan.

     

    1.10  “Business
      Combination”
      means
      any merger, consolidation, sale of stock, sale or transfer of all or
      substantially all of the assets, or other similar transaction to which POZEN
      is
      a party, other than any merger, consolidation, or similar transaction following
      which the individuals and entities who were the beneficial owners of the
      outstanding voting securities of POZEN immediately prior to such transaction
      still beneficially own, directly or indirectly, more than fifty percent (50%)
      of
      the voting power of the surviving entity immediately after such
      transaction.

     

    1.11  “Business
      Day”
      means
      any day other than (i) Saturday or Sunday or (ii) any other day on which banks
      in New York, New York, United States, the United Kingdom or Sweden are permitted
      or required to be closed.

     

    
      
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    1.12  “Calendar
      Quarter”
      means
      the respective periods of three (3) consecutive calendar months ending on March
      31, June 30, September 30 and December 31.

     

    1.13  “cGCP”
      means
      current good clinical practices as defined in U.S. Regulations 21 CFR §§ 50, 54,
      56, 312 and 314, (or in the case of foreign jurisdictions, comparable regulatory
      standards), the International Conference of Harmonization (ICH) E6 “Good
      Clinical Practice: Consolidated Guidance,” and in any successor regulation or
      any official guidance documents issued by an applicable Regulatory
      Authority.

     

    1.14  “cGLP”
      means
      current good laboratory practice standards as defined by the FDA pursuant to
      21
      CFR Part 58 (or in the case of foreign jurisdictions, comparable regulatory
      standards), and in any successor regulation or any official guidance documents
      issued by a Regulatory Authority.

     

    1.15  “cGMP”
      means
      current good manufacturing practices as contained in 21 CFR Parts 210 and 211
      as
      amended from time to time and any equivalents contained in regulations in
      countries outside the U.S.

     

    1.16  “Change
      of Corporate Control”
      means
      the occurrence of either of the following:

     

    (a)  a
      Business Combination involving POZEN; or

     

    (b)  the
      acquisition (whether in a single transaction or series of related transactions)
      after the Effective Date by a Third Party or Group of beneficial ownership
      of
      ****** percent (******%) or more of POZEN’s voting securities.

     

    1.17  “Clinical
      Trial Materials”
      means
      the Initial POZEN Product formulated in accordance with the specifications
      of
      Schedule 6.1, matching placebo and matching individual ingredients and
      comparators, each packaged and labeled for use in the applicable clinical
      trial.

     

    1.18  “Combination
      Product”
      means a
      Product that includes one or more pharmaceutically active ingredients (in
      addition to a single Gastroprotective Agent and a single NSAID) and is sold
      in
      final form either in a single fixed combination oral solid dosage or as separate
      doses in a single package and priced as one item.

     

    1.19  “Commercial
      Launch”
      means
      the nationwide commercial sale, promotion and distribution of POZEN Product
      in a
      particular country of the Territory following receipt of Marketing Approval
      in
      such country.

     

    
      
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    1.20  “Commercialization”
      means
      all activities relating to the manufacture, marketing, promotion, advertising,
      selling and distribution of Product in any country of the Territory, including
      pre-Commercial Launch market development activities conducted in anticipation
      of
      Marketing Approval of Product, including, without limitation, seeking pricing
      and reimbursement approvals for Product, preparing advertising and promotional
      materials, sales force training, and all interactions and activities
      (e.g.,
      dossier
      preparations and filings) associated with Regulatory Authorities regarding
      the
      commercialization of Product and the maintenance of Marketing Approvals. The
      term “Commercialize” has a correlative meaning.

     

    1.21  “Commercialization
      Plan” has
      the
      meaning set forth in Section 5.4.1.

     

    1.22  “Commercialized
      POZEN Product”
      has the
      meaning set forth in Section 12.6.4(b)(ii).

     

    1.23  “Competing
      Product”
      means,
      with respect to a particular Product being Commercialized by AstraZeneca or
      any
      of its Affiliates or Sublicensees in any country of the Territory, a product
      being marketed by or on behalf of a Third Party (other than a Sublicensee)
      in
      the same country containing at least ****** that are ****** those in the
      ******and are ******.

     

    1.24  “Controlled”
      means,
      with respect to any Know-How, Patent, or other intellectual property right,
      the
      possession of the right, whether directly or indirectly, and whether by
      ownership, license or otherwise, to assign, or grant a license, sublicense
      or
      other right to or under, such Know-How, Patent or right as provided for herein
      without violating the terms of any agreement or other arrangements with any
      Third Party.

     

    1.25  “Core
      Development Activities”
      means
      any activities identified on Exhibit
      B
      as being
      paid for by POZEN.

     

    1.26  “DDMAC”
      means
      the FDA’s Division of Drug Marketing, Advertising, and
      Communications.

     

    1.27  “Develop”
      or “Development”
      means
      all activities relating to pre-clinical and clinical development of a Product
      and all development activities relating to the preparation and filing of NDAs
      and obtaining of Marketing Approvals, price and reimbursement approvals,
      including, without limitation, preparing and conducting pre-clinical testing,
      toxicology testing, human clinical studies, regulatory affairs.

     

    1.28  “Development
      Program”
      means
      the program of Development described in the U.S. Development Plan and ROW
      Development Plan, each as amended from time to time. 

     

    
      
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    1.29  “Diligent
      Efforts”
      means,
      (A) with respect to the Development, Manufacture or Commercialization by
      AstraZeneca of a product, at any given time as the case may be, efforts and
      resources reasonably used by AstraZeneca or its Affiliates (giving due
      consideration to relevant industry standards) for AstraZeneca’s own products
      (including internally developed, acquired and in-licensed products) with similar
      commercial potential at a similar stage in their lifecycle (assuming continuing
      development of such product), taking into consideration their safety,
      tolerability and efficacy, the profitability (taking into account any payments
      payable under this Agreement), the extent of market exclusivity, patent
      protection, cost to develop the product, promotable claims, and health economic
      claims, and (B) with respect to the Development by POZEN of a product, at any
      given time as the case may be, efforts and resources reasonably used by an
      entity in the pharmaceutical industry of similar resources and expertise as
      POZEN, for such similar entity’s own products (including internally developed,
      acquired and in-licensed products) with similar commercial potential at a
      similar stage in their lifecycle (assuming continuing development of such
      product), taking into consideration their safety, tolerability and efficacy,
      the
      profitability (taking into account any payments payable under this Agreement),
      the extent of market exclusivity, patent protection, cost to develop the
      product, promotable claims, and health economic claims.

     

    1.30  “Direct
      Costs”
      means
      all amounts which POZEN disburses to vendors for services rendered or product
      supplied in conducting studies pursuant to this Agreement. For clarification,
      no
      POZEN employee compensation, internally consumed supplies, utility charges,
      recoverable Indirect Taxes or other indirect costs will be included in Direct
      Costs.

     

    1.31  “Effective
      Date”
      has the
      meaning as defined in Section 12.1
      (HSR
      Act).

     

    1.32  “EMEA”
means
      the European Medicines Agency, or any successor agency thereto.

     

    1.33  “Esomeprazole”
      means
      that certain pharmaceutical compound with the name
      (5-methoxy-2-{(S)-[(4-methoxy-3,5-dimethylpyridin-2-yl)methyl]sulfinyl}-1H-benzimidazole),
      including any ******.

     

    1.34  “FDA”
      means
      the United States Food and Drug Administration, or any successor agency
      thereto.

     

    1.35  “Field
      of Use”
      means
      the treatment of human diseases and conditions by means of a pharmaceutical
      product.

     

    1.36  “First
      Commercial Sale”
      means,
      with respect to a Product and on a country-by-country basis, the date on which
      AstraZeneca or its Affiliate or Sublicensee first sells the Product intended
      for
      commercial distribution to any Third Party after receipt of NDA Approval of
      such
      Product in such country (including, without limitation, sale in an individual
      state, province or similar sub-national political subdivision in which Marketing
      Approval may be received). Sale of a Product for clinical studies, compassionate
      use, named patient programs, under a treatment IND, test marketing, any clinical
      studies, or any similar instance where the Product is supplied with or without
      charge will not constitute a First Commercial Sale.

     

    
      
        ******
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    1.37  “Formulation
      Budget”
      has the
      meaning set forth in Section 6.1.4
      (Expenses).

     

    1.38  “Formulation
      Development Activities”
      has the
      meaning set forth in Section 6.1.4
      (Expenses).

     

    1.39  “Formulation
      Technology”
      means
      any Know-How Controlled by AstraZeneca in the AstraZeneca Inventions that are
      used by AstraZeneca in the manufacture, use, sale or import of the formulation
      of a Commercialized POZEN Product, and any Patents Controlled by AstraZeneca
      claiming such AstraZeneca Inventions; provided, that Formulation Technology
      will
      not include any Patents or Know-How to the extent directed to a Gastroprotective
      Agent, non-steroidal anti-inflammatory, or other drug or chemical agent, or
      any
      methods of manufacture or use thereof.

     

    1.40  “FTE
      Costs”
      means an
      amount equal to $****** multiplied by the total number of hours spent by POZEN
      development personnel ****** conducting Additional Development Activities for
      the Development of Initial POZEN Products pursuant to this Agreement in
      accordance with a Development plan and budget approved by the GPT.

     

    1.41  “Gastroprotective
      Agent”
      means
      proton pump inhibitors and H2 receptor antagonists for the treatment, prevention
      or amelioration of injury to the gastrointestinal tract.

     

    1.42  “GPT”
      means
      AstraZeneca’s global product team operating pursuant to AstraZeneca’s
      instructions for global product teams for the Initial POZEN Product with
      representatives of AstraZeneca having expertise in the areas of research &
development, marketing, regulatory, intellectual property, finance, toxicology,
      and other areas.

     

    1.43  “GPT
      Chair”
      will
      have the meaning set forth in Section 2.2.1
      (GPT)
      .

     

    1.44  “Group”
      means a
      group of related persons or entities deemed a “person” for purposes of Section
      13(d) of the Securities Exchange Act of 1934, as amended.

     

    1.45  “IND”
      means an
      Investigational New Drug Application filed with the FDA pursuant to 21 CFR
      § 312.20, or the corresponding filing in any country or regulatory
      jurisdiction other than the United States required for the clinical testing
      in
      humans of a pharmaceutical product.

     

    1.46  “Indirect
      Tax”
      means
      value added taxes, sales taxes, consumption taxes and other similar
      taxes.

     

    1.47   “Initial
      POZEN Product”
      means
      the POZEN Product containing non-enteric coated Esomeprazole and enteric-coated
      Naproxen that is the subject of the Initial U.S. Development Plan and Initial
      ROW Development Plan, subject to substitution (either throughout the Territory
      or in any one or more countries of the Territory) in accordance with Section
      3.4.2 (Substitution) hereof.

     

    1.48  “Initial
      ROW Development Plan”
      means
      the outline for the ROW Development Plan, as set forth in Exhibit
      D
      as of
      the Effective Date.

     

    
      
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    1.49  “Initial
      ROW Development Plan Timeline”
      means
      the ROW Development Plan Timeline attached to this Agreement as Exhibit
      E
      as of
      the Effective Date.

     

    1.50  “Initial
      U.S. Development Plan”
      means
      the outline for the U.S. Development Plan, as set forth in Exhibit
      B
      as of
      the Effective Date.

     

    1.51  “Initial
      U.S. Development Plan Timeline”
      means
      the U.S. Development Plan Timeline attached to this Agreement as Exhibit
      C
      as of
      the Effective Date.

     

    1.52  “Invention”
      means
      any invention, discovery or Know-How that is conceived during the Term in the
      performance of activities undertaken pursuant to this Agreement by employees,
      agents, or independent contractors of either Party, its Affiliates or
      Sublicensees and is Controlled by such Party, Affiliates or
      Sublicensees.

     

    1.53  “Joint
      Invention”
      means
      any Invention that is conceived jointly by one or more employees, agents, or
      independent contractors of AstraZeneca or its Affiliate(s) and one or more
      employees, agents, or independent contractors of POZEN or its
      Affiliate(s).

     

    1.54  “Joint
      Patent”
      means a
      Patent claiming a Joint Invention.

     

    1.55  “JSC”
      has the
      meaning set forth in Section 2.1.2
      (Joint
      Steering Committee).

     

    1.56  “Know-How”
      means
      any non-public, documented or otherwise recorded or memorialized knowledge,
      experience, know-how, technology, information, and data, including formulas
      and
      formulations, processes, techniques, unpatented inventions, discoveries, ideas,
      and developments, test procedures, and results, together with all documents
      and
      files embodying the foregoing.

     

    1.57  “Licensed
      Know-How”
      means
      any Know-How that is necessary or useful for the Development, Manufacture or
      Commercialization of Product in the Field of Use and that is Controlled by
      POZEN
      or any of its Affiliates as of the Effective Date or during the
      Term.

     

    1.58  “Licensed
      Patents”
      means:
      (a) the Patents set forth on Schedule 1.58, and any substitutions, divisions,
      continuations, continuations-in-part, reissues, renewals, registrations,
      confirmations, re-examinations, or extensions of such Patents, (b) any Patents
      Controlled by POZEN or any of its Affiliates as of the Effective Date or during
      the Term that claim Inventions (including without limitation POZEN’s interest in
      Joint Inventions), (c) all other Patents Controlled by POZEN or any of its
      Affiliates as of the Effective Date or during the Term that are necessary or
      useful for the Development, Manufacture or Commercialization of a Product;
      and
      any foreign counterparts of any of the foregoing.

     

    1.59  “Licensed
      Technology”
      means
      the Licensed Patents and the Licensed Know-How.

     

    1.60  “Major
      Ex-U.S. Market”
      means
      the following countries: ******, or any country substituted for one of the
      foregoing countries pursuant to Section 4.1.2.
      (Outside
      the U.S.).

     

    
      
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    1.61  “Manufacture”
      means
      all activities related to the manufacturing of a Product, or any ingredient
      thereof, including but not limited to formulation development and process
      development for the manufacture of a Product, manufacturing supplies for
      Development, manufacturing for commercial sale, packaging, in-process and
      finished product testing, release of product or any component or ingredient
      thereof, quality assurance activities related to manufacturing and release
      of
      product, ongoing stability tests and regulatory activities related to any of
      the
      foregoing. “Manufacture” shall not include any of the above activities with
      respect to Esomeprazole as an active ingredient.

     

    1.62  “Market
      Reduction”
      has the
      meaning set forth in Section 8.4.3
      (Rate
      Step Down for Competing Product Entrants).

     

    1.63  “Marketing
      Approval”
      means
      all approvals (including NDA Approvals and, where available under Applicable
      Law, pricing and reimbursement approvals in accordance with Applicable Law)
      of
      any Regulatory Authority in a country, that are necessary or useful to be
      obtained prior to the manufacture or Commercialization of a Product in that
      country. For purposes of clarification, “Marketing Approval” in the U.S. shall
      have the same meaning as NDA Approval in the U.S. 

     

    1.64  “Milestone
      Events”
      means
      the events listed under the heading “Milestone Events” in the table in Section
8.2
      (Development Milestone Payments).

     

    1.65  “Naproxen”
      means
      that certain pharmaceutical compound with the chemical name
      (S)-6-methoxy-(alpha)-methyl-2-naphthaleneacetic acid, including any
      ******. 

     

    1.66  “NDA”
      means a
      New Drug Application filed with the FDA as described in 21 CFR § 314, or
      any corresponding application for Regulatory Authority approval (not including
      pricing and reimbursement approval) in any country or regulatory jurisdiction
      other than the U.S.

     

    1.67  “NDA
      Approval”
      means
      receipt of a letter from the FDA, or equivalent Regulatory Authority in
      jurisdictions outside the U.S., approving an NDA.

     

    1.68  “Net
      Sales”
      means
      with respect to any Product, the gross amounts recognized by AstraZeneca, its
      Sublicensees or its Affiliates from Third Party customers for sales of a Product
      in the Territory, less the following deductions made by AstraZeneca (to the
      extent not already taken by AstraZeneca in the Product invoice or in amounts
      recognized), its Sublicensees or its Affiliates in arriving at net sales as
      reported in the AstraZeneca statutory accounts prepared in accordance with
      IFRS:

     

    (a)  actual
      credited allowances to such Third Party customers for spoiled, damaged,
      rejected, recalled, outdated and returned Product and for retroactive price
      reductions;

     

    (b)  the
      amounts of trade and cash discounts actually granted to Third Party customers,
      to the extent such trade and cash discounts are specifically allowed on account
      of the purchase of such Product;

     

    
      
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    (c)  

     

    sales
      taxes, excise taxes and import/export duties actually due or incurred in
      connection with the sales of a Product to any Third Party customer;

     

    (d)  allowances,
      adjustments, reimbursements, discounts, chargebacks and rebates actually granted
      to Third Party customers (not in excess of the selling price per unit of such
      Product);

     

    (e)  other
      deductions from gross sales made in arriving at net sales as reported in the
      AstraZeneca statutory accounts; and

     

    (f)  allowance
      for transportation costs, distribution expenses, special packaging and related
      insurance charges in the amount of ****** percent (******%) of the Net Sales
      calculated after applying the deductions of items (a)-(e) above.

     

    Net
      Sales
      shall be calculated using AstraZeneca’s internal audited systems used to report
      such sales as adjusted for any of items (a)-(f) above not taken into account
      in
      such systems. Notwithstanding the foregoing, if Product is sold as a Combination
      Product, the Net Sales used for the calculation of the royalties under Section
      8.4
      (Royalties) shall be determined as follows:

     

    
      
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              A

            	
               

               X

               

            	
               

              Net
                Sales of the Combination Product, where:

               

            
	
              A+B

            
	
              A
                =

               

            	
              Standard
                Sales Price of the ready-for-sale form of the Product if sold separately
                from the Combination Product in question, in the given
                country.

               

            
	
              B
                =

               

            	
              Standard
                Sales Price of the ready-for-sale form of a product containing the
                same
                amount of the other therapeutically active ingredient(s) that is
                contained
                in the Combination Product in question, in the given country.

               

            

    

     

    If,
      in a
      specific country, (a) the other therapeutically active ingredient(s) in such
      Combination Product are not sold separately in such country, Net Sales shall
      be
      adjusted by multiplying actual Net Sales of such Combination Product by the
      fraction A/C, where C is the Standard Sales Price in such country of such
      Combination Product, and (b) if a Product contained in the Combination Product
      is not sold separately, Net Sales shall be calculated by multiplying actual
      Net
      Sales of such Combination Product by the fraction (C-B)/C, where B is the
      Standard Sales Price in such country of the other therapeutically active
      ingredient(s) in the Combination Product and C is the Standard Sales Price
      in
      such country of the Combination Product. If, in a specific country, both a
      Product in a Combination Product and a product containing the other active
      ingredients in such Combination Product are not sold separately, a market price
      for such Product and such other active ingredients shall be negotiated by the
      Parties in good faith based upon the market price of products that are
      comparable to such Product or such other active ingredients, as applicable.
      In
      each country where the Product in the Combination Product is marketed, the
      Standard Sales Price of the Product in such Combination Product for purposes
      of
      calculating the royalty payable to POZEN will be no less than ****** percent
      (******%) of the Standard Sales Price of the Product sold outside of such
      Combination Product in such country.

     

    In
      addition, and notwithstanding the foregoing, if a Product is sold together
      with
      other goods with or without a separate price for such Product (such group of
      products including the Product a “Product
      Set”),
      then
      the Net Sales applicable to the quantity of such Product included in any such
      transaction will be calculated as follows:

     

    
      	
               

              A

            	
               

               X

               

            	
               

              Net
                Sales of the Product Set, where:

               

            
	
              A+B

               

            
	
              A
                =

               

            	
              Standard
                Sales Price of the Product if sold separately from the Product set
                in
                question, in the given country.

               

            
	
              B
                =

               

            	
              The
                total of the Standard Sales Prices of all products in the Product
                Set
                other than the Product, in the given country.

               

            

    

    

     

    
      
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        1.69  “Nexium”
      means
      AstraZeneca’s products containing Esomeprazole as the sole active ingredient in
      any presentation form.

     

    1.70  “Nexium
      Business”
      means
      AstraZeneca’s development and commercialization activities pertaining to
      Esomeprazole and Esomeprazole based products.

     

    1.71  “NSAID”
      means
      any non-steroidal anti-inflammatory drug, the primary mechanism of action of
      which is inhibition of cyclooxygenase, but excluding acetyl salicylic acid
      (including salts and derivatives thereof).

     

    1.72  “Patent
      Challenge”
      has the
      meaning set forth in Section 9.9.

     

    1.73  “Patents”
      means
      (a) all patents and patent applications in any country or supranational
      jurisdiction, and (b) any substitutions, divisions, continuations,
      continuations-in-part, reissues, renewals, registrations, confirmations,
      re-examinations, extensions, supplementary protection certificates and the
      like,
      and any provisional applications, of any such patents or patent
      applications.

     

    1.74  “******”
      has the
      meaning set forth in Section 6.1.3.

     

    1.75  “PDUFA
      Date”
      means
      the date identified in an official communication from the FDA as the target
      date
      by which the FDA expects to issue an action letter, as required under the
      Prescription Drug User Free Act of 1992 (P.L. 102-571), as amended and in effect
      from time to time.

     

    1.76  “******
      Study”
      means
      the ****** study described in the Initial U.S. Development Plan.

     

    1.77  “******
      Studies”
means
      the ****** studies described in the U.S. Development Plan.

     

    1.78  “Post-Approval
      Failure”
      means:
      (a) a mandatory withdrawal or recall of a Product by a Regulatory Authority
      in
      any country in the Territory, or (b) any voluntary withdrawal or recall of
      a
      Product in the U.S. or a Major Ex-U.S. Market country that arises from risks
      associated with a serious adverse health consequence or death reported to a
      Regulatory Authority anywhere in the world. Notwithstanding the foregoing,
      any
      such recall that results primarily from AstraZeneca’s or its Affiliate’s or
      Sublicensee’s gross negligence, willful misconduct, or failure to comply with
      Applicable Law in the Development, Manufacture or Commercialization of a Product
      shall not be considered a Post-Approval Failure for purposes of this
      Agreement.

     

    1.79  “POZEN
      House Marks”
      means
      any trademarks, trade names, domain names, or other names or marks used or
      registered by POZEN or its Affiliates at any time during the Term to identify
      itself.

     

    1.80  “POZEN
      Invention”
      means
      any Invention that is conceived solely by one or more employees, agents, or
      independent contractors of POZEN or its Affiliate(s).

     

    
      
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    1.81  “POZEN
      Product”
      means
      any product that combines a Gastroprotective Agent and any NSAID in a single
      fixed combination dosage form, that would, if made, used, sold, offered for
      sale, had made, imported or exported without a license from POZEN of the
      Licensed Patents, infringe one or more Valid Claims of the Licensed
      Patents.

     

    1.82  “Pre-Approval
      Failure”
      means
      any of the following:

     

    (a)  POZEN’s
      failure to deliver the formulation, manufacturing process, data and materials
      for the Initial POZEN Product in accordance with the terms of Section
6.1.1
      (Initial
      POZEN Product) or Section 6.1.2
      (ROW
      POZEN Products);

     

    (b)  the
      receipt of notice from the FDA, EMEA or other Regulatory Authority in the EU
      that successful completion of the Budgeted Development Activities and Core
      Development Activities would be insufficient to achieve NDA Approval of the
      Initial POZEN Product without the performance of Additional Development
      Activities that are not included in the Budgeted Development Activities and
      that
      would be reasonably expected, in the aggregate, to either (i) delay the
      anticipated date of NDA Approval of the Initial POZEN Product by more than
      ****** past the dates set forth in the Initial U.S. Development Plan Timeline
      or
      for any country of the EU set forth in the Initial ROW Development Plan
      Timeline, or (ii) require AstraZeneca to spend more than an aggregate of $******
      to perform; provided that, the cost of any such Additional Development
      Activities conducted pursuant to the ****** and ****** Studies shall not be
      counted toward such $****** limit;

     

    (c)  either
      (i) the failure of the ****** Study described in the Initial U.S. Development
      Plan to satisfy its primary endpoint for all doses of the Initial POZEN Product,
      or (ii) the failure of the ****** of the ****** Study described in the Initial
      U.S. Development Plan to satisfy its primary endpoint, ******;

     

    (d)  receipt
      of results of a clinical trial of the Initial POZEN Product that show that
      such
      Initial POZEN Product is unsafe;

     

    (e)  TPP
      Failure;

     

    (f)  the
      receipt of notice from the FDA, the EMEA or a Regulatory Authority in a country
      in the Major Ex-U.S. Market that the NDA for the Initial POZEN Product in such
      country is not approvable; 

     

    (g)  after
      the
      submission of an NDA for the Initial POZEN Product, receipt of notice from
      the
      FDA, EMEA or other Regulatory Authority in the EU that such NDA will not be
      approved without the performance of Additional Development Activities that
      would
      be reasonably expected, in the aggregate, to either (i) delay the anticipated
      date of NDA Approval of the Initial POZEN Product by more than ****** past
      the
      date set forth in the Initial U.S. Development Plan Timeline or for any country
      of the EU set forth in the Initial ROW Development Plan Timeline, or (ii)
      require AstraZeneca to spend more than an aggregate of $****** to perform;
      or

     

    
      
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    (h)  subject
      to the terms of Sections 2.3.5
      (Interim
      Results of ******) and 4.3.3
      (Label
      Negotiations and Approval), delay in Development activities not caused by
      AstraZeneca’s failure to comply with its obligations under this Agreement that,
      in the aggregate, will delay NDA Approval for the Initial POZEN Product in
      either the U.S. or the EU at least ****** beyond the date for such NDA Approval
      set forth in the Initial U.S. Development Plan Timeline and the Initial ROW
      Development Plan Timeline.

     

    1.83  “Product”
      means:
      (a) any POZEN Product, and (b) any other product that combines a
      Gastroprotective Agent and any NSAID in a single fixed combination oral solid
      dosage form (with or without one or more additional therapeutically active
      agents), which product is developed or commercialized by or for, invented or
      acquired by, or comes under the Control of AstraZeneca or its Affiliates during
      the Term. For the avoidance of doubt, “Product” does not include any product
      containing acetyl salicylic acid (including salts and derivatives
      thereof).

     

    1.84  “Product
      Labeling”
      means
      (a) the full prescribing information for a POZEN Product approved by the
      applicable Regulatory Authority, and (b) all labels and other written, printed
      or graphic information included in or placed upon any container, wrapper or
      package insert used with or for the POZEN Product.

     

    1.85  “Product
      Trademarks”
      means
      any trademarks, trade dress (including packaging design), logos, slogans, domain
      names and designs, whether or not registered in a country or territory, selected
      and owned by AstraZeneca and used to identify or promote a POZEN Product, but
      excluding any POZEN House Marks and AstraZeneca House Marks.

     

    1.86  “Promotional
      Materials”
      means
      all sales representative training materials and all written, printed, graphic,
      electronic, audio or video presentations of information, including, without
      limitation, journal advertisements, sales visual aids, formulary binders,
      reprints, direct mail, direct-to-consumer advertising, internet postings,
      broadcast advertisements and sales reminder aides (for example, note pads,
      pens
      and other such items) intended for use or used by AstraZeneca or its Affiliates
      in connection with any promotion of the Initial POZEN Product hereunder, but
      excluding Product Labeling.

     

    1.87  “Proof
      of Concept Study”
      means
      the ****** Study and ****** Study described in the Initial U.S. Development
      Plan.

     

    1.88  “Regulatory
      Authority”
      means,
      in a particular country or jurisdiction, any applicable government regulatory
      authorities involved in granting approval to market or sell a Product, including
      any pricing and reimbursement approvals, in such country or jurisdiction,
      including, (a) in the United States, the FDA, and any successor government
      authority having substantially the same function, (b) any non-United States
      equivalent thereof, and (c) in the EU, the EMEA and any national regulatory
      authority in any EU country.

     

    
      
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    1.89  “Regulatory
      Materials” means
      regulatory applications, submissions, notifications, registrations, Marketing
      Approvals or other submissions made to or with a Regulatory Authority that
      are
      necessary or reasonably desirable in order to develop, manufacture, market,
      sell
      or otherwise Commercialize the Initial POZEN Product in a particular country,
      territory or possession. Regulatory Materials include, without limitation,
      INDs
      and NDAs, and amendments and supplements for any of the foregoing, and
      applications for pricing and reimbursement approvals.

     

    1.90  “ROW
      Development Plan”
      means
      the plan for the Development of the Initial POZEN Product for Marketing Approval
      in the Territory outside the U.S. as may be updated and amended from time to
      time by the GPT in accordance with this Agreement. 

     

    1.91  “ROW
      Development Plan Timeline”
      means
      the estimated timeline for completion of the ROW Development Plan, as may be
      updated and amended from time to time by the GPT in accordance with this
      Agreement.

     

    1.92  “Royalty
      Term” has
      the
      meaning set forth in Section 8.4.2
      (Royalty
      Term).

     

    1.93  “Specifications”
      has the
      meaning set forth in Section 6.1.1
      (Manufacturing Development; Initial POZEN Product).

     

    1.94  “Standard
      Sales Price”
      means,
      as reported by IMS (or ACNielsen in the case of over-the-counter products)
      in
      the relevant country, the average sales price for the preceding Calendar Quarter
      for the Product or, in the case of a Combination Product, the average sales
      price for the applicable presentation and dosage strength of all marketed brands
      of the other therapeutically active ingredient(s). As used herein,
“presentation” means the method of administration of a pharmaceutical substance
      into the human body, including, but not limited to, solid oral (including
      tablets, capsules, gelcaps, sachets and caplets), other oral (including
      suspension and solution), parenteral (including intramuscular, subcutaneous
      and
      intravenous), transdermal, suppository and intranasal.

     

    1.95  “Sublicense
      Agreement”
      means
      any agreement under which AstraZeneca grants a Third Party a sublicense, option
      or other right under the Licensed Technology to make, use, have made, sell,
      offer for sale, import and export Products in the Field of Use in the
      Territory.

     

    1.96  “Sublicensee”
      means
      any Third Party that has entered into a Sublicense Agreement.

     

    1.97  “Term”
      has the
      meaning assigned to it in Section 12.2
      (Term).

     

    1.98  “Territory”
      means
      all countries of the world, excluding Japan, unless and until AstraZeneca
      exercises the option under Section 7.6
      (Japan
      Option), whereupon the Territory shall be all countries of the
      world.

     

    1.99  “Third
      Party”
      means
      any entity other than POZEN, AstraZeneca, or any of their respective
      Affiliates.

     

    
      
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    1.100  “Third
      Party Royalties”
      means
      upfront, commercialization milestone, royalty and any other similar payments
      paid by AstraZeneca or any AstraZeneca Affiliate to any Third Party in
      consideration for a license to a Blocking Patent for the Development or
      Commercialization of POZEN Products.

     

    1.101  “TPP”
      shall
      mean the target product profile of the Initial POZEN Product as described in
      Exhibit
      F.

     

    1.102  “TPP
      Endpoints”
      means
      the endpoints of the TPP Studies as described in Exhibit
      F.

     

    1.103  “TPP
      Failure”
      means
      the failure of any TPP Study to achieve TPP Endpoint Success, as defined in
      Exhibit
      F.

     

    1.104  “TPP
      Studies”
      means
      the studies entitled ****** in the Initial U.S. Development Plan.

     

    1.105  “U.S.”
      means
      the United States of America and its possessions and territories.

     

    1.106  “U.S.
      Development Plan”
      means
      the plan for the Development of the Initial POZEN Product for Marketing Approval
      in the U.S. as may be updated and amended from time to time by the GPT in
      accordance with this Agreement.

     

    1.107  “U.S.
      Development Plan Timeline”
      means
      the estimated timeline for completion of the U.S. Development Plan, as may
      be
      updated and amended from time to time by the GPT in accordance with this
      Agreement.

     

    1.108  “Valid
      Claim”
      means
      any claim of any issued and unexpired patent or a patent application that has
      not been disclaimed or held invalid or unenforceable by judgment or decree
      entered in any judicial proceeding that is not further reviewable through the
      exhaustion of all permissible applications for rehearing or review by a superior
      tribunal, or through the expiration of the time permitted for such applications;
      provided, that any claim in a pending Patent application that does not issue
      as
      a patent claim within ****** (******) years after the earliest priority date
      of
      such application will not be a “Valid Claim” until such claim issues as a patent
      claim.

     

    
      
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      	2.  	
              COLLABORATION
                GOVERNANCE

            

    

     

    2.1  Establishment.

     

    2.1.1  Global
      Product Team.
      Within
      twenty (20) days after the Effective Date, the Parties will appoint
      representatives to the GPT in accordance with the terms of this
      Section 2.1
      and
      convene the first GPT meeting. The GPT will coordinate and oversee the
      Development and Commercialization of the Initial POZEN Product hereunder. The
      purposes of the GPT will be, with respect to the Initial POZEN Product only,
      (a)
      to coordinate the management and implementation of the Parties’ Development
      activities hereunder, (b) to update the U.S. Development Plan in a manner
      consistent with the Initial U.S. Development Plan by providing additional detail
      regarding the activities described therein and to amend the U.S. Development
      Plan from time to time, (c) to update the ROW Development Plan in a manner
      consistent with the Initial ROW Development Plan by providing additional detail
      regarding the activities described therein and to amend the ROW Development
      Plan
      from time to time, (d) to propose, approve, amend and allocate responsibility
      for performing any Additional Development Activities, and (e) to develop
      AstraZeneca’s Commercial Launch and marketing plans for the Initial POZEN
      Product. The GPT will have the membership and will operate by the procedures
      set
      forth in Section 2.2
      (Membership and Procedures).

     

    2.1.2  Joint
      Steering Committee
      Promptly
      following the Effective Date, the Parties will create a joint steering committee
      (the “JSC”)
      to
      provide strategic guidance to the GPT in decisions pertaining to the Initial
      POZEN Product. The purposes of the JSC will be (a) to review and make
      recommendations to the GPT regarding the U.S. Development Plan, and (b) to
      resolve disputes of the GPT. The JSC will have the membership and will operate
      by the procedures set forth in Section 2.2
      (Membership and Procedures).

     

    2.2  Membership
      and Procedures.

     

    2.2.1  GPT.

     

    (a)  Membership.
      In
      addition to members designated by AstraZeneca, the GPT shall have up to three
      (3) representatives designated by POZEN, attending, observing and participating
      in meetings of the GPT at POZEN’s expense, such representatives having the
      relevant experience and skill appropriate for service on such team. Such
      representatives shall be regular working members of the GPT. AstraZeneca shall
      be entitled to have as many representatives serve as members of the GPT as
      it
      desires. POZEN may replace its representatives on the GPT at any time upon
      written notice to AstraZeneca. AstraZeneca shall provide POZEN office space
      at
      its facilities for such representatives to facilitate such participation;
      provided, that such representatives shall comply with all policies and
      reasonable restrictions imposed by AstraZeneca and provided to POZEN in writing.
      Upon prior written consent of AstraZeneca, which consent will not be
      unreasonably withheld, a reasonable number of employees, consultants,
      representatives or advisors of POZEN who are not POZEN’s GPT representatives may
      attend GPT meetings as observers; provided, that such persons shall comply
      with
      all policies and reasonable restrictions imposed by AstraZeneca and provided
      to
      POZEN in writing.

     

    
      
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    (b)  Chairpersons.
      The
      global product director for the Initial POZEN Product designated by AstraZeneca
      will chair the GPT (“GPT
      Chair”).

     

    (c)  Meetings.
      The GPT
      will hold meetings when called by the GPT Chair but, in any event, at least
      once
      every Calendar Quarter. Meetings may be held in person at AstraZeneca’s
      facilities or by means of telecommunication (telephone, video, or web
      conferences). Following any GPT meeting, the GPT Chair will be responsible
      for
      preparing and issuing minutes of such meeting within fifteen (15) Business
      Days
      thereafter. Such minutes will not be finalized until a representative of the
      GPT
      designated by each Party has reviewed and confirmed the accuracy of such minutes
      in writing. If a disagreement regarding the accuracy of such minutes cannot
      be
      resolved, the minutes will reflect such disagreement.

     

    2.2.2  JSC.

     

    (a)  Membership.
      Each
      Party will designate an equal number of representatives, but in no event less
      than three (3) each, with appropriate expertise to serve as members of the
      JSC.
      Each Party may replace its representatives on the JSC at any time upon written
      notice to the other Party.

     

    (b)  Co-Chairpersons.
      One of
      each Party’s representatives to the JSC will be designated as a co-chairperson.
      The co-chairpersons will be responsible for calling meetings and preparing
      and
      circulating an agenda in advance of each meeting, and preparing minutes of
      each
      meeting.

     

    (c)  Meetings.
      The JSC
      will hold meetings at least once every Calendar Quarter, or more frequently
      as
      the Parties may agree with at least two meetings held in person annually.
      Subject to the preceding sentence, meetings may be held in person at locations
      to be determined by the mutual agreement of the Parties (a majority of which
      must be outside the United States) or by means of telecommunication (telephone,
      video, or web conferences). Following any JSC meeting, the co-chairpersons
      will
      be responsible for preparing and issuing minutes of such meeting within fifteen
      (15) Business Days thereafter. Such minutes will not be finalized until a
      representative of each Party has reviewed and confirmed the accuracy of such
      minutes in writing. If a disagreement regarding the accuracy of such minutes
      cannot be resolved, the minutes will reflect such disagreement.

     

    2.2.3  Limitations
      of Powers.
      The GPT
      and JSC will have only such powers as are specifically delegated to them
      hereunder and will not be a substitute for the rights of the Parties. Without
      limiting the generality of the foregoing, the GPT and JSC will not have any
      power to amend this Agreement (except amendments to the U.S. Development Plan
      or
      ROW Development Plan). Any amendment to the terms and conditions of this
      Agreement may only be implemented pursuant to Section 15.6
      (Entire
      Agreement; Modifications) below.

     

    2.2.4  Expenses.
      Each
      Party will be responsible for all of its own expenses of participating in the
      GPT and JSC.

     

    
      
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    2.3  Decision-Making.

     

    2.3.1  GPT
      Decisions.
      Subject
      to the terms of this Section 2.3
      (Decision-Making), the GPT will act by decision of the GPT Chair. If a POZEN
      representative objects to any decision, then such dispute will be referred
      to
      the JSC.

     

    2.3.2  JSC
      Decisions.
      Subject
      to the terms of this Section 2.3
      (Decision-Making), the JSC will take action by unanimous vote with each Party
      having a single vote, irrespective of the number of representatives actually
      in
      attendance at a meeting, or by a written resolution signed by the designated
      representatives of each of the Parties. If the JSC fails to reach unanimous
      consent on a particular matter within ****** (******) Business Days of POZEN
      having requested a formal vote on such matter (or any earlier period mutually
      agreed to by the Parties if a delay may reasonably be anticipated to have an
      adverse effect on the Development or Commercialization of the Initial POZEN
      Product), then such dispute will be subject to the resolution procedures
      described in Section 2.3.3
      (Dispute
      Resolution) below.

     

    2.3.3  Dispute
      Resolution.
      In the
      event of any dispute in the JSC that is not resolved pursuant to the terms
      of
      Section 2.3.2
      (JSC
      Decisions), either Party may provide written notice of such failure (a
“Notice
      of Disagreement”)
      to the
      Chief Executive Officer of the other Party (or his or her designee). The Chief
      Executive Officers or designees of each of the Parties will meet at least once
      in person or by means of live telecommunication (telephone, video, or web
      conferences) to discuss the matter on which the JSC failed to reach unanimous
      consent and use their good faith efforts to resolve the matter within ******
      (******) Business Days after receipt of the Notice of Disagreement by the
      applicable Chief Executive Officer of a Party. If any such disagreement is
      not
      resolved by the Chief Executive Officers or designees within such ******
      (******) day period, then (A) the Chief Executive Officer or designee of POZEN
      will have the final decision-making authority with respect to any such
      disagreement arising out of either (i) Core Development Activities (other than
      ****** or the ******) or (ii) subject to Section 3.3.3
      (Expenses), Additional Development Activities but only to the extent that such
      activities are required by the FDA to obtain NDA Approval in the U.S. of the
      Initial POZEN Product, and (B) the Chief Executive Officer or designee of
      AstraZeneca will have the final decision-making authority with respect to
      disagreement relating to all other matters. Notwithstanding anything to the
      contrary in this Section 2.3.3
      (Dispute
      Resolution):

     

    (a)  POZEN’S
      Chief Executive Officer or designee will not make a final determination that
      would ****** without AstraZeneca’s prior written consent;

     

    (b)  POZEN’S
      Chief Executive Officer or designee will not make a final determination ******
      without the prior written consent of AstraZeneca; provided, that AstraZeneca
      will not unreasonably withhold, condition or delay its consent;

     

    (c)  Neither
      Party’s Chief Executive Officer or designee ******;

     

    
      
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    (d)  Neither
      Party’s Chief Executive Officer or designee may make any decision without the
      prior written consent of the other Party that would ****** for the ******from
      the ****** by the Parties through the ******will not be ******; provided, that
      the foregoing will not ******set forth in this Agreement ****** ****** ******in
      this Agreement; 

     

    (e)  AstraZeneca’s
      Chief Executive Officer or designee will not, without POZEN’s prior written
      consent, ******.

     

    2.3.4  Extension
      of Pre-Approval Failure Time Limits.
      ******,
      if AstraZeneca proposes to change either the U.S. Development Plan or the ROW
      Development Plan so as to add Development activities that are reasonably
      expected to delay the NDA Approval of the Initial POZEN Product in the U.S.
      or
      any Major Ex-U.S. Market country (other than in a manner required by a
      Regulatory Authority to obtain NDA Approval in the U.S. or any Major Ex-U.S.
      Market country) beyond the dates for NDA Approval set forth in the Initial
      U.S.
      Development Plan Timeline and the Initial ROW Development Plan Timeline, then
      if
      the plan is so amended, the Parties will determine in good faith negotiations
      whether to adjust the periods referred to in paragraphs ****** of the definition
      of Pre-Approval Failure in Section 1.81
      (Pre-Approval Failure) to take account of such delay; provided, that in no
      event
      will either period be extended longer than ******.

     

    2.3.5  Interim
      Results of ******. If
      the
      interim results of the ****** ****** described in the Initial U.S. Development
      Plan lead either Party to reasonably believe that there is a substantial
      likelihood that the ****** will not ******, then such Party will provide written
      notice to the other Party of such determination and the Parties will discuss
      in
      good faith, through the GPT, whether to postpone commencement of some or all
      of
      the future Core Development Activities or Additional Development Activities
      pending the receipt of ****** (it being understood that ongoing activities
      will
      continue). 

     

    (a)  If,
      following such GPT discussion, AstraZeneca elects to postpone commencement
      of
      some or all new Additional Development Activities, then POZEN shall not commence
      such new Additional Development Activities. If AstraZeneca elects to postpone
      commencement of new Additional Development Activities in a way that would be
      reasonably likely to delay Development of the Initial POZEN Product, POZEN
      may
      postpone commencement of some or all of the new Core Development Activities
      for
      the same period that AstraZeneca postpones commencement of such new Additional
      Development Activities, subject to POZEN’s using Diligent Efforts to commence
      such new Core Development Activities as soon as reasonably practicable at the
      end of such suspension period. Notwithstanding anything to the contrary herein,
      any delays in obtaining NDA Approval of the Initial POZEN Product resulting
      from
      such postponement of Additional Development Activities or Core Development
      Activities shall not be counted in determining whether the time period in
      paragraph (******) of Section 1.81
      (Pre-Approval Failure) has been exceeded

     

    (b)  If,
      following such GPT discussion, AstraZeneca desires to postpone commencement
      of
      new Additional Development Activities and POZEN does not agree to such
      postponement, then POZEN in its sole discretion may continue performing the
      applicable Additional Development Activities at its own expense. 

     

    
      
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    (c)  In
      any
      event, if ****** ****** indicates that ******, then unless AstraZeneca
      terminates this Agreement on account of a Pre-Approval Failure described in
      Section 1.81(c),
      (i) the
      Parties will commence the performance of the postponed Additional Development
      Activities and Core Development Activities in accordance with the applicable
      development plans, and (ii) with respect to any Additional Development
      Activities performed by POZEN pursuant to the preceding clause (b) during the
      interim period, AstraZeneca will reimburse POZEN for all costs of performing
      such activities under the terms of Section 3.3.3
      (Expenses). In any event, AstraZeneca will reimburse POZEN for any reasonable
      cancellation or suspension fees paid by POZEN in connection with the
      postponement of Additional Development Activities contemplated by this
      Section 2.3.5.

     

    2.3.6  Limitation.
      Notwithstanding this Section 2.3
      (Decision-Making), any dispute regarding the interpretation of this Agreement,
      the performance or alleged nonperformance of a Party’s obligations under this
      Agreement, or any alleged breach of this Agreement will be resolved in
      accordance with the terms of Section 15.4
      (Governing Law; Dispute Resolution).

     

    
      	3.  	
              PRODUCT
                DEVELOPMENT

            

    

     

    3.1  Development
      Plans.

     

    3.1.1  U.S.
      Development Plan.
      The
      Development of Initial POZEN Product under this Agreement for U.S. Marketing
      Approval will be governed by the U.S. Development Plan and the U.S. Development
      Plan Timeline. As promptly as practicable following the Effective Date, the
      GPT
      will update the U.S. Development Plan in a manner that is consistent with the
      Initial U.S. Development Plan and the Initial U.S. Development Plan Timeline.
      Subject to Section 2.3.3
      (Dispute
      Resolution), from time to time during the Term, the GPT will update the U.S.
      Development Plan as it deems necessary and appropriate. The U.S. Development
      Plan will be part of this Agreement and incorporated herein by
      reference. 

     

    3.1.2  ROW
      Development Plan.
      The
      Development of Initial POZEN Product under this Agreement for Marketing Approval
      outside the U.S. will be governed by the ROW Development Plan and the ROW
      Development Plan Timeline. As promptly as practicable following the Effective
      Date, the GPT will update the ROW Development Plan in a manner that is
      consistent with the Initial ROW Development Plan and the Initial ROW Development
      Plan Timeline. The ROW Development Plan will be part of this Agreement and
      incorporated herein by reference. Subject to Section 2.3.3
      (Dispute
      Resolution), from time to time during the Term, the GPT will update the ROW
      Development Plan as it deems necessary and appropriate.

     

    
      
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    3.1.3  TPP
      Endpoints.
      The
      Parties acknowledge that a primary goal of Development efforts under this
      Agreement is to generate data that will enable AstraZeneca to promote the
      Initial POZEN Product on the basis of the TPP Endpoints. Accordingly, the
      Parties agree, subject to Section 3.3
      (Additional Development Activities), to use Diligent Efforts to conduct
      Additional Development Activities directed to achievement of the TPP Endpoints,
      to include the data from the TPP Studies in the NDA (subject to the terms of
      Section 4.1.1
      (In the
      U.S.)), and to obtain approval of such Product Labeling as may be necessary
      for
      the promotion of the Initial POZEN Product in the U.S. on the basis of the
      TPP
      Endpoints (subject to the terms of Section 4.3.3
      (Label
      Negotiations and Approval)).

     

    3.2  Core
      Development Activities.

     

    3.2.1  Performance.
      POZEN
      will use Diligent Efforts to perform the Core Development
      Activities.

     

    3.2.2  Records
      and Reports.
      POZEN
      will retain all records required by Applicable Law to be maintained in
      connection with its obligations under Section 3.2.1
      (Performance) pursuant to the U.S. Development Plan. POZEN will provide written
      reports to the GPT on its activities in conjunction with regularly scheduled
      meetings of the GPT, at a level of detail reasonably sufficient to enable
      AstraZeneca to monitor POZEN’s compliance with its obligation pursuant to this
      Agreement. Moreover, AstraZeneca shall have the right to audit the facility
      and
      records of POZEN and each contract research organization and other vendors
      employed by POZEN to conduct Development of the Initial POZEN Product in
      accordance with the terms of Section 3.7
      (Audits
      and Inspections).

     

    3.2.3  Expenses.
      POZEN
      will bear the expenses for the Core Development Activities.

     

    3.2.4  Diligence.
      POZEN
      will use Diligent Efforts to conduct all Development activities under this
      Section 3.2
      (Core
      Development Activities) in a good scientific manner and in compliance in all
      material respects with all Applicable Laws (including cGCP, cGLP and cGMP)
      and
      to adhere to the Initial Development Plan Timeline. All efforts of POZEN’s
      Affiliates, Third Party contractors and sublicensees will be considered efforts
      of POZEN for the purpose of determining compliance with its obligations under
      this Section 3.2.4
      (Diligence).

     

    3.3  Additional
      Development Activities.

     

    3.3.1  Performance.
      POZEN
      shall perform all Additional Development Activities that are identified in
      Exhibit
      B
      and
Exhibit
      D
      as being
      POZEN’s responsibility and all Additional Development Activities required to
      obtain NDA Approval of the Initial POZEN Product in the U.S. and EU, at
      AstraZeneca’s expense, subject to Section 3.3.3
      (Expenses) below. The GPT will allocate between the Parties the responsibility
      for the performance of other Additional Development Activities; provided, that
      each Party will have the right to consent to such activities as may be allocated
      to it. Each Party hereby agrees to perform such Additional Development
      Activities as may be allocated to such Party by the GPT.

     

    
      
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    3.3.2  Records
      and Reports.
      Each
      Party will retain all records required by Applicable Law to be maintained in
      connection with such Party’s performance of Development Activities. Each Party
      will provide written reports to the GPT on such activities with the Initial
      POZEN Product, in conjunction with regularly scheduled meetings of the GPT,
      at a
      level of detail reasonably sufficient to enable the other Party to determine
      the
      reporting Party’s compliance with its obligations pursuant to this Agreement,
      including Section 3.3.1
      (Performance) and 3.3.4
      (Diligence).

     

    3.3.3  Expenses.
      Within
      ****** (******) days after the Effective Date, POZEN shall develop a schedule
      of
      expected activities and related costs for Additional Development Activities
      to
      be conducted by POZEN. This schedule will describe in reasonable detail the
      expected activities to be performed and will contain sufficient detail on both
      Direct Costs to be incurred with Third Parties and FTE Costs to be incurred
      by
      POZEN, as well as estimated timings of such costs. The GPT will review this
      schedule and approve a budget for the Additional Development Activities
      conducted by POZEN after the Execution Date (the “ADA
      Budget”).
      By
      ****** of each calendar year, beginning 2007, POZEN shall provide the GPT with
      an update of the ADA Budget for the subsequent calendar year for the review
      and
      approval of the GPT, such update to take effect once approved, beginning ******
      of such subsequent year. The GPT will reasonably consider each such proposed
      ADA
      Budget and may withhold its approval of any proposed ADA Budget (including
      all
      updates thereof) only if the budget is not reasonable in light of prevalent
      market conditions for similar work or is not consistent with POZEN’s
      expenditures on Core Development Activities to the extent the activities are
      comparable. In addition to this annual process, the GPT may also periodically
      review and amend the ADA Budget as appropriate in light of approved changes
      to
      the Additional Development Activities allocated to POZEN (including upon
      finalization of the scope of the ******) consistent with the above principles.
      POZEN will calculate and maintain records of all Direct Costs and FTE Costs
      incurred by POZEN in performing Additional Development Activities, in accordance
      with POZEN’s internal accounting policies. Within ****** (******) days after the
      end of each calendar month during which POZEN incurs Direct Costs or FTE Costs
      in performing the Additional Development Activities, POZEN will submit to
      AstraZeneca a written invoice setting forth in reasonable detail the Direct
      Costs and FTE Costs it has incurred in performing the Additional Development
      Activities. AstraZeneca will pay POZEN within ****** (******) days following
      the
      receipt of the invoice for Direct Costs and FTE Costs that do not exceed the
      then-current ADA Budget by more than ****** percent (******%); provided, that
      the GPT will approve variances above ******% if and to the extent the variances
      are (a) reasonable in light of prevalent market conditions for similar work
      and
      consistent with POZEN’s expenditures on Core Development Activities to the
      extent the activities are comparable, or (b) beyond POZEN’s reasonable control.
      Any payments made pursuant to this Section 3.3.3
      (Expenses) will be subject to the general payment procedures set forth in
      Sections 8.5
      through
8.7,
      inclusive. POZEN will inform the GPT at least ****** (******) days prior to
      incurring any Direct Costs or FTE Costs that exceed the then-current ADA Budget
      by more than ****** percent (******%). AstraZeneca shall not be held responsible
      for any expenditure relating to the Additional Development Activities incurred
      by POZEN that exceeds the then-current ADA Budget by more than ****** percent
      (******%), unless such expenditure has been specifically approved by the GPT
      as
      an exception to the ADA Budget in accordance with this Section 3.3.3
      (Expenses).
      For
      clarity, the terms of this Section 3.3.3 will apply with respect to any
      Additional Development Activities commenced by POZEN after the Execution
      Date.

     

    
      
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    3.3.4  Diligence.
      Each
      Party will use Diligent Efforts to conduct the Additional Development Activities
      allocated to it in a good scientific manner and in compliance in all material
      respects with all Applicable Laws (including cGCP, cGLP and cGMP) and to adhere
      to the Initial U.S. Development Plan Timeline. All efforts of a Party’s
      Affiliates and Third Party contractors will be considered efforts of such Party
      for the purpose of determining compliance with its obligations under this
      Section 3.3.4
      (Diligence). Without limiting the foregoing general obligation, each Party
      will
      use Diligent Efforts to perform the Additional Development Activities in
      accordance with the U.S. Development Plan Timeline and the ROW Development
      Plan
      Timeline.

     

    3.4  Development
      of Products by AstraZeneca. 

     

    3.4.1  General
      Principles.
      In
      addition to the Development of the Initial POZEN Product pursuant to Section
      3.3
      (Additional Development Activities) above, AstraZeneca will have the right
      to
      Develop and Commercialize other Products during the Term in each country of
      the
      Territory, for so long as AstraZeneca is using Diligent Efforts to Develop
      and
      Commercialize at least one POZEN Product in accordance with the terms and
      conditions of this Agreement, it being understood that the Parties intend for
      AstraZeneca to focus its initial efforts on the Development and
      Commercialization of the Initial POZEN Product. 

     

    3.4.2  Substitution. 

     

    (a)  Upon
      Certain Pre-Approval Failures.
      If a
      Pre-Approval Failure of the Initial POZEN Product described in paragraph ******
      of Section 1.81
      (Pre-Approval Failure) occurs in the U.S. (it being understood that the failure
      described in paragraph ****** will not be deemed to have occurred until
      expiration of the ****** period described in Section ******) and AstraZeneca
      provides POZEN with a written notice of its election to discontinue the
      Development of such product and to substitute another POZEN Product, without
      prejudicing AstraZeneca’s right to terminate this Agreement under Section
12.4.1,
      then
      AstraZeneca will have the option, in its sole discretion, to identify a POZEN
      Product as a replacement for the Initial POZEN Product within ****** (******)
      days of the occurrence of such Pre-Approval Failure. If AstraZeneca elects
      to
      make such a replacement, then AstraZeneca will consult in good faith with POZEN
      regarding the identification of such substitute POZEN Product and shall
      designate such substitute in writing to POZEN; provided, that as of the time
      of
      such election, ****** of such ******must be ****** in the ******and at
      ******must be ******. Such substitution shall be effective immediately upon
      AstraZeneca’s designation of the replacement POZEN Product. 

     

    
      
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    (b)  Otherwise.
      If
      circumstances occur which ****** to ****** the ****** ****** and AstraZeneca
      wishes to discontinue the Development of the Initial POZEN Product, then
      AstraZeneca may identify a different POZEN Product to replace the Initial POZEN
      Product, either throughout the Territory or in one or more countries of the
      Territory, by written notice to POZEN of such election; provided, that as of
      the
      time of such election, ******of such ******must be ******in the ******must
      be
      ******. AstraZeneca will consult in good faith with POZEN regarding the
      identification of such proposed substitute POZEN Product, and POZEN shall either
      approve or disapprove the identification of such proposed substitute Initial
      POZEN Product within ****** (******) days of AstraZeneca’s providing POZEN with
      such notice, such approval not to be unreasonably withheld, conditioned or
      delayed. If POZEN approves the identification of the substitute Initial POZEN
      Product, then the Parties shall negotiate to agree upon the applicable
      development plan for such proposed substitute Initial POZEN Product in
      accordance with Section 3.4.2(c)
      (Effects
      of Election), and such substitution shall not become effective until the Parties
      have agreed upon such revised development plan pursuant to Section 3.4.2(c).

     

    (c)  Effects
      of Election. In
      the
      event of any proposed Product substitution pursuant to this
      Section 3.4.2,
      AstraZeneca will prepare and submit to POZEN a new U.S. Development Plan and
      ROW
      Development Plan, as applicable, for the applicable replacement Initial POZEN
      Product within ****** (******) days following the election of such replacement,
      and the Parties will use good faith efforts to agree upon such plan. 

     

    (i)  If
      the
      Parties, despite the use of good faith efforts, fail to agree upon a new U.S.
      Development Plan and/or ROW Development Plan, as applicable, for a substitute
      Initial POZEN Product, then (1) if such substitution was made pursuant to
      Section 3.4.2(a) above, then such failure will be subject to the applicable
      dispute resolution procedures set forth in this Agreement, or (2) if such
      substitution was made pursuant to Section 3.4.2(b) above, then, notwithstanding
      anything to the contrary herein, the proposed substitution shall not be
      effective and AstraZeneca may not proceed with the Development of the substitute
      Initial POZEN Product.

     

    (ii)  If
      the
      Parties agree upon a new U.S. Development Plan and/or ROW Development Plan,
      as
      applicable, for a substitute Initial POZEN Product, any such development plan
      must provide for a proof of concept study with mutually agreed endpoints.
      Furthermore, any such U.S. Development Plan and/or ROW Development Plan shall
      provide that if such proof of concept study fails to meet its mutually agreed
      endpoints, then AstraZeneca shall have the right, at its option, to terminate
      this Agreement without penalty either in its entirety or with respect to the
      territory of such substitute Initial POZEN Product; provided, that written
      notice of termination must be delivered to POZEN within ****** (******) days
      following the receipt of the final clinical study report for such proof of
      concept study. For the purposes of this Section 3.4.2(c)(ii), a “proof of
      concept” study is a study that provides clinical confirmation that the
      substitute Initial POZEN Product possesses a desired pharmacological effect
      in
      patients, and is typically a positive placebo-controlled study or dose-response
      study using a validated surrogate variable or the final clinical outcome
      variable.

     

    
      
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    (d)  Effects
      of Substitution.
      Upon the
      effectiveness of a substitution pursuant to this Section 3.4.2, the applicable
      replacement POZEN Product shall be deemed the “Initial POZEN Product” in the
      Territory or such country(ies), as applicable, for all purposes under this
      Agreement; provided, however if the market opportunity and timing of NDA
      Approval for the POZEN Product that is substituted for the original Initial
      POZEN Product is not substantially equivalent, the Parties shall meet and
      negotiate in good faith to adjust milestone payments that would be due with
      respect to such replacement Initial POZEN Product under Section 8.2
      (Development Milestone Payments) in a manner that reflects the commercial
      opportunity for such replacement Initial POZEN Product and the Parties’ relative
      contribution to the Development of the replacement POZEN Product. 

     

    3.5  Oversight
      of Proof of Concept Studies.
      Without
      limiting the generality of POZEN’s obligations with respect to Additional
      Development Activities generally, POZEN shall conduct the Proof of Concept
      Studies, including design, execution and analysis to AstraZeneca’s reasonable
      satisfaction. Without limiting the foregoing, POZEN will consult with
      AstraZeneca with respect to the foregoing activities and will give reasonable
      consideration to and use Diligent Efforts to give effect to AstraZeneca’s
      comments with respect thereto. POZEN will provide AstraZeneca with copies of
      all
      data from the Proof of Concept Studies and all draft reports for such studies
      as
      the data and draft reports become available. The clinical study reports for
      the
      Proof of Concept Studies are subject to review and comment by AstraZeneca;
      provided, that ****** such study reports will not affect either Party’s rights
      under this Agreement. AstraZeneca shall be permitted to reasonably participate
      in POZEN’s study team meetings and receive communications from the POZEN study
      team as reasonably necessary to keep AstraZeneca informed regarding the conduct
      of the Proof of Concept Studies.

     

    3.6  Exchange
      of Know-How.
      In
      addition to the periodic reports provided to the other Party pursuant to Section
      3.2.2
      (Records
      and Reports), each Party will provide to the other Party copies of any Know-How
      in its possession relating to the Initial POZEN Product, including, without
      limitation, procedures, formulations, manufacturing reports, pre-clinical and
      clinical protocols and data, regulatory filings, and toxicology reports with
      respect to the Initial POZEN Product, including any final versions of any study
      reports and any drafts then-outstanding of any study reports, all to the extent
      reasonably required for the requesting Party to perform its obligations under
      this Agreement.

     

    3.7  Audits
      and Inspections.

     

    3.7.1  Audits.
      At all
      times that POZEN is participating in the Development of the Initial POZEN
      Product, a delegation consisting of a reasonable number of representatives
      of
      AstraZeneca (or its Third Party contractors reasonably acceptable to POZEN)
      will
      have the right to inspect and audit any POZEN facility and the facilities of
      Third Party contractors and Affiliates of POZEN where the Development is being
      conducted and the documentation generated in connection with the Development
      of
      the Initial POZEN Product. Such inspections will take place no more than ******
      per site during any calendar year, and will be conducted during regular business
      hours and after at least ****** (******) days prior notice to POZEN. However,
      any such inspections that are made for cause in response to a failure or
      deficiency at the applicable site will not count toward such annual limit.
      AstraZeneca will discuss the results of any inspection with POZEN. Any
      inspection by or on behalf of AstraZeneca, if it occurs, does
      not
      relieve POZEN of its obligation to comply with all Applicable Laws and does
      not
      constitute a waiver of any right otherwise available to
      AstraZeneca.

     

    
      
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    3.7.2  Inspections.
      POZEN
      will notify AstraZeneca promptly following notice from the FDA or any Regulatory
      Authority of a visit to any POZEN facility and the facilities of Third Party
      contractors and Affiliates of POZEN wherein the Development of the Initial
      POZEN
      Product is conducted. A representative of AstraZeneca (or its Third Party
      contractor reasonably acceptable to POZEN) will have the right to be present
      as
      a silent observer at any announced visits to POZEN’s facility and the facilities
      of Third Party contractors (to the extent POZEN is entitled to attend such
      visits) and Affiliates of POZEN by any Regulatory Authority relating to the
      Development of the Initial POZEN Product. Furthermore, POZEN will inform
      AstraZeneca of the results of any inspection by a Regulatory Authority that
      does
      or could reasonably be expected to affect the Development of the Initial POZEN
      Product. POZEN will promptly provide AstraZeneca with copies of notifications
      from any Regulatory Authority (including, without limitation, any Form No.
      483
      notification, Enforcement Inspection Reports, Notice of Adverse Finding, etc.).
      AstraZeneca will treat all information subject to review under this
      Section 3.7.2 (Inspections)
      in accordance with the provisions of Section 11
      (Confidentiality) and will cause any Third Party auditor retained by AstraZeneca
      (and reasonably acceptable to POZEN) to enter into a reasonably acceptable
      confidentiality agreement with POZEN obligating such auditor to maintain all
      such information in confidence pursuant to such confidentiality
      agreement.

     

    
      	4.  	
              REGULATORY
                MATTERS

            

    

     

    4.1  Responsibilities;
      Diligence.

     

    4.1.1  In
      the U.S.
      Subject
      to Section 2.3.3
      (Dispute
      Resolution), POZEN will be responsible, at its sole expense, for preparing
      and
      filing the NDA and seeking NDA Approval for the Initial POZEN Product as
      outlined in the U.S. Development Plan, including preparing all reports and
      other
      documents necessary as part of any IND or NDA; provided, that each Party will
      be
      responsible for preparing reports for studies or activities for which it has
      responsibility in accordance with Articles 3 and 6. The initial NDA submission
      for the Initial POZEN Product shall include ******, and POZEN shall not, without
      AstraZeneca’s prior written consent (but subject in any event to Applicable
      Law), submit the initial NDA for the Initial POZEN Product ******. Such NDA
      will
      be filed in the name of POZEN. POZEN will provide all filings (including the
      NDA) to AstraZeneca for review and comment prior to their submission to the
      FDA.
      Each Party will conduct the Development activities in accordance with the agreed
      U.S. Development Plan. Subject to Section 2.3.3
      (Dispute
      Resolution), each Party will use Diligent Efforts to obtain NDA Approval of
      the
      Initial POZEN Product in the U.S. AstraZeneca shall have the right at its own
      expense to seek any Marketing Approval in the U.S. for claims not obtained
      in
      the initial U.S. NDA Approval for POZEN Products. Within ****** (******) days
      following receipt of NDA Approval for the Initial POZEN Product in the United
      States and POZEN’s receipt of the milestone payment set forth in item 4 of the
      table in Section 8.2,
      POZEN
      will transfer and assign, without additional compensation, corresponding
      Regulatory Materials (including the relevant NDA) to AstraZeneca. During the
      period between ******. As owner of the NDA, AstraZeneca will be the sole owner
      of all data exclusivity protection related to the Initial POZEN Product as
      provided by Applicable Law.
      The GPT
      will allocate responsibility for preparing the “Chemistry and Manufacturing
      Controls” (“CMC”) section for the NDA for the Initial POZEN Product, as
      commercially reasonable. POZEN’s Direct Costs and FTE Costs of preparing
      the CMC section of such NDA shall be included in the Formulation Budget
      established pursuant to Section 6.1.4
      (Expenses).

     

    
      
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    4.1.2  Outside
      the U.S.
      AstraZeneca will be responsible at AstraZeneca’s expense, but other than as set
      forth in this Agreement, shall not be obligated to, prepare and file INDs and
      NDAs and seek NDA Approvals for the Initial POZEN Product in all countries
      in
      the Territory other than the U.S., including preparing all reports necessary
      as
      part of any such IND or NDA. All such INDs and NDAs will be filed in the name
      of
      AstraZeneca. AstraZeneca will use Diligent Efforts to obtain Marketing Approval
      of the Initial POZEN Product in each Major Ex-U.S. Market country. However,
      AstraZeneca shall not be required to Develop or Commercialize a POZEN Product
      in
      a particular Major Ex-U.S. Market country if it is not commercially reasonable
      to do so consistent with the exercise of Diligent Efforts and, upon POZEN’s
      request, will provide POZEN data supporting such determination. AstraZeneca
      will
      have the right in its sole discretion, at any time upon ****** (******) Business
      Days prior written notice to POZEN, to replace any country in the Major Ex-U.S.
      Market with any other country or group of countries having a market potential
      of
      at least ****** percent (******%) of the market potential of the relevant Major
      Ex-U.S. Market country based on the then-current IMS MAT (Moving Annual Total)
      Data for sales of ****** drugs in such Major Ex-U.S. Market country as compared
      to sales of ****** drugs in such other country or group of countries, and
      AstraZeneca’s diligence requirements hereunder shall accordingly transfer from
      such initial Major Ex-U.S. Market country to the replacement country or
      countries. Schedule 4.1.2 sets forth IMS MAT Data that is current as of December
      2005. Based on such data, by way of example, if AstraZeneca desired to elect
      one
      or more countries to replace ****** as a Major Ex-U.S. Market country (having
      $****** in sales), any of the following countries or combinations of countries
      would be acceptable substitutes: (i) ******, with $****** in sales (approx.
      ******% in sales), (ii) ******, with $****** in sales (approx. ******% in
      sales), or (iii) ****** combined (approx. ******% in sales).

     

    4.1.3  Core
      Development Activities Failure. Without
      limiting any right or remedy that AstraZeneca may have under this Agreement
      or
      otherwise, if a dispute arises regarding POZEN’s cessation of Core Development
      Activities and pursuant to the dispute resolution procedures described in
      Section 15.4 a court of competent jurisdiction makes a determination (whether
      in
      a preliminary or final order) that POZEN has materially breached its obligation
      to perform the Core Development Activities and that such material breach has
      not
      been cured within ****** (******) days of POZEN receiving notice of such breach,
      then, if requested by AstraZeneca in writing, POZEN shall do the
      following:

     

    (a)  to
      the
      extent permitted by Applicable Law, transfer and assign to AstraZeneca all
      Regulatory Materials, including any IND or NDA, for any POZEN Product that
      are
      Controlled by POZEN;

     

    (b)  transfer
      to AstraZeneca or its designee the management and continued performance of
      any
      clinical trials for any POZEN Product ongoing as of the effective date of such
      request, which clinical trials will be conducted at AstraZeneca’s expense after
      such transfer; and

     

    
      
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    (c)  for
      a
      reasonable period of time, provide such assistance, at AstraZeneca’s cost, to
      transfer or transition to AstraZeneca all then-existing Third Party contracts
      (to the extent transferable in accordance with the terms and conditions thereof)
      as may be reasonably necessary or useful for AstraZeneca to conduct the Core
      Development Activities and Additional Development Activities, to the extent
      POZEN is then performing or having performed such activities (including without
      limitation transferring, upon request of AstraZeneca, any relevant agreements
      with Third Party contractors, to the extent such agreements are transferable
      in
      accordance with their terms and conditions). POZEN shall use Diligent Efforts
      to
      cause all contracts that it enters into after the Execution Date related to
      the
      Development of the Initial POZEN Product to be assignable to AstraZeneca as
      contemplated by this paragraph.

     

    4.2  Access
      to Filings.
      Each
      Party will permit the other Party access to, and the right to reference and
      use
      (including by providing a letter of authorization to the applicable Regulatory
      Authorities), all data, regulatory filings and regulatory communications
      associated with any submissions for NDA Approval of the Initial POZEN Product
      for the purpose of seeking NDA Approval of the Initial POZEN Product, in
      accordance with Section 4.1
      (Responsibilities; Diligence). AstraZeneca and its Affiliates will have the
      right of cross-reference to all NDAs or other filings made by or on behalf
      of
      POZEN for the purpose of prosecuting Marketing Approval applications for
      Products, and POZEN and its Affiliates will, or will use reasonable efforts
      to
      cause their licensees to, take all such reasonable actions to allow such
      cross-reference. 

     

    4.3  Interactions
      with Regulatory Authorities.

     

    4.3.1  Consultation.
      Each
      Party will consult with the other Party regarding (and provide copies of
      materials prior to any submission to a Regulatory Authority and materials after
      receipt from a Regulatory Authority), and keep such other Party reasonably
      and
      regularly informed of, the status of the preparation of all Regulatory
      Materials, review of such materials by the relevant Regulatory Authority, and
      Marketing Approvals received for the Initial POZEN Product.

     

    4.3.2  Communications.
      Except
      as may be required by Applicable Law and subject to Section 2.3.3
      (Dispute
      Resolution), only the Party responsible for the preparation of Regulatory
      Materials in a particular country or territory will communicate regarding the
      Initial POZEN Product with any Regulatory Authority having jurisdiction in
      such
      country or territory; provided, that if POZEN is required by Applicable Law
      to
      provide to a Regulatory Authority any communication that relates to ******;
      provided, that this sentence shall not be construed to obligate POZEN to take
      any action or make any omission in violation of Applicable Law. If POZEN is
      required to make such a communication by a Regulatory Authority, then POZEN
      will
      ******. During the period which the Regulatory Materials for the Initial POZEN
      Product are under POZEN’s name, AstraZeneca will provide copies of all ex-US
      correspondence regarding such Initial POZEN Product with Regulatory Authorities
      to POZEN, and POZEN will provide copies of all U.S. correspondence regarding
      such Initial POZEN Product to AstraZeneca. In addition, during such period,
      POZEN shall not submit any substantive correspondence or communication to the
      FDA that is material to the NDA of the Initial POZEN Product without prior
      review by and consultation with AstraZeneca, and POZEN shall provide AstraZeneca
      with copies of all other correspondence.

     

    
      
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    4.3.3  Label
      Negotiations and Approval.
      Notwithstanding anything in this Agreement to the contrary, POZEN shall not
      submit to the FDA any draft label, revised draft label, or correspondence
      regarding the label of the Initial POZEN Product without AstraZeneca’s prior
      written review and consent, which shall not be unreasonably withheld,
      conditioned or delayed. AstraZeneca will review and provide POZEN with a
      response on all draft labels and revised draft labels proposed for submission
      to
      the FDA, and on draft correspondence with the FDA, as promptly as reasonably
      practicable and in any event will use Diligent Efforts to approve labeling
      proposed by the FDA for the Initial POZEN Product within ****** (******) days
      after the ******. In the event that the U.S. label for the Initial POZEN Product
      is not approved by AstraZeneca within ****** (******) days after the ******,
      then any time period after such ****** (******) day period shall not be counted
      in determining whether the time period in paragraph ****** of Section
1.81
      (the
      definition of Pre-Approval Failure) has been exceeded. 

     

    4.3.4  Meetings.
      Prior to
      the first NDA Approval, each Party responsible for the preparation of Regulatory
      Materials for the Initial POZEN Product in a particular country will request
      the
      applicable Regulatory Authority in such country to allow a reasonable number
      of
      the other Party’s representatives to attend and, to the extent permitted under
      Applicable Law, participate in all meetings and telephone conferences between
      the responsible Party and such Regulatory Authority in respect of any Regulatory
      Materials. The responsible Party shall inform the other Party of any such
      meetings and telephone conferences scheduled with any such Regulatory Authority
      in respect of any Regulatory Materials as soon as practically possible. Each
      Party will bear its own expenses in attending or otherwise participating in
      any
      meetings and conferences pursuant to this Section.

     

    4.4  Information
      Sharing.
      Each
      Party will provide the other Party, in a timely manner, with copies of, and
      all
      information received by it pertaining to, notices, questions, actions and
      requests from or by Regulatory Authorities with respect to the Initial POZEN
      Product, or the testing, Manufacture, packaging, distribution or facilities
      in
      relation thereto, including any notices of non-compliance with laws in
      connection with the Initial POZEN Product (e.g.,
      warning
      letters or other notices of alleged non-compliance), audit notices, notices
      of
      initiation by Regulatory Authorities of investigations, inspections, detentions,
      seizures or injunctions concerning the Initial POZEN Product (or its
      manufacture, distribution, or facilities connected thereto), notice of violation
      letters (i.e.,
      an
      untitled letter), warning letters, service of process or other inquiries. Except
      as otherwise set forth in this Agreement or as reasonably necessary for POZEN
      to
      perform its Development obligations hereunder or to comply with Applicable
      Law,
      ******. 

     

    
      
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    4.5  Regulatory
      Audits.
      If a
      Regulatory Authority desires to conduct an inspection or audit of a Party’s
      facility, or a facility under contract with a Party, with regard to a POZEN
      Product, then such Party will promptly notify the other Party and permit and
      cooperate with such inspection or audit, and will cause the contract facility
      to
      permit and cooperate with such Regulatory Authority and such other Party during
      such inspection or audit. Such other Party will have the right upon request
      (which request shall not be unreasonably withheld) to have a representative
      observe such inspection or audit; provided, that POZEN’S rights of observance
      under this Section will end upon the transfer of the U.S. NDA for the Initial
      POZEN Product to AstraZeneca. Following receipt of the inspection or audit
      observations of such Regulatory Authority (a copy of which the audited Party
      will immediately provide to the other Party), the audited Party will prepare
      the
      response to any such observations, and will provide a copy of such response
      to
      the other Party. The audited Party agrees to conform its activities under this
      Agreement to any commitments made in such a response, except to the extent
      it
      believes in good faith that such commitments violate Applicable
      Laws.

     

    4.6  Adverse
      Event Reporting.
      Within
      ****** (******) days after the Effective Date, the Parties will enter into
      an
      Adverse Event Reporting Agreement, which upon such execution will be attached
      as
      an exhibit hereto and hereby incorporated into this Agreement by reference
      (the
“AE
      Agreement”),
      governing the Parties’ respective adverse event reporting and global safety
      database maintenance obligations. Without limiting the generality of the AE
      Agreement, the Parties hereby agree as follows:

     

    4.6.1  Until
      POZEN transfers the approved US NDA to AstraZeneca, POZEN will be solely
      responsible for reporting all Adverse Events (AEs) and Serious Adverse Events
      (SAEs) associated with the Initial POZEN Product from any source (including
      AEs
      and SAEs from AstraZeneca sponsored studies) to the FDA and any other Regulatory
      Authority outside the U.S. as required by Applicable Laws. In addition, prior
      to
      such transfer of the U.S. NDA, POZEN shall report to AstraZeneca all AEs and
      SAEs of which POZEN becomes aware within the timelines specified in the AE
      Agreement to the extent necessary to enable AstraZeneca to comply with its
      reporting obligations outside the U.S., and AstraZeneca shall report to POZEN
      all AEs and SAEs of which AstraZeneca becomes aware within the timelines
      specified in the AE Agreement to the extent necessary to enable POZEN to comply
      with its reporting obligations in the U.S., each as more fully described in
      the
      AE Agreement. Notwithstanding the foregoing, if ******to make any ******in
      an
      ******and follow ****** ******of such ******as they ****** ******; ******,
      that
      this ******to take any ******.

     

    4.6.2  All
      AE
      and SAE reports will be exchanged using either approved study forms, electronic,
      or computer generated reports agreed upon by both parties (e.g.,
      CIOMS I form).

     

    4.6.3  Subject
      to Section 4.6.1,
      AstraZeneca will maintain and will be the recognized holder of a global safety
      database for AE and SAE reports related to POZEN Products received by either
      Party. Direct access to this database will not be granted to POZEN. Upon
      request, all reasonable assistance will be provided by either Party in
      responding to safety inquiries.

     

    
      
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    4.6.4  Each
      Party shall keep the other Party informed of notification of any action by,
      or
      notification or other information which it receives (directly or indirectly)
      from any Regulatory Authority which: (i) raises any material concerns regarding
      the safety or efficacy of the Initial POZEN Product; (ii) indicates or suggests
      a potential material liability for either Party to Third Parties arising in
      connection with the Initial POZEN Product; (iii) is reasonably likely to lead
      to
      a “Dear Doctor” letter, recall or market withdrawal of the Initial POZEN
      Product; (iv) relates to the Initial POZEN Product, Regulatory Materials,
      Promotional Materials, samples, package inserts, the indications, labeling,
      expedited and periodic Adverse Event Reports, medical inquiries, Initial POZEN
      Product complaints, this Agreement, or (v) is otherwise important to the
      Development and/or Commercialization of the Initial POZEN Product.

     

    
      	5.  	
              COMMERCIALIZATION

            

    

     

    5.1  Commercialization.
      As
      between the Parties, AstraZeneca will be solely responsible for the
      Commercialization of POZEN Products during the Term.

     

    5.2  Regulatory
      Obligations during Commercialization.
      On a
      country-by-country basis, AstraZeneca will own and maintain all regulatory
      filings and Marketing Approvals for POZEN Products developed pursuant to this
      Agreement, including all INDs and NDAs for the Initial POZEN Product following
      POZEN’s transfer of such filings and approvals subsequent to NDA Approval of the
      Initial POZEN Product in the U.S. As between the Parties, but subject to ******,
      AstraZeneca will be solely responsible for all activities in connection with
      maintaining Marketing Approvals required for the Commercialization and
      manufacture of POZEN Products, including communicating and preparing and filing
      all reports (including Adverse Event reports) with the applicable Regulatory
      Authorities.

     

    5.3  Performance;
      Diligence.

     

    5.3.1  Level
      of Efforts.
      Upon the
      grant of Marketing Approval for a POZEN Product in the U.S. or a country of
      the
      Major Ex-U.S. Market, AstraZeneca will use Diligent Efforts to Commercialize
      a
      POZEN Product in such country. The foregoing Diligent Efforts requirement will
      apply only to one POZEN Product in each of the U.S. and the Major Ex-U.S. Market
      countries, irrespective of the number of POZEN Products AstraZeneca elects
      to
      Develop and Commercialize, and AstraZeneca may elect to fulfill its Diligent
      Efforts obligation in such countries in respect to any POZEN Product of its
      choice in the exercise of its reasonable and good faith judgment. 

     

    5.3.2  Specific
      Timelines.
      AstraZeneca will use Diligent Efforts in the U.S. and in each country of the
      Major Ex-U.S. Market to achieve Commercial Launch within ****** (******) days
      after the date on which Marketing Approval is granted for such Initial POZEN
      Product in such country; provided, that for any country in which Marketing
      Approval is granted by Regulatory Authorities ******, then the obligations
      set
      forth in this Section 5.3.2
      will
      apply only to ******; and provided, further, that if AstraZeneca elects to
      launch the Initial POZEN Product in a particular country or territory following
      NDA Approval in such country or territory, but before or without obtaining
      pricing or reimbursement approval therein, then the ****** (******)-day period
      set forth in this Section 5.3.2 will commence as of the date of such NDA
      Approval.

     

    
      
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    5.4  Commercialization
      Plan.

     

    5.4.1  AstraZeneca
      shall prepare and update from time to time an initial commercialization plan
      summarizing the plan for Commercializing the Initial POZEN Product in the U.S.
      and the Major Ex-U.S. Markets (the “Commercialization
      Plan”)
      within
      ****** (******) days after U.S. NDA filing for the Initial POZEN Product and
      the
      first filing of a Marketing Approval application for the Initial POZEN Product
      in a country of the Major Ex-U.S. Markets, respectively. The Commercialization
      Plan as reviewed by the GPT shall describe the overall plan for Commercializing
      the Initial POZEN Product during the first three years after First Commercial
      Sale of the Initial POZEN Product in the U.S. and the Major Ex-U.S.
      Market.

     

    5.4.2  The
      Commercialization Plan will be in a format consistent with the format of similar
      plans prepared by AstraZeneca for its other products.

     

    5.5  Threatened
      Removal.
      In the
      event that any governmental authority threatens or initiates any action to
      remove any POZEN Product from the market in a country or territory, AstraZeneca
      will promptly notify POZEN of such communication. Any voluntary recall or
      withdrawal of any POZEN Product will be at AstraZeneca’s sole discretion and
      expense. Before AstraZeneca initiates a recall or withdrawal, the Parties will
      promptly and in good faith discuss the reasons therefor; provided, that such
      discussions do not delay the recall or withdrawal. In the event of any recall
      or
      withdrawal for any POZEN Product, AstraZeneca will implement any necessary
      action, with assistance from POZEN as reasonably requested by
      AstraZeneca.

     

    5.6  Compliance.
      Each
      Party will comply with all Applicable Laws relating to activities performed
      or
      to be performed by such Party (or its Affiliates or contractors) under or in
      relation to the Commercialization of the Initial POZEN Product pursuant to
      this
      Agreement. Each Party represents, warrants and covenants to the other Party
      that, as of the Effective Date and during the Term, such Party and its
      Affiliates have adequate policies and procedures in place: (i) to ensure their
      compliance with such laws; (ii) to bring any non-compliance therewith by any
      of
      the foregoing entities to its attention; and (iii) to promptly remedy any such
      non-compliance.

     

    5.7  Branding;
      Trademarks; Domain Names; Trade Dress; Logos.

     

    5.7.1  Responsibilities.
      AstraZeneca will select all Product Trademarks for use on or in connection
      with
      POZEN Products, will be the sole owner of the Product Trademarks, will be
      responsible for the filing, prosecution, maintenance and defense of all
      registrations of the Product Trademarks, and will be responsible for the payment
      of any costs relating to filing, prosecution, maintenance and defense of the
      Product Trademarks.

     

    5.7.2  Use.
      AstraZeneca will use the Product Trademarks in connection with the
      Commercialization of POZEN Products hereunder. The packaging, Promotional
      Materials and Product Labeling for POZEN Products will carry the POZEN House
      Marks only if and to the extent required by Applicable Law in a country or
      territory.

     

    
      
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    5.7.3  AstraZeneca
      Marks.
      AstraZeneca reserves all rights in the Product Trademarks and AstraZeneca House
      Marks. POZEN acknowledges AstraZeneca’s exclusive right, title and interest in
      and to such trademarks and acknowledges that nothing herein will be construed
      to
      accord to POZEN any rights in such trademarks. POZEN agrees not to use or file
      any application to register any trademark or trade name that is confusingly
      similar to any Product Trademarks or AstraZeneca House Mark.

     

    5.7.4  POZEN
      Marks.
      POZEN
      reserves all rights in the POZEN House Marks not expressly granted to
      AstraZeneca in this Agreement. AstraZeneca acknowledges POZEN’s exclusive right,
      title and interest in and to the POZEN House Marks and acknowledges that nothing
      herein will be construed to accord to AstraZeneca any rights in such trademarks
      except as expressly provided herein. AstraZeneca further acknowledges that
      its
      use of the POZEN House Marks will not create in AstraZeneca any right, title
      or
      interest in such trademarks, and that all use of such trademarks and the
      goodwill generated thereby will inure solely to the benefit of POZEN.
      AstraZeneca agrees not to use or file any application to register any trademark
      or trade name that is confusingly similar to any POZEN House Mark.

     

    5.7.5  Promotional
      Materials.
      AstraZeneca will own all right, title and interest in and to any Promotional
      Materials created by or on behalf of AstraZeneca (or its Affiliates) relating
      to
      POZEN Product, but excluding the POZEN House Marks. The GPT will approve a
      standard template for use of the POZEN House Marks in Promotional Materials,
      and
      AstraZeneca will use the POZEN House Marks in accordance with approved
      template.

     

    
      	6.  	
              MANUFACTURE
                OF POZEN PRODUCTS 

            

    

     

    6.1  Manufacturing
      Development. 

     

    6.1.1  Initial
      POZEN Product.
      POZEN
      has developed formulations for ****** and Manufacturing processes for bulk
      and
      finished supplies, itself and through one or more Third Party contract
      manufacturers. ****** (******) days after the Effective Date, AstraZeneca will
      provide the Esomeprazole Materials (as defined below) to POZEN. POZEN shall,
      no
      later than ****** after the date that POZEN receives the Esomeprazole Materials
      (as defined below), develop (itself and through one or more Third Party contract
      manufacturers) a formulation and a manufacturing process (and related testing
      procedures) for the Initial POZEN Product meeting the specifications set forth
      in Schedule 6.1 (the “Specifications”)
      and
      sufficient quantities of the Initial POZEN Product meeting the Specifications
      as
      reasonably necessary to conduct the ****** studies described in the Initial
      U.S.
      Development Plan. However, AstraZeneca will be responsible for supplying to
      POZEN or its designee ****** as a separate component that will be used for
      the
      ****** described in the Initial U.S. Development Plan, and POZEN will supply
      ****** for such study. As used herein, “Esomeprazole
      Materials”
      means
      sufficient quantities of Esomeprazole substance for POZEN to perform the
      activities described in Sections 6.1.1
      and 6.1.2
      as well
      as the ****** studies designated as ******, including a certificate of analysis,
      ID test method for esomeprazole, reference standard for esomeprazole, cleaning
      method for esomeprazole, current drug product methods for esomeprazole for
      assay, related substances and dissolution (i.e.,
      chromatographic conditions), and esomeprazole solubility data and associated
      technical information.

     

    
      
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    6.1.2  ROW
      POZEN Products.
      POZEN
      shall develop (itself and through one or more Third Party contract
      manufacturers) a formulation and a manufacturing process (and related testing
      procedures) for each Initial POZEN Product contemplated to be developed under
      the Initial ROW Development Plan meeting the Specifications and shall deliver
      to
      AstraZeneca sufficient quantities of such Initial POZEN Products as reasonably
      necessary to conduct the ****** described in the Initial ROW Development Plan
      within the timeline for such studies set forth in the Initial ROW Development
      Plan Timeline.

     

    6.1.3  Manufacturing,
      Cooperation, and Assistance.
      The
      manufacturing processes developed by POZEN shall be designed to be scalable
      for
      commercial manufacture of the Initial POZEN Product under the Initial U.S.
      Development Plan and Initial ROW Development Plan and to enable the manufacture
      of the Initial POZEN Product routinely and predictably in conformance with
      the
      Specification and in compliance with Applicable Law. POZEN will consult with
      AstraZeneca on a regular basis with respect to the development described in
      this
      Section 6.1
      (Manufacturing Development) and will give reasonable consideration to
      AstraZeneca’s suggestions. AstraZeneca will provide all reasonable assistance
      requested by POZEN. AstraZeneca hereby consents to POZEN’s using ****** to
      perform the process development activities described in this Section
6.1
      (Manufacturing Development). In furtherance of the forgoing, if POZEN does
      use
      ****** to perform such activities, POZEN shall enter into an agreement with
      ****** that, as between POZEN and ******, requires ****** to transfer to POZEN
      and gives POZEN ownership of all formulation and Manufacturing Know-How
      developed by ****** related to the Initial POZEN Product and all intellectual
      property rights therein.

     

    6.1.4  Expenses.
      Promptly
      following the Execution Date and not later than the Effective Date, the Parties
      will agree on a schedule of expected activities and related costs for activities
      to be conducted by or on behalf of POZEN pursuant to Sections 6.1
      and 6.2
      after the Execution Date (including the Direct Costs of any inventory used
      in
      connection with such activities whether or not purchased by POZEN prior to
      the
      Execution Date) (“Formulation
      Development Activities”)
      and a
      budget for the Formulation Development Activities including both Direct Costs
      to
      be incurred with Third Parties and FTE Costs to be incurred by POZEN, as well
      as
      estimated timings of such costs (the “Formulation
      Budget”),
      which
      will be attached to this Agreement as Exhibit
      A.
      POZEN
      will calculate and maintain records of all Direct Costs and FTE Costs incurred
      by POZEN in performing the Formulation Development Activities, in accordance
      with POZEN’s internal accounting policies. Within ****** (******) days after
      POZEN incurs Direct Costs or FTE Costs in performing the Formulation Development
      Activities, POZEN will submit to AstraZeneca a written invoice setting forth
      in
      reasonable detail the Direct Costs and FTE Costs it has incurred in performing
      the Formulation Development Activities. AstraZeneca will pay POZEN within ******
      (******) days following the receipt of the invoice for Direct Costs and FTE
      Costs that do not exceed the then-current Formulation Budget by more than ******
      percent (******%). Any payments made pursuant to this Section 6.1.4
      (Expenses) will be subject to the general payment procedures set forth in
      Section 8.5
      through
8.7,
      inclusive. POZEN will inform the GPT at least ****** (******) days prior to
      incurring any Direct Costs or FTE Costs that exceed the then-current Formulation
      Budget by more than ****** percent (******%) and the GPT will meet to consider
      the adjustment of such budget or approval of such variance; provided, that
      the
      GPT will approve variances above ******% if and to the extent the variances
      are
      (a) reasonable in light of prevalent market conditions
      for similar work, or (b) beyond POZEN’s reasonable control. AstraZeneca shall
      not be held responsible for any expenditure relating to the Formulation
      Development Activities incurred by POZEN that exceeds the then-current
      Formulation Budget by more than ****** percent (******%), unless such
      expenditure has been specifically approved by the GPT as an exception to the
      Formulation Budget. 

     

    
      
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    6.1.5  AstraZeneca
      Development of Formulation.
      If POZEN
      fails to perform its obligations under Section 6.1.1
      (Initial
      POZEN Product) or 6.1.2
      (ROW
      POZEN Products), within the time periods required thereby, without limiting
      any
      other rights and remedies available to AstraZeneca, unless AstraZeneca has
      selected a substitute Initial POZEN Product pursuant to Section 3.4.2
      (Substitution) or has terminated the Agreement, then AstraZeneca shall use
      Diligent Efforts to develop (itself and through one or more Third Party contract
      manufacturers) a formulation and a manufacturing process for the Initial POZEN
      Product meeting the Specifications and to deliver to POZEN sufficient quantities
      of the Initial POZEN Product meeting the Specifications within ****** after
      AstraZeneca receives from POZEN all formulation Know-How in POZEN’s possession.
      In such event, POZEN will provide all reasonable assistance requested by
      AstraZeneca in connection with such efforts. POZEN hereby consents to
      AstraZeneca’s using ****** to perform the activities described in this
      Section 6.1.5
      (AstraZeneca Development of Formulation) and consents to AstraZeneca’s granting
      to ****** a sublicense of rights under the Licensed Technology to the extent
      reasonably necessary for ****** to perform such work. 

     

    6.1.6  POZEN
      Warranties.
      POZEN
      hereby warrants that the Initial POZEN Product provided by POZEN (itself or
      through one or more Third Party contractors) for use in clinical studies
      pursuant to Sections 6.1.1
      or 6.1.2,
      at the
      time of delivery will have been manufactured and shipped in accordance with
      cGMP
      and cGLP, the IND for the Initial POZEN Product and other Applicable Law; and
      will not be adulterated or misbranded within the meaning of the United States
      Food, Drug and Cosmetic Act, as amended.

     

    6.2  Process
      Transfer.
      Following the completion of the activities described in Section 6.1.1,
      POZEN
      will transfer all formulation and Manufacturing Know-How necessary to establish
      the applicable Manufacturing processes at commercial scale at a site designated
      by AstraZeneca (including such formulation and Manufacturing Know-How possessed
      by its Third Party contractors), and will use Diligent Efforts to cause such
      Third Party manufacturers to allow AstraZeneca employees or agents to reasonably
      observe the Manufacture of the Initial POZEN Product at POZEN’s subcontractor’s
      or agent’s premises and subject to any reasonable rules imposed by such Third
      Party. Thereafter, (i) POZEN will continue to be reasonably available, and
      will
      use reasonable efforts to cause its subcontractors and agents to be reasonably
      available, to AstraZeneca and will provide all reasonable assistance requested
      by AstraZeneca in connection with the establishment and implementation of such
      Manufacturing process, and (ii) AstraZeneca will use Diligent Efforts to
      establish commercial-scale Manufacturing processes for bulk and finished
      supplies of the Initial POZEN Product.

     

    
      
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    6.3  Terms
      for Clinical Supply. 

     

    6.3.1  Responsibility.
      AstraZeneca will use Diligent Efforts to conclude a supply agreement for the
      Initial POZEN Product with a Third Party contract manufacturer ****** within
      ****** (******) days after the Effective Date, under which such Third Party
      contract manufacturer will supply AstraZeneca Initial POZEN Product in
      quantities for all clinical studies ******, Commercial Launch, and post-launch
      supply until such time as AstraZeneca has, itself or through its designated
      contract manufacturer, successfully manufactured at commercial scale a product
      that meets such specifications as may be required by Applicable Law and that
      is
      bioequivalent to the Initial POZEN Product Clinical Trial Material used in
      the
      Phase III clinical studies for such Initial POZEN Product. Once POZEN has
      established a qualified source of Initial POZEN Product supply for the ******
      studies contemplated by the Initial U.S. Development Plan and transferred the
      necessary formulation and Manufacturing Know-How pursuant to Section
6.2
      (Process
      Transfer)), AstraZeneca will Manufacture and supply the Parties’ entire
      requirements of Initial POZEN Product for the Development of the Initial POZEN
      Product under the U.S. Development Plan sufficient for the Parties to conduct
      the applicable clinical activities in accordance with the time periods set
      forth
      in U.S. Development Plan Timeline. Likewise, once POZEN has established a
      qualified source of the Initial POZEN Product for the ****** study contemplated
      by the ROW Development Plan and transferred the necessary formulation and
      manufacturing Know-How pursuant to Section 6.2
      (Process
      Transfer), AstraZeneca will Manufacture and supply (itself or through one or
      more Third Party contractors) the Parties’ entire requirements of Initial POZEN
      Product for the Development of the Initial POZEN Product under the ROW
      Development Plan sufficient for the Parties to conduct the applicable clinical
      activities in accordance with the time periods set forth in ROW Development
      Plan
      Timeline. ****** will bear all costs and expenses incurred for any such
      Manufacture and supply. POZEN hereby consents to AstraZeneca’s using ****** to
      Manufacture clinical supplies and commercial quantities of POZEN Products if
      AstraZeneca should so desire and consents to AstraZeneca's granting to ******
      a
      sublicense of rights under the Licensed Technology to the extent reasonably
      necessary for ****** to perform such work.

     

    6.3.2  Clinical
      Supply.
      Except
      as provided in Section 6.1
      (Manufacturing Development), AstraZeneca will supply POZEN ****** with Clinical
      Trial Materials in order for POZEN to perform clinical studies pursuant to
      Section 3.2
      (Core
      Development Activities) and 3.3
      (Additional Development Activities), as applicable, in accordance with a
      reasonable delivery schedule as the Parties may jointly agree in writing (which
      such schedule, in any event, will enable the completion of the applicable
      clinical trials in accordance with the timelines set forth in the applicable
      development plan).

     

    
      
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    6.3.3  Packaging,
      Shipping and Delivery.
      AstraZeneca will fill, release, package and label such Clinical Trial Materials
      to be used in clinical trials conducted by POZEN pursuant to this Agreement
      in
      final bottles or blisters (or such other dose per package as agreed by the
      GPT)
      using due care and in accordance with Applicable Laws and any specifications
      as
      the Parties may agree in writing. POZEN will be responsible for identification
      testing, randomization and clinical patient labeling of Clinical Trial Materials
      supplied to POZEN by AstraZeneca in the final packaging. POZEN ****** will
      complete such identification testing, randomization, and clinical patient
      labeling of Clinical Trial Materials as soon as practicable following receipt
      of
      the Clinical Trial Materials from AstraZeneca. AstraZeneca will ship the
      Clinical Trial Materials DDU (Incoterms 2000) to the facility in the U.S. as
      POZEN may designate to AstraZeneca by a common carrier designated by
      AstraZeneca. Each shipment will be made generally in accordance with an agreed
      timeline and under the terms and conditions set forth in this Section
6
      (Manufacture of POZEN Product) and the U.S. Development Plan or ROW Development
      Plan, as applicable. Each shipment will include a certificate of analysis and
      any other release data customarily transferred by AstraZeneca in accordance
      with
      its usual practice. There will be a remaining shelf life for Clinical Trial
      Materials upon delivery that is appropriate in light of the expected schedule
      and duration of the clinical trial(s) in which such Clinical Trial Materials
      are
      to be used. AstraZeneca will notify POZEN of the results of ongoing stability
      testing of the Clinical Trial Materials by AstraZeneca.

     

    6.3.4  Warranties.
      AstraZeneca hereby warrants that any Clinical Trial Materials provided by
      AstraZeneca to POZEN under this Agreement, at the time of delivery pursuant
      to
      Section 6.3.3
      (Packaging, Shipping and Delivery): (i) will conform to the specifications
      for
      such Clinical Trial Materials, within applicable regulatory requirements, as
      agreed by the Parties in writing; (ii) will have been manufactured and shipped
      to POZEN (or its designee) in accordance with cGMP, cGLP, the IND for POZEN
      Product and other Applicable Laws; and (iii) will not be adulterated or
      misbranded within the meaning of the United States Food, Drug and Cosmetic
      Act,
      as amended (collectively, the “CTM
      Warranties”).

     

    6.3.5  Remedies
      for Non-Conforming Clinical Trial Materials.
      In the
      event that a shipment of Clinical Trial Materials does not conform with the
      CTM
      Warranties, in whole or in part, then AstraZeneca will promptly produce (at
      its
      cost) for POZEN sufficient quantities of Clinical Trial Materials to replace
      the
      non-conforming portion of such shipment of Clinical Trial Materials, in
      accordance with the provisions of this Agreement. In the event that the Clinical
      Trial Materials are rendered non-conforming to the CTM Warranties by the action
      of POZEN or its agent following delivery as provided in
      Section 6.3.3
      (Packaging, Shipping and Delivery), then AstraZeneca will produce (at POZEN’s
      cost) for POZEN sufficient quantities of Clinical Trial Materials to replace
      the
      non-conforming portion of such shipment of Clinical Trial Materials, in
      accordance with the provisions of this Agreement.

     

    6.4  Commercial
      Supply.
      AstraZeneca will be solely responsible****** for the Manufacture and supply
      of
      AstraZeneca’s entire requirements of supplies of POZEN Product for
      Commercialization. 

     

    
      
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    6.5  Audits
      and Inspections.

     

    6.5.1  Audits.
      At all
      times that AstraZeneca is supplying Clinical Trial Material to POZEN, a
      delegation consisting of a reasonable number of representatives of POZEN (or
      its
      Third Party contractors reasonably acceptable to AstraZeneca), no more than
      ****** per site per calendar year, will have the right to inspect and audit
      any
      AstraZeneca facility where the Clinical Trial Material, including their active
      pharmaceutical ingredients ******, are Manufactured, and the documentation
      generated in connection with the Manufacture and testing of Initial POZEN
      Product. However, any such inspections that are made for cause in response
      to a
      failure or deficiency at the applicable site will not count toward such annual
      limit. Such inspections will take place during regular business hours and after
      at least ****** (******) days prior notice to AstraZeneca. POZEN will discuss
      the results of any inspection with AstraZeneca. Any inspection by or on behalf
      of POZEN, if it occurs, does not relieve AstraZeneca of its obligation to comply
      with all Applicable Laws and does not constitute a waiver of any right otherwise
      available to POZEN.

     

    6.5.2  Inspections.
      AstraZeneca will notify POZEN promptly following notice from the FDA or any
      other Regulatory Authority of a visit to any AstraZeneca facility where the
      Clinical Trial Material ****** is Manufactured. A representative of POZEN (or
      its Third Party contractor reasonably acceptable to AstraZeneca) may request
      to
      be present as a silent observer at any announced visits to AstraZeneca by any
      Regulatory Authority relating to the Manufacture of Clinical Trial Material,
      such request not to be unreasonably refused. Furthermore, AstraZeneca will
      inform POZEN of the results of any inspection by a Regulatory Authority that
      does or could reasonably be expected to affect the Manufacture of Clinical
      Trial
      Material ******. AstraZeneca will promptly provide POZEN with copies of
      notifications from any Regulatory Authority (including, without limitation,
      any
      Form No. 483 notification, Enforcement Inspection Reports, Notice of Adverse
      Finding, etc.). POZEN will treat all information subject to review under this
      Section 6.5.1
      (Audits
      and Inspections) in accordance with the provisions of Section 11
      (Confidentiality) and will cause any Third Party auditor retained by POZEN
      (and
      reasonably acceptable to AstraZeneca) to enter into a reasonably acceptable
      confidentiality agreement with AstraZeneca obligating such auditor to maintain
      all such information in confidence pursuant to such confidentiality
      agreement.

     

    6.6  Reference
      Rights; Support.
      In
      connection with any supply or transfer of Clinical Trial Materials under this
      Section 6
      (Manufacture of POZEN Product) and for so long as AstraZeneca supplies any
      of
      the foregoing to POZEN, or POZEN is using such Clinical Trial Materials pursuant
      to this Agreement, AstraZeneca will grant to POZEN rights of reference
      (including by providing a letter of authorization to the applicable Regulatory
      Authorities) to any AstraZeneca IND or NDA pertaining to Esomeprazole. Upon
      the
      expiration of such right, POZEN will send written notice to such effect to
      the
      applicable Regulatory Authority.

     

    
      
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      	7.  	
              LICENSES

            

    

     

    7.1  Licensed
      Technology.
      Subject
      to the terms and conditions of this Agreement, POZEN hereby grants to
      AstraZeneca an exclusive (including with regard to POZEN and its Affiliates),
      royalty-bearing license, with the right to grant sublicenses as described in
      Section 7.3
      (Sublicenses), under the Licensed Technology to make, use, have made, sell,
      offer for sale, import, and export Products in the Field of Use in the
      Territory. For the avoidance of doubt, AstraZeneca shall have no license or
      other right under the Licensed Technology to make, use, have made, sell, offer
      for sale, import, and export any product containing acetyl salicylic acid
      (including salts and derivatives thereof).

     

    7.2  Trademarks.
      Subject
      to the terms and conditions set forth in this Agreement, POZEN hereby grants
      to
      AstraZeneca a license to use the POZEN House Marks in connection with the
      Commercialization of POZEN Products in the Field of Use in the
      Territory.

     

    7.3  Sublicenses.
      AstraZeneca may grant a sublicense, option to sublicense, or any other right
      relating to any Licensed Technology to any of its Affiliates without the right
      to grant further sublicense rights to any Third Party. AstraZeneca may grant
      a
      sublicense, option to sublicense, or any other right relating to any Licensed
      Technology to any Third Party solely as provided in this Section 7.3
      (Sublicenses). AstraZeneca may enter into Sublicense Agreements only with
      POZEN’s prior consent. In order for rights under Licensed Technology to be
      validly granted to a Sublicensee, the Sublicense Agreement with such Sublicensee
      must be consistent with the following terms and conditions of this Agreement,
      and will include provisions for the benefit of POZEN corresponding to Section
      ******. AstraZeneca will use Diligent Efforts to (i) procure the performance
      by
      any Sublicensee of the terms of each such Sublicense Agreement, and (ii) ensure
      that any Sublicensee will comply with the applicable terms and conditions of
      this Agreement. AstraZeneca hereby guarantees the performance of its Affiliates
      and Sublicensees that are sublicensed as permitted herein, and the grant of
      any
      such sublicense will not relieve AstraZeneca of its obligations under this
      Agreement, except to the extent they are satisfactorily performed by such
      Affiliate or Sublicensee. Notwithstanding the foregoing, AstraZeneca will have
      the right to sell POZEN Products through any distributors or sub-distributors
      of
      its choice, without the need to obtain prior consent from POZEN, in carrying
      out
      its Commercialization activities under this Agreement.

     

    7.4  Reservation
      of Rights; No Implied Licenses.
      POZEN
      retains rights under the Licensed Technology to the extent necessary to perform
      its obligations under this Agreement. Except for the rights specifically granted
      in this Agreement, POZEN reserves all rights to the Licensed Technology. No
      implied licenses are granted under this Agreement. In particular POZEN is not
      by
      this Agreement, by implication or otherwise, granted any license or other right
      relating to Esomeprazole, Nexium or the Nexium Business or any Esomeprazole
      based products or any products containing acetyl salicylic acid (including
      salts
      and derivatives thereof) or any right in relation to any patent, trademark
      or
      other intellectual property right belonging to AstraZeneca or any of its
      Affiliates, and likewise AstraZeneca is not by this Agreement, by implication
      or
      otherwise, granted any license or other right under the Licensed Technology
      relating to any products containing acetyl salicylic acid (including salts
      and
      derivatives thereof) or any right in relation to any patent, trademark or other
      intellectual property right belonging to POZEN or any of its Affiliates, in
      each
      case, except as expressly set forth in this Agreement.

     

    
      
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    7.5  Restrictive
      Covenant.
      AstraZeneca hereby covenants and agrees not to use any Licensed Technology,
      nor
      grant any Third Party any license or right under any Licensed Technology, other
      than as expressly permitted in this Agreement. The Parties agree that nothing
      in
      this Agreement restricts or prohibits AstraZeneca from by itself or with Third
      Parties exploiting any products, including without limitation any products
      containing non-steroidal anti-inflammatory drugs (e.g.,
      acetyl
      salicylic acid and esters and derivatives thereof); provided, that AstraZeneca
      shall not use or practice Licensed Technology in connection with the
      development, manufacture or commercialization of any product that is not a
      Product, and nothing requires AstraZeneca to compensate POZEN if AstraZeneca
      so
      exploits such products.

     

    7.6  Japan
      Option.
      POZEN
      hereby grants AstraZeneca an option for a period of twenty-four (24) months
      (the
“Japan
      Option Period”)
      after
      the Effective Date to include Japan in the Territory at no additional cost
      to
      AstraZeneca. The option will be exclusive to AstraZeneca during ****** of the
      Japan Option Period, and during such exclusive period POZEN will not solicit
      or
      enter into discussions with any Third Party regarding the availability or
      exploitation of Licensed Know-How or Licensed Patents in Japan. Thereafter,
      the
      option will be non-exclusive, and POZEN may, prior to exercise of the option
      by
      AstraZeneca, grant rights in Japan to any Third Party. AstraZeneca may exercise
      the option at any time prior to the expiration of the Japan Option Period by
      providing written notice to POZEN and a Development plan for a Product
      AstraZeneca intends to Commercialize in Japan, whereupon Japan shall immediately
      be included in the Territory.

     

    
      	8.  	
              FINANCIAL
                TERMS

            

    

     

    8.1  Upfront
      Fee.
      Within
      ten (10) Business Days following the Effective Date, AstraZeneca will pay to
      POZEN a non-creditable, non-refundable upfront fee of $40,000,000.

     

    8.2  Development
      Milestone Payments.
      Subject
      to the terms and conditions of this Agreement, including without limitation
      the
      last paragraph of this Section 8.2
      (Development Milestone Payments), AstraZeneca will pay to POZEN the following
      one-time, non-creditable, non-refundable payments with respect to the first
      achievement of the corresponding events with a POZEN Product.

     

    
      
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              Milestone
                Event

               

            	
              Milestone
                Payment

               

            
	
               

              1. Receipt
                by the ******of the final written ****** for the ****** as described
                in
                the Initial U.S. Development Plan and the final written ****** for
                the
                ******Study as described in the Initial U.S. Development Plan, and
                either
                (a) the ****** of ****** for at least ****** of the ******, or (b)
                ******
                does not ****** pursuant to Section 12.4
                due to a ******described in ****** within ****** (******from receipt
                by
                the ****** of the final written ****** for the ******Study described
                in
                the Initial U.S. Development Plan. 

               

            	
               

              $******

               

            
	
               

              2. Notification
                by the FDA that it has accepted the first U.S. NDA submission for
                a POZEN
                Product in accordance with Section 4.1.1
                (Regulatory Responsibilities Inside the U.S.).

               

            	
               

              $******

               

            
	
               

              3. Submission
                of the first NDA in a Major Ex-U.S. Market country for a POZEN
                Product.

               

            	
               

              $******

               

            
	
               

              4. Receipt
                of the first NDA Approval for a POZEN Product in the U.S.

               

            	
               

              $******

               

            
	
               

              5. Receipt
                of the first NDA Approval for a POZEN Product in a Major Ex-U.S.
                Market
                country.

               

            	
               

              $******

               

            
	
               

              6. ******
                of the first ****** to ****** a ****** in a ****** that includes
                ******
                and/or ****** (if available) at an ******of the POZEN Product ******
                than
                the ****** (a) the ****** for a ****** in such ******, or (b)
                ******.

               

            	
               

              $******

               

            

    

    

     

    POZEN
      shall notify AstraZeneca in writing upon the achievement of Milestones Events
      2
      and 4 above, and shall provide AstraZeneca with reasonable evidence that such
      Milestone Events have been achieved. The payments due with respect to
      achievement of each Milestone Event shall be due and payable within ******
      (******) days after (i) AstraZeneca receives notification from POZEN of the
      achievement of Milestone Events #2 and 4, and (ii) the occurrence of the
      Milestone Events #1, 3, 5, and 6, it being understood that with respect to
      Milestone Event #1(b) the Milestone Event will not have occurred until the
      end
      of the ****** (******) day period referenced therein. The date on which any
      such
      milestone payment is due and payable in accordance with the preceding sentence
      is hereinafter referred to as the “Milestone
      Due Date.”

     

    
      
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    Each
      milestone payment identified in this Section 8.2
      (Development Milestone Payments) shall be payable one time only, irrespective
      of
      the number of POZEN Products that achieve the applicable Milestone Event.
      Notwithstanding the foregoing, if a Milestone Event for which a payment would
      be
      due under this Section 8.2
      (Development Milestone Payments) is achieved, but AstraZeneca provides notice
      to
      POZEN that it is exercising its right to terminate this Agreement pursuant
      to
      Section 12.3
      (Termination for Material Breach), 12.4
      (Termination for Cause) or 12.5
      (Termination at Will) prior to the applicable Milestone Due Date for such
      Milestone Event, then such milestone payment will not be payable; provided,
      that
      AstraZeneca complies with its obligations under Section 12.6.3(b)
      (Effect
      of Termination for Cause or Material Breach) or 12.6.4
      (Effect
      of Termination at Will) if applicable. 

     

    8.3  Sales
      Milestone Payments.
      Subject
      to the terms and conditions of this Agreement, AstraZeneca will pay to POZEN
      the
      following one-time, non-creditable, non-refundable payments within ******
      (******) days following the achievement of the corresponding events described
      in
      the table below.

     

    
      	
              Milestone
                Event

               

            	
              Milestone
                Payment

               

            
	
              1. End
                of first calendar year during which aggregate annual Net Sales of
                Products
                were at least $******

               

            	
              $******

               

            
	
              2. End
                of first calendar year during which aggregate annual Net Sales of
                Products
                were at least $******

               

            	
              $******

               

            
	
              3. End
                of first calendar year during which aggregate annual Net Sales of
                Products
                were at least $******

               

            	
              $******

               

            

    

    

     

    Each
      milestone payment identified in this Section 8.3
      (Sales
      Milestone Payments) shall be payable one time only, and not for each time that
      the “annual Net Sales” of Products exceeds a specified amount.

     

    8.4  Royalties.

     

    8.4.1  Royalty
      Rate.
      Subject
      to the terms and conditions of this Agreement, AstraZeneca will pay to POZEN
      royalties based on the aggregate annual Net Sales of Products sold by
      AstraZeneca, its Affiliates or Sublicensees, at the rates set forth
      below:

     

    (a)  For
      Net
      Sales ******:

     

    
      
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    (i)  ******%
      of the portion of aggregate Net Sales of Products during a calendar year that
      is
      equal to or less than $******;

     

    (ii)  ******%
      of the portion of aggregate Net Sales of Products during a calendar year that
      is
      greater than $****** but equal to or less than $******; and

     

    (iii)  ******%
      of the portion of aggregate Net Sales of Products during a calendar year that
      is
      greater than $******.

     

    (b)  For
      Net
      Sales ******:

     

    (i)  ******%
      of the portion of aggregate Net Sales of Products during a calendar year that
      is
      equal to or less than $******; and

     

    (ii)  ******%
      of the portion of aggregate Net Sales of Products during a calendar year that
      is
      greater than $******.

     

    (c)  Notwithstanding
      the foregoing provisions of this Section 8.4.1
      (Royalty
      Rate), if a ****** is sold in one or more countries where ******, the total
      royalties owed for Products shall be determined on a segregated basis, according
      to the following calculations:

     

    (i)  ******
      percent (******%) of the total Net Sales of the ****** ****** sold in any
      country shall be added to the total Net Sales of the ****** (the resulting
      amount being the “Segregated
      Net Sales”),
      and
      the applicable royalty rates set forth in Section 8.4.1(a)
      and
(b)
      shall be
      applied to the Segregated Product Net Sales (the resulting amount being the
      “Segregated
      Royalty Amount”);

     

    (ii)  the
      applicable royalty rates set forth in Section 8.4.1(a)
      and
(b)
      shall be
      applied to the remaining ****** percent (******%) of the total Net Sales of
      the
      ****** (the resulting amount being the “Remaining
      Royalty Amount”);
      and

     

    (iii)  the
      amount owed by AstraZeneca shall be equal to the Segregated Royalty Amount
      plus
      the Remaining Royalty Amount.

     

    (iv)  If
      ******
      are also sold in a country where there are at least ****** being sold, then
      the
      calculations above shall be applied similarly to each such additional Product,
      such that ****** percent (******%) of the Net Sales of each additional Product
      shall be added to the Segregated Royalty Amount, and the remaining ******
      percent (******%) of each additional Product shall be combined only with the
      remaining ****** percent (******%) of Net Sales of the other additional Products
      (i.e.,
      the
      ******) that are being sold in other countries. The example set forth in
      Schedule 8.4.1 illustrates the application of this 8.4.1(c).
      

     

    
      
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    8.4.2  Royalty
      Term.
      AstraZeneca acknowledges that it will continue to enjoy substantial benefit
      from
      its license under, and the transfer to AstraZeneca of certain elements of,
      the
      Licensed Technology pursuant to this Agreement (including the Licensed Know-How
      and the regulatory data to be provided to AstraZeneca pursuant to this
      Agreement) as well as from AstraZeneca’s own development of technology derived
      from the practice of such license and AstraZeneca’s use of such Licensed
      Technology, even after expiration of all Valid Claims of the Licensed Patents
      covering the composition of matter, manufacture, use or sale of POZEN Product
      in
      a country. Accordingly, subject to the terms of Section 8.4.3
      (Rate
      Step Down for Competing Product Entrants), AstraZeneca’s royalty payment
      obligations under this Section 8.4
      (Royalties) will commence upon First Commercial Sale of a Product in a
      particular country and will expire on a country-by-country basis upon the later
      of: (i) expiration of the last-to-expire Valid Claim of the Licensed Patents
      that, but for the licenses granted in this Agreement, would be infringed by
      the
      sale of such Product in such country, and (ii) ten (10) years after the First
      Commercial Sale of such Product in such country (such period ending at the
      later
      of the periods set forth in clause (i) and (ii) above, the “Royalty
      Term”).
      

     

    8.4.3  Rate
      Step Down For Competing Product Entrants. With
      respect to any particular Product and country, if in any Calendar Quarter there
      is a Market Reduction of such Product (based on prescription market data
      published by IMS Health, Scott-Levin, or such other industry standard source
      as
      the Parties may agree), then the royalty rates which would otherwise apply
      to
      Net Sales of such Product in such country during such Calendar Quarter will
      be
      reduced to ****** percent (******%) of the rates set forth in Section
8.4.1
      (Royalty
      Rate); provided, that in no event will ****** (resulting in ****** and ******
      for ******; and ****** and ******). Such reduced royalty rates will continue
      in
      effect, on a Product-by-Product and country-by-country basis, until expiration
      of the applicable Royalty Term. As used in this Section 8.4.3,
      the
      term “Market
      Reduction”
      of a
      Product in a Calendar Quarter occurs when (i) ****** by ****** for such ******
      by ****** in such ****** of the ****** in such ******of the ****** and ******of
      the ******in such ******to the ******in which the ******of a ******occurred.
      The
      example set forth in Schedule 8.4.3 illustrates the application of this Section
      8.4.3.

     

    8.4.4  Third
      Party Payments.
      If
      AstraZeneca determines that a license to certain Third Party technology is
      reasonably necessary for the successful Development, Manufacture or
      Commercialization of a Product, then AstraZeneca will notify POZEN in writing
      of
      such determination. The Parties will consult in good faith regarding the need
      for such Third Party technology and, subject to POZEN’s consent (not to be
      unreasonably withheld, conditioned or delayed), AstraZeneca will negotiate
      the
      terms on which such a Third Party license would be granted to AstraZeneca and
      will serve as the primary point of contact with the applicable Third Party
      licensor following the execution of the license agreement. The royalties
      required to be paid by AstraZeneca with respect to a Product in a particular
      country pursuant to Section 8.4
      (Royalties) shall be subject to a reduction by AstraZeneca in an amount equal
      to
      ******of the amount of ******that are ******under such ******in such ******for
      the ******of such ******during the ******provided, that (i) ******of the ******
      of such ******in such ******for such ******and (ii) if such ******is a******
      (i.e.,
      if the
      ******for such ****** ******). Notwithstanding anything to the contrary in
      this
      Agreement, AstraZeneca shall be solely responsible for any Third Party Payment
      obligations it may have to Merck & Co., Inc. or its affiliates, without any
      offset or deduction. Any amount of Third Party Royalties that may, pursuant
      to
      the preceding paragraph be used to reduce royalties due hereunder, in any
      Calendar Quarter,
      but are not so used as a result of the limitation described in clause (i) of
      this paragraph may be carried over and used for further reduction in any
      succeeding royalty payment due for such Product.

     

    
      
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    8.4.5  ******

     

    8.5  Payments
      and Sales Reporting.

     

    8.5.1  Sales
      Reporting.
      AstraZeneca will provide POZEN, within ****** days (******) of the end of each
      Calendar Quarter, with a report setting forth, on a country-by-country and
      Product-by-Product basis, the amount of gross sales of each Product in such
      country, a calculation of Net Sales, the currency conversion rate used and
      Dollar-equivalent of such Net Sales, and a calculation of the amount of royalty
      payment due on such Net Sales, provided that AstraZeneca shall use reasonable
      efforts to provide such report as soon as practicable to accommodate POZEN’s SEC
      filing requirements and to provide such reports in a shorter time period than
      the periods specified above if AstraZeneca has such reports available for its
      own internal purposes. If any payment reduction is claimed by AstraZeneca under
      this Agreement from the full royalty rates set forth in Section 8.4
      (Royalties), then the report will set forth in detail the claimed reduction
      and
      the related facts.

     

    8.5.2  Payment
      Timing.
      AstraZeneca will make royalty payments to POZEN within ****** (******) days
      of
      the last day of each Calendar Quarter for which such payments are due under
      Section 8.4
      (Royalties).

     

    8.5.3  Payment
      Method.
      All
      amounts due hereunder will be paid in United States Dollars by wire transfer
      in
      immediately available funds to the following account, or such other account
      as
      may be designated in writing by POZEN:

     

    
      	 Receiving bank name:	 ******	 	 
	 Receiving bank address:	 ****** 	 	
               ******

            
	 ABA routing number (1):	 ******	 (1) - required for domestic
              transfers	 
	 SWIFT BIC address (2):	 ******	 (2) - required for international
              transfers	 
	 For credit to the account of:	 POZEN Inc.	 	 
	 For credit to account number:	 ******	 	 

    

        

    8.5.4  Currency
      Conversion.
      All
      payments required under this Article 8 shall be made in U.S. Dollars. For the
      purpose of computing the Net Sales of Licensed Products sold in a currency
      other
      than U.S. Dollars, such currency shall be converted from local currency to
      U.S.
      Dollars by AstraZeneca in accordance with the rates of exchange for the relevant
      month for converting such other currency into U.S. Dollars used by AstraZeneca’s
      internal accounting systems, which are independently audited on an annual
      basis.

     

    8.5.5  Late
      Payments.
      If a
      Party does not receive payment of any sum due to it on or before the due date,
      simple interest will thereafter accrue on the sum due to such Party until the
      date of payment at the per annum rate of ****** percent (******%) over the
      then-current ****** quoted by Citibank in New York City, or the maximum rate
      allowable by Applicable Law, whichever is lower.

     

    
      
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    8.6  Records;
      Audit.
      AstraZeneca will maintain complete and accurate records in sufficient detail
      to
      permit POZEN to confirm the accuracy of the calculation of payments under this
      Agreement. Upon reasonable prior notice, such records will be available during
      regular business hours of AstraZeneca for a period of ****** (******) calendar
      years following the year in which such records were created, for examination
      at
      POZEN’s expense, and not more often than once each calendar year, by an
      independent certified public accountant selected by POZEN and reasonably
      acceptable to AstraZeneca, for the sole purpose of verifying the accuracy of
      the
      financial reports furnished by AstraZeneca pursuant to this Agreement. Any
      such
      auditor will not disclose AstraZeneca’s Confidential Information, except to the
      extent such disclosure is necessary to verify the accuracy of the financial
      reports furnished by AstraZeneca or the amount of payments due by AstraZeneca
      under this Agreement. Any amounts shown to be owed but unpaid will be paid
      within ****** (******) days from the accountant’s report, plus interest (as set
      forth in Section 8.5.5
      (Late
      Payments)) from the original due date. Any amounts determined to be overpaid
      will be refunded within ****** (******) days from the accountant’s report. POZEN
      will bear the full cost of such audit unless such audit discloses an
      underpayment of the amount actually owed during the applicable calendar year
      of
      more than ****** percent (******%), in which case AstraZeneca will bear the
      full
      cost of such audit.

     

    8.7  Taxes.

     

    8.7.1  General.
      The
      royalties, milestones and other amounts payable by one Party to the other Party
      pursuant to this Agreement (“Payments”)
      shall
      not be reduced on account of any taxes unless required by Applicable Law. The
      Party receiving any Payment shall be responsible for paying any and all taxes
      (other than withholding taxes or deduction of tax at source required by
      Applicable Law to be paid by the paying Party) levied on account of, or measured
      in whole or in part by reference to, any Payments it receives. The paying Party
      shall deduct or withhold from the Payments any taxes that it is required by
      Applicable Law to deduct or withhold. Notwithstanding the foregoing, if the
      Party receiving payment is entitled under any applicable tax treaty to a
      reduction of rate of, or the elimination of, applicable withholding tax, it
      may
      deliver to the paying Party or the appropriate governmental authority (with
      the
      assistance of the paying Party to the extent that this is reasonably required
      and is expressly requested in writing) the prescribed forms necessary to reduce
      the applicable rate of withholding tax or to relieve the paying Party of its
      obligation to withhold tax, and the paying Party shall apply the reduced rate
      of
      withholding tax, or dispense with withholding tax, as the case may be, provided
      that the paying Party has received evidence, in a form satisfactory to the
      paying Party, of the other Party’s delivery of all applicable forms (and, if
      necessary, its receipt of appropriate governmental authorization) at least
      ****** (******) days prior to the time that the Payments are due. If, in
      accordance with the foregoing, the paying Party withholds any amount, it shall
      pay to the other Party the balance when due, make timely payment to the proper
      taxing authority of the withheld amount, and send to the other Party proof
      of
      such payment within ****** (******) days following that payment.

     

    
      
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    8.7.2  Indirect
      Taxes.
      Notwithstanding anything contained in Section 8.7.1
      (General), this Section 8.7.2
      (Indirect Taxes) shall apply with respect to Indirect Taxes. All Payments are
      exclusive of Indirect Taxes. If any Indirect Taxes are chargeable in respect
      of
      any Payments, the paying Party shall pay the Indirect Taxes at the applicable
      rate in respect of any such Payments following the receipt of an Indirect Taxes
      invoice in the appropriate form issued by Party receiving Payments in respect
      of
      those Payments, such Indirect Taxes to be payable on the due date of the payment
      of the Payments to which such Indirect Taxes relate.

     

    
      	9.  	
              INTELLECTUAL
                PROPERTY

            

    

     

    9.1  Prosecution
      and Maintenance of Licensed Patents.
      POZEN
      will be responsible for the preparation, filing, prosecution and maintenance
      of
      the Licensed Patents (other than Joint Patents), at its own expense.
      Notwithstanding the foregoing, ******. POZEN will provide a copy of all proposed
      filings at least ****** (******) days in advance of the filing date and will
      consider in good faith the requests and suggestions of AstraZeneca with respect
      to filing and prosecuting the Licensed Patents and will keep AstraZeneca
      promptly informed of progress with regard to the preparation, filing,
      prosecution and maintenance of Licensed Patents. In the event that POZEN desires
      to abandon any Licensed Patent, POZEN will provide reasonable prior written
      notice to AstraZeneca of such intention to abandon (which notice will, in any
      event, be given no later than ****** (******) days prior to the next deadline
      for any action that may be taken with respect to such Licensed Patent with
      the
      U.S. Patent & Trademark Office or any foreign patent office), and
      AstraZeneca will have the right to assume responsibility for such Licensed
      Patent.

     

    9.2  Prosecution
      and Maintenance of Joint Patents.
      AstraZeneca will be responsible for the preparation, filing, prosecution and
      maintenance of Joint Patents, at its own expense. AstraZeneca will provide
      to
      POZEN a copy of all proposed filings at least ****** (******) days in advance
      of
      the filing date and will consider in good faith the requests and suggestions
      of
      POZEN with respect to filing and prosecuting the Joint Patents and will keep
      POZEN promptly informed of progress with regard to the preparation, filing,
      prosecution and maintenance of Joint Patents. In the event that AstraZeneca
      desires to abandon any Joint Patent, AstraZeneca will provide reasonable prior
      written notice to POZEN of such intention to abandon (which notice will, in
      any
      event, be given no later than ****** (******) days prior to the next deadline
      for any action that may be taken with respect to such Joint Patent with the
      U.S.
      Patent & Trademark Office or any foreign patent office), and POZEN will have
      the right to assume responsibility for such Joint Patent.

     

    
      
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    9.3  Ownership
      of Inventions.
      Inventorship of Inventions will be determined in accordance with the rules
      of
      inventorship under United States patent laws. Subject to the licenses granted
      under this Agreement, as between the Parties, AstraZeneca will own all
      AstraZeneca Inventions, POZEN will own all POZEN Inventions, and Joint
      Inventions will be owned jointly by AstraZeneca and POZEN; provided,
      however,
      that
      during the Term of this Agreement: (i) neither POZEN nor AstraZeneca shall
      ****** other than as expressly provided in this Agreement, including Section
      7.1
      (Licensed Technology), without the consent of the other Party, which consent
      shall not be unreasonably withheld, conditioned or delayed, and (ii) neither
      Party shall assign, pledge, encumber, license or otherwise transfer any of
      its
      rights in any Joint Invention or Joint Patent without the other Party’s prior
      written consent, which consent shall not be unreasonably withheld, conditioned
      or delayed. Upon any expiration or termination of this Agreement, each Party
      will have the right to exploit, license and grant rights to sublicense each
      such
      Joint Invention and Joint Patent, without any duty of accounting to the other
      Party, and each Party hereby consents, and agrees to consent, without payment
      of
      any further consideration or royalty, to the Joint Party’s exploitation and
      licensing of said Joint Party’s interest in such Joint Invention or Joint Patent
      to Third Parties; provided, that nothing in this Section 9.3
      gives
      either Party any right or license under any intellectual property rights
      Controlled by the other Party other than Joint Inventions and Joint Patents,
      regardless of whether such rights are necessary in order to exploit the Joint
      Inventions and Joint Patents pursuant to this Section 9.3.

     

    9.4  Disclosure.
      Each
      Party will promptly disclose to the other Party in writing, and will cause
      its
      Affiliates, agents, and independent contractors to so disclose to the other
      Party, the conception and reduction to practice of any Invention.

     

    9.5  Cooperation.
      Each
      Party acknowledges the importance of securing and maintaining effective patent
      protection for the Licensed Technology and Joint Patents throughout the
      Territory. Each Party agrees to cooperate fully in the preparation, filing,
      prosecution and maintenance of the Licensed Patents and Joint Patents and in
      the
      obtaining and maintenance of any patent extensions, supplementary protection
      certificates and the like with respect to the Licensed Patents and Joint
      Patents. Such cooperation includes, but is not limited to: (a) executing all
      papers and instruments, or requiring its employees or contractors, to execute
      such papers and instruments, so as to effectuate the ownership of Inventions
      set
      forth in Section 9.3
      (Ownership of Inventions), and Patents claiming or disclosing such Inventions,
      and to enable the other Party to apply for and to prosecute patent applications
      in any country; and (b) promptly informing the other Party of any matters coming
      to such Party’s attention that may affect the preparation, filing, prosecution
      or maintenance of any such patent applications.

     

    
      
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    9.6  Enforcement
      of Licensed Patents.

     

    9.6.1  Infringement
      by Third Parties.
      AstraZeneca and POZEN will each, within ****** (******) Business Days of
      learning of any alleged or threatened infringement of the Licensed Patents
      or
      Joint Patents, notify the other Party in writing. ****** will have the first
      right, but not the obligation, to prosecute any such infringement. If ******
      does not commence an infringement action against the alleged or threatened
      infringement (i) within ****** (******) days following the detection of the
      of
      alleged infringement, or (ii) ****** (******) Business Days before the time
      limit, if any, set forth in appropriate laws and regulations for filing of
      such
      actions, whichever comes first, then ****** will so notify ****** promptly,
      and
      ****** may commence litigation with respect to the alleged or threatened
      infringement at its own expense.

     

    9.6.2  Challenge
      by Third Parties.
      AstraZeneca and POZEN will each notify the other Party in writing within ******
      (******) Business Days of learning of any alleged or threatened opposition,
      reexamination request, action for declaratory judgment, nullity action,
      interference or other attack upon the validity, title or enforceability of
      the
      Licensed Patents or Joint Patents by a Third Party. ****** will have the first
      right, but not the obligation, to defend any such challenge. If ****** does
      not
      commence Diligent Efforts to defend against the alleged or threatened challenge
      (i) within ****** (******) days following the detection of the alleged
      challenge, or (ii) ****** (******) Business Days before the time limit, if
      any,
      set forth in appropriate laws and regulations for making a filing in defense
      of
      such a challenge, whichever comes first, then ****** will so notify ******
      promptly, and ****** may take action with respect to the alleged or threatened
      challenge at its own expense.

     

    9.6.3  Cooperation.
      In the
      event a Party brings an infringement action pursuant to Section 9.6.1
      (Infringement by Third Parties), the other Party will cooperate fully,
      including, if required to bring such action, the furnishing of a power of
      attorney or to join such action as a necessary party, executing all papers
      and
      instruments, or requiring its employees or contractor, to execute such papers
      and instruments, so as to successfully prosecute any such actions. Neither
      Party
      will have the right to settle any patent infringement litigation under this
      Section 9.6.3
      (Cooperation) in a manner that could be reasonably expected to diminish the
      rights or interest of the other Party, or adversely effect the validity or
      enforceability of such other Party’s Patents, without the express written
      consent of such other Party. The Party commencing the litigation will provide
      the other Party with copies of all pleadings and other documents filed with
      the
      court and will consider reasonable input from the other Party during the course
      of the proceedings.

     

    9.6.4  Recovery.
      Except
      as otherwise agreed by the Parties in connection with a cost sharing
      arrangement, any recovery realized as a result of such litigation described
      in
      Section 9.6.1
      (Infringement by Third Parties) (whether by way of settlement or otherwise)
      will
      be first allocated to reimbursement of unreimbursed legal fees and all
      litigation expenses incurred by the Party initiating the proceeding, then toward
      reimbursement of any of unreimbursed legal fees and all litigation expenses
      of
      the other Party, and then the remainder will be divided between the Parties
      as
      follows: (a) settlements, damages or other monetary awards recovered pursuant
      to
      a suit, action or proceeding brought by ****** will be ****** and subject to
      the
      ****** set forth in Section ******; and (b) settlements, damages or other
      monetary awards recovered pursuant to a suit, action or proceeding brought
      by
      ****** will be ******.

     

    
      
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    9.7  Defense
      of Infringement Claims.
      If the
      manufacture, sale or use of a POZEN Product pursuant to this Agreement results
      in any claim, suit, or proceeding by a Third Party alleging that such activities
      infringe a Third Party patent, or if a Third Party threatens such a claim,
      suit
      or proceeding, each Party will promptly notify the other Party thereof. ******
      (or its ******) will have the exclusive right to defend and control the defense
      of any such claim, suit or proceeding at its own expense, using counsel of
      its
      own choice; provided,
      that if
      any such proceedings involve matters relating to the validity or enforceability
      of the Licensed Patents or Joint Patents, then the provisions of Section
9.6.3
      (Cooperation) above shall apply. In any claim, suit or proceeding under this
      Section 9.7,
      ******
      will keep ****** reasonably informed of all material developments in connection
      with any such claim, suit, or proceeding; provided,
      that if
      ****** is named as a defendant in any such claim, suit or proceeding, that
      ****** shall have the right to participate in the defense using counsel of
      its
      choice at its own expense. In any claim, suit or proceeding under this
      Section 9.7,
      ******
      agrees to provide ****** with copies of all pleadings filed in such action
      and
      to allow ****** reasonable opportunity to participate in the defense of the
      claims.

     

    9.8  Patent
      Term Extension and Supplementary Protection Certificate.
      Upon
      receiving Marketing Approval for a POZEN Product, the Parties agree to
      coordinate the application for any patent term extension or supplementary
      protection certificates that may be available. The primary responsibility of
      applying for any extension or supplementary protection certificate will be
      the
      Party having the right to make the application under the Applicable Law. The
      Party responsible for filing the application will keep the other Party fully
      informed of its efforts to obtain such extension or supplementary protection
      certificate. Each Party will provide prompt and reasonable assistance, without
      additional compensation, to obtain such patent extension or supplementary
      protection certificate. The Party filing such request will pay all expenses
      in
      regard to obtaining the extension or supplementary protection
      certificate.

     

    9.9  Consequence
      of Patent Challenge.
      If
      AstraZeneca or its Affiliates challenge the validity or enforceability of any
      of
      the Licensed Patents by any opposition, reexamination request, action for
      declaratory judgment, nullity action, interference or other attack upon the
      validity, title or enforceability thereof before any governmental agency, court
      or other similar adjudicative forum (any such proceeding, a “Patent
      Challenge”),
      such
      Patent Challenge shall give POZEN the right to terminate this Agreement as
      provided in Section 12.3.
      (Termination for Material Breach) or to terminate all licenses granted under
      any
      of the Licensed Patents subject to such Patent Challenge; provided, that the
      foregoing provisions of this Section 9.9
      (Consequence of Patent Challenge) will not apply in the event that, prior to
      such Patent Challenge, POZEN or any of its licensees or assignees initiates
      or
      threatens litigation against, or makes claims or assertions against, AstraZeneca
      or its Affiliates, Sublicensees or Third Party contractors, that allege that
      any
      of such parties infringe a Licensed Patent.

     

    
      
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    9.10  Patent
      Certifications.

     

    9.10.1  Orange
      Book Listings.
      To the
      extent required or permitted by Applicable Law, after the completion of the
      assignment and transfer of the U.S. Regulatory Materials (including the NDA)
      for
      the Initial POZEN Product to AstraZeneca as required by Section 4.1.1
      (Regulatory Matters in the U.S.), AstraZeneca will use Diligent Efforts to
      promptly list and maintain with the applicable Regulatory Authorities during
      the
      Term correct and complete listings of applicable Licensed Patents for such
      POZEN
      Product, including all so called “Orange Book” listings required under the
      Hatch-Waxman Act. Prior to such assignment and transfer, to the extent required
      or permitted by Applicable Law, POZEN will use Diligent Efforts to promptly
      list
      and maintain with the applicable U.S. Regulatory Authorities correct and
      complete listings of the applicable Licensed Patents for such POZEN Product,
      including so-called Orange Book listings. Promptly after the Effective Date,
      POZEN and AstraZeneca will meet to discuss the Parties’ efforts under this
      Section 9.10.1
      (Patent
      Certification). ******

     

    9.10.2  Hatch-Waxman
      Act.
      Notwithstanding Section 9.6.1
      (Infringement by Third Parties) above, each Party will immediately give notice
      to the other Party of any notice it receives of certification filed under the
      Hatch-Waxman Act claiming that any of the Licensed Patents is invalid,
      unenforceable or that any infringement will not arise from the manufacture,
      use
      or sale of the POZEN Product by a Third Party. If ****** decides not to bring
      infringement proceedings against the entity making such a certification with
      respect to any such Licensed Patents, ****** will give notice to ****** of
      its
      decision not to bring suit within ****** (******) Business Days after receipt
      of
      notice of such certification (or, if the time period permitted by law is less
      than ****** (******) Business Days, within ****** of the time period permitted
      by law for ****** to commence such action). ****** may then, but is not required
      to, bring suit against the Third Party that filed the certification. Any suit
      by
      either Party may be in the name of either or both Parties, as may be required
      by
      law. For this purpose, the Party not bringing suit will execute such legal
      papers necessary for the prosecution of such suit as may be reasonably requested
      by the Party bringing suit.

     

    9.11  Patent
      Marking.
      Any
      POZEN Product marketed and sold by AstraZeneca under this Agreement will be
      marked with appropriate patent numbers or indicia as permitted or required
      by
      law. The Parties agree to cooperate to reach a decision on the marking
      requirements.

     

    
      	10.  	
              REPRESENTATIONS,
                WARRANTIES; COVENANTS 

            

    

     

    10.1  POZEN
      Representations and Warranties.
      POZEN
      hereby warrants and represents to AstraZeneca as of the Execution Date and
      the
      Effective Date that, except as set forth on Schedule 10.1
      to this
      Agreement (as such schedule may be updated by POZEN pursuant to Section
10.2
      (Notice
      of Developments)):

     

    10.1.1  POZEN
      is
      the sole and exclusive owner of the Licensed Patents and has the right to
      perform its obligations hereunder and to grant to AstraZeneca the rights and
      licenses set forth in this Agreement in and to the Licensed
      Technology;

     

    
      
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    10.1.2  Each
      person who has contributed to the conception of an invention claimed in the
      Licensed Patents has been identified to the United States Patent & Trademark
      Office and the applicable patent offices in all other countries where such
      Licensed Patent is filed, registered, nationalized or validated and is named
      on
      such Licensed Patent. ****** is the sole inventor of U.S. Patent ******. Each
      inventor of any invention claimed in any Licensed Patent has assigned all of
      that inventor’s right, title and interest in and to the Licensed Patent to
      POZEN, and such assignment has been recorded at the United States Patent &
Trademark Office and at the applicable patent offices in all other countries
      where such Licensed Patent is nationalized or validated;

     

    10.1.3  To
      the
      knowledge of POZEN, each person associated with the invention, filing or
      prosecution of any Licensed Patent has complied with the obligation under
      Applicable Law to disclose to the relevant patent authority, during the pendency
      of any patent application included in the Licensed Patents, information known
      by
      any such person to be material to the patentability of the pending claims in
      such application;

     

    10.1.4  To
      the
      knowledge of POZEN, none of the Licensed Patents existing on the Execution
      Date
      is involved in any action for declaratory judgment, nullity action,
      reexamination, interference proceeding, or other attack upon its validity,
      title
      or enforceability, and POZEN has not received any written request, demand or
      notice from any Third Party or governmental authority threatening or disclosing
      any such action, proceeding or attack with respect to any of the Licensed
      Patents;

     

    10.1.5  There
      is
      no action or proceeding pending or, to the knowledge of POZEN, threatened that
      relates to, affects or arises in connection with any Licensed Technology or
      POZEN Product; and POZEN is not subject to any order, ruling or judgment of
      any
      governmental or Regulatory Authority that could reasonably be expected to impair
      or delay the ability of POZEN to perform its obligations under this
      Agreement;

     

    10.1.6  The
      Licensed Patents are not subject to any encumbrance, lien, license rights
      (including any covenant not to sue in respect thereto) or claim of ownership
      by
      any Third Party;

     

    10.1.7  To
      the
      knowledge of POZEN, there are no activities by Third Parties that would
      constitute infringement of any Licensed Patents or misappropriation of Licensed
      Know-How existing on the Execution Date;

     

    10.1.8  To
      the
      knowledge of POZEN, there are no Patents or trade secret rights owned or
      controlled by a Third Party, that would be infringed or misappropriated by
      the
      Development, Manufacture or Commercialization of POZEN Product(s), and POZEN
      has
      received no written claims relating to any such infringement or
      misappropriation. To the knowledge of POZEN, AstraZeneca’s use and exploitation
      of the Regulatory Materials as contemplated by this Agreement will not
      misappropriate any confidential information or trade secret of any Third
      Party;

     

    
      
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    10.1.9  POZEN
      has
      made available to AstraZeneca all clinical study reports, formulation
      development study reports and Regulatory Materials in its possession or Control
      regarding or related to POZEN Products. All such clinical study reports,
      formulation development study reports and Regulatory Materials are true and
      complete as of the Execution Date;

     

    10.1.10  As
      of the
      Execution Date, POZEN has prepared, maintained and retained all Regulatory
      Materials required to be maintained or reported pursuant to and in accordance
      with cGCP, cGLP, and cGMP to the extent required, and all Applicable Law and,
      to
      POZEN’s knowledge, the Regulatory Materials do not contain any materially false
      and misleading statements; POZEN has conducted, and has caused its contractors
      and consultants to conduct, any and all formulation development and clinical
      studies related to the POZEN Product in accordance with cGCP, cGMP, and cGLP,
      to
      the extent required, and all other Applicable Law; 

     

    10.1.11  The
      Licensed Patents listed on Schedule 1.58 are all of the Patents Controlled
      by
      POZEN that are necessary for the Development, Manufacture, Commercialization,
      use, sale, offer for sale or importation of the POZEN Product in the Field
      of
      Use.

     

    10.1.12  POZEN
      has
      disclosed to AstraZeneca all information in its possession relating to any
      interaction with the FDA and other Regulatory Authorities regarding the Initial
      POZEN Product. POZEN has not received any communication from the FDA that leads
      it to believe that the studies set forth in Exhibit
      B
      may be
      insufficient to obtain NDA Approval of the Initial POZEN Product from the
      FDA;

     

    10.1.13  POZEN
      has
      obtained all necessary licenses, consents, approvals, permits and authorizations
      to enable it to carry on its research and business related to the Licensed
      Technology and POZEN Products and all such licenses, consents, approvals,
      permits and authorizations are in effect;

     

    10.1.14  True
      and
      complete copies of all of POZEN’s agreements relating to the Licensed Technology
      or to the Development or Commercialization (excluding marketing research) of
      POZEN Products have been made available to AstraZeneca and such agreements
      will
      be listed on an updated Schedule 10.1 to be agreed by the Parties before the
      Effective Date. Except as identified on such Schedule 10.1, each such agreement
      is in full force and effect. POZEN is not, and to its knowledge no other party
      to any such agreement is, in breach of or in default, in any material respect,
      under any such agreement; and to POZEN’s knowledge, no event or circumstance has
      occurred which constitutes, or after notice or lapse of time or both, would
      constitute a material breach or default thereunder on the part of POZEN or
      any
      other party thereto, or which would result in a right to accelerate or a loss
      of
      material rights under any such agreement that has not been cured or
      waived;

     

    10.1.15  Neither
      POZEN nor any Third Party engaged by it, in any capacity, has been debarred
      or
      is subject to debarment or has otherwise been disqualified or suspended from
      performing scientific or clinical investigations or otherwise subjected to
      any
      restrictions or sanctions by the FDA or any other governmental or regulatory
      authority or professional body with respect to the performance of scientific
      or
      clinical investigations;

     

    
      
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    10.1.16  True,
      complete and correct copies of all licenses and other agreements under which
      any
      Third Party has or grants to POZEN any right or license to the Licensed Patents,
      including any amendments to such agreements, have been made available to
      AstraZeneca;

     

    10.1.17  All
      applicable fees have been timely paid to file, prosecute and maintain the
      Licensed Patents. To the knowledge of POZEN without inquiry, (i) the Licensed
      Patents are subsisting, or pending, and are not invalid or unenforceable, and
      (ii) the conception, development and reduction to practice of the Licensed
      Patents have not constituted or involved the misappropriation of trade secrets
      or other rights or property of any Third Party;

     

    10.1.18  The
      development of the Licensed Technology has not been funded, in whole or in
      part,
      by the United States Government.

     

    10.1.19  The
      execution and delivery of this Agreement, the performance contemplated hereby,
      and the grant of rights and licenses hereunder will not (i) result in a breach
      of any judgment, decree, order or approval of any court of law or authority
      applicable to the Licensed Technology or POZEN Product; (ii) cause any
      acceleration or maturity of any contract or of any obligation relating to the
      Licensed Technology or POZEN Product; (iii) result in the creation or imposition
      of any encumbrance upon or give to any other person or entity any interest
      or
      right (including any right of termination or cancellation or change) in or
      with
      respect to the Licensed Technology or POZEN Product except as expressly
      permitted herein; or result in any termination of, or change in the terms of,
      or
      conditions of, or rights or obligations under, any permit or approval of any
      authority applicable to the Licensed Technology or POZEN Product; or (iv) result
      in a violation of, or be in material conflict with, or constitute a material
      default, under any agreement in existence as of the Execution Date between
      POZEN
      and Third Parties and that it is not party to any other agreements that limits
      AstraZeneca’s
      rights
      under this Agreement. 

     

    10.2  Notice
      of Developments.
      From
      the Execution Date until the Effective Date of this Agreement, POZEN will give
      AstraZeneca prompt written notice upon becoming aware of any development, event
      or circumstance that could reasonably be expected to result in a breach of
      or
      inaccuracy in any of POZEN’s representations and warranties in Section
10.1
      (POZEN
      Representations and Warranties).
      On the
      Effective Date, POZEN shall deliver to AstraZeneca an updated Schedule
10.1
      reflecting all exceptions to the representations and warranties made by POZEN
      as
      of the Effective Date.

     

    10.3  AstraZeneca
      Warranties.
      AstraZeneca hereby warrants and represents to POZEN as of the Execution Date
      and
      the Effective Date that AstraZeneca is not subject to any order, ruling or
      judgment of any governmental or Regulatory Authority that could reasonably
      be
      expected to impair or delay the ability of AstraZeneca to perform its
      obligations under this Agreement.

     

    
      
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    10.4  Reciprocal
      Representations and Warranties.
      Each
      Party represents and warrants to the other Party that: (a) this Agreement is
      a
      legal and valid obligation binding upon its execution and enforceable against
      it
      in accordance with its terms and conditions; and (b) the execution, delivery
      and
      performance of this Agreement by such Party has been duly authorized by all
      necessary corporate action, and the person executing this Agreement on behalf
      of
      such Party has been duly authorized to do so by all requisite corporate
      actions.

     

    10.5  DISCLAIMER
      OF WARRANTY.
      EXCEPT
      FOR THE EXPRESS REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTIONS
10.1
      (POZEN
      WARRANTIES) AND 10.3 (ASTRAZENECA WARRANTIES) AND 10.4
      (RECIPROCAL REPRESENTATIONS AND WARRANTIES), EACH PARTY MAKES NO REPRESENTATIONS
      AND GRANTS NO WARRANTIES, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION
      OF
      LAW, BY STATUTE OR OTHERWISE, AND POZEN AND LICENSEE EACH SPECIFICALLY DISCLAIMS
      ANY OTHER WARRANTIES, WHETHER WRITTEN OR ORAL, OR EXPRESS OR IMPLIED, INCLUDING
      ANY WARRANTY OF QUALITY OR MERCHANTABILITY, OR ANY WARRANTY AS TO THE VALIDITY
      OR ENFORCEABILITY OF ANY PATENTS OR THE NON-INFRINGEMENT OF ANY INTELLECTUAL
      PROPERTY RIGHTS OF THIRD PARTIES.

     

    10.6  POZEN
      Non-Compete.
      POZEN
      covenants that it will not at any time prior to the expiration of the Royalty
      Term, and will ensure that its Affiliates do not, directly or indirectly,
      develop or commercialize or license any Third Party to develop or commercialize
      any product having a ******; provided, that after ****** (******) years
      following the Commercial Launch of a POZEN Product in the European Union, POZEN
      and its Affiliates shall be free, in the European Union only, to Develop,
      Commercialize or license a Third Party to Develop or Commercialize a product
      having a ****** in ****** with an ******. Without limiting AstraZeneca’s rights
      under this Agreement or otherwise, in case of any breach of this Section
10.6
      (POZEN
      Non-Compete), AstraZeneca will notify POZEN and, if such breach is not cured
      by
      POZEN within ****** (******) days after receipt of such notice,
      ******. 

     

    10.7  POZEN
      Subcontractors.
      POZEN
      will not, without AstraZeneca’s prior written consent (not to be unreasonably
      withheld), engage or use any Third Party contract research organizations or
      other contractors (other than individuals hired as consultants) involved in
      the
      conduct of Development activities under this Agreement. All subcontractors
      identified in Schedule 10.7 (which such schedule will be agreed upon by the
      Parties before the Effective Date) are hereby approved by AstraZeneca. Any
      subcontract between POZEN and a Third Party to perform POZEN’s responsibilities
      under this Agreement will be in writing and include provisions requiring the
      Third Party (i) to assign to POZEN all rights in any inventions relating to
      a
      Product and conceived by such Third Party in the course of performing such
      activities, along with all intellectual property rights therein, and (ii) to
      comply with confidentiality provisions at least as restrictive as those set
      forth in Section 11
      (Confidentiality) with respect to all materials and information received by
      such
      Third Party in connection with such activities.

     

    10.8  ******.

     

    
      
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    10.9  Other
      Covenants.

     

    10.9.1  POZEN
      will not enter into any agreement, whether written or oral with respect to,
      or
      otherwise assign, transfer, license, convey or otherwise encumber its rights,
      title or interest in the Licensed Technology (including by granting any covenant
      not to sue with respect thereto) to any Person in a manner that is inconsistent
      with the rights and licenses granted to AstraZeneca under this
      Agreement.

     

    10.9.2  Each
      Party will obtain from each of its Affiliates, sublicensees, employees and
      agents and from the employees and agents of its Affiliates, sublicensees and
      agents who are or will be involved in the Development of the POZEN Products
      or
      of the Licensed Technology, rights to any and all inventions, information,
      and
      intellectual property rights conceived in the course of performance of this
      Agreement, necessary to enable such Party to grant the licenses and other rights
      granted to the other Party under this Agreement.

     

    
      	11.  	
              CONFIDENTIALITY.

            

    

     

    11.1  Definition.
      During
      the Term and subject to the terms and conditions of this Agreement, a Party
      (a
“Disclosing
      Party”)
      may
      communicate to the other Party (a “Receiving
      Party”)
      information in connection with this Agreement or the performance of its
      obligations hereunder, including scientific and manufacturing information and
      plans, marketing and business plans, and financial and personnel matters
      relating to a Party or its present or future products, sales, suppliers,
      customers, employees, investors or business (collectively, “Confidential
      Information”).
      Without limiting the foregoing, “Confidential Information” is hereby deemed to
      include any information disclosed by one Party to the other Party pursuant
      to
      that certain confidentiality agreement between the Parties dated as of March
      27,
      2006 or that certain confidentiality agreement between the Parties dated as
      of
      June 15, 2006. Notwithstanding the foregoing or any other provision of this
      Agreement to the contrary, during the Term, the Licensed Know-How will be deemed
      to be the Confidential Information of both Parties.

     

    11.2  Exclusions.
      Notwithstanding the foregoing, information of a Disclosing Party will not be
      deemed Confidential Information with respect to a Receiving Party for purposes
      of this Agreement to the extent the Receiving Party can demonstrate by competent
      evidence that such information:

     

    11.2.1  was
      already known to the Receiving Party or its Affiliates, as evidenced by their
      written records, other than under an obligation of confidentiality or non-use,
      at the time of disclosure to the Receiving Party;

     

    11.2.2  was
      generally available or was otherwise part of the public domain at the time
      of
      its disclosure to the Receiving Party;

     

    11.2.3  became
      generally available or otherwise became part of the public domain after its
      disclosure to the Receiving Party, through no fault of or breach of its
      obligations under this Section 11
      (Confidentiality) by the Receiving Party;

     

    
      
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    11.2.4  was
      disclosed to the Receiving Party or any of its Affiliates, other than under
      an
      obligation of confidentiality or non-use, by a Third Party who had no obligation
      to the Party that controls such information and know-how not to disclose such
      information or know-how to others; or

     

    11.2.5  was
      independently discovered or developed by the Receiving Party or its Affiliates,
      as evidenced by their written records, without the use of, and by personnel
      who
      had no access to, Confidential Information belonging to the Party that controls
      such information and know-how.

     

    11.3  Disclosure
      and Use Restriction.
      Except
      to the extent expressly authorized by this Agreement or otherwise agreed in
      writing by the parties, the parties agree that, during the Term and for ******
      (******) years thereafter, the Receiving Party will keep confidential and will
      not publish or otherwise disclose and will not use for any purpose other than
      as
      expressly provided for in this Agreement any Confidential Information of the
      Disclosing Party. The Receiving Party may use such Confidential Information
      only
      to the extent required to accomplish the purposes of this Agreement or in
      connection with the exercise of its rights hereunder. The Receiving Party will
      use at least the same standard of care as it uses to protect proprietary or
      confidential information of its own to ensure that its employees, agents,
      consultants and other representatives do not disclose or make any unauthorized
      use of the Confidential Information. The Receiving Party will promptly notify
      the other upon discovery of any unauthorized use or disclosure of the
      Confidential Information.

     

    11.4  Authorized
      Disclosure. A
      Receiving Party may disclose Confidential Information of a Disclosing Party
      to
      the extent that such disclosure is:

     

    11.4.1  made
      in
      response to a valid order of a court of competent jurisdiction or other
      governmental or regulatory body of competent jurisdiction; provided,
      however,
      that
      such
      Receiving Party will have given notice to the Disclosing Party within ******
      (******) Business Days of receipt of such order and given the Disclosing Party
      a
      reasonable opportunity to quash such order and to obtain a protective order
      requiring that the Confidential Information and documents that are the subject
      of such order be held in confidence by such court or governmental or regulatory
      body or, if disclosed, be used only for the purposes for which the order was
      issued; and provided, further,
      that if
      a disclosure order is not quashed or a protective order is not obtained, the
      Confidential Information disclosed in response to such court or governmental
      order will be limited to that information which is legally required to be
      disclosed in response to such court or governmental order;

     

    11.4.2  otherwise
      required by law; provided,
      that the
      Disclosing Party will provide the Receiving Party with notice of such disclosure
      at least ****** (******) days in advance thereof to the extent practicable
      and
      take reasonable steps as requested by the Disclosing Party to protect the
      Disclosing Party’s rights; 

     

    
      
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    11.4.3  made
      by a
      Receiving Party, in connection with the performance of this Agreement, (a)
      to
      Affiliates, employees, consultants, representatives or agents, each of whom
      prior to disclosure must be bound by obligations of confidentiality and non-use
      at least equivalent in scope to those set forth in this Section 11
      (Confidentiality) or (b) to Regulatory Authorities (provided,
      that in
      the case of disclosures to Regulatory Authorities, the Receiving Party will,
      to
      the extent practicable, provide the Disclosing Party with notice of such
      disclosure at least ****** (******) days in advance thereof and will reasonably
      consider any comments received from the Disclosing Party); 

     

    11.4.4  made
      by a
      Receiving Party to existing or potential acquirers or merger candidates;
      potential sublicensees or collaborators (to the extent contemplated hereunder);
      investment bankers; existing or potential investors, venture capital firms
      or
      other financial institutions or investors for purposes of obtaining financing;
      or Affiliates, each of whom prior to disclosure must be bound by obligations
      of
      confidentiality and non-use at least equivalent in scope to those set forth
      in
      this Section 11
      (Confidentiality); or

     

    11.4.5  made
      by
      the Receiving Party with the prior written consent of the Disclosing
      Party.

     

    11.4.6  In
      addition to the foregoing, within ****** (******) days after the Effective
      Date,
      the Parties shall mutually agree in good faith on a written document specifying
      the statements regarding ****** are permitted to make in response to appropriate
      questions from ****** relating to POZEN Products, and the Parties shall update
      such document by mutual agreement as appropriate from time to time, such
      agreement not to be unreasonably withheld, conditioned or delayed. ****** shall
      not make any public statement ****** that is not consistent with such agreed
      written document.

     

    11.5  Use
      of Name.
      Neither
      Party may make public use of the other Party’s name except (a) in connection
      with announcements and other disclosures relating to this Agreement and the
      activities contemplated hereby as permitted in Section 11.6
      (Press
      Releases), (b) as required by Applicable Law, and (c) otherwise as agreed in
      writing by such other Party.

     

    11.6  Press
      Releases.

     

    11.6.1  On
      or
      after the Execution Date of this Agreement at a mutually agreed time, each
      Party
      will issue a mutually agreed press release announcing the existence of this
      Agreement each in the form and substance to be mutually agreed upon in advance.
      For subsequent press releases and other written public disclosures relating
      to
      this Agreement or the Parties’ relationship hereunder (each, a “Public
      Disclosure”),
      each
      Party will use reasonable efforts to submit to the other Party a draft of such
      Public Disclosures for review and comment by the other Party at least ******
      (******) Business Days prior to the date on which such Party plans to release
      such Public Disclosure, and in any event will submit such drafts at least ******
      prior to the release of such Public Disclosure, and will review and consider
      in
      good faith any comments provided in response. Notwithstanding the foregoing,
      subject to Section ******.

     

    
      
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    11.6.2  If
      a
      Party is unable to comply with the foregoing ****** notice requirement because
      of a legal obligation or stock exchange requirement to make more rapid
      disclosure, such Party will not be in breach of this Agreement but will in
      that
      case provide notice as promptly as practicable under the
      circumstances.

     

    11.6.3  A
      Party
      may publicly disclose, without regard to the preceding requirements of this
      Section 11.6
      (Press
      Releases), information that was previously disclosed in a Public Disclosure
      that
      was in compliance with such requirements.

     

    11.7  Terms
      of Agreement to be Maintained in Confidence.
      The
      Parties agree that the terms of this Agreement are confidential and will not
      be
      disclosed by either Party to any Third Party (except to a Party’s professional
      advisors, including without limitation accountants, financial advisors, and
      attorneys) without prior written permission of the other Party; provided,
      however,
      that (a)
      either Party may make any filings of this Agreement required by law or
      regulation in any country so long as such Party uses its reasonable efforts
      to
      obtain confidential treatment for portions of this Agreement as available,
      consults with the other Party, and permits the other Party to participate,
      to
      the greatest extent practicable, in seeking a protective order or other
      confidential treatment; (b) either Party may disclose this Agreement on a
      confidential basis to potential Third Party investors or acquirors or, in the
      case of AstraZeneca, to potential Sublicensees, in each case in connection
      with
      due diligence or similar investigations; and (c) a Party may publicly disclose,
      without regard to the preceding requirements of this Section 11.7,
      information that was previously disclosed in compliance with such
      requirements.

     

    
      	12.  	
              TERM
                AND TERMINATION

            

    

     

    12.1  HSR
      Act.
      To the
      extent required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
      as
      amended (“HSR
      Act”),
      each
      Party will (i) file or cause to be filed, as promptly as practicable after
      the
      date hereof, with the United States Federal Trade Commission (“FTC”)
      and the
      United States Department of Justice (“DOJ”),
      all
      reports and other documents required to be filed by such Party under the HSR
      Act
      concerning the transactions contemplated hereby and (ii) promptly comply with
      or
      cause to be complied with any requests by the FTC or DOJ for additional
      information concerning such transactions, in each case so that the waiting
      period applicable to this Agreement and the transactions contemplated hereby
      under the HSR Act will expire as soon as practicable after the date hereof.
      Each
      Party agrees to request, and to cooperate with the other Party in requesting,
      early termination of any applicable waiting period under the HSR Act. The filing
      fees payable in connection with the filings will be borne by AstraZeneca as
      the
      acquiring party under this Agreement. This Agreement is effective on the date
      after which the waiting period pursuant to the HSR Act has expired, or the
      date
      on which the transaction contemplated in this Agreement has been approved by
      the
      FTC and DOJ or, if the Parties agree that no filing is required under the HSR
      Act, the date first written above (“Effective
      Date”).

     

    12.2  Term.
      The
      term of this Agreement will commence as of the Effective Date and, unless
      earlier terminated in accordance with this Section 12
      (Term
      and Termination), will expire upon the expiration of the Royalty Term for all
      POZEN Products in all countries (the “Term”).

     

    
      
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    12.3  Termination
      for Material Breach.
      In the
      event that either Party (the “Breaching
      Party”)
      shall
      be in material default of any of its material obligations under this Agreement,
      in addition to any other right and remedy the other Party (the “Non-Breaching
      Party”)
      may
      have, the Non-Breaching Party may terminate this Agreement in its entirety
      or
      with respect to the country or countries to which such material default applies
      by ****** (******) days prior written notice (the “Notice
      Period”)
      to the
      Breaching Party, specifying the breach and its claim of right to terminate;
      provided, that the termination shall not become effective at the end of the
      Notice Period if the Breaching Party cures the breach complained about during
      the Notice Period (or, if such default cannot be cured within such Notice
      Period, if the Breaching Party commences actions to cure such default within
      the
      Notice Period and thereafter diligently continues such actions); provided,
      further,
      that in
      the event that AstraZeneca is the Party in material default and the default
      is
      with respect to AstraZeneca’s failure to use Diligent Efforts as required under
      this Agreement with respect to the Initial POZEN Products in the United States
      or in a particular Major Ex-U.S. Market Country, POZEN shall have the right
      to
      terminate this Agreement only with respect to such country and not in its
      entirety. It is understood that termination pursuant to this Section
      12.3.
      (Termination for Material Breach) shall be a remedy of last resort and may
      be
      invoked only in the case where the breach cannot be reasonably remedied by
      the
      payment of money damages or other remedy under applicable law. If either Party
      initiates a dispute resolution procedure as permitted under this Agreement
      prior
      to the end of the Notice Period to resolve the dispute for which termination
      is
      being sought and is diligently pursuing such procedure, including any litigation
      following therefrom, the termination shall become effective only if and when
      such dispute is finally resolved through such dispute resolution procedure.
      This
      Section 12.3.
      (Termination for Material Breach) defines exclusively the Parties’ right to
      terminate in case of any material breach of this Agreement.

     

    12.4  Termination
      for Cause.

     

    12.4.1  AstraZeneca
      Termination for Cause.
      AstraZeneca may terminate this Agreement to the extent set forth below without
      penalty upon written notice to POZEN, as follows: 

     

    (a)  Subject
      to Section 12.4.1(n),
      if a
      Pre-Approval Failure described in paragraph ****** of Section 1.81
      (Pre-Approval Failure) occurs with respect to ******, AstraZeneca may, at its
      option, terminate the Agreement either ******, or with respect to ******, or
      ****** with respect to any ****** where obtaining ****** is, according to common
      practice, ******or the ****** provided, that written notice of termination
      must
      be delivered to POZEN within ****** (******) days following such Pre-Approval
      Failure (or, if AstraZeneca has elected a substitute POZEN Product in accordance
      with Section 3.4.2 (a)
      or if
      POZEN has consented to AstraZeneca’s election of a substitute POZEN Product
      under Section 3.4.2
      (b)
      and,
      in either case, AstraZeneca has proposed an updated development plan for such
      substitute product as required by Section 3.4.2 (b),
      within ****** (******) days following the election of such product pursuant
      to
      such Section).

     

    
      
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    (b)  Subject
      to Section 12.4.1(n),
      if a
      Pre-Approval Failure described in paragraph ****** of Section 1.81
      (Pre-Approval Failure) occurs with respect to ******, AstraZeneca may, at its
      option, terminate this Agreement either with respect to ******, or ****** with
      respect to any ****** where obtaining ****** is, according to common practice,
      ****** for the ****** in which the ******; provided, that written notice of
      termination must be delivered to POZEN within ****** (******) days following
      such Pre-Approval Failure (or, if AstraZeneca has elected a substitute POZEN
      Product in accordance with Section 3.4.2 (a)
      or if
      POZEN has consented to AstraZeneca’s election of a substitute POZEN Product
      under Section 3.4.2(b)
      and,
      in either case, AstraZeneca has proposed an updated development plan for such
      substitute product as required by Section 3.4.2 (b),
      within ****** (******) days following the election of such product pursuant
      to
      such Section). 

     

    (c)  Subject
      to Section 12.4.1(n),
      if a
      Pre-Approval Failure described in paragraph ****** of Section 1.81
      (Pre-Approval Failure) occurs with respect to a ******, AstraZeneca may, at
      its
      option, terminate this Agreement either with respect to ******, or ****** with
      respect to any ****** where obtaining ****** is, according to common practice,
      ****** for the ****** in which the ******; provided, that written notice of
      termination must be delivered to POZEN within ****** (******) days following
      such Pre-Approval Failure(or, if AstraZeneca has elected a substitute POZEN
      Product in accordance with Section 3.4.2 (a)
      or if
      POZEN has consented to AstraZeneca’s election of a substitute POZEN Product
      under Section 3.4.2 (b)
      and
      AstraZeneca has proposed an updated development plan for such substitute product
      as required by Section 3.4.2 (b),
      within ****** (******) days following the election of such product pursuant
      to
      such Section)..

     

    (d)  If
      a
      Pre-Approval Failure described in paragraph ****** of Section 1.82
      (Pre-Approval Failure) occurs with respect to the ****** of the ****** and
      ****** for the ******, AstraZeneca may, at its option, terminate this Agreement
      either ****** or ******; provided, that written notice of termination must
      be
      delivered to POZEN within ****** (******) days following such Pre-Approval
      Failure (or, if AstraZeneca has elected a substitute POZEN Product in accordance
      with Section 3.4.2 (a)
      or if
      POZEN has consented to AstraZeneca’s election of a substitute POZEN Product
      under Section 3.4.2 (b)
      and,
      in either case, AstraZeneca has proposed an updated development plan for such
      substitute product as required by Section 3.4.2 (b),
      within ****** (******) days following the election of such product pursuant
      to
      such Section)..

     

    (e)  If
      a
      Pre-Approval Failure described in paragraph ****** of Section 1.81
      (Pre-Approval Failure) occurs with respect to the ****** of the ****** and
      ****** for the ****** AstraZeneca may, at its option, terminate this Agreement
      ****** with respect to ******; provided, that written notice of termination
      must
      be delivered to POZEN within ****** (******) days following such Pre-Approval
      Failure (or, if AstraZeneca has elected a substitute POZEN Product in accordance
      with Section 3.4.2 (a)
      or if
      POZEN has consented to AstraZeneca’s election of a substitute POZEN Product
      under Section 3.4.2 (b)
      and,
      in either case, AstraZeneca has proposed an updated development plan for such
      substitute product as required by Section 3.4.2 (b),
      within ****** (******) days following the election of such product pursuant
      to
      such Section)..

     

    
      
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    (f)  If,
      following a Pre-Approval Failure described in paragraph ****** of Section
1.81
      (Pre-Approval Failure), AstraZeneca fails to ****** and a ****** for the
      applicable ****** within the ****** described in ******, despite using ******,
      then AstraZeneca may, at its option, terminate this Agreement as follows: (i)
      if
      such Pre-Approval Failure related to the ****** and ****** as described in
      ******, then AstraZeneca may terminate this Agreement either ****** or ******
      with respect to ******, and (ii) if such Pre-Approval Failure related to the
      ****** and ****** as described in ******, then AstraZeneca may terminate this
      Agreement ****** with respect to ******; provided, in each case, that written
      notice of termination must be delivered to POZEN within ****** (******) days
      following the expiration of such ****** period.

     

    (g)  If
      the
      Regulatory Authority in a particular country or territory requires the
      development of a particular formulation of a POZEN Product (whether for use
      in
      clinical testing or otherwise) and the Parties fail to develop a formulation
      and
      a manufacturing process for the applicable POZEN Product despite using Diligent
      Efforts to do so, then AstraZeneca may, at its option, terminate this Agreement
      solely with respect to such country; provided, that written notice of
      termination must be delivered to POZEN within ****** (******) days following
      the
      permanent abandonment of the applicable formulation development
      program.

     

    (h)  If
      a
      Pre-Approval Failure described in paragraph ****** of Section 1.81
      (Pre-Approval Failure) occurs, AstraZeneca may, at its option, terminate this
      Agreement either ******, or ****** with respect to ******; provided, that
      written notice of termination must be delivered to POZEN within ****** (******)
      days following such Pre-Approval Failure (or, if AstraZeneca has elected a
      substitute POZEN Product in accordance with Section 3.4.2 (a)
      or if
      POZEN has consented to AstraZeneca’s election of a substitute POZEN Product
      under Section 3.4.2 (b)
      and,
      in either case, AstraZeneca has proposed an updated development plan for such
      substitute product as required by Section 3.4.2 (b),
      within ****** (******) days following the election of such product pursuant
      to
      such Section).

     

    (i)  If
      a
      Pre-Approval Failure described in paragraph ****** of Section 1.81
      (Pre-Approval Failure) occurs, AstraZeneca may, at its option, terminate this
      Agreement either ******, or ****** with respect to ******; provided, that
      written notice of termination must be delivered to POZEN not later than the
      date
      of NDA Approval of the Initial POZEN Product in the U.S. 

     

    (j)  If
      a
      Pre-Approval Failure described in paragraph ****** of Section 1.81
      (Pre-Approval Failure) occurs, AstraZeneca may, at its option, terminate this
      Agreement ****** if the Pre-Approval Failure occurs ******, or ****** with
      respect to ****** if the Pre-Approval Failure occurs ******.; provided, that
      written notice of termination must be delivered to POZEN within ****** (******)
      days following such Pre-Approval Failure (or, if AstraZeneca has elected a
      substitute POZEN Product in accordance with Section 3.4.2 (a)
      or if
      POZEN has consented to AstraZeneca’s election of a substitute POZEN Product
      under Section 3.4.2 (b)
      and,
      in either case, AstraZeneca has proposed an updated development plan for such
      substitute product as required by Section 3.4.2 (b),
      within ****** (******) days following the election of such product pursuant
      to
      such Section).

     

    
      
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    (k)  If
      a
      Post-Approval Failure occurs anywhere in the Territory, AstraZeneca may, at
      its
      option, terminate the Agreement either ******, or ******, or ****** with respect
      to ******; provided, that written notice of termination must be delivered to
      POZEN within ****** (******) days following such Post-Approval
      Failure.

     

    (l)  If,
      after
      AstraZeneca receives POZEN’s updated Schedule 10.1 pursuant to Section
10.1,
      AstraZeneca determines in its reasonable discretion that a change to Schedule
      10.1 either (i) materially adversely affects the value of rights granted to
      AstraZeneca under this Agreement, or (ii) materially adversely affects POZEN’s
      ability to perform its obligations under this Agreement, AstraZeneca may, at
      its
      option, terminate this Agreement in its entirety; provided, that written notice
      of termination must be delivered to POZEN within ****** (******) Business Days
      following AstraZeneca’s receipt of POZEN’s updated Schedule 10.1.

     

    (m)  AstraZeneca
      may, at its option, terminate this Agreement in its entirety to the extent
      provided in Section 3.4.2
      (Substitution).

     

    (n)  If
      a
      Pre-Approval Failure described in paragraph ****** of Section 1.81
      (Pre-Approval Failure) occurs because ****** that would be reasonably expected,
      in the aggregate, to require AstraZeneca to ****** Section 1.81(b)
      (Pre-Approval Failure), but (A) the ****** required for NDA Approval in the
      ****** (without aggregation with activities required in the ****** or in ******)
      would not be reasonably expected to require AstraZeneca to ******, and (B)
      the
      ****** required for NDA Approval outside the ****** (without aggregation with
      activities required in the ******) would not be reasonably expected to require
      AstraZeneca to ******, then POZEN may elect, at its option, to deem the
      Pre-Approval Failure described in paragraph (******) of Section 1.81
      (Pre-Approval Failure) to have occurred ******, as applicable, for the purposes
      of this Section 12.4.1.
      

     

    12.4.2  POZEN
      Termination for Cause.
      Subject
      to Section 12.6.3
      (Effect
      of Termination for Cause or for Material Breach), POZEN may terminate this
      Agreement to the extent set forth below without penalty upon written notice
      to
      AstraZeneca, which notice must be delivered to AstraZeneca within ******
      (******) days following the occurrence of the relevant event described in
      paragraphs (a), (b), (c) and (d) below: 

     

    (a)  with
      respect to ****** if despite using ******has not ****** or to ****** within
      ****** from the ****** for ****** set forth in the ******;

     

    (b)  ******
      if
      a Pre-Approval Failure described in paragraph ****** of Section 1.81
      occurs
      in ******of the ******because the ******has not: ******for the ******pursuant
      to
      ******within ****** (******from the date on which the Pre-Approval Failure
      of
      the ******occurred in ******for the ******within ******following such ******;
      

     

    (c)  ******
      if
      despite using ****** ****** of the ****** in accordance with ****** and ******
      has failed to ****** of the ****** pursuant to ****** that the Parties agree
      is
      ******with the ******by this Agreement (including, without limitation, ******
      as
      may be required by ******within ****** (******) ****** ******contemplated by
      ******; and

     

    
      
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    (d)  ******
      if
      despite using ****** of the ****** in accordance with ****** of the ******
      pursuant to ****** that the ******with the ******of the ******as contemplated
      by
      this Agreement (including, without limitation, ****** as may be ****** within
      ****** (******) ****** contemplated by ******.

     

    12.5  Termination
      at Will.
      AstraZeneca may terminate this Agreement in its entirety or with respect to
      all
      countries outside of the United States at any time at will upon ****** ******
      prior written notice to POZEN.

     

    12.6  Consequences
      of Expiration and Termination.

     

    12.6.1  Effect
      of Expiration.
      Upon
      expiration (but not earlier termination) of the Term pursuant to Section
12.2
      (Term),
      AstraZeneca will have a non exclusive, irrevocable, perpetual, worldwide,
      fully-paid license, with the right to sublicense, under the Licensed Technology
      to research, develop, make, use, sell, offer for sale, and import the POZEN
      Product in the Field of Use.

     

    12.6.2  Effect
      of Termination Generally.
      The use
      by either party hereto of a termination right provided for under this Agreement
      and in accordance with this Agreement shall not give rise to the payment of
      damages or any other form of compensation or relief to the other party with
      respect thereto. Subject to the preceding sentence, termination of this
      Agreement shall not preclude either party from claiming any other damages,
      compensation or relief that it may be entitled to upon such termination or
      for
      any breach of this Agreement.

     

    12.6.3  Effect
      of Termination for Cause or for Material Breach.

     

    (a)  If
      either
      Party terminates this Agreement pursuant to Section 12.3
      (Termination for Material Breach) in its entirety or with respect to a
      particular country, or if either Party terminates this Agreement pursuant to
      Section 12.4
      (Termination for Cause) in its entirety or with respect to a particular country
      or group of countries, all rights and licenses granted by POZEN to AstraZeneca
      and all obligations of AstraZeneca and POZEN under this Agreement will terminate
      immediately with respect to all countries in which this Agreement has been
      terminated.

     

    (b)  If
      AstraZeneca terminates this Agreement pursuant to Section 12.4.1
      (Termination for Cause) as a result of a TPP Failure but the ****** have ******
      (as described on Exhibit
      B)
      ******,
      then AstraZeneca will pay POZEN a termination fee of ****** (which termination
      fee shall be the sole and exclusive consideration owed to POZEN on account
      of
      such termination).

     

    12.6.4  Effect
      of Termination At Will.
      Upon
      termination of this Agreement pursuant to Section 12.5
      (Termination at Will), all rights and licenses granted by POZEN to AstraZeneca
      under this Agreement will terminate immediately. In addition, the following
      provisions will apply:

     

    
      
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    (a)  If
      the
      termination notice is given ****** of the ****** in the ******, AstraZeneca
      will
      pay POZEN a termination fee in an amount determined, as follows (which
      termination fee shall be the sole and exclusive consideration owed to POZEN
      on
      account of such termination):

     

    (i)  If
      the
      termination notice is given ******.

     

    (ii)  If
      the
      termination notice is given ******.

     

    (iii)  If
      the
      termination notice is given ******.

     

    (iv)  If
      the
      termination notice is given ******.

     

    (b)  If
      such
      termination becomes effective after ******, AstraZeneca shall, at its sole
      option, do one of the following (which, in either case, shall be the sole and
      exclusive consideration owed to POZEN on account of such
      termination): 

     

    (i)  pay
      POZEN
      an amount equal to (x) ****** if the Agreement is terminated ******, or (y)
      ****** if the Agreement is terminated ******; or 

     

    (ii)  only
      if
      AstraZeneca is able to convey to POZEN materially the same freedom to operate
      with respect to the Manufacture and Commercialization of any POZEN Product
      Commercialized by AstraZeneca at the time of such termination (the “Commercialized
      POZEN Product”)
      as
      AstraZeneca enjoyed immediately prior to such termination (x) worldwide (if
      the
      Agreement is terminated in its entirety), or (y) in all countries outside the
      United States (if the Agreement is terminated with respect to all countries
      outside the United States), perform the actions described in paragraphs (1)
      through (10) below:

     

    (1)  To
      the
      extent permitted by Applicable Law, AstraZeneca shall transfer and assign to
      POZEN all Regulatory Materials and Marketing Approvals that are Controlled
      by
      AstraZeneca for Commercialized POZEN Product either (x) worldwide (if the
      Agreement is terminated in its entirety), or (y) in all countries outside the
      United States (if the Agreement is terminated with respect to all countries
      outside the United States).

     

    (2)  In
      the
      case of termination of this Agreement in its entirety, AstraZeneca shall
      transfer to POZEN or its designee the management and continued performance
      of
      any clinical trials for the Commercialized POZEN Product ongoing as of the
      effective date of such termination, which clinical trials will be conducted
      at
      POZEN’s expense after such transfer.

     

    (3)  Upon
      POZEN’s request, AstraZeneca shall transfer to POZEN at AstraZeneca’s full
      manufacturing cost any stock of finished Commercialized POZEN Product held
      by
      AstraZeneca or its Affiliates for either (x) the entire Territory (if the
      Agreement is terminated in its entirety), or (y) in all countries outside the
      United States (if the Agreement is terminated with respect to all countries
      outside the United States). 

     

    
      
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    (4)  AstraZeneca
      shall for a reasonable period of time, provide such assistance, at no cost
      to
      POZEN, to transfer or transition to POZEN all other technology or know-how
      Controlled by AstraZeneca, or then-existing commercial arrangements (to the
      extent transferable in accordance with the terms and conditions of such
      arrangements) as may be reasonably necessary or useful for POZEN to commence
      or
      continue developing, manufacturing, or Commercializing the Commercialized POZEN
      Products, to the extent AstraZeneca is then performing or having performed
      such
      activities (including without limitation transferring, upon request of POZEN,
      any agreements or arrangements with Third Party suppliers or vendors to supply
      or sell the Commercialized POZEN Product, to the extent such agreements or
      arrangements are transferable in accordance with their terms and
      conditions).

     

    (5)  AstraZeneca
      shall transfer to POZEN or its designee any then-current manufacturing processes
      for the Commercialized POZEN Product. In addition, to the extent that
      AstraZeneca or its Affiliate is then manufacturing Commercialized POZEN Product,
      AstraZeneca will negotiate in good faith a supply agreement for the
      Commercialized POZEN Product on commercially reasonable terms under which
      AstraZeneca will continue to manufacture, and will supply to POZEN, at a cost
      that equals ****** percent (******%) of AstraZeneca’s actual manufacturing costs
      (calculated in accordance with AstraZeneca’s standard cost and accounting
      policies), POZEN’s requirements of POZEN Product, for a period of up to ******,
      in order to permit POZEN to establish sufficient manufacturing capacity for
      Commercialized POZEN Product; provided, however,
      that
      POZEN shall use commercially reasonable efforts to transition manufacture of
      the
      Commercialized POZEN Product to a Third Party as soon as reasonably practicable.
      

     

    (6)  The
      supply agreement entered into between POZEN and AstraZeneca as contemplated
      by
      paragraph (5) above shall provide that at all times that AstraZeneca is
      supplying POZEN Product under such agreement, allow a delegation consisting
      of a
      reasonable number of representatives of POZEN, no more than once per calendar
      year, to inspect and audit any AstraZeneca facility where such Commercialized
      POZEN Product, including its active pharmaceutical ingredients ******, is
      Manufactured, and the documentation generated in connection with the Manufacture
      and testing of such Commercialized POZEN Product for the purpose of verifying
      that the POZEN Product is being manufactured in accordance with applicable
      Laws.
      The supply agreement entered into between POZEN and AstraZeneca as contemplated
      by paragraph (5) above shall provide that such inspections will take place
      during regular business hours and after at least thirty (30) days prior notice
      to AstraZeneca. POZEN will discuss the results of any inspection with
      AstraZeneca. Any inspection by or on behalf of POZEN, if it occurs, does not
      relieve AstraZeneca of its obligation to comply with all Applicable Laws and
      does not constitute a waiver of any right otherwise available to POZEN. POZEN
      will treat all information subject to review under this paragraph in accordance
      with the provisions of Section 11
      (Confidentiality) and will cause any Third Party representative retained by
      POZEN (and reasonably acceptable to AstraZeneca) to enter into a reasonably
      acceptable confidentiality agreement with AstraZeneca obligating such auditor
      to
      maintain all such information in confidence pursuant to such confidentiality
      agreement.

     

    
      
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    (7)  The
      supply agreement entered into between POZEN and AstraZeneca as contemplated
      by
      paragraph (5) above shall provide that, during any period when AstraZeneca
      is
      supplying Commercialized POZEN Product under such agreement, AstraZeneca shall
      notify POZEN promptly following notice from the FDA or any Regulatory Authority
      of a visit to any AstraZeneca facility where such Commercialized POZEN Product
      is Manufactured. The supply agreement entered into between POZEN and AstraZeneca
      as contemplated by paragraph (5) above shall provide that AstraZeneca will
      inform POZEN of the results of any inspection by a Regulatory Authority that
      does or could reasonably be expected to affect the Manufacture of such
      Commercialized POZEN Product. AstraZeneca will promptly provide POZEN with
      copies of notifications from any Regulatory Authority (including, without
      limitation, any Form No. 483 notification, Enforcement Inspection Reports,
      Notice of Adverse Finding, etc.). POZEN will treat all information subject
      to
      review under this paragraph in accordance with the provisions of Section
11
      (Confidentiality) and will cause any Third Party auditor retained by POZEN
      (and
      reasonably acceptable to AstraZeneca) to enter into a reasonably acceptable
      confidentiality agreement with AstraZeneca obligating such auditor to maintain
      all such information in confidence pursuant to such confidentiality
      agreement.

     

    (8)  During
      any period when AstraZeneca is supplying POZEN Product under the supply
      agreement between POZEN and AstraZeneca contemplated by paragraph (5) above,
      or
      POZEN is using such Commercialized POZEN Product, AstraZeneca shall grant to
      POZEN rights of reference (including by providing a letter of authorization
      to
      the applicable Regulatory Authorities) to any AstraZeneca IND or NDA pertaining
      to Esomeprazole. Upon the expiration of such right, POZEN will send written
      notice to such effect to the applicable Regulatory Authority.

     

    (9)  AstraZeneca
      shall grant to POZEN an exclusive, royalty-bearing license, with the right
      upon
      prior written notice to AstraZeneca to sublicense through multiple tiers, under
      any Patents Controlled by AstraZeneca that would be infringed by the
      manufacture, use or sale of Commercialized POZEN Products, solely to make,
      have
      made, use, sell, offer for sale, have sold, import, and export such
      Commercialized POZEN Products in the Field of Use in the Territory (if the
      Agreement is terminated in the entirety) or outside the United States (if the
      Agreement is terminated with respect to all countries outside the United
      States). In consideration of the foregoing license, POZEN shall pay to
      AstraZeneca royalties on net sales of Commercialized POZEN Products at the
      rates
      specified in Section 8.4
      (Royalties). For purposes of the foregoing royalty obligations, the references
      to “AstraZeneca” in Section 8.3
      through
8.7
      inclusive, and in the related definitions shall be deemed to be, and shall
      be,
      references to “POZEN” for purposes of this paragraph. The royalties provided for
      under this paragraph shall be the sole payments due by POZEN to AstraZeneca
      in
      connection with the practice of such license, and AstraZeneca shall be solely
      responsible for any payment obligations it may have to Merck & Co., Inc. or
      its affiliates in connection therewith.

     

    
      
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    (10)  AstraZeneca
      shall grant to POZEN a worldwide, non-exclusive, perpetual, irrevocable license
      under the Product Trademarks to use such marks for the promotion and sale of
      Commercialized POZEN Products, including the Initial POZEN Product, in the
      Field
      of Use in the Territory (if the Agreement is terminated in the entirety) or
      outside the United States (if the Agreement is terminated with respect to all
      countries outside the United States).

     

    For
      the
      avoidance of doubt, in the event that, upon termination pursuant to Section
      12.5
      (Termination at Will) after First Commercial Sale of the Initial POZEN Product
      in the U.S., AstraZeneca is not able to convey to POZEN the same freedom to
      operate with respect to the Manufacture and Commercialization of Commercialized
      POZEN Products as AstraZeneca enjoyed immediately prior to such termination
      in
      all material respects, then AstraZeneca shall be obligated to make the
      applicable payment to POZEN specified in Section 12.6.4(b)(i)
      (Effect
      of Termination at Will).

     

    (c)  Any
      termination fee due pursuant to Section 12.6.4
      (a) or
      Section 12.6.4(b)
      (Effect
      of Termination at Will) above shall be due and payable as follows:

     

    (i)  if
      AstraZeneca exercises its termination right under Section 12.5
      (Termination At Will) after achievement of a Milestone Event for which a payment
      would be due under Section 8.2
      (Development Milestone Payments) but before the applicable Milestone Due Date
      for such Milestone Event, such termination fee shall be due on such Milestone
      Due Date in lieu of the milestone payment; and

     

    (ii)  in
      all
      cases other than those described in Section 12.6.4(c)(i)
      (Effect
      of Termination at Will) above, such termination fee shall be due within ******
      (******) days after AstraZeneca’s exercise of is termination right under Section
12.5
      (Termination at Will).

     

    12.7  Termination
      for Insolvency.
      This
      Agreement may be terminated by written notice by either Party at any time during
      the Term upon the declaration by a court of competent jurisdiction that the
      other Party is bankrupt and, pursuant to the U.S. Bankruptcy Code such other
      Party’s assets are to be liquidated; upon the filing or institution of
      bankruptcy, liquidation or receivership proceedings (other than reorganization
      proceedings under Chapter 11 of the U.S. Bankruptcy Code); or upon an assignment
      of a substantial portion of the assets for the benefit of creditors by the
      other
      Party; or in the event a receiver or custodian is appointed for such Party’s
      business; provided, however, that in the case of any involuntary proceeding,
      such right to terminate shall only become effective if the proceeding is not
      dismissed within 60 days after the filing thereof (each of the foregoing, a
      “Bankruptcy
      Event”).

     

    
      
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    12.8  Effect
      of Bankruptcy.
      All
      rights and licenses with respect to Patents and Know-How granted under or
      pursuant to this Agreement by one Party to the other Party are, for all purposes
      of Section 365(n) of Title 11 of the United States Code (“Title
      11”),
      licenses of rights to “intellectual property” as defined in Title 11. Each Party
      agrees that the other Party, as licensee of such rights under this Agreement
      shall retain and may fully exercise all of its rights and elections under Title
      11. POZEN******AstraZeneca******POZEN ******POZEN ******POZEN ******(i)
      ******(ii) ******(iii) ******(iv) ******(v) ******(vi) ******(vii) ******POZEN
      ******(viii) ******. POZEN agrees not to interfere with AstraZeneca and its
      Affiliates’ exercise of rights and licenses to intellectual property licensed
      hereunder and embodiments thereof in accordance with this Agreement and agrees
      to use commercially reasonable efforts to assist AstraZeneca and its Affiliates
      to obtain such intellectual property and embodiments thereof in the possession
      or control of Third Parties as reasonably necessary or desirable for AstraZeneca
      or its Affiliates to exercise such rights and licenses in accordance with this
      Agreement. Each party agrees and acknowledges that all payments by AstraZeneca
      to POZEN payable under this Agreement other than royalty payments pursuant
      to
      Section 8.4
      (Royalties) and commercialization milestone payments under Section 8.3
      (Sales
      Milestone Payments) do not constitute “royalties” within the meaning of Section
      365(n) of Title 11 or relate to licenses of intellectual property
      hereunder.

     

    12.9  Post
      Termination Royalties.
      Upon any
      termination of this Agreement pursuant to (i) Section 12.4.1
      (Termination for Cause) and ****** for the failure of the ****** described
      in
      the ****** to ******, or (ii) Sections 12.4.1
      and 1.82 (h),
      then,
      for a period of ****** (******) years following any such termination,
      AstraZeneca shall pay POZEN a royalty on Net Sales of Products sold by
      AstraZeneca, its Affiliates or Sublicensees in an amount equal to ****** percent
      (******%) of the royalty amount calculated according to Section 8.4.1
      (Royalty
      Rate), in accordance with the terms and conditions of Sections 8.4
      (Royalties) through 8.7
      (Taxes)
      of this Agreement.

     

    12.10  Formulation
      Technology.
      If
      AstraZeneca terminates this Agreement for any reason other than for material
      breach by POZEN under Section 12.3
      or as a
      result of POZEN’s insolvency under Section 12.7,
      then,
      subject to the terms and conditions of this Agreement, AstraZeneca agrees to
      grant to POZEN, and does hereby grant effective automatically upon such
      termination, a worldwide, perpetual, irrevocable, non-exclusive license under
      the Formulation Technology, with the right to grant sublicenses and authorize
      the grant of sublicenses to the extent provided in this Section 12.10,
      to
      make, have made, use, sell, offer for sale, and import POZEN Products; provided,
      that nothing herein gives POZEN any right or license under any other
      intellectual property rights Controlled by AstraZeneca, regardless of whether
      such rights are necessary in order to exploit the Formulation Technology
      pursuant to this Section 12.10.
      POZEN
      may grant sublicenses and the right to grant further sublicenses under the
      foregoing license only as follows: (i) for any sublicense relating to the
      development or commercialization of a Commercialized POZEN Product, POZEN may
      grant such sublicense upon notice to AstraZeneca, but without obtaining
      AstraZeneca’s consent, and (ii) for any sublicense relating to POZEN Products
      other than Commercialized POZEN Products, POZEN may grant such sublicense with
      AstraZeneca’s prior written consent (such consent not to be unreasonably
      withheld, conditioned or delayed). 

     

    
      
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    12.11  Survival.
      Expiration or termination of this Agreement will not relieve the Parties of
      any
      obligation accruing prior to such expiration or termination. The provisions
      of
      Sections 8.4 (Royalties), 8.5 (Payments and Sales Reporting), 8.6 (Records;
      Audits), 9.2 (Prosecution and Maintenance of Joint Patents), 9.3 (Ownership
      of
      Inventions), 10.5(Disclaimer of Warranty), 11 (Confidentiality), 12.6
      (Consequences of Expiration and Termination), 12.8 (Effect of Bankruptcy),
      12.9
      (Post Termination Royalties), 12.10 (Formulation Technology), 12.11 (Survival),
      13 (Indemnification and Insurance), 14 (Limitation of Liability), and 15
      (Miscellaneous) will survive any termination or expiration of this
      Agreement.

     

    
      	13.  	
              INDEMNIFICATION
                AND INSURANCE

            

    

     

    13.1  Indemnification
      by POZEN.
      POZEN
      hereby agrees to save, defend and hold AstraZeneca and its Affiliates and their
      respective directors, officers, employees and agents (each, a “AstraZeneca
      Indemnitee”)
      harmless from and against any and all claims, suits, actions, demands,
      liabilities, expenses and/or loss, including reasonable legal expense and
      attorneys’ fees (collectively, “Losses”),
      to
      which any AstraZeneca Indemnitee may become subject as a result of any claim,
      demand, action or other proceeding by any Third Party to the extent such Losses
      arise directly or indirectly out of: (i) the gross negligence or willful
      misconduct of any POZEN Indemnitee or (ii) the breach by POZEN of any warranty,
      representation, covenant or agreement made by POZEN in this Agreement; except,
      in each case, to the extent such Losses result from the gross negligence or
      willful misconduct of any AstraZeneca Indemnitee or the breach by AstraZeneca
      of
      any warranty, representation, covenant or agreement made by AstraZeneca in
      this
      Agreement.

     

    13.2  Indemnification
      by AstraZeneca.
      AstraZeneca hereby agrees to save, defend and hold POZEN and its Affiliates
      and
      their respective directors, officers, employees and agents (each, an
“POZEN
      Indemnitee”)
      harmless from and against any and all Losses to which any POZEN Indemnitee
      may
      become subject as a result of any claim, demand, action or other proceeding
      by
      any Third Party to the extent such Losses arise directly or indirectly out
      of:
      (i) the development, manufacture, use, handling, storage, sale or other
      disposition of any Product by AstraZeneca, its Affiliates or any of their
      respective Sublicensees, (ii) the gross negligence or willful misconduct of
      any
      AstraZeneca Indemnitee, or (iii) the breach by AstraZeneca of any warranty,
      representation, covenant or agreement made by AstraZeneca in this Agreement;
      except, in each case, to the extent such Losses result from the gross negligence
      or willful misconduct of any POZEN Indemnitee or the breach by POZEN of any
      warranty, representation, covenant or agreement made by POZEN in this
      Agreement.

     

    
      
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    13.3  Indemnification
      Procedure.

     

    13.3.1  Notice
      of Claim.
      The
      indemnified Party will give the indemnifying Party (the “Indemnifying
      Party”)
      prompt
      written notice (an “Indemnification
      Claim Notice”)
      of any
      Losses or discovery of fact upon which such Indemnified Party intends to base
      a
      request for indemnification under Section 13.1
      (Indemnification by POZEN) or Section 13.2
      (Indemnification by AstraZeneca); provided, however,
      that the
      failure to give such prompt written notice will not relieve Indemnifying Party
      of its indemnification obligation under this Agreement except and only to the
      extent that the Indemnifying Party is actually prejudiced as a result of such
      failure. In no event will the Indemnifying Party be liable for any Losses that
      result from any delay in providing such notice. Each Indemnification Claim
      Notice must contain a description of the claim and the nature and amount of
      such
      Loss (to the extent that the nature and amount of such Loss are known at such
      time). The indemnified Party will furnish promptly to the indemnifying Party
      copies of all papers and official documents received in respect of any Losses.
      All indemnification claims in respect of a Party, its Affiliates or their
      respective directors, officers, employees and agents (collectively, the
“Indemnitees”
      and each
      an “Indemnitee”)
      will be
      made solely by such Party to this Agreement (the “Indemnified
      Party”).

     

    13.3.2  Control
      of Defense.
      At its
      option, the Indemnifying Party may assume the defense of any claim for which
      indemnification is sought (a “Third
      Party Claim”)
      by
      giving written notice to the Indemnified Party within ****** (******) days
      after
      the Indemnifying Party’s receipt of an Indemnification Claim Notice. Upon
      assuming the defense of a Third Party Claim, the Indemnifying Party may appoint
      as lead counsel in the defense of the Third Party Claim any legal counsel
      selected by the Indemnifying Party. In the event the Indemnifying Party assumes
      the defense of a Third Party Claim, the Indemnified Party will immediately
      deliver to the Indemnifying Party all original notices and documents (including
      court papers) received by any Indemnitee in connection with the Third Party
      Claim. Should the Indemnifying Party assume the defense of a Third Party Claim,
      the Indemnifying Party will not be liable to the Indemnified Party or any other
      Indemnitee for any legal expenses subsequently incurred by such Indemnified
      Party or other Indemnitee in connection with the analysis, defense or settlement
      of the Third Party Claim.

     

    13.3.3  Right
      to Participate in Defense.
      Without
      limiting Section 13.3.2
      (Control
      of Defense) above, any Indemnitee will be entitled to participate in, but not
      control, the defense of such Third Party Claim and to employ counsel of its
      choice for such purpose; provided, however,
      that
      such employment will be at the Indemnitee’s own expense unless (i) the
      employment thereof has been specifically authorized by the Indemnifying Party
      in
      writing, or (ii) the Indemnifying Party has failed to assume the defense and
      employ counsel in accordance with Section 13.3.2
      (Control
      of Defense) (in which case the Indemnified Party will control the
      defense).

     

    
      
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    13.3.4  Settlement.
      With
      respect to any Losses relating solely to the payment of money damages in
      connection with a Third Party Claim and that will not result in the Indemnitee’s
      becoming subject to injunctive or other relief or otherwise adversely affect
      the
      business of the Indemnitee in any manner, and as to which the Indemnifying
      Party
      will have acknowledged in writing the obligation to indemnify the Indemnitee
      hereunder, the Indemnifying Party will have the sole right to consent to the
      entry of any judgment, enter into any settlement or otherwise dispose of such
      Loss, on such terms as the Indemnifying Party, in its sole discretion, will
      deem
      appropriate, and will transfer to the Indemnified Party all amounts which said
      Indemnified Party will be liable to pay prior to the time prior to the entry
      of
      judgment. With respect to all other Losses in connection with Third Party
      Claims, where the Indemnifying Party has assumed the defense of the Third Party
      Claim in accordance with Section 13.3.2
      (Control
      of Defense), the Indemnifying Party will have authority to consent to the entry
      of any judgment, enter into any settlement or otherwise dispose of such Loss
      provided it obtains the prior written consent of the Indemnified Party (which
      consent will be at the Indemnified Party’s sole and absolute discretion). The
      Indemnifying Party will not be liable for any settlement or other disposition
      of
      a Loss by an Indemnitee that is reached without the written consent of the
      Indemnifying Party. Regardless of whether the Indemnifying Party chooses to
      defend or prosecute any Third Party Claim, no Indemnitee will admit any
      liability with respect to, or settle, compromise or discharge, any Third Party
      Claim without the prior written consent of the Indemnifying Party.

     

    13.3.5  Cooperation.
      The
      Indemnified Party will, and will cause each other Indemnitee to, cooperate
      in
      the defense or prosecution thereof and will furnish such records, information
      and testimony, provide such witnesses and attend such conferences, discovery
      proceedings, hearings, trials and appeals as may be reasonably requested in
      connection with the defense or prosecution of any Third Party Claim. Such
      cooperation will include access during normal business hours afforded to the
      Indemnifying Party to, and reasonable retention by the Indemnified Party of,
      records and information that are reasonably relevant to such Third Party Claim,
      and making Indemnitees and other employees and agents available on a mutually
      convenient basis to provide additional information and explanation of any
      material provided hereunder, and the Indemnifying Party will reimburse the
      Indemnified Party for all its reasonable out-of-pocket expenses in connection
      therewith.

     

    13.4  Expenses.
      Except
      as provided above, the reasonable and verifiable costs and expenses, including
      fees and disbursements of counsel, incurred by the Indemnified Party in
      connection with any claim will be reimbursed on a Calendar Quarter basis by
      the
      Indemnifying Party, without prejudice to the Indemnifying Party’s right to
      contest the Indemnified Party’s right to indemnification and subject to refund
      in the event the Indemnifying Party is ultimately held not to be obligated
      to
      indemnify the Indemnified Party.

     

    13.5  Insurance.
      Each
      Party will have and maintain such types and amounts of liability insurance
      as is
      normal and customary in the industry generally for parties similarly situated,
      and will upon request provide the other Party with a copy of its policies of
      insurance in that regard, along with any amendments and revisions
      thereto.

     

    
      
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      	14.  	
              LIMITATION
                OF LIABILITY

            

    

     

    IN
      NO
      EVENT WILL EITHER PARTY BE LIABLE FOR LOST PROFITS, LOSS OF DATA, OR FOR ANY
      SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES, HOWEVER
      CAUSED, ON ANY THEORY OF LIABILITY AND WHETHER OR NOT SUCH PARTY HAS BEEN
      ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, ARISING UNDER ANY CAUSE OF ACTION
      AND ARISING IN ANY WAY OUT OF THIS AGREEMENT. THE FOREGOING LIMITATIONS WILL
      NOT
      APPLY TO AN AWARD OF ENHANCED DAMAGES AVAILABLE UNDER THE PATENT LAWS FOR
      WILLFUL PATENT INFRINGEMENT AND WILL NOT LIMIT EITHER PARTY’S LIABILITY TO THE
      OTHER PARTY UNDER SECTIONS 7.5
      (RESTRICTIVE COVENANT), 10.6
      (POZEN
      NON-COMPETE), 11
      (CONFIDENTIALITY), AND 13
      (INDEMNIFICATION AND INSURANCE) OF THIS AGREEMENT.

     

    
      	15.  	
              MISCELLANEOUS

            

    

     

    15.1  Assignment.
      Without
      the prior written consent of the other Party hereto (which may be granted at
      the
      other Party’s discretion), neither Party will sell, transfer, assign, delegate,
      pledge or otherwise dispose of, whether voluntarily, involuntarily, by operation
      of law or otherwise, this Agreement or any of its rights or duties hereunder;
      provided, however,
      that
      either Party hereto may assign or transfer this Agreement or any of its rights
      or obligations hereunder without the consent of the other Party (a) to any
      Affiliate of such Party; or (b) in connection with the transfer or sale of
      all
      or substantially all of the business of such party to which this Agreement
      relates to a Third Party, whether by merger, sale of stock, sale of assets
      or
      otherwise. The assigning Party (except if it is not the surviving entity) will
      remain jointly and severally liable with the relevant Affiliate or Third Party
      assignee under this Agreement, and the relevant Affiliate assignee, Third Party
      assignee or surviving entity will assume in writing all of the assigning Party’s
      obligations under this Agreement. Any purported assignment or transfer in
      violation of this Section 15.1
      (Assignment) will be void ab initio and of no force or effect.

     

    
      
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    15.2  Termination
      of Certain Rights Upon POZEN Change of Corporate Control. POZEN
      shall promptly notify AstraZeneca in writing following consummation of a Change
      of Corporate Control of POZEN. Notwithstanding anything else in this Agreement
      to the contrary, in the event of a Change of Corporate Control of POZEN, then
      AstraZeneca will have the right, exercisable by written notice to POZEN or
      its
      successor in interest given within ****** (******) days after AstraZeneca
      receives written notice from POZEN of the completion of such Change of Corporate
      Control: (a) to terminate ****** established pursuant to this Agreement; (b)
      to
      make all decisions under Section 2.3.3
      (Dispute
      Resolution), (c) to conduct ****** regarding POZEN Products, (d) to cause POZEN
      to****** pertaining to POZEN Products; and (e) to terminate its obligation
      to
      make ****** to POZEN pursuant to this Agreement other than ****** and as
      reasonably required to ******, except in the event of subsequent termination
      of
      this Agreement by AstraZeneca pursuant to Section 12.5
      (Termination at Will) and election by AstraZeneca of the option specified in
      Section 12.6.4(b)(ii)
      (Effect
      of Termination at Will); subject, in each case, to AstraZeneca’s continued
      compliance with all applicable provisions of this Agreement (including, without
      limitation, Articles 8, 9 and 11). POZEN shall cooperate in providing to
      AstraZeneca all information, assistance, assignments and other support
      reasonably requested to assist AstraZeneca in assuming such control. In
      addition, if POZEN has not completed the Development activities that are its
      responsibility under this Agreement, then AstraZeneca may assume all
      responsibility for, at its expense, all such Development activities, and POZEN
      shall provide to AstraZeneca all information, assistance, assignments and other
      support reasonably requested to assist AstraZeneca in assuming such
      responsibility in an efficient and orderly manner. For purposes of
      clarification, all Confidential Information of AstraZeneca in POZEN’s or its
      successor’s possession following AstraZeneca’s exercise of its rights under this
      Section 15.2
      shall
      continue to be subject to all applicable provisions of this Agreement
      (including, without limitation, Articles 7 and 11).

     

    15.3  Severability.
      If any
      provision of this Agreement is held to be illegal, invalid or unenforceable
      under any present or future law, and if the rights or obligations of either
      Party under this Agreement will not be materially and adversely affected
      thereby, (a) such provision will be fully severable, (b) this Agreement will
      be
      construed and enforced as if such illegal, invalid or unenforceable provision
      had never comprised a part hereof, (c) the remaining provisions of this
      Agreement will remain in full force and effect and will not be affected by
      the
      illegal, invalid or unenforceable provision or by its severance herefrom, and
      (d) in lieu of such illegal, invalid or unenforceable provision, there will
      be
      added automatically as a part of this Agreement a legal, valid and enforceable
      provision as similar in terms to such illegal, invalid or unenforceable
      provision as may be possible and reasonably acceptable to the Parties herein.
      To
      the fullest extent permitted by Applicable Law, each Party hereby waives any
      provision of law that would render any provision prohibited or unenforceable
      in
      any respect.

     

    
      
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    15.4  Governing
      Law; Dispute Resolution.

     

    15.4.1  This
      Agreement, and any disputes between the Parties related to or arising out of
      this Agreement, including the Parties’ relationship created hereby, the
      negotiations for and entry into this Agreement, its conclusion, binding effect,
      amendment, coverage, termination, or the performance or alleged non-performance
      of a Party of its obligations under this Agreement (each a “Dispute”),
      will
      be governed by the laws of the State of New York without reference to any choice
      of law principles thereof that would cause the application of the laws of a
      different jurisdiction.

     

    15.4.2  In
      the
      event of any Dispute, a Party may notify the other Party in writing of such
      Dispute, and the Parties will try to settle such Dispute amicably between
      themselves. If the Parties are unable to resolve the Dispute within ******
      Business Days of receipt of the written notice by the other Party, such Dispute
      will be referred to the Chief Executive Officers of each of the Parties (or
      their respective designees) who will use their good faith efforts to resolve
      the
      Dispute within ****** Business Days after it was referred to the Chief Executive
      Officers.

     

    15.4.3  Any
      Dispute that is not resolved as provided in Section 15.4.2,
      whether
      before or after termination of this Agreement, will be resolved by litigation
      in
      the courts of competent jurisdiction located in New York, New York; provided,
      that, at its election, POZEN may submit a Dispute to arbitration in lieu of
      litigation as provided in Section 15.4.5 by providing written notice to
      AstraZeneca within the time period specified in Section 15.4.5, in which event
      the procedures of Section 15.4.5 shall govern resolution of the Dispute. Each
      Party hereby agrees to the exclusive jurisdiction of such courts and waives
      any
      objections as to the personal jurisdiction or venue of such courts.

     

    15.4.4  Notwithstanding
      the foregoing, nothing in this Section 15.4
      (Governing Law; Dispute Resolution) will limit either Party’s right to seek
      immediate temporary injunctive or other temporary equitable relief whenever
      the
      facts or circumstances would permit a Party to seek such relief in a court
      of
      competent jurisdiction.

     

    
      
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    15.4.5  In
      the
      event AstraZeneca terminates this Agreement for TPP Failure pursuant to Section
      12.4.1(i) (Termination for Cause) and POZEN disputes whether such a TPP Failure
      has occurred, then POZEN shall have the right, at its election, to submit such
      Dispute to binding arbitration in lieu of litigation by providing written notice
      of such election to AstraZeneca within ****** (******) days of receiving notice
      from AstraZeneca that it has terminated the Agreement for TPP Failure pursuant
      to Section 12.4.1. If POZEN wishes to submit such Dispute to arbitration, POZEN
      shall so notify AstraZeneca, and the arbitration shall be conducted before
      a
      single arbitrator (“Arbitrator”)
      selected from and administered by the New York, New York office of the American
      Arbitration Association (the “Administrator”)
      in
      accordance with its then existing comprehensive arbitration rules and
      procedures; however, upon the written demand of either Party, the arbitration
      shall be conducted by and submitted to three Arbitrators selected from and
      administered by the Administrator’s Rules & Procedures. The Arbitrator(s),
      whether selected by agreement or the Administrator, shall have knowledge of
      and
      experience with the process and standards used by the FDA to approve NDA
      applications for pharmaceutical products and DDMAC’s approval of promotion
      materials for pharmaceutical products. The arbitration hearing shall be held
      in
      New York, New York. The Arbitrator shall be authorized solely to determine
      whether there has been a TPP Failure as defined in Section 1.103 (TPP Failure).
      Each Party shall bear its own attorney’s fees, costs, and disbursements arising
      out of the arbitration, and shall pay an equal share of the fees and costs
      of
      the Administrator and the Arbitrator. The Arbitrator shall, within ******
      (******) calendar days after the conclusion of the arbitration hearing, issue
      a
      written statement of decision describing the material factual findings and
      conclusions on which the decision is based. Such decision shall be final and
      binding upon the Parties. If such decision finds that a TPP Failure did not
      occur, then AstraZeneca’s termination of this Agreement shall be deemed to have
      been made at will pursuant to Section 12.5, and accordingly, AstraZeneca shall
      pay POZEN the difference between the termination fee provided for in Section
      12.6.4(a) and the amount paid by AstraZeneca to POZEN pursuant to Section
      12.6.3(b), which payment shall be the sole and exclusive consideration owed
      to
      POZEN on account of such termination and such decision. If such decision
      provides that a TPP Failure did occur, then AstraZeneca’s termination of this
      Agreement shall be deemed to have been made pursuant to Section
      12.4.1(i).

     

    15.5  Notices.
      All
      notices or other communications that are required or permitted hereunder will
      be
      in writing and delivered personally, sent by facsimile (and promptly confirmed
      by personal delivery or overnight courier as provided herein), or sent by
      internationally-recognized overnight courier addressed as follows:

     

    
      
        ******
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                If
                  to POZEN, to:

              
	 	
                POZEN
                  Inc.

                1414
                  Raleigh Road, Suite 400

                Chapel
                  Hill, NC 27517

                USA

                Attention:
                  President and CEO

                Facsimile:
                  (919) 913-1039

              
	 
	
                With
                  a copy to:

              
	 	
                Cooley
                  Godward LLP

                One
                  Freedom Square

                11951
                  Freedom Square 

                Reston,
                  Virginia 20190

                USA

                Attention:
                  Kenneth J. Krisko 

                Facsimile:
                  (703) 456-8000

              
	 
	
                If
                  to AstraZeneca, to:

              
	 	
                AstraZeneca
                  AB

                SE-431
                  83

                Mölndal

                Sweden

                Attention:
                  Manager Legal Department Mölndal

                Facsimile:
                  +46 31 776 38 15

              
	 

      

    

    
 

     

     

     

    

     

    
      
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    or
      to
      such other address as the Party to whom notice is to be given may have furnished
      to the other Party in writing in accordance herewith. Any such communication
      will be deemed to have been given (i) when delivered, if personally delivered
      or
      sent by facsimile on a Business Day, and (ii) on the second Business Day after
      dispatch, if sent by nationally-recognized overnight courier. It is understood
      and agreed that this Section 15.5
      (Governing Law; Dispute Resolution) is not intended to govern the day-to-day
      business communications necessary between the Parties in performing their
      duties, in due course, under the terms of this Agreement.

     

    15.6  Entire
      Agreement; Modifications.
      This
      Agreement including the Exhibits attached hereto, each of which is hereby
      incorporated and made part of in this Agreement by reference, together with
      the
      AE Agreement (as such term is defined in Section 4.6
      (Adverse
      Event Reporting)), sets forth and constitutes the entire agreement and
      understanding between the Parties with respect to the subject matter hereof
      and
      supersedes all prior agreements, understandings, promises and representations,
      whether written or oral, with respect thereto. Each Party confirms that it
      is
      not relying on any representations or warranties of the other Party except
      as
      specifically set forth herein. No amendment or modification of this Agreement
      will be binding upon the Parties unless in writing and duly executed by
      authorized representatives of both Parties. Subject to Section 11.1
      (Confidentiality) hereof, the Parties hereby confirm that the Confidentiality
      Agreement by and between the Parties, dated as of June 15, 2006 is hereby
      terminated.

     

    15.7  Relationship
      of the Parties.
      It is
      expressly agreed that the Parties’ relationship under this Agreement is strictly
      one of licensor-licensee, and that this Agreement does not create or constitute
      a partnership, joint venture, or agency. Neither Party will have the authority
      to make any statements, representations or commitments of any kind, or to take
      any action, which will be binding (or purport to be binding) on the
      other.

     

    15.8  Waiver.
      Any term
      or condition of this Agreement may be waived at any time by the Party that
      is
      entitled to the benefit thereof, but no such waiver will be effective unless
      set
      forth in a written instrument duly executed by or on behalf of the Party waiving
      such term or condition. The waiver by either Party hereto of any right hereunder
      or of claims based on the failure to perform or a breach by the other Party
      will
      not be deemed a waiver of any other right hereunder or of any other breach
      or
      failure by said other Party whether of a similar nature or
      otherwise.

     

    15.9  Counterparts.
      This
      Agreement may be executed in two or more counterparts, each of which will be
      deemed an original, but all of which together will constitute one and the same
      instrument.

     

    15.10  No
      Benefit to Third Parties.
      The
      representations, warranties, covenants and agreements set forth in this
      Agreement are for the sole benefit of the Parties hereto and their successors
      and permitted assigns, and they will not be construed as conferring any rights
      on any Third Party.

     

    
      
        ******
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    15.11  Further
      Assurance.
      Each
      Party will duly execute and deliver, or cause to be duly executed and delivered,
      such further instruments and do and cause to be done such further acts and
      things, including the filing of such assignments, agreements, documents and
      instruments, as may be necessary or as the other Party may reasonably request
      in
      connection with this Agreement or to carry out more effectively the provisions
      and purposes, or to better assure and confirm unto such other Party its rights
      and remedies under this Agreement.

     

    15.12  No
      Drafting Party.
      This
      Agreement has been submitted to the scrutiny of, and has been negotiated by,
      both Parties and their counsel, and will be given a fair and reasonable
      interpretation in accordance with its terms, without consideration or weight
      being given to any such terms having been drafted by any Party or its counsel.
      No rule of strict construction will be applied against either
      Party.

     

    15.13  Construction.
      Except
      where the context otherwise requires, wherever used, the use of any gender
      will
      be applicable to all genders and the word “or” is used in the inclusive sense
      (and/or). The captions of this Agreement are for convenience of reference only
      and in no way define, describe, extend or limit the scope or intent of this
      Agreement or the intent of any provision contained in this Agreement. The term
      “including” as used herein means including, without limiting the generality of
      any description preceding such term. Unless the context indicates otherwise,
      the
      singular will include the plural and the plural will include the singular.
      Unless the context requires otherwise, (a) any definition of or reference to
      any
      agreement, instrument or other document refer to such agreement, instrument
      or
      other document as from time to time amended, supplemented or otherwise modified
      (subject to any restrictions on such amendments, supplements or modifications
      set forth herein or therein), (b) any reference to any laws refer to such laws
      as from time to time enacted, repealed or amended, (c) the words “herein”,
“hereof” and “hereunder”, and words of similar import, refer to this Agreement
      in its entirety and not to any particular provision hereof, and (d) all
      references herein to Sections and Exhibits, unless otherwise specifically
      provided, refer to the Sections and Exhibits of this Agreement.

     

    [Remainder
      of page intentionally left blank. Signature page follows.]

     

    
      
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    IN
      WITNESS WHEREOF,
      the
      Parties have executed this Collaboration and License Agreement by their
      respective authorized representatives as of the date first written
      above.

     

    

      
        	
                POZEN
                  INC.

                 

              
	
                By:

              	 
	 
	
                Name:

              	 
	 
	
                Title:

              	 
	 
	 	 
	 
	
                ASTRAZENECA
                  AB (publ)

                 

              
	
                By:

              	 
	 
	
                Name:

              	 
	 
	
                Title:

              	 
	 

      

     

     

    

     

    
      
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    EXHIBIT
      A

     

    FORMULATION
      BUDGET 

     

    
      
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    EXHIBIT
      B

     

    INITIAL
      U.S. DEVELOPMENT PLAN

     

    
      	
               

              Study
                Number

               

            	
               

              Title/Design

               

            	
               

              Endpoints

               

            	
               

              Comment

               

            	
               

              Responsibility
                to Conduct

               

            	
               

              Responsibility
                to Pay

               

            
	
               

              NONCLINICAL

               

            
	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            
	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            
	
               

              PHASE
                1

               

            
	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            
	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            
	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            
	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            
	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            
	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            
	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            
	
               

              PHASE
                2 

               

            
	 	 	 	 	 	 
	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            
	
               

              PHASE
                3

               

            
	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            
	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            
	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            

    

    

     

    
      
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              Study
                Number

               

            	
               

              Title/Design

               

            	
               

              Endpoints

               

            	
               

              Comment

               

            	
               

              Responsibility
                to Conduct

               

            	
               

              Responsibility
                to Pay

               

            
	
               

              PHASE
                3

               

            
	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            

    

    

     

    
      
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    EXHIBITS
      C AND E

    U.S
      AND ROW DEVELOPMENT PLAN TIMELINES

    

    U.S.
      DEVELOPMENT PLAN TIMELINE

    

    ******

    

    ROW
      DEVELOPMENT PLAN TIMELINE

     

    

     

    ******

     

    

     

    
      
        ******
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    EXHIBIT
      D

     

    INITIAL
      ROW DEVELOPMENT PLAN

     

    
      	
               

              Study
                Number

               

            	
               

              Title/Design

               

            	
               

              Endpoints

               

            	
               

              Comment

               

            	
               

              Responsibility
                to Conduct

               

            	
               

              Responsibility
                to Pay

               

            
	
               

              NONCLINICAL

               

            
	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            
	
               

              ******

               

            	
               

              ******

               

            	 	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            
	
               

              PHASE
                1

               

            
	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            
	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            
	
               

              PHASE
                2 

               

            
	
               

              ******
                

               

            
	
               

              PHASE
                3

               

            	 	 	 	 	 
	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            	
               

              ******

               

            

    

    

     

    
      
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    EXHIBIT
      E

     

    ROW
      DEVELOPMENT PLAN TIMELINE

     

    (See
      Exhibit C)

     

    
      
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    EXHIBIT
      F

     

    TPP STUDIES
      

    

     

    
      	 	 	 	 	 	 	 	 	 
	
              ******

            	
              ******

            	
              ******

            	
              ******

            	
              ******

            	
              ******

            
	
              ******

            	
              ******

            	
              ******

            	
              ******

            	
              ******

            	
               

              ******

            
	 	 	 	 	 	 	 	 	 
	
              ******

            	
              ******

            	
              ******

            	
              ******

            	
              ******

            	
              ******

            
	 	 	 	 	 	 	 	 	 
	
              ******

            	
              ******

            	
              ******

            	
              ******

            	
              ******

            	
              ******

            
	 	 	 	 	 	 	 	 	 
	
              ******

            	
              ******

            	
              ******

            	
              ******

            	
              ******

            	
              ******

            
	 	 	 	 	 	 	 	 	 
	 
	
              ******

            
	 

    

    

     

    
      
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    SCHEDULE
      1.58 

     

    LICENSED
      PATENTS

     

    

    
      	
               

              SERIAL
                NUMBER/FILING
                DATE

               

            	
               

               

              PUBLICATION
                NUMBER/ DATE

            	
               

               

              TITLE

               

            	
               

               

              TERRITORY

            
	
              ******

            	
              ******

            	
              ******

            	
              ******

            
	
              ******

            	
              ******

            	
              ******

            	
              ******

            
	
              ******

            	
              ******

            	
              ******

            	
              ******

            
	
              ******

            	
              ******

            	
              ******

            	
              ******

            
	
              ******

            	
              ******

            	
              ******

            	
              ******

            
	
              ******

            	
              ******

            	
              ******

            	
              ******

            
	
              ******

            	
              ******

            	
              ******

            	
              ******

            
	
              ******

            	
              ******

            	
              ******

            	
              ******

            
	
              ******

            	
              ******

            	
              ******

            	
              ******

            
	
              ******

            	
              ******

            	
              ******

            	
              ******

            
	
              ******

            	
              ******

            	
              ******

            	
              ******

            

    

    

     

    
      
        ******
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    SCHEDULE
      4.1.2

     

    IMS
      MAT DATA

     

    

     

    
      	
              ******
                markets 

            	
              MAT
                Q4/05

            
	
              (******)
                Combined

            	
              Sales
                USD

            
	 	
              Thousands

            
	
              Total

            	
              ******

            
	
              US
                TOTAL

            	
              ******

            
	
              JAPAN
                COMBINED

            	
              ******

            
	
              FRANCE
                COMBINED

            	
              ******

            
	
              TURKEY
                RETAIL

            	
              ******

            
	
              ITALY
                COMBINED

            	
              ******

            
	
              U.K.
                COMBINED

            	
              ******

            
	
              MEXICO
                RETAIL

            	
              ******

            
	
              BRAZIL
                RETAIL

            	
              ******

            
	
              GERMANY
                COMBINED

            	
              ******

            
	
              CANADA
                COMBINED

            	
              ******

            
	
              SPAIN
                COMBINED

            	
              ******

            
	
              KOREA
                COMBINED

            	
              ******

            
	
              PORTUGAL
                RETAIL

            	
              ******

            
	
              INDIA
                RETAIL

            	
              ******

            
	
              VENEZUELA
                RETAIL

            	
              ******

            
	
              POLAND
                COMBINED

            	
              ******

            
	
              AUSTRALIA
                COMBINED

            	
              ******

            
	
              GREECE
                RETAIL

            	
              ******

            
	
              ARGENTINA
                RETAIL

            	
              ******

            
	
              NETHERLANDS
                COMBINED

            	
              ******

            
	
              Total
                Others

            	
              ******

            

    

    

     

    
      
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    SCHEDULE
      6.1 

     

    INITIAL
      POZEN PRODUCT SPECIFICATIONS

     

    

     

    PN
      Drug Product Release Specifications

     

    
      	
              ******

               

            	
              ******

               

            
	
              ******

               

            	
              ******

               

            
	
              ******

               

            	
              ******

               

            
	
              ******

               

            	
              ******

               

            
	
              ******

               

            	
              ******

               

            
	
              ******

               

            	
              ******

               

            
	
              ******

               

            	
              ******

               

            
	
              ******

               

            	
              ******

               

            
	
              ******

               

            	
              ******

               

            
	
              ******

               

            	
              ******

               

            
	
              ******

               

            	
              ******

               

            
	
              ******

               

            	
              ******

               

            
	
              ******

               

            	
              ******

               

            
	
              ******

               

            	
              ******

               

            

    

    ******

     

    
      
        ******
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    SCHEDULE
      8.4.1

     

    

     

    In
      ******, AZ has Net Sales for ****** in country Y in the amounts of $******
      for
      the first Product and $****** for the ******. In ****** in all other countries
      of the Territory the total Net Sales of Products are $******, and Net Sales
      do
      not occur in any other country for more than ******.

     

    

     

    The
      calculation of the Segregated Royalty Amount would be:

     

    

      
        	
                ******

                 

              	
                ******

                 

              	
                ******

                 

              	
                ******

                 

              	
                ******

                 

              	
                ******

                 

              	
                ******

                 

              
	
                ******

                 

              	
                ******

                 

              	
                ******

                 

              	
                ******

                 

              	
                ******

                 

              	
                ******

                 

              	
                ******

                 

              
	 	
                ******

                 

              	
                ******

                 

              	
                ******

                 

              
	
                ******

                 

              	 	
                ******

                 

              

      

     

     The
      calculation of the Remaining Royalty Amount would be:

     

    
      	
              ******

               

            	
              ******

               

            	
              ******

               

            	
              ******

               

            	
              ******

               

            
	
              ******

               

            	
              ******

               

            	
              ******

               

            	
              ******

               

            	
              ******

               

            

    

    

    The
      total
      royalty payable for all Net Sales in the Territory would be $******.

     

    
      
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    SCHEDULE
      8.4.3

     

    

     

    Assume
      that in the ****** the total world-wide Net Sales of Products are ******. In
      that example the following royalties would be payable prior to application
      of
      any Market Reduction:

     

    

     

    
      	
              ******

               

            	
              ******

               

            	
              ******

               

            	
              ******

               

            	
              ******

               

            
	
              ******

               

            	
              ******

               

            	
              ******

               

            	
              ******

               

            	
              ******

               

            
	
              ******

               

            	
              ******

               

            	
              ******

               

            	
              ******

               

            	
              ******

               

            
	
              ******

               

            	
              ******

               

            	
              ******

               

            	
              ******

               

            	
              ******

               

            
	
              ******

               

            	
              ******

               

            	
              ******

               

            	
              ******

               

            	
              ******

               

            

    

    

     

    Assume
      that in country X during Q1 of ****** a Competing Product had commenced sales
      in
      country X, and in Q1 of this year, ******, achieved the criteria to trigger
      a
      Market Reduction under Section 8.4.3
      (Rate
      Step Down for Competing Product Entrants). Assume that Net Sales of Products
      in
      Country X were $****** in ******.

     

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

     

    

      
        	
                ******

                 

              	
                ******

                 

              	
                ******

                 

              	
                ******

                 

              	 	
                ******

                 

              	
                ******

                 

              
	
                ******

                 

              	
                ******

                 

              	
                ******

                 

              	
                ******

                 

              	
                ******

                 

              	
                ******

                 

              
	
                ******

                 

              	
                ******

                 

              	
                ******

                 

              	
                ******

                 

              	
                ******

                 

              	
                ******

                 

              
	
                ******

                 

              	
                ******

                 

              	
                ******

                 

              	
                ******

                 

              	
                ******

                 

              	
                ******

                 

              
	
                ******

                 

              	
                ******

                 

              	 	
                ******

                 

              	 	
                ******

                 

              

      

    

     

    

     

    The
      Market reduction in Country X would result in a reduction to royalties payable
      of an amount equal to ****** Therefore the total royalty payable for Product
      Net
      Sales would be ******

     

    
      
        ******
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    SCHEDULE
      10.1 

     

    

     

    Part
      10.1.14 - Agreements

     

    

     

    

     

    [To
      be
      agreed by the Parties prior to the Effective Date]

     

    
      
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    SCHEDULE
      10.7

     

    

     

    POZEN
      Subcontractors

     

    

     

    [To
      be
      agreed by the Parties prior to the Effective Date]

    

    
      
        ******
          Portion for which confidential treatment requested.

        
        

      

      
        -
          100
          -

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00112-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00112-of-00352.parquet"}]]