Document:

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

     

    SENIOR
      SECURED NOTE

     

    November
      13, 2008

     

    
      	
              Note
                No.: SR-001 

            	
              $8,875,000

            

    

     

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

     

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    (I)
      the
      result of:

     

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

     

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

     

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

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

    divided
      by

     

    
      	 	
              (II)
                

            	
              the
                aggregate outstanding principal amount of all
                Notes.

            

    

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    
      	
              Date

            	 	
              Daily
                Production Average

            
	
              March
                31, 2009

            	 	
              1,200
                Mcfe

            
	
              September
                30, 2009

            	 	
              2,500
                Mcfe

            
	
              March
                31, 2010

            	 	
              4,000
                Mcfe

            

    

    

     

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

     

    
      	
              Date

            	 	
              Ratio

            
	
              December
                31, 2008

            	 	
              1.00

            
	
              March
                31, 2009

            	 	
              1.50

            
	
              June
                30, 2009

            	 	
              1.75

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

            	 	
              2.00

            

    

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    (3) Principal
      Payments.
      

     

    (a) Optional
      Principal Prepayments.

     

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

     

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

     

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

     

    
      
        
        

      

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

     

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

     

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

     

    
      
        
        

      

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

     

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

     

    
      
        
        

      

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

     

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

     

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

     

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

     

    
      
        
        

      

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

     

    (8) Defaults
      and Remedies.

     

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

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

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

     

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

     

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

     

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

     

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

     

    (xii) there
      shall occur a Change of Control; 

     

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

     

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

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

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

     

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

     

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

     

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

     

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

     

    
      
        
        

      

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    (19) Taxes.
      

     

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

     

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

     

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

     

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

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

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

     

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

     

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

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

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

     

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

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

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

     

    
      	 	
              SONTERRA
                RESOURCES, INC.,

            
	 	
              a
                Delaware corporation

            
	 	 
	 	
              By:

            	 
	 	
              Name:
                D. E. Vandenberg

            
	 	
              Title:
                President

            

    

     

    
      
        
        

      

      
        22SECURITY
      AGREEMENT

     

    THIS
      SECURITY AGREEMENT (as amended, restated, supplemented or otherwise modified
      from time to time, this “Agreement”)
      dated
      as of November 13, 2008 among SONTERRA
      RESOURCES, INC.,
      a
      Delaware corporation
      (the
“Company”),
      NORTH
      TEXAS DRILLING SERVICES, INC.,
      a Texas
      corporation (“North
      Texas”);
      SONTERRA
      OPERATING, INC.,
      a
      Delaware corporation (“Operating”),
      VELOCITY
      ENERGY LIMITED LLC,
      a Texas
      limited liability company (“Limited”),
      VELOCITY
      ENERGY INC.,
      a
      Delaware corporation (“Velocity”),
      VELOCITY
      ENERGY OFFSHORE LP,
      a
      Delaware limited partnership (“Offshore”),
      VELOCITY
      ENERGY PARTNERS LP, a
      Delaware limited partnership (“Onshore”;
      the
      Company, North Texas, Operating, Limited, Velocity, Offshore and Onshore,
      together with each
      other Person who becomes a party to this Agreement by execution of a joinder
      in
      the form of Exhibit
      A
      attached
      hereto, is hereinafter sometimes referred to individually as a “Debtor”
and,
      collectively, as the “Debtors”)
      and SUMMERLINE
      ASSET MANAGEMENT, LLC,
      a
      Delaware limited liability company, in
      its
      capacity as Collateral Agent (as set forth in Section 5.11 hereof, together
      with
      its successors and assigns in such capacity, the “Secured
      Party”)
      for
      the benefit of itself and each of the Buyers (as hereinafter defined).

     

    WITNESSETH:

     

    WHEREAS,
      on the
      date hereof, Longview Marquis Master Fund, L.P., a British Virgin Island limited
      partnership (“Marquis”;
      Marquis, together with its successors and assigns and each other holder of
      a
      Note (as defined below) and their respective successors and assigns,
      individually and collectively, the “Buyers”),
      will
      purchase from the Company certain senior secured notes in an original aggregate
      principal amount of $8,875,000 (such
      notes, together with any promissory notes or other securities issued in exchange
      or substitution therefor or replacement thereof, and as any of the same may
      be
      amended, supplemented, restated or modified and in effect from time to time,
      the
“Notes”);

     

    AND
      WHEREAS,
      the
      Notes are being acquired by Buyer and Buyer has made certain financial
      accommodations to the Company pursuant to a Securities Purchase Agreement of
      even date herewith between the Company and Buyers (as the same may be amended,
      restated, supplemented or otherwise modified from time to time, the
“Purchase
      Agreement”);

    

    AND
      WHEREAS,
      each
      Debtor (other than the Company), from time to time, may be a party hereto is
      a
      direct or indirect subsidiary of the Company and, as such, will derive
      substantial benefit and advantage from the financial accommodations to the
      Company set forth in the Purchase Agreement and the Notes, and it will be to
      each such Debtor’s direct interest and economic benefit to assist the Company in
      procuring said financial accommodations from Buyers;

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    AND
      WHEREAS,
      to
      induce Buyers to enter into the Purchase Agreement and purchase the Notes,
      (i)
      each Debtor (other than the Company) has agreed to guaranty the Liabilities
      (as
      hereinafter defined) of the Company pursuant to the terms of a guarantee (such
      guaranty(ies), as they may be amended, restated, modified or supplemented and
      in
      effect from time to time, individually and collectively, the “Guaranty”)
      by
      each such Debtor in favor of Secured Party (on its behalf and on behalf of
      the
      Buyers) and (ii) each Debtor has agreed to pledge and grant a security interest
      in all of its right, title and interest in and to the Collateral (as hereinafter
      defined) as security for its Liabilities for the benefit of the Secured Party,
      Buyers and their respective successors and assigns.

     

    NOW,
      THEREFORE, in consideration of the foregoing and for other good and valuable
      consideration, the receipt and sufficiency of which are hereby acknowledged,
      the
      parties hereto agree as follows:

     

    Section
      1. Definitions.
      Capitalized terms used herein without definition and defined in the Purchase
      Agreement are used herein as defined therein. In addition, as used
      herein:

     

    “Accounts”
means
      any “account,” as such term is defined in the UCC, and, in any event, shall
      include, without limitation, “supporting obligations” as defined in the
      UCC.

     

    “As-extracted
      Collateral”
means
      any “as-extracted collateral,” as such term is defined in the UCC.

     

    “Chattel
      Paper”
means
      any “chattel paper,” as such term is defined in the UCC.

     

    “Collateral”
shall
      have the meaning ascribed thereto in Section
      3
      hereof.

     

    “Commercial
      Tort Claims”
means
      “commercial tort claims”, as such term is defined in the UCC.

     

    “Contracts”
means
      all contracts, undertakings, or other agreements (other than rights evidenced
      by
      Chattel Paper, Documents or Instruments) in or under which a Debtor may now
      or
      hereafter have any right, title or interest, including, without limitation,
      with
      respect to an Account, any agreement relating to the terms of payment or the
      terms of performance thereof.

     

    “Copyrights”
      means any copyrights, rights and interests in copyrights, works protectable
      by
      copyrights, copyright registrations and copyright applications, including,
      without limitation, the copyright registrations and applications listed on
      Schedule III attached hereto (if any), and all renewals of any of the
      foregoing, all income, royalties, damages and payments now and hereafter due
      and/or payable under or with respect to any of the foregoing, including, without
      limitation, damages and payments for past, present and future infringements
      of
      any of the foregoing and the right to sue for past, present and future
      infringements of any of the foregoing. 

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    “Deposit
      Accounts”
means
      all “deposit accounts” as such term is defined in the UCC, now or hereafter held
      in the name of a Debtor.

     

    “Documents”
means
      any “documents,” as such term is defined in the UCC, and shall include, without
      limitation, all documents of title (as defined in the UCC), bills of lading
      or
      other receipts evidencing or representing Inventory or Equipment.

     

    “Equipment”
means
      any “equipment,” as such term is defined in the UCC and, in any event, shall
      include, Motor Vehicles.

     

    “Event
      of Default”
shall
      have the meaning set forth in the Notes. 

     

    “General
      Intangibles”
means
      any “general intangibles,” as such term is defined in the UCC, and, in any
      event, shall include, without limitation, all right, title and interest in
      or
      under any Contract, models, drawings, materials and records, claims, literary
      rights, goodwill, rights of performance, Copyrights, Trademarks, Patents,
      warranties, rights under insurance policies and rights of
      indemnification.

     

    “Goods”
means
      any “goods”, as such term is defined in the UCC, including, without limitation,
      fixtures and embedded Software to the extent included in “goods” as defined in
      the UCC.

     

    “Governmental
      Authority”
means
      the government of the United States of America or any other nation, or any
      political subdivision thereof, whether state or local, or any agency, authority,
      instrumentality, regulatory body, court, central bank or other entity exercising
      executive, legislative, judicial, taxing, regulatory or administration powers
      or
      functions of or pertaining to government over any Debtor or any of its
      Subsidiaries, or any of their respective properties, assets or
      undertakings.

     

    “Instruments”
means
      any “instrument,” as such term is defined in the UCC, and shall include, without
      limitation, promissory notes, drafts, bills of exchange, trade acceptances,
      letters of credit, letter of credit rights (as defined in the UCC), and Chattel
      Paper.

     

    “Inventory”
means
      any “inventory,” as such term is defined in the UCC.

     

    “Investment
      Property”
means
      any “investment property”, as such term is defined in the UCC.

     

    “Liabilities”
means
      all obligations, liabilities and indebtedness of every nature of Debtors from
      time to time owed or owing under or in respect of this Agreement, the Purchase
      Agreement, the Notes, the Warrants, the Guaranty, any of the other Security
      Documents and any of the other Transaction Documents, as the case may be,
      including, without limitation, the principal amount of all debts, claims and
      indebtedness, accrued and unpaid interest and all fees, costs and expenses,
      whether primary, secondary, direct, contingent, fixed or otherwise, heretofore,
      now and/or from time to time hereafter owing, due or payable whether before
      or
      after the filing of a bankruptcy, insolvency or similar proceeding under
      applicable federal, state or other law and whether or not an allowed claim
      in
      any such proceeding.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    “Lien”
has
      the
      meaning set forth in the Purchase Agreement.

     

    “Motor
      Vehicles”
shall
      mean motor vehicles, tractors, trailers and other like property, whether or
      not
      the title thereto is governed by a certificate of title or ownership. The term
      “Motor Vehicles” shall specifically include mobile drilling rigs.

     

    “Patents”
means
      any patents and patent applications, including, without limitation, the
      inventions and improvements described and claimed therein, all patentable
      inventions and those patents and patent applications listed on Schedule IV
      attached
      hereto (if any), and the reissues, divisions, continuations, renewals,
      extensions and continuations-in-part of any of the foregoing, and all income,
      royalties, damages and payments now or hereafter due and/or payable under or
      with respect to any of the foregoing, including, without limitation, damages
      and
      payments for past, present and future infringements of any of the foregoing
      and
      the right to sue for past, present and future infringements of any of the
      foregoing.

     

    “Permitted
      Lien”
has
      the
      meaning set forth in the Purchase Agreement.

     

    “Proceeds”
means
      “proceeds,” as such term is defined in the UCC and, in any event, includes,
      without limitation, (a) any and all proceeds of any insurance, indemnity,
      warranty or guaranty payable with respect to any of the Collateral, (b) any
      and
      all payments (in any form whatsoever) made or due and payable from time to
      time
      in connection with any requisition, confiscation, condemnation, seizure or
      forfeiture of all or any part of the Collateral by any governmental body,
      authority, bureau or agency (or any person acting under color of governmental
      authority), and (c) any and all other amounts from time to time paid or payable
      under, in respect of or in connection with any of the Collateral.

     

    “Representative”
means
      any Person acting as agent, representative or trustee on behalf of the Secured
      Party from time to time.

     

    “Requisite
      Buyers”
means
      buyers having more than 66 2/3% of the sum of the aggregate outstanding
      principal balance of the Notes. 

     

    “Software”
means
      all “software” as such term is defined in the UCC, now owned or hereafter
      acquired by a Debtor, other than software embedded in any category of Goods,
      including, without limitation, all computer programs and all supporting
      information provided in connection with a transaction related to any
      program.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    “Trademarks”
means
      any trademarks, trade names, corporate names, company names, business names,
      fictitious business names, trade styles, service marks, logos, other business
      identifiers, prints and labels on which any of the foregoing have appeared
      or
      appear, all registrations and recordings thereof, and all applications in
      connection therewith, including, without limitation, the trademarks and
      applications listed in Schedule
      V
      attached
      hereto (if any) and renewals thereof, and all income, royalties, damages and
      payments now or hereafter due and/or payable under or with respect to any of
      the
      foregoing, including, without limitation, damages and payments for past, present
      and future infringements of any of the foregoing and the right to sue for past,
      present and future infringements of any of the foregoing.

     

    “UCC”
shall
      mean the Uniform Commercial Code as in effect from time to time in the State
      of
      New York; provided,
      that to the extent that the Uniform Commercial Code is used to define any term
      herein and such term is defined differently in different Articles or Divisions
      of the Uniform Commercial Code, the definition of such term contained in Article
      or Division 9 shall govern.

     

    Section
      2. Representations,
      Warranties and Covenants of Debtors.
      Each
      Debtor represents and warrants to, and covenants with, the Secured Party as
      follows:

     

    (a) Such
      Debtor has or will have rights in and the power to transfer the Collateral
      in
      which it purports to grant a security interest pursuant to Section
      3
      hereof
      (subject, with respect to after acquired Collateral, to such Debtor acquiring
      the same) and no Lien other than Permitted Liens exists or will exist upon
      such
      Collateral at any time. 

     

    (b) This
      Agreement is effective to create in favor of Secured Party a valid security
      interest in and Lien upon all of such Debtor’s right, title and interest in and
      to the Collateral, and upon (i) the filing of appropriate UCC financing
      statements in the jurisdictions listed on Schedule
      I
      attached
      hereto, (ii) each Deposit Account being subject to an Account Control Agreement
      (as hereinafter defined) between the applicable Debtor and depository
      institution and the Secured Party on behalf of Buyers, (iii) filings in the
      United States Patent and Trademark Office, or United States Copyright Office
      with respect to Collateral that is Patents and Trademarks, or Copyrights, as
      the
      case may be, and (iv) the security interest created hereby being noted on each
      certificate of title evidencing the ownership of any Motor Vehicle in accordance
      with Section
      4.1(d)
      hereof
      (other than, until the payment in full in cash of the FNBW Note, the Motor
      Vehicles securing the FNBW Note on
      the
      date hereof (the
      “FNBW
      Vehicles”)),
      such
      security interest will be a duly perfected first priority security interest
      in
      all of the Collateral (other than Instruments not constituting Chattel Paper
      and, until the payment in full in cash of the FNBW Note, the FNBW Vehicles),
      and
      upon delivery of the Instruments to the Secured Party or its Representative,
      duly endorsed by such Debtor or accompanied by appropriate instruments of
      transfer duly executed by such Debtor, the security interest in the Instruments
      will be duly perfected. 

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    (c) All
      of
      the Equipment, Inventory and Goods owned by such Debtor is located at the places
      as specified on Schedule
      I
      attached
      hereto. Except as disclosed on Schedule
      I,
      none of
      the Collateral is in the possession of any bailee, warehousemen, processor
      or
      consignee, other than oil and gas production in the possession of an operator
      or
      a first purchaser of oil and gas production prior to the payment on account
      thereof. Schedule
      I
      discloses such Debtor’s name as of the date hereof as it appears in official
      filings in the state or province, as applicable, of its incorporation, formation
      or organization, the type of entity of such Debtor (including corporation,
      partnership, limited partnership or limited liability company), organizational
      identification number issued by such Debtor’s state of incorporation, formation
      or organization (or a statement that no such number has been issued), such
      Debtor’s state or province, as applicable, of incorporation, formation or
      organization and the
      chief
      place of business, chief executive officer and the office where such Debtor
      keeps its books and records and the states in which such Debtor conducts its
      business. Such Debtor has only one state or
      province, as applicable, of
      incorporation, formation or organization. Such Debtor does not do business
      and
      has not done business during the past five (5) years under any trade name or
      fictitious business name except as disclosed on Schedule
      II
      attached
      hereto.

     

    (d) No
      Copyrights, Patents or Trademarks listed on Schedules
      III, IV and V,
      respectively, if any, have been adjudged invalid or unenforceable or have been
      canceled, in whole or in part, or are not presently subsisting. Each of such
      Copyrights, Patents and Trademarks (if any) is valid and enforceable. Such
      Debtor is the sole and exclusive owner of the entire and unencumbered right,
      title and interest in and to each of such Copyrights, Patents and Trademarks,
      identified on Schedules
      III, IV and V,
      as
      applicable, as being owned by such Debtor, free and clear of any liens, charges
      and encumbrances, including without limitation licenses, shop rights and
      covenants by such Debtor not to sue third persons. Such Debtor has adopted,
      used
      and is currently using, or has a current bona fide intention to use, all of
      such
      Trademarks and Copyrights. Such Debtor has no notice of any suits or actions
      commenced or threatened with reference to the Copyrights, Patents or Trademarks
      owned by it.

     

    (e) Each
      Debtor agrees to deliver to the Secured Party an updated Schedule
      I, II, III, IV and/or V
      within
      five (5) Business Days of any change thereto.

     

    (f) All
      depositary and other accounts including, without limitation, Deposit Accounts,
      securities accounts, brokerage accounts and other similar accounts, maintained
      by each Debtor are described on Schedule
      VI
      hereto,
      which description includes for each such account the name of the Debtor
      maintaining such account, the name, address and telephone and telecopy numbers
      of the financial institution at which such account is maintained, the account
      number and the account officer, if any, of such account. No Debtor shall open
      any new Deposit Accounts, securities accounts, brokerage accounts or other
      accounts unless such Debtor shall have given Secured Party ten (10) Business
      Days’ prior written notice of its intention to open any such new accounts. Each
      Debtor shall deliver to Secured Party a revised version of Schedule
      VI
      showing
      any changes thereto within five (5) Business Days of any such change. Each
      Debtor hereby authorizes the financial institutions at which such Debtor
      maintains an account to provide Secured Party with such information with respect
      to such account as Secured Party from time to time reasonably may request,
      and
      each Debtor hereby consents to such information being provided to Secured Party.
      In addition, all of such Debtor’s depositary, security, brokerage and other
      accounts including, without limitation, Deposit Accounts shall be subject to
      the
      provisions of Section
      4.5
      hereof.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

    (g) Such
      Debtor does not own any Commercial Tort Claim except for those disclosed on
Schedule
      VII
      hereto
      (if any).

     

    (h) Such
      Debtor does not have any interest in real property or mineral interests with
      respect to real property except as disclosed on Schedule
      VIII
      (if
      any). Each Debtor shall deliver to Secured Party a revised version of
Schedule
      VIII
      showing
      any changes thereto within ten (10) Business Days of any such change. Except
      as
      otherwise agreed to by Secured Party, all such interests in real property or
      mining rights with respect to such real property are subject to a mortgage,
      deed
      of trust and assignment of production proceeds (in form and substance
      satisfactory to Secured Party) in favor of Secured Party (hereinafter, a
“Mortgage”).
      

     

    (i) Each
      Debtor shall duly and properly record each interest in real property held
      by such Debtor except with respect to easements, rights of way, access
      agreements, surface damage agreements, surface use agreements or similar
      agreements that such Debtor, using prudent customs and practices in the
      industry in which it operates, does not believe are of material value or
      material to the operation of such Debtor's business or, with respect to
      state and federal rights of way, are not capable of being recorded as a matter
      of state and federal law. 

    

    (j) All
      Equipment (including, without limitation, Motor Vehicles) owned by a Debtor
      and
      subject to a certificate of title or ownership statute is described on
Schedule
      IX
      hereto.

    

    Section
      3. Collateral.
      As
      collateral security for the prompt payment in full when due (whether at stated
      maturity, by acceleration or otherwise) of the Liabilities, each Debtor hereby
      pledges and grants to the Secured Party, for the benefit of itself and Buyers,
      a
      Lien on and security interest in and to all of such Debtor’s right, title and
      interest in the personal property and assets of such Debtor, whether now owned
      by such Debtor or hereafter acquired and whether now existing or hereafter
      coming into existence and wherever located (all being collectively referred
      to
      herein as “Collateral”),
      including, without limitation:

     

    (a) all
      Instruments, together with all payments thereon or thereunder:

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

    (b) all
      Accounts;

     

    (c) all
      Inventory; 

     

    (d) all
      General Intangibles (including payment intangibles (as defined in the UCC)
      and
      Software);

     

    (e) all
      Equipment;

     

    (f) all
      Documents;

     

    (g) all
      Contracts;

     

    (h)
       all
      Goods;

     

    (i) all
      Investment Property;

     

    (j) all
      Deposit Accounts, including, without limitation, the balance from time to time
      in all bank accounts maintained by such Debtor; 

     

    (k) all
      Commercial Tort Claims specified on Schedule
      VII;
      

     

    (l) all
      As-extracted Collateral; 

     

    (m) all
      Trademarks, Patents and Copyrights; and 

     

    (n) all
      other
      tangible and intangible property of such Debtor, including, without limitation,
      all interests in real property, Proceeds, tort claims, products, accessions,
      rents, profits, income, benefits, substitutions, additions and replacements
      of
      and to any of the property of such Debtor described in the preceding clauses
      of
      this Section
      3
      (including, without limitation, any proceeds of insurance thereon, insurance
      claims and all rights, claims and benefits against any Person relating thereto),
      other rights to payments not otherwise included in the foregoing, and all books,
      correspondence, files, records, invoices and other papers, including without
      limitation all tapes, cards, computer runs, computer programs, computer files
      and other papers, documents and records in the possession or under the control
      of such Debtor, any computer bureau or service company from time to time acting
      for such Debtor.

     

    Section
      4. Covenants;
      Remedies.
      In
      furtherance of the grant of the pledge and security interest pursuant to
Section
      3
      hereof,
      each Debtor hereby agrees with the Secured Party as follows:

     

    
      
        
        

      

      
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    4.1.
      Delivery
      and Other Perfection; Maintenance, etc.

     

    (a) Delivery
      of Instruments, Documents, Etc.
      Each
      Debtor shall deliver and pledge to the Secured Party or its Representative
      any
      and all Instruments, negotiable Documents, Chattel Paper and certificated
      securities (accompanied by stock powers executed in blank) duly endorsed and/or
      accompanied by such instruments of assignment and transfer executed by such
      Debtor in such form and substance as the Secured Party or its Representative
      may
      request; provided,
      that so
      long as no Event of Default shall have occurred and be continuing, each Debtor
      may retain for collection in the ordinary course of business any Instruments,
      negotiable Documents and Chattel Paper received by such Debtor in the ordinary
      course of business, and the Secured Party or its Representative shall, promptly
      upon request of a Debtor, make appropriate arrangements for making any other
      Instruments, negotiable Documents and Chattel Paper pledged by such Debtor
      available to such Debtor for purposes of presentation, collection or renewal
      (any such arrangement to be effected, to the extent deemed appropriate by the
      Secured Party or its Representative, against trust receipt or like document).
      If
      a
      Debtor retains possession of any Chattel Paper, negotiable Documents or
      Instruments pursuant to the terms hereof, such Chattel Paper, negotiable
      Documents and Instruments shall be marked with the following legend: “This
      writing and the obligations evidenced or secured hereby are subject to the
      security interest of Summerline
      Asset Management, LLC, in its capacity as collateral agent for the benefit
      of
      Buyers,
      as
      secured party.”

     

    (b) Other
      Documents and Actions.
      Each
      Debtor shall give, execute, deliver, file and/or record any financing statement,
      notice, instrument, document, agreement, Mortgage or other papers that may
      be
      necessary or desirable (in the reasonable judgment of the Secured Party or
      its
      Representative) to create, preserve, perfect or validate the security interest
      granted pursuant hereto (or any security interest or mortgage contemplated
      or
      required hereunder, including with respect to Section
      2(h)
      of this
      Agreement) or to enable the Secured Party or its Representative to exercise
      and
      enforce the rights of the Secured Party hereunder with respect to such pledge
      and security interest, provided
      that
      notices to account debtors in respect of any Accounts or Instruments shall
      be
      subject to the provisions of clause (e) below. Notwithstanding
      the foregoing each Debtor hereby irrevocably authorizes the Secured Party at
      any
      time and from time to time to file in any filing office in any jurisdiction
      any
      initial financing statements and amendments thereto that (a) indicate the
      Collateral (i) as all assets of such Debtor or words of similar effect,
      regardless of whether any particular asset comprised in the Collateral falls
      within the scope of Article 9 of the UCC, or (ii) as being of an equal or lesser
      scope or with greater detail, and (b) contain any other information required
      by
      part 5 of Article 9 of the UCC for the sufficiency or filing office acceptance
      of any financing statement or amendment, including (i) whether such Debtor
      is an
      organization, the type of organization and any organization identification
      number issued to such Debtor, and (ii) in the case of a financing statement
      filed as a fixture filing or indicating Collateral as As-extracted Collateral
      or
      timber to be cut, a sufficient description of real property to which the
      Collateral relates. Each Debtor agrees to furnish any such information to the
      Secured Party promptly upon request. Each Debtor also ratifies its authorization
      for the Secured Party to have filed in any jurisdiction any like initial
      financing statements or amendments thereto if filed prior to the date hereof.
      

     

    
      
        
        

      

      
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    (c) Books
      and Records.
      Each
      Debtor (or the Company on behalf of a Debtor) shall maintain at its own cost
      and
      expense complete and accurate books and records of the Collateral, including,
      without limitation, a record of all payments received and all credits granted
      with respect to the Collateral and all other dealings with the Collateral.
      Upon
      the occurrence and during the continuation of any Event of Default, each Debtor
      shall deliver and turn over any such books and records (or true and correct
      copies thereof) to the Secured Party or its Representative at any time on
      demand. Each Debtor shall permit any Representative of the Secured Party to
      inspect such books and records at any time during reasonable business hours
      and
      will provide photocopies thereof at such Debtor’s expense to the Secured Party
      upon request of the Secured Party.

     

    (d) Motor
      Vehicles.
      Each
      Debtor shall, promptly upon acquiring same, cause the Secured Party to be listed
      as the lienholder on each certificate of title or ownership covering any items
      of Equipment, including Motor Vehicles (other than, until the payment in full
      in
      cash of the FNBW Note, the FNBW Vehicles), having a value in excess of $50,000
      in the aggregate for all such items of Equipment of the Debtor, or otherwise
      comply with the certificate of title or ownership laws of the relevant
      jurisdiction issuing such certificate of title or ownership in order to properly
      evidence and perfect Secured Party’s security interest in the assets represented
      by such certificate of title or ownership, and, within five (5) Business Days
      of
      its receipt of such original certificates of title or ownership listing the
      Secured Party as the lienholder, deliver such original certificates of title
      or
      ownership to Secured Party. Notwithstanding the foregoing, with respect to
      items
      with license numbers 23YVZP, 67XTGK and 30WTLZ, the Company shall, within sixty
      (60) days of the date hereof, deliver to Secured Party an original certificate
      of title or ownership from the applicable certificate of title or ownership
      authority identifying the Company as the owner of such Equipment and listing
      Secured Party as lienholder. 

     

    (e) Notice
      to Account Debtors; Verification.
      (i)
      Upon the occurrence and during the continuance of any Event of Default (or
      if
      any rights of set-off (other than set-offs against an Account arising under
      the
      Contract giving rise to the same Account) or contra accounts may be asserted),
      upon request of the Secured Party or its Representative, each Debtor shall
      promptly notify (and each Debtor hereby authorizes the Secured Party and its
      Representative so to notify) each account debtor in respect of any Accounts
      or
      Instruments or other Persons obligated on the Collateral that such Collateral
      has been assigned to the Secured Party hereunder, and that any payments due
      or
      to become due in respect of such Collateral are to be made directly to the
      Secured Party, and (ii) the Secured Party and its Representative shall have
      the
      right at any time or times to make direct verification with the account debtors
      or other Persons obligated on the Collateral of any and all of the Accounts
      or
      other such Collateral.

     

    
      
        
        

      

      
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    (f) Intellectual
      Property.
      Each
      Debtor represents and warrants that the Copyrights, Patents and Trademarks
      listed on Schedules
      III, IV and V,
      respectively (if any), constitute all of the registered Copyrights and all
      of
      the Patents and Trademarks now owned by such Debtor. If such Debtor shall (i)
      obtain rights to any new patentable inventions, any registered Copyrights or
      any
      Patents or Trademarks, or (ii) become entitled to the benefit of any registered
      Copyrights or any Patents or Trademarks or any improvement on any Patent, the
      provisions of this Agreement above shall automatically apply thereto and such
      Debtor shall give to Secured Party prompt written notice thereof. Each Debtor
      hereby authorizes Secured Party to modify this Agreement by amending
Schedules
      III, IV and V,
      as
      applicable, to include any such registered Copyrights or any such Patents and
      Trademarks. Each Debtor shall have the duty (i) to prosecute diligently any
      patent, trademark, or service mark applications pending as of the date hereof
      or
      hereafter, (ii) to make application on unpatented but patentable inventions
      and
      on trademarks, copyrights and service marks, as appropriate, (iii) to preserve
      and maintain all rights in the Copyrights, Patents and Trademarks, to the extent
      material to the operations of the business of such Debtor and (iv) to ensure
      that the Copyrights, Patents and Trademarks are and remain enforceable, to
      the
      extent material to the operations of the business of such Debtor. Any expenses
      incurred in connection with such Debtor’s obligations under this Section
      4.1(f)
      shall be
      borne by such Debtor. Except for any such items that a Debtor reasonably
      believes (using prudent industry customs and practices) are no longer necessary
      for the on-going operations of its business, no Debtor shall abandon any right
      to file a patent, trademark or service mark application, or abandon any pending
      patent, trademark or service mark application or any other Copyright, Patent
      or
      Trademark without the written consent of Secured Party, which consent shall
      not
      be unreasonably withheld.

     

    (g) Further
      Identification of Collateral.
      Each
      Debtor will, when and as often as requested by the Secured Party or its
      Representative, furnish to the Secured Party or such Representative, statements
      and schedules further identifying and describing the Collateral and such other
      reports in connection with the Collateral as the Secured Party or its
      Representative may reasonably request, all in reasonable detail.

     

    (h) Investment
      Property.
      Each
      Debtor will take any and all actions required or requested by the Secured Party,
      from time to time, to (i) cause the Secured Party to obtain exclusive control
      of
      any Investment Property owned by such Debtor in a manner acceptable to the
      Secured Party and (ii) obtain from any issuers of Investment Property and such
      other Persons, for the benefit of the Secured Party, written confirmation of
      the
      Secured Party’s control over such Investment Property. For purposes of this
Section
      4.1(h),
      the
      Secured Party shall have exclusive control of Investment Property if (i) such
      Investment Property consists of certificated securities and a Debtor delivers
      such certificated securities to the Secured Party (with appropriate endorsements
      if such certificated securities are in registered form); (ii) such Investment
      Property consists of uncertificated securities and either (x) a Debtor delivers
      such uncertificated securities to the Secured Party or (y) the issuer thereof
      agrees, pursuant to documentation in form and substance satisfactory to the
      Secured Party, that it will comply with instructions originated by the Secured
      Party without further consent by such Debtor, and (iii) such Investment Property
      consists of security entitlements and either (x) the Secured Party becomes
      the
      entitlement holder thereof or (y) the appropriate securities intermediary
      agrees, pursuant to the documentation in form and substance satisfactory to
      the
      Secured Party, that it will comply with entitlement orders originated by the
      Secured Party without further consent by any Debtor.

     

    
      
        
        

      

      
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              (i)

            	
              Reserved.
                

            

    

     

    (j) Commercial
      Tort Claims.
      Each
      Debtor shall promptly notify Secured Party of any Commercial Tort Claim acquired
      by it that concerns a claim in excess of $50,000 and unless otherwise consented
      to by Secured Party, such Debtor shall enter into a supplement to this Agreement
      granting to Secured Party a Lien on and security interest in such Commercial
      Tort Claim.

     

    4.2
      Other
      Liens.
      Debtors
      will not create, permit or suffer to exist, and will defend the Collateral
      against and take such other action as is necessary to remove, any Lien on the
      Collateral except Permitted Liens, and will defend the right, title and interest
      of the Secured Party in and to the Collateral and in and to all Proceeds thereof
      against the claims and demands of all Persons whatsoever.

     

    4.3
      Preservation
      of Rights.
      Whether
      or not any Event of Default has occurred or is continuing, the Secured Party
      and
      its Representative may, but shall not be required to, take any steps the Secured
      Party or its Representative deems necessary or appropriate to preserve any
      Collateral or any rights against third parties to any of the Collateral,
      including obtaining insurance for the Collateral at any time when such Debtor
      has failed to do so, and Debtors shall promptly pay, or reimburse the Secured
      Party for, all expenses incurred in connection therewith.

     

    4.4
      Formation
      of Subsidiaries; Name Change; Location; Bailees.

     

    (a) No
      Debtor
      shall form any subsidiary unless (i) such Debtor pledges all of the stock or
      equity interest of such subsidiary to the Secured Party (in the case of Company,
      pursuant to the existing pledge agreement by Company in favor of the Secured
      Party or, with respect to a Debtor other than Company, pursuant to a pledge
      agreement in form and substance reasonably acceptable to Secured Party), (ii)
      such subsidiary becomes a party to this Agreement and all other applicable
      Security Documents and (iii) the formation of such Subsidiary is not prohibited
      by the terms of the Transaction Documents.

     

    (b)
       No
      Debtor
      shall (i) reincorporate or reorganize itself under the laws of any jurisdiction
      other than the jurisdiction in which it is incorporated or organized as of
      the
      date hereof, or (ii) otherwise change its name, identity or corporate structure,
      in each case, without the prior written consent of Secured Party, which consent
      will not be unreasonably withheld, conditioned or delayed. Each Debtor will
      notify Secured Party promptly in writing prior to any such change in the
      proposed use by such Debtor of any tradename or fictitious business name other
      than any such name set forth on Schedule
      II
      attached
      hereto. 

     

    
      
        
        

      

      
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    (c) Except
      for the sale of Inventory and As-extracted Collateral in the ordinary course
      of
      business and other sales of assets expressly permitted by the terms of the
      Purchase Agreement,
      each
      Debtor will keep the Collateral at the locations specified in Schedule
      I.
      Each
      Debtor will give Secured Party thirty (30) day’s prior written notice of any
      change in such Debtor’s chief place of business or of any new location for any
      of the Collateral.

     

    (d) If
      any
      Collateral is at any time in the possession or control of any warehousemen,
      bailee, consignee or processor, such Debtor shall, upon the request of Secured
      Party or its Representative, notify such warehousemen, bailee, consignee or
      processor of the Lien and security interest created hereby and shall instruct
      such Person to hold all such Collateral for Secured Party’s account subject to
      Secured Party’s instructions.

     

    (e) Each
      Debtor acknowledges that it is not authorized to file any financing statement
      or
      amendment or termination statement with respect to any financing statement
      without the prior written consent of Secured Party and agrees that it will
      not
      do so without the prior written consent of Secured Party, subject to such
      Debtor’s rights under Section 9-509(d)(2) to the UCC.

     

    (f) No
      Debtor
      shall enter into any Contract that restricts or prohibits the grant to Secured
      Party of a security interest in Accounts, Chattel Paper, Instruments or payment
      intangibles or the proceeds of the foregoing.

     

    4.5 Bank
      Accounts and Securities Accounts.

     

    (a) On
      or
      prior to the date hereof, the Secured Party and each Debtor, as applicable,
      shall enter into an account control agreement or securities account control
      agreement, as applicable, (each an “Account
      Control Agreement”),
      in a
      form specified by the Secured Party, with each financial institution with which
      such Debtor maintains from time to time any Deposit Accounts (general or
      special), securities accounts, brokerage accounts or other similar accounts,
      which financial institutions are set forth on Schedule
      VI
      attached
      hereto. Pursuant to the Account Control Agreements and pursuant hereto, each
      such Debtor grants and shall grant to the Secured Party a continuing lien upon,
      and security interest in, all such accounts and all funds at any time paid,
      deposited, credited or held in such accounts (whether for collection,
      provisionally or otherwise) or otherwise in the possession of such financial
      institutions, and each such financial institution shall act as the Secured
      Party’s agent in connection therewith. Following the Closing Date, no Debtor
      shall establish any Deposit Account, securities account, brokerage account
      or
      other similar account with any financial institution unless prior thereto,
      the
      Secured Party and such Debtor shall have entered into an Account Control
      Agreement with such financial institution which purports to cover such account.
      Each Debtor shall deposit and keep on deposit all of its funds into a Deposit
      Account which is subject to an Account Control Agreement. 

     

    
      
        
        

      

      
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    (b) Upon
      the
      Secured Party’s request following the occurrence and during the continuance of
      an Event of Default, each Debtor shall establish lock-box or blocked accounts
      (collectively, “Blocked
      Accounts”)
      in
      such Debtor’s name with such banks as are reasonably acceptable to the Secured
      Party (“Collecting
      Banks”),
      subject to irrevocable instructions in a form reasonably acceptable to the
      Secured Party, to which the obligors of all Accounts shall directly remit all
      payments on Accounts and in which such Debtor will immediately deposit all
      cash
      payments for Inventory or other cash payments constituting proceeds of
      Collateral in the identical form in which such payment was made, whether by
      cash
      or check. In addition, the Secured Party may establish one or more depository
      accounts at each Collecting Bank or at a centrally located bank (collectively,
      the “Depository
      Account”).
      All
      amounts held or deposited in the Blocked Accounts held by such Collecting Bank
      shall be transferred to the Depository Account without any further notice or
      action required by Secured Party. Subject to the foregoing, each Debtor hereby
      agrees that all payments received by the Secured Party whether by cash, check,
      wire transfer or any other instrument, made to such Blocked Accounts or
      otherwise received by the Secured Party and whether in respect of the Accounts
      or as proceeds of other Collateral or otherwise will be the sole and exclusive
      property of the Secured Party. Each Debtor, and any of its Affiliates,
      employees, agents and other Persons acting for or in concert with such Debtor
      shall, acting as trustee for the Secured Party, receive, as the sole and
      exclusive property of the Secured Party, any moneys, checks, notes, drafts
      or
      other payments relating to and/or proceeds of Accounts or other Collateral
      which
      come into the possession or under the control of such Debtor or any Affiliates,
      employees, agent or other Persons acting for or in concert with such Debtor,
      and
      immediately upon receipt thereof, such Debtor or Persons shall deposit the
      same
      or cause the same to be deposited in kind, in a Blocked Account.

     

    4.6
      Events
      of Default, Etc.
      During
      the period during which an Event of Default shall have occurred and be
      continuing:

     

    (a) each
      Debtor shall, at the request of the Secured Party or its Representative,
      assemble the Collateral (other than gas production, which shall be available
      for
      turnover in place at the wellhead or pipeline) and
      make
      it available to Secured Party or its Representative at a place or places
      designated by the Secured Party or its Representative which are reasonably
      convenient to Secured Party or its Representative, as applicable, and such
      Debtor;

     

    (b) the
      Secured Party or its Representative may make any reasonable compromise or
      settlement deemed desirable with respect to any of the Collateral and may extend
      the time of payment, arrange for payment in installments, or otherwise modify
      the terms of, any of the Collateral;

     

    
      
        
        

      

      
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    (c) the
      Secured Party shall have all of the rights and remedies with respect to the
      Collateral of a secured party under the UCC (whether or not said UCC is in
      effect in the jurisdiction where the rights and remedies are asserted) and
      such
      additional rights and remedies to which a secured party is entitled under the
      laws in effect in any jurisdiction where any rights and remedies hereunder
      may
      be asserted, including, without limitation, the right, to the maximum extent
      permitted by law, to: (i) exercise all voting, consensual and other powers
      of
      ownership pertaining to the Collateral as if the Secured Party were the sole
      and
      absolute owner thereof (and each Debtor agrees to take all such action as may
      be
      appropriate to give effect to such right) and (ii) to the appointment of a
      receiver or receivers for all or any part of the Collateral or business of
      a
      Debtor, whether such receivership be incident to a proposed sale or sales of
      such Collateral or otherwise and without regard to the value of the Collateral
      or the solvency of any person or persons liable for the payment of the
      Liabilities secured by such Collateral. Each Debtor hereby consents to the
      appointment of such receiver or receivers, waives any and all defenses to such
      appointment and agrees that such appointment shall in no manner impair,
      prejudice or otherwise affect the rights of Secured Party under this Agreement.
      Each Debtor hereby expressly waives notice of a hearing for appointment of
      a
      receiver and the necessity for bond or an accounting by the
      receiver;

     

    (d) the
      Secured Party or its Representative in their discretion may, in the name of
      the
      Secured Party or in the name of a Debtor or otherwise, demand, sue for, collect
      or receive any money or property at any time payable or receivable on account
      of
      or in exchange for any of the Collateral, but shall be under no obligation
      to do
      so;

     

    (e)
      the
      Secured Party or its Representative may take immediate possession and occupancy
      of any premises owned, used or leased by a Debtor and exercise all other rights
      and remedies which may be available to the Secured Party;

     

    (f) the
      Secured Party may, upon ten (10) Business Days’ prior written notice to Debtors
      of the time and place (which notice Debtors hereby agree is commercially
      reasonable notification for purposes hereof), with respect to the Collateral
      or
      any part thereof which shall then be or shall thereafter come into the
      possession, custody or control of the Secured Party or its Representative,
      sell,
      lease, license, assign or otherwise dispose of all or any part of such
      Collateral, at such place or places as the Secured Party deems best, and for
      cash or for credit or for future delivery (without thereby assuming any credit
      risk), at public or private sale, without demand of performance or notice of
      intention to effect any such disposition or of the time or place thereof (except
      such notice as is required above or by applicable statute and cannot be waived),
      and the Secured Party or anyone else may be the purchaser, lessee, licensee,
      assignee or recipient of any or all of the Collateral so disposed of at any
      public sale (or, to the extent permitted by law, at any private sale) and
      thereafter hold the same absolutely, free from any claim or right of whatsoever
      kind, including any right or equity of redemption (statutory or otherwise),
      of
      Debtors, any such demand, notice and right or equity being hereby expressly
      waived and released. The Secured Party may, without notice or publication,
      adjourn any public or private sale or cause the same to be adjourned from time
      to time by announcement at the time and place fixed for the sale, and such
      sale
      may be made at any time or place to which the sale may be so
      adjourned;

     

    
      
        
        

      

      
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    (g) the
      rights, remedies and powers conferred by this Section 4.6 are in addition to,
      and not in substitution for, any other rights, remedies or powers that the
      Secured Party may have under any Transaction Document, at law, in equity or
      by
      or under the UCC or any other statute or agreement. The Secured Party may
      proceed by way of any action, suit or other proceeding at law or in equity
      and
      no right, remedy or power of the Secured Party will be exclusive of or dependent
      on any other. The Secured Party may exercise any of its rights, remedies or
      powers separately or in combination and at any time.

     

    The
      proceeds of each collection, sale or other disposition under this Section
      4.6
      shall be
      applied in accordance with Section
      4.9
      hereof.

     

    4.7
      Deficiency.
      If the
      proceeds of sale, collection or other realization of or upon the Collateral
      are
      insufficient to cover the costs and expenses of such realization and the payment
      in full of the Liabilities, Debtors shall remain liable for any
      deficiency.

     

    4.8
      Private
      Sale.
      Each
      Debtor recognizes that the Secured Party may be unable to effect a public sale
      of any or all of the Collateral consisting of securities by reason of certain
      prohibitions contained in the Securities Act of 1933, as amended (the
“Act”),
      and
      applicable state securities laws, but may be compelled to resort to one or
      more
      private sales thereof to a restricted group of purchasers who will be obliged
      to
      agree, among other things, to acquire such Collateral for their own account
      for
      investment and not with a view to the distribution or resale thereof. Each
      Debtor acknowledges and agrees that any such private sale may result in prices
      and other terms less favorable to the seller than if such sale were a public
      sale and, notwithstanding such circumstances, agrees that any such private
      sale
      shall be deemed to have been made in a commercially reasonable manner. The
      Secured Party shall be under no obligation to delay a sale of any of the
      Collateral to permit a Debtor to register such Collateral for public sale under
      the Act, or under applicable state securities laws, even if Debtors would agree
      to do so. The Secured Party shall not incur any liability as a result of the
      sale of any such Collateral, or any part thereof, at any private sale provided
      for in this Agreement conducted in a commercially reasonable manner, and each
      Debtor hereby waives any claims against the Secured Party arising by reason
      of
      the fact that the price at which the Collateral may have been sold at such
      a
      private sale was less than the price which might have been obtained at a public
      sale or was less than the aggregate amount of the Liabilities, even if the
      Secured Party accepts the first offer received and does not offer the Collateral
      to more than one offeree.

     

    
      
        
        

      

      
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    Each
      Debtor further agrees to do or cause to be done all such other acts and things
      as may be necessary to make such sale or sales of any portion or all of any
      such
      Collateral valid and binding and in compliance with any and all applicable
      laws,
      regulations, orders, writs, injunctions, decrees or awards of any and all
      courts, arbitrators or governmental instrumentalities, domestic or foreign,
      having jurisdiction over any such sale or sales, all at such Debtor’s expense,
provided
      that
      Debtors shall be under no obligation to take any action to enable any or all
      of
      such Collateral to be registered under the provisions of the Act. Each Debtor
      further agrees that a breach of any of the covenants contained in this
Section
      4.8
      will
      cause irreparable injury to the Secured Party, that the Secured Party has no
      adequate remedy at law in respect of such breach and, as a consequence, agrees
      that each and every covenant contained in this Section
      4.8
      shall be
      specifically enforceable against Debtors, and each Debtor hereby waives and
      agrees not to assert any defenses against an action for specific performance
      of
      such covenants except for a defense that no Event of Default has occurred and
      is
      continuing.

     

    4.9
      Application
      of Proceeds.
      The
      proceeds of any collection, sale or other realization of all or any part of
      the
      Collateral, and any other cash at the time held by the Secured Party under
      this
      Agreement, shall be applied in the manner set forth in the Notes (or, if not
      so
      set forth, in a manner acceptable to, and at the election of, the Secured
      Party).

     

    4.10
      Attorney-in-Fact.
      Each
      Debtor hereby irrevocably constitutes and appoints the Secured Party, with
      full
      power of substitution, as its true and lawful attorney-in-fact with full
      irrevocable power and authority in the place and stead of such Debtor and in
      the
      name of such Debtor or in its own name, from time to time in the discretion
      of
      the Secured Party, for the purpose of carrying out the terms of this Agreement,
      to take any and all appropriate action and to execute and deliver any and all
      documents and instruments which may be necessary or desirable to perfect or
      protect any security interest granted hereunder or to maintain the perfection
      or
      priority of any security interest granted hereunder, and, without limiting
      the
      generality of the foregoing, hereby gives the Secured Party the power and right,
      on behalf of such Debtor, without notice to or assent by such Debtor (to the
      extent permitted by applicable law), to do the following upon the occurrence
      and
      during the continuation of any Event of Default:

     

    (a) to
      take
      any and all appropriate action and to execute and deliver any and all documents
      and instruments which may be necessary or desirable to accomplish the purposes
      of this Agreement;

     

    (b) to
      ask,
      demand, collect, receive and give acquittance and receipts for any and all
      moneys due and to become due under any Collateral and, in the name of such
      Debtor or its own name or otherwise, to take possession of and endorse and
      collect any checks, drafts, notes, acceptances or other Instruments for the
      payment of moneys due under any Collateral and to file any claim or to take
      any
      other action or proceeding in any court of law or equity or otherwise deemed
      appropriate by the Secured Party for the purpose of collecting any and all
      such
      moneys due under any Collateral whenever payable and to file any claim or to
      take any other action or proceeding in any court of law or equity or otherwise
      deemed appropriate by the Secured Party for the purpose of collecting any and
      all such moneys due under any Collateral whenever payable;

     

    
      
        
        

      

      
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    (c) to
      pay or
      discharge charges or liens levied or placed on or threatened against the
      Collateral, to effect any insurance called for by the terms of this Agreement
      and to pay all or any part of the premiums therefor; 

     

    (d) to
      direct
      any party liable for any payment under any of the Collateral to make payment
      of
      any and all moneys due, and to become due thereunder, directly to the Secured
      Party or as the Secured Party shall direct, and to receive payment of and
      receipt for any and all moneys, claims and other amounts due, and to become
      due
      at any time, in respect of or arising out of any Collateral;

     

    (e) to
      sign
      and indorse any invoices, freight or express bills, bills of lading, storage
      or
      warehouse receipts, drafts against debtors, assignments, verifications and
      notices in connection with accounts and other Documents constituting or relating
      to the Collateral;

     

    (f) to
      commence and prosecute any suits, actions or proceedings at law or in equity
      in
      any court of competent jurisdiction to collect the Collateral or any part
      thereof and to enforce any other right in respect of any
      Collateral;

     

    (g) to
      defend
      any suit, action or proceeding brought against a Debtor with respect to any
      Collateral;

     

    (h) to
      settle, compromise or adjust any suit, action or proceeding described above
      and,
      in connection therewith, to give such discharges or releases as the Secured
      Party may deem appropriate; 

     

    (i) to
      the
      extent that a Debtor’s authorization given in Section
      4.1(b)
      of this
      Agreement is not sufficient to file such financing statements with respect
      to
      this Agreement, with or without such Debtor’s signature, or to file a photocopy
      of this Agreement in substitution for a financing statement, as the Secured
      Party may deem appropriate and to execute in such Debtor’s name such financing
      statements and amendments thereto and continuation statements which may require
      such Debtor’s signature; and

     

    (j) generally
      to sell, transfer, pledge, make any agreement with respect to or otherwise
      deal
      with any of the Collateral as fully and completely as though the Secured Party
      were the absolute owners thereof for all purposes, and to do, at the Secured
      Party’s option and at such Debtor’s expense, at any time, or from time to time,
      all acts and things which the Secured Party reasonably deems necessary to
      protect, preserve or realize upon the Collateral and the Secured Party’s lien
      therein, in order to effect the intent of this Agreement, all as fully and
      effectively as such Debtor might do.

     

    Each
      Debtor hereby ratifies, to the extent permitted by law, all that such attorneys
      lawfully do or cause to be done by virtue hereof. The power of attorney granted
      hereunder is a power coupled with an interest and shall be irrevocable until
      the
      Liabilities are indefeasibly paid in full in cash and this Agreement is
      terminated in accordance with Section
      4.12
      hereof.

     

    
      
        
        

      

      
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    Each
      Debtor also authorizes the Secured Party, at any time from and after the
      occurrence and during the continuation of any Event of Default, (x) to
      communicate in its own name with any party to any Contract with regard to the
      assignment of the right, title and interest of such Debtor in and under the
      Contracts hereunder and other matters relating thereto and (y) to execute,
      in
      connection with any sale of Collateral provided for in Section
      4.6
      hereof,
      any endorsements, assignments or other instruments of conveyance or transfer
      with respect to the Collateral.

     

    4.11
      Perfection.
      Prior
      to or concurrently with the execution and delivery of this Agreement, each
      Debtor shall:

     

    (a) file
      such
      financing statements, assignments for security and other documents in such
      offices as may be necessary or as the Secured Party or the Representative may
      request to perfect the security interests granted by Section
      3
      of this
      Agreement; and

     

    (b) at
      Secured Party’s request, deliver to the Secured Party or its Representative the
      originals of all Instruments together with, in the case of Instruments
      constituting promissory notes, allonges attached thereto showing such promissory
      notes to be payable to the order of a blank payee.

     

    (c) deliver
      to the Secured Party or its Representative the originals of all Motor Vehicle
      Titles (other than, until the payment in full in cash of the FNBW Note, the
      Motor Vehicles Titles of the FNBW Vehicles), duly endorsed indicating the
      Secured Party’s interest therein as a lienholder, together with such other
      documents as may be required consistent with Section
      4.1(d)
      hereof
      to perfect the security interest granted by Section 3 in all such Motor
      Vehicles.

     

    4.12
      Termination.
      This
      Agreement and the Liens and security interests granted hereunder shall not
      terminate until the termination of the Notes and the full and complete
      performance and indefeasible satisfaction of all the Liabilities (i) in respect
      of the Notes (including, without limitation, the indefeasible payment in full
      in
      cash of all such Liabilities) and (ii) with respect to which claims have been
      asserted by Collateral Agent and/or Buyers, whereupon the Secured Party shall
      forthwith cause to be assigned, transferred and delivered, against receipt
      but
      without any recourse, warranty or representation whatsoever, any remaining
      Collateral to or on the order of Debtors. The Secured Party shall also execute
      and deliver to Debtors upon such termination and at Debtors’ expense such UCC
      termination statements, certificates for terminating the liens on the Motor
      Vehicles (if any) and such other documentation as shall be reasonably requested
      by Debtors to effect the termination and release of the Liens and security
      interests in favor of the Secured Party affecting the Collateral.

     

    
      
        
        

      

      
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    4.13
      Further
      Assurances.
      At any
      time and from time to time, upon the written request of the Secured Party or
      its
      Representative, and at the sole expense of Debtors, Debtors will promptly and
      duly execute and deliver any and all such further instruments, documents and
      agreements and take such further actions as the Secured Party or its
      Representative may reasonably require in order for the Secured Party to obtain
      the full benefits of this Agreement and of the rights and powers herein granted
      in favor of the Secured Party, including, without limitation, using Debtors’
best efforts to secure all consents and approvals necessary or appropriate
      for
      the assignment to the Secured Party of any Collateral held by Debtors or in
      which a Debtor has any rights not heretofore assigned, the filing of any
      financing or continuation statements under the UCC with respect to the liens
      and
      security interests granted hereby, transferring Collateral to the Secured
      Party’s possession (if a security interest in such Collateral can be perfected
      by possession), placing the interest of the Secured Party as lienholder on
      the
      certificate of title of any Motor Vehicle (other than, until the payment in
      full
      in cash of the FNBW Note, the FNBW Vehicles) and obtaining waivers of liens
      from
      landlords and mortgagees. Each Debtor also hereby authorizes the Secured Party
      and its Representative to file any such financing or continuation statement
      without the signature of such Debtor to the extent permitted by applicable
      law.

     

    4.14
      Limitation
      on Duty of Secured Party.
      The
      powers conferred on the Secured Party under this Agreement are solely to protect
      the Secured Party’s interest on behalf of itself and Buyers in the Collateral
      and shall not impose any duty upon it to exercise any such powers. The Secured
      Party shall be accountable only for amounts that it actually receives as a
      result of the exercise of such powers and neither the Secured Party nor its
      Representative nor any of their respective officers, directors, employees or
      agents shall be responsible to Debtors for any act or failure to act, except
      for
      willful misconduct. Without limiting the foregoing, the Secured Party and any
      Representative shall be deemed to have exercised reasonable care in the custody
      and preservation of the Collateral in their possession if such Collateral is
      accorded treatment substantially equivalent to that which the relevant Secured
      Party or any Representative, in its individual capacity, accords its own
      property consisting of the type of Collateral involved, it being understood
      and
      agreed that neither the Secured Party nor any Representative shall have any
      responsibility for taking any necessary steps (other than steps taken in
      accordance with the standard of care set forth above) to preserve rights against
      any Person with respect to any Collateral.

     

    Also
      without limiting the generality of the foregoing, neither the Secured Party
      nor
      any Representative shall have any obligation or liability under any Contract
      or
      license by reason of or arising out of this Agreement or the granting to the
      Secured Party of a security interest therein or assignment thereof or the
      receipt by the Secured Party or any Representative of any payment relating
      to
      any Contract or license pursuant hereto, nor shall the Secured Party or any
      Representative be required or obligated in any manner to perform or fulfill
      any
      of the obligations of Debtors under or pursuant to any Contract or license,
      or
      to make any payment, or to make any inquiry as to the nature or the sufficiency
      of any payment received by it or the sufficiency of any performance by any
      party
      under any Contract or license, or to present or file any claim, or to take
      any
      action to collect or enforce any performance or the payment of any amounts
      which
      may have been assigned to it or to which it may be entitled at any time or
      times.

     

    
      
        
        

      

      
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    Section
      5. Miscellaneous.

     

    5.1
      No
      Waiver.
      No
      failure on the part of the Secured Party or any of its Representatives to
      exercise, and no course of dealing with respect to, and no delay in exercising,
      any right, power or remedy hereunder shall operate as a waiver thereof, nor
      shall any single or partial exercise by the Secured Party or any of its
      Representatives of any right, power or remedy hereunder preclude any other
      or
      further exercise thereof or the exercise of any other right, power or remedy.
      The rights and remedies hereunder provided are cumulative and may be exercised
      singly or concurrently, and are not exclusive of any rights and remedies
      provided by law.

     

    5.2
      Governing
      Law.
      All
      questions concerning the construction, validity, enforcement and interpretation
      of this Agreement shall be governed by the internal laws of the State of New
      York, without giving effect to any choice of law or conflict of law provision
      or
      rule (whether of the State of New York or any other jurisdiction) that would
      cause the application of the laws of any jurisdiction other than the State
      of
      New York.

     

    5.3
      Notices.
      All
      notices, approvals, requests, demands and other communications hereunder shall
      be delivered or made in the manner set forth in, and shall be effective in
      accordance with the terms of, the Purchase Agreement; provided, that, to the
      extent any such communication (i) is being made or sent to a Debtor that is
      not
      the Company, such communication shall be effective as to such Debtor if made
      or
      sent to the Company in accordance with the foregoing or (ii) is being made
      or
      sent to Collateral Agent, such communication shall be made to Collateral Agent
      at the address set forth below Collateral Agent’s signature hereto. Debtors
      and Collateral Agent may change their respective notice addresses by written
      notice given to each other party five (5) days prior to the effectiveness of
      such change.

     

    5.4
      Amendments,
      Etc.
      The
      terms of this Agreement may be waived, altered or amended only by an instrument
      in writing duly executed by the Debtor sought to be charged or benefited thereby
      and the Secured Party. Any such amendment or waiver shall be binding upon the
      Secured Party and the Debtor sought to be charged or benefited thereby and
      their
      respective successors and assigns.

     

    5.5
      Successors
      and Assigns.
      This
      Agreement shall be binding upon and inure to the benefit of the respective
      successors and assigns of each of the parties hereto, provided,
      that no
      Debtor shall assign or transfer its rights hereunder without the prior written
      consent of the Secured Party. Secured
      Party, in its capacity as collateral agent, may assign its rights hereunder
      without the consent of Debtors, in which event such assignee shall be deemed
      to
      be Secured Party hereunder with respect to such assigned rights.

     

    5.6
      Counterparts;
      Headings.
      This
      Agreement may be authenticated in any number of counterparts, all of which
      taken
      together shall constitute one and the same instrument and any of the parties
      hereto may authenticate this Agreement by signing any such counterpart. This
      Agreement may be authenticated by manual signature or facsimile, .pdf or similar
      electronic signature, all of which shall be equally valid. The headings in
      this
      Agreement are for convenience of reference only and shall not alter or otherwise
      affect the meaning hereof.

     

    
      
        
        

      

      
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    5.7
      Severability.
      If any
      provision hereof is invalid and unenforceable in any jurisdiction, then, to
      the
      fullest extent permitted by law, (a) the other provisions hereof shall remain
      in
      full force and effect in such jurisdiction and shall be liberally construed
      in
      favor of the Secured Party and its Representative in order to carry out the
      intentions of the parties hereto as nearly as may be possible and (b) the
      invalidity or unenforceability of any provision hereof in any jurisdiction
      shall
      not affect the validity or enforceability of such provision in any other
      jurisdiction.

     

    5.8
      SUBMISSION
      TO JURISDICTION; WAIVER OF VENUE; SERVICE OF PROCESS.
      

     

    EACH
      DEBTOR HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF ANY UNITED
      STATES FEDERAL OR NEW YORK STATE COURT SITTING IN THE CITY OF NEW YORK, BOROUGH
      OF MANHATTAN IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
      AGREEMENT AND EACH DEBTOR HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT
      OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT
      AND
      IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE
      OF
      ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT
      IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF SECURED PARTY
      TO BRING PROCEEDINGS AGAINST ANY DEBTOR IN THE COURTS OF ANY OTHER JURISDICTION.
      ANY JUDICIAL PROCEEDING BY A DEBTOR AGAINST SECURED PARTY, ANY BUYER OR ANY
      AFFILIATE THEREOF INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY
      ARISING OUT OF, RELATED TO, OR CONNECTION WITH THIS AGREEMENT SHALL BE BROUGHT
      ONLY IN A COURT IN NEW YORK, NEW YORK (AND SECURED PARTY AND BUYERS HEREBY
      SUBMIT TO THE JURISDICTION OF SUCH COURT). EACH PARTY HERETO HEREBY IRREVOCABLY
      WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN
      ANY
      SUCH ACTION OR PROCEEDING BY MAILING A COPY THEREOF TO SUCH PARTY AT THE ADDRESS
      FOR NOTICES TO IT IN ACCORDANCE WITH SECTION 5.3 OF THIS AGREEMENT AND AGREES
      THAT SUCH NOTICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND
      NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY
      ANY
      RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.

     

    
      
        
        

      

      
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    5.9
      WAIVER
      OF RIGHT TO TRIAL BY JURY.
      EACH DEBTOR AND SECURED PARTY EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL
      BY
      JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED
      TO
      THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY, IN ANY ACTION,
      PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST
      ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
      CLAIMS, OR OTHERWISE. EACH DEBTOR AND SECURED PARTY EACH AGREE THAT ANY SUCH
      CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT
      LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT
      TO
      A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION
      5.9
      AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR
      IN
      PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR ANY
      PROVISION HEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
      RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. 

     

    5.10 Joint
      and Several.
      The
      obligations, covenants and agreements of Debtors hereunder shall be the joint
      and several obligations, covenants and agreements of each Debtor, whether or
      not
      specifically stated herein without preferences or distinction among
      them.

     

    5.11 Collateral
      Agent and Buyer Indemnification.

     

    (a) Each
      Buyer
      hereby irrevocably appoints and authorizes the Secured Party to act as
      collateral agent (the “Collateral
      Agent”)
      on its
      behalf under this Agreement and to enter into each of the instruments, documents
      and agreements, including any pledge agreement, guaranty, financing statements,
      mortgage, Account Control Agreement or any other Security Documents (the
“Financing
      Documents”),
      to
      which Secured Party is a party (including in its capacity as Collateral Agent)
      on such Buyer’s behalf and to take such actions as Collateral Agent on such
      Buyer’s behalf and to exercise such powers under the Financing Documents as are
      delegated to Collateral Agent or Secured Party (as applicable) by the terms
      thereof, together with all such powers as are reasonably incidental thereto.
      The
      Collateral Agent shall take such action under this Agreement and/or any other
      Transaction Documents as the Collateral Agent shall reasonably be directed
      by
      the Requisite Buyers in accordance with the terms of the Transaction Documents.
      Secured Party is authorized and empowered to amend, modify, or waive any
      provisions of this Agreement or the other Financing Documents only with the
      consent of the Requisite Buyers.

     

    
      
        
        

      

      
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    (b) Whether
      or not the transactions contemplated hereby shall be consummated, upon demand
      therefor Buyers shall indemnify the Collateral Agent (to the extent not
      reimbursed by or on behalf of the Company and without limiting the obligation
      of
      the Company to do so), ratably from and against any and all liabilities,
      obligations, losses, damages, penalties, actions, judgments, suits, costs,
      expenses and disbursements of any kind whatsoever, including, for purposes
      of
      clarification, all Taxes, which may at any time (including at any time following
      the payment in full of the Notes and the termination or resignation of the
      Collateral Agent) be imposed on, incurred by or asserted against the Collateral
      Agent in any way relating to or arising out of this Agreement, any other
      Financing Document or any document contemplated hereby or referred to herein
      or
      the transactions contemplated hereby or thereby or any action taken or omitted
      by the Collateral Agent under or in connection with any of the foregoing;
provided,
      however,
      that no
      Buyer shall not be liable for the payment to the Collateral Agent of any portion
      of such liabilities, obligations, losses, damages, penalties, actions,
      judgments, suits, costs, expenses or disbursements resulting solely from the
      Collateral Agent’s gross negligence or willful misconduct. In addition, each
      Buyer shall reimburse the Collateral Agent upon demand for its ratable share
      of
      any costs or out-of-pocket expenses (including attorney costs) incurred by
      the
      Collateral Agent in connection with the preparation, execution, delivery,
      administration, modification, amendment or enforcement (whether through
      negotiations, legal proceedings or otherwise) of, or legal advice in respect
      of
      rights or responsibilities under, this Agreement, any other Transaction
      Document, or any document contemplated hereby or referred to herein to the
      extent that the Collateral Agent is not reimbursed for such expenses by or
      on
      behalf of the Company. Without limiting the generality of the foregoing, if
      any
      Governmental Authority of any jurisdiction asserts a claim that the Collateral
      Agent did not properly withhold tax from amounts paid to or for the account
      of
      any Buyer (because the appropriate form was not delivered, was not properly
      executed, or because such Buyer failed to notify the Collateral Agent of a
      change in circumstances which rendered the exemption from, or reduction of,
      withholding tax ineffective, or for any other reason) such Buyer shall indemnify
      the Collateral Agent fully for all amounts paid, directly or indirectly, by
      the
      Collateral Agent as tax or otherwise, including penalties and interest, and
      including any taxes imposed by any jurisdiction on the amounts payable to the
      Collateral Agent under this Section
      5.11(b),
      together with all related costs and expenses (including attorney costs). The
      obligation of Buyers in this Section
      5.11(b)
      shall
      survive the payment of all Liabilities hereunder.

     

    (c) The
      Collateral Agent shall not be deemed to have knowledge or notice of the
      occurrence of any Event of Default or any event that with the giving of notice
      or passage of time would constitute an Event of Default unless the Collateral
      Agent shall have received written notice from a Buyer describing such Event
      of
      Default or event that with the giving of notice or passage of time would
      constitute an Event of Default and stating that such notice is a “notice of
      default”. Upon the occurrence and continuance of an Event of Default, or an
      event that with the giving of notice or passage of time would constitute an
      Event of Default, the Collateral Agent shall take such action under this
      Agreement and/or any other Transaction Documents with respect to such Event
      of
      Default or event that with the giving of notice or passage of time would
      constitute an Event of Default as Collateral Agent shall reasonably be directed
      by the Requisite Buyers in accordance with the terms of the Transaction
      Documents, provided that unless and until the Collateral Agent shall have
      received such directions, the Collateral Agent may (but shall not be obligated
      to) take such action, or refrain from taking such action, with respect of such
      Event of Default or event that with the giving of notice or passage of time
      would constitute an Event of Default or as the Collateral Agent shall deem
      advisable in the best interests of Buyers. In taking such action or refraining
      from taking such action without specific direction from the Requisite Buyers,
      the Collateral Agent shall use the same degree of care and skill as a prudent
      person would exercise or use under the circumstances in the conduct of such
      person’s own affairs.

     

    
      
        
        

      

      
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    (d) Nothing
      in this Section
      5.11
      shall be
      deemed to limit or otherwise affect the rights of Secured Party or Buyers to
      exercise any remedy provided in this Agreement or any other Transaction
      Document.

     

    (e) The
      Collateral Agent may resign from the performance of all of its functions and
      duties hereunder and/or under the other Financing Documents at any time by
      giving thirty (30) Business Days prior written notice to Buyers. Such
      resignation shall take effect upon the appointment of a successor Collateral
      Agent pursuant to clause (f) below or as otherwise provided below. 

     

    (f) Upon
      (i)
      Buyers’ receipt of a notice of resignation by the Collateral Agent in accordance
      with clause (e) above, or (ii) written notice by the Requisite Buyers to
      Collateral Agent of the Requisite Buyers’ election to remove the existing
      Collateral Agent and appoint a successor Collateral Agent, the Requisite Buyers
      shall have the right to appoint a successor Collateral Agent. Upon the
      acceptance of a successor's appointment as Collateral Agent hereunder and notice
      of such acceptance to the retiring Collateral Agent, such successor shall
      succeed to and become vested with all of the rights, powers, privileges and
      duties of the retiring (or retired) Collateral Agent, the retiring Collateral
      Agent's resignation shall become immediately effective and the retiring
      Collateral Agent shall be discharged from all of its duties and obligations
      hereunder and under the other Financing Documents (if such resignation was
      not
      already effective and such duties and obligations not already discharged, as
      provided below in this paragraph). If no such successor shall have been so
      appointed by the Requisite Buyers and shall have accepted such appointment
      within thirty (30) days after the retiring Collateral Agent gives notice of
      its
      resignation or the Requisite Buyers give notice of their election to replace
      the
      retiring Collateral Agent, then the retiring Collateral Agent may, on behalf
      of
      Buyers (but without any obligation) appoint a successor Collateral Agent without
      the consent of any Buyer. From and following the expiration of such thirty
      (30)
      day period, Collateral Agent shall have the exclusive right without any Person's
      consent, upon one (1) Business Days' notice to Buyers, to make its resignation
      or removal effective immediately. From and following the effectiveness of such
      notice, (i) the retiring Collateral Agent shall be discharged from its
      duties and obligations hereunder and under the other Financing Documents and
      (ii) all actions, payments, communications and determinations provided to
      be made by, to or through Collateral Agent shall instead be made by or to each
      Buyer directly, until such time as the Requisite Buyers appoint a Collateral
      Agent as provided for above in this paragraph. The provisions of this Agreement
      shall continue in effect for the benefit of any retiring Collateral Agent and
      its sub-agents after the effectiveness of its resignation or removal hereunder
      and under the other Financing Documents in respect of any actions taken or
      omitted to be taken by any of them while the retiring Collateral Agent was
      acting or was continuing to act as Collateral Agent.

     

    
      
        
        

      

      
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    5.12 No
      Strict Construction.
      The
      language used in this Agreement will be deemed to be the language chosen by
      the
      parties to express their mutual intent, and no rules of strict construction
      will
      be applied against any party.

     

    5.13 ENTIRE
      AGREEMENT; AMENDMENT.
      THIS AGREEMENT, TOGETHER WITH THE OTHER TRANSACTION DOCUMENTS, SUPERSEDES ALL
      OTHER PRIOR ORAL OR WRITTEN AGREEMENTS BETWEEN SECURED PARTY, THE OBLIGORS,
      THEIR AFFILIATES AND PERSONS ACTING ON THEIR BEHALF WITH RESPECT TO THE MATTERS
      DISCUSSED HEREIN, AND THIS AGREEMENT, TOGETHER WITH THE OTHER TRANSACTION
      DOCUMENTS AND THE OTHER INSTRUMENTS REFERENCED HEREIN AND THEREIN, CONTAIN
      THE
      ENTIRE UNDERSTANDING OF THE PARTIES WITH RESPECT TO THE MATTERS COVERED HEREIN
      AND THEREIN AND, EXCEPT AS SPECIFICALLY SET FORTH HEREIN OR THEREIN, NEITHER
      THE
      SECURED PARTY NOR ANY OBLIGOR MAKES ANY REPRESENTATION, WARRANTY, COVENANT
      OR
      UNDERTAKING WITH RESPECT TO SUCH MATTERS. AS OF THE DATE OF THIS AGREEMENT,
      THERE ARE NO UNWRITTEN AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE MATTERS
      DISCUSSED HEREIN. NO PROVISION OF THIS AGREEMENT MAY BE AMENDED, MODIFIED OR
      SUPPLEMENTED OTHER THAN BY AN INSTRUMENT IN WRITING SIGNED BY THE OBLIGORS
      AND
      THE SECURED PARTY.

     

    -
      Remainder of Page Intentionally Left Blank; Signature Page Follows
      -

     

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the parties hereto have caused this Security Agreement to
      be
      duly executed and delivered as of the day and year first above
      written.

     

    
      	 	
              DEBTORS:

            
	 	 
	 	
              SONTERRA
                RESOURCES, INC.,
                a
                Delaware

              corporation

            
	 	 
	 	
              By:

            	 
	 	
              Name: 
                D.E. Vandenberg

            
	 	
              Title:   
                President

            
	 	
              FEIN:
                26-0380344

            
	 	 
	 	
              NORTH
                TEXAS DRILLING SERVICES, INC.,
                a

              Texas
                corporation

            
	 	 
	 	
              By:

            	 
	 	
              Name:

            	 
	 	
              Title:

            	 
	 	
              FEIN:
                

            	 
	 	 
	 	
              SONTERRA
                OPERATING, INC.,
                a
                Delaware

              corporation

            
	 	 
	 	
              By:

            	 
	 	
              Name:

            	 
	 	
              Title:

            	 
	 	
              FEIN:
                

            	 
	 	 
	 	
              VELOCITY
                ENERGY LIMITED LLC,
                a
                Texas

              limited
                liability company

            
	 	 
	 	
              By:

            	 
	 	
              Name:

            	 
	 	
              Title:

            	 
	 	
              FEIN:
                

            	 
	 	 
	 	
              VELOCITY
                ENERGY INC.,
                a
                Delaware

              corporation

            
	 	 
	 	
              By:

            	 
	 	
              Name:

            	 
	 	
              Title:

            	 
	 	
              FEIN:
                

            	 

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	 	
              VELOCITY
                ENERGY OFFSHORE LP,
                a

              Delaware
                limited partnership

            
	 	 
	 	
              By:

            	 
	 	
              Name:

            	 
	 	
              Title:

            	 
	 	
              FEIN:
                

            	 
	 	 
	 	
              VELOCITY
                ENERGY PARTNERS LP,
                a

              Delaware
                limited partnership

            
	 	 
	 	
              By:

            	 
	 	
              Name:

            	 
	 	
              Title:

            	 
	 	
              FEIN:
                

            	 

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	 	
              SECURED
                PARTY:

            
	 	 
	 	
              SUMMERLINE
                ASSET MANAGEMENT, LLC, a
                
Delaware limited liability company, in its capacity as 
Collateral
                Agent for Buyers

            
	 	 
	 	
              By:

            	 
	 	
              Name: 
                Robert J. Brantman

            
	 	
              Title:   
                Co-Managing Member

            
	 	 
	 	
              Notice
                Address:

            
	 	 
	 	
              Summerline
                Asset Management, LLC

            
	 	
              70
                West Red Oak Lane, 4th Floor

            
	 	
              White
                Plains, New York 10604

            
	 	
              Attention:
                Robert J. Brantman

            
	 	
              Telecopy:
                (914) 697-4767

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the parties hereto have caused this Security Agreement to
      be
      duly executed and delivered as of the day and year first above
      written.

    

    
      	 	
              BUYER(S):

            
	 	 
	 	
              Solely
                for the purposes of Section
                5.11

            
	 	 
	 	
              LONGVIEW
                MARQUIS MASTER

              FUND,
                L.P.,
                a
                British Virgin Island limited

              partnership,
                as a Buyer

            
	 	 
	 	
              By:
                Viking Asset Management, LLC

            
	 	
              Its:
                Investment Adviser

            
	 	 
	 	
              By:

            	 
	 	
              Name: 
                S. Michael Rudolph

            
	 	
              Title:   
                Chief Financial Officer

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    EXHIBIT
      A

    

    Form
      of
      Joinder

    Joinder
      to Security Agreement

    

    The
      undersigned, ______________________________, hereby joins in the execution
      of
      that certain Security Agreement dated as of November 13, 2008 (as amended,
      restated, supplemented or otherwise modified from time to time, the
“Security
      Agreement”)
      by
      Sonterra Resources, Inc., a Delaware corporation, North Texas Drilling Services,
      Inc., a Texas corporation, Buyers (as defined therein), and each other Person
      that becomes a Debtor or a Buyer thereunder after the date thereof and hereof
      and pursuant to the terms thereof, to and in favor of Summerline Asset
      Management, LLC, in
      its
      capacity as Collateral Agent for Buyers.
      By
      executing this Joinder, the undersigned hereby agrees that it is a Debtor
      thereunder and agrees to be bound by all of the terms and provisions of the
      Security Agreement. The undersigned represents and warrants that the
      representations and warranties set forth in the Security Agreement are, with
      respect to the undersigned, true and correct as of the date hereof.

    

    The
      undersigned represents and warrants to Secured Party that:

    

    (a) all
      of
      the Equipment, Inventory and Goods owned by such Debtor is located at the places
      as specified on Schedule
      I
      and such
      Debtor conducts business in the jurisdiction set forth on Schedule
      I;
      

    

    (b) except
      as
      disclosed on Schedule
      I,
      none of
      such Collateral is in the possession of any bailee, warehousemen, processor
      or
      consignee; 

    

    (c) the
      chief
      place of business, chief executive office and the office where such Debtor
      keeps
      its books and records are located at the place specified on Schedule
      I;

    

    (d) such
      Debtor (including any Person acquired by such Debtor) does not do business
      or
      has not done business during the past five years under any tradename or
      fictitious business name, except as disclosed on Schedule
      II;

    

    (e) all
      Copyrights, Patents and Trademarks owned or licensed by the undersigned are
      listed in Schedules
      III,
      IV
      and
V,
      respectively;

    

    (f) all
      Deposit Accounts, securities accounts, brokerage accounts and other similar
      accounts maintained by such Debtor, and the financial institutions at which
      such
      accounts are maintained, are listed on Schedule
      VI;

    

    (g) all
      Commercial Tort Claims of such Debtor are listed on Schedule
      VII;

    

    (h) all
      interests in real property and mining rights held by such Debtor are listed
      on
Schedule
      VIII;
      

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (i) all
      Equipment (including Motor Vehicles) owned by such debtor are listed on
Schedule
      IX.

    

    
      	 	
              _______________________________,
                a ________ 

            
	 	 
	 	
              By:

            	 
	 	
              Title: 

            	 
	 	
              FEIN: 

            	 

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    SCHEDULE
      I

    TO
      

    SECURITY
      AGREEMENT

    

    UCC
      Financing Statements; Location of Equipment, Inventory, Goods and Books and
      Records; Goods in Possession of Consignees, Bailees, Warehousemen, Agents and
      Processors; Debtors’ Legal Names; State of Incorporation; Organizational
      Identification Number; Chief Executive Office.

    

    I. DEBTOR:
      

    

    
      	
              1

            	
              Legal
                Name of Debtor:

            	 
	 	 	 
	
              2

            	
              State
                of Incorporation:

            	 
	 	 	 
	
              3

            	
              Organizational
                Identification Number:

            	 
	 	 	 
	
              4

            	
              Chief
                Executive Office:

            	 
	 	 	 
	
              5

            	
              Location
                of Books and Records:

            	 
	 	 	 
	
              6

            	
              Locations
                of Equipment, Inventory and Goods:

            	 
	 	 	 
	
              7

            	
              Locations
                of Goods in Possession of Consignees, Bailees, Warehousemen, Agents
                and
                Processors (including names of such consignees, bailees, etc.):
                

            	 
	 	 	 
	
              8

            	
              Jurisdictions
                For UCC Filings:

            	 

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      II

    TO
      

    SECURITY
      AGREEMENT

    

    Tradenames
      and Fictitious Names

    (Present
      and Past Five Years)

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      III

    TO
      

    SECURITY
      AGREEMENT

    

    U.S.
      Copyright Registrations; Foreign Copyright Registrations; U.S. Copyright
      Applications; Foreign Copyright Applications; Copyright
      Licenses

    

    U.S.
      Copyright Registrations

    

    Foreign
      Copyright Registrations

    

    U.S.
      Copyright Applications

    

    Foreign
      Copyright Applications

    

    Copyright
      Licenses

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      IV

    TO
      

    SECURITY
      AGREEMENT

    

    U.S.
      Patent Registrations; Foreign Patent Registrations; U.S. Patent Applications;
      Foreign Patent Applications; Patent Licenses

    

    U.S.
      Patent Registrations

    

    Foreign
      Patent Registrations

    

    U.S.
      Patent Applications

    

    Foreign
      Patent Applications

    

    Patent
      Licenses

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      V

    TO
      

    SECURITY
      AGREEMENT

    

    U.S.
      Trademark Registrations; Foreign Trademark Registrations; U.S. Trademark
      Applications; Foreign Trademark Applications; Trademark
      Licenses

    

    U.S.
      Trademark Registrations

    

    Foreign
      Trademark Registrations

    

    U.S.
      Trademark Applications

    

    Foreign
      Trademark Applications

    

    Trademark
      Licenses

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      VI

    TO
      

    SECURITY
      AGREEMENT

    

    Depository
      Accounts and Other Accounts

    

    
      	
              Name
                of Account

              Holder

            	 	
              Bank

            	 	
              Type
                of Account (with

              general
                description)

            	 	
              Account

              Number

            
	 	 	 	 	 	 	 

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      VII

    TO
      

    SECURITY
      AGREEMENT

    

    Commercial
      Tort Claims

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      VIII

    TO
      

    SECURITY
      AGREEMENT

    

    Interests
      in Real Property and Mineral Interests

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      IX

    TO
      

    SECURITY
      AGREEMENT

    

    Titled
      Equipment

    

    [To
      be
      completed]

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00150-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00150-of-00352.parquet"}]]