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.

     

    THIS
      NOTE AND THE INDEBTEDNESS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER AND
      TO
      THE EXTENT SET FORTH IN THAT CERTAIN SUBORDINATION AGREEMENT (THE “SUBORDINATION
      AGREEMENT”) DATED AS OF NOVEMBER 13, 2008 AMONG SONTERRA RESOURCES, INC., A
      DELAWARE LIMITED LIABILITY COMPANY, LONGVIEW MARQUIS MASTER FUND L.P., A BRITISH
      VIRGIN ISLANDS LIMITED PARTNERSHIP, THE LONGVIEW FUND, L.P., A CALIFORNIA
      LIMITED PARTNERSHIP, AND SUMMERLINE ASSET MANAGEMENT LLC, A DELAWARE LIMITED
      LIABILITY COMPANY, TO THE SENIOR INDEBTEDNESS (AS DEFINED IN THE SUBORDINATION
      AGREEMENT); AND EACH HOLDER OF THIS NOTE, BY ITS ACCEPTANCE HEREOF, SHALL BE
      BOUND BY THE PROVISIONS OF THE SUBORDINATION AGREEMENT.

     

    SUBORDINATED
      NOTE

     

    November
      13, 2008

    

      
        	
                Note
                  No.: SUB-001

              	
                $9,440,000

              

      

    

     

    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 Nine Million Four Hundred Forty Thousand Dollars
      ($9,440,000) 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 Exchange Agreement (as defined in Section
      2)
      on the Closing Date (as defined in the Securities Exchange 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 Exchange 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
      Exchange 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.

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    (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 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 Exchange 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.

     

    (f) “Conversion
      Price”
means
      $4.00, subject to adjustment as provided in Section
      3(e)(iii).
      

     

    (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 FC
      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.

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (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
      U.S. Dollars.

     

    (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 Exchange Agreement or 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, and (ii) so long as the Senior Notes remain
      outstanding, (A) are party to the Guaranty and the Security Agreement, and
      (B)
      in all of the assets of which the holders of the Senior 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. 

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (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.

     

    (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 quarter, commencing with the calendar quarter
      ending June 30, 2009, until this Note has been repaid in full.

     

    (v) “Interest
      Rate”
means
      eleven percent (11.0%) per annum, subject to adjustment as provided in Section
      3(b)(iii). 

     

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

     

    (x) “Maturity
      Date”
means
      November 13, 2012, unless such date is not a Business Day, in which case
“Maturity Date” shall mean the first Business Day following November 13,
      2012.

     

    (y) “Original
      Principal Amount”
means
      Nine Million Four Hundred Forty Thousand Dollars ($9,440,000).

     

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

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    (aa) “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 FC 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.

     

    (bb) “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.

     

    (cc) “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.
      

     

    (dd) “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.

     

    (ee) “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.

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    (ff) “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.

     

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

     

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

     

    (ii) “Principal
      Market”
means,
      with respect to the Common Stock or any other security, the principal securities
      exchange or trading market for the Common Stock or such other security.

     

    (jj) “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.

     

    (kk) “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.

     

    (ll) “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
      Senior 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 

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    (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

     

    (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
      sixty
      (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

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    (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.

            

    

     

    (mm) “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.

     

    (nn) “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

            

    

     

    (oo) “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):

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    
      	
              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

            	 

    

     

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

     

    (qq) “Trading
      Day”
means
      any day on which the Common Stock is traded on its Principal Market; provided
      that “Trading Day” shall not include any day on which the Common Stock is
      scheduled to trade, or actually trades, on its Principal Market for less than
      4.5 hours.

     

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

     

    (ss) “Weighted
      Average Price”
means,
      for any security as of any date, the dollar volume-weighted average price for
      such security on its Principal Market during the period beginning at 9:30 a.m.
      New York City time (or such other time as its Principal Market publicly
      announces is the official open of trading) and ending at 4:00 p.m. New York
      City
      time (or such other time as its Principal Market publicly announces is the
      official close of trading) as reported by Bloomberg Financial Markets (or any
      successor thereto) (“Bloomberg”) through its “Volume at Price” functions, or if
      the foregoing does not apply, the dollar volume-weighted average price of such
      security in the over-the-counter market on the electronic bulletin board for
      such security during the period beginning at 9:30 a.m. New York City time (or
      such other time as such over-the-counter market publicly announces is the
      official open of trading), and ending at 4:00 p.m. New York City time (or such
      other time as such over-the-counter market publicly announces is the official
      close of trading) as reported by Bloomberg, or, if no dollar volume-weighted
      average price is reported for such security by Bloomberg for such hours, the
      average of the highest closing bid price and the lowest closing ask price of
      any
      of the market makers for such security as reported in the “pink sheets” by the
      National Quotation Bureau, Inc. If the Weighted Average Price cannot be
      calculated for such security on such date on any of the foregoing bases, the
      Weighted Average Price of such security on such date shall be the fair market
      value as mutually determined by the Company and the Holder. If the Company
      and
      the Holder are unable to agree upon the fair market value of such security,
      then
      such dispute shall be resolved pursuant to Section 3(e)(ii)(D)(I). All such
      determinations shall be appropriately adjusted for any stock dividend, stock
      split, stock combination or other similar transaction during any period during
      which the Weighted Average Price is being determined.

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (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 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. 

     

    (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.

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

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

     

    (i) On
      the
      second Business Day (a “Financial
      Covenant Test Certification Date”)
      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(b)(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 (a “Financial
      Covenant Test Failure Prepayment”),
      on
      the Financial Covenant Test Certification Date (in each such case a
“Financial
      Covenant Test Prepayment Date”)
      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.

     

    (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.

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    (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 eleven percent (11.0%), 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
      eleven percent (11.0%) (or, if already at eleven percent (11.0%), 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.

     

    (c) Scheduled
      Payment on the 36-Month Anniversary of the Issuance Date.
      If any
      Principal remains outstanding on the date (the “Mandatory
      Early Redemption Date”)
      that
      is the 36-month anniversary of the Issuance Date, then the Company shall redeem
      (a “Mandatory
      Early Redemption”)
      a
      principal amount of this Note (the “Mandatory
      Early Redemption Principal Amount”)
      equal
      to the lesser of (i) the Principal on the Mandatory Early Redemption Date and
      (ii) the result of (A) 25% of the Original Principal Amount, minus (B) the
      aggregate principal amount of this Note prepaid by the Company to the Holder
      pursuant to Section
      3(a)
      prior to
      the Mandatory Early Redemption Date (but not subtracting any amounts paid by
      the
      Company to the Holder pursuant to Section
      3(b)),
      by
      payment on the Mandatory Early Redemption Date to the Holder, by wire transfer
      of immediately available funds, of an amount (the “Mandatory
      Early Redemption Amount”)
      equal
      to the sum
      of
      (x) the
      Mandatory Early Redemption Principal Amount and (y) the Interest Amount with
      respect thereto. The failure of the Company to pay the Mandatory Early
      Redemption Amount on the Mandatory Early Redemption Date shall constitute an
      Event of Default, and any portion of the Mandatory Early Redemption Amount
      not
      paid on the Mandatory Early Redemption Date shall bear interest at the Default
      Rate until paid in full. 

     

    (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 Exchange Agreement and the other Transaction Documents.
      

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    (e) Holder’s
      Conversion Right.
      This
      Note shall be converted into Shares on the terms and conditions set forth in
      this Section
      3(e).

     

    (i) Conversion
      at Option of the Holder.
      Subject
      to the provisions of Section
      6,
      in
      connection with the payment of Principal (and the Interest Amount relating
      thereto) in connection with any Optional Prepayment, Financial Covenant Test
      Failure Prepayment or Mandatory Early Redemption or on the Maturity Date, the
      Holder shall be entitled to convert up to fifty percent (50%) of the Principal
      (and the Interest Amount relating thereto) to be paid on the Optional Prepayment
      Date, Financial Covenant Test Failure Prepayment Date, Mandatory Early
      Redemption Date or Maturity Date (each, a “Principal Payment
      Date”),
      as
      applicable, into fully paid and nonassessable shares of Common Stock in
      accordance with this Section
      3(e)
      (the
“Investor
      Share Option”),
      at
      the Conversion Price. The Company shall not issue any fraction of a share of
      Common Stock upon any conversion. If the issuance would result in the issuance
      of a fraction of a share of Common Stock, then the Company shall round such
      fraction up or down to the nearest whole share (with 0.5 rounded
      up).

     

    (ii) Mechanics
      of Conversion.
      The
      conversion of this Note shall be conducted in the following manner:

     

    (A) Holder’s
      Delivery Requirements.
      To
      convert an amount of Principal (and the Interest Amount relating thereto) (any
      such amount, the “Conversion
      Amount”),
      representing up to fifty percent (50%) of the Principal (and the Interest Amount
      relating thereto) to be paid on any Principal Prepayment Date into shares of
      Common Stock (any such Prepayment Date as to which any Principal (and Interest
      Amount related thereto) is to be converted, a “Conversion
      Date”),
      the
      Holder shall transmit by facsimile (or otherwise deliver), for receipt on or
      prior to the date that is two (2) Business Day prior to the Conversion Date,
      a
      copy of an executed conversion notice in the form attached hereto as
Exhibit
      I
      (the
“Conversion
      Notice”).
      

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    (B) Company’s
      Response.
      Upon
      receipt or deemed receipt by the Company of a copy of a Conversion Notice,
      the
      Company (I) shall immediately send, via facsimile, a confirmation of receipt
      of
      such Conversion Notice to the Holder and the Company’s designated transfer agent
      (the “Transfer
      Agent”),
      which
      confirmation shall constitute an instruction to the Transfer Agent to process
      such Conversion Notice in accordance with the terms herein and (II) on the
      Conversion Date
      (A)
      provided that the Transfer Agent is participating in the DTC’s Fast Automated
      Securities Transfer Program and provided that the Holder is eligible to receive
      shares of Common Stock through the DTC, credit such aggregate number of shares
      of Common Stock to which the Holder shall be entitled to the Holder’s or its
      designee’s balance account with the DTC through its “Deposit Withdrawal Agent
      Commission” system, or (B) if the foregoing shall not apply, issue and deliver
      to the address as specified in the Conversion Notice, a certificate, registered
      in the name of the Holder or its designee, for the number of shares of Common
      Stock to which the Holder shall be entitled. 

     

    (C) Record
      Holder.
      The
      person or persons entitled to receive the shares of Common Stock issuable upon
      a
      conversion of this Note shall be treated for all purposes as the legal and
      record holder or holders of such shares of Common Stock on the Conversion
      Date.

     

    (D) Company’s
      Failure to Timely Convert.

     

    (I) Cash
      Damages.
      If, on
      any Conversion Date the Company shall fail to issue and deliver a certificate
      to
      the Holder for, or credit the Holder’s or its designee’s balance account with
      the DTC with, the number of shares of Common Stock to which the Holder is
      entitled on such Conversion Date with respect to the Holder’s conversion of any
      Conversion Amount, then in addition to all other available remedies that the
      Holder may pursue hereunder and under the Securities Purchase Agreement
      (including indemnification pursuant to Section
      10
      thereof
      or at law or in equity), the Company shall pay additional damages to the Holder
      for each day after such Conversion Date on which such conversion is not timely
      effected in an amount equal to 0.5% of the sum of the product of (I) the number
      of shares of Common Stock not issued to the Holder or its designee on such
      Conversion Date and to which the Holder is entitled and (II) the Weighted
      Average Price of the Common Stock on such Conversion Date (such product is
      referred to herein as the “Share Product Amount”). Alternatively, at the
      election of the Holder made in the Holder’s sole discretion, the Company shall
      pay to the Holder, in lieu of the additional damages referred to in the
      preceding sentence (but in addition to all other available remedies that the
      Holder may pursue hereunder and under the Securities Exchange Agreement
      (including indemnification pursuant to Section
      10
      thereof
      or at law or in equity)), 110% of the amount by which (A) the Holder’s total
      purchase price (including brokerage commissions, if any) for the shares of
      Common Stock purchased to make delivery in satisfaction of a sale by the Holder
      of the shares of Common Stock to which the Holder is entitled but has not
      received upon a conversion exceeds (B) the net proceeds received by the Holder
      from the sale of the shares of Common Stock to which the Holder is entitled
      but
      has not received upon such conversion. If the Company fails to pay the
      additional damages set forth in this Section
      3(e)(ii)(D)(I)
      within
      five (5) Business Days of the date incurred, then the Holder entitled to such
      payments shall have the right at any time, so long as the Company continues
      to
      fail to make such payments, to require the Company, upon written notice, to
      immediately issue, in lieu of such cash damages, the number of shares of Common
      Stock equal to the quotient of (X) the aggregate amount of the damages payments
      described herein divided by (Y) the Weighted Average Price of the Common Stock
      on the Trading Day immediately preceding the date of such written notice. If
      the
      Holder and the Company are unable to agree upon the determination of the
      Weighted Average Price within one Business Day of such disputed determination
      being submitted to the Holder, then the Company shall immediately submit via
      facsimile the disputed determination of the Weighted Average Price to an
      independent, reputable investment banking firm agreed to by the Company and
      the
      Holder. The Company shall cause the investment banking firm to perform the
      determination and notify the Company and the Holder of the results no later
      than
      two Business Days after the date it receives the disputed determinations. Such
      investment banking firm’s determination shall be deemed conclusive absent
      manifest error.

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    (II) Void
      Conversion Notice.
      If for
      any reason the Holder has not received all of the shares of Common Stock prior
      to the tenth (10th) Business Day after the Conversion Date with respect to
      a
      conversion of this Note, other than due to the limitation contained in
Section
      6
      or to
      the pendency of a dispute being resolved in accordance with Section
      3(e)(ii)(D)(I)
      (a
“Conversion
      Failure”),
      then
      the Holder, upon written notice to the Company (a “Void Conversion
      Notice”),
      may
      void its Conversion Notice with respect to any portion of this Note that has
      not
      been converted pursuant to the Holder’s Conversion Notice; in which case the
      Company shall immediately redeem all of the Principal with respect to which
      the
      Company has not delivered shares of Common Stock, at a price equal to the
      greater of (a) the Principal and Interest Amount thereon, with respect to which
      the Company has not delivered shares of Common Stock and (b) the product of
      (i)
      the quotient of (A) the Principal and Interest Amount thereon, with respect
      to
      which the Company has not delivered shares of Common Stock, divided by (B)
      the
      Conversion Price, multiplied by (ii) the Weighted Average Price of the Common
      Stock on the Conversion Date. The voiding of the Holder’s Conversion Notice
      shall not affect the Company’s obligations to make any payments that have
      accrued prior to the date of such notice pursuant to Section
      3(e)(ii)(A)
      or
      otherwise

     

    (E) Pro
      Rata Conversion.
      In the
      event the Company receives a Conversion Notice from more than one holder of
      the
      Notes for the same Conversion Date and the Company can convert some, but not
      all, of such Notes, then the Company shall convert from each holder of the
      Notes
      electing to have Notes converted at such time a pro rata amount of such holder’s
      Note submitted for conversion based on the principal amount of the Note
      submitted for conversion on such date by such holder relative to the aggregate
      principal amount of the Notes submitted for conversion on such
      date.

     

    (iii) Adjustments
      to Conversion Price.
      The
      Conversion Price will be subject to adjustment from time to time as provided
      in
      this Section
      3(e)(iii).

     

    (A) Adjustment
      of Conversion Price upon Subdivision or Combination of Common
      Stock.
      If the
      Company at any time on or after the Issuance Date subdivides (by any stock
      split, stock dividend, recapitalization or otherwise) outstanding shares of
      Common Stock into a greater number of shares, the Conversion Price in effect
      immediately prior to such subdivision will be proportionately reduced. If the
      Company at any time on or after the Issuance Date combines (by combination,
      reverse stock split or otherwise) its outstanding shares of Common Stock into
      a
      smaller number of shares, the Conversion Price in effect immediately prior
      to
      such combination will be proportionately increased.

     

    (B) Adjustment
      of Conversion Price upon a Distribution of Assets.
      If the
      Company at any time on or after the Issuance Date shall declare or make any
      dividend or other distribution of its assets (or rights to acquire its assets)
      to holders of Common Stock, by way of return of capital or otherwise (including
      any distribution of cash, stock or other securities, property or options by
      way
      of a dividend, spin off, reclassification, corporate rearrangement or other
      similar transaction) (a “Distribution”),
      then,
      in each such case, the Conversion Price in effect immediately prior to the
      close
      of business on the record date fixed for the determination of holders of Common
      Stock entitled to receive the Distribution shall be reduced, effective as of
      the
      close of business on such record date, to a price determined by multiplying
      such
      Conversion Price by a fraction of which (A) the numerator shall be the Weighted
      Average Price of the Common Stock on the trading day immediately preceding
      such
      record date minus the value of the Distribution (as determined in good faith
      by
      the Board) applicable to one share of Common Stock, and (B) the denominator
      shall be the Weighted Average Price of the Common Stock on the trading day
      immediately preceding such record date.

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    (C) Other
      Events.
      If any
      event occurs of the type contemplated by the provisions of this Section
      3(e)(iii)
      but not
      expressly provided for by such provisions, then the Company’s board of directors
      will make an appropriate adjustment in the Conversion Price so as to protect
      the
      rights of the Holder; provided that no such adjustment will increase the
      Conversion Price as otherwise determined pursuant to this Section
      3(e)(iii).

     

    (D) Notices.
      Promptly upon any adjustment of the Conversion Price, the Company will give
      written notice thereof to the Holder, setting forth in reasonable detail, and
      certifying, the calculation of such adjustment. The Company will give written
      notice to the Holder at least ten (10) Business Days prior to the date on which
      the Company closes its books or takes a record (I) with respect to any dividend
      or distribution upon the Common Stock, (II) with respect to any pro rata
      subscription offer to holders of Common Stock or (III) for determining rights
      to
      vote with respect to any Change of Control, dissolution or liquidation, provided
      that such information shall be made known to the public prior to or in
      conjunction with such notice being provided to the Holder. The Company will
      also
      give written notice to the Holder at least ten (10) Business Days prior to
      the
      date on which any Change of Control, dissolution or liquidation will take place,
      provided that such information shall be made known to the public prior to or
      in
      conjunction with such notice being provided to the Holder.

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    (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. Prior to the consummation of any other Organic
      Change, the Company shall make appropriate provision (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 ensure that
      the
      Holder will thereafter have the right to acquire and receive in lieu of or
      in
      addition to (as the case may be) the shares of Common Stock immediately
      theretofore acquirable and receivable upon the conversion of this Note (without
      regard to any limitations or restrictions on conversion) such shares of stock,
      securities or assets that would have been issued or payable in such Organic
      Change with respect to or in exchange for the number of shares of Common Stock
      that would have been acquirable and receivable upon the conversion of this
      Note
      as of the date of such Organic Change (without taking into account any
      limitations or restrictions on the conversion of this Note).

     

    (5) Surrender
      of Note.
      Notwithstanding anything to the contrary set forth in this Note, upon any
      redemption, repayment or conversion 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, repaid and/or converted 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
      17
      hereof)
      shall show the principal amount redeemed, repaid or converted and the dates
      of
      such redemptions, repayments or conversions so as not to require physical
      surrender of this Note upon each such redemption, repayment or conversion.
      The
      Holder and any assignee, by acceptance of this Note, acknowledge and agree
      that,
      by reason of the provisions of this paragraph, following redemption, repayment
      or conversion of any portion of this Note, the Principal may be less than the
      principal amount stated on the face hereof. 

     

    (6) Limitation
      on Conversion.
      Notwithstanding anything to the contrary set forth in this Note, the Company
      shall not effect any conversion of this Note and the Holder shall not have
      the
      right to convert Principal or any Interest Amount in excess of that portion of
      the principal or any Interest Amount that, upon giving effect to such
      conversion, would cause the aggregate number of shares of Common Stock
      beneficially owned by the Holder and its affiliates to represent 4.99% of the
      total outstanding shares of Common Stock following such conversion. For purposes
      of the foregoing proviso, the aggregate number of shares of Common Stock
      beneficially owned by the Holder and its affiliates shall include the shares
      of
      Common Stock issuable upon conversion of this Note, with respect to which the
      determination of such proviso is being made, but shall exclude the shares of
      Common Stock that would be issuable upon (i) conversion of the remaining,
      unconverted Principal (and any Interest Amount with respect thereto) and (ii)
      exercise, conversion or exchange of the unexercised, unconverted or unexchanged
      portion of any other securities of the Company (including any warrants) subject
      to a limitation on conversion, exercise or exchange analogous to the limitation
      contained herein beneficially owned by the Holder and its affiliates. Except
      as
      set forth in the preceding sentence, for purposes of this Section
      6,
      beneficial ownership shall be calculated in accordance with Section 13(d) of
      the
      1934 Act. For purposes of this Section
      6,
      in
      determining the number of outstanding shares of Common Stock, the Holder may
      rely on the number of outstanding shares of Common Stock as reflected in (1)
      the
      Company’s most recent Periodic Report, (2) a more recent public announcement by
      the Company or (3) any other notice by the Company or the transfer agent for
      the
      Common Stock setting forth the number of shares of Common Stock outstanding.
      Upon the written request of the Holder, the Company shall promptly, but in
      no
      event later than three (3) Business Days following the receipt of such request,
      confirm in writing to the Holder the number of shares of Common Stock then
      outstanding. In any case, the number of outstanding shares of Common Stock
      shall
      be determined after giving effect to the conversion, exercise or exchange of
      securities of the Company, including the Notes, by the Holder and its affiliates
      since the date as of which the number of outstanding shares of Common Stock
      was
      reported. 

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    (7) 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. 

     

    (8) Reservation
      of Shares.

     

    (a) Reservation.
      The
      Company shall, so long as any of the Notes are outstanding, take all action
      necessary to reserve and keep available out of its authorized and unissued
      Common Stock, solely for the purpose of effecting the conversion of the Notes,
      such number of shares of Common Stock as shall from time to time be sufficient
      to effect the conversion of fifty percent (50%) of all of the Principal then
      outstanding under the Notes (together with accrued and unpaid Interest
      thereon) (without
      regard to any limitations on conversions) (the “Required
      Reserve Amount”).
      The
      initial number of shares of Common Stock reserved for conversions of the Notes
      and each increase in the number of shares of Common Stock so reserved shall
      be
      allocated pro rata among the holders of the Notes based on the principal amount
      of the Notes held by each such holder at the time of issuance of the Notes
      or
      increase in the number of reserved shares of Common Stock, as the case may
      be.
      In the event the holder of any Note shall sell or otherwise transfer any portion
      of such holder’s Note, each transferee shall be allocated a pro rata portion of
      the number of shares of Common Stock reserved for such transferor. Any shares
      of
      Common Stock reserved and allocated to any Person that ceases to hold any Notes
      shall be allocated to the remaining holders of the Notes, pro rata based on
      the
      principal amount of the Notes then held by such holders.

     

    (b) Insufficient
      Authorized Shares.
      If at
      any time while any of the Notes remain outstanding the Company does not have
      a
      sufficient number of authorized and unreserved shares of Common Stock to satisfy
      its obligation to reserve for issuance upon conversion of the Notes at least
      a
      number of shares equal to the Required Reserve Amount, then the Company shall
      immediately take all action necessary to increase the Company’s authorized
      shares of Common Stock to an amount sufficient to allow the Company to reserve
      the Required Reserve Amount for the Notes then outstanding. 

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    (9) 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. 

     

    (10) 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, Mandatory Early
      Redemption Amount 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 Senior 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; 

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    (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 Securities Exchange 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; 

     

    (ix) the
      Company breaches, or otherwise does not comply with, any of the provisions
      of
      Section 5 of
      the
      Securities Exchange Agreement; 

     

    (x) 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; 

     

    (xi) there
      shall occur a Change of Control; 

     

    (xii) any
      representation, warranty, certification or statement made by the Company or
      any
      of the Subsidiaries in the Securities Exchange Agreement, the Warrants, this
      Note 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); 

     

    (xiii) 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); 

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    (xiv) 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; 

     

    (xv) the
      Company fails to deliver an Officer’s Certificate pursuant to Section 3(b)(i)
      within five (5) days after the date such Officer’s Certificate is required to be
      delivered pursuant to Section 3(b)(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(b)(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;
      or

     

    (xvi) a
      Conversion Failure.

     

    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 10(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 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 10(b) shall be
      accompanied by the Prepayment Premium in respect thereof. Nothing in this
      Section 10 shall limit any other rights the Holder may have under this Note
      or
      the other Transaction Documents.

     

    (11) Change
      in 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.

     

    (12) 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.

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    (13) 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 Exchange Agreement 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.

     

    (14) 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 Exchange Agreement and
      shall not be construed against any person as the drafter hereof.

     

    (15) 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.

     

    (16) 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 Exchange Agreement.

     

    (17) 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 Exchange Agreement, without the consent of the
      Company; provided however, that no such transfer shall increase the liability
      of
      the Company under Section 21(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. 

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

     

    (18) Payment
      of Collection, Enforcement and Other Costs.
      Without
      limiting the provisions of the Securities Exchange Agreement 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.

     

    (19) 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.

     

    (20) 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.

     

    (21) 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 Exchange Agreement 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 Exchange Agreement
      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.

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

     

    (22) 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 Securities Exchange
      Agreement and the other Transaction Documents.

     

    (23) 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.

     

    (24) 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.

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

     

    (25) 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. 

     

    (26) 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. 

     

    (27) 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
      ]

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

     

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

     

    
      	
              SONTERRA
                RESOURCES INC.,
                

            
	
              a
                Delaware corporation

            
	 
	
              By:

            	 
	
              Name:
                D. E. Vandenberg

            
	
              Title:
                President

            

    

    
      
        
        

      

      
        27THE
      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.

    

    THIS
      NOTE AND THE INDEBTEDNESS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER AND
      TO
      THE EXTENT SET FORTH IN THAT CERTAIN SUBORDINATION AGREEMENT (THE “SUBORDINATION
      AGREEMENT”) DATED AS OF NOVEMBER 13, 2008 AMONG SONTERRA RESOURCES, INC., A
      DELAWARE LIMITED LIABILITY COMPANY, LONGVIEW MARQUIS MASTER FUND L.P., A BRITISH
      VIRGIN ISLANDS LIMITED PARTNERSHIP, THE LONGVIEW FUND, L.P., A CALIFORNIA
      LIMITED PARTNERSHIP, AND SUMMERLINE ASSET MANAGEMENT LLC, A DELAWARE LIMITED
      LIABILITY COMPANY, TO THE SENIOR INDEBTEDNESS (AS DEFINED IN THE SUBORDINATION
      AGREEMENT); AND EACH HOLDER OF THIS NOTE, BY ITS ACCEPTANCE HEREOF, SHALL BE
      BOUND BY THE PROVISIONS OF THE SUBORDINATION AGREEMENT.

    

    SUBORDINATED
      NOTE

    

    November
      13, 2008

    

    
      	
              Note
                No.: SUB-002

            	
              $2,210,550.92

            

    

    

    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 The Longview Fund, L.P., a California
      limited partnership, or its registered assigns (the “Holder”)
      the
      principal amount of Two Million Two Hundred Ten Thousand Five Hundred Fifty
      and
      92/100 Dollars ($2,210,550.92) 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 Exchange Agreement (as defined in Section
      2)
      on the Closing Date (as defined in the Securities Exchange 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 Exchange 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
      Exchange 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.

    

    
      
         

      

      
        2

        
          

        

      

      
         

      

       

    

    (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 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 Exchange 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.

    

    (f) “Conversion
      Price”
means
      $4.00, subject to adjustment as provided in Section
      3(e)(iii).
      

    

    (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 FC
      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.

    

    
      
         

      

      
        3

        
          

        

      

      
         

      

       

    

    (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
      U.S. Dollars.

    

    (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 Exchange Agreement or 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, and (ii) so long as the Senior Notes remain
      outstanding, (A) are party to the Guaranty and the Security Agreement, and (B)
      in all of the assets of which the holders of the Senior 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. 

    

    
      
         

      

      
        4

        
          

        

      

      
         

      

       

    

    (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.

    

    (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 quarter, commencing with the calendar quarter
      ending June 30, 2009, until this Note has been repaid in full.

    

    (v) “Interest
      Rate”
means
      eleven percent (11.0%) per annum, subject to adjustment as provided in Section
      3(b)(iii). 

    

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

    

    (x) “Maturity
      Date”
means
      November 13, 2012, unless such date is not a Business Day, in which case
“Maturity Date” shall mean the first Business Day following November 13,
      2012.

    

    (y) “Original
      Principal Amount”
means
      Two Million Two Hundred Ten Thousand Five Hundred Fifty and 92/100 Dollars
      ($2,210,550.92).

    

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

    

    
      
         

      

      
        5

        
          

        

      

      
         

      

       

    

    (aa) “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 FC 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.

    

    (bb) “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.

    

    (cc) “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.
      

    

    (dd) “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.

    

    (ee) “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.

    

    
      
         

      

      
        6

        
          

        

      

      
         

      

       

    

    (ff) “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.

    

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

    

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

    

    (ii) “Principal
      Market”
means,
      with respect to the Common Stock or any other security, the principal securities
      exchange or trading market for the Common Stock or such other security.

    

    (jj) “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.

    

    (kk) “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.

    

    (ll) “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
      Senior 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 

    

    
      
         

      

      
        7

        
          

        

      

      
         

      

       

    

    (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

    

    (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
      sixty
      (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

    

    
      
         

      

      
        8

        
          

        

      

      
         

      

       

    

    (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.

            

    

    

    (mm) “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.

    

    (nn) “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

            

    

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

    (oo) “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	 

    

     

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

    

    (qq) “Trading
      Day”
means
      any day on which the Common Stock is traded on its Principal Market; provided
      that “Trading Day” shall not include any day on which the Common Stock is
      scheduled to trade, or actually trades, on its Principal Market for less than
      4.5 hours.

    

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

    

    (ss) “Weighted
      Average Price”
means,
      for any security as of any date, the dollar volume-weighted average price for
      such security on its Principal Market during the period beginning at 9:30 a.m.
      New York City time (or such other time as its Principal Market publicly
      announces is the official open of trading) and ending at 4:00 p.m. New York
      City
      time (or such other time as its Principal Market publicly announces is the
      official close of trading) as reported by Bloomberg Financial Markets (or any
      successor thereto) (“Bloomberg”) through its “Volume at Price” functions, or if
      the foregoing does not apply, the dollar volume-weighted average price of such
      security in the over-the-counter market on the electronic bulletin board for
      such security during the period beginning at 9:30 a.m. New York City time (or
      such other time as such over-the-counter market publicly announces is the
      official open of trading), and ending at 4:00 p.m. New York City time (or such
      other time as such over-the-counter market publicly announces is the official
      close of trading) as reported by Bloomberg, or, if no dollar volume-weighted
      average price is reported for such security by Bloomberg for such hours, the
      average of the highest closing bid price and the lowest closing ask price of
      any
      of the market makers for such security as reported in the “pink sheets” by the
      National Quotation Bureau, Inc. If the Weighted Average Price cannot be
      calculated for such security on such date on any of the foregoing bases, the
      Weighted Average Price of such security on such date shall be the fair market
      value as mutually determined by the Company and the Holder. If the Company
      and
      the Holder are unable to agree upon the fair market value of such security,
      then
      such dispute shall be resolved pursuant to Section 3(e)(ii)(D)(I). All such
      determinations shall be appropriately adjusted for any stock dividend, stock
      split, stock combination or other similar transaction during any period during
      which the Weighted Average Price is being determined.

    

    
      
         

      

      
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    (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 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. 

    

    (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.

    

    
      
         

      

      
        11

        
          

        

      

      
         

      

       

    

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

    

    (i) On
      the
      second Business Day (a “Financial
      Covenant Test Certification Date”)
      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(b)(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 (a “Financial
      Covenant Test Failure Prepayment”),
      on
      the Financial Covenant Test Certification Date (in each such case a
“Financial
      Covenant Test Prepayment Date”)
      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.

    

    (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.

    

    
      
         

      

      
        12

        
          

        

      

      
         

      

       

    

    (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 eleven percent (11.0%), 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
      eleven percent (11.0%) (or, if already at eleven percent (11.0%), 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.

    

    (c) Scheduled
      Payment on the 36-Month Anniversary of the Issuance Date.
      If any
      Principal remains outstanding on the date (the “Mandatory
      Early Redemption Date”)
      that
      is the 36-month anniversary of the Issuance Date, then the Company shall redeem
      (a “Mandatory
      Early Redemption”)
      a
      principal amount of this Note (the “Mandatory
      Early Redemption Principal Amount”)
      equal
      to the lesser of (i) the Principal on the Mandatory Early Redemption Date and
      (ii) the result of (A) 25% of the Original Principal Amount, minus (B) the
      aggregate principal amount of this Note prepaid by the Company to the Holder
      pursuant to Section
      3(a)
      prior to
      the Mandatory Early Redemption Date (but not subtracting any amounts paid by
      the
      Company to the Holder pursuant to Section
      3(b)),
      by
      payment on the Mandatory Early Redemption Date to the Holder, by wire transfer
      of immediately available funds, of an amount (the “Mandatory
      Early Redemption Amount”)
      equal
      to the sum
      of
      (x) the
      Mandatory Early Redemption Principal Amount and (y) the Interest Amount with
      respect thereto. The failure of the Company to pay the Mandatory Early
      Redemption Amount on the Mandatory Early Redemption Date shall constitute an
      Event of Default, and any portion of the Mandatory Early Redemption Amount
      not
      paid on the Mandatory Early Redemption Date shall bear interest at the Default
      Rate until paid in full. 

    

    (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 Exchange Agreement and the other Transaction Documents.
      

    

    
      
         

      

      
        13

        
          

        

      

      
         

      

       

    

    (e) Holder’s
      Conversion Right.
      This
      Note shall be converted into Shares on the terms and conditions set forth in
      this Section
      3(e).

    

    (i) Conversion
      at Option of the Holder.
      Subject
      to the provisions of Section
      6,
      in
      connection with the payment of Principal (and the Interest Amount relating
      thereto) in connection with any Optional Prepayment, Financial Covenant Test
      Failure Prepayment or Mandatory Early Redemption or on the Maturity Date, the
      Holder shall be entitled to convert up to fifty percent (50%) of the Principal
      (and the Interest Amount relating thereto) to be paid on the Optional Prepayment
      Date, Financial Covenant Test Failure Prepayment Date, Mandatory Early
      Redemption Date or Maturity Date (each, a “Principal Payment
      Date”),
      as
      applicable, into fully paid and nonassessable shares of Common Stock in
      accordance with this Section
      3(e)
      (the
“Investor
      Share Option”),
      at
      the Conversion Price. The Company shall not issue any fraction of a share of
      Common Stock upon any conversion. If the issuance would result in the issuance
      of a fraction of a share of Common Stock, then the Company shall round such
      fraction up or down to the nearest whole share (with 0.5 rounded
      up).

    

    (ii) Mechanics
      of Conversion.
      The
      conversion of this Note shall be conducted in the following manner:

    

    (A) Holder’s
      Delivery Requirements.
      To
      convert an amount of Principal (and the Interest Amount relating thereto) (any
      such amount, the “Conversion
      Amount”),
      representing up to fifty percent (50%) of the Principal (and the Interest Amount
      relating thereto) to be paid on any Principal Prepayment Date into shares of
      Common Stock (any such Prepayment Date as to which any Principal (and Interest
      Amount related thereto) is to be converted, a “Conversion
      Date”),
      the
      Holder shall transmit by facsimile (or otherwise deliver), for receipt on or
      prior to the date that is two (2) Business Day prior to the Conversion Date,
      a
      copy of an executed conversion notice in the form attached hereto as
Exhibit
      I
      (the
“Conversion
      Notice”).
      

    

    (B) Company’s
      Response.
      Upon
      receipt or deemed receipt by the Company of a copy of a Conversion Notice,
      the
      Company (I) shall immediately send, via facsimile, a confirmation of receipt
      of
      such Conversion Notice to the Holder and the Company’s designated transfer agent
      (the “Transfer
      Agent”),
      which
      confirmation shall constitute an instruction to the Transfer Agent to process
      such Conversion Notice in accordance with the terms herein and (II) on the
      Conversion Date
      (A)
      provided that the Transfer Agent is participating in the DTC’s Fast Automated
      Securities Transfer Program and provided that the Holder is eligible to receive
      shares of Common Stock through the DTC, credit such aggregate number of shares
      of Common Stock to which the Holder shall be entitled to the Holder’s or its
      designee’s balance account with the DTC through its “Deposit Withdrawal Agent
      Commission” system, or (B) if the foregoing shall not apply, issue and deliver
      to the address as specified in the Conversion Notice, a certificate, registered
      in the name of the Holder or its designee, for the number of shares of Common
      Stock to which the Holder shall be entitled. 

    

    
      
         

      

      
        14

        
          

        

      

      
         

      

       

    

    (C) Record
      Holder.
      The
      person or persons entitled to receive the shares of Common Stock issuable upon
      a
      conversion of this Note shall be treated for all purposes as the legal and
      record holder or holders of such shares of Common Stock on the Conversion
      Date.

    

    (D) Company’s
      Failure to Timely Convert.

    

    (I) Cash
      Damages.
      If, on
      any Conversion Date the Company shall fail to issue and deliver a certificate
      to
      the Holder for, or credit the Holder’s or its designee’s balance account with
      the DTC with, the number of shares of Common Stock to which the Holder is
      entitled on such Conversion Date with respect to the Holder’s conversion of any
      Conversion Amount, then in addition to all other available remedies that the
      Holder may pursue hereunder and under the Securities Purchase Agreement
      (including indemnification pursuant to Section
      10
      thereof
      or at law or in equity), the Company shall pay additional damages to the Holder
      for each day after such Conversion Date on which such conversion is not timely
      effected in an amount equal to 0.5% of the sum of the product of (I) the number
      of shares of Common Stock not issued to the Holder or its designee on such
      Conversion Date and to which the Holder is entitled and (II) the Weighted
      Average Price of the Common Stock on such Conversion Date (such product is
      referred to herein as the “Share Product Amount”). Alternatively, at the
      election of the Holder made in the Holder’s sole discretion, the Company shall
      pay to the Holder, in lieu of the additional damages referred to in the
      preceding sentence (but in addition to all other available remedies that the
      Holder may pursue hereunder and under the Securities Exchange Agreement
      (including indemnification pursuant to Section
      10
      thereof
      or at law or in equity)), 110% of the amount by which (A) the Holder’s total
      purchase price (including brokerage commissions, if any) for the shares of
      Common Stock purchased to make delivery in satisfaction of a sale by the Holder
      of the shares of Common Stock to which the Holder is entitled but has not
      received upon a conversion exceeds (B) the net proceeds received by the Holder
      from the sale of the shares of Common Stock to which the Holder is entitled
      but
      has not received upon such conversion. If the Company fails to pay the
      additional damages set forth in this Section
      3(e)(ii)(D)(I)
      within
      five (5) Business Days of the date incurred, then the Holder entitled to such
      payments shall have the right at any time, so long as the Company continues
      to
      fail to make such payments, to require the Company, upon written notice, to
      immediately issue, in lieu of such cash damages, the number of shares of Common
      Stock equal to the quotient of (X) the aggregate amount of the damages payments
      described herein divided by (Y) the Weighted Average Price of the Common Stock
      on the Trading Day immediately preceding the date of such written notice. If
      the
      Holder and the Company are unable to agree upon the determination of the
      Weighted Average Price within one Business Day of such disputed determination
      being submitted to the Holder, then the Company shall immediately submit via
      facsimile the disputed determination of the Weighted Average Price to an
      independent, reputable investment banking firm agreed to by the Company and
      the
      Holder. The Company shall cause the investment banking firm to perform the
      determination and notify the Company and the Holder of the results no later
      than
      two Business Days after the date it receives the disputed determinations. Such
      investment banking firm’s determination shall be deemed conclusive absent
      manifest error.

    

    
      
         

      

      
        15

        
          

        

      

      
         

      

       

    

    (II) Void
      Conversion Notice.
      If for
      any reason the Holder has not received all of the shares of Common Stock prior
      to the tenth (10th) Business Day after the Conversion Date with respect to
      a
      conversion of this Note, other than due to the limitation contained in
Section
      6
      or to
      the pendency of a dispute being resolved in accordance with Section
      3(e)(ii)(D)(I)
      (a
“Conversion
      Failure”),
      then
      the Holder, upon written notice to the Company (a “Void Conversion
      Notice”),
      may
      void its Conversion Notice with respect to any portion of this Note that has
      not
      been converted pursuant to the Holder’s Conversion Notice; in which case the
      Company shall immediately redeem all of the Principal with respect to which
      the
      Company has not delivered shares of Common Stock, at a price equal to the
      greater of (a) the Principal and Interest Amount thereon, with respect to which
      the Company has not delivered shares of Common Stock and (b) the product of
      (i)
      the quotient of (A) the Principal and Interest Amount thereon, with respect
      to
      which the Company has not delivered shares of Common Stock, divided by (B)
      the
      Conversion Price, multiplied by (ii) the Weighted Average Price of the Common
      Stock on the Conversion Date. The voiding of the Holder’s Conversion Notice
      shall not affect the Company’s obligations to make any payments that have
      accrued prior to the date of such notice pursuant to Section
      3(e)(ii)(A)
      or
      otherwise

    

    
      
         

      

      
        16

        
          

        

      

      
         

      

       

    

    (E) Pro
      Rata Conversion.
      In the
      event the Company receives a Conversion Notice from more than one holder of
      the
      Notes for the same Conversion Date and the Company can convert some, but not
      all, of such Notes, then the Company shall convert from each holder of the
      Notes
      electing to have Notes converted at such time a pro rata amount of such holder’s
      Note submitted for conversion based on the principal amount of the Note
      submitted for conversion on such date by such holder relative to the aggregate
      principal amount of the Notes submitted for conversion on such
      date.

    

    (iii) Adjustments
      to Conversion Price.
      The
      Conversion Price will be subject to adjustment from time to time as provided
      in
      this Section
      3(e)(iii).

    

    (A) Adjustment
      of Conversion Price upon Subdivision or Combination of Common
      Stock.
      If the
      Company at any time on or after the Issuance Date subdivides (by any stock
      split, stock dividend, recapitalization or otherwise) outstanding shares of
      Common Stock into a greater number of shares, the Conversion Price in effect
      immediately prior to such subdivision will be proportionately reduced. If the
      Company at any time on or after the Issuance Date combines (by combination,
      reverse stock split or otherwise) its outstanding shares of Common Stock into
      a
      smaller number of shares, the Conversion Price in effect immediately prior
      to
      such combination will be proportionately increased.

    

    (B) Adjustment
      of Conversion Price upon a Distribution of Assets.
      If the
      Company at any time on or after the Issuance Date shall declare or make any
      dividend or other distribution of its assets (or rights to acquire its assets)
      to holders of Common Stock, by way of return of capital or otherwise (including
      any distribution of cash, stock or other securities, property or options by
      way
      of a dividend, spin off, reclassification, corporate rearrangement or other
      similar transaction) (a “Distribution”),
      then,
      in each such case, the Conversion Price in effect immediately prior to the
      close
      of business on the record date fixed for the determination of holders of Common
      Stock entitled to receive the Distribution shall be reduced, effective as of
      the
      close of business on such record date, to a price determined by multiplying
      such
      Conversion Price by a fraction of which (A) the numerator shall be the Weighted
      Average Price of the Common Stock on the trading day immediately preceding
      such
      record date minus the value of the Distribution (as determined in good faith
      by
      the Board) applicable to one share of Common Stock, and (B) the denominator
      shall be the Weighted Average Price of the Common Stock on the trading day
      immediately preceding such record date.

    

    
      
         

      

      
        17

        
          

        

      

      
         

      

       

    

    (C) Other
      Events.
      If any
      event occurs of the type contemplated by the provisions of this Section
      3(e)(iii)
      but not
      expressly provided for by such provisions, then the Company’s board of directors
      will make an appropriate adjustment in the Conversion Price so as to protect
      the
      rights of the Holder; provided that no such adjustment will increase the
      Conversion Price as otherwise determined pursuant to this Section
      3(e)(iii).

    

    (D) Notices.
      Promptly upon any adjustment of the Conversion Price, the Company will give
      written notice thereof to the Holder, setting forth in reasonable detail, and
      certifying, the calculation of such adjustment. The Company will give written
      notice to the Holder at least ten (10) Business Days prior to the date on which
      the Company closes its books or takes a record (I) with respect to any dividend
      or distribution upon the Common Stock, (II) with respect to any pro rata
      subscription offer to holders of Common Stock or (III) for determining rights
      to
      vote with respect to any Change of Control, dissolution or liquidation, provided
      that such information shall be made known to the public prior to or in
      conjunction with such notice being provided to the Holder. The Company will
      also
      give written notice to the Holder at least ten (10) Business Days prior to
      the
      date on which any Change of Control, dissolution or liquidation will take place,
      provided that such information shall be made known to the public prior to or
      in
      conjunction with such notice being provided to the Holder.

     

    (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. Prior to the consummation of any other Organic
      Change, the Company shall make appropriate provision (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 ensure that
      the
      Holder will thereafter have the right to acquire and receive in lieu of or
      in
      addition to (as the case may be) the shares of Common Stock immediately
      theretofore acquirable and receivable upon the conversion of this Note (without
      regard to any limitations or restrictions on conversion) such shares of stock,
      securities or assets that would have been issued or payable in such Organic
      Change with respect to or in exchange for the number of shares of Common Stock
      that would have been acquirable and receivable upon the conversion of this
      Note
      as of the date of such Organic Change (without taking into account any
      limitations or restrictions on the conversion of this Note).

    

    
      
         

      

      
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    (5) Surrender
      of Note.
      Notwithstanding anything to the contrary set forth in this Note, upon any
      redemption, repayment or conversion 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, repaid and/or converted 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
      17
      hereof)
      shall show the principal amount redeemed, repaid or converted and the dates
      of
      such redemptions, repayments or conversions so as not to require physical
      surrender of this Note upon each such redemption, repayment or conversion.
      The
      Holder and any assignee, by acceptance of this Note, acknowledge and agree
      that,
      by reason of the provisions of this paragraph, following redemption, repayment
      or conversion of any portion of this Note, the Principal may be less than the
      principal amount stated on the face hereof. 

    

    (6) Limitation
      on Conversion.
      Notwithstanding anything to the contrary set forth in this Note, the Company
      shall not effect any conversion of this Note and the Holder shall not have
      the
      right to convert Principal or any Interest Amount in excess of that portion
      of
      the principal or any Interest Amount that, upon giving effect to such
      conversion, would cause the aggregate number of shares of Common Stock
      beneficially owned by the Holder and its affiliates to represent 4.99%
      (the “Maximum
      Percentage”)
      of the
      total outstanding shares of Common Stock following such conversion. For purposes
      of the foregoing proviso, the aggregate number of shares of Common Stock
      beneficially owned by the Holder and its affiliates shall include the shares
      of
      Common Stock issuable upon conversion of this Note, with respect to which the
      determination of such proviso is being made, but shall exclude the shares of
      Common Stock that would be issuable upon (i) conversion of the remaining,
      unconverted Principal (and any Interest Amount with respect thereto) and (ii)
      exercise, conversion or exchange of the unexercised, unconverted or unexchanged
      portion of any other securities of the Company (including any warrants) subject
      to a limitation on conversion, exercise or exchange analogous to the limitation
      contained herein beneficially owned by the Holder and its affiliates. Except
      as
      set forth in the preceding sentence, for purposes of this Section
      6,
      beneficial ownership shall be calculated in accordance with Section 13(d) of
      the
      1934 Act. For purposes of this Section
      6,
      in
      determining the number of outstanding shares of Common Stock, the Holder may
      rely on the number of outstanding shares of Common Stock as reflected in (1)
      the
      Company’s most recent Periodic Report, (2) a more recent public announcement by
      the Company or (3) any other notice by the Company or the transfer agent for
      the
      Common Stock setting forth the number of shares of Common Stock outstanding.
      Upon the written request of the Holder, the Company shall promptly, but in
      no
      event later than three (3) Business Days following the receipt of such request,
      confirm in writing to the Holder the number of shares of Common Stock then
      outstanding. In any case, the number of outstanding shares of Common Stock
      shall
      be determined after giving effect to the conversion, exercise or exchange of
      securities of the Company, including the Notes, by the Holder and its affiliates
      since the date as of which the number of outstanding shares of Common Stock
      was
      reported. By written notice to Company, the Holder may from time to time
      increase or decrease the Maximum Percentage to any other percentage not in
      excess of 9.99% specified in such notice; provided that (i) any such increase
      will not be effective until the sixty-first (61st)
      day
      after such notice is delivered to the Company, and (ii) any such increase or
      decrease will apply only to the Holder and not to any other holder of
      Notes.

    

    
      
         

      

      
        19

        
          

        

      

      
         

      

       

    

    (7) 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. 

    

    (8) Reservation
      of Shares.

    

    (a) Reservation.
      The
      Company shall, so long as any of the Notes are outstanding, take all action
      necessary to reserve and keep available out of its authorized and unissued
      Common Stock, solely for the purpose of effecting the conversion of the Notes,
      such number of shares of Common Stock as shall from time to time be sufficient
      to effect the conversion of fifty percent (50%) of all of the Principal then
      outstanding under the Notes (together with accrued and unpaid Interest
      thereon) (without
      regard to any limitations on conversions) (the “Required
      Reserve Amount”).
      The
      initial number of shares of Common Stock reserved for conversions of the Notes
      and each increase in the number of shares of Common Stock so reserved shall
      be
      allocated pro rata among the holders of the Notes based on the principal amount
      of the Notes held by each such holder at the time of issuance of the Notes
      or
      increase in the number of reserved shares of Common Stock, as the case may
      be.
      In the event the holder of any Note shall sell or otherwise transfer any portion
      of such holder’s Note, each transferee shall be allocated a pro rata portion of
      the number of shares of Common Stock reserved for such transferor. Any shares
      of
      Common Stock reserved and allocated to any Person that ceases to hold any Notes
      shall be allocated to the remaining holders of the Notes, pro rata based on
      the
      principal amount of the Notes then held by such holders.

    

    
      
         

      

      
        20

        
          

        

      

      
         

      

       

    

    (b) Insufficient
      Authorized Shares.
      If at
      any time while any of the Notes remain outstanding the Company does not have
      a
      sufficient number of authorized and unreserved shares of Common Stock to satisfy
      its obligation to reserve for issuance upon conversion of the Notes at least
      a
      number of shares equal to the Required Reserve Amount, then the Company shall
      immediately take all action necessary to increase the Company’s authorized
      shares of Common Stock to an amount sufficient to allow the Company to reserve
      the Required Reserve Amount for the Notes then outstanding. 

    

    (9) 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. 

    

    (10) 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, Mandatory Early
      Redemption Amount 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 Senior 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;

    

    
      
         

      

      
        21

        
          

        

      

      
         

      

       

    

    (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; 

    

    (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 Securities Exchange 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; 

    

    (ix) the
      Company breaches, or otherwise does not comply with, any of the provisions
      of
      Section 5 of
      the
      Securities Exchange Agreement; 

    

    (x) 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; 

    

    (xi) there
      shall occur a Change of Control; 

    

    (xii) any
      representation, warranty, certification or statement made by the Company or
      any
      of the Subsidiaries in the Securities Exchange Agreement, the Warrants, this
      Note 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); 

    

    (xiii) 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); 

    

    
      
         

      

      
        22

        
          

        

      

      
         

      

       

    

    (xiv) 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; 

    

    (xv) the
      Company fails to deliver an Officer’s Certificate pursuant to Section 3(b)(i)
      within five (5) days after the date such Officer’s Certificate is required to be
      delivered pursuant to Section 3(b)(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(b)(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;
      or

    

    (xvi) a
      Conversion Failure.

    

    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 10(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 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 10(b) shall be
      accompanied by the Prepayment Premium in respect thereof. Nothing in this
      Section 10 shall limit any other rights the Holder may have under this Note
      or
      the other Transaction Documents.

    

    (11) Change
      in 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.

    

    (12) 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.

    

    
      
         

      

      
        23

        
          

        

      

      
         

      

    

     

    (13) 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 Exchange Agreement 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.

    

    (14) 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 Exchange Agreement and
      shall not be construed against any person as the drafter hereof.

    

    (15) 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.

    

    (16) 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 Exchange Agreement.

    

    (17) 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 Exchange Agreement, without the consent of the
      Company; provided however, that no such transfer shall increase the liability
      of
      the Company under Section 21(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. 

    

    
      
         

      

      
        24

        
          

        

      

      
         

      

       

    

    (18) Payment
      of Collection, Enforcement and Other Costs.
      Without
      limiting the provisions of the Securities Exchange Agreement 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.

    

    (19) 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.

    

    (20) 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.

    

    (21) 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 Exchange Agreement 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.

    

    
      
         

      

      
        25

        
          

        

      

      
         

      

       

    

    (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 Exchange Agreement
      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.

    

    (22) 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 Securities Exchange
      Agreement and the other Transaction Documents.

    

    (23) 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.

    

    (24) 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.

    

    
      
         

      

      
        26

        
          

        

      

      
         

      

       

    

    (25) 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. 

    

    (26) 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. 

    

    (27) 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
      ]

     

    
      
         

      

      
        27

        
          

        

      

      
         

      

    

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

    

      
        	
                SONTERRA
                  RESOURCES INC., 

              
	
                a
                  Delaware corporation

              
	 
	
                By:  

              	 
	
                Name:
                  D. E. Vandenberg

              
	
                Title:
                  President

              

      

    

     

    
      
         

      

      
        28

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