Document:

www.EXFILE.com  888.775-4789    SCHNITZER STEEL INDUSTRIES, INC. -- FORM 8K

    EXHIBIT
      4.1

     

    AMENDMENT
      TO AMENDED AND RESTATED CREDIT AGREEMENT

     

    This
      AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this “Amendment”) is
      entered into as of July 3, 2007, by and among SCHNITZER STEEL INDUSTRIES,
      INC., an Oregon corporation (the “Borrower”), BANK OF AMERICA, N.A., a
      national banking association (“Bank of America”), WELLS FARGO BANK,
      NATIONAL ASSOCIATION, a national banking association (“Wells Fargo”),
      U.S. BANK NATIONAL ASSOCIATION, a national banking association (“U.S.
      Bank”), THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., a banking corporation
      organized under the laws of Japan (“BTM”), CITICORP USA, INC., a Delaware
      corporation (“Citicorp”), FIRST HAWAIIAN BANK, a Hawaii corporation
      (“First Hawaiian”), COMERICA WEST INCORPORATED, a Delaware corporation
      (“Comerica”), HSBC BANK USA, N.A., a national banking association
      (“HSBC Bank”), JPMORGAN CHASE BANK, N.A., a national banking association
      (“JPMorgan Chase”), THE NORTHERN TRUST COMPANY, an Illinois banking
      corporation (“Northern Trust”), PNC BANK, NATIONAL ASSOCIATION, a
      national banking association (“PNC Bank” and together with Bank of
      America, Wells Fargo, U.S. Bank, BTM, Citicorp, First Hawaiian, Comerica, HSBC
      Bank, JPMorgan Chase and Northern Trust collectively, the “Lenders” and
      individually, a “Lender”), and BANK OF AMERICA, N.A., as administrative
      agent for the Lenders (in such capacity, the “Administrative Agent”) and
      as issuer of letters of credit (in such capacity, the “L/C
      Issuer”).

     

    RECITALS

     

    A.           The
      Borrower, the Lenders, the Administrative Agent and the L/C Issuer are parties
      to that certain Amended and Restated Credit Agreement dated as of
      November 8, 2005 (as the same has been or may be amended, restated,
      supplemented or otherwise modified from time to time, the “Credit
      Agreement”), pursuant to which the Lenders have agreed to make revolving
      loans and the L/C Issuer has agreed to issue letters of credit to or for the
      account of the Borrower.

     

    B.           The
      Borrower has requested that the Lenders, the L/C Issuer and the Administrative
      Agent amend the Credit Agreement to reduce the Applicable Rate (as defined
      in
      the Credit Agreement), extend the Maturity Date (as defined in the Credit
      Agreement), increase the amount of the Aggregate Commitments and to modify
      certain covenants contained in the Credit Agreement binding upon the Borrower,
      which the Lenders, the Administrative Agent and the L/C Issuer have agreed
      to
      do, subject to the terms and conditions set forth below.

     

    NOW,
      THEREFORE, in consideration of the mutual covenants and agreements herein
      contained, the parties hereto covenant and agree as follows:

     

    AGREEMENT

     

    1.  Definitions;
      Interpretation.  Capitalized terms not otherwise defined in
      this Amendment shall have the meanings given in the Credit Agreement as amended
      by this Amendment.  The rules of construction and interpretation
      specified in Sections 1.02 and 1.05 of the Credit Agreement
      also apply to this Amendment and are incorporated herein by this
      reference.

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    2.  Amendments
      to Credit Agreement.  The Credit Agreement is amended as
      follows:

     

    (a)  Amendment
      to Definitions.  In Section 1.01, amendments are made
      to the definitions as follows:

     

    (i)           Applicable
      Rate.  The table set forth in the definition of “Applicable Rate”
is amended and restated as follows:

     

    
      	
              Applicable
                Rate

            
	
              Pricing
                Level

            	
              Consolidated
                Leverage Ratio

            	
              Commitment
                Fee

            	
              Eurocurrency
                Rate +

                                                                                                                                 

              Standby
                Letters of Credit

            	
              Base
                Rate +

            
	
              1

            	
              <0.20:1

            	
              0.100%

            	
              0.500%

            	
              0.000%

            
	
              2

            	
              30.20:1
                but
                <0.30:1

            	
              0.125%

            	
              0.625%

            	
              0.000%

            
	
              3

            	
              30.30:1
                but
                <0.40:1

            	
              0.150%

            	
              0.750%

            	
              0.000%

            
	
              4

            	
              30.40:1
                but
                <0.50:1

            	
              0.200%

            	
              1.000%

            	
              0.000%

            
	
              5

            	
              30.50:1

            	
              0.250%

            	
              1.250%

            	
              0.000%

            

    

     

    (ii)           Consolidated
      EBITDA.  The definition of “Consolidated EBITDA” is added to read
      as follows:

     

     

    “Consolidated
      EBITDA” has the meaning specified in the definition of “Consolidated Fixed
      Charge Coverage Ratio.”

     

    (iii)           Consolidated
      Funded Debt to EBITDA Ratio.  The definition of “Consolidated
      Funded Debt to EBITDA Ratio” is added to read as follows:

     

     

    “Consolidated
      Funded Debt to EBITDA Ratio” means, as of any date of determination, the
      ratio of (a) Consolidated Funded Indebtedness as of such date to
      (b) Consolidated EBITDA for the period of the four fiscal quarters most
      recently ended.

     

    (iv)           Maturity
      Date.  The definition of “Maturity Date” is amended and restated
      to read as follows:

     

    “Maturity
      Date” means July 3, 2012.

     

    (b)  Amendment
      to Section 7.06.  Subsection (g) of Section 7.06
      is amended and restated to read as follows:

     

    (g)           the
      Borrower may purchase, redeem or otherwise acquire for cash Equity Interests
      issued by it; provided, however, that if as of the end of the most

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    recently
      completed fiscal quarter of the Borrower the Consolidated Funded Debt to EBITDA
      Ratio is greater than 2.00 to 1.00, then the Borrower shall not purchase, redeem
      or otherwise acquire Equity Interests issued by it if such purchase, redemption
      or other acquisition when taken together with all prior purchases, redemptions
      and other acquisitions of such Equity Interests made by the Borrower after
      the
      Closing Date would exceed the greater of (i) $150,000,000 or (ii) 15%
      times the amount of the Consolidated Net Worth as of the end of the most
      recently completed fiscal year of the Borrower.

     

    (c)  Amendment
      to Section 7.11.  Subsection (a) of Section 7.11
      is amended and restated to read as follows:

     

    (a)           Consolidated
      Leverage Ratio.  Permit the Consolidated Leverage Ratio to be
      greater than 0.55 to 1.00 as of the end of any fiscal quarter of the Borrower
      for which the Borrower has delivered financial statements pursuant to
Section 6.01(a) or 6.01(b).

     

    (d)  Amendment
      to Schedule.  Schedule 2.01 attached to the Credit
      Agreement is hereby deleted in its entirety and replaced with
Schedule 2.01 attached to this Amendment, which are incorporated
      into the Credit Agreement by this reference.

     

    3.  Conditions
      to Effectiveness.  Notwithstanding anything contained herein
      to the contrary, this Amendment shall become effective as of July 3, 2007
      (for purposes of this Amendment and Section 2.14 of the Credit
      Agreement, the “Increase Effective Date”); provided that each of
      the following conditions is fully and concurrently satisfied not later than
      5:00
      p.m., Seattle time, on July 20, 2007:

     

    (a)  Delivery
      of Amendment.  The Borrower, each of the Lenders and the
      Administrative Agent shall have executed and delivered counterparts of this
      Amendment to the Administrative Agent;

     

    (b)  Payment
      of Fees.  The Borrower shall have paid to the Administrative Agent
      for the account of Lenders in proportion to their Applicable Percentage an
      amendment fee in the amount set forth in the letter agreement, dated
      May 21, 2007, among the Borrower, the Administrative Agent and the
      Arranger, which amendment fee shall be deemed fully earned when due and
      non-refundable when paid;

     

    (c)  Certificates
      and Resolutions.  The Administrative Agent shall have received (in
      sufficient copies for each Lender) in form and substance reasonably satisfactory
      to it:

     

    (i)           a
      certificate of each Loan Party dated as of the Increase Effective Date signed
      by
      a Responsible Officer of such Loan Party (A) certifying and attaching the
      resolutions adopted by such Loan Party approving or consenting to the increase
      the amount of the Aggregate Commitments provided for in Section 2(d)
      of this Amendment and (B) establishing the identity of and verifying the
      capacity of each Responsible Officer of such Loan Party authorized to act as
      a
      Responsible Officer in connection this Amendment; and

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

    (ii)           such
      evidence as the Administrative Agent may reasonably require to verify that
      each
      Loan Party is duly organized or formed, validly existing, in good standing,
      if
      applicable, and qualified to engage in business in each jurisdiction in which
      it
      is required to be qualified to engage in business, including a certificate
      of
      each Loan Party dated as of the Increase Effective Date signed by a Responsible
      Officer of such Loan Party certifying that the Organization Documents of each
      of
      the Loan Parties delivered to the Administrative Agent as a condition to closing
      the Credit Agreement have not been modified, or if modified, attaching copies
      of
      each of the documents that modified the Organization Documents of such Loan
      Party, and are in full force and effect on the date of this Amendment, and
      certificates of good standing and/or qualification to engage in
      business;

     

    (iii)           a
      certificate of Borrower dated as of the Increase Effective Date signed by a
      Responsible Officer of Borrower certifying that (A) the representations of
      the Borrower as set forth in Article V of the Credit Agreement (as
      amended herein) shall be true on and as of the Increase Effective Date, except
      to the extent that such representations and warranties specifically refer to
      an
      earlier date, in which case they are true and correct as of such earlier date,
      and except that, the representations and warranties contained in subsections
      (a)
      and (b) of Section 5.05 of the Credit Agreement shall be deemed to
      refer to the most recent statements furnished pursuant to clauses (a) and (b),
      respectively, of Section 6.01 of the Credit Agreement and
      (B) no Default shall have occurred and be continuing or will occur as a
      result of the execution of this Amendment; and

     

    (d)  Consent
      of Guarantors.  The Administrative Agent shall have received the
      Consent of Guarantors in the form of Exhibit A attached hereto,
      executed by each of the Guarantors;

     

    (e)  Reimbursement
      for Expenses.  The Borrower shall have reimbursed the
      Administrative Agent for all expenses actually incurred by Administrative Agent
      in connection with the preparation of this Amendment and the other Loan
      Documents and shall have paid all other amounts due and owing under the Loan
      Documents;

     

    (f)  Other
      Documents.  The Administrative Agent and the Lenders shall have
      received such other documents, instruments, and undertakings as the
      Administrative Agent and such Lender may reasonably request.

     

    4.  Administrative
      Agent Authorization.  The Lenders hereby authorize and
      instruct the Administrative Agent to execute and deliver this
      Amendment.

     

    5.  No
      Further Amendment.  Except as expressly modified by this
      Amendment, the Credit Agreement and the other Loan Documents shall remain
      unmodified and in full force and effect and the parties hereby ratify their
      respective obligations thereunder.

     

    6.  Reservation
      of Rights.  The Borrower acknowledges and agrees that the
      execution and delivery by the Administrative Agent, the Lenders and the L/C
      Issuer of this Amendment shall not be deemed to create a course of dealing
      or
      otherwise obligate the 

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

    Administrative
      Agent, any Lender or the L/C Issuer to forbear or execute similar amendments
      under the same or similar circumstances in the future.

     

    7.  Miscellaneous.

     

    (a)  Integration.  This
      Amendment, together with the other Loan Documents, comprise the complete and
      integrated agreement of the parties on the subject matter hereof and thereof
      and
      supersedes all prior agreements, written or oral, on such subject
      matter.

     

    (b)  Severability.  Any
      provision of this Amendment that is prohibited or unenforceable in any
      jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
      such prohibition or unenforceability without invalidating the remaining
      provisions thereof, and any such prohibition or unenforceability in any
      jurisdiction shall not invalidate or render unenforceable such provision in
      any
      other jurisdiction.

     

    (c)  Counterparts.  This
      Amendment may be executed in one or more counterparts, each of which shall
      be
      deemed an original, but all of which together shall constitute one and the
      same
      instrument.

     

    (d)  Governing
      Law.  This Amendment shall be governed by and construed in
      accordance with, the law of the state of Washington applicable to agreements
      made and to be performed entirely within such state; provided that the
      Administrative Agent, each Lender and the L/C Issuer shall retain all rights
      arising under Federal law.

     

    (e)  Oral
      Agreements Not Enforceable.

     

    ORAL
      AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FOREBEAR
      FROM
      ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON
      LAW.

     

    IN
      WITNESS WHEREOF, the Borrower, the Administrative Agent, the Lenders and
      the L/C Issuer signing below have caused this Amendment to be duly executed
      as
      of the date first above written.

     

     

    
      	 	
              SCHNITZER
                STEEL INDUSTRIES, INC.

               

              By: 
                /s/ RICHARD C. JOSEPHSON

              
                

              

               

              Name: 
                Richard C. Josephson

              
                

              

               

              Title:  
                Secretary

              
                

              
 

    

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

    
       

      
        	 	
                
                  BANK
                    OF AMERICA, N.A., as

                  Administrative
                    Agent

                

                 

                By: 
                  /s/ DORA A. BROWN

                
                  

                

                 

                Name: 
                  Dora A. Brown

                
                  

                

                 

                Title:  
                  Vice President

                
                  

                
 

         

        
          	 	
                  
                    BANK
                      OF AMERICA, N.A., as a Lender, an L/C Issuer and Swing Line
                      Lender

                  

                   

                  By: 
                    /s/  TIMOTHY G. HOLSAPPLE

                  
                    

                  

                   

                  Name: 
                    Timothy G. Holsapple

                  
                    

                  

                   

                  Title:  
                    Senior Vice President

                  
                    

                  
 

           

          
            	 	
                    WELLS
                      FARGO BANK, NATIONAL ASSOCIATION, as a Lender

                     

                    By:  
                      /s/ JAMES L. FRANZEN

                    
                      

                    

                     

                    Name: 
                      James L. Franzen

                    
                      

                    

                     

                    Title:  
                      Vice President

                    
                      

                    
 

             

            
              	 	
                      U.S.
                        BANK NATIONAL ASSOCIATION, as a Lender

                       

                      By:  
                        /s/ THOMAS MARKS

                      
                        

                      

                       

                      Name: 
                        Thomas Marks

                      
                        

                      

                       

                      Title:  
                        Vice President

                      
                        

                      
 

            

          

        

      

    

    
            

    

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

      
        
           

          
            	 	
                    
                      THE
                        BANK OF TOKYO-MITSUBISHI UFJ, LTD., as a
                        Lender

                    

                     

                    By:  
                      /s/ ATSUSHI TSUKAHARA

                    
                      

                    

                     

                    Name: 
                      Atsushi Tsukahara

                    
                      

                    

                     

                    Title:  
                      Deputy General Manager

                    
                      

                    
 

             

            
              	 	
                      
                        CITICORP
                          USA, INC., as a Lender

                         

                      

                      By:  
                        /s/ KEITH PALLMANN

                      
                        

                      

                       

                      Name: 
                        Keith Pallmann

                      
                        

                      

                       

                      Title:  
                        Vice President

                      
                        

                      
 

               

              
                	 	
                        FIRST
                          HAWAIIAN BANK, as a Lender

                         

                        By: 
                          /s/  PAULA C.H. CHANG

                        
                          

                        

                         

                        Name: 
                          Paula C.H. Chang

                        
                          

                        

                         

                        Title:  
                          Vice President

                        
                          

                        
 

                 

                
                  	 	
                          COMERICA
                            WEST INCORPORATED, as a Lender

                           

                          By: 
                            /s/ DON R. CARRUTH

                          
                            

                          

                           

                          Name: 
                            Don R. Carruth

                          
                            

                          

                           

                          Title:  
                            Assistant Vice President

                          
                            

                          
 

                

                
                   

                  
                    	 	
                            HSBC
                              BANK USA, N.A., as a Lender

                             

                            By: 
                              /s/ MIKE MITCHELL

                            
                              

                            

                             

                            Name: 
                              Mike Mitchell

                            
                              

                            

                             

                            Title:  
                              VP

                            
                              

                            
 

                  

                

              

            

          

        

      

    

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

      
         

        
          	 	
                  JPMORGAN
                    CHASE BANK, N.A., as a Lender

                   

                  By:  
                    /s/ CLARA SOHAN

                  
                    

                  

                   

                  Name: 
                    Clara Sohan

                  
                    

                  

                   

                  Title:  
                    Vice President

                  
                    

                  
 

           

          
            	 	
                    
                      THE
                        NORTHERN TRUST COMPANY, as a Lender

                    

                     

                    By: 
                      /s/ BRANDON ROLEK

                    
                      

                    

                     

                    Name: 
                      Brandon Rolek

                    
                      

                    

                     

                    Title:   
                      Vice President

                    
                      

                    
 

          

          
             

            
              	 	
                      
                        PNC
                          BANK, NATIONAL ASSOCIATION, as a Lender

                      

                       

                      By: 
                        /s/ MARC C. VAN HORN

                      
                        

                      

                       

                      Name: 
                        Marc C. Van Horn

                      
                        

                      

                       

                      Title:  
                        Credit Officer

                      
                        

                      
 

            

          

        

      

    

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

    SCHEDULE
      2.01

     

    COMMITMENTS

    AND
      APPLICABLE PERCENTAGES

     

    
      	
               

              Lender

            	 	
              
              

              Commitment

            	 	 	
              
              

              Applicable
                Percentage

            	 
	
              Bank
                of America, N.A.

            	 	$	
              82,500,000

            	 	 	 	18.333333333	%
	
              Wells
                Fargo Bank, National Association

            	 	$	
              67,500,000

            	 	 	 	15.000000000	%
	
              U.S.
                Bank National Association

            	 	$	
              50,000,000

            	 	 	 	11.111111110	%
	
              The
                Bank of Tokyo-Mitsubishi UFJ, Ltd.

            	 	$	
              50,000,000

            	 	 	 	11.111111110	%
	
              Citicorp
                USA, Inc.

            	 	$	
              45,000,000

            	 	 	 	10.000000000	%
	
              First
                Hawaiian Bank

            	 	$	
              30,000,000

            	 	 	 	6.666666667	%
	
              Comerica
                West Incorporated

            	 	$	
              25,000,000

            	 	 	 	5.555555556	%
	
              HSBC
                Bank USA, N.A.

            	 	$	
              25,000,000

            	 	 	 	5.555555556	%
	
              JPMorgan
                Chase Bank, N.A.

            	 	$	
              25,000,000

            	 	 	 	5.555555556	%
	
              The
                Northern Trust Company

            	 	$	
              25,000,000

            	 	 	 	5.555555556	%
	
              PNC
                Bank, National Association

            	 	$	
              25,000,000

            	 	 	 	5.555555556	%
	
              Total

            	 	$	
              450,000,000

            	 	 	 	100.000000000	%

    

    

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    EXHIBIT
      A

     

    CONSENT
      OF GUARANTORS

     

    This
      CONSENT OF GUARANTORS (this “Consent”) is entered into as of July 3, 2007,
      by MANUFACTURING MANAGEMENT, INC., an Oregon corporation
      (“Manufacturing”), GENERAL METALS OF TACOMA, INC., a Washington
      corporation (“General Metals”), CASCADE STEEL ROLLING MILLS, INC., an
      Oregon corporation (“Cascade”), NORPROP, INC., an Oregon corporation
      (“Norprop”), JOINT VENTURE OPERATIONS, INC., a Delaware corporation
      (“JV Operations”), PROLERIDE TRANSPORT SYSTEMS, INC., a Delaware
      corporation (“Proleride”), PROLER STEEL, INC., a Delaware corporation
      (“Proler Steel”), PROLER INTERNATIONAL CORP., a Delaware corporation
      (“Proler International”), PNP COMMERCIAL ACQUISITION, LLC, a Delaware
      limited liability company (“PNP”), PROLERIZED NEW ENGLAND COMPANY, LLC, a
      Delaware limited liability company (“Prolerized”), SCHNITZER GLOBAL
      EXCHANGE CORP., a Delaware corporation (“Global Exchange”), GREENLEAF
      AUTO RECYCLERS, LLC, a Delaware limited liability company (“Greenleaf”),
      PICK-N-PULL AUTO DISMANTLERS, a California general partnership (“Auto
      Dismantlers”), PICK AND PULL AUTO DISMANTLING, INC., a California
      corporation (“Auto Dismantling”), REGIONAL RECYCLING, INC., an Oregon
      corporation (“Regional Recycling”), SCHNITZER SOUTHEAST, LLC, a Georgia
      limited liability company (“Schnitzer Southeast”), TTS RECYCLING LLC, a
      Delaware limited liability company (“TTS”), SCHNITZER STEEL HAWAII CORP.,
      a Delaware corporation (“Schnitzer Hawaii”), PICK-N-PULL AUTO
      DISMANTLERS, STOCKTON, LLC, a California limited liability company
      (“Stockton”), METALS RECYCLING L.L.C., a Rhode Island limited liability
      company (“Metals Recycling” and together with Manufacturing, General
      Metals, Cascade, Norprop, JV Operations, Proleride, Proler Steel, Proler
      International, PNP, Prolerized, Global Exchange, Greenleaf, Auto Dismantlers,
      Auto Dismantling, Regional Recycling, Schnitzer Southeast, TTS, Schnitzer Hawaii
      and Stockton, collectively, the “Guarantors” and individually, a
“Guarantor”), and BANK, to and in favor of BANK OF AMERICA, N.A., a
      national banking association (“Bank of America”), WELLS FARGO BANK,
      NATIONAL ASSOCIATION, a national banking association (“Wells Fargo”),
      U.S. BANK NATIONAL ASSOCIATION, a national banking association (“U.S.
      Bank”), THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., a banking corporation
      organized under the laws of Japan (“BTM”), CITICORP USA, INC., a Delaware
      corporation (“Citicorp”), FIRST HAWAIIAN BANK, a Hawaii corporation
      (“First Hawaiian”), COMERICA WEST INCORPORATED, a Delaware corporation
      (“Comerica”), HSBC BANK USA, N.A., a national banking association
      (“HSBC Bank”), JPMORGAN CHASE BANK, N.A., a national banking association
      (“JPMorgan Chase”), THE NORTHERN TRUST COMPANY, an Illinois banking
      corporation (“Northern Trust”), PNC BANK, NATIONAL ASSOCIATION, a
      national banking association (“PNC Bank” and together with Bank of
      America, Wells Fargo, U.S. Bank, BTM, Citicorp, First Hawaiian, Comerica, HSBC
      Bank, JPMorgan Chase and Northern Trust collectively, the “Lenders” and
      individually, a “Lender”), and BANK OF AMERICA, N.A., as administrative
      agent for the Lenders (in such capacity, the “Administrative Agent”) and
      as issuer of letters of credit under the Credit Agreement (in such capacity,
      the
“L/C Issuer”).

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    RECITALS

     

    A.           Schnitzer
      Steel Industries, Inc., an Oregon corporation (the “Borrower”), the
      Lenders, the Administrative Agent and the L/C Issuer are parties to that certain
      Amended and Restated Credit Agreement dated as of November 8, 2005 (as the
      same has been or may be amended, restated, supplemented or otherwise modified
      from time to time, the “Credit Agreement”), pursuant to which the Lenders
      have agreed to make revolving loans and the L/C Issuer has agreed to issue
      letters of credit to or for the account of the Borrower.

     

    B.           In
      connection with and as a condition to the obligation of the Lenders to make
      loans and the L/C Issuer to issue letters of credit under the Credit Agreement,
      each Guarantor entered into or became a party to that certain Amended and
      Restated Continuing Guaranty dated as of November 8, 2005 (as the same has
      been or may be amended, restated, supplemented or otherwise modified from time
      to time, the “Guaranty”), pursuant to which each Guarantor has
      guaranteed, among other things, the indebtedness, liabilities and obligations
      of
      the Borrower arising pursuant to the Credit Agreement and related
      documents.

     

    C.           The
      Borrower, the Lenders, the Administrative Agent and the L/C Issuer intend to
      enter into that certain Amendment to Amended and Restated Credit Agreement
      dated
      as of July 3, 2007 (the “Amendment”), pursuant to which, among other
      things, the Borrower, the Lenders, the L/C Issuer and the Administrative Agent
      will amend the Credit Agreement to reduce the Applicable Rate (as defined in
      the
      Credit Agreement), extend the Maturity Date (as defined in the Credit Agreement)
      and to modify certain covenants contained in the Credit Agreement binding upon
      the Borrower.

     

    D.           It
      is a condition precedent to the effectiveness of the Amendment that each
      Guarantor enter into this Consent.

     

    NOW
      THEREFORE, in consideration of the foregoing, and for other good and valuable
      consideration receipt of which is hereby acknowledged, each Guarantor agrees
      as
      follows:

     

    AGREEMENT

     

    1.  Definitions.  Capitalized
      terms not otherwise defined in this Consent shall have the meanings given in
      the
      Guaranty, and if not defined therein shall have the meanings given in the Credit
      Agreement.

     

    2.  Consent.  Each
      Guarantor hereby acknowledges that it has received a copy of the Amendment
      and
      hereby consents to its contents, including all prior and current amendments
      to
      the Credit Agreement (notwithstanding that such consent is not
      required).

     

    3.  Ratification
      and Confirmation.  Each Guarantor hereby ratifies and
      confirms that its indebtedness, liabilities and obligations to each Lender,
      the
      Administrative Agent and the L/C Issuer arising under the Guaranty and the
      other
      Loan Documents to which the Guarantor is a party.  Each Guarantor
      hereby confirms and agrees that its guarantee of the Obligations (as defined
      in
      the Guaranty to which such Guarantor is a party) remains in full force and
      effect, and that such Obligations shall include, without limitation, the
      indebtedness, liabilities and 

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    obligations
      of the Borrower to each Lender, the Administrative Agent and the L/C Issuer
      arising under the Credit Agreement, as amended by the Amendment.

     

    4.  Representations
      and Warranties.  The Guarantor hereby represents and warrants
      to the Administrative Agent, each of the Lenders and the L/C Issuer that each
      of
      the representations and warranties set forth the Guaranty to which it is a
      party
      is true and correct as if made on and as of the date of this
      Consent.

     

    5.  Governing
      Law.  This Consent shall be governed by and construed in
      accordance with, the law of the state of Washington applicable to agreements
      made and to be performed entirely within such state; provided that the
      Administrative Agent, each Lender and the L/C Issuer shall retain all rights
      arising under Federal law.

     

    6.  Severability.  Any
      provision of this Consent that is prohibited or unenforceable in any
      jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
      such prohibition or unenforceability without invalidating the remaining
      provisions thereof, and any such prohibition or unenforceability in any
      jurisdiction shall not invalidate or render unenforceable such provision in
      any
      other jurisdiction.

     

    7.  Oral
      Agreements Not Enforceable.

     

    ORAL
      AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FOREBEAR
      FROM
      ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON
      LAW.

     

    IN
      WITNESS WHEREOF, each Guarantor has caused this Consent to be duly executed
      as of the date first above written.

    
      
         

        
          	 	
                  
                    MANUFACTURING
                      MANAGEMENT, INC.

                  

                   

                  By: 
                    /s/ RICHARD C. JOSEPHSON

                  
                    

                  

                   

                  Name: 
                    Richard C. Josephson

                  
                    

                  

                   

                  Title:  
                    Secretary

                  
                    

                  
 

          
             

            
              	 	
                      
                        GENERAL
                          METALS OF TACOMA, INC.

                      

                       

                      By:  
                        /s/ RICHARD C. JOSEPHSON

                      
                        

                      

                       

                      Name: 
                        Richard C. Josephson

                      
                        

                      

                       

                      Title:   
                        Secretary

                      
                        

                      
 

            

          

        

      

    

     

     

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

      
        
           

          
            	 	
                    
                      CASCADE
                        STEEL ROLLING MILLS, INC.

                    

                     

                    By:  
                      /s/ RICHARD C. JOSEPHSON

                    
                      

                    

                     

                    Name: 
                      Richard C. Josephson

                    
                      

                    

                     

                    Title:   
                      Secretary

                    
                      

                    
 

            
               

              
                	 	
                        
                          
                            NORPROP,
                              INC.

                          

                        

                         

                        By: 
                          /s/ RICHARD C. JOSEPHSON

                        
                          

                        

                         

                        Name: 
                          Richard C. Josephson

                        
                          

                        

                         

                        Title:   
                          Secretary

                        
                          

                        
 

                
                   

                  
                    	 	
                            
                              
                                JOINT
                                  VENTURE OPERATIONS, INC.

                              

                            

                             

                            By: 
                              /s/ RICHARD C. JOSEPHSON

                            
                              

                            

                             

                            Name: 
                              Richard C. Josephson

                            
                              

                            

                             

                            Title:   
                              Secretary

                            
                              

                            
 

                    
                       

                      
                        	 	
                                
                                  PROLERIDE
                                    TRANSPORT SYSTEMS, INC.

                                

                                 

                                By: 
                                  /s/ DONALD W. HAMAKER

                                
                                  

                                

                                 

                                Name:
                                  Donald W. Hamaker

                                
                                  

                                

                                 

                                Title:  
                                  Chairman of the Board

                                
                                  

                                
 

                        
                           

                          
                            	 	
                                    
                                      
                                        PROLER
                                          STEEL, INC.

                                      

                                    

                                     

                                    By: 
                                      /s/ RICHARD C. JOSEPHSON

                                    
                                      

                                    

                                     

                                    Name: 
                                      Richard C. Josephson

                                    
                                      

                                    

                                     

                                    Title:   
                                      Secretary

                                    
                                      

                                    
 

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

     

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

      
        
           

          
            	 	
                    
                      
                        PROLER
                          INTERNATIONAL CORP.

                      

                    

                     

                    By: 
                      /s/ RICHARD C. JOSEPHSON

                    
                      

                    

                     

                    Name: 
                      Richard C. Josephson

                    
                      

                    

                     

                    Title:   
                      Secretary

                    
                      

                    
 

            
               

              
                	 	
                        
                          
                            PNP
                              COMMERCIAL ACQUISITION, LLC

                          

                        

                         

                        By: 
                          /s/ TOM KLAUER

                        
                          

                        

                         

                        Name: 
                          Tom Klauer

                        
                          

                        

                         

                        Title:   
                          Secretary

                        
                          

                        
 

                
                   

                  
                    	 	
                            
                              
                                PROLERIZED
                                  NEW ENGLAND COMPANY, LLC

                                 

                                
                                  By:  Proleride
                                    Transport Systems, Inc.

                                  Its:  Member

                                

                              

                            

                             

                            By: 
                              /s/ DONALD W. HAMAKER

                            
                              

                            

                             

                            Name: 
                              Donald W. Hamaker

                            
                              

                            

                             

                            Title:  
                              Chairman of the Board

                            
                              

                            

                             

                            
                              By:  TTS
                                Recycling, LLC

                              Its:  Member

                            

                             

                            
                              By: 
                                /s/ DONALD W. HAMAKER

                              
                                

                              

                               

                              Name: 
                                Donald W. Hamaker

                              
                                

                              

                               

                              Title:  
                                President & CEO

                              
                                

                              

                               

                            

                          

                    
                       

                      
                        	 	
                                
                                  
                                    SCHNITZER
                                      GLOBAL EXCHANGE CORP.

                                  

                                

                                 

                                By: 
                                  /s/ RICHARD C. JOSEPHSON

                                
                                  

                                

                                 

                                Name: 
                                  Richard C. Josephson

                                
                                  

                                

                                 

                                Title:   
                                  Secretary

                                
                                  

                                
 

                      

                    

                  

                

              

            

          

        

      

    

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

      
        
           

          
            	 	
                    
                      
                        
                          GREENLEAF
                            AUTO RECYCLERS, LLC

                        

                      

                    

                     

                    By: 
                      /s/ THOMAS MAUN

                    
                      

                    

                     

                    Name: 
                      Thomas Maun

                    
                      

                    

                     

                    Title:   
                      Chief Financial Officer

                    
                      

                    
 

          

          
            
               

              
                	 	
                        
                          
                            PICK-N-PULL
                              AUTO DISMANTLERS

                          

                        

                         

                        
                          By:  Norprop,
                            Inc.

                          Its:  General
                            Partner

                           

                        

                        By: 
                          /s/ RICHARD C. JOSEPHSON

                        
                          

                        

                         

                        Name: 
                          Richard C. Josephson

                        
                          

                        

                         

                        Title:   
                          Secretary

                        
                          

                        
 

              

              
                
                   

                  
                    	 	
                            
                              
                                PICK
                                  AND PULL AUTO DISMANTLING, INC.

                              

                            

                             

                            By: 
                              /s/ RICHARD C. JOSEPHSON

                            
                              

                            

                             

                            Name: 
                              Richard C. Josephson

                            
                              

                            

                             

                            Title:   
                              Secretary

                            
                              

                            
 

                  

                

              

              
                
                   

                  
                    	 	
                            
                              
                                REGIONAL
                                  RECYCLING, INC.

                              

                            

                             

                            By: 
                              /s/ RICHARD C. JOSEPHSON

                            
                              

                            

                             

                            Name: 
                              Richard C. Josephson

                            
                              

                            

                             

                            Title:   
                              Secretary

                            
                              

                            
 

                  

                  
                    
                       

                      
                        	 	
                                
                                  
                                    SCHNITZER
                                      SOUTHEAST, LLC

                                  

                                

                                 

                                By: 
                                  Regional Recycling, Inc.

                                Its:  
Sole
                                  Member

                                 

                                 

                                By:  
/s/
                                  RICHARD C.
                                  JOSEPHSON

                                
                                  

                                

                                 

                                Name: 
                                  Richard C. Josephson

                                
                                  

                                

                                 

                                Title:  
                                  Secretary

                                
                                  

                                
 

                      

                    

                  

                

              

            

          

        

      

    

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

      
        
           

          
            	 	
                    
                      
                        TTS
                          RECYCLING LLC

                      

                    

                     

                    By:  
                      /s/ DONALD W. HAMAKER

                    
                      

                    

                     

                    Name: 
                      Donald W. Hamaker

                    
                      

                    

                     

                    Title:  
                      President & CEO

                    
                      

                    
 

          

        

      

      
        
           

          
            	 	
                    
                      
                        SCHNITZER
                          STEEL HAWAII CORP.

                      

                    

                     

                    By: 
                      /s/ RICHARD C. JOSEPHSON

                    
                      

                    

                     

                    Name: 
                      Richard C. Josephson

                    
                      

                    

                     

                    Title:  
                      Secretary

                    
                      

                    
 

          

          
            
               

              
                	 	
                        
                          
                            PICK-N-PULL
                              AUTO DISMANTLERS, STOCKTON, LLC

                          

                        

                         

                        By: 
                          /s/ RICHARD C. JOSEPHSON

                        
                          

                        

                         

                        Name: 
                          Richard C. Josephson

                        
                          

                        

                         

                        Title:  
                          Secretary

                        
                          

                        
 

              

            

          

        

      

    

    
      
         

        
          	 	
                  
                    
                      METALS
                        RECYCLING L.L.C.

                    

                  

                   

                  By: 
                    /s/ DONALD W. HAMAKER

                  
                    

                  

                   

                  Name: 
                    Donald W. Hamaker

                  
                    

                  

                   

                  Title:  
                    Sole Manager

                  
                    

                  
 

        

      

    

     

     

    
      
        
        

      

      
        7Exhibit
10.1

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (this “Agreement”),
is made and entered into on July 20, 2007 but effective as of January 1, 2007
(the “Effective Date”), by and between PINNACLE GAS RESOURCES, INC., a
Delaware corporation (the “Company”), and PETER G. SCHOONMAKER (“Executive”),
an individual and a resident of the State of Wyoming.  The Company and Executive may sometimes
hereafter be referred to singularly as a “Party” or collectively as the “Parties.”

W I T N E S S E T H:

WHEREAS, the Company desires to continue to secure the
employment services of Executive subject to the terms and conditions hereafter
set forth; and

WHEREAS, Executive is willing to enter into this
Agreement upon the terms and conditions hereafter set forth;

NOW, THEREFORE, in consideration of Executive’s
employment with the Company, and the premises and mutual covenants contained
herein, the Parties hereto agree as follows.

1.             Employment.  During
the Employment Period (as defined in Section 4), the Company shall
employ Executive, and Executive shall serve, as President and Chief Executive
Officer of the Company, and Executive shall have the duties and
responsibilities customarily associated with such offices.  Executive’s principal place of employment
shall be at the main corporate offices of the Company in Sheridan, Wyoming.

2.             Compensation.

(a)           Salary.  The Company shall pay to Executive during the
Employment Period a base salary of $250,000 per year, as adjusted pursuant to
the subsequent provisions of this paragraph (the “Base Salary”).  The Base Salary shall be payable in
accordance with the Company’s normal payroll schedule and procedures for its
executives.  The Base Salary shall be
subject to annual review and may be increased (but not decreased without Executive’s
express consent) by the Compensation Committee (the “Compensation Committee”)
of the Board of Directors of the Company (the “Board”) or the Board at
any time.  Nothing contained herein shall
preclude the payment of any other compensation to Executive at any time.

(b)           Bonus.  In addition to the Base Salary described in Section
2(a), for each annual period commencing on the Effective Date until the
last day of the Employment Period (each such annual period, a “Bonus Period”),
Executive shall be entitled to a bonus of up to 1.0 times Executive’s Base
Salary paid during each such Bonus Period (the “Bonus”); provided, however, that the amount of any such Bonus shall
be in the sole discretion of the Compensation Committee or the Board taking
into account the performance of Executive and the Company, and that any such
Bonus may be paid in cash or through grants of stock options or restricted
stock or any combination of cash and grants of stock options or restricted
stock as determined by the Compensation Committee or the Board in its
discretion.  In the event that the
Employment Period ends before the

end of a Bonus Period, pursuant to the provisions of Section
6, Executive shall be entitled to a pro rata portion of the Bonus for such
Bonus Period (based on the number of days in which he was employed during the
year divided by 365) as determined by the Compensation Committee or the Board
in its sole discretion, unless Executive was terminated for Cause (as defined
in Section 6(g)) or terminated his employment through a Voluntary
Termination (as defined in Section 6(g)), in which event he shall not be
entitled to any Bonus for such Bonus Period. 
Executive acknowledges that the criteria for Executive’s Bonus to be
earned for each Bonus Period shall be set by the Compensation Committee or the
Board, and Executive shall have the opportunity to meet with and discuss such
criteria with the Compensation Committee or Board prior to the finalization of
such criteria.  The Company shall pay
Executive any Bonus amount within 30 days after the Compensation Committee or
Board’s final determination regarding whether to pay, and the amount of, any
Bonus; provided that in the event of a
termination, any pro rata Bonus amount shall be paid in accordance with Section
6.  Notwithstanding any other
provision of this Section 2(b), any final determination by the
Compensation Committee or Board with respect to a Bonus Period shall be made,
and any Bonus payable with respect to a Bonus Period shall be paid in a lump
sum as specified above, not later than 21⁄2 months after the end of the Bonus
Period for which the Bonus is paid.  In
all matters related to the determination of the Bonus earned by Executive
(including the determination of a pro rata amount), the good faith
determination of the Compensation Committee or Board shall be deemed
conclusive.

(c)           Equity
Compensation.  Executive
shall be eligible from time to time to receive grants of stock options,
restricted stock and other long-term equity incentive compensation, as
commensurate with his executive position, under the terms of the Company’s
equity compensation plan.  As an
inducement to Executive to enter into this Agreement, Executive will be granted
30,000 shares of restricted common stock of the Company pursuant to and under
the Amended and Restated Stock Incentive Plan of the Company, dated February
16, 2006, as soon as practicable following the execution hereof, such shares of
restricted common stock to vest in thirds on the third, fourth and fifth
anniversaries of the date of grant.

3.             Duties and
Responsibilities of Executive. 
During the Employment Period, Executive shall devote his services
full-time to the business of the Company and perform the duties and
responsibilities assigned to him under the Company’s Bylaws or by the Board to
the best of his ability and with reasonable diligence.  In determining Executive’s duties and
responsibilities, the Board shall not assign duties and responsibilities to
Executive that are inappropriate for or inconsistent with his position as President
and Chief Executive Officer.  This Section
3 shall not be construed as preventing Executive from (a) engaging in
reasonable volunteer services for charitable, educational or civic
organizations or (b) investing his assets in the operation of businesses in
such a manner that will not require a material amount of his time or services; provided, however, that no such other activity shall
conflict with Executive’s loyalties and duties to the Company.  Executive shall at all times use his best
efforts to comply in good faith with federal and state laws applicable to
Executive’s actions on behalf of the Company and its Affiliates (as defined in Section
6(g)).  Executive understands and
agrees that he may be required to travel from time to time for purposes of the
Company’s business.

 2
 

4.             Term of Employment. 
Executive’s initial term of employment with the Company under this
Agreement shall be for the period from the Effective Date through December 31,
2007 (the “Initial Term of Employment”). 
The employment term hereunder shall be automatically extended for an
additional one-year period on January 1, 2008, and on each January 1
thereafter, unless Notice of Termination (pursuant to Section 7) is
given by either the Company or Executive to the other Party at least 60 days
prior to the end of the Initial Term of Employment, or any one-year extension
thereof, as applicable, that this Agreement will not be renewed for an
additional one-year period after the end of the then-current period.  The Company and Executive shall each have the
right to give Notice of Termination at will, with or without cause, at any
time, subject, however, to the terms and conditions of this Agreement regarding
the rights and duties of the Parties upon termination of Executive’s
employment.  The Initial Term of
Employment, and any one-year extension of Executive’s employment hereunder,
shall each be referred to herein as a “Term of Employment.”  The period from the Effective Date through
the date of Executive’s termination of employment for whatever reason shall be
referred to herein as the “Employment Period.”

5.             Benefits.  Subject to the terms and conditions of this
Agreement, during the Employment Period, Executive shall be entitled to all of
the following:

(a)           Reimbursement
of Business Expenses.  The
Company shall pay or reimburse Executive for all reasonable travel,
entertainment and other expenses paid or incurred by Executive in the
performance of his duties hereunder in accordance with the Company’s policies
in effect from time to time, including, without limitation, expenses incurred
in connection with membership in industry and civic organizations approved by
the Compensation Committee or the Board. 
The Company shall also provide Executive with suitable office space,
including staff support.  Without
limiting the foregoing, in the event that Executive is required to relocate his
primary residence at the request of the Board, then the Company shall pay for
the reasonable moving expenses incurred to move Executive and his immediate
family to such new location.  In no event
shall reimbursement of an eligible expense hereunder be made later than the
last day of Executive’s taxable year following the taxable year in which the
expense was incurred.  In addition, the
right to reimbursement hereunder may not be exchanged for any other benefit.

(b)           Other
Employee Benefits. 
Executive shall be entitled to participate in, and shall participate in
coverage under, any employee benefit plans or programs of the Company to the
same extent as available to any other employees of the Company under the terms
of such plans or programs.

(c)           Paid
Vacation and Holidays. 
Executive shall be entitled to accrue paid vacation days in each
calendar year determined in accordance with the Company’s PTO policy or plans
for employees of the Company as in effect from time to time.  Executive shall also be entitled to all paid
holidays and personal days given by the Company to any of its other employees.

6.             Rights and
Payments upon Termination. 
The Executive’s right to compensation and benefits for periods after the
date on which his employment with the Company

 3
 

terminates for whatever
reason (the “Termination Date”) shall be determined in accordance with
this Section 6 as follows:

(a)           Minimum
Payments.  Executive (or
in the event of Executive’s death, the Designated Beneficiary (as defined in Section
6(g)) shall be entitled to the following minimum payments under this Section
6(a) in addition to any other payments or benefits to which he is entitled
under the terms of any employee benefit plan or program or Sections 6(b),
6(c), or 6(d):

(1)           payment of his accrued
but unpaid Base Salary through the Termination Date;

(2)           payment for his unused
paid vacation days which have accrued through the Termination Date; and

(3)           reimbursement of his
reasonable business expenses that were incurred but not reimbursed as of the
Termination Date.

The Company shall make payments pursuant to clauses
(1) and (2) above within 15 days following the Termination Date in a cash lump
sum, less any applicable withholding. 
Business expenses shall be reimbursed in accordance with the Company’s
normal procedures; provided, however, in no event shall reimbursement of an eligible
expense hereunder be made later than the last day of Executive’s taxable year
following the taxable year in which the expense was incurred.  In addition, the right to reimbursement
hereunder may not be exchanged for any other benefit.

(b)           Termination
without Cause or for Good Reason.  In the event that during the Term of Employment
(i) Executive’s employment is terminated by the Company for any reason
(including by reason of his Disability (as defined in Section 6(g))
except due to his death or due to an event or circumstance constituting Cause
(as defined in Section 6(g)) or (ii) Executive terminates his employment
hereunder for Good Reason (as defined in Section 6(g)), the following
severance benefits shall be provided to Executive or, in the event of his death
before receiving all such benefits, to his Designated Beneficiary following his
death:

(1)           payment of an amount
equal to the sum of (x) 1.0 times his then-current Base Salary and (y) 18.0
times the monthly health savings account contribution last made by the Company
for the benefit of Executive (and his dependents, if applicable) prior to the
Termination Date;

(2)           payment of an amount
equal to the product of (x) any Bonus that would have been paid to Executive
with respect to the year in which such termination occurred had such
termination not occurred and (y) a fraction, the numerator of which is the
number of days in the year through the Termination Date and the denominator of
which is 365;

(3)           following the
Termination Date, the Company shall provide continued group health coverage (by
payment of premiums and any applicable

 4
 

federal and state
withholding taxes based on the premiums paid) to Executive and his covered
spouse and dependents under the Consolidated Omnibus Budget Reconciliation Act
of 1985 (“COBRA”), provided that
Executive makes timely election of such coverage.  The Company shall continue to
provide such COBRA coverage at no cost to Executive until (i) Executive becomes
eligible for group health coverage under another employer’s plan with
comparable benefits, (ii) the date COBRA coverage terminates or (iii) for 18
months, whichever period of time is less. 
Upon his acceptance of employment with another employer, Executive shall
be obligated to notify the Company of such acceptance of employment and to
provide to the Company a copy of the summary plan description of the new
employer’s group health plan and a schedule showing the required employee
contributions for participation in the plan. 
In the event of any change to the provisions of the Company’s group
health plan following the Termination Date, Executive and his spouse and
dependents, as applicable, shall be treated consistently with the then-current
officers of the Company (or its successor) with respect to the terms and
conditions of coverage and other substantive provisions of the plan.  Executive and his spouse hereby agree to
acquire and maintain any and all coverage to which either or both of them are
entitled at any time during their lives under the Medicare program or any
similar program of the United States or any agency thereof (“Medicare”).  The coverage described in the immediately
preceding sentence includes, without limitation, Parts A and B of Medicare and
any additional parts of Medicare available to them at any time.  Executive and his spouse further agree to pay
any required premiums for Medicare coverage from their personal funds;

(4)           notwithstanding
anything to the contrary in any option agreement, restricted stock grant
agreement or other equity compensation grant agreement to which Executive is
party, the immediate vesting and/or exercisability of each and every stock
option, share of restricted stock and other equity compensation award held by
Executive immediately prior to the Termination Date; and

(5)           notwithstanding
anything to the contrary in any option agreement to which Executive is party,
each stock option held by Executive immediately prior to the Termination Date
that is accelerated pursuant to clause (4) above shall be exercisable within 90
days following the Termination Date, but not later than the earliest date upon
which the stock option expires by its original terms or the 10th anniversary of
the original date of grant of the stock option; provided,
however, that in the case of a termination due to Executive’s
Disability, each such stock option shall be exercisable within one year of the
Termination Date, but not later than the earliest date upon which the stock
option expires by its original terms or the 10th anniversary of the original
date of grant of the stock option; provided, further,
that any such period shall be extended by the number of days during which
Executive is unable to exercise such stock options pursuant to the terms of any
“lock-up” or similar agreement to which Executive is a party, but not later
than the earliest date upon which the stock option expires by its original
terms or the 10th anniversary of the original date of grant of the stock
option; and provided, further, that notwithstanding
anything to the contrary in any option

 5
 

agreement to which
Executive is a party, in any such case, the exercise price may be paid through
(A) surrender of shares of common stock of the Company held by Executive for at
least six months prior to exercise (or such longer or shorter period as may be
required to avoid a charge to earnings for financial accounting purposes), where
such shares of common stock have a fair market value at the time of exercise at
least equal to the aggregate exercise price of such stock options, (B)
retention of shares of common stock of the Company which would otherwise be
delivered upon exercise of such stock options having a fair market value at the
time of exercise at least equal to the aggregate exercise price of such stock
options or (C) any other method of exercise approved by the Compensation
Committee.

The Company shall make payment pursuant to clause (1)
above within 60 days following the Termination Date in a cash lump sum, less
any applicable withholding.  The Company
shall make payment pursuant to clause (2) above as soon as practicable
following the end of the fiscal year during which such termination occurred,
but in no event later than 21⁄2 months after the end of such fiscal year, in a
cash lump sum, less any applicable withholding. 
The Company shall make payment of premiums described in clause (3) above
not later than the due date of the premiums and shall make payment of
withholding taxes based on the payment of premiums not later than the
applicable due date for payment of the applicable withholding taxes.  Without limiting the scope of the preceding
provisions of this Section 6(b), to the extent that at any time
prescribed under Section 409A of the Internal Revenue Code of 1986, as amended
(the “Code”), and regulations or other regulatory guidance issued
thereunder, Executive is a key employee, as defined in Code Section 416(i)
without regard to paragraph 5 thereof, except to the extent permitted under
Code Section 409A and regulations or other regulatory guidance issued
thereunder, no distribution or payment that is subject to Code Section 409A
shall be made under this Agreement on account of Executive’s separation from
service, as defined in Code Section 409A and the regulations or other
regulatory guidance issued thereunder, with the Company (at any time when
Executive is deemed under Code Section 409A and regulations or other regulatory
guidance issued thereunder to be a specified employee, as defined in Code
Section 409A and regulations or other regulatory guidance issued thereunder,
and any stock of the Company is publicly traded on an established securities
market or otherwise) before the date that is the first day of the month that
occurs six months after the date of Executive’s separation from service (or, if
earlier, the date of death of Executive or any other date permitted under Code
Section 409A and regulations or other regulatory guidance issued thereunder).

(c)           Termination
Following a Change of Control. 
In the event that during the Term of Employment (i) Executive’s
employment is terminated by the Company for any reason (including by reason of
his Disability) except due to his death or due to an event or circumstance
constituting Cause or (ii) Executive terminates his employment hereunder for
Good Reason or due to his Retirement (as defined in Section 6(g)), in
each case within one year following a Change of Control (as defined in Section
6(g)), the following severance benefits shall be provided to Executive or,
in the event of his death before receiving all such benefits, to his Designated
Beneficiary following his death:

 6
 

(1)           payment of an amount
equal to 1.5 times his then-current Base Salary; and

(2)           the payments and
benefits described in Sections 6(b)(2) through (b)(5) above.

Such payments
shall be made within the time periods and subject to the conditions and
limitations described in the last paragraph of Section 6(b).

(d)           Termination
Due to Death.  In the
event that during the Term of Employment, Executive’s employment is terminated
by reason of his death, the following benefits shall be provided to his
Designated Beneficiary:

(1)           payment of an amount
equal to 50% of Executive’s Base Salary at the time of his death;

(2)           payment of an amount
equal to the product of (x) any Bonus that would have been paid to Executive
with respect to the year in which such death occurred had Executive’s
employment not been terminated due to his death and (y) a fraction, the
numerator of which is the number of days in the year through the Termination
Date and the denominator of which is 365;

(3)           following the
Termination Date, the Company shall provide continued group health coverage (by
payment of premiums and any applicable federal and state withholding taxes
based on the premiums paid) to Executive’s covered spouse and dependents under
COBRA at no cost to Executive’s spouse and dependents for a period of 18 months
from the Termination Date;

(4)           notwithstanding
anything to the contrary in any option agreement, restricted stock grant
agreement or other equity compensation grant agreement to which Executive was
party, the immediate vesting and/or exercisability of each and every stock
option, share of restricted stock and other equity compensation award held by
Executive immediately prior to his death; and

(5)           notwithstanding
anything to the contrary in any option agreement to which Executive was party,
each stock option held by Executive immediately prior to his death that is
accelerated pursuant to clause (4) above shall be exercisable within one year
of the Termination Date, but not later than the earliest date upon which the
stock option expires by its original terms or the 10th anniversary of the
original date of grant of the stock option.

The Company shall make payment pursuant to clause (1)
above within 60 days following the Termination Date in a cash lump sum, less
any applicable withholding.  The Company
shall make payment pursuant to clause (2) above as soon as practicable
following the end of the fiscal year during which such termination occurred,
but in no event later than 21⁄2 months after the end of such fiscal year, in a
cash lump sum, less any applicable withholding. 
The Company shall make payment of premiums described in

 7
 

clause (3) above not
later than the due date of the premiums and shall make payment of withholding
taxes based on the payment of premiums not later than the applicable due date
for payment of the applicable withholding taxes.

(e)           Termination
for Cause or without Good Reason.  In the event that (i) Executive voluntarily
resigns or otherwise voluntarily terminates his own employment without Good
Reason (excluding a voluntary termination due to Retirement following a Change
of Control as described in Section 6(c)) or (ii) Executive’s employment
is terminated by the Company for Cause, then in either such event, the Company
shall have no obligations except to make the minimum payments described under Section
6(a) and offer COBRA coverage (as required by applicable law).

(f)            Notwithstanding any
provision of this Agreement to the contrary, in order to receive any payments
and benefits pursuant to this Section 6 (other than payments and
benefits described in Sections 6(a) and 6(e)), Executive must
first execute an appropriate release agreement (on a form provided by the
Company) whereby Executive agrees to release and waive, in return for such
payments and benefits, any claims that he may have against the Company
including, without limitation, for unlawful discrimination (such as under Title
VII of the Civil Rights Act); provided, however,
that such release agreement shall not release any claim by Executive for any
payment or benefit that is due under this Agreement, any indemnification
agreement between the Company and Executive, or any employee benefit plan until
such claim, payment or benefit has been fully paid.  Should the Company fail to receive an
executed release described in the immediately preceding sentence prior to the
latest date on which a payment under Sections 6(b) through 6(d)
must be made under the terms of this Agreement, such payment shall be forfeited
in full.  The payments and benefits
provided under this Agreement shall supersede and replace any severance payments
under any severance pay plan that the Company or any Affiliate maintains for
employees generally.

(g)           Definitions.

(1)           “Affiliate”
means any entity in which the Company has a 50% or greater capital, profits or
voting interest.

(2)           “Cause”
means any of the following:

(A)          Executive’s conviction
of, plea of nolo contendere to, or receipt of
deferred adjudication with respect to a felony crime;

(B)           a violation by Executive
of federal or state securities laws;

(C)           Executive’s commission,
in the good faith judgment of the Board, of an act of sexual or other unlawful
harassment or moral turpitude;

(D)          a breach by Executive of
a fiduciary duty owed to the Company;

 8
 

(E)           a breach by Executive
of any of the provisions of Sections 10 through 16 of this
Agreement;

(F)           the commission by
Executive of a material act of fraud upon the Company or any Affiliate;

(G)           the material
misappropriation by Executive of funds or property of the Company or any
Affiliate;

(H)          the knowing engagement by
Executive, without the written approval of the Board or the Compensation
Committee, in any material activity which directly competes with the business
of the Company or any Affiliate, or which the Board or the Compensation
Committee determines in good faith would directly result in a material injury
to the business or reputation of the Company or any Affiliate; or

(I)            (i) a material breach
by Executive of any material provision of this Agreement (other than the
provisions of Sections 10 through 16 hereof) or (ii) the willful,
material and repeated nonperformance of Executive’s duties to the Company or
any Affiliate (other than by reason of Executive’s illness or incapacity), but
in each case only after written notice from the Board or the Compensation
Committee of such material breach or nonperformance (which notice specifically
identifies the manner in which, and sets forth specific facts, circumstances
and examples which the Board or Compensation Committee believes demonstrate
that, Executive has breached the Agreement or not substantially performed his
duties) and Executive’s continued, willful failure to cure such breach or
nonperformance within the time period set by the Board or the Compensation
Committee, but in no event less than 30 business days after his receipt of such
notice; provided that for purposes of this
clause (H), no act or failure to act on Executive’s part shall be deemed “willful”
unless it is done or omitted by Executive in the absence of a reasonable belief
that such action or omission was in the best interest of the Company.  Assuming disclosure of the pertinent facts,
any action or omission by Executive after consultation with, and in accordance
with the advice of, legal counsel reasonably acceptable to the Company shall be
deemed to have been taken in good faith and not to be “willful” under this
Agreement.

(4)           “Change of
Control” of the Company means the occurrence of any one of the
following events:

(A)          the acquisition by any
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”))
of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange
Act) of 50% or more of either (i) the then outstanding shares of common stock
of the

 9
 

Company (the “Outstanding
Company Stock”) or (ii) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
directors (the “Outstanding Company Voting Securities”); provided, however, that the following acquisitions shall not
constitute a Change of Control: (w) any acquisition directly from the Company
or any subsidiary thereof (a “Subsidiary”), (x) any acquisition by the
Company or any Subsidiary, or by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any Subsidiary, (y) any acquisition
by any corporation pursuant to a reorganization, merger, consolidation or
similar business combination involving the Company (a “Merger”), which
for purposes of this definition of Change of Control shall be subject to
paragraph (B) (below) or (z) the current ownership or any subsequent
acquisitions of Outstanding Company Stock or Outstanding Company Voting
Securities by Credit Suisse First Boston and/or any of its affiliates,
including without limitation any of the “CSFB Parties” (as defined in the
Amended and Restated Securityholders Agreement dated as of February 16, 2006,
by and among the Company and the stockholders of the Company party thereto) and
their affiliates;

(B)           approval by the stockholders
of the Company of a Merger, unless immediately following such Merger,
substantially all of the holders of the Outstanding Company Voting Securities
immediately prior to Merger beneficially own, directly or indirectly, more than
50% of the common stock of the corporation resulting from such Merger (or its
parent corporation) in substantially the same proportions as their ownership of
Outstanding Company Voting Securities immediately prior to such Merger; or

(C)           the sale or other
disposition of all or substantially all of the assets of the Company, unless
immediately following such sale or other disposition, substantially all of the
holders of the Outstanding Company Voting Securities immediately prior to the
consummation of such sale or other disposition beneficially own, directly or
indirectly, more than 50% of the common stock of the corporation acquiring such
assets in substantially the same proportions as their ownership of Outstanding
Company Voting Securities immediately prior to the consummation of such sale or
disposition.

(5)           “Disability”
means that Executive is entitled to receive long-term disability (“LTD”)
income benefits under the LTD plan or policy maintained by the Company that
covers Executive.  If, for any reason,
Executive is not covered under such LTD plan or policy, then “Disability” shall
mean a “permanent and total disability” as defined in Section 22(e)(3) of the
Code and the Treasury regulations thereunder. 
Evidence of such Disability shall be certified by a physician acceptable
to both the Company and Executive.  In
the event that the Parties are not able to agree on the choice of a physician,
each shall select one

 10

physician who, in
turn, shall select a third physician to render such certification.  All costs relating to the determination of
whether Executive has incurred a Disability shall be paid by the Company.  Executive agrees to submit to any
examinations that are reasonably required by the attending physician or other
healthcare service providers to determine whether he has a Disability.

(7)           “Designated
Beneficiary” means the Executive’s surviving spouse, if any.  If there is no such surviving spouse at the
time of Executive’s death, then the Designated Beneficiary hereunder shall be
Executive’s estate.

(8)           “Good Reason”
means the occurrence of any of the following events, except in connection with
termination of the Executive’s employment for Cause or Disability, without
Executive’s express written consent:

(A)          A substantial change in
Executive’s duties that constitutes a material breach by the Company of the
terms of this Agreement, or the assignment to Executive of duties or
responsibilities which are materially inconsistent with the duties or
responsibilities previously exercised by Executive and, as a result, constitute
a material breach by the Company of the terms of this Agreement, or a material
diminution or reduction in the duties and responsibilities previously exercised
by Executive, excluding in each case (i) an isolated, insubstantial and
inadvertent action, not taken in bad faith, which is remedied by the Company
promptly upon receipt of notice thereof given by Executive and (ii) a change in
the title or responsibilities of Executive, provided that
the duties and responsibilities of Executive continue to involve the management
of the operations and assets of the Company in the geographical areas in which
the Company owns oil and natural gas properties or assets as of the date
hereof;

(B)           Any material breach of
this Agreement (not already covered in Section 6(g)(8)(A), (C) or
(D) by the Company or any successor;

(C)           Any purported
termination by the Company of Executive’s employment otherwise than as expressly
permitted by this Agreement resulting in a material breach by the Company of
the terms of this Agreement; or

(D)          Any failure by the
Company to obtain an assumption of this Agreement by its successor in interest
pursuant to the terms hereof.

Notwithstanding
the foregoing definition of Good Reason, Executive cannot terminate his
employment for Good Reason unless he (x) first notifies the Board or the
Compensation Committee in writing of the occurrence of an event which Executive
believes constitutes a Good Reason event under clauses (A), (B) or (C)
above within 90 days from the date of such event, and (y) provides
the Company with at least 30 days to cure, correct or mitigate such Good
Reason

 11
 

event such that either
(1) such event does not constitute a Good Reason event hereunder or
(2) Employee agrees in writing that after or in light of any such cure,
correction, mitigation or other accommodation made by the Company, such event
does not constitute a Good Reason event hereunder.

(9)           “Retirement”
means the termination of Executive’s employment for normal retirement at or
after attaining age 65 provided that,
on the date of his retirement, Executive has accrued at least five years of
active service with the Company.

(10)         “Voluntary
Termination” means the termination of Executive’s employment by
Executive other than for Good Reason, death or Disability or due to his
Retirement following a Change of Control.

7.             Notice of Termination. 
Any termination of employment under this Agreement by the Company or the
Executive shall be communicated by Notice of Termination to the other Party
hereto.  For purposes of this Agreement,
the term “Notice of Termination” means a written notice which indicates
the specific termination provision of this Agreement relied upon and sets forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive’s employment under the provision so indicated.

8.             Non-Renewal in Connection with a Change of Control.  In the event that Executive’s employment is
terminated, within six months preceding or following a Change of Control, due
to a non-renewal of this Agreement by the Company (pursuant to Section 4)
for any reason other than for Cause, Executive shall be entitled to the
severance benefits described in Section 6(c).

9.             No Mitigation. 
Subject to Section 6(b)(3),
Executive shall not be required to mitigate the amount of any payment provided
for under this Agreement by seeking other employment or in any other manner.

10.           Confidential Information.

(a)           Access
to Confidential Information. 
Prior to the Effective Date the Company has given to Executive, and
after the Effective Date and on an ongoing basis the Company will give to
Executive, access to secret and confidential information, knowledge and data
relating to the Company, its Affiliates and its and their business, including,
without limitation, technical and business information, whether patentable or
not, which is of a confidential, trade secret or proprietary character, and
which was or is either developed by Executive alone, with others or by others;
lists or identities of customers or prospective customers; contract terms;
bidding information and strategies; acquisition prospects; pricing methods or
information; computer software; computer software methods and documentation;
hardware; the methods of operation of the Company and its Affiliates, including
the procedures, forms and techniques used by the Company and its Affiliates in
its and their business; oil and gas reserve data regarding the Company’s
properties or prospects; and other information or documents that the Company
requires to be maintained in confidence for the Company’s continued business

 12
 

success (collectively, “Confidential Information”),
which the Executive did not have access to or knowledge of before such access
or knowledge was given by, or acquired in connection with work on behalf of,
the Company.

(b)           Agreement
Not to Use or Disclose Confidential Information.  In exchange for the Company’s promises to
provide Executive with Confidential Information, Executive shall not during the
period of Executive’s employment with the Company, or at any time thereafter,
disclose to anyone, including, without limitation, any person, firm,
corporation, or other entity, publish or use for any purpose, any Confidential
Information, except as properly required in the ordinary course of the Company’s
business or as directed and authorized by the Company.

(c)           Agreement
to Refrain from Defamatory Statements.  Executive shall not, during the period of
Executive’s employment with the Company, or at any time thereafter, make or
publish any oral or written statements about the Company, any of its Affiliates
or any of their respective directors, officers, employees, agents, investors or
representatives that are slanderous, libelous, or defamatory; or that disclose
private or confidential information about the Company, its Affiliates or any of
their respective business affairs, directors, officers, employees, agents
investors or representatives; or that constitute an intrusion into the
seclusion or private lives of the directors, officers, employees, agents,
investors or representatives of the Company or its Affiliates; or that give
rise to unreasonable publicity about the private lives of such directors,
officers, employees, agents, investors or representatives; or that place such
directors, officers, employees, agents, investors or representatives in a false
light before the public; or that constitute a misappropriation of the name or
likeness of such directors, officers, employees, agents, investors or
representatives.  A violation or
threatened violation of this Section 10(d) may be enjoined.

11.           Duty to Return Company Documents and Property.  Upon the termination of Executive’s
employment with the Company for any reason, Executive shall immediately return
and deliver to the Company any and all papers, books, records, documents,
memoranda, manuals, e-mail, electronic or magnetic recordings or data,
including all copies thereof, belonging to the Company or relating to its
business, in Executive’s possession, whether prepared by Executive or
others.  If at any time following the
termination of Executive’s employment, Executive determines that he has any
Confidential Information in his possession or control, Executive shall
immediately return to the Company all such Confidential Information, including
all copies and portions thereof.

12.           Best Efforts and Disclosure. 
Executive agrees that, while he is employed with the Company, he shall
devote his full business time and attention to the Company’s business and shall
use his best efforts to promote its success. 
Further, Executive shall promptly disclose to the Company all ideas,
inventions, computer programs, and discoveries, whether or not patentable or
copyrightable, that he may conceive, produce, develop or make, alone or with
others, during the Employment Period, whether or not during working hours, and
that directly or indirectly:

(a)           relate to matters
within the scope, field, duties or responsibility of Executive’s employment
with the Company;

 13
 

(b)           are based on any
knowledge of the actual or anticipated business or interests of the Company; or

(c)           are aided by the use of
time, materials, facilities or information of the Company.

Executive assigns to the Company, without further
compensation, any and all rights, titles and interest in all such ideas,
inventions, computer programs and discoveries in all countries of the
world.  Executive recognizes that all
ideas, inventions, computer programs and discoveries of the type described
above, conceived, produced, developed or made by Executive alone or with others
within six months after termination of his employment with the Company
(voluntary or otherwise) are likely to have been conceived, produced, developed
or made in significant part either while employed by the Company or as a direct
result of knowledge Executive had of proprietary information of the
Company.  Accordingly, Executive agrees
that such ideas, inventions, computer programs or discoveries shall be presumed
to have been conceived, produced, developed or made during his employment with
the Company, unless and until the contrary is clearly established by the
Executive.

13.           Inventions and Other Works. 
Any and all writings, computer software, inventions, improvements,
processes, procedures or techniques which Executive may conceive, produce,
develop, discover or make, alone or with others, at any time during the
Employment Period, whether at the request or upon the suggestion of the Company
or otherwise, which relate to or are useful in connection with any business now
or hereafter carried on or contemplated by the Company, including developments
or expansions of its present fields of operations, shall be the sole and
exclusive property of the Company.  Executive agrees to take any and all actions
necessary or appropriate so that the Company can prepare and present
applications for copyrights or patents therefor, and can secure such copyrights
or patents wherever possible, as well as reissue renewals, and extensions
thereof, and can obtain the record title to such copyrights or patents.  Executive shall not be entitled to any
additional or special compensation or reimbursement regarding any such
writings, computer software, inventions, improvements, processes, procedures or
techniques.  Executive acknowledges that
the Company from time to time may have agreements with other persons or
entities which impose obligations or restrictions on the Company regarding
inventions made during the course of work thereunder or regarding the
confidential nature of such work. 
Executive agrees to be bound by all such obligations and restrictions
and to take all action necessary to comply with or fulfill such obligations of
or restrictions on the Company.

14.           Non-Solicitation Restriction.  Executive hereby agrees that in order to
protect the Company’s Confidential Information, and in consideration of the
receipt of 30,000 shares of restricted common stock of the Company pursuant to Section
2(c), the adequacy and sufficiency of which are hereby acknowledged, in the
event of the termination of Executive’s employment for whatever reason, whether
by Executive or the Company, it is necessary to enter into the following
restrictive covenant, which is ancillary to the enforceable promises between
the Company and Executive in Sections 10 through 13, 15
and 16 of this Agreement. 
Executive hereby covenants and agrees that he will not, directly or
indirectly, either individually or as a principal, partner, agent, consultant,
contractor, employee, director or officer of any entity, or in any other manner
or capacity whatsoever, except on behalf on behalf of the Company, solicit

 14
 

business, or attempt to
solicit business, in products or services competitive with any products or
services sold (or offered for sale) by the Company or any Affiliate, from the
Company’s or such Affiliate’s customers or prospective customers, or those
individuals or entities with whom the Company or any Affiliate did any business
during the two-year period ending on the Termination Date.  Subject to Section 17, the
prohibitions set forth in this Section 14 shall remain in effect for a
period of two years following the Termination Date.

15.           Non-Competition Restrictions.

(a)           Executive hereby agrees
that in order to protect the Company’s Confidential Information, and in
consideration of the receipt of 30,000 shares of restricted common stock of the
Company pursuant to Section 2(c), the adequacy and sufficiency of which
are hereby acknowledged, in the event of the termination of Executive’s
employment for whatever reason, whether by Executive or the Company, it is
necessary to enter into the following restrictive covenant, which is ancillary
to the enforceable promises between the Company and Executive in Sections 10
through 14 and 16 of this Agreement.  Executive hereby covenants and agrees that he
will not, during the Employment Period and for a period of one year following
the Termination Date, directly or indirectly, either individually or as a
principal, partner, agent, consultant, contractor, employee, director or
officer of any entity, or in any other manner or capacity whatsoever, in any
county in the United States or any province in Canada in which, or otherwise
within 150 miles of where, the Company or any of its Affiliates are conducting
any business as of the Termination Date or have conducted any business during
the one-year period ending on the Termination Date (the “Territory”),
including, but not limited to, the business of acquiring, exploring for and
developing natural gas reserves, owning and operating natural gas gathering
pipelines or systems, and treating and disposing of water produced during coal
bed methane production operations:

(1)           engage in any business competitive with
the business conducted by the Company or its Affiliates;

(2)           render advice or services to, or
otherwise assist, any other person, association, or entity who is engaged,
directly or indirectly, in any business competitive with the business conducted
by the Company or its Affiliates;

(3)           solicit business, or attempt to solicit
business, within the Territory, in products or services competitive with any
products or services sold (or offered for sale) by the Company or any
Affiliate, from the Company’s or such Affiliate’s customers or prospective
customers, or those individuals or entities with whom the Company or any
Affiliate did any business during the two-year period ending on the Termination
Date; or

(4)           testify as an expert witness in matters
related to the Company’s business for an adverse party to the Company in
litigation; provided that nothing contained herein
shall interfere with Executive’s duty to testify as a witness if required by
law;

 15
 

provided,
however, that this Section 15 shall not prohibit or be
construed to prohibit Executive from owning less than 2% of any class of stock
or other security of an entity which is publicly traded on a national
securities exchange or in a recognized over-the-counter market, even if such
entity or its affiliates are engaged in competition with the Company or any of
its Affiliates; and provided, further,
that this Section 15 shall not prohibit or be construed to prohibit
Executive from owning an interest in properties outside of Wyoming, Montana,
Colorado, North Dakota and Utah (x) listed in Schedule I attached hereto or (y)
if acquired after the date on which this Agreement was executed, with respect
to which Executive first informed the Board of the opportunity to acquire such
interest and the Board expressly declined to cause the Company to acquire such
interest.

(b)           Executive understands
that the foregoing restrictions may limit Executive’s ability to engage in
certain businesses during the period provided for above, but acknowledges that
he will receive sufficiently high remuneration and other benefits under this
Agreement to justify such restriction. 
Executive acknowledges that money damages may not be a sufficient remedy
for any breach of this Section 15 by Executive, and that the Company
shall be entitled to enforce the provisions of this Section 15 by
terminating any payments then owing to Executive under this Agreement and/or to
seek specific performance and injunctive relief as remedies for such
breach.  Such remedies shall not be
deemed the exclusive remedies for a breach of this Section 15, but shall
be in addition to all other remedies available at law or in equity to the
Company, including, without limitation, the recovery of damages from Executive
and Executive’s agents involved in such breach. 
Executive further agrees to waive any requirement for the Company to
secure or post any bond in connection with such remedies.

(c)           It is expressly
understood and agreed that the Company and Executive consider the restrictions
contained in this Section 15 to be reasonable and necessary to protect
the Confidential Information and other proprietary information of the
Company.  Nevertheless, if any of the
aforesaid restrictions are found by any court having jurisdiction to be
unreasonable, or overly broad as to geographic area or time, or otherwise
unenforceable, the Parties intend for such restriction to be modified by such
court so as to be reasonable and enforceable and, as so modified by such court,
to be fully enforced.

(d)           The covenants in this Section
15 are severable and separate, and the unenforceability of any specific
covenant shall not affect the provisions of any other covenant.  Moreover, in the event that any court having
jurisdiction shall determine that the scope, time or territorial restrictions
set forth in this Section 15 are unreasonable, then it is the intention
of the Parties that such restrictions be enforced to the fullest extent which
the court deems reasonable, and this Agreement shall thereby be reformed.

(e)           Each covenant in this Section
15 shall be construed as an agreement independent of any other provision in
this Agreement, and the existence of any claim or cause of action of Executive
against the Company, whether predicated on this Agreement or otherwise, shall
not constitute a defense to the enforcement by the Company of each such
covenant.  It is specifically agreed that
the period following the Termination Date

 16
 

during which the
agreements and covenants of Executive made in this Section 15 shall be
effective shall be calculated by excluding from such calculation any time
during which Executive is in material violation of any provision of this Section
15.

16.           No-Recruitment Restriction. 
In consideration of the receipt of 30,000 shares of restricted common
stock of the Company pursuant to Section 2(c), the adequacy and
sufficiency of which are hereby acknowledged, Executive agrees that during the
Employment Period, and for a period of two years following the Termination
Date, directly or indirectly, either individually or as a principal, partner,
agent, consultant, contractor, employee, director or officer of any entity, or
in any other manner or capacity whatsoever, solicit, influence or seek to
solicit or influence any employee of the Company or any Affiliate to terminate,
reduce or otherwise adversely affect his or her employment with the Company or
such Affiliate.

17.           Tolling.  If Executive
violates any of the restrictions contained in Sections 10 through 16
of this Agreement, the restrictive period will be suspended and will not run in
favor of Executive from the time of the commencement of any violation until the
time when the Executive cures the violation to the Company’s reasonable
satisfaction.

18.           Reformation.  If a
court or arbitrator concludes that any time period or the geographic area
specified in any restrictive covenant in Sections 10 through 16
of this Agreement is unenforceable, then the time period will be reduced by the
number of months, or the geographic area will be reduced by the elimination of
such unenforceable portion, or both, so that the restrictions may be enforced
in the geographic area and for the time period to the fullest extent permitted
by law.

19.           No Previous Restrictive Agreements.  Executive represents that, except as
disclosed in writing to the Company, he is not bound by the terms of any
agreement with any previous employer or other party to (a) refrain from using
or disclosing any trade secret or confidential or proprietary information in
the course of Executive’s employment by the Company or (b) refrain from
competing, directly or indirectly, with the business of such previous employer
or any other party.  Executive further
represents that his performance of all the terms of this Agreement and his work
duties for the Company does not, and will not, breach any agreement to keep in
confidence proprietary information, knowledge or data acquired by Executive in
confidence or in trust prior to Executive’s employment with the Company, and
that Executive will not disclose to the Company or induce the Company to use
any confidential or proprietary information or material belonging to any
previous employer or others.

20.           Conflicts of Interest. 
In keeping with his fiduciary duties to the Company, Executive hereby
agrees that he shall not become involved in any conflict of interest, or upon
discovery any such conflict of interest allow it to continue, at any time
during the Employment Period.

21.           Remedies.  Executive
acknowledges that the restrictions contained Sections 10 through 20
of this Agreement, in view of the nature of the Company’s business, are
reasonable and necessary to protect the Company’s legitimate business
interests, and that any violation of this Agreement would result in irreparable
injury to the Company.  In the event of a
breach or a threatened breach by Executive of any provision of Sections 10
through 20 of this Agreement,

 17
 

the Company shall be
entitled to a temporary restraining order and injunctive relief restraining
Executive from the commission of any breach, and to recover the Company’s
attorneys’ fees, costs and expenses related to such breach or threatened
breach.  Nothing contained in this
Agreement shall be construed as prohibiting the Company from pursuing any other
remedies available to it for any such breach or threatened breach, including,
without limitation, the recovery of money damages, attorneys’ fees, and
costs.  The covenants and agreements in Sections
10 through 20 shall each be construed as independent of any other
provisions in this Agreement, and the existence of any claim or cause of action
by Executive against the Company, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
such covenants and agreements.

22.           Withholding; Right of Offset.  The Company may withhold and deduct from any
benefits and payments made or to be made pursuant to this Agreement (a) all
federal, state, local and other taxes that may be required to be withheld
pursuant to any law or governmental regulation or ruling, (b) all other normal
employee deductions made with respect to Company’s employees generally, and (c)
any advances made to Executive and owed to Company; provided,
however, that any amounts described in
clause (b) or (c) above shall not be offset against any payments due under this
Agreement that constitute nonqualified deferred compensation that is subject to
Code Section 409A, except as expressly permitted under regulations or other
regulatory authority issued under Code Section 409A.

23.           Nonalienation.  The
right to receive payments under this Agreement shall not be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge or
encumbrances by Executive or his dependents or beneficiaries, or to any other
person who is or may become entitled to receive such payments hereunder.  The right to receive payments hereunder shall
not be subject to or liable for the debts, contracts, liabilities, engagements
or torts of any person who is or may become entitled to receive such payments,
nor may such payments be subject to attachment or seizure by any creditor of
such person under any circumstances, and any such attempted attachment or
seizure shall be void and of no force and effect.

24.           Incompetent or Minor Payees. 
Should the Board or the Compensation Committee determine, in its
discretion, that any person to whom any payment is payable under this Agreement
has been determined to be legally incompetent or is a minor, any payment due
hereunder, notwithstanding any other provision of this Agreement to the
contrary, may be made in any one or more of the following ways:  (a) directly to such minor or person; (b) to
the legal guardian or other duly appointed personal representative of such
minor or person; (c) to a trust for the benefit of such minor or person; or (d)
to such adult or adults as have, in the good faith knowledge of the Board or
the Compensation Committee, assumed custody and support of such minor or
person; and any payment so made shall constitute full and complete discharge of
any liability under this Agreement in respect to the amount paid.

25.           Indemnification.  The
Company has entered into an Indemnification Agreement, effective as if May 5,
2006, with the Executive.  Such agreement
shall remain in full force and effect and not be superseded by this Agreement.

26.           Severability.  It is
the desire of the Parties that this Agreement be enforced to the maximum extent
permitted by law, and should any provision contained herein be held

 18
 

unenforceable by a court
of competent jurisdiction or arbitrator (pursuant to Section 29), the
Parties hereby agree and consent that such provision shall be reformed to
create a valid and enforceable provision to the maximum extent permitted by
law; provided, however, that if such
provision cannot be reformed, it shall be deemed ineffective and deleted herefrom
without affecting any other provision of this Agreement.  This Agreement should be construed by
limiting and reducing it only to the minimum extent necessary to be enforceable
under then applicable law.

27.           Title and Headings; Construction.  Titles and headings to Sections hereof are
for the purpose of reference only and shall in no way limit, define or
otherwise affect the provisions hereof. 
The words “herein,” “hereof,” “hereunder” and other compounds of the
word “here” shall refer to the entire Agreement and not to any particular
provision hereof.

28.           Choice of Law.  THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF WYOMING, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW.

29.           Arbitration.

(a)           Subject to Section
21, any dispute or other controversy (a “Dispute”) arising under or
in connection with this Agreement, whether in contract, in tort, statutory or
otherwise, shall be finally and solely resolved by binding arbitration in the
City of Sheridan, Wyoming, administered by the American Arbitration Association
(the “AAA”) in accordance with the Employment Dispute Resolution Rules
of the AAA as effective on the Effective Date, this Section 29 and, to
the maximum extent applicable, the Federal Arbitration Act.  Such arbitration shall be conducted by a
single arbitrator (the “Arbitrator”). 
If the Parties cannot agree on the choice of an Arbitrator within 30
days after the Dispute has been filed with the AAA, then the Arbitrator shall
be selected pursuant to the Employment Dispute Resolution Rules of the
AAA.  The Arbitrator may proceed to an
award notwithstanding the failure of any Party to participate in such
proceedings.  The prevailing Party in the
arbitration proceeding may be entitled to an award of reasonable attorneys’
fees incurred in connection with the arbitration in such amount, if any, as
determined by the Arbitrator in his discretion. 
The costs of the arbitration shall be borne equally by the Parties
unless otherwise determined by the Arbitrator in the award.

(b)           To the maximum extent
practicable, an arbitration proceeding hereunder shall be concluded within 180
days of the filing of the Dispute with the AAA. 
The Arbitrator shall be empowered to impose sanctions and to take such
other actions as the Arbitrator deems necessary to the same extent a judge
could impose sanctions or take such other actions pursuant to the Federal Rules
of Civil Procedure and applicable law. 
Each Party agrees to keep all Disputes and arbitration proceedings
strictly confidential except for disclosure of information required by
applicable law which cannot be waived.

(c)           Subject to Section
21, the award of the Arbitrator shall be (i) the sole and exclusive remedy
of the Parties and (ii) final and binding on the Parties except for any appeals
provided for by the Federal Arbitration Act. 
Only the district courts of Wyoming

 19
 

shall have jurisdiction
to enter a judgment upon any award rendered by the Arbitrator, and the Parties
hereby consent to the personal jurisdiction of such courts and waive any
objection that such forum is inconvenient. 
This Section 29 shall not preclude (x) the Parties from agreeing
at any time to pursue non-binding mediation of the Dispute prior to arbitration
hereunder or (y) the Company from pursuing the remedies available under Section
21 in any court of competent jurisdiction.

30.           Binding Effect; Third Party Beneficiaries.  This Agreement shall be binding upon and
inure to the benefit of the Parties hereto, and to their respective heirs,
executors, beneficiaries, personal representatives, successors and permitted
assigns hereunder, but otherwise this Agreement shall not be for the benefit of
any third parties.

31.           Entire Agreement; Amendment and Termination.  This Agreement contains the entire agreement
of the Parties hereto with respect to the matters covered herein; moreover,
this Agreement supersedes all prior and contemporaneous agreements and
understandings, oral or written, between the Parties concerning the subject
matter hereof.  This Agreement may be
amended, waived or terminated only by a written instrument that is identified
as an amendment or termination hereof and that is executed on behalf of both
Parties.

32.           Survival of Certain Provisions.  Wherever appropriate to the intention of the
Parties, the respective rights and obligations of the Parties hereunder shall
survive any termination or expiration of this Agreement.

33.           Waiver of Breach.  No
waiver by either Party hereto of a breach of any provision of this Agreement by
the other Party, or of compliance with any condition or provision of this
Agreement to be performed by such other Party, will operate or be construed as
a waiver of any subsequent breach by such other Party of any similar or
dissimilar provision or condition at the same or any subsequent time.  The failure of either Party hereto to take
any action by reason of any breach will not deprive such Party of the right to
take action at any time while such breach continues.

34.           Successors and Assigns. 
This Agreement shall be binding upon and inure to the benefit of the
Company and its Affiliates (and its and their successors), as well as upon any
person or entity acquiring, whether by merger, consolidation, purchase of
assets, dissolution or otherwise, all or substantially all of the capital
stock, business and/or assets of the Company (or its successor) regardless of
whether the Company is the surviving or resulting corporation.  The Company shall require any successor
(whether direct or indirect, by purchase, merger, consolidation, dissolution or
otherwise) to all or substantially all of the capital stock, business and/or
assets of the Company to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that the Company would be required to
perform it if no such succession had occurred; provided,
however, that no such assumption shall relieve the Company of its
duties or obligations hereunder unless otherwise agreed, in writing, by
Executive.

This Agreement shall inure to the benefit of and be enforceable
by Executive’s personal or legal representatives, executors, administrators,
successors, and heirs.  In the event of
the death of Executive while any amount is payable hereunder including, without
limitation, pursuant to Sections 2, 5 or 6, all such
amounts shall be paid to the Designated Beneficiary.

 20
 

35.           Notices.  Any notice
provided for in this Agreement shall be in writing and shall be deemed to have
been duly received (a) when delivered in person, (b) on the first business day
after it is sent by air express overnight courier services, or (c) on the third
business day following deposit in the United States mail, registered or
certified mail, return receipt requested, postage prepaid and addressed, to the
following address, as applicable:

(1)           If to the Company,
addressed to:

Pinnacle Gas Resources, Inc.

Attn:  Chairman of the Board

1 E. Alger Street

Sheridan, WY 82801

(2)           If to Executive,
addressed to the address set forth below his name on the execution page hereof;

or to such other address as either Party may have
furnished to the other Party in writing in accordance with this Section 35.

36.           Executive
Acknowledgment.  Executive
acknowledges that (a) he is knowledgeable and sophisticated as to business
matters, including the subject matter of this Agreement, (b) he has read this
Agreement and understands its terms and conditions, (c) he has had ample
opportunity to discuss this Agreement with his legal counsel prior to
execution, and (d) no strict rules of construction shall apply for or against
the drafter or any other Party. 
Executive represents that he is free to enter into this Agreement
including, without limitation, that he is not subject to any covenant not to
compete that would conflict with his duties under this Agreement.

37.           Termination
of Prior Employment Agreement; Other Agreements.  After this Agreement is effective and
enforceable upon execution by the Parties hereto, that certain Employment
Agreement between the same Parties, dated as of June 23, 2003, shall terminate
and be superseded in all respects by this Agreement.  Subject to Section 31, all other
agreements or arrangements between Executive and the Company as in effect on
the Effective Date hereof shall remain in full force and effect to the extent
not in conflict with the terms and provisions of this Agreement.

38.           Counterparts.  This Agreement may be executed in any number
of counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument.  Each counterpart may consist
of a copy hereof containing multiple signature pages, each signed by one Party
hereto, but together signed by both Parties.

[Signature page follows.]

 21
 

IN WITNESS WHEREOF, Executive has executed this
Agreement, and the Company has caused this Agreement to be executed in its name
and on its behalf by its duly authorized officer, to be effective as of the
Effective Date. 

	
  

  	
   

  	
  EXECUTIVE:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Signature:

  	
  /s/ Peter G.
  Schoonmaker

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
    Peter G.
  Schoonmaker

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date:

  	
  7/20/07

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Address for Notices:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  COMPANY:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Ronald T. Barnes

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
  CFO/SVP

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Ronald T. Barnes

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date:

  	
  07-20-2007

  	
   

  

 

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