Document:

Exhibit
4.11

 

AMENDMENT
AGREEMENT

AMENDMENT
AGREEMENT, dated as of October 31, 2007 (this “Agreement”), by and between Wentworth
Energy, Inc., an Oklahoma corporation (the “Company”),
with headquarters located at 112 E. Oak Street, Suite 200, Palestine, Texas
75801, and [Insert Name of Buyer] (the “Investor”).

WHEREAS:

A.            The
Company, the Investor and certain other investors (the “Other Buyers”
and collectively with the Investor, the “Buyers”) are
parties to that certain Securities Purchase Agreement, dated as of July 24,
2006 (the “2006 Securities Purchase Agreement”), pursuant to which, among
other things, the Buyers purchased from the Company, for an aggregate original
purchase price of $32,350,000: (i) an aggregate original principal amount of
$32,350,000 of senior secured convertible notes (the “2006 Notes”), which are convertible into
shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), in accordance with the
terms thereof and interest on which notes, at the option of the Company, and
subject to certain conditions, may be paid in shares of Common Stock; (ii)
warrants (denominated as “Series A Warrants”) to purchase common stock (the “2006 Series A Warrants”), which warrants
originally were exercisable for an aggregate of 46,214,287 shares of Common
Stock; and (iii) warrants (denominated as “Series B Warrants”) to purchase
common stock (the “2006 Series B Warrants”),
which warrants originally were exercisable for an aggregate of 16,170,000
shares of Common Stock.

B.            Contemporaneously
with the consummation of the transactions contemplated by the 2006 Securities
Purchase Agreement: (i) the Company and its then-existing subsidiary, Wentworth
Oil & Gas, Inc., a Nevada corporation (“WOG”),
entered into that certain Pledge Agreement, dated as of July 25, 2006 (the “2006 Pledge Agreement”), in favor of Castlerigg Master
Investments Ltd., a British Virgin Islands company (“Castlerigg”)
acting in its capacity as collateral agent (in such capacity, the “Collateral Agent”) for the benefit of the Buyers; (ii) the
Company and WOG entered into that certain Security Agreement, dated as of July
25, 2006 (the “2006 Security Agreement”), in favor of the Collateral Agent for the
benefit of the Buyers; and (iii) WOG entered into that certain Guaranty, dated
as of July 25, 2006 (the “2006 WOG Guaranty”), in favor of the
Collateral Agent for the benefit of the Buyers.

C.            The
proceeds received by the Company from the issuance of the 2006 Notes, 2006
Series A Warrants and 2006 Series B Warrants at the closing under the 2006
Securities Purchase Agreement (the “2006 Closing”)
were used by the Company in order to, among other things, purchase all of the
outstanding stock of Barnico Drilling, Inc., a Texas corporation (“Barnico”).  In
conjunction with that acquisition, on or about August 8, 2006: (i) in
accordance with Section 4(b) of the 2006 Pledge Agreement, the Company entered
into that certain Pledge Amendment, dated on or about August 8, 2006 (the “2006 Pledge Amendment”), amending the 2006 Pledge Agreement
to include as collateral thereunder the shares of Barnico capital stock
referenced in the 2006 Pledge Amendment; (ii) in accordance with Section 5(m)
of the 2006 Security Agreement, Barnico entered into that certain Joinder
Agreement, dated on or about August 8, 2006 (the “2006 Joinder
Agreement”), for the benefit of the Collateral Agent, to join the
2006 Security Agreement as a party thereto and collateral grantor thereunder;
and (iii)

 

in accordance with Section
5(m) of the 2006 Security Agreement, Barnico entered into that certain
Guaranty, dated on or about August 8, 2006 (the “2006 Barnico
Guaranty”), in favor of the Collateral Agent for the benefit of the
Buyers.

D.            In
connection with the execution and delivery of the 2006 Securities Purchase
Agreement, the Company and the Buyers entered into that certain Registration
Rights Agreement, dated as of July 25, 2006 (the “2006
Registration Rights Agreement”), pursuant to which the Company
agreed to provide certain registration rights with respect to the Registrable
Securities (as defined therein) under the Securities Act of 1933, as amended
(the “1933 Act”), and the rules
and regulations promulgated thereunder, and applicable state securities laws.

E.             As
contemplated by Section 4(v) of the 2006 Securities Purchase Agreement, the
Company entered into those certain seven separate instruments or agreements,
each entitled Deed of Trust, Mortgage, Assignment of Production, Security
Agreement, Fixture Filing and Financing Statement, and each dated August 2006
(collectively, the “2006 Deeds of Trust”),
to Terry I. Cross, as trustee thereunder, for the benefit of the Collateral
Agent as mortgagee thereunder, which respectively were filed of record in the
following counties in the State of Texas: (i) Anderson, on September 8, 2006
(vol. 1900, page 794); (ii) Archer, on September 11, 2006 (vol. 671, page 803);
(iii) Freestone, on September 8, 2006 (vol. 1373, page 445); (iv) Jones, on
September 11, 2006 (vol. 249, page 384); (v) Leon, on September 8, 2006 (vol.
1276, page 682); (vi) Pecos, on September 11, 2006 (vol. 348, page 591); and
(vii) Wichita, on September 11, 2006 (vol. 3010, page 857).  Subsequently, in accordance with the terms of
the Jan. 5, 2007 Letter Agreement (as defined below), the 2006 Deeds of Trust
filed in Archer, Pecos and Wichita Counties, Texas, have been or are to be
released.

F.             As
contemplated by Section 4(r) of the 2006 Securities Purchase Agreement, the
Company entered into that certain Escrow Agreement, dated as of September 8,
2006 (the “2006 Escrow Agreement”), with
Castlerigg, acting in its capacity as “Buyer Representative” (as defined in
Section 4(s) of the 2006 Securities Purchase Agreement) on behalf of the
Buyers, and Capital One, a national banking association, as escrow agent
thereunder.

G.            Subsequent to the 2006 Closing, the
following instruments and agreements (collectively, the “Subsequent
Modifications”) have been entered into (in addition to the other
instruments and agreements specifically referenced in these Recitals): (i) the
Company and the Collateral Agent entered into that certain waiver, dated as of
August 9, 2006 (the “Aug. 9, 2006 Waiver”),
pursuant to which, among other things, the Collateral Agent waived certain
provisions of the 2006 Security Agreement pertaining to the filing of financing
statements (the Aug. 9, 2006 Waiver being the same waiver described in the Aug.
22, 2006 Waiver (defined below) as having been dated as of August 8, 2006);
(ii) the Company, the Buyers and the Collateral Agent entered into that certain
waiver, dated as of August 22, 2006 (the “Aug. 22, 2006 Waiver”),
pursuant to which, among other things, the parties thereto effected certain
waivers and other modifications to the provisions of the 2006 Securities
Purchase Agreement and other agreements as referenced therein; (iii) the
Company and certain of the Buyers entered into those certain waivers, dated as
of September 21, 2006 (the “Sept. 21, 2006 Waiver”),
pursuant to which, among other things, the respective Buyers waived and
modified certain provisions of the 2006 Securities Purchase Agreement
pertaining to the delivery of real estate title opinions; (iv) the Company and
certain of the Buyers entered into those certain letter agreements, each dated
September 28, 2006 (the

 

2

 

“Sept. 28,
2006 Letter Agreements”), pursuant to which, among other things, the
respective Buyers waived certain provisions of the 2006 Securities Purchase
Agreement and the 2006 Pledge Agreement in connection with a certain settlement
respecting Redrock Energy, Inc., a Nevada corporation (f/k/a Redrock Oil Sands,
Inc.) (“Redrock”); (v) the Company and each of
the Buyers entered into those certain letter agreements, each dated on or about
November 7, 2006 (the “Nov. 7, 2006 Letter
Agreements”), pursuant to which, among other things, the respective
Buyers waived certain provisions of the 2006 Registration Rights Agreement
pertaining to the effectiveness deadline thereunder; and (vi) the Company and
the Collateral Agent, as mortgagee under the 2006 Deeds of Trust, entered into
that certain letter agreement, dated January 5, 2007 (the “Jan. 5, 2007
Letter Agreement”), pursuant to which, among other things, the 2006
Deeds of Trust filed in Archer, Pecos and Wichita Counties have been or are to
be released.

H.            The
2006 Securities Purchase Agreement, as amended or otherwise modified by one or
more of the Subsequent Modifications, is referred to as the “Existing Securities Purchase Agreement”.  The 2006 Pledge Agreement, as amended or
otherwise modified by the 2006 Pledge Amendment and by one or more of the
Subsequent Modifications, is referred to as the “Existing
Pledge Agreement”.  The 2006
Security Agreement, as amended or otherwise modified by the 2006 Joinder
Agreement and by one or more of the Subsequent Modifications, is referred to as
the “Existing Security Agreement”.  The 2006 Registration Rights Agreement, as
amended or otherwise modified by one or more of the Subsequent Modifications,
is referred to as the “Existing Registration
Rights Agreement”.  The 2006
Notes, 2006 Series A Warrants, 2006 Series B Warrants, 2006 WOG Guaranty, 2006
Barnico Guaranty, 2006 Deeds of Trust and 2006 Escrow Agreement are sometimes
referred to as the “Existing Notes”,
“Existing Series A Warrants”, “Existing Series B Warrants”, “Existing WOG
Guaranty”, “Existing Barnico Guaranty”,
“Existing Deeds of Trust”, and “Existing Escrow Agreement”, respectively.

I.              Certain
disputes have arisen between the Company, WOG and Barnico, on the one hand, and
the Buyers, Collateral Agent and Buyer Representative, on the other hand,
relating to, among other things, the failure or inability of the Company to
comply with its registration obligations under the Existing Registration Rights
Agreement.  In connection with such
disputes, one or more of the Buyers delivered event of default redemption
notices (the “Existing Redemption Notices”) to
the Company; and the Collateral Agent, as mortgagee under the Existing Deeds of
Trust, posted foreclosure notices in respect thereof.  The Collateral Agent and Castlerigg also
entered into certain temporary forbearance agreements, thereafter joined in by
certain or all of the other Buyers, pursuant to which the Collateral Agent and
those Buyers agreed to forbear temporarily from foreclosing under the Existing
Deeds of Trust and exercising their remedies under one or more of the other
collateral documents.

J.             The Company and Barnico have
concluded negotiations with each Buyer, as well as with the Collateral Agent
and Buyer Representative; such that the parties to those negotiations desire to
enter into documentation that, collectively, will waive all existing defaults
(other than defaults occurring upon or continuing after the 2007 Closing Date)
and moot all Existing Redemption Notices. 
In furtherance thereof: (i) the Company and the Investor are entering
into this Agreement; (ii) the Company and each Other Buyer are entering into
those certain Amendment Agreements, each dated as of the date of this Agreement
(collectively, the

 

3

 

“Other
Amendment Agreements”; and, together with this Agreement, the “Amendment Agreements”); and (iii) the Collateral Agent and
the Buyer Representative, by their acknowledgment and agreement to the
provisions contained in Castlerigg’s Amendment Agreement, are acknowledging and
agreeing to the provisions contained in the Amendment Agreements respectively
applicable to them.  The Investor
acknowledges having been furnished copies of each Other Amendment Agreement in
substantially its final form; and the Collateral Agent and the Buyer
Representative acknowledge having been furnished with copies of each Amendment
Agreement in substantially its final form.

K.            In
accordance with the provisions of the Amendment Agreements, at the 2007 SPA
Closing (as defined below) the Existing Securities Purchase Agreement shall be
amended in the manner provided in the Amendment Agreements in order to, among
other things:

(i)            provide for the amendment and restatement
of the Investor’s Existing Note by the Company’s issuance to the Investor of an
amended and restated senior secured convertible note substantially in the form
attached as Exhibit A-1 to this Agreement and each Other Amendment Agreement
(the “Investor’s Amended and Restated Note”;
and, collectively with each other ‘Investor’s Amended and Restated Note’ (as
defined in the Other Amendment Agreements), the “Amended and
Restated Notes”), with the Investor’s Amended and Restated Note to
be issued in the principal amount set forth opposite the Investor’s name in
column (3) on the 2007 Securities Schedule attached to this Agreement and each
Other Amendment Agreement (the “2007 Securities Schedule”),
and with such note to be convertible into shares of Common Stock (the “Investor’s Amended and Restated Conversion Shares”; and,
collectively with each other ‘Investor’s Amended and Restated Conversion
Shares’ (as defined in the Other Amendment Agreements), the “Amended and Restated Conversion Shares”) in accordance with the terms thereof, and
with interest on such note to be paid, at the option of the Company, and
subject to certain conditions, in shares of Common Stock (the “Investor’s Amended and Restated Interest Shares”; and, collectively with each other
‘Investor’s Amended and Restated Interest Shares’ (as defined in the Other
Amendment Agreements), the “Amended and Restated
Interest Shares”);

 

(ii)           provide for the
amendment and restatement of the Investor’s Existing Series A Warrant by the
Company’s issuance to the Investor of an amended and restated warrant
substantially in the form attached as Exhibit B-1 to this Agreement and
each Other Amendment Agreement (the “Investor’s Amended and
Restated Series A Warrant”;
and, collectively with each other ‘Investor’s Amended and Restated Series A
Warrant’ (as defined in the Other Amendment Agreements), the “Amended and Restated Series A Warrants”), with the
Investor’s Amended and Restated Series A Warrant to be exercisable to acquire
shares of Common Stock (the “Investor’s Amended and
Restated Series A Warrant Shares”; and, collectively with each other
‘Investor’s Amended and Restated Series A Warrant Shares’ (as defined in the
Other Amendment Agreements), the “Amended and Restated
Series A Warrant Shares”), initially
in that number of shares of Common Stock set forth opposite the Investor’s name
in column (5) on the 2007 Securities Schedule;

 

4

 

(iii)          provide for the
amendment and restatement of the Investor’s Existing Series B Warrant by the
Company’s issuance to the Investor of an amended and restated warrant
substantially in the form attached as Exhibit C-1 to this Agreement and
each Other Amendment Agreement (the “Investor’s Amended and
Restated Series B Warrant”;
and, collectively with each other ‘Investor’s Amended and Restated Series B
Warrant’ (as defined in the Other Amendment Agreements), the “Amended and Restated Series B Warrants”; the Amended and
Restated Series B Warrants and the Amended and Restated Series A Warrants,
collectively, the “Amended and Restated
Warrants”), with the Investor’s Amended and Restated Series B
Warrant to be exercisable to acquire shares of Common Stock (the “Investor’s Amended and Restated Series B Warrant Shares”; and, collectively with each other ‘Investor’s Amended and
Restated Series B Warrant Shares’ (as defined in the Other Amendment
Agreements), the “Amended and Restated
Series B Warrant Shares”) (the Amended and Restated Series B Warrant
Shares and the Amended and Restated Series A Warrant Shares, collectively, the
“Amended and Restated Warrant Shares”),
initially in that number of shares of Common Stock set forth opposite the
Investor’s name in column (7) on the 2007 Securities Schedule;

 

(iv)          provide for the
Company’s issuance to Castlerigg of a new senior secured convertible note
substantially in the form attached as Exhibit A-2 to this Agreement and each
Other Amendment Agreement (the “New Note”) (the
New Note and the Amended and Restated Notes, collectively, the “Notes”), with Castlerigg’s New Note to be issued in the
principal amount set forth opposite Castlerigg’s name in column (4) on the 2007
Securities Schedule, and with such note to be convertible into shares of Common
Stock (the “New Conversion Shares”) (the
New Conversion Shares and the Amended and Restated Conversion Shares,
collectively, the “Conversion Shares”) in accordance with the terms thereof; and
with interest on such note to be paid, at the option of the Company, and
subject to certain conditions, in shares of Common Stock (the “New Interest Shares”) (the New Interest Shares and the
Amended and Restated Interest Shares, collectively, the “Interest
Shares”);

 

(v)           provide for the
Company’s issuance to Castlerigg of a new warrant (designated as “Series A
Warrants”) substantially in the form attached as Exhibit B-2 to this
Agreement and each Other Amendment Agreement (the “New Series A
Warrant”), with
Castlerigg’s New Series A Warrant to be exercisable to acquire shares of Common
Stock (the “New Series A Warrant Shares”), initially in that number of shares of Common Stock set forth
opposite Castlerigg’s name in column (6) on the 2007 Securities Schedule;

 

(vi)          provide for the
Company’s issuance to the Investor of a new warrant (designated as “Series A
Warrants”) substantially in the form attached as Exhibit B-2 to this
Agreement and each Other Amendment Agreement (the “Investor’s
Other New Series A Warrant”;
and, collectively with each other ‘Investor’s Other New Series A Warrant’ (as
defined in the Other Amendment Agreements), the “Other New
Series A Warrants”), with the Investor’s Other New Series A Warrant
to be exercisable to acquire shares of Common Stock (the “Investor’s
Other New Series A Warrant
Shares”; and, 

 

5

 

collectively with each other
‘Investor’s Other New Series A Warrant Shares’ (as defined in the Other
Amendment Agreements), the “Other New Series A Warrant
Shares”), initially in
that number of shares of Common Stock set forth opposite the Investor’s name in
column (11) on the 2007 Securities Schedule; and

 

(vii)         provide for the
Company’s issuance to Castlerigg of a new warrant (designated as “Series B
Warrants”) substantially in the form attached as Exhibit C-2 to this
Agreement and each Other Amendment Agreement (the “New Series B
Warrant”) (the New
Series B Warrant, the New Series A Warrant and the Other New Series A Warrants,
collectively, the “New Warrants”;
and the New Warrants and the Amended and Restated Warrants, collectively, the “Warrants”), with Castlerigg’s New Series B Warrant to be
exercisable to acquire shares of Common Stock (the “New Series B
Warrant Shares”) (the New Series B Warrant Shares, the New Series A
Warrant Shares and the Other New Series A Warrant Shares, collectively, the “New Warrant Shares”; and the New Warrant Shares and the
Amended and Restated Warrant Shares, collectively, the “Warrant
Shares”), initially
in that number of shares of Common Stock set forth opposite Castlerigg’s name
in column (8) on the 2007 Securities Schedule.

 

L.             In
accordance with the provisions of the Amendment Agreements, at the 2007 SPA
Closing, the following additional transactions (among others) shall occur:

(i)            the Company, Barnico and the
Collateral Agent shall execute and deliver a certain Amended and Restated
Security Agreement, substantially in the form attached as Exhibit F-1 to this
Agreement and each Other Amendment Agreement (as so executed and delivered, and
as thereafter amended, restated or otherwise modified thereby in accordance with
the terms thereof, the “Amended and Restated
Security Agreement”), which shall completely amend, restate and
supersede the Existing Security Agreement in order to (among other things)
restate and continue the security interest created thereunder, reflect the
removal of WOG as a party thereto and collateral grantor thereunder, and
otherwise give effect to the Amendment Agreements and the transactions
contemplated thereby;

 

(ii)           the Company and the Collateral Agent
shall execute and deliver a certain Amended and Restated Pledge Agreement,
substantially in the form attached as Exhibit E-1 to this Agreement and
each Other Amendment Agreement (as so executed and delivered, and as thereafter
amended, restated or otherwise modified thereby in accordance with the terms
thereof, the “Amended and Restated Pledge Agreement”),
which shall completely amend, restate and supersede the Existing Pledge
Agreement in order to (among other things) restate and continue the security
interest created thereunder, reflect the removal of WOG as a party thereto and
pledgor thereunder, and otherwise give effect to the Amendment Agreements and
the transactions contemplated thereby;

 

(iii)          the Company and the Collateral Agent,
in its capacity as mortgagee under the Existing Deeds of Trust, with the
consent of the trustee under the Existing Deeds of Trust and the consent of
each Buyer (as granted under the Amendment Agreements), shall execute and
deliver four separate instruments or agreements, each entitled Amended

 

6

 

and Restated Deed of Trust,
Mortgage, Assignment of Production, Security Agreement, Fixture Filing and
Financing Statement, to Terry I. Cross, as trustee, for the benefit of the
Collateral Agent as mortgagee, each substantially in the form attached as Exhibit
O-1 to this Agreement and each Other Amendment Agreement (as so executed
and delivered, and as thereafter amended, restated or otherwise modified
thereby in accordance with the terms thereof, the “Amended and
Restated Deeds of Trust”), which shall completely amend, restate and
supersede the Existing Deeds of Trust filed in Anderson, Freestone, Jones and
Leon Counties, Texas, in order to (among other things) restate and continue the
lien and security interest created thereunder, and otherwise give effect to the
Amendment Agreements and the transactions contemplated thereby (it being
understood and agreed that, as acknowledged in the Amendment Agreements, the
Existing Deeds of Trust filed in Archer, Pecos and Wichita Counties, Texas,
have no further force or effect and have been or are to be released);

 

(iv)          Barnico shall execute and deliver a
certain Amended and Restated Barnico Guaranty, substantially in the form
attached as Exhibit G-1 to this Agreement and each Other Amendment
Agreement (as so executed and delivered, and as thereafter amended, restated or
otherwise modified thereby in accordance with the terms thereof, the “Amended and Restated Barnico Guaranty”), which shall
completely amend, restate and supersede the Existing Barnico Guaranty in order
to (among other things) restate and continue the guarantee made thereunder, and
otherwise give effect to the Amendment Agreements and the transactions
contemplated thereby (it being understood and agreed that, as acknowledged in the
Amendment Agreements, the Existing WOG Guaranty has terminated and has no
further force or effect); and

 

(v)           the Company and the Buyers shall
execute and deliver a certain Amended and Restated Registration Rights
Agreement, substantially in the form attached as Exhibit D-1 to this
Agreement and each Other Amendment Agreement (as so executed and delivered, and
as thereafter amended, restated or otherwise modified thereby in accordance
with the terms thereof, the “Amended and Restated
Registration Rights Agreement”), which shall completely amend,
restate and supersede the Existing Registration Rights Agreement, and pursuant
to which the Company shall agree to provide certain registration rights with
respect to the Registrable Securities (as defined therein) under the 1933 Act
and the rules and regulations promulgated thereunder, and applicable state
securities laws.

 

M.           The amendment and restatement of the Investor’s Existing Note by
the Investor’s Amended and Restated Note, the amendment and restatement of the
Investor’s Existing Series A Warrant by the Investor’s Amended and Restated
Series A Warrant, and the amendment and restatement of the Investor’s Existing
Series B Warrant by the Investor’s Amended and Restated Series B Warrant, as
well as the issuance of the Amended and Restated Barnico Guaranty in connection
therewith, are being made in reliance upon the exemption from registration
provided by Section 3(a)(9) of the 1933 Act.

N.            In accordance with the provisions of
the Amendment Agreements, at the 2007 SPA Closing (or as promptly thereafter as
is practicable), the Existing Escrow Agreement shall be terminated.

 

7

 

O.            Contemporaneously with the 2007 SPA Closing, the Company and YA
Global Investments, L.P., a Cayman Islands exempt limited partnership (“YA Global”) f/k/a Cornell Capital Partners, L.P., are executing that certain Amendment and Exchange Agreement, dated
as of the date of this Agreement (the “YA Global Amendment and Exchange Agreement”), pursuant to which, among other things, the Company and YA
Global are agreeing: (i) to amend and restate those certain Secured
Convertible Debentures dated on or about January 12, 2006, with an aggregate
original purchase price of $1,500,000 (the “YA Global
Debentures”), purchased by YA Global from the Company pursuant to that certain Securities Purchase Agreement, dated as
of January 12, 2006, by and between the Company and YA Global (the “YA Global Securities Purchase Agreement”); (ii) to amend and restate those certain Warrants, dated as of
January 12, 2006, by and between the Company and YA Global (the “YA Global Warrants”), which are exercisable, in the
aggregate, into 1,500,000 shares of the Company’s Common Stock; (iii) to amend that certain Security Agreement, dated as
of January 12, 2006, by the Company in favor of YA Global; (iv) to terminate that certain Security Agreement, dated as
of January 12, 2006, by WOG in favor of YA Global; and (v) to amend and grant
certain waivers in respect of the YA Global Securities Purchase Agreement, the
YA Global Debentures, the YA Global Warrants, the YA Global Security Agreement,
and other transaction documents associated therewith.

NOW,
THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, and for other consideration the
existence, receipt and sufficiency of which hereby are acknowledged, the
Company and the Investor hereby agree as follows:

1.             AMENDMENT OF EXISTING SECURITIES PURCHASE AGREEMENT.

(a)           Securities
Purchase Agreement Amendments.  At
the 2007 SPA Closing, and without any further act or approval of any Person,
the Existing Securities Purchase Agreement shall be amended, mutatis  mutandis,
in the manner provided in Exhibit SPAA as attached to this Agreement and
each Other Amendment Agreement.

(b)           New
List of Schedules and Exhibits.  The
Existing Securities Purchase Agreement shall be further amended by deleting the
list of schedules and exhibits included therein and replacing such list with
the following:

	
  EXHIBITS

  	
   

  	
   

  
	
  Exhibit A

  	
   

  	
  Form of 2006 Notes

  
	
  Exhibit A-1

  	
   

  	
  Form of Amended and
  Restated Notes

  
	
  Exhibit A-2

  	
   

  	
  Form of New Note

  
	
  Exhibit B

  	
   

  	
  Form of 2006 Series A
  Warrants

  
	
  Exhibit B-1

  	
   

  	
  Form of Amended and
  Restated Series A Warrants

  
	
  Exhibit B-2

  	
   

  	
  Form of New Series A
  Warrant/ Other New Series A Warrants

  
	
  Exhibit C

  	
   

  	
  Form of 2006 Series B
  Warrants

  
	
  Exhibit C-1

  	
   

  	
  Form of Amended and
  Restated Series B Warrants

  
	
  Exhibit C-2

  	
   

  	
  Form of New Series B
  Warrant

  
	
  Exhibit D

  	
   

  	
  Form of 2006 Registration
  Rights Agreement

  
	
  Exhibit D-1

  	
   

  	
  Form of Amended and
  Restated Registration Rights Agreement

  
	
  Exhibit E

  	
   

  	
  Form of 2006 Pledge
  Agreement

  
	
  Exhibit E-1

  	
   

  	
  Form of Amended and
  Restated Pledge Agreement

  
	
  Exhibit F

  	
   

  	
  Form of 2006 Security
  Agreement

  
	
  Exhibit F-1

  	
   

  	
  Form of Amended and
  Restated Security Agreement

  
	
  Exhibit G

  	
   

  	
  Form of 2006 Guarantee

  
	
  Exhibit G-1

  	
   

  	
  Form of Amended and
  Restated Barnico Guarantee

  
	
  Exhibit H

  	
   

  	
  Form of 2006 Escrow
  Agreement

  
	
  Exhibit I

  	
   

  	
  Irrevocable Transfer Agent
  Instructions

  
	
  Exhibit J

  	
   

  	
  Form of Outside Company
  Counsel Opinion

  
	
  Exhibit J-1

  	
   

  	
  Form of Outside Company
  Counsel Opinion (2007 Closing)

  
	
  Exhibit K

  	
   

  	
  Form of Secretary’s
  Certificate

  
	
  Exhibit K-1

  	
   

  	
  Form of Secretary’s
  Certificate (2007 Closing)

  
	
  Exhibit L

  	
   

  	
  Form of Officer’s
  Certificate

  
	
  Exhibit L-1

  	
   

  	
  Form of Officer’s Certificate
  (2007 Closing)

  
	
  Exhibit M

  	
   

  	
  Form of Subordination
  Agreement

  
	
  Exhibit N

  	
   

  	
  Form of Cornell Lock-Up
  Agreement

  
	
  Exhibit O

  	
   

  	
  Reserved

  
	
  Exhibit O-1

  	
   

  	
  Form of Amended and
  Restated Deeds of Trust

  

 

 

8

 

	
  SCHEDULES

  	
   

  	
   

  
	
  Schedule of Buyers

  
	
  Schedule
  2(b)

  	
   

  	
  Non-institutional
  Buyers

  
	
  Supplemental
  Schedule

  
	
  Schedule
  3(a)

  	
   

  	
  Subsidiaries

  
	
  Schedule
  3(f)

  	
   

  	
  Advisor
  Buyers

  
	
  Schedule
  3(k)

  	
   

  	
  SEC
  Documents; Financial Statements

  
	
  Schedule
  3(l)

  	
   

  	
  Absence
  of Certain Changes

  
	
  Schedule
  3(m)

  	
   

  	
  Undisclosed
  Events

  
	
  Schedule
  3(p)

  	
   

  	
  Sarbanes-Oxley
  Act

  
	
  Schedule
  3(q)

  	
   

  	
  Transactions
  with Affiliates

  
	
  Schedule
  3(r)

  	
   

  	
  Capitalization

  
	
  Schedule
  3(s)

  	
   

  	
  Indebtedness
  and Other Contracts

  
	
  Schedule
  3(t)

  	
   

  	
  Litigation

  
	
  Schedule
  3(v)

  	
   

  	
  Departing
  Officer

  
	
  Schedule 3(bb)

  	
   

  	
  Taxes

  
	
  Schedule 3(ee)

  	
   

  	
  Ranking of Notes

  
	
  Schedule 3(kk)

  	
   

  	
  Undisclosed Events

  
	
  Schedule
  4(d)

  	
   

  	
  Use
  of Proceeds

  

 

9

 

(c)           Amended and Restated Schedules.  The Existing Securities Purchase Agreement
shall be further amended as follows:

                                                                (i)            The Schedule of Buyers attached to the Existing
Securities Purchase Agreement shall be amended and restated and replaced in its
entirety with the 2007 Securities Schedule, in the form attached to this
Agreement and each Other Amendment Agreement.

 

                                                                (ii)           Schedules 3(a), 3(f), 3(k), 3(l), 3(m), 3(p), 3(q), 3(r),
3(s), 3(t), 3(v), 3(bb), 3(ee), 3(kk)
and 4(d) attached to the Existing Securities Purchase Agreement shall be
amended and restated and replaced in their entirety with the Amended and
Restated Schedules to the Securities Purchase Agreement, in the form attached
to this Agreement and each Other Amendment Agreement.

 

(d)           New
Schedules and Exhibits.  The Existing
Securities Purchase Agreement shall be further amended to add the following new
schedules and exhibits thereto:

                                                                (i)            Exhibit A-1, entitled “Form of Amended and Restated
Notes”, shall be added to the Existing Securities Purchase Agreement, with such
exhibit to be in the form attached as Exhibit A-1 to this Agreement and each
Other Amendment Agreement.

 

                                                                (ii)           Exhibit A-2, entitled “Form of New Notes”, shall be added
to the Existing Securities Purchase Agreement, with such exhibit to be in the
form attached as Exhibit A-2 to this Agreement and each Other Amendment Agreement.

 

                                                                (iii)          Exhibit B-1, entitled “Form of Amended and Restated Series
A Warrants”, shall be added to the Existing Securities Purchase Agreement, with
such exhibit to be in the form attached as Exhibit B-1 to this Agreement and
each Other Amendment Agreement.

 

                                                                (iv)          Exhibit B-2, entitled “Form of New Series A Warrants/ Other
New Series A Warrants”, shall be added to the Existing Securities Purchase
Agreement, with such exhibit to be in the form attached as Exhibit B-2 to this
Agreement and each Other Amendment Agreement.

 

                                                                (v)           Exhibit C-1, entitled “Form of Amended and Restated Series
B Warrants”, shall be added to the Existing Securities Purchase Agreement, with
such exhibit to be in the form attached as Exhibit C-1 to this Agreement and
each Other Amendment Agreement.

 

                                                                (vi)          Exhibit C-2, entitled “Form of New Series B Warrants”,
shall be added to the Existing Securities Purchase Agreement, with such exhibit
to be in the form attached as Exhibit C-2 to this Agreement and each Other
Amendment Agreement.

 

                                                                (vii)         Exhibit D-1, entitled “Form of Amended and Restated
Registration Rights Agreement”, shall be added to the Existing Securities
Purchase Agreement, with such

 

10

 

                                                exhibit to be
in the form attached as Exhibit D-1 to this Agreement and each Other Amendment
Agreement.

 

                                                                (viii)        Exhibit E-1, entitled “Form of Amended and Restated Pledge
Agreement”, shall be added to the Existing Securities Purchase Agreement, with
such exhibit to be in the form attached as Exhibit E-1 to this Agreement and
each Other Amendment Agreement.

 

                                                                (ix)           Exhibit F-1, entitled “Form of Amended and Restated
Security Agreement”, shall be added to the Existing Securities Purchase
Agreement, with such exhibit to be in the form attached as Exhibit F-1 to this
Agreement and each Other Amendment Agreement.

 

                                                                (x)            Exhibit G-1, entitled “Form of Amended and Restated
Barnico Guaranty”, shall be added to the Existing Securities Purchase
Agreement, with such exhibit to be in the form attached as Exhibit G-1 to this
Agreement and each Other Amendment Agreement.

 

                                                                (xi)           Exhibit J-1, entitled “Form of Outside Company Counsel
Opinion (2007 Closing)”, shall be added to the Existing Securities Purchase
Agreement, with such exhibit to be in the form attached as Exhibit J-1 to this
Agreement and each Other Amendment Agreement.

 

                                                                (xii)          Exhibit K-1, entitled “Form of Secretary Certificate (2007
Closing)”, shall be added to the Existing Securities Purchase Agreement, with
such exhibit to be in the form attached as Exhibit K-1 to this Agreement and
each Other Amendment Agreement.

 

                                                                (xiii)         Exhibit L-1, entitled “Form of Officer’s Certificate (2007
Closing)”, shall be added to the Existing Securities Purchase Agreement, with
such exhibit to be in the form attached as Exhibit L-1 to this Agreement and
each Other Amendment Agreement.

 

                                                                (xiv)        Exhibit O-1, entitled “Form of Amended and Restated Deeds of
Trust”, shall be added to the Existing Securities Purchase Agreement, with such
exhibit to be in the form attached as Exhibit O-1 to this Agreement and each
Other Amendment Agreement.

 

(e)           Ratification.  The Existing Securities Purchase Agreement,
as so amended in the manner provided by the preceding subsections of this
Section 1 (as so amended, and as the same may be further amended, restated or
otherwise modified in accordance with the terms thereof, the “Amended Securities Purchase Agreement”), shall be in full
force and effect and the terms thereof are hereby ratified and confirmed.

(f)            Parties
Remain the Same.  For avoidance of
any doubt, the parties to the Amended Securities Purchase Agreement from and
after the 2007 SPA Closing shall be the Company, the Investor and the Other
Buyers.  By its acknowledgment and
agreement to the provisions contained in Castlerigg’s Amendment Agreement, the
Collateral Agent is acknowledging and agreeing to the provisions contained in
the Amendment Agreements

 

11

 

applicable to it in such
capacity (including, among other things, confirming its agreement to act as
collateral agent for the benefit of the Buyers under the Amended and Restated
Pledge Agreement, the Amended and Restated Security Agreement, each Amended and
Restated Deed of Trust, and the Amended and Restated Barnico Guaranty), but is
not otherwise a party to the Amendment Agreements.  By its acknowledgment and agreement to the
provisions contained in Castlerigg’s Amendment Agreement, the Buyer
Representative is acknowledging and agreeing to the provisions contained in the
Amendment Agreements applicable to it in such capacity, but is not otherwise a
party to the Amendment Agreements.

2.             CONSENT
TO AMENDMENTS, ETC.

 

Effective at the 2007 SPA
Closing, the Investor does hereby agree as follows (whether or not otherwise
required in connection therewith):

 

(a)           Amended
and Restated Notes.  The Investor
consents to the amendment and restatement of the Existing Notes by the Amended
and Restated Notes, and to the issuance of the Amended and Restated Notes in
exchange for the Existing Notes.

(b)           New
Note.  The Investor consents to the
issuance of the New Note.

(c)           Amended
and Restated Series A Warrants.  The
Investor consents to the amendment and restatement of the Existing Series A
Warrants by the Amended and Restated Series A Warrants, and to the issuance of
the Amended and Restated Series A Warrants in exchange for the Existing Series
A Warrants.

(d)           New
Series A Warrant and Other New Series A Warrants.  The Investor consents to the issuance of the
New Series A Warrant and the Other New Series A Warrants.

(e)           Amended
and Restated Series B Warrants.  The
Investor consents to the amendment and restatement of the Existing Series B
Warrants by the Amended and Restated Series B Warrants, and to the issuance of
the Amended and Restated Series B Warrants in exchange for the Existing Series
B Warrants.

(f)            New
Series B Warrant.  The Investor
consents to the issuance of the New Series B Warrant.

(g)           Amended
and Restated Registration Rights Agreement. 
The Investor consents to the amendment and restatement of the Existing
Registration Rights Agreement by the Amended and Restated Registration Rights
Agreement.

(h)           Amended
and Restated Pledge Agreement.  The
Investor consents to the amendment and restatement of the Existing Pledge
Agreement by the Amended and Restated Pledge Agreement.

(i)            Amended
and Restated Security Agreement.  The
Investor consents to the amendment and restatement of the Existing Security
Agreement by the Amended and Restated Security Agreement.

 

12

 

 

(j)            Amended
and Restated Barnico Guaranty.  The
Investor consents to the amendment and restatement of the Existing Barnico
Guaranty by the Amended and Restated Barnico Guaranty.

(k)           Amended
and Restated Deeds of Trust.  The
Investor consents to the amendment and restatement of the Existing Deeds of
Trust filed in Anderson, Freestone, Jones and Leon Counties, Texas, by the
Amended and Restated Deeds of Trust encumbering real and personal property
located in those counties.

3.             CERTAIN TERMINATIONS AND WAIVERS.

(a)           Existing
WOG Guaranty, Etc.  It is hereby
acknowledged and agreed that WOG has been dissolved and shall have no further
liability or obligation in connection with the transactions contemplated by
this Agreement.  In furtherance thereof, it
is hereby further acknowledged and agreed as follows: (i) the Existing WOG
Guaranty has terminated, and has no further force or effect; (ii) WOG shall be
released from the Existing Security Agreement, the Existing Pledge Agreement,
the existing Intercreditor and Subordination Agreement and, if any, each other
Transaction Document (as defined in the Existing Securities Purchase Agreement)
to which WOG has been a party, and from any and all past and future obligations
and liabilities thereunder and any and all pledges, security interests or liens
of any kind granted therein; (iii) the Collateral Agent is hereby authorized
and, on such basis the Collateral Agent does hereby authorize, the Company to
file UCC-3 termination statements with respect to the UCC-1 financing
statements filed by or on behalf of the Buyers or the Collateral Agent against
WOG in Texas and Oklahoma and any other jurisdiction or office. Whether or not
otherwise required in connection therewith, the Investor hereby consents to
each of the foregoing.

(b)           Certain
Existing Deeds of Trust.  It is
hereby acknowledged and agreed that, as contemplated by the Jan. 5, 2007 Letter
Agreement, the properties theretofore encumbered by the Existing Deeds of Trust
filed in Archer, Pecos and Wichita Counties, Texas, have been sold and that the
aforesaid encumbrances thereon have been released.  It is hereby further acknowledged and agreed
that the aforesaid Existing Deeds of Trust filed in those counties have no further
force or effect and, to the extent not terminated and released of record, shall
be so terminated and released as promptly as is practicable following the 2007
SPA Closing.  Whether or not otherwise
required in connection therewith, the Investor hereby consents to such
termination.

(c)           Existing
Escrow Agreement.  It is hereby
acknowledged and agreed that the Existing Escrow Agreement is to be terminated
at the 2007 SPA Closing (or as promptly thereafter as is practicable), and have
no further force or effect.  Whether or
not otherwise required in connection therewith, the Investor hereby consents to
such termination.

(d)           Withdrawal
of Existing Redemption Notices.  The
Investor hereby irrevocably withdraws any and all Existing Redemption Notices
given to the Company in connection with the Existing Notes.

 

13

 

(e)           Waiver
of Existing Defaults. Notwithstanding any provision to the contrary
contained in this Agreement or any other Transaction Document (as defined in
the Existing Securities Purchase Agreement), the Investor hereby irrevocably
waives (i) any and all breaches, defaults, events of default and equity
condition failures by the Company, WOG or Barnico arising under the Existing
Securities Purchase Agreement or any other Existing Transaction Document (as
defined below) prior to the 2007 Closing Date, and (ii) any fees, charges and
penalties arising under the Existing Securities Purchase Agreement or any other
Existing Transaction Document prior to the 2007 Closing Date in connection with
any such breaches, defaults, events of default or equity condition failures; provided,
however, that the waivers granted under this subsection (e) shall
not waive any breach, default, Event of Default or Equity Condition Failure
under the Amended Securities Purchase Agreement or under any Amended
Transaction Document occurring upon or continuing after the 2007 Closing
Date.  By their execution of Castlerigg’s
Amendment Agreement, the Collateral Agent and the Buyer Representative each
hereby joins in each of the foregoing waivers.

4.             CERTAIN DEFINITIONS.

(a)           As
used in this Agreement (but subject to subsection (b), below), the following
definitions shall apply: (i) “Amended Transaction
Documents” means the Amended Securities Purchase Agreement and each
other “Transaction Document” (as defined therein), and, for avoidance of doubt,
also includes this Agreement and the Other Amendment Agreements; (ii) “Existing Transaction Documents” means the Existing
Securities Purchase Agreement and each other “Transaction Document” (as defined
therein) executed and delivered prior to the 2007 SPA Closing; and (iii) “2007 SPA Closing” means the closing of the transactions
contemplated by this Agreement being effected contemporaneously with the
execution and delivery of this Agreement. 
The foregoing defined terms apply solely for purposes of this Agreement,
and do not apply for purposes of the Amended Securities Purchase Agreement.

(b)           The
following terms used in this Agreement are used as defined in (or by reference
from) the Amended Securities Purchase Agreement: “Business Day”;
“Equity Condition Failure”, “Event of Default”, “Fundamental Transaction”;
“Person”; and “Required
Holders”.

 

5.             EFFECTIVENESS;
TERMINATION.

 

                (a)           This
Agreement shall be effective, automatically and without any further act or
approval, upon the execution and delivery by the Company and the Investor of
this Agreement, the execution and delivery by the Company and each Other Buyer
of their respective Other Amendment Agreements, and the execution and delivery
by the Collateral Agent and Buyer Representative of Castlerigg’s Amendment
Agreement.  The Company shall promptly
furnish the Investor with a copy of each Other Amendment Agreement as so fully
executed and delivered, but any delay in the furnishing of such copies shall
not affect the effectiveness of this Agreement or any such Other Amendment
Agreement.

 

14

 

(b)           In the event that the 2007 SPA Closing does not occur by
November _, 2007, due to the Company’s or the Investor’s failure to satisfy the
conditions set forth in Sections 6A and 7A of the Amended Securities Purchase
Agreement (and the nonbreaching party’s failure to waive such unsatisfied
conditions(s)), the nonbreaching party shall have the option to terminate this
Agreement at the close of business on such date without liability of any party
to any other party; provided, however, if this Agreement is
terminated pursuant to this Section 5(b), the Company shall remain obligated to
reimburse Castlerigg for the expenses described in Section 6(j) below.  Upon such termination, the terms hereof shall
be null and void and the parties shall continue to comply with all terms and
conditions of the Existing Transaction Documents, as in effect prior to the
execution of this Agreement.

6.             MISCELLANEOUS.

(a)           Counterparts.  This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other parties; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original,
not a facsimile signature.

(b)           Headings.  The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.

(c)           Severability.  If any provision of this Agreement is prohibited
by law or otherwise determined to be invalid or unenforceable by a court of
competent jurisdiction, the provision that would otherwise be prohibited,
invalid or unenforceable shall be deemed amended to apply to the broadest
extent that it would be valid and enforceable, and the invalidity or
unenforceability of such provision shall not affect the validity of the
remaining provisions of this Agreement so long as this Agreement as so modified
continues to express, without material change, the original intentions of the
parties as to the subject matter hereof and the prohibited nature, invalidity
or unenforceability of the provision(s) in question does not substantially
impair the respective expectations or reciprocal obligations of the parties or
the practical realization of the benefits that would otherwise be conferred
upon the parties.  The parties will
endeavor in good faith negotiations to replace the prohibited, invalid or
unenforceable provision(s) with a valid provision(s), the effect of which comes
as close as possible to that of the prohibited, invalid or unenforceable
provision(s).

(d)           Governing
Law; Jurisdiction; Jury Trial.  All
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal laws of the State of New
York, without giving effect to any choice of law or conflict of law provision
or rule (whether of the State of New York or any other jurisdictions) that
would cause the application of the laws of any jurisdictions other than the
State of New York.  Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in The City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit,

 

15

 

action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper.  Each party
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof
to such party at the address for such notices to it under this Agreement and
agrees that such service shall constitute good and sufficient service of
process and notice thereof.  Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES
NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR
IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.

(e)           No
Third Party Beneficiaries.  This
Agreement is intended for the benefit of the parties hereto and their
respective permitted successors and assigns, and is not for the benefit of, nor
may any provision hereof be enforced by, any other Person.

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

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

(h)           Entire
Agreement; Effect on Prior Agreements; Amendments.  This Agreement contains the entire agreement
of the parties hereto with respect to the subject matter hereof.  This Agreement and the other Amended
Transaction Documents supersede all other prior oral or written agreements
between the Investor, the Company, their affiliates and Persons acting on their
behalf with respect to the matters discussed herein and in the other Amended
Transaction Documents, and contain the entire understanding of the parties with
respect to the matters covered herein and therein; and, except as specifically
set forth herein or therein, neither the Company nor the Investor makes any
representation, warranty, covenant or undertaking with respect to such matters.  No provision of this Agreement may be amended
other than by an instrument in writing signed by the Company and the Required
Holders.  No such amendment shall be
effective to the extent that it applies to less than all of the Buyers.  No provision of this Agreement may be waived
other than by an instrument in writing signed by the party against whom
enforcement is sought.  No consideration
shall be offered or paid to any Other Buyer to amend or consent to a waiver or
modification of any provision of that Other Buyer’s Amendment Agreement unless
the same (or proportionate) consideration also is offered to the Investor for a
corresponding amendment or consent under this Agreement.  The Company has not, directly or indirectly,
made any agreements with the Investor, with any Other Buyer, with the
Collateral Agent or with the Buyer Representative relating to the terms or
conditions of the transactions contemplated by this Agreement and the Other
Amendment Agreements except as set forth herein or therein.

 

16

 

(i)            Notices.  Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered:  (i) upon receipt, when delivered personally;
(ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by
the sending party); or (iii) one (1) Business Day after deposit with an
overnight courier service, in each case properly addressed to the party to
receive the same.  The addresses and
facsimile numbers for such communications shall be:

If to the Company:

Wentworth Energy, Inc.

112 E. Oak Street, Suite 200

Palestine, TX 75801

Telephone:              (903) 723-0395

Facsimile:               (903) 723-5368

Attention:                Chief Executive Officer

 

and

Wentworth Energy, Inc.

Suite 306A, 15252 - 32nd
Avenue

Surrey, British Columbia,
V3S 0R7

Canada

Telephone  (604) 536-6055

Facsimile:  (604) 536-6077

Attention:              Chief Financial Officer

 

With copies (for
informational purposes only) to:

Troutman Sanders LLP

401 9th St., N.W.

Suite 1000

Washington, DC 
20004-2134

Telephone:              (202) 274-2810

Facsimile:               (202)
654-5649

Attention:                Todd R. Coles, Esq.

Dieterich
& Associates

11300
W. Olympic, Suite 800

Los
Angeles, California  90064

Telephone:
(310) 312-6888

Facsimile: (310) 312-6680

Attention:  Chris Dieterich

 

17

 

If to the Investor, to its
address and facsimile number set forth on the 2007 Securities Schedule, with
copies to the Investor’s representatives as set forth on the 2007 Securities
Schedule or on the signature page to this Agreement,

                                                with a copy (for
informational purposes only) to:

Schulte Roth & Zabel LLP

919 Third Avenue

New York, New York  10022

Telephone:              (212) 756-2000

Facsimile:               (212)
593-5955

Attention:                Eleazer N. Klein, Esq.

 

or to such other address
and/or facsimile number and/or to the attention of such other Person as the
recipient party has specified by written notice given to each other party five
(5) days prior to the effectiveness of such change.  Written confirmation of receipt (A) given by
the recipient of such notice, consent, waiver or other communication, (B) mechanically
or electronically generated by the sender’s facsimile machine containing the
time, date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by an overnight courier service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from
an overnight courier service in accordance with clause (i), (ii) or (iii)
above, respectively.

(j)            Expenses.  Each party shall bear its own costs and
expenses relating to the negotiation, execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby. [CASTLERIGG:
[Notwithstanding the immediately preceding sentence, the Company shall
reimburse Castlerigg for its previous legal and due diligence fees and expenses
and its legal and due diligence fees and expenses in connection with the
preparation and negotiation of this Agreement and transactions contemplated
hereby by paying any such amount to Schulte Roth & Zabel LLP (the “Castlerigg Counsel Expense”).  The Castlerigg Counsel Expense shall be paid
by the Company whether or not the 2007 Closing occurs.]]

(k)           Successors
and Assigns.  This Agreement shall be
binding upon and inure to the benefit of the parties to this Agreement and
their respective successors and assigns, including any holders or purchasers of
any Note, Warrant, Warrant Share, Conversion Share or Interest Share of the
Investor (in each case as defined in the Recitals to this Agreement).  The Company shall not assign this Agreement
or any rights or obligations hereunder without the prior written consent of the
Required Holders, including by way of a Fundamental Transaction (unless the
Company is in compliance with the applicable provisions governing Fundamental
Transactions set forth in the Notes and Warrants (each as defined in the Recitals
to this Agreement)).  The Investor may
assign some or all of its rights hereunder without the consent of the Company,
in which event such assignee shall be deemed to be the Investor hereunder with
respect to such assigned rights.

(l)            Survival.  The agreements and covenants set forth herein
shall survive the 2007 SPA Closing.

 

18

 

(m)          Independent
Nature of Investor’s Obligations and Rights.  The obligations of the Investor under this
Agreement and any other Amended Transaction Document to which it is party are
several and not joint with the obligations of any Other Buyer, and the Investor
shall not be responsible in any way for the performance of the obligations of
any Other Buyer under any Amended Transaction Document.  Nothing contained herein or in any other
Amended Transaction Document, and no action taken by the Investor pursuant
hereto or thereto, shall be deemed to constitute the Investor, together with
any one or more of the Other Buyers, a partnership, an association, a joint
venture or any other kind of entity, or to create a presumption that the
Investor and Other Buyers are in any way acting in concert or as a group with
respect to such obligations or the transactions contemplated by any Amended
Transaction Document.  The Investor
confirms, and the Company acknowledges, that the Investor has independently
participated in the negotiation of the transactions contemplated hereby with
the advice of its own counsel and advisors. 
The Investor shall be entitled to independently protect and enforce its
rights, including, without limitation, its rights arising out of this Agreement
or out of any other Amended Transaction Document, and it shall not be necessary
for any Other Buyer to be joined as an additional party in any proceeding for
such purpose.

[Signature Page Follows]

 

19

 

IN WITNESS WHEREOF, the Investor and the
Company have caused their respective signature page to this Agreement to be
duly executed as of the date first written above.

 

	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  WENTWORTH
  ENERGY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

IN WITNESS WHEREOF, the Investor and the
Company have caused their respective signature page to this Agreement to be
duly executed as of the date first written above.

	
   

  	
  INVESTOR:

  
	
   

  	
   

  
	
   

  	
  [NAME OF
  BUYER]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

 

 

SCHEDULES AND EXHIBITS

TO

AMENDMENT AGREEMENT

	
  Exhibit No.

  	
   

  	
  Description

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  —

  	
   

  	
  2007 Securities Schedule

  	
   

  
	
  —

  	
   

  	
  Amended and Restated
  Schedules to Securities Purchase Agreement.

  	
   

  
	
  SPAA

  	
   

  	
  Securities Purchase
  Agreement Amendments.

  	
   

  
	
  A-1

  	
   

  	
  Form of Amended and Restated
  Notes.

  	
   

  
	
  A-2

  	
   

  	
  Form of New Notes.

  	
   

  
	
  B-1

  	
   

  	
  Form of Amended and
  Restated Series A Warrants.

  	
   

  
	
  B-2

  	
   

  	
  Form of New Series A
  Warrants/ Other New Series A Warrants.

  	
   

  
	
  C-1

  	
   

  	
  Form of Amended and
  Restated Series B Warrants.

  	
   

  
	
  C-2

  	
   

  	
  Form of New Series B
  Warrants.

  	
   

  
	
  D-1

  	
   

  	
  Form of Amended and
  Restated Registration Rights Agreement.

  	
   

  
	
  E-1

  	
   

  	
  Form of Amended and
  Restated Pledge Agreement.

  	
   

  
	
  F-1

  	
   

  	
  Form of Amended and
  Restated Security Agreement.

  	
   

  
	
  G-1

  	
   

  	
  Form of Amended and
  Restated Barnico Guaranty.

  	
   

  
	
  J-1

  	
   

  	
  Form of Outside Company
  Counsel Opinion (2007 Closing).

  	
   

  
	
  K-1

  	
   

  	
  Form of Secretary
  Certificate (2007 Closing).

  	
   

  
	
  L-1

  	
   

  	
  Form of Officer’s
  Certificate (2007 Closing).

  	
   

  
	
  O-1

  	
   

  	
  Form of Amended and
  Restated Deeds of Trust.

  	
   

  

 

 

2007 SECURITIES SCHEDULE

TO

AMENDMENT AGREEMENT

 

SCHEDULE OF BUYERS

 

	
  (1)

  	
   

  	
  (2)

  	
   

  	
  (3)

  	
   

  	
  (4)

  	
   

  	
  (5)

  	
   

  	
  (6)

  	
   

  	
  (7)

  	
   

  	
  (8)

  	
   

  	
  (9)

  	
   

  	
  (10)

  	
   

  	
  (11)

  	
   

  	
  (12)

  	
   

  
	
  Buyer

  	
   

  	
  Address
  and

  Facsimile Number

  	
   

  	
  

  Aggregate

  Principal

  Amount

  of Amended

  and Restated

  Notes

  	
   

  	
  

  Aggregate

  Principal

  Amount of

  New Notes

  	
   

  	
  Number
  of

  Amended

  and Restated

  Series A

  Warrant

  Shares

  	
   

  	
  Number
  of

  New Series

  A Warrant

  Shares

  	
   

  	
  Number
  of

  Amended

  and Restated

  Series B

  Warrant

  Shares

  	
   

  	
  Number
  of

  New Series B

  Warrant

  Shares

  	
   

  	
  Purchase

  Price

  	
   

  	
  Amount
  of

  Escrow

  Funds to be

  Released for New Series

  A Warrants

  	
   

  	
  Number

  of Other

  New

  Series A Warrant

  Shares

  	
   

  	
  Legal

  Representative’s

  Address and

  Facsimile

  Number

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Castlerigg
  Master Investments Ltd.

  	
   

  	
  c/o Sandell 

  Asset Management 

  40 West 57th St 26th Floor

  New York, NY 10019 

  Attention: Cem Hacioglu/Matthew Pliskin Fax: 

  212-603-5710 Telephone:

  212-603-5700 Residence: 

  British Virgin Islands

  	
   

  	
  $30,155,531.37

  	
   

  	
  $5,000,000

  	
   

  	
  35,645,300

  	
   

  	
  7,142,857

  	
   

  	
  10,051,845

  	
   

  	
  1,666,667

  	
   

  	
  $5,000,000

  	
   

  	
  $1,654,416.44

  	
   

  	
  2,316,182

  	
   

  	
  Schulte Roth & Zabel LLP 

  919 Third Avenue 

  New York, New York 10022 Attention: Eleazer Klein, Esq. Facsimile: (212
  593-5955 Telephone: 

  (212 756-2376

  	
   

  
	
  YA
  Global Investments, L.P. (f/k/a Cornell Capital Partners L.P.)

  	
   

  	
  101 Hudson Street Suite 3700 

  Jersey City, NJ 07303

  Attention: Mark Angelo Facsimile: (201 985-8266 Telephone: 

  (201 985-8300 Residence: Delaware

  	
   

  	
  $11,308,324.27

  	
   

  	
  $0

  	
   

  	
  13,366,987

  	
   

  	
  0

  	
   

  	
  3,769,441

  	
   

  	
  0

  	
   

  	
  $0

  	
   

  	
  $620,406.17

  	
   

  	
  868,569

  	
   

  	
  Troy Rillo, Esq. 101 Hudson Street — Suite 3700
  Jersey City, New Jersey 07302 Telephone:(201 985-8300 Facsimile: (201
  985-8266

  	
   

  
	
  Highbridge
  International LLC

  	
   

  	
  c/o Highbridge Capital Management, LLC 

  9 West 57th Street, 27th Floor New York, 

  New York 10019 Attention: 

  Ari J. Storch Adam J. Chill Facsimile:

  (212 751-0755 Telephone: 

  (212 287-4720 Residence: Cayman Islands

  	
   

  	
  $3,769,441.42

  	
   

  	
  $0

  	
   

  	
  4,455,662

  	
   

  	
  0

  	
   

  	
  1,256,480

  	
   

  	
  0

  	
   

  	
  $0

  	
   

  	
  $206,802.06

  	
   

  	
  289,523

  	
   

  	
   

  	
   

  
	
  CAMOFI
  Master LDC

  	
   

  	
  c/o Centrecourt Asset Management

  350 Madison Avenue, 8th Floor New York. NY 10017 

  Telephone: 

  646-758-6750 Facsimile: 

  646-758-6751 Residence: Cayman Islands

  	
   

  	
  $2,261,664.85

  	
   

  	
  $0

  	
   

  	
  2,673,397

  	
   

  	
  0

  	
   

  	
  753,888

  	
   

  	
  0

  	
   

  	
  $0

  	
   

  	
  $124,081.23

  	
   

  	
  173,714

  	
   

  	
   

  	
   

  
	
  GunnAllen
  Financial, Inc.

  	
   

  	
  5002 West Waters Avenue 

  Tampa, FL 33634 Attention:

  James DiCesaro Fax: 

  813-569-2553 Telephone: 

  813-282-0808 Residence: Tampa, FL

  	
   

  	
  $678,499.46

  	
   

  	
  $0

  	
   

  	
  802,019

  	
   

  	
  0

  	
   

  	
  226,166

  	
   

  	
  0

  	
   

  	
  $0

  	
   

  	
  $37,224.37

  	
   

  	
  52,114

  	
   

  	
  David Jarvis 5002 West Waters Avenue Tampa, FL 33634
  Attention: David Jarvis Facsimile: (813 217-7038 Telephone: (813 282-0808

  	
   

  
	
  Sam
  DelPresto

  	
   

  	
  9 Ryan Lane Lincroft, NJ 07738 

  Telephone: 732.224.0060 Facsimile: 732.741.7885 Residence: 

  New Jersey

  	
   

  	
  $603,110.63

  	
   

  	
  $0

  	
   

  	
  712,906

  	
   

  	
  0

  	
   

  	
  201,037

  	
   

  	
  0

  	
   

  	
  $0

  	
   

  	
  $33,088.33

  	
   

  	
  46,324

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
   

  	
   

  	
  $48,776,572.00

  	
   

  	
  $5,000,000.00

  	
   

  	
  57,656,271

  	
   

  	
  7,142,857

  	
   

  	
  16,258,857

  	
   

  	
  1,666,667

  	
   

  	
  $5,000,000.00

  	
   

  	
  $2,676,018.60

  	
   

  	
  3,746,426

  	
   

  	
   

  	
   

  

 

2

 

EXHIBIT SPAA

TO

AMENDMENT AGREEMENT

 

Securities Purchase Agreement Amendments

1.                                       The
introductory paragraph to the Existing Securities Purchase Agreement shall be
deleted in its entirety and replaced with the following:

                “SECURITIES PURCHASE AGREEMENT, dated as of July 24, 2006
(the “2006 Agreement”), as amended by the
Subsequent Modifications (as defined below) (the 2006 Agreement, as so amended,
the “Existing Agreement”), as amended as of
October 31, 2007 by those certain Amendment Agreements (as defined below) (the
Existing Agreement, as so amended, and as the same may be further amended,
restated or otherwise modified from time to time in accordance with the terms
hereof, this “Agreement”), by and among
Wentworth Energy, Inc., an Oklahoma corporation (the “Company”)
with headquarters located as of the 2007 Closing Date (as defined below) at
Suite 200, 112 E. Oak Street, Palestine, Texas 75801, and the investors listed
on the Schedule of Buyers attached hereto (individually, a “Buyer”, and, collectively, the “Buyers”).

2.                                       The Recitals to
the Existing Securities Purchase Agreement shall be deleted in their entirety
and replaced with the following:

“WHEREAS:

A.            The
Company and each Buyer are executing and delivering this Agreement, and are
consummating the transactions contemplated hereby, in reliance upon the
exemption from securities registration afforded by Section 4(2) of the
Securities Act of 1933, as amended (the “1933
Act”), and Rule 506 of Regulation D (“Regulation D”) as promulgated by the United States
Securities and Exchange Commission (the “SEC”)
under the 1933 Act.

B.            Pursuant to the 2006 Agreement, among other things, the
Buyers purchased from the Company, for an aggregate original purchase price of
$32,350,000: (i) an aggregate original principal amount of $32,350,000 of
senior secured convertible notes (the “2006 Notes”), which are convertible
into shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), in accordance with the
terms thereof (as converted, collectively, the “2006
Conversion Shares”) and interest on which notes, at the option of
the Company, and subject to certain conditions, may be paid in shares of Common
Stock (collectively, the “2006 Interest Shares”);
(ii) warrants (denominated as “Series A Warrants”) to purchase common stock
(the “2006 Series A Warrants”), which warrants originally were
exercisable for an aggregate of 46,214,287 shares of Common Stock; and (iii)
warrants (denominated as “Series B Warrants”) to purchase common stock (the “2006 Series B Warrants”,
and together with the 2006

 

3

 

Series A Warrants, “2006 Warrants”), which warrants
originally were exercisable for an aggregate of 16,170,000 shares of Common
Stock.

C.            Contemporaneously
with the consummation of the transactions contemplated by the 2006 Agreement:
(i) the Company and its then-existing subsidiary, Wentworth Oil & Gas,
Inc., a Nevada corporation (“WOG”), entered
into that certain Pledge Agreement, dated as of July 25, 2006 (the “2006 Pledge Agreement”), in favor of Castlerigg Master
Investments Ltd., a British Virgin Islands company (“Castlerigg”)
acting in its capacity as collateral agent (in such capacity, the “Collateral
Agent”) for the benefit of the Buyers; (ii) the Company and WOG entered into
that certain Security Agreement, dated as of July 25, 2006 (the “2006 Security Agreement”),
in favor of the Collateral Agent for the benefit of the Buyers; and (iii) WOG
entered into that certain Guaranty, dated as of July 25, 2006 (the “2006 WOG Guaranty”),
in favor of the Collateral Agent for the benefit of the Buyers.

D.            The proceeds received by the Company from the issuance of
the 2006 Notes, 2006 Series A Warrants and 2006 Series B Warrants at the
closing under the 2006 Agreement (the “2006 Closing”)
were used by the Company in order to, among other things, purchase all of the
outstanding stock of Barnico Drilling, Inc., a Texas corporation (“Barnico”).  In
conjunction with that acquisition, on or about August 8, 2006: (i) in
accordance with Section 4(b) of the 2006 Pledge Agreement, the Company entered
into that certain Pledge Amendment, dated on or about August 8, 2006 (the “2006 Pledge Amendment”), amending the 2006 Pledge Agreement
to include as collateral thereunder the shares of Barnico capital stock
referenced in the 2006 Pledge Amendment; (ii) in accordance with Section 5(m)
of the 2006 Security Agreement, Barnico entered into that certain Joinder
Agreement, dated on or about August 8, 2006 (the “2006 Joinder
Agreement”), for the benefit of the Collateral Agent, to join the
2006 Security Agreement as a party thereto and collateral grantor thereunder;
and (iii) in accordance with Section 5(m) of the 2006 Security Agreement,
Barnico entered into that certain Guaranty, dated on or about August 8, 2006
(the “2006  Barnico
Guaranty”), in favor of the Collateral Agent for the benefit of the
Buyers.

E.             In connection with the execution and delivery of the
2006 Agreement, the Company and the Buyers entered into that certain
Registration Rights Agreement, dated as of July 25, 2006 (the “2006  Registration Rights
Agreement”), pursuant to which the Company agreed to provide certain
registration rights with respect to the Registrable Securities (as defined
therein) under the 1933 Act, and the rules and regulations promulgated
thereunder, and applicable state securities laws.

F.             As contemplated by Section 4(v) of the Existing
Agreement, the Company entered into those certain seven separate instruments or
agreements, each entitled Deed of Trust, Mortgage, Assignment of Production,
Security Agreement, Fixture Filing and Financing Statement, and each dated
August 2006 (collectively, the “2006  Deeds of Trust”), to Terry I. Cross, as trustee thereunder,
for the benefit of the Collateral Agent as mortgagee thereunder, which
respectively were filed of record in the following counties in the State of
Texas: (i) Anderson, on September 8, 2006 (vol. 1900, page 794); (ii) Archer,
on September 11, 2006 (vol. 671, page 803); (iii) Freestone, on September 8,
2006 (vol. 1373, page 445); (iv) Jones, on September 11, 2006 (vol. 249, page
384); (v)

 

4

 

Leon, on September 8, 2006
(vol. 1276, page 682); (vi) Pecos, on September 11, 2006 (vol. 348, page 591);
and (vii) Wichita, on September 11, 2006 (vol. 3010, page 857).  Subsequently, in accordance with the terms of
the Jan. 5, 2007 Letter Agreement (as defined below), the 2006 Deeds of Trust
filed in Archer, Pecos and Wichita Counties, Texas, have been or are to be
released.

G.            As contemplated by Section 4(r) of the Existing
Agreement, the Company entered into that certain Escrow Agreement, dated as of
September 8, 2006 (the “2006  Escrow Agreement”), with Castlerigg, acting in its capacity
as “Buyer Representative” on behalf of the Buyers, and Capital One, a national
banking association, as escrow agent thereunder.

H.            Subsequent to the 2006 Closing, the following instruments
and agreements (collectively, the “Subsequent Modifications”)
have been entered into (in addition to the other instruments and agreements
specifically referenced in these Recitals): (i) the Company and the Collateral
Agent entered into that certain waiver, dated as of August 9, 2006 (the “Aug. 9, 2006 Waiver”), pursuant to which, among other
things, the Collateral Agent waived certain provisions of the 2006 Security
Agreement pertaining to the filing of financing statements (the Aug. 9, 2006
Waiver being the same waiver described in the Aug. 22, 2006 Waiver (defined
below) as having been dated as of August 8, 2006); (ii) the Company, the Buyers
and the Collateral Agent entered into that certain waiver, dated as of August
22, 2006 (the “Aug. 22, 2006 Waiver”), pursuant
to which, among other things, the parties thereto effected certain waivers and
other modifications to the provisions of the 2006 Agreement and other
agreements as referenced therein; (iii) the Company and certain of the Buyers
entered into those certain waivers, dated as of September 21, 2006 (the “Sept. 21, 2006 Waiver”), pursuant to which, among other
things, the respective Buyers waived and modified certain provisions of the
Existing Agreement pertaining to the delivery of real estate title opinions;
(iv) the Company and certain of the Buyers entered into those certain letter
agreements, each dated September 28, 2006 (the “Sept. 28,
2006 Letter Agreements”), pursuant to which, among other things, the
respective Buyers waived certain provisions of the Existing Agreement and the
2006 Pledge Agreement in connection with a certain settlement respecting
Redrock Energy, Inc., a Nevada corporation (f/k/a Redrock Oil Sands, Inc.) (“Redrock”); (v) the Company and each of the Buyers entered
into those certain letter agreements, each dated on or about November 7, 2006
(the “Nov. 7, 2006 Letter Agreements”),
pursuant to which, among other things, the respective Buyers waived certain
provisions of the 2006 Registration Rights Agreement pertaining to the
effectiveness deadline thereunder; and (vi) the Company and the Collateral
Agent, as mortgagee under the 2006 Deeds of Trust, entered into that certain
letter agreement, dated January 5, 2007 (the “Jan. 5, 2007
Letter Agreement”), pursuant to which, among other things, the 2006
Deeds of Trust filed in Archer, Pecos and Wichita Counties have been or are to
be released.

I.              The 2006 Pledge Agreement, as amended or otherwise
modified by the 2006 Pledge Amendment and by one or more of the Subsequent
Modifications, is referred to as the “Existing Pledge Agreement”.  The 2006 Security Agreement, as amended or
otherwise modified by the 2006 Joinder Agreement and by one or more of the
Subsequent Modifications, is referred to as the “Existing
Security Agreement”.  The 2006
Registration Rights Agreement, as amended or otherwise modified by one or more

 

5

 

of the Subsequent
Modifications, is referred to as the “Existing Registration
Rights Agreement”.  The 2006
Notes, 2006 Series A Warrants, 2006 Series B Warrants, 2006 WOG Guaranty, 2006
Barnico Guaranty, 2006 Deeds of Trust and 2006 Escrow Agreement are sometimes
referred to as the “Existing Notes”,
“Existing Series A Warrants”, “Existing Series B Warrants”, “Existing WOG
Guaranty”, “Existing Barnico Guaranty”,
“Existing Deeds of Trust”, and “Existing Escrow Agreement”, respectively.

J.             Certain disputes have arisen between the Company, WOG
and Barnico, on the one hand, and the Buyers, Collateral Agent and Buyer
Representative, on the other hand, relating to, among other things, the failure
or inability of the Company to comply with its registration obligations under
the Existing Registration Rights Agreement. 
In connection with such disputes, one or more of the Buyers delivered
event of default redemption notices (the “Existing Redemption
Notices”) to the Company; and the Collateral Agent, as mortgagee
under the Existing Deeds of Trust, posted foreclosure notices in respect
thereof.  The Collateral Agent and
Castlerigg, also entered into certain temporary forbearance agreements,
thereafter joined in by certain or all of the other Buyers, pursuant to which
the Collateral Agent and those Buyers agreed to forbear temporarily from
foreclosing under the Existing Deeds of Trust and exercising their remedies
under one or more of the other collateral documents.

K.            The Company and Barnico have concluded negotiations with
each Buyer, as well as with the Collateral Agent and Buyer Representative; such
that the parties to those negotiations desire to enter into documentation that,
collectively, will waive all existing defaults (other than defaults occurring
upon or continuing after the 2007 Closing Date) and moot all Existing
Redemption Notices.  In furtherance
thereof: (i) the Company and the Buyers are entering into those certain
Amendment Agreements, each dated as of October 31, 2007 (collectively, the “Amendment Agreements”); and (ii) the Collateral Agent and
the Buyer Representative, by their acknowledgment and agreement to the
provisions contained in Castlerigg’s Amendment Agreement, are acknowledging and
agreeing to the provisions contained in the Amendment Agreements respectively
applicable to them.

L.             In accordance with the provisions of the Amendment
Agreements, effective as of the 2007 Closing Date, the Existing Agreement is
being amended in the manner provided in the Amendment Agreements in order to,
among other things:

(i)            provide for the amendment and
restatement of the Buyers’ Existing Notes, as of the 2007 Closing Date, by the
Company’s issuance to the Buyers of amended and restated senior secured
convertible notes substantially in the form attached hereto as Exhibit A-1
(the “Amended and Restated Notes”), with each
Buyer’s Amended and Restated Note to be issued in the principal amount set
forth opposite such Buyer’s name in column (3) on the Schedule of Buyers
attached hereto, and with such notes to be convertible into shares of Common
Stock (the “Amended and Restated Conversion Shares”) in accordance with the terms thereof, and with interest on such notes to
be paid, at the option of the Company, and subject to certain
conditions, in shares of Common Stock (the “Amended and
Restated Interest Shares”);

 

6

 

(ii)           provide for the
amendment and restatement of the Buyers’ Existing Series A Warrants, as of the
2007 Closing Date, by the Company’s issuance to the Buyers of amended and
restated warrants substantially in the form attached hereto as Exhibit B-1
(the “Amended and Restated Series A Warrants”), with each Buyer’s
Amended and Restated Series A Warrant to be exercisable to acquire shares of
Common Stock (collectively, the “Amended and Restated Series A Warrant Shares”), initially in that number of shares
of Common Stock set forth opposite such Buyer’s name in column (5) on the
Schedule of Buyers attached hereto;

 

(iii)          provide for the
amendment and restatement of the Buyers’ Existing Series B Warrants, as of the
2007 Closing Date, by the Company’s issuance to the Buyers of amended and
restated warrants substantially in the form attached hereto as Exhibit C-1
(the “Amended and Restated Series B Warrants”; the Amended and
Restated Series B Warrants and the Amended and Restated Series A Warrants,
collectively, the “Amended and Restated
Warrants”), with each Buyer’s Amended and Restated Series B Warrant
to be exercisable to acquire shares of Common Stock (collectively, the “Amended and Restated
Series B Warrant Shares”)
(the Amended and Restated Series B Warrant Shares and the Amended and Restated
Series A Warrant Shares, collectively, the “Amended and
Restated Warrant Shares”), initially in that number of shares of
Common Stock set forth opposite such Buyer’s name in column (7) on the Schedule
of Buyers attached hereto;

 

(iv)          provide for the
Company’s issuance to Castlerigg, as of the 2007 Closing Date, of a new senior
secured convertible note substantially in the form attached hereto as Exhibit
A-2 (the “New Note”, and together with the
Amended and Restated Notes, the “Notes”), with
Castlerigg’s New Note to be issued in the principal amount set forth opposite
Castlerigg’s name in column (4) on the Schedule of Buyers attached hereto, and
with such note to be convertible into shares Common Stock (collectively, the “New Conversion Shares”, and together with the Amended and
Restated Conversion Shares, the “Conversion Shares”) in accordance with the terms thereof; and
with interest on such note to be paid, at the option of the Company, and
subject to certain conditions, in shares of Common Stock (collectively, the “New Interest Shares”, and together with the Amended and
Restated Interest Shares, the “Interest Shares”);

 

(v)           provide for the
Company’s issuance to Castlerigg, as of the 2007 Closing Date, of a new warrant
(designated as “Series A Warrant”) substantially in the form attached hereto as
Exhibit B-2 (the “New Series A Warrant”), with Castlerigg’s New
Series A Warrant to be exercisable to acquire shares of Common Stock
(collectively, the “New Series A Warrant Shares”), initially in that number of shares
of Common Stock set forth opposite Castlerigg’s name in column (6) on the
Schedule of Buyers attached hereto;

 

(vi)          provide for the
Company’s issuance to the Buyers, as of the 2007 Closing Date, of new warrants
(designated as “Series A Warrants”) substantially

 

7

 

in the form attached hereto
as Exhibit B-2 (the “Other New Series A Warrants”), with each Buyer’s
Other New Series A Warrant to be exercisable to acquire shares of Common Stock
(collectively, the “Other New Series A Warrant
Shares”), initially
in that number of shares of Common Stock set forth opposite such Buyer’s name
in column (11) on the Schedule of Buyers attached hereto; and

 

(vii)         provide for the
Company’s issuance to Castlerigg, as of the 2007 Closing Date, of a new warrant
(designated as “Series B Warrant”) substantially in the form attached hereto as
Exhibit C-2 (the “New Series B Warrant”) (the New Series B
Warrant, the New Series A Warrant and the Other New Series A Warrants,
collectively, the “New Warrants”) (the Amended and Restated Warrants and the
New Warrants, collectively, the “Warrants”),, with Castlerigg’s New Series B
Warrant to be exercisable to acquire shares of Common Stock (the “New Series B Warrant
Shares”) (the New
Series B Warrant Shares, the New Series A Warrant Shares and the Other New
Series A Warrant Shares, collectively, the “New Warrant
Shares”) (the Amended and
Restated Warrant Shares and the New Warrant Shares, collectively, the “Warrant Shares”), initially
in that number of shares of Common Stock set forth opposite Castlerigg’s name
in column (8) on the Schedule of Buyers attached hereto.

 

M.           The Notes, the Conversion Shares, the Interest Shares, the
Warrants and the Warrant Shares collectively are referred to herein as the “Securities”.

N.            In accordance with the provisions of the Amendment
Agreements, effective as of the 2007 Closing Date, the following additional
transactions (among others) shall occur:

(i)            the Company, Barnico and the
Collateral Agent shall execute and deliver a certain Amended and Restated
Security Agreement, substantially in the form attached hereto as Exhibit F-1
(as so executed and delivered, and as thereafter amended, restated or otherwise
modified thereby in accordance with the terms thereof, the “Amended and Restated Security Agreement”), which shall
completely amend, restate and supersede the Existing Security Agreement in
order to (among other things) restate and continue the security interest
created thereunder, reflect the removal of WOG as a party thereto and
collateral grantor thereunder, and otherwise give effect to the Amendment
Agreements and the transactions contemplated thereby;

 

(ii)           the Company and the Collateral Agent
shall execute and deliver a certain Amended and Restated Pledge Agreement,
substantially in the form attached hereto as Exhibit E-1 (as so executed
and delivered, and as thereafter amended, restated or otherwise modified
thereby in accordance with the terms thereof, the “Amended and
Restated Pledge Agreement”), which shall completely amend, restate
and supersede the Existing Pledge Agreement in order to (among other things)
restate and continue the security interest created thereunder, reflect the
removal of WOG as a party thereto and pledgor thereunder, and otherwise give
effect to the Amendment Agreements and the transactions contemplated thereby;

 

8

 

(iii)          the Company and the Collateral Agent,
in its capacity as mortgagee under the Existing Deeds of Trust, with the consent
of the trustee under the Existing Deeds of Trust and the consent of each Buyer
(as granted under the Amendment Agreements), shall execute and deliver four
separate instruments or agreements, each entitled Amended and Restated Deed of
Trust, Mortgage, Assignment of Production, Security Agreement, Fixture Filing
and Financing Statement, to Terry I. Cross, as trustee, for the benefit of the
Collateral Agent as mortgagee, each substantially in the form attached hereto
as Exhibit O-1 (as so executed and delivered, and as thereafter amended,
restated or otherwise modified thereby in accordance with the terms thereof,
the “Amended and Restated Deeds of Trust”),
which shall completely amend, restate and supersede the Existing Deeds of Trust
filed in Anderson, Freestone, Jones and Leon Counties, Texas, in order to
(among other things) restate and continue the lien and security interest
created thereunder, and otherwise give effect to the Amendment Agreements and
the transactions contemplated thereby (it being understood and agreed that, as
acknowledged in the Amendment Agreements, the Existing Deeds of Trust filed in
Archer, Pecos and Wichita Counties, Texas, have no further force or effect and
have been or are to be released);

 

(iv)          Barnico shall execute and deliver a
certain Amended and Restated Barnico Guaranty, substantially in the form
attached hereto as Exhibit G-1 (as so executed and delivered, and as
thereafter amended, restated or otherwise modified thereby in accordance with
the terms thereof, the “Amended and Restated
Barnico Guaranty”, and together with the Amended and Restated
Security Agreement and the Amended and Restated Pledge Agreement, the “Security Documents”), which shall completely amend, restate
and supersede the Existing Barnico Guaranty in order to (among other things)
restate and continue the guarantee made thereunder, and otherwise give effect
to the Amendment Agreements and the transactions contemplated thereby (it being
understood and agreed that, as acknowledged in the Amendment Agreements, the
Existing WOG Guaranty has terminated and has no further force or effect); and

 

(v)           the Company and the Buyers shall
execute and deliver a certain Amended and Restated Registration Rights
Agreement, substantially in the form attached hereto as Exhibit D-1 (as
so executed and delivered, and as thereafter amended, restated or otherwise
modified thereby in accordance with the terms thereof, the “Amended and Restated Registration Rights Agreement”), which
shall completely amend, restate and supersede the Existing Registration Rights
Agreement, and pursuant to which the Company shall agree to provide certain
registration rights with respect to the Registrable Securities (as defined
therein) under the 1933 Act and the rules and regulations promulgated thereunder,
and applicable state securities laws;

 

O.            The amendment
and restatement of the Buyers’ Existing Notes by the Buyers’ Amended and
Restated Notes, the amendment and restatement of the Buyers’ Existing Series A
Warrants by the Buyers’ Amended and Restated Series A Warrants, and the
amendment and restatement of the Buyers’ Existing Series B Warrant by the

 

9

 

Buyers’
Amended and Restated Series B Warrants, as well as the issuance of the Amended
and Restated Barnico Guaranty in connection therewith, are being made in
reliance upon the exemption from registration provided by Section 3(a)(9) of
the 1933 Act.

P.             In accordance with the provisions of the Amendment
Agreements, on the 2007 Closing Date (or as promptly thereafter as is
practicable), the Existing Escrow Agreement shall be terminated.

Q.            Contemporaneously
with the 2007 Closing (as defined below), the Company and YA Global Investments,
L.P., a Cayman Islands exempt limited partnership (“YA Global”)
f/k/a Cornell Capital Partners, L.P., are
executing that certain Amendment and Exchange Agreement, dated as of the date
of this Agreement (the “YA Global Amendment
and Exchange Agreement”),
pursuant to which, among other things, the Company and YA Global are agreeing:
(i) to amend and restate those certain Secured Convertible
Debentures dated on or about January 12, 2006, with an aggregate original
purchase price of $1,500,000 (the “YA Global Debentures”),
purchased by YA Global from the Company pursuant
to that certain Securities Purchase Agreement, dated as of January 12, 2006, by
and between the Company and YA Global (the “YA Global Securities Purchase Agreement”); (ii) to amend and restate those certain Warrants, dated as of
January 12, 2006, by and between the Company and YA Global (the “YA Global Warrants”), which are exercisable, in the
aggregate, into 1,500,000 shares of the Company’s Common Stock; (iii) to amend that certain Security Agreement, dated as
of January 12, 2006, by the Company in favor of YA Global; (iv) to terminate that certain Security Agreement, dated as
of January 12, 2006, by WOG in favor of YA Global; and (v) to amend and grant
certain waivers in respect of the YA Global Securities Purchase Agreement, the
YA Global Debentures, the YA Global Warrants, the YA Global Security Agreement,
and other transaction documents associated therewith.”

3.           
Section 1 of the Existing Securities Purchase Agreement, which pertained
to certain transactions which were consummated at the 2006 Closing and which
has no continuing force or effect, shall be amended as follows:

(a)           The
heading to Section 1 shall be amended to read in its entirety as follows: “PURCHASE
AND SALE OF 2006 NOTES AND 2006 WARRANTS AT 2006 CLOSING.”

(b)           The
defined term “Closing”, as defined in Section 1(a), shall be deleted.

(c)           The
defined term “Purchase Price”, as defined in Section 1(c), shall be amended to
read “2006 Purchase Price”.

(d)           The
defined term “Closing Date”, as defined in Section 1(d), shall be amended to
read “2006 Closing Date”.

(e)           All
other references in Section 1 to “Closing Date”, “Notes”, “Series A Warrants”,
“Series B Warrants”, “Closing”, “Warrants”, and “Purchase Price” shall be
amended to be references to “2006 Closing Date”, “2006 Notes”, “2006 Series A
Warrants”, “2006 Series B Warrants”, “2006 Closing”, “2006 Warrants”, and

 

10

 

              
“2006 Purchase Price”, respectively; and all references in Section 1 to
“Warrant Shares” shall be amended to be references to the shares of Common
Stock issuable upon exercise of the respective 2006 Warrants.

4.          
The Existing Securities Purchase Agreement shall be amended to add the
following new Section 1-A immediately before Section 2 thereof:

“1-A.      AMENDMENT
AND RESTATEMENT OF EXISTING NOTES AND EXISTING WARRANTS; PURCHASE AND SALE OF
NEW NOTE AND NEW WARRANTS.

                                                (a)           Amendment and Restatement of
Existing Notes and Existing Warrants and Purchase and Sale of New Note and New
Warrants.  Subject to satisfaction
(or waiver) of the conditions to the 2007 Closing set forth in Sections 6-A and
7-A below, at the 2007 Closing: (i) each Buyer shall surrender its Existing
Note, its Existing Series A Warrant and its Existing Series B Warrant to the
Company, and the Company shall issue and deliver to such Buyer (A) an Amended
and Restated Note in the principal amount set forth opposite such Buyer’s name
in column (3) on the Schedule of Buyers attached hereto, (B) an Amended and
Restated Series A Warrant to acquire that number of Amended and Restated Series
A Warrant Shares as is set forth opposite such Buyer’s name in column (5) on
the Schedule of Buyers attached hereto, and (C) an Amended and Restated Series
B Warrant to acquire that number of Amended and Restated Series B Warrant
Shares as is set forth opposite such Buyer’s name in column (7) on the Schedule
of Buyers attached hereto; (ii) the Company shall issue and sell to each Buyer,
and each Buyer agrees to purchase from the Company, an Other New Series A
Warrant to acquire that number of Other New Series A Warrant Shares as is set
forth opposite such Buyer’s name in column (11) on the Schedule of Buyers
attached hereto; and (iii) the Company shall issue and sell to Castlerigg, and
Castlerigg agrees to purchase from the Company, (A) a New Note in a principal
amount as is set forth opposite Castlerigg’s name in column (4) on the Schedule
of Buyers attached hereto, (B) a New Series A Warrant to acquire that number of
New Series A Warrant Shares as is set forth opposite Castlerigg’s name in
column (6) on the Schedule of Buyers attached hereto, and (C) a New Series B
Warrant to acquire that number of New Series B Warrant Shares as is set forth
opposite Castlerigg’s name in column (8) on the Schedule of Buyers attached
hereto.

                                                (b)           Closing Date.  The date and time of the closing (the “2007 Closing”) of the transactions
contemplated by this Section 1-A (the “2007
Closing Date”) shall occur contemporaneously with the execution and
delivery of the Amendment Agreements, subject to notification of satisfaction
(or waiver) of the conditions to the 2007 Closing set forth in Sections 6-A and
7-A below (or such other time and date as is mutually agreed to by the Company
and the Buyers).  The 2007 Closing shall
occur on the 2007 Closing Date at the offices of Schulte Roth & Zabel LLP,
919 Third Avenue, New York, New York 10022.

                                                (c)           Delivery.  At the 2007 Closing, the Company shall
deliver to each Buyer its Amended and Restated Note, Amended and Restated
Warrants, New Note and New Warrants, as applicable.  All of the foregoing securities shall be
delivered in each case duly executed on behalf of the Company and registered in
the name of the Buyer or

 

11

 

its designee (so long as any such designee is
an “accredited investor” as that term is defined in Rule 501(d) of Regulation D
as promulgated by the SEC under the 1933 Act (“Regulation D”)).

                                                (d)           Purchase Price.  Each Buyer’s Amended and Restated Note,
Amended and Restated Series A Warrant and Amended and Restated Series B Warrant
shall be issued to such Buyer in exchange for such Buyer’s Existing Note,
Existing Series A Warrant and Existing Series B Warrant, respectively, and
without the payment of any additional consideration therefor.  The aggregate purchase price for Castlerigg’s
New Note, New Series A Warrant and New Series B Warrant to be purchased by
Castlerigg at the 2007 Closing shall be the amount set forth opposite
Castlerigg’s name in column (9) of the Schedule of Buyers attached hereto (the
“Purchase Price”).  The Other New Series A Warrants shall be
issued to each Buyer in exchange for termination of the escrow arrangements contemplated
in Section 4(r) of the Existing Agreement and the full release to the Company
of the amount of Escrow Funds (as defined in said Section 4(r)) set forth
opposite such Buyer’s name in column (10) of the Schedule of Buyers attached
hereto.  Castlerigg shall pay the
Purchase Price (net of any unpaid Castlerigg Counsel Expense, as defined in
Section 6(j) of Castlerigg’s Amendment Agreement) to the Company for the New
Note, New Series A Warrant and New Series B Warrant to be issued and sold to
Castlerigg at the 2007 Closing by wire transfer of immediately available funds
in accordance with the Company’s written wire instructions.

5.          
The Existing Securities Purchase Agreement shall be amended to add the
following new Section 2-A immediately before Section 3 thereof:

                                “2-A.      BUYER’S 2007 CLOSING REPRESENTATIONS
AND WARRANTIES.

                                (a)           Buyer Bring Down.  Each Buyer hereby represents and warrants as
of the 2007 Closing Date to the Company with respect to itself only as set
forth in subsections (a)-(i) of Section 2, above, as if such representations
and warranties were made as of the 2007 Closing Date and set forth in their
entirety herein.

                                (b)           Residency.  Each Buyer hereby represents and warrants as
of the 2007 Closing Date to the Company with respect to itself only that such
Buyer is a resident of that jurisdiction specified below its address on the
Schedule of Buyers attached hereto.

                                (c)           Certain References.  For purposes of Section 2-A(a) above: (i)
representations and warranties in Section 2 to the transactions hereunder (or
thereunder) and the securities issued hereby (or thereby) shall be deemed to be
references to the transactions, including the issuance of the securities,
contemplated by Section 1-A to occur at the 2007 Closing; (ii) references in
Section 2 to “Registration Rights Agreement” shall be deemed to be references
to the Amended and Restated Registration Rights Agreement; and (iii) references
in Section 2 to “Transaction Documents” shall be to “Transaction Documents” as
defined in Section 3-A(c) below.”

6.           
The introductory clause to Section 3 of the Existing Securities Purchase
Agreement shall be amended by deleting the phrase “as of the date hereof” and
replacing it with “as of July 24, 2006”; it being understood and agreed that
the representations and warranties

 

12

 

contained in Section 3 are not being repeated
as of the 2007 Closing Date except as provided in Section 3-A, below.

7.          
The Existing Securities Purchase Agreement shall be amended to add the
following new Section 3-A immediately before Section 4 thereof:

                                “3-A.      COMPANY’S 2007 CLOSING REPRESENTATIONS
AND WARRANTIES.

                                (a)           Company Bring Down.  After giving effect to (x) the terms of the
Amendment Agreements and the transactions contemplated by the 2007 Closing
(including, without limitation, the waivers set forth in Section 3(e) of
Amendment Agreements) and (y) the terms of the YA Global Amendment and Exchange
Agreement and the transactions contemplated by the Closing (as defined in the
YA Global Amendment and Exchange Agreement) (including, without limitations,
the waivers set forth in Section 4(b) of the YA Global Amendment and Exchange
Agreement), except as set forth on the Amended and Restated Securities Purchase
Agreement Schedules attached hereto, which shall amend and restate in their
entirety the Schedules attached to the Existing Agreement and add an additional
schedule hereto (collectively, the “Amended
and Restated Schedules”), the
Company represents and warrants as of the 2007 Closing Date to each Buyer as
set forth in Section 3, above, as if such representations and warranties were
made as of the 2007 Closing Date (except for such
representations and warranties that speak as of a specific date, which shall be
true and correct as of such specified date but need not also be true and
correct as of the 2007 Closing Date)
and set forth in their entirety herein.

                                (b)           Certain References.  For purposes of Section 3-A above: (i) representations
and warranties in Section 3 to the transactions hereunder (or thereunder) and
the securities issued hereby (or thereby) shall be deemed to be references to
the transactions, including the issuance of the securities, contemplated by
Section 1-A to occur at the 2007 Closing; (ii) references in Section 3 to the
“Closing Date” shall be deemed to be references to the 2007 Closing Date; (iii)
references in Section 3 to “the date hereof” shall be deemed to be references
to the 2007 Closing Date; (iv) references in Section 3 to “Registration Rights
Agreement” shall be deemed to be references to the Amended and Restated
Registration Rights Agreement; (v) references in Section 3 to “Escrow
Agreement” shall be deemed to be references to the Existing Escrow Agreement;
(vi) references in Section 3 to “Stockholder Approval “ shall be deemed to be
references to “Stockholder Approval “ as defined in Section 4(t)(i) of the
Existing Agreement; (vii) references in Section 3 to “Closing” shall be deemed
to be references to the 2007 Closing; (viii) reference to “Stockholder Approval
Date” in Section 3(c) shall be deemed to be a reference to the 2007 Closing
Date; (ix) the reference in Section 3(c) to Section 2 shall be deemed to be a
reference to Section 2-A; (x) “1934 Act” shall mean Securities Exchange Act of
1934, as amended; (xi) references to “Securities” in the last two sentences of
Section 3(g) shall be deemed to be references to “Securities” as defined in the
Existing Agreement; and (xii) references in Section 3(w) to fee simple interests
in all real property shall be deemed to refer to mineral estate rights where
the Company or its Subsidiary does not also have a fee simple interest in the
related surface estate.

 

13

 

                (c)           Transaction
Documents Defined.  The phrase
“(collectively, the Transaction Documents”)”, as contained in Section 3(b),
shall be deleted.  For all purposes of
this Agreement, “Transaction Documents” shall mean
this Agreement, each of the Amendment Agreements, the Notes, the Amended and
Restated Registration Rights Agreement, the Security Documents, the Irrevocable
Transfer Agent Instructions, the Warrants, and each of the other agreements
entered into by the parties hereto in connection with the transactions
contemplated by this Agreement (excluding any such other agreement entered into
prior to the 2007 Closing Date).

                (d)           No Event of Default.  After giving effect to (x) the terms of the
Amendment Agreement and the transactions contemplated by the 2007 Closing
(including, without limitation, the waivers set forth in Section 3(e) of the
Amendment Agreements) and (y) the terms of the YA Global Amendment and Exchange
Agreement and the transactions contemplated by the Closing (as defined in the
YA Global Amendment and Exchange Agreement) (including, without limitations,
the waivers set forth in Section 4(b) of the YA Global Amendment and Exchange
Agreement), the Company represents and warrants as of the 2007 Closing Date to
each Buyer that no Event of Default (as defined in the Notes) shall have
occurred and be continuing as of the 2007 Closing Date.

                (e)           No Repricing.  The Company represents and warrants as of the
2007 Closing Date to each Buyer that on or after July 24, 2006 and before the
2007 Closing Date the Company did not, directly or indirectly, enter into or
affect any Dilutive Issuance (as defined in each of the Existing Notes and the
Existing Warrants).”

8.           The reference in Section 4(a) of the
Existing Securities Purchase Agreement to Sections 6 and 7 of the Existing
Securities Purchase Agreement instead shall refer to Sections 6-A and 7-A of
the Amended Securities Purchase Agreement.

9.           Section 4(b) of the Existing
Securities Purchase Agreement shall be deleted in its entirety and replaced
with the following:

                                “(b)         Form
D and Blue Sky.  The Company agrees
to file a Form D with respect to the Securities as required under Regulation D
and to provide a copy thereof to the Investor reasonably promptly after such
filing.  The Company shall, reasonably promptly
(and in no event later than 15 days) after the 2007 Closing Date, take such
action as the Company shall reasonably determine is necessary (taking into
account The National Securities Markets Improvement Act of 1996, as amended),
in order to obtain an exemption for or to qualify the Securities for sale to
the Buyers at the 2007 Closing pursuant to this Agreement under applicable
securities or “Blue Sky” laws of the states of the United States (or to obtain
an exemption from such qualification), and shall provide evidence of any such
action so taken to the Investor reasonably promptly after such filing.  The Company shall make all filings and
reports relating to the offer and sale of the Securities required under
applicable securities or “Blue Sky” laws of the states of the United States
following the 2007 Closing Date.  The
Company shall have no obligations with respect to the securities laws of any
jurisdiction outside of the United States, regardless of the foreign residence
of a Buyer.”

 

14

 

10.           The first sentence in Section 4(g) of
the Existing Securities Purchase Agreement shall be deleted in its entirety.

11.           Section 4(i) of the Existing
Securities Purchase Agreement shall be deleted in its entirety and replaced
with the following:

                                “(i)          Disclosure
of Transactions and Other Material Information.  On or before 8:30 a.m., New York City time,
on the first Business Day following the 2007 Closing Date, the Company shall
issue a press release and file a Current Report on Form 8-K describing the
terms of the transactions contemplated by the 2007 Closing in the form required
by the 1934 Act and attaching the material Transaction Documents not previously
filed (including, without limitation, the Amendment Agreements, the form of the
Amended and Restated Notes, the form of New Note, the form of the Amended and
Restated Warrants, the form of New Warrants, the form of the Amended and
Restated Registration Rights Agreement, the form of Amended and Restated Security
Agreement, the form of Amended and Restated Pledge Agreement, and the form of
Amended and Restated Barnico Guaranty) (including all attachments, the “8-K Filing”).  From and after the filing of the 8-K Filing
with the SEC, the Investor shall not be in possession of any material,
nonpublic information received from the Company, any of its Subsidiaries or any
of its respective officers, directors, employees or agents, that is not
disclosed in the 8-K Filing.  The Company
shall not, and shall cause each of its Subsidiaries and its and each of their
respective officers, directors, employees and agents, not to, provide the
Investor with any material, nonpublic information regarding the Company or any
of its Subsidiaries from and after the filing of the 8-K Filing with the SEC
without the express written consent of the Investor or as may be required under
the terms of the Transaction Documents. 
If the Investor has, or believes it has, received any such material,
nonpublic information regarding the Company or any of its Subsidiaries, it
shall provide the Company with written notice thereof.  The Company shall, within five (5) Trading
Days (as defined in the Notes) of receipt of such notice, make public
disclosure of such material, nonpublic information.  In the event of a breach of the foregoing
covenant by the Company, any of its Subsidiaries, or any of its or their
respective officers, directors, employees and agents, in addition to any other
remedy provided herein or in the Transaction Documents, the Investor shall have
the right to make a public disclosure, in the form of a press release, public
advertisement or otherwise, of such material, nonpublic information without the
prior approval by the Company, its Subsidiaries, or any of its or their
respective officers, directors, employees or agents.  The Investor shall not have any liability to
the Company, its Subsidiaries, or any of its or their respective officers,
directors, employees, stockholders or agents for any such disclosure.  Subject to the foregoing, neither the
Company, its Subsidiaries nor the Investor shall issue any press releases or
any other public statements with respect to the transactions contemplated
hereby; provided, however, that the Company shall be entitled, without the
prior approval of the Investor, to make any press release or other public
disclosure with respect to such transactions (i) in substantial conformity with
the 8-K Filing and contemporaneously therewith and (ii) as is required by
applicable law and regulations (provided that in the case of clause (i) the
Investor shall be consulted by the Company in connection with any such press
release or other public disclosure prior to its release).  Without the prior written consent of the
Investor, and except as contemplated by the prior subsection (i) or as required
by applicable law or regulation, neither the Company nor any of its

 

15

 

                Subsidiaries or affiliates shall
disclose the name of the Investor in any filing, announcement, release or
otherwise.”

12.        Section 4(k)(i) of the
Existing Securities Purchase Agreement shall be amended (a) to add the phrase
“; provided, however, that the provisions of this sentence shall not apply to
any such issuance or sale of any rights, warrants or options (i) granted to YA
Global Investments, L.P. (f/k/a Cornell Capital Partners, L.P.) on or prior to
the 2007 Closing Date which is described in the schedules hereto or (ii)
entered into by the Company in order to consummate a Company Full Mandatory
Redemption (as such term is defined in the Notes)” to the end of second
sentence therein immediately before the period, and (b) to replace “(as defined
in the Registration Rights Agreement)” therein with “(as defined in the
Notes)”.

13.        Section 4(m) of the Existing
Securities Purchase Agreement shall be deleted in its entirety and replaced
with the following:

                “(m)        Reservation
of Shares.  So long as any Buyer owns
any Securities, the Company shall take all action necessary to at all times
have authorized, and reserved for the purpose of issuance, no less than (I) as
of the 2006 Closing, 51,000,000 shares of Common Stock and (II) as of the 2007
Closing Date, the sum of (x) 130% of the number of shares of Common Stock
issuable (i) as Interest Shares pursuant to the terms of the Notes, (ii) upon
conversion of the Notes and (iii) upon exercise of the Amended and Restated
Series B Warrants and the New Series B Warrant then outstanding (without taking
into account any limitations on the conversion of the Notes or exercise of the
Amended and Restated Series B Warrants and the New Series B Warrant set forth
in the Notes and the Amended and Restated Series B Warrants and the New Series
B Warrant, respectively), and (y) 100% of the number of shares of Common Stock
issuable upon exercise of the Amended and Restated Series A Warrants, the Other
New Series A Warrants and the New Series A Warrant then outstanding (without
taking into account any limitations on the exercise of the Amended and Restated
Series A Warrants, the Other New Series A Warrants and the New Series A Warrant
set forth in the Amended and Restated Series A Warrants, the Other New Series A
Warrants and the New Series A Warrant, respectively).”

14.        Section 4(o)(ii) of the
Existing Securities Purchase Agreement shall be amended to add the phrase
“(other than in connection with a Company Full Mandatory Redemption (as defined
in the Notes)” immediately after the word “announcement” therein.

15.        The definition of “Trigger
Date” in Section 4(o)(ii) of the Existing Securities Purchase Agreement shall
be amended to mean the date that is 120 Business Days after the Initial
Effective Date (as defined in the Amended and Restated Registration Rights
Agreement).

16.        Section 4(r) of the Existing
Securities Purchase Agreement shall be deleted in its entirety, and replaced
with “[Reserved.]”.

17.        Section 4(s) of the Existing
Securities Purchase Agreement shall be deleted in its entirety, and replaced
with “[Reserved.]”.

 

16

 

18.        Section 4(t)(i) of the
Existing Securities Purchase Agreement shall be amended to replace “Closing
Date” therein with “2006 Closing Date”.

19.        Section 4(t)(ii) of the
Existing Securities Purchase Agreement shall be amended to replace “(as defined
in the Registration Rights Agreement)” therein with “(as defined in the
Notes)”.

20.        Section 4(v) of the Existing
Securities Purchase Agreement shall be deleted in its entirety, and replaced
with “[Reserved.]”.

21.        Section 4 of the Existing
Securities Purchase Agreement shall be amended to add the following new Section
4(w) and Section 4(x):

                                “(w)        Holding Period.  For the purposes of Rule 144, the Company
acknowledges that the holding period of (i) the Amended and Restated Notes
(including the corresponding Amended and Restated Conversion Shares) may be
tacked onto the holding period of the Existing Notes and (ii) the Amended and
Restated Warrants (including the corresponding Amended and Restated Warrant
Shares) may be tacked onto the holding period of the Existing Warrants (in the
case of Cashless Exercise (as defined in the Amended and Restated Warrants)),
and the Company agrees not to take a position contrary to this Section
4(w).  The Company’s acknowledgement and
agreement set forth in this Section 4(w) shall be subject in all respects to
Rule 144 and other applicable securities laws, as may be in effect from time to
time.

                                (x)            New CEO.  Not later than the three (3) month
anniversary of the 2007 Closing Date, the Company shall hire a new Chief
Executive Officer reasonably satisfactory to the Required Holders, who may not
be a current employee of the Company.”

22.        All references in Section 4 of the Existing
Securities Purchase Agreement to “Registration Rights Agreement” shall be
deemed to refer to the Amended and Restated Registration Rights Agreement.

23.        Section 6 of the Existing
Securities Purchase Agreement, which pertained to certain transactions which
were consummated at the 2006 Closing, shall have no continuing force or effect.

24.        The Existing Securities
Purchase Agreement shall be amended to add the following new Section 6-A
immediately before Section 7 thereof:

                                “6-A.      COMPANY’S CONDITIONS TO 2007 CLOSING.

                                The
obligations of the Company to each Buyer hereunder are subject to the
satisfaction of each of the following conditions on the 2007 Closing Date,
provided that these conditions are for the Company’s sole benefit and may be
waived by the Company at any time in its sole discretion by providing each
Buyer with prior written notice thereof:

 

17

 

                (i)            Each Buyer shall have executed its respective Amendment
Agreement and the Amended and Restated Registration Rights Agreement and
delivered the same to the Company.

                (ii)           Each Buyer shall have surrendered to the Company its
respective Existing Note, Existing Series A Warrant and Existing Series B
Warrant for cancellation.

                (iii)          Castlerigg shall have delivered to the Company the Purchase
Price (net of any unpaid Castlerigg Counsel Expense, as defined in Section 6(j)
of Castlerigg’s Amendment Agreement) for the New Note, the New Series A Warrant
and the New Series B Warrant being purchased by Castlerigg at the 2007 Closing
by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.

                (iv)          The representations and warranties of each Buyer under
Section 2-A hereof shall be true and correct in all material respects as of the
2007 Closing Date as though made at that time, and each Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Buyer as of the 2007 Closing Date.

                (v)           Each Buyer shall have delivered or caused the Collateral
Agent to deliver to the Company those certain Release of Liens provided for in
that certain consent letter regarding the sale of certain oil, gas and mineral
leases located in Archer, Pecos, McMullen and Wichita Counties, Texas, dated
January 5, 2007, from the Company to Castlerigg, in its capacity as Collateral
Agent and Mortgagee, under the Existing Deeds of Trust recorded in Archer,
Pecos and Wichita Counties, Texas, each Release of Lien duly executed by the
Collateral Agent.

                (vi)          Each Buyer shall have caused the Buyer Representative (as
defined in the Existing Securities Purchase Agreement): (i) to acknowledge and
agree to Castlerigg’s Amendment Agreement; and (ii) to deliver with the Company
joint written instructions to the Escrow Agent to terminate the Existing Escrow
Agreement in accordance with its terms and to return the Escrow Funds, if any,
on deposit in the escrow account to the Company.

                (vii)         Each Buyer shall have delivered or
caused the Collateral Agent:  (i) to
acknowledge and agree to Castlerigg’s Amendment Agreement; and (ii) to deliver
to the Company the Amended and Restated Security Agreement, the Amended and
Restated Pledge Agreement, and the Amended and Restated Deeds of Trust, each
duly executed by the Collateral Agent.”

25.                                 Section 7 of the Existing
Securities Purchase Agreement, which pertained to certain transactions which
were consummated at the 2006 Closing, shall have no continuing force or effect.

 

18

 

26.                                 The Existing Securities
Purchase Agreement shall be amended to add the following new Section 7-A
immediately before Section 8 thereof:

                                                                “7-A.      EACH BUYER’S CONDITIONS TO 2007 CLOSING.

                                                                The obligations of each Buyer
hereunder is subject to the satisfaction of each of the following conditions on
the 2007 Closing Date, provided that these conditions are for each Buyer’s sole
benefit and may be waived by such Buyer at any time in its sole discretion by
providing the Company with prior written notice thereof:

(i)            The Company shall have executed such
Buyer’s Amendment Agreement and the Amended and Restated Registration Rights
Agreement, the Amended and Restated Security Agreement, the Amended and
Restated Pledge Agreement and the Amended and Restated Deeds of Trust and
delivered the same to such Buyer (or to the Collateral Agent), and Barnico
shall have executed the Amended and Restated Security Agreement and the Amended
and Restated Barnico Guaranty and delivered the same to such Buyer (or to the
Collateral Agent).

(ii)           The Company shall have executed and
delivered to such Buyer the Buyer’s Amended and Restated Note, Amended and
Restated Warrants, New Note and New Warrants, as applicable, being issued to
such Buyer at the 2007 Closing.

(iii)          Each
of the other Buyers shall have executed its respective Amendment Agreement and
surrendered its respective Existing Note, Existing Series A Warrant and
Existing Series B Warrant to the Company for its respective Amended and
Restated Note and Amended and Restated Warrants.

(iv)          The Company shall have delivered to
the Company’s transfer agent, with a copy to such Buyer, a letter stating that the Irrevocable Transfer Agent Instructions dated July 24, 2006
shall also apply to the Amended and Restated Notes, the Amended and
Restated Warrants, the New Note and the New
Warrants of such Buyer and the other Buyers.

(v)           Such Buyer shall have received the
opinions of each of Dieterich & Associates, Robertson & Williams,
Stephen Evans, Esq. and Troutman Sanders LLP, each the Company’s outside
counsel, dated as of the 2007 Closing Date, in substantially the form of Exhibit
J-1 attached hereto.

(vi)          The Company shall have delivered to
such Buyer a certificate evidencing the formation and good standing of the
Company and each of its Subsidiaries in such entity’s jurisdiction of formation
issued by the Secretary of State (or comparable office) of such jurisdiction,
as of a date within ten (10) days of the 2007 Closing Date.

(vii)         The Company shall have delivered to
such Buyer a certificate evidencing the Company’s qualification as a foreign
corporation and good standing issued by the Secretary of State (or comparable
office) of each jurisdiction in which the Company is required to be so
qualified, as of a date within ten (10) days of the 2007 Closing Date (other
than with respect to a certificate evidencing the Company’s

 

19

 

qualification
as a foreign corporation and good standing issued by the Registrar of
Companies, as of a date within ten (10) days of the 2007 Closing Date).

(viii)        The Company shall have delivered to such
Buyer a certified copy of the Articles of Incorporation as certified by the
Secretary of State (or comparable office) of the State of Oklahoma within ten
(10) days of the 2007 Closing Date.

(ix)           The Company shall have delivered to
such Buyer a certificate, executed by the Secretary of the Company and dated as
of the 2007 Closing Date, as to (A) the resolutions approving the transactions
contemplated hereby as adopted by the Board of Directors of the Company in a
form reasonably acceptable to such Buyer, (B) the Certificate of Incorporation
and (C) the Bylaws, each as in effect as of the 2007 Closing Date, in the form
attached hereto as Exhibit K-1.

(x)            After giving effect to (x) the terms
of the Amendment Agreements and the transactions contemplated by the 2007
Closing (including, without limitation, the waivers set forth in Section 3(e)
of the Amendment Agreements) and (y) the terms of the YA Global Amendment and
Exchange Agreement and the transactions contemplated by the Closing (as defined
in the YA Global Amendment and Exchange Agreement) (including, without
limitations, the waivers set forth in Section 4(b) of the YA Global Amendment
and Exchange Agreement), (A) the representations and warranties of the Company
under Section 3-A hereof shall be true and correct in all material respects as
of the 2007 Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date, which shall be
true and correct as of such specified date but need not also be true and
correct as of the 2007 Closing Date), (B) the Company shall have performed,
satisfied and complied in all material respects with the covenants, agreements
and conditions required by this Agreement and the other Transaction Documents
to be performed, satisfied or complied with by the Company as of the 2007
Closing Date, and (C) no default or Event of Default shall have occurred and be
continuing as of the 2007 Closing Date. 
Such Buyer shall have received a certificate, executed by the Chief Executive
Officer of the Company, dated as of the 2007 Closing Date, to the foregoing
effect and as to such other matters as may be reasonably requested by such
Buyer in the form attached hereto as Exhibit L-1.

(xi)           The Common Stock (A) shall be
designated for quotation or listed on the Principal Market (as defined in the
Notes) and (B) shall not have been suspended, as of the 2007 Closing Date, by
the SEC or the Principal Market from trading on the Principal Market nor shall
suspension by the SEC or the Principal Market have been threatened, as of the
2007 Closing Date, either (x) in writing by the SEC or the Principal Market or
(y) by falling below the minimum listing maintenance requirements of the
Principal Market.

(xii)          The Company shall have obtained all governmental,
regulatory or third party consents and approvals, if any, necessary for the
sale of the Securities.

(xiii)         All rights of first refusal,
participation, or similar rights that would entitle any Person to participate
in the transactions contemplated hereby shall have expired or have been waived.

 

20

 

(xiv)        The Company shall have paid to Schulte
Roth & Zabel LLP the Castlerigg Counsel Expense (as defined in Castlerigg’s
Amendment Agreement).

(xv)         Such Buyer’s Amended and Restated Note
and, if applicable, New Note shall be secured pursuant to the terms of the
Security Documents in the same manner and to the same extent as such Buyer’s
Existing Note.

(xvi)        The Company shall have
delivered joint written instructions with the Buyer Representative to the
Escrow Agent to terminate the Existing Escrow Agreement in accordance with its
terms and to return the Escrow Funds, if any, on deposit in the escrow account
to the Company.

(xvii)       The Company shall have delivered to the
Collateral Agent an original Redrock share certificate numbered 71 representing
in the aggregate 2,300,000 shares of common stock of Redrock, and accompanying
stock powers.

(xvii)       The Company shall have delivered to such
Buyer such other documents relating to the transactions contemplated by this
Agreement as such Buyer may reasonably request.”

27.                                 Section 9(d) of
the Existing Securities Purchase Agreement shall be deleted in its entirety and
replaced with the following:

“(d)         Severability.  If any provision of this Agreement is
prohibited by law or otherwise determined to be invalid or unenforceable by a
court of competent jurisdiction, the provision that would otherwise be
prohibited, invalid or unenforceable shall be deemed amended to apply to the
broadest extent that it would be valid and enforceable, and the invalidity or
unenforceability of such provision shall not affect the validity of the
remaining provisions of this Agreement so long as this Agreement as so modified
continues to express, without material change, the original intentions of the
parties as to the subject matter hereof and the prohibited nature, invalidity
or unenforceability of the provision(s) in question does not substantially
impair the respective expectations or reciprocal obligations of the parties or
the practical realization of the benefits that would otherwise be conferred
upon the parties.  The parties will
endeavor in good faith negotiations to replace the prohibited, invalid or
unenforceable provision(s) with a valid provision(s), the effect of which comes
as close as possible to that of the prohibited, invalid or unenforceable
provision(s).”

28.                                 The notice
information for the Company in Section 9(f) of the Existing Securities Purchase
Agreement shall be deleted in its entirety and replaced with the following:

“If to the Company:

 

	
   

  	
  Wentworth Energy, Inc.

  
	
   

  	
  112 E. Oak Street, Suite
  200

  
	
   

  	
  Palestine, TX 75801

  
	
   

  	
  Telephone:

  	
  (903) 723-0395

  
	
   

  	
  Facsimile:

  	
  (903) 723-5368

  
	
   

  	
  Attention:

  	
  Chief Executive Officer

  

 

21

 

and

 

	
   

  	
  Wentworth Energy, Inc.

  
	
   

  	
  Suite 306A, 15252 - 32nd Avenue

  
	
   

  	
  Surrey, British Columbia, V3S 0R7

  
	
   

  	
  Canada

  
	
   

  	
  Telephone:

  	
  (604) 536-6055

  
	
   

  	
  Facsimile:

  	
  (604) 536-6077

  
	
   

  	
  Attention:

  	
  Chief Financial Officer

  

 

With copies (for informational purposes only) to:

 

	
   

  	
  Troutman Sanders LL

  
	
   

  	
  401 9th St., N.W.

  
	
   

  	
  Suite 1000

  
	
   

  	
  Washington, D.C. 20004

  
	
   

  	
  Telephone:

  	
  (202) 274-2810

  	
   

  
	
   

  	
  Facsimile:

  	
  (202) 654-5649

  	
   

  
	
   

  	
  Attention:

  	
  Todd R. Coles, Esq.

  	
   

  

 

and

 

	
   

  	
  Dieterich & Associates

  
	
   

  	
  11300 W. Olympic, Suite
  800

  
	
   

  	
  Los Angeles, California
  90064

  
	
   

  	
  Telephone:

  	
  (310) 312-6888

  	
   

  
	
   

  	
  Facsimile:

  	
  (310) 312-6680

  	
   

  
	
   

  	
  Attention:

  	
  Chris Dieterich, Esq.”

  	
   

  

 

 

22Exhibit 4.12

AMENDED AND RESTATED SENIOR SECURED CONVERTIBLE NOTE

NEITHER THE
ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS.  THE SECURITIES MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO
RULE 144 OR RULE 144A UNDER SAID ACT. 
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION
WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED
BY THE SECURITIES.  ANY TRANSFEREE OF
THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS
3(c)(iii) AND 18(a) HEREOF.  THE
PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES
ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE
FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.

WENTWORTH ENERGY, INC.

AMENDED AND RESTATED SENIOR SECURED CONVERTIBLE NOTE

	
  Original Issuance Date:
  July 25, 2006

  	
   

  	
  Original
  Principal Amount: U.S. $[              ]

  
	
  Exchanged for Amended and
  Restated 

  	
   

  	
   

  
	
  Note with Issuance Date:
  October 31, 2007

  	
   

  	
   

  

 

FOR VALUE
RECEIVED, Wentworth Energy, Inc., an Oklahoma corporation
(the “Company”), hereby promises
to pay to [Insert Name of Buyer] or registered assigns (“Holder”) the amount set out above as the
Original Principal Amount (as reduced pursuant to the terms hereof pursuant to
redemption, conversion or otherwise, the “Principal”)
when due, whether upon the Maturity Date (as defined below), acceleration,
redemption or otherwise (in each case in accordance with the terms hereof) and
to pay interest (“Interest”) on
any outstanding Principal at the applicable Interest Rate (as defined herein)
from the date set out above as the Issuance Date (the “Issuance  Date”)
until the same becomes due and payable, whether upon an Interest Date (as
defined below), the Maturity Date, acceleration, conversion, redemption or
otherwise (in each case in accordance with the terms hereof).  This Amended and Restated Senior Secured
Convertible Note (including all Senior Secured Convertible Notes issued in
exchange, transfer or replacement hereof, this “Note”) amends, supplements, modifies and completely restates
and supersedes the Senior Secured Convertible Note, dated July 25, 2006 (the “Existing Note”), issued by the Company to the Holder in the
Original Principal Amount of $[                     ],
but shall not, except as specifically amended hereby or as set forth in the

Amendment
Agreements (as defined in Section 29 below), constitute a release, satisfaction
or novation of any of the obligations under the Existing Note.  This Note is one of an issue of Amended and
Restated Senior Secured Convertible Notes that, together with the Other Notes
(as defined in Section 29 below) (this Note and the Other Notes
collectively, the “Notes”) were
issued pursuant to the Securities Purchase Agreement (as defined in Section 29
below).Certain capitalized terms used herein are defined in Section 29.

(1)           PAYMENTS OF PRINCIPAL.  On the Maturity Date, the Company shall pay to the
Holder an amount in cash representing all outstanding Principal, accrued and
unpaid Interest and accrued and unpaid Late Charges, if any, on such Principal
and Interest.  The “Maturity  Date”
shall be October 31, 2010, as may be extended at the option of the Holder (i)
in the event that, and for so long as, an Event of Default (as defined in
Section 4(a)) shall have occurred and be continuing on the Maturity Date (as
may be extended pursuant to this Section 1) or any event shall have occurred
and be continuing on the Maturity Date (as may be extended pursuant to this
Section 1) that with the passage of time and the failure to cure would result
in an Event of Default, (ii) through the date that is ten (10) Business Days
after the consummation of a Change of Control in the event that a Change of
Control is publicly announced or a Change of Control Notice (as defined in
Section 5(b)) is delivered prior to the Maturity Date, and (iii) at any time
while this Note is outstanding, by prior written notice thereof by the Holder
to the Company, to a date not later than October 31, 2012 (as may be further
extended pursuant to this Section 1).

(2)           INTEREST; INTEREST RATE.  (a) 
Interest on this Note shall commence accruing on April 1, 2008 and shall
be computed on the basis of a 360-day year comprised of twelve (12) thirty (30)
day months and shall be payable in arrears for each Calendar Quarter on the
first day of the succeeding Calendar Quarter during the period beginning on
April 1, 2008 and ending on, and including, the Maturity Date (each, an “Interest Date”) with the first Interest Date being
July 1, 2008.  Interest shall
be payable on each Interest Date, to the record holder of this Note on the
applicable Interest Date, in shares of Common Stock (as defined below) (“Interest Shares”) so long as there has been
no Equity Conditions Failure; provided however, that the Company may, at its
option following notice to the Holder, pay Interest on any Interest Date in
cash (“Cash Interest”) or in a
combination of Cash Interest and Interest Shares.  The Company shall deliver a written notice
(each, an “Interest Election Notice”)
to each holder of the Notes on or prior to the Interest Notice Due Date (the
date such notice is delivered to all of the holders, the “Interest Notice Date”) which notice (1)
either (A) confirms that Interest to be paid on such Interest Date shall be
paid entirely in Interest Shares or (B) elects to pay Interest as Cash Interest
or a combination of Cash Interest and Interest Shares and specifies the amount
of Interest that shall be paid as Cash Interest and the amount of Interest, if
any, that shall be paid in Interest Shares and (2) subject to the penultimate
sentence in this Section 2(a), certifies that there has been no Equity
Conditions Failure; provided, however, that the Company shall not be entitled
to pay any portion of Interest on an Interest Date in Interest Shares in excess
of the Holder Pro Rata Amount of the applicable Volume Limitation.  If any portion of Interest for a particular
Interest Date shall be paid in Interest Shares, then the Company shall pay to
the Holder, in accordance with Section 2(b), a number of shares of Common Stock
equal to (x) the amount of Interest payable on the applicable Interest Date in
Interest Shares divided by (y) the applicable Interest Conversion Price.  Interest to be paid on an

2

Interest Date in Interest Shares
shall be paid in a number of fully paid and nonassessable shares of Common
Stock (rounded to the nearest whole share). 
If the Equity Conditions are not satisfied as of the Interest Notice Due
Date, then unless the Company has elected to pay such Interest in cash, the
Interest Election Notice shall indicate that unless the Holder and the holders
of the Other Notes waive the Equity Conditions, the Interest shall be paid in
cash.  If the Equity Conditions were satisfied
as of the Interest Notice Due Date but the Equity Conditions are no longer
satisfied at any time prior to the Interest Date, the Company shall provide the
Holder and the holders of the Other Notes a subsequent notice to that effect
indicating that unless the Holder and the holder of the Other Notes waive the
Equity Conditions prior to the Interest Date, the Interest shall be paid in
cash on the Interest Date.

(b)           When any Interest Shares are to be paid on an Interest
Date, the Company shall (i) (A) provided that the Company’s transfer agent (the
“Transfer Agent”) is participating
in the Depository Trust Company (“DTC”)
Fast Automated Securities Transfer Program and such action is not prohibited by
applicable law or regulation or any applicable policy of DTC, credit such
aggregate number of Interest Shares to which the Holder shall be entitled to
the Holder’s or its designee’s balance account with DTC through its Deposit
Withdrawal Agent Commission system, or (B) if the foregoing shall not apply,
issue and deliver on the applicable Interest Date, to the address set forth in
the register maintained by the Company for such purpose pursuant to the
Securities Purchase Agreement or to such address as specified by the Holder in
writing to the Company at least two (2) Business Days prior to the applicable
Interest Date, a certificate, registered in the name of the Holder or its
designee, for the number of Interest Shares to which the Holder shall be
entitled and (ii) with respect to each Interest Date, pay to the Holder, in
cash by wire transfer of immediately available funds, the amount of any Cash
Interest.  Notwithstanding the foregoing,
the Company shall not be entitled to pay Interest in Interest Shares and shall
be required to pay such Interest in cash as Cash Interest on the applicable
Interest Date if, unless waived in writing by the Holder and the holders of the
Other Notes, there has been an Equity Conditions Failure.

(c)           From and after the
occurrence and during the continuance of an Event of Default, the Interest Rate
shall be increased to fifteen percent (15.0%) per annum.  In the event that such Event of Default is
subsequently cured, the adjustment referred to in the preceding sentence shall
cease to be effective as of the date of such cure; provided that the Interest
as calculated and unpaid at such increased rate during the continuance of such
Event of Default shall continue to apply to the extent relating to the days
after the occurrence of such Event of Default through and including the date of
cure of such Event of Default.  The
Company shall pay any and all taxes that may be payable with respect to the
issuance and delivery of Interest Shares; provided that the Company
shall not be required to pay any tax that may be payable in respect of the
issuance and delivery of any Interest Shares to any Person other than the
Holder or with respect to any income tax due by the Holder with respect to such
Interest Shares.

 

(3)           CONVERSION OF NOTES.  This Note shall be convertible into shares of
the Company’s common stock, par value $0.001 per share (the “Common Stock”), on the terms and conditions set forth in
this Section 3.

3

(a)           Conversion Right. 
Subject to the provisions of Section 3(d), at any time or times on or
after the Issuance Date, the Holder shall be entitled to convert any portion of
the outstanding and unpaid Conversion Amount (as defined below) into fully paid
and nonassessable shares of Common Stock in accordance with Section 3(c), at
the Conversion Rate (as defined below). 
The Company shall not issue any fraction of a share of Common Stock upon
any conversion.  If the issuance would
result in the issuance of a fraction of a share of Common Stock, the Company
shall round such fraction of a share of Common Stock up to the nearest whole share.  The Company shall pay any and all transfer,
stamp and similar taxes that may be payable with respect to the issuance and
delivery of Common Stock upon conversion of any Conversion Amount; provided
that the Company shall not be required to pay any tax that may be payable in
respect of the issuance and delivery of Common Stock to any Person other than
the Holder or with respect to any income tax due by the Holder with respect to
such Common Stock.

(b)           Conversion Rate. 
The number of shares of Common Stock issuable upon conversion of any
Conversion Amount pursuant to Section 3(a) shall be determined by dividing (x)
such Conversion Amount by (y) the Conversion Price (the “Conversion Rate”).

(i)            “Conversion Amount” means the
portion of the Principal to be converted, redeemed or otherwise with respect to
which this determination is being made.

(ii)           “Conversion Price” means, as of
any Conversion Date (as defined below) or other date of determination, $0.65
subject to adjustment as provided herein.

(c)           Mechanics of Conversion.

(i)            Optional Conversion.  To convert any Conversion Amount into shares
of Common Stock on any date (a “Conversion Date”), the Holder
shall (A) transmit by facsimile (or otherwise deliver), for receipt on or prior
to 11:59 p.m., New York time, on such date, a copy of an executed notice of
conversion in the form attached hereto as Exhibit I (the “Conversion Notice”) to the Company and (B) if required by Section 3(c)(iii), surrender
this Note to a common carrier for delivery to the Company as soon as
practicable on or following such date (or an indemnification undertaking with
respect to this Note in the case of its loss, theft or destruction).  Accrued and unpaid Interest on any
Conversion Amount being converted up to and including the Conversion Date shall
be payable to the record holder of this Note on the Share Delivery Date (as
defined below) in Interest Shares so long as there has been no Equity
Conditions Failure; provided however, that the Company may, at its option
following notice to the Holder, pay Interest on any Share Delivery Date as Cash
Interest.  On or before the first (1st)
Business Day following the date of receipt of a Conversion Notice, the Company
shall transmit by facsimile a confirmation (the “Conversion
Confirmation”) of receipt of such Conversion Notice to the
Holder and the Company’s Transfer Agent. 
Any Conversion Confirmation delivered by the Company shall (1) confirm
that any accrued and unpaid Interest on such Conversion Amount up to and
including the Conversion Date shall be paid on the Share Delivery Date in
Interest Shares or state that Interest shall be paid as Cash Interest and (2)
if the Company shall pay such Interest in Interest Shares, certify that there
has been no Equity Conditions Failure.  If Interest shall
be paid in Interest Shares, then the Company shall pay such Interest to 

4

the Holder on the Share Delivery Date by delivering
a number of shares of Common Stock equal to (x) the amount of Interest payable
on the applicable Share Delivery Date divided by (y) the applicable Interest
Conversion Price. On or before the (3rd) third Trading Day
following the date of delivery of a Conversion Notice (the “Share Delivery  Date”), the Company
shall (I) (X) provided that the Transfer Agent is participating in the DTC Fast
Automated Securities Transfer Program, credit such aggregate number of shares
of Common Stock (including any Interest Shares) to which the Holder shall be
entitled to the Holder’s or its designee’s balance account with DTC through its
Deposit Withdrawal Agent Commission system or (Y) if the Transfer Agent is not
participating in the DTC Fast Automated Securities Transfer Program, issue and
deliver to the address as specified in the Conversion Notice, a certificate,
registered in the name of the Holder or its designee, for the number of shares
of Common Stock (including any Interest Shares) to which the Holder shall be
entitled and (II) if the Company has elected to pay Cash Interest, pay to the
Holder in cash an amount equal to the accrued and unpaid Interest on the
Conversion Amount up to and including the Conversion Date.  If this Note is physically surrendered for
conversion as required by Section 3(c)(iii) and the outstanding Principal of
this Note is greater than the Principal portion of the Conversion Amount being
converted, then the Company shall as soon as practicable and in no event later
than three (3) Trading Days after receipt of this Note and at its own expense,
issue and deliver to the holder a new Note (in accordance with Section 18(d))
representing the outstanding Principal not converted.  The Person or Persons entitled to receive the
shares of Common Stock issuable upon a conversion of this Note shall be treated
for all purposes as the record holder or holders of such shares of Common Stock
on the Conversion Date.

(ii)           Company’s Failure to Timely Convert.  If the Company shall fail to issue a certificate to
the Holder or credit the Holder’s balance account with DTC, as applicable, for
the number of shares of Common Stock to which the Holder is entitled upon
conversion of any Conversion Amount on or prior to the date which is three (3)
Trading Days after the Conversion Date other than pursuant to limitations in
Section 3(d) hereof (a “Conversion Failure”), and if on or after such third (3rd) Trading
Day the Holder purchases (in an open market transaction or otherwise) Common
Stock to deliver in satisfaction of a sale by the Holder of Common Stock
issuable upon such conversion that the Holder anticipated receiving from the
Company (a “Buy-In”), then the Company shall, within three (3)
Business Days after the Holder’s written request and in the Holder’s
discretion, either (A) pay cash to the Holder in an amount equal to the
Holder’s total purchase price (including brokerage commissions and other out of
pocket expenses, if any) for the shares of Common Stock so purchased (the “Buy-In
Price”), at which point the Company’s obligation to issue and deliver such
certificate or to credit the Holder’s balance account with DTC for the number
of shares of Common Stock to which the Holder is entitled upon such Holder’s
conversion of any Conversion Amount shall terminate, or (B) promptly honor its
obligation to deliver to the Holder a certificate or certificates representing
such Common Stock and pay cash to the Holder in an amount equal to the excess
(if any) of the Buy-In Price over the product of (1) such number of shares of
Common Stock, times (2) the Closing Bid Price on the Conversion Date.

(iii)          Registration; Book-Entry.  The Company shall maintain a register (the “Register”) for the recordation of the names
and addresses of the holders of each Note and the principal amount of the Notes
held by such holders (the “Registered Notes”).  The 

5

entries in the Register shall be conclusive and
binding for all purposes absent manifest error. 
The Company and the holders of the Notes shall treat each Person whose
name is recorded in the Register as the owner of a Note for all purposes,
including, without limitation, the right to receive payments of principal and
interest hereunder, notwithstanding notice to the contrary.  A Registered Note may be assigned or sold in
whole or in part only by registration of such assignment or sale on the
Register.  Upon its receipt of a request
to assign or sell all or part of any Registered Note by a Holder, the Company
shall record the information contained therein in the Register and issue one or
more new Registered Notes in the same aggregate principal amount as the
principal amount of the surrendered Registered Note to the designated assignee
or transferee pursuant to Section 18. 
Notwithstanding anything to the contrary set forth herein, upon
conversion of any portion of this Note in accordance with the terms hereof, the
Holder shall not be required to physically surrender this Note to the Company
unless (A) the full Principal amount represented by this Note is being
converted or (B) the Holder has provided the Company with prior written notice
(which notice may be included in a Conversion Notice) requesting reissuance of
this Note upon physical surrender of this Note. 
The Holder and the Company shall maintain records showing the Principal,
Interest and Late Charges, if any, converted and the dates of such conversions
or shall use such other method, reasonably satisfactory to the Holder and the
Company, so as not to require physical surrender of this Note upon conversion.

(iv)          Pro Rata Conversion; Disputes.  In the event that the Company receives a
Conversion Notice from more than one holder of Notes for the same Conversion
Date and the Company can convert some, but not all, of such portions of the
Notes submitted for conversion, the Company, subject to Section 3(d), shall
convert from each holder of Notes electing to have Notes converted on such date
a pro rata amount of such holder’s portion of its Notes submitted for
conversion based on the principal amount of Notes submitted for conversion on
such date by such holder relative to the aggregate principal amount of all
Notes submitted for conversion on such date. 
In the event of a dispute as to the number of shares of Common Stock
issuable to the Holder in connection with a conversion of this Note, the
Company shall issue to the Holder the number of shares of Common Stock not in
dispute and resolve such dispute in accordance with Section 23.

(d)           Limitations on Conversions.

(i)            Beneficial Ownership.  Notwithstanding any provision to the contrary
contained in this Note or any other Transaction Document, the Company shall not
effect any conversion of this Note, and the Holder of this Note shall not have
the right to convert any portion of this Note pursuant to Section 3(a) or
otherwise pursuant to this Note, to the extent that after giving effect to such
conversion, the Holder (together with the Holder’s affiliates) would
beneficially own in excess of 4.99% (the “Maximum Percentage”) of the
number of shares of Common Stock outstanding immediately after giving effect to
such conversion.  For purposes of the
foregoing sentence, the number of shares of Common Stock beneficially owned by
the Holder and its affiliates shall include the number of shares of Common
Stock issuable upon conversion of this Note with respect to which the
determination of such sentence is being made, but shall exclude the number of
shares of Common Stock which would be issuable upon (A) conversion of the
remaining, nonconverted portion of this Note beneficially owned by the Holder
or any of its affiliates and (B) exercise or conversion of the unexercised or
nonconverted 

6

portion of any other securities of the Company
(including, without limitation, any Other Notes or warrants) subject to a
limitation on conversion or exercise analogous to the limitation contained
herein beneficially owned by the Holder or any of its affiliates.  Except as set forth in the preceding
sentence, for purposes of this Section 3(d)(i), beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended (the “1934 Act”).  For purposes of this Section 3(d)(i), in
determining the number of outstanding shares of Common Stock, the Holder may
rely on the number of outstanding shares of Common Stock as reflected in (x)
the Company’s most recent Form 10-K, Form 10-KSB, Form 10-Q, Form 10-QSB, Form
8-K or other public filing with the SEC, as the case may be (y) a more recent
public announcement by the Company or (z) any other notice by the Company or the
Transfer Agent setting forth the number of shares of Common Stock
outstanding.  For any reason at any time,
upon the written or oral request of the Holder, the Company shall within one
(1) Business Day confirm orally and in writing to the Holder the number of
shares of Common Stock then outstanding. 
In any case, the number of outstanding shares of Common Stock shall be
determined after giving effect to the conversion or exercise of securities of
the Company, including this Note, by the Holder or its affiliates since the
date as of which such number of outstanding shares of Common Stock was
reported.

(ii)           Principal Market Regulation.  The Company shall not be obligated to issue
any shares of Common Stock upon conversion of this Note if the issuance of such
shares of Common Stock would exceed the aggregate number of shares of Common
Stock which the Company may issue upon conversion or exercise, as applicable,
of the Notes and Warrants without breaching the Company’s obligations under the
rules or regulations of any applicable Eligible Market (the “Exchange Cap”), except that such limitation shall not apply in the event that the
Company (A) obtains the approval of its stockholders as required by the
applicable rules of such Eligible Market for issuances of Common Stock in
excess of such amount or (B) obtains a written opinion from outside counsel to
the Company that such approval is not required, which opinion shall be
reasonably satisfactory to the Required Holders.  Until such approval or written opinion is obtained,
no initial purchaser of the Notes pursuant to the Securities Purchase Agreement
(each, a “Purchaser” and
collectively the “Purchasers”) shall be
issued in the aggregate, upon conversion or exercise or otherwise, as
applicable, of the Notes or the Warrants, shares of Common Stock in an amount
greater than the product of the Exchange Cap multiplied by a fraction, the
numerator of which is the principal amount of Notes issued to such Purchaser
pursuant to the Securities Purchase Agreement on the Closing Date and the
denominator of which is the aggregate principal amount of all Notes and
Warrants issued to all of the Purchasers pursuant to the Securities Purchase
Agreement on the Closing Date (with respect to each Purchaser, the “Exchange Cap Allocation”).  In the event that any
Purchaser shall sell or otherwise transfer any of such Purchaser’s Notes, the
transferee shall be allocated a pro rata portion of such Purchaser’s Exchange
Cap Allocation, and the restrictions of the prior sentence shall apply to such
transferee with respect to the portion of the Exchange Cap Allocation allocated
to such transferee.  In the event that
any holder of Notes shall convert all of such holder’s Notes into a number of
shares of Common Stock which, in the aggregate, is less than such holder’s
Exchange Cap Allocation, then the difference between such holder’s Exchange Cap
Allocation and the number of shares of Common Stock actually issued to such
holder shall be allocated to the respective Exchange Cap Allocations of the remaining
holders of Notes on a 

7

pro rata basis in proportion to the aggregate
principal amount of the Notes then held by each such holder.

(4)           RIGHTS UPON EVENT OF DEFAULT.

(a)           Event of Default. 
Each of the following events shall constitute an “Event of Default”:

(i)            the failure of the applicable Registration Statement (as
defined in the Registration Rights Agreement) required to be filed pursuant to
the Registration Rights Agreement to be declared effective by the SEC on or
prior to the date that is seventy (70) days after the applicable Effectiveness
Deadline (as defined in the Registration Rights Agreement), or, while the
applicable Registration Statement is required to be maintained effective
pursuant to the terms of the Registration Rights Agreement, the effectiveness
of the applicable Registration Statement lapses for any reason (including,
without limitation, the issuance of a stop order) or is unavailable to any
holder of the Notes for sale of all of such holder’s Registrable Securities (as
defined in the Registration Rights Agreement) subject to the applicable
Registration Statement in accordance with the terms of the Registration Rights
Agreement, and such lapse or unavailability continues for a period of fifteen
(15) consecutive days or for more than an aggregate of thirty (30) days in any
365-day period (other than days during an Allowable Grace Period (as defined in
the Registration Rights Agreement));

(ii)           the suspension from trading or failure of the Common Stock
to be listed on an Eligible Market for a period of five (5) consecutive Trading
Days or for more than an aggregate of ten (10) Trading Days in any 365-day
period;

(iii)          the Company’s (A) failure to cure a Conversion Failure by
delivery of the required number of shares of Common Stock within ten (10)
Business Days after the applicable Conversion Date or (B) notice, written or
oral, to any holder of the Notes, including by way of public announcement or
through any of its agents, at any time, of its intention not to comply with a
request for conversion of any Notes into shares of Common Stock that is
tendered in accordance with the provisions of the Notes, other than pursuant to
Section 3(d);

(iv)          at any time following the tenth (10th) consecutive
Business Day that the Holder’s Authorized Share Allocation is less than the
number of shares of Common Stock that the Holder would be entitled to receive
upon a conversion of the full Conversion Amount of this Note (without regard to
any limitations on conversion set forth in Section 3(d) or otherwise);

(v)           the Company’s failure to pay to the Holder any amount of
Principal, Redemption Price, Interest, Late Charges or other amounts when and
as due under this Note or any other Transaction Document (as defined in the
Securities Purchase Agreement) to which the Holder is a party, except, in the
case of a failure to pay Interest, Late Charges and other amounts when and as
due, in which case only if such failure continues for a period of at least five
(5) Business Days;

8

(vi)          any default under,
redemption of or acceleration prior to maturity of any Indebtedness of the
Company or any of its Subsidiaries (as defined in Section 3(a) of the
Securities Purchase Agreement) which Indebtedness, individually or in the
aggregate, exceeds $250,000, other than with respect to any Other Notes;

(vii)         the Company or any of its Subsidiaries, pursuant to or
within the meaning of Title 11, U.S. Code, or any similar Federal, foreign or
state law for the relief of debtors (collectively, “Bankruptcy Law”), (A)
commences a voluntary case, (B) consents to the entry of an order for relief
against it in an involuntary case, (C) consents to the appointment of a
receiver, trustee, assignee, liquidator or similar official (a “Custodian”), (D) makes a general assignment for the benefit of its creditors or
(E) admits in writing that it is generally unable to pay its debts as they
become due;

(viii)        a court of competent jurisdiction enters
an order or decree under any Bankruptcy Law that (A) is for relief against the
Company or any of its Subsidiaries in an involuntary case, (B) appoints a
Custodian of the Company or any of its Subsidiaries for all or substantially
all of its property or (C) orders the liquidation of the Company or any of its
Subsidiaries and, in each case, such order or decree is not dismissed or stayed
within thirty (30) days of such entry;

(ix)           a final judgment or judgments for the payment of money
aggregating in excess of $250,000 are rendered against the Company or any of
its Subsidiaries and which judgments are not, within sixty (60) days after the
entry thereof, bonded, discharged or stayed pending appeal, or are not
discharged within sixty (60) days after the expiration of such stay; provided,
however, that any judgment which is covered by insurance or an indemnity from a
credit worthy party shall not be included in calculating the $250,000 amount
set forth above so long as the Company provides the Holder a written statement from
such insurer or indemnity provider (which written statement shall be reasonably
satisfactory to the Holder) to the effect that such judgment is covered by
insurance or an indemnity and the Company will receive the proceeds of such
insurance or indemnity within thirty (30) days of the issuance of such
judgment;

(x)            the Company breaches any representation, warranty,
covenant or other term or condition of any Transaction Document, except, in the
case of a breach of a covenant or other term or condition of any Transaction
Document which is curable, only if such breach continues for a period of at
least ten (10) consecutive Business Days; provided that in the case of the
failure of the Company timely to file a Registration Statement required to be
filed pursuant to the Registration Rights Agreement, only if such failure
continues for seventy (70) days after the deadline for filing such Registration
Statement under the Registration Rights Agreement;

(xi)           any breach or failure in any respect to comply with Section
14 of this Note, other than a breach of, or failure to comply with, Section
14(c) with respect to a Lien for an amount less than $20,000 on property or
assets of the Company which Lien is removed within thirty (30) days of the
imposition thereof;

 

9

 

 

(xii)          any Event of Default (as defined in the Other Notes) occurs
with respect to any Other Notes; or

(xiii)         the SEC commences a formal
investigation or enforcement action of the Company and/or its Subsidiaries, or
a formal investigation or enforcement action of any of the then current
officers or directors of the Company that is related to the Company, its
Subsidiaries and/or the Common Stock or enters a consent or other order against
the Company and/or its Subsidiaries or any of the then current officers or
directors of the Company that is related to the Company, its Subsidiaries
and/or the Common Stock.

(b)           Redemption Right. 
Upon the occurrence of an Event of Default, the Company shall within one
(1) Business Day deliver written notice thereof via facsimile and overnight
courier (an “Event of Default Notice”) to the Holder.  At any
time after the earlier of the Holder’s receipt of an Event of Default Notice
and the Holder becoming aware of an Event of Default, the Holder may require
the Company to redeem all or any portion of this Note by delivering written
notice thereof (the “Event of Default Redemption Notice”) to the Company, which Event of Default Redemption Notice shall
indicate the portion of this Note the Holder is electing to redeem and, in the
case the Holder has not received an Event of Default Notice, the Event of
Default of which the Holder has become aware; provided, however, that in
connection with any Event of Default under Section 4(a)(vi) hereunder, the
Holder shall only have the right to require redemption by the Company until a
date that is thirty (30) days following the day the default under such
Indebtedness has been cured or is no longer continuing or, in the event of any
acceleration that has been rescinded, for thirty (30) days after the date of
such acceleration.  Each portion of this
Note subject to redemption by the Company pursuant to this Section 4(b) shall
be redeemed by the Company at a price equal to the greater of (i) the product of
(A) the sum of the Conversion Amount to be redeemed together with accrued
and unpaid Interest with respect to such Conversion Amount and accrued and
unpaid Late Charges, if any, with respect to such Conversion Amount and
Interest and (B) the Redemption Premium and (ii) the product of (A)
the Conversion Rate with respect to such sum of the Conversion Amount together
with accrued and unpaid Interest with respect to such Conversion Amount and
accrued and unpaid Late Charges, if any, with respect to such Conversion Amount
and Interest  in effect at such time as the Holder delivers
an Event of Default Redemption Notice and (B) the product of (1) the Equity
Value Redemption Premium and (2) the greater of (x) the Closing Sale Price of
the Common Stock on the date immediately preceding such Event of Default, (y)
the Closing Sale Price of the Common Stock on the date immediately after such
Event of Default and (z) the Closing Sale Price of the Common Stock on the date
the Holder delivers the Event of Default Redemption Notice (the “Event of Default Redemption Price”). 
Redemptions required by this Section 4(b) shall be made in accordance
with the provisions of Section 12.  To
the extent redemptions required by this Section 4(b) are deemed or determined
by a court of competent jurisdiction to be prepayments of the Note by the
Company, such redemptions shall be deemed to be voluntary prepayments.  The parties hereto agree that in the event of
the Company’s redemption of any portion of the Note under this Section 4(b),
the Holder’s damages would be uncertain and difficult to estimate because of
the parties’ inability to predict future interest rates and the uncertainty of
the availability of a suitable substitute investment opportunity for the
Holder.  Accordingly, any Redemption
Premium due under this Section 4(b) is intended by the parties to 

10

be, and shall be deemed, a reasonable estimate of
the Holder’s actual loss of its investment opportunity and not as a penalty.

(c)           Sale of Assets. 
In connection with any redemption required by Section 4(b) upon an Event
of Default of the type described in Section 4(a)(xiii) hereof, in the event the
Company does not have sufficient funds to pay the applicable Event of Default
Redemption Price, the Required Holders may require the Company to sell or
dispose of certain property or assets of the Company and its Subsidiaries, such
sale to be consummated for a sale price approved by the Required Holders.  Any such notice by the Required Holders shall
be made in writing and shall specify the property or assets such holders of
Notes are requiring to be sold.

(5)           RIGHTS UPON FUNDAMENTAL TRANSACTION AND CHANGE OF
CONTROL.

(a)           Assumption.  The Company shall not enter into or be party to a Fundamental
Transaction unless (i)  the Successor Entity assumes in writing all of the
obligations of the Company under this Note and the other Transaction Documents
in accordance with the provisions of this Section 5(a) pursuant to written
agreements in form and substance reasonably satisfactory to the Required Holders
and approved by the Required Holders prior to such Fundamental Transaction,
including agreements to deliver to each holder of Notes in exchange for such
Notes a security of the Successor
Entity evidenced by a written instrument substantially similar in form and
substance to the Notes, including, without limitation, having a principal
amount and interest rate equal to the principal amounts and the interest rates
of the Notes then outstanding held by such holder, having similar conversion rights
and having similar ranking to the Notes, and satisfactory to the Required
Holders and (ii)  the Successor Entity
(including its Parent Entity) is a publicly traded
corporation whose common stock is quoted on or listed for trading on an
Eligible Market (a “Public Successor Entity”).  Upon
the occurrence of any Fundamental Transaction, the Successor Entity shall
succeed to, and be substituted for (so that from and after the date of such
Fundamental Transaction, the provisions of this Note referring to the “Company”
shall refer instead to the Successor Entity), and may exercise every right and
power of the Company and shall assume all of the obligations of the Company
under this Note with the same effect as if such Successor Entity had been named
as the Company herein.  Upon
consummation of the Fundamental Transaction, the Successor Entity shall deliver
to the Holder confirmation that there shall be issued upon conversion or
redemption of this Note at any time after the
consummation of the Fundamental Transaction, in lieu of the shares of the
Company’s Common Stock (or other securities, cash, assets or other
property) issuable upon the conversion or
redemption of the Notes prior to such Fundamental Transaction, such shares of the publicly traded common stock (or
their equivalent) of the Successor Entity (including its Parent Entity), as
adjusted in accordance with the provisions of this Note.  The provisions of this Section shall
apply similarly and equally to successive Fundamental Transactions and shall be
applied without regard to any limitations on the conversion or redemption of
this Note.

(b)           Redemption Right. 
No sooner than fifteen (15) days nor later than ten (10) days prior to
the consummation of a Change of Control, but not prior to the public announcement
of such Change of Control, the Company shall deliver written notice thereof via

11

facsimile and overnight courier to the Holder (a “Change of Control Notice”). 
At any time during the period beginning after the Holder’s receipt of a
Change of Control Notice and ending twenty (20) Trading Days after the date of
the consummation of such Change of Control, the Holder may require the Company
to redeem all or any portion of this Note by delivering written notice thereof
(“Change of
Control Redemption Notice”)
to the Company, which Change of Control Redemption Notice shall indicate the
Conversion Amount the Holder is electing to redeem.  The portion of this Note subject to
redemption pursuant to this Section 5 shall be redeemed by the Company in cash
at a price equal to the greater of (i) 150% of the sum of (x) the Conversion
Amount being redeemed and (y) the amount of any accrued but unpaid Interest on
such Conversion Amount being redeemed and accrued and unpaid Late Charges, if
any, with respect to such Conversion Amount and Interest through the date of
such redemption payment and (ii) the product of (x) the Equity Value Redemption
Premium and (y) the sum of (1) the product of (A) the Conversion Amount being
redeemed multiplied by (B) the quotient determined by dividing (I) the
aggregate cash consideration and the aggregate cash value of any non-cash
consideration per Common Share to be paid to the holders of the Common Shares
upon consummation of the Change of Control (any such non-cash consideration
consisting of marketable securities to be valued at the higher of the Closing
Sale Price of such securities as of the Trading Day immediately prior to, the
Closing Sale Price as of the Trading Day immediately following the public
announcement of such proposed Change of Control and the Closing Sale Price of
the Common Stock immediately prior to the public announcement of such proposed
Change of Control) by (II) the Conversion Price plus (2) the amount of any accrued
but unpaid Interest on such Conversion Amount being redeemed and accrued and
unpaid Late Charges, if any, with respect to such Conversion Amount and
Interest through the date of such redemption payment, (the “Change of Control Redemption Price”).  Redemptions required by this Section 5 shall
be made in accordance with the provisions of Section 12 and shall have priority
to payments to stockholders in connection with a Change of Control.  To the extent redemptions required by this
Section 5(b) are deemed or determined by a court of competent jurisdiction to
be prepayments of the Note by the Company, such redemptions shall be deemed to
be voluntary prepayments. 
Notwithstanding anything to the contrary in this Section 5, but subject
to Section 3(d), until the Change of Control Redemption Price (together with
any interest thereon) is paid in full, the Conversion Amount submitted for
redemption under this Section 5(b) (together with any interest thereon) may be
converted, in whole or in part, by the Holder into Common Stock pursuant to
Section 3.  The parties hereto agree that
in the event of the Company’s redemption of any portion of the Note under this
Section 5(b), the Holder’s damages would be uncertain and difficult to estimate
because of the parties’ inability to predict future interest rates and the
uncertainty of the availability of a suitable substitute investment opportunity
for the Holder.  Accordingly, any Change
of Control redemption premium due under this Section 5(b) is intended by the
parties to be, and shall be deemed, a reasonable estimate of the Holder’s
actual loss of its investment opportunity and not as a penalty.

(6)           RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER
CORPORATE EVENTS.

(a)           Purchase Rights. 
If at any time the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Common Stock (the
“Purchase
Rights”), 

12

then the Holder will be entitled to acquire, upon
the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which the Holder could have acquired if the Holder had held the number of
shares of Common Stock acquirable upon complete conversion of this Note
(without taking into account any limitations or restrictions on the
convertibility of this Note) immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.

(b)           Other Corporate Events.  In addition to and not in substitution for
any other rights hereunder, prior to the consummation of any Fundamental
Transaction pursuant to which holders of shares of Common Stock are entitled to
receive securities or other assets with respect to or in exchange for shares of
Common Stock (a “Corporate Event”),
the Company shall make appropriate provision to insure that the Holder will
thereafter have the right to receive upon a conversion of this Note, at the
Holder’s option, (i) in addition to the shares of Common Stock receivable upon
such conversion, such securities or other assets to which the Holder would have
been entitled with respect to such shares of Common Stock had such shares of
Common Stock been held by the Holder upon the consummation of such Corporate
Event (without taking into account any limitations or restrictions on the
convertibility of this Note) or (ii) in lieu of the shares of Common Stock
otherwise receivable upon such conversion, such securities or other assets
received by the holders of shares of Common Stock in connection with the
consummation of such Corporate Event in such amounts as the Holder would have
been entitled to receive had this Note initially been issued with conversion
rights for the form of such consideration (as opposed to shares of Common
Stock) at a conversion rate for such consideration commensurate with the
Conversion Rate.  Provision made pursuant
to the preceding sentence shall be in a form and substance satisfactory to the
Required Holders.  The provisions of this
Section shall apply similarly and equally to successive Corporate Events and
shall be applied without regard to any limitations on the conversion or
redemption of this Note.

(7)           RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

(a)           Adjustment of Conversion Price upon Issuance of Common
Stock.  If and whenever on or after
the Closing Date, the Company issues or sells, or in accordance with this
Section 7(a) is deemed to have issued or sold, any shares of Common Stock
(including the issuance or sale of shares of Common Stock owned or held by or
for the account of the Company, but excluding for purposes of the provisions of
this Section 7(a) shares of Common Stock issued or sold or deemed to have been
issued or sold by the Company in connection with any Excluded Securities) for a
consideration per share (the “New Issuance Price”)
less than a price (the “Applicable Price”)
equal to the Conversion Price in effect immediately prior to such issue or sale
or deemed issuance or sale (the foregoing a “Dilutive Issuance”), then immediately after such
Dilutive Issuance the Conversion Price then in effect shall be reduced to an
amount equal to the New Issuance Price. 
For purposes of determining the adjusted Conversion Price under this
Section 7(a), the following shall be applicable:

(i)            Issuance of Options.  If the Company in any manner grants or sells
any Options and the lowest price per share for which one share of Common Stock
is issuable upon the exercise of any such Option or upon conversion or 

13

exchange or exercise of any
Convertible Securities issuable upon exercise of such Option is less than the
Applicable Price, then such share of Common Stock shall be deemed to be
outstanding and to have been issued and sold by the Company at the time of the
granting or sale of such Option for such price per share.  For purposes of this Section 7(a)(i), the
“lowest price per share for which one share of Common Stock is issuable upon
the exercise of any such Option or upon conversion or exchange or exercise of
any Convertible Securities issuable upon exercise of such Option” shall be
equal to the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common Stock upon
granting or sale of the Option, upon exercise of the Option and upon conversion
or exchange or exercise of any Convertible Security issuable upon exercise of
such Option.  No further adjustment of
the Conversion Price shall be made upon the actual issuance of such share of
Common Stock or of such Convertible Securities upon the exercise of such Options
or upon the actual issuance of such Common Stock upon conversion or exchange or
exercise of such Convertible Securities.

(ii)           Issuance of Convertible Securities.  If the Company in any manner issues or sells
any Convertible Securities and the lowest price per share for which one share
of Common Stock is issuable upon such conversion or exchange or exercise
thereof is less than the Applicable Price, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and sold by the Company
at the time of the issuance or sale of such Convertible Securities for such
price per share.  For the purposes of
this Section 7(a)(ii), the “lowest price per share for which one share of
Common Stock is issuable upon such conversion or exchange or exercise” shall be
equal to the sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of Common Stock upon
the issuance or sale of the Convertible Security and upon the conversion or
exchange or exercise of such Convertible Security.  No further adjustment of the Conversion Price
shall be made upon the actual issuance of such share of Common Stock upon
conversion or exchange or exercise of such Convertible Securities, and if any
such issue or sale of such Convertible Securities is made upon exercise of any
Options for which adjustment of the Conversion Price had been or are to be made
pursuant to other provisions of this Section 7(a), no further adjustment of the
Conversion Price shall be made by reason of such issue or sale.

(iii)          Change in Option Price or Rate of
Conversion.  If the purchase price
provided for in any Options, the additional consideration, if any, payable upon
the issue, conversion, exchange or exercise of any Convertible Securities, or
the rate at which any Convertible Securities are convertible into or
exchangeable or exercisable for Common Stock increases or decreases at any
time, the Conversion Price in effect at the time of such increase or decrease
shall be adjusted to the Conversion Price which would have been in effect at
such time had such Options or Convertible Securities provided for such
increased or decreased purchase price, additional consideration or changed
conversion rate, as the case may be, at the time initially granted, issued or
sold.  For purposes of this Section
7(a)(iii), if the terms of any Option or Convertible Security that was
outstanding as of the Closing Date are increased or decreased in the manner
described in the immediately preceding sentence, then such Option or
Convertible 

14

Security and the Common
Stock deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such increase or decrease.  No adjustment shall be made if such adjustment
would result in an increase of the Conversion Price then in effect.  A change that permits the holder of an Option
or Convertible Security to utilize a cashless exercise feature shall not be
deemed to decrease the consideration payable by the holder solely by reason of
the fact that the cashless exercise feature would result in a reduction in cash
consideration receivable by the Company.

(iv)          Calculation of Consideration
Received.  In case any Option is
issued in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, such Options
will be deemed to have been issued for the difference of (x) the aggregate fair
market value of such Options and other securities issued or sold in such
integrated transaction, less (y) the fair market value of the securities other
than such Option, issued or sold in such transaction, and the other securities
issued or sold in such integrated transaction will be deemed to have been
issued or sold for the balance of the consideration received by the
Company.  If any shares of Common Stock
are issued or sold, or deemed to have been issued or sold, or provided for in
an Option or Convertible Security to be issued or sold for cash, the
consideration received or to be received therefor will be deemed to be the net
amount received by the Company therefor. 
If any shares of Common Stock are issued or sold, or provided for in an
Option or Convertible Security to be issued or sold for a consideration other
than cash, the amount of the consideration other than cash received or to be
received by the Company will be the fair value of such consideration, except
where such consideration consists of publicly traded securities, in which case
the amount of consideration received by the Company will be the Closing Sale
Price of such securities on the date of receipt.  If any shares of Common Stock are issued to
the owners of the non-surviving entity in connection with any merger in which
the Company is the surviving entity, the amount of consideration therefor will
be deemed to be the fair value of such portion of the net assets and business
of the non-surviving entity as is attributable to such shares of Common
Stock.  Notwithstanding the provisions of
this Section 7(a)(iv), the purchase price provided for in an Option, or the
additional consideration, if any, paid or payable upon the issue, conversion,
exercise or exchange of any Convertible Securities, to the extent paid or
payable or converted or exercised pursuant to a cashless exercise feature,
shall not be deemed to be an issuance or sale of Common Stock for consideration
other than cash.  The fair value of any
consideration other than cash or securities will be determined jointly by the
Company and the Required Holders.  If
such parties are unable to reach agreement within ten (10) days after the
occurrence of an event requiring valuation (the “Valuation Event”), the fair
value of such consideration will be determined within five (5) Business Days
after the tenth (10th) day following the Valuation Event by an
independent, reputable appraiser jointly selected by the Company and the
Required Holders.  The determination of
such appraiser shall be final and binding upon all parties absent manifest
error and the fees and expenses of such appraiser shall be borne by the
Company.

15

(v)           Record Date.  If the Company takes a record of the holders
of Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible
Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the date of the issue or
sale of the Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.

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

(c)           Other Events. 
If any event occurs of the type contemplated by the provisions of this
Section 7 but not expressly provided for by such provisions (including, without
limitation, the granting of stock appreciation rights, phantom stock rights or
other rights with equity features), then the Company’s Board of Directors will
make an appropriate adjustment in the Conversion Price so as to protect the
rights of the Holder under this Note; provided that no such adjustment will
increase the Conversion Price as otherwise determined pursuant to this Section
7.

(d)           Voluntary Adjustment by Company.  The Company may at any time during the
term of this Note reduce the then current Conversion Price to any amount and
for any period of time deemed appropriate by the Board of Directors.

(8)           RIGHT OF REDEMPTION BY HOLDER AND
COMPANY.

(a)           Holder’s Right of Mandatory Redemption.  Within fifteen (15) days after each
Triggering Date, the Holder shall have the right, in its sole discretion, with
the consent of the Required Holders as provided hereafter, to require that the
Company redeem a Principal amount of this Note equal to one-third (1/3) of the
Original Principal Amount of this Note plus accrued and unpaid Interest and
Late Charges, if any,
on such Principal and Interest (such amount, the “Holder Redemption Amount” and such election, the “Holder Optional Redemption”), by delivering written notice
thereof (such notice, a “Holder Optional
Redemption Notice”) no later than the fifteenth (15th) day after the
applicable Triggering Date (the date the Holder delivers such notice, the “Holder Optional Redemption Notice Date”).  The Company shall immediately, but no later
than one (1) Business Day after receiving the Holder Optional Redemption
Notice, forward to the holders of the Other Notes  by facsimile a copy of the Holder Optional
Redemption Notice and shall indicate (i) that if such holder  does not deliver written notice to the Company
within three (3) Business Days of receipt of such 

16

notice objecting to the Holder Optional Redemption,
such holder shall be deemed to have given its consent to such Holder Optional
Redemption and (ii) that if the consent of the Required Holders is obtained
with respect to such Holder Optional Redemption,  the Company’s right to redeem the Full
Company Redemption Amount under Section 8(b) shall be triggered.  The Holder agrees that it will be deemed to
have given its consent to any Holder Optional Redemption it has initiated.  The Holder further agrees, in the case of a
Holder Optional Redemption initiated by any holder of the Other Notes, that it
will be deemed to have given its consent thereto if the Holder fails to deliver
its objection notice to the Company within three (3) Business Days of receipt
of such notice from the Company.  Within
fifteen (15) days after the Holder Optional Redemption Notice Date, the Company
shall deliver to the Holder a written notice (a “Company Redemption Notice” and the date the Holder receives such
written notice, the “Company Redemption
Notice Date”) which notice shall either (i) state that the Required
Holders have not consented to the Holder Optional Redemption, in which case the
Holder Optional Redemption and the Holder Optional Redemption Notice shall be
null and void and of no further force and effect or (ii) state that the
Required Holders have consented or are deemed to have consented to the Holder
Optional Redemption, in which case the Company Redemption Notice shall (A)
state the date on which the Holder Optional Redemption shall occur (the “Holder Optional Redemption Date”) which date shall be no
later than forty-five (45) days after the Holder Optional Redemption Notice
Date and (B) confirm (x) that the Company shall redeem the Holder Redemption
Amount at the Holder Optional Redemption Price or (y) that the Company is
making a Company Full Mandatory Redemption, in which case, redemption of the
Holder Redemption Amount shall be governed by the terms of Section 8(b) below.  Each Company Redemption Notice shall be
irrevocable.  Notwithstanding anything to
the contrary in this Section 8(a), until the Holder Optional Redemption Price
is paid in full, the Holder Redemption Amount may be converted, in whole or in
part, by the Holder into shares of Common Stock pursuant to Section 3.  All Conversion Amounts converted by the
Holder after the Company Redemption Notice Date shall reduce the Holder
Redemption Amount required to be redeemed on the applicable Holder Optional
Redemption Date.  Holder Optional
Redemptions made pursuant to this Section 8(a) shall be made in accordance with
Section 12.

(b)           Company’s Right of Mandatory Redemption.

(i)            Provided that there has been no
Equity Conditions Failure, the Company shall have the right to elect to redeem
(a “Company Partial Mandatory Redemption”)
a Principal amount of this Note equal to up to one-third (1/3) of the Original
Principal Amount of this Note plus accrued and unpaid Interest and Late
Charges, if any, on
such Principal and Interest (such elected amount, the “Partial Company Redemption Amount”) at the
Partial Company Redemption Price.  If the
Company elects to make the Company Partial Mandatory Redemption under this
clause (i), the Company must make the same election with respect to each of the
Other Notes (and analogous provisions under the Other Notes).

(ii)           Provided that no Event of Default has
occurred and is continuing and the Holder has elected to exercise its Holder
Optional Redemption pursuant to Section 8(a) above, then the Company shall have
the right to redeem (a “Company Full
Mandatory Redemption”) an amount equal to 100% of the outstanding
Principal of this Note, accrued and unpaid Interest and Late Charges, if any, on such Principal and Interest on this Note 

17

plus any other amounts due
and owing under this Note in its entirety (the “Full Company Redemption Amount,” and each of the Partial
Company Redemption Amount and the Full Company Redemption Amount, a “Company Redemption Amount”) at the
Company Mandatory Redemption Price.

(iii)          The Company may exercise its
redemption rights under clause (i) or (ii) of this Section 8(b) by delivering a
written notice thereof no later than the fifteenth (15th) day after (A) the
applicable Triggering Date in the case of a Company Partial Mandatory
Redemption and (B) the Holder Optional Redemption Notice Date, in the case of a
Company Full Mandatory Redemption by confirmed facsimile and overnight courier
to all, but not less than all, of the holders of the Notes (the “Company Mandatory Redemption Notice” and
the date such notice is delivered to all the holders is referred to as the “Company Mandatory Redemption Notice Date”).  The Company Mandatory Redemption Notice shall
be irrevocable.  The Company Mandatory
Redemption Notice shall state (A) the date on which the Company Partial
Mandatory Redemption or Company Full Mandatory Redemption, as applicable, shall
occur (the “Company Mandatory Redemption Date”)
which date shall not be less than forty-five (45) days after the Company
Mandatory Redemption Notice Date and not more than a number of days as agreed
to by the Required Holders, in the case of a Company Partial Mandatory
Redemption and the Holder, in the case of a Company Full Mandatory Redemption,
(B) (x) that, pursuant to Section 8(b)(i) hereof, the Company elects to redeem
the Partial Company Redemption Amount at the Partial Company Redemption Price
or (y) that, pursuant to Section 8(b)(ii) hereof, (I) that the Company elects
to redeem the Full Company Redemption Amount at the Company Mandatory
Redemption Price on the Company Mandatory Redemption Date and (II) that in
connection with the Company Full Mandatory Redemption, the Series B Warrants
shall become exercisable as of the Company Mandatory Redemption Date in
accordance with their terms. 
Notwithstanding anything to the contrary in this Section 8(b), until the
Partial Company Redemption Price or the Company Mandatory Redemption Price, as
the case may be, is paid in full, the Company Redemption Amount may be
converted, in whole or in part, by the Holder into shares of Common Stock
pursuant to Section 3.  All Conversion
Amounts converted by the Holder after the Company Mandatory Redemption Notice
Date shall reduce the Company Redemption Amount required to be redeemed on the
Company Mandatory Redemption Date. 
Redemptions made pursuant to this Section 8(b) shall be made in
accordance with Section 12.

(9)           SECURITY.  This Note and the Other Notes are secured to
the extent and in the manner set forth in the Security Documents (as defined in
the Securities Purchase Agreement).

(10)         NONCIRCUMVENTION.  The Company hereby covenants and agrees that
the Company will not, by amendment of its Certificate of Incorporation, Bylaws
or through any reorganization, transfer of assets, consolidation, merger,
scheme of arrangement, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms of this Note, and will at all times in good faith carry out all of
the provisions of this Note and take all action as may be required to protect
the rights of the Holder of this Note.

18

(11)         RESERVATION OF AUTHORIZED SHARES.

(a)           Reservation. 
Immediately on and after the Closing Date, the Company shall reserve out
of its authorized and unissued a number of shares of Common Stock for each of
the Notes equal to 130% of the Conversion Rate with respect to the Conversion
Amount of each such Note as of the Closing Date and, for so long thereafter as
any of the Notes are outstanding, the Company shall take all action necessary
to reserve and keep available out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Notes, 130% of the
number of shares of Common Stock as shall from time to time be necessary to
effect the conversion of all of the Notes then outstanding(without regard to
any limitations on conversions) (such applicable amount, the “Required Reserve Amount”). 
The initial number of shares of Common Stock reserved for conversions of
the Notes and each increase in the number of shares so reserved shall be
allocated pro rata among the holders of the Notes based on the principal amount
of the Notes held by each holder at the 2007 Closing (as defined in the
Securities Purchase Agreement) or increase in the number of reserved shares, as
the case may be (the “Authorized Share Allocation”).  In the event that a
holder shall sell or otherwise transfer any of such holder’s Notes, each
transferee shall be allocated a pro rata portion of such holder’s Authorized
Share Allocation.  Any shares of Common
Stock reserved and allocated to any Person which ceases to hold any Notes shall
be allocated to the remaining holders of Notes, pro rata based on the principal
amount of the Notes then held by such holders.

(b)           Insufficient Authorized Shares.  If at any time while any of the Notes remain
outstanding the Company does not have a sufficient number of authorized and
unreserved shares of Common Stock to satisfy its obligation to reserve for
issuance upon conversion of the Notes at least a number of shares of Common
Stock equal to the Required Reserve Amount (an “Authorized Share Failure”), then the Company shall immediately
take all action necessary to increase the Company’s authorized shares of Common
Stock to an amount sufficient to allow the Company to reserve the Required
Reserve Amount for the Notes then outstanding. 
Without limiting the generality of the foregoing sentence, as soon as
practicable after the date of the occurrence of an Authorized Share Failure,
but in no event later than sixty (60) days after the occurrence of such
Authorized Share Failure, the Company shall hold a meeting of its stockholders
for the approval of an increase in the number of authorized shares of Common
Stock.  In connection with such meeting,
the Company shall provide each stockholder with a proxy statement and shall use
its best efforts to solicit its stockholders’ approval of such increase in authorized
shares of Common Stock and to cause its board of directors to recommend to the
stockholders that they approve such proposal.

(12)         REDEMPTIONS.

(a)           Mechanics. 
The Company shall deliver the applicable Event of Default Redemption
Price to the Holder within five (5) Business Days after the Company’s receipt
of the Holder’s Event of Default Redemption Notice.  If the Holder has submitted a Change of
Control Redemption Notice in accordance with Section 5(b), the Company shall
deliver the applicable Change of Control Redemption Price to the Holder
concurrently with the consummation of such Change of Control if such notice is
received at least one (1) Business Day prior to the consummation of such Change
of Control and within five (5) Business Days after the 

19

Company’s receipt of such notice otherwise.  The Company shall deliver
(i) the applicable Company Mandatory Redemption Price to the Holder on the
Company Mandatory Redemption Date, and (ii) subject to the provisions of
Section 8, the applicable Holder Optional Redemption Price on the applicable
Holder Optional Redemption Date.  In the event of
a redemption of less than all of the Conversion Amount of this Note, the
Company shall promptly cause to be issued and delivered to the Holder a new
Note (in accordance with Section 18(d)) representing the outstanding Principal
which has not been redeemed.  In the
event that the Company does not pay the applicable Redemption Price to the
Holder within the time period required, at any time thereafter and until the
Company pays such unpaid Redemption Price in full, the Holder shall have the
option, in lieu of redemption, to require the Company to promptly return to the
Holder all or any portion of this Note representing the Conversion Amount that
was submitted for redemption and for which the applicable Redemption Price
(together with any Late Charges thereon) has not been paid.  Upon the Company’s receipt of such notice,
(x) the applicable Redemption Notice shall be null and void with respect to
such Conversion Amount, (y) the Company shall immediately return this Note, or
issue a new Note (in accordance with Section 18(d)) to the Holder representing
the sum of such Conversion Amount to be redeemed together with accrued and
unpaid Interest with respect to such Conversion Amount and accrued and unpaid
Late Charges with respect to such Conversion Amount and Interest and (z) the
Conversion Price of this Note or such new Notes shall be adjusted to the lesser
of (A) the Conversion Price as in effect on the date on which the applicable
Redemption Notice is voided and (B) the lowest Closing Bid Price of the Common
Stock during the period beginning on and including the date on which the
applicable Redemption Notice is delivered to the Company and ending on and
including the date on which the applicable Redemption Notice is voided.  The Holder’s delivery of a notice voiding a
Redemption Notice and exercise of its rights following such notice shall not
affect the Company’s obligations to make any payments of Late Charges which
have accrued prior to the date of such notice with respect to the Conversion
Amount subject to such notice.

(b)           Redemption by Other Holders.  Upon the Company’s receipt of notice from any
of the holders of the Other Notes for redemption or repayment as a result of an
event or occurrence substantially similar to the events or occurrences
described in Section 4(b), Section 5(b) or Section 8 (each, an “Other Redemption Notice”), the Company shall immediately, but
no later than one (1) Business Day after its receipt thereof, forward to the
Holder by facsimile a copy of such notice. 
If the Company receives a Redemption Notice and one or more Other
Redemption Notices, during the seven (7) Business Day period beginning on and
including the date which is three (3) Business Days prior to the Company’s
receipt of the Holder’s Redemption Notice and ending on and including the date
which is three (3) Business Days after the Company’s receipt of the Holder’s
Redemption Notice and the Company is unable to redeem all principal, interest
and other amounts designated in such Redemption Notice and such Other
Redemption Notices received during such seven (7) Business Day period, then the
Company shall redeem a pro rata amount from each holder of the Notes (including
the Holder) based on the principal amount of the Notes submitted for redemption
pursuant to such Redemption Notice and such Other Redemption Notices received
by the Company during such seven (7) Business Day period.

 

20

 

 

 

(13)         VOTING RIGHTS. 
The Holder shall have no voting rights as the holder of this Note,
except as required by law, including, but not limited to, the Oklahoma General
Corporation Act, and as expressly provided in this Note.

(14)         COVENANTS.  So
long as this Note is outstanding:

(a)           Rank.      All
payments due under this Note shall rank pari
passu with all Other Notes and no other Indebtedness of the Company
and its Subsidiaries shall be senior to the Indebtedness of the Company and its
Subsidiaries evidenced by this Note and the Other Notes other than Indebtedness
of any subsidiary of the Company that is non-recourse to the Company and any
other Subsidiary.

(b)           Incurrence of Indebtedness.  The Company shall
not, and the Company shall not permit any of its Subsidiaries to, directly or
indirectly, incur or guarantee, assume or suffer to exist any Indebtedness,
other than the Indebtedness evidenced by this Note and the Other Notes and
other Permitted Indebtedness.

(c)           Existence of Liens.  The Company shall
not, and the Company shall not permit any of its Subsidiaries to, directly or
indirectly, allow or suffer to exist any mortgage, lien, pledge,
charge, security interest or other encumbrance upon or in any property or
assets (including accounts and contract rights) owned by the Company or
any of its Subsidiaries (collectively, “Liens”) other
than Permitted Liens.

(d)           Restricted Payments.  The Company shall not, and
the Company shall not permit any of its Subsidiaries to, directly or
indirectly, redeem, defease, repurchase, repay or make any payments in respect
of, by the payment of cash or cash equivalents (in whole or in part, whether by
way of open market purchases, tender offers, private transactions or
otherwise), all or any portion of any Permitted Indebtedness, whether by way of
payment in respect of principal of (or premium, if any) or interest on, such
Indebtedness if at the time such payment is due or is otherwise made or, after
giving effect to such payment, an event constituting, or that with the passage
of time and without being cured would constitute, an Event of Default has
occurred and is continuing.

(e)           Restriction on Redemption and Cash Dividends.  Until all of the Notes have been converted,
redeemed or otherwise satisfied in accordance with their terms, the Company
shall not, directly or indirectly, redeem, repurchase or declare or pay any
cash dividend or distribution on its capital stock without the prior express
written consent of the Required Holders; provided that the Company shall be
entitled to make the Excluded Distribution without the prior written consent of
the Required Holders (subject to the Company’s compliance with the Holder’s
participation right set forth in Section 15).

(f)            Use of Proceeds.  The Company will use the proceeds
from the sale of the Notes substantially as set forth on Schedule 4(d)
to the Securities Purchase Agreement.

21

(g)           Non Ordinary Course Capital
Expenditures.

(1)   The Company shall not make or commit or agree
to make, or permit any of its Subsidiaries to make or commit or agree to make,
any Capital Expenditure (by purchase or Capitalized Lease) not in the ordinary
course of its business (“Non Ordinary Course
Capital Expenditures”) without the prior written consent of the
Required Holders (which consent shall be in their sole discretion); provided,
that, it is understood that Capital Expenditures in connection with (i)
the drilling of any well-site, (ii)
the purchase or lease of any real property, or (iii) the purchase or lease
of any asset with a fair market value in excess of $50,000, shall be deemed to
be Non Ordinary Course Capital Expenditures.

(2)   The Company shall obtain the written consent
of the Required Holders by sending to each Holder a notice (a “Non Ordinary Course Capital Expenditure Request”) setting
forth the material details of such Non Ordinary Course Capital
Expenditure.  If the Company is required
to disclose material, nonpublic information to the Holder in such Non Ordinary
Course Capital Expenditure Request, the Company shall, before delivering any
such Non Ordinary Course Capital Expenditure Request, first provide a notice (a
“Request To Give MNPI”) to each of the
Holders of the Notes stating that it seeks the consent required under this
Section 14(g) and that it is necessary to give such Holder material, nonpublic
information in connection with such consent. 
Such Request To Give MNPI shall only include information that the
Company does not deem to be material, nonpublic information.  The Holder shall have two (2) Trading Days
after receipt of a Request To Give MNPI to notify the Company of its election
to receive such material, nonpublic information or to decline to receive such
material, nonpublic information.  If the
Holder declines to receive such material, nonpublic information, (i) the Holder
shall state in such election whether it is consenting to the related Non
Ordinary Course Capital Expenditure or withholding its consent and (ii) the
Company shall not deliver such Non Ordinary Course Capital Expenditure Request
which contains material, nonpublic information to any Holder that so
declines.  If the Holder elects to
receive such material, nonpublic information, the Company may deliver to the
Holder such Non Ordinary Course Capital Expenditure Request.  If the Holder has not received a Request To
Give MNPI prior to receipt of a Non Ordinary Course Capital Expenditure
Request, the Holder may presume that all matters relating to such Non Ordinary
Course Capital Expenditure Request do not constitute material, nonpublic
information.

(3)   The Holder shall have twenty (20) Business
Days to respond to any Non Ordinary Course Capital Expenditure Request if such
request relates to a Non Ordinary Course Capital Expenditure proposed by the
Company and five (5) Business Days to respond to any Non Ordinary Course
Capital Expenditure Request if it relates to a Non Ordinary Course Capital
Expenditure proposed by a third party.

(4)   If the Company has delivered to the Holder
any material, nonpublic information in connection with this Section 14(g) and
the Holder delivers notice to the Company requesting to be cleansed of such
material, nonpublic information, the Company shall within five (5) Trading Days
of receipt of such notice, make a public disclosure (on a Current Report on
Form 8-K or otherwise) of such material, nonpublic information.

22

(15)         PARTICIPATION. 
The Holder, as the holder of this Note, shall be entitled to receive
such dividends paid and distributions (including, without limitation, with
respect to the Excluded Distribution) made to the holders of Common Stock to
the same extent as if the Holder had converted this Note into Common Stock
(without regard to any limitations on conversion herein or elsewhere) and had
held such shares of Common Stock on the record date for such dividends and
distributions.  Payments under the
preceding sentence shall be made concurrently with the dividend or distribution
to the holders of Common Stock.

(16)         VOTE TO ISSUE, OR CHANGE THE TERMS OF, NOTES.  The affirmative vote at a meeting duly called
for such purpose or the written consent without a meeting of the Required
Holders shall be required for any amendment, modification or waiver to this
Note or the Other Notes.  No such
amendment, modification or waiver shall be effective to the extent that it
applies to less than all of the holders of the Notes then outstanding.  In no event shall any such amendment,
modification or waiver be made to this Note which would adversely affect the
Holder without the written consent of the Holder, provided that the Holder’s
written consent shall not be required for amendments, modifications or waivers
to the provisions of Sections 11, 14 (other than Section 14(a)), 18 or 30 that
are consented to in writing by the Required Holders and that would not
disproportionately adversely affect the Holder.

(17)         TRANSFER.  This
Note and any shares of Common Stock issued upon conversion of this Note may be
offered, sold, assigned or transferred by the Holder without the consent of the
Company, subject only to the provisions of Section 2(f) of the Securities
Purchase Agreement.

(18)         REISSUANCE OF THIS NOTE.

(a)           Transfer.  If
this Note is to be transferred, the Holder shall surrender this Note to the
Company, whereupon the Company will forthwith issue and deliver upon the order
of the Holder a new Note (in accordance with Section 18(d)), registered as the
Holder may request, representing the outstanding Principal being transferred by
the Holder and, if less then the entire outstanding Principal is being
transferred, a new Note (in accordance with Section 18(d)) to the Holder
representing the outstanding Principal not being transferred.  The Holder and any assignee, by acceptance of
this Note, acknowledge and agree that, by reason of the provisions of Section
3(c)(iii) following conversion or redemption of any portion of this Note, the
outstanding Principal represented by this Note may be less than the Principal
stated on the face of this Note.

(b)           Lost, Stolen or Mutilated Note.  Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of this Note, the
Company shall execute and deliver to the Holder a new Note (in accordance with
Section 18(d)) representing the outstanding Principal.

(c)           Note Exchangeable for Different Denominations.  This Note is exchangeable, upon the surrender
hereof by the Holder at the principal office of the Company, 

23

for a new Note or Notes (in accordance with Section
18(d) and in principal amounts of at least $100,000) representing in the
aggregate the outstanding Principal of this Note, and each such new Note will
represent such portion of such outstanding Principal as is designated by the
Holder at the time of such surrender.

(d)           Issuance of New Notes.  Whenever the Company is required to issue a
new Note pursuant to the terms of this Note, such new Note (i) shall be of like
tenor with this Note, (ii) shall represent, as indicated on the face of such
new Note, the Principal remaining outstanding (or in the case of a new Note
being issued pursuant to Section 18(a) or Section 18(c), the Principal
designated by the Holder which, when added to the principal represented by the
other new Notes issued in connection with such issuance, does not exceed the
Principal remaining outstanding under this Note immediately prior to such
issuance of new Notes), (iii) shall have an issuance date, as indicated on the
face of such new Note, which is the same as the Issuance Date of this Note,
(iv) shall have the same rights and conditions as this Note, and (v) shall
represent accrued and unpaid Interest and Late Charges, if any, on the
Principal and Interest of this Note (or the applicable proportionate amount
thereof,  in the case of a new Note being
issued pursuant to Section 18(a) or Section 18(c)), from the Issuance Date.

(19)         REMEDIES, CHARACTERIZATIONS, OTHER
OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF.  The remedies provided in this Note shall be
cumulative and in addition to all other remedies available under this Note and
any of the other Transaction Documents at law or in equity (including a decree
of specific performance and/or other injunctive relief), and nothing herein
shall limit the Holder’s right to pursue actual and consequential damages for
any failure by the Company to comply with the terms of this Note.  Amounts set forth or provided for herein with
respect to payments, conversion and the like (and the computation thereof)
shall be the amounts to be received by the Holder and shall not, except as
expressly provided herein, be subject to any other obligation of the Company
(or the performance thereof).  The
Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Holder and that the remedy at law for any such
breach may be inadequate.  The Company
therefore agrees that, in the event of any such breach or threatened breach,
the Holder shall be entitled, in addition to all other available remedies, to
an injunction restraining any breach, without the necessity of showing economic
loss and without any bond or other security being required.

(20)         PAYMENT OF COLLECTION, ENFORCEMENT
AND OTHER COSTS.  If (a) this Note is
placed in the hands of an attorney for collection or enforcement or is
collected or enforced through any legal proceeding or the Holder otherwise
takes action to collect amounts due under this Note or to enforce the
provisions of this Note or (b) there occurs any bankruptcy, reorganization,
receivership of the Company or other proceedings affecting Company creditors’
rights and involving a claim under this Note, then the Company shall pay the
costs incurred by the Holder for such collection, enforcement or action or in
connection with such bankruptcy, reorganization, receivership or other
proceeding, including, but not limited to, attorneys’ fees and disbursements.

(21)         CONSTRUCTION; HEADINGS.  This Note shall be deemed to be jointly
drafted by the Company and the Purchaser and shall not be construed against any
person as the 

24

drafter hereof.  The headings of this Note are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Note.

(22)         FAILURE OR INDULGENCE NOT WAIVER.  No failure or delay on the part of the Holder
in the exercise of any power, right or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege.

(23)         DISPUTE RESOLUTION.  In the case of a dispute as to the
determination of (a) the Closing Bid Price, the Closing Sale Price or the
Weighted Average Price or (b) the arithmetic calculation of the Conversion Rate
or any Redemption Price or otherwise of number of shares of Common Stock
issuable to the Holder in connection with this Note, the Company shall submit
the disputed determinations or arithmetic calculations via facsimile within one
(1) Business Day of receipt, or deemed receipt, of the Conversion Notice or
Redemption Notice or other event giving rise to such dispute, as the case may
be, to the Holder.  If the Holder and the
Company are unable to agree upon such determination or calculation within one
(1) Business Day of such disputed determination or arithmetic calculation being
submitted to the Holder, then the Company shall, within one (1) Business Day
submit via facsimile (a) the disputed determination of the Closing Bid Price,
the Closing Sale Price or the Weighted Average Price to an independent,
reputable investment bank selected by the Company and approved by the Holder or
(b) the disputed arithmetic calculation of the Conversion Rate, any Redemption
Price or the number of shares of Common Stock issuable to the Company’s
independent, outside accountant.  The
Company, at the Company’s expense, shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the Holder of the results no later than five (5)
Business Days from the time it receives the disputed determinations or
calculations.  Such investment bank’s or
accountant’s determination or calculation, as the case may be, shall be binding
upon all parties absent demonstrable error.

(24)         NOTICES; PAYMENTS.

(a)           Notices. 
Whenever notice is required to be given under this Note, unless
otherwise provided herein, such notice shall be given in accordance with
Section 9(f) of the Securities Purchase Agreement.  The Company shall provide the Holder with
prompt written notice of all actions taken pursuant to this Note, including in
reasonable detail a description of such action and the reason therefore.  Without limiting the generality of the
foregoing, the Company will give written notice to the Holder (i) immediately
upon any adjustment of the Conversion Price, setting forth in reasonable
detail, and certifying, the calculation of such adjustment and (ii) at least
twenty (20) days prior to the date on which the Company closes its books or takes
a record (A) with respect to any dividend or distribution upon the Common
Stock, (B) with respect to any pro rata subscription offer to holders of Common
Stock or (C) for determining rights to vote with respect to any Fundamental
Transaction, dissolution or liquidation, provided in each case that such
information shall be made known to the public prior to or in conjunction with
such notice being provided to the Holder.

(b)           Payments. 
Whenever any payment of cash is to be made by the Company to any Person
pursuant to this Note, such payment shall be made in lawful money of 

25

the United States of America by a check drawn on the
account of the Company and sent via overnight courier service to such Person at
such address as previously provided to the Company in writing (which address,
in the case of the Purchaser, shall initially be as set forth on the Schedule
of Buyers attached to the Securities Purchase Agreement); provided that the
Holder may elect to receive a payment of cash via wire transfer of immediately
available funds by providing the Company with prior written notice setting out
such request and the Holder’s wire transfer instructions.  Whenever any amount expressed to be due by
the terms of this Note is due on any day which is not a Business Day, the same
shall instead be due on the next succeeding day which is a Business Day and, in
the case of any Interest Date which is not the date on which this Note is paid
in full, the extension of the due date thereof shall not be taken into account
for purposes of determining the amount of Interest due on such date.  Any amount of Principal or other amounts due
under the Transaction Documents, other than Interest, which is not paid when
due shall result in a late charge being incurred and payable by the Company in
an amount equal to interest on such amount at the rate of eighteen percent
(18%) per annum from the date such amount was due until the same is paid in
full (“Late Charge”).

(25)         CANCELLATION.  After all Principal, accrued Interest and
other amounts at any time owed on this Note have been paid in full, this Note
shall automatically be deemed canceled, shall be surrendered to the Company for
cancellation and shall not be reissued.

(26)         WAIVER OF NOTICE.  To the extent permitted by law, the Company
hereby waives demand, notice, protest and all other demands and notices in
connection with the delivery, acceptance, performance, default or enforcement
of this Note and the Securities Purchase Agreement.

(27)         GOVERNING LAW.  This Note shall be construed and enforced in
accor­dance with, and all questions concerning the construction, validity,
interpretation and performance of this Note shall be governed by, the internal
laws of the State of New York, without giving effect to any choice of law or
conflict of law provision or rule (whether of the State of New York or any
other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. 
The Company hereby irrevocably submits to the jurisdiction of the state
and federal courts sitting in The City of New York, Borough of Manhattan, for
the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper.  Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner permitted by
law.  Nothing contained herein shall be
deemed or operate to preclude the Holder from bringing suit or taking other
legal action against the Company in any other jurisdiction to collect on the
Company’s obligations to the Holder, to realize on any collateral or any other
security for such obligations, or to enforce a judgment or other court ruling
in favor of the Holder.  THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY
HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY
DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY
TRANSACTION CONTEMPLATED HEREBY.

26

(28)         SEVERABILITY. If any provision
of this Note is prohibited by law or otherwise determined to be invalid or
unenforceable by a court of competent jurisdiction, the provision that would
otherwise be prohibited, invalid or unenforceable shall be deemed amended to
apply to the broadest extent that it would be valid and enforceable, and the
invalidity or unenforceability of such provision shall not affect the validity
of the remaining provisions of this Note so long as this Note as so modified
continues to express, without material change, the original intentions of the
parties as to the subject matter hereof and the prohibited nature, invalidity
or unenforceability of the provision(s) in question does not substantially
impair the respective expectations or reciprocal obligations of the parties or
the practical realization of the benefits that would otherwise be conferred
upon the parties.  The parties will
endeavor in good faith negotiations to replace the prohibited, invalid or
unenforceable provision(s) with a valid provision(s), the effect of which comes
as close as possible to that of the prohibited, invalid or unenforceable
provision(s).

(29)         CERTAIN DEFINITIONS.  For purposes of this Note, the following
terms shall have the following meanings:

(a)           “Amendment  Agreement” means each Amendment  Agreement, dated as of October 31, 2007, by
and between the Company and the “Buyer” party thereto.

(b)           “Amendment Agreements” means, collectively, the Amendment
Agreements, each dated as of October 31, 2007, by and between the Company and
the “Buyer” party thereto.

(c)           “Approved Stock Plan”
means any employee benefit plan, arrangement or other agreement which has been
approved by the Board of Directors of the Company, pursuant to which the
Company’s securities may be issued to any employee, consultant, officer or
director for services provided to the Company.

(d)           “Average Market Price”
means, for any given date, the lesser of (i) the arithmetic average of the
Weighted Average Price of the Common Stock on each of the twenty (20)
consecutive Trading Days ending on the Trading Day immediately prior to such
given date (the “Measuring Period”),
(ii) the arithmetic average of the Weighted Average Price of the Common Stock
on each of the first five (5) consecutive Trading Days of the Measuring Period
and (iii) the arithmetic average of the Weighted Average Price of the Common
Stock on each of the last five (5) consecutive Trading Days of the Measuring
Period; provided, that all such determinations shall be appropriately adjusted
for any stock split, stock dividend, stock combination or other similar
transaction that proportionately decreases or increases the Common Stock during
such periods.

(e)           “Bloomberg” means
Bloomberg Financial Markets.

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

27

(g)           “Calendar Quarter”
means each of: the period beginning on and including January 1 and ending on
and including March 31; the period beginning on and including April 1 and
ending on and including June 30; the period beginning on and including July 1 and
ending on and including September 30; and the period beginning on and including
October 1 and ending on and including December 31.

(h)           “Capital
Expenditures” means, with respect to any Person for any period, the
sum of (i) the aggregate of all expenditures by such Person and its
Subsidiaries during such period that in accordance with GAAP are or should be
included in “property, plant and equipment” or in a similar fixed asset account
on its balance sheet, whether such expenditures are paid in cash or financed
and including all Capitalized Lease Obligations paid or payable during such
period, and (ii) to the extent not covered by clause (i) above, the
aggregate of all expenditures by such Person and its Subsidiaries during such
period to acquire by purchase or otherwise the business or fixed assets of, or
the Capital Stock of, any other Person.

(i)            “Capitalized
Lease” means, with respect to any Person, any lease of real or
personal property by such Person as lessee which is (i) required under
GAAP to be capitalized on the balance sheet of such Person or (ii) a
transaction of a type commonly known as a “synthetic lease” (i.e. a lease
transaction that is treated as an operating lease for accounting purposes but
with respect to which payments of rent are intended to be treated as payments
of principal and interest on a loan for Federal income tax purposes).

(j)            “Capitalized
Lease Obligations” means, with respect to any Person, obligations of
such Person and its Subsidiaries under Capitalized Leases, and, for purposes
hereof, the amount of any such obligation shall be the capitalized amount
thereof determined in accordance with GAAP.

(k)           “Change of Control”
means any Fundamental Transaction other than (i) any reorganization, recapitalization or reclassification of
the Common Stock in which holders of the Company’s voting power immediately
prior to such reorganization, recapitalization or reclassification continue
after such reorganization, recapitalization or reclassification to hold
publicly traded securities and, directly or indirectly, the voting power of the
surviving entity or entities necessary to elect a majority of the members of
the board of directors (or their equivalent if other than a corporation) of
such entity or entities, or (ii) pursuant to a migratory merger effected solely
for the purpose of changing the jurisdiction of incorporation of the Company.

(l)            “Change of Control
Consideration” means, for any Change of Control, an amount, if any,
equal to the sum of the aggregate cash consideration and the aggregate cash
value of any marketable securities per share of Common Stock to be paid to the
holders of the Common Stock upon consummation of such Change of Control, with
any such marketable securities to be valued at the Closing Sale Price of such
securities as of the Trading Day following the public announcement of such
proposed Change of Control.

(m)          “Closing Bid Price”
and “Closing Sale
Price” means, for any
security as of any date, the last closing bid price and last closing trade
price, respectively, for 

28

such security on the Principal Market, as reported
by Bloomberg, or, if the Principal Market begins to operate on an extended
hours basis and does not designate the closing bid price or the closing trade
price, as the case may be, then the last bid price or last trade price,
respectively, of such security prior to 4:00:00 p.m., New York Time, as
reported by Bloomberg, or, if the Principal Market is not the principal
securities exchange or trading market for such security, the last closing bid
price or last trade price, respectively, of such security on the principal
securities exchange or trading market where such security is listed or traded
as reported by Bloomberg, or if the foregoing do not apply, the last closing
bid price or last trade price, respectively, of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing bid price or last trade price,
respectively, is reported for such security by Bloomberg, the average of the
bid prices, or the ask prices, respectively, of any market makers for such
security as reported in the “pink sheets” by Pink Sheets LLC (formerly the
National Quotation Bureau, Inc.).  If the
Closing Bid Price or the Closing Sale Price cannot be calculated for a security
on a particular date on any of the foregoing bases, the Closing Bid Price or
the Closing Sale Price, as the case may be, of such security on such date shall
be the fair market value as mutually determined by the Company and the
Holder.  If the Company and the Holder
are unable to agree upon the fair market value of such security, then such
dispute shall be resolved pursuant to Section 23.  All such determinations to be appropriately adjusted
for any stock dividend, stock split, stock combination or other similar
transaction during the applicable calculation period.

(n)           “Closing Date”
means the “2007 Closing Date”, as defined in the Securities
Purchase Agreement.

(o)           “Company Mandatory Redemption
Premium” means (i) 118.3%, if the Company Full Mandatory Redemption
is pursuant to the first Triggering Date or (ii) 109.15%, if the Company Full
Mandatory Redemption is pursuant to the second Triggering Date.

(p)           “Company Mandatory
Redemption Price” means a price equal to the sum of (i) the
applicable Holder Redemption Amount as to which the Company elected the Company
Full Mandatory Redemption and (ii) the Company Mandatory Redemption Premium
multiplied by the Company Put Amount.

(q)           “Company Put Amount”
means the difference between (i) the outstanding Principal amount under this
Note plus all accrued and unpaid Interest and Late Charges, if any, on such
Principal and Interest plus any other amounts due and owing under this Note and
(ii) the applicable Holder Redemption Amount as to which the Company elected
the Company Full Mandatory Redemption.

(r)            “Contingent Obligation”
means, as to any Person, any direct or indirect liability, contingent or
otherwise, of that Person with respect to any Indebtedness, lease, dividend or
other obligation of another Person if the primary purpose or intent of the
Person incurring such liability, or the primary effect thereof, is to provide
assurance to the obligee of such liability that such liability will be paid or
discharged, or that any agreements relating thereto

29

will be complied with, or that the holders of such
liability will be protected (in whole or in part) against loss with respect
thereto.

(s)           “Convertible Securities”
means any stock or securities (other than Options) directly or indirectly
convertible into or exercisable or exchangeable for Common Stock.

(t)            “Eligible Market”
means the Principal Market, The New York Stock Exchange, Inc., the American Stock
Exchange, the Nasdaq National Market or The Nasdaq Capital Market, or any
market that is a successor to any of the foregoing.

(u)           “Equity Conditions”
means that each of the following conditions is satisfied:  (i) on each day during the period beginning
six (6) month prior to the applicable date of determination (but in any event
not prior to the Closing Date) and ending on and including the applicable date
of determination (the “Equity Conditions
Measuring Period”), either (x) any Registration Statement required
to be filed during the Equity Conditions Measuring Period pursuant to the
Registration Rights Agreement shall be filed during the Equity Conditions
Measuring Period, and any Registration Statement required to be effective
during the Equity Conditions Measuring Period pursuant to the Registration
Rights Agreement shall be effective and available for the resale of the
Registrable Securities required to be covered thereunder in accordance with the
terms of the Registration Rights Agreement and there shall not have been any
Grace Periods (as defined in the Registration Rights Agreement or (y) all of
the Registrable Securities required to be covered by the Registration
Statements required to be effective during the Equity Conditions Measuring
Period pursuant to the Registration Rights Agreement shall be eligible for sale
without restriction and without the need for registration under any applicable
federal or state securities laws; (ii) on each day during the Equity Conditions
Measuring Period, the Common Stock is designated for quotation on the Principal
Market or any other Eligible Market and shall not have been suspended from
trading on such exchange or market (other than suspensions of not more than
five (5) days provided that no such suspensions have occurred in the thirty
(30) days immediately prior to the applicable date of determination) nor shall
delisting or suspension by such exchange or market been threatened or pending
either (A) in writing by such exchange or market or (B) by falling below the
then effective minimum listing maintenance requirements of such exchange or
market; (iii) during the Equity Conditions Measuring Period, the Company shall
have delivered shares of Common Stock upon conversion of the Notes and upon
exercise of the Warrants to the holders on a timely basis as set forth in
Section 3(c)(ii) hereof (and analogous provisions under the Other Notes) and
Section 1(a) of the Warrants other than pursuant to the limitations in Section
3(d) hereof and analogous provisions under the Other Notes and Warrants; (iv)
any applicable shares of Common Stock to be issued in connection with the event
requiring determination may be issued in full without violating Section 3(d)
hereof and the rules or regulations of the Principal Market or any applicable
Eligible Market; (v) the Company shall not have failed to timely make any
payments within five (5) Business Days of when such payment is due pursuant to
any Transaction Document; (vi) during the Equity Conditions Measuring Period,
there shall not have occurred either (A) the public announcement of a pending,
proposed or intended Fundamental Transaction which has not been abandoned,
terminated or consummated, or (B) an Event of Default or (C) an event that with
the passage of time or giving of notice would constitute an Event of Default;
(vii) the Company shall have no

 

30

 

 

knowledge of any fact that would cause (x) the
Registration Statements required pursuant to the Registration Rights Agreement
not to be effective and available for the resale of the Registrable Securities
required to be covered thereunder in accordance with the terms of the
Registration Rights Agreement or (y) any shares of Common Stock issuable upon
conversion of the Notes and shares of Common Stock issuable upon exercise of
the Warrants not to be eligible for sale without restriction pursuant to Rule
144(k) and any applicable state securities laws; (viii) the Company otherwise
shall have been in material compliance with and shall not have materially
breached any provision, covenant, representation or warranty of any Transaction
Document and (ix) if required by the terms of the Securities Purchase
Agreement, the Company shall have obtained the Stockholder Approval on or
before the applicable Stockholder Meeting Deadline (as defined in the
Securities Purchase Agreement).

(v)           “Equity Conditions
Failure” means that (i) on any day during the period commencing ten
(10) Trading Days prior to the applicable Interest Notice Date through the
applicable Interest Date, (ii) on any day during the period commencing ten (10)
Trading Days prior to the applicable Conversion Date through the applicable
Share Delivery Date, or (iii) on any day during the period commencing ten (10)
Trading Days prior to the applicable Company Mandatory Redemption Notice Date
through the applicable Company Mandatory Redemption Date, the Equity Conditions
have not been satisfied (or waived in writing by the Holder).

(w)          “Equity Value Redemption
Premium” means for any Change of Control Notice or Event of Default
Notice, as applicable, delivered or required to be delivered in connection with
a Change of Control or Event of Default, as applicable, 130%; provided,
however, that, in connection with any Change of Control in which the Change of
Control Consideration equals or exceeds 200% of the Conversion Price then in
effect, then the Equity Value Redemption Premium shall equal 120%.

(x)            “Excluded Distribution”
means the distribution by the Company pro rata to its then-existing
shareholders of not more than 200,000 shares of common stock (subject to
proportional adjustment with respect to any subdivision or combination thereof)
of Redrock Energy, Inc. (f/k/a Redrock oil Sands, Inc.) (“Redrock Energy”)  in connection with the registration of
common stock (or the issuance thereof) of Redrock Energy under the 1933 Act
and/or the 1934 Act and the listing of the common stock of Redrock Energy on a
national securities exchange or market or the OTC Bulletin Board.

(y)           “Excluded Securities”
means any Common Stock issued or issuable: (i) in connection with any Approved
Stock Plan; (ii) upon conversion of the Notes or the exercise of the Warrants;
(iii) in connection
with the payment of any Interest Shares on the Notes; (iv) upon
exercise of any Options or Convertible Securities which are outstanding, or
that are subject to a written agreement as to their issuance that is listed on a schedule to the
Securities Purchase Agreement, (v) in an amount not to exceed 250,000
shares of Common Stock in the aggregate pursuant to a judgment or settlement in connection
with (i) the PIN Financial Matter or (ii) the UOS Energy Matter including,
without limitation, Common Stock issuable pursuant to Options granted or
Convertible Securities issued pursuant to such judgment or settlement; and (vi)
otherwise pursuant to a written agreement that is listed on a schedule to the
Securities Purchase Agreement, provided that the terms of conversion price,
exchange price, exercise or 

31

other purchase price is not reduced, and the number
of shares of Common Stock issued or issuable is not increased, by virtue of any
amendment, modification or change to such Options or Convertible Securities or
written agreements after the Closing Date.

(z)            “Fundamental
Transaction” means that the Company shall,
directly or indirectly, in one or more related transactions, (i) consolidate or
merge with or into (whether or not the Company is the surviving corporation)
another Person or Persons, or (ii) sell, assign, transfer, convey or otherwise
dispose of all or substantially all of the properties or assets of the Company
to another Person, or (iii) allow another Person (other than
the Holder) to make a purchase, tender or exchange offer that is accepted by
the holders of more than 50% of the outstanding shares of Voting Stock (not including any shares of Voting Stock held by the Person or
Persons making or party to, or associated or affiliated with the Persons making
or party to, such purchase, tender or exchange offer), or (iv) consummate a
stock purchase agreement or other business combination (including,
without limitation, a reorganization, recapitalization, spin-off or scheme of
arrangement) with another Person
whereby such other Person acquires more than the 50% of the
outstanding shares of Voting Stock (not
including any shares of Voting Stock held by the other Person or other Persons
making or party to, or associated or affiliated with the other Persons making
or party to, such stock purchase agreement or other business
combination), or (v) reorganize, recapitalize
or reclassify its Common Stock or (vi) any “person” or
“group” (as these terms are used for purposes of Sections 13(d) and 14(d) of
the Exchange Act) is or shall become the “beneficial owner” (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of 50% of the aggregate
Voting Stock of the Company; provided, however, that a Fundamental Transaction
shall not include any of the transactions above if entered into in order to
consummate a Company Full Mandatory Redemption.

(aa)         “GAAP” means
United States generally accepted accounting principles, consistently applied.

(bb)         “Holder Optional
Redemption Price” means an amount in cash equal to 100% of the
Holder Redemption Amount.

(cc)         “Holder Pro Rata Amount”
means a fraction (i) the numerator of which is the Principal amount of this
Note on the Closing Date and (ii) the denominator of which is the aggregate
principal amount of all Notes issued pursuant to the Securities Purchase
Agreement on the Closing Date.

(dd)         “Indebtedness”
of any Person means, without duplication (i) all indebtedness for borrowed
money, (ii) all obligations issued, undertaken or assumed as the deferred
purchase price of property or services, including (without limitation) “capital
leases” in accordance with GAAP (other than trade payables entered into in the
ordinary course of business), (iii) all reimbursement or payment obligations
with respect to letters of credit, surety bonds and other similar instruments,
(iv) all obligations evidenced by notes, bonds, debentures or similar
instruments, including obligations so evidenced incurred in connection with the
acquisition of property, assets or businesses, (v) all indebtedness created or
arising under any conditional sale or other title retention agreement, or
incurred as financing, in either case with respect to any property or assets
acquired with the proceeds of such indebtedness (even though

32

the rights and remedies of the seller or bank under
such agreement in the event of default are limited to repossession or sale of such
property), (vi) all monetary obligations under any leasing or similar
arrangement which, in connection with GAAP, consistently applied for the
periods covered thereby, is classified as a capital lease, (vii) all
indebtedness referred to in clauses (i) through (vi) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any mortgage, lien, pledge, charge, security
interest or other encumbrance upon or in any property or assets (including
accounts and contract rights) owned by any Person, even though the Person which
owns such assets or property has not assumed or become liable for the payment
of such indebtedness, and (viii) all Contingent Obligations in respect of
indebtedness or obligations of others of the kinds referred to in clauses (i)
through (vii) above.

(ee)         “Interest Conversion Price”
means, with respect to any Interest Date or Conversion Date, that price which
shall be the lower of (i) the applicable Conversion Price and (ii) the price
computed as 82.5% of the arithmetic average of the Weighted Average Price of
the Common Stock on each of the five (5) consecutive Trading Days ending on the
Trading Day immediately preceding the applicable Interest Date or Share
Delivery Date, as applicable (each, an “Interest
Measuring Period”).  All such
determinations to be appropriately adjusted for any stock split, stock
dividend, stock combination or other similar transaction that proportionately
decreases or increases the Common Stock during the applicable Interest
Measuring Period.

(ff)           “Interest Notice Due Date”
means the tenth (10th) Trading Day prior to the
applicable Interest Date.

(gg)         “Interest
Rate” means, 9.15% per annum,
subject to adjustment as set forth in Section 2(c) hereof.

(hh)           “New Notes” means the Senior Secured
Convertible Notes issued to each of the Buyers (as defined in the Amendment
Agreements) on October 31, 2007 pursuant to the Securities Purchase Agreement.

(ii)           “Options”
means any rights, warrants or options to subscribe for or purchase shares of
Common Stock or Convertible Securities.

(jj)           “Other Amended Notes”
means the other Amended and Restated Notes (as defined in the Amendment
Agreements) issued to the Other Buyers (as defined in the Amendment Agreements)
with an original issuance date of July 25, 2006, as amended and restated on
October 31, 2007 pursuant to the Securities Purchase Agreement.

(kk)         “Other Notes”
means the Other Amended Notes and the New Notes.

(ll)           “Parent Entity”
of a Person means an entity that,
directly or indirectly, controls the applicable Person and whose common stock or
equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the
Person or Parent 

33

Entity with the
largest public market capitalization as of the date of consummation of the
Fundamental Transaction.

(mm)       “Partial Company Redemption
Price” means an amount in cash equal to 100% of the Partial Company
Redemption Amount.

(nn)         “Permitted Indebtedness”
means (i) Indebtedness evidenced by this Note and the Other Notes; (ii)
Indebtedness described on Schedule 3(s) to the Securities Purchase Agreement;
(iii) Indebtedness evidenced by surety bonds, bids, statutory obligations,
performance bonds, and similar obligations (exclusive of obligations for the
payment of borrowed money) obtained by the Company and its Subsidiaries in the
ordinary course of business for the purpose of satisfying federal, state and/or
local legal requirements for owning or operating oil and gas properties; (iv)
Indebtedness incurred solely for the purpose of financing the acquisition or
lease of any Equipment (as defined in the Security Agreement) by the Company or
any of its Subsidiaries, including Capital Lease Obligations with no recourse
other than to such Equipment; (v) Indebtedness (A) the repayment of which has
been subordinated to the payment of the Notes on terms and conditions
acceptable to the Buyers, including with regard to interest payments and
repayment of principal, (B) which does not mature or otherwise require or
permit redemption or repayment prior to or on the 91st day after the
Maturity Date of any Notes then outstanding; and (C) which is not secured by
any assets of the Company or any of its Subsidiaries; (vi) Indebtedness solely
between the Company and/or one of its domestic Subsidiaries, on the one hand,
and the Company and/or one of its domestic Subsidiaries, on the other which
Indebtedness is not secured by any assets of the Company or any of its
Subsidiaries, provided that (x) in each case a majority of the equity of any
such domestic Subsidiary is directly or indirectly owned by the Company, such
domestic Subsidiary is controlled by the Company and such domestic Subsidiary
has executed a guaranty in the form of the Guaranty and a security agreement in
the form of the Security Agreement and (y) any such loan shall be
evidenced by an intercompany note that is pledged by the Company or its
Subsidiary, as applicable, as Collateral (as defined in the Security Agreement)
pursuant to the Security Documents (as defined in the Securities Purchase
Agreement); (vii) reimbursement obligations in respect of letters of credit issued
for the account of the Company or any of its Subsidiaries for the purpose of
securing performance obligations of the Company or its Subsidiaries incurred in
the ordinary course of business so long as the aggregate face amount of all
such letters of credit does not exceed $250,000 at any one time; and (viii) renewals,
extensions and refinancing of any Indebtedness described in clauses (i) or (iv)
of this subsection.

(oo)         “Permitted Liens”
means (i) any Lien for taxes or other governmental charges not yet due or
delinquent or being contested in good faith by appropriate proceedings for
which adequate reserves have been established in accordance with GAAP; (ii) any
statutory Lien arising in the ordinary course of business by operation of law
with respect to a liability that is not yet due or delinquent or being contested
in good faith by appropriate proceedings for which adequate reserves have been
established in accordance with GAAP; (iii) Liens arising in the ordinary course
of business in favor of carriers, warehousemen, mechanics, materialmen and
landlords or other similar Liens imposed by law, which remain payable without
penalty or which are being contested in good faith by appropriate proceedings;
(iv) Liens arising in the ordinary course of business in connection with
worker’s compensation, unemployment 

34

compensation and other types of social security or
Liens consisting of cash collateral securing the Company’s or any of its
Subsidiaries’ performance of surety bonds, bids, statutory obligations,
performance bonds and similar obligations (exclusive of obligations for the
payment of borrowed money) described in clause (iii) of the definition of
Permitted Indebtedness and, in each case, for which the Company maintains
adequate reserves to the extent required by and in accordance with GAAP, (v)
Liens consisting of cash collateral securing the Company’s or its Subsidiaries’
reimbursement obligations under letters of credit permitted by clause (iv) of
the definition of Permitted Indebtedness; (vi) Liens (A) upon or in any
Equipment (as defined in the Security Agreement) acquired or held by the
Company or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition or lease of such equipment, including Capital Lease Obligations and
purchase money indebtedness, or (B) existing on such equipment at the time of
its acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment; (vii)
Liens existing to secure indebtedness of the Company and its Subsidiaries in
the amounts owing to YA Global Investments, L.P. (f/k/a Cornell Capital
Partners, L.P.) as of the Closing Date; (viii) Liens incurred in connection with
the extension, renewal or refinancing of the indebtedness secured by Liens of
the type described in clauses (vi) and (vii) above, provided that any
extension, renewal or replacement Lien shall be limited to the property
encumbered by the existing Lien and the principal amount of the Indebtedness
being extended, renewed or refinanced does not increase; (ix) leases or
subleases and licenses and sublicenses granted to others in the ordinary course
of the Company’s or any of its Subsidiaries’ business, not interfering in any
material respect with the business of the Company and its Subsidiaries taken as
a whole; (x) easements, rights of way, restrictions, minor defects or
irregularities in title and other similar Liens arising in the ordinary course
of business and not materially detracting from the value of the property
subject thereto and not interfering in any material respect with the ordinary
conduct of the business of the Company or any of its Subsidiaries; (xi) in
respect of real properties owned or leased by the Company or any of its
Subsidiaries, royalties, overriding royalties and other burdens of record;
(xii) Liens granted to operators pursuant to operating agreements entered into
in the ordinary course of business; (xiii) Liens in favor of customs and
revenue authorities arising as a matter of law to secure payments of custom
duties in connection with the importation of goods; (xiv) Liens arising from
judgments, decrees or attachments in circumstances not constituting an Event of
Default under Section 4(a)(ix); (xv) Liens arising solely by virtue of any
statutory or common law provision relating to banker’s liens, rights of set-off
or similar rights and remedies and burdening only deposit accounts or other
funds maintained with a creditor depository institution; and (xvi) Liens
created in favor of the holders of the Notes and the Collateral Agent pursuant
to the Security Documents.

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

(qq)         “PIN Financial Matter”  means the matter pending in the US District Court, Southern
District of New York (06 CV 2779) against the Company by PIN Financial LLC
claiming a commission for introduction to Cornell Capital, which has been
aggressively denied and disputed by both Wentworth and Cornell Capital.

35

(rr)           “Principal Market”
means the OTC Bulletin Board.

(ss)         “Redemption Notices”
means, collectively, the Event of Default Redemption Notice, the Change of
Control Redemption Notice, the Holder Optional Redemption Notice, the Company
Redemption Notice and the Company Mandatory Redemption Notice, each of the
foregoing, individually, a Redemption Notice.

(tt)           “Redemption Premium”
means (i) in the case of the Events of Default described in Section 4(a)(i) -
(vi) and (ix) - (xii), (A) 125%, if the Event of Default occurs on or before
the first (1st) anniversary of the Closing Date, (B) 120%, if the Event of
Default occurs after the first (1st) anniversary of the Closing Date and on or
before the second (2nd) anniversary of the Closing Date, and (C) 115%, if the
Event of Default occurs after the second (2nd) anniversary of the Closing Date,
(ii) in the case of the Events of Default described in Section 4(a)(vii) -
(viii), 100% or (iii) in the case of the Event of Default described in Section
4(a)(xiii), 200%.

(uu)         “Redemption Prices”
means, collectively, the Event of Default Redemption Price, the Change of
Control Redemption Price, the Holder Optional Redemption Price, the Partial
Company Redemption Price, and the Company Mandatory Redemption Price, each of
the foregoing, individually, a Redemption Price.

(vv)         “Registration Rights Agreement” means that certain Amended and Restated Registration Rights
Agreement dated as of October 31, 2007 by and among the Company and the buyers
party thereto, the same may be amended, modified or supplemented from time to
time.

(ww)       “Required Holders”
means the holders of Notes representing at least a majority of the aggregate
principal amount of the Notes then outstanding.

(xx)          “SEC” means
the United States Securities and Exchange Commission.

(yy)         “Securities Purchase Agreement” means that certain securities purchase agreement, dated as of
July 24, 2006, by and among the Company and the “Buyers” party thereto, as
amended on or prior to the date hereof (including as amended by the Amendment
Agreements), and as the same may be further amended, modified or supplemented
from time to time.

(zz)          “Series B Warrants”
means the “Amended and Restated
Series B Warrants” and the “New Series B Warrant”, as each of the those terms are
defined in the Securities Purchase Agreement.

(aaa)       “Successor Entity”
means the Person, which may be the
Company, formed by, resulting from or surviving any Fundamental Transaction or
the Person with which such Fundamental Transaction shall have been made,
provided that if such Person is not a publicly traded entity whose
common stock or equivalent equity security is quoted or listed for trading on
an Eligible Market, Successor Entity shall mean such Person’s Parent Entity.

36

(bbb)      “Trading Day”
means any day on which the Common Stock is traded on the Principal Market, or,
if the Principal Market is not the principal trading market for the Common
Stock, then on the principal securities exchange or securities market on which
the Common Stock is then traded; provided that “Trading Day” shall not include
any day on which the Common Stock is scheduled to trade on such exchange or
market for less than 4.5 hours or any day that the Common Stock is suspended
from trading during the final hour of trading on such exchange or market (or if
such exchange or market does not designate in advance the closing time of
trading on such exchange or market, then during the hour ending at 4:00:00
p.m., New York Time).

(i)            “Trading Price”
means, for any given date, the arithmetic average of the Weighted Average Price
of the Common Stock during the five (5) consecutive Trading Day period ending
on the Trading Day immediately prior to such given date, as appropriately
adjusted for any stock split, stock dividend, stock combination or other
similar transaction that proportionately decreases or increases the Common
Stock during such period.

(ii)           “Triggering Date”
means each of October 31, 2008 and October 31, 2009.

(iii)          “UOS Energy Matter”
means, the matter pending in the Superior Court of California, County of Los
Angeles, West District (SC09064) against the Company and others by UOS Energy,
LLC relating to the Company’s refusal to purchase certain tar sands leases in
Utah in consideration of 1,000,000 shares of Common Stock.

(ccc)       “Volume
Limitation” means 15% of the aggregate dollar trading volume
(as reported on Bloomberg) of the Common Stock on the Principal Market over the
twenty (20) consecutive Trading Day period immediately prior to the applicable
Interest Notice Date.

(ddd)      “Voting Stock” of a Person means
capital stock of such Person of the class or classes pursuant to which the
holders thereof have the general voting power to elect, or the general power to
appoint, at least a majority of the board of directors, managers or trustees of
such Person (irrespective of whether or not at the time capital stock of any
other class or classes shall have or might have voting power by reason of the
happening of any contingency).

(eee)       “Warrants” has
the meaning ascribed to such term in the Securities Purchase Agreement, and
shall include all warrants issued in exchange therefor or replacement thereof.

(fff)         “Weighted Average Price” means, for any security as of any date, the dollar
volume-weighted average price for such security on the Principal Market during
the period beginning at 9:30:01 a.m., New York Time (or such other time as the
Principal Market publicly announces is the official open of trading), and
ending at 4:00:00 p.m., New York Time (or such other time as the Principal
Market publicly announces is the official close of trading) as reported by
Bloomberg through its “Volume at Price” functions, or, if the foregoing does
not apply, the dollar volume-weighted average price of such security in the
over-the-counter market 

37

on the electronic bulletin board for such security
during the period beginning at 9:30:01 a.m., New York Time (or such other time
as such market publicly announces is the official open of trading), and ending
at 4:00:00 p.m., New York Time (or such other time as such market publicly
announces is the official close of trading) as reported by Bloomberg, or, if no
dollar volume-weighted average price is reported for such security by Bloomberg
for such hours, the average of the highest closing bid price and the lowest
closing ask price of any of the market makers for such security as reported in
the “pink sheets” by Pink Sheets LLC (formerly the National Quotation Bureau,
Inc.).  If the Weighted Average Price
cannot be calculated for a security on a particular date on any of the
foregoing bases, the Weighted Average Price of such security on such date shall
be the fair market value as mutually determined by the Company and the
Holder.  If the Company and the Holder
are unable to agree upon the fair market value of such security, then such
dispute shall be resolved pursuant to Section 23.  All such determinations to be appropriately
adjusted for any stock dividend, stock split, stock combination or other
similar transaction during the applicable calculation period.

(30)         DISCLOSURE. Upon receipt or
delivery by the Company of any notice in accordance with the terms of this
Note, unless the Company has in good faith determined that the matters relating
to such notice do not constitute material, nonpublic information relating to
the Company or its Subsidiaries, the Company shall within one (1) Business Day
after any such receipt or delivery publicly disclose such material, nonpublic
information on a Current Report on Form 8-K or otherwise.  In the event that the Company believes that a
notice contains material, nonpublic information relating to the Company or its
Subsidiaries, the Company so shall indicate to such Holder contemporaneously
with delivery of such notice, and in the absence of any such indication, the
Holder shall be allowed to presume that all matters relating to such notice do
not constitute material, nonpublic information relating to the Company or its
Subsidiaries.

[Signature Page Follows]

 

38

 

IN
WITNESS WHEREOF, the Company has caused this Note to be duly
executed as of the Issuance Date set out above.

 

	
   

  	
  WENTWORTH ENERGY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

EXHIBIT
I

WENTWORTH ENERGY, INC.

CONVERSION NOTICE

Reference is made to the
Amended and Restated Senior Secured Convertible Note (the “Note”) issued to the undersigned by
Wentworth Energy, Inc. (the “Company”).  In accordance with and pursuant to the Note,
the undersigned hereby elects to convert the Conversion Amount (as defined in
the Note) of the Note indicated below into shares of Common Stock par value
$0.001 per share (the “Common Stock”)
of the Company, as of the date specified below.

	
  Date of Conversion:

  	
   

  
	
   

  
	
  Aggregate Conversion Amount to be converted:

  	
   

  
	
   

  
	
  Please confirm the following information:

  
	
   

  
	
  Conversion Price:

  	
   

  
	
   

  
	
  Number
  of shares of Common Stock to be issued:

  	
   

  
	
   

  	
   

  
	
  Please issue the Common
  Stock into which the Conversion Amount of the Note is being converted in the
  following name and to the following address:

  
	
   

  
	
  Issue to:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  
	
  Facsimile Number:

  	
   

  
	
   

  
	
  Authorization:

  	
   

  
	
   

  
	
  By:

  	
   

  
	
   

  
	
         Title:

  	
   

  
	
   

  
	
  Dated:

  	
   

  
	
   

  
	
  Account Number:

  	
   

  
	
    (if electronic book entry transfer)

  
	
   

  
	
  Transaction Code Number:

  	
   

  
	
    (if electronic book entry transfer)

  
										

ACKNOWLEDGMENT

The Company hereby acknowledges
this Conversion Notice and hereby directs Empire Stock Transfer Inc. to issue the above indicated number of
shares of Common Stock in accordance with the Transfer Agent Instructions dated
July 24, 2006 from the Company and acknowledged and agreed to by Empire Stock Transfer Inc, as amended.

 

	
   

  	
  WENTWORTH ENERGY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00131-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00131-of-00352.parquet"}]]