Document:

Exhibit
10.1

 

 

 

Option
Agreement

By
and Between

TEXCAL
ENERGY SOUTH TEXAS, L.P.

(“Optionor”)

and

DENBURY
ONSHORE, LLC

(“Optionee”)

dated

November
1, 2006

 

 

 

TABLE
OF CONTENTS

	
   

  	
   

  	
   

  	
   

  	
  Page

  
	
  ARTICLE 1

  	
   

  	
  DEFINITIONS

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 2

  	
   

  	
  OPTION TO PURCHASE

  	
   

  	
  13

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.1

  	
   

  	
  Option
  to Purchase

  	
   

  	
  13

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.2

  	
   

  	
  Term
  of Option

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.3

  	
   

  	
  Initial Term
  Installments

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.4

  	
   

  	
  Exercise of
  Option to Purchase

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.5

  	
   

  	
  Payment for Assets

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.6

  	
   

  	
  Closing

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.7

  	
   

  	
  Development
  Plan and Capital Expenditure Commitment

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 3

  	
   

  	
  OPERATIONS

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.1

  	
   

  	
  Operations of
  Hastings Field Prior to Exercise of Option

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.2

  	
   

  	
  Operations
  After Option Exercise

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.3

  	
   

  	
  Simultaneous
  Use of Surface

  	
   

  	
  18

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 4

  	
   

  	
  OPTIONOR’S
  REPRESENTATIONS AND WARRANTIES

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 5

  	
   

  	
  OPTIONEE’S
  REPRESENTATIONS AND WARRANTIES

  	
   

  	
  21

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 6

  	
   

  	
  ACCESS TO
  INFORMATION AND INSPECTIONS

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.1

  	
   

  	
  Title
  Files

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.2

  	
   

  	
  Other
  Files

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.3

  	
   

  	
  Confidentiality
  Agreement

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.4

  	
   

  	
  Inspections

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.5

  	
   

  	
  No Warranty or
  Representation on Optionor’s Information

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.6

  	
   

  	
  Amendments to
  Exhibits

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 7

  	
   

  	
  ENVIRONMENTAL
  MATTERS AND ADJUSTMENTS

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.1

  	
   

  	
  Investigation

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.2

  	
   

  	
  Waiver
  of Defects

  	
   

  	
  25

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.3

  	
   

  	
  Remedy
  

  	
   

  	
  25

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.4

  	
   

  	
  Default
  Basket

  	
   

  	
  25

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.5

  	
   

  	
  Closing

  	
   

  	
  26

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 8

  	
   

  	
  TITLE DEFECTS
  AND ADJUSTMENTS

  	
   

  	
  26

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.1

  	
   

  	
  Existing Title;
  Definitions

  	
   

  	
  26

  

 

 i
 

 

 

	
  8.2

  	
   

  	
  Notice of Title
  Defects

  	
   

  	
  29

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.3

  	
   

  	
  Title Defect
  Adjustment

  	
   

  	
  30

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.4

  	
   

  	
  Environmental
  Defect and Title Defect Values

  	
   

  	
  31

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.5

  	
   

  	
  Title
  Warranty

  	
   

  	
  32

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 9

  	
   

  	
  PREFERENTIAL
  PURCHASE RIGHTS AND CONSENTS OF THIRD PARTIES

  	
   

  	
  33

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.1

  	
   

  	
  Actions and Consents

  	
   

  	
  33

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 10

  	
   

  	
  COVENANTS OF
  OPTIONOR AND OPTIONEE

  	
   

  	
  34

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.1

  	
   

  	
  Covenants of
  Optionor Pending Closing

  	
   

  	
  34

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.2

  	
   

  	
  Limitations on
  Optionor’s Covenants Pending Closing

  	
   

  	
  35

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.3

  	
   

  	
  Covenents of
  Optionee Following Exercise of Option

  	
   

  	
  36

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.4

  	
   

  	
  Hastings Field
  Call on CO2

  	
   

  	
  36

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.5

  	
   

  	
  Ownership
  of CO2

  	
   

  	
  36

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.6

  	
   

  	
  Environmental
  Liabilities Related to Events and Activities Occuring Prior to October 1,
  2004

  	
   

  	
  36

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 11

  	
   

  	
  CLOSING CONDITIONS

  	
   

  	
  37

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  11.1

  	
   

  	
  Optionor’s
  Closing Conditions

  	
   

  	
  37

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  11.2

  	
   

  	
  Optionee’s
  Closing Conditions

  	
   

  	
  37

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 12

  	
   

  	
  CLOSING

  	
   

  	
  38

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.1

  	
   

  	
  Closing

  	
   

  	
  38

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.2

  	
   

  	
  Optionor’s
  Closing Obligations

  	
   

  	
  38

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.3

  	
   

  	
  Optionee’s
  Closing Obligations

  	
   

  	
  39

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.4

  	
   

  	
  Joint Closing
  Obligations

  	
   

  	
  39

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.5

  	
   

  	
  Final
  Settlement/Purchase Price Adjustments

  	
   

  	
  41

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 13

  	
   

  	
  LIMITATIONS ON
  WARRANTIES AND REMEDIES

  	
   

  	
  41

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 14

  	
   

  	
  CASUALTY LOSS
  AND CONDEMNATION

  	
   

  	
  42

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 15

  	
   

  	
  DEFAULT AND
  REMEDIES

  	
   

  	
  42

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  15.1

  	
   

  	
  Optionor’s Remedies

  	
   

  	
  42

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  15.2

  	
   

  	
  Optionee’s Remedies

  	
   

  	
  42

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  15.3

  	
   

  	
  Effect of Termination

  	
   

  	
  42

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 16

  	
   

  	
  ASSUMPTION AND
  INDEMNITY

  	
   

  	
  42

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  16.1

  	
   

  	
  Asumed
  Obligations; Pre-Closing Liabilities

  	
   

  	
  42

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  16.2

  	
   

  	
  Optionee’s Indemnity

  	
   

  	
  43

  

 

 ii
 

 

 

	
  16.3

  	
   

  	
  Optionor’s Indemnity

  	
   

  	
  43

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  16.4

  	
   

  	
  Negligence

  	
   

  	
  44

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  16.5

  	
   

  	
  Broker or Finder’s Fee

  	
   

  	
  44

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  16.6

  	
   

  	
  Threshold and
  Maximum Amounts

  	
   

  	
  44

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  16.7

  	
   

  	
  Claim
  Procedures

  	
   

  	
  44

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 17

  	
   

  	
  GAS IMBALANCES

  	
   

  	
  45

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 18

  	
   

  	
  PREFERENTIAL
  RIGHT TO PURCHASE AND AREA OF MUTUAL INTEREST PROVISION

  	
   

  	
  46

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  18.1

  	
   

  	
  Preferential
  Right to Purchase

  	
   

  	
  46

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  18.2

  	
   

  	
  Area of Mutual
  Interest Provision

  	
   

  	
  47

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE 19

  	
   

  	
  MISCELLANEOUS

  	
   

  	
  49

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  19.1

  	
   

  	
  Receivables
  and other Excluded Funds

  	
   

  	
  49

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  19.2

  	
   

  	
  Public Announcements

  	
   

  	
  49

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  19.3

  	
   

  	
  Filing and
  Recording of Assignments, etc

  	
   

  	
  50

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  19.4

  	
   

  	
  Further
  Assurances and Records

  	
   

  	
  50

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  19.5

  	
   

  	
  Notices

  	
   

  	
  51

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  19.6

  	
   

  	
  Incidental Expenses

  	
   

  	
  52

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  19.7

  	
   

  	
  Waiver

  	
   

  	
  52

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  19.8

  	
   

  	
  Binding Effect;
  Assignment

  	
   

  	
  53

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  19.9

  	
   

  	
  Taxes

  	
   

  	
  53

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  19.10

  	
   

  	
  Audits

  	
   

  	
  54

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  19.11

  	
   

  	
  Governing
  Law

  	
   

  	
  54

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  19.12

  	
   

  	
  Mediation and
  Arbitration

  	
   

  	
  54

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  19.13

  	
   

  	
  Entire Agreement

  	
   

  	
  54

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  19.14

  	
   

  	
  Severability

  	
   

  	
  54

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  19.15

  	
   

  	
  Exhibits

  	
   

  	
  55

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  19.16

  	
   

  	
  Survival

  	
   

  	
  55

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  19.17

  	
   

  	
  Subsequent
  Adjustments

  	
   

  	
  55

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  19.18

  	
   

  	
  Counterparts

  	
   

  	
  55

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  19.19

  	
   

  	
  Subrogation

  	
   

  	
  55

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  19.20

  	
   

  	
  Suspended Monies

  	
   

  	
  56

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  19.21

  	
   

  	
  Optionee as Operator

  	
   

  	
  56

  

 

 

 

 iii

 

OPTION
AGREEMENT

                This
Option Agreement (“Agreement”), dated as of 
November 1, 2006, is by and between TexCal Energy South Texas,
L.P. whose address is
1021 Main Street, Suite 2500, Houston, Texas 77002 (“Optionor”), and Denbury Onshore, LLC, whose address is
5100 Tennyson Parkway, Suite 1200, Plano, Texas 75024 (“Optionee”).  Optionor and Optionee are sometimes together
referred to herein as “Parties”.

R E C I T A L S

                WHEREAS,
Optionor owns certain oil and gas leasehold interests and related assets more
fully described on the exhibits hereto; and

                WHEREAS,
Optionor desires to grant, and Optionee desires to acquire, the right and
option to purchase these interests and related assets on the terms and
conditions hereinafter provided;

                NOW,
THEREFORE, in consideration of the mutual covenants and agreements hereinafter
set forth, Optionor and Optionee hereby agree as follows:

ARTICLE 1. - DEFINITIONS

1.1.         “Acquiring
Party” has the meaning specified in Section
18.2(b).

1.2.         “Agreement”
shall mean this Option Agreement between Optionor and Optionee.

1.3.         “Agreement
Effective Time” shall mean 7:00 a.m., Central Standard Time,
on November 1, 2006.

1.4.        
“Area of Mutual Interest” has the meaning specified in Section 18.2(a)

1.5.         “Asset
Operating Expense” has the meaning specified in Section 2.5(b)(i)(3).

1.6.         “Asset
Payout Amount” has the meaning specified in Section
1.26(d)(4).

1.7.         “Assets”
shall mean the following described assets and properties (except to the extent
constituting Excluded Assets):

(a)           the
Leases;

(b)           the
Personal Property and Incidental Rights;

(c)           the
Inventory Hydrocarbons;

 

 1

 

(d)           the West Hastings Unit; and

(e)           the East Hastings Field.

1.8.         “Assumed Obligations”
shall mean with respect to the Assets:

(a)           all Environmental Obligations or
Liabilities (i) related to, or arising from, events first occurring after
the Exercise Effective Time, and (ii) related to, or arising from, events
first occurring or in existence prior to October 1, 2004, to the extent and as
set out in Section 10.6;

(b)           all obligations with respect to gas
production, sales or, subject to Article 17,
processing imbalances with third parties;

(c)           all liabilities, duties, and
obligations that arise out of the ownership, operation or use of the Assets
after the Exercise Effective Time, other than Environmental Obligations or
Liabilities, including, but not limited to, all liabilities, duties, and
obligations, express or implied, imposed upon Optionor herein under the
provisions of the Leases and any and all assignments, subleases, farmout
agreements, assignments of overriding royalty, joint operating agreements, easements,
rights-of-way, and all other contracts, agreements and instruments affecting
the Leases, or the premises covered thereby, whether recorded or unrecorded,
and under all applicable laws, rules, regulations, orders and ordinances,
excluding the claims and suits set forth in Exhibit
“H” and any claims or suits identified in the Option Exercise Notice
which relate to liabilities incurred after the Agreement Effective Time and
prior to Closing.

1.9.         “Capital Costs” has the meaning specified in
the definition of Excluded Assets.

1.10.       “Cash Payment” has the
meaning specified in Section 2.5.

1.11.       “Casualty Loss” has the meaning specified in
Article 14.

1.12.       “Claims” has the
meaning specified in Sections 16.2.

1.13.       “Closing” has the
meaning specified in Section 12.1.

1.14.       “Closing Date” has the meaning specified in Section 12.1

1.15.       “Conditions Precedent” has
the meaning specified in Section 2.1.

1.16.       “Consents” has the
meaning specified in Section 9.1(b)

1.17.       “Cure Period” has the
meaning specified in Section  8.3(a)

1.18.       “D&M” has the
meaning specified in Section 2.5(b)

1.19.       “D&M Report” has
the meaning specified in Section 2.5(b)

 2
 

 

 

1.20.       “Defensible Title”,
subject to and except for the Permitted Encumbrances has the meaning specified
in Section 8.1(a).

1.21.       “Designated Interest” shall
mean: (i) as to the West Hastings Unit, a working interest of 89.33682% and a
net revenue interest of 78.94105%; (ii) as to the East Hastings Field, a
working interest of 100% and a net revenue interest of 87.5%; (iii) as to a
Lease in the West Hastings Unit, the working interest and net revenue interest
set forth for such Lease in Exhibit “C”;
(iv) as to a Lease in the East Hastings Field, the working interest and net
revenue interest set forth for such Lease in Exhibit
“C”; as to a well in the West Hastings Unit, the working interest
and net revenue interest set forth for such well in Exhibit “B-1”; as to a well in the East Hastings Field, the
working interest and net revenue interest set forth for such well in Exhibit “B-2”; and, as to any other Asset,
the ownership interest of Optionor in such Asset to be conveyed to Optionee, less and except the Optionor’s reserved
overriding royalty interest as set forth in Section
1.27(a).  If following the
Agreement Effective  and prior to the
Option Exercise Date Optionor acquires additional interests in the Hastings
Field, the Designated Interests shall be adjusted to reflect such
acquisitions(s).  The Designated
Interests for all of the above Assets are referred to collectively as the “Designated
Interests.”

1.22.       “Development Plan” has
the meaning set forth in Section 2.7.

1.23.       “Environmental Defect Notice Date” has
the meaning set forth in Section  7.1.

1.24.       “Environmental or Title Defect Value” has
the meaning set forth in Section  8.4.

1.25.       “East Hastings Field” shall
refer to those lands falling within the geographic outline depicted on the plat
in Exhibit “D-1”.

1.26.       “Environmental Defect”
shall mean: (i) a condition or activity with respect to an Asset that is in
material violation, or reasonably likely to materially violate, any federal,
state or local statute, or any rule, order, ruling or regulation entered,
issued or made by any court, administrative agency, or other governmental body
or entity, federal, state, or local, or any arbitrator (“Environmental Law”), or surface or mineral
lease obligation relating to natural resources, conservation, the environment,
or the emission, release, storage, treatment, disposal, transportation,
handling or management of industrial or solid waste, hazardous waste, hazardous
or toxic substances, chemicals or pollutants, petroleum, including crude oil,
natural gas, natural gas liquids, or liquefied natural gas, and any wastes
associated with the exploration and production of oil and gas (“Regulated Substances”); or (ii) the
presence of Regulated Substances in the soil, groundwater, or surface water in,
on, at or under an Asset in any manner or quantity which is required to be
remediated by Environmental Law or by any applicable action or guidance levels
or other standards published by any governmental agency with jurisdiction over
the Assets, or by a surface or mineral lease obligation.  Optionee and Optionor agree that for a
condition to be in violation of any statute or regulation it 

 3
 

 

 

shall not be necessary that Optionor shall be under
notice of violation from a federal or state regulatory agency or lessor.

The Parties agree and acknowledge that Optionee will
be provided an opportunity to examine the Assets for potential naturally occurring
radioactive materials (“NORM”), and any potential obligations with respect to
NORM and that the presence of NORM on any of the Assets, except with respect to
inactive wells, facilities, pipelines and other equipment, may not be raised by
Optionee as the subject of an Environmental Defect.

1.27.       “Environmental Law”
shall be as defined in Section 1.26 above.

1.28.       “Environmental Obligations or Liabilities”
shall mean all liabilities, obligations, expenses (including, without
limitation, all attorneys’ fees), fines, penalties, costs, claims, suits or
damages (including natural resource damages) of any nature, associated with the
Assets, and attributable to or resulting from: 
(i) pollution or contamination of soil, groundwater or air, on, in or
under the Assets or lands in the vicinity thereof, and any other contamination
of or adverse effect upon the environment, (ii) underground injection
activities and waste disposal, (iii) clean-up responses, remedial, control or
compliance costs, including the required cleanup or remediation of spills,
pits, lakes, ponds, or lagoons, including any subsurface or surface pollution
caused by such spills, pits, lakes, ponds, or lagoons, (iv) noncompliance with
applicable land use, permitting, surface disturbance, licensing or notification
requirements, including those in a surface or mineral lease, whether an express
or implied obligation, (v) all obligations, whether pursuant to an
Environmental Law or a surface or mineral lease obligation, whether express or
implied, for plugging, replugging and abandoning any wells, the restoration of
any well sites, tank battery sites and gas plant sites, and any other surface
locations or sites, the proper removal, disposal and abandonment of any wastes
or fixtures, and the proper capping and burying of all flow lines, which are
included in the Assets; (vi) violation of any federal, state or local
Environmental Law or land use law, or surface or mineral lease obligation,
whether an express or implied obligation, and (vii) any other violation which
could qualify as an Environmental Defect. 
Notwithstanding anything to the contrary set forth in, or implied by,
this Section 1.28 “Environmental
Obligations or Liabilities” does not include (i) personal injury or wrongful
death occurring prior to the Exercise Effective Time or (ii) offsite waste
disposal occurring prior to the Exercise Effective Time.

1.29.       “Excluded Assets” shall
mean the following:

(a)           an overriding royalty interest from
the Exercise Effective Time in production from the Assets equal to an undivided
two percent of eight-eighths (2% of 8/8ths), which overriding royalty interest
shall be reserved by Optionor.  Said
reserved overriding royalty interest shall be free of (i) any and all costs and
expenses associated with the exploration, production or operation of wells
producing the Assets, and (ii) post production costs associated with removing
CO2 from the production stream,  and
shall be paid in the same manner as provided for with respect to lessors.  In the event Optionor exercises its option to
receive the Reversionary Interest set forth in Section 

 4
 

 

 

1.29(d) below, then
Optionor’s Reversionary Interest will bear its proportionate share of the
reserved overriding royalty interest.

(b)           all interests in the surface estate
in Hastings Field Lands, including but not limited to those described in Exhibits “A-5” and “A-6”;

(c)           all of Optionor’s leasehold, fee
mineral and royalty interests in the Hastings Field, as such interests relate
to horizons above the top of, and below the base of, the Frio Zone.

(d)           a reversionary working interest of an
undivided twenty-five percent (25%) in and to the Assets assigned hereunder,
(the “Reversionary Interest”), at such time as the Optionee has achieved
Payout.  “Payout” shall mean that point
in time when Optionee has received from Net Revenues from the Assets an amount
equal hundred percent (100%) of the sum of Operating Costs plus the  Payout Amount plus (ii) one hundred thirty
percent (130%) of all Capital Costs expended to conduct enhanced recovery
operations on the Assets.  It being the
intent of the Parties that the Optionor shall convey to Optionee at Closing the
Designated Interest (less Optionor’s reserved overriding royalty interest) as
to the Assets, subject to the Optionor’s Reversionary Interests.  Optionor’s Reversionary Interests as set
forth above will be proportionately adjusted 
Optionee’s actual working interest and/or net revenue interest,
respectively, acquired by virtue of this Agreement.  Subject to Optionor’s post Payout election as
provided in Section 1.26(d)(11) below, Optionor’s Reversionary Interests shall
automatically revert to the Optionor once Payout has been achieved, without any
further action on the part of the Optionor. 
Optionor’s Reversionary Interests will be effective on the first day of
the month next succeeding the point in time in which Payout has occurred.  Within thirty (30) days after Payout has
occurred, and subject to Optionor’s right to reject reversion, Optionee shall
provide Optionor with an Assignment of the Optionor’s Reversionary Interests,
which will be free and clear of all liens and encumbrances of any kind and
shall be substantially in the form of the Assignment and Conveyance attached
hereto as Exhibit “I”.

Calculation of
Payout and Optionor’s Reversionary Interests shall be subject to the following
additional terms and provisions:

(1)           As used herein, “Net Revenues” shall
mean with respect to the Assets, gross revenues from the Designated Interest
share of production from the Assets  from
and after the Exercise Effective Time less any applicable federal, state and
local taxes (including excise, production, severance, sales, and ad valorem
taxes, but excluding any income based taxes) and less payments from gross
revenues attributable to Optionor’s reserved overriding royalty interest, and
any other overriding royalty interests, production payments, net profit
interest and similar interests or burdens of record against the Assets existing
as of the Agreement Effective Time and paid after the Exercise Effective Time.

 5
 

 

 

(2)           As used herein, “Operating Costs”
shall mean with respect to the Assets from and after the Exercise Effective
Time,  the Designated Interest share of
(i) operating costs and expenses (including administrative overhead charges)
for the operation of wells, facilities, equipment and flowlines located on
and/or used in conjunction with the Assets, actually incurred and expended by
Optionee and/or the Operator and charged to the joint account by Optionee
and/or the Operator, as set forth in the Accounting Procedure of the West
Hastings Unit Operating Agreement or the applicable operating agreement for any
East Hastings Field wells (in the event there is no applicable operating
agreement, the Accounting Procedure of the West Hastings Unit Operating
Agreement shall be utilized) and (ii) CO2 Costs.

(3)           As used herein, “Capital Costs” shall
mean with respect to the Assets, the Designated Interest share of all capital
costs actually incurred and expended by the Operator for enhanced oil recovery
operations and charged to the joint account by Optionee and/or the Operator
from and after the Exercise Effective Date, including for the construction of
facilities, field development, conversion of wells for injection purposes,
drilling, completion, reworking, recompletion of wells, construction of
flowlines located on and/or used in conjunction with such Assets, and such
other costs as are incurred under the Development Plan and credited towards the
Required Cumulative Capital Expenditure Amounts provided in Section 2.7(a) below.

(4)           As used herein, “Asset Payout Amount”
shall mean the sum of the predicted “annual future net revenue” (as such terms
are currently used by D&M in the reserve report prepared for Optionor dated
July 31, 2006)  for the first four years
following the Exercise Effective Time, 
as shown in the D&M Report used to determine the Purchase Price for
the Assets.

(5)           As used herein, “CO2 Costs” shall
mean the direct cost of acquiring (commodity cost) and delivering
(transportation cost) CO2 to the Assets.

(i)            transportation costs (before and
after Payout) shall be (x) the actual costs on a per mcf basis charged by
unaffiliated third party transporters, or (y) in the event Optionee owns the
pipeline transporting CO2 to the Assets, a per mcf fee not to exceed the amount
necessary to amortize the actual cost of constructing and operating that
portion of the line on which the CO2 is transported to  the Assets, based on a capacity throughput of
400 MMcf/d over a twenty (20) year period, at a discount rate of six hundred
fifty basis points over the one year LIBOR (if the one year LIBOR is five and
one-half percent (5.5%) the discount rate used to amortize the pipeline would
be 12%), but in no event shall  discount
rate be less than 12%.

(ii)           commodity costs (before and after
Payout) shall be the lower of (x) the average direct cost of CO2 in Optionee’s
or third party’s pipeline from which CO2 is acquired for the Assets and (y) the
lowest price 

 6
 

 

 

charged for CO2
by Optionee in sales to third party users or consumers in Texas.  In no event shall the average cost per mcf of
CO2 delivered to the Assets exceed one percent (1%) of the average NYMEX oil
closing price per barrel during the month of delivery; provided the foregoing
cap on CO2 prices shall never be less than $.30 per mcf. A “mcf” of CO2 shall
be 1000 cubic feet of CO2 at standard conditions.  Optionee shall deliver CO2 to the Assets at a
pipeline pressure of not less than 1100 psi.

(iii)          Any
CO2 charged to the and used by Optionee for any purpose other than with respect
to the development of the shall be credited as Net Revenues at the same cost
that the CO2 is charged as provided above.

(6)           Costs associated with building,
owning, operating and maintaining CO2 pipelines used by Optionee to deliver CO2
to the Hastings Field shall not be considered Capital Costs or Operating Costs
for purposes of determining Payout.  Nor
shall such costs be considered in computing Required Cumulative Capital
Expenditure Amounts. Nothwithstanding the foregoing, actual  transportation costs incurred in transporting
CO2 to the Hastings Field, as set forth in
Section 1.29(d)(5)(i) shall be considered for purposes of
determining Payout.

(7)           Optionor’s Reversionary Interests in
the Assets, after it reverts, shall be subject to the terms and provisions of
the West Hastings Unit Operating Agreement and/or any other applicable
agreements.  After such Reversionary
Interests revert to Optionor, Optionor shall be liable for and shall assume and
pay its proportionate working interest share of all subsequent costs associated
with its working interest attributable to the reverted and reassigned
interests, including capital costs.

(8)           If for any reason Optionor desires
not to accept the Reversionary Interests provided for in this Section  (d), and the obligations and liabilities
associated with such Reversionary Interests, Optionor may decline to accept
such Interests by notifying Optionee in writing on or before   () days after Optionor is notified, in
writing, of the effective date of reversion. 
After receipt of such a notice, Optionor’s right to the Reversionary
Interests will terminate effective as of the date of the reversion.

(9)           Prior to Payout, Optionee shall
provide to Optionor (i) on a monthly basis operating reports covering revenues,
operating expenses, capital expenditures, production and injection volumes and
product prices received; and (ii) a quarterly statement (with all supporting
documentation) identifying the status of Payout; and (iii) Optionee shall
further provide Optionor with quarterly reports including historical and
prospective technical information relating to the Assets including, but not
limited to injection and production data on a field and well basis, well logs,
cores, tests and any other data necessary for Optionor to perform its own
technical analysis; and (iv) the right to request an annual technical
presentation to be presented to Optionor by the appropriate technical 

 7
 

 

 

staff of Optionee.  Optionor shall have the right to conduct an
annual audit of the accounts and records of Optionee (at a mutually convenient
time during Assignor’s normal business hours and in accordance with the Council
of Petroleum Accountants Society guidelines and practices for audits by working
interest owners) to verify the accounting for Payout. Such audits may be
performed by Optionor directly or through an independent accounting firm of its
choice, but in each case at the Optionor’s sole cost and expense.  Notwithstanding the above, all Payout
accounting by Optionee during any calendar year shall conclusively be presumed
true and correct after twenty four (24) months following the end of any such
calendar year, unless within the said twenty four (24) month period, Optionor
takes written exception thereto and makes claim on Optionee for adjustments.

(e)           (i) all trade credits, accounts
receivable, notes receivable and other receivables attributable to Optionor’s
interest in the Assets with respect to any period of time prior to the Exercise
Effective Time; (ii) all deposits, cash, checks in process of collection, cash
equivalents and funds attributable to Optionor’s interest in the Assets with
respect to any period of time prior to the Exercise Effective Time; and (iii)
all proceeds, benefits, income or revenues accruing with respect to the Subject
Acreage prior to the Exercise Effective Time;

(f)            all corporate, financial, and tax
records of Optionor; however, Optionee shall be entitled to receive copies of
any tax records which directly relate to any Assumed Obligations, or which are
necessary for Optionee’s ownership, administration, or operation of the Assets;

(g)           all claims and causes of action of
Optionor arising from acts, omissions or events, or damage to or destruction of
the Assets, occurring prior to the Exercise Effective Time; provided, however,
Optionor shall transfer to Optionee all claims and causes of action of Optionor
against prior owners of the Assets or third parties for Environmental
Obligations or Liabilities that are not Retained Environmental Obligations or Liabilities;

(h)           except as otherwise provided in Section 14 all rights, titles, claims and
interests of Optionor relating to the Assets prior to the Exercise Effective
Time (i) under any policy or agreement of insurance or indemnity; (ii) under
any bond; or (iii) to any insurance or condemnation proceeds or awards;

(i)            all Hydrocarbons produced from or
attributable to the Assets with respect to all periods prior to the Exercise
Effective Time, together with all proceeds from or of such Hydrocarbons, except
the Inventory Hydrocarbons and the unsold inventory of gas plant products, if
any, attributable to the Leases as of the Exercise Effective Time;

(j)            claims of Optionor for refund of or
loss carry forwards with respect to production, windfall profit, severance, ad
valorem or any other taxes attributable to any period prior to the Exercise
Effective Time, or income or franchise taxes;

 8
 

 

 

(k)           all amounts due or payable to
Optionor as adjustments or refunds under any contracts or agreements (including
take-or-pay claims) affecting the Assets with respect to any period prior to
the Exercise Effective Time;

(l)            all amounts due or payable to
Optionor as adjustments to insurance premiums related to the Assets with
respect to any period prior to the Exercise Effective Time;

(m)          all proceeds, benefits, income or
revenues accruing (and any security or other deposits made) with respect to the
Assets, and all accounts receivable attributable to the Assets, prior to the
Exercise Effective Time; and

(n)           all of Optionor’s intellectual
property, including, but not limited to, proprietary computer software,
patents, trade secrets, copyrights, names, marks and logos.

(o)           all depths above the top and below
the base of the Frio Zone.

1.30.        “Exercise
Effective Time” has
the meaning specified” shall be defined in Section
2.4.

1.31.       “Final Settlement” has
the meaning specified in Section 12.5

1.32.       “Final Settlement Statement” has the meaning
specified in Section 12.5.

1.33.       “Frio Zone” means the
stratigraphic interval or its correlative equivalent between the depths of
5,390 feet and 6,840 feet in the Amoco Production Company L.F. McKibben A-6
located on the McKibben “A” Lease of the HT&B Survey 29, Brazoria County,
Texas as defined on the Dual Induction-Electric-Lateralog-Sonic Logs run on
November 6, 15, 26, and 28, 1977.

1.34.       “Hastings Field” shall
refer, collectively, to the East Hastings Field and the West Hastings Unit.

1.35.       “Hydrocarbons” shall
mean crude oil, natural gas (including CO2), casinghead gas, condensate, sulphur, natural gas
liquids and other liquid or gaseous hydrocarbons, and shall also refer to all
other minerals of every kind and character which may be covered by or included
in the Leases and Assets.

1.36.       “Indemnified
Party” has the meaning set forth in Section 16.7.

1.37.       “Indemnifying Party”
has the meaning set forth in Section 16.7.

1.38.       “Initial
Option Payment” has the
meaning specified in Section 2.3 (a)

1.39.       “Inventory
Hydrocarbons” shall mean all
merchantable oil and condensate (for oil or liquids in storage tanks, being
only that oil or liquids physically above the top of the inlet connection into
such tanks) produced from or attributable to 

 9
 

 

 

the Leases prior to the Exercise
Effective Time which have not been sold by Optionor and are in storage at the
Exercise Effective Time.

1.40.       “Leases” shall mean, except to the extent constituting
Excluded Assets, any and all interests owned by Optionor, including but without
limitation those set forth on Exhibits “A-1”,
“A-2”, “A-3” and “A-4”, or which Optionor is entitled to receive by
reason of any participation, joint venture, farmin, farmout, joint operating
agreement, unitization agreement, or other agreement, in and to the oil, gas
and/or mineral leases, permits, licenses, concessions, leasehold estates, royalty
interests, overriding royalty interests, net revenue interests, executory
interests, net profit interests, working interests, reversionary interests,
mineral interests, and any other interests of Optionor in Hydrocarbons, in the
West Hastings Unit, in the West Hastings Unit Lands, and in East Hastings
Field, it being the intent hereof that the leases, properties and interests and
the legal descriptions and depth limitations set forth on Exhibits “A-1” through “A-4”, inclusive, or
in instruments described in Exhibits “A-1”
through “A-4”, inclusive, if any, are for information only and the
term “Leases” includes all of Optionor’s right, title and interest in the above
described Hydrocarbon interests in the West Hastings Unit, in the West Hastings
Unit Lands, and in the East Hastings Field, other than the Excluded Assets,
including but not limited to those described on Exhibits “A-1” through “A-4”, inclusive, or in instruments
described in Exhibits “A-1” through “A-4”,
inclusive, even though such interests may be incorrectly described in Exhibits “A-1” through “A-4”, inclusive, or
omitted from Exhibits “A-1” through “A-4”,
inclusive.

1.41.       “mcf” has the meaning specified in the definition of
Excluded Assets.

1.42.       “Net Proved
Reserves” has the meaning
specified in Section 2.5(b)(i)(1)

1.43.       “Net
Revenues” has the meaning
specified in the definition of Excluded Assets.

1.44.       “NORM” has the meaning set forth in the definition of
Environmental Defects.

1.45.       “Oil and Gas
Interest” has the meaning
specified in Section 18.2(g).

1.46.       “Oil and Gas
Interests” has the meaning
specified in Section 18.2(b) and 18.2(h).

1.47.       “Operating
Costs” has the meaning
specified in the definition of Excluded Assets.

1.48.        “Option
Exercise Date” has the
meaning specified in Section  2.4

1.49.       “Option
Exercise Notice” has the
meaning given in Section 2.4 .

1.50.       “Option to
Purchase” has the meaning
specified in Section  2.1.

1.51.       “Option Year” has the meaning specified in Section 2.2.

 10
 

 

 

1.52.       “Optionee” has the meaning specified in the Preamble.

1.53.       “Optionee’s
Credits” has the meaning
specified in Section 12.5(b).

1.54.       “Optionor” has the meaning specified in the Preamble.

1.55.       “Optionor’s
Credits” has the meaning
specified in Section 12.5(a).

1.56.       “Participating
Party” has the meaning
specified in Section 18.2(f).

1.57.       “Parties” has the meaning specified in the Preamble.

1.58.       “Payout” shall be as defined in the definition of Excluded
Assets.

1.59.       “Permitted
Encumbrances” shall mean
specified in Section 8.1(c).

1.60.       “Personal Property
and Incidental Rights” shall
mean all right, title and interest of Optionor in and to or derived from the
following insofar as the same do not constitute Excluded Assets and are
attributable to, appurtenant to, incidental to, or used for the operation of
the Leases:

(a)           all easements, rights-of-way, surface
leases, permits, licenses, servitudes or other interests relating to the use of
the surface, including but not limited to those described in Exhibits “A-5,” “A-6,” “A-7,” and “A-8”, or
in instruments described in Exhibits “A-5,” “A-6,”
“A-7,” and “A-8”;

(b)           all wells, including but not limited
to those listed in Exhibits “B-1” and “B-2”
attached hereto, whether or not such wells are active or inactive, along with
all equipment and other personal property, inventory, spare parts, tools,
fixtures, pipelines, dehydration facilities, platforms, tank batteries,
appurtenances, and improvements situated upon the Leases as of the Exercise
Effective Time and used or held for use in connection with the development or
operation of the Leases or the production, treatment, storage, compression,
processing or transportation of Hydrocarbons from or in the wells or Leases;

(c)           all unit agreements, orders and
decisions of state and federal regulatory authorities establishing units, joint
operating agreements, enhanced recovery and injection agreements, farmout
agreements and farmin agreements, options, drilling agreements, exploration
agreements, assignments of operating rights, working interests, subleases and
rights above or below certain footage depths or geological formations, to the
extent same is attributable to the Assets, as of the Exercise Effective Time,
including but not limited to those described on Exhibits “F-1” and “F-2”;

(d)           all contracts, agreements, and title
instruments to the extent attributable to and affecting the Assets in existence
at Closing, including all Hydrocarbon sales, purchase, gathering,
transportation, treating, marketing, exchange, processing, disposal and
fractionating contracts, joint operating agreements, including but not limited
to those described on Exhibits “F-1” and “F-2”;
and

 

 11

 

(e)           copies of all lease files, land
files, well files, production records, division order files (including
paysheets and supporting files), abstracts, title opinions, and contract files,
insofar as the same are directly related to the Leases; including, without
limitation, all geological, information and data, to the extent that such data
is not subject to any third party restrictions, but excluding Optionor’s
proprietary interpretations of same, subject to the provisions of Section 6.1.

1.61.       “Proved
Reserves” shall mean the
reserves attributable to the interest being evaluated based on the definition
of “proved oil and gas reserves” as set forth in Rule 4-10 of Regulation S-X of
the Securities and Exchange Act of 1934, as amended; provided that Hydrocarbon
prices and operating costs set forth in section 2.5 shall be used in such
determination.

1.62.       “Preferential
Purchase Rights” has the
meaning specified in Section 9.1(b).

1.63.       “Purchase
Price” has the meaning
specified in Section 2.5.

1.64.       “Receiving
Party” has the meaning
specified in Section 18.1(a).

1.65.       “Regulated
Substances” has the meaning
specified in the definition of Environmental Defects.

1.66.       “Required
Cumulative Capital Expenditure Amounts” has the meaning specified in Section
2.7(b).

1.67.       “Retained
Environmental Obligations or Liabilities” shall mean, any Environmental Obligations or
Liabilities of any nature (i) related to the Excluded Assets, and (ii) related
to, or arising from, events first occurring or in existence prior to October 1,
2004, to the extent and as set out in Section 10.6.

Notwithstanding
anything herein to the contrary, Retained Environmental Obligations or
Liabilities shall not include any Environmental Obligations or Liabilities that
(a) relate to NORM, or (b) relate to the plugging and abandonment of the wells
in the Hastings Field existing at the Exercise Effective Time and any related
surface restoration of these well sites, or (c) resulted from or relate to an
activity or a condition on or regarding the Assets first occurring after the
Exercise Effective Time .

1.68.       “Retained
Obligations” shall mean all
liabilities, duties, and obligations that arise out of the ownership, operation
or use of the Assets prior to the Exercise Effective Time,  other than Environmental Obligations or
Liabilities but including, without limitation, all liabilities, duties, and
obligations, express or implied, imposed upon Optionor herein under the
provisions of the Leases and any and all assignments, subleases, farmout
agreements, assignments of overriding royalty, joint operating agreements,
easements, rights-of-way, and all other contracts, agreements and instruments
affecting the Leases, or the premises covered thereby, whether recorded or
unrecorded, and under all applicable laws, rules, regulations, orders and
ordinances, except for those specifically included in the definition of “Assumed
Obligations.”

 

 12
 

 

 

1.69.                     “Reversionary Interest” has the meaning specified in the definition of
Excluded Assets.

1.69.                     “Residual Asset Reserve Value” has the meaning specified in Section 2.5(b)(ii)(3).

1.70.                     “Selling Party” has the meaning specified in Section
18.1(a).

1.71.                     “Shortage Payment” has the meaning specified in Section
2.7(b).

1.72.                     “Third Party Interests” has the meaning specified in Section 9.1(c).

1.73.                     “Title Defect” has the meaning specified in Section
8.1(b).

1.74.                     “Title Defect Notice Date” has the meaning specified in Section 8.2.

1.75.                     “Volumetric Production Payment” has the meaning specified in Section 2.5.

1.76.       “West
Hastings Unit” shall be as
described in and governed by Unit Agreement, West Hastings Unit, Brazoria and
Galveston Counties, dated July 24, 1984, Pageas amended, and as depicted on the
plat in Exhibit “D-1”.  Those lands located within the aerial
boundaries of the West Hastings Unit are referred to as the “West Hastings Unit
Lands.”  Exhibit “D-1” also depicts the unit tracts within the West
Hastings Unit.  The ownership of these
unit tracts and the participation factors for these tracts in the Unit are set
forth in Exhibit “C”.

1.77.       “West
Hastings Unit Lands” has the
meaning specified in the definition of West Hastings Unit.

1.78.       “West
Hastings Unit Operating Agreement” shall mean that certain unit operating agreement dated December 20, 1984,
covering the West Hastings Unit, as may be amended, and which is attached
hereto as Exhibit “E.”

ARTICLE 2. -
OPTION TO PURCHASE

2.1.         Option
to Purchase.  Subject to the terms and conditions of this Agreement and the satisfaction
of the Conditions Precedent on or before December 1, 2006, Optionor does hereby
grant and convey unto Optionee the right and option to purchase the Assets
according to the terms and provisions set forth below (the “Option to Purchase”).
As used herein, the term “Conditions Precedent” mean (a) with respect to Optionor,
the receipt by Optionor of the written consent and approval of the lenders
under Optionor’s revolving credit facility to the grant of this Option to
Purchase and the transactions contemplated hereby, on terms satisfactory to
Optionor and (b) with respect to Optionee, confirmation by Optionee that there
are no material Title Defects 

 13
 

 

 

and Environmental Defects associated with the
Assets.  If the Conditions Precedent have
not been satisfied or waived by December 1, 2006 this Agreement shall automatically
terminate and neither party shall have any further obligation hereunder.

 

Each
Party shall notify the other in writing on or before November 30, 2006 whether
or not the Conditions(s) Precedent for that party have been satisfied.

2.2.         Term
of Option.  The initial
term of the Option to Purchase shall commence on the Agreement Effective Time
and end October 31, 2009.  The initial
option payment, subject to the Conditions Precedent, shall be paid by Optionee
on or before December 1, 2006. Optionee may extend the term of the Option to
Purchase beyond October 31, 2009 on a year by year basis (i.e., through the
anniversary date, October 31, of the following year), by, on or before each
anniversary date, paying Optionor the sum of thirty million dollars ($30,000,000.00).  The maximum term of the Option to Purchase
shall be ten (10) years (i.e., ending October 31, 2016).  Each year the Option to Purchase is in effect
is hereinafter referred to as an “Option Year”.

2.3.         Initial
Term Installments.  The consideration for the initial
term of the Option to Purchase shall be fifty million dollars ($50,000,000)
paid by Optionee to Optionor by wire transfer in the following installments:

(a)           Thirty-seven and one-half million
dollars ($37,500,000.00) on or before December 1, 2006;

(b)           Seven and one-half million dollars
($7,500,000.00) on or before November 1, 2007; and

(c)           Five million dollars ($5,000,000.00)
on or before November 1, 2008.

2.4.         Exercise
of Option to Purchase.  During the term of the Option to
Purchase, Optionee may exercise its Option to Purchase by giving notice of its
exercise of said Option to Purchase (“Option Exercise Notice”) as provided
herein.  The Option Exercise Notice shall
be made utilizing the form of Option Exercise Notice attached hereto as Exhibit “G” and shall be given on or before
September 1 of any year during the term of this Option and shall be deemed
exercised as of November 1 of such year (the “Option Exercise Date”).  Without Optionor’s written consent, no Option
Exercise Notice may be given prior to September 1, 2008.  The effective date for the purchase of the
Assets shall be 7:00 a.m., Central Standard Time, on January 1 following such
Option Exercise Date (“Exercise Effective Time”).  Optionee’s right to utilize the Asset shall
be effective as of the Exercise Effective Time.

2.5.         Payment
for Assets.  The consideration due Optionor by Optionee for the purchase of the Assets
(the “Purchase Price”) shall be either (i) a cash payment (“Cash Payment”), or
(ii) a volumetric production payment (“Volumetric Production Payment”), to be
determined as set forth below.

(a)           Optionor and Optionee shall have
until the end of the month of November following an Option Exercise Date to
negotiate and agree upon, based upon the 

 14
 

 

 

remaining amount and value of Net Proved Reserves attributable to the
Assets, the Cash Payment amount to be paid by Optionee or the terms of the
Volumetric Production Payment to be conveyed to Optionor, with respect to the
Assets.

(b)           In the event Optionor and Optionee
are unable to agree as provided under Section 2.5(a), above, then, on or before
December 1 of such year, either Party may request that DeGolyer and MacNaughton
(“D&M”) furnish the Parties with a report (the “D&M Report”) setting
forth the following:

(i)            A Cash Payment amount equal to the
present value of Net Proved Reserves, determined as follows:

(1)           D&M’s estimate of
Net Proved Reserves for the Assets as of the end of the year in which the option
is exercised (as utilized herein, “Net Proved Reserves” shall refer to Proved
Reserves, net to the Designated Interest, i.e., the applicable net revenue
interest, and after further deducting Optionor’s retained overriding royalty
interest);

(2)           Pricing based upon a
five (5) year forward strip as determined on the last trading day  of the oil futures contracts on the NYMEX for
the year in which the option is exercised, with prices for year six (6) and
beyond based on the average NYMEX price for the fifth year of the strip;

(3)           Operating expenses for
the calculation of the Cash Payment shall be based upon a review and average of
Optionor’s operating expenses attributable to the Assets for twelve (12) months
prior to the Exercise Effective Time on a dollar per BOE basis (“Asset
Operating Expense”); and

(4)           A net present value
discount rate of ten (10%) percent.

(ii)           The following Volumetric Production
Payment terms:

(1)           Net Proved Reserve
volume schedule for the  Assets for the
ten (10) years following the Exercise Effective Time;

(2)           The Asset Operating
Expense; and

(3)           The Residual Asset
Reserve Value for the Proved Reserves attributable to time periods after said
ten (10) year period, calculated in the same manner as provided under Section
2.5(b)(i), above,  and paid in a lump
sum.

Both Parties may furnish D&M with any data and
information they feel pertinent to the determination.  D&M shall deliver the D&M Report to
both Parties no later than January 15 of the calendar year following the Option
Exercise Date.  D&M’s determinations
on the above shall be final and nonappealable. 
In the event D&M is not in existence at the time the Option Exercise
Notice is given, the successor company to D&M shall be utilized, and should
no successor company exist, then the Parties shall agree on an 

 15
 

 

 

independent reserve analysis company to make the
above determinations in lieu of D&M.

(c)           Optionor shall have () days after
receipt of the D&M Report to notify Optionee of its election whether to
receive a Cash Payment or a Volumetric Production Payment.  In the event Optionor fails to elect within
said time period, Optionor shall be deemed to have elected to receive a Cash
Payment.

2.6.         Closing.  The closing of the purchase of the Assets shall occur at ‘s offices on January 31 of the
calendar year following the Option Exercise Date (or the next business day, if
such January 31 falls on a weekend or legal holiday) or such other time and
place as may be agreed upon by the Parties. 
At such  Closing, (i) Optionor
shall execute an Assignment and Conveyance in the form substantially the same
as the form attached as Exhibit “I”,
and (ii) depending upon Optionor’s election, Optionee shall either pay the Cash
Payment or execute an Assignment of Volumetric Production Payment in
substantially the same form as the form attached as Exhibit “J”.

2.7.         Development Plan and Capital
Expenditure Commitment.

(a)           In the event Optionee exercises its
option to purchase the Assets, contemporaneous with Optionee’s option exercise,
Optionee shall (i) submit to Optionor a development plan for the CO2 flood of
the West Hastings Unit (the “Development Plan”), which plan shall include
various milestones including completion of a pipeline connecting the Jackson
Dome Field in Mississippi to the Hastings Field via Donaldsonville, or other
pipeline or alternative delivery system that would result in a lower CO2 cost
to the Hastings Field, a framework for spending the Required Cumulative Capital
Expenditure Amounts, and the commencement of CO2 injection in the West Hastings
Unit and (ii) commit to spend one hundred seventy-eight million six hundred
seventy four thousand dollars ($178,674,000.00) of cumulative capital
expenditures (the “Required Cumulative Capital Expenditure Amounts”) as
outlined in the Development Plan for field development and facilities for
enhanced production operations in the West Hastings Unit.  Optionee shall spend the Required Cumulative
Capital Expenditures Amounts on or before the Commitment Dates set forth below:

	
  “Commitment Date”
By end of Calendar Year

  	
   

  	
  “Required Cumulative Capital

  Expenditure Amount”

  	
   

  
	
  1

  	
   

  	
  $

  	
  26,801,000

  	
   

  
	
  2

  	
   

  	
  $

  	
  71,469,000

  	
   

  
	
  3

  	
   

  	
  $

  	
  107,204,000

  	
   

  
	
  4

  	
   

  	
  $

  	
  142,939,000

  	
   

  
	
  5

  	
   

  	
  $

  	
  178,674,000

  	
   

  

 

Year 1 shall begin with the Exercise Effective
Time.   If the Optionee spends in excess
of one hundred seventy-eight million six hundred seventy four thousand dollars
($178,674,000.00) prior to the end of Year 5, the development obligation has
been fulfilled.

 16
 

 

 

(b)           In the event Optionee fails to spend
the Required Cumulative Capital Expenditure Amount by the Commitment Dates set
forth in (a) above, Optionee shall pay Optionor a cash payment equal to ten
percent, (10.0%) of the difference between (i) the Required Cumulative Capital
Expenditure Amount for the applicable Commitment Date and (ii) the cumulative
capital expenditures actually expended by Optionee from the Closing Date
through such applicable Commitment Date (hereinafter referred to as the “Shortage Payment”).   Said Shortage Payment shall be paid by
Optionee to Optionor within thirty (30) days after each Commitment Date.

(c)           If Optionee is not injecting at least
an average of 50 mmcf/day of CO2 (total of purchased plus recycled) in the West
Hastings Unit (“Minimum Injection Rate”), which gas shall be delivered to the
Hastings Field via the Donaldsonville to Hastings pipeline or other pipeline or
alternative delivery system that would result 
in a lower CO2 cost to the Hastings Field, for the 90 day period
preceding the third anniversary of the Exercise Effective Time, Optionee shall,
within 30 days of such third anniversary, either (i) relinquish its rights to
initiate (or continue) tertiary operations and reassign to Optionor all Assets
previously assigned to Optionee, for the value of such Assets at that time
based on the methodology outlined in Section 2.5, except the NPV discount rate
described in Section 2.5(b)(i)(4) shall be twenty percent (20%) rather than ten
percent (10%), or (ii) begin making additional Shortage Payments to Optionor in
an amount equal to twenty million dollars ($20,000,000.00) less Shortage
Payments paid during that year pursuant to Section 2.7(b) for the first year,
and thirty million dollars ($30,000,000.00) less Shortage Payments paid during
that year pursuant to Section 2.7(b) per year thereafter until the CO2
injection in the Hasting Field equals or exceeds the Minimum Injection
Rate.  If Optionee elects to relinquish
its rights as set forth herein and Optionor accepts such relinquishment,
Optionee shall have no further rights or obligations with respect to the Assets.  Notwithstanding the relinquishment option
described in this Section 2.7(c), 
Optionor shall have the option to reject such relinquishment, in which
case Optionee shall retain the Assets and the Shortage Payment shall be deemed
waived for that year and the Minimum Injection Rate requirement will be
deferred until the next anniversary of the Exercise Effective Time.

ARTICLE 3. -
OPERATIONS

3.1.         Operations
of Hastings Field Prior to Option Exercise.  Prior to the Exercise Effective
Time Optionor agrees (i) to act as a reasonable prudent operator, (ii) during
the term the Option to Purchase is in effect, not to undertake any tertiary
operations, including, but not limited to CO2 flooding, fire flooding, polymer
flooding, miscible or non-miscible gas flooding other than CO2, high pressure
air injection, steam flooding or microbial injection, and (iii) during the term
the Option to Purchase is in effect, to notify Optionee in writing at least
sixty (60) days prior to the lapse of any Leases which Optionor does not intend
to maintain.  As to any Leases under “(iii)”
above, Optionee shall have the right and option within ten (10) days after
receipt of said notice to elect to obtain Optionor’s interest in any such
Leases at no cost to Optionor so that Optionee may attempt to maintain any such
Leases.  Any costs expended by

 17
 

 

 

Optionee to maintain any such Leases shall be included in the costs for
purposes of calculating Payout and not be subject to the provisions of Section 18.2.

3.2.         Operations After Option Exercise

(a)           In the event Optionee
exercises its Option to Purchase, Optionor shall use its reasonable efforts to
have Optionee appointed as Operator of West Hastings Unit, both under the West
Hastings Unit Operating Agreement and with the appropriate regulatory or
administrative agencies.  In the event Optionor
is not able to secure the formal appointment of Optionee as Operator for the
West Hastings Unit, then Optionor and Optionee shall cooperate and enter into
such contractual relationship as is necessary or shall otherwise allow Optionee
to conduct its Development Plan and conduct all other operations Optionee could
otherwise conduct as Operator in the Hastings Field.

(b)           In the event the
Optionee exercises its Option to Purchase the Assets, the Parties shall execute
a Joint Operating Agreement covering the East Hastings Field and any lands
located outside the West Hasting Unit. 
The Joint Operating Agreement shall be in substantially the same form as
set forth in Exhibit “Q.”

(c)            In no event shall the Optionor in any
manner be liable for or incur any costs or expenses associated with the CO2
operations of the Optionee until such time as Optionor has accepted its
Reversionary Interest.

3.3.             Simultaneous
Use of Surface-Option to Purchase.

(a)                In the event Optionee exercises
its Option to Purchase, Optionee shall have (i) the right to use all easements
and surface rights of Optionor in the Hastings Field acquired from third
parties or resulting from its ownership of the Leases, and (ii) the right to
use Optionor’s surface and surface estate rights in lands in which Optionor
owns all of the surface fee estate or an undivided interest in the surface fee
estate (“Optionor’s Surface Estate Lands”), so long as (i) Optionee’s use is
reasonably necessary for its operations and activities with respect to the Assets
and (ii) Optionee’s use does not conflict with Optionor activities existing as
of the Exercise Effective Time.  After
Optionee’s exercise of its Option to Purchase, Optionor shall be entitled to
new uses of all surface rights and interests in the Hastings Field, so long as
such new use does not conflict with current or reasonably anticipated future
use by Optionee.   For the purposes of
this Section 3.3, surface or surface estate rights shall also mean and include all
rights appurtenant to the surface estate, including, but not limited to, rights
to drill water wells, salt water disposal wells and injection wells.

(b)               Subject to the provision of
subsection (a) above, after Optionee’s exercise of its Option to Purchase,
Optionee shall be entitled to such easements, rights-of-way, and other uses of
the surface of Optionor’s Surface Estate Lands in conjunction with Optionee’s
operations and activities related to the operation of  the Assets as Optionee, acting as a
reasonably prudent operator, deems necessary and appropriate.  Optionee shall pay Optionor for the
following, and only the following, usages of Optionor’s Surface Estate Lands
(all other usages being without cost to Optionee), and 

 18
 

 

 

in the amounts stated: (i) new roads-$1.25 per linear rod; (ii) drill site
locations, including areas for drill site pad, pits, and other
equipment-$1500.00 per acre.

(c)               Subject to the prior usage
restrictions in subsection (a) above, after Optionee’s exercise of its Option
to Purchase and for a period of five (5) years after the applicable initial
Exercise Effective Date, Optionee shall also have the right to purchase from
Optionor up to twenty (20) acres of surface estate, selected by Optionee, out
of Optionor’s Surface Estate Lands, to be used for a central plant facility,
for a purchase price of $1,500.00 per acre.

(d)               Optionor and Optionee agree to
execute any instruments or other documents as may be reasonably requested in
order to vest in Optionee the rights and interests provided for in this Section 3.3.

ARTICLE 4.-
OPTIONOR’S REPRESENTATIONS AND WARRANTIES

                Optionor
represents and warrants to Optionee as of the date hereof, that:

(a)           Optionor is a limited partnership
duly organized, validly existing, and in good standing under the laws of the
State of Texas, and is duly qualified to carry on its business in Texas;

(b)           Optionor has all requisite power and
authority to carry on its business as presently conducted, to enter into this
Agreement and the other documents and agreements contemplated hereby, and to
perform its obligations under this Agreement and the other documents and
agreements contemplated hereby. Effective as of the date hereof the
consummation of the transactions contemplated by this Agreement do not and will
not violate, nor be in conflict with, any provision of its governing documents
or any agreement or instrument to which it is a party or by which it is bound
(except as set forth hereinbelow and in any provision contained in agreements
customary in the oil and gas industry relating to (1) the Preferential Purchase
Rights (defined below) as to all or any portion of the Assets; (2) required
consents to transfer and related provisions; (3) maintenance of uniform
interest provisions; and (4) any other third-party approvals or consents
contemplated herein), or any judgment, decree, order, statute, rule, or
regulation applicable to Optionor;

(c)           This Agreement, and all documents and
instruments required hereunder to be executed and delivered by Optionor
constitute legal, valid and binding obligations of Optionor in accordance with
its respective terms, subject to applicable bankruptcy and other similar laws
of general application with respect to creditors;

(d)           There are no bankruptcy,
reorganization or receivership proceedings pending, being contemplated by, or
to the actual knowledge of Optionor threatened against Optionor;

(e)           The execution, delivery and
performance of this Agreement, and the transaction contemplated hereunder have
been duly and validly authorized by all requisite authorizing action, corporate,
partnership or otherwise, on the part of Optionor.

 19
 

 

 

(f)            Optionor has not incurred any
obligation or liability, contingent or otherwise, for brokers’ or finders’ fees
in connection with this Agreement or the transaction provided herein;

(g)           Other than as set forth in Exhibit “H”, to the best of Optionor’s
knowledge, there are no claims, investigations, demands, actions, suits, or
administrative, legal or arbitration proceedings (including condemnation,
expropriation, or forfeiture proceedings) pending, or to the best of Optionor’s
knowledge, threatened, against Optionor or any of its affiliates, or any Asset:
(i) seeking to prevent the consummation of the transactions contemplated
hereby, or (ii) which, individually or in the aggregate, would materially and
adversely affect the Assets.

(h)           Optionor has not intentionally or
willfully misrepresented or omitted any material information requested by
Optionee in writing about the Assets;

(i)            Subject to satisfaction of the
Condition Precedent, the granting of the Option to Purchase and the transfer of
the Assets to Optionee contemplated hereby does not violate any covenants or
restrictions imposed on Optionor by any bank or other financial institution in
connection with a mortgage or other instrument, and will not result in the
creation or imposition of a lien on any portion of the Assets;

(j)            Except as disclosed by Optionor in
writing, if Optionor is the operator of an Asset, to the best of Optionor’s
knowledge, it is in material compliance with all laws, rules, regulations and
orders pertaining to such Assets, including Environmental Laws;

(k)           Except as disclosed by Optionor in
writing, if Optionor is the operator of an Asset, to the best of Optionor’s
knowledge, it has all governmental permits necessary for the operation of the
Asset and is not in material default under any permit, license or agreement
relating to the operation and maintenance of the Assets;

(l)            Except as set forth on Exhibit “K”, there are no waivers, consents
to assign, approvals or similar rights owned by third parties and required in
connection with granting of the Option to Purchase or the conveyance of the
Assets from Optionor to Optionee;

(m)          Except as set forth on Exhibit “K”, , there are no rights of first
refusal, preferential rights, preemptive rights or contracts, or other
commitments or understandings of a similar nature to which Optionor is a party
or to which the Assets are subject;

(n)           No Hydrocarbons produced or to be
produced from the Leases are subject to any oil or gas sales contracts other
than those identified on Exhibits “F-1” and “F-2”
and, no third party has any call upon, option to purchase, dedication rights or
similar rights with respect to the Hydrocarbons produced to be produced from
Optionor’s interest in the Leases;

(o)           Other than as set forth in Exhibit “H”, to the best of Optionor’s
knowledge there are no claims, investigations, demands, actions, suits, or
administrative, legal or 

 20
 

 

 

arbitration proceedings (including condemnation, expropriation, or
forfeiture proceedings) pending, or to the best of Optionor’s knowledge
threatened, against Optionor or any of its affiliates seeking to prevent the
consummation of the transactions contemplated hereby; and

(p)           Except as set forth on Exhibit “L”, there are no oil or gas production
imbalances with respect to the Leases;

The above representations and
warranties by Optionor shall be continuing in nature during the term of this
Agreement or as otherwise provided, and Optionor shall notify Optionee of any
material change with respect thereto.

ARTICLE 5. -
OPTIONEE’S REPRESENTATIONS AND WARRANTIES

                Optionee
represents and warrants to Optionor as of the date hereof that:

(a)           Optionee is a limited liability
company duly organized, validly existing, and in good standing under the laws
of the state of Delaware, and is duly qualified to carry on its business in
Texas;

(b)           Optionee has all requisite power and
authority to carry on its business as presently conducted, to enter into this
Agreement and the other documents and agreements contemplated hereby, and to
perform its obligations under this Agreement and the other documents and
agreements contemplated hereby.  This
Agreement and the consummation of the transactions contemplated by this Agreement
do not and will not violate, nor be in conflict with, any provision of Optionee’s
articles of incorporation, partnership agreement(s), by-laws or governing
documents or any agreement or instrument to which it is a party or by which it
is bound, or any judgment, decree, order, statute, rule, or regulation
applicable to Optionee;

(c)           the execution, delivery and
performance of this Agreement and the transactions contemplated hereunder have
been duly and validly authorized by all requisite authorizing action,
corporate, partnership or otherwise, on the part of Optionee;

(d)           this Agreement, and all documents and
instruments required hereunder to be executed and delivered by Optionee at
Closing, constitute legal, valid and binding obligations of Optionee in
accordance with their respective terms, subject to applicable bankruptcy and
other similar laws of general application with respect to creditors;

(e)           there are no bankruptcy,
reorganization or receivership proceedings pending, being contemplated by, or
to the actual knowledge of Optionee threatened against Optionee;

(f)            Optionee has not incurred any
obligation or liability, contingent or otherwise, for brokers’ or finders’ fees
in connection with this Agreement or the transaction provided herein;

 

 21

 

 

(g)           Optionee is an experienced and
knowledgeable investor and operator in the oil and gas business.  Prior to entering into this Agreement,
Optionee was advised by and has relied solely on its own expertise and legal,
tax, reservoir engineering, accounting, and other professional counsel
concerning this Agreement, the Assets and the value thereof;

(h)           Other than as set forth in Exhibit “H”, to the best of Optionee’s
knowledge, there are no claims, investigations, demands, actions, suits, or
administrative, legal or arbitration proceedings (including condemnation,
expropriation, or forfeiture proceedings) pending, or to the best of Optionee’s
knowledge, threatened, against Optionee or any of its affiliates, or any Asset:
seeking to prevent the consummation of the transactions contemplated hereby.

(i)            Optionee has the financial resources
to close the transaction contemplated by this Agreement, whether by third party
financing or otherwise; and

(j)            Optionee acknowledges the existence
of the claims and suits described in Exhibit “H”
and that these claims and suits are Permitted Encumbrances as set forth in Section 8.1(c).  Optionee further acknowledges that Optionee
has, or by Closing will have, legal counsel of its choice fully review those
claims and suits identified on Exhibit “H”.

The above representations and warranties by Optionee shall be
continuing in nature during the term of this Agreement or as otherwise
provided, and Optionee shall notify Optionor of any material change with
respect thereof.

ARTICLE 6. - ACCESS TO INFORMATION
AND INSPECTIONS

6.1.         Title
Files.

Promptly after the execution of this Agreement and
during the term of this Agreement, Optionor shall permit Optionee and its
representatives at reasonable times during normal business hours to examine, in
Optionor’s offices at their actual location, all abstracts of title, title
opinions, title files, ownership maps, lease files, assignments, division
orders, payout statements, title curative, other title materials and agreements
pertaining to the Assets by Optionee, within a reasonable period of time,
insofar as the same may now or in the future be in existence and in the
possession of Optionor.  No warranty of
any kind is made by Optionor as to the information so supplied, and Optionee
agrees that any conclusions drawn therefrom are the result of its own
independent review and judgment. 
Optionee shall be entitled to copies of all files related to the Assets
other than files containing privileged communications or attorney work product.

6.2.         Other
Files.

Promptly after the execution of this Agreement and
during the term of this Agreement, Optionor shall permit Optionee and its
representatives at reasonable times during normal business hours to examine, in
Optionor’s offices at their actual location, 

 22
 

 

all production, well, regulatory, engineering and
geological information, accounting information, environmental information,
inspections and reports, and other information, files, books, records, and data
pertaining to the Assets as requested by Optionee, insofar as the same may now
or in the future be in existence and in the possession of Optionor, excepting
economic evaluations and Optionor’s proprietary interpretations of same,
reserve reports and any such information that is subject to confidentiality
agreements or to the attorney/client and work product privileges.  No warranty of any kind is made by Optionor
as to the information so supplied, and Optionee agrees that any conclusions
drawn therefrom are the result of its own independent review and judgment.  Optionee shall be entitled to copies of all
files related to the Assets other than files containing privileged
communications or attorney work product.

6.3          Confidentiality Agreement.

All information made available to Optionee pursuant to
Article 6 shall be maintained
confidential by Optionee until the Closing Date. The information protected by
such confidentiality obligation does not include any information that (i) at
the time of disclosure is generally available to and known by the public (other
than as a result of a disclosure by Optionee), or which after such disclosure
comes into the public domain through no fault of Optionee or its
representatives, or (ii) is or was available to Optionee on a nonconfidential
basis, or (iii) is already known to Optionee on a nonconfidential basis, as
evidenced by Optionee’s written records, at the time of its disclosure by
Optionor to Optionee.  Optionee may
disclose the information or portions thereof to those employees, agents or
representatives of Optionee who need to know such information for the purpose
of assisting Optionee in connection with its performance of this Agreement,
including to D&M, or its successor or replacement, for the purposes of Section 2.5 of this Agreement. Further, in
the event that Optionee is requested or required (by deposition, interrogatory,
request for documents, subpoena, civil investigative demand or similar process)
to disclose any of the information, Optionee shall provide Optionor with prompt
written notice of such request or requirement, so that Optionor may seek such
protective order or other appropriate remedy as it may desire.  Optionee shall further take reasonable steps
to ensure that Optionee’s employees, consultants and agents comply with the
provisions of this Section 6.3.  Notwithstanding the foregoing, nothing
contained within this Section 6.3
shall preclude either the Optionor or Optionee from disclosing its internal
reports, analyses, compilations, studies or evaluations based upon information
that is generally known or available in the public domain.

6.4.         Inspections.

Promptly after the execution of this Agreement and
during the term of this Agreement, Optionor, subject to any necessary
third-party operator approval, shall permit Optionee and its representatives at
reasonable times and at their sole risk, cost and expense, to conduct
reasonable inspections of the Assets for all purposes, including any
Environmental Defects.

 23
 

 

 

6.5.         No
Warranty or Representation on Optionor’s Information.

EXCEPT AS SET FORTH IN THIS AGREEMENT, OPTIONOR MAKES
NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT TO THE
ACCURACY, COMPLETENESS, OR MATERIALITY OF THE INFORMATION, RECORDS, AND DATA
NOW, HERETOFORE, OR HEREAFTER MADE AVAILABLE TO OPTIONEE IN CONNECTION WITH THE
ASSETS OR THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, ANY DESCRIPTION OF THE
ASSETS, QUALITY OR QUANTITY OF HYDROCARBON RESERVES, IF ANY, PRODUCTION RATES,
RECOMPLETION OPPORTUNITIES, DECLINE RATES, GAS BALANCING INFORMATION,
ALLOWABLES OR OTHER REGULATORY MATTERS, POTENTIAL FOR PRODUCTION OF
HYDROCARBONS FROM THE ASSETS, OR ANY OTHER MATTERS CONTAINED IN OR OMITTED FROM
ANY OTHER MATERIAL FURNISHED TO OPTIONEE BY OPTIONOR.  ANY AND ALL SUCH DATA, INFORMATION AND MATERIAL
FURNISHED BY OPTIONOR IS PROVIDED AS A CONVENIENCE ONLY AND ANY RELIANCE ON OR
USE OF SAME IS AT OPTIONEE’S SOLE RISK.

6.6.         Amendments
to Exhibits.

Optionor and Optionee acknowledge that Optionee’s
inspection of Optionor’s records and files, or further review by Optionor,
prior to Closing may indicate that some or all of the Exhibits attached to this
Agreement were not complete or entirely correct at the time of execution of
this Agreement.  Accordingly, Optionor
and Optionee agree to revise and amend the Exhibits, as needed, so that they
will be complete and accurate for any Closing 
and shall be given effect as if made on the Closing Date.  It is understood, however, that such
revisions or amendments shall not otherwise be taken into account in giving
effect to any representations, rights, options, conditions, covenants and
obligations of the Parties contained in this Agreement as originally executed
and shall not be used to negate any representation or covenant previously made.

ARTICLE 7. - ENVIRONMENTAL MATTERS
AND ADJUSTMENTS

7.1.         Investigation.

Prior to December
1, 2006, Optionee shall have the right, at reasonable times during normal
business hours, to conduct its investigation into the status of the physical
and environmental condition of the Assets. 
Upon payment of the initial option payment described in Section 2.3(a), Optionee accepts the
physical and environmental condition of the Assets existing as of the Agreement
Effective Time.  Subsequent to the
execution of this Agreement, during the month of November following the Option
Exercise Date, Optionee shall have the right, at reasonable times during normal
business hours, to conduct further investigation into the status of the
physical and environmental condition of the Assets. If, in the course of
conducting such investigation, Optionee discovers that any Asset is subject to
a material Environmental Defect not existing as of the Agreement Effective
Time, Optionee may raise such Environmental Defect in the 

 24
 

 

manner set forth below.  For
purposes hereof, the term “material” shall mean that the Optionee’s good faith
estimate, supported by documentation, of the cost of remediating any single
Environmental Defect, or the net reduction in value of the Asset affected by
such Defect, whichever is lesser, exceeds fifty thousand dollars ($50,000.00),
the Parties agreeing that such amount will be a per Asset deductible rather
than a threshold.  No later than 5:00
p.m. Central Standard Time on December 1st following the Option Exercise Date (the “Environmental
Defect Notice Date”), Optionee shall notify Optionor in writing specifying such
Environmental Defects, if any, the Assets affected thereby, and Optionee’s good
faith estimate of the costs of remediating such Defects, or the net reduction
in value of the Assets affected by such Defects, whichever is lesser, together
with supporting documentation.  Optionor
may, but shall be under no obligation to, correct at its own cost and expense
such Defects on or before the Closing Date, in which case there shall be no
reduction to the Cash Payment, nor any payment by Optionor to Optionee.  Prior to Closing, Optionee shall treat all
information regarding any environmental conditions as confidential, whether
material or not, and shall not make any contact with any governmental authority
or third party regarding same without the prior written consent of Optionor
unless required by law.

7.2.         Waiver
of Defects.

If Optionee fails
to notify Optionor prior to or on the Environmental Defect Notice Date, of any
Environmental Defects, all defects, whether known or unknown, will be deemed
waived for purposes of adjustments pursuant to this Article 7, the Parties shall proceed with the Closing,
Optionor shall be under no obligation to correct the defects, and Optionee
shall assume the risks, liability and obligations associated with such defects,
unless such defects constitute Retained Environmental Obligations or
Liabilities of Optionor.

7.3.         Remedy.

In the event any
Environmental Defect, for which notice has been timely given as provided
hereinabove, remains uncured as of the Closing, Optionor, at its sole option,
shall, (i) agree to cure or remediate any Defect within a reasonable time after
Closing and without any reduction or offset to any Cash Payment in a manner
acceptable to both Parties, or (ii) reduce the Cash Payment by the amount of
the Environmental Defect Value as determined pursuant to Section 8.4, and subject to application of
the fifty thousand dollars ($50,000.00) deductible in Section 7.1; or (iii) if the Purchase Price
does not consist of a Cash Payment (but rather a Volumetric Production
Payment), pay Optionee at the Closing the amount of the Environmental Defect
Value as determined pursuant to Section 8.4,
and subject to application of the fifty thousand dollars ($50,000.00)
deductible.

7.4.         Default
Basket.

The Parties agree
that adjustments to the Purchase Price under this Article 7 and Article 8
shall only occur to the extent that the aggregate Environmental Defects and
Title Defects, collectively, exceed two hundred fifty thousand dollars
($250,000.00) 

 25
 

 

(the “Aggregate Defect Basket”) after taking the applicable materiality
deductible into account.  For the
avoidance of doubt and by way of example only, if there are a total of two (2)
Environmental Defects of two  hundred
thousand dollars ($200,000.00) and one hundred fifty thousand dollars
($150,000.00) and two (2) Title Defects of seventy five  thousand dollars ($75,000.00) and five
thousand dollars ($5,000.00), the total adjustment would be twenty five  thousand dollars ($25,000.00) [being one
hundred fifty thousand dollars ($150,000.00) for Environmental Defect #1, plus
one hundred thousand dollars ($100,000.00) for Environmental Defect #2, plus
twenty five thousand dollars ($25,000.00) for Title Defect #1 and zero ($0) for
Title Defect #2, minus two  hundred fifty
thousand dollars ($250,000.00) for the Aggregate Defect Basket].

7.5.         Closing.

In the event any
adjustment to the Cash Payment or payment by Optionor to Optionee is made due
to an Environmental Defect raised by Optionee, the Parties shall proceed with
the Closing, Optionor shall be under no obligation to correct the Defect, and
the Defect shall become an Assumed Obligation of Optionee.

ARTICLE 8. - TITLE DEFECTS AND
ADJUSTMENTS

8.1.         Existing
Title; Definitions.

Upon
payment of the initial option payment as set forth in Section 2.3(a), Optionee
accepts title to the Assets as it exists as of the Agreement Effective Time,
subject to its right to examine issues related to defects to title arising or
occuring during the time after the Agreement Effective Time until the Closing
Date, as set forth below.

For
purposes hereof, the terms set forth below shall have the meanings assigned
thereto.

(a)           “Defensible
Title”, subject to and except for the Permitted Encumbrances means:

(1)           Such
title held by Optionor and reflected by appropriate documentation properly
filed in the official records of the jurisdiction in which the Lease or Leases
are located that (a) as to the Leases, entitles Optionor and will entitle
Optionee, after Closing, to own and receive and retain the Designated Interests
(subject to the Excluded Assets) in such Leases, without suspension, reduction
or termination, excluding Permitted Encumbrances; (b) as to wells, entitles
Optionor and will entitle Optionee, after Closing, to own and receive and
retain the Designated Interests (subject to the Excluded Assets) in such wells,
without suspension, reduction or termination, excluding Permitted Encumbrances;
(c) as to the West Hastings Unit and East Hastings Field, obligates Optionor,
and will obligate Optionee after Closing, to bear 89.33682% of the costs and
expenses relating to the maintenance, development and operation of such West
Hastings Unit and 100% as to the East Hastings Field;  

 26
 

 

(d) as to the West Hastings Unit, reflects the ownership and unit
participation of the tracts within the unit area as set forth in Exhibit “C”; (e) the Leases and wells are
free and clear of any liens, claims or encumbrances of any kind or character as
of the Closing, except Permitted Encumbrances; and (f) is not encumbered by
any  default by Optionor incurred after
the Agreement Effective Time under a material provision of any Lease, Unit
Operating Agreement, or other contract or agreement affecting the Leases;

(2)           As
to personal property included in the Assets, title to such property is free and
clear of any liens, claims or encumbrances of any kind or character as of
Closing, except Permitted Encumbrances; and

(3)           As
to all other Assets, (a) such Assets are free and clear of any liens, claims or
encumbrances of any kind or character incurred after the Agreement Effective
Time as of Closing except for Permitted Encumbrances; and (b) the Optionor is
not in default under a material provision of any Lease, operating agreement, or
other contract or agreement affecting such Assets.

(b)           “Title Defect” shall mean (i) any
matter which causes Optionor to have less than Defensible Title to any of the
Assets as of the Closing Date, or (ii) any matter that causes one or more of
the following statements to be untrue as of the Closing Date, except for
Permitted Encumbrances and matters in existence at, or occurring prior to, the
Agreement Effective Time:

(1)           Optionor
has not received written notice from any governmental authority or any other
person (including employees) claiming any material violation of any law, rule,
regulation, ordinance, order, decision or decree of any governmental authority
with respect to the such Assets.

(2)           Optionor,
or the Operator of an Asset, has complied in all material respects with the
provisions and requirements of all orders, regulations and rules issued or
promulgated by governmental authorities having jurisdiction with respect to
such Assets and has filed for and obtained all material governmental
certificates, permits and other authorizations necessary for Optionor’s current
operation of such Assets other than permits, consents and authorizations
required for the sale and transfer of such Assets to Optionee;

(3)           Optionor
has not materially defaulted or materially violated any agreement to which
Optionor is a party or any obligation to which Optionor is bound affecting or
pertaining to such Assets other than as disclosed hereunder or on any exhibit
attached hereto;

(4)           The
Leases included within such Assets are in full force and effect; and

 27
 

 

 

(5)           All
taxes, rentals, royalties, operating costs and expenses, and other costs and
expenses related to such Assets which are due from or are the responsibility of
Optionor have been paid.

(c)           “Permitted
Encumbrances” shall mean any of the following matters:

(1)           defects
in the early chain of title consisting of failure to recite marital status or
the omission of succession or heirship proceedings;

(2)           defects
or irregularities arising out of uncancelled mortgages, judgments or liens, the
inscriptions of which, on their face, have expired as a matter of law prior to
the Effective Time, or prior unreleased oil and gas leases which, on their
face, expired more than ten (10) years prior to the Agreement Effective Time
and have not been maintained in force and effect by production or operations
pursuant to the terms of such leases;

(3)           tax
liens and operator’s liens for amounts not yet due and payable, or those that
are being contested in good faith by Optionor in the ordinary course of
business;

(4)           to
the extent any of the following do not materially diminish the value of, or
impair the conduct of operations on, any of the Assets and do not impair
Optionor’s right to receive the revenues attributable thereto:  (i) easements, rights-of-way, servitudes,
permits, surface leases and other rights in respect of surface operations,
pipelines, grazing, hunting, fishing, logging, canals, ditches, lakes,
reservoirs or the like, (ii) easements for streets, alleys, highways,
pipelines, telephone lines, power lines, railways and other similar
rights-of-way, on, over or in respect of property owned or leased by Optionor
or over which Optionor owns rights of way, easements, permits or licenses, and
(iii) the terms and conditions of all leases, agreements, orders, instruments
and documents pertaining to the Assets;

(5)           all
lessors’ royalties, overriding royalties, net profits interests, carried
interest, production payments, reversionary interests and other burdens on or
deductions from the proceeds of production if the net cumulative effect of such
burdens or deductions does not reduce the net revenue interest of Optionor in
any well affected thereby to the extent that Optionor will not be able to
deliver to Optionee at Closing, the Designated Interests in production (net
revenue interests);

(6)           preferential
rights to purchase and required third party consents to assignments and similar
agreements with respect to which waivers or consents are obtained from the
appropriate parties, or the appropriate time period for asserting the rights
has expired without an exercise of the rights prior to the Closing Date;

 28
 

 

 

(7)           all
rights to consent by, required notices to, filings with, or other actions by
governmental entities and tribal authorities in connection with the sale or
conveyance of oil and gas leases or interests if they are customarily obtained
subsequent to the sale or conveyance;

(8)           defects
or irregularities of title arising out of events or transactions which have
been barred by limitations or by acquisitive or liberative prescription;

(9)           any
encumbrance or other matter having an aggregate adverse effect on the value of
the Assets of less than fifty thousand dollars ($50,000), the Parties agreeing
that such amount will be a per Asset deductible rather than a threshold;

(10)         rights
reserved to or vested in any municipality or governmental, statutory or public
authority to control or regulate any of the Assets in any manner, and all
applicable laws, rules and orders of governmental authority; and

(11)         any
encumbrance or other matter (whether or not constituting a Title Defect)
expressly waived in writing by Optionee or listed on Exhibit “H”.

(12)    liens
related to Optionor’s bank indebtedness which will be released at Closing.

(13)    any
matters which would otherwise constitute Title Defects that existed as of the
Agreement Effective Date.

8.2.         Notice of Title Defects.

No later than 5:00
p.m. Central Standard Time on December 1st following the Option Exercise Date (a “Title Defect Notice Date”), Optionee may
provide Optionor written notice of any Title Defect along with a description of
those matters which, in Optionee’s reasonable opinion, constitute Title Defects
and setting forth in detail Optionee’s calculation of the value for each Title
Defect determined pursuant to Section 8.4.  Optionor may elect, at its sole cost and
expense, but without obligation, to cure all or any portion of such Title
Defects prior to Closing, in a manner acceptable to both Parties, in which case
no reduction or offset in any Cash Payment, or payment by Optionor to Optionee,
shall be made.  Optionee’s failure to
deliver to Optionor such notice on or before the Title Defect Notice Date shall
be deemed a waiver by Optionee of all Title Defects with respect to the Assets,
known or unknown, that Optionor does not have notice of from Optionee on such
date.  Any defect or deficiency
concerning Optionor’s title to the Assets not asserted by Optionee in a Title
Defect Notice on or prior to the Title Defect Notice Date shall be deemed
waived by Optionee for purposes of any adjustment to the Cash Payment or
payment by Optionor to Optionee, the Parties shall proceed with Closing,
Optionor shall be under no obligation to correct the defects, and Optionee
shall assume the risks, liability and obligations associated with 

 29
 

 

such defects.  However, such waiver shall not effect or
impair the warranties of Optionor set forth in Section 8.5 or the indemnity obligations of Optionor as set
forth in Article 16.

8.3.         Title Defect Adjustment.

(a)           In the event any Title Defect, for which
notice has been timely given as provided hereinabove, remains uncured as of
Closing, Optionor shall have the opportunity to cure, until sixty (60) days
after Closing (“Cure Period”),
such Title Defect.  In the alternative,
Optionor may elect to (i) indemnify Optionee against any damages, claims or
expenses that may arise out of such Title Defect, subject to the provisions of Section 8.3(c) below, with no reduction in
the Cash Payment or payment to Optionee; or (ii) reduce the Cash Payment by an
amount equal to the Title Defect Value as determined pursuant to Section 8.4, and subject to application of
the fifty thousand dollars ($50,000.00) deductible described in Section 8.1(c) (9); or, (iii) if the
Purchase Price does not consist of a Cash Payment (but rather a volumetric
production payment), pay Optionee at Closing the amount of the Title Defect
Value as determined pursuant to Section 8.4,
and subject to application of the fifty thousand dollars ($50,000.00)
deductible.  Should Optionor elect
alternative “(i)” (indemnity) or “(ii)” (price reduction) or “(iii)” (payment
to Optionee) in this Section 8.3(a),
those Assets affected by the Title Defect shall be transferred to Optionee at
Closing.

(b)           If Optionor elects to attempt to cure
a Title Defect after Closing, the Closing with respect to the portion of the
Assets affected by such Title Defect will proceed along with all other Assets
as provided in this Agreement.  If
Optionor fails or refuses to cure any Title Defect prior to the expiration of
the Cure Period, Optionor shall notify Optionee in writing of such failure or
refusal promptly upon the expiration of the Cure Period.  In this event, Optionee shall within seven
(7) days after receipt by Optionee of Notice from Optionor of such failure or
refusal to cure any such Title Defect, pay Optionee an amount equal to the
subject Title Defect Value.  In the event
that any such property is retained by Optionor and such property has been
receiving revenue, without complaint, for a period in excess of two (2) years,
then Optionee agrees (i) not to take any action to interfere with such revenue
stream, and (ii) to the extent that Optionee becomes payor of such revenue, to
pay Optionor such revenue upon receipt of an indemnity agreement from Optionor.

(c)           The following provisions shall apply
to an election by Optionor under Section
8.3(a)(i) to indemnify Optionee with regard to such Title Defect:

(1)           Optionor’s
indemnity shall be limited to a period of two (2) years from the Effective
Time.

(2)           In
no event shall Optionor’s indemnity exceed the amount of the Title Defect Value
as determined under Section 8.4
hereof.

(3)           Optionor’s
indemnity shall be freely transferable by Optionee to its successors and
assigns of the Assets affected by such Title Defect, including 

 30
 

 

without limitation, any lender to Optionee and any purchaser of such
Assets, whether directly from Optionee or through any foreclosure proceeding;
and

(4)           If
the Title Defect Value, as determined under Section
8.4 hereof, individually or in the aggregate, for one or more Title
Defects to be covered by the Optionor’s indemnity exceeds two hundred fifty
thousand dollars ($250,000.00) (after application of the appropriate
deductible(s) provided for in Section
8.1(c)(9), Optionor shall have no right under the second sentence of
Section 8.3(a)(iii) to indemnify
Optionee with regard to such Title Defects without Optionee’s consent.

(d)           In the event any adjustment to the
Cash Payment, or payment by Optionor to Optionee, is made due to a Title Defect
raised by Optionee, the Parties shall proceed with Closing, Optionor shall be
under no obligation to correct the Title Defect, and such Title Defect shall
become an Assumed Obligation of Optionor.

8.4.         Environmental Defect and Title
Defect Values. 

Upon
timely delivery of notice of an Environmental or Title Defect, Optionee and
Optionor shall use their best efforts to agree on the validity and value of the
claim for the purpose of making any adjustment to the Purchase Price based on
the provisions herein (“Environmental or
Title Defect Value”).  In
determining the Value of an Environmental or Title Defect, it is the intent of
the Parties to include, to the extent possible, only that portion of the lands,
Leases and wells, or other Assets, whether an undivided interest, separate
interest or otherwise, materially and adversely affected by the Defect.  The following guidelines shall be followed by
the Parties in establishing the Value of any Environmental or Title Defect for
the purpose of adjusting a Cash Payment or establishing an amount to be paid by
Optionor to Optionee for such a Defect if (a) the validity of the claim is
agreed to by the Parties, (b) proper notice has been timely given, and (c)
subject to (i) application of the appropriate deductibles as set forth in this
Agreement for Environmental Defects and Title Defects:

(a)           If the Title Defect is based on a
difference in net revenue interest or expense interest from the Designated
Interests for the affected property, then the Title Defect Value shall be the
amount of the reduction or increase as the case may be.

(b)           If the Environmental or Title Defect
is liquidated in amount (for example, but not limited to, a lien, encumbrance,
charge or penalty), then the Defect Value shall be the lesser of (1) the sum
necessary to be paid to the obligee to remove the Defect from the property, or
(2) the decrease in the fair market value of the Asset as a result of the
Defect.

(c)           If the Environmental or Title Defect
represents an obligation or burden upon the affected property for which the
economic detriment is not liquidated but can be estimated with reasonable
certainty as agreed to by the Parties, the Defect Value shall be the sum
necessary to compensate Optionee at Closing for the adverse economic effect
which the Environmental or Title Defect will have on the affected
property.  This 

 31
 

 

sum shall be the
lesser of (1) the cost of remediating the Defect, or (2) the decrease in the
fair market value of the Asset as a result of the Defect.  The fair market value determination shall be
made by the Parties in good faith taking into account all relevant factors,
including, but not limited to, the following:

(1)           the
value of the Leases, lands, wells and other Assets affected by the
Environmental or Title Defect;

(2)           the
productive status of the affected Asset (i.e., proved developed producing,
etc.) and the present value of the future income expected to be produced
therefrom;

(3)           if
the Title Defect represents only a possibility of title failure, the
probability that such failure will occur; and

(4)           the
economic effect of the Environmental or Title Defect.

(d)           If the Value of the Environmental or
Title Defect cannot be determined using the above guidelines, and if the
Parties cannot otherwise agree on the amount of an adjustment to the Cash
Payment or payment by Optionor to Optionee, or if the validity of the claim as
to an Environmental or Title Defect cannot be agreed upon, then the Closing
shall nevertheless include the Asset(s) affected thereby.  If the validity of the claim is in dispute,
there shall be no adjustment to the Cash Payment or a payment by Optionor to
Optionee at Closing.  If the value of the
claim is in dispute, the Cash Payment or payment by Optionor to Optionee at
Closing shall be adjusted by an amount being the average of Optionor’s and
Optionee’s good faith estimates of the value thereof.  In either case, Optionor and Optionee shall
each have the right, exercisable within ninety (90) days after the Closing
Date, to refer the disputed matter to mediation and arbitration in accordance
with the dispute resolution procedures set forth in Exhibit “P.” After the expiration of said ninety (90) day
period the right to refer the matter to mediation and arbitration shall
terminate.  Subject to the terms of Exhibit “P”, the decision of the arbitrator
regarding any Environmental or Title Defect Dispute shall be final as between
the Parties.

8.5.         Title Warranty.

OPTIONOR
SHALL CONVEY OPTIONOR’S INTERESTS IN AND TO THE ASSETS TO OPTIONEE AS PROVIDED
IN THE FORM OF CONVEYANCE, ASSIGNMENT AND BILL OF SALE ATTACHED AS EXHIBIT “I” HERETO.  THE CONVEYANCE, ASSIGNMENT AND BILL OF SALE
SHALL BE MADE WITHOUT WARRANTY OF TITLE, EITHER EXPRESS, IMPLIED, STATUTORY OR
OTHERWISE, AND WITHOUT RECOURSE, EVEN AS TO THE RETURN OF THE PURCHASE PRICE OR
OTHER CONSIDERATION (EXCEPT AS SPECIFICALLY PROVIDED HEREIN), EXCEPT THAT
OPTIONOR SHALL WARRANT TITLE TO THE ASSETS AGAINST ALL CLAIMS, LIENS, BURDENS
AND ENCUMBRANCES ARISING BY, THROUGH OR UNDER OPTIONOR, BUT NOT OTHERWISE AND
NOT WITH RESPECT TO ANY IMPAIRMENT OR FAILURE OF TITLE RELATED TO ANY 

 32
 

 

LACK OF
PRODUCTION IN PAYING QUANTITIES.  THE
CONVEYANCE, ASSIGNMENT AND BILL OF SALE SHALL BE MADE WITH FULL SUBSTITUTION
AND SUBROGATION TO OPTIONEE IN AND TO ALL COVENANTS AND WARRANTIES BY OTHERS
HERETOFORE GIVEN OR MADE TO OPTIONOR WITH RESPECT TO THE ASSETS.

IMBALANCES
WITH RESPECT TO OIL OR NATURAL GAS ARE GOVERNED BY ARTICLE 17 HEREOF.  THE PARTIES AGREE THAT THE EXISTENCE OF ANY
SUCH IMBALANCES SHALL NOT BE DEEMED A TITLE DEFECT.

ARTICLE 9. - PREFERENTIAL PURCHASE RIGHTS 

AND CONSENTS OF THIRD PARTIES

9.1.         Actions
and Consents.

(a)           Optionor and Optionee agree that each
shall use all reasonable efforts to take or cause to be taken all such action
as may be necessary to consummate and make effective the transaction provided
in this Agreement and to assure that it will not be under any material
corporate, legal, or contractual restriction that could prohibit or delay the
timely consummation of such transaction.

(b)           Prior to the execution of this
Agreement, Optionor and Optionee will satisfy themselves that the execution of
this Agreement will not in and of itself trigger (i) any preferential rights to
purchase, or any rights of first refusal to purchase, any of the Assets (“Preferential
Purchase Rights”), or (ii) any rights of consent or approval to the Agreement
or transactions contemplated by the Agreement (“Consents”).  In the event that Optionor and Optionee
determine before or after the execution of this Agreement that a Preferential
Purchase Right or Consent is triggered by the execution of this Agreement, they
will endeavor to obtain a waiver of such right, or such consent, as applicable,
and failing which, will negotiate an agreed upon reduction or reimbursement of
the initial installment of the consideration for the initial term of the Option
to Purchase payable upon execution of this Agreement.

(c)           Promptly after the Option Exercise
Date, Optionor shall notify all holders of Preferential Purchase Rights and
Consents of such terms and conditions of this Agreement to which the holders of
such rights are entitled.  Optionor shall
promptly notify Optionee if any Preferential Purchase Rights are exercised, any
consents or approvals denied, or if the requisite period has elapsed without
said rights having been exercised or consents or approvals having been
received.  If prior to Closing, any such
Preferential Purchase Rights are timely and properly exercised, or Optionor is
unable to obtain a necessary consent or approval prior to Closing, the interest
or part thereof so affected shall be treated in the same manner as an uncured
Title Defect.  If any additional
Preferential Purchase Rights are discovered after Closing, or if a third party
Preferential Purchase Rights holder alleges improper notice, then Optionee
agrees to cooperate with Optionor in giving effect to any such valid third
party Preferential Purchase Rights.  In
the event any such valid third party preferential purchase rights are

 

 33

 

 

validly exercised
after Closing, Optionee’s sole remedy against Optionor shall be payment by
Optionor to Optionee of the value of that portion of the Assets on which such
rights are exercised and lost by Optionee to such third party determined in the
same manner as a Title Defect Value.

(d)           With respect to any portion of the
Assets for which a Preferential Purchase Right has not been asserted prior to
Closing, or a consent or other approval to assign has not been granted and for
which the time for election to exercise such Preferential Purchase Right or to
grant such consent has not expired, the Closing with respect to the portion of
the Assets subject to such outstanding obligations will nevertheless proceed
along with the Closing of other Assets as provided in this Agreement.  In the event that within ninety (90) days
after Closing any such Preferential Purchase Right is not waived or consent or
approval is not obtained or the time for election to purchase or to deliver a
consent or approval does not pass (such that under the applicable documents,
Optionor may not sell the affected third party interest to Optionee), then
Optionee shall reassign same to Optionor and Optionor will promptly pay to
Optionee the value of such third party interests.

ARTICLE 10. - COVENANTS OF OPTIONOR
AND OPTIONEE

10.1.       Covenants
of Optionor Pending Closing.

(a)           From and after the date of execution
of this Agreement and until Closing, and subject to Section 10.2 and the constraints of applicable operating and
other agreements, Optionor shall operate, manage, and administer the Assets as
a reasonable and prudent operator and in a good and workmanlike manner
consistent with its past practices, and shall carry on its business with
respect to the Assets in substantially the same manner as before execution of
this Agreement.  Prior to Closing,
Optionor shall use all commercially reasonable efforts to preserve in full
force and effect all Leases, operating agreements, easements, rights-of-way,
permits, licenses, and agreements which relate to the Assets in which Optionor
owns an interest, and shall perform all material obligations of Optionor in or
under all such agreements relating to the Assets; provided, however, Optionee’s
sole remedy for Optionor’s breach of its obligations under this Section 11.1(a) shall be limited to the
relative amount of the Purchase Price the parties agree should be allocated to
that portion of the Assets affected by such breach, and if the parties cannot
agree, the matter shall be submitted to mediation and arbitration procedures
set forth in Exhibit “P” Optionor
shall, except for emergency action taken in the face of serious risk to life,
property, or the environment (1) submit to Optionee, for prior written
approval, all proposed contracts, agreements or amendments to contracts
relating to the Assets to the extent same could be binding upon Optionee’s
exercise of its Option to Purchase; (2) submit to Optionee, for Optionee’s
information, all AFE’s relating to the Assets in excess of One Hundred Thousand
Dollars ($100,000.00); (3) consult with, inform, and advise Optionee regarding
all material matters concerning the operation, management, and administration
of the Assets; (4) notify Optionee of any written voting under any 

 34
 

 

operating, unit,
joint venture, partnership or similar agreement relating to the Assets; and (5)
not approve or elect to go nonconsent as to any proposed well or plug and
abandon or agree to plug and abandon any well without Optionee’s prior written
approval.  On any matter requiring
Optionee’s approval under this Section
11.1(a), Optionee shall respond within five (5) days to Optionor’s
request for approval and failure of Optionee to respond to Optionor’s request
for approval within such time shall release Optionor from the obligation to
obtain Optionee’s approval before proceeding on such matter.  With respect to emergency actions taken by
Optionor in the face of serious risk to life, property, or the environment,
without prior approval of Optionee pursuant to the provisions above, Optionor
will advise Optionee of its actions as promptly as reasonably possible and
consult with Optionee as to any further related actions.

(b)           From and after the date of execution
of this Agreement until this Option terminates, Optionor may not enter into any
agreement, or amend, supplement or change any existing agreement that would
have a material adverse effect on Optionee’s option rights hereunder, without
Optionee’s consent, which consent shall not be unreasonably withheld.

(c)           Optionor shall promptly notify Optionee
of any suit, lessor demand action, or other proceeding before any court,
arbitrator, or governmental agency and any cause of action which pertains to
the Assets or which reasonably would be expected to result in material
impairment or loss of Optionor’s interest in any portion of the Assets or which
might hinder or impede the operation of the Assets in any material respect.

(d)           Except for Permitted Encumbrances,
Optionor shall not alienate, encumber, transfer, abandon or release any of the
Assets during the term of this Agreement without the prior written consent of
Optionee.

(e)           Subject to the terms and conditions
of this Agreement, Optionor will use commercially reasonable efforts to cause
(a) its respective representations and warranties set forth in this Agreement
to be true and correct on and as of the Closing Date except to the extent such
representations and warranties expressly relate to an earlier date, and (b) all
of the conditions precedent to the obligations of the other Party (to the extent
they are within the control of Optionor) to be satisfied on or prior to each
Closing Date.

10.2.       Limitations
on Optionor’s Covenants Pending Closing.

To the
extent Optionor is not the operator of any of the Assets, the obligations of
Optionor in Section 10.1
concerning operations or activities which normally or pursuant to existing
contracts are carried out or performed by the operator, shall be construed to
require only that Optionor use all commercially reasonable efforts (without
being obligated to incur any expense or institute any cause of action) to cause
the operator of such Assets to take such actions or render such performance as
would a reasonable prudent operator and within the constraints of the
applicable operating agreements and 

 35
 

 

other applicable
agreements.

10.3.                     Covenants
of Optionee Following Exercise of Option.

Optionee
shall act as a reasonable prudent operator in delivering CO2 to the Assets in a
timely manner and in sufficient quantities to efficiently conduct operations to
enhance oil production, under the terms of this Agreement, including but not
limited to, Sections 1.26(d)(2), 1.26(d)(3) and 1.26(d)(5).

10.4.                     Hastings
Field Call on CO2.

The
Assets shall have first call on the CO2 in Optionee’s pipeline proposed to be
constructed from a point near Donaldsonville, Louisiana to the Hastings Field,
up to a maximum of 200 MMcf/d for so long as the Hastings Field requires 200
MMcf/d of additional CO2 above then existing recycle volumes.  The call on CO2 shall be based on 8 MMcf/d
times the toal number of CO2 injectors until such time as the total number of
injectors times 8 MMcf/d exceed 200 MMcf/d. 
Optionor agrees that the call on CO2 is based on the assumption that
individual injection wells will inject on average 8 MMcf/d per well.  If the actual average injection rate is lower
than 8 MMcf/d, the 200 MMcf/d call on CO2 shall be adjusted downward based on
the actual average injection rate divided by 8 MMcf/d.  This call is on CO2 from whatever source in
Optionee’s pipeline, but is not a call on any particular source of CO2.

10.5.         Ownership
of CO2.

All
CO2 injected into the Hastings Field for which the working interest owners are
charged shall be owned by the working interest owners proportionate to their
ownership interest in the West Hastings Unit or the East Hastings Field, as the
case may be.

10.6.       Environmental Liabilities Related to Events and Activities
occurring prior to October 1, 2004.

Notwithstanding anything to the contrary contained
herein, Optionor and Optionee agree that from and after the Exercise Effective
Date all Environmental Obligations and Liabilities related to, or arising from,
events or conditions first occurring prior to October 1, 2004, shall be shared
equally between Optionor and Optionee and their respective successors and
assigns.  The provisions of Section 16.6
and Section 16.7 shall apply to any claim for shared payment under this Section
10.6, except that Optionor and Optionee shall each have equal rights to
participate in the defense of all Environmental Obligations and Liabilities
subject to this Section 10.6 and no third-party claim in respect of such
Environmental Obligations and Liabilities shall be compromised or settled
without the prior written consent of both Optionor and Optionee, which consent
shall not be unreasonably withheld or delayed.

 36
 

 

ARTICLE 11. - CLOSING CONDITIONS

11.1.       Optionor’s
Closing Conditions.

The obligations of
Optionor under this Agreement are subject, at the option of Optionor, to the
satisfaction, at or prior to Closing, of the following conditions:

(a)           all representations and warranties of
Optionee contained in this Agreement shall be true and accurate in all material
respects at and as of Closing as if such representations and warranties were
made at and as of Closing, and Optionee shall have performed, satisfied and
complied in all material respects with all agreements and covenants required by
this Agreement to be performed, satisfied and complied with by Optionee at or
prior to Closing;

(b)           the execution, delivery, and performance
of this Agreement and the transactions contemplated thereby have been duly and
validly authorized by all necessary action, corporate, partnership or
otherwise, on the part of Optionee, and an officer’s certificate of Optionee
confirming the same;

(c)           all necessary consents of and filings
with any state or federal governmental authority or agency relating to the
consummation of the transactions contemplated by this Agreement shall have been
obtained, accomplished or waived, except to the extent that such consents and
filings are normally obtained, accomplished or waived after Closing; and

(d)           as of the Closing Date, no suit,
action or other proceeding (excluding any such matter initiated by Optionor)
shall be pending or threatened before any court or governmental agency seeking
to restrain Optionor or prohibit the Closing or seeking damages against
Optionor as a result of the consummation of this Agreement.

11.2.       Optionee’s
Closing Conditions.

The obligations of
Optionee under this Agreement are subject, at the option of Optionee, to the
satisfaction, at or prior to Closing, of the following conditions:

(a)           all representations and warranties of
Optionor contained in this Agreement shall be true, accurate in all material
respects at and as of Closing as if such representations and warranties were
made at and as of Closing, and Optionor shall have performed, satisfied and
complied in all material respects with all agreements and covenants required by
this Agreement to be performed, satisfied and complied with by Optionor at or
prior to Closing;

(b)           the execution, delivery, and
performance of this Agreement and the transactions contemplated thereby have
been duly and validly authorized by all necessary action, corporate,
partnership or otherwise, on the part of Optionor, and an officer’s certificate
of Optionor confirming the same;

 37
 

 

 

(c)           all necessary consents of and filings
with any state or federal governmental authority or agency relating to the
consummation of the transactions contemplated by this Agreement shall have been
obtained, accomplished or waived, except to the extent that such consents and
filings are normally obtained, accomplished or waived after Closing; and

(d)           as of the Closing Date, no suit,
action or other proceeding (excluding any such matter initiated by Optionee)
shall be pending or threatened before any court or governmental agency seeking
to restrain Optionee or prohibit the Closing or seeking damages against
Optionee as a result of the consummation of this Agreement.

ARTICLE 12.- CLOSING

12.1.       Closing.

The closing of the
purchase of the Assets following the exercise of the option granted herein (the
“Closing”) shall be held at the
offices of Optionee on the date provided in Section
2.6 above, or at such earlier date or place as the Parties may agree
in writing (herein called “Closing Date”).  Time is of the essence and the Closing Date
shall not be extended unless by written agreement of the Parties.  On or before five (5) business days prior to
Closing, Buyer and Seller shall use their best efforts to provide each other
copies of all closing documents.

12.2.       Optionor’s
Closing Obligations.

At Closing Optionor shall
deliver to Optionee the following:

(a)           the Assignment and Conveyance
substantially in the form attached hereto as Exhibit
“I” and such other documents as may be reasonably necessary to
convey all of Optionor’s interest in the Assets to Optionee in accordance with
the provisions hereof ;

(b)           a non-foreign affidavit executed by
Optionor in the form attached as Exhibit “M”;

(c)           appropriate regulatory forms
appointing Optionee as the operator for those Assets which Optionor operates;

(d)           copies of all third-party waivers,
consents, approvals, permits and actions obtained;

(e)           subject to existing operating
agreements and Optionor’s rights to continued use and access as set forth in Section 3.3, exclusive possession of the
Assets;

(f)            letters-in-lieu of transfer orders
in form acceptable to Optionor and Optionee;

 38
 

 

 

(g)           a Reporting and Accounting Memorandum
executed by Optionor in the form attached as Exhibit
“N”; and

(h)           releases of all mortgages, liens and
similar encumbrances burdening the Assets in form and substance reasonably
satisfactory to Optionee.

12.3.       Optionee’s
Closing Obligations.

At Closing, (i) Optionor
shall execute an Assignment and Conveyance, the form of which shall be
substantially the same as the form attached hereto as Exhibit “I”, and (ii) depending upon
Optionor’s election, Optionee shall either pay the Cash Payment or execute an
Assignment of Volumetric Production Payment, the form of which shall be
substantially the same as the form attached hereto as Exhibit “J”.

12.4.       Joint
Closing Obligations.

Both Parties at Closing
shall execute a Settlement Statement evidencing any amount actually wire
transferred or the Volumetric Production Payment assigned and all adjustments
to the consideration taken into account at Closing.  All events of the Closing shall each be
deemed to have occurred simultaneously with the other, regardless of when
actually occurring, and each shall be a condition precedent to the other.

12.5.       Final
Settlement/Purchase Price Adjustments.

Within one hundred twenty
(120) days after Closing, Optionor shall provide to Optionee, for Optionee’s
concurrence, an accounting (the “Final Settlement Statement”) of the actual
amounts of Optionor’s and Optionee’s Credits for the adjustments set out in
this Section 12.5.  Optionee shall have the right for thirty (30)
days after receipt of the Final Settlement Statement to audit and take
exceptions to such adjustments.  The
Parties shall attempt to resolve any disagreements on a best efforts
basis.   Those credits agreed upon by
Optionee and Optionor shall be netted and the final settlement shall be paid as
directed in writing by the receiving party, on final adjustment by the party
owing it (the “Final Settlement”).

The Purchase Price shall
be adjusted as follows:

(a)           The Purchase Price shall be adjusted
upward by the following (“Optionor’s Credits”):

(1)           the value of (i) all Inventory
Hydrocarbons attributable to the Assets, such value to be based upon the
existing contract price for crude oil in effect as of the Effective Time, less
severance taxes, transportation fees and other fees deducted by the purchaser
of such oil, such oil to be measured at the Exercise Effective Time by the
operators of the Assets; and (ii) the value of all of Optionor’s unsold
inventory of gas plant products, if any, attributable to the Assets at the
Effective Time valued in the same manner as if such products had been sold
under the contract then in existence between Optionor and the 

 39
 

 

purchaser of
such products or, if there is no such contract, valued in the same manner as if
said products had been sold at the posted price in the field for said products;

(2)           the amount of all production expenses,
operating expenses and all expenditures attributable to the operation of the
Assets after the Exercise Effective Time and accrued by Optionor prior to
Closing Date in accordance with generally accepted accounting principles and Section 11.1;

(3)           an amount equal to the sum of any
upward adjustments provided elsewhere in this Agreement applicable to the
Assets; and

(4)           any other amount agreed upon by
Optionor and Optionee in writing prior to Closing.

(b)           The Purchase Price shall be adjusted
downward by the following (“Optionee’s Credits”):

(1)           the total collected sales value of
all Hydrocarbons sold by the Optionor after the Exercise Effective Time which
are attributable to the Assets, and any other monies collected by the Optionor
with respect to the ownership of the Assets after the Exercise Effective Time,
but excepting interest income.

(2)           the amount of all unpaid ad valorem,
property, production, excise, severance and similar taxes and assessments (but
not including income taxes), which taxes and assessments become due and payable
or accrue to the Assets prior to the Exercise Effective Time, which amount
shall, where possible, be computed based upon the tax rate and values
applicable to the tax period in question; otherwise, the amount of the adjustment
under this paragraph shall be computed based upon such taxes assessed against
the applicable portion of the Assets for the immediately preceding tax period
just ended;

(3)           an amount equal to the sum of any
downward adjustments provided elsewhere in this Agreement; and

(4)           any other amount agreed upon by
Optionor and Optionee in writing prior to Closing.

(c)           Optionor shall prepare and deliver to
Optionee, at least five business days prior to Closing, Optionor’s estimate of
the adjusted Purchase Price to be paid at Closing, together with a preliminary
statement setting forth Optionor’s estimate of the amount of each adjustment to
the Purchase Price to be made pursuant to this Section 12.5.  The
Parties shall negotiate in good faith and attempt to agree on such estimated
adjustments prior to Closing.  In the
event any estimated adjustment amounts are not agreed upon prior to Closing,
the estimate of the adjusted Purchase Price for purposes of Closing shall be
calculated based on Optionor’s and Optionee’s agreed upon estimated adjustments
and Optionor’s good faith estimate of any disputed amounts (and 

 40
 

 

any such disputes
shall be resolved by the Parties in connection with the resolution of the Final
Settlement Statement).

(d)           In the event the Purchase Price is
not a Cash Payment, but is in the form of a Volumetric Production Payment, any
and all adjustments in the Purchase Price shall be made and payable in cash.

ARTICLE 13. - LIMITATIONS ON
WARRANTIES AND REMEDIES

THE EXPRESS REPRESENTATIONS AND
WARRANTIES OF OPTIONOR CONTAINED IN THIS AGREEMENT ARE EXCLUSIVE AND ARE IN
LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED OR
STATUTORY, INCLUDING, WITHOUT LIMITATION, ANY REPRESENTATION OR WARRANTY WITH
RESPECT TO THE QUALITY, QUANTITY OR VOLUME OF THE RESERVES, IF ANY, OF OIL, GAS
OR OTHER HYDROCARBONS IN OR UNDER THE LEASES, OR THE ENVIRONMENTAL CONDITION OF
THE ASSETS.  THE ITEMS OF PERSONAL
PROPERTY, EQUIPMENT, IMPROVEMENTS, FIXTURES AND APPURTENANCES CONVEYED AS PART
OF THE ASSETS ARE SOLD HEREUNDER “AS IS, WHERE IS, AND WITH ALL FAULTS” AND NO
WARRANTIES OR REPRESENTATIONS OF ANY KIND OR CHARACTER, EXPRESS OR IMPLIED,
INCLUDING ANY WARRANTY OF QUALITY, MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE OR CONDITION, ARE GIVEN BY OR ON BEHALF OF OPTIONOR.  IT IS UNDERSTOOD AND AGREED THAT PRIOR TO
CLOSING OPTIONEE SHALL HAVE INSPECTED THE ASSETS FOR ALL PURPOSES AND HAS
SATISFIED ITSELF AS TO THEIR PHYSICAL AND ENVIRONMENTAL CONDITION, BOTH SURFACE
AND SUBSURFACE, AND THAT OPTIONEE ACCEPTS SAME IN ITS “AS IS, WHERE IS AND WITH
ALL FAULTS” CONDITION.  OPTIONEE HEREBY
WAIVES ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY
IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR
CONDITION, OR CONFORMITY TO SAMPLES.

ARTICLE 14. - CASUALTY LOSS AND
CONDEMNATION

If, prior to Closing, all or any material portion of
the Assets is destroyed by fire or other casualty or if any material portion of
the Assets shall be taken by condemnation or under the right of eminent domain
(all of which are herein called “Casualty Loss” and limited to property damage
or taking only), Optionee and Optionor must agree prior to Closing either that
(i) If the value of the Casualty Loss is in dispute, the Cash Payment or
payment by Optionor to Optionee at Closing shall be adjusted by an amount equal
to the average of Optionor’s and Optionee’s good faith estimates of the value
of the Casualty Loss, or (ii)  Optionee
shall proceed with the purchase of such Assets, notwithstanding any such
destruction or taking (without reduction of the Purchase Price)in which case
Optionor shall pay, at Closing, to Optionee all sums paid to Optionor by third
parties by reason of the destruction or taking of such Assets and 

 41
 

 

shall assign, transfer and set over unto Optionee all
insurance proceeds received by Optionor as well as all of the right, title and
interest of Optionor in and to any claims, causes of action, unpaid proceeds or
other payments from third parties arising out of such destruction or taking. In
either case, Optionor and Optionee shall each have the right, exercisable
within ninety (90) days after the Closing Date, to refer the disputed matter to
mediation and arbitration in accordance with the dispute resolution procedures
set forth in Exhibit “P”. After
the expiration of said ninety (90) day period the right to refer the matter to
mediation and arbitration shall terminate. 
Prior to Closing, Optionor shall not voluntarily compromise, settle or
adjust any amounts payable by reason of any Casualty Loss without first
obtaining the written consent of Optionee, which consent shall not be
unreasonably withheld.

ARTICLE 15. - DEFAULT AND REMEDIES

15.1.       Optionor’s
Remedies.

Upon failure of Optionee
to timely make the payments described in Section
2.3, or to materially comply with other material terms contained in
the Agreement, Optionor, at its sole discretion, and in addition to any other
remedies it may have at law or equity, may (i) enforce specific performance, or
(ii) terminate this Agreement and retain any and all previous payments made
hereunder.

15.2.       Optionee’s
Remedies.

Upon failure of Optionor
to materially comply with all material terms contained in this Agreement,
Optionee, at its sole option and in addition to any other remedies it may have
at law or equity, may (i) enforce specific performance, or (ii) terminate this
Agreement.

15.3.       Effect
of Termination.

In the event of
termination of this Agreement under this Article
15, the transaction shall not close and neither Optionee nor
Optionor shall have any further obligations, remedies, liabilities, rights or
duties to the other hereunder, except as expressly provided herein.

ARTICLE 16. - ASSUMPTION AND
INDEMNITY

16.1.       Assumed
Obligations; Pre-Closing Liabilities.

Upon and after Closing,
Optionee shall own the Assets, together with all the rights, duties,
obligations, and liabilities accruing with respect thereto, including the
Assumed Obligations and Optionee’s indemnity obligations hereunder.  Optionee agrees to assume and pay, perform,
fulfill and discharge all Assumed Obligations and Optionee’s indemnity
obligations.  Optionor agrees to retain
and pay, perform, fulfill and discharge all Retained Obligations, and Optionor’s
indemnity obligations.

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16.2.       Optionee’s
Indemnity.

OPTIONEE
AGREES TO INDEMNIFY, DEFEND AND HOLD OPTIONOR AND OPTIONOR’S EMPLOYEES,
OFFICERS AND DIRECTORS HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS,
LOSSES, DAMAGES, PUNITIVE DAMAGES, COSTS, EXPENSES, CAUSES OF ACTION OR
JUDGMENTS OF ANY KIND OR CHARACTER INCLUDING, WITHOUT LIMITATION, ANY INTEREST,
PENALTY, REASONABLE ATTORNEYS’ FEES AND OTHER COSTS AND EXPENSES INCURRED IN
CONNECTION THEREWITH OR THE DEFENSE THEREOF (COLLECTIVELY THE “CLAIMS”), WITH
RESPECT TO ALL LIABILITIES AND OBLIGATIONS OR ALLEGED OR THREATENED LIABILITIES
AND OBLIGATIONS CAUSED BY, RELATED TO, ATTRIBUTABLE TO, OR ARISING OUT OF THE
ASSUMED OBLIGATIONS.

IN ADDITION TO THE FOREGOING,
OPTIONEE AGREES TO INDEMNIFY, DEFEND AND HOLD OPTIONOR AND OPTIONOR’S
EMPLOYEES, OFFICERS AND DIRECTORS HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS,
DEMANDS, LOSSES, DAMAGES, PUNITIVE DAMAGES, COSTS, EXPENSES, CAUSES OF ACTION
OR JUDGMENTS OF ANY KIND OR CHARACTER INCLUDING, WITHOUT LIMITATION, ANY
INTEREST, PENALTY, REASONABLE ATTORNEYS’ FEES AND OTHER COSTS AND EXPENSES
INCURRED IN CONNECTION THEREWITH OR THE DEFENSE THEREOF (COLLECTIVELY THE “CLAIMS”),
WITH RESPECT TO ALL LIABILITIES AND OBLIGATIONS OR ALLEGED OR THREATENED
LIABILITIES AND OBLIGATIONS CAUSED BY, RELATED TO, ATTRIBUTABLE TO, OR ARISING
OUT OF OPTIONEE’S OPERATIONS AS TO THE ASSETS AS OF THE EXERCISE EFFECTIVE
TIME.

16.3        Optionor’s Indemnity.

OPTIONOR
AGREES TO INDEMNIFY, DEFEND AND HOLD OPTIONEE AND OPTIONEE’S EMPLOYEES,
OFFICERS AND DIRECTORS HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS WITH
RESPECT TO ALL LIABILITIES AND OBLIGATIONS OR ALLEGED OR THREATENED LIABILITIES
AND OBLIGATIONS CAUSED BY, RELATED TO, ATTRIBUTABLE TO, OR ARISING OUT OF (A)
THE RETAINED OBLIGATIONS and (B) TO THE EXTENT NOT ACCOUNTED FOR IN THE
CALCULATION OF THE PURCHASE PRICE PURSUANT TO SECTION 2.5, ENVIRONMENTAL
OBLIGATIONS AND LIABILITIES THAT FIRST AROSE FROM  OR OUT OF EVENTS OR CONDITIONS FIRST
OCCURRING BETWEEN OCTOBER 1, 2004 AND THE EXERCISE EFFECTIVE DATE.

IN ADDITION TO THE FOREGOING,
OPTIONOR AGREES TO INDEMNIFY, DEFEND AND HOLD OPTIONEE AND OPTIONEE’S
EMPLOYEES, OFFICERS AND DIRECTORS HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS,
DEMANDS, LOSSES, DAMAGES, PUNITIVE DAMAGES, COSTS, EXPENSES, CAUSES OF ACTION
OR JUDGMENTS OF ANY KIND OR CHARACTER INCLUDING, WITHOUT LIMITATION, ANY
INTEREST, PENALTY, REASONABLE ATTORNEYS’ FEES AND OTHER COSTS AND EXPENSES
INCURRED IN 

 43
 

 

CONNECTION
THEREWITH OR THE DEFENSE THEREOF (COLLECTIVELY THE “CLAIMS”), WITH RESPECT TO
ALL LIABILITIES AND OBLIGATIONS OR ALLEGED OR THREATENED LIABILITIES AND
OBLIGATIONS (IN EITHER CASE, OTHER THAN ENVIRONMENTAL OBLIGATIONS AND
LIABILITIES ASSUMED BY OPTIONEE PURSUANT TO SECTION 10.6) CAUSED BY, RELATED
TO, ATTRIBUTABLE TO, OR ARISING OUT OF OPTIONOR’S OPERATIONS AS TO THE ASSETS
PRIOR TO THE  EXERCISE EFFECTIVE TIME.

16.4.       Negligence.

THE
INDEMNIFICATION, RELEASE AND ASSUMPTION PROVISIONS PROVIDED FOR IN THIS
AGREEMENT SHALL BE APPLICABLE WHETHER OR NOT THE LOSSES, COSTS, EXPENSES AND
DAMAGES IN QUESTION AROSE SOLELY OR IN PART FROM THE ACTIVE, PASSIVE,
COMPARATIVE, OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OF THE
PARTIES HERETO.

16.5        Broker or Finder’s Fee.

Each party hereby agrees
to indemnify and hold the other harmless from and against any claim for a
brokerage or finder’s fee or commission in connection with this Agreement or
the transactions contemplated by this Agreement to the extent such claim arises
from or is attributable to the actions of such indemnifying party, including,
without limitation, any and all losses, damages, punitive damages, attorneys’
fees, costs and expenses of any kind or character arising out of or incurred in
connection with any such claim or defending against the same.

16.6        Threshold and Maximum Amounts.

No claim may be made
against an Indemnifying Party pursuant to this Article 16 unless, and only to
the extent that, the aggregate amount of all Claims exceeds $100,000.  The maximum aggregate liability of an
Indemnifying Party under this Article 16 shall be an amount equal to the
Purchase Price.

16.7                        Claim Procedures.

Each Person entitled to
indemnification under this Article 16 (the “Indemnified Party”) shall give written notice setting forth in
reasonable detail the basis of any Claim to the Party required to provide
indemnification (the “Indemnifying
Party”) promptly, but not later than fifteen (15) days, after such
Indemnified Party becomes aware of a Claim or receives written notice of any
Claim asserted by any person who is not a Party (or a successor to a Party) to
this Agreement (a “Third-Party Claim”)
that is or may give rise to an indemnification claim; provided that the failure of the
Indemnified Party to give notice as provided in this Section 16.7 shall not
relieve any Indemnifying Party of its obligations under Section 16.7, except to
the extent that such failure prejudices the rights of any such Indemnifying
Party.  The Indemnifying Party may elect
to assume the defense of any Third-Party Claim or any litigation resulting
therefrom; provided that counsel
for the Indemnifying Party, who shall in such case conduct the 

 44
 

 

defense of such claim, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be withheld), and the
Indemnified Party may participate in such defense at the Indemnified Party’s
expense, and may retain counsel of its choice at its own expense; provided further that the Indemnified
Party shall have the right to employ, at the Indemnifying Party’s expense, one
firm of counsel of its choice, to represent the Indemnified Party if, in the
Indemnified Party’s reasonable judgment, there exists a conflict of interest
between the Indemnified Party and the Indemnifying Party, or if the
Indemnifying Party (1) elects not to defend, compromise or settle a Third-Party
Claim, (2) fails to notify the Indemnified Party within ten (10) Business Days
of its election to defend after receipt of written notice of such Third-Party
Claim, or (3) having timely elected to defend a Third-Party Claim, fails
adequately to prosecute or pursue such defense, then in each case the
Indemnified Party may defend such Third-Party Claim on behalf of and for the
account and risk of the Indemnifying Party. 
The Indemnifying Party, in the defense of any Third-Party Claim, shall
not, except with the prior written approval of the Indemnified Party, consent
to entry of any judgment or entry into any settlement that does not include as
an unconditional term thereof the giving by the claimant or plaintiff to the
Indemnified Party of a release from all liability with respect thereto.  The Indemnified Party shall not settle or
compromise any such claim without the prior written approval of the
Indemnifying Party, which approval shall not be unreasonably withheld.  The Indemnified Party shall make its
employees available and furnish such information regarding itself or the Claim
in question as the Indemnifying Party may reasonably request in writing and as
shall reasonably be required in connection with the defense of a Third-Party
Claim.

ARTICLE 17. - GAS IMBALANCES

Optionor and Optionee
will use their best efforts to update (to the Exercise Effective Time) the gas
imbalance volume amounts listed on Exhibit “L.”  If, prior to the Final Settlement Date,
either party hereto notifies the other party hereto that the volumes set forth
in Exhibit “L” are incorrect, then
Optionee or Optionor will pay the other at the Final Settlement, as
appropriate, an amount equal to the NYMEX price at the end of the month in
which the variance occurs, per net mmbtu variance from the net imbalance shown
on Exhibit “L.”  Subject to such adjustment on the Final
Settlement Date, as of the Closing Optionee agrees to assume any liability and
obligation for gas production imbalances (whether over or under) attributable
to the Assets.  Except as set forth in
this Article 17, in assuming this
liability at Closing, Optionee shall not be obligated to make any additional
payment over the Purchase Price to Optionor, and Optionor shall not be
obligated to refund any of said price to reimburse Optionee for any
over-balances existing at the time of sale.

 

 45

 

 

ARTICLE 18. -
PREFERENTIAL RIGHT TO PURCHASE 

AND AREA OF MUTUAL
INTEREST PROVISION

18.1        Preferential Right to Purchase.

This Agreement is also made
expressly subject to a preferential right to Purchase, the terms and conditions
of which are as follows:

(a)               In the event Optionor or Optionee
receives a bona fide offer from a third party to purchase all or a part of the
interests of Optionor (reserved overriding royalty interest, Volumetric
Production Payment (if any) or reversionary working interest, before or after
reversion) or Optionee (the “Selling Party”)
in the West Hastings Unit, the West Hastings Unit Lands or the Hastings Field
lands, or other jointly owned lands within the Area of Mutual Interest
(including interests hereafter owned or acquired), and once the Selling Party
and a proposed transferee have fully negotiated the principal terms and
conditions of a transfer (which principal terms shall include all material
terms and conditions necessary for a purchaser to make an informed decision including,
but not necessarily limited to, price, timing, scope, character and description
of the interests to be transferred, agreed indemnities, reservations and
exclusions), Selling Party shall disclose such principal terms and conditions
in detail to the other party to this Agreement (the “Receiving Party”) in a written notice.  Receiving Party shall have the right to
acquire the interest proposed to be transferred from the Selling Party on the
same terms and conditions agreed to by the proposed transferee if, within ten
(10) Days after receipt of Selling Party’s written notice, the Receiving Party
delivers to the Selling Party a counter-notification that Receiving Party
accepts the agreed upon terms and conditions of the transfer without
reservations or conditions.  If the
Receiving Party does not deliver such counter-notification, the transfer to the
proposed transferee may be made, subject to the provisions of this Agreement,
under terms and conditions no more favorable to the transferee than those set
forth in the notice to Receiving Party, provided that the transfer shall be
concluded within one hundred eighty (180) days from the date of Optionee’s
receipt of Selling Party’s written notice. 
In the event the proposed sale of the interest to a third party is
timely consummated, the preferential right to purchase shall no longer attach
to the interest transferred to the third party. 
In the event the proposed sale of the interest to the third party is not
consummated, then the preferential right to purchase such interest shall be
reinstated as to any future offers to purchase the interest.

(b)               In the event Selling Party’s
proposed transfer of part or all of its interest in the West Hastings Unit, the
West Hastings Unit Lands or the Hastings Field lands, or other jointly owned
lands within the Area of Mutual Interest, involves consideration other than
cash or involves other properties included in a wider asset sale transaction
(package deal), then the interest to be assigned by Selling Party (or part thereof)
shall be allocated a reasonable and justifiable cash value in the notification
to Receiving Party.  Receiving Party may
satisfy the requirements of this Article 18.1
by agreeing to pay such cash value in lieu of the consideration payable in the
third-party offer.

 46
 

 

 

(c)                The preferential right to
purchase shall be applicable to any transfer of all or a portion of either
Parties’ interest in the West Hastings Unit, the West Hastings Unit Lands or
the Hastings Field lands, or other jointly owned lands within the Area of
Mutual Interest, including the transfer of the reserved overriding royalty
interest and/or the Reversionary Interest, whether directly or indirectly by
assignment, merger, consolidation, or sale of stock, or other conveyance, other
than such transfers that are made to (i) an affiliate, subsidiary, or parent
company existing as of the date of this Agreement or (ii) a new affiliated
entity created after the date of this Agreement for the express purpose of
forming a master limited partnership, which master limited partnership is
controlled by the new affiliate, Venoco, Inc. or Denbury Resources Inc. for a
minimum of twelve (12) months following the transfer.

(d)                A sale or merger involving
Optionor’s parent, Venoco, Inc., or the sale of all or substantially all of
Venoco’s assets through merger, business combination or other transaction,
including transactions involving Optionor are hereby expressly excluded from
the terms of this Article 18.
Likewise, a sale or merger involving Optionee’s parent, Denbury Resources Inc.,
or the sale of all or substantially all of Denbury Resources Inc.’s assets
through merger, business combination or other transaction, including
transactions involving Optionee are hereby expressly excluded from the terms of
this Article 18.

18.2.           Area of Mutual Interest Provision.

(a)   The Parties hereby agree to the
establishment of an Area of Mutual Interest which shall encompass all of those
lands within the area outlined in blue on the plat attached hereto as Exhibit “O”,  and which are more fully described on Exhibit “O-1” hereto, which area shall hereinafter sometimes
be referred to as an “Area of Mutual Interest”.

If, after the Agreement Effective Time, either party to this Agreement (“Acquiring Party”) acquires either an oil
and gas lease or mineral interest (or any interest therein), royalty interest,
or an option to acquire an oil and gas lease, or any other oil and/or gas
interest covering lands lying within the Area of Mutual Interest, including
oil, gas and mineral leases acquired pursuant to the exercise of any options
(all of the foregoing hereinafter sometimes being referred to as “Oil and Gas Interests”), or if the
Acquiring Party enters into any type of agreement by which an Oil and Gas
Interest may be acquired or otherwise earned by conducting drilling, seismic,
or other operations on the lands lying within the Area of Mutual Interest, then
the Acquiring Party shall promptly notify the other party of such acquisition
or such agreement.  If either party to
this Agreement acquires an Oil and Gas Interest covering lands within the
geographical confines of the Area of Mutual Interest, the other party shall
have the right to participate in any such acquisition of such Oil and Gas
Interest as set forth below.  If, after
the Effective Time of this Agreement, additional parties acquire an interest
from the original Parties in the Area of Mutual Interest, in the event not all
parties elect to participate in an acquisition, then any such non-participating
party’s interests shall be offered in writing to the other participating
parties in the proportions that their ownership interests in the Area of Mutual
Interest at the time of the acquisition bear to the total of the 

 47
 

 

ownership
interests of all participating parties in the acquisition.  In the event any acquired Oil and Gas
Interest includes lands within and outside the Area of Mutual Interest, the
entire Oil and Gas Interest shall be included within the AMI.

(b)           The notification provided for in
Paragraph (b) above shall contain all available title information and copies of
leases, agreements by which the Oil and Gas Interest may be acquired, and all
other pertinent instruments and information regarding the proposed
acquisition.  It shall also describe in
detail the cost and expense of such acquisition and any other obligation that
may be incurred pursuant thereto.

(c)           If the acquisition requires drilling,
seismic, or other operations on the lands lying within the Area of Mutual
Interest, the election of a party to participate in such operations shall
constitute an election to participate in the agreement governing such
operations, to the extent necessary to acquire the interest.  No party shall be required to make such an
election more than sixty (60) days or less than thirty (30) days prior to the
commencement of initial operations.

(d)           To receive an assignment of its
proportionate share of the Oil and Gas Interest acquired as a result of
conducting drilling, seismic, or other operations on the Area of Mutual
Interest, a Participating Party must have:

(1)           Participated in all
operations necessary for the acquisition of the Oil and Gas Interest, and also
must have paid all costs and expenses incurred in connection therewith;

(2)           Participated in any
previous drilling, seismic, or other operations that were necessary or were a
condition precedent to the operations resulting in the acquisition of the Oil
and Gas Interest; and

(3)           Participated in
accordance with the terms, provisions, covenants, and conditions of the
agreements governing the acquisition of an Oil and Gas Interest.

(e)               If drilling, seismic, or other
operations are not required to acquire the Oil and Gas Interest, the party
entitled to receive notice set forth in Section
18.2(b) shall have thirty (30) days from receipt of written notice
thereof in which to elect to participate in such acquisition as set forth
hereinbelow and in Section 18.2(h).  Failure to give written notice to the
Acquiring Party of its election, as specified herein, shall constitute an
election not to participate.  If a party
elects to participate in such acquisition as set forth herein, such party (“Participating Party”) shall reimburse the
Acquiring Party for its proportionate share of the costs thereof within fifteen
(15) days of receipt of an invoice from the Acquiring Party setting forth in
detail the cost and expense of such acquisition.  The Acquiring Party shall, within thirty (30)
days after receipt of payment from a Participating Party, assign to the Participating
Party the Participating Party’s proportionate interest in the acquisition,
subject to any applicable burdens on such Participating Party’s interest in the
acquisition.

 48
 

 

 

(f)                All Participating Parties shall
be entitled to participate in any acquisition within the Area of Mutual
Interest on a ground floor basis and subject to no additional burdens placed on
an acquisition by the Acquiring Party. For purposes of this Agreement the
Optionor’s interest in the Area of Mutual Interest shall be twenty-five percent
(25%) and Optionee’s interest seventy-five percent (75%).

(g)           In the event the Parties acquire any
Oil and Gas Interest within the Area of Mutual Interest prior to the Exercise
Effective Time, then any Oil and Gas Interest acquired by the Optionor shall be
included in the Designated Interests to be acquired by the Optionee and shall
be valued and conveyed in accordance with the terms of this Agreement.  Additionally, should the Optionee acquire any
Oil and Gas Interest in the Area of Mutual Interest and elect not to exercise
its Option to Purchase the Assets, Optionee shall give Optionor the right to
acquire any such acquired Oil and Gas Interest at its offered cost as set forth
hereinabove.

(h)               For purposes of this Section 18.2, the term “Oil and Gas Interest” shall also include
surface rights or interests (including easements, rights-of-way, and surface
ownership) in lands lying within the Area of Mutual Interest, and options to
acquire such surface rights or interests, and any surface rights or interests
acquired pursuant to the exercise of any options. Notwithstanding the
foregoing, Optionor and Optionee specifically exclude from this Area of Mutual
Interest any surface rights or interests (including easements, rights-of-way,
and surface ownership) acquired by Optionee for the sole purpose of
constructing and operating a CO2 pipeline to deliver CO2 to the Hastings Field.

(i)                The terms of this Section 18.2. shall remain in full force
and effect covering the lands lying within the Area of Mutual Interest for a
period of ten (10) years commencing from the Agreement Effective Time, unless
extended for an additional period or terminated earlier by written agreement of
the Parties.

ARTICLE 19. -
MISCELLANEOUS

19.1.       Receivables and other Excluded Funds.

Optionee shall be under no
obligation to collect on behalf of Optionor any receivables or other funds
included in the Excluded Assets and described in Section 1.29(e) above. 
With respect to receivables, Optionee shall be free to treat the
interests of any party with a delinquent receivable in any manner deemed
appropriate by Optionee.

19.2.       Public Announcements.

Each Party hereto may publicly
disclose information with respect to the transaction contemplated by this
Agreement (i) to any state or federal governmental authority or agency to the
extent required by applicable law or by any applicable rules, regulations or
orders of any governmental authority or agency having jurisdiction; or (ii) as
may be necessary to comply with disclosure requirements of the Securities and 

 49
 

 

Exchange Commission and the New York
Stock Exchange or other recognized exchange and any other applicable securities
laws.

19.3.       Filing and Recording of Assignments,
etc.

Optionee shall be solely responsible
for all filings and the prompt recording of assignments and other documents
related to the Assets and for all fees connected therewith, including the fees
charged by any regulatory authority in connection with the change of operator,
and Optionee shall furnish certified copies of all such filed and/or recorded
documents to Optionor within ten (10) days of Optionee’s receipt of the
recorded instruments.  Optionor shall not
be responsible for any loss to Optionee because of Optionee’s failure to file
or record documents correctly or promptly. 
Optionee shall not be responsible for any loss to Optionor because of
Optionor’s failure to record this document correctly or promptly.  Optionee shall promptly file all appropriate
forms, declarations or bonds with federal and state agencies relative to its
assumption of operations and Optionor shall cooperate with Optionee in
connection with such filings.

19.4.       Further Assurances and Records.

(a)           Each of the Parties will execute,
acknowledge and deliver to the other such further instruments, and take such
other action, as may be reasonably requested in order to more effectively
assure to said party all of the respective properties, rights, titles,
interests, estates, and privileges intended to be assigned, delivered or
inuring to the benefit of such party in consummation of the transactions contemplated
hereby.  Without limiting the foregoing,
in the event Exhibits “A-1” through “A-4”,
inclusive, incorrectly or insufficiently describes or references or omits the
description of a property or interest intended to be conveyed hereby as
described in Sections 1.34
(Leases) or 1.54 (Personal
Property) above, Optionor agrees to, within twenty (20) days of Optionor’s
receipt of Optionee’s written request, together with supporting documentation
satisfactory to Optionor, correct such Exhibit and/or execute an amended
assignment or other appropriate instruments necessary to transfer the property
or interest intended to be conveyed hereby to Optionee.

(b)           Optionee agrees to maintain the files
and records of Optionor that are acquired pursuant to this Agreement for seven
(7) years after the Closing.  Optionee
shall provide Optionor and its representatives reasonable access to and the
right to copy such files and records for the purposes of (i) preparing and
delivering any accounting provided for under this Agreement and adjusting,
prorating and settling the charges and credits provided for in this Agreement;
(ii) complying with any law, rule or regulation affecting Optionor’s interest
in the Assets prior to the Closing Date; (iii) preparing any audit of the books
and records of any third party relating to Optionor’s interest in the Assets
prior to the Closing Date, or responding to any audit prepared by such third
parties; (iv) preparing tax returns; (v) responding to or disputing any tax
audit; or (vi) asserting, defending or otherwise dealing with any claim or
dispute under this Agreement or as to the Assets.

 50
 

 

 

(c)           Optionor agrees that within thirty
(30) days after Closing or within thirty (30) days after operations are
actually transferred of record with the Texas Railroad Commission, whichever is
later, it will remove or cause to be removed its signs and the names and marks
used by Optionor and all variations and derivatives thereof and logos relating
thereto from the Assets and will not thereafter make any use whatsoever of such
names, marks and logos.

(d)           Optionor agrees to continue to use
all reasonable efforts, but without any obligation to incur any cost or expense
in connection therewith, and to cooperate with Optionee’s efforts to obtain for
Optionee (i) access to files, records and data relating to the Assets in the
possession of third parties; and (ii) access to wells constituting a part of
the Assets operated by third parties for purposes of inspecting same.

(e)           Optionee shall comply with all
current and subsequently amended applicable laws, ordinances, rules, and
regulations applicable to the Assets and shall promptly obtain and maintain all
permits required by governmental authorities in connection with the Assets.

19.5.       Notices.

Except as otherwise expressly
provided herein, all communications required or permitted under this Agreement
shall be in writing and may be given by personal delivery, facsimile, US mail
(postage prepaid), or commercial delivery service, and any communication
hereunder shall be deemed to have been duly given and received when actually
delivered to the address of the Parties to be notified as set forth below and
addressed as follows:

If to Optionor, as follows:

	
  

  	
  TexCal Energy South Texas L.P.

  	
   

  
	
   

  	
  c/o Venoco, Inc.

  	
   

  
	
   

  	
  370 17th Street

  	
   

  
	
   

  	
  Suite 2950

  	
   

  
	
   

  	
  Denver, Colorado 80202

  	
   

  
	
   

  	
  Attention:

  	
  William Schneider

  
	
   

  	
   

  	
  President

  
	
   

  	
  Telephone:

  	
  (303) 626-831

  
	
   

  	
  Facsimile:

  	
  (303) 626-8315

  
				

 

with
copies to:

 

	
  

  	
  TexCal Energy South Texas L.P.

  	
   

  
	
   

  	
  1020 Main Street, Suite 2500

  	
   

  
	
   

  	
  Houston, Texas 77002

  	
   

  
	
   

  	
  Attention:

  	
  Jeffrey T. Janik

  
	
   

  	
   

  	
  Senior Vice President

  
	
   

  	
  Telephone:

  	
  (713) 533-4000

  
				

 51
 

 

 

	
  

  	
  Facsimile:

  	
  (713) 533-4060

  

 

and

 

	
  

  	
  Venoco, Inc.

  	
   

  
	
   

  	
  6267 Carpinteria Ave.

  	
   

  
	
   

  	
  Carpinteria, CA 93013

  	
   

  
	
   

  	
  Attention:

  	
  General Counsel

  
	
   

  	
  Telephone:

  	
  (805) 745-2253

  
	
   

  	
  Facsimile:

  	
  (805) 745-1816

  
				

 

If to Optionee, as follows:

 

	
  

  	
  Denbury Onshore, LLC

  	
   

  
	
   

  	
  5100 Tennyson Parkway

  	
   

  
	
   

  	
  Suite 1200

  	
   

  
	
   

  	
  Plano, Texas 75024

  	
   

  
	
   

  	
  Attention:

  	
  Ray Dubuisson

  
	
   

  	
   

  	
  Vice President-Land

  
	
   

  	
  Telephone:

  	
  (972)-673-2044

  
	
   

  	
  Facsimile:

  	
  (972)-673-2299

  
				

 

Provided, however, that any notice required or
permitted under this Agreement will be effective if given verbally within the
time provided, so long as such verbal notice is followed by written notice
thereof in the manner provided herein within twenty-four (24) hours following
the end of such time period.  Any party
may, by written notice so delivered to the other, change the address to which
delivery shall thereafter be made.

19.6.       Incidental Expenses.

Optionee shall bear and pay (i) all
state or local government sales, transfer, gross proceeds, or similar taxes
incident to or caused by the transfer of any of the Assets to Optionee, (ii)
all documentary, transfer and other state and local government taxes incident
to the transfer of any of the Assets to Optionee; and (iii) all filing,
recording or registration fees for any assignment or conveyance delivered
hereunder.  Each party shall bear its own
respective expenses incurred in connection with the negotiation and closing of
this transaction, including it own consultants’ fees, attorneys’ fees,
accountants’ fees, and other similar costs and expenses.

19.7.       Waiver.

Any of the terms, provisions,
covenants, representations, warranties or conditions hereof may be waived only
by a written instrument executed by the party waiving compliance.  Except as otherwise expressly provided in
this Agreement, the failure of any party at any time or times to require
performance of any provision hereof shall in no manner affect such party’s
right to enforce the same.  No waiver by
any party of any condition, or of the breach of any term, provision, covenant,
representation or warranty contained in this Agreement, whether by conduct or
otherwise, in any one or 

 52
 

 

more instances, shall be deemed to
be or construed as a further or continuing waiver of any such condition or
breach or a waiver of any other condition or of the breach of any other term,
provision, covenant, representation or warranty.

19.8.       Binding Effect; Assignment.

All the terms, provisions,
covenants, obligations, indemnities, representations, warranties and conditions
of this Agreement shall be covenants running with the land and shall inure to
the benefit of, and be binding upon, and shall be enforceable by, the parties
hereto and their respective successors and assigns.  The rights of Optionee under this Agreement
to acquire the Assets are personal and this Agreement may not be assigned or
transferred by Optionee to any other party, firm, corporation or other entity,
without the prior, express and written consent of Optionor, and such consent
may be withheld for any reason, including convenience.  Any attempt to assign this Agreement by
Optionee over the objection or without the express written consent of the Optionor
shall be absolutely void.  Optionor may
condition its consent to assign this Agreement on Optionee providing Optionor
with an appropriate guarantee of its assignee’s performance.  Any subsequent transfer of this Agreement or
of all or any part of the Assets shall be made expressly subject to the terms
and provisions of this Agreement.

19.9.       Taxes.

(a)           Optionor and Optionee agree that this
transaction may be subject to the reporting requirement of Section 1060 of the
Internal Revenue Code of 1986, as amended, and that, therefore, IRS Form 8594,
Asset Acquisition Statement, will be filed for this transaction.  The Parties will confer and cooperate in the
preparation and filing of their respective forms to reflect a consistent
reporting of the agreed upon allocation.

(b)           Optionor shall be responsible for all
state, local and federal property, ad valorem, excise, and severance taxes
attributable to or arising from the ownership or operation of the Assets prior
to the Exercise Effective Time.  Optionee
shall be responsible for all property and severance taxes attributable to or
arising from the ownership or operation of the Assets after the Exercise
Effective Time.  Any party which pays
such taxes for the other party shall be entitled to prompt reimbursement upon
evidence of such payment.  Each party
shall be responsible for its own federal and state income taxes, if any, as may
result from this transaction.

(c)           If this transaction is determined to
result in state sales or transfer taxes, Optionee shall be solely responsible
for any and all such taxes due on the Assets acquired by Optionee by virtue of
this transaction.  If Optionee is
assessed such taxes, Optionee shall promptly remit same to the taxing
authority.  If Optionor is assessed such
taxes, Optionee shall reimburse Optionor for any such taxes paid by Optionor to
the taxing authority.

 53
 

 

 

19.10.     Audits.

It is expressly understood and
agreed that Optionor retains its right to receive its proportionate share of
the proceeds from any audits relating to activities prior to the Exercise
Effective Time, and Optionor shall likewise pay its share of any costs
attributable to the period prior to the Effective Time resulting from any such
audits.

19.11.     Governing Law.

THIS AGREEMENT SHALL BE GOVERNED,
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS OTHERWISE APPLICABLE TO SUCH
DETERMINATIONS.

19.12.     Mediation and Arbitration.

The Parties stipulate and agree that any and all claims and/or
controversies arising between Optionor and Optionee which relate to and arise
out of this Agreement shall be resolved in accordance with the mediation and
arbitration procedures set forth in Exhibit “P.”  The prevailing party in any legal proceeding
or arbitration may be entitled to recover all arbitration costs and reasonable
attorneys’ fees from the non-prevailing party, as determined by the arbitrators
in accordance with the procedures set forth in Exhibit “P.”

19.13.     Entire Agreement.

This Agreement, including the
Exhibits attached hereto, embodies the entire agreement between the Parties and
replaces and supersedes all prior agreements, arrangements and understandings
related to the subject matter hereof, whether written or oral.  No other agreement, statement, or promise
made by any party, or to any employee, officer or agent of any party, which is
not contained in this Agreement shall be binding or valid.  This Agreement may be supplemented, altered,
amended, modified or revoked by a writing only, signed by the Parties
hereto.  The headings herein are for
convenience only and shall have no significance in the interpretation
hereof.  The Parties stipulate and agree
that this Agreement shall be deemed and considered for all purposes, as
prepared through the joint efforts of the Parties, and shall not be construed
against one party or the other as a result of the preparation, submittal or
other event of negotiation, drafting or execution thereof.  It is understood and agreed that there shall
be no third-party beneficiary of this Agreement, and that the provisions hereof
do not impart enforceable rights in anyone who is not a direct, initial party
hereto.

19.14.     Severability.

If any provision of this Agreement
is found by a court of competent jurisdiction to be invalid or unenforceable,
that provision will be deemed modified to the extent necessary to make it valid
and enforceable, and if it cannot be so modified, it 

 54
 

 

shall be deemed deleted and the
remainder of the Agreement shall continue and remain in full force and effect.

19.15.     Exhibits.

All Exhibits attached to this
Agreement, and the terms of those Exhibits which are referred to in this
Agreement, are made a part hereof and incorporated herein by reference.

19.16.     Survival.

Unless otherwise
specifically provided in this Agreement, all of the representations,
warranties, indemnities, covenants and agreements of or by the Parties hereto
shall survive the execution and delivery of the each Conveyance, Assignment and
Bill of Sale.  Additionally, those
provisions set forth in Section 6.3 shall survive the execution and delivery of
the Conveyance, Assignment and Bill of Sale, and shall be deemed as between the
Parties, there successors and assigns to be covenants running with the land.

19.17.     Subsequent Adjustments.

Regardless of the date set for the Final
Settlement, Optionee and Optionor agree that their intent is to allow for the
earliest practical forwarding of revenue and reimbursement of expenses between
them, and Optionor and Optionee recognize that either may receive funds or pay
expenses after the Final Settlement Date which are properly the property or
obligation of the other.  Therefore, upon
receipt of net proceeds or payment of net expenses due to or payable by the
other party hereto, whichever occurs first, Optionor or Optionee, as the case
may be, shall submit a statement to the other party hereto showing the relevant
items of income and expense with supporting documentation. Payment of any net
amount due by Optionor or Optionee, as the case may be, on the basis thereof
shall be made within ten (10) days of receipt of the statement.

19.18.     Counterparts.

This Agreement may be executed in
any number of counterparts, and each and every counterpart shall be deemed for
all purposes one (1) agreement.

19.19.     Subrogation.

To the fullest extent allowed by law
and the applicable agreements with third parties, Optionor grants Optionee a
right of subrogation in all claims or rights Optionor may have against third
parties to the extent they relate to the Assumed Obligations.

 55
 

 

 

19.20.     Suspended Monies.

At
Closing, Optionor shall deliver to Optionee the monies held in suspense by
Optionor for the account of third parties, or relate to a title dispute or
question as to ownership, along with any documentation in Optionor’s possession
or available to Optionor in support of such suspended funds.  Any additional monies of this nature received
by Optionor after Closing shall be remitted to Optionee within one hundred
twenty (120) days after the Closing hereof. 
At Closing, Optionee shall assume the obligation for the payment of
these monies.

19.21.     Optionee as Operator.

After the Closing Date, Optionee shall operate, manage, and administer the
Assets as a reasonable prudent operator and in a good and workmanlike manner in
accordance with the West Hastings Unit Operating Agreement.  The Parties acknowledge that changes and
amendments to the West Hastings Unit Operating Agreement may become necessary
and required by both Parties and will be negotiated as needed.  These changes and amendments may be in the
form of changes and amendments to the existing West Hastings Unit Operating
Agreement, a new unit operating agreement, or a side letter agreement.

IN
WITNESS WHEREOF, the Parties have executed this Agreement as of the date first
above written.

	
   

  	
  TEXCAL ENERGY SOUTH TEXS, L.P.

  
	
   

  	
   

  	
  By: TEXCAL ENERGY (GP) LLC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ William Schneider

  
	
   

  	
   

  	
  William Schneider

  
	
   

  	
   

  	
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  DENBURY ONSHORE, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ H. Raymond Dubuisson

  
	
   

  	
   

  	
  H. Raymond Dubuisson

  
	
   

  	
   

  	
  Vice President-Land

  

 

 56Exhibit 4.5

 

TRINITY
CAPITAL CORPORATION,

as Issuer

 

 

INDENTURE

Dated as
of September 21, 2006

WILMINGTON
TRUST COMPANY,

as Trustee

 

 

FIXED/FLOATING
RATE JUNIOR SUBORDINATED DEFERRABLE INTEREST

DEBENTURES

DUE 2036

 

 

 

TABLE OF
CONTENTS

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I. DEFINITIONS

  	
   

  	
  1

  
	
   

  	
   

  	
   

  
	
  Section 1.1.

  	
   

  	
  Definitions.

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE II. DEBENTURES

  	
   

  	
  8

  
	
   

  	
   

  	
   

  
	
  Section 2.1.

  	
   

  	
  Authentication and Dating.

  	
   

  	
  8

  
	
  Section 2.2.

  	
   

  	
  Form of Trustee’s Certificate of Authentication.

  	
   

  	
  9

  
	
  Section 2.3.

  	
   

  	
  Form and Denomination of Debentures.

  	
   

  	
  9

  
	
  Section 2.4.

  	
   

  	
  Execution of Debentures.

  	
   

  	
  9

  
	
  Section 2.5.

  	
   

  	
  Exchange and Registration of Transfer of Debentures.

  	
   

  	
  10

  
	
  Section 2.6.

  	
   

  	
  Mutilated, Destroyed, Lost or Stolen Debentures.

  	
   

  	
  12

  
	
  Section 2.7.

  	
   

  	
  Temporary Debentures.

  	
   

  	
  12

  
	
  Section 2.8.

  	
   

  	
  Payment of Interest and Additional Interest.

  	
   

  	
  13

  
	
  Section 2.9.

  	
   

  	
  Cancellation of Debentures Paid, etc.

  	
   

  	
  14

  
	
  Section 2.10.

  	
   

  	
  Computation of Interest.

  	
   

  	
  14

  
	
  Section 2.11.

  	
   

  	
  Extension of Interest Payment Period.

  	
   

  	
  15

  
	
  Section 2.12.

  	
   

  	
  CUSIP Numbers.

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III. PARTICULAR COVENANTS OF THE COMPANY

  	
   

  	
  17

  
	
   

  	
   

  	
   

  
	
  Section 3.1.

  	
   

  	
  Payment of Principal, Premium and Interest; Agreed
  Treatment of the Debentures.

  	
   

  	
  17

  
	
  Section 3.2.

  	
   

  	
  Offices for Notices and Payments, etc.

  	
   

  	
  17

  
	
  Section 3.3.

  	
   

  	
  Appointments to Fill Vacancies in Trustee’s Office.

  	
   

  	
  18

  
	
  Section 3.4.

  	
   

  	
  Provision as to Paying Agent.

  	
   

  	
  18

  
	
  Section 3.5.

  	
   

  	
  Certificate to Trustee.

  	
   

  	
  19

  
	
  Section 3.6.

  	
   

  	
  Additional Sums.

  	
   

  	
  19

  
	
  Section 3.7.

  	
   

  	
  Compliance with Consolidation Provisions.

  	
   

  	
  19

  
	
  Section 3.8.

  	
   

  	
  Limitation on Dividends.

  	
   

  	
  19

  
	
  Section 3.9.

  	
   

  	
  Covenants as to the Trust.

  	
   

  	
  20

  
	
  Section 3.10.

  	
   

  	
  Additional Junior Indebtedness.

  	
   

  	
  20

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IV. SECURITYHOLDERS’ LISTS AND REPORTS BY
  THE COMPANY AND THE TRUSTEE

  	
   

  	
  20

  
	
   

  	
   

  	
   

  
	
  Section 4.1.

  	
   

  	
  Securityholders’ Lists.

  	
   

  	
  20

  
	
  Section 4.2.

  	
   

  	
  Preservation and Disclosure of Lists.

  	
   

  	
  21

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE V. REMEDIES OF THE TRUSTEE AND
  SECURITYHOLDERS UPON AN EVENT OF DEFAULT

  	
   

  	
  22

  
	
   

  	
   

  	
   

  
	
  Section 5.1.

  	
   

  	
  Events of Default.

  	
   

  	
  22

  
	
  Section 5.2.

  	
   

  	
  Payment of Debentures on Default; Suit Therefor.

  	
   

  	
  23

  
	
  Section 5.3.

  	
   

  	
  Application of Moneys Collected by Trustee.

  	
   

  	
  25

  
	
  Section 5.4.

  	
   

  	
  Proceedings by Securityholders.

  	
   

  	
  25

  
	
  Section 5.5.

  	
   

  	
  Proceedings by Trustee.

  	
   

  	
  25

  
	
  Section 5.6.

  	
   

  	
  Remedies Cumulative and Continuing; Delay or
  Omission Not a Waiver.

  	
   

  	
  25

  

 

 i
 

 

 

	
  Section 5.7.

  	
   

  	
  Direction of Proceedings and Waiver of Defaults by
  Majority of Securityholders.

  	
   

  	
  26

  
	
  Section 5.8.

  	
   

  	
  Notice of Defaults.

  	
   

  	
  26

  
	
  Section 5.9.

  	
   

  	
  Undertaking to Pay Costs.

  	
   

  	
  27

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VI. CONCERNING THE TRUSTEE

  	
   

  	
  27

  
	
   

  	
   

  	
   

  
	
  Section 6.1.

  	
   

  	
  Duties and Responsibilities of Trustee.

  	
   

  	
  27

  
	
  Section 6.2.

  	
   

  	
  Reliance on Documents,
  Opinions, etc.

  	
   

  	
  28

  
	
  Section 6.3.

  	
   

  	
  No Responsibility for Recitals, etc.

  	
   

  	
  29

  
	
  Section 6.4.

  	
   

  	
  Trustee, Authenticating Agent, Paying Agents,
  Transfer Agents or Registrar May Own Debentures.

  	
   

  	
  29

  
	
  Section 6.5.

  	
   

  	
  Moneys to be Held in Trust.

  	
   

  	
  29

  
	
  Section 6.6.

  	
   

  	
  Compensation and Expenses of Trustee.

  	
   

  	
  29

  
	
  Section 6.7.

  	
   

  	
  Officers’ Certificate as Evidence.

  	
   

  	
  30

  
	
  Section 6.8.

  	
   

  	
  Eligibility of Trustee.

  	
   

  	
  30

  
	
  Section 6.9.

  	
   

  	
  Resignation or Removal of Trustee

  	
   

  	
  30

  
	
  Section 6.10.

  	
   

  	
  Acceptance by Successor Trustee.

  	
   

  	
  31

  
	
  Section 6.11.

  	
   

  	
  Succession by Merger, etc.

  	
   

  	
  32

  
	
  Section 6.12.

  	
   

  	
  Authenticating Agents.

  	
   

  	
  33

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VII. CONCERNING THE SECURITYHOLDERS

  	
   

  	
  33

  
	
   

  	
   

  	
   

  
	
  Section 7.1.

  	
   

  	
  Action by Securityholders.

  	
   

  	
  33

  
	
  Section 7.2.

  	
   

  	
  Proof of Execution by Securityholders.

  	
   

  	
  34

  
	
  Section 7.3.

  	
   

  	
  Who Are Deemed Absolute Owners.

  	
   

  	
  34

  
	
  Section 7.4.

  	
   

  	
  Debentures Owned by Company Deemed Not Outstanding.

  	
   

  	
  34

  
	
  Section 7.5.

  	
   

  	
  Revocation of Consents; Future Holders Bound.

  	
   

  	
  35

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE VIII. SECURITYHOLDERS’ MEETINGS

  	
   

  	
  35

  
	
   

  	
   

  	
   

  
	
  Section 8.1.

  	
   

  	
  Purposes of Meetings.

  	
   

  	
  35

  
	
  Section 8.2.

  	
   

  	
  Call of Meetings by Trustee.

  	
   

  	
  35

  
	
  Section 8.3.

  	
   

  	
  Call of Meetings by Company or Securityholders.

  	
   

  	
  36

  
	
  Section 8.4.

  	
   

  	
  Qualifications for Voting.

  	
   

  	
  36

  
	
  Section 8.5.

  	
   

  	
  Regulations.

  	
   

  	
  36

  
	
  Section 8.6.

  	
   

  	
  Voting.

  	
   

  	
  36

  
	
  Section 8.7.

  	
   

  	
  Quorum; Actions.

  	
   

  	
  37

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE IX. SUPPLEMENTAL INDENTURES

  	
   

  	
  37

  
	
   

  	
   

  	
  38

  
	
  Section 9.1.

  	
   

  	
  Supplemental Indentures without Consent of
  Securityholders.

  	
   

  	
  38

  
	
  Section 9.2.

  	
   

  	
  Supplemental Indentures with Consent of
  Securityholders.

  	
   

  	
  39

  
	
  Section 9.3.

  	
   

  	
  Effect of Supplemental Indentures.

  	
   

  	
  39

  
	
  Section 9.4.

  	
   

  	
  Notation on Debentures.

  	
   

  	
   

  
	
  Section 9.5.

  	
   

  	
  Evidence of Compliance of Supplemental Indenture to
  be Furnished to Trustee.

  	
   

  	
  40

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE X. REDEMPTION OF SECURITIES

  	
     

  	
  40

  
	
   

  	
   

  	
   

  
	
  Section 10.1.

  	
   

  	
  Optional Redemption.

  	
   

  	
  40

  
	
  Section 10.2.

  	
   

  	
  Special Event Redemption.

  	
   

  	
  40

  
	
  Section 10.3.

  	
   

  	
  Notice of Redemption; Selection of Debentures.

  	
   

  	
  40

  
	
  Section 10.4.

  	
   

  	
  Payment of Debentures Called for Redemption.

  	
   

  	
  41

  

 

 ii
 

 

 

	
  ARTICLE XI. CONSOLIDATION, MERGER, SALE,
  CONVEYANCE AND LEASE

  	
   

  	
  41

  
	
   

  	
   

  	
   

  
	
  Section 11.1.

  	
   

  	
  Company May Consolidate, etc., on Certain Terms.

  	
   

  	
  41

  
	
  Section 11.2.

  	
   

  	
  Successor Entity to be Substituted.

  	
   

  	
  42

  
	
  Section 11.3.

  	
   

  	
  Opinion of Counsel to be Given to Trustee.

  	
   

  	
  42

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XII. SATISFACTION AND DISCHARGE OF INDENTURE

  	
   

  	
  42

  
	
   

  	
   

  	
   

  
	
  Section 12.1.

  	
   

  	
  Discharge of Indenture.

  	
   

  	
  42

  
	
  Section 12.2.

  	
   

  	
  Deposited Moneys to be Held in Trust by Trustee.

  	
   

  	
  43

  
	
  Section 12.3.

  	
   

  	
  Paying Agent to Repay Moneys Held.

  	
   

  	
  43

  
	
  Section 12.4.

  	
   

  	
  Return of Unclaimed Moneys.

  	
   

  	
  43

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XIII. IMMUNITY OF INCORPORATORS,
  STOCKHOLDERS, OFFICERS AND DIRECTORS

  	
   

  	
  43

  
	
   

  	
   

  	
   

  
	
  Section 13.1.

  	
   

  	
  Indenture and Debentures Solely Corporate
  Obligations.

  	
   

  	
  43

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XIV. MISCELLANEOUS PROVISIONS

  	
   

  	
  44

  
	
   

  	
   

  	
   

  
	
  Section 14.1.

  	
   

  	
  Successors.

  	
   

  	
  44

  
	
  Section 14.2.

  	
   

  	
  Official Acts by Successor Entity.

  	
   

  	
  44

  
	
  Section 14.3.

  	
   

  	
  Surrender of Company Powers.

  	
   

  	
  44

  
	
  Section 14.4.

  	
   

  	
  Addresses for Notices, etc.

  	
   

  	
  44

  
	
  Section 14.5.

  	
   

  	
  Governing Law.

  	
   

  	
  44

  
	
  Section 14.6.

  	
   

  	
  Evidence of Compliance with Conditions Precedent.

  	
   

  	
  44

  
	
  Section 14.7.

  	
   

  	
  Table of Contents, Headings, etc.

  	
   

  	
  45

  
	
  Section 14.8.

  	
   

  	
  Execution in Counterparts.

  	
   

  	
  45

  
	
  Section 14.9.

  	
   

  	
  Separability.

  	
   

  	
  45

  
	
  Section 14.10.

  	
   

  	
  Assignment.

  	
   

  	
  45

  
	
  Section 14.11.

  	
   

  	
  Acknowledgment of Rights.

  	
   

  	
  45

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE XV. SUBORDINATION OF DEBENTURES

  	
   

  	
  45

  
	
   

  	
   

  	
   

  
	
  Section 15.1.

  	
   

  	
  Agreement to Subordinate.

  	
   

  	
  45

  
	
  Section 15.2.

  	
   

  	
  Default on Senior Indebtedness.

  	
   

  	
  46

  
	
  Section 15.3.

  	
   

  	
  Liquidation, Dissolution, Bankruptcy.

  	
   

  	
  46

  
	
  Section 15.4.

  	
   

  	
  Subrogation.

  	
   

  	
  47

  
	
  Section 15.5.

  	
   

  	
  Trustee to Effectuate Subordination.

  	
   

  	
  48

  
	
  Section 15.6.

  	
   

  	
  Notice by the Company.

  	
   

  	
  48

  
	
  Section 15.7.

  	
   

  	
  Rights of the Trustee; Holders of Senior
  Indebtedness.

  	
   

  	
  49

  
	
  Section 15.8.

  	
   

  	
  Subordination May Not Be Impaired.

  	
   

  	
  49

  
	
   

  	
   

  	
   

  
	
  Exhibit A

  	
   

  	
  Form of Fixed/Floating Rate Junior Subordinated
  Deferrable Interest Debenture

  	
   

  	
   

  
	
  Exhibit B

  	
   

  	
  Form of Certificate to Trustee

  	
   

  	
   

  
							

 

 iii

 

 

THIS INDENTURE, dated as
of September 21, 2006, between Trinity Capital Corporation, a New Mexico
corporation (the “Company”), and Wilmington Trust Company, a Delaware
banking corporation, as debenture trustee (the “Trustee”).

WITNESSETH:

WHEREAS, for its lawful
corporate purposes, the Company has duly authorized the issuance of its
Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures due 2036
(the “Debentures”) under this Indenture to provide, among other things,
for the execution and authentication, delivery and administration thereof, and
the Company has duly authorized the execution of this Indenture; and

WHEREAS, all acts and
things necessary to make this Indenture a valid agreement according to its
terms, have been done and performed;

NOW, THEREFORE, This
Indenture Witnesseth:

In consideration of the
premises, and the purchase of the Debentures by the holders thereof, the
Company covenants and agrees with the Trustee for the equal and proportionate
benefit of the respective holders from time to time of the Debentures as
follows:

ARTICLE
I.

DEFINITIONS

Section 1.1.           Definitions.
The terms defined in this Section 1.1 (except as
herein otherwise expressly provided or unless the context otherwise requires)
for all purposes of this Indenture and of any indenture supplemental hereto
shall have the respective meanings specified in this Section 1.1.  All accounting terms used herein and not
expressly defined shall have the meanings assigned to such terms in accordance
with generally accepted accounting principles and the term “generally accepted
accounting principles” means such accounting principles as are generally
accepted in the United States at the time of any computation.  The words “herein,” “hereof” and “hereunder”
and other words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision.

“Acceleration Event of
Default” means an Event of Default under Section 5.1(a), (d), (e) or
(f), whatever the reason for such Acceleration Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body.

“Additional Interest”
has the meaning set forth in Section 2.11.

“Additional Junior
Indebtedness” means, without duplication and other than the Debentures, any
indebtedness, liabilities or obligations of the Company, or any Subsidiary of
the Company, under debt securities (or guarantees in respect of debt
securities) initially issued after the date of this Indenture to any trust, or
a trustee of a trust, partnership or other entity affiliated with the Company
that is, directly or indirectly, a finance subsidiary (as such term is defined
in Rule 3a-5 under the Investment Company Act of 1940) or other financing
vehicle of the Company or any Subsidiary of the Company in connection with the
issuance by that entity of preferred securities or other securities that are
eligible to qualify for Tier 1 capital treatment (or its then equivalent)
for purposes of the capital adequacy guidelines of the Federal Reserve, as then
in effect and applicable to the Company (or, if the Company is not a bank
holding company, such guidelines applied to the Company as if the Company were
subject to such guidelines); provided, however, that the
inability of the Company to treat all or any portion of the Additional Junior
Indebtedness as Tier 1 capital shall not disqualify it as Additional
Junior Indebtedness if such inability results from the Company having
cumulative preferred stock, minority interests in consolidated

 1
 

 

 

subsidiaries, or any
other class of security or interest which the Federal Reserve now or may
hereafter accord Tier 1 capital treatment (including the Debentures) in
excess of the amount which may qualify for treatment as Tier 1 capital
under applicable capital adequacy guidelines.

“Additional Sums”
has the meaning set forth in Section 3.6.

“Affiliate” has
the same meaning as given to that term in Rule 405 of the Securities Act
or any successor rule thereunder.

“Authenticating Agent”
means any agent or agents of the Trustee which at the time shall be appointed
and acting pursuant to Section 6.12.

“Bankruptcy Law”
means Title 11, U.S. Code, or any similar federal or state law for the
relief of debtors.

“Board of Directors”
means the board of directors or the executive committee or any other duly
authorized designated officers of the Company.

“Board Resolution”
means a copy of a resolution certified by the Secretary or an Assistant
Secretary of the Company to have been duly adopted by the Board of Directors
and to be in full force and effect on the date of such certification and
delivered to the Trustee.

“Business Day”
means any day other than a Saturday, Sunday or any other day on which banking
institutions in New York City or Wilmington, Delaware are permitted or required
by any applicable law or executive order to close.

“Capital Securities”
means undivided beneficial interests in the assets of the Trust which rank pari  passu with
Common Securities issued by the Trust; provided, however, that
upon the occurrence and continuance of an Event of Default (as defined in the
Declaration), the rights of holders of such Common Securities to payment in
respect of distributions and payments upon liquidation, redemption and
otherwise are subordinated to the rights of holders of such Capital Securities.

“Capital Securities
Guarantee” means the guarantee agreement that the Company enters into with
Wilmington Trust Company, as guarantee trustee, or other Persons that operates
directly or indirectly for the benefit of holders of Capital Securities of the
Trust.

“Capital Treatment
Event” means the receipt by the Company and the Trust of an opinion of
counsel experienced in such matters to the effect that, as a result of the
occurrence of any amendment to, or change (including any announced prospective
change) in, the laws, rules or regulations of the United States or any
political subdivision thereof or therein, or as the result of any official or
administrative pronouncement or action or decision interpreting or applying
such laws, rules or regulations, which amendment or change is effective or
which pronouncement, action or decision is announced on or after the date of
original issuance of the Debentures, there is more than an insubstantial risk
that the Company will not, within 90 days of the date of such opinion, be
entitled to treat an amount equal to the aggregate liquidation amount of the
Capital Securities as “Tier 1 Capital” (or its then equivalent) for
purposes of the capital adequacy guidelines of the Federal Reserve, as then in
effect and applicable to the Company (or if the Company is not a bank holding
company or is otherwise not subject to the Federal Reserve’s risk-based capital
adequacy guidelines, such guidelines applied to the Company as if the Company
were subject to such guidelines); provided, however, that the
inability of the Company to treat all or any portion of the liquidation amount
of the Capital Securities as Tier l Capital shall not constitute the basis
for a Capital Treatment Event, if such inability results from the Company
having cumulative preferred stock, minority interests in consolidated
subsidiaries, or any other class of security or interest which the

 2
 

 

 

Federal Reserve may now
or hereafter accord Tier 1 Capital treatment in excess of the amount which
may now or hereafter qualify for treatment as Tier 1 Capital under
applicable capital adequacy guidelines; provided  further, however,
that the distribution of Debentures in connection with the liquidation of the
Trust shall not in and of itself constitute a Capital Treatment Event unless
such liquidation shall have occurred in connection with a Tax Event or an
Investment Company Event.

“Certificate”
means a certificate signed by any one of the principal executive officer, the
principal financial officer or the principal accounting officer of the Company.

“Common Securities”
means undivided beneficial interests in the assets of the Trust which rank pari passu with Capital Securities issued by the Trust; provided,
however, that upon the occurrence and continuance of an Event of Default
(as defined in the Declaration), the rights of holders of such Common
Securities to payment in respect of distributions and payments upon
liquidation, redemption and otherwise are subordinated to the rights of holders
of such Capital Securities.

“Company” means
Trinity Capital Corporation, a New Mexico corporation, and, subject to the
provisions of Article XI, shall include its successors and assigns.

“Comparable Treasury
Issue” means with respect to any Special Redemption Date the United States
Treasury security selected by the Quotation Agent as having a maturity
comparable to the Fixed Rate Period Remaining Life that would be utilized, at
the time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
Fixed Rate Period Remaining Life.  If no
United States Treasury security has a maturity which is within a period from
three months before to three months after the Interest Payment Date in September
2011, the two most closely corresponding fixed, non-callable United States
Treasury securities, as selected by the Quotation Agent, shall be used as the
Comparable Treasury Issue, and the Treasury Rate shall be interpolated or
extrapolated on a straight-line basis, rounding to the nearest month using such
securities.

“Comparable Treasury
Price” means (a) the average of five Reference Treasury Dealer Quotations
for such Special Redemption Date, after excluding the highest and lowest such
Reference Treasury Dealer Quotations, or (b) if the Quotation Agent obtains
fewer than five such Reference Treasury Dealer Quotations, the average of all
such Quotations.

“Coupon Rate” has
the meaning set forth in Section 2.8.

“Debenture” or “Debentures”
has the meaning stated in the first recital of this Indenture.

“Debenture Register”
has the meaning specified in Section 2.5.

“Declaration”
means the Amended and Restated Declaration of Trust of the Trust, as amended or
supplemented from time to time.

“Default” means
any event, act or condition that with notice or lapse of time, or both, would
constitute an Event of Default.

“Defaulted Interest”
has the meaning set forth in Section 2.8.

“Determination Date”
has the meaning set forth in Section 2.10.

“Distribution Period”
means (i) with respect to interest paid on the first Interest Payment
Date, the period beginning on (and including) the date of original issuance and
ending on (but excluding) the

 3
 

 

 

Interest Payment Date in
December 2006 and (ii) thereafter, with respect to interest paid on each
successive Interest Payment Date, the period beginning on (and including) the
preceding Interest Payment Date and ending on (but excluding) such current
Interest Payment Date.

“Event of Default”
means any event specified in Section 5.1, continued for the period of
time, if any, and after the giving of the notice, if any, therein designated.

“Extension Period”
has the meaning set forth in Section 2.11.

“Federal Reserve”
means the Board of Governors of the Federal Reserve System, or its designated
district bank, as applicable, and any successor federal agency that is
primarily responsible for regulating the activities of bank holding companies.

“Fixed Rate Period
Remaining Life” means, with respect to any Debenture, the period from the
Special Redemption Date for such Debenture to the Interest Payment Date in
September 2011.

“Indenture” means
this instrument as originally executed or, if amended or supplemented as herein
provided, as so amended or supplemented, or both.

“Institutional Trustee”
has the meaning set forth in the Declaration.

“Interest Payment Date”
means March 15, June 15, September 15 and December 15 of
each year during the term of this Indenture, or if such day is not a Business
Day, then the next succeeding Business Day (it being understood that interest
accrues for any such non-Business Day during the applicable Distribution
Period, beginning on or after September 15, 2011), commencing in December
2006.

“Interest Rate”
means for the Distribution Period beginning on (and including) the date of
original issuance and ending on (but excluding) the Interest Payment Date in
September 2011 the rate per annum of 6.83%, and for each Distribution Period
beginning on or after the Interest Payment Date in September 2011, the Coupon
Rate for such Distribution Period.

“Investment Company
Event” means the receipt by the Company and the Trust of an opinion of
counsel experienced in such matters to the effect that, as a result of the
occurrence of a change in law or regulation or written change (including any
announced prospective change) in interpretation or application of law or
regulation by any legislative body, court, governmental agency or regulatory
authority, there is more than an insubstantial risk that the Trust is or,
within 90 days of the date of such opinion will be considered an “investment
company” that is required to be registered under the Investment Company Act of
1940, as amended which change or prospective change becomes effective or would
become effective, as the case may be, on or after the date of the issuance of
the Debentures.

“Liquidation Amount”
means the stated amount of $1,000.00 per Trust Security.

“Maturity Date”
means December 15, 2036.

“Officers’ Certificate”
means a certificate signed by the Chairman of the Board, the Chief Executive
Officer, the Vice Chairman, the President, any Managing Director or any Vice
President, and by the Treasurer, an Assistant Treasurer, the Comptroller, an
Assistant Comptroller, the Secretary or an Assistant Secretary of the Company,
and delivered to the Trustee.  Each such
certificate shall include the statements provided for in Section 14.6 if
and to the extent required by the provisions of such Section.

“Opinion of Counsel”
means an opinion in writing signed by legal counsel, who may be an employee of
or counsel to the Company, or may be other counsel reasonably satisfactory to
the Trustee.

 4
 

 

 

Each such opinion shall
include the statements provided for in Section 14.6 if and to the extent
required by the provisions of such Section.

The term “outstanding,”
when used with reference to Debentures, means, subject to the provisions of
Section 7.4, as of any particular time, all Debentures authenticated and
delivered by the Trustee or the Authenticating Agent under this Indenture,
except:

(a)           Debentures theretofore canceled by
the Trustee or the Authenticating Agent or delivered to the Trustee for
cancellation;

(b)           Debentures, or portions thereof, for
the payment or redemption of which moneys in the necessary amount shall have
been deposited in trust with the Trustee or with any paying agent (other than
the Company) or shall have been set aside and segregated in trust by the
Company (if the Company shall act as its own paying agent); provided, however,
that, if such Debentures, or portions thereof, are to be redeemed prior to
maturity thereof, notice of such redemption shall have been given as provided
in Section 10.3 or provision satisfactory to the Trustee shall have been
made for giving such notice; and

(c)           Debentures paid pursuant to
Section 2.6 or in lieu of or in substitution for which other Debentures
shall have been authenticated and delivered pursuant to the terms of
Section 2.6 unless proof satisfactory to the Company and the Trustee is
presented that any such Debentures are held by bona fide holders in due course.

“Person” means any
individual, corporation, limited liability company, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.

“Predecessor Security”
of any particular Debenture means every previous Debenture evidencing all or a
portion of the same debt as that evidenced by such particular Debenture; and,
for purposes of this definition, any Debenture authenticated and delivered
under Section 2.6 in lieu of a lost, destroyed or stolen Debenture shall
be deemed to evidence the same debt as the lost, destroyed or stolen Debenture.

“Primary Treasury
Dealer” means either a nationally recognized primary United States
Government securities dealer or an entity of recognized standing in matters
pertaining to the quotation of treasury securities that is reasonably
acceptable to the Company and the Trustee.

“Principal Office of
the Trustee,” or other similar term, means the office of the Trustee, at
which at any particular time its corporate trust business shall be principally
administered, which at the time of the execution of this Indenture shall be
Rodney Square North, 1100 North Market Street, Wilmington, Delaware  19890-1600, Attention: Corporate Trust
Administration.

“Quotation Agent”
means a designee of the Institutional Trustee who shall be a Primary Treasury
Dealer.

“Redemption Date”
has the meaning set forth in Section 10.1.

“Redemption Price”
means 100% of the principal amount of the Debentures being redeemed, plus accrued
and unpaid interest (including any Additional Interest) on such Debentures to
the Redemption Date.

“Reference Treasury
Dealer” means (i) the Quotation Agent and (ii) any other Primary Treasury
Dealer selected by the Trustee after consultation with the Company.

 5
 

 

 

“Reference Treasury
Dealer Quotations” means, with respect to each Reference Treasury Dealer
and any Redemption Date, the average, as determined by the Quotation Agent, of
the bid and asked prices for the Comparable Treasury Issue (expressed in each
case as a percentage of its principal amount) quoted in writing to the
Quotation Agent by such Reference Treasury Dealer at 5:00 p.m., New York City
time, on the third Business Day preceding such Redemption Date.

“Responsible Officer”
means, with respect to the Trustee, any officer within the Principal Office of
the Trustee, including any vice-president, any assistant vice-president, any
secretary, any assistant secretary, the treasurer, any assistant treasurer, any
trust officer or other officer of the Principal Trust Office of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers and also means, with respect to a particular corporate
trust matter, any other officer to whom such matter is referred because of that
officer’s knowledge of and familiarity with the particular subject.

“Securities Act”
means the Securities Act of 1933, as amended from time to time or any successor
legislation.

“Securityholder,” “holder
of Debentures,” or other similar terms, means any Person in whose name at the
time a particular Debenture is registered on the register kept by the Company
or the Trustee for that purpose in accordance with the terms hereof.

“Senior Indebtedness”
means, with respect to the Company, (i) the principal, premium, if any,
and interest in respect of (A) indebtedness of the Company for all
borrowed and purchased money and (B) indebtedness evidenced by securities,
debentures, notes, bonds or other similar instruments issued by the Company;
(ii) all capital lease obligations of the Company; (iii) all
obligations of the Company issued or assumed as the deferred purchase price of
property, all conditional sale obligations of the Company and all obligations
of the Company under any title retention agreement; (iv) all obligations
of the Company for the reimbursement of any letter of credit, any banker’s
acceptance, any security purchase facility, any repurchase agreement or similar
arrangement, any interest rate swap, any other hedging arrangement, any
obligation under options or any similar credit or other transaction;
(v) all obligations of the Company associated with derivative products
such as interest and foreign exchange rate contracts, commodity contracts, and
similar arrangements; (vi) all obligations of the type referred to in
clauses (i) through (v) above of other Persons for the payment of which
the Company is responsible or liable as obligor, guarantor or otherwise
including, without limitation, similar obligations arising from off-balance sheet
guarantees and direct credit substitutes; and (vii) all obligations of the
type referred to in clauses (i) through (vi) above of other Persons
secured by any lien on any property or asset of the Company (whether or not
such obligation is assumed by the Company), whether incurred on or prior to the
date of this Indenture or thereafter incurred. 
Notwithstanding the foregoing, “Senior Indebtedness” shall not include
(1) any Additional Junior Indebtedness, (2) Debentures issued
pursuant to this Indenture and guarantees in respect of such Debentures,
(3) trade accounts payable of the Company arising in the ordinary course
of business (such trade accounts payable being pari passu
in right of payment to the Debentures), or (4) obligations with respect to
which (a) in the instrument creating or evidencing the same or pursuant to
which the same is outstanding, it is provided that such obligations are pari passu, junior or otherwise not superior in right of
payment to the Debentures and (b) the Company, prior to the issuance
thereof, has notified (and, if then required under the applicable guidelines of
the regulating entity, has received approval from) the Federal Reserve.  Senior Indebtedness shall continue to be
Senior Indebtedness and be entitled to the subordination provisions
irrespective of any amendment, modification or waiver of any term of such
Senior Indebtedness.

“Special Event”
means any of a Capital Treatment Event, an Investment Company Event or a Tax
Event.

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“Special Redemption
Date” has the meaning set forth in Section 10.2.

“Special Redemption
Price” means (a) if the Special Redemption Date occurs before the
Interest Payment Date in September 2011, the greater of (i) 107.5% of the
principal amount of the Debentures, plus accrued and unpaid interest (including
Additional Interest) on the Debentures to the Special Redemption Date, or
(ii) as determined by the Quotation Agent, (A) the sum of the present
values of the scheduled payments of principal and interest on the Debentures
during the Fixed Rate Period Remaining Life of the Debentures (assuming the
Debentures matured on the Interest Payment Date in September 2011) discounted
to the Special Redemption Date on a quarterly basis (assuming a 360-day year
consisting of twelve 30-day months) at the Treasury Rate, plus (B) accrued
and unpaid interest (including Additional Interest) on the Debentures to such
Special Redemption Date, or (b) if the Special Redemption Date occurs on
or after the Interest Payment Date in September 2011, 100% of the principal amount
of the Debentures being redeemed, plus accrued and unpaid interest (including
any Additional Interest) on such Debentures to the Special Redemption Date.

“Subsidiary” means
with respect to any Person, (i) any corporation at least a majority of the
outstanding voting stock of which is owned, directly or indirectly, by such
Person or by one or more of its Subsidiaries, or by such Person and one or more
of its Subsidiaries, (ii) any general partnership, joint venture or
similar entity, at least a majority of the outstanding partnership or similar
interests of which shall at the time be owned by such Person, or by one or more
of its Subsidiaries, or by such Person and one or more of its Subsidiaries and
(iii) any limited partnership of which such Person or any of its
Subsidiaries is a general partner.  For
the purposes of this definition, “voting stock” means shares, interests,
participations or other equivalents in the equity interest (however designated)
in such Person having ordinary voting power for the election of a majority of
the directors (or the equivalent) of such Person, other than shares, interests,
participations or other equivalents having such power only by reason of the
occurrence of a contingency.

“Tax Event” means
the receipt by the Company and the Trust of an opinion of counsel experienced
in such matters to the effect that, as a result of any amendment to or change
(including any announced prospective change) in the laws or any regulations
thereunder of the United States or any political subdivision or taxing
authority thereof or therein, or as a result of any official administrative
pronouncement (including any private letter ruling, technical advice
memorandum, field service advice, regulatory procedure, notice or announcement,
including any notice or announcement of intent to adopt such procedures or
regulations) (an “Administrative Action”) or judicial decision
interpreting or applying such laws or regulations, regardless of whether such
Administrative Action or judicial decision is issued to or in connection with a
proceeding involving the Company or the Trust and whether or not subject to
review or appeal, which amendment, clarification, change, Administrative Action
or decision is enacted, promulgated or announced, in each case on or after the
date of original issuance of the Debentures, there is more than an
insubstantial risk that:  (i) the
Trust is, or will be within 90 days of the date of such opinion, subject
to United States federal income tax with respect to income received or accrued
on the Debentures; (ii) interest payable by the Company on the Debentures
is not, or within 90 days of the date of such opinion, will not be,
deductible by the Company, in whole or in part, for United States federal
income tax purposes; or (iii) the Trust is, or will be within 90 days
of the date of such opinion, subject to more than a de minimis amount of other
taxes, duties or other governmental charges.

“3-Month LIBOR”
has the meaning set forth in Section 2.10.

“Telerate Page 3750”
has the meaning set forth in Section 2.10.

“Treasury Rate”
means (i) the yield, under the heading which represents the average for the
week immediately prior to the date of calculation, appearing in the most
recently published statistical release designated H.15 (519) or any successor
publication which is published weekly by the Federal Reserve and

 7
 

 

 

which establishes yields
on actively traded United States Treasury securities adjusted to constant
maturity under the caption “Treasury Constant Maturities,” for the maturity corresponding
to the Fixed Rate Period Remaining Life (if no maturity is within three months
before or after the Fixed Rate Period Remaining Life, yields for the two
published maturities most closely corresponding to the Fixed Rate Period
Remaining Life shall be determined and the Treasury Rate shall be interpolated
or extrapolated from such yields on a straight-line basis, rounding to the
nearest month) or (ii) if such release (or any successor release) is not
published during the week preceding the calculation date or does not contain
such yields, the rate per annum equal to the semi-annual equivalent yield to
maturity of the Comparable Treasury Issue, calculated using a price for the
Comparable Treasury Issue (expressed as a percentage of its principal amount)
equal to the Comparable Treasury Price for such Special Redemption Date.  The Treasury Rate shall be calculated by the
Quotation Agent on the third Business Day preceding the Special Redemption
Date.

“Trust” shall mean
Trinity Capital Trust V, a Delaware statutory trust, or any other similar
trust created for the purpose of issuing Capital Securities in connection with
the issuance of Debentures under this Indenture, of which the Company is the
sponsor.

“Trust Securities”
means Common Securities and Capital Securities of the Trust.

“Trustee” means
Wilmington Trust Company, and, subject to the provisions of Article VI
hereof, shall also include its successors and assigns as Trustee hereunder.

ARTICLE
II.

DEBENTURES

Section 2.1.           Authentication
and Dating. Upon the execution and delivery of
this Indenture, or from time to time thereafter, Debentures in an aggregate
principal amount not in excess of $10,310,000.00 may be executed and delivered
by the Company to the Trustee for authentication, and the Trustee, upon receipt
of a written authentication order from the Company, shall thereupon
authenticate and make available for delivery said Debentures to or upon the
written order of the Company, signed by its Chairman of the Board of Directors,
Chief Executive Officer, Vice Chairman, the President, one of its Managing
Directors or one of its Vice Presidents without any further action by the
Company hereunder.  Notwithstanding
anything to the contrary contained herein, the Trustee shall be fully protected
in relying upon the aforementioned authentication order and written order in
authenticating and delivering said Debentures. 
In authenticating such Debentures, and accepting the additional
responsibilities under this Indenture in relation to such Debentures, the Trustee
shall be entitled to receive, and (subject to Section 6.1) shall be fully
protected in relying upon:

(a)           a copy of any Board
Resolution or Board Resolutions relating thereto and, if applicable, an
appropriate record of any action taken pursuant to such resolution, in each
case certified by the Secretary or an Assistant Secretary of the Company, as
the case may be; and

(b)           an Opinion of
Counsel prepared in accordance with Section 14.6 which shall also state:

(1)            that such Debentures, when
authenticated and delivered by the Trustee and issued by the Company in each
case in the manner and subject to any conditions specified in such Opinion of
Counsel, will constitute valid and legally binding obligations of the Company,
subject to or limited by applicable bankruptcy, insolvency, reorganization,
conservatorship, receivership, moratorium and other statutory or decisional
laws relating to or affecting creditors’ rights or the reorganization of
financial institutions (including, without limitation, preference and
fraudulent conveyance or

 8
 

 

transfer laws), heretofore or hereafter
enacted or in effect, affecting the rights of creditors generally; and

(2)            that all laws and requirements in
respect of the execution and delivery by the Company of the Debentures have
been complied with and that authentication and delivery of the Debentures by
the Trustee will not violate the terms of this Indenture.

The Trustee shall have
the right to decline to authenticate and deliver any Debentures under this
Section if the Trustee, being advised in writing by counsel, determines that
such action may not lawfully be taken or if a Responsible Officer of the
Trustee in good faith shall determine that such action would expose the Trustee
to personal liability to existing holders.

The definitive Debentures
shall be typed, printed, lithographed or engraved on steel engraved borders or
may be produced in any other manner, all as determined by the officers
executing such Debentures, as evidenced by their execution of such Debentures.

Section 2.2.           Form
of Trustee’s Certificate of Authentication. The
Trustee’s certificate of authentication on all Debentures shall be in
substantially the following form:

This is one of the
Debentures referred to in the within-mentioned Indenture.

WILMINGTON TRUST COMPANY,
as Trustee

	
  By

  	
   

  
	
  Authorized
  Signer

  

 

Section 2.3.           Form
and Denomination of Debentures. The Debentures
shall be substantially in the form of Exhibit A attached hereto.  The Debentures shall be in registered,
certificated form without coupons and in minimum denominations of $100,000.00
and any multiple of $1,000.00 in excess thereof.  Any attempted transfer of the Debentures in a
block having an aggregate principal amount of less than $100,000.00 shall be
deemed to be void and of no legal effect whatsoever.  Any such purported transferee shall be deemed
not to be a holder of such Debentures for any purpose, including, but not
limited to the receipt of payments on such Debentures, and such purported transferee
shall be deemed to have no interest whatsoever in such Debentures.  The Debentures shall be numbered, lettered,
or otherwise distinguished in such manner or in accordance with such plans as
the officers executing the same may determine with the approval of the Trustee
as evidenced by the execution and authentication thereof.

Section 2.4.           Execution
of Debentures. The Debentures shall be signed in
the name and on behalf of the Company by the manual or facsimile signature of
its Chairman of the Board of Directors, Chief Executive Officer, Vice Chairman,
President, one of its Managing Directors or one of its Executive Vice
Presidents, Senior Vice Presidents or Vice Presidents.  Only such Debentures as shall bear thereon a
certificate of authentication substantially in the form herein before recited,
executed by the Trustee or the Authenticating Agent by the manual signature of
an authorized signer, shall be entitled to the benefits of this Indenture or be
valid or obligatory for any purpose. 
Such certificate by the Trustee or the Authenticating Agent upon any
Debenture executed by the Company shall be conclusive evidence that the
Debenture so authenticated has been duly authenticated and delivered hereunder
and that the holder is entitled to the benefits of this Indenture.

In case any officer of
the Company who shall have signed any of the Debentures shall cease to be such
officer before the Debentures so signed shall have been authenticated and
delivered by the Trustee or the Authenticating Agent, or disposed of by the
Company, such Debentures nevertheless may be authenticated and delivered or
disposed of as though the Person who signed such Debentures had not

 9
 

 

 

ceased to be such officer
of the Company; and any Debenture may be signed on behalf of the Company by
such Persons as, at the actual date of the execution of such Debenture, shall
be the proper officers of the Company, although at the date of the execution of
this Indenture any such person was not such an officer.

Every Debenture shall be
dated the date of its authentication.

Section 2.5.           Exchange
and Registration of Transfer of Debentures. The
Company shall cause to be kept, at the office or agency maintained for the
purpose of registration of transfer and for exchange as provided in
Section 3.2, a register (the “Debenture Register”) for the
Debentures issued hereunder in which, subject to such reasonable regulations as
it may prescribe, the Company shall provide for the registration and transfer
of all Debentures as in this Article II provided.  The Debenture Register shall be in written
form or in any other form capable of being converted into written form within a
reasonable time.

Debentures to be
exchanged may be surrendered at the Principal Office of the Trustee or at any
office or agency to be maintained by the Company for such purpose as provided
in Section 3.2, and the Company shall execute, the Company or the Trustee
shall register and the Trustee or the Authenticating Agent shall authenticate
and make available for delivery in exchange therefor the Debenture or
Debentures which the Securityholder making the exchange shall be entitled to
receive.  Upon due presentment for
registration of transfer of any Debenture at the Principal Office of the
Trustee or at any office or agency of the Company maintained for such purpose
as provided in Section 3.2, the Company shall execute, the Company or the
Trustee shall register and the Trustee or the Authenticating Agent shall
authenticate and make available for delivery in the name of the transferee or
transferees a new Debenture for a like aggregate principal amount.  Registration or registration of transfer of
any Debenture by the Trustee or by any agent of the Company appointed pursuant
to Section 3.2, and delivery of such Debenture, shall be deemed to complete
the registration or registration of transfer of such Debenture.

All Debentures presented
for registration of transfer or for exchange or payment shall (if so required
by the Company or the Trustee or the Authenticating Agent) be duly endorsed by,
or be accompanied by a written instrument or instruments of transfer in form
satisfactory to the Company and the Trustee or the Authenticating Agent duly
executed by the holder or his attorney duly authorized in writing.

No service charge shall
be made for any exchange or registration of transfer of Debentures, but the
Company or the Trustee may require payment of a sum sufficient to cover any
tax, fee or other governmental charge that may be imposed in connection
therewith.

The Company or the
Trustee shall not be required to exchange or register a transfer of any
Debenture for a period of 15 days next preceding the date of selection of
Debentures for redemption.

Notwithstanding anything
herein to the contrary, Debentures may not be transferred except in compliance
with the restricted securities legend set forth below, unless otherwise
determined by the Company, upon the advice of counsel expert in securities law,
in accordance with applicable law:

THIS SECURITY IS NOT A
SAVINGS ACCOUNT OR DEPOSIT AND IT IS NOT INSURED BY THE UNITED STATES OR ANY
AGENCY OR FUND OF THE UNITED STATES, INCLUDING THE FEDERAL DEPOSIT INSURANCE
CORPORATION.

THIS SECURITY HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW.  NEITHER THIS SECURITY NOR ANY INTEREST OR

 10
 

 

 

PARTICIPATION HEREIN MAY
BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND ANY APPLICABLE STATE SECURITIES LAWS. 
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER THIS SECURITY ONLY (A) TO THE COMPANY,
(B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE
UNDER THE SECURITIES ACT, (C) TO A PERSON WHOM THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS
OF RULE 144A SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO
RULE 144A IN ACCORDANCE WITH RULE 144A, (D) TO A NON-U.S. PERSON
IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904
(AS APPLICABLE) OF REGULATION S UNDER THE SECURITIES ACT, (E) TO AN
INSTITUTIONAL “ACCREDITED INVESTOR” WITHIN THE MEANING OF SUBPARAGRAPH (A)
OF RULE 501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS SECURITY FOR
ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED
INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE
IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR
(F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY’S RIGHT PRIOR TO ANY
SUCH OFFER, SALE OR TRANSFER TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL,
CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO IT IN ACCORDANCE WITH
THE INDENTURE, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY.

THE HOLDER OF THIS
SECURITY BY ITS ACCEPTANCE HEREOF ALSO AGREES, REPRESENTS AND WARRANTS THAT IT
IS NOT AN EMPLOYEE BENEFIT, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR
ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY
ACT OF 1974, AS AMENDED (“ERISA”), OR SECTION 4975 OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED (THE “CODE”) (EACH A “PLAN”), OR AN ENTITY WHOSE
UNDERLYING ASSETS INCLUDE “PLAN ASSETS” BY REASON OF ANY PLAN’S INVESTMENT IN
THE ENTITY, AND NO PERSON INVESTING “PLAN ASSETS” OF ANY PLAN MAY ACQUIRE OR
HOLD THE SECURITIES OR ANY INTEREST THEREIN, UNLESS SUCH PURCHASER OR HOLDER IS
ELIGIBLE FOR EXEMPTIVE RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF LABOR
PROHIBITED TRANSACTION CLASS EXEMPTION 96-23, 95-60, 91-38,
90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION OR ITS PURCHASE AND
HOLDING OF THIS SECURITY IS NOT PROHIBITED BY SECTION 406 OF ERISA OR
SECTION 4975 OF THE CODE WITH RESPECT TO SUCH PURCHASE OR HOLDING.  ANY PURCHASER OR HOLDER OF THE SECURITIES OR
ANY INTEREST THEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND
HOLDING THEREOF THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT PLAN WITHIN
THE MEANING OF SECTION 3(3) OF ERISA, OR A PLAN TO WHICH SECTION 4975
OF THE CODE IS APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF AN
EMPLOYEE BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS
OF ANY EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE, OR
(ii) SUCH PURCHASE WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER
SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE FOR WHICH THERE IS
NO APPLICABLE STATUTORY OR ADMINISTRATIVE EXEMPTION.

THIS SECURITY WILL BE
ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING AN AGGREGATE PRINCIPAL
AMOUNT OF NOT LESS THAN $100,000.00 AND

 11
 

 

 

MULTIPLES OF $1,000.00 IN
EXCESS THEREOF.  ANY ATTEMPTED TRANSFER
OF THIS SECURITY IN A BLOCK HAVING AN AGGREGATE PRINCIPAL AMOUNT OF LESS THAN
$100,000.00 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER.

THE HOLDER OF THIS
SECURITY AGREES THAT IT WILL COMPLY WITH THE FOREGOING RESTRICTIONS.

Section 2.6.           Mutilated,
Destroyed, Lost or Stolen Debentures. In case any
Debenture shall become mutilated or be destroyed, lost or stolen, the Company
shall execute, and upon its written request the Trustee shall authenticate and
deliver, a new Debenture bearing a number not contemporaneously outstanding, in
exchange and substitution for the mutilated Debenture, or in lieu of and in
substitution for the Debenture so destroyed, lost or stolen.  In every case the applicant for a substituted
Debenture shall furnish to the Company and the Trustee such security or
indemnity as may be required by them to save each of them harmless, and, in
every case of destruction, loss or theft, the applicant shall also furnish to
the Company and the Trustee evidence to their satisfaction of the destruction,
loss or theft of such Debenture and of the ownership thereof.

The Trustee may
authenticate any such substituted Debenture and deliver the same upon the
written request or authorization of any officer of the Company.  Upon the issuance of any substituted
Debenture, the Company may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation thereto and
any other expenses connected therewith. 
In case any Debenture which has matured or is about to mature or has
been called for redemption in full shall become mutilated or be destroyed, lost
or stolen, the Company may, instead of issuing a substitute Debenture, pay or
authorize the payment of the same (without surrender thereof except in the case
of a mutilated Debenture) if the applicant for such payment shall furnish to
the Company and the Trustee such security or indemnity as may be required by
them to save each of them harmless and, in case of destruction, loss or theft,
evidence satisfactory to the Company and to the Trustee of the destruction,
loss or theft of such Debenture and of the ownership thereof.

Every substituted
Debenture issued pursuant to the provisions of this Section 2.6 by virtue
of the fact that any such Debenture is destroyed, lost or stolen shall
constitute an additional contractual obligation of the Company, whether or not
the destroyed, lost or stolen Debenture shall be found at any time, and shall
be entitled to all the benefits of this Indenture equally and proportionately
with any and all other Debentures duly issued hereunder.  All Debentures shall be held and owned upon
the express condition that, to the extent permitted by applicable law, the
foregoing provisions are exclusive with respect to the replacement or payment
of mutilated, destroyed, lost or stolen Debentures and shall preclude any and
all other rights or remedies notwithstanding any law or statute existing or
hereafter enacted to the contrary with respect to the replacement or payment of
negotiable instruments or other securities without their surrender.

Section 2.7            Temporary
Debentures. Pending the preparation of definitive
Debentures, the Company may execute and the Trustee shall authenticate and make
available for delivery temporary Debentures that are typed, printed or
lithographed.  Temporary Debentures shall
be issuable in any authorized denomination, and substantially in the form of
the definitive Debentures in lieu of which they are issued but with such omissions,
insertions and variations as may be appropriate for temporary Debentures, all
as may be determined by the Company. 
Every such temporary Debenture shall be executed by the Company and be
authenticated by the Trustee upon the same conditions and in substantially the
same manner, and with the same effect, as the definitive Debentures.  Without unreasonable delay the Company will
execute and deliver to the Trustee or the Authenticating Agent definitive
Debentures and thereupon any or all temporary Debentures may be surrendered in
exchange therefor, at the principal corporate trust office of the Trustee or at
any office or agency maintained by the

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Company for
such purpose as provided in Section 3.2, and the Trustee or the
Authenticating Agent shall authenticate and make available for delivery in
exchange for such temporary Debentures a like aggregate principal amount of
such definitive Debentures.  Such
exchange shall be made by the Company at its own expense and without any charge
therefor except that in case of any such exchange involving a registration of
transfer the Company may require payment of a sum sufficient to cover any tax,
fee or other governmental charge that may be imposed in relation thereto.  Until so exchanged, the temporary Debentures
shall in all respects be entitled to the same benefits under this Indenture as
definitive Debentures authenticated and delivered hereunder.

Section 2.8.           Payment
of Interest and Additional Interest. Interest at
the Interest Rate and any Additional Interest on any Debenture that is payable,
and is punctually paid or duly provided for, on any Interest Payment Date for
Debentures shall be paid to the Person in whose name said Debenture (or one or
more Predecessor Securities) is registered at the close of business on the
regular record date for such interest installment except that interest and any
Additional Interest payable on the Maturity Date shall be paid to the Person to
whom principal is paid.

Each Debenture shall bear
interest for the period beginning on (and including) the date of original
issuance and ending on (but excluding) the Interest Payment Date in September
2011 at a rate per annum of 6.83%, and shall bear interest for each successive
Distribution Period beginning on or after the Interest Payment Date in
September 2011 at a rate per annum equal to the 3-Month LIBOR, determined as
described in Section 2.10, plus 1.65% (the “Coupon Rate”), applied
to the principal amount thereof, until the principal thereof becomes due and
payable, and on any overdue principal and to the extent that payment of such
interest is enforceable under applicable law (without duplication) on any
overdue installment of interest (including Additional Interest) at the Interest
Rate in effect for each applicable period compounded quarterly.  Interest shall be payable (subject to any
relevant Extension Period) quarterly in arrears on each Interest Payment Date
with the first installment of interest to be paid on the Interest Payment Date
in December 2006.

Any interest on any
Debenture, including Additional Interest, that is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called “Defaulted Interest”) shall forthwith cease to be payable to the
registered holder on the relevant regular record date by virtue of having been
such holder; and such Defaulted Interest shall be paid by the Company to the
Persons in whose names such Debentures (or their respective Predecessor
Securities) are registered at the close of business on a special record date
for the payment of such Defaulted Interest, which shall be fixed in the
following manner: the Company shall notify the Trustee in writing at least 25
days prior to the date of the proposed payment of the amount of Defaulted
Interest proposed to be paid on each such Debenture and the date of the
proposed payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be paid in
respect of such Defaulted Interest or shall make arrangements satisfactory to
the Trustee for such deposit prior to the date of the proposed payment, such
money when deposited to be held in trust for the benefit of the Persons
entitled to such Defaulted Interest as in this clause provided.  Thereupon the Trustee shall fix a special
record date for the payment of such Defaulted Interest which shall not be more
than 15 nor less than 10 days prior to the date of the proposed payment and not
less than 10 days after the receipt by the Trustee of the notice of the proposed
payment.  The Trustee shall promptly
notify the Company of such special record date and, in the name and at the
expense of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the special record date therefor to be mailed, first
class postage prepaid, to each Securityholder at its address as it appears in
the Debenture Register, not less than 10 days prior to such special record
date.  Notice of the proposed payment of
such Defaulted Interest and the special record date therefor having been mailed
as aforesaid, such Defaulted Interest shall be paid to the Persons in whose
names such Debentures (or their respective Predecessor Securities) are
registered on such special record date and shall be no longer payable.

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The Company may make
payment of any Defaulted Interest on any Debentures in any other lawful manner
after notice given by the Company to the Trustee of the proposed payment
method; provided, however, the Trustee in its sole discretion
deems such payment method to be practical.

Any interest (including
Additional Interest) scheduled to become payable on an Interest Payment Date
occurring during an Extension Period shall not be Defaulted Interest and shall
be payable on such other date as may be specified in the terms of such
Debentures.

The term “regular record
date” as used in this Section shall mean the close of business on the 15th
Business Day preceding the applicable Interest Payment Date.

Subject to the foregoing
provisions of this Section, each Debenture delivered under this Indenture upon
registration of transfer of or in exchange for or in lieu of any other
Debenture shall carry the rights to interest accrued and unpaid, and to accrue,
that were carried by such other Debenture.

Section 2.9.           Cancellation
of Debentures Paid, etc. All Debentures
surrendered for the purpose of payment, redemption, exchange or registration of
transfer, shall, if surrendered to the Company or any paying agent, be
surrendered to the Trustee and promptly canceled by it, or, if surrendered to
the Trustee or any Authenticating Agent, shall be promptly canceled by it, and
no Debentures shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Indenture. 
All Debentures canceled by any Authenticating Agent shall be delivered
to the Trustee.  The Trustee shall
destroy all canceled Debentures unless the Company otherwise directs the
Trustee in writing.  If the Company shall
acquire any of the Debentures, however, such acquisition shall not operate as a
redemption or satisfaction of the indebtedness represented by such Debentures
unless and until the same are surrendered to the Trustee for cancellation.

Section 2.10.        Computation
of Interest. The amount of interest payable
(i) for any Distribution Period commencing on or after the date of
original issuance but before the Interest Payment Date in September 2011 will
be computed on the basis of a 360-day year of twelve 30-day months, and
(ii) for the Distribution Period commencing on the Interest Payment Date
in September 2011 and each succeeding Distribution Period will be calculated by
applying the Interest Rate to the principal amount outstanding at the
commencement of the Distribution Period on the basis of the actual number of
days in the Distribution Period concerned divided by 360.  All percentages resulting from any
calculations on the Debentures will be rounded, if necessary, to the nearest
one hundred-thousandth of a percentage point, with five one-millionths of a percentage
point rounded upward (e.g., 9.876545% (or .09876545) being rounded to 9.87655%
(or .0987655), and all dollar amounts used in or resulting from such
calculation will be rounded to the nearest cent (with one-half cent being
rounded upward)).

(a)           “3-Month
LIBOR” means the London interbank offered interest rate for three-month,
U.S. dollar deposits determined by the Trustee in the following order of
priority:

(1)           the rate (expressed
as a percentage per annum) for U.S. dollar deposits having a three-month
maturity that appears on Telerate Page 3750 as of 11:00 a.m. (London
time) on the related Determination Date (as defined below).  “Telerate Page 3750” means the display
designated as “Page 3750” on the Moneyline Telerate Service or such other
page as may replace Page 3750 on that service or such other service or
services as may be nominated by the British Bankers’ Association as the
information vendor for the purpose of displaying London interbank offered rates
for U.S. dollar deposits;

(2)           if such rate cannot
be identified on the related Determination Date, the Trustee will request the
principal London offices of four leading banks in the London interbank market
to provide such banks’ offered quotations (expressed as percentages per annum)
to prime banks in

 14
 

 

the London
interbank market for U.S. dollar deposits having a three-month maturity as of
11:00 a.m. (London time) on such Determination Date.  If at least two quotations are provided, 3-Month
LIBOR will be the arithmetic mean of such quotations;

(3)           if fewer than two
such quotations are provided as requested in clause (2) above, the Trustee
will request four major New York City banks to provide such banks’ offered
quotations (expressed as percentages per annum) to leading European banks for
loans in U.S. dollars as of 11:00 a.m. (London time) on such Determination
Date.  If at least two such quotations
are provided, 3-Month LIBOR will be the arithmetic mean of such
quotations; and

(4)           if fewer than two
such quotations are provided as requested in clause (3) above, 3-Month
LIBOR will be a 3-Month LIBOR determined with respect to the Distribution
Period immediately preceding such current Distribution Period.

If the rate for U.S.
dollar deposits having a three-month maturity that initially appears on
Telerate Page 3750 as of 11:00 a.m. (London time) on the related
Determination Date is superseded on the Telerate Page 3750 by a corrected
rate by 12:00 noon (London time) on such Determination Date, then the
corrected rate as so substituted on the applicable page will be the applicable 3-Month
LIBOR for such Determination Date.

(b)           The Interest Rate for any
Distribution Period will at no time be higher than the maximum rate then
permitted by New York law as the same may be modified by United States law.

(c)           “Determination
Date” means the date that is two London Banking Days (i.e., a business day
in which dealings in deposits in U.S. dollars are transacted in the London
interbank market) preceding the particular Distribution Period for which a
Coupon Rate is being determined.

(d)           The Trustee shall
notify the Company, the Institutional Trustee and any securities exchange or
interdealer quotation system on which the Capital Securities are listed, of the
Coupon Rate and the Determination Date for each Distribution Period, in each
case as soon as practicable after the determination thereof but in no event
later than the thirtieth (30th) day of the relevant Distribution Period.  Failure to notify the Company, the
Institutional Trustee or any securities exchange or interdealer quotation
system, or any defect in said notice, shall not affect the obligation of the
Company to make payment on the Debentures at the applicable Coupon Rate.  Any error in the calculation of the Coupon
Rate by the Trustee may be corrected at any time by notice delivered as above
provided.  Upon the request of a holder
of a Debenture, the Trustee shall provide the Coupon Rate then in effect and,
if determined, the Coupon Rate for the next Distribution Period.

(e)           Subject to the
corrective rights set forth above, all certificates, communications, opinions,
determinations, calculations, quotations and decisions given, expressed, made
or obtained for the purposes of the provisions relating to the payment and
calculation of interest on the Debentures and distributions on the Capital
Securities by the Trustee or the Institutional Trustee will (in the absence of
willful default, bad faith and manifest error) be final, conclusive and binding
on the Trust, the Company and all of the holders of the Debentures and the
Capital Securities, and no liability shall (in the absence of willful default,
bad faith or manifest error) attach to the Trustee or the Institutional Trustee
in connection with the exercise or non-exercise by either of them or their
respective powers, duties and discretion.

Section 2.11.        Extension
of Interest Payment Period. So long as no
Acceleration Event of Default has occurred and is continuing, the Company shall
have the right, from time to time, and without causing an Event of Default, to
defer payments of interest on the Debentures by extending the interest payment
period on the Debentures at any time and from time to time during the term of
the Debentures, for up to 20 consecutive quarterly periods (each such
extended interest payment period, an “Extension

 15
 

 

 

Period”),
during which Extension Period no interest (including Additional Interest) shall
be due and payable (except any Additional Sums that may be due and
payable).  No Extension Period may end on
a date other than an Interest Payment Date. 
During an Extension Period, interest will continue to accrue on the
Debentures, and interest on such accrued interest will accrue at an annual rate
equal to the Interest Rate in effect for such Extension Period, compounded
quarterly from the date such interest would have been payable were it not for
the Extension Period, to the extent permitted by law (such interest referred to
herein as “Additional Interest”). 
At the end of any such Extension Period the Company shall pay all
interest then accrued and unpaid on the Debentures (together with Additional
Interest thereon); provided, however, that no Extension Period
may extend beyond the Maturity Date; provided  further, however,
that during any such Extension Period, the Company shall not and shall not
permit any Affiliate to (i) declare or pay any dividends or distributions
on, or redeem, purchase, acquire, or make a liquidation payment with respect
to, any of the Company’s or such Affiliate’s capital stock (other than payments
of dividends or distributions to the Company) or make any guarantee payments
with respect to the foregoing or (ii) make any payment of principal of or
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Company or any Affiliate that rank pari passu in all respects with or junior in interest to the
Debentures (other than, with respect to clauses (i) or (ii) above,
(a) repurchases, redemptions or other acquisitions of shares of capital
stock of the Company in connection with any employment contract, benefit plan
or other similar arrangement with or for the benefit of one or more employees,
officers, directors or consultants, in connection with a dividend reinvestment
or stockholder stock purchase plan or in connection with the issuance of
capital stock of the Company (or securities convertible into or exercisable for
such capital stock) as consideration in an acquisition transaction entered into
prior to the applicable Extension Period, (b) as a result of any exchange
or conversion of any class or series of the Company’s capital stock (or any
capital stock of a subsidiary of the Company) for any class or series of the
Company’s capital stock or of any class or series of the Company’s indebtedness
for any class or series of the Company’s capital stock, (c) the purchase
of fractional interests in shares of the Company’s capital stock pursuant to
the conversion or exchange provisions of such capital stock or the security
being converted or exchanged, (d) any declaration of a dividend in
connection with any stockholders’ rights plan, or the issuance of rights, stock
or other property under any stockholders’ rights plan, or the redemption or
repurchase of rights pursuant thereto, (e) any dividend in the form of
stock, warrants, options or other rights where the dividend stock or the stock
issuable upon exercise of such warrants, options or other rights is the same
stock as that on which the dividend is being paid or ranks pari passu with or junior to such stock
and any cash payments in lieu of fractional shares issued in connection
therewith, or (f) payments under the Capital Securities Guarantee).  Prior to the termination of any Extension
Period, the Company may further extend such period, provided that such period
together with all such previous and further consecutive extensions thereof
shall not exceed 20 consecutive quarterly periods, or extend beyond the
Maturity Date.  Upon the termination of
any Extension Period and upon the payment of all accrued and unpaid interest
and Additional Interest, the Company may commence a new Extension Period,
subject to the foregoing requirements. 
No interest or Additional Interest shall be due and payable during an
Extension Period, except at the end thereof, but each installment of interest
that would otherwise have been due and payable during such Extension Period
shall bear Additional Interest to the extent permitted by applicable law.  The Company must give the Trustee notice of
its election to begin or extend an Extension Period by the close of business at
least 15 Business Days prior to the Interest Payment Date with respect to which
interest on the Debentures would have been payable except for the election to
begin or extend such Extension Period. 
The Trustee shall give notice of the Company’s election to begin a new
Extension Period to the Securityholders.

Section 2.12.        CUSIP
Numbers. The Company in issuing the Debentures may
use “CUSIP” numbers (if then generally in use), and, if so, the Trustee shall
use CUSIP numbers in notices of redemption as a convenience to Securityholders;
provided, however, that any such notice may state that no representation is
made as to the correctness of such numbers either as printed on the Debentures
or as contained in any notice of a redemption and that reliance may be placed
only on the other identification

 16
 

 

 

numbers printed
on the Debentures, and any such redemption shall not be affected by any defect
in or omission of such numbers.  The
Company will promptly notify the Trustee in writing of any change in the CUSIP
numbers.

ARTICLE III.

PARTICULAR COVENANTS OF THE COMPANY

Section 3.1.           Payment
of Principal, Premium and Interest; Agreed Treatment of the Debentures.

 

(a)           The
Company covenants and agrees that it will duly and punctually pay or cause to
be paid the principal of and premium, if any, and interest and any Additional
Interest and other payments on the Debentures at the place, at the respective
times and in the manner provided in this Indenture and the Debentures. Each
installment of interest on the Debentures may be paid (i) by mailing
checks for such interest payable to the order of the holders of Debentures
entitled thereto as they appear on the registry books of the Company if a
request for a wire transfer has not been received by the Company or
(ii) by wire transfer to any account with a banking institution located in
the United States designated in writing by such Person to the paying agent no
later than the related record date. 
Notwithstanding the foregoing, so long as the holder of this Debenture
is the Institutional Trustee, the payment of the principal of and interest on
this Debenture will be made in immediately available funds at such place and to
such account as may be designated by the Institutional Trustee.

(b)           The Company will
treat the Debentures as indebtedness, and the amounts payable in respect of the
principal amount of such Debentures as interest, for all United States federal
income tax purposes.  All payments in
respect of such Debentures will be made free and clear of United States
withholding tax to any beneficial owner thereof that has provided an Internal
Revenue Service Form W8 BEN (or any substitute or successor form) establishing
its non-United States status for United States federal income tax purposes.

(c)           As of the date of
this Indenture, the Company has no present intention to exercise its right
under Section 2.11 to defer payments of interest on the Debentures by
commencing an Extension Period.

(d)           As of the date of
this Indenture, the Company believes that the likelihood that it would exercise
its right under Section 2.11 to defer payments of interest on the Debentures by
commencing an Extension Period at any time during which the Debentures are
outstanding is remote because of the restrictions that would be imposed on the
Company’s ability to declare or pay dividends or distributions on, or to
redeem, purchase or make a liquidation payment with respect to, any of its
outstanding equity and on the Company’s ability to make any payments of
principal of or interest on, or repurchase or redeem, any of its debt
securities that rank pari passu in
all respects with (or junior in interest to) the Debentures.

Section 3.2.           Offices
for Notices and Payments, etc. So long as any of
the Debentures remain outstanding, the Company will maintain in Wilmington,
Delaware, an office or agency where the Debentures may be presented for
payment, an office or agency where the Debentures may be presented for
registration of transfer and for exchange as in this Indenture provided and an
office or agency where notices and demands to or upon the Company in respect of
the Debentures or of this Indenture may be served.  The Company will give to the Trustee written
notice of the location of any such office or agency and of any change of
location thereof.  Until otherwise
designated from time to time by the Company in a notice to the Trustee, or
specified as contemplated by Section 2.5, such office or agency for all of the
above purposes shall be the office or agency of the Trustee.  In case the Company shall fail to maintain
any such office or agency in Wilmington, Delaware, or shall fail to give such
notice of the location or of

 17
 

 

 

any change in
the location thereof, presentations and demands may be made and notices may be
served at the Principal Office of the Trustee.

In addition to any such
office or agency, the Company may from time to time designate one or more
offices or agencies outside Wilmington, Delaware, where the Debentures may be
presented for registration of transfer and for exchange in the manner provided
in this Indenture, and the Company may from time to time rescind such
designation, as the Company may deem desirable or expedient; provided, however,
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain any such office or agency in Wilmington, Delaware,
for the purposes above mentioned.  The
Company will give to the Trustee prompt written notice of any such designation
or rescission thereof.

Section 3.3.           Appointments
to Fill Vacancies in Trustee’s Office. The
Company, whenever necessary to avoid or fill a vacancy in the office of
Trustee, will appoint, in the manner provided in Section 6.9, a Trustee,
so that there shall at all times be a Trustee hereunder.

Section 3.4.           Provision
as to Paying Agent.

(a)           If the Company shall
appoint a paying agent other than the Trustee, it will cause such paying agent
to execute and deliver to the Trustee an instrument in which such agent shall
agree with the Trustee, subject to the provision of this Section 3.4,

(1)           that
it will hold all sums held by it as such agent for the payment of the principal
of and premium, if any, or interest, if any, on the Debentures (whether such
sums have been paid to it by the Company or by any other obligor on the
Debentures) in trust for the benefit of the holders of the Debentures;

(2)           that
it will give the Trustee prompt written notice of any failure by the Company
(or by any other obligor on the Debentures) to make any payment of the
principal of and premium, if any, or interest, if any, on the Debentures when
the same shall be due and payable; and

(3)           that
it will, at any time during the continuance of any Event of Default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held
in trust by such paying agent.

(b)           If the Company shall
act as its own paying agent, it will, on or before each due date of the
principal of and premium, if any, or interest or other payments, if any, on the
Debentures, set aside, segregate and hold in trust for the benefit of the
holders of the Debentures a sum sufficient to pay such principal, premium,
interest or other payments so becoming due and will notify the Trustee in
writing of any failure to take such action and of any failure by the Company
(or by any other obligor under the Debentures) to make any payment of the
principal of and premium, if any, or interest or other payments, if any, on the
Debentures when the same shall become due and payable.

Whenever the Company
shall have one or more paying agents for the Debentures, it will, on or prior
to each due date of the principal of and premium, if any, or interest, if any,
on the Debentures, deposit with a paying agent a sum sufficient to pay the
principal, premium, interest or other payments so becoming due, such sum to be
held in trust for the benefit of the Persons entitled thereto and (unless such
paying agent is the Trustee) the Company shall promptly notify the Trustee in
writing of its action or failure to act.

(c)           Anything in this
Section 3.4 to the contrary notwithstanding, the Company may, at any time,
for the purpose of obtaining a satisfaction and discharge with respect to the
Debentures, or for any

 18
 

 

 

other reason,
pay, or direct any paying agent to pay to the Trustee all sums held in trust by
the Company or any such paying agent, such sums to be held by the Trustee upon
the trusts herein contained.

(d)           Anything in this
Section 3.4 to the contrary notwithstanding, the agreement to hold sums in
trust as provided in this Section 3.4 is subject to Sections 12.3 and
12.4.

Section 3.5.           Certificate
to Trustee. The Company will deliver to the
Trustee on or before 120 days after the end of each fiscal year, so long
as Debentures are outstanding hereunder, a Certificate stating that in the
course of the performance by the signers of their duties as officers of the
Company they would normally have knowledge of any default during such fiscal
year by the Company in the performance of any covenants contained herein,
stating whether or not they have knowledge of any such default and, if so,
specifying each such default of which the signers have knowledge and the nature
and status thereof.  A form of this
Certificate is attached hereto as Exhibit B.

Section 3.6.           Additional
Sums. If and for so long as the Trust is the
holder of all Debentures and the Trust is required to pay any additional taxes
(including withholding taxes), duties, assessments or other governmental
charges as a result of a Tax Event, the Company will pay such additional
amounts (“Additional Sums”) on the Debentures as shall be required so
that the net amounts received and retained by the Trust after paying taxes
(including withholding taxes), duties, assessments or other governmental
charges will be equal to the amounts the Trust would have received if no such
taxes, duties, assessments or other governmental charges had been imposed.  Whenever in this Indenture or the Debentures
there is a reference in any context to the payment of principal of or interest
on the Debentures, such mention shall be deemed to include mention of payments
of the Additional Sums provided for in this paragraph to the extent that, in
such context, Additional Sums are, were or would be payable in respect thereof
pursuant to the provisions of this paragraph and express mention of the payment
of Additional Sums (if applicable) in any provisions hereof shall not be
construed as excluding Additional Sums in those provisions hereof where such
express mention is not made; provided, however, that the deferral
of the payment of interest during an Extension Period pursuant to
Section 2.11 shall not defer the payment of any Additional Sums that may
be due and payable.

Section 3.7.           Compliance
with Consolidation Provisions. The Company will
not, while any of the Debentures remain outstanding, consolidate with, or merge
into, or merge into itself, or sell or convey all or substantially all of its
property to any other Person unless the provisions of Article XI hereof
are complied with.

Section 3.8.           Limitation
on Dividends. If Debentures are initially issued
to the Trust or a trustee of such Trust in connection with the issuance of
Trust Securities by the Trust (regardless of whether Debentures continue to be
held by such Trust) and (i) there shall have occurred and be continuing an
Event of Default, (ii) the Company shall be in default with respect to its
payment of any obligations under the Capital Securities Guarantee, or
(iii) the Company shall have given notice of its election to defer
payments of interest on the Debentures by extending the interest payment period
as provided herein and such period, or any extension thereof, shall be
continuing, then the Company shall not, and shall not allow any Affiliate of
the Company to, (x) declare or pay any dividends or distributions on, or
redeem, purchase, acquire, or make a liquidation payment with respect to, any
of the Company’s capital stock or its Affiliates’ capital stock (other than
payments of dividends or distributions to the Company) or make any guarantee
payments with respect to the foregoing or (y) make any payment of
principal of or interest or premium, if any, on or repay, repurchase or redeem
any debt securities of the Company or any Affiliate that rank pari passu in all respects with or junior
in interest to the Debentures (other than, with respect to clauses (x) and (y)
above,  (1) repurchases, redemptions
or other acquisitions of shares of capital stock of the Company in connection
with any employment contract, benefit plan or other similar arrangement with or
for the benefit of one or more employees, officers, directors or consultants,
in connection with a

 19
 

 

 

dividend
reinvestment or stockholder stock purchase plan or in connection with the
issuance of capital stock of the Company (or securities convertible into or
exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to the applicable Extension Period, if any,
(2) as a result of any exchange or conversion of any class or series of
the Company’s capital stock (or any capital stock of a subsidiary of the
Company) for any class or series of the Company’s capital stock or of any class
or series of the Company’s indebtedness for any class or series of the Company’s
capital stock, (3) the purchase of fractional interests in shares of the
Company’s capital stock pursuant to the conversion or exchange provisions of such
capital stock or the security being converted or exchanged, (4) any
declaration of a dividend in connection with any stockholders’ rights plan, or
the issuance of rights, stock or other property under any stockholders’ rights
plan, or the redemption or repurchase of rights pursuant thereto, (5) any
dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options or
other rights is the same stock as that on which the dividend is being paid or
ranks pari passu with or junior
to such stock and any cash payments in lieu of fractional shares issued in
connection therewith, or (6) payments under the Capital Securities
Guarantee).

Section 3.9.           Covenants
as to the Trust. For so long as the Trust
Securities remain outstanding, the Company shall maintain 100% ownership of the
Common Securities; provided, however, that any permitted
successor of the Company under this Indenture may succeed to the Company’s
ownership of such Common Securities.  The
Company, as owner of the Common Securities, shall, except in connection with a
distribution of Debentures to the holders of Trust Securities in liquidation of
the Trust, the redemption of all of the Trust Securities or certain mergers,
consolidations or amalgamations, each as permitted by the Declaration, cause
the Trust  (a) to remain a statutory
trust, (b) to otherwise continue to be classified as a grantor trust for
United States federal income tax purposes, and (c) to cause each holder of
Trust Securities to be treated as owning an undivided beneficial interest in
the Debentures.

Section 3.10.        Additional
Junior Indebtedness. The Company shall not, and it
shall not cause or permit any Subsidiary of the Company to, incur, issue or be
obligated on any Additional Junior Indebtedness, either directly or indirectly,
by way of guarantee, suretyship or otherwise, other than Additional Junior
Indebtedness (i) that, by its terms, is expressly stated to be either
junior and subordinate or pari passu
in all respects to the Debentures, and (ii) of which the Company has
notified (and, if then required under the applicable guidelines of the
regulating entity, has received approval from) the Federal Reserve.

ARTICLE IV.

SECURITYHOLDERS’ LISTS AND REPORTS

BY THE COMPANY AND THE TRUSTEE

Section 4.1.           Securityholders’
Lists. The Company covenants and agrees that it
will furnish or cause to be furnished to the Trustee:

(a)           on each regular
record date for the Debentures, a list, in such form as the Trustee may reasonably
require, of the names and addresses of the Securityholders of the Debentures as
of such record date; and

(b)           at such other times
as the Trustee may request in writing, within 30 days after the receipt by
the Company of any such request, a list of similar form and content as of a
date not more than 15 days prior to the time such list is furnished;

except that no such lists
need be furnished under this Section 4.1 so long as the Trustee is in
possession thereof by reason of its acting as Debenture registrar.

 

 20

 

Section 4.2.           Preservation
and Disclosure of Lists.

(a)           The Trustee shall
preserve, in as current a form as is reasonably practicable, all information as
to the names and addresses of the holders of Debentures (1) contained in
the most recent list furnished to it as provided in Section 4.1 or
(2) received by it in the capacity of Debentures registrar (if so acting)
hereunder.  The Trustee may destroy any
list furnished to it as provided in Section 4.1 upon receipt of a new list
so furnished.

(b)           In case three or
more holders of Debentures (hereinafter referred to as “applicants”) apply in
writing to the Trustee and furnish to the Trustee reasonable proof that each
such applicant has owned a Debenture for a period of at least 6 months
preceding the date of such application, and such application states that the
applicants desire to communicate with other holders of Debentures with respect
to their rights under this Indenture or under such Debentures and is
accompanied by a copy of the form of proxy or other communication which such
applicants propose to transmit, then the Trustee shall within 5 Business Days
after the receipt of such application, at its election, either:

(1)           afford
such applicants access to the information preserved at the time by the Trustee
in accordance with the provisions of subsection (a) of this
Section 4.2, or

(2)           inform
such applicants as to the approximate number of holders of Debentures whose
names and addresses appear in the information preserved at the time by the
Trustee in accordance with the provisions of subsection (a) of this
Section 4.2, and as to the approximate cost of mailing to such
Securityholders the form of proxy or other communication, if any, specified in
such application.

If the Trustee shall
elect not to afford such applicants access to such information, the Trustee
shall, upon the written request of such applicants, mail to each Securityholder
whose name and address appear in the information preserved at the time by the
Trustee in accordance with the provisions of subsection (a) of this
Section 4.2 a copy of the form of proxy or other communication which is
specified in such request with reasonable promptness after a tender to the
Trustee of the material to be mailed and of payment, or provision for the payment,
of the reasonable expenses of mailing, unless within five days after such
tender, the Trustee shall mail to such applicants and file with the Securities
and Exchange Commission, if permitted or required by applicable law, together
with a copy of the material to be mailed, a written statement to the effect
that, in the opinion of the Trustee, such mailing would be contrary to the best
interests of the holders of all Debentures, as the case may be, or would be in
violation of applicable law.  Such
written statement shall specify the basis of such opinion.  If said Commission, as permitted or required
by applicable law, after opportunity for a hearing upon the objections
specified in the written statement so filed, shall enter an order refusing to
sustain any of such objections or if, after the entry of an order sustaining
one or more of such objections, said Commission shall find, after notice and
opportunity for hearing, that all the objections so sustained have been met and
shall enter an order so declaring, the Trustee shall mail copies of such
material to all such Securityholders with reasonable promptness after the entry
of such order and the renewal of such tender; otherwise the Trustee shall be
relieved of any obligation or duty to such applicants respecting their
application.

(c)           Each and every
holder of Debentures, by receiving and holding the same, agrees with the
Company and the Trustee that neither the Company nor the Trustee nor any paying
agent shall be held accountable by reason of the disclosure of any such
information as to the names and addresses of the holders of Debentures in
accordance with the provisions of subsection (b) of this Section 4.2,
regardless of the source from which such information was derived, and that the
Trustee shall not be held accountable by reason of mailing any material
pursuant to a request made under said subsection (b).

 21
 

 

 

ARTICLE V.

REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS

UPON AN EVENT OF DEFAULT

Section 5.1.           Events
of Default. “Event of
Default,” wherever used herein, means any one of the following events (whatever
the reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):

(a)           the Company defaults
in the payment of any interest upon any Debenture, including any Additional
Interest in respect thereof, following the nonpayment of any such interest for
twenty or more consecutive Distribution Periods; or

(b)           the Company defaults
in the payment of all or any part of the principal of (or premium, if any, on)
any Debentures as and when the same shall become due and payable either at
maturity, upon redemption, by declaration of acceleration or otherwise; or

(c)           the Company defaults
in the performance of, or breaches, any of its covenants or agreements in this
Indenture or in the terms of the Debentures established as contemplated in this
Indenture (other than a covenant or agreement a default in whose performance or
whose breach is elsewhere in this Section specifically dealt with), and
continuance of such default or breach for a period of 60 days after there
has been given, by registered or certified mail, to the Company by the Trustee
or to the Company and the Trustee by the holders of at least 25% in aggregate
principal amount of the outstanding Debentures, a written notice specifying
such default or breach and requiring it to be remedied and stating that such
notice is a “Notice of Default” hereunder; or

(d)           a court of competent
jurisdiction shall enter a decree or order for relief in respect of the Company
in an involuntary case under any applicable bankruptcy, insolvency,
reorganization or other similar law now or hereafter in effect, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of the Company or for any substantial part of its property, or
ordering the winding-up or liquidation of its affairs and such decree or order
shall remain unstayed and in effect for a period of 90 consecutive days;
or

(e)           the Company shall
commence a voluntary case under any applicable bankruptcy, insolvency,
reorganization or other similar law now or hereafter in effect, shall consent
to the entry of an order for relief in an involuntary case under any such law,
or shall consent to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or other similar
official) of the Company or of any substantial part of its property, or shall
make any general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due; or

(f)            the Trust shall
have voluntarily or involuntarily liquidated, dissolved, wound-up its business
or otherwise terminated its existence except in connection with (i) the
distribution of the Debentures to holders of such Trust Securities in
liquidation of their interests in the Trust, (ii) the redemption of all of
the outstanding Trust Securities or (iii) certain mergers, consolidations
or amalgamations, each as permitted by the Declaration.

If an Acceleration Event
of Default occurs and is continuing with respect to the Debentures, then, and
in each and every such case, unless the principal of the Debentures shall have
already become due and payable, either the Trustee or the holders of not less
than 25% in aggregate principal amount of the Debentures then outstanding
hereunder, by notice in writing to the Company (and to the Trustee if given by
Securityholders), may declare the entire principal of the Debentures and the
interest accrued thereon, if any, to be due and payable immediately, and upon
any such declaration the same shall become

 22
 

 

immediately due and
payable.  If an Event of Default under
Section 5.1(b) or (c) occurs and is continuing with respect to the
Debentures, then, and in each and every such case, unless the principal of the
Debentures shall have already become due and payable, either the Trustee or the
holders of not less than 25% in aggregate principal amount of the Debentures
then outstanding hereunder, by notice in writing to the Company (and to the
Trustee if given by Securityholders), may proceed to remedy the default or
breach thereunder by such appropriate judicial proceedings as the Trustee or
such holders shall deem most effectual to remedy the defaulted covenant or
enforce the provisions of this Indenture so breached, either by suit in equity
or by action at law, for damages or otherwise.

The foregoing provisions,
however, are subject to the condition that if, at any time after the principal
of the Debentures shall have been so declared due and payable, and before any
judgment or decree for the payment of the moneys due shall have been obtained
or entered as hereinafter provided, (i) the Company shall pay or shall
deposit with the Trustee a sum sufficient to pay all matured installments of
interest upon all the Debentures and the principal of and premium, if any, on
the Debentures which shall have become due otherwise than by acceleration (with
interest upon such principal and premium, if any, and Additional Interest) and
such amount as shall be sufficient to cover reasonable compensation to the
Trustee and each predecessor Trustee, their respective agents, attorneys and
counsel, and all other amounts due to the Trustee pursuant to Section 6.6,
if any, and (ii) all Events of Default under this Indenture, other than
the non-payment of the principal of or premium, if any, on Debentures which
shall have become due by acceleration, shall have been cured, waived or
otherwise remedied as provided herein — then and in every such case the
holders of a majority in aggregate principal amount of the Debentures then
outstanding, by written notice to the Company and to the Trustee, may waive all
defaults and rescind and annul such declaration and its consequences, but no
such waiver or rescission and annulment shall extend to or shall affect any
subsequent default or shall impair any right consequent thereon.

In case the Trustee shall
have proceeded to enforce any right under this Indenture and such proceedings
shall have been discontinued or abandoned because of such rescission or
annulment or for any other reason or shall have been determined adversely to
the Trustee, then and in every such case the Company, the Trustee and the
holders of the Debentures shall be restored respectively to their several
positions and rights hereunder, and all rights, remedies and powers of the
Company, the Trustee and the holders of the Debentures shall continue as though
no such proceeding had been taken.

Section 5.2.           Payment
of Debentures on Default; Suit Therefor. The
Company covenants that upon the occurrence of an Event of Default pursuant to
Section 5.1(a) or (b) then, upon demand of the Trustee, the Company will
pay to the Trustee, for the benefit of the holders of the Debentures the whole
amount that then shall have become due and payable on all Debentures for
principal and premium, if any, or interest, or both, as the case may be, with
Additional Interest accrued on the Debentures (to the extent that payment of
such interest is enforceable under applicable law and, if the Debentures are
held by the Trust or a trustee of such Trust, without duplication of any other
amounts paid by the Trust or a trustee in respect thereof); and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including a reasonable compensation to the Trustee, its
agents, attorneys and counsel, and any other amounts due to the Trustee under Section 6.6.  In case the Company shall fail forthwith to
pay such amounts upon such demand, the Trustee, in its own name and as trustee
of an express trust, shall be entitled and empowered to institute any actions
or proceedings at law or in equity for the collection of the sums so due and
unpaid, and may prosecute any such action or proceeding to judgment or final
decree, and may enforce any such judgment or final decree against the Company
or any other obligor on such Debentures and collect in the manner provided by
law out of the property of the Company or any other obligor on such Debentures
wherever situated the moneys adjudged or decreed to be payable.

 23
 

 

 

In case there shall be
pending proceedings for the bankruptcy or for the reorganization of the Company
or any other obligor on the Debentures under Bankruptcy Law, or in case a
receiver or trustee shall have been appointed for the property of the Company
or such other obligor, or in the case of any other similar judicial proceedings
relative to the Company or other obligor upon the Debentures, or to the
creditors or property of the Company or such other obligor, the Trustee,
irrespective of whether the principal of the Debentures shall then be due and
payable as therein expressed or by declaration of acceleration or otherwise and
irrespective of whether the Trustee shall have made any demand pursuant to the
provisions of this Section 5.2, shall be entitled and empowered, by
intervention in such proceedings or otherwise,

(i)                                     to
file and prove a claim or claims for the whole amount of principal and interest
owing and unpaid in respect of the Debentures,

(ii)                                  in
case of any judicial proceedings, to file such proofs of claim and other papers
or documents as may be necessary or advisable in order to have the claims of
the Trustee (including any claim for reasonable compensation to the Trustee and
each predecessor Trustee, and their respective agents, attorneys and counsel,
and for reimbursement of all other amounts due to the Trustee under
Section 6.6), and of the Securityholders allowed in such judicial
proceedings relative to the Company or any other obligor on the Debentures, or
to the creditors or property of the Company or such other obligor, unless
prohibited by applicable law and regulations, to vote on behalf of the holders
of the Debentures in any election of a trustee or a standby trustee in
arrangement, reorganization, liquidation or other bankruptcy or insolvency
proceedings or Person performing similar functions in comparable proceedings,

(iii)                               to collect and receive
any moneys or other property payable or deliverable on any such claims, and

(iv)                              to
distribute the same after the deduction of its charges and expenses.

Any receiver, assignee or
trustee in bankruptcy or reorganization is hereby authorized by each of the
Securityholders to make such payments to the Trustee, and, in the event that
the Trustee shall consent to the making of such payments directly to the
Securityholders, to pay to the Trustee such amounts as shall be sufficient to
cover reasonable compensation to the Trustee, each predecessor Trustee and
their respective agents, attorneys and counsel, and all other amounts due to
the Trustee under Section 6.6.

Nothing herein contained
shall be construed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Securityholder any plan of reorganization,
arrangement, adjustment or composition affecting the Debentures or the rights
of any holder thereof or to authorize the Trustee to vote in respect of the
claim of any Securityholder in any such proceeding.

All rights of action and
of asserting claims under this Indenture, or under any of the Debentures, may
be enforced by the Trustee without the possession of any of the Debentures, or
the production thereof at any trial or other proceeding relative thereto, and
any such suit or proceeding instituted by the Trustee shall be brought in its
own name as trustee of an express trust, and any recovery of judgment shall be
for the ratable benefit of the holders of the Debentures.

In any proceedings
brought by the Trustee (and also any proceedings involving the interpretation
of any provision of this Indenture to which the Trustee shall be a party), the
Trustee shall be held to represent all the holders of the Debentures, and it shall
not be necessary to make any holders of the Debentures parties to any such
proceedings.

 24
 

 

 

Section 5.3.           Application
of Moneys Collected by Trustee. Any moneys
collected by the Trustee pursuant to this Article V shall be applied in
the following order, at the date or dates fixed by the Trustee for the
distribution of such moneys, upon presentation of the several Debentures in
respect of which moneys have been collected, and stamping thereon the payment,
if only partially paid, and upon surrender thereof if fully paid:

First:  To the payment of costs and expenses incurred
by, and reasonable fees of, the Trustee, its agents, attorneys and counsel, and
of all other amounts due to the Trustee under Section 6.6;

Second:  To the payment of all Senior Indebtedness of
the Company if and to the extent required by Article XV;

Third:  To the payment of the amounts then due and
unpaid upon Debentures for principal (and premium, if any), and interest on the
Debentures, in respect of which or for the benefit of which money has been
collected, ratably, without preference or priority of any kind, according to
the amounts due on such Debentures (including Additional Interest); and

Fourth:  The balance, if any, to the Company.

Section 5.4.           Proceedings
by Securityholders. No holder of any Debenture
shall have any right to institute any suit, action or proceeding for any remedy
hereunder, unless such holder previously shall have given to the Trustee
written notice of an Event of Default with respect to the Debentures and unless
the holders of not less than 25% in aggregate principal amount of the
Debentures then outstanding shall have given the Trustee a written request to
institute such action, suit or proceeding and shall have offered to the Trustee
such reasonable indemnity as it may require against the costs, expenses and
liabilities to be incurred thereby, and the Trustee for 60 days after its
receipt of such notice, request and offer of indemnity shall have failed to
institute any such action, suit or proceeding.

Notwithstanding any other
provisions in this Indenture, however, the right of any holder of any Debenture
to receive payment of the principal of, premium, if any, and interest, on such
Debenture when due, or to institute suit for the enforcement of any such
payment, shall not be impaired or affected without the consent of such holder
and by accepting a Debenture hereunder it is expressly understood, intended and
covenanted by the taker and holder of every Debenture with every other such
taker and holder and the Trustee, that no one or more holders of Debentures
shall have any right in any manner whatsoever by virtue or by availing itself
of any provision of this Indenture to affect, disturb or prejudice the rights
of the holders of any other Debentures, or to obtain or seek to obtain priority
over or preference to any other such holder, or to enforce any right under this
Indenture, except in the manner herein provided and for the equal, ratable and
common benefit of all holders of Debentures. 
For the protection and enforcement of the provisions of this Section,
each and every Securityholder and the Trustee shall be entitled to such relief
as can be given either at law or in equity.

Section 5.5.           Proceedings
by Trustee. In case of an Event of Default
hereunder the Trustee may in its discretion proceed to protect and enforce the
rights vested in it by this Indenture by such appropriate judicial proceedings
as the Trustee shall deem most effectual to protect and enforce any of such
rights, either by suit in equity or by action at law or by proceeding in
bankruptcy or otherwise, whether for the specific enforcement of any covenant
or agreement contained in this Indenture or in aid of the exercise of any power
granted in this Indenture, or to enforce any other legal or equitable right
vested in the Trustee by this Indenture or by law.

Section 5.6.           Remedies
Cumulative and Continuing; Delay or Omission Not a Waiver. Except
as otherwise provided in Section 2.6, all powers and remedies given by
this Article V to the Trustee or to the Securityholders shall, to the
extent permitted by law, be deemed cumulative and not

 25
 

 

exclusive of
any other powers and remedies available to the Trustee or the holders of the
Debentures, by judicial proceedings or otherwise, to enforce the performance or
observance of the covenants and agreements contained in this Indenture or
otherwise established with respect to the Debentures, and no delay or omission
of the Trustee or of any holder of any of the Debentures to exercise any right,
remedy or power accruing upon any Event of Default occurring and continuing as
aforesaid shall impair any such right, remedy or power, or shall be construed
to be a waiver of any such default or an acquiescence therein; and, subject to
the provisions of Section 5.4, every power and remedy given by this
Article V or by law to the Trustee or to the Securityholders may be
exercised from time to time, and as often as shall be deemed expedient, by the
Trustee (in accordance with its duties under Section 6.1) or by the Securityholders.

Section 5.7.           Direction
of Proceedings and Waiver of Defaults by Majority of Securityholders. The
holders of a majority in aggregate principal amount of the Debentures affected
(voting as one class) at the time outstanding shall have the right to direct the
time, method, and place of conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or power conferred on the Trustee with
respect to such Debentures; provided, however, that (subject to
the provisions of Section 6.1) the Trustee shall have the right to decline
to follow any such direction if the Trustee shall determine that the action so
directed would be unjustly prejudicial to the holders not taking part in such
direction or if the Trustee being advised by counsel determines that the action
or proceeding so directed may not lawfully be taken or if a Responsible Officer
of the Trustee shall determine that the action or proceedings so directed would
involve the Trustee in personal liability.

The holders of a majority
in aggregate principal amount of the Debentures at the time outstanding may on
behalf of the holders of all of the Debentures waive (or modify any previously
granted waiver of) any past default or Event of Default, and its consequences,
except a default (a) in the payment of principal of, premium, if any, or
interest on any of the Debentures, (b) in respect of covenants or
provisions hereof which cannot be modified or amended without the consent of
the holder of each Debenture affected, or (c) in respect of the covenants
contained in Section 3.9; provided, however, that if the
Debentures are held by the Trust or a trustee of such trust, such waiver or
modification to such waiver shall not be effective until the holders of a
majority in Liquidation Amount of Trust Securities of the Trust shall have
consented to such waiver or modification to such waiver, provided, further,
that if the consent of the holder of each outstanding Debenture is required,
such waiver shall not be effective until each holder of the Trust Securities of
the Trust shall have consented to such waiver. 
Upon any such waiver, the default covered thereby shall be deemed to be
cured for all purposes of this Indenture and the Company, the Trustee and the
holders of the Debentures shall be restored to their former positions and
rights hereunder, respectively; but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.  Whenever any default or Event
of Default hereunder shall have been waived as permitted by this Section, said
default or Event of Default shall for all purposes of the Debentures and this
Indenture be deemed to have been cured and to be not continuing.

Section 5.8.           Notice
of Defaults. The Trustee shall, within
90 days after the actual knowledge by a Responsible Officer of the Trustee
of the occurrence of a default with respect to the Debentures, mail to all
Securityholders, as the names and addresses of such holders appear upon the
Debenture Register, notice of all defaults with respect to the Debentures known
to the Trustee, unless such defaults shall have been cured before the giving of
such notice (the term “defaults” for the purpose of this Section 5.8 being
hereby defined to be the events specified in clauses (a), (b), (c), (d),
(e) and (f) of Section 5.1, not including periods of grace, if any,
provided for therein); provided, however, that, except in the
case of default in the payment of the principal of, premium, if any, or
interest on any of the Debentures, the Trustee shall be protected in
withholding such notice if and so long as a Responsible Officer of the Trustee
in good faith determines that the withholding of such notice is in the
interests of the Securityholders.

 26
 

 

 

Section 5.9.           Undertaking
to Pay Costs. All parties to this Indenture agree,
and each holder of any Debenture by his acceptance thereof shall be deemed to
have agreed, that any court may in its discretion require, in any suit for the
enforcement of any right or remedy under this Indenture, or in any suit against
the Trustee for any action taken or omitted by it as Trustee, the filing by any
party litigant in such suit of an undertaking to pay the costs of such suit,
and that such court may in its discretion assess reasonable costs, including
reasonable attorneys’ fees and expenses, against any party litigant in such
suit, having due regard to the merits and good faith of the claims or defenses
made by such party litigant; provided, however, that the
provisions of this Section 5.9 shall not apply to any suit instituted by
the Trustee, to any suit instituted by any Securityholder, or group of
Securityholders, holding in the aggregate more than 10% in principal amount of
the Debentures outstanding, or to any suit instituted by any Securityholder for
the enforcement of the payment of the principal of (or premium, if any) or
interest on any Debenture against the Company on or after the same shall have
become due and payable.

ARTICLE VI.

CONCERNING THE TRUSTEE

Section 6.1.           Duties
and Responsibilities of Trustee. With respect to
the holders of Debentures issued hereunder, the Trustee, prior to the
occurrence of an Event of Default with respect to the Debentures and after the
curing or waiving of all Events of Default which may have occurred, with
respect to the Debentures, undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture, and no implied
covenants shall be read into this Indenture against the Trustee.  In case an Event of Default with respect to
the Debentures has occurred (which has not been cured or waived), the Trustee
shall exercise such of the rights and powers vested in it by this Indenture,
and use the same degree of care and skill in their exercise, as a prudent man
would exercise or use under the circumstances in the conduct of his own
affairs.

No provision of this
Indenture shall be construed to relieve the Trustee from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:

(a)           prior to the occurrence
of an Event of Default with respect to Debentures and after the curing or
waiving of all Events of Default which may have occurred

(1)           the
duties and obligations of the Trustee with respect to Debentures shall be
determined solely by the express provisions of this Indenture, and the Trustee
shall not be liable except for the performance of such duties and obligations
with respect to the Debentures as are specifically set forth in this Indenture,
and no implied covenants or obligations shall be read into this Indenture
against the Trustee, and

(2)           in
the absence of bad faith on the part of the Trustee, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon any certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture; but, in the case
of any such certificates or opinions which by any provision hereof are
specifically required to be furnished to the Trustee, the Trustee shall be under
a duty to examine the same to determine whether or not they conform to the
requirements of this Indenture;

(b)           the Trustee shall
not be liable for any error of judgment made in good faith by a Responsible
Officer or Officers of the Trustee, unless it shall be proved that the Trustee
was negligent in ascertaining the pertinent facts; and

(c)           the Trustee shall
not be liable with respect to any action taken or omitted to be taken by it in
good faith, in accordance with the direction of the Securityholders pursuant to
Section 5.7, relating to

 27
 

 

the time,
method and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee, under
this Indenture.

None of the provisions
contained in this Indenture shall require the Trustee to expend or risk its own
funds or otherwise incur personal financial liability in the performance of any
of its duties or in the exercise of any of its rights or powers, if there is
ground for believing that the repayment of such funds or liability is not
assured to it under the terms of this Indenture or indemnity satisfactory to
the Trustee against such risk is not reasonably assured to it.

Section 6.2.           Reliance
on Documents, Opinions, etc. Except as otherwise
provided in Section 6.1:

(a)           the Trustee may
conclusively rely and shall be fully protected in acting or refraining from
acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, bond, note, debenture or other paper
or document believed by it to be genuine and to have been signed or presented
by the proper party or parties;

(b)           any request,
direction, order or demand of the Company mentioned herein shall be
sufficiently evidenced by an Officers’ Certificate (unless other evidence in
respect thereof be herein specifically prescribed); and any Board Resolution
may be evidenced to the Trustee by a copy thereof certified by the Secretary or
an Assistant Secretary of the Company;

(c)           the Trustee may
consult with counsel of its selection and any advice or Opinion of Counsel
shall be full and complete authorization and protection in respect of any
action taken, suffered or omitted by it hereunder in good faith and in
accordance with such advice or Opinion of Counsel;

(d)           the Trustee shall be
under no obligation to exercise any of the rights or powers vested in it by
this Indenture at the request, order or direction of any of the
Securityholders, pursuant to the provisions of this Indenture, unless such
Securityholders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby;

(e)           the Trustee shall
not be liable for any action taken or omitted by it in good faith and believed
by it to be authorized or within the discretion or rights or powers conferred
upon it by this Indenture; nothing contained herein shall, however, relieve the
Trustee of the obligation, upon the occurrence of an Event of Default with
respect to the Debentures (that has not been cured or waived) to exercise with
respect to Debentures such of the rights and powers vested in it by this
Indenture, and to use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs;

(f)            the Trustee shall
not be bound to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, order, approval, bond, debenture, coupon or other paper or
document, unless requested in writing to do so by the holders of not less than
a majority in aggregate principal amount of the outstanding Debentures affected
thereby; provided, however, that if the payment within a reasonable
time to the Trustee of the costs, expenses or liabilities likely to be incurred
by it in the making of such investigation is, in the opinion of the Trustee,
not reasonably assured to the Trustee by the security afforded to it by the
terms of this Indenture, the Trustee may require reasonable indemnity against
such expense or liability as a condition to so proceeding;

(g)           the Trustee may
execute any of the trusts or powers hereunder or perform any duties hereunder
either directly or by or through agents (including any Authenticating Agent) or
attorneys, and

 28
 

 

the Trustee
shall not be responsible for any misconduct or negligence on the part of any
such agent or attorney appointed by it with due care; and

(h)           with the exceptions
of defaults under Sections 5.1(a) or (b), the Trustee shall not be charged with
knowledge of any Default or Event of Default with respect to the Debentures
unless a written notice of such Default or Event of Default shall have been
given to the Trustee by the Company or any other obligor on the Debentures or
by any holder of the Debentures.

Section 6.3.           No
Responsibility for Recitals, etc. The recitals
contained herein and in the Debentures (except in the certificate of
authentication of the Trustee or the Authenticating Agent) shall be taken as
the statements of the Company, and the Trustee and the Authenticating Agent
assume no responsibility for the correctness of the same.  The Trustee and the Authenticating Agent make
no representations as to the validity or sufficiency of this Indenture or of
the Debentures.  The Trustee and the
Authenticating Agent shall not be accountable for the use or application by the
Company of any Debentures or the proceeds of any Debentures authenticated and
delivered by the Trustee or the Authenticating Agent in conformity with the
provisions of this Indenture.

Section 6.4.           Trustee,
Authenticating Agent, Paying Agents, Transfer Agents or Registrar May Own
Debentures. The Trustee or any Authenticating
Agent or any paying agent or any transfer agent or any Debenture registrar, in
its individual or any other capacity, may become the owner or pledgee of
Debentures with the same rights it would have if it were not Trustee,
Authenticating Agent, paying agent, transfer agent or Debenture registrar.

Section 6.5.           Moneys
to be Held in Trust. Subject to the provisions of
Section 12.4, all moneys received by the Trustee or any paying agent
shall, until used or applied as herein provided, be held in trust for the
purpose for which they were received, but need not be segregated from other
funds except to the extent required by law. 
The Trustee and any paying agent shall be under no liability for
interest on any money received by it hereunder except as otherwise agreed in
writing with the Company.  So long as no
Event of Default shall have occurred and be continuing, all interest allowed on
any such moneys shall be paid from time to time upon the written order of the
Company, signed by the Chairman of the Board of Directors, the Chief Executive
Officer, the President, a Managing Director, a Vice President, the Treasurer or
an Assistant Treasurer of the Company.

Section 6.6.           Compensation
and Expenses of Trustee. The Company covenants and
agrees to pay or reimburse the Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of its counsel and
of all Persons not regularly in its employ) except any such expense,
disbursement or advance as may arise from its negligence or willful
misconduct.  For purposes of
clarification, this Section 6.6 does not contemplate the payment by the
Company of acceptance or annual administration fees owing to the Trustee
pursuant to the services to be provided by the Trustee under this Indenture or
the fees and expenses of the Trustee’s counsel in connection with the closing
of the transactions contemplated by this Indenture.  The Company also covenants to indemnify each
of the Trustee or any predecessor Trustee (and its officers, agents, directors
and employees) for, and to hold it harmless against, any and all loss, damage,
claim, liability or expense including taxes (other than taxes based on the
income of the Trustee) incurred without negligence or willful misconduct on the
part of the Trustee and arising out of or in connection with the acceptance or
administration of this trust, including the costs and expenses of defending
itself against any claim of liability. 
The obligations of the Company under this Section 6.6 to compensate
and indemnify the Trustee and to pay or reimburse the Trustee for expenses,
disbursements and advances shall constitute additional indebtedness
hereunder.  Such additional indebtedness
shall be secured by a lien prior to that of

 29
 

 

the Debentures
upon all property and funds held or collected by the Trustee as such, except
funds held in trust for the benefit of the holders of particular Debentures.

Without prejudice to any
other rights available to the Trustee under applicable law, when the Trustee
incurs expenses or renders services in connection with an Event of Default
specified in Section 5.1(d), (e) or (f), the expenses (including the
reasonable charges and expenses of its counsel) and the compensation for the
services are intended to constitute expenses of administration under any
applicable federal or state bankruptcy, insolvency or other similar law.

The provisions of this
Section shall survive the resignation or removal of the Trustee and the
defeasance or other termination of this Indenture.

Notwithstanding anything
in this Indenture or any Debenture to the contrary, the Trustee shall have no
obligation whatsoever to advance funds to pay any principal of or interest on
or other amounts with respect to the Debentures or otherwise advance funds to
or on behalf of the Company.

Section 6.7.           Officers’
Certificate as Evidence. Except as otherwise
provided in Sections 6.1 and 6.2, whenever in the administration of the
provisions of this Indenture the Trustee shall deem it necessary or desirable
that a matter be proved or established prior to taking or omitting any action
hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may, in the absence of negligence or willful
misconduct on the part of the Trustee, be deemed to be conclusively proved and
established by an Officers’ Certificate delivered to the Trustee, and such
certificate, in the absence of negligence or willful misconduct on the part of
the Trustee, shall be full warrant to the Trustee for any action taken or
omitted by it under the provisions of this Indenture upon the faith thereof.

Section 6.8.           Eligibility
of Trustee. The Trustee hereunder shall at all
times be a corporation organized and doing business under the laws of the
United States of America or any state or territory thereof or of the District
of Columbia or a corporation or other Person authorized under such laws to
exercise corporate trust powers, having (or whose obligations under this
Indenture are guaranteed by an affiliate having) a combined capital and surplus
of at least 50 million U.S. dollars ($50,000,000.00) and subject to
supervision or examination by federal, state, territorial, or District of
Columbia authority.  If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purposes of this Section 6.8 the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent records of condition so published.

The Company may not, nor
may any Person directly or indirectly controlling, controlled by, or under
common control with the Company, serve as Trustee.

In case at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section 6.8, the Trustee shall resign immediately in the manner and with
the effect specified in Section 6.9.

If the Trustee has or
shall acquire any “conflicting interest” within the meaning of § 310(b) of the
Trust Indenture Act of 1939, the Trustee shall either eliminate such interest
or resign, to the extent and in the manner described by this Indenture.

Section 6.9.           Resignation
or Removal of Trustee

(a)           The
Trustee, or any trustee or trustees hereafter appointed, may at any time resign
by giving written notice of such resignation to the Company and by mailing
notice thereof, at the Company’s expense, to the holders of the Debentures at
their addresses as they shall appear on the Debenture

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Register.  Upon receiving such
notice of resignation, the Company shall promptly appoint a successor trustee
or trustees by written instrument, in duplicate, executed by order of its Board
of Directors, one copy of which instrument shall be delivered to the resigning
Trustee and one copy to the successor Trustee. 
If no successor Trustee shall have been so appointed and have accepted
appointment within 30 days after the mailing of such notice of resignation to
the affected Securityholders, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor Trustee, or any
Securityholder who has been a bona fide holder of a Debenture or Debentures for
at least six months may, subject to the provisions of Section 5.9, on
behalf of himself and all others similarly situated, petition any such court
for the appointment of a successor Trustee. 
Such court may thereupon, after such notice, if any, as it may deem
proper and prescribe, appoint a successor Trustee.

(b)           In
case at any time any of the following shall occur —

(1)           the Trustee shall fail to comply with
the provisions of Section 6.8 after written request therefor by the
Company or by any Securityholder who has been a bona fide holder of a Debenture
or Debentures for at least 6 months, or

(2)           the Trustee shall cease to be
eligible in accordance with the provisions of Section 6.8 and shall fail
to resign after written request therefor by the Company or by any such Securityholder,
or

(3)           the Trustee shall become incapable of
acting, or shall be adjudged as bankrupt or insolvent, or a receiver of the
Trustee or of its property shall be appointed, or any public officer shall take
charge or control of the Trustee or of its property or affairs for the purpose
of rehabilitation, conservation or liquidation,

then, in any
such case, the Company may remove the Trustee and appoint a successor Trustee
by written instrument, in duplicate, executed by order of the Board of
Directors, one copy of which instrument shall be delivered to the Trustee so
removed and one copy to the successor Trustee, or, subject to the provisions of
Section 5.9, any Securityholder who has been a bona fide holder of a
Debenture or Debentures for at least 6 months may, on behalf of himself
and all others similarly situated, petition any court of competent jurisdiction
for the removal of the Trustee and the appointment of a successor Trustee.  Such court may thereupon, after such notice,
if any, as it may deem proper and prescribe, remove the Trustee and appoint
successor Trustee.

(c)           Upon
prior written notice to the Company and the Trustee, the holders of a majority
in aggregate principal amount of the Debentures at the time outstanding may at
any time remove the Trustee and nominate a successor Trustee, which shall be
deemed appointed as successor Trustee unless within 10 Business Days after such
nomination the Company objects thereto, in which case, or in the case of a
failure by such holders to nominate a successor Trustee, the Trustee so removed
or any Securityholder, upon the terms and conditions and otherwise as in
subsection (a) of this Section 6.9 provided, may petition any court
of competent jurisdiction for an appointment of a successor.

(d)           Any
resignation or removal of the Trustee and appointment of a successor Trustee
pursuant to any of the provisions of this Section shall become effective upon
acceptance of appointment by the successor Trustee as provided in
Section 6.10.

Section 6.10.        Acceptance
by Successor Trustee.   Any
successor Trustee appointed as provided in Section 6.9 shall execute,
acknowledge and deliver to the Company and to its predecessor Trustee an
instrument accepting such appointment hereunder, and thereupon the resignation
or removal of the retiring Trustee shall become effective and such successor
Trustee, without any further act, deed or

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conveyance, shall become vested with all the rights, powers, duties and
obligations with respect to the Debentures of its predecessor hereunder, with
like effect as if originally named as Trustee herein; but, nevertheless, on the
written request of the Company or of the successor Trustee, the Trustee ceasing
to act shall, upon payment of any amounts then due it pursuant to the
provisions of Section 6.6, execute and deliver an instrument transferring
to such successor Trustee all the rights and powers of the Trustee so ceasing
to act and shall duly assign, transfer and deliver to such successor Trustee
all property and money held by such retiring Trustee thereunder.  Upon request of any such successor Trustee,
the Company shall execute any and all instruments in writing for more fully and
certainly vesting in and confirming to such successor Trustee all such rights
and powers.  Any Trustee ceasing to act
shall, nevertheless, retain a lien upon all property or funds held or collected
by such Trustee to secure any amounts then due it pursuant to the provisions of
Section 6.6.

If a successor Trustee is
appointed, the Company, the retiring Trustee and the successor Trustee shall
execute and deliver an indenture supplemental hereto which shall contain such
provisions as shall be deemed necessary or desirable to confirm that all the
rights, powers, trusts and duties of the retiring Trustee with respect to the Debentures
as to which the predecessor Trustee is not retiring shall continue to be vested
in the predecessor Trustee, and shall add to or change any of the provisions of
this Indenture as shall be necessary to provide for or facilitate the
administration of the Trust hereunder by more than one Trustee, it being
understood that nothing herein or in such supplemental indenture shall
constitute such Trustees co-trustees of the same trust and that each such
Trustee shall be Trustee of a trust or trusts hereunder separate and apart from
any trust or trusts hereunder administered by any other such Trustee.

No successor Trustee
shall accept appointment as provided in this Section unless at the time of such
acceptance such successor Trustee shall be eligible under the provisions of
Section 6.8.

In no event shall a
retiring Trustee be liable for the acts or omissions of any successor Trustee
hereunder.

Upon acceptance of
appointment by a successor Trustee as provided in this Section 6.10, the
Company shall mail notice of the succession of such Trustee hereunder to the
holders of Debentures at their addresses as they shall appear on the Debenture
Register.  If the Company fails to mail
such notice within 10 Business Days after the acceptance of appointment by the
successor Trustee, the successor Trustee shall cause such notice to be mailed
at the expense of the Company.

Section 6.11.        Succession
by Merger, etc. Any corporation into which the
Trustee may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any corporation succeeding to all or substantially
all of the corporate trust business of the Trustee, shall be the successor of
the Trustee hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto; provided such
corporation shall be otherwise eligible and qualified under this Article.

In case at the time such
successor to the Trustee shall succeed to the trusts created by this Indenture
any of the Debentures shall have been authenticated but not delivered, any such
successor to the Trustee may adopt the certificate of authentication of any
predecessor Trustee, and deliver such Debentures so authenticated; and in case
at that time any of the Debentures shall not have been authenticated, any
successor to the Trustee may authenticate such Debentures either in the name of
any predecessor hereunder or in the name of the successor Trustee; and in all such
cases such certificates shall have the full force which it is anywhere in the
Debentures or in this Indenture provided that the certificate of the Trustee
shall have; provided, however, that the right to adopt the
certificate of authentication of any predecessor Trustee or authenticate
Debentures in the name of any predecessor Trustee shall apply only to its
successor or successors by merger, conversion or consolidation.

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Section 6.12.        Authenticating
Agents. There may be one or more Authenticating
Agents appointed by the Trustee upon the request of the Company with power to
act on its behalf and subject to its direction in the authentication and
delivery of Debentures issued upon exchange or registration of transfer thereof
as fully to all intents and purposes as though any such Authenticating Agent
had been expressly authorized to authenticate and deliver Debentures; provided,
however, that the Trustee shall have no liability to the Company for any
acts or omissions of the Authenticating Agent with respect to the
authentication and delivery of Debentures. 
Any such Authenticating Agent shall at all times be a corporation
organized and doing business under the laws of the United States or of any
state or territory thereof or of the District of Columbia authorized under such
laws to act as Authenticating Agent, having a combined capital and surplus of
at least $50,000,000.00 and being subject to supervision or examination by
federal, state, territorial or District of Columbia authority.  If such corporation publishes reports of
condition at least annually pursuant to law or the requirements of such
authority, then for the purposes of this Section 6.12 the combined capital
and surplus of such corporation shall be deemed to be its combined capital and surplus
as set forth in its most recent report of condition so published.  If at any time an Authenticating Agent shall
cease to be eligible in accordance with the provisions of this Section, it
shall resign immediately in the manner and with the effect herein specified in
this Section.

Any corporation into
which any Authenticating Agent may be merged or converted or with which it may
be consolidated, or any corporation resulting from any merger, consolidation or
conversion to which any Authenticating Agent shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of any Authenticating Agent, shall be the successor of such
Authenticating Agent hereunder, if such successor corporation is otherwise
eligible under this Section 6.12 without the execution or filing of any
paper or any further act on the part of the parties hereto or such
Authenticating Agent.

Any Authenticating Agent
may at any time resign by giving written notice of resignation to the Trustee
and to the Company.  The Trustee may at
any time terminate the agency of any Authenticating Agent with respect to the
Debentures by giving written notice of termination to such Authenticating Agent
and to the Company.  Upon receiving such
a notice of resignation or upon such a termination, or in case at any time any
Authenticating Agent shall cease to be eligible under this Section 6.12,
the Trustee may, and upon the request of the Company shall, promptly appoint a
successor Authenticating Agent eligible under this Section 6.12, shall
give written notice of such appointment to the Company and shall mail notice of
such appointment to all holders of Debentures as the names and addresses of
such holders appear on the Debenture Register. 
Any successor Authenticating Agent upon acceptance of its appointment
hereunder shall become vested with all rights, powers, duties and
responsibilities with respect to the Debentures of its predecessor hereunder,
with like effect as if originally named as Authenticating Agent herein.

The Company agrees to pay
to any Authenticating Agent from time to time reasonable compensation for its
services.  Any Authenticating Agent shall
have no responsibility or liability for any action taken by it as such in accordance
with the directions of the Trustee.

ARTICLE VII.

CONCERNING THE SECURITYHOLDERS

Section 7.1.           Action
by Securityholders. Whenever in this Indenture it
is provided that the holders of a specified percentage in aggregate principal
amount of the Debentures may take any action (including the making of any
demand or request, the giving of any notice, consent or waiver or the taking of
any other action) the fact that at the time of taking any such action the
holders of such specified percentage have joined therein may be evidenced
(a) by any instrument or any number of instruments of similar tenor
executed by such Securityholders in person or by agent or proxy appointed in
writing, or

 33
 

 

(b) by
the record of such holders of Debentures voting in favor thereof at any meeting
of such Securityholders duly called and held in accordance with the provisions
of Article VIII, or (c) by a combination of such instrument or
instruments and any such record of such a meeting of such Securityholders or
(d) by any other method the Trustee deems satisfactory.

If the Company shall
solicit from the Securityholders any request, demand, authorization, direction,
notice, consent, waiver or other action or revocation of the same, the Company
may, at its option, as evidenced by an Officers’ Certificate, fix in advance a record
date for such Debentures for the determination of Securityholders entitled to
give such request, demand, authorization, direction, notice, consent, waiver or
other action or revocation of the same, but the Company shall have no
obligation to do so.  If such a record
date is fixed, such request, demand, authorization, direction, notice, consent,
waiver or other action or revocation of the same may be given before or after
the record date, but only the Securityholders of record at the close of
business on the record date shall be deemed to be Securityholders for the
purposes of determining whether Securityholders of the requisite proportion of
outstanding Debentures have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other action or
revocation of the same, and for that purpose the outstanding Debentures shall
be computed as of the record date; provided, however, that no
such authorization, agreement or consent by such Securityholders on the record
date shall be deemed effective unless it shall become effective pursuant to the
provisions of this Indenture not later than 6 months after the record date.

Section 7.2.           Proof
of Execution by Securityholders. Subject to the
provisions of Section 6.1, 6.2 and 8.5, proof of the execution of any
instrument by a Securityholder or his agent or proxy shall be sufficient if
made in accordance with such reasonable rules and regulations as may be
prescribed by the Trustee or in such manner as shall be satisfactory to the
Trustee.  The ownership of Debentures
shall be proved by the Debenture Register or by a certificate of the Debenture
registrar.  The Trustee may require such
additional proof of any matter referred to in this Section as it shall deem
necessary.

The record of any
Securityholders’ meeting shall be proved in the manner provided in
Section 8.6.

Section 7.3.           Who
Are Deemed Absolute Owners. Prior to due
presentment for registration of transfer of any Debenture, the Company, the
Trustee, any Authenticating Agent, any paying agent, any transfer agent and any
Debenture registrar may deem the Person in whose name such Debenture shall be
registered upon the Debenture Register to be, and may treat him as, the
absolute owner of such Debenture (whether or not such Debenture shall be
overdue) for the purpose of receiving payment of or on account of the principal
of, premium, if any, and interest on such Debenture and for all other purposes;
and neither the Company nor the Trustee nor any Authenticating Agent nor any
paying agent nor any transfer agent nor any Debenture registrar shall be
affected by any notice to the contrary. 
All such payments so made to any holder for the time being or upon his
order shall be valid, and, to the extent of the sum or sums so paid, effectual
to satisfy and discharge the liability for moneys payable upon any such
Debenture.

Section 7.4.           Debentures
Owned by Company Deemed Not Outstanding. In
determining whether the holders of the requisite aggregate principal amount of
Debentures have concurred in any direction, consent or waiver under this
Indenture, Debentures which are owned by the Company or any other obligor on
the Debentures or by any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company or
any other obligor on the Debentures shall be disregarded and deemed not to be
outstanding for the purpose of any such determination; provided, however,
that for the purposes of determining whether the Trustee shall be protected in
relying on any such direction, consent or waiver, only Debentures which a
Responsible Officer of the Trustee actually knows are so owned shall be so
disregarded.  Debentures so owned which
have been pledged in good

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faith may be
regarded as outstanding for the purposes of this Section 7.4 if the
pledgee shall establish to the satisfaction of the Trustee the pledgee’s right
to vote such Debentures and that the pledgee is not the Company or any such
other obligor or Person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Company or any such other
obligor.  In the case of a dispute as to
such right, any decision by the Trustee taken upon the advice of counsel shall
be full protection to the Trustee.

Section 7.5.           Revocation
of Consents; Future Holders Bound. At any time
prior to (but not after) the evidencing to the Trustee, as provided in
Section 7.1, of the taking of any action by the holders of the percentage
in aggregate principal amount of the Debentures specified in this Indenture in
connection with such action, any holder (in cases where no record date has been
set pursuant to Section 7.1) or any holder as of an applicable record date
(in cases where a record date has been set pursuant to Section 7.1) of a
Debenture (or any Debenture issued in whole or in part in exchange or
substitution therefor) the serial number of which is shown by the evidence to
be included in the Debentures the holders of which have consented to such
action may, by filing written notice with the Trustee at the Principal Office
of the Trustee and upon proof of holding as provided in Section 7.2,
revoke such action so far as concerns such Debenture (or so far as concerns the
principal amount represented by any exchanged or substituted Debenture).  Except as aforesaid any such action taken by
the holder of any Debenture shall be conclusive and binding upon such holder
and upon all future holders and owners of such Debenture, and of any Debenture
issued in exchange or substitution therefor or on registration of transfer
thereof, irrespective of whether or not any notation in regard thereto is made
upon such Debenture or any Debenture issued in exchange or substitution
therefor.

ARTICLE VIII.

SECURITYHOLDERS’ MEETINGS

Section 8.1.           Purposes
of Meetings. A meeting of Securityholders may be
called at any time and from time to time pursuant to the provisions of this
Article VIII for any of the following purposes:

(a)           to give any notice
to the Company or to the Trustee, or to give any directions to the Trustee, or
to consent to the waiving of any default hereunder and its consequences, or to
take any other action authorized to be taken by Securityholders pursuant to any
of the provisions of Article V;

(b)           to remove the
Trustee and nominate a successor trustee pursuant to the provisions of
Article VI;

(c)           to consent to the
execution of an indenture or indentures supplemental hereto pursuant to the
provisions of Section 9.2; or

(d)           to take any other
action authorized to be taken by or on behalf of the holders of any specified
aggregate principal amount of such Debentures under any other provision of this
Indenture or under applicable law.

Section 8.2.           Call
of Meetings by Trustee. The Trustee may at any
time call a meeting of Securityholders to take any action specified in
Section 8.1, to be held at such time and at such place as the Trustee
shall determine.  Notice of every meeting
of the Securityholders, setting forth the time and the place of such meeting
and in general terms the action proposed to be taken at such meeting, shall be
mailed to holders of Debentures affected at their addresses as they shall
appear on the Debentures Register and, if the Company is not a holder of
Debentures, to the Company.  Such notice
shall be mailed not less than 20 nor more than 180 days prior to the date
fixed for the meeting.

 35
 

 

 

Section 8.3.           Call
of Meetings by Company or Securityholders. In case
at any time the Company pursuant to a Board Resolution, or the holders of at
least 10% in aggregate principal amount of the Debentures, as the case may be,
then outstanding, shall have requested the Trustee to call a meeting of
Securityholders, by written request setting forth in reasonable detail the
action proposed to be taken at the meeting, and the Trustee shall not have
mailed the notice of such meeting within 20 days after receipt of such
request, then the Company or such Securityholders may determine the time and
the place for such meeting and may call such meeting to take any action
authorized in Section 8.1, by mailing notice thereof as provided in
Section 8.2.

Section 8.4.           Qualifications
for Voting. To be entitled to vote at any meeting
of Securityholders a Person shall (a) be a holder of one or more
Debentures with respect to which the meeting is being held or (b) a Person
appointed by an instrument in writing as proxy by a holder of one or more such
Debentures.  The only Persons who shall
be entitled to be present or to speak at any meeting of Securityholders shall be
the Persons entitled to vote at such meeting and their counsel and any
representatives of the Trustee and its counsel and any representatives of the
Company and its counsel.

Section 8.5.           Regulations.
Notwithstanding any other provisions of this
Indenture, the Trustee may make such reasonable regulations as it may deem
advisable for any meeting of Securityholders, in regard to proof of the holding
of Debentures and of the appointment of proxies, and in regard to the
appointment and duties of inspectors of votes, the submission and examination
of proxies, certificates and other evidence of the right to vote, and such
other matters concerning the conduct of the meeting as it shall think fit.

The Trustee shall, by an
instrument in writing, appoint a temporary chairman of the meeting, unless the
meeting shall have been called by the Company or by Securityholders as provided
in Section 8.3, in which case the Company or the Securityholders calling
the meeting, as the case may be, shall in like manner appoint a temporary
chairman.  A permanent chairman and a permanent
secretary of the meeting shall be elected by majority vote of the meeting.

Subject to the provisions
of Section 7.4, at any meeting each holder of Debentures with respect to
which such meeting is being held or proxy therefor shall be entitled to one
vote for each $1,000.00 principal amount of Debentures held or represented by
him; provided, however, that no vote shall be cast or counted at
any meeting in respect of any Debenture challenged as not outstanding and ruled
by the chairman of the meeting to be not outstanding.  The chairman of the meeting shall have no
right to vote other than by virtue of Debentures held by him or instruments in
writing as aforesaid duly designating him as the Person to vote on behalf of
other Securityholders.  Any meeting of
Securityholders duly called pursuant to the provisions of Section 8.2 or
8.3 may be adjourned from time to time by a majority of those present, whether
or not constituting a quorum, and the meeting may be held as so adjourned
without further notice.

Section 8.6.           Voting.
The vote upon any resolution submitted to any meeting
of holders of Debentures with respect to which such meeting is being held shall
be by written ballots on which shall be subscribed the signatures of such
holders or of their representatives by proxy and the serial number or numbers
of the Debentures held or represented by them. 
The permanent chairman of the meeting shall appoint two inspectors of
votes who shall count all votes cast at the meeting for or against any
resolution and who shall make and file with the secretary of the meeting their
verified written reports in triplicate of all votes cast at the meeting.  A record in duplicate of the proceedings of
each meeting of Securityholders shall be prepared by the secretary of the meeting
and there shall be attached to said record the original reports of the
inspectors of votes on any vote by ballot taken thereat and affidavits by one
or more Persons having knowledge of the facts setting forth a copy of the
notice of the meeting and showing that said notice was mailed as provided in
Section 8.2.  The record shall show
the serial numbers of the

 36
 

 

Debentures
voting in favor of or against any resolution. 
The record shall be signed and verified by the affidavits of the
permanent chairman and secretary of the meeting and one of the duplicates shall
be delivered to the Company and the other to the Trustee to be preserved by the
Trustee, the latter to have attached thereto the ballots voted at the meeting.

Any record so signed and
verified shall be conclusive evidence of the matters therein stated.

Section 8.7.           Quorum;
Actions. The Persons entitled to vote a majority
in principal amount of the Debentures then outstanding shall constitute a
quorum for a meeting of Securityholders; provided, however, that
if any action is to be taken at such meeting with respect to a consent, waiver,
request, demand, notice, authorization, direction or other action which may be
given by the holders of not less than a specified percentage in principal
amount of the Debentures then outstanding, the Persons holding or representing
such specified percentage in principal amount of the Debentures then
outstanding will constitute a quorum.  In
the absence of a quorum within 30 minutes of the time appointed for any
such meeting, the meeting shall, if convened at the request of Securityholders,
be dissolved.  In any other case the
meeting may be adjourned for a period of not less than 10 days as
determined by the permanent chairman of the meeting prior to the adjournment of
such meeting.  In the absence of a quorum
at any such adjourned meeting, such adjourned meeting may be further adjourned
for a period of not less than 10 days as determined by the permanent
chairman of the meeting prior to the adjournment of such adjourned
meeting.  Notice of the reconvening of
any adjourned meeting shall be given as provided in Section 8.2, except
that such notice need be given only once not less than 5 days prior to the date
on which the meeting is scheduled to be reconvened.  Notice of the reconvening of an adjourned
meeting shall state expressly the percentage, as provided above, of the
principal amount of the Debentures then outstanding which shall constitute a
quorum.

Except as limited by the
provisos in the first paragraph of Section 9.2, any resolution presented
to a meeting or adjourned meeting duly reconvened at which a quorum is present
as aforesaid may be adopted by the affirmative vote of the holders of a
majority in principal amount of the Debentures then outstanding; provided,
however, that, except as limited by the provisos in the first paragraph
of Section 9.2, any resolution with respect to any consent, waiver,
request, demand, notice, authorization, direction or other action which this
Indenture expressly provides may be given by the holders of not less than a
specified percentage in principal amount of the Debentures then outstanding may
be adopted at a meeting or an adjourned meeting duly reconvened and at which a
quorum is present as aforesaid only by the affirmative vote of the holders of a
not less than such specified percentage in principal amount of the Debentures
then outstanding.

Any resolution passed or
decision taken at any meeting of holders of Debentures duly held in accordance
with this Section shall be binding on all the Securityholders, whether or not
present or represented at the meeting.

ARTICLE IX.

SUPPLEMENTAL INDENTURES

Section 9.1.           Supplemental
Indentures without Consent of Securityholders. The
Company, when authorized by a Board Resolution, and the Trustee may from time
to time and at any time enter into an indenture or indentures supplemental
hereto, without the consent of the Securityholders, for one or more of the
following purposes:

(a)           to evidence the
succession of another Person to the Company, or successive successions, and the
assumption by the successor Person of the covenants, agreements and obligations
of the Company, pursuant to Article XI hereof;

 37
 

 

 

(b)           to add to the
covenants of the Company such further covenants, restrictions or conditions for
the protection of the holders of Debentures as the Board of Directors shall
consider to be for the protection of the holders of such Debentures, and to
make the occurrence, or the occurrence and continuance, of a default in any of
such additional covenants, restrictions or conditions a default or an Event of
Default permitting the enforcement of all or any of the several remedies
provided in this Indenture as herein set forth; provided, however,
that in respect of any such additional covenant restriction or condition such
supplemental indenture may provide for a particular period of grace after
default (which period may be shorter or longer than that allowed in the case of
other defaults) or may provide for an immediate enforcement upon such default
or may limit the remedies available to the Trustee upon such default;

(c)           to cure any
ambiguity or to correct or supplement any provision contained herein or in any
supplemental indenture which may be defective or inconsistent with any other
provision contained herein or in any supplemental indenture, or to make such
other provisions in regard to matters or questions arising under this
Indenture; provided that any such action shall not materially adversely
affect the interests of the holders of the Debentures;

(d)           to add to, delete
from, or revise the terms of Debentures, including, without limitation, any
terms relating to the issuance, exchange, registration or transfer of
Debentures, including to provide for transfer procedures and restrictions
substantially similar to those applicable to the Capital Securities as required
by Section 2.5 (for purposes of assuring that no registration of
Debentures is required under the Securities Act); provided, however,
that any such action shall not adversely affect the interests of the holders of
the Debentures then outstanding (it being understood, for purposes of this
proviso, that transfer restrictions on Debentures substantially similar to
those that were applicable to Capital Securities shall not be deemed to
materially adversely affect the holders of the Debentures);

(e)           to evidence and
provide for the acceptance of appointment hereunder by a successor Trustee with
respect to the Debentures and to add to or change any of the provisions of this
Indenture as shall be necessary to provide for or facilitate the administration
of the trusts hereunder by more than one Trustee;

(f)            to make any change
(other than as elsewhere provided in this paragraph) that does not adversely
affect the rights of any Securityholder in any material respect; or

(g)           to provide for the
issuance of and establish the form and terms and conditions of the Debentures,
to establish the form of any certifications required to be furnished pursuant
to the terms of this Indenture or the Debentures, or to add to the rights of
the holders of Debentures.

The Trustee is hereby
authorized to join with the Company in the execution of any such supplemental
indenture, to make any further appropriate agreements and stipulations which
may be therein contained and to accept the conveyance, transfer and assignment
of any property thereunder, but the Trustee shall not be obligated to, but may
in its discretion, enter into any such supplemental indenture which affects the
Trustee’s own rights, duties or immunities under this Indenture or otherwise.

Any supplemental
indenture authorized by the provisions of this Section 9.1 may be executed
by the Company and the Trustee without the consent of the holders of any of the
Debentures at the time outstanding, notwithstanding any of the provisions of
Section 9.2.

Section 9.2.           Supplemental
Indentures with Consent of Securityholders. With
the consent (evidenced as provided in Section 7.1) of the holders of not
less than a majority in aggregate principal amount of the Debentures at the time
outstanding affected by such supplemental indenture (voting as a class), the
Company, when authorized by a Board Resolution, and the Trustee may from time
to time and

 38
 

 

at any time
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of any supplemental indenture or of modifying
in any manner the rights of the holders of the Debentures; provided, however,
that no such supplemental indenture shall without the consent of the holders of
each Debenture then outstanding and affected thereby (i) change the fixed
maturity of any Debenture, or reduce the principal amount thereof or any
premium thereon, or reduce the rate or extend the time of payment of interest
thereon, or reduce any amount payable on redemption thereof or make the
principal thereof or any interest or premium thereon payable in any coin or
currency other than that provided in the Debentures, or impair or affect the right
of any Securityholder to institute suit for payment thereof or impair the right
of repayment, if any, at the option of the holder, or (ii) reduce the
aforesaid percentage of Debentures the holders of which are required to consent
to any such supplemental indenture; provided  further, however,
that if the Debentures are held by a trust or a trustee of such trust, such
supplemental indenture shall not be effective until the holders of a majority
in Liquidation Amount of Trust Securities shall have consented to such
supplemental indenture; provided  further, however, that if
the consent of the Securityholder of each outstanding Debenture is required,
such supplemental indenture shall not be effective until each holder of the
Trust Securities shall have consented to such supplemental indenture.

Upon the request of the
Company accompanied by a Board Resolution authorizing the execution of any such
supplemental indenture, and upon the filing with the Trustee of evidence of the
consent of Securityholders as aforesaid, the Trustee shall join with the
Company in the execution of such supplemental indenture unless such
supplemental indenture affects the Trustee’s own rights, duties or immunities
under this Indenture or otherwise, in which case the Trustee may in its discretion,
but shall not be obligated to, enter into such supplemental indenture.

Promptly after the
execution by the Company and the Trustee of any supplemental indenture pursuant
to the provisions of this Section, the Trustee shall transmit by mail, first
class postage prepaid, a notice, prepared by the Company, setting forth in
general terms the substance of such supplemental indenture, to the
Securityholders as their names and addresses appear upon the Debenture
Register.  Any failure of the Trustee to
mail such notice, or any defect therein, shall not, however, in any way impair
or affect the validity of any such supplemental indenture.

It shall not be necessary
for the consent of the Securityholders under this Section 9.2 to approve
the particular form of any proposed supplemental indenture, but it shall be
sufficient if such consent shall approve the substance thereof.

Section 9.3.           Effect
of Supplemental Indentures. Upon the execution of
any supplemental indenture pursuant to the provisions of this Article IX,
this Indenture shall be and be deemed to be modified and amended in accordance
therewith and the respective rights, limitations of rights, obligations, duties
and immunities under this Indenture of the Trustee, the Company and the holders
of Debentures shall thereafter be determined, exercised and enforced hereunder
subject in all respects to such modifications and amendments and all the terms
and conditions of any such supplemental indenture shall be and be deemed to be
part of the terms and conditions of this Indenture for any and all purposes.

Section 9.4.           Notation
on Debentures. Debentures authenticated and
delivered after the execution of any supplemental indenture pursuant to the
provisions of this Article IX may bear a notation as to any matter
provided for in such supplemental indenture. 
If the Company or the Trustee shall so determine, new Debentures so
modified as to conform, in the opinion of the Board of Directors of the
Company, to any modification of this Indenture contained in any such
supplemental indenture may be prepared and executed by the Company,
authenticated by the Trustee or the Authenticating Agent and delivered in
exchange for the Debentures then outstanding.

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Section 9.5.           Evidence
of Compliance of Supplemental Indenture to be Furnished to Trustee. The
Trustee, subject to the provisions of Sections 6.1 and 6.2, shall, in
addition to the documents required by Section 14.6, receive an Officers’
Certificate and an Opinion of Counsel as conclusive evidence that any
supplemental indenture executed pursuant hereto complies with the requirements
of this Article IX.  The Trustee
shall receive an Opinion of Counsel as conclusive evidence that any
supplemental indenture executed pursuant to this Article IX is authorized
or permitted by, and conforms to, the terms of this Article IX and that it
is proper for the Trustee under the provisions of this Article IX to join
in the execution thereof.

ARTICLE X.

REDEMPTION OF SECURITIES

Section 10.1.        Optional
Redemption. The Company shall have the right
(subject to the receipt by the Company of prior approval if the Company is a
bank holding company, from the Federal Reserve, if then required under
applicable capital guidelines or policies of the Federal Reserve) to redeem the
Debentures, in whole or in part, but in all cases in a principal amount with
integral multiples of $1,000.00, on any Interest Payment Date on or after the
Interest Payment Date in September 2011 (the “Redemption Date”), at the
Redemption Price.

Section 10.2.        Special
Event Redemption. If a Special Event shall occur
and be continuing, the Company shall have the right (subject to the receipt by
the Company of prior approval (i) if the Company is a bank holding
company, from the Federal Reserve, if then required under applicable capital
guidelines or policies of the Federal Reserve or (ii) if the Company is a
savings and loan holding company, from the OTS, if then required under
applicable capital guidelines or policies of the OTS) to redeem the Debentures
in whole, but not in part, at any Interest Payment Date, within 120 days
following the occurrence of such Special Event (the “Special Redemption Date”)
at the Special Redemption Price.  If the
Special Event redemption occurs prior to the Interest Payment Date in September
2011, the Company shall appoint a Quotation Agent, which shall be a designee of
the Institutional Trustee, for the purpose of performing the services
contemplated in, or by reference in, the definition of Special Redemption
Price.  Any error in the calculation of
the Special Redemption Price by the Quotation Agent or the Trustee may be
corrected at any time by notice delivered to the Company and the holders of the
Debentures.  Subject to the corrective
rights set forth above, all certificates, communications, opinions,
determinations, calculations, quotations and decisions given, expressed, made
or obtained for the purposes of the provisions relating to the payment and
calculation of the Special Redemption Price on the Debentures by the Trustee or
the Quotation Agent, as the case may be, shall (in the absence of willful
default, bad faith or manifest error) be final, conclusive and binding on the
holders of the Debentures and the Company, and no liability shall attach
(except as provided above) to the Trustee or the Quotation Agent in connection
with the exercise or non-exercise by any of them of their respective powers,
duties and discretion.

Section 10.3.        Notice
of Redemption; Selection of Debentures. In case
the Company shall desire to exercise the right to redeem all, or, as the case
may be, any part of the Debentures, it shall cause to be mailed a notice of
such redemption at least 30 and not more than 60 days prior to the
Redemption Date or the Special Redemption Date to the holders of Debentures so
to be redeemed as a whole or in part at their last addresses as the same appear
on the Debenture Register.  Such mailing
shall be by first class mail.  The notice
if mailed in the manner herein provided shall be conclusively presumed to have
been duly given, whether or not the holder receives such notice.  In any case, failure to give such notice by
mail or any defect in the notice to the holder of any Debenture designated for
redemption as a whole or in part shall not affect the validity of the
proceedings for the redemption of any other Debenture.

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Each such notice of
redemption shall specify the CUSIP number, if any, of the Debentures to be
redeemed, the Redemption Date or the Special Redemption Date, as applicable,
the Redemption Price or the Special Redemption Price, as applicable, at which
Debentures are to be redeemed, the place or places of payment, that payment
will be made upon presentation and surrender of such Debentures, that interest
accrued to the date fixed for redemption will be paid as specified in said
notice, and that on and after said date interest thereon or on the portions
thereof to be redeemed will cease to accrue. 
If less than all the Debentures are to be redeemed the notice of
redemption shall specify the numbers of the Debentures to be redeemed.  In case the Debentures are to be redeemed in
part only, the notice of redemption shall state the portion of the principal
amount thereof to be redeemed and shall state that on and after the date fixed
for redemption, upon surrender of such Debenture, a new Debenture or Debentures
in principal amount equal to the unredeemed portion thereof will be issued.

Prior to 10:00 a.m. New
York City time on the Redemption Date or Special Redemption Date, as
applicable, the Company will deposit with the Trustee or with one or more
paying agents an amount of money sufficient to redeem on the Redemption Date or
the Special Redemption Date, as applicable, all the Debentures so called for
redemption at the appropriate Redemption Price or Special Redemption Price.

If all, or less than all,
the Debentures are to be redeemed, the Company will give the Trustee notice not
less than 45 nor more than 60 days, respectively, prior to the Redemption
Date or Special Redemption Date, as applicable, as to the aggregate principal
amount of Debentures to be redeemed and the Trustee shall select, in such
manner as in its sole discretion it shall deem appropriate and fair, the
Debentures or portions thereof (in integral multiples of $1,000.00) to be
redeemed.

Section 10.4.        Payment
of Debentures Called for Redemption. If notice of
redemption has been given as provided in Section 10.3, the Debentures or
portions of Debentures with respect to which such notice has been given shall
become due and payable on the Redemption Date or Special Redemption Date, as
applicable, and at the place or places stated in such notice at the applicable
Redemption Price or Special Redemption Price and on and after said date (unless
the Company shall default in the payment of such Debentures at the Redemption
Price or Special Redemption Price, as applicable) interest on the Debentures or
portions of Debentures so called for redemption shall cease to accrue.  On presentation and surrender of such
Debentures at a place of payment specified in said notice, such Debentures or
the specified portions thereof shall be paid and redeemed by the Company at the
applicable Redemption Price or Special Redemption Price.

Upon presentation of any
Debenture redeemed in part only, the Company shall execute and the Trustee
shall authenticate and make available for delivery to the holder thereof, at
the expense of the Company, a new Debenture or Debentures of authorized
denominations, in principal amount equal to the unredeemed portion of the
Debenture so presented.

ARTICLE XI.

CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE

Section 11.1.        Company
May Consolidate, etc., on Certain Terms. Nothing
contained in this Indenture or in the Debentures shall prevent any
consolidation or merger of the Company with or into any other Person (whether
or not affiliated with the Company) or successive consolidations or mergers in
which the Company or its successor or successors shall be a party or parties,
or shall prevent any sale, conveyance, transfer or other disposition of the
property of the Company or its successor or successors as an entirety, or
substantially as an entirety, to any other Person (whether or not affiliated
with the Company, or its successor or successors) authorized to acquire and
operate the same; provided, however, that the Company hereby
covenants and agrees that, upon any such consolidation, merger (where the
Company is not the surviving corporation), sale, conveyance, transfer or other
disposition, the due and

 41
 

 

punctual
payment of the principal of (and premium, if any) and interest on all of the
Debentures in accordance with their terms, according to their tenor, and the
due and punctual performance and observance of all the covenants and conditions
of this Indenture to be kept or performed by the Company, shall be expressly assumed
by supplemental indenture satisfactory in form to the Trustee executed and
delivered to the Trustee by the entity formed by such consolidation, or into
which the Company shall have been merged, or by the entity which shall have
acquired such property.

Section 11.2.        Successor
Entity to be Substituted. In case of any such
consolidation, merger, sale, conveyance, transfer or other disposition and upon
the assumption by the successor entity, by supplemental indenture, executed and
delivered to the Trustee and satisfactory in form to the Trustee, of the due
and punctual payment of the principal of and premium, if any, and interest on
all of the Debentures and the due and punctual performance and observance of
all of the covenants and conditions of this Indenture to be performed or
observed by the Company, such successor entity shall succeed to and be
substituted for the Company, with the same effect as if it had been named
herein as the Company, and thereupon the predecessor entity shall be relieved
of any further liability or obligation hereunder or upon the Debentures.  Such successor entity thereupon may cause to
be signed, and may issue in its own name, any or all of the Debentures issuable
hereunder which theretofore shall not have been signed by the Company and
delivered to the Trustee or the Authenticating Agent; and, upon the order of
such successor entity instead of the Company and subject to all the terms,
conditions and limitations in this Indenture prescribed, the Trustee or the
Authenticating Agent shall authenticate and deliver any Debentures which
previously shall have been signed and delivered by the officers of the Company,
to the Trustee or the Authenticating Agent for authentication, and any
Debentures which such successor entity thereafter shall cause to be signed and
delivered to the Trustee or the Authenticating Agent for that purpose.  All the Debentures so issued shall in all
respects have the same legal rank and benefit under this Indenture as the Debentures
theretofore or thereafter issued in accordance with the terms of this Indenture
as though all of such Debentures had been issued at the date of the execution
hereof.

Section 11.3.        Opinion
of Counsel to be Given to Trustee. The Trustee,
subject to the provisions of Sections 6.1 and 6.2, shall receive, in
addition to the Opinion of Counsel required by Section 9.5, an Opinion of
Counsel as conclusive evidence that any consolidation, merger, sale,
conveyance, transfer or other disposition, and any assumption, permitted or
required by the terms of this Article XI complies with the provisions of
this Article XI.

ARTICLE XII.

SATISFACTION AND DISCHARGE OF INDENTURE

Section 12.1.        Discharge
of Indenture. When

(a)                                  the
Company shall deliver to the Trustee for cancellation all Debentures theretofore
authenticated (other than any Debentures which shall have been destroyed, lost
or stolen and which shall have been replaced or paid as provided in
Section 2.6) and not theretofore canceled, or

(b)                                 all
the Debentures not theretofore canceled or delivered to the Trustee for
cancellation shall have become due and payable, or are by their terms to become
due and payable within 1 year or are to be called for redemption within 1 year
under arrangements satisfactory to the Trustee for the giving of notice of redemption,
and the Company shall deposit with the Trustee, in trust, funds, which shall be
immediately due and payable, sufficient to pay at maturity or upon redemption
all of the Debentures (other than any Debentures which shall have been
destroyed, lost or stolen and which shall have been replaced or paid as
provided in Section 2.6) not theretofore canceled or delivered to the
Trustee for cancellation, including principal and premium, if any, and interest
due or to

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become due to such date of maturity or redemption
date, as the case may be, but excluding, however, the amount of any moneys for
the payment of principal of, and premium, if any, or interest on the Debentures
(1) theretofore repaid to the Company in accordance with the provisions of
Section 12.4, or (2) paid to any state or to the District of Columbia
pursuant to its unclaimed property or similar laws,

and if in the case of
either clause (a) or clause (b) the Company shall also pay or cause
to be paid all other sums payable hereunder by the Company, then this Indenture
shall cease to be of further effect except for the provisions of
Sections 2.5, 2.6, 2.8, 3.1, 3.2, 3.4, 6.6, 6.8, 6.9 and 12.4 hereof shall
survive until such Debentures shall mature and be paid.  Thereafter, Sections 6.6 and 12.4 shall
survive, and the Trustee, on demand of the Company accompanied by an Officers’
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of
this Indenture have been complied with, and at the cost and expense of the
Company, shall execute proper instruments acknowledging satisfaction of and
discharging this Indenture.  The Company
agrees to reimburse the Trustee for any costs or expenses thereafter reasonably
and properly incurred by the Trustee in connection with this Indenture or the
Debentures.

Section 12.2.        Deposited
Moneys to be Held in Trust by Trustee. Subject to
the provisions of Section 12.4, all moneys deposited with the Trustee
pursuant to Section 12.1 shall be held in trust in a non-interest bearing
account and applied by it to the payment, either directly or through any paying
agent (including the Company if acting as its own paying agent), to the holders
of the particular Debentures for the payment of which such moneys have been
deposited with the Trustee, of all sums due and to become due thereon for
principal, and premium, if any, and interest.

Section 12.3.        Paying
Agent to Repay Moneys Held. Upon the satisfaction
and discharge of this Indenture all moneys then held by any paying agent of the
Debentures (other than the Trustee) shall, upon demand of the Company, be
repaid to it or paid to the Trustee, and thereupon such paying agent shall be
released from all further liability with respect to such moneys.

Section 12.4.        Return
of Unclaimed Moneys. Any moneys deposited with or
paid to the Trustee or any paying agent for payment of the principal of, and
premium, if any, or interest on Debentures and not applied but remaining
unclaimed by the holders of Debentures for 2 years after the date upon which
the principal of, and premium, if any, or interest on such Debentures, as the
case may be, shall have become due and payable, shall, subject to applicable
escheatment laws, be repaid to the Company by the Trustee or such paying agent
on written demand; and the holder of any of the Debentures shall thereafter
look only to the Company for any payment which such holder may be entitled to
collect, and all liability of the Trustee or such paying agent with respect to
such moneys shall thereupon cease.

ARTICLE XIII.

IMMUNITY OF INCORPORATORS, STOCKHOLDERS,

OFFICERS AND DIRECTORS

Section 13.1.        Indenture
and Debentures Solely Corporate Obligations. No
recourse for the payment of the principal of or premium, if any, or interest on
any Debenture, or for any claim based thereon or otherwise in respect thereof,
and no recourse under or upon any obligation, covenant or agreement of the
Company in this Indenture or in any supplemental indenture, or in any such
Debenture, or because of the creation of any indebtedness represented thereby,
shall be had against any incorporator, stockholder, employee, officer or
director, as such, past, present or future, of the Company or of any successor
Person of the Company, either directly or through the Company or any successor
Person of the Company, whether by virtue of any constitution, statute or rule
of law, or by the enforcement of any assessment or penalty or otherwise, it
being expressly understood that all such liability is hereby

 43
 

 

expressly
waived and released as a condition of, and as a consideration for, the
execution of this Indenture and the issue of the Debentures.

ARTICLE XIV.

MISCELLANEOUS PROVISIONS

Section 14.1.        Successors.
All the covenants, stipulations, promises and
agreements of the Company in this Indenture shall bind its successors and
assigns whether so expressed or not.

Section 14.2.        Official
Acts by Successor Entity. Any act or proceeding by
any provision of this Indenture authorized or required to be done or performed
by any board, committee or officer of the Company shall and may be done and
performed with like force and effect by the like board, committee, officer or
other authorized Person of any entity that shall at the time be the lawful
successor of the Company.

Section 14.3.        Surrender
of Company Powers. The Company by instrument in
writing executed by authority of at least 2/3 (two-thirds) of its Board of
Directors and delivered to the Trustee may surrender any of the powers reserved
to the Company and thereupon such power so surrendered shall terminate both as
to the Company, and as to any permitted successor.

Section 14.4.        Addresses
for Notices, etc. Any notice, consent, direction,
request, authorization, waiver or demand which by any provision of this
Indenture is required or permitted to be given, made, furnished or served by
the Trustee or by the Securityholders on or to the Company may be given or
served in writing by being deposited postage prepaid by registered or certified
mail in a post office letter box addressed (until another address is filed by
the Company, with the Trustee for the purpose) to the Company, 1200 Trinity
Drive, Los Alamos, New Mexico  87544,
Attention:  Daniel R.
Bartholomew.  Any notice, consent,
direction, request, authorization, waiver or demand by any Securityholder or
the Company to or upon the Trustee shall be deemed to have been sufficiently
given or made, for all purposes, if given or made in writing at the office of
the Trustee, addressed to the Trustee, Rodney Square North, 1100 North Market
Street, Wilmington, Delaware  19890-1600,
Attention:  Corporate Trust
Administration.  Any notice, consent,
direction, request, authorization, waiver or demand on or to any Securityholder
shall be deemed to have been sufficiently given or made, for all purposes, if
given or made in writing at the address set forth in the Debenture Register.

Section 14.5.        Governing
Law. This Indenture and each Debenture shall be
deemed to be a contract made under the law of the State of New York, and for
all purposes shall be governed by and construed in accordance with the law of
said State, without regard to conflict of laws principles thereof.

Section 14.6.        Evidence
of Compliance with Conditions Precedent. Upon any
application or demand by the Company to the Trustee to take any action under
any of the provisions of this Indenture, the Company shall furnish to the
Trustee an Officers’ Certificate stating that in the opinion of the signers all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with and an Opinion of Counsel stating that,
in the opinion of such counsel, all such conditions precedent have been
complied with.

Each certificate or
opinion provided for in this Indenture and delivered to the Trustee with
respect to compliance with a condition or covenant provided for in this
Indenture shall include (1) a statement that the person making such
certificate or opinion has read such covenant or condition; (2) a brief
statement as to the nature and scope of the examination or investigation upon
which the statements or opinions contained in such certificate or opinion are
based; (3) a statement that, in the opinion of such person, he has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and (4) a

 44
 

 

statement as to whether
or not in the opinion of such person, such condition or covenant has been
complied with.

Section 14.7.        Table
of Contents, Headings, etc. The table of contents
and the titles and headings of the articles and sections of this Indenture have
been inserted for convenience of reference only, are not to be considered a
part hereof, and shall in no way modify or restrict any of the terms or
provisions hereof.

Section 14.8.        Execution
in Counterparts. This Indenture may be executed in
any number of counterparts, each of which shall be an original, but such
counterparts shall together constitute but one and the same instrument.

Section 14.9.        Separability.
In case any one or more of the provisions contained in
this Indenture or in the Debentures shall for any reason be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Indenture or of
such Debentures, but this Indenture and such Debentures shall be construed as
if such invalid or illegal or unenforceable provision had never been contained
herein or therein.

Section 14.10.      Assignment. The Company will
have the right at all times to assign any of its rights or obligations under
this Indenture to a direct or indirect wholly owned Subsidiary of the Company,
provided that, in the event of any such assignment, the Company will remain
liable for all such obligations.  Subject
to the foregoing, this Indenture is binding upon and inures to the benefit of
the parties hereto and their respective successors and assigns.  This Indenture may not otherwise be assigned
by the parties hereto.

Section 14.11.      Acknowledgment of Rights. The
Company agrees that, with respect to any Debentures held by the Trust or the
Institutional Trustee of the Trust, if the Institutional Trustee of the Trust
fails to enforce its rights under this Indenture as the holder of Debentures
held as the assets of such Trust after the holders of a majority in Liquidation
Amount of the Capital Securities of such Trust have so directed such
Institutional Trustee, a holder of record of such Capital Securities may, to
the fullest extent permitted by law, institute legal proceedings directly
against the Company to enforce such Institutional Trustee’s rights under this
Indenture without first instituting any legal proceedings against such trustee
or any other Person.  Notwithstanding the
foregoing, if an Event of Default has occurred and is continuing and such event
is attributable to the failure of the Company to pay interest (or premium, if
any) or principal on the Debentures on the date such interest (or premium, if
any) or principal is otherwise payable (or in the case of redemption, on the
redemption date), the Company agrees that a holder of record of Capital
Securities of the Trust may directly institute a proceeding against the Company
for enforcement of payment to such holder directly of the principal of (or
premium, if any) or interest on the Debentures having an aggregate principal
amount equal to the aggregate Liquidation Amount of the Capital Securities of
such holder on or after the respective due date specified in the Debentures.

ARTICLE XV.

SUBORDINATION OF DEBENTURES

Section 15.1.        Agreement
to Subordinate. The Company covenants and agrees,
and each holder of Debentures by such Securityholder’s acceptance thereof
likewise covenants and agrees, that all Debentures shall be issued subject to
the provisions of this Article XV; and each holder of a Debenture, whether
upon original issue or upon transfer or assignment thereof, accepts and agrees
to be bound by such provisions.

The payment by the
Company of the principal of, and premium, if any, and interest on all
Debentures shall, to the extent and in the manner hereinafter set forth, be subordinated
and junior in right

 45
 

 

of payment to the prior
payment in full of all Senior Indebtedness of the Company, whether outstanding
at the date of this Indenture or thereafter incurred; provided, however,
that the Debentures shall rank pari passu in
right of payment with the Company’s (1) Junior Subordinated Debentures due
March 8, 2030 issued pursuant to an Indenture dated as of March 23,
2000 by and between the Company and The Bank of New York; (2) Junior
Subordinated Debentures due December 8, 2031 issued pursuant to an
Indenture dated as of November 28, 2001 by and between the Company and
Wilmington Trust Company; (3) Junior Subordinated Debentures due
September 8, 2034 issued pursuant to an Indenture dated as of May 11, 2004
by and between the Company and Wells Fargo Delaware Trust Company; and
(4) Junior Subordinated Debentures due November 23, 2035 issued
pursuant to an Indenture dated as of June 29, 2005 by and between the
Company and Wilmington Trust Company.

No provision of this
Article XV shall prevent the occurrence of any default or Event of Default
hereunder.

Section 15.2.        Default
on Senior Indebtedness. In the event and during
the continuation of any default by the Company in the payment of principal,
premium, interest or any other payment due on any Senior Indebtedness of the
Company following any grace period, or in the event that the maturity of any
Senior Indebtedness of the Company has been accelerated because of a default
and such acceleration has not been rescinded or canceled and such Senior
Indebtedness has not been paid in full, then, in either case, no payment shall
be made by the Company with respect to the principal (including redemption) of,
or premium, if any, or interest on the Debentures.

In the event that,
notwithstanding the foregoing, any payment shall be received by the Trustee
when such payment is prohibited by the preceding paragraph of this
Section 15.2, such payment shall, subject to Section 15.7, be held in
trust for the benefit of, and shall be paid over or delivered to, the holders
of Senior Indebtedness or their respective representatives, or to the trustee
or trustees under any indenture pursuant to which any of such Senior
Indebtedness may have been issued, as their respective interests may appear,
but only to the extent that the holders of the Senior Indebtedness (or their
representative or representatives or a trustee) notify the Trustee in writing
within 90 days of such payment of the amounts then due and owing on the
Senior Indebtedness and only the amounts specified in such notice to the
Trustee shall be paid to the holders of Senior Indebtedness.

Section 15.3.        Liquidation,
Dissolution, Bankruptcy. Upon any payment by the
Company or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to creditors upon any dissolution or
winding-up or liquidation or reorganization of the Company, whether voluntary
or involuntary or in bankruptcy, insolvency, receivership or other proceedings,
all amounts due upon all Senior Indebtedness of the Company shall first be paid
in full, or payment thereof provided for in money in accordance with its terms,
before any payment is made by the Company, on account of the principal (and
premium, if any) or interest on the Debentures. 
Upon any such dissolution or winding-up or liquidation or
reorganization, any payment by the Company, or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
which the Securityholders or the Trustee would be entitled to receive from the
Company, except for the provisions of this Article XV, shall be paid by
the Company, or by any receiver, trustee in bankruptcy, liquidating trustee,
agent or other Person making such payment or distribution, or by the
Securityholders or by the Trustee under this Indenture if received by them or
it, directly to the holders of Senior Indebtedness (pro rata to such holders on the basis of the respective
amounts of Senior Indebtedness held by such holders, as calculated by the
Company) or their representative or representatives, or to the trustee or
trustees under any indenture pursuant to which any instruments evidencing such Senior
Indebtedness may have been issued, as their respective interests may appear, to
the extent necessary to pay such Senior Indebtedness in full, in money or money’s
worth, after giving effect to any concurrent payment or distribution to or for
the

 46
 

 

holders of
such Senior Indebtedness, before any payment or distribution is made to the
Securityholders or to the Trustee.

In the event that,
notwithstanding the foregoing, any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities,
prohibited by the foregoing, shall be received by the Trustee before all Senior
Indebtedness is paid in full, or provision is made for such payment in money in
accordance with its terms, such payment or distribution shall be held in trust
for the benefit of and shall be paid over or delivered to the holders of such
Senior Indebtedness or their representative or representatives, or to the
trustee or trustees under any indenture pursuant to which any instruments
evidencing such Senior Indebtedness may have been issued, as their respective
interests may appear, as calculated by the Company, for application to the
payment of all Senior Indebtedness, remaining unpaid to the extent necessary to
pay such Senior Indebtedness in full in money in accordance with its terms,
after giving effect to any concurrent payment or distribution to or for the
benefit of the holders of such Senior Indebtedness.

For purposes of this
Article XV, the words “cash, property or securities” shall not be deemed
to include shares of stock of the Company as reorganized or readjusted, or
securities of the Company or any other corporation provided for by a plan of
reorganization or readjustment, the payment of which is subordinated at least
to the extent provided in this Article XV with respect to the Debentures
to the payment of all Senior Indebtedness, that may at the time be outstanding,
provided that (i) such Senior Indebtedness is assumed by the new
corporation, if any, resulting from any such reorganization or readjustment,
and (ii) the rights of the holders of such Senior Indebtedness are not,
without the consent of such holders, altered by such reorganization or
readjustment.  The consolidation of the
Company with, or the merger of the Company into, another corporation or the
liquidation or dissolution of the Company following the conveyance or transfer
of its property as an entirety, or substantially as an entirety, to another
corporation upon the terms and conditions provided for in Article XI of this
Indenture shall not be deemed a dissolution, winding-up, liquidation or
reorganization for the purposes of this Section if such other corporation
shall, as a part of such consolidation, merger, conveyance or transfer, comply
with the conditions stated in Article XI of this Indenture.  Nothing in Section 15.2 or in this
Section shall apply to claims of, or payments to, the Trustee under or pursuant
to Section 6.6 of this Indenture.

Section 15.4.        Subrogation.
Subject to the payment in full of all Senior Indebtedness,
the Securityholders shall be subrogated to the rights of the holders of such
Senior Indebtedness to receive payments or distributions of cash, property or
securities of the Company, applicable to such Senior Indebtedness until the
principal of (and premium, if any) and interest on the Debentures shall be paid
in full.  For the purposes of such
subrogation, no payments or distributions to the holders of such Senior
Indebtedness of any cash, property or securities to which the Securityholders
or the Trustee would be entitled except for the provisions of this
Article XV, and no payment over pursuant to the provisions of this
Article XV to or for the benefit of the holders of such Senior
Indebtedness by Securityholders or the Trustee, shall, as between the Company,
its creditors other than holders of Senior Indebtedness of the Company, and the
holders of the Debentures be deemed to be a payment or distribution by the
Company to or on account of such Senior Indebtedness.  It is understood that the provisions of this
Article XV are and are intended solely for the purposes of defining the
relative rights of the holders of the Securities, on the one hand, and the
holders of such Senior Indebtedness, on the other hand.

Nothing contained in this
Article XV or elsewhere in this Indenture or in the Debentures is intended
to or shall impair, as between the Company, its creditors other than the
holders of Senior Indebtedness, and the holders of the Debentures, the
obligation of the Company, which is absolute and unconditional, to pay to the
holders of the Debentures the principal of (and premium, if any) and interest
on the Debentures as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect the relative
rights of the holders of the Debentures and creditors of the

 47
 

 

Company, other than the
holders of Senior Indebtedness, nor shall anything herein or therein prevent
the Trustee or the holder of any Debenture from exercising all remedies
otherwise permitted by applicable law upon default under this Indenture,
subject to the rights, if any, under this Article XV of the holders of
such Senior Indebtedness in respect of cash, property or securities of the
Company, received upon the exercise of any such remedy.

Upon any payment or
distribution of assets of the Company referred to in this Article XV, the
Trustee, subject to the provisions of Article VI of this Indenture, and
the Securityholders shall be entitled to conclusively rely upon any order or
decree made by any court of competent jurisdiction in which such dissolution,
winding-up, liquidation or reorganization proceedings are pending, or a
certificate of the receiver, trustee in bankruptcy, liquidation trustee, agent
or other Person making such payment or distribution, delivered to the Trustee
or to the Securityholders, for the purposes of ascertaining the Persons
entitled to participate in such distribution, the holders of Senior
Indebtedness and other indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Article XV.

Section 15.5.        Trustee
to Effectuate Subordination. Each Securityholder
by such Securityholder’s acceptance thereof authorizes and directs the Trustee
on such Securityholder’s behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article XV
and appoints the Trustee such Securityholder’s attorney-in-fact for any and all
such purposes.

Section 15.6.        Notice
by the Company. The Company shall give prompt
written notice to a Responsible Officer of the Trustee at the Principal Office
of the Trustee of any fact known to the Company that would prohibit the making
of any payment of monies to or by the Trustee in respect of the Debentures
pursuant to the provisions of this Article XV.  Notwithstanding the provisions of this
Article XV or any other provision of this Indenture, the Trustee shall not
be charged with knowledge of the existence of any facts that would prohibit the
making of any payment of monies to or by the Trustee in respect of the
Debentures pursuant to the provisions of this Article XV, unless and until
a Responsible Officer of the Trustee at the Principal Office of the Trustee shall
have received written notice thereof from the Company or a holder or holders of
Senior Indebtedness or from any trustee therefor; and before the receipt of any
such written notice, the Trustee, subject to the provisions of Article VI
of this Indenture, shall be entitled in all respects to assume that no such
facts exist; provided, however, that if the Trustee shall not
have received the notice provided for in this Section at least 2 Business Days
prior to the date upon which by the terms hereof any money may become payable
for any purpose (including, without limitation, the payment of the principal of
(or premium, if any) or interest on any Debenture), then, anything herein
contained to the contrary notwithstanding, the Trustee shall have full power
and authority to receive such money and to apply the same to the purposes for
which they were received, and shall not be affected by any notice to the
contrary that may be received by it within 2 Business Days prior to such date.

The Trustee, subject to
the provisions of Article VI of this Indenture, shall be entitled to
conclusively rely on the delivery to it of a written notice by a Person
representing himself to be a holder of Senior Indebtedness (or a trustee or
representative on behalf of such holder), to establish that such notice has
been given by a holder of such Senior Indebtedness or a trustee or
representative on behalf of any such holder or holders.  In the event that the Trustee determines in
good faith that further evidence is required with respect to the right of any
Person as a holder of such Senior Indebtedness to participate in any payment or
distribution pursuant to this Article XV, the Trustee may request such
Person to furnish evidence to the reasonable satisfaction of the Trustee as to
the amount of such Senior Indebtedness held by such Person, the extent to which
such Person is entitled to participate in such payment or distribution and any
other facts pertinent to the rights of such Person under this Article XV,
and, if such evidence is

 48
 

 

not furnished, the
Trustee may defer any payment to such Person pending judicial determination as
to the right of such Person to receive such payment.

Section 15.7.        Rights
of the Trustee; Holders of Senior Indebtedness. The
Trustee in its individual capacity shall be entitled to all the rights set
forth in this Article XV in respect of any Senior Indebtedness at any time
held by it, to the same extent as any other holder of Senior Indebtedness, and
nothing in this Indenture shall deprive the Trustee of any of its rights as
such holder.

With respect to the
holders of Senior Indebtedness, the Trustee undertakes to perform or to observe
only such of its covenants and obligations as are specifically set forth in
this Article XV, and no implied covenants or obligations with respect to
the holders of such Senior Indebtedness shall be read into this Indenture
against the Trustee.  The Trustee shall
not be deemed to owe any fiduciary duty to the holders of such Senior
Indebtedness and, subject to the provisions of Article VI of this
Indenture, the Trustee shall not be liable to any holder of such Senior
Indebtedness if it shall pay over or deliver to Securityholders, the Company or
any other Person money or assets to which any holder of such Senior
Indebtedness shall be entitled by virtue of this Article XV or otherwise.

Nothing in this
Article XV shall apply to claims of, or payments to, the Trustee under or
pursuant to Section 6.6.

Section 15.8.        Subordination
May Not Be Impaired. No right of any present or
future holder of any Senior Indebtedness to enforce subordination as herein
provided shall at any time in any way be prejudiced or impaired by any act or
failure to act on the part of the Company, or by any act or failure to act, in
good faith, by any such holder, or by any noncompliance by the Company, with
the terms, provisions and covenants of this Indenture, regardless of any
knowledge thereof that any such holder may have or otherwise be charged with.

Without in any way
limiting the generality of the foregoing paragraph, the holders of Senior
Indebtedness may, at any time and from time to time, without the consent of or
notice to the Trustee or the Securityholders, without incurring responsibility
to the Securityholders and without impairing or releasing the subordination provided
in this Article XV or the obligations hereunder of the holders of the
Debentures to the holders of such Senior Indebtedness, do any one or more of
the following:  (i) change the
manner, place or terms of payment or extend the time of payment of, or renew or
alter, such Senior Indebtedness, or otherwise amend or supplement in any manner
such Senior Indebtedness or any instrument evidencing the same or any agreement
under which such Senior Indebtedness is outstanding; (ii) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing such Senior Indebtedness; (iii) release any Person liable in any
manner for the collection of such Senior Indebtedness; and (iv) exercise
or refrain from exercising any rights against the Company, and any other
Person.

Signatures appear on the following page

 49

 

IN WITNESS WHEREOF, the parties hereto have caused
this Indenture to be duly executed by their respective officers thereunto duly
authorized, as of the day and year first above written.

	
  

  	
   

  	
  TRINITY CAPITAL CORPORATION

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By

  	
   

  	
  /s/ 

  	
  William C. Enloe

  
	
   

  	
   

  	
   

  	
   

  	
  Name:

  	
  William C. Enloe

  
	
   

  	
   

  	
   

  	
   

  	
  Title:

  	
  President /CEO

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  WILMINGTON TRUST COMPANY, as Trustee

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By

  	
   

  	
  /s/ 

  	
  Michele C. Harra

  
	
   

  	
   

  	
   

  	
   

  	
  Name:

  	
  Michele C. Harra

  
	
   

  	
   

  	
   

  	
   

  	
  Title:

  	
  Financial Services Officer

  

 50

 

 

EXHIBIT A

FORM OF FIXED/FLOATING RATE JUNIOR SUBORDINATED
DEFERRABLE INTEREST

DEBENTURE

[FORM OF FACE OF SECURITY]

THIS SECURITY IS NOT A
SAVINGS ACCOUNT OR DEPOSIT AND IT IS NOT INSURED BY THE UNITED STATES OR ANY
AGENCY OR FUND OF THE UNITED STATES, INCLUDING THE FEDERAL DEPOSIT INSURANCE
CORPORATION.

THIS SECURITY HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), ANY STATE SECURITIES LAWS OR ANY OTHER APPLICABLE SECURITIES LAW.  NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.  THE HOLDER OF THIS SECURITY BY ITS
ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY
ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT
HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) TO A PERSON WHOM
THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A SO LONG AS THIS SECURITY
IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A IN ACCORDANCE WITH RULE 144A,
(D) TO A NON-U.S. PERSON IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH
RULE 903 OR RULE 904 (AS APPLICABLE) OF REGULATION S UNDER THE
SECURITIES ACT, (E) TO AN INSTITUTIONAL “ACCREDITED INVESTOR” WITHIN THE
MEANING OF SUBPARAGRAPH (A) OF RULE 501 UNDER THE SECURITIES ACT THAT
IS ACQUIRING THIS SECURITY FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN
INSTITUTIONAL ACCREDITED INVESTOR, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF
THE SECURITIES ACT, OR (F) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY’S
RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO IT
IN ACCORDANCE WITH THE INDENTURE, A COPY OF WHICH MAY BE OBTAINED FROM THE
COMPANY.

THE HOLDER OF THIS
SECURITY BY ITS ACCEPTANCE HEREOF ALSO AGREES, REPRESENTS AND WARRANTS THAT IT
IS NOT AN EMPLOYEE BENEFIT, INDIVIDUAL RETIREMENT ACCOUNT OR OTHER PLAN OR
ARRANGEMENT SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT
OF 1974, AS AMENDED (“ERISA”),  OR
SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”)
(EACH A “PLAN”), OR AN ENTITY WHOSE UNDERLYING ASSETS INCLUDE “PLAN ASSETS” BY
REASON OF ANY PLAN’S INVESTMENT IN THE ENTITY, AND NO PERSON INVESTING “PLAN
ASSETS” OF ANY PLAN MAY ACQUIRE OR HOLD THE SECURITIES OR ANY INTEREST THEREIN,
UNLESS SUCH PURCHASER OR HOLDER IS ELIGIBLE FOR EXEMPTIVE RELIEF AVAILABLE
UNDER U.S. DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION 96-23,
95-60, 91-38, 90-1 OR 84-14 OR ANOTHER APPLICABLE EXEMPTION OR ITS PURCHASE AND
HOLDING OF THIS SECURITY IS NOT PROHIBITED BY

 A-1
 

 

SECTION 406 OF ERISA OR
SECTION 4975 OF THE CODE WITH RESPECT TO SUCH PURCHASE OR HOLDING.  ANY PURCHASER OR HOLDER OF THE SECURITIES OR
ANY INTEREST THEREIN WILL BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND
HOLDING THEREOF THAT EITHER (i) IT IS NOT AN EMPLOYEE BENEFIT PLAN WITHIN THE
MEANING OF SECTION 3(3) OF ERISA, OR A PLAN TO WHICH SECTION 4975 OF THE CODE
IS APPLICABLE, A TRUSTEE OR OTHER PERSON ACTING ON BEHALF OF AN EMPLOYEE
BENEFIT PLAN OR PLAN, OR ANY OTHER PERSON OR ENTITY USING THE ASSETS OF ANY
EMPLOYEE BENEFIT PLAN OR PLAN TO FINANCE SUCH PURCHASE, OR (ii) SUCH PURCHASE
WILL NOT RESULT IN A PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR
SECTION 4975 OF THE CODE FOR WHICH THERE IS NO APPLICABLE STATUTORY OR
ADMINISTRATIVE EXEMPTION.

THIS SECURITY WILL BE
ISSUED AND MAY BE TRANSFERRED ONLY IN BLOCKS HAVING AN AGGREGATE PRINCIPAL
AMOUNT OF NOT LESS THAN $100,000.00 AND MULTIPLES OF $1,000.00 IN EXCESS
THEREOF.  ANY ATTEMPTED TRANSFER OF THIS
SECURITY IN A BLOCK HAVING AN AGGREGATE PRINCIPAL AMOUNT OF LESS THAN
$100,000.00 SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER.

THE HOLDER OF THIS
SECURITY AGREES THAT IT WILL COMPLY WITH THE FOREGOING RESTRICTIONS.

IN CONNECTION WITH ANY
TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND TRANSFER AGENT SUCH
CERTIFICATES AND OTHER INFORMATION AS MAY BE REQUIRED BY THE INDENTURE TO
CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.

Fixed/Floating Rate Junior Subordinated Deferrable Interest Debenture

of

Trinity Capital Corporation

September 21, 2006

Trinity Capital
Corporation, a New Mexico corporation (the “Company” which term includes any
successor Person under the Indenture hereinafter referred to), for value
received promises to pay to Wilmington Trust Company, not in its individual
capacity but solely as Institutional Trustee for Trinity Capital Trust V
(the “Holder”) or registered assigns, the principal sum of ten million three
hundred ten thousand dollars ($10,310,000.00) on December 15, 2036, and to
pay interest on said principal sum from September 21, 2006, or from the
most recent Interest Payment Date (as defined below) to which interest has been
paid or duly provided for, quarterly (subject to deferral as set forth herein)
in arrears on March 15, June 15, September 15 and December 15
of each year or if such day is not a Business Day, then the next succeeding
Business Day (each such date, an “Interest Payment Date”) (it being understood
that interest accrues for any such non-Business Day during the applicable
Distribution Period, beginning on or after September 15, 2011), commencing
on the Interest Payment Date in December 2006, at an annual rate equal to 6.83%
beginning on (and including) the date of original issuance and ending on (but
excluding) the Interest Payment Date in September 2011 and at an annual rate
for each successive period beginning on (and including) the Interest Payment
Date in September 2011, and each succeeding Interest Payment Date, and ending
on (but excluding) the next succeeding Interest Payment Date (each a “Distribution
Period”), equal to 3-Month LIBOR, determined as described below, plus
1.65% (the “Coupon Rate”), applied to the principal amount hereof, until the
principal hereof is paid or duly provided for or made available for payment,
and on any overdue principal and (without duplication and to the

 A-2
 

 

extent that payment of
such interest is enforceable under applicable law) on any overdue installment
of interest (including Additional Interest) at the Interest Rate in effect for
each applicable period, compounded quarterly, from the dates such amounts are
due until they are paid or made available for payment.  The amount of interest payable (i) for
any Distribution Period commencing on or after the date of original issuance
but before the Interest Payment Date in September 2011 will be computed on the
basis of a 360-day year of twelve 30-day months, and (ii) for the
Distribution Period commencing on the Interest Payment Date in September 2011
and each succeeding Distribution Period will be computed on the basis of the
actual number of days in the Distribution Period concerned divided by 360.  The interest installment so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in the Indenture, be paid to the Person in whose name this Debenture
(or one or more Predecessor Securities) is registered at the close of business
on the regular record date for such interest installment, which shall be
fifteen Business Days prior to the day on which the relevant Interest Payment
Date occurs.  Any such interest
installment not so punctually paid or duly provided for shall forthwith cease
to be payable to the Holder on such regular record date and may be paid to the
Person in whose name this Debenture (or one or more Predecessor Securities) is
registered at the close of business on a special record date.

“3-Month LIBOR” as
used herein, means the London interbank offered interest rate for three-month
U.S. dollar deposits determined by the Trustee in the following order of
priority:  (i) the rate (expressed as a
percentage per annum) for U.S. dollar deposits having a three-month maturity
that appears on Telerate Page 3750 as of 11:00 a.m. (London time) on the
related Determination Date (“Telerate Page 3750” means the display designated
as “Page 3750” on the Moneyline Telerate Service or such other page as may
replace Page 3750 on that service or such other service or services as may be
nominated by the British Bankers’ Association as the information vendor for the
purpose of displaying London interbank offered rates for U.S. dollar deposits);
(ii) if such rate cannot be identified on the related Determination Date, the
Trustee will request the principal London offices of four leading banks in the
London interbank market to provide such banks’ offered quotations (expressed as
percentages per annum) to prime banks in the London interbank market for U.S.
dollar deposits having a three-month maturity as of 11:00 a.m. (London time) on
such Determination Date.  If at least two
quotations are provided, 3-Month LIBOR will be the arithmetic mean of
such quotations; (iii) if fewer than two such quotations are provided as
requested in clause (ii) above, the Trustee will request four major New York
City banks to provide such banks’ offered quotations (expressed as percentages
per annum) to leading European banks for loans in U.S. dollars as of 11:00 a.m.
(London time) on such Determination Date. 
If at least two such quotations are provided, 3-Month LIBOR will
be the arithmetic mean of such quotations; and (iv) if fewer than two such
quotations are provided as requested in clause (iii) above, 3-Month LIBOR
will be a 3-Month LIBOR determined with respect to the Distribution
Period immediately preceding such current Distribution Period.  If the rate for U.S. dollar deposits having a
three-month maturity that initially appears on Telerate Page 3750 as of 11:00
a.m. (London time) on the related Determination Date is superseded on the
Telerate Page 3750 by a corrected rate by 12:00 noon (London time) on such Determination
Date, then the corrected rate as so substituted on the applicable page will be
the applicable 3-Month LIBOR for such Determination Date.  As used herein, “Determination Date” means
the date that is two London Banking Days (i.e., a business day in which
dealings in deposits in U.S. dollars are transacted in the London interbank
market) preceding the commencement of the relevant Distribution Period.

The Interest Rate for any
Distribution Period will at no time be higher than the maximum rate then
permitted by New York law as the same may be modified by United States law.

All percentages resulting
from any calculations on the Debentures will be rounded, if necessary, to the
nearest one hundred-thousandth of a percentage point, with five one-millionths
of a percentage point rounded upward (e.g., 9.876545% (or .09876545) being
rounded to 9.87655% (or .0987655), and all

 A-3
 

 

dollar amounts used in or
resulting from such calculation will be rounded to the nearest cent (with
one-half cent being rounded upward)).

The principal of and
interest on this Debenture shall be payable at the office or agency of the
Trustee (or other paying agent appointed by the Company) maintained for that
purpose in any coin or currency of the United States of America that at the time
of payment is legal tender for payment of public and private debts; provided,
however, that payment of interest may be made by check mailed to the
registered holder at such address as shall appear in the Debenture Register if
a request for a wire transfer by such holder has not been received by the
Company or by wire transfer to an account appropriately designated by the
holder hereof.  Notwithstanding the
foregoing, so long as the holder of this Debenture is the Institutional
Trustee, the payment of the principal of and interest on this Debenture will be
made in immediately available funds at such place and to such account as may be
designated by the Trustee.

So long as no
Acceleration Event of Default has occurred and is continuing, the Company shall
have the right, from time to time, and without causing an Event of Default, to
defer payments of interest on the Debentures by extending the interest payment
period on the Debentures at any time and from time to time during the term of
the Debentures, for up to 20 consecutive quarterly periods (each such
extended interest payment period, an “Extension Period”), during which
Extension Period no interest (including Additional Interest) shall be due and
payable (except any Additional Sums that may be due and payable).  No Extension Period may end on a date other
than an Interest Payment Date.  During an
Extension Period, interest will continue to accrue on the Debentures, and
interest on such accrued interest will accrue at an annual rate equal to the
Interest Rate in effect for such Extension Period, compounded quarterly from
the date such interest would have been payable were it not for the Extension
Period, to the extent permitted by law (such interest referred to herein as “Additional
Interest”).  At the end of any such
Extension Period the Company shall pay all interest then accrued and unpaid on
the Debentures (together with Additional Interest thereon); provided, however, that
no Extension Period may extend beyond the Maturity Date; provided
further, however,
that during any such Extension Period, the Company shall not and shall not
permit any Affiliate to engage in any of the activities or transactions
described on the reverse side hereof and in the Indenture.  Prior to the termination of any Extension
Period, the Company may further extend such period, provided that such period
together with all such previous and further consecutive extensions thereof
shall not exceed 20 consecutive quarterly periods, or extend beyond the
Maturity Date.  Upon the termination of
any Extension Period and upon the payment of all accrued and unpaid interest
and Additional Interest, the Company may commence a new Extension Period,
subject to the foregoing requirements. 
No interest or Additional Interest shall be due and payable during an
Extension Period, except at the end thereof, but each installment of interest
that would otherwise have been due and payable during such Extension Period
shall bear Additional Interest.  The
Company must give the Trustee notice of its election to begin or extend an
Extension Period by the close of business at least 15 Business Days prior to
the Interest Payment Date with respect to which interest on the Debentures
would have been payable except for the election to begin or extend such
Extension Period.

The indebtedness
evidenced by this Debenture is, to the extent provided in the Indenture,
subordinate and junior in right of payment to the prior payment in full of all
Senior Indebtedness, and this Debenture is issued subject to the provisions of
the Indenture with respect thereto.  Each
holder of this Debenture, by accepting the same, (a) agrees to and shall
be bound by such provisions, (b) authorizes and directs the Trustee on his
or her behalf to take such action as may be necessary or appropriate to
acknowledge or effectuate the subordination so provided and (c) appoints
the Trustee his or her attorney-in-fact for any and all such purposes.  Each holder hereof, by his or her acceptance
hereof, hereby waives all notice of the acceptance of the subordination
provisions contained herein and in the Indenture by each holder of Senior
Indebtedness, whether now outstanding or hereafter incurred, and waives
reliance by each such holder upon said provisions.

 A-4
 

 

 

This Debenture shall not
be entitled to any benefit under the Indenture hereinafter referred to, be
valid or become obligatory for any purpose until the certificate of
authentication hereon shall have been signed by or on behalf of the Trustee.

The provisions of this
Debenture are continued on the reverse side hereof and such provisions shall
for all purposes have the same effect as though fully set forth at this place.

 A-5
 

 

 

IN WITNESS WHEREOF, the Company has duly executed this
certificate.

	
  

  	
   

  	
  TRINITY CAPITAL
  CORPORATION

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
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CERTIFICATE OF AUTHENTICATION

This is one of the Debentures referred to in the
within-mentioned Indenture.

	
  

  	
   

  	
  WILMINGTON TRUST
  COMPANY, as Trustee

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Authorized
  Officer

  

 

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[FORM OF REVERSE
OF DEBENTURE]

This Debenture is
one of the fixed/floating rate junior subordinated deferrable interest
debentures of the Company, all issued or to be issued under and pursuant to the
Indenture dated as of September 21, 2006 (the “Indenture”), duly executed
and delivered between the Company and the Trustee, to which Indenture reference
is hereby made for a description of the rights, limitations of rights,
obligations, duties and immunities thereunder of the Trustee, the Company and
the holders of the Debentures.  The
Debentures are limited in aggregate principal amount as specified in the
Indenture.

Upon the
occurrence and continuation of a Special Event prior to the Interest Payment
Date in September 2011, the Company shall have the right to redeem the Debentures
in whole, but not in part, at any Interest Payment Date, within 120 days
following the occurrence of such Special Event, at the Special Redemption
Price.

In addition, the
Company shall have the right to redeem the Debentures, in whole or in part, but
in all cases in a principal amount with integral multiples of $1,000.00, on any
Interest Payment Date on or after the Interest Payment Date in September 2011,
at the Redemption Price.

Prior to 10:00
a.m. New York City time on the Redemption Date or Special Redemption Date, as
applicable, the Company will deposit with the Trustee or with one or more
paying agents an amount of money sufficient to redeem on the Redemption Date or
the Special Redemption Date, as applicable, all the Debentures so called for
redemption at the appropriate Redemption Price or Special Redemption Price.

If all, or less
than all, the Debentures are to be redeemed, the Company will give the Trustee
notice not less than 45 nor more than 60 days, respectively, prior to the
Redemption Date or Special Redemption Date, as applicable, as to the aggregate
principal amount of Debentures to be redeemed and the Trustee shall select, in
such manner as in its sole discretion it shall deem appropriate and fair, the
Debentures or portions thereof (in integral multiples of $1,000.00) to be
redeemed.

Notwithstanding
the foregoing, any redemption of Debentures by the Company shall be subject to
the receipt of any and all required regulatory approvals.

In case an
Acceleration Event of Default shall have occurred and be continuing, upon
demand of the Trustee, the principal of all of the Debentures shall become due
and payable in the manner, with the effect and subject to the conditions
provided in the Indenture.

The Indenture
contains provisions permitting the Company and the Trustee, with the consent of
the holders of not less than a majority in aggregate principal amount of the
Debentures at the time outstanding, to execute supplemental indentures for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Indenture or of any supplemental indenture or of
modifying in any manner the rights of the holders of the Debentures; provided, however, that
no such supplemental indenture shall without the consent of the holders of each
Debenture then outstanding and affected thereby (i) change the fixed
maturity of any Debenture, or reduce the principal amount thereof or any
premium thereon, or reduce the rate or extend the time of payment of interest
thereon, or reduce any amount payable on redemption thereof or make the
principal thereof or any interest or premium thereon payable in any coin or
currency other than that provided in the Debentures, or impair or affect the
right of any Securityholder to institute suit for payment thereof or impair the
right of repayment, if any, at the option of the holder, or (ii) reduce
the aforesaid percentage of Debentures the holders of which are required to
consent to any such supplemental indenture.

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The Indenture also
contains provisions permitting the holders of a majority in aggregate principal
amount of the Debentures at the time outstanding on behalf of the holders of
all of the Debentures to waive (or modify any previously granted waiver of) any
past default or Event of Default, and its consequences, except a default
(a) in the payment of principal of, premium, if any, or interest on any of
the Debentures, (b) in respect of covenants or provisions hereof or of the
Indenture which cannot be modified or amended without the consent of the holder
of each Debenture affected, or (c) in respect of the covenants contained
in Section 3.9 of the Indenture; provided, however, that if the Debentures are held by the Trust or a
trustee of such trust, such waiver or modification to such waiver shall not be
effective until the holders of a majority in Liquidation Amount of Trust
Securities of the Trust shall have consented to such waiver or modification to
such waiver, provided, further,
that if the consent of the holder of each outstanding Debenture is required,
such waiver shall not be effective until each holder of the Trust Securities of
the Trust shall have consented to such waiver. 
Upon any such waiver, the default covered thereby shall be deemed to be
cured for all purposes of the Indenture and the Company, the Trustee and the
holders of the Debentures shall be restored to their former positions and
rights hereunder, respectively; but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.  Whenever any default or Event
of Default hereunder shall have been waived as permitted by the Indenture, said
default or Event of Default shall for all purposes of the Debentures and the
Indenture be deemed to have been cured and to be not continuing.

No reference
herein to the Indenture and no provision of this Debenture or of the Indenture
shall alter or impair the obligation of the Company, which is absolute and
unconditional, to pay the principal of and premium, if any, and interest,
including Additional Interest, on this Debenture at the time and place and at
the rate and in the money herein prescribed.

The Company has
agreed that if Debentures are initially issued to the Trust or a trustee of
such Trust in connection with the issuance of Trust Securities by the Trust
(regardless of whether Debentures continue to be held by such Trust) and
(i) there shall have occurred and be continuing an Event of Default,
(ii) the Company shall be in default with respect to its payment of any obligations
under the Capital Securities Guarantee, or (iii) the Company shall have
given notice of its election to defer payments of interest on the Debentures by
extending the interest payment period as provided herein and such Extension
Period, or any extension thereof, shall be continuing, then the Company shall
not, and shall not allow any Affiliate of the Company to, (x) declare or
pay any dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company’s capital stock or its
Affiliates’ capital stock (other than payments of dividends or distributions to
the Company) or make any guarantee payments with respect to the foregoing or
(y) make any payment of principal of or interest or premium, if any, on or
repay, repurchase or redeem any debt securities of the Company or any Affiliate
that rank pari passu in all respects with or
junior in interest to the Debentures (other than, with respect to clauses (x)
and (y) above,  (1) repurchases,
redemptions or other acquisitions of shares of capital stock of the Company in
connection with any employment contract, benefit plan or other similar
arrangement with or for the benefit of one or more employees, officers,
directors or consultants, in connection with a dividend reinvestment or
stockholder stock purchase plan or in connection with the issuance of capital
stock of the Company (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction entered into
prior to the applicable Extension Period, if any, (2) as a result of any
exchange or conversion of any class or series of the Company’s capital stock
(or any capital stock of a subsidiary of the Company) for any class or series
of the Company’s capital stock or of any class or series of the Company’s
indebtedness for any class or series of the Company’s capital stock,
(3) the purchase of fractional interests in shares of the Company’s
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged, (4) any declaration of
a dividend in connection with any stockholders’ rights plan, or the issuance of
rights, stock or other property under any stockholders’ rights plan, or the
redemption or repurchase of rights pursuant thereto, (5) any dividend in
the form of stock, warrants, options or other rights where the

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dividend stock or the
stock issuable upon exercise of such warrants, options or other rights is the
same stock as that on which the dividend is being paid or ranks pari passu with or junior to such stock and any cash
payments in lieu of fractional shares issued in connection therewith, or
(6) payments under the Capital Securities Guarantee).

The Debentures are
issuable only in registered, certificated form without coupons and in minimum
denominations of $100,000.00 and any multiple of $1,000.00 in excess
thereof.  As provided in the Indenture
and subject to the transfer restrictions and limitations as may be contained
herein and therein from time to time, this Debenture is transferable by the
holder hereof on the Debenture Register of the Company.  Upon due presentment for registration of
transfer of any Debenture at the Principal Office of the Trustee or at any
office or agency of the Company maintained for such purpose as provided in
Section 3.2 of the Indenture, the Company shall execute, the Company or
the Trustee shall register and the Trustee or the Authenticating Agent shall
authenticate and make available for delivery in the name of the transferee or
transferees a new Debenture for a like aggregate principal amount.  All Debentures presented for registration of
transfer or for exchange or payment shall (if so required by the Company or the
Trustee or the Authenticating Agent) be duly endorsed by, or be accompanied by
a written instrument or instruments of transfer in form satisfactory to, the
Company and the Trustee or the Authenticating Agent duly executed by the holder
or his attorney duly authorized in writing. 
No service charge shall be made for any exchange or registration of
transfer of Debentures, but the Company or the Trustee may require payment of a
sum sufficient to cover any tax, fee or other governmental charge that may be
imposed in connection therewith.

Prior to due presentment
for registration of transfer of any Debenture, the Company, the Trustee, any
Authenticating Agent, any paying agent, any transfer agent and any Debenture
registrar may deem the Person in whose name such Debenture shall be registered
upon the Debenture Register to be, and may treat him as, the absolute owner of
such Debenture (whether or not such Debenture shall be overdue) for the purpose
of receiving payment of or on account of the principal of, premium, if any, and
interest on such Debenture and for all other purposes; and neither the Company
nor the Trustee nor any Authenticating Agent nor any paying agent nor any
transfer agent nor any Debenture registrar shall be affected by any notice to
the contrary.  All such payments so made
to any holder for the time being or upon his order shall be valid, and, to the
extent of the sum or sums so paid, effectual to satisfy and discharge the
liability for moneys payable upon any such Debenture.

No recourse for
the payment of the principal of or premium, if any, or interest on any
Debenture, or for any claim based thereon or otherwise in respect thereof, and
no recourse under or upon any obligation, covenant or agreement of the Company
in the Indenture or in any supplemental indenture, or in any such Debenture, or
because of the creation of any indebtedness represented thereby, shall be had
against any incorporator, stockholder, employee, officer or director, as such,
past, present or future, of the Company or of any successor Person of the
Company, either directly or through the Company or any successor Person of the
Company, whether by virtue of any constitution, statute or rule of law, or by
the enforcement of any assessment or penalty or otherwise, it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of the Indenture and
the issue of the Debentures.

Capitalized terms used
and not defined in this Debenture shall have the meanings assigned in the
Indenture dated as of the date of original issuance of this Debenture between
the Trustee and the Company.

THE INDENTURE AND
THE DEBENTURES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES THEREOF.

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EXHIBIT B

FORM OF
CERTIFICATE TO TRUSTEE

Pursuant to
Section 3.5 of the Indenture between Trinity Capital Corporation, as the
Company (the “Company”), and Wilmington Trust Company, as Trustee, dated as of
September 21, 2006 (the “Indenture”), the undersigned hereby certifies as
follows:

1.                                       In
my capacity as an officer of the Company, I would normally have knowledge of
any default by the Company during the last fiscal year in the performance of
any covenants of the Company contained in the Indenture.

2.                                       [To
my knowledge, the Company is not in default in the performance of any covenants
contained in the Indenture.

or, alternatively:

I am aware of the default(s) in the performance of covenants in the
Indentures, as specified below.]

Capitalized terms
used herein, and not otherwise defined herein, have the respective meanings
ascribed thereto in the Indenture.

IN WITNESS
WHEREOF, the undersigned has executed this Certificate.

	
  Date:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
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