Common use of Priority of Notes Clause in Contracts

Priority of Notes. From the date of this Agreement until the first date following the Closing Date on which no Notes are outstanding, the Company shall not, shall cause each of its Majority-Owned Subsidiaries not to, and shall not authorize any of its Minority-Owned Subsidiaries to, (a) issue, incur, assume, maintain, suffer to exist or extend the term of any Indebtedness (as defined in the Notes), except for (I) Indebtedness under the Notes, (II) Indebtedness (A) the holders of which agree in writing to be subordinate to the Notes on terms and conditions acceptable to the Buyers, including with regard to interest payments and repayment of principal, (B) which does not mature or otherwise require or permit redemption or repayment prior to or on the Maturity Date (as defined in the Notes) of any Notes then outstanding, and (C) which is not secured by any of the assets of the Company or any of its Subsidiaries (“Permitted Subordinated Indebtedness”), (III) Indebtedness solely between the Company and/or one of its domestic Subsidiaries on the one hand, and the Company and/or one of its domestic Subsidiaries on the other, provided that in each case a majority of the equity of any such domestic Subsidiary is directly or indirectly owned by the Company, such domestic Subsidiary is controlled by the Company, such domestic Subsidiary is at such time party to the Security Agreement, such domestic Subsidiary has executed and delivered to the holders of the Notes a Guaranty, substantially in the form attached as Exhibit J (the “Guaranty”), pursuant to which such Subsidiary will agree to guaranty certain obligations of the Company, and 100% of the capital stock of such Subsidiary owned, directly or indirectly, by the Company has been pledged in favor of the Collateral Agent, as collateral agent for the Buyers, (IV) Indebtedness to contract research organizations, hospitals or similar entities or organizations incurred in the ordinary course of business in connection with FDA approval related trials of the Company’s products not unpaid in excess of 30 days from the receipt of invoice and not exceeding at any one time an aggregate of $5,000,000, (V) Indebtedness under that certain Guaranty of Sublease, dated August 24, 2004, made by the Company in favor of The Regents of the University of California with respect to the obligations of Phage under that certain Sublease Agreement, dated August 24, 2004, between Phage and The Regents of the University of California, as such Guaranty of Sublease and Sublease Agreement are in effect on the date of the Securities Purchase Agreement, without amendment, modification, supplement or other revision thereto, or (VI) Indebtedness under that certain Standard Lease Guaranty, dated March, 2006, made by the Company in favor of Canta Rana Ranch, L.P. with respect to the obligations of Phage under that certain Standard Industrial Net Lease, dated March, 2006, by and between Phage and Canta Rana Ranch, L.P., as such Standard Lease Guaranty and Standard Industrial Net Lease are in effect on the date of the Securities Purchase Agreement, without amendment, modification, supplement or other revision thereto; (b) issue, incur, assume, maintain, suffer to exist or extend the term of any Indebtedness in a principal amount in excess of $100,000 where the proceeds of such Indebtedness are to be used to develop, or in connection with the development, of assets in which the holders of the Notes do not have a valid perfected, first priority security interest; (c) issue any capital stock of the Company or any Subsidiary redeemable prior to or on the Maturity Date of any Notes then outstanding; (d) directly or indirectly, create, assume or suffer to exist any Lien, other than a Permitted Lien, on any asset now owned or hereafter acquired by the Company or any of its Subsidiaries or (e) redeem or otherwise repay in cash any principal of any Indebtedness (other than Indebtedness under the Notes and Indebtedness permitted by clauses (IV), (V) and (VI) of clause (a) above). The provisions of this Section 4(n) are in furtherance of Section 13 of the Notes, and in no way limit the other restrictions on or obligations of the Company pursuant to Section 13 of the Notes or otherwise.

Priority of Notes. From the date of this Agreement until the first date following the Initial Closing Date on which no Notes are outstanding, the Company shall not, shall cause each of its Majority-Owned Subsidiaries not to, and shall not authorize permit any of its Minority-Owned Subsidiaries to, (a) issue, incur, assume, maintain, suffer to exist or extend the term of any Indebtedness (as defined in the Notes)Indebtedness, except for (I) Indebtedness under the Notes, (II) Indebtedness (A) the holders of which agree in writing to be subordinate to the Notes on terms and conditions acceptable to the Buyers, including with regard to interest payments and repayment of principal, (B) which does not mature or otherwise require or permit redemption or repayment prior to or on the Maturity Date (as defined in the Notes) of any Notes then outstanding, and (C) which is not secured by any of the assets of the Company or any of its Subsidiaries (“Permitted Subordinated Indebtedness”), (III) Indebtedness solely between the Company and/or one of its domestic U.S. or Canadian Subsidiaries on the one hand, and the Company and/or one of its domestic U.S. or Canadian Subsidiaries on the other, provided that in each case a majority all of the equity of any such domestic Subsidiary (excluding directors’ qualifying shares to the extent that the issuance thereof is required by law) is directly or indirectly owned by the Company, such domestic Subsidiary is controlled by the Company, such domestic Subsidiary is at such time a party to the Guaranty Agreement and the Security Agreement, such domestic Subsidiary has executed Agreement and delivered to the holders of the Notes have a Guarantyvalid, perfected first priority security interest in substantially in the form attached as Exhibit J (the “Guaranty”), pursuant to which such Subsidiary will agree to guaranty certain obligations all of the Company, and 100% of the capital stock assets of such Subsidiary owned, directly (other than assets located in Australia or indirectly, by the Company has been pledged as provided in favor of the Collateral Agent, as collateral agent for the BuyersSection 4(o)(ii) or 4(t)(vii)), (IV) Indebtedness surety bonds, bids, performance bonds, and similar obligations (exclusive of obligations for the payment of borrowed money) obtained by the Company and its Subsidiaries in the ordinary course of business for the purpose of satisfying federal, state, provincial and territorial and/or local legal requirements for owning and operating their oil and gas properties, (V) Capital Lease Obligations incurred in connection with acquiring equipment for the Company’s oil and gas exploration and production business in amounts not exceeding, individually, the fair market value of the equipment subject to contract research organizationssuch Capital Lease Obligations and in an amount not exceeding, hospitals in the aggregate, $2,500,000 at any one time, (VI) reimbursement obligations at any one time in respect of letters of credit or similar entities lines of credit issued by one or organizations more financial institutions for the account of the Company or any of its Subsidiaries in connection with the Company’s establishment and maintenance of a Hedged (as defined in Section 4(r)) position with respect to, at any time, a maximum of 50% of the Company’s estimate of its oil and gas production for the succeeding 12 calendar months on a rolling 12 calendar-month basis, so long as the aggregate amount of all such letters of credit and lines of credit does not exceed $1,000,000 at any one time, (VII) reimbursement obligations in respect of letters of credit issued for the account of the Company or any of its Subsidiaries for the purpose of securing performance obligations of the Company or its Subsidiaries incurred in the ordinary course of business (and not issued in connection with FDA approval related trials of the Company’s products establishment and maintenance of a Hedged position) so long as the aggregate face amount of all such letters of credit does not unpaid in excess of 30 days from the receipt of invoice and not exceeding exceed $2,500,000 at any one time an aggregate of $5,000,000, time; (VVIII) Indebtedness under the 15% Notes (provided that certain Guaranty the terms of Sublease, dated August 24, 2004, made by the Company in favor of The Regents of the University of California with respect to the obligations of Phage under that certain Sublease Agreement, dated August 24, 2004, between Phage and The Regents of the University of California, as such Guaranty of Sublease and Sublease Agreement are in effect on the date of the Securities Purchase Agreement, without amendment, modification, supplement 15% Notes have not been amended or other revision thereto, or modified after their issuance dates); (VIIX) Indebtedness under the Convertible Debentures (as defined in the Notes) (provided that certain Standard Lease Guaranty, dated March, 2006, made by the Company terms of such Convertible Debentures have not been amended or modified after their issuance dates); and (X) Indebtedness under the Subordinated Notes (as defined in favor the Notes) (provided that the terms of Canta Rana Ranch, L.P. with respect to the obligations of Phage under that certain Standard Industrial Net Lease, dated March, 2006, by and between Phage and Canta Rana Ranch, L.P., as such Standard Lease Guaranty and Standard Industrial Net Lease are in effect on the date of the Securities Purchase Agreement, without amendment, modification, supplement Subordinated Notes have not been amended or other revision theretomodified after their issuance dates); (b) issue, incur, assume, assure, maintain, suffer to exist or extend the term of any Indebtedness in a principal amount in excess of $100,000 5,000,000 where the proceeds of such Indebtedness are to be used to develop, or in connection with the development, of assets in which the holders of the Notes do not have a valid perfected, first priority security interest; (c) issue any capital stock of the Company or any Subsidiary redeemable prior to or on the Maturity Date of any Notes then outstanding; (d) directly or indirectly, create, assume or suffer to exist any Lien, other than a Permitted Lien, on any asset now owned or hereafter acquired by the Company or any of its Subsidiaries; provided, however, that with respect to Liens, other than Permitted Liens, on Real Property (and Collateral related thereto to the extent the Liens on such related Collateral are perfected only in real property records) that is owned or leased as of the date hereof, or is hereafter acquired, by the Company or any of its Subsidiaries and does not represent a material portion of the Collateral and which Liens existed or exist at the time the Company or any of its Subsidiaries acquired or acquires such Real Property (and related Collateral, if applicable) but of which neither the Company nor any of its Subsidiaries were or are, aware at the time of consummation of such acquisition, it shall not constitute a violation of this clause (d) if such Liens are terminated and released within ten (10) Business Days after the date on which the Company or any of its Subsidiaries first becomes aware of the existence thereof, so long as such Liens were or are not created, incurred or granted by the Company or any of its Subsidiaries; (e) redeem except as required or expressly permitted by Section 4(d) or 4(q), redeem, or otherwise repay in cash any principal of any Indebtedness (other than Indebtedness under the Notes and Indebtedness permitted by clauses (IVa)(III), (Va)(IV), (a)(V), (a)(VI), (a)(VII), (a)(IX) and (VIa)(X) of clause this Section 4(n)), (af) above)on or at any time after an Event of Default, pay any interest on any Indebtedness, (g) redeem or otherwise repay, other than entirely in consideration for non-redeemable capital stock of the Company or Permitted Subordinated Indebtedness, any Indebtedness under the Subordinated Notes or the Convertible Debentures prior to the scheduled maturity thereof or at any time at which there is a Reserve Test Failure or Event of Default or would be a Reserve Test Failure or an Event of Default after giving effect to such repayment or redemption; provided, however, that the Company may redeem or otherwise repay in cash, solely out of proceeds from the Company’s issuance after the Initial Closing Date of Permitted Subordinated Indebtedness or nonredeemable capital stock of the Company, Indebtedness under the FTD Subordinated Note (as defined in the Notes) at any time (whether at or prior to maturity of the FTD Subordinated Note) at which there is no Reserve Test Failure or Event of Default and would not be a Reserve Test Failure or Event of Default after giving effect to such redemption or repayment; or (h) accelerate the maturity, or otherwise amend or modify any of the terms, of any Indebtedness such that would materially adversely affect any of the interests of the holders of the Notes. The provisions of this Section 4(n) are in furtherance of Section 13 8 of the Notes, and in no way limit the other restrictions on or obligations of the Company pursuant to Section 13 8 of the Notes or otherwise.

Priority of Notes. From the date of this Agreement until the first date following the Initial Closing Date on which no Notes are outstanding, the Company shall not, shall cause each of its Majority-Owned Subsidiaries not to, and shall not authorize permit any of its Minority-Owned Subsidiaries to, (a) issue, incur, assume, maintain, suffer to exist assume or extend the term of incur any Indebtedness (as defined in the Notes), except for (I) Indebtedness under the Notes, (II) Indebtedness (A) the holders of which agree in writing to be subordinate to the Notes on terms and conditions acceptable to the Buyers, including with regard to interest payments and repayment of principal, (B) which does not mature or otherwise require or permit redemption or repayment prior to or on the Maturity Date (as defined in the Notes) of any Notes then outstanding, and (C) which is not secured by any of the assets of the Company or any of its Subsidiaries (“Permitted Subordinated Indebtedness”"PERMITTED SUBORDINATED INDEBTEDNESS"), (III) Indebtedness solely between the Company and/or one of its domestic Active Subsidiaries on the one hand, and the Company and/or one of its domestic Active Subsidiaries on the other, provided that in each case a majority of the equity of any such domestic Active Subsidiary is directly or indirectly owned by the Company, such domestic Active Subsidiary is controlled by the Company, Company and such domestic Active Subsidiary is at such time a party to the Guaranty Agreement and the Security Agreement, such domestic Subsidiary has executed (IV) surety bonds, bids, performance bonds, and delivered to similar obligations (exclusive of obligations for the holders payment of borrowed money) obtained by the Company and its Subsidiaries in the ordinary course of business for the purpose of satisfying federal, state and/or local legal requirements for owning and operating their oil and gas properties or for operating the Services Business (as defined in Section 4(s)), (V) Capital Lease Obligations incurred in connection with acquiring equipment for the Company's oil and gas exploration and production business in amounts not exceeding individually, the fair market value of the Notes a Guaranty, substantially equipment subject to such Capital Lease Obligations and in an aggregate outstanding amount not exceeding 7.5% of After-tax PV10 (as defined in the form attached Notes) at any one time, (VI) reimbursement obligations in respect of letters of credit issued by one or more financial institutions for the account of the Company or any of its Active Subsidiaries in connection with the Company's establishment and maintenance of a Hedged (as Exhibit J defined in Section 4(t)) position with respect to, at any time, a maximum of 2/3 of the Company's estimate of its oil and gas production for the succeeding 12 calendar months on a rolling 12-calendar month basis, (VII) reimbursement obligations in respect of letters of credit issued for the “Guaranty”), pursuant to which such Subsidiary will agree to guaranty certain account of the Company or any of its Active Subsidiaries for the purpose of securing performance obligations of the Company, and 100% of the capital stock of such Subsidiary owned, directly Company or indirectly, by the Company has been pledged in favor of the Collateral Agent, as collateral agent for the Buyers, (IV) Indebtedness to contract research organizations, hospitals or similar entities or organizations its Active Subsidiaries incurred in the ordinary course of business (and not issued in connection with FDA approval related trials of the Company’s products 's establishment and maintenance of a Hedged position) so long as the aggregate face amount of all such letters of credit does not unpaid in excess of 30 days from the receipt of invoice and not exceeding exceed $1,000,000 at any one time an aggregate of $5,000,000time, (VVIII) Indebtedness under that certain Guaranty of Subleaseunsecured promissory note, dated August 24January 27, 20042003, in the name of Dobber Aviation, L.L.C., in a principal amount not exceeding $2,500,000 (less any payments of principal thereon or other reductions to principal made by from time to time with respect thereto), and (IX) that certain unsecured obligation of the Company in favor to Premium Assignment Corporation existing as of The Regents of the University of California with respect to the obligations of Phage under that certain Sublease Agreement, dated August 24, 2004, between Phage and The Regents of the University of California, as such Guaranty of Sublease and Sublease Agreement are in effect on the date of the Securities Purchase Agreement, without amendment, modification, supplement this Agreement in an amount not to exceed $159,623.86 (less any payments of such obligation or other revision thereto, or (VI) Indebtedness under that certain Standard Lease Guaranty, dated March, 2006, reductions to such obligation made by the Company in favor of Canta Rana Ranch, L.P. from time to time with respect to the obligations of Phage under that certain Standard Industrial Net Lease, dated March, 2006, by and between Phage and Canta Rana Ranch, L.P., as such Standard Lease Guaranty and Standard Industrial Net Lease are in effect on the date of the Securities Purchase Agreement, without amendment, modification, supplement or other revision thereto); (b) issue, incur, assume, maintain, suffer to exist assure or extend the term of any Indebtedness in a principal amount in excess of $100,000 2,000,000 where the proceeds of such Indebtedness are to be used to develop, or in connection with the development, of assets located outside the United States in which the holders of the Notes do not have a valid perfected, first priority security interest; (c) issue any capital stock of the Company or any Subsidiary redeemable prior to or on the Maturity Date of any Notes then outstanding; (d) directly or indirectly, create, assume or suffer to exist any Lien, other than a Permitted Lien, on any asset now owned or hereafter acquired by the Company or any of its Subsidiaries or (e) redeem except as required or expressly permitted by Section 4(d), 4(q), 4(r) or 4(u), redeem, or otherwise repay in cash any principal of any Indebtedness (other than Indebtedness under the Notes and Indebtedness permitted by clauses (IVa)(III), (Va)(IV), (a)(V), (a)(VI), (a)(VII), (a)(VIII) and (VIa)(IX) of clause (a) abovethis Section 4(n)). The provisions of this Section 4(n) are in furtherance of Section 13 12 of the Notes, and in no way limit the other restrictions on or obligations of the Company pursuant to Section 13 12 of the Notes or otherwise.