Exhibit 10.4

Execution Version

SECOND AMENDED AND RESTATED

GUARANTEE AND COLLATERAL AGREEMENT

made by

each of the Grantors (as defined herein)

in favor of

BNP PARIBAS,

as Administrative Agent

Dated as of July 12, 2006

--------------------------------------------------------------------------------

TABLE OF CONTENTS

 

ARTICLE I Definitions

   1

    Section 1.01

  Definitions    1

    Section 1.02

  Other Definitional Provisions; References    3

ARTICLE II Guarantee

   3

    Section 2.01

  Guarantee    3

    Section 2.02

  Payments    4

ARTICLE III Grant of Security Interest

   4

    Section 3.01

  Grant of Security Interest    4

    Section 3.02

  Transfer of Pledged Securities    5

    Section 3.03

  Grantors Remains Liable under Accounts, Chattel Paper and Payment Intangibles
   5

ARTICLE IV Acknowledgments, Waivers and Consents

   6

    Section 4.01

  Acknowledgments, Waivers and Consents    6

    Section 4.02

  No Subrogation, Contribution or Reimbursement    8

ARTICLE V Representations and Warranties

   9

    Section 5.01

  Representations in Credit Agreement    9

    Section 5.02

  Benefit to the Guarantor    9

    Section 5.03

  Solvency    9

    Section 5.04

  Title; No Other Liens    9

    Section 5.05

  Perfected First Priority Liens    9

    Section 5.06

  Legal Name, Organizational Status, Chief Executive Office    10

    Section 5.07

  Prior Names, Addresses, Locations of Tangible Assets    10

    Section 5.08

  Pledged Securities    10

    Section 5.09

  Goods    10

    Section 5.10

  Instruments and Chattel Paper    10

    Section 5.11

  Truth of Information; Accounts    10

    Section 5.12

  Governmental Obligors    11

ARTICLE VI Covenants

   11

    Section 6.01

  Covenants in Credit Agreement    11

    Section 6.02

  Maintenance of Perfected Security Interest; Further Documentation    11

    Section 6.03

  Maintenance of Records    12

    Section 6.04

  Right of Inspection    12

    Section 6.05

  Further Identification of Collateral    12

    Section 6.06

  Changes in Locations, Name, etc.    13

    Section 6.07

  Compliance with Contractual Obligations    13

    Section 6.08

  Limitations on Dispositions of Collateral    13

    Section 6.09

  Pledged Securities    13

    Section 6.10

  Limitations on Modifications, Waivers, Extensions of Agreements Giving Rise to
Accounts    15

    Section 6.11

  Analysis of Accounts, Etc    15

 

i

--------------------------------------------------------------------------------

    Section 6.12

   Instruments and Tangible Chattel Paper    15

    Section 6.13

   Maintenance of Equipment    15

    Section 6.14

   Commercial Tort Claims    15 ARTICLE VII Remedial Provisions    16

    Section 7.01

   Pledged Securities    16

    Section 7.02

   Collections on Accounts, Etc    17

    Section 7.03

   Proceeds    17

    Section 7.04

   Texas UCC and Other Remedies    18

    Section 7.05

   Private Sales of Pledged Securities    19

    Section 7.06

   Waiver; Deficiency    20

    Section 7.07

   Non-Judicial Enforcement    20 ARTICLE VIII The Administrative Agent    20

    Section 8.01

   Administrative Agent's Appointment as Attorney-in-Fact, Etc    20

    Section 8.02

   Duty of Administrative Agent    21

    Section 8.03

   Execution of Financing Statements    22

    Section 8.04

   Authority of Administrative Agent    22 ARTICLE IX Subordination of
Indebtedness    23

    Section 9.01

   Subordination of All Guarantor Claims    23

    Section 9.02

   Claims in Bankruptcy    23

    Section 9.03

   Payments Held in Trust    23

    Section 9.04

   Liens Subordinate    23

    Section 9.05

   Notation of Records    24 ARTICLE X Miscellaneous    24

    Section 10.01

   Waiver    24

    Section 10.02

   Notices    24

    Section 10.03

   Payment of Expenses, Indemnities, Etc    24

    Section 10.04

   Amendments in Writing    25

    Section 10.05

   Successors and Assigns    25

    Section 10.06

   Invalidity    25

    Section 10.07

   Counterparts    25

    Section 10.08

   Survival    25

    Section 10.09

   Captions    26

    Section 10.10

   No Oral Agreements    26

    Section 10.11

   Governing Law; Submission to Jurisdiction    26

    Section 10.12

   Acknowledgments    27

    Section 10.13

   Additional Grantors    28

    Section 10.14

   Set-Off    28

    Section 10.15

   Releases    28

    Section 10.16

   Reinstatement    29

    Section 10.17

   Acceptance    29

 

ii

--------------------------------------------------------------------------------

SCHEDULES:

 

  1. Notice Addresses of Guarantors

  2. Description of Pledged Securities

  3. Filings and Other Actions Required to Perfect Security Interests

  4. Legal Name, Location of Jurisdiction of Organization, Organizational
Identification Number, Taxpayor Identification Number and Chief Executive Office

  5. Prior Names, Prior Chief Executive Office, Location of Tangible Assets

ANNEX:

 

  I. Form of Assumption Agreement

 

iii

--------------------------------------------------------------------------------

This SECOND AMENDED AND RESTATED GUARANTEE AND COLLATERAL AGREEMENT, dated as of
July 12, 2006, is made by Petrohawk Energy Corporation, a corporation duly
formed and existing under the laws of the State of Delaware (the “Borrower”),
and each of the other signatories hereto other than the Administrative Agent
(the Borrower and each of the other signatories hereto other than the
Administrative Agent, together with any other Subsidiary of the Borrower that
becomes a party hereto from time to time after the date hereof, the “Grantors”),
in favor of BNP Paribas, as administrative agent (in such capacity, together
with its successors in such capacity, the “Administrative Agent”), for the banks
and other financial institutions (the “Lenders”) from time to time parties to
the Second Amended and Restated Senior Revolving Credit Agreement, dated as of
July 12, 2006 (as amended, supplemented or otherwise modified from time to time,
the “Credit Agreement”), among the Borrower, the Lenders, the Administrative
Agent, Bank of America, N.A. and BMO Capital Markets Financing, Inc., as
co-syndication agents for the Lenders (in such capacity, together with their
successors in such capacity, the “Co-Syndication Agent”), and JPMorgan Chase
Bank, N.A., Wells Fargo Bank, N.A. and Fortis Capital Corp., as co-documentation
agents for the Lenders (in such capacity, together with their successors in such
capacity, the “Documentation Agents”) and the other Agents party thereto.

NOW, THEREFORE, in consideration of the premises and to induce the
Administrative Agent and the Lenders to enter into the Credit Agreement and to
induce the Lenders to make their respective extensions of credit to the Borrower
thereunder, each Grantor hereby agrees with the Administrative Agent, for the
ratable benefit of the Lenders, as follows:

ARTICLE I

Definitions

Section 1.01 Definitions.

(a) As used in this Agreement, each term defined above shall have the meaning
indicated above. Unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to them in the Credit
Agreement, and the following terms as well as all uncapitalized terms which are
defined in the Texas UCC on the date hereof are used herein as so defined:
Accounts, As-Extracted Collateral, Chattel Paper, Commercial Tort Claims,
Deposit Accounts, Documents, Electronic Chattel Paper, Equipment, Fixtures,
General Intangibles, Goods, Instruments, Inventory, Investment Property,
Letter-of-Credit Rights, Payment Intangibles, Proceeds, Supporting Obligations,
and Tangible Chattel Paper.

(b) The following terms shall have the following meanings:

“Account Debtor” shall mean a Person (other than any Grantor) obligated on an
Account, Chattel Paper, or General Intangible.

“Agreement” shall mean this Guarantee and Collateral Agreement, as the same may
be amended, supplemented or otherwise modified from time to time.

“Collateral” shall have the meaning assigned such term in Section 3.01.

--------------------------------------------------------------------------------

“Guarantors” shall mean, collectively, each Grantor other than the Borrower.

“Issuers” shall mean, collectively, each issuer of a Pledged Security.

“Obligations” shall mean, collectively, all Indebtedness, liabilities and
obligations of the Borrower and each Guarantor to the Administrative Agent, the
Issuing Bank, the Lenders and each Affiliate of a Lender party to a Permitted
Hedging Agreement (including any Permitted Hedging Agreements between such
Persons in existence prior to the date hereof), of whatsoever nature and
howsoever evidenced, due or to become due, now existing or hereafter arising,
whether direct or indirect, absolute or contingent, which may arise under, out
of, or in connection with the Credit Agreement, the other Loan Documents, each
Permitted Hedging Agreement (to the extent that the Obligations arise under, out
of, or in connection with such Permitted Hedging Agreement before or during such
time as the Lender party to such Permitted Hedging Agreement is a party to the
Credit Agreement, or in the case of an Affiliate of a Lender party to such
Permitted Hedging Agreement, the Lender affiliated with such Affiliate, is a
party to the Credit Agreement) and all other agreements, guarantees, notes and
other documents entered into by any party in connection therewith, and any
amendment, restatement or modification of any of the foregoing, including, but
not limited to, the full and punctual payment when due of any unpaid principal
of the Loans and LC Exposure, any amounts payable in respect of an early
termination under any Permitted Hedging Agreement, interest (including, without
limitation, interest accruing at any post-default rate and interest accruing
after the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding), fees,
reimbursement obligations, guaranty obligations, penalties, indemnities, legal
and other fees, charges and expenses, and amounts advanced by and expenses
incurred in order to preserve any collateral or security interest, whether due
after acceleration or otherwise.

“Permitted Hedging Agreement” shall mean any Swap Agreement permitted to be
entered into by the Borrower or any Guarantor pursuant to Section 9.19 of the
Credit Agreement that is between any Grantor and any Lender or any Affiliate of
any Lender.

“Pledged Securities” shall mean: (i) the Equity Interests described or referred
to in Schedule 2; and (ii) (a) the certificates or instruments, if any,
representing such Equity Interests, (b) all dividends (cash, stock or
otherwise), cash, instruments, rights to subscribe, purchase or sell and all
other rights and property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of such Equity
Interests, (c) all replacements, additions to and substitutions for any of the
property referred to in this definition, including, without limitation, claims
against third parties, (d) the proceeds, interest, profits and other income of
or on any of the property referred to in this definition and (e) all books and
records relating to any of the property referred to in this definition.

“Secured Parties” shall mean, collectively, the Administrative Agent, the
Lenders and any Affiliate of any Lender that is a party to a Permitted Hedging
Agreement.

“Securities Act” shall mean the Securities Act of 1933, as amended.

 

- 2 -

--------------------------------------------------------------------------------

“Texas UCC” shall mean the Uniform Commercial Code, as it may be amended, from
time to time in effect in the State of Texas.

Section 1.02 Other Definitional Provisions; References. The meanings given to
terms defined herein shall be equally applicable to both the singular and plural
forms of such terms. The gender of all words shall include the masculine,
feminine, and neuter, as appropriate. The words “herein,” “hereof,” “hereunder”
and other words of similar import when used in this Agreement refer to this
Agreement as a whole, and not to any particular article, section or subsection.
Any reference herein to a Section shall be deemed to refer to the applicable
Section of this Agreement unless otherwise stated herein. Any reference herein
to an exhibit, schedule or annex shall be deemed to refer to the applicable
exhibit, schedule or annex attached hereto unless otherwise stated herein. Where
the context requires, terms relating to the Collateral or any part thereof, when
used in relation to a Grantor, shall refer to such Grantor’s Collateral or the
relevant part thereof.

ARTICLE II

Guarantee

Section 2.01 Guarantee.

(a) Each of the Guarantors hereby, jointly and severally, unconditionally and
irrevocably, guarantees to the Administrative Agent, for the ratable benefit of
the Secured Parties and each of their respective successors, endorsees,
transferees and assigns, the prompt and complete payment and performance by the
Borrower and the Guarantors when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations. This is a guarantee of payment
and not collection and the liability of each Guarantor is primary and not
secondary.

(b) Anything herein or in any other Loan Document to the contrary
notwithstanding, the maximum liability of each Guarantor hereunder and under the
other Loan Documents shall in no event exceed the amount which can be guaranteed
by such Guarantor under applicable federal and state laws relating to the
insolvency of debtors.

(c) Each Guarantor agrees that the Obligations may at any time and from time to
time exceed the amount of the liability of such Guarantor hereunder without
impairing the guarantee contained in this Article II or affecting the rights and
remedies of the Administrative Agent or any Secured Party hereunder.

(d) Each Guarantor agrees that if the maturity of any of the Obligations is
accelerated by bankruptcy or otherwise, such maturity shall also be deemed
accelerated for the purpose of this guarantee without demand or notice to such
Guarantor. The guarantee contained in this Article II shall remain in full force
and effect until all the Obligations shall have been satisfied by payment in
full, no Letter of Credit shall be outstanding and all Permitted Hedging
Agreements secured hereby and the Credit Agreement and the Aggregate Commitments
shall be terminated, notwithstanding that from time to time during the term of
the Credit Agreement, no Obligations may be outstanding.

(e) No payment made by the Borrower, any of the Guarantors, any other guarantor
or any other Person or received or collected by the Administrative Agent or any
other

 

- 3 -

--------------------------------------------------------------------------------

Secured Party from the Borrower, any of the Guarantors, any other guarantor or
any other Person by virtue of any action or proceeding or any set-off or
appropriation or application at any time or from time to time in reduction of or
in payment of the Obligations shall be deemed to modify, reduce, release or
otherwise affect the liability of any Guarantor hereunder which shall,
notwithstanding any such payment (other than any payment made by such Guarantor
in respect of the Obligations or any payment received or collected from such
Guarantor in respect of the Obligations), remain liable for the Obligations up
to the maximum liability of such Guarantor hereunder until the Obligations are
paid in full, no Letter of Credit shall be outstanding, and all Permitted
Hedging Agreements secured hereby and the Credit Agreement and the Aggregate
Commitments are terminated.

Section 2.02 Payments. Each Guarantor hereby agrees and guarantees that payments
hereunder will be paid to the Administrative Agent without set-off or
counterclaim in Dollars at the Principal Office of the Administrative Agent
specified pursuant to the Credit Agreement.

ARTICLE III

Grant of Security Interest

Section 3.01 Grant of Security Interest. Each Grantor hereby pledges, assigns
and transfers to the Administrative Agent, and grants to the Administrative
Agent, for the ratable benefit of the Secured Parties, a security interest in
all of the following property now owned or at any time hereafter acquired by
such Grantor or in which such Grantor now has or at any time in the future may
acquire any right, title or interest and whether now existing or hereafter
coming into existence (collectively, the “Collateral”), as collateral security
for the prompt and complete payment and performance when due (whether at the
stated maturity, by acceleration or otherwise) of the Obligations:

(1) all Accounts;

(2) all Chattel Paper (whether Tangible Chattel Paper or Electronic Chattel
Paper);

(3) all Commercial Tort Claims;

(4) all Deposit Accounts other than payroll, withholding tax and other fiduciary
Deposit Accounts;

(5) all Documents;

(6) all General Intangibles (including, without limitation, rights in and under
any Hedging Agreements);

(7) all Goods (including, without limitation, all Inventory and all Equipment,
but excluding all Fixtures);

(8) all Instruments;

(9) all Investment Property;

 

- 4 -

--------------------------------------------------------------------------------

(10) all Letter-of-Credit Rights (whether or not the letter of credit is
evidenced by a writing;

(11) all Pledged Securities;

(12) all Supporting Obligations;

(13) all books and records pertaining to the Collateral; and

(14) to the extent not otherwise included, all Proceeds and products of any and
all of the foregoing and all collateral security, income, royalties and other
payments now or hereafter due and payable with respect to, and guarantees and
supporting obligations relating to, any and all of the Collateral and, to the
extent not otherwise included, all payments of insurance (whether or not the
Administrative Agent is the loss payee thereof), or any indemnity, warranty or
guaranty, payable by reason of loss or damage to or otherwise with respect to
any of the foregoing Collateral, all other claims, including all cash,
guarantees and other Supporting Obligations given with respect to any of the
foregoing.

Section 3.02 Transfer of Pledged Securities. All certificates and instruments,
if any, representing or evidencing the Pledged Securities shall be delivered to
and held pursuant hereto by the Administrative Agent or a Person designated by
the Administrative Agent and, in the case of an instrument or certificate in
registered form, shall be duly indorsed to the Administrative Agent or in blank
by an effective endorsement (whether on the certificate or instrument or on a
separate writing), and accompanied by any required transfer tax stamps to effect
the pledge of the Pledged Securities to the Administrative Agent.
Notwithstanding the preceding sentence, all Pledged Securities must be delivered
or transferred in such manner, and each Grantor shall take all such further
action as may be requested by the Administrative Agent, as to permit the
Administrative Agent to be a “protected purchaser” to the extent of its security
interest as provided in Section 8.303 of the Texas UCC (if the Administrative
Agent otherwise qualifies as a protected purchaser).

Section 3.03 Grantors Remains Liable under Accounts, Chattel Paper and Payment
Intangibles. Anything herein to the contrary notwithstanding, each Grantor shall
remain liable under each of the Accounts, Chattel Paper and Payment Intangibles
to observe and perform all the conditions and obligations to be observed and
performed by it thereunder, all in accordance with the terms of any agreement
giving rise to each such Account, Chattel Paper or Payment Intangible. Neither
the Administrative Agent nor any other Secured Party shall have any obligation
or liability under any Account, Chattel Paper or Payment Intangible (or any
agreement giving rise thereto) by reason of or arising out of this Agreement or
the receipt by the Administrative Agent or any such other Secured Party of any
payment relating to such Account, Chattel Paper or Payment Intangible, pursuant
hereto, nor shall the Administrative Agent or any other Secured Party be
obligated in any manner to perform any of the obligations of any Grantor under
or pursuant to any Account, Chattel Paper or Payment Intangible (or any
agreement giving rise thereto), to make any payment, to make any inquiry as to
the nature or the sufficiency of any payment received by it or as to the
sufficiency of any performance by any party under any Account, Chattel Paper or
Payment Intangible (or any agreement giving rise thereto), to present or file
any claim, to take any action to enforce any performance or to collect the
payment of any amounts which may have been assigned to it or to which it may be
entitled at any time or times.

 

- 5 -

--------------------------------------------------------------------------------

ARTICLE IV

Acknowledgments, Waivers and Consents

Section 4.01 Acknowledgments, Waivers and Consents.

(a) Each Grantor acknowledges and agrees that the obligations undertaken by it
under this Agreement involve the guarantee and the provision of collateral
security for the obligations of Persons other than such Grantor and that such
Grantor’s guarantee and provision of collateral security for the Obligations are
absolute, irrevocable and unconditional under any and all circumstances. In full
recognition and furtherance of the foregoing, each Grantor understands and
agrees, to the fullest extent permitted under applicable law and except as may
otherwise be expressly and specifically provided in the Loan Documents, that
each Grantor shall remain obligated hereunder (including, without limitation,
with respect to the guarantee made such Grantor hereby and the collateral
security provided by such Grantor herein) and the enforceability and
effectiveness of this Agreement and the liability of such Grantor, and the
rights, remedies, powers and privileges of the Administrative Agent and the
other Secured Parties under this Agreement and the other Loan Documents shall
not be affected, limited, reduced, discharged or terminated in any way:

(i) notwithstanding that, without any reservation of rights against any Grantor
and without notice to or further assent by any Grantor, (A) any demand for
payment of any of the Obligations made by the Administrative Agent or any other
Secured Party may be rescinded by the Administrative Agent or such other Secured
Party and any of the Obligations continued; (B) the Obligations, the liability
of any other Person upon or for any part thereof or any collateral security or
guarantee therefor or right of offset with respect thereto, may, from time to
time, in whole or in part, be renewed, extended, amended, modified, accelerated,
compromised, waived, surrendered or released by, or any indulgence or
forbearance in respect thereof granted by, the Administrative Agent or any other
Secured Party; (C) the Credit Agreement, the other Loan Documents, any Permitted
Hedging Agreement and any other documents executed and delivered in connection
therewith may be amended, modified, supplemented or terminated, in whole or in
part, as the Administrative Agent (or the Required Lenders, the Majority Lenders
or all Lenders, as the case may be) may deem advisable from time to time;
(D) the Borrower, any Grantor or any other Person may from time to time accept
or enter into new or additional agreements, security documents, guarantees or
other instruments in addition to, in exchange for or relative to, any Loan
Document or Permitted Hedging Agreement, all or any part of the Obligations or
any Collateral now or in the future serving as security for the Obligations;
(E) any collateral security, guarantee or right of offset at any time held by
the Administrative Agent or any other Secured Party for the payment of the
Obligations may be sold, exchanged, waived, surrendered or released; and (F) any
other event shall occur which constitutes a defense or release of sureties
generally; and

(ii) without regard to, and each Grantor hereby expressly waives to the fullest
extent permitted by law any defense now or in the future arising by reason of,
(A) the illegality, invalidity or unenforceability of the Credit Agreement, any
other Loan Document, any

 

- 6 -

--------------------------------------------------------------------------------

Permitted Hedging Agreement, any of the Obligations or any other collateral
security therefor or guarantee or right of offset with respect thereto at any
time or from time to time held by the Administrative Agent or any other Secured
Party, (B) any defense, set-off or counterclaim (other than a defense of payment
or performance) which may at any time be available to or be asserted by any
Grantor or any other Person against the Administrative Agent or any other
Secured Party, (C) the insolvency, bankruptcy arrangement, reorganization,
adjustment, composition, liquidation, disability, dissolution or lack of power
of any Grantor or any other Person at any time liable for the payment of all or
part of the Obligations or the failure of the Administrative Agent or any other
Secured Party to file or enforce a claim in bankruptcy or other proceeding with
respect to any Person; or any sale, lease or transfer of any or all of the
assets of the any Grantor, or any changes in the partners of any Grantor;
(D) the fact that any Collateral or Lien contemplated or intended to be given,
created or granted as security for the repayment of the Obligations shall not be
properly perfected or created, or shall prove to be unenforceable or subordinate
to any other Lien, it being recognized and agreed by each of the Grantors that
it is not entering into this Agreement in reliance on, or in contemplation of
the benefits of, the validity, enforceability, collectability or value of any of
the Collateral for the Obligations; (E) any failure of the Administrative Agent
or any other Secured Party to marshal assets in favor of any Grantor or any
other Person, to exhaust any collateral for all or any part of the Obligations,
to pursue or exhaust any right, remedy, power or privilege it may have against
any Grantor or any other Person or to take any action whatsoever to mitigate or
reduce any Grantor’s liability under this Agreement or any other Loan Document;
(F) any law which provides that the obligation of a surety or guarantor must
neither be larger in amount nor in other respects more burdensome than that of
the principal or which reduces a surety’s or guarantor’s obligation in
proportion to the principal obligation; (G) the possibility that the Obligations
may at any time and from time to time exceed the aggregate liability of such
Grantor under this Agreement; or (H) any other circumstance or act whatsoever,
including any action or omission of the type described (with or without notice
to or knowledge of any Grantor), which constitutes, or might be construed to
constitute, an equitable or legal discharge or defense of the Borrower for the
Obligations, or of such Grantor under the guarantee contained in Article II or
with respect to the collateral security provided by such Grantor herein, or
which might be available to a surety or guarantor, in bankruptcy or in any other
instance.

(b) Each Grantor hereby waives to the extent permitted by law: (i) except as
expressly provided otherwise in any Loan Document, all notices to such Grantor,
or to any other Person, including but not limited to, notices of the acceptance
of this Agreement, the guarantee contained in Article II or the provision of
collateral security provided herein, or the creation, renewal, extension,
modification, accrual of any Obligations, or notice of or proof of reliance by
the Administrative Agent or any other Secured Party upon the guarantee contained
in Article II or upon the collateral security provided herein, or of default in
the payment or performance of any of the Obligations owed to the Administrative
Agent or any other Secured Party and enforcement of any right or remedy with
respect thereto; or notice of any other matters relating thereto; the
Obligations, and any of them, shall conclusively be deemed to have been created,
contracted or incurred, or renewed, extended, amended or waived, in reliance
upon the guarantee contained in Article II and the collateral security provided
herein and no notice of creation of the Obligations or any extension of credit
already or hereafter contracted by or extended to the Borrower need be given to
any Grantor; and all dealings between the Borrower and any of the Grantors, on
the one hand, and the Administrative Agent and the other Secured Parties, on the

 

- 7 -

--------------------------------------------------------------------------------

other hand, likewise shall be conclusively presumed to have been had or
consummated in reliance upon the guarantee contained in Article II and on the
collateral security provided herein; (ii) diligence and demand of payment,
presentment, protest, dishonor and notice of dishonor; (iii) any statute of
limitations affecting any Grantor’s liability hereunder or the enforcement
thereof; (iv) all rights of revocation with respect to the Obligations, the
guarantee contained in Article II and the provision of collateral security
herein; and (v) all principles or provisions of law which conflict with the
terms of this Agreement and which can, as a matter of law, be waived.

(c) When making any demand hereunder or otherwise pursuing its rights and
remedies hereunder against any Grantor, the Administrative Agent or any other
Secured Party may, but shall be under no obligation to, join or make a similar
demand on or otherwise pursue or exhaust such rights and remedies as it may have
against the Borrower, any other Grantor or any other Person or against any
collateral security or guarantee for the Obligations or any right of offset with
respect thereto, and any failure by the Administrative Agent or any other
Secured Party to make any such demand, to pursue such other rights or remedies
or to collect any payments from the Borrower, any other Grantor or any other
Person or to realize upon any such collateral security or guarantee or to
exercise any such right of offset, or any release of the Borrower, any Grantor
or any other Person or any such collateral security, guarantee or right of
offset, shall not relieve any Grantor of any obligation or liability hereunder,
and shall not impair or affect the rights and remedies, whether express, implied
or available as a matter of law, of the Administrative Agent or any other
Secured Party against any Grantor. For the purposes hereof “demand” shall
include the commencement and continuance of any legal proceedings. Neither the
Administrative Agent nor any other Secured Party shall have any obligation to
protect, secure, perfect or insure any Lien at any time held by it as security
for the Obligations or for the guarantee contained in Article II or any property
subject thereto.

Section 4.02 No Subrogation, Contribution or Reimbursement. Notwithstanding any
payment made by any Grantor hereunder or any set-off or application of funds of
any Grantor by the Administrative Agent or any other Secured Party, no Grantor
shall be entitled to be subrogated to any of the rights of the Administrative
Agent or any other Secured Party against the Borrower or any other Grantor or
any collateral security or guarantee or right of offset held by the
Administrative Agent or any other Secured Party for the payment of the
Obligations, nor shall any Grantor seek or be entitled to seek any indemnity,
exoneration, participation, contribution or reimbursement from the Borrower or
any other Grantor in respect of payments made by such Grantor hereunder, and
each Grantor hereby expressly waives, releases, and agrees not to exercise any
all such rights of subrogation, reimbursement, indemnity and contribution. Each
Grantor further agrees that to the extent that such waiver and release set forth
herein is found by a court of competent jurisdiction to be void or voidable for
any reason, any rights of subrogation, reimbursement, indemnity and contribution
such Grantor may have against the Borrower, any other Grantor or against any
collateral or security or guarantee or right of offset held by the
Administrative Agent or any other Secured Party shall be junior and subordinate
to any rights the Administrative Agent and the other Secured Parties may have
against the Borrower and such Grantor and to all right, title and interest the
Administrative Agent and the other Secured Parties may have in any collateral or
security or guarantee or right of offset. The Administrative Agent, for the
benefit of the Secured Parties, may use, sell or dispose of any item of
Collateral or security as it sees fit without regard to any subrogation rights
any Grantor may have, and upon any disposition or sale, any rights of
subrogation any Grantor may have shall terminate.

 

- 8 -

--------------------------------------------------------------------------------

ARTICLE V

Representations and Warranties

To induce the Administrative Agent and the other Secured Parties to enter into
the Credit Agreement and to induce the Lenders to make their respective
extensions of credit to the Borrower thereunder and to induce the Lenders and
Affiliates of the Lenders to enter into Permitted Hedging Agreements, each
Grantor hereby represents and warrants to the Administrative Agent and each
other Secured Party that:

Section 5.01 Representations in Credit Agreement. In the case of each Guarantor,
the representations and warranties set forth in Article VII of the Credit
Agreement as they relate to such Guarantor (in its capacity as a Subsidiary of
the Borrower) or to the Loan Documents to which such Guarantor is a party are
true and correct in all material respects, provided that each reference in each
such representation and warranty to the Borrower’s knowledge shall, for the
purposes of this Section 5.01, be deemed to be a reference to such Guarantor’s
knowledge.

Section 5.02 Benefit to the Guarantor. The Borrower is a member of an affiliated
group of companies that includes each Guarantor, and the Borrower and the
Guarantors are engaged in related businesses. Each Guarantor is a Subsidiary of
the Borrower and its guaranty and surety obligations pursuant to this Agreement
reasonably may be expected to benefit, directly or indirectly, it; and it has
determined that this Agreement is necessary and convenient to the conduct,
promotion and attainment of the business of such Guarantor and the Borrower.

Section 5.03 Solvency. Such Grantor (i) is not insolvent as of the date hereof
and will not be rendered insolvent as a result of this Agreement (after giving
effect to Section 2.01(a)), (ii) is not engaged in a business or a transaction,
or about to engage in a business or a transaction, for which any Property or
assets remaining with it constitute unreasonably small capital, and (iii) does
not intend to incur, or believe it will incur, debts that will be beyond its
ability to pay as such debts mature.

Section 5.04 Title; No Other Liens. Except for the security interest granted to
the Administrative Agent for the ratable benefit of the Secured Parties pursuant
to this Agreement and Excepted Liens, such Grantor is the legal and beneficial
owner of its respective items of the Collateral free and clear of any and all
Liens. No financing statement or other public notice with respect to all or any
part of the Collateral is on file or of record in any public office, except such
as have been filed in favor of the Administrative Agent, for the ratable benefit
of the Secured Parties, pursuant to this Agreement, the Security Instruments or
as are filed to secure Liens permitted by Section 9.03 of the Credit Agreement.

Section 5.05 Perfected First Priority Liens. The security interests granted
pursuant to this Agreement (a) upon completion of the filings and other actions
specified on Schedule 3 (which, in the case of all filings and other documents
referred to on said Schedule, have been delivered to the Administrative Agent in
completed and duly executed form) will constitute valid perfected security
interests in all of the Collateral in favor of the Administrative Agent, for the

 

- 9 -

--------------------------------------------------------------------------------

ratable benefit of the Secured Parties, as collateral security for such
Grantor’s obligations, enforceable in accordance with the terms hereof against
all creditors of such Grantor and any Persons purporting to purchase any
Collateral from such Grantor and (b) are prior to all other Liens on the
Collateral in existence on the date hereof except for Excepted Liens which have
priority over the Liens on the Collateral by operation of law.

Section 5.06 Legal Name, Organizational Status, Chief Executive Office. On the
date hereof, the correct legal name of such Grantor, such Grantor’s jurisdiction
of organization, organizational number, taxpayor identification number and the
location of such Grantor’s chief executive office or sole place of business are
specified on Schedule 4.

Section 5.07 Prior Names, Addresses, Locations of Tangible Assets. Schedule 5
correctly sets forth (a) all names and trade names that such Grantor has used in
the last five years and (b) the chief executive office of such Grantor over the
last five years (if different from that which is set forth in Section 5.06
above).

Section 5.08 Pledged Securities. The shares (or such other interests) of Pledged
Securities pledged by such Grantor hereunder constitute all the issued and
outstanding shares (or such other interests) of all classes of the capital stock
or other Equity Interests of each Issuer owned by such Grantor. All the shares
(or such other interests) of the Pledged Securities have been duly and validly
issued and, in the case of shares of stock of a corporation, are fully paid and
nonassessable; and such Grantor is the record and beneficial owner of, and has
good title to, the Pledged Securities pledged by it hereunder, free of any and
all Liens except Excepted Liens or options, warrants, puts, calls or other
rights of any other Person, and restrictions or options in favor of, or claims
of, any other Person, except the security interest created by this Agreement.
The pledged LLC interests and the pledged partnership interests do not, by their
terms, provide that they are securities to be governed by Article 8 of the Code
– Investment Securities.

Section 5.09 Goods. No portion of the Collateral constituting Goods is in the
possession of a bailee that has issued a negotiable or non-negotiable document
covering such Collateral.

Section 5.10 Instruments and Chattel Paper. Such Grantor has delivered to the
Administrative Agent all Collateral constituting Instruments and Chattel Paper.
No Collateral constituting Chattel Paper or Instruments contains any statement
therein to the effect that such Collateral has been assigned to an identified
party other than the Administrative Agent, and the grant of a security interest
in such Collateral in favor of the Administrative Agent hereunder does not
violate the rights of any other Person as a secured party.

Section 5.11 Truth of Information; Accounts. All information with respect to the
Collateral set forth in any schedule, certificate or other writing at any time
heretofore or hereafter furnished by such Grantor to the Administrative Agent or
any other Secured Party, and all other written information heretofore or
hereafter furnished by such Grantor to the Administrative Agent or any other
Secured Party is and will be true and correct in all material respects as of the
date furnished. The amount represented by such Grantor to the Administrative
Agent and the Lenders from time to time as owing by each Account Debtor or by
all Account Debtors in respect of the Accounts, Chattel Paper and Payment
Intangibles will at such time be the correct

 

- 10 -

--------------------------------------------------------------------------------

amount actually owing by such Account Debtor or Account Debtors thereunder. The
place where each Grantor keeps its records concerning the Accounts, Chattel
Paper and Payment Intangibles is 1100 Louisiana, Suite 4400, Houston, Texas
77002.

Section 5.12 Governmental Obligors. None of the Account Debtors on such
Grantor’s Accounts, Chattel Paper or Payment Intangibles is a Governmental
Authority.

ARTICLE VI

Covenants

Each Grantor covenants and agrees with the Administrative Agent and the other
Secured Parties that, from and after the date of this Agreement until the
Obligations shall have been paid in full, no Letter of Credit shall be
outstanding and the Aggregate Commitments shall have terminated:

Section 6.01 Covenants in Credit Agreement. In the case of each Guarantor, such
Guarantor shall take, or shall refrain from taking, as the case may be, each
action that is necessary to be taken or not taken, as the case may be, so that
no Default or Event of Default is caused by the failure to take such action or
to refrain from taking such action by such Guarantor or any of its Subsidiaries.

Section 6.02 Maintenance of Perfected Security Interest; Further Documentation.

(a) Such Grantor shall maintain the security interest created by this Agreement
as a perfected security interest having at least the priority described in
Section 5.05 and shall defend such security interest against the claims and
demands of all Persons whomsoever except for Excepted Liens.

(b) At any time and from time to time, upon the request of the Administrative
Agent or any other Secured Party, and at the sole expense of such Grantor, such
Grantor will promptly and duly give, execute, deliver, indorse, file or record
any and all financing statements, continuation statements, amendments, notices
(including, without limitation, notifications to financial institutions and any
other Person), contracts, agreements, assignments, certificates, stock powers or
other instruments, obtain any and all governmental approvals and consents and
take or cause to be taken any and all steps or acts that may be necessary or
advisable or as the Administrative Agent may reasonably request to create,
perfect, establish the priority of, or to preserve the validity, perfection or
priority of, the Liens granted by this Agreement or to enable the Administrative
Agent or any other Secured Party to enforce its rights, remedies, powers and
privileges under this Agreement with respect to such Liens or to otherwise
obtain or preserve the full benefits of this Agreement and the rights, powers
and privileges herein granted.

(c) Without limiting the obligations of the Grantors under Section 5.02(b):
(i)upon the request of the Administrative Agent or any other Secured Party, such
Grantor shall take or cause to be taken all actions (other than any actions
required to be taken by the Administrative Agent or any Lender) requested by the
Administrative Agent to cause the Administrative Agent to (A) have “control”
(within the meaning of Sections 9-104, 9-105, 9-106, and 9-107 of the UCC) over
any Collateral constituting Deposit Accounts, Electronic Chattel Paper,
Investment Property (including the Pledged Securities), or Letter-of-Credit
Rights, including, without

 

- 11 -

--------------------------------------------------------------------------------

limitation, executing and delivering any agreements, in form and substance
satisfactory to the Administrative Agent, with securities intermediaries,
Issuers or other Persons in order to establish “control”, and each Grantor shall
promptly notify the Administrative Agent and the other Secured Parties of such
Grantor’s acquisition of any such Collateral, and (B) be a “protected purchaser”
(as defined in Section 8.303 of the Texas UCC); (ii) with respect to Collateral
other than certificated securities and goods covered by a document in the
possession of a Person other than such Grantor or the Administrative Agent, such
Grantor shall obtain written acknowledgment that such Person holds possession
for the Administrative Agent’s benefit; and (iii) with respect to any Collateral
constituting Goods that are in the possession of a bailee, such Grantor shall
provide prompt notice to the Administrative Agent and the other Secured Parties
of any such Collateral then in the possession of such bailee, and such Grantor
shall take or cause to be taken all actions (other than any actions required to
be taken by the Administrative Agent or any other Secured Party) necessary or
requested by the Administrative Agent to cause the Administrative Agent to have
a perfected security interest in such Collateral under applicable law.

(d) This Section 6.02 and the obligations imposed on each Grantor by this
Section 6.02 shall be interpreted as broadly as possible in favor of the
Administrative Agent and the other Secured Parties in order to effectuate the
purpose and intent of this Agreement.

Section 6.03 Maintenance of Records. Such Grantor will keep and maintain at its
own cost and expense satisfactory and complete records of the Collateral,
including, without limitation, a record of all payments received and all credits
granted with respect to the Accounts. For the Administrative Agent’s and the
other Secured Parties’ further security, the Administrative Agent, for the
ratable benefit of the Secured Parties, shall have a security interest in all of
such Grantor’s books and records pertaining to the Collateral, and such Grantor
shall turn over any such books and records to the Administrative Agent or to its
representatives during normal business hours at the request of the
Administrative Agent and shall provide such clerical and other assistance as may
be reasonably requested with regard thereto.

Section 6.04 Right of Inspection. The Administrative Agent and the other Secured
Parties and their respective representatives shall at all times have full and
free access during normal business hours to all the books, correspondence and
records of such Grantor, and the Administrative Agent and the other Secured
Parties and their respective representatives may examine the same, take extracts
therefrom and make photocopies thereof and shall at all times also have the
right to enter into and upon any premises where any of the Collateral
(including, without limitation, Inventory or Equipment) is located for the
purpose of inspecting the same, observing its use or otherwise protecting its
interests therein, and such Grantor agrees to render to the Administrative Agent
and the other Secured Parties and their respective representatives, at such
Grantor’s sole cost and expense, such clerical and other assistance as may be
reasonably requested with regard to any of the foregoing. The Administrative
Agent and the other Secured Parties and their respective representatives shall
use reasonable efforts to give Grantors prior written notice of such entry and
to use reasonable efforts to not disturb Grantors’ ordinary course of business

Section 6.05 Further Identification of Collateral. Such Grantor will furnish to
the Administrative Agent and the Lenders from time to time, at such Grantor’s
sole cost and expense,

 

- 12 -

--------------------------------------------------------------------------------

statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Administrative Agent
may reasonably request, all in reasonable detail.

Section 6.06 Changes in Locations, Name, etc. Such Grantor recognizes that
financing statements pertaining to the Collateral have been or may be filed
where such Grantor maintains any Collateral or is organized. Without limitation
of any other covenant herein, such Grantor will not cause or permit (i) any
change to be made in its name, identity or corporate structure or (ii) any
change to (A) the identity of any warehouseman, common carrier, other
third-party transporter, bailee or any agent or processor in possession or
control of any Collateral or (iii) such Grantor’s jurisdiction of organization
or (iv) the location of any Collateral, unless such Grantor shall have first
(1) notified the Administrative Agent and the other Secured Parties of such
change at least ten (10) days prior to the effective date of such change, and
(2) taken all action reasonably requested by the Administrative Agent or any
other Secured Party for the purpose of maintaining the perfection and priority
of the Administrative Agent’s security interests under this Agreement. In any
notice furnished pursuant to this Section 6.06, such Grantor will expressly
state in a conspicuous manner that the notice is required by this Agreement and
contains facts that may require additional filings of financing statements or
other notices for the purposes of continuing perfection of the Administrative
Agent’s security interest in the Collateral.

Section 6.07 Compliance with Contractual Obligations. Such Grantor will perform
and comply in all material respects with all its contractual obligations
relating to the Collateral (including, without limitation, with respect to the
goods or services, the sale or lease or rendition of which gave rise or will
give rise to each Account).

Section 6.08 Limitations on Dispositions of Collateral. The Administrative Agent
and the other Secured Parties do not authorize, and such Grantor agrees not to
sell, transfer, lease or otherwise dispose of any of the Collateral, or attempt,
offer or contract to do so except to the extent expressly permitted by the
Credit Agreement.

Section 6.09 Pledged Securities.

(a) If such Grantor shall become entitled to receive or shall receive any stock
certificate or other instrument (including, without limitation, any certificate
or instrument representing a dividend or a distribution in connection with any
reclassification, increase or reduction of capital or any certificate or
instrument issued in connection with any reorganization), option or rights in
respect of the capital stock or other Equity Interests of any Issuer, whether in
addition to, in substitution of, as a conversion of, or in exchange for, any
shares (or such other interests) of the Pledged Securities, or otherwise in
respect thereof, such Grantor shall accept the same as the agent of the
Administrative Agent and the other Secured Parties, hold the same in trust for
the Administrative Agent and the other Secured Parties and deliver the same
forthwith to the Administrative Agent in the exact form received, duly indorsed
by such Grantor to the Administrative Agent, if required, together with an
undated stock power or other equivalent instrument of transfer, if applicable,
acceptable to the Administrative Agent covering such certificate or instrument
duly executed in blank by such Grantor and with, if the Administrative Agent so
requests, signature guaranteed, to be held by the Administrative Agent, subject
to the terms hereof, as additional collateral security for the Obligations.

 

- 13 -

--------------------------------------------------------------------------------

(b) Without the prior written consent of the Administrative Agent, such Grantor
will not (i) unless otherwise permitted hereby, vote to enable, or take any
other action to permit, any Issuer to issue any stock or other Equity Interests
of any nature or to issue any other securities or interests convertible into or
granting the right to purchase or exchange for any stock or other Equity
Interests of any nature of any Issuer, (ii) sell, assign, transfer, exchange or
otherwise dispose of, or grant any option with respect to, the Pledged
Securities or Proceeds thereof (except pursuant to a transaction expressly
permitted by the Credit Agreement), (iii) create, incur or permit to exist any
Lien except for Excepted Liens or option in favor of, or any claim of any Person
with respect to, any of the Pledged Securities or Proceeds thereof, or any
interest therein, except for the security interests created by this Agreement or
(iv) enter into any agreement or undertaking restricting the right or ability of
such Grantor or the Administrative Agent to sell, assign or transfer any of the
Pledged Securities or Proceeds thereof.

(c) In the case of each Grantor which is an Issuer, such Issuer agrees that
(i) it will be bound by the terms of this Agreement relating to the Pledged
Securities issued by it and will comply with such terms insofar as such terms
are applicable to it, (ii) it will notify the Administrative Agent promptly in
writing of the occurrence of any of the events described in Section 6.09(a) with
respect to the Pledged Securities issued by it and (iii) the terms of Section
7.01(c) and Section 7.05 shall apply to it, mutatis mutandis, with respect to
all actions that may be required of it pursuant to Section 7.01(c) or Section
7.05 with respect to the Pledged Securities issued by it.

(d) Such Grantor shall furnish to the Administrative Agent such stock powers and
other equivalent instruments of transfer, if applicable, as may be required by
the Administrative Agent to assure the transferability of and the perfection of
the security interest in the Pledged Securities when and as often as may be
reasonably requested by the Administrative Agent.

(e) The Pledged Securities will at all times constitute not less than 100% of
the capital stock or other Equity Interests of the Issuer thereof owned by any
Grantor. Each Grantor will not permit any Issuer of any of the Pledged
Securities to issue any new shares (or other interests) of any class of capital
stock or other Equity Interests of such Issuer without the prior written consent
of the Administrative Agent.

(f) Each Pledgor shall not agree to any amendment of a partnership agreement,
LLC agreement or other organic document relating to any Pledged Security that in
any way adversely affects the perfection of the security interest of the
Administrative Agent in the Pledged Securities, including any amendment electing
to treat the membership interest or partnership interest of such Pledgor as a
security under Section 8-103 of the Texas UCC. In the event of a foreclosure or
a taking of Pledged Securities consisting of partnership interests or LLC
interests in lieu of foreclosure pursuant to any Security Instrument executed in
connection with the Credit Agreement, the Administrative Agent or its assignee
or transferee, at any of their option, will, without any further action or
consent, become a member or partner upon the exercise of such option by the
Administrative Agent, its assignee or transferee, having all of the

 

- 14 -

--------------------------------------------------------------------------------

rights, powers and privileges of a member or partner with respect to such Equity
Interest, including, without limitation, the right to participate in the
management of the business, to vote such Equity Interest and to receive
distributions hereunder.

Section 6.10 Limitations on Modifications, Waivers, Extensions of Agreements
Giving Rise to Accounts. Such Grantor will not (i) amend, modify, terminate or
waive any provision of any Chattel Paper, Instrument or any agreement giving
rise to an Account or Payment Intangible in any manner which could reasonably be
expected to materially adversely affect the value of such Chattel Paper,
Instrument, Payment Intangible or Account as Collateral, or (ii) fail to
exercise promptly and diligently each and every material right which it may have
under any Chattel Paper, Instrument and each agreement giving rise to an Account
or Payment Intangible (other than any right of termination). Such Grantor shall
deliver to the Administrative Agent a copy of each material demand, notice or
document received by it relating in any way to any Chattel Paper, Instrument or
any agreement giving rise to an Account or Payment Intangible.

Section 6.11 Analysis of Accounts, Etc. The Administrative Agent shall have the
right from time to time to make test verifications of the Accounts, Chattel
Paper and Payment Intangibles in any manner and through any medium that it
reasonably considers advisable, and each Grantor, at such Grantor’s sole cost
and expense, shall furnish all such assistance and information as the
Administrative Agent may reasonably require in connection therewith. At any time
and from time to time, upon the Administrative Agent’s request and at the
expense of each Grantor, such Grantor shall furnish to the Administrative Agent
reports showing reconciliations, aging and test verifications of, and trial
balances for, the Accounts, Chattel Paper and Payment Intangibles, and all
original and other documents evidencing, and relating to, the agreements and
transactions which gave rise to the Accounts, Chattel Paper and Payment
Intangibles, including, without limitation, all original orders, invoices and
shipping receipts.

Section 6.12 Instruments and Tangible Chattel Paper. If any amount payable under
or in connection with any of the Collateral shall be or become evidenced by any
Instrument or Tangible Chattel Paper, such Instrument or Tangible Chattel Paper
shall be immediately delivered to the Administrative Agent, duly endorsed in a
manner satisfactory to the Administrative Agent, to be held as Collateral
pursuant to this Agreement.

Section 6.13 Maintenance of Equipment. Such Grantor will maintain each item of
Equipment in good operating condition, ordinary wear and tear and immaterial
impairments of value and damage by the elements excepted, and will provide all
maintenance, service and repairs necessary for such purpose.

Section 6.14 Commercial Tort Claims. If such Grantor shall at any time hold or
acquire a Commercial Tort Claim that satisfies the requirements of the following
sentence, such Grantor shall, within thirty (30) days after such Commercial Tort
Claim satisfies such requirements, notify the Administrative Agent and the other
Secured Parties in a writing signed by such Grantor containing a brief
description thereof, and granting to the Administrative Agent in such writing
(for the benefit of the Secured Parties) a security interest therein and in the
Proceeds thereof, all upon the terms of this Agreement, with such writing to be
in form and substance satisfactory to the Administrative Agent and the other
Secured Parties. The provisions of the preceding sentence shall apply only to a
Commercial Tort Claim that satisfies the following

 

- 15 -

--------------------------------------------------------------------------------

requirements: (i) the monetary value claimed by or payable to the relevant
Grantor in connection with such Commercial Tort Claim shall exceed $4,000,000,
and either (ii) (A) such Grantor shall have filed a law suit or counterclaim or
otherwise commenced legal proceedings (including, without limitation,
arbitration proceedings) against the Person against whom such Commercial Tort
Claim is made, or (B) such Grantor and the Person against whom such Commercial
Tort Claim is asserted shall have entered into a settlement agreement with
respect to such Commercial Tort Claim. In addition, to the extent that the
existence of any Commercial Tort Claim held or acquired by any Grantor is
disclosed by such Grantor in any public filing with the Securities Exchange
Commission or any successor thereto or analogous Governmental Authority, or to
the extent that the existence of any such Commercial Tort Claim is disclosed in
any press release issued by any Grantor, then, upon the request of the
Administrative Agent, the relevant Grantor shall, within thirty (30) days after
such request is made, transmit to the Administrative Agent and the other Secured
Parties a writing signed by such Grantor containing a brief description of such
Commercial Tort Claim and granting to the Administrative Agent in such writing
(for the benefit of the Secured Parties) a security interest therein and in the
Proceeds thereof, all upon the terms of this Agreement, with such writing to be
in form and substance satisfactory to the Administrative Agent and the other
Secured Parties.

ARTICLE VII

Remedial Provisions

Section 7.01 Pledged Securities.

(a) Unless an Event of Default shall have occurred and be continuing and the
Administrative Agent shall have given notice to the relevant Grantor of the
Administrative Agent’s intent to exercise its corresponding rights pursuant to
Section 7.01(b), each Grantor shall be permitted to receive all cash dividends
paid in respect of the Pledged Securities paid in the normal course of business
of the relevant Issuer, to the extent permitted in the Credit Agreement, and to
exercise all voting and corporate rights with respect to the Pledged Securities.

(b) If an Event of Default shall occur and be continuing, then at any time in
the Administrative Agent’s discretion without notice, (i) the Administrative
Agent shall have the right to receive any and all cash dividends, payments or
other Proceeds paid in respect of the Pledged Securities and make application
thereof to the Obligations in accordance with Section 10.02 of the Credit
Agreement, and (ii) any or all of the Pledged Securities shall be registered in
the name of the Administrative Agent or its nominee, and the Administrative
Agent or its nominee may thereafter exercise (x) all voting, corporate and other
rights pertaining to such Pledged Securities at any meeting of shareholders (or
other equivalent body) of the relevant Issuer or Issuers or otherwise and
(y) any and all rights of conversion, exchange and subscription and any other
rights, privileges or options pertaining to such Pledged Securities as if it
were the absolute owner thereof (including, without limitation, the right to
exchange at its discretion any and all of the Pledged Securities upon the
merger, consolidation, reorganization, recapitalization or other fundamental
change in the organizational structure of any Issuer, or upon the exercise by
any Grantor or the Administrative Agent of any right, privilege or option
pertaining to such Pledged Securities, and in connection therewith, the right to
deposit and deliver any and all of the Pledged Securities with any committee,
depositary, transfer agent, registrar or other designated

 

- 16 -

--------------------------------------------------------------------------------

agency upon such terms and conditions as the Administrative Agent may
determine), all without liability except to account for property actually
received by it, but the Administrative Agent shall have no duty to any Grantor
to exercise any such right, privilege or option and shall not be responsible for
any failure to do so or delay in so doing.

(c) Each Grantor hereby authorizes and instructs each Issuer of any Pledged
Securities pledged by such Grantor hereunder (and each Issuer party hereto
hereby agrees) to (i) comply with any instruction received by it from the
Administrative Agent in writing that (x) states that an Event of Default has
occurred and is continuing and (y) is otherwise in accordance with the terms of
this Agreement, without any other or further instructions from such Grantor, and
each Grantor agrees that each Issuer shall be fully protected in so complying,
and (ii) unless otherwise expressly permitted hereby, pay any dividends or other
payments with respect to the Pledged Securities directly to the Administrative
Agent.

(d) After the occurrence and during the continuation of an Event of Default, if
the Issuer of any Pledged Securities is the subject of bankruptcy, insolvency,
receivership, custodianship or other proceedings under the supervision of any
Governmental Authority, then all rights of the Grantor in respect thereof to
exercise the voting and other consensual rights which such Grantor would
otherwise be entitled to exercise with respect to the Pledged Securities issued
by such Issuer shall cease, and all such rights shall thereupon become vested in
the Administrative Agent who shall thereupon have the sole right to exercise
such voting and other consensual rights, but the Administrative Agent shall have
no duty to exercise any such voting or other consensual rights and shall not be
responsible for any failure to do so or delay in so doing.

Section 7.02 Collections on Accounts, Etc. The Administrative Agent hereby
authorizes each Grantor to collect upon the Accounts, Instruments, Chattel Paper
and Payment Intangibles subject to the Administrative Agent’s direction and
control, and the Administrative Agent may curtail or terminate said authority at
any time after the occurrence and during the continuance of an Event of Default.
Upon the request of the Administrative Agent at any time after the occurrence
and during the continuance of an Event of Default, each Grantor shall notify the
Account Debtors that the applicable Accounts, Chattel Paper and Payment
Intangibles have been assigned to the Administrative Agent for the ratable
benefit of the Secured Parties and that payments in respect thereof shall be
made directly to the Administrative Agent. The Administrative Agent may in its
own name or in the name of others communicate with the Account Debtors to verify
with them to its satisfaction the existence, amount and terms of any Accounts,
Chattel Paper or Payment Intangibles.

Section 7.03 Proceeds. If required by the Administrative Agent at any time after
the occurrence and during the continuance of an Event of Default, any payments
of Accounts, Instruments, Chattel Paper and Payment Intangibles, when collected
or received by each Grantor, and any other cash or non-cash Proceeds received by
each Grantor upon the sale or other disposition of any Collateral, shall be
forthwith (and, in any event, within two Business Days) deposited by such
Grantor in the exact form received, duly indorsed by such Grantor to the
Administrative Agent if required, in a special collateral account maintained by
the Administrative Agent, subject to withdrawal by the Administrative Agent for
the ratable benefit of the Secured Parties only, as hereinafter provided, and,
until so turned over, shall be held by

 

- 17 -

--------------------------------------------------------------------------------

such Grantor in trust for the Administrative Agent for the ratable benefit of
the Secured Parties, segregated from other funds of any such Grantor. Each
deposit of any such Proceeds shall be accompanied by a report identifying in
reasonable detail the nature and source of the payments included in the deposit.
All Proceeds (including, without limitation, Proceeds constituting collections
of Accounts, Chattel Paper, Instruments) while held by the Administrative Agent
(or by any Grantor in trust for the Administrative Agent for the ratable benefit
of the Secured Parties) shall continue to be collateral security for all of the
Obligations and shall not constitute payment thereof until applied as
hereinafter provided. At such intervals as may be agreed upon by each Grantor
and the Administrative Agent, or, if an Event of Default shall have occurred and
be continuing, at any time at the Administrative Agent’s election, the
Administrative Agent shall apply all or any part of the funds on deposit in said
special collateral account on account of the Obligations in such order as the
Administrative Agent may elect, and any part of such funds which the
Administrative Agent elects not so to apply and deems not required as collateral
security for the Obligations shall be paid over from time to time by the
Administrative Agent to each Grantor or to whomsoever may be lawfully entitled
to receive the same.

Section 7.04 Texas UCC and Other Remedies.

(a) If an Event of Default shall occur and be continuing, the Administrative
Agent, on behalf of the Secured Parties, may exercise in its discretion, in
addition to all other rights, remedies, powers and privileges granted to them in
this Agreement, the other Loan Documents, any Permitted Hedging Agreement and in
any other instrument or agreement securing, evidencing or relating to the
Obligations, all rights, remedies, powers and privileges of a secured party
under the Texas UCC (whether the Texas UCC is in effect in the jurisdiction
where such rights, remedies, powers or privileges are asserted) or any other
applicable law or otherwise available at law or equity. Without limiting the
generality of the foregoing, the Administrative Agent, without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law referred to below) to or upon any
Grantor or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, lease, assign, give option or options
to purchase, or otherwise dispose of and deliver the Collateral or any part
thereof (or contract to do any of the foregoing), in one or more parcels at
public or private sale or sales, at any exchange, broker’s board or office of
the Administrative Agent or any other Secured Party or elsewhere upon such terms
and conditions as it may deem advisable and at such prices as it may deem best,
for cash or on credit or for future delivery without assumption of any credit
risk. The Administrative Agent or any other Secured Party shall have the right
upon any such public sale or sales, and, to the extent permitted by law, upon
any such private sale or sales, to purchase the whole or any part of the
Collateral so sold, free of any right or equity of redemption in any Grantor,
which right or equity is hereby waived and released. If an Event of Default
shall occur and be continuing, each Grantor further agrees, at the
Administrative Agent’s request, to assemble the Collateral and make it available
to the Administrative Agent at places which the Administrative Agent shall
reasonably select, whether at such Grantor’s premises or elsewhere. Any such
sale or transfer by the Administrative Agent either to itself or to any other
Person shall be absolutely free from any claim of right by Grantor, including
any equity or right of redemption, stay or appraisal which Grantor has or may
have under any rule of law, regulation or statute now existing or hereafter
adopted. Upon any such

 

- 18 -

--------------------------------------------------------------------------------

sale or transfer, the Administrative Agent shall have the right to deliver,
assign and transfer to the purchaser or transferee thereof the Collateral so
sold or transferred. The Administrative Agent shall apply the net proceeds of
any action taken by it pursuant to this Section 7.04, after deducting all
reasonable costs and expenses of every kind incurred in connection therewith or
incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the rights of the Administrative Agent and the
other Secured Parties hereunder, including, without limitation, reasonable
attorneys’ fees and disbursements, to the payment in whole or in part of the
Obligations, in accordance with Section 10.02 of the Credit Agreement, and only
after such application and after the payment by the Administrative Agent of any
other amount required by any provision of law, including, without limitation,
Section 9.615 of the Texas UCC, need the Administrative Agent account for the
surplus, if any, to any Grantor. To the extent permitted by applicable law, each
Grantor waives all claims, damages and demands it may acquire against the
Administrative Agent or any other Secured Party arising out of the exercise by
them of any rights hereunder. If any notice of a proposed sale or other
disposition of Collateral shall be required by law, such notice shall be deemed
reasonable and proper if given at least 10 days before such sale or other
disposition.

(b) In the event that the Administrative Agent elects not to sell the
Collateral, the Administrative Agent retains its rights to dispose of or utilize
the Collateral or any part or parts thereof in any manner authorized or
permitted by law or in equity, and to apply the proceeds of the same towards
payment of the Obligations. Each and every method of disposition of the
Collateral described in this Agreement shall constitute disposition in a
commercially reasonable manner. The Administrative Agent may appoint any Person
as agent to perform any act or acts necessary or incident to any sale or
transfer of the Collateral.

Section 7.05 Private Sales of Pledged Securities. Each Grantor recognizes that
the Administrative Agent may be unable to effect a public sale of any or all the
Pledged Securities, by reason of certain prohibitions contained in the
Securities Act and applicable state securities laws or otherwise, and may be
compelled to resort to one or more private sales thereof to a restricted group
of purchasers which will be obliged to agree, among other things, to acquire
such securities for their own account for investment and not with a view to the
distribution or resale thereof. Each Grantor acknowledges and agrees that any
such private sale may result in prices and other terms less favorable than if
such sale were a public sale and, notwithstanding such circumstances, agrees
that any such private sale shall be deemed to have been made in a commercially
reasonable manner. The Administrative Agent shall be under no obligation to
delay a sale of any of the Pledged Securities for the period of time necessary
to permit the Issuer thereof to register such securities for public sale under
the Securities Act, or under applicable state securities laws, even if such
Issuer would agree to do so. Each Grantor agrees to use its best efforts to do
or cause to be done all such other acts as may reasonably be necessary to make
such sale or sales of all or any portion of the Pledged Securities pursuant to
this Section 7.05 valid and binding and in compliance with any and all other
applicable Governmental Requirements. Each Grantor further agrees that a breach
of any of the covenants contained in this Section 7.05 will cause irreparable
injury to the Administrative Agent and the other Secured Parties, that the
Administrative Agent and the other Secured Parties have no adequate remedy at
law in respect of such breach and, as a consequence, that each and every
covenant contained in this Section 7.05 shall be specifically enforceable
against such Grantor, and such Grantor hereby waives and agrees not to assert
any defenses against an action for specific performance of such covenants.

 

- 19 -

--------------------------------------------------------------------------------

Section 7.06 Waiver; Deficiency. Each Grantor waives and agrees not to assert
any rights or privileges which it may acquire under the Texas UCC or any other
applicable law. Each Grantor shall remain liable for any deficiency if the
proceeds of any sale or other disposition of the Collateral are insufficient to
pay its Obligations and the fees and disbursements of any attorneys employed by
the Administrative Agent or any other Secured Party to collect such deficiency.

Section 7.07 Non-Judicial Enforcement. The Administrative Agent may enforce its
rights hereunder without prior judicial process or judicial hearing, and to the
extent permitted by law, each Grantor expressly waives any and all legal rights
which might otherwise require the Administrative Agent to enforce its rights by
judicial process.

ARTICLE VIII

The Administrative Agent

Section 8.01 Administrative Agent’s Appointment as Attorney-in-Fact, Etc.

(a) Each Grantor hereby irrevocably constitutes and appoints the Administrative
Agent and any officer or agent thereof, with full power of substitution, as its
true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of such Grantor and in the name of such Grantor or in its
own name, for the purpose of carrying out the terms of this Agreement, to take
any and all reasonably appropriate action and to execute any and all documents
and instruments which may be reasonably necessary or desirable to accomplish the
purposes of this Agreement, and, without limiting the generality of the
foregoing, each Grantor hereby gives the Administrative Agent the power and
right, on behalf of such Grantor, without notice to or assent by such Grantor,
to do any or all of the following:

(i) unless being disputed under Section 9.03(a) of the Credit Agreement, pay or
discharge taxes and Liens levied or placed on or threatened against the
Collateral, effect any repairs or any insurance called for by the terms of this
Agreement and pay all or any part of the premiums therefor and the costs
thereof;

(ii) execute, in connection with any sale provided for in Section 7.04 or
Section 7.05, any endorsements, assignments or other instruments of conveyance
or transfer with respect to the Collateral; and

(iii) (A) direct any party liable for any payment under any of the Collateral to
make payment of any and all moneys due or to become due thereunder directly to
the Administrative Agent or as the Administrative Agent shall direct; (B) take
possession of and indorse and collect any checks, drafts, notes, acceptances or
other instruments for the payment of moneys due under any Account, Instrument,
General Intangible, Chattel Paper or Payment Intangible or with respect to any
other Collateral, and to file any claim or to take any other action or
proceeding in any court of law or equity or otherwise deemed appropriate by the
Administrative Agent for the purpose of collecting any all such moneys due under
any Account, Instrument or General Intangible or with respect to any other
Collateral whenever payable; (C)

 

- 20 -

--------------------------------------------------------------------------------

ask or demand for, collect, and receive payment of and receipt for, any and all
moneys, claims and other amounts due or to become due at any time in respect of
or arising out of any Collateral; (D) sign and indorse any invoices, freight or
express bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications, notices and other documents in connection
with any of the Collateral; (E) receive, change the address for delivery, open
and dispose of mail addressed to any Grantor, and to execute, assign and indorse
negotiable and other instruments for the payment of money, documents of title or
other evidences of payment, shipment or storage for any form of Collateral on
behalf of and in the name of any Grantor; (F) commence and prosecute any suits,
actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any portion thereof and to enforce any
other right in respect of any Collateral; (G) defend any suit, action or
proceeding brought against such Grantor with respect to any Collateral;
(H) settle, compromise or adjust any such suit, action or proceeding and, in
connection therewith, give such discharges or releases as the Administrative
Agent may deem appropriate; and (I) generally, sell, transfer, pledge and make
any agreement with respect to or otherwise deal with any of the Collateral as
fully and completely as though the Administrative Agent were the absolute owner
thereof for all purposes, and do, at the Administrative Agent’s option and such
Grantor’s expense, at any time, or from time to time, all acts and things which
the Administrative Agent deems necessary to protect, preserve or realize upon
the Collateral and the Administrative Agent’s and the other Secured Parties’
security interests therein and to effect the intent of this Agreement, all as
fully and effectively as such Grantor might do.

Anything in this Section 8.01(a) to the contrary notwithstanding, the
Administrative Agent agrees that it will not exercise any rights under the power
of attorney provided for in this Section 8.01(a) unless an Event of Default
shall have occurred and be continuing.

(b) If any Grantor fails to perform or comply with any of its agreements
contained herein within the applicable grace periods, the Administrative Agent,
at its option, but without any obligation so to do, may perform or comply, or
otherwise cause performance or compliance, with such agreement.

(c) The expenses of the Administrative Agent incurred in connection with actions
undertaken as provided in this Section 8.01, together with interest thereon at
the Post-Default Rate from the date of payment by the Administrative Agent to
the date reimbursed by the relevant Grantor, shall be payable by such Grantor to
the Administrative Agent on demand.

(d) Each Grantor hereby ratifies all that said attorneys shall lawfully do or
cause to be done by virtue and in compliance hereof. All powers, authorizations
and agencies contained in this Agreement are coupled with an interest and are
irrevocable until this Agreement is terminated and the security interests
created hereby are released.

Section 8.02 Duty of Administrative Agent. The Administrative Agent’s sole duty
with respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9.207 of the Texas UCC or otherwise,
shall be to deal with it in the same manner as the Administrative Agent deals
with similar property for its own account and shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral in its
possession if the Collateral is accorded treatment substantially equal to that
which comparable

 

- 21 -

--------------------------------------------------------------------------------

secured parties accord comparable collateral. Neither the Administrative Agent,
any other Secured Party nor any of their respective officers, directors,
employees or agents shall be liable for failure to demand, collect or realize
upon any of the Collateral or for any delay in doing so or shall be under any
obligation to sell or otherwise dispose of any Collateral upon the request of
any Grantor or any other Person or to take any other action whatsoever with
regard to the Collateral or any part thereof. The powers conferred on the
Administrative Agent and the other Secured Parties hereunder are solely to
protect the Administrative Agent’s and the other Secured Parties’ interests in
the Collateral and shall not impose any duty upon the Administrative Agent or
any other Secured Party to exercise any such powers. The Administrative Agent
and the other Secured Parties shall be accountable only for amounts that they
actually receive as a result of the exercise of such powers, and neither they
nor any of their officers, directors, employees or agents shall be responsible
to any Grantor for any act or failure to act hereunder, except for their own
gross negligence or willful misconduct. To the fullest extent permitted by
applicable law, the Administrative Agent shall be under no duty whatsoever to
make or give any presentment, notice of dishonor, protest, demand for
performance, notice of non-performance, notice of intent to accelerate, notice
of acceleration, or other notice or demand in connection with any Collateral or
the Obligations, or to take any steps necessary to preserve any rights against
any Grantor or other Person or ascertaining or taking action with respect to
calls, conversions, exchanges, maturities, tenders or other matters relative to
any Collateral, whether or not it has or is deemed to have knowledge of such
matters. Each Grantor, to the extent permitted by applicable law, waives any
right of marshaling in respect of any and all Collateral, and waives any right
to require the Administrative Agent or any other Secured Party to proceed
against any Grantor or other Person, exhaust any Collateral or enforce any other
remedy which the Administrative Agent or any other Secured Party now has or may
hereafter have against each Grantor, any Grantor or other Person.

Section 8.03 Execution of Financing Statements. Pursuant to the Texas UCC and
any other applicable law, each Grantor authorizes the Administrative Agent, its
counsel or its representative, at any time and from time to time, to file or
record financing statements, continuation statements, amendments thereto and
other filing or recording documents or instruments with respect to the
Collateral without the signature of such Grantor in such form and in such
offices as the Administrative Agent reasonably determines appropriate to perfect
the security interests of the Administrative Agent under this Agreement.
Additionally, each Grantor authorizes the Administrative Agent, its counsel or
its representative, at any time and from time to time, to file or record such
financing statements that describe the collateral covered thereby as “all assets
of the Grantor”, “all personal property of the Grantor” or words of similar
effect. A photographic or other reproduction of this Agreement shall be
sufficient as a financing statement or other filing or recording document or
instrument for filing or recording in any jurisdiction.

Section 8.04 Authority of Administrative Agent. Each Grantor acknowledges that
the rights and responsibilities of the Administrative Agent under this Agreement
with respect to any action taken by the Administrative Agent or the exercise or
non-exercise by the Administrative Agent of any option, voting right, request,
judgment or other right or remedy provided for herein or resulting or arising
out of this Agreement shall, as between the Administrative Agent and the other
Secured Parties, be governed by the Credit Agreement and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Administrative Agent and the Grantors, the Administrative Agent
shall be conclusively presumed to be acting as agent for the Secured Parties
with full and valid authority so to act or refrain from acting, and no Grantor
shall be under any obligation, or entitlement, to make any inquiry respecting
such authority.

 

- 22 -

--------------------------------------------------------------------------------

ARTICLE IX

Subordination of Indebtedness

Section 9.01 Subordination of All Guarantor Claims. As used herein, the term
“Guarantor Claims” shall mean all debts and obligations of the Borrower or any
other Grantor to any Grantor, whether such debts and obligations now exist or
are hereafter incurred or arise, or whether the obligation of the debtor thereon
be direct, contingent, primary, secondary, several, joint and several, or
otherwise, and irrespective of whether such debts or obligations be evidenced by
note, contract, open account, or otherwise, and irrespective of the Person or
Persons in whose favor such debts or obligations may, at their inception, have
been, or may hereafter be created, or the manner in which they have been or may
hereafter be acquired by. After and during the continuation of an Event of
Default, no Grantor shall receive or collect, directly or indirectly, from any
obligor in respect thereof any amount upon the Guarantor Claims.

Section 9.02 Claims in Bankruptcy. In the event of receivership, bankruptcy,
reorganization, arrangement, debtor’s relief or other insolvency proceedings
involving any Grantor, the Administrative Agent on behalf of the Secured Parties
shall have the right to prove their claim in any proceeding, so as to establish
their rights hereunder and receive directly from the receiver, trustee or other
court custodian, dividends and payments which would otherwise be payable upon
Guarantor Claims. Each Grantor hereby assigns such dividends and payments to the
Administrative Agent for the benefit of the Secured Parties for application
against the Obligations as provided under Section 10.02 of the Credit Agreement.
Should any Agent or Secured Party receive, for application upon the Obligations,
any such dividend or payment which is otherwise payable to any Grantor, and
which, as between such Grantor, shall constitute a credit upon the Guarantor
Claims, then upon payment in full of the Obligations, the intended recipient
shall become subrogated to the rights of the Administrative Agent and the other
Secured Parties to the extent that such payments to the Administrative Agent and
the other Secured Parties on the Guarantor Claims have contributed toward the
liquidation of the Obligations, and such subrogation shall be with respect to
that proportion of the Obligations which would have been unpaid if the
Administrative Agent and the other Secured Parties had not received dividends or
payments upon the Guarantor Claims.

Section 9.03 Payments Held in Trust. In the event that notwithstanding Section
9.01 and Section 9.02, any Grantor should receive any funds, payments, claims or
distributions which is prohibited by such Sections, then it agrees: (a) to hold
in trust for the Administrative Agent and the other Secured Parties an amount
equal to the amount of all funds, payments, claims or distributions so received,
and (b) that it shall have absolutely no dominion over the amount of such funds,
payments, claims or distributions except to pay them promptly to the
Administrative Agent, for the benefit of the Secured Parties; and each Grantor
covenants promptly to pay the same to the Administrative Agent.

Section 9.04 Liens Subordinate. Each Grantor agrees that, until the Obligations
are paid in full and the Aggregate Commitments terminated, any Liens securing
payment of the Guarantor Claims shall be and remain inferior and subordinate to
any Liens securing payment of

 

- 23 -

--------------------------------------------------------------------------------

the Obligations, regardless of whether such encumbrances in favor of such
Grantor, the Administrative Agent or any other Secured Party presently exist or
are hereafter created or attach. Without the prior written consent of the
Administrative Agent, no Grantor, during the period in which any of the
Obligations are outstanding or the Aggregate Commitments are in effect, shall
(a) exercise or enforce any creditor’s right it may have against any debtor in
respect of the Guarantor Claims, or (b) foreclose, repossess, sequester or
otherwise take steps or institute any action or proceeding (judicial or
otherwise, including without limitation the commencement of or joinder in any
liquidation, bankruptcy, rearrangement, debtor’s relief or insolvency
proceeding) to enforce any Lien held by it.

Section 9.05 Notation of Records. Upon the request of the Administrative Agent,
all promissory notes and all accounts receivable ledgers or other evidence of
the Guarantor Claims accepted by or held by any Grantor shall contain a specific
written notice thereon that the indebtedness evidenced thereby is subordinated
under the terms of this Agreement.

ARTICLE X

Miscellaneous

Section 10.01 Waiver. No failure on the part of the Administrative Agent or any
other Secured Party to exercise and no delay in exercising, and no course of
dealing with respect to, any right, remedy, power or privilege under any of the
Loan Documents shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege under any of the Loan
Documents preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege. The rights, remedies, powers and
privileges provided herein are cumulative and not exclusive of any rights,
remedies, powers and privileges provided by law. The exercise by the
Administrative Agent of any one or more of the rights, powers and remedies
herein shall not be construed as a waiver of any other rights, powers and
remedies, including, without limitation, any rights of set-off.

Section 10.02 Notices. All notices and other communications provided for herein
shall be given in the manner and subject to the terms of Section 12.01 of the
Credit Agreement; provided that any such notice, request or demand to or upon
any Guarantor shall be addressed to such Guarantor at its notice address set
forth on Schedule 1.

Section 10.03 Payment of Expenses, Indemnities, Etc.

(a) Each Grantor agrees to pay or promptly reimburse the Administrative Agent
and each other Secured Party for all advances, charges, costs and expenses
(including, without limitation, all costs and expenses of holding, preparing for
sale and selling, collecting or otherwise realizing upon the Collateral and all
attorneys’ fees, legal expenses and court costs) incurred by any Secured Party
in connection with the exercise of its respective rights and remedies hereunder,
including, without limitation, any advances, charges, costs and expenses that
may be incurred in any effort to enforce any of the provisions of this Agreement
or any obligation of any Grantor in respect of the Collateral or in connection
with (i) the preservation of the Lien of, or the rights of the Administrative
Agent or any other Secured Party under this Agreement, (ii) any actual or
attempted sale, lease, disposition, exchange, collection, compromise, settlement
or other realization in respect of, or care of, the Collateral, including all

 

- 24 -

--------------------------------------------------------------------------------

such costs and expenses incurred in any bankruptcy, reorganization, workout or
other similar proceeding, or (iii) collecting against such Grantor under the
guarantee contained in Article II or otherwise enforcing or preserving any
rights under this Agreement and the other Loan Documents to which such Grantor
is a party.

(b) Each Grantor agrees to pay, and to save the Administrative Agent and the
other Secured Parties harmless from, any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever (including, without limitation,
court costs and attorneys’ fees, any and all liabilities with respect to, or
resulting from any delay in paying, any and all stamp, excise, sales or other
taxes which may be payable or determined to be payable with respect to any of
the Collateral or in connection with any of the transactions contemplated by
this Agreement) incurred because of, incident to, or with respect to, the
Collateral (including, without limitation, any exercise of rights or remedies in
connection therewith) or the execution, delivery, enforcement, performance and
administration of this Agreement, to the extent the Borrower would be required
to do so pursuant to Section 12.03 of the Credit Agreement. All amounts for
which any Grantor is liable pursuant to this Section 10.03 shall be due and
payable by such Grantor to the Secured Parties upon demand.

Section 10.04 Amendments in Writing. None of the terms or provisions of this
Agreement may be waived, amended, supplemented or otherwise modified except in
accordance with Section 12.04 of the Credit Agreement.

Section 10.05 Successors and Assigns. This Agreement shall be binding upon the
successors and assigns of each Grantor and shall inure to the benefit of the
Administrative Agent and the other Secured Parties and their successors and
assigns; provided that except as set forth in Section 8.14 or Section 9.13 of
the Credit Agreement, no Grantor may assign, transfer or delegate any of its
rights or obligations under this Agreement without the prior written consent of
the Administrative Agent and the Lenders.

Section 10.06 Invalidity. In the event that any one or more of the provisions
contained in this Agreement or in any of the Loan Documents to which a Grantor
is a party shall, for any reason, be held invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement or such other Loan Document.

Section 10.07 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.

Section 10.08 Survival. The obligations of the parties under Section 10.03 shall
survive the repayment of the Loans and the termination of the Letters of Credit,
Permitted Hedging Agreements, Credit Agreement and Aggregate Commitments. To the
extent that any payments on the Obligations or proceeds of any Collateral are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, debtor in possession, receiver or other
Person under any bankruptcy law, common law or equitable cause, then to such
extent, the Obligations so satisfied shall be revived and continue as if such
payment or proceeds

 

- 25 -

--------------------------------------------------------------------------------

had not been received and the Administrative Agent’s and the other Secured
Parties’ Liens, security interests, rights, powers and remedies under this
Agreement and each Security Instrument shall continue in full force and effect.
In such event, each Security Instrument shall be automatically reinstated and
each Grantor shall take such action as may be reasonably requested by the
Administrative Agent and the other Secured Parties to effect such reinstatement.

Section 10.09 Captions. Captions and section headings appearing herein are
included solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.

Section 10.10 No Oral Agreements. The Loan Documents (other than the Letters of
Credit) embody the entire agreement and understanding between the parties and
supersede all other agreements and understandings between such parties relating
to the subject matter hereof and thereof. The Loan Documents represent the final
agreement between the parties and may not be contradicted by evidence of prior,
contemporaneous or subsequent oral agreements of the parties. There are no
unwritten oral agreements between the parties.

Section 10.11 Governing Law; Submission to Jurisdiction.

(a) This Agreement shall be governed by, and construed in accordance with, the
laws of the state of Texas.

(b) Any legal action or proceeding with respect to this Agreement or any other
Loan Documents to which a Grantor is a party shall be brought in the courts of
the State of Texas or of the United States of America for the Southern District
of Texas, and each of the Lenders, the Administrative Agent and the Grantors
hereby accepts for itself and (to the extent permitted by law) in respect of its
Property, generally and unconditionally, the jurisdiction of the aforesaid
courts. Each of the Lenders, the Administrative Agent and the Grantors hereby
irrevocably waives any objection, including, without limitation, any objection
to the laying of venue or based on the grounds of forum non conveniens, which it
may now or hereafter have to the bringing of any such action or proceeding in
such respective jurisdictions. This submission to jurisdiction is non-exclusive
and does not preclude the Administrative Agent or any Lender from obtaining
jurisdiction over such Grantor in any court otherwise having jurisdiction.

(c) Each of the Lenders, the Administrative Agent and the Grantors irrevocably
consents to the service of process of any of the aforementioned courts in any
such action or proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to such Person at the address specified on its
signature page of this Agreement or the Credit Agreement, as applicable, such
service to become effective thirty (30) days after such mailing. Nothing herein
shall affect the right of the Administrative Agent or any Lender or any holder
of a Note or Grantor to serve process in any other manner permitted by law or to
commence legal proceedings or otherwise proceed against such Grantor in any
other jurisdiction.

(d) Each Grantor and each Lender hereby (i) irrevocably and unconditionally
waive, to the fullest extent permitted by law, trial by jury in any legal action
or proceeding relating to this Agreement or any other Loan Document and for any
counterclaim therein; (ii) irrevocably waive, to the maximum extent not
prohibited by law, any right it may have to claim or recover in

 

- 26 -

--------------------------------------------------------------------------------

any such litigation any special, exemplary, punitive or consequential damages,
or damages other than, or in addition to, actual damages; (iii) certify that no
party hereto nor any representative or agent of counsel for any party hereto has
represented, expressly or otherwise, or implied that such party would not, in
the event of litigation, seek to enforce the foregoing waivers, and
(iv) acknowledge that it has been induced to enter into this Agreement, the Loan
Documents and the transactions contemplated hereby and thereby by, among other
things, the mutual waivers and certifications contained in this Section 9.12.

Section 10.12 Acknowledgments. Each Grantor hereby acknowledges that:

(a) it has been advised by counsel in the negotiation, execution and delivery of
this Agreement and the other Loan Documents to which it is a party;

(b) neither the Administrative Agent nor any other Secured Party has any
fiduciary relationship with or duty to any Grantor arising out of or in
connection with this Agreement or any of the other Loan Documents, and the
relationship between the Grantors, on the one hand, and the Administrative Agent
and the other Secured Parties, on the other hand, in connection herewith or
therewith is solely that of debtor and creditor; and

(c) no joint venture is created hereby or by the other Loan Documents or
otherwise exists by virtue of the transactions contemplated hereby among the
Secured Parties or among the Grantors and the Lenders.

(d) Each of the parties hereto specifically agrees that it has a duty to read
this Agreement and the Security Instruments and agrees that it is charged with
notice and knowledge of the terms of this Agreement and the Security
Instruments; that it has in fact read this Agreement and is fully informed and
has full notice and knowledge of the terms, conditions and effects of this
Agreement; that it has been represented by independent legal counsel of its
choice throughout the negotiations preceding its execution of this Agreement and
the Security Instruments; and has received the advice of its attorney in
entering into this Agreement and the Security Instruments; and that it
recognizes that certain of the terms of this Agreement and the Security
Instruments result in one party assuming the liability inherent in some aspects
of the transaction and relieving the other party of its responsibility for such
liability. Each party hereto agrees and covenants that it will not contest the
validity or enforceability of any exculpatory provision of this Agreement and
the Security Instruments on the basis that the party had no notice or knowledge
of such provision or that the provision is not “conspicuous.”

(e) Each Grantor warrants and agrees that each of the waivers and consents set
forth in this Agreement are made voluntarily and unconditionally after
consultation with outside legal counsel and with full knowledge of their
significance and consequences, with the understanding that events giving rise to
any defense or right waived may diminish, destroy or otherwise adversely affect
rights which such Grantor otherwise may have against the Borrower, any other
Grantor, the Secured Parties or any other Person or against any collateral. If,
notwithstanding the intent of the parties that the terms of this Agreement shall
control in any and all circumstances, any such waivers or consents are
determined to be unenforceable under applicable law, such waivers and consents
shall be effective to the maximum extent permitted by law.

 

- 27 -

--------------------------------------------------------------------------------

Section 10.13 Additional Grantors. Each Subsidiary of the Borrower that is
required to become a party to this Agreement pursuant to Section 8.11 of the
Credit Agreement and is not a signatory hereto shall become a Grantor for all
purposes of this Agreement upon execution and delivery by such Subsidiary of an
Assumption Agreement in the form of Annex I hereto.

Section 10.14 Set-Off. Each Grantor agrees that, in addition to (and without
limitation of) any right of set-off, bankers’ lien or counterclaim a Secured
Party may otherwise have, each Secured Party shall have the right and be
entitled (after consultation with the Administrative Agent), at its option, to
offset (i) balances held by it or by any of its Affiliates for account of any
Grantor or any Subsidiary at any of its offices, in Dollars or in any other
currency, and (ii) amounts due and payable to such Lender (or any Affiliate of
such Lender) under any Permitted Hedging Agreement, against any principal of or
interest on any of such Secured Party’s Loans, or any other amount due and
payable to such Secured Party hereunder, which is not paid when due (regardless
of whether such balances are then due to such Person), in which case it shall
promptly notify the Borrower and the Administrative Agent thereof, provided that
such Secured Party’s failure to give such notice shall not affect the validity
thereof.

Section 10.15 Releases.

(a) Release Upon Payment in Full. The grant of a security interest hereunder and
all of rights, powers and remedies in connection herewith shall remain in full
force and effect until the Administrative Agent has (i) retransferred and
delivered all Collateral in its possession to the Grantors, and (ii) executed a
written release or termination statement and reassigned to the Grantors without
recourse or warranty any remaining Collateral and all rights conveyed hereby.
Upon the complete payment of the Obligations, the termination of the Letters of
Credit, Permitted Hedging Agreements secured hereby, Credit Agreement and the
Aggregate Commitments and the compliance by the Grantors with all covenants and
agreements hereof, the Administrative Agent, at the written request and expense
of the Borrower, will promptly release, reassign and transfer the Collateral to
the Grantors and declare this Agreement to be of no further force or effect.

(b) Further Assurances. If any of the Collateral shall be sold, transferred or
otherwise disposed of by any Grantor in a transaction permitted by the Credit
Agreement, then the Administrative Agent, at the request and sole expense of
such Grantor, shall promptly execute and deliver to such Grantor all releases or
other documents reasonably necessary or desirable for the release of the Liens
created hereby on such Collateral and the capital stock of such Grantor. At the
request and sole expense of the Borrower, a Grantor shall be released from its
obligations hereunder in the event that all the capital stock of such Grantor
shall be sold, transferred or otherwise disposed of in a transaction permitted
by the Credit Agreement; provided that the Borrower shall have delivered to the
Administrative Agent, at least ten Business Days prior to the date of the
proposed release, a written request for release identifying the relevant Grantor
and the terms of the sale or other disposition in reasonable detail, including
the price thereof and any expenses in connection therewith, together with a
certification by the Borrower stating that such transaction is in compliance
with the Credit Agreement and the other Loan Documents.

 

- 28 -

--------------------------------------------------------------------------------

(c) Retention in Satisfaction. Except as may be expressly applicable pursuant to
Section 9.620 of the Texas UCC, no action taken or omission to act by the
Administrative Agent or the other Secured Parties hereunder, including, without
limitation, any exercise of voting or consensual rights or any other action
taken or inaction, shall be deemed to constitute a retention of the Collateral
in satisfaction of the Obligations or otherwise to be in full satisfaction of
the Obligations, and the Obligations shall remain in full force and effect,
until the Administrative Agent and the other Secured Parties shall have applied
payments (including, without limitation, collections from Collateral) towards
the Obligations in the full amount then outstanding or until such subsequent
time as is provided in Section 10.15(a).

Section 10.16 Reinstatement. The obligations of each Grantor under this
Agreement (including, without limitation, with respect to the guarantee
contained in Article II and the provision of collateral herein) shall continue
to be effective, or be reinstated, as the case may be, if at any time payment,
or any part thereof, of any of the Obligations is rescinded or must otherwise be
restored or returned by the Administrative Agent or any other Secured Party upon
the insolvency, bankruptcy, dissolution, liquidation or reorganization of the
Borrower or any Grantor, or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, the
Borrower or any Grantor or any substantial part of its property, or otherwise,
all as though such payments had not been made.

Section 10.17 Acceptance. Each Grantor hereby expressly waives notice of
acceptance of this Agreement, acceptance on the part of the Administrative Agent
and the other Secured Parties being conclusively presumed by their request for
this Agreement and delivery of the same to the Administrative Agent.

 

- 29 -

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee and
Collateral Agreement to be duly executed and delivered as of the date first
above written.

 

BORROWER:   PETROHAWK ENERGY CORPORATION   By:  

/s/ Floyd C. Wilson

    Floyd C. Wilson     President and Chief Executive Officer

SIGNATURE PAGE

SECOND AMENDED AND RESTATED GUARANTEE AND COLLATERAL AGREEMENT

--------------------------------------------------------------------------------

GUARANTORS:   PETROHAWK OPERATING COMPANY   P-H ENERGY, LLC   RED RIVER FIELD
SERVICES, L.L.C.   PETROHAWK PROPERTIES, LP     By:   P-H Energy, L.L.C.      
Its General Partner   WINWELL RESOURCES, INC.   WSF, INC.   KSC RESOURCES, INC.
  KCS ENERGY SERVICES, INC.   MEDALLION CALIFORNIA PROPERTIES COMPANY   PROLIQ,
INC.   By:  

/s/ Floyd C. Wilson

    Floyd C. Wilson     President and Chief Executive Officer

SIGNATURE PAGE

SECOND AMENDED AND RESTATED GUARANTEE AND COLLATERAL AGREEMENT

--------------------------------------------------------------------------------

PETROHAWK HOLDINGS, LLC By:  

/s/ Connie D. Tatum

  Connie D. Tatum   President

SIGNATURE PAGE

SECOND AMENDED AND RESTATED GUARANTEE AND COLLATERAL AGREEMENT

--------------------------------------------------------------------------------

 

Acknowledged and Agreed to as

of the date hereof by:

ADMINISTRATIVE AGENT:   BNP PARIBAS   By:   

/s/ Evans R. Swann

     Evans R. Swann, Director   By:   

/s/ Robert J. Long

     Robert J. Long, Vice President

SIGNATURE PAGE

SECOND AMENDED AND RESTATED GUARANTEE AND COLLATERAL AGREEMENT

--------------------------------------------------------------------------------

 

Annex I - 1