Exhibit 10.1
 
CREDIT AGREEMENT
by and among
FOOTHILLS RESOURCES, INC.
and
EACH OF ITS SUBSIDIARIES THAT ARE SIGNATORIES HERETO
as Borrowers,
THE LENDERS THAT ARE SIGNATORIES HERETO
as the Lenders,
and
WELLS FARGO FOOTHILL, LLC
as Agent
Dated as of December 13, 2007
 

 

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CREDIT AGREEMENT
          THIS CREDIT AGREEMENT (this “Agreement”), is entered into as of
December 13, 2007, by and among the lenders identified on the signature pages
hereof (such lenders, together with their respective successors and permitted
assigns, are referred to hereinafter each individually as a “Lender” and
collectively as the “Lenders”), WELLS FARGO FOOTHILL, LLC., a Delaware limited
liability company, as administrative agent for the Lenders (in such capacity,
together with its successors and assigns in such capacity, “Agent”), FOOTHILLS
RESOURCES, INC., a Nevada corporation (“Parent”) and each of Parent’s
Subsidiaries identified on the signature pages hereof (such Subsidiaries,
together with Parent, are referred to hereinafter each individually as a
“Borrower”, and individually and collectively, jointly and severally, as the
“Borrowers”).
          The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
     1.1 Definitions. Capitalized terms used in this Agreement shall have the
meanings specified therefor on Schedule 1.1.
     1.2 Accounting Terms. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP. When used herein, the term
“financial statements” shall include the notes and schedules thereto. Whenever
the term “Borrowers” or the term “Parent” is used in respect of a financial
covenant or a related definition, it shall be understood to mean Parent and its
Subsidiaries on a consolidated basis, unless the context clearly requires
otherwise.
     1.3 Code. Any terms used in this Agreement that are defined in the Code
shall be construed and defined as set forth in the Code unless otherwise defined
herein; provided, however, that to the extent that the Code is used to define
any term herein and such term is defined differently in different Articles of
the Code, the definition of such term contained in Article 9 of the Code shall
govern.
     1.4 Construction. Unless the context of this Agreement or any other Loan
Document clearly requires otherwise, references to the plural include the
singular, references to the singular include the plural, the terms “includes”
and “including” are not limiting, and the term “or” has, except where otherwise
indicated, the inclusive meaning represented by the phrase “and/or.” The words
“hereof,” “herein,” “hereby,” “hereunder,” and similar terms in this Agreement
or any other Loan Document refer to this Agreement or such other Loan Document,
as the case may be, as a whole and not to any particular provision of this
Agreement or such other Loan Document, as the case may be. Section, subsection,
clause, schedule, and exhibit references herein are to this Agreement unless
otherwise specified. Any reference in this Agreement or in any other Loan
Document to any agreement, instrument, or document shall include all
alterations, amendments, changes, extensions, modifications, renewals,
replacements, substitutions, joinders, and supplements, thereto and thereof, as
applicable (subject to any restrictions on such alterations, amendments,
changes, extensions, modifications, renewals, replacements, substitutions,
joinders, and supplements set forth herein). Any reference herein or in any
other Loan Document to the satisfaction or repayment in full of the Obligations
shall mean the repayment in full in cash (or, in the case of Letters of Credit
or Bank Products, the cash collateralization or support by a standby letter of
credit in accordance with the terms hereof) of all Obligations other than
unasserted contingent indemnification Obligations and other than any Bank
Product Obligations that, at such time, are allowed by the applicable Bank
Product Provider to remain outstanding and that are not required by the
provisions

 

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of this Agreement to be repaid or cash collateralized. Any reference herein to
any Person shall be construed to include such Person’s successors and assigns.
Any requirement of a writing contained herein or in any other Loan Document
shall be satisfied by the transmission of a Record and any Record so transmitted
shall constitute a representation and warranty as to the accuracy and
completeness of the information contained therein.
     1.5 Schedules and Exhibits. All of the schedules and exhibits attached to
this Agreement shall be deemed incorporated herein by reference.
2. LOAN AND TERMS OF PAYMENT.
     2.1 Revolver Advances.
          (a) Subject to the terms and conditions of this Agreement, and during
the term of this Agreement, each Lender with a Revolver Commitment agrees
(severally, not jointly or jointly and severally) to make advances (“Advances”)
to Borrowers in an amount at any one time outstanding not to exceed such
Lender’s Pro Rata Share of an amount equal to the lesser of (i) the Maximum
Revolver Amount less the Letter of Credit Usage at such time less the sum of
(x) the Bank Product Reserve and (y) the aggregate amount of reserves, if any,
established by Agent under Section 2.1 (b), and (ii) the Borrowing Base at such
time less the Letter of Credit Usage at such time.
          (b) Anything to the contrary in this Section 2.1 notwithstanding,
Agent shall have the right to establish reserves against the then-existing
Borrowing Base or the Maximum Revolver Amount in such amounts, and with respect
to such matters, as Agent in its Permitted Discretion shall deem necessary or
appropriate, including reserves with respect to (i) sums that Parent or its
Subsidiaries are required to pay under any Section of this Agreement or any
other Loan Document (such as taxes, assessments, insurance premiums, or, in the
case of leased assets, rents or other amounts payable under such leases) and
have failed to pay, and (ii) amounts owing by Parent or its Subsidiaries to any
Person to the extent secured by a Lien on, or trust over, any of the Collateral
(including proceeds thereof or collections from the sale of Hydrocarbons which
may from time to time come into the possession of Lenders or their agent(s))
(other than a Permitted Lien), which Lien or trust, in the Permitted Discretion
of Agent likely would have a priority superior to Agent’s Liens (such as Liens
or trusts in favor of landlords, warehousemen, carriers, mechanics, materialmen,
laborers, or suppliers, or Liens or trusts for ad valorem, excise, sales, or
other taxes where given priority under applicable law) in and to such item of
the Collateral. Consistent with the foregoing, the Borrowers acknowledge that
the Agent is to reserve $12,500,000 against the Borrowing Base until such time
as the conditions set forth in Section 5.24 are satisfied.
          (c) For the period from and including the Closing Date to but
excluding the first Redetermination Date, the amount of the Borrowing Base shall
be $25,000,000, subject to adjustment as provided in Section 2.1(b).
Notwithstanding the foregoing, the Borrowing Base may be subject to further
adjustments from time to time pursuant to Section 5.21(d) or clause (g) of the
definition of “Permitted Dispositions.”
          (d) The Borrowing Base shall be redetermined semi-annually in
accordance with this Section 2.1 (each, a “Scheduled Redetermination”), and
subject to Section 2.1(d), such redetermined Borrowing Base shall become
effective and applicable to Borrowers, Agent, the Issuing Lenders and the
Lenders on the date of the New Borrowing Base Notice. In addition,
Administrative Borrower may, by notifying Agent thereof, and Agent may, at the
direction of the Required Lenders, by notifying Administrative Borrower thereof,
one time during any 12-month period, each elect to cause the

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Borrowing Base to be redetermined between Scheduled Redeterminations (an
“Interim Redetermination”) in accordance with this Section 2.1.
               (i) Each Scheduled Redetermination and each Interim
Redetermination shall be effectuated as follows: Upon receipt by Agent of
(A) the Reserve Report and the certificate required to be delivered by
Administrative Borrower to Agent, in the case of a Scheduled Redetermination,
pursuant to Sections 5.20(a) and (c), and, in the case of an Interim
Redetermination, pursuant to Sections 5.20(b) and (c), and (B) such other
reports, data and supplemental information, including, without limitation, the
information provided pursuant to Section 5.20(c), as may, from time to time, be
reasonably requested by Agent or any Lender (the Reserve Report, such
certificate and such other reports, data and supplemental information being the
“Engineering Reports”), Agent shall evaluate the information contained in the
Engineering Reports and shall, in good faith, propose a new Borrowing Base (the
“Proposed Borrowing Base”), based upon the Reserve Reports and such other
information (including, without limitation, the status of title information with
respect to the Oil and Gas Properties as described in the Engineering Reports
and the existence of any other Indebtedness) as Agent deems appropriate in its
Permitted Discretion. In no event shall the Proposed Borrowing Base exceed the
Maximum Revolver Amount.
               (ii) Agent shall notify Administrative Borrower and the Lenders
of the Proposed Borrowing Base (the “Proposed Borrowing Base Notice”):
                    (A) in the case of a Scheduled Redetermination (a) if Agent
shall have received the Engineering Reports required to be delivered by
Administrative Borrower pursuant to Sections 5.20(a) and (c) in a timely and
complete manner, then on or before April 30th and October 31st of such year
following the date of delivery or (b) if Agent shall not have received the
Engineering Reports required to be delivered by Administrative Borrower pursuant
to Sections 5.20(a) and (c) in a timely and complete manner, then promptly after
Agent has received complete Engineering Reports from Administrative Borrower and
has had a reasonable opportunity to determine the Proposed Borrowing Base in
accordance with Section 2.1(d)(i); provided, that if such Engineering Reports
are not delivered as required pursuant to Sections 5.20(a) and (c), until the
next Scheduled Redetermination, Agent shall determine the Borrowing Base in its
sole discretion, subject to the provisions of Section 2.1(d)(iii); and
                    (B) in the case of an Interim Redetermination, promptly, and
in any event, within thirty (30) days after Agent has received the required
Engineering Reports from Administrative Borrower.
               (iii) Any Proposed Borrowing Base that would increase the
Borrowing Base then in effect must be approved or deemed to have been approved
by all of the Lenders as provided in this Section 2.1(d)(iii) and any Proposed
Borrowing Base that would maintain or decrease the Borrowing Base then in then
in effect must be approved or deemed to have been approved by the Required
Lenders as provided in this Section 2.1(d)(iii). Upon receipt of the Proposed
Borrowing Base Notice, each Lender shall have fifteen (15) days to agree with
the Proposed Borrowing Base or disagree with the Proposed Borrowing Base by
proposing an alternate Borrowing Base. If at the end of such fifteen (15) days,
any Lender has not communicated its approval or disapproval in writing to Agent,
such silence shall be deemed to be an approval of the Proposed Borrowing Base.
If, at the end of such 15-day period, all of the Lenders, in the case of a
Proposed Borrowing Base that would increase the Borrowing Base then in effect,
or the Required Lenders, in the case of a Proposed Borrowing Base that would
decrease or maintain the Borrowing Base then in effect, have approved or deemed
to have approved, as aforesaid, then the Proposed Borrowing Base shall become
the new Borrowing Base and made available to Borrowers, effective on the date
the New Borrowing Base Notice is provided under Section 2.1(d)(iii)(A). If,
however, at the end of such 15-day period, all of the Lenders or the Required
Lenders, as applicable, have not approved or deemed to have approved, as
aforesaid, then Agent shall poll the Lenders to ascertain the

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highest Borrowing Base then acceptable to all of the Lenders or the Required
Lenders and, so long as such amount does not increase the Borrowing Base then in
effect, such amount shall become the new Borrowing Base, effective on the date
the New Borrowing Base Notice is provided under in Section 2.1(d)(iii)(A).
                    (A) After a redetermined Borrowing Base is approved or is
deemed to have been approved by all of the Lenders or the Required Lenders
pursuant to Section 2.1(d)(iii), Agent shall notify Administrative Borrower and
the Lenders of the amount of the redetermined Borrowing Base (the “New Borrowing
Base Notice”), and such amount shall become the new Borrowing Base, effective
and applicable to Borrowers, Agent, the Issuing Lenders and the Lenders.
               (iv) Within three (3) Business Days after receipt from Agent of
the New Borrowing Base Notice, Borrowers shall have the right to request that
the Required Lenders reduce the Borrowing Base until the next Scheduled
Redetermination Date or Interim Redetermination Date occurs by giving written
notification to Agent (which shall promptly notify the Lenders); and with the
consent of the Required Lenders the Borrowing Base will be the amount set forth
in such notice until the next Scheduled Redetermination Date or Interim
Redetermination Date (subject to adjustment under Section 5.21(d) or clause
(g) of the definition of “Permitted Dispositions”).
          (e) Amounts borrowed pursuant to this Section 2.1 may be repaid and,
subject to the terms and conditions of this Agreement, reborrowed at any time
during the term of this Agreement. The outstanding principal amount of the
Advances, together with interest accrued and unpaid thereon, shall be due and
payable on the Maturity Date or, if earlier, on the date on which they are
declared due and payable pursuant to the terms of this Agreement.
     2.2 Term Loan. Subject to the terms and conditions of this Agreement, on
the Closing Date each Lender with a Term Loan Commitment agrees (severally, not
jointly or jointly and severally) to make term loans (collectively, the “Term
Loan”) to Borrowers in an amount equal to such Lender’s Pro Rata Share of the
Term Loan Amount. The principal of the Term Loan shall be repaid in accordance
with Section 2.4(c)(iii)(D), with the outstanding unpaid principal balance and
all accrued and unpaid interest on the Term Loan becoming due and payable on the
earliest of (i) the Maturity Date, (ii) the date of the acceleration of the Term
Loan in accordance with the terms hereof, and (iii) the date of termination of
this Agreement pursuant to Section 8.1(d). All principal of, interest on, and
other amounts payable in respect of the Term Loan shall constitute Obligations.

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     2.3 Borrowing Procedures and Settlements.
          (a) Procedure for Borrowing. Each Borrowing shall be made by an
irrevocable written request by an Authorized Person delivered to Agent. Unless
Swing Lender is not obligated to make a Swing Loan pursuant to Section 2.3(b)
below, such notice must be received by Agent no later than 1:00 p.m. (Georgia
time) on the Business Day that is the requested Funding Date specifying (i) the
amount of such Borrowing, and (ii) the requested Funding Date, which shall be a
Business Day; provided, however, that if Swing Lender is not obligated to make a
Swing Loan as to a requested Borrowing, such notice must be received by Agent no
later than 1:00 p.m. (Georgia time) on the Business Day prior to the date that
is the requested Funding Date. At Agent’s election, in lieu of delivering the
above-described written request, any Authorized Person may give Agent telephonic
notice of such request by the required time. In such circumstances, Borrowers
agree that any such telephonic notice will be confirmed in writing within 24
hours of the giving of such telephonic notice, but the failure to provide such
written confirmation shall not affect the validity of the request.
          (b) Making of Swing Loans. In the case of a request for an Advance and
so long as either (i) the aggregate amount of Swing Loans made since the last
Settlement Date, minus the amount of Collections or payments applied to Swing
Loans since the last Settlement Date, plus the amount of the requested Advance
does not exceed $5,000,000, or (ii) Swing Lender, in its sole discretion, shall
agree to make a Swing Loan notwithstanding the foregoing limitation, Swing
Lender shall make an Advance in the amount of such Borrowing (any such Advance
made solely by Swing Lender pursuant to this Section 2.3(b) being referred to as
a “Swing Loan” and such Advances being referred to collectively as “Swing
Loans”) available to Borrowers on the Funding Date applicable thereto by
transferring immediately available funds to Borrowers’ Designated Account. Each
Swing Loan shall be deemed to be an Advance hereunder and shall be subject to
all the terms and conditions applicable to other Advances, except that all
payments on any Swing Loan shall be payable to Swing Lender solely for its own
account. Subject to the provisions of Section 2.3(d)(ii), Swing Lender shall not
make and shall not be obligated to make any Swing Loan if Swing Lender has
actual knowledge that (i) one or more of the applicable conditions precedent set
forth in Section 3 will not be satisfied on the requested Funding Date for the
applicable Borrowing, or (ii) the requested Borrowing would exceed the
Availability on such Funding Date. Swing Lender shall not otherwise be required
to determine whether the applicable conditions precedent set forth in Section 3
have been satisfied on the Funding Date applicable thereto prior to making any
Swing Loan. The Swing Loans shall be secured by Agent’s Liens, constitute
Obligations hereunder, and bear interest at the rate applicable from time to
time to Advances that are Base Rate Loans.
          (c) Making of Loans.
               (i) In the event that Swing Lender is not obligated to make a
Swing Loan and does not elect to make a Swing Loan it is not obligated to make,
then promptly after receipt of a request for a Borrowing pursuant to
Section 2.3(a), Agent shall notify the Lenders, not later than 1:00 p.m.
(Georgia time) on the Business Day immediately preceding the Funding Date
applicable thereto, by telecopy, telephone, or other similar form of
transmission, of the requested Borrowing. Each Lender shall make the amount of
such Lender’s Pro Rata Share of the requested Borrowing available to Agent in
immediately available funds, to Agent’s Account, not later than 1:00 p.m.
(Georgia time) on the Funding Date applicable thereto. After Agent’s receipt of
the proceeds of such Advances, Agent shall make the proceeds thereof available
to Administrative Borrower on the applicable Funding Date by transferring
immediately available funds equal to such proceeds received by Agent to
Administrative Borrower’s Designated Account; provided, however, that, subject
to the provisions of Section 2.3(d)(ii), Agent shall not request any Lender to
make, and no Lender shall have the obligation to make, any Advance if Agent
shall have actual knowledge that (1) one or more of the applicable conditions
precedent set forth in Section 3 will not be satisfied on the requested Funding
Date for the applicable Borrowing unless such

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condition has been waived, or (2) the requested Borrowing would exceed the
Availability on such Funding Date.
               (ii) Unless Agent receives notice from a Lender prior to 9:00
a.m. (Georgia time) on the date of a Borrowing, that such Lender will not make
available as and when required hereunder to Agent for the account of Borrowers
the amount of that Lender’s Pro Rata Share of the Borrowing, Agent may assume
that each Lender has made or will make such amount available to Agent in
immediately available funds on the Funding Date and Agent may (but shall not be
so required), in reliance upon such assumption, make available to Borrowers on
such date a corresponding amount. If and to the extent any Lender shall not have
made its full amount available to Agent in immediately available funds and Agent
in such circumstances has made available to Borrowers such amount, that Lender
shall on the Business Day following such Funding Date make such amount available
to Agent, together with interest at the Defaulting Lender Rate for each day
during such period. A notice submitted by Agent to any Lender with respect to
amounts owing under this subsection shall be conclusive, absent manifest error.
If such amount is so made available, such payment to Agent shall constitute such
Lender’s Advance on the date of Borrowing for all purposes of this Agreement. If
such amount is not made available to Agent on the Business Day following the
Funding Date, Agent will notify Administrative Borrower of such failure to fund
and, upon demand by Agent, Borrowers shall pay such amount to Agent for Agent’s
account, together with interest thereon for each day elapsed since the date of
such Borrowing, at a rate per annum equal to the interest rate applicable at the
time to the Advances composing such Borrowing. The failure of any Lender to make
any Advance on any Funding Date shall not relieve any other Lender of any
obligation hereunder to make an Advance on such Funding Date, but no Lender
shall be responsible for the failure of any other Lender to make the Advance to
be made by such other Lender on any Funding Date.
               (iii) Agent shall not be obligated to transfer to a Defaulting
Lender any payments made by Borrowers to Agent for the Defaulting Lender’s
benefit, and, in the absence of such transfer to the Defaulting Lender, Agent
shall transfer any such payments to each other non-Defaulting Lender member of
the Lender Group ratably in accordance with their Commitments (but only to the
extent that such Defaulting Lender’s Advance was funded by the other members of
the Lender Group) or, if so directed by Administrative Borrower and if no
Default or Event of Default had occurred and is continuing (and to the extent
such Defaulting Lender’s Advance was not funded by the Lender Group), retain
same to be re-advanced to Borrowers as if such Defaulting Lender had made
Advances to Borrowers. Subject to the foregoing, Agent may hold and, in its
Permitted Discretion, re-lend to Borrowers for the account of such Defaulting
Lender the amount of all such payments received and retained by Agent for the
account of such Defaulting Lender. Solely for the purposes of voting or
consenting to matters with respect to the Loan Documents, such Defaulting Lender
shall be deemed not to be a “Lender” and such Lender’s Commitment shall be
deemed to be zero. This Section shall remain effective with respect to such
Lender until (x) the Obligations under this Agreement shall have been declared
or shall have become immediately due and payable, (y) the non-Defaulting
Lenders, Agent, and Administrative Borrower shall have waived such Defaulting
Lender’s default in writing, or (z) the Defaulting Lender makes its Pro Rata
Share of the applicable Advance and pays to Agent all amounts owing by
Defaulting Lender in respect thereof. The operation of this Section shall not be
construed to increase or otherwise affect the Commitment of any Lender, to
relieve or excuse the performance by such Defaulting Lender or any other Lender
of its duties and obligations hereunder, or to relieve or excuse the performance
by Borrowers of their duties and obligations hereunder to Agent or to the
Lenders other than such Defaulting Lender. Any such failure to fund by any
Defaulting Lender shall constitute a material breach by such Defaulting Lender
of this Agreement and shall entitle Administrative Borrower at its option, upon
written notice to Agent, to arrange for a substitute Lender to assume the
Commitment of such Defaulting Lender, such substitute Lender to be acceptable to
Agent. In connection with the arrangement of such a substitute Lender, the
Defaulting Lender shall have no right to refuse to be

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replaced hereunder, and agrees to execute and deliver a completed form of
Assignment and Acceptance in favor of the substitute Lender (and agrees that it
shall be deemed to have executed and delivered such document if it fails to do
so) subject only to being repaid its share of the outstanding Obligations (other
than Bank Product Obligations, but including an assumption of its Pro Rata Share
of the Risk Participation Liability) but without any premium or penalty of any
kind whatsoever; provided, however, that any such assumption of the Commitment
of such Defaulting Lender shall not be deemed to constitute a waiver of any of
the Lender Groups’ or Borrowers’ rights or remedies against any such Defaulting
Lender arising out of or in relation to such failure to fund.
          (d) Protective Advances and Optional Overadvances.
               (i) Agent hereby is authorized by Borrowers and the Lenders, from
time to time in Agent’s sole discretion, (A) after the occurrence and during the
continuance of a Default or an Event of Default, or (B) at any time that any of
the other applicable conditions precedent set forth in Section 3 are not
satisfied, to make Advances to Borrowers on behalf of the Lenders that Agent, in
its Permitted Discretion deems necessary or desirable (1) to preserve or protect
the Collateral, or any portion thereof, (2) to enhance the likelihood of
repayment of the Obligations (other than the Bank Product Obligations), or
(3) to pay any other amount chargeable to Borrowers pursuant to the terms of
this Agreement, including Lender Group Expenses and the costs, fees, and
expenses described in Section 9 (any of the Advances described in this
Section 2.3(d)(i) shall be referred to as “Protective Advances”).
               (ii) Any contrary provision of this Agreement notwithstanding,
the Lenders hereby authorize Agent or Swing Lender, as applicable, and either
Agent or Swing Lender, as applicable, may, but is not obligated to, knowingly
and intentionally, continue to make Advances (including Swing Loans) to
Borrowers notwithstanding that an Overadvance exists or thereby would be
created, so long as (A) after giving effect to such Advances, the outstanding
Revolver Usage does not exceed the Borrowing Base by more than $3,000,000, and
(B) after giving effect to such Advances, the outstanding Revolver Usage (except
for and excluding amounts charged to the Loan Account for interest, fees, or
Lender Group Expenses) does not exceed the Maximum Revolver Amount. In the event
Agent obtains actual knowledge that the Revolver Usage exceeds the amounts
permitted by the immediately foregoing provisions, regardless of the amount of,
or reason for, such excess, Agent shall notify the Lenders as soon as
practicable (and prior to making any (or any additional) intentional
Overadvances (except for and excluding amounts charged to the Loan Account for
interest, fees, or Lender Group Expenses) unless Agent determines that prior
notice would result in imminent harm to the Collateral or its value), and the
Lenders with Revolver Commitments thereupon shall, together with Agent, jointly
determine the terms of arrangements that shall be implemented with Borrowers
intended to reduce, within a reasonable time, the outstanding principal amount
of the Advances to Borrowers to an amount permitted by the preceding sentence.
In such circumstances, if any Lender with a Revolver Commitment objects to the
proposed terms of reduction or repayment of any Overadvance, the terms of
reduction or repayment thereof shall be implemented according to the
determination of the Required Lenders. Each Lender with a Revolver Commitment
shall be obligated to settle with Agent as provided in Section 2.3(e) for the
amount of such Lender’s Pro Rata Share of any unintentional Overadvances by
Agent reported to such Lender, any intentional Overadvances made as permitted
under this Section 2.3(d)(ii), and any Overadvances resulting from the charging
to the Loan Account of interest, fees, or Lender Group Expenses.
               (iii) Each Protective Advance and each Overadvance shall be
deemed to be an Advance hereunder, except that no Protective Advance or
Overadvance shall be eligible to be a LIBOR Rate Loan and, prior to Settlement
therefor, all payments on the Protective Advances shall be payable to Agent
solely for its own account. The Protective Advances and Overadvances shall be
repayable on demand, secured by Agent’s Liens, constitute Obligations hereunder,
and bear interest at the rate applicable from time to time to Advances that are
Base Rate Loans. The provisions of this Section

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2.3(d) are for the exclusive benefit of Agent, Swing Lender, and the Lenders and
are not intended to benefit Borrower in any way.
          (e) Settlement. It is agreed that each Lender’s funded portion of the
Advances is intended by the Lenders to equal, at all times, such Lender’s Pro
Rata Share of the outstanding Advances. Such agreement notwithstanding, Agent,
Swing Lender, and the other Lenders agree (which agreement shall not be for the
benefit of any Borrower) that in order to facilitate the administration of this
Agreement and the other Loan Documents, settlement among the Lenders as to the
Advances, the Swing Loans, and the Protective Advances shall take place on a
periodic basis in accordance with the following provisions:
               (i) Agent shall request settlement (“Settlement”) with the
Lenders on a weekly basis, or on a more frequent basis if so determined by Agent
(1) on behalf of Swing Lender, with respect to the outstanding Swing Loans,
(2) for itself, with respect to the outstanding Protective Advances, and
(3) with respect to Parent and its Subsidiaries’ Collections or payments
received, as to each by notifying the Lenders by telecopy, telephone, or other
similar form of transmission, of such requested Settlement, no later than 2:00
p.m. (Georgia time) on the Business Day immediately prior to the date of such
requested Settlement (the date of such requested Settlement being the
“Settlement Date”). Such notice of a Settlement Date shall include a summary
statement of the amount of outstanding Advances, Swing Loans, and Protective
Advances for the period since the prior Settlement Date. Subject to the terms
and conditions contained herein (including Section 2.3(c)(iii)): (y) if a
Lender’s balance of the Advances (including Swing Loans and Protective Advances)
exceeds such Lender’s Pro Rata Share of the Advances (including Swing Loans and
Protective Advances) as of a Settlement Date, then Agent shall, by no later than
3:00 p.m. (Georgia time) on the Settlement Date, transfer in immediately
available funds to a Deposit Account of such Lender (as such Lender may
designate), an amount such that each such Lender shall, upon receipt of such
amount, have as of the Settlement Date, its Pro Rata Share of the Advances
(including Swing Loans and Protective Advances), and (z) if a Lender’s balance
of the Advances (including Swing Loans and Protective Advances) is less than
such Lender’s Pro Rata Share of the Advances (including Swing Loans and
Protective Advances) as of a Settlement Date, such Lender shall no later than
12:00 p.m. (Georgia time) on the Settlement Date transfer in immediately
available funds to the Agent’s Account, an amount such that each such Lender
shall, upon transfer of such amount, have as of the Settlement Date, its Pro
Rata Share of the Advances (including Swing Loans and Protective Advances). Such
amounts made available to Agent under clause (z) of the immediately preceding
sentence shall be applied against the amounts of the applicable Swing Loans or
Protective Advances and, together with the portion of such Swing Loans or
Protective Advances representing Swing Lender’s Pro Rata Share thereof, shall
constitute Advances of such Lenders. If any such amount is not made available to
Agent by any Lender on the Settlement Date applicable thereto to the extent
required by the terms hereof, Agent shall be entitled to recover for its account
such amount on demand from such Lender together with interest thereon at the
Defaulting Lender Rate.
               (ii) In determining whether a Lender’s balance of the Advances,
Swing Loans, and Protective Advances is less than, equal to, or greater than
such Lender’s Pro Rata Share of the Advances, Swing Loans, and Protective
Advances as of a Settlement Date, Agent shall, as part of the relevant
Settlement, apply to such balance the portion of payments actually received in
good funds by Agent with respect to principal, interest, fees payable by
Borrowers and allocable to the Lenders hereunder, and proceeds of Collateral. To
the extent that a net amount is owed to any such Lender after such application,
such net amount shall be distributed by Agent to that Lender as part of such
next Settlement.
               (iii) Between Settlement Dates, Agent, to the extent Protective
Advances or Swing Loans are outstanding, may pay over to Agent or Swing Lender,
as applicable, any Collections or

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payments received by Agent, that in accordance with the terms of this Agreement
would be applied to the reduction of the Advances, for application to the
Protective Advances or Swing Loans. Between Settlement Dates, Agent, to the
extent no Protective Advances or Swing Loans are outstanding, may pay over to
Swing Lender any payments received by Agent, that in accordance with the terms
of this Agreement would be applied to the reduction of the Advances, for
application to Swing Lender’s Pro Rata Share of the Advances. If, as of any
Settlement Date, Collections of Parent or its Subsidiaries received since the
then immediately preceding Settlement Date have been applied to Swing Lender’s
Pro Rata Share of the Advances other than to Swing Loans, as provided for in the
previous sentence, Swing Lender shall pay to Agent for the accounts of the
Lenders, and Agent shall pay to the Lenders, to be applied to the outstanding
Advances of such Lenders, an amount such that each Lender shall, upon receipt of
such amount, have, as of such Settlement Date, its Pro Rata Share of the
Advances. During the period between Settlement Dates, Swing Lender with respect
to Swing Loans, Agent with respect to Protective Advances, and each Lender
(subject to the effect of agreements between Agent and individual Lenders) with
respect to the Advances other than Swing Loans and Protective Advances, shall be
entitled to interest at the applicable rate or rates payable under this
Agreement on the daily amount of funds employed by Swing Lender, Agent, or the
Lenders, as applicable.
          (f) Notation. Agent shall record on its books the principal amount of
the Advances (or portion of the Term Loan, as applicable) owing to each Lender,
including the Swing Loans owing to Swing Lender, and Protective Advances owing
to Agent, and the interests therein of each Lender, from time to time and such
records shall, absent manifest error, conclusively be presumed to be correct and
accurate.
          (g) Lenders’ Failure to Perform. All Advances (other than Swing Loans
and Protective Advances) shall be made by the Lenders contemporaneously and in
accordance with their Pro Rata Shares. It is understood that (i) no Lender shall
be responsible for any failure by any other Lender to perform its obligation to
make any Advance (or other extension of credit) hereunder, nor shall any
Commitment of any Lender be increased or decreased as a result of any failure by
any other Lender to perform its obligations hereunder, and (ii) no failure by
any Lender to perform its obligations hereunder shall excuse any other Lender
from its obligations hereunder.
     2.4 Payments.
          (a) Payments by Borrower.
               (i) Except as otherwise expressly provided herein, all payments
by Borrowers shall be made to Agent’s Account for the account of the Lender
Group and shall be made in immediately available funds, no later than 2:00 p.m.
(Georgia time) on the date specified herein. Any payment received by Agent later
than 2:00 p.m. (Georgia time) shall be deemed to have been received on the
following Business Day and any applicable interest or fee shall continue to
accrue until such following Business Day.
               (ii) Unless Agent receives notice from Administrative Borrower
prior to the date on which any payment is due to the Lenders that Borrowers will
not make such payment in full as and when required, Agent may assume that
Borrowers have made (or will make) such payment in full to Agent on such date in
immediately available funds and Agent may (but shall not be so required), in
reliance upon such assumption, distribute to each Lender on such due date an
amount equal to the amount then due such Lender. If and to the extent Borrowers
do not make such payment in full to Agent on the date when due, each Lender
severally shall repay to Agent on demand such amount distributed to such Lender,
together with interest thereon at the Defaulting Lender Rate for each day from
the date such amount is distributed to such Lender until the date repaid.

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          (b) Apportionment and Application.
               (i) So long as no Event of Default has occurred and is continuing
and except as otherwise provided with respect to Defaulting Lenders who would
otherwise be entitled to receive such payments as provided herein, all principal
and interest payments shall be apportioned ratably among the applicable Lenders
(according to the unpaid principal balance of the Obligations to which such
payments relate held by each Lender) and all payments of fees and expenses
(other than fees or expenses that are for Agent’s separate account) shall be
apportioned ratably among the Lenders having a Pro Rata Share of the type of
Commitment or Obligation to which a particular fee or expense relates. Except as
otherwise specifically provided in Section 2.4(b)(iv) hereof or in
Section 2.4(d) hereof, all payments to be made hereunder by Borrowers shall be
remitted to Agent and, subject to Section 2.4(b)(iv), all such payments, and all
proceeds of Collateral received by Agent, shall be applied, so long as no Event
of Default has occurred and is continuing, to reduce the balance of the Advances
outstanding or to make scheduled payments to repay the Term Loan as provided
herein and, thereafter, to Borrowers (to be wired to the Designated Account) or
such other Person entitled thereto under applicable law.
               (ii) At any time that an Event of Default has occurred and is
continuing and except as otherwise provided with respect to Defaulting Lenders,
all payments remitted to Agent and all proceeds of Collateral received by Agent
shall be applied as follows:
                    (A) first, to pay any Lender Group Expenses (including cost
or expense reimbursements) or indemnities then due to Agent under the Loan
Documents, until paid in full,
                    (B) second, to pay any fees or premiums then due to Agent
under the Loan Documents until paid in full,
                    (C) third, to pay interest due in respect of all Protective
Advances until paid in full,
                    (D) fourth, to pay the principal of all Protective Advances
until paid in full,
                    (E) fifth, ratably to pay any Lender Group Expenses
(including cost or expense reimbursements) or indemnities then due to any of the
Lenders under the Loan Documents, until paid in full,
                    (F) sixth, ratably to pay any fees or premiums then due to
any of the Lenders with a Revolver Commitment or holding any Advance, until paid
in full,
                    (G) seventh, ratably to pay interest due in respect of the
Advances (other than Protective Advances), and the Swing Loans, until paid in
full,
                    (H) eighth, ratably (i) to pay the principal of all Swing
Loans until paid in full, (ii) to pay the principal of all Advances until paid
in full, (iii) to Agent, to be held by Agent, for the ratable benefit of Issuing
Lender and those Lenders having a Revolver Commitment or holding any Advance, as
cash collateral in an amount up to 105% of the Letter of Credit Usage, (iv) to
Agent, to be held by Agent, for the benefit of the Bank Product Providers, as
cash collateral in an amount up to 105% of the amount of Bank Product
Obligations in respect of Swap Agreements, and (v) to Agent to be held by Agent
for the benefit of the Bank Product Obligations as cash collateral in an amount
not to exceed the amount set forth in clause (II) of the definition of Bank
Product Reserve established prior to the occurrence of, and not in contemplation
of, the subject Event of Default,

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                    (I) ninth, ratably to pay any fees or premiums then due to
any of the Lenders with a Term Loan Commitment or holding any Term Loan, until
paid in full,
                    (J) tenth, ratably to pay interest due in respect of the
Term Loan, until paid in full,
                    (K) eleventh, to pay the outstanding principal balance of
the Term Loan (in the inverse order of the maturity of the installments due
thereunder) until the Term Loan is paid in full,
                    (L) twelfth, to pay any other Obligations (including the
provision of amounts to Agent, to be held by Agent, for the benefit of the Bank
Product Providers, as cash collateral in an amount up to the amount determined
by Agent in its Permitted Discretion as the amount necessary to secure Parent’s
and its Subsidiaries’ obligations in respect of Bank Products), and
                    (M) thirteenth, to Borrowers (to be wired to the Designated
Account) or such other Person entitled thereto under applicable law.
               (iii) Agent promptly shall distribute to each Lender, pursuant to
the applicable wire instructions received from each Lender in writing, such
funds as it may be entitled to receive, subject to a Settlement delay as
provided in Section 2.3(e).
               (iv) In each instance, so long as no Event of Default has
occurred and is continuing, Section 2.4(b)(i) shall not apply to any payment
made by Borrowers to Agent and specified by Borrowers to be for the payment of
specific Obligations then due and payable (or prepayable) under any provision of
this Agreement.
               (v) For purposes of Section 2.4(b)(ii) other than clause (L)),
“paid in full” means payment of all amounts owing under the Loan Documents
according to the terms thereof, including loan fees, service fees, professional
fees, interest (and specifically including interest accrued after the
commencement of any Insolvency Proceeding), default interest, interest on
interest, and expense reimbursements, whether or not any of the foregoing (other
than disallowed interest and disallowed loan fees, if any) would be or is
allowed or disallowed in whole or in part in any Insolvency Proceeding;
provided, however, that for the purposes of Section 2.4(b)(ii)(L), “paid in
full” means payment of all amounts owing under the Loan Documents according to
the terms hereof, including loan fees, service fees, professional fees, interest
(and specifically including interest accrued after the commencement of any
Insolvency Proceeding), default interest, interest on interest, and expense
reimbursements, whether or not any of the foregoing would be or is allowed or
disallowed in whole or in party in any Insolvency Proceeding.
               (vi) In the event of a direct conflict between the priority
provisions of this Section 2.4 and any other provision contained in any other
Loan Document, it is the intention of the parties hereto that such provisions be
read together and construed, to the fullest extent possible, to be in concert
with each other. In the event of any actual, irreconcilable conflict that cannot
be resolved as aforesaid, the terms and provisions of this Section 2.4 shall
control and govern.
          (c) Prepayments.
               (i) If at any time the sum of the aggregate principal amount of
the outstanding Advances, the outstanding Letter of Credit Usage, the Bank
Product Reserve and the aggregate amount of reserves, if any, established by
Agent under Section 2.1 exceeds the lesser of (x) the

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Borrowing Base and (y) the Maximum Revolver Amount, Borrowers shall prepay the
Obligations in an amount equal to such excess which prepayments shall be applied
in the manner set forth in Section 2.4(d).
               (ii) Optional Prepayments of the Term Loan. The Term Loan may be
voluntarily prepaid in full or in part at any time; provided that (x) no Event
of Default shall have occurred or be continuing either immediately before or
immediately after such prepayment and (y) there shall be at least $10,000,000 of
Availability both immediately before and immediately after such prepayment. Any
such principal prepayments shall be applied to the outstanding principal amount
of the Term Loans in inverse order of maturity. Each such prepayment shall be in
an amount which is an integral multiple of $5,000,000 or any greater amount
which is a multiple of $500,000, shall be made by Borrowers and shall be
irrevocable.
               (iii) Mandatory Prepayments.
                    (A) Immediately upon the receipt by Parent or any of its
Subsidiaries of the proceeds of any voluntary or involuntary sale or disposition
by Parent or any of its Subsidiaries of property or assets (including casualty
losses or condemnations but excluding sales or dispositions which qualify as
Permitted Dispositions under clauses (a), (b), (c), (d), (e) or (f) of the
definition of Permitted Dispositions), Borrowers shall prepay the outstanding
principal amount of the Obligations in accordance with Section 2.4(d) in an
amount equal to 100% of the Net Cash Proceeds (including condemnation awards and
payments in lieu thereof) received by such Person in connection with such sales
or dispositions; provided that, so long as (A) no Default or Event of Default
shall have occurred and is continuing, (B) Administrative Borrower shall have
given Agent prior written notice of Borrowers’ intention to apply such monies to
the costs of replacement of the properties or assets that are the subject of
such sale or disposition, (C) the monies are held in a cash collateral account
in which Agent has a perfected first-priority security interest, and (D) Parent
or its Subsidiaries, as applicable, complete such replacement within 180 days
after the initial receipt of such monies, Parent and its Subsidiaries shall have
the option to apply such monies to the costs of replacement of the property or
assets that are the subject of such sale or disposition unless and to the extent
that such applicable period shall have expired without such replacement,
purchase or construction being made or completed, in which case, any amounts
remaining in the cash collateral account shall be paid to Agent and applied in
accordance with Section 2.4(d). Nothing contained in this
Section 2.4(c)(iii)(A) shall permit Parent or any of its Subsidiaries to sell or
otherwise dispose of any property or assets other than in accordance with
Section 6.4.
                    (B) Immediately upon the receipt by Parent or any of its
Subsidiaries of any Extraordinary Receipts, Borrowers shall prepay the
outstanding principal amount of the Obligations in accordance with
Section 2.4(d) in an amount equal to 100% of such Extraordinary Receipts, net of
any reasonable expenses incurred in collecting such Extraordinary Receipts.
                    (C) Immediately upon the issuance or incurrence by Parent or
any of its Subsidiaries of any Indebtedness (other than Indebtedness permitted
under Section 6.1(a), (b), (c), (d), (e), (f) or (g)) or the issuance by Parent
or any of its Subsidiaries of any shares of Parent’s Stock or its Subsidiaries’
Stock (other than (I) in the event that Parent or any of its Subsidiaries forms
a Subsidiary in accordance with the terms hereof, the issuance by such
Subsidiary of Stock to a Borrower or such Subsidiary, as applicable and (II) the
issuance by Parent of the Warrant or of shares of its Stock (including the
Warrant Shares) to holders of warrants or options existing on the Closing Date
and set forth on Schedule 4.5(b)), Borrowers shall prepay the outstanding
principal amount of the Obligations in accordance with Section 2.4(d) in an
amount equal to (x) 100% of the Net Cash Proceeds received by such Person in
connection with such incurrence of Indebtedness or such issuance of Stock if
such Stock is issued in a transaction other than as described in clause (y)
below, or (y) 50% of the Net Cash Proceeds received by such Person in connection
with an issuance of Stock in an underwritten public offering

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pursuant to a registration statement filed with the SEC (other than a
registration statement on Form S-8) or an issuance to not less than 10 investors
under Section 4(2) and/or Regulation D under the Securities Act of 1933, as
amended; provided the applicable Person intends in good faith to register the
securities represented by such issuance with the SEC as soon as possible. The
provisions of this Section 2.4(c)(iii) shall not be deemed to be implied consent
to any such issuance or incurrence otherwise prohibited by the terms and
conditions of this Agreement.
                    (D) Within 10 days of delivery to Agent and the Lenders of
either (1) audited annual financial statements or (2) the unaudited quarterly
balance sheet, income statement and statement of cash flow, as applicable,
pursuant to Section 5.3, commencing with the delivery to Agent and the Lenders
of the financial statements for Parent’s fiscal year ended December 31, 2009
(for the period from the second anniversary of the Closing Date to and including
December 31, 2009) or, if such financial statements are not delivered to Agent
and the Lenders on the date such statements are required to be delivered
pursuant to Section 5.3, within 10 days after the date such statements are
required to be delivered to Agent and the Lenders pursuant to Section 5.3,
Borrowers shall prepay the outstanding principal amount of the Obligations in
accordance with Section 2.4(d) in an amount equal to 50% of (1) with respect to
the first fiscal quarter of 2010, the Excess Cash Flow of Parent and its
Subsidiaries for the last fiscal quarter of Parent’s fiscal year ended
December 31, 2009, and (2) with respect to each subsequent fiscal quarter, the
Excess Cash Flow of Parent and its Subsidiaries for the fiscal quarter
immediately preceding such fiscal quarter.
          (d) Application of Payments. Each prepayment pursuant to any clause of
Section 2.4(c)(iii) above shall (A) so long as no Event of Default shall have
occurred and be continuing and subject to the last sentence of this subsection,
be applied, first, to the outstanding principal amount of the Advances, but
solely to the extent necessary to increase the Availability at such time to
$10,000,000, second, to the outstanding principal amount of the Term Loan until
paid in full, third, to the outstanding principal amount of the Advances (with a
corresponding permanent reduction in the Maximum Revolver Amount and a permanent
reserve against the Borrowing Base) until paid in full, and fourth, to cash
collateralize the Letters of Credit in an amount equal to 105% of the then
extant Letter of Credit Usage (with a corresponding permanent reduction in the
Maximum Revolver Amount and a permanent reserve against the Borrowing Base), and
(B) if an Event of Default shall have occurred and be continuing, be applied in
the manner set forth in Section 2.4(b)(ii). Each such prepayment of the Term
Loan shall be applied against the remaining installments of principal of the
Term Loan in the inverse order of maturity. Notwithstanding the foregoing, any
prepayment resulting from the sale of any Collateral comprising the Borrowing
Base shall be applied first to the outstanding principal amount of the Advances,
and then to the Term Loans to be apportioned among the Term Loan Lenders pro
rata.
     2.5 Overadvances
If, at any time or for any reason, the amount of Obligations owed by Borrowers
to the Lender Group pursuant to Section 2.1 or Section 2.12 is greater than any
of the limitations set forth in Section 2.1 or Section 2.12, as applicable (an
“Overadvance”), Borrowers immediately upon demand shall pay to Agent, in cash,
the amount of such excess, which amount shall be used by Agent to reduce the
Obligations in accordance with the priorities set forth in Section 2.4(b).
Borrowers promise to pay the Obligations (including principal, interest, fees,
costs, and expenses) in Dollars in full on the Maturity Date or, if earlier, on
the date on which the Obligations are declared due and payable pursuant to the
terms of this Agreement.
     2.6 Interest Rates and Letter of Credit Fee: Rates, Payments, and
Calculations.

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          (a) Interest Rates. Except as provided in Section 2.6(c), all
Obligations (except for undrawn Letters of Credit and except for Bank Product
Obligations) that have been charged to the Loan Account pursuant to the terms
hereof shall bear interest on the Daily Balance thereof as follows:
               (i) if the relevant Obligation is an Advance that is (A) a LIBOR
Rate Loan, at a per annum rate equal to the LIBOR Rate plus the LIBOR Rate
Margin applicable to an Advance (except to the extent an Advance is converted
from a LIBOR Rate Loan to a Base Rate Loan pursuant to Section 2.13(a))or (B) a
Base Rate Loan, at a per annum rate equal to the Base Rate plus the Base Rate
Margin applicable to an Advance; or
               (ii) if the relevant Obligation relates to the Term Loan that is
(A) a LIBOR Rate Loan, at a per annum rate equal to (a) the LIBOR Rate plus the
LIBOR Rate Margin applicable to the Term Loan; provided that if an event
described in Section 2.13(d)(ii) shall occur, the interest on the Term Loan
shall accrue at a per annum rate equal to the Base Rate plus the Base Rate
Margin applicable to the Term Loan or (B) a Base Rate Loan, at a per annum rate
equal to the Base Rate plus the Base Rate Margin applicable to an Advance.
          (b) Letter of Credit Fee. Borrowers shall pay Agent (for the ratable
benefit of the Lenders with a Revolver Commitment, subject to any agreements
between Agent and individual Lenders), a Letter of Credit fee (in addition to
the charges, commissions, fees, and costs set forth in Section 2.12(e)) which
shall accrue at a rate equal to 2.0% per annum times the Daily Balance of the
undrawn amount of all outstanding Letters of Credit.
          (c) Default Rate. Upon the occurrence and during the continuation of
an Event of Default (and at the election of Agent or the Required Lenders),
               (i) all Obligations (except for undrawn Letters of Credit and
except for Bank Product Obligations) that have been charged to the Loan Account
pursuant to the terms hereof shall bear interest on the Daily Balance thereof at
a per annum rate equal to 2 percentage points above the per annum rate otherwise
applicable hereunder, and
               (ii) the Letter of Credit fee provided for in Section 2.6(b)
shall be increased to 2 percentage points above the per annum rate otherwise
applicable hereunder.
          (d) Payment. Except as provided to the contrary in Section 2.11 or
Section 2.13(a), interest, Letter of Credit fees, and all other fees payable
hereunder shall be due and payable, in arrears, on the first day of each
calendar quarter at any time that Obligations or Commitments are outstanding.
Borrowers hereby authorize Agent, from time to time without prior notice to
Borrowers, to charge all interest and fees (when due and payable), all Lender
Group Expenses (as and when incurred), all charges, commissions, fees, and costs
provided for in Section 2.12(e) (as and when accrued or incurred), all fees and
costs provided for in Section 2.11 (as and when accrued or incurred), and all
other payments as and when due and payable under any Loan Document (including
the amounts due and payable with respect to the Term Loan and including any
amounts due and payable to the Bank Product Providers in respect of Bank
Products up to the amount of the Bank Product Reserve) to Borrowers’ Loan
Account, which amounts thereafter shall constitute Advances hereunder and shall
accrue interest at the rate then applicable to Advances that are Base Rate
Loans. Any interest not paid when due shall be compounded by being charged to
the Loan Account and shall thereafter constitute Advances hereunder and shall
accrue interest at the rate then applicable to Advances that are Base Rate
Loans; provided, however, that if at the time that any amounts due in respect of
interest on the Term Loan are charged to Borrowers’ Loan Account, an Event of
Default or Overadvance exists, or would result therefrom, such amounts shall not
constitute Advances but instead shall continue to remain outstanding as amounts
due in

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respect of the Term Loan, and such amounts shall be compounded and added to the
outstanding principal balance of the Term Loan; provided further, however, that
the failure to make any such payment and the compounding of such interest shall
nonetheless constitute an Event of Default under Section 7.1.
          (e) Computation. All interest and fees chargeable under the Loan
Documents shall be computed on the basis of a 360 day year for the actual number
of days elapsed. In the event the Base Rate is changed from time to time
hereafter, the rates of interest hereunder based upon the Base Rate
automatically and immediately shall be increased or decreased by an amount equal
to such change in the Base Rate.
          (f) Intent to Limit Charges to Maximum Lawful Rate. In no event shall
the interest rate or rates payable under this Agreement, plus any other amounts
paid in connection herewith, exceed the highest rate permissible under any law
that a court of competent jurisdiction shall, in a final determination, deem
applicable. Borrowers and the Lender Group, in executing and delivering this
Agreement, intend legally to agree upon the rate or rates of interest and manner
of payment stated within it; provided, however, that, anything contained herein
to the contrary notwithstanding, if said rate or rates of interest or manner of
payment exceeds the maximum allowable under applicable law, then, ipso facto, as
of the date of this Agreement, Borrowers are and shall be liable only for the
payment of such maximum as allowed by law, and payment received from Borrowers
in excess of such legal maximum, whenever received, shall be applied to reduce
the principal balance of the Obligations to the extent of such excess. Without
limiting the foregoing, it is the intention of the parties hereto that the Agent
and each Lender shall conform strictly to usury laws applicable to it.
Accordingly, if the transactions contemplated hereby would be usurious as to the
Agent or any Lender under laws applicable to it (including the laws of the
United States of America and the State of Texas or any other jurisdiction whose
laws may be mandatorily applicable to the Agent or such Lender notwithstanding
the other provisions of this Agreement), then, in that event, notwithstanding
anything to the contrary in any of the Loan Documents or any agreement entered
into in connection with or as security for the Loans, it is agreed as follows:
(a) the aggregate of all consideration with constitutes interest under law
applicable to the Agent or any Lender that is contracted for, taken, reserved,
charged or received by the Agent or such Lender under any of the Loan Documents
or agreements or otherwise in connection with the Loans shall under no
circumstances exceed the maximum amount allowed by such applicable law, and any
excess shall be canceled automatically and if theretofore paid shall be credited
by the Agent or such Lender on the principal amount of the Indebtedness (or, to
the extent that the principal amount of the Indebtedness shall have been or
would thereby be paid in full, refunded by the Agent or such Lender to the
borrowers; and (b) in the event that the maturity of the Loans is accelerated by
reason of an election of the holder thereof resulting from any Event of Default
under this Agreement or otherwise, or in the event of any required or permitted
prepayment, then such consideration that constitutes interest under law
applicable to the Agent or any Lender may never include more than the maximum
amount allowed by such applicable law, and excess interest, if any provided for
in this Agreement or otherwise shall be canceled automatically by the Agent or
such Lender as of the date of such acceleration or prepayment and, if
theretofore paid, shall be credited by the Agent or such Lender on the principal
amount of the Indebtedness (or, to the extent that the principal amount of the
Indebtedness shall have been or would thereby be paid in full, refunded by the
Agent or such Lender to the Borrowers). All sums paid or agreed to be paid to
the Agent or any Lender for the use, forbearance or detention of sums due
hereunder shall, to the extent permitted by law applicable to the Agent or such
Lender, be amortized, prorated, allocated and spread throughout the stated term
of the Loans until payment in full so that the rate or amount of interest on
account of any Loans hereunder does not exceed the maximum amount allowed by
such applicable law. If at any time and from time to time (i) the amount of
interest payable to the Agent or any Lender on any date shall be computed at the
maximum rate allowable under law applicable to the Agent or such Lender pursuant
to this Section 2.6(f) and (ii) in respect of any subsequent interest
computation period the amount of interest otherwise payable to the Agent or such
Lender would be less than the amount of interest payable to the Agent or

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such Lender computed at the maximum rate allowable under law applicable to the
Agent or such Lender, then the amount of interest payable to the Agent or such
Lender in respect of such subsequent interest computation period shall continue
to be computed at the maximum lawful rate applicable to the Agent or such Lender
until the total amount of interest payable to the Agent or such Lender shall
equal the total amount of interest which would have been payable to the Agent or
such Lender if the total amount of interest had been computed without giving
effect to this Section 2.6(f). To the extent that Chapter 303 of the Texas
Finance Code is relevant for the purpose of determining the maximum lawful rate
applicable to the Agent or a Lender, the Agent or such Lender elects to
determine the applicable rate ceiling under such Chapter by the weekly ceiling
from time to time in effect. Chapter 346 of the Texas Finance Code does not
apply to any Borrower’s obligations hereunder.
     2.7 Cash Management.
          (a) Parent shall and shall cause each of its Subsidiaries to
(i) establish and maintain cash management services of a type and on terms
satisfactory to Agent at one or more of the banks set forth on Schedule 2.7(a)
(each a “Cash Management Bank”), and shall request in writing and otherwise take
such reasonable steps to ensure that all of its and its Subsidiaries’ Account
Debtors forward payment of the amounts owed by them directly to such Cash
Management Bank, and (ii) deposit or cause to be deposited promptly, and in any
event no later than the first Business Day after the date of receipt thereof,
all of their Collections (including those sent directly by their Account Debtors
to Parent or its Subsidiaries) into a bank account in Agent’s name (a “Cash
Management Account”) at one of the Cash Management Banks. Agent reserves the
right, in its sole discretion, to require that any amounts received in any Cash
Management Account which may represent amounts that constitute trust funds
(i.e., production taxes, severance taxes, or payroll taxes) or amounts
attributable to interests of third Persons such as overriding royalty interest
be segregated by such Cash Management Bank and held in a separate account or
otherwise as directed by Agent.
          (b) Each Cash Management Bank shall establish and maintain Control
Agreements with Agent and Borrowers. Each such Control Agreement shall provide,
among other things, that (i) the Cash Management Bank will comply with any
instructions originated by Agent directing the disposition of the funds in such
Cash Management Account without further consent by Parent or its Subsidiaries,
as applicable, (ii) the Cash Management Bank has no rights of setoff or
recoupment or any other claim against the applicable Cash Management Account
other than for payment of its service fees and other charges directly related to
the administration of such Cash Management Account and for returned checks or
other items of payment, and (iii) upon the instruction of the Agent (an
“Activation Instruction”), it will forward by daily sweep all amounts in the
applicable Cash Management Account to the Agent’s Account. Agent agrees not to
issue an Activation Instruction with respect to the Cash Management Accounts or
to give instructions to the Cash Management Bank directing the disposition of
funds in a Cash Management Account unless a Triggering Event has occurred and is
continuing at such time.
          (c) So long as no Default or Event of Default has occurred and is
continuing, Administrative Borrower may amend Schedule 2.7(a) to add or replace
a Cash Management Bank or Cash Management Account; provided, however, that
(i) such prospective Cash Management Bank shall be reasonably satisfactory to
Agent, and (ii) prior to the time of the opening of such Cash Management
Account, Parent (or its Subsidiary, as applicable) and such prospective Cash
Management Bank shall have executed and delivered to Agent a Control Agreement.
Parent (or its Subsidiaries, as applicable) shall close any of their Cash
Management Accounts (and establish replacement cash management accounts in
accordance with the foregoing sentence) promptly and in any event within 30 days
of notice from Agent that the creditworthiness of any Cash Management Bank is no
longer acceptable in Agent’s reasonable judgment, or as promptly as practicable
and in any event within 60 days of notice from Agent

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that the operating performance, funds transfer, or availability procedures or
performance of the Cash Management Bank with respect to Cash Management Accounts
or Agent’s liability under any Control Agreement with such Cash Management Bank
is no longer acceptable in Agent’s reasonable judgment.
          (d) Each Cash Management Account shall be a cash collateral account
subject to a Control Agreement.
     2.8 Crediting Payments. The receipt of any payment item by Agent (whether
from transfers to Agent by the Cash Management Banks pursuant to the Control
Agreements or otherwise) shall not be considered a payment on account unless
such payment item is a wire transfer of immediately available federal funds made
to the Agent’s Account or unless and until such payment item is honored when
presented for payment. Should any payment item not be honored when presented for
payment, then Borrowers shall be deemed not to have made such payment and
interest shall be calculated accordingly. Anything to the contrary contained
herein notwithstanding, any payment item shall be deemed received by Agent only
if it is received into the Agent’s Account on a Business Day on or before 2:00
p.m. (Georgia time). If any payment item is received into the Agent’s Account on
a non-Business Day or after 2:00 p.m. (Georgia time) on a Business Day, it shall
be deemed to have been received by Agent as of the opening of business on the
immediately following Business Day; provided, however, Agent reserves the right,
in its sole discretion, to exclude from such provisional reduction and payment
the amount of any such payments that Agent determines may constitute trust funds
(e.g., production taxes, severance taxes, or payroll taxes) or amounts
attributable to interests of third Persons such as overriding royalty interests.
     2.9 Designated Account. Agent is authorized to make the Advances, and
Issuing Lender is authorized to issue the Letters of Credit, under this
Agreement based upon telephonic or other instructions received from anyone
purporting to be an Authorized Person or, without instructions, if pursuant to
Section 2.6(d). Administrative Borrower agrees to establish and maintain the
Designated Account with the Designated Account Bank for the purpose of receiving
the proceeds of the Advances requested by Borrowers and made by Agent or the
Lenders hereunder. Unless otherwise agreed by Agent and Administrative Borrower,
any Advance, Protective Advance, or Swing Loan requested by Borrowers and made
by Agent or the Lenders hereunder shall be made to the Designated Account.
     2.10 Maintenance of Loan Account; Statements of Obligations. Agent shall
maintain an account on its books in the name of Borrowers (the “Loan Account”)
on which Borrowers will be charged with the Term Loan, all Advances (including
Protective Advances and Swing Loans) made by Agent, Swing Lender, or the Lenders
to Borrowers or for Borrowers’ account, the Letters of Credit issued by Issuing
Lender for Borrowers’ account, and with all other payment Obligations hereunder
or under the other Loan Documents (except for Bank Product Obligations),
including, accrued interest, fees and expenses, and Lender Group Expenses. In
accordance with Section 2.8, the Loan Account will be credited with all payments
received by Agent from Borrowers or for Borrowers’ account, including all
amounts received in the Agent’s Account from any Cash Management Bank. Agent
shall render statements regarding the Loan Account to Administrative Borrower,
including principal, interest, fees, and including an itemization of all charges
and expenses constituting Lender Group Expenses owing, and such statements,
absent manifest error, shall be conclusively presumed to be correct and accurate
and constitute an account stated between Borrowers and the Lender Group unless,
within 30 days after receipt thereof by Administrative Borrower, Administrative
Borrower shall deliver to Agent written objection thereto describing the error
or errors contained in any such statements. Promptly after receipt of such
written objection and Agent’s evaluation thereof, the Agent shall credit the
Loan Account for amounts (if any) contained in such statements that Agent agrees
were charged in error.
     2.11 Fees. Borrowers shall pay to Agent, as and when due and payable under
the terms of the Fee Letter, the fees set forth in the Fee Letter.

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     2.12 Letters of Credit.
          (a) Subject to the terms and conditions of this Agreement, the Issuing
Lender agrees to issue letters of credit for the account of Borrowers (each, an
“L/C”) or to purchase participations or execute indemnities or reimbursement
obligations (each such undertaking, an “L/C Undertaking”) with respect to
letters of credit issued by an Underlying Issuer (as of the Closing Date, the
prospective Underlying Issuer is to be Wells Fargo) for the account of
Borrowers. Each request for the issuance of a Letter of Credit, or the
amendment, renewal, or extension of any outstanding Letter of Credit, shall be
made in writing by an Authorized Person and delivered to the Issuing Lender and
Agent via hand delivery, telefacsimile, or other electronic method of
transmission reasonably in advance of the requested date of issuance, amendment,
renewal, or extension. Each such request shall be in form and substance
satisfactory to the Issuing Lender in its Permitted Discretion and shall specify
(i) the amount of such Letter of Credit, (ii) the date of issuance, amendment,
renewal, or extension of such Letter of Credit, (iii) the expiration date of
such Letter of Credit, (iv) the name and address of the beneficiary thereof (or
the beneficiary of the Underlying Letter of Credit, as applicable), and (v) such
other information (including, in the case of an amendment, renewal, or
extension, identification of the outstanding Letter of Credit to be so amended,
renewed, or extended) as shall be necessary to prepare, amend, renew, or extend
such Letter of Credit. If requested by the Issuing Lender, Borrowers also shall
be an applicant under the application with respect to any Underlying Letter of
Credit that is to be the subject of an L/C Undertaking. The Issuing Lender shall
have no obligation to issue a Letter of Credit if any of the following would
result after giving effect to the issuance of such requested Letter of Credit:
               (i) the Letter of Credit Usage would exceed the Borrowing Base
less the outstanding amount of Advances, less the Bank Product Reserve, and less
the aggregate amount of reserves, if any, established by Agent under
Section 2.1(b), or
               (ii) the Letter of Credit Usage would exceed $5,000,000, or
               (iii) the Letter of Credit Usage would exceed the Maximum
Revolver Amount less the outstanding amount of Advances less the Bank Product
Reserve, and less the aggregate amount of reserves, if any, established by Agent
under Section 2.1(b).
          Each Letter of Credit (and corresponding Underlying Letter of Credit)
shall be in form and substance acceptable to the Issuing Lender (in the exercise
of its Permitted Discretion), including the requirement that the amounts payable
thereunder must be payable in Dollars. If Issuing Lender is obligated to advance
funds under a Letter of Credit, Borrowers immediately shall reimburse such L/C
Disbursement to Issuing Lender by paying to Agent an amount equal to such L/C
Disbursement not later than 2:00 p.m., Georgia time, on the date that such L/C
Disbursement is made, if Administrative Borrower shall have received written or
telephonic notice of such L/C Disbursement prior to 1:00 p.m., Georgia time, on
such date, or, if such notice has not been received by Administrative Borrower
prior to such time on such date, then not later than 2:00 p.m., Georgia time, on
the Business Day that Administrative Borrower receives such notice, if such
notice is received prior to 1:00 p.m., Georgia time, on the date of receipt,
and, in the absence of such reimbursement, the L/C Disbursement immediately and
automatically shall be deemed to be an Advance hereunder and, initially, shall
bear interest at the rate then applicable to Advances that are Base Rate Loans.
To the extent an L/C Disbursement is deemed to be an Advance hereunder,
Borrowers’ obligation to reimburse such L/C Disbursement shall be discharged and
replaced by the resulting Advance. Promptly following receipt by Agent of any
payment from Borrowers pursuant to this paragraph, Agent shall distribute such
payment to the Issuing Lender or, to the extent that Lenders have made payments
pursuant to Section 2.12(b) to reimburse the Issuing Lender, then to such
Lenders and the Issuing Lender as their interests may appear.

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          (b) Promptly following receipt of a notice of L/C Disbursement
pursuant to Section 2.12(a), each Lender with a Revolver Commitment agrees to
fund its Pro Rata Share of any Advance deemed made pursuant to the foregoing
subsection on the same terms and conditions as if Borrowers had requested such
Advance and Agent shall promptly pay to Issuing Lender the amounts so received
by it from the Lenders. By the issuance of a Letter of Credit (or an amendment
to a Letter of Credit increasing the amount thereof) and without any further
action on the part of the Issuing Lender or the Lenders with Revolver
Commitments, the Issuing Lender shall be deemed to have granted to each Lender
with a Revolver Commitment, and each Lender with a Revolver Commitment shall be
deemed to have purchased, a participation in each Letter of Credit, in an amount
equal to its Pro Rata Share of the Risk Participation Liability of such Letter
of Credit, and each such Lender agrees to pay to Agent, for the account of the
Issuing Lender, such Lender’s Pro Rata Share of any payments made by the Issuing
Lender under such Letter of Credit. In consideration and in furtherance of the
foregoing, each Lender with a Revolver Commitment hereby absolutely and
unconditionally agrees to pay to Agent, for the account of the Issuing Lender,
such Lender’s Pro Rata Share of each L/C Disbursement made by the Issuing Lender
and not reimbursed by Borrowers on the date due as provided in Section 2.12(a),
or of any reimbursement payment required to be refunded to Borrowers for any
reason. Each Lender with a Revolver Commitment acknowledges and agrees that its
obligation to deliver to Agent, for the account of the Issuing Lender, an amount
equal to its respective Pro Rata Share of each L/C Disbursement made by the
Issuing Lender pursuant to this Section 2.12(b) shall be absolute and
unconditional and such remittance shall be made notwithstanding the occurrence
or continuation of an Event of Default or Default or the failure to satisfy any
condition set forth in Section 3. If any such Lender fails to make available to
Agent the amount of such Lender’s Pro Rata Share of each L/C Disbursement made
by the Issuing Lender in respect of such Letter of Credit as provided in this
Section, such Lender shall be deemed to be a Defaulting Lender and Agent (for
the account of the Issuing Lender) shall be entitled to recover such amount on
demand from such Lender together with interest thereon at the Defaulting Lender
Rate until paid in full.
          (c) Each Borrower hereby agrees to indemnify, save, defend, and hold
the Lender Group harmless from any loss, cost, expense, or liability, and
reasonable attorneys fees incurred by the Lender Group arising out of or in
connection with any Letter of Credit; provided, however, that no Borrower shall
be obligated hereunder to indemnify for any loss, cost, expense, or liability to
the extent that it is caused by the gross negligence or willful misconduct of
the Issuing Lender or any other member of the Lender Group. Each Borrower agrees
to be bound by the Underlying Issuer’s regulations and interpretations of any
Underlying Letter of Credit or by Issuing Lender’s interpretations of any L/C
issued by Issuing Lender to or for such Borrower’s account, even though this
interpretation may be different from such Borrower’s own, and each Borrower
understands and agrees that the Lender Group shall not be liable for any error,
negligence, or mistake, whether of omission or commission, in following
Borrowers’ instructions or those contained in the Letter of Credit or any
modifications, amendments, or supplements thereto. Each Borrower understands
that the L/C Undertakings may require Issuing Lender to indemnify the Underlying
Issuer for certain costs or liabilities arising out of claims by Borrowers
against such Underlying Issuer. Each Borrower hereby agrees to indemnify, save,
defend, and hold the Lender Group harmless with respect to any loss, cost,
expense (including reasonable attorneys fees), or liability incurred by the
Lender Group under any L/C Undertaking as a result of the Lender Group’s
indemnification of any Underlying Issuer; provided, however, that no Borrower
shall be obligated hereunder to indemnify for any loss, cost, expense, or
liability to the extent that it is caused by the gross negligence or willful
misconduct of the Issuing Lender or any other member of the Lender Group. Each
Borrower hereby acknowledges and agrees that neither the Lender Group nor the
Issuing Lender shall be responsible for delays, errors, or omissions resulting
from the malfunction of equipment in connection with any Letter of Credit.
          (d) Each Borrower hereby authorizes and directs any Underlying Issuer
to deliver to the Issuing Lender all instruments, documents, and other writings
and property received by such

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Underlying Issuer pursuant to such Underlying Letter of Credit and to accept and
rely upon the Issuing Lender’s instructions with respect to all matters arising
in connection with such Underlying Letter of Credit and the related application.
          (e) Any and all issuance charges, commissions, fees, and costs
incurred by the Issuing Lender relating to Underlying Letters of Credit shall be
Lender Group Expenses for purposes of this Agreement and immediately shall be
reimbursable by Borrower to Agent for the account of the Issuing Lender; it
being acknowledged and agreed by Borrowers that, as of the Closing Date, the
issuance charge imposed by the prospective Underlying Issuer is 0.825% per annum
times the undrawn amount of each Underlying Letter of Credit, that such issuance
charge may be changed from time to time, and that the Underlying Issuer also
imposes a schedule of charges for amendments, extensions, drawings, and
renewals.
          (f) If by reason of (i) any change after the Closing Date in any
applicable law, treaty, rule, or regulation or any change in the interpretation
or application thereof by any Governmental Authority, or (ii) compliance by the
Underlying Issuer or the Lender Group with any direction, request, or
requirement (irrespective of whether having the force of law) of any
Governmental Authority or monetary authority including, Regulation D of the
Federal Reserve Board as from time to time in effect (and any successor
thereto):
               (i) any reserve, deposit, or similar requirement is or shall be
imposed or modified in respect of any Letter of Credit issued hereunder, or
               (ii) there shall be imposed on the Underlying Issuer or the
Lender Group any other condition regarding any Underlying Letter of Credit or
any Letter of Credit issued pursuant hereto,
and the result of the foregoing is to increase, directly or indirectly, the cost
to the Lender Group of issuing, making, guaranteeing, or maintaining any Letter
of Credit or to reduce the amount receivable in respect thereof by the Lender
Group, then, and in any such case, Agent may, at any time within a reasonable
period after the additional cost is incurred or the amount received is reduced,
notify Administrative Borrower, and Borrowers shall pay on demand such amounts
as Agent may specify to be necessary to compensate the Lender Group for such
additional cost or reduced receipt, together with interest on such amount from
the date of such demand until payment in full thereof at the rate then
applicable to Base Rate Loans hereunder. The determination by Agent of any
amount due pursuant to this Section, as set forth in a certificate setting forth
the calculation thereof in reasonable detail, shall, in the absence of manifest
or demonstrable error, be final and conclusive and binding on all of the parties
hereto.
     2.13 LIBOR Option.
          (a) Interest and Interest Payment Dates. Interest and Interest Payment
Dates. In lieu of having interest on any Advance charged at a rate based upon
the Base Rate, Borrowers shall have the option (the “LIBOR Option”) to have
interest on all or a portion of the Advances or the Term Loan be charged
(whether at the time when made (unless otherwise provided herein), upon
conversion from a Base Rate Loan to a LIBOR Rate Loan, or upon continuation of a
LIBOR Rate Loan as a LIBOR Rate Loan) at a rate of interest based upon the LIBOR
Rate. Interest on LIBOR Rate Loans shall be payable on the earliest of (i) the
last day of the Interest Period applicable thereto, (provided, however, that,
subject to the following clauses (ii) and (iii), in the case of any Interest
Period greater than 3 months in duration, interest shall be payable at 3 month
intervals after the commencement of the applicable Interest Period and on the
last day of such Interest Period), (ii) the date on which all or any portion of
the Obligations are accelerated pursuant to the terms hereof, or (iii) the date
on which this Agreement is

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terminated pursuant to the terms hereof. On the last day of each applicable
Interest Period, unless Administrative Borrower properly has exercised the LIBOR
Option with respect thereto, the interest rate applicable to such LIBOR Rate
Loan automatically shall convert to the rate of interest then applicable to Base
Rate Loans of the same type hereunder. At any time that an Event of Default has
occurred and is continuing, Borrowers no longer shall have the option to request
that Advances bear interest at a rate based upon the LIBOR Rate and Agent shall
have the right to convert the interest rate on all outstanding LIBOR Rate Loans
(other than Term Loan) to the rate then applicable to Base Rate Loans hereunder.
          (b) LIBOR Election.
               (i) Administrative Borrower may, at any time and from time to
time, so long as no Event of Default has occurred and is continuing, elect to
exercise the LIBOR Option by notifying Agent prior to 2:00 p.m. (Georgia time)
at least 3 Business Days prior to the commencement of the proposed Interest
Period (the “LIBOR Deadline”). Notice of Administrative Borrower’s election of
the LIBOR Option for a permitted portion of the Advances or the Term Loan and an
Interest Period pursuant to this Section shall be made by delivery to Agent of a
LIBOR Notice received by Agent before the LIBOR Deadline, or by telephonic
notice received by Agent before the LIBOR Deadline (to be confirmed by delivery
to Agent of a LIBOR Notice received by Agent prior to 5:00 p.m. (Georgia time)
on the same day). Promptly upon its receipt of each such LIBOR Notice, Agent
shall provide a copy thereof to each of the affected Lenders.
               (ii) Each LIBOR Notice shall be irrevocable and binding on
Borrowers. In connection with each LIBOR Rate Loan, each Borrower shall
indemnify, defend, and hold Agent and the Lenders harmless against any loss,
cost, or expense incurred by Agent or any Lender as a result of (A) the payment
of any principal of any LIBOR Rate Loan other than on the last day of an
Interest Period applicable thereto (including as a result of an Event of
Default), (B) the conversion of any LIBOR Rate Loan other than on the last day
of the Interest Period applicable thereto, or (C) the failure to borrow,
convert, continue or prepay any LIBOR Rate Loan on the date specified in any
LIBOR Notice delivered pursuant hereto (such losses, costs, or expenses,
“Funding Losses”). Funding Losses shall, with respect to Agent or any Lender, be
deemed to equal the amount determined by Agent or such Lender to be the excess,
if any, of (1) the amount of interest that would have accrued on the principal
amount of such LIBOR Rate Loan had such event not occurred, at the LIBOR Rate
that would have been applicable thereto, for the period from the date of such
event to the last day of the then current Interest Period therefor (or, in the
case of a failure to borrow, convert, or continue, for the period that would
have been the Interest Period therefor), minus (2) the amount of interest that
would accrue on such principal amount for such period at the interest rate which
Agent or such Lender would be offered were it to be offered, at the commencement
of such period, Dollar deposits of a comparable amount and period in the London
interbank market. A certificate of Agent or a Lender delivered to Administrative
Borrower setting forth any amount or amounts that Agent or such Lender is
entitled to receive pursuant to this Section 2.13 shall be conclusive absent
manifest error.
               (iii) Borrowers shall have not more than 7 LIBOR Rate Loans in
effect at any given time, of which no more than one LIBOR Rate Loan may be the
Term Loan. Borrowers only may exercise the LIBOR Option for LIBOR Rate Loans of
at least $1,000,000 and integral multiples of $500,000 in excess thereof.
          (c) Conversion. Borrowers may convert LIBOR Rate Loans (other than
Term Loan) to Base Rate Loans at any time; provided, however, that in the event
that LIBOR Rate Loans are converted or prepaid on any date that is not the last
day of the Interest Period applicable thereto, including as a result of any
automatic prepayment through the required application by Agent of proceeds of
Parent’s and its Subsidiaries’ Collections in accordance with Section 2.4(b) or
for any other reason, including early

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termination of the term of this Agreement or acceleration of all or any portion
of the Obligations pursuant to the terms hereof, each Borrower shall indemnify,
defend, and hold Agent and the Lenders and their Participants harmless against
any and all Funding Losses in accordance with Section 2.13 (b)(ii) above.
          (d) Special Provisions Applicable to LIBOR Rate.
               (i) The LIBOR Rate may be adjusted by Agent with respect to any
Lender on a prospective basis to take into account any additional or increased
costs to such Lender of maintaining or obtaining any eurodollar deposits or
increased costs, in each case, due to changes in applicable law occurring
subsequent to the commencement of the then applicable Interest Period, including
changes in tax laws (except changes of general applicability in corporate income
tax laws) and changes in the reserve requirements imposed by the Board of
Governors of the Federal Reserve System (or any successor), excluding the
Reserve Percentage, which additional or increased costs would increase the cost
of funding or maintaining loans bearing interest at the LIBOR Rate. In any such
event, the affected Lender shall give Administrative Borrower and Agent notice
of such a determination and adjustment and Agent promptly shall transmit the
notice to each other Lender and, upon its receipt of the notice from the
affected Lender, Administrative Borrower may, by notice to such affected Lender
(x) require such Lender to furnish to Administrative Borrower a statement
setting forth the basis for adjusting such LIBOR Rate and the method for
determining the amount of such adjustment, or (y) repay the LIBOR Rate Loans
with respect to which such adjustment is made (together with any amounts due
under this Section 2.13(d)(i). Failure or delay on the part of any Lender to
demand compensation pursuant to this Section shall not constitute a waiver of
such Lender’s right to demand such compensation; provided that Borrowers shall
not be required to compensate a Lender pursuant to this Section for any
additional or increased costs incurred more than 360 days prior to the date that
such Lender notifies the Administrative Borrower of such law giving rise to such
additional or increased costs and of such Lender’s intention to claim
compensation therefor; provided further that if such claim arises by reason of
the adoption of or change in any law that is retroactive, then the 360-day
period referred to above shall be extended to include the period of retroactive
effect thereof.
               (ii) In the event that any change in market conditions or any
law, regulation, treaty, or directive, or any change therein or in the
interpretation of application thereof, shall at any time after the date hereof,
in the reasonable opinion of any Lender, make it unlawful or impractical for
such Lender to fund or maintain LIBOR Rate Loans or to continue such funding or
maintaining, or to determine or charge interest rates at the LIBOR Rate, such
Lender shall give notice of such changed circumstances to Agent and
Administrative Borrower and Agent promptly shall transmit the notice to each
other Lender and (y) in the case of any LIBOR Rate Loans of such Lender that are
outstanding, the date specified in such Lender’s notice shall be deemed to be
the last day of the Interest Period of such LIBOR Rate Loans, and interest upon
the LIBOR Rate Loans of such Lender thereafter shall accrue interest at the rate
then applicable to Base Rate Loans, and (z) Borrowers shall not be entitled to
elect the LIBOR Option until such Lender determines that it would no longer be
unlawful or impractical to do so.
          (e) No Requirement of Matched Funding. Anything to the contrary
contained herein notwithstanding, neither Agent, nor any Lender, nor any of
their Participants, is required actually to acquire eurodollar deposits to fund
or otherwise match fund any Obligation as to which interest accrues at the LIBOR
Rate. The provisions of this Section shall apply as if each Lender or its
Participants had match funded any Obligation as to which interest is accruing at
the LIBOR Rate by acquiring eurodollar deposits for each Interest Period in the
amount of the LIBOR Rate Loans.
     2.14 Capital Requirements. If, after the date hereof, any Lender determines
that (i) the adoption of or change in any law, rule, regulation or guideline
regarding capital requirements for banks or bank holding companies, or any
change in the interpretation or application thereof by any Governmental

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Authority charged with the administration thereof, or (ii) compliance by such
Lender or its parent bank holding company with any guideline, request, or
directive of any such entity regarding capital adequacy (whether or not having
the force of law), has the effect of reducing the return on such Lender’s or
such holding company’s capital as a consequence of such Lender’s Commitments
hereunder to a level below that which such Lender or such holding company could
have achieved but for such adoption, change, or compliance (taking into
consideration such Lender’s or such holding company’s then existing policies
with respect to capital adequacy and assuming the full utilization of such
entity’s capital) by any amount deemed by such Lender to be material, then such
Lender may notify Administrative Borrower and Agent thereof. Following receipt
of such notice, Borrowers agree to pay such Lender on demand the amount of such
reduction of return of capital as and when such reduction is determined, payable
within 90 days after presentation by such Lender of a statement in the amount
and setting forth in reasonable detail such Lender’s calculation thereof and the
assumptions upon which such calculation was based (which statement shall be
deemed true and correct absent manifest error). In determining such amount, such
Lender may use any reasonable averaging and attribution methods. Failure or
delay on the part of any Lender to demand compensation pursuant to this Section
shall not constitute a waiver of such Lender’s right to demand such
compensation; provided that Borrowers shall not be required to compensate a
Lender pursuant to this Section for any reduction in return incurred more than
360 days prior to the date that such Lender notifies the Administrative Borrower
of such law, rule, regulation or guideline giving rise to such reductions and of
such Lender’s intention to claim compensation therefor; provided further that if
such claim arises by reason of the adoption of or change in any law, rule,
regulation or guideline that is retroactive, then the 360-day period referred to
above shall be extended to include the period of retroactive effect thereof.
     2.15 Tax Reporting. (a) Borrowers and the Lenders agree (i) to treat the
Term Loans as debt for all United States tax purposes, (ii) to treat the issue
price of the Term Loans (within the meaning of Section 1273 of the IRC) as being
equal to the aggregate original principal amount of the Term Loans, (iii) to
treat the Term Loans as issued with original issue discount (“OID”), (iv) that
any calculation by Borrowers regarding the amount of OID for any accrual period
on the Term Loans shall be subject to review and approval of the Required
Lenders (such approval not to be unreasonably withheld, delayed or conditioned),
and (v) to adhere to this Agreement for tax purposes and not to take any action
(including in communication with any taxing authority) or file any tax return,
report or declaration inconsistent with any of the agreed provisions of this
Section 2.15 (including with respect to the issue price of the Term Loans set
forth in the preceding clause (ii) and the amount of OID on the Term Loans as
determined in accordance with the preceding clause (iv)). The inclusion of this
Section 2.15 is not an admission by any Lender that it is subject to United
States taxation.
          (b) Borrowers and the Lenders, having adverse interests and as a
result of arms-length bargaining, agree that (i) neither Lenders nor any of
their officers, directors, representatives, partners, members or employees have
rendered or have agreed to render any services to Borrowers in connection with
this Agreement or the making of the Term Loans; (ii) the Warrant is not being
issued as compensation; and (iii) for the purposes and within the meaning of
Section 1273(c)(2) of the IRC the issue price of the Warrant is $2,280,602,
which is its fair market value. Borrowers and the Lenders acknowledge that this
allocation is based on the relative fair market value of the Warrant. For
federal, state and local tax purposes, Borrowers and the Lender agree to take
reporting and other positions with respect to the Warrant which are consistent
with the purchase price of the Warrant set forth herein.
     2.16 Joint and Several Liability of Borrowers.
          (a) Each Borrower is accepting joint and several liability hereunder
and under the other Loan Documents in consideration of the financial
accommodations to be provided by the Lender Group under this Agreement, for the
mutual benefit, directly and indirectly, of each Borrower and in

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consideration of the undertakings of the other Borrowers to accept joint and
several liability for the Obligations.
          (b) Each Borrower, jointly and severally, hereby irrevocably and
unconditionally accepts, not merely as a surety but also as a co-debtor, joint
and several liability with the other Borrowers, with respect to the payment and
performance of all of the Obligations (including any Obligations arising under
this Section 2.16), it being the intention of the parties hereto that all the
Obligations shall be the joint and several obligations of each Borrower without
preferences or distinction among them.
          (c) If and to the extent that any Borrower shall fail to make any
payment with respect to any of the Obligations as and when due or to perform any
of the Obligations in accordance with the terms thereof, then in each such event
the other Borrowers will make such payment with respect to, or perform, such
Obligation.
          (d) The Obligations of each Borrower under the provisions of this
Section 2.16 constitute the absolute and unconditional, full recourse
Obligations of each Borrower enforceable against each Borrower to the full
extent of its properties and assets, irrespective of the validity, regularity or
enforceability of this Agreement or any other circumstances whatsoever, subject
to applicable law.
          (e) Except as otherwise expressly provided in this Agreement, each
Borrower hereby waives notice of acceptance of its joint and several liability,
notice of any Advances or Letters of Credit issued under or pursuant to this
Agreement, notice of the occurrence of any Default, Event of Default, or of any
demand for any payment under this Agreement, notice of any action at any time
taken or omitted by Agent or Lenders under or in respect of any of the
Obligations, any requirement of diligence or to mitigate damages and, generally,
to the extent permitted by applicable law, all demands, notices and other
formalities of every kind in connection with this Agreement (except as otherwise
provided in this Agreement). Each Borrower hereby assents to, and waives notice
of, any extension or postponement of the time for the payment of any of the
Obligations, the acceptance of any payment of any of the Obligations, the
acceptance of any partial payment thereon, any waiver, consent or other action
or acquiescence by Agent or Lenders at any time or times in respect of any
default by any Borrower in the performance or satisfaction of any term,
covenant, condition or provision of this Agreement, any and all other
indulgences whatsoever by Agent or Lenders in respect of any of the Obligations,
and the taking, addition, substitution or release, in whole or in part, at any
time or times, of any security for any of the Obligations or the addition,
substitution or release, in whole or in part, of any Borrower. Without limiting
the generality of the foregoing, each Borrower assents to any other action or
delay in acting or failure to act on the part of any Agent or Lender with
respect to the failure by any Borrower to comply with any of its respective
Obligations, including, without limitation, any failure strictly or diligently
to assert any right or to pursue any remedy or to comply fully with applicable
laws or regulations thereunder, which might, but for the provisions of this
Section 2.16 afford grounds for terminating, discharging or relieving any
Borrower, in whole or in part, from any of its Obligations under this
Section 2.16, it being the intention of each Borrower that, so long as any of
the Obligations hereunder remain unsatisfied, the Obligations of each Borrower
under this Section 2.16 shall not be discharged except by performance and then
only to the extent of such performance. The Obligations of each Borrower under
this Section 2.16 shall not be diminished or rendered unenforceable by any
winding up, reorganization, arrangement, liquidation, reconstruction or similar
proceeding with respect to any Borrower or any Agent or Lender.
          (f) Each Borrower represents and warrants to Agent and Lenders that
such Borrower is currently informed of the financial condition of Borrowers and
of all other circumstances which a diligent inquiry would reveal and which bear
upon the risk of nonpayment of the Obligations. Each Borrower further represents
and warrants to Agent and Lenders that such Borrower has read and understands
the terms and conditions of the Loan Documents. Each Borrower hereby covenants
that such

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Borrower will continue to keep informed of Borrowers’ financial condition, the
financial condition of other guarantors, if any, and of all other circumstances
which bear upon the risk of nonpayment or nonperformance of the Obligations.
          (g) Each Borrower waives all rights and defenses arising out of an
election of remedies by Agent or any Lender, even though that election of
remedies, such as a nonjudicial foreclosure with respect to security for a
guaranteed obligation, has destroyed Agent’s or such Lender’s rights of
subrogation and reimbursement against such Borrower by the operation of Section
580(d) of the California Code of Civil Procedure or otherwise.
          (h) Each Borrower waives all rights and defenses that such Borrower
may have because the Obligations are secured by Real Property. This means, among
other things:
               (i) Agent and Lenders may collect from such Borrower without
first foreclosing on any Real or Personal Property Collateral pledged by
Borrowers.
               (ii) If Agent or any Lender forecloses on any Real Property
Collateral pledged by Borrowers:
                    (A) Subject to applicable law, the amount of the Obligations
may be reduced only by the price for which that collateral is sold at the
foreclosure sale, even if the collateral is worth more than the sale price.
                    (B) Agent and Lenders may collect from such Borrower even if
Agent or Lenders, by foreclosing on the Real Property Collateral, has destroyed
any right such Borrower may have to collect from the other Borrowers.
Subject to applicable law, this is an unconditional and irrevocable waiver of
any rights and defenses such Borrower may have because the Obligations are
secured by Real Property. These rights and defenses include, but are not limited
to, any rights or defenses based upon Section 580a, 580b, 580d or 726 of the
California Code of Civil Procedure.
          (i) The provisions of this Section 2.16 are made for the benefit of
Agent, Lenders and their respective successors and assigns, and may be enforced
by it or them from time to time against any or all Borrowers as often as
occasion therefor may arise and without requirement on the part of Agent,
Lender, successor or assign first to marshal any of its or their claims or to
exercise any of its or their rights against any Borrower or to exhaust any
remedies available to it or them against any Borrower or to resort to any other
source or means of obtaining payment of any of the Obligations hereunder or to
elect any other remedy. The provisions of this Section 2.16 shall remain in
effect until all of the Obligations shall have been paid in full or otherwise
fully satisfied. If at any time, any payment, or any part thereof, made in
respect of any of the Obligations, is rescinded or must otherwise be restored or
returned by Agent or any Lender upon the insolvency, bankruptcy or
reorganization of any Borrower, or otherwise, the provisions of this
Section 2.16 will forthwith be reinstated in effect, as though such payment had
not been made.
          (j) Until the Obligations have been paid in full and all of the
Commitments terminated, each Borrower hereby agrees that it will not enforce any
of its rights of contribution or subrogation against any other Borrower with
respect to any liability incurred by it hereunder or under any of the other Loan
Documents, any payments made by it to Agent or Lenders with respect to any of
the Obligations or any collateral security therefor until such time as all of
the Obligations have been paid in full in cash. Any claim which any Borrower may
have against any other Borrower with respect to any

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payments to any Agent or Lender hereunder or under any other Loan Documents are
hereby expressly made subordinate and junior in right of payment, without
limitation as to any increases in the Obligations arising hereunder or
thereunder, to the prior payment in full in cash of the Obligations and, in the
event of any insolvency, bankruptcy, receivership, liquidation, reorganization
or other similar proceeding under the laws of any jurisdiction relating to any
Borrower, its debts or its assets, whether voluntary or involuntary, all such
Obligations shall be paid in full in cash before any payment or distribution of
any character, whether in cash, securities or other property, shall be made to
any other Borrower therefor.
          (k) Each Borrower hereby agrees that, after the occurrence and during
the continuance of any Default or Event of Default, the payment of any amounts
due with respect to the indebtedness owing by any Borrower to any other Borrower
is hereby subordinated to the prior payment in full in cash of the Obligations.
Each Borrower hereby agrees that after the occurrence and during the continuance
of any Default or Event of Default, such Borrower will not demand, sue for or
otherwise attempt to collect any indebtedness of any other Borrower owing to
such Borrower until the Obligations shall have been paid in full in cash. If,
notwithstanding the foregoing sentence, such Borrower shall collect, enforce or
receive any amounts in respect of such indebtedness, such amounts shall be
collected, enforced and received by such Borrower as trustee for Agent, and such
Borrower shall deliver any such amounts to Agent for application to the
Obligations in accordance with Section 2.4(b).
3. CONDITIONS; TERM OF AGREEMENT.
     3.1 Conditions Precedent to the Initial Extension of Credit. The obligation
of each Lender to make its initial extensions of credit provided for hereunder,
is subject to the fulfillment, to the satisfaction of Agent and each Lender of
each of the conditions precedent set forth on Schedule 3.1 (the making of such
initial extension of credit by a Lender being conclusively deemed to be its
satisfaction or waiver of the conditions precedent ).
     3.2 Conditions Precedent to all Extensions of Credit. The obligation of the
Lender Group (or any member thereof) to initially make the Term Loan, any
Closing Date Advance and thereafter any future Advances hereunder (or to extend
any other credit hereunder) at any time shall be subject to the following
conditions precedent:
          (a) the representations and warranties of Parent or its Subsidiaries
contained in this Agreement or in the other Loan Documents or other certificate
delivered to the Agent or any Lender pursuant hereto or thereto shall be true
and correct in all respects on and as of the date of such extension of credit,
as though made on and as of such date (except to the extent that such
representations and warranties relate solely to an earlier date);
          (b) no Default or Event of Default shall have occurred and be
continuing on the date of such extension of credit, nor shall either result from
the making thereof;
          (c) no injunction, writ, restraining order, or other order of any
nature restricting or prohibiting, directly or indirectly, the extending of such
credit shall have been issued and remain in force by any Governmental Authority
against any Borrower, Agent, or any Lender; and
          (d) no Material Adverse Change shall have occurred since December 31,
2006.
     3.3 Term. This Agreement shall continue in full force and effect for a term
ending on December 13, 2012 (the “Maturity Date”). The foregoing
notwithstanding, the Lender Group, upon the election of the Required Lenders,
shall have the right to terminate its obligations under this Agreement
immediately and without notice upon the occurrence and during the continuation
of an Event of Default.

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     3.4 Effect of Termination. On the date of termination of this Agreement,
all Obligations (including contingent reimbursement obligations of Borrowers
with respect to outstanding Letters of Credit and including all Bank Product
Obligations) immediately shall become due and payable without notice or demand
(including the requirement that Borrower provide (a) Letter of Credit
Collateralization, and (b) Bank Product Collateralization). No termination of
this Agreement, however, shall relieve or discharge Parent or its Subsidiaries
of their duties, Obligations, or covenants hereunder or under any other Loan
Document and Agent’s Liens in the Collateral shall remain in effect until all
Obligations have been paid in full and the Lender Group’s obligations to provide
additional credit hereunder have been terminated. When this Agreement has been
terminated and all of the Obligations have been paid in full and the Lender
Group’s obligations to provide additional credit under the Loan Documents have
been terminated irrevocably, Agent will, at Borrowers’ sole expense, without
recourse, representation or warranty, execute and deliver any termination
statements, lien releases, mortgage releases, re-assignments of trademarks,
discharges of security interests, and other similar discharge or release
documents (and, if applicable, in recordable form) as are reasonably necessary
to release, as of record, Agent’s Liens and all notices of security interests
and liens previously filed by Agent with respect to the Obligations.
     3.5 Early Termination by Borrowers. Borrowers have the option, at any time
upon 10 days prior written notice to Agent, to terminate this Agreement and
terminate the Commitments hereunder by paying to Agent, in cash, the Obligations
(including (a) providing Letter of Credit Collateralization with respect to the
then existing Letter of Credit Usage and (b) providing Bank Product
Collateralization with respect to the then existing Bank Products), in full. If
Borrowers have sent a notice of termination pursuant to the provisions of this
Section, then the Commitments shall terminate and Borrowers shall be obligated
to repay the Obligations (including (a) providing Letter of Credit
Collateralization with respect to the then existing Letter of Credit Usage and
(b) providing Bank Product Collateralization with respect to the then existing
Bank Products), in full on the date set forth as the date of termination of this
Agreement in such notice.
4. REPRESENTATIONS AND WARRANTIES.
          In order to induce the Lender Group to enter into this Agreement, each
Borrower makes the following representations and warranties with respect to
itself and its property to the Lender Group which shall be true, correct, and
complete, in all respects, as of the date hereof, and at and as of the date of
the making of each Advance (or other extension of credit) made thereafter, as
though made on and as of the date of such Advance (or other extension of credit)
(except to the extent that such representations and warranties relate solely to
an earlier date which shall have been true, correct and complete as of such
earlier date) and such representations and warranties shall survive the
execution and delivery of this Agreement:
     4.1 No Encumbrances. Schedule 4.1 sets forth all Real Property (other than
Oil and Gas Properties) owned, leased, subleased or used by Parent or any of its
Subsidiaries as of the Closing Date. Parent and its Subsidiaries have good and
defensible title to, or a valid leasehold interest in, their personal property
assets and good and marketable title to, or a valid leasehold interest in, their
Real Property (other than Oil and Gas Properties), in each case, free and clear
of Liens except for Permitted Liens. Schedule 4.1 also describes any purchase
options, rights of first refusal or other similar contractual rights in favor of
Parent or any of its Subsidiaries pertaining to any Real Property (other than
Oil and Gas Properties) owned or leased by Parent or any of its Subsidiaries as
of the Closing Date. No portion of any Real Property (other than Oil and Gas
Properties) has suffered any material damage by fire or other casualty loss
which has not heretofore been repaired and restored in all material respects to
its original condition or otherwise remedied. All material permits required to
have been issued or appropriate to enable the Real Property (other than Oil and
Gas Properties) to be lawfully occupied and used for all of the purposes for

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which they are currently occupied and used have been lawfully issued and are in
full force and effect in all material respects.
     4.2 Margin Stock. Neither Parent nor any of its Subsidiaries is engaged,
nor will it engage, principally or as one of their important activities, in the
business of extending credit for the purpose of “purchasing” or “carrying” any
“margin security” as such terms are defined in Regulation U of the Federal
Reserve Board as now and from time to time hereafter in effect (such securities
being referred to herein as “Margin Stock”). Neither Parent nor any of its
Subsidiaries owns any Margin Stock, and none of the proceeds of the Term Loan,
Advances or other extensions of credit under this Agreement will be used,
directly or indirectly, for the purpose of purchasing or carrying any Margin
Stock, for the purpose of reducing or retiring any Indebtedness which was
originally incurred to purchase or carry any Margin Stock or for any other
purpose which might cause any of the Term Loan, Advances or other extensions of
credit under this Agreement to be considered a “purpose credit” within the
meaning of Regulation T, U or X of the Federal Reserve Board.
     4.3 Brokers. No broker or finder acting on behalf of any Borrower brought
about the obtaining, making or closing of the Loans and no Borrower has any
obligation to any Person in respect of any finder’s or brokerage fees in
connection therewith, other than those fees owing to Rivington Capital Advisors,
LLC and SMH Capital Inc. and previously disclosed to the Lenders.
     4.4 Jurisdiction of Organization; Location of Chief Executive Office;
Organizational Identification Number; Commercial Tort Claims.
          (a) The name of (within the meaning of Section 9-503 of the Code) and
jurisdiction of organization of Parent and each of its Subsidiaries is set forth
on Schedule 4.4(a) (as such Schedule may be updated from time to time to reflect
changes permitted to be made under Section 6.5).
          (b) The chief executive office of Parent and each of its Subsidiaries
is located at the address indicated on Schedule 4.4(b) (as such Schedule may be
updated from time to time to reflect changes permitted to be made under
Section 6.5).
          (c) Parent’s and each of its Subsidiaries’ tax identification numbers
and organizational identification numbers, if any, are identified on
Schedule 4.4(c) (as such Schedule may be updated from time to time to reflect
changes permitted to be made under Section 6.5).
          (d) As of the Closing Date, Parent and its Subsidiaries do not hold
any commercial tort claims, except as set forth on Schedule 4.4(d).
     4.5 Due Organization and Qualification; Compliance with Laws; Subsidiaries.
          (a) Each Borrower is duly organized and existing and in good standing
under the laws of the jurisdiction of its organization and qualified to do
business in any state where the failure to be so qualified reasonably could be
expected to result in a Material Adverse Change.
          (b) Set forth on Schedule 4.5(b), is a complete and accurate
description of the authorized capital Stock of each Borrower, by class, and, as
of the Closing Date, a description of the number of shares of each such class
that are issued and outstanding. Other than as described on Schedule 4.5(b),
there are no subscriptions, options, warrants, or calls relating to any shares
of each Borrower’s capital Stock, including any right of conversion or exchange
under any outstanding security or other instrument. No Borrower is subject to
any obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital Stock or any security convertible into or

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exchangeable for any of its capital Stock. Sufficient shares of Common Stock
have been (and will remain) authorized and reserved for the Lenders, free from
pre-emptive rights, for the purpose of enabling Borrowers to satisfy any
obligation to issue Common Stock upon the exercise of the Warrants.
          (c) Set forth on Schedule 4.5(c) (as such Schedule may be updated from
time to time to reflect changes permitted to be made under Section 5.15), is a
complete and accurate list of Parent’s direct and indirect Subsidiaries,
showing: (i) the jurisdiction of their organization, (ii) the number of shares
of each class of common and preferred Stock authorized for each of such
Subsidiaries, and (iii) the number and the percentage of the outstanding shares
of each such class owned directly or indirectly by the applicable Borrower.
Borrowers have no joint ventures or similar arrangements with any Person. All of
the outstanding capital Stock of each such Subsidiary has been validly issued
and is fully paid and non-assessable.
          (d) Except as set forth on Schedule 4.5(d), there are no
subscriptions, options, warrants, or calls relating to any shares of Parent’s
Subsidiaries’ capital Stock, including any right of conversion or exchange under
any outstanding security or other instrument. Neither Parent nor any of its
Subsidiaries are subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of Parent’s Subsidiaries’
capital Stock or any security convertible into or exchangeable for any such
capital Stock.
          (e) (i) Neither Parent nor any of its Subsidiaries are in violation of
any law, statute, regulation, ordinance, judgment, order, or decree applicable
to it (other than (A) Environmental Law which is addressed in Section 4.11 below
and (B) as set forth below in subclause (ii)), which violation could reasonably
be expected to cause a Material Adverse Change.
               (ii) Neither Parent nor any of its Subsidiaries have violated any
laws or failed to obtain any material license, permit, franchise or other
authorization from any Governmental Authority necessary for the ownership of any
of its Oil and Gas Properties or the conduct of its business. The Oil and Gas
Properties of Parent and its Subsidiaries (and assets and properties utilized
therewith) have been maintained, operated and developed in a good and
workmanlike manner and in substantial conformity with all applicable laws and
all rules, regulations and orders of all Governmental Authorities having
jurisdiction and in substantial conformity with the provisions of all leases,
subleases or other contracts comprising a part of the Hydrocarbon Interests and
other contracts and agreements forming a part of such Oil and Gas Properties;
specifically in this connection, (A) no Oil and Gas Property of Parent (or any
of its Subsidiaries) with a Total Reserve Value in excess of $100,000 is subject
to having allowable production reduced below the full and regular allowable
production (including the maximum permissible tolerance) because of any
overproduction (whether or not the same was permissible at the time) prior to
the Closing Date and (B) none of the wells comprising a part of such Oil and Gas
Properties (or assets and properties utilized therewith) is deviated from the
vertical by more than the maximum permitted by applicable laws, regulations,
rules and orders of any Governmental Authority, and such wells are, in fact,
bottomed under and are producing from, and the well bores are wholly within,
such Oil and Gas Properties (or in the case of wells located on Real Property
utilized therewith, such utilized Real Property) covered by the leases.
     4.6 Due Authorization; No Conflict.
          (a) As to each Borrower, the execution, delivery, and performance by
such Borrower of this Agreement and the Loan Documents to which it is a party
have been duly authorized by all necessary action on the part of such Borrower
and such Borrower has full power and authority to

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own and hold under lease its property and to conduct its business substantially
as currently conducted by it.
          (b) As to each Borrower, the execution, delivery, and performance by
such Borrower of this Agreement and the other Loan Documents to which it is a
party do not and will not (i) violate any provision of federal, state, or local
law or regulation applicable to any Borrower, the Governing Documents of any
Borrower, or any order, judgment, or decree of any court or other Governmental
Authority binding on any Borrower, (ii) conflict with, result in a breach of, or
constitute (with due notice or lapse of time or both) a default under any
Material Contract of any Borrower or require any approval or consent of any
Person under any Material Contract of any Borrower, other than consents or
approvals that have been obtained and that are still in force and effect, (iii)
result in or require the creation or imposition of any Lien of any nature
whatsoever upon any properties or assets of Borrower, other than Permitted
Liens, or (iv) require any approval of any Borrower’s equityholders, other than
approvals that have been obtained and that are still in force and effect.
          (c) Other than the filing of financing statements and the recordation
of the Mortgages and the entering into of Control Agreements, and any other
filings or actions to be taken after the Closing Date necessary to perfect Liens
granted to Agent in future acquired Collateral, the execution, delivery, and
performance by each Borrower of this Agreement and the other Loan Documents to
which such Borrower is a party do not and will not require any registration
with, consent, or approval of, or notice to, or other action with or by, any
Governmental Authority, other than consents or approvals that have been obtained
and that are still in force and effect.
          (d) As to each Borrower, this Agreement and the other Loan Documents
to which such Borrower is a party, and all other documents contemplated hereby
and thereby, when executed and delivered by such Borrower will be the legally
valid and binding obligations of such Borrower, enforceable against such
Borrower in accordance with their respective terms, except as enforcement may be
limited by equitable principles or by bankruptcy, insolvency, reorganization,
moratorium, or similar laws relating to or limiting creditors’ rights generally.
          (e) Agent’s Liens on all assets of the Parent and its Subsidiaries,
including, without limitation, the Oil and Gas Properties are validly created,
perfected (other than any Deposit Accounts and Securities Accounts not subject
to a Control Agreement as permitted by Section 6.11, and subject only to the
filing of financing statements and the recordation of the Mortgages), and first
priority Liens, subject as to priority only to (i) Permitted Liens and (ii) in
the case of Oil and Gas Properties not included within the group of Oil and Gas
Properties reflecting 80% of the Total Reserve Value as required under
Section 5.21, interests arising under oil and gas leases, farm-out agreements,
net profits agreements and other similar agreements (but in no event shall such
interest secure Indebtedness) (hereinafter, the “Limited Priority Exception for
20% of TRV”).
          (f) The execution, delivery, and performance by each Guarantor of the
Loan Documents to which it is a party have been duly authorized by all necessary
action on the part of such Guarantor and each Guarantor has full power and
authority to own and hold under lease its property and to conduct its business
substantially as currently conducted by it.
          (g) The execution, delivery, and performance by each Guarantor of the
Loan Documents to which it is a party do not and will not (i) violate any
provision of federal, state, or local law or regulation applicable to such
Guarantor, the Governing Documents of such Guarantor, or any order, judgment, or
decree of any court or other Governmental Authority binding on such Guarantor,
(ii) conflict with, result in a breach of, or constitute (with due notice or
lapse of time or both) a default under

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any Material Contract of such Guarantor or require any approval or consent of
any Person under any Material Contract of such Guarantor, other than consents or
approvals that have been obtained and that are still in force and effect,
(iii) result in or require the creation or imposition of any Lien of any nature
whatsoever upon any properties or assets of such Guarantor, other than Permitted
Liens, or (iv) require any approval of such Guarantor’s equityholders other than
approvals that have been obtained and that are still in force and effect.
          (h) Other than the filing of financing statements, the recordation of
the Mortgages, and other filings or actions necessary to perfect Liens granted
to Agent in the Collateral, the execution, delivery, and performance by each
Guarantor of the Loan Documents to which such Guarantor is a party do not and
will not require any registration with, consent, or approval of, or notice to,
or other action with or by, any Governmental Authority, other than as expressly
contemplated by the Loan Documents, and consents or approvals that have been
obtained and that are still in force and effect.
          (i) The Loan Documents to which each Guarantor is a party, and all
other documents contemplated hereby and thereby, when executed and delivered by
such Guarantor will be the legally valid and binding obligations of such
Guarantor, enforceable against such Guarantor in accordance with their
respective terms, except as enforcement may be limited by equitable principles
or by bankruptcy, insolvency, reorganization, moratorium, or similar laws
relating to or limiting creditors’ rights generally.
          (j) No Default or Event of Default exists.
     4.7 Litigation. Other than those matters disclosed on Schedule 4.7 and
other than matters arising after the Closing Date that reasonably could not be
expected to result in a Material Adverse Change, there are no actions, suits, or
proceedings pending or, to the best knowledge of each Borrower, threatened
against any Borrower.
     4.8 No Material Adverse Change.
          (a) All financial statements relating to Parent and its Subsidiaries
that have been delivered by Borrowers to the Lender Group have been prepared in
accordance with GAAP (except, in the case of unaudited financial statements, for
the lack of footnotes and being subject to year-end audit adjustments) and
present fairly in all material respects, Parent’s and its Subsidiaries’
financial condition as of the date thereof and results of operations for the
period then ended. There has not been a Material Adverse Change with respect to
Parent and its Subsidiaries since December 31, 2006.
          (b) The Projections, including any Projections delivered on or before
the Closing Date, when submitted to Agent as required pursuant to the Loan
Documents represent Borrowers’ good faith estimate of the future performance of
Parent and its consolidated Subsidiaries for the periods set forth therein based
on assumptions believed by Borrowers to be reasonable at the time of delivery
thereof to Agent (it being understood that such projections and forecasts are
subject to uncertainties and contingencies, many of which are beyond the control
of Parent and its Subsidiaries and no assurances can be given that such
projections or forecasts will be realized and further understood that
projections concerning volumes attributable to the Oil and Gas Properties and
production and cost estimates contained in the Projections are necessarily based
upon third-party professional opinions, estimates and projections and that
Parent and its Subsidiaries do not warrant that such opinions, estimates and
projections will ultimately prove to have been accurate, provided that all such
Projections shall be prepared in good faith based upon assumptions believed by
Borrowers to be reasonable at the time of the delivery thereof to Agent and
consistent with industry standards).

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     4.9 Fraudulent Transfer.
          (a) Parent and each of its Subsidiaries are Solvent.
          (b) No transfer of property is being made by Parent or any of its
Subsidiaries and no obligation is being incurred by Parent or any of its
Subsidiaries in connection with the transactions contemplated by this Agreement
or the other Loan Documents with the intent to hinder, delay, or defraud either
present or future creditors of Parent or its Subsidiaries.
     4.10 Employee Benefits. None of Parent, any of its Subsidiaries, or any of
their ERISA Affiliates maintains or contributes to any Pension Plan,
Multiemployer Plan or other Defined Benefit Plan.
4.11 Environmental Condition. Except as set forth on Schedule 4.11,
          (a) Parent, its Subsidiaries and their businesses, operations, Real
Property and real property formerly owned, leased, operated, managed, or
occupied by Parent, its Subsidiaries or any of their predecessors in interest
(the “Former Real Property”) are and have at all times during Borrowers’ or any
Subsidiary’s ownership, lease, operation, management, occupation or use thereof
been in material compliance with any applicable Environmental Laws;
          (b) Parent and its Subsidiaries have obtained all material permits
required for the conduct of their business and operations, and the ownership,
operation and use of the Real Property, under all applicable Environmental Laws
(the “Environmental Permits”). Parent and its Subsidiaries are in material
compliance with the terms and conditions of such Environmental Permits, and all
such Environmental Permits are valid and in good standing. No material
expenditures or operational adjustments are reasonably anticipated to be
required to remain in compliance with the terms and conditions of, or to renew
or modify such Environmental Permits;
          (c) There has been no Release or threatened Release or any handling,
management, generation, treatment, storage or disposal of Hazardous Materials
on, at, under or from any Real Property or Former Real Property that has
resulted in, or is reasonably likely to result in, a material Environmental
Liability for Parent or any of its Subsidiaries;
          (d) There is no material Environmental Action or Environmental
Liability pending or, to the knowledge of Parent or its Subsidiaries, threatened
against Parent or its Subsidiaries, or relating to the Real Property or Former
Real Property or relating to the operations of Parent or its Subsidiaries, and,
to the knowledge of Parent or its Subsidiaries, there are no actions,
activities, circumstances, conditions, events or incidents that are reasonably
likely to form the basis of such an Environmental Action or Environmental
Liability;
          (e) Neither Parent nor any of its Subsidiaries is conducting,
financing or is obligated to perform any material Response Action or otherwise
incur any material expense under Environmental Law pursuant to any Environmental
Action or agreement by which it is bound or has expressly assumed by contract or
agreement;
          (f) No Real Property or facility owned, operated or leased by Parent
or any of its Subsidiaries and, to the knowledge of Parent or any of its
Subsidiaries, no Former Real Property is (i) listed or proposed for listing on
the National Priorities List as defined in and promulgated pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
§9601 et seq. (“CERCLA”) or (ii) included on any similar list maintained by any
Governmental Authority that

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indicates that Parent or any of its Subsidiaries has or may have an obligation
to undertake any material Response Action;
          (g) No Environmental Lien has been recorded or, to the knowledge of
Parent or any of its Subsidiaries, threatened with respect to any Real Property;
          (h) The execution, delivery and performance of this Agreement, the
other Loan Documents and the other transactions contemplated hereby and thereby
will not require any notification, registration, filing, reporting, disclosure,
investigation, remediation or cleanup obligations pursuant to any requirement of
Governmental Authority or any other Environmental Law;
          (i) Parent and its Subsidiaries have made available to the Lenders all
material records and files in the possession, custody or control of, or
otherwise reasonably available to, Parent or its Subsidiaries concerning
compliance with or liability or obligation under Environmental Law, including
those concerning the condition of the Real Property or the existence of
Hazardous Materials at the Real Property or Former Real Property; and
          (j) None of the matters disclosed in Schedule 4.11, individually or in
the aggregate, is reasonably likely to cause a Material Adverse Change.
     4.12 Intellectual Property. Except with respect to Seismic Licenses, Parent
and each of its Subsidiaries own, or hold licenses in, all trademarks, trade
names, copyrights, patents, patent rights, and licenses that are necessary to
the conduct of its business as currently conducted, and attached hereto as
Schedule 4.12 (as updated from time to time) is a true, correct, and complete
listing of all material patents, patent applications, trademarks, trademark
applications, copyrights, and copyright registrations as to which Parent or one
of its Subsidiaries is the owner or is an exclusive licensee; provided, however,
that Borrowers may amend Schedule 4.12 to add additional property so long as
such amendment occurs by written notice to Agent not less than 10 days before
the date on which Parent or any of its Subsidiaries acquires any such property
after the Closing Date.
     4.13 Leases. Parent and its Subsidiaries enjoy good and defensible title
under all leases covering any Proved Oil and Gas Property with a Total Reserve
Value in excess of $100,000 and any other Real Property material to their
business and to which they are parties or under which they are operating, and
all of such leases are valid and subsisting and no material default by Parent or
its Subsidiaries exists under any of them. Except as set forth on Schedule 4.13,
there are no leases, subleases, contracts or other operating agreements that
allocate operating expenses to Parent or any of its Subsidiaries in excess of
its working interest of record in the particular Oil and Gas Property subject to
such lease, the sublease, contract or other operating agreement.
     4.14 Deposit Accounts and Securities Accounts. Set forth on Schedule 4.14
is a listing of all of Parent’s and its Subsidiaries’ Deposit Accounts and
Securities Accounts, including, with respect to each bank or securities
intermediary (a) the name and address of such Person, and (b) the account
numbers of the Deposit Accounts or Securities Accounts maintained with such
Person. So long as no Default or Event of Default has occurred and is
continuing, Borrowers may amend Schedule 4.14 to add or replace a Deposit
Account or Securities Account; provided, however, that (i) such prospective bank
or securities intermediary shall be reasonably satisfactory to Agent, and
(ii) prior to the time of the opening of such Deposit Account or Securities
Account, Parent (or its Subsidiaries, as applicable) and such prospective bank
or securities intermediary shall have executed and delivered to Agent a Control
Agreement, provided that this Section 4.14 shall not require the execution and
delivery of a Control Agreement with respect to two certificates of deposit
issued by Wells Fargo Bank, N.A., for $15,000 and $20,000, which are outstanding
on the Closing Date and mature in April 2008 (but such certificates of

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deposit shall not be rolled over, renewed or extended unless a Control Agreement
with respect to such certificates of deposit shall have been executed and
delivered).
     4.15 Complete Disclosure. Subject to Section 4.8(b) as to the Projections,
none of the factual information (taken as a whole) furnished by or on behalf of
Parent or its Subsidiaries in writing to Agent or any Lender (including all
information contained in the Schedules hereto or in the other Loan Documents)
for purposes of or in connection with this Agreement, the other Loan Documents,
or any transaction contemplated herein or therein contains any material
misstatement of fact, or omits to state any material fact necessary to make such
information not misleading in any material respect, at such time in light of the
circumstances under which such information was provided.
     4.16 Indebtedness. Set forth on Schedule 4.16 is a true and complete list
of all Indebtedness of Parent and its Subsidiaries outstanding immediately prior
to the Closing Date that is to remain outstanding after the Closing Date and
such Schedule accurately sets forth the aggregate principal amount of such
Indebtedness and the principal terms thereof.
     4.17 Material Contracts. Set forth on Schedule 4.17 is a description of all
Material Contracts of Parent and its Subsidiaries, showing the parties and
principal subject matter thereof and amendments and modifications thereto;
provided, however, that Borrowers may amend Schedule 4.17 to add additional
Material Contracts so long as such amendment of Schedule 4.17 occurs by written
notice to Agent not less than 5 days after the date on which Parent or its
Subsidiary enters into such Material Contract after the Closing Date. Except for
matters which, either individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Change, each Material Contract (other
than those that have expired at the end of their normal terms) (a) is in full
force and effect and is binding upon and enforceable against Parent or its
Subsidiary and, to the best of Parent’s knowledge, each other Person that is a
party thereto in accordance with its terms, (b) has not been otherwise amended
or modified (other than amendments or modifications permitted by
Section 6.7(c)), and (c) is not in default due to the action or inaction of
Parent or any of its Subsidiaries.
     4.18 Government Regulation. Neither Parent or any of its Subsidiaries is an
“investment company” or an “affiliated person” of, or “promoter” or “principal
underwriter” for, an “investment company,” as such terms are defined in the
Investment Company Act of 1940 as amended. Neither Parent nor any of its
Subsidiaries is subject to regulation under the Public Utility Holding Company
Act of 2005, the Federal Power Act, or any other federal or state statute that
restricts or limits its ability to incur Indebtedness or to perform its
obligations hereunder. The Advances and the other transactions contemplated
hereunder, the application of the proceeds thereof and repayment thereof comply
in all material respects with any such statute or any rule, regulation or order
issued by the SEC.
     4.19 Foreign Assets Control Regulations, Etc.
          (a) Neither Parent nor any of its Subsidiaries is in violation in any
material respect of the Trading with the Enemy Act, as amended, or any of the
foreign assets control regulations of the United States Treasury Department (31
CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive
order relating thereto.
          (b) Neither Parent nor any of its respective Subsidiaries (i) is, or
will become, a Person described or designated in the Specially Designated
Nationals and Blocked Persons List of the Office of Foreign Assets Control or in
Section 1 of the Anti-Terrorism Order or (ii) engages or will engage in any
dealings or transactions, or is or will be otherwise associated, with any such
Person. Parent and its Subsidiaries are in compliance, in all material respects,
with the USA Patriot Act.

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          (c) No part of the proceeds from the loans made hereunder will be used
by Borrowers, directly or indirectly, for any payments to any governmental
official or employee, political party, official of a political party, candidate
for political office, or anyone else acting in an official capacity, in order to
obtain, retain or direct business or obtain any improper advantage, in violation
of the United States Foreign Corrupt Practices Act of 1977, as amended.
     4.20 Insurance and Bonds. Schedule 4.20 lists all insurance policies of any
nature maintained for current occurrences by Borrowers, as well as a summary of
the terms of each such policy. No Borrower is in default of any obligation under
any such policy. Except as set forth on Schedule 4.20, all such policies are in
full force and effect, all premiums with respect thereto covering all periods up
to and including the Closing Date have been paid, and no notice of cancellation
or termination has been received with respect to any such policy. Schedule 4.20
contains an accurate and complete description of all performance bonds related
to operations on or pertaining to the Oil and Gas Properties of Parent and its
Subsidiaries as of the Closing Date. Such bonds and insurance policies are
sufficient for compliance with all requirements of law and of all agreements to
which Parent and each of its Subsidiaries is a party; are valid, outstanding and
enforceable policies; provide adequate coverage in at least such amounts and
against at least such risks (but including in any event public liability) as are
required by Governmental Authorities and/or usually insured or bonded against in
the same general area by companies engaged in the same or a similar business for
the assets and operations of Parent and its Subsidiaries; will remain in full
force and effect through the respective dates set forth in Schedule 4.20 without
the payment of additional premiums except as set forth on Schedule 4.20; and
will not in any way be affected by, or terminate or lapse by reason of, the
transactions contemplated by this Agreement.
     4.21 Government Contracts. Except as set forth in Schedule 4.21, neither
Parent nor any of its Subsidiaries is a party to any contract or agreement with
any Governmental Authority and no Account of either Parent or any of its
Subsidiaries is subject to the Federal Assignment of Claims Act, as amended (31
U.S.C. Section 3727).
     4.22 Taxes. All federal, state and other material tax returns, reports and
statements, including information returns, required by any Governmental
Authority to be filed by Parent and its Subsidiaries have been filed with the
appropriate Governmental Authority (and all such returns, reports and statements
accurately reflect in all material respects all liabilities of Parent and each
of its Subsidiaries for the periods covered thereby) and all charges have been
paid prior to the date on which any fine, penalty, interest or late charge may
be added thereto for nonpayment thereof (or any such fine, penalty, interest,
late charge or loss has been paid), excluding charges or other amounts that are
subject to a Permitted Protest. Proper and accurate amounts have been withheld
by Parent and its Subsidiaries from its respective employees for all periods in
full and complete compliance with all applicable federal, state, local and
foreign law and such withholdings have been timely paid to the respective
Governmental Authorities. Schedule 4.22 sets forth as of the Closing Date those
taxable years for which Parent’s and its Subsidiaries’ tax returns are currently
being audited by the IRS or any other applicable Governmental Authority and any
assessments or threatened assessments in connection with such audit, or
otherwise currently outstanding. As of the Closing Date and except as set forth
on Schedule 4.22, there is no action, suit, proceeding, investigation, audit or
claim now pending or threatened by any authority regarding any taxes relating to
Parent or its Subsidiaries, which, either individually or in the aggregate,
could reasonably be expected to cause a Material Adverse Change or to result in
a material liability to Parent or its Subsidiaries. Except as described on
Schedule 4.22, neither Parent nor any of its Subsidiaries has executed or filed
with the IRS or any other Governmental Authority any agreement or other document
extending, or having the effect of extending, the period for assessment or
collection of any charges or other amounts. None of Parent or its Subsidiaries
and their respective predecessors are liable for any charges or other amounts:
(a) under any agreement (including any tax sharing agreements) or (b) to
Parent’s or its Subsidiaries’ knowledge, as a transferee. As of the Closing
Date, neither Parent nor its

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Subsidiaries has agreed or been requested to make any adjustment under IRC
Section 481(a), by reason of a change in accounting method or otherwise, which
could cause a Material Adverse Change.
     4.23 Gas, Imbalances, Prepayments. As of the date hereof, except as set
forth on Schedule 4.23 or on the most recent certificate delivered pursuant to
Section 5.20(c), on a net basis there are no gas imbalances, take-or-pay or
other similar arrangement or any prepayment with respect to any of the Oil and
Gas Properties that would require Parent or any of its Subsidiaries either to
make cash settlements for such production or to deliver Hydrocarbons produced
from the Oil and Gas Properties at some future time in any case without then or
thereafter receiving full payment therefor exceeding, during any monthly period,
two percent (2%) of the current aggregate monthly gas production for such
monthly period from the Oil and Gas Properties of Parent and its Subsidiaries.
     4.24 Swap Agreements. Schedule 4.24 sets forth, as of the Closing Date, a
true and complete list of all Swap Agreements (including any commodity price
swap agreements, forward agreements or contracts of sale which provide for
prepayment for deferred shipment or delivery of Hydrocarbons or other
commodities) of Borrowers, the material terms thereof (including the type, term,
effective date, termination date and notional amounts or volumes), all credit
support agreements relating thereto (including any margin required or supplied),
and the counterparty to each such agreement.
     4.25 Location of Real Property and Leased Premises.
          (a) Schedule 4.25 lists completely and correctly as of the Closing
Date all Oil and Gas Properties that are Real Property whether leased or owned
by Parent (and its Subsidiaries, as applicable) and the respective addresses (if
any), counties and states thereof.
          (b) Parent and each of its Subsidiaries have good and defensible title
to all of their Oil and Gas Properties set forth on Schedule 4.25 which
constitute Real Property and good and defensible title to all of their Oil and
Gas Properties which constitute personal property, except for (i) such
imperfections of title which do not in the aggregate materially detract from the
value thereof to, or the use thereof in, the business of Borrowers or
(ii) Permitted Liens. The quantum and nature of the interest of Parent and its
Subsidiaries in and to the Oil and Gas Properties as set forth in the Initial
Reserve Report or the most recent Reserve Report, as the case may be, includes
the entire interest of Parent and its Subsidiaries in such Oil and Gas
Properties as of the date of the Initial Reserve Report (subject, in the case of
the Lower Rio Del formation acreage, to the Farmout Agreement) or such
applicable Reserve Report delivered by Administrative Borrower to Agent pursuant
to Section 5.20, as the case may be, and are complete and accurate in all
material respects as of the date of the Initial Reserve Report or such
applicable Reserve Report, as the case may be; and there are no “back-in” or
“reversionary” interests held by third parties which could materially reduce the
interest of any Borrower in such Oil and Gas Properties except as expressly set
forth in the Initial Reserve Report or the most recent Reserve Report, as the
case may be. The ownership of the Oil and Gas Properties by Parent and each of
its Subsidiaries shall not in any material respect obligate Parent or any such
Subsidiary to bear the costs and expenses relating to the maintenance,
development or operations of each such Oil and Gas Property in an amount in
excess of the working interest of record of Borrowers in each Oil and Gas
Property set forth in the Initial Reserve Report or the most recent Reserve
Report, as the case may be, other than with respect to the ORRI Conveyance
pursuant to which Foothills Texas, Inc. retains responsibility for costs and
expenses associated with maintenance, development and operations of the Oil and
Gas Properties covered by such agreement as set forth therein.
          (c) For current volumes of production of Hydrocarbons from the Oil and
Gas Properties of Parent and its Subsidiaries, Parent and each of its
Subsidiaries’ marketing, gathering, transportation, processing and treating
facilities and equipment, together with any marketing,

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gathering, transportation, processing and treating contracts in effect between
and/or among Parent, its Subsidiaries and any other Person, are sufficient to
gather, transport, process and/or treat such volumes of production of
Hydrocarbons from such Oil and Gas Properties.
          (d) For reasonably anticipated volumes (in excess of current volumes
referred to in clause (c) above) of production of Hydrocarbons from the Oil and
Gas Properties of Parent and its Subsidiaries arising after the Closing Date,
Parent and each of its Subsidiaries fully expect to acquire sufficient
marketing, gathering, transportation, processing and treating facilities and
equipment, together with any marketing, gathering, transportation, processing
and treating contracts in effect between and/or among Parent, its Subsidiaries
and any other Person to gather, transport, process and/or treat such reasonably
anticipated volumes of production of Hydrocarbons from the Oil and Gas
Properties, and the Projections most recently furnished to Agent and Lenders
reflect the anticipated cost and expense of obtaining and rendering the
foregoing operational.
     4.26 Nature of Business. Neither Parent nor any of its Subsidiaries is
engaged in any business other than the Oil and Gas Business within the
continental United States.
     4.27 Seismic Licenses. To the extent not prohibited by the terms thereof,
or any confidentiality agreement, Schedule 4.27 (as amended by Borrowers from
time to time) identifies all of the license agreements relating to the
performance of seismic exploration on the Oil and Gas Properties (“Seismic
Licenses”) to which Parent and its Subsidiaries are a party. With respect to the
Seismic Licenses: (i) all Seismic Licenses are in effect and have not expired or
terminated; (ii) neither Parent nor any of its Subsidiaries is in material
breach or material default, and there has occurred no event, fact, or
circumstance, that, with the lapse of time or the giving of notice, or both,
would constitute such a material breach or material default by Parent or any of
its Subsidiaries, as applicable, with respect to the terms of any Seismic
License; and (iii) neither Parent, nor any Subsidiary thereof, nor, to the
knowledge of Borrowers, any other party to any Seismic License has given written
notice of any action to terminate, cancel, rescind, or procure a judicial
reformation of any Seismic License or any provision thereof. To the extent not
prohibited by the terms of the Seismic Licenses or any confidential agreement,
all of the transfer fees or similar amounts payable by Parent or any of its
Subsidiaries, as applicable, under the terms of the Seismic Licenses upon the
consummation of the transactions contemplated herein, or the method of
calculating same, are set forth in Schedule 4.27.
     4.28 Marketing of Production. Except for (i) contracts listed and in effect
on the date hereof on Schedule 4.28, and (ii) contracts thereafter either
disclosed in writing to Agent or included in the most recently delivered Reserve
Report and, in any case, approved by Agent (with respect to all of which
contracts Borrowers represent that they or their Subsidiaries are receiving a
price for all production sold thereunder which is computed substantially in
accordance with the terms of the relevant contract and are not having deliveries
curtailed substantially below the subject Property’s delivery capacity),
Borrowers have no Long Term Fixed Rate Contracts. As used herein, “Long Term
Fixed Rate Contracts” means any material agreement that is not cancelable on 60
days notice or less without penalty or detriment for the sale of production from
Parent’s or its Subsidiaries’ Hydrocarbons (including, without limitation, calls
on or other rights to purchase, production, whether or not the same are
currently being exercised) that (a) pertains to the sale of production at a
fixed price and (b) has a maturity or expiry date of more than six (6) months
from the date of such agreement. Each Borrower (and each of its Subsidiaries)
(x) is presently receiving a price for all production from (or attributable to)
each Oil and Gas Property covered by a production sales contract or marketing
contract that is computed in accordance with the terms of such contract and none
of such proceeds are currently being held in suspense by such purchaser or any
other Person and (y) is not having deliveries of production from such Oil and
Gas Property curtailed by any purchaser or transporter of production
substantially below such property’s delivery capacity. Except as set forth in
Schedule 4.28, none of the Oil and Gas Properties of Parent or any Subsidiary
thereof) are subject

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to any contractual or other arrangement whereby payment for production therefrom
is to be deferred for a substantial period of time after the month in which such
production is delivered (i.e., in the case of oil, not in excess of 60 days, and
in the case of gas, not in excess of 90 days).
5. AFFIRMATIVE COVENANTS.
          Each Borrower covenants and agrees that, until termination of all of
the Commitments and payment in full of the Obligations, Borrowers shall and
shall cause each of their respective Subsidiaries to do all of the following:
     5.1 Accounting System. Maintain a system of accounting that enables Parent
and its Subsidiaries to produce financial statements in accordance with GAAP and
maintain records pertaining to the Collateral that contain information as from
time to time reasonably may be requested by Agent. Parent and its Subsidiaries
also shall keep a reporting system that shows all additions, sales, claims,
returns, and allowances with respect to their and their Subsidiaries’ sales.
     5.2 Collateral Reporting. Provide Agent (and if so requested by Agent, with
copies for each Lender) with each of the reports set forth on Schedule 5.2 at
the times specified therein.
     5.3 Financial Statements, Reports, Certificates. Deliver to Agent, with
copies to each Lender, each of the financial statements, reports, or other items
set forth on Schedule 5.3 at the times specified therein. In addition, Parent
agrees that no Subsidiary of Parent will have a fiscal year different from that
of Parent.
     5.4 Guarantor Reports. Cause each Guarantor to deliver its annual financial
statements at the time when Parent provides its audited financial statements to
Agent, but only to the extent such Guarantor’s financial statements are not
consolidated with Parent’s financial statements.
     5.5 Inspection. Permit Agent, Regiment and each of their duly authorized
representatives or agents to visit any of its properties and inspect any of its
assets or books and records, to examine and make copies of its books and
records, and to discuss its affairs, finances, and accounts with, and to be
advised as to the same by, its officers and employees at such reasonable times
and intervals as Agent or any such Lender may designate and, so long as no
Default or Event of Default then exists, (i) up to two such visits per calendar
year shall be at the sole cost of Borrowers (it being understood and agreed that
except as otherwise expressly provided in this Section with respect to visits,
nothing in this Section 5.5 shall limit in any respect the obligation of Parent
and its Subsidiaries to pay other Obligations and Lender Group Expenses,
including, without limitation, all out-of-pocket fees, costs and expenses in
connection with the preparation and delivery of Reserve Reports and all fees and
charges set forth in the Fee Letter), and (ii) such visits shall be with
reasonable prior notice to Administrative Borrower.
     5.6 Maintenance of Properties. Parent and its Subsidiaries will:
          (a) prudently operate their Oil and Gas Properties for the production
of Hydrocarbons, operate their other Properties and, to the extent Parent or one
of its Subsidiaries is not the operator of a Property in which it has an
interest, Borrowers shall use reasonable efforts to cause the operator to
operate such Property, in each case in a careful and efficient manner in
accordance with the usual and customary practices of the industry, in
substantial compliance with all applicable contracts and agreements, in the case
of Oil and Gas Properties in accordance with good engineering practices and in
all cases in compliance in all respects with all laws, including, without
limitation, applicable proration requirements and Environmental Laws, and all
applicable laws, rules and regulations of every other Governmental Authority
from time to time constituted to regulate the development and operation of their

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Oil and Gas Properties and the production and sale of Hydrocarbons and other
minerals therefrom, except, in each case, where the failure to comply could not
(either individually or in the aggregate) reasonably be expected to result in a
Material Adverse Change;
          (b) keep and maintain all Property material to the conduct of their
business in good working order and condition, ordinary wear and tear excepted,
preserve, maintain and keep in good repair, working order and efficiency
(ordinary wear and tear excepted) all of their material Oil and Gas Properties
and other material Properties, including, without limitation, all equipment,
machinery, facilities, and marketing, gathering, transportation and processing
assets and, from time to time, will make all the reasonably necessary repairs,
renewals and replacements so that at all times the state and conditions of such
Oil and Gas Properties and other material Properties will be fully preserved and
maintained, except to the extent a portion of such assets is no longer capable
of producing Hydrocarbons in economically reasonable amounts;
          (c) promptly pay and discharge, or make reasonable and customary
efforts to cause to be paid and discharged, all delay rentals, royalties,
expenses and indebtedness accruing under the leases or other agreements
affecting or pertaining to their Oil and Gas Properties and will do all other
things necessary to keep unimpaired their rights with respect thereto and
prevent any forfeiture thereof or default thereunder; and
          (d) promptly perform or make reasonable and customary efforts to cause
to be performed, in accordance with industry standards, the obligations required
by each and all of the assignments, deeds, leases, sub-leases, contracts and
agreements affecting their interests in their Oil and Gas Properties and other
material Properties and all the accompanying elements in quantities and at
prices providing for continued efficient and profitable operations of business
and do all other things necessary to keep unimpaired, except for Permitted
Liens, their rights with respect thereto and prevent any forfeiture thereof or a
default thereunder, except to the extent a portion of such properties is no
longer capable of producing Hydrocarbons in economically reasonable amounts.
     5.7 Taxes. Cause all assessments and taxes, whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against Parent and
its Subsidiaries or any of their respective assets to be paid in full, before
delinquency or before the expiration of any extension period, except to the
extent that the validity of such assessment or tax shall be the subject of a
Permitted Protest. Parent and its Subsidiaries will make timely payment or
deposit of all tax payments and withholding taxes required of them by applicable
laws, including those laws concerning F.I.C.A., F.U.T.A., state disability, and
local, state, and federal income taxes, and will, upon request, furnish Agent
with proof satisfactory to Agent indicating that the applicable Borrower have
made such payments or deposits.
     5.8 Insurance.
          (a) At Borrowers’ expense, maintain insurance respecting their and
their Subsidiaries assets wherever located, covering loss or damage by fire,
theft, explosion, and all other hazards and risks as ordinarily are insured
against by other Persons engaged in the same or similar businesses. All such
policies of insurance shall be in such amounts and with such insurance companies
as are reasonably satisfactory to Agent. Borrowers shall deliver copies of all
such policies to Agent with an endorsement naming Agent (on behalf of the
Lenders) as the sole loss payee (under a satisfactory lender’s loss payable
endorsement) or additional insured, as appropriate. Each policy of insurance or
endorsement shall contain a clause requiring the insurer to give not less than
30 days prior written notice to Agent in the event of cancellation of the policy
for any reason whatsoever. During the period of the drilling of wells and the
construction of any other improvements comprising a part of the Oil and Gas
Properties of Borrowers, Borrowers shall, and shall cause its contractors or

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subcontractors to, obtain and maintain well control insurance (including
coverage for costs and redrilling), in such form and amounts as is customary in
the industry, and worker’s compensation insurance covering all Persons employed
by Borrowers or such contractors or subcontractors, as applicable, or their
agents or further subcontractors of any tier in connection with any construction
affecting such Oil and Gas Properties, including, without limitation, all agents
and employees of Borrowers and their subcontractors with respect to whom death
or bodily injury claims could be asserted against Borrowers. If Borrowers at any
time or times hereafter shall fail to obtain or maintain any of the policies of
insurance required above or to pay all premiums relating thereto, Agent may at
any time or times thereafter obtain and maintain such policies of insurance and
pay such premiums and take any other action with respect thereto which Agent
deems advisable. Agent shall have no obligation to obtain insurance for
Borrowers or pay any premiums therefor. By doing so, Agent shall not be deemed
to have waived any Default or Event of Default arising from Borrowers’ failure
to maintain such insurance or pay any premiums therefor. All sums so disbursed,
including reasonable attorneys’ fees, court costs and other charges related
thereto, shall be payable on demand by Borrowers to Agent and shall be
additional Obligations hereunder secured by the Collateral.
          (b) Administrative Borrower shall give Agent prompt notice of any loss
exceeding $100,000 covered by such insurance. So long as no Event of Default has
occurred and is continuing, Borrowers shall have the exclusive right to adjust
any losses payable under any such insurance policies which are less than
$100,000. Following the occurrence and during the continuation of an Event of
Default, or in the case of any losses payable under such insurance exceeding
$100,000, Agent shall have the exclusive right to adjust any losses payable
under any such insurance policies, without any liability to Borrowers whatsoever
in respect of such adjustments.
          (c) Borrowers will not take out separate insurance concurrent in form
or contributing in the event of loss with that required to be maintained under
this Section 5.8, unless Agent is included thereon as an additional insured or
loss payee under a lender’s loss payable endorsement. Administrative Borrower
shall notify Agent promptly whenever such separate insurance is taken out,
specifying the insurer and the type and amount of insurance provided thereunder
as to the policies evidencing the same, and copies of such policies shall be
provided to Agent promptly after receipt by Loan Parties thereof.
     5.9 Compliance with Laws. Comply with the requirements of all applicable
laws, rules, regulations, and orders of any Governmental Authority, other than
Environmental Laws (which are addressed in Section 5.12 below) and laws (other
than Environmental Laws), rules, regulations, and orders the non-compliance with
which, individually or in the aggregate, could not reasonably be expected to
result in a Material Adverse Change. Each Borrower and each of its Subsidiaries
shall obtain and maintain all material licenses, permits, franchises, and
governmental authorizations necessary to own their property and to conduct their
business as conducted on the Closing Date.
     5.10 Leases. Pay when due all rents and other amounts payable under all
leases covering any Proved Oil and Gas Property with a Total Reserve Value in
excess of $100,000 and any other Real Property material to their business or by
which Borrowers’ material properties and assets are bound, unless such payments
are the subject of a Permitted Protest.
     5.11 Existence. At all times preserve and keep in full force and effect
each Borrower’s and each of its Subsidiaries’, valid existence and good standing
and, except as could not reasonably be expected to result in a Material Adverse
Change to Parent and its Subsidiaries, taken as a whole, any rights, franchises,
permits, licenses, accreditations, authorizations, or other approvals material
to their businesses.

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     5.12 Environmental.
          (a) Keep any Real Property free of any Environmental Liens or post
bonds or other financial assurances sufficient to satisfy the obligations or
liability evidenced by such Environmental Liens,
          (b) Comply, in all material respects, with all Environmental Laws and
Environmental Permits; obtain and maintain in full force and effect all material
Environmental Permits; and conduct all actions, including Response Actions,
required under any Environmental Actions or applicable Environmental Laws, and
in material compliance with, the requirements of any Governmental Authority and
applicable Environmental Laws;
          (c) Do or cause to be done all things necessary to prevent any Release
in, on, under, to or from any Real Property except in full compliance with
applicable Environmental Laws or an Environmental Permit, and ensure that there
shall be no Hazardous Materials in, on, under or from any Real Property except
those that are used, stored, handled and managed in material compliance with
applicable Environmental Laws;
          (d) Undertake all actions, including Response Actions, necessary, at
the sole cost and expense of Borrowers, to address (i) any Environmental Action
and any obligations thereunder; (ii) any Release at, from or onto any Real
Property as required pursuant to Environmental Law or the requirements of any
Governmental Authority; and (iii) Environmental Liability;
          (e) Diligently pursue and use commercially reasonable efforts to cause
any Person with an indemnity, contribution or other obligation to any of the
Loan Parties or their Subsidiaries relating to any Environmental Action or
compliance with or liability under Environmental Law to satisfy such obligations
in full and in a timely manner; and shall not amend in any way or waive any or
all rights to such obligations without the prior written consent of Agent;
          (f) Upon Agent’s reasonable request, promptly provide to Agent
documentation reasonably acceptable to Agent of compliance with items
(a) through (e), including, without limitation, within 45 days following a
written request of Agent, but no more frequently than once each year unless an
Event of Default exists, pursuant to Section 5.12(g) below, or a Default caused
by reason of a breach of Sections 4.11 or 5.12 herein, provide Agent with an
environmental assessment, including where appropriate any soil and/or
groundwater sampling, prepared by an environmental consulting firm reasonably
acceptable to Agent, and in form and substance reasonably acceptable to Agent;
and
          (g) Promptly, but in any event within 10 days of its obtaining
knowledge or receipt of notice thereof, provide Agent with written notice of,
and all data, information and reports generated or prepared in connection with,
any of the following: (i) an Environmental Lien has been filed or is threatened
against the Real Property or any personal property of Parent or any of its
Subsidiaries, (ii) commencement of any material Environmental Action or notice
that a material Environmental Action will be filed against Parent or any of its
Subsidiaries, and (iii) any Release or threatened Release of a reportable
quantity, and that could reasonably be expected to result in a material
Environmental Liability, in, on, under, at, from or migrating to any Real
Property owned, leased or operated by Parent or any of its Subsidiaries, except
as otherwise pursuant to and in compliance with the terms and conditions of an
Environmental Permit, (iv) any material non-compliance with, or violation of,
any Environmental Law applicable to Parent or any of its Subsidiaries, any of
Parent or any of its Subsidiaries’ business and any Real Property, (v) any
Response Action which could reasonably be expected to result in a material
Environmental Liability, (vi) any notice or other communication received by
Parent or any of its

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Subsidiaries from any Person or Governmental Authority relating to any material
Environmental Liability.
     5.13 Disclosure Updates. Promptly and in no event later than 5 Business
Days after obtaining knowledge thereof, notify Agent if any written information,
exhibit, or report furnished to the Lender Group contained, at the time it was
furnished, any untrue statement of a material fact or omitted to state any
material fact necessary to make the statements contained therein not misleading
in light of the circumstances in which made. The foregoing to the contrary
notwithstanding, any notification pursuant to the foregoing provision will not
cure or remedy the effect of the prior untrue statement of a material fact or
omission of any material fact nor shall any such notification have the effect of
amending or modifying this Agreement or any of the Schedules hereto.
     5.14 Control Agreements. As required herein, take all reasonable steps in
order for Agent to obtain control in accordance with Sections 8-106, 9-104,
9-105, 9-106, and 9-107 of the Code with respect to (subject to the proviso
contained in Section 6.11) all of its Securities Accounts, Deposit Accounts,
electronic chattel paper, investment property, and letter-of-credit rights.
     5.15 Formation of Subsidiaries. To the extent expressly permitted under
this Agreement, if at the time that any Borrower or any Guarantor forms any
direct or indirect Subsidiary or acquires any direct or indirect Subsidiary
after the Closing Date, prior to formation or acquisition, such Borrower or such
Guarantor shall (a) cause such new Subsidiary to provide to Agent a joinder to
this Agreement or to the Guaranty (as the Agent shall determine) and the
Security Agreement, together with such other security documents (including
Mortgages with respect to any Real Property of such new Subsidiary), as well as
appropriate financing statements (and with respect to all property subject to a
Mortgage, fixture filings), all in form and substance satisfactory to Agent
(including being sufficient to grant Agent a first priority Lien (subject to
Permitted Liens and in the case of the Oil and Gas Properties subject to the
Limited Priority Exception for 20% of TRV) in and to the assets of such newly
formed or acquired Subsidiary), (b) provide to Agent a pledge agreement and
appropriate certificates and powers or financing statements, hypothecating all
of the direct or beneficial ownership interest in such new Subsidiary, in form
and substance satisfactory to Agent, and (c) provide to Agent all other
documentation, including one or more opinions of counsel satisfactory to Agent,
which in its opinion is appropriate with respect to the execution and delivery
of the applicable documentation referred to above (including policies of title
insurance or other documentation with respect to all property subject to a
Mortgage, subject to any limitation expressly set forth in Section 5.21). Any
document, agreement, or instrument executed or issued pursuant to this
Section 5.15 shall be a Loan Document.
     5.16 Further Assurances. At any time upon the request of Agent, Borrowers
shall execute or deliver to Agent, and shall cause their Subsidiaries to execute
or deliver to Agent, any and all financing statements, fixture filings, security
agreements, pledges, assignments, endorsements of certificates of title,
mortgages, deeds of trust, opinions of counsel, and all other documents
(collectively, the “Additional Documents”) that Agent may request in form and
substance reasonably satisfactory to Agent, to create, perfect, and continue
perfected or to better perfect Agent’s Liens with respect to Oil and Gas
Properties and all of the other properties and assets of Parent and its
Subsidiaries (whether now owned or hereafter arising or acquired, tangible or
intangible, real or personal), to create and perfect Liens in favor of Agent in
any Real Property acquired by Parent or any of its Subsidiaries after the
Closing Date, and in order to fully consummate all of the transactions
contemplated hereby and under the other Loan Documents, provided that Section
5.21 shall govern the obligation of Borrowers to deliver title information with
respect to Oil and Gas Properties. To the maximum extent permitted by applicable
law, Parent and its Subsidiaries authorize Agent to execute any such Additional
Documents in their or their Subsidiaries’ names, as applicable and to file such
executed Additional Documents in any appropriate filing office. With respect to
any Oil and Gas Property that Parent or any of its Subsidiaries acquires after
the Closing

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Date or any post Closing Date discovery and/or confirmation of the existence of
Hydrocarbons in any property owned or leased by Parent or of its Subsidiaries
that is not subject to an existing Mortgage, Parent and its Subsidiaries shall
promptly: (a) notify Agent of such acquisition (not more than 5 Business Days
after such acquisition), (b) execute and deliver to Agent such additional
Mortgages or amendments to the Mortgages or such other documents as Agent shall
deem necessary or advisable to grant to Agent, for the benefit of the Lenders, a
perfected first priority Lien on such Oil and Gas Property (subject to Permitted
Liens and in the case of the Oil and Gas Properties subject to the Limited
Priority Exception for 20% of TRV); and (b) take all actions necessary or
advisable to cause such Lien to be duly perfected in accordance with all
applicable law, including, without limitation, the filing of Mortgages (within
20 days after Agent’s request therefor), or UCC financing statements in such
jurisdictions as may be requested by Agent.
     5.17 Material Contracts. Contemporaneously with the delivery of each
Compliance Certificate pursuant hereto, provide Agent with copies of (a) each
Material Contract entered into since the delivery of the previous Compliance
Certificate, and (b) each amendment or modification of any Material Contract
entered into since the delivery of the previous Compliance Certificate.
     5.18 Intellectual Property. Parent and each Subsidiary will conduct its
business and affairs without material infringement of or material interference
with any intellectual property of any other Person.
     5.19 Exercise of Rights. Borrowers shall enforce all of its material
rights, including, without limitation, all material indemnification rights, and
pursue all material remedies available to Borrowers with diligence and in good
faith in connection with the enforcement of any such rights.
     5.20 Reserve Reports.
          (a) On or before April 3rd and October 3rd of each year, commencing
April 3, 2008, Parent and its Subsidiaries shall furnish to Agent and the
Lenders a Reserve Report as of the immediately preceding January 1 or July 1, as
applicable. The Reserve Report as of January 1 of each year shall be prepared by
one or more independent third party Petroleum Engineers reasonably acceptable to
Agent and the Reserve Report as of July 1 of each year shall be prepared by or
under the supervision of the chief engineer of Borrowers who shall certify such
Reserve Report to be true and accurate in all material respects and to have been
prepared in accordance with the procedures used in the immediately preceding
January 1 Reserve Report.
          (b) In the event of an Interim Redetermination, Parent and its
Subsidiaries shall furnish to Agent and the Lenders a Reserve Report prepared by
or under the supervision of the chief engineer of Borrowers who shall certify
such Reserve Report to be true and accurate in all material respects and to have
been prepared in accordance with the procedures used in the immediately
preceding January 1 Reserve Report. For any Interim Redetermination requested by
Agent or Borrowers pursuant to Section 2.1, Borrowers shall provide such Reserve
Report with an “as of” date as required by Agent as soon as possible, but in any
event no later than thirty (30) days following the receipt of such request.
          (c) With the delivery of each Reserve Report, Parent and its
Subsidiaries shall provide to Agent and the Lenders a certificate from a
Responsible Officer certifying that in all material respects: (i) the
information contained in the Reserve Report and any other information delivered
in connection therewith is true and correct, (ii) Parent and its Subsidiaries
owns good and defensible title to the Proved Oil and Gas Properties evaluated in
such Reserve Report and such Properties are free of all Liens except for Liens
permitted under clauses (a), (b), (e), (k) and (m) of the definition of
“Permitted Liens,” (iii) except as set forth on an exhibit to the certificate,
on a net basis there are no gas imbalances,

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take or pay or other prepayments in excess of the volume specified in
Section 4.25 with respect to their Oil and Gas Properties evaluated in such
Reserve Report that would require Parent or any of its Subsidiaries to deliver
Hydrocarbons either generally or produced from such Oil and Gas Properties at
some future time without then or thereafter receiving full payment therefor,
(iv) none of their Proved Oil and Gas Properties have been sold since the date
of the last Borrowing Base determination except as set forth on an exhibit to
the certificate, which certificate shall list all of their Proved Oil and Gas
Properties sold and in such detail as reasonably required by Agent, (v) attached
to the certificate is a list of all marketing agreements entered into subsequent
to the later of the date hereof or the most recently delivered Reserve Report
that Borrowers could reasonably be expected to have been obligated to list on
Schedule 4.28 had such agreement been in effect on the date hereof,
(vi) attached thereto is a schedule of the Oil and Gas Properties evaluated by
such Reserve Report that are Mortgaged Properties and demonstrating the
percentage of the Total Reserve Value that such Mortgaged Properties represent,
including a listing of the Mortgaged Properties at such time that are equal to
at least 80% of the Total Reserve Value of the Proved Oil and Gas Properties
evaluated by such Reserve Report and for which satisfactory title information
has been received by Agent pursuant to Section 5.21, and (vii) all Oil and Gas
Properties are subject to the Security Documents securing the Obligations, and
such Security Documents constitute legal, valid and duly perfected, first
priority security interests and Liens in favor of Agent in such properties and
in the oil and gas attributable to such properties and proceeds thereof; subject
only to Permitted Liens and the Limited Priority Exception for 20% of TRV set
forth in Section 4.6(e).
     5.21 Title Information.
          (a) On or prior to the Closing Date, unless otherwise agreed to by
Agent, Parent and its Subsidiaries will deliver title information in form and
substance acceptable to Agent covering enough of the Oil and Gas Properties
evaluated by the Initial Reserve Report, so that Agent shall have received,
together with title information previously delivered to Agent, satisfactory
title information on at least 80% of the Total Reserve Value of the Proved Oil
and Gas Properties evaluated by the Initial Reserve Report.
          (b) On or before the delivery to Agent and the Lenders of each Reserve
Report required by Section 5.20(a), Parent and its Subsidiaries will deliver
title information in form and substance acceptable to Agent covering enough of
the Oil and Gas Properties evaluated by such Reserve Report that were not
included in the immediately preceding Reserve Report, so that Agent shall have
received together with title information previously delivered to Agent,
satisfactory title information on at least 80% of the Total Reserve Value of the
Proved Oil and Gas Properties evaluated by such Reserve Report.
          (c) If Parent or its Subsidiaries have provided title information for
additional Properties under Section 5.21(b), Parent and its Subsidiaries shall,
within 60 days of notice from Agent that title defects or exceptions exist with
respect to such additional Properties, either (i) cure any such title defects or
exceptions (including defects or exceptions as to priority) which are not
permitted by Section 6.2 raised by such information, (ii) substitute acceptable
Mortgaged Properties with no title defects or exceptions except for Permitted
Liens (other than Permitted Liens described in clause (g) of such definition)
having an equivalent value or (iii) deliver title information in form and
substance reasonably acceptable to Agent so that Agent shall have received,
together with title information previously delivered to Agent, satisfactory
title information on at least 80% of the Total Reserve Value of the Oil and Gas
Properties evaluated by such Reserve Report. For purposes of clarity, delivery
of such title information in respect of 80% of the value of such Oil and Gas
Properties shall not preclude Agent from establishing reserves against the
then-existing Borrowing Base pursuant to Section 2.1(b).

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          (d) If Parent and its Subsidiaries are unable to cure any title defect
requested by Agent or the Lenders to be cured within the 60-day period or Parent
or any of its Subsidiaries do not comply with the requirements to provide
acceptable title information covering 80% of the Total Reserve Value of the Oil
and Gas Properties evaluated in the most recent Reserve Report, such default
shall not be a Default, but instead Agent and/or the Required Lenders shall have
the right to exercise the following remedy in their sole discretion from time to
time, and any failure to so exercise this remedy at any time shall not be a
waiver as to future exercise of the remedy by Agent or the Lenders. To the
extent that Agent or the Required Lenders are not reasonably satisfied with
title to any Mortgaged Property after the 60-day period has elapsed, such
unacceptable Mortgaged Property shall not count towards “the 80% requirement,”
and Agent may send a notice to Administrative Borrower and the Lenders that the
then outstanding Borrowing Base shall be reduced by an amount as determined by
the Required Lenders to cause Parent and its Subsidiaries to be in compliance
with the requirement to provide acceptable title information on 80% of the Total
Reserve Value of the Proved Oil and Gas Properties pursuant to this
Section 5.21. This new Borrowing Base shall become effective immediately after
receipt of such notice.
     5.22 Swap Agreements. Subject to the provisions of Section 6.23, Borrowers
shall maintain in effect one or more Swap Agreements with respect to its
Hydrocarbon production, with the aggregate notional volumes of Hydrocarbons
covered by such Swap Agreements constituting not less than 50% of the aggregate
amount of Borrowers’ estimated Hydrocarbon production volumes on an Mcf
equivalent basis (where one barrel of oil is equal to six Mcf of gas) for the
succeeding twelve calendar months on a rolling twelve month basis for such
period from Oil and Gas Properties classified as Proved Developed Producing
Reserves in the most recent Reserve Report delivered pursuant to Section 5.20.
Borrowers shall use such Swap Agreements solely as a part of their normal
business operations as a risk management strategy and/or hedge against changes
resulting from market conditions related to their oil and gas operations and not
as a means to speculate for investment purposes on trends and shifts in
financial or commodities markets.
     5.23 Assignment of Government Contracts. Promptly, and in no event later
than 5 Business Days after the entry of any material contract or other material
arrangement with the United States or any other Governmental Authority (but in
any event any agreement that could reasonably be expected to give rise to
Accounts from any Governmental Authority exceeding $100,000 in the aggregate
during any calendar year), deliver to Agent (a) copies of each such contract,
(b) each amendment or modification of any such contract, (c) consents to
assignments of each such contract executed by the customer party to such
contract and (d) such Additional Documents as the Agent may require in
accordance with Section 5.16.
     5.24 Post Closing Obligations.
     (a) No later than January 31, 2008, Foothills California, Inc. shall
deliver to the Agent satisfactory title opinions with respect to the additional
acreage assignment of the Lower Rio Del formation pursuant to Section 3.3(c) of
the Farmout Agreement.
     (b) No later than 30 days following the Closing Date, the Borrowers shall
deliver to the Agent revised stock certificates representing the shares of
common stock of the applicable Borrower pledged to the Agent for the benefit of
the Lenders pursuant to the Security Agreement, such certificates to contain
legends reasonably satisfactory to Agent.

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6. NEGATIVE COVENANTS.
          Each Borrower covenants and agrees that, until termination of all of
the Commitments and payment in full of the Obligations, Borrowers will not and
will not permit any of their respective Subsidiaries to do any of the following:
     6.1 Indebtedness. Create, incur, assume, suffer to exist, guarantee, or
otherwise become or remain, directly or indirectly, liable with respect to any
Indebtedness, except:
          (a) Indebtedness evidenced by this Agreement and the other Loan
Documents, together with Indebtedness owed to Underlying Issuers with respect to
Underlying Letters of Credit;
          (b) Indebtedness set forth on Schedule 4.16 and any Refinancing
Indebtedness in respect of such Indebtedness;
          (c) Permitted Purchase Money Indebtedness and any Refinancing
Indebtedness in respect of such Indebtedness;
          (d) endorsement of instruments or other payment items for deposit;
          (e) Indebtedness associated with bonds or surety obligations required
by Governmental Requirements in connection with the operation of the Oil and Gas
Properties; provided, that (i) such bond or surety obligation is incurred in the
ordinary course of business to support plug and abandonment, general liability
or operator obligations or any future Governmental Requirements not existing on
the Closing Date in respect of an Oil and Gas Property of a Borrower, and
(ii) neither any Borrower nor any Subsidiary thereof will create, incur or
suffer to exist any Lien on any of its assets or properties (whether by
contract, statute, suretyship law or otherwise) in respect of any such bond or
surety obligation except for any Lien arising under clause (j) of the definition
of Permitted Lien;
          (f) Indebtedness composing Permitted Investments;
          (g) intercompany Indebtedness described in Section 6.12(a);
          (h) Indebtedness under Swap Agreements in the ordinary course of
business, for non-speculative purposes and to the extent permitted under
Section 6.23; and
          (i) other unsecured Indebtedness in an amount not to exceed $500,000
in the aggregate at any one time outstanding.
     6.2 Liens . Create, incur, assume, or suffer to exist, directly or
indirectly, any Lien on or with respect to any of its assets, of any kind,
whether now owned or hereafter acquired, or any income or profits therefrom,
except for Permitted Liens.
6.3 Restrictions on Fundamental Changes .
          (a) Enter into any merger, consolidation, reorganization, or
recapitalization, or reclassify its Stock;
          (b) Liquidate, wind up, or dissolve itself (or suffer any liquidation
or dissolution); or

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          (c) Suspend or go out of a substantial portion of its or their
business;
provided, that any Borrower (except Parent) or Guarantor may merge with or into
any other Borrower or Guarantor and any Guarantor may merge with or into a
Borrower, so long as (i) in the case of a merger of a Guarantor with a Borrower,
such Borrower is the surviving entity, (ii) no other provision of this Agreement
would be violated thereby, (iii) Agent receives at least 30 days’ prior written
notice of such merger, (iv) no Default or Event of Default shall have occurred
and be continuing either before or after giving effect to such transaction, and
(v)  Agent’s and Lenders’ rights in any Collateral (other than the equity
interest in such non-surviving entity), including, without limitation, the
existence, perfection and priority of any Lien thereon, are not adversely
affected by such merger or consolidation.
     6.4 Disposal of Assets. Other than Permitted Dispositions, convey, sell,
lease, license, assign, transfer, or otherwise dispose of (or enter into an
agreement to convey, sell, lease, license, assign, transfer, or otherwise
dispose of) any of Parents’ or its Subsidiaries’ assets, including the Stock of
any of their Subsidiaries.
     6.5 Change of Jurisdiction, Corporate Name or Location; Change of Fiscal
Year. (a) Change Parent’s or any Subsidiary’s jurisdiction of organization
and/or organization and/or organizational identification number (if any),
(b) change their corporate name or (c) change their chief executive office,
principal place of business, corporate offices or warehouses or locations at
which Collateral is held or stored, or the location of its records concerning
the Collateral, in any case without at least thirty (30) days prior written
notice to Agent and after Agent’s written acknowledgment that any reasonable
action requested by Agent in connection therewith, including to continue the
perfection of any Liens in favor of Agent, on behalf of Lenders, in any
Collateral, has been completed or taken, and provided that any such new location
shall be in the continental United States. Without limiting the foregoing,
neither Parent nor any Subsidiary shall change its location, name, identity or
corporate structure in any manner which might make any financing or continuation
statement filed in connection herewith seriously misleading within the meaning
of Section 9-506 of the Code or any other then applicable provision of the Code
except upon prior written notice to Agent and Lenders and after Agent’s written
acknowledgment that any reasonable action requested by Agent in connection
therewith, including to continue the perfection of any Liens in favor of Agent,
on behalf of Lenders, in any Collateral, has been completed or taken. Neither
Parent nor any Subsidiary shall change its fiscal year.
     6.6 Nature of Business. Make any change in the nature of their business as
described in Schedule 6.6 or, to the extent permitted hereunder, acquire any
properties or assets that are not reasonably related to the conduct of such
business activities.
     6.7 Prepayments and Amendments. Except in connection with Refinancing
Indebtedness permitted by Section 6.1,
          (a) optionally prepay, redeem, defease, purchase, or otherwise acquire
any Indebtedness of any Borrower or any Subsidiary of any Borrower, other than
the Obligations in accordance with this Agreement;
          (b) make any payment on account of Indebtedness that has been
contractually subordinated in right of payment if such payment is not permitted
at such time under the subordination terms and conditions applicable thereto, or
          (c) directly or indirectly, amend, modify, alter, increase, or change
any of the terms or conditions of (i) any agreement, instrument, document,
indenture, or other writing evidencing or concerning Indebtedness permitted
under Section 6.1(b) or (c), or (ii) any other Material Contract

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except to the extent that such amendment, modification, alteration, increase, or
change could not, individually or in the aggregate, reasonably be expected to
result in a Material Adverse Change.
     6.8 Change of Control. Cause, permit, or suffer, directly or indirectly,
any Change of Control.
     6.9 Distributions. Make any distribution or declare or pay any dividends
(in cash or other property, other than common Stock) on, or purchase, acquire,
redeem, or retire any of any Borrower’s Stock, of any class, whether now or
hereafter outstanding.
     6.10 Accounting Methods. Modify or change their fiscal year or their method
of accounting (other than as may be required to conform to GAAP).
     6.11 Investments. Except for Permitted Investments, directly or indirectly,
make or acquire any Investment or incur any liabilities (including contingent
obligations) for or in connection with any Investment; provided, however, that
(a) Administrative Borrower may make loans and advances to another Borrower in
the ordinary course of business, so long as such Person shall have executed and
delivered to such lender a demand note (collectively, the “Intercompany Notes”)
to evidence any such loan and advance owing at any time by such Person to such
other lender, which Intercompany Note shall be in form and substance reasonably
satisfactory to Agent and shall be pledged and delivered to Agent in accordance
with the terms of the Security Agreement, and (b) Parent and its Subsidiaries
shall not have Permitted Investments (other than in the Cash Management
Accounts) in Deposit Accounts or Securities Accounts in an aggregate amount in
excess of $50,000 at any one time unless Parent or its Subsidiary, as
applicable, and the applicable securities intermediary or bank have entered into
Control Agreements governing such Permitted Investments in order to perfect (and
further establish) Agent’s Liens in such Permitted Investments. Subject to
clause (b) of the foregoing proviso, Borrowers shall not and shall not permit
their Subsidiaries to establish or maintain any Deposit Account or Securities
Account unless Agent shall have received a Control Agreement in respect of such
Deposit Account or Securities Account.
     6.12 Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any transaction with any Affiliate of any Borrower or any
Subsidiary of a Borrower except for:
          (a) transactions (other than the payment of management, consulting,
monitoring, or advisory fees) between Parent and its Subsidiaries, on the one
hand, and any Affiliate of Parent and its Subsidiaries, on the other hand, so
long as such transactions (i) have individually a value of less than $250,000,
(ii)  are upon fair and reasonable terms, (iii) are fully disclosed to Agent and
the Required Lenders, and (iv) are no less favorable to Parent and its
Subsidiaries, as applicable, than would be obtained in an arm’s length
transaction with a non-Affiliate;
          (b) the payment of reasonable director, officer and employee
compensation (including bonuses) and other reasonable benefits (including
retirement, health, stock option and other benefit plans) and indemnification
arrangements, each made in the ordinary course of business and consistent with
industry practice; and
          (c) each transaction between Parent or its Subsidiaries and any
Affiliates thereof entered into on or before the Closing Date and as described
on Schedule 6.12.
     6.13 Use of Proceeds. Use the proceeds of the Advances and the Term Loan
for any purpose other than (a) on the Closing Date, (i) to repay, in full, the
outstanding principal, accrued interest, make-whole payment and accrued fees and
expenses owing to Existing Lender and (ii) to pay transactional fees, costs, and
expenses incurred in connection with this Agreement, the other Loan Documents
and the

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transactions contemplated hereby and thereby, and (b) thereafter, consistent
with the terms and conditions hereof, for its lawful and permitted purposes.
6.14 Financial Covenants.
          (a) Minimum Asset Coverage Ratio. Fail to achieve a minimum Asset
Coverage Ratio, measured on the last day of each calendar quarter, of at least
1.60:1.00, based on the Total Reserve Value reflected in the most recently
delivered Reserve Report by Borrowers.
          (b) Interest Coverage Ratio. Have an Interest Coverage Ratio,
calculated on the last day of the quarterly period indicated below, of less than
the required amount set forth in the following table for the applicable
quarterly period set forth opposite thereto:

      Applicable Ratio   Applicable Period 1.25:1.00   For the quarter
ending December 31, 2007       1.25:1.00   For the quarter
ending March 31, 2008       1.40:1.00   For the quarter
ending June 30, 2008       1.50:1.00   For the quarter
ending September 30, 2008       1.75:1.00   For the quarter
ending December 31, 2008       2.00:1.00   For the quarter
ending March 31, 2009       2.25:1.00   For the quarter
ending June 30, 2009       2.50:1.00   For the quarter
ending September 30, 2009, and for each quarter
ending thereafter

          (c) Leverage Ratio. Have a Leverage Ratio, calculated on the last day
of the quarterly period indicated below, greater than the applicable ratio set
forth in the following table for the applicable quarterly period set forth
opposite thereto:

      Applicable Ratio   Applicable Period 7.00:1.00   For the quarter
ending December 31, 2007

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      Applicable Ratio   Applicable Period 6.75:1.00   For the quarter
ending March 31, 2008       6.25:1.00   For the quarter
ending June 30, 2008       5.75:1.00   For the quarter
ending September 30, 2008       5.00:1.00   For the quarter
ending December 31, 2008       4.50:1.00   For the quarter
ending March 31, 2009       4.00:1.00   For the quarter
ending June 30, 2009       3.50:1.00   For the quarter
ending September 30, 2009, and for each quarter
ending thereafter

     6.15 Forward Sales. Except in accordance with the ordinary course of the
Oil and Gas Business, enter into or permit to exist any advance payment
agreement or other arrangement pursuant to which Parent or any of its
Subsidiaries, having received full or substantial payment of the purchase price
for a specified quantity of Hydrocarbons upon entering such agreement or
arrangement, is required to deliver, in one or more installments subsequent to
the date of such agreement or arrangement, such quantity of Hydrocarbons
pursuant to and during the terms of such agreement or arrangement.
     6.16 Oil and Gas Imbalances. Enter into any contracts or agreements which
guarantee production of Hydrocarbons (other than Swap Agreements otherwise
permitted hereunder) and shall not hereafter allow gas imbalances, take-or-pay
or other similar arrangement or any prepayment with respect to their Oil and Gas
Properties that would require Parent or any of its Subsidiaries either to make
cash settlements for such production or to deliver Hydrocarbons produced from
the Oil and Gas Properties at some future time in any case without then or
thereafter receiving full payment therefor to exceed, during any monthly period,
two percent (2%) of the current aggregate monthly gas production for such
monthly period from the Oil and Gas Properties of Parent and its Subsidiaries.
6.17 Marketing Activities.
          (a) Engage in marketing activities for any Hydrocarbons or enter into
any contracts related thereto other than (i) contracts for the sale of
Hydrocarbons scheduled or reasonably estimated to be produced from their proved
Oil and Gas Properties during the period of such contract, (ii) contracts for
the sale of Hydrocarbons scheduled or reasonable estimated to be produced from
proved Oil and Gas Properties of third parties during the period of such
contract associated with the Oil and Gas Properties of Borrowers that Borrowers
have the right to market pursuant to Hydrocarbon Interests, joint operating
agreements, unitization agreements or other similar contracts that are usual and
customary in the oil and gas business and (iii) other contracts for the purchase
and/or sale of Hydrocarbons of third parties (A) that have generally offsetting
provisions (i.e., corresponding pricing mechanics, delivery dates and points and
volumes) such that no “position” is taken and (B) for which

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appropriate credit support has been taken to alleviate the material credit risks
of the counterparty thereto.
          (b) All Hydrocarbon produced from the Oil and Gas Properties of
Borrowers shall be marketed on an arm’s-length basis using one or more Persons
that are not Affiliates of Borrowers.
     6.18 Sale-Leasebacks. Engage in any sale-leaseback, synthetic lease or
similar transaction involving any of their assets.
     6.19 Cancellation of Indebtedness. Cancel any claim or debt owing to it,
except for reasonable consideration negotiated on an arm’s-length basis and in
the ordinary course of their business consistent with past practice.
     6.20 No Amendment of Governing Documents. Amend, modify, supplement,
restate or otherwise change their Governing Documents to the extent adverse to
the rights or interests of the Lenders without the prior written consent of the
Required Lenders.
     6.21 No Impairment of Intercompany Transfers; Negative Pledge. (a) Directly
or indirectly enter into or become bound by any agreement, instrument, indenture
or other obligation (other than this Agreement and the other Loan Documents)
which could directly or indirectly restrict, prohibit or require the consent of
any Person with respect to the payment of dividends or distributions or the
making or repayment of intercompany loans by a Subsidiary of a Borrower to such
Borrower or (b) directly or indirectly enter into, incur or permit to exist any
agreement or other arrangement (other than this Agreement) that prohibits,
restricts or imposes any condition upon the ability of Parent or any of its
Subsidiaries to create, incur or permit to exist any Lien upon any of its
property or assets; provided, however, that the preceding restriction in clause
(b) shall not apply to any prohibition, restriction or imposition arising under
or by reason of (i) any operating lease (other than a lease of Oil and Gas
Properties) entered into as lessee by Parent or any of its Subsidiaries in the
ordinary course of business with respect to the asset leased, (ii) any Permitted
Lien securing Permitted Purchase Money Indebtedness and any Refinancing
Indebtedness in respect of such Indebtedness, but only to the extent restricting
on customary terms the transfer of an asset subject to such Permitted Lien, and
(iii) any prohibition, restriction or imposition of a condition with respect to
a Subsidiary of a Borrower imposed pursuant to an agreement entered into for the
direct or indirect sale or disposition of all or substantially all of the equity
or Property of such Subsidiary (or the Property that is subject to such
restriction) pending the closing of such sale or disposition, provided that
(A) such agreement is entered into in connection with a sale or disposition that
would constitute a Permitted Disposition and (B) at the time such agreement is
entered into no Default or Event of Default then exists.
     6.22 Change in Management. Terminate or permit the resignation of any two
of: John L. Moran, Dennis B. Tower and W. Kirk Bosché, as President, Chief
Executive Officer and Chief Financial Officer, respectively, in each case,
without appointing a replacement officer acceptable to the Required Lenders in
their sole discretion.
     6.23 Swap Agreements. Enter into any Swap Agreements with any Person other
than (a) Swap Agreements in respect of commodities (i) with an Approved
Counterparty and (ii) the notional volumes for which (when aggregated with other
commodity Swap Agreements then in effect other than basis differential swaps on
volumes already hedged pursuant to other Swap Agreements) do not exceed, as of
January 1, 2008, for (A) natural gas, 90% of the reasonably anticipated
projected production from Proved Developed Producing Reserves for each month
during the period commencing on such date and ending on the date twelve months
thereafter, and for each month during any period after such twelve-month period,
85% of the reasonably anticipated projected production from Proved Developed
Producing

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Reserves for each month during such period, and (B) crude oil, 90% of the
reasonably anticipated projected production from Proved Developed Producing
Reserves for each month during the period commencing on such date and ending on
the date twelve months thereafter, and for each month during any period after
such twelve-month period, 85% of the reasonably anticipated projected production
from Proved Developed Producing Reserves for each month during such period,
provided, that Borrowers shall not enter into any additional Swap Agreements
with respect to crude oil for which payment dates occur in 2007 or which relate
to periods in 2007, (b) Swap Agreements in respect of interest rates with an
Approved Counterparty, as follows: (i) Swap Agreements effectively converting
interest rates from fixed to floating, the notional amounts of which (when
aggregated with all other Swap Agreements of Parent and its Subsidiaries then in
effect effectively converting interest rates from fixed to floating) do not
exceed 50% of the then outstanding principal amount of Borrowers’ Indebtedness
for borrowed money which bears interest at a fixed rate and (ii) Swap Agreements
effectively converting interest rates from floating to fixed, the notional
amounts of which (when aggregated with all other Swap Agreements of Parent and
its Subsidiaries then in effect effectively converting interest rates from
floating to fixed) do not exceed 75% of the then outstanding principal amount of
Borrowers’ Indebtedness for borrowed money which bears interest at a floating
rate; and (c) Swap Agreements listed on Schedule 4.24 hereto. In no event shall
any Swap Agreement contain any requirement, agreement or covenant for Parent or
any of its Subsidiaries to post collateral or margin to secure their obligations
under such Swap Agreement or to cover market exposures except to the extent
permitted by Section 6.2.
7. EVENTS OF DEFAULT.
          Any one or more of the following events shall constitute an event of
default (each, an “Event of Default”) under this Agreement:
     7.1 If Borrowers fail to pay when due and payable, or when declared due and
payable, (a) all or any portion of the Obligations consisting of interest, fees,
or charges due the Lender Group, reimbursement of Lender Group Expenses, or
other amounts (other than any portion thereof constituting principal)
constituting Obligations (including any portion thereof that accrues after the
commencement of an Insolvency Proceeding, regardless of whether allowed or
allowable in whole or in part as a claim in any such Insolvency Proceeding), or
(b) all or any portion of the principal of the Obligations;
     7.2 If Parent or any of its Subsidiaries:
          (a) fail to perform or observe any covenant or other agreement
contained in any of Sections 2.7, 5.2, 5.3, 5.4, 5.5, 5.8, 5.11, 5.12, 5.13,
5.14, 5.15, 5.16, 5.20, 5.21, 5.22, 5.24 and Section 6 of this Agreement or
Section 6 of the Security Agreement;
          (b) fail to perform or observe any covenant or other agreement
contained in any of Sections 5.6, 5.7, 5.9, and 5.10 of this Agreement and such
failure continues for a period of 10 days after the earlier of (i) the date on
which such failure shall first become known to any officer of any Borrower or
(ii) written notice thereof is given to Administrative Borrower by Agent; or
          (c) fail to perform or observe any covenant or other agreement
contained in this Agreement, or in any of the other Loan Documents, in each
case, other than any such covenant or agreement that is the subject of another
provision of this Section 7 (in which event such other provision of this
Section 7 shall govern), and such failure continues for a period of 30 days
after the earlier of (i) the date on which such failure shall first become known
to any officer of any Borrower or (ii) written notice thereof is given to
Administrative Borrower by Agent;

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     7.3 If any material portion of Parent or any of its Subsidiaries’ assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any third Person and the same is not discharged
before the earlier of 30 days after the date it first arises or 5 days prior to
the date on which such property or asset is subject to forfeiture by such
Borrower or the applicable Subsidiary;
     7.4 If an Insolvency Proceeding is commenced by Parent or any of its
Subsidiaries;
     7.5 If an Insolvency Proceeding is commenced against Parent or any of its
Subsidiaries and any of the following events occur: (a) the applicable Borrower
or Subsidiary consents to the institution of such Insolvency Proceeding against
it, (b) the petition commencing the Insolvency Proceeding is not timely
controverted, (c) the petition commencing the Insolvency Proceeding is not
dismissed within 45 calendar days of the date of the filing thereof, (d) an
interim trustee is appointed to take possession of all or any substantial
portion of the properties or assets of, or to operate all or any substantial
portion of the business of, Parent or any of its Subsidiaries, or (e) an order
for relief shall have been issued or entered therein;
     7.6 If Parent or any of its Subsidiaries is enjoined, restrained, or in any
way prevented by court order from continuing to conduct all or any material part
of its business affairs;
     7.7 If one or more judgments, orders, or awards involving an aggregate
amount of $500,000, or more (except to the extent fully covered by insurance
pursuant to which the insurer has accepted liability therefor in writing) shall
be entered or filed against Parent or any of its Subsidiaries or with respect to
any of their respective assets, and the same is not released, discharged, bonded
against, or stayed pending appeal before the earlier of 30 days after the date
it first arises or 5 days prior to the date on which such asset is subject to
being forfeited by the applicable Borrower or the applicable Subsidiary;
     7.8 If there is a default in one or more agreements to which Parent or any
of its Subsidiaries is a party with one or more third Persons relative to
Indebtedness of Parent or any of its Subsidiaries involving an aggregate amount
of $500,000 or more, and such default (i) occurs at the final maturity of the
obligations thereunder, or (ii) results in a right by such third Person(s),
irrespective of whether exercised, to accelerate the maturity of the applicable
Borrower’s or Subsidiary’s obligations thereunder;
     7.9 If any warranty, representation, statement, or Record made herein or in
any other Loan Document or delivered to Agent or any Lender in connection with
this Agreement or any other Loan Document proves to be untrue in any material
respect (except that such materiality qualifier shall not be applicable to any
representations and warranties that already are qualified or modified by
materiality in the text thereof) as of the date of issuance or making or deemed
making thereof;
     7.10 If the obligation of any Guarantor under the Guaranty is limited or
terminated by operation of law or by such Guarantor (except as expressly
permitted by Section 6.3 of this Agreement), or any such Guarantor becomes
subject of an Insolvency Proceeding;
     7.11 If the Security Agreement or any other Loan Document that purports to
create a Lien shall, for any reason, fail or cease to create a valid and
perfected and, except to the extent permitted by the terms hereof or thereof,
first priority Lien on or security interest in the Collateral covered hereby or
thereby, except (a) as a result of a disposition of the applicable Collateral in
a transaction permitted under this Agreement or (b) to the extent such
Collateral has an aggregate fair market value of less than $250,000;
     7.12 If any provision of any Loan Document shall at any time for any reason
be declared to be null and void, or the validity or enforceability thereof shall
be contested by Parent or any of its

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Subsidiaries, or a proceeding shall be commenced by Parent or any of its
Subsidiaries, or by any Governmental Authority having jurisdiction over Parent
or any of its Subsidiaries, seeking to establish the invalidity or
unenforceability thereof, or Parent or any of its Subsidiaries shall deny that
it has any liability or obligation purported to be created under any Loan
Document;
     7.13 The loss, suspension or revocation of, or failure to renew, any
license or permit now held or hereafter acquired by Parent or any of its
Subsidiaries, if such loss, suspension, revocation or failure to renew could
reasonably be expected to result in a Material Adverse Change;
     7.14 The indictment of Parent or any of its Subsidiaries under any criminal
statute, or commencement of criminal or civil proceedings against Parent or any
of its Subsidiaries, pursuant to which statute or proceedings the penalties or
remedies sought or available include forfeiture to any Governmental Authority of
any portion of the property of such Person which would result in a Material
Adverse Change;
     7.15 If (i) an ERISA Event shall occur with respect to a Pension Plan that
has resulted or could reasonably be expected to result in liability of Parent
and its Subsidiaries, either individually or in the aggregate, under Title IV of
ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount
in excess of $250,000; (ii) the aggregate amount of Unfunded Pension Liability
among all Pension Plans at any time exceeds $250,000; or (iii) Parent or any of
its Subsidiaries or any ERISA Affiliate shall fail to pay when due, after the
expiration of any applicable grace period, any installment payment with respect
to its withdrawal liability under Section 4201 of ERISA under a Multiemployer
Plan in an aggregate amount in excess of $250,000; or
     7.16 Any Material Adverse Change shall have occurred.
8. THE LENDER GROUP’S RIGHTS AND REMEDIES.
     8.1 Rights and Remedies. Upon the occurrence, and during the continuation,
of an Event of Default, Agent at the request of the Required Lenders for the
benefit of the Lender Group shall without notice or demand, all of which are
authorized by Borrowers:
          (a) Declare all or any portion of the Obligations, whether evidenced
by this Agreement, by any of the other Loan Documents, or otherwise, immediately
due and payable;
          (b) Cease advancing money or extending credit to or for the benefit of
Borrowers under this Agreement, under any of the Loan Documents, or under any
other agreement between Borrowers and the Lender Group;
          (c) Agent, on behalf of the Lender Group, may foreclose any or all of
the Mortgages and sell the Real Property Collateral or Oil and Gas Properties or
cause the Real Property Collateral or Oil and Gas Properties to be sold in
accordance with the provisions of the Mortgages and applicable law, and exercise
any and all other rights or remedies available to Agent, on behalf of the Lender
Group, under the Mortgages, any of the other Loan Documents, at law or in equity
with respect to the Collateral encumbered by the Mortgages;
          (d) Terminate this Agreement and any of the other Loan Documents as to
any future liability or obligation of the Lender Group, but without affecting
any of Agent’s Liens in the Collateral and without affecting the Obligations;
and
          (e) The Lender Group shall have all other rights and remedies
available at law or in equity or pursuant to any other Loan Document.

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The foregoing to the contrary notwithstanding, upon the occurrence of any Event
of Default described in Section 7.4 or Section 7.5, in addition to the remedies
set forth above, without any notice to Borrowers or any other Person or any act
by the Lender Group, the Commitments shall automatically terminate and the
Obligations then outstanding, together with all accrued and unpaid interest
thereon and all fees and all other amounts due under this Agreement and the
other Loan Documents, shall automatically and immediately become due and
payable, without presentment, demand, protest, or notice of any kind, all of
which are expressly waived by Borrowers.
     8.2 Remedies Cumulative . The rights and remedies of the Lender Group under
this Agreement, the other Loan Documents, and all other agreements shall be
cumulative. The Lender Group shall have all other rights and remedies not
inconsistent herewith as provided under the Code, by law, or in equity. No
exercise by the Lender Group of one right or remedy shall be deemed an election,
and no waiver by the Lender Group of any Event of Default shall be deemed a
continuing waiver. No delay by the Lender Group shall constitute a waiver,
election, or acquiescence by it.
9. TAXES AND EXPENSES.
     If Parent or any of its Subsidiaries fail to pay any monies (whether taxes,
assessments, insurance premiums, or, in the case of leased properties or assets,
rents or other amounts payable under such leases) due to third Persons, or fail
to make any deposits or furnish any required proof of payment or deposit, all as
required under the terms of this Agreement, then, Agent, in its sole discretion
and without prior notice to any Borrower, may do any or all of the following:
(a) make payment of the same or any part thereof, (b) set up such reserves
against the Borrowing Base or the Maximum Revolver Amount as Agent deems
necessary to protect the Lender Group from the exposure created by such failure,
or (c) in the case of the failure to comply with Section 5.8 hereof, obtain and
maintain insurance policies of the type described in Section 5.8 and take any
action with respect to such policies as Agent deems prudent. Any such amounts
paid by Agent shall constitute Lender Group Expenses and any such payments shall
not constitute an agreement by the Lender Group to make similar payments in the
future or a waiver by the Lender Group of any Event of Default under this
Agreement. Agent need not inquire as to, or contest the validity of, any such
expense, tax, or Lien and the receipt of the usual official notice for the
payment thereof shall be conclusive evidence that the same was validly due and
owing.
10. WAIVERS; INDEMNIFICATION.
     10.1 Demand; Protest; etc. Each Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment,
nonpayment at maturity, release, compromise, settlement, extension, or renewal
of documents, instruments, chattel paper, and guarantees at any time held by the
Lender Group on which any such Borrower may in any way be liable.
     10.2 The Lender Group’s Liability for Collateral. Each Borrower hereby
agrees that: (a) so long as Agent complies with its obligations, if any, under
the Code, the Lender Group shall not in any way or manner be liable or
responsible for: (i) the safekeeping of the Collateral, (ii) any loss or damage
thereto occurring or arising in any manner or fashion from any cause, (iii) any
diminution in the value thereof, or (iv) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other Person, and (b) all risk of
loss, damage, or destruction of the Collateral shall be borne by Borrowers.
     10.3 Indemnification. Each Borrower shall pay, indemnify, defend, and hold
Agent-Related Persons, the Lender-Related Persons, and each Participant (each,
an “Indemnified Person”) harmless (to the fullest extent permitted by law) from
and against any and all claims, demands, suits, actions, investigations,
proceedings, liabilities, fines, costs, penalties, and damages, and all
reasonable fees and disbursements of attorneys, experts, or consultants and all
other costs and expenses actually incurred in

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connection therewith or in connection with the enforcement of this
indemnification (as and when they are incurred and irrespective of whether suit
is brought), at any time asserted against, imposed upon, or incurred by any of
them (a) in connection with or as a result of or related to the execution,
delivery, enforcement, performance, or administration (including any
restructuring or workout with respect hereto) of this Agreement, any of the
other Loan Documents, or the transactions contemplated hereby or thereby or the
monitoring of Parent and its Subsidiaries’ compliance with the terms of the Loan
Documents, (b) with respect to any investigation, litigation, or proceeding
related to this Agreement, any other Loan Document, or the use of the proceeds
of the credit provided hereunder (irrespective of whether any Indemnified Person
is a party thereto), or any act, omission, event, or circumstance in any manner
related thereto, and (c) in connection with or arising out of any presence or
Release of Hazardous Materials, any Environmental Actions, any Environmental
Liabilities or any Response Actions related in any way to any assets or
properties of Parent or any of its Subsidiaries (each and all of the foregoing,
the “Indemnified Liabilities”). The foregoing to the contrary notwithstanding,
Borrowers shall have no obligation to any Indemnified Person under this
Section 10.3 with respect to any Indemnified Liability that a court of competent
jurisdiction finally determines to have resulted from the gross negligence or
willful misconduct of such Indemnified Person. This provision shall survive the
termination of this Agreement and the repayment of the Obligations. If any
Indemnified Person makes any payment to any other Indemnified Person with
respect to an Indemnified Liability as to which Borrowers were required to
indemnify the Indemnified Person receiving such payment, the Indemnified Person
making such payment is entitled to be indemnified and reimbursed by Borrowers
with respect thereto. WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO
EACH INDEMNIFIED PERSON WITH RESPECT TO INDEMNIFIED LIABILITIES WHICH IN WHOLE
OR IN PART ARE CAUSED BY OR ARISE OUT OF ANY NEGLIGENT ACT OR OMISSION OF SUCH
INDEMNIFIED PERSON OR OF ANY OTHER PERSON.
11. NOTICES.
          Unless otherwise provided in this Agreement, all notices or demands by
Borrowers or Agent to the other relating to this Agreement or any other Loan
Document shall be in writing and (except for financial statements and other
informational documents which may be sent by first-class mail, postage prepaid)
shall be personally delivered or sent by registered or certified mail (postage
prepaid, return receipt requested), overnight courier, electronic mail (at such
email addresses as Administrative Borrower or Agent, as applicable, may
designate to each other in accordance herewith), or telefacsimile to Parent and
its Subsidiaries in care of Administrative Borrower or Agent, as the case may
be, at its address set forth below:

         
 
  If to Administrative   Foothills Resources, Inc.
 
       
 
  Borrower:    
 
      4540 California Avenue, Suite 550
 
      Bakersfield, California 93309
 
      Attn: Kirk Bosché, Chief Financial Officer
 
      Fax No. (661) 716-1340
 
       
 
  If to Agent:   Wells Fargo Foothill, LLC
 
      1100 Abernathy Road, Suite 1600
 
      Atlanta, Georgia 30328
 
      Attn: Business Finance Manager
 
      Fax No.: (770) 804-0785
 
       
 
  with copies to:   Schulte Roth & Zabel LLP

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      919 Third Avenue
 
      New York, New York 10022
 
      Attn: Kirby Chin, Esq. Fax No.: (212) 593-5955
 
       
 
  If to Lenders:   To the addresses set forth on the signature
 
      pages under each Lender’s name.
 
       
 
  with copies to:   Proskauer Rose LLP
 
      One International Place
 
      Boston, Massachusetts 02110-2600
 
      Attn: Steven M. Ellis, Esq.
 
      Fax No.: (617) 526-9899

          Agent, any Lender and Borrowers may change the address at which they
are to receive notices hereunder, by notice in writing in the foregoing manner
given to the other party. All notices or demands sent in accordance with this
Section 11, other than notices by Agent in connection with enforcement rights
against the Collateral under the provisions of the Code, shall be deemed
received on the earlier of the date of actual receipt or 3 Business Days after
the deposit thereof in the mail. Each Borrower acknowledges and agrees that
notices sent by the Lender Group in connection with the exercise of enforcement
rights against Collateral under the provisions of the Code shall be deemed sent
when deposited in the mail or personally delivered, or, where permitted by law,
transmitted by telefacsimile or any other method set forth above.
12. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
          (a) THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
(UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT
OF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT
HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH
RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR
THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
          (b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND
LITIGATED ONLY IN THE STATE AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW,
FEDERAL COURTS LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK; PROVIDED,
HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER
PROPERTY MAY BE BROUGHT, AT AGENT’S OPTION, IN THE COURTS OF ANY JURISDICTION
WHERE AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER
PROPERTY MAY BE FOUND. BORROWERS AND EACH MEMBER OF THE LENDER GROUP WAIVE, TO
THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE
DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY
PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 12(b).
          (c) BORROWERS AND EACH MEMBER OF THE LENDER GROUP HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR

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CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF
THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWERS
AND EACH MEMBER OF THE LENDER GROUP REPRESENT THAT EACH HAS REVIEWED THIS WAIVER
AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
13. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.
     13.1 Assignments and Participations.
          (a) Any Lender may at any time assign and delegate to one or more
assignees (each an “Assignee”) all or any portion of the Obligations, the
Commitments and the other rights and obligations of such Lender hereunder and
under the other Loan Documents, in a minimum amount (unless waived by Agent) of
$1,000,000 (except such minimum amount shall not apply to (x) an assignment or
delegation by any Lender to any other Lender or an Affiliate of any Lender or an
Approved Fund or (y) a group of new Lenders, each of whom is an Affiliate of
each other or a fund or account managed by any such new Lender or an Affiliate
of such new Lender to the extent that the aggregate amount to be assigned to all
such new Lenders is at least $3,000,000); provided, however, that Borrowers and
Agent may continue to deal solely and directly with such Lender in connection
with the interest so assigned to an Assignee until (i) written notice of such
assignment, together with payment instructions, addresses, and related
information with respect to the Assignee, have been given to Administrative
Borrower and Agent by such Lender and the Assignee, (ii) such Lender and its
Assignee have delivered to Administrative Borrower and Agent an Assignment and
Acceptance and Agent has notified the assigning Lender of its receipt thereof in
accordance with Section 13.1(b), and (iii) unless waived by Agent, the assigning
Lender or Assignee has paid to Agent for Agent’s separate account a processing
fee in the amount of $3,500. Anything contained herein to the contrary
notwithstanding, the payment of any fees shall not be required if such
assignment is in connection with any merger, consolidation, sale, transfer, or
other disposition of all or any substantial portion of the business or loan
portfolio of the assigning Lender.
          (b) From and after the date that Agent notifies the assigning Lender
(with a copy to Administrative Borrower) that it has received an executed
Assignment and Acceptance and, if applicable, payment of the required processing
fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that
rights and obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, shall have the rights and obligations of a Lender
under the Loan Documents, and (ii) the assigning Lender shall, to the extent
that rights and obligations hereunder and under the other Loan Documents have
been assigned by it pursuant to such Assignment and Acceptance, relinquish its
rights (except with respect to Section 10.3 hereof) and be released from any
future obligations under this Agreement (and in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender’s rights
and obligations under this Agreement and the other Loan Documents, such Lender
shall cease to be a party hereto and thereto), and such assignment shall effect
a novation among Borrowers, the assigning Lender, and the Assignee; provided,
however, that nothing contained herein shall release any assigning Lender from
obligations that survive the termination of this Agreement, including such
assigning Lender’s obligations under Section 15 and Section 17.9(a) of this
Agreement.
          (c) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the Assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements,

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warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other Loan Document furnished pursuant hereto,
(ii) such assigning Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of Borrowers or the
performance or observance by Borrowers of any of their obligations under this
Agreement or any other Loan Document furnished pursuant hereto, (iii) such
Assignee confirms that it has received a copy of this Agreement, together with
such other documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into such Assignment and Acceptance,
(iv) such Assignee will, independently and without reliance upon Agent, such
assigning Lender or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement, (v) such
Assignee appoints and authorizes Agent to take such actions and to exercise such
powers under this Agreement as are delegated to Agent, by the terms hereof,
together with such powers as are reasonably incidental thereto, and (vi) such
Assignee agrees that it will perform all of the obligations which by the terms
of this Agreement are required to be performed by it as a Lender.
          (d) Immediately upon Agent’s receipt of the required processing fee,
if applicable, and delivery of notice to the assigning Lender pursuant to
Section 13.1(b), this Agreement shall be deemed to be amended to the extent, but
only to the extent, necessary to reflect the addition of the Assignee and the
resulting adjustment of the Commitments arising therefrom. The Commitment
allocated to each Assignee shall reduce such Commitments of the assigning Lender
pro tanto.
          (e) Any Lender may at any time sell to one or more commercial banks,
financial institutions, or other Persons (a “Participant”) participating
interests in all or any portion of its Obligations, its Commitment, and the
other rights and interests of that Lender (the “Originating Lender”) hereunder
and under the other Loan Documents; provided, however, that (i) the Originating
Lender shall remain a “Lender” for all purposes of this Agreement and the other
Loan Documents and the Participant receiving the participating interest in the
Obligations, the Commitments, and the other rights and interests of the
Originating Lender hereunder shall not constitute a “Lender” hereunder or under
the other Loan Documents and the Originating Lender’s obligations under this
Agreement shall remain unchanged, (ii) the Originating Lender shall remain
solely responsible for the performance of such obligations, (iii) Borrowers,
Agent, and the Lenders shall continue to deal solely and directly with the
Originating Lender in connection with the Originating Lender’s rights and
obligations under this Agreement and the other Loan Documents, (iv) no Lender
shall transfer or grant any participating interest under which the Participant
has the right to approve any amendment to, or any consent or waiver with respect
to, this Agreement or any other Loan Document, except to the extent such
amendment to, or consent or waiver with respect to this Agreement or of any
other Loan Document would (A) extend the final maturity date of the Obligations
hereunder in which such Participant is participating, (B) reduce the interest
rate applicable to the Obligations hereunder in which such Participant is
participating, (C) release all or substantially all of the Collateral or
guaranties (except to the extent expressly provided herein or in any of the Loan
Documents) supporting the Obligations hereunder in which such Participant is
participating, (D) postpone the payment of, or reduce the amount of, the
interest or fees payable to such Participant through such Lender, or (E) change
the amount or due dates of scheduled principal repayments or prepayments or
premiums, and (v) all amounts payable by Borrowers hereunder shall be determined
as if such Lender had not sold such participation, except that, if amounts
outstanding under this Agreement are due and unpaid, or shall have been declared
or shall have become due and payable upon the occurrence of an Event of Default,
each Participant shall be deemed to have the right of set off in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement. The rights of any Participant only shall be
derivative through the Originating Lender with whom such Participant
participates and no Participant shall have any rights under this Agreement or
the other Loan Documents or any direct rights as to the

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other Lenders, Agent, Borrowers, the Collections of Parent or its Subsidiaries,
the Collateral, or otherwise in respect of the Obligations. No Participant shall
have the right to participate directly in the making of decisions by the Lenders
among themselves. The provisions of this Section 13.1(e) are solely for the
benefit of the Lender Group and Borrowers shall not have any rights as third
party beneficiaries of any such provisions.
          (f) In connection with any such assignment or participation or
proposed assignment or participation, a Lender may, subject to the provisions of
Section 17.9, disclose all documents and information which it now or hereafter
may have relating to Parent and its Subsidiaries and their respective
businesses.
          (g) Any other provision in this Agreement notwithstanding, any Lender
may at any time create a security interest in, or pledge, all or any portion of
its rights under and interest in this Agreement in favor of any Federal Reserve
Bank in accordance with Regulation A of the Federal Reserve Bank or U.S.
Treasury Regulation 31 CFR §203.24, and such Federal Reserve Bank may enforce
such pledge or security interest in any manner permitted under applicable law.
     13.2 Successors. This Agreement shall bind and inure to the benefit of the
respective successors and assigns of each of the parties; provided, however,
that Borrower may not assign this Agreement or any rights or duties hereunder
without the Lenders’ prior written consent and any prohibited assignment shall
be absolutely void ab initio. No consent to assignment by the Lenders shall
release Borrowers from its Obligations. A Lender may assign this Agreement and
the other Loan Documents and its rights and duties hereunder and thereunder
pursuant to Section 13.1 hereof.
14. AMENDMENTS; WAIVERS.
     14.1 Amendments and Waivers. No amendment or waiver of any provision of
this Agreement or any other Loan Document (other than Bank Product Agreements),
and no consent with respect to any departure by Borrowers therefrom, shall be
effective unless the same shall be in writing and signed by the Required Lenders
(or by Agent at the written request of the Required Lenders) and Administrative
Borrower (on behalf of all Borrowers) and then any such waiver or consent shall
be effective, but only in the specific instance and for the specific purpose for
which given; provided, however, that no such waiver, amendment, or consent
shall, unless in writing and signed by all of the Lenders directly affected
thereby and Administrative Borrower (on behalf of all Borrowers), do any of the
following:
          (a) increase or extend any Commitment of any Lender,
          (b) postpone or delay any date fixed by this Agreement or any other
Loan Document for any payment of principal, interest, fees, or other amounts due
hereunder or under any other Loan Document,
          (c) reduce the principal of, or the rate of interest on, any loan or
other extension of credit hereunder, or reduce any fees or other amounts payable
hereunder or under any other Loan Document,
          (d) change the Pro Rata Share that is required to take any action
hereunder,
          (e) amend or modify this Section or any provision of this Agreement
providing for consent or other action by all Lenders,

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          (f) other than as permitted by Section 15.11, release Agent’s Lien in
and to any of the Collateral,
          (g) change the definition of “Required Lenders” or “Pro Rata Share”,
          (h) contractually subordinate any of Agent’s Liens,
          (i) other than in connection with a merger, liquidation, dissolution
or sale of such Person expressly permitted by the terms hereof or the other Loan
Documents, release Borrowers or any Guarantor from any obligation for the
payment of money,
          (j) amend any of the provisions of Section 2.4(b)(i) or (ii),
          (k) change the definition of Borrowing Base, Maximum Revolver Amount,
Term Loan Amount, or change Section 2.1, or
          (l) amend any of the provisions of Section 15.
and, provided further, however, that no amendment, waiver or consent shall,
unless in writing and signed by Agent, Issuing Lender, or Swing Lender, as
applicable, affect the rights or duties of Agent, Issuing Lender, or Swing
Lender, as applicable, under this Agreement or any other Loan Document. The
foregoing notwithstanding, any amendment, modification, waiver, consent,
termination, or release of, or with respect to, any provision of this Agreement
or any other Loan Document that relates only to the relationship of the Lender
Group among themselves, and that does not affect the rights or obligations of
Borrowers, shall not require consent by or the agreement of Borrowers.
     14.2 Replacement of Lenders.
          (a) If (i) any action to be taken by the Lender Group or Agent
hereunder requires the consent, authorization, or agreement of all Lenders, and
a Lender (“Holdout Lender”) fails to give its consent, authorization, or
agreement, or (ii) any Lender (an “Increased Cost Lender”; Increased Cost
Lenders and Holdout Lenders are each referred to herein as “Replaceable
Lenders”) shall give notice to Administrative Borrower that such Lender is
entitled to receive payments under Section 2.13(d)(i) or (d)(ii) or
Section 2.14, then Agent or Administrative Borrower, upon at least 5 Business
Days prior irrevocable notice to the Replaceable Lender, may permanently replace
the Replaceable Lender with one or more substitute Lenders (each, a “Replacement
Lender”; provided, that no Borrower, Guarantor or Permitted Holder or Affiliate
of a Borrower, Guarantor or Permitted Holder shall be permitted to become a
Replacement Lender), and the Replaceable Lender shall have no right to refuse to
be replaced hereunder. Such notice to replace the Replaceable Lender shall
specify an effective date for such replacement, which date shall not be later
than 15 Business Days after the date such notice is given.
          (b) Prior to the effective date of such replacement, the Replaceable
Lender and each Replacement Lender shall execute and deliver an Assignment and
Acceptance, subject only to the Replaceable Lender being repaid its share of the
outstanding Obligations (including an assumption of its Pro Rata Share of the
Risk Participation Liability) but without any premium or penalty of any kind
whatsoever. If the Replaceable Lender shall refuse or fail to execute and
deliver any such Assignment and Acceptance prior to the effective date of such
replacement, the Replaceable Lender shall be deemed to have executed and
delivered such Assignment and Acceptance. The replacement of any Replaceable
Lender shall be made in accordance with the terms of Section 13.1. Until such
time as the Replacement Lenders shall have acquired all of the Obligations, the
Commitments, and the other rights and obligations of the Replaceable Lender
hereunder and under the other Loan Documents, the Replaceable Lender shall
remain obligated to make the Replaceable Lender’s Pro Rata Share of Advances and
to purchase a

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participation in each Letter of Credit, in an amount equal to its Pro Rata Share
of the Risk Participation Liability of such Letter of Credit.
     14.3 No Waivers; Cumulative Remedies. No failure by Agent or any Lender to
exercise any right, remedy, or option under this Agreement or any other Loan
Document, or delay by Agent or any Lender in exercising the same, will operate
as a waiver thereof. No waiver by Agent or any Lender will be effective unless
it is in writing, and then only to the extent specifically stated. No waiver by
Agent or any Lender on any occasion shall affect or diminish Agent’s and each
Lender’s rights thereafter to require strict performance by Borrowers of any
provision of this Agreement. Agent’s and each Lender’s rights under this
Agreement and the other Loan Documents will be cumulative and not exclusive of
any other right or remedy that Agent or any Lender may have.
15. AGENT; THE LENDER GROUP.
     15.1 Appointment and Authorization of Agent. Each Lender hereby designates
and appoints WFF as its representative under this Agreement and the other Loan
Documents and each Lender hereby irrevocably authorizes Agent to execute and
deliver each of the other Loan Documents on its behalf and to take such other
action on its behalf under the provisions of this Agreement and each other Loan
Document and to exercise such powers and perform such duties as are expressly
delegated to Agent by the terms of this Agreement or any other Loan Document,
together with such powers as are reasonably incidental thereto. Agent agrees to
act as such on the express conditions contained in this Section 15. The
provisions of this Section 15 are solely for the benefit of Agent and the
Lenders, and Borrowers shall have no rights as a third party beneficiary of any
of such provisions contained herein. Any provision to the contrary contained
elsewhere in this Agreement or in any other Loan Document notwithstanding, Agent
shall not have any duties or responsibilities, except those expressly set forth
herein, nor shall Agent have or be deemed to have any fiduciary relationship
with any Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against Agent; it being expressly understood and
agreed that the use of the word “Agent” is for convenience only, that WFF is
merely the representative of the Lenders, and only has the contractual duties
set forth herein. Except as expressly otherwise provided in this Agreement,
Agent shall have and may use its sole discretion with respect to exercising or
refraining from exercising any discretionary rights or taking or refraining from
taking any actions that Agent expressly is entitled to take or assert under or
pursuant to this Agreement and the other Loan Documents. Without limiting the
generality of the foregoing, or of any other provision of the Loan Documents
that provides rights or powers to Agent, Lenders agree that Agent shall have the
right to exercise the following powers as long as this Agreement remains in
effect: (a) maintain, in accordance with its customary business practices,
ledgers and records reflecting the status of the Obligations, the Collateral,
the Collections of Parent and its Subsidiaries, and related matters, (b) execute
or file any and all financing or similar statements or notices, amendments,
renewals, supplements, documents, instruments, proofs of claim, notices and
other written agreements with respect to the Loan Documents, (c) make Advances,
for itself or on behalf of Lenders as provided in the Loan Documents,
(d) exclusively receive, apply, and distribute the Collections of Parent and its
Subsidiaries as provided in the Loan Documents, (e) open and maintain such bank
accounts and cash management arrangements as Agent deems necessary and
appropriate in accordance with the Loan Documents for the foregoing purposes
with respect to the Collateral and the Collections of Parent and its
Subsidiaries, (f) perform, exercise, and enforce any and all other rights and
remedies of the Lender Group with respect to Parent and its Subsidiaries, the
Obligations, the Collateral, the Collections of Parent and its Subsidiaries, or
otherwise related to any of same as provided in the Loan Documents, and
(g) incur and pay such Lender Group Expenses as Agent may deem necessary or
appropriate for the performance and fulfillment of its functions and powers
pursuant to the Loan Documents.

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     15.2 Delegation of Duties. Agent may execute any of its duties under this
Agreement or any other Loan Document by or through agents, employees or
attorneys in fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. Agent shall not be responsible for the
negligence or misconduct of any agent or attorney in fact that it selects as
long as such selection was made without gross negligence or willful misconduct.
     15.3 Liability of Agent. None of Agent-Related Persons shall (a) be liable
for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Loan Document or the transactions
contemplated hereby (except for its own gross negligence or willful misconduct),
or (b) be responsible in any manner to any of the Lenders for any recital,
statement, representation or warranty made by any Borrower or any of its
Subsidiaries or Affiliates, or any officer or director thereof, contained in
this Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by Agent
under or in connection with, this Agreement or any other Loan Document, or the
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document, or for any failure of any Borrower or its
Subsidiaries or any other party to any Loan Document to perform its obligations
hereunder or thereunder. No Agent-Related Person shall be under any obligation
to any Lender to ascertain or to inquire as to the observance or performance of
any of the agreements contained in, or conditions of, this Agreement or any
other Loan Document, or to inspect the books and records or properties of Parent
and its Subsidiaries.
     15.4 Reliance by Agent. Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, telefacsimile or other electronic
method of transmission, telex or telephone message, statement or other document
or conversation believed by it to be genuine and correct and to have been
signed, sent, or made by the proper Person or Persons, and upon advice and
statements of legal counsel (including counsel to Borrowers or counsel to any
Lender), independent accountants and other experts selected by Agent. Agent
shall be fully justified in failing or refusing to take any action under this
Agreement or any other Loan Document unless Agent shall first receive such
advice or concurrence of the Lenders as it deems appropriate and until such
instructions are received, Agent shall act, or refrain from acting, as it deems
advisable. If Agent so requests, it shall first be indemnified to its reasonable
satisfaction by the Lenders against any and all liability and expense that may
be incurred by it by reason of taking or continuing to take any such action.
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement or any other Loan Document in accordance with a
request or consent of the requisite Lenders and such request and any action
taken or failure to act pursuant thereto shall be binding upon all of the
Lenders.
     15.5 Notice of Default or Event of Default. Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default,
except with respect to defaults in the payment of principal, interest, fees, and
expenses required to be paid to Agent for the account of the Lenders and, except
with respect to Events of Default of which Agent has actual knowledge, unless
Agent shall have received written notice from a Lender or Administrative
Borrower referring to this Agreement, describing such Default or Event of
Default, and stating that such notice is a “notice of default.” Agent promptly
will notify the Lenders of its receipt of any such notice or of any Event of
Default of which Agent has actual knowledge. If any Lender obtains actual
knowledge of any Event of Default, such Lender promptly shall notify the other
Lenders and Agent of such Event of Default. Each Lender shall be solely
responsible for giving any notices to its Participants, if any. Subject to
Section 15.4, Agent shall take such action with respect to such Default or Event
of Default as may be requested by the Required Lenders in accordance with
Section 8; provided, however, that unless and until Agent has received any such
request, Agent may (but shall not be obligated to) take such action, or refrain
from taking such action, with respect to such Default or Event of Default as it
shall deem advisable.

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     15.6 Credit Decision. Each Lender acknowledges that none of Agent-Related
Persons has made any representation or warranty to it, and that no act by Agent
hereinafter taken, including any review of the affairs of Parent and its
Subsidiaries or Affiliates, shall be deemed to constitute any representation or
warranty by any Agent-Related Person to any Lender. Each Lender represents to
Agent that it has, independently and without reliance upon any Agent-Related
Person and based on such documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business, prospects,
operations, property, financial and other condition and creditworthiness of
Borrowers or any other Person party to a Loan Document, and all applicable bank
regulatory laws relating to the transactions contemplated hereby, and made its
own decision to enter into this Agreement and to extend credit to Borrowers.
Each Lender also represents that it will, independently and without reliance
upon any Agent-Related Person and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigations as it deems necessary
to inform itself as to the business, prospects, operations, property, financial
and other condition and creditworthiness of Borrowers or any other Person party
to a Loan Document. Except for notices, reports, and other documents expressly
herein required to be furnished to the Lenders by Agent, Agent shall not have
any duty or responsibility to provide any Lender with any credit or other
information concerning the business, prospects, operations, property, financial
and other condition or creditworthiness of Borrowers or any other Person party
to a Loan Document that may come into the possession of any of Agent-Related
Persons.
     15.7 Costs and Expenses; Indemnification. Agent may incur and pay Lender
Group Expenses to the extent Agent reasonably deems necessary or appropriate for
the performance and fulfillment of its functions, powers, and obligations
pursuant to the Loan Documents, including court costs, attorneys fees and
expenses, fees and expenses of financial accountants, advisors, consultants, and
appraisers, costs of collection by outside collection agencies, auctioneer fees
and expenses, and costs of security guards or insurance premiums paid to
maintain the Collateral, whether or not Parent or its Subsidiaries are obligated
to reimburse Agent or Lenders for such expenses pursuant to this Agreement or
otherwise. Agent is authorized and directed to deduct and retain sufficient
amounts from the Collections of Parent and its Subsidiaries received by Agent to
reimburse Agent for such out-of-pocket costs and expenses prior to the
distribution of any amounts to Lenders. In the event Agent is not reimbursed for
such costs and expenses by Parent or its Subsidiaries, each Lender hereby agrees
that it is and shall be obligated to pay to Agent such Lender’s Pro Rata Share
thereof. Whether or not the transactions contemplated hereby are consummated,
the Lenders shall indemnify upon demand Agent-Related Persons (to the extent not
reimbursed by or on behalf of Borrowers and without limiting the obligation of
Borrowers to do so), according to their Pro Rata Shares, from and against any
and all Indemnified Liabilities; provided, however, that no Lender shall be
liable for the payment to any Agent-Related Person of any portion of such
Indemnified Liabilities resulting solely from such Person’s gross negligence or
willful misconduct nor shall any Lender be liable for the obligations of any
Defaulting Lender in failing to make an Advance or other extension of credit
hereunder. Without limitation of the foregoing, each Lender shall reimburse
Agent upon demand for such Lender’s Pro Rata Share of any costs or out of pocket
expenses (including attorneys, accountants, advisors, and consultants fees and
expenses) incurred by Agent in connection with the preparation, execution,
delivery, administration, modification, amendment, or enforcement (whether
through negotiations, legal proceedings or otherwise) of, or legal advice in
respect of rights or responsibilities under, this Agreement, any other Loan
Document, or any document contemplated by or referred to herein, to the extent
that Agent is not reimbursed for such expenses by or on behalf of Borrowers. The
undertaking in this Section shall survive the payment of all Obligations
hereunder and the resignation or replacement of Agent.
     15.8 Agent in Individual Capacity. WFF and its Affiliates may make loans
to, issue letters of credit for the account of, accept deposits from, acquire
equity interests in, and generally engage in any

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kind of banking, trust, financial advisory, underwriting, or other business with
Parent and its Subsidiaries and Affiliates and any other Person party to any
Loan Documents as though WFF were not Agent hereunder, and, in each case,
without notice to or consent of the other members of the Lender Group. The other
members of the Lender Group acknowledge that, pursuant to such activities, WFF
or its Affiliates may receive information regarding Borrowers or their
Affiliates or any other Person party to any Loan Documents that is subject to
confidentiality obligations in favor of Borrowers or such other Person and that
prohibit the disclosure of such information to the Lenders, and the Lenders
acknowledge that, in such circumstances (and in the absence of a waiver of such
confidentiality obligations, which waiver Agent will use its reasonable best
efforts to obtain), Agent shall not be under any obligation to provide such
information to them. The terms “Lender” and “Lenders” include WFF in its
individual capacity.
     15.9 Successor Agent. Agent may resign as Agent upon 45 days notice to the
Lenders (unless such notice is waived by the Required Lenders). If Agent resigns
under this Agreement, the Required Lenders shall appoint a successor Agent for
the Lenders. If no successor Agent is appointed prior to the effective date of
the resignation or removal of Agent, Agent may appoint, after consulting with
the Lenders, a successor Agent. At any time, Agent may be removed upon prior
notice from the Required Lenders to Agent and the other Lenders. If Agent has
been removed by the Required Lenders, Required Lenders may agree in writing to
replace Agent with a successor Agent from among the Lenders. In any such event,
upon the acceptance of its appointment as successor Agent hereunder, such
successor Agent shall succeed to all the rights, powers, and duties of the
retiring Agent and the term “Agent” shall mean such successor Agent and the
retiring Agent’s appointment, powers, and duties as Agent shall be terminated.
After any retiring Agent’s resignation hereunder as Agent, the provisions of
this Section 15 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Agent under this Agreement. If no successor Agent
has accepted appointment as Agent by the date which is 45 days following a
retiring Agent’s notice of resignation, the retiring Agent’s resignation shall
nevertheless thereupon become effective and the Lenders shall perform all of the
duties of Agent hereunder until such time, if any, as the Lenders appoint a
successor Agent as provided for above.
     15.10 Lender in Individual Capacity. Any Lender and its respective
Affiliates may make loans to, issue letters of credit for the account of, accept
deposits from, acquire equity interests in and generally engage in any kind of
banking, trust, financial advisory, underwriting, or other business with Parent
and its Subsidiaries and Affiliates and any other Person party to any Loan
Documents as though such Lender were not a Lender hereunder without notice to or
consent of the other members of the Lender Group. The other members of the
Lender Group acknowledge that, pursuant to such activities, such Lender and its
respective Affiliates may receive information regarding Borrowers or their
Affiliates or any other Person party to any Loan Documents that is subject to
confidentiality obligations in favor of Borrowers or such other Person and that
prohibit the disclosure of such information to the Lenders, and the Lenders
acknowledge that, in such circumstances (and in the absence of a waiver of such
confidentiality obligations, which waiver such Lender will use its reasonable
best efforts to obtain), such Lender shall not be under any obligation to
provide such information to them.
15.11 Collateral Matters.
          (a) The Lenders hereby irrevocably authorize Agent, at its option and
in its sole discretion, to release any Lien on any Collateral (i) upon the
termination of the Commitments and payment and satisfaction in full by Borrowers
of all Obligations (or, if the only remaining Obligations are with respect to
the Warrant, upon termination of all other Obligations), (ii) constituting
property being sold or disposed of if a release is required or desirable in
connection therewith and if Administrative Borrower certifies to Agent that the
sale or disposition is permitted under Section 6.4 of this Agreement or the
other Loan Documents (and Agent may rely conclusively on any such certificate,
without further inquiry), (iii) constituting property in which neither Parent
nor any of its Subsidiaries owned any interest

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at the time the Agent’s Lien was granted nor at any time thereafter, or
(iv) constituting property leased to Parent or any of its Subsidiaries under a
lease that has expired or is terminated in a transaction permitted under this
Agreement. Except as provided above, Agent will not execute and deliver a
release of any Lien on any Collateral without the prior written authorization of
(y) if the release is of all or substantially all of the Collateral, all of the
Lenders, or (z) otherwise, the Required Lenders. Upon request by Agent or
Administrative Borrower at any time, the Lenders will confirm in writing Agent’s
authority to release any such Liens on particular types or items of Collateral
pursuant to this Section 15.11; provided, however, that (1) Agent shall not be
required to execute any document necessary to evidence such release on terms
that, in Agent’s opinion, would expose Agent to liability or create any
obligation or entail any consequence other than the release of such Lien without
recourse, representation, or warranty, and (2) such release shall not in any
manner discharge, affect, or impair the Obligations or any Liens (other than
those expressly being released) upon (or obligations of Borrowers in respect of)
all interests retained by Borrowers, including, the proceeds of any sale, all of
which shall continue to constitute part of the Collateral.
          (b) Agent shall have no obligation whatsoever to any of the Lenders to
assure that the Collateral exists or is owned by Parent or any of its
Subsidiaries or is cared for, protected, or insured or has been encumbered, or
that the Agent’s Liens have been properly or sufficiently or lawfully created,
perfected, protected, or enforced or are entitled to any particular priority, or
to exercise at all or in any particular manner or under any duty of care,
disclosure or fidelity, or to continue exercising, any of the rights,
authorities and powers granted or available to Agent pursuant to any of the Loan
Documents, it being understood and agreed that in respect of the Collateral, or
any act, omission, or event related thereto, subject to the terms and conditions
contained herein, Agent may act in any manner it may deem appropriate, in its
sole discretion given Agent’s own interest in the Collateral in its capacity as
one of the Lenders and that Agent shall have no other duty or liability
whatsoever to any Lender as to any of the foregoing, except as otherwise
provided herein.
     15.12 Restrictions on Actions by Lenders; Sharing of Payments.
          (a) Each of the Lenders agrees that it shall not, without the express
written consent of Agent, and that it shall, to the extent it is lawfully
entitled to do so, upon the written request of Agent, set off against the
Obligations, any amounts owing by such Lender to Parent or any of its
Subsidiaries or any deposit accounts of Parent or any of its Subsidiaries now or
hereafter maintained with such Lender. Each of the Lenders further agrees that
it shall not, unless specifically requested to do so in writing by Agent, take
or cause to be taken any action, including, the commencement of any legal or
equitable proceedings to enforce any Loan Document against the Borrowers or
Guarantors or to foreclose any Lien on, or otherwise enforce any security
interest in, any of the Collateral.
          (b) If, at any time or times any Lender shall receive (i) by payment,
foreclosure, setoff, or otherwise, any proceeds of Collateral or any payments
with respect to the Obligations, except for any such proceeds or payments
received by such Lender from Agent pursuant to the terms of this Agreement, or
(ii) payments from Agent in excess of such Lender’s Pro Rata Share of all such
distributions by Agent, such Lender promptly shall (A) turn the same over to
Agent, in kind, and with such endorsements as may be required to negotiate the
same to Agent, or in immediately available funds, as applicable, for the account
of all of the Lenders and for application to the Obligations in accordance with
the applicable provisions of this Agreement, or (B) purchase, without recourse
or warranty, an undivided interest and participation in the Obligations owed to
the other Lenders so that such excess payment received shall be applied ratably
as among the Lenders in accordance with their Pro Rata Shares; provided,
however, that to the extent that such excess payment received by the purchasing
party is thereafter recovered from it, those purchases of participations shall
be rescinded in whole or in part, as applicable, and the applicable portion of
the purchase price paid therefor shall be returned to such

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purchasing party, but without interest except to the extent that such purchasing
party is required to pay interest in connection with the recovery of the excess
payment.
     15.13 Agency for Perfection. Agent hereby appoints each other Lender as its
agent (and each Lender hereby accepts such appointment) for the purpose of
perfecting Agent’s Liens in assets which, in accordance with Article 8 or
Article 9, as applicable, of the Code can be perfected only by possession or
control. Should any Lender obtain possession or control of any such Collateral,
such Lender shall notify Agent thereof, and, promptly upon Agent’s request
therefor shall deliver possession or control of such Collateral to Agent or in
accordance with Agent’s instructions.
     15.14 Payments by Agent to the Lenders. All payments to be made by Agent to
the Lenders shall be made by bank wire transfer of immediately available funds
pursuant to such wire transfer instructions as each party may designate for
itself by written notice to Agent. Concurrently with each such payment, Agent
shall identify whether such payment (or any portion thereof) represents
principal, premium, fees, or interest of the Obligations.
     15.15 Concerning the Collateral and Related Loan Documents. Each member of
the Lender Group authorizes and directs Agent to enter into this Agreement and
the other Loan Documents. Each member of the Lender Group agrees that any action
taken by Agent in accordance with the terms of this Agreement or the other Loan
Documents relating to the Collateral and the exercise by Agent of its powers set
forth therein or herein, together with such other powers that are reasonably
incidental thereto, shall be binding upon all of the Lenders.
     15.16 Field Audits and Examination Reports; Confidentiality; Disclaimers by
Lenders; Other Reports and Information. By becoming a party to this Agreement,
each Lender:
          (a) is deemed to have requested that Agent furnish such Lender,
promptly after it becomes available, a copy of each field audit or examination
report respecting Parent and its Subsidiaries (each a “Report” and collectively,
“Reports”) prepared by or at the request of Agent, and Agent shall so furnish
each Lender with such Reports,
          (b) expressly agrees and acknowledges that Agent does not (i) make any
representation or warranty as to the accuracy of any Report, and (ii) shall not
be liable for any information contained in any Report,
          (c) expressly agrees and acknowledges that the Reports are not
comprehensive audits or examinations, that Agent or other party performing any
audit or examination will inspect only specific information regarding Parent and
its Subsidiaries and will rely significantly upon Parent and its Subsidiaries’
books and records, as well as on representations of Borrowers’ personnel,
          (d) agrees to keep all Reports and other material, non-public
information regarding Parent and its Subsidiaries and their operations, assets,
and existing and contemplated business plans in a confidential manner in
accordance with Section 17.9, and
          (e) without limiting the generality of any other indemnification
provision contained in this Agreement, agrees: (i) to hold Agent and any other
Lender preparing a Report harmless from any action the indemnifying Lender may
take or fail to take or any conclusion the indemnifying Lender may reach or draw
from any Report in connection with any loans or other credit accommodations that
the indemnifying Lender has made or may make to Borrowers, or the indemnifying
Lender’s participation in, or the indemnifying Lender’s purchase of, a loan or
loans of Borrowers, and (ii) to pay and protect, and indemnify, defend and hold
Agent, and any such other Lender preparing a Report

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harmless from and against, the claims, actions, proceedings, damages, costs,
expenses, and other amounts (including, attorneys fees and costs) incurred by
Agent and any such other Lender preparing a Report as the direct or indirect
result of any third parties who might obtain all or part of any Report through
the indemnifying Lender.
In addition to the foregoing: (x) any Lender may from time to time request of
Agent in writing that Agent provide to such Lender a copy of any report or
document provided by Parent or any of its Subsidiaries to Agent that has not
been contemporaneously provided by Parent or any of its Subsidiaries to such
Lender, and, upon receipt of such request, Agent promptly shall provide a copy
of same to such Lender, (y) to the extent that Agent is entitled, under any
provision of the Loan Documents, to request additional reports or information
from Parent or any of its Subsidiaries, any Lender may, from time to time,
reasonably request Agent to exercise such right as specified in such Lender’s
notice to Agent, whereupon Agent promptly shall request of Administrative
Borrower the additional reports or information reasonably specified by such
Lender, and, upon receipt thereof from Administrative Borrower, Agent promptly
shall provide a copy of same to such Lender, and (z) any time that Agent renders
to Administrative Borrower a statement regarding the Loan Account, Agent shall
send a copy of such statement to each Lender.
     15.17 Several Obligations; No Liability. Notwithstanding that certain of
the Loan Documents now or hereafter may have been or will be executed only by or
in favor of Agent in its capacity as such, and not by or in favor of the
Lenders, any and all obligations on the part of Agent (if any) to make any
credit available hereunder shall constitute the several (and not joint)
obligations of the respective Lenders on a ratable basis, according to their
respective Commitments, to make an amount of such credit not to exceed, in
principal amount, at any one time outstanding, the amount of their respective
Commitments. Nothing contained herein shall confer upon any Lender any interest
in, or subject any Lender to any liability for, or in respect of, the business,
assets, profits, losses, or liabilities of any other Lender. Each Lender shall
be solely responsible for notifying its Participants of any matters relating to
the Loan Documents to the extent any such notice may be required, and no Lender
shall have any obligation, duty, or liability to any Participant of any other
Lender. Except as provided in Section 15.7, no member of the Lender Group shall
have any liability for the acts of any other member of the Lender Group. No
Lender shall be responsible to any Borrower or any other Person for any failure
by any other Lender to fulfill its obligations to make credit available
hereunder, nor to advance for it or on its behalf in connection with its
Commitment, nor to take any other action on its behalf hereunder or in
connection with the financing contemplated herein.
16. WITHHOLDING TAXES.
          (a) All payments made by any Borrower hereunder or under any note or
other Loan Document will be made without setoff, counterclaim, or other defense.
In addition, all such payments will be made free and clear of, and without
deduction or withholding for, any present or future Indemnified Taxes and Other
Taxes, and in the event any deduction or withholding of Indemnified Taxes and
Other Taxes is required, each Borrower shall comply with the penultimate
sentence of this Section 16(a). If any Indemnified Taxes and Other Taxes are so
levied or imposed, each Borrower agrees to pay the full amount of such
Indemnified Taxes and Other Taxes and such additional amounts as may be
necessary so that every payment of all amounts due under this Agreement, any
note, or Loan Document, including any amount paid pursuant to this Section 16(a)
after withholding or deduction for or on account of any Indemnified Taxes and
Other Taxes, will not be less than the amount provided for herein; provided,
however, that Borrowers shall not be required to increase any such amounts if
the increase in such amount payable results from Agent’s or such Lender’s own
willful misconduct or gross negligence (as finally determined by a court of
competent jurisdiction). Each Borrower will furnish to Agent as promptly as
possible after the date the payment of any Indemnified Tax and Other Tax is due
pursuant to applicable law certified copies of tax receipts evidencing such
payment by Borrower.

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          (b) If a Lender claims an exemption from United States withholding
tax, Lender agrees with and in favor of Agent and any Borrower, to deliver to
Agent:
                    (i) if such Lender claims an exemption from United States
withholding tax pursuant to its portfolio interest exception, (A) a statement of
the Lender, signed under penalty of perjury, that it is not a (I) a “bank” as
described in Section 881(c)(3)(A) of the IRC, (II) a 10% shareholder of any
Borrower (within the meaning of Section 871(h)(3)(B) of the IRC), or (III) a
controlled foreign corporation related to any Borrower within the meaning of
Section 864(d)(4) of the IRC, and (B) a properly completed and executed IRS Form
W-8BEN, before receiving its first payment under this Agreement and at any other
time reasonably requested by Agent or any Borrower;
                    (ii) if such Lender claims an exemption from, or a reduction
of, withholding tax under a United States tax treaty, properly completed and
executed IRS Form W-8BEN before receiving its first payment under this Agreement
and at any other time reasonably requested by Agent or any Borrower;
                    (iii) if such Lender claims that interest paid under this
Agreement is exempt from United States withholding tax because it is effectively
connected with a United States trade or business of such Lender, two properly
completed and executed copies of IRS Form W-8ECI before receiving its first
payment under this Agreement and at any other time reasonably requested by Agent
or any Borrower; or
                    (iv) such other form or forms, including IRS Form W-9, as
may be required under the IRC or other laws of the United States as a condition
to exemption from, or reduction of, United States withholding or backup
withholding tax before receiving its first payment under this Agreement and at
any other time reasonably requested by Agent or any Borrower.
Lender agrees promptly to notify Agent and Administrative Borrower of any change
in circumstances which would modify or render invalid any claimed exemption or
reduction. In addition, each such Lender agrees that it will deliver, upon
Administrative Borrower’s written request, updated versions of the foregoing
documents whenever they have become obsolete or inaccurate in any material
respect, together with such other forms or documents as may be required in order
to confirm or establish the entitlement of such Lender to continued exemption
from or reduction of withholding tax, but only if, and to the extent that, such
Lender is eligible for such exemption or reduction.
          (c) If a Lender claims an exemption from withholding tax in a
jurisdiction other than the United States, Lender agrees with and in favor of
Agent and Borrowers, to deliver to Agent any such form or forms, as may be
required under the laws of such jurisdiction as a condition to exemption from,
or reduction of, foreign withholding or backup withholding tax before receiving
its first payment under this Agreement and at any other time reasonably
requested by Agent or Administrative Borrower.
Lender agrees promptly to notify Agent and Administrative Borrower of any change
in circumstances which would modify or render invalid any claimed exemption or
reduction.
          (d) If any Lender claims exemption from, or reduction of, withholding
tax and such Lender sells, assigns, grants a participation in, or otherwise
transfers all or part of the Obligations of Borrowers to such Lender, such
Lender agrees to notify Agent and Administrative Borrower of the percentage
amount in which it is no longer the beneficial owner of Obligations of Borrowers
to such Lender. To the extent of such percentage amount, Agent and Borrowers
will treat such Lender’s documentation provided pursuant to Sections 16(b) or
16(c) as no longer valid. With respect to such

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percentage amount, Lender may provide new documentation, pursuant to Sections
16(b) or 16(c), if applicable.
          (e) If any Lender is entitled to a reduction in the applicable
withholding tax, Agent may withhold from any interest payment to such Lender an
amount equivalent to the applicable withholding tax after taking into account
such reduction. If the forms or other documentation required by subsection
(b) or (c) of this Section 16 are not delivered to Agent, then Agent may
withhold from any interest payment to such Lender not providing such forms or
other documentation an amount equivalent to the applicable withholding tax.
          (f) If the IRS or any other Governmental Authority of the United
States or other jurisdiction asserts a claim that Agent did not properly
withhold tax from amounts paid to or for the account of any Lender due to a
failure on the part of the Lender (because the appropriate form was not
delivered, was not properly executed, or because such Lender failed to notify
Agent of a change in circumstances which rendered the exemption from, or
reduction of, withholding tax ineffective, or for any other reason) such Lender
shall indemnify and hold Agent harmless for all amounts paid, directly or
indirectly, by Agent, as tax or otherwise, including penalties and interest, and
including any taxes imposed by any jurisdiction on the amounts payable to Agent
under this Section 16, together with all costs and expenses (including attorneys
fees and expenses). The obligation of the Lenders under this subsection shall
survive the payment of all Obligations and the resignation or replacement of
Agent.
          (g) If Agent or a Lender determines, in its sole discretion, that it
has received a refund of any Indemnified Taxes or Other Taxes as to which it has
been indemnified by a Borrower or with respect to which a Borrower paid
additional amounts pursuant to this Section 16, it shall pay over such refund to
such Borrower (but only to the extent of indemnity payments made, or additional
amounts paid, by such Borrower under this Section 16 with respect to the
Indemnified Taxes or Other Taxes giving rise to such refund), net of all
out-of-pocket expenses of Agent or such Lender and without interest (other than
any interest paid by the relevant governmental authority with respect to such
refund); provided, that the amount paid over to such Borrower (plus any
penalties, interest or other charges imposed by the relevant Governmental
Authority) shall be repaid to Agent or such Lender by such Borrower in the event
that Agent or such Lender is required to repay such refund to such governmental
authority. This section shall not be construed to require Agent or any Lender to
make available its tax returns (or any other information relating to its taxes
which it deems confidential) to any Borrower or any other Person.
17. GENERAL PROVISIONS.
     17.1 Effectiveness. This Agreement shall be binding and deemed effective
when executed by Borrowers, Agent, and each Lender whose signature is provided
for on the signature pages hereof.
     17.2 Section Headings. Headings and numbers have been set forth herein for
convenience only. Unless the contrary is compelled by the context, everything
contained in each Section applies equally to this entire Agreement.
     17.3 Interpretation. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed against the Lender Group or Borrowers,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to
accomplish fairly the purposes and intentions of all parties hereto.

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     17.4 Severability of Provisions. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
     17.5 Bank Product Providers. Each Bank Product Provider shall be deemed a
party hereto for purposes of any reference in a Loan Document to the parties for
whom Agent is acting; it being understood and agreed that the rights and
benefits of such Bank Product Provider under the Loan Documents consist
exclusively of such Bank Product Provider’s right to share in payments and
collections out of the Collateral as more fully set forth herein. In connection
with any such distribution of payments and collections, Agent shall be entitled
to assume no amounts are due to any Bank Product Provider unless such Bank
Product Provider has notified Agent in writing of the amount of any such
liability owed to it prior to such distribution.
     17.6 Lender-Creditor Relationship. The relationship between the Lenders and
Agent, on the one hand, and Borrowers, on the other hand, is solely that of
creditor and debtor. No member of the Lender Group has (or shall be deemed to
have) any fiduciary relationship or duty to Borrowers arising out of or in
connection with, and there is no agency or joint venture relationship between
the members of the Lender Group, on the one hand, and Borrowers, on the other
hand, by virtue of any Loan Document or any transaction contemplated therein.
     17.7 Counterparts; Electronic Execution. This Agreement may be executed in
any number of counterparts and by different parties on separate counterparts,
each of which, when executed and delivered, shall be deemed to be an original,
and all of which, when taken together, shall constitute but one and the same
Agreement. Delivery of an executed counterpart of this Agreement by
telefacsimile or other electronic method of transmission shall be equally as
effective as delivery of an original executed counterpart of this Agreement. Any
party delivering an executed counterpart of this Agreement by telefacsimile or
other electronic method of transmission also shall deliver an original executed
counterpart of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Agreement. The foregoing shall apply to each other Loan Document mutatis
mutandis.
     17.8 Revival and Reinstatement of Obligations. If the incurrence or payment
of the Obligations by any Borrower or Guarantor or the transfer to the Lender
Group of any property should for any reason subsequently be declared to be void
or voidable under any state or federal law relating to creditors’ rights,
including provisions of the Bankruptcy Code relating to fraudulent conveyances,
preferences, or other voidable or recoverable payments of money or transfers of
property (each, a “Voidable Transfer”), and if the Lender Group is required to
repay or restore, in whole or in part, any such Voidable Transfer, or elects to
do so upon the reasonable advice of its counsel, then, as to any such Voidable
Transfer, or the amount thereof that the Lender Group is required or elects to
repay or restore, and as to all reasonable costs, expenses, and attorneys fees
of the Lender Group related thereto, the liability of Borrowers or Guarantors
automatically shall be revived, reinstated, and restored and shall exist as
though such Voidable Transfer had never been made.
17.9 Confidentiality.
          (a) Agent and Lenders each individually (and not jointly or jointly
and severally) agree that material, non-public information regarding Parent or
any of its Subsidiaries, their operations, assets, and existing and contemplated
business plans shall be treated by Agent and the Lenders in a confidential
manner, and shall not be disclosed by Agent and the Lenders to Persons who are
not parties to this Agreement, except: (i) to attorneys for and other advisors,
accountants, auditors, and consultants to any member of the Lender Group,
(ii) to Subsidiaries and Affiliates of any member of the Lender

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Group (including the Bank Product Providers), provided that any such Subsidiary
or Affiliate shall have agreed to receive such information hereunder subject to
the terms of this Section 17.9, (iii) as may be required by statute, decision,
or judicial or administrative order, rule, or regulation, (iv) as may be agreed
to in advance by Administrative Borrower or its Subsidiaries or as requested or
required by any Governmental Authority pursuant to any subpoena or other legal
process, (v) as to any such information that is or becomes generally available
to the public (other than as a result of prohibited disclosure by Agent or the
Lenders), (vi) in connection with any assignment, prospective assignment, sale,
prospective sale, participation, prospective participation or pledge or
prospective or pledge of any Lender’s interest under this Agreement, provided
that any such assignee, prospective assignment, sale, prospective sale,
participation, prospective participation or pledge or prospective or pledgee
shall have agreed in writing to receive such information hereunder subject to
the terms of this Section, and (vii) in connection with any litigation or other
adversary proceeding involving parties hereto which such litigation or adversary
proceeding involves claims related to the rights or duties of such parties under
this Agreement or the other Loan Documents. The provisions of this
Section 17.9(a) shall survive for 2 years after the payment in full of the
Obligations.
          (b) Anything in this Agreement to the contrary notwithstanding, Agent
may provide information concerning the terms and conditions of this Agreement
and the other Loan Documents to loan syndication and pricing reporting services.
     17.10 Lender Group Expenses. Borrowers agree to pay any and all Lender
Group Expenses promptly after demand therefor by Agent or any Lender and agree
that their obligations contained in this Section 17.10 shall survive payment or
satisfaction in full of all other Obligations.
     17.11 USA PATRIOT Act. Each Lender that is subject to the requirements of
the USA Patriot Act (Title 111 of Pub. L. 107-56 (signed into law October 26,
2001)) (the “Act”) hereby notifies Borrowers that pursuant to the requirements
of the Act, it is required to obtain, verify and record information that
identifies Borrowers, which information includes the name and address of
Borrowers and other information that will allow such Lender to identify
Borrowers in accordance with the Act.
     17.12 Integration. This Agreement, together with the other Loan Documents,
reflects the entire understanding of the parties with respect to the
transactions contemplated hereby and shall not be contradicted or qualified by
any other agreement, oral or written, before the date hereof.
     17.13 Parent as Agent for Borrowers. Each Borrower hereby irrevocably
appoints Parent as the borrowing agent and attorney-in-fact for all Borrowers
(the “Administrative Borrower”) which appointment shall remain in full force and
effect unless and until Agent shall have received prior written notice signed by
each Borrower that such appointment has been revoked and that another Borrower
has been appointed Administrative Borrower. Each Borrower hereby irrevocably
appoints and authorizes the Administrative Borrower (i) to provide Agent with
all notices with respect to Advances and Letters of Credit obtained for the
benefit of any Borrower and all other notices and instructions under this
Agreement and (ii) to take such action as the Administrative Borrower deems
appropriate on its behalf to obtain Advances and Letters of Credit and to
exercise such other powers as are reasonably incidental thereto to carry out the
purposes of this Agreement. It is understood that the handling of the Loan
Account and Collateral of Borrowers in a combined fashion, as more fully set
forth herein, is done solely as an accommodation to Borrowers in order to
utilize the collective borrowing powers of Borrowers in the most efficient and
economical manner and at their request, and that Lender Group shall not incur
liability to any Borrower as a result hereof. Each Borrower expects to derive
benefit, directly or indirectly, from the handling of the Loan Account and the
Collateral in a combined fashion since the successful operation of each Borrower
is dependent on the continued successful performance of the integrated group. To
induce the Lender Group to do so, and in consideration thereof, each Borrower
hereby jointly and

- 72 -

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severally agrees to indemnify each member of the Lender Group and hold each
member of the Lender Group harmless against any and all liability, expense, loss
or claim of damage or injury, made against the Lender Group by any Borrower or
by any third party whosoever, arising from or incurred by reason of (a) the
handling of the Loan Account and Collateral of Borrowers as herein provided, (b)
the Lender Group’s relying on any instructions of the Administrative Borrower,
or (c) any other action taken by the Lender Group hereunder or under the other
Loan Documents, except that Borrowers will have no liability to the relevant
Agent-Related Person or Lender-Related Person under this Section 17.13 with
respect to any liability that has been finally determined by a court of
competent jurisdiction to have resulted solely from the gross negligence or
willful misconduct of such Agent-Related Person or Lender-Related Person, as the
case may be.
[Signature pages follow.]

- 73 -

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     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first above written.

                  FOOTHILLS RESOURCES, INC.,         as Borrower    
 
           
 
  By:   /s/ Dennis B. Tower            
 
 
  Name:   Dennis B. Tower    
 
  Title:   Chief Executive Officer    
 
                FOOTHILLS CALIFORNIA, INC.,         as Borrower    
 
           
 
  By:   /s/ Dennis B. Tower            
 
 
  Name:   Dennis B. Tower    
 
  Title:   Chief Executive Officer    
 
                FOOTHILLS OKLAHOMA, INC.,         as Borrower    
 
           
 
  By:   /s/ Dennis B. Tower            
 
 
  Name:   Dennis B. Tower    
 
  Title:   Chief Executive Officer    
 
                FOOTHILLS TEXAS, INC.,         as Borrower    
 
           
 
  By:   /s/ Dennis B. Tower            
 
 
  Name:   Dennis B. Tower    
 
  Title:   Chief Executive Officer    
 
                WELLS FARGO FOOTHILL, LLC,         as Agent and as a Lender    
 
           
 
  By:   /s/ SN Thomas            
 
 
  Name:   SN Thomas    
 
  Title:   Vice President    

 

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                  REGIMENT CAPITAL SPECIAL SITUATIONS FUND         III, L.P., as
a Lender    
 
           
 
  By:   Regiment Capital GP, LLC    
 
      its General Partner    
 
           
 
  By:    /s/ Richard T. Miller    
 
  Name:  
 
Richard T. Miller    
 
  Title:   Authorized Signatory    
 
                Address for Notice:         222 Berkeley Street, 12th Floor    
    Boston, Massachusetts 02116         Attn: Kyle O’Neil         Fax No.:
(617) 488-1688    

-2-

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TABLE OF CONTENTS

              Page  
1. DEFINITIONS AND CONSTRUCTION
    1  
1.1 Definitions
    1  
1.2 Accounting Terms
    1  
1.3 Code
    1  
1.4 Construction
    1  
1.5 Schedules and Exhibits
    2  
 
       
2. LOAN AND TERMS OF PAYMENT.
    2  
2.1 Revolver Advances.
    2  
2.2 Term Loan
    4  
2.3 Borrowing Procedures and Settlements.
    5  
2.4 Payments.
    9  
2.5 Overadvances
    13  
2.6 Interest Rates and Letter of Credit Fee: Rates, Payments, and Calculations.
    13  
2.7 Cash Management.
    16  
2.8 Crediting Payments; Clearance Charge
    17  
2.9 Designated Account
    17  
2.10 Maintenance of Loan Account; Statements of Obligations
    17  
2.11 Fees
    17  
2.12 Letters of Credit.
    18  
2.13 LIBOR Option.
    20  
2.14 Capital Requirements
    22  
2.15 Tax Reporting
    22  
2.16 Joint and Several Liability of Borrowers
    223  
 
       
3. CONDITIONS; TERM OF AGREEMENT.
    26  
3.1 Conditions Precedent to the Initial Extension of Credit
    26  
3.2 Conditions Precedent to all Extensions of Credit
    26  
3.3 Term
    26  
3.4 Effect of Termination
    27  
3.5 Early Termination by Borrower
    27  
 
       
4. REPRESENTATIONS AND WARRANTIES.
    27  
4.1 No Encumbrances
    27  
4.2 Margin Stock
    28  
4.3 Brokers
    28  
4.4 Jurisdiction of Organization; Location of Chief Executive Office;
Organizational Identification Number; Commercial Tort Claims.
    28  
4.5 Due Organization and Qualification; Compliance with Laws; Subsidiaries.
    28  
4.6 Due Authorization; No Conflict.
    29  
4.7 Litigation
    31  
4.8 No Material Adverse Change.
    31  
4.9 Fraudulent Transfer.
    32  
4.10 Employee Benefits
    32  
4.11 Environmental Condition
    32  
4.12 Intellectual Property
    33  
4.13 Leases
    33  

 

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TABLE OF CONTENTS
(continued)

              Page  
4.14 Deposit Accounts and Securities Accounts
    33  
4.15 Complete Disclosure
    34  
4.16 Indebtedness
    34  
4.17 Material Contracts
    34  
4.18 Government Regulation
    34  
4.19 Foreign Assets Control Regulations, Etc.
    34  
4.20 Insurance and Bonds
    35  
4.21 Government Contracts
    35  
4.22 Taxes
    35  
4.23 Gas, Imbalances, Prepayments
    36  
4.24 Swap Agreements
    36  
4.25 Location of Real Property and Leased Premises.
    36  
4.26 Nature of Business
    37  
4.27 Seismic Licenses
    37  
4.28 Marketing of Production
    37  
 
       
5. AFFIRMATIVE COVENANTS.
    38  
5.1 Accounting System
    38  
5.2 Collateral Reporting
    38  
5.3 Financial Statements, Reports, Certificates
    38  
5.4 Guarantor Reports
    38  
5.5 Inspection
    38  
5.6 Maintenance of Properties
    38  
5.7 Taxes
    39  
5.8 Insurance.
    39  
5.9 Compliance with Laws
    40  
5.10 Leases
    40  
5.11 Existence
    40  
5.12 Environmental
    41  
5.13 Disclosure Updates
    42  
5.14 Control Agreements
    42  
5.15 Formation of Subsidiaries
    42  
5.16 Further Assurances
    42  
5.17 Material Contracts
    43  
5.18 Intellectual Property
    43  
5.19 Exercise of Rights
    43  
5.20 Reserve Reports
    43  
5.21 Title Information
    44  
5.22 Swap Agreements
    454  
5.23 Assignment of Government Contracts
    454  
 
       
6. NEGATIVE COVENANTS.
    46  
6.1 Indebtedness
    46  
6.2 Liens
    46  
6.3 Restrictions on Fundamental Changes
    46  
6.4 Disposal of Assets
    47  
6.5 Change of Jurisdiction, Corporate Name or Location; Change of Fiscal Year
    47  

-2-

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TABLE OF CONTENTS
(continued)

              Page  
6.6 Nature of Business
    47  
6.7 Prepayments and Amendments
    47  
6.8 Change of Control
    48  
6.9 Distributions
    48  
6.10 Accounting Methods
    48  
6.11 Investments
    48  
6.12 Transactions with Affiliates
    48  
6.13 Use of Proceeds
    48  
6.14 Financial Covenants
    49  
6.15 Forward Sales
    50  
6.16 Oil and Gas Imbalances
    50  
6.17 Marketing Activities
    50  
6.18 Sale-Leasebacks
    51  
6.19 Cancellation of Indebtedness
    51  
6.20 No Amendment of Governing Documents
    51  
6.21 No Impairment of Intercompany Transfers; Negative Pledge
    51  
6.22 Change in Management
    51  
6.23 Swap Agreements
    51  
 
       
7. EVENTS OF DEFAULT.
    52  
 
       
8. THE LENDER GROUP’S RIGHTS AND REMEDIES.
    54  
8.1 Rights and Remedies
    54  
8.2 Remedies Cumulative
    55  
 
       
9. TAXES AND EXPENSES.
    55  
 
       
10. WAIVERS; INDEMNIFICATION.
    55  
10.1 Demand; Protest; etc
    55  
10.2 The Lender Group’s Liability for Collateral
    55  
10.3 Indemnification
    55  
 
       
11. NOTICES
    56  
 
       
12. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
    57  
 
       
13. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.
    58  
13.1 Assignments and Participations
    58  
13.2 Successors
    60  
 
       
14. AMENDMENTS; WAIVERS.
    60  
14.1 Amendments and Waivers
    60  
14.2 Replacement of Lenders
    61  
14.3 No Waivers; Cumulative Remedies
    62  
 
       
15. AGENT; THE LENDER GROUP.
    62  

-3-

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TABLE OF CONTENTS
(continued)

              Page  
15.1 Appointment and Authorization of Agent
    62  
15.2 Delegation of Duties
    63  
15.3 Liability of Agent
    63  
15.4 Reliance by Agent
    63  
15.5 Notice of Default or Event of Default
    63  
15.6 Credit Decision
    64  
15.7 Costs and Expenses; Indemnification
    64  
15.8 Agent in Individual Capacity
    64  
15.9 Successor Agent
    65  
15.10 Lender in Individual Capacity
    65  
15.11 Collateral Matters
    65  
15.12 Restrictions on Actions by Lenders; Sharing of Payments
    66  
15.13 Agency for Perfection
    67  
15.14 Payments by Agent to the Lenders
    67  
15.15 Concerning the Collateral and Related Loan Documents
    67  
15.16 Field Audits and Examination Reports; Confidentiality; Disclaimers by
Lenders; Other Reports and Information
    67  
15.17 Several Obligations; No Liability
    68  
 
       
16. WITHHOLDING TAXES.
    68  
 
       
17. GENERAL PROVISIONS.
    70  
17.1 Effectiveness
    70  
17.2 Section Headings
    70  
17.3 Interpretation
    70  
17.4 Severability of Provisions
    71  
17.5 Bank Product Providers
    71  
17.6 Lender-Creditor Relationship
    71  
17.7 Counterparts; Electronic Execution
    71  
17.8 Revival and Reinstatement of Obligations
    71  
17.9 Confidentiality
    71  
17.10 Lender Group Expenses
    72  
17.11 USA PATRIOT Act
    72  
17.12 Integration
    72  
17.13 Parent as Agent for Borrowers
    72  

-4-

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EXHIBITS AND SCHEDULES

     
Exhibit A-1
  Form of Assignment and Acceptance
Exhibit C-1
  Form of Compliance Certificate
Exhibit L-1
  Form of LIBOR Notice
Schedule A-1
  Agent’s Account
Schedule A-2
  Authorized Persons
Schedule C-1
  Commitments
Schedule P-1
  Permitted Holders
Schedule P-2
  Permitted Liens
Schedule 1.1
  Definitions
Schedule 2.7(a)
  Cash Management Banks
Schedule 3.1
  Conditions Precedent
Schedule 4.1
  Real Property, Leases, Encumbrances, Rights to Purchase
Schedule 4.4(a)
  States of Organization
Schedule 4.4(b)
  Chief Executive Offices
Schedule 4.4(c)
  Organizational Identification Numbers
Schedule 4.4(d)
  Commercial Tort Claims
Schedule 4.5(b)
  Capitalization of Borrower
Schedule 4.5(c)
  Capitalization of Borrower’s Subsidiaries
Schedule 4.5(d)
  Subscriptions, Options, Warrants, Calls
Schedule 4.7
  Litigation
Schedule 4.11
  Environmental Matters
Schedule 4.12
  Intellectual Property
Schedule 4.13
  Leases
Schedule 4.14
  Deposit Accounts and Securities Accounts
Schedule 4.16
  Permitted Indebtedness
Schedule 4.17
  Material Contracts
Schedule 4.20
  Insurance; Bonds
Schedule 4.21
  Government Contracts
Schedule 4.22
  Taxes
Schedule 4.23
  Gas Imbalances
Schedule 4.24
  Swap Agreements
Schedule 4.25
  Oil and Gas Properties
Schedule 4.27
  Seismic Licenses
Schedule 4.28
  Marketing of Production
Schedule 5.2
  Collateral Reporting
Schedule 5.3
  Financial Statements, Reports, Certificates
Schedule 6.6
  Nature / Description of Business
Schedule 6.12
  Transactions with Affiliates

 

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Schedule 1.1
As used in the Agreement, the following terms shall have the following
definitions:
          “Account” means an account (as that term is defined in the Code).
          “Account Debtor” means any Person who is obligated on an Account,
chattel paper, or a general intangible.
          “ACH Transactions” means any cash management or related services
(including the Automated Clearing House processing of electronic fund transfers
through the direct Federal Reserve Fedline system) provided by a Bank Product
Provider for the account of Parent or its Subsidiaries.
          “Act” has the meaning specified therefor in Section 17.11.
          “Additional Documents” has the meaning specified therefor in
Section 5.17.
          “Administrative Borrower” has the meaning specified therefore in
Section 17.13.
          “Advances” has the meaning specified therefor in Section 2.1(a).
          “Affiliate” shall mean, with respect to any Person, (a) each Person
that, directly or indirectly, owns or controls, whether beneficially, or as a
trustee, guardian or other fiduciary, ten percent (10%) or more of the Stock
having ordinary voting power in the election of directors of such Persons,
(b) each Person that controls, is controlled by or is under common control with
such Person, (c) each of such Person’s officers, directors, joint venturers and
partners and (d) in the case of any Borrower, the immediate family members,
spouses and lineal descendants of individuals who are Affiliates of such
Borrower. For the purposes of this definition, “control” of a Person shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of its management or policies, whether through the ownership of voting
securities, by contract or otherwise; provided, however, that the term
“Affiliate” shall specifically exclude Agent and each Lender.
          “Agent” has the meaning specified therefor in the preamble to the
Agreement.
          “Agent-Related Persons” means Agent, together with its Affiliates,
officers, directors, employees, attorneys, and agents.
          “Agent’s Account” means the Deposit Account of Agent identified on
Schedule A-1.
          “Agent’s Liens” mean the Liens granted by Parent or its Subsidiaries
to Agent under the Loan Documents.
          “Agreement” means the Credit Agreement to which this Schedule 1.1 is
attached.
          “Approved Counterparty” means (a) any Lender or any Affiliate of a
Lender, or (b) any other Person whose long term senior unsecured debt rating is
A-/A3 by S&P or Moody’s (or their equivalent) or higher.

 

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

 

          “Approved Fund” means any Fund that is administered or managed by
(a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of
an entity that administers or manages a Lender.
          “Asset Coverage Ratio” means, as of any date of determination
(a) Parent’s and its Subsidiaries’ Total Reserve Value as of such date, divided
by (b) the amount of Parent’s and its Subsidiaries’ Total Debt as of such date.
          “Assignee” has the meaning specified therefor in Section 13.1(a).
          “Assignment and Acceptance” means an Assignment and Acceptance
Agreement substantially in the form of Exhibit A-1.
          “Authorized Person” means any one of the individuals identified on
Schedule A-2.
          “Availability” means, as of any date of determination, the amount that
Borrowers are entitled to borrow as Advances under Section 2.1 of the Agreement
(after giving effect to all then outstanding Obligations (other than Bank
Product Obligations) and all sublimits and reserves then applicable hereunder).
          “Bank Product” means any financial accommodation extended to Borrowers
or their Subsidiaries by a Bank Product Provider (other than pursuant to the
Agreement) including: (a) credit cards, (b) credit card processing services,
(c) debit cards, (d) purchase cards, (e) ACH Transactions, (f) cash management,
including controlled disbursement, accounts or services, or (g) transactions
under Swap Agreements.
          “Bank Product Agreements” means those agreements entered into from
time to time by Borrowers or their Subsidiaries with a Bank Product Provider in
connection with the obtaining of any of the Bank Products.
          “Bank Product Collateralization” means providing cash collateral
(pursuant to documentation reasonably satisfactory to Agent) to be held by Agent
for the benefit of the Bank Product Providers in an amount determined by Agent
as sufficient to satisfy the reasonably estimated credit exposure with respect
to the then existing Bank Products.
          “Bank Product Obligations” means all obligations, liabilities,
contingent reimbursement obligations, fees, and expenses owing by Borrowers or
their Subsidiaries to any Bank Product Provider pursuant to or evidenced by the
Bank Product Agreements and irrespective of whether for the payment of money,
whether direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising, and including all such amounts that Borrowers or
their Subsidiaries are obligated to reimburse to Agent or any member of the
Lender Group as a result of Agent or such member of the Lender Group purchasing
participations from, or executing indemnities or reimbursement obligations to, a
Bank Product Provider with respect to the Bank Products provided by such Bank
Product Provider to any Borrower or its Subsidiaries.
          “Bank Product Provider” means Wells Fargo or any of its Affiliates.
          “Bank Product Reserve” means, as of any date of determination, (I) an
amount equal to the amount of reserves that Agent has established from time to
time in connection with

2

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

 

Swap Agreements and (II) the lesser of (a) $1,000,000 and (b) an amount equal to
the amount of reserves that Agent has established (based upon the Bank Product
Providers’ reasonable determination of the credit exposure of Parent and its
Subsidiaries in respect of non Swap Agreement related Bank Products) in respect
of non Swap Agreement related Bank Products then provided or outstanding.
          “Bankruptcy Code” means title 11 of the United States Code, as in
effect from time to time.
          “Base LIBOR Rate” means the rate per annum, determined by Agent in
accordance with its customary procedures, and utilizing such electronic or other
quotation sources as it considers appropriate, to be the rate at which Dollar
deposits (for delivery on the first day of the requested Interest Period) are
offered to major banks in the London interbank market 2 Business Days prior to
the commencement of the requested Interest Period, for a term and in an amount
comparable to the Interest Period and the amount of the LIBOR Rate Loan
requested (whether as an initial LIBOR Rate Loan or as a continuation of a LIBOR
Rate Loan or as a conversion of a Base Rate Loan to a LIBOR Rate Loan) by
Borrowers in accordance with the Agreement, which determination shall be
conclusive in the absence of manifest error; provided that for purposes of the
Term Loan, such rate shall be the rate applicable to the rate on a one-, two-,
three- or six-month LIBOR contract on the relevant date of determination and
shall apply to the entire Term Loan.
          “Base Rate” means, the rate of interest announced, from time to time,
within Wells Fargo at its principal office in San Francisco as its “prime rate”,
with the understanding that the “prime rate” is one of Wells Fargo’s base rates
(not necessarily the lowest of such rates) and serves as the basis upon which
effective rates of interest are calculated for those loans making reference
thereto and is evidenced by the recording thereof after its announcement in such
internal publications as Wells Fargo may designate.
          “Base Rate Loan” means the portion of the Advances or the Term Loan
that bears interest at a rate determined by reference to the Base Rate.
          “Base Rate Margin” means (i) for purposes of determining the interest
rate applicable to Base Rate Loans that are Advances, 0.75% and (ii) for
purposes of determining the interest rate applicable to the Term Loan or upon
the occurrence of an event described in Section 2.13(d)(ii), 5.25%.
          “Board of Directors” means the board of directors (or comparable
managers) of Parent or any committee thereof duly authorized to act on behalf of
the board of directors (or comparable managers).
          “Borrowers” has the meaning specified therefor in the preamble to the
Agreement.
          “Borrowing” means a borrowing hereunder consisting of Advances made,
converted or continued on the same day by the Lenders (or Agent on behalf
thereof) and, in the case of Advances that are LIBOR Rate Loans, as to which a
single Interest Period is in effect, or by Swing Lender in the case of a Swing
Loan, or by Agent in the case of a Protective Advance.
          “Borrowing Base” means, initially, $25,000,000, as set forth in
Section 2.1(b), or such other amount as may be determined pursuant to
Section 2.1(d), as the same may be adjusted

3

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

 

from time to time pursuant to Section 5.21(d) or clause (g) of the definition of
“Permitted Dispositions.”
          “Business Day” means any day that is not a Saturday, Sunday, or other
day on which banks are authorized or required to close in the state of New York,
except that, if a determination of a Business Day shall relate to a LIBOR Rate
Loan, the term “Business Day” also shall exclude any day on which banks are
closed for dealings in Dollar deposits in the London interbank market.
          “Capital Expenditures” means, with respect to any Person for any
period, the aggregate of all expenditures by such Person and its Subsidiaries
during such period that are capital expenditures as determined in accordance
with GAAP, whether such expenditures are paid in cash or financed.
          “Capitalized Lease Obligation” means that portion of the obligations
under a Capital Lease that is required to be capitalized in accordance with
GAAP.
          “Capital Lease” means a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP.
          “Cash Equivalents” means (a) marketable direct obligations issued by,
or unconditionally guaranteed by, the United States or issued by any agency
thereof and backed by the full faith and credit of the United States, in each
case maturing within 1 year from the date of acquisition thereof, (b) marketable
direct obligations issued by any state of the United States or any political
subdivision of any such state or any public instrumentality thereof maturing
within 1 year from the date of acquisition thereof and, at the time of
acquisition, having one of the two highest ratings obtainable from either
Standard & Poor’s Rating Group (“S&P”) or Moody’s Investors Service, Inc.
(“Moody’s”), (c) commercial paper maturing no more than 270 days from the date
of creation thereof and, at the time of acquisition, having a rating of at least
A-1 from S&P or at least P-1 from Moody’s, (d) certificates of deposit or
bankers’ acceptances maturing within 1 year from the date of acquisition thereof
issued by any bank organized under the laws of the United States or any state
thereof having at the date of acquisition thereof combined capital and surplus
of not less than $250,000,000, (e) Deposit Accounts maintained with (i) any bank
that satisfies the criteria described in clause (d) above, or (ii) any other
bank organized under the laws of the United States or any state thereof so long
as the amount maintained with any such other bank is less than or equal to
$100,000 and is insured by the Federal Deposit Insurance Corporation, and
(f) Investments in money market funds substantially all of whose assets are
invested in the types of assets described in clauses (a) through (e) above.
          “Cash Management Account” has the meaning specified therefor in
Section 2.7(a).
          “Cash Management Agreements” means those certain cash management
agreements, in form and substance satisfactory to Agent, each of which is among
Parent or one of its Subsidiaries, Agent, and one of the Cash Management Banks.
          “Cash Management Bank” has the meaning specified therefor in
Section 2.7(a).
          “Change of Control” means that (a) Permitted Holders fail to own and
control, directly or indirectly, 15%, or more, of the Stock of Parent having the
right to vote for the election of members of the Board of Directors, (b) any
“person” or “group” (within the meaning

4

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

 

of Sections 13(d) and 14(d) of the Exchange Act), other than Permitted Holders,
becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of 20%, or more, of the Stock of Parent having the right
to vote for the election of members of the Board of Directors, or (c) a majority
of the members of the Board of Directors do not constitute Continuing Directors.
          “Closing Date” means the date of the making of the Term Loan and the
initial Advances made on the date hereof.
          “Code” means the Uniform Commercial Code, as in effect from time to
time, in the State of New York.
          “Collateral” means all assets and interests in assets and proceeds
thereof now owned or hereafter acquired by Parent or its Subsidiaries in or upon
which a Lien is granted under any of the Loan Documents.
          “Collateral Access Agreement” means a landlord waiver, bailee letter,
or acknowledgement agreement of any lessor, warehouseman, processor, consignee,
or other Person in possession of, having a Lien upon, or having rights or
interests in Parent’s or its Subsidiaries’ books and records, Equipment, or
Inventory, in each case, in form and substance satisfactory to Agent.
          “Collections” means all cash, checks, notes, instruments, and other
items of payment (including insurance proceeds, proceeds of cash sales, rental
proceeds, and tax refunds).
          “Commitment” means, with respect to each Lender, its Revolver
Commitment, its Term Loan Commitment, or its Total Commitment, as the context
requires, and, with respect to all Lenders, their Revolver Commitments, their
Term Loan Commitments, or their Total Commitments, as the context requires, in
each case as such Dollar amounts are set forth beside such Lender’s name under
the applicable heading on Schedule C-1 or in the Assignment and Acceptance
pursuant to which such Lender became a Lender hereunder, as such amounts may be
reduced or increased from time to time pursuant to assignments made in
accordance with the provisions of Section 13.1.
          “Common Stock” means common stock of Parent, with a par value of
$0.001 per share.
          “Compliance Certificate” means a certificate substantially in the form
of Exhibit C-1 delivered by the chief financial officer of Borrowers to Agent.
          “Consolidated Net Income” means, with respect to a Person, for any
period, such Person’s and its Subsidiaries’ gross revenues for such period,
including any cash dividends or distributions actually received from any other
Person during such period, minus such Person’s and its Subsidiaries’ expenses
and other proper charges against income (including taxes on income to the extent
imposed), determined on a consolidated basis after eliminating earnings or
losses attributable to outstanding minority interests and excluding the net
earnings of any Person other than a Subsidiary in which such Person or any of
its Subsidiaries has an ownership interest. Consolidated Net Income shall not
include: (i) any gain or loss from the sale of assets, (ii) any extraordinary
gains, (iii) any extraordinary noncash losses, or (iv) any non-cash income,
gains, losses or charges resulting from the requirements of SFAS 133, 142, 143
or 144.

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          “Continuing Director” means (a) any member of the Board of Directors
who was a director (or comparable manager) of Parent on the Closing Date, and
(b) any individual who becomes a member of the Board of Directors after the
Closing Date if such individual was appointed or nominated for election to the
Board of Directors by a majority of the Continuing Directors, but excluding any
such individual originally proposed for election in opposition to the Board of
Directors in office at the Closing Date in an actual or threatened election
contest relating to the election of the directors (or comparable managers) of
Parent and whose initial assumption of office resulted from such contest or the
settlement thereof.
          “Control Agreement” means a control agreement, in form and substance
satisfactory to Agent, executed and delivered by Parent or one of its
Subsidiaries, Agent, and the applicable securities intermediary (with respect to
a Securities Account) or bank (with respect to a Deposit Account).
          “Daily Balance” means, as of any date of determination and with
respect to any Obligation, the amount of such Obligation owed at the end of such
day.
          “Default” means an event, condition, or default that, with the giving
of notice, the passage of time, or both, would be an Event of Default.
          “Defaulting Lender” means any Lender that fails to make any Advance
(or other extension of credit) that it is required to make hereunder on the date
that it is required to do so hereunder.
          “Defaulting Lender Rate” means (a) for the first 3 days from and after
the date the relevant payment is due, the Base Rate, and (b) thereafter, the
interest rate then applicable to Advances that are Base Rate Loans (inclusive of
the Base Rate Margin applicable thereto).
          “Defined Benefit Plan” means a “defined benefit plan” (as defined in
Section 3(35) of ERISA) which Parent or any of its Subsidiaries or ERISA
Affiliates sponsors, maintains or contributes to, or has sponsored, maintained
or contributed to (or has or had an obligation to sponsor, maintain or
contribute to) within the past six years.
          “Deposit Account” means any deposit account (as that term is defined
in the Code).
          “Designated Account” means the Deposit Account of Borrowers identified
on Schedule 4.14.
          “Designated Account Bank” has the meaning specified therefor in
Schedule 4.14.
          “Disbursement Letter” means an instructional letter executed and
delivered by Administrative Borrower to Agent and Lenders regarding the
extensions of credit to be made on the Closing Date, the form and substance of
which is satisfactory to Agent.
          “Disqualified Stock” shall mean any Stock which, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, (a) matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
date that is one hundred eighty (180) days following the Maturity Date, (b) is
convertible into or exchangeable for (i) debt securities or (ii) any Stock
referred to in (a) above, in each case at

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any time on or prior to the date that one hundred eighty (180) days following
the Maturity Date, or (c) is entitled to receive a dividend or distribution
(other than for taxes attributable to the operations of the business) prior to
the time that the Obligations are paid in full, or (d) has the benefit of any
covenants or agreements that restrict the payment of any of the Obligations or
that are EBITDA or debt-multiple based (i.e. financial covenants).
          “Dollars” or “$” means United States dollars.
          “EBITDA” means, for any period (without duplication), the sum of
(a) Consolidated Net Income during such period (excluding all interest income
earned or accrued during such period that was included in determining such
Consolidated Net Income), plus (b) all interest paid or accrued during such
period on Indebtedness (including amortization of original issue discount and
the interest component of any deferred payment obligations and capital lease
obligations) that was deducted in determining such Consolidated Net Income, plus
(c) all income taxes that were deducted in determining such Consolidated Net
Income, plus (d) all depreciation, amortization (including amortization of good
will and debt issue costs), and other non-cash charges (including any provision
for the reduction in the carrying value of assets recorded in accordance with
GAAP) that were deducted in determining such Consolidated Net Income, minus
(e) all non-cash items of income that were included in determining such
Consolidated Net Income; provided that EBITDA shall be calculated as follows for
the first three fiscal quarters following the Closing Date:
     (a) for the fiscal quarter ending December 31, 2007, EBITDA shall be EBITDA
for such quarter multiplied by four;
     (b) for the fiscal quarter ending March 31, 2008, EBITDA shall be EBITDA
for the six-month period ending on such date multiplied by two;
     (c) for the fiscal quarter ending June 30, 2008, EBITDA shall be EBITDA for
the nine-month period ending on such date multiplied by 4/3.
     Thereafter, EBITDA shall be calculated using EBITDA for the period of four
fiscal quarters ending on the last day of the fiscal quarter immediately
preceding the date of determination for which financial statements are
available.
     For the avoidance of doubt, “EBITDA” shall not include the payment in the
amount of $10,150,355.16.
          “Engineering Reports” has the meaning assigned such term in
Section 2.01(e)(i).
          “Environmental Actions” means any complaint, summons, citation,
notice, directive, demand, suit, order, claim, litigation, investigation,
judicial or administrative proceeding, judgment, letter, or other communication
from any Governmental Authority, or any third party involving violations of
Environmental Laws or Releases (a) at, onto or from any assets, properties, or
businesses of Parent, its Subsidiaries, or any of their predecessors in
interest, including the Real Property, (b) from or onto adjoining properties or
businesses, or (c) from or onto any facilities which received Hazardous
Materials generated by Parent, its Subsidiaries, or any of their predecessors in
interest.
          “Environmental Law” means any applicable federal, state, provincial,
foreign or local statute, law, rule, regulation, ordinance, code, binding and
enforceable guideline, binding

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and enforceable written policy, or rule of common law now or hereafter in effect
and in each case as amended, or any judicial or administrative interpretation
thereof, including any judicial or administrative order, consent decree or
judgment, in each case, to the extent binding on Parent or its Subsidiaries,
relating to the environment, health and safety, natural resources or natural
resource damages, or Hazardous Materials, in each case as amended from time to
time.
          “Environmental Liabilities” means all liabilities, monetary
obligations, losses, damages, punitive damages, consequential damages, treble
damages, costs and expenses (including all reasonable fees, disbursements and
expenses of counsel, experts, or consultants, and costs of investigation and
feasibility studies), fines, penalties, sanctions, and interest that arise under
Environmental Laws or are incurred as a result of any (i) Environmental Action,
(ii) Release or (iii) Response Action.
          “Environmental Lien” means any Lien in favor of any Governmental
Authority or Person for Environmental Liabilities.
          “Environmental Permits” has the meaning specified therefor in
Section 4.11.
          “Equipment” means equipment (as that term is defined in the Code).
          “ERISA” means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute thereto.
          “ERISA Affiliate” means (a) any Person subject to ERISA whose
employees are treated as employed by the same employer as the employees of
Parent or its Subsidiaries under IRC Section 414(b), (b) any trade or business
subject to ERISA whose employees are treated as employed by the same employer as
the employees of Parent or its Subsidiaries under IRC Section 414(c), (c) solely
for purposes of Section 302 of ERISA and Section 412 of the IRC, any
organization subject to ERISA that is a member of an affiliated service group of
which Parent or any of its Subsidiaries is a member under IRC Section 414(m), or
(d) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any
Person subject to ERISA that is a party to an arrangement with Parent or any of
its Subsidiaries and whose employees are aggregated with the employees of Parent
or its Subsidiaries under IRC Section 414(o).
          “ERISA Event” means, with respect to Parent or any of its Subsidiaries
or any of their ERISA Affiliates, (a) any event described in Section 4043(c) of
ERISA with respect to a Pension Plan or Defined Benefit Plan (collectively,
“ERISA Plans”); (b) the withdrawal of any Loan Party or ERISA Affiliate from an
ERISA Plan subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer, as defined in Section 4001(a)(2) of ERISA; (c) the
complete or partial withdrawal of any Loan Party or any ERISA Affiliate from any
Multiemployer Plan; (d) the filing of a notice of intent to terminate a ERISA
Plan or the treatment of a plan amendment as a termination under Section 4041 of
ERISA; (e) the institution of proceedings to terminate an ERISA Plan or
Multiemployer Plan by the PBGC; (f) the failure by any Loan Party or ERISA
Affiliate to make when due required contributions to a Multiemployer Plan or
ERISA Plan unless such failure is cured within 30 days; (g) any other event or
condition which might reasonably be expected to constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any ERISA Plan or Multiemployer Plan or for the imposition of
liability under Section 4069 or 4212(c) of ERISA; or (h) the termination of a
Multiemployer Plan under Section 4041A of ERISA or the reorganization or
insolvency of a Multiemployer Plan under Section 4241 of ERISA.

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          “Event of Default” has the meaning specified therefor in Section 7.
          “Excess Cash Flow” means, with respect to any fiscal period and with
respect to Parent and its Subsidiaries determined on a consolidated basis in
accordance with GAAP (a) EBITDA for such fiscal period, minus (b) the sum of
(i) the cash portion of Interest Expense paid during such fiscal period,
(ii) the cash portion of income taxes paid during such fiscal period, (iii) all
scheduled principal payments made in respect of the Term Loan during such fiscal
period, and (iv) the cash portion of Capital Expenditures (net of (y) any
proceeds reinvested in accordance with the proviso to Section 2.4(c)(iii)(A) of
the Agreement, and (z) any proceeds of related financings with respect to such
expenditures) made during such period.
          “Exchange Act” means the Securities Exchange Act of 1934, as in effect
from time to time.
          “Excluded Tax” means, with respect to Agent, any Lender, the Issuing
Lender or any other recipient of any payment to be made by or on account of any
obligation of Borrowers hereunder, the following Taxes, including interest,
penalties or other additions thereto: (a) income or franchise taxes imposed on
(or measured by) its gross or net income by the United States of America, or by
the jurisdiction under the laws of which such recipient is organized or in which
its principal office is located or, in which it is otherwise deemed to be
engaged in a trade or business for Tax purposes or, in the case of any Lender,
in which its applicable lending office is located; (b) any branch profits taxes
imposed by the United States of America or any similar tax imposed by any other
jurisdiction in which any Borrower is located; and (c) in the case of a Foreign
Lender, any withholding tax that is imposed on amounts payable to such Foreign
Lender at the time such Foreign Lender becomes a party to this Agreement (or
designates a new lending office) or is attributable to such Foreign Lender’s
failure to comply with Section 16(b), (c) or (d).
          “Existing Lender” means J. Aron & Company and all other lenders party
to that certain Credit and Guaranty Agreement, dated as of September 8, 2006, as
amended.
          “Extraordinary Receipts” means any cash received by Parent or any of
its Subsidiaries not in the ordinary course of business, including (a) foreign,
United States, state or local tax refunds, (b) pension plan reversions,
(c) proceeds of insurance (including key man life insurance and business
interruption insurance, but excluding any casualty insurance), (d) judgments,
proceeds of settlements or other consideration of any kind in connection with
any cause of action (other than with respect to the Zehil Matter), (e) indemnity
payments, and (f) any purchase price adjustment received in connection with any
purchase agreement.
          “Farmout Agreement” means that certain Farmout and Participation
Agreement, dated as of January 3, 2006, by and between INNEX California, Inc.,
as Farmor and Foothills California, Inc. (as successor in interest to Brasada
Resources LLC), as Farmee.
          “Fee Letter” means that certain fee letter between Borrowers and
Agent, in form and substance satisfactory to Agent.
          “Fund” means any Person (other than a natural person) that is (or will
be) engaged in making, purchasing, holding or otherwise investing in commercial
loans and similar extensions of credit in the ordinary course.
          “Funded Indebtedness” means, as of any date of determination, all
Indebtedness for borrowed money or letters of credit of Parent and its
Subsidiaries, determined on a

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consolidated basis in accordance with GAAP, that by its terms matures more than
one year after the date of calculation, and any such Indebtedness maturing
within one year from such date that is renewable or extendable at the option of
Parent or its Subsidiaries, as applicable, to a date more than one year from
such date, including, in any event, but without duplication, with respect to
Parent and its Subsidiaries, the Revolver Usage, the Term Loan and the amount of
their Capital Lease Obligations.
          “Funding Date” means the date on which a Borrowing occurs.
          “Funding Losses” has the meaning specified therefor in
Section 2.13(b)(ii).
          “GAAP” means generally accepted accounting principles as in effect
from time to time in the United States, consistently applied.
          “Governing Documents” means, with respect to any Person, the
certificate or articles of incorporation, by-laws, or other organizational
documents of such Person.
          “Governmental Authority” means any federal, state, local, or other
governmental or administrative body, instrumentality, board, department, or
agency or any court, tribunal, administrative hearing body, arbitration panel,
commission, or other similar dispute-resolving panel or body.
          “Guarantors” means each Subsidiary of Borrowers and “Guarantor” means
any one of them; provided, that, if any Subsidiary is a “controlled foreign
corporation” within the meaning of Section 957 of the IRC, it shall not be
required to be a Guarantor.
          “Guaranty” means that certain general continuing guaranty executed and
delivered by each Guarantor in favor of Agent, for the benefit of the Lender
Group and the Bank Product Providers, in form and substance satisfactory to
Agent.
          “Hazardous Materials” means (a) chemicals, materials or substances
that are regulated under any Environmental Law, or defined or listed in, or
otherwise classified pursuant to, any Environmental Law as “hazardous
substances,” “hazardous materials,” “hazardous wastes,” “toxic substances,” or
any other formulation intended to define, list, or classify substances by reason
of deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity, reproductive toxicity, or “EP toxicity,” (b) oil, petroleum, or
petroleum derived substances, natural gas, natural gas liquids, synthetic gas,
drilling fluids, produced waters, and other wastes associated with the
exploration, development, or production of crude oil, natural gas, or geothermal
resources, (c) any flammable substances or explosives, (d) any radioactive
materials, (e) asbestos in any form, (f) oil or dielectric fluid containing
levels of polychlorinated biphenyls in excess of 50 parts per million, (g) lead
based paint, (h) urea formaldehyde, (i) radon, and (j) pesticides.
          “Holdout Lender” has the meaning specified therefor in
Section 14.2(a).
          “Hydrocarbon Interests” means all rights, titles, interests and
estates now owned or hereafter acquired in and to oil and gas leases, oil, gas
and mineral leases, oil, gas and casinghead gas leases, or other liquid or
gaseous hydrocarbon leases, mineral fee or lease interests, farm-outs,
overriding royalty and royalty interests, net profit interests, oil payments,
production payment interests and similar mineral interests, including any
reserved or residual interest of whatever nature.

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          “Hydrocarbons” means, collectively, oil, gas, coal seam gas,
casinghead gas, condensate, distillate, liquid hydrocarbons, gaseous
hydrocarbons, all products and byproducts refined, separated, settled and
dehydrated therefrom and all products and byproducts refined therefrom,
including, without limitation, kerosene, liquefied petroleum gas, refined
lubricating oils, diesel fuel, drip gasoline, natural gasoline, helium, sulfur,
geothermal steam, water, carbon dioxide, and all other minerals.
          “Indebtedness” means (a) all obligations for borrowed money, (b) all
obligations evidenced by bonds, debentures, notes, or other similar instruments
and all reimbursement or other obligations in respect of letters of credit,
bankers acceptances, interest rate swaps, or other financial products, (c) all
obligations as a lessee under Capital Leases, (d) all obligations or liabilities
of others secured by a Lien on any asset of a Person or its Subsidiaries,
irrespective of whether such obligation or liability is assumed, (e) all
obligations to pay the deferred purchase price of assets or services (other than
trade payables incurred in the ordinary course of business and repayable in
accordance with customary trade practices provided that such obligations are not
more than 90 days past due), (f) all obligations owing under Swap Agreements,
(g) all Disqualified Stock, and (h) any obligation guaranteeing or intended to
guarantee (whether directly or indirectly guaranteed, endorsed, co-made,
discounted, or sold with recourse) any obligation of any other Person that
constitutes Indebtedness under any of clauses (a) through (g) above.
          “Indemnified Liabilities” has the meaning specified therefor in
Section 10.3.
          “Indemnified Person” has the meaning specified therefor in
Section 10.3.
          “Indemnified Taxes” means Taxes other than Excluded Taxes.
          “Initial Reserve Report” means the report of the chief engineer of
Parent and its Subsidiaries effective October 1, 2007, with respect to the Oil
and Gas Properties of Parent and its Subsidiaries.
          “Insolvency Proceeding” means any proceeding commenced by or against
any Person under any provision of the Bankruptcy Code or under any other state
or federal bankruptcy or insolvency law, assignments for the benefit of
creditors, formal or informal moratoria, compositions, extensions generally with
creditors, or proceedings seeking reorganization, arrangement, or other similar
relief.
          “Interim Determination” has the meaning specified therefor in
Section 2.1(d).
          “Interest Expense” means, for any period, the aggregate of the
interest expense of Parent and its Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP, less any non cash amounts including,
but not limited to, (i) amortization of debt discount, (ii) amortization of debt
origination costs, and (ii) capitalized interest; provided that Interest Expense
shall be calculated as follows for the first three fiscal quarters following the
Closing Date:
     (a) for the fiscal quarter ending December 31, 2007, Interest Expense shall
be Interest Expense for such quarter multiplied by four;

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     (b) for the fiscal quarter ending March 31, 2008, Interest Expense shall be
Interest Expense for the six-month period ending on such date multiplied by two;
     (c) for the fiscal quarter ending June 30, 2008, Interest Expense shall be
Interest Expense for the nine-month period ending on such date multiplied by
4/3.
     Thereafter, Interest Expense shall be calculated using Interest Expense for
the period of four fiscal quarters ending on the last day of the fiscal quarter
immediately preceding the date of determination for which financial statements
are available.
     For the avoidance of doubt, “Interest Expense” shall not include the
payment in the amount of $10,150,355.16 to the Existing Lender.
          “Interest Expense Coverage Ratio” means, with respect to Parent and
its Subsidiaries for any period, the ratio of EBITDA to Interest Expense for
such period.
          “Interest Period” means, with respect to (i) each LIBOR Rate Loan
(other than the Term Loan) a period commencing on the date of the making of such
LIBOR Rate Loan (or the continuation of a LIBOR Rate Loan or the conversion of a
Base Rate Loan to a LIBOR Rate Loan) and ending 1, 2, 3 or 6 months thereafter;
provided, however, that (a) if any Interest Period would end on a day that is
not a Business Day, such Interest Period shall be extended (subject to clauses
(c)-(e) below) to the next succeeding Business Day, (b) interest shall accrue at
the applicable rate based upon the LIBOR Rate from and including the first day
of each Interest Period to, but excluding, the day on which any Interest Period
expires, (c) any Interest Period that would end on a day that is not a Business
Day shall be extended to the next succeeding Business Day unless such Business
Day falls in another calendar month, in which case such Interest Period shall
end on the next preceding Business Day, (d) with respect to an Interest Period
that begins on the last Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the end of
such Interest Period), the Interest Period shall end on the last Business Day of
the calendar month that is 1, 2, 3 or 6 months after the date on which the
Interest Period began, as applicable, and (e) Borrowers may not elect an
Interest Period which will end after the Maturity Date and (ii) the Term Loan
(a) with respect to the first interest payment date, the period from and
including the Closing Date to and including the last day of the calendar quarter
in which the Closing Date occurs and (b) with respect to any subsequent interest
payment date, the calendar quarter immediately preceding the quarter in which
the interest payment occurs; provided, that if any Interest Period would
otherwise extend beyond the Maturity Date for which the interest rate is being
calculated, the Interest Period shall end on such Maturity Date.
          “Inventory” means inventory (as that term is defined in the Code).
          “Investment” means, with respect to any Person, any investment by such
Person in any other Person (including Affiliates) in the form of loans,
guarantees, advances, or capital contributions (excluding bona fide Accounts
arising in the ordinary course of business consistent with past practice),
purchases or other acquisitions of Indebtedness, Stock, or all or substantially
all of the assets of such other Person (or of any division or business line of
such other Person), and any other items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP.

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          “IRC” means the Internal Revenue Code of 1986, as in effect from time
to time.
          “IRS” shall mean the Internal Revenue Service, or any successor
thereto.
          “Issuing Lender” means WFF or any other Lender that, at the request of
Administrative Borrower and with the consent of Agent, agrees, in such Lender’s
sole discretion, to become an Issuing Lender for the purpose of issuing L/Cs or
L/C Undertakings pursuant to Section 2.12.
          “L/C” has the meaning specified therefor in Section 2.12(a).
          “L/C Disbursement” means a payment made by the Issuing Lender pursuant
to a Letter of Credit.
          “L/C Undertaking” has the meaning specified therefor in
Section 2.12(a).
          “Lender” and “Lenders” have the respective meanings set forth in the
preamble to the Agreement, and shall include any other Person made a party to
the Agreement in accordance with the provisions of Section 13.1.
          “Lender Agreement” means that certain agreement dated as of the date
hereof by and between the Lenders.
          “Lender Group” means, individually and collectively, each of the
Lenders (including the Issuing Lender) and Agent.
          “Lender Group Expenses” means all (a) costs or expenses (including
taxes, and insurance premiums) required to be paid by Borrowers or their
Subsidiaries under any of the Loan Documents that are paid, advanced, or
incurred by the Lender Group, (b) out-of-pocket fees or charges paid or incurred
by Agent and Regiment in connection with the Lender Group’s transactions with
Borrowers or their Subsidiaries, including, fees or charges for photocopying,
notarization, couriers and messengers, telecommunication, public record searches
(including tax lien, litigation, and UCC searches and including searches with
the patent and trademark office, the copyright office, or the department of
motor vehicles), filing, recording, publication, appraisal (including periodic
collateral appraisals or business valuations to the extent of the fees and
charges (and up to the amount of any limitation) contained in the Agreement or
the Fee Letter), real estate surveys, real estate title policies and
endorsements, and environmental audits, (c) costs and expenses incurred by Agent
in the disbursement of funds to Borrowers or other members of the Lender Group
(by wire transfer or otherwise), (d) charges paid or incurred by Agent resulting
from the dishonor of checks, (e) reasonable costs and expenses paid or incurred
by the Lender Group to correct any default or enforce any provision of the Loan
Documents, or in gaining possession of, maintaining, handling, preserving,
storing, shipping, selling, preparing for sale, or advertising to sell the
Collateral, or any portion thereof, irrespective of whether a sale is
consummated, (f) audit fees and expenses of Agent related to any inspections or
audits to the extent of the fees and charges (and up to the amount of any
limitation) contained in the Agreement or the Fee Letter, (g) reasonable costs
and expenses of third party claims or any other suit paid or incurred by the
Lender Group in enforcing or defending the Loan Documents or in connection with
the transactions contemplated by the Loan Documents or the Lender Group’s
relationship with Borrowers or any of their Subsidiaries, (h) Agent’s and each
Lender’s reasonable costs and expenses (including attorneys fees) incurred in
advising, structuring, drafting, reviewing, administering, syndicating
(including rating the Term Loan), or amending the

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Loan Documents, including the reasonable costs and expenses of any independent
engineers and consultants retained by Agent and each Lender in connection
herewith, and (i) Agent’s and each Lender’s reasonable costs and expenses
(including attorneys, accountants, consultants, and other advisors fees and
expenses) incurred in terminating, enforcing (including attorneys, accountants,
consultants, and other advisors fees and expenses incurred in connection with a
“workout,” a “restructuring,” or an Insolvency Proceeding concerning Borrowers
or their Subsidiaries or in exercising rights or remedies under the Loan
Documents), or defending the Loan Documents, irrespective of whether suit is
brought, or in taking any Remedial Action concerning the Collateral.
          “Lender-Related Person” means, with respect to any Lender, such
Lender, together with such Lender’s Affiliates, officers, directors, employees,
attorneys, and agents.
          “Letter of Credit” means an L/C or an L/C Undertaking, as the context
requires.
          “Letter of Credit Collateralization” means either (a) providing cash
collateral (pursuant to documentation reasonably satisfactory to Agent,
including provisions that specify that the Letter of Credit fee set forth in the
Agreement will continue to accrue while the Letters of Credit are outstanding)
to be held by Agent for the benefit of those Lenders with a Revolver Commitment
in an amount equal to 105% of the then existing Letter of Credit Usage,
(b) causing the Underlying Letters of Credit to be returned to the Issuing
Lender, or (c) providing Agent with a standby letter of credit, in form and
substance reasonably satisfactory to Agent, from a commercial bank acceptable to
Agent (in its sole discretion) in an equal to 105% of the then existing Letter
of Credit Usage (it being understood that the Letter of Credit fee set forth in
the Agreement will continue to accrue while the Letters of Credit are
outstanding and that any such fee that accrues must be an amount that can be
drawn under any such standby letter of credit).
          “Letter of Credit Usage” means, as of any date of determination, the
aggregate undrawn amount of all outstanding Letters of Credit.
          “Leverage Ratio” means, as of any date of determination (a) the amount
of the Total Debt of Parent and its Subsidiaries as of such date, divided by
(b)  EBITDA of Parent and its Subsidiaries as of such date.
          “LIBOR Deadline” has the meaning specified therefor in
Section 2.13(b)(i).
          “LIBOR Notice” means a written notice in the form of Exhibit L-1.
          “LIBOR Option” has the meaning specified therefor in Section 2.13(a).
          “LIBOR Rate” means, for each Interest Period relating to any LIBOR
Rate Loan, the rate per annum determined by Agent by dividing (a) the Base LIBOR
Rate for such Interest Period, by (b) 100% minus the Reserve Percentage. The
LIBOR Rate shall be adjusted on and as of the effective day of any change in the
Reserve Percentage.
          “LIBOR Rate Loan” means each portion of an Advance or the Term Loan
that bears interest at a rate determined by reference to the LIBOR Rate.
          “LIBOR Rate Margin” means with respect to (a) the Term Loan, 6.50% and
(b) any Advances, 2.00%.

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          “Lien” means any mortgage, deed of trust, pledge, hypothecation,
assignment, charge, deposit arrangement, encumbrance, easement, lien (statutory
or other), security interest, or other security arrangement and any other
preference, priority, or preferential arrangement of any kind or nature
whatsoever, including any conditional sale contract or other title retention
agreement, the interest of a lessor under a Capital Lease and any synthetic or
other financing lease having substantially the same economic effect as any of
the foregoing.
          “Loan Account” has the meaning specified therefor in Section 2.10.
          “Loan Documents” means the Agreement, the Bank Product Agreements, the
Cash Management Agreements, the Control Agreements, the Fee Letter, the
Guaranty, the Lender Agreement, the Letters of Credit, the Mortgages, the
Security Agreement, the Warrant, any note or notes executed by Borrowers in
connection with the Agreement and payable to a member of the Lender Group, and
any other agreement entered into, now or in the future, by Parent or any of its
Subsidiaries and the Lender Group in connection with the Agreement.
          “Loan Party” means any Borrowers and any Guarantor.
          “Margin Stock” shall have the meaning specified therefor in
Section 4.2.
          “Material Adverse Change” means (a) a material adverse change in the
business, prospects, operations, results of operations, assets, liabilities or
condition (financial or otherwise) of Parent and its Subsidiaries, individually,
(b) a material impairment of Borrowers’ and their Subsidiaries’ ability to
perform their obligations under the Loan Documents to which they are parties or
of the Lender Group’s ability to enforce the Obligations or realize upon the
Collateral, or (c) a material impairment of the enforceability or priority of
Agent’s Liens with respect to the Collateral as a result of an action or failure
to act on the part of Parent or its Subsidiaries.
          “Material Contract” means, with respect to any Person, (i) each
contract or agreement to which such Person or any of its Subsidiaries is a party
that is (A) a bond or surety obligation or (B) an employment agreement with an
officer or a director, (ii) the Farmout Agreement, (iii), the ORRI Conveyance,
(iv) the Operating Agreement, and (iv) all other contracts or agreements (other
than any oil and gas lease) to which such Person or any of its Subsidiaries is a
party for which breach, non-performance, cancellation or failure to renew could
reasonably be expected to result in a Material Adverse Change.
          “Maturity Date” has the meaning specified therefor in Section 3.3.
          “Maximum Revolver Amount” means $50,000,000.
          “Moody’s” has the meaning specified therefor in the definition of Cash
Equivalents.
          “Mortgages” means, individually and collectively, one or more
mortgages, deeds of trust, or deeds to secure debt, executed and delivered by
Parent or its Subsidiaries in favor of Agent, in form and substance satisfactory
to Agent, that encumber the Oil and Gas Properties.
          “Multiemployer Plan” means a “multiemployer plan” as defined in
Section 4001(a)(3) of ERISA, and to which Parent, any Subsidiary of Parent or
ERISA Affiliate of Parent is making, is obligated to make, has made or been
obligated to make, contributions on behalf of participants who are or were
employed by any of them.

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          “Net Cash Proceeds” means:
               (a) with respect to any sale or disposition by Parent or any of
its Subsidiaries of property or assets, the amount of cash proceeds received
(directly or indirectly) from time to time (whether as initial consideration or
through the payment of deferred consideration) by or on behalf of Parent or its
Subsidiaries, in connection therewith after deducting therefrom only (i) the
amount of any Indebtedness secured by any Permitted Lien on any asset (other
than (A) Indebtedness owing to Agent or any Lender under the Agreement or the
other Loan Documents and (B) Indebtedness assumed by the purchaser of such
asset) which is required to be, and is, repaid in connection with such sale or
disposition, (ii) reasonable fees, commissions, and expenses related thereto and
required to be paid by Parent or such Subsidiary in connection with such sale or
disposition and (iii) taxes paid or estimated in good faith based on reasonable
supporting documentation to be payable to any taxing authorities by Parent or
such Subsidiary in connection with such sale or disposition, in each case to the
extent, but only to the extent, that the amounts so deducted are, at the time of
receipt of such cash, actually paid or estimated in good faith based on
reasonable supporting documentation to be payable to a Person that is not an
Affiliate of Parent or any of its Subsidiaries, and are properly attributable to
such transaction; and
               (b) with respect to the issuance or incurrence of any
Indebtedness by Parent or any of its Subsidiaries, or the issuance by Parent or
any of its Subsidiaries of any shares of its Stock, the aggregate amount of cash
received (directly or indirectly) from time to time (whether as initial
consideration or through the payment or disposition of deferred consideration)
by or on behalf of Parent or such Subsidiary in connection with such issuance or
incurrence, after deducting therefrom only (i) reasonable fees, commissions, and
expenses related thereto and required to be paid by Parent or such Subsidiary in
connection with such issuance or incurrence, (ii) taxes paid or estimated in
good faith based on reasonable supporting documentation to be payable to any
taxing authorities by Parent or such Subsidiary in connection with such issuance
or incurrence, in each case to the extent, but only to the extent, that the
amounts so deducted are, at the time of receipt of such cash, actually paid or
estimated in good faith based on reasonable supporting documentation to be
payable to a Person that is not an Affiliate of Parent or any of its
Subsidiaries, and are properly attributable to such transaction.
          “New Borrowing Base Notice” shall have the meaning specified therefor
in Section 2.1(e)(iii)(A).
          “Obligations” means (a) all loans (including the Term Loan), Advances,
debts, principal, interest (including any interest that accrues after the
commencement of an Insolvency Proceeding, regardless of whether allowed or
allowable in whole or in part as a claim in any such Insolvency Proceeding),
contingent reimbursement obligations with respect to outstanding Letters of
Credit, premiums, liabilities (including all amounts charged to Borrowers’ Loan
Account pursuant to the Agreement), obligations (including indemnification
obligations), fees (including the fees provided for in the Fee Letter), charges,
costs, Lender Group Expenses (including any fees or expenses that accrue after
the commencement of an Insolvency Proceeding, regardless of whether allowed or
allowable in whole or in part as a claim in any such Insolvency Proceeding),
lease payments, guaranties, covenants, and duties of any kind and description
owing by Borrowers to the Lender Group pursuant to or evidenced by the Loan
Documents and irrespective of whether for the payment of money, whether direct
or indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including all interest not paid when due and all other
expenses or other amounts that Borrowers are required to pay or reimburse by the
Loan Documents or by law or otherwise in connection with the Loan Documents, and
(b) all Bank

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Product Obligations. Any reference in the Agreement or in the Loan Documents to
the Obligations shall include all or any portion thereof and any extensions,
modifications, renewals, or alterations thereof, both prior and subsequent to
any Insolvency Proceeding.
          “Oil and Gas Business” means (a) the acquisition, exploration,
exploitation, development, operation and disposition of interests in Oil and Gas
Properties and Hydrocarbons, (b) the gathering, marketing, treating, processing,
storage, selling and transporting of any production from such interests or
properties, including, without limitation, the marketing of Hydrocarbons
obtained from unrelated Persons, (c) any business relating to or arising from
exploration for or development, production, treatment, processing, storage,
transportation or marketing of oil, gas and other minerals and products produced
in association therewith, (d) any business relating to oilfield sales and
service, and (e) any activity that is ancillary or necessary or desirable to
facilitate the activities described in clauses (a) through (d) of this
definition.
          “Oil and Gas Properties” means (a) Hydrocarbon Interests; (b) the
Properties now or hereafter pooled or unitized with Hydrocarbon Interests;
(c) all presently existing or future unitization, pooling agreements and
declarations of pooled units and the units created thereby (including without
limitation all units created under orders, regulations and rules of any
Governmental Authority) which may affect all or any portion of the Hydrocarbon
Interests; (d) all operating agreements, contracts and other agreements,
including production sharing contracts and agreements, which relate to any of
the Hydrocarbon Interests or the production, sale, purchase, exchange or
processing of Hydrocarbons from or attributable to such Hydrocarbon Interests;
(e) all Hydrocarbons in and under and which may be produced and saved or
attributable to the Hydrocarbon Interests, including all oil in tanks, and all
rents, issues, profits, proceeds, products, revenues and other incomes from or
attributable to the Hydrocarbon Interests; (f) all tenements, hereditaments,
appurtenances and Properties in any manner appertaining, belonging, affixed or
incidental to the Hydrocarbon Interests and (g) all Properties, rights, titles,
interests and estates described or referred to above, including any and all
Property, real or personal, now owned or hereinafter acquired and situated upon,
used, held for use or useful in connection with the operating, working or
development of any of such Hydrocarbon Interests or Property (excluding drilling
rigs, service rigs, trailers, backhoes, automotive equipment, rental equipment
or other personal Property which may be on such premises for the purpose of
drilling and servicing a well or for other similar temporary uses) and including
any and all oil wells, gas wells, injection wells or other wells, buildings,
structures, fuel separators, liquid extraction plants, plant compressors, pumps,
pumping units, field gathering systems, tanks and tank batteries, fixtures,
valves, fittings, machinery and parts, engines, boilers, meters, apparatus,
equipment, appliances, tools, implements, cables, wires, towers, casing, tubing
and rods, surface leases, rights-of-way, easements and servitudes together with
all additions, substitutions, replacements, accessions and attachments to any
and all of the foregoing.
          “Originating Lender” has the meaning specified therefor in
Section 13.1(e).
          “ORRI Conveyance” means the Conveyance of Overriding Royalty Interest
dated as of September 8, 2006 by Foothills Texas, Inc. in favor of MTGLQ
Investors, L.P.
          “Other Taxes” means any and all present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies arising
from any payment made hereunder or from the execution, delivery or enforcement
of, or otherwise with respect to, this Agreement.

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          “Operating Agreement” means that certain Operating Agreement dated as
of January 3, 2006 by and between Foothills California, Inc. (as sucessor in
interest to Brasada Resources LLC), as operator, and INNEX California, Inc., as
non-operator.
          “Overadvance” has the meaning specified therefor in Section 2.5.
          “Participant” has the meaning specified therefor in Section 13.1(e).
          “PBGC” shall mean the Pension Benefit Guaranty Corporation or any
successor thereto.
          “Pension Plan” shall mean, at any time, an employee benefit plan, as
defined in Section 3(2) of ERISA, which Parent or any of its Subsidiaries
maintains, contributes to or has an obligation to contribute to on behalf of
participants who are or were employed by any Loan Party (or, if such plan were
terminated at such time, would under Section 4069 of ERISA be deemed to be an
employee benefit plan of such Loan Party).
          “Permitted Discretion” means a determination made in the exercise of
reasonable (from the perspective of a secured lender) business judgment.
          “Permitted Dispositions” means (a) sales or other dispositions of
Equipment that is substantially worn, damaged, or obsolete in the ordinary
course of business; (b) sales of Inventory to buyers in the ordinary course of
business; (c) the use or transfer of money or Cash Equivalents in a manner that
is not prohibited by the terms of the Agreement or the other Loan Documents; (d)
the licensing, on a non-exclusive basis, of patents, trademarks, copyrights, and
other intellectual property rights in the ordinary course of business; (e) the
sale of Hydrocarbons in the ordinary course of business; (f) farmouts of
undeveloped acreage and assignments in connection with such farmouts; and
(g) sales or other dispositions (including Casualty Events) of Oil and Gas
Properties or any interest therein; provided, that (i) 100% of the consideration
received in respect of such sale or other disposition shall be cash or like-kind
exchange, (ii) the consideration received in respect of such sale or other
disposition shall be equal to or greater than the fair market value of such Oil
and Gas Property or interest therein (as reasonably determined by Administrative
Borrower and, if requested by Agent, Administrative Borrower shall deliver a
certificate of a Responsible Officer of Administrative Borrower certifying to
that effect), (iii) if such sale or other disposition of Oil and Gas Property
included in the most recently delivered Reserve Report during any period between
two successive Scheduled Redetermination Dates has a Total Reserve Value (as
determined by Agent), individually or in the aggregate, in excess of $2,500,000,
the Borrowing Base shall be reduced, effective immediately upon such sale or
disposition, by an amount equal to the Total Reserve Value, if any, assigned to
such Property as determined by the Required Lenders in the most recently
delivered Reserve Report and (iv) in no event shall the fair market value of the
Oil and Gas Properties and interests sold or disposed of pursuant to this
subclause (g) hereof exceed, in the aggregate, $2,500,000 during the term of
this Agreement.
          “Permitted Holder” means the Person identified on Schedule P-1.
          “Permitted Investments” means (a) Investments in cash and Cash
Equivalents, (b) Investments in negotiable instruments for collection,
(c) advances made in connection with purchases of goods or services in the
ordinary course of business, (d) Investments received in settlement of amounts
due to Parent or any of its Subsidiaries effected in the ordinary course of
business or owing to Parent or any of its Subsidiaries as a result of Insolvency
Proceedings

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involving an Account Debtor or upon the foreclosure or enforcement of any Lien
in favor of Parent or its Subsidiaries, (e) subject to the limits in
Section 6.6, Investments in direct ownership interests in additional Oil and Gas
Properties and gas gathering systems related thereto or related to farm-out,
farm-in, joint operating, joint venture or area of mutual interest agreements,
gathering systems, pipelines or other similar arrangements which are usual and
customary in the oil and gas exploration and production business located within
the geographic boundaries of the United States of America provided that for
purposes of this clause (e), an investment in capital Stock, partnership
interests, joint venture interests, limited liability company interests or other
similar equity interests in a Person shall not constitute a Permitted
Investment, (f) commission, travel and similar advances and loans to employees,
officers or directors in the ordinary course of business of the Parent or any of
its Subsidiaries, in each case only as permitted by applicable law, including
Section 402 of the Sarbanes Oxley Act of 2002, as amended, but in any event not
to exceed $25,000 in the aggregate at any time, (g) any guarantee permitted
under Section 6.1, (h) any Swap Agreement permitted under Section 6.23 and
(i) Investments (1) made by Borrowers in or to the Guarantors, (2) made by any
Subsidiary in or to the Borrowers or any Guarantor, and (3) made by the
Borrowers or any Guarantor in Subsidiaries that are not Guarantors, provided
that the aggregate of all Investments made by the Borrowers and the Guarantors
in or to all Subsidiaries that are not Guarantors shall not exceed $500,000 at
any time. In determining the amount of any Investment permitted under this
definition, the amount of any Investment or outstanding at any time shall be the
aggregate cash investment less all cash returns, cash dividends and cash
distributions (or the fair market value of any non-cash returns, dividends and
distributions) received by such Person in respect of the capital thereof, and
shall be calculated without regard to any write down or write-off.
          “Permitted Liens” means (a) Liens held by Agent and/or the Lenders
and/or the Bank Product Provider to secure the Obligations, (b) Liens for unpaid
taxes, assessments, or other governmental charges or levies that either (i) are
not yet delinquent, or (ii) (A) either (I) do not have priority over Agent’s
Liens, or (II) secure taxes, assessments, charges or levies in an aggregate
amount not in excess of $250,000 and after the Agent establishes reserves
against the then-existing Borrowing Base or the Maximum Revolver Amount in such
aggregate amount at least one dollar of Availability exists, and (B) the
underlying taxes, assessments, or charges or levies are the subject of Permitted
Protests, (c) judgment Liens that do not constitute an Event of Default under
Section 7.7 of the Agreement, (d) Liens set forth on Schedule P-2, provided that
any such Lien only (i) secures the Indebtedness that it secures on the Closing
Date and any Refinancing Indebtedness in respect thereof or (ii) with respect to
the ORRI Conveyance, the Farmout Agreement or the Operating Agreement, relates
to the Oil and Gas Properties subject to the ORRI Conveyance, Farmout Agreement
or the Operating Agreement, as applicable, (e) the interests of lessors under
operating leases, (f) purchase money Liens or the interests of lessors under
Capital Leases permitted under Section 6.1(d) to the extent that such Liens or
interests secure Permitted Purchase Money Indebtedness and so long as (i) such
Lien attaches only to the asset purchased or acquired and the proceeds thereof,
and (ii) such Lien only secures the Indebtedness that was incurred to acquire
the asset purchased or acquired or any Refinancing Indebtedness in respect
thereof, (g) Liens arising by operation of law in favor of warehousemen,
landlords, carriers, mechanics, materialmen, laborers, or suppliers, incurred in
the ordinary course of business and not in connection with the borrowing of
money, and which Liens either (i) are for sums not yet delinquent, or (ii) are
the subject of Permitted Protests, (h) Liens on amounts deposited in connection
with obtaining worker’s compensation or other unemployment insurance, (i) Liens
on amounts deposited in connection with the making or entering into of bids,
tenders, or leases in the ordinary course of business and not in connection with
the borrowing of money, (j) Liens on amounts deposited as security for surety or
appeal bonds in connection with obtaining such bonds in the ordinary course of
business, (k) with respect to any Real Property, easements,

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rights of way, and zoning restrictions and other similar encumbrances that do
not materially interfere with or impair the use or operation thereof, (l) Liens
arising solely by virtue of any statutory or common law provision relating to
banker’s liens, rights of set-off or similar rights and remedies and burdening
only deposit accounts or other funds maintained with a creditor depository
institution, (m) contractual Liens which arise in the ordinary course of
business under operating agreements, joint venture agreements, oil and gas
partnership agreements, oil and gas leases, farm-out agreements, division
orders, contracts for sale, transportation or exchange of oil and natural gas,
unitization and pooling declarations and agreements, processing agreements, net
profits agreements, development agreements, gas balancing or deferred production
agreements, injection, repressuring and recycling agreements, salt water or
other disposal agreements, seismic or other geophysical permits or agreements,
and other agreements which are usual and customary in the oil and gas business
and are for claims which are not delinquent or which are subject of Permitted
Protests, provided that any such Lien referred to in this clause does not
materially impair the use of the Property covered by such Lien for the purposes
of which such Property is held by the Parent or any of its Subsidiaries or
materially impair the value of material Property subject thereto, and (n) Liens
on cash, cash equivalents or letters of credit securing obligations of the
Borrowers under Swap Agreements between the Borrowers and any Approved
Counterparty.
          “Permitted Protest” means the right of Parent or any of its
Subsidiaries to protest any Lien (other than any Lien that secures the
Obligations), taxes (other than payroll taxes or taxes that are the subject of a
United States federal tax lien), or rental payment, provided that (a) a reserve
with respect to such obligation is established on Parent’s or its Subsidiaries’
books and records in such amount as is required under GAAP, (b) any such protest
is instituted promptly and prosecuted diligently by Parent or its Subsidiary, as
applicable, in good faith, and (c) Agent is satisfied that, while any such
protest is pending, there will be no impairment of the enforceability, validity,
or priority of any of Agent’s Liens.
          “Permitted Purchase Money Indebtedness” means, as of any date of
determination, Purchase Money Indebtedness incurred after the Closing Date in an
aggregate principal amount outstanding at any one time not in excess of
$2,500,000.
          “Person” means natural persons, corporations, limited liability
companies, limited partnerships, general partnerships, limited liability
partnerships, joint ventures, trusts, land trusts, business trusts, or other
organizations, irrespective of whether they are legal entities, and governments
and agencies and political subdivisions thereof.
          “Petroleum Engineers” means, initially, Cawley, Gillespie &
Associates, Inc. or such other petroleum engineers of recognized national
standing as may be selected by Loan Parties with the prior consent of Agent.
          “Pro Rata Share” means, as of any date of determination:
          (a) with respect to a Lender’s obligation to make Advances and right
to receive payments of principal, interest, fees, costs, and expenses with
respect thereto, (i) prior to the Revolver Commitments being terminated or
reduced to zero, the percentage obtained by dividing (y) such Lender’s Revolver
Commitment, by (z) the aggregate Revolver Commitments of all Lenders, and (ii)
from and after the time that the Revolver Commitments have been terminated or
reduced to zero, the percentage obtained by dividing (y) the aggregate
outstanding principal amount of such Lender’s Advances by (z) the aggregate
outstanding principal amount of all Advances,

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          (b) with respect to a Lender’s obligation to participate in Letters of
Credit, to reimburse the Issuing Lender, and right to receive payments of fees
with respect thereto, (i) prior to the Revolver Commitments being terminated or
reduced to zero, the percentage obtained by dividing (y) such Lender’s Revolver
Commitment, by (z) the aggregate Revolver Commitments of all Lenders, and
(ii) from and after the time that the Revolver Commitments have been terminated
or reduced to zero, the percentage obtained by dividing (y) the aggregate
outstanding principal amount of such Lender’s Advances by (z) the aggregate
outstanding principal amount of all Advances,
          (c) with respect to a Lender’s obligation to make the Term Loan and
right to receive payments of interest, fees, and principal with respect thereto,
(i) prior to the making of the Term Loan, the percentage obtained by dividing
(y) such Lender’s Term Loan Commitment, by (z) the aggregate amount of all
Lenders’ Term Loan Commitments, and (ii) from and after the making of the Term
Loan, the percentage obtained by dividing (y) the principal amount of such
Lender’s portion of the Term Loan by (z) the principal amount of the Term Loan,
and
          (d) with respect to all other matters as to a particular Lender
(including the indemnification obligations arising under Section 15.7), the
percentage obtained by dividing (i) such Lender’s Revolver Commitment plus the
outstanding principal amount of such Lender’s portion of the Term Loan, by
(ii) the aggregate amount of Revolver Commitments of all Lenders plus the
outstanding principal amount of the Term Loan; provided, however, that in the
event the Revolver Commitments have been terminated or reduced to zero, Pro Rata
Share under this clause shall be the percentage obtained by dividing (A) the
outstanding principal amount of such Lender’s Advances plus such Lender’s
ratable portion of the Risk Participation Liability with respect to outstanding
Letters of Credit plus the outstanding principal amount of such Lender’s portion
of the Term Loan, by (B) the outstanding principal amount of all Advances plus
the aggregate amount of the Risk Participation Liability with respect to
outstanding Letters of Credit plus the outstanding principal amount of the Term
Loan.
          “Projections” means Parent’s forecasted (a) balance sheets, (b) profit
and loss statements, and (c) cash flow statements, all prepared on a basis
consistent with Parent’s historical financial statements, together with
appropriate supporting details and a statement of underlying assumptions. The
Projections shall also contain a forecast of Capital Expenditures for the period
covered thereby.
          “Property” means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible, including, without
limitation, cash, securities, accounts and contract rights.
          “Proposed Borrowing Base” has the meaning specified therefor in
Section 2.1(e)(i).
          “Proposed Borrowing Base Notice” has the meaning specified therefor in
Section 2.1(e)(ii).
          “Protective Advances” has the meaning specified therefor in
Section 2.3(d)(i).
          “Proved Oil and Gas Properties” means Oil and Gas Properties that are
Proved Reserves.

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          “Proved Reserves” means “Proved Reserves” as defined in the
Definitions for Oil and Gas Reserves (in this paragraph, the “Definitions”)
promulgated by the Society of Petroleum Engineers (or any generally recognized
successor) as in effect at the time in question. “Proved Developed Producing
Reserves” means Proved Reserves which are categorized as both “Developed” and
“Producing” in the Definitions, “Proved Developed Nonproducing Reserves” means
Proved Reserves which are categorized as both “Developed” and “Nonproducing” in
the Definitions, and “Proved Undeveloped Reserves” means Proved Reserves which
are categorized as “Undeveloped” in the Definitions.
          “Purchase Money Indebtedness” means Indebtedness (other than the
Obligations, but including Capitalized Lease Obligations), incurred at the time
of, or within 20 days after, the acquisition of any fixed assets for the purpose
of financing all or any part of the acquisition cost thereof.
          “Real Property” means any estates or interests in real property now
owned, leased or operated or hereafter acquired, leased or operated by Parent or
its Subsidiaries and the improvements thereto.
          “Real Property Collateral” means the Real Property identified on
Schedule R-1 and any Real Property hereafter acquired by Parent or its
Subsidiaries.
          “Record” means information that is inscribed on a tangible medium or
that is stored in an electronic or other medium and is retrievable in
perceivable form.
          “Redetermination Date” means, with respect to any Scheduled
Redetermination or any Interim Redetermination, the date that the redetermined
Borrowing Base related thereto becomes effective pursuant to
Section 2.1(e)(iii)(A).
          “Refinancing Indebtedness” means refinancings, renewals, or extensions
of Indebtedness so long as: (a) the terms and conditions of such refinancings,
renewals, or extensions do not, in Agent’s reasonable judgment, materially
impair the prospects of repayment of the Obligations by Borrowers or materially
impair Borrowers’ creditworthiness, (b) such refinancings, renewals, or
extensions do not result in an increase in the principal amount of the
Indebtedness so refinanced, renewed, or extended, (c) such refinancings,
renewals, or extensions do not result in an increase in the interest rate with
respect to the Indebtedness so refinanced, renewed, or extended, (d) such
refinancings, renewals, or extensions do not result in a shortening of the
average weighted maturity of the Indebtedness so refinanced, renewed, or
extended, nor are they on terms or conditions that, taken as a whole, are
materially more burdensome or restrictive to Borrowers, (e) if the Indebtedness
that is refinanced, renewed, or extended was subordinated in right of payment to
the Obligations, then the terms and conditions of the refinancing, renewal, or
extension must include subordination terms and conditions that are at least as
favorable to the Lender Group as those that were applicable to the refinanced,
renewed, or extended Indebtedness, and (f) the Indebtedness that is refinanced,
renewed, or extended is not recourse to any Person that is liable on account of
the Obligations other than those Persons which were obligated with respect to
the Indebtedness that was refinanced, renewed, or extended.
          “Regiment” means Regiment Capital Special Situations Fund III, L.P.
together with its permitted successors and assigns.
          “Release” means any spilling, leaking, seepage, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping,
disposing, depositing, dispersing,

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emanating or migrating of any Hazardous Materials in, into, onto, from or
through the environment or any Real Property.
          “Replacement Lender” has the meaning specified therefor in
Section 14.2(a).
          “Report” has the meaning specified therefor in Section 15.16.
          “Required Availability” means Availability of not less than
$17,500,000, less the amount of reserves established in the last sentence of
Section 2.1(b).
          “Required Lenders” means, at any date of determination thereof,
collectively, (i) Regiment, for so long as it holds at least 25% of the Term
Loan, (ii) WFF, for so long as it holds at least 25% of the Revolver Commitment
and (iii) such other Lenders whose aggregate Pro Rata Shares (calculated under
clause (d) of the definition of Pro Rata Shares) together with those of Regiment
and/or WFF (to the extent that each such entity is deemed a Required Lender)
exceed 50%.
          “Reserve Percentage” means, on any day, for any Lender, the maximum
percentage prescribed by the Board of Governors of the Federal Reserve System
(or any successor Governmental Authority) for determining the reserve
requirements (including any basic, supplemental, marginal, or emergency
reserves) that are in effect on such date with respect to eurocurrency funding
(currently referred to as “eurocurrency liabilities”) of that Lender, but so
long as such Lender is not required or directed under applicable regulations to
maintain such reserves, the Reserve Percentage shall be zero.
          “Reserve Report” means a report, in form and substance reasonably
satisfactory to Agent, setting forth, as of each January 1st or July 1st (or
such other date in the event of an Interim Redetermination) (a) the volumetric
quantity and the Total Reserve Value (including itemization of the Proved
Developed Producing Reserves, the Proved Developed Nonproducing Reserves and
Proved Undeveloped Reserves) of the oil and gas reserves attributable to the Oil
and Gas Properties of Parent and its Subsidiaries, together with a projection of
the rate of production and future net income, taxes, operating expenses and
capital expenditures with respect thereto as of such date, and (b) such other
information as Agent may reasonably request.
          “Response Action” means all actions taken to (a) clean up, remove,
remediate, contain, treat, monitor, assess, investigate, evaluate, correct or in
any way address any violation of or non-compliance with Environmental Law, any
Environmental Liability, any Release or any Hazardous Materials in the indoor or
outdoor environment, (b) prevent or minimize a release or threatened release of
Hazardous Materials so they do not migrate or endanger or threaten to endanger
public health or welfare or the indoor or outdoor environment, (c) restore or
reclaim natural resources or the environment, (d) perform any pre-remedial
studies, investigations, or post-remedial operation and maintenance activities,
or (e) conduct any other actions with respect to Hazardous Materials authorized
by Environmental Laws.
          “Responsible Officer” means, as to any Person, the Chief Executive
Officer, the President, any Financial Officer or any Vice President of such
Person. Unless otherwise specified, all references to a Responsible Officer
herein shall mean a Responsible Officer of Administrative Borrower.
          “Revolver Commitment” means, with respect to each Lender, its Revolver
Commitment, and, with respect to all Lenders, their Revolver Commitments, in
each case as such

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Dollar amounts are set forth beside such Lender’s name under the applicable
heading on Schedule C-1 or in the Assignment and Acceptance pursuant to which
such Lender became a Lender hereunder, as such amounts may be reduced or
increased from time to time pursuant to assignments made in accordance with the
provisions of Section 13.1.
          “Revolver Usage” means, as of any date of determination, the sum of
(a) the amount of outstanding Advances, plus (b) the amount of the Letter of
Credit Usage.
          “Revolving Loan Lender” means a Lender with a Revolver Commitment or
that holds an Advance.
          “Risk Participation Liability” means, as to each Letter of Credit, all
reimbursement obligations of Borrowers to the Issuing Lender with respect to an
L/C Undertaking, consisting of (a) the amount available to be drawn or which may
become available to be drawn, (b) all amounts that have been paid by the Issuing
Lender to the Underlying Issuer to the extent not reimbursed by Borrowers,
whether by the making of an Advance or otherwise, and (c) all accrued and unpaid
interest, fees, and expenses payable with respect thereto.
          “Scheduled Redetermination” has the meaning specified therefor in
Section 2.1(d).
          “SEC” means the United States Securities and Exchange Commission and
any successor thereto.
          “Securities Account” means a securities account (as that term is
defined in the Code).
          “Security Agreement” means a security agreement, in form and substance
satisfactory to Agent, executed and delivered by Borrowers and Guarantors to
Agent.
          “Settlement” has the meaning specified therefor in Section 2.3(e)(i).
          “Settlement Date” has the meaning specified therefor in
Section 2.3(e)(i).
          “Solvent” means, with respect to any Person on a particular date,
that, at fair valuations, the sum of such Person’s assets is greater than all of
such Person’s debts.
          “S&P” has the meaning specified therefor in the definition of Cash
Equivalents.
          “Stock” means all shares, options, warrants, interests,
participations, or other equivalents (regardless of how designated) of or in a
Person, whether voting or nonvoting, including common stock, preferred stock, or
any other “equity security” (as such term is defined in Rule 3a11-1 of the
General Rules and Regulations promulgated by the SEC under the Exchange Act).
          “Subsidiary” of a Person means a corporation, partnership, limited
liability company, or other entity in which that Person directly or indirectly
owns or controls the shares of Stock having ordinary voting power to elect a
majority of the board of directors (or appoint other comparable managers) of
such corporation, partnership, limited liability company, or other entity.

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          “Swap Agreement” means any agreement with respect to any swap,
forward, future, put, call, floor, swaption, collar or other derivative
transaction or option or similar agreement, whether exchange traded,
“over-the-counter” or otherwise, involving, or settled by reference to, one or
more rates, currencies, commodities, equity or debt instruments or securities,
or economic, financial or pricing indices or measures of economic, financial or
pricing risk or value or any similar transaction or any combination of these
transactions; provided that no phantom stock or similar plan providing for
payments only on account of services provided by current or former directors,
officers, employees or consultants of Parent or any of its Subsidiaries shall be
a Swap Agreement.
          “Swing Lender” means WFF or any other Lender that, at the request of
Administrative Borrower and with the consent of Agent agrees, in such Lender’s
sole discretion, to become the Swing Lender under Section 2.3(b).
          “Swing Loan” has the meaning specified therefor in Section 2.3(b).
          “Taxes” means shall mean, any taxes, levies, imposts, duties, fees,
assessments or other charges of whatever nature now or hereafter imposed by any
jurisdiction or by any political subdivision or taxing authority thereof or
therein with respect to such payments (but excluding any tax imposed by any
jurisdiction or by any political subdivision or taxing authority thereof or
therein measured by or based on the net income or net profits of any Lender) and
all interest, penalties or similar liabilities with respect thereto.
          “Term Loan” has the meaning specified therefor in Section 2.2.
          “Term Loan Amount” means $50,000,000.
          “Term Loan Commitment” means, with respect to each Lender, its Term
Loan Commitment, and, with respect to all Lenders, their Term Loan Commitments,
in each case as such Dollar amounts are set forth beside such Lender’s name
under the applicable heading on Schedule C-1 or in the Assignment and Acceptance
pursuant to which such Lender became a Lender hereunder, as such amounts may be
reduced or increased from time to time pursuant to assignments made in
accordance with the provisions of Section 13.1.
          “Term Loan Lender” means a Lender with a Term Loan Commitment or that
holds any of the Term Loan.
          “Total Commitment” means, with respect to each Lender, its Total
Commitment, and, with respect to all Lenders, their Total Commitments, in each
case as such Dollar amounts are set forth beside such Lender’s name under the
applicable heading on Schedule C-1 attached hereto or on the signature page of
the Assignment and Acceptance pursuant to which such Lender became a Lender
hereunder, as such amounts may be reduced or increased from time to time
pursuant to assignments made in accordance with the provisions of Section 13.1.
          “Total Debt” means, at any date, all Indebtedness, except for Letters
of Credit, of the Parent and its Subsidiaries on a consolidated basis, excluding
(i) non-cash obligations under FAS 133 or 143, (ii) all obligations owing under
Swap Agreements, and (iii) other accrued liabilities (for the deferred purchase
price of property or services) from time to time incurred in the ordinary course
of business and repayable in accordance with customary trade practices, provided
that such obligations are not more than ninety (90) days past due or delinquent
or are the subject of Permitted Protests.

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          “Total Reserve Value” means, with respect to any Proved Reserves
expected to be produced from any Oil and Gas Properties, the net present value,
discounted at 10% per annum, of the future net revenues expected to accrue to
Parent’s and its Subsidiaries’ collective interests in such reserves during the
remaining expected economic lives of such reserves, as evaluated in the most
recently delivered Reserve Report with respect to such Oil and Gas Properties.
Total Reserve Value means, with respect to Parent’s and its Subsidiaries’
separate interests in such Proved Reserves, the net present value, discounted at
10% per annum, of the future net revenues expected to accrue to such separate
interests in such reserves during the remaining expected economic lives of such
reserves. Each calculation of such expected future net revenues shall be made in
accordance with the then existing standards of the Society of Petroleum
Engineers; provided, that in any event (a) appropriate deductions shall be made
for severance and ad valorem taxes, and for operating, gathering,
transportation, marketing, capital and capital expenditure costs required for
the production and sale of such reserves, (b) appropriate adjustments shall be
made for hedging operations, provided that Swap Agreements with non-investment
grade counterparties shall not be taken into account to the extent that such
Swap Agreements improve the position of or otherwise benefit Parent or any of
its Subsidiaries, (c) the pricing assumptions used in determining Total Reserve
Value for any particular reserves shall be based upon the following price decks:
(i) for natural gas, the lesser of (A) 85% of the quotation for deliveries of
natural gas for each such year from the New York Mercantile Exchange for Henry
Hub and (B) $7.00/MMBtu, and (ii) for crude oil, the lesser of (A) 85% of the
quotation for deliveries of West Texas Intermediate crude oil for each such
calendar year from the New York Mercantile Exchange for Cushing, Oklahoma, and
(B) $65.00/Bbl and (d) the cash-flows derived from the pricing assumptions set
forth in clauses (b) and (c) above shall be further adjusted to account for heat
content, gas shrinkage, transportation costs and basis differentials, in each
case, in a manner acceptable to Agent; provided that for purposes of this
calculation, Proved Developed Reserves (including hedging operations) shall
constitute not less than 60% of the Total Reserve Value.
          “Triggering Event” means, as of any date of determination, the
occurrence of an Event of Default.
          “Underlying Issuer” means a third Person which is the beneficiary of
an L/C Undertaking and which has issued a letter of credit at the request of the
Issuing Lender for the benefit of Borrowers.
          “Underlying Letter of Credit” means a letter of credit that has been
issued by an Underlying Issuer.
          “Unfunded Pension Liability” shall mean, at any time, the aggregate
amount, if any, of the sum of (a) the amount by which the present value of all
accrued benefits under each Title IV Plan exceeds the fair market value of all
assets of such Title IV Plan allocable to such benefits in accordance with Title
IV of ERISA, all determined as of the most recent valuation date for each such
Title IV Plan using the actuarial assumptions for funding purposes in effect
under such Title IV Plan, and (b) for a period of five (5) years following a
transaction which might reasonably be expected to be covered by Section 4069 of
ERISA, the liabilities (whether or not accrued) that could be avoided by any
Loan Party or any ERISA Affiliate as a result of such transaction.
          “United States” means the United States of America.
          “Voidable Transfer” has the meaning specified therefor in
Section 17.8.

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          “Warrant” means the warrant to purchase the Warrant Shares, dated as
of the date hereof, among Parent and Regiment, as the same may be amended,
restated or otherwise modified.
          “Warrant Shares” means the Common Stock issuable or issued upon
exercise of the Warrant, and shall also include any securities issued in
replacement thereof, as a dividend or distribution thereon, or any equity
interest or assets issued in the case of any reorganization, reclassification,
consolidation, merger or sale of assets as provided under the Warrants.
          “Wells Fargo” means Wells Fargo Bank, National Association, a national
banking association.
          “WFF” means Wells Fargo Foothill, LLC, a Delaware limited liability
company.
          “Zehil Matter” means any action or proceeding against Louis W. Zehil,
Strong Branch Ventures IV LP or any affiliate, or McGuireWoods LLP, in
connection with the matters described in the civil action entitled Securities
and Exchange Commission against Louis W. Zehil, Strong Branch Ventures IV LP,
and Chestnut Capital Partners II, LLC (Case No. 07-CV-01439-LAP), and in the
criminal complaint entitled United States of America v. Louis W. Zehil (Case
No.07-MJ-00305-UA), and in the Information entitled United States of America v.
Louis W. Zehil (Case No. 07-CR-00659-DAB).

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