Execution Version
 
SECOND LIEN TERM LOAN AGREEMENT
 
DATED AS OF
AUGUST 20, 2007

AMONG

AURORA OIL & GAS CORPORATION,
AS BORROWER,

BNP PARIBAS,
AS ADMINISTRATIVE AGENT,

AND

THE LENDERS PARTY HERETO
 
SOLE LEAD ARRANGER AND SOLE BOOKRUNNER
 
BNP PARIBAS
 

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

TABLE OF CONTENTS

   
Page
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
     
Section 1.01 Terms Defined Above
 
1
Section 1.02 Certain Defined Terms
 
1
Section 1.03 Terms Generally; Rules of Construction
 
19
Section 1.04 Accounting Terms and Determinations; GAAP
 
20
     
ARTICLE II
THE LOANS
     
Section 2.01 Term Loans
 
20
Section 2.02 Loans and Tranches
 
20
Section 2.03 Requests for Loans
 
21
Section 2.04 Interest Elections
 
22
Section 2.05 Funding of Loan
 
23
Section 2.06 Total Reserve Value
 
23
Section 2.07 Optional Increase of Facility
 
24
     
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES
     
Section 3.01 Repayment of Loans
 
26
Section 3.02 Interest
 
26
Section 3.03 Reserved
 
27
Section 3.04 Prepayments
 
27
Section 3.05 Mandatory Prepayments
 
27
Section 3.06 Fees
 
28
     
ARTICLE IV
PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS
     
Section 4.01 Payments Generally; Pro Rata Treatment; Sharing of Set-offs
 
28
Section 4.02 Presumption of Payment by the Borrower
 
29
Section 4.03 Certain Deductions by the Administrative Agent
 
29
Section 4.04 Disposition of Proceeds
 
29
     
ARTICLE V
INCREASED COSTS; BREAK FUNDING PAYMENTS; TAXES
     
Section 5.01 Increased Costs
 
30
Section 5.02 Break Funding Payments
 
31
Section 5.03 Taxes.
 
31
Section 5.04 Mitigation Obligations
 
32
     
ARTICLE VI
CONDITIONS PRECEDENT
     
Section 6.01 Effective Date
 
32
Section 6.02 Additional Conditions
 
35

 
i

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

 
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
     
Section 7.01 Organization; Powers
 
35
Section 7.02 Authority; Enforceability
 
36
Section 7.03 Approvals; No Conflicts
 
36
Section 7.04 Financial Condition; No Material Adverse Change
 
36
Section 7.05 Litigation
 
37
Section 7.06 Environmental Matters
 
37
Section 7.07 Compliance with the Laws and Agreements; No Defaults
 
38
Section 7.08 Investment Company Act
 
38
Section 7.09 Taxes
 
39
Section 7.10 ERISA
 
39
Section 7.11 Disclosure; No Material Misstatements
 
40
Section 7.12 Insurance
 
40
Section 7.13 Restriction on Liens
 
40
Section 7.14 Subsidiaries
 
41
Section 7.15 Location of Business and Offices
 
41
Section 7.16 Properties; Titles, Etc
 
41
Section 7.17 Maintenance of Properties
 
42
Section 7.18 Gas Imbalances, Prepayments
 
42
Section 7.19 Marketing of Production
 
43
Section 7.20 Swap Agreements
 
43
Section 7.21 Use of Loans
 
43
Section 7.22 Solvency
 
43
     
ARTICLE VIII
AFFIRMATIVE COVENANTS
     
Section 8.01 Financial Statements; Other Information
 
43
Section 8.02 Notices of Material Events
 
46
Section 8.03 Existence; Conduct of Business
 
47
Section 8.04 Payment of Obligations
 
47
Section 8.05 Performance of Obligations under Loan Documents
 
47
Section 8.06 Operation and Maintenance of Properties
 
47
Section 8.07 Insurance
 
48
Section 8.08 Books and Records; Inspection Rights
 
48
Section 8.09 Compliance with Laws
 
48
Section 8.10 Environmental Matters
 
48
Section 8.11 Further Assurances
 
49
Section 8.12 Reserve Reports
 
50
Section 8.13 Title Information
 
51
Section 8.14 Additional Collateral; Additional Guarantors
 
52
Section 8.15 ERISA Compliance
 
53
Section 8.16 Marketing Activities
 
53
Section 8.17 Swap Agreements
 
54
Section 8.18 Minimum Daily Production
 
54

 
ii

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

 
ARTICLE IX
NEGATIVE COVENANTS
     
Section 9.01 Financial Covenants
 
54
Section 9.02 Debt
 
54
Section 9.03 Liens
 
55
Section 9.04 Dividends, Distributions and Redemptions
 
56
Section 9.05 Investments, Loans and Advances
 
56
Section 9.06 Nature of Business; International Operations
 
58
Section 9.07 Limitation on Leases
 
58
Section 9.08 Proceeds of Notes
 
58
Section 9.09 ERISA Compliance
 
58
Section 9.10 Sale or Discount of Receivables
 
59
Section 9.11 Mergers, Etc
 
59
Section 9.12 Sale of Properties
 
60
Section 9.13 Environmental Matters
 
61
Section 9.14 Transactions with Affiliates
 
61
Section 9.15 Subsidiaries
 
61
Section 9.16 Negative Pledge Agreements; Dividend Restrictions
 
61
Section 9.17 Gas Imbalances, Take-or-Pay or Other Prepayments
 
61
Section 9.18 Swap Agreements
 
62
Section 9.19 Anti-Layering
 
62
   
 
ARTICLE X
EVENTS OF DEFAULT; REMEDIES
     
Section 10.01 Events of Default
 
62
Section 10.02 Remedies
 
64
     
ARTICLE XI
THE AGENTS
     
Section 11.01 Appointment; Powers
 
65
Section 11.02 Duties and Obligations of Administrative Agent
 
65
Section 11.03 Action by Administrative Agent
 
66
Section 11.04 Reliance by Administrative Agent
 
67
Section 11.05 Subagents
 
67
Section 11.06 Resignation or Removal of Administrative Agent
 
67
Section 11.07 Agents as Lenders
 
68
Section 11.08 No Reliance
 
68
Section 11.09 Administrative Agent May File Proofs of Claim
 
69
Section 11.10 Authority of Administrative Agent to Release Collateral and Liens
 
69
Section 11.11 The Arranger and other Agents
 
70

 
iii

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

 
ARTICLE XII
MISCELLANEOUS
     
Section 12.01 Notices
 
70
Section 12.02 Waivers; Amendments
 
70
Section 12.03 Expenses, Indemnity; Damage Waiver.
 
72
Section 12.04 Successors and Assigns
 
74
Section 12.05 Survival; Revival; Reinstatement
 
76
Section 12.06 Counterparts; Integration; Effectiveness
 
77
Section 12.07 Severability
 
78
Section 12.08 Right of Setoff
 
78
Section 12.09 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS
 
78
Section 12.10 Headings
 
79
Section 12.11 Confidentiality
 
79
Section 12.12 Interest Rate Limitation
 
80
Section 12.13 EXCULPATION PROVISIONS
 
81
Section 12.14 No Third Party Beneficiaries
 
81
Section 12.15 USA Patriot Act Notice
 
81

 
iv

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

 
ANNEXES, EXHIBITS AND SCHEDULES

Annex I
List of Commitments
   
Exhibit A
Form of Note
Exhibit B
Form of Borrowing Request
Exhibit C
Form of Interest Election Request
Exhibit D
Form of Compliance Certificate
Exhibit E-1
Security Instruments
Exhibit E-2
Form of Guaranty and Collateral Agreement
Exhibit F
Form of Assignment and Assumption
Exhibit G-1
Form of Additional Loan Certificate
Exhibit G-2
Form of Additional Lender Certificate
   
Schedule 7.05
Litigation
Schedule 7.14
Subsidiaries and Partnerships
Schedule 7.18
Gas Imbalances
Schedule 7.19
Marketing Contracts
Schedule 7.20
Swap Agreements
Schedule 9.05
Investments
Schedule 9.12
Other Property

v

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

THIS SECOND LIEN TERM LOAN AGREEMENT dated as of August 20, 2007, is among:
Aurora Oil & Gas Corporation, a corporation duly formed and existing under the
laws of the State of Utah (the “Borrower”); each of the Lenders from time to
time party hereto; and BNP Paribas, as administrative agent for the Lenders (in
such capacity, together with its successors in such capacity, the
“Administrative Agent”).
 
RECITALS
 
A. The Borrower has requested that the Lenders provide a $50,000,000 second lien
term loan to the Borrower.
 
B. Each Lender has severally agreed to make its ratable portion of such loan
subject to the terms and conditions of this Agreement.
 
C. In consideration of the mutual covenants and agreements herein contained and
of the loans and commitments hereinafter referred to, the parties hereto agree
as follows:
 
ARTICLE I
Definitions and Accounting Matters
 
Section 1.01  Terms Defined Above. As used in this Agreement, each term defined
above has the meaning indicated above.
 
Section 1.02  Certain Defined Terms. As used in this Agreement, the following
terms have the meanings specified below:
 
“Additional Lender” has the meaning assigned to such term in Section 2.07(a).
 
“Additional Lender Certificate” has the meaning assigned to such term in Section
2.07(b)(x).
 
“Additional Loan Certificate” has the meaning assigned to such term in Section
2.07(b)(ix).
 
“Adjusted LIBO Rate” means, with respect to any Tranche for any Interest Period,
an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of
1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the
Statutory Reserve Rate.
 
“Administrative Questionnaire” means an Administrative Questionnaire in a form
supplied by the Administrative Agent.
 

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

 
“Affiliate” means, with respect to a specified Person, another Person that
directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
 
“Agents” means, collectively, the Administrative Agent and any syndication
agent, documentation agent or similar agent that hereafter becomes a party
hereto and “Agent” shall mean either the Administrative Agent or such other
agent, as the context requires.
 
“Agreement” means this Second Lien Term Loan Agreement, as the same may from
time to time be amended, modified, supplemented or restated.
 
“Applicable Margin” means, with respect to each Tranche, a rate per annum equal
to 7.0%, provided that such amount shall decrease to 6.75% commencing on the
date on which the Borrower’s delivery of a compliance certificate substantially
in the form of Exhibit D hereto, demonstrating that the Borrower’s ratio of
Total Debt to EBITDAX for the immediately preceding four fiscal quarters is
lower than or equal to 4.0 to 1.0. In the event any compliance certificate
delivered pursuant to this definition is shown to be inaccurate (regardless of
whether this Agreement are in effect when such inaccuracy is discovered), and
such inaccuracy, if corrected, would have led to the application of a higher
Applicable Margin for any period (an “Applicable Period”) than the Applicable
Margin applied for such Applicable Period, and only in such case, then the
Borrower shall immediately (a) deliver to the Administrative Agent a corrected
compliance certificate for such Applicable Period, (b) determine the Applicable
Margin for such Applicable Period based upon the corrected compliance
certificate and (c) immediately pay to the Administrative Agent the accrued
additional interest owing as a result of such increased Applicable Margin for
such Applicable Period, which payment shall be promptly applied by the
Administrative Agent in accordance with Section 3.02. This definition is in
addition to the rights of the Administrative Agent and the Lenders with respect
to Section 3.02(c) and Section 10.01 and other of their respective rights under
this Agreement.
 
“Approved Counterparty” has the meaning assigned to such term in the Senior
Revolving Credit Agreement.
 
“Approved Fund” means any Person (other than a natural person) that is engaged
in making, purchasing, holding or investing in bank loans and similar extensions
of credit in the ordinary course of its business and 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.
 
“Approved Petroleum Engineers” means (a) Netherland, Sewell & Associates, Inc.,
(b) Ryder Scott Company Petroleum Consultants, L.P., (c) Schlumberger Holditch
Reservoir Technology and (d) any other independent petroleum engineers
reasonably acceptable to the Administrative Agent.
 
“Arranger” means BNP Paribas, in its capacities as the sole lead arranger and
sole bookrunner hereunder.
 
“Assignment and Assumption” means an assignment and assumption entered into by a
Lender and an assignee (with the consent of any party whose consent is required
by Section 12.04(b)), and accepted by the Administrative Agent, in the form of
Exhibit F or any other form approved by the Administrative Agent.
 
2

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

 
“Bach Services” means Bach Services & Manufacturing Company, L.L.C., a Michigan
limited liability company, a wholly-owned subsidiary of the Borrower.
 
“Board” means the Board of Governors of the Federal Reserve System of the United
States of America or any successor Governmental Authority.
 
“Borrowing Request” means a request by the Borrower for the Loans in accordance
with Section 2.03.
 
“Business Day” means any day that is not a Saturday, Sunday or other day on
which commercial banks in New York City or Houston, Texas are authorized or
required by law to remain closed; and if such day relates to a Tranche or
continuation of, a payment or prepayment of principal of or interest on, or the
Interest Period for, a Tranche or a notice by the Borrower with respect to any
such Tranche or continuation, payment, prepayment or Interest Period, any day
which is also a day on which dealings in dollar deposits are carried out in the
London interbank market.
 
“Capital Leases” means, in respect of any Person, all leases which shall have
been, or should have been, in accordance with GAAP, recorded as capital leases
on the balance sheet of the Person liable (whether contingent or otherwise) for
the payment of rent thereunder.
 
“Casualty Event” means any loss, casualty or other insured damage to, or any
nationalization, taking under power of eminent domain or by condemnation or
similar proceeding of, any Property of the Borrower or any of its Subsidiaries
having a fair market value in excess of $500,000.
 
“Change in Control” means the occurrence of any of the following events: (a) the
acquisition of ownership, directly or indirectly, beneficially or of record, by
any Person or group (within the meaning of the Securities Exchange Act of 1934
and the rules of the SEC thereunder as in effect on the date hereof), of Equity
Interests representing more than 25% of the aggregate ordinary voting power
represented by the issued and outstanding Equity Interests of the Borrower, or
(b) occupation of a majority of the seats (other than vacant seats) on the board
of directors of the Borrower by Persons who were neither (i) nominated by the
board of directors of the Borrower nor (ii) appointed by directors so nominated.
 
“Change in Law” means (a) the adoption of any law, rule or regulation after the
date of this Agreement, (b) any change in any law, rule or regulation or in the
interpretation or application thereof by any Governmental Authority after the
date of this Agreement or (c) compliance by any Lender (or, for purposes of
Section 5.01(b)), by any lending office of such Lender or by such Lender’s
holding company, if any) with any request, guideline or directive (whether or
not having the force of law) of any Governmental Authority made or issued after
the date of this Agreement.
 
“Code” means the Internal Revenue Code of 1986, as amended from time to time,
and any successor statute.
 
3

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

 
“Commitment” means, with respect to each Lender, the commitment of such Lender
to make its Loan on the Effective Date, or, if the Commitments are increased
pursuant to Section 2.07, then the date on which such additional Loans are made,
and “Commitments” shall mean the aggregate amount of the Commitments of all
Lenders. The amount of each Lender’s Commitment is set forth on Annex I and the
aggregate Commitments on the Effective Date are $50,000,000.
 
“Consolidated Net Income” means with respect to the Borrower and the
Consolidated Subsidiaries, for any period, the aggregate of the net income (or
loss) of the Borrower and the Consolidated Subsidiaries after allowances for
taxes for such period determined on a consolidated basis in accordance with
GAAP; provided that there shall be excluded from such net income (to the extent
otherwise included therein) the following: (a) the net income of any Person in
which the Borrower or any Consolidated Subsidiary has an interest (which
interest does not cause the net income of such other Person to be consolidated
with the net income of the Borrower and the Consolidated Subsidiaries in
accordance with GAAP), except to the extent of the amount of dividends or
distributions actually paid in cash during such period by such other Person to
the Borrower or to a Consolidated Subsidiary, as the case may be; (b) the net
income (but not loss) during such period of any Consolidated Subsidiary to the
extent that the declaration or payment of dividends or similar distributions or
transfers or loans by that Consolidated Subsidiary is not at the time permitted
by operation of the terms of its charter or any agreement, instrument or
Governmental Requirement applicable to such Consolidated Subsidiary or is
otherwise restricted or prohibited, in each case determined in accordance with
GAAP; (c) the net income (or loss) of any Person acquired in a
pooling-of-interests transaction for any period prior to the date of such
transaction; (d) any extraordinary gains or losses during such period; (e)
non-cash gains or losses under FAS 133 resulting from the net change in
Borrower’s mark-to-market portfolio of commodity price risk management
activities during that period; (f) any gains or losses attributable to writeups
or writedowns of assets, including ceiling test writedowns and (g) non-cash
stock-based compensation under FAS Statement No. 123R; and provided further that
if the Borrower or any Consolidated Subsidiary shall acquire or dispose of any
Property with a fair market value of over $1,000,000 during such period, then
Consolidated Net Income shall be calculated after giving pro forma effect to
such acquisition or disposition as if such acquisition or disposition had
occurred on the first day of such period.
 
“Consolidated Subsidiaries” means each Subsidiary of the Borrower (whether now
existing or hereafter created or acquired) the financial statements of which
shall be (or should have been) consolidated with the financial statements of the
Borrower in accordance with GAAP.
 
“Control” means the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise. For the
purposes of this definition, and without limiting the generality of the
foregoing, any Person that owns directly or indirectly 10% or more of the Equity
Interests having ordinary voting power for the election of the directors or
other governing body of a Person (other than as a limited partner of such other
Person) will be deemed to “control” such other Person. “Controlling” and
“Controlled” have meanings correlative thereto.
 
4

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

 
“Debt” means, for any Person, the sum of the following (without duplication):
(a) all obligations of such Person for borrowed money or evidenced by bonds,
bankers’ acceptances, debentures, notes or other similar instruments; (b) all
obligations of such Person (whether contingent or otherwise) in respect of
letters of credit, surety or other bonds and similar instruments; (c) all
accounts payable and all accrued expenses, liabilities or other obligations of
such Person to pay the deferred purchase price of Property or services; (d) all
obligations under Capital Leases; (e) all obligations under Synthetic Leases;
(f) all Debt (as defined in the other clauses of this definition) of others
secured by (or for which the holder of such Debt has an existing right,
contingent or otherwise, to be secured by) a Lien on any Property of such
Person, whether or not such Debt is assumed by such Person; (g) all Debt (as
defined in the other clauses of this definition) of others guaranteed by such
Person or in which such Person otherwise assures a creditor against loss of the
Debt (howsoever such assurance shall be made) to the extent of the lesser of the
amount of such Debt and the maximum stated amount of such guarantee or assurance
against loss; (h) all obligations or undertakings of such Person to maintain or
cause to be maintained the financial position or covenants of others or to
purchase the Debt or Property of others; (i) obligations to deliver commodities,
goods or services, including, without limitation, Hydrocarbons, in consideration
of one or more advance payments, other than gas balancing arrangements in the
ordinary course of business; (j) obligations to pay for goods or services even
if such goods or services are not actually received or utilized by such Person;
(k) any Debt of a partnership for which such Person is liable either by
agreement, by operation of law or by a Governmental Requirement but only to the
extent of such liability; (l) Disqualified Capital Stock; and (m) the
undischarged balance of any production payment created by such Person or for the
creation of which such Person directly or indirectly received payment. The Debt
of any Person shall include all obligations of such Person of the character
described above to the extent such Person remains legally liable in respect
thereof notwithstanding that any such obligation is not included as a liability
of such Person under GAAP.
 
“Default” means any event or condition which constitutes an Event of Default or
which upon notice, lapse of time or both would, unless cured or waived, become
an Event of Default.
 
“Disqualified Capital Stock” means any Equity Interest that, 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, matures or is mandatorily
redeemable for any consideration other than other Equity Interests (which would
not constitute Disqualified Capital Stock), pursuant to a sinking fund
obligation or otherwise, or is convertible or exchangeable for Debt or
redeemable for any consideration other than other Equity Interests (which would
not constitute Disqualified Capital Stock) at the option of the holder thereof,
in whole or in part, on or prior to the date that is one year after the earlier
of (a) the Maturity Date and (b) the date on which there are no Loans or other
obligations hereunder outstanding.
 
“dollars” or “$” refers to lawful money of the United States of America.
 
“Domestic Subsidiary” means any Subsidiary that is organized under the laws of
the United States of America or any state thereof or the District of Columbia.
 
“EBITDAX” means, for any period, the sum of Consolidated Net Income for such
period plus the following expenses or charges to the extent deducted from
Consolidated Net Income in such period: interest, income taxes, depreciation,
depletion, amortization, exploration expenses and other similar noncash charges,
minus all noncash income added to Consolidated Net Income.
 
5

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

 
“Effective Date” means the date on which the conditions specified in Section
6.01 are satisfied (or waived in accordance with Section 12.02).
 
“Environmental Laws” means any and all Governmental Requirements pertaining in
any way to health, safety, the environment or the preservation or reclamation of
natural resources, in effect in any and all jurisdictions in which the Borrower
or any Subsidiary is conducting or at any time has conducted business, or where
any Property of the Borrower or any Subsidiary is located, including without
limitation, the Oil Pollution Act of 1990 (“OPA”), as amended, the Clean Air
Act, as amended, the Comprehensive Environmental, Response, Compensation, and
Liability Act of 1980 (“CERCLA”), as amended, the Federal Water Pollution
Control Act, as amended, the Occupational Safety and Health Act of 1970, as
amended, the Resource Conservation and Recovery Act of 1976 (“RCRA”), as
amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control
Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as
amended, the Hazardous Materials Transportation Act, as amended, and other
environmental conservation or protection Governmental Requirements. The term
“oil” shall have the meaning specified in OPA, the terms “hazardous substance”
and “release” (or “threatened release”) have the meanings specified in CERCLA,
the terms “solid waste” and “disposal” (or “disposed”) have the meanings
specified in RCRA and the term “oil and gas waste” shall mean those waste that
are excluded from the definition of “hazardous waste” pursuant to 40 C.F.R.
Section 261.4(b)(5) (“Section 261.4(b)(5)”); provided, however, that (a) in the
event either OPA, CERCLA, RCRA or Section 261.4(b)(5) is amended so as to
broaden the meaning of any term defined thereby, such broader meaning shall
apply subsequent to the effective date of such amendment and (b) to the extent
the laws of the state or other jurisdiction in which any Property of the
Borrower or any Subsidiary is located establish a meaning for “oil,” “hazardous
substance,” “release,” “solid waste,” “disposal” or “oil and gas waste” which is
broader than that specified in either OPA, CERCLA, RCRA or Section 261.4(b)(5),
such broader meaning shall apply.
 
“Environmental Permit” means any permit, registration, license, approval,
consent, exemption, variance, or other authorization required under or issued
pursuant to applicable Environmental Laws.
 
“Equity Interests” means shares of capital stock, partnership interests,
membership interests in a limited liability company, beneficial interests in a
trust or other equity ownership interests in a Person, and any warrants, options
or other rights entitling the holder thereof to purchase or acquire any such
Equity Interest.
 
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended,
and any successor statute.
 
“ERISA Affiliate” means each trade or business (whether or not incorporated)
which together with the Borrower or a Subsidiary would be deemed to be a “single
employer” within the meaning of section 4001(b)(1) of ERISA or subsections (b),
(c), (m) or (o) of section 414 of the Code.
 
6

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

 
“ERISA Event” means (a) a “Reportable Event” described in section 4043 of ERISA
and the regulations issued thereunder, (b) the withdrawal of the Borrower, a
Subsidiary or any ERISA Affiliate from a Plan during a plan year in which it was
a “substantial employer” as defined in section 4001(a)(2) of ERISA, (c) the
filing of a notice of intent to terminate a Plan or the treatment of a Plan
amendment as a termination under section 4041 of ERISA, (d) the institution of
proceedings to terminate a Plan by the PBGC, (e) receipt of a notice of
withdrawal liability pursuant to Section 4202 of ERISA or (f) any other event or
condition which might constitute grounds under section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan.
 
“Eurodollar”, when used in reference to any Tranche, refers to whether Tranche
is bearing interest at a rate determined by reference to the Adjusted LIBO Rate.
 
“Event of Default” has the meaning assigned such term in Section 10.01.
 
“Excepted Liens” means: (a) Liens for Taxes, assessments or other governmental
charges or levies which are not delinquent or which are being contested in good
faith by appropriate action and for which adequate reserves have been maintained
in accordance with GAAP; (b) Liens in connection with workers’ compensation,
unemployment insurance or other social security, old age pension or public
liability obligations which are not delinquent or which are being contested in
good faith by appropriate action and for which adequate reserves have been
maintained in accordance with GAAP; (c) statutory landlord’s liens, operators’,
vendors’, carriers’, warehousemen’s, repairmen’s, mechanics’, suppliers’,
workers’, materialmen’s, construction or other like Liens arising by operation
of law in the ordinary course of business or incident to the exploration,
development, operation and maintenance of Oil and Gas Properties each of which
is in respect of obligations that are not delinquent or which are being
contested in good faith by appropriate action and for which adequate reserves
have been maintained in accordance with GAAP; (d) 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 the sale, transportation or exchange
of oil and natural gas, unitization and pooling declarations and agreements,
area of mutual interest agreements, overriding royalty agreements, marketing
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 being contested in good faith by appropriate action
and for which adequate reserves have been maintained in accordance with GAAP,
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 for which
such Property is held by the Borrower or any Subsidiary or materially impair the
value of such Property subject thereto; (e) 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, provided that no
such deposit account is a dedicated cash collateral account or is subject to
restrictions against access by the depositor in excess of those set forth by
regulations promulgated by the Board and no such deposit account is intended by
Borrower or any of its Subsidiaries to provide collateral to the depository
institution; (f) easements, restrictions, servitudes, permits, conditions,
covenants, exceptions or reservations in any Property of the Borrower or any
Subsidiary for the purpose of roads, pipelines, transmission lines,
transportation lines, distribution lines for the removal of gas, oil, coal or
other minerals or timber, and other like purposes, or for the joint or common
use of real estate, rights of way, facilities and equipment, that do not secure
any monetary obligations and which in the aggregate do not materially impair the
use of such Property for the purposes of which such Property is held by the
Borrower or any Subsidiary or materially impair the value of such Property
subject thereto; (g) Liens on cash or securities pledged to secure performance
of tenders, surety and appeal bonds, government contracts, performance and
return of money bonds, bids, trade contracts, leases, statutory obligations,
regulatory obligations and other obligations of a like nature incurred in the
ordinary course of business and (h) judgment and attachment Liens not giving
rise to an Event of Default, provided that any appropriate legal proceedings
which may have been duly initiated for the review of such judgment shall not
have been finally terminated or the period within which such proceeding may be
initiated shall not have expired and no action to enforce such Lien has been
commenced; provided, further that Liens described in clauses (a) through (e)
shall remain “Excepted Liens” only for so long as no action to enforce such Lien
has been commenced and no intention to subordinate the priority of the Lien
granted in favor of the Administrative Agent and the Lenders is to be hereby
implied or expressed by the permitted existence of such Excepted Liens.
 
7

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

 
“Excluded Taxes” means, with respect to the Administrative Agent, any Lender or
any other recipient of any payment to be made by or on account of any obligation
of the Borrower or any Guarantor hereunder or under any other Loan Document, (a)
income or franchise taxes imposed on (or measured by) its net income by the
United States of America or such other jurisdiction under the laws of which such
recipient is organized or in which its principal office is located 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 the Borrower or any Guarantor 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 5.03(e),
except to the extent that such Foreign Lender (or its assignor, if any) was
entitled, at the time of designation of a new lending office (or assignment), to
receive additional amounts with respect to such withholding tax pursuant to
Section 5.03(a) or Section 5.03(c).
 
“Existing Second Lien Agreement” means that certain First Amended and Restated
Note Purchase Agreement dated as of December 8, 2005 among Aurora Antrim North,
L.L.C., as the borrower, Aurora Energy, Ltd. and the Borrower, as guarantors,
TCW Asset Management Company, as administrative agent and in the other
capacities described therein, and the other purchasers party thereto, as amended
by that certain First Amendment to First Amended and Restated Note Purchase
Agreement dated as January 31, 2006, and as from time to time renewed, extended,
amended, supplemented, or restated.
 
“Federal Funds Effective Rate” means, for any day, the weighted average (rounded
upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published on the next succeeding Business Day by
the Federal Reserve Bank of New York, or, if such rate is not so published for
any day that is a Business Day, the average (rounded upwards, if necessary, to
the next 1/100 of 1%) of the quotations for such day for such transactions
received by the Administrative Agent from three Federal funds brokers of
recognized standing selected by it.
 
8

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

 
“Financial Officer” means, for any Person, the chief financial officer,
principal accounting officer, treasurer or controller of such Person. Unless
otherwise specified, all references herein to a Financial Officer means a
Financial Officer of the Borrower.
 
“Financial Statements” means the financial statement or statements of the
Borrower and its Consolidated Subsidiaries referred to in Section 7.04(a).
 
“Foreign Lender” means any Lender that is organized under the laws of a
jurisdiction other than that in which the Borrower is located. For purposes of
this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.
 
“Foreign Subsidiary” means any Subsidiary that is not a Domestic Subsidiary.
 
“GAAP” means generally accepted accounting principles in the United States of
America as in effect from time to time subject to the terms and conditions set
forth in Section 1.04.
 
“Governmental Authority” means the government of the United States of America,
any other nation or any political subdivision thereof, whether state or local,
and any agency, authority, instrumentality, regulatory body, court, central bank
or other entity exercising executive, legislative, judicial, taxing, regulatory
or administrative powers or functions of or pertaining to government over the
Borrower, any Subsidiary, any of their Properties, any Agent, or any Lender.
 
“Governmental Requirement” means any law, statute, code, ordinance, order,
determination, rule, regulation, judgment, decree, injunction, franchise,
permit, certificate, license, authorization or other directive or requirement,
whether now or hereinafter in effect, including, without limitation,
Environmental Laws, energy regulations and occupational, safety and health
standards or controls, of any Governmental Authority.
 
“Guarantors” means:
 
(a) Aurora Energy, Ltd., a corporation duly formed and existing under the laws
of the State of Nevada;
 
(b) Aurora Antrim North, L.L.C., a limited liability company duly formed and
existing under the laws of the State of Michigan;
 
(c) Hudson Pipeline & Processing Co., LLC, a limited liability company duly
formed and existing under the laws of the State of Michigan; and
 
(d) each other Material Domestic Subsidiary or other Domestic Subsidiary that
guarantees the Indebtedness pursuant to Section 8.14(b), provided, that for as
long as Bach Services has an outstanding line of credit pursuant to that certain
Business Loan Agreement by and between Bach Services and Northwestern Bank,
dated April 5, 2007 or any replacement (but not increase) or extension thereof,
Bach Services and Kingsley Development Company, L.L.C. shall not be required to
become Guarantors.
 
9

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

“Guaranty Agreement” means an agreement executed by the Guarantors in
substantially the form of Exhibit E-2 unconditionally guarantying on a joint and
several basis, payment of the Indebtedness, as the same may be amended, modified
or supplemented from time to time.
 
“Hazardous Material” means any substance regulated or as to which liability
might arise under any applicable Environmental Law and including, without
limitation: (a) any chemical, compound, material, product, byproduct, substance
or waste defined as or included in the definition or meaning of “hazardous
substance,” “hazardous material,” “hazardous waste,” “solid waste,” “toxic
waste,” “extremely hazardous substance,” “toxic substance,” “contaminant,”
“pollutant,” or words of similar meaning or import found in any applicable
Environmental Law; (b) petroleum hydrocarbons, petroleum products, petroleum
substances, natural gas, oil, oil and gas waste, crude oil, and any components,
fractions, or derivatives thereof; and (c) radioactive materials, asbestos
containing materials, polychlorinated biphenyls, or radon.
 
“Highest Lawful Rate” means, with respect to each Lender, the maximum
nonusurious interest rate, if any, that at any time or from time to time may be
contracted for, taken, reserved, charged or received on the Notes or on other
Indebtedness under laws applicable to such Lender which are presently in effect
or, to the extent allowed by law, under such applicable laws which may hereafter
be in effect and which allow a higher maximum nonusurious interest rate than
applicable laws allow as of the date hereof.
 
“Hydrocarbon Interests” means all rights, titles, interests and estates now or
hereafter acquired in and to oil and gas leases, oil, gas and mineral leases, or
other liquid or gaseous hydrocarbon leases, mineral fee interests, overriding
royalty and royalty interests, net profit interests and production payment
interests, including any reserved or residual interests of whatever nature.
 
“Hydrocarbons” means oil, gas, casinghead gas, drip gasoline, natural gasoline,
condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all
products refined or separated therefrom.
 
“Indebtedness” means any and all amounts owing or to be owing by the Borrower,
any Subsidiary or any Guarantor (whether direct or indirect (including those
acquired by assumption), absolute or contingent, due or to become due, now
existing or hereafter arising): to the Administrative Agent or any Lender under
any Loan Document and all renewals, extensions and/or rearrangements of any of
the above.
 
“Indemnified Taxes” means Taxes other than Excluded Taxes.
 
“Intercreditor Agreement” means that certain Intercreditor Agreement by and
among the Borrower, the Administrative Agent and the lenders or agents party to
the Senior Revolving Credit Documents, dated as of the date hereof, as the same
may from time to time be amended, modified, supplemented or restated in
accordance with the provisions thereof.
 
10

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

 
“Interest Election Request” means a request by the Borrower to convert or
continue a Tranche in accordance with Section 2.04.
 
“Interest Payment Date” means, with respect to any Tranche, the last day of the
Interest Period applicable to the Tranche of which such Loan is a part and, in
the case of a Tranche with an Interest Period of more than three months’
duration, each day prior to the last day of such Interest Period that occurs at
intervals of three months’ duration after the first day of such Interest Period.
 
“Interest Period” means with respect to any Tranche, the period commencing on
the date of such Tranche and ending on the numerically corresponding day in the
calendar month that is one, two, three or six months (or, with the consent of
each Lender, nine or twelve months) thereafter, as the Borrower may elect;
provided, that (a) if any Interest Period would end on a day other than a
Business Day, such Interest Period shall be extended to the next succeeding
Business Day unless such next succeeding Business Day would fall in the next
calendar month, in which case such Interest Period shall end on the next
preceding Business Day and (b) any Interest Period that commences on the last
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the last calendar month of such Interest Period) shall end
on the last Business Day of the last calendar month of such Interest Period. For
purposes hereof, the date of a Tranche initially shall be the date on which the
Loans comprising such Tranche are made and thereafter shall be the effective
date of the most recent continuation of such Tranche.
 
“Investment” means, for any Person: (a) the acquisition (whether for cash,
Property, services or securities or otherwise) of Equity Interests of any other
Person or any agreement to make any such acquisition (including, without
limitation, any “short sale” or any sale of any securities at a time when such
securities are not owned by the Person entering into such short sale); (b) the
making of any deposit with, or advance, loan or capital contribution to,
assumption of Debt of, purchase or other acquisition of any other Debt or equity
participation or interest in, or other extension of credit to, any other Person
(including the purchase of Property from another Person subject to an
understanding or agreement, contingent or otherwise, to resell such Property to
such Person, but excluding any such advance, loan or extension of credit having
a term not exceeding ninety (90) days representing the purchase price of
inventory or supplies sold by such Person in the ordinary course of business);
(c) the purchase or acquisition (in one or a series of transactions) of Property
of another Person that constitutes a business unit or (d) the entering into of
any guarantee of, or other contingent obligation (including the deposit of any
Equity Interests to be sold) with respect to, Debt or other liability of any
other Person and (without duplication) any amount committed to be advanced, lent
or extended to such Person.
 
“Lenders” means the Persons listed on Annex I and any Person that shall have
become a party hereto pursuant to an Assignment and Assumption, other than any
such Person that ceases to be a party hereto pursuant to an Assignment and
Assumption.
 
11

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

 
“LIBO Rate” means, with respect to any Tranche for any Interest Period, the rate
appearing on Reuters Screen LIBOR01 (or on any successor or substitute page of
such Service, or any successor to or substitute for such Service, providing rate
quotations comparable to those currently provided on such page of such Service,
as determined by the Administrative Agent from time to time for purposes of
providing quotations of interest rates applicable to dollar deposits in the
London interbank market) at approximately 11:00 a.m., London time, two Business
Days prior to the commencement of such Interest Period, as the rate for dollar
deposits with a maturity comparable to such Interest Period. In the event that
such rate is not available at such time for any reason, then the “LIBO Rate”
with respect to such Tranche for such Interest Period shall be the rate (rounded
upwards, if necessary, to the next 1/16th of 1%) at which dollar deposits of
$5,000,000 and for a maturity comparable to such Interest Period are offered by
the principal London office of the Administrative Agent in immediately available
funds in the London interbank market at approximately 11:00 a.m., London time,
two Business Days prior to the commencement of such Interest Period.
 
“Lien” means any interest in Property securing an obligation owed to, or a claim
by, a Person other than the owner of the Property, whether such interest is
based on the common law, statute or contract, and whether such obligation or
claim is fixed or contingent, and including but not limited to (a) the lien or
security interest arising from a mortgage, encumbrance, pledge, security
agreement, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes or (b) production payments and the like payable out of Oil
and Gas Properties. The term “Lien” shall include easements, restrictions,
servitudes, permits, conditions, covenants, exceptions or reservations. For the
purposes of this Agreement, the Borrower and its Subsidiaries shall be deemed to
be the owner of any Property which it has acquired or holds subject to a
conditional sale agreement, or leases under a financing lease or other
arrangement pursuant to which title to the Property has been retained by or
vested in some other Person in a transaction intended to create a financing.
 
“Loan Documents” means this Agreement, the Notes, the Security Instruments and
the Intercreditor Agreement.
 
“Loan Parties” means the Borrower and each Guarantor.
 
“Loans” means the loans made by the Lenders to the Borrower pursuant to this
Agreement.
 
“Majority Lenders” means, at any time while no Loans are outstanding, Lenders
having more than fifty percent (50%) of the Commitments; and at any time while
any Loans are outstanding, Lenders holding more than fifty percent (50%) of the
outstanding aggregate principal amount of the Loans (without regard to any sale
by a Lender of a participation in any Loan under Section 12.04(c)).
 
“Material Adverse Effect” means a material adverse change in, or material
adverse effect on (a) the business, operations, Property, condition (financial
or otherwise) or prospects of the Borrower and the Subsidiaries taken as a
whole, (b) the ability of the Borrower, any Subsidiary or any Guarantor to
perform any of its obligations under any Loan Document, (c) the validity or
enforceability of any Loan Document or (d) the rights and remedies of or
benefits available to the Administrative Agent, any other Agent or any Lender
under any Loan Document.
 
12

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

 
“Material Domestic Subsidiary” means, as of any date, any Domestic Subsidiary
that (a) is a Wholly-Owned Subsidiary and (b) together with its Subsidiaries,
owns Property having a fair market value of $500,000 or more.
 
“Material Indebtedness” means Debt (other than the Loans), or obligations in
respect of one or more Swap Agreements, of any one or more of the Borrower and
its Subsidiaries in an aggregate principal amount exceeding $500,000. For
purposes of determining Material Indebtedness, the “principal amount” of the
obligations of the Borrower or any Subsidiary in respect of any Swap Agreement
at any time shall be the Swap Termination Value.
 
“Maturity Date” means August 20, 2012.
 
“Moody’s” means Moody’s Investors Service, Inc. and any successor thereto that
is a nationally recognized rating agency.
 
“Mortgaged Property” means any Property owned by the Borrower or any Guarantor
which is subject to the Liens existing and to exist under the terms of the
Security Instruments.
 
“Multiemployer Plan” means a Plan which is a multiemployer plan as defined in
section 3(37) or 4001 (a)(3) of ERISA.
 
“Net Cash Proceeds” means in connection with any issuance or sale of assets,
Equity Interests, Debt securities, Casualty Events or the incurrence of loans,
the cash proceeds received from such disposition, issuance or incurrence, net of
attorneys’ fees, investment banking fees, accountants’ fees, underwriting
discounts and commissions and other customary fees and expenses actually
incurred in connection therewith.
 
“Notes” means the promissory notes of the Borrower described in Section 2.02(d)
and being substantially in the form of Exhibit A, together with all amendments,
modifications, replacements, extensions and rearrangements thereof.
 
“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, automotive
equipment, rental equipment or other personal Property which may be on such
premises for the purpose of drilling 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.
 
13

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

 
“Organizational Documents” means, (a) with respect to any corporation, the
certificate or articles of incorporation and the bylaws (or equivalent or
comparable constitutive documents with respect to any non-U.S. jurisdiction);
(b) with respect to any limited liability company, the certificate or articles
of formation or organization and operating agreement; and (c) with respect to
any partnership, joint venture, trust or other form of business entity, the
partnership, joint venture or other applicable agreement of formation or
organization and any agreement, instrument, filing or notice with respect
thereto filed in connection with its formation or organization with the
applicable Governmental Authority in the jurisdiction of its formation or
organization and, if applicable, any certificate or articles of formation or
organization of such entity.

“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 and any other Loan Document.
 
“Participant” has the meaning set forth in Section 12.04(c)(i).
 
“PBGC” means the Pension Benefit Guaranty Corporation, or any successor thereto.
 
“Permitted Refinancing Debt” means Debt (for purposes of this definition, “new
Debt”) incurred in exchange for, or proceeds of which are used to refinance, all
of any other Debt (the “Refinanced Debt”); provided that (a) such new Debt is in
an aggregate principal amount not in excess of the sum of (i) the aggregate
principal amount then outstanding of the Refinanced Debt (or, if the Refinanced
Debt is exchanged or acquired for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration thereof, such
lesser amount) and (ii) an amount necessary to pay any fees and expenses,
including premiums, related to such exchange or refinancing; (b) such new Debt
has a stated maturity no earlier than the stated maturity of the Refinanced Debt
and an average life no shorter than the average life of the Refinanced Debt;
(c) such new Debt does not have a stated interest rate in excess of the stated
interest rate of the Refinanced Debt; (d) such new Debt does not contain any
covenants which are materially more onerous to the Borrower and its Subsidiaries
than those imposed by the Refinanced Debt and (e) such new Debt (and any
guarantees thereof) is subordinated in right of payment to the Indebtedness (or,
if applicable, the Guaranty Agreement) to at least the same extent as the
Refinanced Debt and is otherwise subordinated on terms substantially reasonably
satisfactory to the Administrative Agent.
 
14

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

 
“Person” means any natural person, corporation, limited liability company,
trust, joint venture, association, company, partnership, Governmental Authority
or other entity.
 
“Plan” means any employee pension benefit plan, as defined in section 3(2) of
ERISA, which (a) is currently or hereafter sponsored, maintained or contributed
to by the Borrower, a Subsidiary or an ERISA Affiliate or (b) was at any time
during the six calendar years preceding the date hereof, sponsored, maintained
or contributed to by the Borrower or a Subsidiary or an ERISA Affiliate.
 
“Prime Rate” means the rate of interest per annum publicly announced from time
to time by the Administrative Agent as its prime rate in effect at its principal
office in New York City; each change in the Prime Rate shall be effective from
and including the date such change is publicly announced as being effective.
Such rate is set by the Administrative Agent as a general reference rate of
interest, taking into account such factors as the Administrative Agent may deem
appropriate; it being understood that many of the Administrative Agent’s
commercial or other loans are priced in relation to such rate, that it is not
necessarily the lowest or best rate actually charged to any customer and that
the Administrative Agent may make various commercial or other loans at rates of
interest having no relationship to such rate.
 
“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.
 
“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,
“Proved Developed Reserves” means Proved Reserves which are either Proved
Developed Producing Reserves or Proved Developed Nonproducing Reserves, and
“Proved Undeveloped Reserves” means Proved Reserves which are categorized as
“Undeveloped” in the Definitions.
 
“Redemption” means with respect to any Debt, the repurchase, redemption,
prepayment, repayment, defeasance or any other acquisition or retirement for
value (or the segregation of funds with respect to any of the foregoing) of such
Debt. “Redeem” has the correlative meaning thereto.
 
“Refinanced Debt” has the meaning assigned such term in the definition of
“Permitted Refinancing Debt”.
 
“Register” has the meaning assigned such term in Section 12.04(b)(iv).
 
15

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

 
“Regulation D” means Regulation D of the Board, as the same may be amended,
supplemented or replaced from time to time.
 
“Related Parties” means, with respect to any specified Person, such Person’s
Affiliates and the respective directors, officers, employees, agents and
advisors (including attorneys, accountants and experts) of such Person and such
Person’s Affiliates.
 
“Release” means any depositing, spilling, leaking, pumping, pouring, placing,
emitting, discarding, abandoning, emptying, discharging, migrating, injecting,
escaping, leaching, dumping, or disposing.
 
“Remedial Work” has the meaning assigned such term in Section 8.10(a).
 
“Reserve Report” means a report, in form and substance reasonably satisfactory
to the Administrative Agent, setting forth, as of each January 1st or July 1st
(or such other specified “as of” date contemplated by Section 2.07), the oil and
gas reserves attributable to the Oil and Gas Properties of the Borrower and the
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, based upon the economic assumptions consistent with the
Administrative Agent’s lending requirements at the time and reflecting (and
conforming to the definition of) Total Reserve Value, provided that each such
report hereafter delivered must (a) separately report on Proved Developed
Reserves and Proved Undeveloped Reserves and separately calculate the Total
Reserve Value of each such category of Proved Reserves for the Borrower’s and
the its Subsidiaries’ interests, (b) take into account the Borrower’s actual
experiences with leasehold operating expenses and other costs in determining
projected leasehold operating expenses and other costs, (c) identify and take
into account any “over-produced” or “under-produced” status under gas balancing
arrangements, and (d) contain information and analysis comparable in scope to
that contained in the Reserve Report most recently delivered to the
Administrative Agent.
 
“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 the Borrower.
 
“Restricted Payment” means any dividend or other distribution (whether in cash,
securities or other Property) with respect to any Equity Interests in the
Borrower or any of its Subsidiaries, or any payment (whether in cash, securities
or other Property), including any sinking fund or similar deposit, on account of
the purchase, redemption, retirement, acquisition, cancellation or termination
of any such Equity Interests in the Borrower or any of its Subsidiaries or any
option, warrant or other right to acquire any such Equity Interests in the
Borrower or any of its Subsidiaries.
 
“SEC” means the Securities and Exchange Commission or any successor Governmental
Authority.
 
“Security Instruments” means the Guaranty Agreement, mortgages, deeds of trust
and other agreements, instruments or certificates described or referred to in
Exhibit E-1, and any and all other agreements, instruments, consents or
certificates now or hereafter executed and delivered by the Borrower or any
other Person (other than Swap Agreements with the Lenders or any Affiliate of a
Lender or participation or similar agreements between any Lender and any other
lender or creditor with respect to any Indebtedness pursuant to this Agreement)
in connection with, or as security for the payment or performance of the
Indebtedness, the Notes, this Agreement, as such agreements may be amended,
modified, supplemented or restated from time to time.
 
16

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

 
“Senior Revolving Credit Agreement” means that certain Amended and Restated
Credit Agreement dated as of August 20, 2007 among the Borrower and Aurora
Energy, Ltd. and Aurora Antrim North, L.L.C. (the original borrower), as
guarantors, and BNP Paribas, as the administrative agent, and the other agents
and lenders party thereto, together with all other amendments, modifications and
supplements thereto permitted by the Intercreditor Agreement.
 
“Senior Revolving Credit Documents” means the Senior Revolving Credit Agreement,
the Senior Revolving Credit Notes and any “Loan Documents” (as defined therein),
in each case, together with all amendments, modifications and supplements
thereto.
 
“Senior Revolving Credit Notes” means the Notes from time to time issued
pursuant to the Senior Revolving Credit Agreement.
 
“S&P” means Standard & Poor’s Ratings Group, a division of The McGraw-Hill
Companies, Inc., and any successor thereto that is a nationally recognized
rating agency.
 
“Statutory Reserve Rate” means a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Administrative Agent is subject with
respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred
to as “Eurocurrency Liabilities” in Regulation D of the Board). Such reserve
percentages shall include those imposed pursuant to such Regulation D. Tranches
shall be deemed to constitute eurocurrency funding and to be subject to such
reserve requirements without benefit of or credit for proration, exemptions or
offsets that may be available from time to time to any Lender under such
Regulation D or any comparable regulation. The Statutory Reserve Rate shall be
adjusted automatically on and as of the effective date of any change in any
reserve percentage.
 
“Subsidiary” means: (a) any Person of which at least a majority of the
outstanding Equity Interests having by the terms thereof ordinary voting power
to elect a majority of the board of directors, manager or other governing body
of such Person (irrespective of whether or not at the time Equity Interests of
any other class or classes of such Person shall have or might have voting power
by reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by the Borrower or one or more of its
Subsidiaries or by the Borrower and one or more of its Subsidiaries and (b) any
partnership of which the Borrower or any of its Subsidiaries is a general
partner. Unless otherwise indicated herein, each reference to the term
“Subsidiary” shall mean a Subsidiary of the Borrower.
 
17

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

 
“Swap Agreement” means any agreement with respect to any swap, forward, future
or derivative transaction or option or similar agreement, whether exchange
traded, “over-the-counter” or otherwise, involving, or settled by reference to,
one or more interest 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 the Borrower or the
Subsidiaries shall be a Swap Agreement.
 
“Swap Termination Value” means, in respect of any one or more Swap Agreements,
after taking into account the effect of any legally enforceable netting
agreement relating to such Swap Agreements, (a) for any date on or after the
date such Swap Agreements have been closed out and termination value(s)
determined in accordance therewith, such termination value(s) and (b) for any
date prior to the date referenced in clause (a), the amount(s) determined as the
mark-to-market value(s) for such Swap Agreements, as determined by the
counterparties to such Swap Agreements.
 
“Synthetic Leases” means, in respect of any Person, all leases which shall have
been, or should have been, in accordance with GAAP, treated as operating leases
on the financial statements of the Person liable (whether contingently or
otherwise) for the payment of rent thereunder and which were properly treated as
indebtedness for borrowed money for purposes of U.S. federal income taxes, if
the lessee in respect thereof is obligated to either purchase for an amount in
excess of, or pay upon early termination an amount in excess of, 80% of the
residual value of the Property subject to such operating lease upon expiration
or early termination of such lease.
 
“Taxes” means any and all present or future taxes, levies, imposts, duties,
deductions, charges or withholdings imposed by any Governmental Authority.
 
“Total Debt” means, at any date, all Debt of the Borrower and its Consolidated
Subsidiaries on a consolidated basis, excluding (i) non-cash obligations under
FAS 133 or 143 and (ii) accounts payable and other accrued liabilities (for the
deferred purchase price of Property or services) from time to time incurred in
the ordinary course of business which are not greater than sixty (60) days past
the date of invoice or delinquent or which are being contested in good faith by
appropriate action and for which adequate reserves have been maintained in
accordance with GAAP.
 
“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 the Borrower’s
and its Subsidiaries’ collective 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 and marketing 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 the Borrower 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) the quotation for deliveries of natural
gas for each such year from the New York Mercantile Exchange for Henry Hub and
(B) $7.00/Mcf, and (ii) for crude oil, the lesser of (A) 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) $60.00/Bbl and
(d) the cash-flows derived from the pricing assumptions set forth in clause (c)
above shall be further adjusted to account for the historical basis
differentials for each month during the preceding 12-month period calculated by
comparing realized crude oil and natural gas prices to Cushing, Oklahoma and
Henry Hub NYMEX prices for each month during such period; provided that the
Total Reserve Value shall be further adjusted, if necessary, to exclude a
portion of reserves other than Proved Developed Reserves such that not less than
60% of Total Reserve Value is attributable to Proved Developed Reserves.
 
18

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

 
“Tranche” means a division or portion of the Loans.
 
“Transactions” means, with respect to (a) the Borrower, the execution, delivery
and performance by the Borrower of this Agreement, each other Loan Document to
which it is a party, the Tranche of Loans, the use of the proceeds thereof, and
the grant of Liens by the Borrower on Mortgaged Properties and other Properties
pursuant to the Security Instruments and (b) each Guarantor, the execution,
delivery and performance by such Guarantor of each Loan Document to which it is
a party, the guaranteeing of the Indebtedness and the other obligations under
the Guaranty Agreement by such Guarantor and such Guarantor’s grant of the
security interests and provision of collateral under the Security Instruments,
and the grant of Liens by such Guarantor on Mortgaged Properties and other
Properties pursuant to the Security Instruments.
 
“Transferee” means any Assignee or Participant.
 
“Wholly-Owned Subsidiary” means any Subsidiary of which all of the outstanding
Equity Interests (other than any directors’ qualifying shares mandated by
applicable law), on a fully-diluted basis, are owned by the Borrower or one or
more of the Wholly-Owned Subsidiaries or are owned by the Borrower and one or
more of the Wholly-Owned Subsidiaries.
 
Section 1.03  Terms Generally; Rules of Construction. The definitions of terms
herein shall apply equally to the singular and plural forms of the terms
defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words “include”,
“includes” and “including” shall be deemed to be followed by the phrase “without
limitation”. The word “will” shall be construed to have the same meaning and
effect as the word “shall”. Unless the context requires otherwise (a) any
definition of or reference to any agreement, instrument or other document herein
shall be construed as referring to such agreement, instrument or other document
as from time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth in the
Loan Documents), (b) any reference herein to any law shall be construed as
referring to such law as amended, modified, codified or reenacted, in whole or
in part, and in effect from time to time, (c) any reference herein to any Person
shall be construed to include such Person’s successors and assigns (subject to
the restrictions contained in the Loan Documents), (d) the words “herein”,
“hereof” and “hereunder”, and words of similar import, shall be construed to
refer to this Agreement in its entirety and not to any particular provision
hereof, (e) with respect to the determination of any time period, the word
“from” means “from and including” and the word “to” means “to and including” and
(f) any reference herein to Articles, Sections, Annexes, Exhibits and Schedules
shall be construed to refer to Articles and Sections of, and Annexes, Exhibits
and Schedules to, this Agreement. No provision of this Agreement or any other
Loan Document shall be interpreted or construed against any Person solely
because such Person or its legal representative drafted such provision.
 
19

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

 
Section 1.04  Accounting Terms and Determinations; GAAP. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all financial statements and certificates and reports as to financial matters
required to be furnished to the Administrative Agent or the Lenders hereunder
shall be prepared, in accordance with GAAP, applied on a basis consistent with
the Financial Statements except for changes in which Borrower’s independent
certified public accountants concur and which are disclosed to Administrative
Agent on the next date on which financial statements are required to be
delivered to the Lenders pursuant to Section 8.01(a); provided that, unless the
Borrower and the Majority Lenders shall otherwise agree in writing, no such
change shall modify or affect the manner in which compliance with the covenants
contained herein is computed such that all such computations shall be conducted
utilizing financial information presented consistently with prior periods.
 
ARTICLE II
The Loans
 
Section 2.01  Term Loans. Subject to the terms and conditions set forth herein,
each Lender agrees to make, on the Effective Date, a Loan to the Borrower in an
aggregate principal amount equal to 99% of such Lender’s Commitment. The
foregoing represents an original issue discount of 1%. The Commitments are not
revolving and amounts repaid or prepaid may not be reborrowed under any
circumstance. Any portion of the Commitments not utilized by the Borrower on or
before 3:00 p.m. New York City time on the Effective Date shall be permanently
cancelled.
 
Section 2.02  Loans and Tranches.
 
(a)  Loans; Several Obligations. Each Loan shall be made as part of a Tranche
consisting of Loans made by the Lenders ratably in accordance with their
respective Commitments. The failure of any Lender to fund its Loan shall not
relieve any other Lender of its obligations hereunder; provided that the
Commitments are several and no Lender shall be responsible for any other
Lender’s failure to fund its Loan as required.
 
(b)  Loans. Each Lender at its option may fund any Eurodollar Loan by causing
any domestic or foreign branch or Affiliate of such Lender to fund such Loan;
provided that any exercise of such option shall not affect the obligation of the
Borrower to repay such Loan in accordance with the terms of this Agreement.
 
20

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

 
(c)  Minimum Amounts. At the commencement of each Interest Period, each Tranche
shall be in an aggregate amount that is an integral multiple of $100,000 and not
less than $1,000,000. There shall not at any time be more than a total of four
(4) Tranches outstanding. Notwithstanding any other provision of this Agreement,
the Borrower shall not be entitled to elect to continue any Tranche if the
Interest Period requested with respect thereto would end after the Maturity
Date.
 
(d)  Notes. The Loan made by each Lender shall be evidenced by a single
promissory note of the Borrower in substantially the form of Exhibit A, dated,
in the case of (i) any Lender party hereto as of the date of this Agreement, as
of the date of this Agreement, or (ii) any Lender that becomes a party hereto
pursuant to an Assignment and Assumption, as of the effective date of the
Assignment and Assumption, payable to the order of such Lender in a principal
amount equal to such Lender’s funded Loan as in effect on such date, and
otherwise duly completed. The date, amount, Type, interest rate and, if
applicable, Interest Period of each Tranche consisting of a portion of the Loan
made by each Lender, and all payments made on account of the principal thereof,
shall be recorded by such Lender on its books for its Note, and, prior to any
transfer, may be endorsed by such Lender on a schedule attached to such Note or
any continuation thereof or on any separate record maintained by such Lender.
Failure to make any such notation or to attach a schedule shall not affect any
Lender’s or the Borrower’s rights or obligations in respect of its Loan or
affect the validity of such transfer by any Lender of its Note. 
 
Section 2.03  Requests for Loans.
 
(a)  To request the Loan, the Borrower shall notify the Administrative Agent of
its request by telephone not later than 11:00 a.m., Houston, Texas time, three
Business Days before the date of the proposed Loan. Each such telephonic
Borrowing Request shall be irrevocable and shall be confirmed promptly by hand
delivery or telecopy to the Administrative Agent of a written Borrowing Request
in substantially the form of Exhibit B and signed by the Borrower. Each such
telephonic and written Borrowing Request shall specify the following
information:
 
(i)  the aggregate amount of the requested Loans;
 
(ii)  the date of the proposed funding, which shall be a Business Day;
 
(iii)  the initial Interest Period to be applicable thereto, which shall be a
period contemplated by the definition of the term “Interest Period”; and
 
(iv)  the location and number of the Borrower’s account to which funds are to be
disbursed, which shall comply with the requirements of Section 2.05.
 
If no Interest Period is specified, then the Borrower shall be deemed to have
selected an Interest Period of one month’s duration.
 
Promptly following receipt of the Borrowing Request in accordance with this
Section 2.03, the Administrative Agent shall advise each Lender of the details
thereof and of the amount of such Lender’s Loan to be made.
 
21

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

 
(b)  Notwithstanding anything to the contrary in this Agreement, the Borrower
may request the Loan made on the Effective Date to be an Alternate Base Rate (as
defined in the Senior Revolving Credit Agreement) Loan, so long as such request
is made not later than 12:00 noon, Houston, Texas time, on the Effective Date.
Such Alternate Base Rate Loan will bear interest at the Alternate Base Rate plus
5.0%. Such Alternate Base Rate Loan shall only be available on the Effective
Date and shall be converted to a Eurodollar Loan within three Business Days of
the Effective Date.
 
Section 2.04  Interest Elections.
 
(a)  Continuance. Each Tranche shall have an initial Interest Period as
specified in the Borrowing Request. Thereafter, the Borrower may elect Interest
Periods therefor, as provided in this Section 2.04. The Borrower may elect
different options with respect to different portions of the affected Tranche, in
which case each such portion shall be allocated ratably among the Lenders
holding the Loans comprising such Tranche, and the Loans comprising each such
portion shall be considered a separate Tranche.
 
(b)  Interest Election Requests. To make an election pursuant to this Section
2.04, the Borrower shall notify the Administrative Agent of such election by
telephone not later than 12:00 noon, New York City time, three Business Days
before the first day of the Interest Period related to such Tranche. Each such
telephonic Interest Election Request shall be irrevocable and shall be confirmed
promptly by hand delivery or telecopy to the Administrative Agent of a written
Interest Election Request in substantially the form of Exhibit C and signed by
the Borrower.
 
(c)  Information in Interest Election Requests. Each telephonic and written
Interest Election Request shall specify the following information:
 
(i)  the Tranche to which such Interest Election Request applies and, if
different options are being elected with respect to different portions thereof,
the portions thereof to be allocated to each resulting Tranche (in which case
the information to be specified pursuant to Section 2.04(c)(iii) shall be
specified for each resulting Tranche);
 
(ii)  the effective date of the election made pursuant to such Interest Election
Request, which shall be a Business Day;
 
(iii)  the Interest Period to be applicable thereto after giving effect to such
election, which shall be a period contemplated by the definition of the term
“Interest Period”.
 
If any such Interest Election Request requests a Tranche but does not specify an
Interest Period, then the Borrower shall be deemed to have selected an Interest
Period of one month’s duration.
 
(d)  Notice to Lenders by the Administrative Agent. Promptly following receipt
of an Interest Election Request, the Administrative Agent shall advise each
Lender of the details thereof and of such Lender’s portion of each resulting
Tranche.
 
22

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

 
(e)  Effect of Failure to Deliver Timely Interest Election Request and Events of
Default on Interest Election. If the Borrower fails to deliver a timely Interest
Election Request with respect to a Tranche prior to the end of the Interest
Period applicable thereto, then, unless such Tranche is repaid as provided
herein, at the end of such Interest Period such the Interest Period for such
Tranche shall be one month’s duration.
 
Section 2.05  Funding of Loan.
 
(a)  Funding by Lenders. Each Lender shall make its Loan on the Effective Date
by wire transfer of immediately available funds by 12:00 noon, Houston, Texas
time, to the account of the Administrative Agent most recently designated by it
for such purpose by notice to the Lenders. The Administrative Agent will make
such Loans available to the Borrower by promptly crediting the amounts so
received, in like funds, to an account of the Borrower and designated by the
Borrower in the Borrowing Request. Nothing herein shall be deemed to obligate
any Lender to obtain the funds for its Loan in any particular place or manner or
to constitute a representation by any Lender that it has obtained or will obtain
the funds for its Loan in any particular place or manner.
 
(b)  Presumption of Funding by the Lenders. Unless the Administrative Agent
shall have received notice from a Lender prior to the Effective Date that such
Lender will not make available to the Administrative Agent such Lender’s Loan,
the Administrative Agent may assume that such Lender has made its Loan available
on such date in accordance with Section 2.05(a) and may, in reliance upon such
assumption, make available to the Borrower a corresponding amount. In such
event, if a Lender has not in fact made its Loan available to the Administrative
Agent, then the applicable Lender and the Borrower severally agree to pay to the
Administrative Agent forthwith on demand such corresponding amount with interest
thereon, for each day from and including the date such amount is made available
to the Borrower to but excluding the date of payment to the Administrative
Agent, at (i) in the case of such Lender, the greater of the Federal Funds
Effective Rate and a rate determined by the Administrative Agent in accordance
with banking industry rules on interbank compensation or (ii) in the case of the
Borrower, the interest rate applicable to the Loans. If such Lender pays such
amount to the Administrative Agent, then such amount shall constitute such
Lender’s Loan.
 
Section 2.06  Total Reserve Value. The initial Total Reserve Value shall be
$249,000,000.00. In connection with each semi-annual redetermination, the
Borrower shall deliver to the Administrative Agent a certificate, in form
reasonably satisfactory to the Administrative Agent, no later than March 1st and
September 1st of each year, setting forth in sufficient detail Borrower’s
calculation of Total Reserve Value as of the immediately preceding January 1 and
July 1, commencing September 1, 2007. In addition, the Borrower may, by
notifying the Administrative Agent thereof, and the Administrative Agent may, at
the direction of the Majority Lenders, by notifying the Borrower thereof, each
elect to require the Total Reserve Value to be determined one additional time on
a specified “as of” date between such regular determinations (which shall be the
first day of a calendar month following the date of such notice), in which event
the Borrower shall deliver to the Administrative Agent a certificate, in form
reasonably satisfactory to the Administrative Agent, no later than three months
after such specified date reflecting the Total Reserve value as of such
specified date. The Borrower shall calculate the Total Reserve Value based upon
the applicable definitions of this Agreement, and provide with each such
certificate the Reserve Report and other information used by the Borrower in
calculating the Total Reserve Value. In addition to the foregoing, the Total
Reserve Value shall be subject to further adjustment from time to time in
accordance with Section 8.13(c) and Section 9.12(d).
 
23

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

 
Upon receipt of such certificate, the Administrative Agent shall promptly review
such certificate and, within ten (10) Business Days, confirm to the Borrower and
the Lenders that (i) the calculations used to determine the Total Reserve Value
were based upon the pricing and other requirements set forth in the definition
of Total Reserve Value, (ii) no mathematical or other errors or omissions have
been made in such calculation and (iii) the engineering analysis used to
determine the Total Reserve Value was based upon estimated production, pricing
and costs acceptable to Administrative Agent. If facts under (i), (ii) or (iii)
are ascertained to exist, the Administrative Agent and the Borrower shall
cooperate to promptly calculate the proper amount of the Total Reserve Value.
Otherwise, upon confirmation of such amount as the Total Reserve Value, such
amount will be the Total Reserve Value until next adjusted or redetermined in
accordance with the terms of this Agreement.
 
Section 2.07  Optional Increase of Facility.
 
(a)  Subject to the conditions set forth in Section 2.07(b), the Borrower may
opt to increase the size of this credit facility with the prior written consent
of the Administrative Agent by causing an existing Lender to offer additional
Loans or by causing a Person that at such time is not a Lender to become a
Lender (an “Additional Lender”).
 
(b)  Any additional Loans shall be subject to the following additional
conditions:
 
(i)  such Loans shall not be less than $5,000,000 unless the Administrative
Agent otherwise consents, and no such increase shall be permitted if after
giving effect thereto the aggregate amount of Loans made pursuant to this
Section 2.07 would exceed $20,000,000 (so that, in the aggregate with Loans made
on the Effective Date, the size of this facility would be no greater than
$70,000,000);
 
(ii)  no Default shall have occurred and be continuing at the effective date of
such Loans or would result therefrom, including under the Senior Revolving
Credit Agreement;
 
(iii)  no Lender’s Commitment may be increased without the consent of such
Lender;
 
(iv)  any additional Loans shall require the prior written consent of the
Majority Lenders;
 
(v)  the representations and warranties of the Borrower contained in Article VII
of this Agreement and in the Loan Documents and otherwise made in writing by or
on behalf of the Borrower pursuant to this Agreement and the Loan Documents are
true and correct in all material respects at and as of the date of such
increase, except to the extent such representations and warranties are expressly
limited to an earlier date or the Majority Lenders have expressly consented in
writing to the contrary;
 
24

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

 
(vi)  on the effective date of such increase, no Tranches shall be outstanding
or if any Tranches are outstanding, then the effective date of such Loans shall
be the last day of the Interest Period in respect of such Tranches unless the
Borrower pays compensation required by Section 5.02;
 
(vii)  the procedure for funding the additional Loans shall follow the same
procedures for the original Loan, as set forth in Section 2.03 and the
conditions precedent set forth in Section 6.02;
 
(viii)  upon the later of (A) the applicable notice periods set forth in Section
2.03 and (B) the receipt of the Additional Loan Certificate or Additional Lender
Certificate, as applicable, the Loans shall be advanced to the Borrower from the
applicable Lender(s);
 
(ix)  if the Borrower elects to cause existing Lenders to offer additional
Loans, the Borrower and such Lender shall execute and deliver to the
Administrative Agent a certificate substantially in the form of Exhibit G-1 (an
“Additional Loan Certificate”), together with a processing and recordation fee
of $3,500, and the Borrower shall deliver a new Note payable to the order of
such Lender in a principal amount equal to the aggregate amount of Loans made by
such Lender after giving effect to such additional Loans, and otherwise duly
completed; and
 
(x)  If the Borrower elects to cause an Additional Lender to become a party to
this Agreement, then the Borrower and such Additional Lender shall execute and
deliver to the Administrative Agent a certificate substantially in the form of
Exhibit G-2 (an “Additional Lender Certificate”), together with an
Administrative Questionnaire and a processing and recordation fee of $3,500, and
the Borrower shall deliver a Note payable to the order of such Additional Lender
in a principal amount equal to the amount of such additional Loan from such
Additional Lender, and otherwise duly completed.
 
(c)  Subject to acceptance and recording thereof pursuant to Section 2.07(d),
from and after the effective date specified in the Additional Loan Certificate
or the Additional Lender Certificate (or if any Tranches are outstanding, then
the last day of the Interest Period in respect of such Tranche, unless the
Borrower has paid compensation required by Section 5.02), in the case of an
Additional Lender Certificate, any Additional Lender party thereto shall be a
party to this Agreement and the other Loan Documents and have the rights and
obligations of a Lender under this Agreement and the other Loan Documents. In
addition, the Lender or the Additional Lender, as applicable, shall purchase a
pro rata portion of the outstanding Loans of each of the other Lenders (and such
Lenders hereby agree to sell and to take all such further action to effectuate
such sale) such that each Lender (including any Additional Lender, if
applicable) shall hold its ratable share of the outstanding Loans (and
participation interests) after giving effect to the additional Loans.
 
25

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

 
(d)  Upon its receipt of a duly completed Additional Loan Certificate or an
Additional Lender Certificate, executed by the Borrower and the Lender or the
Borrower and the Additional Lender party thereto, as applicable, the processing
and recording fee referred to in Section 2.07(b), the Administrative
Questionnaire referred to in Section 2.07(b), if applicable, and the written
consent of the Administrative Agent to such increase required by Section
2.07(a), the Administrative Agent shall accept such Additional Loan Certificate
or Additional Lender Certificate and record the information contained therein in
the Register required to be maintained by the Administrative Agent. No
additional Loans shall be effective for purposes of this Agreement unless it has
been recorded in the Register as provided in this Section 2.07(d).
 
ARTICLE III
Payments of Principal and Interest; Prepayments; Fees
 
Section 3.01  Repayment of Loans. The Borrower hereby unconditionally promises
to pay to the Administrative Agent for the account of each Lender the then
unpaid principal amount of the Loans on the Maturity Date.
 
Section 3.02  Interest.
 
(a)  [Reserved].
 
(b)  Interest Rate. The portion of the Loans comprising each Tranche shall bear
interest at the Adjusted LIBO Rate for the Interest Period in effect for such
Tranche plus the Applicable Margin, but in no event to exceed the Highest Lawful
Rate.
 
(c)  Post-Default Rate. Notwithstanding the foregoing, if an Event of Default
has occurred and is continuing, or if any principal of or interest on any Loan
or any fee or other amount payable by the Borrower or any Guarantor hereunder or
under any other Loan Document is not paid when due, whether at stated maturity,
upon acceleration or otherwise, then all Loans outstanding, in the case of an
Event of Default, and such overdue amount, in the case of a failure to pay
amounts when due, shall bear interest, after as well as before judgment, at a
rate per annum equal to two percent (2%) plus the rate applicable to the Loans
as provided in Section 3.02(b), but in no event to exceed the Highest Lawful
Rate. 
 
(d)  Interest Payment Dates. Accrued interest on the principal amount of each
Loan shall be payable in arrears on each Interest Payment Date for such Tranche
and on the Maturity Date; provided that (i) interest accrued pursuant to Section
3.02(c) shall be payable on demand and (ii) in the event of any prepayment or
principal of any Loan, accrued interest on the principal amount prepaid shall be
payable on the date of such prepayment.
 
(e)  Interest Rate Computations. All interest hereunder shall be computed on the
basis of a year of 360 days, unless such computation would exceed the Highest
Lawful Rate, in which case interest shall be computed on the basis of a year of
365 days (or 366 days in a leap year), and shall be payable for the actual
number of days elapsed (including the first day but excluding the last day). The
applicable Adjusted LIBO Rate or LIBO Rate shall be determined by the
Administrative Agent, and such determination shall be conclusive absent manifest
error, and be binding upon the parties hereto.
 
26

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

 
Section 3.03  Reserved.
 
Section 3.04  Prepayments.
 
(a)  Optional Prepayments. Subject to any break funding costs payable pursuant
to Section 5.02, the Borrower shall have the right to prepay the Loans at any
time, in whole or in part, as follows:
 
(i)  at any time during the period commencing on the first Business Day after
the Effective Date to and including the first anniversary of the Effective Date,
with a premium equal to 3% of such amount prepaid;
 
(ii)  at any time during the period commencing on the first Business Day after
the first anniversary of the Effective Date to and including the second
anniversary of the Effective Date, with a premium equal to 2% of such amount
prepaid;
 
(iii)  at any time during the period commencing after the second anniversary of
the Effective Date, without premium or penalty;
 
provided that, each prepayment is in an amount that is an integral multiple of
$1,000,000 and not less than $1,000,000, or if such amount is less than
$1,000,000, the outstanding principal amount of the Loans.
 
(b)  Notice and Terms of Optional Prepayment. The Borrower shall notify the
Administrative Agent by telephone (confirmed by telecopy) of any prepayment
hereunder in the case of prepayment of a Tranche, not later than 12:00 noon,
Houston, Texas time, three Business Days before the date of prepayment. Each
such notice shall be irrevocable and shall specify the prepayment date and the
principal amount of the Loans or portion thereof to be prepaid. Promptly
following receipt of any such notice, the Administrative Agent shall advise the
Lenders of the contents thereof. Each prepayment of a Loan shall be applied
ratably to the Loans of all the Lenders. Prepayments shall be accompanied by
accrued interest to the extent required by Section 3.02. 
 
Section 3.05  Mandatory Prepayments

 
(a)  The Borrower shall prepay the Notes in amounts equal to:
 
(i)  If required pursuant to Section 9.12, 100% of the Net Cash Proceeds of any
sale of any Property of the Borrower. Such prepayment shall be made no later
than the next Business Day after the receipt of such proceeds.
 
(ii)  100% of the Net Cash Proceeds of any Debt incurrence of the Borrower or
any of its Subsidiaries or of the sale or issuance of any Equity Interests of
the Borrower, excluding Debt permitted by Section 9.02. Such prepayment shall be
made no later than the next Business Day after the receipt of such proceeds.
 
27

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

 
(iii)  100% of the Net Cash Proceeds of any Casualty Event related to the
Borrower or any of its Subsidiaries. Such prepayment shall be made no later than
the next Business Day after the receipt of such proceeds.
 
(b)  Notwithstanding anything herein to the contrary, if the amount of any Net
Cash Proceeds referred to in Section 3.05(a)(i) through (iii) would otherwise be
a required prepayment under the terms of the Senior Revolving Credit Agreement,
then prepayment shall only be required to the extent any excess Net Cash
Proceeds remain after making such prepayment, provided, however, that if such
payment is waived, such amount shall be payable to the Borrower pursuant to this
Section 3.05.
 
Section 3.06  Fees. The Borrower agrees to pay to the Administrative Agent, for
its own account, fees payable in the amounts and at the times separately agreed
upon between the Borrower and the Administrative Agent.
 
ARTICLE IV
Payments; Pro Rata Treatment; Sharing of Set-offs
 
Section 4.01  Payments Generally; Pro Rata Treatment; Sharing of Set-offs.
 
(a)  Payments by the Borrower. The Borrower shall make each payment required to
be made by it hereunder (whether of principal, interest or fees, or of amounts
payable under Section 5.01, Section 5.02, Section 5.03 or otherwise) prior to
12:00 noon, Houston, Texas time, on the date when due, in immediately available
funds, without defense, deduction, recoupment, set-off or counterclaim. Fees,
once paid, shall be fully earned and shall not be refundable under any
circumstances. Any amounts received after such time on any date may, in the
discretion of the Administrative Agent, be deemed to have been received on the
next succeeding Business Day for purposes of calculating interest thereon. All
such payments shall be made to the Administrative Agent at its offices specified
in Section 12.01, except that payments pursuant to Section 5.01, Section 5.02,
Section 5.03 and Section 12.03 shall be made directly to the Persons entitled
thereto. The Administrative Agent shall distribute any such payments received by
it for the account of any other Person to the appropriate recipient promptly
following receipt thereof. If any payment hereunder shall be due on a day that
is not a Business Day, the date for payment shall be extended to the next
succeeding Business Day, and, in the case of any payment accruing interest,
interest thereon shall be payable for the period of such extension. All payments
hereunder shall be made in dollars.
 
(b)  Application of Insufficient Payments. If at any time insufficient funds are
received by and available to the Administrative Agent to pay fully all amounts
of principal, interest and fees then due hereunder, such funds shall be applied
(i) first, towards payment of interest and fees then due hereunder, ratably
among the parties entitled thereto in accordance with the amounts of interest
and fees then due to such parties, and (ii) second, towards payment of principal
then due hereunder, ratably among the parties entitled thereto in accordance
with the amounts of principal then due to such parties.
 
(c)  Sharing of Payments by Lenders. If any Lender shall, by exercising any
right of set-off or counterclaim or otherwise, obtain payment in respect of any
principal of or interest on its Loan resulting in such Lender receiving payment
of a greater proportion of the aggregate amount of its Loan and accrued interest
thereon than the proportion received by any other Lender, then the Lender
receiving such greater proportion shall purchase (for cash at face value)
participations in the Loans of other Lenders to the extent necessary so that the
benefit of all such payments shall be shared by the Lenders ratably in
accordance with the aggregate amount of principal of and accrued interest on
their respective Loans; provided that (i) if any such participations are
purchased and all or any portion of the payment giving rise thereto is
recovered, such participations shall be rescinded and the purchase price
restored to the extent of such recovery, without interest, and (ii) the
provisions of this Section 4.01(c) shall not be construed to apply to any
payment made by the Borrower pursuant to and in accordance with the express
terms of this Agreement or any payment obtained by a Lender as consideration for
the assignment of or sale of a participation in its Loan to any assignee or
participant, other than to the Borrower or any Subsidiary or Affiliate thereof
(as to which the provisions of this Section 4.01(c) shall apply). The Borrower
consents to the foregoing and agrees, to the extent it may effectively do so
under applicable law, that any Lender acquiring a participation pursuant to the
foregoing arrangements may exercise against the Borrower rights of set-off and
counterclaim with respect to such participation as fully as if such Lender were
a direct creditor of the Borrower in the amount of such participation.
 
28

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

 
Section 4.02  Presumption of Payment by the Borrower. Unless the Administrative
Agent shall have received notice from the Borrower prior to the date on which
any payment is due to the Administrative Agent for the account of the Lenders
that the Borrower will not make such payment, the Administrative Agent may
assume that the Borrower has made such payment on such date in accordance
herewith and may, in reliance upon such assumption, distribute to the Lenders,
as the case may be, the amount due. In such event, if the Borrower has not in
fact made such payment, then each of the Lenders severally agrees to repay to
the Administrative Agent forthwith on demand the amount so distributed to such
Lender with interest thereon, for each day from and including the date such
amount is distributed to it to but excluding the date of payment to the
Administrative Agent, at the greater of the Federal Funds Effective Rate and a
rate determined by the Administrative Agent in accordance with banking industry
rules on interbank compensation.
 
Section 4.03  Certain Deductions by the Administrative Agent. If any Lender
shall fail to make any payment required to be made by it pursuant to Section
2.05(b), or Section 4.02 then the Administrative Agent may, in its discretion
(notwithstanding any contrary provision hereof), apply any amounts thereafter
received by the Administrative Agent for the account of such Lender to satisfy
such Lender’s obligations under such Sections until all such unsatisfied
obligations are fully paid.
 
Section 4.04  Disposition of Proceeds. The Security Instruments contain an
assignment by the Borrower and/or the Guarantors unto and in favor of the
Administrative Agent for the benefit of the Lenders of all of the Borrower’s or
each Guarantor’s interest in and to production and all proceeds attributable
thereto which may be produced from or allocated to the Mortgaged Property. The
Security Instruments further provide in general for the application of such
proceeds to the satisfaction of the Indebtedness and other obligations described
therein and secured thereby. Notwithstanding the assignment contained in such
Security Instruments, until the occurrence of an Event of Default, (a) the
Administrative Agent and the Lenders agree that they will neither notify the
purchaser or purchasers of such production nor take any other action to cause
such proceeds to be remitted to the Administrative Agent or the Lenders, but the
Lenders will instead permit such proceeds to be paid to the Borrower and its
Subsidiaries and (b) the Lenders hereby authorize the Administrative Agent to
take such actions as may be necessary to cause such proceeds to be paid to the
Borrower and/or such Subsidiaries.
 
29

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

 
ARTICLE V
Increased Costs; Break Funding Payments; Taxes
 
Section 5.01  Increased Costs.
 
(a)  Eurodollar Changes in Law. If any Change in Law shall:
 
(i)  impose, modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of, or credit
extended by, any Lender (except any such reserve requirement reflected in the
Adjusted LIBO Rate); or
 
(ii)  impose on any Lender or the London interbank market any other condition
affecting this Agreement or any portion of the Loan of such Lender;
 
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Tranche (or of maintaining its obligation to
make any such Loan) or to reduce the amount of any sum received or receivable by
such Lender (whether of principal, interest or otherwise), then the Borrower
will pay to such Lender such additional amount or amounts as will compensate
such Lender for such additional costs incurred or reduction suffered.
 
(b)  Capital Requirements. If any Lender determines in good faith that any
Change in Law regarding capital requirements has or would have the effect of
reducing the rate of return on such Lender’s capital or on the capital of such
Lender’s holding company, if any, as a consequence of this Agreement or the Loan
made by such Lender, to a level below that which such Lender or such Lender’s
holding company could have achieved but for such Change in Law (taking into
consideration such Lender’s policies and the policies of such Lender’s holding
company with respect to capital adequacy), then from time to time the Borrower
will pay to such Lender, as the case may be, such additional amount or amounts
as will compensate such Lender or such Lender’s holding company for any such
reduction suffered.
 
(c)  Certificates. A certificate of a Lender setting forth in good faith the
amount or amounts necessary to compensate such Lender or its holding company, as
the case may be, as specified in Section 5.01(a) or (b) shall be delivered to
the Borrower and shall be conclusive absent manifest error. The Borrower shall
pay such Lender the amount shown as due on any such certificate within 10 days
after receipt thereof.
 
(d)  Effect of Failure or Delay in Requesting Compensation. Failure or delay on
the part of any Lender to demand compensation pursuant to this Section 5.01
shall not constitute a waiver of such Lender’s right to demand such
compensation; provided that the Borrower shall not be required to compensate a
Lender pursuant to this Section 5.01 for any increased costs or reductions
incurred more than 365 days prior to the date that such Lender notifies the
Borrower of the Change in Law giving rise to such increased costs or reductions
and of such Lender’s intention to claim compensation therefor; provided further
that, if the Change in Law giving rise to such increased costs or reductions is
retroactive, then the 365-day period referred to above shall be extended to
include the period of retroactive effect thereof.
 
30

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

 
Section 5.02  Break Funding Payments. In the event of (a) the payment of any
principal of any Tranche other than on the last day of an Interest Period
applicable thereto (including as a result of an Event of Default), or (b) the
failure to borrow, continue or prepay any Tranche on the date specified in any
notice delivered pursuant hereto, then, in any such event, the Borrower shall
compensate each Lender for the loss, cost and expense attributable to such
event. Such loss, cost or expense to any Lender shall be deemed to include an
amount determined by such Lender to be the excess, if any, of (i) the amount of
interest which would have accrued on the principal amount of its Loan had such
event not occurred, at the Adjusted LIBO Rate that would have been applicable to
such Loan, 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 for
such Loan), over (ii) the amount of interest which would accrue on such
principal amount for such period at the interest rate which such Lender would
bid were it to bid, at the commencement of such period, for dollar deposits of a
comparable amount and period from other banks in the eurodollar market.
 
A certificate of any Lender setting forth in good faith any amount or amounts
that such Lender is entitled to receive pursuant to this Section 5.02 shall be
delivered to the Borrower and shall be conclusive absent manifest error. The
Borrower shall pay such Lender the amount shown as due on any such certificate
within 10 days after receipt thereof.
 
Section 5.03  Taxes.
 
(a)  Payments Free of Taxes. Any and all payments by or on account of any
obligation of the Borrower or any Guarantor under any Loan Document shall be
made free and clear of and without deduction for any Indemnified Taxes or Other
Taxes; provided that if the Borrower or any Guarantor shall be required to
deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum
payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 5.03(a)), the Administrative Agent or Lender (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower or such Guarantor shall make such
deductions and (iii) the Borrower or such Guarantor shall pay the full amount
deducted to the relevant Governmental Authority in accordance with applicable
law.
 
(b)  Payment of Other Taxes by the Borrower. The Borrower shall pay any Other
Taxes to the relevant Governmental Authority in accordance with applicable law.
 
(c)  Indemnification by the Borrower. The Borrower shall indemnify the
Administrative Agent and each Lender, within 10 days after written demand
therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by
the Administrative Agent or such Lender, as the case may be, on or with respect
to any payment by or on account of any obligation of the Borrower hereunder
(including Indemnified Taxes or Other Taxes imposed or asserted on or
attributable to amounts payable under this Section 5.03) and any penalties,
interest and reasonable expenses arising therefrom or with respect thereto,
whether or not such Indemnified Taxes or Other Taxes were correctly or legally
imposed or asserted by the relevant Governmental Authority. A certificate of the
Administrative Agent or a Lender as to the amount of such payment or liability
under this Section 5.03 shall be delivered in good faith to the Borrower and
shall be conclusive absent manifest error.
 
31

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

 
(d)  Evidence of Payments. As soon as practicable after any payment of
Indemnified Taxes or Other Taxes by the Borrower or a Guarantor to a
Governmental Authority, the Borrower shall deliver to the Administrative Agent
the original or a certified copy of a receipt issued by such Governmental
Authority evidencing such payment, a copy of the return reporting such payment
or other evidence of such payment reasonably satisfactory to the Administrative
Agent.
 
(e)  Foreign Lenders. Any Foreign Lender that is entitled to an exemption from
or reduction of withholding tax under the law of the jurisdiction in which the
Borrower is located, or any treaty to which such jurisdiction is a party, with
respect to payments under this Agreement or any other Loan Document shall
deliver to the Borrower (with a copy to the Administrative Agent), at the time
or times prescribed by applicable law, such properly completed and executed
documentation prescribed by applicable law or reasonably requested by the
Borrower as will permit such payments to be made without withholding or at a
reduced rate.
 
Section 5.04  Mitigation Obligations. If any Lender requests compensation under
Section 5.01, or if the Borrower is required to pay any additional amount to any
Lender or any Governmental Authority for the account of any Lender pursuant to
Section 5.03, then such Lender shall use reasonable efforts to designate a
different lending office for funding or booking its Loan hereunder or to assign
its rights and obligations hereunder to another of its offices, branches or
affiliates, if, in the judgment of such Lender, such designation or assignment
(i) would eliminate or reduce amounts payable pursuant to Section 5.01 or
Section 5.03, as the case may be, in the future and (ii) would not subject such
Lender to any unreimbursed cost or expense and would not otherwise be
disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable
costs and expenses incurred by any Lender in connection with any such
designation or assignment.
 
ARTICLE VI
Conditions Precedent
 
Section 6.01  Effective Date. The obligations of the Lenders to make Loans
hereunder shall not become effective until the date on which each of the
following conditions is satisfied (or waived in accordance with Section 12.02):
 
(a)  The Administrative Agent, the Arranger and the Lenders shall have received
all facility and agency fees and all other fees and amounts due and payable on
or prior to the Effective Date, including, to the extent invoiced, reimbursement
or payment of all out-of-pocket expenses required to be reimbursed or paid by
the Borrower hereunder (including, without limitation, the fees and expenses of
Vinson & Elkins L.L.P., counsel to the administrative agent under the Senior
Revolving Credit Agreement).
 
32

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

 
(b)  The Administrative Agent shall have received a certificate of the Secretary
or an Assistant Secretary of the Borrower and each Guarantor setting forth (i)
resolutions of its board of directors with respect to the authorization of the
Borrower or such Guarantor to execute and deliver the Loan Documents to which it
is a party and to enter into the transactions contemplated in those documents,
(ii) the officers of the Borrower or such Guarantor (y) who are authorized to
sign the Loan Documents to which the Borrower or such Guarantor is a party and
(z) who will, until replaced by another officer or officers duly authorized for
that purpose, act as its representative for the purposes of signing documents
and giving notices and other communications in connection with this Agreement
and the transactions contemplated hereby, (iii) specimen signatures of such
authorized officers, and (iv) the Organizational Documents of the Borrower and
such Guarantors, certified as being true and complete. The Administrative Agent
and the Lenders may conclusively rely on such certificate until the
Administrative Agent receives notice in writing from the Borrower to the
contrary.
 
(c)  The Administrative Agent shall have received certificates of the
appropriate State agencies with respect to the existence, qualification and good
standing of the Borrower and each Guarantor.
 
(d)  The Administrative Agent shall have received a compliance certificate which
shall be substantially in the form of Exhibit D, duly and properly executed by a
Responsible Officer and dated as of the date of Effective Date.
 
(e)  The Administrative Agent shall have received from each party hereto
counterparts (in such number as may be requested by the Administrative Agent) of
this Agreement signed on behalf of such party.
 
(f)  The Administrative Agent shall have received duly executed Notes payable to
the order of each Lender in a principal amount equal to its Commitment dated as
of the date hereof.
 
(g)  The Administrative Agent shall have received from each party thereto duly
executed counterparts (in such number as may be requested by the Administrative
Agent) of the Security Instruments, including the Guaranty Agreement and the
other Security Instruments described on Exhibit E-1. In connection with the
execution and delivery of the Security Instruments, the Administrative Agent
shall:
 
(i)  be reasonably satisfied that the Security Instruments create second
priority, perfected Liens (subject only to Liens created by Senior Revolving
Credit Documents and Excepted Liens identified in clauses (a) to (d) and (f) of
the definition thereof, but subject to the provisos at the end of such
definition) on at least 80% of the total value of the Oil and Gas Properties
evaluated in the Reserve Report most recently delivered to the Administrative
Agent, all of which presently secure the Senior Revolving Credit Agreement; and
 
(ii)  have received stock or membership interest certificates, together with
undated, blank stock powers for each such certificate, representing all of the
issued and outstanding Equity Interests of each Subsidiary.
 
33

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

 
(iii)  be reasonably satisfied that all Property constituting security for the
Senior Revolving Credit Agreement is subject to a perfected Lien in favor of the
Administrative Agent under the Security Instruments.
 
(h)  The Administrative Agent shall have received an opinion of Fraser,
Trebilcock, Davis & Dunlap, P.C., special counsel to the Borrower, in form and
substance acceptable to the Administrative Agent.
 
(i)  The Administrative Agent shall have received a certificate of insurance
coverage of the Borrower evidencing that the Borrower is carrying insurance in
accordance with Section 7.12.
 
(j)  The Administrative Agent shall have received title information as the
Administrative Agent may reasonably require satisfactory to the Administrative
Agent setting forth the status of title to at least 80% of the total value of
the Oil and Gas Properties evaluated in the Reserve Report most recently
delivered to the Administrative Agent.
 
(k)  The Administrative Agent shall be reasonably satisfied with the
environmental condition of the Oil and Gas Properties of the Borrower and its
Subsidiaries.
 
(l)  The Administrative Agent shall have received a certificate of a Responsible
Officer of the Borrower certifying that the Borrower has received all consents
and approvals required by Section 7.03.
 
(m)  The Administrative Agent shall have received appropriate UCC search
certificates reflecting no prior Liens encumbering the Properties of the
Borrower and the Subsidiaries for each of the following jurisdictions: Utah,
Nevada, Michigan and any other jurisdiction requested by the Administrative
Agent; other than those being assigned or released on or prior to the Effective
Date or Liens permitted by Section 9.03.
 
(n)  The Administrative Agent shall have received (i) a payoff letter evidencing
of the payment in full of all amounts due under any the Existing Second Lien
Loan Agreement, the termination of all commitments to lend thereunder and (ii)
documents evidencing the release of all Liens securing the obligations under the
Existing Second Lien Term Loan Agreement and any other obligations secured
thereby.
 
(o)  The Administrative Agent shall received a certificate of a Responsible
Officer of the Borrower certifying that there is an unused availability under
the Senior Revolving Credit Agreement of at least $20,000,000 as of the
Effective Date after giving effect to the Loans to be made on such date and the
concurrent application of proceeds to repay the Existing Second Lien Agreement
on such date.
 
(p)  The Intercreditor Agreement, in form and content satisfactory to the
Administrative Agent, shall be in full force and effect.
 
(q)  The Administrative Agent shall have received evidence that the Borrower has
purchased one or more commodity price floors or collars (i) with one or more
Approved Counterparties, (ii) which have prices and aggregate notional volumes
satisfactory to the Administrative Agent for the period commencing with the
Effective Date and ending on September 30, 2011.
 
34

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

 
(r)  The Administrative Agent shall have received such other documents as the
Administrative Agent or special counsel to the Administrative Agent may
reasonably request.
 
The Administrative Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and binding. Notwithstanding
the foregoing, the obligations of the Lenders to make Loans hereunder shall not
become effective unless each of the foregoing conditions is satisfied (or waived
pursuant to Section 12.02) at or prior to 2:00 p.m., Houston, Texas time, on
August 31, 2007 (and, in the event such conditions are not so satisfied or
waived, the Commitments shall terminate at such time).
 
Section 6.02  Additional Conditions. The obligation of each Lender to fund its
Loan is subject to the satisfaction of the following additional conditions:
 
(a)  At the time of and immediately after giving effect to the funding of the
Loans, no Default shall have occurred and be continuing.
 
(b)  At the time of and immediately after giving effect to the funding of the
Loans, no event, development or circumstance has occurred or shall then exist
that has resulted in, or could reasonably be expected to have, a Material
Adverse Effect.
 
(c)  The representations and warranties of the Borrower and the Guarantors set
forth in this Agreement and in the other Loan Documents shall be true and
correct on and as of the Effective Date, except to the extent any such
representations and warranties are expressly limited to an earlier date, in
which case, on and as of the date of such Loan, such representations and
warranties shall continue to be true and correct as of such specified earlier
date.
 
(d)  The making of such Loan would not conflict with, or cause any Lender to
violate or exceed, any applicable Governmental Requirement, and no Change in Law
shall have occurred, and no litigation shall be pending or threatened, which
does or, with respect to any threatened litigation, seeks to, enjoin, prohibit
or restrain, the making or repayment of any Loan or any participations therein
or the consummation of the transactions contemplated by this Agreement or any
other Loan Document.
 
(e)  The receipt by the Administrative Agent of the Borrowing Request in
accordance with Section 2.03.
 
ARTICLE VII
Representations and Warranties
 
The Borrower hereby represents and warrants to the Lenders that:
 
Section 7.01  Organization; Powers. Each Loan Party is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, has all requisite power and authority, and has all material
governmental licenses, authorizations, consents and approvals necessary, to own
its assets and to carry on its business as now conducted, and is qualified to do
business in, and is in good standing in, every jurisdiction where such
qualification is required, except where failure to have such power, authority,
licenses, authorizations, consents, approvals and qualifications could not
reasonably be expected to have a Material Adverse Effect.
 
35

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

 
Section 7.02  Authority; Enforceability. The Transactions are within each Loan
Party’s corporate powers and have been duly authorized by all necessary
corporate and, if required, stockholder action (including, without limitation,
any action required to be taken by any class of directors of such Loan Party or
any other Person, whether interested or disinterested, in order to ensure the
due authorization of the Transactions). Each Loan Document to which each Loan
Party is a party has been duly executed and delivered by such Loan Party and
constitutes a legal, valid and binding obligation of such Loan Party,
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditors’ rights
generally and subject to general principles of equity, regardless of whether
considered in a proceeding in equity or at law.
 
Section 7.03  Approvals; No Conflicts. The Transactions (a) do not require any
consent or approval of, registration or filing with, or any other action by, any
Governmental Authority or any other third Person (including shareholders or any
class of directors, whether interested or disinterested, of any Loan Party or
any other Person), nor is any such consent, approval, registration, filing or
other action necessary for the validity or enforceability of any Loan Document
or the consummation of the transactions contemplated thereby, except such as
have been obtained or made and are in full force and effect other than the
recording and filing of the Security Instruments as required by this Agreement,
(b) will not violate any applicable law or regulation or the Organizational
Documents of any Loan Party or any Subsidiary or any order of any Governmental
Authority, (c) will not violate or result in a default under any indenture,
agreement or other instrument binding upon any Loan Party or any Subsidiary or
its Properties, or give rise to a right thereunder to require any payment to be
made by such Loan Party or such Subsidiary and (d) will not result in the
creation or imposition of any Lien on any Property of any Loan Party or any
Subsidiary (other than the Liens created by the Loan Documents).
 
Section 7.04  Financial Condition; No Material Adverse Change.
 
(a)  The Loan Parties have heretofore furnished to the Lenders their
consolidated balance sheet and statements of income, stockholders’ equity and
cash flows (i) as of and for the fiscal year ended December 31, 2006, reported
on by independent public accountants, and (ii) as of and for the fiscal quarter
and the portion of the fiscal year ended March 31, 2007, certified by its chief
financial officer. Such financial statements present fairly, in all material
respects, the financial position and results of operations and cash flows of the
Borrower and its Consolidated Subsidiaries as of such dates and for such periods
in accordance with GAAP, subject to year-end audit adjustments and the absence
of footnotes in the case of the unaudited quarterly financial statements.
 
(b)  (i) Since December 31, 2006, there has been no event, development or
circumstance that has had or could reasonably be expected to have a Material
Adverse Effect and (ii) the business of the Borrower and its Subsidiaries has
been conducted only in the ordinary course consistent with past business
practices.
 
36

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

 
(c)  Neither the Borrower nor any Subsidiary has on the date hereof any material
Debt (including Disqualified Capital Stock) or any contingent liabilities,
off-balance sheet liabilities or partnerships, liabilities for taxes, unusual
forward or long-term commitments or unrealized or anticipated losses from any
unfavorable commitments, except as referred to or reflected or provided for in
the Financial Statements.
 
Section 7.05  Litigation.
 
(a)  Except as set forth on Schedule 7.05, there are no actions, suits,
investigations or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of the Loan Parties, threatened
against or affecting the Loan Parties or any Subsidiary (i) not fully covered by
insurance (except for normal deductibles) as to which there is a reasonable
possibility of an adverse determination that, if adversely determined, could
reasonably be expected, individually or in the aggregate, to result in a
Material Adverse Effect, or (ii) that involve any Loan Document or the
Transactions.
 
(b)  Since the date of this Agreement, there has been no change in the status of
the matters disclosed in Schedule 7.05 that, individually or in the aggregate,
has resulted in, or materially increased the likelihood of, a Material Adverse
Effect.
 
Section 7.06  Environmental Matters. Except for such matters as set forth on
Schedule 7.06 or that, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect on the Borrower:
 
(a)  the Borrower and its Subsidiaries and each of their respective Properties
and operations thereon are, and within all applicable statute of limitation
periods have been, in compliance with all applicable Environmental Laws;
 
(b)  the Borrower and its Subsidiaries have obtained all Environmental Permits
required for their respective operations and each of their Properties, with all
such Environmental Permits being currently in full force and effect, and none of
Borrower or its Subsidiaries has received any written notice or otherwise has
knowledge that any such existing Environmental Permit will be revoked or that
any application for any new Environmental Permit or renewal of any existing
Environmental Permit will be protested or denied;
 
(c)  there are no claims, demands, suits, orders, inquiries, or proceedings
concerning any violation of, or any liability (including as a potentially
responsible party) under, any applicable Environmental Laws that is pending or
threatened against the Borrower or its Subsidiaries or any of their respective
Properties or as a result of any operations at the Properties;
 
(d)  none of the Properties contain or have contained any: (i) underground
storage tanks; (ii) asbestos-containing materials; or (iii) landfills or dumps;
(iv) hazardous waste management units as defined pursuant to RCRA or any
comparable state law; or (v) sites on or nominated for the National Priority
List promulgated pursuant to CERCLA or any state remedial priority list
promulgated or published pursuant to any comparable state law;
 
(e)  there has been no Release or threatened Release, of Hazardous Materials at,
on, under or from any of Borrower’s or its Subsidiaries’ Properties, there are
no investigations, remediations, abatements, removals, or monitorings of
Hazardous Materials required under applicable Environmental Laws at such
Properties and none of such Properties are adversely affected by any Release or
threatened Release of a Hazardous Material originating or emanating from any
other real property,
 
37

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

 
(f)  neither the Borrower nor its Subsidiaries has received any written notice
asserting an alleged liability or obligation under any applicable Environmental
Laws with respect to the investigation, remediation, abatement, removal, or
monitoring of any Hazardous Materials at, under, or Released or threatened to be
Released from any real properties offsite the Borrower’s or its Subsidiaries’
Properties and there are no conditions or circumstances that would reasonably be
expected to result in the receipt of such written notice.
 
(g)  there has been no exposure of any Person or property to any Hazardous
Materials as a result of or in connection with the operations and businesses of
any of the Borrower’s or its Subsidiaries’ Properties that would reasonably be
expected to form the basis for a claim for damages or compensation and there are
no conditions or circumstances that would reasonably be expected to result in
the receipt of notice regarding such exposure; and
 
(h)  the Borrower and its Subsidiaries have provided to Lenders complete and
correct copies of all environmental site assessment reports, investigations,
studies, analyses, and correspondence on environmental matters (including
matters relating to any alleged non-compliance with or liability under
Environmental Laws) that are in any of the Borrower’s or its Subsidiaries’
possession or control and relating to their respective Properties or operations
thereon.
 
Section 7.07  Compliance with the Laws and Agreements; No Defaults.
 
(a)  Each Loan Party is in compliance with all Governmental Requirements
applicable to it or its Property and all agreements and other instruments
binding upon it or its Property, and possesses all licenses, permits,
franchises, exemptions, approvals and other governmental authorizations
necessary for the ownership of its Property and the conduct of its business,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
 
(b)  No Loan Party is in default nor has any event or circumstance occurred
which, but for the expiration of any applicable grace period or the giving of
notice, or both, would constitute a default or would require a Loan Party to
Redeem or make any offer to Redeem all or any portion of any Debt outstanding
under any indenture, note, credit agreement or instrument pursuant to which any
Material Indebtedness is outstanding or by which a Loan Party or any of their
Properties is bound.
 
(c)  No Default has occurred and is continuing.
 
Section 7.08  Investment Company Act. No Loan Party is an “investment company”
or a company “controlled” by an “investment company,” within the meaning of, or
subject to regulation under, the Investment Company Act of 1940, as amended.
 
38

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

 
Section 7.09  Taxes. Each Loan Party has timely filed or caused to be filed all
Tax returns and reports required to have been filed and has paid or caused to be
paid all Taxes required to have been paid by it, except (a) Taxes that are being
contested in good faith by appropriate proceedings and for which each Loan
Party, as applicable, has set aside on its books adequate reserves in accordance
with GAAP or (b) to the extent that the failure to do so could not reasonably be
expected to result in a Material Adverse Effect. The charges, accruals and
reserves on the books of the Loan Parties in respect of Taxes and other
governmental charges are, in the reasonable opinion of the Borrower, adequate.
No Tax Lien has been filed and, to the knowledge of the Loan Parties, no claim
is being asserted with respect to any such Tax or other such governmental
charge.
 
Section 7.10  ERISA.
 
(a)  The Loan Parties and each ERISA Affiliate have complied in all material
respects with ERISA and, where applicable, the Code regarding each Plan.
 
(b)  Each Plan is, and has been, maintained in substantial compliance with ERISA
and, where applicable, the Code.
 
(c)  No act, omission or transaction has occurred which could result in
imposition on any Loan Party or any ERISA Affiliate (whether directly or
indirectly) of (i) either a civil penalty assessed pursuant to subsections (c),
(i) or (l) of section 502 of ERISA or a tax imposed pursuant to Chapter 43 of
Subtitle D of the Code or (ii) breach of fiduciary duty liability damages under
section 409 of ERISA.
 
(d)  No Plan (other than a defined contribution plan) or any trust created under
any such Plan has been terminated since September 2, 1974. No liability to the
PBGC (other than for the payment of current premiums which are not past due) by
any Loan Party or any ERISA Affiliate has been or is expected by any Loan Party
or any ERISA Affiliate to be incurred with respect to any Plan. No ERISA Event
with respect to any Plan has occurred.
 
(e)  Full payment when due has been made of all amounts which any Loan Party or
any ERISA Affiliate is required under the terms of each Plan or applicable law
to have paid as contributions to such Plan as of the date hereof, and no
accumulated funding deficiency (as defined in section 302 of ERISA and section
412 of the Code), whether or not waived, exists with respect to any Plan.
 
(f)  The actuarial present value of the benefit liabilities under each Plan
which is subject to Title IV of ERISA does not, as of the end of the most
recently ended fiscal year of each Loan Party, exceed the current value of the
assets (computed on a plan termination basis in accordance with Title IV of
ERISA) of such Plan allocable to such benefit liabilities. The term “actuarial
present value of the benefit liabilities” shall have the meaning specified in
section 4041 of ERISA.
 
(g)  Neither any Loan Party nor any ERISA Affiliate sponsors, maintains, or
contributes to an employee welfare benefit plan, as defined in section 3(1) of
ERISA, including, without limitation, any such plan maintained to provide
benefits to former employees of such entities, that may not be terminated by the
Borrower, a Subsidiary or any ERISA Affiliate in its sole discretion at any time
without any material liability.
 
39

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

 
(h)  Neither any Loan Party nor any ERISA Affiliate sponsors, maintains or
contributes to, or has at any time in the six-year period preceding the date
hereof sponsored, maintained or contributed to, any Multiemployer Plan.
 
(i)  Neither any Loan Party nor any ERISA Affiliate is required to provide
security under section 401(a)(29) of the Code due to a Plan amendment that
results in an increase in current liability for the Plan.
 
Section 7.11  Disclosure; No Material Misstatements. The Loan Parties have
disclosed to the Administrative Agent and the Lenders all agreements,
instruments and corporate or other restrictions to which they or any of their
Subsidiaries are subject, and all other matters known to them, that,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect. None of the other reports, financial statements,
certificates or other information furnished by or on behalf of the Loan Parties
to the Administrative Agent or any Lender or any of their Affiliates in
connection with the negotiation of this Agreement or any other Loan Document or
delivered hereunder or under any other Loan Document (as modified or
supplemented by other information so furnished) contains any material
misstatement of fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided that, with respect to projected financial
information, the Borrower represents only that such information was prepared in
good faith based upon assumptions believed to be reasonable at the time. There
is no fact peculiar to the Loan Parties which could reasonably be expected to
have a Material Adverse Effect or in the future is reasonably likely to have a
Material Adverse Effect and which has not been set forth in this Agreement or
the Loan Documents or the other documents, certificates and statements furnished
to the Administrative Agent or the Lenders by or on behalf of the Loan Parties
prior to, or on, the date hereof in connection with the transactions
contemplated hereby. There are no statements or conclusions in any Reserve
Report which are based upon or include misleading information or fail to take
into account material information regarding the matters reported therein.
 
Section 7.12  Insurance. The Loan Parties have, (a) all insurance policies
sufficient for the compliance by each of them with all material Governmental
Requirements and all material agreements and (b) insurance coverage in at least
amounts and against such risk (including, without limitation, public liability)
that are usually insured against by companies similarly situated and engaged in
the same or a similar business for the assets and operations of the Loan
Parties. The Administrative Agent and the Lenders have been named as additional
insureds in respect of such liability insurance policies and the Administrative
Agent has been named as loss payee with respect to Property loss insurance.
 
Section 7.13  Restriction on Liens. No Loan Party is a party to any material
agreement or arrangement (other than Capital Leases creating Liens permitted by
Section 9.03(c), but then only on the Property subject of such Capital Lease),
or subject to any order, judgment, writ or decree, which either restricts or
purports to restrict its ability to grant Liens to the Administrative Agent and
the Lenders on or in respect of their Properties to secure the Indebtedness and
the Loan Documents.
 
40

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

 
Section 7.14  Subsidiaries. Except as set forth on Schedule 7.14 or as disclosed
in writing to the Administrative Agent (which shall promptly furnish a copy to
the Lenders), which shall be a supplement to Schedule 7.14, the Borrower has no
Subsidiaries and the Borrower has no Foreign Subsidiaries. Each Subsidiary on
such schedule is a Wholly-Owned Subsidiary, unless otherwise noted therein.
 
Section 7.15  Location of Business and Offices. The Borrower’s jurisdiction of
organization is Utah; the name of the Borrower as listed in the public records
of its jurisdiction of organization is Aurora Oil & Gas Corporation; and the
organizational identification number of the Borrower in its jurisdiction of
organization is 608892-0142 (or, in each case, as set forth in a notice
delivered to the Administrative Agent pursuant to Section 8.01(n) in accordance
with Section 12.01). The Borrower’s principal place of business and chief
executive offices are located at the address specified in Section 12.01 (or as
set forth in a notice delivered pursuant to Section 8.01(n) and Section
12.01(c)). Each Subsidiary’s jurisdiction of organization, name as listed in the
public records of its jurisdiction of organization, organizational
identification number in its jurisdiction of organization, and the location of
its principal place of business and chief executive office are stated on
Schedule 7.14 (or as set forth in a notice delivered pursuant to Section
8.01(n)).
 
Section 7.16  Properties; Titles, Etc.
 
(a)  Each of the Loan Parties has good and defensible title to the Oil and Gas
Properties evaluated in the most recently delivered Reserve Report and good
title to all its personal Properties, in each case, free and clear of all Liens
except Liens permitted by Section 9.03. After giving full effect to the Excepted
Liens, the Loan Parties specified as the owner owns the net interests in
production attributable to the Hydrocarbon Interests as reflected in the most
recently delivered Reserve Report, and the ownership of such Properties shall
not in any material respect obligate such Loan Party to bear the costs and
expenses relating to the maintenance, development and operations of each such
Property in an amount in excess of the working interest of each Property set
forth in the most recently delivered Reserve Report that is not offset by a
corresponding proportionate increase in the such Loan Party’s net revenue
interest in such Property.
 
(b)  All material leases and agreements necessary for the conduct of the
business of the Loan Parties are valid and subsisting, in full force and effect,
and there exists no default or event or circumstance which with the giving of
notice or the passage of time or both would give rise to a default under any
such lease or leases, which could reasonably be expected to have a Material
Adverse Effect.
 
(c)  The rights and Properties presently owned, leased or licensed by the Loan
Parties, including, without limitation, all easements and rights of way, include
all rights and Properties necessary to permit the Loan Parties to conduct their
business in all material respects in the same manner as its business has been
conducted prior to the date hereof.
 
41

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

 
 
(d)  All of the Properties of the Loan Parties which are reasonably necessary
for the operation of their businesses are in good working condition and are
maintained in accordance with prudent business standards.
 
(e)  Each Loan Party owns, or is licensed to use, all trademarks, tradenames,
copyrights, patents and other intellectual Property material to its business,
and the use thereof by such Loan Party does not infringe upon the rights of any
other Person, except for any such infringements that, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect. The Loan Parties either own or have valid licenses or other rights to
use all databases, geological data, geophysical data, engineering data, seismic
data, maps, interpretations and other technical information used in their
businesses as presently conducted, subject to the limitations contained in the
agreements governing the use of the same, which limitations are customary for
companies engaged in the business of the exploration and production of
Hydrocarbons, with such exceptions as could not reasonably be expected to have a
Material Adverse Effect.
 
Section 7.17  Maintenance of Properties. Except for such acts or failures to act
as could not be reasonably expected to have a Material Adverse Effect, the Oil
and Gas Properties (and Properties unitized therewith) of the Loan Parties have
been maintained, operated and developed in a good and workmanlike manner and in
conformity with all Governmental Requirements and in 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 the
Oil and Gas Properties of the Borrower and its Subsidiaries. Specifically in
connection with the foregoing, except for those as could not be reasonably
expected to have a Material Adverse Effect, (i) no Oil and Gas Property of any
Loan Party is subject to having allowable production reduced below the full and
regular allowable (including the maximum permissible tolerance) because of any
overproduction (whether or not the same was permissible at the time) and (ii)
none of the wells comprising a part of the Oil and Gas Properties (or Properties
unitized therewith) of the Loan Parties is deviated from the vertical more than
the maximum permitted by Governmental Requirements, and such wells are, in fact,
bottomed under and are producing from, and the well bores are wholly within, the
Oil and Gas Properties (or in the case of wells located on Properties unitized
therewith, such unitized Properties) of such Loan Party. All pipelines, wells,
gas processing plants, platforms and other material improvements, fixtures and
equipment owned in whole or in part by any Loan Party that are necessary to
conduct normal operations are being maintained in a state adequate to conduct
normal operations, and with respect to such of the foregoing which are operated
by the Loan Parties, in a manner consistent with the Loan Parties’ past
practices (other than those the failure of which to maintain in accordance with
this Section 7.17 could not reasonably be expected to have a Material Adverse
Effect).
 
Section 7.18  Gas Imbalances, Prepayments. Except as set forth on Schedule 7.18
or on the most recent certificate delivered pursuant to Section 8.12(b), on a
net basis there are no gas imbalances, take or pay or other prepayments which
would require any Loan Party to deliver Hydrocarbons produced from the Oil and
Gas Properties at some future time without then or thereafter receiving full
payment therefor exceeding 50,000 of gas (on an mcf equivalent basis) in the
aggregate.
 
42

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

 
Section 7.19  Marketing of Production. Except for contracts listed and in effect
on the date hereof on Schedule 7.19, and thereafter either disclosed in writing
to the Administrative Agent or included in the most recently delivered Reserve
Report (with respect to all of which contracts the Borrower represents that it
or its 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), no material agreements exist which are not
cancelable on 60 days notice or less without penalty or detriment for the sale
of production from the Loan Parties’ Hydrocarbons (including, without
limitation, calls on or other rights to purchase, production, whether or not the
same are currently being exercised) that (a) pertain to the sale of production
at a fixed price and (b) have a maturity or expiry date of longer than six (6)
months from the date hereof.
 
Section 7.20  Swap Agreements. Schedule 7.20, as of the date hereof, and after
the date hereof, each report required to be delivered by the Borrower pursuant
to Section 8.01(e), sets forth a true and complete list of all Swap Agreements
of the Borrower and each Subsidiary, the material terms thereof (including the
type, term, effective date, termination date and notional amounts or volumes),
the net mark to market value thereof, all credit support agreements relating
thereto (including any margin required or supplied) and the counterparty to each
such agreement.
 
Section 7.21  Use of Loans. The proceeds of the Loans shall be used to refinance
the Existing Second Lien Agreement and for general corporate purposes. The Loan
Parties are not engaged principally, or as one of its or their important
activities, in the business of extending credit for the purpose, whether
immediate, incidental or ultimate, of buying or carrying margin stock (within
the meaning of Regulation T, U or X of the Board). No part of the proceeds of
any Loan will be used for any purpose which violates the provisions of
Regulations T, U or X of the Board.
 
Section 7.22  Solvency. After giving effect to the transactions contemplated
hereby, (a) the aggregate assets (after giving effect to amounts that could
reasonably be received by reason of indemnity, offset, insurance or any similar
arrangement), at a fair valuation, of the Loan Parties, taken as a whole, will
exceed the aggregate Debt of the Loan Parties on a consolidated basis, as the
Debt becomes absolute and matures, (b) each of the Loan Parties will not have
incurred or intended to incur, and will not believe that it will incur, Debt
beyond its ability to pay such Debt (after taking into account the timing and
amounts of cash to be received by each of the Loan Parties and the amounts to be
payable on or in respect of its liabilities, and giving effect to amounts that
could reasonably be received by reason of indemnity, offset, insurance or any
similar arrangement) as such Debt becomes absolute and matures and (c) each of
the Loan Parties will not have (and will have no reason to believe that it will
have thereafter) unreasonably small capital for the conduct of its business.
 
ARTICLE VIII
Affirmative Covenants
 
Until the principal of and interest on each Loan and all fees payable hereunder
and all other amounts payable under the Loan Documents shall have been paid in
full, the Borrower covenants and agrees with the Lenders that:
 
Section 8.01  Financial Statements; Other Information. The Borrower will furnish
to the Administrative Agent and each Lender:
 
(a)  Annual Financial Statements. As soon as available, but in any event in
accordance with then applicable law and not later than 90 days after the end of
each fiscal year of the Loan Parties, their audited consolidated balance sheet
and related statements of operations, stockholders’ equity and cash flows as of
the end of and for such year, setting forth in each case in comparative form the
figures for the previous fiscal year, all reported on by independent public
accountants of recognized national standing (without a “going concern” or like
qualification or exception and without any qualification or exception as to the
scope of such audit) to the effect that such consolidated financial statements
present fairly in all material respects the financial condition and results of
operations of the Loan Parties on a consolidated basis in accordance with GAAP
consistently applied.
 
43

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

 
(b)  Quarterly Financial Statements. As soon as available, but in any event in
accordance with then applicable law and not later than 45 days after the end of
each of the first three fiscal quarters of each fiscal year of the Loan Parties,
their consolidated balance sheet and related statements of operations,
consolidating financial statements for each of the Loan Parties, stockholders’
equity and cash flows as of the end of and for such fiscal quarter and the then
elapsed portion of the fiscal year, setting forth in each case in comparative
form the figures for the corresponding period or periods of (or, in the case of
the balance sheet, as of the end of) the previous fiscal year, all certified by
one of its Financial Officers as presenting fairly in all material respects the
financial condition and results of operations of the Loan Parties on a
consolidated basis in accordance with GAAP consistently applied, subject to
normal year-end audit adjustments and the absence of footnotes.
 
(c)  Certificate of Financial Officer — Compliance. Concurrently with any
delivery of financial statements under Section 8.01(a) or Section 8.01(b), a
certificate of a Financial Officer in substantially the form of Exhibit D hereto
(i) certifying as to whether a Default has occurred and, if a Default has
occurred, specifying the details thereof and any action taken or proposed to be
taken with respect thereto, (ii) setting forth reasonably detailed calculations
demonstrating compliance with Section 8.13(b) and Section 9.01 and (iii) stating
whether any change in GAAP or in the application thereof has occurred since the
date of the audited financial statements referred to in Section 7.04 and, if any
such change has occurred, specifying the effect of such change on the financial
statements accompanying such certificate.
 
(d)  [Reserved]
 
(e)  Certificate of Financial Officer - Swap Agreements. Concurrently with any
delivery of financial statements under Section 8.01(a) and Section 8.01(b) a
certificate of a Financial Officer, in form and substance satisfactory to the
Administrative Agent, setting forth as of the last Business Day of such fiscal
quarter or fiscal year, a true and complete list of all Swap Agreements of the
Borrower and each Subsidiary, the material terms thereof (including the type,
term, effective date, termination date and notional amounts or volumes), the net
mark-to-market value therefor, any new credit support agreements relating
thereto not listed on Schedule 7.19, any margin required or supplied under any
credit support document, and the counterparty to each such agreement.
 
44

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

 
(f)  Certificate of Insurer -- Insurance Coverage. Concurrently with any
delivery of financial statements under Section 8.01(a), a certificate of
insurance coverage from each insurer with respect to the insurance required by
Section 8.07, in form and substance satisfactory to the Administrative Agent,
and, if requested by the Administrative Agent or any Lender, all copies of the
applicable policies.
 
(g)  Other Accounting Reports. Promptly upon receipt thereof, a copy of each
other report or letter submitted to any Loan Party by independent accountants in
connection with any annual, interim or special audit made by them of the books
of such Loan Party, and a copy of any response by such Loan Party, or the Board
of Directors of such Loan Party, to such letter or report.
 
(h)  SEC and Other Filings; Reports to Shareholders. Promptly after the same
become publicly available, copies of all periodic and other reports, proxy
statements and other materials filed by any Loan Party with the SEC, or with any
national securities exchange, or distributed by the Borrower to its shareholders
generally, as the case may be.
 
(i)  Notices Under Material Instruments. Promptly after the furnishing thereof,
copies of any financial statement, report or notice furnished to or by any
Person pursuant to the terms of any preferred stock designation, indenture, loan
or credit or other similar agreement, other than this Agreement and not
otherwise required to be furnished to the Lenders pursuant to any other
provision of this Section 8.01.
 
(j)  Lists of Purchasers. Concurrently with the delivery of any Reserve Report
to the Administrative Agent pursuant to Section 8.12, a list of all Persons
purchasing Hydrocarbons from any Loan Party.
 
(k)  Notice of Sales of Oil and Gas Properties. In the event any Loan Party
intends to sell, transfer, assign or otherwise dispose of any Oil or Gas
Properties or any Equity Interests in any Subsidiary in accordance with Section
9.12, prior written notice of such disposition, the price thereof and the
anticipated date of closing and any other details thereof requested by the
Administrative Agent or any Lender.
 
(l)  Notice of Casualty Events. Prompt written notice, and in any event within
three Business Days, of the occurrence of any Casualty Event or the commencement
of any action or proceeding that could reasonably be expected to result in a
Casualty Event.
 
(m)  Issuance of Permitted Refinancing Debt. In the event the Borrower intends
to refinance any Debt with the proceeds of Permitted Refinancing Debt as
contemplated by Section 9.02(i), prior written notice of such intended offering
therefor, the amount thereof and the anticipated date of closing and will
furnish a copy of the preliminary offering memorandum (if any) and the final
offering memorandum (if any).
 
(n)  Information Regarding Borrower and Guarantors. Prompt written notice (and
in any event within thirty (30) days prior thereto) of any change (i) any Loan
Party’s corporate name or in any trade name used to identify such Person in the
conduct of its business or in the ownership of its Properties, (ii) in the
location of any Loan Party’s chief executive office or principal place of
business, (iii) in any Loan Party’s identity or corporate structure or in the
jurisdiction in which such Person is incorporated or formed, (iv) in any Loan
Party’s jurisdiction of organization or such Person’s organizational
identification number in such jurisdiction of organization, and (v) in any Loan
Party’s federal taxpayer identification number.
 
45

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

 
(o)  Production Report and Lease Operating Statements. Within 60 days after the
end of each fiscal quarter, a report setting forth, for each calendar month
during the then current fiscal year to date, the volume of production and sales
attributable to production (and the prices at which such sales were made and the
revenues derived from such sales) for each such calendar month from the Oil and
Gas Properties, and setting forth the related ad valorem, severance and
production taxes and lease operating expenses attributable thereto and incurred
for each such calendar month.
 
(p)  Notices of Certain Changes. Promptly, but in any event within five (5)
Business Days after the execution thereof, copies of any amendment, modification
or supplement to any preferred stock designation or any Organizational Document
of any Loan Party.
 
(q)  Certificate of Responsible Officer -- Total Debt. At the times specified in
Section 2.06 and promptly following any change to Total Reserve Value pursuant
to Section 8.13(c), Section 9.11 or Section 9.12, the Borrower will deliver a
certificate of a Responsible Officer of the Borrower setting forth the Total
Reserve Value both prior to and after giving effect to such event.
 
(r)  Other Requested Information. Promptly following any request therefor, such
other information regarding the operations, business affairs and financial
condition of any Loan Party (including, without limitation, any Plan or
Multiemployer Plan and any reports or other information required to be filed
under ERISA), or compliance with the terms of this Agreement or any other Loan
Document, as the Administrative Agent or any Lender may reasonably request.
 
Section 8.02  Notices of Material Events. The Borrower will furnish to the
Administrative Agent and each Lender prompt written notice of the following:
 
(a)  the occurrence of any Default;
 
(b)  the filing or commencement of, or the threat in writing of, any action,
suit, proceeding, investigation or arbitration by or before any arbitrator or
Governmental Authority against or affecting any Loan Party thereof not
previously disclosed in writing to the Lenders or any material adverse
development in any action, suit, proceeding, investigation or arbitration
(whether or not previously disclosed to the Lenders) that, in either case, if
adversely determined, could reasonably be expected to result in liability in
excess of $250,000, not fully covered by insurance, subject to normal
deductibles;
 
(c)  the occurrence of any ERISA Event that, alone or together with any other
ERISA Events that have occurred, could reasonably be expected to result in
liability of the Loan Parties in an aggregate amount exceeding $500,000; and
 
(d)  any other development that results in, or could reasonably be expected to
result in, a Material Adverse Effect.
 
46

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

 
Each notice delivered under this Section 8.02 shall be accompanied by a
statement of a Responsible Officer setting forth the details of the event or
development requiring such notice and any action taken or proposed to be taken
with respect thereto.
 
Section 8.03  Existence; Conduct of Business. The Borrower will, and will cause
each Subsidiary to, do or cause to be done all things necessary to preserve,
renew and keep in full force and effect its legal existence and the rights,
licenses, permits, privileges and franchises material to the conduct of its
business and maintain, if necessary, its qualification to do business in each
other jurisdiction in which its Oil and Gas Properties is located or the
ownership of its Properties requires such qualification, except where the
failure to so qualify could not reasonably be expected to have a Material
Adverse Effect; provided that the foregoing shall not prohibit any merger,
consolidation, liquidation or dissolution permitted under Section 9.11.
 
Section 8.04  Payment of Obligations. The Borrower will, and will cause each
Subsidiary to, pay its obligations, including Tax liabilities of the Loan
Parties before the same shall become delinquent or in default, except where (a)
the validity or amount thereof is being contested in good faith by appropriate
proceedings, (b) the Loan Parties have set aside on its books adequate reserves
with respect thereto in accordance with GAAP and (c) the failure to make payment
pending such contest could not reasonably be expected to result in a Material
Adverse Effect or result in the seizure or levy of any Property of any Loan
Party.
 
Section 8.05  Performance of Obligations under Loan Documents. The Borrower will
pay the Notes according to the reading, tenor and effect thereof, and the
Borrower will, and will cause each Subsidiary to, do and perform every act and
discharge all of the obligations to be performed and discharged by them under
the Loan Documents, including, without limitation, this Agreement, at the time
or times and in the manner specified.
 
Section 8.06  Operation and Maintenance of Properties. The Borrower, at its own
expense, will, and will cause each Subsidiary to:
 
(a)  operate their Oil and Gas Properties and other material Properties or cause
such Oil and Gas Properties and other material Properties to be operated in a
careful and efficient manner in accordance with the practices of the industry
and in compliance with all applicable contracts and agreements and in compliance
with all Governmental Requirements, including, without limitation, applicable
pro ration 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 its 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
reasonably be expected to have a Material Adverse Effect.
 
(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 its material Oil and Gas Properties and other material
Properties, including, without limitation, all equipment, machinery and
facilities.
 
47

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

 
(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.
 
(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 its interests in their Oil and Gas Properties and other
material Properties.
 
(e)  operate their Oil and Gas Properties and other material Properties or cause
or make reasonable and customary efforts to cause such Oil and Gas Properties
and other material Properties to be operated in accordance with the practices of
the industry and in material compliance with all applicable contracts and
agreements and in compliance in all material respects with all Governmental
Requirements.
 
(f)  to the extent the Borrower or one of its Subsidiaries is not the operator
of any Property, the Borrower or such Subsidiary shall use reasonable efforts to
cause the operator to comply with this Section 8.06.
 
Section 8.07  Insurance. The Borrower will, and will cause each Subsidiary to,
maintain, with financially sound and reputable insurance companies, insurance in
such amounts and against such risks as are customarily maintained by companies
engaged in the same or similar businesses operating in the same or similar
locations. The loss payable clauses or provisions in said insurance policy or
policies insuring any of the collateral for the Loans shall be endorsed in favor
of and made payable to the Administrative Agent as its interests may appear and
such policies shall name the Administrative Agent and the Lenders as “additional
insureds” and provide that the insurer will endeavor to give at least 30 days
prior notice of any cancellation to the Administrative Agent.
 
Section 8.08  Books and Records; Inspection Rights. The Borrower will, and will
cause each Subsidiary to, keep proper books of record and account in which full,
true and correct entries are made of all dealings and transactions in relation
to its business and activities. The Borrower will, and will cause each
Subsidiary to, permit any representatives designated by the Administrative Agent
or any Lender, upon reasonable prior notice, to visit and inspect its
Properties, to examine and make extracts from its books and records, and to
discuss its affairs, finances and condition with its officers and independent
accountants, all at such reasonable times and as often as reasonably requested.
 
Section 8.09  Compliance with Laws. The Borrower will, and will cause each
Subsidiary to, comply with all laws, rules, regulations and orders of any
Governmental Authority applicable to them or their Property, except where the
failure to do so, individually or in the aggregate, could not reasonably be
expected to result in a Material Adverse Effect.
 
Section 8.10  Environmental Matters.
 
(a)  The Borrower shall at its sole expense: (i) comply, and shall cause its
Properties and operations and each Subsidiary and each Subsidiary’s Properties
and operations to comply, with all applicable Environmental Laws, the breach of
which could be reasonably expected to have a Material Adverse Effect; (ii) not
dispose of or otherwise release, and shall cause each Subsidiary not to dispose
of or otherwise release, any oil, oil and gas waste, hazardous substance, or
solid waste on, under, about or from any of the Borrower’s or its Subsidiaries’
Properties or any other Property to the extent caused by the Borrower’s or any
of its Subsidiaries’ operations except in compliance with applicable
Environmental Laws, the disposal or release of which could reasonably be
expected to have a Material Adverse Effect; (iii) timely obtain or file, and
shall cause each Subsidiary to timely obtain or file, all notices, permits,
licenses, exemptions, approvals, registrations or other authorizations, if any,
required under applicable Environmental Laws to be obtained or filed in
connection with the operation or use of the Borrower’s or its Subsidiaries’
Properties, which failure to obtain or file could reasonably be expected to have
a Material Adverse Effect; (iv) promptly commence and diligently prosecute to
completion, and shall cause each Subsidiary to promptly commence and diligently
prosecute to completion, any assessment, evaluation, investigation, monitoring,
containment, cleanup, removal, repair, restoration, remediation or other
remedial obligations (collectively, the “Remedial Work”) in the event any
Remedial Work is required or reasonably necessary under applicable Environmental
Laws because of or in connection with the actual or suspected past, present or
future disposal or other release of any oil, oil and gas waste, hazardous
substance or solid waste on, under, about or from any of the Borrower’s or its
Subsidiaries’ Properties, which failure to commence and diligently prosecute to
completion could reasonably be expected to have a Material Adverse Effect; and
(v) establish and implement, and shall cause each Subsidiary to establish and
implement, such policies of environmental audit and compliance as may be
necessary to continuously determine and assure that the Borrower’s and its
Subsidiaries’ obligations under this Section 8.10(a) are timely and fully
satisfied, which failure to establish and implement could reasonably be expected
to have a Material Adverse Effect.
 
48

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

 
(b)  The Borrower will promptly, but in no event later than five days of the
occurrence of a triggering event, notify the Administrative Agent and the
Lenders in writing of any threatened action, investigation or inquiry by any
Governmental Authority or any threatened demand or lawsuit by any landowner or
other third party against the Borrower or its Subsidiaries or their Properties
of which the Borrower has knowledge in connection with any Environmental Laws
(excluding routine testing and corrective action) if the Borrower reasonably
anticipates that such action will result in liability (whether individually or
in the aggregate) in excess of $500,000, not fully covered by insurance, subject
to normal deductibles.
 
(c)  The Borrower will, and will cause each Subsidiary to, provide environmental
audits and tests in accordance with American Society of Testing Materials
standards upon request by the Administrative Agent and the Lenders and no more
than once per year in the absence of any Event of Default (or as otherwise
required to be obtained by the Administrative Agent or the Lenders by any
Governmental Authority), in connection with any future acquisitions of Oil and
Gas Properties or other Properties.
 
Section 8.11  Further Assurances.
 
(a)  The Borrower at its sole expense will, and will cause each Subsidiary to,
promptly execute and deliver to the Administrative Agent all such other
documents, agreements and instruments reasonably requested by the Administrative
Agent to comply with, cure any defects or accomplish the conditions precedent,
covenants and agreements of any Loan Party, as the case may be, in the Loan
Documents, including the Notes, or to further evidence and more fully describe
the collateral intended as security for the Indebtedness, or to correct any
omissions in this Agreement or the Security Instruments, or to state more fully
the obligations secured therein, or to perfect, protect or preserve any Liens
created pursuant to this Agreement or any of the Security Instruments or the
priority thereof, or to make any recordings, file any notices or obtain any
consents, all as may be reasonably necessary or appropriate, in the sole
discretion of the Administrative Agent, in connection therewith.
 
49

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

 
(b)  The Borrower hereby authorizes the Administrative Agent to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Mortgaged Property without the signature of the Borrower or any
other Guarantor where permitted by law. A carbon, photographic or other
reproduction of the Security Instruments or any financing statement covering the
Mortgaged Property or any part thereof shall be sufficient as a financing
statement where permitted by law.
 
Section 8.12  Reserve Reports.
 
(a)  On or before March 1st and September 1st of each year, commencing September
1, 2007, the Borrower shall furnish to the Administrative Agent and the Lenders
a Reserve Report evaluating the Oil and Gas Properties of the Borrower and its
Subsidiaries as of the immediately preceding January 1st and July 1st. The
Reserve Report as of January 1 of each year shall be prepared by one or more
Approved Petroleum Engineers, and the July 1 Reserve Report of each year shall
be prepared by or under the supervision of the chief engineer of the Borrower
who shall certify such Reserve Report to be true and accurate and to have been
prepared in accordance with the procedures used in the immediately preceding
January 1 Reserve Report.
 
(b)  In the event any party elects a redetermination of the Total Reserve Value
as of a specified date other than January 1 and July 1 pursuant to Section 2.06,
the Borrower shall furnish to the Administrative Agent and the Lenders a Reserve
Report prepared by or under the supervision of the chief engineer of the
Borrower who shall certify such Reserve Report to be true and accurate and to
have been prepared in accordance with the procedures used in the immediately
preceding January 1 Reserve Report.
 
(c)  With the delivery of each Reserve Report, the Borrower shall provide to the
Administrative 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) the Borrower or its Subsidiaries owns good and defensible
title to the Oil and Gas Properties evaluated in such Reserve Report and such
Properties are free of all Liens except for Liens permitted by Section 9.03,
(iii) except as set forth on an exhibit to the certificate, on a net basis there
are no gas imbalances, take or pay or other prepayments in excess of the volume
specified in Section 7.18 with respect to its Oil and Gas Properties evaluated
in such Reserve Report which would require the Borrower or any Subsidiary 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 Oil and Gas Properties have been sold since the
date of the last Total Reserve Value determination except as set forth on an
exhibit to the certificate, which certificate shall list all of its Oil and Gas
Properties sold and in such detail as reasonably required by the Administrative
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 which the Borrower could reasonably be expected to have
been obligated to list on Schedule 7.19 had such agreement been in effect on the
date hereof and (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 the value of such
Mortgaged Properties represent in compliance with Section 8.14(a).
 
50

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

 
Section 8.13  Title Information.
 
(a)  On or before the delivery to the Administrative Agent and the Lenders of
each Reserve Report required by Section 8.12(a), the Borrower will deliver title
information in form and substance acceptable to the Administrative 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 the
Administrative Agent shall have received together with title information
previously delivered to the Administrative Agent, satisfactory title information
on at least 80% of the total value of the Oil and Gas Properties evaluated by
such Reserve Report.
 
(b)  If the Borrower has provided title information for additional Properties
under Section 8.13(a), the Borrower shall, within 60 days of notice from the
Administrative 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 9.03 raised by such information, (ii) substitute acceptable Mortgaged
Properties with no title defects or exceptions except for Excepted Liens (other
than Excepted Liens described in clauses (e), (g) and (h) of such definition)
having an equivalent value or (iii) deliver title information in form and
substance acceptable to the Administrative Agent so that the Administrative
Agent shall have received, together with title information previously delivered
to the Administrative Agent, satisfactory title information on at least 80% of
the value of the Oil and Gas Properties evaluated by such Reserve Report.
 
(c)  If the Borrower is unable to cure any title defect requested by the
Administrative Agent or the Lenders to be cured within the 60-day period or the
Borrower does not comply with the requirements to provide acceptable title
information covering 80% of the value of the Oil and Gas Properties evaluated in
the most recent Reserve Report, such default shall not be a Default, but instead
the Administrative Agent and/or the Majority 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 the Administrative Agent or the Lenders. To the
extent that the Administrative Agent or the Majority Lenders are not satisfied
in good faith 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 the Administrative Agent may send a notice to the Borrower and
the Lenders that the then Total Reserve Value shall be reduced by an amount as
determined by the Required Lenders to cause the Borrower to be in compliance
with the requirement to provide acceptable title information on 80% of the value
of the Oil and Gas Properties. This new Total Reserve Value shall become
effective immediately after receipt of such notice.
 
51

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

 
Section 8.14  Additional Collateral; Additional Guarantors.
 
(a)  In connection with each redetermination of the Total Reserve Value, the
Borrower shall review the Reserve Report and the list of current Mortgaged
Properties (as described in Section 8.12(c)(vi)) to ascertain whether the
Mortgaged Properties represent at least 80% of the total value of the Oil and
Gas Properties evaluated in the most recently completed Reserve Report after
giving effect to exploration and production activities, acquisitions,
dispositions and production. In the event that the Mortgaged Properties do not
represent at least 80% of such total value, then the Borrower shall, and shall
cause its Subsidiaries to, grant, within thirty (30) days of delivery of the
certificate required under Section 8.12(b), to the Administrative Agent as
security for the Indebtedness a second-priority Lien interest (subject only to a
Lien under the Senior Revolving Credit Documents and provided that Excepted
Liens of the type described in clauses (a) to (d) and (f) of the definition
thereof may exist, but subject to the provisos at the end of such definition) on
additional Oil and Gas Properties not already subject to a Lien of the Security
Instruments such that after giving effect thereto, the Mortgaged Properties will
represent at least 80% of such total value. All such Liens will be created and
perfected by and in accordance with the provisions of deeds of trust, security
agreements and financing statements or other Security Instruments, all in form
and substance reasonably satisfactory to the Administrative Agent and in
sufficient executed (and acknowledged where necessary or appropriate)
counterparts for recording purposes. In order to comply with the foregoing, if
any Subsidiary places a Lien on its Oil and Gas Properties and such Subsidiary
is not a Guarantor, then it shall become a Guarantor and comply with Section
8.14(b).
 
(b)  In the event that (i) the Borrower determines that any Subsidiary is a
Material Domestic Subsidiary or (ii) any Domestic Subsidiary incurs or
guarantees any Debt, the Borrower shall promptly cause such Subsidiary to
guarantee the Indebtedness pursuant to the Guaranty Agreement. In connection
with any such guaranty, the Borrower shall, or shall cause such Domestic
Subsidiary to, promptly, but in any event no later than 15 days after the
formation or acquisition (or similar event) of such Domestic Subsidiary to, (A)
execute and deliver a supplement to the Guaranty Agreement executed by such
Subsidiary, (B) pledge all of the Equity Interests of such new Subsidiary
(including, without limitation, delivery of original stock certificates
evidencing the Equity Interests of such Subsidiary, together with an appropriate
undated stock powers for each certificate duly executed in blank by the
registered owner thereof) and (C) execute and deliver such other additional
closing documents, certificates and legal opinions as shall reasonably be
requested by the Administrative Agent.
 
(c)  The Borrower agree that they will not, and will not permit any Subsidiary
to, grant a Lien on any Property to secure the Senior Revolving Credit Notes
without first (i) giving fifteen (15) days’ prior written notice to the
Administrative Agent thereof and (ii) granting to the Administrative Agent to
secure the Indebtedness a second-priority, perfected Lien (subject only to a
Lien under the Senior Revolving Credit Documents) on this same Property pursuant
to Security Instruments in form and substance satisfactory to the Administrative
Agent. In connection therewith, the Borrower shall, or shall cause the
Subsidiaries to, execute and deliver such other additional closing documents,
certificates and legal opinions as shall reasonably be requested by the
Administrative Agent.
 
52

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

 
Section 8.15  ERISA Compliance. The Borrower will promptly furnish and will
cause the Subsidiaries and any ERISA Affiliate to promptly furnish to the
Administrative Agent (i) promptly after the filing thereof with the United
States Secretary of Labor, the Internal Revenue Service or the PBGC, copies of
each annual and other report with respect to each Plan or any trust created
thereunder, (ii) immediately upon becoming aware of the occurrence of any ERISA
Event or of any “prohibited transaction,” as described in section 406 of ERISA
or in section 4975 of the Code, in connection with any Plan or any trust created
thereunder, a written notice signed by the President or the principal Financial
Officer, the Subsidiary or the ERISA Affiliate, as the case may be, specifying
the nature thereof, what action the Borrower, the Subsidiary or the ERISA
Affiliate is taking or proposes to take with respect thereto, and, when known,
any action taken or proposed by the Internal Revenue Service, the Department of
Labor or the PBGC with respect thereto, and (iii) immediately upon receipt
thereof, copies of any notice of the PBGC’s intention to terminate or to have a
trustee appointed to administer any Plan. With respect to each Plan (other than
a Multiemployer Plan), the Borrower will, and will cause each Subsidiary and
ERISA Affiliate to, (i) satisfy in full and in a timely manner, without
incurring any late payment or underpayment charge or penalty and without giving
rise to any lien, all of the contribution and funding requirements of section
412 of the Code (determined without regard to subsections (d), (e), (f) and (k)
thereof) and of section 302 of ERISA (determined without regard to sections 303,
304 and 306 of ERISA), and (ii) pay, or cause to be paid, to the PBGC in a
timely manner, without incurring any late payment or underpayment charge or
penalty, all premiums required pursuant to sections 4006 and 4007 of ERISA.
 
Section 8.16  Marketing Activities.
 
(a)  The Borrower will not, and will not permit any Subsidiary to, 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 reasonably 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 the Borrower and its Subsidiaries that the
Borrower or one of its Subsidiaries has the right to market pursuant to 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) which 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
appropriate credit support has been taken to alleviate the material credit risks
of the counterparty thereto.
 
(b)  The Borrower will not, and will not permit any Subsidiary to, amend in any
material respect the written Hydrocarbon Marketing Policy delivered to the
Lenders without the prior written consent of the Administrative Agent and the
Required Lenders.
 
53

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

 
Section 8.17  Swap Agreements. The Borrower shall maintain the hedge position
established by the Swap Agreements required under Section 6.01(q) during the
period specified therein and shall neither assign, terminate or unwind any such
Swap Agreements nor sell any Swap Agreements if the effect of such action (when
taken together with any other Swap Agreements executed contemporaneously with
the taking of such action) would have the effect of canceling its positions
under such Swap Agreements required hereby.
 
Section 8.18  Minimum Daily Production. The Borrower shall achieve production of
at least (a) 9.5 MMcfe/d as of June 30, 2007, (b) 10.5 MMcfe/d as of September
30, 2007 and (c) 12 MMcfe/d as of December 31, 2007 and as of the last day of
each quarter thereafter.
 
ARTICLE IX
Negative Covenants
 
Until the principal of and interest on each Loan and all fees payable hereunder
and all other amounts payable under the Loan Documents have been paid in full,
the Borrower covenants and agrees with the Lenders that:
 
Section 9.01  Financial Covenants.
 
(a)  Total Reserve Value to Total Debt Ratio. The Borrower will not as of any
date of determination permit its ratio of (i) Total Reserve Value as in effect
on such date of determination to (ii) Total Debt as of such date of
determination to be less than 1.5 to 1.0.
 
(b)  Ratio of Total Debt to EBITDAX. The Borrower will not, beginning the fiscal
quarter ending December 31, 2007, permit its ratio of Total Debt as of such time
to EBITDAX (i) for each fiscal quarter ending on or before March 31, 2009, times
four, (ii) for the two consecutive fiscal quarter period ending June 30, 2009,
times two, (iii) for the three consecutive fiscal quarter period ending
September 30, 2009, times 4/3 or (iv) for each four consecutive fiscal quarter
period ending on December 31, 2009 or thereafter (for the period immediately
preceding the date of determination for which financial statements are available
to the Borrower) to be greater than 5.0 to 1.0, provided, that for the period
ending December 31, 2008 and thereafter, the maximum ratio shall be 4.0 to 1.0.
 
Section 9.02  Debt. The Loan Parties will not, and will not permit any
Subsidiary to, incur, create, assume or suffer to exist any Debt, except:
 
(a)  the Notes or other Indebtedness arising under the Loan Documents or any
guaranty of or suretyship arrangement for the Notes or other Indebtedness
arising under the Loan Documents.
 
(b)  Debt of the Borrower and its Subsidiaries existing on the date hereof that
is reflected in the Financial Statements, and any Permitted Refinancing Debt in
respect thereof.
 
(c)  accounts payable and accrued expenses, liabilities or other obligations to
pay the deferred purchase price of Property or services, from time to time
incurred in the ordinary course of business which are not greater than sixty
(60) days past the date of invoice or delinquent or which are being contested in
good faith by appropriate action and for which adequate reserves have been
maintained in accordance with GAAP.
 
54

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

 
(d)  Debt under Capital Leases not to exceed $1,000,000.
 
(e)  Debt associated with bonds or surety obligations required by Governmental
Requirements in connection with the operation of the Oil and Gas Properties.
 
(f)  intercompany Debt by and among the Borrower, any Guarantor or any
Subsidiary (or between Guarantors or Subsidiaries) to the extent permitted by
Section 9.05(g); provided that such Debt (excluding any accounts payable to Bach
Services) is not held, assigned, transferred, negotiated or pledged to any
Person other than the Borrower or one of the Guarantors, and, provided further,
that any such Debt owed by either the Borrower or a Guarantor shall be
subordinated to the Indebtedness on terms set forth in the Guaranty Agreement.
 
(g)  endorsements of negotiable instruments for collection in the ordinary
course of business.
 
(h)  Debt of the Borrower under that certain promissory note dated October 15,
2006 with Northwestern Bank or any replacement (but not increase) or extension
thereof, the principal amount of which Debt does not exceed $7,500,000.
 
(i)  Debt now or hereafter outstanding under the Senior Revolving Credit
Agreement (and any guaranties thereof by the Guarantors), provided that such
Debt is subject to the Intercreditor Agreement and in no event shall the
principal amount of such Debt exceed $130,000,000.
 
(j)  Debt associated with the mortgage in Section 9.03(e), which Debt shall not
exceed $3,000,000, until the underlying property is sold pursuant to Section
9.12(e).
 
(k)  Debt not to exceed $1,000,000 incurred pursuant to that certain Business
Loan Agreement made by Northwestern Bank to Bach Services, dated April 5, 2007,
or any replacement (but not increase) or extension thereof, provided that such
Debt is non-recourse to the Borrower or any of its Subsidiaries other than Bach
Services and Kingsley Development Company, L.L.C.
 
(l)  other Debt of the Borrower and its Subsidiaries not to exceed $5,000,000 in
the aggregate at any one time outstanding.
 
Section 9.03  Liens. The Borrower will not, and will not permit any Subsidiary
to, create, incur, assume or permit to exist any Lien on any of its Properties
(now owned or hereafter acquired), except:
 
(a)  Liens securing the payment of any Indebtedness.
 
(b)  Excepted Liens.
 
55

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

 
(c)  Liens securing Capital Leases permitted by Section 9.02(d) but only on the
Property under lease.
 
(d)  Liens securing any Permitted Refinancing Debt provided that any such
Permitted Refinancing Debt is not secured by any additional or different
Property not securing the Refinanced Debt.
 
(e)  the Lien securing the mortgage dated September 19, 2005, filed for record
in Grand Traverse County, Michigan on 9/23/05 and record number 2005R-21793,
provided that such Lien shall not exceed $3,000,000, until the underlying
property is sold pursuant to Section 9.12(e).
 
(f)  Liens on Property not constituting collateral for the Indebtedness and not
otherwise permitted by the foregoing clauses of this Section 9.03; provided that
the aggregate principal or face amount of all Debt secured under this Section
9.03(f) shall not exceed $500,000 at any time.
 
(g)  Liens on Property securing obligations arising under the Senior Revolving
Credit Agreement and any guaranties thereof; provided, however, that such
Property is subject to a Lien in favor of the Administrative Agent which secures
the Indebtedness, this Agreement and the other Loan Documents pursuant to
Security Instruments satisfactory to the Administrative Agent.
 
Section 9.04  Dividends, Distributions and Redemptions. The Borrower will not,
and will not permit any of its Subsidiaries to, declare or make, or agree to pay
or make, directly or indirectly, any Restricted Payment, return any capital to
its stockholders or make any distribution of its Property to its Equity Interest
holders, except (a) the Borrower may declare and pay dividends with respect to
its Equity Interests payable solely in additional shares of its Equity Interests
(other than Disqualified Capital Stock), (b) Subsidiaries may declare and pay
dividends to the Borrower ratably with respect to their Equity Interests and (c)
the Borrower may make Restricted Payments pursuant to and in accordance with
stock option plans or other benefit plans for management or employees of the
Borrower and its Subsidiaries.
 
Section 9.05  Investments, Loans and Advances. The Borrower will not, and will
not permit any Subsidiary to, make or permit to remain outstanding any
Investments in or to any Person, except that the foregoing restriction shall not
apply to:
 
(a)  Investments reflected in the Financial Statements or which are disclosed to
the Lenders in Schedule 9.05.
 
(b)  accounts receivable arising in the ordinary course of business.
 
(c)  direct obligations of the United States or any agency thereof, or
obligations guaranteed by the United States or any agency thereof, in each case
maturing within one year from the date of creation thereof.
 
(d)  commercial paper maturing within one year from the date of creation thereof
rated in the highest grade by S&P or Moody’s.
 
56

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

 
(e)  deposits maturing within one year from the date of creation thereof with,
including certificates of deposit issued by, any Lender or any office located in
the United States of any other bank or trust company which is organized under
the laws of the United States or any state thereof, has capital, surplus and
undivided profits aggregating at least $100,000,000 (as of the date of such bank
or trust company’s most recent financial reports) and has a short term deposit
rating of no lower than A2 or P2, as such rating is set forth from time to time,
by S&P or Moody’s, respectively or, in the case of any Foreign Subsidiary, a
bank organized in a jurisdiction in which the Foreign Subsidiary conducts
operations having assets in excess of $500,000,000 (or its equivalent in another
currency).
 
(f)  deposits in money market funds investing exclusively in Investments
described in Section 9.05(c), Section 9.05(d) or Section 9.05(e).
 
(g)  Investments (i) made by the Borrower in or to the Guarantors and (ii) made
by any Subsidiary in or to the Borrower or any Guarantor.
 
(h)  subject to the limits in Section 9.06, Investments (including, without
limitation, capital contributions) in general or limited partnerships or other
types of entities (each a “venture”) entered into by the Borrower or a
Subsidiary with others in the ordinary course of business; provided that (i) any
such venture is engaged exclusively in oil and gas exploration, development,
production, processing and related activities, including transportation, (ii)
the interest in such venture is acquired in the ordinary course of business and
on fair and reasonable terms and (iii) such venture interests acquired and
capital contributions made (valued as of the date such interest was acquired or
the contribution made) do not exceed, in the aggregate at any time outstanding
an amount equal to $500,000.
 
(i)  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.
 
(j)  loans or advances to employees, officers or directors in the ordinary
course of business of the Borrower or any of its Subsidiaries, in each case only
as permitted by applicable law, including Section 402 of the Sarbanes Oxley Act
of 2002, but in any event not to exceed $100,000 in the aggregate at any time.
 
(k)  Investments in stock, obligations or securities received in settlement of
debts arising from Investments permitted under this Section 9.05 owing to the
Borrower or any Subsidiary as a result of a bankruptcy or other insolvency
proceeding of the obligor in respect of such debts or upon the enforcement of
any Lien in favor of the Borrower or any of its Subsidiaries; provided that the
Borrower shall give the Administrative Agent prompt written notice in the event
that the aggregate amount of all Investments held at any one time under this
Section 9.05(k) exceeds $500,000.
 
(l)  other Investments not to exceed $500,000 in the aggregate at any time.
 
57

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

 
Section 9.06  Nature of Business; International Operations. The Borrower will
not, and will not permit any Subsidiary to, allow any material change to be made
in the character of its business as an independent oil and gas exploration and
production company. From and after the date hereof, the Borrower and its
Domestic Subsidiaries will not acquire or make any other expenditure (whether
such expenditure is capital, operating or otherwise) in or related to, any Oil
and Gas Properties not located within the geographical boundaries of the United
States. The Borrower shall not have any Foreign Subsidiaries.
 
Section 9.07  Limitation on Leases. The Borrower will not, and will not permit
any Subsidiary to, create, incur, assume or suffer to exist any obligation for
the payment of rent or hire of Property of any kind whatsoever (real or personal
but excluding Capital Leases and leases of Hydrocarbon Interests), under leases
or lease agreements which would cause the aggregate amount of all payments made
by the Borrower and the Subsidiaries pursuant to all such leases or lease
agreements, including, without limitation, any residual payments at the end of
any lease, to exceed $1,000,000 in any period of twelve consecutive calendar
months during the life of such leases.
 
Section 9.08  Proceeds of Notes. The Borrower will not permit the proceeds of
the Notes to be used for any purpose other than those permitted by Section 7.21.
Neither the Borrower nor any Person acting on behalf of the Borrower has taken
or will take any action which might cause any of the Loan Documents to violate
Regulations T, U or X or any other regulation of the Board or to violate Section
7 of the Securities Exchange Act of 1934 or any rule or regulation thereunder,
in each case as now in effect or as the same may hereinafter be in effect. If
requested by the Administrative Agent, the Borrower will furnish to the
Administrative Agent and each Lender a statement to the foregoing effect in
conformity with the requirements of FR Form U-1 or such other form referred to
in Regulation U, Regulation T or Regulation X of the Board, as the case may be.
 
Section 9.09  ERISA Compliance. The Borrower will not, and will not permit any
Subsidiary to, at any time:
 
(a)  engage in, or permit any ERISA Affiliate to engage in, any transaction in
connection with which the Borrower, a Subsidiary or any ERISA Affiliate could be
subjected to either a civil penalty assessed pursuant to subsections (c), (i) or
(l) of section 502 of ERISA or a tax imposed by Chapter 43 of Subtitle D of the
Code.
 
(b)  terminate, or permit any ERISA Affiliate to terminate, any Plan in a
manner, or take any other action with respect to any Plan, which could result in
any liability of the Borrower, a Subsidiary or any ERISA Affiliate to the PBGC.
 
(c)  fail to make, or permit any ERISA Affiliate to fail to make, full payment
when due of all amounts which, under the provisions of any Plan, agreement
relating thereto or applicable law, the Borrower, a Subsidiary or any ERISA
Affiliate is required to pay as contributions thereto.
 
58

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

 
(d)  permit to exist, or allow any ERISA Affiliate to permit to exist, any
accumulated funding deficiency within the meaning of section 302 of ERISA or
section 412 of the Code, whether or not waived, with respect to any Plan.
 
(e)  permit, or allow any ERISA Affiliate to permit, the actuarial present value
of the benefit liabilities under any Plan maintained by the Borrower, a
Subsidiary or any ERISA Affiliate which is regulated under Title IV of ERISA to
exceed the current value of the assets (computed on a plan termination basis in
accordance with Title IV of ERISA) of such Plan allocable to such benefit
liabilities. The term “actuarial present value of the benefit liabilities” shall
have the meaning specified in section 4041 of ERISA.
 
(f)  contribute to or assume an obligation to contribute to, or permit any ERISA
Affiliate to contribute to or assume an obligation to contribute to, any
Multiemployer Plan.
 
(g)  acquire, or permit any ERISA Affiliate to acquire, an interest in any
Person that causes such Person to become an ERISA Affiliate with respect to the
Borrower or a Subsidiary or with respect to any ERISA Affiliate of the Borrower
or a Subsidiary if such Person sponsors, maintains or contributes to, or at any
time in the six-year period preceding such acquisition has sponsored,
maintained, or contributed to, (1) any Multiemployer Plan, or (2) any other Plan
that is subject to Title IV of ERISA under which the actuarial present value of
the benefit liabilities under such Plan exceeds the current value of the assets
(computed on a plan termination basis in accordance with Title IV of ERISA) of
such Plan allocable to such benefit liabilities.
 
(h)  incur, or permit any ERISA Affiliate to incur, a liability to or on account
of a Plan under sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA.
 
(i)  contribute to or assume an obligation to contribute to, or permit any ERISA
Affiliate to contribute to or assume an obligation to contribute to, any
employee welfare benefit plan, as defined in section 3(1) of ERISA, including,
without limitation, any such plan maintained to provide benefits to former
employees of such entities, that may not be terminated by such entities in their
sole discretion at any time without any material liability.
 
(j)  amend, or permit any ERISA Affiliate to amend, a Plan resulting in an
increase in current liability such that the Borrower, a Subsidiary or any ERISA
Affiliate is required to provide security to such Plan under section 401(a)(29)
of the Code.
 
Section 9.10  Sale or Discount of Receivables. Except for receivables obtained
by the Borrower or any Subsidiary out of the ordinary course of business or the
settlement of joint interest billing accounts in the ordinary course of business
or discounts granted to settle collection of accounts receivable or the sale of
defaulted accounts arising in the ordinary course of business in connection with
the compromise or collection thereof and not in connection with any financing
transaction, the Borrower will not, and will not permit any Subsidiary to,
discount or sell (with or without recourse) any of its notes receivable or
accounts receivable.
 
Section 9.11  Mergers, Etc. The Borrower will not, and will not permit any
Subsidiary to, merge into or with or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (whether in one transaction or in a series of
transactions) all or substantially all of its Property to any other Person
(whether now owned or hereafter acquired) (any such transaction, a
“consolidation”), or liquidate or dissolve; provided that the Borrower or any
Subsidiary may participate in a consolidation with any other Person; provided
that:
 
(a)  (i) no Default is continuing, (ii) any such consolidation would not cause a
Default hereunder, (iii) if the Borrower consolidates with any Person, the
Borrower shall be the surviving Person, (iv) if any Subsidiary consolidates with
any Person (other than the Borrower or a Subsidiary) and such Subsidiary is not
the surviving Person, such surviving Person shall expressly assume in writing
(in form and substance satisfactory to the Administrative Agent) all obligations
of such Subsidiary under the Loan Documents and (v) the Total Reserve Value will
be redetermined using the procedures set forth in Section 2.06; and
 
59

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

 
(b)  any Subsidiary (including a Foreign Subsidiary) may participate in a
consolidation with the Borrower (provided that the Borrower shall be the
continuing or surviving corporation) or any other Subsidiary that is a Domestic
Subsidiary (provided that if one of such parties to the consolidation is a
Foreign Subsidiary, such Domestic Subsidiary shall be the continuing or
surviving Person) and if one of such Subsidiaries is a Wholly-Owned Subsidiary,
then the surviving Person shall be a Wholly-Owned Subsidiary.
 
Section 9.12  Sale of Properties. The Borrower will not, and will not permit any
Subsidiary to, sell, assign, farm-out, convey or otherwise transfer any Property
except for (a) the sale of Hydrocarbons in the ordinary course of business; (b)
farmouts in the ordinary course of business of undeveloped acreage or undrilled
depths and assignments in connection with such farmouts; (c) the sale or
transfer of equipment that is no longer necessary for the business of the
Borrower or such Subsidiary or is replaced by equipment of at least comparable
value and use; (d) the sale or other disposition (including Casualty Events) of
any Oil and Gas Property or any interest therein or any Subsidiary owning Oil
and Gas Properties; provided that (i) 100% the consideration received in respect
of such sale or other disposition shall be cash, (ii) the consideration received
in respect of such sale or other disposition shall be equal to or greater than
the fair market value of the Oil and Gas Property, interest therein or
Subsidiary subject of such sale or other disposition (as reasonably determined
by the board of directors of the Borrower, and, if requested by the
Administrative Agent, the Borrower shall deliver a certificate of a Responsible
Officer of the Borrower certifying to that effect), (iii) if such sale or other
disposition of Oil and Gas Property or Subsidiary owning Oil and Gas Properties
included in the most recently delivered Reserve Report during any period between
determinations of Total Reserve Value has a fair market value in excess of 1% of
the Total Reserve Value (as determined by the Administrative Agent),
individually or in the aggregate, then the Total Reserve Value shall be reduced,
effective immediately upon such sale or disposition, by an amount equal to the
value, if any, assigned such Property in the Reserve Report used in the most
recent determination of Total Reserve Value, (iv) an amount equal to 100% of the
Net Cash Proceeds received from such sale, lease or other disposition shall be
used within 90 days of such disposition: (1) to acquire Property, plant and
equipment or any business entity used or useful in carrying on the business of
the Borrower and its Subsidiaries and having a fair market value at least equal
to the fair market value of the Properties sold, leased or otherwise disposed of
or to improve or replace any existing Property of the Borrower and its
Subsidiaries used or useful in carrying on the business of the Borrower and its
Subsidiaries, (2) to repay Debt under the Senior Revolving Credit Agreement or
(3) to prepay the Notes and (v) if any such sale or other disposition is of a
Subsidiary owning Oil and Gas Properties, such sale or other disposition shall
include all the Equity Interests of such Subsidiary, provided, that after giving
effect to any disposition or sale pursuant to this Section 9.12(d) and after
making any necessary pro forma adjustments to the Total Reserve Value and Total
Debt, the Borrower’s ratio of Total Reserve Value to Total Debt is no less than
1.75 to 1.0; (e) sale of the Borrower’s office suite at 4110 Copper Ridge,
Traverse City, MI 49684; (f) those properties listed on Schedule 9.12 and (g)
sales and other dispositions of Properties not regulated by Section 9.12(a) to
(f) having a fair market value not to exceed $1,000,000 during any 6-month
period.
 
60

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

 
Section 9.13  Environmental Matters. The Borrower will not, and will not permit
any Subsidiary to, cause or permit any of its Property to be in violation of, or
do anything or permit anything to be done which will subject any such Property
to any Remedial Work under any Environmental Laws, assuming disclosure to the
applicable Governmental Authority of all relevant facts, conditions and
circumstances, if any, pertaining to such Property where such violations or
remedial obligations could reasonably be expected to have a Material Adverse
Effect.
 
Section 9.14  Transactions with Affiliates. The Borrower will not, and will not
permit any Subsidiary to, enter into any transaction, including, without
limitation, any purchase, sale, lease or exchange of Property or the rendering
of any service, with any Affiliate (other than the Guarantors and Wholly-Owned
Subsidiaries of the Borrower) unless such transactions are otherwise permitted
under this Agreement and are upon fair and reasonable terms no less favorable to
it than it would obtain in a comparable arm’s length transaction with a Person
not an Affiliate.
 
Section 9.15  Subsidiaries. The Borrower will not, and will not permit any
Subsidiary to, create or acquire any additional Subsidiary unless the Borrower
gives written notice to the Administrative Agent of such creation or acquisition
and complies with Section 8.14(b). The Borrower shall not, and shall not permit
any Subsidiary to, sell, assign or otherwise dispose of any Equity Interests in
any Subsidiary except in compliance with Section 9.12(d). Neither the Borrower
nor any Subsidiary shall have any Foreign Subsidiaries.
 
Section 9.16  Negative Pledge Agreements; Dividend Restrictions. The Borrower
will not, and will not permit any Subsidiary to, create, incur, assume or suffer
to exist any contract, agreement or understanding (other than this Agreement,
the Security Instruments, the Second Lien Documents or Capital Leases creating
Liens permitted by Section 9.03(c)) which in any way prohibits or restricts the
granting, conveying, creation or imposition of any Lien on any of its Property
in favor of the Administrative Agent and the Lenders or restricts any Subsidiary
from paying dividends or making distributions to the Borrower or any Guarantor,
or which requires the consent of or notice to other Persons in connection
therewith.
 
Section 9.17  Gas Imbalances, Take-or-Pay or Other Prepayments. The Borrower
will not, and will not permit any Subsidiary to, allow gas imbalances,
take-or-pay or other prepayments with respect to the Oil and Gas Properties of
the Borrower or any Subsidiary that would require the Borrower or such
Subsidiary to deliver Hydrocarbons at some future time without then or
thereafter receiving full payment therefor to exceed one half bcf of gas (on an
mcf equivalent basis) in the aggregate.
 
61

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

 
Section 9.18  Swap Agreements. The Borrower will not, and will not permit any
Subsidiary to, 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 the date such
Swap Agreement is executed, 85% of the reasonably anticipated projected
production from proved, developed, producing Oil and Gas Properties for each
month during the period during which such Swap Agreement is in effect for each
of crude oil and natural gas, calculated separately, and (b) Swap Agreements in
respect of interest rates with an Approved Counterparty which effectively
convert interest rates from floating to fixed, the notional amounts of which
(when aggregated with all other Swap Agreements of the Borrower and its
Subsidiaries then in effect effectively converting interest rates from floating
to fixed) do not exceed 85% of the then outstanding principal amount of the
Borrower’s Debt for borrowed money which bears interest at a floating rate. Swap
Agreements may contain contingent requirements, agreements or covenants for the
Borrower or a Subsidiary to post collateral or margin to secure their
obligations under such Swap Agreement or to cover market exposures, provided
that the Borrower is in compliance with Section 9.03
 
Section 9.19  Anti-Layering. Notwithstanding the foregoing, the Borrower will
not, and will not permit any Subsidiary to, incur, create, assume or suffer to
exist any Debt if such Debt is subordinate or junior in ranking in right of
payment to the Senior Revolving Credit Agreement, unless such Debt is
non-recourse to the Borrower and the Guarantors or is expressly subordinated in
right of payment to the obligations under this Agreement.
 
ARTICLE X
Events of Default; Remedies
 
Section 10.01  Events of Default. One or more of the following events shall
constitute an “Event of Default”:
 
(a)  the Borrower shall fail to pay any principal of any Loan when and as the
same shall become due and payable, whether at the due date thereof or at a date
fixed for prepayment thereof, by acceleration or otherwise.
 
(b)  the Borrower shall fail to pay any interest on any Loan or any fee or any
other amount (other than an amount referred to in Section 10.01(a)) payable
under any Loan Document, when and as the same shall become due and payable, and
such failure shall continue unremedied for a period of five Business Days.
 
(c)  any representation or warranty made or deemed made by or on behalf of any
Loan Party in or in connection with any Loan Document or any amendment or
modification of any Loan Document or waiver under such Loan Document, or in any
report, certificate, financial statement or other document furnished pursuant to
or in connection with any Loan Document or any amendment or modification thereof
or waiver thereunder, shall prove to have been incorrect when made or deemed
made.
 
62

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

 
(d)  the Borrower or any Subsidiary shall fail to observe or perform any
covenant, condition or agreement contained in Section 8.01(i), Section 8.01(n),
Section 8.02, Section 8.03, Section 8.15 or in ARTICLE IX.
 
(e)  the Borrower or any Subsidiary shall fail to observe or perform any
covenant, condition or agreement contained in this Agreement (other than those
specified in Section 10.01(a), Section 10.01(b) or Section 10.01(d)) or any
other Loan Document, and such failure shall continue unremedied for a period of
30 days after the earlier to occur of (A) notice thereof from the Administrative
Agent to the Borrower (which notice will be given at the request of any Lender)
or (B) a Responsible Officer of the Borrower or such Subsidiary otherwise
becoming aware of such default.
 
(f)  the Borrower or any Subsidiary shall fail to make any payment (whether of
principal or interest and regardless of amount) in respect of any Material
Indebtedness, when and as the same shall become due and payable.
 
(g)  any event or condition occurs that results in any Material Indebtedness
becoming due prior to its scheduled maturity or that enables or permits (with or
without the giving of notice, the lapse of time or both) the holder or holders
of any Material Indebtedness or any trustee or agent on its or their behalf to
cause any Material Indebtedness to become due, or to require the Redemption
thereof or any offer to Redeem to be made in respect thereof, prior to its
scheduled maturity or require the Borrower or any Subsidiary to make an offer in
respect thereof.
 
(h)  an involuntary proceeding shall be commenced or an involuntary petition
shall be filed seeking (i) liquidation, reorganization or other relief in
respect of the Borrower or any Subsidiary or its debts, or of a substantial part
of its assets, under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect or (ii) the appointment
of a receiver, trustee, custodian, sequestrator, conservator or similar official
for the Borrower or any Subsidiary or for a substantial part of its assets, and,
in any such case, such proceeding or petition shall continue undismissed for 60
days or an order or decree approving or ordering any of the foregoing shall be
entered.
 
(i)  the Borrower or any Subsidiary shall (i) voluntarily commence any
proceeding or file any petition seeking liquidation, reorganization or other
relief under any Federal, state or foreign bankruptcy, insolvency, receivership
or similar law now or hereafter in effect, (ii) consent to the institution of,
or fail to contest in a timely and appropriate manner, any proceeding or
petition described in Section 10.01(g), (iii) apply for or consent to the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for the Borrower or any Subsidiary or for a substantial part of
its assets, (iv) file an answer admitting the material allegations of a petition
filed against it in any such proceeding, (v) make a general assignment for the
benefit of creditors or (vi) take any action for the purpose of effecting any of
the foregoing; or any stockholder of the Borrower shall make any request or take
any action for the purpose of calling a meeting of the stockholders of the
Borrower to consider a resolution to dissolve and wind-up the Borrower’s
affairs.
 
63

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

 
(j)  the Borrower or any Subsidiary shall become unable, admit in writing its
inability or fail generally to pay its debts as they become due.
 
(k)  (i) one or more judgments for the payment of money in an aggregate amount
in excess of $500,000 (to the extent not covered by independent third party
insurance provided by insurers of the highest claims paying rating or financial
strength as to which the insurer does not dispute coverage and is not subject to
an insolvency proceeding) or (ii) any one or more non-monetary judgments that
have, or could reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect, shall be rendered against the Borrower, any
Subsidiary or any combination thereof and the same shall remain undischarged for
a period of 30 consecutive days during which execution shall not be effectively
stayed, or any action shall be legally taken by a judgment creditor to attach or
levy upon any assets of the Borrower or any Subsidiary to enforce any such
judgment.
 
(l)  the Loan Documents after delivery thereof shall for any reason, except to
the extent permitted by the terms thereof, cease to be in full force and effect
and valid, binding and enforceable in accordance with their terms against the
Borrower or a Guarantor party thereto or shall be repudiated by any of them, or
cease to create a valid and perfected Lien of the priority required thereby on
any of the collateral purported to be covered thereby, except to the extent
permitted by the terms of this Agreement, or the Borrower or any Subsidiary or
any of their Affiliates shall so state in writing.
 
(m)  an ERISA Event shall have occurred that, in the opinion of the Majority
Lenders, when taken together with all other ERISA Events that have occurred,
could reasonably be expected to result in liability of the Borrower and its
Subsidiaries in an aggregate amount exceeding (i) $250,000 in any year or (ii)
$500,000 for all periods.
 
(n)  the Intercreditor Agreement, after delivery thereof shall for any reason,
except to the extent permitted by the terms thereof, cease to be in full force
and effect and valid, binding and enforceable in accordance with its terms
against the Borrower or any party thereto or holder of the Debt subordinated
thereby or shall be repudiated by any of them, or cause the payment of the
obligations of the Second Lien Notes to be senior in right to the payment of
obligations of this Agreement, or any payment by the Borrower or any Guarantor
in violation of the terms of the Intercreditor Agreement.
 
(o)  a Change in Control shall occur.
 
Section 10.02  Remedies.
 
(a)  In the case of an Event of Default other than one described in Section
10.01(g), Section 10.01(i) or Section 10.01(j), at any time thereafter during
the continuance of such Event of Default, the Administrative Agent may, and at
the request of the Majority Lenders, shall, by notice to the Borrower, declare
the Notes and the Loans then outstanding to be due and payable in whole (or in
part, in which case any principal not so declared to be due and payable may
thereafter be declared to be due and payable), and thereupon the principal of
the Loans so declared to be due and payable, together with accrued interest
thereon and all fees and other obligations of the Borrower and the Guarantors
accrued hereunder and under the Notes and the other Loan Documents, shall become
due and payable immediately, without presentment, demand, protest, notice of
intent to accelerate, notice of acceleration or other notice of any kind, all of
which are hereby waived by the Borrower and each Guarantor; and in case of an
Event of Default described in Section 10.01(g), Section 10.01(i) or Section
10.01(j), the Notes and the principal of the Loans then outstanding, together
with accrued interest thereon and all fees and the other obligations of the
Borrower and the Guarantors accrued hereunder and under the Notes and the other
Loan Documents, shall automatically become due and payable, without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower and each Guarantor.
 
64

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

 
(b)  In the case of the occurrence of an Event of Default, the Administrative
Agent and the Lenders will have all other rights and remedies available at law
and equity.
 
(c)  All proceeds realized from the liquidation or other disposition of
collateral or otherwise received after maturity of the Notes, whether by
acceleration or otherwise, shall be applied:
 
(i)  first, to payment or reimbursement of that portion of the Indebtedness
constituting fees, expenses and indemnities payable to the Administrative Agent
in its capacity as such;
 
(ii)  second, pro rata to payment or reimbursement of that portion of the
Indebtedness constituting fees, expenses and indemnities payable to the Lenders;
 
(iii)  third, pro rata to payment of accrued interest on the Loans;
 
(iv)  fourth, pro rata to payment of principal outstanding on the Loans;
 
(v)  fifth, pro rata to any other Indebtedness;
 
(vi)  sixth, any excess, after all of the Indebtedness shall have been
indefeasibly paid in full in cash, shall be paid to the Borrower or as otherwise
required by any Governmental Requirement.
 
ARTICLE XI
The Agents
 
Section 11.01  Appointment; Powers. Each of the Lenders hereby irrevocably
appoints the Administrative Agent as its agent and authorizes the Administrative
Agent to take such actions on its behalf and to exercise such powers as are
delegated to the Administrative Agent by the terms hereof and the other Loan
Documents, together with such actions and powers as are reasonably incidental
thereto.
 
Section 11.02  Duties and Obligations of Administrative Agent. The
Administrative Agent shall not have any duties or obligations except those
expressly set forth in the Loan Documents. Without limiting the generality of
the foregoing, (a) the Administrative Agent shall not be subject to any
fiduciary or other implied duties, regardless of whether a Default has occurred
and is continuing (the use of the term “agent” herein and in the other Loan
Documents with reference to the Administrative Agent is not intended to connote
any fiduciary or other implied (or express) obligations arising under agency
doctrine of any applicable law; rather, such term is used merely as a matter of
market custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties), (b) the Administrative
Agent shall have no duty to take any discretionary action or exercise any
discretionary powers, except as provided in Section 11.03, and (c) except as
expressly set forth herein, the Administrative Agent shall not have any duty to
disclose, and shall not be liable for the failure to disclose, any information
relating to the Borrower or any of its Subsidiaries that is communicated to or
obtained by the bank serving as Administrative Agent or any of its Affiliates in
any capacity. The Administrative Agent shall be deemed not to have knowledge of
any Default unless and until written notice thereof is given to the
Administrative Agent by the Borrower or a Lender, and shall not be responsible
for or have any duty to ascertain or inquire into (i) any statement, warranty or
representation made in or in connection with this Agreement or any other Loan
Document, (ii) the contents of any certificate, report or other document
delivered hereunder or under any other Loan Document or in connection herewith
or therewith, (iii) the performance or observance of any of the covenants,
agreements or other terms or conditions set forth herein or in any other Loan
Document, (iv) the validity, enforceability, effectiveness or genuineness of
this Agreement, any other Loan Document or any other agreement, instrument or
document, (v) the satisfaction of any condition set forth in ARTICLE VI or
elsewhere herein, other than to confirm receipt of items expressly required to
be delivered to the Administrative Agent or as to those conditions precedent
expressly required to be to the Administrative Agent’s satisfaction, (vi) the
existence, value, perfection or priority of any collateral security or the
financial or other condition of the Borrower and its Subsidiaries or any other
obligor or guarantor, or (vii) any failure by the Borrower or any other Person
(other than itself) to perform any of its obligations hereunder or under any
other Loan Document or the performance or observance of any covenants,
agreements or other terms or conditions set forth herein or therein. For
purposes of determining compliance with the conditions specified in ARTICLE VI,
each Lender shall be deemed to have consented to, approved or accepted or to be
satisfied with, each document or other matter required thereunder to be
consented to or approved by or acceptable or satisfactory to a Lender unless the
Administrative Agent shall have received written notice from such Lender prior
to the proposed closing date specifying its objection thereto.
 
65

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

 
Section 11.03  Action by Administrative Agent. The Administrative Agent shall
have no duty to take any discretionary action or exercise any discretionary
powers, except discretionary rights and powers expressly contemplated hereby or
by the other Loan Documents that the Administrative Agent is required to
exercise in writing as directed by the Majority Lenders (or such other number or
percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 12.02) and in all cases the Administrative Agent shall be
fully justified in failing or refusing to act hereunder or under any other Loan
Documents unless it shall (a) receive written instructions from the Majority
Lenders or the Lenders, as applicable, (or such other number or percentage of
the Lenders as shall be necessary under the circumstances as provided in Section
12.02) specifying the action to be taken and (b) be indemnified to its
satisfaction by the Lenders against any and all liability and expenses which may
be incurred by it by reason of taking or continuing to take any such action. The
instructions as aforesaid and any action taken or failure to act pursuant
thereto by the Administrative Agent shall be binding on all of the Lenders. If a
Default has occurred and is continuing, then the Administrative Agent shall take
such action with respect to such Default as shall be directed by the requisite
Lenders in the written instructions (with indemnities) described in this Section
11.03, provided that, unless and until the Administrative Agent shall have
received such directions, the Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default as it shall deem advisable in the best interests of the Lenders.
In no event, however, shall the Administrative Agent be required to take any
action which exposes the Administrative Agent to personal liability or which is
contrary to this Agreement, the Loan Documents or applicable law. If a Default
has occurred and is continuing, no Agent other than the Administrative Agent
shall have any obligation to perform any act in respect thereof. The
Administrative Agent shall not be liable for any action taken or not taken by it
with the consent or at the request of the Majority Lenders or the Lenders (or
such other number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 12.02), and otherwise the Administrative
Agent shall not be liable for any action taken or not taken by it hereunder or
under any other Loan Document or under any other document or instrument referred
to or provided for herein or therein or in connection herewith or therewith
INCLUDING ITS OWN ORDINARY NEGLIGENCE, except for its own gross negligence or
willful misconduct.
 
66

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

 
Section 11.04  Reliance by Administrative Agent. The Administrative Agent shall
be entitled to rely upon, and shall not incur any liability for relying upon,
any notice, request, certificate, consent, statement, instrument, document or
other writing believed by it to be genuine and to have been signed or sent by
the proper Person. The Administrative Agent also may rely upon any statement
made to it orally or by telephone and believed by it to be made by the proper
Person, and shall not incur any liability for relying thereon and each of the
Borrower and the Lenders hereby waives the right to dispute the Administrative
Agent’s record of such statement, except in the case of gross negligence or
willful misconduct by the Administrative Agent. The Administrative Agent may
consult with legal counsel (who may be counsel for the Borrower), independent
accountants and other experts selected by it, and shall not be liable for any
action taken or not taken by it in accordance with the advice of any such
counsel, accountants or experts. The Administrative Agent may deem and treat the
payee of any Note as the holder thereof for all purposes hereof unless and until
a written notice of the assignment or transfer thereof permitted hereunder shall
have been filed with the Administrative Agent.
 
Section 11.05  Subagents. The Administrative Agent may perform any and all its
duties and exercise its rights and powers by or through any one or more
sub-agents appointed by the Administrative Agent. The Administrative Agent and
any such sub-agent may perform any and all its duties and exercise its rights
and powers through their respective Related Parties. The exculpatory provisions
of the preceding Sections of this ARTICLE XI shall apply to any such sub-agent
and to the Related Parties of the Administrative Agent and any such sub-agent,
and shall apply to their respective activities in connection with the
syndication of the credit facilities provided for herein as well as activities
as Administrative Agent.
 
Section 11.06  Resignation or Removal of Administrative Agent. Subject to the
appointment and acceptance of a successor Administrative Agent as provided in
this Section 11.06, the Administrative Agent may resign at any time by notifying
the Lenders and the Borrower, and the Administrative Agent may be removed at any
time with or without cause by the Majority Lenders. Upon any such resignation or
removal, the Majority Lenders shall have the right, in consultation with the
Borrower, to appoint a successor. If no successor shall have been so appointed
by the Majority Lenders and shall have accepted such appointment within 30 days
after the retiring Agent gives notice of its resignation or removal of the
retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent. Upon the acceptance of its appointment as Agent hereunder by a
successor, such successor shall succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder. The fees
payable by the Borrower to a successor Agent shall be the same as those payable
to its predecessor unless otherwise agreed between the Borrower and such
successor. After the Agent’s resignation hereunder, the provisions of this
ARTICLE XI and Section 12.03 shall continue in effect for the benefit of such
retiring Agent, its sub-agents and their respective Related Parties in respect
of any actions taken or omitted to be taken by any of them while it was acting
as Agent.
 
67

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

 
Section 11.07  Agents as Lenders. Each bank serving as an Agent hereunder shall
have the same rights and powers in its capacity as a Lender as any other Lender
and may exercise the same as though it were not an Agent, and such bank and its
Affiliates may accept deposits from, lend money to and generally engage in any
kind of business with the Borrower or any Subsidiary or other Affiliate thereof
as if it were not an Agent hereunder.
 
Section 11.08  No Reliance.
 
(a)  Each Lender acknowledges that it has, independently and without reliance
upon the Administrative Agent, any other Agent or any other Lender and based on
such documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and each other Loan Document
to which it is a party. Each Lender also acknowledges that it will,
independently and without reliance upon the Administrative Agent, any other
Agent or any other Lender and based on such documents and information as it
shall from time to time deem appropriate, continue to make its own decisions in
taking or not taking action under or based upon this Agreement, any other Loan
Document, any related agreement or any document furnished hereunder or
thereunder. The Agents shall not be required to keep themselves informed as to
the performance or observance by the Borrower or any of its Subsidiaries of this
Agreement, the Loan Documents or any other document referred to or provided for
herein or to inspect the Properties or books of the Borrower or its
Subsidiaries. Except for notices, reports and other documents and information
expressly required to be furnished to the Lenders by the Administrative Agent
hereunder, no Agent or the Arranger shall have any duty or responsibility to
provide any Lender with any credit or other information concerning the affairs,
financial condition or business of the Borrower (or any of its Affiliates) which
may come into the possession of such Agent or any of its Affiliates. In this
regard, each Lender acknowledges that Vinson & Elkins L.L.P. is acting in this
transaction as special counsel to the Arranger only in respect of the Senior
Revolving Credit Agreement, except to the extent otherwise expressly stated in
any legal opinion or any Loan Document. Each other party hereto will consult
with its own legal counsel to the extent that it deems necessary in connection
with the Loan Documents and the matters contemplated therein.
 
(b)  The Lenders acknowledge that the Administrative Agent and the Arranger are
acting solely in administrative capacities with respect to the structuring and
syndication of this facility and have no duties, responsibilities or liabilities
under this Agreement and the other Loan Documents other than their
administrative duties, responsibilities and liabilities specifically as set
forth in the Loan Documents and in their capacity as Lenders hereunder. In
structuring, arranging or syndicating this facility, each Lender acknowledges
that the Administrative Agent and/or Arranger may be an agent or lender under
these Notes, the Senior Revolving Credit Notes, other loans or other securities
and waives any existing or future conflicts of interest associated with the
their role in such other debt instruments. If in its administration of this
facility or any other debt instrument, the Administrative Agent determines (or
is given written notice by any Lender that a conflict exists), then it shall
eliminate such conflict within 90 days or resign pursuant to Section 11.06 and
shall have no liability for action taken or not taken while such conflict
existed.
 
68

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

 
Section 11.09  Administrative Agent May File Proofs of Claim.
 
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Borrower or any of its Subsidiaries, the
Administrative Agent (irrespective of whether the principal of any Loan shall
then be due and payable as herein expressed or by declaration or otherwise and
irrespective of whether the Administrative Agent shall have made any demand on
the Borrower) shall be entitled and empowered, by intervention in such
proceeding or otherwise:
 
(a)  to file and prove a claim for the whole amount of the principal and
interest owing and unpaid in respect of the Loans and all other Indebtedness
that are owing and unpaid and to file such other documents as may be necessary
or advisable in order to have the claims of the Lenders and the Administrative
Agent (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Lenders and the Administrative Agent and their
respective agents and counsel and all other amounts due the Lenders and the
Administrative Agent under Section 12.03) allowed in such judicial proceeding;
and
 
(b)  to collect and receive any monies or other property payable or deliverable
on any such claims and to distribute the same;
 
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Lender to make such payments to the Administrative Agent and, in the event
that the Administrative Agent shall consent to the making of such payments
directly to the Lenders, to pay to the Administrative Agent any amount due for
the reasonable compensation, expenses, disbursements and advances of the
Administrative Agent and its agents and counsel, and any other amounts due the
Administrative Agent under Section 12.03.
 
Nothing contained herein shall be deemed to authorize the Administrative Agent
to authorize or consent to or accept or adopt on behalf of any Lender any plan
of reorganization, arrangement, adjustment or composition affecting the
Indebtedness or the rights of any Lender or to authorize the Administrative
Agent to vote in respect of the claim of any Lender in any such proceeding.
 
Section 11.10  Authority of Administrative Agent to Release Collateral and
Liens. Each Lender hereby authorizes the Administrative Agent to release any
collateral that is permitted to be sold or released pursuant to the terms of the
Loan Documents. Each Lender hereby authorizes the Administrative Agent to
execute and deliver to the Borrower, at the Borrower’s sole cost and expense,
any and all releases of Liens, termination statements, assignments or other
documents reasonably requested by the Borrower in connection with any sale or
other disposition of Property to the extent such sale or other disposition is
permitted by the terms of Section 9.12 or is otherwise authorized by the terms
of the Loan Documents.
 
69

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

 
Section 11.11  The Arranger and other Agents. The Arranger and all other Agents
other than the Administrative Agent shall have no duties, responsibilities or
liabilities under this Agreement and the other Loan Documents other than their
duties, responsibilities and liabilities in their capacity as Lenders hereunder.
 
ARTICLE XII
Miscellaneous
 
Section 12.01  Notices.
 
(a)  Except in the case of notices and other communications expressly permitted
to be given by telephone (and subject to Section 12.01(b)), all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
 
(i)  if to the Borrower, to it at 4110 Copper Ridge, Suite 110, Traverse City,
MI 49684, Attention: Chief Financial Officer;
 
(ii)  if to the Administrative Agent, to it at 919 Third Avenue, New York, New
York 10022, Attention: Dina Wilson, Loan Assistant (Telecopy No. (212)
841-2683), with a copy to 1200 Smith Street, Suite 3100, Houston, Texas 77002,
Attention: Betsy Jocher (Telecopy No. (713) 659-6915);
 
(iii)  if to any other Lender, to it at its address (or telecopy number) set
forth in its Administrative Questionnaire.
 
(b)  Notices and other communications to the Lenders hereunder may be delivered
or furnished by electronic communications pursuant to procedures approved by the
Administrative Agent; provided that the foregoing shall not apply to notices
pursuant to ARTICLE II, ARTICLE III, ARTICLE IV and ARTICLE V unless otherwise
agreed by the Administrative Agent and the applicable Lender. The Administrative
Agent or the Borrower may, in its discretion, agree to accept notices and other
communications to it hereunder by electronic communications pursuant to
procedures approved by it; provided that approval of such procedures may be
limited to particular notices or communications.
 
(c)  Any party hereto may change its address or telecopy number for notices and
other communications hereunder by notice to the other parties hereto. All
notices and other communications given to any party hereto in accordance with
the provisions of this Agreement shall be deemed to have been given on the date
of receipt.
 
Section 12.02  Waivers; Amendments. 
 
(a)  No failure on the part of the Administrative Agent, any other Agent or any
Lender to exercise and no delay in exercising, and no course of dealing with
respect to, any right, power or privilege, or any abandonment or discontinuance
of steps to enforce such right, power or privilege, under any of the Loan
Documents shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege under any of the Loan Documents
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies of the Administrative Agent,
any other Agent and the Lenders hereunder and under the other Loan Documents are
cumulative and are not exclusive of any rights or remedies that they would
otherwise have. No waiver of any provision of this Agreement or any other Loan
Document or consent to any departure by the Borrower therefrom shall in any
event be effective unless the same shall be permitted by Section 12.02(b), and
then such waiver or consent shall be effective only in the specific instance and
for the purpose for which given. Without limiting the generality of the
foregoing, the making of a Loan shall not be construed as a waiver of any
Default, regardless of whether the Administrative Agent, any other Agent or any
Lender may have had notice or knowledge of such Default at the time.
 
70

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

 
(b)  Neither this Agreement nor any provision hereof nor any Security Instrument
nor any provision thereof may be waived, amended or modified except pursuant to
an agreement or agreements in writing entered into by the Borrower and the
Majority Lenders or by the Borrower and the Administrative Agent with the
consent of the Majority Lenders; provided that no such agreement shall (i)
increase the Commitment of any Lender without the written consent of such
Lender, or modify the definition of “Total Reserve Value” without the consent of
each Lender, (ii) reduce the principal amount of the Loans or reduce the rate of
interest thereon, or reduce any fees payable hereunder, or reduce any other
Indebtedness hereunder or under any other Loan Document, without the written
consent of each Lender affected thereby, (iii) postpone the scheduled date of
payment or prepayment of the principal amount of any Loan or any interest
thereon, or any fees payable hereunder, or any other Indebtedness hereunder or
under any other Loan Document, or reduce the amount of, waive or excuse any such
payment, or postpone or extend the Maturity Date without the written consent of
each Lender affected thereby, (iv) change Section 4.01(b) or Section 4.01(c) in
a manner that would alter the pro rata sharing of payments required thereby,
without the written consent of each Lender, (v) waive or amend Section 6.01,
Section 8.14 or Section 10.02(c) or change the definition of the terms “Domestic
Subsidiary”, “Foreign Subsidiary”, “Material Domestic Subsidiary” or
“Subsidiary”, without the written consent of each Lender, (vi) release any
Guarantor (except as set forth in the Guaranty Agreement), release all or
substantially all of the collateral (other than as provided in Section 11.10),
or reduce the percentage set forth in Section 8.14(a) to less than 80%, without
the written consent of each Lender, or (vii) change any of the provisions of
this Section 12.02(b) or the definition of “ “Majority Lenders” or any other
provision hereof specifying the number or percentage of Lenders required to
waive, amend or modify any rights hereunder or under any other Loan Documents or
make any determination or grant any consent hereunder or any other Loan
Documents, without the written consent of each Lender; provided further that no
such agreement shall amend, modify or otherwise affect the rights or duties of
the Administrative Agent or any other Agent hereunder or under any other Loan
Document without the prior written consent of the Administrative Agent or such
other Agent, as the case may be. Notwithstanding the foregoing, any supplement
to Schedule 7.14 (Subsidiaries) shall be effective simply by delivering to the
Administrative Agent a supplemental schedule clearly marked as such and, upon
receipt, the Administrative Agent will promptly deliver a copy thereof to the
Lenders.
 
71

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

 
Section 12.03  Expenses, Indemnity; Damage Waiver.
 
(a)  The Borrower shall pay (i) all reasonable out-of-pocket expenses incurred
by the Administrative Agent and its Affiliates, including, without limitation,
the reasonable fees, charges and disbursements of counsel for the Administrative
Agent, the reasonable travel, photocopy, mailing, courier, telephone and other
similar expenses, including all Intralinks expenses, and the cost of
environmental audits and surveys and appraisals, in connection with the
syndication of the credit facilities provided for herein, the preparation,
negotiation, execution, delivery and administration (both before and after the
execution hereof and including advice of counsel to the Administrative Agent as
to the rights and duties of the Administrative Agent and the Lenders with
respect thereto) of this Agreement and the other Loan Documents and any
amendments, modifications or waivers of or consents related to the provisions
hereof or thereof (whether or not the transactions contemplated hereby or
thereby shall be consummated), (ii) all reasonable costs, expenses, Taxes,
assessments and other charges incurred by any Agent or any Lender in connection
with any filing, registration, recording or perfection of any security interest
contemplated by this Agreement or any Security Instrument or any other document
referred to therein, (iii) all reasonable out-of-pocket expenses incurred by any
Agent or any Lender, including the reasonable fees, charges and disbursements of
any counsel for any Agent or any Lender, in connection with the enforcement or
protection of its rights in connection with this Agreement or any other Loan
Document, including its rights under this Section 12.03, or in connection with
the Loans made, including, without limitation, all such out-of-pocket expenses
incurred during any workout, restructuring or negotiations in respect of such
Loans.
 
(b)  THE BORROWER SHALL INDEMNIFY EACH AGENT, THE ARRANGER AND EACH LENDER, AND
EACH RELATED PARTY OF ANY OF THE FOREGOING PERSONS (EACH SUCH PERSON BEING
CALLED AN “INDEMNITEE”) AGAINST, AND HOLD EACH INDEMNITEE HARMLESS FROM, ANY AND
ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES AND RELATED EXPENSES, INCLUDING THE
REASONABLE FEES, CHARGES AND DISBURSEMENTS OF ANY COUNSEL FOR ANY INDEMNITEE,
INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE ARISING OUT OF, IN CONNECTION
WITH, OR AS A RESULT OF (i) THE EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR
THEREBY, THE PERFORMANCE BY THE PARTIES HERETO OR THE PARTIES TO ANY OTHER LOAN
DOCUMENT OF THEIR RESPECTIVE OBLIGATIONS HEREUNDER OR THEREUNDER OR THE
CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY OR BY ANY OTHER LOAN
DOCUMENT, (ii) THE FAILURE OF THE BORROWER OR ANY SUBSIDIARY TO COMPLY WITH THE
TERMS OF ANY LOAN DOCUMENT, INCLUDING THIS AGREEMENT, OR WITH ANY GOVERNMENTAL
REQUIREMENT, (iii) ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY
WARRANTY OR COVENANT OF THE BORROWER OR ANY GUARANTOR SET FORTH IN ANY OF THE
LOAN DOCUMENTS OR ANY INSTRUMENTS, DOCUMENTS OR CERTIFICATIONS DELIVERED IN
CONNECTION THEREWITH, (iv) ANY LOAN OR THE USE OF THE PROCEEDS THEREFROM,
INCLUDING, WITHOUT LIMITATION, (v) ANY OTHER ASPECT OF THE LOAN DOCUMENTS, (vi)
THE OPERATIONS OF THE BUSINESS OF THE BORROWER AND ITS SUBSIDIARIES BY THE
BORROWER AND ITS SUBSIDIARIES, (vii) ANY ASSERTION THAT THE LENDERS WERE NOT
ENTITLED TO RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE SECURITY INSTRUMENTS,
(viii) ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY OR ANY
OF THEIR PROPERTIES, INCLUDING WITHOUT LIMITATION, THE PRESENCE, GENERATION,
STORAGE, RELEASE, THREATENED RELEASE, USE, TRANSPORT, DISPOSAL, ARRANGEMENT OF
DISPOSAL OR TREATMENT OF OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS
SUBSTANCES ON ANY OF THEIR PROPERTIES, (ix) THE BREACH OR NON-COMPLIANCE BY THE
BORROWER OR ANY SUBSIDIARY WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER
OR ANY SUBSIDIARY, (x) THE PAST OWNERSHIP BY THE BORROWER OR ANY SUBSIDIARY OF
ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES WHICH,
THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT
LIABILITY, (xi) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT, DISPOSAL,
GENERATION, THREATENED RELEASE, TRANSPORT, ARRANGEMENT FOR TRANSPORT OR
ARRANGEMENT FOR DISPOSAL OF OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS
SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY THE BORROWER OR
ANY SUBSIDIARY OR ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS
MATERIALS ON OR FROM ANY PROPERTY OWNED OR OPERATED BY THE BORROWER OR ANY OF
ITS SUBSIDIARIES, (xii) ANY ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO THE
BORROWER OR ANY OF ITS SUBSIDIARIES, OR (xiii) ANY OTHER ENVIRONMENTAL, HEALTH
OR SAFETY CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS, OR (xiv) ANY ACTUAL
OR PROSPECTIVE CLAIM, LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO ANY OF
THE FOREGOING, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND
REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTY THERETO, AND SUCH INDEMNITY
SHALL EXTEND TO EACH INDEMNITEE NOTWITHSTANDING THE SOLE OR CONCURRENT
NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE,
WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL
TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF
ONE OR MORE OF THE INDEMNITEES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT
FAULT ON ANY ONE OR MORE OF THE INDEMNITEES; PROVIDED THAT SUCH INDEMNITY SHALL
NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS,
DAMAGES, LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A COURT OF COMPETENT
JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS
NEGLIGENCE OR WILFUL MISCONDUCT OF SUCH INDEMNITEE.
 
72

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

 
(c)  To the extent that the Borrower fails to pay any amount required to be paid
by it to any Agent or the Arranger under Section 12.03(a) or (b), each Lender
severally agrees to pay to such Agent or the Arranger, as the case may be, such
Lender’s ratable share (determined as of the time that the applicable
unreimbursed expense or indemnity payment is sought) of such unpaid amount;
provided that the unreimbursed expense or indemnified loss, claim, damage,
liability or related expense, as the case may be, was incurred by or asserted
against such Agent or the Arranger in its capacity as such.
 
73

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

 
(d)  To the extent permitted by applicable law, the Borrower shall not assert,
and hereby waives, any claim against any Indemnitee, on any theory of liability,
for special, indirect, consequential or punitive damages (as opposed to direct
or actual damages) arising out of, in connection with, or as a result of, this
Agreement, any other Loan Document or any agreement or instrument contemplated
hereby or thereby, the Transactions, any Loan or the use of the proceeds
thereof.
 
(e)  All amounts due under this Section 12.03 shall be payable promptly after
written demand therefor.
 
Section 12.04  Successors and Assigns.
 
(a)  The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns
permitted hereby, except that (i) the Borrower may not assign or otherwise
transfer any of its rights or obligations hereunder without the prior written
consent of each Lender (and any attempted assignment or transfer by the Borrower
without such consent shall be null and void) and (ii) no Lender may assign or
otherwise transfer its rights or obligations hereunder except in accordance with
this Section 12.04. Nothing in this Agreement, expressed or implied, shall be
construed to confer upon any Person (other than the parties hereto, their
respective successors and assigns permitted hereby, Participants (to the extent
provided in Section 12.04(c)) and, to the extent expressly contemplated hereby,
the Related Parties of each of the Administrative Agent and the Lenders) any
legal or equitable right, remedy or claim under or by reason of this Agreement.
 
(b)  (i) Subject to the conditions set forth in Section 12.04(b), any Lender may
assign to one or more assignees all or a portion of its rights and obligations
under this Agreement (including all or a portion of its Commitment and the Loans
at the time owing to it) with the prior written consent (such consent not to be
unreasonably withheld) of:
 
(A)  the Borrower, provided that no consent of the Borrower shall be required if
such assignment is to a Lender, an Affiliate of a Lender, an Approved Fund or,
if an Event of Default has occurred and is continuing, any other assignee; and
 
(B)  the Administrative Agent, provided that no consent of the Administrative
Agent shall be required for an assignment to an assignee that is a Lender or an
Affiliate of such assignor immediately prior to giving effect to such
assignment.
 
(ii)  Assignments shall be subject to the following additional conditions: 
 
(A)  except in the case of an assignment to a Lender or an Affiliate of a Lender
or an assignment of the entire remaining amount of the assigning Lender’s
Commitment or Loans, the amount of the Commitment or Loans of the assigning
Lender subject to each such assignment (determined as of the date the Assignment
and Assumption with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $5,000,000 unless each of the
Borrower and the Administrative Agent otherwise consent, provided that no such
consent of the Borrower shall be required if an Event of Default has occurred
and is continuing;
 
74

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

 
(B)  each partial assignment shall be made as an assignment of a proportionate
part of all the assigning Lender’s rights and obligations under this Agreement;
 
(C)  the parties to each assignment shall execute and deliver to the
Administrative Agent an Assignment and Assumption, together with a processing
and recordation fee of $3,500; and
 
(D)  the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire.
 
(iii)  Subject to Section 12.04(b) and the acceptance and recording thereof,
from and after the effective date specified in each Assignment and Assumption
the assignee thereunder shall be a party hereto and, to the extent of the
interest assigned by such Assignment and Assumption, have the rights and
obligations of a Lender under this Agreement, and the assigning Lender
thereunder shall, to the extent of the interest assigned by such Assignment and
Assumption, be released from its obligations under this Agreement (and, in the
case of an Assignment and Assumption covering all of the assigning Lender’s
rights and obligations under this Agreement, such Lender shall cease to be a
party hereto but shall continue to be entitled to the benefits of Section 5.01,
Section 5.02, Section 5.03 and Section 12.03). Any assignment or transfer by a
Lender of rights or obligations under this Agreement that does not comply with
this Section 12.04 shall be treated for purposes of this Agreement as a sale by
such Lender of a participation in such rights and obligations in accordance with
Section 12.04(c).
 
(iv)  The Administrative Agent, acting for this purpose as an agent of the
Borrower, shall maintain at one of its offices a copy of each Assignment and
Assumption delivered to it and a register for the recordation of the names and
addresses of the Lenders and principal amount of the Loans owing to each Lender
pursuant to the terms hereof from time to time (the “Register”). The entries in
the Register shall be conclusive, and the Borrower, the Administrative Agent and
the Lenders may treat each Person whose name is recorded in the Register
pursuant to the terms hereof as a Lender hereunder for all purposes of this
Agreement, notwithstanding notice to the contrary. The Register shall be
available for inspection by the Borrower and any Lender, at any reasonable time
and from time to time upon reasonable prior notice. In connection with any
changes to the Register, if necessary, the Administrative Agent will reflect the
revisions on Annex I and forward a copy of such revised Annex I to the Borrower
and each Lender.
 
(v)  Upon its receipt of a duly completed Assignment and Assumption executed by
an assigning Lender and an assignee, the assignee’s completed Administrative
Questionnaire and, if required hereunder, applicable tax forms (unless the
assignee shall already be a Lender hereunder), the processing and recordation
fee referred to in Section 12.04(b) and any written consent to such assignment
required by Section 12.04(b), the Administrative Agent shall accept such
Assignment and Assumption and record the information contained therein in the
Register. No assignment shall be effective for purposes of this Agreement unless
it has been recorded in the Register as provided in this Section 12.04(b).
 
75

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

 
(c)  (i) Any Lender may, without the consent of the Borrower or the
Administrative Agent, sell participations to one or more banks or other entities
(a “Participant”) in all or a portion of such Lender’s rights and obligations
under this Agreement (including all or a portion of the Loans owing to it);
provided that (A) such Lender’s obligations under this Agreement shall remain
unchanged, (B) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations and (C) the Borrower, the
Administrative Agent and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender’s rights and
obligations under this Agreement. Any agreement or instrument pursuant to which
a Lender sells such a participation shall provide that such Lender shall retain
the sole right to enforce this Agreement and to approve any amendment,
modification or waiver of any provision of this Agreement; provided that such
agreement or instrument may provide that such Lender will not, without the
consent of the Participant, agree to any amendment, modification or waiver
described in the proviso to Section 12.02 that affects such Participant. In
addition such agreement must provide that the Participant be bound by the
provisions of Section 12.03. Subject to Section 12.04(c)(ii), the Borrower
agrees that each Participant shall be entitled to the benefits of Section 5.01,
Section 5.02 and Section 5.03 to the same extent as if it were a Lender and had
acquired its interest by assignment pursuant to Section 12.04(b). To the extent
permitted by law, each Participant also shall be entitled to the benefits of
Section 12.08 as though it were a Lender, provided such Participant agrees to be
subject to Section 4.01(c) as though it were a Lender.
 
(ii) A Participant shall not be entitled to receive any greater payment under
Section 5.01 or Section 5.03 than the applicable Lender would have been entitled
to receive with respect to the participation sold to such Participant, unless
the sale of the participation to such Participant is made with the Borrower’s
prior written consent. A Participant that would be a Foreign Lender if it were a
Lender shall not be entitled to the benefits of Section 5.03 unless the Borrower
is notified of the participation sold to such Participant and such Participant
agrees, for the benefit of the Borrower, to comply with Section 5.03(e) as
though it were a Lender.
 
(d)  Any Lender may at any time pledge or assign a security interest in all or
any portion of its rights under this Agreement to secure obligations of such
Lender, including, without limitation, any pledge or assignment to secure
obligations to a Federal Reserve Bank or any other funding source of such
Lender, and this Section 12.04(d) shall not apply to any such pledge or
assignment of a security interest; provided that no such pledge or assignment of
a security interest shall release a Lender from any of its obligations hereunder
or substitute any such pledgee or assignee for such Lender as a party hereto.
 
(e)  Notwithstanding any other provisions of this Section 12.04, no transfer or
assignment of the interests or obligations of any Lender or any grant of
participations therein shall be permitted if such transfer, assignment or grant
would require the Borrower and the Guarantors to file a registration statement
with the SEC or to qualify the Loans under the “Blue Sky” laws of any state.
 
Section 12.05  Survival; Revival; Reinstatement.
 
(a)  All covenants, agreements, representations and warranties made by the
Borrower herein and in the certificates or other instruments delivered in
connection with or pursuant to this Agreement or any other Loan Document shall
be considered to have been relied upon by the other parties hereto and shall
survive the execution and delivery of this Agreement and the making of any
Loans, regardless of any investigation made by any such other party or on its
behalf and notwithstanding that the Administrative Agent, any other Agent or any
Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended hereunder, and
shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any fee or any other amount payable under this
Agreement is outstanding and unpaid. The provisions of Section 5.01, Section
5.02, Section 5.03 and Section 12.03 and ARTICLE XI shall survive and remain in
full force and effect regardless of the consummation of the transactions
contemplated hereby, the repayment of the Loans or the termination of this
Agreement, any other Loan Document or any provision hereof or thereof.
 
76

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

 
(b)  To the extent that any payments on the Indebtedness or proceeds of any
collateral are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or other Person under any bankruptcy law, common law or
equitable cause, then to such extent, the Indebtedness so satisfied shall be
revived and continue as if such payment or proceeds had not been received and
the Administrative Agent’s and the Lenders’ Liens, security interests, rights,
powers and remedies under this Agreement and each Loan Document shall continue
in full force and effect. In such event, each Loan Document shall be
automatically reinstated and the Borrower shall take such action as may be
reasonably requested by the Administrative Agent and the Lenders to effect such
reinstatement.
 
Section 12.06  Counterparts; Integration; Effectiveness.
 
(a)  This Agreement may be executed in counterparts (and by different parties
hereto on different counterparts), each of which shall constitute an original,
but all of which when taken together shall constitute a single contract.
 
(b)  This Agreement, the other Loan Documents and any separate letter agreements
with respect to fees payable to the Administrative Agent constitute the entire
contract among the parties relating to the subject matter hereof and thereof and
supersede any and all previous agreements and understandings, oral or written,
relating to the subject matter hereof and thereof. THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES HERETO AND
THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
 
(c)  Except as provided in Section 6.01, this Agreement shall become effective
when it shall have been executed by the Administrative Agent and when the
Administrative Agent shall have received counterparts hereof which, when taken
together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Delivery of an executed counterpart
of a signature page of this Agreement by telecopy shall be effective as delivery
of a manually executed counterpart of this Agreement.
 
77

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

 
Section 12.07  Severability. Any provision of this Agreement or any other Loan
Document held to be invalid, illegal or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such invalidity,
illegality or unenforceability without affecting the validity, legality and
enforceability of the remaining provisions hereof or thereof; and the invalidity
of a particular provision in a particular jurisdiction shall not invalidate such
provision in any other jurisdiction.
 
Section 12.08  Right of Setoff. If an Event of Default shall have occurred and
be continuing, each Lender and each of its Affiliates is hereby authorized at
any time and from time to time, to the fullest extent permitted by law, to set
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other obligations (of whatsoever
kind, including, without limitations obligations under Swap Agreements) at any
time owing by such Lender or Affiliate to or for the credit or the account of
the Borrower or any Subsidiary against any of and all the obligations of the
Borrower or any Subsidiary owed to such Lender now or hereafter existing under
this Agreement or any other Loan Document, irrespective of whether or not such
Lender shall have made any demand under this Agreement or any other Loan
Document and although such obligations may be unmatured. The rights of each
Lender under this Section 12.08 are in addition to other rights and remedies
(including other rights of setoff) which such Lender or its Affiliates may have.
 
Section 12.09  GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS.
 
(a)  THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT
THAT UNITED STATES FEDERAL LAW PERMITS ANY LENDER TO CONTRACT FOR, CHARGE,
RECEIVE, RESERVE OR TAKE INTEREST AT THE RATE ALLOWED BY THE LAWS OF THE STATE
WHERE SUCH LENDER IS LOCATED. CHAPTER 346 OF THE TEXAS FINANCE CODE (WHICH
REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRI-PARTY
ACCOUNTS) SHALL NOT APPLY TO THIS AGREEMENT OR THE NOTES.
 
(b)  ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS MAY BE
BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES OF AMERICA
FOR THE SOUTHERN DISTRICT OF TEXAS, HOUSTON DIVISION, AND, BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, EACH PARTY HEREBY ACCEPTS FOR ITSELF AND (TO THE
EXTENT PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH PARTY HEREBY
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION
TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN
SUCH RESPECTIVE JURISDICTIONS. THIS SUBMISSION TO JURISDICTION IS NON-EXCLUSIVE
AND DOES NOT PRECLUDE A PARTY FROM OBTAINING JURISDICTION OVER ANOTHER PARTY IN
ANY COURT OTHERWISE HAVING JURISDICTION.
 
78

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

 
(c)  EACH PARTY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT THE ADDRESS
SPECIFIED IN SECTION 12.01 OR SUCH OTHER ADDRESS AS IS SPECIFIED PURSUANT TO
SECTION 12.01 (OR ITS ASSIGNMENT AND ASSUMPTION), SUCH SERVICE TO BECOME
EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE
RIGHT OF A PARTY OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
ANOTHER PARTY IN ANY OTHER JURISDICTION.
 
(d)  EACH PARTY HEREBY (i) IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM
THEREIN; (ii) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW,
ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN
ADDITION TO, ACTUAL DAMAGES; (iii) CERTIFIES THAT NO PARTY HERETO NOR ANY
REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (iv) ACKNOWLEDGES THAT IT
HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE LOAN DOCUMENTS AND THE
TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 12.09.
 
Section 12.10  Headings. Article and Section headings and the Table of Contents
used herein are for convenience of reference only, are not part of this
Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
 
Section 12.11  Confidentiality. Each of the Administrative Agent and the Lenders
agrees to maintain the confidentiality of the Information (as defined below),
except that Information may be disclosed (a) to its and its Affiliates’
directors, officers, employees and agents, including accountants, legal counsel
and other advisors (it being understood that the Persons to whom such disclosure
is made will be informed of the confidential nature of such Information and
instructed to keep such Information confidential), (b) to the extent requested
by any regulatory authority, (c) to the extent required by applicable laws or
regulations or by any subpoena or similar legal process, (d) to any other party
to this Agreement or any other Loan Document, (e) in connection with the
exercise of any remedies hereunder or under any other Loan Document or any suit,
action or proceeding relating to this Agreement or any other Loan Document or
the enforcement of rights hereunder or thereunder, (f) subject to an agreement
to comply with the provisions of this Section, to any actual or prospective
Transferee (or any professional advisor to such counterparty), (g) with the
consent of the Borrower, (h) to the extent such Information (i) becomes publicly
available other than as a result of a breach of this Section 12.11 or (ii)
becomes available to the Administrative Agent or any Lender on a nonconfidential
basis from a source other than the Borrower, (i) to the National Association of
Insurance Commissioners or any similar organization or any nationally recognized
rating agency that requires access to information about a Lender’s investment
portfolio in connection with ratings issued with respect to such Lender or (j)
to any of its funding sources. For the purposes of this Section 12.11,
“Information” means all information received from the Borrower or any Subsidiary
relating to the Borrower or any Subsidiary and their businesses, other than any
such information that is available to the Administrative Agent or any Lender on
a nonconfidential basis prior to disclosure by the Borrower or a Subsidiary;
provided that, in the case of information received from the Borrower or any
Subsidiary after the date hereof, such information is clearly identified at the
time of delivery as confidential. Any Person required to maintain the
confidentiality of Information as provided in this Section 12.11 shall be
considered to have complied with its obligation to do so if such Person has
exercised the same degree of care to maintain the confidentiality of such
Information as such Person would accord to its own confidential information.
 
79

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

 
Section 12.12  Interest Rate Limitation. It is the intention of the parties
hereto that each Lender shall conform strictly to usury laws applicable to it.
Accordingly, if the transactions contemplated hereby would be usurious as to 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 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 Notes, it is agreed as follows: (i) the aggregate of all
consideration which constitutes interest under law applicable to any Lender that
is contracted for, taken, reserved, charged or received by such Lender under any
of the Loan Documents or agreements or otherwise in connection with the Notes
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 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 such Lender to the
Borrower); and (ii) in the event that the maturity of the Notes 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 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 such Lender as of
the date of such acceleration or prepayment and, if theretofore paid, shall be
credited by 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 such Lender to the Borrower). All sums paid
or agreed to be paid to any Lender for the use, forbearance or detention of sums
due hereunder shall, to the extent permitted by law applicable to such Lender,
be amortized, prorated, allocated and spread throughout the stated term of the
Loans evidenced by the Notes 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 any Lender on any date shall be computed at the
Highest Lawful Rate applicable to such Lender pursuant to this Section 12.12 and
(ii) in respect of any subsequent interest computation period the amount of
interest otherwise payable to such Lender would be less than the amount of
interest payable to such Lender computed at the Highest Lawful Rate applicable
to such Lender, then the amount of interest payable to such Lender in respect of
such subsequent interest computation period shall continue to be computed at the
Highest Lawful Rate applicable to such Lender until the total amount of interest
payable to such Lender shall equal the total amount of interest which would have
been payable to such Lender if the total amount of interest had been computed
without giving effect to this Section 12.12. To the extent that Chapter 303 of
the Texas Finance Code is relevant for the purpose of determining the Highest
Lawful Rate applicable to a Lender, 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 the
Borrower’s obligations hereunder.
 
80

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

 
Section 12.13  EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO SPECIFICALLY
AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT HAS IN FACT READ THIS AGREEMENT
AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS, CONDITIONS
AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL
COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND HAS RECEIVED THE ADVICE OF ITS
ATTORNEY IN ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND THAT
IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF
THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH
LIABILITY. EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE
VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE
OF SUCH PROVISION OR THAT THE PROVISION IS NOT “CONSPICUOUS.”
 
Section 12.14  No Third Party Beneficiaries. This Agreement, the other Loan
Documents, and the agreement of the Lenders to make Loans hereunder are solely
for the benefit of the Borrower, and no other Person (including, without
limitation, any Subsidiary of the Borrower, any obligor, contractor,
subcontractor, supplier or materialsman) shall have any rights, claims, remedies
or privileges hereunder or under any other Loan Document against the
Administrative Agent, any other Agent or any Lender for any reason whatsoever.
There are no third party beneficiaries.
 
Section 12.15  USA Patriot Act Notice. Each Lender hereby notifies the Borrower
that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L.
107-56 (signed into law October 26, 2001)) (the “Act”), it is required to
obtain, verify and record information that identifies the Borrower, which
information includes the name and address of the Borrower and other information
that will allow such Lender to identify the Borrower in accordance with the Act.
 
81

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

 
[SIGNATURES BEGIN NEXT PAGE]
 
82

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

The parties hereto have caused this Agreement to be duly executed as of the day
and year first above written.

      BORROWER:  AURORA OIL & GAS CORPORATION  
   
   
  By:  
/s/ William W. Deneau
 

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

William W. Deneau, Chief Executive Officer

 
Signature Page- Second Lien Term Loan Agreement -1

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

   
 
ADMINISTRATIVE AGENT: BNP PARIBAS,  
  as Administrative Agent and Lender
  
   
By:  /s/ Betsy Jocher
 

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

Name: Betsy Jocher 
Title: Director 

 

       
By:  /s/ Russell Otts
 

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

Name: Russell Otts
Title: Vice President

 
Signature Page- Second Lien Term Loan Agreement -2

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

LENDERS:  LAMINAR DIRECT CAPITAL L.P.      
 
 
By:  /s/ Robert T. Ladd
 

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

Name: Robert T. Ladd
Title: President

 
Signature Page- Second Lien Term Loan Agreement -3

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

CIT CAPITAL USA INC.      
 
 
By:  /s/ George E. McKean
 

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

Name: George E. McKean
Title: Vice President

 
Signature Page- Second Lien Term Loan Agreement -4

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

ENERGY COMPONENTS SPC UP- AND MIDSTREAM SEGREGATED PORTFOLIO        
By:  /s/ Warren Keens 
 

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

Name: Warren Keens
Title: Director

 
Signature Page- Second Lien Term Loan Agreement -5

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

ANNEX I
LIST OF COMMITMENTS

Name of Lender
 
Percentage
 
Commitment Amount
 
Laminar Direct Capital L.P.
   
60
%
$
30,000,000.00
 
CIT Capital USA Inc.
   
20
%
$
10,000,000.00
 
Energy Components SPC Up- and Midstream Segregated Portfolio
   
10
%
$
5,000,000.00
 
BNP Paribas
   
10
%
$
5,000,000.00
 
TOTAL
   
100
%
$
50,000,000.00
 

 
ANNEX I

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

 
EXHIBIT A
FORM OF NOTE
 

$[          ] 
[          ], 200[     ]

 
FOR VALUE RECEIVED, Aurora Oil & Gas Corporation, a Utah corporation (the
“Borrower”) hereby promises to pay to the order of [          ] (the “Lender”),
at the principal office of BNP Paribas (the “Administrative Agent”), the
principal sum of [          ] Dollars ($[          ]), in lawful money of the
United States of America and in immediately available funds, on the dates and in
the principal amounts provided in the Loan Agreement, and to pay interest on the
unpaid principal amount of each such Loan, at such office, in like money and
funds, for the period commencing on the date of such Loan until such Loan shall
be paid in full, at the rates per annum and on the dates provided in the Loan
Agreement.
 
The date, amount, Type, interest rate, Interest Period and maturity of the Loan
made by the Lender to the Borrower, and each payment made on account of the
principal thereof, shall be recorded by the Lender on its books and, prior to
any transfer of this Note, may be endorsed by the Lender on the schedules
attached hereto or any continuation thereof or on any separate record maintained
by the Lender. Failure to make any such notation or to attach a schedule shall
not affect any Lender’s or the Borrower’s rights or obligations in respect of
such Loan or affect the validity of such transfer by any Lender of this Note.
 
This Note is one of the Notes referred to in the Second Lien Term Loan Agreement
dated as of August 20, 2007 among the Borrower, the Administrative Agent, and
the other agents and lenders signatory thereto (including the Lender), and
evidences Loans made by the Lender thereunder (such Loan Agreement as the same
may be amended, supplemented or restated from time to time, the “Loan
Agreement”). Capitalized terms used in this Note have the respective meanings
assigned to them in the Loan Agreement.
 
This Note is issued pursuant to, and is subject to the terms and conditions set
forth in, the Loan Agreement and is entitled to the benefits provided for in the
Loan Agreement and the other Loan Documents. The Loan Agreement provides for the
acceleration of the maturity of this Note upon the occurrence of certain events,
for prepayments of Loans upon the terms and conditions specified therein and
other provisions relevant to this Note.
 
EXHIBIT A-1

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

 
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF TEXAS.
 

AURORA OIL & GAS CORPORATION          
By:  
 
 

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

Name:
Title:

 
EXHIBIT A-2

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

 
EXHIBIT B
FORM OF BORROWING REQUEST
 
[                   ], 200[   ]
 
Aurora Oil & Gas Corporation, a Utah corporation (the “Borrower”), pursuant to
Section 2.03 of the Second Lien Term Loan Agreement dated as of August 20, 2007
(together with all amendments, restatements, supplements or other modifications
thereto, the “Loan Agreement”) among the Borrower, BNP Paribas, as
Administrative Agent and the other agents and lenders (the “Lenders”) which are
or become parties thereto (unless otherwise defined herein, each capitalized
term used herein is defined in the Loan Agreement), hereby requests a Tranche as
follows:
 
(i) Aggregate amount of the requested Loan is $[                   ];
 
(ii) Date of such Loan is [                   ], 200[   ];
 
(iii) The initial Interest Period applicable thereto is [                   ];
 
(iv) Location and number of the Borrower’s account to which funds are to be
disbursed, which shall comply with the requirements of Section 2.05 of the Loan
Agreement, is as follows:

[_________________]
[_________________]
[_________________]
[_________________]

The undersigned certifies that he/she is the [                ] of the Borrower,
and that as such he/she is authorized to execute this certificate on behalf of
the Borrower. The undersigned further certifies, represents and warrants on
behalf of the Borrower that the Borrower is entitled to receive the requested
Loan under the terms and conditions of the Loan Agreement.
 

AURORA OIL & GAS CORPORATION          
By:  
 
 

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

Name:
Title:

 
EXHIBIT B-1

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

 
EXHIBIT C
FORM OF INTEREST ELECTION REQUEST
 
[                ], 200[   ]
 
Aurora Oil & Gas Corporation, a Utah corporation (the “Borrower”), pursuant to
Section 2.04 of the Second Lien Term Loan Agreement dated as of August 20, 2007
(together with all amendments, restatements, supplements or other modifications
thereto, the “Loan Agreement”) among the Borrower, BNP Paribas, as
Administrative Agent and the other agents and lenders (the “Lenders”) which are
or become parties thereto (unless otherwise defined herein, each capitalized
term used herein is defined in the Loan Agreement), hereby makes an Interest
Election Request as follows:
 
(i) The Tranche to which this Interest Election Request applies, and if
different options are being elected with respect to different portions thereof,
the portions thereof to be allocated to each resulting Tranche (in which case
the information specified pursuant to (iii) and (iv) below shall be specified
for each resulting Tranche) is [                ];
 
(ii) The effective date of the election made pursuant to this Interest Election
Request is [                ], 200[   ]; [and]
 
(iii) The Interest Period applicable to the resulting Tranche after giving
effect to such election is [                ]].
 
The undersigned certifies that he/she is the [                ] of the Borrower,
and that as such he/she is authorized to execute this certificate on behalf of
the Borrower. The undersigned further certifies, represents and warrants on
behalf of the Borrower that the Borrower is entitled to receive the requested
continuation under the terms and conditions of the Loan Agreement.
 

AURORA OIL & GAS CORPORATION          
By:  
 
 

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

Name:
Title:

 
EXHIBIT C-1

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

 
EXHIBIT D
FORM OF
COMPLIANCE CERTIFICATE
 
The undersigned hereby certifies that he/she is the [          ] of Aurora Oil &
Gas Corporation, a Utah corporation (the “Borrower”), and that as such he/she is
authorized to execute this certificate on behalf of the Borrower. With reference
to the Second Lien Term Loan Agreement dated as of August 20, 2007 (together
with all amendments, restatements, supplements or other modifications thereto
being the “Agreement”) among the Borrower, BNP Paribas, as Administrative Agent,
and the other agents and lenders (the “Lenders”) which are or become a party
thereto, and such Lenders, the undersigned represents and warrants as follows
(each capitalized term used herein having the same meaning given to it in the
Agreement unless otherwise specified):
 
(a) The Borrower has performed and complied with all agreements and conditions
contained in the Agreement and in the Loan Documents required to be performed or
complied with by it prior to or at the time of delivery hereof [or specify
default and describe].
 
(b) Since December 31, 2006, no change has occurred, either in any case or in
the aggregate, in the condition, financial or otherwise, of the Borrower or any
Subsidiary which could reasonably be expected to have a Material Adverse Effect
[or specify event].
 
(c) There exists no Default or Event of Default [or specify Default and
describe].
 
(d) Attached hereto are the detailed computations necessary to determine whether
the Borrower is in compliance with Section 9.01 and Section 8.14 as of the end
of the [fiscal quarter][fiscal year] ending [          ].
 
EXECUTED AND DELIVERED this [          ] day of [          ].
 

AURORA OIL & GAS CORPORATION          
By:  
 
 

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

Name:
Title:

 
EXHIBIT D-1

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

 
EXHIBIT E-1
SECURITY INSTRUMENTS
 
1)
Second Lien Guaranty and Collateral Agreement dated as of August 20, 2007 by the
Borrower and the Guarantors, in favor of the Administrative Agent and the
Lenders.

 

2)
Financing Statements in respect of item 1, by

 

a)
the Borrower

 

b)
Aurora Energy, Ltd.

 

c)
Aurora Antrim North, L.L.C.

 
3)
Second Lien Deed of Trust, Mortgage, Assignment of As-Extracted Collateral,
Security Agreement and Financing Statement dated as of August 20, 2007 by Aurora
Antrim North, L.L.C., as mortgagor, in favor of Betsy Jocher, as Trustee, for
the benefit the Administrative Agent, the Lenders and others.

 

4)
Financing Statement in respect of item 3.

 

5)
Fee Letter with Administrative Agent

 
EXHIBIT E-1-1

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

 
EXHIBIT E-2
FORM OF SECOND LIEN GUARANTY AND COLLATERAL AGREEMENT
 
EXHIBIT E-2-1

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

 
EXHIBIT F
FORM OF ASSIGNMENT AND ASSUMPTION
 
This Assignment and Assumption (the “Assignment and Assumption”) is dated as of
the Effective Date set forth below and is entered into by and between [Insert
name of Assignor] (the “Assignor”) and [Insert name of Assignee] (the
“Assignee”). Capitalized terms used but not defined herein shall have the
meanings given to them in the Loan Agreement identified below (as amended, the
“Loan Agreement”), receipt of a copy of which is hereby acknowledged by the
Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto
are hereby agreed to and incorporated herein by reference and made a part of
this Assignment and Assumption as if set forth herein in full.

For an agreed consideration, the Assignor hereby irrevocably sells and assigns
to the Assignee, and the Assignee hereby irrevocably purchases and assumes from
the Assignor, subject to and in accordance with the Standard Terms and
Conditions and the Loan Agreement, as of the Effective Date inserted by the
Administrative Agent as contemplated below (i) all of the Assignor’s rights and
obligations in its capacity as a Lender under the Loan Agreement and any other
documents or instruments delivered pursuant thereto to the extent related to the
amount and percentage interest identified below of all of such outstanding
rights and obligations of the Assignor under the respective facilities
identified below (including any guarantees included in such facilities) and (ii)
to the extent permitted to be assigned under applicable law, all claims, suits,
causes of action and any other right of the Assignor (in its capacity as a
Lender) against any Person, whether known or unknown, arising under or in
connection with the Loan Agreement, any other documents or instruments delivered
pursuant thereto or the loan transactions governed thereby or in any way based
on or related to any of the foregoing, including contract claims, tort claims,
malpractice claims, statutory claims and all other claims at law or in equity
related to the rights and obligations sold and assigned pursuant to clause (i)
above (the rights and obligations sold and assigned pursuant to clauses (i) and
(ii) above being referred to herein collectively as the “Assigned Interest”).
Such sale and assignment is without recourse to the Assignor and, except as
expressly provided in this Assignment and Assumption, without representation or
warranty by the Assignor.
 

1. Assignor:
______________________________
        2. Assignee: ______________________________     [and is an
Affiliate/Approved Fund of [identify Lender]]         3. Borrower: Aurora Oil &
Gas Corporation         4. Administrative Agent: BNP Paribas, as the
administrative agent under the Loan Agreement        
5. Loan Agreement: 
The Second Lien Term Loan Agreement dated as of August 20, 2007 among Aurora Oil
& Gas Corporation, the Lenders parties thereto, BNP Paribas, as Administrative
Agent, and the other agents parties thereto  

 
EXHIBIT F-1

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

 
6.  Assigned Interest:
 
Aggregate Amount of Loans for all Lenders
 
Amount of Loans Assigned
 
Percentage Assigned of Loans
$
 
$
 
%
$
 
$
 
%
$
 
$
 
%

 

Effective Date: _____________ ___, 20___ [TO BE INSERTED BY ADMINISTRATIVE AGENT
AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER
THEREFOR.]

The terms set forth in this Assignment and Assumption are hereby agreed to:
 
ASSIGNOR
     
[NAME OF ASSIGNOR]
         
By:  
 
 

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

Title:

 
ASSIGNEE
     
[NAME OF ASSIGNEE]
         
By:  
 
 

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

Title:

 
EXHIBIT F-2

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

 

Consented to and Accepted: [if required]    
BNP Paribas, as
Administrative Agent
    By:    

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

Title:
 
 
    By:    

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

Title:
 

 
 

Consented to: [if required]     AURORA OIL & GAS CORPORATION         By:    

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

Name:
Title:
 
 

 
EXHIBIT F-3

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

 
ANNEX 1

AURORA OIL & GAS CORPORATION SECOND LIEN TERM LOAN AGREEMENT

STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION

1. Representations and Warranties.

1.1 Assignor. The Assignor (a) represents and warrants that (i) it is the legal
and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is
free and clear of any lien, encumbrance or other adverse claim and (iii) it has
full power and authority, and has taken all action necessary, to execute and
deliver this Assignment and Assumption and to consummate the transactions
contemplated hereby; and (b) assumes no responsibility with respect to (i) any
statements, warranties or representations made in or in connection with the Loan
Agreement or any other Loan Document, (ii) the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Loan Documents or any
collateral thereunder, (iii) the financial condition of the Borrower, any of its
Subsidiaries or Affiliates or any other Person obligated in respect of any Loan
Document or (iv) the performance or observance by the Borrower, any of its
Subsidiaries or Affiliates or any other Person of any of their respective
obligations under any Loan Document.

1.2. Assignee. The Assignee (a) represents and warrants that (i) it has full
power and authority, and has taken all action necessary, to execute and deliver
this Assignment and Assumption and to consummate the transactions contemplated
hereby and to become a Lender under the Loan Agreement, (ii) it satisfies the
requirements, if any, specified in the Loan Agreement that are required to be
satisfied by it in order to acquire the Assigned Interest and become a Lender,
(iii) from and after the Effective Date, it shall be bound by the provisions of
the Loan Agreement as a Lender thereunder and, to the extent of the Assigned
Interest, shall have the obligations of a Lender thereunder, (iv) it has
received a copy of the Loan Agreement, together with copies of the most recent
financial statements delivered pursuant to Section 8.01 thereof, as applicable,
and such other documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into this Assignment and
Assumption and to purchase the Assigned Interest on the basis of which it has
made such analysis and decision independently and without reliance on the
Administrative Agent or any other Lender, and (v) if it is a Foreign Lender,
attached to the Assignment and Assumption is any documentation required to be
delivered by it pursuant to the terms of the Loan Agreement, duly completed and
executed by the Assignee; and (b) agrees that (i) it will, independently and
without reliance on the Administrative Agent, the Assignor 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 the Loan Documents, and (ii) it will perform in accordance with their
terms all of the obligations which by the terms of the Loan Documents are
required to be performed by it as a Lender.

2. Payments. From and after the Effective Date, the Administrative Agent shall
make all payments in respect of the Assigned Interest (including payments of
principal, interest, fees and other amounts) to the Assignor for amounts which
have accrued to but excluding the Effective Date and to the Assignee for amounts
which have accrued from and after the Effective Date.

3. General Provisions. This Assignment and Assumption shall be binding upon, and
inure to the benefit of, the parties hereto and their respective successors and
assigns. This Assignment and Assumption may be executed in any number of
counterparts, which together shall constitute one instrument. Delivery of an
executed counterpart of a signature page of this Assignment and Assumption by
telecopy shall be effective as delivery of a manually executed counterpart of
this Assignment and Assumption. This Assignment and Assumption shall be governed
by, and construed in accordance with, the law of the State of Texas.
 
EXHIBIT F-5

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

 
EXHIBIT G-1
FORM OF ADDITIONAL LOAN CERTIFICATE

[          ], 200[    ]

To: BNP Paribas,
as Administrative Agent

The Borrower, the Administrative Agent and the other Agents and certain Lenders
have heretofore entered into a Second Lien Term Loan Agreement, dated as of
August 20, 2007, as amended from time to time (the “Loan Agreement”).
Capitalized terms not otherwise defined herein shall have the meaning given to
such terms in the Loan Agreement.

This Additional Loan Certificate is being delivered pursuant to Section 2.07(a)
of the Loan Agreement.

Please be advised that the undersigned has agreed (a) to make additional Loans
under the Loan Agreement effective August 20, 2007 in the aggregate amount of
$[          ] and (b) that it shall continue to be a party in all respect to the
Loan Agreement and the other Loan Documents.

The [Borrower/Lender] shall pay the fee payable to the Administrative Agent
pursuant to Section 2.07(b) of the Loan Agreement.
 

Very truly yours,      
[     ]
         
By:  
 

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

Name:

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

Title:

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

 
EXHIBIT G-1-1

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

 
Accepted and Agreed:
   
BNP PARIBAS,
as Administrative Agent
        By:    

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

Name:

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

Title:

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

 
 

By:    

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

Name:

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

Title:

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

 
Accepted and Agreed:
 
[    ]
 

By:    

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

Name:

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

Title:

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

 
EXHIBIT G-1-2

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

 
EXHIBIT G-2
FORM OF ADDITIONAL LENDER CERTIFICATE

[          ], 200[    ]

To: BNP Paribas,
as Administrative Agent

The Borrower, the Administrative Agent and the other Agents and certain Lenders
have heretofore entered into a Second Lien Term Loan Agreement, dated as of
August 20, 2007, as amended from time to time (the “Loan Agreement”).
Capitalized terms not otherwise defined herein shall have the meaning given to
such terms in the Loan Agreement.

This Additional Lender Certificate is being delivered pursuant to Section
2.07(a) of the Loan Agreement.

Please be advised that the undersigned has agreed (a) to become a Lender under
the Loan Agreement effective August 20, 2007 and to make a Loan to the Borrower
in the aggregate amount of $[          ] and (b) that it shall be a party in all
respect to the Loan Agreement and the other Loan Documents.

This Additional Lender Certificate is being delivered to the Administrative
Agent together with (i) if the Additional Lender is a Foreign Lender, any
documentation required to be delivered by such Additional Lender pursuant to
Section 5.03(e) of the Loan Agreement, duly completed and executed by the
Additional Lender, and (ii) an Administrative Questionnaire in the form supplied
by the Administrative Agent, duly completed by the Additional Lender. The
[Borrower/Additional Lender] shall pay the fee payable to the Administrative
Agent pursuant to Section 2.07(b) of the Loan Agreement.
 

Very truly yours,      
[     ]
         
By:  
 
 

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

Name:

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

Title:

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

 

 
EXHIBIT G-2-1

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

 
SCHEDULE 7.05
LITIGATION
 
[None]
 
SCHEDULE 7.05-1

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

 
SCHEDULE 7.14
SUBSIDIARIES AND PARTNERSHIPS

Name of Subsidiary
 
Jurisdiction and entity
 
Entity number
Aurora Oil & Gas Corporation
 
Utah Corporation
 
608892-0142
         
Aurora Energy, Ltd.
 
Nevada corporation
 
C7051-1991
         
Celebration Mining Company
 
Washington corporation
 
601525229
         
Bach Services & Manufacturing Company, L.L.C.
 
Michigan limited liability company
 
D0798X
         
Kingsley Development Company, L.L.C.
 
Michigan limited liability company
 
B81092
         
Aurora Antrim North, L.L.C.
 
Michigan limited liability company
 
B80030
         
Aurora Operating, L.L.C.
 
Michigan limited liability company
 
B71015
         
Hudson Pipeline & Processing Co., LLC
(Aurora Antrim North, L.L.C. owns 93.6%)
 
Michigan limited liability company
 
B0008T
         
Indiana Royalty Trustory, L.L.C.
(Aurora Energy, Ltd. owns 51%)
 
Michigan limited liability company
 
B24031
         
Aurora Holding, L.L.C.
 
Michigan limited liability company
 
B83167
         
Consolidated Exploration, L.L.C.
 
Michigan limited liability company
 
LC1804
         
Indigas Energy, L.L.C.
 
Indiana limited liability company
 
1995111315
         
BFG Holding, L.L.C.
 
Michigan limited liability company
 
B0361G

 
SCHEDULE 7.14-1

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

 
SCHEDULE 7.18
GAS IMBALANCES
 
None
 
SCHEDULE 7.18-1

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

 
SCHEDULE 7.19
MARKETING CONTRACTS

None.
 
SCHEDULE 7.19-1

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

 
SCHEDULE 7.20
SWAP AGREEMENTS

 
Period
 
Type of Contract
 
Natural Gas Volume per Day
 
Price per mmbtu
 
April 2007—December 2008
   
Swap
   
5,000 mmbtu
 
$
9.00
 
April 2007—December 2008
   

Collar
   

2,000 mmbtu
 

$

7.55/$9.00
 
 
January 2008—December 2008
   

Swap
   

2,000 mmbtu
 

$

8.41
 
 
January 2009—December 2009
   

Swap
   

7,000 mmbtu
 

$

8.72
 
 
January 2010—March 2011
   

Swap
   

7,000 mmbtu
 

$

8.68
 
 
April 2011 -- September 2011
   

Swap
   

7,000 mmbtu
 

$

7.62
 

 
SCHEDULE 7.20-1

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

 
SCHEDULE 9.05
INVESTMENTS
 
None
 
SCHEDULE 9.05-1

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

 
 
SCHEDULE 9.12
OTHER PROPERTY
 

 
PROJECT NAME
 
Type
 
Project Location
           
(Parts of the Following Counties/States)

 
I. Oil and Gas Properties - Leasehold interests (not reflected in reserve
report)
 
A.
Oak Tree Leasehold Interests/AOK Energy, LLC
     
.
J.V. Partner/Project Financing
Other
 
Cleveland, Pottawatomie, McClain Counties, OK
           
B.
Rex - NAS Option Acreage
       
1)
Lawrence Cty (30% pending)
New Albany
 
Lawrence County, Indiana
           
C.
Geopetra Investment - Various Gulf of Mexico Projects
     
1)
Mustang Island
Other
 
Gulf of Mexico, Offshore, Texas
 
2)
Bayou de Glaises
Other
 
St. Martin Parish, Louisiana
           
II. Other Oil and Gas related Property and Equipment
         
A.
CO2 Plant
Michigan
 
Charlevoix County, Michigan

SCHEDULE 9.12-1

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