Exhibit 10.1
 
$100,000,000
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
among
DELTA PETROLEUM CORPORATION
as Borrower,
THE LENDERS PARTY HERETO from time to time
as Lenders,
and
MACQUARIE BANK LIMITED,
as Administrative Agent and Issuing Lender
December 29, 2010
 

 

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TABLE OF CONTENTS

              Page  
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS
    1  
 
       
Section 1.1. Certain Defined Terms
    1  
Section 1.2. Computation of Time Periods
    2  
Section 1.3. Accounting Terms; Changes in GAAP
    2  
Section 1.4. Types of Advances
    2  
Section 1.5. Miscellaneous
    2  
 
       
ARTICLE II CREDIT FACILITIES
    2  
 
       
Section 2.1. Maximum Commitment
    3  
Section 2.2. Availability and Purpose of Revolving Loan Advances
    3  
Section 2.3. Availability and Purposes of Term Loan Advances
    7  
Section 2.4. Development Plan
    7  
Section 2.5. Method of Borrowing
    8  
Section 2.6. Reduction of the Commitments
    10  
Section 2.7. Prepayment of Advances
    11  
Section 2.8. Repayment of the Term Loan; Net Operating Cash Flow
    13  
Section 2.9. Repayment of Revolving Loan
    13  
Section 2.10. Letters of Credit
    14  
Section 2.11. Time and Place of Payments
    18  
Section 2.12. Borrower Sub-Account; Disbursements
    18  
Section 2.13. Fees
    20  
Section 2.14. Interest
    21  
Section 2.15. Payments and Computations
    22  
Section 2.16. Sharing of Payments, Etc.
    23  
Section 2.17. Breakage Costs
    23  
Section 2.18. Increased Costs
    24  
Section 2.19.Taxes
    25  
Section 2.20. Replacement of Lender
    28  
 
       
ARTICLE III CONDITIONS
    29  
 
       
Section 3.1. Conditions Precedent to Initial Borrowings
    29  
Section 3.2. Conditions Precedent to All Borrowings
    33  
 
       
ARTICLE IV REPRESENTATIONS AND WARRANTIES
    34  
 
       
Section 4.1. Existence
    34  
Section 4.2. Power
    34  
Section 4.3. Authorization and Approvals
    34  
Section 4.4. Enforceable Obligations
    34  
Section 4.5. Financial Statements
    35  
Section 4.6. True and Complete Disclosure
    35  
Section 4.7. Litigation; Compliance with Laws
    35  

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              Page  
Section 4.8. Use of Proceeds
    36  
Section 4.9. Investment Company Act
    36  
Section 4.10. Taxes
    36  
Section 4.11. Pension Plans
    36  
Section 4.12. Condition of Property; Casualties
    37  
Section 4.13. No Burdensome Restrictions; No Defaults
    37  
Section 4.14. Environmental Condition
    38  
Section 4.15. Permits, Licenses, Etc.
    38  
Section 4.16. Gas Contracts
    38  
Section 4.17. Liens; Titles, Leases, Etc.
    39  
Section 4.18. Solvency and Insurance
    39  
Section 4.19. Hedging Agreements
    39  
Section 4.20. Material Agreements
    39  
Section 4.21. Other Notes
    40  
Section 4.22. JPMorgan Credit Facility
    40  
Section 4.23. Liquidity Position
    40  
 
       
ARTICLE V AFFIRMATIVE COVENANTS
    40  
 
       
Section 5.1. Compliance with Laws, Etc.
    40  
Section 5.2. Maintenance of Insurance
    40  
Section 5.3. Preservation of Corporate Existence, Etc.
    41  
Section 5.4. Payment of Taxes, Etc.
    41  
Section 5.5. Visitation Rights
    41  
Section 5.6. Reporting Requirements
    42  
Section 5.7. Maintenance of Property
    46  
Section 5.8. Agreement to Pledge
    46  
Section 5.9. Use of Proceeds
    46  
Section 5.10. Title Evidence and Opinions
    46  
Section 5.11. Further Assurances; Cure of Title Defects
    46  
Section 5.12. Hedging Arrangements
    47  
Section 5.13. Leases; Development and Maintenance
    47  
Section 5.14. Pledge of Equity in Delta Oilfield Tank Company, LLC
    48  
 
       
ARTICLE VI NEGATIVE COVENANTS
    48  
 
       
Section 6.1. Liens, Etc.
    48  
Section 6.2. Debts, Guaranties, and Other Obligations
    49  
Section 6.3. Agreements Restricting Liens and Distributions
    50  
Section 6.4. Merger or Consolidation; Asset Sales
    50  
Section 6.5. Restricted Payments
    52  
Section 6.6. Amendment of Debt Instruments
    52  
Section 6.7. Investments
    52  
Section 6.8. Affiliate Transactions
    53  
Section 6.9. Compliance with ERISA
    53  
Section 6.10. Sale-and-Leaseback
    54  
Section 6.11. Change of Business; Accounting Change
    54  
Section 6.12. Organizational Documents, Name Change
    54  

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              Page  
Section 6.13. Use of Proceeds; Letters of Credit
    54  
Section 6.14. Gas Imbalances, Take-or-Pay or Other Prepayments
    54  
Section 6.15. Hedging Requirements
    55  
Section 6.16. Additional Subsidiaries
    55  
Section 6.17. Account Payables
    55  
Section 6.18. Current Ratio
    55  
Section 6.19. Minimum Quarterly Net Operating Cash Flow
    56  
Section 6.20. Maximum Quarterly G&A Expenses
    56  
Section 6.21. Prepayments of Debt
    56  
Section 6.22. Equity Issuance
    56  
Section 6.23. Deposit Accounts
    56  
Section 6.24. Support of Subsidiaries
    57  
 
       
ARTICLE VII EVENTS OF DEFAULT; REMEDIES
    57  
 
       
Section 7.1. Events of Default
    57  
Section 7.2. Optional Acceleration of Maturity
    59  
Section 7.3. Automatic Acceleration of Maturity
    60  
Section 7.4. Right of Set off
    60  
Section 7.5. Non-exclusivity of Remedies
    61  
Section 7.6. Application of Proceeds
    61  
 
       
ARTICLE VIII ADMINISTRATIVE AGENT AND THE ISSUING LENDER
    61  
 
       
Section 8.1. Authorization and Action
    61  
Section 8.2. Administrative Agent’s Reliance, Etc.
    62  
Section 8.3. Administrative Agent and Its Affiliates
    62  
Section 8.4. Lender Credit Decision
    63  
Section 8.5. Indemnification
    63  
Section 8.6. Successor Administrative Agent and Issuing Lender
    64  
Section 8.7. Collateral Matters
    65  
 
       
ARTICLE IX MISCELLANEOUS
    66  
 
       
Section 9.1. Amendments, Etc.
    66  
Section 9.2. Notices, Etc.
    67  
Section 9.3. No Waiver; Remedies
    67  
Section 9.4. Costs and Expenses
    67  
Section 9.5. Binding Effect
    68  
Section 9.6. Lender Assignments and Participations
    68  
Section 9.7. Indemnification; Waiver
    70  
Section 9.8. Execution in Counterparts
    71  
Section 9.9. Survival of Representations, Etc.
    71  
Section 9.10. Severability
    72  
Section 9.11. Business Loans
    72  
Section 9.12. Governing Law; Submission to Jurisdiction
    72  
Section 9.13. USA PATRIOT Act
    72  
Section 9.14. WAIVER OF JURY TRIAL
    73  

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              Page  
Section 9.15. NO ORAL AGREEMENTS
    73  

         
APPENDICES:
       
 
       
Appendix I
  -   Definitions
 
       
EXHIBITS:
       
 
       
Exhibit A
  -   Form of Assignment and Acceptance
Exhibit B
  -   Form of Compliance Certificate
Exhibit C
  -   Form of Guaranty
Exhibit D
  -   Form of Mortgage
Exhibit E
  -   Form of Note
Exhibit F
  -   Form of Notice of Borrowing
Exhibit G
  -   Form of Notice of Conversion or Continuation
Exhibit H
  -   Form of Pledge Agreement
Exhibit I
  -   Form of Security Agreement
Exhibit J
  -   Form of Transfer Letters
Exhibit K
  -   Form of Borrower’s Counsel Opinion
Exhibit L
  -   Form of Property Operating Statement
Exhibit M
      Notice of Assignment of Proceeds

         
SCHEDULES:
       
 
       
Schedule I
  -   Pricing Grid
Schedule II
  -   Notice Information and Commitments
Schedule III
  -   Operators
Schedule 2.4
  -   Development Plan
Schedule 3.1(k)
  -   Hedging Requirements on Effective Date
Schedule 3.1(q)(ii)
  -   Post Closing Hedging Requirements
Schedule 4.1
  -   Subsidiaries of Borrower
Schedule 4.5
  -   Existing Debt
Schedule 4.7
  -   Litigation
Schedule 4.13(a)
  -   Burdensome Restrictions
Schedule 4.17
  -   Liens, Title, Leases, Etc.
Schedule 4.19
  -   Hedging Contracts
Schedule 4.20
  -   Material Agreements
Schedule 4.23
  -   Liquidity Position
Schedule 5.6(n)
  -   Disputes
Schedule 6.23
  -   Deposit Accounts
 
       

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THIRD AMENDED AND RESTATED CREDIT AGREEMENT
     This Third Amended and Restated Credit Agreement dated as of December 29,
2010, is among Delta Petroleum Corporation, a Delaware corporation (“Borrower”),
the lenders party hereto from time to time (the “Lenders”), and Macquarie Bank
Limited, as administrative agent for such Lenders (in such capacity, the
“Administrative Agent”) and as issuing lender for such Lenders (in such
capacity, the “Issuing Lender”).
Background
     A. On November 3, 2008, Borrower entered into the JPMorgan Credit Facility
(as defined below).
     B. Immediately prior to the execution of this Agreement, JPMorgan Chase
Bank, N.A. assigned all of its rights and obligations under the JPMorgan Credit
Facility and the other Loan Papers (as defined in the JPMorgan Credit Facility)
to Administrative Agent for the benefit of Lenders pursuant to an Assignment of
Liens and Security Interests dated December 29, 2010.
     C. Immediately prior to the execution of this Agreement, each lender under
the JPMorgan Credit Facility assigned all of its rights and obligations under
the JPMorgan Credit Facility and the other transferred Loan Papers (as defined
in the JPMorgan Credit Facility) to Lenders pursuant to an Assignment and
Acceptance dated December 29, 2010.
     D. Borrower, Administrative Agent and each Lender agree to amend and
restate the terms of the JPMorgan Credit Facility as set forth in this
Agreement.
     E. Borrower, Administrative Agent and each of the Lenders agree that this
Agreement sets forth the terms and conditions pursuant to which Lenders will
make available to Borrower a senior secured loan for the purposes set forth in
this Agreement.
     F. In connection with Lenders making available to Borrower the financial
accommodations described in this Agreement, Borrower will grant to
Administrative Agent, for the ratable benefit of each of Lenders, a
first-priority Lien in all of the real and personal property of Borrower subject
only to the Permitted Liens (defined below).
Agreements
     For good and valuable consideration, the receipt and sufficiency of which
are acknowledged by each of the parties, Borrower, Lenders, Administrative Agent
and Issuing Lender hereby agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
     Section 1.1. Certain Defined Terms. As used in this Agreement, the terms
defined above shall have the meanings set forth therein and the following terms
shall have the meanings set forth on Appendix I (unless otherwise indicated,
such meanings to be equally applicable to both the singular and plural forms of
the terms defined).

 

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     Section 1.2. Computation of Time Periods. In this Agreement, with respect
to the computation of periods of time from a specified date to a later specified
date, the word “from” means “from and including” and the words “to” and “until”
each means “to but excluding”.
     Section 1.3. Accounting Terms; Changes in GAAP. Except as otherwise
expressly provided herein, all accounting terms used herein shall be
interpreted, and all financial statements and certificates and reports as to
financial matters required to be delivered to the Lenders hereunder shall
(unless otherwise disclosed to the Lenders in writing at the time of delivery
thereof) be prepared, in accordance with GAAP applied on a basis consistent with
those used in the preparation of the latest financial statements furnished to
the Lenders hereunder (which prior to the delivery of the first financial
statements under Section 5.6, shall mean the Financial Statements and the
Interim Financial Statements). All calculations made for the purposes of
determining compliance with this Agreement shall (except as otherwise expressly
provided herein) be made by application of GAAP applied on a basis consistent
with those used in the preparation of the annual or quarterly financial
statements furnished to the Lenders pursuant to Section 5.6 most recently
delivered prior to or concurrently with such calculations (or, prior to the
delivery of the first financial statements under Section 5.6, used in the
preparation of the Financial Statements and the Interim Financial Statements).
If at any time any change in GAAP would affect the computation of any financial
ratio or requirement set forth herein, and either Borrower or the Required
Lenders shall so request, Administrative Agent, the Lenders and Borrower shall
negotiate in good faith to amend such ratio or requirement to preserve the
original intent thereof in light of such change in GAAP (subject to the approval
of the Required Lenders); provided that, until so amended, (a) such ratio or
requirement shall continue to be computed in accordance with GAAP prior to such
change therein, and (b) Borrower shall provide to Administrative Agent and the
Lenders financial statements and other documents required under this Agreement
or as reasonably requested hereunder setting forth a reconciliation between
calculations of such ratio or requirement made before and after giving effect to
such change in GAAP.
     Section 1.4. Types of Advances. Advances are distinguished by “Type.” The
“Type” of an Advance refers to the determination whether such Advance is a
Eurodollar Rate Advance or Reference Rate Advance.
     Section 1.5. Miscellaneous. Article, Section, Schedule, and Exhibit
references are to Articles and Sections of and Schedules and Exhibits to this
Agreement, unless otherwise specified. All references to instruments, documents,
contracts, and agreements are references to such instruments, documents,
contracts, and agreements as the same may be amended, supplemented, and
otherwise modified from time to time, unless otherwise specified. The words
“hereof”, “herein”, and “hereunder” and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. The term “including” means “including,
without limitation,”. Paragraph headings have been inserted in this Agreement as
a matter of convenience for reference only and it is agreed that such paragraph
headings are not a part of this Agreement and shall not be used in the
interpretation of any provision of this Agreement.

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ARTICLE II
CREDIT FACILITIES
     Section 2.1. Maximum Commitment.
     (a) Maximum Commitment. Each Lender severally agrees, subject to the terms
and conditions of this Agreement, prior to the applicable Commitment Termination
Date to make available to Borrower (i) a senior secured revolving loan pursuant
to the terms and conditions of Section 2.2 (the “Revolving Loan”) and (ii) a
senior secured term loan pursuant to the terms and conditions of Section 2.3
(the “Term Loan”) not to exceed in aggregate such Lender’s Commitment for the
purposes set forth herein and not to exceed the Maximum Commitment. Borrower
acknowledges that Lenders do not intend to advance Borrower any amount which
would at any point in time exceed the Maximum Commitment; provided, however, if
the obligations of Borrower under the Revolving Loan and the Term Loan exceed
the Maximum Commitment, all obligations will nevertheless constitute Obligations
under this Agreement and be entitled to the benefit of all of Administrative
Agent’s Liens on the Collateral. All monetary Obligations (other than
Obligations that may continue past the Maturity Date under the terms of a Hedge
Contract with a Hedge Counterparty) will be fully due and payable on the
Maturity Date.
     (b) Advances. Each Borrowing shall, in the case of Borrowings consisting of
Reference Rate Advances, be in an aggregate amount not less than $250,000 and in
integral multiples of $100,000 in excess thereof, and in the case of Borrowings
consisting of Eurodollar Rate Advances, be in an aggregate amount not less than
$500,000 and in integral multiples of $100,000 in excess thereof, and in each
case shall consist of Advances of the same Type made on the same day by the
Lenders ratably according to their respective Commitments. Within the limits of
each Lender’s Commitment, and subject to the terms of this Agreement, Borrower
may from time to time borrow, prepay, and reborrow Advances under the Revolving
Loan. Amounts repaid in respect of the Term Loan may not be reborrowed.
     (c) Notes. The indebtedness of Borrower to each Lender resulting from the
Advances owing to such Lender shall be evidenced by a Note of Borrower payable
to the order of such Lender.
     Section 2.2. Availability and Purpose of Revolving Loan Advances.
     (a) Revolving Loan. The initial Borrowing Base available under the
Revolving Loan in effect as of Effective Date has been set by Administrative
Agent and the Lenders and acknowledged by Borrower as $30,000,000. Such initial
Borrowing Base shall remain in effect until the next redetermination made
pursuant to this Section 2.2. The Borrowing Base shall be determined in
accordance with the standards set forth in Section 2.2(d) and is subject to
periodic redetermination pursuant to Section 2.2(b), Section 2.2(c) and Section
2.2(e). Advances under the Borrowing Base shall be used in accordance with
Section 5.9. Up to $5,000,000 of the Borrowing Base may be used for the issuance
of Letters of Credit pursuant to Section 2.10.
     (b) Calculation of Borrowing Base.
          (i) Borrower shall deliver to Administrative Agent and each of the
Lenders on or before each April 1, beginning April 1, 2011, an Independent
Engineering Report dated effective as of the immediately preceding January 1,
and such other information as may be

3

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reasonably requested by any Lender, including but not limited to the Oil and Gas
Properties included or to be included in the Borrowing Base. After
Administrative Agent and the Lenders’ receipt of such Independent Engineering
Report and other information, (A) Administrative Agent shall deliver to each
Lender Administrative Agent’s recommendation for the redetermined Borrowing
Base, (B) Administrative Agent and the Lenders shall redetermine the Borrowing
Base in accordance with Section 2.2(d), and (C) Administrative Agent shall
promptly notify Borrower in writing of the amount of the Borrowing Base as so
redetermined.
          (ii) Borrower shall deliver to Administrative Agent and each Lender,
on or before each October 1, beginning October 1, 2011, an Internal Engineering
Report dated effective as of the immediately preceding July 1st and such other
information as may be reasonably requested by Administrative Agent or any Lender
including but not limited to the Oil and Gas Properties included or to be
included in the Borrowing Base. After Administrative Agent and the Lenders’
receipt of such Internal Engineering Report and other information,
(A) Administrative Agent shall deliver to each Lender Administrative Agent’s
recommendation for the redetermined Borrowing Base, (B) Administrative Agent and
the Lenders shall redetermine the Borrowing Base in accordance with
Section 2.2(d), and (C) Administrative Agent shall promptly notify Borrower in
writing of the amount of the Borrowing Base as so redetermined.
          (iii) In the event that Borrower does not furnish to Administrative
Agent and the Lenders the Independent Engineering Report, Internal Engineering
Report or other information specified in clauses (i) and (ii) above by the date
specified therein, Administrative Agent and the Lenders may nonetheless
redetermine the Borrowing Base and redesignate the Borrowing Base from
time-to-time thereafter in their sole discretion until Administrative Agent and
the Lenders receive the relevant Independent Engineering Report, Internal
Engineering Report, or other information, as applicable, whereupon
Administrative Agent and the Lenders shall redetermine the Borrowing Base as
otherwise specified in this Section 2.2.
          (iv) Each delivery of an Engineering Report by Borrower to
Administrative Agent and the Lenders shall constitute a representation and
warranty by Borrower to Administrative Agent and the Lenders that:
          (A) Borrower owns the Oil and Gas Properties specified therein with at
least 90% (by value) of the Proved Reserves covered therein subject to an
Acceptable Security Interest and free and clear of any Liens (except Permitted
Liens),
          (B) on and as of the date of such Engineering Report each Oil and Gas
Property described as “proved developed” therein was developed for oil or gas,
and the wells pertaining to such Oil and Gas Properties that are described
therein as producing Wells, were each capable of producing oil and/or gas in
paying quantities, except for Wells that were utilized as water or gas injection
wells, carbon dioxide wells or as water disposal wells (each as noted in such
Engineering Report),
          (C) the descriptions of quantum and nature of the record title
interests of Borrower, as applicable, set forth in such Engineering Report
include the entire record title interests of Borrower in such Oil and Gas
Properties, are complete and accurate in all respects, and take into account all
Permitted Liens,

4

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          (D) there are no “back-in” or “reversionary” interests held by third
parties which could reduce the interests of Borrower in such Oil and Gas
Properties except as set forth in such Engineering Report,
          (E) no operating or other agreement to which Borrower is a party or by
which Borrower is bound affecting any part of such Oil and Gas Properties
requires Borrower to bear any of the costs relating to such Oil and Gas
Properties greater than the record title interest of Borrower in such portion of
the such Oil and Gas Properties as set forth in such Engineering Report, except
in the event Borrower is obligated under an operating agreement to assume a
portion of a defaulting party’s share of costs, and
          (F) Borrower’s ownership of the Hydrocarbons and the undivided
interests in the Oil and Gas Properties as specified in such Engineering Report
(i) will, after giving full effect to all Permitted Liens, afford Borrower not
less than those net interests (expressed as a fraction, percentage or decimal)
in the production from or which is allocated to such Hydrocarbons specified as
Net Revenue Interest in such Engineering Report and (ii) will cause Borrower to
bear not more than that portion (expressed as a fraction, percentage or
decimal), specified as Working Interest in such Engineering Report, of the costs
of drilling, developing and operating the wells identified in such Engineering
Report or identified in the exhibits to the Mortgages encumbering such Oil and
Gas Properties (except for any increases in Working Interest with a
corresponding increase in the Net Revenue Interest in such Oil and Gas
Property).
     (c) Interim Redetermination. In addition to the Borrowing Base
redeterminations provided for in Section 2.2(b), (i) based on such information
as Administrative Agent and the Lenders deem relevant (but in accordance with
Section 2.2(d)), Administrative Agent may, and shall at the request of the
Required Lenders, require one additional redetermination of the Borrowing Base
during any six-month period between scheduled redeterminations; (ii) based on
such information as Administrative Agent and the Lenders deem relevant (but in
accordance with Section 2.2(d)), Borrower may require one additional
redetermination of the Borrowing Base during any six-month period between
scheduled redeterminations; and (iii) Administrative Agent and the Lenders may
make additional redeterminations of the Borrowing Base in connection with any
Disposition of Oil and Gas Properties constituting Proved Reserves of Borrower
having a fair market value which, when taken together with (A) the fair market
value of all other Dispositions of Oil and Gas Properties constituting Proved
Reserves of Borrower and (B) the Net Hedge Value for such BB Hedges that have
been subject to novations, assignments, unwinding, amendments, or terminations,
in each case, occurring since the date of the most recent scheduled Borrowing
Base redetermination, equals or exceeds 5% of the Borrowing Base then in effect.
For the avoidance of doubt, such additional redeterminations of the Borrowing
Base shall not constitute nor be construed as a consent to any transaction or
proposed transaction that would not be permitted under the terms of this
Agreement. In connection with any redetermination of the Borrowing Base under
this Section 2.2(c), Borrower shall provide Administrative Agent and the Lenders
with such information regarding Borrower’s business (including, without
limitation, its Oil and Gas Properties, the Proved Reserves, and production
relating thereto) as Administrative Agent or any Lender may reasonably request.
Administrative Agent shall promptly notify Borrower in writing of each
redetermination of the Borrowing Base pursuant to this Section 2.2(c) and the
amount of the Borrowing Base as so redetermined.

5

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     (d) Standards for Redetermination. Each redetermination of the Borrowing
Base by Administrative Agent and the Lenders pursuant to this Section 2.2 shall
be made (i) in the sole discretion of Administrative Agent and the Lenders (but
in accordance with the other provisions of this Section 2.2(d)), (ii) in
accordance with Administrative Agent’s and the Lenders’ customary internal
standards and practices for valuing and redetermining the value of Oil and Gas
Properties in connection with reserve based oil and gas loan transactions,
(iii) in conjunction with the most recent Independent Engineering Report or
Internal Engineering Report, as applicable, or other information received by
Administrative Agent and the Lenders including but not limited to the Proved
Reserves of Borrower, and (iv) based upon the estimated value of the Proved
Reserves owned by Borrower as determined by Administrative Agent and the
Lenders. In valuing and redetermining the Borrowing Base, Administrative Agent
and the Lenders may also consider the business, financial condition, and Debt
obligations of Borrower and the Guarantors and such other factors as
Administrative Agent and the Lenders customarily deem appropriate, including
without limitation, commodity price assumptions, projections of production,
operating expenses, general and administrative expenses, capital costs, working
capital requirements, liquidity evaluations, dividend payments, environmental
costs, and legal costs. In that regard, Borrower acknowledges that the
determination of the Borrowing Base contains an equity cushion (market value in
excess of loan value), which is essential for the adequate protection of
Administrative Agent and the Lenders. No Proved Reserves shall be included or
considered for inclusion in the Borrowing Base unless Administrative Agent shall
have received, at Borrower’s expense, (A) evidence of title reasonably
satisfactory in form and substance to Administrative Agent covering at least 90%
(by value) of the Proved Reserves and the Oil and Gas Properties relating
thereto and (B) Mortgages and such other Security Instruments requested by
Administrative Agent to the extent necessary to cause Administrative Agent to
have an Acceptable Security Interest in at least 90% (by value) of the Proved
Reserves and the Oil and Gas Properties relating thereto. At all times after
Administrative Agent has given Borrower notification of a redetermination of the
Borrowing Base under this Section 2.2, the Borrowing Base shall be equal to the
redetermined amount or such lesser amount designated by Borrower and disclosed
in writing to Administrative Agent and the Lenders until the Borrowing Base is
subsequently redetermined in accordance with this Section 2.2; provided that
Borrower shall not request that the Borrowing Base be reduced to a level that
would result in a Borrowing Base deficiency. Notwithstanding anything herein to
the contrary, (x) other than for the mandatory reduction provided in
Section 2.2(e) to the extent the redetermined Borrowing Base is less than or
equal to the Borrowing Base in effect prior to such redetermination, such
redetermined Borrowing Base must be Approved by Administrative Agent and the
Required Lenders, and (y) to the extent the redetermined Borrowing Base is
greater than the Borrowing Base in effect prior to such redetermination, such
redetermined Borrowing Base must be Approved by Administrative Agent and all of
the Lenders.
     (e) Mandatory Reductions in the Borrowing Base. In addition to the
Borrowing Base redeterminations provided for otherwise in this Section 2.2, if
Borrower or any Guarantor novates, assigns, unwinds, terminates, or amends any
BB Hedge, then the Borrowing Base shall automatically reduce by an amount equal
to the negative Net Hedge Value, if any, resulting from such event. Such
mandatory reduction of the Borrowing Base shall be effective as of the date
Administrative Agent notifies Borrower of the negative Net Hedge Value resulting
from such event.

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     Section 2.3. Availability and Purposes of Term Loan Advances. Beginning on
the Closing Date, and subject to the Approval by Administrative Agent and
Required Lenders of the initial Development Plan, and any subsequent
modifications of the Development Plan pursuant to Section 2.4(a), and continuing
through the applicable Commitment Termination Date, up to $20,000,000 is
available under the Term Loan and shall be used by Borrower in accordance with
Section 5.9 and as follows:
     (a) to pay costs incurred by Borrower in connection with the drilling and
completion of Wells and other development activities included on the Development
Plan, in each instance, pursuant to an AFE Approved by Administrative Agent; and
     (b) for any other purpose Approved by Administrative Agent.
     Section 2.4. Development Plan.
     (a) The initial Development Plan is attached as Schedule 2.4.
Administrative Agent Approves the initial Development Plan. Borrower may propose
modifications to the Development Plan from time to time, and those modifications
will become effective when Approved by Administrative Agent and the Required
Lenders. Approval of any Development Plan is within the sole and absolute
discretion of Administrative Agent and the Required Lenders and Administrative
Agent and the Required Lenders may make their Approval subject to such
conditions as Administrative Agent and the Required Lenders deem appropriate.
     (b) In support of each Development Plan, Borrower will prepare and submit
to Administrative Agent for Approval an AFE (including all Supporting
Documentation) at least fifteen days before Borrower incurs any costs that it
intends to fund out of an Advance under the Term Loan. To the extent an AFE
conforms to a Development Plan previously Approved by Administrative Agent and
Required Lenders, however, Administrative Agent’s Approval of that AFE will not
be unreasonably withheld or delayed.
     (c) Notwithstanding the foregoing Approval of a Development Plan:
          (i) Borrower must nevertheless satisfy the conditions described in
this Article II and Article III below prior to the making of each Advance; and
          (ii) Administrative Agent will have no obligation to make an Advance
to fund projects included on the Development Plan:
          (A) unless the requested Advance relates to an AFE Approved by
Administrative Agent;
          (B) if the requested Advance (together with all amounts previously
Advanced in respect of the applicable AFE) exceeds the cost set forth in the
Development Plan for that project by more than 10%; or
          (C) if the requested Advance exceeds the remaining funds available and
not yet Advanced under the Term Loan.

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     Section 2.5. Method of Borrowing.
     (a) Notice. Each Borrowing shall be made pursuant to a Notice of Borrowing
(or by telephone notice promptly confirmed in writing by a Notice of Borrowing),
given not later than 11:00 a.m. (Houston, Texas time) (i) on the third Business
Day before the date of the proposed Borrowing, in the case of a Borrowing
comprised of Eurodollar Rate Advances or (ii) one Business Day prior to the
proposed Borrowing, in the case of a Borrowing comprised of Reference Rate
Advances, by Borrower to Administrative Agent, which shall in turn give to each
Lender prompt notice of such proposed Borrowing by facsimile. Each Notice of a
Borrowing shall be given by facsimile, confirmed immediately in writing,
specifying the information required therein. In the case of a proposed Borrowing
comprised of Eurodollar Rate Advances, Administrative Agent shall promptly
notify each Lender of the applicable interest rate under Section 2.14(b). Each
Lender shall, before 1:00 pm (Houston, Texas time) on the date of such
Borrowing, make available for the account of its Lending Office to
Administrative Agent at its address referred to in Section 9.2, or such other
location as Administrative Agent may specify by notice to the Lenders, in same
day funds, in the case of a Borrowing, such Lender’s Pro Rata Share of such
Borrowing. After Administrative Agent’s receipt of such funds and upon
fulfillment of the applicable conditions set forth in Article III,
Administrative Agent shall make such funds available to Borrower at its account
with Administrative Agent.
     (b) Conversions and Continuations. Borrower may elect to Convert or
continue any Borrowing under this Section 2.5 by delivering an irrevocable
Notice of Conversion or Continuation to Administrative Agent at Administrative
Agent’s office no later than 11:00 a.m. (Houston, Texas time) (i) on the date
which is at least three Business Days in advance of the proposed Conversion or
continuation date in the case of a Conversion to or a continuation of a
Borrowing comprised of Eurodollar Rate Advances and (ii) one Business Day prior
to the proposed Conversion in the case of a Conversion to a Borrowing comprised
of Reference Rate Advances. Each such Notice of Conversion or Continuation shall
be in writing or by facsimile confirmed immediately in writing specifying the
information required therein. Promptly after receipt of a Notice of Conversion
or Continuation under this Section 2.5, Administrative Agent shall provide each
Lender with a copy thereof and, in the case of a Conversion to or a continuation
of a Borrowing comprised of Eurodollar Rate Advances, notify each Lender of the
applicable interest rate under Section 2.14(b).
     (c) Certain Limitations. Notwithstanding anything to the contrary contained
in paragraphs (a) and (b) above:
          (i) at no time shall there be more than six Interest Periods
applicable to outstanding Eurodollar Rate Advances and Borrower may not select
Eurodollar Rate Advances for any Borrowing at any time that a Default has
occurred and is continuing;
          (ii) if any Lender shall, at least one Business Day before the date of
any requested Borrowing, Conversion, or continuation, notify Administrative
Agent that the introduction of or any change in or in the interpretation of any
law or regulation makes it unlawful, or that any central bank or other
Governmental Authority asserts that it is unlawful, for such Lender or its
Lending Office to perform its obligations under this Agreement to make
Eurodollar Rate Advances or to fund or maintain Eurodollar Rate Advances, the
right of

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Borrower to select Eurodollar Rate Advances from such Lender shall be suspended
until such Lender shall notify Administrative Agent that the circumstances
causing such suspension no longer exist, and the Advance made by such Lender in
respect of such Borrowing, Conversion, or continuation shall be a Reference Rate
Advance;
          (iii) if Administrative Agent is unable to determine the Eurodollar
Rate for Eurodollar Rate Advances comprising any requested Borrowing, the right
of Borrower to select Eurodollar Rate Advances for such Borrowing or for any
subsequent Borrowing shall be suspended until Administrative Agent shall notify
Borrower and the Lenders that the circumstances causing such suspension no
longer exist, and each Advance comprising such Borrowing shall be a Reference
Rate Advance;
          (iv) if the Required Lenders shall, at least one Business Day before
the date of any requested Borrowing, notify Administrative Agent that the
Eurodollar Rate for Eurodollar Rate Advances comprising such Borrowing will not
adequately reflect the cost to such Lenders of making or funding their
respective Eurodollar Rate Advances, as the case may be, for such Borrowing, the
right of Borrower to select Eurodollar Rate Advances for such Borrowing or for
any subsequent Borrowing shall be suspended until Administrative Agent shall
notify Borrower and the Lenders that the circumstances causing such suspension
no longer exist, and each Advance comprising such Borrowing shall be a Reference
Rate Advance; and
          (v) if Borrower shall fail to select the duration or continuation of
any Interest Period for any Eurodollar Rate Advances in accordance with the
provisions contained in the definition of “Interest Period” in Appendix I,
Administrative Agent shall forthwith so notify Borrower and the Lenders and such
Advances shall be made available to Borrower on the date of such Borrowing as
Reference Rate Advances or, if an existing Advance, Convert into Reference Rate
Advances.
     (d) Notices Irrevocable. Each Notice of Borrowing and Notice of Conversion
or Continuation shall be irrevocable and binding on Borrower. In the case of any
Borrowing for which the related Notice of Borrowing specifies is to be comprised
of Eurodollar Rate Advances, Borrower shall indemnify each Lender against any
loss, out-of-pocket cost, or expense incurred by such Lender as a result of any
failure by Borrower to fulfill on or before the date specified in such Notice of
Borrowing for such Borrowing the applicable conditions set forth in Article III
including, without limitation, any loss (including any loss of anticipated
profits), cost, or expense incurred by reason of the liquidation or reemployment
of deposits or other funds acquired by such Lender to fund the Advance to be
made by such Lender as part of such Borrowing when such Advance, as a result of
such failure, is not made on such date.
     (e) Administrative Agent Reliance. Unless Administrative Agent shall have
received notice from a Lender before the date of any Borrowing that such Lender
shall not make available to Administrative Agent such Lender’s Pro Rata Share of
a Borrowing, Administrative Agent may assume that such Lender has made its Pro
Rata Share of such Borrowing available to Administrative Agent on the date of
such Borrowing in accordance with Section 2.5(a) and Administrative Agent may,
in reliance upon such assumption, make available to Borrower on such date a
corresponding amount. If and to the extent that such Lender shall not have so
made its Pro Rata Share of such Borrowing available to Administrative Agent,
such Lender and

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Borrower severally agree to immediately repay to Administrative Agent on demand
such corresponding amount, together with interest on such amount, for each day
from the date such amount is made available to Borrower until the date such
amount is repaid to Administrative Agent, at (i) in the case of Borrower, the
interest rate applicable on such day to Advances comprising such Borrowing and
(ii) in the case of such Lender, the Federal Funds Rate for such day. If such
Lender shall repay to Administrative Agent such corresponding amount and
interest as provided above, such corresponding amount so repaid shall constitute
such Lender’s Advance as part of such Borrowing for purposes of this Agreement
even though not made on the same day as the other Advances comprising such
Borrowing.
     (f) Lender Obligations Several. The failure of any Lender to make the
Advance to be made by it as part of any Borrowing shall not relieve any other
Lender of its obligation, if any, to make its Advance on the date of such
Borrowing. No Lender shall be responsible for the failure of any other Lender to
make the Advance to be made by such other Lender on the date of any Borrowing.
     Section 2.6. Reduction of the Commitments.
     (a) Borrower shall have the right, upon at least three Business Days’
irrevocable notice to Administrative Agent, to terminate in whole or reduce
ratably in part the unused portion of the Commitments; provided that each
partial reduction shall be in the aggregate amount of at least $500,000 or in
integral multiples of $100,000 in excess thereof.
     (b) Other than as provided in Section 2.6(c), any reduction and termination
of the Commitments pursuant to this Section 2.6 shall be applied ratably to each
Lender’s Commitment and shall be permanent, with no obligation of the Lenders to
reinstate such Commitments.
     (c) In the event of a Defaulting Lender, Borrower, at Borrower’s election
may elect to terminate such Defaulting Lender’s Commitment hereunder; provided
that (i) such termination must be of the Defaulting Lender’s entire Commitment,
(ii) Borrower shall pay all amounts owed by Borrower to such Defaulting Lender
under this Agreement and under the other Loan Documents (including principal of
and interest on the Advances owed to such Defaulting Lender, accrued commitment
fees, and letter of credit fees but specifically excluding any amounts owing
under Section 2.17 as result of such payment of Advances) and shall deposit with
Administrative Agent into the Cash Collateral Account cash collateral in the
amount equal to such Defaulting Lender’s ratable share of the Letter of Credit
Exposure, and (iii) unless otherwise consented to by Administrative Agent, a
Defaulting Lender’s Commitment may be terminated by Borrower under this
Section 2.6(c) if and only if at such time, Borrower has elected, or is then
electing, to terminate the Commitments of all then existing Defaulting Lenders.
Upon written notice to the Defaulting Lender and Administrative Agent of
Borrower’s election to terminate a Defaulting Lender’s Commitment pursuant to
this Section 2.6(c) and the payment and deposit of amounts required to be made
by Borrower under clause (c), (A) such Defaulting Lender shall cease to be a
“Lender” hereunder for all purposes except that such Lender’s rights under
Sections 2.18, 2.19 and 9.7 shall continue with respect to events and
occurrences occurring before or concurrently with its ceasing to be a “Lender”
hereunder, (B) such Defaulting Lender’s Commitment shall be deemed terminated,
and (C) such Defaulting Lender shall be relieved of its obligations hereunder
other than its obligations under Section 8.5 with respect to events and
occurrences occurring

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before or concurrently with its ceasing to be a “Lender” hereunder; provided
that, any such termination will not be deemed to be a waiver or release of any
claim by Borrower, Administrative Agent or any Lender may have against such
Defaulting Lender.
     Section 2.7. Prepayment of Advances.
     (a) Optional. Borrower may prepay the Advances, after giving by 11:00 a.m.
(Houston, Texas time) (i) in the case of Eurodollar Rate Advances, at least
three Business Days’ or (ii) in the case of Reference Rate Advances, same
Business Day’s, irrevocable prior written notice to Administrative Agent stating
the proposed date and aggregate principal amount of such prepayment. If any such
notice is given, Borrower shall prepay the Advances in whole or ratably in part
in an aggregate principal amount equal to the amount specified in such notice,
together with accrued interest to the date of such prepayment on the principal
amount prepaid and amounts, if any, required to be paid pursuant to Section 2.17
as a result of such prepayment being made on such date; provided, however, that
each partial prepayment with respect to: (A) any amounts prepaid in respect of
Eurodollar Rate Advances shall be applied to Eurodollar Rate Advances comprising
part of the same Borrowing; (B) any prepayments made in respect of Reference
Rate Advances shall be made in a minimum amounts of $250,000 and in integral
multiples of $100,000 in excess thereof, and (C) any prepayments made in respect
of any Borrowing comprised of Eurodollar Rate Advances shall be made in an
aggregate principal amount of at least $500,000 and in integral multiples of
$100,000 in excess thereof, and in an aggregate principal amount such that after
giving effect thereto such Borrowing shall have a remaining principal amount
outstanding with respect to such Borrowing of at least $500,000. Full
prepayments of any Borrowing are permitted without restriction of amounts.
     (b) Borrowing Base Deficiency.
          (i) Other than as provided in Section 2.7(b)(ii) below, if the
aggregate outstanding amount of the Revolving Loan Advances plus the Letter of
Credit Exposure ever exceeds the lesser of (y) the Borrowing Base and (z) the
aggregate Commitments, Borrower shall, after receipt of written notice from
Administrative Agent regarding such deficiency, take any of the following
actions (and the failure of Borrower to take such actions to remedy such
Borrowing Base deficiency shall constitute an Event of Default):
          (A) prepay Revolving Loan Advances or, if the Revolving Loan Advances
have been repaid in full, make deposits into the Cash Collateral Account to
provide cash collateral for the Letter of Credit Exposure, such that the
Borrowing Base deficiency is cured within 30 days after the date such deficiency
notice is received by Borrower from Administrative Agent;
          (B) pledge as Collateral for the Obligations additional Oil and Gas
Properties acceptable to Administrative Agent and the Required Lenders such that
the Borrowing Base deficiency is cured within 30 days after the date such
deficiency notice is received by Borrower from Administrative Agent;
          (C) (1) deliver, within 10 days after the date such deficiency notice
is received by Borrower from Administrative Agent, written notice to
Administrative Agent

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indicating Borrower’s election to repay the Revolving Loan Advances and make
deposits into the Cash Collateral Account to provide cash collateral for the
Letters of Credit, each in five monthly installments equal to one-fifth of such
Borrowing Base deficiency with the first such installment due 30 days after the
date such deficiency notice is received by Borrower from Administrative Agent
and each following installment due 30 days after the preceding installment and
(2) make such payments and deposits within such time periods; or
          (D) eliminate the Borrowing Base deficiency through a combination of
the actions described in Sections 2.7(b)(i)(A), (B), and (C) above.
          (ii) Upon each reduction of the Borrowing Base, if any, resulting from
a Borrowing Base redetermination made under Section 2.2(e) if the aggregate
outstanding amount of the Revolving Loan Advances plus the Letter of Credit
Exposure exceeds the lesser of (y) the Borrowing Base and (z) the aggregate
Commitments, then Borrower shall immediately prepay the Revolving Loan Advances
or, if the Revolving Loan Advances have been repaid in full, make deposits into
the Cash Collateral Account to provide cash collateral for the Letter of Credit
Exposure, in an amount equal to (A) such portion of the Borrowing Base
deficiency resulting from such reduction plus (B) if a Borrowing Base deficiency
exists prior to such reduction, then an amount equal to the lesser of (i) the
net cash proceeds of the transaction that triggered such Borrowing Base
reduction and (ii) such portion of the Borrowing Base deficiency in existence
immediately prior to such reduction.
          (iii) Each prepayment pursuant to this Section 2.7(b) shall be
accompanied by accrued interest on the amount prepaid to the date of such
prepayment and amounts, if any, required to be paid pursuant to Section 2.17 as
a result of such prepayment being made on such date. Each prepayment under this
Section 2.7(b) shall be applied to the Revolving Loan Advances as determined by
Administrative Agent and agreed to by the Lenders in their sole discretion.
     (c) Reduction of Commitments. On the date of each reduction of the
aggregate Commitments pursuant to Section 2.6, Borrower agrees to make a
prepayment in respect of the outstanding amount of the Revolving Loan Advances
to the extent, if any, that the aggregate unpaid principal amount of all
Revolving Loan Advances plus the Letter of Credit Exposure exceeds the lesser of
(i) the aggregate Commitments, as so reduced and (ii) the Borrowing Base. Each
prepayment pursuant to this Section 2.7(c) shall be accompanied by accrued
interest on the amount prepaid to the date of such prepayment and amounts, if
any, required to be paid pursuant to Section 2.17 as a result of such prepayment
being made on such date. Each prepayment under this Section 2.7(c) shall be
applied to the Revolving Loan Advances as determined by Administrative Agent and
agreed to by the Lenders in their sole discretion.
     (d) Illegality. If any Lender shall notify Administrative Agent and
Borrower that the introduction of or any change in or in the interpretation of
any applicable Legal Requirement makes it unlawful, or that any central bank or
other Governmental Authority asserts that it is unlawful for such Lender or its
Lending Office to perform its obligations under this Agreement to maintain any
Eurodollar Rate Advances of such Lender then outstanding hereunder, (i) Borrower
shall, no later than 11:00 a.m. (Houston, Texas time) (A) if not prohibited by
law, on

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the last day of the Interest Period for each outstanding Eurodollar Rate Advance
made by such Lender or (B) if required by such notice, on the second Business
Day following its receipt of such notice, automatically convert to Reference
Rate Advances all of the Eurodollar Rate Advances made by such Lender then
outstanding, together with accrued interest on the principal amount converted to
the date of such conversion and amounts, if any, required to be paid pursuant to
Section 2.17 as a result of such conversion being made on such date, (ii) such
Lender shall simultaneously make a Reference Rate Advance to Borrower on such
date in an amount equal to the aggregate principal amount of the Eurodollar Rate
Advances prepaid to such Lender, and (iii) the right of Borrower to select
Eurodollar Rate Advances from such Lender for any subsequent Borrowing shall be
suspended until such Lender gives notice referred to above shall notify
Administrative Agent that the circumstances causing such suspension no longer
exist.
     (e) Optional Prepayment; Ratable Prepayment. Borrower may prepay the
Revolving Loan and the Term Loan in whole or in part at any time without penalty
or premium, except for breakage costs as set forth in Section 2.17 resulting
from such prepayment. Except as provided in the preceding sentence, each payment
of any Advance pursuant to this Section 2.7 shall be made in a manner such that
all Advances comprising part of the same Borrowing are paid in whole or ratably
in part.
     Section 2.8. Repayment of the Term Loan; Net Operating Cash Flow.
     (a) Repayment of Term Loan Generally. On each Payment Date beginning
January 25, 2011, to the extent any Advances under the Term Loan remain
outstanding, Borrower will pay to Administrative Agent 100% of Net Operating
Cash Flow to be applied as set forth in Section 2.8(c). On the Maturity Date,
Borrower will pay to Administrative Agent all of the monetary Obligations
outstanding on that date (other than Obligations that may continue past the
Maturity Date under the terms of any Hedge Contracts) and perform or otherwise
satisfy all other Obligations then outstanding.
     (b) Calculation of Net Operating Cash Flow. Administrative Agent will
calculate Net Operating Cash Flow based on the Property Operating Statements
prepared and delivered by Borrower. The first Property Operating Statement is
due on the twenty-fifth (25th) day of the month following the month in which the
first Advance under the Term Loan is made.
     (c) Application of Funds.
          (i) Payments due under Section 2.8(a) will be applied first to unpaid
fees and Related Costs payable under the Loan Documents, second to accrued
interest on the Loans, and third to principal on the Term Loan.
          (ii) Any prepayments made pursuant to the terms of this Agreement,
will be applied first to unpaid fees and Related Costs payable under the Loan
Documents, second to accrued interest on the Term Loan, third to principal on
the Term Loan, and fourth to any principal on the Revolving Loan, and fifth to
accrued interest on the Revolving Loan.
     Section 2.9. Repayment of Revolving Loan. Borrower shall repay to
Administrative Agent for the ratable benefit of Lenders the outstanding
principal amount of each Revolving

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Loan Advance, together with any accrued interest thereon, on the Maturity Date
or such earlier date pursuant to Section 7.2 or Section 7.3.
     Section 2.10. Letters of Credit.
     (a) Commitment. From time to time from the date of this Agreement until
30 days prior to the Maturity Date, at the request of Borrower, the Issuing
Lender shall, on the terms and conditions hereinafter set forth, issue,
increase, or extend the Expiration Date of, Letters of Credit for the account of
Borrower on any Business Day. No Letter of Credit will be issued, increased, or
extended:
          (i) if such issuance, increase, or extension would cause the Letter of
Credit Exposure to exceed the lesser of (A) $5,000,000 and (B) an amount equal
to the lesser of (1) the aggregate Commitments at such time and (2) the
Borrowing Base in effect at such time minus, in each case under this
Section 2.10(a)(i)(B), the sum of the aggregate outstanding principal amount of
all Advances at such time;
          (ii) if such Letter of Credit has an Expiration Date later than the
earlier of (A) one year after the date of issuance thereof (or, in the case of
any extension thereof, one year after the date of such extension), and (B) ten
days prior to the Maturity Date;
          (iii) unless such Letter of Credit Documents are in form and substance
acceptable to the Issuing Lender in its sole discretion;
          (iv) unless such Letter of Credit is a standby letter of credit not
supporting the repayment of indebtedness for borrowed money of any Person;
          (v) unless Borrower has delivered to the Issuing Lender a completed
and executed Letter of Credit Application; provided that, if the terms of any
such Letter of Credit Application conflicts with the terms of this Agreement,
the terms of this Agreement shall control;
          (vi) unless such Letter of Credit is governed by (A) the Uniform
Customs and Practice for Documentary Credits (2007 Revision), International
Chamber of Commerce Publication No. 600, or (B) the International Standby
Practices (ISP98), International Chamber of Commerce Publication No. 590, in
either case, including any subsequent revisions thereof approved by a Congress
of the International Chamber of Commerce and adhered to by the Issuing Lender;
          (vii) if any order, judgment or decree of any Governmental Authority
or arbitrator shall by its terms purport to enjoin or restrain the Issuing
Lender from issuing such Letter of Credit, or any Legal Requirement applicable
to the Issuing Lender or any request or directive (whether or not having the
force of law) from any Governmental Authority with jurisdiction over the Issuing
Lender shall prohibit, or request that the Issuing Lender refrain from, the
issuance of letters of credit generally or such Letter of Credit in particular
or shall impose upon the Issuing Lender with respect to such Letter of Credit
any restriction, reserve or capital requirement (for which the Issuing Lender is
not otherwise compensated hereunder) not in effect on the date hereof, or shall
impose upon the Issuing Lender any unreimbursed loss, cost

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or expense which was not applicable on the date hereof and which the Issuing
Lender in good faith deems material to it;
          (viii) if the issuance of such Letter of Credit would violate one or
more policies of the Issuing Lender applicable to letters of credit generally;
          (ix) except as otherwise agreed by the Issuing Lender, if Letter of
Credit is to be denominated in a currency other than Dollars; or
          (x) a default of any Lender’s obligations to fund under
Section 2.10(d) exists or any Lender is at such time a Defaulting Lender
hereunder, unless the Issuing Lender has entered into satisfactory arrangements
with Borrower or such Lender to eliminate the Issuing Lender’s risk with respect
to such Lender.
     (b) Participations. Upon the date of the issuance or increase of a Letter
of Credit, the Issuing Lender shall be deemed to have sold to each other Lender
having a Commitment and each other Lender having a Commitment shall have been
deemed to have purchased from the Issuing Lender a participation in the related
Letter of Credit Obligations equal to such Lender’s Pro Rata Share at such date
and such sale and purchase shall otherwise be in accordance with the terms of
this Agreement. The Issuing Lender shall promptly notify each such participant
Lender having a Commitment by telephone or facsimile of each Letter of Credit
issued, increased, or extended or converted and the actual dollar amount of such
Lender’s participation in such Letter of Credit.
     (c) Issuing. Each Letter of Credit shall be issued, increased, or extended
pursuant to a Letter of Credit Application (or by telephone notice promptly
confirmed in writing by a Letter of Credit Application), given not later than
11:00 a.m. (Houston, Texas time) on the fifteenth Business Day before the date
of the proposed issuance, increase, or extension of the Letter of Credit (or
such later date as may be accepted by the Issuing Lender in its sole
discretion), and the Issuing Lender shall give to each other Lender prompt
notice thereof by facsimile or telephone. Each Letter of Credit Application
shall be delivered by facsimile or by mail specifying the information required
therein; provided that if such Letter of Credit Application is delivered by
facsimile, Borrower shall follow such facsimile with an original by mail. After
the Issuing Lender’s receipt of such Letter of Credit Application (by facsimile
or by mail) and upon fulfillment of the applicable conditions set forth in
Article III, the Issuing Lender shall issue, increase, or extend, or cause the
issuance, increase or extension of, such Letter of Credit for the account of
Borrower. Each Letter of Credit Application shall be irrevocable and binding on
Borrower.
     (d) Reimbursement. Borrower hereby agrees to either (i) pay on demand to
the Issuing Lender an amount equal to any amount paid by the Issuing Lender
under any Letter of Credit or (ii) request a Borrowing of References Rate
Advances in an amount equal to such amount paid by the Issuing Lender to be made
on date the payment is due under such Letter of Credit. In the event the Issuing
Lender makes a payment pursuant to a request for draw presented under a Letter
of Credit and such payment is not reimbursed by Borrower upon demand under
either option provided in the preceding sentence for any reason (including but
not limited to the failure to meet the conditions in Section 3.2), then the
Issuing Lender shall give

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Administrative Agent notice of Borrower’s failure to make such reimbursement and
Administrative Agent shall promptly notify each Lender having a Commitment of
the amount necessary to reimburse the Issuing Lender. Upon such notice from
Administrative Agent, each Lender shall promptly reimburse the Issuing Lender
for such Lender’s Pro Rata Share of such amount, and such reimbursement shall be
deemed for all purposes of this Agreement to be an Advance to Borrower
transferred at Borrower’s request to the Issuing Lender regardless of any other
provision of this Agreement (including the occurrence and continuance of a
Default or an Event of Default). If such reimbursement is not made by any Lender
to the Issuing Lender on the same day on which Administrative Agent notifies
such Lender to make reimbursement to the Issuing Lender hereunder, such Lender
shall pay interest on its Pro Rata Share thereof to the Issuing Lender at a rate
per annum equal to the Federal Funds Rate. Borrower hereby unconditionally and
irrevocably authorizes, empowers, and directs Administrative Agent and Lenders
to record and otherwise treat such reimbursements to the Issuing Lender as
Reference Rate Advances under a Borrowing requested by Borrower to reimburse the
Issuing Lender which have been transferred to the Issuing Lender at Borrower’s
request.
     (e) Obligations Unconditional. The obligations of Borrower under this
Agreement in respect of each Letter of Credit shall be unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement under all circumstances, including, without limitation, the following
circumstances:
          (i) any lack of validity or enforceability of any Letter of Credit
Documents;
          (ii) any amendment or waiver of, or any consent to or departure from,
any Letter of Credit Documents;
          (iii) the existence of any claim, set off, defense, or other right
which Borrower may have at any time against any beneficiary or transferee of
such Letter of Credit (or any Persons for whom any such beneficiary or any such
transferee may be acting), the Issuing Lender, or any other person or entity,
whether in connection with this Agreement, the transactions contemplated in this
Agreement or in any Letter of Credit Documents, or any unrelated transaction;
          (iv) any statement or any other document presented under such Letter
of Credit proving to be forged, fraudulent, invalid, or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect;
          (v) payment by the Issuing Lender under such Letter of Credit against
presentation of a draft or certificate which does not comply with the terms of
such Letter of Credit; or
          (vi) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing.
provided, however, that nothing contained in this paragraph (e) shall be deemed
to constitute a waiver of any remedies of Borrower in connection with the
Letters of Credit or Borrower’s rights under Section 2.10(f).

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     (f) Liability of Issuing Lender. Borrower assumes all risks of the acts or
omissions of any beneficiary or transferee of any Letter of Credit with respect
to its use of such Letter of Credit. Neither the Issuing Lender nor any of its
officers or directors shall be liable or responsible for:
          (i) the use which may be made of any Letter of Credit or any acts or
omissions of any beneficiary or transferee in connection therewith;
          (ii) the validity, sufficiency, or genuineness of documents, or of any
endorsement thereon, even if such documents should prove to be in any or all
respects invalid, insufficient, fraudulent, or forged;
          (iii) payment by the Issuing Lender against presentation of documents
which do not comply with the terms of a Letter of Credit, including failure of
any documents to bear any reference or adequate reference to the relevant Letter
of Credit; or
          (iv) any other circumstances whatsoever in making or failing to make
payment under any Letter of Credit (INCLUDING THE ISSUING LENDER’S OWN
NEGLIGENCE),
except that Borrower shall have a claim against the Issuing Lender, and the
Issuing Lender shall be liable to Borrower, to the extent of any direct, as
opposed to consequential, damages suffered by Borrower which a court determines
in a final, non-appealable judgment were caused by the Issuing Lender’s willful
misconduct or gross negligence in determining whether documents presented under
a Letter of Credit comply with the terms of such Letter of Credit. In
furtherance and not in limitation of the foregoing, the Issuing Lender may
accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary.
     (g) Cash Collateral Account.
          (i) If Borrower is required to deposit funds in the Cash Collateral
Account pursuant to Section 2.6(c), 2.7(b), 7.2(b) or 7.3(b), then Borrower and
the Issuing Lender shall establish the Cash Collateral Account and Borrower
shall execute any documents and agreements, including the Issuing Lender’s
standard form assignment of deposit accounts, that the Issuing Lender requests
in connection therewith to establish the Cash Collateral Account and grant the
Issuing Lender a first priority security interest in such account and the funds
therein. Borrower hereby pledges to the Issuing Lender and grants the Issuing
Lender a security interest in the Cash Collateral Account, whenever established,
all funds held in the Cash Collateral Account from time to time, and all
proceeds thereof as security for the payment of the Obligations.
          (ii) So long as no Default exists, the Issuing Lender may apply the
funds held in the Cash Collateral Account only to the reimbursement of any
Letter of Credit Obligations, and the Issuing Lender shall release to Borrower
at Borrower’s written request any funds held in the Cash Collateral Account in
an amount up to but not exceeding the excess, if any (immediately prior to the
release of any such funds), of the total amount of funds held in the Cash
Collateral Account over the Letter of Credit Exposure. During the existence of
any

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Default, the Issuing Lender may apply any funds held in the Cash Collateral
Account to the Obligations in the order set forth in Section 7.6.
          (iii) The Issuing Lender shall exercise reasonable care in the custody
and preservation of any funds held in the Cash Collateral Account and shall be
deemed to have exercised such care if such funds are accorded treatment
substantially equivalent to that which the Issuing Lender accords its own
Property, it being understood that the Issuing Lender shall not have any
responsibility for taking any necessary steps to preserve rights against any
parties with respect to any such funds.
     (h) Defaulting Lender. If, at any time, a Defaulting Lender exists
hereunder, then, at the request of the Issuing Lender, Borrower shall deposit
funds with Administrative Agent into the Cash Collateral Account in an amount
equal to such Defaulting Lender’s Pro Rata Share of the Letter of Credit
Exposure.
     Section 2.11. Time and Place of Payments. All payments to be made by
Borrower to Administrative Agent under this Agreement will be made to the
following account (the “Project Account”) by wire transfer in immediately
available funds not later than 11:00 a.m., Houston, Texas, time on the date due:

      Account: Bank of New York
                New York, NY 10004
                ABA # 021000018

      Favour: Macquarie Bank Limited – OBU Sydney
              Sydney
              A/C No.: 8900055375
              Chips UID: 236386
              Reference: Delta Petroleum Corporation

or to any other account that Administrative Agent may designate in writing to
Borrower from time to time.
     Section 2.12. Borrower Sub-Account; Disbursements.
     (a) Borrower Sub-Account. Following the date on which the first Advance
under the Term Loan is made and continuing until all Advances under the Term
Loan have been paid in full in cash, Borrower will direct and cause Operator,
all purchasers of Hydrocarbons and all other customers and obligors of Borrower
(including all payors of Royalty Interests, net profit interests, and production
payment interests) to deposit directly into the Project Account all payments of
any nature due and owing to Borrower. If Borrower nonetheless receives any such
funds, it will promptly (but, in any event, by the end of the following third
(3rd) Business Day) deposit all such funds in the Project Account. This
Section 2.12 will not prohibit Operator from making payments directly to Royalty
Interest owners and other third party payees who are not Affiliates of Borrower.
Administrative Agent will establish a sub account (the “Borrower Sub-Account”)
on its internal books and records and credit to the Borrower Sub-Account all
funds collected in the Project Account and attributable to Borrower’s Net
Revenue Interest in the Oil

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and Gas Properties at the time the amount to be credited has been identified to
Administrative Agent’s reasonable satisfaction. Borrower hereby irrevocably
authorizes Administrative Agent to debit the Borrower Sub-Account for (i) the
payment of all Obligations when due, and (ii) for any and all outstanding
accrued interest existing on the date of said debit, provided, however, any
interest paid under this Section 2.12(a)(ii) in any month will also be deducted
under Section 2.8 for purposes of calculating Net Operating Cash Flow for said
month. Administrative Agent may, if an Event of Default exists, apply all funds
credited to the Borrower Sub-Account against any Obligations then outstanding.
     (b) Disbursement of Operating Expenses. Following its delivery of each
monthly Property Operating Statement to Administrative Agent, Borrower may, not
more than four times each month and on at least three Business Days written
notice, request a release of funds credited to the Borrower Sub-Account since
the preceding Payment Date to pay:
          (i) the items described in clauses (a)–(f) of the definition of Net
Operating Cash Flow and payable in the Reported Month covered by the POS; and
          (ii) any other payments or distributions Approved by Administrative
Agent;
but only if no Event of Default exists or would result from the release of the
requested funds. Borrower’s request will include supporting documentation
reasonably satisfactory to Administrative Agent, including Borrower’s monthly
joint interest billing invoices and revenue distribution statements. Unless
Administrative Agent notifies Borrower in writing within that three Business Day
period that it objects or requires additional information with respect to the
requested disbursement (in which case, Administrative Agent will describe the
objection or requested information in reasonable detail), then Administrative
Agent will process the disbursement request and release the requested funds from
the Borrower Sub-Account. Borrower will use funds returned to it under this
Section 2.12(b) exclusively to pay the amounts included in its disbursement
request and will, at the request of Administrative Agent, promptly document to
the satisfaction of Administrative Agent that those amounts have been paid. A
Responsible Officer shall make any request under this Section.
     (c) Amounts Owed to Third Parties; Taxes. Amounts deposited into the
Project Account and owing to (i) Working Interest and Royalty Interest owners
that are not Affiliates of Borrower, or (ii) Governmental Authorities for taxes
or payments measured by production will be released by Administrative Agent to
Borrower upon receipt of a certificate from Borrower detailing the amounts and
the party to be paid. If an Event of Default exists, however, Administrative
Agent will, at its option and upon notice to Borrower, have the right (but not
the obligation) to make payments directly to the Persons identified on
Borrower’s certificate. A Responsible Officer shall deliver the certificate
contemplated by this Section 2.12(c) on behalf of Borrower.
     (d) Administrative Agent’s Right to Audit. Administrative Agent will have
the right to undertake audit procedures during normal business hours and upon
prior notice to periodically confirm that the payments described in
Sections 2.12(b) and 2.12(c) have been made by Borrower.

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     (e) Debt Service Reserve Account. At least once per month and at least 3
Business Days prior to the Payment Date, Borrower may request that
Administrative Agent reserve funds from the Borrower Sub-Account related to
anticipated disbursement for items covered by Section 2.12(b) above, and place
such funds into a separate account. Administrative Agent will establish a
sub-account on its internal books and records for such purpose (the “Debt
Service Reserve Account”). Borrower may, not more than twice each month and on
at least three Business Days written notice, request a release of funds
remaining in the Debt Service Reserve Account to pay (A) regularly scheduled
interest payments under the Convertible Notes and the Senior Unsecured Notes in
accordance with Section 6.5; and (B) any other payments or distributions
Approved by Administrative Agent, in each case only if no Event of Default
exists or would result from the release of the requested funds. Borrower’s
request will include supporting documentation reasonably satisfactory to
Administrative Agent. Unless Administrative Agent notifies Borrower in writing
within that three Business Day period that it objects or requires additional
information with respect to any requested disbursement under subparagraph
(B) above (in which case, Administrative Agent will describe the objection or
requested information in reasonable detail), then Administrative Agent will
process each disbursement request and release the requested funds from the Debt
Service Reserve Account. Borrower will use funds returned to it under this
Section 2.12(e) exclusively to pay the amounts included in its disbursement
request and will, at the request of Administrative Agent, promptly document to
the satisfaction of Administrative Agent that those amounts have been paid. A
Responsible Officer shall make any request under this Section.
     Section 2.13. Fees.
     (a) Commitment Fees. Borrower agrees to pay to Administrative Agent, for
the account of each Lender, a commitment fee at a per annum rate equal to the
Commitment Fee Rate on the daily Unused Commitment Amount of such Lender, from
the Effective Date until the Commitment Termination Date; provided that, no
Commitment Fee shall accrue on the Commitment of a Defaulting Lender during the
period such Lender remains a Defaulting Lender. The commitment fees shall be due
and payable quarterly in arrears on the last day of each March, June, September,
and December commencing on December 31, 2010 and continuing thereafter through
and including the Commitment Termination Date.
     (b) Letter of Credit Fees.
          (i) Borrower agrees to pay to Administrative Agent for the pro rata
benefit of Lenders a per annum letter of credit fee for each Letter of Credit
issued hereunder in an amount equal to the Applicable Margin then in effect for
Eurodollar Rate Advances times the daily maximum amount available to be drawn
under such Letter of Credit, payable quarterly in arrears on the last day of
each March, June, September, and December commencing on March 31, 2011 and
continuing thereafter through and including the Commitment Termination Date.
          (ii) Borrower also agrees to pay to the Issuing Lender such other
usual and customary fees associated with any transfers, amendments, drawings,
negotiations or reissuances of any Letters of Credit.

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     (c) Upfront Fees. Borrower agrees to pay to Administrative Agent for the
account of each Lender a fee for commitments to fund under the Term Loan equal
to 2% of the amount of any incremental increase in the amount Lenders commit to
fund at any time under the Term Loan above the committed amount of the Term Loan
previously in effect pursuant to a commitment to fund under Section 2.3.
     Section 2.14. Interest. Borrower shall pay interest on the unpaid principal
amount of each Advance made by each Lender from the date of such Advance until
such principal amount shall be paid in full, at the following rates per annum:
     (a) Reference Rate Advances. If such Advance is a Reference Rate Advance, a
rate per annum equal at all times to the Adjusted Reference Rate in effect from
time to time plus the Applicable Margin in effect from time to time, payable
quarterly in arrears on the last day of each fiscal quarter commencing on
March 31, 2011, and on the date such Reference Rate Advance shall be paid in
full.
     (b) Eurodollar Rate Advances. If such Advance is a Eurodollar Rate Advance,
a rate per annum equal at all times during the Interest Period for such Advance
to the Eurodollar Rate for such Interest Period plus the Applicable Margin in
effect from time to time, payable on the last day of such Interest Period.
     (c) Usury Recapture.
          (i) If, with respect to any Lender, the effective rate of interest
contracted for under the Loan Documents, including the stated rates of interest
and fees contracted for hereunder and any other amounts contracted for under the
Loan Documents which are deemed to be interest, at any time exceeds the Maximum
Rate, then the outstanding principal amount of the loans made by such Lender
hereunder shall bear interest at a rate which would make the effective rate of
interest for such Lender under the Loan Documents equal the Maximum Rate until
the difference between the amounts which would have been due at the stated rates
and the amounts which were due at the Maximum Rate (the “Lost Interest”) has
been recaptured by such Lender.
          (ii) If, when the loans made hereunder are repaid in full, the Lost
Interest has not been fully recaptured by such Lender pursuant to the preceding
paragraph, then, to the extent permitted by law, for the loans made hereunder by
such Lender the interest rates charged under Section 2.14 hereunder shall be
retroactively increased such that the effective rate of interest under the Loan
Documents was at the Maximum Rate since the effectiveness of this Agreement to
the extent necessary to recapture the Lost Interest not recaptured pursuant to
the preceding sentence and, to the extent allowed by law, Borrower shall pay to
such Lender the amount of the Lost Interest remaining to be recaptured by such
Lender.
          (iii) Notwithstanding the foregoing or any other term in this
Agreement and the Loan Documents to the contrary, it is the intention of each
Lender and Borrower to conform strictly to any applicable usury laws.
Accordingly, if any Lender contracts for, charges, or receives any consideration
which constitutes interest in excess of the Maximum Rate, then any such excess
shall be canceled automatically and, if previously paid, shall at such Lender’s
option

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be applied to the outstanding principal amount of the loans made hereunder by
such Lender or be refunded to Borrower.
     Section 2.15. Payments and Computations.
     (a) Payment Procedures. Borrower shall make each payment under this
Agreement and under the Notes not later than 11:00 a.m. (Houston, Texas time) on
the day when due in Dollars to Administrative Agent as set forth in Section 2.11
in same day funds without deduction, setoff, or counterclaim of any kind, except
as may be applicable to any Defaulting Lender. Administrative Agent shall
promptly thereafter cause to be distributed like funds relating to the payment
of principal, interest or fees ratably (other than amounts payable solely to
Administrative Agent, the Issuing Lender, or a specific Lender pursuant to
Sections 2.14(c), 2.17, 2.18, 2.19, 8.5, 9.7, but after taking into account
payments effected pursuant to Section 9.4) in accordance with each Lender’s Pro
Rata Share to Lenders for the account of their respective Lending Offices, and
like funds relating to the payment of any other amount payable to any Lender or
the Issuing Lender to such Lender for the account of its Lending Office, in each
case to be applied in accordance with the terms of this Agreement.
     (b) Computations. All computations of interest based on the Reference Rate
and of fees shall be made by Administrative Agent on the basis of a year of 365
or 366 days, as the case may be, and all computations of interest based on the
Eurodollar Rate and the Federal Funds Rate shall be made by Administrative
Agent, on the basis of a year of 360 days, in each case for the actual number of
days (including the first day, but excluding the last day) occurring in the
period for which such interest or fees are payable. Each determination by
Administrative Agent of an interest rate or fee shall be conclusive and binding
for all purposes, absent manifest error.
     (c) Non Business Day Payments. Whenever any payment shall be stated to be
due on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or fees, as the case may be;
provided, however, that if such extension would cause payment of interest on or
principal of Eurodollar Rate Advances to be made in the next following calendar
month, such payment shall be made on the immediately preceding Business Day and
such shortening of time shall in such case be included in the computation of
payment of interest or fees, as the case may be.
     (d) Administrative Agent Reliance. Unless Administrative Agent shall have
received written notice from Borrower prior to the date on which any payment is
due to Lenders that Borrower shall not make such payment in full, Administrative
Agent may assume that Borrower has made such payment in full to Administrative
Agent on such date and Administrative Agent may, in reliance upon such
assumption, cause to be distributed to each Lender on such date an amount equal
to the amount then due such Lender. If and to the extent Borrower shall not have
so made such payment in full to Administrative Agent, each Lender shall repay to
Administrative Agent forthwith on demand such amount distributed to such Lender,
together with interest, for each day from the date such amount is distributed to
such Lender until the date such Lender repays such amount to Administrative
Agent, at the Federal Funds Rate for such day.

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     Section 2.16. Sharing of Payments, Etc. If any Lender shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set off, or otherwise) on account of the Advances or Letter of Credit
Obligations made by it in excess of its Pro Rata Share of payments on account of
the Advances or Letter of Credit Obligations obtained by all Lenders (other than
as a result of a termination of a Defaulting Lender’s Commitment under
Section 2.6(c)), such Lender shall notify Administrative Agent and forthwith
purchase from the other Lenders such participations in the Advances made by them
or Letter of Credit Obligations held by them as shall be necessary to cause such
purchasing Lender to share the excess payment ratably with each of them;
provided, however, that if all or any portion of such excess payment is
thereafter recovered from such purchasing Lender, such purchase from each Lender
shall be rescinded and such Lender shall repay to the purchasing Lender the
purchase price to the extent of such Lender’s ratable share (according to the
proportion of (a) the amount of the participation sold by such Lender to the
purchasing Lender as a result of such excess payment to (b) the total amount of
such excess payment) of such recovery, together with an amount equal to such
Lender’s ratable share (according to the proportion of (i) the amount of such
Lender’s required repayment to the purchasing Lender to (ii) the total amount of
all such required repayments to the purchasing Lender) of any interest or other
amount paid or payable by the purchasing Lender in respect of the total amount
so recovered. Borrower agrees that any Lender so purchasing a participation from
another Lender pursuant to this Section 2.16 may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of set
off) with respect to such participation as fully as if such Lender were the
direct creditor of Borrower in the amount of such participation. The provisions
of this Section 2.16 shall not be construed to apply to any payment made by
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 any of its Advances or participations in Letter of
Credit Exposure to any assignee or participant, other than to Borrower or any
Guarantor or Affiliate thereof (as to which the provisions of this Section 2.16
shall apply). If a Lender fails to make an Advance with respect to a Borrowing
as and when required hereunder and Borrower subsequently makes a repayment of
any Advances, such repayment shall be split among the non-defaulting Lenders
ratably in accordance with their respective Commitment percentages until each
Lender (including the Defaulting Lender) has its percentage of all of the
outstanding Advances and the balance of such repayment shall be applied among
Lenders in accordance with their Pro Rata Share.
     Section 2.17. Breakage Costs. If (a) any payment of principal of any
Eurodollar Rate Advance is made other than on the last day of the Interest
Period for such Advance, whether as a result of any payment pursuant to
Section 2.7, the acceleration of the maturity of the Notes pursuant to
Article VII, or otherwise, or (b) Borrower fails to make a principal or interest
payment with respect to any Eurodollar Rate Advance on the date such payment is
due and payable, Borrower shall, within 10 days of any written demand sent by
any Lender to Borrower through Administrative Agent, pay to Administrative Agent
for the account of such Lender any amounts required to compensate such Lender
for any additional losses, out of pocket costs or expenses which it may
reasonably incur as a result of such payment or nonpayment, including, without
limitation, any loss (including loss of anticipated profits), cost or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by any Lender to fund or maintain such Advance.

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     Section 2.18. Increased Costs.
     (a) Increased Costs Generally. If any Change in Law shall:
          (i) impose, modify or deem applicable any reserve, special deposit,
compulsory loan, insurance charge or similar requirement against assets of,
deposits with or for the account of, or credit extended or participated in by,
any Lender (except any reserve requirement reflected in the Eurodollar Rate) or
the Issuing Lender;
          (ii) subject any Lender or the Issuing Lender to any tax of any kind
whatsoever with respect to this Agreement, any Letter of Credit, any
participation in a Letter of Credit or any Eurodollar Rate Advance made by it,
or change the basis of taxation of payments to such Lender or the Issuing Lender
in respect thereof (except for Indemnified Taxes or Other Taxes covered by
Section 2.19 and the imposition of, or any change in the rate of, any Excluded
Tax payable by such Lender or the Issuing Lender); or
          (iii) impose on any Lender or the Issuing Lender or the London
interbank market any other condition, cost or expense affecting this Agreement
or Eurodollar Rate Advances made by such Lender or any Letter of Credit or
participation therein;
and the result of any of the foregoing shall be to increase the cost to such
Lender or Issuing Lender of making or maintaining any Eurodollar Rate Advance
(or of maintaining its obligation to make any such Eurodollar Rate Advance), or
to increase the cost to such Lender or the Issuing Lender of participating in,
issuing or maintaining any Letter of Credit (or of maintaining its obligation to
participate in or to issue any Letter of Credit), or to reduce the amount of any
sum received or receivable by such Lender or the Issuing Lender hereunder
(whether of principal, interest or any other amount) then, upon request of such
Lender or the Issuing Lender, Borrower will pay to such Lender or the Issuing
Lender, as the case may be, such additional amount or amounts as will compensate
such Lender or the Issuing Lender, as the case may be, for such additional costs
incurred or reduction suffered.
     (b) Capital Requirements. If any Lender or the Issuing Lender determines
that any Change in Law affecting such Lender or the Issuing Lender or any
lending office of such Lender or such Lender’s or the Issuing Lender’s holding
company, if any, regarding capital requirements has or would have the effect of
reducing the rate of return on such Lender’s or the Issuing Lender’s capital or
on the capital of such Lender’s or the Issuing Lender’s holding company, if any,
as a consequence of this Agreement, the Commitments of such Lender or the Loans
made by, or participations in Letters of Credit held by, such Lender , or the
Letters of Credit issued by the Issuing Lender, to a level below that which such
Lender or the Issuing Lender or such Lender’s or the Issuing Lender’s holding
company could have achieved but for such Change in Law (taking into
consideration such Lender’s or the Issuing Lender’s policies and the policies of
such Lender’s or the Issuing Lender’s holding company with respect to capital
adequacy), then from time to time Borrower will pay to such Lender or the
Issuing Lender, as the case may be, such additional amount or amounts as will
compensate such Lender or the Issuing Lender or such Lender’s or the Issuing
Lender’s holding company for any such reduction suffered.

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     (c) Letters of Credit. If any Change in Law shall either impose, modify, or
deem applicable any reserve, special deposit, or similar requirement against
letters of credit issued by, or assets held by, or deposits in or for the
account of, the Issuing Lender or impose on the Issuing Lender any other
condition regarding the provisions of this Agreement relating to the Letters of
Credit or any Letter of Credit Obligations, and the result of any event referred
to in the preceding clause (i) or (ii) shall be to increase the cost to the
Issuing Lender of issuing or maintaining any Letter of Credit (which increase in
cost shall be determined by the Issuing Lender’s reasonable allocation of the
aggregate of such cost increases resulting from such event), then, upon demand
by the Issuing Lender, Borrower shall pay to the Issuing Lender, from time to
time as specified by the Issuing Lender, additional amounts which shall be
sufficient to compensate the Issuing Lender for such increased cost.
     (d) Delay in Requests. Failure or delay on the part of any Lender or the
Issuing Lender to demand compensation pursuant to this Section shall not
constitute a waiver of such Lender or the Issuing Lender’s right to demand such
compensation, provided that Borrower shall not be required to compensate a
Lender or the Issuing Lender pursuant to this Section for any increased costs
incurred or reductions suffered more than 180 days prior to the date that such
Lender or the Issuing Lender, as the case may be, notifies Borrower of the
Change in Law giving rise to such increased costs or reductions and of such
Lender’s or the Issuing Lender’s intention to claim compensation therefor
(except that, if the Change in Law giving rise to such increased costs or
reductions is retroactive, then the 180-day period referred to above shall be
extended to include the period of retroactive effect thereof).
     (e) Mitigation. If any Lender requests compensation under Section 2.18, or
requires Borrower to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to Section 2.19, then such
Lender shall use reasonable efforts to designate a different lending office for
funding or booking its Advances 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 2.18 or Section 2.19, 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.
Borrower hereby agrees to pay all costs and expenses incurred by any Lender in
connection with any such designation or assignment.
     (f) Certificates for Reimbursement. A certificate of a Lender or the
Issuing Lender setting forth the amount or amounts necessary to compensate such
Lender or the Issuing Lender or its holding company, as the case may be, as
specified in paragraph (a), (b) or (c) of this Section and delivered to Borrower
shall be conclusive absent manifest error. Borrower shall pay such Lender or the
Issuing Lender, as the case may be, the amount shown as due on any such
certificate within 10 days after receipt thereof.
     Section 2.19. Taxes.
     (a) Taxes Not Deducted from Payments to Lenders. All payments made by
Borrower under this Agreement will be made free and clear of and without
deduction for Indemnified Taxes. If Borrower is required by law to deduct any
Indemnified Taxes from any sum payable to any Lender, (i) the sum payable will
be increased by an amount so that, after making all required

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deductions (including deductions applicable to additional sums payable under
this Section 2.19(a)) each Lender will receive an amount equal to the sum it
would have received had no deductions been made, (ii) Borrower will deduct from
the sum payable to each Lender an amount sufficient to pay the Taxes and pay the
balance to such Lender, and (iii) Borrower will promptly pay the full amount
deducted to the relevant Governmental Authority in accordance with applicable
law.
     (b) Other Taxes. In addition, and to the fullest extent permitted by Law,
Borrower agrees to pay any Other Taxes.
     (c) INDEMNIFICATION. WITHOUT DUPLICATION OF ITS OBLIGATION TO PAY INCREASED
AMOUNTS PURSUANT TO SECTION 2.19(a) AND (b), AND SUBJECT TO SECTION 2.19(i), TO
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EXCEPT AS PROVIDED IN SECTION
2.19(e) BELOW, AND UNLESS THERE EXISTS A MATERIAL BREACH OF LENDERS’
REPRESENTATIONS IN THIS AGREEMENT, BORROWER WILL FOREVER INDEMNIFY
ADMINISTRATIVE AGENT, ISSUING LENDER AND LENDERS FROM AND AGAINST (I) ALL TAXES
AND OTHER TAXES IMPOSED BY ANY TAXING AUTHORITY ON AMOUNTS PAYABLE UNDER THIS
SECTION 2.19 AND PAID BY ADMINISTRATIVE AGENT, ISSUING LENDER OR ANY LENDER ON
BEHALF OF BORROWER AND (II) ALL LIABILITIES (INCLUDING PENALTIES, INTEREST AND
REASONABLE ATTORNEYS FEES, EXPENSES AND DISBURSEMENTS) ARISING FROM OR RELATED
TO THOSE TAXES AND OTHER TAXES WITHOUT REGARD TO WHETHER THOSE TAXES OR OTHER
TAXES WERE CORRECTLY OR LEGALLY IMPOSED. BORROWER WILL MAKE ANY PAYMENTS
REQUIRED UNDER THIS SECTION 2.19(c) WITHIN 30 DAYS AFTER THE ADMINISTRATIVE
AGENT OR ANY LENDER DELIVERS A WRITTEN NOTICE TO BORROWER THAT (X) IDENTIFIES
THE RELEVANT GOVERNMENTAL AUTHORITY AND THE AMOUNT OF THE TAX OR OTHER TAX
IMPOSED, (Y) STATES WITH REASONABLE SPECIFICITY THE BASIS FOR THAT TAX OR OTHER
TAX, AND (Z) CERTIFIES THAT ADMINISTRATIVE AGENT OR SUCH LENDER HAS PAID THE TAX
OR OTHER TAX IMPOSED. THE INDEMNIFICATION OBLIGATIONS OF BORROWER UNDER THIS
SECTION 2.19(C) WILL SURVIVE THE REPAYMENT OF THE OBLIGATIONS AND THE
TERMINATION OF THIS AGREEMENT.
     (d) Certification of Tax Status By Any Lender. Each Lender will promptly
(i) execute and deliver to Borrower a duly completed copy of United States
Internal Revenue Service Form W 8BEN, W-81MY or W-8ECI (as applicable),
certifying in either case that such Lender is entitled to receive payments under
this Agreement without deduction or withholding of any United States federal
income taxes, and (ii) deliver to Borrower a United States Internal Revenue
Service Form W-8 or W-9 (as applicable) and certify that such Lender is entitled
to an exemption from United States backup withholding tax. Each Lender further
agrees to deliver to Borrower (x) renewals or additional copies of such forms
(or any successor forms) on or before the date that such forms expire or become
obsolete, and (y) after the occurrence of any event requiring a change in the
most recent forms delivered by it, additional forms or amendments to those forms
as may be reasonably requested by Borrower. All forms or amendments described in
the preceding sentence will include a certification by each Lender that it is
entitled to receive payments under this Agreement without deduction or
withholding of any United States federal

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income taxes, unless an event (including a change in applicable law) has
occurred prior to the date on which any such delivery would otherwise be
required which renders all such forms inapplicable or which would prevent such
Lender from duly completing and delivering any such form or amendment with
respect to it and such Lender advises Borrower in writing that such Lender is
not capable of receiving payments without any deduction or withholding of United
States federal income tax.
     (e) Certain Events Not Entitled to Indemnification. For any period during
which any Lender has failed to provide Borrower with an appropriate form
pursuant to Section 2.19(d) above (and unless the failure is due to a change in
applicable law or a change in the interpretation or administration of any
applicable law by any Governmental Authority, occurring after the date on which
a form was required to be provided), such Lender will not be entitled to
indemnification under this Section 2.19 with respect to Taxes imposed by the
United States. If, however, a Lender becomes subject to Taxes because of its
failure to deliver a form required under Section 2.19(d) above, Borrower shall
take such steps as such Lender may reasonably request to assist such Lender in
recovering those Taxes.
     (f) Documentation of Exemptions. If any Lender is entitled to an exemption
from or reduction of withholding tax with respect to payments under any Loan
Document pursuant to applicable law of any relevant jurisdiction, such Lender
will deliver to Borrower, at the time or times prescribed by applicable aw,
properly completed and executed documentation required by law so as to permit
those payments to be made without withholding or at a reduced rate of
withholding.
     (g) Indemnification By Lender for Certain Tax Claims. If the United States
Internal Revenue Service or any other Governmental Authority asserts a claim
against Borrower alleging that it did not properly withhold tax from amounts
paid to or for the account of any Lender (for any reason, including because the
relevant form was not delivered or was not properly completed or because such
Lender failed to notify Borrower of a change in circumstances that rendered its
exemption from withholding ineffective), then such Lender will indemnify
Borrower from and against all amounts paid, directly or indirectly, by Borrower
as tax or withholding for any tax (and including reasonable attorneys fees,
expenses and disbursements together with penalties and interest imposed by
Governmental Authority on amounts payable to Borrower under this subsection).
The indemnification obligations of any Lender under this Section 2.19(g) will
survive the repayment of the Obligations and the termination of this Agreement.
     (h) Designation of Substitute Lending Office. Each Lender will, at
Borrower’s request following the occurrence of any event giving rise to the
operation of this Section 2.19, use commercially reasonable efforts (subject to
overall policy considerations of such Lender) to designate a substitute lending
office, but provided that such designation is made on such terms that such
Lender and its lending office suffer no economic, legal or regulatory
disadvantage, with the object of avoiding the consequence of the event giving
rise to the operation of this Section 2.19. Nothing in this Section 2.19(h) will
affect or postpone any of the obligations of Borrower or the rights of any
Lender provided in this section.
     (i) Effect of Tax Refund. Each Lender will use its commercially reasonable
efforts to obtain in a timely fashion any refund, deduction or credit of any
Taxes or Other Taxes paid or

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reimbursed by Borrower pursuant to this Section 2.19. If any Lender receives a
benefit in the nature of a refund, deduction or credit (including a refund in
the form of a deduction from or credit against taxes that are otherwise payable
by a Lender) of any Taxes or Other Taxes with respect to which Borrower have
made a payment under this Section 2.19, such Lender will notify and reimburse
Borrower (promptly after such Lender reasonably determines that such refund,
deduction or credit has become final) to the extent of the benefit of such
refund, deduction or credit, including any interest paid by the relevant
Governmental Authority. Nothing in this Section 2.19 will, however, require any
Lender to make available its tax returns (or any other information relating to
its taxes which it deems to be confidential) or to attempt to obtain any refund,
deduction or credit (including any interest paid by the relevant Governmental
Authority and received by any Lender), if any Lender determines that doing so
could be inconsistent with any reporting position otherwise taken by such Lender
on its tax returns.
     Section 2.20. Replacement of Lender. If any Lender requests compensation
under Section 2.18(a) or Section 2.18(b), (a) any Lender suspends its obligation
to continue, or Convert Advances into, Eurodollar Rate Advances pursuant to
Section 2.5(c)(ii) or Section 2.16, any Lender becomes a Defaulting Lender, or
(b) any Lender is a Non-Consenting Lender (any such Lender, a “Subject Lender”),
then (i) in the case of a Defaulting Lender, Administrative Agent may, upon
notice to the Subject Lender and Borrower, require such Subject Lender to assign
and delegate, without recourse (in accordance with and subject to the
restrictions contained in, and consents required by, Section 9.6), all of its
interests, rights and obligations under this Agreement and the related Loan
Documents to an Eligible Assignee that shall assume such obligations (which
Eligible Assignee may be another Lender, if a Lender accepts such assignment)
and (ii) in the case of any Subject Lender, including a Defaulting Lender,
Borrower may, upon notice to the Subject Lender and Administrative Agent and at
Borrower’s sole cost and expense, require such Subject Lender to assign, without
recourse (in accordance with and subject to the restrictions contained in, and
consents required by, Section 9.6), all of its interests, rights and obligations
under this Agreement and the related Loan Documents to an assignee that shall
assume such obligations (which assignee may be another Lender, if a Lender
accepts such assignment), provided that:
          (A) as to assignments required by Borrower, Borrower shall have paid
to Administrative Agent the assignment fee specified in Section 9.6;
          (B) such Subject Lender shall have received payment of an amount equal
to the outstanding principal of its Advances and participations in outstanding
Letter of Credit Obligations, accrued interest thereon, accrued fees and all
other amounts payable to it hereunder and under the other Loan Documents
(including any amounts under Section 2.17) from the assignee (to the extent of
such outstanding principal and accrued interest and fees) or Borrower (in the
case of all other amounts);
          (C) in the case of any such assignment resulting from a claim for
compensation under Section 2.18, such assignment will result in a reduction in
such compensation or payments thereafter;
          (D) such assignment does not conflict with applicable Legal
Requirements; and

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          (E) with respect to a Non-Consenting Lender, the proposed agreement,
amendment, waiver, consent or release with respect to this Agreement or any
other Loan Document (including any increases to the Borrowing Base) has been
Approved by the Required Lenders and such agreement, amendment, waiver, consent
or release can be effected as a result of the assignment contemplated by this
Section.
A Lender shall not be required to make any such assignment or delegation if,
prior thereto, as a result of a waiver by such Lender or otherwise, the
circumstances entitling Borrower to require such assignment and delegation cease
to apply. Solely for purposes of effecting the assignment required for a
Defaulting Lender under this Section 2.20 and to the extent permitted under
applicable Legal Requirements, each Lender hereby designates and appoints
Administrative Agent as true and lawful agent and attorney-in-fact, with full
power and authority, for and on behalf of and in the name of such Lender to
execute, acknowledge and deliver the Assignment and Acceptance required
hereunder if such Lender was a Defaulting Lender and such Lender shall be bound
thereby as fully and effectively as if such Lender had personally executed,
acknowledged and delivered the same. In lieu of Borrower or Administrative Agent
replacing a Defaulting Lender as provided in this Section 2.20, Borrower may
terminate such Defaulting Lender’s Commitment as provided in Section 2.6.
ARTICLE III
CONDITIONS
     Section 3.1. Conditions Precedent to Initial Borrowings. The obligations of
each Lender to make the initial Advance shall be subject to the conditions
precedent that:
     (a) Documentation. Administrative Agent shall have received the following
duly executed by all the parties thereto, in form and substance satisfactory to
Administrative Agent, the Issuing Lender and Lenders, and, where applicable, in
sufficient copies for each Lender:
          (i) this Agreement, a Note payable to the order of each Lender in the
amount of its Commitment, the Guaranties, the Pledge Agreement, the Security
Agreements, and Mortgages encumbering at least 90% (by value) of Borrower’s
Proved Reserves and associated Oil and Gas Properties in connection therewith,
and each of the other Loan Documents, and all attached exhibits and schedules;
          (ii) a favorable opinion of Borrower’s and the Guarantors’ counsel
dated as of the date of this Agreement and substantially in the form of the
attached Exhibit K covering the matters discussed in such Exhibit and such other
matters as Administrative Agent may reasonably request;
          (iii) copies, certified as of the date of this Agreement by a
Responsible Officer of Borrower of (A) the resolutions of the Board of Directors
of Borrower approving the Loan Documents to which Borrower is a party, (B) the
certificate of incorporation of Borrower, (C) the bylaws of Borrower and (D) all
other documents evidencing other necessary corporate action and governmental
approvals, if any, with respect to this Agreement, the Note, and the other Loan
Documents;

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          (iv) certificates of a Responsible Officer of Borrower certifying the
names and true signatures of the officers of Borrower authorized to sign this
Agreement, the Notes, Notices of Borrowing, Notices of Conversion or
Continuation, and the other Loan Documents to which Borrower is a party;
          (v) copies, certified as of the date of this Agreement by a
Responsible Officer or the secretary or an assistant secretary of each Guarantor
of (A) the resolutions of the Board of Directors (or other applicable governing
body) of such Guarantor approving the Loan Documents to which it is a party,
(B) the articles or certificate (as applicable) of incorporation (or
organization) and bylaws of such Guarantor, and (C) all other documents
evidencing other necessary corporate action and governmental approvals, if any,
with respect to the Guaranty, the Security Instruments, and the other Loan
Documents to which such Guarantor is a party;
          (vi) a certificate of the secretary or an assistant secretary of each
Guarantor certifying the names and true signatures of officers of such Guarantor
authorized to sign the Guaranty, Security Instruments and the other Loan
Documents to which such Guarantor is a party;
          (vii) appropriate UCC-1 and UCC-3, as applicable, Financing Statements
covering the Collateral for filing with the appropriate authorities and any
other documents, agreements or instruments necessary to create an Acceptable
Security Interest in such Collateral;
          (viii) insurance certificates naming Administrative Agent as
additional insured, or loss payee, as applicable, and evidencing insurance which
meets the requirements of this Agreement and the Security Instruments, and which
is otherwise satisfactory to Administrative Agent;
          (ix) the initial Independent Engineer’s Report dated effective as of a
date acceptable to Administrative Agent;
          (x) certificates of good standing for Borrower and the Guarantors in
each state in which each such Person is organized or qualified to do business,
which certificate shall be acceptable to Administrative Agent;
          (xi) a certificate dated as of the date of this Agreement from the
Responsible Officer of Borrower stating that (A) all representations and
warranties of Borrower set forth in this Agreement are true and correct in all
material respects as of such date (except in the case of representations and
warranties that are made solely as of an earlier date or time, which
representations and warranties shall be true and correct in all material
respects as of such earlier date or time); (B) no Default has occurred and is
continuing; and (C) the conditions in this Section 3.1 have been met;
          (xii) a list of current purchasers of Hydrocarbons produced from the
Oil and Gas Properties and contact information and addresses for each purchaser;
          (xiii) such other documents, governmental certificates, agreements and
lien searches as Administrative Agent may reasonably request; and

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          (xiv) consent, in form and substance satisfactory to Administrative
Agent, from Blackstone Minerals Company L.P. (or its appropriate Affiliate) to
the Mortgage (for Oil & Gas Properties located in the State of Texas),
enforcement of same and all rights and remedies granted thereunder.
     (b) Payment of Fees. On the date of this Agreement, Borrower shall have
paid the fees required by Section 2.13 and all costs and expenses that have been
invoiced and are payable pursuant to Section 9.4.
     (c) Delivery of Financial Statements. Administrative Agent and Lenders
shall have received true and correct copies of the Financial Statements, the
Interim Financial Statements and such other financial information as
Administrative Agent may reasonably request.
     (d) Security Instruments. Administrative Agent shall have received all
appropriate evidence required by Administrative Agent and Lenders in their sole
discretion necessary to determine that Administrative Agent (for its benefit and
the benefit of the Secured Parties) shall have an Acceptable Security Interest
in the Collateral and that all actions or filings necessary to protect, preserve
and validly perfect such Liens have been made, taken or obtained, as the case
may be, and are in full force and effect.
     (e) Title. Administrative Agent shall be satisfied in its sole discretion
with the title to the Oil and Gas Properties included in the Borrowing Base and
that such Oil and Gas Properties constitute at least 90% of the present value of
the Proved Reserves of Borrower as determined by Administrative Agent in its
sole discretion.
     (f) No Default. No Default shall have occurred and be continuing.
     (g) Representations and Warranties. The representations and warranties
contained in Article IV and in each other Loan Document shall be true and
correct in all material respects.
     (h) Material Adverse Change. No event or circumstance that could cause a
Material Adverse Change shall have occurred since December 31, 2009.
     (i) No Proceeding or Litigation; No Injunctive Relief. No action, suit,
investigation or other proceeding (including, without limitation, the enactment
or promulgation of a statute or rule) by or before any arbitrator or any
Governmental Authority shall be threatened or pending and no preliminary or
permanent injunction or order by a state or federal court shall have been
entered (i) in connection with this Agreement or any transaction contemplated
hereby or (ii) which, in any case, in the judgment of Administrative Agent,
could reasonably be expected to result in a Material Adverse Change (other than
the developments under the litigation proceedings set forth on Schedule 4.7
which have been disclosed to Administrative Agent prior to the Effective Date).
     (j) Consents, Licenses, Approvals, etc. Administrative Agent shall have
received true copies (certified to be such by Borrower or other appropriate
party) of all consents, licenses and approvals required in accordance with
applicable law, or in accordance with any document, agreement, instrument or
arrangement to which Borrower and the Guarantors is a party, in connection with
the execution, delivery, performance, validity and enforceability of this

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Agreement, and the other Loan Documents. In addition, Borrower and the
Guarantors shall have all such material consents, licenses and approvals
required in connection with the continued operation of Borrower and the
Guarantors, and such approvals shall be in full force and effect, and all
applicable waiting periods shall have expired without any action being taken or
threatened by any competent authority which would restrain, prevent or otherwise
impose material and adverse conditions on this Agreement and the actions
contemplated hereby.
     (k) Hedging Arrangements. In addition to the Hydrocarbon Hedge Agreements
detailed on Schedule 4.19, Borrower shall have entered into Hydrocarbon Hedge
Agreements in the form of Hedge Contracts satisfactory to Administrative Agent
which shall result in such term, notional amounts or volumes hedged in
compliance with Schedule 3.1(k).
     (l) Repayment of Other Debt. Prior to, or concurrently with, the making of
the initial Advances hereunder, all outstanding obligations owing under the
JPMorgan Credit Facility shall have been paid in full and Administrative Agent
shall have received a “pay-off” letter (or such other evidence) in form and
substance satisfactory to Administrative Agent with respect to all such Debt;
and Administrative Agent shall have received from any Person holding any Lien
securing any such Debt, such UCC (or equivalent) assignment or termination
statements, mortgage assignments or releases, assignments or releases of
assignments of leases and rents, and other instruments, in each case in proper
form for recording or filing, as Administrative Agent shall have requested to
evidence the assignment or, where applicable, the release and termination, of
the Liens securing such Debt.
     (m) USA PATRIOT Act. Borrower has delivered to each Lender that is subject
to the PATRIOT Act such information requested by such Lender in order to comply
with the PATRIOT Act.
     (n) Deposit Accounts. As of the Effective Date of this Agreement,
arrangements satisfactory to Administrative Agent shall have been made for
Borrower and the Guarantors to maintain their Deposit Accounts with an
Acceptable Bank pursuant to Section 6.23.
     (o) Minimum Production Report. Administrative Agent shall have received
reports or other evidence satisfactory to it confirming that the minimum volume
production for the month ending November 30, 2010, for all Oil and Gas
Properties of Borrower, was at or above 990 MMcfe.
     (p) Bureau of Ocean Energy, Management, Regulation and Enforcement. (A) All
Bureau of Ocean Energy, Management, Regulation and Enforcement (“BOEM”) bonds
for environmental liabilities shall have been funded to Administrative Agent’s
satisfaction, and (B) Borrower shall have provided all documentation and taken
all steps necessary and sufficient such that Administrative Agent or a designee
of Administrative Agent will be included as a signatory on the signatory
qualification card on file with the BOEM and any corresponding instrument with
any applicable state regulatory body; provided, however, when Administrative
Agent or its designee becomes such signatory, Administrative Agent or its
designee shall only be able to sign BOEM or applicable state regulatory
authority documents on behalf of Borrower if an Event of Default has occurred
and is continuing.

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     (q) Post-Closing Conditions. Within thirty (30) days of the Effective Date,
Borrower shall deliver to Administrative Agent :
          (i) an environmental review by an environmental consultant
satisfactory to Administrative Agent covering the Oil and Gas Properties
included in the Borrowing Base pursuant to Section 2.2(b); such review to be in
form and content satisfactory to Administrative Agent. Borrower shall fully
cooperate with Administrative Agent and the environmental consultant in the
preparation and delivery of such environmental review; and
          (ii) Borrower shall have entered into Hydrocarbon Hedge Agreements in
the form of Hedge Contracts satisfactory to Administrative Agent which shall
result in such term, notional amounts or volumes hedged in compliance with
Schedule 3.1(q)(ii).
     Section 3.2. Conditions Precedent to All Borrowings. The obligation of each
Lender to make an Advance on the occasion of each Borrowing and of the Issuing
Lender to issue, increase, or extend any Letter of Credit shall be subject to
the further conditions precedent that on the date of such Borrowing or the date
of the issuance, increase, or extension of such Letter of Credit:
     (a) the following statements shall be true (and each of the giving of the
applicable Notice of Borrowing, Notice of Conversion or Continuation, or Letter
of Credit Application and the acceptance by Borrower of the proceeds of such
Borrowing or the issuance, increase, or extension of such Letter of Credit shall
constitute a representation and warranty by Borrower that on the date of such
Borrowing or on the date of such issuance, increase, or extension of such Letter
of Credit, as applicable, such statements are true):
          (i) the representations and warranties contained in Article IV and the
representations and warranties contained in the Security Instruments, the
Guaranties, and each of the other Loan Documents are true and correct in all
material respects (except that such materiality qualifier shall not be
applicable to any representations and warranties that already are qualified or
modified by materiality in the text thereof) on and as of the date of such
Borrowing or the date of the issuance, increase, or extension of such Letter of
Credit, before and after giving effect to such Borrowing or to the issuance,
increase, or extension of such Letter of Credit and to the application of the
proceeds from such Borrowing, as though made on and as of such date except to
the extent that any such representation or warranty expressly relates solely to
an earlier date, in which case it shall have been true and correct in all
material respects (except that such materiality qualifier shall not be
applicable to any representations and warranties that already are qualified or
modified by materiality in the text thereof) as of such earlier date; and
          (ii) no Default has occurred and is continuing or would result from
such Borrowing or from the application of the proceeds therefrom, or would
result from the issuance, increase, or extension of such Letter of Credit; and
     (b) Administrative Agent shall have received such other approvals,
opinions, or documents reasonably deemed necessary or desirable by any Lender as
a result of circumstances occurring after the date of this Agreement, as
Administrative Agent may reasonably request.

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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
     Borrower represents and warrants as follows:
     Section 4.1. Existence. Borrower is a corporation duly organized, validly
existing and in good standing under the laws of Delaware. Borrower is in good
standing and qualified to do business in each other jurisdiction where its
ownership or lease of Property or conduct of its business requires such
qualification, except where the failure to be in good standing could not
reasonably be expected to result in a Material Adverse Change. Each Guarantor is
duly organized, validly existing, and in good standing under the laws of its
jurisdiction of formation and, except where the failure to be in good standing
could reasonably be expected to result in a Material Adverse Change, is in good
standing and qualified to do business in each jurisdiction where its ownership
or lease of Property or conduct of its business requires such qualification. As
of the date hereof, Borrower has no Subsidiaries other than those identified in
Schedule 4.1.
     Section 4.2. Power. The execution, delivery, and performance by Borrower of
this Agreement, the Notes, and the other Loan Documents to which it is a party
and by the Guarantors of the Guaranties and the other Loan Documents to which
they are a party and the consummation of the transactions contemplated hereby
and thereby (a) are within Borrower’s and such Guarantors’ governing powers,
(b) have been duly authorized by all necessary governing action, (c) do not
contravene (i) Borrower’s or any Guarantor’s certificate or articles of
incorporation, bylaws, limited liability company agreement, or other similar
governance documents or (ii) any law or any contractual restriction binding on
or affecting Borrower or any Guarantor, and (d) will not result in or require
the creation or imposition of any Lien prohibited by this Agreement.
     Section 4.3. Authorization and Approvals. No consent, order, authorization,
or approval or other action by, and no notice to or filing with, any
Governmental Authority or any other Person is required for the due execution,
delivery, and performance by Borrower of this Agreement, the Notes, or the other
Loan Documents to which Borrower is a party or by each Guarantor of its Guaranty
or the other Loan Documents to which it is a party or the consummation of the
transactions contemplated thereby, except for (a) the filing of UCC-1 financing
statements and Mortgages in the state and county filing offices and (b) those
consents and approvals that have been obtained or made on or prior to the date
hereof and that are in full force and effect.
     Section 4.4. Enforceable Obligations. This Agreement, the Notes, and the
other Loan Documents to which Borrower is a party have been duly executed and
delivered by Borrower and the Guaranties and the other Loan Documents to which
each Guarantor is a party have been duly executed and delivered by the
Guarantors. Each Loan Document is the legal, valid, and binding obligation of
Borrower and each Guarantor which is a party to it enforceable against Borrower
and each such Guarantor in accordance with its terms, except as such
enforceability may be limited by any applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or transfer, or similar law
affecting creditors’ rights generally and by general principles of equity.

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     Section 4.5. Financial Statements.
     (a) Borrower has delivered to Administrative Agent and Lender copies of the
Financial Statements and the Interim Financial Statements, and the Financial
Statements and the Interim Financial Statements present fairly in all material
respects the financial position of Borrower and its consolidated Subsidiaries
for their respective period in accordance with GAAP, subject to year-end
adjustments and the absence of footnotes in the case of the Interim Financial
Statements. As of the date of the Financial Statements, there were no material
contingent obligations, liabilities for taxes, unusual forward or long term
commitments, or unrealized or anticipated losses of Borrower or any Guarantor,
except as disclosed therein and adequate reserves for such items have been made
in accordance with GAAP.
     (b) Since December 31, 2009, no event or circumstance that could reasonably
be expected to cause a Material Adverse Change has occurred.
     (c) As of the date hereof and after giving effect to the payment in full of
the obligations outstanding under the JPMorgan Credit Facility, Borrower and the
Guarantors have no Debt other than the Debt listed on Schedule 4.5.
     Section 4.6. True and Complete Disclosure. All factual information
(excluding estimates, projections and proforma financial information) heretofore
or contemporaneously furnished by or on behalf of Borrower or any of the
Guarantors in writing to any Lender or Administrative Agent for purposes of or
in connection with this Agreement, any other Loan Document or any transaction
contemplated hereby or thereby is, and all other such factual information
hereafter furnished by or on behalf of Borrower and the Guarantors in writing to
Administrative Agent or any of the Lenders was or shall be, true and accurate in
all material respects on the date as of which such information was or is dated
or certified and did not or does not contain any untrue statement of a material
fact or omit to state any material fact necessary to make the statements
contained therein not misleading at such time. All projections, estimates, and
pro forma financial information furnished by Borrower were prepared on the basis
of assumptions, data, information, tests, or conditions believed to be
reasonable at the time such projections, estimates, and pro forma financial
information were furnished.
     Section 4.7. Litigation; Compliance with Laws.
     (a) There is no pending or, to the knowledge of Borrower, threatened action
or proceeding affecting Borrower or any of the Guarantors before any court,
Governmental Authority or arbitrator which could reasonably be expected to cause
a Material Adverse Change other than as set forth in Schedule 4.7 or which
purports to affect the legality, validity, binding effect or enforceability of
this Agreement, any Note, or any other Loan Document. As of the Effective Date,
there is no pending or, to the knowledge of Borrower, threatened action or
proceeding instituted against Borrower or any of the Guarantors which seeks to
adjudicate Borrower or any of the Guarantors as bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee or other
similar official for it or for any substantial part of its Property.

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     (b) Borrower and the Guarantors have complied in all material respects with
all material statutes, rules, regulations, orders and restrictions of any
Governmental Authority having jurisdiction over the conduct of their respective
businesses or the ownership of their respective Property.
     Section 4.8. Use of Proceeds. The proceeds of the Advances will be used by
Borrower for the purposes described in Section 5.9. Neither Borrower nor any
Guarantor is engaged in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulation U). No
proceeds of any Advance will be used to purchase or carry any margin stock in
violation of Regulation T, U or X.
     Section 4.9. Investment Company Act. Neither Borrower nor any of the
Guarantors is an “investment company” or a company “controlled” by an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended.
     Section 4.10. Taxes.
     (a) Reports and Payments. All Returns (as defined below in clause (c) of
this Section) required to be filed by or on behalf of Borrower, the Guarantors,
or any member of the Controlled Group (hereafter collectively called the “Tax
Group”) have been duly filed on a timely basis or appropriate extensions have
been obtained and such Returns are and will be true, complete and correct,
except where the failure to so file would not be reasonably expected to cause a
Material Adverse Change; and all Taxes shown to be payable on the Returns or on
subsequent assessments with respect thereto will have been paid in full on a
timely basis, and no other Taxes will be payable by the Tax Group with respect
to items or periods covered by such Returns, except in each case to the extent
of (i) reserves reflected in the Financial Statements and the Interim Financial
Statements, or (ii) Taxes that are being contested in good faith. The reserves
for accrued Taxes reflected in the financial statements delivered to Lenders
under this Agreement are adequate in the aggregate for the payment of all unpaid
Taxes, whether or not disputed, for the period ended as of the date thereof and
for any period prior thereto, and for which the Tax Group may be liable in its
own right, as withholding agent or as a transferee of the assets of, or
successor to, any Person.
     (b) Taxes Definition. “Taxes” in this Section 4.10 shall mean all taxes,
charges, fees, levies, or other assessments imposed by any federal, state,
local, or foreign taxing authority, including without limitation, income, gross
receipts, excise, real or personal property, sales, occupation, use, service,
leasing, environmental, value added, transfer, payroll, and franchise taxes (and
including any interest, penalties, or additions to tax attributable to or
imposed on with respect to any such assessment).
     (c) Returns Definition. “Returns” in this Section 4.10 shall mean any
federal, state, local, or foreign report, declaration of estimated Tax,
information statement or return relating to, or required to be filed in
connection with, any Taxes, including any information return or report with
respect to backup withholding or other payments of third parties.
     Section 4.11. Pension Plans. All Plans are in compliance in all material
respects with all applicable provisions of ERISA. No Termination Event has
occurred with respect to any Plan,

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and each Plan has complied with and been administered in all material respects
in accordance with applicable provisions of ERISA and the Code. No “accumulated
funding deficiency” (as defined in Section 302 of ERISA) has occurred and there
has been no excise tax imposed under Section 4971 of the Code. No Reportable
Event under Section 4043 of ERISA and the regulations issued thereunder has
occurred with respect to any Multiemployer Plan, and each Multiemployer Plan has
complied with and been administered in all material respects with applicable
provisions of ERISA and the Code. The present value of all benefits vested under
each Plan (based on the assumptions used to fund such Plan) did not, as of the
last annual valuation date applicable thereto, exceed the value of the assets of
such Plan allocable to such vested benefits. Neither Borrower nor any member of
the Controlled Group has had a complete or partial withdrawal from any
Multiemployer Plan for which there is any withdrawal liability. As of the most
recent valuation date applicable thereto, neither Borrower nor any member of the
Controlled Group would become subject to any liability under ERISA if Borrower
or any member of the Controlled Group has received notice that any Multiemployer
Plan is insolvent or in reorganization. Based upon GAAP existing as of the date
of this Agreement and current factual circumstances, Borrower has no reason to
believe that the annual cost during the term of this Agreement to Borrower or
any member of the Controlled Group for post-retirement benefits to be provided
to the current and former employees of Borrower or any member of the Controlled
Group under Plans that are welfare benefit plans (as defined in Section 3(1) of
ERISA) could, in the aggregate, reasonably be expected to cause a Material
Adverse Change.
     Section 4.12. Condition of Property; Casualties. Each of Borrower and the
Guarantors has good and defensible title to, or valid leasehold interest in, all
of its Oil and Gas Properties as is customary in the oil and gas industry in all
material respects, free and clear of all Liens except for Permitted Liens. Each
of Borrower and the Guarantors has good title to, or valid leasehold interest
in, all of its other material Properties, free and clear of all Liens except for
Permitted Liens. The material Properties used or to be used in the continuing
operations of Borrower and each of the Guarantors are in good repair, working
order and condition, normal wear and tear excepted. Since December 31, 2009,
neither the business nor the material Properties of Borrower and each of the
Guarantors, taken as a whole, has been materially and adversely affected as a
result of any fire, explosion, earthquake, flood, drought, windstorm, accident,
strike or other labor disturbance, embargo, requisition or taking of Property or
cancellation of contracts, Permits, or concessions by a Governmental Authority,
riot, activities of armed forces, or acts of God or of any public enemy.
     Section 4.13. No Burdensome Restrictions; No Defaults.
     (a) Other than those identified on Schedule 4.13(a), neither Borrower nor
any Guarantor is a party to any indenture, loan, or credit agreement or any
lease or other agreement or instrument or subject to any charter or corporate
restriction or provision of applicable law or governmental regulation that could
reasonably be expected to cause a Material Adverse Change. Neither Borrower nor
any of the Guarantors is in default in any material respect under or with
respect to any contract, agreement, lease, or other instrument to which Borrower
or any Guarantor is a party. Neither Borrower nor any of the Guarantors has
received any notice of default under any material contract, agreement, lease, or
other instrument to which Borrower or such Guarantor is a party a copy of which
has not been delivered to Administrative Agent.

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     (b) No Default has occurred and is continuing.
     Section 4.14. Environmental Condition.
     (a) Permits, Etc. Borrower and the Guarantors (i) have obtained all
Environmental Permits necessary for the ownership and operation of their
respective Properties and the conduct of their respective businesses; (ii) have
at all times been and are in material compliance with all terms and conditions
of such Permits and with all other material requirements of applicable
Environmental Laws; (iii) have not received notice of any material violation or
alleged violation of any Environmental Law or Permit; and (iv) are not subject
to any actual, pending or to Borrower’s knowledge, threatened Environmental
Claim, that could reasonably be expected to cause a Material Adverse Change.
     (b) Certain Liabilities. To Borrower’s knowledge, none of the present or
previously owned or operated Property of Borrower or any Guarantor or of any of
their former wholly-owned Subsidiaries, wherever located, (i) has been placed on
or proposed to be placed on the National Priorities List, or its state or local
analogs, or have been otherwise investigated, designated, listed, or identified
as a potential site for removal, remediation, cleanup, closure, restoration,
reclamation, or other response activity under any Environmental Laws; (ii) is
subject to a Lien, arising under or in connection with any Environmental Laws,
that attaches to any revenues or to any Property owned, leased or operated by
Borrower or any of the Guarantors, wherever located, which could reasonably be
expected to cause a Material Adverse Change; or (iii) has been the site of any
Release of Hazardous Substances or Hazardous Wastes from present or past
operations which has caused at the site or at any third party site any condition
that has resulted in or could reasonably be expected to result in the need for
Response that would cause a Material Adverse Change.
     (c) Certain Actions. Without limiting the foregoing, (i) all necessary
notices have been properly filed, and no further action is required under
current Environmental Law as to each Response or other restoration or remedial
project undertaken by Borrower or the Guarantors on any of their presently or
formerly owned, leased or operated Property and (ii) there are no facts,
circumstances, conditions or occurrences with respect to any Property owned,
leased or operated by Borrower or any of the Guarantors that could reasonably be
expected to form the basis of an Environmental Claim under Environmental Laws
that could reasonably be expected to result in a Material Adverse Change.
     Section 4.15. Permits, Licenses, Etc. Borrower and the Guarantors possess
all authorizations, Permits, licenses, patents, patent rights or licenses,
trademarks, trademark rights, trade names rights and copyrights which are
material to the conduct of their business. Borrower and the Guarantors manage
and operate their business in all material respects in accordance with all
applicable Legal Requirements and prudent industry practices.
     Section 4.16. Gas Contracts. Neither Borrower nor any of the Guarantors, as
of the date hereof, (a) is obligated in any material respect by virtue of any
prepayment made under any contract containing a “take-or-pay” or “prepayment”
provision or under any similar agreement to deliver Hydrocarbons produced from
or allocated to any of Borrower’s Oil and Gas Properties at some future date
without receiving full payment therefor at the time of delivery or (b) except as

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has been disclosed to Administrative Agent, has produced gas, in any material
amount, subject to balancing rights of third parties or subject to balancing
duties under Legal Requirements.
     Section 4.17. Liens; Titles, Leases, Etc. None of the Property of Borrower
or any of the Guarantors is subject to any Lien other than Permitted Liens. On
the date of this Agreement, all governmental actions and all other filings,
recordings, registrations, third party consents and other actions which are
necessary to create and perfect the Liens provided for in the Security
Instruments will have been made, obtained and taken in all relevant
jurisdictions. Other than as set forth on Schedule 4.17 and to the extent such
could not reasonably be expected to cause a Material Adverse Change, (i) all
leases and agreements for the conduct of business of Borrower and the Guarantors
are valid and subsisting, in full force and effect and there exists no default
or event of default or circumstance which with the giving of notice or lapse of
time or both would give rise to a default by Borrower or any Guarantor, or to
Borrower’s knowledge, by any of the other parties thereto, under any such leases
or agreements. Neither Borrower nor any Guarantor is a party to any agreement or
arrangement (other than this Agreement and the Security Instruments), or subject
to any order, judgment, writ or decree, that either restricts or purports to
restrict its ability to grant Liens to secure the Obligations against their
respective Properties.
     Section 4.18. Solvency and Insurance. Before and after giving effect to the
making of the initial Advances (or deemed issuance thereof under
Section 2.1(c)), the Borrower is Solvent and the Borrower and Guarantors are
Solvent on a consolidated basis. Furthermore, each of Borrower and the
Guarantors carry insurance required under Section 5.2.
     Section 4.19. Hedging Agreements. Schedule 4.19 sets forth, as of the date
hereof, a true and complete list of all Interest Hedge Agreements, Hydrocarbon
Hedge Agreements, and Hedge Contracts of Borrower, the material terms thereof
(including the type, term, effective date, termination date and notional amounts
or volumes), all credit support agreements relating thereto (including any
margin required or supplied), and the counterparty to each such agreement.
     Section 4.20. Material Agreements. Schedule 4.20 sets forth a complete and
correct list of all material agreements, leases, indentures, purchase
agreements, obligations in respect of letters of credit, guarantees, joint
venture agreements, and other instruments in effect or to be in effect as of the
date hereof (other than the agreements set forth in Schedule 4.19) providing
for, evidencing, securing or otherwise relating to any Debt of Borrower or any
the Guarantors, and all obligations of Borrower or any of the Guarantors to
issuers of surety or appeal bonds issued for account of Borrower or any such
Guarantor, and such list correctly sets forth the names of the debtor or lessee
and creditor or lessor with respect to the Debt or lease obligations outstanding
or to be outstanding and the Property subject to any Lien securing such Debt or
lease obligation. Also set forth on Schedule 4.20 is a complete and correct
list, as of the date of this Agreement, of all material agreements (other than
Hedge Contracts) of Borrower and the Guarantors relating to the purchase,
transportation by pipeline, gas processing, marketing, sale and supply of
natural gas and other Hydrocarbons and which either (a) has a term longer than 6
months or (b) provides for liabilities of Borrower and the Guarantors in excess
of $500,000 over any 12 month period. To the extent requested, Borrower has
heretofore delivered to Administrative Agent and Lenders a complete and correct
copy of all such material credit agreements, indentures, purchase agreements,
contracts, letters of credit, guarantees, joint venture agreements, or other
instruments, including any modifications or supplements thereto, as in effect on
the date hereof.

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     Section 4.21. Other Notes. Borrower and its Affiliates and Subsidiaries are
in compliance with the terms and conditions of, and are not in default under,
the Convertible Notes Documents and the Senior Unsecured Notes Documents.
     Section 4.22. JPMorgan Credit Facility. Except as provided in the JPMorgan
Loan Documents, Borrower has not altered or modified, or approved any alteration
or modifications of the JPMorgan Notes or other JPMorgan Loan Documents. To
Borrower’s knowledge, none of the JPMorgan Notes nor any of the JPMorgan Loan
Documents are subject to any dispute, right of rescission, setoff, counterclaim
or defense of any kind held by any party to the JPMorgan Notes or the JPMorgan
Loan Documents. Neither Borrower nor any other obligor under the JPMorgan Credit
Facility has been released in whole or in part by any other party to the
JPMorgan Credit Facility that is not otherwise reflected in the JPMorgan Loan
Documents.
     Section 4.23. Liquidity Position. As of the Effective Date and after giving
effect to all Advances made on the Effective Date under the Revolving Loan,
Schedule 4.23 sets forth a true and correct statement of Borrower’s liquidity
position and credit availability.
ARTICLE V
AFFIRMATIVE COVENANTS
     So long as any Note or any amount under any Loan Document shall remain
unpaid, any Letter of Credit shall remain outstanding, or any Lender shall have
any Commitment hereunder, Borrower agrees, unless the Required Lenders shall
otherwise consent in writing, to comply with the following covenants.
     Section 5.1. Compliance with Laws, Etc. Borrower shall comply, and cause
each of the Guarantors to comply, in all material respects with all applicable
Legal Requirements. Without limiting the generality and coverage of the
foregoing, Borrower shall comply, and shall cause each of the Guarantors to
comply, in all material respects, with all Environmental Laws and all laws,
regulations, or directives with respect to equal employment opportunity and
employee safety in all jurisdictions in which Borrower, or any of the Guarantors
do business except to the extent the failure to do so could not reasonably be
expected to cause a Material Adverse Change. Without limitation of the
foregoing, Borrower shall, and shall cause each of the Guarantors to, (a)
maintain and possess all authorizations, Permits, licenses, trademarks, trade
names, rights and copyrights which are necessary to the conduct of its business
and (b) obtain, as soon as practicable, all consents or approvals required from
any states of the United States (or other Governmental Authorities) necessary to
grant Administrative Agent an Acceptable Security Interest in at least 90% by
value (or if an Event of Default exists and is continuing, at least 100% by
value at the request of Administrative Agent) of the Proved Reserves
attributable to Borrower’s and the Guarantors’ Oil and Gas Properties.
     Section 5.2. Maintenance of Insurance.
     (a) Borrower shall, and shall cause each of the Guarantors to, procure and
maintain or shall cause to be procured and maintained continuously in effect
policies of insurance in form and amounts and issued by companies, associations
or organizations reasonably satisfactory to

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Administrative Agent covering such casualties, risks, perils, liabilities and
other hazards reasonably required by Administrative Agent.
     (b) All certified copies of policies or certificates thereof, and
endorsements and renewals thereof shall be delivered to and retained by
Administrative Agent upon its request. All policies of insurance shall either
have attached thereto a “Lender’s loss payable endorsement” for the benefit of
Administrative Agent, as loss payee in form reasonably satisfactory to
Administrative Agent or shall name Administrative Agent as an additional
insured, as applicable. All policies or certificates of insurance shall set
forth the coverage, the limits of liability, the name of the carrier, the policy
number, and the period of coverage. In addition, all policies of insurance
required under the terms hereof shall contain an endorsement or agreement by the
insurer that any loss shall be payable in accordance with the terms of such
policy notwithstanding any act of negligence of Borrower, or a Guarantor or any
party holding under Borrower or a Guarantor which might otherwise result in a
forfeiture of the insurance and the further agreement of the insurer waiving all
rights of setoff, counterclaim or deductions against Borrower and the
Guarantors. All such policies shall contain a provision that notwithstanding any
contrary agreements between Borrower, the Guarantors, and the applicable
insurance company, such policies will not be canceled, allowed to lapse without
renewal, surrendered or amended (which provision shall include any reduction in
the scope or limits of coverage) without at least 30 days’ prior written notice
to Administrative Agent. In the event that, notwithstanding the “Lender’s loss
payable endorsement” requirement of this Section 5.2, the proceeds of any
insurance policy described above are paid to Borrower or a Guarantor, to the
extent not used, to repair or replace such assets, Borrower shall deliver such
proceeds to Administrative Agent immediately upon receipt.
     Section 5.3. Preservation of Corporate Existence, Etc. Borrower shall
preserve and maintain, and, except as otherwise permitted herein, cause each the
Guarantors to preserve and maintain, its corporate existence, rights,
franchises, and privileges in the jurisdiction of its formation and qualify and
remain qualified, and cause each such Guarantor to qualify and remain qualified,
as a foreign corporation in each jurisdiction in which qualification is
necessary or desirable in view of its business and operations or the ownership
of its Properties, and, in each case, where failure to qualify or preserve and
maintain its rights and franchises could reasonably be expected to cause a
Material Adverse Change.
     Section 5.4. Payment of Taxes, Etc. Borrower shall pay and discharge, and
cause each of the Guarantors to pay and discharge, before the same shall become
delinquent, (a) all taxes, assessments, and governmental charges or levies
imposed upon it or upon its income or profits or Property that are material in
amount, prior to the date on which penalties attach thereto and (b) all lawful
claims that are material in amount which, if unpaid, might by law become a Lien
(other than Permitted Liens) upon its Property; provided, however, that neither
Borrower nor any such Guarantor shall be required to pay or discharge any such
tax, assessment, charge, levy, or claim which is being contested in good faith
and by appropriate proceedings, and with respect to which reserves in conformity
with GAAP have been provided.
     Section 5.5. Visitation Rights. At any reasonable time and from time to
time, upon reasonable notice, Borrower shall, and shall cause the Guarantors to,
permit (a) Administrative Agent or any of its agents or representatives thereof,
to examine and make copies of and

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abstracts from the records and books of account of, and visit and inspect at
their reasonable discretion the Properties of, Borrower and any such Guarantor,
and (b) Administrative Agent and any Lender or any of their respective agents or
representatives thereof to discuss the affairs, finances and accounts of
Borrower and any such Guarantor with any of their respective officers or
directors.
     Section 5.6. Reporting Requirements. Borrower shall furnish to
Administrative Agent and each Lender:
     (a) Annual Financials. As soon as available and in any event not later than
120 days after the end of each fiscal year of Borrower and its consolidated
Subsidiaries, commencing with the fiscal year ending December 31, 2010, (i) a
copy of the annual audit report for such year for Borrower and its consolidated
Subsidiaries, including therein Borrower’s and its consolidated Subsidiaries’
balance sheets as of the end of such fiscal year and Borrower’s and its
consolidated Subsidiaries’ statements of income, cash flows, and retained
earnings, in each case certified by an independent certified public accountants
of national standing reasonably acceptable to Administrative Agent and including
any management letters delivered by such accountants to Borrower or any
Guarantor in connection with such audit, (ii) any management letters delivered
by such accountants to Borrower, (iii) a consolidating balance sheet and
statement of operations of Borrower together with the Guarantors, and (iv) a
Compliance Certificate executed by a Responsible Officer of Borrower.
     (b) Quarterly Financials. As soon as available and in any event not later
than 45 days after the end of each of the first three fiscal quarters of each
fiscal year of Borrower and its consolidated Subsidiaries, (i) commencing with
the fiscal quarter ending March 31, 2011, the unaudited balance sheet and the
statements of income, cash flows, and retained earnings of each such Person for
the period commencing at the end of the previous year and ending with the end of
such fiscal quarter, all in reasonable detail and duly certified with respect to
such consolidated statements (subject to year end audit adjustments) by a
Responsible Officer of Borrower as having been prepared in accordance with GAAP,
(ii) a consolidating balance sheet and statement of operations of Borrower
together with Guarantors, and (iii) a Compliance Certificate executed by the
Responsible Officer of Borrower.
     (c) Oil and Gas Reserve Reports.
          (i) As soon as available but in any event on or before April 1 of each
year thereafter, an Independent Engineering Report dated effective as of the
immediately preceding January 1st;
          (ii) As soon as available but in any event on or before October 1 of
each year an Internal Engineering Report dated effective as of the immediately
preceding July 1st;
          (iii) Such other information as may be reasonably requested by
Administrative Agent or any Lender with respect to the Oil and Gas Properties
included or to be included in the Borrowing Base;
          (iv) With the delivery of each Engineering Report, a certificate from
a Responsible Officer of Borrower certifying that, to his knowledge and in all
material respects:

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(A) the information contained in the Engineering Report and any other
information delivered in connection therewith is true and correct, (B) 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 with respect to its Oil and Gas
Properties evaluated in such Engineering Report which would require Borrower to
deliver Hydrocarbons produced from such Oil and Gas Properties at some future
time without then or thereafter receiving full payment therefor, (C) none of its
Oil and Gas Properties have been sold since the date of the last Borrowing Base
determination except as set forth on an exhibit to the certificate, which
certificate shall list all of its Oil and Gas Properties sold and in such detail
as reasonably required by the Required Lenders, (D) attached to the certificate
is a list of its Oil and Gas Properties added to and deleted from the
immediately prior Engineering Report and a list showing any change in working
interest or net revenue interest in its Oil and Gas Properties occurring and the
reason for such change, (E) attached to the certificate is a list of all Persons
disbursing proceeds to Borrower from its Oil and Gas Properties, and (F) except
as set forth on a schedule attached to the certificate, at least 90% (by value)
of the Proved Reserves (and associated Oil and Gas Properties) evaluated by such
Engineering Report are pledged as Collateral for the Obligations.
     (d) Property Operating Statement. Beginning on the twenty-fifth (25th) day
of the month immediately following the first Advance under the Term Loan and
continuing thereafter, within twenty-five (25) days after the end of each
calendar month ( such month being the “Reported Month”), a POS including:
          (i) attachments prepared by Borrower detailing (A) Sales Volumes
associated with cash payments received during the Reported Month, (B) all cash
payments received during the Reported Month in respect of the Properties, and
(C) Borrower’s aged accounts payable at the end of the Reported Month, and
accompanied by a certification of a Responsible Officer, dated as of the date on
which Administrative Agent receives the POS, and certifying that, to the
knowledge of the Responsible Officer, no Default exists under any of the Loan
Documents; and
          (ii) a list of invoices paid or to be paid by Borrower to any Person
(other than Administrative Agent) from the revenues described in the preceding
Section 5.6(d)(i)(B) and such other information that Administrative Agent
requests from time to time.
     (e) Production and Hedging Reports. As soon as available and in any event
within 45 days after the end of each quarter, commencing with the quarter ending
December 31, 2010, a report certified by a Responsible Officer of Borrower in
form and substance satisfactory to Administrative Agent prepared by Borrower
(i) covering each of the Oil and Gas Properties of Borrower and detailing on a
quarterly basis (A) the production, revenue, and price information and
associated operating expenses for each such quarter, (B) any changes to any
producing reservoir, production equipment, or producing well during each such
quarter, which changes could reasonably be expected to cause a Material Adverse
Change, and (C) any sales of Borrower’s Oil and Gas Properties during each such
quarter, (ii) setting forth a true and complete list of all Hedge Contracts of
Borrower and detailing 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; provided that, such required

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listing shall, in no event, be construed as permitting such credit supports
which are not permitted under the terms of this Agreement; and (iii) certifying
Borrower’s compliance with Section 5.12;
     (f) Updated Development Plan. Contemporaneous with the delivery of each
Reserve Report bearing an effective date as of January 1st of any year, Borrower
will prepare and deliver to Administrative Agent a revised, proposed Development
Plan covering at least the next twelve (12) months and setting forth all capital
expenditure development projects proposed for that period, the anticipated
timing of those projects, the net cost of each of those projects to Borrower and
any other information that Administrative Agent may request. Each proposed
modification to the Development Plan will be subject to the Approval of
Administrative Agent, and Borrower acknowledges that Administrative Agent is not
required to Approve any proposed modification to the Development Plan. Until
Administrative Agent has Approved a revised Development Plan, the most recent
Approved Development Plan (and all AFEs Approved in connection with that most
recently Approved Development Plan) will remain in effect.
     (g) Defaults. As soon as possible and in any event within three Business
Days after (i) the occurrence of any Default or (ii) the occurrence of a default
under any instrument or document evidencing Debt of Borrower or any Guarantor,
which obligation underlying such Debt does not exceed a total potential
obligation to Borrower or such Guarantor of $500,000 in the aggregate, in each
case known to any Responsible Officer of Borrower or any of the Guarantors which
is continuing on the date of such statement, a statement of a Responsible
Officer of Borrower setting forth the details of such Default or default, as
applicable, and the actions which Borrower or such Guarantor has taken and
proposes to take with respect thereto;
     (h) Termination Events. As soon as possible and in any event (i) within
30 days after Borrower or any member of the Controlled Group knows or has reason
to know that any Termination Event described in clause (a) of the definition of
Termination Event with respect to any Plan has occurred, and (ii) within 10 days
after Borrower or any of its Affiliates knows or has reason to know that any
other Termination Event with respect to any Plan has occurred, a statement of a
Responsible Officer of Borrower describing such Termination Event and the
action, if any, which Borrower or such Affiliate proposes to take with respect
thereto;
     (i) Termination of Plans. Promptly and in any event within two Business
Days after receipt thereof by Borrower or any member of the Controlled Group
from the PBGC, copies of each notice received by Borrower or any such member of
the Controlled Group of the PBGC’s intention to terminate any Plan or to have a
trustee appointed to administer any Plan;
     (j) Other ERISA Notices. Promptly and in any event within five Business
Days after receipt thereof by Borrower or any member of the Controlled Group
from a Multiemployer Plan sponsor, a copy of each notice received by Borrower or
any member of the Controlled Group concerning the imposition or amount of
withdrawal liability pursuant to Section 4202 of ERISA;
     (k) Environmental Notices. Promptly upon the receipt thereof by Borrower or
any of the Guarantors, a copy of any form of request, notice, summons or
citation received from the Environmental Protection Agency, or any other
Governmental Authority, concerning (i) violations or alleged violations of
Environmental Laws, which seeks to impose liability therefor and could cause a
Material Adverse Change, (ii) any action or omission on the part of Borrower

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or any Guarantor or any of their former wholly-owned Subsidiaries in connection
with Hazardous Waste or Hazardous Substances which could reasonably result in
the imposition of liability therefor that could cause a Material Adverse Change,
including without limitation any information request related to, or notice of,
potential responsibility under CERCLA, or (iii) concerning the filing of a Lien
upon, against or in connection with Borrower or any Guarantor or their former
wholly-owned Subsidiaries, or any of their leased or owned Property, wherever
located;
     (l) Other Governmental Notices. Promptly and in any event within five
Business Days after receipt thereof by Borrower or any Guarantor, a copy of any
notice, summons, citation, or proceeding seeking to modify in any material
respect, revoke, or suspend any material contract, license, permit or agreement
with any Governmental Authority;
     (m) Material Changes. Prompt written notice of any condition or event of
which Borrower has knowledge, which condition or event (i) has resulted or could
reasonably be expected to result in a Material Adverse Change or (ii) has
resulted in a breach of or noncompliance with any material term, condition, or
covenant of any material contract to which Borrower or any of the Guarantors is
a party or by which they or their Properties is bound;
     (n) Disputes, Etc. Prompt written notice of (i) any claims, legal or
arbitration proceedings, proceedings before any Governmental Authority, or
disputes pending, or to the knowledge of Borrower threatened, or affecting
Borrower, or any of its Subsidiaries which, if adversely determined, could
reasonably be expected to cause a Material Adverse Change, or any material labor
controversy of which Borrower or any of the Guarantors has knowledge resulting
in or reasonably considered to be likely to result in a strike against Borrower
or any of the Guarantors and (ii) with the exception of any claim listed on
Schedule 5.6(n), any claim, judgment, Lien or other encumbrance (other than a
Permitted Lien) affecting any Property of Borrower or any Guarantor if the value
of the claim, judgment, Lien, or other encumbrance affecting such Property shall
exceed $500,000;
     (o) Other Accounting Reports. Promptly upon receipt thereof, a copy of each
other report or letter submitted to Borrower or any Guarantor by independent
accountants in connection with any annual, interim or special audit made by them
of the books of Borrower and the Guarantors, and a copy of any response by
Borrower or any Guarantor, or the Board of Directors (or other applicable
governing body) of Borrower or any Guarantor, to such letter or report;
     (p) Notices Under Other Loan Agreements. Promptly after the furnishing
thereof, copies of any statement, report or notice furnished to any Person
pursuant to the terms of any indenture, loan or credit or other similar
agreement, other than this Agreement and not otherwise required to be furnished
to Lenders pursuant to any other provision of this Section 5.6;
     (q) USA PATRIOT Act. Promptly, following a request by any Lender, all
documentation and other information that such Lender reasonably requests in
order to comply with its ongoing obligations under applicable “know your
customer” and anti-money laundering rules and regulations, including the PATRIOT
Act; and

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     (r) Other Information. Such other information respecting the business or
Properties, or the condition or operations, financial or otherwise, of Borrower
or any of the Guarantors, as Administrative Agent may from time to time
reasonably request.
     Section 5.7. Maintenance of Property. Borrower shall, and shall cause each
of the Guarantors to, maintain their owned or leased Property in good condition
and repair, normal wear and tear excepted and maintain their operated Property,
as a reasonably prudent operator would, in good condition and repair, normal
wear and tear excepted; provided that no item of equipment needs to be repaired,
renewed, replaced, or improved, if Borrower shall in good faith determine that
such action is not necessary or desirable for the continued efficient and
profitable operation of the business of Borrower; and, further Borrower shall
abstain, and cause each of the Guarantors to abstain from, knowingly or
willfully permitting the Release of any Hazardous Material in, on or about the
owned, leased or operated Property except in compliance with Applicable
Environmental Law, the Release of which could reasonably be expected to result
in Response activities and that could reasonably be expected to cause a Material
Adverse Change.
     Section 5.8. Agreement to Pledge. Borrower shall, and shall cause each
Guarantor to, grant to Administrative Agent an Acceptable Security Interest in
any Property of Borrower or any Guarantor now owned or hereafter acquired
promptly after receipt of a written request from Administrative Agent.
     Section 5.9. Use of Proceeds. Borrower shall use the proceeds of the
Advances (a) to repay the JPMorgan Credit Facility, (b) to explore, develop,
operate and acquire Oil and Gas Properties, (c) to pay any and all fees due and
payable pursuant to or in accordance with this Agreement, and (d) for general
corporate purposes, including working capital needs. Borrower shall use the
Letters of Credit for general corporate purposes.
     Section 5.10. Title Evidence and Opinions. Borrower shall from time to time
upon the reasonable request of Administrative Agent, take such actions and
execute and deliver such documents and instruments as Administrative Agent shall
require to ensure that Administrative Agent shall, at all times, have received
satisfactory title evidence, which title evidence shall be in form and substance
acceptable to Administrative Agent in its sole discretion and shall include
information regarding the before payout and after payout ownership interests
held by Borrower and the Guarantors, for all wells located on the Oil and Gas
Properties, covering at least 90% of the present value of the Proved Reserves of
Borrower as determined by Administrative Agent.
     Section 5.11. Further Assurances; Cure of Title Defects. Borrower shall,
and shall cause each Guarantor to, cure promptly any defects in the creation and
issuance of the Notes and the execution and delivery of the Security Instruments
and this Agreement. Borrower hereby authorizes Administrative Agent to file any
financing statements without the signature of Borrower to the extent permitted
by applicable law in order to perfect or maintain the perfection of any security
interest granted under any of the Loan Documents. Borrower at its expense will,
and will cause each Guarantor to, promptly execute and deliver to Administrative
Agent upon request all such other documents, agreements and instruments to
comply with or accomplish the covenants and agreements of Borrower or any
Guarantor, as the case may be, in the Security Instruments and this Agreement,
or to further evidence and more fully describe the collateral intended as
security for the Notes, or to correct any omissions in the Security Instruments,
or to

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state more fully the security obligations set out herein or in any of the
Security Instruments, or to perfect, protect or preserve any Liens created
pursuant to any of the Security Instruments, or to make any recordings, to file
any notices or obtain any consents, all as may be necessary or appropriate in
connection therewith or to enable Administrative Agent to exercise and enforce
its rights and remedies with respect to any Collateral. Within 30 days after
(a) a request by Administrative Agent or Lenders to cure any title defects or
exceptions which are not Permitted Liens raised by such information or (b) a
notice by Administrative Agent that Borrower has failed to comply with
Section 5.10, Borrower shall (i) cure such title defects or exceptions which are
not Permitted Liens or substitute acceptable Oil and Gas Properties with no
title defects or exceptions except for Permitted Liens covering Collateral of an
equivalent value and (ii) deliver to Administrative Agent satisfactory title
evidence (including supplemental or new title opinions meeting the foregoing
requirements) in form and substance acceptable to Administrative Agent in its
reasonable business judgment as to Borrower’s and the Guarantors’ ownership of
such Oil and Gas Properties and Administrative Agent’s Liens and security
interests therein as are required to maintain compliance with Section 5.10.
     Section 5.12. Hedging Arrangements. Borrower shall maintain each
Hydrocarbon Hedge Agreement described in Schedule 4.19 and required by
Sections 3.1(k) and 3.1(q)(ii), and each other BB Hedge until the stated
maturity of such Hydrocarbon Hedge Agreement; provided that for any Hedge
Contracts not described in Schedule 4.19 and not required by Sections 3.1(k) and
3.1(q)(ii), Borrower may modify, amend, assign, unwind, novate or terminate any
such Hedge Contract so long as (a) Borrower has provided at least five Business
Days prior written notice thereof (or such shorter notice as may be accepted by
Administrative Agent) to Administrative Agent in order for Administrative Agent
to determine the Net Hedge Value, if any, resulting from such modification,
amendment, novation, or termination, (b) the net cash proceeds, if any, received
by Borrower in connection therewith are applied to the extent necessary to cure
any Borrowing Base deficiency, if any, resulting as a result of Section 2.7(e),
(c) the sum of (i) the aggregate Net Hedge Value of all such transactions
occurring between consecutive scheduled redeterminations of the Borrowing (the
“6-Month Period”) plus (ii) the aggregate fair market value of Oil and Gas
Properties subject to Dispositions consummated in such applicable 6-Month
Period, shall not exceed 5% of the then effective Borrowing Base, and (d) no
more than one such series of hedge transactions may be consummated during any
applicable 6-Month Period.
     Section 5.13. Leases; Development and Maintenance. Borrower shall (a) pay
and discharge promptly, or cause to be paid and discharged promptly, all
rentals, delay rentals, royalties, overriding royalties, payments out of
production and other indebtedness or obligations accruing under, and perform or
cause to be performed each and every act, matter or thing required by each and
all of, the oil and gas leases and all other agreements and contracts
constituting or affecting the Oil and Gas Properties of Borrower (except where
the amount thereof is being contested in good faith by appropriate proceedings
and except where the non-payment or non-performance of which could not
reasonably be expected to result in a diminution in the aggregate value of
Borrower’s Oil and Gas Properties by more than 1%), (b) in all material
respects, do all other things necessary to keep unimpaired its rights thereunder
and prevent any forfeiture thereof or default thereunder, and operate or cause
to be operated such Properties as a prudent operator would in accordance with
industry standard practices and in compliance with all applicable proration and
conservation Legal Requirements and any other Legal Requirements

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of every Governmental Authority, whether state, federal, municipal or other
jurisdiction, from time to time constituted to regulate the development and
operations of oil and gas properties and the production and sale of oil, gas and
other Hydrocarbons therefrom, and (c) maintain (or cause to be maintained) the
Leases, wells, units and acreage to which the Oil and Gas Properties of Borrower
pertain in a prudent manner consistent with industry standard practices.
     Section 5.14. Pledge of Equity in Delta Oilfield Tank Company, LLC. In the
event that Borrower and Pro-Tech Enterprises LLC do not consummate the
transaction contemplated by that certain non-binding letter of intent between
Borrower and Pro-Tech Enterprises LLC dated July 2, 2010, by January 30, 2011,
then Borrower shall grant to Administrative Agent, for the ratable benefit of
Lenders, a first priority security interest in all of the issued and outstanding
Equity Interest of Borrower in Delta Oilfield Tank Company, LLC. In such event,
Borrower and Delta Oilfield Tank Company, LLC shall execute and deliver to
Administrative Agent a Pledge Agreement on or before February 4, 2011.
ARTICLE VI
NEGATIVE COVENANTS
     So long as any Note or any amount under any Loan Document shall remain
unpaid, any Letter of Credit shall remain outstanding, or any Lender shall have
any Commitment, Borrower agrees, unless the Required Lenders otherwise consent
in writing, to comply with the following covenants.
     Section 6.1. Liens, Etc. Borrower shall not create, assume, incur, or
suffer to exist, or permit any of the Guarantors to create, assume, incur, or
suffer to exist, any Lien on or in respect of any of its Property whether now
owned or hereafter acquired, or assign any right to receive income, except that
Borrower and the Guarantors may create, incur, assume, or suffer to exist:
     (a) Liens granted pursuant to the Security Instruments and securing the
Obligations;
     (b) purchase money Liens or purchase money security interests upon or in
any equipment acquired or held by Borrower or any of the Guarantors in the
ordinary course of business prior to or at the time of Borrower’s or such
Guarantor’s acquisition of such equipment; provided that, the Debt secured by
such Liens (i) was incurred solely for the purpose of financing the acquisition
of such equipment, and does not exceed the aggregate purchase price of such
equipment, (ii) is secured only by such equipment and not by any other assets of
Borrower and the Guarantors, and (iii) is not increased in amount;
     (c) Liens for taxes, assessments, or other governmental charges or levies
not yet due or not yet delinquent or, if delinquent, that (provided foreclosure,
sale, or other similar proceedings shall not have been initiated) are being
contested in good faith by appropriate proceedings, and such reserve as may be
required by GAAP shall have been made therefor;
     (d) Liens in favor of vendors, carriers, warehousemen, repairmen,
mechanics, workmen, materialmen, construction, or similar Liens arising by
operation of law in the ordinary course of business in respect of obligations
that are not yet due or that are being contested in good faith by appropriate
proceedings, provided such reserve as may be required by GAAP shall have been
made therefor;

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     (e) royalties, overriding royalties, net profits interests, production
payments, reversionary interests, calls on production, preferential purchase
rights and other burdens on or deductions from the proceeds of production, that
do not secure Debt for borrowed money and that are taken into account in
computing the Net Revenue Interests and Working Interests of Borrower set forth
in any Reserve Report warranted in the Security Instruments or in this
Agreement;
     (f) Liens arising in the ordinary course of business out of pledges or
deposits under workers’ compensation laws, unemployment insurance, old age
pensions or other social security or retirement benefits, or similar legislation
or to secure public or statutory obligations of Borrower;
     (g) Liens arising under operating agreements, unitization and pooling
agreements and orders, farmout agreements, gas balancing agreements, and other
agreements, in each case that are customary in the oil, gas and mineral
production business and that are entered into by Borrower, or any Guarantor, in
the ordinary course of business provided that (i) such Liens are taken into
account in computing the Net Revenue Interests and Working Interests of Borrower
set forth in any Reserve Report warranted in the Security Instruments or this
Agreement, (ii) such Liens do not secure borrowed money, (iii) such Liens secure
amounts that are not yet due, or not yet delinquent, or if delinquent, are being
contested in good faith by appropriate proceedings, if such reserve as may be
required by GAAP shall have been made therefor and (iv) such Liens are limited
to the Properties that are the subject of such agreements;
     (h) easements, rights-of-way, restrictions, and other similar encumbrances,
and minor defects in the chain of title that are customarily accepted in the oil
and gas financing industry, none of which interfere with the ordinary conduct of
the business of Borrower or any Guarantor or materially detract from the value
or use of the Property to which they apply, and
     (i) until the Acquisition Letters of Credit are cancelled, terminated
and/or released, the Lien encumbering the Collateral (as defined in the Cash
Collateral Agreement) granted by Borrower to JPMorgan Chase Bank, N.A., as
collateral agent under the Cash Collateral Agreement pursuant to the terms of
the Cash Collateral Agreement; and
     (j) Liens on cash collateral securing Debt permitted under Section 6.2(b);
provided that such cash collateral does not exceed $1,500,000 in the aggregate
at any time.
     Section 6.2. Debts, Guaranties, and Other Obligations. Borrower shall not,
and shall not permit any of the Guarantors to, create, assume, suffer to exist,
or in any manner become or be liable in respect of, any Debt except:
     (a) Debt of Borrower and the Guarantors under the Loan Documents;
     (b) Debt set forth on Schedule 4.5;
     (c) Debt secured by the Liens permitted under Section 6.1(b) and any
renewal, refinancing or extension of such Debt; provided that (i) no Lien
existing at the time of such renewal, refinancing or extension shall be extended
to cover any property not already subject to such Lien, (ii) the principal
amount of any Debt renewed, refinanced or extended shall not

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exceed the amount of such Debt outstanding immediately prior to such renewal,
refinancing or extension; and (iii) in any event, the aggregate amount of such
Debt at any time shall not exceed $500,000;
     (d) Debt under Hydrocarbon Hedge Agreements which are not prohibited by the
terms of Section 6.15; provided that (i) such Debt shall not be secured, other
than such Debt owing to Hedge Counterparties which are secured under the Loan
Documents, (ii) such Debt shall not obligate Borrower or any of the Guarantors
to any margin call requirements including any requirement to post cash
collateral, property collateral or a letter of credit, and (iii) such Debt shall
not include any deferred premium payments associated with such Hedge Contracts;
     (e) Debt consisting of sureties or bonds provided to any Governmental
Authority or other Person and assuring payment of contingent liabilities of
Borrower in connection with the operation of the Oil and Gas Properties,
including with respect to plugging, facility removal and abandonment of its Oil
and Gas Properties;
     (f) Debt of Borrower or any Guarantor owing to Borrower or to any other
Guarantor; provided that such Debt is subordinated to the Obligations on terms
acceptable to Administrative Agent in its sole discretion;
     (g) Debt evidenced by letters of credit, surety bonds and other credit
assurances and similar obligations of a like nature; provided that the then
maximum obligations owing with respect to such Debt shall not exceed $1,500,000
in the aggregate at any time and such obligations were cash-collateralized by
Borrower or the applicable Guarantor at the time the obligations were created ;
and
     (h) Other unsecured Debt in an aggregate amount outstanding at any time not
to exceed $500,000.
     Section 6.3. Agreements Restricting Liens and Distributions. Borrower shall
not, nor shall it permit any of the Guarantors to, create, incur, assume or
permit to exist any contract, agreement or understanding (other than this
Agreement or Security Instruments) which in any way prohibits or restricts the
granting, conveying, creation or imposition of any Lien on any of its Property,
whether now owned or hereafter acquired, to secure the Obligations or restricts
any Guarantor from paying dividends to Borrower, or which requires the consent
of or notice to other Persons in connection therewith; provided, that the
foregoing shall not apply to customary restrictions imposed on the granting,
conveying, creation or imposition of any Lien on any Property of Borrower or the
Guarantors imposed by any contract, agreement or understanding related to the
Liens permitted under Section 6.1(b) so long as such restriction only applies to
the Property permitted under such clause to be encumbered by such Liens.
     Section 6.4. Merger or Consolidation; Asset Sales. Borrower shall not, nor
shall it permit any of the Guarantors to:
     (a) merge or consolidate with or into any other Person; provided that
Borrower or any Guarantor may merge or may be consolidated into Borrower or any
Guarantor if Borrower or such Guarantor is the surviving entity and Borrower may
merge or consolidated with any other

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Person so long as Borrower or such Guarantor is the surviving Person, and, in
the case of a Guarantor, a wholly owned Subsidiary of Borrower; or
     (b) make any Disposition of any of its Property (including, without
limitation, any working interest, overriding royalty interest, production
payments, net profits interest, royalty interest, or mineral fee interest) other
than:
          (i) the sale of Hydrocarbons or liquidation of Liquid Investments in
the ordinary course of business;
          (ii) the Disposition of equipment that is (A) obsolete, worn out,
depleted or uneconomic and disposed of in the ordinary course of business,
(B) no longer necessary for the business of such Person or (C) contemporaneously
replaced by equipment of at least comparable value and use;
          (iii) the Disposition of Property between or among a Guarantor and
Borrower or between or among Guarantors;
          (iv) the Disposition of Property which is not Oil and Gas Properties
attributable to Proved Reserves and which is not Collateral or which is not
otherwise required pursuant to the terms of this Agreement to be Collateral;
provided, however, Borrower and the Guarantors may dispose of Property described
in this Section 6.4(b)(iv) to non-Affiliates in an arm’s length transaction so
long as the maximum aggregate fair market value of all such Property disposed of
does not exceed $500,000 in any given calendar year.
          (v) the Disposition of Oil and Gas Properties which are attributable
to Proved Reserves; provided that, (A) 100% of the consideration received in
respect of such Disposition shall be cash or cash equivalents, (B) the
consideration received in respect of such Disposition shall be equal to or
greater than the fair market value of the such Oil and Gas Properties, interest
therein subject of such Disposition (as reasonably determined by the board of
directors or the equivalent governing body of Borrower and, if requested by
Administrative Agent, Borrower shall deliver a certificate of a Responsible
Officer of Borrower certifying to that effect), and (C) the aggregate fair
market value of Oil and Gas Properties attributable to Proved Reserves and
subject to such Disposition consummated in the applicable 6-Month Period plus
the Net Hedge Value of BB Hedges which have been novated, assigned, unwound,
terminated, or amended during such 6-Month Period, shall not exceed 5% of the
then effective Borrowing Base;
          (vi) farmouts of undeveloped acreage and assignments in connection
with such farmouts, each with the prior Approval of Administrative Agent;
          (vii) the Disposition of the Equity Interests of Subsidiaries that are
not Guarantors with the prior Approval of Administrative Agent; and
          (viii) 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 receivable arising in the
ordinary course of business in connection with the compromise or collection
thereof and not in connection with any financing transaction.

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     Section 6.5. Restricted Payments. Borrower shall not, nor shall it permit
any of the Guarantors to, make any Restricted Payments except that if (a) no
Default has occurred both before and after giving effect to the making of such
Restricted Payment, the Guarantors may make Restricted Payments to Borrower,
(b) if no Default has occurred both before and after giving effect to the making
of such Restricted Payment, any Guarantor may make Restricted Payments to any
other Guarantor, and (c) Borrower may make regularly scheduled interest payments
in accordance with the terms and conditions of the Convertible Notes and the
Senior Unsecured Notes.
     Section 6.6. Amendment of Debt Instruments. Borrower shall not, nor shall
it permit any of its Subsidiaries to, amend, modify, extent or restate the
Convertible Notes Documents and Senior Unsecured Notes Documents without the
Approval of the Administrative Agent and Required Lenders.
     Section 6.7. Investments. Borrower shall not, nor shall it permit any of
the Guarantors to, make or permit to exist any loans, advances, or capital
contributions to, or make any investment in (including, without limitation, the
making of any Acquisition), or purchase or commit to purchase any stock or other
securities or evidences of Debt of or interests in any Person or any Oil and Gas
Properties or activities related to Oil and Gas Properties, except:
     (a) Liquid Investments;
     (b) trade and customer accounts receivable which are for goods furnished or
services rendered in the ordinary course of business and are payable in
accordance with customary trade terms;
     (c) creation of any additional Subsidiaries in compliance with
Section 6.16;
     (d) investments received in connection with the bankruptcy or
reorganization of, or settlement of delinquent accounts and disputes with,
customers and suppliers, in each case in the ordinary course of business;
provided that, the aggregate amount of such investment shall not exceed $100,000
(other than by appreciation);
     (e) investments consisting of any deferred portion of the sales price
received by Borrower or any Guarantor in connection with any sale of assets
permitted hereunder;
     (f) investments in direct ownership interests in additional Oil and Gas
Properties and gas gathering systems related thereto or related to farm-out,
farm-in, joint operating, joint venture or area of mutual interest agreements,
gathering systems, pipelines or other similar arrangements which are usual and
customary in the oil and gas exploration and production business located within
the geographic boundaries of the United States of America; provided that if
requested by Administrative Agent, such assets are pledged as Collateral
pursuant to Section 5.8;
     (g) Debt permitted under Section 6.2(h);
     (h) Hedge Contracts to the extent permitted under Section 6.15; and

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     (i) other loans, advances and investments not to exceed $500,000 in the
aggregate.
     Section 6.8. Affiliate Transactions. Borrower shall not, nor shall it
permit any of the Guarantors to, directly or indirectly, enter into or permit to
exist any transaction or series of transactions (including, but not limited to,
the purchase, sale, lease or exchange of Property, the making of any investment,
the giving of any guaranty, the assumption of any obligation or the rendering of
any service) with any of their Affiliates unless such transaction or series of
transactions is on terms no less favorable to Borrower or the Guarantors, as
applicable, than those that could be obtained in a comparable arm’s length
transaction with a Person that is not such an Affiliate.
     Section 6.9. Compliance with ERISA. Borrower shall not, nor shall it permit
any of the Guarantors to, directly or indirectly, (a) engage in, or permit any
Guarantor to engage in, any transaction in connection with which Borrower or any
Controlled Group member could be subjected to either a civil penalty assessed
pursuant to Section 502(c), (i) or (l) of ERISA or a tax imposed by Chapter 43
of Subtitle D of the Code; (b) terminate, or permit any Guarantor to terminate,
any Plan in a manner, or take any other action with respect to any Plan, which
could result in any liability to Borrower or any Controlled Group member to the
PBGC; (c) fail to make, or permit any Guarantor to fail to make, full payment
when due of all amounts which, under the provisions of any Plan, agreement
relating thereto or applicable law, Borrower or any Controlled Group member is
required to pay as contributions thereto; (d) permit to exist, or allow any
Guarantor 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 Guarantor to permit,
the actuarial present value of the benefit liabilities (as “actuarial present
value of the benefit liabilities” shall have the meaning specified in
Section 4041 of ERISA) under any Plan maintained by Borrower or any Controlled
Group member 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;
(f) assume an obligation to contribute to, or permit any Guarantor to assume an
obligation to contribute to, any Multiemployer Plan; (g) acquire, or permit any
Guarantor to acquire, an 90% or greater interest in any Person 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,
and in either case, 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, and the withdrawal liability, if assessed, could
reasonably be expected to result in a Material Adverse Change; (h) incur, or
permit any Guarantor to incur, a liability to or on account of a Plan under
Sections 515, 4062, 4063, 4064, 4201 or 4204 of ERISA; (i) assume an obligation
to contribute to, or permit any Guarantor to 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 without any material liability; (j) amend or permit any
Guarantor to amend, a Plan resulting in an increase in current liability such
that Borrower or any Controlled Group member is required to provide security to
such Plan under Section 401(a)(29) of the Code; or (k) permit to exist any
occurrence of any Reportable Event (as defined in Title IV of ERISA), or any
other event or condition, which presents a

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material (in the opinion of the Required Lenders) risk of such a termination by
the PBGC of any Plan that could reasonably be expected to result in a Material
Adverse Change.
     Section 6.10. Sale-and-Leaseback. Borrower shall not, nor shall it permit
any of the Guarantors to, sell or transfer to a Person any Property, whether now
owned or hereafter acquired, if at the time or thereafter Borrower or a
Guarantor shall lease as lessee such Property or any part thereof or other
Property which Borrower or a Guarantor intends to use for substantially the same
purpose as the Property sold or transferred.
     Section 6.11. Change of Business; Accounting Change. Borrower shall not,
nor shall it permit any of the Guarantors to, make any material change in the
character of its business as an independent oil and gas exploration and
production company, nor will Borrower or any Guarantor operate any business in
any jurisdiction other than the United States. Borrower shall not, nor shall it
permit any of the Guarantors to, make a change in the method of accounting
employed in the preparation of the financial statements referred to in
Section 4.4 or change the fiscal year end of Borrower unless required to conform
to GAAP or Approved in writing by Administrative Agent.
     Section 6.12. Organizational Documents, Name Change. Borrower shall not,
nor shall it permit any of the Guarantors to, amend, supplement, modify or
restate their articles or certificate of incorporation, bylaws, limited
liability company agreements, or other equivalent organizational documents where
such amendment, supplement, modification or restatement could have an adverse
effect on Lenders as determined by Administrative Agent in its sole reasonable
discretion, or amend its name or change its jurisdiction of incorporation,
organization or formation without prior written notice to, and prior consent of,
Administrative Agent.
     Section 6.13. Use of Proceeds; Letters of Credit. Borrower will not permit
the proceeds of any Advance or Letters of Credit to be used for any purpose
other than those permitted by Section 5.9. Borrower will not engage in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation U). Neither Borrower nor any Person
acting on behalf of Borrower has taken or shall take, nor permit any of the
Guarantors to take any action which might cause any of the Loan Documents to
violate Regulation T, U or X or any other regulation of the Board of Governors
of the Federal Reserve System 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, including without limitation, the
use of the proceeds of any Advance or Letters of Credit to purchase or carry any
margin stock in violation of Regulation T, U or X.
     Section 6.14. Gas Imbalances, Take-or-Pay or Other Prepayments. Borrower
shall not, nor shall it permit any of the Guarantors to, allow gas imbalances,
take-or-pay or other prepayments with respect to the Oil and Gas Properties of
Borrower or any Guarantor which would require Borrower or any Guarantor to
deliver their respective Hydrocarbons produced on a monthly basis from such Oil
and Gas Properties at some future time without then or thereafter receiving full
payment therefor other than that which do not result in Borrower or any
Guarantor having net aggregate liability in excess of $100,000.

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     Section 6.15. Hedging Requirements. Other than the Hedge Contracts required
to be entered into and maintained pursuant to Sections 3.1(k), 3.1(q)(ii) and
5.12 and as set forth on Schedule 4.19, Borrower shall not, nor shall it permit
any of the Guarantors to,
     (a) purchase, assume, or hold a speculative position in any commodities
market or futures market or enter into any Hydrocarbon Hedge Agreement, Interest
Hedge Agreement or similar hedge arrangement for speculative purposes, or
     (b) be party to or otherwise enter into any Hedge Contract which (i) is
entered into for reasons other than as a part of its normal business operations
as a risk management strategy and/or hedge against changes resulting from market
conditions related to Borrower’s operations, (ii) covers notional volumes in
excess of 80% of the anticipated production of gas volumes during the period
such hedge arrangement is in effect or covers notional volumes in excess of 80%
of the anticipated production of oil volumes during the period such hedge
arrangement is in effect, in either case, attributable to “proved, developed and
producing” Proved Reserves of Borrower as reflected in the most recently
delivered Engineering Report under Section 2.2(b) or covers notional volumes in
excess of 80% of the anticipated production of natural gas liquids volumes
during the period such hedge arrangement is in effect, in each case,
attributable to “proved, developed and producing” Proved Reserves of Borrower as
reflected in the most recently delivered Engineering Report under Section 2.2(b)
or (c); provided, however, that (A) with regard to a “costless collar” that
involves the purchase of a put and the sale of a call for the same volumes and
dates and commodities, only the volumes associated with the put or the call (but
not both) will be included in calculating the 80% threshold, and (B) the volume
limitations shall not apply to put option contracts that are not related to
corresponding calls, collars or swaps, or (iii) is longer than five years in
duration from the date such Hedge Contract is entered into.
     Section 6.16. Additional Subsidiaries. Borrower shall not, nor shall it
permit any of the Guarantors to, create or acquire any additional Subsidiaries
without (a) such new Subsidiary executing and delivering to Administrative
Agent, at its request, a Guaranty, a Pledge Agreement, a Security Agreement and
a Mortgage, and such other Security Instruments as Administrative Agent or the
Required Lenders may reasonably request, and (b) the delivery by Borrower of any
certificates, opinions of counsel, title opinions or other documents as
Administrative Agent may reasonably request; provided that, in any event, no
Subsidiary may be created or acquired if a Default has occurred and is
continuing before, or a Default would arise after, giving effect to such
creation or acquisition of the new Subsidiary.
     Section 6.17. Account Payables. Borrower shall not, nor shall it permit any
of the Guarantors to, allow any of its trade payables or other accounts payable
to be outstanding for more than 90 days following receipt of the invoice
covering such payable (except in cases where any such trade payable is being
disputed in good faith and adequate reserves under GAAP have been established).
     Section 6.18. Current Ratio. As of each fiscal quarter end beginning with
the fiscal quarter ending December 31, 2010, Borrower and Guarantors shall not
permit the ratio of (a) their combined current assets to (b) their combined
current liabilities, to be less 1.00 to 1.00. For purposes of this calculation
(i) “current assets” shall include, as of the date of calculation, (A) the

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Borrowing Base then in effect less the sum of (x) the aggregate outstanding
principal amount of all Advances under the Revolving Loan plus (y) the Letter of
Credit Exposure at such time, and (B) amounts available for funding pursuant to
Section 2.3(a), but shall exclude any current non-cash assets described in or
calculated pursuant to the requirements of FASB 133 and 143 (or any successor
GAAP which serves to amend, supplement or replace FASB Statements 133 and 143),
each as amended, and (ii) “current liabilities” shall exclude, as of the date of
calculation, the current portion of long-term Debt existing under this
Agreement, the Senior Unsecured Notes and the Convertible Notes, and any current
non-cash liabilities described in or calculated pursuant to the requirements of
FASB 133 and 143 (or any successor GAAP which serves to amend, supplement or
replace FASB Statements 133 and 143), each as amended.
     Section 6.19. Minimum Quarterly Net Operating Cash Flow. As of each fiscal
quarter end beginning with the fiscal quarter ending December 31, 2010, Borrower
and Guarantors shall maintain a combined Quarterly Net Operating Cash Flow of at
least $8,600,000 per fiscal quarter.
     Section 6.20. Maximum Quarterly G&A Expenses. As of each fiscal quarter end
beginning with the fiscal quarter ending December 31, 2010, Borrower and
Guarantors shall not permit their combined G&A Expenses (excluding (a) any loan
or attorneys’ fees required for or payable in connection with the closing of
this Agreement and all Loan Documents, and (b)any advisory fees paid or accrued
to Macquarie Capital (USA) Inc, on or after closing) to exceed $5,000,000 per
fiscal quarter.
     Section 6.21. Prepayments of Debt. Borrower shall not, nor shall it permit
any of the Guarantors to, prepay, redeem, purchase, defease or otherwise satisfy
prior to the scheduled maturity thereof in any manner, or make any payment in
violation of any subordination terms of, any Debt, except (a) the prepayment of
the Advances in accordance with the terms of this Agreement, (b) regularly
scheduled or required repayments or redemptions of Debt permitted under
Section 6.2, and (c) so long as no Event of Default exists or would result
therefrom, other prepayments of Debt permitted under Section 6.2.
     Section 6.22. Equity Issuance. Borrower shall not, nor shall it permit any
of the Guarantors to, issue any preferred, convertible equity securities or
other Equity Interests other than common Equity Interests of Borrower.
     Section 6.23. Deposit Accounts. Borrower shall not, nor shall it permit any
of the Guarantors to, open or maintain any Deposit Accounts except for:
     (a) Deposit Accounts set forth on Schedule 6.23,
     (b) Deposit Accounts which are subject to account control agreements
reasonably acceptable in form and substance to Administrative Agent, and
     (c) such other Deposit Accounts as shall be necessary for payroll, petty
cash, local trade payables, and other occasional needs of Borrower; the
aggregate balance of all such Deposit Accounts permitted under this
Section 6.23(c) may not, at any time, exceed $100,000; provided, however, if
such the aggregate amount in such accounts exceeds $100,000, Borrower shall not
be in default of this Section 6.23 as long as Borrower transfers within five (5)
Business

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Days any amounts in excess of $100,000 to an account subject to account control
agreements reasonably acceptable in form and substance to Administrative Agent.
     Section 6.24. Support of Subsidiaries. Borrower shall not provide any
direct or indirect financial support to any of its Subsidiaries which are not
Guarantors; provided, however, this Section 6.24 shall not prohibit the sales of
goods and services from such Subsidiaries to Borrower in the ordinary course of
business, consistent with past practice and on an arm’s length basis.
ARTICLE VII
EVENTS OF DEFAULT; REMEDIES
     Section 7.1. Events of Default. The occurrence of any of the following
events shall constitute an “Event of Default” under any Loan Document:
     (a) Payment. Borrower shall fail to pay, within 3 Business Days, when due
any (i) principal payable hereunder or under the Notes or (ii) other amounts
(including interest, fees, reimbursements, and indemnifications) payable
hereunder, under the Notes, or under any other Loan Document;
     (b) Representation and Warranties. Any representation or warranty made or
deemed to be made by Borrower or any Guarantor (or any of their respective
officers) in this Agreement or in any other Loan Document, or by Borrower or any
Guarantor (or any of their respective officers) in connection with this
Agreement or any other Loan Document, shall prove to have been incorrect in any
material respect (except that such materiality qualifier shall not be applicable
to any representations and warranties that already are qualified or modified by
materiality in the text thereof) when made or deemed to be made;
     (c) Covenant Breaches. Borrower or any Guarantor shall fail to perform or
observe any term or covenant set forth in this Agreement (except for payment
default described in Section 7.1(a) above) or in any other Loan Document;
     (d) Cross Defaults. (i) Borrower or any Guarantor shall fail to pay any
principal of or premium or interest on its Debt that is outstanding in a
principal amount of at least $500,000 individually or when aggregated with all
such Debt of Borrower or any Guarantor so in default (but excluding Debt
evidenced by the Notes) when the same becomes due and payable (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise), and
such failure shall continue after the applicable grace period, if any, specified
in the agreement or instrument relating to such Debt; (ii) any other event shall
occur or condition shall exist under any agreement or instrument relating to
Debt (including, without limitation, any event of default, termination event or
additional termination event under any Hedge Contract) that is outstanding in a
principal amount (or termination payment amount or similar amount) of at least
$500,000 individually or when aggregated with all such Debt of Borrower or any
Guarantor so in default, and shall continue after the applicable grace period,
if any, specified in such agreement or instrument, if the effect of such event
or condition is to accelerate, or to permit the acceleration of, the maturity of
such Debt; or (iii) any such Debt in a principal amount of at least $500,000
individually or when aggregated with all such Debt of Borrower or any Guarantor
shall be

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declared to be due and payable, or required to be prepaid (other than by a
regularly scheduled required prepayment), prior to the stated maturity thereof;
provided that, for purposes of this Section 7.1(d), the “principal amount” of
the obligations in respect of any Hedging Contracts at any time shall be the
maximum aggregate amount (giving effect to any netting agreements) that would be
required to be paid if such Hedging Contracts were terminated at such time;
     (e) Insolvency. Borrower or any Guarantor shall generally not pay its debts
as such debts become due, or shall admit in writing its inability to pay its
debts generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against Borrower or any
Guarantor seeking to adjudicate it as bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief, or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee or other similar
official for it or for any substantial part of its Property and, in the case of
any such proceeding instituted against Borrower or any such Guarantor either
such proceeding shall remain undismissed for a period of 60 days or any of the
actions sought in such proceeding shall occur; or Borrower or any Guarantor
shall take any corporate action to authorize any of the actions set forth above
in this paragraph (e);
     (f) Judgments. Any judgment or order for the payment of money in excess of
$500,000 shall be rendered against Borrower or any Guarantor and either
(i) enforcement proceedings shall have been commenced by any creditor upon such
judgment or order or (ii) there shall be any period of 30 consecutive days
during which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect;
     (g) Termination Events. Any Termination Event with respect to a Plan shall
have occurred, and, 30 days after notice thereof shall have been given to
Borrower by Administrative Agent, (i) such Termination Event shall not have been
corrected and (ii) the then present value of such Plan’s vested benefits exceeds
the then current value of assets accumulated in such Plan by more than the
amount of $500,000 (or in the case of a Termination Event involving the
withdrawal of a “substantial employer” (as defined in Section 4001(a)(2) of
ERISA), the withdrawing employer’s proportionate share of such excess shall
exceed such amount);
     (h) Plan Withdrawals. Borrower or any member of the Controlled Group as
employer under a Multiemployer Plan shall have made a complete or partial
withdrawal from such Multiemployer Plan and the plan sponsor of such
Multiemployer Plan shall have notified such withdrawing employer that such
employer has incurred a withdrawal liability in an annual amount exceeding
$500,000.
     (i) Change in Control. Borrower shall have discontinued its usual business
or a Change in Control shall have occurred;
     (j) Key Personnel. (i) Any two of the following events occur: (A) Carl
Lakey ceases to be employed by Borrower on a full time basis as President and
CEO of Borrower; (B) Kevin Nanke ceases to be employed by Borrower on a full
time basis as Treasurer and CFO of Borrower, and (C) Daniel Taylor ceases to
serve as Chairman of the Board of Directors of Borrower, and (ii) a replacement
for such person reasonably acceptable to Administrative Agent

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is not employed by such Borrower (or, if already employed by such Borrower,
reassigned) within ninety (90) days.
     (k) Loan Documents. Any material provision of any Loan Document shall for
any reason cease to be valid and binding on Borrower or a Guarantor or any such
Person shall so state in writing;
     (l) Security Instruments. (i) Administrative Agent shall fail to have an
Acceptable Security Interest in any portion of the Collateral in excess of
$500,000.00 in the aggregate at any one time, or (ii) any Security Instrument
shall at any time and for any reason cease to create the Lien on the Property
purported to be subject to such agreement in accordance with the terms of such
agreement, or cease to be in full force and effect, or shall be contested by
Borrower or any Guarantor;
     (m) Potential Failure of Title. The title of Borrower or any Guarantor to
any of the Oil and Gas Properties subject to the Mortgages, or any material part
thereof, shall become the subject matter of litigation before any Governmental
Authority or arbitrator which could reasonably be expected to result in a
Material Adverse Change with respect to Borrower’s or such Guarantor’s title to
such Oil and Gas Properties;
     (n) Material Adverse Change. An event resulting in a Material Adverse
Change shall have occurred; or
     (o) Casualty. Loss, theft, substantial damage or destruction of a material
portion of the Collateral the subject of any Security Instrument and not fully
covered by insurance (except for deductibles and allowing for the depreciated
value of such Collateral) shall have occurred;
provided that the events described in Section 7.1(b), (d), (j), (m), and (o)
above will constitute an Event of Default only if the event described is not
remedied by Borrower within 30 days after the earlier of (i) any officer of
Borrower (or, in the case of any Subsidiary, any officer of that Subsidiary)
becoming aware of the occurrence of the event and (ii) Borrower’s receipt of a
notice from Administrative Agent on behalf of Lenders of the occurrence of the
event.
     Section 7.2. Optional Acceleration of Maturity. If any Event of Default
(other than an Event of Default pursuant to Section 7.1(e)) shall have occurred
and be continuing, then, and in any such event,
     (a) Administrative Agent (i) shall at the request, or may with the consent,
of the Required Lenders, by notice to Borrower, declare the obligation of each
Lender and the Issuing Lender to make extensions of credit hereunder, including
making Advances and issuing, increasing or extending Letters of Credit, to be
terminated, whereupon the same shall forthwith terminate, and (ii) shall at the
request, or may with the consent, of the Required Lenders, by notice to
Borrower, declare all principal, interest, fees, reimbursements,
indemnifications, and all other amounts payable under this Agreement, the Notes,
and the other Loan Documents to be forthwith due and payable, whereupon all such
amounts shall become and be forthwith due and payable in full, without notice of
intent to demand, demand, presentment for payment, notice of nonpayment,
protest, notice of protest, grace, notice of dishonor, notice of intent to
accelerate,

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notice of acceleration, and all other notices, all of which are hereby expressly
waived by Borrower;
     (b) Borrower shall, on demand of Administrative Agent at the request or
with the consent of the Required Lenders, deposit with Administrative Agent into
the Cash Collateral Account an amount of cash equal to the Letter of Credit
Exposure as security for the Obligations; and
     (c) Administrative Agent shall at the request of, or may with the consent
of, the Required Lenders proceed to enforce its rights and remedies under the
Security Instruments, the Guaranties, and any other Loan Documents for the
ratable benefit of the Secured Parties by appropriate proceedings.
     Section 7.3. Automatic Acceleration of Maturity. If any Event of Default
pursuant to Section 7.1(e) shall occur,
     (a) (i) the obligation of each Lender and the Issuing Lender to make
extensions of credit hereunder, including making Advances and issuing,
increasing or extending Letters of Credit, shall terminate, and (ii) all
principal, interest, fees, reimbursements, indemnifications, and all other
amounts payable under this Agreement, the Notes, and the other Loan Documents
shall become and be forthwith due and payable in full, without notice of intent
to demand, demand, presentment for payment, notice of nonpayment, protest,
notice of protest, grace, notice of dishonor, notice of intent to accelerate,
notice of acceleration, and all other notices, all of which are hereby expressly
waived by Borrower;
     (b) Borrower shall deposit with Administrative Agent into the Cash
Collateral Account an amount of cash equal to the outstanding Letter of Credit
Exposure as security for the Obligations; and
     (c) Administrative Agent shall at the request of, or may with the consent
of, the Required Lenders proceed to enforce its rights and remedies under the
Security Instruments, the Guaranties, and any other Loan Document for the
ratable benefit of the Secured Parties by appropriate proceedings.
     Section 7.4. Right of Set off. Upon the occurrence and during the
continuance of any Event of Default, Administrative Agent, the Issuing Lender
and each Lender 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 indebtedness at any time owing by Administrative Agent, the Issuing Lender
or such Lender to or for the credit or the account of Borrower against any and
all of the obligations of Borrower now or hereafter existing under this
Agreement, the Notes held by Administrative Agent, the Issuing Lender or such
Lender, and the other Loan Documents, irrespective of whether or not
Administrative Agent, the Issuing Lender or such Lender shall have made any
demand under this Agreement, such Notes, or such other Loan Documents, and
although such obligations may be unmatured. Administrative Agent, the Issuing
Lender and each Lender agrees to promptly notify Borrower after any such set off
and application made by Administrative Agent, the Issuing Lender or such Lender,
provided that the failure to give such

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notice shall not affect the validity of such set off and application. The rights
of Administrative Agent, the Issuing Lender and each Lender under this
Section 7.4 are in addition to any other rights and remedies (including, without
limitation, other rights of set off) that Administrative Agent, the Issuing
Lender or such Lender may have.
     Section 7.5. Non-exclusivity of Remedies. No remedy conferred upon
Administrative Agent, the Issuing Lender and Lenders is intended to be exclusive
of any other remedy, and each remedy shall be cumulative of all other remedies
existing by contract, at law, in equity, by statute or otherwise.
     Section 7.6. Application of Proceeds. From and during the continuance of
any Event of Default, any monies or Property actually received by Administrative
Agent pursuant to this Agreement or any other Loan Document, the exercise of any
rights or remedies under any Security Instrument or any other agreement with
Borrower or any Guarantor which secures any of the Obligations, shall be applied
in the following order:
     (a) First, to the payment of all amounts, including costs and expenses
incurred in connection with the collection of such proceeds and the payment of
any part of the Obligations, due to Administrative Agent under any of the
expense reimbursement or indemnity provisions of this Agreement or any other
Loan Document, any Security Instrument or other collateral documents, and any
applicable law;
     (b) Second, ratably, according to the then unpaid amounts thereof, without
preference or priority of any kind among them, to the payment of the Obligations
then due and payable, including Obligations with respect to Letters of Credit
and any obligations of Borrower or the Guarantors owing to any Hedge
Counterparty under any Hedge Contract; and
     (c) Third, the remainder, if any, to Borrower, the Guarantors, their
respective successors or assigns, or such other Person as may be lawfully
entitled to receive the same or as a court of competent jurisdiction may direct.
ARTICLE VIII
ADMINISTRATIVE AGENT AND THE ISSUING LENDER
     Section 8.1. Authorization and Action. Each Lender, and each other Secured
Party that is not party hereto by accepting the benefits of the Liens securing
Obligations owing to such Secured Party, hereby appoints and authorizes
Administrative Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement as are delegated to Administrative Agent by the
terms hereof and of the other Loan Documents, together with such powers as are
reasonably incidental thereto. As to any matters not expressly provided for by
this Agreement or any other Loan Document (including, without limitation,
enforcement or collection of the Notes), Administrative Agent shall not be
required to exercise any discretion or take any action, but shall be required to
act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of the Required Lenders, and such
instructions shall be binding upon all Lenders and all holders of Notes;
provided, however, that Administrative Agent shall not be required to take any
action which exposes Administrative

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Agent to personal liability or which is contrary to this Agreement, any other
Loan Document, or applicable law.
     Section 8.2. Administrative Agent’s Reliance, Etc. Neither Administrative
Agent nor any of its directors, officers, agents, or employees shall be liable
for any action taken or omitted to be taken (INCLUDING ADMINISTRATIVE AGENT’S
OWN NEGLIGENCE) by it or them under or in connection with this Agreement or the
other Loan Documents, except for its or their own gross negligence or willful
misconduct. Without limitation of the generality of the foregoing,
Administrative Agent:
     (a) may treat the payee of any Note as the holder thereof until
Administrative Agent receives written notice of the assignment or transfer
thereof signed by such payee and in form satisfactory to Administrative Agent;
     (b) may consult with legal counsel (including counsel for Borrower),
independent public accountants, and other experts selected by it and shall not
be liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants, or experts;
     (c) makes no warranty or representation to any Lender and shall not be
responsible to any Lender for any statements, warranties, or representations
made in or in connection with this Agreement or the other Loan Documents;
     (d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
Agreement or any other Loan Document on the part of Borrower or the Guarantors
or to inspect the Property (including the books and records) of Borrower or the
Guarantors;
     (e) shall not be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, sufficiency, or value of this Agreement
or any other Loan Document; and
     (f) shall incur no liability under or in respect of this Agreement or any
other Loan Document by acting upon any notice, consent, certificate, or other
instrument or writing (which may be by facsimile) believed by it to be genuine
and signed or sent by the proper party or parties.
     Section 8.3. Administrative Agent and Its Affiliates. With respect to its
Commitment, the Advances made by it and the Notes issued to it, Administrative
Agent shall have the same rights and powers under this Agreement as any other
Lender and may exercise the same as though it were not Administrative Agent. The
term “Lender” or “Lenders” shall, unless otherwise expressly indicated, include
Administrative Agent in its individual capacity. Administrative Agent and its
Affiliates may accept deposits from, lend money to, act as trustee under
indentures of, and generally engage in any kind of business with, Borrower or
any of its Subsidiaries, and any Person who may do business with or own
securities of Borrower or any such Subsidiary, all as if Administrative Agent
were not an agent hereunder and without any duty to account therefor to Lenders.

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     Section 8.4. Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon Administrative Agent or any other Lender
and based on the Financial Statements and the Interim Financial Statements and
such other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it shall, independently and without reliance upon
Administrative Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement.
     Section 8.5. Indemnification. LENDERS SEVERALLY AGREE TO INDEMNIFY
ADMINISTRATIVE AGENT AND THE ISSUING LENDER AND EACH AFFILIATE THEREOF AND THEIR
RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AND AGENTS (TO THE EXTENT NOT
REIMBURSED BY BORROWER), ACCORDING TO THEIR RESPECTIVE PRO RATA SHARES FROM AND
AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES,
ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES, OR DISBURSEMENTS OF ANY KIND OR
NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST
ADMINISTRATIVE AGENT AND THE ISSUING LENDER IN ANY WAY RELATING TO OR ARISING
OUT OF THIS AGREEMENT OR ANY ACTION TAKEN OR OMITTED BY ADMINISTRATIVE AGENT OR
THE ISSUING LENDER UNDER THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT (INCLUDING
ADMINISTRATIVE AGENT’S AND THE ISSUING LENDER’S OWN NEGLIGENCE), AND INCLUDING,
WITHOUT LIMITATION, ENVIRONMENTAL CLAIMS AND ANY LIABILITIES ARISING UNDER
ENVIRONMENTAL LAW, PROVIDED THAT NO LENDER SHALL BE LIABLE FOR ANY PORTION OF
SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS,
SUITS, COSTS, EXPENSES, OR DISBURSEMENTS RESULTING FROM ADMINISTRATIVE AGENT’S
OR THE ISSUING LENDER’S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS DETERMINED BY
A COURT OF COMPETENT JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT. WITHOUT
LIMITATION OF THE FOREGOING, EACH LENDER AGREES TO REIMBURSE ADMINISTRATIVE
AGENT AND THE ISSUING LENDER PROMPTLY UPON DEMAND FOR ITS RATABLE SHARE OF ANY
OUT OF POCKET EXPENSES (INCLUDING COUNSEL FEES) INCURRED BY ADMINISTRATIVE AGENT
IN CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY, ADMINISTRATION,
MODIFICATION, AMENDMENT, OR ENFORCEMENT (WHETHER THROUGH NEGOTIATIONS, LEGAL
PROCEEDINGS, OR OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT OF RIGHTS OR
RESPONSIBILITIES UNDER, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, TO THE EXTENT
THAT ADMINISTRATIVE AGENT OR THE ISSUING LENDER IS NOT REIMBURSED FOR SUCH BY
BORROWER. To the extent that the indemnity obligations provided in this
Section 8.5 are for the benefit of Administrative Agent as the named secured
party under the Liens granted under the Security Instruments, each Lender hereby
agrees that if such Lender ceases to be a Lender hereunder but Obligations owing
to such Lender or an Affiliate of such Lender continue to be secured by such
Liens, then such Lender shall continue to be bound by the provisions of this
Section 8.5 until such time as such Obligations have been satisfied or
terminated in full and subject to the terms of the last sentence of Section 9.9.
In such event, in determining the pro rata shares under this Section 8.5,
Lenders shall include the aggregate

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amount (giving effect to any netting agreements) that would be owing to such
Hedge Counterparty if such Hedge Contracts were terminated at the time of
determination.
     Section 8.6. Successor Administrative Agent and Issuing Lender.
Administrative Agent or the Issuing Lender may resign at any time by giving
written notice thereof to Lenders and Borrower and may be removed at any time
with or without cause by the Required Lenders upon receipt of written notice
from the Required Lenders to such effect. Upon receipt of notice of any such
resignation or removal, the Required Lenders shall have the right to appoint a
successor Administrative Agent or Issuing Lender with, if no Event of Default
has occurred and is continuing, the consent of Borrower, which consent shall not
be unreasonably withheld. If no successor Administrative Agent or Issuing Lender
shall have been so appointed by the Required Lenders with the consent of
Borrower, and shall have accepted such appointment, within 30 days after the
retiring Administrative Agent’s or Issuing Lender’s giving of notice of
resignation or the Required Lenders’ removal of the retiring Administrative
Agent or Issuing Lender, then the retiring Administrative Agent or Issuing
Lender may, on behalf of Lenders and Borrower, appoint a successor
Administrative Agent or Issuing Lender, which shall be, in the case of a
successor agent, a commercial bank organized under the laws of the United States
of America or of any State thereof and having a combined capital and surplus of
at least $500,000,000.00 and, in the case of the Issuing Lender, a Lender;
provided that, if Administrative Agent or Issuing Lender shall notify Borrower
and Lenders that no qualifying Person has accepted such appointment, then such
resignation shall nonetheless become effective in accordance with such notice
and (a) the retiring Administrative Agent or Issuing Lender shall be discharged
from its duties and obligations hereunder and under the other Loan Documents
(except that (i) in the case of any collateral security held by Administrative
Agent on behalf of Lenders or the Issuing Lender under any of the Loan
Documents, the retiring Administrative Agent shall continue to hold such
collateral security until such time as a successor Administrative Agent is
appointed and (ii) the retiring Issuing Lender shall remain the Issuing Lender
with respect to any Letters of Credit outstanding on the effective date of its
resignation or removal and the provisions affecting the Issuing Lender with
respect to such Letters of Credit shall inure to the benefit of the retiring
Issuing Lender until the termination of all such Letters of Credit) and (b) all
payments, communications and determinations provided to be made by, to or
through the retiring Administrative Agent shall instead be made by or to each
Lender and the Issuing Lender directly, until such time as the Required Lenders
appoint a successor Administrative Agent or Issuing Lender, as applicable, as
provided for above in this paragraph. Upon the acceptance of any appointment as
Administrative Agent or Issuing Lender by a successor Administrative Agent or
Issuing Lender, such successor Administrative Agent or Issuing Lender shall
thereupon succeed to and become vested with all the rights, powers, privileges,
and duties of the retiring Administrative Agent or Issuing Lender, and the
retiring Administrative Agent or Issuing Lender shall be discharged from its
duties and obligations under this Agreement and the other Loan Documents, except
that the retiring Issuing Lender shall remain the Issuing Lender with respect to
any Letters of Credit outstanding on the effective date of its resignation or
removal and the provisions affecting the Issuing Lender with respect to such
Letters of Credit shall inure to the benefit of the retiring Issuing Lender
until the termination of all such Letters of Credit. After any retiring
Administrative Agent’s or Issuing Lender’s resignation or removal hereunder as
Administrative Agent or Issuing Lender, the provisions of this Article VIII
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Administrative Agent or Issuing Lender under this Agreement and the
other Loan Documents.

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     Section 8.7. Collateral Matters.
     (a) Administrative Agent is authorized on behalf of the Secured Parties,
without the necessity of any notice to or further consent from the Secured
Parties, from time to time, to take any actions with respect to any Collateral
or Security Instruments which may be necessary to perfect and maintain
Acceptable Security Interests in and Liens upon the Collateral granted pursuant
to the Security Instruments. Administrative Agent is further authorized on
behalf of the Secured Parties, without the necessity of any notice to or further
consent from the Secured Parties, from time to time, to take any action (other
than enforcement actions requiring the consent of, or request by, the Required
Lenders as set forth in Section 7.2 or Section 7.3) in exigent circumstances as
may be reasonably necessary to preserve any rights or privileges of the Secured
Parties under the Loan Documents or applicable law. By accepting the benefit of
the Liens granted pursuant to the Security Instruments, each Secured Party not
party hereto hereby agrees to the terms of this paragraph (a).
     (b) Each Secured Party irrevocably authorizes Administrative Agent to
release any Lien granted to or held by Administrative Agent upon any Collateral:
(i) upon termination of the Commitments, termination or expiration of all
Letters of Credit (other than Letters of Credit as to which other arrangements
satisfactory to Administrative Agent and the Issuing Lender have been made),
termination of all Hedge Contracts with Hedge Counterparties that are secured by
the Liens on the Collateral (other than Hedge Contracts with any Hedge
Counterparty with respect to which other arrangements satisfactory to the Hedge
Counterparty and Borrower have been made; provided that, unless a Hedge
Counterparty (other than the Person that may be serving as Administrative Agent)
notifies Administrative Agent in writing at least 2 Business Days prior to the
expected termination of the Commitments that such arrangements have not been
made, then solely for purposes of this paragraph (b), it shall be deemed that
such satisfactory arrangements have been made; provided further that, the
immediately preceding proviso shall not apply unless Administrative Agent or
Borrower shall have given such Hedge Counterparty written notice of such
expected termination of Commitments at least 10 Business Days prior to the
expected date of termination), and payment in full of all Obligations (other
than Obligations arising under Hedge Contracts with any Hedge Counterparty with
respect to which other arrangements satisfactory to the Hedge Counterparty and
Borrower have been made; provided that, unless a Hedge Counterparty (other than
the Person that may be serving as Administrative Agent) notifies Administrative
Agent in writing at least 2 Business Days prior to the expected termination of
the Commitments that such arrangements have not been made, then solely for
purposes of this clause (b), it shall be deemed that such satisfactory
arrangements have been made; provided further that, the immediately preceding
proviso shall not apply unless Administrative Agent or Borrower shall have given
such Hedge Counterparty written notice of such expected termination of
Commitments at least 10 Business Days prior to the expected date of
termination); (ii) constituting Property sold or to be sold or otherwise
disposed of as part of or in connection with any Disposition permitted under
this Agreement or the other Loan Documents; (iii) constituting Property in which
Borrower or any Guarantor owned no interest at the time the Lien was granted or
at any time thereafter; (iv) constituting Property leased to Borrower or any
Guarantor under a lease which has expired or has been terminated in a
transaction permitted under this Agreement or is about to expire and which has
not been, and is not intended by Borrower or such Guarantor to be, renewed or
extended; or (v) if Approved, authorized or ratified in writing by the
applicable Required Lenders or all Lenders, as the case may be, as required by
Section 9.1. Upon the

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request of Administrative Agent at any time, the Secured Parties will confirm in
writing Administrative Agent’s authority to release particular types or items of
Collateral pursuant to this Section 8.7. By accepting the benefit of the Liens
granted pursuant to the Security Instruments, each Secured Party not party
hereto hereby agrees to the terms of this paragraph (b).
     (c) Notwithstanding anything contained in any of the Loan Documents to the
contrary, Borrower, Administrative Agent, and each Secured Party hereby agree
that no Secured Party shall have any right individually to realize upon any of
the Collateral or to enforce the Guaranties, it being understood and agreed that
all powers, rights and remedies hereunder and under the Security Instruments may
be exercised solely by Administrative Agent on behalf of the Secured Parties in
accordance with the terms hereof. By accepting the benefit of the Liens granted
pursuant to the Security Instruments, to the extent a Secured Party is not a
party hereto, it agrees to the terms of this paragraph (c).
ARTICLE IX
MISCELLANEOUS
     Section 9.1. Amendments, Etc. No amendment or waiver of any provision of
this Agreement, the Notes, or any other Loan Document, nor consent to any
departure by Borrower or any Subsidiary therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Required Lenders
and Borrower, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; provided,
however, that no amendment, waiver, or consent shall, unless in writing and
signed by all Lenders, do any of the following:
     (a) waive any of the conditions specified in Section 3.1,
     (b) increase the Borrowing Base or the Commitments of Lenders,
     (c) reduce the principal of, or interest on, the Notes or any fees or other
amounts payable hereunder or under any other Loan Document,
     (d) postpone any date fixed for any payment of principal of, or interest
on, the Notes or any fees or other amounts payable hereunder or extend the
Maturity Date or the Commitment Termination Date,
     (e) change the percentage of Lenders which shall be required for Lenders or
any of them to take any action hereunder or under any other Loan Document,
     (f) amend Section 2.16, Section 7.6 or this Section 9.1,
     (g) amend the definition of “Required Lenders,”
     (h) release any Guarantor from its obligations under any Guaranty other
than as a result of a transaction permitted hereby,
     (i) except as permitted by Section 6.4(a), permit Borrower or any Guarantor
to enter into any merger or consolidation with or into any other Person,

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     (j) release any Collateral securing the Obligations, except for releases of
Collateral sold as permitted by this Agreement and except for releases of
Collateral as permitted under Section 6.8, or
     (k) amend the definition of “Secured Parties” or the definition of
“Obligations” in this Agreement or any such corresponding terms in any other
Loan Document; and provided, further, that no amendment, waiver or consent
shall, unless in writing and signed by Administrative Agent or the Issuing
Lender in addition Lenders required above to take such action, affect the rights
or duties of Administrative Agent or the Issuing Lender, as the case may be,
under this Agreement or any other Loan Document and if a Lender ceases to be a
Lender hereunder for any reason and, in connection therewith, such Lender (or
its Affiliate) as a Hedge Counterparty terminates or novates any Hedge Contract
secured by the Loan Documents within 10 Business Days after the date on which
such Lender ceases to be a Lender hereunder, then for so long as the
Obligations, if any, owing to such Hedge Counterparty in respect of such
terminated or novated Hedge Contracts remain outstanding, no amendment, waiver,
or consent shall, unless in writing and signed by such Hedge Counterparty (in
addition to such other consents that may be required under this Section 9.1), do
any of the following in any manner that would be adverse to such Hedge
Counterparty from a secured party or creditor perspective: (i) amend this
Section 9.1(k), (ii) amend the definition of “Secured Party” or the definition
of “Obligations” in this Agreement or any such corresponding terms in any other
Loan Document, or (iii) amend Section 7.6. Other than as provided in this clause
(k), no Lender or any Affiliate of a Lender shall have any voting rights under
any Loan Document as a result of the existence of obligations owed to it under
Hedge Contracts.
     Section 9.2. Notices, Etc. All notices and other communications shall be in
writing and, except as otherwise provided in this Agreement, delivered by
messenger, United States certified mail, return receipt requested, facsimile or
other electronic transmission, or a nationally recognized overnight courier, at
the address for the appropriate party specified in Schedule II or at such other
address as shall be designated by such party in a written notice to the other
parties. All such notices and communications shall, when so mailed, facsimile or
electronically delivered, or hand delivered or delivered by a nationally
recognized overnight courier, be effective when received if mailed, when
facsimile is completed and when confirmed by the sender’s facsimile machine
confirmation, or when delivered by such messenger or courier, respectively,
except that notices and communications to Administrative Agent pursuant to
Article II or Article VIII shall not be effective until received by
Administrative Agent.
     Section 9.3. No Waiver; Remedies. No failure on the part of any Lender,
Administrative Agent, or the Issuing Lender to exercise, and no delay in
exercising, any right hereunder or under any Note shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right preclude any
other or further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
Section 9.4. Costs and Expenses. Borrower shall pay (a) all reasonable out of
pocket expenses incurred by Administrative Agent and its Affiliates (including
the reasonable fees, charges and disbursements of counsel for Administrative
Agent), in connection with the syndication of the credit facilities provided for
herein, the preparation, negotiation, execution,

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delivery and administration of this Agreement and the other Loan Documents or
any amendments, modifications or waivers of the provisions hereof or thereof
(whether or not the transactions contemplated hereby or thereby shall be
consummated), (b) all reasonable out of pocket expenses incurred by the Issuing
Lender in connection with the issuance, amendment, renewal or extension of any
Letter of Credit or any demand for payment thereunder and (c) all out of pocket
expenses incurred by Administrative Agent, any Lender or the Issuing Lender
(including the fees, charges and disbursements of any counsel for Administrative
Agent, any Lender or the Issuing Lender) in connection with the enforcement or
protection of its rights (i) in connection with this Agreement and the other
Loan Documents, including its rights under this Section, or (ii) in connection
with the Loans made or Letters of Credit issued hereunder, including all such
out of pocket expenses incurred during any workout, restructuring or
negotiations in respect of such Loans or Letters of Credit.
     Section 9.5. Binding Effect. This Agreement shall become effective when it
shall have been executed by Borrower and Administrative Agent, and when
Administrative Agent shall have, as to each Lender, either received a
counterpart hereof executed by such Lender or been notified by such Lender that
such Lender has executed it and thereafter shall be binding upon and inure to
the benefit of Borrower, Administrative Agent, and each Lender and their
respective successors and assigns, except that neither Borrower nor any other
Credit Party shall have the right to assign its rights or delegate its duties
under this Agreement or any interest in this Agreement without the prior written
consent of each Lender.
     Section 9.6. Lender Assignments and Participations.
     (a) Assignments. Any Lender may assign to one or more Eligible Assignees
all or any portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitments, the
Advances owing to it, the Notes held by it, and the participation interest in
the Letter of Credit Obligations held by it); provided, however, that (i) each
such assignment shall be of a constant, and not a varying, percentage of such
Lender’s rights and obligations assigned under this Agreement and shall be an
equal percentage with respect to both its obligations owing in respect of the
Commitments and the related Advances and Letters of Credit, (ii) the amount of
the Commitments and Advances of such Lender being assigned pursuant to each such
assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall be, if to an entity other than a Lender, not
less than $5,000,000 and shall be an integral multiple of $1,000,000 in excess
thereof, (iii) each such assignment shall be to an Eligible Assignee, (iv) the
parties to each such assignment shall execute and deliver to Administrative
Agent, for its acceptance and recording in the Register, an Assignment and
Acceptance, together with the Notes subject to such assignment, and (v) each
Eligible Assignee (other than the Eligible Assignee of Administrative Agent or
an Affiliate of a Lender) shall pay to Administrative Agent a $3,500
administrative fee. Upon such execution, delivery, acceptance and recording,
from and after the effective date specified in each Assignment and Acceptance,
which effective date shall be at least three Business Days after the execution
thereof, (A) the assignee thereunder shall be a party hereto for all purposes
and, to the extent that rights and obligations hereunder have been assigned to
it pursuant to such Assignment and Acceptance, have the rights and obligations
of a Lender hereunder and (B) such Lender thereunder shall, to the extent that
rights and obligations hereunder have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights and be released from its

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obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of such Lender’s rights and
obligations under this Agreement, such Lender shall cease to be a party hereto).
     (b) Terms of Assignments. By executing and delivering an Assignment and
Acceptance, Lender thereunder and the assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such Lender makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency of
value of this Agreement or any other instrument or document furnished pursuant
hereto; (ii) such Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of Borrower or the
Guarantors or the performance or observance by Borrower or the Guarantors of any
of their obligations under this Agreement or any other instrument or document
furnished pursuant hereto; (iii) such assignee confirms that it has received a
copy of this Agreement, together with copies of the Financial Statements and
Interim Financial Statements referred to in Section 4.5 and such other documents
and information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon Administrative Agent, such Lender or any
other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement; (v) such assignee appoints and
authorizes Administrative Agent to take such action as agent on its behalf and
to exercise such powers under this Agreement as are delegated to Administrative
Agent by the terms hereof, together with such powers as are reasonably
incidental thereto; and (vi) such assignee agrees that it will perform in
accordance with their terms all of the obligations which by the terms of this
Agreement are required to be performed by it as a Lender.
     (c) The Register. Administrative Agent shall maintain at its address
referred to in Section 9.2 a copy of each Assignment and Acceptance delivered to
and accepted by it and a register for the recordation of the names and addresses
of Lenders and the Commitments of, and principal amount of the Advances owing
to, each Lender from time to time (the “Register”). The entries in the Register
shall be conclusive and binding for all purposes, absent manifest error, and
Borrower, Administrative Agent, the Issuing Lender, and Lenders may treat each
Person whose name is recorded in the Register as a Lender hereunder for all
purposes of this Agreement. The Register shall be available for inspection by
Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
     (d) Procedures. Upon its receipt of an Assignment and Acceptance executed
by a Lender and an Eligible Assignee, together with the Notes subject to such
assignment, Administrative Agent shall, if such Assignment and Acceptance has
been completed and is in substantially the form of the attached Exhibit A,
(i) accept such Assignment and Acceptance, (ii) record the information contained
therein in the Register, and (iii) give prompt notice thereof to Borrower.
Within five Business Days after its receipt of such notice, Borrower shall
execute and deliver to Administrative Agent in exchange for the surrendered
Notes (A) if such Eligible Assignee has acquired a Commitment, a new Note to the
order of such Eligible Assignee in an amount equal to the Commitment assumed by
it pursuant to such Assignment and Acceptance

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and (B) if such Lender has retained any Commitment hereunder, a new Note to the
order of such Lender in an amount equal to the Commitment retained by it
hereunder. Such new Notes shall be dated the effective date of such Assignment
and Acceptance and shall otherwise be in substantially the form of the attached
Exhibit E.
     (e) Participations. Each Lender may sell participations to any Eligible
Assignee in or to all or a portion of its rights and obligations under this
Agreement (including, without limitation, all or a portion of its Commitments,
the Advances owing to it, its participation interest in the Letter of Credit
Obligations, and the Notes held by it); provided, however, that (i) such
Lender’s obligations under this Agreement (including, without limitation, its
Commitments to Borrower hereunder) shall remain unchanged, (ii) such Lender
shall remain solely responsible to the other parties hereto for the performance
of such obligations, (iii) such Lender shall remain the holder of any such Notes
for all purposes of this Agreement, (iv) Borrower, Administrative Agent, and the
Issuing Lender 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, and (v) such Lender shall not require the participant’s consent
to any matter under this Agreement, except for change in the principal amount of
the Notes, reductions in fees or interest, releasing all or substantially all of
any Collateral, permitting Borrower or any Guarantor to enter into any merger or
consolidation with or into any other, postponement of any date fixed for any
payment of principal of, or interest on, the Notes or any fees or other amounts
payable hereunder, or extensions of the Maturity Date or the Commitment
Termination Date. Borrower hereby agrees that participants shall have the same
rights under Section 2.17, Section 2.18, Section 2.19(c), and Section 9.7 as a
Lender to the extent of their respective participations.
     (f) Certain Pledges. 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 any pledge or assignment to secure
obligations to a Federal Reserve Bank; provided that no such pledge or
assignment shall release such Lender from any of its obligations hereunder or
substitute any such pledgee or assignee for such Lender as a party hereto.
     Section 9.7. Indemnification; Waiver.
     (a) INDEMNIFICATION. BORROWER SHALL, AND DOES HEREBY INDEMNIFY,
ADMINISTRATIVE AGENT (AND ANY SUB-AGENT THEREOF), EACH LENDER AND THE ISSUING
LENDER, AND EACH OFFICER, DIRECTOR, EMPLOYEE, AGENT, ATTORNEY-IN-FACT AND
AFFILIATE 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 FEES,
CHARGES AND DISBURSEMENTS OF ANY COUNSEL FOR ANY INDEMNITEE), INCURRED BY ANY
INDEMNITEE OR ASSERTED AGAINST ANY INDEMNITEE BY ANY THIRD PARTY OR BY BORROWER
OR ANY GUARANTOR ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF THE
EXECUTION OR DELIVERY OF THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR ANY
AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, THE PERFORMANCE BY THE
PARTIES HERETO OF THEIR RESPECTIVE OBLIGATIONS HEREUNDER OR THEREUNDER, THE
CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED

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HEREBY OR THEREBY, OR, IN THE CASE OF ADMINISTRATIVE AGENT (AND ANY SUB-AGENT,
OFFICER, DIRECTOR, EMPLOYEE, AGENT, ATTORNEY-IN-FACT AND AFFILIATE THEREOF) THE
ADMINISTRATION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, ANY ADVANCE OR
LETTER OF CREDIT OR THE USE OR PROPOSED USE OF THE PROCEEDS THEREFROM (INCLUDING
ANY REFUSAL BY THE ISSUING LENDER TO HONOR A DEMAND FOR PAYMENT UNDER A LETTER
OF CREDIT IF THE DOCUMENTS PRESENTED IN CONNECTION WITH SUCH DEMAND DO NOT
STRICTLY COMPLY WITH THE TERMS OF SUCH LETTER OF CREDIT), ANY ACTUAL OR ALLEGED
PRESENCE OR RELEASE OF HAZARDOUS MATERIALS ON OR FROM ANY PROPERTY OWNED OR
OPERATED BY BORROWER OR ANY OF THE GUARANTORS, OR ANY ENVIRONMENTAL LIABILITY
RELATED IN ANY WAY TO BORROWER OR ANY OF THE GUARANTORS, OR ANY ACTUAL OR
PROSPECTIVE CLAIM, LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO ANY OF
THE FOREGOING, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY, WHETHER
BROUGHT BY A THIRD PARTY OR BY BORROWER OR ANY GUARANTOR, AND REGARDLESS OF
WHETHER ANY INDEMNITEE IS A PARTY THERETO, IN ALL CASES, WHETHER OR NOT CAUSED
BY OR ARISING, IN WHOLE OR IN PART, OUT OF THE COMPARATIVE, CONTRIBUTORY OR SOLE
NEGLIGENCE OF THE INDEMNITEE; 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 WILLFUL MISCONDUCT OF SUCH INDEMNITEE.
     (b) Waiver of Damages. To the fullest extent permitted by applicable law,
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, the transactions contemplated
hereby or thereby, any Advance or Letter of Credit or the use of the proceeds
thereof. No Indemnitee referred to in Section 9.7(a) shall be liable for any
damages arising from the use by unintended recipients of any information or
other materials distributed by it through telecommunications, electronic or
other information transmission systems in connection with this Agreement or the
other Loan Documents or the transactions contemplated hereby or thereby.
     Section 9.8. Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Delivery of an executed counterpart signature page of this Agreement by
facsimile is as effective as executing and delivering this Agreement in the
presence of the other parties to this Agreement.
     Section 9.9. Survival of Representations, Etc. All representations and
warranties contained in this Agreement or made in writing by or on behalf of
Borrower in connection herewith shall survive the execution and delivery of this
Agreement and the Loan Documents, the making of the Advances and any
investigation made by or on behalf of Lenders, none of

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which investigations shall diminish any Lender’s right to rely on such
representations and warranties. All obligations of Borrower provided for in
Sections 2.17, 2.18, 2.19, 9.4 and 9.7 and all of the obligations of Lenders in
Section 8.5 shall survive any termination of this Agreement and repayment in
full of the Obligations.
     Section 9.10. Severability. In case one or more provisions of this
Agreement or the other Loan Documents shall be invalid, illegal or unenforceable
in any respect under any applicable law, the validity, legality, and
enforceability of the remaining provisions contained herein or therein shall not
be affected or impaired thereby.
     Section 9.11. Business Loans. Borrower warrants and represents that the
Loans evidenced by the Notes are and shall be for business, commercial,
investment, or other similar purposes and not primarily for personal, family,
household, or agricultural use, as such terms are used in Chapter One
(“Chapter One”) of the Texas Credit Code. At all such times, if any, as
Chapter One shall establish a Maximum Rate, the Maximum Rate shall be the
“indicated rate ceiling” (as such term is defined in Chapter One) from time to
time in effect.
     Section 9.12. Governing Law; Submission to Jurisdiction. This Agreement,
the Notes and the other Loan Documents shall be governed by, and construed and
enforced in accordance with, the laws of the State of Texas. Without limiting
the intent of the parties set forth above, (a) Chapter 346 of the Texas Finance
Code, as amended (relating to revolving loans and revolving tri-party accounts
(formerly Tex. Rev. Civ. Stat. Ann. Art. 5069, Ch. 15)), shall not apply to this
Agreement, the Notes, or the transactions contemplated hereby and (b) to the
extent that any Lender may be subject to Texas law limiting the amount of
interest payable for its account, such Lender shall utilize the indicated
(weekly) rate ceiling from time to time in effect. Each Letter of Credit shall
be governed by either the Uniform Customs and Practice for Documentary Credits
(2007 Revision), International Chamber of Commerce Publication No. 600, or the
International Standby Practices (ISP98), International Chamber of Commerce
Publication No. 590 (and any subsequent revisions thereof approved by a Congress
of the International Chamber of Commerce and adhered to by the Issuing Lender).
Borrower hereby irrevocably submits to the jurisdiction of any Texas state or
federal court sitting in Houston, Texas in any action or proceeding arising out
of or relating to this Agreement or the other Loan Documents, and Borrower
hereby irrevocably agrees that all claims in respect of such action or
proceeding may be heard and determined in such court. Borrower hereby
unconditionally and irrevocably waives, to the fullest extent it may effectively
do so, any right it may have to the defense of an inconvenient forum to the
maintenance of such action or proceeding. Borrower hereby agrees that service of
copies of the summons and complaint and any other process which may be served in
any such action or proceeding may be made by mailing or delivering a copy of
such process to such Borrower at its address set forth in this Agreement.
Borrower agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law. Nothing in this Section shall affect the
rights of any Lender to serve legal process in any other manner permitted by the
law or affect the right of any Lender to bring any action or proceeding against
Borrower or its Property in the courts of any other jurisdiction.
     Section 9.13. USA PATRIOT Act. Each Lender that is subject to the USA
PATRIOT Act and Administrative Agent (for itself and not on behalf of any
Lender) hereby notifies

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Borrower that pursuant to the requirements of the USA PATRIOT Act it is required
to obtain, verify and record information that identifies Borrower, which
information includes the name and address of Borrower and other information that
will allow such Lender or Administrative Agent, as applicable, to identify
Borrower in accordance with the USA PATRIOT Act.
     Section 9.14. WAIVER OF JURY TRIAL. BORROWER, LENDERS, THE ISSUING LENDER
AND ADMINISTRATIVE AGENT HEREBY ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED BY
AND HAVE CONSULTED WITH COUNSEL OF THEIR CHOICE, AND HEREBY KNOWINGLY,
VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY
JURY IN RESPECT OF ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, ANY OTHER LOAN DOCUMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY.
     Section 9.15. NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT AND THE LOAN
DOCUMENTS, AS DEFINED IN THIS AGREEMENT, REPRESENT THE FINAL AGREEMENT AMONG THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
[Remainder of this page intentionally left blank. Signature page follows.]

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     EXECUTED as of the date first above written.

            BORROWER:

DELTA PETROLEUM CORPORATION,
a Delaware corporation
      By:   /s/ Kevin K. Nanke         Name:   Kevin K. Nanke         Title:  
CFO     

Signature Page to Credit Agreement

 

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            ADMINISTRATIVE AGENT:

MACQUARIE BANK LIMITED,
as Administrative Agent, Issuing Lender and a Lender
      By:   /s/ Vanessa Lenthall         Name:   Vanessa Lenthall        
Title:   Division Director        By:   /s/ Robert McRobbie         Name:  
Robert McRobbie         Title:   Division Director, Legal Risk Management     

Signature Page to Credit Agreement

 

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APPENDIX I
DEFINITIONS
     “6-Month Period” has the meaning set forth in Section 5.12.
     “Acceptable Bank” means:
     (a) a financial institution that has a rating for its long-term unsecured
and non credit-enhanced debt obligations of A or higher by Standard & Poor’s
Rating Services, A or higher by Fitch Ratings Ltd., or A-2 or higher by Moody’s
Investor Services Limited (an “A” Equivalent Rating”); or
     (b) any other financial institution Approved by Administrative Agent.
     “Acceptable Security Interest” in any Property means a Lien which
(a) exists in favor of Administrative Agent for the benefit of the Secured
Parties, (b) is superior to all Liens or rights of any other Person in the
Property encumbered thereby, other than Permitted Liens, (c) secures the
Obligations, and (d) is perfected and enforceable.
     “Acquisition” means the purchase by Borrower or any of the Guarantors of
any business, including the purchase of all or substantially all the associated
assets or operations or of stock (or other ownership interests) of a Person
(other than of a wholly-owned Subsidiary of Borrower).
     “Acquisition Letters of Credit” means, collectively, one or more letters of
credit in the original stated aggregate amount of $300,000,000, issued for the
account of Borrower, such letters of credit to be (a) issued by JPMorgan Chase
Bank, N.A. and (b) fully cash collateralized pursuant to, and in accordance
with, the Cash Collateral Agreement.
     “Adjusted Reference Rate” means, for any day, the fluctuating rate per
annum of interest equal to the greatest of (a) the Reference Rate in effect on
such day, (b) the Federal Funds Rate in effect on such day plus 0.5 of 1% and
(c) the One-Month LIBOR plus 1.50%. Any change in the Adjusted Reference Rate
due to a change in the Reference Rate, Eurodollar Rate or the Federal Funds Rate
shall be effective on the effective date of such change in the Reference Rate,
Eurodollar Rate or the Federal Funds Rate.
     “Administrative Agent” means Macquarie Bank Limited, in its capacity as
agent pursuant to Article VIII, and any successor agent pursuant to Section 8.6.
     “Administrative Questionnaire” means an administrative questionnaire in a
form supplied by Administrative Agent or such other form provided by a Lender
and acceptable to Administrative Agent.
     “Advance” means an advance by a Lender to Borrower pursuant to
Section 2.1(a) as part of a Borrowing and refers to a Reference Rate Advance or
a Eurodollar Rate Advance.
     “AFE” means an authorization for expenditure representing an estimate of
work to be performed for a specific drilling, completion or other operation;
provided that AFEs will not

 

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include COPAS overhead or other similar expenses related to Borrower’s own
overhead expense.
     “Affiliate” means, as to any Person, any other Person that, directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such Person or any Subsidiary of such Person. The
term “control” (including the terms “controlled by” or “under common control
with”) means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of a Person, whether through
ownership of a Control Percentage, by contract, or otherwise.
     “Agreement” means this Third Amended and Restated Credit Agreement, as the
same may be further amended, supplemented, restated, and otherwise modified from
time to time.
     “Applicable Margin” means, with respect to any Advance, (a) during any time
when an Event of Default exists, 4% per annum plus the rate per annum set forth
in the appropriate intersection of the Pricing Grid for the relevant Loan and
Type of such Advance, and (b) at any other time, the rate per annum set forth in
the appropriate intersection of the Pricing Grid for the relevant Loan and Type
of such Advance. The Applicable Margin for any Advance shall change when and as
any such Event of Default commences or terminates.
     “Approval” and “Consent” mean, with respect to any consent or approval
sought by Borrower and given by Administrative Agent, the writings executed by
Administrative Agent that (a) authorize Borrower to take the action for which
the consent or approval is sought and (b) set forth the conditions, if any, upon
which the consent or approval is given by Administrative Agent. “Approve” and
“Approved” have the correlative meaning.
     “Assignment and Acceptance” means an assignment and acceptance entered into
by a Lender and an Eligible Assignee, and accepted by Administrative Agent, in
substantially the form of the attached Exhibit A.
     “BB Hedge” means any hedge position or Hedge Contract considered by
Administrative Agent in determining the then effective Borrowing Base.
     “Borrower Sub-Account” has the meaning set forth in Section 2.12(a).
     “Borrowing” means a borrowing consisting of Advances made on the same day
by Lender pursuant to Section 2.1.
     “Borrowing Base” means at any particular time, the Dollar amount determined
in accordance with Section 2.2 on account of Proved Reserves attributable to Oil
and Gas Properties of Borrower subject to an Acceptable Security Interest and
described in the most recent Independent Engineering Report or Internal
Engineering Report, as applicable, delivered to Administrative Agent and each
Lender pursuant to Section 2.2.
     “Business Day” means (a) any day other than a day on which commercial banks
are authorized or required to close in New York, New York, and (b) if such day
relates to the making of any Advance by Administrative Agent, the making of any
payment or prepayment by Borrower or the continuation of any Interest Period,
each in connection with a Eurodollar Rate

 

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Advance, any day that is both (i) a “Business Day” under the preceding clause
(a) and (ii) a day on which dealings in Dollar deposits are carried out in the
London interbank market.
     “Capital Leases” means, as applied to any Person, any lease of any Property
by such Person as lessee which would, in accordance with GAAP, be required to be
classified and accounted for as a capital lease on the balance sheet of such
Person.
     “Cash Collateral Account” means a cash collateral account pledged by
Borrower to the Issuing Lender containing cash deposited pursuant to
Section 2.7(b), Section 7.2(b), or Section 7.3(b) to be maintained with the
Issuing Lender or a bank designated by Administrative Agent in accordance with
Section 2.10(g).
     “Cash Collateral Agreement” means that certain Second Amended and Restated
Cash Collateral Account Agreement, dated as of October 24, 2008, among Borrower,
JPMorgan Chase Bank, N.A., in its individual capacity as depositary bank, as the
same may hereafter be modified, amended or supplemented from time to time.
     “CERCLA” means the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, state and local analogs, and all rules and
regulations and requirements thereunder in each case as now or hereafter in
effect.
     “Change in Control” means (a) that, for any reason (i) any Person or group
(as defined in Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934) other than Tracinda Corporation, a Nevada corporation, and its Affiliates
shall become the direct or indirect beneficial owner (as defined in
Sections 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934) of greater
than 30% of the total voting power of all classes of capital stock then
outstanding of Borrower entitled (without regard to the occurrence of any
contingency) to vote in elections of directors of Borrower, or (ii) Borrower
ceases to own, either directly or indirectly, 100% of the Equity Interest in any
wholly-owned Subsidiary other than as a result of a sale of assets or merger
permitted under Section 6.4, or (b) a “Change of Control” (or similar defined
term) as defined in any of the Senior Unsecured Notes Documents or the
Convertible Notes Documents.
     “Change in Law” means the occurrence, after the date of this Agreement, of
any of the following: (a) the adoption or taking effect of any new Legal
Requirement, (b) any change in any Legal Requirement or in the administration,
interpretation or application thereof by any Governmental Authority or (c) the
making or issuance of any request, guideline or directive (whether or not having
the force of law) by any Governmental Authority.
     “Code” means the Internal Revenue Code of 1986, as amended, and any
successor statute.
     “Collateral” means (a) all “Collateral”, “Pledged Collateral” and
“Mortgaged Properties” (as defined in each of the Mortgages, the Security
Agreements, and the Pledge Agreement, as applicable) or similar terms used in
the Security Instruments, and (b) all amounts contained in Borrower’s and the
Guarantors’ bank accounts.

 

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     “Commitment” means the amount set opposite such Lender’s name on
Schedule II hereof as its Commitment, or if such Lender has entered into any
Assignment and Acceptance, as set forth for such Lender as its Commitment in the
Register maintained by Administrative Agent pursuant to Section 9.6(c), as such
amount may be reduced or terminated pursuant to Section 2.6 or Article VII or
otherwise under this Agreement. The aggregate amount of the Commitments on the
date hereof is $100,000,000.00.
     “Commitment Fee Rate” means the per annum commitment fee rate set forth on
the Pricing Grid for a Revolving Loan and Term Loan, as applicable from time to
time, and calculated in accordance with Section 2.13(a).
     “Commitment Termination Date” means the earlier of (a) the Maturity Date
and (b) the earlier termination in whole of the Commitments pursuant to
Section 2.6 or Article VIII.
     “Compliance Certificate” means a compliance certificate in the form of the
attached Exhibit B signed by a Responsible Officer of Borrower.
     “Contingent Obligations” means the contingent obligations of Borrower or
any Guarantor under the sureties or bonds permitted under Section 6.2(e) which
are not due and owing.
     “Control Percentage” means, with respect to any Person, the percentage of
the outstanding Equity Interest (including any options, warrants or similar
rights to purchase such Equity Interest) of such Person having ordinary voting
power which gives the direct or indirect holder of such Equity Interest the
power to elect a majority of the board of directors (or other applicable
governing body) of such Person.
     “Controlled Group” means all members of a controlled group of corporations
and all businesses (whether or not incorporated) under common control which,
together with Borrower, are treated as a single employer under Section 414 of
the Code.
     “Convert,” “Conversion,” and “Converted” each refers to a conversion of
Advances of one Type into Advances of another Type pursuant to Section 2.5(b).
     “Convertible Notes” means Borrower’s 3 3/4% Convertible Senior Notes due
2037 issued pursuant to the Convertible Notes Indenture.
     “Convertible Notes Documents” means the Convertible Notes Indenture, the
notes evidencing the Convertible Notes and any other documents related thereto,
including but not limited to Subsidiary guaranties.
     “Convertible Notes Indenture” means that certain Indenture dated as of
April 25, 2007 among Borrower, the Subsidiary guarantors parties thereto and
U.S. Bank National Association, as trustee, as the same may be amended,
supplemented or otherwise modified from time to time.
     “Credit Extensions” means (a) an Advance made by any Lender, and (b) the
issuance, increase or extension of any Letter of Credit by the Issuing Lender.
     “Debt,” for any Person, means without duplication:

 

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     (a) indebtedness of such Person for borrowed money;
     (b) obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments;
     (c) obligations of such Person to pay the deferred purchase price of
Property or services (including, without limitation, obligations that are
non-recourse to the credit of such Person but are secured by the assets of such
Person, but excluding trade accounts payable);
     (d) obligations of such Person as lessee under Capital Leases and
obligations of such Person in respect of synthetic leases;
     (e) obligations of such Person under letters of credit and agreements
relating to the issuance of letters of credit or acceptance financing
     (f) obligations of such Person under any Hedge Contract;
     (g) obligations of such Person owing in respect of mandatorily redeemable
preferred stock or other mandatorily redeemable preferred Equity Interest of
such Person;
     (h) any obligations of such Person owing in connection with any volumetric
or production prepayments;
     (i) obligations of such Person under direct or indirect guaranties in
respect of, and obligations (contingent or otherwise) of such Person to purchase
or otherwise acquire, or otherwise to assure a creditor against loss in respect
of, indebtedness or obligations of others of the kinds referred to in clauses
(a) through (h) above;
     (j) indebtedness or obligations of others of the kinds referred to in
clauses (a) through (i) above secured by any Lien on or in respect of any
Property of such Person; and
     (k) all liabilities of such Person in respect of unfunded vested benefits
under any Plan.
     “Debt Service Reserve Account” has the meaning assigned to such term in
Section 2.12(e).
     “Default” means (a) an Event of Default or (b) any event or condition which
with notice or lapse of time or both would become an Event of Default.
     “Defaulting Lender” means any Lender that (a) has failed to fund its Pro
Rata Share of any Advance or participation in Letter of Credit Obligations
required to be funded by it hereunder within one Business Day of the date
required to be funded by it hereunder unless such failure has been cured within
three Business Days (or such longer time period accepted by Borrower and
Administrative Agent), (b) has otherwise failed to pay over to Administrative
Agent or any other Lender any other amount required to be paid by it hereunder
within one

 

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Business Day of the date when due, unless the subject of a good faith dispute or
unless such failure has been cured within three Business Days (or such longer
time period accepted by Administrative Agent or such other Lender, as
applicable), (c) has notified Administrative Agent, or has stated publicly, that
it will not comply with any such obligations hereunder, or (d) as to which a
Lender Insolvency Event has occurred and is continuing with respect to such
Lender. Any determination that a Lender is a Defaulting Lender will be made by
Administrative Agent in its sole discretion acting in good faith; provided, that
a Lender shall not become a Defaulting Lender solely as the result of the
acquisition or maintenance of an ownership interest in such Lender or its Parent
Company by a Governmental Authority.
     “Delta Petroleum Equity Interest” means equivalents (however designated) of
stock (or any other ownership interests) of Delta Petroleum Corporation.
     “Deposit Account” shall have the meaning given to the term in the Uniform
Commercial Code (or any successor statute), as adopted and in force in the State
of Texas or, when the laws of any other state govern the method or manner of the
perfection or enforcement of any Lien in any of the Collateral, the Uniform
Commercial Code (or any successor statute) of such other state.
     “Development Plan” means the comprehensive plan or plans in effect from
time to time with respect to the development of the Properties of Borrower and
any other expenditures that have been Approved by Administrative Agent. A
Development Plan shall provide for, among other things, the location, timing and
estimated costs of Wells to be drilled or recompleted.
     “Disposition” means any sale, lease, transfer, assignment, farm-out,
conveyance, or other disposition of any Property (including any working
interest, overriding royalty interest, production payments, net profits
interest, royalty interest, or mineral fee interest).
     “Dollars” and “$” means lawful money of the United States of America.
     “Effective Date” means December 29, 2010.
     “Eligible Assignee” means (a) any Lender (other than a Defaulting Lender),
(b) any Subsidiary or Affiliate of a Lender (other than a Defaulting Lender),
and (c) any commercial bank or other financial institution (i) Approved by
Administrative Agent and the Issuing Lender in their sole discretion, and
(ii) unless an Event of Default has occurred and is continuing, reasonably
acceptable to Borrower.
     “Engineering Report” means either an Independent Engineering Report or an
Internal Engineering Report.
     “Environment” or “Environmental” shall have the meanings set forth in 42
U.S.C. 9601(8) (1988).
     “Environmental Claim” means any third party (including governmental
agencies and employees) action, lawsuit, claim, demand, regulatory action or
proceeding, order, decree, consent agreement or notice of potential or actual
responsibility or violation (including claims or proceedings under the
Occupational Safety and Health Acts or similar laws or requirements

 

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relating to health or safety of employees) which seeks to impose liability under
any Environmental Law.
     “Environmental Law” means, as to Borrower or the Guarantors, all Legal
Requirements or common law theories applicable to Borrower or the Guarantors
arising from, relating to, or in connection with the Environment, health, or
safety, including without limitation CERCLA, relating to (a) pollution,
contamination, injury, destruction, loss, protection, cleanup, reclamation or
restoration of the air, surface water, groundwater, land surface or subsurface
strata, or other natural resources; (b) solid, gaseous or liquid waste
generation, treatment, processing, recycling, reclamation, cleanup, storage,
disposal or transportation; (c) exposure to pollutants, contaminants, hazardous,
or toxic substances, materials or wastes; (d) the safety or health of employees;
or (e) the manufacture, processing, handling, transportation, distribution in
commerce, use, storage or disposal of hazardous or toxic substances, materials
or wastes.
     “Environmental Permit” means any permit, license, order, approval,
registration or other authorization under Environmental Law.
     “Equity Interest” means with respect to any Person, any shares, interests,
participation, or other equivalents (however designated) of corporate stock,
membership interests or partnership interests (or any other ownership interests)
of such Person.
     “ERISA” means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
     “Eurocurrency Liabilities” has the meaning assigned to that term in
Regulation D of the Federal Reserve Board (or any successor), as in effect from
time to time.
     “Eurodollar Base Rate” means (a) in determining Eurodollar Rate for
purposes of the “One Month LIBOR”, the rate per annum for Dollar deposits quoted
by Administrative Agent as the inter-bank offered rate in effect from time to
time for delivery of funds for one (1) month in amounts approximately equal to
the principal amount of the applicable Advances; provided that, Administrative
Agent may base its quotation of the inter-bank offered rate upon such offers or
other market indicators of the inter-bank market as Administrative Agent in its
reasonable discretion deems appropriate including the rate determined under the
following clause (b), and (b) in determining Eurodollar Rate for all other
purposes, the rate per annum (rounded upward to the nearest whole multiple of
1/100th of 1%) equal to the interest rate per annum set forth on the Reuters
Reference LIBOR1 page as the London Interbank Offered Rate, for deposits in
Dollars at 11:00 a.m. (London, England time) two Business Days before the first
day of the applicable Interest Period and for a period equal to such Interest
Period; provided that, if, on or before any date on which Administrative Agent
is to determine the Eurodollar Base Rate:
     (i) Administrative Agent determines that adequate and fair means do not or
will not exist for determining the Eurodollar Base Rate applicable to an
Interest Period or, for any reason, Administrative Agent will not be able to
determine the Eurodollar Base Rate for the applicable Interest Period; or

 

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     (ii) Administrative Agent determines that the Eurodollar Base Rate
determined in accordance with this Agreement does not accurately reflect the
cost of funding, making or maintaining that Advance for the applicable Interest
Period;
then Administrative Agent can give notice of that circumstance to Borrower (a
“Market Disruption Notice”), whereupon Lenders’ obligation to make the requested
Advance on the basis of the Eurodollar Base Rate will be suspended until such
time as Administrative Agent notifies Borrower that the circumstances described
in the Market Disruption Notice no longer exist. If Administrative Agent has
issued a Market Disruption Notice, all Advances then outstanding will bear
interest at a rate to be determined by Administrative Agent (and specified in a
notice to Borrower) that compensates Lenders for the cost of funding (from any
source that Administrative Agent may reasonably select) plus the Applicable
Margin.
     “Eurodollar Rate” means for purposes of determining the rate applicable for
any Interest Period with respect to any Eurodollar Rate Advance and for purposes
of determining the Adjusted Reference Rate, a rate per annum determined by
Administrative Agent (which determination shall be conclusive in the absence of
manifest error) pursuant to the following formula:

             
Eurodollar Rate
  =   Eurodollar Base Rate               1.00 – Eurodollar Rate Reserve
Percentage    

     “Eurodollar Rate Advance” means an Advance which bears interest as provided
in Section 2.14(b).
     “Eurodollar Rate Reserve Percentage” of any Lender for the Interest Period
for any Eurodollar Rate Advance means the reserve percentage applicable during
such Interest Period (or if more than one such percentage shall be so
applicable, the daily average of such percentages for those days in such
Interest Period during which any such percentage shall be so applicable) under
regulations issued from time to time by the Federal Reserve Board for
determining the maximum reserve requirement (including, without limitation, any
emergency, supplemental, or other marginal reserve requirement) for such Lender
with respect to liabilities or assets consisting of or including Eurocurrency
Liabilities having a term equal to such Interest Period.
     “Event of Default” has the meaning specified in Section 7.1.
     “Excluded Taxes” means, with respect to Administrative Agent, any Lender,
the Issuing Lender or any other recipient of any payment to be made by or on
account of any obligation of Borrower hereunder, (a) taxes imposed on or
measured by its overall net or gross income (however denominated), and franchise
taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any
political subdivision thereof) 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 or any other
jurisdiction where it is engaged or going business, (b) any branch profits taxes
imposed by the United States of America or any similar tax imposed by any other
jurisdiction in which Borrower is located or engaged or doing business, and
(c) in the case of a Foreign Lender (other than an assignee pursuant to a
request by Borrower under Section 2.20), any withholding tax that is imposed on
amounts payable to such Foreign

 

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Lender at the time such Foreign Lender becomes a party hereto (or designates a
new lending office) or is attributable to such Foreign Lender’s failure or
inability (other than as a result of a Change in Law) to comply with
Section 2.19(e) and Section 2.19(f), 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 from Borrower
with respect to such withholding tax pursuant to Section 2.19(a).
     “Expiration Date” means, with respect to any Letter of Credit, the date on
which such Letter of Credit will expire or terminate in accordance with its
terms.
     “Federal Funds Rate” means, for any period, a fluctuating interest rate per
annum equal for each day during such period to the weighted average of the rates
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for any such day on such
transactions received by Administrative Agent from three Federal funds brokers
of recognized standing selected by it.
     “Federal Reserve Board” means the Board of Governors of the Federal Reserve
System or any of its successors.
     “Financial Statements” means the audited financial statements, including
the audited consolidated balance sheet, of Borrower and its consolidated
Subsidiaries, in each case, as of December 31, 2009, or December 31 of the
relevant fiscal year then ended, as applicable, and the related audited
consolidated statements of income, cash flow, and retained earnings of Borrower
and its consolidated Subsidiaries, in each case, for the fiscal year ending
December 31, 2009, or the fiscal year then ended, as applicable, copies of which
have been delivered to Administrative Agent and Administrative Agent.
     “Foreign Lender” means any Lender that is organized under the laws of a
jurisdiction other than that in which Borrower is resident for tax purposes. 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.
     “G&A Expenses” means the actual general and administrative expenses of
Borrower, including capitalized general and administrative expenses, calculated
in accordance with GAAP, (excluding all equity-based compensation pursuant to a
plan Approved by Administrative Agent).
     “GAAP” means generally accepted accounting principles recognized as such by
the Financial Accounting Standards Board (or generally recognized successor)
consistently applied and maintained throughout the period indicated and
consistent with applicable laws, except for changes mandated by the Financial
Accounting Standards Board or any similar accounting authority of comparable
standing, applied on a basis consistent with the requirements of Section 1.3. If
any change in any accounting principle or practice is required by the Financial
Accounting Standards Board (or generally recognized successor) in order for such
principle or

 

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practice to continue as a generally accepted principle or practice, all
financial reports or statements required hereunder or in connection herewith may
be prepared in connection with such change, but all calculations and
determinations to be made hereunder may be made in accordance with such change
only if Borrowers and Administrative Agent agree to do so. Whenever any
accounting term is used herein which is not otherwise defined, it shall be
interpreted in accordance with GAAP or IFRS, as applicable.
     “Governmental Authority” means the government of the United States of
America or any other nation, or of 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 (including any supra-national bodies such as the European Union or
the European Central Bank).
     “Guarantor” means each Subsidiary of Borrower executing a Guaranty and any
other wholly owned Subsidiary of Borrower formed after the Effective Date of
this Agreement.
     “Guaranty” means a Guaranty in substantially the form of the attached
Exhibit C and executed by a Guarantor, and “Guaranties” shall mean all such
guaranties collectively.
     “Hazardous Substance” means the substances identified as such pursuant to
CERCLA and those regulated under any other Environmental Law, including without
limitation pollutants, contaminants, petroleum, petroleum products,
radionuclides, radioactive materials, and medical and infectious waste.
     “Hazardous Waste” means the substances regulated as such pursuant to any
Environmental Law.
     “Hedge Contract” means (a) any and all rate swap transactions, basis swaps,
credit derivative transactions, forward rate transactions, puts, commodity
swaps, commodity options, forward commodity contracts, equity or equity index
swaps or options, bond or bond price or bond index swaps or options or forward
bond or forward bond price or forward bond index transactions, interest rate
options, forward foreign exchange transactions, cap transactions, floor
transactions, collar transactions, currency swap transactions, cross-currency
rate swap transactions, currency options, spot contracts, or any other similar
transactions or any combination of any of the foregoing (including any options
to enter into any of the foregoing), whether or not any such transaction is
governed by or subject to any master agreement, and (b) any and all transactions
of any kind, and the related confirmations, which are subject to the terms and
conditions of, or governed by, any form of master agreement published by the
International Swaps and Derivatives Association, Inc., any International Foreign
Exchange Master Agreement, or any other master agreement (any such master
agreement, together with any related schedules, a “Master Agreement”), including
any such obligations or liabilities under any Master Agreement; provided that, a
“Hedge Contract” shall not include any “Master Agreement” or other agreement
that provides solely for the sale by Borrower or the Guarantors of physical
Hydrocarbons in exchange for cash in the ordinary course of its business.

 

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     “Hedge Counterparty” means (a) any Person that is a Lender or Affiliate of
a Lender on date hereof and that is a counterparty to any Hedge Contract with
Borrower or any Guarantor listed on Schedule 4.19 and (b) any counterparty to
any other Hedge Contract with Borrower or any Guarantor; provided that such
counterparty is a Lender or an Affiliate of a Lender at the time such Hedge
Contract is entered into. For the avoidance of doubt, “Hedge Counterparty” shall
not include any participant of a Lender pursuant to Section 9.6(e) other than to
the extent such participant is otherwise a Lender or an Affiliate of a Lender.
     “Hydrocarbon Hedge Agreement” means a Hedge Contract which is intended to
reduce or eliminate the risk of fluctuations in the price of Hydrocarbons.
     “Hydrocarbons” means oil, gas, coal seam gas, casinghead gas, drip
gasoline, natural gasoline, condensate, distillate, and all other liquid and
gaseous hydrocarbons produced or to be produced in conjunction therewith from a
well bore and all products, by-products, and other substances derived therefrom
or the processing thereof, and all other minerals and substances produced in
conjunction with such substances, including, but not limited to, sulfur,
geothermal steam, water, carbon dioxide, helium, and any and all minerals, ores,
or substances of value and the products and proceeds therefrom.
     “Indemnified Taxes” means Taxes other than Excluded Taxes.
     “Independent Engineer” means Ralph E. Davis & Associates or any other
engineering firm reasonably acceptable to Administrative Agent.
     “Independent Engineering Report” means a report, in form and substance
satisfactory to Administrative Agent and each of Lenders, prepared by an
Independent Engineer, addressed to Administrative Agent and Lenders with respect
to the Oil and Gas Properties owned by Borrower or the Guarantors (or to be
acquired by Borrower or any of the Guarantors, as applicable) which are or are
to be included in the Borrowing Base, which report shall (a) specify the
location, quantity, and type of the estimated Proved Reserves attributable to
such Oil and Gas Properties, (b) contain a projection of the rate of production
of such Oil and Gas Properties, (c) contain an estimate of the net operating
revenues to be derived from the production and sale of Hydrocarbons from such
Proved Reserves based on product price and cost escalation assumptions specified
by Administrative Agent and Lenders, and (d) contain such other information as
is customarily obtained from and provided in such reports or is otherwise
reasonably requested by Administrative Agent or any Lender.
     “Interest Expense” means, for Borrower and its consolidated Subsidiaries
for any period, total interest, letter of credit fees, and other fees and
expenses incurred in connection with any Debt for such period, whether paid or
accrued, including, without limitation, (i) all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers’ acceptance
financing, imputed interest under Capital Leases, and net costs under Interest
Hedge Agreements, all as determined in conformity with GAAP, and (ii) all
interests, dividends, distributions, or other payments made in respect of
preferred Equity Interests.

 

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     “Interest Hedge Agreement” means a Hedge Contract between Borrower and one
or more financial institutions providing for the exchange of nominal interest
obligations between Borrower and such financial institution or the cap of the
interest rate on any Debt of Borrower.
     “Interest Period” means, for each Eurodollar Rate Advance comprising part
of the same Borrowing, the period commencing on the date of such Eurodollar Rate
Advance or the date of the Conversion of any Reference Rate Advance into a
Eurodollar Rate Advance and ending on the last day of the period selected by
Borrower pursuant to the provisions below and Section 2.5 and, thereafter, each
subsequent period commencing on the last day of the immediately preceding
Interest Period and ending on the last day of the period selected by Borrower
pursuant to the provisions below and Section 2.5. The duration of each such
Interest Period shall be one, two, or three months, in each case as Borrower
may, upon notice received by Administrative Agent not later than 10:00 a.m.
(Houston, Texas time) on the third Business Day prior to the first day of such
Interest Period, select; provided, however, that:
     (a) Borrower may not select any Interest Period which ends after the
Maturity Date;
     (b) Interest Periods commencing on the same date for Advances comprising
part of the same Borrowing shall be of the same duration;
     (c) whenever the last day of any Interest Period would otherwise occur on a
day other than a Business Day, the last day of such Interest Period shall be
extended to occur on the next succeeding Business Day, provided that if such
extension would cause the last day of such Interest Period to occur in the next
following calendar month, the last day of such Interest Period shall occur on
the next preceding Business Day; and
     (d) any Interest Period which begins on the last Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end on the last
Business Day of the calendar month in which it would have ended if there were a
numerically corresponding day in such calendar month.
     “Interim Financial Statements” means the unaudited financial statements of
Borrower and it Subsidiaries, in each case, including the consolidated balance
sheet, for the fiscal quarter ended September 30, 2010 and including therein
statements of income, cash flow, and retained earnings of such Persons for the
period commencing at the end of the previous year and ending with the end of the
fiscal quarter then ended, copies of which have been delivered to Administrative
Agent and Lenders.
     “Internal Engineering Report” means a report, in form and substance
satisfactory to Administrative Agent and each Lender, prepared by Borrower and
certified by a Responsible Officer of Borrower, addressed to Administrative
Agent and Lenders with respect to the Oil and Gas Properties owned by Borrower
or any of the Guarantors (or to be acquired by Borrower or any of the
Guarantors, as applicable) which are or are to be included in the Borrowing
Base, which report shall (a) specify the location, quantity, and type of the
estimated Proved Reserves attributable to such Oil and Gas Properties,
(b) contain a projection of the rate of production of

 

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such Oil and Gas Properties, (c) contain an estimate of the net operating
revenues to be derived from the production and sale of Hydrocarbons from such
Proved Reserves based on product prices and cost escalation assumptions
specified by Administrative Agent, and (d) contain such other information as is
customarily obtained from and provided in such reports or is otherwise
reasonably requested by Administrative Agent or any Lender.
     “Issuing Lender” means Macquarie Bank Limited, and any successor issuing
bank pursuant to Section 8.6.
     “JPMorgan Credit Facility” means that certain Second Amended and Restated
Credit Agreement dated as of November 3, 2008 among Delta Petroleum Corporation,
as borrower, the lenders party thereto from time to time, JPMorgan Chase Bank,
N.A., as administrative agent, Bank of Montreal, as syndication agent, and U.S.
Bank National Association, as documentation agent, as the same may be amended,
supplemented or otherwise modified from time to time.
     “JPMorgan Loan Documents” means those certain documents listed on
Schedule 1 to the Assignment of Liens and Security Interests from JPMorgan Chase
Bank, N.A. as assignor to Macquarie Bank Limited as assignee and dated
December 29, 2010.
     “JPMorgan Notes” means those certain notes listed on Schedule 2 to that
certain Omnibus Assignment and Acceptance, dated as of even date herewith, by
and among Borrower, JPMorgan Chase Bank, N.A., as administrative agent, and
JPMorgan Chase Bank, N.A, Bank of Montreal, U.S. Bank National Association,
Deutsche Bank Trust Company Americas, KeyBank Financial Association, Bank of
Oklahoma, N.A., Natixis, Bank of Scotland plc, Barclays Bank plc, and Capital
One, National Association, as financial institutions.
     “Leases” means all oil and gas leases, oil, gas and mineral leases, oil,
gas and casinghead gas leases or any other instruments, agreements, or
conveyances under and pursuant to which the owner thereof has or obtains the
right to enter upon lands and explore for, drill, and develop such lands for the
production of Hydrocarbons.
     “Legal Requirement” means, as to any Person, any law, statute, ordinance,
decree, requirement, order, judgment, rule, regulation (or official
interpretation of any of the foregoing) of, and the terms of any license or
permit issued by, any Governmental Authority, including, but not limited to,
Regulations D, T, U, and X, which is applicable to such Person.
     “Lender Insolvency Event” means that (a) a Lender or its Parent Company is
insolvent, or is generally unable to pay its debts as they become due, or admits
in writing its inability to pay its debts as they become due, or makes a general
assignment for the benefit of its creditors, or (b) such Lender or its Parent
Company is the subject of a bankruptcy, insolvency, reorganization, liquidation
or similar proceeding, or a receiver, trustee, conservator, intervenor or
sequestrator or the like has been appointed for such Lender or its Parent
Company, or such Lender or its Parent Company has taken any action in
furtherance of or indicating its consent to or acquiescence in any such
proceeding or appointment.
     “Lenders” means a party hereto that (a) is a Lender listed on the signature
pages of this Agreement on the date hereof or (b) is an Eligible Assignee that
became a Lender under this Agreement pursuant to Section 2.20 or Section 9.6.

 

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     “Lending Office” means, as to any Lender, the office or offices of such
Lender described as such in such Lender’s Administrative Questionnaire, or such
other office or offices as a Lender may from time to time notify Borrower and
Administrative Agent.
     “Letter of Credit” means, individually, any standby letter of credit issued
or deemed issued by the Issuing Lender for the account of Borrower in connection
with the Commitments and that is subject to this Agreement, and “Letters of
Credit” means all such letters of credit collectively.
     “Letter of Credit Application” means the Issuing Lender’s standard form
letter of credit application for standby letters of credit that has been
executed by Borrower and accepted by the Issuing Lender in connection with the
issuance of a Letter of Credit.
     “Letter of Credit Documents” means all Letters of Credit, Letter of Credit
Applications, and agreements, documents, and instruments entered into in
connection with or relating thereto.
     “Letter of Credit Exposure” means, at any time, the sum of (a) the
aggregate undrawn maximum amount of each Letter of Credit at such time plus
(b) the aggregate unpaid amount of all Reimbursement Obligations at such time.
     “Letter of Credit Obligations” means any obligations of Borrower under this
Agreement in connection with the Letters of Credit, including the Reimbursement
Obligations.
     “Lien” means any mortgage, lien, pledge, assignment, charge, deed of trust,
security interest, hypothecation, preference, deposit arrangement or encumbrance
(or other type of arrangement having the practical effect of the foregoing) to
secure or provide for the payment of any obligation of any Person, whether
arising by contract, operation of law, or otherwise (including, without
limitation, the interest of a vendor or lessor under any conditional sale
agreement, synthetic lease, Capital Lease, or other title retention agreement).
     “Liquid Investments” means:
     (a) direct obligations of, or obligations the principal of and interest on
which are unconditionally guaranteed by, the United States maturing within
180 days from the date of any acquisition thereof;
     (b) negotiable or nonnegotiable certificates of deposit, time deposits, or
other similar banking arrangements maturing within 180 days from the date of
acquisition thereof (“bank debt securities”), issued by (A) any Lender (or any
Affiliate of any Lender) or (B) any other bank or trust company so long as such
certificate of deposit is pledged to secure Borrower’s or any Guarantor’s
ordinary course of business bonding requirements, or any other bank or trust
company which has primary capital of not less than $500,000,000, if at the time
of deposit or purchase, such bank debt securities are rated not less than “AA”
(or the then equivalent) by the rating service of Standard & Poor’s Ratings
Group or of Moody’s Investors Service, Inc., and (ii) commercial paper issued by
(A) any Lender (or any Affiliate of any Lender) or (B) any other Person if at
the time of purchase such commercial paper is rated not less than “A 1” (or the
then equivalent) by the rating service of Standard & Poor’s Ratings Group or not
less than “P

 

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1” (or the then equivalent) by the rating service of Moody’s Investors Service,
Inc., or upon the discontinuance of both of such services, such other nationally
recognized rating service or services, as the case may be, as shall be selected
by Borrower with the consent of the Required Lenders;
     (c) deposits in money market funds investing exclusively in investments
described in clauses (a) and (b) above;
     (d) repurchase agreements relating to investments described in clauses
(a) and (b) above with a market value at least equal to the consideration paid
in connection therewith, with any Person who regularly engages in the business
of entering into repurchase agreements and has a combined capital surplus and
undivided profit of not less than $500,000,000, if at the time of entering into
such agreement the debt securities of such Person are rated not less than “AA”
(or the then equivalent) by the rating service of Standard & Poor’s Ratings
Group or of Moody’s Investors Service, Inc.; and
     (e) such other instruments (within the meaning of Article 9 of the Texas
Business and Commerce Code) as Borrower may request and Administrative Agent may
approve in writing.
     “Loan” means, as applicable, a Revolving Loan or a Term Loan.
     “Loan Documents” means this Agreement, the Notes, the Letter of Credit
Documents, the Guaranties, the Security Instruments, any Hedge Contract with a
Hedge Counterparty, and each other agreement, instrument, or document executed
by Borrower, any Guarantor, or any of Borrower’s or a Guarantor’s Subsidiaries
or any of their officers at any time in connection with this Agreement.
     “Market Disruption Notice” shall have the meaning assigned to such term
within the definition of “Eurodollar Base Rate”.
     “Material Adverse Change” means (a) a material adverse change in the
business, assets (including the Oil and Gas Properties of Borrower), financial
condition, or operations of Borrower and the Guarantors, taken as a whole, (b) a
material adverse effect on Borrower’s and any of the Guarantors’ ability, as a
whole, to perform its obligations under this Agreement, any Note, any Guaranty,
or any other Loan Document, or (c) a material adverse change on the validity or
enforceability of this Agreement or any of the other Loan Documents.
     “Maturity Date” means January 31, 2012.
     “Maximum Commitment” means $100,000,000.
     “Maximum Rate” means the maximum nonusurious interest rate under applicable
law (determined under such laws after giving effect to any items which are
required by such laws to be construed as interest in making such determination,
including without limitation if required by such laws, certain fees and other
costs).

 

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     “Mortgage” means each of the mortgages or deeds of trust executed by any
one or more of Borrower, a Guarantor or any of their respective Subsidiaries in
favor of Administrative Agent for the ratable benefit of the Secured Parties in
substantially the form of the attached Exhibit D or such other form as may be
requested by Administrative Agent, together with any assumptions or assignments
of the obligations thereunder by Borrower, any Guarantor or any of their
respective Subsidiaries, and “Mortgages” shall mean all of such Mortgages
collectively.
     “Multiemployer Plan” means a “multiemployer plan” as defined in
Section 4001(a)(3) of ERISA.
     “Net Hedge Value” means, as to any novation, assignment, unwinding,
termination, or amendment of a BB Hedge, the net effect of such transaction
(after giving effect to any new hedge position or Hedge Contract entered into
since the determination of the Borrowing Base then in effect), if any, on the
then effective Borrowing Base, as determined by Administrative Agent.
     “Net Operating Cash Flow” or “NOCF” means, on a cash accounting basis,
Borrower’s gross cash receipts from the sale of Hydrocarbons and all other cash
receipts from whatever source (including if applicable, cash payments received
under any Hedging Agreement), less the following expenses to be paid from this
cash: (a) lease operating expenses (not including COPAS overhead charges if
Borrower or its Affiliate is the Operator); (b) production taxes; (c) payments
made or to be made with respect to Hedging Agreements (if applicable);
(d) amounts paid by Borrower to acquire and/or maintain any bonds or letters of
credit identified on Schedule 4.20 and securing plugging and abandonment
obligations with respect to Borrower’s Oil and Gas Properties; (e) if no Event
of Default exists, G&A Expenses subject to the provisions of Section 6.20,
provided, however, for purposes of this definition, G&A Expenses shall not
exclude any fees paid to Lenders and advisory fees paid or accrued to Macquarie
Capital (USA) Inc., and (f) accrued interest expense for regularly scheduled
interest payments under the Convertible Notes and the Senior Unsecured Notes in
accordance with Section 6.5. For the avoidance of doubt, however, “Net Operating
Cash Flow” does not include cash receipts or disbursements attributable to
Working Interests, Royalty Interests or net profits interests owned by any
Person that is not an Affiliate of Borrower.
     “Net Revenue Interest” means, with respect to any Oil and Gas Property, the
decimal or percentage share of Hydrocarbons produced and saved from or allocable
to that Oil and Gas Property, after deduction of Royalty Interests and other
burdens on or paid out of such production.
     “Non-Consenting Lender” means any Lender that does not consent to a
proposed agreement, amendment, waiver, consent or release with respect to this
Agreement or any other Loan Document that requires the consent of each Lender,
including any increases to the Borrowing Base.
     “Note” means a promissory note of Borrower payable to the order of any
Lender, in substantially the form of the attached Exhibit E, evidencing
indebtedness of Borrower to such Lender resulting from Advances owing to such
Lender.

 

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     “Notice of Borrowing” means a notice of borrowing in the form of the
attached Exhibit F signed by a Responsible Officer of Borrower.
     “Notice of Assignment of Proceeds” means a notice of assignment of proceeds
substantially in form of the attached Exhibit M.
     “Notice of Conversion or Continuation” means a notice of conversion or
continuation in the form of the attached Exhibit G signed by a Responsible
Officer of Borrower.
     “Obligations” means (a) all principal, interest, fees, reimbursements,
indemnifications, and other amounts payable by Borrower, any Guarantor or any of
their respective Subsidiaries to Administrative Agent, the Issuing Lender or
Lenders under the Loan Documents, including without limitation, the Letter of
Credit Obligations and the Related Costs, (b) all obligations of Borrower, any
Guarantor or any of their respective Subsidiaries owing to any Hedge
Counterparty under any Hedge Contract; provided that, (i) when any Hedge
Counterparty assigns or otherwise transfers any interest held by it under any
Hedge Contract to any other Person pursuant to the terms of such agreement, the
obligations thereunder shall constitute Obligations only if such assignee or
transferee is also then a Lender or an Affiliate of a Lender and (ii) if a Hedge
Counterparty ceases to be a Lender hereunder or an Affiliate of a Lender
hereunder, obligations owing to such Hedge Counterparty shall be included as
Obligations only to the extent such obligations arise from transactions under
such individual Hedge Contracts (and not the Master Agreement between such
parties) entered into at the time such Hedge Counterparty was a Lender hereunder
or an Affiliate of a Lender hereunder, without giving effect to any extension,
increases, or modifications thereof which are made after such Hedge Counterparty
ceases to be a Lender hereunder or an Affiliate of a Lender hereunder.
     “Oil and Gas Properties” means fee mineral interests, term mineral
interests, Leases, subleases, farm-outs, royalties, overriding royalties, net
profit interests, carried interests, production payments and similar mineral
interests, and all unsevered and unextracted Hydrocarbons in, under, or
attributable to such oil and gas Properties and interests.
     “One Month LIBOR” means, for any day, the rate of interest equal to the
Eurodollar Rate then in effect for delivery of funds for a one (1) month period.
     “Operator” means, with respect to the Properties, Borrower and any other
operators, including contract operators, of the Properties Approved by Lender.
The Operators of each of the Properties as of the date of this Agreement are
identified on Schedule III.
     “Other Taxes” means 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 under any other Loan Document or from the execution,
delivery or enforcement of, or otherwise with respect to, this Agreement or any
other Loan Document.
     “Parent Company” means, with respect to a Lender, the bank holding company
(as defined in Federal Reserve Board Regulation Y), if any, of such Lender,
and/or any Person owning, beneficially or of record, directly or indirectly, a
majority of the shares of such Lender.

 

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     “Payment Date” means the twenty-fifth (25th) day of each calendar month,
commencing on the twenty-fifth (25th) day of the calendar month following the
month in which the first Advance is made on the Term Loan.
     “PBGC” means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
     “Permit” means any approval, certificate of occupancy, consent, waiver,
exemption, variance, franchise, order, permit, authorization, right or license
of or from any Governmental Authority, including without limitation, an
Environmental Permit.
     “Permitted Liens” means the Liens permitted under Section 6.1.
     “Permitted Subject Liens” means the Liens permitted under paragraphs
(c) through (h) of Section 6.1.
     “Person” means an individual, partnership, corporation (including a
business trust), joint stock company, limited liability corporation or company,
limited liability partnership, trust, unincorporated association, joint venture
or other entity, or a government or any political subdivision or agency thereof
or any trustee, receiver, custodian or similar official.
     “Plan” means an employee benefit plan (other than a Multiemployer Plan)
maintained for employees of Borrower or any member of the Controlled Group and
covered by Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code.
     “Pledge Agreement” means a Pledge Agreement in substantially the form of
the attached Exhibit H, executed by Borrower or any of its Subsidiaries or any
of the Guarantors.
     “Pricing Grid” means the pricing information set forth in Schedule I.
     “Project Account” has the meaning set forth in Section 2.11.
     “Property” of any Person means any property or assets (whether real,
personal, or mixed, tangible or intangible) of such Person.
     “Property Operating Statement” or “POS” means a monthly statement
substantially in the form of Exhibit L, and prepared by Borrower in accordance
with Section 5.6(d).
     “Pro Rata Share” means, with respect to any Lender, the ratio (expressed as
a percentage) of aggregate Commitments of such Lender to the aggregate
Commitments of all Lenders (or if such Commitments have been terminated, the
ratio (expressed as a percentage) of outstanding Advances owing to such Lender
to the aggregate outstanding Advances owing to all such Lender.
     “Proved Reserves” has the meaning given to that term in the definitions
promulgated by the Society of Petroleum Evaluation Engineers and the World
Petroleum Congress (the “SPE/WPC Definitions”) in effect from time to time;
“Proved Developed Producing Reserves” or “PDP Reserves” means Proved Reserves
which are categorized as both “Developed” and

 

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“Producing” in the SPE/WPC Definitions; “Proved Developed Non Producing
Reserves” or “PDNP Reserves” means Proved Reserves which are categorized as both
“Developed” and “Non Producing” in the SPE/WPC Definitions; and “Proved
Undeveloped Reserves” or “PUD Reserves” means Proved Reserves which are
categorized as “Undeveloped” in the SPE/WPC Definitions.
     “Quarterly Net Operating Cash Flow” means Borrower’s oil and gas revenue
(including if applicable, realized gain under any Hydrocarbon Hedge Agreement),
less : (a) lease operating expenses (not including COPAS overhead charges if
Borrower or its Affiliate is the Operator); (b) production taxes;
(c) transportation expenses; (d) realized loss under any Hydrocarbon Hedge
Agreement; and (e) amounts paid by Borrower to acquire and/or maintain any bonds
or letters of credit identified on Schedule 4.20 and securing plugging and
abandonment obligations with respect to Borrower’s Oil and Gas Properties. For
the avoidance of doubt, however, “Quarterly Net Operating Cash Flow” does not
include cash receipts or disbursements attributable to Working Interests,
Royalty Interests or net profits interests owned by any Person that is not an
Affiliate of Borrower.
     “Reference Rate” with respect to any period, the greater of (i) the prime
rate of interest specified by the Wall Street Journal and (ii) the Federal Funds
Rate plus 0.055 per annum, in each case, from time to time as and when that rate
changes. The Reference Rate is a reference rate and does not necessarily
represent the lowest or best rate actually available.
     “Reference Rate Advance” means an Advance which bears interest as provided
in Section 2.14(a).
     “Register” has the meaning set forth in Section 9.6(c).
     “Regulations D, T, U, and X” mean Regulations D, T, U, and X of the Federal
Reserve Board, as the same is from time to time in effect, and all official
rulings and interpretations thereunder or thereof.
     “Reimbursement Obligations” means all of the obligations of Borrower to
reimburse the Issuing Lender for amounts paid by the Issuing Lender under
Letters of Credit as established by the Letter of Credit Applications and
Section 2.10(d).
     “Related Costs” means the reasonable and documented fees and out-of-pocket
expenses of counsel for Administrative Agent, Issuing Lender and Lenders, and
consultants for Administrative Agent, Issuing Lender and Lenders, and such other
reasonable and documented out-of-pocket, third-party expenses incurred by
Administrative Agent, Issuing Lender and Lenders in connection with the due
diligence, negotiation and preparation of documents relating to the Loans and
execution, delivery and filing and/or recording of the Loan Documents together
with any amendments, supplements or modifications thereto or administration or
enforcement thereof.
     “Related Parties” means, with respect to any Person, such Person’s
Affiliates and the partners, directors, officers, employees, agents and advisors
of such Person and of such Person’s Affiliates.

 

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     “Release” shall have the meaning set forth in CERCLA or under any other
Environmental Law.
     “Reported Month” has the meaning assigned to that term in Section 5.6(d).
     “Required Lenders” means, (a) at any time when there are more than two
Lenders, Lenders holding at least 66⅔% of the then aggregate unpaid principal
amount of the Notes and outstanding Letter of Credit Obligations held by Lenders
at such time (with the aggregate amount of each Lender’s risk participation and
funded participation in Letter of Credit Obligations being deemed to be “held”
by such Lender for purposes of this definition); provided that, if no such
principal amount or Letter of Credit Obligation is then outstanding, “Required
Lenders” shall mean Lenders having at least 66⅔% of the aggregate amount of the
Commitments at such time and (b) at any time when there are one or two Lenders,
all Lenders; provided further that, if there are two or more Lenders, the
Commitment of, and the portion of the Advances and Letter of Credit Exposure
held or deemed held by, any Defaulting Lender shall be excluded for purposes of
making a determination of Required Lenders unless all Lenders are Defaulting
Lenders.
     “Response” shall have the meaning set forth in CERCLA or under any other
Environmental Law.
     “Responsible Officer” means (a) with respect to any Person that is a
corporation, such Person’s Chief Executive Officer, President, Chief Financial
Officer, or Vice President, (b) with respect to any Person that is a limited
liability company, a manager or the Responsible Officer of such Person’s
managing member or manager, and (c) with respect to any Person that is a general
partnership or a limited liability partnership, the Responsible Officer of such
Person’s general partner or partners.
     “Restricted Payment” means, with respect to any Person, (a) any direct or
indirect dividend or distribution (whether in cash, securities or other
Property) or any direct or indirect payment of any kind or character (whether in
cash, securities or other Property) in consideration for or otherwise in
connection with any retirement, purchase, redemption or other acquisition of any
Equity Interest of such Person, or any options, warrants or rights to purchase
or acquire any such Equity Interest of such Person or (b) principal or interest
payments (in cash, Property or otherwise) on, or redemptions of, subordinated
debt of such Person; and (c) other than as permitted by Section 6.5, any direct
or indirect payment under the Convertible Notes Documents and the Senior
Unsecured Notes Documents; provided that the term “Restricted Payment” shall not
include any dividend or distribution payable solely in Equity Interests of
Borrower or warrants, options or other rights to purchase such Equity Interests.
     “Revolving Loan” has the meaning assigned to such term in Section 2.1(a).
     “Revolving Loan Advance” means an Advance under the Revolving Loan.
     “Royalty Interest” means (a) an expense-free interest retained by a mineral
lessor in a Lease, (b) an overriding royalty reserved by or conveyed to a
Person, or (c) any other expense-free right to receive production or revenues
from any Oil and Gas Property.

 

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     “Sales Volumes” means, with respect to any or all of Borrower’s Oil and Gas
Properties, the product of Borrower’s Net Revenue Interest multiplied by the
gross volume of Hydrocarbons produced and saved from those Oil and Gas
Properties.
     “SEC” means the United States Securities and Exchange Commission.
     “Secured Parties” means Administrative Agent, Issuing Lender, Lender, the
Swap Counterparties, and Bank Service Providers.
     “Security Agreements” means the Security Agreements, each in substantially
the form of the attached Exhibit I, executed by Borrower, any of its
Subsidiaries, or any of the Guarantors, and if applicable, Administrative Agent.
     “Security Instruments” means, collectively, (a) the Mortgages, (b) the
Transfer Letters, (c) the Pledge Agreements, (d) the Security Agreements,
(e) each other agreement, instrument or document executed at any time in
connection with the Pledge Agreements, the Security Agreements, or the
Mortgages, (f) each agreement, instrument or document executed in connection
with the Cash Collateral Account; and (g) each other agreement, instrument or
document executed at any time in connection with securing the Obligations.
     “Senior Unsecured Notes” means Borrower’s 7% Senior Notes due 2015 issued
pursuant to the Senior Unsecured Notes Indenture.
     “Senior Unsecured Notes Documents” means the Senior Unsecured Notes
Indenture, the notes evidencing the Senior Unsecured Notes and any other
documents related thereto, including but not limited to Subsidiary guaranties.
     “Senior Unsecured Notes Indenture” means that certain Indenture dated as of
March 15, 2005 among Borrower, the Subsidiary guarantors parties thereto and
U.S. Bank National Association, as trustee, as the same may be amended,
supplemented or otherwise modified from time to time.
     “Solvent” means, with respect to any Person, as of the date of any
determination, that on such date (a) the fair value of the Property of such
Person (both at fair valuation and at present fair saleable value) is greater
than the total liabilities, including contingent liabilities, of such Person,
(b) the present fair saleable value of the assets of such Person is not less
than the amount that will be required to pay the probable liability of such
Person on its debts as they become absolute and matured, (c) such Person is able
to realize upon its assets and pay its debts and other liabilities, contingent
obligations, and other commitments as they mature in the normal course of
business, (d) such Person does not intend to, and does not believe that it will,
incur debts or liabilities beyond such Person’s ability to pay as such debts and
liabilities mature, and (e) such Person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, for which
such Person’s Property would constitute unreasonably small capital after giving
due consideration to current and anticipated future capital requirements and
current and anticipated future business conduct and the prevailing practice in
the industry in which such Person is engaged. In computing the amount of
contingent liabilities at any time, such liabilities shall be computed at the
amount which, in light of the facts and circumstances existing at such

 

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time, represents the amount that can reasonably be expected to become an actual
or matured liability.
     “Subsidiary” means, with respect to any Person (the “parent”) at any date,
any other Person the accounts of which would be consolidated with those of the
parent in the parent’s consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well as any
Person, a majority of whose outstanding Voting Securities (other than directors’
qualifying shares) shall at any time be owned by such parent or one or more
Subsidiaries of such parent. Unless otherwise specified, all references herein
to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or
Subsidiaries of Borrower.
     “Supporting Documentation” means a package containing data that is
available to Borrower sufficient to support the cost estimate and the
justification for the proposed Development Plan project, including but not
limited to: (a) detailed work procedure, (b) before and after wellbore
schematic, (c) detailed cost estimate plus bids on major items and other backup
as appropriate, (d) reservoir structure and isopach maps, (e) log sections, core
data, and directional survey for any well being worked on plus key offset wells,
(f) notes showing Borrower’s or Independent Engineer’s reserves calculation, if
available, and (g) economic forecast.
     “Taxes” means all present or future taxes, levies, imposts, duties,
deductions, withholdings, assessments, fees or other charges imposed by any
Governmental Authority, including any interest, additions to tax or penalties
applicable thereto.
     “Termination Event” means (a) a Reportable Event described in Section 4043
of ERISA and the regulations issued thereunder (other than a Reportable Event
not subject to the provision for 30 day notice to the PBGC under such
regulations), (b) the withdrawal of Borrower or any of its Affiliates 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, or
(e) any other event or condition which constitutes grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer, any
Plan.
     “Term Loan” has the meaning assigned to that term in Section 2.1(a).
     “Transfer Letters” means, collectively, the letters in lieu of transfer
orders in substantially the form of the attached Exhibit J and executed by
Borrower, any Guarantor or any of their respective Subsidiaries executing a
Mortgage.
     “Type” has the meaning set forth in Section 1.4.
     “Unused Commitment Amount” means, with respect to a Lender at any time, the
lesser of (a) such Lender’s Commitment at such time and (b) such Lender’s Pro
Rata Share of the Borrowing Base then in effect plus Lender’s Pro Rata Share of
all amounts available under Section 2.3 at such time, minus, in the case of each
(a) and (b) above, the sum of (i) the aggregate outstanding principal amount of
all Advances owed to such Lender at such time plus (ii) such Lender’s Pro Rata
Share of the aggregate Letter of Credit Exposure at such time.

 

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     “USA PATRIOT Act” means the USA PATRIOT Act (Title III of Pub. L. 107-56
(signed into law October 26, 2001)).
     “Voting Securities” means (a) with respect to any corporation (including
any unlimited liability company), capital stock of such corporation having
general voting power under ordinary circumstances to elect directors of such
corporation (irrespective of whether at the time stock of any other class or
classes shall have or might have special voting power or rights by reason of the
happening of any contingency), (b) with respect to any partnership, any
partnership interest or other ownership interest having general voting power to
elect the general partner or other management of the partnership or other
Person, and (c) with respect to any limited liability company, membership
certificates or interests having general voting power under ordinary
circumstances to elect managers of such limited liability company.
     “Well” means any existing or future oil or gas well, salt water disposal
well, injection well, water supply well or any other well located on or related
to the Properties, and any facility or equipment in addition to or replacement
of any well.
     “Working Interest” means the property interest which entitles its owner to
explore and develop certain land for oil and gas production purposes, whether
under an oil and gas lease or unit, a compulsory pooling order or otherwise.