Exhibit 10.7

 

FIRST AMENDED AND RESTATED REVOLVER LOAN AGREEMENT

 

Dated as of

September 30, 2019

 

between and among

 

 

ENERGY 11, L.P. AND ENERGY 11 OPERATING COMPANY, LLC

collectively, the "BORROWERS",

 

Simmons Bank,
as Administrative Agent and Letter of Credit Issuer

AND

 

the Lenders Signatory Party Hereto

collectively, the "LENDERS"

 

 

 

 

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

 

 

FIRST Amended and restated REVOLVER LOAN AGREEMENT

 

THIS FIRST AMENDED AND RESTATED REVOLVER LOAN AGREEMENT (this "Agreement"),
dated effective as of September 30, 2019, is entered into between ENERGY 11,
L.P., a Delaware limited partnership ("ELP"), and ENERGY 11 OPERATING COMPANY,
LLC, a Delaware limited liability company ("ELLC" and together with ELP,
collectively "Borrowers", and each, a "Borrower"), and SIMMONS BANK, an Arkansas
banking corporation, as administrative agent for the Lenders signatory hereto,
Letter of Credit Issuer, and as Agent for the signatory parties to any
Intercreditor Agreement (herein defined) (the "Agent"), and the Lenders
signatory parties hereto.

 

W I T N E S S E T H:

 

WHEREAS, Simmons Bank, as the initial Lender (the "Initial Lender") established
for the Borrowers pursuant to that certain Revolver Loan Agreement dated as of
November 21, 2017 (the "Existing Loan Agreement") a secured revolving line of
credit facility in favor of the Borrowers in the current maximum principal
amount of SEVENTY FIVE MILLION and NO/100 DOLLARS ($75,000,000.00) (the
"Revolver Commitment") until the Revolver Final Maturity Date evidenced by
Borrowers' Promissory Note (Revolver Note) payable to the order of the Initial
Lender and dated as of November 21, 2017 in the stated face principal amount of
$75,000,000.00 (as renewed, extended, rearranged, substituted, replaced, amended
or otherwise modified from time to time, collectively the "Existing Revolver
Note"), subject in all respects to the Collateral Borrowing Base and Revolver
Commitment Amount in effect from time to time, and

 

WHEREAS, Borrowers have requested Initial Lender agree to syndicate the Revolver
Commitment in the increased initial Revolver Commitment Amount of
$40,000,000.00, and subject to the addition of Arvest Bank (the "Additional
Lender" and together with the Initial Lender, collectively, the "Lenders"),
Lenders are willing to increase the Revolver Commitment and make the Revolver
Loan advances from time to time hereunder to the Borrowers in the maximum
principal amount of $75,000,000.00, subject to the Revolver Commitment Amount
(initially stipulated to be $40,000,000.00) on a several basis by the Lenders
and the Collateral Borrowing Base, all upon the terms and conditions herein set
forth, and upon Borrowers granting in favor of the Agent for the allocable
benefit of the Lenders and any Swap Counterparty(ies), subject to the
Intercreditor Agreement a continuing and continuous, first priority mortgage
lien, pledge of and security interest, in not less than 90% of Borrowers'
producing oil, gas and other leasehold and mineral interests in the State of
North Dakota, along with a first priority security interest covering all
accounts receivable, inventory, contract rights and general intangibles of
Borrowers, all as more particularly described and defined in the Security
Instruments (as hereinafter defined), as collateral and security for all
Indebtedness.

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, receipt of which is
acknowledged by the parties hereto, the parties agree as follows:

 

 

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

 

 

ARTICLE I

 

CERTAIN DEFINITIONS

 

When used herein, the following terms shall have the following meanings:

 

"Additional Costs" shall have the meaning given in Section 2.19(c).

 

"Affected Loans" shall have the meaning given in Section 2.11.

 

"Affiliate" shall mean any Person which, directly or indirectly, controls, or is
controlled by, or is under common control with, another Person and any partner,
officer or employee of any such Persons. For purposes of this definition,
"control" shall mean the power, directly or indirectly, to direct or in effect
cause the direction of the management and policies of such Person whether by
contract or otherwise.

 

"Agreement" shall mean this Revolver Loan Agreement, as amended, restated,
supplemented or otherwise modified from time to time.

 

"Applicable Margin" shall mean the Applicable Margin for LIBOR Rate Loans and
Base Rate Loans, respectively, set forth at the appropriate intersection in the
interest rate Pricing Grid shown below, based on the Borrowing Base Utilization
as in effect from time to time:

 

 

 

Borrowing Base Utilization

APPLICABLE MARGIN

Level

LIBOR Rate

BASE RATE

I

Less than 25%

Plus 250 basis points

Minus 25 basis points

II

Equal to or greater than 25% but less than 50%

Plus 285 basis points

0 basis points

III

Equal to or greater than 50% but less than 75%

Plus 320 basis points

Plus 25 basis points

IV

Greater than or equal to 75%

Plus 350 basis points

Plus 50 basis points

 

Each change in the Applicable Margin resulting from a change in the Borrowing
Base Utilization shall take effect on the day such change in the Borrowing Base
Utilization occurs.

 

"Bankruptcy Event" shall mean, with respect to any Person, the occurrence of any
of the following with respect to such Person: (i) a court or Governmental
Authority having jurisdiction in the premises shall enter a decree or order for
relief in respect of such Person in an involuntary case under the Bankruptcy
Code or any other applicable insolvency or other similar Law now or hereafter in
effect, or appointing a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of such Person or for any substantial part of
its Property or ordering the winding up or liquidation of its

 

2

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

 

 

affairs; or (ii) there shall be commenced against such Person an involuntary
case under the Bankruptcy Code or any other applicable insolvency or other
similar Law now or hereafter in effect, or any case, proceeding or other action
for the appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of such Person or for any substantial part of
its property or for the winding up or liquidation of its affairs, and such
involuntary case or other case, proceeding or other action shall remain
undismissed, undischarged and unbonded for a period of 60 consecutive days; or
(iii) such Person shall commence a voluntary case under the Bankruptcy Code or
any other applicable insolvency or other similar Law now or hereafter in effect,
or consent to the entry of an order for relief in an involuntary case under any
such law, or consent to the appointment or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official) of
such Person or for any substantial part of its Property or make any general
assignment for the benefit of creditors; or (iv) such Person shall be unable to
pay or shall fail to pay, or shall admit in writing its inability to pay, its
debts generally as they become due.

 

"Base Rate" shall mean the prime rate of interest published by the Wall Street
Journal in its Money Rates columns as the prime rate or base rate on corporate
loans at large U.S. money center commercial banks or a similar rate if such rate
ceases to be published. If the prime rate is no longer announced or established
for any reason, the Agent may select as the alternate rate such other announced
and established prime or base rate for corporate loans of the New York, New York
money center bank that Agent deems in its sole discretion to be most comparable
to the no longer announced or established rate.

 

"Base Rate Margin" shall mean the Applicable Margin for Base Rate Loans
specified on the Pricing Grid.

 

"Base Rate Loans" shall mean Loans and loan advances that accrue interest at the
Base Rate.

 

"Borrowing Base Utilization" shall mean (i) the sum of (a) the outstanding
principal amount of Revolver Note plus (b) the aggregate face amount of all
undrawn and uncancelled and unexpired Letters of Credit, plus (c) the aggregate
of all amounts drawn under all Letters of Credit and not yet reimbursed, divided
by (ii) the Collateral Borrowing Base (as described and calculated in accordance
with the provisions of Article IV hereof).

 

"Business Day" shall mean a day other than a Saturday, Sunday or a day upon
which banks in the State of Oklahoma are closed to business generally.

 

"CERCLA" shall mean the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, together with all regulations and rulings
promulgated with respect thereto.

 

"Closing Date" shall mean the effective date of this Agreement.

 

3

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

 

 

"Collateral" shall have the meaning assigned to that term in Article III of this
Agreement.

 

"Collateral Borrowing Base" shall have the meaning assigned to the term in
Section 4.2 of this Agreement.

 

"Commodity Exchange Act" shall mean the Commodity Exchange Act (7 U S. C.
Section 61 et. seq.), as amended from time to time, and any successor statute.

 

"Current Ratio" shall mean as of any fiscal quarter end determination date, the
quotient of current assets (including any availability to Borrowers under the
Revolver Commitment, but excluding assets associated with Swap Obligations and
Hedge Agreements/Hedge Transactions) divided by current liabilities (excluding
(i) any current maturities owed to the Lenders and (ii) liability associated
with Swap Obligations and Hedge Agreements/Hedge Transactions).     

 

"Default Rate" shall mean the then applicable highest rate on the Revolver Notes
under the Pricing Grid plus two (2) additional percentage points (2.00%) per
annum.

 

"Deficiency" shall have the meaning given in Section 4.2.

 

"EBITDAX" shall mean for any period, the sum of a Person's net income for the
period minus any gains from the sale of assets, unrealized gains from commodity
hedges or interest rate hedges, and any other non-cash income or non-cash gain
that is included in determining net income, plus the following charges to the
extent deducted from net income in such period: interest, income taxes
(including franchise taxes calculated with respect to income), depreciation,
depletion and amortization, Exploration Expenses, any loss from the sale of
assets, impairments, unrealized losses from commodity hedges or interest rate
hedges, and any other non-cash charges and non-cash losses and after eliminating
extraordinary items. In addition, for any applicable period during which an
acquisition or disposition permitted by this Agreement is consummated, EBITDAX
shall be determined on a pro forma basis (with such calculation to be acceptable
to, and approved by, the Agent and Required Lenders) as if such acquisition or
disposition were consummated on the first day of such applicable period.

 

"Environmental Laws" shall mean Laws, including without limitation federal,
state or local Laws, ordinances, rules, regulations, interpretations and orders
of courts or administrative agencies or authorities relating to pollution or
protection of the environment (including, without limitation, ambient air,
surface water, groundwater, land surface and subsurface strata), including
without limitation CERCLA, SARA, RCRA, HSWA, OPA, HMTA, TSCA and other Laws
relating to (i) Polluting Substances or (ii) the manufacture, processing,
distribution, use, treatment, handling, storage, disposal or transportation of
Polluting Substances.

 

"Equity Interest" shall mean shares of capital stock, partnership interests,
membership interests in a limited liability company, beneficial interests in a
trust or other

 

4

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

 

 

equity ownership interests in a Person, and any warrants, options or other
rights entitling the holder thereof to purchase or acquire any such equity
interest.

 

"ERISA" shall mean the Federal Employee Retirement Income Security Act of 1974,
as amended, together with all regulations and rulings promulgated with respect
thereto.

 

"Event of Default" shall mean any of the events specified in Section 8.1 of this
Agreement, and "Default" shall mean any event, which together with any lapse of
time or giving of any notice, or both, would constitute an Event of Default.

 

"Excluded Swap Obligation" (a) with respect to any guarantor, any Swap
Obligation if, and to the extent that, all or a portion of the guarantee of such
guarantor of, or the grant by such guarantor of a security interest to secure,
as applicable, such Swap Obligation (or any guarantee thereof) is or becomes
illegal under the Commodity Exchange Act or any rule, regulation, or order of
the Commodity Futures Trading Commission (or the application or official
interpretation of any thereof) and (b) with respect to any Borrower, any Swap
Obligation of another loan party if, and to the extent that, all or a portion of
the joint and several liability of such Borrower with respect to, or the grant
of such Borrower of a security interest to secure, as applicable, such Swap
Obligation is or becomes illegal under the Commodity Exchange Act or any rule,
regulation, or order of the Commodity Futures Trading Commission (or the
application or official interpretation of any thereof), by virtue of such
guarantor's (in the case of (a)) or Borrower' (in the case of (b)) failure to
constitute an "eligible contract participant," as defined in the Commodity
Exchange Act and the regulations thereunder, at the time the guarantee of such
guarantor, joint and several liability of such Borrower, or grant of such
security interest by such guarantor or Borrower, as applicable, becomes or would
become effective with respect to such Swap Obligation. If a Swap Obligation
arises under a master agreement governing more than one Swap Obligation, such
exclusion shall apply only to the portion of such Swap Obligation that is
attributable to Swap Obligations for which such guarantee or security interest
or joint and several liability, as applicable, is or becomes illegal.

 

“Exploration Expenses” Costs incurred in identifying areas that may warrant
examination and in examining specific areas that are considered to have
prospects of containing oil and gas reserves, including costs of drilling
Exploratory Wells and exploratory-type stratigraphic test wells.

 

“Exploratory Well” shall mean a well drilled to find a new field or to find a
new reservoir in a field previously found to be productive of oil or gas in
another reservoir.

 

"Funded Debt" shall mean, with respect to any Person, without duplication, (i)
all obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, or upon
which interest payments are customarily made, (iii) all purchase money
Indebtedness (including Indebtedness in respect of conditional sale or title
retention arrangements and obligations in respect of the deferred purchase price
of property or services) of such Person, including the principal portion of all
obligations of such Person under capital

 

5

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

 

 

leases, (iv) all contingent debt of such Person with respect to Funded Debt of
another Person, (v) all Funded Debt of another Person secured by a Lien on any
property of such Person, whether or not such Funded Debt has been assumed, and
(vi) the Funded Debt of any partnership or joint venture in which such Person is
a general partner or joint venturer, but only to the extent to which there is
recourse to such Person for the payment of such Funded Debt.

 

"GAAP" shall mean generally accepted accounting principles applied on a
consistent basis in all material respects to those applied in the preceding
period. Unless otherwise indicated herein, all accounting terms will be defined
according to GAAP.

 

"Governmental Authority" shall include the country, the state, county, city and
political subdivisions in which any Person or such Person's property is located
or which exercises valid jurisdiction over any such Person or such Person's
property, and any court, agency, department, commission, board, bureau or
instrumentality of any of them including monetary authorities which exercises
valid jurisdiction over any such Person or such Person's property. Unless
otherwise specified, all references to Governmental Authority herein shall mean
a Governmental Authority having jurisdiction over, where applicable, Borrowers
or any subsidiary, or any of their property or the Agent and Lenders.

 

"Governmental Requirement" shall mean any applicable law, statute, code,
ordinance, order, determination, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization or other directive or
requirement (having the force of law), including, without limitation,
Environmental Laws, energy regulations and occupational, safety and health
standards or controls, of any Governmental Authority.

 

"GP" shall mean Energy 11 GP, LLC, a Delaware limited liability company, the
general partner of ELP.

 

"Guarantee Obligation" as to any Person (the "guaranteeing person"), any
obligation, including a reimbursement, counterindemnity or similar obligation,
of the guaranteeing Person that guarantees or in effect guarantees, or which is
given to induce the creation of a separate obligation by another Person
(including any bank under any letter of credit) that guarantees or in effect
guarantees, any Indebtedness, leases, dividends or other obligations (the
"primary obligations") of any other third Person (the "primary obligor") in any
manner, whether directly or indirectly, including any obligation of the
guaranteeing person, whether or not contingent, (i) to purchase any such primary
obligation or any property constituting direct or indirect security therefor,
(ii) to advance or supply funds (1) for the purchase or payment of any such
primary obligation or (2) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation or
(iv) otherwise to assure or hold harmless the owner of any

 

6

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

 

 

such primary obligation against loss in respect thereof; provided, however, that
the term Guarantee Obligation shall not include endorsements of instruments for
deposit or collection in the ordinary course of business. For the avoidance of
doubt, for purposes of determining any Guarantee Obligations of any guarantor
pursuant to the Security Documents, the definition of "Specified Swap Agreement"
shall not create any guarantee by any guarantor of (or grant of security
interest by any guarantor to support, if applicable) any Excluded Swap
Obligation of such guarantor.

 

"HMTA" shall mean the Hazardous Materials Transportation Act, as amended,
together with all regulations and rulings promulgated with respect thereto.

 

"HSWA" shall mean the Hazardous and Solid Waste Amendments of 1984, as amended,
together with all regulations and rulings promulgated with respect thereto.

 

"Hedge Agreement" shall mean any interest rate or commodity Swap, cap or collar
agreements, interest rate and/or oil and gas future or option contracts,
currency Swap agreements, currency future or option contracts and rate or
commodity Risk Management Agreements or other similar Risk Management
Agreements, and includes without limitation any ISDA Agreement and related
schedules and documents entered into with any Swap Counterparty from time to
time and as governed by any Intercreditor Agreement. "Hedge Transaction" means a
transaction pursuant to which Borrowers (or either of them) or any of their
respective Subsidiaries hedge the price to be received by them for future
production of Borrowers' (respective) hydrocarbons, including price Swaps under
which such Borrower or any of its Subsidiaries agrees to pay a price for a
specified amount of hydrocarbons determined by reference to a recognized market
on a specified future date and the contracting party agrees to pay such
Borrowers or any Subsidiaries thereof a fixed price for the same or similar
amount of hydrocarbons.

 

"hereby", "herein", "hereof", "hereunder" and similar such terms shall mean and
refer to this Agreement as a whole and not merely to the specific section,
paragraph or clause in which the respective word appears.

 

"Highest Lawful Rate" shall mean, with respect to the Lenders, the maximum
non-usurious interest rate, if any, that at any time or from time to time may be
contracted for, taken, reserved, charged or received on the Revolver Note or on
any other Indebtedness under laws applicable to the Lenders which are presently
in effect or, to the extent allowed by law, under such applicable laws which may
hereafter be in effect and which allow a higher maximum non-usurious interest
rate than applicable laws now allow.

 

"Hydrocarbons" shall have the meaning assigned to that term in the Mortgage.

 

"Indebtedness" shall mean and include any and all: (i) indebtedness, obligations
and liabilities of Borrowers to the Lenders and the Letter of Credit Issuer
incurred or which may be incurred or purportedly incurred hereafter pursuant to
the terms of this Agreement, or any of the other Loan Documents, and any
replacements, amendments, extensions, renewals, substitutions, amendments and
increases in amount thereof,

 

7

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

 

 

including all future advances and all such amounts as may be evidenced by the
Revolver Notes and all lawful interest, late charges, service fees, commitment
fees, fees in lieu of balances, letter of credit fees and other charges, and all
reasonable costs and expenses incurred in connection with the preparation,
filing and recording of the Loan Documents, including attorneys' fees and legal
expenses; (ii) any and all derivative products obligations, direct, contingent
or otherwise, whether now existing or hereafter arising, of Borrowers to the
Agent and/or Lenders arising under or in connection with any Hedge Agreements or
other Risk Management Agreements; (iii) all reasonable costs and expenses paid
or incurred by the Lenders and the Letter of Credit Issuer, including attorneys'
fees, in enforcing or attempting to enforce collection of any Indebtedness and
in enforcing or realizing upon or attempting to enforce or realize upon any
collateral or security for any Indebtedness, including interest on all sums so
expended by the Lenders and the Letter of Credit Issuer accruing from the date
upon which such expenditures are made until paid, at an annual rate equal to the
Default Rate; (iv) all sums expended by the Lenders and the Letter of Credit
Issuer in curing any Event of Default or Default of Borrowers under the terms of
this Agreement the other Loan Documents or any other writing evidencing or
securing the payment of the Revolver Note together with interest on all sums so
expended by the Agent accruing from the date upon which such expenditures are
made until paid, at an annual rate equal to the Default Rate, (v) any overdraft,
return items or other similar or comparable ACH (automated clearing house)
obligations and other treasury management obligations now or hereafter owing by
Borrowers to the Agent or Lenders, and (vi) any indemnity obligations of
Borrowers to the Agent, the Lenders and/or the Letter of Credit Issuer;
provided, however, that the definition of "Indebtedness" shall not create any
Guarantee Obligations by any Subsidiary guarantor of (or grant of security
interest by any such Subsidiary guarantor, if any, to support, as applicable)
any Excluded Swap Obligations of such Subsidiary guarantor, if any, for purposes
of determining any obligations of any such Subsidiary guarantor.

 

"Interest Coverage Ratio" shall mean, as of any quarterly calculation date, the
quotient of the Borrower's (i) EBITDAX divided by (ii) aggregate cash interest
expense, in each case, based on the trailing twelve (12) month period.

 

"Interest Period" shall mean, with respect to any LIBOR Rate Loan, the period
commencing on the date such LIBOR Rate Loan is made and ending on the
numerically corresponding day in the first, second or third calendar month
thereafter, as Borrowers may select as provided herein, except that each
Interest Period which commences on the last Business Day of a calendar month (or
on any day for which there is no numerically corresponding day in the
appropriate subsequent calendar month) shall end on the last Business Day of the
appropriate subsequent calendar month. Notwithstanding the foregoing: (i) no
Interest Period may end after the applicable final maturity date; (ii) no
Interest Period for any LIBOR Rate Loan may end after the scheduled due date of
any installment, if any, to the extent that such LIBOR Rate Loan would need to
be prepaid prior to the end of such Interest Period in order for such
installment to be paid when due; (iii) each Interest Period which would
otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day (or, if such next succeeding Business Day falls in the
next succeeding calendar month, on the

 

8

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

 

 

next preceding Business Day); and (iv) no Interest Period shall have a duration
of less than one month and, if the Interest Period for any LIBOR Rate Loans
would otherwise be for a shorter period, such Loans shall not be available
hereunder. Available Interest Periods under this Agreement shall be one (1)
month, two (2) months or three (3) months only.

 

"ISDA Agreement" shall mean any International Swaps and Derivatives Association
agreement, as amended, modified, replaced or supplemented from time to time,
together with schedules, exhibits, confirmations, addenda and annexes attached
thereto from time to time, entered into between or among any of Borrowers and a
Swap Counterparty, to govern each Hedge Agreement with such Swap Counterparty.

 

"Laws" shall mean all statutes, laws, ordinances, regulations, orders, writs,
injunctions, or decrees of the United States, any state or commonwealth, any
municipality, any foreign country, any territory or possession, or any Tribunal.

 

"Letters of Credit" shall mean any and all letters of credit issued by the
Letter of Credit Issuer pursuant to the request of Borrowers in accordance with
the provisions of Sections 2.1 and 2.5 hereof which at any time remain
outstanding and subject to draw by the beneficiary, whether in whole or in part.

 

"Letter of Credit Exposure" shall mean, at any date, the sum of (a) the
aggregate face amount of all drafts that may then or thereafter be presented by
beneficiaries under all Letters of Credit then outstanding, plus (b) the
aggregate face amount of all drafts that the Letter of Credit Issuer has
previously accepted under Letters of Credit but has not paid or reflected as
advances against the Revolver Note.

 

"Letter of Credit Issuer" shall mean, for any Letter of Credit issued hereunder,
the Letter of Credit Issuer, or in the event the Letter of Credit Issuer does
not for any reason issue a requested Letter of Credit, an Affiliate thereof or
another financial institution designated by Agent to issue such Letter of
Credit.

 

"Leverage Ratio" shall mean the quotient of Borrowers' (i) total Funded Debt
divided by (ii) EBITDAX, based on the trailing twelve (12) month period.

 

"LIBOR" shall mean, for each Interest Period for any LIBOR borrowing, the rate
(expressed to the fifth decimal) per annum (rounded upwards, if necessary, to
the nearest 1/16th of 1%) equal to (i) rate of interest which is identified and
published in the Bonds, Rates and Yields section of the "Money Rates" column of
The Wall Street Journal under the heading "London Interbank Offered Rate" for
loans of one (1) month maturity, two (2) month maturity, or three (3) month
maturity, as applicable; provided, however, if LIBOR determined as provided
above shall be less than zero, LIBOR shall be deemed to be zero for the purposes
of this Agreement with respect to any outstanding Loan that is not subject to a
Swap Agreement with the Agent or its Affiliates (and with respect to an
outstanding Loan that is so subject to a Swap Agreement with the Agent or its
Affiliates, the interest rate will nonetheless be subject to the Swap Agreement
if LIBOR determined as provided above shall be less than zero).

 

9

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

 

 

Notwithstanding anything herein to the contrary, upon the occurrence of a LIBOR
Impairment Event (defined below) or an Early Opt-in Election (defined below), as
applicable, all references to the LIBOR Rate herein will instead be to a
replacement rate determined by Lender in its sole judgment. The replacement rate
determined by the Lender shall specify the benchmark, index or other rate to
serve as the replacement for LIBOR, any adjustment to the spread, and such other
terms or other mathematical adjustments deemed necessary by Lender in its sole
judgment. [In selecting the replacement rate and any adjustments to the spread
or other terms, the Lender shall use reasonable efforts to select a replacement
rate that it anticipates will perform in a manner equivalent to the LIBOR based
rate.]

 

Lender will provide reasonable notice to Borrower of such replacement rate,
which shall be effective on the date of the earliest occurrence of a LIBOR
Impairment Event or the effective date of the Early Opt-In Election. If there is
any ambiguity as to the date of occurrence of any such event, Lender’s judgment
will be dispositive. As used herein, a "LIBOR Impairment Event" shall include
any of the following occurrences which under the circumstances are unlikely to
be temporary: (i) LIBOR is permanently or indefinitely unavailable or
unascertainable, or ceases to be published by the LIBOR administrator or its
successor, (ii) the LIBOR administrator or its successor invokes its
insufficient submissions policy, (iii) LIBOR is determined to be no longer
representative by the regulatory supervisor of the administrator of LIBOR, (iv)
LIBOR can no longer be lawfully relied upon in contracts of this nature by one
or both of the parties, or (v) LIBOR does not accurately and fairly reflect the
cost of making or maintaining the type of loans or advances under this
Agreement. As used herein, an "Early Opt-in Election" shall mean an election by
the Lender to declare the replacement rate in effect as to the loan on a
specified date not less than ten (10) days after the election. Lender shall give
Borrowers written notice of an Early Opt-In Election, which notice shall specify
the replacement rate, the adjustment, if any, to the spread, any adjustment to
other terms and the effective date of the change in rate, which date shall not
be less than ten (10) days after the date of the notice.

 

"LIBOR Margin" shall mean the Applicable Margin for LIBOR Rate Loans specified
on the Pricing Grid.

 

"LIBOR Rate" shall mean, with respect to any LIBOR Rate Loan, a rate (expressed
to the fifth decimal) per annum (rounded upwards, if necessary, to the nearest
1/16 of 1%) determined by the Agent to be equal to the quotient of (i) LIBOR for
such Loan for the Interest Period for such Loan divided by (ii) one (1) minus
the Reserve Requirement, if any, for such Loan for such Interest Period, and any
change in the LIBOR Rate shall be effective on the effective date of any
continuation thereof or conversion thereto in accordance with this Agreement.

 

"LIBOR Rate Loans" shall mean Loans, the interest rates on which are determined
on the basis of rates referred to in the definition of "LIBOR Rate".

 

"Lien" shall mean any mortgage, pledge, security interest, assignment,
encumbrance, lien or charge of any kind (including any agreement to give any of
the

 

10

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

 

 

foregoing, any conditional sale or other title retention agreement, any lease in
the nature thereof, and the filing of or agreement to give any financing
statement or other similar form of public notice under the Laws of any
jurisdiction).

 

"Loan Documents" shall mean this Agreement, the Revolver Notes, any
Intercreditor Agreement, the Security Instruments (including without limitation,
the Mortgage and the Security Agreement), the hedge proceeds letter, any
Intercreditor Agreement and all other documents, instruments and certificates
executed and delivered to the Agent by Borrowers (or either of them) pursuant to
the terms of this Agreement.

 

"Loans" shall mean any Revolver Loan and any amounts drawn or obligations and
liabilities under or arising pursuant to any ISDA Agreement governing Hedge
Transactions or other derivative transactions entered into by any Loan Party
with the Hedge Counterparty as counterparty.

 

"Material Adverse Change" shall mean any material and adverse change to (i) the
assets, financial condition, business condition, operations or properties of a
Borrower, and any future Subsidiaries thereof taken as a whole different from
the facts represented or warranted herein or any of the other Loan Documents,
(ii) the ability of Borrowers to meet their respective obligations and their
other respective material obligations under the Loan Documents on a timely
basis, or (iii) the enforceability of the material terms of any of the Loan
Documents.

 

"Maximum Revolver Commitment Amount" shall mean $75,000,000.00 unless otherwise
agreed to in writing by all Agent, Lenders and the Borrower.

 

"Mortgage" shall have the meaning assigned to that term in Section 3.1 of this
Agreement, including without limitation, any amendments thereto or supplements
thereof.

 

"Mortgaged Property" shall mean the property covered by the Mortgage defined in
Section 4.1(b) of this Agreement.

 

"OPA" shall mean the Oil Pollution Act of 1990, as amended, together with all
regulations and rulings promulgated with respect thereto.

 

"Person" shall mean and include an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization, and a government or any
department, agency or political subdivision thereof.

 

"Polluting Substances" shall mean all pollutants, contaminants, chemicals or
industrial, toxic or hazardous substances or wastes and shall include, without
limitation, any flammable explosives, radioactive materials, oil, hazardous
materials, hazardous or solid wastes, hazardous or toxic substances or related
materials defined in CERCLA/SARA, RCRA/HSWA and in the HMTA; provided, in the
event either CERCLA/SARA, RCRA/HSWA or HMTA is amended so as to broaden the
meaning of any term defined thereby, such broader meaning shall apply subsequent
to the effective

 

11

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

 

 

date of such amendment and, provided further, to the extent that the Laws of any
State or other Tribunal establish a meaning for "hazardous substance",
"hazardous waste," "hazardous material," "solid waste" or "toxic substance"
which is broader than that specified in CERCLA/SARA, RCRA/HSWA, or HMTA, such
broader meaning shall apply.

 

"Pricing Grid" shall mean the Borrowing Base Utilization grid included within
the definition of Applicable Margin.

 

"Prohibited Hedge Transactions" shall mean the obligations by Borrowers (or
either of them) or any of their respective Subsidiaries entering into (i) both
physical and financial hedging transactions effective at concurrent or
overlapping periods of time on the same volumes of production or (ii) hedging
transactions for more than eighty (80%) of such Borrower's aggregate monthly
production.

 

"Proven Reserves" has the meaning ascribed thereto in Section 4.1(c) of this
Agreement.

 

"Qualified ECP Guarantor" shall mean, in respect of any Swap Obligation,
Borrowers and any guarantor that is not an individual or a natural person and
that has total assets exceeding $10,000,000 at the time the relevant Guarantee
or grant of the relevant security interest becomes effective with respect to
such Swap Obligation or such other person as constitutes an "eligible contract
participant" under the Commodity Exchange Act or any regulations promulgated
thereunder and can cause another person to qualify as an "eligible contract
participant" at such time by entering into a keepwell under Section
1a(18)(A)(v)(II) of the Commodity Exchange Act.

 

"RCRA" shall mean the Resource Conservation and Recovery Act of 1976, as
amended, together with all regulations and rulings promulgated with respect
thereto.

 

"Regulatory Change" shall mean, with respect to the Lenders or Letter of Credit
Issuer, any change after the Closing Date in any Governmental Requirement
(including Regulation D) or the adoption or making after such date of any
interpretations, directives or requests applying to a class of lenders
(including the Lenders or Letter of Credit Issuer) of or under any Governmental
Requirement (whether or not having the force of law) by any Governmental
Authority charged with the interpretation or administration thereof.

 

"Required Lenders" shall mean (without regard to any sale by a Lender of one or
more participations in any Loan), (i) all Lenders for so long as and to the
extent there are less than four (4) Lenders signatory party hereto, and (ii) if
and to the extent and for so long as four (4) or more Lenders (including one or
more Additional Lenders) are signatory party hereto, (A) in order to reaffirm or
decrease the Collateral Borrowing Base or the Revolver Commitment Amount, such
Lenders that in the aggregate hold 66.66% of the Percentage Interests; (B) in
order to waive, amend or otherwise modify any financial covenant or other
covenant of the Loan Agreement, such Lenders that in the aggregate hold more
than fifty percent (50%) of the Percentage Interests; and (C) in

 

12

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

 

 

order to increase the Maximum Revolver Commitment Amount, any increase in the
Collateral Borrowing Base, changes in interest rates, extension, renewal or
other modification in the Revolver Final Maturity Date or the scheduled payment
date of interest or principal payments, release of Collateral in excess of
$1,000,000 in the aggregate during any calendar year or change in the Percentage
Interests requirements referenced above, such Lenders holding 100% of the
Percentage Interests, provided, that the amount of the outstanding Loan and used
Commitments of any Lender that is a Defaulting Lender shall be excluded in
determining such amount

 

"Reserve Requirement" shall mean, for any Interest Period for any LIBOR Rate
Loan, the average maximum rate at which reserves (including any marginal,
supplemental or emergency reserves) are required to be maintained during such
Interest Period under Regulation D by member banks of the Federal Reserve System
(or any successor thereto) in New York City with deposits exceeding one billion
Dollars against "Eurocurrency liabilities" (as such term is used in Regulation
D). Without limiting the effect of the foregoing, the Reserve Requirement shall
reflect any other reserves required to be maintained by such member banks by
reason of any Regulatory Change against (i) any category of liabilities which
includes deposits by reference to which LIBOR is to be determined as provided in
the definition of "LIBOR" or (ii) any category of extensions of credit or other
assets which include a LIBOR Rate Loan.

 

"Revolver Commitment" shall mean the Lender's several obligation to make the
Revolver Loans pursuant to the terms, provisions and conditions of this
Agreement.

 

"Revolver Commitment Amount" shall be the maximum outstanding principal amount
plus Letter of Credit Exposures the Lenders severally agree from time to time to
make available under the Revolver Commitment (initially stipulated to be equal
to $40,000,000.00).

 

"Revolver Final Maturity Date" shall mean September 30, 2022, unless otherwise
extended or renewed in writing by the mutual agreement of Borrowers, Agent and
Lenders.

 

"Revolver Loans" shall have the meaning ascribed to it in Section 2.1 of this
Agreement.

 

"Revolver Note" shall have the meaning ascribed thereto in the Preamble of this
Agreement, as more fully described and defined in Section 2.2 of this Agreement,
together with each and every extension, renewal, modification, replacement,
substitution, rearrangement, consolidation and change in form of any thereof
which may be from time to time and for any term or terms effected.

 

"Risk Management Agreements" shall mean any commodity, interest rate or currency
Swap, rate cap, rate floor, rate collar, forward agreement or other exchange,
price or rate protection ISDA, Hedge Agreement or similar derivative agreements
or any option with respect to any such derivative or hedging transaction.

 

13

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

 

 

"SARA" shall mean the Superfund Amendments and Re-authorization Act of 1987, as
amended, together with all regulations and rulings promulgated with respect
thereto.

 

"Security Instruments" shall mean the Mortgage, the Security Agreement and all
other financing statements, security agreements, assignments, pledges, documents
or writings and any and all amendments and supplements thereto, granting,
conveying, assigning, transferring or in any manner providing the Agent with a
security interest in any property as security for the repayment of all or any
part of the Indebtedness.

 

"Simmons Bank" shall mean Simmons Bank, an Arkansas banking corporation, and its
successors and permitted assigns.

 

"Subsidiaries" shall mean, with respect to Borrowers at any date, any
corporation, limited liability company, partnership, association or other entity
the accounts of which would be consolidated with those of Borrowers in
Borrowers' financial statements if such financial statements were prepared in
accordance with GAAP as of such date, as well as any other corporation, limited
liability company, partnership, association or other entity (a) of which
securities or other ownership interests representing more than 50% of the equity
or more than 50% of the ordinary voting power or, in the case of a partnership,
more than 50% of the general partnership interests are, as of such date, owned,
controlled or held by Borrowers, or (b) that is, as of such date, otherwise
controlled, by Borrowers or one or more subsidiaries of Borrowers.

 

"Swap Counterparty" shall mean the Agent and/or such other hedge provider, if
any, acceptable to the Agent and Borrowers, or their respective successors or
permitted assigns, in each case, party to an Intercreditor Agreement, if any.   

 

"Swap Agreement" shall mean, with respect to any Person, payment obligations
with respect to interest rate swaps, currency swaps, commodity swaps and similar
obligations obligating such Person to make payments, whether periodically or
upon the happening of a contingency. For the purposes of this Agreement, the
amount of the obligations under any Swap Agreement shall be the amount
determined in respect thereof as of the end of the then most recently ended
fiscal quarter of such Person, based on the assumption that such Swap Agreement
had terminated at the end of such fiscal quarter, and in making such
determination, if any agreement relating to such Swap provides for the netting
of amounts payable by and to such Person thereunder or if any such agreement
provides for the simultaneous payment of amounts by and to such Person, then in
each such case, the amount of such obligation shall be the net amount so
determined.

 

"Swaps" shall mean, with respect to any Person, payment obligations with respect
to interest rate swaps, currency swaps and similar obligations obligating such
Person to make payments, whether periodically or upon the happening of a
contingency. For the purposes of this Agreement, the amount of the obligations
under any Swap shall be the amount determined in respect thereof as of the end
of the then

 

14

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

 

 

most recently ended fiscal quarter of such Person, based on the assumption that
such Swap had terminated at the end of such fiscal quarter, and in making such
determination, if any agreement relating to such Swap provides for the netting
of amounts payable by and to such Person thereunder or if any such agreement
provides for the simultaneous payment of amounts by and to such Person, then in
each such case, the amount of such obligation shall be the net amount so
determined.

 

"Swap Obligations" shall mean, with respect to any future guarantor, if any, any
obligations to pay or perform under any agreement, contract or transaction that
constitutes a "Swap" within the meaning of Section 1a(47) of the Commodity
Exchange Act.

 

"Taxes" shall mean all taxes, assessments, fees, or other charges or levies from
time to time or at any time imposed by any Laws or by any Tribunal.

 

"Tribunal" shall mean any municipal, state, commonwealth, Federal, foreign,
territorial or other sovereign, governmental entity, governmental department,
court, commission, board, bureau, agency or instrumentality.

 

"TSCA" shall mean the Toxic Substances Control Act, as amended, together with
all regulations and rulings promulgated with respect thereto.

 

Accounting Terms and Determinations. Unless otherwise specified herein, all
accounting terms used herein shall be interpreted, all determinations with
respect to accounting matters hereunder shall be made, and all financial
statements and certificates and reports as to financial matters required to be
furnished to the Agent or Lenders hereunder shall be prepared, in accordance
with GAAP, applied on a basis consistent with the financial statements of
Borrowers herein.

 

ARTICLE II 

 

REVOLVER LOANS

 

2.1     Revolver Commitment. Lenders severally agree, upon the terms and subject
to the conditions hereinafter set forth, to make revolving loan advances (the
"Revolver Loans") to Borrowers from the Closing Date until the Revolver Final
Maturity Date, or until such later date as Lenders shall have extended its
Revolver Commitment in writing unless the Revolver Commitment shall be sooner
terminated pursuant to the provisions of this Agreement, in such amounts as may
from time to time be requested by Borrowers to (i) refinance Borrowers' existing
facility with Agent, (ii) fund development of the Borrowers' oil and gas
properties, (iii) acquire additional oil and gas properties, (iv) pay fees and
expenses incurred in connection with future transactions, (v) issue Letters of
Credit, and (vi) provide for the working capital and general corporate purpose
needs of Borrowers. In no event shall the aggregate unpaid principal amount of
the Revolver Loans advanced, outstanding and unpaid at any time under the
Revolver Note plus the amount of the requested Revolver Loan advance plus the
amount of Letter of Credit Exposure at any time exceed the

 

15

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

 

 

lesser of (i) the Collateral Borrowing Base (as calculated in accordance with
the provisions of Article IV of this Agreement) or (ii) the then applicable
Revolver Commitment Amount, notwithstanding the face principal amount of the
Revolver Note from time to time.

 

2.2     Revolver Note. On the Closing Date, Borrowers shall execute and deliver
to the order of the each Lender their joint and several promissory note
instrument in the aggregate stated face principal amount of $75,000,000.00 (the
"Revolver Note"). The Revolver Note shall be dated as of the Closing Date. The
Revolver Note shall be payable as set forth therein. Notwithstanding the stated
face principal amount of the Revolver Note from time to time, in no event shall
Borrowers request nor shall the Lenders be obligated to make any Revolver Loan
advance that causes or results in the aggregate outstanding principal amount of
the Revolver Note plus Letters of Credit Exposure to exceed the lesser of the
then applicable Revolver Commitment Amount or the Collateral Borrowing Base then
in effect. All payments and prepayments shall be made in lawful money of the
United States of America in immediately available funds. Any payments or
prepayments on the Revolver Note received by the Agent after 2:00 o'clock p.m.
(applicable current time in Oklahoma City, Oklahoma) shall be deemed to have
been made on the next succeeding Business Day. Any voluntary prepayment may be
without any penalty or premium and shall, unless Borrowers direct otherwise in
writing and no payment is then due and owing, be applied first to accrued but
unpaid interest then to the principal. All outstanding principal of and accrued
interest on the Revolver Note not previously paid hereunder shall be due and
payable at the Revolver Final Maturity Date, unless such maturity shall be
extended by the Required Lenders in writing or accelerated pursuant to the terms
hereof.

 

2.3     Interest. Borrowers shall pay interest to the Agent for the allocable
benefit of the Lenders as follows:

 

(a)     Interest Rates. Borrowers will pay to the Lenders interest on the unpaid
principal amount of each Loan made by the Lenders for the period commencing on
the date such Loan is made to, but excluding, the date such Loan shall be paid
in full, at the following rates per annum:

 

(i)     if such Loan is a Base Rate Loan, the Base Rate (as in effect from time
to time) plus the Applicable Margin for Base Rate Loans; and

 

(ii)     if such a Loan is a LIBOR Rate Loan, for each Interest Period relating
thereto, the LIBOR Rate plus the Applicable Margin for LIBOR Rate Loans.

 

Interest shall be calculated on the basis of a year of 360 days, but assessed
for the actual number of days elapsed in each accrual period.

 

(b)     Post-Default Rate. Notwithstanding the foregoing, Borrowers will pay to
the Agent for the allocable benefit of the Lenders interest at the Default

 

16

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

 

 

Rate on any principal of any Loan made by the Lenders, and (to the fullest
extent permitted by law) on any other amount payable by Borrowers hereunder,
under any Loan Document or under the Revolver Notes held by the Lenders to or
for account of the Lenders, but in each case only for the period commencing on
the date of an Event of Default until the same is paid in full or all Events of
Default are cured or waived. After maturity (whether by acceleration or
otherwise), the Revolver Notes shall bear interest at a per annum rate equal
from day to day to the Default Rate payable on demand, unless there has been no
default in Borrowers' payment obligations (other than Borrowers' failure to pay
all unpaid principal and all accrued but unpaid interest due and payable at the
Revolver Final Maturity Date) and Borrowers and Lenders are negotiating a
renewal or extension of the Revolver Notes, in which circumstance the
non-Default Rate specified herein shall continue to apply, but only until the
Lenders deems negotiations complete, in its sole discretion and provides written
notice thereof to Borrowers.

 

(c)     Interest Due Dates. Accrued interest on (i) Base Rate Loans, if any,
shall be payable monthly on the thirtieth (30th) day of every month (and the
last day of each February) commencing on October 30, 2019, and (ii) LIBOR Rate
Loans shall be payable at the end of the applicable Interest Period selected
therefor but in no event less frequently than the last day of every third (3rd)
month (90 days), except that interest payable at Default Rate shall be payable
from time to time on demand and interest on any LIBOR Rate Loan that is
converted into an Base Rate Loan shall be payable on the date of conversion (but
only to the extent so converted). Any accrued and unpaid interest on the Loans
shall also be paid on (i) the date of any prepayment thereof, and (ii) the
Revolver Final Maturity Date.

 

(d)     Determination of Rates. Promptly after the determination of any interest
rate provided for herein or any change therein, the Agent shall notify Borrowers
thereof. Each determination by the Agent of an interest rate on the Revolver
Notes or fee hereunder in accordance with the Pricing Grid shall, except in
cases of manifest error, be final, conclusive and binding on the parties.

 

2.4     Non-Use Fee. Borrowers jointly and severally agree to pay to the Agent
for the allocable benefit of the Lenders a non-use fee, which shall accrue fifty
basis points (0.50%) per annum on the daily unused amount of the Revolver
Commitment Amount during the period from and including the Closing Date to but
excluding the date on which such Revolver Commitment terminates. For purposes of
this paragraph, each Lender's outstanding Revolver Loans and Letters of Credit
shall be considered usage of its Revolver Commitment. Non-use fees accrued
through and including the last day of March, June, September and December of
each year shall be payable on the third Business Day following such last day,
commencing on the first such date to occur after the Closing Date and shall be
payable on the date which the Revolver Commitment terminates. All non-use fees
shall be computed on the basis of a year of 360 days and shall be payable for
the actual number of days elapsed (including the first day but excluding the
last day).

 

17

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

 

 

2.5     Letters of Credit. Upon Borrowers' application from time to time by use
of the Letter of Credit Issuer's standard form Letter of Credit Application
Agreement and subject to the terms and provisions therein and herein set forth,
the Letter of Credit Issuer agrees to issue standby letters of credit on behalf
of Borrowers under the Revolver Commitment, provided that (i) no letters of
credit will be issued on behalf of or on the account of Borrowers with an expiry
(expiration) date after the earlier of (a) one year following the date of
issuance, or (b) five (5) business days prior to the Revolver Final Maturity
Date, except as subject to the above, for letters of credit with one year
maturities that contain automatic renewal language approved by the Letter of
Credit Issuer, and (ii) no letter of credit will be issued on behalf of or for
the account of Borrowers (y) if at the time of issuance the sum of the
outstanding amount of all Revolver Loans under the Revolver Commitment as
evidenced by the Revolver Note plus the unfunded amount of issued but unexpired
Letters of Credit together with the face amount of the requested Letter of
Credit would exceed the then applicable Revolver Commitment Amount or (z) if the
sum of the outstanding amount of all Revolver Loans under the Revolver
Commitment plus the unfunded amount of issued but unexpired Letters of Credit
issued under the Revolver Commitment together with the face amount of the
requested Letter of Credit would exceed the Collateral Borrowing Base then in
effect. If any letter of credit is drawn upon at any time, each amount drawn,
whether a full or partial draw thereon, shall be reflected by the Agent as an
advance on the Revolver Note effective as of the date of the Letter of Credit
Issuer honoring the sight draft. If any letter of credit or letters of credit
remain outstanding on the Revolver Final Maturity Date, the Lenders, at their
option, may make a Revolver Loan advance under the Revolver Commitment in an
amount equal to the aggregate face amount of such letter(s) of credit to
purchase a certificate of deposit to be held by the Agent as additional security
for the Indebtedness. In consideration of the Letter of Credit Issuer's
agreement to issue standby letters of credit hereunder, Borrowers agree to pay
to the Letter of Credit Issuer letter of credit issuance fees equal to the
greater of (i) two hundred basis points (2.00%) per annum on the face amount of
each letter of credit or (ii) $1,000.00 per each such Letter of Credit, together
with the Letter of Credit Issuer standard letter of credit
processing/renewal/amendment fees, which such fee shall be due and payable at
the time of issuance of each applicable letter of credit.

 

2.6     Termination of any Hedge Agreement. If and to the extent any Hedge
Agreement or similar price protection or derivative product (interest rate or
commodity risk management device, protection agreement or otherwise) of
Borrowers is used in calculation of the Collateral Borrowing Base, any such
Hedge Agreement issued cannot be cancelled, liquidated or "unwound" thereby
without the prior written consent of the Agent.

 

2.7     LIBOR Provisions. The following special provisions relate to LIBOR Rate
Loans and, as applicable, to Base Rate Loans:

 

18

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

 

 

(a)     Limitation on Types of Loans. Subject to the other terms and provisions
of this Agreement, all Loans hereunder shall be Base Rate Loans or LIBOR Rate
Loans; provided that, without the prior written consent of the Agent, no more
than six (6) LIBOR Rate Loan tranches may be outstanding at any time.

 

(b)     Borrowings, Continuations and Conversions.

 

(i)     Borrowings. Borrowers shall give the Agent advance notice as hereinafter
provided of each borrowing hereunder, which shall specify (i) the aggregate
amount of such borrowing, (ii) the date (which shall be a Business Day) of the
Loans to be borrowed, (iii) whether the borrowing is a Base Rate Loan or a LIBOR
Rate Loan, and (iv) the duration of the Interest Period for each LIBOR Rate
Loan.

 

(ii)     Minimum Amounts. Base Rate Loan borrowings shall have no limitation on
the minimum amount thereof; however, all LIBOR Rate Loans shall be in amounts of
at least $500,000.00 or any whole multiple of $100,000.00 in excess thereof.

 

(iii)     Notices. All borrowings and conversions shall require advance written
notice to the Agent in the form of Exhibit A via facsimile or otherwise (or
telephonic notice promptly confirmed by such a written notice), which in each
case shall be irrevocable, from Borrowers to be received by the Agent not later
than (i) 11:00 a.m. Oklahoma City, Oklahoma time two (2) Business Days prior to
the date of each LIBOR Rate Loan borrowing, continuation or conversion, and (ii)
1:00 p.m. Oklahoma City, Oklahoma time one (1) Business Day prior to the date of
each Base Rate Loan borrowing.

 

(iv)     Continuation Options. Subject to the provisions made in this Section
2.7(b)(iv), Borrowers may elect to continue all or any part of any LIBOR Rate
Loan beyond the expiration of the then current Interest Period relating thereto
by giving advance notice as provided in Section 2.7(b)(iii) to the Agent of such
election, specifying the amount of such Loan to be continued and the Interest
Period so designated. In the absence of such a timely and proper election,
Borrowers shall be deemed to have elected to continue the then expiring Interest
Period (i.e., the same Interest Period designated or otherwise in effect during
the immediately preceding LIBOR Rate Loan tranche expiring). All or any part of
any LIBOR Rate Loan may be continued as provided herein, provided that (i) any
continuation of any such Loan shall be (as to each Loan as continued for an
applicable Interest Period) in amounts of at least $500,000.00 or any whole
multiple of $100,000.00 in excess thereof and (ii) no Event of Default shall
have occurred and be continuing. If an Event of Default shall have occurred and
be continuing, each LIBOR Rate Loan shall be converted to a Base Rate Loan on
the last day of the Interest Period applicable thereto.

 

19

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

 

 

(v)     Conversion. Subject to the provisions made in this Section 2.7(b)(v),
Borrowers may elect to convert all or any part of any Base Rate Loan at any time
and from time to time to a LIBOR Rate Loan by giving advance notice as provided
in Section 2.7(b)(iii) above to the Agent of such election. All or any part of
any outstanding Loan may be converted as provided herein, provided that (i) any
conversion of any permitted Base Rate Loan into a LIBOR Rate Loan shall be (as
to each such Loan into which there is a conversion for an applicable Interest
Period) in amounts of at least $500,000.00 or any whole multiple of $100,000.00
in excess thereof and (ii) no Default shall have occurred and be continuing. If
an Event of Default shall have occurred and be continuing, no permitted Base
Rate Loan may be converted into a LIBOR Rate Loan.

 

(vi)     Advances. Subject to Borrowers' timely notice of borrowing pursuant to
Section 2.7(b)(iii) above, not later than 2:00 o'clock p.m., Oklahoma City,
Oklahoma time, on the appropriate date for the Loan, and the absence of any
Default or Deficiency, the Agent shall make available to Borrowers the amount of
the Loan to be made by it on such date, to a deposit account as directed by
Borrowers.

 

2.8     Conclusions. Determinations and allocations by the Lenders for purposes
of Section 2.9 through 2.13, inclusive, shall be conclusive except in cases of
manifest error, provided that such determinations and allocations are made on a
reasonable basis.

 

2.9     Limitation on LIBOR Loans. Anything herein to the contrary
notwithstanding, if, on or prior to the determination of any LIBOR Rate for any
designated Interest Period for a LIBOR Rate Loan request the Agent reasonably
determines in good faith that quotations of interest rates for the relevant
deposits referred to in the definition of "LIBOR Rate" are not being provided in
the relevant amounts or for the relevant maturities for purposes of determining
rates of interest for LIBOR Rate Loans as provided herein, then the Agent shall
give Borrowers prompt written notice thereof, and so long as such condition
remains in effect, the Lenders shall be under no obligation to make additional
or other LIBOR Rate Loans.

 

2.10     Illegality. Notwithstanding any other provision of this Agreement, in
the event that it becomes unlawful for any Lender to honor its obligation to
make or maintain LIBOR Rate Loans hereunder, then the Lender shall promptly
notify Borrowers and Agent thereof and the Lender's obligation to make LIBOR
Rate Loans shall be suspended until such time as the Lenders may again make and
maintain LIBOR Rate Loans (in which case the provisions of Section 2.11 shall be
applicable).

 

2.11     Base Rate Loans Pursuant to Sections 2.9 and 2.10. If the obligation of
the Lenders to make LIBOR Rate Loans shall be suspended pursuant to Section 2.9
or 2.10 ("Affected Loans"), all Affected Loans which would otherwise be made by
the Lender shall be made instead as Base Rate Loans (and, if an event referred
to in Section 2.10 has occurred and the Lender so requests by notice to
Borrowers, all

 

20

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

 

 

Affected Loans of the Lender then outstanding shall be automatically converted
into Base Rate Loans on the date specified by the Agent in such notice) and, to
the extent that Affected Loans are so made as (or converted into) Base Rate
Loans, all payments of principal which would otherwise be applied to such
Lender. Affected Loans shall be applied instead to its Base Rate Loans, if any.

 

2.12     Compensation. Borrowers shall pay to the Agent within thirty (30) days
of receipt of written request of such Lender (which request shall set forth, in
reasonable detail, the basis for requesting such amounts and which shall be
conclusive and binding for all purposes provided that such determinations are
made on a reasonable basis, except in cases of manifest error), such amount or
amounts as shall reimburse such Lender for any actual out of pocket loss, cost,
expense or liability which such Lender determines are attributable to:

 

(a)     any payment, prepayment or conversion of a LIBOR Rate Loan properly made
by such Lender or Borrowers for any reason (including, without limitation, the
acceleration of the Loans pursuant to Article VIII) on a date other than the
last day of the Interest Period for such Loan; or

 

(b)     any failure by Borrowers for any reason (including but not limited to,
the failure of any of the conditions precedent specified in Article IV to be
satisfied) to borrow, continue or convert a LIBOR Rate Loan from such Lender on
the date for such borrowing or conversion specified in the relevant notice given
pursuant to Section 2.7(b)(iii).

 

Without limiting the effect of this Section 2.12, such breakage and other
similar compensation shall include such Lender's standard breakage
administration fee. Without limiting the effect of the preceding sentence, such
compensation shall include an amount equal to the excess, if any, of (i) the
amount of interest which would have accrued on the principal amount so paid,
prepaid or converted or not borrowed for the period from the date of such
payment, prepayment or conversion or failure to borrow to the last day of the
Interest Period for such Revolver Loan (or, in the case of a failure to borrow,
the Interest Period for such Revolver Loan which would have commenced on the
date specified for such borrowing) at the applicable rate of interest for such
Revolver Loan provided for herein over (ii) the interest component of the amount
such Lender would have bid in the London interbank market for Dollar deposits of
leading banks in amounts comparable to such principal amount and with maturities
comparable to such period (as reasonably determined such Lender).

 

2.13     Collateral Borrowing Base. Borrowers will not request, nor will they
accept, the proceeds of any Revolver Loan or advance under the Revolver Notes at
any time when the amount thereof, together with the sum of the outstanding and
unpaid principal amount of the Revolver Notes plus the Letter of Credit Exposure
exceeds the Collateral Borrowing Base. As used in this Agreement, the term
"Collateral Borrowing Base" shall mean the Collateral Borrowing Base as
determined in accordance with the provisions of Article IV of this Agreement.

 

21

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

 

 

2.14     Variance from Collateral Borrowing Base. Any Revolver Loan advance
shall be conclusively presumed to have been made to Borrowers by Lenders under
the terms and provisions hereof and shall be secured by all of the Collateral
and security described or referred to herein or in the Mortgage, whether or not
such loan conforms in all respects to the terms and provisions hereof. If
Lenders should (for the convenience of Borrowers or for any other reason) make
loans or advances which would cause the unpaid principal amount of the Revolver
Notes plus outstanding and unfunded Letters of Credit to exceed the amount of
the applicable Collateral Borrowing Base, no such variance, change or departure
shall prevent any such loan or loans from being secured by the Collateral and
the security created or intended to be created herein or in the Security
Instruments. The Collateral Borrowing Base shall not in any manner limit the
extent or scope of the Collateral and security granted for the repayment of the
Revolver Notes (or any other Indebtedness) or limit the amount of indebtedness
under the Revolver Notes (or any other Indebtedness) to be secured.

 

2.15     Late Fee. Any principal or interest due under this Agreement, the
Revolver Note, or any other Loan Document which is not paid within 10 days after
its due date (whether as stated, by acceleration or otherwise) shall be subject
to a late payment charge of five percent (5.00%) of the total payment due, in
addition to the payment of interest. Borrowers agree to pay and stipulate that
five percent (5.00%) of the total payment due in a reasonable amount for a late
payment charge. Borrowers shall pay the late payment charge upon demand by the
Agent or, if billed, within the time specified, and in immediately available
funds, US Dollars.

 

2.16     Authorization for Direct Payments (ACH Debits). To effectuate any
payment due under the Agreement, the Revolver Notes or any other Loan Document,
Borrowers hereby authorize the Agent to initiate debit entries to their
operating account at the Agent and to debit the same to such account. This
authorization to initiate debit entries shall remain in full force and effect
until the Agent has received written notification of its termination in such
time and in such manner as to afford the Agent a reasonable opportunity to act
on it. Borrowers represent that Borrowers are and will be, respectively, the
owners of all funds in such account. Borrowers acknowledge: (1) that such debit
entries may cause an overdraft of such account which may result in the Agent's
refusal to honor items drawn on such account until adequate deposits are made to
such account; (2) that the Agent is under no duty or obligation to initiate any
debit entry for any purpose; and (3) that if a debit is not made because the
above-referenced account does not have a sufficient available balance, or
otherwise, the payment may be late or past due.

 

2.17     Loan Origination Fees. Borrowers shall pay to the Agent (i) on the
Closing Date, as a non-refundable and fully earned loan facility origination fee
for the increase in the Revolver Commitment Amount from $20,000,000.00 to
$40,000,000.00 in an amount equal to forty five basis points (0.45%) thereon
(initially $90,000.00) for the allocable benefit of the Lenders, and (ii)
thereafter a fully earned and non-refundable loan facility origination fee equal
to forty five basis points (0.45%) on any excess of the Revolver Commitment
Amount made available hereunder above the initial Revolver

 

22

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

 

 

Commitment Amount ($40,000,000.00) for the allocable benefit of the Lenders, all
in immediately available funds concurrent with the closing of such increase(s).

 

2.18     Payment of Fees. All fees payable under Sections 2.4, 2.5, 2.15, and
2.17 above shall be paid on the dates due, in immediately available funds, US
Dollars, to the Agent and shall be fully earned and non-refundable under any
circumstances.

 

2.19     Capital Adequacy and Additional Costs.

 

(a)     Lender Costs. Borrowers shall pay directly to Lender from time to time
on request such amounts as Lender may determine to be necessary to compensate
Lenders or any parent or holding company for any costs which it determines are
attributable to the maintenance by the Lenders or any parent or holding company,
pursuant to any Governmental Requirement, of capital in respect of its Revolver
Commitment or making, funding or maintaining any Revolver Loans or Letters of
Credit (such compensation to include, without limitation, an amount equal to any
reduction of the rate of return on assets or equity of Lender or any parent or
holding company to a level below that which the Lenders or any parent or holding
company could have achieved but for such Governmental Requirement). Lenders will
notify Borrowers that it is entitled to compensation pursuant to this Section
2.19(a) as promptly as practicable after it determines to request such
compensation.

 

(b)     Conclusions. Determinations and allocations by Lenders for purposes of
this Section 2.19 shall be conclusive, provided that such determinations and
allocations are made on a reasonable basis.

 

(c)     LIBOR Regulations. Borrowers shall pay directly to Lender from time to
time such amounts as Lender may determine to be necessary to compensate Lender
for any costs which it determines are attributable to its making or maintaining
of any LIBOR Rate Loans or issuing or participating in Letters of Credit
hereunder or its obligation to make any LIBOR Rate Loans or issue or participate
in any Letters of Credit hereunder, or any reduction in any amount receivable by
the Lender hereunder in respect of any of such LIBOR Rate Loans, Letters of
Credit or such obligation (such increases in costs and reductions in amounts
receivable being herein called "Additional Costs"), resulting from any
Regulatory Change which: (i) changes the basis of taxation of any amounts
payable to Lender under this Agreement or any Revolver Note in respect of any of
such LIBOR Rate Loans or Letters of Credit (other than taxes imposed on the
overall net income of Lender for any of such LIBOR Rate Loans by the
jurisdiction in which Lender has its principal office); or (ii) imposes or
modifies any reserve, special deposit, minimum capital, capital ratio or similar
requirements relating to any extensions of credit or other assets of, or any
deposits with or other liabilities of such Lender, or the Revolver Commitment or
Loans of Lender or the LIBOR interbank market; or (iii) imposes any other
condition affecting this Agreement or any Note (or any of such extensions of
credit or liabilities) or Lender's Revolver Commitment or Loans. Lender will
notify

 

23

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

 

 

Borrowers of any event occurring after the Closing Date which will entitle
Lenders to compensation pursuant to this Section 2.19(c) as promptly as
practicable after it obtains knowledge thereof and determines to request such
compensation. If Lender requests compensation from Borrowers under this Section
2.19(c), Borrowers may, by notice to Lender, suspend the obligation of Lender to
make additional Loans of the type with respect to which such compensation is
requested until the Regulatory Change giving rise to such request ceases to be
in effect (in which case the provisions of Section 2.11 shall be applicable).

 

(d)     Regulatory Change. Without limiting the effect of the provisions of
Section 2.19(c), in the event that at any time (by reason of any Regulatory
Change or any other circumstances arising after the Closing Date affecting (A)
Lenders, (B) the LIBOR interbank market or (C) Lender's position in such
market), the LIBOR-Rate, as determined in good faith by Lender, will not
adequately and fairly reflect the cost to the Lender of funding its LIBOR Rate
Loans, then, if the Lender so elects, by notice to Borrowers, the obligation of
to make additional LIBOR Rate Loans shall be suspended until such Regulatory
Change or other circumstances ceases to be in effect (in which case the
provisions of Section 2.11 shall be applicable).

 

(e)     Capital Adequacy. Without limiting the effect of the foregoing
provisions of this Section 2.19 (but without duplication), Borrowers shall pay
directly to Lender from time to time on request such amounts as Lender may
reasonably determine to be necessary to compensate Lender or its parent or
holding company for any costs which it determines are attributable to the
maintenance by the Lender or its parent or holding company, pursuant to any
Governmental Requirement following any Regulatory Change, of capital in respect
of its Revolver Commitment, its Revolver Note, or its Revolver Loans or any
interest held by it in any Letter of Credit, such compensation to include,
without limitation, an amount equal to any reduction of the rate of return on
assets or equity of Lenders or their parent or holding company to a level below
that which Lender or its parent or holding company could have achieved but for
such Governmental Requirement. Lender will notify Borrowers that it is entitled
to compensation pursuant to this Section 2.19(e) as promptly as practicable
after it determines to request such compensation.

 

(f)     Compensation Procedure. Lender notifying Borrowers of the incurrence of
Additional Costs under this Section 2.19 shall in such notice to Borrowers set
forth in reasonable detail the basis and amount of its request for compensation.
Determinations and allocations by the Lender for purposes of this Section 2.19
of the effect of any Regulatory Change pursuant to Section 2.19(c) or (d), or of
the effect of capital maintained pursuant to Section 2.19(e), on its costs or
rate of return of maintaining Revolver Loans or its obligation to make Revolver
Loans or issue Letters of Credit, or on amounts receivable by it in respect of
Revolver Loans or Letters of Credit, and of the amounts required to compensate
the Lenders under this Section 2.19, shall be conclusive and binding for all
purposes, provided that such determinations and allocations are made on

 

24

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

 

 

a reasonable basis. Any request for additional compensation under this Section
2.19 shall be paid by Borrowers within thirty (30) days of the receipt by
Borrowers of the notice described in this Section 2.19(f).

 

2.20     Proceeds of Sale of Mortgaged Property. In the event any undivided
interest in any of the Mortgaged Property is sold and causes a Collateral
Borrowing Base Deficiency (as defined in Section 4.3 hereof), the sales proceeds
of any such sale shall be applied initially to the outstanding principal balance
of the Revolver Note, then to accrued interest under the Revolver Note;
provided, however, no such sale shall occur except as permitted in Section 6.16
hereof or in the Mortgage or without the prior written consent of the Agent, not
to be unreasonably withheld, conditioned or delayed.

 

ARTICLE III

 

SECURITY

 

3.1     Collateral. The repayment of the Indebtedness shall be secured by the
following (the items and types of collateral described herein and/or in the
Security Instruments being collectively referred to as the "Collateral")
pursuant to: a first mortgage/deed of trust lien in and to the Mortgaged
Property as more particularly described in one or more mortgages or deeds of
trust dated as of the Closing Date (collectively, the "Mortgage"), which such
Mortgage covers and encumbers not less than 90% of ELLC’s currently owned
producing oil, gas and other leasehold and mineral interests, including without
limitation, those situated in the State of North Dakota and a first and prior
security interest in the collateral described in the Security Agreement. ELLC
shall execute such financing statements, letters in lieu of production forms,
assignments, notices and other documents and instruments as shall be necessary
or appropriate to perfect the security interests thus created. ELLC hereby
acknowledges that all of the Collateral is granted to the Agent as security for
the repayment of all of the Indebtedness. If the Revolver Notes are paid in full
or satisfied, but any portion of the Indebtedness remains unsatisfied, the Agent
may retain its security interest in all of the Collateral until the remaining
Indebtedness is paid in full, even if the value of the Collateral far exceeds
the amount of Indebtedness outstanding.

 

3.2     Additional Properties. Agent shall have the right to a first mortgage
lien position on any and all hereafter acquired or owned producing oil and/or
gas well(s) or properties of whatever type of Borrowers that have been evaluated
for purposes of determining the Collateral Borrowing Base, even though such
well(s) or properties do not constitute Collateral or Proven Reserves as of the
date of this Agreement, including, without limitation, all newly or hereafter
acquired oil and/or gas wells or properties. Such first mortgage lien in favor
of Agent against any such future producing well shall comply with the provisions
of Section 4.1 hereof. In the event such additional first mortgage lien in favor
of the Agent is granted, then from the date of the granting of such first
mortgage lien, all of such additional properties will be deemed part and parcel
of the Collateral constituting security for the repayment of the Indebtedness.

 

25

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

 

 

3.3     Cross-Default and Cross-Collateralization. It is the express intention
and agreement of Borrowers and Agent that any and all existing and future
obligations, liabilities and indebtedness now or hereafter owing by Borrowers to
Lenders (including the Revolver Notes, and Letter of Credit Exposure and any
Hedge Agreement) be and continuously remain cross-defaulted and
cross-collateralized to the fullest extent permitted by applicable law with any
and all other existing or future obligations, liabilities and indebtedness of
Borrowers to Lenders or of Borrowers to the Swap Counterparty.

 

3.4      Keepwell. Each Qualified ECP Guarantor hereby jointly and severally
absolutely, unconditionally and irrevocably undertakes to provide such funds or
other support as may be needed from time to time by each other loan party to
honor all of its obligations under guaranty instrument in respect of a Swap
Obligation (provided, however, that each Qualified ECP Guarantor shall only be
liable under this Section 3.4 for the maximum amount of such liability that can
be hereby incurred without rendering its obligations under this Section 3.4 or
otherwise under this guaranty voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer, and not for any greater amount).
Except as otherwise provided herein, the obligations of each Qualified ECP
Guarantor under this Section 3.4 shall remain in full force and effect until the
termination of all Swap Obligations. Each Qualified ECP Guarantor intends that
this Section 3.4 constitute, and this Section 3.4 shall be deemed to constitute,
a "keepwell, support, or other agreement" for the benefit of each other loan
party for all purposes of Section 1a(18)(A)(v)(II) of the Commodity Exchange
Act.

 

ARTICLE IV

 

collateral BORROWING BASE

 

4.1     Semiannual Engineering Reports.

 

(a)     Borrowers shall deliver to Agent at Borrowers' cost by each August 1
(effective no earlier than July 1 of such year) and February 1 (effective no
earlier than January 1 of such year), commencing February 1, 2020, a reserve
report in form, scope, and substance acceptable to the Agent evaluating the
proven producing oil and gas reserves attributable to ELLC's aggregate interest
in the Mortgaged Property (as defined in subsection (b) below), together with
the expenses attributable thereto. Each reserve report must be prepared by a
reputable independent petroleum engineer ("Independent Engineer") acceptable to
the Agent; provided, however, that the Agent recognizes that Pinnace Energy
Services (currently used by Borrower as the Independent Engineer) is acceptable
to it. The reserve reports shall be accompanied by such other information as
shall be reasonably requested by Agent in order for it to make its independent
determination of the Collateral Borrowing Base, and by a certificate of ELLC
certifying that ELLC has good and defensible title to the Mortgaged Property
valued and that payments are being received from purchasers of production with
respect to said interests except for payments suspended for valid reasons.

 

26

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

 

 

(b)     The term "Mortgaged Property" shall refer only to such properties
covered by the Mortgage (or a supplemental mortgage or deed of trust, duly
executed, acknowledged and delivered by ELLC to the Agent in form satisfactory
to counsel for the Agent) and which properties are, at the time:

 

(i)     Particularly and adequately described under the Mortgage or other
supplemental mortgage or deed of trust;

 

(ii)     Completed or developed (in the case of oil and gas leases) to the
extent that value is being assigned to them by the Agent in connection with such
evaluation and the Agent has determined that such properties are capable of
producing oil and gas in commercial quantities; and

 

(iii)     Approved as to title to the satisfaction of the Agent.

 

(c)     ELLC agrees that the Agent shall be entitled at all times to have the
"Mortgaged Property", as encumbered by the Mortgage or supplemental mortgages or
deeds of trust, constitute an aggregate value equal to a percentage (initially
set at ninety percent (90%) but subject to adjustment by the Agent from time to
time due to changes implemented in the Lender's energy lending criteria and
policies) of the aggregate value of ELLC's Proven Reserves. For the purpose of
determining the Collateral Borrowing Base and compliance herewith, the term
"Proven Reserves", in addition to properties that qualify as "Mortgaged
Property" pursuant to the criteria hereof, shall refer only to such other oil
and gas mining, mineral and/or leasehold working interests of ELLC, if any, that
satisfy the criteria of clauses (ii) and (iii) of subsection 4.1(b) above in all
respects.

 

4.2     Redetermination of Collateral Borrowing Base. At any time after thirty
(30) days of the receipt of the required reserve reports, and in no event later
than each August 31 and February 28 (commencing February 28, 2020) (each being a
"Redetermination Date") Agent shall propose to the Lenders, based on a good
faith determination of the present worth using such pricing and discount factor
(in no event shall the present worth be discounted by a factor less than nine
percent (9.0%)) and advance rate as it deems appropriate pursuant to the Agent's
then applicable energy lending and engineering policies (consistently applied),
procedures and pricing parameters, of the future net revenue estimated by the
Agent to be received by Borrowers from not less than ninety percent (90%) of the
oil and gas wells/properties so evaluated and attributable to ELLC, multiplied
by a percentage then determined by the Lenders in good faith to be appropriate
on the basis of the Agent's then applicable energy lending criteria. The
applicable Required Lenders must approve any increase, continuation of, or any
decrease in the Collateral Borrowing Base. Agent shall promptly report in
writing to ELLC such sum of the evaluation by the Lenders of such evaluated oil
and gas properties (the "Collateral Borrowing Base").

 

In addition to the scheduled semi-annual Collateral Borrowing Base
redeterminations, the Agent and Borrowers each shall have the right to request
one (1)

 

27

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

 

 

additional Collateral Borrowing Base redetermination between each scheduled
Redetermination Date ("Supplemental Redetermination"). Borrowers shall provide a
reserve report prepared by an Independent Engineer, together with all other
information reasonably requested by Agent or Lenders, for each Supplemental
Redetermination. The initial Collateral Borrowing Base is stipulated to be
$40,000,000.00 as of the Closing Date. The good faith determinations of the
Lenders in such respects shall be conclusive (except in the case of manifest
error). Determinations of the Collateral Borrowing Base shall initially be
completed by the Lenders consistent with its then applicable energy lending
policies (consistently applied).

 

Borrowers' disposition of any Mortgaged Property between Redetermination Dates
with an aggregate value in excess of five percent (5.0%) of the then current
Collateral Borrowing Base, as determined by the Agent, shall trigger an
automatic decrease in the Collateral Borrowing Base in an amount up to the value
of such Mortgaged Property sold by Borrowers, as determined by the Agent, with
exceptions for swaps of assets of similar value, as determined by Agent.

 

4.3     Collateral Borrowing Base Deficiency. Should the sum of the (i) unpaid
outstanding principal balance of the Revolver Notes at any time prior to
maturity plus all other Indebtedness be greater than the Collateral Borrowing
Base in effect at such time (a "Deficiency"), Agent may notify Borrowers in
writing of the deficiency. Within fifteen (15) days from and after the date of
any such deficiency notice Borrowers shall notify Agent in writing of its
election to:

 

(a)     Make a prepayment upon the Revolver Notes in an amount sufficient to
reduce the aggregate unpaid principal amount outstanding on the Revolver Note
plus all other Indebtedness to an amount equal to or less than the amount of the
Collateral Borrowing Base;

 

(b)     Make mandatory equal monthly principal payments on the Revolver Notes
due on the next six (6) successive monthly payment due dates on the Revolver
Notes in an aggregate amount that will reduce the aggregate outstanding
principal balance of the Revolver Notes plus all other Indebtedness to an amount
equal to or less than the amount of the Collateral Borrowing Base; or

 

(c)     Execute and deliver to Agent one or more supplemental mortgages, deeds
of trust, security agreements or pledges encumbering other properties or assets
in form and substance satisfactory to Agent and its counsel as additional
security for the Revolver Notes (and all other Indebtedness) to the extent such
properties are acceptable to Agent and of such value, as determined by Agent,
that the aggregate principal balance of the Revolver Notes plus all other
Indebtedness will not exceed the Collateral Borrowing Base in conformance with
Lender's then applicable energy lending and engineering/evaluation policies and
procedures.

 

28

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

 

 

If Borrowers shall have elected to make a prepayment on the Revolver Notes under
Section 4.3(a) or 4.3(b) hereof, such prepayment, or the first installment of
such prepayment, shall be due within fifteen (15) days after Borrowers shall
have notified Agent of such election, and the prepayment shall be applied as
mandatory principal prepayments of the Revolver Notes. If Borrowers shall have
elected to make installment payments to eliminate the deficiency under Section
4.3(b) hereof, then, until such deficiency is extinguished, any principal
amounts outstanding on the Revolver Notes shall bear interest at the then
applicable contract rate of interest accruing on the Revolver Notes plus two
hundred additional basis points (2.0%). If Borrowers shall elect to execute and
deliver one or more supplemental oil and gas mortgages and deeds of trust to
Agent under Section 4.3(c) hereof, Borrowers shall provide Agent with
descriptions of the additional properties to be mortgaged (together with any
title due diligence data and information, current valuations and engineering
reports applicable thereto which may be requested by Agent) at the time of
ELLC’s notice of such election and shall execute, acknowledge and deliver to
Agent the appropriate supplemental mortgages and deeds of trust in recordable
form within ten (10) days after such collateral documents shall be tendered to
Borrowers by Agent for execution, all in compliance with the provisions of
clauses (i), (ii) and (iii) of subsection 4.1(b) above. Borrowers may, subject
to Agent's prior written consent, utilize a combination of the approaches set
forth in this Section 4.3 to address a Deficiency.

 

ARTICLE V

 

CONDITIONS PRECEDENT TO REVOLVER LOANS

 

5.1     Conditions Precedent to Revolver Loan. The several obligations of the
Lenders to establish the Revolver Commitment and to make Revolver Loan advances,
including the initial Revolver Loan advance hereunder, and to issue Letters of
Credit, are subject to the satisfaction of all of the following conditions on or
prior to the Closing Date (in addition to the other terms and conditions set
forth herein):

 

(a)     No Default. There shall exist no Default or Event of Default on the
Closing Date.

 

(b)     Representations and Warranties. The representations, warranties and
covenants set forth in Articles VI and VII shall be true and correct on and as
of the Closing Date, with the same effect as though made on and as of the
Closing Date.

 

(c)     Certificate. Borrowers shall have delivered to Agent a Certificate,
dated as of the Closing Date, and signed by the members and managers of the GP
certifying (i) to the matters covered by the conditions specified in Subsections
(a) and (b) of this Section 5.1, (ii) that Borrowers have performed and complied
with all agreements and conditions required to be performed or complied with by
them prior to or on the Closing Date, (iii) to the name and signature of the
duly elected or designated company representative authorized to execute and
deliver the Loan Documents and any other documents, certificates or writings and
to

 

29

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

 

 

borrow under this Agreement, and (iv) to such other matters in connection with
this Agreement which Agent shall determine to be advisable. Agent may
conclusively rely on such Certificate until it receives notice in writing to the
contrary.

 

(d)     Proceedings. On or before the Closing Date, all limited partnership
proceedings of ELP and company proceedings of ELLC and of the GP, respectively,
shall be taken in connection with the transactions contemplated by the Loan
Documents and shall be satisfactory in form and substance to Agent and its
counsel. Agent shall have received certified copies, in form and substance
satisfactory to Agent and its counsel, of each of the Borrowers and of the GP's
charter and organizational documents, together with a currently issued good
standing certificate of each of the Borrowers and of GP from its state of
organization and from such other jurisdictions in which Borrowers' (or either of
them) or GP's qualification as a foreign partnership or foreign limited
liability company is required by applicable law.

 

(e)     Loan Documents/Security Instruments. Borrowers shall have delivered to
the Agent the Revolver Loan Agreement, and the Security Instruments (only signed
by ELLC), appropriately executed by all parties, witnessed and acknowledged to
the satisfaction of the Agent and dated as of the Closing Date, together with
such financing statements, and other documents as shall be necessary and
appropriate to perfect the Agent's security interests in the Collateral covered
by said Security Instruments.

 

(f)     Revolver Notes. Borrowers shall have delivered the Revolver Notes to the
order of the respective Lenders, appropriately executed.

 

(g)     Mortgage. ELLC shall execute and deliver such amendments, modifications,
supplements and/or restatements of the existing Security Instruments as deemed
necessary or appropriate by the Agent or Lenders within thirty (30) days
following the effective date of this Agreement to the Agent in multiple
recordable form counterparts as reasonably required by the Agent. ELLC's failure
to timely deliver such documents shall be an Event of Default.

 

(h)     ISDA Agreement. Borrowers shall have executed and delivered any
applicable ISDA Agreement to the Swap Counterparty, if any, in counterparts as
reasonably required by the Swap Counterparty and Agent.

 

(i)     Intercreditor Agreement. Borrowers shall have delivered any applicable
Intercreditor Agreement to the Agent in counterparts as reasonably required by
the Agent and the Swap Counterparty.

 

(j)     Title. Borrowers shall have provided the Agent with evidence
satisfactory to the Agent and its legal counsel that Borrowers have valid,
defensible, unencumbered title to the Collateral, including (without limitation)
title reports, title opinions (division order or otherwise regarding the
Mortgaged

 

30

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

 

 

Property), lien releases, and such evidence as shall be reasonably required by
the Agent pertaining to all of the existing Mortgaged Property evidencing
transfer of lawful title thereto to ELLC, on behalf and for ELLC with all
equitable interests therein fully vested in ELLC for all purposes.

 

(k)     Closing Opinions. Borrowers shall cause its outside legal counsel to
deliver to the Agent and the Lenders a closing opinion covering corporate and
security interest/perfection issues, including, due organization, good standing,
authorization, due execution, all necessary consents, no violations of charter
or organizational documents and other such matters customarily covered in such
corporate and security interest/perfection opinions for secured loans of similar
type and size.

 

(l)     Payoff; Lien Releases; UCC Terminations; Other Information. The Agent
shall have received such other information, documents and assurances as shall be
reasonably requested by the Agent, including (i) acceptable documentation
evidencing the pay off in full of any amounts owed by Borrowers to any existing
lender, (ii) as applicable, executed and recordable mortgage lien releases and
UCC termination statements from any such lender regarding the Mortgaged
Property, and (iii) such other information with respect to the Mortgaged
Property of Borrowers as shall be reasonably requested by the Agent.

 

(m)     UCC Searches/Other Information. Agent shall have a certified UCC search
covering Borrowers, as debtor, from the central filing office of the State of
Delaware and such other jurisdictions as the Agent reasonably deems necessary or
appropriate, and the Agent shall receive such other information, certificates
(including a current good standing certificate issued by the Delaware Secretary
of State as to Borrowers' status in Delaware), resolutions, documents and
assurances as Agent shall reasonably request.

 

5.2     Conditions to All Extensions of Credit. The obligation of the Lenders to
make any Revolver Loan or issue any letters of credit hereunder (including the
initial Revolver Loan advance to be made hereunder) is subject to the
satisfaction of the following additional conditions precedent on the date of
making such Revolver Loan advance or issuing such letter of credit (in each
case, in addition to the conditions set forth in Section 5.1 above, and in
Article II):

 

(a)     Representations and Warranties. The representations and warranties made
by Borrowers herein and in any other Loan Document or which are contained in any
certificate furnished at any time under or in connection herewith shall (i) on
and as of the date of making the initial Revolver Loan advance, be true and
correct and (ii) on and as of the date of making each other Revolver Loan
advance or issuing a letter of credit, be true and correct in all material
respects on as if made on and as of the date of such extension or such request,
as applicable (except for those which expressly relate to an earlier specified
date and except that any representations or warranties that already are
qualified or modified as to "materiality" or "Material Adverse Effect" in the
text

 

31

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

 

 

thereof, such representations and warranties shall be true and correct in all
respects).

 

(b)     No Default or Event of Default. No Default or Event of Default shall
have occurred and be continuing on such date or after giving effect to the
Revolver Loan advance or Letter of Credit issuance to be made on such date and
the application of the proceeds thereof unless such Default or Event of Default
shall have been waived in accordance with this Agreement.

 

(c)     Bankruptcy or Insolvency. No Bankruptcy Event shall have occurred by or
with respect to either of the Borrowers or GP.

 

(d)     No Material Adverse Effect. No circumstance, event or condition shall
have occurred or be existing which would reasonably be expected to have a
Material Adverse Effect.

 

Each request for a Revolver Loan advance or Letter of Credit issuance (including
extensions and conversions) and each acceptance by Borrowers of a Revolver Loan
advance or Letter of Credit issuance (including extensions and conversions)
shall be deemed to constitute a representation and warranty by Borrowers as of
the date of such Revolver Loan advance or Letter of Credit issuance that the
applicable conditions in subsections (a), (b), (c) and (d) of this Section 5.2
have been satisfied.

 

ARTICLE VI

 

COVENANTS

 

Borrowers covenant and agree with the Agent, Lenders and Letter of Credit Issuer
that from the date hereof and so long as this Agreement is in effect (by
extension, amendment or otherwise) and until payment in full of all Indebtedness
and the performance of all other obligations of Borrowers under this Agreement,
unless the Required Lender shall otherwise consent in writing:

 

6.1     Payment of Taxes and Claims. Borrowers will pay and discharge or cause
to be paid and discharged all Taxes imposed upon the income or profits of
Borrowers or upon the property, real, personal or mixed, or upon any part
thereof, belonging to Borrowers before the same shall be in default, and all
lawful claims for labor, rentals, materials and supplies which, if unpaid, might
become a Lien upon its property or any part thereof; provided however, that
Borrowers shall not be required to pay and discharge or cause to be paid or
discharged any such Tax, assessment or claim so long as the validity thereof
shall be contested in good faith by appropriate proceedings, and adequate book
reserves shall be established with respect thereto, and Borrowers shall pay such
Tax, charge or claim before any property subject thereto shall become subject to
execution.

 

6.2     Maintenance of Legal Existence. Borrowers will do or cause to be done
all things necessary to preserve and keep in full force and effect its company
existence, rights and franchises and will continue to conduct and operate its
business substantially

 

32

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

 

 

as being conducted and operated presently. Borrowers will become and remain
qualified to conduct business in each jurisdiction where the nature of the
business or ownership of property by Borrowers may require such qualification.

 

6.3     Preservation of Property. Borrowers will at all times maintain, preserve
and protect all franchises and trade names and keep all the remainder of their
properties which are used or useful in the conduct of its businesses whether
owned in fee or otherwise, or leased, in good repair and operating condition;
from time to time make, or cause to be made, all needful and proper repairs,
renewals, replacements, betterments and improvements thereto so that the
business carried on in connection therewith may be properly conducted at all
times; and comply with all material leases to which a Borrower is a party or
under which a Borrower occupies property so as to prevent any material loss or
forfeiture thereunder.

 

6.4     Insurance. To the extent customary in the oil and gas industry for
similarly situated leasehold owners and producers, Borrowers will keep or cause
to be kept (whether Borrowers or, if applicable, the operator of the Proven
Reserves), adequately insured by financially sound and reputable insurers
Borrowers' property of a character usually insured by businesses engaged in the
same or similar businesses, including the Collateral casualty/hazard insurance
and business interruption insurance. Upon written demand by Agent any insurance
policies covering the Collateral shall be endorsed to provide for payment of
losses to Agent as Lenders interest may appear, to provide that such policies
may not be canceled, reduced or affected in any manner for any reason without
thirty (30) days prior notice to Agent, and to provide for any other matters
which Agent may reasonably require. Borrowers shall at all times maintain or,
where applicable, cause the operators of the Proven Reserves to maintain
adequate insurance, by financially sound and reputable insurers, including
without limitation, the following coverage's: (i) insurance against damage to
persons and property, including comprehensive general liability, worker's
compensation and automobile liability, and (ii) insurance against sudden and
accidental environmental and pollution hazards and accidents that may occur on
the Mortgaged Property. Borrowers shall annually furnish to the Agent reasonable
evidence of its compliance with the requirements of this Section 6.4 within
fifteen (15) days of renewal of the insurance required hereby.

 

6.5     Compliance with Applicable Laws. Borrowers will comply with the material
requirements of all applicable Laws including with limitation, Occupational
Safety and Health Administration (OSHAWA) provisions, rules, regulations and
orders of any Tribunal and obtain any licenses, permits, franchises or other
governmental authorizations necessary to the ownership of its properties or to
the conduct of its business.

 

6.6     Financial Statements and Reports.

 

(a)     Quarterly Financial Statements. As soon as practicable after the end of
every fiscal quarter of Borrowers other than and except only for the fourth
(4th) and final fiscal quarter of each fiscal year, and in any event within
sixty (60) days thereafter, Borrowers shall furnish to the Agent the following
internally

 

33

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

 

 

prepared consolidated financial statements, on a sound accounting basis in
accordance with GAAP, consistently applied:

 

(i)     A balance sheet of Borrowers at the end of such period, and

 

(ii)  A statement of income of Borrowers for such period with year-to-date
earnings, setting forth in each case in comparative form the figures for the
previous fiscal year, if applicable, all in reasonable detail.

 

The preparer of the financial reports (the President or Chief Financial Officer
or Manager of Borrower) shall execute and deliver to Agent a quarterly
compliance certification in the form of Exhibit B annexed hereto, concurrent
with the delivery of the quarterly financial statements pursuant to Section
6.6(a) for the first three (3) fiscal quarters of each calendar year, and
concurrent with the delivery of the annual audited financial statements pursuant
to Section 6.6(b) below including that he/she has obtained no knowledge of any
Event of Default or Default as defined herein, or, if any Event of Default or
Default existed or exists, specifying the nature and period of existence thereof
and that the each of Borrowers is in compliance with all covenants, warranties,
and representations set forth herein, including the financial covenants of
Sections 6.30, 6.31 and 6.32, respectively.

 

(b)     Annual Financial Statements. Within one hundred twenty (120) days of the
end of the calendar year, Borrowers shall provide the Agent with their annual,
consolidated financial statements audited by an outside firm of CPAs reasonably
acceptable to Agent, prepared on a sound accounting basis in accordance with
GAAP, consistently applied (including balance sheets and income statements)
signed by the chief financial officer of each Borrower (including the
information in Section 6.6(a) (i) and (ii), respectively, above for such entire
applicable fiscal year period) and having an unqualified opinion. The annual
financial statements shall be delivered together with a compliance certificate
substantially in the form set forth in in Exhibit B.

 

(c)     Tax Returns. Annually, commencing with the tax year ended December 31,
2019, and unless earlier delivered to Agent, within fifteen (15) days of the due
date, or extended due date thereof, as applicable, Borrowers shall provide Agent
with full and complete copies of their tax returns.

 

(d)     Capital Budget. Annually, Borrowers shall deliver to Agent, concurrently
with the delivery of the February 1 Independent Engineer reserve report
(commencing February 2020), a capital budget setting forth Borrowers' projected
cash flows and capital expenditures for such fiscal year.

 

(e)     Hedge Reports. As soon as available on a quarterly basis and no later
than 30 days after the end of each calendar quarter, Borrowers shall furnish to
Agent their quarterly trading statements, setting forth as of the last Business
Day of such prior calendar quarter end, a summary of its hedging positions, if
any, under all Risk Management Agreements (including commodity price swap

 

34

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

 

 

agreements, forward agreements or contracts of sale which provide for prepayment
for deferred shipment or delivery of oil, gas or other commodities) of
Borrowers, identifying such matters as the counterparties to such agreements,
type, term effective date, termination date and notional principal amounts or
volumes, the hedged price(s), interest rate(s) or exchange rate(s), as
applicable, and any new credit support agreements relating thereto not
previously disclosed to Agent.

 

(f)     Lease Operating Statements. As soon as available, and in any event no
later than 60 days after the end of each calendar quarter, a comprehensive net
lease operating statement covering a period not less than a trailing six (6)
month period ending such fiscal quarter in form and scope reasonably acceptable
to Agent.

 

6.7     Environmental Covenants. Except as commonly occurring in the normal and
customary oil and gas exploration activities from time to time, Borrowers will
immediately notify the Agent of and provide the Agent with copies of any
notifications of discharges or releases or threatened releases or discharges of
a Polluting Substance on, upon, into or from the Collateral which are given or
required to be given by or on behalf of Borrowers to any federal, state or local
Tribunal if any of the foregoing may materially and adversely affect Borrowers
or any part of the Collateral, and such copies of notifications shall be
delivered to the Agent at the same time as they are delivered to the Tribunal.
Borrowers further agree promptly to undertake and diligently pursue to
completion any prudent, legally required or authorized remedial containment and
cleanup action in the event of any release or discharge or threatened release or
discharge of a Polluting Substance on, upon, into or from the Collateral. At all
times while owning and operating the Collateral, Borrowers will maintain and
retain complete and accurate records of all releases, discharges or other
disposal of Polluting Substances on, onto, into or from the Collateral,
including, without limitation, records of the quantity and type of any Polluting
Substances disposed of on or off the Collateral.

 

6.8      Environmental Indemnities. Borrowers hereby agree to indemnify, defend
and hold harmless the Agent, Lenders and Letter of Credit Issuer and each of its
officers, directors, employees, agents, consultants, attorneys, contractors and
each of its affiliates, successors or assigns, or transferees from and against,
and reimburse said Persons in full with respect to, any and all out of pocket
loss, liability, damage, fines, penalties, costs and expenses, of every kind and
character, including reasonable attorneys' fees and court costs, known or
unknown, fixed or contingent, occasioned by or associated with any claims,
demands, causes of action, suits and/or enforcement actions, including any
administrative or judicial proceedings, and any remedial, removal or response
actions ever asserted, threatened, instituted or requested by any Persons,
including any Tribunal, arising out of or related to: (a) the breach of any
representation or warranty of Borrowers contained in Section 7.16 set forth
herein; (b) the failure of Borrowers to perform any of their covenants contained
in Section 6.7 herein; (c) the ownership, construction, occupancy, operation,
use of the Collateral prior to the earlier of the date on which (i) the
Indebtedness and obligations secured hereby have been paid and performed in full
and the Security Instruments have been released, or (ii) the

 

35

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

 

 

Collateral has been sold by the Agent following the Agent's ownership of the
Collateral by way of foreclosure of the Liens granted pursuant hereto, deed in
lieu of such foreclosure or otherwise (the "Release Date"); provided, however,
this indemnity shall not apply with respect to matters caused by or arising
solely from the Agent's or Lender's activities during any period of time the
Agent acquires ownership of the Collateral or otherwise to the extent caused by
the Agent's gross negligence or willful misconduct.

 

The indemnities contained in this Section 6.8 apply, without limitation, to any
violation on or before the Release Date of any Environmental Laws and any
liability or obligation relating to the environmental conditions on, under or
about the Collateral on or prior to the Release Date (including, without
limitation: (a) the presence on, upon or in the Collateral or release, discharge
or threatened release on, upon or from the Collateral of any Polluting
Substances generated, used, stored, treated, disposed of or otherwise released
prior to the Release Date, and (b) any and all damage to real or personal
property or natural resources and/or harm or injury including wrongful death, to
persons alleged to have resulted from such release of any Polluting Substances
regardless of whether the act, omission, event or circumstances constituted a
violation of any Environmental Law at the time of its existence or occurrence).
The term "release" shall have the meaning specified in CERCLA/SARA and the terms
"stored," "treated" and "disposed" shall have the meanings specified in
RCRA/HSWA; provided, however, any broader meanings of such terms provided by
applicable laws of the States where the Collateral is located.

 

The provisions of this Section 6.8 shall be in addition to any other obligations
and liabilities Borrowers may have to the Agent or Lender at common law and
shall survive the Release Date and shall continue thereafter in full force and
effect.

 

The Agent and Lender agrees that in the event that such claim, suit or
enforcement action is asserted or threatened in writing or instituted against it
or any of its officers, employers, agents or contractors or any such remedial,
removal or response action is requested of it or any of its officers, employees,
agents or contractors for which Agent and/or Lenders may desire indemnity or
defense hereunder, the Agent shall give written notification thereof to
Borrowers.

 

Notwithstanding anything to the contrary stated herein, the indemnities created
by this Section 6.8 shall only apply to losses, liabilities, damages, fines,
penalties, costs and expenses actually incurred by the Agent and/or Lenders as a
result of claims, demands, actions, suits or proceedings brought by Persons who
are not the beneficiaries of any such indemnity. Agent shall act as the
exclusive agent for all indemnified Persons under this Section 6.8. With respect
to any claims or demands made by such indemnified Persons, the Agent shall
notify Borrowers within twenty (20) days after the Agent's receipt of a writing
advising the Agent of such claim or demand. Such notice shall identify (i) when
such claim or demand was first made, (ii) the identity of the Person making it,
(iii) the indemnified Person and (iv) the substance of such claim or demand.
Failure by the Agent to so notify Borrowers within said ten (10) day period
shall reduce the amount of Borrowers' obligations and liabilities under this
Section 6.8

 

36

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

 

 

by an amount equal to any damages or losses suffered by Borrowers resulting from
any prejudice caused Borrowers by such delay in notification from the Agent.
Upon receipt of such notice, Borrowers shall have the exclusive right and
obligation to contest, defend, negotiate or settle any such claim or demand
through counsel of its own selection (but reasonably satisfactory to the Agent)
and solely at Borrowers' own cost, risk and expense; provided, that the Agent,
at Lenders' own several cost and expense shall have the right to participate in
any such contest, defense, negotiations or settlement. The settlement of any
claim or demand hereunder by Borrowers may be made only upon the prior approval
of the Agent of the terms of the settlement, which approval shall not be
unreasonably withheld, conditioned or delayed.

 

6.9     Notice of Default. Within five (5) Business Days after any officer or
Manager becoming aware of any condition or event which constitutes an Event of
Default or Default or any default or event of default under any other loan,
mortgage, financing or security agreement, Borrowers will give the Agent a
written notice thereof specifying the nature and period of existence thereof and
what actions, if any, Borrowers are taking and proposes to take with respect
thereto.

 

6.10     Notice of Litigation. Within five (5) Business Days after becoming
aware of the existence of any action, suit or proceeding at law or in equity
before any Tribunal, an adverse outcome in which would (i) materially impair the
ability of Borrowers to carry on their businesses substantially as now
conducted, (ii) materially and adversely affect the condition (financial or
otherwise) of Borrowers, or (iii) result in monetary damages in excess of
$250,000, Borrowers will give the Agent a written notice specifying the nature
thereof and what actions, if any, Borrowers are taking and proposes to take with
respect thereto.

 

6.11     Notice of Claimed Default. Within five (5) Business Days after becoming
aware that the holder of any note or any evidence of indebtedness or other
security of Borrowers has given notice or taken any action with respect to a
claimed default or event of default thereunder, if the amount of the note or
indebtedness exceeds $250,000 Borrowers will give the Agent a written notice
specifying the notice given or action taken by such holder and the nature of the
claimed default or event of default thereunder and what actions, if any,
Borrowers are taking and propose to take with respect thereto.

 

6.12     Change of Management/Business Purpose. Within five (5) Business Days
after any change in officers, directors or management of Borrowers or any
officer of Borrowers holding the office of President, Borrowers shall give
written notice thereof to the Agent, together with a description of the reasons
for the change and a reasonably detailed management succession plan for the
Agent's review.

 

6.13     Requested Information. With reasonable promptness, Borrowers will give
the Agent such other data and information relating to Borrowers' organization,
financial results, and operations of the Collateral as from time to time may be
reasonably requested by the Agent.

 

37

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

 

 

6.14     Inspection. Borrowers will keep complete and accurate books and records
with respect to the Collateral and its other properties, businesses and
operations and upon reasonable advance notice will permit employees and
representatives of the Agent to review, audit, inspect and examine the same and
to make copies thereof and extracts therefrom during normal business hours. All
such records (or accurate copies thereof if the original records are required by
law, rule, regulation or ordinance to be kept in another location) shall be at
all times kept and maintained at the offices of Borrowers in Oklahoma City, OK
and/or Richmond, Virginia. Upon any Default or Event of Default, Borrowers will
surrender all of such records relating to the Collateral to the Agent upon
receipt of any request therefor from the Agent. Borrowers shall immediately
notify Agent of any change in the location of their respective principal
offices.

 

6.15     Maintenance of Employee Benefit Plans. Each Borrower will maintain each
its employee benefit plan, if any, as to which such Borrower may have any
liability or responsibility in compliance with ERISA and all other Laws
applicable thereto.

 

6.16     Disposition/Negative Pledge or Encumbrance of Collateral and Other
Assets. Except only for sales of Hydrocarbons derived from the Mortgaged
Property in the normal and ordinary course of business, Borrowers will not sell
or encumber (via mortgage, pledge, security agreement, trust transfers or
similar asset protection devices or entities or otherwise) any of the Collateral
or more than $100,000 of any other Hydrocarbon producing properties or working
or royalty interests of whatever nature or type, whether to an Affiliate of
Borrowers or otherwise, without first obtaining Agent's written consent thereto
(which consent shall not be unreasonably withheld) and Borrowers will provide
Agent with written notice of the sale or other disposition of any obsolete, worn
out or other unused items of equipment (whether Collateral or otherwise) or any
proposed sale, lease, transfer or other disposition of or mortgage, pledge,
granting of a security interest in or encumbrance against any of the other
assets of Borrowers, subject, however, to Borrowers' right to sell up to
$100,000 worth, in the aggregate for each Borrower, of their properties or
assets not constituting Collateral in the ordinary course of business during any
calendar year without prior notice to Agent. Borrowers will not dispose of any
of their respective assets other than in the normal and prudent ordinary course
of their respective business operations.

 

6.17     Limitation on Other Indebtedness. Except for the items listed on
Exhibit C under "Other Obligations," Borrowers will not create, incur, assume,
become or be liable in any manner in respect of, or suffer to exist, any
indebtedness whether evidenced by a note, bond, debenture, agreement, letter of
credit or similar or other obligation, or accept any deposits or advances of any
kind, except: (i) trade payables and current indebtedness (other than for
borrowed money) incurred in, and deposits and advances accepted in, the ordinary
course of business; (ii) indebtedness other than to the Agent hereunder; (iii)
contingent liabilities arising from the operations of Borrowers in the ordinary
course of business such as plugging liabilities and similar operational matters
customary for operators in the oil and gas industry; and (iv) the Indebtedness,
and (v) aggregate indebtedness limited to $250,000. All debt other than the
Indebtedness shall be subordinated to the Indebtedness through subordination
agreements in form, scope and substance acceptable to the Agent.

 

38

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

 

 

6.18     Limitation on Liens. Borrowers will not create or suffer to exist any
Lien upon the Collateral, except (i) Liens in favor of Agent securing the
Indebtedness; (ii) Liens (including statutory tax liens to the extent not
delinquent) arising in the ordinary course of business for sums not due or sums
being contested in good faith and by appropriate proceedings and not involving
any deposits, advances, borrowed money or the deferred purchase price of
property or services; and (iii) Liens expressly permitted to exist under the
terms of any of the Security Instruments.

 

6.19     Contingent Liabilities; Advances, Investments, Fixed Asset Purchases.
Except only for the items described on Exhibit C attached hereto, Borrowers will
not either directly or indirectly otherwise, (i) make investments in one or more
subsidiaries or other investments not constituting a core part of Borrowers'
business plan at the Closing, guarantee, become surety for, discount, endorse,
agree (contingently or otherwise) to purchase, repurchase or otherwise acquire
or supply or advance funds in respect of, or otherwise become or be contingently
liable upon the indebtedness, obligation or liability of any Person, (ii)
guarantee the payment of any dividends or other distributions upon the stock of
any corporation, (iii) discount or sell with recourse or for less than the face
value thereof, any of its notes receivable, accounts receivable or chattel
paper; (iv) loan, agree to loan, or advance money to any Person; or (v) enter
into any agreement for the purchase or other acquisition of any goods, products,
materials or supplies, or for the making of any shipments or for the payment of
services, if in any such case payment therefor is to be made regardless of the
non-delivery of such goods, products, materials or supplies or the
non-furnishing of the transportation of services; provided, however that the
foregoing shall not be applicable to endorsement of negotiable instruments
presented to or deposited with a bank for collection or deposit in the ordinary
course of business. Except only for such acquisitions with loan advances made by
the Lenders pursuant to the permitted loan purposes of Section 2.1, Borrowers
will not purchase or otherwise acquire any fixed assets or make or incur capital
expenditures, other than in the normal and ordinary course of Borrowers' oil and
gas development business operations, in one or more series of transactions in
excess of $100,000.00 in the aggregate at any time during each calendar year
without the Agent's prior written consent, which such consent will not be
unreasonably withheld.

 

6.20     Merger, Consolidation, Acquisition. Borrowers will not merge or
consolidate with or into any other Person; or permit any Person to merge into
Borrowers; or acquire all or substantially all of the assets or properties or
capital stock of any other Person; or adopt or effect any plan of
reorganization, recapitalization, liquidation or dissolution; provided, however,
Borrowers may enter into letters of intent pertaining to merger, consolidation
or acquisition subject to obtaining the Agent's written consent thereto prior to
consummation of the transactions contemplated by such letter(s) of intent.

 

6.21     Distributions/Dividends. Borrowers will not declare, pay or become
obligated to declare or pay any capital, cash or other distributions or
dividends on any class of their membership units or capital stock now or
hereafter outstanding, make any distribution of capital, cash or property to
holders of any membership units or shares of Borrowers or shares of such stock
or membership units, or redeem, retire, purchase or

 

39

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

 

 

otherwise acquire, directly or indirectly, any shares of any class of their
capital stock or membership units now, or hereafter outstanding; provided,
however; if and to the extent neither (i) any Default or Event of Default exists
hereunder or under any of the other Loan Documents nor (ii) any Default or Event
of Default would be caused by or result from such cash tax distribution, each
Borrower may make distributions as are necessary for the payment by its members
or shareholders of pass through federal and state income taxes due therefrom
that are generated by Borrowers' taxable income, which such reasonably detailed
calculations of the amount thereof shall be timely furnished to the Agent.
Beginning with the fiscal quarter period ending March 31, 2020, and thereafter,
additional distributions (other than as are necessary for payment of pass
through federal and state income taxes due from its members due to Borrowers'
taxable income, shall be allowed only if (i) no Default or Event of Default
exists hereunder or under any of the other Loan Documents, (ii) no Default or
Event of Default would be caused by or result from such cash distribution, (iii)
the Leverage Ratio is less than 2.50 to 1.00 prior to and following such
additional distributions, and (iv) the availability under the then applicable
Revolver Commitment Amount is not less than twenty percent (20%) following such
additional distributions; provided, however, in no event shall total quarterly
distributions exceed fifty percent (50%) of the previous quarter end EBITDAX.
For purposes of clarification, the foregoing shall not restrict Borrower from
making distributions prior to March 31, 2020, so long as there is no Default or
Event of Default existing at the time of the proposed distributions and such
distributions would not cause an Event of Default hereunder.

 

6.22     Change of Fiscal Year. Borrowers will not change their respective
fiscal year from its present fiscal year (fiscal year ending December 31).

 

6.23     Change of Business. Borrowers will not engage in any business activity
substantially different from or unrelated to their present business activities
and operations.

 

6.24     Articles of Incorporation; Code of Regulations and Assumed Names.
Borrowers will not amend, alter, modify or restate their Articles of
Incorporation or Code of Regulations in any way which would: (i) change the name
or adopt a trade name for Borrowers; or (ii) in any manner adversely affect the
rights of Borrowers' obligations or covenants to the Lenders hereunder.

 

6.25     Transactions with Affiliates. Borrowers will not enter into any
transaction, including (without limitation) the purchase, sale or exchange of
property or the rendering or furnishing of any service with any Affiliate of
Borrowers, except transactions in the ordinary course of the businesses of
Borrowers and upon fair and reasonable terms no less favorable than Borrowers
would obtain in a transaction for the same purpose with a Person that is not an
Affiliate of any of Borrowers.

 

6.26     Other Agreements. Borrowers will not enter into or permit to exist any
agreement which: (i) would cause an Event of Default or a Default hereunder; or
(ii) contains any provision which would be violated or breached by the
performance of Borrowers' obligations hereunder or under any of the other Loan
Documents.

 

40

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

 

 

6.27     Payment of Indebtedness. Borrowers hereby agree to pay, when due and
owing, all Indebtedness, whether or not evidenced by the Revolver Note.

 

6.28     Hedging. Within 30 days after Agent has notified Borrowers that the
Collateral Borrowing Base is equal to or greater than fifty percent (50%) of the
Borrowers' engineered PDP, as determined by Agent using Agent's price deck and
engineering evaluation, Borrowers shall, except to the extent that Agent agrees
otherwise in writing, maintain risk management, hedging or other similar forms
of price protection for crude oil and natural gas volumes, such devices shall
include a "price floor" or comparable financial hedge or Risk Management
Agreement with the Swap Counterparty acceptable to Agent in all respects
(including, without limitation, price and term), covering not less than fifty
percent (50%) of Borrowers projected PDP oil and gas volumes (measured on an
equivalent basis) for a rolling eighteen (18) month period (to be measured at
each redetermination and based on the most recently completed reserve report by
the Agent). Upon reducing the Collateral Borrowing Base amount to below fifty
percent (50%) of engineered PDP, the rolling hedge requirement will be
terminated, until the next time the Collateral Borrowing Base shall be equal to
or greater than fifty percent (50%) of the Borrowers' engineered PDP. Otherwise,
Borrowers may enter into a Risk Management Agreement with a Swap Counterparty
acceptable to Agent in all respects (including, without limitation, price and
term), so long as (i) the term does not exceed 36 months and (ii) it covers not
more than eighty percent (80%) of Borrowers' projected oil and gas volumes
(based on the most recently delivered reserve report acceptable to Agent).
Borrowers shall cure or reconcile any non-performance of its hedging covenants
under this Section 6.28 within thirty (30) days of each Redetermination Date.
Borrowers shall not enter into any Prohibited Hedge Transaction, including,
without limitation, any financial and physical hedge transactions affecting or
covering the same volume of production for concurrent or overlapping periods of
time. The applicable counterparty to any ISDA Agreement shall be the Swap
Counterparty or such other counterparty acceptable to Agent and approved thereby
in writing.

 

6.29     Collateral Borrowing Base Credit for Hedge Agreements. To the extent
Borrowers are given any credit or cash flow value in the Collateral Borrowing
Base determinations for any Hedge Agreements or other derivative products in
effect by the Swap Counterparty from time to time (semiannual engineering
redeterminations or otherwise), Borrowers shall not liquidate, cancel, terminate
or otherwise "unwind" any hedges, rate Risk Management Agreement or other Hedge
Agreement therewith without the prior verbal consent of Agent (to be confirmed
in writing within one (1) Business Day thereafter), which such consent will not
be unreasonably withheld, delayed or conditioned).

 

6.30     Maximum Leverage Ratio. Borrowers will not permit their consolidated
Leverage Ratio, determined as of the end of each fiscal quarter, tested on a
trailing 12 month basis (for the four most recent quarters), to be 3.5 to 1.0 or
more.      

 

6.31     Current Ratio. Borrowers will not permit their consolidated Current
Ratios to be less than 1.0 to 1.0, determined as of the end of each fiscal
quarter, commencing with the quarter ended December 31, 2019

 

41

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

 

 

6.32     Minimum Interest Coverage Ratio. Borrowers will not permit their
consolidated Interest Coverage Ratio, determined as of the end of each fiscal
quarter, tested on a trailing 12 month basis (for the four most recent
quarters), to be less than 2.5 to 1.0, commencing for the quarter ended December
31, 2019, testing on an annualized basis (one quarter annualized as of December
31, 2019, two quarters annualized as of March 31, 2020, and three quarters
annualized as of June 30, 2020). Commencing September 30, 2020, Interest
Coverage Ratio will be tested on a trailing twelve months basis.

 

6.33     Operating Accounts; Treasury Management. Borrowers shall utilize the
Agent's treasury management services and will maintain each of their respective
primary operating accounts at the Agent into which all proceeds and remittances
of product sales shall be promptly deposited.

 

6.34     ELP Assets. ELP shall not own oil and gas properties, all of which
shall continue to be owned by ELLC.

 

ARTICLE VII

 

REPRESENTATIONS AND WARRANTIES

 

To induce the Lenders to enter into this Agreement and to make Revolver Loans to
Borrowers under the provisions hereof, and in consideration thereof, Borrowers
represent, warrant and covenant as follows:

 

7.1     Organization and Qualification. ELP is duly organized, validly existing
and in good standing as a limited partnership under the Laws of Delaware, ELLC
is duly organized, validly existing and in good standing as a limited liability
company under the Laws of Delaware, and each Borrower and is duly licensed or
registered, as applicable, and in good standing as a foreign partnership or
limited liability company, as applicable, in each jurisdiction in which the
nature of the business transacted or the property owned is such as to require
licensing or qualification as such.

 

7.2     Litigation. Except for the actions described on Exhibit D attached
hereto, to the best of Borrowers' knowledge, there is no action, suit,
investigation or proceeding threatened or pending before any Tribunal against or
affecting Borrowers or any properties or rights of any of Borrowers which, if
adversely determined, would result in a liability of greater than $250,000 or
would otherwise result in any Material Adverse Change in the business or
condition, financial or otherwise, of Borrowers. Borrowers are not, to the best
of its knowledge, in default with respect to any judgment, order, writ,
injunction, decree, rule or regulation of any Tribunal.

 

7.3     Financial Statements. Borrowers' most recent unaudited financial
statements which have been furnished to the Agent have been prepared in
conformity with sound accounting principles, consistently applied, show all
material liabilities, direct and contingent, and fairly present the financial
condition of Borrowers as of the date of

 

42

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

 

 

such statements and the results of their operations for the period then ended,
and since the date of such statements there has been no Material Adverse Change
in the business, financial condition or operations of Borrowers.

 

7.4     Conflicting Agreements and Other Matters. To the best of Borrowers'
knowledge, Borrowers are not in default in the performance of any obligation,
covenant, or condition in any material agreement to which a Borrower is a party
or by which a Borrower is bound. Borrowers are not a party to any contract or
agreement or subject to any other restriction which materially and adversely
affects their business, property or assets, or financial condition. Borrowers
are not a party to or otherwise subject to any contract or agreement which
restricts or otherwise affects the right or ability of Borrowers to execute the
Loan Documents or the performance of any of their respective terms. Neither the
execution nor delivery of any of the Loan Documents, nor fulfillment of nor
compliance with their respective terms and provisions will conflict with, or
result in a breach of the terms, conditions or provisions of, or constitute a
default under, or result in any violation of, or result in the creation of any
Lien (except those created by the Loan Documents) upon any of the properties or
assets of Borrowers pursuant to, or require any consent, approval or other
action by or any notice to or filing with any Tribunal (other than routine
filings after the Closing Date with the Securities and Exchange Commission, any
securities exchange and/or state blue sky authorities) pursuant to the
Certificate of Formation and Operating Agreement of Borrowers, as applicable,
any award of any arbitrator, or any agreement, instrument or Law to which
Borrowers are subject.

 

7.5     Authorization. The members and managers of Borrowers have duly
authorized the execution and delivery of each of the Loan Documents and the
performance of their respective terms. No other consent of any other Person,
except for the Agent and Lenders, is required as a prerequisite to the validity
and enforceability of the Loan Documents.

 

7.6     Purposes. Borrowers are not engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulation U of the
Board of Governors of the Federal Reserve System) and no part of the proceeds of
any borrowing hereunder will be used to purchase or carry any margin stock or to
extend credit to others for the purpose of purchasing or carrying any margin
stock. If requested by the Agent, Borrowers will furnish to the Agent a
statement in conformity with the requirements of Federal Reserve Form U-1,
referred to in Regulation U, to the foregoing effect. Neither Borrowers nor any
agent acting on behalf thereof has taken or will take any action which might
cause this Agreement or the Note to violate any regulation of the Board of
Governors of the Federal Reserve System (including Regulations G, T, U and X) or
to violate any securities laws, state or federal, in each case as in effect now
or as the same may hereafter be in effect.

 

7.7     Compliance with Applicable Laws. To the best of its knowledge, Borrowers
are in compliance with all Laws, ordinances, rules, regulations and other legal
requirements applicable to Borrowers and the business conducted by it, the

 

43

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

 

 

violation of which could or would have a material adverse effect on its business
or condition, financial or otherwise. Neither the ownership of any shares or
membership interests of Borrowers, nor any continued role of any Person in the
management or other affairs of Borrowers (i) will result or could result in
Borrowers' noncompliance with any Laws, ordinances, rules, regulations and other
legal requirements applicable to Borrower, or (ii) could or would have a
material adverse effect on the business or condition, financial or otherwise, of
Borrowers.

 

7.8     Possession of Franchises, Licenses. To the best of Borrowers' knowledge,
Borrowers possess all franchises, certificates, licenses, permits and other
authorizations from governmental political subdivisions or regulatory
authorities, free from burdensome restrictions, that are necessary in any
material respect for the ownership, maintenance and operation of its properties
and assets, and Borrowers are not in violation of any thereof in any material
respect.

 

7.9     Leases, Easements and Rights of Way. To the best of Borrowers'
knowledge, Borrowers enjoy peaceful and undisturbed possession of all leases,
easements and rights of way necessary in any material respect for the operation
of his properties and assets, none of which contains any unusual or burdensome
provisions that might materially affect or impair the operation of such
properties and assets. All such leases, easements and rights of way are valid
and subsisting and are in full force and effect.

 

7.10     Taxes. Borrowers have filed all Federal, state and other income tax
returns which are required to be filed and have paid all Taxes, as shown on said
returns, and all Taxes due or payable without returns and all assessments
received to the extent that such Taxes or assessments have become due. All Tax
liabilities of Borrowers are adequately provided for on the books of Borrowers,
including interest and penalties. No income tax liability of a material nature
has been asserted by taxing authorities for Taxes in excess of those already
paid.

 

7.11     Disclosure. Neither this Agreement nor any other Loan Document or
writing furnished to Agent by or on behalf of Borrowers in connection herewith
contains any untrue statement of a material fact nor do such Loan Documents and
writings, taken as a whole, omit to state a material fact necessary in order to
make the statements contained herein and therein not misleading. There is no
fact known to Borrowers and not reflected in the financial statements provided
to Agent which materially adversely affects its assets or in the future may
materially adversely affect the business, property, assets or financial
condition of Borrowers which has not been set forth in this Agreement, in the
Loan Documents or in other documents furnished to Agent by or on behalf of
Borrowers prior to the date hereof in connection with the transactions
contemplated hereby.

 

7.12     Investment Company Act Representation. Borrowers are not an "investment
company" or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.

 

44

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

 

 

7.13     ERISA. Since the effective date of Title IV of ERISA, no Reportable
Event has occurred with respect to any Plan. For the purposes of this section
the term "Reportable Event" shall mean an event described in Section 4043(b) of
ERISA. For the purposes hereof the term "Plan" shall mean any plan subject to
Title IV of ERISA and maintained for employees of Borrowers, or of any member of
a controlled group of corporations, as the term "controlled group of
corporations" is defined in Section 1563 of the Internal Revenue Code of 1986,
as amended (the "Code"), of which any of Borrowers are a part. Each Plan
established or maintained by Borrowers are in material compliance with the
applicable provisions of ERISA, and Borrowers have filed all reports required by
ERISA and the Code to be filed with respect to each Plan. Borrowers have met all
requirements with respect to funding Plans imposed by ERISA or the Code. Since
the effective date of Title IV of ERISA there have not been any nor are there
now existing any events or conditions that would permit any Plan to be
terminated under circumstances which would cause the lien provided under Section
4068 of ERISA to attach to the assets of Borrowers. The value of each Plan's
benefits guaranteed under Title IV of ERISA on the date hereof does not exceed
the value of such Plan's assets allocable to such benefits on the date hereof.

 

7.14     Fiscal Year. The fiscal year of Borrowers ends as of December 31 of
each year.

 

7.15     Title to Properties; Authority. Borrowers have full power, authority
and legal right to own and operate the properties which they now own and
operate, and to carry on the lines of business in which they are now engaged,
and ELLC has good and marketable title to the Mortgaged Property subject to no
Lien of any kind except Liens permitted by this Agreement. Borrowers has full
power, authority and legal right to execute and deliver and to perform and
observe the provisions of this Agreement and the other Loan Documents. ELLC
further represents to Agent that any and all after acquired interest in any one
or more of the Mortgaged Property being concurrently or subsequently assigned of
record to ELLC is and shall be deemed encumbered by the Mortgage in all
respects.

 

7.16     Environmental Representations. To the best of each Borrowers' knowledge
and belief, upon reasonable and good faith inquiry exercised with due diligence
and in accordance with normal industry standards:

 

(a)     Borrowers are not subject to any liability or obligation relating to (i)
the environmental conditions on, under or about the Collateral, including,
without limitation, the soil and ground water conditions at the location of any
of such Borrowers' properties, or (ii) the use, management, handling, transport,
treatment, generation, storage, disposal, release or discharge of any Polluting
Substance;

 

(b)     Borrowers have not obtained and are not required to obtain or make
application for any permits, licenses or similar authorizations to construct,
occupy, operate or use any buildings, improvements, facilities, fixtures and
equipment forming a part of the Collateral by reason of any Environmental Laws;

 

45

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

 

 

(c)     Borrowers have taken reasonable steps to determine and have determined,
to the best of such Borrowers' knowledge, that no Polluting Substances have been
disposed of or otherwise released on, onto, into, or from the Collateral (the
term "release" shall have the meanings specified in CERCLA/SARA, and the term
"disposal" or "disposed" shall have the meanings specified in RCRA/HSWA;
provided, in the event either CERCLA/SARA or RCRA/HSWA is amended so as to
broaden the meaning of any term defined thereby, such broader meaning shall
apply subsequent to the effective date of such amendment and provided further,
to the extent that the laws of any State or Tribunal establish a meaning for
"release," "disposal" or "disposed" which is broader than that specified in
CERCLA/SARA, RCRA/HSWA or other Environmental Laws, such broader meaning shall
apply) that causes, creates or results in a Material Adverse Change or a
material adverse effect on any Borrower or its financial capabilities or the
Mortgaged Properties;

 

(d)     There are no PCB's or asbestos-containing materials, whether in the
nature of thermal insulation products such as pipe boiler or breech coverings,
wraps or blankets or sprayed-on or troweled-on products in, on or upon the
Collateral; and

 

(e)     There is no urea formaldehyde foam insulation ("UFFI") in, on or upon
the Collateral.

 

7.17     Oil and Gas Contracts. All contracts, agreements and leases related to
any of the oil and gas mining, mineral or leasehold properties and all
contracts, agreements, instruments and leases to which any Borrower is a party,
to the best of such Borrowers' knowledge, are valid and effective in accordance
with their respective terms, and to the best of Borrowers' knowledge and belief,
(i) all agreements included in the oil and gas mining, mineral or leasehold
properties in the nature of oil and/or gas purchase agreements, and/or oil
and/or gas sale agreements are in full force and effect, (ii) are valid and
legally binding obligations of the parties thereto, (iii) all payments due
thereunder have been made, except for those suspended for reasonable cause in
the ordinary course of business; and, (iv) there is not under any such contract,
agreement or lease any existing default known or that should be known to such
Borrower by any party thereto or any event which, with notice or lapse of time,
or both, would constitute such default, other than minor defaults which, in the
aggregate, would result in losses or damages of more than $200,000 to Borrower.

 

7.18      Natural Gas Policy Act and Natural Gas Act Compliance. To the best of
Borrowers' knowledge, all material filings and approvals under the Natural Gas
Policy Act of 1978, as amended, and the Natural Gas Act, as amended, or with the
Federal Energy Regulatory Commission (the "FERC") or required under any rules or
regulations adopted by the FERC which are necessary for the operation of
Borrowers' businesses or the Collateral in the manner in which they are
presently being operated have been made and the terms of the agreements and
contractual rights included in Borrowers' businesses or the Collateral do not
conflict with or contravene any such Law, rule or regulation.

 

46

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

 

 

7.19      Take or Pay Obligations, Prepayments, BTU Adjustments and Balancing
Problems. To the best of Borrowers' knowledge, there is no take or pay
obligation under any gas purchase agreement comprising a portion of the
Collateral which is not matched by a commensurate and corresponding pay or take
obligation binding upon the purchaser under a corresponding gas sales agreement
such that with respect to the ownership and operation of the business of
Borrowers or the Collateral, any such obligation in favor of any seller under
any gas purchase agreement to which such Borrower is a "buyer" is matched by a
corresponding obligation on the part of "purchasers" under corresponding gas
sales agreements pursuant to which such Borrower is the "seller". To the best of
Borrowers' knowledge, neither Borrowers nor the Collateral is subject to
requirements to make BTU adjustments or effect gas balancing in favor of third
parties which would result in Borrowers being required to (i) deliver gas at a
price below that established in applicable gas sales agreements or on behalf of
and for the benefit of third parties in exchange or to otherwise compensate for
prior above market or above contract purchases of gas from Borrowers or their
predecessors in interest, or (ii) balance in kind by allowing other owners in
the Collateral to make up the past imbalances in gas sales, or (iii) balance in
cash by paying other owners of the collateral for the past gas imbalances except
for the matters described on Exhibit E hereto which have been disclosed to
Borrowers.

 

7.20      Gas Purchase Obligations in Excess of Gas Sales Rights. The ownership
and operation of the business operations of Borrowers or the Collateral have not
resulted or will not result in the existence of minimum purchase obligations
under any gas purchase agreement (relating to the volume of gas to be taken
thereunder or the price to be paid with respect thereto for the duration of any
such gas purchase agreement) which are not matched by corresponding and
commensurate rights to sell all such gas under applicable gas sales agreements
at prices in excess of the amount to be paid therefor under gas purchase
agreements (without regard to costs associated with transporting any such gas
and risks of volume "shrinkage" occurring in the transportation process).

 

7.21     Ownership of Mortgaged Property. Borrowers hereby represent, warrant
and covenant that as of the Closing Date, ELLC will own the working interests,
royalty interests and net revenue interests in the oil and gas leasehold estate
for the Mortgaged Property covered by the Mortgage as represented to Agent and
free and clear of all Liens.

 

7.22     Additional Swap Agreement Representations. Borrowers hereby represent
and warrant to Agent and covenants with the Agent and Lenders that:

 

(a)     the rate, asset, liability or other notional item underlying any Swap
Agreement regarding an interest or monetary rate, or foreign exchange swap,
entered into or executed in connection with this Loan Agreement is or is
directly related to, a financial term hereof;

 

(b)     the aggregate notional amount of all Swap Agreements entered into or
executed by any Borrowers in connection with the financial terms of this Loan

 

47

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

 

 

Agreement, whether entered into or executed with Borrowers or any other
individual or entity, will not at any time exceed the aggregate principal amount
outstanding hereunder, as such amounts may be determined or calculated
contemporaneously form time to time during and throughout the terms of this Loan
Agreement;

 

(c)     each Swap Agreement entered into or executed in connection with the
financial terms of this Loan Agreement has been or will be entered into no
earlier than ninety (90) days before and no later than one hundred eighty (180)
days after the date hereof or of any transfer of principal hereunder;

 

(d)     the purpose of any Swap Agreements in respect of any commodity entered
into or executed in connection with this Loan Agreement is to hedge commodity
price risks incidental to Borrowers' business and arising from potential changes
in the price of such commodity; and

 

(e)     each Swap Agreement entered into or executed in connection with this
Loan Agreement mitigates against the risk of repayment hereof and is not for the
purpose of speculation.

 

For purposes hereof, the term (i) "financial term" shall include, without
limitation, the duration or term of the Loan Agreement, rate of interest, the
currency or currencies in which the Revolver Loan is made and its principal
amount, and (ii) "transfer of principal" means any draw of principal under the
Loan Agreement, any amendment, restructuring, extension or other modification of
the Loan Agreement.

 

7.23     Provisions Ensuring all Swap Obligations are with an ECP. Each
Qualified ECP Guarantor, if any, hereby jointly and severally absolutely,
unconditionally and irrevocably undertakes to provide such funds or other
support as may be needed from time to time by each other guarantor to honor all
of its obligations under such guaranty in respect of Swap Obligations (provided,
however, that each Qualified ECP Guarantor shall only be liable under this
Section 7.23 for the maximum amount of such liability that can be hereby
incurred without rendering its obligations under this Section 7.23 or otherwise
under such guaranty, as it relates to such other guarantor, voidable under
applicable law relating to fraudulent conveyance or fraudulent transfer, and not
for any greater amount). Each Qualified ECP Guarantor intends that this Section
constitute, and this Section 7.23 shall be deemed to constitute, a "keepwell,
support, or other agreement" for the benefit of each other guarantor for all
purposes of Section 1a(18)(A)(v)(II) of the Commodity Exchange Act.

 

7.24     Ownership of Properties. ELP does not directly own any oil and gas
properties or interests therein.

 

48

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

 

 

ARTICLE XIII

 

EVENTS OF DEFAULT

 

8.1     Events of Default. The occurrence of any one or more of the following
events shall constitute an Event of Default hereunder (whether such occurrence
shall be voluntary or involuntary or come about or be effected by operation of
Law or otherwise):

 

(a)     Borrowers shall fail to make any monthly or other scheduled payment on
the Revolver Notes when due and such failure shall continue for three (3) days
after such due date, or fail to pay the Revolver Notes within five (5) days of
the scheduled due date thereof (whether by extension, renewal, acceleration,
maturity or otherwise); or

 

(b)     Any representation or warranty of Borrowers made herein or in any
writing furnished in connection with or pursuant to any of the Loan Documents
shall have been false or misleading in any material respect on the date when
made and continues to have a material adverse effect on Borrowers or their
financial capacity or business operations; or

 

(c)     Borrowers shall fail to duly observe, perform or comply with any
covenant, agreement or term (other than payment provisions which are governed by
Section 8.1(a) hereof) contained in this Agreement or any of the Loan Documents
and such default or breach shall have not been cured or remedied within the
earlier of thirty (30) days after Borrowers shall know (or should have known) of
its occurrence or twenty (20) days following receipt of notice thereof from the
Agent; or

 

(d)     Borrowers shall default in the payment of principal or of interest on
any other obligation for money borrowed or received as an advance (or any
obligation under any conditional sale or other title retention agreement, or any
obligation issued or assumed as full or partial payment for property whether or
not secured by purchase money Lien, or any obligation under notes payable or
drafts accepted representing extensions of credit) in excess of $250,000 beyond
any grace period provided with respect thereto, or shall default in the
performance of any other agreement, term or condition contained in any agreement
under which such obligation is created (or if any other default under any such
agreement shall occur and be continuing beyond any period of grace provided with
respect thereto) if the effect of such default is to cause the holder or holders
of such obligation (or a trustee on behalf of such holder or holders) to
accelerate the due date of such obligation prior to its scheduled date of
maturity; or

 

(e)     Any (i) Bankruptcy Event shall occur with respect to either of the
Borrowers or GP; or (ii) Borrowers shall fail to make timely payment or deposit
of any amount of tax required to be withheld by Borrowers and paid to or
deposited to or to the credit of the United States of America pursuant to the
provisions of

 

49

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

 

 

the Internal Revenue Code of 1986, as amended, in respect of any and all wages
and salaries paid to employees of Borrowers; or

 

(f)     Any final judgment on the merits for the payment of money in an amount
in excess of $250,000 shall be outstanding against Borrowers, and such judgment
shall remain unstayed and in effect and unpaid for more than thirty (30) days;
or

 

(g)     Any Reportable Event described in Section 7.13 hereof which the Agent
determines in good faith might constitute grounds for the termination of a Plan
therein described or for the appointment by the appropriate United States
District Court of a trustee to administer any such Plan shall have occurred and
be continuing thirty (30) days after written notice to such effect shall have
been given to the Agent by Borrowers, or any such Plan shall be terminated, or a
trustee shall be appointed by a United States District Court to administer any
such Plan or the Pension Benefit Guaranty Corporation shall institute
proceedings to terminate any such Plan or to appoint a trustee to administer any
such Plan; or

 

(h)     Any default or event of default occurs under any of the other Loan
Documents, including without limitation, the Mortgage or any default or event of
default occurs under any other agreement between Borrowers and the Agent and/or
Lenders; or

 

(i)     Any default, event of default, termination event, additional termination
event or similar event occurs under any Hedge Agreement between Borrowers and
any Swap Counterparty; or

 

(j)     A Material Adverse Change shall occur and not be remedied within thirty
(30) days of its occurrence or Borrowers' receipt of notification thereof from
the Agent.

 

8.2     Remedies. Upon the occurrence of any Event of Default referred to in
Section 8.1(e) the Revolver Commitment shall immediately terminate, and the
Revolver Note and all other Indebtedness shall be immediately due and payable,
without notice of any kind. Upon the occurrence of any other Event of Default,
and without prejudice to any right or remedy of the Agentunder this Agreement or
the Loan Documents or under applicable Law of under any other instrument or
document delivered in connection herewith, the Agent may (i) immediately impose
the Default Rate on the Revolver Notes and all other outstanding Indebtedness,
(ii) declare the Revolver Commitment terminated, and/or (iii) declare the
Revolver Commitment terminated and declare the Revolver Notes and the other
Indebtedness, or any part thereof, to be forthwith due and payable, whereupon
the Revolver Notes and the other Indebtedness, or such portion as is designated
by the Agent shall forthwith become due and payable, without presentment,
demand, notice or protest of any kind, all of which are hereby expressly waived
by Borrowers. No delay or omission on the part of the Agent in exercising any
power or right hereunder or under the Revolver Notes, the Loan Documents or
under

 

50

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

 

 

applicable law shall impair such right or power or be construed to be a waiver
of any default or any acquiescence therein, nor shall any single or partial
exercise by the Agent of any such power or right preclude other or further
exercise thereof or the exercise of any other such power or right by the Agent.
In the event that all or part of the Indebtedness becomes or is declared to be
forthwith due and payable as herein provided, the Agent shall have the right to
set off the amount of all the Indebtedness of Borrowers owing to the
Agentagainst, and shall have, and is hereby granted by Borrowers, a lien upon
and security interest in, all property of Borrowers in the Agent's possession at
or subsequent to such default, regardless of the capacity in which the Agent
possesses such property, including but not limited to any balance or share of
any deposit, collection or agency account. After Default all proceeds received
by the Agent may be applied to the Indebtedness in such order of application and
such proportions as the Agent, in its discretion, shall choose. At any time
after the occurrence and continuation of any Event of Default, the Agent may, at
its option, cause an audit of any and/or all of the books, records and documents
of Borrowers to be made by auditors reasonably satisfactory to the Agent at the
expense of Borrowers. The Agent also shall have, and may exercise, each and
every right and remedy granted to it for default under the terms of the Security
Instruments and the other Loan Documents.

 

8.3     Allocation of Payments after Event of Default. Notwithstanding any other
provisions of this Agreement to the contrary, after the occurrence and during
the continuance of an Event of Default, all amounts collected or received on or
in respect of the Indebtedness (or other amounts owing under the Loan Documents
in connection therewith) shall be paid over or delivered in accordance with any
Intercreditor Agreement, or if no Intercreditor Agreement is in place, in the
Agent's discretion.

 

ARTICLE IX

 

LOAN OPERATIONS

 

9.1     Interests in Loans/Commitments. The Percentage Interest of each of the
Lenders, as well as each Lender that may hereafter become an Assignee or Credit
Participant pursuant to Article X hereof, for the amount of Indebtedness not in
excess of the aggregate Revolver Commitment shall be evidenced by an additional
Note(s) issued hereunder by Borrower to the order of such additional Lender in
form and content similar to the applicable form of Revolver Notes executed by
the existing Lenders (in which event such existing Revolver Notes of the selling
Lender would be reissued concurrently therewith in a correspondingly reduced
original principal amount). In no event shall the aggregate outstanding
principal amount of all Revolver Notes issued hereunder exceed the Revolver
Commitment Amount in all of the Revolver Notes and Letters of Credit and the
Revolver Commitment, which shall be computed for each existing Lender as more
particularly set forth in Schedule 1 annexed hereto, as modified, supplemented
and amended from time to time in connection with Section 2.1. The respective
Percentage Interests of Lenders as from time to time in effect and reflected in
the Register, are referred to as the Percentage Interest with respect to all or
any portion of the Revolver Loans, the Letters of Credit and the Revolver
Commitment. Lenders signatory hereto have no obligation to increase the
Commitments above either

 

51

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

 

 

such Lender's respective existing Percentage Interest or applicable Commitment
amount or, in the aggregate for all of the Lenders, to an amount in excess of
the aggregate amount of applicable Commitments set forth on Schedule 1, as
revised and supplemented from time to time, and any future determination of
Lenders to increase their individual Commitment shall be in Lenders' sole and
absolute discretion and, if applicable, subject to such Lender obtaining
Assignee(s) or Credit Participant(s) under Article X hereof for all amounts of
the respective Commitment(s) in excess of the existing maximum amount of such
amount(s).

 

9.2     Authority to Act. Each Lender appoints and authorizes Agent to act for
such Lender as agent in connection with the transactions contemplated by this
Agreement and the other Credit Documents on the terms set forth herein. In
acting hereunder, Agent is acting for the account of Simmons Bank to the extent
of its Percentage Interest, and, in each such instance Agent is also acting for
the account of each other Lender to the extent of such Lender's Percentage
Interest, and all action in connection with the enforcement of, or the exercise
of any remedies (other than Lenders' rights of set off as provided herein or in
any other Credit Document) in respect of the Collateral shall be taken by Agent
in accordance herewith. Each of Lenders now or hereafter signatory party hereto
shall initially and primarily contact and deal with Agent insofar as loan
operations and remedial or other actions are concerned in connection with the
Loans, Borrower and the compliance of Borrower with its liabilities, duties and
obligations hereunder and under the other Credit Documents. The amounts payable
at any time under the Credit Documents to each Lender shall be a separate and
independent debt, and each Lender shall be entitled to protect and enforce its
rights arising under this Agreement and the other Credit Documents, and it shall
not be necessary for any other Lender to be joined as an additional party in any
proceeding for such purpose.

 

9.3     Borrower to Pay Agent. Borrower shall be fully protected in making all
payments in respect of the Notes evidencing the Loans to Agent, in relying upon
consents, modifications and amendments executed by Agent purportedly on Lenders'
behalf, and in dealing with Agent as herein provided. Upon three (3) Business
Days' notice, Agent may charge the accounts of Borrower, on the dates when the
amounts thereof become due and payable under the Loan Documents, including any
amounts paid by Agent to third parties under Letters of Credit or drafts
presented thereunder, commitment fees, Letter of Credit issuance fees and
fronting or processing/application fees pertaining thereto, commitment fees, Non
Usage Fees, and all other fees and amounts owing under any Credit Document.

 

9.4     Lender Operations for Advances, Letters of Credit.

 

(a)     Advances. On the funding date for each Loan evidenced by a Note, each
Lender shall advance to Agent in immediately available funds such Lender's
Percentage Interest in the portion of a Loan advanced on such funding date prior
to 1:00 o'clock p. m. (applicable current time in Little Rock, Arkansas). If
such funds are not received at such time, but all applicable conditions set
forth in Article VII have been satisfied, each Lender authorizes and requests
Agent to

 

52

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

 

 

advance for such Lender's account, pursuant to the terms hereof, the Lender's
respective Percentage Interest in such portion of such Loan and agrees to
reimburse Agent in immediately available funds for the amount thereof prior to
2:00 o'clock p.m. (applicable current time in Little Rock, Arkansas) on the day
any portion of such Loan is advanced hereunder; provided, however, that Agent is
not required or authorized to make any such advance for the account of any
Lender who has previously notified Agent in writing that such Lender will not be
performing its obligations to make further advances hereunder.

 

(b)     Letters of Credit. Each of Lenders authorizes and requests each Letter
of Credit Issuer to issue the Letters of Credit provided for in Article II and
agrees to purchase a participation in each of such Letters of Credit in an
amount equal to its Percentage Interest in the amount of each such Letter of
Credit. Promptly upon the request of any Letter of Credit Issuer, each Lender
shall reimburse such Letter of Credit Issuer in immediately available funds for
such Lenders Percentage Interest in the amount of all Indebtedness to third
parties incurred by the Letter of Credit Issuer in respect of each Letter of
Credit and each draft accepted under a Letter of Credit to the extent not timely
reimbursed by Borrower. Each Letter of Credit Issuer will notify each Lender
(and Agent if Agent is not the Letter of Credit Issuer) of the issuance of each
Letter of Credit, the amount and date of payment of any draft drawn or accepted
under a Letter of Credit and whether in connection with the payment of any such
draft the amount thereof was added to the Revolver Loans or was reimbursed by
Borrower.

 

(c)     Agent to Allocate Payments. All payments of principal and interest in
respect of the extensions of credit made pursuant to this Agreement,
reimbursement of amounts paid by each Letter of Credit Issuer to third parties
under Letters of Credit or drafts presented thereunder, Letter of Credit
issuance fees, commitment fees, and other fees under this Agreement, shall, as a
matter of convenience, be made by Borrower to the applicable Letter of Credit
Issuer or Agent, as the case may be. The share of each Lender shall be credited
to such Lender by Agent in immediately available funds in such manner that the
principal amount of the Loans to be paid shall be paid proportionately in
accordance with Lenders' respective Percentage Interests in such Loans, except
as otherwise provided in this Agreement.

 

(d)     Delinquent Lenders; Nonperforming Lenders. In the event that any Lender
fails to reimburse Agent pursuant to Section 9.8(g) for the Percentage Interest
of such Lender (a "Delinquent Lender") in any credit advanced by Agent pursuant
hereto at a time when Borrower is not in Default hereunder, overdue amounts (the
"Delinquent Payment") due from the Delinquent Lender to Agent shall bear
interest, payable by the Delinquent Lender on demand, at a per annum rate equal
to (a) the Federal Funds Rate for the first three days overdue and (b) the sum
of two percentage points (2%) plus the Federal Funds Rate for any longer period.
Such interest shall be payable to Agent for its own account for the period
commencing on the date of the Delinquent Payment and ending on the date the
Delinquent Lender reimburses Agent on account of the Delinquent

 

53

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

 

 

Payment (to the extent not paid by Borrower as provided below) and the accrued
interest thereon (the "Delinquency Period"), whether pursuant to the assignments
referred to below or otherwise. Upon notice by Agent, Borrower will pay to Agent
the principal (but not the interest) portion of the Delinquent Payment. During
the Delinquency Period, in order to make reimbursements for the Delinquent
Payment and accrued interest thereon, the Delinquent Lender shall be deemed to
have assigned to Agent all interest, commitment fees and other payments made by
Borrower hereunder that would have thereafter otherwise been payable under the
Credit Documents to the Delinquent Lender. During any other period in which any
Lender is not performing its obligations to extend credit under Article II
hereof (a "Nonperforming Lender"), the Nonperforming Lender shall be deemed to
have assigned to each Lender that is not a Nonperforming Lender (a "Performing
Lender") all principal and other payments made by Borrower that would have
thereafter otherwise been payable thereunder to the Nonperforming Lender. Agent
shall credit a portion of such payments to each Performing Lender in an amount
equal to the Percentage Interest of such Performing Lender divided by one minus
the Percentage Interest of the Nonperforming Lender until the respective
portions of the Loans owed to all Lenders are the same as the Percentage
Interests of Lenders immediately prior to the failure of the Nonperforming
Lender to perform its obligations under Article II hereof. The foregoing
provisions shall be in addition to any other remedies Agent, the Performing
Lenders or Borrower may have under Law or equity against the Delinquent Lender
as a result of the Delinquent Payment or against the Nonperforming Lender as a
result of its failure to perform its obligations under Article II hereof.

 

9.5     Sharing of Payments. To the extent not prohibited by applicable Lender
regulatory and legal requirements imposed on a mandatory basis under applicable
Law, each Lender agrees that (i) other than permitted pursuant to Section 12.24,
if by exercising any right of set off or counterclaim or otherwise, it shall
receive (whether directly or on account of an Affiliate of such Lender
exercising a right of set off) payment of (a) a proportion of the aggregate
amount due with respect to its Percentage Interest in the Loans, Letters of
Credit and such Hedge Transaction other than on account of cash collateral held
by a Hedge Lender securing and collateralized by cash collateral which is
greater than (b) the proportion received by any other Lender in respect of the
aggregate amount due with respect to such other Lender's Percentage Interest in
the Loans, Letters of Credit and Hedge Transaction not collateralized by cash
collateral, and (ii) if such inequality shall continue for more than ten (10)
days, the Lender receiving such proportionately greater payment shall purchase
participations in the Percentage Interests in the Loans and Letters of Credit
held by the other Lenders, and such other adjustments shall be made from time to
time (including rescission of such purchases of participations in the event the
unequal payment originally received is recovered from such Lender through
bankruptcy proceedings or otherwise), as may be required so that all such
payments of principal and interest with respect to the Loans, Letters of Credit
and Hedge Transaction not collateralized by cash collateral held by Lenders
shall be shared by Lenders pro rata in accordance with their respective
Percentage Interests; provided, however, that this Section 9.5 shall not impair
the right

 

54

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

 

 

of any Lender to exercise any right of set off or counterclaim it may have and
to apply the amount subject to such exercise to the payment of Indebtedness of
Borrower (including Hedge Transaction collateralized by cash collateral) other
than Borrower's Indebtedness with respect to the Loans, Letters of Credit and
Hedge Transaction not collateralized by cash collateral; and provided, further,
that this Section 9.5 shall not impair the right of any Lender or Affiliate
thereof to exercise any right of netting, set-off or counterclaim including any
rights of netting or set-off of or against any collateral or letter of credit
pledged by Borrower, to such Hedge Lender under any cash collateralized Hedging
Transaction, such netting, set-off or counterclaim being expressly excluded from
the duty to share the proceeds on a ratable basis with the other Lenders. Each
Lender that grants a participation in the Loans and Commitments to a Credit
Participant shall require as a condition to the granting of such participation
that such Credit Participant agree to share payments received in respect of the
Indebtedness as provided in this Section 9.5. The provisions of this Section 9.5
are for the sole and exclusive benefit of Lenders and no failure of any Lender
to comply with the terms hereof shall be available to Borrower as a defense to
the payment of the Loans.

 

9.6     Amendments, Consents, Waivers. Except as otherwise set forth herein,
Agent may (and upon the written request of the Required Lenders the applicable
Agent shall) take or refrain from taking any action under this Agreement or any
other Credit Document. No modification, forbearance or waiver of compliance with
any covenant, term or condition in this Agreement or any other Credit Document
or any Default or Event of Default shall be binding upon all of the Lenders
unless consented to in writing by the Required Lenders (as calculated pursuant
to the respective Percentage Interests specified in Section 9.1 above (other
than Delinquent Lenders during the existence of a Delinquency Period so long as
such Delinquent Lender is treated the same as the other Lenders with respect to
any proposed action); provided, however, that without the written consent of
each Lender (other than Delinquent Lenders during the existence of a Delinquency
Period so long as such Delinquent Lender is treated the same as the other
Lenders with respect to any actions enumerated below):

 

(a)     no reduction or waiver shall be made in (i) the amount of principal of
any of the Loans, reimbursement obligations for payments made under Letters of
Credit or any other payment obligations, (ii) interest rate on the Notes, (iii)
the Letter of Credit issuance fees (excluding, however, Letter of Credit
fronting and/or processing/application fees, the amount of which shall be within
the reasonable discretion of each applicable Letter of Credit Issuer), or (iv)
Commitment or non-usage fees;

 

(b)     no change shall be made in the stated time of payment of all or any
portion of any of the Revolver Notes or interest thereon or reimbursement of
payments made under Letters of Credit or fees relating to any of the foregoing
payable to all of the Lenders and no waiver shall be made of any Default or
Event of Default under Section 8.1(a);

 

55

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

 

 

(c)     subject to the provisions of Section 10.4, no increase shall be made in
the amount, or extension of the term, of any of the Commitments or the Revolver
Commitment Amount;

 

(d)     no alteration shall be made of Lenders' rights of set off contained
herein or in the other Credit Documents, or of the pro rata sharing provisions
of Section 9.5 or any waterfall, payment or distribution priority provisions of
the Credit Documents;

 

(e)     no release of any Collateral, other than cash Collateral released in the
ordinary course of business or sales of business ownership interests for fair
value, shall be made in excess of $1,000,000 in the aggregate during any
consecutive twelve (12) month period (except that Agent may release particular
items of Collateral in dispositions permitted by the Collateral Documents in
accordance with the terms and provisions thereof and may release all of the
Collateral upon the payment in full of the Loans and all other Indebtedness and
termination or extinguishment of the Commitments without the written consent of
Lenders);

 

(f)     no extension of the stated expiration date of any Letter of Credit
beyond the Revolver Final Maturity Date shall be made;

 

(g)     no release of Borrower shall be made;

 

(h)     no increase in the Maximum Revolver Commitment Amount shall be made; or

 

(i)     no amendment to, modification of or waiver to Section 2.13, Section
2.19, Article V, this Section 9.6, Section 9.7, Article X, the definition of
"Required Lenders", the definition of or provisions relating to determining a
Lender's "Percentage Interest" or any other provision of the Credit Documents
that provides for the consent of all Lenders shall be made.

 

9.7     Agent's Resignation. Agent may resign at any time by giving at least
thirty (30) days' prior written notice of its intention to do so to each other
of Lenders and Borrower and upon the appointment by the Required Lenders of a
successor Agent satisfactory to Borrower (so long as no Event of Default
exists). If no successor Agent shall have been so appointed and shall have
accepted such appointment within 45 days after the retiring Agent's giving of
such notice of resignation, then the retiring Agent may with the written consent
of Borrower (so long as no Event of Default exists), which shall not be
unreasonably withheld, appoint a successor Agent which shall be a Lender or a
trust company organized under the Laws of the United States of America or any
state thereof and having a combined capital, surplus and undivided profit of at
least $500,000,000; provided, however, that any successor Agent appointed under
this sentence may be removed upon the written request of the Required Lenders.
Upon the appointment of a new Agent hereunder, the term "Agent" shall for all
purposes of the Credit Documents thereafter mean such successor. After any
retiring Agent's

 

56

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

 

 

resignation hereunder as Agent, or the removal hereunder of any successor Agent,
the provisions of the Credit Documents shall continue to inure to the benefit of
such Agent as to any actions taken or omitted to be taken by it while it was
Agent under the Credit Documents. Upon the written direction of the Required
Lenders, any Agent may be removed for cause, provided that if the same Person
serves as both Agent and the Collateral Agent, then the removal of any Agent for
cause shall automatically cause such Person to be removed in its capacity as the
other Agent, and the Required Lenders may appoint one or more Persons as
successor Agent or Collateral Agent, or both, contemporaneously with, upon or
after such removal.

 

9.8     Concerning Agents.

 

(a)     Action in Good Faith. Agent and its officers, directors, employees and
agents shall be under no liability to any Lenders or to any future holder of any
interest in the Indebtedness for any action or failure to act taken or suffered
in good faith, other than gross negligence or willful misconduct and any action
or failure to act in accordance with an opinion of its counsel shall
conclusively be deemed to be in good faith. Agent shall in all cases be entitled
to rely, and shall be fully protected in relying, on instructions given to Agent
by the Required Lenders.

 

(b)     No Implied Duties. Agent shall have and may exercise such powers as are
specifically delegated to Agent under this Agreement or any other Credit
Document together with all other powers incidental thereto. Agent shall not have
any implied duties to any Person or any obligation to take any action under this
Agreement or any other Credit Document except for action specifically provided
for in this Agreement or any other Credit Document to be taken by Agent. Before
taking any action under this Agreement or any other Credit Document, Agent may
request an appropriate specific indemnity satisfactory to it from each Lender in
addition to the general indemnity provided for in Section 9.11. Until Agent has
received such specific indemnity, Agent shall not be obligated to take (although
Agent may in its sole discretion take) any such action under this Agreement or
any other Credit Document. Each Lender confirms that Agent does not have a
fiduciary relationship to Lenders under the Credit Documents. Borrower confirms
that neither Agent nor any other Lender has a fiduciary relationship to Lenders
under the Credit Documents.

 

(c)     Validity. Agent shall not be responsible to any Lender or any future
holder of any interest in the Loans and Indebtedness (a) for the legality,
validity, enforceability or effectiveness of this Agreement or any other Credit
Document, (b) for any recitals, reports, representations, warranties or
statements contained in or made in connection with this Agreement or any other
Credit Document, (c) for the existence or value of any assets included in any
security for the Loans and Indebtedness, (d) for the effectiveness of any Lien
purported to be included in the Collateral, (e) for the specification or failure
to specify any particular assets to be included in the Collateral, or (f) unless
Agent shall have failed to comply with Section 9.8(a), for the perfection of the
security interests in the Collateral.

 

57

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

 

 

(d)     Compliance. Agent shall not be obligated to ascertain or inquire as to
the performance or observance of any of the terms of this Agreement or any other
Credit Document; and in connection with any extension of credit under this
Agreement or any other Credit Document, Agent shall be fully protected in
relying on certificates of Borrower as to the fulfillment by Borrower of any
conditions to such extension of credit.

 

(e)     Employment by Agent of Counsel. Agent may execute any of its duties
under this Agreement or any other Credit Document by or through employees,
agents and attorneys in fact and shall not be responsible to any of Lenders or
Borrower for the default or misconduct of Agent or attorney in fact selected
thereby acting in good faith except for gross negligence or willful misconduct.
Agent shall be entitled to advice of counsel concerning all matters pertaining
to the agency hereby created and its duties hereunder or under any other Credit
Document.

 

(f)     Reliance on Documents and Counsel. Agent shall be entitled to rely, and
shall be fully protected in relying, upon any affidavit, certificate, cablegram,
consent, instrument, letter, notice, order, document, statement, telecopy,
telegram, telex or teletype message or writing reasonably believed in good faith
by Agent to be genuine and correct and to have been signed, sent or made by the
Person in question, including any telephonic or oral statement made by such
Person, and, with respect to legal matters, upon an opinion or the advice of
counsel selected by Agent.

 

(g)     Reimbursement. Each of Lenders severally agrees to reimburse Agent, in
the amount of such Lender's Percentage Interest, for any reasonable expenses not
reimbursed by Borrower (without limiting the obligation of Borrower to make such
reimbursement): (a) for which Agent is entitled to reimbursement by Borrower
under this Agreement or any other Credit Document, and (b) after the occurrence
of a Default, or an Event of Default, for any other reasonable expenses incurred
by Agent on Lenders' behalf in connection with the enforcement of Lenders'
rights under this Agreement or any other Credit Document.

 

9.9     Rights as a Lender. With respect to any Loan(s) or advance(s) extended
by Lenders hereunder, Agent shall have the same rights, obligations and powers
hereunder as any other Lender and may exercise such rights and powers as though
Agent were not Agent, and unless the context otherwise specifies, Agent shall be
treated in its individual capacity as though it were not Agent hereunder.
Without limiting the generality of the foregoing, except to the extent
specifically provided herein to the contrary, the Percentage Interest of Lenders
serving in the capacity as an Agent shall be included in any computations of
Percentage Interests. Agent may accept deposits from, lend money to, act as
trustee for and generally engage in any kind of banking or trust business with
Borrower or any of Borrower's Subsidiaries, and any Person who may do business
with or own an equity interest in Borrower or any of its Subsidiaries, all

 

58

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

 

 

as if Agent were not Agent and without any duty to account therefor to the other
Lenders.

 

9.10     Independent Credit Decision. Each of Lenders acknowledges that it has
independently and without reliance upon Agent, based on the financial statements
and other documents referred to in Section 3.5, on the other representations and
warranties contained herein and on such other information with respect to
Borrower and its Subsidiaries as such Lender deemed appropriate, made such
Lender's own credit analysis and decision to enter into this Agreement and to
make the extensions of credit provided for hereunder. Each Lender represents to
Agent that such Lender will continue to make its own independent credit and
other decisions in taking or not taking action under this Agreement or any other
Credit Document. Each Lender expressly acknowledges that neither Agent nor any
of its officers, directors, employees, agents or attorneys-in-fact has made any
representations or warranties to such Lender, and no act by Agent taken under
this Agreement or any other Credit Document, including any review of the affairs
of Borrower and its Subsidiaries, shall be deemed to constitute any
representation or warranty by Agent. Except for notices, reports and other
documents expressly required to be furnished to each Lender by Agent under this
Agreement or any other Credit Document, Agent shall have no duty or
responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, condition, financial or
otherwise, or creditworthiness of Borrower or any Subsidiary which may come into
the possession of Agent or any of its officers, directors, employees, agents or
attorneys in fact.

 

9.11     Indemnification. The holders of the Indebtedness shall indemnify Agent
and its officers, directors, employees (to the extent not reimbursed by Borrower
and without limiting the obligation of Borrower to do so), pro rata in
accordance with their respective Percentage Interests, from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind whatsoever which may at any
time be imposed on, incurred by or asserted against Agent or such Persons
relating to or arising out of this Agreement, any other Credit Document, the
transactions contemplated hereby or thereby, or any action taken or omitted by
Agent in connection with any of the foregoing; provided, however, that the
foregoing shall not extend to the loss of principal or interest on the loan
advances evidenced by the Notes (of such Agent(s) as one of Lenders) or to
actions or omissions which are taken by Agent or such Persons in bad faith, with
gross negligence or willful misconduct.

 

ARTICLE X

 

ASSIGNMENT/PARTICIPATIONS

 

10.1     Successors and Assigns; Lender Assignment and Participations. Any
reference in this Agreement to any party hereto shall be deemed to include the
successors and assigns of such party, and all covenants and agreements by or on
behalf of Borrower, Agent or Lenders that are contained in this Agreement or any
other Credit Documents shall bind and inure to the benefit of their respective
successors and

 

59

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

 

 

assigns; provided, however, that (a) Borrower may not assign its rights or
obligations under this Agreement without the prior written consent of Lenders,
and (b) Lenders shall be not entitled to assign their respective Percentage
Interests in the Loans or other Indebtedness evidenced by the Notes hereunder
except as set forth below in Section 10.2.

 

10.2     Assignments By Lenders.

 

(a)     Assignees and Assignment Procedures. Each Lender may (i) without the
consent of Agent or Borrower if the proposed assignee is already a Lender
hereunder or a wholly owned Subsidiary of the same corporate parent of which the
assigning Lender is a Subsidiary, or (ii) otherwise with the prior written
consent of Agent and (so long as no Default or Event of Default exists) Borrower
(which such consents shall not be unreasonably withheld, delayed or conditioned
and shall be deemed granted if Borrower fails to object to such assignment
within ten (10) days after notice thereof), in compliance with applicable Laws
in connection with such assignment, assign to one or more commercial lenders or
other financial institutions (each, an "Assignee") all or a portion of its
interests, rights and obligations under this Agreement and the other Credit
Documents, including all or a portion, which need not be pro rata among the
Loans and the Letters of Credit, of its Commitment, the portion of the Loans and
Letters of Credit at the time owing to it and the Notes held by it, but
excluding its rights and obligations as Agent; provided, however, that:

 

(i)     the aggregate amount of the Commitments of the assigning Lender subject
to each such assignment to any Assignee other than another Lender (determined as
of the date the Assignment and Acceptance with respect to such assignment is
delivered to Agent) shall be not less than $5,000,000 and in increments of
$500,000 in excess thereof; and

 

(ii)     the parties to each such assignment shall execute and deliver to Agent
an Assignment and Acceptance (the "Assignment and Acceptance") in the form
satisfactory to Agent, together with the Notes subject to such assignment.

 

Notwithstanding anything in this Agreement to the contrary, in no event may
Borrower or any of its respective affiliates (each a "Restricted Person")
constitute or become a Lender hereunder, and any purported or attempted
assignment made in violation of the preceding sentence to any Restricted Person
shall automatically be null and void and without legal effect.

 

Upon acceptance and recording pursuant to Section 10.2(d), (which acceptance and
recording shall be deemed to occur in any event three (3) Business Days
following satisfaction of all other requirements hereunder) from and after the
effective date specified in each Assignment and Acceptance (which effective date
shall be at least three (3) Business Days after the execution thereof unless
waived in writing by Agent): (x) the Assignee shall be a party hereto and, to
the extent provided in such Assignment

 

60

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

 

 

and Acceptance, have the rights and obligations of a Lender under this
Agreement; and (y) the assigning Lender shall, to the extent provided in such
assignment, be released from its obligations under this Agreement (and, in the
case of an Assignment and Acceptance covering all or the remaining portion of an
assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto but shall continue to be entitled to any
interest and fees accrued for its account hereunder and not yet paid).

 

(b)     Terms of Assignment and Acceptance. By executing and delivering an
Assignment and Acceptance, the assigning Lender and Assignee shall be deemed to
confirm to and agree with each other and the other parties hereto as follows:

 

(i)     Other than the representation and warranty that it is the legal and
beneficial owner of the interest being assigned thereby free and clear of any
adverse claim, such assigning 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 or value of this
Agreement, any other Credit Document or any other instrument or document
furnished pursuant hereto.

 

(ii)     Such assigning Lender makes no representation or warranty and assumes
no responsibility with respect to the financial condition of Borrower and its
Subsidiaries or the performance or observance by Borrower or any of its
Subsidiaries of any of its obligations under this Agreement, any other Credit
Document 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 most recent quarterly or annual financial statements
delivered pursuant hereto 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 Agent, such
assigning Lender or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement.

 

(v)     Such Assignee appoints and authorizes Agent to take such action as Agent
on its behalf and to exercise such powers under this Agreement as are delegated
to Agent by the terms hereof, together with such powers as are reasonably
incidental thereto.

 

(vi)     Such Assignee agrees that it will perform in accordance with the terms
of this Agreement all the obligations which are to be performed by it as a
Lender.

 

61

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

 

 

(c)     Register. Agent may maintain at its main Oklahoma City, Oklahoma banking
office a register (the "Register") for the recordation of (a) the names and
addresses of Lenders and the Assignees which assume rights and obligations
pursuant to an assignment under Section 10.2(a), (b) the Percentage Interest of
each such Lender as set forth in Section 9.1 and (c) the amount of the Loans and
Letters of Credit owing to each Lender from time to time, provided, the failure
to maintain such Register shall not affect or release Borrower from its
obligations under this Agreement or the other Credit Documents. The entries in
the Register shall be conclusive, in the absence of manifest error, and
Borrower, Agent and Lenders may treat each Person whose name is registered
therein for all purposes as a party to 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)     Acceptance of Assignment and Assumption. Upon its receipt of a completed
Assignment and Acceptance in the form of Exhibit F annexed hereto, executed by
an assigning Lender and an Assignee, in exchange for the Revolver Note(s)
subject to such assignment, together with the Revolver Note(s) subject to such
assignment, Agent shall (a) accept such Assignment and Acceptance, (b) record
the information contained therein in the Register and (c) give prompt notice
thereof to Borrower. Within ten (10) days after receipt of notice, Borrower, at
its own expense, shall execute and deliver to Agent, in exchange for the
surrendered Revolver Note(s), a new Revolver Note(s) to the order of such
Assignee in a principal amount equal to the applicable Commitment and Loans
assumed by it pursuant to such Assignment and Acceptance and, if the assigning
Lender has retained Commitment and Loans, a new Note(s) to the order of such
assigning Lender in a principal amount equal to the applicable Commitments and
its Percentage Interest in the Loans retained by it. Such new Note(s) shall be
in an aggregate principal amount equal to the aggregate principal amount of such
surrendered Note(s), and shall be dated the date of the surrendered Note(s)
which it or they replace. All such Note(s) so replaced shall be delivered by
Agent to Borrower or, alternatively, at Agent's election, marked appropriately
to evidence the replacement thereof by such replacement Note(s).

 

(e)     Federal Reserve Lender. Notwithstanding the foregoing provisions of this
Article X, any Lender may at any time pledge or assign all or any portion of
such Lender's rights under this Agreement and the other Credit Documents to a
Federal Reserve Lender; provided, however, that no such pledge or assignment
shall release such Lender from such Lender's obligations hereunder or under any
other Credit Document.

 

(f)     Further Assurances. Borrower and its Subsidiaries shall sign such
documents and take such other actions from time to time reasonably requested by
an Assignee to enable it to share in the benefits of the rights created by the
Credit Documents.

 

62

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

 

 

10.3     Credit Participants. Each Lender may, without the consent of Borrower
or Agent, in compliance with applicable Laws in connection with such
participation, sell to one or more commercial Lenders or other financial
institutions (each a "Credit Participant") participations in all or a portion of
its interests, rights and obligations under this Agreement and the other Credit
Documents (including all or a portion of its Percentage Interest in the
Commitments, the Loans owing to it and the Note(s) held by it); provided,
however, that:

 

(a)     such Lender's obligations under this Agreement shall remain unchanged;

 

(b)     such Lender shall remain solely responsible to the other parties hereto
for the performance of such obligations;

 

(c)     the Credit Participant shall be entitled to the benefit of any cost
protection provisions contained in this Loan Agreement, but shall not be
entitled to receive any greater payment thereunder than the selling Lender would
have been entitled to receive with respect to the interest so sold if such
interest had not been sold; and

 

(d)     Borrower, Agent and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement, and such Lender shall retain the sole right as
one of Lenders to vote with respect to the enforcement of the obligations of
Borrower relating to the Loans and Letters of Credit and the approval of any
amendment, modification or waiver of any provision of this Agreement (other than
amendments, modifications, consents or waivers described in Section 9.6 as
requiring the consent of each Lender).

 

Borrower agrees, to the fullest extent permitted by applicable Law, that any
Credit Participant and any Lender purchasing a participation from another Lender
pursuant to this Section 10.3 may exercise all rights of payment (including the
right of set off), with respect to its participation as fully as if such Credit
Participant or such Lender were the direct creditor of Borrower and a Lender
hereunder in the amount of such participation. Upon receipt of notice of the
address of each Credit Participant, Borrower shall thereafter supply such Credit
Participants with the same information and reports communicated to Lenders.
Borrower hereby acknowledges and agrees that Credit Participants shall be deemed
a holder of the applicable Revolver Note(s) to the extent of their respective
participation, and Borrower hereby waives its right, if any, to offset amounts
owing to Borrower from Lenders against each Credit Participant's portion of the
applicable Revolver Notes.

 

10.4     Additional Lenders/Increase in Commitments by Existing Lenders. This
Agreement permits certain increases in an existing Lender's Commitment and the
admission of new or additional Lenders ("Additional Lenders") subject to the
limitations and conditions herein and the consent of Agent, Lenders and
Borrower, providing new or increased Commitments, none of which requires any
consents or approvals from the

 

63

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

 

 

other Lenders unless (i) the Revolver Commitment Amount (currently stipulated to
be $40,000,000.00) is increased above the Maximum Revolver Commitment Amount
(currently stipulated to be $75,000,000.00); provided, no Lender shall have any
obligation to agree to any increase in such Lender's Commitment), or (ii) the
economic terms associated with such increase in the Commitments vary from the
economic terms set forth in this Agreement, in each of which such instances
described in clauses (i) and (ii) above, each of Lenders must consent in
writing. Any amendment hereto for such an addition of Additional Lenders shall
be in the form attached hereto as Exhibit C and shall require (i) the written
signatures of Agent, Borrower and each of the Lender(s) being added or
increasing its or their Commitment(s) and (ii) payment by Borrower to Agent for
the allocable benefit of the additional or increased Lender the Loan origination
fee required by Section 2.17. In addition, within a reasonable time after the
effective date of any increase, Agent shall, and is hereby authorized and
directed to, revise and supplement Schedule 1 reflecting such increase and shall
distribute such revised Schedule 1 to each of Lenders and Borrower, whereupon
such revised and supplemented Schedule 1 shall replace the old Schedule 1 and
become part of this Agreement. On the Business Day following any such increase,
all outstanding Letter of Credit exposure and Revolver Loans shall be
reallocated among Lenders (including any Additional Lender(s)) in accordance
with Lenders' respective revised Percentage Interests, and all breakage funding
losses of each Lender not so increasing its Revolver Commitment shall be
promptly paid by Borrower upon receipt of notice from each such Lender
containing a reasonably detailed calculation of the amount thereof.

 

ARTICLE XI

 

MISCELLANEOUS

 

11.1     Notices. Unless otherwise provided herein, all notices, requests,
consents and demands shall be in writing and shall be either hand-delivered (by
reputable courier or otherwise) or mailed by certified mail, postage prepaid, to
the respective addresses specified below, or, as to any party, to such other
address as may be designated by it in written notice to the other parties:

 

If to Borrowers:

Energy 11, L.P. c/o Energy 11 GP, LLC

Energy 11 Operating Company, LLC

5815 N. Western Ave.

Oklahoma City, OK 73118

Attn: Anthony F. Keating, III, Co-COO

 

and

 

Energy 11, L.P. c/o Energy 11 GP, LLC

Energy 11 Operating Company, LLC

814 E. Main Street

Richmond, Virginia 23219

Attn: David McKenney, CFO

 

64

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

 

 

If to the Agent:

Simmons Bank

6301 Waterford Blvd., Suite 101

Oklahoma City, Oklahoma 73118

Attn: Charlie Crouse, Managing Director,

          Energy Division

 

All notices forwarded or submitted hereunder will be effective when
hand-delivered (via reputable courier system or otherwise by personal delivery)
to the applicable notice address set forth above or when mailed by certified
mail, postage prepaid, addressed as aforesaid, three (3) days thereafter.

 

11.2     Place of Payment. All sums payable hereunder shall be paid in
immediately available funds to the Agent, at its principal banking offices in
Oklahoma City, Oklahoma, or at such other place as the Agent shall notify
Borrowers in writing. If any interest, principal or other payment falls due on a
date other than a Business Day, then (unless otherwise provided herein) such due
date shall be extended to the next succeeding Business Day, and such extension
of time will in such case be included in computing interest, if any, in
connection with such payment.

 

11.3     Survival of Agreements. All covenants, agreements, representations and
warranties made herein shall survive the execution and the delivery of Loan
Documents. All statements contained in any certificate or other instrument
delivered by Borrowers hereunder shall be deemed to constitute representations
and warranties by Borrowers.

 

11.4     Parties in Interest. All covenants, agreements and obligations
contained in this Agreement shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto, except that Borrowers
may not assign its rights or obligations hereunder without the prior written
consent of the Agent.

 

11.5     Governing Law and Jurisdiction. This Agreement, the Revolver Notes, the
Security Instruments and all other Loan Documents (except any future ISDA
Agreement and any future Intercreditor Agreement that may be hereafter entered
into from time to time) shall be deemed to have been made or incurred under the
Laws of the State of Oklahoma and shall be construed and enforced in accordance
with and governed by the Laws of Oklahoma.

 

11.6     SUBMISSION TO JURISDICTION. BORROWERS HEREBY CONSENT TO THE
NON-EXCLUSIVE JURISDICTION OF ANY OF THE LOCAL, STATE, AND FEDERAL COURTS
LOCATED WITHIN OKLAHOMA COUNTY, OKLAHOMA AND WAIVE ANY OBJECTION WHICH BORROWERS
MAY HAVE BASED ON IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT OF ANY
PROCEEDING IN ANY SUCH COURT AND WAIVE PERSONAL SERVICE OF ANY AND ALL PROCESS
UPON THEM, AND CONSENT THAT ALL SUCH SERVICE OF PROCESS BE MADE BY MAIL OR
MESSENGER DIRECTED TO THEM AT THE ADDRESSES SET FORTH IN SUBSECTION 9.1 HEREOF
AND THAT SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON THE EARLIER OF
ACTUAL

 

65

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

 

 

RECEIPT OR THREE (3) BUSINESS DAYS AFTER MAILED OR DELIVERED BY MESSENGER.

 

11.7     Highest Lawful Rate. It is the intention of the parties hereto that
Lenders shall conform strictly to usury laws applicable to it. Accordingly, if
the transactions contemplated hereby would be usurious as to the Lenders under
laws applicable to it (including the laws of the United States of America and
the State of Oklahoma or any other jurisdiction whose laws may be mandatorily
applicable to the Lenders notwithstanding the other provisions of this
Agreement), then, in that event, notwithstanding anything to the contrary in any
of the Loan Documents or any agreement entered into in connection with or as
security for the Revolver Note or any ISDA Agreement, it is agreed as follows:
(i) the aggregate of all consideration which constitutes interest under law
applicable to the Lenders that is contracted for, taken, reserved, charged or
received by the Lenders under any of the Loan Documents or agreements or
otherwise in connection with the Revolver Notes or any ISDA Agreement shall
under no circumstances exceed the maximum amount allowed by such applicable law,
and any excess shall be canceled automatically and if theretofore paid shall be
credited by the Lenders on the principal amount of the Indebtedness (or, to the
extent that the principal amount of the Indebtedness shall have been or would
thereby be paid in full, refunded by the Lenders to Borrowers); and (ii) in the
event that the maturity of the Revolver Notes or any ISDA Agreement is
accelerated by reason of an election of the holder thereof resulting from any
Event of Default under this Agreement or otherwise, or in the event of any
required or permitted prepayment, then such consideration that constitutes
interest under law applicable to the Lenders may never include more than the
maximum amount allowed by such applicable law, and excess interest, if any,
provided for in this Agreement or otherwise shall be canceled automatically by
the Lenders as of the date of such acceleration or prepayment and, if
theretofore paid, shall be credited by the Bank on the principal amount of the
Indebtedness (or, to the extent that the principal amount of the Indebtedness
shall have been or would thereby be paid in full, refunded by the Bank to
Borrowers). All sums paid or agreed to be paid to the Agent or Lenders for the
use, forbearance or detention of sums due hereunder shall, to the extent
permitted by law applicable to the Lenders, be amortized, prorated, allocated
and spread throughout the full term of the Revolver Loans evidenced by the
Revolver Note or any ISDA Agreement until payment in full so that the rate or
amount of interest on account of any Revolver Loans hereunder does not exceed
the maximum amount allowed by such applicable law. If at any time and from time
to time (i) the amount of interest payable to the Lenders on any date shall be
computed at the Highest Lawful Rate applicable to the Lenders pursuant to this
Section 11.7 and (ii) in respect of any subsequent interest computation period
the amount of interest otherwise payable to the Lenders would be less than the
amount of interest payable to the Lenders computed at the Highest Lawful Rate
applicable to the Lenders, then the amount of interest payable to the Lenders in
respect of such subsequent interest computation period shall continue to be
computed at the Highest Lawful Rate applicable to the Lenders until the total
amount of interest payable to the Lenders shall equal the total amount of
interest which would have been payable to the Lenders if the total amount of
interest had been computed without giving effect to this Section 11.7.

 

66

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

 

 

11.8     No Waiver; Cumulative Remedies. No failure to exercise, and no delay in
exercising, on the part of the Agent, any right, power or privilege hereunder or
under any other Loan Document or applicable Law shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
of the Agent. The rights and remedies herein provided are cumulative and not
exclusive of any other rights or remedies provided by any other instrument or by
law. No amendment, modification or waiver of any provision of this Agreement or
any other Loan Document shall be effective unless the same shall be in writing
and signed by the parties. No notice to or demand on Borrowers in any case shall
entitle Borrowers to any other or further notice or demand in similar or other
circumstances.

 

11.9     Costs. Borrowers agree to pay to the Agent on demand all reasonable and
documented costs, fees and expenses (including without limitation reasonable
attorneys' fees and legal expenses) incurred or accrued by the Agent in
connection with the syndication, negotiation, preparation, execution, delivery,
filing, recording and administration of this Agreement, the Security Instruments
and the other Loan Documents, or any waiver, consent or modification thereto or
thereof, or any enforcement thereof. Borrowers further agree that all such fees
and expenses shall be paid regardless of whether or not the transactions
provided for in this Agreement are eventually closed and regardless of whether
or not any or all sums evidenced by the Revolver Notes are advanced to Borrowers
by the Lender. Upon Borrowers' failure to pay all such costs and expenses within
ten (10) days of the Lender's submission of invoices therefore, the Agent shall
pay such costs and expenses by debit to the general account of Borrowers without
further notice to Borrowers.

 

11.10      Participation. Borrowers recognize and acknowledge that the Lenders
may sell participating interests in the Revolver Loans to one or more financial
institutions (the "Participants"). Upon receipt of notice of the identity and
address of each such Participant, Borrowers shall thereafter supply such
Participant with the same information and reports communicated to the Lender,
whether written or oral. Borrowers hereby acknowledge that each Participant
shall be deemed a holder of the Revolver Note to the extent of its
participation, and Borrowers hereby waive their respective rights, if any, to
offset amounts owing to the Lender from Borrowers against any Participant's
portion of such Revolver Note.

 

11.11     WAIVER OF JURY. BORROWERS, AGENT AND LENDERS (BY ITS ACCEPTANCE
HEREOF) HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY
RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED ON
CONTRACT, TORT, OR OTHERWISE) BETWEEN BORROWERS, AGENT AND LENDERS ARISING OUR
OF OR IN ANY WAY RELATED TO THIS AGREEMENT, THE REVOLVER NOTES OR THE OTHER LOAN
DOCUMENTS. THIS PROVISION IS A MATERIAL INDUCEMENT TO LENDERS TO PROVIDE THE
FINANCING CONTEMPLATED HEREBY AND EVIDENCED BY THE REVOLVER NOTES.

 

11.12     Payments Set Aside. To the extent that any payment by or on behalf of
Borrowers is made to the Agent or the Agent exercises its right of setoff, and
such

 

67

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

 

 

payment or the proceeds of such setoff or any part thereof is subsequently
invalidated, declared to be fraudulent or preferential, set aside or required
(including pursuant to any settlement entered into by the Agent in its
discretion) to be repaid to a trustee, receiver or any other party, in
connection with any proceeding under any bankruptcy or other debtor relief law
or otherwise, then, to the extent of such recovery, the obligation or part
thereof originally intended to be satisfied shall be revived and continued in
full force and effect as if such payment had not been made or such setoff had
not occurred.

 

11.13     Full Agreement. This Agreement and the other Loan Documents contain
the full agreement of the parties and supersede all negotiations and agreements
prior to the date hereof.

 

11.14     Headings. The article and section headings of this Agreement are for
convenience of reference only and shall not constitute a part of the text hereof
nor alter or otherwise affect the meaning hereof.

 

11.15     Severability. The unenforceability or invalidity as determined by a
Tribunal of competent jurisdiction, of any provision or provisions of this
Agreement shall not render unenforceable or invalid any other provision or
provisions hereof.

 

11.16     Exceptions to Covenants. Borrowers shall not be deemed to be permitted
to take any action or fail to take any action which is permitted as an exception
to any of the covenants contained herein or which is within the permissible
limits of any of the covenants contained herein if such action or omission would
result in the breach of any other covenant contained herein.

 

11.17.     WAIVER OF SPECIAL DAMAGES BORROWERS WAIVE, TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT SUCH BORROWER MAY HAVE TO CLAIM OR RECOVER FROM THE
AGENT AND/OR THE LENDERS IN ANY LEGAL ACTION OR PROCEEDING ANY SPECIAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES.

 

11.18     Conflict with Security Instruments. To the extent the terms and
provisions of any of the Security Instruments are in conflict with the terms and
provisions hereof, this Agreement shall be deemed controlling. Reference is made
to any Intercreditor Agreement entered into on or after the date hereof as
contemplated by this Agreement and notwithstanding any other agreement, each of
Borrowers and the Agent and the Lenders (a) acknowledge that it has received a
copy of such Intercreditor Agreement, (b) consents to the priority of payments
and of Liens provided for in any such Intercreditor Agreement, and (c) agrees
that it will be bound by and will take no actions contrary to the provisions of
any such Intercreditor Agreement.

 

11.19     Exculpation Provisions. Each of Borrowers specifically agree that it
has a duty to read this Agreement and the Security Instruments and agrees that
it is charged with notice and knowledge of the terms of this Agreement and the
Security Instruments; that it has in fact read this Agreement and is fully
informed and has full notice and knowledge of the terms, conditions and effects
of this Agreement; that it has been

 

68

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

 

 

represented by independent legal counsel of its choice throughout the
negotiations preceding its execution of this Agreement and the Security
Instruments; and has received the advice of its attorney in entering into this
Agreement and the Security Instruments; and that it recognizes that certain of
the terms of this Agreement and the Security Instruments result in one party
assuming the liability inherent in some aspects of the transaction and relieving
the other party of its responsibility for such liability. Borrowers agree and
covenant that they will not contest the validity or enforceability of any
exculpatory provision of this Agreement and the Security Instruments on the
basis that the party had no notice or knowledge of such provision or that the
provision is not "conspicuous."

 

11.20     US PATRIOT Act Notice. IMPORTANT INFORMATION ABOUT PROCEDURES FOR
OPENING A NEW ACCOUNT. To help the government fight the funding of terrorism and
money laundering activities, federal law requires all financial institutions to
obtain, verify, and record information that identifies each person or entity
that opens an account, including any deposit account, treasury management
account, loan, other extension of credit, or other financial services product.
What this means for Borrowers: the Lenders hereby notify Borrowers that they are
required to obtain, verify and record information that identifies Borrowers,
including each of Borrowers' name, residential address, tax identification
number, and other information that will allow the Lenders to identify Borrowers.
The Lenders may also ask to see Borrowers' legal organizational documents or
other identifying documents. The Lenders will verify and record the information
the Lenders obtain from Borrowers pursuant to the USA PATRIOT Act, and will
maintain and retain that record in accordance with the regulations promulgated
under the USA PATRIOT Act.

 

11.21     Indemnification.

 

(a)     Indemnification. Borrowers agree to indemnify and hold harmless the
Agent, Lenders and Letter of Credit Issuer and its officers, directors,
trustees, employees, agents, and advisors (each, an "Indemnified Party") from
and against any and all claims, damages, losses, liabilities, costs, and
expenses (including reasonable attorneys' fees, disbursements and other charges)
that may be incurred by or asserted or awarded against any Indemnified Party, in
each case arising out of or in connection with or by reason of any
investigation, litigation, or proceeding (regardless of whether such Indemnified
Party is a party thereto or preparation of defense in connection therewith) the
Loan Documents or any of the transactions contemplated herein or in any of the
Loan Documents or the actual or proposed use of the proceeds of the Revolver
Loans or the letters of credit issued hereunder, except to the extent such
claim, damage, loss, liability, cost, or expense is found in a final,
non-appealable judgment by a court of competent jurisdiction to have resulted
from such Indemnified Party's gross negligence or willful misconduct. In the
case of an investigation, litigation or other proceeding to which the indemnity
in this Section 11.21 applies, such indemnity shall be effective whether or not
such investigation, litigation or proceeding is brought by Borrowers or any
Subsidiary thereof, their respective directors, shareholders or creditors or an
Indemnified Party or any other Person or any

 

69

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

 

 

Indemnified Party is otherwise a party thereto and whether or not the
transactions contemplated hereby are consummated. Borrowers agree not to assert,
and hereby waive, any claim against the Agent, the Lenders and the Letter of
Credit Issuer or any of their respective directors, officers, employees,
attorneys, agents, and advisors, on any theory of liability, for, direct or
indirect, special, incidental, consequential, exemplary or punitive damages
arising out of or otherwise relating to the Loan Documents, any of the
transactions contemplated herein or the actual or proposed use of the proceeds
of the Revolver Loans or the letters of credit issued hereunder.

 

(b)     Survival. Without prejudice to the survival of any other agreement of
Borrowers hereunder, the agreements and obligations of Borrowers contained in
this Section 11.21 shall survive the repayment of the Revolver Loans, the other
Indebtedness and other obligations under the Loan Documents and the termination
of the Revolver Commitment hereunder.

 

11.22     Recovery of Additional Costs. If any Change in Law (defined below)
shall impose, modify, or make applicable any taxes (except federal, state, or
local income or franchise taxes imposed on the Lenders), reserve requirements,
deposit requirements, capital adequacy requirements, Federal Deposit Insurance
Corporation (FDIC) deposit insurance premiums or assessments, or other
obligations which would (A) increase the cost to the Lenders for extending,
maintaining or funding the Revolver Commitment, (B) reduce the amounts payable
to the Lender under the Revolver Commitment, or (C) reduce the rate of return on
the Lender's capital as a consequence of the Lender's obligations with respect
to the Revolver Commitment, then Borrowers agree to pay the Lender such
additional amounts as will compensate the Lender therefor, within five (5) days
after the Lender's written demand for such payment. The Lender's demand shall be
accompanied by an explanation of such imposition or charge and a calculation in
reasonable detail of the additional amounts payable by Borrowers, which
explanation and calculations shall be conclusive in the absence of manifest
error. "Change in Law" means the occurrence after the date of this Agreement of:
(a) the adoption or effectiveness of any law, rule, regulation, judicial ruling,
judgment or treaty, (b) any change in any law, rule, regulation or treaty or in
the administration, interpretation, implementation or application by any court
or administrative or governmental authority of any law, rule, regulation or
treaty, or (c) the making or issuance by any court or administrative or
governmental authority of any request, rule, policy, guideline or directive,
whether or not having the force of law; provided that notwithstanding anything
herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer
Protection Act and all requests, rules, guidelines or directives thereunder or
issued in connection therewith and (y) all requests, rules, guidelines or
directives concerning capital adequacy promulgated by the Lenders for
International Settlements, the Basel Committee on Banking Supervision (or any
successor or similar authority) or the US or foreign regulatory authorities
shall, in each case, be deemed to be a "Change in Law", regardless of the date
enacted, adopted or issued.

 

11.23     Government Regulation. Borrowers shall not (1) be or become subject at
any time to any law, regulation, or list of any government agency (including,
without

 

70

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

 

 

limitation, the U.S. Office of Foreign Asset Control list) that prohibits or
limits Lenders from making any loan advance or extension of credit to Borrowers
or from otherwise conducting business with Borrowers, or (2) fail to provide
documentary and other evidence of Borrowers' identity as may be requested by
Lenders at any time to enable Lenders to verify Borrowers' identity or to comply
with any applicable law or regulation, including without limitation, Section 326
of the USA Patriot Act of 2001, 31 U.S.C. Section 5318.

 

11.24     Assignability. Borrowers agree that the Lenders, subject to existing
agreements between and/or among the Lenders and Borrowers and any applicable
confidentiality agreements, may provide any information or knowledge that
Lenders may have about Borrowers or about any matter relating to this Loan
Agreement or the other Loan Documents to any one or more purchasers or potential
purchasers of the Lender's interest in this Loan Agreement or any other Loan
Document. Borrowers agree that the Lenders may at any time sell, assign or
transfer one or more interests or participations in all or any part of its
rights and obligations in this Loan Agreement or any other Loan Document to one
or more purchasers whether or not related to the Lenders.

 

11.25     Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument.

 

11.26     Confidentiality. In the event that one or both Borrowers provide to
the Agent or Lenders written confidential information belonging to such
Borrower, the Agent and Lenders shall thereafter maintain such information in
confidence in accordance with the standards of care and diligence that each
utilizes in maintaining its own confidential information, but in no event less
than a commercially reasonable standard of care. This obligation of confidence
shall not apply to such portions of the information which (i) are in the public
domain, (ii) hereafter become part of the public domain without the Agent and
Lenders breaching their obligation of confidence to Borrowers, (iii) are
previously known by the Lenders from some source other than Borrowers, (iv) are
hereafter developed by the Lenders without using Borrowers' information, (v) are
hereafter obtained by or available to the Agent and Lenders from a third party
who owes no obligation of confidence to Borrowers with respect to such
information or through any other means other than through disclosure by
Borrowers, (vi) are disclosed with Borrowers' written consent, (vii) must be
disclosed either pursuant to any Governmental Requirement or to Persons
regulating the activities of the Lenders, or (viii) as may be required by law or
regulation or order of any Governmental Authority in any judicial, arbitration
or governmental proceeding. Further, Agent or Lenders may disclose any such
information to any assignee or participant, any independent petroleum engineers
or consultants, any independent certified public accountants, any legal counsel
employed by such Person in connection with this Agreement or any other Loan
Document or Security Instrument, including without limitation, the enforcement
or exercise of all rights and remedies thereunder, or any assignee or
participant (including prospective assignees and participants) in the Revolver
Loans; provided, however, that the Agent and Lenders shall receive a
confidentiality agreement from the Person to whom such information is disclosed
such that said Person shall have the same obligation to maintain the
confidentiality of such information as is imposed upon the

 

71

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

 

 

Agent and Lenders hereunder. Notwithstanding anything to the contrary provided
herein, this obligation of confidence shall cease five (5) years from the date
the information was furnished. Each Borrower expressly waives any and all other
rights it may have to confidentiality as against the Agent or Lenders arising by
contract, agreement, statute or law except as expressly stated in this Section
11.26.

 

11.27     Common Enterprise. The successful operation and condition of each
Borrower and its direct and indirect Subsidiaries is dependent on the continued
successful performance of the functions of the group of each Borrower and its
direct and indirect Subsidiaries as a whole. Each Borrower expects to derive
benefit (and its board of directors or other governing body has determined that
it may reasonably be expected to derive benefit), directly and indirectly, from
(i) successful operations of its direct and indirect Subsidiaries and (ii) the
credit extended by the Lenders to the Borrower hereunder. Each Borrower has
determined that execution, delivery, and performance of this Agreement and any
other Loan Documents to be executed by such Borrower is within its purpose, will
be of direct and indirect benefit to such Borrower, and is in each Borrower's
best financial, economic and business interest.

 

11.28     Sharing of Setoffs. Each Lender severally agrees that if it, through
the exercise of any right of setoff, banker's lien or counterclaim against the
Borrowers, or otherwise, receives payment of the Indebtedness held by
Indebtedness held by that Lender(s), then: (a) the Lender(s) exercising the
right of setoff, banker's lien or counterclaim or otherwise receiving such
payment shall notify the Agent and thereafter shall purchase, and shall be
deemed to have simultaneously purchased, from the other Lender a participation
in the Indebtedness held by the other Lenders and shall pay to the other Lenders
a purchase price in an amount so that the share of the Indebtedness held by each
Lender after the exercise of the right of setoff, banker's lien or counterclaim
or receipt of payment shall be in the same proportion that existed prior to the
exercise of the right of setoff, banker's lien or counterclaim or receipt of
payment; and (b) such other adjustments and purchases of participations shall be
made from time to time as shall be equitable to ensure that all of the Lenders
share any payment obtained in respect of the Indebtedness ratably in accordance
with each Lender's share of the Indebtedness immediately prior to, and without
taking into account, the payment; provided, that, if all or any portion of a
disproportionate payment obtained as a result of the exercise of the right of
setoff, banker's lien, counterclaim or otherwise is thereafter recovered from
the purchasing Lenders by the Borrowers or any Person claiming through or
succeeding to the rights of the Borrowers, the purchase of a participation shall
be rescinded and the purchase price thereof shall be restored to the extent of
the recovery. Each Lender that purchases a participation in the Indebtedness
pursuant to this Section shall from and after the purchase have the right to
give all notices, requests, demands, directions and other communications under
this Agreement with respect to the portion of the Indebtedness purchased to the
same extent as though the purchasing Lender were the original owner of the
Indebtedness purchased. The Borrowers expressly consent to the foregoing
arrangements and agrees that any Lender holding a participation in an
Indebtedness so purchased may exercise any and all rights of setoff, banker's
lien or counterclaim with respect to the participation as fully as if such
Lender were the original owner of the Indebtedness purchased.

 

72

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

 

 

11.29     Relationship of Parties. The relationship between the Borrowers, on
the one hand, and the Lenders and the Agent, on the other, is, and at all times
shall remain, solely that of borrowers and lenders. None of the Lenders or the
Agent shall under any circumstances be construed to be partners or joint
venturers of the Borrowers or any of their Affiliates; nor shall the Lenders nor
the Agent under any circumstances be deemed to be in a relationship of
confidence or trust or a fiduciary relationship with the Borrowers or any of
their Affiliates, or to owe any fiduciary duty to the Borrowers or any of their
Affiliates. The Lenders and the Agent do not undertake or assume any
responsibility or duty to the Borrowers or any of its Affiliates to select,
review, inspect, supervise, pass judgment upon or otherwise inform the Borrowers
or any of their Affiliates of any matter in connection with its or their
Property, any security held by the Agent or any Lender or the operations of the
Borrowers or any of their Affiliates. The Borrowers and each of their Affiliates
shall rely entirely on their own judgment with respect to such matters, and any
review, inspection, supervision, exercise of judgment or supply of information
undertaken or assumed by any Lender or the Agent in connection with such matters
is solely for the protection of the Lenders and the Agent and neither the
Borrowers nor any of their Affiliates is entitled to rely thereon. Without
limiting the generality of the foregoing, the Borrowers expressly acknowledge
they have, independently and without reliance upon any advice, recommendation or
information from the Agent or any Lender or any of their Affiliates or related
parties, made its own decision to acquire the Mortgaged Property, and to obtain
the Revolver Loans under the terms and conditions of this Agreement.

 

11.30     Commercial Transaction. The Borrowers represent, warrant and
acknowledge that the transaction of which this Agreement is a part is a
commercial transaction and not a consumer transaction. Monies now or in the
future to be advanced to or on behalf of the Borrowers are not and will not be
used for personal, family or household purposes.

 

11.31     Independent Covenants. Each covenant in Article VI is independent of
the other covenants in such Article VI; the breach of any such covenant shall
not be excused by the fact that the circumstances underlying such breach would
be permitted by another such covenant.

 

11.32     Non-Solicitation. The Lenders (other than Simmons Bank) agree that
during the term of this Agreement, as extended, renewed or otherwise continued
from time to time, and for a period of one (1) year thereafter, none of the
non-Agent Lenders will, without the prior written consent of Agent: (i) directly
or indirectly induce or attempt to induce Borrowers to terminate its banking
relationship with Agent or cease from doing business with Agent, (iii) directly
or indirectly solicit deposits, loans or any other banking or trust business
from Borrowers or any of the Guarantors, if any, or (iv) in any way directly or
indirectly interfere with the banking relationship between Borrowers with the
Agent. The non-Agent Lenders agree that the foregoing covenants are reasonable
in duration, geographical area and scope and acknowledge that Agent has an
established banking relationship with the Borrowers.

 

73

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

 

 

11.33     Simmons Bank in Multiple Capacities. Notwithstanding anything to the
contrary, the parties hereto understand and agree that Simmons Bank is acting in
various capacities under this Agreement and the other Credit Documents and
therefore shall be permitted to fulfill its roles and manage its various duties
hereunder in such manner as Simmons Bank sees fit and, for the avoidance of
doubt, in lieu of sending notices to itself when acting in different capacities
Simmons Bank may keep internal records regarding all such communications,
notices and actions related to this Agreement and the other Credit Documents in
accordance with its past practice.

 

[Signature Pages Follow]

 

 

 

 

 

 

 

 

 

 

 

74

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

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Revolver Loan Agreement
to be duly executed by each Borrower and delivered to the Administrative Agent
and the Lenders in Oklahoma City, Oklahoma, effective as of the day and year
first above written.

 

BORROWERS:    ENERGY 11, L.P.,     a Delaware limited partnership          

By: ENERGY 11 GP, LLC, a Delaware limited liability

company, its general partner

          By:      /s/ Anthony F. Keating, III              

Anthony F. Keating, III

Co-Chief Operating Officer

         

ENERGY 11 OPERATING COMPANY, LLC,

a Delaware limited liability company

          By:      /s/ Anthony F. Keating, III              

Anthony F. Keating, III

Co-Chief Operating Officer

              

 

 

 

 

 

 

 

Revolver Loan Agreement Signature Page

 

 

 

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

 

 

 

LENDERS:     SIMMONS BANK          

By:      /s/ Charlie Crouse                    

   

Charlie Crouse, Managing Director,

Energy Division

         

(Lender, Letter of Credit Issuer and Administrative Agent)

     

              

                  

 

 

 

 

Revolver Loan Agreement Signature Page

 

 

 

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

 

 

 

    ARVEST BANK           By:       /s/ S. Matt Condry                   

S. Matt Condry, Vice President

Commercial Banking

                     

(Lender)

     

              

                  

 

 

                                   

 

 

Revolver Loan Agreement Signature Page

 

 

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

 

 

SCHEDULE 1
Lender Commitments

 

Lender

Percentage Interest

Revolver Commitment Amount

Simmons Bank

62.5%

$25,000,000.00

Arvest Bank

37.5%

$15,000,000.00

     

 

 

 

 

 

 

 

 

 

 

 

 

 

SCHEDULE 1

 

 

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

 

 

LIST OF EXhibits

 

EXHIBITS

 

     Exhibit A     -     Revolver Loan Request (§ 2.7(b)(iii))

 

     Exhibit B     -     Compliance Certificate (§ 6.6(a)(ii))

 

     Exhibit C     -     Other Obligations (§ 6.17), Liabilities (§ 6.19)

 

     Exhibit D     -     Pending Litigation (§ 7.2)

 

     Exhibit E     -     Take or Pay Disputes (§ 7.19)

 

     Exhibit F     -     Assignment and Acceptance (§ 10.2(d))

 

 

 

 

 

 

 

LIST OF EXHIBITS

 

 

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

 

 

EXHIBIT A

 

REVOLVER LOAN REQUEST

 

Simmons Bank, Agent for Lenders

6301 Waterford Blvd., Suite 101

Oklahoma City, Oklahoma 73118

Attn: Charlie Crouse, Managing Director,

         Energy Division

 

Ladies/Gentlemen:

 

Pursuant to the provisions of the Revolver Loan Agreement dated effective as of
September 30, 2019, as it may be amended from time to time (referred to as the
"Loan Agreement"), between ENERGY 11, L.P., a Delaware limited partnership, and
ENERGY 11 OPERATING COMPANY, LLC , a Delaware limited liability company
(collectively, "Borrowers"), and you, Borrowers hereby (i) confirm and ratify
your continuing, first and prior security interest in and to all of the
Collateral (including proceeds thereof) described or referred to in the Loan
Agreement or in the Security Instruments described therein; (ii) apply to you
for the Revolver Loans under the Revolver Notes in the amount shown on Line 5
below; (iii) certify that no Event of Default or Default under the Loan
Agreement has occurred and is continuing as of the date hereof or exists or
would continue to exist but for the lapse of time or giving of notice, or both;
(iv) represent and warrant to you that the representations, covenants and
warranties set forth or referred to in the Loan Agreement are true and correct
on and as of this date, except to the extent related to a specific other date;
and (v) certify to you the accuracy of the following information:

 

1.    Revolver Commitment Amount pursuant to Loan Agreement                  

[$40,000,000.00]

 

2.    Current Outstanding Principal Balance under the Revolver
Notes               

$___________

 

3.    Unfunded Aggregate Amount of Unexpired Letters of Credit               

$___________

 

4.    Amount Available under Revolver Loan (Line 1 minus sum of Line 2

plus Line 3 but in no event in excess of the sum of the

Collateral Borrowing Base)                                   

$____________

 

5.    Revolver Loan Advance requested (not to exceed amount of Line 4)

under Revolver Notes                                        

($__________)          

Proposed date for Revolver Loan Advance: ________________________

 

     Type of Revolver Loan Advance (Base Rate or LIBOR)                        
      

 

 

EXHIBIT A-1

 

 

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

 

 

 

LIBOR RATE LOAN DATA (if applicable)

 

Dollar Amount Requested           $                     

 

Requested Funding Date             ____________

 

Length of Interest Period: (select only one)       30 day                       
     

60 day                              

90 day                              
                                        

 

LIBOR Rate Loan continuation for LIBOR Rate Loans maturing on ____________

 

(a)     Aggregate amount to be continued as LIBOR Rate Loan is $________;

 

(b)     Aggregate amount, if applicable, to be converted to Base Rate Loan is
$___________;

 

(c)     Length of Interest Period for continued LIBOR Rate Loan is ________.

 

IN WITNESS WHEREOF, the undersigned have hereunto set their hand to this
Revolver Loan Request this ______ day of _______________, ______.

 

ENERGY 11, L.P.,

a Delaware limited partnership

 

By: ENERGY 11 GP, LLC, a Delaware limited liability company, its general partner

 

By:___________________________     

Anthony F. Keating, III,

Co-Chief Operating Officer

 

 

ENERGY 11 OPERATING COMPANY, LLC,

a Delaware limited liability company

 

By:___________________________          

Anthony F. Keating, III,

Co-Chief Operating Officer

 

"BorrowerS"

 

 

EXHIBIT A-2

 

 

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

 

 

EXHIBIT B

 

(quarterly compliance certificate)

 

Quarterly Compliance Certificate

(§6.6(a)(ii))

 

Pursuant to the Revolver Loan Agreement dated effective as of September 30, 2019
(as the same may at any time hereafter be amended, supplemented or modified and
in effect being herein collectively called the "Loan Agreement"), between ENERGY
11, L.P., a Delaware limited partnership, and ENERGY 11 OPERATING COMPANY, LLC,
a Delaware limited liability company (collectively, "Borrowers"), and Simmons
Bank, as Agent for the Lenders ("Agent"), Borrowers have reviewed their
respective activities for the fiscal quarter ended on _______________, 201_,
(the "Compliance Date"), and hereby represent and warrant to Agent that the
information set forth below is true and correct as of the Compliance Date
(capitalized terms not otherwise defined herein shall have the meanings assigned
in the Loan Agreement):

 

1.     Financial Covenants.  Required Actual

Section 6.30 – Leverage Ratio (maximum)

3.50 to 1.00

____ to 1.00

Section 6.31 – Current Ratio (minimum)

1.00 to 1.00

____ to 1.00

Section 6.32 – Interest Coverage Ratio (minimum)

2.50 to 1.00

____ to 1.00

 

2.     Borrowers hereby certify to Agent that as of the Compliance Date:

 

☐     Schedule 1 attached to this Compliance Certificate sets forth a true and
complete list of all existing ISDA Agreements and Hedge Transactions of
Borrowers (or either of them), the material terms thereof (including the type,
term, effective date, termination date, and notional volumes and prices), the
net mark-to-market value thereof, all credit support agreements relating thereof
(including any margin required or supplied), and the counter-party to each such
Hedge Transactions.

 

☐     As of the Compliance Date, Borrowers have no outstanding Hedge
Transactions with any parties.

 

☐     As of the Compliance Date, Borrowers (or either of them) have entered into
no existing ISDA Agreements with any parties.

 

3.     The undersigned company representative hereby certifies to Agent that:

 

(i)      the financial statements delivered with this certificate in accordance
with the Loan Agreement fairly present in all material respects the results of
operations and financial condition of Borrowers as of the dates and the
accounting period covered by such financial statements;

 

EXHIBIT B-1

 

 

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

 

 

(ii)     I have reviewed the terms of the Loan Agreement and have made, or
caused to be made under my supervision, a review in reasonable detail of the
transactions and conditions of Borrowers during the accounting period covered by
such financial statements;

 

(iii)     such review has not disclosed the existence during or at the end of
such accounting period, and I have no knowledge of the existence as of the date
hereof, of any condition or event that constitutes a Default or an Event of
Default or an event that would, with the lapse of time or giving of notice, or
both, be an Event of Default;

 

(iv)     Borrowers are in compliance with the covenants contained in Article VI
of the Loan Agreement, as demonstrated by the calculation of such covenants
above;

 

(v)     The Revolver Notes and the Loan Agreement are acknowledged, ratified,
confirmed, and agreed by Borrowers to be valid, subsisting, and binding
obligations; and

 

(vi)     Borrowers agree that there is no right to set off or defense to payment
of the Revolver Notes or any other Indebtedness.     

 

     This Quarterly Compliance Certificate is dated as of                , 20__.

 

ENERGY 11, L.P.,

a Delaware limited partnership

 

By: ENERGY 11 GP, LLC, a Delaware limited liability company, its general partner

 

By: ___________________________     

Anthony F. Keating, III,

Co-Chief Operating Officer

 

 

ENERGY 11 OPERATING COMPANY, LLC,

a Delaware limited liability company

 

By: ___________________________          

Anthony F. Keating, III,

Co-Chief Operating Officer

 

"Borrowers"

 

 

 

EXHIBIT B-2

 

 

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

 

 

EXHIBIT C

 

(§ 6.17)

 

OTHER OBLIGATIONS

 

NONE.

 

 

 

(§ 6.19)

 

LIABILITIES

 

None.

 

 

 

 

 

 

EXHIBIT C

 

 

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

 

 

EXHIBIT D

 

(§ 7.2)

 

PENDING LITIGATION

 

None.

 

 

 

 

 

 

 

EXHIBIT D

 

 

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

 

 

EXHIBIT E

 

(§ 7.19)

 

TAKE OR PAY DISPUTES

 

None.

 

 

 

 

 

 

 

EXHIBIT E

 

 

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

 

 

EXHIBIT F

 

(FORM OF ASSIGNMENT AGREEMENT)

 

ASSIGNMENT AGREEMENT ("Agreement") dated as of ________________, 200___ between
_____________________________________________________ (the "Assignor") and
__________________________ (the "Assignee").

 

RECITALS

 

A.     The Assignor is a party to the Revolver Loan Agreement dated effective as
of September 30, 2019 (as amended, modified, supplemented and/or restated and in
effect from time to time, the "Loan Agreement") between ENERGY 11, L.P. , a
Delaware limited partnership, and ENERGY 11 OPERATING COMPANY, LLC, a Delaware
limited liability company (the "Borrower"), each of the lenders that is or
becomes a party thereto as provided in Section 10.2 of the Loan Agreement
(individually, together with its successors and assigns, a "Lender", and
collectively, together with their successors and assigns, the "Lenders"), and
Simmons Bank, in its individual capacity, ("Simmons") and as agent for the
Lenders (in such capacity, together with its successors in such capacity, the
"Agent").

 

B.     The Assignor proposes to sell, assign and transfer to the Assignee, and
the Assignee proposes to purchase and assume from the Assignor, a portion of the
Assignor's Revolver Commitment, outstanding Loans and its Percentage Share of
the outstanding Letter of Credit Exposure, all on the terms and conditions of
this Agreement.

 

C.     In consideration of the foregoing and the mutual agreements contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

 

Article I
Definitions

 

1.1    Definitions. All capitalized terms used but not defined herein have the
respective meanings given to such terms in the Loan Agreement.

 

1.2     Other Definitions. As used herein, the following terms have the
following respective meanings:

 

"Assigned Interest" shall mean all of Assignor's (in its capacity as a "Lender")
rights and obligations under the Loan Agreement and the other Security
Instruments in respect of the Revolver Commitment of the Assignor relating to
the Assignor's Maximum Revolver Commitment Amount in the principal amount equal
to $____________________ and the principal amount of the Loans outstanding
thereunder, currently in the amount of $_________________ (the "Loan Balance"),
plus the interest and fees which will accrue from and after the Assignment Date.

 

EXHIBIT F

 

 

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

 

 

"Assignment Date" shall mean _____________________, 20___.

 

Article II

Sale and Assignment

 

2.1     Sale and Assignment. On the terms and conditions set forth herein,
effective on and as of the Assignment Date, the Assignor hereby sells, assigns
and transfers to the Assignee, and the Assignee hereby purchases and assumes
from the Assignor, all of the right, title and interest of the Assignor in and
to, and all of the obligations of the Assignor in respect of, the Assigned
Interest. Such sale, assignment and transfer is without recourse and, except as
expressly provided in this Agreement, without representation or warranty.

 

2.2     Assumption of Obligations. The Assignee agrees with the Assignor (for
the express benefit of the Assignor and the Borrower) that the Assignee will,
from and after the Assignment Date, perform all of the obligations of the
Assignor in respect of the Assigned Interest. From and after the Assignment
Date: (a) the Assignor shall be released from the Assignor's obligations in
respect of the Assigned Interest, and (b) the Assignee shall be entitled to all
of the Assignor's rights, powers and privileges under the Credit Agreement and
the other Security Instruments in respect of the Assigned Interest.

 

2.3     Consent by Agent. By executing this Agreement as provided below, in
accordance with Section 10.2(d) of the Loan Agreement, the Agent hereby
acknowledges notice of the transactions contemplated by this Agreement and
consents to such transactions.

 

Article III 
Payments

 

3.1     Payments. As consideration for the sale, assignment and transfer
contemplated by Section 2.1 hereof, the Assignee shall, on the Assignment Date,
assume Assignor's obligations in respect of the Assigned Interest and pay to the
Assignor an amount equal to the Loan Balance, if any. An amount equal to all
accrued and unpaid interest and fees shall be paid to the Assignor as provided
in Section 3.2 (iii) below. Except as otherwise provided in this Agreement, all
payments hereunder shall be made in Dollars and in immediately available funds,
without setoff, deduction or counterclaim.

 

3.2     Allocation of Payments. The Assignor and the Assignee agree that (i) the
Assignor shall be entitled to any payments of principal with respect to the
Assigned Interest made prior to the Assignment Date, together with any interest
and fees with respect to the Assigned Interest accrued prior to the Assignment
Date, (ii) the Assignee shall be entitled to any payments of principal with
respect to the Assigned Interest made from and after the Assignment Date,
together with any and all interest and fees with respect to the Assigned
Interest accruing from and after the Assignment Date, and (iii) the Agent is
authorized and instructed to allocate payments received by it for account of

 

EXHIBIT F

 

 

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

 

 

the Assignor and the Assignee as provided in the foregoing clauses. Each party
hereto agrees that it will hold any interest, fees or other amounts that it may
receive to which the other party hereto shall be entitled pursuant to the
preceding sentence for account of such other party and pay, in like money and
funds, any such amounts that it may receive to such other party promptly upon
receipt.

 

3.3     Delivery of Notes. Promptly following the receipt by the Assignor of the
consideration required to be paid under Section 3.1 hereof, the Assignor shall,
in the manner contemplated by Section 10.2(d) of the Loan Agreement, (i) deliver
to the Agent (or its counsel) the Note held by the Assignor and (ii) notify the
Agent to request that the Borrower execute and deliver new Note to the Assignor,
if Assignor continues to be a Lender, and the Assignee, dated the date of this
Agreement in principal amounts equal to the Revolver Commitment of the Assignor
(if appropriate) and the Assignee after giving effect to the sale, assignment
and transfer contemplated hereby.

 

3.4     Further Assurances. The Assignor and the Assignee hereby agree to
execute and deliver such other instruments, and take such other actions, as
either party may reasonably request in connection with the transactions
contemplated by this Agreement.

 

Article IV 
Conditions Precedent

 

4.1     Conditions Precedent. The effectiveness of the sale, assignment and
transfer contemplated hereby is subject to the satisfaction of each of the
following conditions precedent:

 

(a)     the execution and delivery of this Agreement by the Assignor and the
Assignee;

 

(b)     the receipt by the Assignor of the payment required to be made by the
Assignee under Section 3.1 hereof; and

 

(c)     the acknowledgment and consent by the Agent contemplated by Section 2.3
hereof.

 

Article V
Representations and Warranties

 

5.1     Representations and Warranties of the Assignor. The Assignor represents
and warrants to the Assignee as follows:

 

(a)     it has all requisite power and authority, and has taken all action
necessary to execute and deliver this Agreement and to fulfill its obligations
under, and consummate the transactions contemplated by, this Agreement;

 

(b)     the execution, delivery and compliance with the terms hereof by Assignor
and the delivery of all instruments required to be delivered by it

 

EXHIBIT F

 

 

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

 

 

hereunder do not and will not violate any Governmental Requirement applicable to
it;

 

(c)     this Agreement has been duly executed and delivered by it and
constitutes the legal, valid and binding obligation of the Assignor, enforceable
against it in accordance with its terms;

 

(d)     all approvals and authorizations of, all filings with and all actions by
any Governmental Authority necessary for the validity or enforceability of its
obligations under this Agreement have been obtained;

 

(e)     the Assignor has good title to, and is the sole legal and beneficial
owner of, the Assigned Interest, free and clear of all Liens, claims,
participations or other charges of any nature whatsoever; and

 

(f)     the transactions contemplated by this Agreement are commercial banking
transactions entered into in the ordinary course of the banking business of the
Assignor.

 

5.2     Disclaimer. Except as expressly provided in Section 5.1 hereof, the
Assignor does not make any representation or warranty, nor shall it have any
responsibility to the Assignee, with respect to the accuracy of any recitals,
statements, representations or warranties contained in the Loan Agreement or in
any certificate or other document referred to or provided for in, or received by
any Lender under, the Loan Agreement, or for the value, validity, effectiveness,
genuineness, execution, effectiveness, legality, enforceability or sufficiency
of the Loan Agreement, the Notes or any other document referred to or provided
for therein or for any failure by the Borrower or any other Person (other than
Assignor) to perform any of its obligations thereunder prior or for the
existence, value, perfection or priority of any collateral security or the
financial or other condition of the Borrower or the Subsidiaries or any other
obligor or guarantor, or any other matter relating to the Loan Agreement or any
other Security Instrument or any extension of credit thereunder.

 

5.3     Representations and Warranties of the Assignee. The Assignee represents
and warrants to the Assignor as follows:

 

(a)     it has all requisite power and authority, and has taken all action
necessary to execute and deliver this Agreement and to fulfill its obligations
under, and consummate the transactions contemplated by, this Agreement;

 

(b)     the execution, delivery and compliance with the terms hereof by Assignee
and the delivery of all instruments required to be delivered by it hereunder do
not and will not violate any Governmental Requirement applicable to it;

 

(c)     this Agreement has been duly executed and delivered by it and
constitutes the legal, valid and binding obligation of the Assignee, enforceable
against it in accordance with its terms;

 

EXHIBIT F

 

 

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

 

 

(d)     all approvals and authorizations of, all filings with and all actions by
any Governmental Authority necessary for the validity or enforceability of its
obligations under this Agreement have been obtained;

 

(e)     the Assignee has fully reviewed the terms of the Loan Agreement and the
other Security Instruments and has independently and without reliance upon the
Assignor, and based on such information as the Assignee has deemed appropriate,
made its own credit analysis and decision to enter into this Agreement;

 

(f)     the Assignee has contemporaneously herewith delivered to the Agent and
the Borrower such certifications, if and to the extent applicable, as are
required thereby to avoid the withholding taxes referred to in Section 4.6; and

 

(g)     the transactions contemplated by this Agreement are commercial banking
transactions entered into in the ordinary course of the banking business of the
Assignee.

 

Article VI
Miscellaneous

 

6.1     Notices. All notices and other communications provided for herein
(including, without limitation, any modifications of, or waivers, requests or
consents under, this Agreement) shall be given or made in writing (including,
without limitation, by telex or telecopy) to the intended recipient at its
"Address for Notices" specified below its name on the signature pages hereof or,
as to either party, at such other address as shall be designated by such party
in a notice to the other party.

 

6.2     Amendment, Modification or Waiver. No provision of this Agreement may be
amended, modified or waived except by an instrument in writing signed by the
Assignor and the Assignee, and consented to by the Agent.

 

6.3     Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns. The representations and warranties made herein by the
Assignee are also made for the benefit of the Agent and the Borrower, and the
Assignee agrees that the Agent and the Borrower are entitled to rely upon such
representations and warranties.

 

6.4     Assignments. Neither party hereto may assign any of its rights or
obligations hereunder except in accordance with the terms of the Loan Agreement.

 

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

 

6.6     Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be identical and all of which, taken together,
shall

 

EXHIBIT F

 

 

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

 

 

constitute one and the same instrument, and each of the parties hereto may
execute this Agreement by signing any such counterpart.

 

6.7     Governing Law. This Agreement shall be governed by, and construed in
accordance with, the law of the State of Oklahoma.

 

6.8     Expenses. Each party hereto shall bear its own expenses in connection
with the execution, delivery and performance of this Agreement.

 

6.9     Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.

 

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

 

ASSIGNOR:

 

                                                           

 

By:                                                     

Name:                                                

Title:                                                  

 

Address for Notices:

 

                                                           

                                                           

                                                           

 

                                                           

                                                           

                                                           

 

EXHIBIT F

 

 

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

 

 

ASSIGNEE:

                                                           

 

 

By:                                                     

Name:                                                

Title:                                                  

 

Address for Notices:

 

                                                           

                                                           

                                                           

 

                                                           

                                                           

                                                           

Telecopier No.:                                  

Telephone No.:                                  

Attention:                                          

 

ACKNOWLEDGED AND CONSENTED TO:

 

SIMMONS BANK,

as Agent

 

By:                                                            

Name:                                                       

 

 

EXHIBIT F