Exhibit 10.1
EXECUTION VERSION
 
 
 
CREDIT AGREEMENT
dated as of October 2, 2008
among
PETROQUEST ENERGY, L.L.C.,
as Borrower,
PETROQUEST ENERGY, INC.,
as Parent,
JPMORGAN CHASE BANK, N.A.,
as Administrative Agent,
CALYON NEW YORK BRANCH,
as Syndication Agent,
BANK OF AMERICA, N.A.,
as Documentation Agent,
and
The Lenders Party Hereto
 
J.P. MORGAN SECURITIES INC. and CALYON NEW YORK BRANCH
Co-Lead Arrangers
 
 

 

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TABLE OF CONTENTS

                      Page      
 
  ARTICLE I        
 
  DEFINITIONS AND ACCOUNTING MATTERS        
 
           
Section 1.01
  Terms Defined Above     1  
Section 1.02
  Certain Defined Terms     1  
Section 1.03
  Types of Loans and Borrowings     20  
Section 1.04
  Terms Generally; Rules of Construction     20  
Section 1.05
  Accounting Terms and Determinations; GAAP     20  
 
           
 
  ARTICLE II        
 
  THE CREDITS        
 
           
Section 2.01
  Commitments     21  
Section 2.02
  Loans and Borrowings     21  
Section 2.03
  Requests for Borrowings     22  
Section 2.04
  Interest Elections     23  
Section 2.05
  Funding of Borrowings     24  
Section 2.06
  Termination and Reduction of Aggregate Maximum Credit Amounts     25  
Section 2.07
  Borrowing Base     25  
Section 2.08
  Letters of Credit     27  
 
           
 
  ARTICLE III        
 
  PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES        
 
           
Section 3.01
  Repayment of Loans     32  
Section 3.02
  Interest     32  
Section 3.03
  Alternate Rate of Interest     33  
Section 3.04
  Prepayments     33  
Section 3.05
  Fees     35  
 
           
 
  ARTICLE IV        
 
  PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS        
 
           
Section 4.01
  Payments Generally; Pro Rata Treatment; Sharing of Set-offs     36  
Section 4.02
  Presumption of Payment by the Borrower     37  
Section 4.03
  Certain Deductions by the Administrative Agent     38  
Section 4.04
  Disposition of Proceeds     38  
 
           
 
  ARTICLE V        
 
  INCREASED COSTS; BREAK FUNDING PAYMENTS; TAXES        
 
           
Section 5.01
  Increased Costs     38  
Section 5.02
  Break Funding Payments     39  
Section 5.03
  Taxes     39  
Section 5.04
  Mitigation Obligations; Replacement of Defaulting Lenders     40  

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TABLE OF CONTENTS
(Continued ...)

                      Page      
 
  ARTICLE VI        
 
  CONDITIONS PRECEDENT        
 
           
Section 6.01
  Effective Date     41  
Section 6.02
  Each Credit Event     43  
 
           
 
  ARTICLE VII        
 
  REPRESENTATIONS AND WARRANTIES        
 
           
Section 7.01
  Organization; Powers     44  
Section 7.02
  Authority; Enforceability     44  
Section 7.03
  Approvals; No Conflicts     45  
Section 7.04
  Financial Condition; No Material Adverse Change     45  
Section 7.05
  Litigation     46  
Section 7.06
  Environmental Matters     46  
Section 7.07
  Compliance with the Laws and Agreements; No Defaults     47  
Section 7.08
  Investment Company Act     47  
Section 7.09
  Taxes     48  
Section 7.10
  ERISA     48  
Section 7.11
  Disclosure; No Material Misstatements     48  
Section 7.12
  Insurance     49  
Section 7.13
  Restriction on Liens     49  
Section 7.14
  Subsidiaries     49  
Section 7.15
  Location of Business and Offices     49  
Section 7.16
  Properties; Titles, Etc.     50  
Section 7.17
  Maintenance of Properties     51  
Section 7.18
  Gas Imbalances, Prepayments     51  
Section 7.19
  Marketing of Production     52  
Section 7.20
  Swap Agreements     52  
Section 7.21
  Use of Loans and Letters of Credit     52  
Section 7.22
  Solvency     52  
 
           
 
  ARTICLE VIII        
 
  AFFIRMATIVE COVENANTS        
 
           
Section 8.01
  Financial Statements; Other Information     53  
Section 8.02
  Notices of Material Events     56  
Section 8.03
  Existence; Conduct of Business     56  
Section 8.04
  Payment of Obligations     57  
Section 8.05
  Performance of Obligations under Loan Documents     57  
Section 8.06
  Operation and Maintenance of Properties     57  
Section 8.07
  Insurance     58  
Section 8.08
  Books and Records; Inspection Rights     58  
Section 8.09
  Compliance with Laws     58  
Section 8.10
  Environmental Matters     58  
Section 8.11
  Further Assurances     59  
Section 8.12
  Reserve Reports     60  
Section 8.13
  Title Information     61  

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                      Page      
Section 8.14
  Additional Collateral; Additional Guarantors     61  
Section 8.15
  ERISA Compliance     62  
Section 8.16
  Swap Agreements     62  
Section 8.17
  Marketing Activities     63  
 
           
 
  ARTICLE IX        
 
  NEGATIVE COVENANTS        
 
           
Section 9.01
  Financial Covenants     63  
Section 9.02
  Debt     63  
Section 9.03
  Liens     64  
Section 9.04
  Dividends, Distributions and Redemptions; Repayment of Senior Notes     65  
Section 9.05
  Investments, Loans and Advances     66  
Section 9.06
  Nature of Business; International Operations     67  
Section 9.07
  Limitation on Leases     67  
Section 9.08
  Proceeds of Notes     67  
Section 9.09
  ERISA Compliance     67  
Section 9.10
  Sale or Discount of Receivables     68  
Section 9.11
  Mergers, Etc.     68  
Section 9.12
  Sale of Properties     68  
Section 9.13
  Environmental Matters     69  
Section 9.14
  Transactions with Affiliates     69  
Section 9.15
  Subsidiaries     69  
Section 9.16
  Negative Pledge Agreements; Dividend Restrictions     69  
Section 9.17
  Gas Imbalances, Take-or-Pay or Other Prepayments     70  
Section 9.18
  Swap Agreements     70  
Section 9.19
  Holding Company     70  
 
           
 
  ARTICLE X        
 
  EVENTS OF DEFAULT; REMEDIES        
 
           
Section 10.01
  Events of Default     71  
Section 10.02
  Remedies     73  
 
           
 
  ARTICLE XI        
 
  THE AGENTS        
 
           
Section 11.01
  Appointment; Powers     74  
Section 11.02
  Duties and Obligations of Administrative Agent     74  
Section 11.03
  Action by Administrative Agent     75  
Section 11.04
  Reliance by Administrative Agent     76  
Section 11.05
  Subagents     76  
Section 11.06
  Resignation or Removal of Administrative Agent     76  
Section 11.07
  Agents as Lenders     77  
Section 11.08
  No Reliance     77  
Section 11.09
  Administrative Agent May File Proofs of Claim     77  
Section 11.10
  Authority of Administrative Agent to Release Collateral and Liens     78  
Section 11.11
  The Arrangers, the Syndication Agent and the Documentation Agent     78  

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                      Page      
 
  ARTICLE XII        
 
  MISCELLANEOUS        
 
           
Section 12.01
  Notices     78  
Section 12.02
  Waivers; Amendments     79  
Section 12.03
  Expenses, Indemnity; Damage Waiver     80  
Section 12.04
  Successors and Assigns     83  
Section 12.05
  Survival; Revival; Reinstatement     86  
Section 12.06
  Counterparts; Integration; Effectiveness     86  
Section 12.07
  Severability     87  
Section 12.08
  Right of Setoff     87  
Section 12.09
  GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS     87  
Section 12.10
  Headings     88  
Section 12.11
  Confidentiality     88  
Section 12.12
  Interest Rate Limitation     89  
Section 12.13
  EXCULPATION PROVISIONS     90  
Section 12.14
  Collateral Matters; Swap Agreements     91  
Section 12.15
  No Third Party Beneficiaries     91  
Section 12.16
  Acknowledgements     91  
Section 12.17
  USA Patriot Act Notice     92  

ANNEXES, EXHIBITS AND SCHEDULES

     
Annex I
  — List of Maximum Credit Amounts
 
   
Exhibit A
  — Form of Note
Exhibit B
  — Form of Borrowing Request
Exhibit C
  — Form of Interest Election Request
Exhibit D
  — Form of Compliance Certificate
Exhibit E-1
  — Form of Legal Opinion of Porter & Hedges LLP, special counsel to the
Borrower
Exhibit E-2
  — Form of Legal Opinion of Local Counsel
Exhibit F-1
  — Security Instruments
Exhibit F-2
  — Form of Guaranty and Pledge Agreement
Exhibit G
  — Form of Assignment and Assumption
 
   
Schedule 7.05
  — Litigation
Schedule 7.14
  — Subsidiaries
Schedule 7.18
  — Gas Imbalances
Schedule 7.19
  — Marketing Contracts
Schedule 7.20
  — Swap Agreements
Schedule 9.05
  — Investments

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     THIS CREDIT AGREEMENT dated as of October 2, 2008, is among: PETROQUEST
ENERGY, L.L.C., a limited liability company duly formed and existing under the
laws of the State of Louisiana (the “Borrower”); PETROQUEST ENERGY, INC., a
corporation duly formed and existing under the laws of the State of Delaware
(the “Parent”); each of the Lenders from time to time party hereto; JPMORGAN
CHASE BANK, N.A. (in its individual capacity, “JPMorgan”), as administrative
agent for the Lenders (in such capacity, together with its successors in such
capacity, the “Administrative Agent”); CALYON NEW YORK BRANCH, as syndication
agent for the Lenders (in such capacity, together with its successors in such
capacity, the “Syndication Agent”); and BANK OF AMERICA, N.A., as documentation
agent for the Lenders (in such capacity, together with its successors in such
capacity, the “Documentation Agent”).
RECITALS
     A. The Borrower has requested that the Lenders provide certain loans to and
extensions of credit on behalf of the Borrower.
     B. The Lenders have agreed to make such loans and extensions of credit
subject to the terms and conditions of this Agreement.
     C. In consideration of the mutual covenants and agreements herein contained
and of the loans, extensions of credit and commitments hereinafter referred to,
the parties hereto agree as follows:
ARTICLE I
Definitions and Accounting Matters
     Section 1.01 Terms Defined Above. As used in this Agreement, each term
defined above has the meaning indicated above.
     Section 1.02 Certain Defined Terms. As used in this Agreement, the
following terms have the meanings specified below:
     “ABR”, when used in reference to any Loan or Borrowing, refers to whether
such Loan, or the Loans comprising such Borrowing, are bearing interest at a
rate determined by reference to the Alternate Base Rate.
     “Adjusted LIBO Rate” means, with respect to any Eurodollar Borrowing for
any Interest Period, an interest rate per annum (rounded upwards, if necessary,
to the next 1/100 of 1%) equal to (a) the LIBO Rate for such Interest Period
multiplied by (b) the Statutory Reserve Rate.
     “Administrative Questionnaire” means an Administrative Questionnaire in a
form supplied by the Administrative Agent.
     “Affiliate” means, with respect to a specified Person, another Person that
directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.

 

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     “Agents” means, collectively, the Administrative Agent, the Syndication
Agent and the Documentation Agent; and “Agent” shall mean any of the
Administrative Agent, the Syndication Agent or the Documentation Agent, as the
context requires.
     “Aggregate Maximum Credit Amounts” at any time shall equal the sum of the
Maximum Credit Amounts, as the same may be reduced or terminated pursuant to
Section 2.06.
     “Agreement” means this Credit Agreement, as the same may from time to time
be amended, modified, supplemented or restated.
     “Alternate Base Rate” means, for any day, a rate per annum equal to the
greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate
Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate
shall be effective from and including the effective date of such change in the
Prime Rate or the Federal Funds Effective Rate, respectively.
     “Applicable Margin” means, for any day, with respect to any ABR Loan or
Eurodollar Loan, or with respect to the Commitment Fee Rate, as the case may be,
the rate per annum set forth in the Borrowing Base Utilization Grid below based
upon the Borrowing Base Utilization Percentage then in effect:

                                  Borrowing Base Utilization Grid
Borrowing Base Utilization Percentage
    <50 %     ³50% <75 %     ³75% <90 %     ³90 %
Eurodollar Loans
    1.500 %     1.750 %     2.000 %     2.250 %
ABR Loans
    0.000 %     0.250 %     0.500 %     0.750 %
Commitment Fee Rate
    0.375 %     0.375 %     0.500 %     0.500 %

     Notwithstanding the forgoing, for the period from October 2, 2008 to
April 2, 2009, the Applicable Margin means, with respect to any Eurodollar Loan,
2.000%, and with respect to any ABR Loan, 0.500%. Each change in the Applicable
Margin and the Commitment Fee Rate shall apply during the period commencing on
the effective date of a change in the Borrowing Base Utilization Percentage and
ending on the date immediately preceding the effective date of the next such
change; provided, however, that if at any time the Borrower fails to deliver a
Reserve Report pursuant to Section 8.12(a), then the “Applicable Margin” and
“Commitment Fee Rate” each shall mean the rate per annum set forth on the grid
when the Borrowing Base Utilization Percentage is at its highest level.
     “Applicable Percentage” means, with respect to any Lender, the percentage
of the Aggregate Maximum Credit Amounts represented by such Lender’s Maximum
Credit Amount as such percentage is set forth on Annex I.
     “Approved Counterparty” means (a) any Lender or any Affiliate of a Lender
and (b) any other Person whose long term senior unsecured debt rating, at the
time the Swap Agreement is entered into, is A/A2 by S&P or Moody’s (or their
equivalent) or higher.

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     “Approved Fund” means any Person (other than a natural person) that is
engaged in making, purchasing, holding or investing in bank loans and similar
extensions of credit in the ordinary course of its business and that is
administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an
entity or an Affiliate of an entity that administers or manages a Lender.
     “Approved Petroleum Engineers” means (a) Netherland, Sewell & Associates,
Inc., (b) Ryder Scott Company Petroleum Consultants, L.P. and (c) any other
independent petroleum engineers reasonably acceptable to the Administrative
Agent.
     “Arrangers” means, collectively, J.P. Morgan Securities Inc. and Calyon New
York Branch, each in its capacity as a co-lead arranger hereunder.
     “Assignment and Assumption” means an assignment and assumption entered into
by a Lender and an assignee (with the consent of any party whose consent is
required by Section 12.04(a)), and accepted by the Administrative Agent, in the
form of Exhibit G or any other form approved by the Administrative Agent.
     “Availability Period” means the period from and including the Effective
Date to but excluding the Termination Date.
     “Board” means the Board of Governors of the Federal Reserve System of the
United States of America or any successor Governmental Authority.
     “Borrowing” means Loans of the same Type, made, converted or continued on
the same date and, in the case of Eurodollar Loans, as to which a single
Interest Period is in effect.
     “Borrowing Base” means at any time an amount equal to the amount determined
in accordance with Section 2.07, as the same may be adjusted from time to time
pursuant to Section 8.13(c) or Section 9.12(d).
     “Borrowing Base Deficiency” occurs if at any time the total Revolving
Credit Exposures exceeds the Borrowing Base then in effect.
     “Borrowing Base Utilization Percentage” means, as of any day, the fraction
expressed as a percentage, the numerator of which is the sum of the Revolving
Credit Exposures of the Lenders on such day, and the denominator of which is the
Borrowing Base in effect on such day.
     “Borrowing Request” means a request by the Borrower for a Borrowing in
accordance with Section 2.03.
     “Business Day” means any day that is not a Saturday, Sunday or other day on
which commercial banks in New York City or Houston, Texas are authorized or
required by law to remain closed; and if such day relates to a Borrowing or
continuation of, a payment or prepayment of principal of or interest on, or a
conversion of or into, or the Interest Period for, a Eurodollar Loan or a notice
by the Borrower with respect to any such Borrowing or continuation, payment,
prepayment, conversion or Interest Period, any day which is also a day on which
banks are open for dealings in dollar deposits in the London interbank market.

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     “Capital Leases” means, in respect of any Person, all leases which shall
have been, or should have been, in accordance with GAAP, recorded as capital
leases on the balance sheet of the Person liable (whether contingent or
otherwise) for the payment of rent thereunder.
     “Casualty Event” means any loss, casualty or other insured damage to, or
any nationalization, taking under power of eminent domain or by condemnation or
similar proceeding of, any Oil and Gas Property of the Borrower or any of its
Subsidiaries having a fair market value in excess of $2,500,000.
     “Change in Control” means (a) the acquisition of ownership, directly or
indirectly, beneficially or of record, by any Person or group (within the
meaning of the Securities Exchange Act of 1934 and the rules of the SEC
thereunder as in effect on the date hereof), of Equity Interests representing
more than 35% of the aggregate ordinary voting power represented by the issued
and outstanding Equity Interests of the Parent, (b) occupation of a majority of
the seats (other than vacant seats) on the board of directors of the Parent by
Persons who were neither (i) nominated by the board of directors of the Parent
nor (ii) appointed by directors so nominated or (c) the Parent ceases to own
100% of the issued and outstanding Equity Interests of the Borrower.
     “Change in Law” means (a) the adoption of any law, rule or regulation after
the date of this Agreement, (b) any change in any law, rule or regulation or in
the interpretation or application thereof by any Governmental Authority after
the date of this Agreement or (c) compliance by any Lender or the Issuing Bank
(or, for purposes of Section 5.01(b)), by any lending office of such Lender or
by such Lender’s or the Issuing Bank’s holding company, if any) with any
request, guideline or directive (whether or not having the force of law) of any
Governmental Authority made or issued after the date of this Agreement.
     “Code” means the Internal Revenue Code of 1986, as amended from time to
time, and any successor statute.
     “Commitment” means, with respect to each Lender, the commitment of such
Lender to make Loans and to acquire participations in Letters of Credit
hereunder, expressed as an amount representing the maximum aggregate amount of
such Lender’s Revolving Credit Exposure hereunder, as such commitment may be
(a) modified from time to time pursuant to Section 2.06 and (b) modified from
time to time pursuant to assignments by or to such Lender pursuant to
Section 12.04(b). The amount representing each Lender’s Commitment shall at any
time be the lesser of such Lender’s Maximum Credit Amount and such Lender’s
Applicable Percentage of the then effective Borrowing Base.
     “Commitment Fee Rate” has the meaning set forth in the definition of
“Applicable Margin”.
     “Consolidated Net Income” means with respect to the Parent and the
Consolidated Subsidiaries, for any period, the aggregate of the net income (or
loss) of the Parent and the Consolidated Subsidiaries after allowances for taxes
for such period determined on a consolidated basis in accordance with GAAP;
provided that there shall be excluded from such net income (to the extent
otherwise included therein) the following: (a) the net income of any

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Person in which the Parent or any Consolidated Subsidiary has an interest (which
interest does not cause the net income of such other Person to be consolidated
with the net income of the Parent and the Consolidated Subsidiaries in
accordance with GAAP), except to the extent of the amount of dividends or
distributions actually paid in cash during such period by such other Person to
the Parent or to a Consolidated Subsidiary, as the case may be; (b) the net
income (but not loss) during such period of any Consolidated Subsidiary to the
extent that the declaration or payment of dividends or similar distributions or
transfers or loans by that Consolidated Subsidiary is not at the time permitted
by operation of the terms of its charter or any agreement, instrument or
Governmental Requirement applicable to such Consolidated Subsidiary or is
otherwise restricted or prohibited, in each case determined in accordance with
GAAP; (c) the net income (or loss) of any Person acquired in a
pooling-of-interests transaction for any period prior to the date of such
transaction; (d) any extraordinary gains or losses during such period and
(e) any gains or losses attributable to writeups or writedowns of assets,
including ceiling test writedowns; and provided further that if the Parent or
any Consolidated Subsidiary shall acquire or dispose of any Property during such
period, then Consolidated Net Income shall be calculated after giving pro forma
effect to such acquisition or disposition, as if such acquisition or disposition
had occurred on the first day of such period.
     “Consolidated Subsidiaries” means each Subsidiary of the Parent (whether
now existing or hereafter created or acquired) the financial statements of which
shall be (or should have been) consolidated with the financial statements of the
Parent in accordance with GAAP.
     “Control” means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise. For the
purposes of this definition, and without limiting the generality of the
foregoing, any Person that owns directly or indirectly 10% or more of the Equity
Interests having ordinary voting power for the election of the directors or
other governing body of a Person (other than as a limited partner of such other
Person) will be deemed to “control” such other Person. “Controlling” and
“Controlled” have meanings correlative thereto.
     “Convertible Preferred Stock” means the shares of 6.875% Series B
Cumulative Convertible Perpetual Stock of the Parent.
     “Debt” means, for any Person, the sum of the following (without
duplication): (a) all obligations of such Person for borrowed money or evidenced
by bonds, bankers’ acceptances, debentures, notes or other similar instruments;
(b) all obligations of such Person (whether contingent or otherwise) in respect
of letters of credit, surety or other bonds and similar instruments; (c) all
accounts payable and all accrued expenses, liabilities or other obligations of
such Person to pay the deferred purchase price of Property or services; (d) all
obligations under Capital Leases; (e) all obligations under Synthetic Leases;
(f) all Debt (as defined in the other clauses of this definition) of others
secured by (or for which the holder of such Debt has an existing right,
contingent or otherwise, to be secured by) a Lien on any Property of such
Person, whether or not such Debt is assumed by such Person; (g) all Debt (as
defined in the other clauses of this definition) of others guaranteed by such
Person or in which such Person otherwise assures a creditor against loss of the
Debt (howsoever such assurance shall be made) to the extent of the lesser of the
amount of such Debt and the maximum stated amount of such guarantee or assurance
against loss; (h) all obligations or undertakings of such Person to maintain or
cause to

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be maintained the financial position or covenants of others or to purchase the
Debt or Property of others; (i) obligations to deliver commodities, goods or
services, including, without limitation, Hydrocarbons, in consideration of one
or more advance payments, other than gas balancing arrangements in the ordinary
course of business; (j) obligations to pay for goods or services even if such
goods or services are not actually received or utilized by such Person; (k) any
Debt of a partnership for which such Person is liable either by agreement, by
operation of law or by a Governmental Requirement but only to the extent of such
liability; (l) Disqualified Capital Stock; and (m) the undischarged balance of
any production payment created by such Person or for the creation of which such
Person directly or indirectly received payment. The Debt of any Person shall
include all obligations of such Person of the character described above to the
extent such Person remains legally liable in respect thereof notwithstanding
that any such obligation is not included as a liability of such Person under
GAAP.
     “Default” means any event or condition which constitutes an Event of
Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
     “Defaulting Lender” means a Lender (a) that fails to fund a requested Loan
and such default continues for a period of three (3) Business Days, (b) that
fails to reimburse the Administrative Agent for an LC Disbursement or (c) who
(or whose bank holding company) is placed into receivership, conservatorship or
bankruptcy.
     “Disqualified Capital Stock” means any Equity Interest that, by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable) or upon the happening of any event, requires the payment of
dividends (other than dividends payable solely in Equity Interests which do not
otherwise constitute Disqualified Capital Stock) or matures or is mandatorily
redeemable for any consideration other than other Equity Interests (which would
not constitute Disqualified Capital Stock), pursuant to a sinking fund
obligation or otherwise, or is convertible or exchangeable for Debt or
redeemable for any consideration other than other Equity Interests (which would
not constitute Disqualified Capital Stock) at the option of the holder thereof,
in whole or in part, on or prior to the date that is one year after the earlier
of (a) the Maturity Date and (b) the date on which there are no Loans, LC
Exposure or other obligations hereunder outstanding and all of the Commitments
are terminated.
     “dollars” or “$” refers to lawful money of the United States of America.
     “Domestic Subsidiary” means any Subsidiary that is organized under the laws
of the United States of America or any state thereof or the District of
Columbia.
     “EBITDAX” means, for any period, the sum of Consolidated Net Income for
such period plus the following expenses or charges to the extent deducted from
Consolidated Net Income in such period: interest, income taxes, depreciation,
depletion, amortization, accretion expenses related to FAS 143, exploration
expenses, expenses recognized under FAS 123(r) and FAS 133, non-cash impairment
expenses and other similar noncash charges, minus all noncash income added to
Consolidated Net Income.
     “Effective Date” means the date on which the conditions specified in
Section 6.01 are satisfied (or waived in accordance with Section 12.02).

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     “Engineering Reports” has the meaning assigned such term in
Section 2.07(c)(i).
     “Environmental Laws” means any and all Governmental Requirements pertaining
in any way to health, safety, the environment, the preservation or reclamation
of natural resources, or the management, Release or threatened Release of any
Hazardous Materials, in effect in any and all jurisdictions in which the
Borrower or any of the Borrower’s Subsidiaries is conducting, or at any time has
conducted, business, or where any Property of the Borrower or any Subsidiaries
of Borrower is located, including, the Oil Pollution Act of 1990 (“OPA”), as
amended, the Clean Air Act, as amended, the Comprehensive Environmental,
Response, Compensation, and Liability Act of 1980 (“CERCLA”), as amended, the
Federal Water Pollution Control Act, as amended, the Occupational Safety and
Health Act of 1970, as amended, the Resource Conservation and Recovery Act of
1976 (“RCRA”), as amended, the Safe Drinking Water Act, as amended, the Toxic
Substances Control Act, as amended, the Superfund Amendments and Reauthorization
Act of 1986, as amended, the Hazardous Materials Transportation Law, as amended,
and other environmental conservation or protection Governmental Requirements.
     “Environmental Permit” means any permit, registration, license, notice,
approval, consent, exemption, variance, or other authorization required under or
issued pursuant to applicable Environmental Laws.
     “Equity Interests” means shares of capital stock, partnership interests,
membership interests in a limited liability company, beneficial interests in a
trust or other equity ownership interests in a Person, and any warrants, options
or other rights entitling the holder thereof to purchase or acquire any such
Equity Interest.
     “ERISA” means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute.
     “ERISA Affiliate” means each trade or business (whether or not
incorporated) which together with the Borrower or the Borrower’s Subsidiary
would be deemed to be a “single employer” within the meaning of section
4001(b)(1) of ERISA or subsections (b), (c), (m) or (o) of section 414 of the
Code.
     “Eurodollar”, when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Adjusted LIBO Rate.
     “Event of Default” has the meaning assigned such term in Section 10.01.
     “Excepted Liens” means: (a) Liens for Taxes, assessments or other
governmental charges or levies which are not delinquent or which are being
contested in good faith by appropriate action and for which adequate reserves
have been maintained in accordance with GAAP; (b) Liens in connection with
workers’ compensation, unemployment insurance or other social security, old age
pension or public liability obligations which are not delinquent or which are
being contested in good faith by appropriate action and for which adequate
reserves have been maintained in accordance with GAAP; (c) statutory landlord’s
liens, operators’, vendors’, carriers’, warehousemen’s, repairmen’s, mechanics’,
suppliers’, workers’, materialmen’s, construction or other like Liens arising by
operation of law in the ordinary course of business or

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incident to the exploration, development, operation and maintenance of Oil and
Gas Properties each of which is in respect of obligations that are not
delinquent or which are being contested in good faith by appropriate action and
for which adequate reserves have been maintained in accordance with GAAP;
(d) contractual Liens which arise in the ordinary course of business under
operating agreements, joint venture agreements, oil and gas partnership
agreements, oil and gas leases, farm-out agreements, division orders, contracts
for the sale, transportation or exchange of oil and natural gas, unitization and
pooling declarations and agreements, area of mutual interest agreements,
overriding royalty agreements, marketing agreements, processing agreements, net
profits agreements, development agreements, gas balancing or deferred production
agreements, injection, repressuring and recycling agreements, salt water or
other disposal agreements, seismic or other geophysical permits or agreements,
and other agreements which are usual and customary in the oil and gas business
and are for claims which are not delinquent or which are being contested in good
faith by appropriate action and for which adequate reserves have been maintained
in accordance with GAAP; provided that any such Lien referred to in this clause
does not materially impair the use of the Property covered by such Lien for the
purposes for which such Property is held by the Borrower or any of the
Borrower’s Subsidiaries or materially impair the value of such Property subject
thereto; (e) Liens arising solely by virtue of any statutory or common law
provision relating to banker’s liens, rights of set-off or similar rights and
remedies and burdening only deposit accounts or other funds maintained with a
creditor depository institution; provided that no such deposit account is a
dedicated cash collateral account or is subject to restrictions against access
by the depositor in excess of those set forth by regulations promulgated by the
Board and no such deposit account is intended by the Borrower or any of the
Borrower’s Subsidiaries to provide collateral to the depository institution;
(f) easements, restrictions, servitudes, permits, conditions, covenants,
exceptions or reservations in any Property of the Borrower or any of the
Borrower’s Subsidiaries for the purpose of roads, pipelines, transmission lines,
transportation lines, distribution lines for the removal of gas, oil, coal or
other minerals or timber, and other like purposes, or for the joint or common
use of real estate, rights of way, facilities and equipment, that do not secure
any monetary obligations and which in the aggregate do not materially impair the
use of such Property for the purposes of which such Property is held by the
Borrower or any of the Borrower’s Subsidiaries or materially impair the value of
such Property subject thereto; (g) Liens on cash or securities pledged to secure
performance of tenders, surety and appeal bonds, government contracts,
performance and return of money bonds, bids, trade contracts, leases, statutory
obligations, regulatory obligations and other obligations of a like nature
incurred in the ordinary course of business and (h) judgment and attachment
Liens not giving rise to an Event of Default; provided that any appropriate
legal proceedings which may have been duly initiated for the review of such
judgment shall not have been finally terminated or the period within which such
proceeding may be initiated shall not have expired and no action to enforce such
Lien has been commenced; provided, further that Liens described in clauses
(a) through (e) shall remain “Excepted Liens” only for so long as no action to
enforce such Lien has been commenced, and no intention to subordinate the first
priority Lien granted in favor of the Administrative Agent and the Lenders is to
be hereby implied or expressed by the permitted existence of such Excepted
Liens.

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     “Excluded Subsidiary” means, individually and collectively, Indianola
Gathering, L.L.C., an Oklahoma limited liability company, PetroQuest Oil & Gas,
L.L.C., a Louisiana limited liability company, Pittrans, Inc., an Oklahoma
corporation, and Sea Harvester Energy Development Co., L.L.C., a Louisiana
limited liability company.
     “Excluded Taxes” means, with respect to the Administrative Agent, any
Lender, the Issuing Bank or any other recipient of any payment to be made by or
on account of any obligation of the Borrower or any Guarantor hereunder or under
any other Loan Document, (a) income or franchise taxes imposed on (or measured
by) its net income by the United States of America or such other jurisdiction
under the laws of which such recipient is organized or in which its principal
office is located or, in the case of any Lender, in which its applicable lending
office is located, (b) any branch profits taxes imposed by the United States of
America or any similar tax imposed by any other jurisdiction in which the
Borrower or any Guarantor is located and (c) in the case of a Foreign Lender
(other than an assignee pursuant to a request by the Borrower under
Section 5.04), any withholding tax that is imposed on amounts payable to such
Foreign Lender at the time such Foreign Lender becomes a party to this Agreement
(or designates a new lending office) or is attributable to such Foreign Lender’s
failure to comply with Section 5.03(e), except to the extent that such Foreign
Lender (or its assignor, if any) was entitled, at the time of designation of a
new lending office (or assignment), to receive additional amounts with respect
to such withholding tax pursuant to Section 5.03(a) or Section 5.03(b).
     “Existing Credit Agreement” means that certain Second Amended and Restated
Credit Agreement dated as of November 18, 2005 among the Borrower, as borrower,
the Parent, as guarantor, JPMorgan, as administrative agent, and the lenders and
other agents party thereto, as the same has heretofore been amended, modified,
supplemented or restated.
     “Federal Funds Effective Rate” means, for any day, the weighted average
(rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
     “Financial Officer” means, for any Person, the chief financial officer,
principal accounting officer, treasurer or controller of such Person. Unless
otherwise specified, all references herein to a Financial Officer means a
Financial Officer of the Parent.
     “Financial Statements” means the financial statement or statements of the
Parent and its Consolidated Subsidiaries referred to in Section 7.04(a).
     “Foreign Lender” means any Lender that is organized under the laws of a
jurisdiction other than that in which the Borrower is located. For purposes of
this definition, the United States of America, each State thereof and the
District of Columbia shall be deemed to constitute a single jurisdiction.
     “Foreign Subsidiary” means any Subsidiary that is not a Domestic
Subsidiary.

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     “GAAP” means generally accepted accounting principles in the United States
of America as in effect from time to time subject to the terms and conditions
set forth in Section 1.05.
     “Governmental Authority” means the government of the United States of
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
     “Governmental Requirement” means any law, statute, code, ordinance, order,
determination, rule, regulation, judgment, decree, injunction, franchise,
permit, certificate, license, rules of common law, authorization or other
directive or requirement, whether now or hereinafter in effect, of any
Governmental Authority.
     “Guarantors” means:
     (a) the Parent;
     (b) TDC Energy LLC, a Louisiana limited liability company; and
     (c) each other Subsidiary that guarantees the Indebtedness pursuant to
Section 8.14(b).
     “Guaranty Agreement” means an agreement executed by the Guarantors in
substantially the form of Exhibit F-2 unconditionally guarantying on a joint and
several basis, payment of the Indebtedness, as the same may be amended, modified
or supplemented from time to time.
     “Hazardous Material” means any substance regulated or as to which liability
might arise under any applicable Environmental Law including: (a) any chemical,
compound, material, product, byproduct, substance or waste defined as or
included in the definition or meaning of “hazardous substance,” “hazardous
material,” “hazardous waste,” “solid waste,” “toxic waste,” “extremely hazardous
substance,” “toxic substance,” “contaminant,” “pollutant,” or words of similar
meaning or import found in any applicable Environmental Law; (b) Hydrocarbons,
petroleum products, petroleum substances, natural gas, oil, oil and gas waste,
crude oil, and any components, fractions, or derivatives thereof; and
(c) radioactive materials, explosives, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon, infectious or medical wastes.
     “Highest Lawful Rate” means, with respect to each Lender, the maximum
nonusurious interest rate, if any, that at any time or from time to time may be
contracted for, taken, reserved, charged or received on the Notes or on other
Indebtedness under laws applicable to such Lender which are presently in effect
or, to the extent allowed by law, under such applicable laws which may hereafter
be in effect and which allow a higher maximum nonusurious interest rate than
applicable laws allow as of the date hereof.
     “Hydrocarbon Interests” means all rights, titles, interests and estates now
or hereafter acquired in and to oil and gas leases, oil, gas and mineral leases,
or other liquid or gaseous hydrocarbon leases, mineral fee interests, overriding
royalty and royalty interests, net profit interests and production payment
interests, including any reserved or residual interests of whatever nature.

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     “Hydrocarbons” means oil, gas, casinghead gas, drip gasoline, natural
gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and
all products refined or separated therefrom.
     “Indebtedness” means any and all amounts owing or to be owing by the
Borrower, any Subsidiary or any Guarantor (whether direct or indirect (including
those acquired by assumption), absolute or contingent, due or to become due, now
existing or hereafter arising): (a) to the Administrative Agent, the Issuing
Bank or any Lender under any Loan Document; (b) to any Lender or any Affiliate
of a Lender under any Swap Agreement between the Parent, the Borrower or any
Subsidiary and such Lender or Affiliate of a Lender while such Person (or in the
case of its Affiliate, the Person affiliated therewith) is a Lender hereunder
and (c) all renewals, extensions and/or rearrangements of any of the above.
     “Indemnified Taxes” means Taxes other than Excluded Taxes.
     “Information Memorandum” means the Confidential Information Memorandum
dated September 4, 2008 relating to the Borrower and the Transactions.
     “Initial Reserve Report” means the report of the Parent dated as of
August 22, 2008, with respect to certain Oil and Gas Properties of the Borrower
and its Subsidiaries as of July 1, 2008.
     “Interest Election Request” means a request by the Borrower to convert or
continue a Borrowing in accordance with Section 2.04.
     “Interest Payment Date” means (a) with respect to any ABR Loan, the last
day of each March, June, September and December and (b) with respect to any
Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing
of which such Loan is a part and, in the case of a Eurodollar Borrowing with an
Interest Period of more than three months’ duration, each day prior to the last
day of such Interest Period that occurs at intervals of three months’ duration
after the first day of such Interest Period.
     “Interest Period” means with respect to any Eurodollar Borrowing, the
period commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, two, three or six months
thereafter, as the Borrower may elect; provided, that (a) if any Interest Period
would end on a day other than a Business Day, such Interest Period shall be
extended to the next succeeding Business Day unless such next succeeding
Business Day would fall in the next calendar month, in which case such Interest
Period shall end on the next preceding Business Day and (b) any Interest Period
pertaining to a Eurodollar Borrowing that commences on the last Business Day of
a calendar month (or on a day for which there is no numerically corresponding
day in the last calendar month of such Interest Period) shall end on the last
Business Day of the last calendar month of such Interest Period. For purposes
hereof, the date of a Borrowing initially shall be the date on which such
Borrowing is made and thereafter shall be the effective date of the most recent
conversion or continuation of such Borrowing.

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     “Interim Redetermination” has the meaning assigned such term in
Section 2.07(b).
     “Interim Redetermination Date” means the date on which a Borrowing Base
that has been redetermined pursuant to an Interim Redetermination becomes
effective as provided in Section 2.07(d).
     “Investment” means, for any Person: (a) the acquisition (whether for cash,
Property, services or securities or otherwise) of Equity Interests of any other
Person or any agreement to make any such acquisition (including, without
limitation, any “short sale” or any sale of any securities at a time when such
securities are not owned by the Person entering into such short sale); (b) the
making of any deposit with, or advance, loan or capital contribution to, the
purchase or other acquisition of any other Debt of or equity participation or
interest in, or other extension of credit to, any other Person (including the
purchase of Property from another Person subject to an understanding or
agreement, contingent or otherwise, to resell such Property to such Person, but
excluding any such advance, loan or extension of credit having a term not
exceeding ninety (90) days representing the purchase price of inventory or
supplies sold by such Person in the ordinary course of business); (c) the
purchase or acquisition (in one or a series of transactions) of Property of
another Person that constitutes a business unit; or (d) the entering into of any
guarantee of, or other contingent obligation (including the deposit of any
Equity Interests to be sold) with respect to, Debt or other liability of any
other Person and (without duplication) any amount committed to be advanced, lent
or extended to such Person.
     “Issuing Bank” means JPMorgan, in its capacity as the issuer of Letters of
Credit hereunder, and its successors in such capacity as provided in
Section 2.08(i). The Issuing Bank may, in its discretion, arrange for one or
more Letters of Credit to be issued by Affiliates of the Issuing Bank, in which
case the term “Issuing Bank” shall include any such Affiliate with respect to
Letters of Credit issued by such Affiliate.
     “LC Commitment” at any time means twenty-five million dollars
($25,000,000).
     “LC Disbursement” means a payment made by the Issuing Bank pursuant to a
Letter of Credit.
     “LC Exposure” means, at any time, the sum of (a) the aggregate undrawn
amount of all outstanding Letters of Credit at such time plus (b) the aggregate
amount of all LC Disbursements that have not yet been reimbursed by or on behalf
of the Borrower at such time. The LC Exposure of any Lender at any time shall be
its Applicable Percentage of the total LC Exposure at such time.
     “Lenders” means the Persons listed on Annex I and any Person that shall
have become a party hereto pursuant to an Assignment and Assumption, other than
any such Person that ceases to be a party hereto pursuant to an Assignment and
Assumption.
     “Letter of Credit” means any letter of credit issued pursuant to this
Agreement.
     “Letter of Credit Agreements” means all letter of credit applications and
other agreements (including any amendments, modifications or supplements
thereto) submitted by the Borrower, or entered into by the Borrower, with the
Issuing Bank relating to any Letter of Credit.

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     “LIBO Rate” means, with respect to any Eurodollar Borrowing for any
Interest Period, the rate appearing on Reuters Screen LIBOR01 Page (or on any
successor or substitute page of such service, or any successor to or substitute
for such service, providing rate quotations comparable to those currently
provided on such page of such service, as determined by the Administrative Agent
from time to time for purposes of providing quotations of interest rates
applicable to dollar deposits in the London interbank market) at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period, as the rate for dollar deposits with a maturity comparable to
such Interest Period. In the event that such rate is not available at such time
for any reason, then the “LIBO Rate” with respect to such Eurodollar Borrowing
for such Interest Period shall be the rate (rounded upwards, if necessary, to
the next 1/100 of 1%) at which dollar deposits of an amount comparable to such
Eurodollar Borrowing and for a maturity comparable to such Interest Period are
offered by the principal London office of the Administrative Agent in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period.
     “Lien” means any interest in Property securing an obligation owed to, or a
claim by, a Person other than the owner of the Property, whether such interest
is based on the common law, statute or contract, and whether such obligation or
claim is fixed or contingent, and including but not limited to (a) the lien or
security interest arising from a mortgage, encumbrance, pledge, security
agreement, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes or (b) production payments and the like payable out of Oil
and Gas Properties. The term “Lien” shall include easements, restrictions,
servitudes, permits, conditions, covenants, exceptions or reservations. For the
purposes of this Agreement, the Parent and its Subsidiaries shall be deemed to
be the owner of any Property which it has acquired or holds subject to a
conditional sale agreement, or leases under a financing lease or other
arrangement pursuant to which title to the Property has been retained by or
vested in some other Person in a transaction intended to create a financing.
     “Loan Documents” means this Agreement, the Notes, the Letter of Credit
Agreements, the Letters of Credit and the Security Instruments.
     “Loans” means the loans made by the Lenders to the Borrower pursuant to
this Agreement.
     “Material Adverse Effect” means a material adverse change in, or material
adverse effect on (a) the business, operations, Property, condition (financial
or otherwise) or prospects of the Parent and the Subsidiaries taken as a whole,
(b) the ability of the Borrower, any Subsidiary or any Guarantor to perform any
of its obligations under any Loan Document to which it is a party, (c) the
validity or enforceability of any Loan Document or (d) the rights and remedies
of or benefits available to the Administrative Agent, any other Agent, the
Issuing Bank or any Lender under any Loan Document.
     “Material Indebtedness” means Debt (other than the Loans and Letters of
Credit), or obligations in respect of one or more Swap Agreements, of any one or
more of the Parent and its Subsidiaries in an aggregate principal amount
exceeding $5,000,000. For purposes of determining Material Indebtedness, the
“principal amount” of the obligations of the Parent or any Subsidiary in respect
of any Swap Agreement at any time shall be the Swap Termination Value.

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     “Maturity Date” means February 10, 2012; provided that if on or prior to
February 10, 2012, the Parent or the Borrower prepays the Senior Notes with the
proceeds of any Permitted Refinancing Debt and/or with the net cash proceeds of
any sale of Equity Interests (other than Disqualified Capital Stock) of the
Parent, then the term “Maturity Date” shall mean October 2, 2013.
     “Maximum Credit Amount” means, as to each Lender, the amount set forth
opposite such Lender’s name on Annex I under the caption “Maximum Credit
Amounts”, as the same may be (a) reduced or terminated from time to time in
connection with a reduction or termination of the Aggregate Maximum Credit
Amounts pursuant to Section 2.06(b), or (b) modified from time to time pursuant
to any assignment permitted by Section 12.04(b).
     “Moody’s” means Moody’s Investors Service, Inc. and any successor thereto
that is a nationally recognized rating agency.
     “Mortgaged Property” means any Property owned by the Borrower or any
Guarantor which is subject to the Liens existing and to exist under the terms of
the Security Instruments.
     “New Borrowing Base Notice” has the meaning assigned such term in
Section 2.07(d).
     “Notes” means the promissory notes of the Borrower described in
Section 2.02(d) and being substantially in the form of Exhibit A, together with
all amendments, modifications, replacements, extensions and rearrangements
thereof.
     “Oil and Gas Properties” means (a) Hydrocarbon Interests; (b) the
Properties now or hereafter pooled or unitized with Hydrocarbon Interests;
(c) all presently existing or future unitization, pooling agreements and
declarations of pooled units and the units created thereby (including without
limitation all units created under orders, regulations and rules of any
Governmental Authority) which may affect all or any portion of the Hydrocarbon
Interests; (d) all operating agreements, contracts and other agreements,
including production sharing contracts and agreements, which relate to any of
the Hydrocarbon Interests or the production, sale, purchase, exchange or
processing of Hydrocarbons from or attributable to such Hydrocarbon Interests;
(e) all Hydrocarbons in and under and which may be produced and saved or
attributable to the Hydrocarbon Interests, including all oil in tanks, and all
rents, issues, profits, proceeds, products, revenues and other incomes from or
attributable to the Hydrocarbon Interests; (f) all tenements, hereditaments,
appurtenances and Properties in any manner appertaining, belonging, affixed or
incidental to the Hydrocarbon Interests and (g) all Properties, rights, titles,
interests and estates described or referred to above, including any and all
Property, real or personal, now owned or hereinafter acquired and situated upon,
used, held for use or useful in connection with the operating, working or
development of any of such Hydrocarbon Interests or Property (excluding drilling
rigs, automotive equipment, rental equipment or other personal Property which
may be on such premises for the purpose of drilling a well or for other similar
temporary uses) and including any and all oil wells, gas wells, injection wells
or other wells, buildings, structures, fuel separators, liquid extraction
plants, plant compressors, pumps,

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pumping units, field gathering systems, tanks and tank batteries, fixtures,
valves, fittings, machinery and parts, engines, boilers, meters, apparatus,
equipment, appliances, tools, implements, cables, wires, towers, casing, tubing
and rods, surface leases, rights-of-way, easements and servitudes together with
all additions, substitutions, replacements, accessions and attachments to any
and all of the foregoing.
     “Oklahoma Gas Gathering Assets” means all equipment, facilities, easements,
rights of way and related rights and interests associated with the Borrower’s
gas gathering assets located in Oklahoma.
     “Other Taxes” means any and all present or future stamp or documentary
taxes or any other excise or Property taxes, charges or similar levies arising
from any payment made hereunder or from the execution, delivery or enforcement
of, or otherwise with respect to, this Agreement and any other Loan Document.
     “Participant” has the meaning set forth in Section 12.04(c)(i).
     “Permitted Refinancing Debt” means Debt (for purposes of this definition,
“new Debt”) incurred in exchange for, or proceeds of which are used to
refinance, all of any other Debt (the “Refinanced Debt”); provided that (a) such
new Debt is in an aggregate principal amount not in excess of the sum of (i) the
aggregate principal amount then outstanding of the Refinanced Debt (or, if the
Refinanced Debt is exchanged or acquired for an amount less than the principal
amount thereof to be due and payable upon a declaration of acceleration thereof,
such lesser amount) and (ii) an amount necessary to pay any fees and expenses,
including premiums, related to such exchange or refinancing; (b) such new Debt
has a stated maturity no earlier than stated maturity of the Refinanced Debt or,
in the case of the Senior Notes, January 31, 2014, and an average life no
shorter than the average life of the Refinanced Debt; (c) such new Debt has a
stated interest rate that is a market-based rate; (d) such new Debt does not
contain any covenants which are materially more onerous to the Parent and its
Subsidiaries than those imposed by the Refinanced Debt and (e) such new Debt
(and any guarantees thereof) is otherwise on terms and documentation
satisfactory to the Administrative Agent.
     “Person” means any natural person, corporation, limited liability company,
trust, joint venture, association, company, partnership, Governmental Authority
or other entity.
     “Plan” means any employee pension benefit plan, as defined in section 3(2)
of ERISA, which (a) is currently or hereafter sponsored, maintained or
contributed to by the Borrower or the Borrower’s Subsidiary or an ERISA
Affiliate or (b) was at any time during the six calendar years preceding the
date hereof, sponsored, maintained or contributed to by the Borrower or the
Borrower’s Subsidiary or an ERISA Affiliate.
     “Prime Rate” means the rate of interest per annum publicly announced from
time to time by JPMorgan as its prime rate in effect at its principal office in
New York City; each change in the Prime Rate shall be effective from and
including the date such change is publicly announced as being effective. Such
rate is set by the Administrative Agent as a general reference rate of interest,
taking into account such factors as the Administrative Agent may deem
appropriate; it being understood that many of the Administrative Agent’s
commercial or other loans are priced

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in relation to such rate, that it is not necessarily the lowest or best rate
actually charged to any customer and that the Administrative Agent may make
various commercial or other loans at rates of interest having no relationship to
such rate.
     “Property” means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible, including, without
limitation, cash, securities, accounts and contract rights.
     “Proposed Borrowing Base” has the meaning assigned to such term in
Section 2.07(c)(i).
     “Proposed Borrowing Base Notice” has the meaning assigned to such term in
Section 2.07(c)(ii).
     “Redemption” means with respect to any Debt, the repurchase, redemption,
prepayment, repayment, defeasance or any other acquisition or retirement for
value (or the segregation of funds with respect to any of the foregoing) of such
Debt. “Redeem” has the correlative meaning thereto.
     “Redetermination Date” means, with respect to any Scheduled Redetermination
or any Interim Redetermination, the date that the redetermined Borrowing Base
related thereto becomes effective pursuant to Section 2.07(d).
     “Refinanced Debt” has the meaning assigned such term in the definition of
“Permitted Refinancing Debt”.
     “Register” has the meaning assigned such term in Section 12.04(b)(iv).
     “Regulation D” means Regulation D of the Board, as the same may be amended,
supplemented or replaced from time to time.
     “Related Parties” means, with respect to any specified Person, such
Person’s Affiliates and the respective directors, officers, employees, agents
and advisors (including attorneys, accountants and experts) of such Person and
such Person’s Affiliates.
     “Release” means any depositing, spilling, leaking, pumping, pouring,
placing, emitting, discarding, abandoning, emptying, discharging, migrating,
injecting, escaping, leaching, dumping, or disposing into the environment.
     “Remedial Work” has the meaning assigned such term in Section 8.10(a).
     “Required Lenders” means, at any time while no Loans or LC Exposure is
outstanding, Lenders having at least sixty-six and two-thirds percent (66-2/3%)
of the Aggregate Maximum Credit Amounts; and at any time while any Loans or LC
Exposure is outstanding, Lenders holding at least sixty-six and two-thirds
percent (66-2/3%) of the outstanding aggregate principal amount of the Loans and
participation interests in Letters of Credit (without regard to any sale by a
Lender of a participation in any Loan under Section 12.04(c)); provided that the
Maximum Credit Amounts and the principal amount of the Loans and participation
interests in Letters of Credit of the Defaulting Lenders shall be excluded from
the determination of Required Lenders.

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     “Reserve Report” means a report, in form and substance reasonably
satisfactory to the Administrative Agent, setting forth, as of each January 1st
or July 1st (or such other date in the event of an Interim Redetermination) the
oil and gas reserves attributable to the Oil and Gas Properties of the Borrower
and the Borrower’s Subsidiaries, together with a projection of the rate of
production and future net income, taxes, operating expenses and capital
expenditures with respect thereto as of such date, based upon the economic
assumptions consistent with the Administrative Agent’s lending requirements at
the time.
     “Responsible Officer” means, as to any Person, the Chief Executive Officer,
the President, any Financial Officer or any Executive Vice President of such
Person. Unless otherwise specified, all references to a Responsible Officer
herein shall mean a Responsible Officer of the Parent.
     “Restricted Payment” means any dividend or other distribution (whether in
cash, securities or other Property) with respect to any Equity Interests in the
Parent or any of its Subsidiaries, or any payment (whether in cash, securities
or other Property), including any sinking fund or similar deposit, on account of
the purchase, redemption, retirement, acquisition, cancellation or termination
of any such Equity Interests in the Parent or any of its Subsidiaries or any
option, warrant or other right to acquire any such Equity Interests in the
Parent or any of its Subsidiaries.
     “Revolving Credit Exposure” means, with respect to any Lender at any time,
the sum of the outstanding principal amount of such Lender’s Loans and its LC
Exposure at such time.
     “Scheduled Redetermination” has the meaning assigned such term in
Section 2.07(b).
     “Scheduled Redetermination Date” means the date on which a Borrowing Base
that has been redetermined pursuant to a Scheduled Redetermination becomes
effective as provided in Section 2.07(d).
     “SEC” means the Securities and Exchange Commission or any successor
Governmental Authority.
     “Security Instruments” means the Guaranty Agreement, mortgages, deeds of
trust and other agreements, instruments or certificates described or referred to
in Exhibit F-1, and any and all other agreements, instruments, consents or
certificates now or hereafter executed and delivered by the Borrower or any
other Person (other than Swap Agreements with the Lenders or any Affiliate of a
Lender or participation or similar agreements between any Lender and any other
lender or creditor with respect to any Indebtedness pursuant to this Agreement)
in connection with, or as security for the payment or performance of the
Indebtedness, the Notes, this Agreement, or reimbursement obligations under the
Letters of Credit, as such agreements may be amended, modified, supplemented or
restated from time to time.
     “Senior Indenture” means (a) that certain Indenture dated as of May 11,
2005, among the Parent and the Borrower, as issuers, the subsidiary guarantors
identified therein, and The Bank of New York Trust Company, N.A., as trustee,
pursuant to which the Senior Notes are issued, and (b) any indenture, note
purchase agreement or other agreement pursuant to which any Permitted
Refinancing Debt is issued, in each case, as hereafter amended or supplemented
pursuant to Section 9.04(b).

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     “Senior Notes” means the Borrower’s $150,000,000 10-3/8% senior notes due
2012.
     “S&P” means Standard & Poor’s Ratings Group, a division of The McGraw-Hill
Companies, Inc., and any successor thereto that is a nationally recognized
rating agency.
     “Statutory Reserve Rate” means a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Administrative Agent is subject, with
respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred
to as “Eurocurrency Liabilities” in Regulation D of the Board). Such reserve
percentages shall include those imposed pursuant to such Regulation D.
Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be
subject to such reserve requirements without benefit of or credit for proration,
exemptions or offsets that may be available from time to time to any Lender
under such Regulation D or any comparable regulation. The Statutory Reserve Rate
shall be adjusted automatically on and as of the effective date of any change in
any reserve percentage.
     “subsidiary” means, with respect to any Person (the “parent”) at any date,
any other Person the accounts of which would be consolidated with those of the
parent in the parent’s consolidated financial statements if such financial
statements were prepared in accordance with GAAP as of such date, as well as any
other Person (a) of which Equity Interests representing more than 50% of the
equity or more than 50% of the ordinary voting power (irrespective of whether or
not at the time Equity Interests of any other class or classes of such Person
shall have or might have voting power by reason of the happening of any
contingency) or, in the case of a partnership, any general partnership interests
are, as of such date, owned, controlled or held, or (b) that is, as of such
date, otherwise Controlled, by the parent or one or more subsidiaries of the
parent or by the parent and one or more subsidiaries of the parent.
     “Subsidiary” means: other than Excluded Subsidiaries (a) with respect to
the Parent, any subsidiary of the Parent (including the Borrower) and (b) with
respect to the Borrower, any subsidiary of the Borrower. Unless otherwise
specified, all references to a “Subsidiary” or the “Subsidiaries” herein shall
mean a Subsidiary (including the Borrower) of the Parent or the Subsidiaries
(including the Borrower) of the Parent other than Excluded Subsidiaries.
     “Swap Agreement” means any agreement with respect to any swap, forward,
future or derivative transaction or option or similar agreement, whether
exchange traded, “over-the-counter” or otherwise, involving, or settled by
reference to, one or more rates, currencies, commodities, equity or debt
instruments or securities, or economic, financial or pricing indices or measures
of economic, financial or pricing risk or value or any similar transaction or
any combination of these transactions; provided that no phantom stock or similar
plan providing for payments only on account of services provided by current or
former directors, officers, employees or consultants of the Parent or the
Subsidiaries shall be a Swap Agreement.

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     “Swap Termination Value” means, in respect of any one or more Swap
Agreements, after taking into account the effect of any legally enforceable
netting agreement relating to such Swap Agreements, (a) for any date on or after
the date such Swap Agreements have been closed out and termination value(s)
determined in accordance therewith, such termination value(s) and (b) for any
date prior to the date referenced in clause (a), the amount(s) determined as the
mark-to-market value(s) for such Swap Agreements, as determined by the
counterparties to such Swap Agreements.
     “Synthetic Leases” means, in respect of any Person, all leases which shall
have been, or should have been, in accordance with GAAP, treated as operating
leases on the financial statements of the Person liable (whether contingently or
otherwise) for the payment of rent thereunder and which were properly treated as
indebtedness for borrowed money for purposes of U.S. federal income taxes, if
the lessee in respect thereof is obligated to either purchase for an amount in
excess of, or pay upon early termination an amount in excess of, 80% of the
residual value of the Property subject to such operating lease upon expiration
or early termination of such lease.
     “Taxes” means any and all present or future taxes, levies, imposts, duties,
deductions, charges or withholdings imposed by any Governmental Authority.
     “Termination Date” means the earlier of the Maturity Date and the date of
termination of the Commitments.
     “Total Debt” means, at any date, all Debt of the Parent and the
Consolidated Subsidiaries on a consolidated basis, excluding (i) non-cash
obligations under FAS 133 and FAS 143 and (ii) accounts payable and other
accrued liabilities (for the deferred purchase price of Property or services)
from time to time incurred in the ordinary course of business which are not
greater than sixty (60) days past the date of invoice or delinquent or which are
being contested in good faith by appropriate action and for which adequate
reserves have been maintained in accordance with GAAP.
     “Transactions” means, with respect to (a) the Borrower, the execution,
delivery and performance by the Borrower of this Agreement and each other Loan
Document to which it is a party, the borrowing of Loans, the use of the proceeds
thereof and the issuance of Letters of Credit hereunder, and the grant of Liens
by the Borrower on Mortgaged Properties and other Properties pursuant to the
Security Instruments and (b) each Guarantor, the execution, delivery and
performance by such Guarantor of each Loan Document to which it is a party, the
guaranteeing of the Indebtedness and the other obligations under the Guaranty
Agreement by such Guarantor and such Guarantor’s grant of the security interests
and provision of collateral under the Security Instruments, and the grant of
Liens by such Guarantor on Mortgaged Properties and other Properties pursuant to
the Security Instruments.
     “Type”, when used in reference to any Loan or Borrowing, refers to whether
the rate of interest on such Loan, or on the Loans comprising such Borrowing, is
determined by reference to the Alternate Base Rate or the Adjusted LIBO Rate.

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     “Wholly-Owned Subsidiary” means, in respect of any Person, any subsidiary
of such Person, all of the Equity Interests of which (other than director’s
qualifying shares, as may be required by law) is owned by such Person, either
directly or indirectly through one or more Wholly-Owned Subsidiaries of such
Person. Unless otherwise indicated herein, each reference to the term
“Wholly-Owned Subsidiary” shall mean a Wholly-Owned Subsidiary of the Parent.
     Section 1.03 Types of Loans and Borrowings. For purposes of this Agreement,
Loans and Borrowings, respectively, may be classified and referred to by Type
(e.g., a “Eurodollar Loan” or a “Eurodollar Borrowing”).
     Section 1.04 Terms Generally; Rules of Construction. The definitions of
terms herein shall apply equally to the singular and plural forms of the terms
defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words “include”,
“includes” and “including” shall be deemed to be followed by the phrase “without
limitation”. The word “will” shall be construed to have the same meaning and
effect as the word “shall”. Unless the context requires otherwise (a) any
definition of or reference to any agreement, instrument or other document herein
shall be construed as referring to such agreement, instrument or other document
as from time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth in the
Loan Documents), (b) any reference herein to any law shall be construed as
referring to such law as amended, modified, codified or reenacted, in whole or
in part, and in effect from time to time, (c) any reference herein to any Person
shall be construed to include such Person’s successors and assigns (subject to
the restrictions contained in the Loan Documents), (d) the words “herein”,
“hereof” and “hereunder”, and words of similar import, shall be construed to
refer to this Agreement in its entirety and not to any particular provision
hereof, (e) with respect to the determination of any time period, the word
“from” means “from and including” and the word “to” means “to and including” and
(f) any reference herein to Articles, Sections, Annexes, Exhibits and Schedules
shall be construed to refer to Articles and Sections of, and Annexes, Exhibits
and Schedules to, this Agreement. No provision of this Agreement or any other
Loan Document shall be interpreted or construed against any Person solely
because such Person or its legal representative drafted such provision.
     Section 1.05 Accounting Terms and Determinations; GAAP. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all financial statements and certificates and reports as to financial matters
required to be furnished to the Administrative Agent or the Lenders hereunder
shall be prepared, in accordance with GAAP, applied on a basis consistent with
the Financial Statements except for changes in which Parent’s independent
certified public accountants concur and which are disclosed to Administrative
Agent on the next date on which financial statements are required to be
delivered to the Lenders pursuant to Section 8.01(a); provided that, unless the
Parent and the Required Lenders shall otherwise agree in writing, no such change
shall modify or affect the manner in which compliance with the covenants
contained herein is computed such that all such computations shall be conducted
utilizing financial information presented consistently with prior periods.

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ARTICLE II
The Credits
     Section 2.01 Commitments. Subject to the terms and conditions set forth
herein, each Lender agrees to make Loans to the Borrower during the Availability
Period in an aggregate principal amount that will not result in (a) such
Lender’s Revolving Credit Exposure exceeding such Lender’s Commitment or (b) the
total Revolving Credit Exposures exceeding the total Commitments. Within the
foregoing limits and subject to the terms and conditions set forth herein, the
Borrower may borrow, repay and reborrow the Loans.
     Section 2.02 Loans and Borrowings.
          (a) Borrowings; Several Obligations. Each Loan shall be made as part
of a Borrowing consisting of Loans made by the Lenders ratably in accordance
with their respective Commitments. The failure of any Lender to make any Loan
required to be made by it shall not relieve any other Lender of its obligations
hereunder; provided that the Commitments are several and no Lender shall be
responsible for any other Lender’s failure to make Loans as required.
          (b) Types of Loans. Subject to Section 3.03, each Borrowing shall be
comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request
in accordance herewith. Each Lender at its option may make any Eurodollar Loan
by causing any domestic or foreign branch or Affiliate of such Lender to make
such Loan; provided that any exercise of such option shall not affect the
obligation of the Borrower to repay such Loan in accordance with the terms of
this Agreement.
          (c) Minimum Amounts; Limitation on Number of Borrowings. At the
commencement of each Interest Period for any Eurodollar Borrowing, such
Borrowing shall be in an aggregate amount that is an integral multiple of
$1,000,000 and not less than $1,000,000. At the time that each ABR Borrowing is
made, such Borrowing shall be in an aggregate amount that is an integral
multiple of $1,000,000 and not less than $1,000,000; provided that an ABR
Borrowing may be in an aggregate amount that is equal to the entire unused
balance of the total Commitments or that is required to finance the
reimbursement of an LC Disbursement as contemplated by Section 2.08(e).
Borrowings of more than one Type may be outstanding at the same time; provided
that there shall not at any time be more than a total of eight (8) Eurodollar
Borrowings outstanding. Notwithstanding any other provision of this Agreement,
the Borrower shall not be entitled to request, or to elect to convert or
continue, any Borrowing if the Interest Period requested with respect thereto
would end after the Maturity Date.
          (d) Notes. The Loans made by each Lender shall be evidenced by a
single promissory note of the Borrower in substantially the form of Exhibit A,
dated, in the case of (i) any Lender party hereto as of the date of this
Agreement, as of the date of this Agreement, or (ii) any Lender that becomes a
party hereto pursuant to an Assignment and Assumption, as of the effective date
of the Assignment and Assumption, payable to the order of such Lender in a
principal amount equal to its Maximum Credit Amount as in effect on such date,
and otherwise duly completed. In the event that any Lender’s Maximum Credit
Amount increases or decreases for any reason (whether pursuant to Section 2.06,
Section 12.04(a) or otherwise), the Borrower shall deliver or cause to be
delivered on the effective date of such increase or decrease, a new

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Note payable to the order of such Lender in a principal amount equal to its
Maximum Credit Amount after giving effect to such increase or decrease, and
otherwise duly completed. The date, amount, Type, interest rate and, if
applicable, Interest Period of each Loan made by each Lender, and all payments
made on account of the principal thereof, shall be recorded by such Lender on
its books for its Note, and, prior to any transfer, may be endorsed by such
Lender on a schedule attached to such Note or any continuation thereof or on any
separate record maintained by such Lender. Failure to make any such notation or
to attach a schedule shall not affect any Lender’s or the Borrower’s rights or
obligations in respect of such Loans or affect the validity of such transfer by
any Lender of its Note.
     Section 2.03 Requests for Borrowings. To request a Borrowing, the Borrower
shall notify the Administrative Agent of such request by telephone (a) in the
case of a Eurodollar Borrowing, not later than 12:00 noon, New York City time,
three Business Days before the date of the proposed Borrowing or (b) in the case
of an ABR Borrowing, not later than 12:00 noon, New York City time, one Business
Day before the date of the proposed Borrowing; provided that no such notice
shall be required for any deemed request of an ABR Borrowing to finance the
reimbursement of an LC Disbursement as provided in Section 2.08(e). Each such
telephonic Borrowing Request shall be irrevocable and shall be confirmed
promptly by hand delivery or telecopy to the Administrative Agent of a written
Borrowing Request in substantially the form of Exhibit B and signed by the
Borrower. Each such telephonic and written Borrowing Request shall specify the
following information in compliance with Section 2.02:
               (i) the aggregate amount of the requested Borrowing;
               (ii) the date of such Borrowing, which shall be a Business Day;
               (iii) whether such Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing;
               (iv) in the case of a Eurodollar Borrowing, the initial Interest
Period to be applicable thereto, which shall be a period contemplated by the
definition of the term “Interest Period”;
               (v) the amount of the then effective Borrowing Base, the current
total Revolving Credit Exposures (without regard to the requested Borrowing) and
the pro forma total Revolving Credit Exposures (giving effect to the requested
Borrowing); and
               (vi) the location and number of the Borrower’s account to which
funds are to be disbursed, which shall comply with the requirements of
Section 2.05.
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing. If no Interest Period is specified with
respect to any requested Eurodollar Borrowing, then the Borrower shall be deemed
to have selected an Interest Period of one month’s duration. Each Borrowing
Request shall constitute a representation that the amount of the requested
Borrowing shall not cause the total Revolving Credit Exposures to exceed the
total Commitments (i.e., the lesser of the Aggregate Maximum Credit Amounts and
the then effective Borrowing Base).

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Promptly following receipt of a Borrowing Request in accordance with this
Section 2.03, the Administrative Agent shall advise each Lender of the details
thereof and of the amount of such Lender’s Loan to be made as part of the
requested Borrowing.
     Section 2.04 Interest Elections.
          (a) Conversion and Continuance. Each Borrowing initially shall be of
the Type specified in the applicable Borrowing Request and, in the case of a
Eurodollar Borrowing, shall have an initial Interest Period as specified in such
Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing
to a different Type or to continue such Borrowing and, in the case of a
Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in
this Section 2.04. The Borrower may elect different options with respect to
different portions of the affected Borrowing, in which case each such portion
shall be allocated ratably among the Lenders holding the Loans comprising such
Borrowing, and the Loans comprising each such portion shall be considered a
separate Borrowing.
          (b) Interest Election Requests. To make an election pursuant to this
Section 2.04, the Borrower shall notify the Administrative Agent of such
election by telephone by the time that a Borrowing Request would be required
under Section 2.03 if the Borrower were requesting a Borrowing of the Type
resulting from such election to be made on the effective date of such election.
Each such telephonic Interest Election Request shall be irrevocable and shall be
confirmed promptly by hand delivery or telecopy to the Administrative Agent of a
written Interest Election Request in substantially the form of Exhibit C and
signed by the Borrower.
          (c) Information in Interest Election Requests. Each telephonic and
written Interest Election Request shall specify the following information in
compliance with Section 2.02:
               (i) the Borrowing to which such Interest Election Request applies
and, if different options are being elected with respect to different portions
thereof, the portions thereof to be allocated to each resulting Borrowing (in
which case the information to be specified pursuant to Section 2.04(c)(iii) and
(iv) shall be specified for each resulting Borrowing);
               (ii) the effective date of the election made pursuant to such
Interest Election Request, which shall be a Business Day;
               (iii) whether the resulting Borrowing is to be an ABR Borrowing
or a Eurodollar Borrowing; and
               (iv) if the resulting Borrowing is a Eurodollar Borrowing, the
Interest Period to be applicable thereto after giving effect to such election,
which shall be a period contemplated by the definition of the term “Interest
Period”.
If any such Interest Election Request requests a Eurodollar Borrowing but does
not specify an Interest Period, then the Borrower shall be deemed to have
selected an Interest Period of one month’s duration.

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          (d) Notice to Lenders by the Administrative Agent. Promptly following
receipt of an Interest Election Request, the Administrative Agent shall advise
each Lender of the details thereof and of such Lender’s portion of each
resulting Borrowing.
          (e) Effect of Failure to Deliver Timely Interest Election Request and
Events of Default and Borrowing Base Deficiencies on Interest Election. If the
Borrower fails to deliver a timely Interest Election Request with respect to a
Eurodollar Borrowing prior to the end of the Interest Period applicable thereto,
then, unless such Borrowing is repaid as provided herein, at the end of such
Interest Period such Borrowing shall be converted to an ABR Borrowing.
Notwithstanding any contrary provision hereof, if an Event of Default or a
Borrowing Base Deficiency has occurred and is continuing: (i) no outstanding
Borrowing may be converted to or continued as a Eurodollar Borrowing (and any
Interest Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective)
and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR
Borrowing at the end of the Interest Period applicable thereto.
     Section 2.05 Funding of Borrowings.
          (a) Funding by Lenders. Each Lender shall make each Loan to be made by
it hereunder on the proposed date thereof by wire transfer of immediately
available funds by 1:00 p.m., New York City time, to the account of the
Administrative Agent most recently designated by it for such purpose by notice
to the Lenders. The Administrative Agent will make such Loans available to the
Borrower by promptly crediting the amounts so received, in like funds, to an
account of the Borrower maintained with the Administrative Agent in Houston,
Texas and designated by the Borrower in the applicable Borrowing Request;
provided that ABR Loans made to finance the reimbursement of an LC Disbursement
as provided in Section 2.08(e) shall be remitted by the Administrative Agent to
the Issuing Bank. Nothing herein shall be deemed to obligate any Lender to
obtain the funds for its Loan in any particular place or manner or to constitute
a representation by any Lender that it has obtained or will obtain the funds for
its Loan in any particular place or manner.
          (b) Presumption of Funding by the Lenders. Unless the Administrative
Agent shall have received notice from a Lender prior to the proposed date of any
Borrowing that such Lender will not make available to the Administrative Agent
such Lender’s share of such Borrowing, the Administrative Agent may assume that
such Lender has made such share available on such date in accordance with
Section 2.05(a) and may, in reliance upon such assumption, make available to the
Borrower a corresponding amount. In such event, if a Lender has not in fact made
its share of the applicable Borrowing available to the Administrative Agent,
then the applicable Lender and the Borrower severally agree to pay to the
Administrative Agent forthwith on demand such corresponding amount with interest
thereon, for each day from and including the date such amount is made available
to the Borrower to but excluding the date of payment to the Administrative
Agent, at (i) in the case of such Lender, the greater of the Federal Funds
Effective Rate and a rate determined by the Administrative Agent in accordance
with banking industry rules on interbank compensation or (ii) in the case of the
Borrower, the interest rate applicable to ABR Loans. If such Lender pays such
amount to the Administrative Agent, then such amount shall constitute such
Lender’s Loan included in such Borrowing.

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     Section 2.06 Termination and Reduction of Aggregate Maximum Credit Amounts.
          (a) Scheduled Termination of Commitments. Unless previously
terminated, the Commitments shall terminate on the Maturity Date. If at any time
the Aggregate Maximum Credit Amounts or the Borrowing Base is terminated or
reduced to zero, then the Commitments shall terminate on the effective date of
such termination or reduction.
          (b) Optional Termination and Reduction of Aggregate Credit Amounts.
               (i) The Borrower may at any time terminate, or from time to time
reduce, the Aggregate Maximum Credit Amounts; provided that (A) each reduction
of the Aggregate Maximum Credit Amounts shall be in an amount that is an
integral multiple of $1,000,000 and not less than $5,000,000 and (B) the
Borrower shall not terminate or reduce the Aggregate Maximum Credit Amounts if,
after giving effect to any concurrent prepayment of the Loans in accordance with
Section 3.04(c), the total Revolving Credit Exposures would exceed the total
Commitments.
               (ii) The Borrower shall notify the Administrative Agent of any
election to terminate or reduce the Aggregate Maximum Credit Amounts under
Section 2.06(b)(i) at least three Business Days prior to the effective date of
such termination or reduction, specifying such election and the effective date
thereof. Promptly following receipt of any notice, the Administrative Agent
shall advise the Lenders of the contents thereof. Each notice delivered by the
Borrower pursuant to this Section 2.06(b)(ii) shall be irrevocable. Any
termination or reduction of the Aggregate Maximum Credit Amounts shall be
permanent and may not be reinstated. Each reduction of the Aggregate Maximum
Credit Amounts pursuant to this Section 2.06(b)(ii) shall be made ratably among
the Lenders in accordance with each Lender’s Applicable Percentage.
     Section 2.07 Borrowing Base.
          (a) Initial Borrowing Base. For the period from and including the
Effective Date to but excluding the first Redetermination Date, the amount of
the Borrowing Base shall be $150,000,000. Notwithstanding the foregoing, the
Borrowing Base may be subject to further adjustments from time to time pursuant
to Section 8.13(c), Section 8.16 or Section 9.12(d).
          (b) Scheduled and Interim Redeterminations. The Borrowing Base shall
be redetermined semi-annually in accordance with this Section 2.07 (a “Scheduled
Redetermination”), and, subject to Section 2.07(d), such redetermined Borrowing
Base shall become effective and applicable to the Borrower, the Agents, the
Issuing Bank and the Lenders on March 31st and September 30th of each year,
commencing March 31, 2009. In addition, the Borrower may, by notifying the
Administrative Agent thereof, and the Administrative Agent may, at the direction
of the Required Lenders, by notifying the Borrower thereof, two times during any
12-month period, each elect to cause the Borrowing Base to be redetermined
between Scheduled Redeterminations (an “Interim Redetermination”) in accordance
with this Section 2.07.

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     (c) Scheduled and Interim Redetermination Procedure.
               (i) Each Scheduled Redetermination and each Interim
Redetermination shall be effectuated as follows: Upon receipt by the
Administrative Agent of (A) the Reserve Report and the certificate required to
be delivered by the Borrower to the Administrative Agent, in the case of a
Scheduled Redetermination, pursuant to Section 8.12(a) and (c), and, in the case
of an Interim Redetermination, pursuant to Section 8.12(b) and (c), and (B) such
other reports, data and supplemental information, including, without limitation,
the information provided pursuant to Section 8.12(c), as may, from time to time,
be reasonably requested by the Required Lenders (the Reserve Report, such
certificate and such other reports, data and supplemental information being the
“Engineering Reports”), the Administrative Agent shall evaluate the information
contained in the Engineering Reports and shall, in its sole discretion, propose
a new Borrowing Base (the “Proposed Borrowing Base”) based upon such information
and such other information (including, without limitation, the status of title
information with respect to the Oil and Gas Properties as described in the
Engineering Reports and the existence of any other Debt) as the Administrative
Agent deems appropriate in its sole discretion and consistent with its normal
oil and gas lending criteria as it exists at the particular time. In no event
shall the Proposed Borrowing Base exceed the Aggregate Maximum Credit Amounts.
               (ii) The Administrative Agent shall notify the Borrower and the
Lenders of the Proposed Borrowing Base (the “Proposed Borrowing Base Notice”):
                    (A) in the case of a Scheduled Redetermination (1) if the
Administrative Agent shall have received the Engineering Reports required to be
delivered by the Borrower pursuant to Section 8.12(a) and (c) in a timely and
complete manner, then on or before the March 15th and September 15th of such
year following the date of delivery or (2) if the Administrative Agent shall not
have received the Engineering Reports required to be delivered by the Borrower
pursuant to Section 8.12(a) and (c) in a timely and complete manner, then
promptly after the Administrative Agent has received complete Engineering
Reports from the Borrower and has had a reasonable opportunity to determine the
Proposed Borrowing Base in accordance with Section 2.07(c)(i); and
                    (B) in the case of an Interim Redetermination, promptly, and
in any event, within fifteen (15) days after the Administrative Agent has
received the required Engineering Reports.
               (iii) Any Proposed Borrowing Base that would increase the
Borrowing Base then in effect must be approved or deemed to have been approved
by all of the Lenders as provided in this Section 2.07(c)(iii); and any Proposed
Borrowing Base that would decrease or maintain the Borrowing Base then in effect
must be approved or be deemed to have been approved by the Required Lenders as
provided in this Section 2.07(c)(iii). Upon receipt of the Proposed Borrowing
Base Notice, each Lender shall have fifteen (15) days to agree with the Proposed
Borrowing Base or disagree with the Proposed Borrowing Base by proposing an
alternate Borrowing Base. If at the end of such fifteen (15) days, any Lender
has not communicated its approval or disapproval in writing to the
Administrative Agent, such silence shall be deemed to be an approval of the
Proposed Borrowing Base. If, at the end of such 15-day

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period, all of the Lenders, in the case of a Proposed Borrowing Base that would
increase the Borrowing Base then in effect, or the Required Lenders, in the case
of a Proposed Borrowing Base that would decrease or maintain the Borrowing Base
then in effect, have approved or deemed to have approved, as aforesaid, then the
Proposed Borrowing Base shall become the new Borrowing Base, effective on the
date specified in Section 2.07(d). If, however, at the end of such 15-day
period, all of the Lenders or the Required Lenders, as applicable, have not
approved or deemed to have approved, as aforesaid, then the Administrative Agent
shall poll the Lenders to ascertain the highest Borrowing Base then acceptable
to a number of Lenders sufficient to constitute the Required Lenders and, so
long as such amount does not increase the Borrowing Base then in effect, such
amount shall become the new Borrowing Base, effective on the date specified in
Section 2.07(d).
          (d) Effectiveness of a Redetermined Borrowing Base. After a
redetermined Borrowing Base is approved or is deemed to have been approved by
all of the Lenders or the Required Lenders, as applicable, pursuant to
Section 2.07(c)(iii), the Administrative Agent shall notify the Borrower and the
Lenders of the amount of the redetermined Borrowing Base (the “New Borrowing
Base Notice”), and such amount shall become the new Borrowing Base, effective
and applicable to the Borrower, the Administrative Agent, the Issuing Bank and
the Lenders:
               (i) in the case of a Scheduled Redetermination, (A) if the
Administrative Agent shall have received the Engineering Reports required to be
delivered by the Borrower pursuant to Section 8.12(a) and (c) in a timely and
complete manner, then on the March 31st or September 30th, as applicable,
following such notice, or (B) if the Administrative Agent shall not have
received the Engineering Reports required to be delivered by the Parent pursuant
to Section 8.12(a) and (c) in a timely and complete manner, then on the Business
Day next succeeding delivery of such notice; and
               (ii) in the case of an Interim Redetermination, on the Business
Day next succeeding delivery of such notice.
Such amount shall then become the Borrowing Base until the next Scheduled
Redetermination Date, the next Interim Redetermination Date or the next
adjustment to the Borrowing Base under Section 8.13(c), Section 8.16 or
Section 9.12(d), whichever occurs first. Notwithstanding the foregoing, no
Scheduled Redetermination or Interim Redetermination shall become effective
until the New Borrowing Base Notice related thereto is received by the Borrower.
     Section 2.08 Letters of Credit.
          (a) General. Subject to the terms and conditions set forth herein, the
Borrower may request the issuance of dollar denominated Letters of Credit for
its own account or for the account of the Parent or any of the Subsidiaries, in
a form reasonably acceptable to the Administrative Agent and the Issuing Bank,
at any time and from time to time during the Availability Period; provided that
the Borrower may not request the issuance, amendment, renewal or extension of
Letters of Credit hereunder if a Borrowing Base Deficiency exists at such time
or would exist as a result thereof. In the event of any inconsistency between
the terms and conditions of this Agreement and the terms and conditions of any
form of letter of credit

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application or other agreement submitted by the Borrower to, or entered into by
the Borrower with, the Issuing Bank relating to any Letter of Credit, the terms
and conditions of this Agreement shall control.
          (b) Notice of Issuance, Amendment, Renewal, Extension; Certain
Conditions. To request the issuance of a Letter of Credit (or the amendment,
renewal or extension of an outstanding Letter of Credit), the Borrower shall
hand deliver or telecopy (or transmit by electronic communication, if
arrangements for doing so have been approved by the Issuing Bank) to the Issuing
Bank and the Administrative Agent (not less than three (3) Business Days in
advance of the requested date of issuance, amendment, renewal or extension) a
notice:
               (i) requesting the issuance of a Letter of Credit or identifying
the Letter of Credit to be amended, renewed or extended;
               (ii) specifying the date of issuance, amendment, renewal or
extension (which shall be a Business Day);
               (iii) specifying the date on which such Letter of Credit is to
expire (which shall comply with Section 2.08(c));
               (iv) specifying the amount of such Letter of Credit;
               (v) specifying the name and address of the beneficiary thereof
and such other information as shall be necessary to prepare, amend, renew or
extend such Letter of Credit; and
               (vi) specifying the amount of the then effective Borrowing Base
and whether a Borrowing Base Deficiency exists at such time, the current total
Revolving Credit Exposures (without regard to the requested Letter of Credit or
the requested amendment, renewal or extension of an outstanding Letter of
Credit) and the pro forma total Revolving Credit Exposures (giving effect to the
requested Letter of Credit or the requested amendment, renewal or extension of
an outstanding Letter of Credit).
Each notice shall constitute a representation that after giving effect to the
requested issuance, amendment, renewal or extension, as applicable, (i) the LC
Exposure shall not exceed the LC Commitment and (ii) the total Revolving Credit
Exposures shall not exceed the total Commitments (i.e. the lesser of the
Aggregate Maximum Credit Amounts and the then effective Borrowing Base).
If requested by the Issuing Bank, the Borrower also shall submit a letter of
credit application on the Issuing Bank’s standard form in connection with any
request for a Letter of Credit.
          (c) Expiration Date. Each Letter of Credit shall expire at or prior to
the close of business on the earlier of (i) the date one year after the date of
the issuance of such Letter of Credit (or, in the case of any renewal or
extension thereof, one year after such renewal or extension) and (ii) the date
that is five Business Days prior to the Maturity Date.

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          (d) Participations. By the issuance of a Letter of Credit (or an
amendment to a Letter of Credit increasing the amount thereof) and without any
further action on the part of the Issuing Bank or the Lenders, the Issuing Bank
hereby grants to each Lender, and each Lender hereby acquires from the Issuing
Bank, a participation in such Letter of Credit equal to such Lender’s Applicable
Percentage of the aggregate amount available to be drawn under such Letter of
Credit. In consideration and in furtherance of the foregoing, each Lender hereby
absolutely and unconditionally agrees to pay to the Administrative Agent, for
the account of the Issuing Bank, such Lender’s Applicable Percentage of each LC
Disbursement made by the Issuing Bank and not reimbursed by the Borrower on the
date due as provided in Section 2.08(e), or of any reimbursement payment
required to be refunded to the Borrower for any reason. Each Lender acknowledges
and agrees that its obligation to acquire participations pursuant to this
Section 2.08(d) in respect of Letters of Credit is absolute and unconditional
and shall not be affected by any circumstance whatsoever, including any
amendment, renewal or extension of any Letter of Credit or the occurrence and
continuance of a Default, the existence of a Borrowing Base Deficiency or
reduction or termination of the Commitments, and that each such payment shall be
made without any offset, abatement, withholding or reduction whatsoever.
          (e) Reimbursement. If the Issuing Bank shall make any LC Disbursement
in respect of a Letter of Credit, the Borrower shall reimburse such LC
Disbursement by paying to the Administrative Agent an amount equal to such LC
Disbursement not later than 12:00 noon, New York City time, on the date that
such LC Disbursement is made, if the Borrower shall have received notice of such
LC Disbursement prior to 10:00 a.m., New York City time, on such date, or, if
such notice has not been received by the Borrower prior to such time on such
date, then not later than 12:00 noon, New York City time, on (i) the Business
Day that the Borrower receives such notice, if such notice is received prior to
10:00 a.m., New York City time, on the day of receipt, or (ii) the Business Day
immediately following the day that the Borrower receives such notice, if such
notice is not received prior to such time on the day of receipt; provided that
if such LC Disbursement is not less than $1,000,000, the Borrower shall, subject
to the conditions to Borrowing set forth herein, be deemed to have requested,
and the Borrower does hereby request under such circumstances, that such payment
be financed with an ABR Borrowing in an equivalent amount and, to the extent so
financed, the Borrower’s obligation to make such payment shall be discharged and
replaced by the resulting ABR Borrowing. If the Borrower fails to make such
payment when due, the Administrative Agent shall notify each Lender of the
applicable LC Disbursement, the payment then due from the Borrower in respect
thereof and such Lender’s Applicable Percentage thereof. Promptly following
receipt of such notice, each Lender shall pay to the Administrative Agent its
Applicable Percentage of the payment then due from the Borrower, in the same
manner as provided in Section 2.05 with respect to Loans made by such Lender
(and Section 2.05 shall apply, mutatis mutandis, to the payment obligations of
the Lenders), and the Administrative Agent shall promptly pay to the Issuing
Bank the amounts so received by it from the Lenders. Promptly following receipt
by the Administrative Agent of any payment from the Borrower pursuant to this
Section 2.08(e), the Administrative Agent shall distribute such payment to the
Issuing Bank or, to the extent that Lenders have made payments pursuant to this
Section 2.08(e) to reimburse the Issuing Bank, then to such Lenders and the
Issuing Bank as their interests may appear. Any payment made by a Lender
pursuant to this Section 2.08(e) to reimburse the Issuing Bank for any LC
Disbursement (other than the funding of ABR Loans as contemplated above) shall
not constitute a Loan and shall not relieve the Borrower of its obligation to
reimburse such LC Disbursement.

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          (f) Obligations Absolute. The Borrower’s obligation to reimburse LC
Disbursements as provided in Section 2.08(e) shall be absolute, unconditional
and irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement under any and all circumstances whatsoever and irrespective of
(i) any lack of validity or enforceability of any Letter of Credit, any Letter
of Credit Agreement or this Agreement, or any term or provision therein,
(ii) any draft or other document presented under a Letter of Credit proving to
be forged, fraudulent or invalid in any respect or any statement therein being
untrue or inaccurate in any respect, (iii) payment by the Issuing Bank under a
Letter of Credit against presentation of a draft or other document that does not
comply with the terms of such Letter of Credit or any Letter of Credit
Agreement, or (iv) any other event or circumstance whatsoever, whether or not
similar to any of the foregoing, that might, but for the provisions of this
Section 2.08(f), constitute a legal or equitable discharge of, or provide a
right of setoff against, the Borrower’s obligations hereunder. Neither the
Administrative Agent, the Lenders nor the Issuing Bank, nor any of their Related
Parties shall have any liability or responsibility by reason of or in connection
with the issuance or transfer of any Letter of Credit or any payment or failure
to make any payment thereunder (irrespective of any of the circumstances
referred to in the preceding sentence), or any error, omission, interruption,
loss or delay in transmission or delivery of any draft, notice or other
communication under or relating to any Letter of Credit (including any document
required to make a drawing thereunder), any error in interpretation of technical
terms or any consequence arising from causes beyond the control of the Issuing
Bank; provided that the foregoing shall not be construed to excuse the Issuing
Bank from liability to the Borrower to the extent of any direct damages (as
opposed to consequential damages, claims in respect of which are hereby waived
by the Borrower to the extent permitted by applicable law) suffered by the
Borrower that are caused by the Issuing Bank’s failure to exercise care when
determining whether drafts and other documents presented under a Letter of
Credit comply with the terms thereof. The parties hereto expressly agree that,
in the absence of gross negligence or willful misconduct on the part of the
Issuing Bank (as finally determined by a court of competent jurisdiction), the
Issuing Bank shall be deemed to have exercised all requisite care in each such
determination. In furtherance of the foregoing and without limiting the
generality thereof, the parties agree that, with respect to documents presented
which appear on their face to be in substantial compliance with the terms of a
Letter of Credit, the Issuing Bank may, in its sole discretion, either accept
and make payment upon such documents without responsibility for further
investigation or refuse to accept and make payment upon such documents if such
documents are not in strict compliance with the terms of such Letter of Credit.
          (g) Disbursement Procedures. The Issuing Bank shall, promptly
following its receipt thereof, examine all documents purporting to represent a
demand for payment under a Letter of Credit. The Issuing Bank shall promptly
notify the Administrative Agent and the Borrower by telephone (confirmed by
telecopy) of such demand for payment and whether the Issuing Bank has made or
will make an LC Disbursement thereunder; provided that any failure to give or
delay in giving such notice shall not relieve the Borrower of its obligation to
reimburse the Issuing Bank and the Lenders with respect to any such LC
Disbursement.
          (h) Interim Interest. If the Issuing Bank shall make any LC
Disbursement, then, until the Borrower shall have reimbursed the Issuing Bank
for such LC Disbursement (either with its own funds or a Borrowing under
Section 2.08(e)), the unpaid amount thereof shall bear interest, for each day
from and including the date such LC Disbursement is made to

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but excluding the date that the Borrower reimburses such LC Disbursement, at the
rate per annum then applicable to ABR Loans. Interest accrued pursuant to this
Section 2.08(h) shall be for the account of the Issuing Bank, except that
interest accrued on and after the date of payment by any Lender pursuant to
Section 2.08(e) to reimburse the Issuing Bank shall be for the account of such
Lender to the extent of such payment.
               (i) Replacement of the Issuing Bank. The Issuing Bank may be
replaced at any time by written agreement among the Borrower, the Administrative
Agent, the replaced Issuing Bank and the successor Issuing Bank. The
Administrative Agent shall notify the Lenders of any such replacement of the
Issuing Bank. At the time any such replacement shall become effective, the
Borrower shall pay all unpaid fees accrued for the account of the replaced
Issuing Bank pursuant to Section 3.05(a). From and after the effective date of
any such replacement, (i) the successor Issuing Bank shall have all the rights
and obligations of the Issuing Bank under this Agreement with respect to Letters
of Credit to be issued thereafter and (ii) references herein to the term
“Issuing Bank” shall be deemed to refer to such successor or to any previous
Issuing Bank, or to such successor and all previous Issuing Banks, as the
context shall require. After the replacement of the Issuing Bank hereunder, the
replaced Issuing Bank shall remain a party hereto and shall continue to have all
the rights and obligations of the Issuing Bank under this Agreement with respect
to Letters of Credit issued by it prior to such replacement, but shall not be
required to issue additional Letters of Credit.
               (j) Cash Collateralization. If (i) any Event of Default shall
occur and be continuing and the Borrower receives notice from the Administrative
Agent or the Required Lenders demanding the deposit of cash collateral pursuant
to this Section 2.08(j), or (ii) the Borrower is required to pay to the
Administrative Agent the excess attributable to an LC Exposure in connection
with any prepayment pursuant to Section 3.04(c), then the Borrower shall
deposit, in an account with the Administrative Agent, in the name of the
Administrative Agent and for the benefit of the Lenders, an amount in cash equal
to, in the case of an Event of Default, the LC Exposure, and in the case of a
payment required by Section 3.04(c), the amount of such excess as provided in
Section 3.04(c), as of such date plus any accrued and unpaid interest thereon;
provided that the obligation to deposit such cash collateral shall become
effective immediately, and such deposit shall become immediately due and
payable, without demand or other notice of any kind, upon the occurrence of any
Event of Default with respect to the Borrower or any Subsidiary described in
Section 10.01(h) or Section 10.01(i). The Borrower hereby grants to the
Administrative Agent, for the benefit of the Issuing Bank and the Lenders, an
exclusive first priority and continuing perfected security interest in and Lien
on such account and all cash, checks, drafts, certificates and instruments, if
any, from time to time deposited or held in such account, all deposits or wire
transfers made thereto, any and all investments purchased with funds deposited
in such account, all interest, dividends, cash, instruments, financial assets
and other Property from time to time received, receivable or otherwise payable
in respect of, or in exchange for, any or all of the foregoing, and all
proceeds, products, accessions, rents, profits, income and benefits therefrom,
and any substitutions and replacements therefor. The Borrower’s obligation to
deposit amounts pursuant to this Section 2.08(j) shall be absolute and
unconditional, without regard to whether any beneficiary of any such Letter of
Credit has attempted to draw down all or a portion of such amount under the
terms of a Letter of Credit, and, to the fullest extent permitted by applicable
law, shall not be subject to any defense or be affected by a right of set-off,
counterclaim or recoupment which the Parent or any of its

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Subsidiaries may now or hereafter have against any such beneficiary, the Issuing
Bank, the Administrative Agent, the Lenders or any other Person for any reason
whatsoever. Such deposit shall be held as collateral securing the payment and
performance of the Borrower’s and the Guarantor’s obligations under this
Agreement and the other Loan Documents. The Administrative Agent shall have
exclusive dominion and control, including the exclusive right of withdrawal,
over such account. Other than any interest earned on the investment of such
deposits, which investments shall be made in the items described in
Section 9.05(c), (d), (e) and (f) and at the Borrower’s direction, risk and
expense, such deposits shall not bear interest. Interest or profits, if any, on
such investments shall accumulate in such account. Moneys in such account shall
be applied by the Administrative Agent to reimburse the Issuing Bank for LC
Disbursements for which it has not been reimbursed and, to the extent not so
applied, shall be held for the satisfaction of the reimbursement obligations of
the Borrower for the LC Exposure at such time or, if the maturity of the Loans
has been accelerated, be applied to satisfy other obligations of the Borrower
and the Guarantors under this Agreement or the other Loan Documents. If the
Borrower is required to provide an amount of cash collateral hereunder as a
result of the occurrence of an Event of Default, and the Borrower is not
otherwise required to pay to the Administrative Agent the excess attributable to
an LC Exposure in connection with any prepayment pursuant to Section 3.04(c),
then such amount (to the extent not applied as aforesaid) shall be returned to
the Borrower within three Business Days after all Events of Default have been
cured or waived.
ARTICLE III
Payments of Principal and Interest; Prepayments; Fees
     Section 3.01 Repayment of Loans. The Borrower hereby unconditionally
promises to pay to the Administrative Agent for the account of each Lender the
then unpaid principal amount of each Loan on the Termination Date.
     Section 3.02 Interest.
          (a) ABR Loans. The Loans comprising each ABR Borrowing shall bear
interest at the Alternate Base Rate plus the Applicable Margin, but in no event
to exceed the Highest Lawful Rate.
          (b) Eurodollar Loans. The Loans comprising each Eurodollar Borrowing
shall bear interest at the Adjusted LIBO Rate for the Interest Period in effect
for such Borrowing plus the Applicable Margin, but in no event to exceed the
Highest Lawful Rate.
          (c) Post-Default Rate. Notwithstanding the foregoing, if an Event of
Default has occurred and is continuing, or if any principal of or interest on
any Loan or any fee or other amount payable by the Borrower or any Guarantor
hereunder or under any other Loan Document is not paid when due, whether at
stated maturity, upon acceleration or otherwise, and including any payments in
respect of a Borrowing Base Deficiency under Section 3.04(c), then all Loans
outstanding, in the case of an Event of Default, and such overdue amount, in the
case of a failure to pay amounts when due, shall bear interest, after as well as
before judgment, at a rate per annum equal to two percent (2%) plus the rate
applicable to ABR Loans as provided in Section 3.02(a), but in no event to
exceed the Highest Lawful Rate.

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          (d) Interest Payment Dates. Accrued interest on each Loan shall be
payable in arrears on each Interest Payment Date for such Loan and on the
Termination Date; provided that (i) interest accrued pursuant to Section 3.02(c)
shall be payable on demand, (ii) in the event of any repayment or prepayment of
any Loan (other than an optional prepayment of an ABR Loan prior to the
Termination Date), accrued interest on the principal amount repaid or prepaid
shall be payable on the date of such repayment or prepayment, and (iii) in the
event of any conversion of any Eurodollar Loan prior to the end of the current
Interest Period therefor, accrued interest on such Loan shall be payable on the
effective date of such conversion.
          (e) Interest Rate Computations. All interest hereunder shall be
computed on the basis of a year of 360 days, unless such computation would
exceed the Highest Lawful Rate, in which case interest shall be computed on the
basis of a year of 365 days (or 366 days in a leap year), except that interest
computed by reference to the Alternate Base Rate at times when the Alternate
Base Rate is based on the Prime Rate shall be computed on the basis of a year of
365 days (or 366 days in a leap year), and in each case shall be payable for the
actual number of days elapsed (including the first day but excluding the last
day). The applicable Alternate Base Rate, Adjusted LIBO Rate or LIBO Rate shall
be determined by the Administrative Agent, and such determination shall be
conclusive absent manifest error, and be binding upon the parties hereto.
     Section 3.03 Alternate Rate of Interest. If prior to the commencement of
any Interest Period for a Eurodollar Borrowing:
          (a) the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that adequate and reasonable means do not
exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate for such Interest
Period; or
          (b) the Administrative Agent is advised by the Required Lenders that
the Adjusted LIBO Rate or LIBO Rate, as applicable, for such Interest Period
will not adequately and fairly reflect the cost to such Lenders of making or
maintaining their Loans included in such Borrowing for such Interest Period;
then the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective,
and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such
Borrowing shall be made as an ABR Borrowing.
     Section 3.04 Prepayments.
          (a) Optional Prepayments. The Borrower shall have the right at any
time and from time to time to prepay any Borrowing in whole or in part, subject
to prior notice in accordance with Section 3.04(b).
          (b) Notice and Terms of Optional Prepayment. The Borrower shall notify
the Administrative Agent by telephone (confirmed by telecopy) of any prepayment
hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later
than 12:00 noon, New York City

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time, three Business Days before the date of prepayment, or (ii) in the case of
prepayment of an ABR Borrowing, not later than 12:00 noon, New York City time,
one Business Day before the date of prepayment. Each such notice shall be
irrevocable and shall specify the prepayment date and the principal amount of
each Borrowing or portion thereof to be prepaid. Promptly following receipt of
any such notice relating to a Borrowing, the Administrative Agent shall advise
the Lenders of the contents thereof. Each partial prepayment of any Borrowing
shall be in an amount that would be permitted in the case of an advance of a
Borrowing of the same Type as provided in Section 2.02. Each prepayment of a
Borrowing shall be applied ratably to the Loans included in the prepaid
Borrowing. Prepayments shall be accompanied by accrued interest to the extent
required by Section 3.02 and any amounts due under Section 5.02.
          (c) Mandatory Prepayments.
               (i) If, after giving effect to any termination or reduction of
the Aggregate Maximum Credit Amounts pursuant to Section 2.06(b), the total
Revolving Credit Exposures exceeds the total Commitments, then the Borrower
shall (A) prepay the Borrowings on the date of such termination or reduction in
an aggregate principal amount equal to such excess, and (B) if any excess
remains after prepaying all of the Borrowings as a result of an LC Exposure, pay
to the Administrative Agent on behalf of the Lenders an amount equal to such
excess to be held as cash collateral as provided in Section 2.08(j).
               (ii) Upon any redetermination of or adjustment to the amount of
the Borrowing Base in accordance with Section 2.07 or Section 8.13(c), if the
total Revolving Credit Exposures exceeds the redetermined or adjusted Borrowing
Base, then the Borrower shall (A) prepay the Borrowings in an aggregate
principal amount equal to such excess, and (B) if any excess remains after
prepaying all of the Borrowings as a result of an LC Exposure, pay to the
Administrative Agent on behalf of the Lenders an amount equal to such excess to
be held as cash collateral as provided in Section 2.08(j). The Borrower shall be
obligated to make such prepayment and/or deposit of cash collateral within
forty-five (45) days following its receipt of the New Borrowing Base Notice in
accordance with Section 2.07(d) or the date the adjustment occurs; provided that
all payments required to be made pursuant to this Section 3.04(c)(ii) must be
made on or prior to the Termination Date.
               (iii) Upon any adjustments to the Borrowing Base pursuant to
Section 9.12(d), if the total Revolving Credit Exposures exceeds the Borrowing
Base as adjusted, then the Borrower shall (A) prepay the Borrowings in an
aggregate principal amount equal to such excess, and (B) if any excess remains
after prepaying all of the Borrowings as a result of an LC Exposure, pay to the
Administrative Agent on behalf of the Lenders an amount equal to such excess to
be held as cash collateral as provided in Section 2.08(j). The Borrower shall be
obligated to make such prepayment and/or deposit of cash collateral on the date
the Parent or any Subsidiary receives cash proceeds as a result of such
disposition; provided that all payments required to be made pursuant to this
Section 3.04(c)(iii) must be made on or prior to the Termination Date.
               (iv) Each prepayment of Borrowings pursuant to this
Section 3.04(c) shall be applied, first, ratably to any ABR Borrowings then
outstanding, and, second, to any Eurodollar Borrowings then outstanding, and if
more than one Eurodollar Borrowing is then

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outstanding, to each such Eurodollar Borrowing in order of priority beginning
with the Eurodollar Borrowing with the least number of days remaining in the
Interest Period applicable thereto and ending with the Eurodollar Borrowing with
the most number of days remaining in the Interest Period applicable thereto.
               (v) Each prepayment of Borrowings pursuant to this
Section 3.04(c) shall be applied ratably to the Loans included in the prepaid
Borrowings. Prepayments pursuant to this Section 3.04(c) shall be accompanied by
accrued interest to the extent required by Section 3.02.
          (d) No Premium or Penalty. Prepayments permitted or required under
this Section 3.04 shall be without premium or penalty, except as required under
Section 5.02.
     Section 3.05 Fees.
          (a) Commitment Fees. The Borrower agrees to pay to the Administrative
Agent for the account of each Lender a commitment fee, which shall accrue at the
applicable Commitment Fee Rate on the average daily amount of the unused amount
of the Commitment of such Lender during the period from and including the date
of this Agreement to but excluding the Termination Date. Accrued commitment fees
shall be payable in arrears on the last day of March, June, September and
December of each year and on the Termination Date, commencing on the first such
date to occur after the date hereof. All commitment fees shall be computed on
the basis of a year of 360 days, unless such computation would exceed the
Highest Lawful Rate, in which case interest shall be computed on the basis of a
year of 365 days (or 366 days in a leap year), and shall be payable for the
actual number of days elapsed (including the first day but excluding the last
day).
          (b) Letter of Credit Fees. The Borrower agrees to pay (i) to the
Administrative Agent for the account of each Lender a participation fee with
respect to its participations in Letters of Credit, which shall accrue at the
same Applicable Margin used to determine the interest rate applicable to
Eurodollar Loans on the average daily amount of such Lender’s LC Exposure
(excluding any portion thereof attributable to unreimbursed LC Disbursements)
during the period from and including the date of this Agreement to but excluding
the later of the date on which such Lender’s Commitment terminates and the date
on which such Lender ceases to have any LC Exposure, (ii) to the Issuing Bank a
fronting fee, which shall accrue at the rate of 0.250% per annum on the average
daily amount of the LC Exposure (excluding any portion thereof attributable to
unreimbursed LC Disbursements) during the period from and including the date of
this Agreement to but excluding the later of the date of termination of the
Commitments and the date on which there ceases to be any LC Exposure; provided
that in no event shall such fee be less than $500 during any quarter, and
(iii) to the Issuing Bank, for its own account, its standard fees with respect
to the issuance, amendment, renewal or extension of any Letter of Credit or
processing of drawings thereunder. Participation fees and fronting 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 date of this Agreement;
provided that all such fees shall be payable on the Termination Date and any
such fees accruing after the Termination Date shall be payable on demand. Any
other fees payable to the Issuing Bank

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pursuant to this Section 3.05(a) shall be payable within 10 days after demand.
All participation fees and fronting fees shall be computed on the basis of a
year of 360 days, unless such computation would exceed the Highest Lawful Rate,
in which case interest shall be computed on the basis of a year of 365 days (or
366 days in a leap year), and shall be payable for the actual number of days
elapsed (including the first day but excluding the last day).
          (c) Administrative Agent Fees. The Borrower agrees to pay to the
Administrative Agent, for its own account, fees payable in the amounts and at
the times separately agreed upon between the Borrower and the Administrative
Agent.
          (d) Borrowing Base Increase Fees. The Borrower agrees to pay to the
Administrative Agent, for the account of each Lender then party to this
Agreement, ratably in accordance with its Applicable Percentage, a Borrowing
Base increase fee, to be agreed by the Lenders and the Borrower, on the amount
of any increase of the Borrowing Base over the highest Borrowing Base previously
in effect, payable on the effective date of any such increase to the Borrowing
Base.
          (e) Defaulting Lender Fees. The Borrower shall not be obligated to pay
the Administrative Agent any Defaulting Lender’s ratable share of the fees
described in Section 3.05(a) and (b) for the period commencing on the day such
Defaulting Lender becomes a Defaulting Lender and continuing for so long as such
Lender continues to be a Defaulting Lender.
ARTICLE IV
Payments; Pro Rata Treatment; Sharing of Set-offs
     Section 4.01 Payments Generally; Pro Rata Treatment; Sharing of Set-offs.
          (a) Payments by the Borrower. The Borrower shall make each payment
required to be made by it hereunder (whether of principal, interest, fees or
reimbursement of LC Disbursements, or of amounts payable under Section 5.01,
Section 5.02, Section 5.03 or otherwise) prior to 12:00 noon, New York City
time, on the date when due, in immediately available funds, without defense,
deduction, recoupment, set-off or counterclaim. Fees, once paid, shall be fully
earned and shall not be refundable under any circumstances. Any amounts received
after such time on any date may, in the discretion of the Administrative Agent,
be deemed to have been received on the next succeeding Business Day for purposes
of calculating interest thereon. All such payments shall be made to the
Administrative Agent at its offices specified in Section 12.01, except payments
to be made directly to the Issuing Bank as expressly provided herein and except
that payments pursuant to Section 5.01, Section 5.02, Section 5.03 and
Section 12.03 shall be made directly to the Persons entitled thereto. The
Administrative Agent shall distribute any such payments received by it for the
account of any other Person to the appropriate recipient promptly following
receipt thereof. If any payment hereunder shall be due on a day that is not a
Business Day, the date for payment shall be extended to the next succeeding
Business Day, and, in the case of any payment accruing interest, interest
thereon shall be payable for the period of such extension. All payments
hereunder shall be made in dollars.

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          (b) Application of Insufficient Payments. If at any time insufficient
funds are received by and available to the Administrative Agent to pay fully all
amounts of principal, unreimbursed LC Disbursements, interest and fees then due
hereunder, such funds shall be applied (i) first, towards payment of interest
and fees then due hereunder, ratably among the parties entitled thereto in
accordance with the amounts of interest and fees then due to such parties, and
(ii) second, towards payment of principal and unreimbursed LC Disbursements then
due hereunder, ratably among the parties entitled thereto in accordance with the
amounts of principal and unreimbursed LC Disbursements then due to such parties.
          (c) Sharing of Payments by Lenders. If any Lender shall, by exercising
any right of set-off or counterclaim or otherwise, obtain payment in respect of
any principal of or interest on any of its Loans or participations in LC
Disbursements resulting in such Lender receiving payment of a greater proportion
of the aggregate amount of its Loans and participations in LC Disbursements and
accrued interest thereon than the proportion received by any other Lender, then
the Lender receiving such greater proportion shall purchase (for cash at face
value) participations in the Loans and participations in LC Disbursements of
other Lenders to the extent necessary so that the benefit of all such payments
shall be shared by the Lenders ratably in accordance with the aggregate amount
of principal of and accrued interest on their respective Loans and
participations in LC Disbursements; provided that (i) if any such participations
are purchased and all or any portion of the payment giving rise thereto is
recovered, such participations shall be rescinded and the purchase price
restored to the extent of such recovery, without interest, and (ii) the
provisions of this Section 4.01(c) shall not be construed to apply to any
payment made by the Borrower pursuant to and in accordance with the express
terms of this Agreement or any payment obtained by a Lender as consideration for
the assignment of or sale of a participation in any of its Loans or
participations in LC Disbursements to any assignee or participant, other than to
the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions
of this Section 4.01(c) shall apply). The Borrower consents to the foregoing and
agrees, to the extent it may effectively do so under applicable law, that any
Lender acquiring a participation pursuant to the foregoing arrangements may
exercise against the Borrower rights of set-off and counterclaim with respect to
such participation as fully as if such Lender were a direct creditor of the
Borrower in the amount of such participation.
     Section 4.02 Presumption of Payment by the Borrower. Unless the
Administrative Agent shall have received notice from the Borrower prior to the
date on which any payment is due to the Administrative Agent for the account of
the Lenders or the Issuing Bank that the Borrower will not make such payment,
the Administrative Agent may assume that the Borrower has made such payment on
such date in accordance herewith and may, in reliance upon such assumption,
distribute to the Lenders or the Issuing Bank, as the case may be, the amount
due. In such event, if the Borrower has not in fact made such payment, then each
of the Lenders or the Issuing Bank, as the case may be, severally agrees to
repay to the Administrative Agent forthwith on demand the amount so distributed
to such Lender or Issuing Bank with interest thereon, for each day from and
including the date such amount is distributed to it to but excluding the date of
payment to the Administrative Agent, at the greater of the Federal Funds
Effective Rate and a rate determined by the Administrative Agent in accordance
with banking industry rules on interbank compensation.

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     Section 4.03 Certain Deductions by the Administrative Agent. If any Lender
shall be a Defaulting Lender because of its failure to make any payment required
to be made by it pursuant to Section 2.05(b), Section 2.08(d), Section 2.08(e)
or Section 4.02, then the Administrative Agent may, in its discretion
(notwithstanding any contrary provision hereof), apply any amounts thereafter
received by the Administrative Agent for the account of such Defaulting Lender
to satisfy such Defaulting Lender’s obligations under such Sections until all
such unsatisfied obligations are fully paid.
     Section 4.04 Disposition of Proceeds. The Security Instruments contain an
assignment by the Borrower and/or the Guarantors unto and in favor of the
Administrative Agent for the benefit of the Lenders of all of the Borrower’s or
each Guarantor’s interest in and to production and all proceeds attributable
thereto which may be produced from or allocated to the Mortgaged Property. The
Security Instruments further provide in general for the application of such
proceeds to the satisfaction of the Indebtedness and other obligations described
therein and secured thereby. Notwithstanding the assignment contained in such
Security Instruments, until the occurrence of an Event of Default, (a) the
Administrative Agent and the Lenders agree that they will neither notify the
purchaser or purchasers of such production nor take any other action to cause
such proceeds to be remitted to the Administrative Agent or the Lenders, but the
Lenders will instead permit such proceeds to be paid to the Borrower and the
Guarantors and (b) the Lenders hereby authorize the Administrative Agent to take
such actions as may be necessary to cause such proceeds to be paid to the
Borrower and/or the Guarantors.
ARTICLE V
Increased Costs; Break Funding Payments; Taxes
     Section 5.01 Increased Costs.
          (a) Eurodollar Changes in Law. If any Change in Law shall:
               (i) impose, modify or deem applicable any reserve, special
deposit or similar requirement against assets of, deposits with or for the
account of, or credit extended by, any Lender (except any such reserve
requirement reflected in the Adjusted LIBO Rate); or
               (ii) impose on any Lender or the London interbank market any
other condition affecting this Agreement or Eurodollar Loans made by such
Lender;
and the result of any of the foregoing shall be to increase the cost to such
Lender of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to reduce the amount of any sum received or
receivable by such Lender (whether of principal, interest or otherwise), then
the Borrower will pay to such Lender such additional amount or amounts as will
compensate such Lender for such additional costs incurred or reduction suffered.
          (b) Capital Requirements. If any Lender or the Issuing Bank determines
that any Change in Law regarding capital requirements has or would have the
effect of reducing the rate of return on such Lender’s or the Issuing Bank’s
capital or on the capital of such Lender’s or the Issuing Bank’s holding
company, if any, as a consequence of this Agreement or the Loans made by, or
participations in Letters of Credit held by, such Lender, or the Letters of
Credit issued by the Issuing Bank, to a level below that which such Lender or
the Issuing Bank or such

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Lender’s or the Issuing Bank’s holding company could have achieved but for such
Change in Law (taking into consideration such Lender’s or the Issuing Bank’s
policies and the policies of such Lender’s or the Issuing Bank’s holding company
with respect to capital adequacy), then from time to time the Borrower will pay
to such Lender or the Issuing Bank, as the case may be, such additional amount
or amounts as will compensate such Lender or the Issuing Bank or such Lender’s
or the Issuing Bank’s holding company for any such reduction suffered.
          (c) Certificates. A certificate of a Lender or the Issuing Bank
setting forth the amount or amounts necessary to compensate such Lender or the
Issuing Bank or its holding company, as the case may be, as specified in
Section 5.01(a) or (b) shall be delivered to the Borrower and shall be
conclusive absent manifest error. The Borrower shall pay such Lender or the
Issuing Bank, as the case may be, the amount shown as due on any such
certificate within 10 days after receipt thereof.
          (d) Effect of Failure or Delay in Requesting Compensation. Failure or
delay on the part of any Lender or the Issuing Bank to demand compensation
pursuant to this Section 5.01 shall not constitute a waiver of such Lender’s or
the Issuing Bank’s right to demand such compensation.
     Section 5.02 Break Funding Payments. In the event of (a) the payment of any
principal of any Eurodollar Loan other than on the last day of an Interest
Period applicable thereto (including as a result of an Event of Default),
(b) the conversion of any Eurodollar Loan into an ABR Loan other than on the
last day of the Interest Period applicable thereto, or (c) the failure to
borrow, convert, continue or prepay any Eurodollar Loan on the date specified in
any notice delivered pursuant hereto, or (d) the assignment of any Eurodollar
Loan other than on the last day of the Interest Period applicable thereto as a
result of a request by the Borrower pursuant to Section 5.04, then, in any such
event, the Borrower shall compensate each Lender for the loss, cost and expense
attributable to such event. In the case of a Eurodollar Loan, such loss, cost or
expense to any Lender shall be deemed to include an amount determined by such
Lender to be the excess, if any, of (i) the amount of interest which would have
accrued on the principal amount of such Loan had such event not occurred, at the
Adjusted LIBO Rate that would have been applicable to such Loan, for the period
from the date of such event to the last day of the then current Interest Period
therefor (or, in the case of a failure to borrow, convert or continue, for the
period that would have been the Interest Period for such Loan), over (ii) the
amount of interest which would accrue on such principal amount for such period
at the interest rate which such Lender would bid were it to bid, at the
commencement of such period, for dollar deposits of a comparable amount and
period from other banks in the eurodollar market.
A certificate of any Lender setting forth any amount or amounts that such Lender
is entitled to receive pursuant to this Section 5.02 shall be delivered to the
Borrower and shall be conclusive absent manifest error. The Borrower shall pay
such Lender the amount shown as due on any such certificate within 10 days after
receipt thereof.

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     Section 5.03 Taxes.
          (a) Payments Free of Taxes. Any and all payments by or on account of
any obligation of the Borrower or any Guarantor under any Loan Document shall be
made free and clear of and without deduction for any Indemnified Taxes or Other
Taxes; provided that if the Borrower or any Guarantor shall be required to
deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum
payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 5.03(a)), the Administrative Agent, Lender or Issuing Bank (as the
case may be) receives an amount equal to the sum it would have received had no
such deductions been made, (ii) the Borrower or such Guarantor shall make such
deductions and (iii) the Borrower or such Guarantor shall pay the full amount
deducted to the relevant Governmental Authority in accordance with applicable
law.
          (b) Payment of Other Taxes by the Borrower. The Borrower shall pay any
Other Taxes to the relevant Governmental Authority in accordance with applicable
law.
          (c) Indemnification by the Borrower. The Borrower shall indemnify the
Administrative Agent, each Lender and the Issuing Bank, within 10 days after
written demand therefor, for the full amount of any Indemnified Taxes or Other
Taxes paid by the Administrative Agent, such Lender or the Issuing Bank, as the
case may be, on or with respect to any payment by or on account of any
obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes
imposed or asserted on or attributable to amounts payable under this
Section 5.03) and any penalties, interest and reasonable expenses arising
therefrom or with respect thereto, whether or not such Indemnified Taxes or
Other Taxes were correctly or legally imposed or asserted by the relevant
Governmental Authority. A certificate of the Administrative Agent, a Lender or
the Issuing Bank as to the amount of such payment or liability under this
Section 5.03 shall be delivered to the Borrower and shall be conclusive absent
manifest error.
          (d) Evidence of Payments. As soon as practicable after any payment of
Indemnified Taxes or Other Taxes by the Borrower or a Guarantor to a
Governmental Authority, the Borrower shall deliver to the Administrative Agent
the original or a certified copy of a receipt issued by such Governmental
Authority evidencing such payment, a copy of the return reporting such payment
or other evidence of such payment reasonably satisfactory to the Administrative
Agent.
          (e) Foreign Lenders. Any Foreign Lender that is entitled to an
exemption from or reduction of withholding tax under the law of the jurisdiction
in which the Borrower is located, or any treaty to which such jurisdiction is a
party, with respect to payments under this Agreement or any other Loan Document
shall deliver to the Borrower (with a copy to the Administrative Agent), at the
time or times prescribed by applicable law, such properly completed and executed
documentation prescribed by applicable law or reasonably requested by the
Borrower as will permit such payments to be made without withholding or at a
reduced rate.
     Section 5.04 Mitigation Obligations; Replacement of Defaulting Lenders.
          (a) Designation of Different Lending Office. If any Lender requests
compensation under Section 5.01, or if the Borrower is required to pay any
additional amount to any Lender or any Governmental Authority for the account of
any Lender pursuant to Section 5.03, then such Lender shall use reasonable
efforts to designate a different lending office for funding or booking its Loans
hereunder or to assign its rights and obligations hereunder to

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another of its offices, branches or affiliates, if, in the judgment of such
Lender, such designation or assignment (i) would eliminate or reduce amounts
payable pursuant to Section 5.01 or Section 5.03, as the case may be, in the
future and (ii) would not subject such Lender to any unreimbursed cost or
expense and would not otherwise be disadvantageous to such Lender. The Borrower
hereby agrees to pay all reasonable costs and expenses incurred by any Lender in
connection with any such designation or assignment.
          (b) Replacement of Defaulting Lenders. If any Lender becomes a
Defaulting Lender, then the Borrower may, at its sole expense and effort, upon
notice to such Lender and the Administrative Agent, require such Lender to
assign and delegate, without recourse (in accordance with and subject to the
restrictions contained in Section 12.04(a)), all its interests, rights and
obligations under this Agreement to an assignee that shall assume such
obligations (which assignee may be another Lender, if a Lender accepts such
assignment); provided that (i) the Borrower shall have received the prior
written consent of the Administrative Agent, which consent shall not
unreasonably be withheld and (ii) such Lender shall have received payment of an
amount equal to the outstanding principal of its Loans and participations in LC
Disbursements, accrued interest thereon, accrued fees and all other amounts
payable to it hereunder, from the assignee (to the extent of such outstanding
principal and accrued interest and fees) or the Borrower (in the case of all
other amounts).
ARTICLE VI
Conditions Precedent
     Section 6.01 Effective Date. The obligations of the Lenders to make Loans
and of the Issuing Bank to issue Letters of Credit hereunder shall not become
effective until the date on which each of the following conditions is satisfied
(or waived in accordance with Section 12.02):
          (a) The Administrative Agent, the Arrangers and the Lenders shall have
received all commitment, facility and agency fees and all other fees and amounts
due and payable on or prior to the Effective Date, including, to the extent
invoiced, reimbursement or payment of all out-of-pocket expenses required to be
reimbursed or paid by the Borrower hereunder (including, without limitation, the
fees and expenses of Vinson & Elkins LLP, counsel to the Administrative Agent).
          (b) The Administrative Agent shall have received a certificate of the
Secretary or an Assistant Secretary of the Borrower and each Guarantor setting
forth (i) resolutions of its board of directors or other relevant governing body
with respect to the authorization of the Borrower or such Guarantor to execute
and deliver the Loan Documents to which it is a party and to enter into the
transactions contemplated in those documents, (ii) the officers of the Borrower
or such Guarantor (y) who are authorized to sign the Loan Documents to which the
Borrower or such Guarantor is a party and (z) who will, until replaced by
another officer or officers duly authorized for that purpose, act as its
representative for the purposes of signing documents and giving notices and
other communications in connection with this Agreement and the transactions
contemplated hereby, (iii) specimen signatures of such authorized officers, and
(iv) the articles or certificate of incorporation and bylaws or other applicable
charter and governing documents of the Borrower and such Guarantor, certified as
being true and complete. The Administrative Agent and the Lenders may
conclusively rely on such certificate until the Administrative Agent receives
notice in writing from the Borrower to the contrary.

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          (c) The Administrative Agent shall have received certificates of the
appropriate State agencies with respect to the existence, qualification and good
standing of the Borrower and each Guarantor.
          (d) The Administrative Agent shall have received a compliance
certificate which shall be substantially in the form of Exhibit D, duly and
properly executed by a Responsible Officer and dated as of the Effective Date.
          (e) The Administrative Agent shall have received from each party
hereto counterparts (in such number as may be requested by the Administrative
Agent) of this Agreement signed on behalf of such party.
          (f) The Administrative Agent shall have received duly executed Notes
payable to the order of each Lender in a principal amount equal to its Maximum
Credit Amount dated as of the date hereof.
          (g) The Administrative Agent shall have received from each party
thereto duly executed counterparts (in such number as may be requested by the
Administrative Agent) of the Security Instruments, including the Guaranty
Agreement and the other Security Instruments described on Exhibit F-1. In
connection with the execution and delivery of the Security Instruments, the
Administrative Agent shall:
               (i) be reasonably satisfied that the Security Instruments create
first priority, perfected Liens (subject only to Excepted Liens identified in
clauses (a) to (d) and (f) of the definition thereof, but subject to the
provisos at the end of such definition) on at least 85% of the total value of
the Oil and Gas Properties evaluated in the Initial Reserve Report; and
               (ii) have received certificates, together with undated, blank
stock powers for each such certificate, representing all of the issued and
outstanding Equity Interests of each of the Guarantors.
          (h) The Administrative Agent shall have received an opinion of
(i) Porter & Hedges LLP, special counsel to the Borrower, substantially in the
form of Exhibit E-1 hereto, and (ii) local counsel in each of the following
states: Louisiana, Texas, Oklahoma and any other jurisdictions requested by the
Administrative Agent, substantially in the form of Exhibit E-2.
          (i) The Administrative Agent shall have received a certificate of
insurance coverage of the Borrower evidencing that the Borrower is carrying
insurance in accordance with Section 7.12.
          (j) The Administrative Agent shall have received title information as
the Administrative Agent may reasonably require satisfactory to the
Administrative Agent setting forth the status of title to at least 85% of the
total value of the Oil and Gas Properties evaluated in the Initial Reserve
Report.

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          (k) The Administrative Agent shall be reasonably satisfied with the
environmental condition of the Oil and Gas Properties of the Parent and its
Subsidiaries.
          (l) The Administrative Agent shall have received a certificate of a
Responsible Officer of the Parent and the Borrower certifying that the Borrower
has received all consents and approvals required by Section 7.03.
          (m) The Administrative Agent shall have received the financial
statements referred to in Section 7.04(a) and the Initial Reserve Report
accompanied by a certificate covering the matters described in Section 8.12(c).
          (n) The Administrative Agent shall have received appropriate UCC
search certificates reflecting no prior Liens encumbering the Properties of the
Parent and the Subsidiaries for each of the following jurisdictions: Delaware,
Louisiana, Oklahoma and any other jurisdiction requested by the Administrative
Agent; other than those being assigned or released on or prior to the Effective
Date or Liens permitted by Section 9.03.
          (o) The Administrative Agent shall have received a copy, certified by
a Responsible Officer as true and complete, of the Senior Indenture (including
all amendments and supplements thereto) pursuant to which the Senior Notes have
been issued.
          (p) Prior to or contemporaneously with the initial funding hereunder,
the Administrative Agent shall have received evidence satisfactory to it of the
termination of the commitments of the lenders under the Existing Credit
Agreement, the repayment in full of all amounts owing thereunder, the
termination of all suretyship arrangements in connection therewith, and the
release of all Liens securing any obligations thereunder.
          (q) The Administrative Agent shall have received such other documents
as the Administrative Agent or special counsel to the Administrative Agent may
reasonably request.
     The Administrative Agent shall notify the Borrower and the Lenders of the
Effective Date, and such notice shall be conclusive and binding. Notwithstanding
the foregoing, the obligations of the Lenders to make Loans and of the Issuing
Bank to issue Letters of Credit hereunder shall not become effective unless each
of the foregoing conditions is satisfied (or waived pursuant to Section 12.02)
at or prior to 2:00 p.m., New York City time, on October 2, 2008 (and, in the
event such conditions are not so satisfied or waived, the Commitments shall
terminate at such time).
     Section 6.02 Each Credit Event. The obligation of each Lender to make a
Loan on the occasion of any Borrowing (including the initial funding), and of
the Issuing Bank to issue, amend, renew or extend any Letter of Credit, is
subject to the satisfaction of the following conditions:
          (a) At the time of and immediately after giving effect to such
Borrowing or the issuance, amendment, renewal or extension of such Letter of
Credit, as applicable, no Default shall have occurred and be continuing.

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          (b) At the time of and immediately after giving effect to such
Borrowing or the issuance, amendment, renewal or extension of such Letter of
Credit, as applicable, no event, development or circumstance has occurred or
shall then exist that has resulted in, or could reasonably be expected to have,
a Material Adverse Effect.
          (c) The representations and warranties of the Borrower and the
Guarantors set forth in this Agreement and in the other Loan Documents shall be
true and correct on and as of the date of such Borrowing or the date of
issuance, amendment, renewal or extension of such Letter of Credit, as
applicable, except to the extent any such representations and warranties are
expressly limited to an earlier date, in which case, on and as of the date of
such Borrowing or the date of issuance, amendment, renewal or extension of such
Letter of Credit, as applicable, such representations and warranties shall
continue to be true and correct as of such specified earlier date.
          (d) The making of such Loan or the issuance, amendment, renewal or
extension of such Letter of Credit, as applicable, would not conflict with, or
cause any Lender or the Issuing Bank to violate or exceed, any applicable
Governmental Requirement, and no Change in Law shall have occurred, and no
litigation shall be pending or threatened, which does or, with respect to any
threatened litigation, seeks to, enjoin, prohibit or restrain, the making or
repayment of any Loan, the issuance, amendment, renewal, extension or repayment
of any Letter of Credit or any participations therein or the consummation of the
transactions contemplated by this Agreement or any other Loan Document.
          (e) The receipt by the Administrative Agent of a Borrowing Request in
accordance with Section 2.03 or a request for a Letter of Credit in accordance
with Section 2.08(b), as applicable.
     Each request for a Borrowing and each request for the issuance, amendment,
renewal or extension of any Letter of Credit shall be deemed to constitute a
representation and warranty by the Borrower on the date thereof as to the
matters specified in Section 6.02(a) through (e).
ARTICLE VII
Representations and Warranties
     The Parent and the Borrower, in each case with respect to itself and its
Subsidiaries, each represents and warrants to the Lenders that:
     Section 7.01 Organization; Powers. It and its Subsidiaries is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, has all requisite power and authority, and has
all material governmental licenses, authorizations, consents and approvals
necessary, to own its assets and to carry on its business as now conducted, and
is qualified to do business in, and is in good standing in, every jurisdiction
where such qualification is required, except where failure to have such power,
authority, licenses, authorizations, consents, approvals and qualifications
could not reasonably be expected to have a Material Adverse Effect.

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     Section 7.02 Authority; Enforceability. The Transactions are within the
Borrower’s and each Guarantor’s corporate powers and have been duly authorized
by all necessary corporate and, if required, stockholder action (including,
without limitation, any action required to be taken by any class of directors of
the Parent, the Borrower or any other Person, whether interested or
disinterested, in order to ensure the due authorization of the Transactions).
Each Loan Document to which the Borrower and each Guarantor is a party has been
duly executed and delivered by the Borrower and such Guarantor and constitutes a
legal, valid and binding obligation of the Borrower and such Guarantor, as
applicable, enforceable in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other laws affecting
creditors’ rights generally and subject to general principles of equity,
regardless of whether considered in a proceeding in equity or at law.
     Section 7.03 Approvals; No Conflicts. The Transactions (a) do not require
any consent or approval of, registration or filing with, or any other action by,
any Governmental Authority or any other third Person (including shareholders or
any class of directors, whether interested or disinterested, of the Parent, the
Borrower or any other Person), nor is any such consent, approval, registration,
filing or other action necessary for the validity or enforceability of any Loan
Document or the consummation of the transactions contemplated thereby, except
such as have been obtained or made and are in full force and effect other than
(i) the recording and filing of the Security Instruments as required by this
Agreement and (ii) those third party approvals or consents which, if not made or
obtained, would not cause a Default hereunder, could not reasonably be expected
to have a Material Adverse Effect or do not have an adverse effect on the
enforceability of the Loan Documents, (b) will not violate any applicable law or
regulation or the charter, by-laws or other organizational documents of it or
any of its Subsidiaries or any order of any Governmental Authority, (c) will not
violate or result in a default under any indenture, agreement or other
instrument binding upon it or any of its Subsidiaries or its Properties, or give
rise to a right thereunder to require any payment to be made by it or such
Subsidiary and (d) will not result in the creation or imposition of any Lien on
any Property of it or any of its Subsidiaries (other than the Liens created by
the Loan Documents).
     Section 7.04 Financial Condition; No Material Adverse Change.
          (a) The Parent has heretofore furnished to the Lenders its
consolidated balance sheet and statements of income, stockholders equity and
cash flows (i) as of and for the fiscal year ended December 31, 2007, reported
on by Ernst & Young LLP, independent public accountants, and (ii) as of and for
the fiscal quarter and the portion of the fiscal year ended June 30, 2008,
certified by its chief financial officer. Such financial statements present
fairly, in all material respects, the financial position and results of
operations and cash flows of the Parent and its Consolidated Subsidiaries as of
such dates and for such periods in accordance with GAAP, subject to year-end
audit adjustments and the absence of footnotes in the case of the unaudited
quarterly financial statements.
          (b) Since December 31, 2007, (i) there has been no event, development
or circumstance that has had or could reasonably be expected to have a Material
Adverse Effect and (ii) the business of the Parent and its Subsidiaries has been
conducted only in the ordinary course consistent with past business practices.

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

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          (e) there has been no Release or, to the Borrower’s knowledge,
threatened Release, of Hazardous Materials at, on, under or from Borrower or any
of the Borrower’s Subsidiaries’ Properties, there are no investigations,
remediations, abatements, removals, or monitorings of Hazardous Materials
required under applicable Environmental Laws at such Properties and, to the
knowledge of the Borrower, none of such Properties are adversely affected by any
Release or threatened Release of a Hazardous Material originating or emanating
from any other real property.
          (f) neither the Borrower nor any of the Borrower’s Subsidiaries has
received any written notice asserting an alleged liability or obligation under
any applicable Environmental Laws with respect to the investigation,
remediation, abatement, removal, or monitoring of any Hazardous Materials at,
under, or Released or threatened to be Released from any real properties offsite
the Borrower or any of the Borrower’s Subsidiaries’ Properties and, to the
Borrower’s knowledge, there are no conditions or circumstances that could
reasonably be expected to result in the receipt of such written notice.
          (g) there has been no exposure of any Person or Property to any
Hazardous Materials as a result of or in connection with the operations and
businesses of the Borrower’s or any of the Borrower’s Subsidiaries’ Properties
that could reasonably be expected to form the basis for a claim for damages or
compensation.
          (h) the Borrower and the Borrower’s Subsidiaries have provided to the
Lenders complete and correct copies of all environmental site assessment
reports, investigations, studies, analyses, and correspondence on environmental
matters (including matters relating to any alleged non-compliance with or
liability under Environmental Laws) that are in any of the Borrower’s or the
Borrower’s Subsidiaries’ possession or control and relating to their respective
Properties or operations thereon.
     Section 7.07 Compliance with the Laws and Agreements; No Defaults.
          (a) It and each of its Subsidiaries is in compliance with all
Governmental Requirements applicable to it or its Property and all agreements
and other instruments binding upon it or its Property, and possesses all
licenses, permits, franchises, exemptions, approvals and other governmental
authorizations necessary for the ownership of its Property and the conduct of
its business, except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect.
          (b) Neither it nor any of its Subsidiaries is in default nor has any
event or circumstance occurred which, but for the expiration of any applicable
grace period or the giving of notice, or both, would constitute a default or
would require it or any of its Subsidiaries to Redeem or make any offer to
Redeem under any indenture, note, credit agreement or instrument pursuant to
which any Material Indebtedness is outstanding or by which it or any of its
Subsidiaries or any of their Properties is bound.
          (c) No Default has occurred and is continuing.
     Section 7.08 Investment Company Act. Neither the Borrower nor any of the
Borrower’s Subsidiaries is an “investment company” or a company “controlled” by
an “investment company,” within the meaning of, or subject to regulation under,
the Investment Company Act of 1940, as amended.

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     Section 7.09 Taxes. It and its Subsidiaries each has timely filed or caused
to be filed all Tax returns and reports required to have been filed and has paid
or caused to be paid all Taxes required to have been paid by it, except
(a) Taxes that are being contested in good faith by appropriate proceedings and
for which it or such Subsidiary, as applicable, has set aside on its books
adequate reserves in accordance with GAAP or (b) to the extent that the failure
to do so could not reasonably be expected to result in a Material Adverse
Effect. The charges, accruals and reserves on the books of it and its
Subsidiaries in respect of Taxes and other governmental charges are, in the
reasonable opinion of it, adequate. No Tax Lien has been filed and, to the
knowledge of it, no claim is being asserted with respect to any such Tax or
other such governmental charge.
     Section 7.10 ERISA.
          (a) The Borrower, each of the Borrower’s Subsidiaries and each ERISA
Affiliate have complied in all material respects with ERISA and, where
applicable, the Code regarding each Plan.
          (b) Each Plan is, and has been, established and maintained in
substantial compliance with its terms, ERISA and, where applicable, the Code.
          (c) No act, omission or transaction has occurred which could result in
imposition on the Borrower, any of the Borrower’s Subsidiaries or any ERISA
Affiliate (whether directly or indirectly) of (i) either a civil penalty
assessed pursuant to subsections (c), (i), (l) or (m) of section 502 of ERISA or
a tax imposed pursuant to Chapter 43 of Subtitle D of the Code or (ii) breach of
fiduciary duty liability damages under section 409 of ERISA.
          (d) Full payment when due has been made of all amounts which the
Borrower, any of the Borrower’s Subsidiaries or any ERISA Affiliate is required
under the terms of each Plan or applicable law to have paid as contributions to
such Plan as of the date hereof.
          (e) None of the Borrower, any of the Borrower’s Subsidiaries or any
ERISA Affiliate sponsors, maintains, or contributes to an employee welfare
benefit plan, as defined in section 3(1) of ERISA, including, without
limitation, any such plan maintained to provide benefits to former employees of
such entities, that may not be terminated by the Borrower, any of the Borrower’s
Subsidiaries or any ERISA Affiliate in the Borrower’s sole discretion at any
time without any material liability.
          (f) None of the Borrower, any of the Borrower’s Subsidiaries or any
ERISA Affiliate sponsors, maintains or contributes to, or has at any time in the
six-year period preceding the date hereof sponsored, maintained or contributed
to, any employee pension benefit plan, as defined in section 3(2) of ERISA, that
is subject to Title IV of ERISA, section 302 of ERISA or section 412 of the
Code.
     Section 7.11 Disclosure; No Material Misstatements. It has disclosed to the
Administrative Agent and the Lenders all agreements, instruments and corporate
or other restrictions to which it or any of its Subsidiaries is subject, and all
other matters known to it, that, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect. Neither the
Information Memorandum nor any of the other reports, financial statements,

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certificates or other information furnished by or on behalf of it or any of its
Subsidiaries to the Administrative Agent or any Lender or any of their
Affiliates in connection with the negotiation of this Agreement or any other
Loan Document or delivered hereunder or under any other Loan Document (as
modified or supplemented by other information so furnished) contains any
material misstatement of fact or omits to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided that, with respect to projected financial
information, it represents only that such information was prepared in good faith
based upon assumptions believed to be reasonable at the time. There is no fact
peculiar to it or any of its Subsidiaries which could reasonably be expected to
have a Material Adverse Effect or in the future is reasonably likely to have a
Material Adverse Effect and which has not been set forth in this Agreement or
the Loan Documents or the other documents, certificates and statements furnished
to the Administrative Agent or the Lenders by or on behalf of it or any of its
Subsidiaries prior to, or on, the date hereof in connection with the
transactions contemplated hereby. There are no statements or conclusions in any
Reserve Report which are based upon or include misleading information or fail to
take into account material information regarding the matters reported therein,
it being understood that projections concerning volumes attributable to the Oil
and Gas Properties of it and its Subsidiaries and production and cost estimates
contained in each Reserve Report are necessarily based upon professional
opinions, estimates and projections and that it and its Subsidiaries do not
warrant that such opinions, estimates and projections will ultimately prove to
have been accurate.
     Section 7.12 Insurance. The Borrower has, and has caused all of the
Borrower’s Subsidiaries to have, (a) all insurance policies sufficient for the
compliance by each of them with all material Governmental Requirements and all
material agreements and (b) insurance coverage in at least amounts and against
such risk (including, without limitation, public liability) that are usually
insured against by companies similarly situated and engaged in the same or a
similar business for the assets and operations of the Borrower and the
Borrower’s Subsidiaries. The Administrative Agent and the Lenders have been
named as additional insureds in respect of said insurance policies insuring
against physical damage to equipment and facilities owned by the Borrower and
the Administrative Agent has been named as loss payee with respect to Property
loss insurance.
     Section 7.13 Restriction on Liens. Neither the Borrower nor any of the
Borrower’s Subsidiaries is a party to any material agreement or arrangement
(other than Capital Leases creating Liens permitted by Section 9.03(c), but then
only on the Property subject of such Capital Lease), or subject to any order,
judgment, writ or decree, which either restricts or purports to restrict its
ability to grant Liens to the Administrative Agent and the Lenders on or in
respect of their Properties to secure the Indebtedness and the Loan Documents.
     Section 7.14 Subsidiaries. Except as set forth on Schedule 7.14 or as
disclosed in writing to the Administrative Agent (which shall promptly furnish a
copy to the Lenders), which shall be a supplement to Schedule 7.14, it has no
Subsidiaries. Each of its Subsidiaries is a Wholly-Owned Subsidiary and it has
no Foreign Subsidiaries. As of the Effective Date, all Excluded Subsidiaries are
listed on Schedule 7.14.

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     Section 7.15 Location of Business and Offices. The Parent’s jurisdiction of
organization is Delaware; the name of the Parent as listed in the public records
of its jurisdiction of organization is PetroQuest Energy, Inc.; and the
organizational identification number of the Parent in its jurisdiction of
organization is 2895656 (or, in each case, as set forth in a notice delivered to
the Administrative Agent pursuant to Section 8.01(m) in accordance with Section
12.01). The Parent’s principal place of business and chief executive offices are
located at the address specified in Section 12.01 (or as set forth in a notice
delivered pursuant to Section 8.01(m) and Section 12.01(c)). The Borrower’s
jurisdiction of organization is Louisiana; the name of the Borrower as listed in
the public records of its jurisdiction of organization is PetroQuest Energy,
L.L.C.; and the organizational identification number of the Borrower in its
jurisdiction of organization is 34487931 K (or, in each case, as set forth in a
notice delivered to the Administrative Agent pursuant to Section 8.01(m) in
accordance with Section 12.01). The Borrower’s principal place of business and
chief executive offices are located at the address specified in Section 12.01
(or as set forth in a notice delivered pursuant to Section 8.01(m) and Section
12.01(c)). Each Subsidiary’s jurisdiction of organization, name as listed in the
public records of its jurisdiction of organization, organizational
identification number in its jurisdiction of organization, and the location of
its principal place of business and chief executive office is stated on
Schedule 7.14 (or as set forth in a notice delivered pursuant to
Section 8.01(m)).
     Section 7.16 Properties; Titles, Etc.
          (a) The Borrower and the Borrower’s Subsidiaries each has good and
defensible title to the Oil and Gas Properties evaluated in the most recently
delivered Reserve Report and good title to all its personal Properties, in each
case, free and clear of all Liens except Liens permitted by Section 9.03. After
giving full effect to the Excepted Liens, the Borrower or any of the Borrower’s
Subsidiaries specified as the owner owns the net interests in production
attributable to the Hydrocarbon Interests as reflected in the most recently
delivered Reserve Report, and the ownership of such Properties shall not in any
material respect obligate the Borrower or such Subsidiary to bear the costs and
expenses relating to the maintenance, development and operations of each such
Property in an amount in excess of the working interest of each Property set
forth in the most recently delivered Reserve Report that is not offset by a
corresponding proportionate increase the Borrower’s or such Subsidiary’s net
revenue interest in such Property.
          (b) All material leases and agreements necessary for the conduct of
the business of the Borrower and the Borrower’s Subsidiaries are valid and
subsisting, in full force and effect, and there exists no default or event or
circumstance which with the giving of notice or the passage of time or both
would give rise to a default under any such lease or leases, which could
reasonably be expected to have a Material Adverse Effect.
          (c) The rights and Properties presently owned, leased or licensed by
the Borrower and the Borrower’s Subsidiaries including, without limitation, all
easements and rights of way, include all rights and Properties necessary to
permit the Borrower and the Borrower’s Subsidiaries to conduct their business in
all material respects in the same manner as the Borrower’s business has been
conducted prior to the date hereof.
          (d) All of the Properties of the Borrower and the Borrower’s
Subsidiaries which are reasonably necessary for the operation of their
businesses are in good working condition and are maintained in accordance with
prudent business standards.

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

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     Section 7.19 Marketing of Production. Except for contracts listed and in
effect on the date hereof on Schedule 7.19, and thereafter either disclosed in
writing to the Administrative Agent or included in the most recently delivered
Reserve Report (with respect to all of which contracts the Borrower represents
or that the Borrower or the Borrower’s Subsidiaries are receiving a price for
all production sold thereunder which is computed substantially in accordance
with the terms of the relevant contract and are not having deliveries curtailed
substantially below the subject Property’s delivery capacity), no material
agreements exist which are not cancelable on 60 days notice or less without
penalty or detriment for the sale of production from the Borrower or the
Borrower’s Subsidiaries’ Hydrocarbons (including, without limitation, calls on
or other rights to purchase, production, whether or not the same are currently
being exercised) that (a) pertain to the sale of production at a fixed price and
(b) have a maturity or expiry date of longer than six (6) months from the date
hereof.
     Section 7.20 Swap Agreements. Schedule 7.20, as of the date hereof, and
after the date hereof, each report required to be delivered by it pursuant to
Section 8.01(d), sets forth, a true and complete list of all Swap Agreements of
the Borrower and each of the Borrower’s Subsidiaries, the material terms thereof
(including the type, term, effective date, termination date and notional amounts
or volumes), the net mark to market value thereof, all credit support agreements
relating thereto (including any margin required or supplied) and the
counterparty to each such agreement.
     Section 7.21 Use of Loans and Letters of Credit. The proceeds of the Loans
and the Letters of Credit shall be used to provide working capital for
exploration and production operations and for general corporate purposes. It and
its Subsidiaries are not engaged principally, or as one of its or their
important activities, in the business of extending credit for the purpose,
whether immediate, incidental or ultimate, of buying or carrying margin stock
(within the meaning of Regulation T, U or X of the Board). No part of the
proceeds of any Loan or Letter of Credit will be used for any purpose which
violates the provisions of Regulations T, U or X of the Board.
     Section 7.22 Solvency. After giving effect to the transactions contemplated
hereby, (a) the aggregate assets (after giving effect to amounts that could
reasonably be received by reason of indemnity, offset, insurance or any similar
arrangement), at a fair valuation, of the Borrower and the Guarantors, taken as
a whole, will exceed the aggregate Debt of the Borrower and the Guarantors on a
consolidated basis, as the Debt becomes absolute and matures, (b) each of the
Borrower and the Guarantors will not have incurred or intended to incur, and
will not believe that it will incur, Debt beyond its ability to pay such Debt
(after taking into account the timing and amounts of cash to be received by each
of the Borrower and the Guarantors and the amounts to be payable on or in
respect of its liabilities, and giving effect to amounts that could reasonably
be received by reason of indemnity, offset, insurance or any similar
arrangement) as such Debt becomes absolute and matures and (c) each of the
Borrower and the Guarantors will not have (and will have no reason to believe
that it will have thereafter) unreasonably small capital for the conduct of its
business.

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ARTICLE VIII
Affirmative Covenants
     Until the Commitments have expired or been terminated and the principal of
and interest on each Loan and all fees payable hereunder and all other amounts
payable under the Loan Documents shall have been paid in full and all Letters of
Credit shall have expired or terminated and all LC Disbursements shall have been
reimbursed, the Parent and the Borrower, in each case with respect to itself and
each of its Subsidiaries, each covenants and agrees with the Lenders that:
     Section 8.01 Financial Statements; Other Information. The Parent will
furnish to the Administrative Agent and each Lender:
          (a) Annual Financial Statements. As soon as available, but in any
event in accordance with then applicable law and not later than 90 days after
the end of each fiscal year of the Parent, its audited consolidated balance
sheet and related statements of operations, stockholders’ equity and cash flows
as of the end of and for such year, setting forth in each case in comparative
form the figures for the previous fiscal year, all reported on by Ernst & Young
LLP or other independent public accountants of recognized national standing
(without a “going concern” or like qualification or exception and without any
qualification or exception as to the scope of such audit) to the effect that
such consolidated financial statements present fairly in all material respects
the financial condition and results of operations of the Parent and its
Consolidated Subsidiaries on a consolidated basis in accordance with GAAP
consistently applied.
          (b) Quarterly Financial Statements. As soon as available, but in any
event in accordance with then applicable law and not later than 45 days after
the end of each of the first three fiscal quarters of each fiscal year of the
Parent, its consolidated balance sheet and related statements of operations,
stockholders’ equity and cash flows as of the end of and for such fiscal quarter
and the then elapsed portion of the fiscal year, setting forth in each case in
comparative form the figures for the corresponding period or periods of (or, in
the case of the balance sheet, as of the end of) the previous fiscal year, all
certified by one of its Financial Officers as presenting fairly in all material
respects the financial condition and results of operations of the Parent and its
Consolidated Subsidiaries on a consolidated basis in accordance with GAAP
consistently applied, subject to normal year-end audit adjustments and the
absence of footnotes.
          (c) Certificate of Financial Officer — Compliance. Concurrently with
any delivery of financial statements under Section 8.01(a) or Section 8.01(b), a
certificate of a Financial Officer in substantially the form of Exhibit D hereto
(i) certifying as to whether a Default has occurred and, if a Default has
occurred, specifying the details thereof and any action taken or proposed to be
taken with respect thereto, (ii) setting forth reasonably detailed calculations
demonstrating compliance with Section 8.13(b) and Section 9.01 and (iii) stating
whether any change in GAAP or in the application thereof has occurred since the
date of the audited financial statements referred to in Section 7.04 and, if any
such change has occurred, specifying the effect of such change on the financial
statements accompanying such certificate.

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          (d) Certificate of Financial Officer — Swap Agreements. Concurrently
with the delivery of each Reserve Report hereunder, a certificate of a Financial
Officer, in form and substance satisfactory to the Administrative Agent, setting
forth as of a recent date, a true and complete list of all Swap Agreements of
the Parent and each Subsidiary, the material terms thereof (including the type,
term, effective date, termination date and notional amounts or volumes), the net
mark-to-market value therefor, any new credit support agreements relating
thereto not listed on Schedule 7.20, any margin required or supplied under any
credit support document, any amendments relating thereto and the counterparty to
each such agreement.
          (e) Certificate of Insurer — Insurance Coverage. Each year, promptly
upon renewal thereof, a certificate of insurance coverage from each insurer with
respect to the insurance required by Section 8.07, in form and substance
reasonably satisfactory to the Administrative Agent, and, if requested by the
Administrative Agent or any Lender, all copies of the applicable policies.
          (f) Other Accounting Reports. Promptly upon receipt thereof, a copy of
each other report or letter submitted to the Parent or any of its Subsidiaries
by independent accountants in connection with any annual, interim or special
audit made by them of the books of the Parent or any such Subsidiary, and a copy
of any response by the Parent or any such Subsidiary, or the board of directors
or other relevant governing body of the Parent or any such Subsidiary, to such
letter or report.
          (g) SEC and Other Filings; Reports to Shareholders. Promptly after the
same become publicly available, copies of all periodic and other reports, proxy
statements and other materials filed by the Parent or any Subsidiary with the
SEC, or with any national securities exchange, or distributed by the Parent to
its shareholders generally, as the case may be.
          (h) Notices Under Material Instruments. Promptly after the furnishing
thereof, copies of any financial statement, report or notice furnished to or by
any Person pursuant to the terms of any preferred stock designation, indenture,
loan or credit or other similar agreement, other than this Agreement and not
otherwise required to be furnished to the Lenders pursuant to any other
provision of this Section 8.01.
          (i) Lists of Purchasers. Concurrently with the delivery of each
Reserve Report effective as of the previous January 1st for each year to the
Administrative Agent pursuant to Section 8.12, a list of all Persons purchasing
Hydrocarbons from the Parent or any Subsidiary.
          (j) Notice of Sales of Oil and Gas Properties. In the event the
Borrower or any of the Borrower’s Subsidiaries intends to sell, transfer, assign
or otherwise dispose of any Oil or Gas Properties or any Equity Interests in any
Subsidiary in accordance with Section 9.12, prior written notice of such
disposition, the price thereof and the anticipated date of closing and any other
details thereof requested by the Administrative Agent or any Lender.
          (k) Notice of Casualty Events. Prompt written notice, and in any event
within three Business Days after it obtains knowledge thereof, of the occurrence
of any Casualty Event or the commencement of any action or proceeding that could
reasonably be expected to result in a Casualty Event.

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          (l) Issuance of Permitted Refinancing Debt. In the event the Parent or
the Borrower intends to refinance any Debt with the proceeds of Permitted
Refinancing Debt as contemplated by Section 9.02(h), prior written notice of
such intended offering therefor, the amount thereof and the anticipated date of
closing and will furnish a copy of the preliminary offering memorandum (if any)
and the final offering memorandum (if any).
          (m) Information Regarding Borrower and Guarantors. Prompt written
notice (and in any event within thirty (30) days prior thereto) of any change
(i) in the Borrower’s or any Guarantor’s corporate name or in any trade name
used to identify such Person in the conduct of its business or in the ownership
of its Properties, (ii) in the location of the Borrower’s or any Guarantor’s
chief executive office or principal place of business, (iii) in the Borrower’s
or any Guarantor’s identity or corporate structure or in the jurisdiction in
which such Person is incorporated or formed, (iv) in the Borrower’s or any
Guarantor’s jurisdiction of organization or such Person’s organizational
identification number in such jurisdiction of organization, and (v) in the
Borrower’s or any Guarantor’s federal taxpayer identification number.
          (n) Production Report and Lease Operating Statements. Concurrently
with the delivery of any Reserve Report to the Administrative Agent pursuant to
Section 8.12, a report setting forth, for each calendar month during the then
current fiscal year to date, the volume of production and sales attributable to
production (and the prices at which such sales were made and the revenues
derived from such sales) for each such calendar month from the Oil and Gas
Properties, and setting forth the related ad valorem, severance and production
taxes and lease operating expenses attributable thereto and incurred for each
such calendar month.
          (o) Notices of Certain Changes. Promptly, but in any event within five
(5) Business Days after the execution thereof, copies of any amendment,
modification or supplement to the certificate or articles of incorporation,
by-laws, any preferred stock designation or any other organic document of the
Parent or any Subsidiary.
          (p) Patriot Act. Promptly upon any request therefor, all documentation
and other information requested by the Administrative Agent or any Lender that
is required by any regulatory authorities under applicable “know your customer”
and anti-money laundering rules and regulations, including the USA Patriot Act.
          (q) Certificate of Financial Officer — Consolidating Information for
Excluded Subsidiaries. If, at any time, the net income of all Excluded
Subsidiaries is greater than $1,000,000 in any fiscal year, then concurrently
with any delivery of financial statements under Section 8.01(a) or
Section 8.01(b), a certificate of a Financial Officer setting forth
consolidating spreadsheets that show all Excluded Subsidiaries and the
eliminating entries, in such form as would be presentable to the auditors of the
Borrower.
          (r) Other Requested Information. Promptly following any request
therefor, such other information regarding the operations, business affairs and
financial condition of the Parent or any Subsidiary (including, without
limitation, any Plan and any reports or other information required to be filed
with respect thereto under the Code or under ERISA), or compliance with the
terms of this Agreement or any other Loan Document, as the Administrative Agent
or any Lender may reasonably request.

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     Documents required to be delivered pursuant to Section 8.01(a),
Section 8.01(b) or Section 8.01(g) (to the extent any such documents are
included in materials otherwise filed with the Securities and Exchange
Commission) may be delivered electronically and if so delivered, shall be deemed
to have been delivered on the date (1) on which the Parent posts such documents,
or provides a link thereto on the Parent’s website on the Internet at
www.petroquest.com; or (2) on which such documents are posted on the Parent’s
behalf on an Internet or intranet website, if any, to which each Lender and the
Administrative Agent have access (whether a commercial, third-party website or
whether sponsored by the Administrative Agent); provided that the Borrower shall
notify the Administrative Agent and each Lender (by telecopier or electronic
mail) of the posting of any such documents and provide to the Administrative
Agent by electronic mail electronic versions (i.e., soft copies) of such
documents. Notwithstanding anything contained herein, in every instance the
Parent shall be required to provide paper copies of the compliance certificate
required by Section 8.01(c) to the Administrative Agent and the Lenders. Except
for such compliance certificates, the Administrative Agent shall have no
obligation to request the delivery or to maintain copies of the documents
referred to above, and in any event shall have no responsibility to monitor
compliance by the Parent with any such request for delivery, and each Lender
shall be solely responsible for requesting delivery to it or maintaining its
copies of such documents.
     Section 8.02 Notices of Material Events. The Parent and the Borrower will
furnish to the Administrative Agent and each Lender prompt written notice of the
following:
          (a) the occurrence of any Default;
          (b) the filing or commencement of, or the threat in writing of, any
action, suit, proceeding, investigation or arbitration by or before any
arbitrator or Governmental Authority against or affecting the Parent or any
Affiliate thereof not previously disclosed in writing to the Lenders or any
material adverse development in any action, suit, proceeding, investigation or
arbitration (whether or not previously disclosed to the Lenders) that, in either
case, if adversely determined, could reasonably be expected to result in
liability in excess of $2,500,000; and
          (c) any other development that results in, or could reasonably be
expected to result in, a Material Adverse Effect.
Each notice delivered under this Section 8.02 shall be accompanied by a
statement of a Responsible Officer setting forth the details of the event or
development requiring such notice and any action taken or proposed to be taken
with respect thereto.
     Section 8.03 Existence; Conduct of Business. It will, and will cause each
Subsidiary to, do or cause to be done all things necessary to preserve, renew
and keep in full force and effect its legal existence and the rights, licenses,
permits, privileges and franchises material to the conduct of its business and
maintain, if necessary, its qualification to do business in each other
jurisdiction in which its Oil and Gas Properties is located or the ownership of
its Properties requires such qualification, except where the failure to so
qualify could not reasonably be expected to have a Material Adverse Effect;
provided that the foregoing shall not prohibit any merger, consolidation,
liquidation or dissolution permitted under Section 9.11.

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     Section 8.04 Payment of Obligations. It will, and will cause each
Subsidiary to, pay its obligations, including Tax liabilities of it and all of
its Subsidiaries before the same shall become delinquent or in default, except
where (a) the validity or amount thereof is being contested in good faith by
appropriate proceedings, (b) it or such Subsidiary has set aside on its books
adequate reserves with respect thereto in accordance with GAAP and (c) the
failure to make payment pending such contest could not reasonably be expected to
result in a Material Adverse Effect or result in the seizure or levy of any
Property of it or any of its Subsidiaries.
     Section 8.05 Performance of Obligations under Loan Documents. The Borrower
will pay the Notes according to the reading, tenor and effect thereof, and the
Parent and the Borrower each will, and will cause each of its Subsidiaries to,
do and perform every act and discharge all of the obligations to be performed
and discharged by them under the Loan Documents, including, without limitation,
this Agreement, at the time or times and in the manner specified.
     Section 8.06 Operation and Maintenance of Properties. The Borrower, at the
Borrower’s own expense, will, and will cause each of the Borrower’s Subsidiaries
to:
          (a) operate its Oil and Gas Properties and other material Properties
or cause such Oil and Gas Properties and other material Properties to be
operated in a careful and efficient manner in accordance with the practices of
the industry and in compliance with all applicable contracts and agreements and
in compliance with all Governmental Requirements, including, without limitation,
applicable pro ration requirements and Environmental Laws, and all applicable
laws, rules and regulations of every other Governmental Authority from time to
time constituted to regulate the development and operation of its Oil and Gas
Properties and the production and sale of Hydrocarbons and other minerals
therefrom, except, in each case, where the failure to comply could not
reasonably be expected to have a Material Adverse Effect.
          (b) keep and maintain all Property material to the conduct of its
business in good working order and condition (ordinary wear and tear excepted),
preserve, maintain and keep in good repair, working order and efficiency
(ordinary wear and tear excepted) all of its material Oil and Gas Properties and
other material Properties, including, without limitation, all equipment,
machinery and facilities.
          (c) promptly pay and discharge, or make reasonable and customary
efforts to cause to be paid and discharged, all delay rentals, royalties,
expenses and indebtedness, except those contested in good faith by appropriate
proceedings, accruing under the leases or other agreements affecting or
pertaining to its Oil and Gas Properties and will do all other things necessary
to keep unimpaired their rights with respect thereto and prevent any forfeiture
thereof or default thereunder.
          (d) promptly perform or make reasonable and customary efforts to cause
to be performed, in accordance with industry standards, the material obligations
required by each and all of the assignments, deeds, leases, sub-leases,
contracts and agreements affecting its interests in its Oil and Gas Properties
and other material Properties.
          (e) to the extent it is not the operator of any Property, it shall use
reasonable efforts to cause the operator to comply with this Section 8.06.

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     Section 8.07 Insurance. The Borrower will, and will cause each of the
Borrower’s Subsidiaries to, maintain, with financially sound and reputable
insurance companies, insurance in such amounts and against such risks as are
customarily maintained by companies engaged in the same or similar businesses
operating in the same or similar locations. The loss payable clauses or
provisions in said insurance policy or policies insuring against physical damage
to equipment and facilities owned by the Borrower shall be endorsed in favor of
and made payable to the Administrative Agent as its interests may appear and
such policies shall name the Administrative Agent and the Lenders as “additional
insureds” and provide that the insurer will endeavor to give at least 30 days
prior notice of any cancellation to the Administrative Agent.
     Section 8.08 Books and Records; Inspection Rights. The Borrower will, and
will cause each of the Borrower’s Subsidiaries to, keep proper books of record
and account in which full, true and correct entries are made of all dealings and
transactions in relation to its business and activities. The Borrower will, and
will cause each of the Borrower’s Subsidiaries to, permit any representatives
designated by the Administrative Agent or any Lender, upon reasonable prior
notice, to visit and inspect its Properties, to examine and make extracts from
its books and records, and to discuss its affairs, finances and condition with
its officers and independent accountants, all at such reasonable times and as
often as reasonably requested.
     Section 8.09 Compliance with Laws. The Borrower will, and will cause each
of the Borrower’s Subsidiaries to, comply with all laws, rules, regulations and
orders of any Governmental Authority applicable to it or its Property, except
where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
     Section 8.10 Environmental Matters.
          (a) The Borrower shall at the Borrower’s sole expense: (i) comply, and
shall cause the Borrower’s Properties and operations and each of the Borrower’s
Subsidiaries and each such Subsidiary’s Properties and operations to comply,
with all applicable Environmental Laws, the breach of which could be reasonably
expected to have a Material Adverse Effect; (ii) not Release or threaten to
Release, and shall cause each Subsidiary not to Release or threaten to Release,
any Hazardous Material on, under, about or from any of the Borrower’s or the
Borrower’s Subsidiaries’ Properties or any other property offsite the Property
to the extent caused by the Borrower or any of the Borrower’s Subsidiaries’
operations except in compliance with applicable Environmental Laws, the Release
or threatened Release of which could reasonably be expected to have a Material
Adverse Effect; (iii) timely obtain or file, and shall cause each Subsidiary to
timely obtain or file, all Environmental Permits, if any, required under
applicable Environmental Laws to be obtained or filed in connection with the
operation or use of the Borrower or the Borrower’s Subsidiaries’ Properties,
which failure to obtain or file could reasonably be expected to have a Material
Adverse Effect; (iv) promptly commence and diligently prosecute to completion,
and shall cause each Subsidiary to promptly commence and diligently prosecute to
completion, any assessment, evaluation, investigation, monitoring, containment,
cleanup, removal, repair, restoration, remediation or other remedial obligations
(collectively, the “Remedial Work”) in the event any Remedial Work is required
or reasonably necessary under applicable Environmental Laws because of or in
connection with the actual or suspected past, present or future Release or
threatened Release of any Hazardous Material on,

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under, about or from any of the Borrower’s or the Borrower’s Subsidiaries’
Properties, which failure to commence and diligently prosecute to completion
could reasonably be expected to have a Material Adverse Effect; (v) conduct, and
cause its Subsidiaries to conduct, their respective operations and businesses in
a manner that will not expose any Property or Person to Hazardous Materials that
could reasonably be expected to form the basis for a claim for damages or
compensation; and (vi) establish and implement, and shall cause each Subsidiary
to establish and implement, such procedures as may be necessary to continuously
determine and assure that the Borrower’s and the Borrower’s Subsidiaries’
obligations under this Section 8.10(a) are timely and fully satisfied, which
failure to establish and implement could reasonably be expected to have a
Material Adverse Effect.
          (b) The Borrower will promptly, but in no event later than five days
of the occurrence of a triggering event, notify the Administrative Agent and the
Lenders in writing of any threatened action, investigation or inquiry by any
Governmental Authority or any threatened demand or lawsuit by any Person against
it or its Subsidiaries or their Properties of which the Borrower has knowledge
in connection with any Environmental Laws if the Borrower could reasonably
anticipate that such action will result in liability (whether individually or in
the aggregate) in excess of $2,500,000, not fully covered by insurance, subject
to normal deductibles.
          (c) The Borrower will, and will cause each of the Borrower’s
Subsidiaries to, provide environmental assessments, audits and tests in
accordance with the most current version of the American Society of Testing
Materials standards upon request by the Administrative Agent and the Lenders and
no more than once per year in the absence of any Event of Default (or as
otherwise required to be obtained by the Administrative Agent or the Lenders by
any Governmental Authority), in connection with any future acquisitions of Oil
and Gas Properties or other Properties.
     Section 8.11 Further Assurances.
          (a) It will at its sole expense, and will cause each of its
Subsidiaries to, promptly execute and deliver to the Administrative Agent all
such other documents, agreements and instruments reasonably requested by the
Administrative Agent to comply with, cure any defects or accomplish the
conditions precedent, covenants and agreements of it or any of its Subsidiaries,
as the case may be, in the Loan Documents, including the Notes, or to further
evidence and more fully describe the collateral intended as security for the
Indebtedness, or to correct any omissions in this Agreement or the Security
Instruments, or to state more fully the obligations secured therein, or to
perfect, protect or preserve any Liens created pursuant to this Agreement or any
of the Security Instruments or the priority thereof, or to make any recordings,
file any notices or obtain any consents, all as may be reasonably necessary or
appropriate, in the sole discretion of the Administrative Agent, in connection
therewith.
          (b) The Borrower hereby authorizes the Administrative Agent to file
one or more financing or continuation statements, and amendments thereto,
relative to all or any part of the Mortgaged Property without the signature of
the Borrower or any other Guarantor where permitted by law. A carbon,
photographic or other reproduction of the Security Instruments or any financing
statement covering the Mortgaged Property or any part thereof shall be
sufficient as a financing statement where permitted by law.

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     Section 8.12 Reserve Reports.
          (a) On or before March 1st and September 1st of each year, commencing
March 1, 2009, the Borrower shall furnish to the Administrative Agent and the
Lenders a Reserve Report evaluating the Oil and Gas Properties of the Borrower
and the Borrower’s Subsidiaries as of the immediately preceding January 1st and
July 1st. The Reserve Report as of January 1 of each year shall be prepared by
one or more Approved Petroleum Engineers, and the July 1st Reserve Report of
each year shall be prepared by or under the supervision of the chief engineer of
the Borrower who shall certify such Reserve Report to be true and accurate and
to have been prepared in accordance with the procedures used in the immediately
preceding January 1st Reserve Report.
          (b) In the event of an Interim Redetermination, the Borrower shall
furnish to the Administrative Agent and the Lenders a Reserve Report prepared by
or under the supervision of the chief engineer of the Borrower who shall certify
such Reserve Report to be true and accurate and to have been prepared in
accordance with the procedures used in the immediately preceding January 1st
Reserve Report. For any Interim Redetermination requested by the Administrative
Agent or the Borrower pursuant to Section 2.07(b), the Borrower shall provide
such Reserve Report with an “as of” date as required by the Administrative Agent
as soon as possible, but in any event no later than thirty (30) days following
the receipt of such request.
          (c) With the delivery of each Reserve Report, the Borrower shall
provide to the Administrative Agent and the Lenders a certificate from a
Responsible Officer certifying that in all material respects: (i) the
information contained in the Reserve Report and any other information delivered
in connection therewith is true and correct in all material respects, (ii) the
Borrower or the Borrower’s Subsidiaries owns good and defensible title to the
Oil and Gas Properties evaluated in such Reserve Report and such Properties are
free of all Liens except for Liens permitted by Section 9.03, (iii) except as
set forth on an exhibit to the certificate, on a net basis there are no gas
imbalances, take or pay or other prepayments in excess of the volume specified
in Section 7.18 with respect to the Oil and Gas Properties evaluated in such
Reserve Report which would require the Borrower or any of the Borrower’s
Subsidiaries to deliver Hydrocarbons either generally or produced from such Oil
and Gas Properties at some future time without then or thereafter receiving full
payment therefor, (iv) none of their Oil and Gas Properties have been sold since
the date of the last Borrowing Base determination except as set forth on an
exhibit to the certificate, which certificate shall list all of its Oil and Gas
Properties sold and in such detail as reasonably required by the Administrative
Agent, (v) attached to the certificate is a list of all marketing agreements
entered into subsequent to the later of the date hereof or the most recently
delivered Reserve Report which the Borrower could reasonably be expected to have
been obligated to list on Schedule 7.19 had such agreement been in effect on the
date hereof and (vi) attached thereto is a schedule of the Oil and Gas
Properties evaluated by such Reserve Report that are Mortgaged Properties and
demonstrating the percentage of the total value of the Oil and Gas Properties
that the value of such Mortgaged Properties represent in compliance with
Section 8.14(a).

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     Section 8.13 Title Information.
          (a) On or before the delivery to the Administrative Agent and the
Lenders of each Reserve Report required by Section 8.12(a), the Borrower will
deliver title information in form and substance acceptable to the Administrative
Agent covering enough of the Oil and Gas Properties evaluated by such Reserve
Report that were not included in the immediately preceding Reserve Report, so
that the Administrative Agent shall have received together with title
information previously delivered to the Administrative Agent, satisfactory title
information on at least 85% of the total value of the proved reserves
attributable to the Oil and Gas Properties evaluated by such Reserve Report.
          (b) If the Borrower has provided title information for additional
Properties under Section 8.13(a), the Borrower shall, within 90 days of notice
from the Administrative Agent that title defects or exceptions exist with
respect to such additional Properties, either (i) cure any such title defects or
exceptions (including defects or exceptions as to priority) which are not
permitted by Section 9.03 raised by such information, (ii) substitute acceptable
Mortgaged Properties with no title defects or exceptions except for Excepted
Liens (other than Excepted Liens described in clauses (e), (g) and (h) of such
definition) having an equivalent value or (iii) deliver title information in
form and substance acceptable to the Administrative Agent so that the
Administrative Agent shall have received, together with title information
previously delivered to the Administrative Agent, satisfactory title information
on at least 85% of the value of the Oil and Gas Properties evaluated by such
Reserve Report.
          (c) If the Borrower is unable to cure any title defect requested by
the Administrative Agent or the Lenders to be cured within the 90-day period or
the Borrower does not comply with the requirements to provide acceptable title
information covering 85% of the value of the Oil and Gas Properties evaluated in
the most recent Reserve Report, such default shall not be a Default, but instead
the Administrative Agent and/or the Required Lenders shall have the right to
exercise the following remedy in their sole discretion from time to time, and
any failure to so exercise this remedy at any time shall not be a waiver as to
future exercise of the remedy by the Administrative Agent or the Lenders. To the
extent that the Administrative Agent or the Required Lenders are not satisfied
with title to any Mortgaged Property after the 90-day period has elapsed, such
unacceptable Mortgaged Property shall not count towards the 85% requirement, and
the Administrative Agent may send a notice to the Borrower and the Lenders that
the then outstanding Borrowing Base shall be reduced by an amount as determined
by the Required Lenders to cause the Borrower to be in compliance with the
requirement to provide acceptable title information on 85% of the value of the
proved reserves attributable to the Oil and Gas Properties. This new Borrowing
Base shall become effective immediately after receipt of such notice.
     Section 8.14 Additional Collateral; Additional Guarantors.
          (a) In connection with each redetermination of the Borrowing Base, the
Borrower shall review the Reserve Report and the list of current Mortgaged
Properties (as described in Section 8.12(c)(vi)) to ascertain whether the
Mortgaged Properties represent at least 85% of the total value of the Oil and
Gas Properties evaluated in the most recently completed Reserve Report after
giving effect to exploration and production activities, acquisitions,

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dispositions and production. In the event that the Mortgaged Properties do not
represent at least 85% of such total value, then the Borrower shall, and shall
cause the Borrower’s Subsidiaries to, grant, within thirty (30) days of delivery
of the certificate required under Section 8.12(c), to the Administrative Agent
as security for the Indebtedness a first-priority Lien interest (provided that
Excepted Liens of the type described in clauses (a) to (d) and (f) of the
definition thereof may exist, but subject to the provisos at the end of such
definition) on additional Oil and Gas Properties not already subject to a Lien
of the Security Instruments such that after giving effect thereto, the Mortgaged
Properties will represent at least 85% of such total value. All such Liens will
be created and perfected by and in accordance with the provisions of deeds of
trust, security agreements and financing statements or other Security
Instruments, all in form and substance reasonably satisfactory to the
Administrative Agent and in sufficient executed (and acknowledged where
necessary or appropriate) counterparts for recording purposes.
          (b) It shall promptly cause each of its Subsidiaries (other than the
Borrower) to guarantee the Indebtedness pursuant to the Guaranty Agreement. The
Parent shall at all times guarantee the Indebtedness pursuant to the Guaranty
Agreement. In connection with any such guaranty, it shall, or shall cause such
Subsidiary to promptly (but with respect to any Subsidiary formed or acquired
after the date hereof, no later than ten (10) days after the date of such
formation or acquisition), (i) execute and deliver the Guaranty Agreement or a
supplement to the Guaranty Agreement as required by the Administrative Agent,
(ii) pledge all of the Equity Interests of such Subsidiary (including, without
limitation, delivery of original certificates evidencing the Equity Interests of
such Subsidiary, together with an appropriate undated stock powers for each
certificate duly executed in blank by the registered owner thereof) and
(iii) execute and deliver such other additional closing documents, certificates
and legal opinions as shall reasonably be requested by the Administrative Agent
in connection with this Section 8.14(b).
     Section 8.15 ERISA Compliance. The Borrower will promptly furnish and will
cause the Borrower’s Subsidiaries and any ERISA Affiliate to promptly furnish to
the Administrative Agent (i) promptly after the filing thereof with the United
States Secretary of Labor or the Internal Revenue Service, copies of each annual
and other report with respect to each Plan or any trust created thereunder, and
(ii) immediately upon becoming aware of the occurrence of any “prohibited
transaction,” as described in section 406 of ERISA or in section 4975 of the
Code, in connection with any Plan or any trust created thereunder, a written
notice signed by the President or the principal Financial Officer, the
Subsidiary or the ERISA Affiliate, as the case may be, specifying the nature
thereof, what action the Borrower, the Borrower’s Subsidiaries or the ERISA
Affiliate is taking or proposes to take with respect thereto, and, when known,
any action taken or proposed by the Internal Revenue Service or the Department
of Labor with respect thereto.
     Section 8.16 Swap Agreements. The Parent or the Borrower shall maintain the
hedge position established by the Swap Agreements identified in the most recent
certificate delivered under Section 8.01(d) during the period specified therein
and shall neither assign, terminate or unwind any such Swap Agreements nor sell
any Swap Agreements if the effect of such action (when taken together with any
other Swap Agreements executed contemporaneously with the taking of such action)
would have the effect of canceling its positions under such Swap Agreements;
provided that the Parent or the Borrower may terminate or otherwise cancel or

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unwind any Swap Agreement if (a) the Parent or the Borrower shall have given
prior written notice to the Administrative Agent of such action, (b) the
economic effect of such Swap Agreement was to increase the Borrowing Base then
in effect, the Required Lenders shall have the right to adjust the Borrowing
Base to reflect such termination and (c) the Borrower shall have (after giving
effect to any termination payments associated with termination) unused
availability under this Agreement of not less than 15% of the then current
Borrowing Base.
     Section 8.17 Marketing Activities. The Borrower will not, and will not
permit any of the Borrower’s Subsidiaries to, engage in marketing activities for
any Hydrocarbons or enter into any contracts related thereto other than
(i) contracts for the sale of Hydrocarbons scheduled or reasonably estimated to
be produced from their proved Oil and Gas Properties during the period of such
contract, (ii) contracts for the sale of Hydrocarbons scheduled or reasonably
estimated to be produced from proved Oil and Gas Properties of third parties
during the period of such contract associated with the Oil and Gas Properties of
the Borrower and the Borrower’s Subsidiaries that the Borrower or one of the
Borrower’s Subsidiaries has the right to market pursuant to joint operating
agreements, unitization agreements or other similar contracts that are usual and
customary in the oil and gas business and (iii) other contracts for the purchase
and/or sale of Hydrocarbons of third parties (A) which have generally offsetting
provisions (i.e. corresponding pricing mechanics, delivery dates and points and
volumes) such that no “position” is taken and (B) for which appropriate credit
support has been taken to alleviate the material credit risks of the
counterparty thereto.
ARTICLE IX
Negative Covenants
     Until the Commitments have expired or terminated and the principal of and
interest on each Loan and all fees payable hereunder and all other amounts
payable under the Loan Documents have been paid in full and all Letters of
Credit have expired or terminated and all LC Disbursements shall have been
reimbursed, the Parent and the Borrower, in each case with respect to itself and
each of its Subsidiaries, each covenants and agrees with the Lenders that:
     Section 9.01 Financial Covenants.
          (a) Ratio of Total Debt to EBITDAX. The Parent will not, at any time,
permit its ratio of Total Debt as of such time to EBITDAX for the four fiscal
quarters ending on the last day of the fiscal quarter immediately preceding the
date of determination for which financial statements are available to be greater
than 3.0 to 1.0.
          (b) Current Ratio. The Parent will not permit, as of the last day of
any fiscal quarter, its ratio of (i) consolidated current assets (including the
unused amount of the total Commitments, but excluding non-cash assets under FAS
133) to (ii) consolidated current liabilities (excluding non-cash obligations
under FAS 133 and FAS 143) to be less than 1.0 to 1.0.

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     Section 9.02 Debt. It will not, and will not permit any of its Subsidiaries
to, incur, create, assume or suffer to exist any Debt, except:
          (a) the Notes or other Indebtedness arising under the Loan Documents
or any guaranty of or suretyship arrangement for the Notes or other Indebtedness
arising under the Loan Documents.
          (b) Debt of the Parent and its Subsidiaries existing on the date
hereof that is reflected in the Financial Statements, and any Permitted
Refinancing Debt in respect thereof.
          (c) accounts payable and accrued expenses, liabilities or other
obligations to pay the deferred purchase price of Property or services, from
time to time incurred in the ordinary course of business which are not greater
than ninety (90) days past the date of invoice or delinquent or which are being
contested in good faith by appropriate action and for which adequate reserves
have been maintained in accordance with GAAP.
          (d) Debt under Capital Leases not to exceed $2,000,000.
          (e) Debt associated with bonds or surety obligations required by
Governmental Requirements in connection with the operation of the Oil and Gas
Properties.
          (f) intercompany Debt between the Parent and any Guarantor or between
Guarantors to the extent permitted by Section 9.05(g); provided that such Debt
is not held, assigned, transferred, negotiated or pledged to any Person other
than the Parent or one of the Guarantors; and, provided further, that any such
Debt owed by either the Borrower or a Guarantor shall be subordinated to the
Indebtedness on terms set forth in the Guaranty Agreement.
          (g) endorsements of negotiable instruments for collection in the
ordinary course of business.
          (h) Debt (i) under the Senior Notes and any guarantees thereof, the
principal amount of which does not exceed $150,000,000 in the aggregate and
(ii) Debt which constitutes Permitted Refinancing Debt of the Senior Notes and
any guarantees thereof.
          (i) Debt incurred to finance premiums for insurance policies required
under Section 7.12.
          (j) other Debt not to exceed $5,000,000 in the aggregate at any one
time outstanding.
     Section 9.03 Liens. It will not, and will not permit any of its
Subsidiaries to, create, incur, assume or permit to exist any Lien on any of its
Properties (now owned or hereafter acquired), except:
          (a) Liens securing the payment of any Indebtedness.
          (b) Excepted Liens.
          (c) Liens securing Capital Leases permitted by Section 9.02(d) but
only on the Property under lease.

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          (d) Liens on any insurance policy or on any prepaid premiums on any
such insurance policy securing Debt related to the payment of insurance premiums
with respect to such insurance policy which Debt is permitted under
Section 9.02(i).
          (e) Liens on Property not constituting collateral for the Indebtedness
and not otherwise permitted by the foregoing clauses of this Section 9.03;
provided that neither (i) the aggregate principal or face amount of all Debt
secured under this Section 9.03(e) nor (ii) the aggregate fair market value
(determined as of the date such Lien is incurred) of the assets subject thereto
(as to the Parent and all Subsidiaries) exceeds $5,000,000 at any one time.
     Section 9.04 Dividends, Distributions and Redemptions; Repayment of Senior
Notes.
          (a) Restricted Payments. The Parent will not, and will not permit any
of its Subsidiaries to, declare or make, or agree to pay or make, directly or
indirectly, any Restricted Payment, return any capital to its Equity Interest
holders or make any distribution of its Property to its Equity Interest holders,
except: (i) the Parent may declare and pay dividends with respect to its Equity
Interests payable solely in additional shares of its Equity Interests (other
than Disqualified Capital Stock), (ii) Subsidiaries of the Borrower may declare
and pay dividends ratably with respect to their Equity Interests, (iii) the
Parent may make Restricted Payments pursuant to and in accordance with stock
option plans or other benefit plans for management or employees of the Parent
and its Subsidiaries, (iv) so long as no Default, Event of Default or Borrowing
Base Deficiency exists, the Borrower may, for any period, declare and pay cash
dividends to the Parent to permit and to pay accrued dividends for such period
on the Convertible Preferred Stock in accordance with the terms of the
certificate of designation as in effect on the Effective Date and (v) so long as
no Default, Event of Default or Borrowing Base Deficiency exists, the Parent
may, for any period, declare and pay cash dividends accrued and payable for such
period on the Convertible Preferred Stock in accordance with the terms of the
certificate of designation as in effect on the Effective Date.
          (b) Redemption of Senior Notes; Amendment of Senior Indenture. It will
not, and will not permit any of its Subsidiaries to, prior to the date that is
ninety-one (91) days after the Maturity Date: (i) call, make or offer to make
any optional or voluntary Redemption of or otherwise optionally or voluntarily
Redeem (whether in whole or in part) the Senior Notes or any Permitted
Refinancing Debt in respect thereof; provided that the Borrower and/or the
Parent may prepay the Senior Notes with the proceeds of any Permitted
Refinancing Debt or with the net cash proceeds of any sale of Equity Interests
(other than Disqualified Capital Stock) of the Parent; or (ii) amend, modify,
waive or otherwise change, consent or agree to any amendment, modification,
waiver or other change to, any of the terms of the Senior Notes, any Permitted
Refinancing Debt or the Senior Indenture if (A) the effect thereof would be to
shorten its maturity or average life or increase the amount of any payment of
principal thereof or increase the rate or shorten any period for payment of
interest thereon or (B) such action requires the payment of a consent fee
(howsoever described); provided that the foregoing shall not prohibit the
execution of other indentures or agreements in connection with the issuance of
Permitted Refinancing Debt or the execution of supplemental indentures to add
guarantors if required by the terms of any Senior Indenture; and, provided
further, such Person complies with Section 8.14(b).

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     Section 9.05 Investments, Loans and Advances. The Borrower will not, and
will not permit any of the Borrower’s Subsidiaries to, make or permit to remain
outstanding any Investments in or to any Person, except that the foregoing
restriction shall not apply to:
          (a) Investments reflected in the Financial Statements or which are
disclosed to the Lenders in Schedule 9.05.
          (b) accounts receivable arising in the ordinary course of business.
          (c) direct obligations of the United States or any agency thereof, or
obligations guaranteed by the United States or any agency thereof, in each case
maturing within one year from the date of creation thereof.
          (d) commercial paper maturing within one year from the date of
creation thereof rated in the highest grade by S&P or Moody’s.
          (e) deposits maturing within one year from the date of creation
thereof with, including certificates of deposit issued by, any Lender or any
office located in the United States of any other bank or trust company which is
organized under the laws of the United States or any state thereof, has capital,
surplus and undivided profits aggregating at least $100,000,000 (as of the date
of such bank or trust company’s most recent financial reports) and has a short
term deposit rating of no lower than A2 or P2, as such rating is set forth from
time to time, by S&P or Moody’s, respectively or, in the case of any Foreign
Subsidiary, a bank organized in a jurisdiction in which the Foreign Subsidiary
conducts operations having assets in excess of $500,000,000 (or its equivalent
in another currency).
          (f) deposits in money market funds investing exclusively in
Investments described in Section 9.05(c), Section 9.05(d) or Section 9.05(e).
          (g) intercompany Investments (i) made by the Borrower in or to any
Person that, prior to such Investment, is a Guarantor and (ii) made by the
Parent or any Subsidiary in or to (A) the Borrower or (B) any Person that, prior
to such Investment, is a Guarantor.
          (h) subject to the limits in Section 9.06, Investments (including,
without limitation, capital contributions) in general or limited partnerships or
other types of entities (each a “venture”) entered into by the Parent or a
Subsidiary with others in the ordinary course of business; provided that (i) any
such venture is engaged exclusively in oil and gas exploration, development,
production, processing and related activities, including transportation,
(ii) the interest in such venture is acquired in the ordinary course of business
and on fair and reasonable terms and (iii) such venture interests acquired and
capital contributions made (valued as of the date such interest was acquired or
the contribution made) do not exceed, in the aggregate at any time outstanding
an amount equal to $5,000,000.
          (i) Investments in direct ownership interests in additional Oil and
Gas Properties and gas gathering systems related thereto or related to farm-out,
farm-in, joint operating, joint venture or area of mutual interest agreements,
gathering systems, pipelines or other similar arrangements which are usual and
customary in the oil and gas exploration and production business located within
the geographic boundaries of the United States of America.

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          (j) loans or advances to employees, officers or directors in the
ordinary course of business of the Parent or any of its Subsidiaries, in each
case only as permitted by applicable law, including Section 402 of the Sarbanes
Oxley Act of 2002, but in any event not to exceed $250,000 in the aggregate at
any time.
          (k) Investments in stock, obligations or securities received in
settlement of debts arising from Investments permitted under this Section 9.05
owing to the Borrower or any of the Borrower’s Subsidiaries as a result of a
bankruptcy or other insolvency proceeding of the obligor in respect of such
debts or upon the enforcement of any Lien in favor of the Borrower or any of the
Borrower’s Subsidiaries; provided that the Borrower shall give the
Administrative Agent prompt written notice in the event that the aggregate
amount of all Investments held at any one time under this Section 9.05(k)
exceeds $2,000,000.
          (l) other Investments not to exceed $2,000,000 in the aggregate at any
time.
     Section 9.06 Nature of Business; International Operations. The Borrower
will not, and will not permit any of the Borrower’s Subsidiaries to, (a) allow
any material change to be made in the character of its business as an
independent oil and gas exploration and production company or (b) acquire or
make any expenditure (whether such expenditure is capital, operating or
otherwise) in or related to, any Oil and Gas Properties not located within the
geographical boundaries of the United States.
     Section 9.07 Limitation on Leases. It will not, and will not permit any of
its Subsidiaries to, create, incur, assume or suffer to exist any obligation for
the payment of rent or hire of Property of any kind whatsoever (real or personal
but excluding Capital Leases and leases of Hydrocarbon Interests), under leases
or lease agreements which would cause the aggregate amount of all payments made
by the Parent and any of its Subsidiaries pursuant to all such leases or lease
agreements, including, without limitation, any residual payments at the end of
any lease, to exceed $2,000,000 in any period of twelve consecutive calendar
months during the life of such leases.
     Section 9.08 Proceeds of Notes. The Borrower will not permit the proceeds
of the Notes to be used for any purpose other than those permitted by
Section 7.21. Neither the Borrower nor any Person acting on behalf of the
Borrower has taken or will take any action which might cause any of the Loan
Documents to violate Regulations T, U or X or any other regulation of the Board
or to violate Section 7 of the Securities Exchange Act of 1934 or any rule or
regulation thereunder, in each case as now in effect or as the same may
hereinafter be in effect. If requested by the Administrative Agent, the Borrower
will furnish to the Administrative Agent and each Lender a statement to the
foregoing effect in conformity with the requirements of FR Form U-1 or such
other form referred to in Regulation U, Regulation T or Regulation X of the
Board, as the case may be.
     Section 9.09 ERISA Compliance. It will not, and will not permit any of its
Subsidiaries to, at any time:
          (a) engage in, or permit any ERISA Affiliate to engage in, any
transaction in connection with which it, any of its Subsidiaries or any ERISA
Affiliate could be subjected to either a civil penalty assessed pursuant to
subsections (c), (i), (l) or (m) of section 502 of ERISA or a tax imposed by
Chapter 43 of Subtitle D of the Code.

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          (b) fail to make, or permit any ERISA Affiliate to fail to make, full
payment when due of all amounts which, under the provisions of any Plan,
agreement relating thereto or applicable law, it, any of its Subsidiaries or any
ERISA Affiliate is required to pay as contributions thereto.
          (c) contribute to or assume an obligation to contribute to, or permit
any ERISA Affiliate to contribute to or assume an obligation to contribute to
(i) any employee welfare benefit plan, as defined in section 3(1) of ERISA,
including, without limitation, any such plan maintained to provide benefits to
former employees of such entities, that may not be terminated by such entities
in their sole discretion at any time without any material liability, or (ii) any
employee pension benefit plan, as defined in section 3(2) of ERISA, that is
subject to Title IV of ERISA, section 302 of ERISA or section 412 of the Code.
     Section 9.10 Sale or Discount of Receivables. Except for receivables
obtained by the Borrower or any of the Borrower’s Subsidiaries out of the
ordinary course of business or the settlement of joint interest billing accounts
in the ordinary course of business or discounts granted to settle collection of
accounts receivable or the sale of defaulted accounts arising in the ordinary
course of business in connection with the compromise or collection thereof and
not in connection with any financing transaction, the Borrower will not, and
will not permit any of the Borrower’s Subsidiaries to, discount or sell (with or
without recourse) any of its notes receivable or accounts receivable.
     Section 9.11 Mergers, Etc. It will not, and it will not permit any of its
Subsidiaries to, merge into or with or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (whether in one transaction or in a series of
transactions) all or substantially all of its Property to any other Person
(whether now owned or hereafter acquired), or liquidate or dissolve; except that
so long as no Default has occurred and is continuing at such time or would exist
after giving effect thereto: (i) the Borrower may merge with any Wholly-owned
Subsidiary so long as the Borrower is the surviving Person, (ii) any Guarantor
may merge with any other Guarantor; provided that if a Guarantor merges with the
Parent, the Parent is the surviving Person.
     Section 9.12 Sale of Properties. The Borrower will not, and will not permit
any of the Borrower’s Subsidiaries to, sell, assign, farm-out, convey or
otherwise transfer any Property except for (a) the sale of Hydrocarbons in the
ordinary course of business; (b) transfers of interests in Oil and Gas
Properties in the ordinary course of the joint development of Oil and Gas
Properties with others, including without limitation transfers to other parties
pursuant to joint development agreements, participation agreements, farmout
agreements, farmin agreements, exploration agreements, operating agreements and
unit agreements;(c) the sale or transfer of equipment that is no longer
necessary for the business of it or such Subsidiary or is replaced by equipment
of at least comparable value and use; (d) the sale or other disposition
(including Casualty Events) of any Oil and Gas Property or any interest therein
or any of its Subsidiaries (other than the Borrower) owning Oil and Gas
Properties; provided that with respect to this clause (d), (i) 100% of the
consideration received in respect of such sale or other disposition shall

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be cash, (ii) the consideration received in respect of such sale or other
disposition shall be equal to or greater than the fair market value of the Oil
and Gas Property, interest therein or Subsidiary subject of such sale or other
disposition (as reasonably determined by its board of directors and, if
requested by the Administrative Agent, the Borrower shall deliver a certificate
of its Responsible Officer certifying to that effect), (iii) if such sale or
other disposition of Oil and Gas Property or Subsidiary owning Oil and Gas
Properties under this clause (d) (together with any transfers or dispositions
under clause (b)) included in the most recently delivered Reserve Report during
any period between two successive Scheduled Redetermination Dates has a fair
market value in excess of five percent (5%) of the Borrowing Base as then in
effect (as determined by the Administrative Agent), individually or in the
aggregate, the Borrowing Base shall be reduced, effective immediately upon such
sale or disposition, by an amount equal to the value, if any, attributed to such
Property in the Borrowing Base based on the most recently delivered Reserve
Report and (iv) if any such sale or other disposition is of a Subsidiary owning
Oil and Gas Properties, such sale or other disposition shall include all the
Equity Interests of such Subsidiary; and (e) sales and other dispositions of
Properties not regulated by Section 9.12(a) to (d) having a fair market value
not to exceed $1,000,000 during any 12-month period; and (f) sales of the
Oklahoma Gas Gathering Assets.
     Section 9.13 Environmental Matters. It will not, and will not permit any of
its Subsidiaries to, cause or permit any of its Property to be in violation of,
or do anything or permit anything to be done which will subject any such
Property to a Release or threatened Release of Hazardous Materials, exposure to
any Hazardous Materials, or to any Remedial Work under any Environmental Laws,
assuming disclosure to the applicable Governmental Authority of all relevant
facts, conditions and circumstances, if any, pertaining to such Property where
such violations, Release or threatened Release, exposure, or Remedial work could
reasonably be expected to have a Material Adverse Effect.
     Section 9.14 Transactions with Affiliates. It will not, and will not permit
any of its Subsidiaries to, enter into any transaction, including, without
limitation, any purchase, sale, lease or exchange of Property or the rendering
of any service, with any Affiliate (other than with any Guarantor and the
Borrower) unless such transactions are otherwise permitted under this Agreement
and are upon fair and reasonable terms no less favorable to it than it would
obtain in a comparable arm’s length transaction with a Person not an Affiliate.
     Section 9.15 Subsidiaries. It will not, and will not permit any of its
Subsidiaries to, create or acquire any additional Subsidiary unless it gives
written notice to the Administrative Agent of such creation or acquisition and
complies with Section 8.14(b). It will not, and will not permit any of its
Subsidiaries to, sell, assign or otherwise dispose of any Equity Interests in
any Subsidiary except in compliance with Section 9.12(d). It will not, and will
not permit any of its Subsidiaries to, have any Subsidiaries that are not
Wholly-owned Subsidiaries or have any Foreign Subsidiaries.
     Section 9.16 Negative Pledge Agreements; Dividend Restrictions. It will
not, and will not permit any of its Subsidiaries to, create, incur, assume or
suffer to exist any contract, agreement or understanding (other than this
Agreement, the Security Instruments or Capital Leases creating Liens permitted
by Section 9.03(c)) which in any way prohibits or restricts the granting,
conveying, creation or imposition of any Lien on any of its Property in favor of
the

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Administrative Agent and the Lenders or restricts any Subsidiary from paying
dividends or making distributions to the Borrower or any Guarantor, or which
requires the consent of or notice to other Persons in connection therewith.
     Section 9.17 Gas Imbalances, Take-or-Pay or Other Prepayments. It will not,
and will not permit any of its Subsidiaries to, allow gas imbalances (except
those arising out of a third party’s election not to take its share of gas),
take-or-pay or other prepayments with respect to the Oil and Gas Properties of
it or any of its Subsidiaries that would require it or such Subsidiary to
deliver Hydrocarbons at some future time without then or thereafter receiving
full payment therefor to exceed one half bcf of gas (on an mcf equivalent basis)
in the aggregate.
     Section 9.18 Swap Agreements. It will not, and will not permit any of its
Subsidiaries to, enter into any Swap Agreements with any Person other than
(a) Swap Agreements in respect of commodities (i) with an Approved Counterparty
and (ii) the notional volumes for which (when aggregated with other commodity
Swap Agreements then in effect other than basis differential swaps on volumes
already hedged pursuant to other Swap Agreements) do not exceed, as of the date
such Swap Agreement is executed and for the period of 18 months thereafter, 100%
of the reasonably anticipated projected production from proved, developed,
producing Oil and Gas Properties for each month during such period, for each
month from the nineteenth month through the thirty-sixth month during which such
Swap Agreement is in effect, 85% of the reasonably anticipated projected
production from proved, developed, producing Oil and Gas Properties and no such
Swap Agreement shall have a tenor longer than 36 months, and (b) Swap Agreements
in respect of interest rates with an Approved Counterparty, as follows: (i) Swap
Agreements effectively converting interest rates from fixed to floating, the
notional amounts of which (when aggregated with all other Swap Agreements of the
Parent and its Subsidiaries then in effect effectively converting interest rates
from fixed to floating) do not exceed 50% of the then outstanding principal
amount of the Parent’s and its Subsidiaries’ Debt for borrowed money which bears
interest at a fixed rate and (ii) Swap Agreements effectively converting
interest rates from floating to fixed, the notional amounts of which (when
aggregated with all other Swap Agreements of the Parent and its Subsidiaries
then in effect effectively converting interest rates from floating to fixed) do
not exceed 75% of the then outstanding principal amount of the Parent’s and its
Subsidiaries’ Debt for borrowed money which bears interest at a floating rate.
In no event shall any Swap Agreement contain any requirement, agreement or
covenant for it or any of its Subsidiaries to post collateral or margin to
secure their obligations under such Swap Agreement or to cover market exposures.
     Section 9.19 Holding Company. The Parent covenants and agrees with the
Administrative Agent and the Lenders that:
          (a) The Parent shall not conduct or otherwise engage in any business
or operations other than (i) transactions contemplated by the Loan Documents or
the provision of administrative, legal, accounting and management services to or
on behalf of the Borrower or any of its Subsidiaries and Excluded Subsidiaries,
(ii) the ownership of the equity interests of the Borrower and the Excluded
Subsidiaries and the exercise of rights and performance of obligations
(including entering into guarantees of any such obligations subject to
Section 9.05) in connection therewith, (iii) the entry into, and exercise of
rights and performance of obligations in respect of, (1) this Agreement and the
other Loan Documents to which the Parent is a party, and

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any other agreement to which the Parent is a party on the date hereof, in each
case as amended, supplemented, waived or otherwise modified from time to time,
and any refinancings, refundings, renewals or extensions thereof, (2) contracts
and agreements with officers, directors and employees of the Parent or the
Borrower relating to their employment or directorships, (3) insurance policies
and related contracts and agreements, and (4) equity subscription agreements,
registration rights agreements, voting and other stockholder agreements,
engagement letters, underwriting agreements and other agreements in respect of
its debt and equity securities or any offering, issuance or sale thereof,
(iv) the offering, issuance and sale of its debt and equity securities, (v) the
filing of registration statements, and compliance with applicable reporting and
other obligations, under federal, state or other securities laws, (vi) the
listing of its debt and equity securities and compliance with applicable
reporting and other obligations in connection therewith, (vii) the retention of
transfer agents, private placement agents, underwriters, counsel, accountants
and other advisors and consultants, (viii) the performance of obligations under
and compliance with the Parent’s organic documents, or any applicable law,
ordinance, regulation, rule, order, judgment, decree or permit, including,
without limitation, as a result of or in connection with the activities of the
Borrower and its Subsidiaries, (ix) the incurrence and payment of its operating
and business expenses and any taxes for which it may be liable, and (x) other
activities incidental or related to the foregoing.
          (b) The Parent shall not own, lease, manage or otherwise operate any
properties or assets (other than in connection with the activities described in
Section 9.19(a)), or incur, create, assume or suffer to exist any Indebtedness
of the Parent (other than such as may be incurred, created or assumed or exist
in connection with the activities described in Section 9.19(a)).
ARTICLE X
Events of Default; Remedies
     Section 10.01 Events of Default. One or more of the following events shall
constitute an “Event of Default”:
          (a) the Borrower shall fail to pay any principal of any Loan or any
reimbursement obligation in respect of any LC Disbursement when and as the same
shall become due and payable, whether at the due date thereof or at a date fixed
for prepayment thereof, by acceleration or otherwise.
          (b) the Borrower shall fail to pay any interest on any Loan or any fee
or any other amount (other than an amount referred to in Section 10.01(a))
payable under any Loan Document, when and as the same shall become due and
payable, and such failure shall continue unremedied for a period of three
(3) Business Days.
          (c) any representation or warranty made or deemed made by or on behalf
of the Parent, the Borrower or any Subsidiary in or in connection with any Loan
Document or any amendment or modification of any Loan Document or waiver under
such Loan Document, or in any report, certificate, financial statement or other
document furnished pursuant to or in connection with any Loan Document or any
amendment or modification thereof or waiver thereunder, shall prove to have been
materially incorrect when made or deemed made.

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          (d) the Parent, the Borrower or any Subsidiary shall fail to observe
or perform any covenant, condition or agreement contained in Section 8.01(h),
Section 8.01(m), Section 8.02, Section 8.03, Section 8.14, Section 8.15 or in
Article IX.
          (e) the Parent, the Borrower or any Subsidiary shall fail to observe
or perform any covenant, condition or agreement contained in this Agreement
(other than those specified in Section 10.01(a), Section 10.01(b),
Section 10.01(c) or Section 10.01(d)) or any other Loan Document, and such
failure shall continue unremedied for a period of 30 days after the earlier to
occur of (A) notice thereof from the Administrative Agent to the Borrower (which
notice will be given at the request of any Lender) or (B) a Responsible Officer
of the Parent, the Borrower or such Subsidiary otherwise becoming aware of such
default.
          (f) the Parent, the Borrower or any Subsidiary shall fail to make any
payment (whether of principal or interest and regardless of amount) in respect
of any Material Indebtedness, when and as the same shall become due and payable.
          (g) any event or condition occurs that results in any Material
Indebtedness becoming due prior to its scheduled maturity or that enables or
permits (with or without the giving of notice, the lapse of time or both) the
holder or holders of any Material Indebtedness or any trustee or agent on its or
their behalf to cause any Material Indebtedness to become due, or to require the
Redemption thereof or any offer to Redeem to be made in respect thereof, prior
to its scheduled maturity or require the Parent, the Borrower or any Subsidiary
to make an offer in respect thereof.
          (h) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed seeking (i) liquidation, reorganization or other relief
in respect of the Parent, the Borrower or any Subsidiary or its or their debts,
or of a substantial part of its assets, under any Federal, state or foreign
bankruptcy, insolvency, receivership or similar law now or hereafter in effect
or (ii) the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Parent, the Borrower or any Subsidiary
or for a substantial part of its or their assets, and, in any such case, such
proceeding or petition shall continue undismissed for thirty (30) days or an
order or decree approving or ordering any of the foregoing shall be entered.
          (i) the Parent, the Borrower or any Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking liquidation, reorganization
or other relief under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect, (ii) consent to the
institution of, or fail to contest in a timely and appropriate manner, any
proceeding or petition described in Section 10.01(h), (iii) apply for or consent
to the appointment of a receiver, trustee, custodian, sequestrator, conservator
or similar official for the Parent, the Borrower or any Subsidiary or for a
substantial part of its or their assets, (iv) file an answer admitting the
material allegations of a petition filed against it or them in any such
proceeding, (v) make a general assignment for the benefit of creditors or
(vi) take any action for the purpose of effecting any of the foregoing.
          (j) the Parent, the Borrower or any Subsidiary shall become unable,
admit in writing its inability or fail generally to pay its debts as they become
due.

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          (k) (i) one or more judgments for the payment of money in an aggregate
amount in excess of $5,000,000 (to the extent not covered by independent third
party insurance provided by insurers of the highest claims paying rating or
financial strength as to which the insurer does not dispute coverage and is not
subject to an insolvency proceeding) or (ii) any one or more non-monetary
judgments that have, or could reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect, shall be rendered against the Parent,
the Borrower, any Subsidiary or any combination thereof and the same shall
remain undischarged for a period of 30 consecutive days during which execution
shall not be effectively stayed, or any action shall be legally taken by a
judgment creditor to attach or levy upon any assets of the Parent, the Borrower
or any Subsidiary to enforce any such judgment.
          (l) the Loan Documents after delivery thereof shall for any reason,
except to the extent permitted by the terms thereof, cease to be in full force
and effect and valid, binding and enforceable in accordance with their terms
against the Borrower or a Guarantor party thereto or shall be repudiated by any
of them, or cease to create a valid and perfected Lien of the priority required
thereby on any of the collateral purported to be covered thereby, except to the
extent permitted by the terms of this Agreement, or the Parent, the Borrower or
any Subsidiary or any of their Affiliates shall so state in writing.
          (m) a Change in Control shall occur.
     Section 10.02 Remedies.
          (a) In the case of an Event of Default other than one described in
Section 10.01(g), Section 10.01(h) or Section 10.01(i), at any time thereafter
during the continuance of such Event of Default, the Administrative Agent may,
and at the request of the Required Lenders, shall, by notice to the Borrower,
take either or both of the following actions, at the same or different times:
(i) terminate the Commitments, and thereupon the Commitments shall terminate
immediately, and (ii) declare the Loans then outstanding to be due and payable
in whole (or in part, in which case any principal not so declared to be due and
payable may thereafter be declared to be due and payable), and thereupon the
principal of the Loans so declared to be due and payable, together with accrued
interest thereon and all fees and other obligations of the Borrower and the
Guarantors accrued hereunder and under the Notes and the other Loan Documents
(including, without limitation, the payment of cash collateral to secure the LC
Exposure as provided in Section 2.08(j)), shall become due and payable
immediately, without presentment, demand, protest, notice of intent to
accelerate, notice of acceleration or other notice of any kind, all of which are
hereby waived by the Borrower and each Guarantor; and in case of an Event of
Default described in Section 10.01(h), Section 10.01(i) or Section 10.01(j), the
Commitments shall automatically terminate and the Notes and the principal of the
Loans then outstanding, together with accrued interest thereon and all fees and
the other obligations of the Borrower and the Guarantors accrued hereunder and
under the Notes and the other Loan Documents (including, without limitation, the
payment of cash collateral to secure the LC Exposure as provided in
Section 2.08(j)), shall automatically become due and payable, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower and each Guarantor.

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          (b) In the case of the occurrence of an Event of Default, the
Administrative Agent and the Lenders will have all other rights and remedies
available at law and equity.
          (c) All proceeds realized from the liquidation or other disposition of
collateral or otherwise received after maturity of the Notes, whether by
acceleration or otherwise, shall be applied:
               (i) first, to payment or reimbursement of that portion of the
Indebtedness constituting fees, expenses and indemnities payable to the
Administrative Agent in its capacity as such;
               (ii) second, pro rata to payment or reimbursement of that portion
of the Indebtedness constituting fees, expenses and indemnities payable to the
Lenders;
               (iii) third, pro rata to payment of accrued interest on the
Loans;
               (iv) fourth, pro rata to payment of principal outstanding on the
Loans and Indebtedness referred to in Clause (b) of the definition of
Indebtedness owing to a Lender or an Affiliate of a Lender and to serve as cash
collateral to be held by the Administrative Agent to secure the LC Exposure;
               (v) fifth, pro rata to any other Indebtedness; and
               (vi) sixth, any excess, after all of the Indebtedness shall have
been indefeasibly paid in full in cash, shall be paid to the Borrower or as
otherwise required by any Governmental Requirement.
ARTICLE XI
The Agents
     Section 11.01 Appointment; Powers. Each of the Lenders and the Issuing Bank
hereby irrevocably appoints the Administrative Agent as its agent and authorizes
the Administrative Agent to take such actions on its behalf and to exercise such
powers as are delegated to the Administrative Agent by the terms hereof and the
other Loan Documents, together with such actions and powers as are reasonably
incidental thereto.
     Section 11.02 Duties and Obligations of Administrative Agent. The
Administrative Agent shall not have any duties or obligations except those
expressly set forth in the Loan Documents. Without limiting the generality of
the foregoing, (a) the Administrative Agent shall not be subject to any
fiduciary or other implied duties, regardless of whether a Default has occurred
and is continuing (the use of the term “agent” herein and in the other Loan
Documents with reference to the Administrative Agent is not intended to connote
any fiduciary or other implied (or express) obligations arising under agency
doctrine of any applicable law; rather, such term is used merely as a matter of
market custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties), (b) the Administrative
Agent shall have no duty to take any discretionary action or exercise any
discretionary powers, except as provided in Section 11.03, and (c) except as
expressly set forth herein, the Administrative Agent shall not have any duty to
disclose, and shall not be liable for the failure to

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disclose, any information relating to the Parent, the Borrower or any of their
Subsidiaries that is communicated to or obtained by the bank serving as
Administrative Agent or any of its Affiliates in any capacity. The
Administrative Agent shall be deemed not to have knowledge of any Default unless
and until written notice thereof is given to the Administrative Agent by the
Parent, the Borrower or a Lender, and shall not be responsible for or have any
duty to ascertain or inquire into (i) any statement, warranty or representation
made in or in connection with this Agreement or any other Loan Document,
(ii) the contents of any certificate, report or other document delivered
hereunder or under any other Loan Document or in connection herewith or
therewith, (iii) the performance or observance of any of the covenants,
agreements or other terms or conditions set forth herein or in any other Loan
Document, (iv) the validity, enforceability, effectiveness or genuineness of
this Agreement, any other Loan Document or any other agreement, instrument or
document, (v) the satisfaction of any condition set forth in Article VI or
elsewhere herein, other than to confirm receipt of items expressly required to
be delivered to the Administrative Agent or as to those conditions precedent
expressly required to be to the Administrative Agent’s satisfaction, (vi) the
existence, value, perfection or priority of any collateral security or the
financial or other condition of the Parent, the Borrower and each of their
Subsidiaries or any other obligor or guarantor, or (vii) any failure by the
Parent or the Borrower or any other Person (other than itself) to perform any of
its obligations hereunder or under any other Loan Document or the performance or
observance of any covenants, agreements or other terms or conditions set forth
herein or therein. For purposes of determining compliance with the conditions
specified in Article VI, each Lender shall be deemed to have consented to,
approved or accepted or to be satisfied with, each document or other matter
required thereunder to be consented to or approved by or acceptable or
satisfactory to a Lender unless the Administrative Agent shall have received
written notice from such Lender prior to the proposed closing date specifying
its objection thereto.
     Section 11.03 Action by Administrative Agent. The Administrative Agent
shall have no duty to take any discretionary action or exercise any
discretionary powers, except discretionary rights and powers expressly
contemplated hereby or by the other Loan Documents that the Administrative Agent
is required to exercise in writing as directed by the Required Lenders (or such
other number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 12.02) and in all cases the Administrative
Agent shall be fully justified in failing or refusing to act hereunder or under
any other Loan Documents unless it shall (a) receive written instructions from
the Required Lenders or the Lenders, as applicable, (or such other number or
percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 12.02) specifying the action to be taken and (b) be
indemnified to its satisfaction by the Lenders against any and all liability and
expenses which may be incurred by it by reason of taking or continuing to take
any such action. The instructions as aforesaid and any action taken or failure
to act pursuant thereto by the Administrative Agent shall be binding on all of
the Lenders. If a Default has occurred and is continuing, then the
Administrative Agent shall take such action with respect to such Default as
shall be directed by the requisite Lenders in the written instructions (with
indemnities) described in this Section 11.03; provided that, unless and until
the Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default as it shall deem advisable in
the best interests of the Lenders. In no event, however, shall the
Administrative Agent be required to take any action which exposes the
Administrative Agent to personal liability or which is contrary to this
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applicable law. If a Default has occurred and is continuing, neither the
Syndication Agent nor the Documentation Agent shall have any obligation to
perform any act in respect thereof. The Administrative Agent shall not be liable
for any action taken or not taken by it with the consent or at the request of
the Required Lenders or the Lenders (or such other number or percentage of the
Lenders as shall be necessary under the circumstances as provided in
Section 12.02), and otherwise the Administrative Agent shall not be liable for
any action taken or not taken by it hereunder or under any other Loan Document
or under any other document or instrument referred to or provided for herein or
therein or in connection herewith or therewith INCLUDING ITS OWN ORDINARY
NEGLIGENCE, except for its own gross negligence or willful misconduct.
     Section 11.04 Reliance by Administrative Agent. The Administrative Agent
shall be entitled to rely upon, and shall not incur any liability for relying
upon, any notice, request, certificate, consent, statement, instrument, document
or other writing believed by it to be genuine and to have been signed or sent by
the proper Person. The Administrative Agent also may rely upon any statement
made to it orally or by telephone and believed by it to be made by the proper
Person, and shall not incur any liability for relying thereon and each of the
Parent, the Borrower, the Lenders and the Issuing Bank hereby waives the right
to dispute the Administrative Agent’s record of such statement, except in the
case of gross negligence or willful misconduct by the Administrative Agent. The
Administrative Agent may consult with legal counsel (who may be counsel for the
Parent and/or the Borrower), independent accountants and other experts selected
by it, and shall not be liable for any action taken or not taken by it in
accordance with the advice of any such counsel, accountants or experts. The
Administrative Agent may deem and treat the payee of any Note as the holder
thereof for all purposes hereof unless and until a written notice of the
assignment or transfer thereof permitted hereunder shall have been filed with
the Administrative Agent.
     Section 11.05 Subagents. The Administrative Agent may perform any and all
its duties and exercise its rights and powers by or through any one or more
sub-agents appointed by the Administrative Agent. The Administrative Agent and
any such sub-agent may perform any and all its duties and exercise its rights
and powers through their respective Related Parties. The exculpatory provisions
of the preceding Sections of this Article XI shall apply to any such sub-agent
and to the Related Parties of the Administrative Agent and any such sub-agent,
and shall apply to their respective activities in connection with the
syndication of the credit facilities provided for herein as well as activities
as Administrative Agent.
     Section 11.06 Resignation or Removal of Administrative Agent. Subject to
the appointment and acceptance of a successor Administrative Agent as provided
in this Section 11.06, the Administrative Agent may resign at any time by
notifying the Lenders, the Issuing Bank and the Borrower, and the Administrative
Agent may be removed at any time with or without cause by the Required Lenders.
Upon any such resignation or removal, the Required Lenders shall have the right,
in consultation with the Borrower, to appoint a successor. If no successor shall
have been so appointed by the Required Lenders and shall have accepted such
appointment within 30 days after the retiring Agent gives notice of its
resignation or removal of the retiring Agent, then the retiring Agent may, on
behalf of the Lenders and the Issuing Bank, appoint a successor Agent which
shall be a bank with an office in New York, New York, or an Affiliate of any
such bank. Upon the acceptance of its appointment as Agent hereunder by a

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successor, such successor shall succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder. The fees
payable by the Borrower to a successor Agent shall be the same as those payable
to its predecessor unless otherwise agreed between the Borrower and such
successor. After the Agent’s resignation hereunder, the provisions of this
Article XI and Section 12.03 shall continue in effect for the benefit of such
retiring Agent, its sub-agents and their respective Related Parties in respect
of any actions taken or omitted to be taken by any of them while it was acting
as Agent.
     Section 11.07 Agents as Lenders. Each bank serving as an Agent hereunder
shall have the same rights and powers in its capacity as a Lender as any other
Lender and may exercise the same as though it were not an Agent, and such bank
and its Affiliates may accept deposits from, lend money to and generally engage
in any kind of business with the Parent, the Borrower or any Subsidiary or other
Affiliate thereof as if it were not an Agent hereunder.
     Section 11.08 No Reliance. Each Lender acknowledges that it has,
independently and without reliance upon the Administrative Agent, any other
Agent or any other Lender and based on such documents and information as it has
deemed appropriate, made its own credit analysis and decision to enter into this
Agreement and each other Loan Document to which it is a party. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent, any other Agent or any other Lender and based on such
documents and information as it shall from time to time deem appropriate,
continue to make its own decisions in taking or not taking action under or based
upon this Agreement, any other Loan Document, any related agreement or any
document furnished hereunder or thereunder. The Agents shall not be required to
keep themselves informed as to the performance or observance by the Parent, the
Borrower or any of their Subsidiaries of this Agreement, the Loan Documents or
any other document referred to or provided for herein or to inspect the
Properties or books of the Parent, the Borrower or any of their Subsidiaries.
Except for notices, reports and other documents and information expressly
required to be furnished to the Lenders by the Administrative Agent hereunder,
no Agent or any Arranger shall have any duty or responsibility to provide any
Lender with any credit or other information concerning the affairs, financial
condition or business of the Parent or the Borrower (or any of their Affiliates)
which may come into the possession of such Agent or any of its Affiliates. In
this regard, each Lender acknowledges that Vinson & Elkins LLP is acting in this
transaction as special counsel to the Administrative Agent only, except to the
extent otherwise expressly stated in any legal opinion or any Loan Document.
Each other party hereto will consult with its own legal counsel to the extent
that it deems necessary in connection with the Loan Documents and the matters
contemplated therein.
     Section 11.09 Administrative Agent May File Proofs of Claim. In case of the
pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to the Parent, the Borrower or any of their Subsidiaries,
the Administrative Agent (irrespective of whether the principal of any Loan
shall then be due and payable as herein expressed or by declaration or otherwise
and irrespective of whether the Administrative Agent shall have made any demand
on the Parent or the Borrower) shall be entitled and empowered, by intervention
in such proceeding or otherwise:

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          (a) to file and prove a claim for the whole amount of the principal
and interest owing and unpaid in respect of the Loans and all other Indebtedness
that are owing and unpaid and to file such other documents as may be necessary
or advisable in order to have the claims of the Lenders and the Administrative
Agent (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Lenders and the Administrative Agent and their
respective agents and counsel and all other amounts due the Lenders and the
Administrative Agent under Section 12.03) allowed in such judicial proceeding;
and
          (b) to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Lender to make such payments to the Administrative Agent and, in the event
that the Administrative Agent shall consent to the making of such payments
directly to the Lenders, to pay to the Administrative Agent any amount due for
the reasonable compensation, expenses, disbursements and advances of the
Administrative Agent and its agents and counsel, and any other amounts due the
Administrative Agent under Section 12.03.
Nothing contained herein shall be deemed to authorize the Administrative Agent
to authorize or consent to or accept or adopt on behalf of any Lender any plan
of reorganization, arrangement, adjustment or composition affecting the
Indebtedness or the rights of any Lender or to authorize the Administrative
Agent to vote in respect of the claim of any Lender in any such proceeding.
     Section 11.10 Authority of Administrative Agent to Release Collateral and
Liens. Each Lender and the Issuing Bank hereby authorizes the Administrative
Agent to release any collateral that is permitted to be sold or released
pursuant to the terms of the Loan Documents. Each Lender and the Issuing Bank
hereby authorizes the Administrative Agent to execute and deliver to the
Borrower, at the Borrower’s sole cost and expense, any and all releases of
Liens, termination statements, assignments or other documents reasonably
requested by the Borrower in connection with any sale or other disposition of
Property to the extent such sale or other disposition is permitted by the terms
of Section 9.12 or is otherwise authorized by the terms of the Loan Documents.
     Section 11.11 The Arrangers, the Syndication Agent and the Documentation
Agent. None of the Arrangers, the Syndication Agent or the Documentation Agent
shall have any duties, responsibilities or liabilities under this Agreement and
the other Loan Documents other than their duties, responsibilities and
liabilities in their capacity as Lenders hereunder.
ARTICLE XII
Miscellaneous
     Section 12.01 Notices.
          (a) Except in the case of notices and other communications expressly
permitted to be given by telephone (and subject to Section 12.01(b)), all
notices and other communications provided for herein shall be in writing and
shall be delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:

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               (i) if to the Parent, to PetroQuest Energy, Inc., 400 E. Kaliste
Saloom Road, Suite 6000, Lafayette, Louisiana, 70508, Attention of W. Todd
Zehnder, Executive Vice President, Chief Financial Officer and Treasurer
(Telecopy No. (337) 232-0044);
               (ii) if to the Borrower, to PetroQuest Energy, L.L.C., 400 E.
Kaliste Saloom Road, Suite 6000, Lafayette, Louisiana, 70508, Attention of W.
Todd Zehnder, Executive Vice President, Chief Financial Officer & Treasurer
(Telecopy No. (337) 232-0044);
               (iii) if to the Administrative Agent or to JPMorgan Chase Bank,
N.A., as the Issuing Bank, to JPMorgan Chase Bank, N.A., Mid-Corp Loan
Administration, 10 South Dearborn, Floor 07, Chicago, IL 60603-2003, Attention
of Teresita R. Siao (Facsimile No. 312-385-7096), with a copy to JPMorgan Chase
Bank, N.A., 712 Main Street, Floor 8 South, Houston, TX 77002, Attention of Jo
Linda Papadakis (Facsimile No. 713-216-7770); and
               (iv) if to any other Lender, to it at its address (or telecopy
number) set forth in its Administrative Questionnaire.
          (b) Notices and other communications to the Lenders hereunder may be
delivered or furnished by electronic communications pursuant to procedures
approved by the Administrative Agent; provided that the foregoing shall not
apply to notices pursuant to Article II, Article III, Article IV and Article V
unless otherwise agreed by the Administrative Agent and the applicable Lender.
The Administrative Agent, the Parent or the Borrower may, in its discretion,
agree to accept notices and other communications to it hereunder by electronic
communications pursuant to procedures approved by it; provided that approval of
such procedures may be limited to particular notices or communications.
          (c) Any party hereto may change its address or telecopy number for
notices and other communications hereunder by notice to the other parties
hereto. All notices and other communications given to any party hereto in
accordance with the provisions of this Agreement shall be deemed to have been
given on the date of receipt.
     Section 12.02 Waivers; Amendments.
          (a) No failure on the part of the Administrative Agent, any other
Agent, the Issuing Bank or any Lender to exercise and no delay in exercising,
and no course of dealing with respect to, any right, power or privilege, or any
abandonment or discontinuance of steps to enforce such right, power or
privilege, under any of the Loan Documents shall operate as a waiver thereof,
nor shall any single or partial exercise of any right, power or privilege under
any of the Loan Documents preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies of the
Administrative Agent, any other Agent, the Issuing Bank and the Lenders
hereunder and under the other Loan Documents are cumulative and are not
exclusive of any rights or remedies that they would otherwise have. No waiver of
any provision of this Agreement or any other Loan Document or consent to any
departure by the Parent or the Borrower therefrom shall in any event be
effective unless the same shall be permitted by Section 12.02(b), and then such
waiver or consent shall be effective only in the specific instance and for the
purpose for which given. Without limiting the generality of the foregoing, the
making of a Loan or issuance of a Letter of Credit shall not be construed as a
waiver of any Default, regardless of whether the Administrative Agent, any other
Agent, any Lender or the Issuing Bank may have had notice or knowledge of such
Default at the time.

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          (b) Neither this Agreement nor any provision hereof nor any Security
Instrument nor any provision thereof may be waived, amended or modified except
pursuant to an agreement or agreements in writing entered into by the Parent,
the Borrower and the Required Lenders or by the Parent, the Borrower and the
Administrative Agent with the consent of the Required Lenders; provided that no
such agreement shall (i) increase the Commitment or the Maximum Credit Amount of
any Lender without the written consent of such Lender, (ii) increase the
Borrowing Base without the written consent of each Lender (other than Defaulting
Lenders), decrease or maintain the Borrowing Base without the consent of the
Required Lenders, or modify Section 2.07 in any manner without the consent of
each Lender (other than Defaulting Lenders), (iii) reduce the principal amount
of any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce
any fees payable hereunder, or reduce any other Indebtedness hereunder or under
any other Loan Document, without the written consent of each Lender affected
thereby, (iv) postpone the scheduled date of payment or prepayment of the
principal amount of any Loan or LC Disbursement, or any interest thereon, or any
fees payable hereunder, or any other Indebtedness hereunder or under any other
Loan Document, or reduce the amount of, waive or excuse any such payment, or
postpone or extend the Termination Date without the written consent of each
Lender affected thereby, (v) change Section 4.01(b) or Section 4.01(c) in a
manner that would alter the pro rata sharing of payments required thereby,
without the written consent of each Lender, (vi) waive or amend Section 3.04(b),
Section 6.01, Section 8.14, Section 10.02(c) or Section 12.14 or change the
definition of the terms “Domestic Subsidiary”, “Foreign Subsidiary” or
“Subsidiary”, without the written consent of each Lender (other than Defaulting
Lenders), (vii) release any Guarantor (except as set forth in the Guaranty
Agreement), release any of the collateral (other than as provided in
Section 11.10), or reduce the percentage set forth in Section 8.14(a) to less
than 85%, without the written consent of each Lender (other than Defaulting
Lenders), or (viii) change any of the provisions of this Section 12.02(b) or the
definitions of “Required Lenders” or any other provision hereof specifying the
number or percentage of Lenders required to waive, amend or modify any rights
hereunder or under any other Loan Documents or make any determination or grant
any consent hereunder or any other Loan Documents, without the written consent
of each Lender (other than Defaulting Lenders); provided further that no such
agreement shall amend, modify or otherwise affect the rights or duties of the
Administrative Agent, any other Agent, or the Issuing Bank hereunder or under
any other Loan Document without the prior written consent of the Administrative
Agent, such other Agent or the Issuing Bank, as the case may be. Notwithstanding
the foregoing, any supplement to Schedule 7.14 (Subsidiaries) shall be effective
simply by delivering to the Administrative Agent a supplemental schedule clearly
marked as such and, upon receipt, the Administrative Agent will promptly deliver
a copy thereof to the Lenders.
     Section 12.03 Expenses, Indemnity; Damage Waiver.
          (a) The Borrower shall pay (i) all reasonable out-of-pocket expenses
incurred by the Administrative Agent and its Affiliates, including, without
limitation, the reasonable fees, charges and disbursements of counsel and other
outside consultants for the Administrative Agent, the reasonable travel,
photocopy, mailing, courier, telephone and other similar expenses, and the cost
of environmental invasive and non-invasive assessments and audits and surveys
and

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appraisals, in connection with the syndication of the credit facilities provided
for herein, the preparation, negotiation, execution, delivery and administration
(both before and after the execution hereof and including advice of counsel to
the Administrative Agent as to the rights and duties of the Administrative Agent
and the Lenders with respect thereto) of this Agreement and the other Loan
Documents and any amendments, modifications or waivers of or consents related to
the provisions hereof or thereof (whether or not the transactions contemplated
hereby or thereby shall be consummated), (ii) all costs, expenses, Taxes,
assessments and other charges incurred by any Agent or any Lender in connection
with any filing, registration, recording or perfection of any security interest
contemplated by this Agreement or any Security Instrument or any other document
referred to therein, (iii) all reasonable out-of-pocket expenses incurred by the
Issuing Bank in connection with the issuance, amendment, renewal or extension of
any Letter of Credit or any demand for payment thereunder, (iv) all
out-of-pocket expenses incurred by any Agent, the Issuing Bank or any Lender,
including the fees, charges and disbursements of any counsel for any Agent, the
Issuing Bank or any Lender, in connection with the enforcement or protection of
its rights in connection with this Agreement or any other Loan Document,
including its rights under this Section 12.03, or in connection with the Loans
made or Letters of Credit issued hereunder, including, without limitation, all
such out-of-pocket expenses incurred during any workout, restructuring or
negotiations in respect of such Loans or Letters of Credit.
          (b) THE PARENT AND THE BORROWER SHALL INDEMNIFY EACH AGENT, EACH
ARRANGER, THE ISSUING BANK AND EACH LENDER, AND EACH RELATED PARTY OF ANY OF THE
FOREGOING PERSONS (EACH SUCH PERSON BEING CALLED AN “INDEMNITEE”) AGAINST, AND
DEFEND AND HOLD EACH INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS,
DAMAGES, PENALTIES, LIABILITIES AND RELATED EXPENSES, INCLUDING THE REASONABLE
FEES, CHARGES AND DISBURSEMENTS OF ANY COUNSEL FOR ANY INDEMNITEE, INCURRED BY
OR ASSERTED AGAINST ANY INDEMNITEE ARISING OUT OF, IN CONNECTION WITH, OR AS A
RESULT OF (i) THE EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, THE
PERFORMANCE BY THE PARTIES HERETO OR THE PARTIES TO ANY OTHER LOAN DOCUMENT OF
THEIR RESPECTIVE OBLIGATIONS HEREUNDER OR THEREUNDER OR THE CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED HEREBY OR BY ANY OTHER LOAN DOCUMENT, (ii) THE FAILURE
OF THE PARENT, THE BORROWER OR ANY SUBSIDIARY TO COMPLY WITH THE TERMS OF ANY
LOAN DOCUMENT, INCLUDING THIS AGREEMENT, OR WITH ANY GOVERNMENTAL REQUIREMENT,
(iii) ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY WARRANTY OR
COVENANT OF THE BORROWER OR ANY GUARANTOR SET FORTH IN ANY OF THE LOAN DOCUMENTS
OR ANY INSTRUMENTS, DOCUMENTS OR CERTIFICATIONS DELIVERED IN CONNECTION
THEREWITH, (iv) ANY LOAN OR LETTER OF CREDIT OR THE USE OF THE PROCEEDS
THEREFROM, INCLUDING, WITHOUT LIMITATION, (A) ANY REFUSAL BY THE ISSUING BANK TO
HONOR A DEMAND FOR PAYMENT UNDER A LETTER OF CREDIT IF THE DOCUMENTS PRESENTED
IN CONNECTION WITH SUCH DEMAND DO NOT STRICTLY COMPLY WITH THE TERMS OF SUCH
LETTER OF CREDIT, OR (B) THE PAYMENT OF A DRAWING UNDER ANY LETTER OF CREDIT
NOTWITHSTANDING THE NON-COMPLIANCE, NON-DELIVERY OR OTHER

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IMPROPER PRESENTATION OF THE DOCUMENTS PRESENTED IN CONNECTION THEREWITH,
(v) ANY OTHER ASPECT OF THE LOAN DOCUMENTS, (vi) THE OPERATIONS OF THE BUSINESS
OF THE PARENT, THE BORROWER AND EACH OF THEIR SUBSIDIARIES BY THE PARENT, THE
BORROWER AND EACH OF THEIR SUBSIDIARIES, (vii) ANY ASSERTION THAT THE LENDERS
WERE NOT ENTITLED TO RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE SECURITY
INSTRUMENTS, (viii) ANY ENVIRONMENTAL LAW APPLICABLE TO THE PARENT, THE BORROWER
OR ANY SUBSIDIARY OR ANY OF THEIR PROPERTIES OR OPERATIONS, INCLUDING, THE
PRESENCE, GENERATION, STORAGE, RELEASE, THREATENED RELEASE, USE, TRANSPORT,
DISPOSAL, ARRANGEMENT OF DISPOSAL OR TREATMENT OF HAZARDOUS MATERIALS ON OR AT
ANY OF THEIR PROPERTIES, (ix) THE BREACH OR NON-COMPLIANCE BY THE PARENT, THE
BORROWER OR ANY SUBSIDIARY WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE PARENT,
THE BORROWER OR ANY SUBSIDIARY, (x) THE PAST OWNERSHIP BY THE PARENT, THE
BORROWER OR ANY SUBSIDIARY OF ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF
THEIR PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD
RESULT IN PRESENT LIABILITY, (xi) THE PRESENCE, USE, RELEASE, STORAGE,
TREATMENT, DISPOSAL, GENERATION, THREATENED RELEASE, TRANSPORT, ARRANGEMENT FOR
TRANSPORT OR ARRANGEMENT FOR DISPOSAL OF HAZARDOUS MATERIALS ON OR AT ANY OF THE
PROPERTIES OWNED OR OPERATED BY THE PARENT, THE BORROWER OR ANY SUBSIDIARY OR
ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS MATERIALS ON OR FROM ANY
PROPERTY OWNED OR OPERATED BY THE PARENT, THE BORROWER OR ANY OF ITS
SUBSIDIARIES, (xii) ANY ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO THE
PARENT, THE BORROWER OR ANY OF ITS SUBSIDIARIES, OR (xiii) ANY OTHER
ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS,
OR (xiv) ANY ACTUAL OR PROSPECTIVE CLAIM, LITIGATION, INVESTIGATION OR
PROCEEDING RELATING TO ANY OF THE FOREGOING, WHETHER BASED ON CONTRACT, TORT OR
ANY OTHER THEORY AND REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTY THERETO,
AND SUCH INDEMNITY SHALL EXTEND TO EACH INDEMNITEE NOTWITHSTANDING THE SOLE OR
CONCURRENT NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR
PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT
LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT
(SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNITEES OR BY REASON OF STRICT
LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNITEES, INCLUDING
ITS ORDINARY NEGLIGENCE; PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO ANY
INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS, DAMAGES,
LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A COURT OF COMPETENT
JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE.

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          (c) To the extent that the Parent or the Borrower fails to pay any
amount required to be paid by it to any Agent, any Arranger or the Issuing Bank
under Section 12.03(a) or (b), each Lender severally agrees to pay to such
Agent, such Arranger or the Issuing Bank, as the case may be, such Lender’s
Applicable Percentage (determined as of the time that the applicable
unreimbursed expense or indemnity payment is sought) of such unpaid amount;
provided that the unreimbursed expense or indemnified loss, claim, damage,
liability or related expense, as the case may be, was incurred by or asserted
against such Agent, such Arranger or the Issuing Bank in its capacity as such.
          (d) To the extent permitted by applicable law, the Parent or the
Borrower shall not assert, and hereby waives, any claim against any Indemnitee,
on any theory of liability, for special, indirect, consequential or punitive
damages (as opposed to direct or actual damages) arising out of, in connection
with, or as a result of, this Agreement, any other Loan Document or any
agreement or instrument contemplated hereby or thereby, the Transactions, any
Loan or Letter of Credit or the use of the proceeds thereof.
          (e) All amounts due under this Section 12.03 shall be payable not
later than five days after written demand therefor.
     Section 12.04 Successors and Assigns.
          (a) The provisions of this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and assigns
permitted hereby (including any Affiliate of the Issuing Bank that issues any
Letter of Credit), except that (i) neither the Parent nor the Borrower may
assign or otherwise transfer any of its rights or obligations hereunder without
the prior written consent of each Lender (and any attempted assignment or
transfer by the Parent or the Borrower without such consent shall be null and
void) and (ii) no Lender may assign or otherwise transfer its rights or
obligations hereunder except in accordance with this Section 12.04. Nothing in
this Agreement, expressed or implied, shall be construed to confer upon any
Person (other than the parties hereto, their respective successors and assigns
permitted hereby (including any Affiliate of the Issuing Bank that issues any
Letter of Credit), Participants (to the extent provided in Section 12.04(c))
and, to the extent expressly contemplated hereby, the Related Parties of each of
the Administrative Agent, the Issuing Bank and the Lenders) any legal or
equitable right, remedy or claim under or by reason of this Agreement.
          (b) (i) Subject to the conditions set forth in Section 12.04(b)(ii),
any Lender may assign to one or more assignees all or a portion of its rights
and obligations under this Agreement (including all or a portion of its
Commitment and the Loans at the time owing to it) with the prior written consent
(such consent not to be unreasonably withheld) of:
                    (A) the Borrower; provided that no consent of the Borrower
shall be required if such assignment is to a Lender, an Affiliate of a Lender,
an Approved Fund or, if an Event of Default has occurred and is continuing, is
to any other assignee; and

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                    (B) the Administrative Agent; provided that no consent of
the Administrative Agent shall be required for an assignment to an assignee that
is a Lender immediately prior to giving effect to such assignment.
               (ii) Assignments shall be subject to the following additional
conditions:
                    (A) except in the case of an assignment to a Lender or an
Affiliate of a Lender or an assignment of the entire remaining amount of the
assigning Lender’s Commitment or Loans, the amount of the Commitment or Loans of
the assigning Lender subject to each such assignment (determined as of the date
the Assignment and Assumption with respect to such assignment is delivered to
the Administrative Agent) shall not be less than $5,000,000 unless each of the
Borrower and the Administrative Agent otherwise consent; provided that no such
consent of the Borrower shall be required if an Event of Default has occurred
and is continuing;
                    (B) each partial assignment shall be made as an assignment
of a proportionate part of all the assigning Lender’s rights and obligations
under this Agreement;
                    (C) the parties to each assignment shall execute and deliver
to the Administrative Agent an Assignment and Assumption, together with a
processing and recordation fee of $3,500; and
                    (D) the assignee, if it shall not be a Lender, shall deliver
to the Administrative Agent an Administrative Questionnaire.
               (iii) Subject to Section 12.04(b)(iv) and the acceptance and
recording thereof, from and after the effective date specified in each
Assignment and Assumption the assignee thereunder shall be a party hereto and,
to the extent of the interest assigned by such Assignment and Assumption, have
the rights and obligations of a Lender under this Agreement, and the assigning
Lender thereunder shall, to the extent of the interest assigned by such
Assignment and Assumption, be released from its obligations under this Agreement
(and, in the case of an Assignment and Assumption covering all of the assigning
Lender’s rights and obligations under this Agreement, such Lender shall cease to
be a party hereto but shall continue to be entitled to the benefits of
Section 5.01, Section 5.02, Section 5.03 and Section 12.03). Any assignment or
transfer by a Lender of rights or obligations under this Agreement that does not
comply with this Section 12.04 shall be treated for purposes of this Agreement
as a sale by such Lender of a participation in such rights and obligations in
accordance with Section 12.04(c).
               (iv) The Administrative Agent, acting for this purpose as an
agent of the Borrower, shall maintain at one of its offices a copy of each
Assignment and Assumption delivered to it and a register for the recordation of
the names and addresses of the Lenders, and the Maximum Credit Amount of, and
principal amount of the Loans and LC Disbursements owing to, each Lender
pursuant to the terms hereof from time to time (the “Register”). The entries in
the Register shall be conclusive, and the Borrower, the Administrative Agent,
the Issuing Bank and the Lenders may treat each Person whose name is recorded in
the Register pursuant to the terms hereof as a Lender hereunder for all purposes
of this Agreement, notwithstanding notice to the contrary. The Register shall be
available for inspection by the Borrower, the Issuing Bank and any Lender, at
any reasonable time and from time to time upon reasonable prior notice. In
connection with any changes to the Register, if necessary, the Administrative
Agent will reflect the revisions on Annex I and forward a copy of such revised
Annex I to the Borrower, the Issuing Bank and each Lender.

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               (v) Upon its receipt of a duly completed Assignment and
Assumption executed by an assigning Lender and an assignee, the assignee’s
completed Administrative Questionnaire (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in Section
12.04(a)(ii)(C) and any written consent to such assignment required by
Section 12.04(a)(i), the Administrative Agent shall accept such Assignment and
Assumption and record the information contained therein in the Register. No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this Section 12.04(b).
          (c) (i) Any Lender may, without the consent of the Borrower, the
Administrative Agent or the Issuing Bank, sell participations to one or more
banks or other entities (a “Participant”) in all or a portion of such Lender’s
rights and obligations under this Agreement (including all or a portion of its
Commitment and the Loans owing to it); provided that (A) such Lender’s
obligations under this Agreement shall remain unchanged, (B) such Lender shall
remain solely responsible to the other parties hereto for the performance of
such obligations and (C) the Borrower, the Administrative Agent, the Issuing
Bank and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender’s rights and obligations under this
Agreement. Any agreement or instrument pursuant to which a Lender sells such a
participation shall provide that such Lender shall retain the sole right to
enforce this Agreement and to approve any amendment, modification or waiver of
any provision of this Agreement; provided that such agreement or instrument may
provide that such Lender will not, without the consent of the Participant, agree
to any amendment, modification or waiver described in the proviso to Section
12.02 that affects such Participant. In addition such agreement must provide
that the Participant be bound by the provisions of Section 12.03. Subject to
Section 12.04(c)(ii), the Borrower agrees that each Participant shall be
entitled to the benefits of Section 5.01, Section 5.02 and Section 5.03 to the
same extent as if it were a Lender and had acquired its interest by assignment
pursuant to Section 12.04(a). To the extent permitted by law, each Participant
also shall be entitled to the benefits of Section 12.08 as though it were a
Lender; provided such Participant agrees to be subject to Section 4.01(c) as
though it were a Lender.
               (ii) A Participant shall not be entitled to receive any greater
payment under Section 5.01 or Section 5.03 than the applicable Lender would have
been entitled to receive with respect to the participation sold to such
Participant, unless the sale of the participation to such Participant is made
with the Borrower’s prior written consent. A Participant that would be a Foreign
Lender if it were a Lender shall not be entitled to the benefits of Section 5.03
unless the Borrower is notified of the participation sold to such Participant
and such Participant agrees, for the benefit of the Borrower, to comply with
Section 5.03(d) as though it were a Lender.
          (d) Any Lender may at any time pledge or assign a security interest in
all or any portion of its rights under this Agreement to secure obligations of
such Lender, including, without limitation, any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section 12.04(d) shall not apply
to any such pledge or assignment of a security interest; provided that no such
pledge or assignment of a security interest shall release a Lender from any of
its obligations hereunder or substitute any such pledgee or assignee for such
Lender as a party hereto.

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     Section 12.05 Survival; Revival; Reinstatement.
          (a) All covenants, agreements, representations and warranties made by
the Parent and the Borrower herein and in the certificates or other instruments
delivered in connection with or pursuant to this Agreement or any other Loan
Document shall be considered to have been relied upon by the other parties
hereto and shall survive the execution and delivery of this Agreement and the
making of any Loans and issuance of any Letters of Credit, regardless of any
investigation made by any such other party or on its behalf and notwithstanding
that the Administrative Agent, any other Agent, the Issuing Bank or any Lender
may have had notice or knowledge of any Default or incorrect representation or
warranty at the time any credit is extended hereunder, and shall continue in
full force and effect as long as the principal of or any accrued interest on any
Loan or any fee or any other amount payable under this Agreement is outstanding
and unpaid or any Letter of Credit is outstanding and so long as the Commitments
have not expired or terminated. The provisions of Section 5.01, Section 5.02,
Section 5.03 and Section 12.03 and Article XI shall survive and remain in full
force and effect regardless of the consummation of the transactions contemplated
hereby, the repayment of the Loans, the expiration or termination of the Letters
of Credit and the Commitments or the termination of this Agreement, any other
Loan Document or any provision hereof or thereof.
          (b) To the extent that any payments on the Indebtedness or proceeds of
any collateral are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or other Person under any bankruptcy law, common law or
equitable cause, then to such extent, the Indebtedness so satisfied shall be
revived and continue as if such payment or proceeds had not been received and
the Administrative Agent’s and the Lenders’ Liens, security interests, rights,
powers and remedies under this Agreement and each Loan Document shall continue
in full force and effect. In such event, each Loan Document shall be
automatically reinstated and the Parent and the Borrower shall, and shall cause
each of its Subsidiaries to, take such action as may be reasonably requested by
the Administrative Agent and the Lenders to effect such reinstatement.
     Section 12.06 Counterparts; Integration; Effectiveness.
          (a) This Agreement may be executed in counterparts (and by different
parties hereto on different counterparts), each of which shall constitute an
original, but all of which when taken together shall constitute a single
contract.
          (b) This Agreement, the other Loan Documents and any separate letter
agreements with respect to fees payable to the Administrative Agent constitute
the entire contract among the parties relating to the subject matter hereof and
thereof and supersede any and all previous agreements and understandings, oral
or written, relating to the subject matter hereof and thereof. THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES
HERETO AND THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

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          (c) Except as provided in Section 6.01, this Agreement shall become
effective when it shall have been executed by the Administrative Agent and when
the Administrative Agent shall have received counterparts hereof which, when
taken together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Delivery of an executed counterpart
of a signature page of this Agreement by telecopy shall be effective as delivery
of a manually executed counterpart of this Agreement.
     Section 12.07 Severability. Any provision of this Agreement or any other
Loan Document held to be invalid, illegal or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such invalidity,
illegality or unenforceability without affecting the validity, legality and
enforceability of the remaining provisions hereof or thereof; and the invalidity
of a particular provision in a particular jurisdiction shall not invalidate such
provision in any other jurisdiction.
     Section 12.08 Right of Setoff. If an Event of Default shall have occurred
and be continuing, each Lender and each of its Affiliates is hereby authorized
at any time and from time to time, to the fullest extent permitted by law, to
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other obligations (of whatsoever
kind, including, without limitations obligations under Swap Agreements) at any
time owing by such Lender or Affiliate to or for the credit or the account of
the Borrower or any Subsidiary against any of and all the obligations of the
Borrower or any Subsidiary owed to such Lender now or hereafter existing under
this Agreement or any other Loan Document, irrespective of whether or not such
Lender shall have made any demand under this Agreement or any other Loan
Document and although such obligations may be unmatured. The rights of each
Lender under this Section 12.08 are in addition to other rights and remedies
(including other rights of setoff) which such Lender or its Affiliates may have.
     Section 12.09 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS.
          (a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS EXCEPT TO THE EXTENT THAT
UNITED STATES FEDERAL LAW PERMITS ANY LENDER TO CONTRACT FOR, CHARGE, RECEIVE,
RESERVE OR TAKE INTEREST AT THE RATE ALLOWED BY THE LAWS OF THE STATE WHERE SUCH
LENDER IS LOCATED. CHAPTER 346 OF THE TEXAS FINANCE CODE (WHICH REGULATES
CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS) SHALL
NOT APPLY TO THIS AGREEMENT OR THE NOTES.
          (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS
SHALL BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES OF
AMERICA FOR THE SOUTHERN DISTRICT OF TEXAS, AND, BY EXECUTION AND DELIVERY OF
THIS AGREEMENT, EACH

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PARTY HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY LAW) IN RESPECT
OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE
AFORESAID COURTS. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING,
WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS
OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF
ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. THIS SUBMISSION
TO JURISDICTION IS NON-EXCLUSIVE AND DOES NOT PRECLUDE A PARTY FROM OBTAINING
JURISDICTION OVER ANOTHER PARTY IN ANY COURT OTHERWISE HAVING JURISDICTION.
          (c) EACH PARTY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY
OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT THE
ADDRESS SPECIFIED IN SECTION 12.01 OR SUCH OTHER ADDRESS AS IS SPECIFIED
PURSUANT TO SECTION 12.01 (OR ITS ASSIGNMENT AND ASSUMPTION), SUCH SERVICE TO
BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL
AFFECT THE RIGHT OF A PARTY OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE
PROCEED AGAINST ANOTHER PARTY IN ANY OTHER JURISDICTION.
          (d) EACH PARTY HEREBY (i) IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN; (ii) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES
OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (iii) CERTIFIES THAT NO PARTY
HERETO NOR ANY REPRESENTATIVE OR AGENT OF COUNSEL FOR ANY PARTY HERETO HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND
(iv) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE
LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION
12.09.
     Section 12.10 Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
     Section 12.11 Confidentiality. Each of the Administrative Agent, the
Issuing Bank and the Lenders agrees to maintain the confidentiality of the
Information (as defined below), except that Information may be disclosed (a) to
its and its Affiliates’ directors, officers, employees and

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agents, including accountants, legal counsel and other advisors (it being
understood that the Persons to whom such disclosure is made will be informed of
the confidential nature of such Information and instructed to keep such
Information confidential), (b) to the extent requested by any regulatory
authority, (c) to the extent required by applicable laws or regulations or by
any subpoena or similar legal process, (d) to any other party to this Agreement
or any other Loan Document, (e) in connection with the exercise of any remedies
hereunder or under any other Loan Document or any suit, action or proceeding
relating to this Agreement or any other Loan Document or the enforcement of
rights hereunder or thereunder, (f) subject to an agreement containing
provisions substantially the same as those of this Section 12.11, to (i) any
assignee of or Participant in, or any prospective assignee of or Participant in,
any of its rights or obligations under this Agreement or (ii) any actual or
prospective counterparty (or its advisors) to any Swap Agreement relating to the
Borrower and its obligations, (g) with the consent of the Borrower or (h) to the
extent such Information (i) becomes publicly available other than as a result of
a breach of this Section 12.11 or (ii) becomes available to the Administrative
Agent, the Issuing Bank or any Lender on a nonconfidential basis from a source
other than the Borrower. For the purposes of this Section 12.11, “Information”
means all information received from the Parent, the Borrower or any Subsidiary
relating to the Parent, the Borrower or any Subsidiary and their businesses,
other than any such information that is available to the Administrative Agent,
the Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by
the Parent, the Borrower or a Subsidiary; provided that, in the case of
information received from the Parent, the Borrower or any Subsidiary after the
date hereof, such information is clearly identified at the time of delivery as
confidential. Any Person required to maintain the confidentiality of Information
as provided in this Section 12.11 shall be considered to have complied with its
obligation to do so if such Person has exercised the same degree of care to
maintain the confidentiality of such Information as such Person would accord to
its own confidential information. Notwithstanding anything herein to the
contrary, “Information” shall not include, and the Parent, the Parent’s
Subsidiaries, the Borrower, the Borrower’s Subsidiaries, the Administrative
Agent, each Lender and the respective Affiliates of each of the foregoing (and
the respective partners, directors, officers, employees, agents, advisors and
other representatives of the aforementioned Persons), and any other party, may
disclose to any and all Persons, without limitation of any kind (a) any
information with respect to the U.S. federal and state income tax treatment of
the transactions contemplated hereby and any facts that may be relevant to
understanding the U.S. federal or state income tax treatment of such
transactions (“tax structure”), which facts shall not include for this purpose
the names of the parties or any other person named herein, or information that
would permit identification of the parties or such other persons, or any pricing
terms or other nonpublic business or financial information that is unrelated to
such tax treatment or tax structure, and (b) all materials of any kind
(including opinions or other tax analyses) that are provided to the Parent, the
Borrower, the Administrative Agent or such Lender relating to such tax treatment
or tax structure.
     Section 12.12 Interest Rate Limitation. It is the intention of the parties
hereto that each Lender shall conform strictly to usury laws applicable to it.
Accordingly, if the transactions contemplated hereby would be usurious as to any
Lender under laws applicable to it (including the laws of the United States of
America and the State of Texas or any other jurisdiction whose laws may be
mandatorily applicable to such Lender notwithstanding the other provisions of
this Agreement), then, in that event, notwithstanding anything to the contrary
in any of the Loan Documents or any agreement entered into in connection with or
as security for the Notes, it is

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agreed as follows: (i) the aggregate of all consideration which constitutes
interest under law applicable to any Lender that is contracted for, taken,
reserved, charged or received by such Lender under any of the Loan Documents or
agreements or otherwise in connection with the Notes shall under no
circumstances exceed the maximum amount allowed by such applicable law, and any
excess shall be canceled automatically and if theretofore paid shall be credited
by such Lender on the principal amount of the Indebtedness (or, to the extent
that the principal amount of the Indebtedness shall have been or would thereby
be paid in full, refunded by such Lender to the Borrower); and (ii) in the event
that the maturity of the Notes is accelerated by reason of an election of the
holder thereof resulting from any Event of Default under this Agreement or
otherwise, or in the event of any required or permitted prepayment, then such
consideration that constitutes interest under law applicable to any Lender may
never include more than the maximum amount allowed by such applicable law, and
excess interest, if any, provided for in this Agreement or otherwise shall be
canceled automatically by such Lender as of the date of such acceleration or
prepayment and, if theretofore paid, shall be credited by such Lender on the
principal amount of the Indebtedness (or, to the extent that the principal
amount of the Indebtedness shall have been or would thereby be paid in full,
refunded by such Lender to the Borrower). All sums paid or agreed to be paid to
any Lender for the use, forbearance or detention of sums due hereunder shall, to
the extent permitted by law applicable to such Lender, be amortized, prorated,
allocated and spread throughout the stated term of the Loans evidenced by the
Notes until payment in full so that the rate or amount of interest on account of
any Loans hereunder does not exceed the maximum amount allowed by such
applicable law. If at any time and from time to time (i) the amount of interest
payable to any Lender on any date shall be computed at the Highest Lawful Rate
applicable to such Lender pursuant to this Section 12.12 and (ii) in respect of
any subsequent interest computation period the amount of interest otherwise
payable to such Lender would be less than the amount of interest payable to such
Lender computed at the Highest Lawful Rate applicable to such Lender, then the
amount of interest payable to such Lender in respect of such subsequent interest
computation period shall continue to be computed at the Highest Lawful Rate
applicable to such Lender until the total amount of interest payable to such
Lender shall equal the total amount of interest which would have been payable to
such Lender if the total amount of interest had been computed without giving
effect to this Section 12.12. To the extent that Chapter 303 of the Texas
Finance Code is relevant for the purpose of determining the Highest Lawful Rate
applicable to a Lender, such Lender elects to determine the applicable rate
ceiling under such Chapter by the weekly ceiling from time to time in effect.
Chapter 346 of the Texas Finance Code does not apply to the Parent’s or the
Borrower’s obligations hereunder.
     Section 12.13 EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO
SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS
OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT HAS IN FACT READ THIS
AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS,
CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY
INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING
ITS EXECUTION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND HAS RECEIVED
THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS; AND

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THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME
ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY
FOR SUCH LIABILITY. EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT
CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS ON THE BASIS THAT THE PARTY HAD NO NOTICE
OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT “CONSPICUOUS.”
     Section 12.14 Collateral Matters; Swap Agreements. The benefit of the
Security Instruments and of the provisions of this Agreement relating to any
collateral securing the Indebtedness shall also extend to and be available to
those Lenders or their Affiliates which are counterparties to any Swap Agreement
with the Borrower or any of its Subsidiaries on a pro rata basis in respect of
any obligations of the Borrower or any of its Subsidiaries which arise under any
such Swap Agreement while such Person or its Affiliate is a Lender, but only
while such Person or its Affiliate is a Lender, including any Swap Agreements
between such Persons in existence prior to the date hereof. No Lender or any
Affiliate of a Lender shall have any voting rights under any Loan Document as a
result of the existence of obligations owed to it under any such Swap
Agreements.
     Section 12.15 No Third Party Beneficiaries. This Agreement, the other Loan
Documents, and the agreement of the Lenders to make Loans and the Issuing Bank
to issue, amend, renew or extend Letters of Credit hereunder are solely for the
benefit of the Borrower, and no other Person (including, without limitation, any
Subsidiary of the Borrower, any obligor, contractor, subcontractor, supplier or
materialsman) shall have any rights, claims, remedies or privileges hereunder or
under any other Loan Document against the Administrative Agent, any other Agent,
the Issuing Bank or any Lender for any reason whatsoever. There are no third
party beneficiaries.
     Section 12.16 Acknowledgements. Each of the Parent and the Borrower hereby
acknowledges that:
          (a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
          (b) neither the Administrative Agent nor any Lender has a fiduciary
relationship with or duty to the Parent or the Borrower or any of their
Subsidiaries arising out of or in connection with this Agreement or any other
Loan Document, and the relationship between the Administrative Agent and the
Lenders, on the one hand, and the Parent and the Borrower, on the other hand, in
connection herewith and therewith is solely that of debtor and creditor;
          (c) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby among the
Lenders or among the Parent, the Borrower and the Lenders.

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     Section 12.17 USA Patriot Act Notice. Each Lender hereby notifies the
Borrower that pursuant to the requirements of the USA Patriot Act (Title III of
Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required
to obtain, verify and record information that identifies the Borrower, which
information includes the name and address of the Borrower and other information
that will allow such Lender to identify the Borrower in accordance with the Act.
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     The parties hereto have caused this Agreement to be duly executed as of the
day and year first above written.

          BORROWER:  PETROQUEST ENERGY, L.L.C.
      By:   /s/ W. Todd Zehnder         Name:   W. Todd Zehnder        Title:  
Executive Vice President,
Chief Financial Officer and Treasurer      PARENT:  PETROQUEST ENERGY, INC.
      By:   /s/ W. Todd Zehnder         Name:   W. Todd Zehnder        Title:  
Executive Vice President,
Chief Financial Officer and Treasurer     

[Signature Page- Credit Agreement]
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                  ADMINISTRATIVE AGENT:
AND LENDER       JPMORGAN CHASE BANK, N.A.
individually and as Administrative Agent and
Issuing Bank
 
                        By:   /s/ Jo Linda Papadakis              
 
          Name:
Title:   Jo Linda Papadakis
Vice President

[Signature Page- Credit Agreement]
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                  SYNDICATION AGENT:
AND LENDER       CALYON NEW YORK BRANCH         By:   /s/ Page Dillehunt        
     
 
          Name:
Title:   Page Dillehunt
Managing Director

                          By:   /s/ Michael D. Willis              
 
          Name:   Michael D. Willis
 
          Title:   Director

[Signature Page- Credit Agreement]
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                  DOCUMENTATION AGENT:
AND LENDER       BANK OF AMERICA, N.A.         By:   /s/ Jeffrey H. Rathkamp    
         
 
          Name:   Jeffrey H. Rathkamp
 
          Title:   Managing Director

[Signature Page- Credit Agreement]
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          LENDER:  WELLS FARGO BANK, N.A.
      By:   /s/ Scott Hodges         Name:   Scott Hodges        Title:   Vice
President     

[Signature Page- Credit Agreement]
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          LENDER:  WHITNEY NATIONAL BANK
      By:   /s/ William Jochetz         Name:   William Jochetz        Title:  
Lending Officer     

[Signature Page- Credit Agreement]
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