Exhibit 10.1
EXECUTION VERSION
WAIVER AND AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT AGREEMENT
                       WAIVER AND AMENDMENT NO. 2 TO AMENDED AND RESTATED CREDIT
AGREEMENT, dated as of April 1, 2010 (this “Amendment”), among DHS HOLDING
COMPANY, a Delaware corporation (“Holdings”), DHS DRILLING COMPANY, a Colorado
corporation (“Borrower”), each Lender listed on the signature pages hereof, each
subsidiary of the Borrower listed on the signature pages hereof (the
“Guarantors”), and LEHMAN COMMERCIAL PAPER INC., as administrative agent (in
such capacity, the “Administrative Agent”, and together with Holdings, Borrower,
the Guarantors and the Administrative Agent, the “Parties”).
W I T N E S S E T H:
                       WHEREAS, the Borrower and Loan Parties have requested
that the Lenders waive certain Defaults or Events of Default that have occurred
and are continuing under the Credit Agreement as of the date hereof;
                       WHEREAS, the Holdings, Borrower, the Lenders, and the
Administrative Agent entered into that certain Amended and Restated Credit
Agreement, dated as of August 15, 2008, as amended pursuant to that certain
Amendment No. 1, dated as of September 19, 2008 (as further supplemented or
modified prior to the date hereof, the “Credit Agreement”);
                       WHEREAS, the Lenders party hereto and the Administrative
Agent intend to provide the waivers set forth herein and the Parties hereto
intend to amend the Credit Agreement as set forth herein; and
                       NOW, THEREFORE, in consideration of the foregoing, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Parties hereto hereby agree as follows:
          1.          Defined Terms.
                       (a)          Capitalized terms used herein and not
otherwise defined herein shall have the meanings ascribed to such terms in the
Credit Agreement.
                       (b)          “Effective Date”: has the meaning set forth
in Section 4 of this Amendment.
                       (c)          “Going Concern Qualification”: means a
“going concern” or like qualification or exception in any opinion or document
accompanying any audited financial statement.
          2.          Waivers: Effective as of the Effective Date, the Lenders
party hereto and the Administrative Agent waive any Defaults and Events of
Default resulting from the following:
                       (a)          the Borrower or any other Loan Party failing
to comply with Section 2.7 (Mandatory Prepayments), Section 5.1(e) (Financial
Statements) and Section 5.3(b)(i)(B) (Certificates; Other Information) in
respect of any Collateral Value Deficiency existing prior to the Effective Date;
                       (b)          the Borrower or any other Loan Party failing
to comply with Section 5.1 (Financial Statements) prior to the Effective Date;

 

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                       (c)          the Borrower or any other Loan Party failing
to comply with Section 6.1(a) (Minimum Consolidated EBITDA) prior to the
Effective Date;
                       (d)          the Borrower or any other Loan Party failing
to comply with Section 6.1(b) (Consolidated Leverage Ratio) prior to the
Effective Date;
                       (e)          the Borrower or any other Loan Party failing
to comply with Section 6.1(c) (Consolidated Interest Coverage Ratio) prior to
the Effective Date;
                       (f)          the Borrower or any other Loan Party failing
to comply with Section 6.1(d) (Minimum Current Ratio) prior to the Effective
Date;
                       (g)          pursuant to Section 7.1(l) (Events of
Default) arising from an event or occurrence (a) solely relating to financial
and market conditions or (b) disclosed to the Lenders and the Administrative
Agent, in each case prior to the Effective Date;
                       (h)          arising from a Going Concern Qualification
existing in any opinion or other document delivered with respect to each of
Fiscal Years 2008, 2009 and 2010 pursuant to Section 5.1(a) of the Credit
Agreement; and
                       (i)          the first Change of Control under clauses
(a) through (c) of the definition of “Change of Control” giving rise to a
Default or Event of Default under Section 7.1(k) (Events of Default) occurring
after the Effective Date;
provided, however, that the waiver set forth in this Section 2 shall not excuse
or otherwise waive any failure by any Loan Party to comply after the Effective
Date with any other term of any Loan Document; provided, further, that the
waiver set forth in clause (i) of this Section 2 shall be deemed void and any
Default or Event of Default shall be deemed to have occurred and be continuing
as from the date on which it shall have initially occurred (without giving
effect to the waiver contemplated in Section 2(i)) if at any time after the
Effective Date, any Loan Party fails to comply with any provision of any Loan
Document.
          3.          Amendments. Subject to the terms and conditions set forth
herein, effective as of the Effective Date, the Credit Agreement (together with
the Exhibits and Schedules thereto) is hereby amended as described on Exhibit A
attached hereto.
          4.          Conditions to Effectiveness of this Amendment. The Waivers
set forth in Section 3 and the Amendments described in Section 4 of this
Amendment shall become effective as of the first date on which each of the
following conditions precedent are satisfied (the “Effective Date”):
                       (a)          the Administrative Agent shall have
received:
                              (i)          counterparts of this Amendment duly
executed and delivered by each of Holdings, the Borrower, the Guarantors, the
Administrative Agent, and each Lender; and
                              (ii)          resolutions or written consents of
the Board of Directors or equivalent governing body of each Loan Party
authorizing entry into this Amendment and performance by such Loan Party of its
obligations thereunder, duly certified by the Secretary of each Loan Party (or
its general partner or managing member, as applicable) or any other officer of
such Loan Party (or its general partner or managing member, as applicable), in a
form reasonably acceptable to the Administrative Agent;

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                              (iii)          counterparts of a perfection
certificate, duly executed and delivered by each of Holdings, the Borrower and
each Guarantor, in the form attached hereto as Exhibit B;
                              (iv)          a certificate of Delta Petroleum
Corporation certifying the complete and accurate calculation of the aggregate
outstanding principal amount of the Delta Account Receivable, as of the date
hereof, as set forth on Exhibit C hereto, in a form reasonably acceptable to the
Administrative Agent; and
                              (v)          a certificate of each Loan Party
certifying that other than the defaults described in Section 2 hereof, no
Default or Event of Default has occurred and is continuing on the Effective Date
prior to or after giving effect to this Amendment, in a form reasonably
acceptable to the Administrative Agent.
                       (b)          each of the representations and warranties
set forth below in Section 7 of this Amendment shall be true and correct in all
material respects on and as of the Effective Date with the same effect as though
made on and as of the Effective Date;
                       (c)          Borrower shall have paid the Administrative
Agent for the account of each Lender a fee equal to 0.50% of the Loans
outstanding under the Credit Agreement as at the Effective Date;
                       (d)          there shall have been paid to the
Administrative Agent, for the account of the Agents and the Lenders, as
applicable, free and clear of any recoupment or set-off, in immediately
available funds all fees and expenses due and payable to the Agents or the
Lenders in an amount not to exceed $50,000 for the period on or prior to the
Effective Date to the account listed on Exhibit E hereto;
                       (e)          Borrower shall have filed with the clerk of
United States Bankruptcy Court for the Southern District of New York (the
“Court”) a “Withdrawal of Claim” in respect of Claim 25652 previously filed with
the Court;
                       (f)          no Default or Event of Default shall have
occurred and be continuing on the Effective Date after giving effect to this
Amendment; and
                       (g)          Borrower shall have repaid the Loans in an
amount of not less than $7,633,663.
          5.          Representations and Warranties.
                       (a)          Prior to and after giving effect to this
Amendment, each of the representations and warranties set forth in Article III
(Representations and Warranties) of the Credit Agreement and in the other Loan
Documents are true and correct in all material respects on and as of the
Effective Date with the same effect as though made on and as of the Effective
Date, except to the extent such representations and warranties expressly relate
to an earlier date, in which case such representations and warranties shall have
been true and correct in all material respects as of such earlier date.
                       (b)          Each of the Loan Parties hereby represents
and warrants to the Administrative Agent and the Lenders, on and as of the
Effective Date, (i) both prior to and after giving effect to this Amendment,
(x) each of the Loan Parties has taken all necessary action to authorize the
execution, delivery and performance of this Amendment and (y) this Amendment has
been duly executed and delivered by each of the Loan Parties and (ii) after
giving effect to this Amendment, this Amendment is the legal, valid and binding
obligation of each of the Loan Parties, enforceable against it in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency,

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reorganization, moratorium or similar laws affecting the enforcement of
creditors’ rights generally and by general equitable principles.
                       (c)          Each of the Loan Parties hereby represents
and warrants to the Administrative Agent and the Lenders, on and as of the
Effective Date, that set forth on Exhibit C hereto is a complete and accurate
calculation of the entire aggregate outstanding principal amount of the Delta
Account Receivable.
                       (d)          Each of the Loan Parties hereby represents
and warrants to the Administrative Agent and the Lenders that other than the
Proof of Claim attached hereto as Exhibit D, none of the Loan Parties nor any of
their Affiliates have filed any other Proof of Claim with the Court or any other
court with respect to Lehman Brothers Holdings Inc. or any of its Affiliates.
                       (e)          Each of the Loan Parties hereby represents
and warrants to the Administrative Agent and the Lenders that such Loan Party
does not charge any interest or late fee with respect to any amount constituting
the Delta Account Receivable.
                       (f)          Each of the Administrative Agent and the
Lenders hereby represents and warrants to the Loan Parties that it is not aware
of any Default or Event of Default other than such Defaults and Events of
Defaults specified in Section 2 of this Agreement.
          6.          Continuing Effect; Liens and Guaranties.
                       (a)          Except as expressly set forth in this
Amendment, all of the terms and provisions of the Credit Agreement are and shall
remain in full force and effect and the Loan Parties shall continue to be bound
by all of such terms and provisions. The Amendment provided for herein is
limited to the specific provisions of the Credit Agreement specified herein and
shall not constitute an amendment of, or an indication of the Administrative
Agent’s or any Lender’s willingness to amend or waive, any other provisions of
the Credit Agreement or the same sections for any other date or purpose. Nothing
in this Amendment shall be deemed to be a novation of any of the obligations
under the Credit Agreement. Notwithstanding any provision of this Amendment or
any other document or instrument executed in connection herewith, the execution
and delivery of this Amendment shall be in substitution for, but not in payment
of, the obligations owed by the Borrower under the Credit Agreement
                       (b)          From and after the execution of this
Amendment, each reference to the “Agreement”, “Credit Agreement”, “Loan
Agreement” or other reference originally applicable to the Agreement contained
in any Loan Document shall be a reference to the Credit Agreement, as amended by
this Amendment.
                       (c)          Each of the Loan Parties expressly
acknowledges the terms of the Credit Agreement, as amended by this Amendment,
(ii) ratifies and affirms its obligations under the Loan Documents (including
but not limited to security documents and guarantees) executed by it, including
all Liens and guaranties granted to the Secured Parties under the applicable
Loan Documents and (iii) acknowledges, renews and extends its continued
liability under all such Loan Documents and agrees such Loan Documents remain in
full force and effect.
                       (d)          Each of the Loan Parties hereby reaffirms,
as of the date hereof, (i) the covenants and agreements contained in each Loan
Document to which it is a party, including, in each case, such covenants and
agreements as in effect immediately after giving effect to this Amendment and
the transactions contemplated hereby, and (ii) the Lien on the Collateral
securing payment of the Obligations pursuant to the Security Documents.

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                       (e)          The execution, delivery and effectiveness of
this Amendment shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of the Lenders or the Administrative Agent
under any of the Loan Documents, nor constitute a waiver or amendment of any
other provision of any of the Loan Documents or for any purpose except as
expressly set forth herein.
          7.          Expenses. The payment specified in Section 4(d) of this
Amendment shall constitute full and final payment and reimbursement to the
Administrative Agent for all its reasonable out-of-pocket costs and expenses
incurred prior to the Effective Date in connection with the negotiation,
preparation, execution and delivery of this Amendment, and other documents
prepared in connection herewith, and the transactions contemplated hereby,
including, without limitation, reasonable fees and disbursements and other
charges of counsel to the Administrative Agent. In the event of any conflict
between the provisions of Section 8 of this Amendment and Section 9.5 of the
Credit Agreement with respect to costs and expenses incurred prior to the
Effective Date, the provisions of this Section 8 shall apply; provided that
Section 9.5 of the Credit Agreement shall continue subsequent to the Effective
Date.
          8.          Release. Each of Holdings, the Borrower and the Loan
Parties hereby unconditionally and irrevocably waive all claims, suits, debts,
liens, losses, causes of action, demands, rights, damages or costs, or expenses
of any kind, character or nature whatsoever, known or unknown, fixed or
contingent, which any of them may have or claim to have against each Lender, the
Arranger and the Administrative Agent (whether in its capacity as an agent,
lender, hedging counterparty or otherwise) or its agents, employees, officers,
affiliates, directors, representatives, attorneys, successors and assigns
(collectively, the “Released Parties”) to the extent arising out of or in
connection with the Loan Documents or any prior or future Borrower request to
fund or make an extension of credit under the Credit Agreement including,
without limitation, any past or future failure by any Lender to fund any Loan
required to be funded by it under the Credit Agreement (collectively, the
“Claims”). Each of Holdings, the Borrower and the Loan Parties, each on behalf
of itself and its respective successors, assigns, and other legal
representatives, further agree forever to refrain from commencing, instituting
or prosecuting any lawsuit, action or other proceeding against any Released
Parties with respect to any and all of the foregoing described waived, released,
acquitted and discharged Claims and from exercising any right of recoupment or
setoff that it may have under a master netting agreement or otherwise against
any Released Party with respect to Obligations under the Loan Documents. Each of
the Released Parties shall be a third party beneficiary of this Agreement. If
Holdings, Borrower, any Loan Party or any their respective successors, assigns
or other legal representative violate the foregoing covenant, each of Holdings,
the Borrower, the Loan Parties and each of their respective successors, assigns
and legal representatives, agree to pay, in addition to such other damages as
any Released Party may sustain as a result of such violation, all attorneys’
fees and costs incurred by any Released Party as a result of such violation.
          9.          Consents. Each of the Lenders listed on the signature
pages hereto hereby irrevocably consents, pursuant to and in accordance with
Section 9.1 (Amendments and Waivers) of the Credit Agreement, to the waivers,
consents, amendments and other terms of this Amendment as of the Effective Date
and acknowledges and agrees to be bound by the terms of this Amendment and that
the terms of this Amendment shall not affect its obligations and liabilities as
a Lender under the Loan Documents (other than as expressly described in this
Amendment) and that all of such obligations and liabilities remain in full force
and effect and are hereby reaffirmed.
          10.          Choice of Law; Submission to Jurisdiction; Service of
Process. This Amendment and the rights and obligations of the Parties hereto
shall be governed by, and construed and interpreted in accordance with the law
of the State of New York. In addition, the Parties agree that Section 9.12 of
the Credit Agreement shall apply mutatis mutandis in relation to the submission
to jurisdiction and service of process.

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          11.          Counterparts. This Amendment may be executed in any
number of counterparts and by different parties and separate counterparts, each
of which when so executed and delivered, shall be deemed an original, and all of
which, when taken together, shall constitute one and the same instrument.
Delivery of an executed counterpart of a signature page to this Amendment by
facsimile or e-mail shall be effective as delivery of a manually executed
counterpart of this Amendment.
          12.          Integration. This Amendment, together with the other Loan
Documents, incorporates all negotiations of the Parties hereto with respect to
the subject matter hereof and is the final expression and agreement of the
Parties hereto with respect to the subject matter hereof.
          13.          Severability. In case any provision in this Amendment
shall be invalid, illegal or unenforceable, such provision shall be severable
from the remainder of this Amendment and the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
          14.          Loan Document. This Amendment is a Loan Document.
          15.          Waiver of Jury Trial. Each of the Parties hereto
irrevocably waives trial by jury in any action or proceeding with respect to
this Amendment and any other Loan Document.
          16.          Successors and Assigns. The terms of this Amendment shall
be binding upon, and shall inure to the benefit of, the Parties hereto and their
respective successors and assigns.
[Signature Pages Follow]

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          IN WITNESS WHEREOF, the parties have entered into this Amendment as of
the date first above written.

             
 
                DHS HOLDING COMPANY,         as Holdings    
 
           
 
  By:   /s/ Gregory D. Tubbs    
 
  Name:  
 
Gregory D. Tubbs    
 
  Title:   Executive Vice President    
 
                DHS DRILLING COMPANY,         as Borrower    
 
           
 
  By:   /s/ Gregory D. Tubbs    
 
  Name:  
 
Gregory D. Tubbs    
 
  Title:   Executive Vice President    
 
                C&L DRILLING COMPANY,         as Loan Party    
 
           
 
  By:   /s/ Gregory D. Tubbs    
 
  Name:  
 
Gregory D. Tubbs    
 
  Title:   Executive Vice President    
 
                CHAPMAN TRUCKING COMPANY,         as Loan Party    
 
           
 
  By:   /s/ Gregory D. Tubbs    
 
  Name:  
 
Gregory D. Tubbs    
 
  Title:   Executive Vice President    
 
                HASTINGS DRILLING COMPANY,         as Loan Party    
 
           
 
  By:   /s/ Gregory D. Tubbs    
 
  Name:  
 
Gregory D. Tubbs    
 
  Title:   Executive Vice President    

 

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                LEHMAN COMMERCIAL PAPER INC.,         as Administrative Agent  
 
 
           
 
  By:   /s/ Douglas Lambert    
 
  Name:  
 
Douglas Lambert    
 
  Title:   Vice President    
 
                LEHMAN COMMERCIAL PAPER INC.         as Lender    
 
           
 
  By:   /s/ Douglas Lambert    
 
  Name:  
 
Douglas Lambert    
 
  Title:   Vice President    

 

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EXHIBIT A
Amendments to the Credit Agreement
Effective as of the Effective Date, the Credit Agreement (together with the
Exhibits and Schedules thereto) is hereby amended as follows:
          1.          Section 1.1 (Defined Terms) is hereby amended by:
(a)          inserting the following definitions in alphabetical order therein:
“Amendment No. 2: as defined in the recitals hereto.
Amendment No. 2 Effective Date: the “Effective Date”, as defined in Amendment
No. 2.
Asset Sale Proceeds: the aggregate amount of Net Cash Proceeds of any Asset Sale
required to be applied to the prepayment of Loans in accordance with
Section 2.7(b).
Delta Account Receivable: the accounts receivable payable by Delta Petroleum
Corporation or its Affiliates to Borrower or any of its Subsidiaries set forth
on Exhibit C to Amendment No. 2. The aggregate outstanding amount of the Delta
Account Receivable as of the Amendment No. 2 Effective Date is $17,775,861.
Delta A/R Satisfaction Date: the date upon which a Responsible Officer of the
Borrower shall certify to the Administrative Agent that the principal amount of
and other amounts payable on the Delta Account Receivable has been fully paid at
par to the Borrower by Delta Petroleum Corporation, without discount, compromise
or setoff.
Ratable Portion: with respect to any Lender, the percentage obtained by dividing
the outstanding principal amount of such Lender’s Loans by the aggregate
outstanding principal amount of the Loans of all Lenders.
Scheduled Installment: the amount of each scheduled repayment of Loans payable
under Section 2.4(a).”
                       (b)          deleting the terms “Loan Percentage”,
“Make-Whole Price”, “Required Equity Contribution”, “Term A Commitment”, “Term A
Lender”, “Term A Loan Percentage”, “Term A Loan”, “Term B Commitment”, “Term B
Lender”, “Term B Loan Percentage”, and “Term B Loan” in their entirety.
                       (c)          amending and restating the definitions of
the following terms:
“Applicable Interest Margin: a per annum rate equal to 6.25%.
Benefited Lender: as defined in Section 9.7(a).

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Borrowing Notice: with respect to any request for borrowing of Loans hereunder,
a notice from Borrower, substantially in the form of, and containing the
information prescribed by, Exhibit B, delivered to the Administrative Agent.
Commitment Expiration Date: the earlier of (a) the Amendment No. 2 Effective
Date and (b) December 31, 2009.
Consolidated Current Assets: at any date, the total consolidated current assets
(other than cash and Cash Equivalents) of Borrower and its Subsidiaries at such
date, adjusted for non-cash assets, determined in conformity with GAAP.
Consolidated Current Liabilities: at any date, all liabilities of Borrower and
its Subsidiaries at such date which should, in conformity with GAAP, be
classified as current liabilities, adjusted for non-cash liabilities, on a
consolidated balance sheet of Borrower and its Subsidiaries prepared in
conformity with GAAP, but excluding the sum of (a) the principal amount of any
current portion of long-term Indebtedness and (b) (without duplication of clause
(a) above) the then outstanding principal amount of Loans.
Consolidated Total Debt: at any date, the aggregate principal amount of all
Indebtedness of Borrower and its Subsidiaries at such date, determined on a
consolidated basis in accordance with GAAP, less (i) the aggregate amount of all
Cash and Cash Equivalents in excess of $1,000,000 and (ii) until the earlier of
(A) the Initial Service Date of any Additional Rig(s) and (B) the quarter ending
June 30, 2010, the aggregate portion of the principal amount of Loans used to
acquire such Additional Rig(s).
Loans: as defined in Section 2.1(b). The aggregate principal amount of Loans
outstanding as of the Amendment No. 2 Effective Date is $83,267,500.”
          2.          Sections 2.1(a) and 2.1(b) are hereby deleted in their
entirety and the following is inserted in lieu thereof:
                         (i)          The Credit Parties acknowledge and agree
that as of immediately prior to the Closing Date the aggregate principal amount
of all loans outstanding under the Existing Credit Agreement equals $83,267,500
(the “Existing Loans”) and that, subject to Section 4.1, the entire principal
balance of such Existing Loans are hereby converted into and continued as term
loans hereunder (such loans, together with any loans made by Lender pursuant to
clause (b) below prior to the Amendment No. 2 Effective Date, “Loans”).
                         (ii)          Subject to the terms and conditions
hereof, each Lender severally agrees to make additional term loans to Borrower,
from time to time prior to the Commitment Expiration Date, on any Borrowing Date
requested by Borrower, subject to Section 4.2, in an aggregate principal amount
not to exceed such Lender’s Commitment (set forth on Schedule 1.1 hereto) as of
such Borrowing Date.
          3.          Each instance of the phrase “Term B” is hereby deleted in
Section 2.2 and the phrase “requested after the Closing Date” is hereby inserted
immediately prior to the first use of the term “Borrower” in such section.
          4.          Section 2.4(a) subclause (i) and (ii) are hereby deleted
in their entirety and the following is inserted in lieu thereof:

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“(i)          Borrower promises to repay the Loans at the dates and in the
amounts as set forth below, subject to any reductions in accordance with
Section 2.7, with the entire unpaid principal amount of Loans payable on the
Maturity Date:

             
Installment Date:

   Scheduled Installment of Principal:    
2008
       $0     
2009
       $0     
April 1, 2010
       $7,633,663     
May 1, 2010
       $2,000,000     
August 1, 2010
       $2,000,000     
November 1, 2010
       $2,000,000     
January 1, 2011
       $2,000,000     
April 1, 2011
       $5,000,000     
July 1, 2011
       $5,000,000     

“          
          5.          Section 2.4(e) is hereby deleted in its entirety and the
following is inserted in lieu thereof:
“Borrower agrees that, upon the request to the Administrative Agent by any
Lender, Borrower will promptly execute and deliver to such Lender a promissory
note of Borrower evidencing any Loans of such Lender, substantially in the form
of Exhibit G (a “Note”), with appropriate insertions as to date and principal
amount; provided that delivery of Notes shall not be a condition precedent to
the occurrence of the Closing Date or the making of the Loans on any Borrowing
Date.”
          6.          Section 2.6 is hereby deleted in its entirety and the
following is inserted in lieu thereof:
“(a)          At any time after August 31, 2009, Borrower may, upon at least
three Business Days’ prior notice to the Administrative Agent stating the
Prepayment Date and aggregate principal amount of the prepayment, prepay, at
par, on any date the outstanding principal amount of the Loans, in whole or in
part, at Borrower’s option, together with accrued interest through the
Prepayment Date on the principal amount prepaid, in accordance with the
provisions of this Agreement.
(b)          Each partial prepayment shall be in an aggregate amount not less
than $200,000 or integral multiples of $100,000 in excess thereof, and any such
prepayment must be accompanied by payment of Agent’s and each Lender’s
reasonable out-of-pocket expenses and payment of any LIBOR funding breakage
costs in accordance with Section 2.12. Upon the giving of such notice of
prepayment, the principal amount of the Loans specified to be prepaid and at the
applicable price specified therefor, together with the accrued interest through
the Prepayment Date shall become due and payable on the Prepayment Date.
(c)          Upon the giving of any such notice of prepayment, the principal
amount of the Loans specified to be prepaid, together with the accrued interest
thereon through the Prepayment Date shall become due and payable on the
Prepayment Date.
(d)          Any optional prepayment under this Section 2.6 shall be applied to
the Loans as set forth in Section 2.9 below.”

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          7.          Section 2.7 is hereby deleted in its entirety and the
following is inserted in lieu thereof:
“(a)          Unless the Required Lenders shall otherwise agree, if any Capital
Stock shall be issued (excluding any Permitted Equity Financing and the Required
Equity Contribution), or any Indebtedness (excluding any Permitted Indebtedness)
incurred, by any Loan Party or any Person shall make any contribution to the
capital of any Loan Party (excluding any Permitted Equity Financing, the
Required Equity Contribution and contributions by Holdings to the capital of
Borrower, or by Borrower to the capital of any Wholly Owned Subsidiary
Guarantor), then on the date of such issuance, incurrence or capital
contribution, Borrower shall prepay the principal amount of the Loans in an
amount equal to the amount of the Net Cash Proceeds of such issuance, incurrence
or capital contribution. The provisions of this Section 2.7(a) do not constitute
a consent to the issuance of any Capital Stock by any Person whose Capital Stock
is pledged pursuant to any Security Document, or a consent to the incurrence of
any Indebtedness or the making of any capital contribution by any Loan Party.
(b)          Unless the Required Lenders shall otherwise agree, if on any date
any Loan Party shall receive a Purchase Price Refund or Net Cash Proceeds from
any Asset Sale or Recovery Event then, on the date of receipt by such Person of
such Net Cash Proceeds or such Purchase Price Refund, Borrower shall (i) prepay
the principal amount of the Loans in an amount equal to the amount of such Net
Cash Proceeds from any Recovery Event or of such Purchase Price Refund and
(ii) prepay, in an amount equal to the amount of such Net Cash Proceeds from any
Asset Sale and such prepayment shall be applied, first, to prepay the
immediately succeeding Scheduled Installment in full, second, to prepay all
interest payable on the immediately succeeding quarterly Interest Payment Date
in full, third, to pay the second succeeding Scheduled Installment and fourth,
to prepay the remaining principal amount of Loans in accordance with
Section 2.9(a)(iii) or, at the applicable Loan Party’s option, all interest
payable on the second succeeding quarterly Interest Payment Date with the
remainder being applied to prepay the principal amount of Loans in accordance
with Section 2.9(a)(iii); provided, however, that in the case of any Net Cash
Proceeds constituting the Reinvestment Deferred Amount with respect to a
Reinvestment Event, Borrower shall prepay the Loans in an amount equal to the
Reinvestment Prepayment Amount applicable to such Reinvestment Event, if any, on
the Reinvestment Prepayment Date with respect to such Reinvestment Event;
provided further that the aggregate Net Cash Proceeds of Reinvestment Events
that may be specified as Reinvestment Deferred Amounts in one or more
Reinvestment Notices shall not exceed $100,000 in the case of any Reinvestment
Event and $200,000 in the aggregate in the case of all Reinvestment Events. The
provisions of this Section do not constitute a consent to the consummation of
any Disposition not permitted by Section 6.5.
(c)          Not later than the fifth business day following the date on which
the Borrower delivers the quarterly statements required by Section 5.1(b),
Borrower shall prepay the principal amount of the Loans in an amount equal to
75% of Excess Cash Flow for such fiscal quarter;
(d)          Upon the occurrence of a Change of Control that has not been duly
waived by the Lenders and the Administrative Agent pursuant to Amendment No. 2,
the Required Lenders, at their sole discretion, may require Borrower to
immediately prepay the outstanding principal amount of the Loans (after
considering any prepayments by Borrower pursuant to Section 2.6), together with
all other amounts owing under this

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Agreement or any Loan Document including any fees and expenses earned or then
due and payable under any Loan Document.
(e)          Each prepayment of the Loans pursuant to this Section 2.7 shall be
applied in accordance with Section 2.9 below and shall be accompanied by payment
of accrued interest to the Prepayment Date on the principal amount prepaid.
(f)          In the event of any overpayment of interest pursuant to
Section 2.7(b), as determined by the Administrative Agent from time to time,
which computations shall be conclusive in the absence of manifest error, the
Administrative Agent shall apply an amount equal to such overpayment to reduce
the outstanding principal amount of the Loans
          8.          Sections 2.8(b) and (c) are hereby deleted in its entirety
and the following is inserted in lieu thereof:
“(b)          Subject to Section 2.7(b) and (e) and Section 2.9(h), interest on
the Loans shall be payable in arrears on each Interest Payment Date, provided
that interest accruing pursuant to Section 2.8(a) shall be payable from time to
time on demand.
(c)          Interest, fees and commissions payable pursuant hereto shall be
calculated on the basis of a year of 360 days.”
          9.          Section 2.9(a) is hereby deleted in its entirety and the
following is inserted in lieu thereof:
“(a)          (i) The borrowing by Borrower of Loans from the Lenders hereunder,
any reduction of the Commitments of the Lenders and, subject to Section 2.9(c),
each payment by Borrower on account of any fee, shall be made pro rata according
to the Ratable Portion of each Lender.
(ii) Each payment (including prepayments) in respect of principal or interest in
respect of any Loans and each payment in respect of fees or expenses payable
hereunder shall be applied to the amounts of such obligations owing to the
Lenders pro rata according to the respective amounts then due and owing to the
Lenders.
(iii) Any optional prepayments made by Borrower pursuant to Section 2.6 and any
mandatory prepayments of principal made by Borrower pursuant to Section 2.7
(including in respect of any Asset Sales consummated following the occurrence of
the Delta A/R Satisfaction Date) shall be applied first to reduce the Scheduled
Installments in stated order of their maturities and second to any remaining
principal amount of Loans then outstanding. For the avoidance of doubt, the
application of Net Cash Proceeds of Assets Sales will be governed by the
provisions of Section 2.7(b) until such provisions explicitly require the
application of such Net Cash Proceeds to be in accordance with this
Section 2.9(a)(iii).
(iv) Amounts prepaid on account of the Loans may not be reborrowed.”
          10.       Section 2.9(c)(iv) is hereby amended by deleted the
parenthetical at the end of such subclause in its entirety;

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          11.       Section 3.2 is hereby amended by deleting the “.” at the end
thereof and inserting the following in lieu thereof:
“, except as disclosed in writing to the Administrative Agent prior to the
Amendment No. 2 Effective Date.”
          12.       Section 4.2 is hereby amended by deleting the each instance
of the phrase “Term B” and replacing the first instance of such phrase with the
word “Additional” and replacing the second instance of such phrase with the word
“additional” in lieu thereof.
          13.       Section 5.1 is hereby amended by inserting the word “and” at
the end of clause (c) thereof, by deleting the “and” at the end of clause
(d) thereof, and by deleting clause (e) in its entirety.
          14.       Section 5.3 is hereby amended by deleting the parenthetical
“(A)” in its entirety and by deleting the phrase “or (B) the existence of a
Collateral Value Deficiency, in each case” in its entirety.
          15.       Section 5.15 is hereby amended by deleting it in its
entirety and replacing it with the following in lieu thereof:
“Appraisals. At the sole expense of the Borrower, obtain and deliver to the
Administrative Agent a Rig Appraisal (i) no later than June 30 of each year
following the Amendment No. 2 Effective Date, (ii) no later than December 31 of
each year following the Amendment No. 2 Effective Date and (iii) at any other
time as the Administrative Agent may request; provided, however, that so long as
no Default or Event of Default has occurred or is continuing, Borrower shall not
be required to obtain and deliver more than three Rig Appraisals in any calendar
year; provide further, that after the occurrence and during the continuance of a
Default or Event of Default, Borrower shall obtain and deliver Rig Appraisals at
any time and frequency, but in no case more than four Rig Appraisals in any
calendar year.”
          16.       The existing Section 5.16 is hereby re-numbered as
Section 5.17, and the following new Section 5.16 is inserted therein:
“Meetings of the Board of Directors.
(a)          Contemporaneously with notification to the persons constituting the
Board of Directors or equivalent of each of the Borrower and each Loan Party,
notify the Administrative Agent of any such meeting and provide the
Administrative Agent with any written materials distributed in connection with
such meeting.
(b)          As soon as available and in any event within ten (10) Business Days
after any meeting of the Board of Directors or equivalent of each of the
Borrower and each Loan Party, Borrower shall deliver, or cause to be delivered,
to the Administrative Agent the minutes of such meeting, duly certified by the
Secretary or Assistant Secretary of the Borrower or the applicable Loan Party as
being a true, accurate and complete copy of such minutes.”
          17.       Section 6.1 is hereby deleted in its entirety and the
following is inserted in lieu thereof:
          “(a)       Minimum Consolidated EBITDA. (i) Permit the Consolidated
EBITDA for any period of four consecutive fiscal quarters of Borrower ending
with any fiscal quarter to be less than the amounts set forth below for such
periods:

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                Period     EBITDA    
For the periods ending on or prior to March 31, 2009

    $20,000,000     
For the periods ending after March 31, 2009 and before March 31, 2010

    $25,000,000     

          (ii) Permit the Consolidated EBITDA for any fiscal quarter to be less
than the correlative amount set forth below for such fiscal quarter:

               
Fiscal Quarter    
EBITDA    
For the fiscal quarter ending March 31, 2010

    $100,000     
For the fiscal quarter ending June 30, 2010

    $250,000     
For the fiscal quarter ending September 30, 2010

    $1,000,000     
For the fiscal quarter ending December 31, 2010 and each fiscal quarter
thereafter
    $1,500,000     

          (b)          Consolidated Leverage Ratio. Permit the Consolidated
Leverage Ratio as at the last day of any period of four consecutive fiscal
quarters of Borrower, beginning with the four-fiscal-quarter period ending
September 30, 2008 until the four-fiscal-quarter period ending December 31,
2009, to exceed 3.5:1.0. For purposes of this Section 6.1(b) and notwithstanding
any other provision herein to the contrary, in determining Borrower’s
Consolidated EBITDA for purposes of calculating the Consolidated Leverage Ratio:
               (i)          for all determinations made prior to the last day of
the first fiscal quarter of Borrower after the Initial Service Date for any
Additional Rig, the projected income for such Additional Rig shall be as
provided by Borrower in the Borrowing Notice for the applicable Loans utilized
to acquire such Additional Rig (including any deposits made for the acquisition
of such Additional Rig) and acceptable to the Administrative Agent; and
               (ii) for all determinations made as at and after the last day of
the first fiscal quarter of Borrower after the Initial Service Date for any
Additional Rig and as at and prior to the last day of any period of four
consecutive fiscal quarters of Borrower after the Initial Service Date for any
Additional Rig, the income derived from the utilization of such Additional Rig
shall be an annualized amount based on the actual income derived from the
utilization of such Additional Rig so that such income for one fiscal quarter
shall be multiplied by four, for two fiscal quarters shall be multiplied by two
and for three fiscal quarters shall be multiplied by four-thirds.
          (c)          Consolidated Interest Coverage Ratio. Permit the
Consolidated Interest Coverage Ratio for any period of four consecutive fiscal
quarters of Borrower, beginning with the four-fiscal-quarter period ending
September 30, 2008 until the four-fiscal-quarter period ending December 31, 2009
to be less than 2.5:1.0.
          (d)          [INTENTIONALLY OMITTED.]”
          18.        Section 6.3(g) is hereby amended by inserting the word
“and” at the end thereof;

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          19.        Section 6.6 is hereby amended by deleting the reference to
“Section 5.16(c)” therein and inserting a reference to “Section 5.17(c)” in lieu
thereof;
          20.        Section 6.7 is hereby deleted in its entirety and the
following is inserted in lieu thereof:
(a)          “6.7  Capital Expenditures. Make or commit to make, in any fiscal
year, an aggregate amount of Capital Expenditure in excess of the Permitted
Capex Amount; provided that Borrower and its Subsidiaries shall not make or
commit an aggregate amount of Capital Expenditures in excess of $1,200,000 in
any fiscal quarter. For purposes hereof, “Permitted Capex Amount” means, (i) for
any fiscal year after the Amendment No. 2 Effective Date other than 2011, an
amount equal to $3,500,000 and (ii) for 2011, an amount equal to $3,500,000
multiplied by the percentage constituting (A) the number of days between, and
including, January 1, 2010 and the Maturity Date divided by (B) 365.
          21.        Section 7.1(c) is hereby amended by inserting the words
“Section 5.17” directly after the words “Section 5.16,”;
          22.        Section 9.2 is hereby amended by deleting each word between
the “:” at the end of the first paragraph and the proviso at the end thereof,
and replacing it with the following in lieu thereof:

     
“Holdings:
  DHS Drilling Company
 
  P.O. Box 277
 
  1813 Coleman Circle
 
  Casper, Wyoming 8260
 
  Attention: Bill Sauer, Jr.
 
  Facsimile: (307) 473-5377
 
   
Borrower
  DHS Drilling Company
 
  P.O. Box 277
 
  1813 Coleman Circle
 
  Casper, Wyoming 8260
 
  Attention: Bill Sauer, Jr.
 
  Facsimile: (307) 473-5377
 
   
with a copy to:
  DHS Drilling Company
 
  370 17th Street, Suite 4300
 
  Denver, Colorado 80202
 
  Attention: Gregg Tubbs
 
  Facsimiles: (303) 575-0403
 
   
 
  Polsinelli Shughart PC
 
  1515 Wynkoop, Suite 600
 
  Denver, Colorado 80202
 
  Attention: Peter T. Moore
 
  Facsimile: (720) 228-2309

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Agent(s):
  Lehman Commercial Paper Inc.
 
  1271 Avenue of the Americas, 38th Floor
 
  New York, New York 10020
 
  Attention: Yvonne Lin-Lu
 
  Email: yvonne.lin@lehmanholdings.com
 
  with a copy to:
 
  Attention: Eric Salzman
 
  Facsimile: (646) 758-3071
 
  Email: eric.salzman@lehmanholdings.com
 
  and:
 
  Attention: Howard Liao
 
  Email: howard.liao@lehmanholdings.com
 
   
with a copy to:
  Weil, Gotshal & Manges LLP
 
  767 Fifth Avenue
 
  New York, New York 10153
 
  Attention: Andrew Colao
 
  Facsimile: (212) 310-8007”

          23.        Section 9.7 is hereby amended by deleting each instance of
the term “Benefitted Lender” and replacing it with “Benefited Lender” in lieu
thereof.
          24.        Schedule 1.1 is hereby amended in the form of Annex 1
hereto.

A-9