Exhibit 10.1
 

 

 

 

 

 

 
AMENDED AND RESTATED CREDIT AGREEMENT
 
dated as of May 26, 2010
 
among
 
Northern Oil and Gas, Inc.,
as Borrower,
 
Macquarie Bank Limited,
as Administrative Agent,
 
and
 
The Lenders Party Hereto
 

 

 

 

 

 

 
 

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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 
21

 
Section 1.04
Terms Generally; Rules of Construction 
22

 
Section 1.05
Accounting Terms and Determinations; GAAP 
22

 
ARTICLE II
THE CREDITS
 
 
Section 2.01
Commitments 
22

 
Section 2.02
Loans and Borrowings. 
22

 
Section 2.03
Requests for Borrowings 
24

 
Section 2.04
Interest Elections; Conversions. 
25

 
Section 2.05
Funding of Borrowings. 
26

 
Section 2.06
Termination and Reduction of Aggregate Maximum Credit Amounts. 
27

 
Section 2.07
Borrowing Base. 
27

 
Section 2.08
Letters of Credit. 
30

 
Section 2.09
Loans and Borrowings Under Existing Credit Agreement 
35

 
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES
 
 
Section 3.01
Repayment of Loans 
35

 
Section 3.02
Interest. 
35

 
Section 3.03
Alternate Rate of Interest 
36

 
Section 3.04
Prepayments. 
37

 
Section 3.05
Fees. 
39

 
ARTICLE IV
PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS
 
 
Section 4.01
Payments Generally; Pro Rata Treatment; Sharing of Set-offs. 
40

 
Section 4.02
Presumption of Payment by the Borrower 
41

 
Section 4.03
Certain Deductions by the Administrative Agent 
42

 
Section 4.04
Disposition of Proceeds 
42

 
ARTICLE V
INCREASED COSTS; BREAK FUNDING PAYMENTS; TAXES; ILLEGALITY
 
 
Section 5.01
Increased Costs. 
42

 
Section 5.02
Break Funding Payments 
43

 
Section 5.03
Taxes. 
44

 
Section 5.04
Designation of Different Lending Office 
46

 
Section 5.05
Illegality 
47

 
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ARTICLE VI
CONDITIONS PRECEDENT

 
Section 6.01
Effective Date 
47

 
Section 6.02
Each Credit Event 
50

 
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
 
 
Section 7.01
Organization; Powers 
51

 
Section 7.02
Authority; Enforceability 
51

 
Section 7.03
Approvals; No Conflicts 
51

 
Section 7.04
Financial Condition; No Material Adverse Change. 
52

 
Section 7.05
Litigation. 
52

 
Section 7.06
Environmental Matters 
52

 
Section 7.07
Compliance with the Laws and Agreements; No Defaults. 
54

 
Section 7.08
Investment Company Act 
54

 
Section 7.09
Taxes 
54

 
Section 7.10
ERISA. 
54

 
Section 7.11
Disclosure; No Material Misstatements 
55

 
Section 7.12
Insurance 
56

 
Section 7.13
Restriction on Liens 
56

 
Section 7.14
Subsidiaries 
56

 
Section 7.15
Location of Business and Offices 
56

 
Section 7.16
Properties; Titles, Etc. 
56

 
Section 7.17
Maintenance of Properties 
57

 
Section 7.18
Gas Imbalances, Prepayments 
58

 
Section 7.19
Marketing of Production 
58

 
Section 7.20
Swap Agreements 
58

 
Section 7.21
Use of Loans and Letters of Credit 
58

 
Section 7.22
Solvency 
58

 
Section 7.23
Casualty Events 
59

 
Section 7.24
Material Agreements 
59

 
Section 7.25
No Brokers 
59

 
Section 7.26
Reliance 
59

 
Section 7.27
Payments by Purchasers of Production 
60

 
Section 7.28
Existing Accounts Payable 
60

 
ARTICLE VIII
AFFIRMATIVE COVENANTS
 
 
Section 8.01
Financial Statements; Ratings Change; Other Information 
60

 
Section 8.02
Notices of Material Events 
64

 
Section 8.03
Existence; Conduct of Business 
65

 
Section 8.04
Payment of Obligations 
65

 
Section 8.05
Performance of Obligations under Loan Documents 
65

 
Section 8.06
Operation and Maintenance of Properties 
65

 
Section 8.07
Insurance 
66

 
Section 8.08
Books and Records; Inspection Rights 
66

 
Section 8.09
Compliance with Laws 
67

 
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Section 8.10
Environmental Matters. 
67

 
Section 8.11
Further Assurances. 
68

 
Section 8.12
Reserve Reports. 
68

 
Section 8.13
Title Information. 
69

 
Section 8.14
Additional Collateral; Additional Guarantors. 
70

 
Section 8.15
ERISA Compliance 
71

 
Section 8.16
Swap Agreements 
71

 
Section 8.17
Marketing Activities 
72

 
ARTICLE IX
NEGATIVE COVENANTS
 
 
Section 9.01
Financial Covenants. 
72

 
Section 9.02
Debt 
72

 
Section 9.03
Liens 
73

 
Section 9.04
Dividends, Distributions and Repayment of Officer Notes. 
73

 
Section 9.05
Investments, Loans and Advances 
74

 
Section 9.06
Nature of Business 
75

 
Section 9.07
Limitation on Leases 
75

 
Section 9.08
Proceeds of Notes 
75

 
Section 9.09
ERISA Compliance 
75

 
Section 9.10
Sale or Discount of Receivables 
76

 
Section 9.11
Mergers, Etc 
76

 
Section 9.12
Sale of Properties 
77

 
Section 9.13
Environmental Matters 
77

 
Section 9.14
Material Agreements 
78

 
Section 9.15
Transactions with Affiliates 
78

 
Section 9.16
Subsidiaries 
78

 
Section 9.17
Negative Pledge Agreements; Dividend Restrictions 
78

 
Section 9.18
Gas Imbalances, Take-or-Pay or Other Prepayments 
78

 
Section 9.19
Swap Agreements 
78

 
Section 9.20
Sale and Leasebacks 
79

 
Section 9.21
Amendments to Organizational Documents 
79

 
ARTICLE X
EVENTS OF DEFAULT; REMEDIES
 
 
Section 10.01
Events of Default 
79

 
Section 10.02
Remedies. 
81

 
ARTICLE XI
THE ADMINISTRATIVE AGENT
 
 
Section 11.01
Appointment; Powers 
82

 
Section 11.02
Duties and Obligations of Administrative Agent 
82

 
Section 11.03
Action by Administrative Agent 
83

 
Section 11.04
Reliance by Administrative Agent 
84

 
Section 11.05
Subagents 
84

 
Section 11.06
Resignation or Removal of Administrative Agent 
84

 
Section 11.07
Administrative Agent as Lender 
85

 
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Section 11.08
No Reliance. 
85

 
Section 11.09
Administrative Agent May File Proofs of Claim 
86

 
Section 11.10
Authority of Administrative Agent to Release Collateral and Liens 
87

 
ARTICLE XII
MISCELLANEOUS
 
 
Section 12.01
Notices. 
87

 
Section 12.02
Waivers; Amendments. 
88

 
Section 12.03
Expenses, Indemnity; Damage Waiver. 
89

 
Section 12.04
Successors and Assigns. 
92

 
Section 12.05
Survival; Revival; Reinstatement. 
95

 
Section 12.06
Counterparts; Integration; Effectiveness. 
96

 
Section 12.07
Severability 
96

 
Section 12.08
Right of Setoff 
97

 
Section 12.09
GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS. 
97

 
Section 12.10
Headings 
98

 
Section 12.11
Confidentiality 
98

 
Section 12.12
Interest Rate Limitation 
99

 
Section 12.13
EXCULPATION PROVISIONS 
100

 
Section 12.14
Collateral Matters; Swap Agreements 
100

 
Section 12.15
No Third Party Beneficiaries 
100

 
Section 12.16
USA Patriot Act Notice 
100

 

 

 
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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                                Security Instruments
Exhibit F                                Form of Assignment and Assumption
Exhibit G                                Form of Swap Agreement Certificate
Exhibit H                                Form of Reserve Report Certificate
Exhibit I                                List of Unmortgaged Properties

Schedule 7.05                                           Litigation
Schedule 7.14                                           Subsidiaries and
Partnerships
Schedule 7.18                                           Gas Imbalances
Schedule 7.19                                           Marketing Contracts
Schedule 7.20                                           Swap Agreements
Schedule 7.24                                           Material Agreements
Schedule 7.28                                           Existing Accounts
Payable
Schedule 9.12                                           Oil and Gas Properties
to be Sold

 

 
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THIS AMENDED AND RESTATED CREDIT AGREEMENT dated as of May 26, 2010, is among:
Northern Oil and Gas, Inc., a corporation duly formed and existing under the
laws of the State of Nevada (the “Borrower”), each of the Lenders from time to
time party hereto and Macquarie Bank Limited (in its individual capacity,
“MBL”), as administrative agent for the Lenders (in such capacity, together with
its successors in such capacity, the “Administrative Agent”).
 
R E C I T A L S
 
A.           The Borrower, CIT Capital USA, Inc. and the lender party thereto
have heretofore entered into that certain Credit Agreement, dated as of February
27, 2009 (as amended, the “Existing Credit Agreement”).
 
B.            The administrative agent and lenders under the Existing Credit
Agreement have assigned all of their right, title and interest in and to the
such agreement and the notes and liens relating thereto to MBL.
 
C.           The Borrower has requested that the Lenders continue to provide
certain loans to and extensions of credit on behalf of the Borrower through an
amendment and restatement of the Existing Credit Agreement.
 
D.           The Lenders have agreed to make such loans and extensions of credit
subject to the terms and conditions of this Agreement.
 
E.           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.
 
“Administrative Questionnaire” means an Administrative Questionnaire in a form
supplied by the Administrative Agent.
 
“Affected Loans” has the meaning assigned such term in Section 5.05.
 

 
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“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.
 
“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 Amended and Restated Credit Agreement, as the same may
from time to time be amended, modified, supplemented or restated.
 
“Alternate Base Rate” means the Prime Rate.
 
“Applicable Margin” means, for any day, with respect to any ABR Loan or
Eurodollar Loan, 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
2.50%
2.75%
3.00%
3.25%
   ABR Loans
2.00%
2.00%
2.25%
2.50%

Each change in the Applicable Margin shall apply during the period commencing on
the effective date of such change and ending on the date immediately preceding
the effective date of the next such change; provided that if at any time the
Borrower fails to deliver a Reserve Report pursuant to Section 8.12(a), then the
“Applicable Margin” means 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 Fund” means (i) any Person (other than a natural person) that is
engaged in making, purchasing, holding, or investing in commercial loans and
similar extensions of credit 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, advises or manages a Lender; (ii) with respect to any
Lender that is an investment fund, any other investment fund that invests in
loans and that is advised, administered or managed by the same investment
advisor as such Lender or by an Affiliate of such investment advisor; and (iii)
any third party which provides “warehouse financing” to a Person described in
the preceding clause (i) or (ii) (and any Person described in said clause (i) or
(ii) shall also be deemed an Approved Fund with respect to such third party
providing such warehouse financing).
 
“Approved Petroleum Engineers” means (a) Ryder Scott Company Petroleum
Consultants, L.P. and (b) any other independent petroleum engineers reasonably
acceptable to the Administrative Agent.
 

 
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“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 F or any other form approved by the Administrative Agent.
 
“Auction-Rate Securities” means those certain UBS auction rate securities in an
aggregate principal amount up to $2,825,143 held in Borrower’s investment
account Number RP 08144 at UBS Financial Services, Inc. or Borrower’s investment
account Number RP 21955 at UBS Financial Services, Inc., including, but not
limited to, those identified as follows:
 
(a)           NICHOLAS APPLEGATE CONY & INCOME FUND SER A M-7 AUCT PFD 3.28%
identified by CUSIP Number 65370F200;
 
(b)           ILLINOIS STUD ASST VIII-7 28DAY ARC TX RV BE/R/ VARIABLE RATE RATE
04.251% MATURES 03/01/45 identified by CUSIP Number 452281HW1;
 
(c)           INDIANA SECNDRY MRKT EDU SER 05-3 RV TAXBLE BE/R/VARIABLE RATE
RATE 03.844% MATURES 12/01/45 identified by CUSIP Number 455900AW0; and
 
(d)           KENTUCKY HGHR ED STUD LN SER A-4 REV TXBLE BE/R/VARIABLE RATE RATE
03.920% MATURES 06/11/35 identified by CUSIP Number 49130NBE8.
 
“Auction-Rate Securities Documents” means the “Acceptance of UBS’s offer
relating to auction rate securities” relating to Borrower’s investment account
Number RP 08144 at UBS Financial Services, Inc., the “Acceptance of UBS’s offer
relating to auction rate securities: relating to Borrower’s investment account
Number RP 21955 at UBS Financial Services, Inc., the Prospectus of UBS AG dated
October 7, 2008 relating to the Auction-Rate Securities and all other documents
related to an offer by UBS AG to liquidate the Borrower’s Auction Rate
Securities.
 
 “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.
 

 
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“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.
 
“Capital Expenditures” means, in respect of any Person, for any period, the
aggregate (determined without duplication) of all exploration and development
expenditures and costs that should be capitalized in accordance with GAAP and
any other expenditures that are capitalized on the balance sheet of such Person
in accordance with GAAP.
 
“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.
 
“Cash Receipts” means all cash or cash equivalents received by or on behalf of
the Borrower and its Subsidiaries with respect to the following: (a) sales from
the Oil and Gas Properties (including any other working interest owner receipts
received by Borrower or its Affiliates as operator of Oil and Gas Properties),
(b) cash representing operating revenue earned or to be earned by the Borrower
and its Subsidiaries, (c) any insurance proceeds received by the Borrower or its
Subsidiaries, (d) any net proceeds from Swap Agreements and (e) any other cash
or cash equivalents received by the Borrower or its Subsidiaries from whatever
source; provided that advances under the Loans, and any capital contributions or
transfers made to the Borrower by any of its members, or by the Borrower to any
of its Subsidiaries, shall not constitute “Cash Receipts”.
 
“Casualty Event” means any loss, casualty or other insured damage to any
Property of the Borrower or any of its Subsidiaries in an amount greater than
$250,000, or any nationalization, taking under power of eminent domain or by
condemnation or similar proceeding of, any Property of the Borrower or any of
its Subsidiaries having a fair market value in excess of $250,000.
 
“Change in Control” means the occurrence of the following events:  (a) the
acquisition of ownership, directly or indirectly, beneficially or of record, by
any Person or group (within the meaning of the Securities Exchange Act of 1934
and the rules of the SEC thereunder as in effect on the date hereof) other than
Michael Reger or Ryan Gilbertson of Equity Interests so that such Person or
group owns 30% or more of the aggregate ordinary voting power represented by the
issued and outstanding Equity Interests of the Borrower, (b) occupation of a
majority of the seats
 

 
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(other than vacant seats) on the board of directors of the Borrower by Persons
who were neither (i) nominated by the board of directors of the Borrower nor
(ii) appointed by directors so nominated or (c) Michael Reger or Ryan Gilbertson
shall cease to devote a substantial amount of their time, respectively, to the
day-to-day management of the Credit Parties.
 
“Change in Law” means (a) the adoption of any law, rule or regulation after the
date of this Agreement by any Governmental Authority, (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 potential 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.  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” means, on any day, a rate per annum equal to 0.500%.
 
“Consolidated Net Income” means with respect to the Borrower and the
Consolidated Subsidiaries, for any period, the aggregate of the net income (or
loss) of the Borrower and the Consolidated Subsidiaries after allowances for
taxes for such period determined on a consolidated basis in accordance with
GAAP; provided that there shall be excluded from such net income (to the extent
otherwise included therein) the following:  (a) the net income of any Person in
which the Borrower or any Consolidated Subsidiary has an interest (which
interest does not cause the net income of such other Person to be consolidated
with the net income of the Borrower and its Consolidated Subsidiaries in
accordance with GAAP), except to the extent of the amount of dividends or
distributions actually paid in cash during such period by such other Person to
the Borrower or to a Consolidated Subsidiary, as the case may be; (b) the net
income (but not loss) during such period of any Consolidated Subsidiary to the
extent that the declaration or payment of dividends or similar distributions or
transfers or loans by that Consolidated Subsidiary is not at the time permitted
by operation of the terms of its charter or any agreement, instrument or
Governmental Requirement applicable to such Consolidated Subsidiary or is
otherwise restricted or prohibited, in each case determined in accordance with
GAAP; (c) any extraordinary gains or losses during such period and (d) any gains
or losses attributable to writeups or writedowns of assets, including ceiling
test writedowns; and provided further that if the Borrower 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
 

 
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such acquisition or disposition, as if such acquisition or disposition had
occurred on the first day of such period.
 
“Consolidated Subsidiaries” means each Subsidiary of the Borrower (whether now
existing or hereafter created or acquired) the financial statements of which
shall be (or should have been) consolidated with the financial statements of the
Borrower in accordance with GAAP.
 
“Control” means the possession, directly or indirectly, of the power to direct
or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise.  For the
purposes of this definition, and without limiting the generality of the
foregoing, any Person that owns directly or indirectly 10% or more of the Equity
Interests having ordinary voting power for the election of the directors or
other governing body of a Person (other than as a limited partner of such other
Person) will be deemed to “control” such other Person.  “Controlling” and
“Controlled” have meanings correlative thereto.
 
“Credit Parties” means, collectively, the Borrower and Guarantors, if any.
 
“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 that are
more than sixty (60) days past the due date other than those which are being
contested in good faith by appropriate action and for which adequate reserves
have been maintained in accordance with GAAP; (d) all obligations of such Person
under Capital Leases; (e) all obligations of such Person under Synthetic Leases;
(f) all Debt (as defined in the other clauses of this definition) of others
secured by (or for which the holder of such Debt has an existing right,
contingent or otherwise, to be secured by) a Lien on any Property of such
Person, whether or not such Debt is assumed by such Person; (g) all Debt (as
defined in the other clauses of this definition) of others guaranteed by such
Person or in which such Person otherwise assures a creditor against loss of the
Debt (howsoever such assurance shall be made) to the extent of the lesser of the
amount of such Debt and the maximum stated amount of such guarantee or assurance
against loss; (h) all obligations or undertakings of such Person to maintain or
cause to be maintained the financial position or covenants of others or to
purchase the Debt or Property of others; (i) all obligations of such Person 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) all obligations
of such Person to pay for goods or services whether or not such goods or
services are 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) any Disqualified Capital Stock issued by such Person; and (m) the
undischarged balance of any production payment created by such Person or for the
creation of which such Person 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.
 

 
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“Default” means any event or condition which constitutes an Event of Default or
that 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
required to be funded by such Lender and such default continues for one (1)
Business Day, (b) that fails to reimburse the Administrative Agent for an LC
Disbursement required to be reimbursed by such Lender and such default continues
for one (1) Business Day 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, 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 Termination 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.
 
“EBITDAX” means, as of any date of determination, the sum of Consolidated Net
Income for the period of four fiscal quarters ending on the last day of the most
recently completed fiscal quarter plus the following expenses or charges to the
extent deducted from Consolidated Net Income in such period: interest, income
taxes, depreciation, depletion, amortization, one-time fees and expenses paid or
accrued in connection with debt financings capital-raising transactions,
acquisitions and other one-time corporate transactions, the fair market value of
capital stock issued for consideration, exploration expenditures and costs and
other similar noncash charges, minus all noncash income added to Consolidated
Net Income; provided that EBITDAX for the fiscal quarters ending June 30, 2010,
September 30, 2010 and December 31, 2010 shall be calculated as follows:
 
(a)           for the fiscal quarter ending June 30, 2010, EBITDAX shall be
EBITDAX for such quarter multiplied by four.
 
(b)           for the fiscal quarter ending September 30, 2010, EBITDAX shall be
EBITDAX for the six-month period ending on such date multiplied by two.
 
(c)           for the fiscal quarter ending December 31, 2010, EBITDAX shall be
EBITDAX for the nine-month period ending on such date multiplied by four/thirds.
 
Thereafter, EBITDAX shall be calculated using EBITDAX for the period of four
fiscal quarters ending on the last day of the fiscal quarter most recently
completed as of the date of determination.
 
“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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“Eligible Obligor” means that on any date of determination, such obligor is (i)
an entity duly organized and validly existing under the laws of, and has its
chief executive offices in, the United States or any political subdivision
thereof, and has a billing address within the United States, (ii) a legal
operating entity or holding company, and not a natural person, (iii) not a
governmental authority, and (iv) not subject to insolvency proceedings.
 
“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 Subsidiary is conducting, or at any time has conducted,
business, or where any Property of the Borrower or any Subsidiary is located,
including without limitation, the Oil Pollution Act of 1990, 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 a Subsidiary would be deemed to be a “single
employer” within the meaning of section 4001(b)(1) of ERISA or subsections (b),
(c), (m) or (o) of section 414 of the Code.
 
“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 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
 

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

 
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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.
 
“Excess Cash Flow” for any period shall mean EBITDAX for such period less cash
payments for (a) taxes during such period, (b) any changes in working capital
from the preceding period (as determined in accordance with GAAP) made during
such period and (c) Capital Expenditures made during such period that are
approved by the Majority Lenders or are otherwise permitted under this
Agreement.
 
“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
(or any political subdivision) under the laws of which such recipient is
organized or in which its principal office is located or, in the case of any
Lender, in which its applicable lending office is located, (b) any branch
profits taxes imposed by the United States of America or any similar tax imposed
by any other jurisdiction in which the Borrower or any Guarantor is located and
(c) in the case of a Foreign Lender, any withholding tax that is imposed on
amounts payable to such Foreign Lender at the time such Foreign Lender becomes a
party to this Agreement (or designates a new lending office) or is attributable
to such Foreign Lender’s failure to comply with Section 5.03(e), except to the
extent that such Foreign Lender (or its assignor, if any) was entitled, at the
time of designation of a new lending office (or assignment), to receive
additional amounts with respect to such withholding tax pursuant to Section
5.03(a) or Section 5.03(b).
 
“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 on such date, 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.
 
“Fee Letter” means that certain Fee Letter dated as of May 26, 2010 by and
between the Borrower and the Administrative Agent.
 
“Financial Officer” means, for any Person, the chief financial officer,
principal accounting officer, treasurer, manager or controller of such
Person.  Unless otherwise specified, all references herein to a Financial
Officer means a Financial Officer of the Borrower.
 
“Financial Statements” means the financial statement or statements of the
Borrower and its Consolidated Subsidiaries referred to in Section 7.04(a).
 
“Foreign Lender” means any Lender that is organized under the laws of a
jurisdiction other than that in which the Borrower is located.  For purposes of
this definition, the United
 

 
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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 organized under the laws
of the United States of America or any state thereof or the District of
Columbia.
 
“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.
 
“General and Administrative Costs” means reasonable, normal and customary
expenses and costs paid or payable that are classified as general and
administrative costs, including salaries and all other compensation to the
management of the Borrower, consulting fees, salary, rent, supplies, travel and
entertainment, insurance, accounting, legal, engineering and broker related
fees, required to manage the affairs of the Borrower.
 
“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 any Subsidiary of the Borrower that guarantees the
Indebtedness pursuant to Section 8.14(b).
 
“Guaranty Agreement” means that certain Guaranty and Collateral Agreement
executed by the Borrower and the Guarantors, if any, in form and substance
reasonably acceptable to the Administrative Agent unconditionally guarantying on
a joint and several basis, payment of the Indebtedness, as the same may be
amended, modified or supplemented from time to time.
 
“Hazardous Material” means any substance regulated or as to which liability
might arise under any applicable Environmental Law and including without
limitation:  (a) any chemical, compound, material, product, byproduct, substance
or waste defined as or included in the definition or meaning of “hazardous
substance,” “hazardous material,” “hazardous waste,” “solid waste,” “toxic
waste,” “extremely hazardous substance,” “toxic substance,” “contaminant,”
“pollutant,” or words of similar meaning or import found in any applicable
Environmental Law; (b) 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
 

 
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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 of the Credit Parties’ rights, titles,
interests and estates now or hereafter acquired in and to oil and gas leases,
oil, gas and mineral leases, or other liquid or gaseous hydrocarbon leases,
mineral fee interests, overriding royalty and royalty interests, net profit
interests and production payment interests, including any reserved or residual
interests of whatever nature.
 
“Hydrocarbons” means oil, gas, casinghead gas, drip gasoline, natural gasoline,
condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all
products refined or separated therefrom.
 
“Indebtedness” means any and all amounts owing or to be owing by the Borrower,
any Subsidiary or any Guarantor (whether direct or indirect (including those
acquired by assumption), absolute or contingent, due or to become due, now
existing or hereafter arising):  (a) to the Administrative Agent, the Issuing
Bank or any Lender or any Affiliate of a Lender under any Loan Document; and (b)
all renewals, extensions and/or rearrangements of any of the above.
 
“Indemnified Taxes” means Taxes other than Excluded Taxes.
 
“Indemnitee” has the meaning set forth in Section 12.03.
 
“Initial Reserve Report” means the report dated as of December 31, 2009 prepared
by Ryder Scott Company Petroleum Consultants, L.P., with respect to certain Oil
and Gas Properties of the Borrower.
 
“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 during 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, 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
 

 
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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.
 
“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, the contribution of capital to 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) or capital contribution; (b) the making of
any deposit with, or advance, loan or capital contribution to, assumption of
Debt of, purchase or other acquisition of any other Debt or equity participation
or interest in, or other extension of credit to, any other Person (including the
purchase of Property from another Person subject to an understanding or
agreement, contingent or otherwise, to resell such Property to such Person, but
excluding any such advance, loan or extension of credit having a term not
exceeding ninety (90) days representing the purchase price of inventory or
supplies sold by such Person in the ordinary course of business); (c) the
purchase or acquisition (in one or a series of transactions) of Property of
another Person that constitutes a business unit or (d) the entering into of any
guarantee of, or other contingent obligation (including the deposit of any
Equity Interests to be sold) with respect to, Debt or other liability of any
other Person and (without duplication) any amount committed to be advanced, lent
or extended to such Person.
 
“Issuing Bank” means Macquarie Bank Limited, in its capacity as the issuer of
Letters of Credit, any Lender or any other Person named as an Issuing Bank by
the Administrative Agent and reasonably acceptable to the Borrower.
 
“LC Commitment” at any time means five hundred thousand dollars ($500,000).
 
“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.
 
“Lender Parties” has the meaning set forth in Section 12.04.
 
“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.
 

 
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“Letter of Credit” means any letter of credit issued or deemed 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.
 
“LIBO Rate” means, with respect to any Eurodollar Borrowing for any Interest
Period:
 
(a) if not less than two rates are displayed on Reuters page “LIBO” at or around
11:00 a.m. (London time) on the second Business Day before the first day of the
Interest Period for Eurodollar Loans over the period which is closest to that
period, the arithmetic mean (expressed as a rate per cent per annum and rounded
up to five decimal places) of those rates; or
 
(b) if less than two (2) rates are displayed on Reuters page “LIBO” at or around
that time for Eurodollar Loans over that period, the arithmetic mean (expressed
as a rate per cent per annum and rounded up to five decimal places) of the offer
rates quoted to the Administrative Agent by not less than two banks which
ordinarily display rates on Reuters page “LIBO” on application by Administrative
Agent for Eurodollar Loans equal to that amount over the period equal to that
period; or
 
(c) if the Administrative Agent is unable to determine a rate under
paragraph (a) or (b) because an insufficient number of rates are displayed (in
the case of paragraph (a)) or the Administrative Agent is unable to obtain the
necessary number of quotes (in the case of paragraph (b)), the rate (expressed
as a rate per cent per annum and rounded up to five decimal places) specified in
good faith by the Administrative Agent at or around that time having regard, to
the extent possible, to the offer rates otherwise quoted to the Administrative
Agent for Eurodollar Loans equal to that amount over the period equal to that
period at or around that time.
 
“Lien” means any interest in Property securing an obligation owed to, or a claim
by, a Person other than the owner of the Property, whether such interest is
based on the common law, statute or contract, and whether such obligation or
claim is fixed or contingent, and including but not limited to (a) the lien or
security interest arising from a mortgage, encumbrance, pledge, security
agreement, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes or (b) production payments and the like payable out of Oil
and Gas Properties.  The term “Lien” shall include easements, restrictions,
servitudes, permits, conditions, covenants, exceptions or reservations. For the
purposes of this Agreement, the Borrower and its Subsidiaries shall be deemed to
be the owner of any Property which it has acquired or holds subject to a
conditional sale agreement, or leases under a financing lease or other
arrangement pursuant to which title to the Property has been retained by or
vested in some other Person in a transaction intended to create a financing.
 
“Loan Documents” means this Agreement, the Notes, the Fee Letter, any Swap
Agreement between the Borrower or any Subsidiary and a Lender or an Affiliate of
a Lender, the Letter of Credit Agreements, the Letters of Credit and the
Security Instruments.
 

 
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“Loans” means the loans made by the Lenders to the Borrower pursuant to this
Agreement.
 
“Majority Lenders” means, at any time while no Loans or LC Exposure is
outstanding, Lenders having more than fifty percent (50%) of the Aggregate
Maximum Credit Amounts; and at any time while any Loans or LC Exposure is
outstanding, Lenders holding more than fifty percent (50%) 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 if there are less than three Lenders,
all Lenders shall be required to constitute the “Majority Lenders”; provided
further that the Maximum Credit Amounts and the principal amount of the Loans
and participation interests in Letters of Credit of the Defaulting Lenders (if
any) shall be excluded from the determination of Majority Lenders.
 
“Material Adverse Effect” means a material adverse change in, or material
adverse effect on (a) the business, operations, Property or financial condition
of the Borrower and its 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, the Issuing Bank or any Lender
under any Loan Document.
 
“Material Agreements” has the meaning assigned such term in Section 7.24.
 
“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 Borrower and its Subsidiaries in an aggregate principal amount exceeding
$250,000.  For purposes of determining Material Indebtedness, the “principal
amount” of the obligations of the Borrower or any Subsidiary in respect of any
Swap Agreement at any time shall be the Swap Termination Value.
 
“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.
 
“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, if requested by any Lender, 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.
 

 
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“Officer Notes” means (i) that certain Subordinated Promissory Note in favor of
Michael Reger dated February 27, 2009 in the principal amount of $250,000, as
amended and (ii) that certain Subordinated Promissory Note in favor of Ryan
Gilbertson dated February 27, 2009 in the principal amount of $250,000, as
amended, which are unsecured and subordinate to any and all Indebtedness in
favor of the Lenders hereunder.
 
“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 hereafter acquired and situated upon, used, held for use
or useful in connection with the operating, working or development of any of
such Hydrocarbon Interests or Property (excluding drilling rigs, automotive
equipment, rental equipment or other personal Property which may be on such
premises for the purpose of drilling a well or for other similar temporary uses)
and including any and all oil wells, gas wells, injection wells or other wells,
buildings, structures, fuel separators, liquid extraction plants, plant
compressors, pumps, pumping units, field gathering systems, tanks and tank
batteries, fixtures, valves, fittings, machinery and parts, engines, boilers,
meters, apparatus, equipment, appliances, tools, implements, cables, wires,
towers, casing, tubing and rods, surface leases, rights-of-way, easements and
servitudes together with all additions, substitutions, replacements, accessions
and attachments to any and all of the foregoing.
 
“Operating Account” means (a) the account #364-040573 maintained at the
Borrower’s expense with Morgan Stanley & Co. Incorporated, existing on the
Effective Date or (b) if the foregoing account is closed, a deposit account
opened with a bank reasonably acceptable to the Administrative Agent maintained
at the Borrower’s expense which account is subject to a duly executed account
control agreement between the Administrative Agent and the Operating Account
Bank.
 
“Operating Account Bank” means the bank where Borrower maintains the Operating
Account.
 
“Organizational Documents” means, with respect to any Person, (a) in the case of
any corporation, the certificate of incorporation and by-laws (or similar
documents) of such Person, (b) in the case of any limited liability company, the
certificate of formation and limited liability company agreement (or similar
documents) of such Person, (c) in the case of any limited partnership, the
certificate of formation and limited partnership agreement (or similar
documents) of such Person, (d) in the case of any general partnership, the
partnership agreement
 

 
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(or similar document) of such Person and (e) in any other case, the functional
equivalent of the foregoing.
 
“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).
 
“Patriot Act” has the meaning assigned such term in Section 12.16.
 
“Person” means any natural person, corporation, limited liability company,
trust, joint venture, association, company, partnership, Governmental Authority
or other entity.
 
“Plan” means any employee pension benefit plan, as defined in section 3(2) of
ERISA which (a) is currently or hereafter sponsored, maintained or contributed
to by the Borrower, a Subsidiary or an ERISA Affiliate or (b) was at any time
during the six calendar years preceding the date hereof, sponsored, maintained
or contributed to by the Borrower or a Subsidiary or an ERISA Affiliate.
 
“Post Default Rate” shall mean, in respect of the principal of any Loan or any
other amount payable by the Borrower under this Agreement or any other Loan
Document, a rate per annum during the period commencing on the date of
occurrence of an Event of Default until such amount is paid in full or all
Events of Default are cured or waived equal to the applicable interest rate plus
two and one-half percent (2.5%) per annum, but in no event to exceed the Highest
Lawful Rate.
 
“Prime Rate” means, with respect to any day, the greater of (i) the average
prime rate of interest published by the Wall Street Journal on such day (or the
next following Business Day if such day is not a Business Day) and (ii) the LIBO
Rate for a one (1) month Interest Period plus one percent (1.00%) per annum, in
each case changing from time to time as and when that rate changes.  The Prime
Rate is a reference rate and does not necessarily represent the lowest or best
rate actually available.
 
“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).
 
“Proved Reserves” means “Proved Reserves” as defined in the Definitions for Oil
and Gas Reserves (in this paragraph, the “Definitions”) promulgated by the
Society of Petroleum Engineers (or any generally recognized successor) as in
effect at the time in question.  “Proved Developed Producing Reserves” means
Proved Reserves which are categorized as both
 

 
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“Developed” and “Producing” in the Definitions, “Proved Developed Nonproducing
Reserves” means Proved Reserves which are categorized as both “Developed” and
“Nonproducing” in the Definitions, and “Proved Undeveloped Reserves” means
Proved Reserves which are categorized as “Undeveloped” in the Definitions.
 
“Redemption” means with respect to any Debt, the repurchase, redemption,
prepayment, repayment, defeasance or any other acquisition or retirement for
value (or the segregation of funds with respect to any of the foregoing) of such
Debt.  “Redeem” has the correlative meaning thereto.
 
“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).
 
“Register” has the meaning assigned such term in Section 12.04(b)(iv).
 
“Registrar” 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.
 
“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 such Letters of Credit (without regard to any sale by
a Lender of a participation in any Loan under Section 12.04(c)) provided, that
if there are less than three Lenders, all Lenders shall be required to
constitute the “Required Lenders”; provided further that the Maximum Credit
Amounts and the principal amount of the Loans and participation interests in
Letters of Credit of the Defaulting Lenders (if any) shall be excluded from the
determination of Required Lenders.
 
“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
Subsidiaries, together with a projection of the rate of production and future
net income, taxes, operating expenses and Capital Expenditures with
 

 
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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, any Vice President or any Manager of such
Person.  Unless otherwise specified, all references to a Responsible Officer
herein shall mean a Responsible Officer of the Borrower.
 
“Restricted Payment” means any dividend or other distribution (whether in cash,
securities or other Property) with respect to any Equity Interests in the
Borrower or any of its Subsidiaries, or any payment (whether in cash, securities
or other Property), including any sinking fund or similar deposit, on account of
the purchase, redemption, retirement, acquisition, cancellation or termination
of any such Equity Interests in the Borrower or any of its Subsidiaries or any
option, warrant or other right to acquire any such Equity Interests in the
Borrower or any of its Subsidiaries.
 
“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 U.S. Securities and Exchange Commission or any successor
Governmental Authority.
 
“Security Instruments” means the Guaranty Agreement, mortgages, deeds of trust
and other agreements, instruments or certificates described or referred to in
Exhibit E, and any and all other agreements, guarantees, 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, if any, this Agreement, or reimbursement obligations
under the Letters of Credit, as such agreements may be amended, modified,
supplemented or restated from time to time.
 
“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.
 
“Subsidiary” means: (a) any Person of which at least a majority of the
outstanding Equity Interests having by the terms thereof ordinary voting power
to elect a majority of the board of directors or managers or other governing
body of such Person (irrespective of whether or not at the time Equity Interests
of any other class or classes of such Person shall have or might have voting
power by reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by the Borrower or one or more of its
Subsidiaries or by the Borrower and one or more of its Subsidiaries and (b) any
partnership of which the Borrower or any of its
 

 
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Subsidiaries is a general partner.  Unless otherwise indicated herein, each
reference to the term “Subsidiary” shall mean a Subsidiary of the Borrower.
 
“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 Borrower or the
Subsidiaries shall be a Swap Agreement.
 
“Swap Termination Value” means, in respect of any one or more Swap Agreements,
after taking into account the effect of any legally enforceable netting
agreement relating to such Swap Agreements, (a) for any date on or after the
date such Swap Agreements have been closed out and termination value(s)
determined in accordance therewith, such termination value(s) and (b) for any
date prior to the date referenced in clause (a), the amount(s) determined as the
mark-to-market value(s) for such Swap Agreements, as determined by the
counterparties to such Swap Agreements.
 
“Synthetic Leases” means, in respect of any Person, all leases which shall have
been, or should have been, in accordance with GAAP, treated as operating leases
on the financial statements of the Person liable (whether contingently or
otherwise) for the payment of rent thereunder and which were properly treated as
indebtedness for borrowed money for purposes of U.S. federal income taxes, if
the lessee in respect thereof is obligated to either purchase for an amount in
excess of, or pay upon early termination an amount in excess of, 80% of the
residual value of the Property subject to such operating lease upon expiration
or early termination of such lease.
 
“Tangible Net Worth” means, as of any date of determination, an amount equal to
(a) the excess, if any, of total assets over total liabilities of Borrower and
its Consolidated Subsidiaries as of the last day of the most recently completed
fiscal quarter, but excluding from the determination of total assets the sum of
the book value of all assets of Borrower and its Consolidated Subsidiaries which
should be classified as intangibles, including goodwill, research and
development costs (other than capitalized costs associated with the acquisition
and development of Oil and Gas Properties), trademarks, trade names, copyrights,
patents and franchises, unamortized debt discount and expense, all reserves and
any writeup in the book value of assets resulting from a revaluation thereof or
resulting from any changes in GAAP subsequent to December 31, 2009 plus (b) the
net cash proceeds received by the Borrower from the issuance of its Equity
Interests after the last day of the most recently completed fiscal quarter.
 
“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 to occur of (i) four (4) years from the
Effective Date or (ii) the date that the Aggregate Maximum Credit Amount is
sooner terminated pursuant to Section 2.06 or Section 10.02.
 

 
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“Total Reserve Value” means, with respect to any Proved Reserves expected to be
produced from any Oil and Gas Properties, the net present value, discounted at
10% per annum, of the future net revenues expected to accrue to the Borrower’s
and its Subsidiaries’ collective interests in such reserves during the remaining
expected economic lives of such reserves.  Each calculation of such expected
future net revenues shall be made in accordance with the then existing standards
of the Society of Petroleum Engineers, provided that in any event (a)
appropriate deductions shall be made for severance and ad valorem taxes, and for
operating, gathering, transportation and marketing costs required for the
production and sale of such reserves, (b) the pricing assumptions used in
determining Total Reserve Value for any particular reserves shall be based upon
(i) annual quotations on the New York Mercantile Exchange for Henry Hub (natural
gas) or Cushing, Oklahoma (oil) futures on the date of the relevant Reserve
Report for each calendar year to the extent such quotations are available for
future periods, provided that with respect to quotations for calendar years
after the fifth calendar year, the quotation for the fifth calendar year shall
be applied, (ii) with respect to future periods for which quotations are not
available on the New York Mercantile Exchange, constant pricing for such periods
based on the quotation for the last period for which a quotation is available on
the New York Mercantile Exchange for Henry Hub (natural gas) or Cushing,
Oklahoma (oil), (c) operating expenses shall be held constant, (d) future
Capital Expenditures shall be expressed in current year dollars (i.e., inflation
shall not be assumed), (e) to the extent basis Swap Agreements are not in place,
the cash-flows derived from the pricing assumptions set forth in clause (b)
above shall be further adjusted to account for the historical basis
differentials for each month during the preceding 12-month period calculated by
comparing realized crude oil and natural gas prices to Cushing, Oklahoma and
Henry Hub NYMEX prices for each month during such period and (f) to the extent
that Swap Agreements are in place the cash-flows derived from the pricing
assumptions set forth in clause (b) above shall be, (i) in the case of volumes
subject to a swap or other fixed priced hedge, at the applicable fixed price and
(ii) in the case of volumes subject to a floor or ceiling hedge (including a
collar), at the price set out in the preceding clause (b)(i), but not to exceed
such ceiling or to be less than such floor.
 
“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 LIBO Rate.
 
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”).
 

 
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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” as used in this Agreement 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 the Borrower’s independent
certified public accountants concur and which are disclosed to the
Administrative Agent on the next date on which financial statements are required
to be delivered to the Lenders pursuant to Section 8.01(a); provided that,
unless the Borrower and the Majority Lenders shall otherwise agree in writing,
no such change shall modify or affect the manner in which compliance with the
covenants contained herein is computed such that all such computations shall be
conducted utilizing financial information presented consistently with prior
periods.
 
ARTICLE II
 
The 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.
 

 
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(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 $100,000 and not less than
$100,000.  At the time that each ABR Borrowing is made, such Borrowing shall be
in an aggregate amount that is an integral multiple of $100,000 and not less
than $100,000; 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 six
(6) 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 Termination Date.
 
(d) Notes.  The Loans made by each Lender shall be evidenced by a single
promissory note of the Borrower upon request by such Lender 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 such Lender or its
registered assigns 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 or otherwise), the Borrower shall
deliver or cause to be delivered on the effective date of such increase or
decrease, a new Note payable to 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.  Failure to make any such notation shall not affect any
Lender’s or the Borrower’s rights or obligations in respect of such Loans. Upon
surrender of any Note at the principal office of Administrative Agent for
registration of transfer or exchange (and in the case of a surrender for
registration of transfer, duly endorsed or accompanied by a written
 
 
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instrument of transfer duly executed by the registered holder or its attorney
duly authorized in writing and accompanied by the address for notices of each
transferee of such Note or part thereof), and an assignment agreement in form
and substance acceptable to Administrative Agent whereby the assignee holder
agrees to be bound by the terms hereof that are applicable to holders, shall
execute and deliver, at Borrower’s expense, a new Note in exchange therefor.
 
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 11:00 a.m., Houston time, three
(3) Business Days before the date of the proposed Borrowing or (b) in the case
of an ABR Borrowing, not later than 11:00 a.m., Houston time, one (1) 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” and which shall not extend beyond the Termination
Date;
 
(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 no Borrowing Base Deficiency
exists and 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; Conversions.
 
(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; provided that, each such portion of the affected Borrowing shall be
in an aggregate amount that is an integral multiple of $100,000 and not less
than $100,000.
 
(b) Interest Election Requests; Conversion Requests.  To make an election or
conversion, as the case may be, 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
was 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
 

 
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shall be a period contemplated by the definition of the term “Interest Period”
and which shall not extend beyond the Termination Date.
 
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.
 
(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 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 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 funding date in the Borrowing Request by wire transfer of
immediately available funds by 12:00 noon, Houston time, to the account of the
Administrative Agent most recently designated by it for such purpose by notice
to the Lenders.  The Administrative Agent will make such Loans available to the
Borrower by promptly crediting the amounts so received, in like funds, to an
account of the Borrower and designated by the Borrower in the 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
 

 
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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.
 
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 Termination Date.  If at any time the
Aggregate Maximum Credit Amounts are terminated or reduced to zero by the
Borrower, or the Borrowing Base is reduced to zero by the Lenders, then the
Commitments shall terminate on the effective date of such termination or
reduction.
 
(b) Optional Termination and Reduction of Aggregate Maximum 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 $1,000,000 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(a), 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 (3) 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 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 $25,000,000.  Notwithstanding the foregoing, the
Borrowing
 

 
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Base may be subject to further adjustments from time to time pursuant to Section
8.13(c) or Section 9.12.
 
(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 Issuing Bank and
the Lenders on May 1st  and November 1st of each year, commencing November 1,
2010.  In addition, one time between Scheduled Redeterminations (i) the Borrower
may, by notifying the Administrative Agent thereof, (ii) the Administrative
Agent may, by notifying the Borrower thereof and (iii) the Required Lenders may,
by directing the Administrative Agent to notify the Borrower thereof, each elect
to cause the Borrowing Base to be redetermined between Scheduled
Redeterminations (an “Interim Redetermination”) in accordance with this Section
2.07.
 
(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, (1) in the case of a Scheduled Redetermination,
pursuant to Section 8.12(a) and (c), and (2) 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 Majority 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.  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 April 15th and October 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
 

 
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(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 thirty (30) 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 by all of the Lenders in their sole discretion 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 by
the Majority 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 a
rejection of the Proposed Borrowing Base.  If, at the end of such 15-day period,
all of the Lenders, in the case of a Proposed Borrowing Base that would increase
the Borrowing Base then in effect, or the Majority Lenders, in the case of a
Proposed Borrowing Base that would decrease or maintain the Borrowing Base then
in effect, 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 Majority Lenders, as applicable, have not approved, as aforesaid, then the
Administrative Agent shall poll the Lenders to ascertain the highest Borrowing
Base then acceptable to all of the Lenders in their reasonable discretion or the
Majority Lenders, as applicable, 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).
 
(iv) In connection with any Scheduled Redetermination or Interim
Redetermination, the Administrative Agent and the Majority Lenders may propose a
new definition for “Applicable Margin.”  If the Borrower agrees to such new
definition, such definition shall be in effect until the next Redetermination
Date; provided that no decrease in the Applicable Margin for Loans made by any
Lender shall apply to such Lender without its consent.
 
(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 Majority 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:
 

 
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(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 May 1st or November 1st, as applicable, following such notice, or
(B) 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 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) or Section 9.12,
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 any of its 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 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 seven (7) 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));
 

 
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(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.
 
Subject to the terms and conditions contained herein, the Issuing Bank shall
then issue the requested Letter of Credit on the Borrower’s behalf.
 
(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 (5) Business Days prior to the Termination Date.
 
(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
 

 
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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 the Administrative
Agent (for itself or any of its Affiliates) such LC Disbursement by paying to
the Administrative Agent an amount equal to such LC Disbursement not later than
11:00 a.m., Houston time, on the date that such LC Disbursement is made, if the
Borrower shall have received notice of such LC Disbursement prior to 9:00 a.m.,
Houston 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 11:00 a.m.,
Houston time, on (i) the Business Day that the Borrower receives such notice, if
such notice is received prior to 9:00 a.m., Houston 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 any such LC Disbursement 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 any
Lenders that 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.
 
(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
 

 
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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 or the Administrative Agent.  In furtherance of the foregoing and without
limiting the generality thereof, the Borrower agrees 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, regardless of any notice or
information to the contrary, 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, facsimile or email 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 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(g) 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) Cash Collateralization.  If (i) any Event of Default shall occur and be
continuing and the Borrower receives notice from the Administrative Agent,
acting at the direction of the Majority Lenders, demanding the deposit of cash
collateral pursuant to this Section 2.08(i), 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
 

 
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Section 3.04(c), then the Borrower shall deposit, in an account designated by
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(i) 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 Borrower or any of its 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 at
the option and reasonable discretion of the Administrative Agent and at the
Borrower’s 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 (3) Business Days after all
Events of Default have been cured or waived.
 

 
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(j) Confirmation.  Upon written request of the Borrower, the Issuing Bank shall
provide the Borrower, at the sole cost and expense of the Borrower, with a
confirmation of the existence of  an outstanding Letter of Credit.
 
Section 2.09 Loans and Borrowings Under Existing Credit Agreement.  On the
Effective Date, the Administrative Agent, for the ratable benefit of the
Lenders, has acquired from the lenders under the Existing Credit Agreement the
notes and obligations of Borrower existing thereunder, the liens relating
thereto and the commitments of such lenders thereunder.  In connection with such
acquisition and the amendment and restatement of the Existing Credit Agreement
as so assigned:
 
(a) Borrower shall pay all accrued and unpaid commitment fees, break funding
fees and all other fees that are outstanding under the Existing Credit Agreement
for the account of each lender under the Existing Credit Agreement;
 
(b) each “ABR Borrowing” outstanding under the Existing Credit Agreement shall
be extended and renewed so as to continue as a new ABR Borrowing under this
Agreement;
 
(c) each “Eurodollar Borrowing” outstanding under the Existing Credit Agreement
shall be deemed repaid on the Effective Date and funded as a new Eurodollar
Borrowing under this Agreement; and
 
(d) the Existing Credit Agreement and the commitments thereunder shall be
superseded by this Agreement and such commitments shall terminate.
 
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 in full in cash on the Termination Date.
All payments by the Borrower of principal, interest, fees and other obligations
shall be made in dollars in immediately available funds, and shall be absolute
and unconditional, without defense, rescission, recoupment, setoff or
counterclaim, free of any restriction or condition.
 
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 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.
 

 
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(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 the lesser of (i) the Highest Lawful Rate or (ii) the Post Default
Rate.
 
(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), 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 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) (i) that adequate and reasonable means do not exist for
ascertaining the LIBO Rate for such Interest Period or (ii) deposits (whether in
dollars or an alternative currency) are not being offered to Lenders in the
applicable offshore interbank market for such currency for the applicable amount
and Interest Period of such Eurodollar Borrowing; or
 
(b) the Administrative Agent is advised by the Majority Lenders that the 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
 

 
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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 either as an ABR Borrowing or at an
alternate rate of interest determined by all Lenders, sufficient to cover each
Lender’s cost of funds.
 
Section 3.04 Prepayments.
 
(a) Optional Prepayments.  Subject to any break funding costs payable pursuant
to Section 5.02 and prior notice in accordance with Section 3.04(b), the
Borrower shall have the right at any time and from time to time to prepay any
Borrowing in whole or in part, in minimum increments of $100,000 or if less than
$100,000, the remaining balance of the Loans.
 
(b) Notice and Terms of Optional Prepayment.  The Borrower shall notify the
Administrative Agent by telephone (confirmed by telecopy) of any prepayment
hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later
than 11:00 a.m., Houston time, three (3) Business Days before the date of
prepayment, or (ii) in the case of prepayment of an ABR Borrowing, not later
than 11:00 a.m., Houston 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.
 
(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 prepay the
Borrowings on the date of such termination or reduction in an aggregate
principal amount equal to such excess, and 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(i).
 
(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 either:
 
(A) prepay the Borrowings in an aggregate principal amount equal to such excess
and if any excess remains after prepaying all
 

 
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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(i); or
 
(B) pledge additional collateral not included in the most recent Reserve Report
to the Administrative Agent having a fair market value equal to at least the
amount of the deficiency or otherwise satisfactory to the Administrative Agent
such that the total Revolving Credit Exposures are less than or equal to the
Borrowing Base as redetermined or adjusted; or
 
(C) prepay the Borrowings in an aggregate principal amount equal to such excess
(and 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(i)) in not more than six (6) equal monthly installments plus accrued
interest thereon.
 
The Borrower shall be obligated to make such prepayment and/or deposit of cash
collateral pursuant to clause (A), pledge of collateral pursuant to clause (B)
or first monthly prepayment pursuant to clause (C) within thirty (30) 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, 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(i).  The Borrower shall be obligated to
make such prepayment and/or deposit of cash collateral on the date it or any
Subsidiary receives 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) If a Borrowing Base Deficiency exists, or during an Event of Default, the
Borrower shall prepay the Borrowings with all net cash proceeds received from
sales and other dispositions of Properties.
 
(v) 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 outstanding, to each such Eurodollar Borrowing in
 

 
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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.
 
(vi) Each prepayment of Borrowings shall be applied ratably to the Loans of each
Lender included in the prepaid Borrowings.  Prepayment 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
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 0.325% 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, the standard fees charged to it by the Issuing Bank
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
 

 
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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 pursuant to this Section
3.05(b) shall be payable within ten (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 as
outlined in the Fee Letter.
 
(d) 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 Sections 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 11:00 a.m., Houston 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
 

 
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Effective Rate and a rate determined by the Administrative Agent in accordance
with banking industry rules on interbank compensation.
 
Section 4.03 Certain Deductions by the Administrative Agent.  If any Lender
shall fail to make any payment required to be made by it pursuant to Section
2.05(b), 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 Lender to satisfy such Lender’s obligations under
such Sections until all such unsatisfied obligations are fully paid.  If at any
time prior to the acceleration or maturity of the Loans, the Administrative
Agent shall receive any payment in respect of principal of a Loan or a
reimbursement of an LC Disbursement while one or more Defaulting Lenders shall
be party to this Agreement, the Administrative Agent shall apply such payment
first to the Borrowing(s) for which such Defaulting Lender(s) shall have failed
to fund its pro rata share until such time as such Borrowing(s) are paid in full
or each Lender (including each Defaulting Lender) is owed its Applicable
Percentage of all Loans then outstanding.  After acceleration or maturity of the
Loans, all principal will be paid ratably as provided in Section 10.02(c).
 
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 an Event of Default has occurred and is continuing,
(a) the Administrative Agent and the Lenders agree that they will neither notify
the purchaser or purchasers of such production nor take any other action to
cause such proceeds to be remitted to the Administrative Agent or the Lenders,
but the Lenders will instead permit such proceeds to be paid to the Borrower and
its Subsidiaries and (b) the Lenders hereby authorize the Administrative Agent
to take such actions as may be necessary to cause such proceeds to be paid to
the Borrower and/or such Subsidiaries.
 
ARTICLE V
 
Increased Costs; Break Funding Payments; Taxes; Illegality
 
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; or
 
(ii) impose on any Lender or the London interbank market any other condition
affecting this Agreement or Eurodollar Loans made by such Lender;
 

 
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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
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 ten (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; provided that the Borrower shall not
be required to compensate a Lender or the Issuing Bank pursuant to this Section
5.01 for any increased costs or reductions incurred more than 180 days prior to
the date that such Lender or the Issuing Bank, as the case may be, notifies the
Borrower of the Change in Law giving rise to such increased costs or reductions
and of such Lender’s or the Issuing Bank’s intention to claim compensation
therefor; provided further that, if the Change in Law giving rise to such
increased costs or reductions is retroactive, then the 180-day period referred
to above shall be extended to include the period of retroactive effect thereof.
 
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, then, in any such event, the Borrower shall
compensate each Lender
 

 
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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 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), minus (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 ten (10) days
after receipt thereof.
 
Section 5.03 Taxes.
 
(a) Payments Free of Taxes.  Any and all payments by or on account of any
obligation of the Borrower or any Guarantor under any Loan Document shall be
made free and clear of and without deduction for any Indemnified Taxes or Other
Taxes; provided that if the Borrower or any Guarantor shall be required to
deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum
payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 5.03(a)), the Administrative Agent, each Lender or the 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 ten (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
 

 
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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.  In addition, any Lender, if requested by the Borrower or the
Administrative Agent, shall deliver such other documentation prescribed by
applicable law or reasonably requested by the Borrower or the Administrative
Agent as will enable the Borrower or the Administrative Agent to determine
whether or not such Lender is subject to backup withholding or information
reporting requirements.
 
Without limiting the generality of the foregoing, in the event that the Borrower
is resident for tax purposes in the United States of America, any Foreign Lender
shall deliver to the Borrower and the Administrative Agent (in such number of
copies as shall be requested by the recipient) on or prior to the date on which
such Foreign Lender becomes a Lender under this Agreement (and from time to time
thereafter upon the request of the Borrower or the Administrative Agent, but
only if such Foreign Lender is legally entitled to do so), whichever of the
following is applicable:
 
(i) duly completed copies of Internal Revenue Service Form W-8BEN claiming
eligibility for benefits of an income tax treaty to which the United States of
America is a party,
 
(ii) duly completed copies of Internal Revenue Service Form W-8ECI,
 
(iii) in the case of a Foreign Lender claiming the benefits of the exemption for
portfolio interest under section 881(c) of the Code, (x) a certificate to the
effect that such Foreign Lender is not (A) a “bank” within the meaning of
section 881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of the Borrower
within the meaning of section 881(c)(3)(B) of the Code, or (C) a “controlled
foreign corporation” described in section 881(c)(3)(C) of the Code and (y) duly
completed copies of  Internal Revenue Service Form W-8BEN, or
 

 
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(iv) any other form prescribed by applicable law as a basis for claiming
exemption from or a reduction in United States Federal withholding tax duly
completed together with such supplementary documentation as may be prescribed by
applicable law to permit the Borrower to determine the withholding or deduction
required to be made.
 
Notwithstanding anything to the contrary herein, a Foreign Lender shall not be
required to provide any form or statement pursuant to this section that such
Foreign Lender is not legally able to deliver.  Borrower shall not be required
to pay any additional amount to any  Foreign Lender to the extent that
withholding or deduction from payments is the result of such Lender failing to
provide such forms, certificates or other evidence (collectively, “Exemption
Forms”) required by Section 5.03(e) above, establishing that such Foreign Lender
is exempt from United States federal withholding tax, or to notify Borrower of
its inability to provide such Exemption Forms  as the case may be, provided that
if such Foreign Lender shall have satisfied the requirements to provide such
Exemption Forms on the Effective Date or upon such Foreign Lender becoming a
Lender hereunder, nothing in this last sentence of this Section 5.03(f) shall
relieve Borrower of its obligation to pay any additional amounts pursuant to
this Section 5.03(f) in the event that, as a result of a change in law, treaty,
governmental rule, regulation or order (or the interpretation, administration or
application thereof), at a subsequent date such Exemption Forms were no longer
applicable to such Lender or such Lender was no longer properly entitled to
complete or deliver such Exemption Forms.
 
       (f) Effect of Tax Refund.  If a Lender determines, in its sole
discretion, that it has received a benefit in the nature of a refund, deduction
or credit (including a refund in the form of a deduction from or credit against
taxes that are otherwise payable by such Lender) of any Taxes or Other Taxes
with respect to which the Borrower has made a payment under this Section 5.03,
such Lender will notify the Borrower and agrees to reimburse the Borrower to the
extent of the benefit of such refund, deduction or credit, including any
interest paid by the relevant Governmental Authority, promptly after such Lender
reasonably determines that such refund, deduction or credit has become final;
provided, that the Borrower, upon request of the Lender, agrees to repay the
amount paid over to the Borrower (plus any penalties, interest or other charges
imposed by the relevant Governmental Authority) to such Lender in the event that
such Lender is required to repay such refund to such Governmental Authority.
Nothing contained in this Section 5.03(g) shall require any Lender to make
available its tax returns (or any other information relating to its taxes which
it deems to be confidential) or to attempt to obtain any such refund, deduction
or credit (including any interest paid by the relevant Governmental Authority
and received by such Lender), which attempt would be inconsistent with any
reporting position otherwise taken by any Lender on its applicable tax returns.
 
Section 5.04 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.
 
Section 5.05 Illegality.  Notwithstanding any other provision of this Agreement,
in the event that it becomes unlawful for any Lender or its applicable lending
office to honor its obligation to make or maintain Eurodollar Loans either
generally or having a particular Interest Period hereunder, then (a) such Lender
shall promptly notify the Borrower and the Administrative Agent thereof and such
Lender’s obligation to make such Eurodollar Loans shall be suspended (the
“Affected Loans”) until such time as such Lender may again make and maintain
such Eurodollar Loans and (b) all Affected Loans which would otherwise be made
by such Lender shall be made instead as ABR Loans (and, if such Lender so
requests by notice to the Borrower and the Administrative Agent, all Affected
Loans of such Lender then outstanding shall be automatically converted into ABR
Loans on the date specified by such Lender in such notice) and, to the extent
that Affected Loans are so made as (or converted into) ABR Loans, all payments
of principal which would otherwise be applied to such Lender’s Affected Loans
shall be applied instead to its ABR Loans.
 
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 and the Lenders shall have received all commitment,
facility and agency fees, including those set forth in the Fee Letter, and all
other fees and amounts due and payable on or prior to the Effective Date,
including, to the extent invoiced, reimbursement or payment of all out-of-pocket
expenses required to be reimbursed or paid by the Borrower hereunder (including,
without limitation, the fees and expenses of Vinson & Elkins L.L.P., counsel to
the Administrative Agent).
 
(b) The Administrative Agent shall have received a certificate of the
Responsible Officer of each Credit Party setting forth (i) resolutions of its
board of directors with respect to the authorization of such Credit Party 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 such
Credit Party (A) who are authorized to sign the Loan Documents to which such
Credit Party is a party and (B) who will, until replaced by another officer or
officers duly authorized for that purpose, act as its representative for the
purposes of signing documents and giving notices and other communications in
connection with this Agreement and the transactions contemplated hereby, (iii)
specimen signatures of such authorized officers, and (iv) the Organizational
Documents of such Credit Party, certified as being true and complete.  The
Administrative Agent and the
 

 
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Lenders may conclusively rely on such certificate until the Administrative Agent
receives notice in writing from any Credit Party to the contrary.
 
(c) The Administrative Agent shall have received certificates of the appropriate
State agencies with respect to the existence, qualification and good standing of
each Credit Party.
 
(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 of the Borrower 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 (if
requested by any Lender) payable to each such 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 E.  In connection with the
execution and delivery of the Security Instruments, the Administrative Agent
shall 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 80% of the Total Reserve Value of the Oil
and Gas Properties evaluated in the Initial Reserve Report  and all other Oil
and Gas Properties identified and requested by the Administrative Agent.
 
(h) The Administrative Agent shall have received an opinion of Faegre & Benson
LLP, special counsel to the Borrower and local counsel in each of the following
states: Montana, North Dakota, Nevada and any other jurisdictions requested
substantially in form and substance satisfactory to the Administrative Agent.
 
(i) The Administrative Agent shall have received a certificate of insurance
coverage of the Borrower evidencing that the Borrower is carrying insurance in
accordance with Section 7.12.
 
(j) The Administrative Agent shall have received title information as the
Administrative Agent may reasonably require satisfactory to the Administrative
Agent setting forth the status of title to at least 80% of the Total Reserve
Value of the Oil and Gas Properties evaluated in the Initial Reserve Report.
 
(k) The Administrative Agent shall be reasonably satisfied with the
environmental condition of the Oil and Gas Properties of the Borrower and its
Subsidiaries.
 

 
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(l) The Administrative Agent shall have received a certificate of a Responsible
Officer of the Borrower certifying that the Borrower has received all consents
and approvals required by Section 7.03.
 
(m) The Administrative Agent shall have received 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
Borrower and the Subsidiaries for each of the following jurisdictions: Nevada,
Montana and North Dakota 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 duly executed account control
agreement between Operating Account Bank, Borrower and the Administrative Agent,
the terms and conditions for which shall be satisfactory to the Administrative
Agent.
 
(p) The Administrative Agent shall have received from the Borrower a list of all
Oil and Gas Properties of the Credit Parties not subject to a Lien of the
Security Instruments as of the Effective Date substantially in the form of
Exhibit I attached hereto.
 
(q) The Administrative Agent shall have received such other documents as the
Administrative Agent or special counsel to the Administrative Agent may
reasonably request.
 
(r) That certain ISDA Master Agreement by and between Macquarie Bank Limited and
the Borrower dated on or about February 27, 2009 shall be amended to reflect the
terms of this Agreement on terms reasonably acceptable to the Administrative
Agent.
 
(s) The assignment contemplated by that certain Master Assignment, dated of even
date herewith, between CIT Capital USA, Inc., as existing administrative agent,
CIT Bank, as existing lender, and Macquarie Bank Limited, as new administrative
agent and new lender, shall have been consummated.
 
(t) The Administrative Agent shall have received fully executed letters-in-lieu
in form and substance satisfactory to the Administrative Agent from the Borrower
and Guarantors, if applicable, with respect to Oil and Gas Properties
constituting at least 80% of the Total Reserve Value of the Oil and Gas
Properties evaluated in the Initial Reserve Report.
 
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
 

 
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waived pursuant to Section 12.02) at or prior to 1:00 p.m., Houston time, on
May 28, 2010 (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.
 
(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 Credit Parties 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.
 
(e)  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.
 
(f) 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 (f), except that the Borrower’s
representation and warranty with respect to Section 6.02(d) shall be deemed to
be to its knowledge.
 

 
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ARTICLE VII
 
Representations and Warranties
 
The Borrower represents and warrants to the Lenders that:
 
Section 7.01 Organization; Powers.  Each Credit Party is an Eligible Obligor, 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.
 
Section 7.02 Authority; Enforceability.  The Transactions are within each Credit
Party’s corporate, limited partnership or limited liability powers and have been
duly authorized by all necessary corporate, limited partnership, limited
liability company and, if required, stockholder action (including, without
limitation, any action required to be taken by any class of directors of 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 Credit Parties are a party has been duly executed and delivered by each
Credit Party and constitutes a legal, valid and binding obligation of each such
Credit Party, 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 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, (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 and (iii) the filing by the Borrower of a current report on Form
8-K with the SEC disclosing this Agreement and the Transactions, (b) will not
violate any applicable law or regulation or any Organizational Document of any
Credit Party or any order of any Governmental Authority, (c) will not violate or
result in a default under any indenture, agreement or other instrument binding
upon any Credit Party or its Properties, or give rise to a right thereunder to
require any payment to be made by any Credit Party and (d) will not result in
the creation or imposition of any Lien on any Property of any Credit Party
(other than the Liens created by the Loan Documents).
 

 
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Section 7.04 Financial Condition; No Material Adverse Change.
 
(a) The Borrower 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, 2009, reported on by Mantyla
McReynolds LLC, independent public accountants, and (ii) as of and for the
fiscal quarter and the portion of the fiscal year ended March 31, 2010,
certified by its chief financial officer.  Such financial statements present
fairly, in all material respects, the financial position and results of
operations and cash flows of the Borrower and its Consolidated Subsidiaries as
of such dates and for such periods in accordance with GAAP, subject to year-end
audit adjustments and the absence of footnotes in the case of the unaudited
quarterly financial statements.
 
(b) Since December 31, 2009, (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 Borrower and its Subsidiaries has
been conducted only in the ordinary course consistent with past business
practices.
 
(c) Neither the Borrower nor any Subsidiary has on the date hereof any material
Debt (including Disqualified Capital Stock) or any contingent liabilities,
off-balance sheet liabilities or partnerships, liabilities for taxes or
unrealized or anticipated losses from any unfavorable commitments, except as
referred to or reflected or provided for in the financial statements described
in Section 7.04(a) or in the most recent financial statements delivered pursuant
to Section 8.01(a) or (b).
 
Section 7.05 Litigation.
 
(a) Except as set forth on Schedule 7.05 on the Effective Date or as otherwise
disclosed in writing to the Administrative Agent and the Lenders after the
Effective Date (which shall supplement 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 Subsidiary (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 on any Credit Party:
 
(a) The Credit Parties 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.
 

 
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(b) The Credit Parties 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
Credit Parties have 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 Borrower’s knowledge, threatened against the Credit Parties or any of their
respective Properties or as a result of any operations at such Properties.
 
(d) None of the Properties of the Credit Parties 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.
 
(e) There has been no Release or, to any Credit Party’s knowledge, threatened
Release, of Hazardous Materials at, on, under or from any Credit Party’s
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 any Credit Party, 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) No Credit Party 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 any Credit Party’s Properties and, to any Credit Party’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
any of the Credit Parties’ Properties that could reasonably be expected to form
the basis for a claim for damages or compensation.
 
(h) The Credit Parties 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
 

 
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the Credit Parties’ possession or control and relating to their respective
Properties or operations thereon.
 
Section 7.07 Compliance with the Laws and Agreements; No Defaults.
 
(a) Each of the Credit Parties 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 authorizations granted by
Governmental Authorities necessary for the ownership of its Property and the
conduct of its business, except where the failure to do so, individually or in
the aggregate, could not reasonably be expected to result in a Material Adverse
Effect.
 
(b) No Credit Party is in default nor has any event or circumstance occurred
which, but for the expiration of any applicable grace period or the giving of
notice, or both, would constitute a default or would require a Credit Party 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 any Credit Party or any of their Properties is bound.
 
(c) No Default has occurred and is continuing.
 
Section 7.08 Investment Company Act.  No Credit Party is an “investment company”
or a company “controlled” by an “investment company,” within the meaning of, or
subject to regulation under, the Investment Company Act of 1940, as amended.
 
Section 7.09 Taxes.  Each Credit Party has timely filed or caused to be filed
all Tax returns and reports required to have been filed and has paid or caused
to be paid all Taxes required to have been paid by it, except (a) Taxes that are
being contested in good faith by appropriate proceedings and for which such
Credit Party, as applicable, has set aside on its books adequate reserves in
accordance with GAAP or (b) to the extent that the failure to do so could not
reasonably be expected to result in a Material Adverse Effect.  The charges,
accruals and reserves on the books of each Credit Party in respect of Taxes and
other governmental charges are, in the reasonable opinion of such Credit Party,
adequate.  No Liens for Taxes have been filed and, to the knowledge of the
Credit Parties, no claim is being asserted with respect to any such Tax or other
such governmental charge.
 
Section 7.10 ERISA.
 
(a) Each Credit Party and each ERISA Affiliate have complied in all material
respects with ERISA and, where applicable, the code regarding each Plan except
to the extent the failure to do so could not reasonably be expected to result in
a Material Adverse Effect.
 
(b) Each Plan is, and has been, established and maintained in substantial
compliance with its terms, ERISA and, where applicable, the Code except to the
extent the failure to do so could not reasonably be expected to result in a
Material Adverse Effect.
 

 
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(c) No act, omission or transaction has occurred which could result in
imposition on any Credit Party 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 except to the extent such penalty or liability could
not reasonably be expected to result in a Material Adverse Effect.
 
(d) Full payment when due has been made of all amounts which a Credit Party or
any ERISA Affiliate is required under the terms of each Plan or applicable law
to have paid as contributions to such Plan as of the date hereof except to the
extent the failure to do so could not reasonably be expected to result in a
Material Adverse Effect.
 
(e) No Credit Party nor any ERISA Affiliate sponsors, maintains, or contributes
to an employee welfare benefit plan, as defined in section 3(1) or ERISA,
including, without limitation, any such plan maintained to provide benefits to
former employees of such entities, that may not be terminated by a Credit Party
or any ERISA Affiliate in its sole discretion at any time without any material
liability.
 
(f) No Credit Party nor any ERISA Affiliate sponsors, maintains or contributes
to, or has at any time in the six-year period preceding the date hereof
sponsored, maintained or contributed to, any employee pension benefit plan, as
defined in section 3(2) of ERISA, that it subject to Title IV of ERISA, section
302 of ERISA or section 412 of the Code.
 
Section 7.11 Disclosure; No Material Misstatements.  The Borrower has disclosed
to the Administrative Agent and the Lenders all agreements, instruments and
corporate or other restrictions to which it or any other Credit Party 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.  None of the other reports, financial statements, certificates or other
information furnished by or on behalf of any Credit Party to the Administrative
Agent or any Lender or any of their Affiliates in connection with the
negotiation of this Agreement or any other Loan Document or delivered hereunder
or under any other Loan Document (as modified or supplemented by other
information so furnished) contains any material misstatement of fact or omits to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided that,
with respect to projected financial information, the Credit Parties represent
only that such information was prepared in good faith based upon assumptions
believed to be reasonable at the time.  There is no fact peculiar to the
Borrower or other Credit Party which could reasonably be expected to have a
Material Adverse Effect or in the future is reasonably likely to have a Material
Adverse Effect and which has not been set forth in this Agreement or the Loan
Documents or the other documents, certificates and statements furnished to the
Administrative Agent or the Lenders by or on behalf of the Borrower or any other
Credit Party prior to, or on, the date hereof in connection with the
transactions contemplated hereby.  None of the Credit Parties provided any
statements or conclusions in the preparation of any Reserve Report which were
based upon or include misleading information or failed to take into account
material information regarding the matters reported therein, it being
 

 
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understood that projections concerning volumes attributable to the Oil and Gas
Properties and production and cost estimates contained in each Reserve Report
are necessarily based upon professional opinions, estimates and projections and
that the Credit Parties do not warrant that such opinions, estimates and
projections will ultimately prove to have been accurate.
 
Section 7.12 Insurance.  Each Credit Party has, and has caused all of its
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 its
Subsidiaries.  The Administrative Agent and the Lenders have been named as
additional insureds in respect of such liability insurance policies and the
Administrative Agent has been named as loss payee with respect to Property loss
insurance.
 
Section 7.13 Restriction on Liens.  No Credit Party is a party to any material
agreement or arrangement (other than Capital Leases creating Liens permitted by
Section 9.03(c), but 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, the Borrower has no
Subsidiaries.
 
Section 7.15 Location of Business and Offices.  The Borrower’s jurisdiction of
organization is Nevada; the name of the Borrower as listed in the public records
of its jurisdiction of organization, as of the date hereof, is Northern Oil and
Gas, Inc.; and the organizational identification number of the Borrower in its
jurisdiction of organization is C876-1983 (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 office is 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) Each Credit Party has good and defensible title to the Hydrocarbon Interests
in 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, each Credit Party specified as the owner owns the
net interests in production attributable
 

 
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to the Hydrocarbon Interests as reflected in the most recently delivered Reserve
Report, and the ownership of such Properties shall not in any material respect
obligate such Credit Party to bear the costs and expenses relating to the
maintenance, development and operations of each such Property in an amount in
excess of the working interest of each Property set forth in the most recently
delivered Reserve Report that is not offset by a corresponding proportionate
increase in such Credit Party’s net revenue interest in such Property.
 
(b) All material leases and agreements necessary for the conduct of the business
of the Credit Parties are valid and subsisting, in full force and effect, and
there exists no default or event or circumstance which with the giving of notice
or the passage of time or both would give rise to a default under any such lease
or leases, which could reasonably be expected to have a Material Adverse Effect.
 
(c) The rights and Properties presently owned, leased or licensed by the Credit
Parties including, without limitation, all easements and rights of way, include
all rights and Properties necessary to permit the Credit Parties to conduct
their business in all material respects in the same manner as its business has
been conducted prior to the date hereof.
 
(d) All of the Properties of the Credit Parties which are reasonably necessary
for the operation of their businesses are in good working condition and are
maintained in accordance with prudent business standards.
 
(e) Each Credit Party owns, or is licensed to use, all trademarks, tradenames,
copyrights, patents and other intellectual Property material to its business,
and the use thereof by such Credit Party does not and will 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 Credit Parties either own or have valid licenses or other
rights to use all databases, geological data, geophysical data, engineering
data, seismic data, maps, interpretations and other technical information used
in their businesses as presently conducted, subject to the limitations contained
in the agreements governing the use of the same, which limitations are customary
for companies engaged in the business of the exploration and production of
Hydrocarbons, with such exceptions as could not reasonably be expected to have a
Material Adverse Effect.
 
Section 7.17 Maintenance of Properties.  Except for such acts or failures to act
as could not be reasonably expected to have a Material Adverse Effect, the Oil
and Gas Properties (and Properties unitized therewith) of the Credit Parties
have been maintained, operated and developed in a good and workmanlike manner
and in conformity with all Governmental Requirements and in conformity with the
provisions of all leases, subleases or other contracts comprising a part of the
Hydrocarbon Interests and other contracts and agreements forming a part of the
Oil and Gas Properties of the Credit Parties.  Specifically in connection with
the foregoing, except for those as could not be reasonably expected to have a
Material Adverse Effect, (i) no Oil and Gas Property of any Credit Party is
subject to having allowable production reduced below the full and regular
allowable (including the maximum permissible tolerance)
 

 
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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 any Credit Party is deviated from the
vertical more than the maximum permitted by Governmental Requirements, and such
wells are, in fact, bottomed under and are producing from, and the well bores
are wholly within, the Oil and Gas Properties (or in the case of wells located
on Properties unitized therewith, such unitized Properties) of such Credit
Party.  All pipelines, wells, gas processing plants, platforms and other
material improvements, fixtures and equipment owned in whole or in part by any
Credit Party that are necessary to conduct normal operations are being
maintained in a state adequate to conduct normal operations, and with respect to
such of the foregoing which are operated by any Credit Party, in a manner
consistent with such Credit Party’s 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 any Credit Party to deliver Hydrocarbons produced from the Oil and
Gas Properties at some future time without then or thereafter receiving full
payment therefor exceeding two percent (2%) of the Credit Parties’ Proved
Reserves of natural gas (on an mcf equivalent basis) in the aggregate.
 
Section 7.19 Marketing of Production.  No Credit Party is a party to any
material agreements which is not cancelable on sixty (60) days notice or less
without penalty or detriment for the sale of production from the Credit Parties’
Hydrocarbons (including, without limitation, calls on or other rights to
purchase, production, whether or not the same are currently being exercised)
that (a) pertain to the sale of production at a fixed price and (b) have a
maturity or expiry date of longer than six (6) months from the date hereof.
 
Section 7.20 Swap Agreements.  Schedule 7.20, as of the date hereof, and after
the date hereof, each report required to be delivered by the Borrower pursuant
to Section 8.01(e), sets forth, a true and complete list of all Swap Agreements
of each Credit Party, 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.  The Credit
Parties are not engaged principally, or as one of its or their important
activities, in the business of extending credit for the purpose, whether
immediate, incidental or ultimate, of buying or carrying margin stock (within
the meaning of Regulation T, U or X of the Board).  No part of the proceeds of
any Loan 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 Credit
 

 
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Parties, taken as a whole, will exceed the aggregate Debt of the Credit Parties
on a consolidated basis, as the Debt becomes absolute and matures, (b) no Credit
Party has incurred and does not intend to incur, and does 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 Credit Party 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) no Credit Party will have (and has no reason to believe that it will
have thereafter) unreasonably small capital for the conduct of its business.
 
Section 7.23 Casualty Events.  Since December 31, 2009, neither the business nor
any Properties of any Credit Party have been materially and adversely affected
as a result of any fire, explosion, earthquake, flood, drought, windstorm,
accident, strike or other labor disturbance, embargo, requisition or taking of
Property or cancellation of contracts, permits or concessions by any domestic or
foreign Governmental Authority, riot, activities or armed forces or acts of God
or of any public enemy.
 
Section 7.24 Material Agreements.  Set forth on Schedule 7.24 hereto 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 7.24, is a
complete and correct list of all material agreements and other instruments
maintained by the Credit Parties setting forth each counterparty thereto (other
than the Loan Documents and joint operating agreements to which any Credit Party
is a party) relating to the purchase, transportation by pipeline, gas
processing, marketing, development, sale and supply of Hydrocarbons, farmout
arrangements, contract operating agreements or other material contracts
(excluding oil and gas leases of the Credit Parties and joint operating
agreements to which any Credit Party is a party) to which the Credit Parties are
a party or by which its Properties is bound, in each case for which breach,
nonperformance, cancellation or failure to renew could reasonably be expected to
have a Material Adverse Effect (collectively “Material Agreements”) and copies
of such documents have been provided to the Administrative Agent.  All such
agreements are in full force and effect and the Credit Parties are not in
default thereunder, nor is there any uncured default by any Affiliate
predecessor in interest to any Credit Party or, to any Credit Party’s knowledge,
by any predecessor in interest to such Credit Party (other than an Affiliate
predecessor) or counterparty thereto, nor has any Credit Party altered any
material item of such agreements since the Effective Date without the prior
written consent of the Lenders.
 
Section 7.25 No Brokers.  No Person is entitled to any brokerage fee or finder’s
fee or similar fee or commission in connection with arranging the Loans
contemplated by this Agreement.
 
Section 7.26 Reliance.  In connection with the negotiation of and the entering
into this Agreement, the Credit Parties acknowledge and represent that none of
the Lenders, the Administrative Agent or any representative of any of the
foregoing is acting as a fiduciary or financial or investment advisor for it; it
is not relying upon any representations (whether written or oral) of such
Persons; they have consulted with their own legal, regulatory, tax, business
investment, financial and accounting advisors to the extent it has deemed
necessary, and they have made their own investment, hedging, and trading
decisions based upon their own judgment
 

 
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and upon any advice from such advisors as they have deemed necessary and not
upon any view expressed by any Lender, the Administrative Agent or any
representative of any of the foregoing; they have not been given by any Lender,
the Administrative Agent or any representative of any of the foregoing (directly
or indirectly through any other Person) any advice, counsel, assurance,
guarantee, or representation whatsoever as to the expected or projected success,
profitability, return, performance, result, effect, consequence, or benefit
(either legal, regulatory, tax, financial, accounting, or otherwise) of this
Agreement or the transactions contemplated hereby; and they are entering into
this Agreement and the other Loan Documents with a full understanding of all of
the risks hereof and thereof (economic and otherwise), and they are capable of
assuming and willing to assume (financially and otherwise) those risks.
 
Section 7.27 Payments by Purchasers of Production.  All proceeds from the sale
of any Credit Party’s interests in Hydrocarbons from its Oil and Gas Properties
are currently being paid in full by the purchaser thereof on a timely basis and
at prices and terms comparable to market prices and terms generally available at
the time such prices and terms were negotiated for oil and gas production from
producing areas situated near such Oil and Gas Properties, and none of such
proceeds are currently being held in suspense by such purchaser or any other
Person.
 
Section 7.28 Existing Accounts Payable.  As of the Effective Date, set forth on
Schedule 7.28 hereto is a complete and correct list of all existing accounts
payable of the Borrower that are more than sixty (60) days past due.
 
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 Borrower covenants and agrees with the Lenders that:
 
Section 8.01 Financial Statements; Ratings Change; Other Information.  The
Borrower will furnish to the Administrative Agent and each Lender:
 
(a) Annual Financial Statements.  As soon as available, but in any event in
accordance with then applicable law and not later than ninety (90) days after
the end of each fiscal year of the Borrower, its audited consolidated and
consolidating 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 (i) Mantyla McReynolds, LLC, (ii) any independent public accountants of
recognized national standing or (iii) any other independent public accountant
reasonably acceptable to the Administrative Agent (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 and consolidating
financial statements present fairly in all material respects the financial
condition and results of operations of the Borrower and its Consolidated
 

 
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Subsidiaries on a consolidated and consolidating basis in accordance with GAAP
consistently applied.
 
(b) Quarterly Financial Statements.  Within sixty (60) days after the end of
each fiscal quarter, a balance sheet, income statement and statement of the
cumulative cash flows of the Borrower (including all notes thereto) for the
period from the beginning of the then current fiscal year to the end of such
fiscal quarter, prepared by the Borrower and accompanied by a certification of
an Responsible Officer of the Borrower, dated the date of the delivery of the
financial statements to the Administrative Agent and each Lender, and further
certifying that no Default exists under this Agreement and that such financial
statements present fairly in all material respects the consolidated and
consolidating financial position and results of operations of the Borrower on a
consolidated and consolidating basis in accordance with GAAP, subject to normal
year-end adjustments and the absence of footnotes (other than those reasonably
required to explain financial data).
 
(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 the Chief Executive Officer or a Financial Officer in
substantially the form of Exhibit D attached 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 8.14(a) and Section 9.01, (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, and (iv) if, at any time, the Borrower has any Consolidated
Subsidiaries, setting forth consolidating spreadsheets that show all
Consolidated Subsidiaries and the eliminating entries, in such form as would be
presentable to the auditors of the Borrower.
 
(d) Certificate of Accounting Firm -- Defaults.  Concurrently with any delivery
of financial statements under Section 8.01(a), a certificate of the accounting
firm that reported on such financial statements stating whether they obtained
knowledge during the course of their examination of such financial statements of
any Default (which certificate may be limited to the extent required by
accounting rules or guidelines).
 
(e) Certificate of Financial Officer – Swap Agreements.  Concurrently with any
delivery of financial statements under Section 8.01(a) and Section 8.01(b), a
certificate of a Financial Officer, in substantially the form of Exhibit G
attached hereto, setting forth as of the last Business Day of such fiscal
quarter or fiscal year, a true and complete list of all Swap Agreements of each
Credit Party, 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, and the counterparty to each such agreement.
 

 
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(f) Certificate of Insurer -- Insurance Coverage.  Upon change or renewal, a
certificate of insurance coverage from each insurer with respect to the
insurance required by Section 8.07, in form and substance satisfactory to the
Administrative Agent, and, if requested by the Administrative Agent or any
Lender, all copies of the applicable policies.
 
(g) Other Accounting Reports.  Promptly upon receipt thereof, a copy of each
other report or letter submitted to any Credit Party by independent accountants
in connection with any annual, interim or special audit made by them of the
books of the Borrower or any such Subsidiary, and a copy of any response by any
Credit Party, or the board of directors of any Credit Party, to such letter or
report.
 
(h) SEC and Other Filings; Reports to Shareholders.  Promptly after the same
become publicly available, copies of all periodic and other reports, proxy
statements and other materials filed by the Borrower or any Subsidiary with the
SEC, or with any national securities exchange, or distributed by the Borrower to
its shareholders generally, as the case may be; provided, however that the
Borrower shall be deemed to have complied with the requirements of this Section
8.01(h) to the extent that such reports, proxy statements and other materials
are publicly available on the SEC’s EDGAR filing system or any successor system
and the Borrower has notified the Administrative Agent that such materials are
available.  Notwithstanding the foregoing proviso, the Borrower shall provide
copies of any materials required under this Section 8.01(h) upon request by the
Administrative Agent.
 
(i) Notices Under Material Instruments.  Promptly after the furnishing thereof,
copies of any financial statement, report or notice furnished to or by any
Person pursuant to the terms of any preferred stock designation, indenture, loan
or credit or other similar agreement, other than this Agreement and not
otherwise required to be furnished to the Lenders pursuant to any other
provision of this Section 8.01.
 
(j) Lists of Purchasers.  Concurrently with the delivery of any Reserve Report
to the Administrative Agent pursuant to Section 8.12, a list of all Persons
purchasing Hydrocarbons from the Borrower to the extent that any Credit Party
controls the marketing and the sale of such Hydrocarbons (which listings shall
include, with respect to each such purchaser, the legal name and address
thereof, the appropriate contact person thereat, the Oil and Gas Properties from
which Hydrocarbons were purchased and the volume of Hydrocarbons purchased).
 
(k) Notice of Sales of Oil and Gas Properties.  In the event any Credit Party
intends to sell, transfer, assign or otherwise dispose of any Oil or Gas
Properties or any Equity Interests in any other Credit Party 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; provided that, the foregoing shall not apply
to the sale of the Oil and Gas Properties listed on Schedule 9.12 to the extent
such sale is expressly permitted by Section 9.12(d).
 

 
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(l) Notice of Casualty Events.  Prompt written notice, and in any event within
three (3) Business Days of the occurrence of any Casualty Event or the
commencement of any action or proceeding that could reasonably be expected to
result in a Casualty Event.
 
(m) Information Regarding Credit Parties.  Prompt written notice (and in any
event within ten Business Days prior thereto) of any change (i) in any Credit
Party’s organizational name, (ii) in the location of any Credit Party’s chief
executive office or principal place of business, (iii) in any Credit Party’s
identity or organizational structure or in the jurisdiction in which such Person
is organized or formed, (iv) in any Credit Party’s jurisdiction of organization
or such Person’s organizational identification number in such jurisdiction of
organization and (v) in any Credit Party’s federal taxpayer identification
number.
 
(n) Other Reports.  The Borrower shall prepare and provide the Lenders and
Administrative Agent the following reports:
 
(i) on a quarterly basis by the 45th day following each calendar quarter, a
report setting forth, for such calendar quarter, 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 quarter from
the Oil and Gas Properties with Proved Developed Producing Reserves described in
the most recent Reserve Report, and setting forth the related ad valorem,
severance and production taxes and lease operating expenses attributable thereto
and incurred for each such calendar quarter;
 
(ii) after the occurrence and during the continuance of any Borrowing Base
Deficiency, the Borrower shall provide, on a monthly basis on the 15th day of
each such month, a report setting forth, for the immediately preceding calendar
month, the Credit Parties’ Excess Cash Flow;
 
(iii) on a quarterly basis by the 45th day after the end of each calendar
quarter, an updated report setting forth the Credit Parties’ forecasted Capital
Expenditure budget for the following twelve (12) month period; and
 
(iv) such other information as the Administrative Agent may reasonably request,
including, but not limited to, each of the following to the extent available: an
unaudited income statement, a consolidated balance sheet and a statement of cash
flow (with such statement to show any variations from the budget previously
delivered), copies of any Credit Party’s bank account statements, statement of
expenses for the preceding month, notice of any material changes with regard to
oil and gas prices received, contracts or production expenses or any material
litigation affecting the operation of the Oil and Gas Properties of any Credit
Party.
 
(o) Notices of Certain Changes.  Subject to Section 9.21, promptly, but in any
event within five (5) Business Days after the execution thereof, copies of any
 

 
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amendment, modification or supplement to the Organizational Documents, any
preferred stock designation or any other organizational document of any Credit
Party.
 
(p) Notice of Purchase of Oil and Gas Properties.  In the event a Credit Party
acquires additional Oil and Gas Properties, the Borrower shall deliver promptly,
but in any event within forty-five (45) days after the end of each calendar
quarter in which such acquisition occurred, to the Administrative Agent a list
of all Oil and Gas Properties of the Credit Parties (including each such newly
acquired Oil and Gas Property) not subject to a Lien of the Security Instruments
at the time of delivery of such list to the Administrative Agent, in
substantially the form of Exhibit I attached hereto.
 
(q) Non-Consent Election.  Promptly, but in any event within five (5) Business
Days after any Credit Party’s election thereof, to withhold consent to
participate in any wells located on Oil and Gas Properties.
 
(r) Other Requested Information.  Promptly following any request therefor, such
other information regarding the operations, business affairs and financial
condition of any Credit Party, or compliance with the terms of this Agreement or
any other Loan Document, in each case, as the Administrative Agent or any Lender
may reasonably request.
 
(s) Surface Acreage Reports.  As soon as available and in any event within
thirty (30) days after the last day of each calendar quarter, a report certified
as true and complete in all material respects by a Responsible Officer, in form
and substance satisfactory to Administrative Agent, setting forth as of the last
Business Day of such calendar quarter an accounting of all surface acreage sold
by the Borrower or any Guarantor, the gross and net proceeds received therefore
and the amount of such proceeds distributed to  the partners of Borrower.
 
(t) Tax Returns.  As soon as available and in any event within fifteen (15) days
after the filing of any tax return, or any other filing with a taxing authority,
of the Borrower, any Guarantor or any Subsidiary of either thereof, a copy of
such filed tax return or other filing, together with all exhibits and
attachments thereto.
 
Section 8.02 Notices of Material Events.  The Borrower will furnish to the
Administrative Agent and each Lender prompt written notice of the following:
 
(a) the occurrence of any Default;
 
(b) the filing or commencement of, or the threat in writing of, any action,
suit, proceeding, investigation or arbitration by or before any arbitrator or
Governmental Authority against or affecting a Credit Party 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 a
Material Adverse Effect; and
 

 
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(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.  The Borrower will, and will cause
each Subsidiary to, do or cause to be done all things necessary to preserve,
renew and keep in full force and effect its legal existence and the rights,
licenses, permits, privileges and franchises material to the conduct of its
business and maintain, if necessary, its qualification to do business in each
jurisdiction in which its Oil and Gas Properties is located or the ownership of
its Properties requires such qualification, except where the failure to so
qualify could not reasonably be expected to have a Material Adverse Effect;
provided that the foregoing shall not prohibit any merger, consolidation,
liquidation or dissolution permitted under Section 9.11.
 
Section 8.04 Payment of Obligations.  The Borrower will, and will cause each
Subsidiary to, pay its obligations, including Tax liabilities of each such
Credit Party and 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) such Credit Party 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 any Credit Party.
 
Section 8.05 Performance of Obligations under Loan Documents.  The Borrower will
pay the Notes according to the reading, tenor and effect thereof, and the
Borrower will, and will cause each Subsidiary to, do and perform every act and
discharge all of the obligations to be performed and discharged by them under
the Loan Documents, including, without limitation, this Agreement, at the time
or times and in the manner specified.
 
Section 8.06 Operation and Maintenance of Properties.  The Borrower, at its own
expense, will, and will cause each Subsidiary to:
 
(a) operate 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
proration 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, preserve and maintain all Property material to the conduct of its
business in good working order and condition, ordinary wear and tear excepted,
and
 

 
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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 accruing under the leases or other agreements affecting or
pertaining to its Oil and Gas Properties and will do all other things necessary,
in accordance with customary industry standards, to keep unimpaired their rights
with respect thereto and prevent any forfeiture thereof or default thereunder;
 
(d) promptly perform or make reasonable and customary efforts to cause to be
performed, in accordance with industry standards, the obligations required by
each and all of the assignments, deeds, leases, sub-leases, contracts and
agreements affecting its interests in its Oil and Gas Properties and other
material Properties;
 
(e) operate its Oil and Gas Properties and other material Properties or cause or
make reasonable and customary efforts to cause such Oil and Gas Properties and
other material Properties to be operated in accordance with the practices of the
industry and in material compliance with all applicable contracts and agreements
and in compliance in all material respects with all Governmental Requirements;
and
 
(f) to the extent a Credit Party is not the operator of any Property, the Credit
Parties shall use reasonable efforts to cause the operator to comply with this
Section 8.06.
 
Section 8.07 Insurance.  The Borrower will, and will cause each Subsidiary to,
maintain, with financially sound and reputable insurance companies, insurance in
such amounts and against such risks as are customarily maintained by companies
engaged in the same or similar businesses operating in the same or similar
locations.  The loss payable clauses or provisions in said insurance policy or
policies insuring any of the collateral for the Loans shall be endorsed in favor
of and made payable to the Administrative Agent as its interests may appear and
such policies shall name the Administrative Agent and the Lenders as “additional
insureds” and “loss payees”, as applicable, and provide that the insurer will
endeavor to give at least thirty (30) days prior notice of any cancellation to
the Administrative Agent.
 
Section 8.08 Books and Records; Inspection Rights.  The Borrower will, and will
cause each Subsidiary to, keep proper books of record and account in which full,
true and correct entries are made of all dealings and transactions in relation
to its business and activities.  The Borrower will, and will cause each
Subsidiary to, permit any representatives designated by the Administrative Agent
or any Lender, upon reasonable prior notice, to visit and inspect its
Properties, to examine and make extracts from its books and records, and to
discuss its affairs, finances and condition with its officers and independent
accountants, all at such reasonable times and as often as reasonably requested.
 

 
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Section 8.09 Compliance with Laws.  The Borrower will, and will cause each
Subsidiary to, comply with all laws, rules, regulations and orders of any
Governmental Authority applicable to 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 its sole expense: (i) comply, and shall cause its
Properties and operations and each Subsidiary and each Subsidiary’s Properties
and operations to comply, with all applicable Environmental Laws, the breach of
which could be reasonably expected to have a Material Adverse Effect; (ii) not
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
such Credit Parties’ Properties or any other property offsite the Property to
the extent caused by a Credit Party’s 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 a Credit
Parties’ 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, under, about or from any of the Credit Parties’ 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 that could
reasonably be expected to have a Material Adverse Effect; 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
Credit Parties’ 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 (5) 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
any Credit Party 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 $100,000, not fully covered by insurance, subject to
normal deductibles.
 

 
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(c) The Borrower will, and will cause each Subsidiary 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 if the Administrative Agent reasonably
believes (i) that there has been a Release of Hazardous Materials or (ii)
non-compliance with an Environmental Law has occurred, and that such an event
could reasonably be expected to cause a Material Adverse Effect (or as otherwise
required to be obtained by the Administrative Agent or the Lenders by any
Governmental Authority), in connection with any Oil and Gas Properties or other
Properties.
 
Section 8.11 Further Assurances.
 
(a) The Borrower at its sole expense will, and will cause each Subsidiary to,
promptly execute and deliver to the Administrative Agent all such other
documents, agreements and instruments reasonably requested by the Administrative
Agent to comply with, cure any defects or accomplish the conditions precedent,
covenants and agreements of the Credit Parties, as the case may be, in the Loan
Documents, including the Notes, if any, or to further evidence and more fully
describe the collateral intended as security for the Indebtedness, or to correct
any defect, error or inaccuracy 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 (or covering “all personal property” or “all
assets”) without the signature of the Borrower or any other Guarantor where
permitted by law.  A carbon, photographic or other reproduction of the Security
Instruments or any financing statement covering the Mortgaged Property or any
part thereof shall be sufficient as a financing statement where permitted by
law.
 
Section 8.12 Reserve Reports.
 
(a) Commencing on October 1, 2010 and on or before each April 1 and October 1 of
each year thereafter, the Borrower shall furnish to the Administrative Agent and
the Lenders a Reserve Report evaluating the Oil and Gas Properties of the Credit
Parties as of the immediately preceding January 1st and July 1st.  The Reserve
Reports as of January 1 and July 1 of each year shall be prepared by one or more
Approved Petroleum Engineers.
 
(b) In the event of an Interim Redetermination, the Borrower shall furnish to
the Administrative Agent and the Lenders a Reserve Report prepared by one or
more Approved Petroleum Engineers.  For any Interim Redetermination requested by
the Administrative Agent or the Borrower pursuant to Section 2.07(b), the
Borrower shall
 

 
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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,
in substantially the form of Exhibit H attached hereto, certifying that in all
material respects: (i) the data contained in the Reserve Report and any other
information delivered in connection therewith is true and correct, (ii) the
Credit Parties own good and defensible title to the Hydrocarbon Interests in the
Oil and Gas Properties evaluated in such Reserve Report and such Properties are
free of all Liens except for Liens permitted by Section 9.03, (iii) except as
set forth on an exhibit to the certificate, on a net basis there are no gas
imbalances, take or pay or other prepayments in excess of the volume specified
in Section 7.18 with respect to its Oil and Gas Properties evaluated in such
Reserve Report which would require any Credit Party 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 Effective Date 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 Effective Date and (vi)
attached thereto is a schedule of the Oil and Gas Properties evaluated by such
Reserve Report that are Mortgaged Properties which demonstrates compliance with
Section 8.14(a).
 
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 reasonably 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, reasonably
satisfactory title information on at least 80% of the Total Reserve Value of the
Oil and Gas Properties evaluated by such Reserve Report ; provided that,
following reasonable notice from the Administrative Agent, the aforementioned
threshold shall automatically be increased to acceptable title information with
respect to at least 90% of the Total Reserve Value of the Oil and Gas Properties
evaluated by each such Reserve Report.
 
(b) If the Borrower has provided title information for additional Properties
under Section 8.13(a), the Borrower shall, within forty-five (45) 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
 

 
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information, (ii) substitute acceptable Mortgaged Properties with no title
defects or exceptions except for Excepted Liens (other than Excepted Liens
described in clauses (e), (g) and (h) of such definition) having an equivalent
value or (iii) deliver title information in form and substance acceptable to the
Administrative Agent so that the Administrative Agent shall have received,
together with title information previously delivered to the Administrative
Agent, satisfactory title information on at least 80% or 90%, as applicable, of
the Total Reserve 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 45-day period or the
Borrower does not comply with the requirements to provide acceptable title
information covering 80% or 90%, as applicable, of the Total Reserve Value of
the Oil and Gas Properties evaluated in the most recent Reserve Report, such
default shall not be a Default, but instead the Administrative Agent and/or the
Majority Lenders shall have the right to exercise the following remedy in their
sole discretion from time to time, and any failure to so exercise this remedy at
any time shall not be a waiver as to future exercise of the remedy by the
Administrative Agent or the Lenders.  To the extent that the Administrative
Agent or the Majority Lenders are not satisfied with title to any Mortgaged
Property after the 45-day period has elapsed, such unacceptable Mortgaged
Property shall not count towards the 80% or 90%, as applicable, 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 Majority Lenders to cause the Borrower to be in compliance with the
requirement to provide acceptable title information on 80% or 90%, as
applicable, of the Total Reserve Value of 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 80% of the Total Reserve Value of the Oil and Gas Properties
evaluated in the most recently completed Reserve Report; provided that,
following reasonable notice from the Administrative Agent, the aforementioned
threshold shall automatically be increased to 90% of the Total Reserve Value of
the Oil and Gas Properties evaluated in the most recently completed Reserve
Report.  In the event that the Mortgaged Properties do not represent at least
80% or 90%, as applicable, of such Total Reserve Value, then the Credit Parties
shall, and shall cause their Subsidiaries to, grant, within forty-five (45) 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 80% or 90%, as
applicable, of such Total Reserve Value.  All such Liens will be
 

 
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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) In the event that a Credit Party forms or acquires any Subsidiary, the
Credit Parties shall promptly cause such Subsidiary to guarantee the
Indebtedness pursuant to the Guaranty Agreement.  In connection with any such
guaranty, the Credit Parties shall, or shall cause such Subsidiary to, (A)
execute and deliver a supplement to the Guaranty Agreement executed by such
Subsidiary, (B) pledge all of the Equity Interests of such new Subsidiary
(including, without limitation, delivery of original stock certificates
evidencing the Equity Interests of such Subsidiary, together with an appropriate
undated stock powers for each certificate duly executed in blank by the
registered owner thereof) and (C) execute and deliver such other additional
closing documents, certificates and legal opinions as shall reasonably be
requested by the Administrative Agent.
 
(c) If requested by the Administrative Agent, the Borrower shall, and shall
cause its Subsidiaries to, grant, within thirty (30) days of such request, 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 any Oil and Gas Properties of the Credit Parties
not already subject to a Lien of the Security Instruments.  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.
 
Section 8.15 ERISA Compliance.  The Borrower will promptly furnish and will
cause the Subsidiaries and any ERISA Affiliate to promptly furnish to the
Administrative Agent 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
immediately upon becoming aware of the occurrence of an “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 such Credit Party, the Subsidiary or the ERISA Affiliate is
taking or proposes to take with respect thereto, and, when known, any action
taken or proposed by the Internal Revenue Service or the Department of Labor
with respect thereto.
 
Section 8.16 Swap Agreements.  The Borrower shall from time to time enter into
Swap Agreements in respect of commodities so that the notional volumes of all
Swap Agreements and additional fixed-price physical off-take contracts, in the
aggregate, are more than 50% of the reasonably anticipated projected production
from the Borrower’s Proved Developed Producing
 

 
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Reserves for each month continuing through and including the date that is
thirty-six (36) months following the effective date of each such Swap Agreement.
 
Section 8.17 Marketing Activities.  The Borrower will not, and will not permit
any of its 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 Credit Parties that a
Credit Party 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 Borrower covenants and agrees with the Lenders that:
 
Section 9.01 Financial Covenants.
 
(a) Ratio of Debt to EBITDAX.  The Borrower will not, at any time, permit its
ratio of Debt as of such time to EBITDAX to be greater than 3.5 to 1.0.
 
(b) Current Ratio.  The Borrower 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 current maturities under this Agreement) to be less than 1.0
to 1.0.
 
(c) Tangible Net Worth Ratio.  The Borrower will not, at any time, permit its
ratio of Tangible Net Worth to Debt as of such date to be less than 3.0 to 1.0.
 
Section 9.02 Debt.  The Borrower will not, and will not permit any Subsidiary
to, incur, create, assume or suffer to exist any Debt, except:
 
(a) the Notes or other Indebtedness arising under the Loan Documents or any
guaranty of or suretyship arrangement for the Notes or other Indebtedness
arising under the Loan Documents;
 

 
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(b) endorsements of negotiable instruments for collection in the ordinary course
of business;
 
(c) Debt under Capital Leases not to exceed $200,000 in aggregate principal
amount at any time outstanding;
 
(d) Debt associated with bonds or surety obligations required by Governmental
Requirements in connection with the operation of, or provision for the
abandonment and remediation of, the Oil and Gas Properties;
 
(e) intercompany Debt between any Credit Parties to the extent permitted by
Section 9.05(f); provided that such Debt is not held, assigned, transferred,
negotiated or pledged to any Person other than the one of the Credit Parties,
and, provided further, that any such Debt owed by any Credit Party shall be
subordinated to the Indebtedness on terms set forth in the Guaranty Agreement;
 
        (f) Debt owed by the Borrower under the Officer Notes;
 
        (g) Debt in a principal amount not to exceed seventy-five percent (75%)
of the marked-to-market value of the Borrower’s Auction Rate Securities, secured
solely by the interests of the Borrower or any Subsidiary in such Auction-Rate
Securities which is non-recourse to the Borrower and otherwise on terms
reasonably satisfactory to the Administrative Agent.
 
Section 9.03 Liens.  The Borrower will not, and will not permit any Subsidiary
to, create, incur, assume or permit to exist any Lien on any of its Properties
(now owned or hereafter acquired), except:
 
(a) Liens securing the payment of any Indebtedness;
 
(b) Excepted Liens;
 
(c) Liens securing Capital Leases permitted by Section 9.02(c) but only on the
Property under lease; and
 
(d) Liens on Auction-Rate Securities securing Debt permitted by Section 9.02(g).
 
Section 9.04 Dividends, Distributions and Repayment of Officer Notes.
 
(a) The Borrower will not, and will not permit any of its Subsidiaries to,
declare or make, or agree to pay or make, directly or indirectly, any Restricted
Payment, return any capital to its stockholders or make any distribution of its
Property to its Equity Interest holders, except (i) the Borrower may declare and
pay dividends with respect to its Equity Interests payable solely in additional
shares of its Equity Interests (other than Disqualified Capital Stock), (ii)
Subsidiaries may declare and pay dividends and make distributions to the
Borrower with respect to their Equity Interests and (iii) the
 

 
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Borrower may make Restricted Payments pursuant to and in accordance with stock
option plans or other benefit plans for management or employees of the Credit
Parties.
 
(b) The Borrower will not, and will not permit any of its Subsidiaries to (i)
amend, modify, waive or otherwise change, consent or agree to any amendment,
modification, waiver or other change to, any of the terms of the Officer Note
Debt permitted under Section 9.02(f) without the prior written consent of the
Administrative Agent or (ii) 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 Officer Notes, provided that, if no Default or Event of
Default has occurred and is continuing or would exist after giving effect to
such prepayment and no Borrowing Base Deficiency then exists, Borrower may
Redeem all or any part of the Officer Notes.
 
Section 9.05 Investments, Loans and Advances.  The Borrower will not, and will
not permit any Subsidiary to, make or permit to remain outstanding any
Investments in or to any Person, except that the foregoing restriction shall not
apply to:
 
(a) accounts receivable arising in the ordinary course of business;
 
(b) 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 acquisition thereof;
 
(c) commercial paper maturing within one year from the date of acquisition
thereof rated in the highest grade by S&P or Moody’s;
 
(d) deposit accounts or deposits maturing within one year from the date of
creation thereof with, including certificates of deposit issued by, any Lender
or any other Person at any office located in the United States 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;
 
(e) deposits in money market funds investing exclusively in Investments
described in Section 9.05(b), Section 9.05(c) or Section 9.05(d);
 
(f) Investments (i) made by the Borrower in or to any Subsidiary which is a
Guarantor and with respect to which 100% of the issued and outstanding Equity
Interests have been pledged to Administrative Agent, and (ii) made by any
Guarantor in or to any other Credit Party;
 
(g) 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
 

 
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exploration and production business located within the geographic boundaries of
the United States of America;
 
(h) Investments in stock, obligations or securities received in settlement of
debts arising from Investments permitted under this Section 9.05 owing to any
Credit Party 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
any Credit Party; 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 outstanding under this Section 9.05(h) exceeds $100,000;
 
(i) The Auction Rate Securities owned by the Borrower as of the Effective Date;
and
 
(j) other Investments not to exceed $200,000 in the aggregate at any time.
 
Section 9.06 Nature of Business.  The Borrower will not, and will not permit any
Subsidiary to, allow any material change to be made in the character of its
business as an independent oil and gas exploration and production company.  From
and after the date hereof, the Credit Parties and their Subsidiaries will not
acquire or make any other expenditure (whether such expenditure is capital,
operating or otherwise) in or related to, any Oil and Gas Properties not located
within the geographical boundaries of the United States.
 
Section 9.07 Limitation on Leases.  The Borrower will not, and will not permit
any Subsidiary to, create, incur, assume or suffer to exist any obligation for
the payment of rent or hire of Property of any kind whatsoever (real or personal
but excluding Capital Leases and leases of Hydrocarbon Interests), under leases
or lease agreements which would cause the aggregate amount of all payments made
by the Credit Parties and the Subsidiaries pursuant to all such leases or lease
agreements, including, without limitation, any residual payments at the end of
any lease, to exceed $200,000 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.  No Credit Party nor any Person acting on behalf of a Credit Party has
taken or will take any action which might cause any of the Loan Documents to
violate Regulations T, U or X or any other regulation of the Board or to violate
Section 7 of the Securities Exchange Act of 1934 or any rule or regulation
thereunder, in each case as now in effect or as the same may hereinafter be in
effect.  If requested by the Administrative Agent, the Borrower will furnish to
the Administrative Agent and each Lender a statement to the foregoing effect in
conformity with the requirements of FR Form U-1 or such other form referred to
in Regulation U, Regulation T or Regulation X of the Board, as the case may be.
 
Section 9.09 ERISA Compliance.  The Borrower will not, and will not permit any
Subsidiary to, at any time:
 

 
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(a) engage in, or permit any ERISA Affiliate to engage in, any transaction in
connection with which a Credit Party 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
if such penalty or liability could reasonably be expected to result in a
Material Adverse Effect.
 
(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, a Credit Party or any ERISA Affiliate is
required to pay as contributions thereto if such failure could reasonably be
expected to result in a Material Adverse Effect.
 
(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 a Credit Party out of the ordinary course of business or the settlement of
joint interest billing accounts in the ordinary course of business or discounts
granted to settle collection of accounts receivable or the sale of defaulted
accounts arising in the ordinary course of business in connection with the
compromise or collection thereof and not in connection with any financing
transaction, the Borrower will not, and will not permit any Subsidiary to,
discount or sell (with or without recourse) any of its notes receivable or
accounts receivable.
 
Section 9.11 Mergers, Etc.  The Borrower will not, and will not permit any
Subsidiary to, merge into or with or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell, transfer,
lease or otherwise dispose of (whether in one transaction or in a series of
transactions) all or substantially all of its Property to any other Person
(whether now owned or hereafter acquired) (any such transaction, a
“consolidation”), or liquidate or dissolve; provided that (a) any Subsidiary may
participate in a consolidation with (i) the Borrower so long as the Borrower
shall be the continuing or surviving entity or (ii) any other Subsidiary
(provided that if one of such Subsidiaries is a wholly-owned Subsidiary, then
the surviving Person shall be a wholly-owned Subsidiary) and (b) the Borrower
may merge with an into a newly-formed wholly-owned corporate Subsidiary of the
Borrower organized under the laws of the state of Minnesota with such Subsidiary
being the survivor; provided that (i) the Borrower shall provide the
Administrative Agent with at least ten (10) days prior written notice of its
intent to consummate such a merger and in connection therewith shall provide a
detailed summary of the terms and structure of the proposed merger transaction,
(ii) the plan of merger, merger agreement and other documentation effectuating
such merger shall be in form and substance reasonably satisfactory to the
Administrative Agent, (iii) contemporaneously with the consummation of such
merger, the Borrower shall provide the Administrative Agent with (A) an executed
assumption agreement whereby the surviving entity assumes the rights and
obligations
 

 
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of the Borrower under this Agreement and the other Loan Documents, (B) executed
and notarized (where applicable) amendments to and/or reaffirmations of the
Security Instruments that reflect such merger, and (C) such other documentation
as the Administrative Agent may reasonably request, all in form and substance
reasonably satisfactory to the Administrative Agent and (iv) such merger shall
be consummated on or before July 31, 2010.
 
Section 9.12 Sale of Properties.  The Borrower will not, and will not permit any
Subsidiary to, sell, assign, farm-out, convey or otherwise transfer (including
through the sale of a production payment or overriding royalty interest) any
Property except for (a) the sale of Hydrocarbons in the ordinary course of
business; (b) farmouts, sales or other dispositions of undeveloped acreage and
assignments in connection with such farmouts with the approval of the
Administrative Agent; (c) the sale or transfer of equipment that is no longer
necessary for the business of a Credit Party or is replaced by equipment of at
least comparable value and use; (d) the sale or other disposition (including
Casualty Events) of any Oil and Gas Property or any interest therein or any
Subsidiary owning Oil and Gas Properties; provided that (i) 100% of the
consideration received in respect of such sale or other disposition shall be
cash, (ii) the consideration received in respect of such sale or other
disposition shall be equal to or greater than the fair market value of the Oil
and Gas Property, interest therein or the Subsidiary subject of such sale or
other disposition (as reasonably determined by the board of directors of the
Borrower and, if requested by the Administrative Agent, the Borrower shall
deliver a certificate of a Responsible Officer of the Borrower certifying to
that effect), (iii) if such sale or other disposition of Oil and Gas Property or
Subsidiary owning Oil and Gas Properties included in the most recently delivered
Reserve Report during any period between two successive Scheduled
Redetermination Dates has a fair market value in excess of $250,000,
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, assigned such Property in 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; (e) the sale or other disposition of the Oil and
Gas Properties listed on Schedule 9.12; (f) the disposition of Oil and Gas
Properties not included in the most recently delivered Reserve Report in
exchange for either (i) other Oil and Gas Properties of a similar use or
purpose  or (ii) an operator’s commitment to drill an oil or natural gas well;
(g) the sale or other disposition of the Auction-Rate Securities provided that
the Debt permitted by Section 9.02(g) is paid in full and the Liens permitted by
Section 9.03(d) are terminated concurrently with such sale or disposition and
(h) sales and other dispositions of Properties not regulated by Section 9.12(a)
to (g) having a fair market value not to exceed $250,000 during any twelve (12)
month period.
 
Section 9.13 Environmental Matters.  The Borrower will not, and will not permit
any Subsidiary to, cause or permit any of its Property to be in violation of, or
do anything or permit anything to be done which will subject any such Property
to 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.
 

 
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Section 9.14 Material Agreements.  The Borrower will not, and will not permit
any Subsidiary to, enter into or amend or otherwise modify any Material
Agreement or any other contract or agreement that involves an individual
commitment from such Person of more than $500,000 in the aggregate in any twelve
(12) month period, except for contracts for the acquisition of Oil and Gas
Properties.
 
Section 9.15 Transactions with Affiliates.  The Borrower will not, and will not
permit any Subsidiary to, enter into any transaction, including, without
limitation, any purchase, sale, lease or exchange of Property or the rendering
of any service, with any Affiliate (other than the Guarantors and wholly-owned
Subsidiaries of the Borrower) unless such transactions are otherwise permitted
under this Agreement and are upon fair and reasonable terms no less favorable to
it than it would obtain in a comparable arm’s length transaction with a Person
not an Affiliate.
 
Section 9.16 Subsidiaries.  Except for the Subsidiary formed in connection with
the merger contemplated by Section 9.11(b) (which Subsidiary shall neither own
any Oil and Gas Properties or other Properties nor incur any liability or
obligation prior to such merger), the Borrower will not, and will not permit any
Subsidiary to, create any additional Subsidiary unless the Borrower gives
written notice to the Administrative Agent of such creation and complies with
Section 8.14(b).  The Borrower shall not, and shall not permit any Subsidiary
to, sell, assign or otherwise dispose of any Equity Interests in any Subsidiary
except in compliance with Section 9.11(b) or Section 9.12(d).  Neither the
Borrower nor any Subsidiary shall have any Foreign Subsidiaries.
 
Section 9.17 Negative Pledge Agreements; Dividend Restrictions.  The Borrower
will not, and will not permit any Subsidiary to, create, incur, assume or suffer
to exist any contract, agreement or understanding (other than this Agreement,
the Security Instruments, Capital Leases creating Liens permitted by Section
9.03(c) or the Auction Rate Securities Documents) which in any way prohibits or
restricts the granting, conveying, creation or imposition of any Lien on any of
its Property in favor of the Administrative Agent and the Lenders or restricts
any Subsidiary from paying dividends or making distributions to any Credit
Party, or which requires the consent of or notice to other Persons in connection
therewith.
 
Section 9.18 Gas Imbalances, Take-or-Pay or Other Prepayments.  The Borrower
will not, and will not permit any Subsidiary to, allow gas imbalances,
take-or-pay or other prepayments with respect to the Oil and Gas Properties of
any Credit Party that would require a Credit Party to deliver Hydrocarbons at
some future time without then or thereafter receiving full payment therefor to
exceed two percent (2%) of the Credit Parties’ Proved Reserves of natural gas
(on an mcf equivalent basis) in the aggregate.
 
Section 9.19 Swap Agreements.  The Borrower will not, and will not permit any
Subsidiary to, enter into any Swap Agreements with any Person other than Lenders
or their Affiliates.  The Borrower 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 cancelling its
positions under such Swap Agreements required hereby. The Borrower shall not
enter into Swap Agreements in respect of commodities if the effect thereof would
be to
 

 
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cause the notional volumes of all Swap Agreements and additional fixed-price
physical off-take contracts, in the aggregate, to exceed 90% of the reasonably
anticipated projected production from the Borrower’s Proved Developed Producing
Reserves for any month continuing through and including the date that is
thirty-six (36) months following the effective date of each such Swap Agreement.
 
Section 9.20 Sale and Leasebacks.  The Borrower will not, any will not permit
any Subsidiary or Guarantor to enter into any arrangement, directly or
indirectly, with any Person whereby the Borrower or any Subsidiary or Guarantor
shall sell or transfer any of its Property, whether now owned or hereafter
acquired, and whereby Borrower or any Subsidiary or Guarantor shall then or
thereafter rent or lease as lessee such Property or any part thereof or other
Property which Borrower or any Subsidiary or Guarantor intends to use for
substantially the same purpose or purposes as the Property sold or transferred.
 
Section 9.21 Amendments to Organizational Documents.  Without the prior written
consent of the Majority Lenders, neither Borrower nor any Guarantor will amend,
or permit to be amended, its Organizational Documents or waive any right or
obligation of any Person thereunder except to the extent such amendment or
waiver could not reasonably be expected to adversely affect the rights and
benefits of the Administrative Agent, the Lenders and/or other secured parties
under this Agreement or any other Loan Document.
 
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 a
Credit Party in or in connection with any Loan Document or any amendment or
modification of any Loan Document or waiver under such Loan Document or in any
report, certificate, financial statement or other document furnished pursuant to
or in connection with any Loan Document or any amendment or modification thereof
or waiver thereunder, shall prove to have been incorrect in any material respect
when made or deemed made;
 
(d) a Credit Party shall fail to observe or perform any covenant, condition or
agreement contained in Section 8.01(i), Section 8.01(m), Section 8.02, Section
8.03, Section 8.14 or in Article IX;
 

 
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(e) a Credit Party shall fail to observe or perform any covenant, condition or
agreement contained in this Agreement (other than those specified in Section
10.01(a), Section 10.01(b) or Section 10.01(d)) or any other Loan Document, and
such failure shall continue unremedied for a period of thirty (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 such Credit Party otherwise becoming aware of such
default;
 
(f) a Credit Party shall fail to make any payment (whether of principal or
interest and regardless of amount) in respect of any Material Indebtedness,
beyond any period of grace provided with respect thereto;
 
(g) any event or condition occurs that results in any Material Indebtedness
becoming due prior to its scheduled maturity or that enables or permits 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 (after taking into
account any applicable period of grace with respect thereto), or to require the
Redemption thereof or any offer to Redeem to be made in respect thereof, prior
to its scheduled maturity or an event or condition requires a Credit Party 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 a Credit Party or its debts, or of a substantial part of its assets,
under any  Federal, state or foreign bankruptcy, insolvency, receivership or
similar law now or hereafter in effect or (ii) the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for a Credit
Party or for a substantial part of its assets, and, in any such case, such
proceeding or petition shall continue undismissed for forty-five (45) days or an
order or decree approving or ordering any of the foregoing shall be entered;
 
(i) a Credit Party 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 a Credit Party for
a substantial part of its assets, (iv) file an answer admitting the material
allegations of a petition filed against it in any such proceeding, (v) make a
general assignment for the benefit of creditors or (vi) take any action for the
purpose of effecting any of the foregoing; or any stockholder of the Borrower
shall make any request or take any action for the purpose of calling a meeting
of the stockholders of the Borrower to consider a resolution to dissolve and
wind-up the Borrower’s affairs;
 
(j) a Credit Party shall become unable, admit in writing its inability or fail
generally to pay its debts as they become due;
 
(k) (i) one or more judgments for the payment of money in an aggregate amount in
excess of $250,000 (to the extent not covered by independent third
 

 
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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 a Credit
Party or any combination thereof and, in either such case, the same shall remain
undischarged for a period of forty-five (45) 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 a Credit Party 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 a Credit Party or any of their
Affiliates shall so state in writing;
 
(m) a Change in Control shall occur;
 
(n) a failure to cure a Borrowing Base Deficiency as outlined in
Section 3.04(c)(ii) or (iii); and
 
(o) an “Event of Default”, “Termination Event” or “Additional Termination Event”
(other than an “Event of Default”, “Termination Event” or “Additional
Termination Event” associated with a breach thereof by Macquarie Bank Limited)
shall occur under that certain ISDA Master Agreement by and between Macquarie
Bank Limited and the Borrower dated on or about February 27, 2009 as the same
may be amended from time to time or any other Swap Agreement between the
Borrower and any Lender or Affiliate of any Lender (in each case after giving
effect to any applicable grace periods).
 
Section 10.02 Remedies.
 
(a) In the case of an Event of Default other than one described in Section
10.01(h), Section 10.01(i) or Section 10.01(j), at any time thereafter during
the continuance of such Event of Default, the Administrative Agent may, and at
the request of the Majority Lenders, shall, by notice to the Borrower, 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 Notes and the Loans then outstanding to be due
and payable in whole (or in part, in which case any principal not so declared to
be due and payable may thereafter be declared to be due and payable), and
thereupon the principal of the Loans so declared to be due and payable, together
with accrued interest thereon and all fees and other obligations of the Borrower
and the Guarantors accrued hereunder and under the Notes and the other Loan
Documents (including, without limitation, the payment of cash collateral to
secure the LC Exposure as provided in Section 2.08(i)), shall become due and
payable immediately,
 

 
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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 such Notes and the principal of such 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 such
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(i)),
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.
 
(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 all other Indebtedness; and
 
(v) fifth, 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 Administrative Agent
 
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
 

 
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not be subject to any fiduciary or other implied duties, regardless of whether a
Default has occurred and is continuing (the use of the term “agent” herein and
in the other Loan Documents with reference to the Administrative Agent is not
intended to connote any fiduciary or other implied (or express) obligations
arising under agency doctrine of any applicable law; rather, such term is used
merely as a matter of market custom, and is intended to create or reflect only
an administrative relationship between independent contracting parties), (b) the
Administrative Agent shall have no duty to take any discretionary action or
exercise any discretionary powers, except as provided in Section 11.03, and (c)
except as expressly set forth herein, the Administrative Agent shall not have
any duty to disclose, and shall not be liable for the failure to disclose, any
information relating to any Credit Party that is communicated to or obtained by
the bank serving as Administrative Agent or any of its Affiliates in any
capacity.  The Administrative Agent shall be deemed not to have knowledge of any
Default unless and until written notice thereof is given to the Administrative
Agent by the Borrower or a Lender, and shall not be responsible for or have any
duty to ascertain or inquire into (i) any statement, warranty or representation
made in or in connection with this Agreement or any other Loan Document, (ii)
the contents of any certificate, report or other document delivered hereunder or
under any other Loan Document or in connection herewith or therewith, (iii) the
performance or observance of any of the covenants, agreements or other terms or
conditions set forth herein or in any other Loan Document, (iv) the validity,
enforceability, effectiveness or genuineness of this Agreement, any other Loan
Document or any other agreement, instrument or document, (v) the satisfaction of
any condition set forth in Article VI or elsewhere herein, other than to confirm
receipt of items expressly required to be delivered to the Administrative Agent
or as to those conditions precedent expressly required to be to the
Administrative Agent’s satisfaction, (vi) the existence, value, perfection or
priority of any collateral security or the financial or other condition of any
Credit Party or any other obligor or guarantor, or (vii) any failure by a Credit
Party 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 Majority Lenders (or such other number or
percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 12.02) and in all cases the Administrative Agent shall be
fully justified in failing or refusing to act hereunder or under any other Loan
Documents unless it shall (a) receive written instructions from the Majority
Lenders or the Lenders, as applicable, (or such other number or percentage of
the Lenders as shall be necessary under the circumstances as provided in Section
12.02) specifying the action to be taken and (b) be indemnified to its
satisfaction by the Lenders against any and all liability and expenses which may
be incurred by it by reason of taking or continuing to take any such
action.  The instructions as aforesaid and any action taken or failure to act
pursuant thereto by the Administrative Agent shall be binding on all of the
 

 
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Lenders.  If a Default has occurred and is continuing, then the Administrative
Agent shall take such action with respect to such Default as shall be directed
by the requisite Lenders in the written instructions (with indemnities)
described in this Section 11.03, provided that, unless and until the
Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default as it shall deem advisable in
the best interests of the Lenders.  In no event, however, shall the
Administrative Agent be required to take any action which exposes the
Administrative Agent to personal liability or which is contrary to this
Agreement, the Loan Documents or applicable law.  The Administrative Agent shall
not be liable for any action taken or not taken by it with the consent or at the
request of the Majority Lenders or the Lenders (or such other number or
percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 12.02), and otherwise the Administrative Agent shall not be
liable for any action taken or not taken by it hereunder or under any other Loan
Document or under any other document or instrument referred to or provided for
herein or therein or in connection herewith or therewith INCLUDING ITS OWN
ORDINARY NEGLIGENCE, except for its own gross negligence or willful misconduct.
 
Section 11.04 Reliance by Administrative Agent.  The Administrative Agent shall
be entitled to rely upon, and shall not incur any liability for relying upon,
any notice, request, certificate, consent, statement, instrument, document or
other writing believed by it to be genuine and to have been signed or sent by
the proper Person.  The Administrative Agent also may rely upon any statement
made to it orally or by telephone and believed by it to be made by the proper
Person, and shall not incur any liability for relying thereon and each of the
Borrower, the Issuing Bank and the Lenders hereby waive the right to dispute the
Administrative Agent’s record of such statement, except in the case of gross
negligence or willful misconduct by the Administrative Agent.  The
Administrative Agent may consult with legal counsel (who may be counsel for the
Borrower), independent accountants and other experts selected by it, and shall
not be liable for any action taken or not taken by it in accordance with the
advice of any such counsel, accountants or experts.  The Administrative Agent
may deem and treat the payee of any Note as the holder thereof for all purposes
hereof unless and until a written notice of the assignment or transfer thereof
permitted hereunder shall have been filed with the Administrative Agent.
 
Section 11.05 Subagents.  The Administrative Agent may perform any and all its
duties and exercise its rights and powers by or through any one or more
sub-agents appointed by the Administrative Agent.  The Administrative Agent and
any such sub-agent may perform any and all its duties and exercise its rights
and powers through their respective Related Parties.  The exculpatory provisions
of the preceding Sections of this Article XI shall apply to any such sub-agent
and to the Related Parties of the Administrative Agent and any such sub-agent,
and shall apply to their respective activities in connection with the
syndication of the credit facilities provided for herein as well as activities
as Administrative Agent.
 
Section 11.06 Resignation or Removal of Administrative Agent.  Subject to the
appointment and acceptance of a successor Administrative Agent as provided in
this Section 11.06, the Administrative Agent may resign at any time by notifying
the Issuing Bank, the
 

 
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Lenders and the Borrower, and the Administrative Agent may be removed at any
time with or without cause by the Majority Lenders.  Upon any such resignation
or removal, the Majority
 
Lenders shall have the right, in consultation with the Borrower (provided no
Event of Default then exist), to appoint a successor.  If no successor shall
have been so appointed by the Majority Lenders and shall have accepted such
appointment within thirty (30) days after the retiring Administrative Agent
gives notice of its resignation or removal of the retiring Administrative Agent,
then the retiring Administrative Agent may, on behalf of the Issuing Bank and
Lenders, appoint a successor Administrative 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 Administrative Agent hereunder by a successor,
such successor shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder.  The fees payable by the Borrower to a successor Administrative Agent
shall be the same as those payable to its predecessor unless otherwise agreed
between the Borrower and such successor.  After the Administrative Agent’s
resignation hereunder, the provisions of this Article XI and Section 12.03 shall
continue in effect for the benefit of such retiring Administrative 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 Administrative
Agent.
 
Section 11.07 Administrative Agent as Lender.  Each Person serving as an
Administrative 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 Administrative Agent, and such bank and its Affiliates may accept
deposits from, lend money to and generally engage in any kind of business with
the Borrower or any Subsidiary or other Affiliate thereof as if it were not an
Administrative Agent hereunder.
 
Section 11.08 No Reliance.
 
(a) Each Lender acknowledges that it has, independently and without reliance
upon the Administrative 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 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 Administrative Agent shall not
be required to keep itself informed as to the performance or observance by the
Borrower or any of its Subsidiaries of this Agreement, the Loan Documents or any
other document referred to or provided for herein or to inspect the Properties
or books of the Borrower or its Subsidiaries.  Except for notices, reports and
other documents and information expressly required to be furnished to the
Lenders by the Administrative Agent hereunder, the Administrative Agent shall
not have any duty or responsibility to provide any Lender with any credit or
other information concerning the affairs, financial condition or business of the
Borrower (or any of its Affiliates) which may come into the possession of such
Agent or any of its
 

 
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Affiliates.  In this regard, each Lender acknowledges that Vinson & Elkins
L.L.P. 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.
 
(b) The Lenders acknowledge that the Administrative Agent is acting solely in an
administrative capacity with respect to the structuring and syndication of this
facility and have no duties, responsibilities or liabilities under this
Agreement and the other Loan Documents other than their administrative duties,
responsibilities and liabilities specifically as set forth in the Loan Documents
and in their capacity as Lenders hereunder.  In structuring, arranging or
syndicating this facility, each Lender acknowledges that the Administrative
Agent may be an agent or lender under these Notes, other loans or other
securities and waives any existing or future conflicts of interest associated
with the their role in such other debt instruments.  If in its administration of
this facility or any other debt instrument, the Administrative Agent determines
(or is given written notice by any Lender that a conflict exists), then it shall
eliminate such conflict within ninety (90) days or resign pursuant to Section
11.06 and shall have no liability for action taken or not taken while such
conflict existed.
 
Section 11.09 Administrative Agent May File Proofs of Claim.  In case of the
pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to the Borrower or any of its Subsidiaries, the
Administrative Agent (irrespective of whether the principal of any Loan shall
then be due and payable as herein expressed or by declaration or otherwise and
irrespective of whether the Administrative Agent shall have made any demand on
the Borrower) shall be entitled and empowered, by intervention in such
proceeding or otherwise:
 
(a) to file and prove a claim for the whole amount of the principal and interest
owing and unpaid in respect of the Loans and all other Indebtedness that are
owing and unpaid and to file such other documents as may be necessary or
advisable in order to have the claims of the Lenders and the Administrative
Agent (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Lenders and the Administrative Agent and their
respective agents and counsel and all other amounts due the Lenders and the
Administrative Agent under Section 12.03) allowed in such judicial proceeding;
 
(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.
 

 
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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.
 
ARTICLE XII
 
Miscellaneous
 
Section 12.01 Notices.
 
(a) Except in the case of notices and other communications expressly permitted
to be given by telephone (and subject to Section 12.01(b)), all notices and
other communications provided for herein shall be in writing and shall be
delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy, as follows:
 
(i) if to the Borrower, to it at 315 Manitoba Avenue, Suite 200, Wayzata, MN
55391, Attention of Chief Financial Officer (Telecopy No. (952) 476-9801);
 
(ii) if to the Administrative Agent or the Issuing Bank to it at: Macquarie Bank
Limited, No. 1 Martin Place, Sydney NSW 2000 Australia, Attention: Metals and
Energy Capital Division (Facsimile: +612 8232 3590) with a copy to Macquarie
Bank Limited-Representative Office, One Allen Center, 500 Dallas Street, Suite
3250, Houston TX 77002 USA, Attention: Metals and Energy Capital Division
(Facsimile: +1 713 275 6222); and
 
(iii) if to any other Lender, to it at its address (or telecopy number) set
forth in its Administrative Questionnaire.
 
(b) Notices and other communications to the Lenders hereunder may be delivered
or furnished by electronic communications pursuant to procedures approved by the
Administrative Agent; provided that the foregoing shall not apply to notices
pursuant to Article II, Article III, Article IV and Article V unless otherwise
agreed by the Administrative Agent and the applicable Lender.  The
Administrative Agent or the Borrower may, in its discretion, agree to accept
notices and other communications to it hereunder by electronic communications
pursuant to procedures approved by it; provided that approval of such procedures
may be limited to particular notices or communications.
 

 
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(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, 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,
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 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, the Issuing Bank or any Lender may have had notice or knowledge of such
Default at the time.
 
(b) Neither this Agreement nor any provision hereof nor any Security Instrument
nor any provision thereof may be waived, amended or modified except pursuant to
an agreement or agreements in writing entered into by the Borrower and the
Required Lenders or by 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 all of the Lenders, decrease or maintain the Borrowing Base
without the consent of the Majority Lenders, or modify Section 2.07 in any
manner without the consent of each Lender (other than any Defaulting Lender);
provided that a Scheduled Redetermination may be postponed by the Required
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(c), Section 6.01, Section 8.14,
Section 10.02(c) or Section 12.14 or change the definition of the terms “Foreign
Subsidiary” or
 

 
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“Subsidiary”, without the written consent of each Lender (other than any
Defaulting Lender), (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 8.13(a) to less
than 80%, without the written consent of each Lender (other than any Defaulting
Lender), or (viii) change any of the provisions of this Section 12.02(b) or the
definitions of “Required Lenders” or “Majority Lenders” or any other provision
hereof specifying the number or percentage of Lenders required to waive, amend
or modify any rights hereunder or under any other Loan Documents or make any
determination or grant any consent hereunder or any other Loan Documents,
without the written consent of each Lender (other than any Defaulting Lender);
provided further that no such agreement shall amend, modify or otherwise affect
the rights or duties of the Administrative Agent or the Issuing Bank hereunder
or under any other Loan Document without the prior written consent of the
Administrative Agent or the Issuing Bank, as the case may be.  Notwithstanding
the foregoing, any supplement to Schedule 7.14 (Subsidiaries) or Schedule 7.24
(Material Agreements) 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 audits and surveys and appraisals, in connection with the
syndication of the credit facilities provided for herein, the preparation,
negotiation, execution, delivery and administration (both before and after the
execution hereof and including advice of counsel to the Administrative Agent as
to the rights and duties of the Administrative Agent and the Lenders with
respect thereto) of this Agreement and the other Loan Documents and any
amendments, modifications or waivers of or consents related to the provisions
hereof or thereof (whether or not the transactions contemplated hereby or
thereby shall be consummated), (ii) all costs, expenses, Taxes, assessments and
other charges incurred by the Administrative 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
Administrative Agent and 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 reasonable out-of-pocket expenses incurred by any
Administrative Agent, the Issuing Bank or any Lender, including the fees,
charges and disbursements of any counsel for the Administrative 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.
 

 
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(b) THE BORROWER SHALL INDEMNIFY THE ADMINISTRATIVE AGENT, 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 HOLD EACH INDEMNITEE HARMLESS
FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES AND RELATED EXPENSES,
INCLUDING THE FEES, CHARGES AND DISBURSEMENTS OF ANY COUNSEL FOR ANY INDEMNITEE,
INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE ARISING OUT OF, IN CONNECTION
WITH, OR AS A RESULT OF (i) THE EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR
THEREBY, THE PERFORMANCE BY THE PARTIES HERETO OR THE PARTIES TO ANY OTHER LOAN
DOCUMENT OF THEIR RESPECTIVE OBLIGATIONS HEREUNDER OR THEREUNDER OR THE
CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY OR BY ANY OTHER LOAN
DOCUMENT, (ii) THE FAILURE OF THE BORROWER OR ANY SUBSIDIARY TO COMPLY WITH THE
TERMS OF ANY LOAN DOCUMENT, INCLUDING THIS AGREEMENT, OR WITH ANY GOVERNMENTAL
REQUIREMENT, (iii) ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY
WARRANTY OR COVENANT OF THE BORROWER OR ANY GUARANTOR SET FORTH IN ANY OF THE
LOAN DOCUMENTS OR ANY INSTRUMENTS, DOCUMENTS OR CERTIFICATIONS DELIVERED IN
CONNECTION THEREWITH, (iv) ANY LOAN OR 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
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 BORROWER AND ITS SUBSIDIARIES BY THE BORROWER AND ITS SUBSIDIARIES, (vii)
ANY ASSERTION THAT THE LENDERS WERE NOT ENTITLED TO RECEIVE THE PROCEEDS
RECEIVED PURSUANT TO THE SECURITY INSTRUMENTS, (viii) ANY ENVIRONMENTAL LAW
APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY OR ANY OF THEIR PROPERTIES OR
OPERATIONS, INCLUDING WITHOUT LIMITATION, THE PRESENCE, GENERATION, STORAGE,
RELEASE, THREATENED RELEASE, USE, TRANSPORT, DISPOSAL, ARRANGEMENT OF DISPOSAL
OR TREATMENT OF OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS MATERIALS ON
OR AT ANY OF THEIR PROPERTIES, (ix) THE BREACH OR NON-COMPLIANCE BY THE BORROWER
OR ANY SUBSIDIARY WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY
SUBSIDIARY, (x) THE PAST OWNERSHIP BY THE BORROWER OR ANY SUBSIDIARY OF ANY OF
THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF
 

 
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THEIR PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD
RESULT IN PRESENT LIABILITY, (xi) THE PRESENCE, USE, RELEASE, STORAGE,
TREATMENT, DISPOSAL, GENERATION, THREATENED RELEASE, TRANSPORT, ARRANGEMENT FOR
TRANSPORT OR ARRANGEMENT FOR DISPOSAL OF OIL, OIL AND GAS WASTES, SOLID WASTES
OR HAZARDOUS MATERIALS ON ANY OF THE PROPERTIES OWNED OR OPERATED BY THE
BORROWER OR ANY SUBSIDIARY OR ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF
HAZARDOUS MATERIALS ON OR FROM ANY PROPERTY OWNED OR OPERATED BY THE BORROWER OR
ANY OF ITS SUBSIDIARIES, (xii) ANY ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO
THE BORROWER OR ANY OF ITS SUBSIDIARIES, OR (xiii) ANY OTHER ENVIRONMENTAL,
HEALTH OR SAFETY CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS, OR (xiv) ANY
ACTUAL OR PROSPECTIVE CLAIM, LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO
ANY OF THE FOREGOING, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND
REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTY THERETO, AND SUCH INDEMNITY
SHALL EXTEND TO EACH INDEMNITEE NOTWITHSTANDING THE SOLE OR CONCURRENT
NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE,
WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL
TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF
ONE OR MORE OF THE INDEMNITEES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT
FAULT ON ANY ONE OR MORE OF THE INDEMNITEES; PROVIDED THAT SUCH INDEMNITY SHALL
NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS,
DAMAGES, LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A COURT OF COMPETENT
JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE.
 
(c) To the extent that the Borrower fails to pay any amount required to be paid
by it to the Administrative Agent or the Issuing Bank under Section 12.03(a) or
(b), each Lender severally agrees to pay to the Administrative Agent 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 the Administrative Agent or the
Issuing Bank in its capacity as such.
 
(d) To the extent permitted by applicable law, the Borrower shall not assert,
and hereby waives, any claim against any Indemnitee, on any theory of liability,
for special, indirect, consequential or punitive damages (as opposed to direct
or actual damages) arising out of, in connection with, or as a result of, this
Agreement, any other Loan Document or any agreement or instrument contemplated
hereby or thereby, the Transactions, any Loan or Letter of Credit or the use of
the proceeds thereof.
 

 
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(e) All amounts due under this Section 12.03 shall be payable promptly after
written demand therefor.
 
Section 12.04 Successors and Assigns.
 
(a) The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns
permitted hereby, except that (i) the Borrower may not assign or otherwise
transfer any of its rights or obligations hereunder without the prior written
consent of each Lender (and any attempted assignment or transfer by the Borrower
without such consent shall be null and void) and (ii) no Lender may assign or
otherwise transfer its rights or obligations hereunder except in accordance with
this Section 12.04.  Nothing in this Agreement, expressed or implied, shall be
construed to confer upon any Person (other than the parties hereto, their
respective successors and assigns permitted hereby, Participants (to the extent
provided in Section 12.04(c)) and, to the extent expressly contemplated hereby,
the Related Parties of each of the Administrative Agent, 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
 
(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 $1,000,000 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;
 

 
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(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 except that this clause (B) shall not prohibit any Lender from
assigning all or a portion of its rights and obligations among separate term and
revolving facilities on a non-pro rata basis;
 
(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 as Registrar (the “Registrar”), acting for this
purpose as an agent of the Borrower, shall maintain (or shall appoint a designee
to maintain) at one of its offices located in the United States 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; provided that,
failure to make any such recordation, or any error in such recordation, shall
not affect any Lender’s Commitments or Borrower’s obligations in respect of any
Loans or LC Disbursements.  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
 

 
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Annex I and forward a copy of such revised Annex I to the Borrower, the Issuing
Bank and each Lender.
 
(v) At the request of the registered owner of the Loan or Note, the Registrar
shall note a collateral assignment of the Loan or Note on the Register and,
provided that the Registrar has been given the name and address of such
collateral assignee, the Registrar (i) shall not permit any further transfers of
the Loan or Note on the Register absent receipt of written consent to such
transfers from such collateral assignee and (ii) shall record the transfer of
the Loan or Note on the Register to such collateral assignee (or such collateral
assignee's designee, nominee or assignee) upon written request by such
collateral assignee.
 
(vi) Upon its receipt of a duly completed Assignment and Assumption executed by
an assigning Lender and an assignee, the assignee’s providing any information
reasonably requested by the Administrative Agent (unless the assignee shall
already be a Lender hereunder), the processing and recordation fee referred to
in this Section 12.04(b) and any written consent to such assignment required by
Section 12.04(a), 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, or 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.  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.
 

 
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(ii)           A Participant shall not be entitled to receive any greater
payment under Section 5.01 or Section 5.03 than the applicable Lender would have
been entitled to receive with respect to the participation sold to such
Participant, unless the sale of the participation to such Participant is made
with the Borrower’s prior written consent.  A Participant that would be a
Foreign Lender if it were a Lender shall not be entitled to the benefits of
Section 5.03 unless the Borrower is notified of the participation sold to such
Participant and such Participant agrees, for the benefit of the Borrower, to
comply with Section 5.03(e) as though it were a Lender.
 
(d) Any Lender may at any time pledge or assign a security interest in all or
any portion of its rights under this Agreement, including to a trustee or other
pledgee, 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.
 
(e) Notwithstanding any other provisions of this Section 12.04, no transfer or
assignment of the interests or obligations of any Lender or any grant of
participations therein shall be permitted if such transfer, assignment or grant
would require the Borrower and the Guarantors to file a registration statement
with the SEC or to qualify the Loans under the “Blue Sky” laws of any state.
 
(f) Notwithstanding any other provisions of this Section 12.04, no transfer or
assignment of the interests or obligations of any Lender or any grant of
participations therein shall be permitted if such transfer, assignment or grant
would be to an Affiliate of the Borrower, provided that an Approved Fund shall
not be deemed an Affiliate of the Borrower.
 
Section 12.05 Survival; Revival; Reinstatement.
 
(a) All covenants, agreements, representations and warranties made by the
Borrower herein and in the certificates or other instruments delivered in
connection with or pursuant to this Agreement or any other Loan Document shall
be considered to have been relied upon by the other parties hereto and shall
survive the execution and delivery of this Agreement and the making of any Loans
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, 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
 

 
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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 Borrower shall take such action as may be
reasonably requested by the Administrative Agent and the Lenders to effect such
reinstatement.
 
Section 12.06 Counterparts; Integration; Effectiveness.
 
(a) This Agreement may be executed in counterparts (and by different parties
hereto on different counterparts), each of which shall constitute an original,
but all of which when taken together shall constitute a single contract.
 
(b) This Agreement, the other Loan Documents and any separate letter agreements
with respect to fees payable to the Administrative Agent constitute the entire
contract among the parties relating to the subject matter hereof and thereof and
supersede any and all previous agreements and understandings, oral or written,
relating to the subject matter hereof and thereof.  THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES HERETO AND
THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
 
(c) Except as provided in Section 6.01, this Agreement shall become effective
when it shall have been executed by the Administrative Agent and when the
Administrative Agent shall have received counterparts hereof which, when taken
together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns.  Delivery of an executed
counterpart of a signature page of this Agreement or any other Loan Document by
telecopy or electronic transmission shall be effective as delivery of a manually
executed counterpart thereof.
 
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;
 

 
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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
any Credit Party against any of and all the obligations of a Credit Party 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 NEW YORK 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.
 
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS SHALL BE
BROUGHT IN THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE BOROUGH OF
MANHATTAN OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW
YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HEREBY
ACCEPTS FOR ITSELF AND (TO THE EXTENT PERMITTED BY LAW) IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY
SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS.  THIS SUBMISSION TO
JURISDICTION IS NON-EXCLUSIVE AND DOES NOT PRECLUDE A PARTY FROM OBTAINING
JURISDICTION OVER ANOTHER PARTY IN ANY COURT OTHERWISE HAVING JURISDICTION.
 
(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
 

 
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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, AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION,
SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (iv) ACKNOWLEDGES THAT IT HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT, THE LOAN DOCUMENTS AND THE TRANSACTIONS
CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS CONTAINED IN THIS SECTION 12.09.
 
Section 12.10 Headings.  Article and Section headings and the Table of Contents
used herein are for convenience of reference only, are not part of this
Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
 
Section 12.11 Confidentiality.  Each of the Administrative Agent, 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 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
potential investors, rating agencies, and secured parties, including Approved
Funds, 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), (c) to the extent requested by any regulatory
authority, (d) to the extent required by applicable laws or regulations or by
any subpoena or similar legal process, (e) to any other party to this Agreement
or any other Loan Document, (f) 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, (g) 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
 

 
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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 a Credit Party and its obligations, (h) with the consent
of the Borrower or (i) 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 non-confidential basis from a source other than a Credit Party.  For the
purposes of this Section 12.11, “Information” means all information received
from any Credit Party relating to any Credit Party and their businesses, other
than any such information that is available to the Administrative Agent, the
Issuing Bank or any Lender on a non-confidential basis prior to disclosure by a
Credit Party; provided that, in the case of information received from a Credit
Party 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.
 
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 New York or any other jurisdiction whose laws
may be mandatorily applicable to such Lender notwithstanding the other
provisions of this Agreement), then, in that event, notwithstanding anything to
the contrary in any of the Loan Documents or any agreement entered into in
connection with or as security for the Notes, it is agreed as follows:  (i) the
aggregate of all consideration which constitutes interest under law applicable
to any Lender that is contracted for, taken, reserved, charged or received by
such Lender under any of the Loan Documents or agreements or otherwise in
connection with the Notes shall under no circumstances exceed the maximum amount
allowed by such applicable law, and any excess shall be canceled automatically
and if theretofore paid shall be credited by such Lender on the principal amount
of the Indebtedness (or, to the extent that the principal amount of the
Indebtedness shall have been or would thereby be paid in full, refunded by such
Lender to the Borrower); and (ii) in the event that the maturity of the Notes is
accelerated by reason of an election of the holder thereof resulting from any
Event of Default under this Agreement or otherwise, or in the event of any
required or permitted prepayment, then such consideration that constitutes
interest under law applicable to any Lender may never include more than the
maximum amount allowed by such applicable law, and excess interest, if any,
provided for in this Agreement or otherwise shall be canceled automatically by
such Lender as of the date of such acceleration or prepayment and, if
theretofore paid, shall be credited by such Lender on the principal amount of
the Indebtedness (or, to the extent that the principal amount of the
Indebtedness shall have been or would thereby be paid in full, refunded by such
Lender to the Borrower).  All sums paid or agreed to be paid to any Lender for
the use, forbearance or detention of sums due hereunder shall, to the extent
permitted by law applicable to such Lender, be amortized, prorated, allocated
and spread throughout the stated term of the Loans evidenced by the Notes until
payment in full so that the rate or amount of interest on account of any Loans
hereunder does not exceed the maximum amount allowed by such applicable law.  If
at any time and from time to time (i) the amount of interest payable to any
Lender on any date shall be computed at the Highest Lawful Rate applicable to
such Lender pursuant to this Section 12.12 and (ii) in respect of any subsequent
interest computation period the amount of interest otherwise
 

 
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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, to
the extent permitted by applicable law, 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.
 
Section 12.13 EXCULPATION PROVISIONS.  EACH OF THE PARTIES HERETO SPECIFICALLY
AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT HAS IN FACT READ THIS AGREEMENT
AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS, CONDITIONS
AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL
COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING ITS EXECUTION OF
THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND HAS RECEIVED THE ADVICE OF ITS
ATTORNEY IN ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND THAT
IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF
THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS RESPONSIBILITY FOR SUCH
LIABILITY.  EACH PARTY HERETO AGREES AND COVENANTS THAT IT WILL NOT CONTEST THE
VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION OF THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS ON THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE
OF SUCH PROVISION OR THAT THE PROVISION IS NOT “CONSPICUOUS.”
 
Section 12.14 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 any Swap
Agreement between the Borrower or any Subsidiary and a Lender or its Affiliates
on a pro rata basis in respect of any obligations of the Credit Parties.
 
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 (except to the extent it is a party thereto)
against the Administrative Agent, the Issuing Bank or any Lender for any reason
whatsoever.  There are no third party beneficiaries other than swap
counterparties.
 
Section 12.16 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 “Patriot 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
Patriot 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:                                                                       NORTHERN
OIL AND GAS, INC.
 

By:  _____________________________
Name:  Michael Reger
Title:    Chief Executive Officer

 

 
 

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ADMINISTRATIVE AGENT:                                            MACQUARIE BANK
LIMITED
as Administrative Agent

By:  _____________________________
Name:  ___________________________
Title:    ___________________________

 
 

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LENDERS:                                                                           
MACQUARIE BANK LIMITED
 
By:  _____________________________
Name:  ___________________________
Title:    ___________________________

 

 
 

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