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Exhibit 10.3

 
 

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$50,000,000
 
CREDIT AGREEMENT

 
dated

 
June 30, 2010

 
BETWEEN

 
REEF OIL & GAS INCOME AND DEVELOPMENT FUND III, L.P.,
 
as Borrower

 
AND

 
TEXAS CAPITAL BANK, N.A.,
 
as Lender
 
 

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Reducing Revolving Credit Facility
Standby Letter of Credit Facility
 
 
 

 
 

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TABLE OF CONTENTS

ARTICLE I DEFINITIONS
 
1
 
1.1.
Definitions
 
1
 
1.2.
Accounting Terms and Determinations; Changes in Accounting.
 
18
 
1.3.
References
 
19
 
1.4.
Amendment of Defined Instruments
 
20
 
1.5.
Joint Preparation; Construction of Indemnities and Releases
 
20
 
1.6.
Time References
 
20
 
1.7.
Types of Loans and Advances
 
20
         
ARTICLE II TERMS OF FACILITIES
 
21
 
2.1.
Reducing Revolving Line of Credit and Letter of Credit Facilities.
 
21
 
2.2.
Method of Borrowing and Obtaining Letters of Credit.
 
22
 
2.3.
Note.
 
23
 
2.4.
Certain Payments and Prepayments of Principal.
 
24
 
2.5.
Interest Rates; Payment of Interest.
 
24
 
2.6.
Unused Available Commitment Fees; Engineering Fees; Facility Fees; Letter of
Credit Fees; Authorized Payments by Lender; Processing Fee; Prepayment Fee.
 
26
 
2.7.
Termination of Credit Facilities; Maturity of Note; Right of Borrower to
Terminate Credit Facilities.
 
27
 
2.8.
Determination of Borrowing Base; Automatic Reductions in Borrowing Base;
Borrowing Base Deficiency; Notice of Redeterminations; Requests for Reductions
in Borrowing Base.
 
27
 
2.9.
Interest Elections for Conversions and Continuations.
 
28
 
2.10.
Request for Extension of Maturity.
 
29
         
ARTICLE III GENERAL PROVISIONS
 
30
 
3.1.
General Provisions as to Payments and Loans.
 
30
 
3.2.
Telephonic Notices
 
30
 
3.3.
Default Interest
 
30
 
3.4.
Prepayments Permitted
 
31
 
3.5.
Limitation Period
 
31
 
3.6.
Illegality
 
31
 
3.7.
LATE CHARGE
 
31
         
ARTICLE IV COLLATERAL
 
32
 
4.1.
Security.
 
32
         
ARTICLE V CONDITIONS PRECEDENT TO ADVANCES AND LETTERS OF CREDIT
 
32
 
5.1.
All Advances and Letters of Credit
 
32
 
5.2.
Initial Advance
 
33
 
5.3.
Conditions Precedent for the Benefit of the Lender
 
34

 
 
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ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE BORROWER
 
34
 
6.1.
Existence and Power
 
34
 
6.2.
Authorization; Contravention
 
36
 
6.3.
Binding Effect.
 
36
 
6.4.
Subsidiaries.
 
36
 
6.5.
Disclosure
 
37
 
6.6.
Financial Information.
 
37
 
6.7.
Litigation
 
37
 
6.8.
ERISA Plans
 
37
 
6.9.
Taxes and Filing of Tax Returns.
 
37
 
6.10.
Title to Properties; Liens; Environmental Liability.
 
38
 
6.11.
Business Compliance.
 
39
 
6.12.
Licenses, Permits, Etc.
 
39
 
6.13.
Compliance with Laws.
 
39
 
6.14.
Governmental Consent.
 
39
 
6.15.
Investment Company Act
 
39
 
6.16.
State Utility.
 
40
 
6.17.
Refunds; Certain Contracts.
 
40
 
6.18.
No Default
 
41
 
6.19.
Anti-Terrorism Laws.
 
41
         
ARTICLE VII COVENANTS
 
41
 
7.1.
Use of Proceeds and Letters of Credit.
 
41
 
7.2.
Financial Statements; Reserve and Other Reports; Certain Required Notices from
Borrower; Additional Information
 
42
 
7.3.
Inspection of Properties and Books.
 
44
 
7.4.
Maintenance of Security; Insurance; Authorization to File Financing Statements;
Operating Accounts; Transfer Orders.
 
45
 
7.5.
Payment of Taxes and Claims.
 
46
 
7.6.
Payment of Debt; Additional Debt; Payment of Accounts.
 
46
 
7.7.
Negative Pledge
 
47
 
7.8.
Loans and Advances to Others; Investments; Restricted Payments; Subsidiaries.
 
47
 
7.9.
Consolidation, Merger, Maintenance, Change of Control; Disposition of Property;
Restrictive Agreements; Hedging Agreements; Modification of Organizational
Documents; Issuance of Equity Interests.
 
48
 
7.10.
Primary Business; Location of Borrower’s Office; Ownership of Assets.
 
50
 
7.11.
Operation of Properties and Equipment; Compliance with and Maintenance of
Contracts; Duties as Nonoperator.
 
51
 
7.12.
Transactions with Affiliates.
 
52
 
7.13.
Plans.
 
53
 
7.14.
Compliance with Laws and Documents.
 
53
 
7.15.
Certain Financial Covenants.
 
53
 
7.16.
Tax Shelter
 
54
 
7.17.
Additional Documents; Quantity of Documents; Title Data; Additional Information.
 
54
 
7.18.
ENVIRONMENTAL INDEMNIFICATION
 
55
 
7.19.
Exceptions to Covenants
 
55
 
7.20.
Anti-Terrorism Laws
 
55

 
 
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ARTICLE VIII DEFAULTS; REMEDIES
 
56
 
8.1.
Events of Default; Acceleration of Maturity
 
56
 
8.2.
Suits for Enforcement
 
59
 
8.3.
Remedies Cumulative
 
59
 
8.4.
Remedies Not Waived
 
59
         
ARTICLE IX MISCELLANEOUS
 
59
 
9.1.
Amendments and Waivers.
 
59
 
9.2.
Highest Lawful Interest Rate
 
60
 
9.3.
INDEMNITY.
 
60
 
9.4.
Expenses.
 
61
 
9.5.
Taxes
 
62
 
9.6.
Survival
 
62
 
9.7.
Applicable Law; Venue.
 
62
 
9.8.
WAIVER OF JURY TRIAL AND EXEMPLARY DAMAGES
 
63
 
9.9.
Headings
 
63
 
9.10.
Counterparts
 
63
 
9.11.
Invalid Provisions, Severability
 
63
 
9.12.
Communications Via Internet
 
63
 
9.13.
USA Patriot Act Notice
 
64
 
9.14.
EXCULPATION PROVISIONS
 
64
 
9.15.
[Intentionally Omitted.].
 
64
 
9.16.
[Intentionally Omitted.].
 
64
 
9.17.
Increased Cost and Reduced Return.
 
64
 
9.18.
Taxes.
 
65
         
ARTICLE X [INTENTIONALLY OMITTED]
 
66
     
ARTICLE XI SETOFF
 
66
 
11.1.
Setoff
 
66
 
11.2.
Adjustments
 
66
         
ARTICLE XII BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
 
66
 
12.1.
Successors and Assigns
 
66
 
12.2.
Participations; Setoffs by Participants.
 
66
 
12.3.
Dissemination of Information
 
67
         
ARTICLE XIII NOTICES
 
67
 
13.1.
Notices
 
67
 
13.2.
Change of Address
 
67
         
ARTICLE XIV ENTIRE AGREEMENT
 
68
     
FORM OF PROMISSORY NOTE
   
FORM OF NOTICE OF BORROWING
   
FORM OF COMPLIANCE CERTIFICATE
   
SCHEDULE 6.4.1  SUBSIDIARIES
   
EXHIBIT 6.7  LITIGATION
   

 
 
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CREDIT AGREEMENT
 
THIS CREDIT AGREEMENT is entered into as of June 30, 2010, by and between Reef
Oil & Gas Income and Development Fund III, L.P., a Texas limited partnership;
and Texas Capital Bank, N.A., a national banking association.  Certain terms
used herein are defined in Section 1.1.
 
RECITALS:
 
A.           The Borrower desires to borrow funds from the Lender; and
 
B.           The Borrower desires to acquire Oil and Gas Properties, and to
provide for additional credit facilities;
 
NOW, THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
 
ARTICLE I

 
DEFINITIONS
 
1.1.          Definitions.  The following terms, as used herein, have the
following meanings:
 
“Acceptable Commodity Hedging Transaction” means:
 
(a)           Commodity Hedging Transactions meeting each of the following
criteria unless a variation therefrom is consented to in writing by the Lender:
 
(i)           The quantity of gaseous and liquid hydrocarbons owned by the
Borrower subject to Commodity Hedging Transactions (other than floors covered by
clause (b) below) at the time of entering into such Commodity Hedging
Transactions, shall not, without the prior written approval of the Lender, be
greater than (x) for gaseous hydrocarbons, 75% of the monthly Projected
Production of gaseous hydrocarbons from the Oil and Gas Properties of the
Borrower used in determining the Borrowing Base and not the subject of Commodity
Hedging Transactions under clause (b) below and (y) for liquid hydrocarbons, 75%
of the monthly Projected Production of liquid hydrocarbons from the Oil and Gas
Properties of the Borrower used in determining the Borrowing Base and not the
subject of Commodity Hedging Transactions under clause (b) below; in either
case, as forecast in the most recent engineering evaluation delivered to the
Borrower by the Lender;
 
(ii)          The “strike prices” of any calls or swaps sold under any Commodity
Hedging Transactions, at the time of entering into such Commodity Hedging
Transactions, shall not be less than the lowest prices utilized in the most
recent base case evaluation of the Oil and Gas Properties used by the Lender in
determining the Borrowing Base, as reported to the Borrower, except that under
certain downside conditions such lower strike price as the Lender may approve in
writing following a written request by the Borrower may be used;
 

 
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(iii)        The Lender must have given its prior written consent to the
counterparties under the Commodity Hedging Transactions;
 
(iv)        The Lender shall have received first and prior perfected security
interests pursuant to security agreements in form and substance reasonably
satisfactory to the Lender in the Borrower’s right, title and interest in and to
its Commodity Hedging Transactions;
 
(v)         The Commodity Hedging Transaction is a standard commodity hedging
arrangement entered into in the ordinary course of business for the principal
purpose of protecting against fluctuations in commodity prices or commodity
basis risk and not for purpose of speculation;
 
(vi)        The Commodity Hedging Transaction does not involve the sale of any
calls other than calls sold in order to complete a permitted collar being
executed; provided that, (A) such call shall cover only Projected Production
reflected at the time such call is sold, (B) both such call and the
corresponding put purchase to complete the collar shall cover the same period
and the same volume of Projected Production, and (C) such call is otherwise
permitted under the terms of this definition;
 
(vii)       The Commodity Hedging Transaction does not involve the purchase of
any calls except calls purchased at the time a collar is put in place to serve
as a so-called “blowout preventer”, which purchased calls shall cover the same
period and the same volume of Projected Production as covered by such collar;
 
(viii)      The Commodity Hedging Transaction is unsecured except as
specifically permitted by the Loan Documents;
 
(ix)         The Commodity Hedging Transaction does not involve the sale of any
puts;
 
(x)          The Commodity Hedging Transaction does not involve “put spreads” or
“call spreads” as such terms are commonly understood by swap dealers; and
 
(xi)         The Lender has not notified the Borrower prior to the Borrower’s
entry into the Commodity Hedging Transaction that, in the opinion of the Lender,
the particular type of Commodity Hedging Transaction is non-standard.
 
As used in this definition, the term “Projected Production” means the projected
production of oil or gas (measured by volume unit or BTU equivalent, not sales
price), as applicable, for the term of the contracts or a particular month, as
applicable, from properties and interests owned by the Borrower which are
Collateral and which have attributable to them oil or gas proven reserves which
are categorized as “proved developed producing” as reflected in the engineering
review prepared by the Lender in connection with the most recent determination
of the Borrowing Base hereunder, after deducting projected production from any
properties or interests sold or under contract for sale that had been included
in such report.
 

 
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(b)           Commodity Hedging Transactions in the form of minimum price
guarantees or “floors”, limited to 100% of the monthly Projected Production from
the Borrower’s Oil and Gas Properties not subject to Commodity Hedging
Transactions under clause (a) above and otherwise satisfying the requirements of
subclauses (ii) through (xi) of clause (a) of this definition.
 
“Acceptable Hedging Transactions” means Acceptable Commodity Hedging
Transactions and Acceptable Rate Management Transactions.
 
“Acceptable Rate Management Transaction” means any Rate Management Transaction
meeting all of the following criteria:
 
(i)           The terms thereof are reasonably satisfactory to the Lender; and
 
(ii)          The Person with whom such Transaction is effected is reasonably
satisfactory to the Lender.
 
“Adjusted LIBOR Rate” means, with respect to any Eurodollar Advance for any
Interest Period, an interest rate per annum (rounded upwards, if necessary, to
the next 1/16 of 1%) equal to the sum of (i) the LIBOR Rate for such Interest
Period multiplied by the Statutory Reserve Rate plus (ii) 3.00%.
 
“Advance” means a Loan or Loans of the Lender 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.
 
“Affected Loans” has the meaning assigned such term in Section 3.6.
 
“Affiliate” means, with respect to a Person, (a) any Person owning, Controlling
or holding with power to vote 10% or more of the outstanding voting interests of
the referenced Person, (b) any Person 10% or more of whose outstanding voting
interests are directly or indirectly owned, Controlled or held with power to
vote by the referenced Person, (c) any Person directly or indirectly
Controlling, Controlled by or under common Control with the referenced Person,
(d) any relative within the third degree of kindred of the referenced Person, or
(e) any officer, director, limited liability company manager, trustee,
beneficiary, employee or general partner of the referenced Person or of any
Person referred to in clauses (a), (b), (c) or (d) of this definition.  The term
“Affiliate” shall include Affiliates of Affiliates (and so on).
 
“Agreement” or “Credit Agreement” means this Credit Agreement, as the same may
hereafter be modified or amended from time to time.
 
“Anti-Terrorism Laws” mean any Laws relating to terrorism or money laundering,
including Executive Order No. 13224 and the USA Patriot Act.
 
“Available Commitment” means at any time, an amount equal to the Borrowing Base
as in effect at such time.
 
“Board of Governors” means the Board of Governors of the Federal Reserve System.
 
“Borrower” means Reef Oil & Gas Income and Development Fund III, L.P., a Texas
limited partnership.
 

 
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“Borrower Requested Determination” has the meaning given such term in
Section 2.8.1.
 
“Borrowing Base” means the amount most recently determined and designated by the
Lender as the Borrowing Base in accordance with Section 2.8.1, as such Borrowing
Base is reduced in accordance with Section 2.8.2.  The Borrowing Base under
Section 2.8.1 is deemed to be $5,000,000 as of the Closing Date.
 
“Borrowing Base Deficiency” means, as of the date of determination of a new
Borrowing Base under Section 2.8.1, the amount, if any, by which the sum of the
outstanding principal balance of the Note plus the Letter of Credit Exposure
exceeds the Borrowing Base.
 
“Borrowing Date” means a date on which an Advance is made or is to be made to
the Borrower hereunder.
 
“Business Day” means any day that is not a Saturday, Sunday or other day on
which commercial banks in Dallas, Texas, are authorized or required by Law to
remain closed; and if such day relates to an Advance 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 Advance or continuation, payment, prepayment,
conversion or Interest Period, any day which is also a day on which dealings in
dollar deposits are carried out in the London interbank market.
 
“Capitalized Lease” of a Person means any lease of Property by such Person as
lessee which would be capitalized on a balance sheet of such Person prepared in
accordance with generally accepted accounting principles.
 
“Capitalized Lease Obligations” of a Person means the amount of the obligations
of such Person under Capitalized Leases which would be shown as a liability on a
balance sheet of such Person prepared in accordance with generally accepted
accounting principles.
 
“Change of Control Event” means (a) the failure of Reef Partners to be the sole
general partner of the Borrower, (b) the failure of Reef Partners GP to be the
sole general partner of Reef Partners, or (c) the failure of RCWIGP to be the
sole general partner of RCWI.
 
“Closing” means the consummation of the transactions contemplated herein.
 
“Closing Date” means the date of this Agreement.
 
“Collateral” means the Property pledged as security for the Note and the other
Obligations.
 
“Commitment” means the obligation of the Lender to make Loans to and issue
letters of credit for the account of the Borrower hereunder, subject to the
terms hereof, up to the lesser of the face amount of the Note or the Borrowing
Base as in effect from time to time; provided that, the outstanding principal of
the Note plus the Letter of Credit Exposure shall not exceed at any time the
Borrowing Base as in effect from time to time.
 
“Commodity Hedging Transactions” means any swap transaction, cap, floor, collar,
exchange transaction, forward transaction, or other exchange or protection
transaction relating to hydrocarbons or any option with respect to any such
transaction, including derivative financial instruments.
 

 
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“Compliance Certificate” means a certificate, substantially in the form attached
hereto entitled “Form of Compliance Certificate”, executed by a Responsible
Representative and furnished to the Lender from time to time in accordance with
Section 7.2.1.
 
“Contingent Obligation” shall mean, as to any Person, without duplication, any
obligation of such Person guaranteeing or in effect guaranteeing any Debt,
leases, dividends, or other obligations of any other Person (for purposes of
this definition, a “primary obligation”) in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
regardless of whether such obligation is contingent, (a) to purchase any primary
obligation or any Property constituting direct or indirect security therefor,
(b) to advance or supply funds (i) for the purchase or payment of any primary
obligation, or (ii) to maintain working or equity capital of any other Person in
respect of any primary obligation, or otherwise to maintain the net worth or
solvency of any other Person, (c) to purchase Property, securities or services
primarily for the purpose of assuring the owner of any primary obligation of the
ability of the Person primarily liable for such primary obligation to make
payment thereof, or (d) otherwise to assure or hold harmless the owner of any
such primary obligation against loss in respect thereof, with the amount of any
Contingent Obligation being deemed to be equal to the stated or determinable
amount of the primary obligation in respect of which such Contingent Obligation
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof as determined by such Person in good faith.
 
“Control,” “Controlling” and “Controlled by” mean the ability (directly or
indirectly through one or more intermediaries) to direct or cause the direction
of the management or affairs of a Person, whether through the ownership of
voting interests, by contract or otherwise.
 
“Controlled Group” means all members of a controlled group of corporations and
all trades or businesses (whether or not incorporated) under common control
which, together with the Borrower or any of its Subsidiaries, are treated as a
single employer under Section 414(b) or (c) of the Internal Revenue Code of
1986, as amended.
 
 “CT”, with respect to any stated time of day, means such time of day generally
in effect in the Central Time Zone as in effect in the State of Texas.
 
“Debt” of any Person means at any date, without duplication:
 
(i)           all obligations of such Person for money borrowed, including (a)
the obligations of such Person for money borrowed by a partnership of which such
Person is a general partner, (b) obligations, whether or not assumed, which are
secured in whole or in part by the Property of such Person or payable out of the
proceeds or production from Property of such Person, and (c) any obligations of
such Person in respect of letters of credit and repurchase agreements;
 
(ii)          all obligations of such Person evidenced by notes, debentures,
bonds or similar instruments;
 

 
5

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(iii)         all obligations of such Person to pay the deferred purchase price
of Property or services (except trade accounts arising in the ordinary course of
business if interest is not paid or accrued thereon);
 
(iv)         all Capitalized Lease Obligations of such Person;
 
(v)          all liabilities which in accordance with applicable accounting
principles would be included in determining total liabilities as shown on the
liability side of a balance sheet;
 
(vi)         all obligations of such Person under Hedging Agreements and Hedging
Transactions;
 
(vii)        all reimbursement obligations with respect to letters of credit;
 
(viii)       all Guarantees by such Person;
 
(ix)          all Off-Balance Sheet Debt; and
 
(x)           all Disqualified Stock.
 
“Default” means the occurrence of an Event of Default or any event which with
notice, lapse of time or both would, unless cured or waived, become an Event of
Default.
 
“Default Rate” means a per annum interest rate equal to five percent (5.00%)
plus the Floating Rate from time to time in effect, but in no event exceeding
the Highest Lawful Rate.
 
“Discretionary Determinations” has the meaning given such term in Section 2.8.1.
 
“Disqualified Stock” means any preferred stock or other Securities issued by the
Borrower or any of its Subsidiaries 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 occurrence or happening of any event or circumstance, (a) matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
redeemable at the option of the holder thereof, in whole or in part, on or prior
to the date that is 91 days after the Final Maturity Date, or (b) requires the
declaration or payment of any dividend or other distribution on or prior to the
date that is 91 days after the Final Maturity Date, in each case unless the
consideration paid and payable upon such maturity or redemption (in the case of
clause (a) preceding) or as a result of such dividend or other distribution (in
the case of clause (b) preceding) is payable and paid solely in Securities of
the issuer which is not Disqualified Stock.
 
“Dollars” and “$” means dollars in lawful currency of the United States of
America.
 
“Environmental Complaint” means any written or oral complaint, order, directive,
claim, citation, notice of environmental report or investigation, or other
notice by any Governmental Authority or any other Person with respect to (a) air
emissions, (b) spills, releases, or discharges to soils, any improvements
located thereon, surface water, groundwater, or the sewer, septic, waste
treatment, storage, or disposal systems servicing any Property of the Borrower
or any Guarantor, (c) solid or liquid waste disposal, (d) the use, generation,
storage, transportation, or disposal of any Hazardous Substance, or (e) other
environmental, health, or safety matters affecting any Property of the Borrower
or any Guarantor or the business conducted thereon.
 

 
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“Environmental Law” means (a) the following federal laws as they may be cited,
referenced, and amended from time to time:  the Clean Air Act, the Clean Water
Act, the Safe Drinking Water Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Endangered Species Act, the Resource
Conservation and Recovery Act, the Hazardous Materials Transportation Act, the
Superfund Amendments and Reauthorization Act, and the Toxic Substances Control
Act; (b) any and all equivalent environmental statutes of any state in which
Property of the Borrower or any Guarantor is situated, as they may be cited,
referenced and amended from time to time; (c) any rules or regulations
promulgated under or adopted pursuant to the above federal and state Laws; and
(d) any other equivalent federal, state, or local statute or any requirement,
rule, regulation, code, ordinance, or order adopted pursuant thereto, including
those relating to the generation, transportation, treatment, storage, recycling,
disposal, handling, or Release of Hazardous Substances.
 
“Environmental Liability”  means any claim, demand, obligation, cause of action,
accusation, allegation, order, violation, damage, injury, judgment, penalty or
fine, cost of enforcement, cost of remedial action or any other cost or expense
whatsoever, including reasonable attorneys’ fees and disbursements, resulting
from the violation or alleged violation of any Environmental Law or the
imposition of any Environmental Lien.
 
“Environmental Lien” means a Lien in favor of a Tribunal or other Person (i) for
any liability under an Environmental Law or (ii) for damages arising from or
costs incurred by such Tribunal or other Person in response to a release or
threatened release of hazardous or toxic waste, substance or constituent into
the environment.
 
“Equity Interest” means, with respect to any Person, an ownership and other
equity interest, including Securities, in such Person and rights to convert into
an ownership or other equity interest, including Securities, in such Person or
to otherwise acquire an ownership or other equity interest, including
Securities, in such Person.
 
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended
from time to time, together with all presently effective and future regulations
issued pursuant thereto.
 
“ERISA Affiliate” the Borrower, all of its Subsidiaries and any other member of
the Controlled Group.
 
“Eurodollar”, when used in reference to any Loan or Advance, refers to whether
such Loan, or the Loans comprising such Advance, are bearing interest at a rate
determined by reference to the Adjusted LIBOR Rate.
 
“Event of Default” has the meaning stated in Section 8.1 hereof.
 
“Executive Order No. 13224” shall mean Executive Order No. 13224 on Terrorist
Financing, effective September 24, 2001, as the same has been, or shall
hereafter be, renewed, extended, amended or replaced.
 

 
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“Final Maturity Date” or “Final Maturity” means June 30, 2013, or such earlier
date on which the payment of the Note is accelerated.
 
“Floating Rate” means for any day a per annum interest rate equal to the sum of
one-half percent (0.50%) plus the WSJ Rate from time to time in effect; but in
no event exceeding the Highest Lawful Rate.
 
“FLR”, when used in reference to any Loan or Advance, refers to whether such
Loan, or the Loans comprising such Advance, are bearing interest at a rate
determined by reference to the Floating Rate.
 
“Funded Debt” of any Person means at any date, Debt referred to in clauses (i)
through (vii) of the definition of “Debt” and all Guarantees by such Person of
Funded Debt of another Person.
 
“GAAP” means those generally accepted accounting principles and practices which
are recognized as such by the American Institute of Certified Public Accountants
acting through its Accounting Principles Board or by the Financial Accounting
Standards Board or through other appropriate boards or committees thereof.  Any
accounting principle or practice required to be changed by the Accounting
Principles Board or Financial Accounting Standards Board (or other appropriate
board or committee of such Boards) in order to continue as a generally accepted
accounting principle or practice may be so changed.  In the event of a change in
GAAP, the Loan Documents shall continue to be construed in accordance with GAAP
as in existence on the date hereof.
 
“Governmental Authority” means any nation, country, commonwealth, territory,
government, state, county, parish, municipality, or other political subdivision
and any entity exercising executive, legislative, judicial, regulatory, or
administrative functions of or pertaining to government.
 
“Guarantee” by any Person means any obligation, contingent or otherwise, of such
Person directly or indirectly guaranteeing or in effect guaranteeing any Debt,
leases, dividends or other obligations of any other Person (for purposes of this
definition, a “primary obligation”) and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) any primary obligation or any Property constituting direct or
indirect security therefor (whether arising by virtue of partnership
arrangements, by agreement to keep-well, to purchase assets, goods, securities
or services, to take-or-pay, to make reimbursement in connection with any letter
of credit or to maintain financial statement conditions, by comfort letter or
other similar undertaking of support or otherwise) or (ii) entered into for the
purpose of assuring in any other manner the obligee of any primary obligation of
the payment thereof or to protect such obligee against loss in respect thereof
(in whole or in part) with the amount of any Guarantee being deemed to be equal
to the stated or determinable amount of the primary obligation in respect of
which such Guarantee is made or, if not stated or determinable, the maximum
primary obligation which could reasonably be anticipated to arise in respect
thereof.  The term Guarantee includes the pledging or other encumbrance of
assets by a Person to secure the obligations of another Person and restrictions
or limitations on a Person or its assets agreed to in connection with the
obligations of another Person, but does not include endorsements for collection
or deposit in the ordinary course of business; and “Guaranteed” by a Person
shall mean the act or condition of providing a Guarantee by such Person or
permitting a Guarantee of such Person to exist.
 

 
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“Guarantor” means at any time any Person who has executed or does execute a
Guaranty, which is in effect at such time; provided that, for the purposes of
Sections 7.6.2(ii), 7.7(ii), 7.8.1(ii), 7.8.2(ii), 7.8.3(ii), 7.8.4(ii),
7.9.2(ii) and 7.9.6(ii), the term “Guarantor” shall not include RCWI or RCWIGP.
 
“Guaranty” means the guaranty of a Person guarantying all or a portion of the
Obligations of the Borrower, in form and substance satisfactory to the Lender
and such Person.
 
“Hazardous Substance” means flammables, explosives, radioactive materials,
hazardous wastes, asbestos, or any material containing asbestos, polychlorinated
biphenyls (PCBs), toxic substances or related materials, petroleum, petroleum
products, associated oil or natural gas exploration, production, and development
wastes, or any substances defined as “hazardous substances,” “hazardous
materials,” “hazardous wastes,” or “toxic substances” under the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, the
Superfund Amendments and Reauthorization Act, as amended, the Hazardous
Materials Transportation Act, as amended, the Resource Conservation and Recovery
Act, as amended, the Toxic Substances Control Act, as amended, or any other
Environmental Laws.
 
“Hedge Termination Value” means, in respect of any one or more Hedging
Transactions, after taking into account the effect of any legally enforceable
netting agreement relating to such Hedging Transactions, (a) for any date on or
after the date such Hedging Transactions 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) preceding, the amount(s)
determined as the mark-to-market value(s) for such Hedging Transactions, as
determined by the counterparties to such Hedging Transactions.
 
“Hedging Agreement” means any International Swap Dealers Association, Inc.
Master Agreement or other agreement and all schedules and exhibits attached
thereto and incorporated therein that set forth the general terms upon which a
Person may enter into one or more Hedging Transactions.
 
“Hedging Transaction” means a Commodity Hedging Transaction or a Rate Management
Transaction or any other transaction with respect to any swap, forward, future
or derivative transaction or option or similar transaction, 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.
 
“Highest Lawful Rate” means the maximum non-usurious interest rate, if any (or,
if the context so requires, an amount calculated at such rate), that at any time
or from time to time may be contracted for, taken, reserved, charged, or
received by the Lender under applicable Laws of the State of Texas or the United
States of America, whichever authorizes the greater rate, as such Laws are
presently in effect or, to the extent allowed by applicable Law, as such Laws
may hereafter be in effect and which allow a higher maximum non-usurious
interest rate than such Laws now allow.  To the extent the Laws of the State of
Texas are applicable for the purpose of determining the “Highest Lawful Rate”,
such term shall mean the “weekly ceiling” from time to time in effect as
referred to and defined in Chapter 303 of the Finance Code of Texas, as
amended.  The determination of the Highest Lawful Rate shall, to the extent
required by applicable Law, take into account as interest paid, taken, received,
charged, reserved or contracted for any and all relevant payments or charges
under the Loan Documents.
 

 
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“Indemnified Party” means (i) the Lender (and its assigns) and each of its
shareholders, officers, directors, employees, agents, attorneys-in-fact,
attorneys and affiliates and (ii) each trustee for the benefit of the Lender
under any Security Document.
 
“Insolvency Proceeding” of any Person means any application (whether voluntary
or instituted by another Person) for or the consent to the appointment of a
receiver, trustee, conservator, custodian, or liquidator of such Person or of
all or a substantial part of the Property of such Person, or the filing of a
petition (whether voluntary or instituted by another Person) commencing a case
under Title 11 of the United States Code, seeking liquidation, reorganization,
or rearrangement or taking advantage of any bankruptcy, insolvency, debtor’s
relief, or other similar Law of the United States, the State of Texas, or any
other jurisdiction.
 
“Interest Election Request” means a request by the Borrower to convert or
continue an Advance in accordance with Section 2.9.
 
“Interest Payment Date” means (a) with respect to any FLR Loan, the first day of
each month commencing with August 1, 2010, and upon maturity of the Note
(whether stated or upon acceleration) and (b) with respect to any Eurodollar
Loan, the last day of the Interest Period applicable to the Advance of which
such Loan is a part; provided that with respect to any Eurodollar Loan having an
Interest Period of more than three months’ duration, “Interest Payment Date”
shall mean (i) each date that occurs at intervals of three months’ duration
after the first day of the Interest Period applicable to the Advance of which
such Loan is a part and (ii) the last day of such Interest Period.
 
“Interest Period” means with respect to any Eurodollar Advance, the period
commencing on the date of such Advance 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 Advance that commences on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the last calendar month of such Interest Period) shall end on the last
Business Day of the last calendar month of such Interest Period.  For purposes
hereof, the date of an Advance initially shall be the date on which such Advance
is made and thereafter shall be the effective date of the most recent conversion
or continuation of such Advance.
 
“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, goods
or services sold or provided 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.
 

 
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“Law” mean at any time with respect to any Person or its Property, any statute,
law, executive order, treaty, ordinance, order, writ, injunction, judgment,
ruling, decree, regulation, or determination of an arbitrator, court or other
Governmental Authority, existing at such time which are applicable to or binding
upon such Person or such Property or to which such Person or such Property is
subject.
 
“Lender” means Texas Capital Bank, N.A., a national banking association, and its
successors and assigns.
 
“Letter of Credit” means any letter of credit issued pursuant to this Agreement.
 
“Letter of Credit Application” shall mean the standard letter of credit
application employed by the Lender from time to time in connection with letters
of credit, completed by the Borrower as the “applicant” thereunder.
 
“Letter of Credit Exposure” shall mean, at any time, the aggregate maximum
amount available to be drawn under outstanding Letters of Credit at such time
plus the amount of the Letter of Credit Payments.
 
“Letter of Credit Payment” means the amount advanced by the Lender to the
beneficiary of a Letter of Credit which is not evidenced by the Note and for
which the Lender remains unreimbursed by the Borrower.
 
“Letter of Credit Reimbursement Obligation” means the obligation of the Borrower
to pay to the Lender, or reimburse the Lender for, any amounts payable, paid, or
incurred by the Lender with respect to Letters of Credit.
 
“LIBOR Rate” means, with respect to any Eurodollar Advance for any Interest
Period, the greater of (i) the rate appearing on the display designated as
“British Bankers Association Interest Settlement Rates” on the Bloomberg System
(or on any successor or substitute page of such service, or any successor to or
substitute for such service, providing rate quotations comparable to those
currently provided on such page of such service, as determined by the Lender
from time to time for purposes of providing quotations of interest rates
applicable to dollar deposits in the London interbank market) at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period, as the rate for dollar deposits with a maturity comparable to
such Interest Period or (ii) 2.00%.  In the event that the rate for clause (i)
preceding is not available at such time for any reason, then the “LIBOR Rate”
under clause (i) preceding with respect to such Eurodollar Advance for such
Interest Period shall be determined by the Lender by reference to such other
comparable publicly available service for displaying the offered rate for dollar
deposits in the London interbank market as may be selected by the Lender and, in
the absence of availability, such other method to determine such Eurodollar rate
as may be selected by the Lender in its sole discretion.
 

 
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“Lien” means, as to any Property of any Person, (a) any mortgage, deed of trust,
lien, pledge, hypothecation, or security interest in, on or of such Property, or
any other charge or encumbrance on any such asset to secure Debt or liabilities,
but excluding any right to netting or setoff, (b) the interest of a vendor under
any conditional sale agreement or title retention agreement (or any financing
lease having substantially the same economic effect as any of the foregoing)
relating to such Property, (c) in the case of Securities, any purchase option,
call or similar right of a third party with respect to such Securities and (d)
the signing or filing of a financing statement which names the Person as debtor,
or the signing of any security agreement authorizing any other Person as the
secured party thereunder to file any financing statement which names such Person
as debtor.
 
“Limitation Period” means any period while any amount remains owing on the Notes
that interest on such amount, calculated at the applicable interest rate (plus
any fees or other sums payable to the Lender under any Loan Document and deemed
to be interest under applicable Law) would exceed the amount of interest which
would accrue at the Highest Lawful Rate.
 
“Loan” means an Advance made by the Lender.
 
“Loan Documents” shall mean this Agreement, the Note, the Letter of Credit
Applications, the Security Documents, and all other documents and instruments
now or hereafter delivered pursuant to the terms of or in connection with this
Agreement, the Note, the Letter of Credit Applications, or the Security
Documents, and all renewals and extensions of, amendments and supplements to,
and restatements of, any or all of the foregoing from time to time in effect
(exclusive of term sheets and commitment letters).
 
“Loan Party” means each of the Borrower and the Guarantors.
 
“Margin Regulations” means Regulations T, U and X of the Board of Governors, as
in effect from time to time.
 
“Material Adverse Effect” shall mean (i) for any Loan Party, any adverse effect
on the business, operations, properties, results of operations or condition
(financial or otherwise) of such Loan Party, (ii) for any Loan Party, any
adverse effect upon the business operations, properties, results of operations
or condition (financial or otherwise) of such Loan Party which increases the
risk that any of the Debt of such Loan Party will not be repaid as and when due,
(iii) any adverse effect upon the Collateral or (iv) any adverse effect on the
priority or enforceability of the Liens securing the Note; if, with respect to
any of the circumstances described in clauses (i), (ii) and (iii) preceding, the
adverse effect could reasonably be anticipated to involve damage, loss or Debt
of $25,000 or more.
 
“Material Agreement” means, with respect to any Person, any written or oral
agreement, contract, commitment, or understanding to which such Person is a
party, by which such Person is directly or indirectly bound, or to which any
Property of such Person may be subject, which is not cancelable by such Person
upon notice of 90 days or less without (i) liability for further payment in
excess of $25,000 or (ii) forfeiture of Property having an aggregate value in
excess of $25,000.
 

 
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“Material Debt” means, as to any Person, Debt (other than, with respect to the
Borrower, Debt arising hereunder) of such Person in the principal amount
aggregating in excess of $25,000.  For purposes of determining Material Debt,
the “principal amount” of the obligations of such Person in respect of any
Hedging Transaction at any time shall be the Hedge Termination Value.
 
“Mortgages” mean deeds of trust, mortgages, assignments of production, security
agreements, collateral mortgages, and acts of pledge in form and substance
reasonably acceptable to the Lender, executed or to be executed by the
appropriate Person as security for the Obligations and other indebtedness
described therein.
 
“Note” means a promissory note issued pursuant hereto, in substantially the form
attached hereto entitled “Form of Promissory Note”, duly executed by the
Borrower and payable to the order of a Lender, including any amendment,
modification, renewal or replacement of such promissory note, which Note shall
be in the aggregate amount of up to $50,000,000.
 
“Notice of Borrowing” means the notice referred to in Section 2.2, which shall
be substantially in the form of the attachment hereto entitled “Form of Notice
of Borrowing,” plus any applicable attachments.
 
“Obligated Parties” mean the Borrower and any other Persons, including the
Guarantors, from time obligated by Guaranty or otherwise to pay all or any
portion of the Obligations.
 
“Obligations” shall mean, without duplication, (i) all Debt evidenced by the
Note, (ii) the Letter of Credit Reimbursement Obligations, (iii) the Letter of
Credit Exposure, (iv) the obligation of the Borrower for the payment of the fees
payable hereunder or under the other Loan Documents, (v) all other obligations
and liabilities of the Borrower to the Lender, now existing or hereafter
incurred, under, arising out of or in connection with any Loan Document and (vi)
all other obligations and liabilities of the Borrower to the Lender, now
existing or hereafter incurred; and to the extent that any of the foregoing
includes or refers to the payment of amounts deemed or constituting interest,
only so much thereof as shall have accrued, been earned and which remains unpaid
at each relevant time of determination.
 
“OFAC” means the Office of Foreign Assets Control of the United States
Department of the Treasury, or any successor Governmental Authority.
 
“Off-Balance Sheet Debt” means, with respect to a Person, (a) any repurchase
indebtedness, liability or obligation of such Person with respect to accounts or
notes receivable sold by such Person, (b) any indebtedness, liability or
obligation of such Person under any sale and leaseback transaction which is not
a Capital Lease Obligation, (c) any indebtedness, liability or obligation of
such Person under any synthetic, off-balance sheet or tax retention lease, or
(d) any indebtedness, liability or obligation of such Person arising with
respect to any other transaction, or agreement for the use or possession of any
Property, which is the functional equivalent, or takes the place, of borrowing
but which does not constitute a liability on the balance sheet of such Person.
 

 
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“Oil and Gas Properties” means fee, leasehold, or other interests in or under
mineral estates or oil, gas, and other liquid or gaseous hydrocarbon leases with
respect to Properties situated in the United States or offshore from any State
of the United States, including, without limitation, overriding royalty and
royalty interests, leasehold estate interests, net profits interests, production
payment interests, and mineral fee interests, together with contracts executed
in connection therewith and all tenements, hereditaments, appurtenances and
Properties appertaining, belonging, affixed, or incidental thereto.
 
“Organizational Documents” means, as to any Person, the articles of
incorporation, certificate of limited partnership, articles of formation or
similar organizational documents, as applicable, of such Person.
 
“Participant” has the meaning given such term in Section 12.2.
 
“Permitted Indebtedness” means (i) the Obligations, (ii) unsecured accounts
payable incurred in the ordinary course of business, which are not unpaid in
excess of 90 days beyond the invoice date therefor or are being contested in
good faith and as to which such reserve as is required by GAAP has been made and
on which interest charges are not paid or accrued, and (iii) if the Lender has
given its prior written consent thereto, Subordinated Debt and (iv) Debt arising
under Acceptable Hedging Transactions and under the Hedging Agreement governing
such Acceptable Hedging Transactions (but only to the extent such Debt arises in
connection with Acceptable Hedging Transactions).
 
“Permitted Investments” means Investments in (i) indebtedness, evidenced by
notes maturing not more than 12 months after the date of issue, issued or
Guaranteed by the government of the United States of America, (ii) certificates
of deposit maturing not more than 12 months after the date of issue, issued by
the Lender or by commercial banking institutions each of which is a member of
the Federal Reserve System and which has combined capital and surplus and
undivided profits of not less than $100,000,000, (iii) commercial paper,
maturing not more than 270 days after the date of issue, issued by (a) the
Lender (or any parent corporation of the Lender) or (b) a corporation (other
than an Affiliate of the Borrower) with a rating of “P1” (or its then
equivalent) according to Moody’s Investors Service, Inc., “A-1” (or its then
equivalent) according to Standard & Poor’s Corporation or “F-1” (or its then
equivalent) according to Fitch’s Investors Services, Inc., (iv) money market or
other mutual funds substantially all of whose assets comprise securities of the
types described in clauses (i) through (iii) above, or (v) such other
instruments, evidences of indebtedness or investment securities as the Lender
may approve in writing.
 
“Permitted Liens” means, with respect to any Property, each of the following:
 
(i)           Liens securing the Obligations;
 
(ii)          the following, if the validity and amount thereof are being
contested in good faith and by appropriate legal proceedings and so long as (a)
levy and execution thereon have been stayed and continue to be stayed, (b) they
do not in the aggregate materially detract from or threaten the value of such
Property, or materially impair the use thereof in the operation of the  business
of the owner of such Property, and (c) a reserve therefor, if appropriate, has
been established: claims and Liens for Taxes due and payable; claims and Liens
upon and defects of title to real and personal property; claims and Liens of
landlords, repairmen, mechanics, materialmen, warehousemen, or carriers, or
similar Liens; and adverse judgments on appeal;
 

 
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(iii)         Liens for Taxes not past due;
 
(iv)         landlords’, carriers’, warehousemen’s, repairmen’s, mechanics’ and
materialmen’s Liens for services or materials (or other like Liens that do not
secure Funded Debt) for which payment is not past due;
 
(v)          operators’ Liens incurred pursuant to oil and gas joint operating
agreements entered into by the owner of such Property in the ordinary course of
business which secure obligations not past due;
 
(vi)         Liens in favor of the lessor on the Property being leased under any
Capitalized Lease permitted hereunder; and
 
(vii)        minor defects in title to an Oil and Gas Property not in any case
materially detracting from the value of such Property;
 
provided, that Liens described in clauses (ii) through (vi) shall remain
Permitted Liens only for so long as no action to enforce any of such Liens has
been commenced and; provided, further, no intention to subordinate the first
priority Liens granted to secure the Obligations is hereby implied or expressed
or is to be inferred by the permitted existence of such Permitted Liens.
 
“Permitted Loans and Investments” means (i) loans by the Borrower or Guarantor
that is not a natural person to, or Investments by the Borrower or any Guarantor
that is not a natural person in, any Person not exceeding in the aggregate
outstanding at any time for all such Persons the amount of $25,000 and not
otherwise permitted under this Agreement and (ii) Permitted Investments.
 
“Person” means a natural person, a corporation, a partnership, a limited
partnership, a limited liability company, an association, a joint venture, a
trust or any other entity or organization including a government or political
subdivision or any governmental agency or instrumentality thereof.
 
“Plan” means any employee benefit plan which is covered by Title IV of ERISA.
 
“Property” means any interest in any kind of property or asset, whether real,
personal or mixed, tangible or intangible.
 
“PW9 Value” means with respect to any Oil and Gas Property, the net present
value of the oil and gas to be produced from such Oil and Gas Property,
calculated using a discount rate of nine percent (9.00%) per annum and estimates
of reserves, prices, production rates and costs acceptable to the Lender.
 
“Rate Management Transaction” shall mean any transaction (including an agreement
with respect thereto) now existing or hereafter entered into by the Borrower
which is a rate swap, basis swap, forward rate transaction, commodity swap,
commodity option, equity or equity index swap, equity or equity index option,
bond option, interest rate option, foreign exchange transaction, cap
transaction, floor transaction, collar transaction, forward transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
or any other similar transaction (including any option with respect to any of
these transactions) or any combination thereof, whether linked to one or more
interest rates, foreign currencies, commodity prices, equity prices or other
financial measures.
 

 
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“RCWI” means RCWI, LP, a Texas limited partnership.
 
“RCWIGP” means RCWI, GP, LLC, a Texas limited liability company.
 
“Reef Partners” means Reef Oil & Gas Partners, LP, a Nevada limited partnership.
 
“Reef Partners GP” means Reef Oil & Gas Partners, GP, LLC, a Texas limited
liability company.
 
“Regulation U” means Regulation U of the Board of Governors, as in effect from
time to time.
 
“Regulatory Documents” means, as to any Person, the bylaws, limited partnership
agreement, regulations, operating agreement or similar regulatory documents, as
applicable, governing the internal affairs of such Person.
 
“Release of Hazardous Substances” means any emission, spill, release, disposal,
or discharge, except in accordance with a valid permit, license, certificate, or
approval of the relevant Governmental Authority, of any Hazardous Substance into
or upon (a) the air, (b) soils or any improvements located thereon, (c) surface
water or groundwater, or (d) the sewer or septic system, or the waste treatment,
storage, or disposal system servicing any Property of the Borrower or any
Guarantor, with respect to which the Borrower or such Guarantor is legally
obligated to respond under applicable Environmental Laws, by notifying the
relevant Governmental Authority, investigating or undertaking corrective action.
 
“Representative’s Certificate” means a certificate signed by a Responsible
Representative.
 
“Requirement of Law” means, as to any Person, its Organizational Documents, its
Regulatory Documents, and all applicable Laws.
 
“Responsible Representative” means Michael J. Mauceli, Manager of RCWIGP.
 
“Restricted Payment” means any of the following:
 
(i)           any withdrawal from the Borrower of cash or other Property by an
owner of an Equity Interest in the Borrower or the declaration or payment of any
dividend on, or the incurrence of any liability to make, or the making of, any
other payment or distribution in respect of, any Securities of or other Equity
Interests in the Borrower without the prior written consent of the Lender except
that, if no Default exists and the declaration and payment of cash dividends or
cash distributions will not cause a Default to exist, the term Restricted
Payment shall not include the declaration and the payment of cash dividends or
cash distributions;
 

 
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(ii)          any payment or distribution on account of the purchase, redemption
or other retirement of any Securities of or other Equity Interests in the
Borrower, or of any warrant, option or other right to acquire such Securities or
such other Equity Interests, or any other payment or distribution made in
respect thereof, either directly or indirectly;
 
(iii)         the repayment by the Borrower of any Debt owed to an Affiliate
(other than repayments to the Borrower), except as specifically permitted by the
Loan Documents.
 
“Revolving Credit Period” means the period commencing on the Closing Date and
ending on the Final Maturity Date.
 
“Scheduled Determinations” has the meaning given such term in Section 2.8.1.
 
“Security” means any stock, share, voting trust certificate, limited or general
partnership interest, member interest, bond debenture, note, or other evidence
of indebtedness, secured or unsecured, convertible, subordinated or otherwise,
or in general any instrument commonly known as a “security” or any certificate
of interest, share or participation in temporary or interim certificates for the
purchase or acquisition of, or any right to subscribe to, purchase or acquire
any of the foregoing.
 
“Security Documents” means the security instruments executed and delivered in
satisfaction of the condition set forth in Section 5.2.3, and all other
documents and instruments at any time executed as security for all or any
portion of the Obligations, as such instruments may be amended, restated, or
supplemented from time to time.
 
“Statutory Reserve Rate” means a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board of Governors to which the Lender is subject with
respect to the Adjusted LIBOR Rate, for eurocurrency funding (currently referred
to as “Eurocurrency liabilities” in Regulation D of the Board of
Governors).  Such reserve percentages shall include those imposed pursuant to
such Regulation D.  Eurodollar Loans shall be deemed to constitute eurocurrency
funding and to be subject to such reserve requirements without benefit of or
credit for proration, exemptions or offsets that may be available from time to
time to the Lender under such Regulation D or any comparable regulation.  The
Statutory Reserve Rate shall be adjusted automatically on and as of the
effective date of any change in any reserve percentage.
 
“Subordinated Debt” means Debt of the Borrower evidenced by promissory notes
which by their terms, and by separate written subordination agreements among the
payee thereof, the Borrower and the Lender, have been subordinated to the Note
and other Obligations on terms satisfactory to the Lender in its sole
discretion.
 
“Subsidiary” means for any Person, any corporation or other entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at the time directly or indirectly owned, collectively, by such Person and
any Subsidiaries of such Person.  The term Subsidiary shall include Subsidiaries
of Subsidiaries (and so on).
 

 
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“Taxes” means all taxes, assessments, filing or other fees, levies, imposts,
duties, deductions, withholdings, stamp taxes, interest equalization taxes,
capital transaction taxes, foreign exchange taxes or charges, or other charges
of any nature whatsoever from time to time or at any time imposed by any Law or
Tribunal.
 
“Transferee” means any Person to which the Lender has sold, assigned or
transferred an interest in, or granted a participation in, any of the
Obligations, as authorized hereunder, and including Participants and potential
purchasers, and any Person acquiring, by purchase, assignment, transfer
(including transfers by operation of law), or participation, from any such
purchaser, assignee, transferee, or participant, any part of such Obligations.
 
“Tribunal” means any court, tribunal, governmental body, agency, arbitration
panel, or instrumentality.
 
“Type” when used in reference to any Loan or Advance, refers to whether the rate
of interest on such Loan, or on the Loans comprising such Advance, is determined
by reference to the Floating Rate or the Adjusted LIBOR Rate.
 
“UCC” shall mean the Uniform Commercial Code as from time to time in effect in
the State of Texas.
 
“Unused Available Commitment” means, at any time, an amount (not less than zero)
equal to the remainder, if any, of the (a) Available Commitment for the Lender
in effect at such time minus (b) the outstanding principal amount owed to the
Lender under the Note at such time minus (c) the Letter of Credit Exposure at
such time.
 
“USA Patriot Act” means the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub.
L. No. 107-56, 115 Stat. 272 (2001), as the same has been, or shall hereafter
be, renewed, extended, amended or replaced.
 
“WSJ Rate” means, on any day, the greater of (i) the U.S. prime rate as
published in The Wall Street Journal’s “Money Rates” table for such day or (ii)
four and one-half percent (4.50%).  If multiple prime rates are quoted in such
table, then the highest U.S. prime rate quoted therein shall be the prime rate
under clause (i) above.  In the event that a U.S. prime rate is not published in
The Wall Street Journal’s “Money Rates” table for any reason or The Wall Street
Journal is not published that day in the United States of America for general
distribution, the Lender will choose a substitute U.S. prime rate, for purposes
of calculating the interest rate applicable hereunder, which is based on
comparable information, until such time as a prime rate is published in The Wall
Street Journal’s “Money Rates” table.  Each change in the WSJ Rate shall become
effective without notice to the Borrower on the effective date of each such
change.
 
1.2.           Accounting Terms and Determinations; Changes in Accounting.
 
1.2.1.           Unless otherwise specified herein, all accounting terms used
herein shall be interpreted, all accounting determinations hereunder shall be
made, and all financial statements required to be delivered hereunder shall be
prepared in accordance with GAAP, applied on a basis consistent (except for
changes concurred in by the independent public accountants and with respect to
which the Borrower shall have promptly notified the Lender on becoming aware
thereof) with the most recent financial statements of the Borrower delivered to
the Lender.  Accounting principles are applied on a “consistent basis” when the
accounting principles applied in a current period are comparable in all material
respects to those accounting principles applied in a preceding period.  Changes
in the application of accounting principles which do not have a material impact
on calculating the financial covenants herein shall be deemed comparable in all
material respects to accounting principles applied in a preceding period.
 

 
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1.2.2.           The Borrower will not change its method of accounting, other
than immaterial changes in methods, changes permitted by GAAP in which the
Borrower’s independent public accountants concur and changes required by a
change in GAAP, without the prior written consent of the Lender.  To enable the
ready and consistent determination of compliance by the Borrower with its
obligations under this Agreement, neither the Borrower nor any of its
Subsidiaries will change the manner in which either the last day of its fiscal
year or the last day of the first three fiscal quarters of its fiscal years is
calculated without the prior written consent of the Lender.
 
1.3.           References.  References in this Agreement to Exhibits, Schedules,
Annexes, Appendixes, Attachments, Articles, Sections or clauses shall be to
exhibits, schedules, annexes, appendixes, attachments, articles, sections or
clauses of this Agreement, unless expressly stated to the contrary.  References
in this Agreement to “hereby,” “herein,” “hereinafter,” “hereinabove,”
“hereinbelow,” “hereof,” “hereunder” and words of similar import shall be to
this Agreement in its entirety and not only to the particular Exhibit, Schedule,
Annex, Appendix, Attachment, Article, or Section in which such reference
appears.  Exhibits and Schedules to any Loan Document shall be deemed
incorporated by reference in such Loan Document.  References to any document,
instrument, or agreement (a) shall include all exhibits, schedules, and other
attachments thereto, and (b) shall include all documents, instruments, or
agreements issued or executed in replacement thereof.  This Agreement, for
convenience only, has been divided into Articles and Sections; and it is
understood that the rights and other legal relations of the parties hereto shall
be determined from this instrument as an entirety and without regard to the
aforesaid division into Articles and Sections and without regard to headings
prefixed to such Articles or Sections.  The phrases “this Section” and “this
clause” and similar phrases refer only to the sections or clauses hereof in
which such phrases occur.  Whenever the context requires, reference herein made
to the single number shall be understood to include the plural; and likewise,
the plural shall be understood to include the singular.  Definitions of terms
defined in the singular or plural shall be equally applicable to the plural or
singular, as the case may be, unless otherwise indicated.  Words denoting sex
shall be construed to include the masculine, feminine and neuter, when such
construction is appropriate; and specific enumeration shall not exclude the
general but shall be construed as cumulative; the word “or” is not exclusive;
the word “including” (in its various forms) shall mean “including, without
limitation”; in the computation of periods of time, the word “from” means “from
and including” and the words “to” and “until” mean “to but excluding”; and all
references to money refer to the legal currency of the United States of
America.  The Exhibits, Schedules, Annexes, Appendixes and Attachments attached
to this Agreement and items referenced as being attached to this Agreement are
incorporated herein and shall be considered a part of this Agreement for all
purposes.  Except as otherwise indicated, references in this Agreement to
statutes, sections, or regulations are to be construed as including all
statutory or regulatory provisions consolidating, amending, replacing,
succeeding, or supplementing the statute, section, or regulation referred
to.  References in this Agreement to “writing” include printing, typing,
lithography, facsimile reproduction, and other means of reproducing words in a
tangible visible form.  References in this Agreement to agreements and other
contractual instruments shall be deemed to include all exhibits and appendices
attached thereto and all subsequent amendments and other modifications to such
instruments, but only to the extent such amendments and other modifications are
not prohibited by the terms of this Agreement.  References in this Agreement to
Persons include their respective successors and permitted assigns.  References
in this Agreement and the other Loan Documents to "reasonable", "reasonably" and
words of similar import when applied to any request or demand which the Lender
is permitted to make hereunder or under any other Loan Document or as applied to
a determination of the reasonableness of the amount or the incurrence of any
expense shall be interpreted and construed from the perspective of an
administrative agent, a collateral agent or a lender, as applicable, in a senior
credit facility where such administrative agent, collateral agent or lender is
regulated by various governmental agencies, seeks a high level of assurance
regarding the operations, collateral position, condition (financial or
otherwise) and Properties of the Borrower and other Persons Guaranteeing or
otherwise connected to such facility and seeks a high level of assurance and
advice regarding its rights and duties under the Loan Documents, and the
Borrower and any other Person Guaranteeing or otherwise connected to such
facility shall comply with such request or demand or accept such determination
unless the Borrower or such other Person proves that such request, demand or
determination is or was unreasonable.
 

 
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1.4.           Amendment of Defined Instruments.  Unless the context otherwise
requires or unless otherwise provided herein, the terms defined in this
Agreement which refer to a particular agreement, instrument or document also
refer to and include all renewals, extensions, modifications, amendments and
restatements of such agreement, instrument or document, provided that nothing
contained in this Section shall be construed to authorize any such renewal,
extension, modification, amendment or restatement.
 
1.5.           Joint Preparation; Construction of Indemnities and
Releases.  This Agreement and the other Loan Documents have been reviewed and
negotiated by sophisticated parties with access to legal counsel, and no rule of
construction shall apply hereto or thereto which would require or allow any Loan
Document to be construed against any party because of its role in drafting such
Loan Document.  All indemnification and release of liability provisions of this
Agreement shall be construed broadly (and not narrowly) in favor of the Persons
receiving indemnification or releases of liability.
 
1.6.           Time References.  Unless otherwise indicated, all references to a
time of day refer to the time of day in the Central Time Zone for such day, as
generally in effect in the state of Texas.
 
1.7.           Types of Loans and Advances.  For purposes of this Agreement,
Loans and Advances, respectively, may be classified and referred to by Type
(e.g., a “Eurodollar Loan” or a “Eurodollar Advance”).
 

 
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ARTICLE II
 

 
TERMS OF FACILITIES
 
2.1.          Reducing Revolving Line of Credit and Letter of Credit Facilities.
 
2.1.1.           (i)  During the Revolving Credit Period, and if no Default
exists, the Lender agrees, subject to the other terms and conditions of this
Agreement, to make Loans to the Borrower from time to time in amounts not to
exceed, in the aggregate at any one time outstanding, its Available Commitment.
 
(ii) Subject to the terms hereof, each Advance shall be comprised entirely of
FLR Loans or Eurodollar Loans as the Borrower may request in accordance
herewith.  The Lender at its option may make any Eurodollar Loan by causing any
domestic or foreign branch or Affiliate of the 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.
 
(iii) At the commencement of each Interest Period for any Eurodollar Advance,
such Advance shall be in an aggregate amount that is an integral multiple of
$100,000 and not less than $1,000,000.  At the time that each FLR Advance is
made, such Advance shall be in an aggregate amount that is an integral multiple
of $100,000 and not less than $500,000; provided that an FLR Advance may be in
an aggregate amount that is equal to the Unused Available Commitment.  Advances
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 five (5) Eurodollar Advances
outstanding.  Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request, or to elect to convert or continue,
any Advances if the Interest Period requested with respect thereto would end
after the Final Maturity Date.
 
2.1.2.           The Lender shall not be obligated to lend to the Borrower, and
the Borrower shall not be entitled to borrow hereunder, any amount which would
cause the sum of the outstanding principal amount of the Note plus the Letter of
Credit Exposure, to exceed the Available Commitment.
 
2.1.3.           Upon the terms and conditions and relying on the
representations and warranties contained in this Agreement,
 
(i) the Lender agrees, from the date of this Agreement until the date which is
30 days prior to the Final Maturity Date, to issue standby letters of credit
hereunder for the account of the Borrower, and to renew and extend standby
Letters of Credit.
 
(ii) letters of credit shall be issued hereunder and Letters of Credit shall be
renewed or extended from time to time on any Business Day designated by the
Borrower following the receipt by the Lender of the written (or oral, confirmed
promptly in writing) request by a Responsible Representative of the Borrower
therefor and, if for the issuance of a new letter of credit hereunder, a Letter
of Credit Application; provided, however, that
 

 
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(a)         the expiry date of such requested letter of credit cannot be later
than the earlier of (1) 365 days from the date of issuance, unless automatically
renewable by its terms, or, if issued in favor of the Texas Railroad Commission,
15 months following the date of issuance, (2) the last date before which the
Borrowing Base is scheduled to reduce to an amount less than the sum of the
maximum drawable amount of the requested letter of credit plus the undrawn
amount of all outstanding Letters of Credit which, by their terms, might be
outstanding on such reduction date or (3) 30 days prior to the Final Maturity
Date;
 
(b)         the aggregate outstanding principal balance of the Note plus the
Letter of Credit Exposure shall not exceed at any time the Borrowing Base;
 
(c)         the Letter of Credit Exposure shall not exceed at any time $500,000;
 
(d)         with the exception of standby letters of credit to support plugging
bond obligations of the Borrower (for which there shall be no minimum dollar
amount or maximum number of such letters of credit), no letter of credit shall
be issued hereunder in an amount less than $25,000; and
 
(e)         the Lender shall not be obligated to issue a letter of credit
pursuant hereto or to renew or extend a Letter of Credit, and the Borrower shall
not be entitled to have a letter of credit issued pursuant hereto or to have a
Letter of Credit renewed or extended, if the issuance of the requested letter of
credit or the renewal or extension of an existing Letter of Credit would cause,
after taking into account the mandatory reductions in the Borrowing Base
required during the proposed term of such requested letter of credit or existing
Letters of Credit, the sum of the undrawn amount of all Letters of Credit plus
the aggregate outstanding principal amount of the Note, to exceed the Available
Commitment.
 
(iii) except as otherwise permitted by clause (ii)(d) above, the Lender shall
have no obligation to issue a letter of credit hereunder if as a result thereof,
there would be outstanding more than five (5) standby Letters of Credit under
clause (i) above.
 
2.2.          Method of Borrowing and Obtaining Letters of Credit.
 
2.2.1.           The Borrower shall give the Lender an irrevocable notice (a
“Notice of Borrowing”) not later than (a) in the case of a Eurodollar Advance,
not later than 11:00 a.m. CT, three (3) Business Days before the date of such
proposed Advance or (b) in the case of an FLR Advance, not later than 12:00 p.m.
CT on the date of such proposed Advance.  Each Notice of Borrowing shall specify
each of the following:
 
(i)  the Borrowing Date, which shall be a Business Day, of such requested
Advance.
 
(ii) the aggregate amount of such requested Advance.
 
(iii) whether such Advance is to be an FLR Advance or a Eurodollar Advance.
 
(iv) in the case of a Eurodollar Advance, the initial Interest Period to be
applicable thereto, which shall be a period contemplated by the definition of
the term “Interest Period.”
 

 
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If no election as to the Type of Advance is specified, then the requested
Advance shall be an FLR Advance.  If no Interest Period is specified with
respect to any requested Eurodollar Advance, then the Borrower shall be deemed
to have selected an Interest Period of one (1) month’s duration.  Each Notice of
Borrowing shall constitute a representation by the Borrower that (a) the amount
of the requested Advance shall not cause the total principal of the Note plus
the Letter of Credit Exposure to exceed the Commitment and (b) no Default is in
existence at the time of delivery to the Lender of such Notice of Borrowing.
 
2.2.2.           A Notice of Borrowing shall not be revocable by the Borrower
without the consent of the Lender.
 
2.2.3.           The Lender shall make each Loan to be made by it hereunder on
the proposed Borrowing Date thereof.  The Lender will make such Loans available
to the Borrower by promptly crediting the amount of the Loan, to an account of
the Borrower maintained at the Lender.  Nothing herein shall be deemed to
obligate the Lender to obtain the funds for such Loan in any particular place or
manner or to constitute a representation by the Lender that it has obtained or
will obtain the funds for the Loan in any particular place or manner.
 
2.2.4.           The Borrower shall give the Lender an irrevocable request for a
letter of credit prior to 12:00 p.m. CT at least three (3) Business Days before
each such requested letter of credit under Section 2.1, by completing and
delivering an irrevocable Notice of Borrowing together with a completed and
executed Letter of Credit Application.  The Letter of Credit Application must be
completed in a manner and shall use such wording as is acceptable to the Lender.
 
2.2.5.           Upon receipt of the Letter of Credit Application, the Lender
shall issue such letter of credit if the conditions of Section 2.1.3, Article V
or elsewhere herein have been satisfied.
 
2.2.6.           Subject to the terms hereof, in the event that any beneficiary
of a Letter of Credit shall have taken the steps necessary in the sole judgment
of the Lender to obligate or permit the Lender to make a payment under such
Letter of Credit, the Borrower shall be deemed to have delivered to the Lender a
Notice of Borrowing under Section 2.2 for an Advance in the amount of such
payment amount, regardless of any limitations or unsatisfied conditions set
forth herein or if a Default exists.  The Lender shall pay over the proceeds of
such Advance to itself as reimbursement for amounts paid by the Lender to the
beneficiary under such Letter of Credit.
 
2.3.          Note.
 
2.3.1.           The Loans shall be evidenced by a Note issued by the Borrower,
payable to the order of the Lender.
 
2.3.2.           The outstanding principal of the Note reflected by the
notations (whether handwritten, electronic or otherwise) by the Lender on its
records shall be deemed rebuttably presumptive evidence of the principal amount
owing on the Note.
 

 
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2.3.3.           The Lender will record on its books each Loan and the
particulars thereof (e.g., date and amount) and each payment of principal or
interest made by the Borrower with respect thereto, and may, if the Lender so
elects in connection with any transfer or enforcement of the Note, endorse on
the schedule (modified as the Lender shall deem advisable) forming a part
thereof appropriate notations to evidence the foregoing information with respect
to each such Loan then outstanding; provided that the failure of the Lender to
make any such recordation or endorsement shall not affect the obligations of the
Borrower hereunder or under the Note.  The Lender is hereby irrevocably
authorized by the Borrower so to endorse the Note and to attach to and make a
part of the Note a continuation of any such schedule (modified as the Lender
shall deem advisable) as and when required.
 
2.4.          Certain Payments and Prepayments of Principal.
 
2.4.1.           If at any time the aggregate principal of the Note outstanding
plus the Letter of Credit Exposure exceeds the Borrowing Base then in effect,
the Borrower shall  on the day of such occurrence, repay the principal of the
Note in an amount equal to such excess, except that if the circumstances
described in this Section are the direct result of a decrease of the Borrowing
Base under Section 2.8.1, then the provisions of Section 2.8.3 shall apply.
 
2.4.2.           In the event that a prepayment of the Note is required under
the terms hereof, and the aggregate outstanding principal of the Note is less
than the amount required to be prepaid, the Borrower shall repay the entire
balance of the Note and, in accordance with the provisions of the relevant
Letter of Credit Application executed by the Borrower or otherwise to the
satisfaction of the Lender, deposit with the Lender as additional collateral
securing the Obligations, an amount of immediately available funds equal to the
difference of the Letter of Credit Exposure less the Borrowing Base.
 
2.5.          Interest Rates; Payment of Interest.
 
2.5.1.           The unpaid principal of the Note shall bear interest from the
date hereof, at a rate per annum equal to the lesser of the (i) the Floating
Rate or such higher rate as is specified in Section 3.3 or (ii) the Highest
Lawful Rate.  Each Loan comprising an FLR Advance shall bear interest on the
outstanding principal amount thereof, for each day from and including the date
such FLR Advance is made or is automatically converted from a Eurodollar Advance
into an FLR Advance pursuant to Section 2.5.5, to but excluding the date it is
paid or is converted into a Eurodollar Advance pursuant to Section 2.5.5, at a
rate per annum equal to the lesser of (a) the Floating Rate or, if applicable,
such higher rate as is specified in Section 3.3 or (b) the Highest Lawful Rate.
 
2.5.2.           Each Loan comprising a Eurodollar Advance shall bear interest
on the outstanding principal amount thereof from and including the first day of
the Interest Period applicable thereto to (but not including) the last day of
such Interest Period equal to the lesser of (a) the Adjusted LIBOR Rate for the
Interest Period in effect for such Advance or, if applicable, such higher rate
as is specified in Section 3.3 or (b) the Highest Lawful Rate.
 
2.5.3.           Accrued interest on each Loan shall be payable in arrears on
each Interest Payment Date for such Loan and on the Final Maturity Date;
provided that interest accrued pursuant to Section 3.3 shall be payable on
demand.
 

 
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2.5.4.           Each determination hereunder of interest on the Note and fees
hereunder based on per annum calculations shall be computed on the basis of a
year of 360 days and paid for the actual number of days elapsed (including the
first day but excluding the last day), subject to the limitations of the Highest
Lawful Rate.  All interest rates applicable hereunder shall be determined by the
Lender, and such determinations shall be conclusive absent manifest error, and
be binding upon the parties hereto.
 
2.5.5.           If prior to the commencement of any Interest Period for a
Eurodollar Advance:
 
(a) the Lender determines (which determination shall be conclusive absent
manifest error) that adequate and reasonable means do not exist for ascertaining
the Adjusted LIBOR Rate or the LIBOR Rate for such Interest Period; or
 
(b) the Lender determines that the Adjusted LIBOR Rate or LIBOR Rate, as
applicable, for such Interest Period will not adequately and fairly reflect the
cost to the Lender of making or maintaining its Loans included in such Advance
for such Interest Period;
 
then the Lender shall give notice thereof to the Borrower by telephone or
electronic means as promptly as practicable thereafter and, until the Lender
notifies the Borrower that the circumstances giving rise to such notice no
longer exist, (i) any Interest Election Request that requests the conversion of
any Advance to, or continuation of any Advance as, a Eurodollar Advance shall be
ineffective, and (ii) if any Notice of Borrowing requests a Eurodollar Advance,
such Advance shall be made as an FLR Advance.
 
2.5.6.           Each change in the rate of interest charged hereunder shall
become effective automatically and without notice to the Borrower upon the
effective date of each change in the Floating Rate or the Highest Lawful Rate,
as the case may be.
 
2.5.7.           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 FLR 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 the
Lender for the loss, cost and expense attributable to such event.  In the case
of a Eurodollar Loan, such loss, cost or expense to the Lender shall be deemed
to include an amount determined by the Lender to be the excess, if any, of (i)
the amount of interest which would have accrued on the principal amount of such
Loan had such event not occurred, at the Adjusted LIBOR Rate that would have
been applicable to such Loan, for the period from the date of such event to the
last day of the then current Interest Period therefor (or, in the case of a
failure to borrow, convert or continue, for the period that would have been the
Interest Period for such Loan), over (ii) the amount of interest which would
accrue on such principal amount for such period at the interest rate which the
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.
 

 
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A certificate of the Lender setting forth any amount or amounts that the Lender
is entitled to receive pursuant to this Section shall be delivered to the
Borrower and shall be conclusive absent manifest error.  The Borrower shall pay
the Lender the amount shown as due on any such certificate within 10 days after
receipt thereof.
 
2.6.          Unused Available Commitment Fees; Engineering Fees; Facility Fees;
Letter of Credit Fees; Authorized Payments by Lender; Processing Fee; Prepayment
Fee.
 
2.6.1.           The Borrower shall pay to the Lender a commitment fee of
one-half of one percent (1/2 of 1.00%) per annum, calculated daily on the actual
number of days the Commitments are outstanding on the amount of the Unused
Available Commitment in effect from time to time, such commitment fee to be
payable quarterly in arrears on each January 1, April 1, July 1, and October 1
occurring hereafter, and upon termination of the Commitment.
 
2.6.2.           (i) The Borrower shall pay to the Lender on the Closing Date an
engineering fee in the amount of $5,000, and thereafter shall pay an engineering
fee in the amount of $5,000 if the Lender’s internal engineers perform the
engineering review of the Collateral or the actual fees and expenses of any
third-party engineers retained by the Lender to prepare an engineering report,
payable at the time of the Scheduled, Discretionary or Borrower Requested
Determinations of the Borrowing Base referred to in Section 2.8.1 or at the time
of a redetermination of the Borrowing Base required under Section 7.9.2.
 
2.6.3.           To compensate the Lender for the costs of the extension of
credit hereunder, the Borrower shall pay to the Lender (i) on the Closing Date,
a facility fee of one percent (1.00%) of the initial Borrowing Base and (ii)
thereafter upon each determination of an increase in the Borrowing Base pursuant
to Section 2.8.1, a facility fee in the amount of one percent (1.00%) of the
amount by which the Borrowing Base is increased over that in effect on the date
of determination.
 
2.6.4.           The Borrower shall pay to the Lender at the time of each
issuance of a letter of credit hereunder and at the time of each renewal
(including extensions) of a Letter of Credit, a letter of credit fee equal to
the greater of (i) two percent (2.00%) per annum of the face amount of such
letter of credit or Letter of Credit, as applicable, for the maximum number of
days from such date of issuance or renewal, as applicable, to the expiry date of
such letter of credit or Letter of Credit, as applicable, and (ii) $1,000.
 
2.6.5.           The Lender is irrevocably authorized to make Loans under the
Note for the payment of the fees and expenses of the Lender required to be paid
by the Borrower hereunder.  The Lender shall pay over such Loan proceeds to
itself or directly to such other Persons entitled to payment hereunder.
 
2.6.6.           To compensate the Lender for the cost of processing requests
for waivers, partial releases, amendments and consents regarding the provisions
of this Agreement or the other Loan Documents, the Borrower shall pay to the
Lender at the time of granting such waiver, providing such partial release,
entering into such amendment or granting such consent, the amount of $2,500 plus
such additional amounts as the Lender and the Borrower shall agree.
 

 
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2.7.          Termination of Credit Facilities; Maturity of Note; Right of
Borrower to Terminate Credit Facilities.
 
2.7.1.           The obligations of the Lender to the Borrower under Section 2.1
shall, subject to its continuing obligation to fund Letters of Credit, terminate
on the Final Maturity Date, unless terminated earlier in accordance with the
terms hereof.
 
2.7.2.           The Note shall finally mature no later than the Final Maturity
Date, and any unpaid principal of the Note and accrued, unpaid interest thereon
shall be due and payable on such date.
 
2.7.3.           The Borrower shall have the right upon payment in full of the
Obligations and the cancellation of all outstanding Letters of Credit, to cancel
in full (but not in part) the credit facilities provided for herein, with no
right of reinstatement.
 
2.8.          Determination of Borrowing Base; Automatic Reductions in Borrowing
Base; Borrowing Base Deficiency; Notice of Redeterminations; Requests for
Reductions in Borrowing Base.
 
2.8.1.           On the basis of the information furnished to the Lender
hereunder and such other reports, appraisals and information as the Lender may
reasonably deem appropriate, the Lender shall have the right to determine a new
Borrowing Base two (2) times a year prior to the Final Maturity Date, such
determinations to occur approximately six (6) months apart, or at any time it
may elect if a Default has occurred which is continuing (the “Scheduled
Determinations”), or at such other or additional times prior to the Final
Maturity Date as the Lender in its reasonable discretion may elect (the
“Discretionary Determinations”), and the Lender shall determine a new Borrowing
Base at the Borrower’s expense at such additional times, but no more often than
one (1) time in any 12-month period without the Lender’s consent, as the
Borrower may request in connection with any material change in the value of the
Oil and Gas Properties included in the most recent determination of the
Borrowing Base (the “Borrower Requested Determinations”).  Such determinations,
if made, shall be in the Lender’s discretion and in accordance with the
customary practices and standards of the Lender for loans of a similar nature as
in effect at the time such determinations are made (except that the Lender and
the Borrower may agree to different amount than would be determined in
accordance with the foregoing) and shall be conclusive as to the Borrower, and
any increases in the Borrowing Base must be approved by the Lender and shall be
subject to the Lender’s complete credit approval process.  There is no duty,
implied or explicit, on the Lender to ever increase the Borrowing Base.
 
2.8.2.           The Borrowing Base shall be automatically reduced as of the 1st
day of each month, commencing August 1, 2010, and continuing on the first day of
each month thereafter until the Final Maturity Date.  Such reductions in the
Borrowing Base each month shall be in the amount of $0.00 per month unless
redetermined as herein permitted.  At the time of each new Borrowing Base
determination under Section 2.8.1, the Lender in their sole discretion may
increase the amount of such monthly reductions, and the Lender may decrease the
amount of such monthly reductions.  Any decreases in the monthly reductions must
be approved by the Lender and shall be subject to the Lender’s complete credit
approval process.  There is no duty, implied or explicit, on the Lender to ever
decrease the amount of the monthly Borrowing Base reduction amounts.
 
 
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2.8.3.           Upon the occurrence of a Borrowing Base Deficiency, the
Borrower shall, within 30 days following notice by the Lender of the existence
of such Borrowing Base Deficiency, do any one or more of the following in an
aggregate amount at least equal to such Borrowing Base Deficiency: (i) prepay
the principal of the Note or (ii) cause to be created first and prior perfected
Liens (subject only to Permitted Liens) in favor of the Lender, by instruments
reasonably satisfactory to the Lender, on producing Oil and Gas Properties (or
in immediately available funds if the circumstances described in Section 2.4.2
are applicable) which in the opinion of the Lender would increase the Borrowing
Base by an amount sufficient, in combination with clause (i) preceding, to
eliminate such Borrowing Base Deficiency.
 
2.8.4.           Upon each redetermination of the Borrowing Base, the Lender
will notify the Borrower of such determination (which notice may be orally
communicated to the Borrower and confirmed promptly thereafter in writing if the
Borrowing Base is being decreased or the monthly Borrowing Base reduction amount
is being increased), and the Borrowing Base and the amount by which the
Borrowing Base shall be reduced so communicated to the Borrower shall become
effective immediately upon such notification (or such other date as is stated in
such notice and regardless of any Notice of Borrowing the Lender might have
received) and shall remain in effect until the next subsequent redetermination
of the Borrowing Base.  The Lender may condition any increase in the Borrowing
Base or decrease in the monthly Borrowing Base reduction amount to the
Borrower’s execution and return of the notice given under this Section, which
notice may contain and require confirmations by the Borrower of representations,
warranties and covenants contained in the Loan Documents.
 
2.8.5.           The Borrower may at any time by written notice to the Lender
request that the Borrowing Base be reduced (with no right of reinstatement) by
an amount specified by the Borrower in such reduction notice, and the Borrowing
Base shall be deemed so reduced upon receipt by the Lender of such reduction
notice.  Further, in the event the Borrower is advised of any increase in the
Borrowing Base, the Borrower may decline to utilize the increased borrowing
availability created thereby and by written notice to the Lender irrevocably
refuse to accept all or a portion of such increase, but any such refusal notice
received by the Lender more than five (5) Business Days following such increase
in the Borrowing Base shall be treated as a Borrowing Base reduction notice
under the immediately preceding sentence.
 
2.9.          Interest Elections for Conversions and Continuations.
 
2.9.1.          Each Advance initially shall be of the Type specified in the
applicable Notice of Borrowing and, in the case of a Eurodollar Advance, shall
have an initial Interest Period as specified in such Notice of
Borrowing.  Thereafter, the Borrower may elect to convert such Advance to a
different Type or to continue such Advance and, in the case of a Eurodollar
Advance, may elect Interest Periods therefor, all as provided in this
Section 2.9.  The Borrower may elect different options with respect to different
portions of the affected Advance, and the Loans comprising each such portion
shall be considered a separate Advance.
 
 
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2.9.2.         To make an election pursuant to this Section 2.9, the Borrower
shall notify the Lender of such election by telephone by the time that a Notice
of Borrowing would be required under Section 2.2.1 if the Borrower were
requesting an Advance of the Type resulting from such election.  Each such
telephonic Interest Election Request shall be irrevocable and shall be confirmed
promptly by hand delivery or telecopy to the Lender of a written Interest
Election Request in a form approved by the Lender and signed by the Borrower.
 
2.9.3.         Each telephonic and written Interest Election Request shall
specify the following information and be in compliance with Section 2.1:
 
(i)     the Advance 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 Advance (in which case
the information to be specified pursuant to clauses (iii) and (iv) below shall
be specified for each resulting Advance);
 
(ii)    the effective date of the election made pursuant to such Interest
Election Request, which shall be a Business Day;
 
(iii)   whether the resulting Advance is to be an FLR Advance or a Eurodollar
Advance; and
 
(iv)  if the resulting Advance is a Eurodollar Advance, the Interest Period to
be applicable thereto after giving effect to such election, which shall be a
period contemplated by the definition of the term “Interest Period”.
 
If any such Interest Election Request requests a Eurodollar Advance but does not
specify an Interest Period, then the Borrower shall be deemed to have selected
an Interest Period of one (1) month’s duration.
 
2.9.4.         If the Borrower fails to deliver a timely Interest Election
Request with respect to a Eurodollar Advance prior to the end of the Interest
Period applicable thereto, then, unless such Advance is repaid as provided
herein, at the end of such Interest Period such Advance shall be converted to an
FLR Advance.  Notwithstanding any contrary provision hereof, if an Event of
Default or a Borrowing Base Deficiency has occurred and is continuing:  (i) no
outstanding Advance may be converted to or continued as a Eurodollar Advance
(and any Interest Election Request that requests the conversion of any Advance
to, or continuation of any Advance as, a Eurodollar Advance shall be
ineffective) and (ii) unless repaid, each Eurodollar Advance shall be converted
to an FLR Advance at the end of the Interest Period applicable thereto.
 
2.10.        Request for Extension of Maturity.
 
2.10.1.      Following receipt by the Lender of a written request from the
Borrower, given by the Borrower no earlier than six (6) months prior to the
Final Maturity Date, the Lender agrees to consider, in accordance with the
customs and standards of the Lender in effect at such time for loans of a
similar nature to the Loan and subject to the Lender’s complete approval
process, a request by the Borrower to extend the Final Maturity Date.  The
Lender might charge the Borrower fees to process any such request or to grant
any such extension.
 

 
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ARTICLE III

 
GENERAL PROVISIONS
 
3.1.          General Provisions as to Payments and Loans.
 
3.1.1.           All payments of principal and interest on the Note and of fees
hereunder shall be made, without setoff, deduction or counterclaim, by 12:00
p.m. CT on the date such payments are due in federal or other funds immediately
available at the principal office of the Lender referred to in Article XIII and,
if not made by such time or in immediately available funds, then such payment
shall be deemed made when such funds are available to the Lender for its full
and unrestricted use.  Whenever any payment of principal of or interest on the
Note or of fees hereunder shall be due on a day which is not a Business Day, the
date for payment thereof shall be extended to the next succeeding Business
Day.  If the date for any payment is extended by operation of law or otherwise,
interest thereon shall be payable for such extended time.  The Lender is hereby
authorized upon notice to the Borrower to charge the account of the Borrower
maintained with the Lender, for each payment of principal, interest and fees as
it becomes due hereunder.
 
3.1.2.           All payments made by the Borrower on the Note shall be made
free and clear of, and without reduction by reason of, any Taxes.
 
3.1.3.           All requests for Advances or letters of credit hereunder and
renewals (including extensions) of Letters of Credit shall be made on a Business
Day.
 
3.1.4.           All Advances shall be made available to the Borrower on a
Business Day at the Lender’s address referred to in Article XIII; all letters of
credit hereunder shall be issued on a Business Day; and all Letters of Credit
shall be renewed (including extensions) on a Business Day.
 
3.1.5.           All payments and fundings shall be denominated in Dollars.
 
3.2.          Telephonic Notices.  The Borrower hereby authorizes the Lender to
extend Advances, to issue letters of credit hereunder, to renew (including
extensions) Letters of Credit and to transfer funds, and hereby authorizes the
Lender to make Loans, based on telephonic, e-mail or other electronic notices
made by any Person the Lender in good faith believes to be acting on behalf of
the Borrower.  The Borrower agrees to deliver promptly to the Lender a written
confirmation, if such confirmation is requested by the Lender, of each
telephonic, e-mail or other electronic notices, signed by a Responsible
Representative.  If the written confirmation differs in any material respect
from the action taken by the Lender, the records of the Lender shall be prima
facie, but not conclusive, evidence of the matter notwithstanding anything to
the contrary in such confirmation.
 
3.3.          Default Interest.  Unless waived by the Lender, the principal of
the Note shall bear interest at the Default Rate during any time an Event of
Default exists and, to the extent not prohibited by Law, overdue interest on the
Note shall bear interest at the Default Rate.
 

 
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3.4.           Prepayments Permitted.  The principal of the Note and accrued
interest thereon may be prepaid by the Borrower in whole or in part at any time
and, except as otherwise specifically provided herein or with respect to
Eurodollar Advances, shall be without premium or penalty.  Each prepayment of
Advances pursuant to this Section shall be applied, first, ratably to any FLR
Advances then outstanding, and, second, to any Eurodollar Advances then
outstanding, and if more than one Eurodollar Advance is then outstanding, to
each such Eurodollar Advance in order of priority beginning with the Eurodollar
Advance with the least number of days remaining in the Interest Period
applicable thereto and ending with the Eurodollar Advance with the most number
of days remaining in the Interest Period applicable thereto.  Prepayments of
Advances shall be accompanied by accrued interest to the date of prepayment.  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.
 
3.5.           Limitation Period.  Notwithstanding anything herein or in the
Note to the contrary, during any Limitation Period, the interest rate to be
charged on amounts evidenced by the Note shall be the Highest Lawful Rate, and
the obligation, if any, of the Borrower for the payment of fees or other charges
deemed to be interest under applicable law shall be suspended.  During any
period or periods of time following a Limitation Period, to the extent permitted
by applicable laws of the State of Texas or the United States of America, the
interest rate to be charged hereunder shall remain at the Highest Lawful Rate
until such time as there has been paid to the Lender (i) the amount of interest
in excess of that accruing at the Highest Lawful Rate that the Lender would have
received during the Limitation Period had the interest rate remained at the
otherwise applicable rate, and (ii) the amount of all interest and fees
otherwise payable to the Lender but for the effect of such Limitation Period.
 
3.6.           Illegality.  Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for the 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) the Lender shall promptly notify the Borrower thereof and the Lender’s
obligation to make such Eurodollar Loans shall be suspended (the “Affected
Loans”) until such time as the Lender may again make and maintain such
Eurodollar Loans and (b) all Affected Loans which would otherwise be made by the
Lender shall be made instead as FLR Loans (and, if the Lender so requests by
notice to the Borrower, all Affected Loans of the Lender then outstanding shall
be automatically converted into FLR Loans on the date specified by the Lender in
such notice) and, to the extent that Affected Loans are so made as (or converted
into) FLR Loans, all payments of principal which would otherwise be applied to
the Lender’s Affected Loans shall be applied instead to its FLR Loans.
 
3.7.           LATE CHARGE.  If a payment remains unpaid for a period of 15 days
or more from the date such payment is due, the Lender may charge a delinquency
charge equal to 5.00% of the amount of such payment, which charge shall be due
upon demand.
 

 
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ARTICLE IV

 
COLLATERAL
 
4.1.          Security.
 
4.1.1.           To secure the Obligations, the Borrower will cause the
appropriate Person to execute and deliver to the Lender each of the following
documents and instruments:
 
(i) the Mortgages from the Borrower and RCWI on no less than 90% of the PW9
Value of the Oil and Gas Properties utilized in determining the Borrowing Base.
 
(ii) the Guaranty of each of RCWI and RCWIGP.
 
(iii) a general security agreement from the Borrower.
 
(iv) a waiver of operator’s Lien from Reef Exploration L.P., the operator of
certain of the Collateral.
 
4.1.2.           All documents delivered or to be delivered hereunder shall be
in form and substance reasonably satisfactory to the Lender and its counsel and
shall be supported by such legal opinions as the Lender or its counsel may
reasonably request.
 
4.1.3.           All Liens to be created by delivery of the documents referred
to in this Section shall be first and prior perfected Liens in favor of the
Lender for the benefit of the Persons identified therein, subject only to
Permitted Liens.
 
ARTICLE V

 
CONDITIONS PRECEDENT TO ADVANCES AND LETTERS OF CREDIT
 
The obligation of the Lender to make Loans comprising an Advance or of the
Lender to issue standby letters of credit hereunder or to renew or extend
Letters of Credit shall be subject to the satisfaction of each of the following
conditions:
 
5.1.          All Advances and Letters of Credit.  In the case of each Advance
to be made or letter of credit to be issued hereunder or renewals (including
extensions) of Letters of Credit (except the initial Advance made hereunder):
 
5.1.1.           timely receipt by the Lender of a Notice of Borrowing and, if
applicable, a Letter of Credit Application and other items required to be
included therewith;
 
5.1.2.           the fact that, immediately before such requested Advance or
letter of credit or requested renewal (including extensions) of a Letter of
Credit, no Default shall have occurred and be continuing and that the making of
any such Advance, the issuing of such letter of credit or the renewal (including
extensions) of such Letter of Credit will not cause a Default;
 
5.1.3.           the fact that the representations and warranties of the
Borrower contained in this Agreement shall be true in all material respects on
and as of the date of such Advance, except to the extent that any such
representation specifically makes reference to an earlier date, then such
representation will be as of such earlier date;
 

 
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5.1.4.          each request for an Advance, for a letter of credit to be issued
hereunder or for the renewal (including extensions) of a Letter of Credit shall
be deemed to be a representation and warranty by the Borrower on the date of
such request, as to the facts specified in Sections 5.1.2 and 5.1.3; and
 
5.1.5.          the fact that each condition specified in Section 5.2 was
satisfied at the time of the initial Advance hereunder or has been satisfied
subsequent thereto or has been waived in writing by the Lender.
 
5.2.          Initial Advance.  In the case of the initial Advance or Letter of
Credit:
 
5.2.1.          receipt by the Lender of each of the following:
 
(i) copies of the Organizational Documents, and all amendments thereto, of the
Borrower and each Guarantor, accompanied by certificates that such copies are
correct and complete, one issued by the Secretary of State of the state of
incorporation or formation of the Borrower or such Guarantor, as applicable,
dated a current date, and one executed by an authorized representative
acceptable to the Lender dated the Closing Date.
 
(ii) copies of the Regulatory Documents (or similar documents), and all
amendments thereto, of the Borrower and each Guarantor, accompanied by
certificates that such copies are correct and complete of an authorized
representative acceptable to the Lender dated the Closing Date.
 
(iii) certificates of the appropriate Tribunals of each jurisdiction in which
the Borrower or any Guarantor, has an executive office or principal place of
business, the Borrower or any such Guarantor was formed or in which any
Collateral is located (if the Borrower or any such Guarantor is required to
qualify to do business in such state), each dated a current date, to the effect
that the Borrower or such Guarantor, as applicable, is in good standing with
respect to the payment of franchise and/or other Taxes and, if required by Law,
are duly qualified to transact business in such jurisdictions.
 
(iv) certificates of incumbencies  and signatures of all officers of the
Borrower and each Guarantor, who will be authorized to execute or attest any of
the Loan Documents on behalf of the Borrower or such Guarantor, as applicable,
executed by an authorized representative acceptable to the Lender, dated the
Closing Date.
 
(v) copies of resolutions approving the Loan Documents and authorizing the
transactions contemplated therein, duly adopted by the governing authority of
the Borrower and each Guarantor, as applicable accompanied by certificates of an
authorized representative acceptable to the Lender, that such copies are true
and correct copies of resolutions duly adopted at the meeting of, or by the
unanimous written consent of, the authorized body of the Borrower, or such
Guarantor, as applicable, and that such resolutions constitute all the
resolutions adopted with respect to such transactions, have not been amended,
modified or revoked in any respect, and are in full force and effect as of the
Closing Date.
 
5.2.2.          receipt by the Lender of the duly executed Note in the amount at
least equal to its Commitment, dated the Closing Date.
 
5.2.3.          receipt by the Lender of the documents described in
Section 4.1.1, each duly executed and delivered by the appropriate Person and,
if such is required by the Lender with respect to the Mortgages, duly recorded
in the appropriate county or parish records.
 

 
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5.2.4.           receipt by the Lender of such title opinions or title data as
the Lender may reasonably request, in form and substance and from attorneys or
other Persons reasonably acceptable to the Lender, covering and confirming title
in such portions of the Collateral as the Lender may specify and such other
documentation and information reasonably required by the Lender to satisfy the
Lender of the status of the title of the Collateral.
 
5.2.5.           receipt by the Lender of a certificate of ownership interests
in form and substance satisfactory to the Lender, certifying as to the ownership
interests of the Borrower in its Oil and Gas Properties.
 
5.2.6.           receipt by the Lender of satisfactory evidence that prior
Liens, if any, on the Collateral (other than Permitted Liens) are being released
or assigned to the Lender concurrently with the Closing.
 
5.2.7.           receipt by the Lender of the results of searches of the UCC
records of the applicable jurisdictions from sources acceptable to the Lender
reflecting no Liens against any of the intended Collateral other than Permitted
Liens.
 
5.2.8.           receipt by the Lender of certificates of insurance from the
insurance companies insuring the Borrower and each Guarantor, confirming
insurance for the Borrower and each such Guarantor meeting the standards of
Section 7.4.1.
 
5.2.9.           receipt by the Lender of such additional information and
documentation as the Lender may reasonably require relating to the Loan
Documents (and amendments thereto) and the transactions contemplated hereby and
thereby.
 
5.3.           Conditions Precedent for the Benefit of the Lender.  All
conditions precedent to the obligations of the Lender to make any Advance or
Loan or of the Lender to issue any letter of credit hereunder are imposed hereby
solely for the benefit of the Lender, and no other Person may require
satisfaction of any such condition precedent or be entitled to assume that the
Lender will refuse to make any Advance or Loan or that the Lender will refuse to
issue any letter of credit hereunder or renew or extend any Letter of Credit in
the absence of strict compliance with such conditions precedent.
 
ARTICLE VI

 
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
 
The Borrower and, to the extent applicable to any Guarantor, such Guarantor
hereby represents and warrants to the Lender as follows with the intention that
the Lender shall rely thereon without any investigation or verification by the
Lender or its counsel:
 
6.1.          Existence and Power.  The Borrower:
 
6.1.1.           is a limited partnership, duly organized, validly existing and
in good standing under the laws of the State of Texas.
 
6.1.2.           has all partnership powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted.
 

 
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6.1.3.           is duly qualified to transact business as a foreign entity in
each jurisdiction where the nature of its business requires the same, except
where the failure to so qualify could not reasonably be expected to have a
Material Adverse Effect.
 
6.1.4.           owns, both beneficially and of record, all of its assets
reflected in its financial statements delivered to the Lender.
 
Reef Oil & Gas Partners, LP:
 
6.1.5.           is a limited partnership, duly organized, validly existing and
in good standing under the laws of the State of Nevada and is the sole general
partner of the Borrower.
 
6.1.6.           has all partnership powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted.
 
6.1.7.           is duly qualified to transact business as a foreign entity in
each jurisdiction where the nature of its business requires the same, except
where the failure to so qualify could not reasonably be expected to have a
Material Adverse Effect.
 
6.1.8.           owns, both beneficially and of record, all of its assets
reflected in its financial statements delivered to the Lender.
 
Reef Oil & Gas Partners, GP, LLC:
 
6.1.9.           is a limited liability company, duly organized, validly
existing and in good standing under the laws of the State of Texas and is the
sole general partner of Reef Partners.
 
6.1.10.         has all company powers and all material governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted.
 
6.1.11.         is duly qualified to transact business as a foreign entity in
each jurisdiction where the nature of its business requires the same, except
where the failure to so qualify could not reasonably be expected to have a
Material Adverse Effect.
 
6.1.12.         owns, both beneficially and of record, all of its assets
reflected in its financial statements delivered to the Lender.
 
RCWI, LP:
 
6.1.13.         is a limited partnership, duly organized, validly existing and
in good standing under the laws of the State of Texas.
 
6.1.14.         has all partnership powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted.
 
6.1.15.         is duly qualified to transact business as a foreign entity in
each jurisdiction where the nature of its business requires the same, except
where the failure to so qualify could not reasonably be expected to have a
Material Adverse Effect.
 

 
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6.1.16.         owns, both beneficially and of record, all of its assets
reflected in its financial statements delivered to the Lender.
 
RCWI, GP, LLC:
 
6.1.17.         is a limited liability company, duly organized, validly existing
and in good standing under the laws of the State of Texas and is the sole
general partner of RCWI.
 
6.1.18.         has all company powers and all material governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted.
 
6.1.19.         is duly qualified to transact business as a foreign entity in
each jurisdiction where the nature of its business requires the same, except
where the failure to so qualify could not reasonably be expected to have a
Material Adverse Effect.
 
6.1.20.         owns, both beneficially and of record, all of its assets
reflected in its financial statements delivered to the Lender.
 
6.2.           Authorization; Contravention.  The execution, delivery and
performance by each Person (other than the Lender) purporting to execute this
Agreement or the other Loan Documents are within such Person’s power, have been
duly authorized by all necessary action, require no action by or in respect of,
or filing with, any governmental body, agency or official (except that the
perfection of Liens created by certain of the Security Documents may require the
filing of financing statements or Mortgages in the appropriate recordation
offices), and do not contravene, or constitute a default under, any provision of
applicable law or regulation (including the Margin Regulations) or any agreement
creating or governing such Person or any agreement, judgment, injunction, order,
decree or other instrument binding upon such Person or result in the creation or
imposition of any Lien on any Property of the Borrower, except Permitted Liens
and Liens securing the Obligations.
 
6.3.          Binding Effect.
 
6.3.1.           This Agreement constitutes a valid and binding agreement of the
Borrower; the Note, when executed and delivered in accordance with this
Agreement, will constitute the valid and binding obligation of the Borrower; the
Security Documents, when executed and delivered in accordance with this
Agreement, will constitute valid and binding obligations of each Person
purporting to execute the same.
 
6.3.2.           Each Loan Document is enforceable in accordance with its terms
except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors’ rights generally and (ii) rights
of acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability.
 
6.4.          Subsidiaries.
 
6.4.1.           The Borrower has no Subsidiaries other than, if subsequent to
the Closing Date, such Subsidiaries as have been specifically approved by the
Lender in writing.
 

 
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6.5.          Disclosure.  No document, certificate or statement delivered to
the Lender by or on behalf of the Borrower in connection with the transactions
contemplated hereby contains any untrue statement of a material fact.  All
information heretofore furnished by  the Borrower to the Lender for purposes of
or in connection with this Agreement or any transaction contemplated hereby is,
and all such information hereafter furnished by the Borrower to the Lender will
be, true and accurate in every material respect or based on reasonable estimates
on the date as of which such information is stated or certified.  The Borrower
has disclosed to the Lender in writing any and all facts known to the Borrower
(except facts of general public knowledge) which could reasonably be expected to
materially and adversely affect the business, operations, prospects or
condition, financial or otherwise, of the Borrower or the ability of the
Borrower to perform its obligations under this Agreement.
 
6.6.          Financial Information.
 
6.6.1.           The financial information of the Borrower delivered to the
Lender in connection with the request for this credit facility fairly present in
all material respects, in conformity with GAAP, the financial position of the
Borrower at the respective dates thereof.
 
6.6.2.           Except as disclosed in a writing delivered by the Borrower to
the Lender prior to the execution and delivery of this Agreement, since the
dates referenced in the financial information referred to in Section 6.6.1
above, there has been no material adverse change in the business, financial
position, results of operations or prospects of the Borrower.
 
6.7.          Litigation.  Except as disclosed in Exhibit 6.7, there is no
action, suit or proceeding pending against, or to the knowledge of the Borrower
threatened against or affecting the Borrower or any Guarantor before any
Tribunal or arbitrator in which there is a reasonable possibility of an adverse
decision which could reasonably be expected to materially and adversely affect
the business, operations, prospects or condition, financial or otherwise of the
Borrower, or which could in any manner draw into question the validity of this
Agreement or any other Loan Documents.
 
6.8.          ERISA Plans.  Neither the Borrower nor any ERISA Affiliate of the
Borrower currently sponsors, maintains or contributes to or has at any time
sponsored, maintained or contributed to any Plan.
 
6.9.          Taxes and Filing of Tax Returns.
 
6.9.1.          (i) The Borrower has filed or properly extended all returns
required to have been filed or extended with respect to Taxes and has paid all
Taxes shown to be due and payable by it on such returns, including interest and
penalties, and all other Taxes which are payable by it, to the extent the same
have become due and payable (unless, with respect to such other Taxes, the
criteria set forth in Section 7.5 are being met).  The Borrower does not know of
any proposed assessment of Taxes of a material amount against it, and all
liabilities for Taxes of the Borrower are adequately provided for.
 
(ii) For each Guarantor, such Guarantor has filed or properly extended all
returns required to have been filed or extended with respect to Taxes and has
paid all Taxes shown to be due and payable by it on such returns, including
interest and penalties, and all other Taxes which are payable by it, to the
extent the same have become due and payable (unless, with respect to such other
Taxes, the criteria set forth in Section 7.5 are being met).  Such Guarantor
does not know of any proposed assessment of Taxes of a material amount against
it, and all liabilities for Taxes of such Guarantor are adequately provided for.
 
 
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6.9.2.          The Borrower does not intend to treat the Loans or Letters of
Credit as being a “reportable transaction” (within the meaning of Treasury
Regulation Section 1.6011-4).
 
6.10.        Title to Properties; Liens; Environmental Liability.
 
6.10.1.        (i) The Borrower has good and indefeasible record title to all
Property purported to be owned by it (except for Permitted Liens).  All of such
Property is free and clear of all Liens other than Permitted Liens.  Upon the
recordation of the Security Documents in the appropriate recordation offices,
the Liens covering the Collateral will be valid, enforceable, first and prior,
perfected Liens in favor of the Lender, subject only to Permitted Liens.
 
(ii)  Each Guarantor has good and indefeasible record title to all Property
purported to be owned by it (except for Permitted Liens).  All of such Property
is free and clear of all Liens other than Permitted Liens.  Upon the recordation
of the Security Documents in the appropriate recordation offices, the Liens
covering the Collateral will be valid, enforceable, first and prior, perfected
Liens in favor of the Lender, subject only to Permitted Liens.
 
6.10.2.        (i) The Borrower has not (a) received notice or otherwise learned
of any Environmental Liability arising in connection with (1) any non-compliance
with or violation of the requirements of any Environmental Law or (2) the
release or threatened release of any Hazardous Substance into the environment,
or (b) received notice or otherwise learned of any federal or state
investigation evaluating whether any remedial action is needed to respond to a
release or threatened release of any Hazardous Substance into the environment
for which the Borrower is or may be liable.
 
(ii) For each Guarantor, such Guarantor has not (a) received notice or otherwise
learned of any Environmental Liability arising in connection with (1) any
non-compliance with or violation of the requirements of any Environmental Law or
(2) the release or threatened release of any Hazardous Substance into the
environment or (b) received notice or otherwise learned of any federal or state
investigation evaluating whether any remedial action is needed to respond to a
release or threatened release of any Hazardous Substance into the environment
for which such Guarantor is or may be liable.
 
6.10.3.        (i) Except in accordance with applicable Requirements of Law or
the terms of a valid permit, license, certificate, or approval of the relevant
Governmental Authority, no Release of Hazardous Substances by the Borrower from,
affecting, or related to any Property of the Borrower has occurred.
 
(ii) For each Guarantor, except in accordance with applicable Requirements of
Law or the terms of a valid permit, license, certificate, or approval of the
relevant Governmental Authority, no Release of Hazardous Substances by such
Guarantor from, affecting, or related to any Property of such Guarantor has
occurred.
 
6.10.4.        (i) No Environmental Complaint has been received by the Borrower.
 

 
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(ii) For each Guarantor, no Environmental Complaints have been received by such
Guarantor.
 
6.11.        Business Compliance.
 
6.11.1.         The Borrower has performed and abided by all obligations
required to be performed by it to the extent required under each license,
permit, order, authorization, grant, contract, agreement, or regulation to which
it is a party or by which it or any of its Property is bound.
 
6.11.2.         For each Guarantor, such Guarantor has performed and abided by
all obligations required to be performed by it to the extent required under each
license, permit, order, authorization, grant, contract, agreement, or regulation
to which it is a party or by which it or any of its Property is bound.
 
6.12.        Licenses, Permits, Etc.
 
6.12.1.        The Borrower possesses such valid franchises, certificates of
convenience and necessity, operating rights, licenses, permits, consents,
authorizations, exemptions and orders of Tribunals as are necessary to carry on
its business as now being conducted and to own its Properties.
 
6.12.2.         For each Guarantor, such Guarantor possesses such valid
franchises, certificates of convenience and necessity, operating rights,
licenses, permits, consents, authorizations, exemptions and orders of Tribunals
as are necessary to carry on its business as now being conducted and to own its
Properties.
 
6.13.        Compliance with Laws.
 
6.13.1.         The business and operations of the Borrower have been and are
being conducted in accordance with all applicable Laws.
 
6.13.2.         For each Guarantor, the business and operations of such
Guarantor have been and are being conducted in accordance with all applicable
Laws.
 
6.14.        Governmental Consent.
 
6.14.1.         No consent, approval or authorization of, or declaration or
filing with, any Governmental Authority is required for the valid execution,
delivery and the performance of this Agreement or any other Loan Documents by
the Borrower.
 
6.14.2.         For each Guarantor, no consent, approval or authorization of, or
declaration or filing with, any Governmental Authority is required for the valid
execution, delivery and the performance of any Loan Document by such Guarantor.
 
6.15.        Investment Company Act.  (i)  The Borrower is not an “investment
company,” or a company “controlled” by an “investment company,” within the
meaning of the Investment Company Act of 1940, as amended.
 
(ii) For each Guarantor, such Guarantor is not an “investment company,” or a
company “controlled” by an “investment company,” within the meaning of the
Investment Company Act of 1940, as amended.
 
 
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6.16.        State Utility.
 
6.16.1.        (i) The Borrower is not defined as a “utility” under the laws of
the State of Texas or any other jurisdiction wherein the Borrower is required to
qualify to do business.
 
(ii) For each Guarantor, such Guarantor is not defined as a “utility” under the
Laws of the State of Texas or any other jurisdiction wherein such Guarantor is
required to qualify to do business.
 
6.16.2.        (i) The Borrower is not subject to any state or federal Law that
would limit its ability to have Liens placed on any of its Property.
 
(ii) For each Guarantor, such Guarantor is not subject to any state or federal
Law that would limit its ability to have Liens placed on any of its Property.
 
6.17.        Refunds; Certain Contracts.
 
6.17.1.        (i) No orders of, proceedings pending before, or other
requirements of, the Federal Energy Regulatory Commission, the Texas Railroad
Commission, or any Governmental Authority exist which could result in the
Borrower or any Guarantor being required to refund any material portion of the
proceeds received or to be received from the sale of hydrocarbons constituting
part of the Collateral.
 
(ii) For each Guarantor, no orders of, proceedings pending before, or other
requirements of, the Federal Energy Regulatory Commission, the Texas Railroad
Commission, or any Governmental Authority exist which could result in such
Guarantor being required to refund any material portion of the proceeds received
or to be received from the sale of hydrocarbons constituting part of the
Collateral.
 
6.17.2.        (i) The Borrower is not obligated in any material respect by
virtue of any prepayment made under any contract containing a “take-or-pay” or
“prepayment” provision or under any similar agreement to deliver hydrocarbons
produced from or allocated to any of the Collateral at some future date without
receiving full payment therefor within 90 days of delivery.
 
(ii) For each Guarantor, such Guarantor is not obligated in any material respect
by virtue of any prepayment made under any contract containing a “take-or-pay”
or “prepayment” provision or under any similar agreement to deliver hydrocarbons
produced from or allocated to any of the Collateral at some future date without
receiving full payment therefor within 90 days of delivery.
 
6.17.3.        (i) The Borrower has not produced gas, in any material amount,
subject to, and neither the Borrower nor any of the Collateral is subject to,
balancing rights of third parties or subject to balancing duties under
governmental requirements.
 

 
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(ii) For each Guarantor, such Guarantor has not produced gas, in any material
amount, subject to, and neither the Guarantor nor any of the Collateral is
subject to, balancing rights of third parties or subject to balancing duties
under governmental requirements.
 
6.18.        No Default.  No Default has occurred which is continuing as of the
Closing Date, and the receipt by the Borrower of the initial Advance will not
cause a Default to exist.
 
6.19.        Anti-Terrorism Laws.
 
6.19.1.         Anti-Terrorism Laws.  None of the Obligated Parties nor any
Affiliate of any Obligated Party is in violation of any Anti-Terrorism Law or
knowingly engages in or conspires to engage in any transaction that evades or
avoids, or has the purpose of evading or avoiding, or attempts to violate, any
of the prohibitions set forth in any Anti-Terrorism Law.
 
6.19.2.         OFAC.  None of the Obligated Parties nor any Affiliate of any
Obligated Party is in violation of any rules or regulations promulgated by OFAC
or of any economic or trade sanctions or engages in administered and enforced by
OFAC or conspires to engage in any transaction that evades or avoids, or has the
purpose of evading or avoiding, or attempts to violate, any of the prohibitions
set forth in any rules or regulations promulgated by OFAC.
 
ARTICLE VII

 
COVENANTS
 
So long as the Lender is required to make Loans hereunder or the Lender is
required to issue letters of credit hereunder, any principal of or interest on
the Note shall remain unpaid or any Letter of Credit remains outstanding, the
Borrower will duly perform and observe each and all of the covenants and
agreements hereinafter set forth:
 
7.1.          Use of Proceeds and Letters of Credit.
 
7.1.1.           The Borrower will use the proceeds of the Loans solely, to
finance the acquisition of Oil and Gas Properties, to develop its Oil and Gas
Properties and for working capital purposes.
 
7.1.2.           Letters of Credit shall be used for the support of oil and gas
operations; provided, however, no Letter of Credit may be used in lieu or in
support of stay or appeal bonds, without the prior written consent of the
Lender.
 
7.1.3.           The Borrower will not, directly or indirectly, use any of the
proceeds of the Loans for the purpose of purchasing or carrying any “margin
stock” within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System (12 C. F. R. 221, as amended), or any “security that is
publicly-held” within the meaning of Regulation T of such Board of Governors (12
C.F.R. 220, as amended), or otherwise take or permit any action which would
involve a violation of such Regulation U, Regulation T or Regulation X (12
C.F.R. 224, as amended) or any other regulation of such Board of Governors.  The
Loans are not secured, directly or indirectly, in whole or in part, by
collateral that includes any “margin stock” within the meaning of Regulation U.
The Borrower will not engage principally, or as one of its important activities,
in the business of extending credit for the purpose of purchasing or carrying
any “margin stock” within the meaning of such Regulation U.
 

 
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7.2.          Financial Statements; Reserve and Other Reports; Certain Required
Notices from Borrower; Additional Information.  The Borrower will furnish to the
Lender:
 
7.2.1.          (i) as soon as available and in any event within 120 days after
the end of each fiscal year of the Borrower, copies of the consolidated and
consolidating statement of assets and liabilities of the Borrower and its
consolidated subsidiaries as of the end of such fiscal year, and copies of the
related statements of revenues and expenses, operations, changes in
owners’ equity and cash flow for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year, all in reasonable
detail, prepared in accordance with GAAP; such financial statements to be
audited by a firm of independent certified public accountants selected by the
Borrower and reasonably acceptable to the Lender and accompanied by the
unqualified opinion of such accountants.
 
(ii) on or before 60 days after the last day of each fiscal quarter a copy of
(a) the unaudited consolidated and consolidating statement of assets and
liabilities of the Borrower and its consolidated subsidiaries as at the close of
such quarter and from the beginning of such fiscal year to the end of such
quarter and (b) the related statements of revenues and expenses, operations,
changes in owners’ equity and cash flows for the quarter just ended and for that
portion of the year ending on such last day, all in reasonable detail and
prepared on a basis consistent with the financial statements previously
delivered by the Borrower under this Section.
 
(iii) simultaneously with the delivery of each set of financial statements
pursuant to the preceding clauses of this Section, a Compliance Certificate of
the Borrower stating that such financial statements fairly and accurately
reflect in all material respects the financial condition and results of
operation of the Borrower for the periods and as of the dates set forth therein,
subject, with respect to quarterly financial statements, to changes resulting
from normal year-end adjustments and that the signers have reviewed the terms of
this Agreement and the other Loan Documents, and have made, or caused to be made
under their supervision, a review of the transactions and financial condition of
the Borrower during the fiscal period covered by such financial statements, and
that such review has not disclosed the existence during such period, and that
the signers do not have knowledge of the existence as of the date of such
certificate, of any condition or event which constitutes a Default, or, if any
such condition or event existed or exists, specifying the nature and period of
existence thereof and what action the Borrower has taken or is taking or
proposes to take with respect thereto.
 
(iv) within 30 days after each filing thereof by the Borrower and each Guarantor
with any Governmental Authority, complete copies of the federal and state income
tax returns so filed.
 
(v) on or before the 60th day after the last day of each fiscal quarter, a copy
of (a) the unaudited statement of assets and liabilities of each Guarantor, as
at the close of such quarter and from the beginning of such fiscal year to the
end of such quarter and (b) the related statements of operations, changes in
owners’ equity and cash flows for the quarter just ended and for that portion of
the year ending on such date, all in reasonable detail and prepared on a basis
consistent with the financial statements previously delivered by the Guarantor
under this Section.
 

 
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7.2.2.          (i) within 60 days following each month end, an oil and gas
production report covering the Oil and Gas Properties of the Borrower utilized
in determining the Borrowing Base.
 
(ii) within 60 days following each month end, a report setting forth oil, gas
and liquid hydrocarbons production volumes by major field and in total from the
Oil and Gas Properties utilized in determining the Borrowing Base for such month
ended, and the total oil, gas and liquids production of all fields of the
Borrower and the prices received therefor, the lease operating expenses on a
property-by-property basis and such other information as the Lender shall
request.
 
(iii) within 15 days following each request by the Lender, a report setting
forth all accounts receivable and accounts payable of the Borrower as of the
date specified in such request, such report to show the age of such accounts and
such other information as the Lender shall reasonably request.
 
(iv) as soon as available, and in any event on or before January 31 of each year
during the term of this Agreement, engineering reports in form and substance
satisfactory to the Lender in its reasonable judgment, certified by any
nationally — or regionally— recognized independent consulting petroleum
engineers selected by the Borrower and acceptable to the Lender as fairly and
accurately setting forth (a) the proven and producing, shut-in, behind-pipe, and
undeveloped oil and gas reserves (separately classified as such) attributable to
the Oil and Gas Properties of the Borrower as of the preceding December 31, (b)
the aggregate present value of the future net income with respect to such
Properties, discounted at a stated per annum discount rate of proven and
producing reserves, (c) projections of the annual rate of production, gross
income, and net income with respect to such proven and producing reserves, and
(d) information with respect to the “take-or-pay,” “prepayment,” and
gas-balancing liabilities of the Borrower and other Persons with respect to such
Properties; such engineering reports to be prepared using one consolidated data
base and using “PhDWin” software, covering the Oil and Gas Properties of the
Borrower.
 
(v) simultaneously with the delivery of such engineering and other reports under
clauses (i) through (iv) above, a Representative’s Certificate certifying that,
to the best of such signatory’s knowledge, such engineering and other reports
are true, accurate and complete in all material respects for the periods covered
in such reports; provided that to the extent such reports include projections of
future volumes of production and future costs, it is understood that such
estimates are necessarily based upon professional opinions, and the Borrower
does not warrant that such opinions will ultimately prove to have been accurate.
 
(vi) within 10 days after any material change in insurance coverage by the
Borrower from that previously disclosed to the Lender, a report describing such
change, and, within 30 days after each request by the Lender, certificates of
insurance from the insurance companies insuring the Borrower, describing the
insurance coverage of the Borrower.
 
(vii) within 10 days after incurring any Guarantee, a report describing such
Guarantee in reasonable detail; provided, however, that such reporting
requirement shall not be construed as waiving or eliminating the restrictions
set forth in Section 7.6.2 hereof.
 

 
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7.2.3.          (i) within 10 days after any Responsible Representative becomes
aware of the occurrence of any condition or event which constitutes a Default, a
Representative’s Certificate specifying the nature of such condition or event,
the period of existence thereof, what action the Borrower has taken or is taking
and proposes to take with respect thereto and the date, if any, on which it is
estimated the same will be remedied.
 
(ii) within 10 days after the Borrower’s or any Guarantor’s learning of any
claim, demand, action, event, condition, report or investigation indicating any
potential or actual liability of the Borrower or any Guarantor arising in
connection with (a) the non-compliance with or violation of the requirements of
any Environmental Law, (b) the release or threatened release of any toxic or
hazardous waste, substance or constituent into the environment, or (c) the
existence of any Environmental Lien on any Properties of the Borrower or any
Guarantor, notice thereof.
 
(iii) within 10 days of the Borrower’s learning of any litigation or other event
or circumstance which could reasonably be expected to have a Material Adverse
Effect, notice thereof.
 
(iv) within 10 days after the occurrence thereof, notice of the change in
identity or address of any Person remitting to the Borrower proceeds from the
sale of hydrocarbon production from or attributable to any Collateral.
 
(v) within 10 days after the occurrence thereof, notice of any Change of Control
Event.
 
7.2.4.          with reasonable promptness, such other information relating
directly or indirectly to the financial condition, business, results of
operations or Properties of the Borrower or any Guarantor as from time to time
may reasonably be requested by the Lender.
 
7.3.          Inspection of Properties and Books.
 
7.3.1.          The Borrower will permit any officer, employee or representative
of the Lender to visit and inspect any of its Properties, to examine its books
of account (and to make copies thereof and take extracts therefrom) and to
discuss its affairs, finances and accounts (including transactions, agreements
and other relations with any shareholders) with, and to be advised as to the
same by, its officers and independent public accountants, all upon at least two
(2) Business Days notice and at such reasonable times during normal business
hours and intervals as the requesting Person may desire and, if a Default has
occurred and is continuing, at the expense of the Borrower.
 
7.3.2.          Each Guarantor will permit any officer, employee or
representative of the Lender to visit and inspect any of its Properties, to
examine its books of account (and to make copies thereof and take extracts
therefrom) and to discuss its affairs, finances and accounts (including
transactions, agreements and other relations with any shareholders) with, and to
be advised as to the same by, its officers and independent public accountants,
all upon at least two (2) Business Days notice and at such reasonable times
during normal business hours and intervals as the requesting Person may desire
and, if a Default has occurred and is continuing, at the expense of the
Borrower.
 

 
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7.4.          Maintenance of Security; Insurance; Authorization to File
Financing Statements; Operating Accounts; Transfer Orders.
 
7.4.1.           (i) The Borrower shall execute and deliver, or cause the
appropriate Person to execute and deliver, to the Lender all mortgages, deeds of
trust, security agreements, financing statements, assignments and such other
documents and instruments (including division and transfer orders), and
supplements and amendments thereto, and take such other actions as the Lender
deems necessary or desirable in order to (a) maintain as valid, enforceable,
first-priority, perfected Liens (subject only to the Permitted Liens), all Liens
granted to secure the Obligations or (b) monitor or control the proceeds from
the Collateral.
 
(ii) The Borrower and each Guarantor which has granted a security interest in
connection herewith authorizes the Lender to complete and file, from time to
time, financing statements naming the Borrower and such Guarantor, as
applicable, as debtor to perfect Liens granted to secure the Obligations.
 
(iii) The Borrower shall take such action as may be requested from time to time
by the Lender to maintain, or cause to be in effect at all times, first and
prior Liens (subject to Permitted Liens) in favor of the Lender by instruments
executed by the appropriate Person and properly recorded in the applicable
jurisdictions on at least 90% by PW9 Value of the Oil and Gas Properties
included in the most recent determination of the Borrowing Base.
 
(iv) The Borrower and each Guarantor will at all times maintain or cause to be
maintained hazard and liability insurance and additional insurance covering such
risks as are customarily carried by businesses similarly situated, all such
insurance to be in amounts and from insurers reasonably acceptable to the
Lender, maintained by Borrower or Guarantor, as applicable, naming the Lender as
loss payee, and, upon any renewal of any such insurance and at other times upon
request by the Lender, promptly furnish to the Lender evidence, reasonably
satisfactory to the Lender, of the maintenance of such insurance.  The Lender
shall have the right to collect, and the Borrower and each Guarantor hereby
assigns to the Lender any and all monies that may become payable under any
policies of insurance relating to business interruption, if any, or by reason of
damage, loss, or destruction of any of the Collateral.  In the event of any
damage, loss, or destruction for which insurance proceeds relating to business
interruption, if any, or Collateral exceed $100,000, the Lender may, at its
option, apply all such sums or any part thereof received by it toward the
payment of the Obligations, whether matured or unmatured, application to be made
first to interest and then to principal, and shall deliver to the Borrower or
the Guarantor, as applicable, the balance, if any, after such application has
been made.  In the event of any such damage, loss, or destruction for which
insurance proceeds are $100,000 or less, provided that no Default has occurred
and is continuing, the Lender shall deliver any such proceeds received by it to
the Borrower or the Guarantor, as applicable.
 
7.4.2.           The Borrower and each Guarantor will maintain its primary
operating accounts with Texas Capital Bank, N.A., and will deposit all revenues
of the Borrower and each such Guarantor in such accounts, although such
requirement shall not be construed as requiring the maintenance of deposit
balances.
 
7.4.3.           The Borrower and each Guarantor which has granted a Lien on Oil
and Gas Properties in connection herewith shall upon request of the Lender,
execute such transfer orders, letters-in-lieu of transfer orders or division
orders as the Lender may from time to time request in respect of the Collateral
to effect a transfer and delivery to the Lender of the proceeds of production
attributable to the Collateral.
 

 
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7.5.          Payment of Taxes and Claims.
 
7.5.1.           The Borrower will pay (i) all Taxes imposed upon it or any of
its assets or with respect to any of its franchises, business, income or profits
before any material penalty or interest accrues thereon and (ii) all material
claims (including claims for labor, services, materials and supplies) for sums
which have become due and payable and which have or might become a Lien (other
than a Permitted Lien) on any of its assets; provided, however, that no payment
of such Taxes or claims shall be required if (a) the amount, applicability or
validity thereof is currently being contested in good faith by appropriate
proceedings promptly initiated and diligently conducted, (b) the Borrower shall
have set aside on its books reserves (segregated to the extent required by
applicable accounting principles) reasonably deemed by it to be adequate with
respect thereto, and (c) if material, the Borrower has notified the Lender of
such circumstances, in detail reasonably satisfactory to the Lender.
 
7.5.2.           Each Guarantor will pay (i) all Taxes imposed upon it or any of
its assets or with respect to any of its franchises, business, income or profits
before any material penalty or interest accrues thereon and (ii) all material
claims (including claims for labor, services, materials and supplies) for sums
which have become due and payable and which have or might become a Lien (other
than a Permitted Lien) on any of its assets; provided, however, that no payment
of such Taxes or claims shall be required if (a) the amount, applicability or
validity thereof is currently being contested in good faith by appropriate
proceedings promptly initiated and diligently conducted, (b) such Guarantor
shall have set aside on its books reserves (segregated to the extent required by
applicable accounting principles) reasonably deemed by it to be adequate with
respect thereto, and (c) if material, such Guarantor has notified the Lender of
such circumstances, in detail reasonably satisfactory to the Lender.
 
7.6.          Payment of Debt; Additional Debt; Payment of Accounts.
 
7.6.1.          (i) The Borrower will (a) pay, renew or extend or cause to be
paid, renewed or extended the principal of, and the prepayment charge, if any,
and interest on all Debt heretofore or hereafter incurred or assumed by it when
and as the same shall become due and payable unless such payment is prohibited
by the Loan Documents or would cause a Default hereunder; (b) faithfully
perform, observe and discharge all unwaived covenants, conditions and
obligations within any applicable periods of grace imposed on it by any
instrument evidencing such Debt or by any indenture or other agreement securing
such Debt or pursuant to which such Debt is issued unless such performance,
observance or discharge would cause a Default hereunder; and (c) not permit the
occurrence of any act or omission which would constitute a default under any
such instrument, indenture or agreement.
 
(ii)  Each Guarantor will (a) pay, renew or extend or cause to be paid, renewed
or extended the principal of, and the prepayment charge, if any, and interest on
all Debt heretofore or hereafter incurred or assumed by it when and as the same
shall become due and payable unless such payment is prohibited by the Loan
Documents or would cause a Default hereunder; (b) faithfully perform, observe
and discharge all unwaived covenants, conditions and obligations within any
applicable periods of grace imposed on it by any instrument evidencing such Debt
or by any indenture or other agreement securing such Debt or pursuant to which
such Debt is issued unless such performance, observance or discharge would cause
a Default hereunder; and (c) not permit the occurrence of any act or omission
which would constitute a default under any such instrument, indenture or
agreement.
 

 
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7.6.2.          (i) The Borrower will not create, incur or suffer to exist any
Funded Debt, except without duplication (a) Funded Debt to the Lender and (b)
Permitted Indebtedness.
 
(ii) No Guarantor will create, incur or suffer to exist any Funded Debt, except
without duplication (a) Funded Debt to the Lender and (b) Permitted
Indebtedness.
 
7.6.3.          (i) The Borrower shall pay all of its trade and other accounts
payable within 90 days after the invoice date therefor, unless such payables are
being contested in good faith by appropriate proceedings or other written
protest thereof.
 
(ii) Each Guarantor shall pay all of its trade and other accounts payable within
90 days after the invoice date therefor, unless such payables are being
contested in good faith by appropriate proceedings or other written protest
thereof.
 
7.6.4.          (i) At any time an Event of Default exists or if any such
payments will cause an Event of Default to exist, the Borrower shall not
voluntarily make any payments on any of its Debts, other than the Obligations.
 
(ii) At any time an Event of Default exists or if any such payments will cause
an Event of Default to exist, no Guarantor shall voluntarily make any payments
on any of its Debts, other than the Obligations or payments made by such
Guarantor to the Borrower.
 
7.7.          Negative Pledge.  (i) The Borrower will not create, suffer to
exist or otherwise allow any Liens to be on or otherwise to affect any of its
Property whether now owned or hereafter acquired, except Permitted Liens.
 
(ii) No Guarantor will create, suffer to exist or otherwise allow any Liens to
be on or otherwise to affect any of its Property whether now owned or hereafter
acquired, except Permitted Liens.
 
(iii) RCWI will not create, suffer to exist or otherwise allow any Liens to be
on or otherwise affect the Collateral whether now owned or hereafter acquired,
except Permitted Liens.
 
7.8.          Loans and Advances to Others; Investments; Restricted Payments;
Subsidiaries.
 
7.8.1.           (i) The Borrower will not make or suffer to exist any loan,
advance or extension of credit to any Person except (a) trade and customer
accounts receivable which are for goods furnished or services rendered in the
ordinary course of business and which are payable in accordance with customary
trade terms, (b) Permitted Loans and Investments, and (c) advances to employees
of the Borrower for payment of expenses in the ordinary course of business.
 
(ii) No Guarantor will make or suffer to exist any loan, advance or extension of
credit to any Person except (a) trade and customer accounts receivable which are
for goods furnished or services rendered in the ordinary course of business and
which are payable in accordance with customary trade terms, (b) Permitted Loans
and Investments, and (c) advances to employees of such Guarantor for payment of
expenses in the ordinary course of business.
 

 
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7.8.2.           (i) The Borrower will not make any capital contribution to or
make any Investment in, or to purchase or make a commitment to purchase any
interest in, any Person except as permitted in clauses (a), (b) and (c) of
Section 7.8.1(i).
 
(ii)  No Guarantor will make any capital contribution to or make any Investment
in, or to purchase or make a commitment to purchase any interest in, any Person
except as permitted in clauses (a), (b) and (c) of Section 7.8.1(ii).
 
7.8.3.           (i) The Borrower will not, directly or indirectly, make any
Restricted Payment without the prior written consent of the Lender except as
specifically permitted in the definition of such defined term.
 
(ii)  No Guarantor will, directly or indirectly, make any Restricted Payment
without the prior written consent of the Lender except as specifically permitted
in the definition of such defined term.
 
7.8.4.           (i) The Borrower shall not form or acquire any Subsidiaries,
either directly or indirectly through other Subsidiaries, without the prior
written consent of the Lender, which consent, if given, may be conditioned on
such Subsidiary’s execution of a Guaranty and security instruments covering all
of the Property of such Subsidiary, each in form and substance reasonably
satisfactory to the Lender.
 
(ii)  No Guarantor shall form or acquire any Subsidiaries, either directly or
indirectly through other Subsidiaries, without the prior written consent of the
Lender, which consent, if given, may be conditioned on such Subsidiary’s
execution of a Guaranty and security instruments covering all of the Property of
such Subsidiary, each in form and substance reasonably satisfactory to the
Lender.
 
7.9.          Consolidation, Merger, Maintenance, Change of Control; Disposition
of Property; Restrictive Agreements; Hedging Agreements; Modification of
Organizational Documents; Issuance of Equity Interests.
 
7.9.1.           (i) The Borrower will not (a) consolidate or merge with or into
any other Person without the prior written consent of the Lender, (b) sell,
lease or otherwise transfer all or substantially all of its Property to any
other Person, (c) terminate, or fail to maintain, its existence as the type of
entity represented in Section 6.1 and in its state of formation represented in
Section 6.1. or (d) terminate, or fail to maintain, its good standing and
qualification to transact business in all jurisdictions where the nature of its
business requires the same (except where the failure to maintain its good
standing or qualification could not reasonably be expected to have a Material
Adverse Effect) or (e) permit a Change of Control Event to occur.
 
(ii) No Guarantor will (a) consolidate or merge with or into any other Person
without the prior written consent of the Lender, (b) sell, lease or otherwise
transfer all or substantially all of its Property to any other Person, (c)
terminate, or fail to maintain, its existence as the type of entity represented
in Section 6.1 and in its state of formation represented in Section 6.1. or (d)
terminate, or fail to maintain, its good standing and qualification to transact
business in all jurisdictions where the nature of its business requires the same
(except where the failure to maintain its good standing or qualification could
not reasonably be expected to have a Material Adverse Effect) or (e) permit a
Change of Control Event to occur.
 

 
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7.9.2.          (i) The Borrower will not sell, encumber, or otherwise transfer
all or any portion of the Collateral, any Property having PW9 Value, or any of
its other Property without the consent of the Lender, except for (i) sales of
oil and gas after severance in the ordinary course of business, provided that no
contract for the sale of hydrocarbons shall obligate the Borrower to deliver
hydrocarbons produced from any of the Collateral at some future date without
receiving full payment therefor within 90 days of delivery or (ii) the sale or
other disposition of its personal Property destroyed, worn out, damaged, or
having only salvage value or no longer used or useful in the business of the
Borrower.  Any consent by the Lender to the sale of any Property covered by this
Section may include a requirement (to be treated as a Borrower Requested
Determination) that a new Borrowing Base be determined under Section 2.8.1 and
that the proceeds of such sale plus such additional amounts as the Lender deem
necessary to avoid the occurrence of a Borrowing Base Deficiency be applied to
the Obligations.
 
(ii) No Guarantor will sell, encumber, or otherwise transfer all or any portion
of the Collateral, any Property having PW9 Value, or any of its other Property
without the prior written consent of the Lender, except for (a) sales of oil and
gas after severance in the ordinary course of business, provided that no
contract for the sale of hydrocarbons shall obligate such Guarantor to deliver
hydrocarbons produced from any of the Collateral at some future date without
receiving full payment therefor within 90 days of delivery or (b) the sale or
other disposition of its personal Property destroyed, worn out, damaged, or
having only salvage value or no longer used or useful in the business of the
Borrower.  Any consent by the Lender to the sale of any Property covered by this
Section may include a requirement (to be treated as a Borrower Requested
Determination) that a new Borrowing Base be determined under Section 2.8.1 and
that the proceeds of such sale plus such additional amounts as the Lender deems
necessary to avoid the occurrence of a Borrowing Base Deficiency be applied to
the Obligations.
 
(iii) RCWI will not sell, encumber or otherwise transfer all or any portion of
the Collateral, other than transfers from RCWI to the Borrower and encumbrances
to or for the benefit of the Lender.
 
7.9.3.          (i) The Borrower will not be or become party to or bound by any
agreement (including any undertaking in connection with the incurrence of Debt
or issuance of Securities) which imposes any limitation on the disposition of
the Collateral more restrictive than those set forth above or which in any way
would be contravened by the Borrower’s performance of its obligations hereunder
or under the other Loan Documents or which contains any negative pledge on all
or any portion of the Borrower’s Property, except in favor of the Lender.
 
(ii) No Guarantor will be or become party to or bound by any agreement
(including any undertaking in connection with the incurrence of Debt or issuance
of securities) which imposes any limitation on the disposition of the Collateral
more restrictive than those set forth above or which in any way would be
contravened by such Guarantor’s or the Borrower’s performance of its obligations
hereunder or under the other Loan Documents or which contains any negative
pledge on all or any portion of such Guarantor’s or the Borrower’s Property,
except in favor of the Lender.
 

 
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7.9.4.         (i) The Borrower will not enter into any Hedging Transaction
unless (a) such Hedging Transaction is an Acceptable Hedging Transaction and (b)
the Hedging Agreement governing such Hedging Transaction does not contain any
anti-assignment provisions restricting the Borrower or, if such agreement
contains anti-assignment provisions which cannot be removed, such provisions
shall be modified to read substantially as follows:  “The interest and
obligations arising from this agreement are non-transferable and non-assignable,
except that [company name] may assign and grant a security interest in its
rights and interests hereunder to Texas Capital Bank, N.A. and its assigns, (the
“Lender”) as security for [company name]’s present and future obligations to the
Lender.  Until [hedge provider] is notified in writing by Texas Capital Bank,
N.A. to pay to the Lender amounts due [company name] hereunder, [hedge provider]
may continue to make such payments to [company name].”
 
(ii) The Borrower will not cause or permit any Hedging Transaction now existing
or hereafter entered into by the Borrower to be amended, modified, terminated,
negated through the Borrower’s entry into one or more new Hedging Transactions
with the opposing effect, or liquidated without the prior written consent of the
Lender.
 
(iii) The Borrower will not cause or permit any Hedging Agreement now existing
or hereafter entered into by the Borrower to be amended, modified or terminated
without the prior written consent of the Lender except for entering into usual
and customary confirmations under such Hedging Agreements setting forth volume,
pricing, duration and other such standard terms.
 
7.9.5.         (i) The Borrower will not amend its Organizational Documents or
its Regulatory Documents in any material respect or in any respect which could
be adverse to the interests of the Lender.
 
(ii) No Guarantor will amend its Organizational Documents or its Regulatory
Documents in any material respect or in any respect which could be adverse to
the interests of the Lender.
 
7.9.6.         (i) The Borrower will not issue any Equity Interests or rights,
options or warrants to purchase any of the Borrower’s Equity Interests.
 
(ii) No Guarantor will issue any Equity Interests or rights, options or warrants
to purchase any of such Guarantor’s Equity Interests.
 
7.10.        Primary Business; Location of Borrower’s Office; Ownership of
Assets.
 
7.10.1.       (i) The primary business of the Borrower shall be and remain the
oil and gas exploration, development and production business.
 
(ii) The primary business of each Guarantor shall be and remain the oil and gas
exploration, development and production business.
 

 
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7.10.2.        The location of the Borrower’s principal place of business and
executive office shall remain at the address for the Borrower set forth on the
signature page hereof, unless at least 10 days prior to any change in such
address the Borrower provides the Lender with written notice of such pending
change.
 
7.11.        Operation of Properties and Equipment; Compliance with and
Maintenance of Contracts; Duties as Nonoperator.
 
7.11.1.        (i) The Borrower shall at all times maintain, develop and operate
its Oil and Gas Properties in a good and workmanlike manner and will observe and
comply in all material respects with all of the terms and provisions, express or
implied, of all oil and gas leases relating to such Oil and Gas Properties so
long as such oil and gas leases are capable of producing hydrocarbons in
commercial quantities, to the extent that the failure to so observe and comply
could reasonably be expected to have a Material Adverse Effect.
 
(ii) Each Guarantor shall at all times maintain, develop and operate its Oil and
Gas Properties in a good and workmanlike manner and will observe and comply in
all material respects with all of the terms and provisions, express or implied,
of all oil and gas leases relating to such Oil and Gas Properties so long as
such oil and gas leases are capable of producing hydrocarbons in commercial
quantities, to the extent that the failure to so observe and comply could
reasonably be expected to have a Material Adverse Effect.
 
(iii) The Borrower and each Guarantor shall remain as the named operator for
each oil or gas well in which it now or hereafter owns an interest if (a) it or
such Guarantor is the operator thereof on the date hereof or becomes the
operator thereof subsequent hereto and (b) such well is now or hereafter becomes
Collateral.
 
(iv) The Borrower shall at all times, maintain, preserve and keep all operating
equipment used or useful with respect to the Oil and Gas Properties of the
Borrower in proper repair, working order and condition, and make all necessary
or appropriate repairs, renewals, replacements, additions and improvements
thereto so that the efficiency of such operating equipment shall at all times be
properly preserved and maintained, provided that no item of operating equipment
need be so repaired, renewed, replaced, added to or improved, if the Borrower
shall in good faith determine that such action is not necessary or desirable for
the continued efficient and profitable operation of the business of the
Borrower.
 
(v) Each Guarantor shall at all times, maintain, preserve and keep all operating
equipment used or useful with respect to the Oil and Gas Properties of such
Guarantor in proper repair, working order and condition, and make all necessary
or appropriate repairs, renewals, replacements, additions and improvements
thereto so that the efficiency of such operating equipment shall at all times be
properly preserved and maintained, provided that no item of operating equipment
need be so repaired, renewed, replaced, added to or improved, if such Guarantor
shall in good faith determine that such action is not necessary or desirable for
the continued efficient and profitable operation of the business of such
Guarantor.
 

 
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7.11.2.        (i) The Borrower shall comply in all material respects with all
Laws and agreements applicable to or relating to its Oil and Gas Properties or
the production and sale of hydrocarbons therefrom and all applicable proration
and conservation laws of the jurisdictions in which such Properties are located,
to the extent that the failure to so comply with such Laws or agreements could
reasonably be expected to expose the Borrower to any material loss, penalty or
forfeiture.
 
(ii) Each Guarantor shall comply in all material respects with all Laws and
agreements applicable to or relating to its Oil and Gas Properties or the
production and sale of hydrocarbons therefrom and all applicable proration and
conservation laws of the jurisdictions in which such Properties are located, to
the extent that the failure to so comply with such Laws or agreements could
reasonably be expected to expose such Guarantor to any material loss, penalty or
forfeiture.
 
7.11.3.        With respect to the Oil and Gas Properties referred to in this
Section which are operated by operators other than the Borrower or a Guarantor
or any Affiliate of the Borrower or a Guarantor, the Borrower shall not be
obligated itself to perform any undertakings contemplated by the covenants and
agreements contained in this Section which are performable only by such
operators and are beyond the control of the Borrower, but the Borrower shall use
commercially reasonable efforts to cause such operators to perform such
undertakings.
 
7.11.4.        (i) The Borrower will not amend, alter or change in any respect
which could reasonably be expected to be adverse to the interests of the
Borrower or the Lender any agreements relating to the operations or business
arrangements of the Borrower or the compression, gathering, sale or
transportation of oil and gas from the Oil and Gas Properties included in the
most recent determination of the Borrowing Base without the prior written
consent of the Lender, which consent shall not be unreasonably withheld.
 
(ii) No Guarantor will amend, alter or change in any respect which could
reasonably be expected to be adverse to the interests of such Guarantor or the
Lender any agreements relating to the operations or business arrangements of
such Guarantor or the compression, gathering, sale or transportation of oil and
gas from the Oil and Gas Properties included in the most recent determination of
the Borrowing Base without the prior written consent of the Lender, which
consent shall not be unreasonably withheld.
 
7.12.        Transactions with Affiliates.
 
7.12.1.        The Borrower will not engage in any transaction with an Affiliate
unless (i) such transaction is at least as favorable to the Borrower as could be
obtained in an arm’s length transaction with an unaffiliated third party and
(ii) such transaction is not disadvantageous to the Lender as the holder of the
Note and (iii) the Lender is advised in writing of the terms of such transaction
prior to the consummation thereof.
 
7.12.2.        No Guarantor will engage in any transaction with an Affiliate
unless (i) such transaction is at least as favorable to such Guarantor as could
be obtained in an arm’s length transaction with an unaffiliated third party and
(ii) such transaction is not disadvantageous to the Lender as the holder of the
Note.
 

 
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7.13.        Plans.
 
7.13.1.        The Borrower will not assume or otherwise become subject to an
obligation to contribute to or maintain any Plan or acquire any Person which has
at any time had an obligation to contribute to or maintain any Plan.
 
7.13.2.        No Guarantor will assume or otherwise become subject to an
obligation to contribute to or maintain any Plan or acquire any Person which has
at any time had an obligation to contribute to or maintain any Plan.
 
7.14.        Compliance with Laws and Documents.
 
7.14.1.        The Borrower will not, directly or indirectly, violate the
provisions of any Laws, its Organizational Documents or its Regulatory Documents
or any Material Agreement, if such violation, alone or when combined with all
other such violations, could reasonably be expected to have or does have a
Material Adverse Effect.
 
7.14.2.        No Guarantor will, directly or indirectly, violate the provisions
of any Laws, its Organizational Documents or its Regulatory Documents or any
Material Agreement, if such violation, alone or when combined with all other
such violations, could reasonably be expected to have or does have a Material
Adverse Effect.
 
7.15.        Certain Financial Covenants.
 
7.15.1.        Interest Coverage Ratio.  The Borrower will not permit the ratio
of Cash Flow to Fixed Charges to be less than 3.00 to 1.00, determined as of the
end of each fiscal quarter of the Borrower ending on or after September 30,
2010.
 
“Cash Flow” for any period, means EBITDAX of the Borrower and its consolidated
subsidiaries for such period minus Cash Taxes of the Borrower for such period.
 
“Cash Taxes” for any period, means federal income taxes and state taxes actually
paid by the Borrower during such period.
 
“Distributions” means dividends, distributions or other payments to Persons on
account of their being the holders of Equity Interests in the Borrower.
 
“EBITDAX” means, for any period, the pre-tax net income of the Borrower and its
consolidated subsidiaries for such period plus (without duplication and only to
the extent deducted in determining such net income), interest expense of the
Borrower and its consolidated subsidiaries for such period, all tangible and
intangible expenses directly related to the exploration for oil and gas,
depreciation, non-cash amortization, depletion, write-down of Oil and Gas
Properties and other non-cash expenses of the Borrower and its consolidated
subsidiaries for such period less gains on sales of assets and other non-cash
income for such period included in the determination of net income of the
Borrower and its consolidated subsidiaries.
 

 
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“Fixed Charges” means with respect to any period, the actual principal and
interest payments on the Funded Debt of the Borrower and its consolidated
subsidiaries during such period other than on Debt owed to the Lender plus
interest payments on Debt owed to the Lender during such period.
 
7.15.2.         Current Ratio.  The Borrower will not permit the ratio of its
Current Assets to its Current Liabilities to be less than 1.00 to 1.00,
determined as of the end of each fiscal quarter of the Borrower ending on or
after September 30, 2010.
 
“Current Assets” means the current assets of the Borrower plus the Unused
Available Commitment, but excluding inter-company receivables.
 
“Current Liabilities”  means the current liabilities of the Borrower, exclusive
of the current portion of the Note.
 
Notwithstanding the foregoing, during such times that the Borrower is required
to deliver financial information to the Lender in accordance with generally
accepted accounting principles, neither Current Assets nor Current Liabilities
shall include the amount of or any liabilities respecting any non-cash items as
a result of the application of Financial Accounting Standards Board Statement
Nos. 115 and 133 and any subsequent amendments thereto or the fair value of any
Hedging Agreement or any non-hedge derivative contract (whether deemed effective
or non-effective).
 
7.15.3.         Additional Limitations on Distributions.  During the period from
one reporting date under Section 7.2.1(ii) to the next reporting date under
Section 7.2.1(ii) and if (i) no Default exists at the time of proposed
Distributions and (ii) the Borrower will have no less than $250,000 in cash in
Borrower’s account at the Lender after the making of each such Distribution, the
Borrower will be entitled to make Distributions, in the aggregate, during such
period to the extent of amounts in excess of 1.5 times Fixed Charges (except
that the aggregate of such Distributions plus 1.5 times Fixed Charges does not
exceed Cash Flow), as determined for the most recently ended fiscal quarter on
the basis of the most recent financial statements delivered under Section
7.2.1(ii).  During the interim period from the Closing to the first reporting
date under Section 7.2.1(ii), the amount of such excess is deemed to be
$250,000, but the Borrower must be in compliance with clauses (i) and (ii) above
in connection with any Distribution made during such interim period.
 
7.16.        Tax Shelter.  In the event the Borrower determines to take any
action inconsistent with the representation in Section 6.9.2, it will promptly
notify the Lender thereof.  Accordingly, if the Borrower so notifies the Lender,
the Borrower acknowledges that the Lender may treat the Loans and Letters of
Credit as part of a transaction that is subject to Treasury Regulation
Section 301.6112-1, and the Lender will maintain the lists and other records
required by such Treasury Regulation.
 
7.17.        Additional Documents; Quantity of Documents; Title Data; Additional
Information.
 
7.17.1.         The Borrower shall execute and deliver or cause to be executed
and delivered such other and further instruments or documents as in the
reasonable judgment of the Lender may be required to better effectuate the
transactions contemplated herein and in the other Loan Documents.
 

 
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7.17.2.         The Borrower will deliver all certificates, opinions, reports
and documents hereunder in such number of counterparts as the Lender may
reasonably request.
 
7.17.3.         The Borrower shall furnish to the Lender, promptly upon the
request of the Lender, such additional financial or other information concerning
the assets, liabilities, operations, and transactions of the Borrower as the
Lender may from time to time reasonably request; and notify the Lender not less
than 10 days prior to the occurrence of any condition or event that may change
the proper location for the filing of any financing statement or other public
notice or recording for the purpose of perfecting a Lien in any Collateral,
including any change in its name or the location of its principal place of
business or chief executive office; and upon the request of the Lender, execute
such additional Security Documents as may be necessary or appropriate in
connection therewith.
 
7.18.        ENVIRONMENTAL INDEMNIFICATION.  The Borrower shall, on a current
basis, indemnify, defend and hold each Indemnified Party harmless on a current
basis from and against any and all claims, losses, damages, liabilities, fines,
penalties, charges, administrative and judicial proceedings and orders,
judgments, remedial actions, requirements and enforcement actions of any kind,
and all costs and expenses incurred in connection therewith (including, without
limitation, reasonable attorneys’ fees and expenses), arising directly or
indirectly, in whole or in part, from (a) the presence of any hazardous
substances on, under, or from any Property of the Borrower, whether prior to or
during the term hereof, (b) any activity carried on or undertaken on or off any
Property of the Borrower, whether prior to or during the term hereof, and
whether by the Borrower or any predecessor in title, employee, agent,
contractor, or subcontractor of the Borrower or any other Person at any time
occupying or present on such Property, in connection with the handling,
treatment, removal, storage, decontamination, cleanup, transportation, or
disposal of any hazardous substances at any time located or present on or under
such Property, (c) any residual contamination on or under any Property of the
Borrower, or (d) any contamination of any Property or natural resources arising
in connection with the generation, use, handling, storage, transportation or
disposal of any hazardous substances by the Borrower or any employee, agent,
contractor, or subcontractor of the Borrower while such Persons are acting
within the scope of their relationship with the Borrower, irrespective of
whether any of such activities were or will be undertaken in accordance with
applicable requirements of Law, INCLUDING ANY OF THE FOREGOING IN THIS
SECTION ARISING FROM THE SOLE NEGLIGENCE, COMPARATIVE NEGLIGENCE OR CONCURRENT
NEGLIGENCE OF ANY OF THE INDEMNIFIED PARTIES OR THE SOLE OR CONCURRENT STRICT
LIABILITY IMPOSED ON ANY OF THE INDEMNIFIED PARTIES, but not any of the
foregoing in this section arising from the gross negligence or willful
misconduct on the part of the Indemnified Party seeking indemnification under
this section; with the foregoing indemnity surviving satisfaction of all
obligations and the termination of this Agreement.
 
7.19.        Exceptions to Covenants.  The Borrower shall not be permitted to
take any action which is permitted by any of the covenants contained in this
Agreement if such action is in breach of any other covenant contained in this
Agreement.
 
7.20.        Anti-Terrorism Laws.  Neither the Borrower nor any of the other
Obligated Parties shall (a) deal in, or otherwise engage in any transaction
relating to, any Property or interests in Property blocked pursuant to Executive
Order No. 13224; or (b) engage in or conspire to engage in any transaction that
evades or avoids, or has the purpose of evading or avoiding, or attempts to
violate, (i) any of the prohibitions set forth in Executive Order No. 13224 or
the USA Patriot Act, or (ii) any prohibitions set forth in the rules or
regulations issued by OFAC or any sanctions against targeted foreign countries,
terrorism sponsoring organizations, and international narcotics traffickers
based on U.S. foreign policy.  The Borrower shall deliver to the Lender any
certification or other evidence requested from time to time by the Lender, in
its reasonable discretion, confirming the Obligated Parties’ compliance with
this Section.
 

 
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ARTICLE VIII
 
DEFAULTS; REMEDIES
 
8.1.           Events of Default; Acceleration of Maturity.  If any one or more
of the following events (each an “Event of Default”) has occurred and has not
been waived in accordance with the provisions hereof (whatever the reason for
such Event of Default and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body or otherwise):
 
8.1.1.         (i) the Borrower shall fail to pay, when due, any principal of,
or interest on, (a) the Note or (b) any other Debt of the Borrower to the
Lender.
 
(ii) the Borrower shall fail to pay when due, any fees or other amounts payable
hereunder and not covered by clause (i) above, if such failure shall continue
unremedied for a period of 10 days after notice thereof is given to the
Borrower.
 
8.1.2.         (i) the Borrower shall fail to observe or perform any covenant or
agreement contained in Sections 7.1, 7.2.3, 7.6.2, 7.7, 7.8, 7.9 or 7.15.
 
(ii) any Guarantor shall (a) fail to comply with the provisions of its Guaranty
or (b) revoke or attempt to revoke such Guarantor’s Guaranty or deny the
validity or enforceability of such Guarantor’s Guaranty.
 
8.1.3.          the Borrower or any other Person (other than the Lender) shall
fail to observe or perform any covenant or agreement contained in this Agreement
or the other Loan Documents (other than those covered by Sections 8.1.1 or
8.1.2), for a period of 30 days after the earlier of (i) any Responsible
Representative shall have become aware or reasonably should have become aware
(regardless of the source of such awareness) of such default or (ii) written
notice specifying such default has been given to such Person by the Lender.
 
8.1.4.         (i) the Borrower shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its Property, or shall consent to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment for the
benefit of creditors, or shall  fail generally to pay its debts as they become
due, or shall take any corporate or other action to authorize any of the
foregoing.
 

 
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(ii)  Any Guarantor shall commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its Property, or shall
consent to any such relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding commenced against it,
or shall make a general assignment for the benefit of creditors, or shall  fail
generally to pay its debts as they become due, or shall take any corporate or
other action to authorize any of the foregoing.
 
8.1.5.         (i) an involuntary case or other proceeding shall be commenced
against the Borrower seeking liquidation, reorganization or other relief with
respect to it or its debts under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its Property, and such involuntary case or other proceeding shall remain
undismissed or unstayed for a period of 30 days; or an order for relief shall be
entered against the Borrower under the federal bankruptcy laws as now or
hereafter in effect which remains undismissed or unstayed for a period of 30
days.
 
(ii)  an involuntary case or other proceeding shall be commenced against any
Guarantor seeking liquidation, reorganization or other relief with respect to it
or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its Property, and such involuntary case or other proceeding shall remain
undismissed or unstayed for a period of 30 days; or an order for relief shall be
entered against any Guarantor under the federal bankruptcy laws as now or
hereafter in effect which remains undismissed or unstayed for a period of 30
days.
 
8.1.6.         (i) the Borrower (a) shall default in the payment of any of its
Material Debts (other than the Note) and such default shall continue beyond any
applicable cure period, (b) shall default in the performance or observance of
any other provision contained in any agreements or instruments evidencing or
governing such Material Debt and such default is not waived and continues beyond
any applicable cure period, or (c) any other event or condition occurs which
results in the acceleration of such Material Debt.
 
(ii)  Any Guarantor (a) shall default in the payment of any of its Material
Debts (other than its Guaranty) and such default shall continue beyond any
applicable cure period, (b) shall default in the performance or observance of
any other provision contained in any agreements or instruments evidencing or
governing such Material Debt and such default is not waived and continues beyond
any applicable cure period, or (c) any other event or condition occurs which
results in the acceleration of such Material Debt.
 
8.1.7.         (i) the Borrower shall default in the payment of any of its Debts
to the Lender or shall default in the performance or observance of any provision
contained in any agreements or instruments evidencing or governing any such Debt
and such default is not waived and continues beyond any applicable cure period.
 
(ii)  any Guarantor shall default in the payment of any of its Debts to the
Lender or shall default in the performance or observance of any provision
contained in any agreements or instruments evidencing or governing any such Debt
and such default is not waived and continues beyond any applicable cure period.
 

 
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8.1.8.         (i) one or more judgments or orders for the payment of money
aggregating in excess of $25,000 shall be rendered against the Borrower which in
the opinion of the Lender is not adequately covered by insurance and such
judgment or order (a) shall continue unsatisfied or unstayed (unless bonded with
a supersedeas bond at least equal to such judgment or order) for a period of 30
days, or (b) is not fully paid and satisfied at least 10 days prior to the date
on which any of its Property may be lawfully sold to satisfy such judgment or
order.
 
(ii)  one or more judgments or orders for the payment of money aggregating in
excess of $25,000 shall be rendered against any Guarantor which in the opinion
of the Lender is not adequately covered by insurance and such judgment or order
(a) shall continue unsatisfied or unstayed (unless bonded with a supersedeas
bond at least equal to such judgment or order) for a period of 30 days, or (b)
is not fully paid and satisfied at least 10 days prior to the date on which any
of its Property may be lawfully sold to satisfy such judgment or order.
 
8.1.9.         any representation, warranty, certification or statement made or
deemed to have been made by or on behalf of the Borrower in this Agreement or by
the Borrower or any other Person in any certificate, financial statement or
other document delivered pursuant to this Agreement shall prove to have been
incorrect in any material respect when made.  Without limiting the generality of
the foregoing sentence, such incorrect representation, warranty, certification
or statement shall be deemed to be incorrect in a material respect if such
incorrect representation, warranty, certification or statement (i) could
reasonably be expected to have any adverse effect whatsoever upon the validity,
performance or enforceability of any Loan Document, (ii) is or might reasonably
be expected to be material and adverse to the financial condition or business
operations of any Person or to the prospects of any Person, (iii) could
reasonably be expected to impair the Borrower’s ability to fulfill its
obligations under the terms and conditions of the Loan Documents, or (iv) could
reasonably be expected to impair the Lender’s ability to receive full and timely
payment of the Note.
 
8.1.10.       (i) any material license, franchise, permit, or authorization
issued to the Borrower by any Tribunal is forfeited, revoked, or not renewed; or
any proceeding with respect to seeking forfeiture or revocation thereof is
instituted and is not resolved or dismissed within one year of the date of the
publication of the order instituting such proceeding.
 
(ii)  any material license, franchise, permit, or authorization issued to any
Guarantor by any Tribunal is forfeited, revoked, or not renewed; or any
proceeding with respect to seeking forfeiture or revocation thereof is
instituted and is not resolved or dismissed within one year of the date of the
publication of the order instituting such proceeding.
 
8.1.11.       (i)  a default shall occur under any Material Agreement, other
than this Agreement, to which the Borrower is a party or by which any of its
Property is bound and such default continues beyond any applicable period of
grace provided therefor, if such default, alone or when combined with all other
defaults under Material Agreements causes or could reasonably be expected to
cause a Material Adverse Effect.
 

 
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(ii)  a default shall occur under any Material Agreement to which any Guarantor
is a party or by which any of its Property is bound and such default continues
beyond any applicable period of grace provided therefor, if such default, alone
or when combined with all other defaults under Material Agreements causes or
could reasonably be expected to cause a Material Adverse Effect.
 
8.1.12.        a Change of Control Event shall occur.
 
then, and in every such event, the Lender may at its option (i) declare the
outstanding principal balance of and accrued interest on the Note to be, and the
same shall thereupon forthwith become, due and payable 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, (ii) proceed
to foreclose the Liens securing the Note, and (iii) take such other actions as
are permitted by Law; provided that in the case of any of the Events of Default
specified in Sections 8.1.4 and 8.1.5 with respect to the Borrower, without any
notice to the Borrower or any other act by the Lender, (1) the commitment of the
Lender to make Loans hereunder shall terminate except for funding obligations
for Letters of Credit, (2) the commitment of the Lender to issue letters of
credit hereunder or to renew (including extensions) Letters of Credit shall
terminate and (3) the Note (together with accrued interest thereon) shall become
immediately due and payable 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.
 
8.2.          Suits for Enforcement.  In case any one or more of the Events of
Default specified in Section 8.1 shall have  occurred and be continuing, the
Lender may, at its option, proceed to protect and enforce its rights either by
suit in equity or by action at law, or both, whether for the specific
performance of any covenant or agreement contained in this Agreement or in aid
of the exercise of any power granted in this Agreement.
 
8.3.          Remedies Cumulative.  No remedy herein conferred upon the Lender
is intended to be exclusive of any other remedy and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise.
 
8.4.          Remedies Not Waived.  No course of dealing and no delay in
exercising any rights under this Agreement or under the other Loan Documents
shall operate as a waiver of any rights hereunder or thereunder of the Lender.
 
ARTICLE IX
 
MISCELLANEOUS
 
9.1.          Amendments and Waivers.
 
9.1.1.           Any provision of this Agreement, the Note or the other Loan
Documents may be amended or waived (either generally or in a particular instance
and either retroactively or prospectively) by a written instrument signed by the
Borrower and the Lender, and any consent required of the Lender herein must be
in writing and, unless specifically stated otherwise herein, may be withheld for
any reason or no reason.  Delivery of an executed counterpart of such written
instrument by telecopy, e-mail, facsimile or other electronic means shall be
effective delivery of a manually executed counterpart of such written
instrument.
 

 
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9.1.2.          Even though certain Guarantors might join in the execution of
this Agreement or amendments hereto, the signature or consent of such Guarantors
shall not be required with respect to any future amendments to this Agreement.
 
9.2.          Highest Lawful Interest Rate.  The Lender, the Borrower and any
other parties to the Loan Documents intend to contract in strict compliance with
applicable usury law from time to time in effect.  In furtherance thereof such
Persons stipulate and agree that none of the terms and provisions contained in
the Loan Documents shall ever be construed to create a contract to pay, for the
use, forbearance or detention of money, interest in excess of the maximum amount
of interest permitted to be charged by applicable law from time to time in
effect, and the provisions of this Section 9.2 shall control over all other
provisions of the Loan Documents which may be in conflict or apparent conflict
herewith.  Regardless of any provision contained in any of the Loan Documents,
the Lender shall never be entitled to receive, collect, or apply as interest on
all or any part of the Loans, any amount in excess of the Highest Lawful Rate in
effect from day to day, and, in the event the Lender ever receives, collects, or
applies as interest any such excess, such amount which would be deemed excessive
interest shall be deemed a partial prepayment of the principal of the Loans and
treated hereunder as such; and, if the entire principal amount of the Loans owed
to the Lender is paid in full, any remaining excess shall be repaid to the
Borrower.  In determining whether the interest paid or payable, under any
specific contingency, exceeds the Highest Lawful Rate in effect from day to day,
the Borrower and the Lender shall, to the maximum extent permitted under
applicable law, (i) characterize any nonprincipal payment as an expense, fee, or
premium rather than as interest, (ii) exclude voluntary prepayments and the
effects thereof, and (iii) amortize, prorate, allocate, and spread the total
amount of interest throughout the entire contemplated term of the Loans so that
the interest rate is uniform throughout the entire term of the Loans; provided
that, if the interest received by the Lender for the actual period of existence
thereof exceeds the Highest Lawful Rate in effect from day to day, the Lender
shall apply or refund to the Borrower the amount of such excess as provided in
this Section, and, in such event, the Lender shall not be subject to any
penalties provided by any laws for contracting for, charging, taking, reserving,
or receiving interest in excess of the Highest Lawful Rate in effect from day to
day.
 
9.3.          INDEMNITY.
 
9.3.1.           Whether or not any Loans are ever funded or any letter of
credit is ever issued hereunder, and in addition to any other indemnifications
herein or in any other Loan Documents, the Borrower agrees to indemnify and
defend and hold harmless on a current basis each Indemnified Party, from and
against any and all liabilities, losses, damages, costs, interest, charges,
counsel fees and other expenses and penalties of any kind which any of the
Indemnified Parties may sustain or incur in connection with any investigative,
administrative or judicial proceeding (whether or not any Indemnified Party
shall be designated a party thereto) or otherwise by reason of or arising out of
the execution and delivery of this Agreement or any of the other Loan Documents
and/or the consummation of the transactions contemplated hereby or thereby.  The
indemnification provisions in this Section shall be enforceable regardless of
whether the liability is based on past, present or future acts, claims or legal
requirements (including any past, present or future bulk sales law,
environmental law, fraudulent transfer act, occupational safety and health law,
or products liability, securities or other legal requirement), AND REGARDLESS OF
WHETHER ANY PERSON (INCLUDING THE PERSON FROM WHOM INDEMNIFICATION IS SOUGHT)
ALLEGES OR PROVES THE SOLE, CONCURRENT, CONTRIBUTORY OR COMPARATIVE NEGLIGENCE
OF THE PERSON SEEKING INDEMNIFICATION OR OF ANY OTHER INDEMNIFIED PARTY, OR THE
SOLE OR CONCURRENT STRICT LIABILITY IMPOSED ON THE PERSON SEEKING
INDEMNIFICATION OR ON ANY OTHER INDEMNIFIED PARTY, but not any of the foregoing
in this Section arising from the gross negligence or willful misconduct on the
part of the Indemnified Party seeking indemnification under this Section; with
the foregoing indemnity surviving satisfaction of all obligations and the
termination of this Agreement.
 

 
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9.3.2.           Any amount to be paid under Section 9.3 to the Lender shall be
a demand obligation owing by the Borrower and if not paid within three Business
Days of demand shall bear interest from the date of expenditure by the Lender
until paid at a per annum rate equal to the Default Rate.  The obligations of
the Borrower under Section 9.3 shall survive payment of the Note and the
assignment of any right hereunder.
 
9.4.          Expenses.
 
9.4.1.           Whether or not any one or more of the Loans are ever funded,
the Borrower shall pay or reimburse Lender, at Lender’s discretion, for (i) all
reasonable out-of-pocket expenses of the Lender, including, without limitation,
fees and disbursements of counsel for the Lender, incurred in connection with
the preparation of this Agreement and the other Loan Documents (including the
furnishing of any written or oral opinions or advice incident to this
transaction) and, if appropriate, the recordation of the Loan Documents, any
waiver or consent hereunder or any amendment hereof or any Default or alleged
Default hereunder, (ii) all title review expenses, appraisal expenses,
environmental assessment expenses, and any other due diligence expenses
incurred, and (iii) if an Event of Default occurs, all reasonable out-of-pocket
expenses incurred by the Lender, including fees and disbursements of counsel in
connection with such Event of Default and collection and other enforcement
proceedings resulting therefrom, fees of auditors, consultants, engineers and
other Persons incurred in connection therewith (including the supervision,
maintenance or disposition of the Collateral) and investigative expenses
incurred by the Lender in connection therewith, which amounts shall be deemed
compensatory in nature and liquidated as to amount upon notice to the Borrower
by the Lender and which amounts shall include, but not be limited to (a) all
court costs, (b) reasonable attorneys’ fees, (c) reasonable fees and expenses of
auditors and accountants incurred to protect the interests of the Lender, (d)
fees and expenses incurred in connection with the participation by the Lender as
a member of the creditors’ committee in a case commenced under any Insolvency
Proceeding, (e) fees and expenses incurred in connection with lifting the
automatic stay prescribed in Title 11 §362 of the United States Code, and (f)
fees and expenses incurred in connection with any action pursuant to Title 11
§1129 of the United States Code all reasonably incurred by the Lender in
connection with the collection of any sums due under the Loan Documents,
together with interest at the per annum interest rate equal to the Default Rate,
calculated on a basis of a calendar year of 365 or 366 days, as the case may be,
counting the actual number of days elapsed, on each such amount from the date of
notification that the same was expended, advanced, or incurred by the Lender
until the date it is repaid to the Lender, with the obligations under
Section 9.4 surviving the non-assumption of this Agreement in a case commenced
under any Insolvency Proceeding and being binding upon the Borrower or a
trustee, receiver, custodian, or liquidator of the Borrower appointed in any
such case.
 

 
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9.4.2.           THE BORROWER SHALL INDEMNIFY THE LENDER AGAINST ANY TRANSFER
TAXES, DOCUMENTARY TAXES, ASSESSMENTS OR CHARGES MADE BY ANY GOVERNMENTAL
AUTHORITY BY REASON OF THE EXECUTION AND DELIVERY OF THIS AGREEMENT OR THE OTHER
LOAN DOCUMENTS.
 
9.4.3.           Any amount to be paid under Section 9.4 shall be a demand
obligation owing by the Borrower and if not paid within three (3) Business Days
of demand shall bear interest from the date of expenditure until paid at a per
annum rate equal to the Default Rate.  The obligations of the Borrower under
Section 9.4 shall survive payment of the Note and the assignment of any right
hereunder.
 
9.5.           Taxes.  The Borrower will, to the extent it may lawfully do so,
pay all Taxes (including interest and penalties but expressly excluding federal
or state income taxes) which may be payable in respect of the execution and
delivery of this Agreement or the other Loan Documents, or in respect of any
amendment of or waiver under or with respect to the foregoing, and will hold the
Lender harmless on a current basis against any loss or liability resulting from
nonpayment or delay in payment of any such Taxes (as limited above).  The
obligations of the Borrower under this Section shall survive the payment of the
Note and the assignment of any right hereunder.
 
9.6.           Survival.  All representations and warranties made by or on
behalf of the Borrower in this Agreement or the other Loan Documents or in any
certificate or other instrument delivered by the Borrower or on the Borrower’s
behalf under the Loan Documents shall be considered to have been relied upon by
the Lender and shall survive the delivery to the Lender of such Loan Documents
or the extension of the Loans (or any part thereof), regardless of any
investigation made by or on behalf of the Lender.
 
9.7.           Applicable Law; Venue.
 
9.7.1.           This Agreement has been negotiated, is being executed and
delivered, and will be performed in whole or in part, in the State of
Texas.  This Agreement, the other Loan Documents, the entire relationship of the
parties hereto, and any litigation between the parties (whether grounded in
contract, tort, statute, law or equity) shall be governed by, construed in
accordance with, and interpreted and enforced pursuant to the Laws of the State
of Texas (and the applicable federal Laws of the United States of America)
without giving effect to its choice of law principles, except to the extent the
Laws of any jurisdiction where Collateral is located require application of such
Laws with respect to such Collateral.
 
9.7.2.           The Borrower hereby irrevocably submits to the non-exclusive
jurisdiction of any United States federal or Texas state court sitting in
Dallas, Dallas County, Texas in any action or proceeding arising out of or
relating to any Loan Documents and the Borrower hereby irrevocably agrees that
all claims in respect of such action or proceeding may be heard and determined
in any such court, and the Borrower hereby specifically consents to the
jurisdiction of the State District Courts of Dallas County, Texas and the United
States District Court for the Northern District of Texas, Dallas
Division.  Nothing herein shall limit the right of the Lender to bring
proceedings against the Borrower in the courts of any other jurisdiction.  Any
judicial proceeding by the Borrower against the Lender or any Affiliate of the
Lender involving, directly or indirectly, any matter in any way arising out of,
related to, or connected with any Loan Document shall be brought only in the
State District Courts of Dallas County, Texas, or in the United States District
Court for the Northern District of Texas, Dallas Division.
 

 
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9.8.           WAIVER OF JURY TRIAL AND EXEMPLARY DAMAGES.  THE BORROWER HEREBY
KNOWINGLY, VOLUNTARILY, INTENTIONALLY, IRREVOCABLY, AND UNCONDITIONALLY WAIVES
(A) ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, COUNTERCLAIM,
OR OTHER LITIGATION THAT RELATES TO OR ARISES OUT OF ANY OF THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT OR THE ACTS OR OMISSIONS OF THE LENDER IN THE
ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS OF THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT OR OTHERWISE WITH RESPECT THERETO AND (B) TO THE MAXIMUM EXTENT
NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
LITIGATION ANY SPECIAL DAMAGES (AS DEFINED BELOW).  THE PROVISIONS OF THIS
SECTION ARE A MATERIAL INDUCEMENT FOR THE LENDER’S ENTERING INTO THIS
AGREEMENT.  AS USED IN THIS SECTION, “SPECIAL DAMAGES” INCLUDES ALL SPECIAL,
CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE DAMAGES (REGARDLESS OF HOW NAMED).
 
9.9.           Headings.  The headings in this Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning hereof and
words such as “hereunder” or “ herein” shall refer to the entirety of this
Agreement unless specifically indicated otherwise.
 
9.10.         Counterparts.  This Agreement may be executed in any number of
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.  This Agreement shall become effective
at such time as the counterparts hereof which, when taken together, bear the
signature of the Borrower and the Lender, shall be delivered to the
Lender.  Delivery of an executed counterpart of a signature page of this
Agreement by telecopy, e-mail, facsimile or other electronic means shall be
effective as a delivery of a manually executed counterpart of this Agreement.
 
9.11.           Invalid Provisions, Severability.  If any provision of this
Agreement or the other Loan Documents is held to be illegal, invalid, or
unenforceable under present or future laws effective during the term hereof or
thereof, such provision shall be fully severable, this Agreement and the other
Loan Documents shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part thereof, and the remaining
provisions hereof and thereof shall remain in full force and effect and shall
not be affected by the illegal, invalid, or unenforceable provision or by its
severance therefrom.  Furthermore, in lieu of such illegal, invalid or
unenforceable provision there shall be added automatically as a part of this
Agreement or the other Loan Documents a provision as similar in terms to such
illegal, invalid, or unenforceable provision as may be possible and be legal,
valid and enforceable.
 
9.12.         Communications Via Internet.  The Borrower and each Guarantor (by
its or his/her execution of a Guaranty), hereby authorizes the Lender and its
counsel and agents to communicate and transfer documents and other information
(including confidential information) concerning this transaction or the Borrower
and such Guarantor and the business affairs of the Borrower and such Guarantor
via the Internet or other electronic communication without regard to the lack of
security of such communications.
 

 
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9.13.         USA Patriot Act Notice.  The Lender hereby notifies the Borrower
and the other Obligated Parties that pursuant to the requirements of the USA
Patriot Act, they are required to obtain, verify and record information that
identifies the Borrower and the other Obligated Parties, which information
includes the name and address of the Borrower and the other Obligated Parties
and other information that will allow them to identify the Borrower and the
other Obligated Parties in accordance with such Act.
 
9.14.         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.”
 
9.15.         [Intentionally Omitted.].
 
9.16.         [Intentionally Omitted.].
 
9.17.        Increased Cost and Reduced Return.
 
9.17.1.         If on or after the date hereof, in the case of any Loan or any
obligation to make Loans, the adoption of any applicable law, rule or
regulation, or any change in any applicable law, rule or regulation, or any
change in the interpretation or administration thereof by any Governmental
Authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Lender with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency shall impose, modify or deem applicable any
reserve (including, without limitation, any such requirement imposed by the
Board of Governors of the Federal Reserve System), special deposit, insurance
assessment or similar requirement against assets of, deposits with or for the
account of, or credit extended by, the Lender and the result of any of the
foregoing is to reduce the amount of any sum received or receivable by the
Lender under this Agreement or under the Note with respect thereto, by an amount
reasonably deemed by the Lender to be material, then, within 15 days after
demand by the Lender, the Borrower shall pay to the Lender such additional
amount or amounts as will compensate the Lender for such increased cost or
reduction.
 

 
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9.17.2.         If the Lender shall have reasonably determined that, after the
date hereof, the adoption of any applicable law, rule or regulation regarding
capital adequacy, or any change in any such rule or regulation, or any change in
the interpretation or administration thereof by any Governmental Authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on capital of the Lender as a consequence of the Lender’s obligations hereunder
to a level below that which the Lender could have achieved but for such
adoption, change, request or directive (taking into consideration its policies
with respect to capital adequacy) by an amount deemed by the Lender to be
material, then from time to time, within 15 days after demand by the Lender, the
Borrower shall pay to the Lender such additional amount or amounts as will
compensate the Lender for such reduction.
 
9.17.3.         The Lender will promptly notify the Borrower of any event of
which it has knowledge, occurring after the date hereof, which will entitle the
Lender to compensation pursuant to this Section.  A certificate of the Lender
claiming compensation under this Section and setting forth the additional amount
or amounts to be paid to it hereunder shall be conclusive in the absence of
manifest error.  In determining such amount, the Lender may use any reasonable
averaging and attribution methods.
 
9.18.        Taxes.
 
9.18.1.         For the purpose of this Section 9.18, the following terms have
the following meanings:
 
“Taxes” means any and all present or future taxes, duties, levies, imposts,
deductions, charges or withholdings with respect to any payment by the Borrower
pursuant to this Agreement or under the Note, and all penalties and interest
with respect thereto, excluding (i) in the case of the Lender, taxes imposed on
its income, and franchise or similar taxes imposed on it, by a jurisdiction
under the laws of which the Lender is organized or in which its principal
executive office is located, or in which it would be subject to tax due to some
connection other than that created by this Agreement and (ii) in the case of the
Lender, any United States withholding tax at the time the Lender first becomes a
party to this Agreement.
 
“Other Taxes” means any present or future stamp or documentary taxes and any
other excise or property taxes, or similar charges or levies and all penalties
and interest with respect thereto, which arise from the making of any payment
pursuant to this Agreement or under the Note or from the execution or delivery
of this Agreement or the Note.
 
9.18.2.         Any and all payments by the Borrower to or for the account of
the Lender hereunder or under the Note shall be made without deduction for any
Taxes or Other Taxes; provided that, if the Borrower shall be required by law to
deduct any Taxes or Other Taxes from any such payments, (i) the sum payable
shall be increased as necessary so that after making all required deductions
(including deductions applicable to additional sums payable under Section 9.13)
the Lender receives an amount equal to the sum it would have received had no
such deductions been made, (ii) the Borrower shall make such deductions, (iii)
the Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law and (iv) the
Borrower shall furnish to the Lender, at its address referred to in Article
XIII, the original or a certified copy of a receipt evidencing payment thereof.
 

 
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9.18.3.         The Borrower agrees to indemnify the Lender for the full amount
of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes
on amounts payable under this Section) paid by the Lender.  This indemnification
shall be paid within 15 days after the Lender makes appropriate demand therefor.
 
ARTICLE X

 
[INTENTIONALLY OMITTED]
 
 
ARTICLE XI
 
SETOFF
 
11.1.         Setoff.  In addition to, and without limitation of, any rights of
the Lender under applicable law, if any Event of Default occurs, any and all
deposits (including all account balances, whether provisional or final and
whether or not collected or available) and any other indebtedness at any time
held or owing by the Lender or any Affiliate thereof to or for the credit or
account of the Borrower may be offset and applied toward the payment of the
Obligations, whether or not the Obligations, or any part hereof, shall then be
due.  The Lender shall give the Borrower written notice of such offset and
application promptly after effecting it.  To the extent that the Borrower has
accounts, which in the style thereof as reflected in the Lender’s records are
designated as royalty, joint interest owner or operator accounts, the foregoing
right of set off shall not extend to funds in such accounts which belong to, or
otherwise arise from payments to the Borrower for the account of, third-party
royalty, joint interest owners, or operators.
 
11.2.         Adjustments.  In the event that any payments made hereunder on the
Obligations at any particular time are insufficient to satisfy in full the
Obligations due and payable at such time, such payments shall be applied (i)
first, to that portion of the Obligations consisting of fees and expenses then
due and payable, (ii) second, to that portion of the Obligations consisting of
accrued, unpaid interest then due and payable, (iii) third, to that portion of
the Obligations consisting of principal then due and payable, and (iv) last, to
any other Obligations.
 
ARTICLE XII

 
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
 
12.1.         Successors and Assigns.  The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower and the
Lender and their respective successors and assigns, except that the Borrower
shall not have any right to assign its rights or obligations under the Loan
Documents.
 
12.2.         Participations; Setoffs by Participants.
 

 
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12.2.1.         The Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time sell to one or more banks or other
entities (each a “Participant”) participating interests in any Loan owing to the
Lender, the Note, any Commitment of the Lender or any other interest of the
Lender under the Loan Documents.  In the event of any such sale by the Lender of
participating interests to a Participant, the Lender’s obligations under the
Loan Documents shall remain unchanged, the Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
the Lender shall remain the holder of the Note for all purposes under the Loan
Documents, all amounts payable by the Borrower under this Agreement shall be
determined as if the Lender had not sold such participating interests, and the
Borrower shall continue to deal solely and directly with the Lender in
connection with the Lender’s rights and obligations under the Loan Documents.
 
12.2.2.         The Borrower agrees that each Participant shall be deemed to
have the right of setoff provided in Section 11.1 in respect of its
participating interest in amounts owing under the Loan Documents to the same
extent as if the amount of its participating interest were owing directly to it
as the Lender under the Loan Documents, and the Lender shall also retain the
right of setoff provided in Section 11.1 with respect to the amount of
participating interests sold to each Participant.
 
12.3.        Dissemination of Information.  The Borrower authorizes the Lender
to disclose to any Transferee and any prospective Transferee any and all
information in the Lender’s possession concerning the Borrower, each Guarantor
and their respective Affiliates.
 
ARTICLE XIII
 
NOTICES
 
13.1.           Notices.  Except as otherwise specifically permitted herein, all
notices, requests and other communications to any party hereunder shall be in
writing (including electronic transmission, facsimile transmission or similar
writing) and shall be given to such party: (x) in the case of the Borrower or
the Lender, at its address or facsimile number set forth on the signature pages
hereof, or (y) in the case of any party, at such other address or facsimile
number as such party may hereafter specify for the purpose by notice to the
Lender and the Borrower in accordance with the provisions of this
Section 13.1.  Each such notice, request or other communication shall be
effective (i) if given by facsimile transmission, when transmitted to the
facsimile number specified in this Section and confirmation of receipt is
received (the receipt thereof shall be deemed to have been acknowledged upon the
sending Person’s receipt of its facsimile machine’s confirmation of successful
transmission; provided that if the day on which such facsimile is received is
not a Business Day or is after 4:00 p.m. CT on a Business Day, then the receipt
of such facsimile shall be deemed to have been acknowledged on the next
following Business Day), (ii) if given by mail, three (3) Business Days after
such communication is deposited in the mail with first class postage prepaid,
addressed as aforesaid, or (iii) if given by any other means, when delivered
(or, in the case of electronic transmission, received) at the address specified
in this Section; except that notices to the Lender under Article II shall not be
effective until received by the Lender, and except that oral notices to the
Borrower of decreases in the Borrowing Base or increases in the amount of the
monthly Borrowing Base reductions shall be effective when so communicated to the
Borrower.
 
13.2.           Change of Address.  The Borrower and the Lender may each change
the address for service of notice upon it by a notice in writing to the other
parties hereto.
 
[Signature Page follows]
 

 
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 ARTICLE XIV

 
ENTIRE AGREEMENT
 
THIS AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT BETWEEN THE PARTIES HERETO WITH
RESPECT TO THE SUBJECT HEREOF AND SHALL SUPERSEDE ANY PRIOR AGREEMENT BETWEEN
THE PARTIES HERETO, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT
HEREOF.  FURTHERMORE, IN THIS REGARD, THIS AGREEMENT  REPRESENTS THE FINAL
AGREEMENT AMONG THE PARTIES THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF SUCH PARTIES.
 
THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES.
 
In witness whereof, the undersigned have executed this Agreement as of the day
and year first above written.
 

 
BORROWER:
REEF OIL & GAS INCOME AND DEVELOPMENT FUND III, L.P.
           
By:
Reef Oil & Gas Partners, L.P., as General Partner
           
By:
Reef Oil & Gas Partners, GP, LLC, as General Partner
         
1901 N. Central Expressway, Suite 300
 
By:  /s/ Michael J. Mauceli
 
Richardson, Texas 75080
  Name:  Michael J. Mauceli      
Title:    Manager
 
 

 

 
LENDER:
         
TEXAS CAPITAL BANK, N.A.
         
2000 McKinney Avenue, Suite 700
By:
/s/ Brian J. Petet  
Dallas, Texas 75201
  Name: Brian J. Petet   Attention: Energy Banking Group   Title:   Senior Vice
President   Facsimile: 214/932-6704      

 
 
Signature Page
to Credit Agreement

 
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FORM OF PROMISSORY NOTE
 
$50,000,000
Dallas, Texas
June 30, 2010

 
FOR VALUE RECEIVED and WITHOUT GRACE, the undersigned (the “Borrower”) promises
to pay to the order of Texas Capital Bank, N.A. (“Lender”), at its banking
quarters in Dallas, Dallas County, Texas, the amount of $50,000,000, or so much
thereof as may be advanced and be outstanding under this Note pursuant to the
Credit Agreement dated of even date herewith by and between the Borrower and the
Lender (as amended, restated, or supplemented from time to time, the “Credit
Agreement”), together with interest at the rates and calculated as provided in
the Credit Agreement.
 
Reference is hereby made to the Credit Agreement for matters governed thereby,
including, without limitation, certain events which will entitle the holder
hereof to accelerate the maturity of all amounts due hereunder.  Capitalized
terms used but not defined in this Note shall have the meanings assigned to such
terms in the Credit Agreement.
 
The date and amount, Type, interest rate, Interest Period and maturity of each
Loan made by the Lender to the Borrower, and each payment made on account of the
principal thereof, shall be recorded by the Lender on its books and, prior to
any transfer of this Note, may be endorsed by the Lender on the schedules
attached hereto or any continuation thereof or on any separate record maintained
by the Lender.  Failure to make any such notation or to attach a schedule shall
not affect the Lender’s or the Borrower’s rights or obligations in respect of
such Loans or affect the validity of such transfer by the Lender of this Note.
 
This Note is issued pursuant to and shall be governed by the Credit Agreement
and the holder of the Note shall be entitled to the benefits of the Credit
Agreement.  This Note shall finally mature on the Final Maturity Date.
 
Without being limited thereto or thereby, this Note is secured by the Security
Documents.
 
The Borrower, and each surety, endorser, guarantor, and other party ever liable
for payment of any sums of money payable on this Note, jointly and severally
waive presentment and demand for payment, protest, notice of protest and
nonpayment, and notice of the intention to accelerate, and agree that their
liability on this Note shall not be affected by any renewal or extension in the
time of payment hereof, by any indulgences, or by any release or change in any
security for the payment of this Note, and hereby consent to any and all
renewals, extensions, indulgences, releases, or changes, regardless of the
number of such renewals, extensions, indulgences, releases, or changes.
 

 
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THIS NOTE SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF THE STATE OF TEXAS
WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW.
 

 
REEF OIL & GAS INCOME AND DEVELOPMENT FUND III, L.P.
         
By:
Reef Oil & Gas Partners, LP, as General Partner            
By:
Reef Oil & Gas Partners, GP, LLC, as General Partner          
 
 
By: 
     
Michael J. Mauceli, Manager
         

 
 
 

 
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LOANS AND PAYMENT OF
PRINCIPAL AND INTEREST
 

   
Principal
Amount of
Unpaid
   
Amount of
Paid or
Interest
Principal
Interest
Date
Loan
Prepaid
Paid
Balance
Paid to

 
 
                         
 
 
 
 
 
 
 
 
 
 
 
 

 
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FORM OF NOTICE OF BORROWING
 
Texas Capital Bank, N.A.
2000 McKinney Avenue, Suite 700
Dallas, Texas 75201
Attention: Energy Group
 
 
Re:
Credit Agreement dated June 30, 2010, by and between Texas Capital Bank, N.A.,
as lender, and Reef Oil & Gas Income and Development Fund III, L.P., as
borrower, (as amended, restated, or supplemented from time to time, the “Credit
Agreement”).  Terms defined in the Credit Agreement are used herein as therein
defined unless otherwise defined herein.

 
Ladies and Gentlemen:
 
Pursuant to the Credit Agreement, the Borrower hereby makes the requests
indicated below:

 
£
1.
Advance
       
(a)
Amount of Advance requested: $                                     
       
(b)
Requested funding date:                        , 20[      ]
       
(c)
Type of Advance
requested:                                                                         
      
       
(d)
In the case of a Eurodollar Advance, the initial Interest
Period:                        , 20[      ]
       
(e)
Request funding into Texas Capital Bank Account
Number:                                     
     
£
2.
Included herewith is a completed Letter of Credit Application.
     
£
3.
Included herewith is a request for a renewal or extension of an existing Letter
of Credit as described therein.

 
The undersigned certifies that [s]he is a Responsible Representative, has
obtained all consents necessary, and as such [s]he is authorized to execute and
deliver this request.  The undersigned further certifies, represents, and
warrants to the Lender that to the best of his/her knowledge the Borrower is
entitled to receive the requested Advance or letter of credit under the terms
and conditions of the Credit Agreement.

Each capitalized term used but not defined herein shall have the meaning
assigned to such term in the Credit Agreement.
 

 
Very truly yours,
REEF OIL & GAS INCOME AND DEVELOPMENT FUND III, L.P.
         
By:
Reef Oil & Gas Partners, LP, as General Partner
           
By:
Reef Oil & Gas Partners, GP, LLC, as General Partner
         
 
 
By:
     
Michael J. Mauceli, Manager
         

 

 
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FORM OF COMPLIANCE CERTIFICATE
 
                                    , 20       
 

 
Texas Capital Bank, N.A.
2000 McKinney Avenue, Suite 700
Dallas, Texas 75201
Attention: Energy Group
 
 
Re:
Credit Agreement dated June 30, 2010, by and between Texas Capital Bank, N.A.,
as lender, and Reef Oil & Gas Income and Development Fund III, L.P., as
borrower, (as amended, restated, or supplemented from time to time, the “Credit
Agreement”).  Terms defined in the Credit Agreement are used herein as therein
defined unless otherwise defined herein.

 
Ladies and Gentlemen:
 
Pursuant to applicable requirements of the Credit Agreement, the undersigned, as
a Responsible Representative of the Borrower, hereby certifies to you the
following information as true and correct as of the date hereof or for the
period indicated, as the case may be:
 
[1.           To the best of the knowledge of the undersigned, no Default exists
as of the date hereof or has occurred since the date of our previous
certification to you, if any.]
 
[1.           To the best of the knowledge of the undersigned, the following
Defaults exist as of the date hereof or have occurred since the date of our
previous certification to you, if any, and the actions set forth below are being
taken to remedy such circumstances:]
 
2.           The compliance of the Borrower with certain financial covenants of
the Credit Agreement, as of the close of business
on                                       (the “Determination Date”), is
evidenced by the following:
 
(a)           Section 7.6.3: Accounts Payable more than 90 days past due.
 

 
Required
Actual
 
Not more than $0.00 unless being contested in good faith by appropriate
proceedings.
$                              *

*If greater than $0.00, attach additional sheets containing explanations.
 
(b)           Section 7.9.4:  Hedging Agreements.
 
The Hedging Agreements of the Borrower and its positions thereunder as of the
Determination Date are summarized on Schedule One attached hereto.
 
 
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(c)           Section 7.15.1: Interest Coverage Ratio.
 

 
Required
Actual
 
Not less than 3.00 to 1.00
                to 1.00

 
(d)           Section 7.15.2: Current Ratio.
 

 
Required
Actual
 
Not less than 1.00 to 1.00  
                to 1.00

 
(e)           Section 7.15.3 Additional Limitations on Distributions.
 
Calculation:
 
(i)  Cash Flow:  $                           
 
(ii)  Fixed Charges:  $                           
 
(iii)  Required Cash Flow to meet 1.5 x Fixed Charges:  
$                           
 
(iv)  Free Cash Flow (amount in i minus amount in iii): 
$                           
 
 
3.
To the best knowledge of the undersigned, the financial statements being
delivered to the Lender concurrently herewith pursuant to the Credit Agreement
fairly and accurately reflect the financial condition and results of operation
of the Persons identified therein for the periods and as of the dates set forth
therein, and the undersigned has reviewed the terms of the Credit Agreement and
the other Loan Documents, and has made, or caused to be made under my
supervision, a review of the transactions and financial condition of such
Persons during the fiscal period covered by such financial statements.

 
 
4.
The circled answers to the following statements are each true and correct as of
the Determination Date:

 
 
(a)
The annual statement of assets and liabilities of the Borrower as of its most
recent fiscal year-end and the related financial statements have been delivered
to the Lender pursuant to Section 7.2.1(i).  YES  NO

 
 
(b)
The quarterly statement of assets and liabilities of the Borrower as of the last
day of its most recently ended fiscal quarter and the related financial
statements have been delivered to the Lender pursuant to
Section 7.2.1(ii).  YES  NO

 
 
(c)
The federal income tax return for the year most recently ended for each Person
indicated below has been properly filed with the appropriate Tribunal and a copy
thereof has been delivered to the Lender pursuant to Section 7.2.1(iv),

 
 
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(i)
of the Borrower.   YES  NO
       
(ii)
of RCWI.   YES  NO
       
(iii)
of RCWIGP.  YES  NO
       
(iv)
of                                                     .  YES  NO
       
(d)
The financial statements as of the most
recent [                               ] for each Person indicated below have
been delivered to the Lender pursuant to Section 7.2.1(v),
       
(i)
of RCWI.  YES  NO
       
(ii)
of RCWIGP.  YES  NO
     

 

 
5.
The most recent oil and gas production report delivered by the Borrower to the
Lender under Section 7.2.2 of the Credit Agreement is, to the best knowledge of
the undersigned, in compliance with the provisions of such Section and to the
best knowledge of the undersigned is true and correct in all material respects
as of the date thereof and for the time periods covered thereby.

 
The undersigned has reviewed the terms of this Agreement and the other Loan
Documents, and has made, or caused to be made under my supervision, a review of
the transactions and financial condition of the Borrower during the period
covered by the financial statements included herewith, and such review has not
disclosed the existence during such period, and the undersigned does not have
knowledge of the existence as of the date of this certificate, of any condition
or event which constitutes a Default, except as set forth in paragraph 1 above.
 
Each capitalized term used but not defined herein shall have the meaning
assigned to such term in the Credit Agreement.
 

 
Very truly yours,
         
 
     
Michael J. Mauceli,
Manager of Reef Oil & Gas Partners, GP, LLC, the general partner of Reef Oil &
Gas Partners, LP, the general partner of Reef Oil & Gas Income and Development
Fund III, L.P.
               

 

 
 
75

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Schedule One
 
Hedging Agreements
 

 

 

 
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SCHEDULE 6.4.1

 
SUBSIDIARIES
 

 
None.
 

 

 

 
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EXHIBIT 6.7

 
LITIGATION
 

 
None.
 
 
 
 
 
 

78

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